UNITED STATES
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 December 31, 1997
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------- ------------
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 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 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 February 10, 1998
----- --------------------------------
Common Stock, Par Value $0.10 6,221,522 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 16
2. Changes in Securities and Use of Proceeds 16
3. Defaults Upon Senior Securities 17
4. Submission of Matters to Vote of Security-holders 17
5. Other Information 17
6. Exhibits and Reports on Form 8-K 17
Signatures 18
<PAGE>
PART I
Item 1. Financial Statements
--------------------
GUARANTY FEDERAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1997 (UNAUDITED) AND JUNE 30, 1997
ASSETS
------
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
------------- -------------
(Unaudited)
<S> <C> <C>
Cash $ 910,766 $ 417,485
Interest-bearing deposits in other financial institutions 20,307,148 3,399,866
------------- -------------
Cash and cash equivalents 21,217,914 3,817,351
Available-for-sale securities 4,203,625 3,360,000
Held-to-maturity securities 6,477,317 8,585,753
Mortgage-backed securities, held-to-maturity 14,120,442 15,813,890
Mortgage loans held for sale 6,369,428 5,903,002
Loans receivable, net 166,863,350 152,232,295
Accrued interest receivable
Loans 1,043,335 996,014
Investments 147,886 165,949
Mortgage-backed securities 155,777 149,598
Prepaid expenses and other assets 1,990,236 1,963,875
Foreclosed assets held for sale 488,155 210,155
Premises and equipment 7,538,594 6,267,157
------------- -------------
$ 230,616,059 $ 199,465,039
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES
Deposits $ 143,601,343 $ 151,246,482
Federal Home Loan Bank advances 15,130,926 18,150,844
Advances from borrowers for taxes and insurance 211,225 674,618
Accrued expenses and other liabilities 668,171 666,427
Accrued interest payable 88,477 131,245
Income taxes payable 261,174 289,268
Deferred income taxes 1,114,165 816,000
------------- -------------
Total Liabilities 161,075,481 171,974,884
------------- -------------
STOCKHOLDERS' EQUITY
Capital Stock
Common stock, $0.10 par value; authorized 10,000,000 shares;
issued and outstanding 6,221,522 shares 622,152 3,125,000
Additional paid-in capital 48,962,954 3,687,356
Unearned ESOP shares (3,444,540) --
Retained earnings, substantially restricted` 20,886,991 18,620,219
------------- -------------
67,027,557 25,432,575
Unrealized appreciation on available-for-sale securities,
net of tax 2,513,021 2,057,580
------------- -------------
69,540,578 27,490,155
------------- -------------
$ 230,616,059 $ 199,465,039
============= =============
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
THREE AND SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ending Six Months Ending
------------------------- -------------------------
12/31/97 12/31/96 12/31/97 12/31/96
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 3,646,258 3,069,726 $ 7,097,589 5,946,574
Investment securities 96,043 138,166 193,293 282,910
Mortgage-backed securities 267,442 385,660 565,340 777,856
Escrow Fund Deposits 200,551 89,950 293,574 174,253
----------- --------- ----------- ---------
Total Interest Income 4,210,294 3,683,502 8,149,796 7,181,593
----------- --------- ----------- ---------
INTEREST EXPENSE
Deposits 1,776,873 1,882,123 3,607,586 3,796,052
Federal Home Loan Bank advances 462,573 186,674 820,018 238,573
Other Deposits 79,043 0 79,043 0
----------- --------- ----------- ---------
Total Interest Expense 2,318,489 2,068,797 4,506,647 4,034,625
----------- --------- ----------- ---------
NET INTEREST INCOME 1,891,805 1,614,705 3,643,149 3,146,968
PROVISION FOR LOAN LOSSES 30,000 0 63,352 0
----------- --------- ----------- ---------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,861,805 1,614,705 3,579,797 3,146,968
----------- --------- ----------- ---------
NONINTEREST INCOME (LOSS)
Service charges 153,730 53,629 274,625 95,817
Late charges and other fees 28,224 19,775 53,486 39,082
Gain on loans, investment
securities and mortgage-backed securities 19,240 2,832 57,371 28,010
Income (expense) on foreclosed assets 2,178 (10,805) 2,086 (11,396)
Other income 35,800 22,757 63,070 46,281
----------- --------- ----------- ---------
Total Noninterest Income 239,172 88,188 450,638 197,794
----------- --------- ----------- ---------
NONINTEREST EXPENSE
Salaries and employee benefits 501,791 483,886 1,083,065 1,112,681
Occupancy 185,607 141,884 348,863 306,055
SAIF deposit insurance premiums 23,982 67,201 46,952 1,089,693
Data processing fees 109,990 93,392 197,302 183,129
Advertising 101,704 49,558 188,746 92,624
Other expense 215,342 140,360 394,251 258,699
----------- --------- ----------- ---------
Total Noninterest Expense 1,138,416 982,281 2,259,179 3,042,881
----------- --------- ----------- ---------
INCOME BEFORE INCOME TAXES 962,561 720,612 1,771,256 307,881
PROVISION FOR INCOME TAXES 367,773 267,260 659,965 97,929
----------- --------- ----------- ---------
NET INCOME $ 594,788 453,352 $ 1,111,291 203,952
=========== ========= =========== =========
EARNINGS PER SHARE $ n/a n/a $ n/a n/a
=========== ========= =========== =========
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,111,291 $ 203,952
Items not requiring (providing) cash:
Deferred income taxes 87,606 (3,712)
Depreciation 217,149 202,877
Provision for loan losses 0
Gain on loans, investment securities
and mortgage-backed securities (57,371) (28,010)
Amortization of deferred income, premiums and discounts (21,765) (27,449)
RRP expense 47,979 73,138
Origination of loans held for sale (4,920,734) (2,545,899)
Proceeds from sale of loans held for sale 4,511,679 2,254,956
Changes in:
Accrued interest receivable (35,437) 124,225
Prepaid expenses and other assets (26,361) (185,176)
Accounts payable and accrued expenses (41,024) (120,475)
Income taxes payable (43,094) 4,489
------------ ------------
Net cash provided by (used in) operating activities 829,918 (47,084)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans (14,884,525) (12,260,138)
Principal payments on mortgage-backed securities,
held-to-maturity 1,693,448 2,158,417
Purchase of premises and equipment (259,788) (97,220)
Proceeds from sale of available-for-sale securities 0 5,277,109
Proceeds from maturities of available-for-sale securities 0 500,000
Proceeds from maturities or calls of
held-to-maturity investments 2,044,433 1,222,025
Capitalized costs on foreclosed assets 0 (44,377)
------------ ------------
Net cash used in investing activities (11,406,432) (3,244,184)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Tax benefit of vested RRP shares 32,229 0
Proceeds from sale of common stock, net 42,668,120 0
Unearned ESOP shares (3,444,540) 0
Stock Options Exercised 18,516 0
Cash dividends paid (687,500) (562,500)
Cash dividends received on RRP Stock 5,905 3,493
Net increase in demand deposits,
NOW accounts and savings accounts 5,384,078 1,583,221
Net (decrease) in certificates of deposit (12,516,420) (11,820,837)
Proceeds from FHLB advances 30,000,000 24,163,750
Repayments of FHLB advances (33,019,918) (8,000,000)
Advances from borrowers for taxes and insurance (463,393) (399,939)
Reduction of shares in RRP Trust 0 13,358
------------ ------------
Net cash provided by financing activities 27,977,077 4,980,546
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 17,400,563 1,689,278
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,817,351 2,674,557
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 21,217,914 $ 4,363,835
============ ============
</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. Stockholders' equity increased to $69.5 million primarily due to the
conversion in which 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"). Total shares of common stock
outstanding following the offering and exchange is 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 six-month periods ended December 31, 1997
and 1996, are not necessarily indicative of the results that may be expected for
the full year. During the quarter ended December 31, 1997, the Company engaged
in no significant business activity other than formation activities prior to
December 30, 1997. Between December 30, 1997 and December 31, 1997, 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.
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 three months and six months ended December
31, 1996 and 1997 has not been presented because the information is not
available or would not be meaningful. Earnings per share information for the
Bank for the three and six months ended December 31, 1996 and 1997 has not been
presented because the information that will be provided in future periods
concerning the Company. The Company expects to provide earnings per share
information for all periods beginning after December 31, 1997.
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 December 31, 1997, 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 $47,979 RRP expense for the six month
period ending December 31, 1997. 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 December 31, 1997,
the were, outstanding , 184,690 options that have been granted at prices ranging
from $5.83 to $6.08 per share and 47,208 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 process 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 are expected to remain in short term instruments
until they are invested for longer term uses such as 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 December 31, 1997, and the results of operations for the three and
six months ended December 31, 1997 and 1996.
Financial Condition
- -------------------
The Company's total assets increased $31,151,020, or 15.6%, from
$199,465,039 as of June 30, 1997, to $230,616,059 as of December 31, 1997.
Cash and cash equivalents increased by $17,400,563, or 455.8% from
$3,817,351 as of June 30, 1997, to $21,217,914 as of December 31, 1997. 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 $843,625 , or 25.1% from
$3,360,000 as of June 30, 1997, to $4,203,625 as of December 31, 1997, and
held-to-maturity securities decreased $2,108,436, or 24.6%, from $8,585,753 as
of June 30, 1997 to $6,477,317 as of December 31, 1997. The Bank deployed these
funds to higher yielding loans. The Bank continues to hold 96,000 shares of
Federal Home Mortgage Loan Corporation ("FHLMC") stock with a amortized cost of
$94,000 in the available-for-sale category. As of December 31, 1997, 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 $1,693,448 or
10.7%, from $15,813,890 as of June 30, 1997, to $14,120,442, as of December 31,
1997. The decrease is attributed to prepayments received on various pools of
mortgage-backed securities during the six months ending December 31, 1997. As of
December 31, 1997, and June 30, 1997, there were no mortgage-backed securities
classified as available for sale.
Net loans receivable increased by $14,631,055, or 9.6%, from
$152,323,295, as of June 30, 1997, to $166,863,350, as of December 31, 1997, and
loans held-for-sale increased by $466,426, or 7.9% from $5,903,002 as of June
30, 1997 to $6,369,428 as of December 31, 1997. Growth consisted primarily of
loans secured by both owner and non-owner occupied residential real estate,
which increased by $9,700,000. Growth in loans receivable is anticipated to
continue and represents a major part of the Bank's planned asset growth.
Allowance for loan losses decreased $3,207 or 0.1% from $2,177,009 as
of June 30, 1997, to $2,173,802 as of December 31, 1997. The allowance decreased
due to charge-offs in excess of recoveries for the period. The allowance for
loan losses as of December 31, 1997 and June 30, 1997 was 1.3%, and 1.4% of
total loans outstanding. As of December 31, 1997, the allowance for loan losses
was 237.1% 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 $278,000, from
$210,155 as of June 30, 1997 to $488,155 as of December 31, 1997. The properties
in this category include a duplex acquired in July 1996, a single family
residence acquired in June 1997, a four-plex and a six-plex acquired in November
1997, and two automobiles acquired in November 1997. Management believes that
these assets be sold with no further loss to the Bank.
10
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC
Financial Condition (continued)
- -------------------------------
Premises and equipment increased $1,271,437, or 20.3%, from $6,267,157
as of June 30, 1997, to $7,538,594 as of December 31, 1997. 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 $7,645,139 or 5.1%, from $151,246,482 as of June 30,
1997, to $143,601,343 as of December 31, 1997. For the six months ending
December 31, 1997, checking and passbook accounts increased by $4,871,281, or
17.0% while certificates of deposits decreased by $12,516,420, or 10.2%. 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 recent
offering.
FHLB advances decreased to $3,019,918 or 16.6%, from $18,150,844 as of
June 30, 1997 to $15,130,926 as of December 31, 1997. There was a total of
$18,000,000 in FHLB advances which were paid of with the proceeds from the stock
conversion. As of December 31, 1997 the Bank had the ability to borrow an
additional $60.0 million from the FHLB.
Stockholders' equity (including unrealized appreciation on securities
available-for-sale, net of tax) increased $42,050,423, or 153.0%, from
$27,490,155 as of June 30, 1997, to $69,540,578 as of December 31, 1997. 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 $455,441
to stockholders' equity for the quarter. On October 18, 1997 a cash dividend of
$0.22 per share was paid to the stockholders of record of the Bank as of
September 12, 1997.
11
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC
Results of Operations - Comparison of Three Month and
Six Month Periods Ended December 31, 1997 and 1996
Net income for the three months and six months ended December 31, 1997
was $594,788 and $1,111,291, as compared to $453,352 and $203,952 for the three
months and six months ended December 31, 1996 which represents an increase in
earnings of $141,436 or 31.2% for the three month period, and a increase in
earnings of $907,339 or 444.9% for the six month period. The increase in
earnings for the three month and six month period ending December 31, 1997, 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 six months ended
December 31, 1997, increased $526,792 or 14.3% and $968,203 or 13.5% as compared
to the three months and six months ended December 31, 1996. For the six month
period ended December 31, 1997 the average yield on interest earning assets of
8.13% remained the same, while the average balance of interest earnings assets
increased $24,000,000 over the same period one year ago.
Interest Expense
- ----------------
Total interest expense for the three months and six months ended
December 31, 1996, increased $249,692 or 12.1% and $472,022 or 11.7% when
compared to the three months and six months ended December 31, 1996. For the six
month period ended December 31, 1997, the average cost of interest bearing
liabilities decreased 14 basis points to 5.11% while the average balance
increased $23,000,000, when compared to the same period in 1996.
Net Interest Income
- -------------------
Net interest income for the three months and six months ended December
31, 1997, increased $277,100, or 17.2% and $496,181, or 15.8% when compared to
the same period in 1996. This is due primarily to a increase in the spread
between the average yield on interest earning assets, and the average cost of
interest bearing liabilities. This spread increased by 14 basis points to 3.02%
for the six month period ending December 31, 1997, when compared to the same
period in 1996. In addition, average interest earning assets increased by
$1,000,000 more than average interest bearing liabilities did for the six month
period ended December 31, 1997.
12
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC
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 $63,352 for the three months and six
months ended December 31, 1997, respectively. There was no provision for loan
losses recorded for the three months and six months ended December 31, 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 $150,984, or 171.2% and $252,844, or
127.8% for the three months and six months ended December 31, 1997, when
compared to the three months and six months ended December 31, 1996. The
increase was primarily due to a increase in checking account service charges,
which increased $100,101 or 186.7% and $178,808 or 186.6% for the three months
and six months ended December 31, 1997, when compared to the same period in
1996.
Noninterest Expense
- -------------------
Noninterest expense increased $156,135, or 15.9% for the three months
ended December 31, 1997, and decreased $783,702, or 25.8% for the six month
period ending December 31, 1997 when compared to the three months and six months
ended December 31, 1996. The primary cause for the decrease for the six month
period ended December 31, 1997 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 six month period ended December 31, 1996. The total SAIF premiums for
the six month period ending December 31, 1996, was $1,089,693, as compared to
$46,952 for the six month period ending December 31, 1997.
Advertising expense increased $52,146, or 105.2% for the three months
ended December 31, 1996, and increased $96,122, or 103.8% for the six months
ended December 31, 1997, when compared to the same period in 1996. 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.
13
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC
Noninterest Expense, continued
- ------------------------------
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 $100,513 and $562,036 increase in the provision for income
taxes for the three months and six months ended December 31, 1997, as compared
to the same period in 1996. The large increase for the three months ended
December 31, 1997, was primarily due to the increase in pre-tax income when
compared to the same period in 1996. The increase for the six months ended
December 31, 1997, was primarily due to the increase in pre-tax income due to
the FDIC special assessment made 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 December 31,
1997, was $2,173,802 or 1.3% of loans receivable. Total assets classified as
substandard, doubtful, or loss as of December 31, 1997, were $1,902,414 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.
14
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC.
Nonperforming Assets, continued
- -------------------------------
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>
12/31/97 6/30/97 12/31/96
-------- ------- --------
(Dollars In Thousands)
<S> <C> <C> <C>
Nonperforming loans $ 1,392 $ 1,257 $ 172
Real estate acquired in
settlement of loans 488 210 453
---------- ---------- ----------
Total Nonperforming Assets $ 1,808 $ 1,467 $ 625
========== ========== ==========
Total Nonperforming Assets
as a Percentage of Total
Assets 0.81% 0.74% 0.33%
Allowance for loan losses $ 2,173 $ 2,177 $ 2,078
Allowance for loan losses as a
Percentage of average loans, net 1.36% 1.49% 1.41%
</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 December 31, 1997, the Bank's liquidity ratio was 28.7%, 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 December 31, 1997,
the Bank had approximately $2,900,000 in commitments to originate mortgage loans
and $11,438,000 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.
15
<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, after the sale of all of the Common stock registered under
the Offering at $10.00 per share. 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 minimum 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 $740,000 resulting in net proceeds of
$42,668,000 ($43,408,000 minus $740,000) of which $19,981,790 was directly
contributed to the Bank, and $22,686,030 was retained by the Company. Of the
$740,000 in expenses, $150,000 in underwriting commissions and $40,000 in fees
were paid to Friedman, Billings, Ramsey & Co., Inc.
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 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 $740,000 in expenses. The $740,000 in expenses, the
contribution by the Company to the Bank and the amount lent to the Bank by the
Company are reasonable estimates.
16
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC.
PART II
Item 3. Defaults Upon Senior Securities
- ----------------------------------------
Not applicable.
Item 4. Submission of Matters to Vote of Security Holders
- ----------------------------------------------------------
At the annual meeting of stockholders of the subsidiary bank of the
registrant, held on October 18, 1997, the stockholders elected Gary Lipscomb and
George Hall to three-year terms as director of the Savings Bank, while Jack L.
Barham, Wayne V. Barnes and Ivy Rogers and James E. Haseltine continue to serve
as directors. Also at that meeting, Baird, Kurtz, & Dobson was ratified as
Independent Certified Public Accountant. These same entities serve in identical
capacities with the registrant.
At a special meeting, held December 19, 1997, Members of the Mutual
Holding Company and the Public stockholders' of the Bank, approved the Plan of
Conversion and Reorganization.
Item 5. Other Information
- --------------------------
At the December 17, 1997 board meeting, Gerald L. Bos was appointed to
the Board of Directors, for a three-year term.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
a) Exhibits
None.
b) Reports on Form 8-K
None.
17
<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 2/10/98
------------------------------------------------ --------------
James E. Haseltine
President and Chief Executive Officer
(Duly authorized officer)
\S\ Bruce Winston 2/10/98
----------------------------------------------- ----------------
Bruce Winston
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
<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> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 911
<INT-BEARING-DEPOSITS> 20,307
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,204
<INVESTMENTS-CARRYING> 20,598
<INVESTMENTS-MARKET> 20,743
<LOANS> 173,233
<ALLOWANCE> 2,174
<TOTAL-ASSETS> 230,616
<DEPOSITS> 143,601
<SHORT-TERM> 15,131
<LIABILITIES-OTHER> 2,343
<LONG-TERM> 0
0
0
<COMMON> 622
<OTHER-SE> 68,919
<TOTAL-LIABILITIES-AND-EQUITY> 230,616
<INTEREST-LOAN> 7,098
<INTEREST-INVEST> 759
<INTEREST-OTHER> 294
<INTEREST-TOTAL> 8,151
<INTEREST-DEPOSIT> 3,608
<INTEREST-EXPENSE> 4,507
<INTEREST-INCOME-NET> 3,643
<LOAN-LOSSES> 63
<SECURITIES-GAINS> 57
<EXPENSE-OTHER> 2,259
<INCOME-PRETAX> 1,771
<INCOME-PRE-EXTRAORDINARY> 1,771
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,111
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0
<YIELD-ACTUAL> 3.63
<LOANS-NON> 918
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 474
<ALLOWANCE-OPEN> 2,177
<CHARGE-OFFS> 67
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 2,174
<ALLOWANCE-DOMESTIC> 2,174
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1> BASIC EARNINGS PER SHARE
</FN>
</TABLE>
