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 December 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 04-2095007
- ------------------------------ ----------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
221 West Aztec Avenue, Gallup, New Mexico 87301
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (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 February 3, 2004, there were issued and outstanding 1,146,270 shares of
the registrant's Common Stock.
Transitional Small Business Disclosure format:
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
December 31, 2003 and June 30, 2003 3
Condensed Consolidated Statements of Earnings and Comprehensive Earnings
Three months and six months ended December 31, 2003 and December 31, 2002. 4
Condensed Consolidated Statements of Cash Flows
Six months ended December 31, 2003 and December 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 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 18
2
GFSB Bancorp, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, June 30,
2003 2003
------------- -------------
ASSETS
Cash and due from banks $ 6,925,370 $ 6,785,410
Interest-bearing deposits with banks 1,095,110 466,948
Available-for-sale investment securities 32,732,974 29,279,417
Available-for-sale mortgage-backed securities 32,459,642 38,517,103
Held-to-maturity investment securities 398,998 675,997
Stock of Federal Home Loan Bank, at cost, restricted 4,376,500 4,332,800
Loans receivable, net, substantially pledged 157,508,993 146,264,291
Loans held-for-sale 236,105 132,000
Accrued interest and dividends receivable 880,513 844,722
Premises and equipment 2,622,510 2,313,815
Other real estate and repossessed property 111,310 213,953
Prepaid and other assets 173,295 128,197
------------- -------------
TOTAL ASSETS $ 239,521,320 229,954,653
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Transaction and NOW accounts $ 25,592,733 $ 24,937,782
Savings and MMDA deposits 20,089,690 17,264,978
Time deposits 94,019,915 87,556,558
Advances from Federal Home Loan Bank 72,398,958 76,641,834
Other secured borrowings 6,554,720 3,657,911
Repurchase agreements 930,009 584,902
Accrued interest payable 508,787 515,872
Advances from borrowers for taxes and insurance 381,243 365,193
Notes payable 273,750 --
Accounts payable and accrued liabilities 394,315 250,015
Deferred income taxes 67,636 312,796
Dividends declared and payable 139,167 122,467
Income taxes payable - -
------------- -------------
TOTAL LIABILITIES 221,350,923 212,210,308
------------- -------------
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 December 31, 2003 and June 30, 2003 114,627 114,627
Additional paid-in-capital 2,950,187 2,853,446
Unearned ESOP stock (103,914) (139,882)
Retained earnings, substantially
restricted 14,198,839 13,633,421
Accumulated other comprehensive
earnings 1,010,658 1,282,733
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 18,170,397 17,744,345
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 239,521,320 $ 229,954,653
============= =============
See notes to condensed consolidated financial statements.
3
GFSB Bancorp, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
AND COMPREHENSIVE EARNINGS
Three months ended Six months ended
December 31, December 31,
-------------------------- --------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Interest income
Loans receivable
Mortgage loans $ 2,022,098 $ 2,111,982 4,067,122 $ 4,247,677
Commercial loans 407,690 332,932 736,528 664,412
Share and consumer loans 106,761 110,668 215,330 219,630
Investment and mortgage-backed securities 526,977 563,759 1,026,179 1,201,818
Other interest-earning assets 23,106 37,178 48,578 69,984
----------- ----------- ----------- -----------
TOTAL INTEREST EARNINGS 3,086,632 3,156,519 6,093,737 6,403,521
Interest expense
Deposits 746,607 758,252 1,499,767 1,552,597
Advances from Federal Home Loan Bank 671,778 779,208 1,377,416 1,584,203
Repurchase agreements 37 1,408 141 3,550
----------- ----------- ----------- -----------
TOTAL INTEREST EXPENSE 1,418,422 1,538,868 2,877,324 3,140,350
----------- ----------- ----------- -----------
NET INTEREST EARNINGS 1,668,210 1,617,651 3,216,413 3,263,171
Provision for loan losses 70,014 50,000 130,014 75,000
----------- ----------- ----------- -----------
NET INTEREST EARNINGS AFTER
PROVISION FOR LOAN LOSSES 1,598,196 1,567,651 3,086,399 3,188,171
----------- ----------- ----------- -----------
Non-interest earnings
Income from real estate operations 1,350 1,550 3,550 3,750
Miscellaneous income 52,195 11,717 65,876 23,882
Net loss from sales of available for sale securities (1,417) -- (1,417) --
Net gains from sales of loans 19,490 40,852 30,274 56,058
Service charge income 177,542 92,720 348,090 191,499
----------- ----------- ----------- -----------
TOTAL NON-INTEREST EARNINGS 249,160 146,839 446,373 275,189
----------- ----------- ----------- -----------
Non-interest expense
Compensation and benefits 635,466 576,170 1,221,589 1,114,476
FDIC insurance 4,822 4,598 9,552 8,927
Insurance 11,703 12,193 24,911 24,482
Stock services 13,380 5,109 19,965 9,053
Occupancy 138,260 129,580 273,087 265,620
Data processing 94,376 90,864 183,860 158,935
Professional fees 60,353 32,506 105,924 66,153
Advertising 49,506 36,062 106,556 71,775
Stationary, printing and office supplies 30,166 42,900 61,071 87,729
ATM expense 19,462 15,588 34,040 30,945
Supervisory exam fees 14,585 13,900 29,170 27,800
Postage 19,555 13,220 38,841 25,539
Other 96,932 96,343 197,405 173,399
----------- ----------- ----------- -----------
TOTAL NON-INTEREST EXPENSE 1,188,566 1,069,033 2,305,971 2,064,833
----------- ----------- ----------- -----------
4
GFSB Bancorp, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
AND COMPREHENSIVE EARNINGS - CONTINUED
Three months ended Six months ended
December 31, December 31,
------------------------- -----------------------
2003 2002 2003 2002
----------- ----------- --------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
EARNINGS BEFORE INCOME TAXES 658,790 645,457 1,226,801 1,398,527
Income tax expense
Currently payable 263,582 219,876 504,749 461,343
Deferred (benefit) (105,000) -- (105,000) --
----------- ----------- --------- -----------
158,582 219,876 399,749 461,343
----------- ----------- --------- -----------
NET EARNINGS $ 500,208 $ 425,581 827,052 $ 937,184
=========== =========== ========= ===========
Other Comprehensive Earnings
Unrealized (loss) gain, net of tax (75,211) 37,435 (272,075) 56,106
----------- ----------- --------- -----------
COMPREHENSIVE EARNINGS 424,997 463,016 554,977 993,290
=========== =========== ========= ===========
Earnings per common share
Basic $ 0.44 0.38 0.74 0.84
=========== =========== ========= ===========
Weighted average number of common shares outstanding
Basic 1,125,105 1,115,665 1,123,414 1,113,645
=========== =========== ========= ===========
Earnings per common share
Diluted 0.42 0.37 0.70 0.81
=========== =========== ========= ===========
Weighted average number of common shares outstanding
Diluted 1,179,896 1,162,238 1,177,867 1,159,720
=========== =========== ========= ===========
Comprehensive earnings per common share
Basic 0.38 0.42 0.49 0.89
=========== =========== ========= ===========
Diluted 0.36 0.40 0.47 0.86
=========== =========== ========= ===========
Dividends per share 0.125 0.11 0.235 0.21
=========== =========== ========= ===========
See notes to condensed consolidated financial statements.
5
GFSB Bancorp, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
Six Months Ended
December 31,
-----------------------------------------
2003 2002
------------ ------------
(Unaudited) (Unaudited)
Cash flows from operating activities
Net earnings $ 827,052 $ 937,184
Adjustments to reconcile net earnings to
net cash provided by operations
Deferred loan origination fees (281,515) (139,099)
Gain on sale of loans and securities (28,857) (56,058)
Provision for loan losses 130,014 75,000
Depreciation of premises and equipment 148,019 143,331
Amortization of investment and mortgage-
backed securities premiums 238,377 39,757
Stock dividend on FHLB stock (43,700) (61,200)
Release of ESOP stock 125,088 92,282
Stock compensation under management stock bonus plan 19,411 15,374
(Benefit) for deferred income taxes (105,000) -
Net changes in operating assets and liabilities
Accrued interest and dividends receivable (35,791) 59,518
Prepaid and other assets (6,978) (118,323)
Accrued interest payable (7,085) 8,164
Accounts payable and accrued liabilities 124,890 85,818
Income taxes (receivable) payable (38,120) 17,324
Dividends declared and payable 16,700 11,051
------------ ------------
Net cash provided by
operating activities 1,082,505 1,110,123
------------ ------------
Cash flows from investing activities
Purchase of premises and equipment (456,714) (48,181)
Loan originations and principal
repayment on loans, net (13,044,462) (5,067,089)
Change in other secured borrowings 2,896,808 (1,003,273)
Proceeds from the sale of loans 1,980,073 3,453,649
Principal payments on mortgage-backed
securities 9,006,531 4,954,873
Principal payments on available-for-sale securities 943,672 3,292,388
Principal payments on held-to-maturity securities 7,000 31,000
Purchases of mortgage-backed securities (3,420,353) (8,272,674)
Purchases of available-for-sale securities (5,277,976) (2,068,053)
Purchases of held-to-maturity securities - (270,000)
Maturities and proceeds from sale of
available-for-sale securities 700,000 785,000
Maturities and proceeds from sale of held-to-maturity securites 270,000 -
------------ ------------
Net cash used by
investing activities (6,395,421) (4,212,360)
------------ ------------
6
GFSB Bancorp, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Increase (decrease) in cash and cash equivalents
Six Months Ended
December 31,
------------------------------
2003 2002
------------- -------------
(Unaudited) (Unaudited)
Cash flows from financing activities
Net increase in transaction accounts, passbook
savings, money market accounts, and
certificates of deposit $ 9,943,018 $ 1,301,040
Net increase (decrease) in Repurchase agreements 345,107 (104,895)
Net increase (decrease) in mortgage escrow funds 16,050 (3,648)
Proceeds from FHLB advances 773,689,296 200,425,000
Repayments on FHLB advances (777,932,171) (197,558,727)
Net increase in note payable 273,750 -
Dividends paid or to be paid in cash (261,634) (232,062)
Price paid for vested management bonus
stock plan stock 7,622 -
------------- -------------
Net cash provided by
financing activities 6,081,038 3,826,708
------------- -------------
Increase in cash and cash equivalents 768,122 724,471
Cash and cash equivalents at beginning of period 7,252,358 5,651,491
------------- -------------
Cash and cash equivalents at end of period $ 8,020,480 6,375,962
============= =============
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest on deposits and advances $ 2,884,268 $ 3,132,186
Income taxes 437,869 444,020
Change in market value, net of deferred taxes on
available-for-sale securities (other comprehensive earnings) (272,075) 56,106
Dividends declared not yet paid 139,167 121,557
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 prepared 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 consolidated financial statements be read in
conjunction with the Form 10-KSB for the year ended June 30, 2003.
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 and 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.
RESULTS OF OPERATIONS
COMPARISON OF OPERATING RESULTS FOR QUARTER ENDED DECEMBER 31, 2003 COMPARED TO
QUARTER ENDED DECEMBER 31, 2002.
General
Net earnings for the quarter ended December 31, 2003 increased $74,000 to
$500,000 from $426,000 for the quarter ended December 31, 2002. The increase in
net earnings is primarily attributable to a $102,000 increase in non-interest
earnings, a $51,000 increase in net interest earnings and a $61,000 decrease in
income tax expense, partially offset by an increase in non-interest expense of
$120,000 and a $20,000 increase in the provision for loan losses. Please refer
to "Average Balance Sheets" for an analysis of the changes in net interest
earnings for the quarter ended December 31, 2003 compared to the same period
in 2002.
9
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 December 31, 2003 Quarter ended December 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) $158,656 $2,537 6.39% $140,447 $2,556 7.28%
Investment securities and
mortgage-backed securities 65,866 527 3.20% 51,160 564 4.41%
Other interest-earning
assets (2) 5,772 23 1.59% 5,392 37 2.74%
-------- ------ -------- ------
Total interest-earning assets 230,294 3,087 5.36% 196,999 3,157 6.41%
------ ------
Non-interest-earning assets 10,307 11,522
-------- --------
Total assets $240,601 $208,521
======== ========
Interest-bearing liabilities:
Transaction accounts $10,858 $ 8 .29% $ 8,626 $ 17 .79%
Passbook savings 7,094 18 1.01% 5,553 16 1.15%
Money market accounts 13,863 32 .92% 12,500 40 1.28%
Certificates of deposit 92,571 689 2.98% 73,749 685 3.72%
Other liabilities (3) 80,884 672 3.32% 79,676 781 3.92%
-------- ------ -------- ------
Total interest-bearing
liabilities 205,270 1,419 2.96% 180,104 1,539 3.42%
------ ------
Non-interest bearing
liabilities 17,392 11,343
-------- --------
Total liabilities 222,662 191,447
Stockholders' equity 17,939 17,074
-------- --------
Total liabilities and
stockholders' equity $240,601 $208,521
======== ========
Net interest income $1,668 $1,618
====== ======
Interest rate spread (4) 2.40% 2.99%
==== ====
Net yield on interest-
earning assets (5) 2.90% 3.29%
==== ====
Ratio of average interest-
Earning assets to average
interest-bearing liabilities 1.12X 1.09X
==== ====
- -------------------
(1) Average balances include non-accrual loans.
(2) Includes interest-bearing deposits in other financial institutions.
(3) Other liabilities include FHLB advances, repurchase agreements and other
secured borrowings.
(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; and (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 December 31, 2003 vs. 2002
Increase (Decrease)
Due to
--------------------------------
Rate/
Volume Rate Volume Net
------ ---- ------ ---
(Dollars in Thousands)
Interest income:
Loans receivable $ 331 $(312) $ (38) $ (19)
Mortgage-backed securities and
investment securities 162 (155) (44) (37)
Other interest-earning assets 3 (16) (1) (14)
----- ----- ----- -----
Total interest-earning assets 496 (483) (83) (70)
Interest expense:
Transaction accounts 4 (11) (2) (9)
Savings accounts 4 (2) 0 2
Money markets 4 (11) (1) (8)
Certificates of deposit 175 (136) (35) 4
Other liabilities 12 (120) (1) (109)
----- ----- ----- -----
Total interest-bearing liabilities 199 (280) (39) (120)
----- ----- ----- -----
Net change in interest income $ 297 $(203) $ (44) $ 50
===== ===== ===== =====
11
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 losses was $70,000 and $50,000 for the
quarters ended December 31, 2003 and December 31, 2002. The increase in the
provision for loan losses for the current three-month period was primarily the
result of loan growth in commercial and commercial real estate loans, which tend
to have greater credit risk than residential real estate loans. 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.
Non-Interest Earnings
Total non-interest earnings increased by $102,000 or 69.7% to $249,000 for the
quarter ended December 31, 2003 from $147,000 for the quarter ended December 31,
2002. This increase was primarily due to an increase in service charge income of
$85,000 and an increase in miscellaneous income of $40,000 due to a gain on the
sale of other real estate owned, partially offset by a decrease in net gains
from sales of loans of $21,000. The increase in service charge income is
primarily due to increased insufficient funds charges collected on NOW and
checking accounts.
Non-Interest Expense
Total non-interest expense increased $120,000 or 11.2% to $1,189,000 for the
quarter ended December 31, 2003 from $1,069,000 for the quarter ended December
31, 2002. The increase in non-interest expense was primarily attributable to
increases in compensation and benefits, professional fees, advertising,
occupancy, postage and stock services, partially offset by a decrease in
stationary, printing and office supplies. The $59,000 increase in compensation
and benefits is primarily attributable to a $34,000 increase in general salaries
and benefits due to the hiring of two additional employees last quarter, general
salary increases, and increases in the cost of employee health insurance and
retirement benefits and $23,000 in expense associated with employee stock
compensation plans. Professional fees increased $28,000, primarily due to higher
legal fees, audit expense, and accounting fees. Advertising expense increased
$13,000, primarily due to efforts to achieve growth in the Gallup and
Farmington, New Mexico markets. Occupancy expense increased $9,000, primarily
due to an increase in lease expense on the Bank's loan center and an increase in
depreciation of furniture, fixtures and equipment. Stock services increased
$8,000, primarily due to increases in annual fees for NASDAQ stock services and
an increase in printing costs associated with the Bank's annual reports.
Stationary, printing and office supplies decreased $13,000, since a substantial
portion of such expenses the previous year were attributable to the March 2002
opening of the Farmington branch.
RESULTS OF OPERATIONS
COMPARISON OF OPERATING RESULTS FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 2003
COMPARED TO THE SIX-MONTH PERIOD ENDED DECEMBER 31, 2002.
General
Net earnings for the six months ended December 31, 2003 decreased $110,000 to
$827,000 compared to net earnings of $937,000 for the comparable six-month
period in 2002. The decrease in net earnings was primarily the result of a
$55,000 increase in the provision for loan losses, a $241,000 increase in
non-interest expense and a decrease in net interest earnings of $47,000,
partially offset by an increase in non-interest earnings of $171,000 and a
$62,000 decrease in income tax expense. The decrease in net interest earnings is
primarily due to the recent leveling of interest rates, which has put pressure
on the Company's net interest margin and reduced refinancing activity. The
Company attributes the increase in provision for loan losses and non-interest
expense to bank growth and growth in the loan portfolio in particular. Please
refer to "Average Balance Sheets" for an analysis of the change in net interest
earnings for the six months ended December 31, 2003 compared to the same period
in 2002.
11
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.
Six-month period ended Six-month period ended
---------------------- ----------------------
December 31, 2003 December 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) $155,676 $5,019 6.45% $139,545 $5,132 7.36%
Investment securities and
Mortgage-backed securities 66,611 1,026 3.08% 52,017 1,202 4.62%
Other interest-earning
assets (2) 5,275 49 1.86% 5,198 70 2.69%
-------- ------ -------- ------
Total interest-earning assets 227,562 6,094 5.36% 196,760 6,404 6.51%
------ ------
Non-interest-earning assets 10,577 10,639
-------- --------
Total assets $238,139 $207,399
======== ========
Interest-bearing liabilities:
Transaction accounts $10,370 $ 18 .35% $ 8,709 $ 35 .80%
Passbook savings 6,768 34 1.00% 5,508 33 1.20%
Money market accounts 12,767 58 .91% 12,235 78 1.28%
Certificates of deposit 90,844 1,389 3.06% 73,705 1,407 3.82%
Other liabilities (3) 82,303 1,378 3.35% 76,061 1,587 4.18%
-------- ------ -------- ------
Total interest-bearing
liabilities 203,052 2,877 2.83% 176,218 3,140 3.56%
------ ------
Non-interest bearing
liabilities 17,326 14,300
-------- --------
Total liabilities 220,378 190,518
Stockholders' equity 17,761 16,881
-------- --------
Total liabilities and
Stockholders' equity $238,139 $207,399
======== ========
Net interest income $3,217 $3,264
====== ======
Interest rate spread (4) 2.53% 2.95%
==== ====
Net yield on interest-
earning assets (5) 2.83% 3.32%
==== ====
Ratio of average interest-
earning assets to average
interest-bearing liabilities 1.12X 1.12X
==== ====
(1) Average balances include non-accrual loans.
(2) Includes interest-bearing deposits in other financial institutions.
(3) Other liabilities include FHLB advances, repurchase agreements and other
secured borrowings. The FHLB borrowings are adversely affecting the
Company's net interest earnings because some of them bear fixed interest
rates that are above current market rates. These borrowings will continue
to adversely affect net interest earnings unless paid off early, at a
significant penalty, or unless market rates increase.
(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.
12
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; and (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.
Six-month period ended
December 31, 2003 vs. 2002
Increase (Decrease)
Due to
----------------------------------------
Rate/
Volume Rate Volume Net
------ ---- ------ ---
(Dollars in Thousands)
Interest income:
Loans receivable $ 593 $ (635) $ (71) $ (113)
Mortgage-backed securities and
investment securities 337 (401) (112) (176)
Other interest-earning assets 1 (22) 0 (21)
------- ------- ------- -------
Total interest-earning assets 931 (1,058) (183) (310)
------- ------- ------- -------
Interest expense:
Transaction accounts 7 (20) (4) (17)
Savings accounts 8 (6) (1) 1
Money markets 1 (23) 2 (20)
Certificates of deposit 327 (280) (65) (18)
Other liabilities 130 (316) (23) (209)
------- ------- ------- -------
Total interest-bearing liabilities 473 (645) (91) (263)
------- ------- ------- -------
Net change in interest income $ 458 $ (413) $ (92) $ (47)
======= ======= ======= =======
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 losses was $130,000 and $75,000 for
the six-month period ended December 31, 2003 and 2002, respectively. See
"Comparison of Operating Results for the quarter ended December 31, 2003
compared to quarter ended December 31, 2002 - Provision for Losses on Loans."
Non-Interest Earnings
Total non-interest earnings increased by $171,000 or 62.2% to $446,000 for the
six months ended December 31, 2003 from $275,000 for the six months ended
December 31, 2002. This increase was primarily due to an increase in service
charge income of $157,000 and an increase in miscellaneous income of $42,000,
partially offset by a decrease in net gains from sales of loans of $26,000. The
increase in miscellaneous income is primarily due to a gain on the sale of other
real estate owned. The increase in service charge income is primarily due to
increased insufficient funds charges collected on NOW and checking accounts.
13
Non-Interest Expense
Total non-interest expense increased $241,000 or 11.7% to $2,306,000 for the six
months ended December 31, 2003 from $2,065,000 for the six months ended December
31, 2002. The increase in non-interest expense was primarily attributable to
increases in compensation and benefits, data processing, professional fees,
advertising, postage, stock services and other operating expenses, partially
offset by a decrease in stationary, printing and office supplies. The $107,000
increase in compensation and benefits is primarily attributable to a $65,000
increase in general salaries and benefits due to the hiring of two additional
employees, general salary increases, and increases in the cost of employee
health insurance and retirement benefits and $37,000 in expense associated with
employee stock compensation plans. Data processing increased $25,000, primarily
due to increases in expenses resulting from the processing cost associated with
the growth in the volume of deposit accounts, statement processing, servicing
for the online home banking system and an increase in the number of transactions
processed. Professional fees increased $40,000, primarily due to higher legal
fees, audit expense and accounting fees. Advertising expense increased $35,000,
primarily due to efforts to achieve growth in the Gallup and Farmington, New
Mexico market. Stock services increased $11,000, primarily due to increases in
annual fees for NASDAQ stock services and an increase in printing costs
associated with the Bank's annual reports. Other operating expenses increased
$24,000, primarily due to increases in charitable contributions, correspondent
bank expense and organization dues and subscriptions. Stationary, printing and
office supplies decreased $27,000, since a substantial portion of such expenses
the previous year were attributable to the March 2002 opening of the Farmington
branch.
Item 3. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Based on their
evaluation of the Company's disclosure controls and procedures (as
defined in Rules 13a-15(e) under the Securities Exchange Act of
1934 (the "Exchange Act")), the Company's principal executive
officer and the principal financial officer have concluded that as
of the end of the period covered by this Quarterly Report on Form
10-QSB such disclosure controls and procedures 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 control over financial reporting. During the
quarter under report, there was no change in the Company's
internal control over financial reporting that has materially
affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
14
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
---------------------------------------------------
The annual meeting of the stockholders of the Company was held on October 27,
2003. At the meeting three directors were elected for terms to expire in 2006
and the appointment of Neff + Ricci, LLP as the Company's independent
accountants was ratified.
The results of voting are shown for each matter considered.
Director election:
Nominees Votes for Votes withheld
- -------- --------- --------------
George S. Perce 988,829 0
Charles L. Parker, Jr. 988,829 0
Michael P. Mataya 983,179 5,650
Independent accountant ratification:
Votes for Votes against Abstentions
--------- ------------- -----------
988,717 0 112
15
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****
31 Certification Pursuant to Section 302 of the Sarbanes
Oxley Act of 2002
32 Certification 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) The Company filed a report on Form 8-K on November 7, 2003 pursuant to
items 7 and 12 to report earnings for the quarter ended September 30, 2003.
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: February 12, 2004 /s/Jerry R. Spurlin
------------------------------------------------
Jerry R. Spurlin
Assistant Secretary and Chief Financial Officer
(Duly Authorized Representative and
Principal Financial Officer)
17