UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(MarkOne) [X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarter ended March 31, 1998
--------------
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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Commission 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
incorporation or organization) Identification No.)
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 X No___
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Class Outstanding at May 11, 1998
----- ---------------------------
Common Stock, Par Value $0.10 6,225,817 Shares
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC
Form 10-Q
TABLE OF CONTENTS
Item Page
- ---- ----
PART I. Financial Information
-----------------------------
1. Consolidated Financial Statement (Unaudited):
Statements of Financial Condition 3
Statements of Income 4
Statements of Cash Flow 5
Notes to Consolidated Financial Statement 6
2. Management's Discussion and Analysis of Financial Condition and 9
Results of Operations
PART II. Other Information
--------------------------
1. Legal Proceedings 17
2. Changes in Securities and Use of Proceeds 17
3. Defaults Upon Senior Securities 18
4. Submission of Matters to Vote of Security-holders 18
5. Other Information 18
6. Exhibits and Reports on Form 8-K 18
Signatures 19
2
<PAGE>
PART I
Item 1. Financial Statements
--------------------
GUARANTY FEDERAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 1998 (UNAUDITED) AND JUNE 30, 1997
ASSETS
------
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
------------- -------------
(Unaudited)
<S> <C> <C>
Cash $ 887,404 $ 417,485
Interest-bearing deposits in other financial institutions 17,130,088 3,399,866
------------- -------------
Cash and cash equivalents 18,017,492 3,817,351
Available-for-sale securities 4,829,266 3,360,000
Held-to-maturity securities 9,070,423 8,585,753
Mortgage-backed securities, held-to-maturity 12,888,531 15,813,890
Mortgage loans held for sale 5,911,556 5,903,002
Loans receivable, net 184,461,863 152,232,295
Accrued interest receivable
Loans 1,105,129 996,014
Investments 164,918 165,949
Mortgage-backed securities 123,306 149,598
Prepaid expenses and other assets 2,046,216 1,963,875
Foreclosed assets held for sale 224,155 210,155
Premises and equipment 7,482,395 6,267,157
------------- -------------
$ 246,325,250 $ 199,465,039
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES
Deposits $ 144,432,638 $ 151,246,482
Federal Home Loan Bank advances 27,861,206 18,150,844
Advances from borrowers for taxes and insurance 545,815 674,618
Accrued expenses and other liabilities 1,705,850 666,427
Accrued interest payable 186,543 131,245
Income taxes payable 466,665 289,268
Deferred income taxes 1,330,000 816,000
------------- -------------
Total Liabilities 176,528,717 171,974,884
------------- -------------
STOCKHOLDERS' EQUITY
Capital Stock
Common stock, $0.10 par value; authorized 10,000,000 shares;
issued and outstanding 6,225,817 shares 622,582 3,125,000
Additional paid-in capital 48,998,665 3,687,356
Unearned ESOP shares (3,444,540) --
Retained earnings, substantially restricted` 20,775,301 18,620,219
------------- -------------
69,952,008 25,432,575
Unrealized appreciation on available-for-sale securities,
net of tax 2,844,525 2,057,580
------------- -------------
69,796,533 27,490,155
------------- -------------
$ 246,325,250 $ 199,465,039
============= =============
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
THREE AND NINE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ending Nine Months Ending
------------------------ ---------------------------
3/31/98 3/31/97 3/31/98 3/31/97
------- ------- ------- -------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 3,696,895 3,136,573 $10,794,484 9,083,147
Investment securities 95,928 121,217 289,221 404,127
Mortgage-backed securities 242,033 327,691 807,373 1,105,547
Other 348,943 96,911 642,517 271,164
----------- ----------- ---------- -----------
Total Interest Income 4,383,799 3,682,392 12,533,595 10,863,985
----------- ----------- ---------- -----------
INTEREST EXPENSE
Deposits 1,688,787 1,811,745 5,296,373 5,607,797
Federal Home Loan Bank advances 339,326 293,406 1,159,344 531,979
Other deposits 0 0 79,043 0
----------- ----------- ---------- -----------
Total Interest Expense 2,028,113 2,105,151 6,534,760 6,139,776
----------- ----------- ---------- -----------
NET INTEREST INCOME 2,355,686 1,577,241 5,998,835 4,724,209
PROVISION FOR LOAN LOSSES 30,000 0 93,352 0
----------- ----------- ---------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,325,686 1,577,241 5,905,483 4,724,209
----------- ----------- ---------- -----------
NONINTEREST INCOME (LOSS)
Service charges 150,430 69,999 425,055 165,816
Late charges and other fees 28,224 22,334 81,710 61,416
Gain (loss) on loans, investment
securities and mortgage-backed securities 12,295 (5,736) 69,666 22,274
Income on foreclosed assets 8,525 28,001 10,611 16,605
Other income 53,001 21,249 116,071 67,530
----------- ----------- ---------- -----------
Total Noninterest Income 252,475 135,847 703,113 333,641
----------- ----------- ---------- -----------
NONINTEREST EXPENSE
Salaries and employee benefits 591,973 490,643 1,675,038 1,603,324
Occupancy 202,054 167,897 550,917 473,952
SAIF deposit insurance premiums 23,164 27,617 70,116 1,117,310
Data processing fees 105,547 97,588 302,849 280,717
Advertising 108,300 99,296 297,046 191,920
Other expense 214,442 124,434 608,693 383,133
----------- ----------- ---------- -----------
Total Noninterest Expense 1,245,480 1,007,475 3,504,659 4,050,356
----------- ----------- ---------- -----------
INCOME BEFORE INCOME TAXES 1,332,681 705,613 3,103,937 1,007,494
PROVISION FOR INCOME TAXES 489,438 253,797 1,149,403 351,726
----------- ----------- ---------- -----------
NET INCOME $ 843,243 451,816 $ 1,954,534 655,768
=========== =========== ============= ===========
EARNINGS PER SHARE BASIC $ 0.14 n/a $ n/a n/a
=========== =========== ============ ===========
EARNINGS PER SHARE DILUTED $ 0.14 n/a $ n/a n/a
=========== =========== ============ ===========
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,954,534 $ 655,768
Items not requiring (providing) cash:
Deferred income taxes 51,504 (59,643)
Depreciation 331,393 314,074
Provision for loan losses 93,352 0
(Gain) loss on loans, investment securities
and mortgage-backed securities (69,666) (22,274)
Amortization of deferred income, premiums and discounts 79,965 (23,806)
RRP expense 74,470 90,036
Origination of loans held for sale (5,686,116) (5,129,632)
Proceeds from sale of loans held for sale 5,743,616 3,603,783
Changes in:
Accrued interest receivable (81,792) 103,546
Prepaid expenses and other assets (81,657) (237,343)
Accounts payable and accrued expenses 1,095,043 38,448
Income taxes payable 194,626 87,741
------------ ------------
Net cash provided by (used in) operating activities 3,699,272 (579,302)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans (32,420,629) (14,475,154)
Principal payments on mortgage-backed securities,
held-to-maturity 2,925,359 2,956,242
Purchase of premises and equipment (317,833) (94,039)
Proceeds from sale of available-for-sale securities 0 5,318,175
Purchase of held-to-maturity securities (4,855,431) 0
Proceeds from sale of real estate owned 14,000 0
Proceeds from maturities or calls of
available-for-sale securities 0 733,464
Proceeds from maturities or calls of
held-to-maturity investments 4,259,673 1,000,000
Capitalized costs on foreclosed assets 0 169,334
----------- -------------
Net cash used in investing activities (30,394,861) (4,391,978)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock, net 42,628,054 0
Unearned ESOP shares (3,444,540) 0
Stock options exercised 44,372 0
Cash dividends paid (1,621,372) (562,500)
Cash dividends received on RRP stock 8,704 7,649
Net increase in demand deposits,
NOW accounts and savings accounts 8,044,921 1,752,269
Net increase (decrease) in certificates of deposit (14,345,968) (12,693,977)
Proceeds from FHLB advances 43,750,000 31,163,750
Repayments of FHLB advances (34,039,638) (10,003,199)
Advances from borrowers for taxes and insurance (128,803) (187,289)
Reduction of shares in RRP trust 0 13,358
----------- ------------
Net cash provided by financing activities 40,895,730 9,490,061
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 14,200,141 4,518,781
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,817,351 2,674,557
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 18,017,492 $ 7,193,338
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Conversion, Reorganization and Stock Issuance
---------------------------------------------
Guaranty Federal Bancshares, Inc. completed the conversion from a
federally chartered mutual holding company, (formerly Guaranty Federal
Bancshares, M. H. C.) to a Delaware-chartered stock corporation on December 30,
1997. Guaranty Federal Bancshares, Inc. exchanged 1,880,710 shares of its common
stock for all the Bank's common stock not held by Guaranty Federal Bancshares,
M. H. C. This exchange ratio was 1.931. In addition 4,340,812 shares at $10.00
per share were sold in the stock offering, including 344,454 shares to the
employee stock ownership plan ( the "ESOP"). Costs related to the stock issuance
have been applied to reduce the gross proceeds, resulting in net proceeds from
the offering of $39.2 million. Total shares of common stock outstanding
following the offering and exchange was 6,221,522.
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 "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.
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-Q 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.
6
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2: Basis of Presentation, continued
--------------------------------
Operating results for the nine-month periods ended March 31, 1998 and
1997, are not necessarily indicative of the results that may be expected for the
full year. Prior to December 30, 1997, the Company engaged in no significant
business activity other than formation activities. Between December 30, 1997 and
March 31, 1998, the Company engaged in no significant business activity other
than ownership of the common stock of the Bank. Accordingly, all consolidated
financial statements for periods prior to December 30, 1997, relate solely to
the Bank and Guaranty Financial Services, Inc. of Springfield, a wholly owned
subsidiary of the Bank. For further information refer to the Savings 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.
Note 3: Principles of Consolidation
---------------------------
As more fully described in Note 1, the Company is a Delaware-chartered
stock corporation organized to facilitate the conversion from the mutual holding
company form of ownership of the Bank to the stock holding company form of
ownership of the Bank and hold all of the capital stock of the Bank. In
connection with the conversion, Guaranty Federal Bancshares, M. H. C., which had
owned 69% of the common stock of the Bank, was merged with and into the Bank,
and its shares of the Bank were canceled.
The consolidated financial statements include the accounts of the
Company, its wholly -owned subsidiary, Guaranty Federal Savings Bank and the
wholly-owned subsidiary of the Bank, Guaranty Financial Services of Springfield,
Inc. Significant intercompany accounts and transactions have been eliminated in
consolidation.
Note 4: Earnings Per Share
------------------
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.
7
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 4: Earnings Per Share, continued
-----------------------------
As more fully described in the preceding Notes, the Company had no
operations prior to December 30, 1997 and earnings per share information for the
common stock of the Company for the nine months ended March 31, 1998 and the
three months and nine months ended March 31, 1997 has not been presented because
the information is not available or would not be meaningful.
<TABLE>
<CAPTION>
For three months ended March 31, 1998
-------------------------------------
Income Shares Per-share
<S> <C> <C> <C>
Basic EPS
Income available to common stockholders $843,243 5,877,527 $0.14
=====
Effect of Dilutive Securities
Stock options 75,059
RRP shares 25,013
--------- --------
Income available to common stockholders $843,243 5,974,753 $0.14
======== ========= =====
</TABLE>
Options to purchase 5,000 shares of common stock at $12.63 per share were
outstanding during the three months ended March 31, 1998, but were not included
in the computation of diluted EPS because the options' exercise price was
greater than the average market price of the common shares.
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 shares to be issued to directors, officers and employees of the Bank.
As of March 31, 1998, all of the RRP shares have been purchased and awarded. The
Bank is amortizing the RRP expense over each participant's vesting period and
the financial statements reflect $74,470 RRP expense for the nine month period
ending March 31, 1998. The SOP authorized stock options on shares to be issued
to officers and employees of the Bank, all of which have been granted. Both the
RRP and SOP vest over a five year period. The RRP and SOP have been adjusted to
reflect the conversion, reorganization and stock issuance described in Note 1
with all vesting periods remaining unchanged. At March 31, 1998, there were
180,395 unexercised options that have been granted at prices ranging from $5.83
to $12.63 per share and 47,163 RRP shares were unvested.
8
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC
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 Bancshares, Inc. (the "Company"), and all accounts of its
wholly owned subsidiary , Guaranty Federal Savings Bank (the "Bank") and all
accounts of the wholly-owned subsidiary of the Bank, Guaranty Financial Services
of Springfield, Inc. All significant intercompany transactions and balances have
been eliminated in consolidation.
However, because the conversion, reorganization and stock issuance of
the Company, the Bank and related entities did not occur until December 30,
1997, all results prior to that date reflect the accounts of the Bank and its
subsidiary. The Company realized approximately $39.2 million in net proceeds
from the stock issuance of which the Company provided $19.9 million to the Bank
as capital and the Company provided a loan of $3.44 million to fund the purchase
of stock for the employee stock ownership plan. Other than the loan for the
ESOP, most of the funds received have been invested in loans.
The primary function of the Company has been to monitor its investment
in the Bank, as a result, the results of operation of the Company are derived
primarily from operations of the Bank. 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 March 31, 1998, and the results of operations for the three and
nine months ended March 31, 1998 and 1997.
Financial Condition
- -------------------
The Company's total assets increased $46,860,211, or 23.5%, from
$199,465,039 as of June 30, 1997, to $246,325,250 as of March 31, 1998.
Cash and cash equivalents increased by $14,200,141, or 372.0% from
$3,817,351 as of June 30, 1997, to $18,017,492 as of March 31, 1998. This is a
result of proceeds from the stock conversion being placed in interest-bearing
deposits with other financial institutions.
9
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC
Financial Condition (continued)
- -------------------------------
Available-for-sale securities increased $1,469,266 , or 43.7% from
$3,360,000 as of June 30, 1997, to $4,829,266 as of March 31, 1998, and
held-to-maturity securities increased $484,670, or 5.6%, from $8,585,753 as of
June 30, 1997 to $9,070,423 as of March 31, 1998. 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 March 31,
1998, the gross unrealized gain on the stock was $3,932,000 an increase from
$3,266,000 as of June 30, 1997.
Mortgage-backed securities, held-to-maturity, decreased $2,925,359 or
18.5%, from $15,813,890 as of June 30, 1997, to $12,888,531, as of March 31,
1998. The decrease is attributed to prepayments received on various pools of
mortgage-backed securities during the nine months ending March 31, 1998. As of
March 31, 1998, and June 30, 1997, there were no mortgage-backed securities
classified as available for sale.
Net loans receivable increased by $32,229,568, or 21.2%, from
$152,232,295, as of June 30, 1997, to $184,461,863, as of March 31, 1998, and
loans held-for-sale increased by $8,554, or 0.1% from $5,903,002 as of June 30,
1997 to $5,911,556 as of March 31, 1998. Growth consisted primarily of loans
secured by both owner and non-owner occupied residential real estate, which
increased by $26,000,000, of which approximately $19,000,000 were in fixed rate
loans. The Bank has adopted a strategy, whereby fixed rate loans are being held
in the portfolio and funded with FHLB advances. The Bank has been able to obtain
a positive spread of approximately 125 basis points using this funding method.
However, this strategy has increased the interest rate risk of the Bank. Growth
in loans receivable is anticipated to continue and represents a major part of
the Bank's planned asset growth.
Allowance for loan losses increased $23,672 or 1.1% from $2,177,009 as
of June 30, 1997, to $2,200,681 as of March 31, 1998. The allowance increased
due to increases in the loan loss provision for the period. The allowance for
loan losses as of March 31, 1998 and June 30, 1997 was 1.3%, and 1.4% of total
loans outstanding. As of March 31, 1998, the allowance for loan losses was
180.5% of loans past due 90 days or more versus 262.8% as of June 30, 1997.
Fair value of foreclosed assets held-for-sale increased $14,000, from
$210,155 as of June 30, 1997 to $224,155 as of March 31, 1998. This increase is
the net difference between property repossessed and property sold during this
period. During this period there were sales of a four-plex and six-plex and one
automobile previously held for sale. The remaining properties in this category
include a duplex acquired in July 1996, a single family residence acquired in
June 1997, and one automobile acquired in November 1997. Management believes
that these assets can be sold with no further loss to the Bank.
10
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC
Financial Condition (continued)
- -------------------------------
Premises and equipment increased $1,215,238, or 19.4%, from $6,267,157
as of June 30, 1997, to $7,482,395 as of March 31, 1998. The Bank opened a new
branch office in the southern section of Springfield in December 1997. This
branch is located on a site of land purchased by the MHC, and subsequently
transferred to the Company in connection with its Plan of Conversion and
Reorganization. The land was transferred at a fair value of $1,228,798. The
branch office is currently housed in a modular building which is leased for a
two year period. 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.
Deposits decreased $6,813,844 or 4.5%, from $151,246,482 as of June 30,
1997, to $144,432,638 as of March 31, 1998. For the nine months ending March 31,
1998, checking and passbook accounts increased by $8,044,921, or 28.1% while
certificates of deposits decreased by $14,345,968, or 11.7%. The majority of
this decrease can be attributed to the 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 cost. In addition approximately $1.5 million was
withdrawn from accounts to purchase stock in the Company.
FHLB advances increased $9,710,362 or 53.5%, from $18,150,844 as of
June 30, 1997 to $27,861,206 as of March 31, 1998. This increase is due to the
management's decision to fund fixed rate loans with FHLB advances, as well as
replacing certificate run off with FHLB advances. As of March 31, 1998 the Bank
had the ability to borrow an additional $74.0 million from the FHLB.
Stockholders' equity (including unrealized appreciation on securities
available-for-sale, net of tax) increased $42,306,378, or 153.9%, from
$27,490,155 as of June 30, 1997, to $69,796,533 as of March 31, 1998. This
increase was primarily due to the sale of $39,963,580 of common stock in
connection with the Plan of Conversion and Reorganization. Unrealized
appreciation on securities available-for-sale, net of tax, contributed $786,945
to stockholders' equity for the nine months ended March 31, 1998. On March 19,
1998 a cash dividend of $0.15 per share was declared. This dividend was payable
on April 30, 1998 to stockholders of record on April 2, 1998. The total amount
of the dividend was $933,841.50 which represents a reduction in stockholders'
equity.
11
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC
Results of Operations - Comparison of Three Month and
Nine Month Periods Ended March 31, 1998 and 1997
Net income for the three months and nine months ended March 31, 1998
was $843,243 and $1,954,534, as compared to $451,816 and $655,768 for the three
months and nine months ended March 31, 1997 which represents an increase in
earnings of $391,427 or 86.6% for the three month period, and a increase in
earnings of $1,298,766 or 198.1% for the nine month period. The increase in
earnings for the three month and nine month period ending March 31, 1998, was
primarily due to increases in net interest income and non interest income as
well as a decrease in premiums assessed 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.
Interest Income
- ---------------
Total interest income for the three months and nine months ended March
31, 1998, increased $701,407 or 19.0% and $1,669,610 or 15.4% as compared to the
three months and nine months ended March 31, 1997. For the nine month period
ended March 31, 1998 the average yield on interest earning assets decreased 11
basis points to
8.00%, while the average balance of interest earnings assets increased
$30,000,000 over the same period one year ago.
Interest Expense
- ----------------
Total interest expense for the three months ended March 31, 1998,
decreased $77,038 or 3.7%, when compared to the three months ended March 31,
1997 and increased $394,984, or 6.4% for the nine months ended March 31, 1998,
when compared to the nine months ended March 31, 1997. For the nine month period
ended March 31, 1998, the average cost of interest bearing liabilities decreased
15 basis points to 5.1% while the average balance increased $15,000,000, when
compared to the same period in 1997.
12
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC.
Net Interest Income
- -------------------
Net interest income for the three months and nine months ended March
31, 1998, increased $778,445, or 49.4% and $1,274,626, or 27.0% when compared to
the same period in 1997. This is due primarily to a increase in the difference
between average earnings assets and average interest bearing liabilities.
Average interest earning assets increased by $30,000,000 to $209,000,000 for the
nine month period ended March 31, 1998, when compared to the same period in
1997, while average interest bearing liabilities increased by $15,000,000 to
$171,500,000 for the nine month period ended March 31, 1998, when compared to
the same period in 1997. This is a result of $18,000,000 from the proceeds from
the stock conversion being used to pay off FHLB advances, while the remaining
$21,200,000 was placed into interest earning assets.
Provision for Loan Losses
- -------------------------
Based primarily on the continued growth of the loan portfolio
management decided to increase the allowance for loan loss reserve through a
provision for loan loss of $30,000 and $93,352 for the three months and nine
months ended March 31, 1998, respectively. There was no provision for loan
losses recorded for the three months and nine months ended March 31, 1997. 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 $116,628, or 85.9% and $369,472, or 110.7%
for the three months and nine months ended March 31, 1998, when compared to the
three months and nine months ended March 31, 1997. The increase was primarily
due to a increase in checking account service charges, which increased $80,431
or 114.9% and $259,239 or 156.3% for the three months and nine months ended
March 31, 1998, when compared to the same period in 1997.
13
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC
Noninterest Expense
- -------------------
Noninterest expense increased $238,005, or 23.6% for the three months
ended March 31, 1998, and decreased $545,697, or 13.5% for the nine month period
ending March 31, 1998 when compared to the three months and nine months ended
March 31, 1997. The primary cause for the decrease for the nine month period
ended March 31, 1998 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 nine month period ended March 31, 1997. The total SAIF premiums for the nine
month period ending March 31, 1997, was $1,117,310, as compared to $70,116 for
the nine month period ending March 31, 1998.
Advertising expense increased $9,004, or 9.1% for the three months
ended March 31, 1998, and increased $105,126, or 54.8% for the nine months ended
March 31, 1998, when compared to the same period in 1997. The primary 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.
Other expense increased $90,008, or 72.3% for the three months ended
March 31, 1998, and increased $225,560, or 58.9% for the nine months ended March
31, 1998. The largest increase within this category was for office supplies.
This increase was due to the increased number of customer accounts which in turn
require more forms, etc. to service, as well as the equipping of a new office
with supplies during the nine month period ended March 31, 1998.
The ESOP was implemented at the time of the stock conversion at
December 30, 1997. In addition, the Company intends to adopt a stock option plan
and a restricted stock plan if stockholder approvals are received. The cost
associated with these benefit plans as well as costs associated with the Company
being a public company are expected to increase noninterest expense in future
periods.
Provision for Income Taxes
- --------------------------
There was a $235,641 and $797,677 increase in the provision for income
taxes for the three months and nine months ended March 31, 1998, as compared to
the same period in 1997. The large increase for the three months ended March 31,
1998, was primarily due to the increase in pre-tax income when compared to the
same period in 1997. The increase for the nine months ended March 31, 1998, was
primarily due to the increase in pre-tax income due to the FDIC special
assessment made September 30, 1996.
14
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC.
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 March 31,
1998, was $2,200,681 or 1.3% of loans receivable. Total assets classified as
substandard, doubtful, or loss as of March 31, 1998, were $2,072,282 or 0.8% 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.
<TABLE>
<CAPTION>
3/31/98 6/30/97 3/31/97
------- ------- -------
(Dollars In Thousands)
<S> <C> <C> <C>
Nonperforming loans $ 1,691 $ 1,257 $ 594
Real estate acquired in
settlement of loans 224 210 246
---------- ---------- ----------
Total Nonperforming Assets $ 1,915 $ 1,467 $ 840
========== ========= =========
Total Nonperforming Assets
as a Percentage of Total
Assets 0.78% 0.74% 0.43%
Allowance for loan losses $ 2,201 $ 2,177 $ 2,175
Allowance for loan losses as a
Percentage of loans, net 1.14% 1.36% 1.44%
</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 4% of customer accounts and short-term borrowings to
assure its ability to meet demands for withdrawals and repayment of short-term
borrowings. As of March 31, 1998, the Bank's liquidity ratio was 16.5%, which
exceeded the minimum regulatory requirement.
15
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC.
Liquidity and Capital Resources (continued)
- -------------------------------------------
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 March 31, 1998, the
Bank had approximately $6,325,000 in commitments to originate mortgage loans and
$11,040,000 in loans-in-process on mortgage loans. These commitments will be
funded through existing cash balances, cash flow from operations and, if
required FHLB advances . Management believes that anticipated cash flows and
deposit growth will be adequate to meet the Bank's liquidity needs.
The Year 2000 issue
- -------------------
A great deal of information has been disseminated about the global
computer crash that may occur in the year 2000. Many computer programs that can
only distinguish the final two digits of the year entered (a common programming
practice in earlier years) are expected to read entries for the year 2000 as the
year 1900 and compute payment, interest or delinquency based on the wrong date
or are expected to to unable to compute payment, interest or delinquency. Rapid
and accurate data processing is essential to the operation of the Bank. Data
processing is also essential to most other financial institutions and many other
companies.
The Board of Directors of the Bank adopted a Year 2000 Compliance
Policy which mandates to senior management and all employees, full compliance
with the time frames dictated by sound business practice and the Federal
Financial Institutions Examination Council. The Bank's Year 2000 Compliance
Project is an ongoing process and the Bank expects to be in compliance by
December 31, 1998.
The Bank has experienced considerable growth in recent years which,
independent of the year 2000 issue, has created the need to upgrade the core
data processing system. Management is currently receiving proposals and
attending presentations of core data processing systems. One of the main items
included in the proposal is written certification of compliance with the year
2000 issue. At this time a new core data processing system has not been
selected.
16
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC.
PART II
Item 1. Legal Proceedings
- --------------------------
None.
Item 2. Changes in Securities and use of proceeds
- --------------------------------------------------
The registrant filed a registration statement on Form S-1 (Commission
file no. 333-36141) that was declared effective on November 12, 1997. On
December 30, 1997, Guaranty Federal Bancshares, Inc. completed the conversion
and reorganization of Guaranty Federal Savings Bank and its former mutual
holding company by selling 4,340,812 shares of common stock to certain
depositors of the Bank and a benefit plan of the Bank at a price of $10.00 per
share. In addition approximately 1,880,710 shares of common stock of the Bank
held by public stockholders were exchanged for common stock of Guaranty Federal
Bancshares, Inc. at a ratio of 1.931 shares of common stock of the Company for
each share of the Bank. The only class of securities registered pursuant to the
offering was common stock, par value $0.10 per share, and all 6,221,522 shares
registered were issued.
The Offering commenced on November 21, 1997 and was terminated on
December 16, 1997, and the sale of all of the Common stock registered under the
Offering at $10.00 per share was completed on December 30, 1997. Friedman,
Billings, Ramsey & Co., Inc. assisted the registrant as the sole underwriter on
a best effort basis.
Of the 6,221,522 shares registered and issued: (1) 3,996,358 shares
were sold (at $10.00 per share), resulting in cash proceeds to the Company of
$39,963,580, (2) 344,454 shares were sold (at $10.00 per share) to the trust of
the employee stock ownership plan of the Bank ( the "ESOP") and funded by a
direct loan (with proceeds used from the offering) from the Company to the
trust, an affiliate of the Company, in the amount of $3,444,540, and (3)
1,880,710 shares (minus a certain de minimus number of fractional shares for
which cash will be paid) issued in exchange for the common stock of the Bank.
The expenses for the offering were $778,000 resulting in net proceeds of
$42,630,000 ($43,408,000 minus $778,000) of which $19,981,790 was directly
contributed to the Bank, and $22,648,210 was retained by the Company. Of the
$778,000 in expenses, $150,000 in underwriting commissions and $40,000 in fees
were paid to Friedman, Billings, Ramsey & Co., Inc.
17
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC.
Item 2. Changes in Securities and use of proceeds, continued
- -------------------------------------------------------------
There has been no material change in the use of the net proceeds from
the disclosures set forth in the prospectus filed in connection with the
Offering. The Company used a portion of the proceeds it retained to loan the
Company's Employee Stock Ownership Plan approximately $3.4 million at a rate of
8.5%, to be repaid over 15 years. The Bank has used the $19,981,790 proceeds
contributed by the Company to repay outstanding FHLB advances. The remainder of
the proceeds have been loaned by the Company to the Bank to fund its general
business operations.
The only direct or indirect payments to directors, officers, general
partners of the Company or their associates, to persons owning 10 percent or
more of any class of equity securities of the Company, and to affiliates of the
Company were: (1) the contribution of the Company to the Bank, (2) the loan to
the Bank, and (3) the loan to the trust of the ESOP. The only direct or indirect
payment to others was the $778,000 in expenses.
Item 3. Defaults Upon Senior Securities
- ----------------------------------------
Not applicable.
Item 4. Submission of Matters to Vote of Security Holders
- ----------------------------------------------------------
Not applicable
Item 5. Other Information
- --------------------------
Not applicable
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
a) Exhibits
None.
b) Reports on Form 8-K
None.
18
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Guaranty Federal Bancshares, Inc.
Signatures Date
---------- ----
\S\ James E. Haseltine 5/11/98
- ------------------------------------------ -------
James E. Haseltine
President and Chief Executive Officer
(Duly authorized officer)
\S\ Bruce Winston 5/11/98
- ------------------------------------------ -------
Bruce Winston
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
19
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM
THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 887
<INT-BEARING-DEPOSITS> 18,017
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,829
<INVESTMENTS-CARRYING> 21,959
<INVESTMENTS-MARKET> 0
<LOANS> 190,373
<ALLOWANCE> 2,201
<TOTAL-ASSETS> 246,325
<DEPOSITS> 144,433
<SHORT-TERM> 27,861
<LIABILITIES-OTHER> 4,235
<LONG-TERM> 0
0
0
<COMMON> 623
<OTHER-SE> 69,174
<TOTAL-LIABILITIES-AND-EQUITY> 246,325
<INTEREST-LOAN> 10,794
<INTEREST-INVEST> 1,097
<INTEREST-OTHER> 643
<INTEREST-TOTAL> 12,534
<INTEREST-DEPOSIT> 5,296
<INTEREST-EXPENSE> 6,535
<INTEREST-INCOME-NET> 5,999
<LOAN-LOSSES> 93
<SECURITIES-GAINS> 70
<EXPENSE-OTHER> 3,505
<INCOME-PRETAX> 3,104
<INCOME-PRE-EXTRAORDINARY> 3,104
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,956
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 3.83
<LOANS-NON> 1,218
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 473
<ALLOWANCE-OPEN> 2,177
<CHARGE-OFFS> 102
<RECOVERIES> 32
<ALLOWANCE-CLOSE> 2,201
<ALLOWANCE-DOMESTIC> 2,201
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
