U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1997
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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File number 0-23325
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Guaranty Federal Bancshares, Inc.
---------------------------------
(Exact name of registrant as specified in its charter)
Delaware 43-1792717
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1341 West Battlefield
Springfield, Missouri 65807
--------------------- -----
(Address of principal executive offices) (Zip Code)
Telephone Number: (417) 889-2494
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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 No X
--- ---
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Class Outstanding on December 15, 1997
----- --------------------------------
Common Stock 0 Shares
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC.
Form 10-Q
TABLE OF CONTENTS
Item Page
PART I. Financial Information
-----------------------------
1. Financial Statements (Unaudited) 3
PART II. Other Information
--------------------------
1. Legal Proceedings 4
2. Changes in Securities and Use of Proceeds 4
3. Defaults Upon Senior Securities 4
4. Submission of Matters to Vote of Security Holders 4
5. Other Information 4
6. Exhibits and Reports on Form 8-K 4
Signatures 5
2
<PAGE>
PART I
The information as required by Part I of the Form 10-Q has been omitted because
the conversion from the mutual to stock form of ownership of Guaranty Federal
Savings Bank (the "Bank") and its acquisition by the registrant (the
"Conversion"), as described in the Form S-1 (file no. 333-36141), has not yet
occurred. It is anticipated that the Conversion will be completed on or about
December 31, 1997. The financial statements of the Bank at and for the three
months ended September 30, 1997 are included as Exhibit 99 to this Form 10-Q.
The registrant had no assets, liabilities, equity, or operations at and during
the three months ended September 30, 1997.
3
<PAGE>
PART II
Item 1. Legal Proceedings
- --------------------------
None.
Item 2. Changes in Securities and Use of Proceeds
- --------------------------------------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
- ----------------------------------------
Not applicable.
Item 4. Submission of Matters to Vote of Security Holders
- ----------------------------------------------------------
None.
Item 5. Other Information
- --------------------------
None.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
99 Financial Statements of Guaranty Federal Savings Bank
No Reports on Form 8-K were filed during the quarter ended
September 30, 1997
4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Guaranty Federal Bancshares, Inc.
Signatures Date
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/s/ James E. Haseltine December 17, 1997
- -------------------------------------------------
James E. Haseltine
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Bruce Winston December 17, 1997
- -------------------------------------------------
Bruce Winston
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
5
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 0
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 0
<ALLOWANCE> 0
<TOTAL-ASSETS> 0
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 0
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 0
<INTEREST-LOAN> 0
<INTEREST-INVEST> 0
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 0
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 0
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 0
<INCOME-PRETAX> 0
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
EXHIBIT 99
<PAGE>
GUARANTY FEDERAL SAVINGS BANK
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 1997 (UNAUDITED) AND JUNE 30, 1997
ASSETS
------
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
------------ ------------
<S> <C> <C>
Cash $ 498,085 $ 417,485
Interest-bearing deposits in other financial institutions 7,112,759 3,399,866
------------ ------------
Cash and cash equivalents 7,610,844 3,817,351
Available-for-sale securities 3,384,000 3,360,000
Held-to-maturity securities 6,493,137 8,585,753
Mortgage-backed securities, held-to-maturity 15,017,762 15,813,890
Loans held for sale 5,141,247 5,903,002
Loans receivable, net 162,705,674 152,232,295
Accrued interest receivable
Loans 1,038,505 996,014
Investments 105,339 165,949
Mortgage-backed securities 143,320 149,598
Prepaid expenses and other assets 2,051,905 1,963,875
Foreclosed assets held for sale 210,155 210,155
Premises and equipment 6,236,696 6,267,157
------------ ------------
$ 210,138,584 $ 199,465,039
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES
Deposits $ 147,078,478 $ 151,246,482
Federal Home Loan Bank advances 32,140,970 18,150,844
Advances from borrowers for taxes and insurance 864,780 674,618
Accrued expenses and other liabilities 1,215,292 666,427
Accrued interest payable 197,728 131,245
Income taxes payable 455,181 289,268
Deferred income taxes 826,000 816,000
------------ ------------
Total Liabilities 182,778,429 171,974,884
------------ ------------
STOCKHOLDERS' EQUITY
Capital Stock
Common stock, $1 par value; authorized 8,000,000
shares; issued and outstanding 3,125,000 shares 3,125,000 3,125,000
Additional paid-in capital 3,713,233 3,687,356
Retained earnings, substantially restricted` 18,449,222 18,620,219
------------ ------------
25,287,455 25,432,575
Unrealized appreciation on available-for-sale securities,
net of tax 2,072,700 2,057,580
------------ ------------
27,360,155 27,490,155
------------ ------------
$ 210,138,584 $ 199,465,039
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
GUARANTY FEDERAL SAVINGS BANK
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ending
-------------------
9/30/97 9/30/96
------- -------
<S> <C> <C>
INTEREST INCOME
Loans $ 3,451,331 $ 2,876,848
Investment securities 97,250 144,744
Mortgage-backed securities 297,898 392,196
Other 93,023 84,303
------------- ---------------
Total Interest Income 3,939,502 3,498,091
------------- ---------------
INTEREST EXPENSE
Deposits 1,830,713 1,913,929
Federal Home Loan Bank advances 357,445 51,899
------------- ---------------
Total Interest Expense 2,188,158 1,965,828
------------- ---------------
NET INTEREST INCOME 1,751,344 1,532,263
PROVISION FOR LOAN LOSSES 33,352 0
------------- ---------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,717,992 1,532,263
------------- ---------------
NONINTEREST INCOME (LOSS)
Service charges 120,895 42,188
Late charges and other fees 25,262 19,307
Gain on loans, investment
securities and mortgage-backed securities 38,131 25,178
Income (expense) on foreclosed assets (92) (591)
Other income 27,270 23,524
------------- ---------------
Total Noninterest Income 211,466 109,606
------------- ---------------
NONINTEREST EXPENSE
Salaries and employee benefits 581,274 628,795
Occupancy 163,256 164,171
SAIF deposit insurance premiums 22,970 1,022,492
Data processing fees 87,312 89,737
Advertising 87,042 43,066
Other expense 178,909 112,339
------------- ---------------
Total Noninterest Expense 1,120,763 2,060,600
------------- ---------------
INCOME (LOSS) BEFORE INCOME TAXES 808,695 (418,731)
PROVISION (CREDIT) FOR INCOME TAXES 292,192 (169,331)
------------- ---------------
NET INCOME (LOSS) $ 516,503 $ (249,400)
============= ===============
EARNINGS (LOSS) PER SHARE $ 0.17 $ (0.08)
============= ===============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
GUARANTY FEDERAL SAVINGS BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 516,503 $ (249,400)
Items not requiring (providing) cash:
Deferred income taxes 1,192 (22,602)
Depreciation 109,435 113,320
Gain on loans, investment securities
and mortgage-backed securities (38,130) (25,178)
Amortization of deferred income, premiums and discounts (2,318) (4,398)
Provision for loan losses 33,352 --
Origination of loans held for sale (1,832,623) (582,489)
Proceeds from sale of loans held for sale 2,632,508 919,377
RRP expense 22,247 41,754
Changes in:
Accrued interest receivable 24,397 109,064
Prepaid expenses and other assets (88,030) (52,112)
Accounts payable and accrued expenses 615,276 1,062,937
Income taxes payable 165,913 (75,429)
------------- ------------
Net cash provided by operating activities 2,159,722 1,234,844
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans (10,502,891) (5,785,223)
Principal payments on mortgage-backed securities,
held-to-maturity 796,912 1,000,948
Purchase of premises and equipment (78,974) (87,168)
Proceeds from sale of available-for-sale securities -- 5,277,109
Proceeds from maturities or calls of
held-to-maturity investments 2,090,310 1,716,393
Capitalized costs on foreclosed assets -- (41,498)
---------- ------------
Net cash used in investing activities (7,694,643) (2,080,561)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid (687,500) --
Cash dividends refunded from non-vested RRP stock 1,842 1,781
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts 3,878,115 78,494
Net increase (decrease) in certificates of deposit (8,046,119) (10,288,400)
Proceeds from FHLB advances 18,000,000 7,000,000
Repayments of FHLB advances (4,009,874) --
Advances from borrowers for taxes and insurance 190,162 184,780
Stock options exercised 1,788 --
---------- -----------
Net cash provided by (used in) financing activities 9,328,414 (3,023,345)
---------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 3,793,493 292,060
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,817,351 2,674,557
---------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,610,844 $ 2,966,617
=========== ============
</TABLE>
<PAGE>
GUARANTY FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Reorganization and Stock Issuance
---------------------------------
In April 1995 Guaranty Federal Savings and Loan Association (the
"Association") reorganized from a federally chartered mutual savings and loan
association into a federal mutual holding company, Guaranty Federal Bancshares,
M. H. C. (the "MHC"). As part of the reorganization, the Association
incorporated a de novo federally chartered stock savings bank, Guaranty Federal
Savings Bank (the "Savings Bank") and transferred most of its assets and all its
liabilities to the Bank. The Bank issued 3,125,000 shares of its common stock
(par value $1.00) of which 972,365 shares were sold to parties other than the
MHC, thus creating a minority ownership interest in the Bank. The shares had an
initial public offering price of $8 per share, resulting in gross sales proceeds
of $7,778,920. Costs related to the stock issuance, which have been applied to
reduce the gross proceeds, were $654,388. Also $100,000 was transferred to the
MHC for the initial capitalization in connection with reorganization.
In May 1997, the Boards of Directors of the Bank and of the M.H.C.
announced a plan whereby the Bank would be wholly owned by a newly formed stock
holding company. Each share of Bank common stock currently owned by public
stockholders shall be automatically converted into shares of the Holding Company
common stock based upon an exchange ratio. Subscription rights to purchase the
remainder of the conversion stock will be granted to certain eligible depositors
and other members of the Bank and Mutual Holding Company. Any shares not sold in
the subscription offering will be offered to certain persons in a community
offering. The Conversion and Reorganization are subject to several
contingencies, including the receipt of regulatory approval, the approval of the
depositors of the Bank and the approval of the stockholders of the Bank.
Note 2: Basis of Presentation
---------------------
The accompanying unaudited interim consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three-month periods
ended September 30, 1997 and 1996, are not necessarily indicative of the results
that may be expected for the full year. For further information refer to the
Bank's June 30, 1997, Form 10-KSB which was filed with the Office of Thrift
Supervision and includes a complete set of audited financial statements through
June 30, 1997.
<PAGE>
GUARANTY FEDERAL SAVINGS BANK
Note 3: Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of Guaranty
Federal Savings Bank and its wholly-owned subsidiary, Guaranty Financial
Services of Springfield, Inc. Significant intercompany accounts and transactions
have been eliminated in consolidation.
Note 4: Earnings Per Share
------------------
Earnings per share of common stock have been determined by dividing net
income for the period by the weighted average number of common shares
outstanding. Earnings per share for the three months ended September 30, 1997
and 1996, have been computed on weighted average shares outstanding of 3,163,011
and 3,125,000, respectively.
Note 5: Benefit Plans
-------------
On October 18, 1995, The Bank's stockholders voted to approve both a
Recognition and Retention Plan ("RRP") and a Stock Option Plan ("SOP"). The RRP
authorized 38,895 shares to be issued to directors, officers and employees of
the Bank.. As of September 30, 1997, all of the RRP shares have been purchased
and awarded. As of September 30, 1997, 4,425 shares, net, have been forfeited.
The Bank is amortizing the RRP expense over each participant's vesting period
and the financial statements reflect $22,247 RRP expense for the three month
period ending September 30, 1997. The SOP authorized 97,237 stock options on
shares to be issued to officers and employees of the Bank, all of which have
been granted at prices ranging from $11.25 to $11.75 per share. Both the RRP and
SOP vest over a five year period.
Note 6: New Accounting Pronouncements
-----------------------------
The FASB recently adopted SFAS 128, "Earnings Per Share." This statement
replaces the presentation of primary earnings per share with a presentation of
basic earnings per share. The statement also requires dual presentation of basic
and diluted earnings per share by entities with complex capital structures and
requires a reconciliation of the numerators and denominators between the two
calculations. SFAS 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods. Management has not
estimated the impact, if any, of adopting SFAS 128 on the Bank's financial
statements.
<PAGE>
GUARANTY FEDERAL SAVINGS BANK
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
General
- -------
The accompanying Consolidated Financial Statements include the accounts
of Guaranty Federal Savings Bank (the "Bank") and all accounts of its
wholly-owned subsidiary, Guaranty Financial Services of Springfield, Inc. The
consolidation eliminates all significant intercompany transactions and balances.
The Bank's results of operations are primarily dependent on net interest margin,
which is the difference between interest income on interest-earning assets and
interest expense on interest-bearing liabilities. The Bank's income is also
affected by the level of its noninterest expenses, such as employee salary and
benefits, occupancy expenses and other expenses. The following discussion
reviews the financial condition at September 30, 1997, and the results of
operations for the three months ended September 30, 1997 and 1996.
Financial Condition
- -------------------
The Bank's total assets increased $10,673,545, or 5.4%, from
$199,465,039 as of June 30, 1997, to $210,138,584 as of September 30, 1997.
Interest-bearing deposits in other financial institutions increased
$3,712,893, or 109.2% from $3,399,866 as of June 30, 1997, to $7,112,759 as of
September 30, 1997. The increase is attributable to the Bank temporarily
depositing cash until the funds can be redeployed into loans.
Securities available-for-sale increased $24,000, or 0.7% from
$3,360,000 as of June 30, 1997, to $3,384,000 as of September 30, 1997, and
securities held-to-maturity decreased due to called securities, by $2,092,616,
or 24.4%, from $8,585,753 as of June 30, 1997 to $6,493,137 as of September 30,
1997. The Bank deployed these funds to higher yielding loans. The Bank continues
to hold 96,000 shares of Federal Home Loan Mortgage Corporation ("FHLMC") stock
with a amortized cost of $94,000 in the available-for-sale category. As of
September 30, 1997, the gross unrealized gain on the stock was $3,290,000 an
increase from $3,266,000 as of June 30, 1997.
Mortgage-backed securities, held-to-maturity, decreased $796,128 or
5.0%, from $15,813,890 as of June 30, 1997, to $15,017,762, as of September 30,
1997. The decrease is attributable to prepayments received on various pools of
mortgage-backed securities during the three months ending September 30, 1997. As
of September 30, 1997, and June 30, 1997, there were no mortgage-backed
securities classified as available for sale.
<PAGE>
GUARANTY FEDERAL SAVINGS BANK
Net loans receivable increased by $10,473,379, or 6.9%, from
$152,232,295, as of June 30, 1997, to $162,705,674, as of September 30, 1997,
and loans held-for-sale decreased by $791,755, or 12.9% from $5,903,002 as of
June 30, 1997 to $5,141,247 as of September 30, 1997. Growth consisted of loans
secured by both owner and non-owner occupied residential real estate, which
increased by $3,139,000. In addition construction loans increased by $2,179,000,
this was primarily due to an increase of $1,508,000 on loans for the
construction of multi-family units. Also, the Bank is participating in a loan
secured by three motels located in the Kansas City, Mo area. This resulted in a
$3,294,000 increase in nonresidential real estate loans. Growth in loans
receivable is anticipated to continue and represents a major part of the Bank's
planned assets growth.
Allowance for loan losses increased $12,991 or 0.6% from $2,177,009 as
of June 30, 1997, to $2,190,000 as of September 30, 1997. The allowance
increased due to an increase in the provision for loan losses in excess of
charge-offs for the period. The allowance for loan losses as of September 30,
1997 and June 30, 1997 was 1.2%, and 1.3% respectively, of total loans
outstanding. As of September 30, 1997, the allowance for loan losses was 321.4%
of loans past due 90 days or more versus 262.8% as of June 30, 1997.
Fair value of foreclosed assets held-for-sale as of June 30, 1997 and
September 30, 1997, was $210,155. The properties in this category include a
duplex acquired in July 1996, and a single family residence acquired in June
1997. Management believes that these units will sell with no further loss to the
Bank.
Premises and equipment decreased $30,461, or 0.5%, from $6,267,157 as
of June 30, 1997, to $6,236,696 as of September 30, 1997.
The Bank intends to open a new branch office location in the southern
section of Springfield during the second quarter of fiscal year 1998. This
branch, located on a site of land purchased for a permanent branch office
facility, will be a modular building leased for a two year period, thus
requiring only moderate investment in fixed assets and equipment. The Bank
estimates the investment will be approximately $50,000. During the two year
lease, the Bank intends to examine whether to extend the lease of the modular
office, or commence construction of a permanent branch office facility.
<PAGE>
GUARANTY FEDERAL SAVINGS BANK
Deposits decreased $4,168,004 or 2.8%, from $151,246,482 as of June 30,
1997, to $147,078,478 as of September 30, 1997. For the three months ending
September 30, 1997, checking and passbook accounts increased by $3,878,115, or
13.5% while certificates of deposits decreased by $8,046,119, or 6.6%. The
majority of this increase in checking and passbook accounts can be attributed to
an aggressive marketing campaign initiated in early 1997 designed to attract
checking deposit customers. The decrease in certificate of deposits can be
attributed to management's decision to allow high cost certificate of deposit
accounts to run off and replace these funds with FHLB advances at an overall
lower marginal cost.
As a result of the decrease in deposits, and the continued increase in
loan demand, FHLB advances increased $13,990,126 or 77.1%, from $18,150,844 as
of June 30, 1997, to $32,140,970 as of September 30, 1997. As of September 30,
1997, the Bank had the ability to borrow an additional $60.0 million from the
FHLB.
Accrued expenses and other liabilities increased $548,865 or 82.4% from
$666,427 as of June 30, 1997, to $1,215,292 as of September 30, 1997. The
majority of this increase is due to a $0.22 per share dividend payable to
stockholders of record September 12, 1997, totaling $687,500.
Stockholders' equity (including unrealized appreciation on securities
available-for-sale, net of tax) decreased $130,000, or 0.5%, from $27,490,155 as
of June 30, 1997, to $27,360,155 as of September 30, 1997. On a per share basis,
stockholders' equity decreased from $8.80 as of June 30, 1997 to $8.75 as of
September 30, 1997. This decrease is primarily due to a dividends totaling
$687,500 declared. Stockholders' equity includes no contributed capital from the
issuance of 2,152,635 shares of common stock to Guaranty Federal Bancshares, M.
H. C..
Results of Operations - Comparison of Three Month Periods
Ended September 30, 1997 and 1996
Net income for the three months ended September 30, 1997 was $516,503,
as compared to net loss of $249,400 for the three months ended September 30,
1996 which represents a increase in earnings of $765,903 for the three month
period. This increase is primarily due to the one-time assessment by the Federal
Deposit Insurance Corporation ("FDIC") on Savings Association Insurance Fund
("SAIF") assessable deposits. Legislation was signed into law on September 30,
1996, requiring all SAIF-insured institutions to pay a one-time special
assessment of 65.7 cents for every $100 of deposits. This special assessment
decreased net income for the quarter ended September 30, 1996 by approximately
$559,000.
<PAGE>
GUARANTY FEDERAL SAVINGS BANK
Interest Income
- ---------------
Total interest income for the three months ended September 30, 1997,
increased $441,411 or 12.6% as compared to the three months ended September 30,
1996. For the three month period, the average yield on interest earning assets
increased 16 basis points to 8.23% and the average balance outstanding increased
$18,050,000.
Interest Expense
- ----------------
Total interest expense for the three months ended September 30, 1997,
increased $222,330 or 11.3% when compared to the three months ended September
30, 1996. For the three month period, the average cost of interest bearing
liabilities increased 6 basis points to 5.22% while the average balance
outstanding increased $16,926,000.
Net Interest Income
- -------------------
Net interest income for the three months ended September 30,1997,
increased $219,081, or 14.3% when compared to the three months ended September
30, 1996. The increase in net interest income was the result of the increase in
interest rate spread from 2.91 basis points for the quarter ending of September
30, 1996 to 3.01 basis points for the quarter ending September 30, 1997
Provision for Loan Losses
- -------------------------
Based primarily on the continued growth of the loan portfolio
management decided to increase the loan loss reserve through a provision for
loan loss of $33,352. There were no provisions for loan losses made during the
three months ended September 30, 1996. The Bank will continue to monitor its
allowance for loan losses and make future additions based on economic and
regulatory conditions. Although the Bank maintains its allowance for loan losses
at a level which it considers to be sufficient to provide for potential losses,
there can be no assurance that future losses will not exceed internal estimates.
In addition, the amount of the allowance for loan losses is subject to review by
regulatory agencies which can order the establishment of additional loss
provisions.
Noninterest Income
- ------------------
Noninterest income increased $101,860 for the three months ended
September 30, 1997, or 92.9% compared to the three months ended September 30,
1996. The increase was primarily due to the increase in checking account
customers which has resulted in more service charge income. Service charges on
checking accounts increased $78,707 for the three months ended September 30,
1997, or 186.6% compared to the three months ended September 30, 1996.
<PAGE>
GUARANTY FEDERAL SAVINGS BANK
Noninterest Expense
- -------------------
Noninterest expense decreased $939,837 for the three months ended
September 30, 1997 or 45.6% as compared to the three months ended September 30,
1996. The primary cause for this decrease was the one-time assessment by the
Federal Deposit Insurance Corporation ("FDIC") on all SAIF assessable deposits
as of March 31, 1995. This assessment resulted in a $931,989 addition to SAIF
premiums during the three month period ended September 30, 1996. The total SAIF
premiums for the three month period ending September 30, 1996, was $1,022,492,
as compared to $22,970 for the three month period ending September 30, 1997.
Advertising expense increased $43,976 for the three months ended
September 30, 1997, or 102.1% when compared to the same period in 1996. The
primarily reason for this increase was the additional expense in connection with
the marketing campaign designed to attract checking accounts which was initiated
in early 1997.
Total noninterest expenses excluding SAIF premiums increased $59,685 or
5.7% over the same period in 1996.
Provision for Income Taxes
- --------------------------
There was a $461,523 increase in the provision for income taxes for the
three months ended September 30, 1997, as compared to the same period in 1996.
This increase was primarily due to the decrease in before tax income due to the
FDIC assessment for the three month period ended September 30, 1996.
Nonperforming Assets
- --------------------
The allowance for loan losses is calculated based upon an evaluation of
pertinent factors underlying the various types and quality of the loans.
Management considers such factors as the repayment status of a loan, the
estimated net realizable value of the underlying collateral, the borrower's
intent and ability to repay the loan, local economic conditions and the Bank's
historical loss ratios. The Bank's allowance for loan losses as of September 30,
1997, was $2,190,000 or 1.4% of loans receivable. Total assets classified as
substandard, doubtful, or loss as of September 30, 1997, were $1,813,000 or 0.9%
of total assets. Management has considered nonperforming and total classified
assets in evaluating the adequacy of the Bank's allowance for loan losses.
The ratio of nonperforming assets to total assets is another useful
tool in evaluating exposure to credit risk. Nonperforming assets of the Bank
include nonperforming loans (nonaccruing loans) and assets which have been
acquired as a result of foreclosure or deed-in-lieu of foreclosure.
<PAGE>
GUARANTY FEDERAL SAVINGS BANK
Nonperforming Assets continued
- ------------------------------
<TABLE>
<CAPTION>
9/30/97 6/30/97 6/30/96
------- ------- -------
(Dollars In Thousands)
<S> <C> <C> <C>
Nonperforming loans $ 1,138 $ 1,257 $ 393
Real estate acquired in
settlement of loans 210 210 2
---------- ----------- --------
Total Nonperforming Assets $ 1,348 $ 1,467 $ 395
========== ========== =======
Total Nonperforming Assets
as a Percentage of Total
Assets 0.64% 0.74% .21%
Allowance for loan losses $ 2,190 $ 2,177 $ 2,108
Allowance for loan losses as a
Percentage of average loans, net 1.35% 1.49% 1.60%
</TABLE>
Liquidity and Capital Resources
- -------------------------------
The Bank's primary sources of funds are deposits, principal and
interest payments on loans, and securities and extensions of credit from the
Federal Home Loan Bank of Des Moines. While scheduled loan and security
repayments and the maturity of short-term investments are somewhat predictable
sources of funding, deposit flows are influenced by many factors which make
their cash flows difficult to anticipate. Office of Thrift Supervision
regulations require the Bank to maintain cash and eligible investments in an
amount equal to at least 5% of customer accounts and short-term borrowings to
assure its ability to meet demands for withdrawals and repayment of short-term
borrowings. As of September 30, 1997, the Bank's liquidity ratio was 8.4%, which
exceeded the minimum regulatory requirement.
The Bank uses its liquidity resources principally to satisfy its
ongoing commitments which include funding loan commitments, funding maturing
certificates of deposit as well as deposit withdrawals, maintaining liquidity,
purchasing investments, and meeting operating expenses. At September 30, 1997,
the Bank had approximately $3,500,000 in commitments to originate mortgage loans
and $10,560,000 in loans-in-process on mortgage loans. These commitments will be
funded through cash flow from operations and FHLB advances..
The Board of Directors has announced a semi-annual cash dividend of
$0.22 per share to be paid on October 18, 1997, to stockholders of record as of
September 12, 1997.
