UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2003
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE EXCHANGE ACT OF 1934
For the transition period from to
-------- --------
Commission file number: 0-25854
GFSB BANCORP, INC.
----------------------------------------------
(Name of Small Business Issuer in its Charter)
Delaware
- -------------------------------------------------------------
(State or Other Jurisdiction of Incorporation or Organization)
04-2095007
-------------------
(I.R.S. Employer
Identification No.)
221 West Aztec Avenue, Gallup, New Mexico
- -----------------------------------------
(Address of Principal Executive Offices)
87301
----------
(Zip Code)
Issuer's Telephone Number, Including Area Code: (505) 726-6500
------------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
----- -----
As of May 3, 2003, there were issued and outstanding 1,146,270 shares of the
registrant's Common Stock.
Transitional Small Business Disclosure format (check one):
Yes No X
----- -----
GFSB Bancorp, Inc.
Index
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Statements of Financial Condition
March 31, 2003 and June 30, 2002 3
Condensed Consolidated Statements of Earnings and Comprehensive Earnings
Three months and nine months ended March 31, 2003 and March 31, 2002 4
Condensed Consolidated Statements of Cash Flows
Nine months ended March 31, 2003 and March 31, 2002 6
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis or Plan of Operation 9
Item 3. Controls and Procedures 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
2
GFSB Bancorp, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, June 30,
2003 2002
------------- -------------
(Unaudited)
ASSETS
Cash and due from banks $ 5,243,534 $ 4,825,439
Interest-bearing deposits with banks 536,318 826,052
Available-for-sale investment securities 24,608,269 23,973,426
Available-for-sale mortgage-backed securities 33,694,100 27,290,274
Held-to-maturity investment securities 1,675,108 1,405,403
Stock of Federal Home Loan Bank, at cost, restricted 4,306,000 4,218,500
Loans receivable, net, substantially pledged 142,064,977 139,748,188
Accrued interest and dividends receivable 972,114 1,073,201
Premises and equipment 2,387,553 2,511,173
Other real estate and repossessed property 159,538 150,642
Prepaid and other assets 165,934 122,771
------------- -------------
TOTAL ASSETS $ 215,813,445 $ 206,145,069
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Transaction and NOW accounts $ 22,718,373 $ 20,417,085
Savings and MMDA deposits 17,298,313 17,305,540
Time deposits 80,443,284 72,626,849
Advances from Federal Home Loan Bank 75,068,265 76,386,455
Repurchase agreements 772,393 1,234,857
Accrued interest payable 507,943 448,955
Advances from borrowers for taxes and insurance 615,525 416,575
Accounts payable and accrued liabilities 402,000 245,409
Deferred income taxes 553,745 568,728
Dividends declared and payable 122,467 110,506
Income taxes payable - 1,168
------------- -------------
TOTAL LIABILITIES 198,502,308 189,762,127
------------- -------------
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Preferred stock, $.10 par value, 500,000
shares authorized; no shares issued or
outstanding - -
Common stock, $.10 par value, 1,500,000
shares authorized; 1,146,270 issued and outstanding
at March 31, 2003 and 1,150,106 issued and outstanding
at June 30, 2002 114,627 115,011
Additional paid-in-capital 2,806,627 2,761,251
Unearned ESOP stock (157,871) (207,926)
Retained earnings, substantially
restricted 13,282,590 12,420,358
Accumulated other comprehensive
earnings 1,265,164 1,294,248
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 17,311,137 16,382,942
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 215,813,445 $ 206,145,069
============= =============
See notes to condensed consolidated financial statements.
3
GFSB Bancorp, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
AND COMPREHENSIVE EARNINGS
Three months ended Nine months ended
March 31, March 31,
------------------------- -------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Interest income
Loans receivable
Mortgage loans $ 2,006,844 $ 2,136,176 $ 6,254,520 $ 6,457,153
Commercial loans 354,295 296,589 1,018,707 973,501
Share and consumer loans 100,988 109,856 320,619 357,511
Investment and mortgage-backed securities 526,965 722,954 1,728,783 2,306,366
Other interest-earning assets 32,366 34,092 102,349 113,489
----------- ----------- ----------- -----------
TOTAL INTEREST EARNINGS 3,021,458 3,299,667 9,424,978 10,208,020
Interest expense
Deposits 710,295 905,175 2,262,892 3,263,682
Advances from Federal Home Loan Bank 790,859 842,496 2,375,061 2,554,465
Repurchase agreements 160 1,552 3,710 12,787
----------- ----------- ----------- -----------
TOTAL INTEREST EXPENSE 1,501,314 1,749,223 4,641,663 5,830,934
----------- ----------- ----------- -----------
NET INTEREST EARNINGS 1,520,144 1,550,444 4,783,315 4,377,086
Provision for loan losses 140,015 70,011 215,015 120,018
----------- ----------- ----------- -----------
NET INTEREST EARNINGS AFTER
PROVISION FOR LOAN LOSSES 1,380,129 1,480,433 4,568,300 4,257,068
----------- ----------- ----------- -----------
Non-interest earnings
Income from real estate operations 1,350 1,350 5,100 2,250
Miscellaneous income 15,663 10,378 39,544 33,088
Net gains from sales of Available for sale securities - - - 10,000
Net gains from sales of loans 52,129 11,444 108,188 28,290
Service charge income 119,096 67,358 310,595 209,099
----------- ----------- ----------- -----------
TOTAL NON-INTEREST EARNINGS 188,238 90,530 463,427 282,727
----------- ----------- ----------- -----------
Non-interest expense
Compensation and benefits 595,937 546,105 1,710,413 1,436,484
FDIC insurance 4,697 4,833 13,624 14,439
Insurance 13,963 11,445 38,445 29,022
Stock services 6,680 6,548 15,732 22,522
Occupancy 136,430 111,795 402,050 311,952
Data processing 92,276 92,790 251,211 241,771
Professional fees 39,205 22,185 105,358 89,538
Advertising 52,313 21,119 124,088 61,480
Stationary, printing and office supplies 35,530 22,159 123,258 76,740
ATM expense 9,312 12,388 40,257 35,067
Supervisory exam fees 14,077 13,568 41,877 41,810
Postage 18,458 16,130 43,997 44,589
Other 101,778 80,070 275,178 205,329
----------- ----------- ----------- -----------
TOTAL NON-INTEREST EXPENSE 1,120,656 961,135 3,185,488 2,610,743
----------- ----------- ----------- -----------
4
GFSB Bancorp, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
AND COMPREHENSIVE EARNINGS - CONTINUED
Three months ended Nine months ended
March 31, March 31,
------------------------------ -----------------------
2003 2002 2003 2002
-------------- ------------- --------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
EARNINGS BEFORE INCOME TAXES 447,711 609,828 1,846,239 1,929,052
Income tax expense
Currently payable 168,135 191,311 629,478 631,625
-------------- ------------- --------- -----------
168,135 191,311 629,478 631,625
-------------- ------------- --------- -----------
NET EARNINGS $ 279,576 $ 418,517 1,216,761 $ 1,297,427
============== ============= ========= ===========
Other Comprehensive Earnings
Unrealized (loss), net of tax (85,190) (171,117) (29,084) (135,439)
-------------- ------------- --------- -----------
COMPREHENSIVE EARNINGS 194,386 247,400 1,187,677 1,161,988
============== ============= ========= ===========
Earnings per common share
Basic $ 0.25 0.38 1.09 1.18
============== ============= ========= ===========
Weighted average number of common shares outstanding
Basic 1,116,925 1,106,475 1,113,390 1,103,553
============== ============= ========= ===========
Earnings per common share
Diluted 0.24 0.37 1.05 1.13
============== ============= ========= ===========
Weighted average number of common shares outstanding
Diluted 1,164,785 1,146,377 1,158,911 1,143,355
============== ============= ========= ===========
Comprehensive earnings per common share
Basic 0.17 0.22 1.07 1.05
============== ============= ========= ===========
Diluted 0.17 0.22 1.02 1.02
============== ============= ========= ===========
Dividends per share 0.11 0.10 0.32 0.29
============== ============= ========= ===========
See notes to condensed consolidated financial statements.
5
GFSB Bancorp, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
Nine Months Ended
March 31,
----------------------------
2003 2002
------------ ------------
(Unaudited) (Unaudited)
Cash flows from operating activities
Net earnings $ 1,216,761 $ 1,297,427
Adjustments to reconcile net earnings to
net cash provided by operations
Deferred loan origination fees (220,607) (329,372)
Gain on sale of loans and securities (108,188) (38,290)
Provision for loan losses 215,015 120,018
Depreciation of premises and equipment 218,734 141,219
Amortization of investment and mortgage-
backed securities premiums 116,885 121,727
Stock dividends on FHLB stock (87,500) (90,300)
Release of ESOP stock 148,525 121,237
Stock compensation under management bonus stock plan 23,060 12,488
Stock compensation resulting from stock purchased by
the Company within six months of exercise of
related options 16,920 57,442
Net changes in operating assets and liabilities
Accrued interest and dividends receivable 101,087 36,375
Prepaid and other assets (28,990) (60,495)
Income taxes receivable (14,173) -
Accrued interest payable 58,988 (2,422)
Accounts payable and accrued liabilities 133,531 95,701
Income taxes payable (1,168) (194,686)
Dividends declared and payable 11,961 12,053
------------ ------------
Net cash provided by
operating activities 1,800,841 1,300,122
------------ ------------
Cash flows from investing activities
Purchase of premises and equipment (95,114) (1,310,713)
Loan originations and principal
repayment on loans, net (2,211,905) (3,696,880)
Principal payments on mortgage-backed
securities 7,905,784 7,951,455
Purchases of mortgage-backed securities (14,408,091) (5,130,469)
Purchases of available-for-sale securities (7,088,496) (6,167,537)
Maturities and proceeds from sale of
available-for-sale securities 1,668,000 1,310,000
Principal payments on available-for-sale securities 4,719,479 1,808,947
Purchases of hold-to-maturity securities (270,000) -
Principal payments on hold-to-maturity securities 4,000 25,000
Purchase of FHLB stock - (447,900)
------------ ------------
Net cash used by
investing activities (9,776,343) (5,658,097)
------------ ------------
6
GFSB Bancorp, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Increase (decrease) in cash and cash equivalents
Nine Months Ended
March 31,
------------------------------
2003 2002
------------- -------------
(Unaudited) (Unaudited)
Cash flows from financing activities
Net increase (decrease) in transaction accounts, passbook
savings, money market accounts, and
certificates of deposit $ 10,110,496 $ (4,418,004)
Repurchase agreements (462,464) (27,921)
Net increase in mortgage escrow funds 198,950 199,018
Proceeds from FHLB advances 726,298,387 466,809,462
Repayments on FHLB advances (727,616,577) (457,298,852)
Purchase of GFSB Bancorp stock under the
stock repurchase plan in cash (112,624) (136,526)
Dividends paid or to be paid in cash (354,530) (333,530)
Price paid for vested management bonus
stock plan stock 11,100 16,650
Proceeds from exercise of stock options 31,125 79,084
------------- -------------
Net cash provided by
financing activities 8,103,863 4,889,381
------------- -------------
Increase in cash and cash equivalents 128,361 531,406
Cash and cash equivalents at beginning of period 5,651,491 4,262,254
------------- -------------
Cash and cash equivalents at end of period $ 5,779,852 4,793,660
============= =============
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest on deposits and advances $ 4,582,675 $ 5,833,356
Income taxes 644,100 801,111
Change in unrealized gain, net of deferred
taxes on available-for-sale securities (29,084) (135,439)
Dividends declared not yet paid 122,467 110,506
See notes to condensed consolidated financial statements.
7
GFSB BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. The accompanying unaudited condensed consolidated financial
statements were in accordance with instructions for Form 10-QSB and therefore do
not include all disclosure necessary for a complete presentation of the
consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America. However, all adjustments,
which are, in the opinion of management, necessary for the fair presentation of
the interim financial statements have been included. All such adjustments are of
a normal recurring nature. The condensed consolidated statements of earnings and
comprehensive earnings are not necessarily indicative of results, which may be
expected for the entire year, or for any other interim period.
Certain information and footnote disclosures normally included in the financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. It is suggested
that these condensed unaudited financial statements be read in conjunction with
the Form 10-KSB for the year ended June 30, 2002.
8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
The Private Securities Litigation Reform Act of 1995 contains safe harbor
provisions regarding forward-looking statements. When used in this discussion,
the words "believes", "anticipates", "contemplates", "expects", and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties which could cause actual results
to differ materially from those projected. Those risks and uncertainties include
changes in interest rates, risks associated with the ability to control costs
and expenses, general economic conditions. We undertake no obligation to
publicly release the results of any revisions to those forward looking
statements which may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
Overview
GFSB Bancorp, Inc. is a savings and loan holding company headquartered in
Gallup, New Mexico, which provides a full range of deposits and traditional
mortgage loan products through its wholly owned banking subsidiary, Gallup
Federal Savings Bank. All references refer collectively to the Company and the
Bank, unless the context indicates otherwise.
9
RESULTS OF OPERATIONS
COMPARISON OF OPERATING RESULTS FOR QUARTER ENDED MARCH 31, 2003 COMPARED TO
QUARTER ENDED MARCH 31, 2002.
General
Net earnings for the quarter ended March 31, 2003 decreased $139,000 to $280,000
from $419,000 for the quarter ended March 31, 2002. The decrease in net earnings
is primarily attributable to a $70,000 increase in the provision for loan
losses, a $160,000 increase in non-interest expense and a $30,000 decrease in
net interest earnings partially offset by a $98,000 increase in non-interest
earnings and a $23,000 decrease in income tax expense. Please refer to "Average
Balance Sheets" for an analysis of the changes in net interest earnings for the
quarter ended March 31, 2003 compared to the same 2002 period.
Average Balance Sheets
The following table sets forth certain information relating to the Company's
average balance sheet and reflects the average yield on assets and average cost
of liabilities for the periods indicated and the average annual yields earned
and rates paid. Average balances are derived from month-end balances. Management
does not believe that the use of month-end balances instead of daily average
balances has caused any material differences in the information presented.
Quarter ended March 31, 2003 Quarter ended March 31, 2002
---------------------------- ----------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
(Dollars in Thousands) (Dollars in Thousands)
Interest-earning assets:
Loans receivable (1) $142,246 $2,462 6.92% $133,371 $2,543 7.63%
Investment securities and
mortgage-backed securities 55,686 527 3.78% 56,817 723 5.09%
Other interest-earning
assets (2) 5,110 32 2.50% 4,889 33 2.70%
-------- ------ -------- ------
Total interest-earning assets 203,042 3,021 5.95% 195,077 3,299 6.32%
------ ------
Non-interest-earning assets 9,158 7,480
-------- --------
Total assets $212,200 $202,557
======== ========
Interest-bearing liabilities:
Transaction accounts $ 8,673 $ 16 .74% $ 8,205 $ 16 .78%
Passbook savings 4,721 15 1.27% 4,753 15 1.26%
Money market accounts 10,309 27 1.05% 10,645 32 1.20%
Certificates of deposit 76,666 652 3.40% 74,428 842 4.53%
Other liabilities (3) 80,417 791 3.93% 77,900 844 4.33%
-------- ------ -------- ----
Total interest-bearing
liabilities 180,786 1,501 3.32% 175,931 1,749 3.98%
----- -----
Non-interest bearing
liabilities 14,096 10,692
-------- -------
Total liabilities 194,882 186,623
Stockholders' equity 17,318 15,934
-------- -------
Total liabilities and
stockholders' equity $212,200 $202,557
======== ========
Net interest earnings $1,520 $1,550
====== ======
Interest rate spread (4) 2.63% 2.34%
==== ====
Net yield on interest- 2.99% 3.18%
earning assets (5) ==== ====
Ratio of average interest-
Earning assets to average
interest-bearing liabilities 1.12X 1.11X
==== ====
(1) Average balances include non-accrual loans.
(2) Includes interest-bearing deposits in other financial institutions.
(3) Other liabilities include FHLB advances and Repurchase agreements.
(4) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(5) Net yield on interest - earning assets represents net interest income as a
percentage of average interest-earning assets.
10
Rate/Volume Analysis
The table below sets forth certain information regarding changes in interest
income and interest expense of the Company for the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume; (ii)
changes in rates; (iii) changes in rate-volume. The changes attributable to the
combined impact of volume and rate have been allocated proportionately to the
changes due to volume and the changes due to rate.
Quarter ended March 31, 2003 vs. 2002
Increase (Decrease)
Due to
---------------------------------
Rate/
Volume Rate Volume Net
------ ---- ------ ---
(Dollars in Thousands)
Interest income:
Loans receivable $ 169 $(237) $ (13) $ (81)
Mortgage-backed securities and
investment securities (14) (186) 4 (196)
Other interest-earning assets 1 (2) - (1)
----- ----- ----- -----
Total interest-earning assets 156 (425) (9) (278)
----- ----- ----- -----
Interest expense:
Transaction accounts 1 (1) - -
Savings accounts (1) 1 - -
Money markets (1) (4) - (5)
Certificates of deposit 25 (210) (5) (190)
Other liabilities 27 (78) (2) (53)
----- ----- ----- -----
Total interest-bearing liabilities 51 (292) (7) (248)
----- ----- ----- -----
Net change in interest earnings $ 105 $(133) $ (2) $ (30)
===== ===== ===== =====
Provision for Losses on Loans
The Company maintains an allowance for loan losses based upon management's
periodic evaluation of known and inherent risks in the loan portfolio, past loss
experience, adverse situations that may affect the borrower's ability to repay
loans, estimated value of the underlying collateral and current and expected
market conditions. The provision for loan loss was $140,000 and $70,000 for the
periods ended March 31, 2003 and 2002, respectively. The increase in the
provision for loan losses for the current three-month period was primarily the
result of an increase in loans classified as substandard from $2,018,000 to
$3,528,000, which was primarily the result of deterioration in credit quality of
one very large commercial real estate loan and one smaller commercial loan.
While the Company maintains its allowance for losses at a level which it
considers to be adequate, there can be no assurance that further additions will
not be made to the loss allowances and that such losses will not exceed the
estimated amounts.
11
Non-Interest Earnings
Total non-interest earnings increased by $98,000 or 108% to $188,000 for the
quarter ended March 31, 2003 from $90,000 for the quarter ended March 31, 2002.
This increase was primarily due to an increase in service charge income of
$52,000, an increase in net gains from sales of loans of $41,000 and an increase
in miscellaneous income of $5,000. The increase in service charge income is
primarily due to increased insufficient fee charges collected on NOW and
checking accounts. The increase in miscellaneous income is primarily due to a
$5,000 gain on the sale of other real estate owned.
Non-Interest Expense
Total non-interest expense increased $160,000 or 17% to $1,121,000 for the
quarter ended March 31, 2003 from $961,000 for the quarter ended March 31, 2002.
The increase in non-interest expense was primarily attributable to increases in
compensation and benefits, occupancy costs, advertising, professional fees,
stationary, printing and office supplies, and other operating expenses. The
$50,000 increase in compensation and benefits expense for the period ended March
31, 2003 is primarily attributable to a $76,000 increase in general salaries and
benefits expense due to the hiring of nine employees to staff the Bank's
Farmington branch, and $32,000 in expense associated with employee stock
compensation plans, offset in part by $57,000 in expense related to the
Company's repurchase of stock for the same period in 2002 in connection with
employee compensation plans. Occupancy costs increased $25,000 for the period
ended March 31, 2003 primarily due to increases in depreciation for furniture,
fixtures, and equipment, maintenance contract expense and other occupancy costs
associated with operating the new branch. Advertising expense increased $31,000
primarily due to the Bank's efforts to achieve growth in the Farmington, New
Mexico market, where the new branch is located. Professional fees increased
$17,000 primarily due to higher audit expense and accounting fees for the
quarter ended March 31, 2003. Stationary, printing and office supplies increased
$13,000 primarily due to the purchase of forms and supplies for the new branch.
Other operating expenses increased $22,000, primarily due to higher loan
expense, other real estate owned expense, correspondent bank expense and armored
transit expense in the quarter ended March 31, 2003.
12
RESULTS OF OPERATIONS
COMPARISON OF OPERATING RESULTS FOR THE NINE-MONTH PERIOD ENDED MARCH 31, 2003
COMPARED TO THE NINE-MONTH PERIOD ENDED MARCH 31, 2002.
General
Net earnings for the nine months ended March 31, 2003 decreased $80,000 to
$1,217,000 compared to net earnings of $1,297,000 for the comparable nine-month
period in 2002. The decrease in net earnings was primarily the result of a
$95,000 increase in the provision for loan losses and a $575,000 increase in
non-interest expense partially offset by a $406,000 increase in net interest
earnings and a $181,000 increase in non-interest earnings. Please refer to
"Average Balance Sheets" for an analysis of the change in net interest earnings
for the nine months ended March 31, 2003 compared to the same 2002 period.
Average Balance Sheets
The following table sets forth certain information relating to the Company's
average balance sheet and reflects the average yield on assets and average cost
of liabilities for the periods indicated and the average yields earned and rates
paid. Average balances are derived from month-end balances. Management does not
believe that the use of month-end balances instead of daily average balances has
caused any material differences in the information presented.
Nine-month period ended Nine-month period ended
March 31, 2003 March 31, 2002
-------------- --------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
(Dollars in Thousands) (Dollars in Thousands)
Interest-earning assets:
Loans receivable (1) $141,191 $7,594 7.17% $131,100 $7,788 7.92%
Investment securities and
Mortgage-backed securities 53,547 1,729 4.31% 57,271 2,306 5.37%
Other interest-earning
assets (2) 5,192 102 2.62% 3,776 113 3.99%
-------- ------ -------- ------
Total interest-earning assets 199,930 9,425 6.28% 192,147 10,207 7.05%
Non-interest-earning assets 8,997 7,594
-------- --------
Total assets $208,927 $199,741
=========== ========
Interest-bearing liabilities:
Transaction accounts $ 8,678 $ 52 .80% $ 7,901 $ 59 1.00%
Passbook savings 5,781 48 1.11% 4,640 44 1.26%
Money market accounts 11,648 105 1.20% 10,066 127 1.68%
Certificates of deposit 74,838 2,058 3.67% 76,639 3,033 5.28%
Other liabilities (3) 76,216 2,379 4.16% 74,085 2,567 4.62%
------- ------ ------- -----
Total interest-bearing
liabilities 177,161 4,642 3.49% 173,331 5,830 4.48%
Non-interest bearing
liabilities 14,746 10,773
-------- --------
Total liabilities 191,907 184,104
Stockholders' equity 17,020 15,637
-------- --------
Total liabilities and
Stockholders' equity $208,927 $199,741
======== ========
Net interest income $4,783 $4,377
====== ======
Interest rate spread (4) 2.79% 2.57%
==== ====
Net yield on interest-
earning assets (5) 3.19% 3.04%
==== ====
Ratio of average interest-
earning assets to average
interest-bearing liabilities 1.13X 1.11X
==== ====
(1) Average balances include non-accrual loans.
(2) Includes interest-bearing deposits in other financial institutions
(3) Other liabilities include FHLB advances and Repurchase agreements
(4) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(5) Net yield on interest - earning assets represents net interest income as a
percentage of average interest-earning assets.
13
Rate/Volume Analysis
The table below sets forth certain information regarding changes in interest
income and interest expense of the Company for the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume; (ii)
changes in rates; (iii) changes in rate-volume. The changes attributable to the
combined impact of volume and rate have been allocated proportionately to the
changes due to volume and the changes due to rate.
Nine-month period ended
March 31, 2003 vs. 2002
Increase (Decrease)
Due to
----------------------------------------
Rate/
Volume Rate Volume Net
------ ---- ------ ---
(Dollars in Thousands)
Interest income:
Loans receivable $ 599 $ (737) $ (56) $ (194)
Mortgage-backed securities and
investment securities (150) (455) 28 (577)
Other interest-earning assets 42 (39) (14) (11)
------- ------- ------- -------
Total interest-earning assets 491 (1,231) (42) (782)
------- ------- ------- -------
Interest expense:
Transaction accounts 6 (12) (1) (7)
Savings accounts 11 (5) (2) 4
Money markets 20 (36) (6) (22)
Certificates of deposit (71) (925) 21 (975)
Other liabilities 74 (256) (6) (188)
------- ------- ------- -------
Total interest-bearing liabilities 40 (1,234) 6 (1,188)
------- ------- ------- -------
Net change in interest earnings $ 451 $ 3 $ (48) $ 406
======= ======= ======= =======
Provision for Losses on Loans
The Company maintains an allowance for loan losses based upon management's
periodic evaluation of known and inherent risks in the loan portfolio, past loss
experience, adverse situations that may affect the borrower's ability to repay
loans, estimated value of the underlying collateral and current and expected
market conditions. The provision for loan loss was $215,000 and $120,000 for the
nine-month period ended March 31, 2003 and 2002, respectively. See "Comparison
of Operating Results for the quarter ended March 31, 2003 compared to quarter
ended March 31, 2002 - Provision for Losses on Loans."
14
Non-Interest Earnings
Total non-interest earnings increased by $181,000 or 64% to $464,000 for the
nine months ended March 31, 2003 from $283,000 for the nine months ended March
31, 2002. This increase was primarily due to an increase in service charge
income of $101,000, an increase in net gains from sales of loans of $80,000, and
a $6,000 increase in miscellaneous income partially offset by a $10,000 decrease
in net gains from sales of available-for-sale securities. The increase in
service charge income is primarily due to increased insufficient fee charges
collected on NOW and checking accounts. The increase in miscellaneous income is
primarily due to a $5,000 gain on the sale of other real estate owned.
Non-Interest Expense
Total non-interest expense increased $575,000 or 22% to $3,186,000 for the nine
months ended March 31, 2003 from $2,611,000 for the nine months ended March 31,
2002. The increase in non-interest expense was primarily attributable to
increases in compensation and benefits, occupancy costs, advertising,
stationary, printing and office supplies, professional fees, data processing,
insurance and other operating expenses, offset by a decrease in stock services.
The $274,000 increase in compensation and benefits expense for the nine month
period ended March 31, 2003 is primarily attributable to a $260,000 increase in
general salaries and benefits expense associated with the hiring of nine
employees to staff the Bank's Farmington branch, $16,000 in expense related to
director fee compensation and $56,000 in expense associated with employee stock
compensation plans, offset in part by $57,000 in expense related to the
Company's repurchase of stock for the same period in 2002 in connection with
employee stock compensation plans. Occupancy costs increased $90,000 due
primarily to increases in depreciation for furniture, fixtures, and equipment,
maintenance contract expense and other occupancy costs associated with operating
the new branch. Advertising expense increased $62,000 primarily due to the
Bank's efforts to achieve growth in the Farmington, New Mexico market, where the
new branch is located. Stationary, printing and office supplies increased
$46,000 primarily due to the purchase of forms and supplies for the new branch.
Professional fees increased $16,000 primarily due to higher audit expense, and
accounting fees. Data processing increased $9,000 primarily due to an increase
in expenses resulting from the processing cost associated with the growth in the
volume of deposit and loan accounts, statement processing and transaction items
being serviced. Insurance expense increased $9,000 due to an increase in
insurance premiums. Other operating expenses increased $70,000, due primarily to
higher loan expense, other real estate owned expense, correspondent bank
expense, armored transit expense and telephone expense for the nine months ended
March 31, 2003. The $7,000 decrease in stock services for 2002 is primarily due
to the absence of a $7,400 regulatory filing fee paid to the OTS in the nine
months ended March 31, 2002.
Item 3. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Based on their evaluation
-----------------------------------------------
as of a date within 90 days of the filing date of this Quarterly Report on Form
10-QSB, the Registrant's principal executive officer and principal financial
officer have concluded that the Registrant's disclosure controls and procedures
(as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act
of 1934 (the "Exchange Act")) are effective to ensure that information required
to be disclosed by the Company in reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and forms.
(b) Changes in internal controls. There were no significant changes in the
------------------------------
Registrant's internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
15
PART II. OTHER INFORMATION
- -------- -----------------
Item 1. Legal Proceedings
-----------------
Not applicable.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable.
Item 5. Other Information
-----------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) List of Exhibits
3.1 Certificate of Incorporation of GFSB Bancorp, Inc.*
3.2 Bylaws of GFSB Bancorp, Inc.*
10.1 1995 Stock Option Plan**
10.2 Management Stock Bonus Plan**
10.3 Form of Directors Deferred Compensation Agreement between
the Bank and Directors***
10.4 Form of Directors Stock Compensation Plan between the
Company and Directors of the Company***
10.5 2000 Stock Option Plan****
99.0 Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
--------------
* Incorporated herein by reference to exhibits 3(i)(Certificate
of Incorporation) and 3(ii)(Bylaws) to the Registration
Statement on Form S-1 of the Registrant (File No. 33-90400)
initially filed with the Commission on March 17, 1995.
** Incorporated by reference to the identically numbered exhibits
of the Annual Report on Form 10-KSB for the fiscal year ended
June 30, 1997 (File No. 0-25854) filed with the SEC.
*** Incorporated by reference to the identically numbered exhibits
of the Quarterly Report on Form 10-QSB for the quarter ended
March 31, 2000 filed with the SEC.
**** Incorporated by reference to the Proxy Statement for the
Annual Meeting of Stockholders on October 27, 2000 and filed
with the SEC on September 25, 2000.
(b) Not applicable.
16
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GFSB BANCORP, INC.
Date: May 12, 2003 /s/Jerry R. Spurlin
-----------------------------------------------
Jerry R. Spurlin
Assistant Secretary and Chief Financial Officer
(Duly Authorized Representative and
Principal Financial Officer)
17
SECTION 302 CERTIFICATION
I, Richard C. Kauzlaric, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of GFSB Bancorp,
Inc.:
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 12, 2003 /s/Richard C. Kauzlaric
------------ ---------------------------
Richard C. Kauzlaric
President
SECTION 302 CERTIFICATION
I, Jerry R. Spurlin, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of GFSB Bancorp,
Inc.:
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 12, 2003 /s/Jerry R. Spurlin
------------ --------------------------------------
Jerry R. Spurlin
Chief Financial Officer