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United States

Securities and Exchange Commission

Washington, D.C. 20549

Form 10-K

x Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2002

Commission File Number: 0-22269

GS Financial Corp.

(Exact Name of Registrant as Specified in its Charter)

Louisiana 72-1341014
(State or Other Jurisdiction (IRS Employer ID Number)
of Incorporation or Organization)  

 

3798 Veterans Blvd.

Metairie, LA 70002

(Address of Principal Executive Offices)

Registrant's Telephone Number: (504) 457-6220

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $.01 per share

(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2)

Yes No x

 

 

As of June 28, 2002, there were 1,611,386 shares of the Registrant’s common stock, par value $.01 per share, issued and outstanding. The aggregate market value of such stock, excluding the shares held by all directors, officers and affiliates of the Registrant, was $19.8 million at June 28, 2002 based on the per common share price at closing of $18.01 on that date.

DOCUMENTS INCORPORATED BY REFERENCE

Listed hereunder are the following documents which have been incorporated by reference and the Part of the Form 10-K into which the document is incorporated.

(1) Portions of the Annual Report to Shareholders for the fiscal year ended December 31, 2002 are incorporated into Part II, Items 5 through 9, and Part IV, Item 15.
(2) Portions of the definitive proxy statement for the 2003 Annual Meeting of Shareholders to be filed within 120 days of the Registrant’s fiscal year end are incorporated into Part III, Items 10 through 13.

PART I.

Item 1. BUSINESS

In addition to historical information, this Annual Report on Form 10-K includes certain "forward-looking statements," as defined in the Securities Act of 1933 and the Securities Exchange Act of 1934, based on current management expectations. The Company’s actual results could differ materially from those management expectations. Such forward-looking statements include statements regarding the Company’s intentions, beliefs or current expectations as well as the assumptions on which such statements are based. Stockholders and potential stockholders are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. Factors that could cause future results to vary from current management expectations include, but are not limited to, general economic conditions, legislative and regulatory changes, monetary and fiscal policies of the federal government, changes in tax policies, rates and regulations of federal, state and local tax authorities, changes in interest rates, deposit flows, the cost of funds, demand for loan products, demand for financial services, competition, changes in the quality or composition of the Company’s loan and investment portfolios, changes in accounting principles, policies or guidelines, and other economic, competitive, governmental and technological factors affecting the Company’s operations, markets, products, services and fees. The Company undertakes no obligation to update or revise any forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.

General

GS Financial Corp. (the "Company") was incorporated under Louisiana law on December 24, 1996 as a thrift holding company. The Company commenced operations on April 1, 1997 upon the completion of its initial public offering of common stock, which trades on the Nasdaq National Market under the symbol "GSLA." On that date the Company’s wholly owned subsidiary, Guaranty Savings and Homestead Association (the "Association") was converted from a Louisiana chartered mutual savings and loan association to a Louisiana chartered stock savings and loan association. This was accomplished through the offer and sale of common stock by the Company to certain depositors, employees, officers and directors of the Association as well as the GS Financial Employee Stock Ownership Plan (the "ESOP"). The Company simultaneously used a portion of the proceeds of its sale of common stock to acquire 100% of the stock of the Association.

The Company's principal business is conducted through the Association. Guaranty Savings and Homestead Association was founded in New Orleans, Louisiana in 1937 as a mutual savings and loan association. The Association’s unconsolidated assets at December 31, 2002 totaled $207.1 million and comprise 98.6% of the total consolidated assets of the Company. The Association provides financial services primarily to individuals, mainly through the origination of mortgage loans on 1-4 family residences. The Association accepts deposits in the form of passbook savings, certificates of deposit, demand deposit accounts and individual retirement accounts. The Association also invests in short and long term liquid investments such as US Treasury and Agency securities, mortgage backed securities, overnight Federal Funds, money market investments and qualified thrift grade mutual funds. The balance of the consolidated assets includes $2.1 million in similar short and long-term liquid investments, and $.8 million in fixed assets held exclusively at the Company level.

Regulation

The Company’s primary regulator is the Office of Thrift Supervision ("OTS"). The OTS regulates all thrifts and thrift holding companies whose deposits are insured by the Savings Association Insurance Fund ("SAIF") which is administered by the Federal Deposit Insurance Corporation ("FDIC"). The Company, by virtue of its state charter is also subject to the rules and regulations of the Louisiana Office of Financial Institutions ("OFI"). These two agencies currently examine the Company approximately every 18 months on an individual basis, relying on the examination report of the other agency on cycles, alternating when it is not their year to examine the Association. The nature of such examinations includes safety and soundness issues as well as compliance with applicable laws and regulations. The Association and Company were last examined by the OTS as of June 30, 2002.

As a public registrant the Company is subject to the rules and regulations of the Securities and Exchange Commission ("SEC"). The Company also is subject to the rules of the NASDAQ Stock Market.

The Association has been a member of the Federal Home Loan Bank of Dallas ("FHLB") since 1937. The Federal Home Loan Bank System is comprised of 12 regional banks which serve thrifts and banks by offering investment opportunities and sources of funds.

Lending Activities

Loan Portfolio Composition. The following table sets forth the composition of the Company’s loan portfolio by type of loan at the dates indicated (in thousands):

LOAN PORTFOLIO COMPOSITION

At December 31,

2002

2001

2000

1999

1998

Real Estate Loans:
One to Four
Family Residential

$

57,502

$

69,843

$

71,092

$

67,424

$

61,562

FHA and VA

1

9

52

140

237

Construction

1,263

1,056

619

646

740

Commercial Real Estate

8,672

3,431

1,006

1,377

1,157

Other

9,451

6,750

1,453

446

201

---------

---------

---------

---------

---------

Total Real Estate Loans

76,889

81,089

74,222

70,033

63,897

Consumer Loans:
Second Mortgage

7

11

52

84

119

Loans on Deposits

396

254

237

367

337

---------

---------

---------

---------

---------

Total Consumer Loans

403

265

289

451

456

Commercial Loans

1,515

683

381

-

-

---------

---------

---------

---------

---------

Total Loans

78,807

82,037

74,892

70,484

64,353

Allowance for
Loan Losses

(483)

(435)

(420)

(424)

(463)

Net Deferred Loan
Origination Costs

10

9

8

6

5

---------

---------

---------

---------

---------

Net Loans

$

78,334

$

81,611

$

74,480

$

70,066

$

63,895

=====

=====

=====

=====

=====

Contractual Term to Final Maturities. The following table sets forth certain information as of December 31, 2002 regarding the dollar amount of loans maturing in the Company’s portfolio, based on the contractual date of the loan’s final maturity, before giving effect to net items. Demand loans and loans having no stated maturity are reported as due in one year or less. The amounts shown below do not reflect normal principal amortization; rather, the balance of each loan outstanding at December 31, 2002 is shown in the appropriate year of the loan’s final maturity. The actual maturity of loans varies primarily on prepayments which to a large extent depends on market interest rates. In general, if prevailing market rates fall below those of the portfolio, prepayments accelerate. Conversely, if market interest rates increase above portfolio rates early pay-offs tend to decrease.

 

Fixed rate loans receivable as of December 31, 2002 are scheduled to mature and adjustable rate loans are scheduled to re-price as follows (in thousands):

Under
One
Year

One to
Five
Years

Over Five to Ten Years

Over
10
Years



Total

------

------

------

------

------

Loans Secured by 1-4 Family
Residential:
Fixed Rate

$

71

$

1,184

$

6,698

$

49,549

$

57,502

Other Loans Secured by
Real Estate:
Fixed Rate

-

14,236

5,158

-

19,394

Commercial Fixed Rate

1,146

-

369

-

1,515

All Other Loans

396

-

-

-

396

------

------

------

------

------

$

1,613

$

15,420

$

12,225

$

49,549

$

78,807

=====

=====

=====

=====

=====

Loan Origination Activity. The table below sets forth the Company’s total loan origination and reduction experience during the periods indicated. Historically, the Company has not purchased or sold any loans.

For the Years ended December 31,

2002

2001

2000

1999

1998

-------

-------

-------

-------

-------

Loan Originations (in thousands):
1-4 family residential

$

8,021

$

12,062

$

11,229

$

13,082

$

14,697

Construction

2,143

1,670

1,514

1,004

1,610

Commercial real estate

4,503

1,430

323

306

526

Consumer

364

252

106

266

283

Commercial

2,049

610

-

-

-

Other Real Estate

4,336

6,030

568

263

732

-------

-------

-------

-------

-------

Total Loan Originations

21,416

22,054

13,740

14,921

17,848

Loan principal
Repayments

(24,557)

(14,521)

(9,218)

(8,790)

(7,490)

Increase (decrease)
due to other items

(47)

(14)

6

72

(51)

-------

-------

-------

-------

-------

Net increase(decrease) in
Loan portfolio

$

(3,188)

$

7,519

$

4,528

$

6,203

$

10,307

======

======

======

======

======

Real Estate Lending Standards and Underwriting Policies. The lending activities of the Company are subject to written underwriting standards and loan origination procedures established by the Company's Board of Directors (the "Board") and Management. These standards and procedures are incorporated into the Company's Underwriting Standards and Lending Policy which are reviewed as needed by the Board and Management. The underwriting standards dictate the manner in which loan applications are accepted and processed. Such standards are written to comply with all applicable laws and regulations including but not limited to Truth-In-Lending (Regulation Z) and the Real Estate Settlement and Procedures Act ("RESPA"). These standards pertain to such issues as appraisal guidelines, disclosure requirements, credit criteria, complete applications, and title requirements. The Company requires appraisals from Board-approved state licensed and certified appraisers who are on an approved appraiser list maintained by Management. The lending policy establishes the overall direction of the Company's lending activities within the community and forms the basis for setting underwriting standards which limit the Company's exposure to credit risk. Such factors include loan amount, debt to income ratios, collateral, and acceptable rates and terms.

Briefly stated, the loan process consists of applicants meeting with loan personnel and providing pertinent documentation, including but not limited to, requested loan amount, property description, security offered as collateral, intended down payments and an acceptable rate and term consistent with the Company's then current lending policy. Upon receipt of a favorable credit report, an appraisal is obtained with requisite documentation to support the property's stated market value. Upon completion the loan package is presented to the Loan Committee for consideration. All applicants receive written notification of the Committee’s decision to approve or deny the request. Approved loans are assigned to one of the Company's approved attorneys for closing. Actions of the Loan Committee are submitted to the Board of Directors for consideration and ratification on a monthly basis.

Loan applications are accepted at all four of the Company’s full service branches and the loan production office in Ponchatoula and forwarded to the Loan Committee which meets weekly. The Company usually requires a title insurance policy on loans prior to closing.

The Company’s conventional fixed rate mortgage loans on 1-4 family residential dwellings are offered with terms up to 30 years. Currently, the minimum cash down payment is 20% of the lesser of purchase price or appraised value. The Company originates and funds construction loans which subsequently convert to permanent, fixed rate mortgage loans. During the construction period, the company requires payment of interest only on the amount of principal drawn.

In 2000, the Company began shifting some of its lending activity towards the commercial market to diversify and enhance the products and services offered to its customers and add higher yielding loans to the overall portfolio than current market rates on residential mortgage loans. Commercial loans typically carry higher yields and associated risk than loans on 1-4 family dwellings. The Company offers mortgage loans on multifamily residential dwellings, commercial real estate and vacant ground. The Company also offers commercial asset based loans secured by non-real estate collateral such as inventory and accounts receivable. The Company has a special commercial loan committee to evaluate such applications.

 

During 2002 and 2001, the Company was able to originate approximately $8.7 and $8.0 million of non-residential loans, respectively. These loans are secured mainly by multifamily and commercial real estate. The Company applies similar underwriting standards to its commercial loans with particular attention paid to cash flow analysis of the underlying business entity and debt coverage ratios. Commercial loan documentation procedures differ from residential lending requirements on a case-by-case basis.

Loans are available to depositors of the Company secured by passbook savings or certificates of deposit at a rate of 2 percentage points above the savings rate up to 90% of the face amount of a certificate of deposit or 90% of the current available balance of a passbook. The minimum amount on such loans is $1,000 and these loans are payable on demand subject to 30 days notice.

Asset Quality

General. The Company has adopted an asset classification policy which is designed to draw attention to assets before collection becomes a problem, thus maintaining the quality of the Company’s investment as an interest-earning asset. The policy also insures the accurate reporting of the Company’s assets from a valuation standpoint.

All of the Company’s loans are reviewed on a quarterly basis. Payment histories as well as the value of the underlying collateral are reviewed and assessed in light of several risk factors. The state of the local economy factors into the evaluation process. A healthy economy is characterized by low unemployment which usually leads to strong real estate markets and the maintenance or appreciation of underlying collateral values. Current interest rates and expectations of the movement thereof is also a significant risk factor. Low or falling interest rates can act to stimulate local real estate markets while also increasing prepayment speeds on existing assets. Rising or high interest rates usually slows down payments. The level of credit concentration the customer has with the Company is also a risk factor. Other risk factors include environmental factors which could impair the value of the underlying collateral of an asset or changes in federal and state regulations which might reduce the ability of the Company to collect all of the principal and interest owed to the Company.

The Company maintains a "Watch List" of loans, which is part of management’s internal asset classification system. The watch list identifies assets classified as "substandard," "doubtful" or "loss," pursuant to OTS regulations. Assets displaying tendencies which might hinder full collection of principal are classified as substandard. Such tendencies include but are not limited to late payments on loans or deterioration of the underlying collateral. Those loans classified substandard, for which a specific potential for loss has been identified, are considered "special assets."

Loan collection efforts in the form of past due notices commence when loan payments are more than 15 days past due. Once a loan reaches 30 days past due status, the Company’s collection manager initiates personal contact with the borrower. When a loan becomes 90 days past due, the Company initiates foreclosure proceedings. At this point, loans are placed on non-accrual status. All interest and late charges due on such loans are reversed in the form of reserves for uncollectible interest and late charges.

Real estate acquired by the Company through foreclosure is classified as foreclosed real estate until such time as the property is sold. All such assets are booked at the lower of appraised value or cost which includes all principal, escrow overdrafts and attorney fees. All foreclosed real estate is considered substandard.

Delinquent Loans and Non-Performing Assets. The following tables set forth the Company’s delinquent loans and non-performing assets as of the dates indicated. Balances are indicative of the total principal balances of such loans rather than the actual principal past due based on the number of payments past due. The Company had no loans 90 plus days delinquent and still accruing in the table below. At December 31 of the five years presented, predominantly all of the Association’s delinquent loans and non performing assets were either repossessed 1-4 family residential dwellings or loans secured by 1-4 family residential dwellings.

 

 

DELINQUENT LOANS

(Dollars in thousands)

 

At December 31,

2002

2001

2000

1999

1998

-----

-----

-----

-----

-----

30-89 Days $

2,931

$

3,542

$

2,231

$

2,673

$

2,171

90+ Days

651

249

434

100

266

-----

-----

-----

-----

-----

Total Delinquent Loans $

3,582

$

3,791

$

2,665

$

2,773

$

2,437

====

====

====

====

====

 

Non Performing Assets

(Dollars in thousands)

At December 31,

2002

2001

2000

1999

1998

-----

-----

-----

-----

-----

90+ Day Delinquent Loans

$

651

$

249

$

434

$

100

$

266

Foreclosed Real Estate

-

-

117

14

-

-----

-----

-----

-----

-----

Total Non Performing Assets

$

651

$

249

$

551

$

114

$

266

===

===

===

===

===

Non Performing Loans as
a % of Total Loans

.83%

.30%

.58%

.14%

.42%

Non Performing Assets as
a % of Total Assets

.31%

.13%

.28%

.06%

.17%

 

Classified Assets. At December 31, 2002, 2001 and 2000, the Company’s total classified assets amounted to $1.8 million. All such classified loans at each of these dates were secured by first liens on one-to-four family residential dwellings.

Allowance for Loan Loss. The allowance for loan loss ("ALL") is calculated by assessing the need for specific reserves on identified problem credits (see special assets in the previous paragraph) in addition to using historical and economic based percentages on certain classifications of homogeneous loans to arrive at an overall ALL. These categories are based on the type of underlying collateral such as commercial or residential real estate while still other categories are based on the nature of the loan such as construction verses permanent financing. At December 31, 2002, the ALL was allocated as follows:

 

GS Financial Corp.

Allocation of the Allowance for Loan Losses

 

At December 31,

Allowance at
End of Period
Applicable to:

2002

2001

2000

1999

1998
Amount

Percent
of Total
Loans

Amount

Percent
of Total
Loans

Amount

Percent
of Total
Loans

Amount

Percent
of Total
Loans

Amount

Percent
of Total
Loans
One to Four Family Residential

$ 217

73.0%

$ 337

85.1%

$ 390

94.9%

$ 340

95.7%

$ 377

95.7%

FHA and VA

-

0.0%

-

0.0%

-

.1%

-

.2%

-

.4%

Construction

5

1.6%

5

1.4%

-

.8%

-

.9%

-

1.1%

Commercial Real Estate

115

11.0%

57

4.2%

24

1.3%

39

2.0%

15

1.8%

Other Real Estate

126

12.0%

33

8.2%

-

1.9%

45

.6%

45

.3%

Second Mortgage

-

0.0%

-

0.0%

-

.1%

-

.1%

26

.2%

Loans on Deposits

-

.5%

-

.3%

-

.3%

-

.5%

-

.5%

Commercial Loans

20

1.9%

3

.8%

6

n/a

-

n/a

-

n/a

                     
TOTAL

$ 483

100.0%

$ 435

100.0%

$ 420

100.0%

$ 424

100.0%

$ 463

100.0%

 

====

 

====

 

====

 

====

 

====

 

During 2002, the ALL increased even though the loan portfolio decreased in size. The increase in ALL was not due to any deterioration of collateral, downturn in the economy or other negative factor. The change in the mix of the loan portfolio dictated the increase. At December 31, 2001, non-residential loans comprised approximately 13% of the entire portfolio, as compared to approximately 25% at December 31, 2002. These loans are primarily mortgage loans secured by multifamily residential dwellings or commercial real estate. Non-residential loans typically carry more risk than residential loans, and under the Company’s valuation calculation, are assessed higher valuation allowances than residential loans.

 

LOAN LOSS EXPERIENCE

Provisions for loan losses are charged to earnings to bring the total ALL to a level considered appropriate by management. Losses are incurred via foreclosure, deterioration of the underlying collateral, inability of the customer to repay the loan or other means. These losses are charged against the ALL. The ALL is evaluated throughout the year and provisions to increase or reductions to reduce the allowance to the appropriate level deemed by management are recorded when necessary. Charge-offs reduce the allowance while recoveries increase the allowance during the quarter. Management assesses the ALL accordingly and establishes additional provisions to bring the ALL to an appropriate level. The appropriate level of the ALL is determined by management’s estimation of the amount of loss associated with loans considered to be impaired in accordance with SFAS 114, "Accounting by Creditors for Impairment of a Loan," as well as management’s estimate of loss associated with the remaining portfolio. Historical analysis of factors such as number of foreclosures, level of delinquencies and amount of charge-offs as well as other factors such as local and national economic conditions help management set both the formula used to calculate the ALL for the remaining loan portfolio as well as an appropriate level for the ALL overall.

The following table sets forth the Company’s loan loss experience for the years presented. All of the charge-offs and provisions in the following table were on first mortgages of one-to-four family dwellings. An analysis of the allowance for loan loss is as follows (dollars in thousands):

Years Ended December 31,

2002

2001

2000

1999

1998

-----

-----

-----

-----

-----

Balance, Beginning
of Year

$

435

$

420

$

424

$

463

$

410

Provision for Losses

48

25

7

6

53

Loans Charged Off

-

(10)

(11)

(45)

-

Recoveries

-

-

-

-

-

-----

-----

-----

-----

-----

Balance, End of Year

$

483

$

435

$

420

$

424

$

463

====

====

====

====

====

Allowance for Loan
Losses as a % of
Total Loans Receivable

.62%

.53%

.56%

.60%

.72%

Allowance for Loan
Losses as a % of
Non Performing Loans

74.16%

174.80%

96.69%

422.97%

174.01%

Mortgage-Backed Securities

The Company has invested in a portfolio of fixed-rate, mortgage-backed securities that are issued or guaranteed by the Government National Mortgage Association ("GNMA.") GNMA securities represent direct obligations of the Federal government. Because of this, these securities are considered high quality investments with minimal credit risks. The guaranteed aspect of these investments results in yields slightly less than the actual yields on the underlying mortgage loans.

Mortgage-backed securities represent participating interests in pools of first mortgage loans originated and serviced by their prospective issuers. Principal and interest payments of the underlying mortgage loans are passed through intermediaries, including but not limited to the issuing agencies, on to investors such as GS Financial Corp.

The Company invests in mortgage-backed securities with terms varying from 5 to 30 years. These securities are subject to variations in cash flow and yield due to the prepayment rates of the underlying mortgage loans. All such mortgage-backed securities meet the requirements of qualified thrift investments as later defined.

All of the Company’s mortgage-backed securities are classified as available-for-sale pursuant to SFAS 115. During 2000 and 2001, the Company largely divested itself of mortgage-backed securities in order to provide liquidity for additional investment in CMOs which provide more attractive yields and terms to the Company.

The following table sets forth the composition of the Company’s mortgage-backed securities portfolio at each of the dates indicated (in thousands):

MORTGAGE-BACKED SECURITIES



At December 31, 2002:


Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses


Fair
Value

----------

----------

----------

----------

Available for Sale:
GNMA

$

539

$

30

$

-

$

569

-------

-------

-------

-------

$

539

$

30

$

-

$

569

=====

=====

=====

=====



At December 31, 2001:


Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses


Fair
Value

----------

----------

----------

----------

Available for Sale:
GNMA

$

857

$

28

$

-

$

885

-------

-------

-------

-------

$

857

$

28

$

-

$

885

====

==

==

=====

The following table sets forth the contractual maturities of the mortgage-backed security portfolio as of December 31, 2002 (in thousands):

MORTGAGE-BACKED SECURITIES



At December 31, 2002:


Amortized Cost


Fair Value

Weighted Average Rate

---------

---------

Mortgage-Backed Securities Maturing:
In One Year or Less

$

-

$

-

-

After One Year Through Five Years

-

-

-

After Five Years Through Ten Years

-

-

-

After Ten Years

539

569

8.25%

------

------

$

539

$

569

====

====

 

 

 

 

 

The following table sets forth the purchases, sales and principal repayments of the Company’s mortgage-backed securities during the periods indicated (in thousands):

MORTGAGE-BACKED SECURITIES

2002

2001

2000

-------

-------

-------

Mortgage-Backed Securities
Balance at January 1,

$

857

$

4,118

$

16,743

Purchases

-

-

-

Repayments

(311)

(925)

(1,956)

Sales (Net of Gains)

-

(2,321)

(10,650)

Amortizations of Premiums
/Discounts (Net)

(7)

(15)

(19)

-------

-------

-------

Balance at December 31,

$

539

$

857

$

4,118

====

======

======

Weighted Average Yield

7.09%

6.54%

6.68%

Investment Securities

The Company invests in United States Treasury issued investments, FHLMC common and preferred stock, and several mutual funds for which the underlying collateral is comprised of mortgage-based products, United States Treasury Obligations and various money-market investments. These mutual funds provide the Company with an investment with one-day availability which offer yields over and above traditional overnight investments. The investment policy of the Company strives to maintain a liquid, conservative portfolio of investments, keeping in mind the cash flow and investment needs of the Company. The Company’s investment portfolio is classified as available-for-sale in accordance with SFAS 115.

Interest rates dictate many of the investment decisions and policies of the Company. It is the policy of the Company not to engage in speculative purchasing, selling or trading of investments, however, certain profits may be taken from time to time on the sale of investments. When interest rate spreads reach acceptable levels the Company may utilize leveraged purchasing of investment securities. Also, when anticipated earnings permit, certain portfolio adjustments may be made to enhance the overall portfolio yield even though losses may be recognized in doing so.

 

INVESTMENT SECURITIES

Securities available-for-sale consist of the following (in thousands):



At December 31, 2002:


Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses


Fair
Value

----------

----------

----------

----------

U. S. Government
and Federal Agencies

$

801

$

116

$

-

$

917

Adjustable Rate
Mortgage Mutual Fund

31,924

39

-

31,963

Intermediate
Mortgage Mutual Fund

412

7

-

419

FHLMC Common Stock

16

929

-

945

FHLMC Preferred Stock

19,846

1,001

-

20,847

-------

-------

-------

-------

$

52,999

$

2,092

$

-

$

55,091

======

=====

=====

=====



At December 31, 2001:


Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses


Fair
Value

----------

----------

----------

----------

U. S. Government
and Federal Agencies

$

801

$

85

$

-

$

886

Adjustable Rate
Mortgage Mutual Fund

12,481

32

-

12,513

Ultra Short Term
Mutual Fund

4,255

-

4

4,251

Intermediate
Mortgage Mutual Fund

394

3

-

397

FHLMC Common Stock

16

1,031

-

1,047

FHLMC Preferred Stock

16,224

326

-

16,550

Equity Investments – Other

173

3

-

176

-------

-------

-------

-------

$

34,344

$

1,480

$

4

$

35,820

=====

=====

===

=====

 

The following table sets forth the amount of investment securities which mature during each of the periods indicated at December 31, 2002:

INVESTMENT SECURITIES

Securities

Available-for-Sale


At December 31, 2002:


Amortized Cost


Fair Value

Weighted Average Rate

---------

---------

Amounts Maturing in:
In One Year or Less

$

52,198

$

54,174

3.60%

After One Year Through Five Years

801

917

7.19%

After Five Years Through Ten Years

-

-

-

------

------

$

52,999

$

55,091

=====

=====

COLLATERALIZED MORTGAGE OBLIGATIONS

Currently, the Company’s investment in Collateralized Mortgage Obligations (CMO’s) is limited to Real Estate Mortgage Investment Conduits (REMIC’s). A REMIC is a pass through investment created under the Tax Reform Act of 1986 to issue multiple class mortgage-backed securities. The Company’s investment in REMIC’s is limited to those issued by FNMA, FHLMC, GNMA and "AAA" rated non-governmental issuers. These are defined to be within the 20% risk-weighted category for thrift institutions. The contractual maturity of a REMIC is defined by the latest maturity date of the underlying group of mortgage loans. In terms of actual cash flow, the term or duration of the REMIC’s purchased by the Company varies from 1 to 7 years. The cash flow of these investments facilitates the operating needs of the Company.

 

The following table sets forth the composition of the Company’s portfolio of Collateralized Mortgage Obligations indicated (in thousands):

COLLATERALIZED MORTGAGE OBLIGATIONS



At December 31, 2002:


Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses


Fair
Value

----------

----------

----------

----------

Available-for-Sale:
FNMA

$

7,534

$

8

$

18

$

7,524

FHLMC

19,404

81

2

19,483

GNMA

1,601

-

-

1,601

Other

23,564

898

4

24,458

-------

-------

-------

-------

$

52,103

$

987

$

24

$

53,066

=====

=====

===

=====



At December 31, 2001:


Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses


Fair
Value

----------

----------

----------

----------

Available-for-Sale:
FNMA

$

1,283

$

-

$

9

$

1,274

FHLMC

13,702

153

65

13,790

Other

35,810

1,213

-

37,023

-------

-------

-------

-------

$

50,795

$

1,366

$

74

$

52,087

=====

=====

====

=====

Sources of Funds

General. The last two years the Company has experienced a significant increase in retail deposits, due largely to investors taking money out to the equity markets. The Company has also utilized wholesale sources such as the FHLB which allows member institutions such as the Company to borrow money at discounted costs.

Deposits. The Company’s deposits are attracted principally from within its market area. Many depositors are also loan customers. The Company offers passbook savings, demand deposit accounts, NOW accounts and certificates of deposit. Terms for certificates vary from 6 months to 5 years while rates tend to increase with term.

 

The following table shows the distribution of, and certain other information relating to the Company’s deposits. Deposit account balances at December 31, 2002, 2001, and 2000 are summarized as follows (in thousands):

Years Ending December 31,

2002

2001

2000

Wtd.

Wtd.

Wtd.

Avg.

Avg.

Avg.

Balance

Rate

Balance

Rate

Balance

Rate

---------

----------

---------

----------

---------

----------

Demand Deposit
Accounts $

7,143

1.83%

$

7,910

1.94%

$

3,185

4.64%

Passbook Savings
Accounts

31,153

2.28%

20,042

2.75%

17,431

3.00%

Certificates of
Deposit

68,213

3.44%

43,217

4.34%

38,263

5.85%

--------

--------

--------

$

106,509

$

71,169

$

58,879

=====

=====

=====

The following table sets forth the deposit cash flow of the Company during the periods indicated (in thousands):

Years Ended December 31,

2002

2001

2000

------

------

------

Increase (decrease) before
Interest Credited $

33,174

$

10,019

$

(2,396)

Interest Credited

2,167

2,271

2,059

------

------

------

Net increase (decrease) in deposits $

35,341

$

12,290

$

(337)

The Company attempts to price its deposit accounts to remain generally competitive with other financial institutions in its market area, while maintaining its traditional margins. Traditionally the Company has relied on its passbook savings accounts as a core deposit base. During 2001, the Company was able to establish a portfolio of demand deposit accounts of approximately $8.0 million. This was in line with the Company's goals to diversify and expand the products and services offered to its customers. The Company does not pay "jumbo" rates for deposits $100,000 and over.

The principal methods used by the Company to attract deposits include its emphasis on personal service, competitive interest rates and convenient office locations. The Company does not advertise for deposits outside of its primary market area. At December 31, 2002, the Company had no deposits that were obtained through deposit brokers.

The following table presents the amount of certificates of deposit at December 31, 2002 which mature during the periods indicated (in thousands).

Amount

Percent

-------

-------

Certificate Accounts Maturing
Under 12 months $

47,695

69.92%

12 months to 24 months

8,981

13.17%

24 months to 36 months

11,428

16.75%

36 months to 48 months

35

0.05%

48 months to 60 months

74

0.11%

------

-----

Total Certificates $

68,213

100.00%

=====

======

The following table sets forth the maturities of the Company’s deposits of $100,000 or more at December 31, 2002 by time remaining to maturity (in thousands).

DEPOSITS $100,000 AND OVER

(in thousands)

Maturing in 3 months or less $

8,918

Maturing in 3 to 6 months

3,282

Maturing in 6 months to 1 year

2,485

Maturing in 1 to 2 years

510

Maturing in 2 to 3 years

2,173

------

Total Deposits $100,000 and over $

17,368

=====

 

Borrowings. During 2002 the Company obtained advances from the FHLB, as part of a leveraged investment program. The Company borrows the funds which are subsequently reinvested in mortgage-backed securities, collateralized mortgage obligations and other investments which earn interest at a rate greater than the rate charged on the advances. The advances consist of fully amortizing and balloon advances which mature between January, 2003 and June, 2008. A summary of the advances by maturity and interest rate are detailed as follows (in thousands):

Weighted

Maturing in the Year

Average

Ending December 31,

Amount

Rate

-------------------

----------

----------

2003

$

27,453

5.51%

2004

6,226

5.56%

2005

9,537

5.97%

2006

6,131

5.55%

2007

5,514

5.63%

Thereafter

11,531

5.44%

---------

$

66,392

The maximum amount of advances outstanding at any month-end during 2002 was $79.3 million. The average balance outstanding during 2002 was $72.1 million.

 

Treasury Stock

Since 1998, the Company has been repurchasing shares of its common stock. The following table summarizes the repurchase of shares of its common stock by year:

GS Financial Corp.

Common Stock Repurchases
     
  Shares Average Price
Year Repurchased Per Share
------ ---------------- -----------------
1998 491,054 $ 16.95
1999 299,000 $ 12.22
2000 679,600 $ 12.64
2001 305,684 $ 15.09
2002 142,201 $ 17.69
  --------- ----------
Total 1,917,539 $ 14.44
  ======= ======

All purchases were open market transactions and most were at a discount to book value.

 

 

 

Subsidiaries

Guaranty Savings and Homestead Association is a wholly-owned subsidiary of the Company. The Company has no other subsidiaries.

Competition

Guaranty Savings and Homestead Association faces significant competition both in attracting deposits and in originating loans. Its most direct competition for loans and deposits has come from commercial banks, credit unions, other savings and loans and mortgage brokers located in the metropolitan New Orleans market. The Association also competes for investors’ funds with short-term money market mutual funds and issuers of corporate and government securities. Guaranty Savings and Homestead Association does not rely on any individual group or entity for a material portion of its deposits or loan portfolio. The Association’s primary factors in competing in the loan and deposit markets are its efficient personal service and attractive interest rates and terms.

Employees

The Association had 40 full-time employees at December 31, 2002. None of these employees are represented by a collective bargaining agreement. Guaranty Savings and Homestead Association believes that it enjoys excellent relations with its personnel.

Regulation

Set forth below is a brief description of certain laws and regulations which are applicable to the Company and Guaranty Savings and Homestead Association. The description of these laws and regulations, as well as descriptions of laws and regulations contained elsewhere herein, does not purport to be complete and is qualified in its entirety by reference to applicable laws and regulations.

The Company

General. The Company, as a savings and loan holding company within the meaning of the Home Owners’ Loan Act, as amended ("HOLA"), is registered with and subject to OTS regulations, examinations, supervision and reporting. As a subsidiary of a savings and loan holding company, Guaranty Savings and Homestead Association is subject to certain restrictions in its dealings with the Company and any affiliates thereof.

Activities Restrictions. There are generally no restrictions on the activities of a savings and loan holding company which holds only one subsidiary savings institution. However, if the Director of the OTS determines that there is reasonable cause to believe that the continuation by a savings and loan holding company of an activity constitutes a serious risk to the financial safety, soundness or stability of its subsidiary savings institution, the Director may impose such restrictions as deemed necessary to address such risk, including limiting (i) payment of dividends by the savings institution; (ii) transactions between the savings institution and its affiliates; and (iii) any activities of the savings institution that might create a serious risk that the liabilities of the holding company and its affiliates may be imposed on the savings institution. Notwithstanding the above rules as to permissible business activities of unitary savings and loan holding companies, if the savings institution subsidiary of such a holding company fails to meet the qualified thrift lender ("QTL") test, as discussed under "- The Association – Qualified Thrift Lender Test," then such unitary holding company also shall become subject to the activities restrictions applicable to multiple savings and loan holding companies and, unless the savings institution re-qualifies as a QTL within one year thereafter, shall register as, and become subject to the restrictions applicable to, a bank holding company. See "- The Association – Qualified Thrift Lender Test."

If the Company were to acquire control of another savings institution, other than through merger or other business combination with Guaranty Savings, the Company would thereupon become a multiple savings and loan holding company. Except where such acquisition is pursuant to the authority to approve emergency thrift acquisitions and where each subsidiary savings institution meets the QTL test, as set forth below, the activities of the Company and any of its subsidiaries (other than Guaranty Savings or other subsidiary savings institutions) would thereafter be subject to further restrictions. Among other things, no multiple savings and loan holding company or subsidiary thereof which is not a savings institution shall commence or continue for a limited period of time after becoming a multiple savings and loan holding company or subsidiary thereof any business activity, other than: (i) furnishing or performing management services for a subsidiary savings institution; (ii) conducting an insurance agency or escrow business; (iii) holding, managing, or liquidating assets owned by or acquired from a subsidiary savings institution; (iv) holding or managing properties used or occupied by a subsidiary savings institution; (v) acting as trustee under deeds of trust; (vi) those activities authorized by regulation as of March 5, 1987 to be engaged in by multiple savings and loan holding companies; or (vii) unless the Director of the OTS by regulation prohibits or limits such activities for savings and loan holding companies. Those activities described in clause (vii) above also must be approved by the Director of the OTS prior to being engaged in by a multiple savings and loan holding company.

Limitations on Transactions with Affiliates. Transactions between savings institutions and any affiliate are governed by Sections 23A and 23B of the Federal Reserve Act. An affiliate of a savings institution is any company or entity which controls, is controlled by or is under common control with the savings institution. In a holding company context, the parent holding company of a savings institution (such as the Company) and any companies which are controlled by such parent holding company are affiliates of the savings institution. Generally, Sections 23A and 23B (i) limit the extent to which the savings institution or its subsidiaries may engage in "covered transactions" with any one affiliate to an amount equal to 10% of such institution’s capital stock and surplus, and contain an aggregate limit on all such transactions with all affiliates to an amount equal to 20% of such capital stock and surplus and (ii) require that all such transactions be on terms substantially the same, or at least as favorable, to the institution or subsidiary as those provided to a non-affiliate. The term "covered transaction" includes the making of loans, purchase of assets, issuance of guarantee and other similar transactions. In addition to the restrictions imposed by Sections 23A and 23B, no savings institution may (i) loan or otherwise extend credit to an affiliate, except for any affiliate which engages only in activities which are permissible for bank holding companies, or (ii) purchase or invest in any stocks, bonds, debentures, notes or similar obligations of any affiliate, except for affiliates which are subsidiaries of the savings institution.

In addition, Sections 22(h) and (g) of the Federal Reserve Act place restrictions on loans to executive officers, directors and principal stockholders. Under Section 22(h), secured loans to a director, an executive officer and to a greater than 10% stockholder of a savings institution, and certain affiliated interest of either, may not exceed, together with all other outstanding loans to such person and affiliated interests, the savings institution’s loans to one borrower limit (generally equal to 25% of the institution’s unimpaired capital and surplus). Section 22(h) also requires that loans to directors, executive officers and principal stockholders be made on terms substantially the same as offered in comparable transactions to other persons unless the loans are made pursuant to a benefit or compensation program that (i) is widely available to employees of the institution and (ii) does not give preference to any director, executive officer or principal stockholder, or certain affiliated interests of either, over other employees of the savings institution. Section 22(h) also requires prior Board approval for certain loans. In addition, the aggregate amount of extensions of credit by a savings institution to all insiders cannot exceed the institution’s unimpaired capital and surplus. Furthermore, Section 22(g) places additional restrictions on loans to executive officers. At December 31, 2002 Guaranty Savings was in compliance with the above restrictions.

Restrictions on Acquisitions. Except under limited circumstances, savings and loan holding companies are prohibited from acquiring, without prior approval of the Director of the OTS, (i) control of any other savings institution or savings and loan holding company or substantially all the assets thereof or (ii) more than 5% of the voting shares of a savings institution or holding company thereof which is not a subsidiary. Except with the prior approval of the Director of the OTS, no director or officer of a savings and loan holding company or person owning or controlling by proxy or otherwise more than 25% of such company’s stock, may acquire control of any savings institution, other than a subsidiary savings institution, or of any other savings and loan holding company.

The Director of the OTS may only approve acquisitions resulting in the formation of a multiple savings and loan holding company which controls savings institutions in more than one state if (i) the multiple savings and loan holding company involved controls a savings institution which operated a home or branch office located in the state of the institution to be acquired as of March 5, 1987; (ii) the acquirer is authorized to acquire control of the savings institution pursuant to the emergency acquisition provisions of the Federal Deposit Insurance Act ("FDIA"); or (iii) the statutes of the state in which the institution to be acquired is located specifically permit institutions to be acquired by the state-chartered institutions or savings and loan holding companies located in the state where the acquiring entity is located (or by a holding company that controls such state-chartered savings institutions).

Under the Bank Holding Company Act of 1956, the Federal Reserve Bank ("FRB") is authorized to approve an application by a bank holding company to acquire control of a savings institution. In addition, a bank holding company that controls a savings institution may merge or consolidate the assets and liabilities of the savings institution with, or transfer assets and liabilities to, any subsidiary bank which is a member of the Bank Insurance fund with the approval of the appropriate federal banking agency and the FRB. As a result of these provisions, there have been a number of acquisitions of savings institutions by bank holding companies in recent years.

Federal Securities Laws. The Company’s common stock is registered with the SEC under the Securities and Exchange Act of 1934 ("Exchange Act"). The Company is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Exchange Act.

Sarbanes-Oxley Act of 2002 On July 30, 2002, the President signed into law the Sarbanes-Oxley Act of 2002 implementing legislative reforms intended to address corporate and accounting fraud. In addition to the establishment of a new accounting oversight board which will enforce auditing, quality control and independence standards and will be funded by fees from all publicly traded companies, the bill restricts provision of both auditing and consulting services by accounting firms. To ensure auditor independence, any non-audit services being provided to an audit client will require preapproval by the company's audit committee members. In addition, the audit partners must be rotated. The bill requires chief executive officers and chief financial officers, or their equivalent, to certify to the accuracy of periodic reports filed with the SEC, subject to civil and criminal penalties if they knowingly or willfully violate this certification requirement. In addition, under the Act, counsel will be required to report evidence of a material violation of the securities laws or a breach of fiduciary duty by a company to its chief executive officer or its chief legal officer, and, if such officer does not appropriately respond, to report such evidence to the audit committee or other similar committee of the board of directors or the board itself.

Longer prison terms will also be applied to corporate executives who violate federal securities laws, the period during which certain types of suits can be brought against a company or its officers has been extended, and bonuses issued to top executives prior to restatement of a company's financial statements are now subject to disgorgement if such restatement was due to corporate misconduct. Executives are also prohibited from insider trading during retirement plan "blackout" periods, and loans to company executives are restricted. In addition, a provision directs that civil penalties levied by the SEC as a result of any judicial or administrative action under the Act be deposited to a fund for the benefit of harmed investors. The Federal Accounts for Investor Restitution ("FAIR") provision also requires the SEC to develop methods of improving collection rates. The legislation accelerates the time frame for disclosures by public companies, as they must immediately disclose any material changes in their financial condition or operations. Directors and executive officers must also provide information for most changes in ownership in a company’s securities within two business days of the change.

The Act also increases the oversight of, and codifies certain requirements relating to audit committees of public companies and how they interact with the company's "registered public accounting firm" ("RPAF"). Audit Committee members must be independent and are barred from accepting consulting, advisory or other compensatory fees from the issuer. In addition, companies must disclose whether at least one member of the committee is a "financial expert" (as such term will be defined by the SEC) and if not, why not. Under the Act, a RPAF is prohibited from performing statutorily mandated audit services for a company if such company's chief executive officer, chief financial officer, comptroller, chief accounting officer or any person serving in equivalent positions has been employed by such firm and participated in the audit of such company during the one-year period preceding the audit initiation date. The Act also prohibits any officer or director of a company or any other person acting under their direction from taking any action to fraudulently influence, coerce, manipulate or mislead any independent public or certified accountant engaged in the audit of the company's financial statements for the purpose of rendering the financial statement's materially misleading. The Act also requires the SEC to prescribe rules requiring inclusion of an internal control report and assessment by management in the annual report to shareholders. The Act requires the RPAF that issues the audit report to attest to and report on management's assessment of the company’s internal controls. In addition, the Act requires that each financial report required to be prepared in accordance with (or reconciled to) generally accepted accounting principles and filed with the SEC reflect all material correcting adjustments that are identified by a RPAF in accordance with generally accepted accounting principles and the rules and regulations of the SEC.

The Association

General. As a Louisiana chartered stock savings and loan association, the OFI is the Association’s chartering authority, and the OTS serves as the Association’s primary regulator. As such, the OFI and the OTS have extensive authority over the operations of Louisiana-chartered savings institutions. The Association is subject to periodic examinations and is required to file monthly, quarterly and annual reports with either or both parties. The investment and lending authority of savings institutions are prohibited from engaging in any activities not permitted by such laws and regulations. Such regulation and supervision is primarily intended for the protection of depositors.

Insurance of Accounts. The deposits of Guaranty Savings and Homestead Association are insured to the maximum permitted by the SAIF, which is administered by the FDIC, and are backed by the full faith and credit of the U.S. Government. As insurer, the FDIC is authorized to conduct examinations of, and to require reporting by, FDIC-insured institutions. It also may prohibit any FDIC-insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious threat to the FDIC. The FDIC also has the authority to initiate enforcement actions against savings institutions, after giving the OTS an opportunity to take such action.

The FDIC may terminate the deposit insurance of any insured depository institution, including Guaranty Savings and Homestead Association, if it determines after a hearing that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, order or any condition imposed by an agreement with the FDIC. It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance, if the institution has no tangible capital. If insurance of accounts is terminated, the accounts at the institution at the time of the termination, less subsequent withdrawals, shall continue to be insured for a period of six months to two years, as determined by the FDIC. Management is aware of no existing circumstances which would result in termination of the Association’s deposit insurance.

Regulatory Capital Requirements. Federally insured savings institutions are required to maintain minimum levels of regulatory capital. Pursuant to the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), the OTS has established capital standards applicable to all savings institutions. These standards generally must be as stringent as the comparable capital requirements imposed on national banks. The OTS also is authorized to impose capital requirements in excess of these standards on individual institutions on a case-by-case basis.

Current OTS capital standards require savings institutions to satisfy three different capital requirements. Under these standards, savings institutions must maintain tangible capital (1.5%), core capital (3.0%), and risk based capital (8.0%). Core capital includes generally recognized capital such as common stockholders’ equity and retained earnings plus other items such as qualifying goodwill. Tangible capital is essentially the same but does not include qualifying supervisory goodwill. At December 31, 2002 the Association had no goodwill or other intangible assets which are deducted in computing its tangible capital.

In determining risk-based capital, a savings institution is allowed to include both core capital and supplementary capital. Assets are assigned to particular risk-weighted categories and subsequently multiplied by that particular percentage (cash and US Treasury and Agency securities equal 0%, 20% for high quality mortgage-backed securities including those issued by US Government Agencies and "AAA" rated private companies, state and local obligations, claims on FHLB’s and claims on domestic depository institutions, 50% for single family mortgage loans and 100% for all other loans and investments). The sum of these calculations becomes the total of risk-weighted assets which are then used to calculate the Association’s risk-based capital ratio.

At December 31, 2002, Guaranty Savings exceeded all of its regulatory capital requirements, with tangible, core and risk- based capital ratios of 13.79%, 13.79% and 25.05% respectively.

Liquidity Requirements. During 2001, the OTS adopted a final rule removing formal regulation requiring savings institutions to maintain an average daily balance of liquid assets equal to four percent of its average daily balance of net withdrawable deposit accounts and borrowings payable in one year or less commonly referred to as its liquidity base. The Association does maintain a formal policy of providing for sufficient liquidity to ensure its safe and sound operation. This includes being able to meet its daily financial obligations including but not limited to loan disbursements, savings withdrawals, payment of cash dividends and operating expenses of the Association. The cash position of the Association is managed through monitoring and maintaining certain levels of cash on hand, overnight Federal Funds Sold and other short-term liquid assets.

Capital Distributions. A savings institution that before and after the proposed distribution would at least be adequately capitalized may make capital distributions during any calendar year equal to net income for the applicable calendar year plus net income for the prior two years less any capital distribution in those prior periods. Failure to meet minimum capital requirements will result in further restriction on capital distributions, including possible prohibition without explicit OTS approval.

In order to make distributions under this safe harbor, institutions which are subsidiaries of savings and loan holding companies must submit 30 day written notice to the OTS prior to making the distribution. The OTS may object to the distribution during the 30-day period based on safety and soundness concerns.

Community Reinvestment. Under the Community Reinvestment Act of 1977, as amended ("CRA"), as implemented by OTS regulations, a savings institution has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA requires the OTS, in connection with its examination of a savings institution, to assess the institution’s record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such institution. The CRA requires public disclosure of an institution’s CRA rating and requires the OTS to provide a written evaluation of an institution’s CRA performance utilizing a rating system which identifies four levels of performance that may describe an institution’s record of meeting community needs: outstanding, satisfactory, needs to improve and substantial noncompliance. The CRA also requires all institutions to make public disclosure of their CRA ratings. The Association’s current CRA rating is satisfactory.

Qualified Thrift Lender Test. The Qualified Thrift Lender (QTL) Test measures the Association’s level of qualified thrift investments compared to its total portfolio assets (total assets less intangibles, property used by a savings association in its business and liquidity investments in an amount not to exceed 20% of assets). Generally, qualified thrift investments ("QTI’s") are residential housing related assets. The Internal Revenue Service (IRS) requires a savings institution to have at least 65% of its assets in QTI’s to qualify for tax treatment as a building and loan association. At December 31, 2002, 88.4% of the Association’s assets were invested in QTI’s which was in excess of the 65% required to qualify the Association under the QTL test.

Federal Home Loan Bank System. Guaranty Savings and Homestead Association is a member of the FHLB of Dallas. Each FHLB serves as a reserve or central bank for its members within its assigned region. It is funded primarily from proceeds derived from the sale of FHLB agency issued obligations. As a member, the Association is required to maintain stock in the FHLB of Dallas in an amount equal to at least 1% of its aggregate unpaid residential mortgage loans, home purchase contracts or similar obligations at the beginning of each year or 5% of its advances from the FHLB of Dallas, whichever is greater. At December 31, 2002, Guaranty Savings and Homestead Association had $5.5 million in FHLB stock, which was in compliance with this requirement.

 

Federal Taxation

General. The Company and the Association are subject to the generally applicable corporate tax provisions of the Internal Revenue Code (the "Code"), and the Association is subject to certain additional provisions of the Code which apply to thrifts and other types of financial institutions. The following discussion of federal taxation is intended only to summarize certain pertinent federal income tax matters relevant to the taxation of the Company and the Association and is not a comprehensive discussion of the tax rules applicable to the Company and the Association.

Year. The Company files a consolidated federal tax return on the basis of a calendar year ending on December 31.

Bad Debt Reserves. A small financial institution (one with an adjusted basis of assets of less than $500 million), such as the Association, is required in tax years beginning after 1995 to determine additions to its bad debt reserves under the experience method. Under the experience method, the deductible annual addition to the institution’s bad debt reserves is the amount necessary to increase the balance of the reserve at the close of the taxable year to the greater of (a) the amount which bears the same ratio to loans outstanding at the close of the taxable year as the total net bad debts sustained during the current and five preceding taxable years bear to the sum of loans outstanding at the close of the same six years, or (b) the lower of (i) the balance of the reserve account at the close of the Association’s "base year," which was its tax year ended December 31, 1987, or (ii) if the amount of loans outstanding at close of the taxable year is less than the amount of loans outstanding at the close of the base year, the amount which bears the same ratio to loans outstanding at the close of the taxable year as the balance of the reserve at the close of the base year bears to the amount of loans outstanding at the close of the base year.

In 1996, the Association was required to change its method of computing its bad debt deduction from other methods previously allowable to the experience method. As a result of the change in law, the Association is required to include an amount into taxable income over a six-year period beginning in 1998. The amount required to be included in taxable income is the difference between its bad debt reserves at December 31, 1995, as determined under previously allowable bad debt methods, and the reserve allowable under the experience method at December 31, 1995. The amount to be included in the Association’s taxable income over the six-year period beginning with 1998 is $145,346, or $24,224 per year.

At December 31, 2002, the federal income tax reserves of the Association included $3.8 million for which no federal income tax has been provided. Because of these federal income tax reserves and the liquidation account to be established for the benefit of certain depositors of the Association in connection with the conversion of the Association to stock form, the retained earnings of the Association are substantially restricted.

Distributions. If the Association were to distribute cash or property to its sole stockholder, and the distribution was treated as being from its accumulated bad debt reserves, the distribution would cause the Association to have additional taxable income. A distribution is deemed to have been made from accumulated bad debt reserves to the extent that (a) the reserves exceed the amount that would have been accumulated on the basis of actual loss experience, and (b) the distribution is a "non-qualified distribution." A distribution with respect to stock is a non- qualified distribution to the extent that, for federal income tax purposes, (i) it is in redemption of shares, (ii) it is pursuant to a liquidation of the institution, or (iii) in the case of a current distribution, together will all other such distributions during the taxable year, it exceeds the institutions current and post-1951 accumulated earnings and profits. The amount of additional taxable income created by a non-qualified distribution is an amount that when reduced by the tax attributable to it is equal to the amount of the distribution.

Minimum Tax. The Internal Revenue Code imposes an alternative minimum tax at a rate of 20% on corporations with average annual gross receipts in excess of $7.5 million for the prior three tax years. Average annual gross receipts of the Company is in excess of $7.5 million and as a result, the Company is subject to the provisions of the alternative minimum tax provisions of the Code. The alternative minimum tax generally applies to a base of regular taxable income plus certain tax preferences ("alternative minimum taxable income" or "AMTI") and is payable to the extent such AMTI is in excess of an exemption amount. The Code provides items of tax preference including (a) tax exempt interest on newly issued (generally, issued after August 8, 1986) private activity bonds other than certain qualified bonds, (b) certain accelerated depreciation amounts and (c) 75% of the excess if any of (i) adjusted current earnings as defined in the Code, over (ii) AMTI (defined without regard to this preference and prior to reduction by net operating losses).

Net Operating Loss Carryovers. A financial institution may carry back net operating losses ("NOLs") to the preceding two taxable years and forward to the succeeding 20 taxable years. This provision applies to losses incurred in taxable years beginning after 1986. At December 31, 2002, the Association had no NOL carry-forwards for federal income tax purposes.

Capital Gains and Corporate Dividends-Received Deduction. Corporate net capital gains are taxed at a maximum rate of 35%. The corporate dividends-received deduction is 80% in the case of dividends received from 20% or more owned corporations with which a corporate recipient does not file a consolidated tax return. Corporations which own less than 20% of the stock of a corporation distributing a dividend may deduct only 70% of dividends received or accrued on their behalf. However, a corporation may deduct 100% of dividends from a member of the same affiliated group of corporations.

Other Matters. Federal legislation is introduced from time to time that would limit the ability of individuals to deduct interest paid on mortgage loans. Individuals are currently not permitted to deduct interest on consumer loans. Significant increases in tax rates or further restrictions on the deductibility of mortgage interest could adversely affect the Association. The Company’s federal income tax returns for the tax years ended December 31, 1999 forward are open under the statute of limitations and are subject to review by the IRS.

State Taxation

Any non-banking subsidiaries of the Association ( as well as the Company) are subject to the Louisiana Corporation Income Tax based on their Louisiana taxable income, as well as franchise taxes. The Corporation Income Tax applies at graduated rates from 4% upon the first $25,000 of Louisiana taxable income to 8% on all Louisiana taxable income in excess of $200,000. For these purposes, "Louisiana taxable income" means net income which is earned within or derived from sources within the State of Louisiana, after adjustments permitted under Louisiana law including a federal income tax deduction and an allowance for net operating losses, if any. As a stock thrift, the Association is subject to the Louisiana Shares Tax. The formula for deriving the assessed value is to; (a) calculate 15% of the sum of 20% of the company’s capitalized earnings, plus (b) 80% of the company’s taxable stockholders’ equity, and to subtract from that figure 50% of the company’s real and personal property assessment. Various items may also be subtracted in calculating a company’s capitalized earnings.

Franchise Tax

The Company is also subject to the Louisiana franchise tax, which is imposed upon equity and certain borrowings (the franchise base) at a rate of $3 for every $1,000 of franchise base. Financial institution holding companies are allowed to reduce the franchise base to the extent of investments in and advances to subsidiary financial institutions.

Item 2. PROPERTIES

The following table sets forth certain information relating to the Company’s offices at December 31, 2002. All properties are owned by the Company. All amounts are in thousands.

Net

Book

Total
Location

Value

Deposits
----------

------

-------

3798 Veterans Blvd., Metairie

$

1,735

$

69,942

1700 Veterans Blvd., Metairie

529

$

12,278

2111 N. Causeway Blvd., Mandeville

298

10,528

3915 Canal St., New Orleans

229

13,761

-----

------

$

2,791

$

106,509

=====

======

 

Item 3. LEGAL PROCEEDINGS

The Company and the Association are not involved in any pending legal proceedings other than nonmaterial legal proceedings occurring in the ordinary course of business.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to security holders during the quarter ending December 31, 2002.

Part II.

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The information required herein, to the extent applicable, is incorporated by reference from page 2 of the Registrant’s 2002 Annual Report to Stockholders ("Annual Report").

 

Item 6. SELECTED FINANCIAL DATA

The information required herein is incorporated by reference from pages 3 to 4 of the Registrant’s Annual Report.

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information required herein is incorporated by reference from pages 4 to 12 of the Registrant’s Annual Report.

Item 7a QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET

RISK

The information required herein is incorporated by reference from pages 12 to 17 of the Registrant’s Annual Report.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required herein is incorporated by reference from pages 18 to 56 of the Registrant’s Annual Report.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable

Part III.

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required herein is incorporated by reference from pages 2-4 of the Registrant’s definitive proxy statement for the 2003 Annual Meeting of Stockholders ("Proxy Statement").

Item 11. EXECUTIVE COMPENSATION

The information required herein is incorporated by reference from pages 7-9 of the Registrant’s Proxy Statement.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The information required herein by Item 403 of Regulation S-K is incorporated by reference from pages 5-6 of the Registrant’s Proxy Statement.

 

 

 

Equity Compensation Plan Information. The following table sets forth certain information for all equity compensation plans and individual compensation arrangements (whether with employees or non-employees, such as directors), in effect as of December 31, 2002.

 

 

Plan Category

 


Number of Shares to be issued upon the Exercise of Outstanding Options,

Warrants and Rights

 


Weighted-Average Exercise Price of Outstanding Options

 


Number of Shares Remaining Available

for Future Issuance (Excluding Shares

Reflected in the First Column)
       


Equity Compensation Plans

Approved by Security Holders

 

 

275,076

 

 

$17.18

 

68,774

Equity Compensation Plans Not

Approved by Security Holders

--

 

--

 

--
Total

275,076

$17.18

68,774

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required herein is incorporated by reference from page 2 and page 9 of the Registrant’s Proxy Statement.

 

Part IV.

Item 14. CONTROLS AND PROCEDURES

Under the supervision and with the participation of the Company’s management, including its chief executive officer and chief financial officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures within 90 days of the filing date of this annual report, and based on their evaluation, the Company’s chief executive officer and chief financial officer have concluded that these controls and procedures are effective. There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

Disclosure controls and procedures are our controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files under the Exchange Act is accumulated and communicated to the Company’s management, including its chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON

(a) Documents filed as part of this Report.
(1) The following financial statements are incorporated by
  reference from Item 8 hereof (see Exhibit 13):
  Report of Independent Auditors
  Consolidated Balance Sheets as of December 31, 2002 and 2001
  Consolidated Statements of Income for the Fiscal Periods
  Ended December 31, 2002, 2001 and 2000
  Consolidated Statements of Changes in Shareholders’ Equity for
  the Fiscal Periods Ended December 31, 2002, 2001 and 2000
  Consolidated Statements of Cash Flows for the Fiscal Periods
  Ended December 31, 2002, 2001 and 2000
  Notes to Consolidated Financial Statements
(2) All schedules for which provision is made in the applicable
  accounting regulation of the SEC are omitted because of the absence of conditions under which they are required or because the required information is included in the consolidated financial statements and related notes thereto.
(3) The following exhibits are filed as part of this form 10-K, and this
  list includes the Exhibit Index.

 

Exhibit Index

3.1* Articles of Incorporation of GS Financial Corp.
3.2* Bylaws of GS Financial Corp.
4.1* Stock Certificate of GS Financial Corp.
10.1** GS Financial Corp. Stock Option Plan
10.2** GS Financial Corp. Recognition and Retention Plan and Trust
. Agreement for Employees and Non-Employee Directors
10.3* Employment Agreement among GS Financial Corp. Guaranty Savings and
  Homestead Association and Donald C. Scott Dated February 13, 1997
10.4* Employment Agreement among GS Financial Corp. Guaranty Savings and
  Homestead Association and Bruce A. Scott Dated February 13, 1997
13.0 2002 Annual Report to Stockholders
21.0 Subsidiaries of the Registrant - Reference is made to
  Item 1 "Business-Subsidiaries" for the required information
23.0 Consent of LaPorte, Sehrt, Romig & Hand
99.1 Certification of Chief Executive Officer pursuant to Section 906 of the
  Sarbannes-Oxley Act of 2002
99.2 Certification of Chief Financial Officer pursuant to Section 906 of the
  Sarbannes-Oxley Act of 2002

* Incorporated herein by reference from the Registration Statement on Form SB-2 (Registration number 333-18841) filed by the Registrant with the SEC on December 26, 1996, as subsequently amended.

** Incorporated herein by reference from the definitive proxy statement, dated September 16, 1997, filed by the Registrant with the SEC (Commission File No. 000-22269)

 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

GS FINANCIAL CORP.

March 25, 2003 By: /s/ Donald C. Scott
-------------------
Donald C. Scott
Chairman of the Board, President
And Chief Executive Officer

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Name and Signature Title Date Signed
/s/ Donald C. Scott
-------------------
Donald C. Scott
Chairman of the Board, President and Chief Executive Officer (principal executive officer) March 25, 2003
/s/ Bruce A. Scott
-------------------
Bruce A. Scott
Executive Vice President and Director March 25, 2003
/s/ Glenn R. Bartels
-------------------
Glenn R. Bartels
Controller (principal financial and accounting officer) March 25, 2003
/s/ J. Scott Key
-------------------
J. Scott Key
Director March 25, 2003
/s/ M.D. Paine, Jr.
-------------------
M.D. Paine, Jr.
Director March 25, 2003
/s/ Bradford A. Glazer
-------------------
Bradford A. Glazer
Director March 25, 2003
/s/ Stephen L. Cory
-------------------
Stephen L. Cory
Director March 25, 2003
/s/ Albert J. Zahn, Jr.
-------------------
Albert J. Zahn, Jr.
Director March 25, 2003
/s/ Kenneth B. Caldcleugh
-------------------
Kenneth B. Caldcleugh
Director March 25, 2003

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CERTIFICATION

I, Donald C. Scott, Chairman of the Board and Chief Executive Officer of GS Financial Corp., certify that:

Date: March 25, 2003 /s/Donald C. Scott
  ----------------------
  Donald C. Scott
  Chairman of the Board and
  Chief Executive Officer

CERTIFICATION

I, Glenn R. Bartels, Chief Financial Officer of GS Financial Corp., certify that:

Date: March 25, 2003 /s/Glenn R. Bartels
  ----------------------
  Glenn R. Bartels
  Chief Financial Officer

Exhibit 23.0

INDEPENDENT AUDITORS’ CONSENT

We consent to the incorporation by reference in the Registration Statement of GS Financial Corp. on Form S-8 (Registration No. 333-70905) of our report dated January 10, 2003, incorporated by reference in this Annual Report on Form 10-K of GS Financial Corp. for the year ended December 31, 2002.

 

 

 

/s/ Laporte, Sehrt, Romig & Hand

Laporte, Sehrt, Romig & Hand

Metairie, Louisiana
March 20, 2003

Exhibit 99.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Donald C. Scott, Chairman of the Board and Chief Executive Officer of GS Financial Corp. (the "Company"), hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

By: /s/ Donald C. Scott

Donald C. Scott

Chairman of the Board and

Chief Executive Officer

Date: March 25, 2003

 

 

 

 

 

 

Exhibit 99.2

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Glenn R. Bartels, Chief Financial Officer of GS Financial Corp. (the "Company"), hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

By: /s/ Glenn R. Bartels

Glenn R. Bartels

Chief Financial Officer

Date: March 25, 2003

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit 13

ANNUAL REPORT TO SHAREHOLDERS

February 1, 2003

TO OUR STOCKHOLDERS

It was a tumultuous year for financial markets. Aversion to risk based investments caused a tremendous amount of liquidity in the market. This in turn, brought about some of the lowest savings and mortgage rates in years.

Corporate governance became the new regulatory mantra. The reverberations have been felt in board rooms across the nation; causing boards of directors to re-examine rules for accounting, disclosure of financial information, and fiduciary responsibility to shareholders. Our focus has always been founded in doing what is in the best interest of our shareholders and will remain so.

Despite the limited long-term investment opportunities in 2002 at rates deemed acceptable over the long term, net interest income increased year over year. The increase in non-interest expense is largely attributable to our continued branch expansion and the addition of qualified personnel. Our commercial lending program continues to successfully enhance interest income, as well as broadening our lending and checking account opportunities.

We continue to review our business strategy for opportunities that will enhance shareholder value, including the share repurchase program as funds and market conditions warrant.

Our promise to you, the shareholder, has always been and will continue to be that we will endeavor to enhance the value of the Company, while doing our best to minimize risk.

Sincerely,

 

/s/ Donald C. Scott

-------------------

Donald C. Scott

President and Chairman of the Board

The Company

GS Financial Corp. (the "Company") is a thrift holding company which was organized and incorporated under the laws of the State of Louisiana on December 24, 1996. The Company’s primary business is conducted through its wholly owned subsidiary, Guaranty Savings and Homestead Association (the "Association"), at its five locations in the metropolitan New Orleans area.

 

 

 

 

Market Information

GS Financial Corp.’s common stock trades on The NASDAQ Stock Market under the symbol GSLA. The Company’s stock traded in the range shown below. At December 31, 2002, the closing price was $18.15 per share and there were approximately 560 shareholders of record.

 

2002

QUARTER ENDING

HIGH

LOW

Cash Dividend
------------------

------

------

-------
March 31, 2002

$ 15.500

$ 14.700

$.09
June 30, 2002

18.200

14.950

$.09
September 30, 2002

18.400

17.650

$.09
December 31, 2002

18.600

18.050

$.09

2001

QUARTER ENDING

HIGH

LOW

Cash Dividend
------------------

------

------

-------
March 31, 2001

$ 15.000

$ 14.563

$.09
June 30, 2001

15.500

14.600

$.09
September 30, 2001

15.500

15.000

$.09
December 31, 2001

15.500

14.190

$.09

Notice of Annual Meeting

The Annual Meeting of Shareholders of GS Financial Corp. will be held at the offices of Guaranty Savings and Homestead Association, 3798 Veterans Blvd., Metairie, Louisiana on Tuesday, April 22, 2003 at 10:00 a.m. CST.

Shareholder Services

Shareholders desiring to change the name, address or ownership of stock, to report lost certificates, or to consolidate accounts should contact our transfer agent:

Registrar and Transfer Company

10 Commerce Drive

Cranford, NJ 07016

1-800-368-5948

Investor Relations

Shareholders and others seeking financial information or copies of the Company’s publicly available financial information should contact:

Amy Mashburn, Compliance Officer or, Glenn R. Bartels, Controller

GS Financial Corp.

3798 Veterans Blvd.

Metairie, LA 70002

(504) 457-6220

SELECTED CONSOLIDATED FINANCIAL DATA

December 31, 1998 - 2002

The following selected consolidated financial and other data of the Company does not purport to be complete and should be read in conjunction with, and is qualified in its entirety by, the more detailed financial information, including the Consolidated Financial Statements of the Company and Notes thereto, contained elsewhere herein.

(Dollars in Thousands, except per share data)

At December 31,

2002

2001

2000

1999

1998

Selected Financial Condition:
Total Assets

$ 210,029

$ 188,494

$ 153,500

$ 157,982

$ 157,534

Cash and Cash Equivalents

13,352

8,638

3,403

2,504

1,810

Loans Receivable, Net

78,334

81,611

74,480

70,066

63,895

Investment Securities

55,091

35,820

11,000

10,483

20,877

Mortgage-Backed Securities

569

885

4,115

16,275

23,209

Collateralized Mortgage Obligations

53,066

52,087

53,745

52,080

41,726

Deposit Accounts

106,509

71,169

58,879

59,216

61,105

Borrowings

66,392

79,265

54,191

53,988

45,381

Stockholders’ Equity

34,384

35,408

37,795

43,548

48,509

Selected Operating Data:
Interest Income

12,433

13,100

11,262

10,658

9,585

Interest Expense

(6,804)

(7,825)

(5,875)

(5,221)

(4,087)

Net Interest Income

5,629

5,275

5,387

5,437

5,498

Provision for Loan Losses

(48)

(25)

(7)

(6)

(53)

Net Interest Income After Provision
for Loan Losses

5,581

5,250

5,380

5,431

5,445

Non-Interest Income

102

634

(135)

(5)

233

Non-Interest Expense

(4,188)

(3,678)

(3,384)

(3,301)

(3,453)

Net Income Before Taxes

1,495

2,206

1,861

2,125

2,225

Income Tax Expense

(318)

(589)

(666)

(750)

(870)

Net Income

1,177

1,617

1,195

1,375

1,355

Net Income per share – Basic

$0.86

$1.04

$0.60

$0.58

$0.49

Net Income per share – Diluted

$0.86

$1.04

$0.60

$0.58

$0.49

Dividends declared per share

$0.36

$0.36

$0.36

$0.34

$0.28

 

SELECTED CONSOLIDATED FINANCIAL DATA (continued)

(Dollars in Thousands, except per share data)

At December 31,

2002

2001

2000

1999

1998

Other Data:
Profitability
Average Yield Interest-Earning Assets

6.50

7.12

7.42

7.09

7.16

Average Rate on Interest-Bearing Liabilities

4.29

5.22

5.24

4.85

4.76

Average Interest Rate Spread

2.21

1.90

2.18

2.24

2.40

Net Interest Margin

2.94

2.87

3.55

3.62

4.11

Interest-Earning Assets as a % of Interest-
Bearing Liabilities

120.68

122.80

135.40

139.62

156.04

Net Interest Income After Provision for Loan
Loss as a % of Non-Interest Expense

133.27

142.72

159.00

164.51

157.68

Non-Interest Expense as a % of
Average Assets

2.13

1.97

2.21

2.12

2.47

Return on Average Assets

0.60

0.86

0.78

0.88

0.97

Return on Average Equity

3.35

4.43

2.97

3.16

2.62

Capital Ratio's:
Average Equity as a % of Total Assets

17.87

19.49

26.18

27.92

37.03

Tangible Capital Ratio (Association alone)

13.79

14.40

16.22

17.68

27.62

Core Capital Ratio (Association alone)

13.79

14.40

16.22

17.68

27.62

Risk-Based Capital Ratio (Association alone)

25.05

28.71

39.54

49.15

72.60

Asset Quality Ratios:
Non Performing Loans as a % of Total Loans

0.83

0.30

0.58

0.14

0.42

Non Performing Assets as a % of Total Assets

0.31

0.13

0.28

0.06

0.17

Allowance for Loan Losses as a % of Total
Loans Receivable

0.62

0.53

0.56

0.60

0.72

Allowance for Loan Losses as a % of Non
Performing Loans

74.16

174.80

96.69

422.97

174.01

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the financial condition and results of operations of GS Financial Corp. and its subsidiary, for the years ended December 31, 2000 through 2002 is designed to assist readers in their understanding of the Company. This review should be read in conjunction with the audited consolidated financial statements, accompanying footnotes and supplemental financial data included herein.

FORWARD-LOOKING STATEMENTS

In addition to the historical information, this Annual Report includes certain "forward-looking statements" based on current management expectations. The Company’s actual results could differ materially, as defined in the Securities Act of 1933 and the Securities Exchange Act of 1934, from those management expectations. Such forward-looking statements include statements regarding our intentions, beliefs or current expectations as well as the assumptions on which such statements are based. Stockholders and potential stockholders are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements.

 

Factors that could cause future results to vary from current management expectations include, but are not limited to, general economic conditions, legislative and regulatory changes, monetary and fiscal policies of the federal government, changes in tax policies, rates and regulations of federal, state and local tax authorities, changes in interest rates, deposit flows, the cost of funds, demand for loan products, demand for financial services, competition, changes in the quality or composition of the Company’s loan and investment portfolios, changes in accounting principles, policies or guidelines, and other economic, competitive governmental and technological factors affecting the Company’s operations, markets, products, services and fees.

The Company undertakes no obligation to update or revise any forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.

COMPARISON OF FINANCIAL CONDITION

ASSETS

General – The Company's balance sheet was affected for the second consecutive year by low interest rates and continued uncertainty in the equity markets. With interest rates for mortgages and mortgage-backed securities at thirty-year lows, the Company’s portfolio of mortgage loans and collateralized mortgage obligations ("CMOs") were particularly affected by prepayments caused by the latest wave of home-owner re-financing, especially in the second half of 2002. The Company did benefit from an inflow of retail deposits. The end result was a significant increase in cash and short-term investments for the Company’s balance sheet in 2002.

In summary, total assets increased 11% or $21.5 million to $210.0 million at December 31, 2002, compared to $188.5 million at December 31, 2001. Investment securities increased $19.3 million to $55.1 million at December 31, 2002 an increase of 54% from December 31, 2001, when investment securities totaled $35.8 million. Retail deposits increased $ 35.3 million, or 50%, to $106.5 million at December 31, 2002, compared to $71.2 million at December 31, 2001.

Cash and Cash Equivalents – Cash and cash equivalents consist of cash on hand, deposits in interest and non-interest bearing transaction accounts and overnight Federal Funds Sold. At December 31, 2002, the Company’s balances in such accounts totaled $13.4 million. This represents an increase of 56% from December 31, 2001 when such balances totaled $8.6 million. Due to the decrease of interest rates, the Company’s average collected balance requirements were raised for its operating accounts, thus contributing to the increase in balance of cash and cash equivalents. Cash and cash equivalents represent balances sufficient for the Company to meet its daily operations whether it be loan disbursements, customer withdrawals, operating expenses or the payment of cash dividends.

Loans Receivable, Net – Loans receivable, net, decreased by $3.3 million, or 4%, from $81.6 million at December 31, 2001 compared to $78.3 million at December 31, 2002. The largest decrease in the loan portfolio came in loans secured by one-to-four family residential dwellings, which decreased $12.35 million from December 31, 2001 to December 31, 2002. Non-residential mortgages includes mortgage loans on multifamily dwellings and commercial real estate. Non-residential mortgage loans increased $7.9 million from $10.2 million at December 31, 2001, to $18.1 million at December 31, 2002. Commercial loans increased $.8 million from $.7 million at December 31, 2001, compared to $1.5 million at December 31, 2002. Over the last two years, the primary focus of the Company’s lending activity has been in non-residential loans. This is reflected in the Company’s loan portfolio mix where 13.2% of its loans were non-residential at December 31, 2001, compared to 24.9% non-residential at December 31, 2002.

 

Investment Securities – Investment securities increased from $35.8 million at December 31, 2001, to $55.1 million at December 31, 2002. This represents an increase of $19.3 million or 54%. As of December 31, 2002, investment securities were comprised of United States Treasury Notes, common and preferred stock issued by the Federal Home Loan Mortgage Corporation ("FHLMC"), an agency sponsored by the Federal government, and an investment in two mortgage-based mutual funds. During 2002, the Company increased its portfolio of FHLMC preferred stock by $3.6 million. The FHLMC preferred stock contains call options varying from two to six years and coupons ranging between 5% and 6%. The dividends from the FHLMC preferred and common stock are 70% tax exempt. The Company’s investment in mortgage-based mutual funds increased by $15.2 million during the year ended December 31, 2002. These funds carry one-day availability and carry higher yields than overnight funds. Most of the increase in investment securities was funded by repayments of the Company’s loan and CMO portfolio’s.

Mortgage-Backed Securities – Mortgage-backed securities decreased $316,000 from $885,000 at December 31, 2001, to $569,000 at December 31, 2002. The decrease was due to principal repayments of these instruments. At December 31, 2002 and 2001, all of the Company’s mortgage-backed securities were Government National Mortgage Association ("GNMA") issued instruments. GNMA securities represent direct obligations of the United States Government.

Collateralized Mortgage Obligations – The Company’s investment in CMOs consists of fixed-rate Real Estate Mortgage Investment Conduits ("REMICs"). REMICs are multiple class mortgage-backed securities whereby an underlying pool of mortgages held by the issuer serves as collateral for the debt. The Company has REMICs issued by the Federal National Mortgage Association ("FNMA"), FHLMC and "AAA" rated non-governmental issuers. The CMOs contain contractual maturities up to thirty years. The expected life of these investments varies from two to fifteen years. During 2002, declining mortgage rates triggered rapid refinancing of the underlying mortgage loans. During 2002, the Company received $73.0 million in such principal repayments. This was offset by $73.6 million in new purchases. Overall during 2002, CMOs increased $1 million from $52.1 million at December 31, 2001, compared to $53.1 million at December 31, 2002.

LIABILITIES AND STOCKHOLDERS’ EQUITY

General – The Company’s deposits, borrowings and stockholders’ equity represent sources of funds for its various investments and operating needs.

Deposits – The Company’s deposits increased $35.3 million, or 50%, from $71.2 million at December 31, 2001, to $106.5 million at December 31, 2002. Passbook savings and certificate of deposit accounts increased during 2002 while demand deposits decreased.

Passbook Savings - During 2002, passbook savings accounts increased $11.2 million to $31.2 million at December 31, 2002, compared to $20.0 million at December 31, 2001. Most of the increase occurred in the second half of 2002. This growth equated to a 56% increase. The Company believes that a significant reason for many of the Company’s new savings customers was due to individuals who have liquidated their positions and withdrawn from the equity markets.

Transaction Accounts - NOW accounts decreased $.8 million, or 11%, to $7.1 million at December 31, 2002, compared to $7.9 million at December 31, 2001. These accounts are comprised of interest-bearing NOW accounts as well as non-interest bearing deposit accounts. Some of the decrease was attributed to NOW account customers moving their funds to savings accounts which paid a higher rate of interest.

Certificates of Deposit - Certificates of deposit increased $25.0 million to $68.2 million at December 31, 2002. This represents an increase of 57% compared to $43.2 million at December 31, 2001. Again, many of the new customers represented investors transferring money from the equity markets. One year certificates increased $11.7 million while certificates varying in term from 2.5 to 5 years increased $10.3 million.

 

Borrowings – The Company’s borrowings consist of advances from the Federal Home Loan Bank of Dallas. These advances consist of fully amortizing loans, balloon loans and interest only loans. The Company’s borrowings decreased from $79.3 million at December 31, 2001 to $66.4 million at December 31, 2002. The $12.9 million change represented a decrease of 16% and was due to regularly scheduled principal payments.

Stockholders’ Equity – Stockholders’ equity decreased from $35.4 million at December 31, 2001 to $34.4 million at December 31, 2002. The decrease was due to the net effect of the following events:

Purchase of Treasury Stock ( $2.5 million)
2002 Net Income 1.2 million
Cash Dividends Paid ( .5 million)
Distribution of RRP Stock .1 million
Distribution of ESOP Stock .5 million
Increase in Other Comprehensive Income .2 million
  -----------------

NET CHANGE

( $1.0 million)
  ==========

Treasury Stock – During 2002, the Company repurchased 142,201 shares of its common stock for $2.5 million, or an average price of $17.68 per share. Since the inception of its stock buyback program in 1998, the Company has repurchased 1,917,539 shares of its common stock at an average price of $14.44 per common share, or a total of $27.7 million. At December 31, 2002, the book value was $22.60 per common share. This compares to a book value of $21.29 per common share at December 31, 2001.

 

 

 

 

 

 

COMPARISON OF RESULTS OF OPERATIONS

General – The Company reported net income of $1.2 million, $1.6 million and $1.2 million for the years ended December 31, 2002, 2001, and 2000, respectively. The results for 2002 reflected an increase in net interest income offset by a decrease in non-interest income and an increase in non-interest expense. The Company’s net interest margin increased in 2002 as a result of the Company’s liabilities re-pricing more rapidly than its assets in a falling rate environment. The results for 2001 were affected primarily by a falling interest rate environment while interest rates rose slightly in 2000. The results for 2001 included gains on the sale of investment securities of $607,000 while the results for 2002 included $20,000 of gains on sale of investment securities. During 2000, the Company experienced a net loss on the sale of investment securities totaling ($146,000). Earnings per share were $ .86 in 2002 compared to $1.04 in 2001 and $.60 in 2000.

Interest Income – Interest income decreased from $13.1 million for the twelve months ended December 31, 2001 to $12.4 million for the twelve months ended December 31, 2002, a decline of $.7 million, or 5%. This compares to $11.3 million in 2000. Average earning assets were $191.3 million in 2002 which yielded 6.5%. For the twelve months ended December 31, 2001, average earning assets were $184.0 million which yielded 7.1%. In 2000, the Company’s earning assets averaged $151.7 million and yielded 7.42%. Falling interest rates caused many consumers to refinance their home mortgage loans during 2002. The effect of this was to accelerate the repayment of many of the Company’s loans and CMOs. The cash received from these repayments was primarily invested in short-term investments with lower yields.

The yield on loans receivable was unchanged from 2001 to 2002 at 7.85%, compared to 7.96% in 2000. Despite declining mortgage loan rates in 2002, the Company’s ability to maintain the same yield in 2002 as in 2001 was due to the continued growth of its non-residential loan portfolio. At December 31, 2000, the Company held $3.1 million in non-residential loans or 4% of its entire portfolio. During 2001 the Company added $8 million in non-residential loans to bring the total to $11.1 million or 14% of its entire portfolio. At December 31, 2002, the Company’s total of non-residential loans totaled $20.0 million or 25% of its loan portfolio. These loans, consisting primarily of mortgage loans secured by multifamily and commercial real estate, typically carry higher yields than residential mortgage loans. Average loans receivable in 2002 were $81.5 million, compared to $76.3 million in 2001 and $72.7 million in 2000.

Interest income on securities increased $.4 million, or 28%, from $1.4 million for the twelve months ended December 31, 2001, compared to $1.8 million for the twelve months ended December 31, 2002. This compares to $.4 million for the twelve months ended December 31, 2000. The average balance of investment securities was $44.1 million with an average yield of 4.1% for the twelve months ended December 31, 2002. For the twelve months ended December 31, 2001, average investment securities were $25.0 million and yielded 5.4 %. In 2000, the average balance of investment securities was $7.4 million which yielded 5.71%. The underlying mix of the Company’s portfolio of investment securities changed as the amount invested in short term mortgage based mutual funds approximately doubled from 2001 to 2002. These investments typically re-price monthly, thus causing their yields to fall during 2002. As of December 31, 2002, the yield of these funds was approximately 2.5%.

 

 

 

AVERAGE BALANCES, NET INTEREST INCOME, YIELDS EARNED AND RATES PAID

The following table represents for the periods indicated the total dollar amount of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. The table does not reflect any effect of income taxes.

For the Years Ended December 31,

2002

2001

2000
(Dollars in Thousands)

Average

Yield/

Average

Yield/

Average

Yield/

Balance

Interest

Rate

Balance

Interest

Rate

Balance

Interest

Rate
Interest Earning Assets
Loans Receivable

81,463

6,397

7.85%

76,300

5,989

7.85%

72,744

5,788

7.96%

Mortgage Backed Securities

677

48

7.09%

1,376

90

6.54%

11,985

800

6.68%

Investment Securities

44,145

1,805

4.09%

24,988

1,350

5.40%

7,432

424

5.71%

Collateralized Mortgage

53,817

3,931

7.30%

68,903

5,142

7.46%

53,136

3,799

7.15%

Obligations
Other Interest Earning Assets

11,244

252

2.24%

12,411

529

4.26%

6,421

451

7.02%

Total Interest Earning Assets

191,346

12,433

6.50%

183,978

13,100

7.12%

151,718

11,262

7.42%

Non Interest Earning Assets

5,370

3,225

1,752

TOTAL ASSETS

196,716

187,203

153,470

Interest Bearing Liabilities
Passbooks Deposits

26,819

677

2.52%

17,247

514

2.98%

17,964

523

2.91%

Interest Bearing Checking

6,569

132

2.01%

5,797

207

3.57%

993

49

4.93%

Certificates of Deposits

53,113

1,953

3.68%

39,930

2,122

5.31%

39,151

2,094

5.35%

Borrowings

72,056

4,042

5.61%

86,840

4,982

5.74%

53,944

3,209

5.95%

Total Interest Bearing Liabilities

158,557

6,804

4.29%

149,814

7,825

5.22%

112,052

5,875

5.24%

Non Interest Bearing Liabilities

3,011

906

1,238

TOTAL LIABILITIES

161,568

150,720

113,290

Stockholders’ Equity

35,148

36,483

40,180

TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY

196,716

187,203

153,470

Net Interest Earning Assets

32,789

34,164

39,666

Net Interest Income

5,629

5,275

5,387

Net Interest Spread

2.21%

1.90%

2.18%

Net Interest Margin

2.94%

2.87%

3.55%

 

Interest on mortgage-backed securities decreased $42,000 during the twelve months ended December 31, 2002 to $48,000, compared to $90,000 for the twelve months ended December 31, 2001. This compares to $800,000 for the twelve months ended December 31, 2000. The yield of the Company’s mortgage-backed securities increased in 2002 to 7.1% compared to 6.5% in 2001. The increase in the yield was due to a decrease in the prepayments of these instruments with a subsequent decrease in the amortization of premiums related to these instruments. During 2000, the Company’s mortgage-backed securities yielded 6.68%. The average balance of mortgage-backed securities was $.7 million, $1.4 million and $12.0 million in 2002, 2001 and 2000, respectively.

Interest income from CMOs decreased from $5.1 million for the twelve months ended December 31, 2001, to $3.9 million for the twelve months ended December 31, 2002. For the twelve months ended December 31, 2000, interest income from CMOs was $3.8 million. For the twelve months ended December 31, 2002, the average balance of CMOs was $53.8 which yielded 7.3%. For the twelve months ended December 31, 2001 the average balance of CMOs was $68.9 million which yielded 7.5%. The Company ‘s CMOs yielded 7.15% on an average balance of $53.1 million for the twelve months ended December 31, 2000.

Interest income from other interest-earning assets consist of dividends on Federal Home Loan Bank ("FHLB") stock and interest earned on Federal Funds Sold and interest-bearing deposits in other financial institutions. During the twelve months ended December 31, 2002, interest income from other interest earning assets decreased $277,000 to $252,000, compared to $529,000 for the twelve months ended December 31, 2001. The average balance of other interest-earning assets was $11.2 million which yielded 2.2% for the twelve months ended December 31, 2002. For the twelve months ended December 31, 2001, the average balance of other interest earning assets was $12.4 million which yielded 4.26%. The decrease in yield was a direct result of falling interest rates. For the twelve months ended December 31, 2000, the average balance of other interest-earning assets was $6.4 million which yielded 7.02%.

The following table shows the extent to which changes in interest rates and changes in volume of interest-related assets and liabilities affected interest income and expense during the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume multiplied by prior year rate and (ii) changes in rate multiplied by prior year volume. The combined effect of changes in both rate and volume has been allocated proportionately to the change due to rate and the change due to volume.

INTEREST RATE/VOLUME ANALYSIS

For December 31, 2000 - 2002

(Dollars in Thousands)

 

12/31/01 to 12/31/02

12/31/00 to 12/31/01

Rate

Volume

Total

Rate

Volume

Total
Interest Income
Loans Receivable $ -

$ 408

$ 408

$ (80)

$ 281

$ 201

Mortgage-backed Securities

8

(50)

(42)

(17)

(693)

(710)

Investment Securities

(400)

855

455

(23)

949

926

CMO's

(86)

(1,125)

(1,211)

165

1,178

1,343

Other-Interest Earning Assets

(251)

(26)

(277)

(192)

270

78

Total

(729)

62

(667)

(147)

1,985

1,838

Interest Expense
Passbook Savings

(79)

242

163

13

(22)

(9)

Interest-Bearing Checking

(90)

15

(75)

(14)

172

158

Certificates of Deposit

(651)

482

(169)

(16)

44

28

Borrowings

(113)

(827)

(940)

(112)

1,885

1,773

Total

(933)

(88)

(1,021)

(129)

2,079

1,950

Increase/(Decrease) in
Net Interest Income

$ 204

$ 150

$ 354

$ (18)

$ (94)

$ (112)

===

===

===

===

====

====

Interest Expense – Interest expense decreased $1.0 million for the twelve months ended December 31, 2002 to $6.8 million compared to $7.8 million for the twelve months ended December 31, 2001. Average interest-bearing liabilities was $158.6 million which cost 4.3% for the twelve months ended December 31, 2002. For the twelve months ended December 31, 2001, average total interest bearing liabilities were $149.8 million which cost 5.2%. The decrease in the Company’s overall cost of funds from 2001 to 2002 was primarily due to a reduction in the average balance of FHLB advances, which typically cost more than retail deposits, and the downward re-pricing of the Company’s existing retail deposits. In 2000, average interest-bearing liabilities of $112.1 million cost the Company 5.24%.

Interest Expense on Deposits - Interest expense on deposits was $2.8 million for twelve months ended December 31, 2002 and 2001 and $2.7 million for the twelve months ended December 31, 2000. While the average balance increased, the overall cost decreased due to the continuing reduction of the average rates paid. The average balance of deposits for the twelve months ended December 31, 2002 was $86.5 million which cost 3.2%. The average balance of deposits for the twelve months ended December 31, 2001 was $63.0 million which cost 4.5%. The average balance of deposits for the twelve months ended December 31, 2000 was $58.1 million and cost 4.59%.

Interest Expense on Transaction Accounts - Expense on checking accounts (predominantly NOW accounts) was $132,000 for the twelve months ended December 31, 2002 compared to $207,000 for the twelve months ended December 31, 2001. The average balance of transaction accounts was $6.6 million in 2002 and cost 2.0 %. For 2001, such accounts carried an average balance of $5.8 million and cost 3.6%. The average balance of transaction accounts was $1.0 million for the twelve months ended December 31, 2000 and cost 4.93%.

Interest Expense on Certificates of Deposit - Expense on certificates of deposit decreased slightly in 2002 compared to 2001. This was because a large percentage of the Company’s portfolio of certificates of deposit carry maturities of one year or less, meaning many repriced in 2002 during a falling interest rate environment. The average balance of certificates of deposit was $53.1 million costing the Company $2.0 million, or 3.7%, for the twelve months ended December 31, 2002. For the twelve months ended December 31, 2001, the average balance of certificates of deposit was $39.9 million, costing 5.3%. For the twelve months ended December 31, 2000, the average balance of certificates of deposit was $39.2 million, costing 5.35%.

Interest Expense on Passbook Savings – For the twelve months ended December 31, 2002, the average balance of passbook savings was $26.8 million and cost 2.5%. For the twelve months ended December 31, 2001, the average balance of passbook savings was $17.2 million which cost 3.0 %. For the twelve months ended December 31, 2000, the average balance of passbook savings was $18.0 million which cost 2.91 %.

Interest Expense on Borrowings –Interest expense on borrowings decreased $1.0 million for the twelve months ended December 31, 2002 to $4.0 million, a decrease of 20%, compared to $5.0 million for the twelve months ended December 31, 2001. The average balance of borrowings was $72.1 million in 2002 which cost 5.6%. For the twelve months ended December 31, 2001, the average balance of borrowings was $86.8 million which cost 5.7%. In 2000, average borrowings were $53.9 million which cost 5.95%.

Provision for Loan Losses -The Allowance for Loan Loss ("ALL") is closely monitored by management and provisions to increase or reductions to the ALL to a level deemed appropriate by management are made accordingly. Additional provisions are necessary when either growth of the entire loan portfolio, changes in the loan mix, or charge-offs drop the ALL below that level deemed appropriate by management. Reductions occur due to a decline in the size of the loan portfolio or when previously reserved-for loans are paid down or collected in full.

The Company made provisions for loan losses of $48,000 in 2002 compared to $25,000 in 2001. The provision for loan loss in 2001 was mainly due to the continued growth of the loan portfolio. The $48,000 provision for loan loss was related to a change in the mix of the Company’s loan portfolio. While the overall balance of the loan portfolio was decreased from 2001 to 2002, the percentage of non-residential loans increased. The Company’s non-residential loans consist of commercial term loans and lines of credit, the mortgage loans secured by multifamily dwellings and commercial real estate. These loans typically carry more risk than loans secured by one-to-four family residences. Accordingly, non-residential loans are assigned a higher allowance than the Company’s residential loans in the overall calculation of the ALL. At December 31, 2002, approximately 25% of the Company’s loan portfolio was comprised of non-residential loans compared to 13% at December 31, 2001.

 

For the twelve months ended December 31, 2002, the Company had no loan charge-offs. During the twelve months ended December 31, 2001, the Company had $10,000 in loan charge-offs. The provision for loan losses reflects management’s evaluation of the underlying credit risk of the Company’s loan portfolio to adequately provide for probable loan losses inherent in the loan portfolio as of the balance sheet date. As of December 31, 2002, the ALL as a percent of the entire loan portfolio was .62% while the ratio in 2001 was .53%. The ALL as a percentage of non-performing loans was 74% at December 31, 2002, compared to 175% at December 31, 2001. Future additions to the ALL will be dependent on a number of factors including the performance of the Company’s loan portfolio, specifically in terms of delinquencies, foreclosures and charge-offs. Other factors considered in establishing the ALL include the local economy, inflation, and changes in interest rates and the effect of such changes on real estate values. Management believes that the ALL was adequate at December 31, 2002.

Non-Interest Income - Non-interest income for the twelve months ended December 31, 2002, was $102,000, compared to $634,000 for the twelve months ended December 31, 2001. Non-interest income is comprised of two components, gain or losses from the sale of investments, and service charges. In 2001, the Company realized net gains on the sale of investment securities of $607,000, primarily from the sale of FHLMC common stock, compared to $20,000 in gains from the sale of other equity investments in 2002. In 2000, the Company had net losses of ($146,000) primarily from the sale of $10 million of mortgage-backed securities. Fee income is made up primarily of service charges on transaction accounts as well as ATM fees. Fee income was $82,000, $27,000 and $11,000 in 2002, 2001 and 2000, respectively.

Non-Interest Expenses – Non-interest expenses increased from $3.7 million for the twelve months ended December 31, 2001, to $4.2 million for the twelve months ended December 31, 2002. This compares to $3.4 million for the twelve months ended December 31, 2000. The increase was attributable to compensation and benefits, occupancy expense and ad valorem taxes. During 2002, the Company opened another full service branch office. This increased expenses such as utilities, telephone and office supplies. Also during 2002, the Company increased its staff by four employees. The cost of the Company’s ESOP also increased from 2001 to 2002 due to the increase in market value of the Company’s stock. The Company’s increase in ad valorem taxes was attributable to the increase in Louisiana Bank Shares tax paid by the Association. There was a substantial increase in the tax rate in 2002 and an increase in the Company’s basis, which approximates the shareholders’ equity of the Association.

 

 

 

LIQUIDITY AND CAPITAL RESOURCES

Liquidity measures the Company’s ability to meet its financial commitments and obligations on a timely basis. These commitments and obligations include loan disbursements, savings withdrawals by customers, the payment of cash dividends, check clearings and the daily operating expenses of the Company. Liquidity management involves the daily monitoring of cash on hand, non-interest bearing operating accounts, overnight Federal Funds Sold, short-term investments and the Company’s ability to convert these assets into cash without incurring a loss. Monthly paydowns on mortgage loans, mortgage-backed securities and CMOs are anticipated and channeled to either cash on hand, overnight Federal Funds Sold or short-term investments in order to meet the Company’s demands and maximize interest earned on these funds.

The Company’s primary sources of funds are interest and non-interest bearing customer deposits, advances from the Federal Home Loan Bank and maturities of its existing investments including mortgage loans, mortgage-backed securities, investment securities and CMOs. The Company offers competitive interest rates in an effort to maintain its core deposit base consisting of passbook savings, checking accounts and certificates of deposit. The Company does not utilize brokered deposits nor does it offer special rates for "jumbo" deposits of $100,000 or more.

Guaranty Savings and Homestead Association, the Company’s wholly-owned subsidiary, is required to maintain regulatory capital sufficient to meet all three of the regulatory capital requirements, those being tangible capital (1.5%), core capital (3.0%), and risk-based capital (8.0%). As of December 31, 2002, the Association’s tangible and core capital amounted to $28.1 million, or 13.8% of adjusted total assets, while the Association’s risk-based capital was $28.6 million, or 25.1% of total adjusted risk-weighted assets. The Company remains "well capitalized" under the standards of the Office of Thrift Supervision ("OTS").

MARKET RISK ANALYSIS – ASSET LIABILITY MANAGEMENT

Qualitative Risk Analysis. The ability to maximize net interest income is largely dependent upon the achievement of a positive interest rate spread that could be sustained during fluctuations in prevailing interest rates. Interest rate sensitivity is a measure of the difference between amounts of interest-earning assets and interest-bearing liabilities which either re-price or mature within a given period of time. The difference or the interest rate re-pricing "gap" provides an indication of the extent to which an institution’s interest rate spread will be affected by changes in interest rates. A gap is considered positive when the amount of interest-rate sensitive assets exceeds the amount of interest-rate sensitive liabilities, and is considered negative when the amount of interest-rate sensitive liabilities exceeds the amount of interest-rate sensitive assets. Generally, during a period of rising interest rates, a negative gap within shorter maturities would adversely affect net interest income, while a positive gap within shorter maturities would result in an increase in net interest income. During a period of falling interest rates, a negative gap within shorter maturities would result in an increase in net interest income while a positive gap within shorter maturities would have the opposite effect. As of December 31, 2002, the ratio of the Association’s cumulative one-year gap to total assets was 36.8% and its ratio of interest-earning assets to interest-bearing liabilities maturing or re-pricing within one year was 150.7%. This compares to December 31, 2001, when the Association’s cumulative one-year gap to total assets was 27.8% and its ratio of interest-earning assets to interest-bearing liabilities maturing or re-pricing within one year was 154.4%. The sensitivity analysis for 2002 and 2001 appears in the following tables on 13-16.

In order to minimize the potential for adverse effects of material and prolonged increases in interest rates on the Association’s results of operations, the Association has adopted asset and liability management policies including an interest rate risk policy to better enable management to match the re-pricing and maturities of its interest-earning assets and interest-bearing liabilities. Monthly, management reviews the re-pricing gap on an internal model specifically designed for the assets and liabilities currently being held by the Association. On a quarterly basis, the entire Board of Directors receives an interest rate risk report which analyzes changes to the net portfolio value ("NPV"). The NPV is the difference between the market value of the Association’s assets and the market value of the Association’s liabilities and off balance sheet commitments. The Board reviews the internal model and a standard thrift industry model prepared by the OTS from the Association’s quarterly Consolidated Maturity and Rate Report.

The nature of thrifts such as Guaranty Savings and Homestead Association lends itself to the creation of negative gaps over the short term since the Association is invested primarily in home mortgage loans varying in length usually from 15 to 25 years while its longest term interest-bearing liabilities are five-year certificates of deposit and several of its FHLB advances. Therefore it is vital that the Association utilize its other investments to offset in the short-term (12-month) horizon the substantial negative re-pricing gap which arises from one to five years while at the same time maximizing net interest income. This is why the Association places much of its ready cash in short-term investments such as mortgage-based mutual funds. These types of investments provide the benefit of overnight availability while producing yields approximately 150 basis points higher than overnight Federal Funds Sold. The Association also places a high emphasis on cash flows in its portfolio of CMOs. The duration of the Association’s CMOs varies from two to fifteen years. At present, due to the large influx of cash and subsequent reinvestment in short-term mutual funds during 2002, at December 31, 2002, the Association was in a very positively gapped position over the twelve-month horizon.

Quantitative Risk Analysis Presented below, as of December 31, 2002 is an analysis of Guaranty Savings & Homestead Association’s interest rate risk as measured by changes in NPV for instantaneous and sustained parallel shifts in the yield curve, in 100 basis point increments, up and down 300 basis points in accordance with OTS regulations. Currently, due to the low level of interest rates, the only downward shock capable of being applied is 100 basis points. As illustrated in the tables below, NPV is more sensitive to and may be more negatively impacted by falling rates than rising rates. This position is opposite the traditional position of the Association. Due to the high payoffs currently being experienced by the Association in its portfolio of loans and CMOs, and due to the significant balances in cash, cash equivalents, and short term investments, the Association would benefit most from a rising interest rate environment in terms of net interest income as well as NPV. This is due to the large amount of assets which would reprice sooner than the Associations liabilities.

Change (in Basis Points)

Net Portfolio Value at December 31, 2002
------------------------

in Interest Rates

$ Amount

$ Change

% Change
 

(Dollars in Thousands)

+300

36,092

2,075

+6%

+200

35,451

1,434

+4%

+100

34,765

748

+2%

0

34,017
   

-100

33,156

(861)

-3%

Change (in Basis Points)

Net Portfolio Value at December 31, 2001
------------------------

in Interest Rates

$ Amount

$ Change

% Change
 

(Dollars in Thousands)

+300

19,589

(10,889)

-36%

+200

23,459

(7,019)

-23%

+100

27,032

(3,446)

-11%

0

30,478
   

-100

34,175

3,697

12%

-200

37,682

7,204

24%

-300

41,090

10,612

35%

 

 

The assumptions used by management to evaluate the vulnerability of the Association’s operations to changes in interest rates in the tables above are based on assumptions utilized in the gap tables on pages 13 - 16. Although management finds these assumptions reasonable, the interest rate sensitivity of the Association’s assets and liabilities and the estimated effects of changes in interest rates on the Association’s net interest income and NPV indicated in the above table could vary substantially if different assumptions were used or actual experience differs from such assumptions.

 

SENSITIVITY ANALYSIS

The following table summarizes the anticipated maturities or re-pricing of the Association’s interest-earning assets and interest-bearing liabilities as of December 31, 2002, based on the information and assumptions set forth in the notes below.



(Dollars in Thousands)


Within Three Months


Three to Twelve Months

More Than One Year
to Three Years

More
Than Three Years to Five Years


Over
Five
Years




Total
Interest-Earning Assets:
Cash and interest-earning deposits

$

11,500

$

-

$

-

$

-

$

-

$

11,500

U.S. Government and Agency Securities (1)

-

-

300

501

-

801

FHLMC and FHLB Stock

25,322

-

-

-

-

25,322

Mortgage-based Mutual Funds

30,955

-

-

-

-

30,955

Mortgage Loans (1)

10,848

32,545

33,502

-

-

76,896

Commercial Loans (2)

-

1,145

-

-

370

1,515

Collateralized Mortgage Obligations (1)

27,304

25,189

-

-

-

52,493

Consumer Loans

396

-

-

-

-

396

TOTAL INTEREST-EARNING ASSETS

106,325

58,880

33,802

501

370

199,878

======

=====

=====

=====

=====

======

Interest Bearing Liabilities:
NOW Accounts

6,542

-

-

-

-

6,542

Passbook Savings

31,117

-

-

-

-

31,117

Certificates of Deposits (2)

10,824

36,872

20,408

109

-

68,213

FHLB Advances (2)

9,977

14,287

18,951

11,645

11,532

66,392

TOTAL INTEREST-EARNING LIABILITIES

$

58,460

$

51,159

$

39,359

$

11,754

$

11,532

$

172,264

=====

=====

=====

=====

=====

======

Excess/(Deficiency) of interest-earning
assets over interest-bearing liabilities

$47,865

$7,721

($5,557)

($11,253)

($11,162)

$27,614

Cumulative Excess/(Deficiency) of interest-
earning assets over interest bearing liabilities

$47,865

$55,586

$50,029

$38,776

$27,614

Cumulative Excess/(Deficiency) of interest-
earning assets over interest bearing liabilities
as a percent of total assets

23.11%

26.84%

24.16%

18.72%

13.33%

Ratio of interest-earning assets to interest-
bearing liabilities

181.88%

115.09%

85.88%

4.26%

3.21%

Ratio of cumulative interest-earning assets
to interest-bearing liabilities

181.88%

150.71%

133.58%

124.12%

116.03%

(1) Based on monthly payments received in the month ended December 31, 2002.
(2) Based on contractual maturities

 

 

 

 

 

 

 

 

SENSITIVITY ANALYSIS

The following table summarizes the anticipated maturities or re-pricing of the Association’s interest-earning assets and interest-bearing liabilities as of December 31, 2001, based on the information and assumptions set forth in the notes below.



(Dollars in Thousands)


Within Three Months


Three to Twelve Months

More Than One Year
to Three Years

More
Than Three Years to Five Years


Over
Five
Years




Total
Interest-Earning Assets:
Cash and interest-earning deposits

$

8,141

$

-

$

-

$

-

$

-

$

8,141

U.S. Government and Agency Securities (1)

-

-

-

800

-

800

FHLMC and FHLB Stock

22,901

-

-

-

-

22,901

Mortgage-based Mutual Funds

16,466

-

-

-

-

16,466

Mortgage Loans (1)

4,844

14,532

38,754

23,653

-

81,783

Commercial Loans (2)

55

231

-

-

397

683

Collateralized Mortgage Obligations (1)

17,788

34,318

-

-

-

52,106

Consumer Loans

254

-

-

-

-

254

TOTAL INTEREST-EARNING ASSETS

70,449

49,081

38,754

24,453

397

183,134

======

=====

=====

=====

=====

======

Interest Bearing Liabilities:
NOW Accounts

7,666

-

-

-

-

7,666

Passbook Savings

20,042

-

-

-

-

20,042

Certificates of Deposits (2)

8,621

23,864

10,229

503

-

43,217

FHLB Advances (2)

3,405

13,836

29,323

15,667

17,034

79,265

TOTAL INTEREST-EARNING LIABILITIES

$

39,734

$

37,700

$

39,552

$

16,170

$

17,034

$

150,190

=====

=====

=====

=====

=====

======

Excess/(Deficiency) of interest-earning
assets over interest-bearing liabilities

$30,715

$11,381

($798)

$8,283

($16,637)

$32,944

Cumulative Excess of interest-
earning assets over interest bearing liabilities

$30,715

$42,097

$41,298

$49,581

$32,944

Cumulative Excess of interest-
earning assets over interest bearing liabilities
as a percent of total assets

20.32%

27.85%

27.32%

32.80%

21.79%

Ratio of interest-earning assets to interest-
bearing liabilities

177.30%

130.19%

97.98%

151.22%

2.33%

Ratio of cumulative interest-earning assets
to interest-bearing liabilities

177.30%

154.36%

135.30%

137.24%

121.93%

(1) Based on average monthly payments for the three months ended December 31, 2001.
(2) Based on contractual maturities

 

 

 

 

IMPACT OF INFLATION

The consolidated financial statements of the Company and notes thereto, presented elsewhere herein, have been prepared in accordance with GAAP, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of the Company’s operations. Unlike most industrial companies, nearly all the assets and liabilities of the Company are financial. As a result, interest rates have a greater impact on the Company’s performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

LaPorte, Sehrt, Romig and Hand

 

To The Board of Directors

GS Financial Corp. and Subsidiary

 

Independent Auditor's Report

 

We have audited the accompanying consolidated balance sheets of GS FINANCIAL CORP. and its wholly-owned subsidiary, GUARANTY SAVINGS AND HOMESTEAD ASSOCIATION as of December 31, 2002 and 2001, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of GS FINANCIAL CORP. and its wholly-owned subsidiary, GUARANTY SAVINGS AND HOMESTEAD ASSOCIATION as of December 31, 2002 and 2001, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.

 

/s/ LaPorte, Sehrt, Romig and Hand

--------------------------------------------

A Professional Accounting Corporation

 

 

January 10, 2003

Metairie, Louisiana

 

 

 

 

 

 

 

 

A Professional Accounting Corporation

110 Veterans Blvd., Ste 200, Metairie, LA 70005-4958 (504) 835-5522 FAX (504)835-5535

724 East Boston Street Covington, LA 70433 (985) 892-5850 FAX (985) 892-5956

E-Mail Address: [email protected] Internet Address: http:/www.laporte.com/

Member of AICPA Division for CPA Firms-Private Companies Practice Section and SEC Practice

Section, An Independently Owned Member of the RSM McGladrey Network

GS FINANCIAL CORP.

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

ASSETS

December 31,

2002

2001
CASH AND CASH EQUIVALENTS
Cash and Amounts Due from Depository Institutions

$

1,584

$

376

Interest-Bearing Deposits in Other Banks

9,578

8,132

Federal Funds Sold

2,190

130

Total Cash and Cash Equivalents

13,352

8,638

Securities Available-for-Sale, at Fair Value

55,091

35,820

Mortgage-Backed Securities Available-for-Sale,
at Fair Value

569

885

Collateralized Mortgage Obligations Available-for-Sale,
at Fair Value

53,066

52,087

Loans, Net

78,334

81,611

Accrued Interest Receivable

642

883

Premises and Equipment, Net

2,668

2,546

Real Estate Held-for-Investment, Net

529

532

Stock in Federal Home Loan Bank, at Cost

5,461

5,304

Prepaid Income Tax

114

-

Deferred Charges

114

86

Other Assets

89

102

Total Assets

$

210,029

$

188,494

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

December 31,

2002

2001
LIABILITIES
Deposits

$

106,509

$

71,169

Advance Payments by Borrowers for Taxes and Insurance

705

738

FHLB Advances

66,392

79,265

Accrued Interest - FHLB Advances

311

372

Deferred Income Tax

1,572

1,390

Other Liabilities

156

152

Total Liabilities

175,645

153,086

STOCKHOLDERS' EQUITY
Preferred Stock - $.01 Par Value; 5,000,000 Shares Authorized
- 0 - Shares Issued and Outstanding

-

-

Common Stock - $.01 Par Value; 20,000,000 Shares Authorized
3,438,500 Shares Issued and Outstanding

34

34

Additional Paid-in Capital

34,040

33,911

Unearned ESOP Shares

(1,083)

(1,365)

Unearned RRP Trust Stock

(1,274)

(1,477)

Treasury Stock (1,917,539 Shares in 2002 and
1,775,338 Shares in 2001) at Cost

(27,695)

(25,179)

Retained Earnings

28,334

27,639

Accumulated Other Comprehensive Income

2,028

1,845

Total Stockholders' Equity

34,384

35,408

Total Liabilities and Stockholders' Equity

$

210,029

$

188,494

 

GS FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in Thousands)

For The Years Ended

December 31,

2002

2001

2000
INTEREST INCOME
Loans Receivable

$

6,397

$

5,989

$

5,788

Investment Securities

1,805

1,350

424

Mortgage-Backed Securities

48

90

800

Collateralized Mortgage Obligations

3,931

5,142

3,799

Dividends on Federal Home Loan Bank Stock

157

199

237

Other Interest Income

95

330

214

Total Interest Income

12,433

13,100

11,262

INTEREST EXPENSE
Deposits

2,762

2,843

2,666

Advances from Federal Home Loan Bank

4,042

4,982

3,209

Total Interest Expense

6,804

7,825

5,875

NET INTEREST INCOME BEFORE
PROVISION FOR LOAN LOSSES

5,629

5,275

5,387

PROVISION FOR LOAN LOSSES

48

25

7

NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES

5,581

5,250

5,380

NON-INTEREST INCOME
Gain (Loss) on Sale of Investments

20

607

(146)

Other Income

82

27

11

Total Non-Interest Income

102

634

(135)

 

 

GS FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF INCOME (Continued)

(Dollars in Thousands)

For The Years Ended

December 31,

2002

2001

2000
NON-INTEREST EXPENSES
Compensation and Employee Benefits

2,617

2,387

2,098

Advertising

101

95

95

Office Supplies, Telephone and Postage

148

133

109

Net Occupancy Expense

426

354

323

Legal Fees

21

29

13

Audit and Consulting Fees

53

53

59

Supervisory Fees

94

82

72

Federal Insurance Premiums

13

11

12

Data Processing Expense

152

139

129

Real Estate Owned Expense - Net

3

3

2

Ad Valorem Taxes

453

339

365

Other

107

53

107

Total Non-Interest Expenses

4,188

3,678

3,384

INCOME BEFORE INCOME TAX
EXPENSE

1,495

2,206

1,861

INCOME TAX EXPENSE

318

589

666

NET INCOME

$

1,177

$

1,617

$

1,195

EARNINGS PER SHARE - BASIC

$0.86

$1.04

$0.60

EARNINGS PER SHARE - DILUTED

$0.86

$1.04

$0.60

 

GS FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in Thousands)

For the Years Ended

December 31,

2002

2001

2000

NET INCOME $

1,177

$

1,617

$

1,195

OTHER COMPREHENSIVE INCOME,
NET OF TAX:
Unrealized Holding Gains Arising
During the Period

835

802

1,685

Reclassification Adjustment for (Gains) Losses
Included in Net Income

(652)

(249)

187

Total Other Comprehensive Income

183

553

1,872

COMPREHENSIVE INCOME $

1,360

$

2,170

$

3,067

====

====

====

 

GS FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

For The Years Ended December 31, 2002, 2001 and 2000

(Dollars in Thousands)

Unearned

Accumulated

Add’l

RRP

Other

Total

Common
Stock

Paid-in
Capital

Treasury
Stock

ESOP
Stock

Trust
Stock

Retained
Earnings

Comprehensive
Income (Loss)

Stockholders'
Equity
BALANCES AT DECEMBER 31, 1999

$34

$33,822

$(11,978)

$(1,927)

$(1,974)

$26,151

$(580)

$43,548

Distribution of
RRP Trust Stock

-

(64)

-

-

220

-

-

156

ESOP Compensation
Earned

-

96

-

281

-

-

-

377

Purchase of Treasury Stock

-

-

(8,590)

-

-

-

-

(8,590)

Dividends Declared

-

-

-

-

-

(763)

-

(763)

Net Income - Year Ended
December 31, 2000

-

-

-

-

-

1,195

-

1,195

Other Comprehensive Income, Net of Applicable
Deferred Income Taxes

-

-

-

-

-

-

1,872

1,872

BALANCES AT DECEMBER 31, 2000

$34

$33,854

$(20,568)

$(1,646)

$(1,754)

$26,583

$ 1,292

$37,795

Distribution of
RRP Trust Stock

-

(76)

-

-

277

-

-

201

ESOP Compensation
Earned

-

133

-

281

-

-

-

414

Purchase of Treasury Stock

-

-

(4,611)

-

-

-

-

(4,611)

Dividends Declared

-

-

-

-

-

(561)

-

(561)

Net Income - Year Ended
December 31, 2001

-

-

-

-

-

1,617

-

1,617

Other Comprehensive Income, Net of Applicable
Deferred Income Taxes

-

-

-

-

-

-

553

553

BALANCES AT DECEMBER 31, 2001

$34
==

$33,911
=====

$(25,179)
======

$(1,365)
=====

$(1,477)
=====

$27,639
=====

$1,845
====

$35,408
=====

Distribution of
RRP Trust Stock

-

(55)

-

-

203

-

-

148

ESOP Compensation
Earned

-

184

-

282

-

-

-

466

Purchase of Treasury Stock

-

-

(2,516)

-

-

-

-

(2,516)

Dividends Declared

-

-

-

-

-

(482)

-

(482)

Net Income - Year Ended
December 31, 2002

-

-

-

-

-

1,177

-

1,177

Other Comprehensive Income, Net of Applicable
Deferred Income Taxes

-

-

-

-

-

-

183

183

BALANCES AT DECEMBER 31, 2002

$34
==

$34,040
=====

$(27,695)
======

$(1,083)
=====

$(1,274)
=====

$28,334
=====

$2,028
====

$34,384
=====

 

 

GS FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

For the Years Ended

December 31,

2002

2001

2000

CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $

1,177

$

1,617

$

1,195

Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation

165

140

139

Discount Accretion Net of Premium Amortization

(739)

(613)

(129)

Provision for Losses

48

25

7

(Gain) on Disposal of Fixed Assets

-

-

(8)

Non-Cash Dividend - FHLB Stock

(157)

(199)

(236)

Net Loan Fees

(1)

(1)

(2)

Dividend on ARM Fund

(645)

(333)

(51)

Dividend on IMF Fund

(18)

(21)

(48)

Dividend on UST Fund

(43)

(15)

-

ESOP Expense

465

415

377

RRP Expense

149

198

156

(Gain) Loss on Sale of Foreclosed Real Estate

(6)

(49)

12

(Gain) Loss on Sale of Investments

(20)

(607)

146

Increase in Prepaid Income Taxes

(96)

(1)

-

Increase in Deferred Income Tax

74

61

63

Changes in Operating Assets and Liabilities:
Decrease (Increase) in Accrued Interest Receivable

242

(202)

68

(Increase) in Deferred Charges

(27)

(25)

(11)

Increase (Decrease) in Accrued Income Tax

1

-

(32)

Increase (Decrease) in Other Liabilities

4

(229)

227

(Decrease) Increase in Accrued Interest – FHLB Advances

(61)

93

18

Increase in Other Assets

(5)

(57)

(8)

Net Cash Provided by Operating Activities

507

197

1,883

 

 

GS FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Dollars in Thousands)

For the Years Ended

December 31,

2002

2001

2000

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Collateralized Mortgage Obligations

(73,594)

(36,908)

(8,647)

Proceeds from Maturities of Collateralized Mortgage

Obligations

 

73,034

 

37,604

 

9,108

Proceeds from Sale of Collateralized Mortgage Obligations

-

2,739

-

Proceeds from Sale of FHLMC Common Stock

-

632

413

Purchase of FHLMC Preferred Stock

(3,621)

(12,718)

(3,507)

Proceeds from Maturities of Available-for-Sale Securities

-

1,586

2,292

Proceeds from Maturities of Mortgage-Backed Securities

311

925

1,956

Proceeds from Sale of Mortgage-Backed Securities

-

2,316

10,313

Purchase of ARM Mutual Fund

(18,798)

(9,318)

(1,390)

Redemption of IMF Mutual Fund

-

-

2,410

Redemption (Purchase) of UST Mutual Fund

4,298

(4,240)

-

Sale (Purchase) of Other Equity Investments, Net

193

(123)

(50)

Loan Originations and Principal Collections, Net

3,188

(7,519)

(4,528)

Purchases of Premises and Equipment

(115)

(158)

(27)

Cost of Construction of Building for Real Estate

Held for Investment

 

(1)

 

(322)

 

-

Acquisition of Land for Branch Development

(172)

-

-

Proceeds from the Sale of Premises and Equipment

-

-

16

Proceeds from Sales of Foreclosed Real Estate

51

546

2

Investment in Foreclosed Real Estate

(3)

(15)

(8)

Purchase of Federal Home Loan Bank Stock

-

(1,989)

(12)

Net Cash (Used in) Provided by Investing Activities

(15,229)

(26,962)

8,341

 

 

 

GS FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Dollars in Thousands)

For the Years Ended

December 31,

2002

2001

2000

CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of Treasury Stock

(2,516)

(4,611)

(8,590)

(Decrease) Increase in Advances from
Federal Home Loan Bank

(12,874)

25,075

202

Payment of Cash Stock Dividends

(482)

(561)

(763)

Increase (Decrease) in Deposits

35,341

12,290

(337)

(Decrease) Increase in Deposits for Escrows

(33)

(193)

163

Net Cash Provided by (Used in) by Financing Activities

19,436

32,000

(9,325)

NET INCREASE IN CASH AND
CASH EQUIVALENTS

4,714

5,235

899

CASH AND CASH EQUIVALENTS - Beginning of Year

8,638

3,403

2,504

CASH AND CASH EQUIVALENTS – End of Year

$

13,352

$

8,638

$

3,403

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid During the Year for:
Interest

$

6,874

$

7,731

$

5,847

Income Taxes

326

537

618

Loans Transferred to Foreclosed Real Estate
During the Year

42

364

109

Market Value Adjustment for Gain/(Loss)
on Securities Available-for-Sale

277

838

2,836

GS FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

GS Financial Corp. (the Company) was organized as a Louisiana corporation on December 24, 1996 for the purpose of becoming the holding company of Guaranty Savings and Homestead Association (the Association) in anticipation of converting the Association from a Louisiana chartered mutual savings and loan association to a Louisiana chartered stock savings and loan association. The Association operates in the savings and loan industry and as such provides financial services to individuals, corporate entities and other organizations through the origination of loans and the acceptance of deposits in the form of passbook savings, certificates of deposit, and demand deposit accounts.

 

The Association is subject to competition from other financial institutions, and is also subject to the regulations of certain Federal and State agencies and undergoes periodic examinations by those regulatory authorities.

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Guaranty Savings and Homestead Association. In consolidation, significant inter-company accounts, transactions, and profits have been eliminated.

BASIS OF FINANCIAL STATEMENT PRESENTATION

The financial statements have been prepared in conformity with generally accepted accounting principles. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statement of financial condition and revenues and expenses for the year. Actual results could differ significantly from those estimates.

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for losses on loans and valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. Management independently determines the allowance for losses on loans based on an evaluation of the loan history and the condition of the underlying collateral. In connection with the determination of the allowances for losses on foreclosed real estate, management assesses the fair market value or obtains independent appraisals for all properties.

 

While management uses available information to recognize losses on loans and foreclosed real estate, future additions to the allowances may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Association’s allowances for losses on loans and foreclosed real estate. Such agencies may require the Association to recognize additions to the allowances based on their judgments about information available to them at the time of their examination.

CASH AND CASH EQUIVALENTS

For the purposes of presentation in the consolidated statements of cash flows, cash and cash equivalents include all cash and amounts due from depository institutions, interest-bearing deposits in other banks, and Federal Funds Sold.

INVESTMENT SECURITIES

Marketable securities are classified as available-for-sale and are carried at fair value. Unrealized gains and losses on securities available-for-sale are recognized as direct increases or decreases in comprehensive income. The cost of securities sold is recognized using the specific identification method. Premiums and discounts are being amortized over the life of the securities as a yield adjustment.

MORTGAGE-BACKED SECURITIES

Mortgage-backed securities represent participating interests in pools of first mortgage loans originated and serviced by issuers of the securities. Unrealized gains and losses on mortgage-backed securities are recognized as direct increases or decreases in comprehensive income. The cost of securities sold is recognized using the specific identification method. Premiums and discounts are being amortized over the life of the securities as a yield adjustment.

COLLATERALIZED MORTGAGE OBLIGATIONS

Collateralized Mortgage Obligations (CMO’s) are multiple class mortgage-backed securities. An underlying pool of mortgages held by the issuer serves as collateral for the debt obligations, and principal and interest payments from the pool of mortgages are used to retire the CMO’s.

Currently, the Company’s investment in CMO’s is limited to Real Estate Mortgage Investment Conduits (REMIC’s). A REMIC is a pass-through investment vehicle created under the Tax Reform Act of 1986 to issue multiple class mortgage-backed securities.

Currently, the Company’s investment in REMIC’s is limited to those issued by FNMA, FHLMC and "AAA" rated non-governmental agencies. These are defined to be within the 20% risk-weighted category for thrift institutions. Prior to investing, the Company receives a prospectus that includes the various cash flow and interest rate risk scenarios possible for each bond.

Unrealized gains and losses on CMO’s are recognized as direct increases or decreases in comprehensive income. The cost of securities sold is recognized using the specific identification method. Premiums and discounts are being amortized over the life of the securities as a yield adjustment.

 

 

LOANS

Loans are stated at unpaid principal balances, less the allowance for loan losses and net deferred loan fees. Loan origination and commitment fees, as well as certain direct origination costs, are deferred and amortized as a yield adjustment over the contractual lives of the related loans using the interest method.

Loans are placed on non-accrual when principal or interest is delinquent for 90 days or more. Any unpaid interest previously accrued on those loans is reversed from income, and thereafter interest is recognized only to the extent of payments received.

A loan is considered impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Interest payments on impaired loans are typically applied to principal unless collectibility of the principal amount is fully assured, in which case interest is recognized on the cash basis. Residential mortgage loans and consumer installment loans are considered to be groups of smaller balance homogeneous loans and are collectively evaluated for impairment and are not subject to SFAS 114 measurement criteria.

The allowance for loan losses is maintained at a level that, in management’s judgment, is adequate to absorb probable losses inherent in the loan portfolio. The amount of the allowance is based on management’s evaluation of the collectibility of the loan portfolio, including the nature of the portfolio, credit concentrations, trends in historical loss experience, specific impaired loans, and economic conditions. The allowance is increased by a provision for loan losses, which is charged to expense, and reduced by charge-offs, net of recoveries. Changes in the allowance relating to impaired loans are charged or credited to the provision for loan losses.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost, less accumulated depreciation computed principally on the straight-line and modified accelerated cost recovery methods over the estimated useful lives of the assets which range from 5 to 10 years for furniture and equipment, and 31 to 39 years for buildings. Maintenance and repairs are expensed as incurred, while major additions and improvements are capitalized.

When these assets are retired or otherwise disposed of, the cost and related accumulated depreciation or amortization are removed from the accounts, and any resulting gain or loss is reflected in income for the period.

 

FORECLOSED REAL ESTATE

Foreclosed real estate includes real estate acquired in settlement of loans. At the time of foreclosure, foreclosed real estate is recorded at the lower of the Association’s cost or the asset’s fair value, less estimated selling costs, which becomes the property’s new basis. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of cost or fair value less estimated selling costs. Costs incurred in maintaining foreclosed real estate are included in income (loss) on foreclosed real estate.

REAL ESTATE HELD-FOR-INVESTMENT

Real estate held-for-investment consists of a multi-suite office building at a former branch location of the Association. The Company leases two of the four suites to the Association which serves as a branch office location. The remaining two suites are rented by unrelated third parties.

INCOME TAXES

The Company and its wholly-owned subsidiary file a consolidated Federal income tax return on a calendar year basis. Each entity pays its pro rata share of income taxes in accordance with a written tax-sharing agreement.

Income taxes are provided for the tax effects of the transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related to differences between the basis of assets and liabilities for financial and income tax reporting. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of the deferred tax asset will not be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment.

While the Association is exempt from Louisiana income tax, it is subject to the Louisiana Ad Valorem tax that is based on stockholders’ equity and net income.

NON-DIRECT RESPONSE ADVERTISING COSTS

The Company expenses advertising costs as incurred. Advertising costs were $101,000, $95,000 and $95,000 for the years ended December 31, 2002, 2001 and 2000, respectively.

Statement of Financial Accounting Standards No. 145 (SFAS 145), "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections", updates, clarifies, and simplifies existing accounting pronouncements related to extinguishment of debt, accounting requirements for the effects of transitions to the provisions of the Motor Carrier Act of 1980, and accounting for certain lease modifications that have economic effects similar to sale-leaseback transactions. This statement is effective for financial statements issued for fiscal years beginning after May 15, 2002. The adoption of this pronouncement had no effect on the financial position and results of operations of the Company

 

 

 

 

 

 

 

 

Statement of Financial Accounting Standards No. 146 (SFAS 146), "Accounting for Costs Associated with Exit or Disposal Activities", a replacement of Emerging Issues Task Force (EITF) No. 94-3. This statement provides accounting and reporting standards for costs associated with exit or disposal activities that were previously recognized at the date a Company committed to an exit plan. This statement requires that a liability for a cost associated with an exit or disposal activity be recognized at fair value when the liability is incurred. This statement is effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of this pronouncement is not expected to have an effect on the financial position and results of operations of the Company.

 

Statement of Financial Accounting Standards No. 147 (SFAS 147), "Acquisitions of Certain Financial Institutions An amendment of SFAS 72 and 144, and FASB Interpretation No. 9." This statement provides accounting and reporting standards for the application of the purchase method to all acquisitions of financial institutions (including branch acquisitions that meet the definition of a business), except transactions between two or more mutual enterprises. Previously, any excess of the fair value of liabilities assumed over the fair value of tangible and identifiable intangible assets acquired was classified as an unidentifiable intangible asset and subsequently amortized. This statement requires that long-lived assets (including long-term customer relationship intangible assets) to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and requires a probability-weighted cash flow estimation approach, and includes a "primary-asset" approach to determine the cash flow estimation period. This statement is effective for acquisitions on or after October 1, 2002. The adoption of this pronouncement had no effect on the financial position and results of operations of the Company.

Statement of Financial Accounting Standards No. 148 (SFAS 148), "Accounting for Stock-Based Compensaton – Transition and Disclosure An Amendment of FASB Statement No. 123," is effective for financial statements for fiscal years ending after December 15, 2002 and is effective for financial reports containing condensed financial statements for interim periods beginning after December 15, 2002. This statement provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Adoption of this pronouncement had no effect on the financial position and results of operations of the Company.

NOTE B

INVESTMENT SECURITIES

Securities available-for-sale consist of the following (in thousands):



December 31, 2002


Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses


Fair
Value

----------

----------

----------

----------

U. S. Government
and Federal Agencies

$

801

$

116

$

-

$

917

Adjustable Rate
Mortgage Mutual Fund

31,924

39

-

31,963

Intermediate Mortgage
Mutual Fund

412

7

-

419

FHLMC Common Stock

16

929

-

945

FHLMC Preferred Stock

19,846

1,001

-

20,847

-------

-------

-------

-------

$

52,999

$

2,092

$

-

$

55,091

=====

=====

=====

=====



December 31, 2001


Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses


Fair
Value

----------

----------

----------

----------

U. S. Government
and Federal Agencies

$

801

$

85

$

-

$

886

Adjustable Rate
Mortgage Mutual Fund

12,481

32

-

12,513

Ultra Short-Term
Mutual Fund

4,255

-

4

4,251

Intermediate
Mortgage Mutual Fund

394

3

-

397

FHLMC Common Stock

16

1,031

-

1,047

FHLMC Preferred Stock

16,224

326

-

16,550

Equity Investments-Other

173

3

-

176

-------

-------

-------

-------

$

34,344

$

1,480

$

4

$

35,820

=====

=====

=====

=====

 

The following is a summary of maturities of securities available-for-sale (in thousands):

December 31,

2002

2001

Amortized Cost

Fair Value

Amortized Cost

Fair Value

---------

---------

---------

---------

Amounts Maturing in:
In One Year or Less

$

52,198

54,174

$

33,543

$

34,934

After One Year Through Five Years

801

917

801

886

After Five Years Through Ten Years

-

-

-

-

------

------

------

------

$

52,999

55,091

$

34,344

$

35,820

=====

=====

=====

=====

The Company's investment in FHLMC common and preferred stock represents an investment in securities which pay a stated rate of interest quarterly of which 70% is exempt from Federal income tax. This FHLMC preferred stock contains call options from 2004 to 2009.

 

In 2002, the Company sold $279,000 of other equity investments and realized a gain of $20,000. In 2001, the Company sold 10,000 shares of FHLMC common stock at a gain of $623,000. The Company also wrote down its investment in the Intermediate Mortgage Mutual Fund $27,000 in 2001. During 2000, the Company realized losses of $210,000 through the redemption of $2.6 million of its Intermediate Mortgage Mutual Fund. The Company also sold 10,000 shares of FHLMC common stock for $413,000, realizing a gain of $403,000.

 

At December 31, 2002 and 2001, three equity securities being are carried at a cost of $77,000 and are included in Other Assets. The cost of these securities approximates their fair value.

 

 

NOTE C

MORTGAGE-BACKED SECURITIES

Mortgage-backed securities consist of the following (in thousands):



December 31, 2002


Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses


Fair
Value

----------

----------

----------

----------

Available for Sale:
GNMA

539

30

-

569

-------

-------

-------

-------

$

539

$

30

$

-

$

569

=====

=====

=====

=====



December 31, 2001


Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses


Fair
Value

----------

----------

----------

----------

Available for Sale:
GNMA

$

857

$

28

$

-

$

885

-------

-------

-------

-------

$

857

$

28

$

-

$

885

=====

=====

=====

=====

The amortized cost and fair value of mortgage-backed securities at December 31, 2002 and 2001, by contractual maturity, are shown below (in thousands). Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations without call or prepayment penalties.



December 31, 2002


Amortized Cost


Fair Value

---------

---------

Mortgage-Backed Securities Maturing:
In One Year or Less

$

-

$

-

After One Year Through Five Years

-

-

After Five Years Through Ten Years

-

-

After Ten Years

539

569

------

------

$

539

$

569

=====

=====



December 31, 2001


Amortized Cost


Fair Value

---------

---------

Mortgage-Backed Securities Maturing:
In One Year or Less

$

-

$

-

After One Year Through Five Years

-

-

After Five Years Through Ten Years

-

-

After Ten Years

857

885

--------

--------

$

857

$

885

=====

=====

In 2001, the Company sold $2.3 million of mortgage-backed securities at a net loss of $5,000. In 2000, the Company sold GNMA and FNMA mortgage-backed securities with a book value of $10.6 million, resulting in a loss of $337,000.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOTE D

COLLATERALIZED MORTGAGE OBLIGATIONS

Collateralized Mortgage Obligations (CMO’s) consist of the following (in thousands):



December 31, 2002


Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses


Fair
Value

----------

----------

----------

----------

Available-for-Sale:
FNMA

$

7,534

$

8

$

18

$

7,524

FHLMC

19,404

81

2

19,483

GNMA

1,601

-

-

1,601

OTHER

23,564

898

4

24,458

-------

-------

-------

-------

$

52,103

$

987

$

24

$

53,066

=====

=====

=====

=====



December 31, 2001


Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses


Fair
Value

----------

----------

----------

----------

Available-for-Sale:
FNMA

$

1,283

$

-

$

9

$

1,274

FHLMC

13,702

153

65

13,790

OTHER

35,810

1,213

-

37,023

-------

-------

-------

-------

$

50,795

$

1,366

$

74

$

52,087

=====

=====

=====

=====

In 2001, the Company sold $2.7 million of collateralized mortgage obligations at a gain of $16,000. At December 31, 2002 and 2001, CMO’s are classified as available-for-sale, and are reported on the financial statements at their fair value. Also, all of the CMO’s held as of December 31, 2002 and 2001 have contractual maturities of greater than ten years. There were no sales of CMO’s during 2002 or 2000.

CMO’s with market values of $14,003,855 and $28,540,794 have been pledged as collateral towards the outstanding balance of Advances from the Federal Home Loan Bank at December 31, 2002 and 2001, respectively.

 

 

NOTE E

LOANS

Loans at December 31, 2002 and 2001 are summarized as follows (in thousands):

December 31,

2002

2001

Loans Secured by First Mortgages on Real Estate:
One to Four
Family Residential

$

57,502

$

69,843

FHA and VA

1

9

Construction

1,263

1,056

Commercial Real Estate

8,672

3,431

Other

9,451

6,750

---------

---------

Total Real Estate Loans

76,889

81,089

Consumer Loans:
Second Mortgage

7

11

Loans on Deposits

396

254

---------

---------

Total Consumer Loans

403

265

Commercial Loans

1,515

683

---------

---------

78,807

82,037

Allowance for
Loan Losses

(483)

(435)

Net Deferred Loan
Origination Costs

10

9

---------

---------

Loans, Net

$

78,334

$

81,611

=====

=====

 

 

An analysis of the allowance for loan losses as follows (in thousands):

Years Ended December 31,

2002

2001

2000

-----

-----

-----

Balance, Beginning
of Year

$

435

$

420

$

424

Provision for Losses

48

25

7

Loans Charged Off

-

10

11

Recoveries

-

-

-

-----

-----

-----

Balance, End of Year

$

483

$

435

$

420

====

====

====

Loans receivable as of December 31, 2002 are scheduled to mature and adjustable rate loans are scheduled to re-price as follows (in thousands):

Under
One
Year

One to
Five
Years

Six
to Ten Years

Over
10
Years



Total

------

------

------

------

------

Loans Secured by 1-4 Family
Residential:
Fixed Rate

$

71

$

1,184

$

6,698

$

49,549

$

57,502

Other Loans Secured by
Real Estate:
Fixed Rate

-

14,236

5,158

-

19,394

Commercial Fixed Rate

1,146

-

369

-

1,515

All Other Loans

396

-

-

-

396

------

------

------

------

------

$

1,613

$

15,420

$

12,225

$

49,549

$

78,807

=====

=====

=====

=====

=====

At December 31, 2002 and 2001, the Association had loans totaling approximately $295,000 and $179,000, respectively, for which impairment had been recognized. The allowance for loan losses related to these loans totaled $49,000 and $56,000 at December 31, 2002 and 2001, respectively. The amount of interest income that would have been recorded on loans in non-accrual status at December 31, 2002, had such loans performed in accordance with their terms, was approximately $34,000. Such interest foregone for the year ended December 31, 2001 was approximately $8,000.

In the ordinary course of business, the Association has and expects to continue to have transactions, including borrowings, with its officers and directors. In the opinion of management, such transactions were on substantially the same terms, including interest rates and collateral, as those prevailing at the time of comparable transactions with other persons and did not involve more than a normal risk of collectibility or present any other unfavorable features to the Association.

Loans to such borrowers are summarized as follows (in thousands):

December 31,

2002

2001

Balance, Beginning
of Year

$

1,456

$

1,454

Additions

50

228

Payments and Renewals

(571)

(226)

---------

---------

Balance, End of Year

935

1,456

The Association’s lending activity is concentrated within the metropolitan New Orleans area and surrounding parishes, with its major emphasis in the origination of permanent single-family dwelling loans. Such loans comprise the majority of the Association’s loan portfolio.

 

NOTE F

ACCRUED INTEREST RECEIVABLE

Accrued interest receivable at December 31, 2002 and 2001 consists of the following (in thousands):

December 31,

2002

2001

Loans

$

345

$

348

Mortgage-Backed Securities

4

6

Collateralized Mortgage Obligations

269

277

Investments and Other

24

252

------

------

Totals

$

642

$

883

====

====

 

 

NOTE G

PREMISES AND EQUIPMENT

A summary of premises and equipment follows (in thousands):

December 31,

2002

2001

Land

$

952

$

781

Buildings and Improvements

2,074

2,071

Furniture, Fixture and Equipment

735

637

------

------

3,761

3,489

Accumulated Depreciation and Amortization

(1,093)

(943)

------

------

$

2,668

$

2,546

====

====

 

Depreciation expense for the years ended December 31, 2002, 2001 and 2000 was approximately $150,000, $139,000 and $137,000, respectively.

NOTE H

FORECLOSED REAL ESTATE

A summary of the activity of the Foreclosed Real Estate account follows (in thousands):

December 31,

2002

2001

Balance - Beginning of the Year

$

-

$

117

Acquired in Settlement of Loans

42

363

Costs Capitalized

3

15

Sales of Foreclosed Real Estate

(45)

(495)

Less: Allowance for Losses on Foreclosed Real Estate

-

-

------

------

$

-

$

-

===

====

Expenses applicable to foreclosed real estate consists of operating expenses, net of rental income. The Company incurred net expenses associated with foreclosed real estate of approximately $-0- for the year ended December 31, 2002. For the years ended December 31, 2002 and 2001, the Company recognized net income associated with foreclosed real estate of approximately $-0- and $2,000, respectively.

 

 

NOTE I

REAL ESTATE HELD-FOR-INVESTMENT

Real estate held-for-investment, which consists of a multi-suite office building located on the property of a former branch location of the Association, is summarized below (in thousands):

December 31,

2002

2001

Land

$

226

$

226

Buildings and Improvements

320

307

------

------

546

533

Accumulated Depreciation

(17)

(1)

------

------

$

529

$

532

===

====

Depreciation expense for each of the years ended December 31, 2002, 2001 and 2000 was $16,000, $1,000 and $2,000, respectively. Depreciation expense during 2002 and 2001 was for the newly constructed multi-suite office building that was placed into service in November, 2001. Depreciation expense for 2000 was for the former structure located on the property. During 2000, the Company transferred the remaining book value of the structure from Building and Improvements to Land.

In 2002 the Company realized $49,000 in rental income from this property. During 2001, the Company had $5,000 in such rental income.

 

 

 

 

NOTE J

DEPOSITS

Deposit account balances at December 31, 2002 and 2001 are summarized as follows (in thousands):

 

Weighted
Average Rate at

Year Ended
December 31,

December 31,

2002

2001

2002

2001

Amount

Percent

Amount

Percent
Balance by Interest Rate:
Demand Deposit
Accounts

1.83

%

1.94

%

$

7,143

6.71

%

$

7,910

11.12

%

Regular Savings
Accounts

2.28

%

2.75

%

31,153

29.25

20,042

28.16

Certificates of
Deposit

3.44

%

4.34

%

68,213

64.04

43,217

60.72

$

106,509

100.00

%

$

71,169

100.00

%

======

=====

======

=====

Certificate Accounts Maturing
Under 12 months

$

47,695

69.92

%

$

32,485

75.17

%
12 months to 24 months

8,981

13.17

8,049

18.62

24 months to 36 months

11,428

16.75

2,180

5.04

36 months to 48 months

35

0.05

496

1.15

48 months to 60 months

74

.11

7

.02

$

68,213

100.00

%

$

43,217

100.00

%

======

=====

======

=====

The aggregate amount of deposits with a minimum balance of $100,000 was approximately $17,368,000 and $3,928,000 at December 31, 2002 and 2001, respectively.

Interest expense for each of the following periods is as follows (in thousands):

 

   

Years Ended
December 31,
   

2002

 

2001

 

2000

Certificates

$

1,953

$

2,122

$

2,094

NOW Accounts  

132

 

207

 

-

Passbook Savings  

677

 

514

 

572

             
 

$

2,762

$

2,843

$

2,666

The Association held deposits of approximately $1,149,000 and $653,000 for officers and directors at December 31, 2002 and 2001, respectively.

NOTE K

ADVANCES FROM FEDERAL HOME LOAN BANK

Pursuant to collateral agreements with the Federal Home Loan Bank (FHLB), advances are secured by a blanket floating lien on first mortgage loans and certain pledged CMOs. Total interest expense recognized in 2002, 2001 and 2000, respectively, was $4,042,000, $4,982,000 and $3,209,000.

Contract Rate

Advance Total
   

2002

 

2001

4.00% to 4.99%

$

1,144

$

2,234

5.00% to 5.99%  

58,851

 

67,954

6.00% to 6.99%  

6,397

 

9,077

 

$

66,392

$

79,265

   

=====

 

=====

 

Maturities of Advances at December 31, 2002 for each of the next five years are as follows (in thousands):

Year Ending
   

December 31,
 

Amount

2003
$

27,453

2004
 

6,226

2005
 

9,537

2006
 

6,131

2007
 

5,514

Thereafter
 

11,531

  $

66,392

NOTE L

INCOME TAX EXPENSE

The provision for income taxes for 2002, 2001 and 2000 consists of the following (in thousands):

   

Years Ended
December 31,
   

2002

 

2001

 

2000

Current Tax Expense

$

232

$

528

$

603

Deferred Tax Expense  

86

 

61

 

63

             
 

$

318

$

589

$

666

The provision for Federal income taxes differs from that computed by applying Federal statutory rates to income (loss) before Federal income tax expense, as indicated in the following analysis (in thousands):

   

Years Ended
December 31,
   

2002

 

2001

 

2000

Expected Tax Provision at a 34% Rate

$

508

$

750

$

633

Expected State Corporate Tax  

2

 

(2)

 

9

Effect of Tax Exempt Income  

(248)

 

(207)

 

(5)

Employee Stock Ownership Plan  

62

 

53

 

20

Other  

(6)

 

(5)

 

9

 

$

318

$

589

$

666

Deferred tax liabilities have been provided for the temporary differences related to unrealized gains on available-for-sale securities, deferred loan costs, depreciation, the allowance for loan losses, and non-cash Federal Home Loan Bank dividends. Deferred tax assets have been provided for the temporary differences related to the Company’s Recognition and Retention Plan and Employee Stock Ownership Plan, reserves for uncollected interest and late charges, deferred loan fees, and the allowance for losses on foreclosed real estate. The net deferred tax assets or liabilities in the accompanying consolidated balance sheets include the following components (in thousands):

 

     

2002
 

2001
Deferred Tax Assets        
  Recognition and Retention Plan

$

13

$

13

  Employee Stock Ownership Plan  

43

 

87

  Other  

3

 

4

  Total Deferred Tax Assets  

59

 

104

           
Deferred Tax Liabilities        
  FHLB Stock Dividends

$

356

$

302

  Market Value Adjustment to        
Available-for-Sale Securities

1,045

950

Allowance for Loan Losses

156

183

  Other  

74

 

59

  Total Deferred Tax Liabilities  

1,631

 

1,494

           
Deferred Tax Liabilities - Net of Deferred Tax Assets

$

1,572

$

1,390

   

====

 

====

Included in retained earnings at December 31, 2002 and 2001 is approximately $3,800,000 in bad debt reserves for which no deferred Federal income tax liability has been recorded. These amounts represent allocations of income to bad debt deductions for tax purposes only. Reduction of these reserves for purposes other than tax bad-debt losses or adjustments arising from carry-back of net operating losses would create income for tax purposes, which would be subject to the then-current corporate income tax rate. The unrecorded deferred liability on these amounts was approximately $1,292,000 for December 31, 2002 and 2001, respectively.

NOTE M

EMPLOYEE STOCK OWNERSHIP PLAN

During 1997, GS Financial Corp. instituted an employee stock ownership plan (the "ESOP") that covers all employees of Guaranty Savings and Homestead Association who have completed one year of service and have attained the age of 21. The ESOP purchased the statutory limit of eight percent of the shares offered in the initial public offering of the Company (275,080 shares). This purchase was facilitated by a loan from the Company to the ESOP in the amount of $2,750,800. The loan is secured by a pledge of the ESOP shares. The shares pledged as collateral are reported as unearned ESOP shares in the balance sheets. The corresponding note is to be paid back in 40 equal quarterly payments of $103,000 on the last business day of each quarter, beginning June 30, 1997 at the rate of 8.5%. The note payable and the corresponding note receivable have been eliminated for consolidation purposes.

The Association may contribute to the plan, in the form of debt service, at the discretion of its board of directors. Dividends received on ESOP shares are either utilized to service the debt or credited to participant accounts at the discretion of the trustees of the Plan. Shares are released for allocation to plan participants based on principal and interest payments of the note. Compensation expense is recognized based on the number of shares allocated to plan participants each year and the average market price of the stock for the current year. Released ESOP shares become outstanding for earnings per share computations.

As compensation expense is incurred, the Unearned ESOP Shares account is reduced based on the original cost of the stock. The difference between the cost and average market price of shares released for allocation is applied to Additional Paid-in Capital. ESOP compensation expense was approximately $465,000, $415,000 and $377,000 for the years ended December 31, 2002, 2001 and 2000, respectively.

The ESOP shares as of December 31, 2002 and 2001 were as follows:

   

2002
 

2001
Allocated Shares  

123,457

 

103,658

Shares Released for Allocation  

28,132

 

28,132

Unreleased Shares  

108,319

 

136,451

         
Total ESOP Shares  

259,908

 

268,241

   

======

 

======

Fair Value of Unreleased Shares (in thousands)

$

1,966

$

2,039

   

====

 

====

Total ESOP shares decreased in 2002 and 2001 due to the liquidation of shares for employees who terminated their employment in 2002 and 2001.

 

 

NOTE N

RECOGNITION AND RETENTION PLAN

On October 15, 1997, the Company established a Recognition and Retention Plan (the "Plan") as an incentive to retain personnel of experience and ability in key positions. The Company approved a total of 137,540 shares of stock to be acquired for the Plan, of which 125,028 shares have been allocated for distribution to key employees and directors. As shares are acquired for the Plan, the purchase price of these shares is recorded as unearned compensation, a contra equity account. As the shares are distributed, the contra equity account is reduced.

During 1998, by unanimous approval of the Plan participants, the Plan was amended as a direct effort to reduce the Company’s expenses resulting from the Plan. Prior to the amendment to the Plan, Plan share awards were earned by recipients at a rate of 20% of the aggregate number of shares covered by the Plan over five years. The amended Plan stipulates that Plan share awards are earned by recipients at a rate of 10% of the aggregate number of shares covered by the plan over ten years. If the employment of an employee or service as a non-employee director is terminated prior to the tenth anniversary of the date of grant of Plan share award for any reason (except for death, disability or retirement), the recipient shall forfeit the right to any shares subject to the award which have not been earned.

The total cost associated with the Plan is based on a per share value of $12.50, the market price of the Company’s stock as of the date on which the Plan was amended. This cost is being amortized over ten years. Compensation expense pertaining to the Recognition and Retention plan was $149,000, $198,000 and $156,000 for the years ended December 31, 2002, 2001 and 2000, respectively. The increased expense in 2001 was attributable to a lump sum distribution of the remaining awarded shares under the terms of the plan to a member of the Board of Directors who retired for health reasons.

 

A summary of the changes in restricted stock follows:

 

Unawarded Shares

Awarded Shares

Balance at January 1, 2001

12,472

87,522

Purchased by Plan

-

-

Granted

-

-

Forfeited

-

-

Earned and Issued

-

(16,038)

     
Balance at December 31, 2001

12,472

71,484

Purchased by Plan

-

-

Granted

-

-

Forfeited

-

-

Earned and Issued

-

(11,916)

     
Balance at December 31, 2002

12,472

59,568

 

=====

=====

 

NOTE O

STOCK OPTION PLAN

In 1997, the Company adopted a stock option plan for the benefit of directors, officers, and other key employees. The number of shares of common stock reserved for issuance under the stock option plan was 343,850 shares, or ten percent of the total number of shares of common stock sold in the Company’s initial public offering of its common stock.

 

The plan also permits the granting of Stock Appreciation Rights (SAR’s). SAR’s entitle the holder to receive, in the form of cash or stock, the increase in the fair value of the Company stock from the date of grant to the date of exercise. No SAR’s have been issued under the plan.

 

On October 15, 1997, the Company granted a total of 275,076 options to directors, officers, and other key employees. Under the plan, the exercise price of each option cannot be less than the fair value of the underlying common stock as of the date of the option grant, and the maximum term is 10 years. Options vest over five years.

 

 

The Company accounts for the plan under the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under the plan have an exercise price equal to the market value of the underlying common stock on the date grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123 Accounting for Stock-Based Compensation, to stock-based employee compensation.

 

 

2002

2001

2000
Net Income (In thousands)      
  As Reported

$1,177

$1,617

$1,195

Deduct: Total stock-based employee compensation      
expense determined under fair value based method,      
net of related tax effects

(166)

(210)

(210)

         
  Pro Forma Net Income

$ 1,011

$1,407

$ 985

====

====

====

Earnings per Share      
  Basic, as reported

$ .86

$1.04

$ .60

  Basic, pro forma

$ .74

$ .90

$ .50

  Diluted, as reported

$ .86

$1.04

$ .60

  Diluted, pro forma

$ .74

$ .90

$ .50

 

The fair value of options granted on October 15, 1997 was estimated as of the date of the grant using the Black-Scholes option-pricing model with the following assumptions: dividend yield of 1.59%; expected volatility of 16.2%; risk-free interest rate of 6.14%; and life of 9.88 years.

 

A summary of the status of the Company’s stock option plan as of December 31, 2002, 2001, and 2000, and changes during the years ending on those dates is presented below:

 

2002

2001

2000

Exercise

Exercise

Exercise
Fixed Options

Shares

Price

Shares

Price

Shares

Price
Outstanding at Beginning of Year

275,076

$ 17.18

275,076

$ 17.18

275,076

$ 17.18

Granted

-

-

-

Exercised

-

-

-

Forfeited

-

-

-

---------

--------

---------

Outstanding at End of Year

275,076

$ 17.18

275,076

$ 17.18

275,076

$ 17.18

======

=====

======

Options Exercisable at Year-end

275,076

$ 17.18

220,061

$ 17.18

176,507

$ 17.18

======

=====

======

 

 

The following table summarizes information about fixed stock options outstanding at December 31, 2002:

Options Outstanding

Options Exercisable

Weighted-

Weighted-

Number

Remaining

Average

Number

Average

Exercise

Outstanding

Contractual

Exercise

Exercisable

Exercise

Price

at 12/31/02

Life

Price

at 12/31/02

Price

$ 17.18

275,076

4.8 years

$ 17.18

275,076

$ 17.18

 

NOTE P

COMPREHENSIVE INCOME

Comprehensive income was comprised of changes in the Company’s unrealized holding gains or losses on securities available-for-sale during 2002, 2001 and 2000. The following represents the tax effects associated with the components of comprehensive income (in thousands).

   

Years Ended December 31,
      2002   2001   2000
Gross Unrealized Holding Gains (Losses)            
  Arising During the Period

$

1,265

$

1,215

$

2,553

Tax (Expense) Benefit  

(430)

 

(413)

 

(868)

               
     

835

 

802

 

1,685

               
Reclassification Adjustment for (Gains)            
  Losses Included in Net Income  

(988)

 

(377)

 

283

Tax Expense (Benefit)  

336

 

128

 

(96)

               
     

(652)

 

(249)

 

187

             
Net Unrealized Holding Gains (Losses)            
  Arising During the Period

$

183

$

553

$

1,872

 

NOTE Q

FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991 (FDICIA) AND FINANCIAL INSTITUTIONS REFORM, RECOVERY AND ENFORCEMENT ACT OF 1989 (FIRREA)

FDICIA was signed into law on December 19, 1991. Regulations implementing the prompt corrective action provisions of FDICIA became effective on December 19, 1992. In addition to the prompt corrective action requirements, FDICIA includes significant changes to the legal and regulatory environment for insured depository institutions, including reductions in insurance coverage for certain kinds of deposits, increased supervision by the Federal regulatory agencies, increased reporting requirements for insured institutions, and new regulations concerning internal controls, accounting and operations.

FIRREA was signed into law on August 9, 1989. Regulations for savings institutions’ minimum capital requirements went into effect on December 7, 1989. In addition to its capital requirements, FIRREA includes provisions for changes in the Federal regulatory structure for institutions, including a new deposit insurance system and restricted investment activities with respect to non-investment grade corporate debt and certain other investments. FIRREA also increases the required ratio of housing-related assets in order to qualify as a savings institution.

 

The regulations require institutions to have a minimum regulatory tangible capital equal to 1.5% of adjusted total assets, a minimum 3% core/leverage capital ratio, a minimum 4% tier 1 risk-based ratio, and a minimum 8% total risk-based capital ratio to be considered "adequately capitalized." An institution is deemed to be "critically undercapitalized" if it has a tangible equity ratio of 2% or less. The ability to include qualifying supervisory goodwill for purposes of the core/leverage capital and tangible capital was phased out by July 1, 1995.

The following table sets out the Association’s various regulatory capital categories at December 31, 2002 and 2001.

 

2002

2001
(in thousands)

Dollars

Percentage

Dollars

Percentage
         
Tangible Capital

$28,145

13.79%

$26,393

14.40%

Tangible Equity

28,145

13.79%

26,393

14.40%

Core/Leverage Capital

28,145

13.79%

26,393

14.40%

Tier 1 Risk-Based Capital

28,145

24.63%

26,393

28.24%

Total Risk-Based Capital

28,628

25.05%

26,828

28.71%

 

As of December 31, 2002, the most recent notification from the FDIC categorized the Association as "well capitalized" under the regulatory framework for prompt corrective action. To be "well capitalized", the Association must maintain minimum leverage capital ratios and minimum amounts of capital to "risk-weighted" assets, as defined by banking regulators.

 

NOTE R

REGULATORY CAPITAL

The following is a reconciliation of generally accepted accounting principles (GAAP) net income and capital to regulatory capital for the Association. The following reconciliation also compares the capital requirements as computed to the minimum capital requirements for the Association.

 

 

(in thousands)

Net Income for the
Year Ended
December 31, 2002


Capital as of
December 31, 2002
           
Per GAAP

$1,138

 

$

30,152

 
           
Total Assets    

$

207,109

 
           
Capital Ratio      

14.56%

 

 

 

 

 

     


Tangible Capital


Tangible Equity

Core/ Leverage Equity

Tier 1
Risk-Based Capital

Total Risk-Based Capital
Per GAAP

$

30,152

$

30,152

$

30,152

$

30,152

$

30,152

  Capital Required                    
    to be Reduced:                    
    Unrealized Gain                    
    on Securities                    
    Available-for-Sale  

(2,007)

 

(2,007)

 

(2,007)

 

(2,007)

 

(2,007)

                         
  Allowance for Loan                    
    Losses  

-

 

-

 

-

 

-

 

483

                         
  Regulatory Capital                    
    Measure

$

28,145

$

28,145

$

28,145

$

28,145

$

28,628

       

=====

 

=====

 

=====

 

=====

 

=====

                         
  Adjusted Total Assets

$

204,054

$

204,054

$

204,054

       
       

======

 

======

 

======

       
                 

$

114,261

$

114,261

                   

======

 

======

  Risk-Weighted Assets                    
                         
  Capital Ratio  

13.79%

 

13.79%

 

13.79%

 

24.63%

 

25.05%

                       
  Required Ratio  

1.50%

 

2.00%

 

3.00%

 

4.00%

 

8.00%

                         
  Required Capital

$

3,061

   

$

6,122

   

$

9,141

       

=====

     

=====

     

=====

  Excess Capital

$

25,084

   

$

22,023

   

$

19,487

       

=====

     

=====

     

=====

 

 

 

 

(in thousands)

Net Income for the
Year Ended
December 31, 2001


Capital as of
December 31, 2001
           
Per GAAP

$1,578

 

$

28,218

 
           
Total Assets    

$

186,002

 
           
Capital Ratio      

15.17%

 
     

 

Tangible Capital

 

Tangible Equity

Core/ Leverage Equity

Tier 1 Risk-Based

Capital

Total Risk-Based Capital
Per GAAP

$

28,218

$

28,218

$

28,218

$

28,218

$

28,218

  Capital Required                    
    to be Reduced:                    
    Unrealized Gain                    
    on Securities                    
    Available-for-Sale  

(1,825)

 

(1,825)

 

(1,825)

 

(1,825)

 

(1,825)

                         
  Allowance for Loan                    
    Losses  

-

 

-

 

-

 

-

 

435

                         
  Regulatory Capital                    
    Measure

$

26,393

$

26,393

$

26,393

$

26,393

$

26,828

       

=====

 

=====

 

=====

 

=====

 

=====

                         
  Adjusted Total Assets

$

183,238

$

183,238

$

183,238

       
       

======

 

======

 

======

       
                 

$

93,459

$

93,459

                   

=====

 

=====

  Risk-Weighted Assets                    
                         
  Capital Ratio  

14.40%

 

14.40%

 

14.40%

 

28.24%

 

28.71%

                       
  Required Ratio  

1.50%

 

2.00%

 

3.00%

 

4.00%

 

8.00%

                         
  Required Capital

$

2,749

   

$

5,497

   

$

7,477

       

=====

     

=====

     

=====

                       
  Excess Capital

$

23,644

   

$

20,896

   

$

19,351

       

=====

     

=====

     

=====

 

NOTE S

COMMITMENTS AND CONTINGENCIES

In the normal course of business, the Association has various outstanding commitments and contingent liabilities that are not reflected in the accompanying financial statements.

COMMITMENTS TO EXTEND CREDIT

The Association is a party to credit related commitments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These consist of outstanding mortgage and construction loan commitments and commercial lines of credit. As of December 31, 2002 and 2001, outstanding mortgage, construction and commercial lines of credit commitments were approximately $2,797,000 and $2,340,000, respectively.

EMPLOYMENT CONTRACTS

The chief executive officer and the executive vice-president of the Association serve under employment contracts that were approved by the Board of Directors on February 13, 1997. The contracts were amended on February 14, 2002, to extend the term thereof to February 13, 2005.

OPERATING LEASE

During 2002, the Association entered into a lease with the Company for a Branch Office Location. The rental expense associated with this lease is eliminated in the consolidated statement of operations. The lease has a term of 24 months with a rental rate of $4,025 per month. In addition, the Association leases an automobile under an operating lease that expires in November 2005. Total rent expense incurred under these leases amounted to $39,907, $16,076 and $4,713 for the years ended December 31, 2002, 2001, and 2000, respectively.

Year Ending December 31,
 
Amount

2003

$

55,855

2004
 

55,855

2005
 

6,925

   

--------

Total

$

118,635

   

=====

 

NOTE T

FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

The Association is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments consist of commitments to extend credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the balance sheets.

The Association’s exposure to credit loss in the event of nonperformance by the other party to these financial instruments for commitments to extend credit is represented by the contractual notional amount of those instruments (see Note S). The Association uses the same credit policies making commitments as it does for on-balance sheet instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. The total commitment amount does not necessarily represent future cash requirements. The Association evaluates each customer’s creditworthiness on a case-by-case basis. The amount and type of collateral obtained varies and is based on management’s credit evaluation of the counterparty.

 

NOTE U

CONCENTRATION OF CREDIT RISK

The Association’s lending activity is concentrated within the southeastern part of Louisiana. Also in accordance with industry practices, the Association has deposits in other financial institutions for more than the insured limit. These deposits in other institutions do not represent more than the normal industry credit risk.

 

NOTE V

DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate the value:

The carrying amount of cash and short-term investments approximate the fair value.

For investment securities, mortgage-backed securities, and collateralized mortgage obligations, fair value is based on quoted market prices.

For mortgage loans receivable the fair values are based on discounted cash flows using current rates at which similar loans with similar maturities would be made to borrowers with similar credit risk.

The fair value of savings deposits is calculated using average rates in the market place at the date of the financial statements.

For certificates of deposit, fair value is estimated based on current rates for deposits of similar remaining maturities.

Advances from the Federal Home Loan Bank are valued utilizing the cash flows set forth in the existing amortization schedules and current rates on similar advances.

The fair value of loan commitments is estimated using rates and fees that would be charged to enter similar agreements, taking into account (1) the remaining terms of the agreement, (2) the creditworthiness of the borrowers, and (3) for fixed rate commitments, the difference between current interest rates and committed rates.

   

December 31, 2002

December 31, 2001
   

Carrying Amount

Fair
Value

Carrying Amount

Fair
Value
Financial Assets                
  Cash and Short-Term Investments

$

13,352

$

13,352

$

8,638

$

8,638

  Investment Securities  

55,091

 

55,091

 

35,820

 

35,820

  Mortgage-Backed Securities  

569

 

569

 

885

 

885

  Collateral Mortgage Obligations  

53,066

 

53,066

 

52,087

 

52,087

 

Loans (Net of Allowance for Loan

Losses)

 

 

78,334

 

 

84,373

 

 

81,611

 

 

83,904

                   
Financial Liabilities                
  Deposits

$

106,509

$

106,251

$

71,169

$

71,961

  Advances from Federal Home Loan Bank  

 

66,392

 

 

73,071

 

 

79,265

 

 

80,836

                   
Unrecognized Financial Instruments                
  Commitments to Extend Credit

$

1,533

$

1,774

$

575

$

619

 

Unfunded Construction Loan

Commitments

 

 

680

 

 

856

 

 

1,690

 

 

1,775

 

Unfunded Commercial Lines of

Credit

 

 

584

 

 

584

 

 

75

 

 

75

 

NOTE W

SELECTED QUARTERLY FINANCIAL DATA (Unaudited)

The following sets forth condensed results of operations for 2002 and 2001 (dollar amounts in thousands, except per share data):

 

First

Second

Third

Fourth
2002

Quarter

Quarter

Quarter

Quarter
Interest Income

$

3,070

$

3,135

$

3,211

$

3,017

Interest Expense

1,709

1,678

1,699

1,718

Net Interest Income

1,361

1,457

1,512

1,299

Provision for Loan Losses

4

11

-

33

Other Income

24

37

21

20

Other Expense

969

1,027

1,027

1,164

Income Tax Expense

84

98

105

31

Net Income

$

328

$

358

$

401

$

91

===

===

===

===

Net Income per Common Share (1)
Basic

$

0.23

$

0.25

$

0.30

$

0.07

Dilluted

$

0.23

$

0.25

$

0.30

$

0.07

Dividends Per Share

$

0.09

$

0.09

$

0.09

$

0.09

(1) Quarterly per share amounts do not add to total for the year ended due to rounding.

First

Second

Third

Fourth
2001

Quarter

Quarter

Quarter

Quarter
Interest Income

$

3,089

$

3,445

$

3,376

$

3,190

Interest Expense

1,848

2,123

2,008

1,847

Net Interest Income

1,241

1,322

1,368

1,343

Provision for Loan Losses

13

-

2

9

Other Income

598

7

31

10

Other Expense

883

923

940

945

Income Tax Expense

335

124

131

(1)

Net Income

$

608

$

282

$

326

$

400

===

===

===

===

Net Income per Common Share (1)
Basic

$

0.36

$

0.17

$

0.22

$

0.28

Dilluted

$

0.36

$

0.17

$

0.22

$

0.28

Dividends Per Share

$

0.09

$

0.09

$

0.09

$

0.09

(1) Quarterly per share amounts do not add to total for the year ended due to rounding.

 

 

NOTE X

EARNINGS PER COMMON SHARE

Earnings per share are computed using the weighted average number of shares outstanding. Options to purchase 275,076 shares at $17.18 per share were outstanding during 2002, 2001, and 2000 but were not included in the computation of diluted earnings per share because the options’ exercise price was greater than the average market value price of the common shares. The options were still outstanding at December 31, 2002. The Company had no other securities outstanding during the years ended December 31, 2002, 2001, or 2000 that would have a dilutive effect on earnings per share.

 

Average shares outstanding at December 31, 2002, 2001 and 2000 amounted to 1,371,800, 1,555,260, and 1,976,605, respectively. The following table presents the components of average outstanding shares for each of the three years:

 

Years Ended December 31,
 

2002

2001

2000
       
Average Common Shares Issued

3,438,500

3,438,500

3,438,500

Average Treasury Shares

(1,845,346)

(1,623,649)

(1,159,394)

Average Unearned ESOP Shares

(136,373)

(164,506)

(192,638)

Average Unearned RRP Trust Shares

(84,981)

(95,085)

(109,863)

 

-------------

-------------

-------------

 

1,371,800

1,555,260

1,976,605

 

========

========

========

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOTE Y

CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY

GS FINANCIAL CORP.

CONDENSED FINANCIAL CONDITION

(Dollars in Thousands)

ASSETS

December 31,

2002

2001

Cash and Cash Equivalents

$

245

$

131

Investments - Available-for-Sale, at Fair Value

1,492

871

Mortgage-Backed Securities - Available-for-Sale, at Fair Value

573

891

Investment in Subsidiary

30,152

28,218

Loan Receivable

1,338

1,718

Dividend Receivable from Subsidiary

-

3,000

Other Assets

788

777

$

34,588

$

35,606

====

====

LIABILITIES AND STOCKHOLDERS' EQUITY
Deferred Tax Liability

$

20

$

15

Other Liabilities

6

4

Stockholders' Equity

34,562

35,587

$

34,588

$

35,606

====

====

 

NOTE Y

CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY

(CONTINUED)

 

GS FINANCIAL CORP.

STATEMENT OF OPERATIONS

(Dollars in Thousands)

For the Years Ended

December 31,

2002

2001

2000

INTEREST INCOME
Mortgage-Backed Securities

$

48

$

76

$

128

Dividend from Subsidiary

-

-

5,000

Loans

129

152

173

Investment Securities

39

26

19

Other Interest Income

2

6

39

Total Interest Income

218

260

5,359

NON-INTEREST INCOME
Undistributed Earnings of Subsidiary

1,138

1,579

(3,904)

Gain on Sale of Investments

20

-

-

Income from Real Estate Held-for-Investment

77

5

-

Total Non-Interest Income

1,235

1,584

(3,904)

NON-INTEREST EXPENSES
General and Administrative

106

70

59

Intercompany Personnel Expense

123

122

116

Taxes

22

16

20

Loss on Sale of Investments

-

-

10

Total Non-Interest Expenses

251

208

205

INCOME BEFORE INCOME TAX

1,202

1,636

1,250

PROVISION FOR INCOME TAX

25

19

55

NET INCOME

$

1,177

$

1,617

$

1,195

=====

=====

=====

 

NOTE Y

CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY

(CONTINUED)

GS FINANCIAL CORP.

STATEMENT OF CASH FLOWS

(Dollars in Thousands)

For the Years Ended

December 31,

2002

2001

2000

OPERATING ACTIVITIES
Net Income

$

1,177

$

1,617

$

1,195

Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Depreciation Expense

17

2

3

(Gain) Loss on Sale of Investments

(20)

-

10

Equity in Undistributed Earnings of Subsidiary

(1,138)

(1,579)

3,904

Amortization of Investment Premium

7

15

4

Dividend on ARM Fund

(36)

(21)

(11)

Dividend on IMF Fund

(1)

(1)

(8)

Decrease in Accrued Interest Receivable

2

5

2

Decrease in Dividend Receivable from Subsidiary

3,000

5,035

3,335

(Increase) Decrease in Tax Receivable

(5)

-

47

Increase (Decrease) in Deferred Income Tax

4

(2)

10

Decrease (Increase) in Other Assets

3

(4)

(8)

Increase in Other Liabilities

2

-

-

Increase (Decrease) in Accrued Income Tax

-

5

(1)

Net Cash Provided by Operating Activities

3,012

5,072

8,482

INVESTING ACTIVITIES
Redemption of IMF Mutual Fund

-

-

200

Investment in ARM Mutual Fund

(758)

(481)

(60)

Sale (Investment) in Other Equity Securities

193

(123)

(50)

Principal Paydowns Note Receivable GS Financial ESOP

380

229

238

Principal Paydowns on Mortgage-Backed Securities -
Available-for-Sale

311

668

227

Investment in Premises and Equipment

(26)

-

-

Investment in Real Estate

-

(316)

-

Net Cash Provided by (Used in) Investing Activities

100

(23)

555

FINANCING ACTIVITIES
Purchase of Treasury Stock

(2,516)

(4,611)

(8,590)

Payment of Dividends

(482)

(561)

(763)

Net Cash (Used in) Financing Activities

(2,998)

(5,172)

(9,353)

NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS


114


(123)


(316)

CASH AND CASH EQUIVALENTS - BEGINNING
OF YEAR


131


254


570

CASH AND CASH EQUIVALENTS - END
OF YEAR


$


245


$


131


$


254

BOARD OF DIRECTORS

Donald C. Scott

Mr. Scott (Age 51) has served as President and Chief Executive Officer of the Company since February 1997 and President of the Association since March 1985; prior thereto, he served in various management and other positions at the Association. He has been a director since 1982.

Kenneth B. Caldcleugh

Mr. Caldcleugh (Age 53) is the President and Owner of The Cellars of River Ridge, a fine wine and spirit retail outlet in Louisiana. Prior thereto, Mr. Caldcleugh was the Vice President and Regional Manager of Glazer Companies of Louisiana (formerly Glazer Wholesale Spirit & Wine Distributors), from 1973 to 1996. He has been a director since 1996.

Stephen L. Cory

Mr. Cory (Age 53) is an insurance agent and President of the Cory, Tucker & Larrowe Agency in Metairie, Louisiana. He has been a director since 1995.

Bradford A. Glazer

Mr. Glazer (Age 47) is President of Glazer Enterprises, Inc., Cincinnati, Ohio, an independent freight agency for Landstar Ligon. Formerly, Mr. Glazer was Senior Vice President of Espy & Straus, Inc., Cincinnati, Ohio. Prior thereto, Mr. Glazer was the Chairman of Glazer Steel Corporation, in New Orleans, Louisiana (and Knoxville, Tennessee). He has been a director since 1991.

J. Scott Key

Mr. Key (Age 50) is the President and Chief Operating Officer of Kencoil, Inc. (previously D & S Industries), an electric motor coil manufacturer and its subsidiary Scott Armature, a provider of sales and services of electrical apparatus, in Belle Chasse, Louisiana. He has been a director since 1991.

Mannie D. Paine, Jr.

Dr. Paine (Age 86) is a retired physician. Dr. Paine has provided consulting services for various companies. He is a former Medical Director for Blue Cross of Louisiana, Medicaid and Pan American Insurance Company. He has been a director since 1976.

Bruce A. Scott

Mr. Scott (Age 50) is an attorney and has served as Executive Vice President of the Company since February 1997 and Executive Vice President of the Association since 1985. Mr. Scott also serves as legal counsel and Personnel Manager of the Association, and performs certain legal services for the Association and its borrowers in connection with real estate loan closings and receives fees from the borrowers in connection therewith. He has been a director since 1982.

Albert J. Zahn, Jr.

Mr. Zahn (Age 51) is a certified public accountant and president of the firm Al Zahn, CPA, A Professional Accounting Corporation. He has been a director since 1992.

 

 

EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS

 

Lettie R. Moll

Mrs. Moll has served as Vice President and Secretary of the Company since 1997 and Vice President and Secretary of the Association since March 1987 and March 1982, respectively.

Ralph E. Weber

Mr. Weber has primary responsibility for the Association’s data processing requirements and has served as Vice President of the Company and the Association since February 1997 and March 1987, respectively.