UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
--------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE EXCHANGE ACT
For the transition period from ________ to ________
Commission file number: 0-25854
GFSB BANCORP, INC.
----------------------------------------------
(Name of Small Business Issuer in its Charter)
Delaware 85-0430841
- -------------------------------------------- -------------------
(State or Other Jurisdiction of Incorporation (I.R.S. Employer
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 May 11, 2005, there were issued and outstanding 1,188,486 shares of the
registrant's Common Stock.
Transitional Small Business Disclosure format:
Yes No X
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GFSB Bancorp, Inc.
Index
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Statements of Financial Condition
March 31, 2005 and June 30, 2004 3
Condensed Consolidated Statements of Earnings and Comprehensive Earnings
Three months and nine months ended March 31, 2005 and March 31, 2004 4
Condensed Consolidated Statements of Cash Flows
Nine months ended March 31, 2005 and March 31, 2004 6
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition and 9
Results of Operations
Item 3. Controls and Procedures 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits 19
Signatures 21
2
GFSB Bancorp, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, June 30,
2005 2004
------------- -------------
(Unaudited)
ASSETS
Cash and due from banks $ 6,930,156 $ 7,840,712
Interest-bearing deposits with banks 312,600 866,281
Available-for-sale investment securities 25,301,589 30,518,828
Available-for-sale mortgage-backed securities 24,567,852 30,680,195
Held-to-maturity investment securities 389,999 398,999
Stock of Federal Home Loan Bank, at cost, restricted 3,393,900 4,409,200
Loans receivable, net, substantially pledged 143,326,159 152,430,322
Loans held-for-sale -- 411,400
Accrued interest and dividends receivable 849,975 859,298
Premises and equipment 2,366,131 2,513,992
Other real estate and repossessed property 283,262 437,211
Prepaid and other assets 153,707 445,847
Deferred tax asset 295,917 275,125
------------- -------------
TOTAL ASSETS $ 208,171,247 $ 232,087,410
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Transaction and NOW accounts $ 33,193,188 $ 28,987,811
Savings and MMDA deposits 22,994,734 21,501,954
Time deposits 80,321,466 83,369,991
Advances from Federal Home Loan Bank 46,629,681 73,652,218
Other secured borrowings 4,021,948 4,814,763
Repurchase agreements 180,538 157,119
Accrued interest payable 422,755 460,520
Advances from borrowers for taxes and insurance 578,859 499,998
Accounts payable and accrued liabilities 387,634 369,595
Dividends declared and payable 137,904 140,895
------------- -------------
TOTAL LIABILITIES 188,868,707 213,954,864
------------- -------------
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; 1,146,645 issued and outstanding
at March 31, 2005 and June 30, 2004 114,665 114,665
Additional paid-in-capital 3,296,865 3,095,718
Unearned ESOP stock (3,682) (68,048)
Retained earnings, substantially restricted 15,344,196 14,440,118
Accumulated other comprehensive earnings 550,496 550,093
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 19,302,540 18,132,546
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 208,171,247 $ 232,087,410
============= =============
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,
---------------------------------- --------------------------------
2005 2004 2005 2004
---------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Interest income
Loans receivable
Mortgage loans $ 1,972,162 $ 2,008,343 $ 5,934,023 $ 6,075,465
Commercial loans 426,341 381,429 1,228,008 1,117,957
Share and consumer loans 97,118 104,884 301,094 320,214
Investment and mortgage-backed securities 452,643 553,797 1,386,256 1,579,976
Other interest-earning assets 26,859 17,389 70,922 65,967
--------------- --------------- --------------- ---------------
TOTAL INTEREST EARNINGS 2,975,123 3,065,842 8,920,303 9,159,579
Interest expense
Deposits 595,049 666,258 1,801,414 2,166,025
Advances from Federal Home Loan Bank 548,284 659,373 1,757,161 2,036,789
Repurchase agreements 841 6 2,100 146
--------------- --------------- --------------- ---------------
TOTAL INTEREST EXPENSE 1,144,174 1,325,637 3,560,675 4,202,960
--------------- --------------- --------------- ---------------
NET INTEREST EARNINGS 1,830,949 1,740,205 5,359,628 4,956,619
Provision for loan losses - 339,016 60,000 469,030
--------------- --------------- --------------- ---------------
NET INTEREST EARNINGS AFTER
PROVISION FOR LOAN LOSSES 1,830,949 1,401,189 5,299,628 4,487,589
--------------- --------------- --------------- ---------------
Non-interest earnings
Income from real estate operations 4,585 1,350 13,084 4,900
Miscellaneous income 16,973 12,184 53,643 78,060
Net loss from sales of available-for-sale securities - - - (1,417)
Net gains from sales of loans 15,267 2,879 45,605 33,154
Service charge income 204,393 170,488 639,673 518,577
--------------- --------------- --------------- ---------------
TOTAL NON-INTEREST EARNINGS 241,218 186,901 752,005 633,274
--------------- --------------- --------------- ---------------
Non-interest expense
Compensation and benefits 593,657 561,408 1,863,050 1,782,997
FDIC insurance 14,817 5,163 44,535 14,715
Insurance 15,805 14,410 48,142 39,321
Stock services 6,629 4,504 16,345 24,469
Occupancy 128,879 142,071 374,675 415,158
Data processing 96,944 95,339 288,617 279,199
Professional fees 118,812 81,229 456,528 187,152
Advertising 55,650 58,656 147,176 165,212
Stationery, printing and office supplies 14,865 29,715 65,411 90,786
ATM expense 25,129 21,773 74,188 55,812
Supervisory exam fees 23,692 16,042 71,525 45,213
Postage 45,060 18,136 69,891 56,977
Other 82,476 119,285 340,206 316,692
--------------- --------------- --------------- ---------------
TOTAL NON-INTEREST EXPENSE 1,222,415 1,167,731 3,860,289 3,473,703
--------------- --------------- --------------- ---------------
4
GFSB Bancorp, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
AND COMPREHENSIVE EARNINGS - CONTINUED
Three months ended Nine months ended
March 31, March 31,
---------------------------------- ---------------------------------
2005 2004 2005 2004
---------------------------------- ---------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
EARNINGS BEFORE INCOME TAXES $ 849,752 $ 420,359 $ 2,191,344 $ 1,647,160
Income tax expense
Currently payable 343,171 204,406 883,698 709,155
Deferred (benefit) (21,000) (108,500) (21,000) (213,500)
--------------- --------------- --------------- ---------------
322,171 95,906 862,698 495,655
--------------- --------------- --------------- ---------------
NET EARNINGS $ 527,581 $ 324,453 $ 1,328,646 $ 1,151,505
=============== =============== =============== =============
Other comprehensive earnings
Unrealized (loss) gain, net of tax (277,648) 105,094 403 (166,981)
--------------- --------------- --------------- ---------------
COMPREHENSIVE EARNINGS $ 249,933 $ 429,547 $ 1,329,049 $ 984,524
=============== =============== =============== =============
Earnings per common share
Basic $ 0.46 $ 0.29 $ 1.17 $ 1.02
=============== =============== =============== =============
Weighted average number of common shares outstanding
Basic 1,144,086 1,126,787 1,139,926 1,125,096
=============== =============== =============== =============
Earnings per common share
Diluted $ 0.44 $ 0.27 $ 1.11 $ 0.97
=============== =============== =============== =============
Weighted average number of common shares outstanding
Diluted 1,204,291 1,183,235 1,200,238 1,181,231
=============== =============== =============== =============
Comprehensive earnings per common share
Basic $ 0.22 $ 0.38 $ 1.17 $ 0.88
=============== =============== =============== =============
Diluted $ 0.21 $ 0.36 $ 1.11 $ 0.83
=============== =============== =============== =============
Dividends per share $ 0.125 $ 0.125 $ 0.375 $ 0.360
=============== =============== =============== =============
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,
----------------------------
2005 2004
------------ ------------
(Unaudited) (Unaudited)
Cash flows from operating activities
Net earnings $ 1,328,646 $ 1,151,505
Adjustments to reconcile net earnings to
net cash provided by operations
Deferred loan origination fees (411,233) (413,928)
Gain on sale of loans and securities (45,604) (31,737)
Provision for loan losses 60,000 469,030
Depreciation of premises and equipment 177,897 218,274
Amortization of investment and mortgage-
backed securities premiums 208,524 308,306
Stock dividends on equity securities (265,600) (60,000)
Release of ESOP stock 265,512 203,052
Stock compensation under management stock bonus plan 122,539 29,117
(Benefit) for deferred income taxes (21,000) (213,500)
Net changes in operating assets and liabilities
Accrued interest and dividends receivable 9,323 (118,709)
Prepaid and other assets (40,360) (39,882)
Accrued interest payable (37,764) (35,900)
Accounts payable and accrued liabilities (131,599) 118,775
Income taxes (receivable) payable 359,598 (98,146)
Dividends declared and payable (2,991) 18,381
------------ ------------
Net cash provided by
operating activities 1,575,888 1,504,638
------------ ------------
Cash flows from investing activities
Purchase of premises and equipment (30,036) (470,920)
Loan originations and principal
repayment on loans, net 7,921,799 (11,256,682)
Change in other secured borrowings (792,815) 1,325,621
Proceeds from the sale of loans 2,144,550 2,137,557
Principal payments on mortgage-backed
securities 6,028,125 10,943,433
Principal payments on available-for-sale securities 5,806,814 1,663,455
Principal payments on held-to-maturity securities 9,000 7,000
Purchases of mortgage-backed securities - (7,649,914)
Purchases of available-for-sale securities (3,017,500) (5,331,514)
Maturities and proceeds from sale of
available-for-sale securities 2,502,232 700,000
Maturities and proceeds from sale of held-to-maturity securites - 270,000
Redemption of FHLB stock 1,082,900 -
------------ ------------
Net cash provided/(used) by
investing activities 21,655,069 (7,661,964)
------------ ------------
6
GFSB Bancorp, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Increase (decrease) in cash and cash equivalents
Nine Months Ended
March 31,
----------------------------------
2005 2004
--------------- ---------------
(Unaudited) (Unaudited)
Cash flows from financing activities
Net increase in transaction accounts, passbook
savings, money market accounts, and
certificates of deposit $ 2,649,631 $ 8,706,979
Net increase in repurchase agreements 23,418 53,525
Net increase in mortgage escrow funds 215,737 217,108
Proceeds from FHLB advances 524,770,000 1,144,089,296
Repayments on FHLB advances (551,792,537) (1,146,195,823)
Net increase (decrease) in note payable (136,875) 136,875
Dividends paid or to be paid in cash (424,568) (402,483)
Price paid for vested management bonus
stock plan stock - 7,622
--------------- ---------------
Net cash provided/(used) by
financing activities (24,695,194) 6,613,099
--------------- ---------------
Increase/(decrease) in cash and cash equivalents (1,464,237) 455,773
Cash and cash equivalents at beginning of period 8,706,993 7,252,358
--------------- ---------------
Cash and cash equivalents at end of period $ 7,242,756 $ 7,708,131
=============== ===============
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest on deposits and advances $ 3,596,340 $ 4,238,715
Income taxes 503,100 593,800
Change in market value, net of deferred taxes on
available-for-sale securities (other comprehensive earnings) 403 (166,981)
Dividends declared not yet paid 137,904 140,848
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 the instructions for Form 10-QSB and
therefore do not include all disclosures 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, 2004.
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 that 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 that 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 deposit 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.
Proposed Merger
On August 25, 2004, the Company announced that it had signed a definitive merger
agreement with First Federal Banc of the Southwest, Inc. ("FFBSW"), the holding
company for First Federal Bank, Roswell, New Mexico, pursuant to which the
Company will merge with and into FFBSW.
Under the terms of the agreement, upon consummation of the merger of the Company
into FFBSW, each outstanding share of the Company's common stock will be
converted into the right to receive either $20.00 in cash or FFBSW common stock,
at the election of the holder, subject to an overall requirement that 51% of the
Company's total outstanding common stock be exchanged for stock. The transaction
is subject to various conditions, including stockholder approval of both the
Company and FFBSW, and approval by the applicable banking regulatory agencies.
Pursuant to the terms of the merger agreement, FFBSW has agreed to register
FFBSW's common stock under the Securities Exchange Act of 1934 and it will file
reports with the Securities and Exchange Commission. In addition, upon the
completion of the merger, its shares are expected to be listed on the NASDAQ.
At a meeting held May 11, 2005 stockholders of FFBSW approved the merger
agreement. Subject to approval of the merger agreement by the stockholders of
the Company at a meeting scheduled for May 18, 2005, the closing of the merger
is expected by June 1, 2005.
Comparison of Financial Condition at March 31, 2005 and June 30, 2004
Total assets decreased by $23.9 million, or 10.3%, to $208.2 million at March
31, 2005 from $232.1 million at June 30, 2004 primarily due to decreases in
available-for-sale investment and mortgage-backed securities, net loans
receivable, cash and cash equivalents, stock of the Federal Home Loan Bank
("FHLB"), and loans held for sale. The $11.3 million, or 18.5%, decrease in
available-for-sale investment and mortgage-backed securities to $49.9 million at
March 31, 2005 from $61.2 million at June 30, 2004, was primarily the result of
normal monthly principal payments received on the securities owned. Net loans
receivable decreased $9.1 million, or 6.0%, to $143.3 million, at March 31,
2005, from $152.4 million at June 30, 2004, primarily due to normal monthly
principal payments received on the loans. Cash and cash equivalents of $7.2
million held at March 31, 2005 was $1.5 million or 16.8% less than the June 30,
2004 balance of $8.7 million, primarily due to normal daily fluctuations and a
decision by management to reduce the level of cash for the purpose of increasing
profitability through an increase in the level of interest earning
9
assets and also for the purpose of reducing cash exposure risk. The stock of
FHLB decreased $1.0 million, or 23.0%, to $3.4 million at March 31, 2005 from
$4.4 million at June 30, 2004, primarily due to quarterly stock redemptions by
the FHLB. There were no loans held for sale at March 31, 2005, while there were
$0.4 million in loans held for sale at June 30, 2004, resulting in a decrease of
$0.4 million, or 100.0%. This change was primarily a matter of timing, as there
has been no change in the Company's plan to sell certain longer-term, fixed-rate
one- to four-family loans in the secondary market. The remaining $1.5 million
decrease in assets during the nine-month period ended March 31, 2005 was the
result of small changes in various asset accounts including accrued interest and
dividends receivable, premises and equipment, other real estate and repossessed
property, deferred tax asset, and prepaid and other assets.
Total liabilities decreased $25.1 million, or 11.7% mostly due to a decrease in
FHLB advances of $27.0 million or 36.7% to $46.6 million at March 31, 2005, from
$73.7 million at June 30, 2004. Total deposits increased $2.6 million, or 2.0%
to $136.5 million at March 31, 2005 from $133.9 million at June 30, 2004, with
the increase made up of a $5.7 million or 11.3% increase in transaction and NOW
accounts and savings and MMDA deposits from $50.5 million at June 30, 2004 to
$56.2 million at March 31, 2005 partially offset by a $3.0 million or 3.7%
decrease in time deposits to $80.3 million at March 31, 2005 from $83.4 million
at June 30, 2004. The remaining $0.7 million decrease in liabilities was the
result of changes in various liability accounts including other secured
borrowings, repurchase agreements, accrued interest payable, advances from
borrowers for taxes and insurance, dividends payable, and accounts payable and
accrued liabilities.
Stockholders' equity increased $1.2 million, or 6.5% to $19.3 million at March
31, 2005 from $18.1 million at June 30, 2004, primarily due to earnings of
$1.329 million for the nine-month period ended March 31, 2005. The Company paid
a cash dividend of $0.125 per share, or $141,000, in the quarter ended September
30, 2004, a cash dividend of $0.125 per share, or $141,000, in the quarter ended
December 31, 2004, and a cash dividend of $0.125 per share, or $141,000, in the
quarter ended March 31, 2005.
10
RESULTS OF OPERATIONS
COMPARISON OF OPERATING RESULTS FOR QUARTER ENDED MARCH 31, 2005 COMPARED TO
QUARTER ENDED MARCH 31, 2004.
General
Net earnings for the quarter ended March 31, 2005 increased $203,000 to $528,000
($0.44 per diluted share) from $324,000 ($0.27 per diluted share) for the
quarter ended March 31, 2004. The increase in net earnings was primarily the
result of a $91,000 increase in net interest earnings, a $339,000 decrease in
the provision for loan losses, and a $54,000 increase in non-interest earnings,
partially offset by a $55,000 increase in non-interest expense and a $226,000
increase 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,
2005 compared to the quarter ended March 31, 2004.
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, 2005 Quarter ended March 31, 2004
---------------------------- ----------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
(Dollars in Thousands) (Dollars in Thousands)
Interest-earning assets:
Loans receivable (1) $146,506 $2,495 6.81% $156,489 $2,494 6.37%
Investment securities and
mortgage-backed securities 52,496 453 3.45% 67,459 554 3.28%
Other interest-earning
assets (2) 3,814 27 2.83% 4,013 17 1.69%
-------- ------ -------- ------
Total interest-earning assets 202,816 2,975 5.87% 227,961 3,065 5.38%
----- -----
Non-interest-earning assets 11,246 11,492
-------- --------
Total assets $214,062 $239,453
======== ========
Interest-bearing liabilities:
Transaction accounts $12,794 $ 11 .34% $ 11,020 $ 6 .22%
Passbook savings 9,201 17 .74% 7,702 16 .83%
Money market accounts 12,926 31 .96% 12,305 24 .78%
Certificates of deposit 81,496 536 2.63% 91,899 620 2.70%
Other liabilities (3) 58,730 549 3.74% 80,750 659 3.26%
-------- ------ -------- ------
Total interest-bearing
liabilities 175,147 1,144 2.61% 203,676 1,325 2.60%
----- -----
Non-interest bearing
liabilities 19,631 17,342
-------- --------
Total liabilities 194,778 221,018
Stockholders' equity 19,284 18,435
-------- --------
Total liabilities and
stockholders' equity $214,062 $239,453
======== ========
11
Net interest earnings $1,831 $1,740
====== ======
Interest rate spread (4) 3.26% 2.78%
==== ====
Net yield on interest-
earning assets (5) 3.61% 3.05%
==== ====
Ratio of average interest-
Earning assets to average
interest-bearing liabilities 1.16X 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.
(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.
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.
Quarter ended March 31, 2005 vs. 2004
Increase (Decrease)
Due to
--------------------------------
Rate/
Volume Rate Volume Net
------ ---- ------ ---
(Dollars in Thousands)
Interest income:
Loans receivable $(159) $ 172 $ (12) $ 1
Mortgage-backed securities and
investment securities (123) 29 (7) (101)
Other interest-earning assets (1) 11 - 10
----- ----- ----- -----
Total interest-earning assets (283) 212 (19) (90)
----- ----- ----- -----
Interest expense:
Transaction accounts 1 3 1 5
Savings accounts 3 (2) - 1
Money markets 1 6 - 7
Certificates of deposit (70) (16) 2 (84)
Other liabilities (179) 97 (28) (110)
----- ----- ----- -----
Total interest-bearing liabilities (244) 88 (25) (181)
----- ----- ----- -----
Net change in interest income $ (39) $ 124 $ 6 $ 91
===== ===== ===== =====
As shown in the above tables, average annualized yields on interest-earning
assets improved substantially for the quarter ended March 31, 2005 compared to
the same quarter during 2004. Average yield on loans receivable increased 44
basis points to 6.81% for the quarter ended March 31, 2005 compared to 6.37% for
the quarter ended March 31, 2004, a 6.9% improvement. Average yield on
investment and mortgage-backed securities increased 17 basis points, a 5.2%
increase, from 3.28% for the quarter ended March 31, 2004 to 3.45% for the
quarter ended March 31, 2005. Yields on other interest-earning assets improved
114 basis points, or 67.5%, to 2.83% in the most recent quarter, from 1.69% in
the same period a year ago. These improvements reflect a general increase in
interest rates over the period, as well as management decisions to improve
average yields through better pricing discipline.
Additionally, as seen in the rate/volume analysis table, the improved yields on
interest-earning assets partially offset a decrease in asset balances, which
resulted from management's focus on improving yields and asset quality.
12
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 none and $339,000 for the
quarters ended March 31, 2005 and 2004, respectively. The decrease in the
provision for loan losses for the current quarter compared to the same quarter a
year earlier is primarily due to improvement in loan quality and the fact that
the Company's loan portfolio decreased during the period. While the Company
maintains its allowance for losses at a level that 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 $54,000 or 29.1% to $241,000 for the
quarter ended March 31, 2005 from $187,000 for the quarter ended March 31, 2004.
This increase was primarily due to a $34,000 increase in service charge income,
a $12,000 increase in gains from sales of loans, a $5,000 increase in
miscellaneous income, and a $3,000 increase in income from real estate
operations. The $34,000 increase in service charge income was mainly due to
increased account analysis service charges and increased insufficient-funds
charges collected on transaction accounts.
Non-Interest Expense
Total non-interest expense increased $55,000 or 4.7% to $1,222,000 for the
quarter ended March 31, 2005 from $1,168,000 for the quarter ended March 31,
2004. The increase in non-interest expense was primarily attributable to
increases in professional fees, compensation and benefits, postage, FDIC
insurance, supervisory exam fees, and ATM expense, partially offset by decreases
in stationery, printing and office supplies, occupancy, and other expenses. The
$38,000 increase in professional fees for the quarter ended March 31, 2005 is
primarily attributable to increases in legal fees and other professional
services in connection with the Agreement and Plan of Merger between the Company
and First Federal Banc of the Southwest, Inc. announced on August 25, 2004.
Compensation and benefits increased $32,000, primarily due to increased accruals
for performance bonuses. The $27,000 increase in postage expense is primarily
attributable to an increase mailing costs due to increased mailings due to
growth in the number of deposit accounts. The $10,000 increase in FDIC insurance
was primarily due to an increase in the FDIC assessment. The $8,000 increase in
supervisory exam fees was primarily due to an increase in the Office of Thrift
Supervision supervisory exam fees assessment. The $3,000 increase in ATM expense
is primarily attributable to an increase in the volume of ATM transactions.
Stationery, printing, and office supplies expense decreased $15,000, primarily
due to expenses associated with the opening of a new branch in the year-earlier
period. Occupancy expense decreased $13,000, primarily due to a decrease in
depreciation expense for furniture, fixtures and equipment. Other expenses
decreased $37,000, primarily due to decreases in loss on sale of other
repossessed assets, correspondent bank expense, charitable contributions, other
operational shortages and organizational dues and subscriptions.
Borrowings
The Company may obtain advances from the FHLB of Dallas to supplement its supply
of funds available for loans and investments. Advances from the FHLB are
typically secured by a pledge of the Company's stock in the FHLB, a portion of
the Company's first mortgage loans and certain other assets. Each FHLB credit
program has its own interest rate, which may be fixed or variable, and range of
maturities. The Company, if the need arises, may also access the Federal Reserve
Bank discount window to supplement its supply of funds available for loans and
investments and to meet deposit withdrawal requirements. For the quarters ended
March 31, 2005 and March 31, 2004, borrowings with the FHLB averaged $52.2
million and $75.4 million, respectively. The approximate weighted-average rate
paid on borrowings was 3.74% and 3.92% for the quarters ended March 31, 2005 and
March 31, 2004, respectively.
13
RESULTS OF OPERATIONS
COMPARISON OF OPERATING RESULTS FOR THE NINE-MONTH PERIOD ENDED MARCH 31, 2005
COMPARED TO THE NINE-MONTH PERIOD ENDED MARCH 31, 2004.
General
Net earnings for the nine-month period ended March 31, 2005 increased $177,000
to $1,329,000 compared to net earnings of $1,152,000 for the nine-month period
ended March 31, 2004. The increase in net earnings was primarily the result of a
$403,000 increase in net interest earnings, a $409,000 decrease in the provision
for loan losses, and a $119,000 increase in non-interest earnings, partially
offset by a $387,000 increase in non-interest expense and a $367,000 increase in
income tax expense. Please refer to "Average Balance Sheets" for an analysis of
the change in net interest earnings for the nine-month period ended March 31,
2005 compared to the nine-month period ended March 31, 2004.
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, 2005 March 31, 2004
-------------- --------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
(Dollars in Thousands) (Dollars in Thousands)
Interest-earning assets:
Loans receivable (1) $150,000 $7,463 6.63% $155,794 $7,514 6.43%
Investment securities and
Mortgage-backed securities 56,544 1,386 3.27% 67,055 1,580 3.14%
Other interest-earning
assets (2) 3,838 71 2.47% 3,899 66 2.26%
-------- ------ -------- ------
Total interest-earning assets 210,382 8,920 5.65% 226,748 9,160 5.39%
Non-interest-earning assets 12,079 11,783
-------- --------
Total assets $222,461 $238,531
======== ========
Interest-bearing liabilities:
Transaction accounts $12,645 $ 34 .36% $10,586 $ 24 .30%
Passbook savings 9,180 52 .76% 7,064 50 .94%
Money market accounts 12,990 92 .94% 12,604 82 .87%
Certificates of deposit 82,622 1,623 2.62% 90,948 2,010 2.95%
Other liabilities (3) 66,593 1,759 3.52% 81,924 2,037 3.32%
-------- ------ -------- ------
Total interest-bearing
liabilities 184,030 3,560 2.58% 203,126 4,203 2.76%
Non-interest bearing
liabilities 19,437 17,415
-------- --------
Total liabilities 203,467 220,541
Stockholders' equity 18,994 17,990
-------- --------
Total liabilities and
Stockholders' equity $222,461 $238,531
======== ========
14
Net interest income $5,360 $4,957
====== ======
Interest rate spread (4) 3.07% 2.63%
==== ====
Net yield on interest-
earning assets (5) 3.40% 2.91%
==== ====
Ratio of average interest-
earning assets to average
interest-bearing liabilities 1.14X 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.
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.
Nine-month period ended
March 31, 2005 vs. 2004
Increase (Decrease)
Due to
------------------------------------
Rate/
Volume Rate Volume Net
------ ---- ------ ---
(Dollars in Thousands)
Interest income:
Loans receivable $(279) $ 234 $ (6) $ (51)
Mortgage-backed securities and
investment securities (248) 65 (11) (194)
Other interest-earning assets (1) 6 - 5
----- ----- ----- -----
Total interest-earning assets (528) 305 (17) (240)
----- ----- ----- -----
Interest expense:
Transaction accounts 5 5 - 10
Savings accounts 15 (10) (3) 2
Money markets 3 7 - 10
Certificates of deposit (184) (225) 22 (387)
Other liabilities (382) 123 (19) (278)
----- ----- ----- -----
Total interest-bearing liabilities (543) (100) - (643)
----- ----- ----- -----
Net change in interest income $ 15 $ 405 $ (17) $ 403
===== ===== ===== =====
As shown in the above tables, average annualized yields on interest-earning
assets improved for the nine months ended March 31, 2005 compared to the same
period in the prior fiscal year. Average yield on loans receivable increased 20
basis points to 6.63% for the nine months ended March 31, 2005 compared to 6.43%
for the nine months ended March 31, 2004, a 3.1% improvement. Average yield on
investment and mortgage-backed securities increased 13 basis points, a 4.1%
increase, from 3.14% for the nine months ended March 31, 2004 to 3.27% for the
nine months ended March 31, 2005. Yields on other interest-earning assets
improved 21 basis points, or 9.3%, to
15
2.47% in the current nine-month period, from 2.26% in the same period a year
ago. These improvements reflect a general increase in interest rates over the
period, as well as management decisions to improve average yields through better
pricing discipline.
Additionally, as seen in the rate/volume analysis table, the improved yields on
interest-earning assets partially offset a decrease in asset balances, which
resulted from management's focus on improving yields and asset quality.
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 $60,000 and $469,000 for
the nine-month periods ended March 31, 2005 and 2004, respectively. See
"Comparison of Operating Results for the quarter ended March 31, 2005 compared
to quarter ended March 31, 2004 - Provision for Losses on Loans."
Non-Interest Earnings
Total non-interest earnings increased by $119,000 or 18.7% to $752,000 for the
nine-month period ended March 31, 2005 from $633,000 for the nine-month period
ended March 31, 2004. This increase was primarily due to an increase in service
charge income of $121,000, an increase of $8,000 in income from real estate
operations, and a $12,000 increase in gains from sales of loans partially offset
by a decrease in miscellaneous income of $24,000. The decrease in miscellaneous
income is primarily due to gains on the sale of other real estate owned in the
nine-month period ended March 31, 2004 not present in the nine-month period
ended March 31, 2005. The increase in service charge income is primarily due to
increased account analysis service charges and increased insufficient-funds
charges collected on NOW and checking accounts.
Non-Interest Expense
Total non-interest expense increased $387,000, or 11.1%, to $3,860,000 for the
nine-month period ended March 31, 2005 from $3,474,000 for the nine-month period
ended March 31, 2004. The increase in non-interest expense was primarily
attributable to increases in professional fees, compensation and benefits, FDIC
insurance, supervisory exam fees, other expenses, ATM expense, postage, data
processing, and insurance expenses, partially offset by decreases in occupancy,
stationery, printing and office supplies, advertising, and stock services. The
$270,000 increase in professional fees for the nine-month period ended March 31,
2005 is primarily attributable to increases in legal fees and other professional
services in connection with the Agreement and Plan of Merger between the Company
and First Federal Banc of the Southwest, Inc. announced on August 25, 2004.
Compensation and benefits increased $80,000, primarily attributable to
accelerated vesting of restricted stock as a result of the filing of the
Agreement and Plan of Merger between the Company and First Federal Banc of the
Southwest, Inc. announced on August 25, 2004. The $30,000 increase in FDIC
insurance was primarily due to an increase in the FDIC assessment. The $26,000
increase in supervisory exam fees was primarily due to an increase in the Office
of Thrift Supervision supervisory exam fees assessment. Other expenses increased
$24,000, primarily due to an increase in loan expense. The $18,000 increase in
ATM expense is primarily attributable to an increase in the volume of ATM
transactions. The $13,000 increase in postage expense was primarily attributable
to increased mailings due to growth in the number of deposit accounts. Data
processing costs increased by $9,000, primarily due to growth in the number of
deposit accounts and transaction volume increases. Insurance expense increased
$9,000 due to a general increase in premium rates for property and casualty
insurance. Occupancy expense decreased $40,000 primarily due to a decrease in
depreciation expense for furniture, fixtures and equipment. Stationery, printing
and office supplies expense and advertising expense decreased $25,000 and
$18,000, respectively, mainly due to higher expenses in the year-earlier period
associated with the opening of the new branch in Farmington, New Mexico. Stock
services expenses were down $8,000 as a result of reduced stock activity.
16
Borrowings
The Company may obtain advances from the FHLB of Dallas to supplement its supply
of funds available for loans and investments. Advances from the FHLB are
typically secured by a pledge of the Company's stock in the FHLB, a portion of
the Company's first mortgage loans and certain other assets. Each FHLB credit
program has its own interest rate, which may be fixed or variable, and range of
maturities. The Company, if the need arises, may also access the Federal Reserve
Bank discount window to supplement its supply of funds available for loans and
investments and to meet deposit withdrawal requirements. For the nine-month
period ended March 31, 2005 and March 31, 2004, borrowings with the FHLB
averaged $60.0 million and $72.5 million, respectively. The approximate weighted
average rate paid on borrowings was 3.52% and 3.32% for the nine-month periods
ended March 31, 2005 and March 31, 2004, respectively.
17
Item 3. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. The Company's
management evaluated, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, the effectiveness of
the Company's disclosure controls and procedures as of the end of the
period covered by this report. Based on such evaluation, the Company's
principal executive officer and the principal financial officer have
concluded that 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.
18
PART II. OTHER INFORMATION
- -------- -----------------
Item 1. Legal Proceedings
-----------------
Not applicable.
Item 2. Unregistered Sales of Equity 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
--------
(a) List of Exhibits
2.1 Agreement and Plan of Merger, dated as of August 25, 2004, between
GFSB Bancorp, Inc. and First Federal Banc of the Southwest, Inc.*
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*****
10.6+ Change-in-Control Severance Agreement with Richard P. Gallegos******
10.7+ Change-in-Control Severance Agreement with Jerry R. Spurlin******
10.8+ Change-in-Control Severance Agreement with William W. Head, Jr.******
10.9+ Change-in-Control Severance Agreement with Leonard C. Scalzi******
31.1 Rule 13a-14(a)/15d-14(a) Certification
31.2 Rule 13a-14(a)/15d-14(a) Certification
32 Section 1350 Certification
--------------
+ Management contract or compensatory plan or arrangement.
* Incorporated herein by reference to the identically numbered
exhibit to the current report on Form 8-K filed with the SEC
on August 26, 2004.
** Incorporated herein by reference to the Registration Statement
on Form S-1 of the Company (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.
19
**** Incorporated by reference to the identically numbered exhibits
of the Quarterly Report on Form 10-QSB for the quarter ended
March 31, 2001 filed with the SEC.
***** Incorporated by reference to Exhibit 4.1 to the Registration
Statement on Form S-8 (File No. 333-51498) filed with the SEC
on December 8, 2000.
****** Incorporated by reference to Annual Report on Form 10-KSB for
the fiscal year ended June 30, 2004 as filed September 27, 2004.
20
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, 2005 /s/Jerry R. Spurlin
------------------- -----------------------------------------------
Jerry R. Spurlin
Assistant Secretary and Chief Financial Officer
(Duly Authorized Representative and
Principal Financial Officer)
21