x Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number: 0-22269
Louisiana | 72-1341014 |
(State or Other Jurisdiction | (IRS Employer ID Number) |
of Incorporation or Organization) |
Registrant's Telephone Number: (504) 457-6220
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 Registrants 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 Registrants 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 Registrants fiscal year end are incorporated into Part III, Items 10 through 13. |
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 Companys actual results could differ materially from those management expectations. Such forward-looking statements include statements regarding the Companys 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 Companys loan and investment portfolios, changes in accounting principles, policies or guidelines, and other economic, competitive, governmental and technological factors affecting the Companys 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 Companys 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 Associations 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 Companys 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 Companys loan portfolio by type of loan at the dates indicated (in thousands):
|
||||||||||||
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 Companys portfolio, based on the contractual date of the loans 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 loans 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):
One Year |
Five Years |
|
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 Companys total loan origination and reduction experience during the periods indicated. Historically, the Company has not purchased or sold any loans.
|
|||||||||||
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 Committees 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 Companys 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 Companys 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 Companys investment as an interest-earning asset. The policy also insures the accurate reporting of the Companys assets from a valuation standpoint.
All of the Companys 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 managements 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 Companys 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 Companys 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 Associations delinquent loans and non performing assets were either repossessed 1-4 family residential dwellings or loans secured by 1-4 family residential dwellings.
|
||||||||||
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 |
==== |
==== |
==== |
==== |
==== |
|
|||||||||||
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 Companys 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
|
||||||||||
End of Period Applicable to: |
|
|
|
|
|
|||||
Amount |
of Total Loans |
|
of Total Loans |
|
of Total Loans |
|
of Total Loans |
|
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 Companys 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 managements 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 managements 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 Companys 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):
|
|||||||||||
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 Companys 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 Companys mortgage-backed securities portfolio at each of the dates indicated (in thousands):
MORTGAGE-BACKED SECURITIES
|
Amortized Cost |
|
|
Fair Value |
|||||
---------- |
---------- |
---------- |
---------- |
||||||
Available for Sale: | |||||||||
GNMA |
$ |
539 |
$ |
30 |
$ |
- |
$ |
569 |
|
------- |
------- |
------- |
------- |
||||||
$ |
539 |
$ |
30 |
$ |
- |
$ |
569 |
||
===== |
===== |
===== |
===== |
||||||
|
Amortized Cost |
|
|
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 |
|
|||
--------- |
--------- |
|||||
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 Companys 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 Companys 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 |
|
|
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 |
|
|
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
|
||||||
|
||||||
At December 31, 2002: |
Amortized Cost |
Fair Value |
|
|||
--------- |
--------- |
|||||
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 Companys investment in Collateralized Mortgage Obligations (CMOs) is limited to Real Estate Mortgage Investment Conduits (REMICs). A REMIC is a pass through investment created under the Tax Reform Act of 1986 to issue multiple class mortgage-backed securities. The Companys investment in REMICs 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 REMICs 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 Companys portfolio of Collateralized Mortgage Obligations indicated (in thousands):
COLLATERALIZED MORTGAGE OBLIGATIONS
At December 31, 2002: |
Amortized Cost |
|
|
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 |
|
===== |
===== |
=== |
===== |
|
Amortized Cost |
|
|
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 Companys 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 Companys deposits. Deposit account balances at December 31, 2002, 2001, and 2000 are summarized as follows (in thousands):
|
||||||||||
|
|
|
||||||||
|
|
|
||||||||
|
|
|
||||||||
|
|
|
|
|
|
|||||
--------- |
---------- |
--------- |
---------- |
--------- |
---------- |
|||||
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):
|
|||||||
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 Companys 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):
|
|||
|
|
||
|
|
|
|
|
---------- |
---------- |
|
|
$ |
27,453 |
5.51% |
|
6,226 |
5.56% |
|
|
9,537 |
5.97% |
|
|
6,131 |
5.55% |
|
|
5,514 |
5.63% |
|
|
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:
|
||
|
||
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 Associations 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 institutions 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 institutions loans to one borrower limit (generally equal to 25% of the institutions 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 institutions 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 companys 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 Companys 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 companys 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 companys 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 Associations chartering authority, and the OTS serves as the Associations 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 Associations 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 FHLBs 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 Associations 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 institutions 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 institutions 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 institutions CRA rating and requires the OTS to provide a written evaluation of an institutions CRA performance utilizing a rating system which identifies four levels of performance that may describe an institutions 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 Associations current CRA rating is satisfactory.
Qualified Thrift Lender Test. The Qualified Thrift Lender (QTL) Test measures the Associations 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 ("QTIs") are residential housing related assets. The Internal Revenue Service (IRS) requires a savings institution to have at least 65% of its assets in QTIs to qualify for tax treatment as a building and loan association. At December 31, 2002, 88.4% of the Associations assets were invested in QTIs 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 institutions 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 Associations "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 Associations 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 Companys 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 companys capitalized earnings, plus (b) 80% of the companys taxable stockholders equity, and to subtract from that figure 50% of the companys real and personal property assessment. Various items may also be subtracted in calculating a companys 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 Companys offices at December 31, 2002. All properties are owned by the Company. All amounts are in thousands.
|
||||
|
|
|||
Location |
|
|
||
---------- |
------ |
------- |
||
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.
Item 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required herein, to the extent applicable, is incorporated by reference from page 2 of the Registrants 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 Registrants Annual Report.
Item 7. MANAGEMENTS 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 Registrants 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 Registrants Annual Report.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required herein is incorporated by reference from pages 18 to 56 of the Registrants Annual Report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required herein is incorporated by reference from pages 2-4 of the Registrants 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 Registrants 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 Registrants 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.
|
|
|
|
Equity Compensation Plans Approved by Security Holders |
|
|
|
Equity Compensation Plans Not Approved by Security Holders |
-- |
|
|
Total |
|
|
|
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required herein is incorporated by reference from page 2 and page 9 of the Registrants Proxy Statement.
Part IV.
Item 14. CONTROLS AND PROCEDURES
Under the supervision and with the participation of the Companys 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 Companys 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 Commissions 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 Companys 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
FORM 8-K.
(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. |
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)
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.
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 |
I, Donald C. Scott, Chairman of the Board and Chief Executive Officer of GS Financial Corp., certify that:
1. I have reviewed this annual report on Form 10-K of GS Financial Corp.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: March 25, 2003 | /s/Donald C. Scott |
---------------------- | |
Donald C. Scott | |
Chairman of the Board and | |
Chief Executive Officer |
I, Glenn R. Bartels, Chief Financial Officer of GS Financial Corp., certify that:
1. I have reviewed this annual report on Form 10-K of GS Financial Corp.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: 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
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:
(1) The Annual report on Form 10-K of the Company for the fiscal year ended December 31, 2002 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C 78m(a) or 78o(d); and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
By: /s/ Donald C. Scott
Donald C. Scott
Chairman of the Board and
Chief Executive Officer
Date: March 25, 2003
Exhibit 99.2
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:
(1) The Annual report on Form 10-K of the Company for the fiscal year ended December 31, 2002 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C 78m(a) or 78o(d); and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
By: /s/ Glenn R. Bartels
Glenn R. Bartels
Chief Financial Officer
Date: March 25, 2003
Exhibit 13
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 Companys 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 Companys 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 |
|
|
|
------------------ |
|
|
|
March 31, 2002 |
|
|
|
June 30, 2002 |
|
|
|
September 30, 2002 |
|
|
|
December 31, 2002 |
|
|
|
2001
QUARTER ENDING |
|
|
|
------------------ |
|
|
|
March 31, 2001 |
|
|
|
June 30, 2001 |
|
|
|
September 30, 2001 |
|
|
|
December 31, 2001 |
|
|
|
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 Companys 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
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) |
|
||||||
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 |
(Dollars in Thousands, except per share data) |
|
|||||
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 |
MANAGEMENTS 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 Companys 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 Companys loan and investment portfolios, changes in accounting principles, policies or guidelines, and other economic, competitive governmental and technological factors affecting the Companys 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.
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 Companys 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 Companys 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 Companys 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 Companys 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 Companys lending activity has been in non-residential loans. This is reflected in the Companys 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 Companys 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 Companys loan and CMO portfolios.
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 Companys 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 Companys 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 Companys deposits, borrowings and stockholders equity represent sources of funds for its various investments and operating needs.
Deposits The Companys 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 Companys 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 Companys 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 Companys 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 Companys net interest margin increased in 2002 as a result of the Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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.
|
|||||||||||
|
|
|
|||||||||
(Dollars in Thousands) |
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|||
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 Companys 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 Companys 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%.
RATE/VOLUME ANALYSIS
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 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 Companys 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 Companys 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 Companys 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 Companys loan portfolio. While the overall balance of the loan portfolio was decreased from 2001 to 2002, the percentage of non-residential loans increased. The Companys 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 Companys residential loans in the overall calculation of the ALL. At December 31, 2002, approximately 25% of the Companys 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 managements evaluation of the underlying credit risk of the Companys 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 Companys 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 Companys ESOP also increased from 2001 to 2002 due to the increase in market value of the Companys stock. The Companys 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 Companys basis, which approximates the shareholders equity of the Association.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity measures the Companys 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 Companys 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 Companys demands and maximize interest earned on these funds.
The Companys 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 Companys 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 Associations tangible and core capital amounted to $28.1 million, or 13.8% of adjusted total assets, while the Associations 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 institutions 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 Associations 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 Associations 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 Associations 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 Associations assets and the market value of the Associations liabilities and off balance sheet commitments. The Board reviews the internal model and a standard thrift industry model prepared by the OTS from the Associations 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 Associations 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 Associations 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.
|
------------------------ |
||
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
------------------------ |
||
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
The assumptions used by management to evaluate the vulnerability of the Associations 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 Associations assets and liabilities and the estimated effects of changes in interest rates on the Associations 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 Associations 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 |
to Three Years |
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 Associations 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 |
to Three Years |
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 Companys 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 Companys 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
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
|
|||||||
|
|||||||
|
|||||||
|
|||||||
|
|||||||
|
|
||||||
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 | |||||||
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 |
|
|||||||||
|
|||||||||
|
|||||||||
|
|||||||||
|
|||||||||
|
|
|
|||||||
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) |
|
|||||||||
|
|||||||||
|
|||||||||
|
|||||||||
|
|||||||||
|
|
|
|||||||
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 |
|
|||||||||
|
|||||||||
|
|||||||||
|
|||||||||
|
|||||||||
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 |
|||
==== |
==== |
==== |
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
|
|||||||||||||||||
|
|
|
|
|||||||||||||||
Stock |
Capital |
Stock |
Stock |
Stock |
Earnings |
Income (Loss) |
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 |
|
||||||||||||||
|
||||||||||||||
|
||||||||||||||
|
||||||||||||||
|
||||||||||||||
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 |
|||||||||||
|
||||||||||||||
|
||||||||||||||
|
||||||||||||||
|
||||||||||||||
|
||||||||||||||
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 |
|
|||||||||||
|
|||||||||||
|
|||||||||||
|
|||||||||||
|
|||||||||||
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 |
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 Associations 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 (CMOs) 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 CMOs.
Currently, the Companys investment in CMOs is limited to Real Estate Mortgage Investment Conduits (REMICs). 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 Companys investment in REMICs 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 CMOs 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 managements judgment, is adequate to absorb probable losses inherent in the loan portfolio. The amount of the allowance is based on managements 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 Associations cost or the assets fair value, less estimated selling costs, which becomes the propertys 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.
NEW ACCOUNTING STANDARDS NOT YET ADOPTED
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 |
|
|
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 |
|
|
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):
|
|||||||||
|
|
||||||||
|
|
|
|
||||||
|
--------- |
--------- |
--------- |
||||||
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):
|
Amortized Cost |
|
|
Fair Value |
||||
---------- |
---------- |
---------- |
---------- |
|||||
Available for Sale: | ||||||||
GNMA |
539 |
30 |
- |
569 |
||||
------- |
------- |
------- |
------- |
|||||
$ |
539 |
$ |
30 |
$ |
- |
$ |
569 |
|
===== |
===== |
===== |
===== |
|||||
|
Amortized Cost |
|
|
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 (CMOs) consist of the following (in thousands):
December 31, 2002 |
Amortized Cost |
|
|
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 |
|
|
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, CMOs are classified as available-for-sale, and are reported on the financial statements at their fair value. Also, all of the CMOs held as of December 31, 2002 and 2001 have contractual maturities of greater than ten years. There were no sales of CMOs during 2002 or 2000.
CMOs 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):
|
||||||||||||
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):
|
|||||||
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):
One Year |
Five Years |
to Ten Years |
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):
|
|||||
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 Associations 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 Associations loan portfolio.
NOTE F
ACCRUED INTEREST RECEIVABLE
Accrued interest receivable at December 31, 2002 and 2001 consists of the following (in thousands):
|
|||||
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):
|
||||
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):
|
||||
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):
|
||||
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):
Average Rate at |
December 31, |
|||||||||||||||||
|
|
|
||||||||||||||||
|
|
|
|
|
|
|||||||||||||
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):
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.
Advances at December 31, 2002 and 2001 consisted of the following (in thousands):
Contract Rate |
|
|||
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):
|
||
|
Amount |
|
|
$ |
27,453 |
|
6,226 |
|
|
9,537 |
|
|
6,131 |
|
|
5,514 |
|
|
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):
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):
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 Companys 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):
|
|
||||
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:
|
|
|||
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 Companys 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 Companys 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 Companys initial public offering of its common stock.
The plan also permits the granting of Stock Appreciation Rights (SARs). SARs 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 SARs 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.
|
|
|
||
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 |
|
|
==== |
==== |
==== |
||
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 Companys stock option plan as of December 31, 2002, 2001, and 2000, and changes during the years ending on those dates is presented below:
|
|
|
||||||
|
|
|
||||||
Fixed Options |
|
|
|
|
|
|
||
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:
|
|
|||||||||
|
|
|||||||||
|
|
|
|
|
||||||
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|||||
|
|
|
|
|
|
NOTE P
COMPREHENSIVE INCOME
Comprehensive income was comprised of changes in the Companys 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).
|
|||||||
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 Associations various regulatory capital categories at December 31, 2002 and 2001.
|
|
|||
(in thousands) |
|
|
|
|
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) |
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 |
|
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) |
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% |
|
|
|
|
|
||||||||
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.
Future minimum rental payments are as follows:
|
Amount |
|
|
$ |
55,855 |
|
55,855 |
|
|
6,925 |
|
-------- |
||
|
$ |
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 Associations 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 customers creditworthiness on a case-by-case basis. The amount and type of collateral obtained varies and is based on managements credit evaluation of the counterparty.
NOTE U
CONCENTRATION OF CREDIT RISK
The Associations 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.
Estimated fair values of the financial instruments are as follows (in thousands):
|
|
||||||||
|
Value |
|
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):
|
|
|
|
||||||
2002 |
|
|
|
|
|||||
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. | |||||||||
|
|
|
|
||||||
2001 |
|
|
|
|
|||||
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:
|
|||
|
|
|
|
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
|
|||||||
|
|||||||
|
|||||||
|
|||||||
|
|||||||
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 |
||||
==== |
==== |
||||||
|
|||||||
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)
|
||||||||||
|
||||||||||
|
||||||||||
|
||||||||||
|
||||||||||
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)
|
||||||||||
|
||||||||||
|
||||||||||
|
||||||||||
|
||||||||||
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 |
|
|
|
|||||||
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR |
|
|
|
|||||||
CASH AND CASH EQUIVALENTS - END OF YEAR |
|
|
|
|
|
|
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.
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 Associations data processing requirements and has served as Vice President of the Company and the Association since February 1997 and March 1987, respectively.