[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2009
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ___________________ to _____________________________
Commission File Number: 0-22269
GS Financial Corp.
(Exact Name of Registrant as Specified in its Charter)
Registrant's telephone number, including area code: (504) 457-6220
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act: None
GS FINANCIAL CORP.
FORWARD LOOKING STATEMENTS
The management of GS Financial Corp. has made forward-looking statements (as defined in the Securities Exchange Act of 1934 and regulations thereunder) in this Annual Report on Form 10-K. These forward-looking statements may be subject to risks and uncertainties. Forward-looking statements include the information concerning possible or assumed future results of operations of GS Financial Corp. and its wholly-owned subsidiary, Guaranty Savings Bank.
Shareholders should note that many factors, some of which are discussed elsewhere in this report, could affect the future financial results of GS Financial Corp. and its subsidiary, both individually and collectively, and could cause those results to differ materially from those expressed in this report. These risk factors include the following:
GS Financial undertakes no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the date of this report. Subsequent to the date hereof, readers should also review other documents that GS Financial files periodically with the Securities and Exchange Commission, including Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K.
ORGANIZATION AND RECENT DEVELOPMENTS
GS Financial Corp. (the “Company” or “GS Financial”) was incorporated under Louisiana law on December 24, 1996 and registered with the Office of Thrift Supervision as a savings and loan holding company. The Company commenced operations on April 1, 1997 as the parent of Guaranty Savings Bank (the “Bank” or “Guaranty”), which until June, 2006 was known as Guaranty Savings and Homestead Association and has been in continuous operation in the greater New Orleans area since 1937. The Bank is a Federally chartered savings association.
The Company, through its investment in the Bank, engages in community banking, serving a market area that covers the southeast corner of Louisiana through the Bank’s six branch offices and mortgage production office. The Bank serves commercial, small business, and retail customers, offering a variety of transaction and savings deposit products and secured loan products. Guaranty offers very few unsecured loans and does not provide trust or investment management services. As of December 31, 2009, the Company had assets of approximately $271.6 million and deposits of approximately $201.5 million. As of December 31, 2009, the assets of the Bank constituted virtually all of the assets of GS Financial.
There is significant competition within the financial services industry in general as well as with respect to the particular financial services offered by the Company and the Bank. Within its market, the Bank competes directly with other small community financial institutions as well as major banking institutions of larger size and greater resources and national “nonbank” competitors, including mortgage and finance companies. Competition is based on a number of factors, including prices, interest rates, services, and availability of products.
The growth of electronic communication and commerce over the Internet influences the Company’s competitive environment in several ways. Entities have been formed which deliver financial services, provide access to financial products, and conduct transactions exclusively through the Internet. Internet-based services have been and are being developed that are designed to enhance the value of traditional financial products. The Internet also has made it easier for consumers to obtain comparative information on financial products and, over time, could lead to changes in consumer preferences for financial products. Guaranty operates a website to provide information about the Company and to market the Bank’s products and services through online banking.
SUPERVISION AND REGULATION
The banking industry is extensively regulated under both federal and state law. The following discussion addresses the regulatory framework applicable to savings and loan holding companies and their subsidiaries and provides certain specific information relevant to the Company. The regulation and ongoing supervision of financial institutions is intended primarily for the protection of depositors, the deposit insurance fund of the Federal Deposit Insurance Corporation (“FDIC”), and the banking system as a whole, and generally is not intended for the protection of the institution’s shareholders.
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 Bank is subject to certain restrictions in its dealings with the Company and any affiliates thereof.
The Company’s primary regulator is the Office of Thrift Supervision (“OTS”) which provides ongoing supervision through regular examinations and other means. Prior to December 31, 2008, the Bank, by virtue of its state charter was subject to the rules and regulations of the Louisiana Office of Financial Institutions (“OFI”). On December 31, 2008, the Bank amended and restated its charter to become a Federally chartered savings association. The regulation of savings banks focuses on evaluating management’s ability to identify, assess, and control risk in all areas of the institution’s operations in a safe and sound manner. Regulators have a wide range of enforcement actions available to deal with institutions with unacceptable levels of risk. These actions could have a material impact on the Bank's financial results and could impose additional limits on the Bank’s ability to pay dividends to the Company.
Payment of Dividends
GS Financial is a legal entity separate and distinct from its subsidiary. The principal source of cash flow for GS Financial, including cash flow to pay dividends on its capital stock, is dividends from the Bank. There are statutory and regulatory limitations on the payment of dividends by the Bank to the Company. The payment of dividends by the Bank may be affected by other factors, such as the requirement to maintain capital at or above regulatory guidelines. See “Capital Adequacy and Related Matters” below.
Capital Adequacy and Related Matters
Federally insured savings institutions are required to maintain minimum levels of regulatory capital. The OTS has established capital standards applicable to all savings institutions. The OTS is also authorized to impose capital requirements in excess of these standards on individual institutions on a case-by-case basis.
OTS capital standards currently require savings institutions to satisfy three different capital requirements. Under these standards, savings institutions must maintain tangible capital of 1.5 percent, core capital of 3.0 percent, and risk based capital of 8.0 percent. 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, 2009, the Bank had no goodwill or other intangible assets which would be deducted in computing its tangible capital. At December 31, 2009, Guaranty Savings Bank exceeded all of its regulatory capital requirements, with tangible, core and risk- based capital ratios of 9.79%, 9.79%, and 17.11% respectively.
Holding Company Structure
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 impose 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 “Qualified Thrift Lender Test,” then such unitary holding company 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.
If the Company were to acquire control of another savings institution, other than through merger or other business combination with Guaranty Savings Bank, the Company would thereupon become a multiple savings and loan holding company. Except where such acquisition is pursuant to the authority to approve emergency thrift acquisitions and where each subsidiary savings institution meets the QTL test, as set forth below, the activities of the Company and any of its subsidiaries (other than Guaranty Savings or other subsidiary savings institutions) would thereafter be subject to further restrictions. Among other things, no multiple savings and loan holding company or subsidiary thereof which is not a savings institution shall commence or continue for a limited period of time after becoming a multiple savings and loan holding company or subsidiary thereof any business activity, other than: (i) furnishing or performing management services for a subsidiary savings institution; (ii) conducting an insurance agency or escrow business; (iii) holding, managing, or liquidating assets owned by or acquired from a subsidiary savings institution; (iv) holding or managing properties used or occupied by a subsidiary savings institution; (v) acting as trustee under deeds of trust; (vi) those activities authorized by regulation as of March 5, 1987 to be engaged in by multiple savings and loan holding companies; or (vii) unless the Director of the OTS by regulation prohibits or limits such activities for savings and loan holding companies. Those activities described in clause (vii) above also must be approved by the Director of the OTS prior to being engaged in by a multiple savings and loan holding company.
Limitations on Transactions with Affiliates
Transactions between savings institutions and any affiliate are governed by Sections 23A and 23B of the Federal Reserve Act. An affiliate of a savings institution is any company or entity which controls, is controlled by or is under common control with the savings institution. In a holding company context, the parent holding company of a savings institution (such as the Company) and any companies which are controlled by such parent holding company are affiliates of the savings institution. Generally, Sections 23A and 23B (i) limit the extent to which the savings institution or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10% of such institution’s capital stock and surplus, and contain an aggregate limit on all such transactions with all affiliates to an amount equal to 20% of such capital stock and surplus and (ii) require that all such transactions be on terms substantially the same, or at least as favorable, to the institution or subsidiary as those provided to a non-affiliate. The term “covered transaction” includes the making of loans, purchase of assets, issuance of guarantees, 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, a greater than 10% stockholder of a savings institution, and certain affiliated interests of either, may not exceed, together with all other outstanding loans to such person and affiliated interests, the savings institution’s loans to one borrower limit (generally equal to 15% of the institution’s unimpaired capital and surplus). Section 22(h) also requires that loans to directors, executive officers, and principal stockholders be made on terms substantially the same as those 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, principal stockholder, or certain affiliated interests of either, over other employees of the savings institution. Section 22(h) also requires prior Board approval for certain loans. In addition, the aggregate amount of extensions of credit by a savings institution to all insiders cannot exceed the institution’s unimpaired capital and surplus. Furthermore, Section 22(g) places additional restrictions on loans to executive officers. At December 31, 2009, Guaranty Savings Bank was in compliance with the above restrictions.
Restrictions on Acquisitions
Except under limited circumstances, savings and loan holding companies are prohibited from acquiring, without prior approval of the Director of the OTS, (i) control of any other savings institution or savings and loan holding company or substantially all the assets thereof or (ii) more than 5% of the voting shares of a savings institution or holding company thereof which is not a subsidiary. Except with the prior approval of the Director of the OTS, no director or officer of a savings and loan holding company or person owning or controlling by proxy or otherwise more than 25% of such company’s stock, may acquire control of any savings institution, other than a subsidiary savings institution, or of any other savings and loan holding company.
The Director of the OTS may only approve acquisitions resulting in the formation of a multiple savings and loan holding company which controls savings institutions in more than one state if (i) the multiple savings and loan holding company involved controls a savings institution which operated a home or branch office located in the state of the institution to be acquired as of March 5, 1987; (ii) the acquirer is authorized to acquire control of the savings institution pursuant to the emergency acquisition provisions of the Federal Deposit Insurance Act (“FDIA”); or (iii) the statutes of the state in which the institution to be acquired is located specifically permit institutions to be acquired by the state-chartered institutions or savings and loan holding companies located in the state where the acquiring entity is located (or by a holding company that controls such state-chartered savings institutions).
Under the Bank Holding Company Act of 1956, the Federal Reserve Bank (“FRB”) is authorized to approve an application by a bank holding company to acquire control of a savings institution. In addition, a bank holding company that controls a savings institution may merge or consolidate the assets and liabilities of the savings institution with, or transfer assets and liabilities to, any subsidiary bank which is a member of the Bank Insurance fund with the approval of the appropriate federal banking agency and the FRB.
Insurance of Accounts
The deposits of Guaranty Savings Bank are insured to the maximum amount permitted by the Deposit Insurance Fund, which is administered by the FDIC, and are backed by the full faith and credit of the U.S. Government. As an 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 that 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 Bank, 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 may also suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance, if the institution has no tangible capital. If the 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 Bank’s deposit insurance.
The FDIC has implemented a risk-based premium system that provides for quarterly assessments based on an insured institution’s ranking in one of four risk categories based upon supervisory and capital evaluations. The assessment rate for an individual institution is determined according to a formula based on a weighted average of the institution’s individual CAMELS component ratings plus either five financial ratios or, in the case of an institution with assets of $10.0 billion or more, the average ratings of its long-term debt. In February 2009, the FDIC adopted a final regulation that provided for the replenishment of the Deposit Insurance Fund over a period of seven years. The restoration plan changed the FDIC’s base assessment rates and the risk based assessment system. Well capitalized institutions (generally those with CAMELS composite ratings of 1 or 2) are grouped in Risk Category I and assessed for deposit insurance at an annual rate of between 12 and 14 basis points. Institutions in Risk Categories II, III and IV are assessed at annual rates of 17, 35 and 50 basis points, respectively. Changes to the risk based assessment system include higher premiums for institutions that rely significantly on excessive amounts of brokered deposits, including CDARS, higher premiums for excessive use of secured liabilities, including Federal Home Loan Bank advances, lower premiums for smaller institutions with very high capital levels, and adding financial ratios and debt issuer ratings to the premium calculations for banks with over $10 billion in assets, while providing a reduction for their unsecured debt.
On May 22, 2009, the FDIC announced a five basis point special assessment on each insured depository institution’s assets minus its Tier 1 capital as of June 30, 2009. The FDIC collected the special assessment on September 30, 2009. Based on our assets and Tier 1 capital at June 30, 2009, the impact of the special assessment was approximately $119,000 which was completely expensed by the second quarter of fiscal 2009.
On November 12, 2009, the FDIC adopted regulations that required insured depository institutions to prepay on December 30, 2009 their estimated assessments for the fourth calendar quarter of 2009 through the fourth quarter of 2012. The new regulations base the assessment rate for the fourth calendar quarter of 2009 and for 2010 on each institution’s total base assessment rate for the third quarter of 2009, modified to assume that the assessment rate in effect on September 30, 2009 had been in effect for the entire third quarter, and the assessment rate for 2011 and 2012 on the modified third quarter assessment base, adjusted quarterly for an estimated 5% annual growth rate in the assessment base through the end of 2012. Under the prepaid assessment rule, we made a payment of $1.3 million to the Federal Deposit Insurance Corporation on December 30, 2009, and recorded $1.3 million of this payment as a prepaid expense. The prepaid balance will be reduced by the actual expense for our quarterly assessments, until the balance is exhausted. Depending on how our actual assessments compare to the estimated assessments, the prepaid balance may be exhausted earlier than or later than the planned three year time period.
Qualified Thrift Lender Test
The Qualified Thrift Lender (“QTL”) Test measures the Bank’s level of qualified thrift investments compared to its total portfolio assets (total assets less intangibles, property used by a savings association in its business, and liquid investments in an amount not to exceed 20% of assets). Generally, qualified thrift investments (“QTI’s”) consists of residential housing related assets. The Internal Revenue Service (IRS) requires a savings institution to have at least 65% of its assets in QTI’s to qualify for tax treatment as a building and loan association. At December 31, 2009, 82.4% of the Bank’s assets were invested in QTI’s which exceeds the 65% required to qualify the Bank under the QTL test. Currently, the tax benefits for savings associations relative to banks are minimal.
As of December 31, 2009, the Company and the Bank employed a total of 57 employees, all of whom are on a full-time basis. The Company affords its employees a variety of competitive benefit programs including retirement plans and group health, life, and other insurance programs. The Company also supports training and educational programs designed to ensure that employees have the types and levels of skills needed to perform at their best in their current positions and to help them prepare for positions of increased responsibility.
The Company’s filings with the Securities and Exchange Commission, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, are available on the Company’s website as soon as reasonably practicable after the Company files such reports with the SEC. Copies can be obtained free of charge by link to the SEC’s website in the “SEC Company Reports” section of the Company’s website at www.gsfinancialcorp.com.
Item 1A: RISK FACTORS
Item 1B: UNRESOLVED STAFF COMMENTS
The Company owns one building in Metairie, Louisiana. A portion of this building is leased to Guaranty Savings Bank and serves as a mortgage production office. The Company’s executive offices are located in Metairie, Louisiana in the main office facility owned by the Bank. In addition to these properties, the Bank owns three branch facilities located in New Orleans, Mandeville, and Harvey, Louisiana. The facility in New Orleans was closed in 2005 subsequent to Hurricane Katrina, but re-opened for business in August 2007. The remaining locations in Ponchatoula, Louisiana, and Harahan, Louisiana are subject to leases which management considers reasonable and appropriate to their respective locations. The Harahan branch was opened in the fourth quarter of 2009. In 2006, the Bank acquired land for future development of a bank location in Covington, Louisiana. The Company and the Bank make portions of its property available for lease to third parties, although such leasing activity is not material to the Company’s overall operations. Management makes sure that all locations, whether owned or leased, are maintained in suitable condition. Management also evaluates its banking facilities on an ongoing basis to identify possible under-utilization and to determine the need for functional improvements, relocations, or possible sales.
There are no pending legal proceedings, other than routine litigation incidental to the business, to which the Company or its subsidiary is a party or to which any of their property is subject.
(b) Not applicable.
(c) The Company’s repurchases of its common stock made during the quarter ended December 31, 2009 are set forth in the table below:
Notes to this table:
The information required by this section is included in the section titled “Selected Consolidated Financial Data” of GS Financial’s 2009 Annual Report to Shareholders and is hereby incorporated herein by reference from Exhibit 13.0 hereto.
The section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of GS Financial’s 2009 Annual Report to Shareholders is hereby incorporated herein by reference from Exhibit 13.0 hereto.
The Consolidated Financial Statements of GS Financial Corp. and Subsidiary, the accompanying Notes to Consolidated Financial Statements, and the Report of Independent Registered Public Accounting Firm contained in GS Financial’s 2009 Annual Report to Shareholders are hereby incorporated herein by reference from Exhibit 13.0 hereto.
Information about Directors and Executive Officers. Information about the directors, director nominees, and executive officers of GS Financial Corp. in compliance with Section 16(a) of the Exchange Act and information concerning GS Financial’s audit committee is included in the sections captioned, "Information with Respect to Nominees for Director, Continuing Directors and Executive Officers,"— Committees and Meetings of the Board of Directors" and "Beneficial Ownership of Common Stock by Certain Beneficial Owners and Management – Section 16(a) Beneficial Ownership Reporting Compliance" included in GS Financial’s Proxy Statement for the Annual Meeting of Shareholders to be held on April 27, 2010 (the “Proxy Statement”) on Definitive Schedule 14A filed with the SEC and is hereby incorporated herein by reference.
Code of Ethics. We have adopted a code of conduct and ethics applicable to our directors and all employees. The text of this code of conduct and ethics may be found on our website at www.gsfinancialcorp.com. We intend to file information regarding any waiver from any provision of our code of ethics on Form 8-K, as required by the listing standards of the NASDAQ Stock Market. Amendments to the code of ethics will be posted on our website at www.gsfinancialcorp.com.
Item 11: EXECUTIVE COMPENSATION
Information regarding compensation of directors and executive officers is included in the sections captioned "Information with Respect to Nominees for Director, Continuing Directors and Executive Officers – Director Compensation" and "Executive Compensation" of the Proxy Statement is hereby incorporated herein by reference.
The information required herein by Item 403 of Regulation S-K is incorporated by reference from the section captioned "Beneficial Ownership of Common Stock by Certain Beneficial Owners and Management" of the Registrant’s Proxy Statement.
Equity Compensation Plan Information. The following table sets forth certain information for outstanding awards under the Company's 1997 Recognition and Retention Plan, the Company's only equity compensation plan or individual compensation arrangement (whether with employees or non-employees, such as directors), in effect as of December 31, 2009.
The Recognition and Retention Plan terminated by its terms on August 14, 2007; however, unvested restricted stock awards made prior to termination are continuing to vest in accordance with the terms of their award agreements. No other awards are available for future issuance.
The information required herein is incorporated by reference from the sections captioned "Transactions with Certain Related Persons" and "Information with Respect to Nominees for Director, Continuing Directors and Executive Officers" of the Registrant’s Proxy Statement.
The information required herein is incorporated by reference from the section captioned "Ratification and Appointment of Independent Registered Public Accounting Firm – Audit Fees" of the Registrant’s Proxy Statement.
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.
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.