SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1999
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- 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 File Number: 0-23325
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GUARANTY FEDERAL BANCSHARES, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 43-1792717
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(State or Other Jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification No.)
1341 West Battlefield, Springfield, Missouri 65807
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (417) 889-2494
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.10 per share
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(Title of Class)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based on the average bid and asked prices of the Registrant's
Common Stock as quoted on the National Market of The Nasdaq Stock Market on
September 23, 1999, was $56.4 million (4,908,632 shares at $11.50 per share).
As of September 23, 1999 there were outstanding 5,495,246 shares of the
Registrant's Common Stock.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Annual Report to Stockholders for the fiscal year ended
June 30, 1999. (Parts II and IV)
2. Portions of the Proxy Statement for the 1999 Annual Meeting of
Stockholders. (Part III)
GUARANTY FEDERAL BANCSHARES, INC.
Form 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
Item Page
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PART I
1. Business.......................................................................................4
2. Properties....................................................................................30
3. Legal Proceedings.............................................................................30
4. Submission of Matters to a Vote of Security Holders...........................................30
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters.........................30
6. Selected Financial Data.......................................................................30
7. Management's Discussion and Analysis of Financial Condition and Results of Operations.........30
7A. Quantitative and Qualitative Disclosures About Market Risk....................................30
8. Financial Statements and Supplementary Data...................................................31
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..........31
PART III
10. Directors and Executive Officers of the Registrant............................................31
11. Executive Compensation........................................................................31
12. Security Ownership of Certain Beneficial Owners and Management
13. Certain Relationships and Related Transactions................................................32
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...............................32
</TABLE>
Signatures
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC. (THE "COMPANY") MAY FROM TIME TO TIME
MAKE WRITTEN OR ORAL "FORWARD-LOOKING STATEMENTS", INCLUDING STATEMENTS
CONTAINED IN THE COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION
(INCLUDING THIS ANNUAL REPORT ON FORM 10-K AND THE EXHIBITS THERETO), IN ITS
REPORTS TO STOCKHOLDERS AND IN OTHER COMMUNICATIONS BY THE COMPANY, WHICH ARE
MADE IN GOOD FAITH BY THE COMPANY PURSUANT TO THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, SUCH AS
STATEMENTS OF THE COMPANY'S PLANS, OBJECTIVES, EXPECTATIONS, ESTIMATES AND
INTENTIONS, THAT ARE SUBJECT TO CHANGE BASED ON VARIOUS IMPORTANT FACTORS (SOME
OF WHICH ARE BEYOND THE COMPANY'S CONTROL). THE FOLLOWING FACTORS, AMONG OTHERS,
COULD CAUSE THE COMPANY'S FINANCIAL PERFORMANCE TO DIFFER MATERIALLY FROM THE
PLANS, OBJECTIVES, EXPECTATIONS, ESTIMATES AND INTENTIONS EXPRESSED IN SUCH
FORWARD-LOOKING STATEMENTS: THE STRENGTH OF THE UNITED STATES ECONOMY IN GENERAL
AND THE STRENGTH OF THE LOCAL ECONOMIES IN WHICH THE COMPANY CONDUCTS
OPERATIONS; THE EFFECTS OF, AND CHANGES IN, TRADE, MONETARY AND FISCAL POLICIES
AND LAWS, INCLUDING INTEREST RATE POLICIES OF THE BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM, INFLATION, INTEREST RATES, MARKET AND MONETARY
FLUCTUATIONS; THE TIMELY DEVELOPMENT OF AND ACCEPTANCE OF NEW PRODUCTS AND
SERVICES OF THE COMPANY AND THE PERCEIVED OVERALL VALUE OF THESE PRODUCTS AND
SERVICES BY USERS, INCLUDING THE FEATURES, PRICING AND QUALITY COMPARED TO
COMPETITORS' PRODUCTS AND SERVICES; THE WILLINGNESS OF USERS TO SUBSTITUTE
COMPETITORS' PRODUCTS AND SERVICES FOR THE COMPANY'S PRODUCTS AND SERVICES; THE
SUCCESS OF THE COMPANY IN GAINING REGULATORY APPROVAL OF ITS PRODUCTS AND
SERVICES, WHEN REQUIRED; THE IMPACT OF CHANGES IN FINANCIAL SERVICES' LAWS AND
REGULATIONS (INCLUDING LAWS CONCERNING TAXES, BANKING, SECURITIES AND
INSURANCE); TECHNOLOGICAL CHANGES; DISRUPTION DATA PROCESSING CAUSED BY COMPUTER
MALFUNCTIONS ASSOCIATED WITH THE YEAR 2000 PROBLEM; ACQUISITIONS; CHANGES IN
CONSUMER SPENDING AND SAVING HABITS; AND THE SUCCESS OF THE COMPANY AT MANAGING
THE RISKS RESULTING FROM THESE FACTORS.
THE COMPANY CAUTIONS THAT THE LISTED FACTORS ARE NOT EXCLUSIVE. THE COMPANY
DOES NOT UNDERTAKE TO UPDATE ANY FORWARD-LOOKING STATEMENT, WHETHER WRITTEN OR
ORAL, THAT MAY BE MADE FROM TIME TO TIME BY OR ON BEHALF OF THE COMPANY.
3
<PAGE>
PART I
Item 1. Business
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Business of the Company
The Company is a Delaware-chartered corporation that was created in
September 1997 at the direction of Guaranty Federal Savings Bank (the "Bank").
The Company became the holding company for the Bank on December 30, 1997, in
connection with a plan of conversion and reorganization involving the Bank and
its then existing mutual holding company. The mutual holding company structure
had been created in April 1995 (the "Conversion") at which time more than a
majority of the shares of the Bank were issued to the mutual holding company and
the remainder were sold in a public offering. In connection with the conversion
and reorganization on December 30, 1997, the shares of the Bank held by the
mutual holding company were extinguished along with the mutual holding company
and the shares of the Bank held by the public were exchanged for shares of the
Company. Additional shares of the Company were issued on December 30, 1997.
The Company is a unitary savings and loan holding company which, under
existing laws, generally is not restricted in the types of business activities
in which it may engage provided the Bank retains a specified amount of its
assets in housing-related investments. The Company is not an operating company
and has not engaged in any significant business to date. As such, references
herein to the Bank include the Company unless the context otherwise indicates.
Business of the Bank
The Bank is a Federally-chartered stock savings bank that obtained its
current name in April 1995 at the time it reorganized from a mutual savings
association known as "Guaranty Federal Savings and Loan Association" into a
mutual holding company structure.
The Bank's principal business has been, and continues to be, attracting
retail deposits from the general public and investing those deposits, together
with funds generated from operations, in both permanent and construction one-to
four-family residential mortgage loans, multi-family residential mortgage loans,
commercial real estate loans, and consumer and other loans. The Bank also
invests in mortgage-backed securities, U.S. Government and federal agency
securities and other marketable securities. The Bank's revenues are derived
principally from interest on its loans and other investments and fees charged
for services provided. The Bank's primary sources of funds are: deposits;
borrowings; amortization and prepayments of loan principal; and amortizations,
prepayments and maturing of mortgage-backed securities.
The Bank is regulated by the Office of Thrift Supervision ("OTS") and its
deposits are insured by the Savings Association Insurance Fund ("SAIF") of the
Federal Deposit Insurance Corporation (the "FDIC").
4
<PAGE>
Market Area
The Bank's primary market area is Greene County, which is in the
southwestern corner of Missouri. While the population of Greene County increased
12.4% between 1980 and 1990 and its per capita income grew approximately 32%
between 1985 and 1990, the average per capita income in 1990 still was lower
than the average per capita income for Missouri and the United States.
Springfield has a Metropolitan Statistical Area population of approximately
250,000. The local economy is well diversified with the majority of jobs in
light manufacturing and service industries. There is a large regional health
care presence with two large regional hospitals employing over 8,000. There also
are four accredited colleges and one major university with total enrollment
approaching 25,000. Part of Greene County's growth can be attributed to its
proximity to Branson, Missouri, which has developed a strong tourism industry
related to country music and entertainment. Branson is located 30 miles south of
Springfield, and receives between five and six million tourists each year, many
of whom pass through Springfield.
5
<PAGE>
Lending Activities
Set forth below is selected data relating to the composition of the Bank's
loan portfolio at the dates indicated:
The following table sets forth the dollar amount, before deductions for
unearned discounts, deferred loan costs and allowance for loan losses, at June
30, 1999 of all loans due after June 30, 2000, which have pre-determined
interest rates and which have adjustable interest rates.
Composition of Loan Portfolio
<TABLE>
<CAPTION>
At June 30,
-----------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Dollars Percent Dollars Percent Dollars Percent Dollars Percent Dollars Percent
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(Dollars in Thousands)
Mortgage loans (includes loans held for sale):
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One to four units $178,680 63.28% $148,396 66.27% $116,441 68.11% $ 98,918 68.26% $ 92,104 71.84%
Multi-family 35,795 12.68% 21,536 9.62% 15,457 9.04% 13,701 9.45% 12,169 9.49%
Construction 38,605 13.67% 34,729 15.51% 25,149 14.71% 21,729 14.99% 17,887 13.95%
Commercial real estate 20,771 7.36% 12,721 5.68% 8,323 4.87% 8,739 6.03% 5,162 4.03%
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total mortgage loans 273,851 96.99% 217,382 97.08% 165,370 96.73% 143,087 98.73% 127,322 99.30%
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Commercial business loans 544 0.19% 646 0.29% 383 0.22% 255 0.18% 219 0.17%
Share loans 573 0.20% 623 0.28% 720 0.42% 530 0.37% 522 0.41%
Automobile 2,016 0.71% 2,018 0.90% 1,765 1.03% 1,005 0.69% 106 0.08%
Other 5,389 1.91% 3,251 1.45% 2,727 1.60% 48 0.03% 45 0.04%
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total consumer and other loans 8,522 3.01% 6,538 2.92% 5,595 3.27% 1,838 1.27% 892 0.70%
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total loans 282,373 100.00% 223,920 100.00% 170,965 100.00% 144,925 100.00% 128,214 100.00%
====== ====== ====== ====== ======
Less:
Loans in process 15,466 15,235 10,476 7,572 6,537
Deferred loan fees/costs, net 180 84 (39) (22) (116)
Unearned discounts 109 190 216 238 233
Allowance for loan losses 2,349 2,191 2,177 2,108 1,718
Total Loans, Net $264,269 $206,220 $158,135 $135,029 $119,842
======= ======= ======= ======= =======
</TABLE>
6
<PAGE>
The following table sets forth the dollar amount, before deductions for
unearned discounts, deferred loan costs and allowance for loan losses, at June
30, 1999 of all loans due after June 2000, which have pre-determined interest
rates and which have adjustable interest rates.
Fixed and Adjustable Rate Loans by Type
Adjustable
Fixed Rates Rates Total
----------- ----- -----
(Dollars in Thousands)
One-to four-family $ 56,568 115,267 171,835
Multi-family 10,919 23,707 34,626
Construction 239 2,198 2,437
Commercial real estate 5,151 8,837 13,988
Consumer & other loans 1,349 - 1,349
------- ------- -------
Total loans (1) $ 74,226 150,009 224,235
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(1) Before deductions for unearned discounts, deferred loan costs, net and
allowances for loan losses.
7
<PAGE>
The following table sets forth the Bank's loan originations, purchases,
sales, and principal repayments.
Origination, Purchase and Sale of Loans
Year ended June 30,
-------------------
1999 1998 1997
---- ---- ----
(Dollars in Thousands)
Total gross loans receivable at
beginning of period $ 223,920 $ 170,965 144,925
Loans originated:
One- to- four-family 66,282 66,385 47,942
Multi-family 8,444 19 2,259
Construction 44,503 35,800 28,863
Commercial real estate 10,440 7,793 3,398
Consumer and other 7,643 6,008 4,499
-------- ------- -------
Total loans originated 137,312 116,005 86,961
Loans purchased:
Total loans purchased 7,896 -- --
Loans sold:
Whole loans (10,376) (6,364) (4,134)
Loan principal repayments (61,734) (53,684) (45,924)
other items, net (1) (14,647) (3,002) (10,863)
-------- ------- -------
Net loan activity 58,451 52,955 26,040
Total gross loans receivable at
end of period $ 282,371 $ 223,920 170,965
======== ======== =======
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(1) Includes non-cash portion of loan originations.
8
<PAGE>
The following table sets forth the maturity of the Bank's loan portfolio at
June 30, 1999. The table shows loans that have adjustable-rates as due in the
period during which they contractually mature. The table does not include
prepayments or scheduled principal amortization. Prepayments and scheduled
principal repayments on loans totaled $61.7 million for the year ended June 30,
1999.
Loan Maturities
Due After
Due One Year One Through Due After
or Less Five Years Five Years Total
------- ---------- ---------- -----
(Dollars in thousands)
One to four family $ 6,816 18,896 152,939 178,651
Multi family 1,169 9,929 24,697 35,795
Construction 22,344 818 1,619 24,781
Commercial real estate 5,170 5,355 8,633 19,158
Consumer and other loans 7,173 1,293 56 8,522
------- ------- ------- -------
Total loans (1) $ 42,672 36,291 187,944 266,907
------- ------- ------- -------
Less:
Deferred loan fees/costs 180
Unearned discounts 109
Allowance for loan losses 2,349
-------
Loans receivable net 264,269
=======
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(1) Includes mortgage loans held for sale
One- to Four-Family Mortgage Loans. The Bank offers fixed- and
adjustable-rate first mortgage loans secured by one- to four-family residences
in the Bank's primary lending area. Typically, such residences are single family
homes that serve as the primary residence of the owner. However, there are a
significant number of loans originated by the Bank which are secured by
non-owner occupied properties. Loan originations are generally obtained from
existing or past customers, members of the local community, referrals from
attorneys, established builders, and realtors within the Bank's market area.
Originated mortgage loans in the Bank's portfolio include due-on-sale clauses
which provide the Bank with the contractual right to deem the loan immediately
due and payable in the event that the borrower transfers ownership of the
property without the Bank's consent.
As of June 30, 1999, 63.3% of mortgage loans receivable consisted of one-
to four-family residential loans, of which 65.7% were ARM loans. The Bank
currently offers ARM loans that have fixed interest rates for either one, three
or five years and, following that initial fixed period, adjust annually. The
Bank has also offered ARM loans for which interest rates adjust every one, three
or five years. Generally, ARM loans provide for limits on the maximum interest
rate adjustment ("caps") that can be made at the end of each applicable period
and throughout the duration of the loan. ARM loans are originated for a term of
up to 30 years on owner-occupied properties and generally up to 25 years on
non-owner occupied properties. Typically, interest rate adjustments are
calculated based on U.S. treasury securities adjusted to a constant maturity of
one year (CMT), plus a 2.5% to 2.75% margin. Interest rates charged on
fixed-rate loans are competitively priced based on market conditions and the
cost of funds existing at the time the loan is committed. The Bank's fixed-rate
mortgage loans currently are made for terms of 15 and 30 years.
9
<PAGE>
Generally, ARM loans pose credit risks different from the risks inherent in
fixed-rate loans, primarily because as interest rates rise the underlying
payments of the borrower rise, thereby increasing the potential for default. At
the same time, the marketability of the underlying property may be adversely
affected by higher interest rates. The Bank does not originate ARM loans that
provide for negative amortization.
The Bank generally originates both owner occupied and non-owner occupied
one- to four-family residential mortgage loans in amounts up to 80% of the
appraised value or the selling price of the mortgaged property, whichever is
lower. The Bank may on occasion make loans up to 95% of appraised value or the
selling price of the mortgage property, whichever is lower, however, the Bank
typically requires private mortgage insurance for the excess percentage over 80%
for mortgage loans with loan to value percentages over 80%.
Multi-Family Mortgage Loans. The Bank originates multi-family mortgage
loans in its primary lending area. As of June 30, 1999, $35.8 million or 12.7%
of the Bank's total loan portfolio consisted of multi-family residential loans.
With regard to multi-family mortgage loans, the Bank generally requires personal
guarantees of the principals as well as security interest in real estate.
Multi-family mortgage loans are generally originated in amounts of up to 80% of
the appraised value of the property. The majority of the Bank's multi-family
mortgage loans have been originated with adjustable rate of interest, the
majority of which are tied to the Bank's prime rate. The loan-to-one-borrower
limitation, $8.2 million as of June 30, 1999, is the maximum the Bank will lend
on a multi-family real estate loan. Loans above $500,000 require Board of
Directors approval on a case-by-case basis.
Loans secured by multi-family residential real estate generally involve a
greater degree of credit risk than one- to four-family residential mortgage
loans and carry larger loan balances. This increased credit risk is a result of
several factors, including the concentration of principal in a limited number of
loans and borrowers, the effects of general economic conditions on income
producing properties, and the increased difficulty of evaluating and monitoring
these types of loans. Furthermore, the repayment of loans secured by
multi-family residential real estate is typically dependent upon the successful
operation of the related real estate property. If the cash flow from the project
is reduced, the borrower's ability to repay the loan may be impaired.
Construction Loans. As of June 30, 1999, construction loans totaled $38.6
million or 13.7% of the Bank's total loans outstanding. Construction loans are
made to certain builders for construction of single family homes for resale, as
well as to individuals in connection with long-term, permanent loans to be made
upon completion of the construction. This portfolio predominantly consists of
speculative loans i.e. loans to builders who are speculating that they will be
able to locate a purchaser for the underlying property prior to or shortly after
the time construction has been completed.
The Bank principally finances the construction of single-family homes.
Construction loans are made to contractors who have sufficient financial
strength and a proven track record, for the purpose of resale, as well as on a
"pre-sold" basis. Construction loans made for the purpose of resale generally
provide for interest only payments at fixed rates and have terms of six months
to one year. Construction loans on "pre-sold" homes may convert into a permanent
ARM loan upon completion of construction. Construction loans to a borrower who
will occupy a home, or to a builder who has pre-sold the home, typically have
loan to value ratios of up to 85%. Construction loans for speculative purposes,
models, and commercial properties typically have loan to value ratios of up to
80%. Loan proceeds are disbursed in increments as
10
<PAGE>
construction progresses and as inspections warrant. The Bank employs inspectors
rather than paying title companies for construction disbursement purposes.
Construction lending by its nature entails significant additional risks as
compared with one-to four-family mortgage lending, attributable primarily to the
fact that funds are advanced upon the security of the project under construction
prior to its completion. As a result, construction lending often involves the
disbursement of substantial funds with repayment dependent on the success of the
ultimate project and the ability of the borrower or guarantor to repay the loan.
Because of these factors, the analysis of the prospective construction loan
projects require an expertise that is different in significant respects from
that which is required for residential mortgage lending. The Bank has attempted
to address these risks through its underwriting procedures.
Commercial Real Estate. As of June 30, 1999, the Bank had commercial real
estate loans totaling $20.8 million or 7.4% of the Bank's total loan portfolio.
Commercial real estate loans are generally originated in amounts up to 80% of
the appraised value of the mortgaged property. The majority of the Bank's
commercial real estate loans have been originated with adjustable rate of
interest, the majority of which are tied to the Bank's prime rate. The Bank's
commercial real estate loans are generally permanent loans secured by improved
property such as office buildings, retail stores, small shopping centers,
medical offices, motels, churches and other non-residential buildings. Less than
$4 million in commercial real estate loans are located outside the Bank's market
area.
To originate commercial real estate loans, the Bank generally requires a
security interest in the real estate, personal guarantees of the principals, a
security interest in personal property, and a standby assignment of rents and
leases. The Bank has established its loan-to-one borrower limitation, which was
$8.2 million as of June 30, 1999, as its maximum commercial real estate loan
amount. Commercial loans above $500,000 require Board of Directors approval on a
case-by-case basis. Because of the small number of commercial real estate loans
made, and the relationship of each borrower to the Bank, each such loan has
differing terms and conditions applicable to the particular borrower.
Loans secured by commercial real estate are generally larger and involve a
greater degree of risk than residential mortgage loans. Because payments on
loans secured by commercial real estate are often dependent on successful
operation or management of the properties, repayment of such loans may be
subject, to a greater extent, to adverse conditions in the real estate market or
the economy. The Bank seeks to minimize these risks by careful underwriting,
requiring personal guaranty, lending only to established customers and borrowers
otherwise known to the Bank, and generally restricting such loans to its primary
market area.
At June 30, 1999, the Bank also included approximately $5.0 million in
loans to develop land into residential lots and loans on completed lots in the
commercial real estate loan portfolio. The Bank utilizes its knowledge of the
local market conditions and appraisals to evaluate the development cost, and
estimate projected lot prices and absorption rates to assess loans on
residential subdivisions. The Bank typically loans up to 80% of the appraised
value over terms up to two years. Development loans generally involve a greater
degree of risk than residential mortgage loans because (1) the funds are
advanced upon the security of the land which has a materially lower value prior
to completion of the infrastructure required of a subdivision, (2) the cash flow
available for debt repayment is a function of the sale of the individual lots,
and (3) the interest required to service the debt is a function of the time
required to complete the development and sell the lots.
11
<PAGE>
Consumer and Other Lending. The Bank also offers other loans, primarily loans
secured by certificates of deposit, commercial business assets, consumer loans,
home equity and automobile loans. As of June 30, 1999, $8.5 million or 3.1%, of
the Bank's loan portfolio consisted of such loans. The Bank will continue to
expand its consumer lending as opportunities present themselves.
Loan Approval Authority and Underwriting. All loans must have the approval
of the members of the loan committee which consists of six senior officers. The
loan committee meets periodically to review and approve loans made within the
scope of its authority. Real estate loans in excess of $500,000 require prior
approval by the Board of Directors.
For all loans originated by the Bank, upon receipt of a completed loan
application from a prospective borrower, a credit report is requested, income,
assets, and certain other information are verified and, if necessary, additional
financial information is requested. An appraisal of the real estate intended to
secure the proposed loan is generally required, which currently is performed by
certified appraisers. It is the Bank's policy to obtain appropriate insurance
protection on all real estate first mortgage loans. Borrowers generally must
also obtain hazard insurance prior to closing. Borrowers generally are required
to advance funds for certain items such as real estate taxes, flood insurance
and private mortgage insurance, when applicable.
Delinquencies and Problem Assets.
Delinquent Loans. As of June 30, 1999, the Bank had two loans with total
principal blances of $212,000 that were 90 days or more past due and twelve
loans with total principal balances of $665,000 between 30 and 89 days past due.
The Bank generally does not accrue interest on loans past due more than 90 days.
12
<PAGE>
The following table sets forth the Bank's loans that were 90 days or more
delinquent at the dates indicated.
Delinquency Summary
<TABLE>
<CAPTION>
At June 30,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Loans contractually past due 90 days or more
accounted for on a non-accrual basis:
Mortgage Loans:
One- to four-family $ 110 - 279 - -
Multi-family - - 286 - -
Construction - - 190 273 -
Commercial real estate - - - - 1,882
---- ---- ---- ----- -----
Total mortgage loans 110 - 755 273 1,882
---- ---- ---- ----- -----
Non-mortgage loans:
Commercial loans - - - 120 -
Consumer and other loans - - - - -
---- ---- ---- ----- -----
Total non-mortgage loans - - - 120 -
---- ---- ---- ----- -----
Total 90 days or more past due non-accrual loans 110 - 755 393 1,882
Accruing loans which are contractually past
due 90 days or more:
Mortgage Loans:
One to four family - - - 246 -
Multi family - - - - -
Construction 102 121 113 1,047 -
Commercial real estate - - - 91 -
---- ---- ---- ----- -----
Total mortgage loans 102 121 113 1,384 -
---- ---- ---- ----- -----
Non-mortgage loans:
Commercial loans - - - - -
Consumer and other loans - - - - -
Total non-mortgage loans - - - - -
---- ---- ---- ----- -----
Total 90 days or more past due accruing loans 102 121 113 1,384 -
---- ---- ---- ----- -----
Total 90 days or more past due loans $ 212 121 868 1,777 1,882
==== ==== ==== ===== =====
Total 90 days or more past due loans as a percentage
of net loans 0.08% 0.06% 0.55% 1.32% 1.57%
==== ==== ==== ===== =====
Total 90 days or more past due loans as a percentage
of total assets 0.07% 0.05% 0.44% 0.96% 1.10%
==== ==== ==== ===== =====
</TABLE>
13
<PAGE>
Non-Performing Assets. Loans are reviewed on a regular basis and are placed
on non-accrual status when, in the opinion of management, the collection of
additional interest is doubtful. Mortgage loans are placed on non-accrual status
generally when either principal or interest is more than 90 days past due.
Interest accrued and unpaid at the time a loan is placed on non-accrual status
is charged against interest income.
Real estate acquired by the Bank as a result of foreclosure or by deed in
lieu of foreclosure is deemed a foreclosed asset held for sale until such time
as it is sold. When a foreclosed asset held for sale is acquired it is recorded
at its estimated fair value, less estimated selling expenses. Valuations are
periodically performed by management, and any subsequent decline in fair value
is charged to operations.
As of July 1, 1995, the Bank implemented Statement of Financial Accounting
Standards No. 114 (SFAS 114). While implementation had no material effect on net
income, in accordance with the pronouncement, loans totaling $851,818, net of
the valuation allowance, which were previously classified as in-substance
foreclosures, and reported as part of foreclosed assets held-for-sale were
reclassified to loans along with $199,033 of related allowances for
collectibility.
Prior to the implementation of SFAS 114, the Bank considered collateral for
a loan to be in-substance foreclosed if: (1) the borrower had little or no
equity in the collateral; (ii) proceeds for repayment of the loan could be
expected to come only from the operation or sale of the collateral; and (iii)
the borrower had either formally or effectively abandoned control of the
collateral to the Bank, or retained control of the collateral but was unlikely
to be able to rebuild equity in the collateral or otherwise repay the loan in
the foreseeable future. Cash flow attributable to in-substance foreclosures was
used to reduce the carrying value of the collateral.
14
<PAGE>
The following table shows the principal amount of non-performing assets and
the resulting impact on interest income for the periods then ended.
Non-Performing Assets
<TABLE>
<CAPTION>
As of June 30,
--------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Mortgage Loans:
One-to four-family $ 151 213 279 -- --
Multi family 751 775 286 -- --
Construction -- -- 190 273 --
Commercial real estate -- -- 502 -- 1,882
----- ----- ----- ---- -----
Total mortgage loans 902 988 1,257 273 1,882
----- ----- ----- ---- -----
Non-mortgage loans:
Commercial loans -- -- -- 120 --
Consumer and other loans 4 24 -- -- --
----- ----- ----- ---- -----
Total non-mortgage loans 4 24 -- 120 --
----- ----- ----- ---- -----
Total non-performing loans 906 1,012 1,257 393 1,882
Real estate acquired in settlement of loans 102 286 210 2 2
Non-performing loans classified as in-substance
foreclosures -- -- -- -- 698
----- ----- ----- ---- -----
Total non-performing assets $1,008 1,298 1,467 395 2,584
===== ===== ===== ==== =====
Total non-performing loans as a percentage of
net loans 0.34% 0.49% 0.79% 0.29% 1.57%
Total non-performing assets as a percentage of
total assets 0.32% 0.50% 0.74% 0.21% 1.51%
Impact on interest income for the period
Interest income that would have been recorded on
non-accruing loans $ 10 $ 16 $ 31 $ 15 $ --
</TABLE>
15
<PAGE>
Problem Assets. Federal regulations require that the Bank review and
classify its assets on a regular basis. In addition, in connection with
examinations of insured institutions, OTS examiners have authority to identify
problem assets and, if appropriate, require them to be classified. There are
three classifications for problem assets: substandard, doubtful, and loss.
"Substandard assets" must have one or more defined weaknesses and are
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. "Doubtful assets" have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values, questionable, and there is a high
possibility of loss. An asset classified "loss" is considered uncollectible and
of such little value that continuance as an asset of the institution is not
warranted. The regulations have also created a special mention category,
described as assets which do not currently expose an insured institution to a
sufficient degree of risk to warrant classification but do possess credit
deficiencies or potential weaknesses deserving management's close attention.
Assets classified as substandard or doubtful require the institution to
establish general allowances for loan losses. If an asset or portion thereof is
classified loss, the insured institution must either establish specific
allowances for loan losses in the amount of 100% of the portion of the asset
classified loss or charge off such amount. A portion of general loss allowances
established to cover possible losses related to assets classified substandard or
doubtful may be included in determining an institution's regulatory capital,
while specific valuation allowances for loan losses generally do not qualify as
regulatory capital.
As of June 30, 1999, the Bank had total classified assets of $2.5 million
of which $1.1 million was considered substandard and $124,000 was classified as
loss. Special mention assets totaled $1.3 million as of June 30, 1999.
One borrower is obligated to the Bank on loans secured by first and second
deeds of trust on nine condominium units aggregating approximately $296,000 as
of June 30, 1999. This same borrower also owes the Bank approximately $456,000
secured by a first deed of trust on a multi-family dwelling. Each of these loans
was current as of June 30, 1999. The Bank considers these as impaired because
these properties have not historically generated sufficient cash flow to
properly maintain the properties and service the debt.
As of June 30, 1999, the Bank had $98,000 in real estate obtained through
foreclosure, and $3,000 in other repossessed property. Subsequent to June 30,
1999 both assets were sold with net proceeds in excess of book value.
16
<PAGE>
The following table shows the aggregate amounts of the Bank's classified
assets as of June 30, 1999.
Classification of Assets
<TABLE>
As of June 30, 1999
--------------------
Substandard Doubtful Loss Special Mention
----------- -------- ---- ---------------
Number Amount Number Amount Number Amount Number Amount
------ ------ ------ ------ ------ ------ ------ ------
(Dollars in Thousands)
Loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family 8 $ 227 - - - - 21 1,182
Multi-family 3 680 - - 3 124 - -
Commercial real estate - - - - - - 1 123
Construction and land - - - - - - - -
Other loans 7 65 - - - - - -
---- ---- ---- ---- ---- ---- ---- -----
Total loans 18 $ 972 - - 3 124 22 1,305
==== ==== ==== ==== ==== ==== ==== =====
Foreclosed assets held-for-sale:
One- to four-family 1 $ 98 - - - - - -
Commercial real estate - - - - - - - -
Land and other loans 1 4 - - - - - -
---- ---- ---- ---- ---- ---- ---- -----
Total foreclosed assets 2 102 - - - - - -
---- ---- ---- ---- ---- ---- ---- -----
Total 20 $ 1,074 - - 3 124 22 1,305
==== ==== ==== ==== ==== ==== ==== =====
</TABLE>
17
<PAGE>
Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan
losses based on management's evaluation of the risk inherent in its loan
portfolio and the general economy. Such evaluation, which includes a review of
all loans on which full collectibility may not be reasonably assured, considers
among other matters, the estimated fair value of the underlying collateral,
economic conditions, historical loan loss experience, and other factors that
warrant recognition in providing for an adequate loan loss allowance. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the Bank's allowance for loan losses and valuation
of foreclosed assets held for sale. Such agencies may require the Bank to
recognize additions to the allowance based on their judgments about information
available to them at the time of their examination.
As of June 30, 1999, the Bank's total allowance for loan losses was $2.3
million that amounted to 0.83% of total loans. This allowance reflects not only
management's determination to maintain an allowance for loan losses consistent
with regulatory expectations for non-performing assets, but also reflects the
Bank's policy of evaluating the risks inherent in its loan portfolio, and the
regional economy.
In March 1996 the Bank had $1.2 million of loan recovery on a commercial
loan which was previously partially charged off. The loan recovery represents
amounts recovered in excess of the carrying balance of the loan as reflected by
the original terms of the loan, including accrued interest and previously
charged-off principal. Consequently, the Bank determined that the allowance for
loan losses was sufficient prior to the recovery, and credited the provision for
loan losses. During fiscal year 1997, the Bank again experienced a net recovery
and based on a review discussed above, elected to make no further addition to
the allowance. During fiscal year 1999, the Bank experienced loan charge-offs in
excess of recoveries of $22,000, and based on a review discussed above, elected
to add $180,000 to the allowance. Management anticipates the need to continue
adding to loss reserves through charges to provision for loan losses if growth
in the loan portfolio continues as anticipated.
18
<PAGE>
The following tables set forth certain information concerning the Bank's
allowance for possible loan losses for the periods indicated.
Allowance for Loan Losses
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in Thousands)
Allowance for loan losses:
<S> <C> <C> <C> <C> <C>
Beginning balance $ 2,191 2,177 2,108 1,718 1,703
------ ----- ----- ----- -----
Gross loan charge offs
(non-residential commercial
residential one to four-family) (29) (151) (63) (4) (5)
Recoveries
(residential one to four-family and commercial) 7 42 132 1,407 4
------ ----- ----- ----- -----
Net loans recoveries (charge-offs) (22) (109) 69 1,403 (1)
Provision for loan losses
(charged to expense) 180 123 - (1,212) 16
Allowance reclassified to loans which were previously
classified as insubstance foreclosures - - - 199 -
------ ----- ----- ----- -----
Ending balance $ 2,349 2,191 2,177 2,108 1,718
====== ===== ===== ===== =====
Net charge-offs as a percentage
of average loans, net -0.01% -0.06% 0.05% 1.10% 0.00%
Allowance for loan losses as a
percentage of average loans, net 1.00% 1.24% 1.49% 1.66% 1.52%
Allowance for loan losses as a
percentage to total non-performing loans 259.35% 216.50% 173.19% 536.39% 91.29%
</TABLE>
Allocation of Allowance for Loan Losses
The following table shows the amount of the allowance allocated to each
loan category and the percent of that loan category to total loans.
Allocation of Allowance for Loan Losses
<TABLE>
<CAPTION>
At June 30,
-----------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Amount % Amount % Amount % Amount % Amount %
-------- ------- -------- ------- ------- -------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage Loans $ 2,341 96.99% 2,185 97.08% 2,099 96.73% 2,071 98.73% 1,700 99.30%
Consumer and other loans 8 3.01% 6 2.92% 78 3.27% 37 1.27% 18 0.70%
------ ------ ----- ------ ----- ------ ----- ------ ----- ------
Total $ 2,349 100.00% 2,191 100.00% 2,177 100.00% 2,108 100.00% 1,718 100.00%
====== ====== ===== ====== ===== ====== ===== ====== ===== ======
</TABLE>
19
<PAGE>
Investment Activities
The investment policy of the Company, which is established by the Board of
Directors and reviewed by the Investment Committee, is designed primarily to
provide and maintain liquidity, to generate a favorable return on investments
without incurring undue interest rate and credit risk, and to complement the
Bank's lending activities. The policy currently provides for held-to-maturity
and available-for-sale portfolios. The Company has adopted an investment policy
which strictly prohibits speculation in investment securities. The Company does
not currently engage in trading investment securities and does not anticipate
doing so in the future. As of June 30, 1999, the Company had investment
securities with an estimated fair value of $24.6 million and a carrying value of
$24.3 million. Of those securities $8.9 million, or 36.8%, of the Company's
investment securities portfolio was available-for-sale.
The Company has the authority to invest in various types of liquid assets,
including United States Treasury obligations, securities of various federal
agencies, certain certificates of deposit of insured banks and savings
institutions, certain bankers' acceptances, repurchase agreements, and loans on
federal funds.
20
<PAGE>
The following tables set forth the amortized cost and approximate fair
market values of the available-for-sale securities and held-to-maturity
securities:
Composition of Investment Portfolio
<TABLE>
<CAPTION>
June 30, 1999
-------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gains (Losses) Fair Value
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES:
FHLMC stock $ 94,000 5,474,000 - 5,568,000
Other stock 735,762 106,973 (72,700) 770,035
Mortgage-backed securities 2,644,526 7,168 (38,554) 2,613,140
HELD-TO-MATURITY SECURITIES:
U. S. government agencies 7,442,210 32 (6,800) 7,435,442
Mortgage-backed securities 7,952,433 300,020 (63,913) 8,188,540
----------- --------- -------- ----------
$ 18,868,931 5,888,193 (181,967) 24,575,157
=========== ========= ======== ==========
June 30, 1998
-------------
AVAILABLE-FOR-SALE SECURITIES:
FHLMC stock $ 94,000 4,424,000 - 4,518,000
Other stock 215,697 32,522 (1,198) 247,021
Mortgage-backed securities 9,047,661 7,997 - 9,055,658
HELD-TO-MATURITY SECURITIES:
U. S. government agencies 8,922,389 14,358 (75,747) 8,861,000
Mortgage-backed securities 11,948,654 522,116 (21,770) 12,449,000
----------- --------- -------- ----------
$ 30,228,401 5,000,993 (98,715) 35,130,679
=========== ========= ======== ==========
June 30, 1997
-------------
AVAILABLE-FOR-SALE SECURITIES:
FHLMC stock $ 94,000 3,266,000 - 3,360,000
HELD-TO-MATURITY SECURITIES:
U. S. government agencies 8,585,753 5,143 (217,896) 8,373,000
Mortgage-backed securities 15,813,890 511,722 (234,612) 16,091,000
----------- --------- -------- ----------
$ 24,493,643 3,782,865 (452,508) 27,824,000
=========== ========= ======== ==========
</TABLE>
21
<PAGE>
The following table sets forth certain information regarding the carrying
values, weighted average yields and maturities of the Bank's investment
securities portfolio at June 30, 1999:
Investment Portfolio Maturities and Average Weighted Yields
<TABLE>
<CAPTION>
Weighted
Amortized Average Approximate
Cost Yield Fair Value
---------- -------- -------------
<S> <C> <C> <C>
Due in less than one year (1) $ 6,701,362 7.06% 6,694,562
Due after ten years (1) 740,848 6.00% 740,880
Equity securities not due on
a single maturity date 829,762 0.00% 6,338,035
Mortgage-backed securities not due on a
single maturity date 10,596,959 7.35% 10,801,680
----------- ----- ----------
$ 18,868,931 6.87% 24,575,157
=========== ===== ==========
</TABLE>
- --------------------
(1) Consists of U. S. government agencies
22
<PAGE>
Sources of Funds
General. The Bank's primary sources of funds are deposits, borrowings,
amortization and prepayments on loans and mortgage-backed securities.
Deposits. The Bank offers a variety of deposit accounts having a range of
interest rates and terms. The Bank's deposits principally consist of fixed-term
certificates, passbook savings, money market, individual retirement accounts
("IRAs") and NOW (checking) accounts. The flow of deposits is influenced
significantly by general economic conditions, the restructuring of the thrift
industry, changes in money market and prevailing interest rates and competition.
The Bank's deposits are typically obtained from the areas in which its offices
are located. The Bank relies primarily on customer service and long-standing
relationships with customers to attract and retain these deposits.
The Bank seeks to maintain a high level of stable core deposits by
providing convenient and high quality service through its offices.
23
<PAGE>
The following table sets forth the distribution of the Bank's deposit
accounts at the dates indicated.
Deposit Account Types
<TABLE>
<CAPTION>
As of June 30,
-------------------------------------------------------------------------------------------
1999 1998 1997
---- ---- ----
Average Percentage Average Percentage Average Percentage
Interest of Total Interest of Total Interest of Total
Category Term Rate Amount Deposits Rate Amount Deposits Rate Amount Deposits
- -------- ------ (Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NOW accounts None 1.91% $ 18,068 12.80% 2.24% $ 14,468 10.26% 2.05% 9,386 6.21%
Savings accounts None 2.23% 8,751 6.20% 2.68% 8,658 6.14% 2.80% 8,621 5.70%
Money Market accounts None 3.81% 15,546 11.01% 3.64% 10,587 7.51% 2.98% 8,288 5.48%
Non-interest bearing
demand accounts None 0.00% 4,371 3.10% 0.00% 3,142 2.23% 0.00% 2,334 1.54%
------- ----- ------- ------ ------- ------
Total 46,736 33.11% 36,855 26.14% 28,629 18.93%
------- ----- ------- ------ ------- ------
Certificate of Deposit:
Fixed-rate, fixed-term 1-11 months 4.40% $15,041 10.66% 5.00% 14,169 10.05% 4.96% 16,846 11.14%
Fixed-rate, fixed-term 12-23 months 4.71% 34,874 24.71% 5.19% 38,059 27.00% 5.29% 47,682 31.53%
Fixed-rate, fixed-term 24-35 months 5.14% 21,545 15.27% 5.64% 26,415 18.74% 5.63% 28,485 18.83%
Fixed-rate, fixed-term 36-47 months 5.48% 8,862 6.28% 5.71% 10,147 7.20% 5.77% 12,013 7.94%
Fixed-rate, fixed-term 48-59 months 5.73% 1,784 1.26% 5.98% 1,789 1.27% 5.87% 1,718 1.14%
Fixed-rate, fixed-term 60-71 months 6.09% 7,752 5.49% 6.04% 8,354 5.93% 5.92% 10,615 7.02%
Fixed-rate, fixed-term 72-95 months 6.24% 4,543 3.22% 6.28% 5,187 3.68% 5.92% 5,258 3.48%
------- ----- ------- ------ ------- ------
Total 94,401 66.89% 104,120 73.86% 122,617 81.07%
------- ----- ------- ------ ------- ------
Total Deposits $ 141,137 100.00% 140,975 100.00% 151,246 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
24
<PAGE>
The following table indicates the approximate amount of the Bank's
certificate accounts of $100,000 or more by time remaining until maturity as of
June 30, 1999.
Maturities of Certificates of Deposit of $100,000 or More
At June 30, 1999
----------------------
Maturity Period (Dollars in Thousands)
- ---------------
Three months or less $ 1,679
Over three through six months 835
Over six through twelve months 2,448
Over twelve months 2,277
------
Total $ 7,239
======
Borrowings
Deposits are the primary source of funds for the Bank's lending activities
and other general business purposes. However, during periods when supply of
lendable funds cannot meet the demand for such loans, the FHLB System makes
available, subject to compliance eligibility standards, a portion of the funds
necessary through loans (advances) to its members.
As of June 30, 1999, 1998 and 1997 there were $104.8, $45.1, and $18.2
million outstanding advances from the FHLB, respectively. The weighted average
interest rate on such advances at June 30, 1999 was 5.71%. The average balance
of outstanding advances during 1999, 1998 and 1997, was $80.0 million, $27.6
million and $13.8 million, respectively, and the approximate average interest
rate was 5.90%, 6.13% and 6.09%, respectively. During 1999, 1998 and 1997, the
maximum outstanding at any month end was $104.8, $45.1 million and $21.2
million, respectively.
Subsidiary Activity
The Bank is a subsidiary of the Company. The Bank has one service
corporation subsidiary, Guaranty Financial Services of Springfield, Inc. The
Bank had an investment of $44,000 in its service corporation as of June 30,
1999. The service corporation sells mutual funds, fixed and variable annuities,
unit investment trusts, individual stocks and bonds and life insurance. Such
sales are completed through an agreement with "INVEST" for providing brokerage
services. In addition, the service corporation acts as a real estate broker for
properties owned by the Bank.
25
<PAGE>
Financial Highlights
Year Ended June 30,
-------------------
1999 1998 1997
---- ---- ----
Dividend Payout Ratio
Since conversion December 1997 56% 52% n/a
Return of Average Assets 1.19% 1.25% 0.60%
Return of Average Equity 5.15% 5.81% 4.30%
Stockholders' Equity to Assets 20.25% 27.20% 13.80%
Employees
Substantially, all of the activities of the Company are conducted through
the Bank. At June 30, 1999 the Company had no salaried employees.
As of June 30, 1999, the Bank had 72 full-time employees and 22 part time
employees. None of the Bank's employees are represented by a collective
bargaining group. The Bank believes that its relationship with its employees is
good.
Competition
The Bank experiences substantial competition both in attracting and
retaining deposit accounts and in the making of mortgage and other loans.
Direct competition for savings accounts comes from other savings
institutions, credit unions, regional bank and thrift holding companies and
commercial banks located in its primary market area. Significant competition for
the Bank's other deposit products and services comes from money market mutual
funds, brokerage firms, insurance companies and retail stores. The primary
factors in competing for loans are interest rates and loan origination fees and
the range of services offered by various financial institutions. Competition for
origination of real estate loans normally comes from other savings institutions,
commercial banks, mortgage bankers, mortgage brokers and insurance companies.
The Bank's primary competition comprises the financial institutions near
each of the Bank's branch offices. In the Springfield metropolitan area, where
the Bank's main office and four branch offices are located, primary competition
consists of one thrift institution and 25 commercial banks and 13 credit unions.
The Bank believes it is able to compete effectively in its primary market
area by offering competitive interest rates and loan fees, and a variety of
deposit products, and by emphasizing personal customer service.
26
<PAGE>
Regulation
Set forth below is a brief description of certain laws which relate to the
regulation of the Company and the Bank. The description does not purport to be
complete and is qualified in its entirety by reference to applicable laws and
regulations.
Company Regulation
General. The Company is a unitary savings and loan holding company subject
to regulatory oversight by the OTS. As such, the Company is required to register
and file reports with the OTS and is subject to regulation and examination by
the OTS. In addition, the OTS has enforcement authority over the Company and its
non-savings bank subsidiaries, which also permits the OTS to restrict or
prohibit activities that are determined to be a serious risk to the subsidiary
savings bank. This regulation and oversight is intended primarily for the
protection of the depositors of the Bank and not for the benefit of stockholders
of the Company.
Qualified Thrift Lender Test. As a unitary savings and loan holding
company, the Company generally is not subject to activity restrictions, provided
the Bank satisfies the Qualified Thrift Lender ("QTL") test or a somewhat
similar test for domestic building and loan associations. If the Company
acquires control of another savings association as a separate subsidiary, it
would become a multiple savings and loan holding company, and the activities of
the Company and any of its subsidiaries (other than the Bank or any other
SAIF-insured savings association) would become subject to restrictions
applicable to bank holding companies unless such other associations each also
qualifies as a QTL or domestic building and loan association and were acquired
in a supervisory acquisition. See "- Regulation of the Bank - Qualified Thrift
Lender Test."
Regulation of the Bank
General. As a federally chartered, SAIF-insured savings association, the
Bank is subject to extensive regulation by the OTS and the Federal Deposit
Insurance Corporation ("FDIC"). Lending activities and other investments must
comply with various federal statutory and regulatory requirements. The Bank is
also subject to certain reserve requirements promulgated by the Board of
Governors of the Federal Reserve System.
The OTS, in conjunction with the FDIC, regularly examines the Bank and
prepares reports for the consideration of the Bank's Board of Directors on any
deficiencies that are found in the Bank's operations. The Bank's relationship
with its depositors and borrowers is also regulated to a great extent by federal
and state law, especially in such matters as the ownership of savings accounts
and the form and content of the Bank's mortgage documents.
The Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other savings institutions. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the SAIF and depositors.
The regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes. Any change in such regulations, whether by the OTS, the
27
<PAGE>
FDIC, or the Congress could have a material adverse impact on the Company, the
Bank, and their operations.
Insurance of Deposit Accounts. The deposit accounts held by the Bank are
insured by the SAIF to a maximum of $100,000 for each insured member (as defined
by law and regulation). Insurance of deposits may be terminated by the FDIC upon
a finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
institution's primary regulator.
As a member of the SAIF, the Bank paid an insurance premium to the FDIC
equal to a minimum of 0.23% of its total deposits. The FDIC also maintains
another insurance fund, the Bank Insurance Fund ("BIF"), which primarily insures
commercial bank deposits. In 1996, the annual insurance premium for most BIF
members was lowered to $2,000. The lower insurance premiums for BIF members
placed SAIF members at a competitive disadvantage to BIF members. Effective
September 30, 1996, federal law was revised to mandate a one-time special
assessment on SAIF members such as the Bank of approximately .657% of deposits
held on March 31, 1995. Beginning January 1, 1997, the deposit insurance
assessment for most SAIF members was reduced to .064% of deposits on an annual
basis through the end of 1999. During this same period, BIF members will be
assessed approximately .013% of deposits. After 1999, assessments for BIF and
SAIF members should be the same. It is expected that these continuing
assessments for both SAIF and BIF members will be used to repay outstanding
Financing Corporation bond obligations. As a result of these changes, beginning
January 1, 1997, the rate of deposit insurance assessed the Bank declined by
approximately 70%.
Regulatory Capital Requirements. OTS capital regulations require savings
associations to meet three capital standards: (1) a tangible capital requirement
of 1.5% of total adjusted assets, (2) a leverage ratio (core capital)
requirement of 4% of total adjusted assets and (3) a risk-based capital
requirement equal to 8% of total risk-weighted assets. Regulations that enable
the OTS to take prompt and corrective action against savings associations
effectively impose higher capital requirements on savings associations.
Dividend and Other Capital Distribution Limitations. The Bank must give the
OTS 30 days advance notice of any proposed declaration of dividends to the
Company, and the OTS has the authority under its supervisory powers to prohibit
the payment of dividends to the Company. In addition, the Bank may not declare
or pay a cash dividend on its capital stock if the dividend would (1) reduce the
regulatory capital of the Bank below the amount required for the liquidation
account established in connection with the conversion from mutual to stock form
or (2) reduce the amount of capital of the Bank below the amounts required in
accordance with other OTS regulations. In contrast, the Company has fewer
restrictions on the payment of dividends.
Qualified Thrift Lender Test. Savings institutions must meet either the QTL
test pursuant to OTS regulations or the definition of a domestic building and
loan association in section 7701 of the Internal Revenue Code (the "Code"). If
the Bank maintains an appropriate level of certain specified investments
(primarily residential mortgages and related investments, including certain
mortgage-related securities) and otherwise qualifies as a QTL or a domestic
building and loan association, it will continue to enjoy full borrowing
privileges from the FHLB of Des Moines. The required percentage of
28
<PAGE>
investments under the QTL test is 65% of assets while the Code requires
investments of 60% of assets. A bank must be in compliance with the QTL test or
definition of domestic building and loan association on a monthly basis in nine
out of every 12 months.
Federal Reserve System. The Board of Governors of the Federal Reserve
System requires all depository institutions to maintain non-interest bearing
reserves at specified levels against their transaction accounts (primarily
checking, NOW, and Super NOW checking accounts) and non-personal time deposits.
Executive Officers of the Registrant
Set forth below is information concerning the three executive officers of
the Company.
James E. Haseltine joined the Bank in 1983, and has served as Director,
president and Chief Executive Officer since 1990. Mr. Haseltine has held the
same positions with the Company since its formation in September 1997. After
graduating Drury College in 1968, he entered military service with the U.S. Army
and served in the Republic of Vietnam. He has served as a founding member and
Chairman of the Affordable Housing Action Board of Springfield, Inc., an
organization serving low to moderate income families. He is a licensed real
estate broker.
He is a past president of the Rotary Club of Springfield, serves as
director of the Springfield Business and Development Corporation and the
Springfield Finance and Development Corporation (not for profit community
organizations), and is a member of First and Calvary Presbyterian Church.
William B. Williams joined the Bank in 1995 as Executive Vice President and
Chief Operating Officer. Mr. Williams has held the same positions with the
Company since its formation in September 1997. Prior to joining the Bank, Mr.
Williams worked as a consultant to Midland Loan Services, L.P., a commercial
mortgage banker in Kansas City, Missouri. From 1987 to 1994, Mr. Williams worked
for North American Savings Bank in Grandview, Missouri, most recently as
Executive Vice President and Chief Financial Officer. Mr. Williams received a
BSBA degree from the University of Arkansas in 1969 and after serving as an
officer in the U.S. Navy, he received a MBA degree from Tulane University in
1974. He is a CPA.
Bruce Winston is Vice President and Chief Financial Officer of the Bank. He
joined the Bank in 1992. Mr. Winston has held the same positions with the
Company since its formation in September 1997. Prior to joining the Bank, he
served in various other capacities with two other financial institutions over a
period of 20 years. He is a graduate of Southwest Missouri State University, and
is a member of First Presbyterian Church, where he has served as an Elder and
Treasurer.
At June 30, 1999, the years of age of these individuals was 52 for Mr.
Haseltine, 52 for Mr. Williams and 51 for Mr. Winston.
29
<PAGE>
Item 2. Properties
- ------------------
The offices of the Company are located in the main office of the Bank.
The Bank's office facilities currently consist of the main office in
Springfield, Greene County, Missouri and three full-service branch offices in
Springfield and one in-store branch located in the Walmart Supercenter in Nixa,
Christian County, Missouri. The Bank has a relatively new main office building,
which provides the Bank with a modern office for customer services and projects
Item 3. Legal Proceedings
- -------------------------
The Company and the Bank, from time to time, may be parties to ordinary
routine litigation, which arises in the normal course of business, such as
claims to enforce liens, condemnation proceedings, on properties in which the
Bank holds security interests, claims involving the making and servicing of real
property loans, and other issues incident to the business of the Company and the
Bank. At June 30, 1999, there were no claims or lawsuits pending or known to be
contemplated against the Company or the Bank that would have had a material
effect on the Company or the Bank.
Item 4. Submission of Matters to a Vote of Security Holders
- -------------------------------------------------------------
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
- --------------------------------------------------------------------------------
The information on page 1 of the Annual Report to Stockholders of the
Registrant for the fiscal year ended June 30, 1999 (the "1999 Annual Report") is
incorporated herein by reference.
Item 6. Selected Financial Data
- --------------------------------
The information contained on page 3 of the 1999 Annual Report is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Conditions and Results
of Operations
- --------------------------------------------------------------------------------
The information contained on pages 4 through 14 of the 1999 Annual Report
is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
- --------------------------------------------------------------------
The information contained on pages 10 and 11 under the headings
"Asset/Liability Management" and "Interest Rate Sensitivity Analysis" of the
1999 Annual Report is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
30
<PAGE>
The financial statements set forth on pages 15 to 44 of the 1999 Annual
Report, are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants On Accounting and
Financial Disclosure
- --------------------------------------------------------------------------------
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
The information contained under the section captioned "First Proposal,
Election of Directors" in the proxy statement for the Annual Meeting of
Stockholders to be held October 27, 1999 (the "Proxy Statement") is incorporated
herein by reference.
Additional information concerning executive officers and directors is
included in the Proxy Statement in the section captioned "Section 16(a)
Beneficial Ownership Reporting Compliance" and under "Executive Officers of the
Registrant" in Item 1 of this report.
Item 11. Executive Compensation
- --------------------------------
The information contained in the sections captioned "Directors
Compensation", "Executive Compensation" "Compensation Committee Interlocks and
Insider Participation", "Compensation Committee Report on Executive
Compensation," "Summary Compensation Table," "Employment Agreements," "Option
/SAR Grants in Last Fiscal Year," and "Aggregated Option/SAR Exercises and
Fiscal Year end Option/SAR Values," in the Proxy Statement is incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by reference
to the section captioned "Voting Securities and Principal Holders
Thereof" in the Proxy Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by reference
to the second chart in the section captioned "Voting Securities and
Principal Holders Thereof" in the Proxy Statement.
(c) Not applicable.
31
<PAGE>
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information required by this item is incorporated herein by reference
to the section captioned "Certain Transactions with Related Persons" in the
Proxy Statement.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- ------------------------------------------------------------------------
(a) The following documents are filed as a part of this report:
1. The following financial statements and the report of independent
accountants included in the 1999 Annual Report are incorporated herein by
reference and also in Item 8 of this report.
Independent Accountants' Report
Consolidated Balance Sheets as of June 30, 1999 and 1998.
Consolidated Statements of Income for the Years Ended June 30, 1999,
1998 and 1997.
Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended June 30, 1999, 1998 and 1997.
Consolidated Statements of Cash Flows for the Years Ended June 30,
1999, 1998 and 1997.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedules for which provision is made in the
applicable accounting regulations of the SEC are not required under the related
instructions or are inapplicable and therefore have been omitted.
3. The following exhibits are included in this Report or incorporated
herein by reference:
(a) List of Exhibits:
3(i) Certificate of Incorporation of Guaranty Federal Bancshares,
Inc.*
3(ii) Bylaws of Guaranty Federal Bancshares, Inc.*
10.1 1994 Stock Option Plan**
10.2 Recognition and Retention Plan***
10.3 1998 Stock Option Plan****
10.4 Restricted Stock Plan*****
32
<PAGE>
10.5 Employment Agreements
13 Annual Report to Stockholders for the fiscal year ended June 30,
1999
21 Subsidiaries of the Registrant*
23 Consent of Baird Kurtz & Dobson
27 Financial Data Schedule (Electronic Filing only)
(b) No reports on Form 8-K were filed during the last quarter of the
period covered by this report.
- ---------------------
* Incorporated by reference to the identically numbered exhibit of the Annual
Report on Form 10-K for the fiscal year ended June 30, 1998 (SEC file
number 0-23325).
** Incorporated by reference to Exhibit 10.1 of the Registration Statement on
Form S-1 filed by the Registrant on September 22, 1997 (SEC file number
333-36141).
*** Incorporated by reference to Exhibit 10.2 of the Registration Statement on
Form S-1 filed by the Registrant on September 22, 1997 (SEC file number
333-36141).
**** Incorporated by reference to Exhibit A of the proxy statement for a special
meeting of stockholders held on July 22, 1998 (SEC file number 0-23325).
*****Incorporated by reference to Exhibit B of the proxy statement for a
special meeting of stockholders held on July 22, 1998 (SEC file number
0-23325).
33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: September 23, 1999 By: /s/James E. Haseltine
-----------------------------------------
James E. Haseltine
President and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
By: /s/James E. Haseltine By: /s/Ivy L. Rogers
------------------------------------- ---------------------------------
James E. Haseltine Ivy L. Rogers
President and Chief Executive Officer Director
(Principal Executive Officer)
Date: September 23, 1999 Date: September 23, 1999
By: /s/Bruce Winston By: /s/Gary Lipscomb
------------------------------------- ---------------------------------
Bruce Winston Gary Lipscomb
Vice President and Chief Financial Officer Director
(Principal Accounting and
Financial Officer)
Date: September 23, 1999 Date: September 23, 1999
By: /s/Wayne V. Barnes By: /s/Jack L. Barham
------------------------------------- ---------------------------------
Wayne V. Barnes Jack L. Barham
Director Chairman of the Board and Director
Date: September 23, 1999 Date: September 23, 1999
By: /s/George L. Hall By: /s/Raymond D. Tripp
------------------------------------- ---------------------------------
George L. Hall Raymond D. Tripp
Director Director
Date: September 23, 1999 Date: September 23, 1999
By: /s/Gregory V. Ostergren
-------------------------------------
Gregory V. Ostergren
Director
Date: September 23, 1999
</TABLE>
EXHIBIT 10.5
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is entered into this 1st day of January 1998,
("Effective Date") by and between Guaranty Federal Savings Bank (the "Bank") and
James E. Haseltine (the "Executive").
WITNESSETH
WHEREAS, the Executive has heretofore been employed by the Bank as the
President and is experienced in all phases of the business of the Bank; and
WHEREAS, the Bank desires to be ensured of the Executive's continued
active participation in the business of the Bank; and
WHEREAS, in order to induce the Executive to remain in the employ of
the Bank and in consideration of the Executive's agreeing to remain in the
employ of the Bank, the parties desire to specify the continuing employment
relationship between the Bank and the Executive;
NOW THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereby agree as follows:
1. Employment. The Bank hereby employs the Executive in the capacity of
President. The Executive hereby accepts said employment and agrees to render
such administrative and management services to the Bank and to Guaranty Federal
Bancshares, Inc., the parent holding company ("Parent") as are currently
rendered and as are customarily performed by persons and situated in a similar
executive capacity. The Executive shall promote the business of the Bank and
Parent. The Executive's other duties shall be such as the Board of Directors for
the Bank (the "Board of Directors" or "Board") may from time to time reasonably
direct, including normal duties as an officer of the Bank.
2. Term of Employment. The term of employment of Executive under this
Agreement shall be for the period commencing on the Effective Date and ending
twenty-four (24) months thereafter ("Term"). References herein to the Term of
this Agreement shall refer both to the initial term and successive terms.
3. Compensation, Benefits and Expenses.
(a) Base Salary. The Bank shall compensate and pay the Executive
during the Term of this Agreement a minimum base salary at the rate of $
106,109.00 per annum ("Base Salary"), payable in cash not less frequently than
bi-weekly; provided, that the rate of such salary shall be reviewed by the Board
of Directors not less often than annually, and the Executive shall be entitled
to receive increases at such percentages or in such amounts as
1
<PAGE>
determined by the Board of Directors. The base salary may not de decreased
without the Executive's express written consent.
(b) Discretionary Bonus. The Executive shall be entitled to
participate in an equitable manner with all other senior management employees of
the Bank in discretionary bonuses that may be authorized and declared by the
Board of Directors to its senior management executives from time to time. No
other compensation provided for in this Agreement shall be deemed a substitute
for the Executive's right to participate in such discretionary bonuses when and
as declared by the Board.
(c) Participation in Benefit and Retirement Plans. The Executive
shall be entitled to participate in and receive the benefits of any plan of the
Bank which may be or may become applicable to senior management relating to
pension or other retirement benefit plans, profit-sharing, stock options or
incentive plans, or other plans, benefits and privileges given to employees and
executives of the Bank, to the extent commensurate with his then duties and
responsibilities, as fixed by the Board of Directors of the Bank.
(d) Participation in Medical Plans and Insurance Policies. The
Executive shall be entitled to participate in and receive the benefits of any
plan or policy of the Bank which may be or may become applicable to senior
management relating to life insurance, short and long term disability, medical,
dental, eye-care, prescription drugs or medical reimbursement plans.
(e) Vacations and Sick Leave. The Executive shall be entitled to
paid annual vacation leave in accordance with the policies as established from
time to time by the Board of Directors, which shall in no event be less than
four weeks per annum. The Executive shall also be entitled to an annual sick
leave benefit as established by the Board for senior management employees of the
Bank. The Executive shall not be entitled to receive any additional compensation
from the Bank for failure to take a vacation or sick leave, nor shall he be able
to accumulate unused vacation or sick leave from one year to the next, except to
the extent authorized by the Board of Directors.
(f) Expenses. The Bank shall reimburse the Executive or otherwise
provide for or pay for all reasonable expenses incurred by the Executive in
furtherance of, or in connection with the business of the Bank, including, but
not by way of limitation, automobile and traveling expenses, and all reasonable
entertainment expenses, subject to such reasonable documentation and other
limitations as may be established by the Board of Directors of the Bank. If such
expenses are paid in the first instance by the Executive, the Bank shall
reimburse the Executive therefor.
(g) Changes in Benefits. The Bank shall not make any changes in
such plans, benefits or privileges previously described in Section 3(c), (d) and
(e) which would adversely affect the Executive's rights or benefits thereunder,
unless such change occurs pursuant to a program applicable to all executive
officers of the Bank and does not result in a proportionately greater adverse
change in the rights of, or benefits to, the Executive as compared with any
other executive officer of the Bank. Nothing paid to Executive under any plan or
arrangement presently in effect or made available in the future shall be deemed
to be in lieu of the salary payable to Executive pursuant to Section 3(a)
hereof.
2
<PAGE>
4. Loyalty; Noncompetition
(a) The Executive shall devote his full time and attention to the
performance of his employment under this Agreement. During the term of the
Executive's employment under this Agreement, the Executive shall not engage in
any business or activity contrary to the business affairs or interests of the
Bank or Parent.
(b) Nothing contained in this Section 4 shall be deemed to prevent
or limit the right of Executive to invest in the capital stock or other
securities of any business dissimilar from that of the Bank or Parent, or,
solely as a passive or minority investor, in any business.
5. Standards. During the term of this Agreement, the Executive shall
perform his duties in accordance with such reasonable standards expected of
executives with comparable positions in comparable organizations and as may be
established from time to time by the Board of Directors.
6. Termination and Termination Pay. The Executive's employment under
this Agreement shall be terminated upon any of the following occurrences:
(a) The death of the Executive during the term of this Agreement,
in which event the Executive's estate shall be entitled to receive the
compensation due the Executive through the last day of the calendar month in
which Executive's death shall have occurred.
(b) The Board of Directors may terminate the Executive's
employment at any time, but any termination by the Board of Directors other than
termination for Just Cause, shall not prejudice the Executive's right to
compensation or other benefits under the Agreement. The Executive shall have no
right to receive compensation or other benefits for any period after termination
for Just Cause. The Board may within its sole discretion, acting in good faith,
terminate the Executive for Just Cause and shall notify such Executive
accordingly. Termination for "Just Cause" shall include termination because of
the Executive's personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order, or material
breach of any provision of the Agreement.
(c) Except as provided pursuant to Section 9 hereof, in the event
Executive's employment under this Agreement is terminated by the Board of
Directors without Just Cause, the Bank shall be obligated to continue to pay the
Executive the salary provided pursuant to Section 3(a) herein, up to date of
termination of the remaining Term of this Agreement, but in no event for a
period of less than eighteen (18) months, and the cost of Executive obtaining
all health, life, disability, and other benefits which the Executive would be
eligible to participate in through such date based upon the benefit levels
substantially equal to those being provided Executive at the date of termination
of employment.
(d) The voluntary termination by the Executive during the term of
this Agreement with the delivery of no less than 60 days written notice to the
Board of Director, other than
3
<PAGE>
pursuant to Section 9(b), in which case the Executive shall be entitled to
receive only the compensation, vested rights, and all employee benefits up to
the date of such termination.
7. Regulatory Exclusions.
(a) If the Executive is suspended and/or temporarily prohibited
from participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or 8(g)(1) of the FDIA (12 U.S.C. 1818(e)(3) and (g)(1)), the
Bank's obligations under the Agreement shall be suspended as of the date of
service, unless stayed by appropriate proceedings. If the charges in the notice
are dismissed, the Bank may within its discretion (I) pay the Executive all or
part of the compensation withheld while its contract obligations were suspended
and (ii) reinstate any of its obligations which were suspended.
(b) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Sections 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Bank under this Agreement
shall terminate, as of the effective date of the order, but the vested rights of
the parties shall not be affected.
(c) If the Bank is in default (as defined in Section 3(x)(1) of
FDIA) all obligations under this Agreement shall terminate as of the date of
default, but this paragraph shall not affect any vested rights of the
contracting parties.
(d) All obligations under this Agreement shall be terminated,
except to the extent determined that continuation of this Agreement is necessary
for the continued operation of the Bank: (I) by the Director of the Office of
Thrift Supervision ("Director of OTS"), or his or her designee, at the time that
the Federal Deposit Insurance Corporation ("FDIC") enters into an agreement to
provide assistance to or on behalf of the Bank under the authority contained in
Section 13(c) of FDIA; or (ii) by the Director of the OTS, or his or her
designee, at the time that the Director, of the OTS, or his or her designee
approves a supervisory merger to resolve problems related to operation of the
Bank or when the Bank is determined by the Director of the OTS to be in an
unsafe or unsound condition. Any rights of the parties that have already vested,
however, shall not be affected by such action.
(e) Notwithstanding anything herein to the contrary, any payments
made to the Executive pursuant to the Agreement, or otherwise, shall be subject
to and conditioned upon compliance with 12 USC ss.1828(k) and any regulations
promulgated thereunder.
8. Disability. If the Executive shall become disabled or incapacitated
to the extent that he is unable to perform his duties hereunder, by reason of
medically determinable physical or mental impairment, as determined by a doctor
engaged by the Board of Directors, Executive shall nevertheless continue to
receive the compensation and benefits for a period of 12 months, but not
exceeding the remaining term of the Agreement, and 65% thereafter for the
remainder of the term of the Agreement. Such benefits noted herein shall be
reduced by any benefits otherwise provided to the Executive during such period
under the provisions of disability insurance coverage in effect for Bank
employees. Thereafter, Executive shall be eligible to receive benefits provided
by the Bank under the provisions of disability insurance coverage in effect for
Bank employees. Upon returning to active full-time employment, the Executive's
full
4
<PAGE>
compensation as set forth in this Agreement shall be reinstated as of the date
of commencement of such activities. In the event that the Executive returns to
active employment on other than a full-time basis, then his compensation (as set
forth in Section 3(a) of this Agreement) shall be reduced in proportion to the
time spent in said employment, or as shall otherwise be agreed to by the
parties.
9. Change in Control.
(a) Notwithstanding any provision herein to the contrary, in the
event of the involuntary termination of Executive's employment during the term
of this Agreement following any change in control of the Bank or Parent, absent
Just Cause. Executive shall be paid an amount equal to the product of two times
the Executive's "base amount" as definded in Section 280G(b)(3) of the Internal
Revenue Code of 1986, as amended (the "Code") and regulations promulgated
thereunder. Said sum shall be paid, at the option of Executive, either in one
(1) lump sum within thirty (30) days of such termination discounted to the
present value of such payment using as the discount rate the interest in effect
on one year U.S. Treasury obligations as of the date of payment as reported in
the Wall Street Journal Eastern Edition, or in periodic payments over the next
24 months or the remaining term of this Agreement whichever is less, as if
Executive's employment had not been terminated, and such payments shall be in
lieu of any other future payments which the Executive would be otherwise
entitled to receive under Section 6 of this Agreement. Notwithstanding the
forgoing, all sums payable hereunder shall be reduced in such manner and to such
extent so that no such payments made hereunder when aggregated with all other
payments to be made to the Executive by the Bank or the Parent shall be deemed
an "excess parachute payment" in accordance with Section 280G of the Code and be
subject to the excise tax provided at Section 4999(a) of the Code. The term
"control" shall refer to the ownership, holding or power to vote more than 25%
of the Parent's or Bank's voting stock, the control of the election of a
majority of the Parent's or Bank's directors, or the exercise of a controlling
influence over the management or policies of the Parent or Bank by any person or
by persons acting as a group within the meaning of Section 13(d) of the
Securities Exchange Act of 1934. The term "person" means an individual other
than the Executive, or a corporation, partnership, trust, association, joint
venture, pool, syndicate, sole proprietorship, unincorporated organization or
any other form of entity not specifically listed herein.
(b) Notwithstanding any other provision of this Agreement to the
contrary, Executive may voluntarily terminate his employment during the term of
this Agreement following a change in control of the Bank or Parent, and
Executive shall thereupon be entitled to receive the payment described in
Section 9(a) of this Agreement, upon the occurrence, or within ninety (90) days
thereafter, of any of the following events, which have not been consented to in
advance by the Executive in writing: (I) if Executive would be required to move
his personal residence or perform his principal executive functions more than
thirty-five (35) miles from the Executive's primary office as of the signing of
this Agreement; (ii) if in the organizational structure of the Bank, Executive
would be required to report to a person or persons other than the Board of
Directors of the Bank; (iii) if the Bank should fail to maintain Executive's
base compensation in effect as of the date of the Change in Control and the
existing employee benefits plans, including material fringe benefit, stock
option and retirement plans; (iv) if Executive would be assigned duties and
responsibilities other than those normally associated with his position as
referenced at Section 1, herein; (v) if Executive's responsibilities or
authority have in any way
5
<PAGE>
been materially diminished or reduced; or (vi) if Executive would not be
reelected to the Board of Directors of the Bank.
10. Withholding. All payments required to be made by the Bank hereunder
to the Executive shall be subject to the withholding of such amounts, if any,
relating to tax and other payroll deductions as the Bank may reasonably
determine should be withheld pursuant to any applicable law or regulation.
11. Successors and Assigns.
(a) This Agreement shall inure to the benefit of and be binding
upon any corporate or other successor of the Bank or Parent which shall acquire,
directly or indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the Bank or Parent.
(b) Since the Bank is contracting for the unique and personal
skills of the Executive, the Executive shall be precluded from assigning or
delegating his rights or duties hereunder without first obtaining the written
consent of the Bank.
12. Amendment; Waiver. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing, signed by the Executive and such officer or officers as may be
specifically designated by the Board of Directors of the Bank to sign on its
behalf. No waiver by any part hereto at any time of any breach by any other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
13. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the United States
where applicable and otherwise by the substantive laws of the State of Missouri.
14. Nature of Obligation. Nothing contained herein shall create or
require the Bank to create a trust of any kind to fund any benefits which may be
payable hereunder, and to the extent that the Executive acquires a right to
receive benefits from the Bank hereunder, such right shall be no greater than
the right of any unsecured general creditor of the Bank.
15. Headings. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
16. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of the other
provisions of this Agreement, which shall remain in full force and effect.
17. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the rules then in effect of the district office of the American
Arbitration Association ("AAA") nearest to the home office
6
<PAGE>
of the Bank, and judgment upon the award rendered may be entered in any court
having jurisdiction thereof, except to the extent that the parties may otherwise
reach a mutual settlement of such issue. Further, the settlement of the dispute
to be approved by the Board of the Bank may include a provision for the
reimbursement by the Bank to the Executive for all reasonable costs and
expenses, including reasonable attorneys' fees, arising from such dispute,
proceedings or actions, or the Board of the Bank or the Parent may authorize
such reimbursement of such reasonable costs and expenses by separate action upon
a written action and determination of the Board following settlement of the
dispute. Such reimbursement shall be paid within ten (10) days of Executive
furnishing to the Bank or Parent evidence, which may be in the form, among other
things, of a canceled check or receipt, of any costs or expenses incurred by
Executive.
18. Entire Agreement. This Agreement together with any understanding or
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first hereinabove written.
Guaranty Federal Savings Bank
ATTEST: By s/s James E. Haseltine
---------------------------
s/s E. Lorene Thomas
- ----------------------
Secretary
WITNESS:
s/s James E. Haseltine
- ----------------------------- ---------------------------
James E. Haseltine, Executive
<PAGE>
In addition to the employment agreement with Mr. Haseltine, Guaranty Federal
Savings Bank entered into identical employment agreements as of the same date
with the following eight employees of the bank: William Williams, Bruce Winston,
Kevin Bell, Larry Cruzan, Dana Elwell, Jerry Graham, Carla Green, and Lorene
Thomas. These additional eight contracts provide for the payment of salaries
aggregating $453,500 and each agreement provides for the payment of two times
the employee's "base amount" (as defined in 26 U.S.C. Section 280G(b)(3)) in the
event of a change in control.
EXHIBIT 13
<PAGE>
The common stock of Guaranty Federal Bancshares, Inc., is traded in
the over-the-counter market and quoted on the NASDAQ National
Market. As of August 25, 1999, there were 2,414 stockholders of the
6,245,775 shares of common stock issued and outstanding.
The company paid cash dividends of $0.16 per share on October 15,
1998, to shareholders of record September 8, 1998, and $0.18
per share on April 15, 1999, to shareholders of record as of March 31,
1999
The table below reflects the dividends paid and the range of common
stock closing prices by quarter since conversion.
Fiscal Year Ended June 30, 1999 HIGH LOW DIVIDENDS
Quarter Ended June 30, 1999 $ 11.75 11.00 0.18
Quarter Ended March 31, 1999 11.75 11.06 -
Quarter Ended December 31, 1998 13.38 11.38 0.16
Quarter Ended September 30, 1998 13.13 10.25 -
Fiscal Year Ended June 30, 1998
Quarter Ended June 30, 1998 13.63 12.25 0.15
Quarter Ended March 31, 1998 13.38 12.00 -
1
<PAGE>
Dear Shareholders,
Probably the most difficult task facing financial institutions today is adapting
to the pace of change in the delivery of banking services, and in correctly
assessing the current and future needs of bank customers. One thing is for sure,
the ability to adjust quickly and decisively to changing customer needs, while
simultaneously offering real value to the customer, will provide a substantial
competitive advantage. Guaranty Federal has been in the process of selecting new
core processing software that will provide opportunities for new products and
services for our customers in the coming years, and will have that new
processing system in place by the end of fiscal 2000.
Intensive efforts have been ongoing over the last year to test our existing
computer hardware and software for any problems that might be caused by the year
2000 date change, sometimes called "millennium bug". We have tested balance
carry-forwards, calculations, transfers and payments on various year 2000 dates
and have found only isolated problems, all of which have been resolved. We have
been in contact with all service providers and are comfortable that their
systems will be operational. We have established operational contingency plans
so that the day-to-day operations of the bank can be carried on even in the
event that a service provider experiences a problem. I am confident that January
3, 2000, the first working day in the year, will see operations proceed just as
any other day.
Fiscal year 1999 saw the opening of our first "in-store" branch facility in
Walmart's Supercenter in Nixa, MO., as well as the first closing of a branch
office at Walnut and Jefferson in Springfield, effective July 2nd. The branch
closing was due to physical limitations of the site that prevented expansion of
drive-thru facilities and parking, thus limiting the growth potential of the
office. The "in-store" facility was opened in late January and is currently
ahead of projections. We are excited about the prospects for this office and the
opportunities it represents.
In August, 1998, we implemented a database marketing system to aid in the
selection process for distribution of product information. Since that time we
have increased the number of households served from 11,694 to 12,860 at June 30,
1999, a 9% increase. In addition, we have increased the average number of
services per household.
With 20% growth in assets, and earnings of $0.61 per share ($0.60 fully
diluted), we had a good year. With semiannual dividends of $0.16 and $0.18 per
share, we hope you had a good year as well. Your Board of Directors, Management
and Staff are pleased to present the following report.
Sincerely,
/s/James E. Haseltine
------------------------
James E. Haseltine
President
2
<PAGE>
Selected Consolidated Financial and Other Data
The following tables include certain information concerning the
financial position of Guaranty Federal Bancshares, Inc. (including consolidated
data from operations of subsidiaries) as of the dates indicated. Dollar amounts
are expressed in thousands except per share data.
<TABLE>
<CAPTION>
Summary Statement of Income Years Ended June 30,
------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest income $20,763 17,196 14,711 13,702 11,637
Interest expense 10,703 8,743 8,310 8,239 6,595
-------- ------- ------- ------- -------
Net interest income 10,060 8,453 6,401 5,463 5,042
Provision (credit) for loan losses 180 123 -- (1,212) 16
-------- ------- ------- ------- -------
Net interest income after provision (credit)
for loan losses 9,880 8,330 6,401 6,675 5,026
Noninterest income 1,201 953 530 221 71
Noninterest expense 5,958 4,823 5,105 4,117 3,077
Income before income taxes 5,123 4,460 1,826 2,779 2,020
Provision for income taxes 1,765 1,619 664 1,026 690
-------- ------- ------- ------- -------
Net income $ 3,358 2,841 1,162 1,753 1,330
======= ===== ======= ======= =======
Earnings per share, since conversion December 30, 1997
Basic $ 0.61 0.29 n/a n/a n/a
Diluted $ 0.60 0.29 n/a n/a n/a
Summary Balance Sheet As of June 30,
------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
ASSETS
Cash and cash equivalents $ 9,689 7,305 3,817 2,675 4,350
Investment securities 24,346 34,691 27,760 37,775 37,973
Loans receivable, net 264,269 206,220 158,135 135,029 119,842
Accrued interest receivable 1,757 1,604 1,312 1,381 1,274
Prepaids and other assets 5,672 2,503 1,964 1,913 1,802
Foreclosed assets 101 286 210 2 656
Premises and equipment 7,365 7,433 6,267 6,392 4,987
-------- ------- ------- ------- -------
$313,199 260,042 199,465 185,167 170,884
======== ======= ======= ======= =======
LIABILITIES
Deposits $141,137 140,975 151,246 157,008 139,595
Federal Home Loan Bank advances 104,795 45,081 18,151 -- 4,000
Other liabilities 3,834 3,296 2,578 1,573 1,245
-------- ------- ------- ------- -------
249,766 189,352 171,975 158,581 144,840
STOCKHOLDERS' EQUITY 63,433 70,690 27,490 26,586 26,044
-------- ------- ------- ------- -------
$313,199 260,042 199,465 185,167 170,884
======== ======= ======= ======= =======
Supplemental Data As of June 30,
------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Number of full-service offices 5 5 4 4 3
Cash dividends per share $ 0.34 0.15 n/a n/a n/a
</TABLE>
3
<PAGE>
Management's Discussion and Analysis of Financial Condition
And Results of Operations
GENERAL
Guaranty Federal Bancshares, Inc. (and with its subsidiary, the
"Company") is a Delaware corporation organized on December 30, 1997 for the
purpose of becoming the holding company of Guaranty Federal Savings Bank (the
"Bank").
In April 1995, Guaranty Federal Savings & Loan Association reorganized
from a federally chartered mutual savings and loan association into a mutual
holding company, Guaranty Federal Bancshares, M. H. C. (the "MHC"). Concurrent
with the reorganization, Guaranty Federal Savings Bank (the "Bank"), a stock
savings bank was chartered. In December 1997, the Company completed the
conversion and reorganization of the Bank and the former MHC by selling common
stock to depositors of the Bank and a benefit plan of the Bank. In addition, all
shares of common stock of the Bank held by public stockholders were exchanged
for shares of common stock of the Company. Per share data prior to December 30,
1997 is not presented herein, as the information would not be meaningful.
The Company's principal business consists of attracting deposits from
the general public and using such deposits to originate mortgage loans secured
by one- to four-family residences and, to a lesser extent, multi-family,
construction and commercial real estate loans and consumer and business loans.
The Company also uses these funds to purchase loans secured by one- to
four-family residences, mortgage-backed securities, US government and agency
obligations, and other permissible securities. When cash outflows exceed
inflows, the Company uses borrowings as an additional financing source.
The Company derives revenues principally from interest earned on loans
and investments and, to a lesser extent, from fees charged for services. General
economic conditions and policies of the financial institution regulatory
agencies, including the Office of Thrift Supervision ("OTS") and the Federal
Deposit Insurance Corporation ("FDIC") significantly influence the Company's
operations. Interest rates on competing investments and general market interest
rates influence the Company's cost of funds. Lending activities are affected by
the interest rates at which such financing may be offered. The Company intends
to continue to focus on programs for both one- to four-family lending and
consumer lending throughout southwestern Missouri.
FINANCIAL CONDITION
From June 30, 1998 to June 30, 1999, the Company's total assets
increased $53,156,954 (20%), liabilities increased $60,413,830 (32%), and
stockholders' equity decreased $7,256,876 (10%). The ratio of stockholders'
equity to total assets decreased from 27% to 20%.
Securities available-for-sale decreased $4,869,504 (35%), from
$13,820,679 as of June 30, 1998 to $8,951,175 as of June 30, 1999. The Company
continues to hold 96,000 shares of Federal Home Loan Mortgage Corporation
("FHLMC") stock with an amortized cost of $94,000 in the securities
available-for-sale category. As of June 30, 1999, the gross unrealized gain on
the stock was $5,474,000, an increase of $1,050,000 over the $4,424,000
unrealized gain as of June 30, 1998. Securities held-to-maturity decreased
$5,476,400 (26%), from $20,871,043 as of June 30, 1998 to $15,394,643 as of June
30, 1999. These decreases are attributable to repayments received during the
year and the Company's preference to invest in loans versus lower yielding
securities.
4
<PAGE>
Management's Discussion and Analysis of Financial Condition
And Results of Operations
Net loans receivable increased by $58,085,217 (28%), from $205,414,561
as of June 30, 1998 to $263,499,778 as of June 30, 1999. During this period,
permanent loans secured by both owner and non-owner occupied one to four unit
residential real estate increased by $30,320,023, (21%), multi-family permanent
loans increased by $14,259,413 (66%), construction loans increased by $3,875,808
(11%) and permanent loans secured by commercial real estate increased $8,049,995
(63%). Loans past maturity and past due 90 days or more increased from $120,681
(0% of net loans) as of June 30, 1998 to $211,688 (1% of net loans) as of June
30, 1999. As of June 30, 1999 management considers $905,728 as impaired with a
related allowance for loan losses of $136,287. Growth in loans receivable is
anticipated to continue and represents a major part of the Company's planned
asset growth.
The Bank increased the allowance for loan losses $157,771(7%) in fiscal
year 1999 and $14,548 (1%) in fiscal year 1998. During fiscal year 1999, loan
charge-offs exceeded recoveries by $22,229. During fiscal year 1998, charge-offs
exceeded recoveries by $108,804. The allowance for loan losses as of June 30,
1999, was 0.89% of net loans outstanding versus 1.07% as of June 30, 1998. As of
June 30, 1999, the allowance for loan losses was 259% of impaired loans versus
217% as of June 30, 1998.
Foreclosed assets held for sale as of June 30, 1999 include a
single-family residence and a car. The Bank carries these properties at the
lower of cost or fair value of $101,546. Subsequent to June 30, 1999, the Bank
sold these properties recognizing a minimal gain.
Premises and equipment decreased $67,579 (1%), from $7,432,971 as of
June 30, 1998 to $7,365,392 as of June 30, 1999. During fiscal year 1999, the
Company opened a new location in the Wal-Mart Super Center in Nixa, Missouri.
Subsequent to June 30, 1999, the Company closed its location on East Walnut in
Springfield. This location was not meeting the Company's profit expectations.
During fiscal year 2000, the Company expects to begin construction on a
permanent facility to replace the temporary facility at the same site on South
National in Springfield.
Deposits increased $161,818 (0%), from $140,975,336 as of June 30, 1998
to $141,137,154 as of June 30, 1999. During this period core deposit accounts
increased by $9,880,981 (27%) to 33% of total deposits, while certificates of
deposit decreased by $9,719,163 (9%). 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 deposits can be attributed to management's decision to
allow high cost accounts to run off and replace these funds with FHLB advances
at a lower marginal cost.
As a result of the overall decrease in deposits and the continued
increase in loan demand, the Company increased borrowings from the Federal Home
Loan Bank ("FHLB") by $59,713,612 (132%) from $45,081,028 as of June 30, 1998 to
$104,794,640 as of June 30, 1999. Based on existing collateral the Bank has the
ability to borrow an additional $75,000,000 from the FHLB in the future.
Stockholders' equity (including unrealized appreciation on securities
available-for-sale, net of tax) decreased $7,256,876 (10%), from $70,690,098 as
of June 30, 1998 to $63,433,222 as of June 30, 1999. Net income for the year
exceeded cash dividends paid by $1,553,059. The Company repurchased 173,632
shares for $2,373,065 in order to fund the restricted stock plan approved by
stockholders on July 22, 1998. The Company repurchased 642,127 shares as
treasury stock for $8,132,375. Unrealized appreciation on securities
available-for-sale, net of tax, contributed $626,934 to the increase in
stockholders' equity. On a per share basis, stockholders' equity as of June 30,
1999, was $12.01.
5
<PAGE>
Management's Discussion and Analysis of Financial Condition
And Results of Operations
AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS
The following tables show (1) the average monthly balances of various
categories of interest-earning assets and interest-bearing liabilities, (2) the
total interest earned or paid thereon, and (3) the resulting weighted average
yields and costs. In addition, the table shows the Company's rate spreads and
net yields. Average balances are based on daily balances. Tax-free income is not
material; accordingly, interest income and related average yields have not been
calculated on a tax equivalent basis. Average loan balances include non-accrual
loans. Dollar amounts are expressed in thousands.
<TABLE>
<CAPTION>
June 30, 1999 Year Ended June 30, 1999 Year Ended June 30, 1998 Year Ended June 30, 1997
-------- ---- ------------------------ ------------------------ ------------------------
Yield/ Average Yield/ Average Yield/ Average Yield/
Balance Cost Balance Interest Cost Balance Interest Cost Balance Interest Cost
------- ---- ------- -------- ---- ------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning:
Loans $ 264,269 7.58% $ 235,322 $ 18,617 7.91% $ 177,361 $ 14,875 8.39% $146,468 $ 12,347 8.43%
Investment securities 18,008 7.19% 24,634 1,605 6.52% 22,123 1,529 6.91% 26,911 1,964 7.30%
Other assets 19,615 3.79% 13,808 541 3.92% 17,010 792 4.66% 8,160 400 4.90%
--------- ---- --------- -------- ---- --------- -------- ---- -------- -------- ----
Total interest-earning 301,892 7.31% 273,764 20,763 7.58% 216,494 17,196 7.94% 181,539 14,711 8.10%
Noninterest-earning 11,307 7,701 11,334 8,387
--------- --------- -------- --------- -------- -------- --------
$ 313,199 $ 281,465 $ 227,828 $189,926
========= ========= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing:
Savings accounts $ 8,751 2.23% $ 8,486 206 2.43% $ 8,779 241 2.75% $ 9,191 258 2.81%
Transaction accounts 33,614 2.79% 28,874 789 2.73% 21,950 616 2.81% 13,846 406 2.93%
Certificates of deposit 94,401 5.04% 95,295 4,985 5.23% 110,786 6,112 5.52% 122,219 6,807 5.57%
FHLB advances 104,795 5.71% 79,985 4,723 5.90% 27,630 1,695 6.13% 13,767 839 6.09%
Other borrowed funds - 0.00% - - 0.00% 2,897 79 2.73% - - 0.00%
--------- ---- --------- -------- ---- --------- -------- ---- -------- -------- ----
Total interest-bearing 241,561 4.92% 212,640 10,703 5.03% 172,042 8,743 5.08% 159,023 8,310 5.23%
---- -------- ---- -------- ---- -------- ----
Noninterest-bearing 8,205 3,562 6,863 4,122
--------- --------- --------- --------
Total liabilities 249,766 216,202 178,905 163,145
Stockholders' equity 63,433 65,263 48,923 26,781
--------- --------- --------- --------
$ 313,199 $ 281,465 $ 227,828 $189,926
========= ========= ========= ========
Net earning balance $ 60,331 $ 61,124 $ 44,452 $ 22,516
========= ======== ========= ========
Earning yield less costing
rate 2.39% 2.55% 2.86% 2.87%
==== ==== ==== ====
Net interest income, and
net yield spread on
interest-earning assets 3.38% $ 10,060 3.67% $ 8,453 3.90% $ 6,401 3.53%
==== ======== ==== ======= ==== ======= ====
Ratio of interest-earning
assets to interest-
bearing liabilities 125% 129% 126% 114%
=== === === ===
</TABLE>
6
<PAGE>
Management's Discussion and Analysis of Financial Condition
And Results of Operations
The following table sets forth information regarding changes in
interest income and interest expense for the periods indicated resulting from
changes in average balances and average rates shown above. For each category of
interest-earning assets and interest-bearing liabilities information is provided
with respect to changes attributable to: (i) changes in balance (change in
balance multiplied by the old rate), (ii) changes in interest rates (change in
rate multiplied by the old balance); and (iii) the combined effect of changes in
balance and interest rates (change in balance multiplied by change in rate).
<TABLE>
<CAPTION>
Year Ended June 30, 1999 versus 1998 Year Ended June 30, 1998 versus 1997
----------------------------------------- ------------------------------------------
Rate & Rate &
Balance Rate Balance Total Balance Rate Balance Total
------- ---- ------- ----- ------- ---- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans $ 4,861 (843) (276) 3,742 2,604 (63) (13) 2,528
Investment securitites 174 (88) (10) 76 (349) (104) 18 (435)
Other assets (149) (126) 24 (251) 434 (20) (22) 392
------- ---- ---- ----- ----- ---- --- -----
Net change in interest income 4,886 (1,057) (262) 3,567 2,689 (187) (17) 2,485
------- ---- ---- ----- ----- ---- --- -----
Interest expense:
Savings accounts (8) (28) 1 (35) (12) (6) 1 (17)
Transaction accounts 194 (16) (5) 173 238 (17) (11) 210
Certificates of deposit (855) (317) 45 (1,127) (637) (64) 6 (695)
Advances 3,212 (63) (121) 3,028 845 6 5 856
Other borrowed funds (79) (79) 79 (79) -- -- 79 79
------- ---- ---- ----- ----- ---- --- -----
Net change in interest expense 2,464 (503) (1) 1,960 434 (81) 80 433
------- ---- ---- ----- ----- ---- --- -----
Change in net interest income $ 2,422 (554) (261) 1,607 2,255 (106) (97) 2,052
======= ==== ==== ===== ===== ==== === =====
</TABLE>
RESULTS OF OPERATIONS - COMPARISON OF YEARS ENDED JUNE 30, 1999 AND 1998
Interest Rates. The Company charges borrowers and pays depositors
interest rates that are largely a function of the general level of interest
rates. The following table sets forth the weekly average interest rates on U.S.
Treasury securities for the twelve months ending.
U.S. Treasury Securities
Average for the Twelve Months Ended
------------------------------------------------
Ten-Year Maturity One-Year Maturity Spread
----------------- ----------------- ------
June 30, 1999 5.10% 4.76% 0.34%
June 30, 1998 5.84% 5.44% 0.40%
---- ---- ----
Decrease in interest rates -0.74% -0.68% -0.06%
==== ==== ====
The Company's principal assets are single family home mortgage loans.
Fixed rate mortgage loans are typically priced at a spread over the ten-year U.
S. Treasury securities. The 74 basis point decline in the ten-year treasury for
fiscal year 1999 in addition to the 76 basis point decline in the prior year is
indicative of the decline in the fixed-rates on single family mortgage loans. As
a result, borrowers preferred fixed rate mortgages over adjustable and they took
advantage of the relatively low rates to refinance their home mortgages. During
the year, the average yield on loans decreased 48 basis points from 8.39% to
7.91% and the average yield on all interest-earning assets decreased 36 basis
points from 7.94% to 7.58%.
The Company's principal retail deposit is the certificate of deposit.
Management attempts to price certificates so that the marginal cost of
attracting deposits is equal to the marginal cost of FHLB advances on a
duration-adjusted basis. The average cost of certificates decreased 29 basis
points from 5.52% to 5.23%. During the year, start-up banks in the market area
paid interest rates on certificates of deposit well above comparable maturity
treasury rates. As a result, the Company was unable to reduce the cost of
certificates in line with the overall decline in the general level of interest
rates. The average cost of transaction accounts
7
<PAGE>
Management's Discussion and Analysis of Financial Condition
And Results of Operations
decreased eight basis points from 2.81% to 2.73%. In total, the average cost of
all interest-bearing liabilities decreased five basis points from 5.08% to
5.03%.
The Company's net interest income is materially impacted by the spread
between yields earned on longer-term securities and the cost paid on
shorter-term deposit accounts. At the same time the spread between the ten-year
and one-year treasury was narrowing by six basis points, the Company's spread
between the average yield on interest-earning assets and the average cost of
interest-bearing liabilities decreased by 31 basis points from 2.86% to 2.55%.
Interest Income. Total interest income increased $3,566,448 (21%) as
the average balance of interest-earning assets increased $57,270,000 (26%).
Interest income did not increase in proportion to the increase in average
balances due to the 36 basis point decline in average yield. Interest on loans
increased $3,742,094 (25%) as the average loan receivable balance increased
$57,961,000 (33%) and the average yield declined 48 basis points. To the extent
possible, subject to market conditions and competition, the Company intends to
emphasize loan production and will purchase investment securities or
mortgage-backed securities only if spreads between the asset yield and the
liability cost net an arbitrage profit over a range of potential interest rate
scenarios.
Interest Expense. Total interest expense increased $1,959,663 (22%) as
the average balance of interest-bearing liabilities increased $40,598,000 (24%).
Interest expense increased less than the increase in average balances because
the average cost of interest-bearing liabilities declined by five basis points.
The average balances of transaction accounts increased $6,924,000 (32%) and the
average balances of certificates of deposit decreased $15,491,000 (14%). In
order to fund the increase in assets and decrease in deposits, the Company
borrowed additional funds from the FHLB. The average balance of FHLB advances
increased by $52,355,000 (189%).
Net Interest Income. The Company's net interest income increased
$1,606,785 (19%) from $8,452,879 to $10,702,906. During the year ended June 30,
1999, the average balance of interest-earning assets exceeded the average
balance of interest-bearing liabilities by $61,124,000, an increase in the
average net earning balance of $16,672,000 (38%) due to the net proceeds of the
December 30, 1997 offering.
Provision for Loan Losses. Provisions for loan losses are charged or
credited to earnings to bring the total allowance to a level considered adequate
by the Company to provide for potential loan losses in the existing portfolio.
When making the assessment, the Company considers prior loss experience, volume
and type of lending, industry standards and past due loans in the Company's
portfolio. In addition, the Company considers general economic conditions and
other factors related to collectability of the Company's portfolio.
During fiscal year 1999, the Company experienced loan charge-offs in
excess of recoveries of $22,229 and based on a review as discussed above,
elected to add $180,000 to the allowance. Management anticipates the need to
continue adding to loss reserves through charges to provision for loan losses
based on the anticipated growth in the loan portfolio.
Non-Interest Income. Non-interest income, which consists of service
charges and other fees, income from foreclosed assets and gains or losses on
sale of assets, increased $247,791 (26%) from $953,063 to $1,200,854. This
increase is primarily due to the $267,903 (44%) increase in service charges due
to continued growth in the Company's checking accounts.
Non-Interest Expense. Non-interest expense increased $1,134,891(24%),
from $4,822,499 to $5,957,390. Salaries and employee benefits increased $833,496
(36%) due to the operation of the South National branch for a full year and the
start-up of the Nixa Wal-Mart branch as well as the expenses related to the new
restricted stock plan and employee stock ownership plan. Data processing expense
increased $100,252 (25%) due to the new branches and the overall increase in
accounts served. Other expenses
8
<PAGE>
Management's Discussion and Analysis of Financial Condition
And Results of Operations
increased $138,870 (16%) due primarily to legal fees associated with the two
special stockholder meetings held during the year and the expenses related to
the new restricted stock plan for the directors.
Income Taxes. The change in income tax is a direct result of changes in
the Company's taxable income.
Cash Dividends Paid. The Company paid cash dividends of $0.16 per share
on October 15, 1998, to the stockholders of record as of September 8, 1998. The
Company paid cash dividends of $0.18 per share on April 15, 1999, to the
stockholders of record as of March 31, 1999.
RESULTS OF OPERATIONS - COMPARISON OF YEARS ENDED JUNE 30, 1998 AND 1997
Interest Rates. The following table sets forth the weekly average
interest rates on U.S. Treasury securities for the twelve months ending.
U.S. Treasury Securities
Average for the Twelve Months Ended
-----------------------------------------------
Ten-Year Maturity One-Year Maturity Spread
----------------- ----------------- ------
June 30, 1998 5.84% 5.44% 0.40%
June 30, 1997 6.60% 5.69% 0.91%
---- ---- ----
Decrease in interest rates -0.76% -0.25% -0.51%
==== ==== ====
The 76 basis point decline in the ten-year treasury is indicative of
the decline in the fixed-rates on single family mortgage loans. During the year,
the average yield on loans decreased four basis points from 8.43% to 8.39% and
the average yield on interest-earning assets decreased 16 basis points from
8.10% to 7.94%.
The average cost of certificates decreased five basis points from 5.57%
to 5.52%. During the year, start-up banks in the market area paid interest rates
on certificates of deposit well above comparable maturity treasury rates. As a
result, the Company was unable to reduce the cost of certificates in line with
the overall decline in the general level of interest rates. The average cost of
transaction accounts decreased 12 basis points from 2.93% to 2.81%. In total,
the average cost of interest-bearing liabilities decreased 15 basis points from
5.23% to 5.08%.
At the same time the spread between the ten-year and one-year treasury
was narrowing by 51 basis points, the Company's spread between the average yield
on interest-earning assets and the average cost of interest-bearing liabilities
decreased by one basis point from 2.87% to 2.86%.
Interest Income. Total interest income increased $2,484,837 (17%) as
the average balance of interest-earning assets increased $34,955,000 (19%). Loan
interest increased $2,527,977 (20%) as the average loan receivable balance
increased $30,893,000 (21%). Average balances of investment securities declined
$4,788,000 (18%) during the year as the Company replaced securities with higher
yielding loans.
Interest Expense. Total interest expense increased $433,068 (5%) as the
average balance of interest-bearing liabilities increased $13,019,000 (8%). The
average balances of transaction accounts increased $8,104,000 (59%) and the
average balances of certificates of deposit decreased $11,433,000 (9%). In order
to fund the increase in assets and decrease in deposits, the Company borrowed
additional funds from the FHLB. The average balance of FHLB advances increased
by $13,863,000 (101%).
Net Interest Income. The Company's net interest income increased
$2,051,769 (32%) from $6,401,110 to $8,452,879. During the year ended June 30,
1998, the average balance of interest-earning
9
<PAGE>
Management's Discussion and Analysis of Financial Condition
And Results of Operations
assets exceeded the average balance of interest-bearing liabilities by
$44,452,000, an increase in the average net earning balance of $21,936,000 (97%)
due to the net proceeds of the December 30, 1997 offering.
Provision for Loan Losses. During fiscal year 1998, the Company
experienced loan charge-offs in excess of recoveries of $108,804 and based on a
review as discussed above, elected to add $123,352 to the allowance.
Non-Interest Income. Non-interest income increased $423,262 (80%) from
$529,801 to $953,063. This increase is primarily due to the $340,275 (129%)
increase in service charges due to continued growth in the Company's checking
accounts.
Non-Interest Expense. Non-interest expense decreased $282,132 (6%),
from $5,104,631 to $4,822,499. This decrease was primarily due to a special
one-time assessment in fiscal year 1997 of $931,989 by the Federal Deposit
Insurance Corporation ("FDIC") on all assessable deposits as of March 31, 1995.
Beginning January 1, 1997 deposit premiums declined from an average of 23.4
basis points to an average of 6.4 basis points. Non-interest expense other than
this special assessment increased $649,857 (16%). In general, this increase can
be attributed to the overall increase in accounts served, the addition of our
South National location, and the expenses associated with the December 30, 1997
offering. Salaries and employee benefits increased $280,664 (14%). Occupancy
expense increased $115,985 (18%) due primarily to the opening of a new branch
location in October 1997. Data processing expense increased $38,165 (11%) due to
the increased volume of transactions handled. Advertising expenses increased
$77,641 (24%) which reflects a full year of promoting our checking account
programs. All other expenses increased $254,003 (42%). More specifically, legal
expense increased $44,153 and office supplies increased $69,683.
Income Taxes. The change in income tax is a direct result of changes in
the Company's taxable income.
Cash Dividends Paid. Guaranty Federal Savings Bank paid cash dividends
of $687,500 (3,125,000 shares at $0.22 per share) on October 18, 1997, to the
stockholders of record as of September 12, 1997. The Company paid cash dividends
of $933,842 (6,225,610 shares at $0.15 per share) on April 30, 1998, to the
stockholders of record as of April 3, 1998.
ASSET / LIABILITY MANAGEMENT
The goal of the Bank's asset/liability policy is to manage interest
rate risk so as to maximize net interest income over time in changing interest
rate environments. Management monitors the Bank's net interest spreads (the
difference between yields received on assets and paid on liabilities) and,
although constrained by market conditions, economic conditions, and prudent
underwriting standards, it offers deposit rates and loan rates that maximize net
interest income. Management also attempts to fund the Bank's assets with
liabilities of a comparable duration to minimize the impact of changing interest
rates on the Bank's net interest income. This matching is especially difficult
because the residential mortgage loans that comprise the majority of the Bank's
assets give the borrower the right to prepay at any time. These borrowers act in
their economic self-interest and refinance higher rate loans when rates are low.
Since, the relative spread between financial assets and liabilities is
constantly changing, the Bank's current net interest income may not be an
indication of future net interest income.
The Bank's initial efforts to manage interest rate risk included
implementing an adjustable rate mortgage loan ("ARM") program beginning in the
early 1980s. The ARMs have met with excellent customer acceptance. As of June
30, 1997, ARMs constituted 75% of the Bank's mortgage loan portfolio. However
during fiscal years 1998 and 1999, the general level of long term interest rates
dropped and borrowers opted for fixed rate mortgages. As of June 30, 1999, ARMs
represent 60% of the loan portfolio. Of the ARMs originated during the past two
fiscal years, borrower's preferred initial fixed rate periods of three or five
years. In response to this shift in customer preference, the Bank started a
program of borrowing longer-term
10
<PAGE>
Management's Discussion and Analysis of Financial Condition
And Results of Operations
funds from the FHLB. FHLB advances with maturities over five years increased
$27,133,275 from $25,705,115 as of June 30, 1998 to $52,838,390 as of June 30,
1999.
The Bank is also managing interest rate risk by the origination of
construction loans. As of June 30, 1999, such loans made up 15% of the Bank's
loan portfolio. In general, these loans have higher yields, shorter maturities,
and greater interest rate sensitivity than other real estate loans.
The Bank constantly monitors its deposits in an effort to decrease
their interest rate sensitivity. Rates of interest paid on deposits at the Bank
are priced competitively in order to meet the Bank's asset/liability management
objectives and spread requirements. As of June 30, 1998, the Bank's savings
accounts, checking accounts, and money market deposit accounts totaled
$36,855,202 or 26% of its total deposits. As of June 30, 1999, these accounts
totaled $46,736,183 or 33% of total deposits. The Bank believes, based on
historical experience, that a substantial portion of such accounts represents
non-interest rate sensitive, core deposits.
The value of the Bank's loan portfolio will change as interest rates
change. Rising interest rates will decrease the Bank's net portfolio value,
while falling interest rates increase the value of that portfolio.
INTEREST RATE SENSITIVITY ANALYSIS
The following table sets forth as of June 30, 1999, the OTS estimate of
the projected changes in net portfolio value ("NPV") in the event of 100, 200,
and 300 basis point ("bp") instantaneous and permanent increases and decreases
in market interest rates.
Dollar amounts are expressed in thousands.
Estimated Net Portfolio Value NPV as % of PV of Assets
BP Change -------------------------------- ------------------------
in Rates $ Amount $ Change % Change NPV Ratio BP Change
- -------- -------- -------- -------- --------- ---------
+300 60,719 (4,307) -7% 20.5% -18 bp
+200 63,314 (1,712) -3% 20.9% +22 bp
+100 64,873 (153) 0% 21.0% +31 bp
NC 65,026 20.7%
-100 63,517 (1,509) -2% 19.9% -75 bp
-200 60,740 (4,286) -7% 18.9% -184 bp
-300 57,751 (7,275) -11% 17.7% -298 bp
Computations of prospective effects of hypothetical interest rate
changes are calculated by the OTS from data provided by the Bank and are based
on numerous assumptions, including relative levels of market interest rates,
loan repayments and deposit run-offs, and should not be relied upon as
indicative of actual results. Further, the computations do not contemplate any
actions the Bank may undertake in response to changes in interest rates.
Management cannot predict future interest rates or their effect on the
Bank's NPV in the future. Certain shortcomings are inherent in the method of
analysis presented in the computation of NPV. For example, although certain
assets and liabilities may have similar maturities or periods to repricing, they
may react in differing degrees to changes in market interest rates.
Additionally, certain assets, such as adjustable rate loans, which represent the
Bank's primary loan product, have an initial fixed rate period typically from
one to five years and over the remaining life of the asset changes in the
interest rate are restricted. In addition, the proportion of adjustable rate
loans in the Bank's portfolio could decrease in future periods due to
refinancing activity if market interest rates remain or decrease in the future.
Further, in the event of a change in interest rates, prepayment and early
withdrawal levels could deviate significantly from those assumed in the table.
Finally, the ability of many borrowers to service their adjustable-rate debt may
decrease in the event of an interest rate increase.
The Bank's Board of Directors is responsible for reviewing the asset
and liability policies. The Board meets quarterly to review interest rate risk
and trends, as well as liquidity and capital ratios and requirements.
11
<PAGE>
Management's Discussion and Analysis of Financial Condition
And Results of Operations
The Bank's management is responsible for administering the policies and
determinations of the Board of Directors with respect to the Bank's asset and
liability goals and strategies. Management expects that the Bank's asset and
liability policies and strategies will continue as described above so long as
competitive and regulatory conditions in the financial institution industry and
market interest rates continue as they have in recent years.
LIQUIDITY AND CAPITAL RESOURCES
The Bank is required by OTS regulations to maintain minimum levels of
specified liquid assets equal to 4% of deposits and short-term borrowings. The
Bank's liquidity ratio as of June 30, 1999, was 19.4%.
The Company's principal sources of funds for investments and operations
are net income, deposits from its primary market area, principal and interest
payments on loans and mortgage-backed securities, and proceeds from maturing
investment securities. The Company considers deposits and FHLB advances as
primary sources of funds.
The Company's most liquid assets are cash and cash equivalents, which
are cash on hand, amounts due from financial institutions, and certificates of
deposit with other financial institutions that have an original maturity of
three months or less. The levels of such assets are dependent on the Bank's
operating, financing, and investment activities at any given time. The Company's
cash and cash equivalents totaled $9,689,121 as of June 30, 1999. The variations
in levels of cash and cash equivalents are influenced by deposit flows and
anticipated future deposit flows.
As of June 30, 1999, the Bank had conditional commitments in the form
of a letter of credit in the amount of $263,000. Outstanding loan commitments
were $6,593,000. As of June 30, 1999, the Bank had granted unused lines of
credit to borrowers aggregating approximately $316,000 and $6,945,000 for
commercial lines and open-end consumer lines, respectively. As of June 30, 1999,
the Bank had $65,131,748 in certificates of deposit which were scheduled to
mature in one year or less. It is anticipated that the majority of these
certificates will be renewed in the normal course of operations.
The Bank's capital position of $55,973,000 is 18.0% of total assets as
of June 30, 1999. The Bank has an excess of $47,961,000, $40,303,000, and
$38,840,000 of required regulatory levels of tangible, core, and risk-based
capital, respectively.
Under current regulatory guidelines, the Bank is classified as well capitalized.
During fiscal year 1999, the Company purchased 815,759 shares of common
stock in open market transactions with the intent to grant stock awards for
173,632 shares of common stock in accordance with the Bank's Restricted Stock
Plan and to place 642,127 shares in a treasury stock account. The Company
intends to monitor the common stock price and with regulatory approval may from
time to time initiate further treasury stock transactions in order to improve
the Company's long-term earnings per share while at the same time maintaining an
adequate level of stockholders' equity.
IMPACT OF INFLATION AND CHANGING PRICES
The Company prepared the consolidated financial statements and related
data presented herein in accordance with generally accepted accounting
principles which require the measurement of financial position and operating
results in terms of historical dollars, without considering changes in the
relative purchasing power of money over time due to inflation.
Unlike most companies, the assets and liabilities of a financial
institution are primarily monetary in nature. As a result, interest rates have a
more significant impact on a financial institution's performance than the
effects of general levels of inflation. Interest rates do not necessarily move
in the same direction or in the same magnitude as the price of goods and
services, since such prices are affected by inflation. In the current
12
<PAGE>
Management's Discussion and Analysis of Financial Condition
And Results of Operations
interest rate environment, liquidity and the maturity structure of the Bank's
assets and liabilities are critical to the maintenance of acceptable performance
levels.
impact of new accounting pronouncements
During the year ended June 30, 1999, the Company adopted SFAS 130,
"Reporting Comprehensive Income". This Statement establishes standards for
reporting and display of comprehensive income and its components in a full set
of financial statements.
During the year ended June 30, 1999, the Company adopted SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information." This
Statement establishes standards for the way that public business enterprises
report information about operating segments. The Statement also establishes
standards for related disclosures about products and services, geographic areas
and major customers.
Impact of Year 2000
Rapid and accurate data processing is essential to the Bank's
operations. Many computer programs that can only distinguish the final two
digits of the year entered (a common programming practice in prior years) may
read entries for the year 2000 as the year 1900 or as the year 1980 and
incorrectly attempt to compute payments, interest, delinquency and other data.
The Bank has been evaluating both information technology (computer systems) and
non-information technology systems (e.g., telephone systems, vault timers,
security systems and elevator controls). We have evaluated our risk in three
areas: (1) our own computers, (2) computers of others used by our borrowers,
depositors, and business partners, and (3) computers of others who provide us
with data processing services.
Our own computers. The Bank spent approximately $175,000 ($140,000 for
hardware and $35,000 for software) to upgrade our computer systems. These
upgrades are expected to eliminate the Year 2000 risk in our computers. We do
not expect to have material costs to address this risk area after June 30, 1999.
We believe all of our own computers are Year 2000 compliant.
Computers of others used by borrowers, depositors, and business
partners. The Bank has evaluated most of our material borrowers and depositors
and does not believe that the Year 2000 problem should, on an aggregate basis,
impact their ability to make payments or deposits to the Bank. We believe that
most of our residential customers are not dependent on their home computers for
income and that none of our commercial customers are so large that a Year 2000
problem would render them unable to collect revenue or rent and, in turn,
continue to do business with the Bank. We have solicited our material business
partners regarding their Year 2000 readiness and have received representations
as to their Year 2000 readiness.
Computers of others who provide us with data processing services. This
risk is primarily focused on one, third party service bureau that provides all
of the Bank's core data processing. This service bureau tells us they have
completed program changes required for Year 2000 processing. We acted as a
proxy-testing site for testing those systems. As a result of those tests, we
have no reason not to believe the core processing system will operate in the
Year 2000. If this core processing system does develop problems due to the year
2000, we would likely experience significant delays, mistakes, or failures.
These delays, mistakes, or failures could have a significant impact on our
financial condition and results of operations. To mitigate any such problem, we
have developed business resumption contingency plans to operate without the
benefit of our core processing system until the system can be repaired.
13
<PAGE>
Management's Discussion and Analysis of Financial Condition
And Results of Operations
Contingency Plan. We have identified potential points of failure for
each of our mission critical systems. For each potential failure we have
identified contingency plans. We have tested these plans and intend to evaluate
and update these plans as more information becomes available regarding the
potential risks of the Year 2000 event. Such plans are labor-intensive causing
us to be much less efficient. However, we believe that we would be able to
operate in this manner, with reduced levels of customer service, until our
existing service bureau, or their replacement, is able to again provide data
processing services. If very few financial institution service bureaus are
operating in the year 2000, our replacement costs, assuming we could negotiate
an agreement, could be material.
This discussion of the impact of the Year 2000 is a Year 2000 readiness
disclosure within the meaning of the Year 2000 Readiness and Disclosure Act.
Summary of Unaudited Operating Results
Summary of Unaudited Quarterly Operating Results
<TABLE>
<CAPTION>
Fiscal Year 1999
---------------------------------------------------
September-98 December-98 March-99 June-99
------------ ----------- -------- -------
<S> <C> <C> <C> <C>
Interest income $4,933,889 5,182,991 5,245,700 5,399,990
Interest expense 2,502,163 2,689,717 2,672,703 2,838,323
---------- --------- --------- ---------
Net interest income 2,431,726 2,493,274 2,572,997 2,561,667
Provision for loan losses 45,000 45,000 45,000 45,000
Gain on loans and investment securities 9,750 28,953 8,535 20,984
Other noninterest income, net 261,158 274,467 262,247 334,760
Noninterest expense 1,409,797 1,505,103 1,516,608 1,525,882
---------- --------- --------- ---------
Income before income taxes 1,247,837 1,246,591 1,282,171 1,346,529
Provision for income taxes 449,734 426,162 458,548 430,556
---------- --------- --------- ---------
Net income $ 798,103 820,429 823,623 915,973
========== ========= ========= =========
Basic earnings per share $ 0.14 0.15 0.15 0.17
========== ========= ========= =========
Diluted earnings per share $ 0.14 0.14 0.15 0.17
========== ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year 1998
--------------------------------------------------
September-97 December-97 March-98 June-98
------------ ----------- -------- -------
<S> <C> <C> <C> <C>
Interest income $3,939,502 4,210,294 4,383,799 4,662,527
Interest expense 2,188,158 2,318,489 2,028,113 2,208,483
---------- --------- --------- ---------
Net interest income 1,751,344 1,891,805 2,355,686 2,454,044
Provision for loan losses 33,352 30,000 30,000 30,000
Gain (loss) on loans and investment securities 38,131 19,240 12,295 (799)
Other noninterest income, net 173,335 219,932 240,180 250,749
Noninterest expense 1,120,763 1,138,416 1,245,480 1,317,840
---------- --------- --------- ---------
Income before income taxes 808,695 962,561 1,332,681 1,356,154
Provision for income taxes 292,192 367,773 489,438 469,597
---------- --------- --------- ---------
Net income $ 516,503 594,788 843,243 886,557
========== ========= ========== =======
Basic earnings per share (since conversion) n/a n/a $ 0.14 0.15
========== ==========
Diluted earnings per share (since conversion) n/a n/a $ 0.14 0.15
========== ==========
</TABLE>
14
<PAGE>
Guaranty Federal Bancshares, Inc.
Consolidated Balance Sheets
June 30, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
------ ---- ----
<S> <C> <C>
Cash $ 1,656,648 846,691
Interest-bearing deposits in other financial institutions 8,032,473 6,458,232
------------ -----------
Cash and cash equivalents 9,689,121 7,304,923
Available-for-sale securities 8,951,175 13,820,679
Held-to-maturity securities 15,394,643 20,871,043
Mortgage loans held for sale 769,074 805,183
Loans receivable, net 263,499,778 205,414,561
Accrued interest receivable:
Loans 1,459,508 1,188,162
Investments 297,431 415,982
Prepaid expenses and other assets 5,671,845 2,503,055
Foreclosed assets held for sale 101,546 286,000
Premises and equipment 7,365,392 7,432,971
------------ -----------
$313,199,513 260,042,559
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES
Deposits $ 141,137,154 140,975,336
Federal Home Loan Bank advances 104,794,640 45,081,028
Advances from borrowers for taxes and insurance 1,195,545 870,476
Accrued expenses and other liabilities 499,221 513,943
Accrued interest payable 543,641 256,975
Income taxes payable 235,587 417,532
Deferred income taxes 1,360,503 1,237,171
------------ -----------
249,766,291 189,352,461
------------ -----------
STOCKHOLDERS' EQUITY Common Stock:
$0.10 par value; authorized 10,000,000 shares;
issued; 1999 - 6,245,775 shares, 1998 - 6,228,035 shares 624,578 622,804
Additional paid-in capital 47,366,264 49,016,992
Unearned ESOP shares (3,100,080) (3,444,540)
Retained earnings, substantially restricted 23,236,009 21,682,950
Accumulated other comprehensive income
Unrealized appreciation on available-for-sale securities,
net of income taxes; 1999 - $2,026,448, 1998 - $1,651,429 3,438,826 2,811,892
------------ -----------
71,565,597 70,690,098
Treasury stock, at cost - 642,127 shares in 1999 (8,132,375) -
------------ -----------
63,433,222 70,690,098
------------ -----------
$313,199,513 260,042,559
============ ===========
</TABLE>
See Notes to Consolidated Financial Statements
15
<PAGE>
Guaranty Federal Bancshares, Inc.
Consolidated Statements of Income
Years Ended June 30, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME
Loans $18,616,891 14,874,797 12,346,820
Investment securities 1,604,972 1,528,929 1,964,043
Other 540,707 792,396 400,422
----------- --------- ---------
20,762,570 17,196,122 14,711,285
----------- --------- ---------
INTEREST EXPENSE
Deposits 5,979,900 6,969,284 7,471,093
Federal Home Loan Bank advances 4,723,006 1,694,916 839,082
Other -- 79,043 --
----------- --------- ---------
10,702,906 8,743,243 8,310,175
----------- --------- ---------
NET INTEREST INCOME 10,059,664 8,452,879 6,401,110
PROVISION FOR LOAN LOSSES 180,000 123,352 --
----------- --------- ---------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 9,879,664 8,329,527 6,401,110
----------- --------- ---------
NONINTEREST INCOME
Service charges 872,827 604,924 264,649
Late charges and other fees 113,490 109,200 85,673
Gain on loans and investment securities 68,222 68,867 61,468
Income on foreclosed assets 11,488 14,127 17,896
Other income 134,827 155,945 100,115
----------- --------- ---------
1,200,854 953,063 529,801
----------- --------- ---------
NONINTEREST EXPENSE
Salaries and employee benefits 3,144,373 2,310,877 2,030,213
Occupancy 789,095 769,836 653,851
SAIF deposit insurance:
Special assessment -- -- 931,989
Insurance premiums 84,172 92,558 209,159
Data processing 497,820 397,568 359,403
Advertising 448,203 396,803 319,162
Other expense 993,727 854,857 600,854
----------- --------- ---------
5,957,390 4,822,499 5,104,631
----------- --------- ---------
INCOME BEFORE INCOME TAXES 5,123,128 4,460,091 1,826,280
PROVISION FOR INCOME TAXES 1,765,000 1,619,000 664,500
----------- --------- ---------
NET INCOME 3,358,128 2,841,091 1,161,780
OTHER COMPREHENSIVE INCOME
Unrealized appreciation on
available-for-sale securities 626,934 754,312 798,169
----------- --------- ---------
COMPREHENSIVE INCOME $ 3,985,062 3,595,403 1,959,949
=========== ========= =========
BASIC EARNINGS PER SHARE $ 0.61 0.29(1) n/a
=========== ========= =========
DILUTED EARNINGS PER SHARE $ 0.60 0.29(1) n/a
=========== ========= =========
</TABLE>
(1) Since conversion December 30, 1997
See Notes to Consolidated Financial Statements
16
<PAGE>
Guaranty Federal Bancshares. Inc.
Consolidated Statements of Cash Flows
Years Ended June 30, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,358,128 2,841,091 1,161,780
Items not requiring (providing) cash:
Deferred income taxes (251,687) (22,258) 22,000
Depreciation 444,467 469,532 441,367
Provision for loan losses 180,000 123,352 --
Gain on loans and investment securities (68,222) (68,867) (61,468)
Gain on sale of premises and equipment -- -- (5,169)
(Gain) loss on sale of foreclosed assets 4,820 (15,231) (9,921)
Amortization of deferred income,
premiums and discounts 14,181 (77,945) (220,135)
RRP/RSP expense 510,286 92,407 106,197
Origination of loans held for sale (10,271,583) (6,152,677) (6,626,148)
Proceeds from sale of loans held for sale 10,375,914 6,364,053 4,134,389
Release of ESOP shares 414,385 -- --
Changes in:
Accrued interest receivable (152,795) (292,583) 69,448
Prepaid expenses and other assets (183,090) (539,181) (11,357)
Accrued expenses and other liabilities 271,944 (26,754) 283,466
Income taxes payable (158,391) 113,685 131,141
--------- --------- --------
Net cash provided by (used in) operating activities 4,488,357 2,808,624 (584,410)
--------- --------- --------
</TABLE>
17
<PAGE>
Guaranty Federal Bancshares, Inc.
Consolidated Statements of Cash Flows (continued)
Years Ended June 30, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of loans (7,895,901) -- --
Net increase in loans (50,158,557) (48,620,302) (20,918,542)
Principal payments on held-to-maturity securities 3,992,371 3,881,091 4,300,576
Principal payments on available-for-sale securities 6,413,840 -- --
Purchase of available-for-sale securities (520,065) (13,875,905) --
Purchase of premises and equipment (376,888) (406,548) (337,112)
Proceeds from sale of premises and equipment -- -- 25,500
Proceeds from sales of available-for-sale securities -- -- 5,318,175
Proceeds from maturitites of held-to-maturity securities 1,385,715 4,345,229 1,739,461
Purchase of FHLB stock (2,985,700) -- --
Proceeds from sale of foreclosed assets 30,690 317,855 362,900
Capitalized costs on foreclosed assets -- -- (90,167)
------------ --------- ---------
Net cash used in investing activities (50,114,495) (54,358,580) (9,599,209)
------------ --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock, net -- 39,216,426 --
Stock options exercised 106,792 58,971 --
Cash dividends paid (1,805,069) (1,621,342) (1,187,500)
Cash dividends received on RRP Stock 13,554 15,780 11,987
Net increase in demand deposits,
NOW accounts and savings accounts 9,880,981 8,738,851 4,944,356
Net decrease in certificates of deposit (9,719,163) (18,497,200) (10,705,764)
Proceeds from FHLB advances 64,092,500 61,050,000 31,163,750
Repayments of FHLB advances (4,378,888) (34,119,816) (13,012,906)
Advances from borrowers for taxes and insurance 325,069 195,858 99,132
Reduction of shares in RRP Trust -- -- 13,358
RSP stock purchased (2,373,065) -- --
Treasury stock purchased (8,132,375) -- --
------------ --------- ---------
Net cash provided by financing activities 48,010,336 55,037,528 11,326,413
------------ --------- ---------
INCREASE IN CASH
AND CASH EQUIVALENTS 2,384,198 3,487,572 1,142,794
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 7,304,923 3,817,351 2,674,557
------------ --------- ---------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 9,689,121 7,304,923 3,817,351
============ ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
18
<PAGE>
Guaranty Federal Bancshares, Inc.
Consolidated Statements of Change in Stockholder's Equity Years Ended June 30,
1999, 1998 and 1997
<TABLE>
<CAPTION>
Accumulated Other
Comprehensive Income -
Additional Unearned Unrealized Appreciation
Paid-In ESOP Treasury Retained Available-for-Sale
Common Stock Capital Shares Stock Earnings Securities, Net Total
------------ ------- ------ ----- -------- --------------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1996 $ 3,125,000 3,555,814 - - 18,645,939 1,259,411 26,586,164
Net income - - - - 1,161,780 - 1,161,780
Dividends on common stock,
($0.38 per share) - - - - (1,187,500) - (1,187,500)
Recognition and Retention
Plan ("RRP") expense - 106,197 - - - - 106,197
Dividends received on RRP
stock - 11,987 - - - - 11,987
Reduction of shares in
RRP Trust - 13,358 - - - - 13,358
Change in unrealized
appreciation on
available-for-sale
securitites, net of
income taxes of $468,000 - - - - - 798,169 798,169
---------- ---------- ---------- ---------- ---------- --------- ----------
Balance, June 30, 1997 3,125,000 3,687,356 - - 18,620,219 2,057,580 27,490,155
Net income - - - - 2,841,091 - 2,841,091
Dividends on common stock,
($0.22 per share on
3,125,000 shares &
$0.15 per share on
6,225,610 shares) - - - - (1,621,342) - (1,621,342)
Dividends received on
RRP stock - 15,780 - - - - 15,780
Recognition and Retention
Plan expense - 92,407 - - - - 92,407
Stock redeemed and stock
issued under plan
of conversion to stock
ownership, net (2,502,868) 45,130,921 (3,444,540) - - - 39,183,513
Transfer from MHC - - - - 1,842,982 - 1,842,982
Stock options exercised 672 58,299 - - - - 58,971
Tax benefit of RRP shares - 32,229 - - - - 32,229
Change in unrealized
appreciation on
available-for-sale
securitites, net of
income taxes of $443,429 - - - - - 754,312 754,312
---------- ---------- ---------- ---------- ---------- --------- ----------
Balance, June 30, 1998 622,804 49,016,992 (3,444,540) - 21,682,950 2,811,892 70,690,098
Net income - - - - 3,358,128 - 3,358,128
Dividends on common stock,
($0.34 per share) - - - - (1,805,069) - (1,805,069)
Dividends received on
RRP stock - 13,554 - - - - 13,554
Recognition and Retention
Plan & Restricted
Stock Plan ("RSP")expense - 510,286 - - - - 510,286
Stock options exercised 1,774 105,018 - - - - 106,792
RSP stock purchased (2,373,065) - - - - (2,373,065)
Treasury stock purchased - - - (8,132,375) - - (8,132,375)
Release of ESOP shares - 69,925 344,460 - - - 414,385
Tax benefit of RRP shares - 23,554 - - - - 23,554
Change in unrealized
appreciation on
available-for-sale
securitites, net of
income taxes of $375,019 - - - - - 626,934 626,934
---------- ---------- ---------- ---------- ---------- --------- ----------
Balance, June 30, 1999 $ 624,578 47,366,264 (3,100,080) (8,132,375) 23,236,009 3,438,826 63,433,222
========== ========== ========== ========== ========== ========= ==========
</TABLE>
19
<PAGE>
Notes to Consolidated Financial Statements
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Organization
- ------------
In April 1995, Guaranty Federal Savings & Loan Association reorganized
from a federally chartered mutual savings and loan association into a mutual
holding company, Guaranty Federal Bancshares, M. H. C. (the "MHC"). Concurrent
with the reorganization, Guaranty Federal Savings Bank (the "Bank"), a stock
savings bank was chartered. The Bank issued 3,125,000 shares of common stock in
connection with the reorganization, the majority of which were owned by the MHC
(see Note 15).
Guaranty Federal Bancshares, Inc. (the "Company") 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. In connection with the conversion and reorganization, the
shares of the Bank held by the mutual holding company were extinguished along
with the mutual holding company and the shares of the Bank held by the public
were exchanged for shares of the Company. Additional shares of the Company were
issued as of December 30, 1997 (see Note 16).
Nature of Operations
- --------------------
The Company operates as a unitary savings and loan holding company. The
Bank is primarily engaged in providing a full range of banking and mortgage
services to individual and corporate customers in southwest Missouri. The Bank's
subsidiary provides other services, such as insurance, annuities, and securities
brokerage. The Bank is subject to competition from other financial institutions.
The Company and the Bank are also subject to the regulation of certain federal
agencies and undergo periodic examinations by those regulatory authorities.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, the Bank, and the Bank's wholly-owned
subsidiary, Guaranty Financial Services of Springfield, Inc. All significant
intercompany profits, transactions and balances have been eliminated in
consolidation.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant
change relate to the determination of the allowance for loan losses and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowance for
loan losses and the valuation of foreclosed assets held for sale, management
obtains independent appraisals for significant properties.
Management believes that the allowances for losses on loans and
valuation of foreclosed assets held for sale are adequate. While management uses
available information to recognize losses on loans and value foreclosed assets
held for sale, changes in economic conditions may necessitate revision of these
estimates in future years. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the Bank's
allowances for losses on loans and valuation of foreclosed assets held for sale.
Such agencies may require the Bank to recognize additional losses based on their
judgments of information available to them at the time of their examination.
20
<PAGE>
Notes to Consolidated Financial Statements
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
Cash and Investments in Debt and Equity Securities
- --------------------------------------------------
Regulations require the Bank to maintain an amount equal to 4.0% of
savings deposits (net of loans on savings deposits) plus short-term borrowings
in cash and U. S. government and other approved securities.
Available-for-sale securities, which include any security for which the
Company or the Bank has no immediate plan to sell but which may be sold in the
future, are carried at fair value. Realized gains and losses, based on
specifically identified amortized cost of the specific security, are included in
other income. Unrealized gains and losses are recorded, net of related income
tax effects, in stockholders' equity. Premiums and discounts are amortized and
accreted, respectively, to interest income using the level-yield method over the
period to maturity.
Held-to-maturity securities, which include any security for which the
Company or the Bank has the positive intent and ability to hold until maturity,
are carried at historical cost adjusted for amortization of premiums and
accretion of discounts. Premiums and discounts are amortized and accreted,
respectively, to interest income using the level-yield method over the period to
maturity.
Interest and dividends on investments in debt and equity securities are
included in income when earned.
Mortgage Loans Held for Sale
- ----------------------------
Mortgage loans held for sale are carried at the lower of cost or fair
value, determined using an aggregate basis. Write-downs to fair value are
recognized as a charge to earnings at the time the decline in value occurs.
Forward commitments to sell mortgage loans are sometimes acquired to reduce
market risk on mortgage loans in the process of origination and mortgage loans
held for sale. Gains and losses resulting from sales of mortgage loans are
recognized when the respective loans are sold to investors. Gains and losses are
determined by the difference between the selling price plus the value of
retained servicing rights for loans originated after July 1, 1996, and the
carrying amount of the loans sold, net of discounts collected or paid and
considering a normal servicing rate. Fees received from borrowers to guarantee
the funding of mortgage loans held for sale and fees paid to investors to ensure
the ultimate sale of such mortgage loans are recognized as income or expense
when the loans are sold or when it becomes evident that the commitment will not
be used.
Loans
- -----
Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-offs are reported at their
outstanding principal adjusted for any charge-offs, the allowance for loan
losses and any deferred fees or costs on originated loans and unamortized
premiums or discounts on purchased loans.
Loan Servicing
- --------------
The cost of originated mortgage-servicing rights is amortized over the
shorter of the actual or contractual loan life. Impairment of mortgage-servicing
rights is assessed based on the fair value of those rights. Fair values are
estimated using discounted cash flows based on a current market rate. For
purposes of measuring impairment, the rights are stratified based on the
prepayment risk characteristics of the underlying loan. The predominant
characteristic currently used for stratification is type of loan. The amount of
impairment recognized is the amount by which the capitalized mortgage servicing
rights for a stratum exceed their fair value.
21
<PAGE>
Notes to Consolidated Financial Statements
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
Allowance for Loan Losses
- -------------------------
The allowance for loan losses is increased by provisions charged to
expense and reduced by provisions credited to expense and loans charged off, net
of recoveries. The allowance is maintained at a level considered adequate to
provide for potential loan losses, based on the Bank's evaluation of the loan
portfolio, as well as on prevailing and anticipated economic conditions and
historical losses by loan category. General allowances have been established,
based upon the aforementioned factors, and allocated to the individual loan
categories. Allowances are accrued on specific loans evaluated for impairment
for which the basis of each loan, including accrued interest, exceeds the
discounted amount of expected future collections of interest and principal or,
alternatively, the fair value of loan collateral.
A loan is considered impaired when it is probable that the Bank will
not receive all amounts due according to the contractual terms of the loan. This
includes loans that are delinquent ninety days or more (nonaccrual loans) and
certain other loans identified by management. Accrual of interest is
discontinued, and interest accrued and unpaid is removed, at the time such
amounts are delinquent ninety days. Interest is recognized for nonaccrual loans
only upon receipt.
Foreclosed Assets Held for Sale
- -------------------------------
Assets acquired by foreclosure or in settlement of debt and held for
sale are valued at estimated fair value as of the date of foreclosure, and a
related valuation allowance is provided for estimated costs to sell the assets.
Management evaluates the value of foreclosed assets held for sale periodically
and increases the valuation allowance for any subsequent declines in fair value.
Changes in the valuation allowance and gains/losses on sales of foreclosed
assets are included in noninterest income.
Premises and Equipment
- ----------------------
Depreciable assets are stated at cost less accumulated depreciation.
Depreciation is charged to expense using the straight-line and accelerated
methods over the estimated useful lives of the assets.
Fee Income
- ----------
Loan origination fees, net of direct origination costs, are recognized
as income over the term of the loan using the level-yield method. Loan servicing
income represents fees earned for servicing real estate mortgage loans owned by
various investors.
Income Taxes
- ------------
Deferred tax liabilities and assets are recognized for the tax effect
of differences between the financial statement and tax bases of assets and
liabilities. A valuation allowance is established to reduce deferred tax assets
if it is more likely than not that a deferred tax asset will not be realized.
Cash Equivalents
- ----------------
The Bank considers all highly liquid interest-bearing deposits in other
financial institutions with an initial maturity of three months or less to be
cash equivalents.
22
<PAGE>
Notes to Consolidated Financial Statements
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
Regulatory Matters
- ------------------
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory--possibly additional
discretionary--actions by regulators that, if undertaken, could have a direct
and material effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set forth in
the table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined) and of Tier I capital (as defined) to adjusted
tangible assets (as defined). Management believes, as of June 30, 1999, that the
Bank meets all capital adequacy requirements to which it is subject.
As of June 30, 1999, the most recent notification from the Office of
Thrift Supervision categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized
the Bank must maintain minimum total risk-based, Tier I risk-based and Tier I
leverage ratios as set forth in the following table. There are no conditions or
events since that notification that management believes have changed the Bank's
category.
23
<PAGE>
Notes to Consolidated Financial Statements
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
The Bank's actual capital amounts and ratios are also presented in the
table. No amount was deducted from capital for interest-rate risk. Dollar
amounts are expressed in thousands.
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposed Action Provisions
------ ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1999:
Stockholders' equity,
and ratio to total assets $ 55,973 18.0%
Unrealized appreciation on
available-for-sale securities (3,417)
--------
Tangible capital,
and ratio to adjusted total assets $ 52,556 17.2% $ 4,595 1.5%
======== ==== ======= ===
Tier 1 (core) capital,
and ratio to adjusted total assets $ 52,556 17.2% $ 12,253 4.0% $ 15,316 5.0%
======== ==== ======== === ======== ===
Tier 1 (core) capital,
and ratio to risk-weighted assets $ 52,556 26.3% $ 11,956 6.0%
======== ===
Allowance for loan losses -
Tier 2 capital 2,225
--------
Total risk-based capital,
and ratio to risk-weighted assets $ 54,781 27.5% $ 15,941 8.0% $ 19,926 10.0%
======== ==== ======== === ======== ====
Total assets $311,761
========
Adjusted total assets $306,318
========
Risk-weighted assets $199,261
========
</TABLE>
24
<PAGE>
Notes to Consolidated Financial Statements
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposed Action Provisions
------ ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1998:
Stockholders' equity,
and ratio to total assets $ 51,908 20.1%
Unrealized appreciation on
available-for-sale securities (2,792)
--------
Tangible capital,
and ratio to adjusted total assets $ 49,116 19.3% $ 3,812 1.5%
======== ==== ======= ===
Tier 1 (core) capital,
and ratio to adjusted total assets $ 49,116 19.3% $ 10,166 4.0% $ 12,707 5.0%
======== ==== ======== === ======== ===
Tier 1 (core) capital,
and ratio to risk-weighted assets $ 49,116 30.5% $ 9,648 6.0%
======= ===
Allowance for loan losses -
Tier 2 capital 2,010
--------
Total risk-based capital,
and ratio to risk-weighted assets $ 51,126 31.8% $ 12,864 8.0% $ 16,080 10.0%
======== ==== ======== === ======== ====
Total assets $258,566
========
Adjusted total assets $254,142
========
Risk-weighted assets $160,804
========
</TABLE>
The amount of dividends that the Bank may pay is subject to various
regulatory limitations. As of June 30, 1999, approximately $4,903,000 was
available from the Bank's retained earnings, without regulatory approval, for
distribution as dividends.
25
<PAGE>
Notes to Consolidated Financial Statements
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
Earnings Per Share
- ------------------
As more fully described in the Note 16, the Company had no operations
prior to December 30, 1997 and earnings per share information for the common
stock of the Bank prior to this date has not been presented because the
information would not be meaningful.
The computation for earnings per share for the year ended June 30, 1999
and for the six-month period ended June 30, 1998 since conversion is as follows:
<TABLE>
<CAPTION>
For year ended June 30, 1999
-----------------------------------------------------------
Income Shares Per-share
<S> <C> <C> <C>
Basic EPS
Income available to common stockholders $ 3,358,128 5,507,285 $ 0.61
Effect of Dilutive Securities
Stock Options 56,865
----------- ---------
Income available to common stockholders $ 3,358,128 5,564,150 $ 0.60
=========== ========= ======
</TABLE>
<TABLE>
<CAPTION>
For six months ended June 30, 1998
------------------------------------------------------------
Income Shares Per-share
<S> <C> <C> <C>
Basic EPS
Income available to common stockholders $ 1,729,800 5,879,791 $ 0.29
Effect of Dilutive Securities
Stock Options 73,341
----------- ---------
Income available to common stockholders $ 1,729,800 5,953,132 $ 0.29
=========== ========= ======
</TABLE>
Reclassifications
- -----------------
Certain 1998 and 1997 amounts have been reclassified to conform to the
1999 financial statements presentation. These reclassifications had no effect on
net income.
Impact of Recent Accounting Pronouncements
- ------------------------------------------
During the year ended June 30, 1999, the Company adopted SFAS 130,
"Reporting Comprehensive Income". This Statement establishes standards for
reporting and display of comprehensive income and its components in a full set
of financial statements.
During the year ended June 30, 1999, the Company adopted SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information." This
Statement establishes standards for the way that public business enterprises
report information about operating segments. The Statement also establishes
standards for related disclosures about products and services, geographic areas
and major customers.
The FASB recently adopted SFAS 133, "Accounting for Derivative
Financial Instruments and Hedging Activities." This Statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
SFAS 133 is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000, may be adopted early for periods beginning after issuance of the
Statement and may not be applied retroactively. The Company does not expect to
adopt SFAS 133 early. Management believes that the adoption of SFAS 133 will not
have a material impact on the Company's financial statements.
26
<PAGE>
Notes to Consolidated Financial Statements
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
Segment Information
- -------------------
The principal business of the Company is overseeing the business of the
Bank. The Company has no significant assets other than its investment in the
Bank, certain investment securities, and land held for the future use of the
Company's banking operation. The banking operation is the Company's only
reportable segment. The banking segment is principally engaged in the business
of originating mortgage loans secured by one-to-four family residences and, to a
lesser extent, multi-family, construction and commercial real estate loans and
consumer loans. These loans are funded primarily through the attraction of
deposits from the general public and borrowings from the Federal Home Loan Bank.
Selected information is not presented separately for the Company's reportable
segment, as there is no material difference between that information and the
corresponding information in the consolidated financial statements.
NOTE 2: INVESTMENTS IN DEBT AND EQUITY SECURITIES
The amortized cost and approximate fair values of available-for-sale
securities are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gains (Losses) Fair Value
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
As of June 30, 1999:
Equity Securities:
FHLMC stock $ 94,000 5,474,000 - 5,568,000
Other stock 735,762 106,973 (72,700) 770,035
Debt Securities:
Mortgage-backed securities 2,644,526 7,168 (38,554) 2,613,140
----------- --------- ------ ----------
$ 3,474,288 5,588,141 (111,254) 8,951,175
=========== ========= ======== =========
As of June 30, 1998:
Equity Securities:
FHLMC stock $ 94,000 4,424,000 - 4,518,000
Other stock 215,697 32,522 (1,198) 247,021
Debt Securities:
Mortgage-backed securities 9,047,661 7,997 - 9,055,658
----------- --------- ------ ----------
$ 9,357,358 4,464,519 (1,198) 13,820,679
=========== ========= ====== ==========
</TABLE>
Maturities of available-for-sale debt securities as of June 30, 1999:
Amortized Approximate
Cost Fair Value
---- ----------
Mortgage-backed securities not due on a
single maturity date $2,644,526 $2,613,140
========== ==========
27
<PAGE>
Notes to Consolidated Financial Statements
NOTE 2: INVESTMENTS IN DEBT AND EQUITY SECURITIES, (Continued)
The amortized cost and approximate fair values of held-to-maturity
securities are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gains (Losses) Fair Value
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
As of June 30, 1999:
Debt Securities:
U. S. government agencies $ 7,442,210 32 (6,800) 7,435,442
Mortgage-backed securities 7,952,433 300,020 (63,913) 8,188,540
----------- ------- ------- ----------
$15,394,643 300,052 (70,713) 15,623,982
=========== ======= ======= ==========
As of June 30, 1998:
Debt Securities:
U. S. government agencies $ 8,922,389 14,358 (75,747) 8,861,000
Mortgage-backed securities 11,948,654 522,116 (21,770) 12,449,000
----------- ------- ------- ----------
$20,871,043 536,474 (97,517) 21,310,000
=========== ======= ======= ==========
</TABLE>
Maturities of held-to-maturity securities as of June 30, 1999:
Amortized Approximate
Cost Fair Value
------------ -----------
Due in less than one year $ 6,701,362 6,694,562
Due after ten years 740,848 740,880
Mortgage-backed securities not due on a
single maturity date 7,952,433 8,188,540
------------ ----------
$ 15,394,643 15,623,982
============ ==========
There were no sales of available-for-sale securities for the years
ended June 30, 1999 and 1998. Proceeds from sales of available-for-sale
securities were $5,318,175 for the year ended June 30, 1997, with resultant
gross gains of $27,897 and gross losses of $102.
Included in mortgage-backed securities at June 30, 1999, are certain U.
S. Government agency derivative securities with an amortized cost of $4,645,000
and an approximate fair value of $4,606,000. The yield on these derivative
securities varies with the level of certain published interest rates,
principally LIBOR.
28
<PAGE>
Notes to Consolidated Financial Statements
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES
Categories of loans at June 30, 1999 and 1998, include:
1999 1998
---- ----
Real estate - residential mortgage:
One to four family units $ 177,910,309 147,590,286
Multi-family 35,795,361 21,535,948
Real estate - construction 38,605,137 34,729,329
Real estate - commercial 20,771,388 12,721,393
Commercial loans 543,923 646,156
Installment loans 7,404,534 5,268,955
Loans on savings accounts 573,151 622,916
------------- -----------
281,603,803 223,114,983
Undisbursed portion of loans-in-process (15,465,766) (15,234,620)
Allowance for loan losses (2,349,328) (2,191,557)
Unearned discounts (109,040) (190,594)
Deferred loan fees/costs, net (179,891) (83,651)
------------- -----------
$ 263,499,778 205,414,561
============= ===========
Transactions in the allowance for loan losses were as follows:
1999 1998 1997
---- ---- ----
Balance, beginning of year $ 2,191,557 2,177,009 2,108,059
Provision charged to operations 180,000 123,352 --
Loans charged off (29,229) (150,649) (62,768)
Recoveries 7,000 41,845 131,718
----------- --------- ---------
Balance, end of year $ 2,349,328 2,191,557 2,177,009
=========== ========= =========
The weighted average interest rate on loans at June 30, 1999 and 1998
was 7.58% and 7.95%, respectively.
The Bank serviced mortgage loans for others amounting to $21,402,788,
$15,970,974 and $14,165,126 as of June 30, 1999, 1998 and 1997, respectively.
Impaired loans totaled $905,728 as of June 30, 1999, and $1,011,873 as
of June 30, 1998 with a related allowance for loan losses of $136,287 and
$151,965, respectively. As of June 30, 1999 and 1998, respectively, impaired
loans of $0 and $220,488 had no related allowance for loan losses.
Interest of $72,078, $111,950 and $66,676 was recognized on average
impaired loans of $895,131 $1,290,853 and $1,342,217 for 1999, 1998 and 1997
respectively. Interest of $64,827, $96,622 and $0 was recognized on impaired
loans on a cash basis during 1999, 1998 and 1997, respectively.
29
<PAGE>
Notes to Consolidated Financial Statements
NOTE 4: FORECLOSED ASSETS HELD FOR SALE
Foreclosed assets held for sale consist of the following:
1999 1998 1997
---- ---- ----
Foreclosed real estate $101,546 286,000 210,155
Valuation allowance -- -- --
-------- ------- -------
$101,546 286,000 210,155
======== ======= =======
NOTE 5: PREMISES AND EQUIPMENT
Major classifications of premises and equipment, stated at cost, are as
follows:
1999 1998
---- ----
Land $ 2,222,243 2,222,243
Buildings and improvements 5,361,945 5,357,027
Furniture, fixtures and equipment 1,850,224 1,607,647
Leasehold improvements 129,393 --
Automobiles 20,243 20,243
----------- ---------
9,584,048 9,207,160
Accumulated depreciation (2,218,656) (1,774,189)
----------- ---------
$ 7,365,392 7,432,971
=========== =========
Depreciation expense was $444,467, $469,532 and $441,367 for the years
ended June 30, 1999, 1998 and 1997, respectively.
30
<PAGE>
Notes to Consolidated Financial Statements
NOTE 6: DEPOSITS
<TABLE>
<CAPTION>
June 30, 1999 June 30, 1998
------------------------------------- -----------------------------------------
Weighted Percentage Weighted Percentage
Average Rate Balance of Deposits Average Rate Balance of Deposits
------------ ------- ----------- ------------ ------- -----------
Core Deposits:
<S> <C> <C> <C> <C> <C> <C>
Demand 0.00% $ 4,370,785 3.1% 0.00% $ 3,142,007 2.2%
NOW 1.91% 18,067,755 12.8% 2.24% 14,468,104 10.3%
Money market 3.81% 15,546,291 11.0% 3.64% 10,587,222 7.5%
Passbook savings 2.23% 8,751,353 6.2% 2.68% 8,657,869 6.1%
------------ ----- ------------ -----
2.43% 46,736,183 33.1% 2.55% 36,855,202 26.1%
------------ ----- ------------ -----
Certificates:
0% - 3.99% 3.94% 662,967 0.5% - 0.0%
4.00% - 5.99% 4.91% 85,833,748 60.8% 5.35% 95,138,774 67.5%
6.00% - 7.99% 6.50% 7,904,256 5.6% 6.35% 8,981,360 6.4%
------------ ----- ------------ -----
5.04% 94,400,971 66.9% 5.44% 104,120,134 73.9%
------------ ----- ------------ -----
Total Deposits 4.17% $141,137,154 100.0% 4.68% $140,975,336 100.0%
============ ===== ============ =====
</TABLE>
The aggregate amount of certificates of deposit with a minimum balance
of $100,000 was approximately $7,239,000 and $5,872,000 as of June 30, 1999 and
1998, respectively.
A summary of certificates of deposit by maturity as of June 30, 1999,
is as follows:
Fiscal year ending:
June 30, 2000 $ 65,131,748
June 30, 2001 19,826,374
June 30, 2002 5,971,321
June 30, 2003 1,791,532
June 30, 2004 1,385,636
Thereafter 294,360
------------
$ 94,400,971
============
A summary of interest expense on deposits is as follows:
1999 1998 1997
NOW and Money Market accounts $ 789,474 615,928 406,025
Savings accounts 205,362 241,176 258,143
Certificate accounts 5,007,616 6,131,573 6,823,212
Early withdrawal penalties (22,552) (19,393) (16,287)
----------- --------- ---------
$ 5,979,900 6,969,284 7,471,093
=========== ========= =========
31
<PAGE>
Notes to Consolidated Financial Statements
NOTE 7: FEDERAL HOME LOAN BANK ADVANCES
Federal Home Loan Bank advances consist of the following:
<TABLE>
<CAPTION>
June 30, 1999 June 30, 1998
-------------------------------- ----------------------------------
Weighted Weighted
Maturity Date Average Rate Amount Average Rate Amount
------------- ------------ ------ ------------ ------
<S> <C> <C> <C> <C>
Fiscal Year 1999 - - 6.20% $ 3,972,255
Fiscal Year 2000 5.56% $ 21,823,050 6.11% 8,561,864
Fiscal Year 2001 5.91% 7,507,286 6.05% 2,098,240
Fiscal Year 2002 5.67% 10,334,577 6.15% 3,102,475
Fiscal Year 2003 5.94% 3,168,192 6.03% 1,641,079
Fiscal Year 2004 5.42% 22,233,473 6.13% 1,319,327
Thereafter 5.91% 39,728,062 6.05% 24,385,788
------------ -----------
5.71% $104,794,640 6.08% $45,081,028
============ ===========
</TABLE>
The FHLB requires the Bank to maintain collateral equal to outstanding
balances of advances. For collateral purposes, the FHLB values mortgage loans
free of other pledges, liens and encumbrances at 80% of their fair value, and
investment securities free of other pledges, liens and encumbrances at 95% of
their fair value.
NOTE 8: INCOME TAXES
The Company files a consolidated federal income tax return. In
computing federal income taxes for taxable years prior to July 1, 1996, the Bank
has been allowed an 8% deduction from otherwise taxable income as a statutory
bad debt deduction, subject to limitations based on aggregate loans and savings
balances. In August 1996 this statutory bad debt deduction was repealed and is
no longer available for thrifts. In addition, bad debt reserves accumulated
after 1987, which are presently included as a component of the net deferred tax
liability, must be recaptured over a six-year period beginning in 1999. The
amount of the deferred tax liability which must be recaptured is $281,000 as of
June 30, 1999.
As of June 30, 1999, and 1998, retained earnings included approximately
$5,075,000 for which no deferred income tax liability has been recognized. This
amount represents an allocation of income to bad debt deductions for tax
purposes only. Reduction of amounts so allocated for purposes other than tax bad
debt losses or adjustments arising from carryback of net operating losses would
create income for tax purposes only, which would be subject to the then current
corporate income tax rate. The unrecorded deferred income tax liability on the
above amount was approximately $1,878,000 at June 30, 1999 and 1998.
The provision for income taxes consists of:
1999 1998 1997
---- ---- ----
Taxes currently payable $ 2,016,687 1,641,258 642,500
Deferred income taxes (251,687) (22,258) 22,000
----------- --------- -------
$ 1,765,000 1,619,000 664,500
=========== ========= =======
32
<PAGE>
Notes to Consolidated Financial Statements
NOTE 8: INCOME TAXES (Continued)
The tax effects of temporary differences related to deferred taxes
shown on the June 30, 1999 and 1998, balance sheets are:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Allowances for loan and foreclosed asset losses $ 869,251 783,885
Accrued compensated absences 14,349 23,945
Unrealized loss on loans held for sale 49,237 69,942
Accrued ESOP expense -- 52,379
RRP expense 217,884 30,365
Deferred loan fees/costs 66,619 30,951
----------- ----------
1,217,340 991,467
----------- ----------
Deferred tax liabilities:
FHLB stock dividends (206,867) (206,867)
Tax bad debt reserves in excess of base year (281,361) (337,633)
Mortgage servicing rights (63,167) (32,709)
Unrealized appreciation on available-for-sale securities (2,026,448) (1,651,429)
----------- ----------
(2,577,843) (2,228,638)
----------- ----------
Net deferred tax liability $(1,360,503) (1,237,171)
=========== ==========
</TABLE>
A reconciliation of income tax expense at the statutory rate to income
tax expense at the Company's effective rate is shown below:
1999 1998 1997
---- ---- ----
Computed at statutory rate 34.0% 34.0% 34.0%
Increase (reduction) in taxes resulting from:
State financial institution tax 2.9% 3.1% 3.3%
ESOP (2.3%) -- --
Other (0.1%) (0.8%) (0.9%)
---- ---- ----
Actual tax provision 34.5% 36.3% 36.4%
==== ==== ====
State legislation provides that savings banks will be taxed based on an
annual privilege tax of 7% of net income. The privilege tax is included in
provision for income taxes.
Deferred income taxes related to the change in unrealized appreciation
on available-for-sale securities, shown in stockholders' equity, were $375,019,
$443,429 and $468,000 for 1999, 1998 and 1997, respectively.
33
<PAGE>
Notes to Consolidated Financial Statements
NOTE 9: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
Cash and Cash Equivalents
- -------------------------
The carrying amounts reported in the balance sheets for cash and cash
equivalents approximate those assets' fair value.
Investment Securities
- ---------------------
Fair values for investment securities equal quoted market prices, if
available. If quoted market prices are not available, fair values are estimated
based on quoted market prices of similar securities.
Accrued Interest Receivable
- ---------------------------
The carrying amount of accrued interest approximates its fair value.
Mortgage Loans Held for Sale
- ----------------------------
Fair value is estimated using the quoted market prices for securities
backed by similar loans, adjusted for differences in loan characteristics.
Loans
- -----
The fair value of loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities. Loans with
similar characteristics are aggregated for purposes of the calculations. The
carrying amount of accrued interest approximates its fair value.
Deposits
- --------
The fair value of demand deposits and savings accounts is the amount
payable on demand at the reporting date (i.e., their carrying amounts). The fair
value of fixed-maturity certificates of deposit is estimated using a discounted
cash flow calculation that applies the rates currently offered for deposits of
similar remaining maturities.
Accrued Interest Payable
- ------------------------
The carrying amount of accrued interest approximates its fair value.
Federal Home Loan Bank Advances
- -------------------------------
Rates currently available to the Bank for debt with similar terms and
remaining maturities are used to estimate fair value of existing advances.
Commitments to Extend Credit, Letters of Credit and Lines of Credit
- -------------------------------------------------------------------
The fair value of commitments is estimated using the fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the present credit worthiness of the counterparties.
For fixed-rate loan commitments, fair value also considers the difference
between current levels of interest rates and the committed rates. The fair value
of letters of credit is based on fees currently charged for similar agreements
or on the estimated cost to terminate them or otherwise settle the obligations
with the counterparties at the reporting date.
34
<PAGE>
Notes to Consolidated Financial Statements
NOTE 9: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
The following table presents estimated fair values of the Company's
financial instruments. The fair values of certain of these instruments were
calculated by discounting expected cash flows, which method involves significant
judgments by management and uncertainties. Fair value is the estimated amount at
which financial assets or liabilities could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation sale.
Because no market exists for certain of these financial instruments and because
management does not intend to sell these financial instruments, the Company does
not know whether the fair values shown below represent values at which the
respective financial instruments could be sold individually or in the aggregate.
<TABLE>
<CAPTION>
June 30, 1999 June 30, 1998
-------------------------- --------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 9,689,121 9,689,121 7,304,923 7,304,923
Available-for-sale securities 8,951,175 8,951,175 13,820,679 13,820,679
Held-to-maturity securities 15,394,643 15,394,643 20,871,043 21,310,000
Mortgage loans held-for-sale 769,074 769,074 805,183 805,183
Loans, net 263,499,778 276,295,000 205,414,561 208,964,000
Interest receivable 1,756,939 1,756,939 1,604,144 1,604,144
Financial liabilities:
Deposits 141,137,154 141,336,000 140,975,336 141,230,000
Federal Home Loan Bank advances 104,794,640 105,341,075 45,081,028 45,348,000
Interest payable 543,641 543,641 256,975 256,975
Unrecognized financial instruments
(net of contractual value):
Commitments to extend credit -- -- -- --
Unused lines of credit -- -- -- --
</TABLE>
NOTE 10: SIGNIFICANT ESTIMATES AND CONCENTRATIONS
Generally accepted accounting principles require disclosure of certain
significant estimates and current vulnerabilities due to certain concentrations.
Estimates related to the allowance for loan losses are reflected in the footnote
regarding loans. Current vulnerabilities due to certain concentrations of credit
risk are discussed in the footnote on commitments and credit risk.
Year 2000 Issue
- ---------------
Like all entities, the Company is exposed to risks associated with the
Year 2000 Issue, which affects computer software and hardware; transactions with
customers, vendors and other entities; and equipment dependent on microchips.
The Company is in the final stages of a comprehensive project to address the
Year 2000 Issue and believes that the project will be substantially complete
during the quarter ending September 30, 1999. It is not possible for any entity
to guarantee the results of its own remediation efforts or to accurately predict
the impact of the Year 2000 Issue on third parties with which the Company does
business. If remediation efforts of the Company or third parties with which it
does business are not successful, the Year 2000 problem could have negative
effects on the Company's financial condition and results of operations in the
near term.
35
<PAGE>
Notes to Consolidated Financial Statements
NOTE 11: ADDITIONAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Noncash Investing and Financing Activities:
Loans held for sale transferred to
loans receivable portfolio $ -- 4,950,891 --
Loans receivable transferred to foreclosed
assets held for sale 123,056 689,550 471,440
Foreclosed assets held for sale transferred
to loans receivable 342,000 311,500 --
Additional Cash Payment Information:
Interest paid 10,416,241 8,632,457 8,198,629
Income taxes paid 2,198,156 1,497,087 582,319
</TABLE>
NOTE 12: EMPLOYEE BENEFIT PLANS
Pension Plan
- ------------
The Bank has participated in a multi-employer pension plan covering all
employees who met minimum service requirements. As a member of a multi-employer
pension plan, disclosures of plan assets and liabilities for individual
employers are not required or practicable. Pension plan expense was $5,063 and
$128,785 for the years ended June 30, 1998 and 1997 respectively. This plan was
terminated effective December 12, 1997.
Recognition and Retention Plan and 1998 Restricted Stock Plan
- -------------------------------------------------------------
In conjunction with the reorganization discussed in Note 15, the Bank
has established a Recognition and Retention Plan (RRP) for the benefit of
directors, officers and employees of the Bank and its subsidiary. The RRP
provides directors, officers and employees of the Bank with a proprietary
interest in the Company in a manner designed to encourage these individuals to
remain with the Bank.
A Committee consisting of members of the Bank's Board of Directors
administers the Plan. Under the Plan, the Committee can award up to 75,106
shares of the Company's common stock to selected directors, officers and
employees. As of June 30, 1999, all shares have been awarded. The awards vest at
the rate of 20% per year over a five-year period. Compensation expense is
recognized based on the Company's stock price on the date the shares were
awarded to employees. Shares to be issued under the RRP were purchased on the
open market by a separate RRP Trust. The Bank contributed $464,643 to the Trust
for stock purchases during the year ended June 30, 1996.
In conjunction with the conversion discussed in Note 16, the Bank has
established a Restricted Stock Plan (RSP) for the benefit of directors, officers
and employees of the Bank and its subsidiary. The RSP was voted on and approved
by the Company's stockholders at the July 22, 1998, special stockholders'
meeting. The RSP provides directors, officers and employees of the Bank with a
proprietary interest in the Company in a manner designed to encourage these
individuals to remain with the Bank.
A Committee consisting of members of the Bank's Board of Directors
administers the Plan. Under the Plan, the Committee can award up to 173,632
shares of the Company's common stock to selected directors, officers and
employees. Following approval of the Plan, 164,950 shares were granted. The
awards vest at the rate of 20% per year over a five-year period. Compensation
expense is recognized based on the Company's stock price on the date the Plan
was ratified by stockholders, which was $13.44 per share. Shares to be issued
under the RSP are purchased on the open market by a separate RSP Trust. The
Company contributed $2,373,065 to the Trust for stock purchased following
approval of the Plan. These contributions have been accounted for as a reduction
of stockholders' equity for the year ended June 30, 1999.
The Bank recognized $510,286, $92,407 and $106,197 of expense under the
RRP and RSP in 1999, 1998 and 1997, respectively.
36
<PAGE>
Notes to Consolidated Financial Statements
NOTE 12: EMPLOYEE BENEFIT PLANS (Continued)
Stock Option and Incentive Plan and 1998 Stock Option and Incentive Plan
- ------------------------------------------------------------------------
In conjunction with the reorganization discussed in Note 15, the
Company has established the 1994 Stock Option and Incentive Plan for the benefit
of certain directors, officers and employees of the Bank and its subsidiary. The
Plan is administered by the Company's Option Committee. Under the Plan, the
Option Committee may grant stock options or awards of up to 187,764 shares of
the Company's common stock.
In conjunction with the conversion discussed in Note 16, the Company
has established the 1998 Stock Option and Incentive Plan for the benefit of
certain directors, officers and employees of the Bank and its subsidiary. The
Plan was voted on and approved by stockholders at the July 22, 1998, special
stockholders' meeting. The Company's Option Committee administers the Plan.
Under the Plan, the Option Committee may grant stock options or awards of up to
434,081 shares of the Company's common stock. Following approval of the Plan,
options for 402,377 shares were granted.
The stock options under both plans may be either incentive stock
options or nonqualified stock options. Incentive stock options can be granted
only to participants who are employees of the Bank or its subsidiary. The option
price must not be less than the market value of the Company stock on the date of
grant. All options expire no later than ten years from the date of grant. The
options vest at the rate of 20% per year over a five-year period.
The table below summarizes transactions under the Company's stock
option plans:
<TABLE>
<CAPTION>
Number of shares of
---------------------------------------------
Incentive Non-Qualified Weighted
Stock Option Options to Average
Shares Directors Exercise Price
------ --------- --------------
<S> <C> <C> <C>
Balance outstanding at July 1, 1997 84,375 -- $ 11.62
Granted, in FY 97 6,640 -- 11.55
Exercised, in FY 97 -- -- --
Forfeited, in FY 97 (12,305) -- 11.62
------- -------
Balance outstanding at June 30, 1997 78,710 -- 11.61
======= =======
Balance outstanding at June 30, 1997, converted 151,990 -- 6.02
Granted, FY 98 5,000 -- 12.63
Exercised, in FY 98 (9,794) -- 6.02
Forfeited, in FY 98 (3,196) -- 6.02
------- -------
Balance outstanding at June 30, 1998 144,000 -- 6.25
======= =======
Granted, in FY 99 317,637 117,010 13.44
Exercised, in FY 99 (17,740) -- 6.02
Forfeited, in FY 99 (8,072) -- 10.35
------- -------
Balance outstanding at June 30, 1999 435,825 117,010 11.86
======= =======
Options exercisable at June 30, 1999 60,973 -- $ 6.02
======= ======= =========
</TABLE>
(1) Stock options were originally for Bank stock. This Plan was converted to
Company stock at the exchange ratio of 1.931. See Note 16.
37
<PAGE>
Notes to Consolidated Financial Statements
NOTE 12: EMPLOYEE BENEFIT PLANS (Continued)
The fair value of each option granted is estimated on the date of the
grant using the Black-Scholes pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
June 30, 1999 June 30, 1998 June 30, 1997
------------- ------------- -------------
<S> <C> <C> <C>
Dividends per share $ 0.34 $ 0.30 $ 0.33
Risk-free interest rate 5.88% 5.46% 6.36%
Expected life of options 5 years 5 years 5 years
Weighted-average fair value of options granted during year $ 2.69 $ 2.07 $ 2.51
</TABLE>
The following table summarizes information about stock options under
the plans outstanding at June 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------- -----------------------------
Range of Exercise Number Remaining Number Exercisable
Prices Outstanding Contractual Life Exercisable Price
------ ----------- ---------------- ----------- -----
<S> <C> <C> <C> <C> <C>
$ 5.83 5,098 7.5 years 2,040 $ 5.83
$ 6.02 104,371 6.5 years 54,843 $ 6.02
$ 6.08 7,724 7.0 years 3,090 $ 6.08
$ 12.63 5,000 8.7 years 1,000 $ 12.63
$ 13.44 430,642 9.1 years - $ 13.44
</TABLE>
The Company applies APB Opinion 25 and related Interpretations in
accounting for its plans, and no compensation cost has been recognized for the
plans. Had compensation cost for the plans been determined based on the fair
value at the dates using Statement of Financial Accounting Standards No. 123,
the Company's net income would have decreased by $177,719, $33,007 and $32,187
for 1999, 1998 and 1997, respectively. Earnings per share basic and diluted
would have decreased to $0.58 and $0.57, respectively for 1999. Earnings per
share since conversion would be unchanged for 1998. The effects of applying this
Statement for either recognizing compensation cost or providing pro forma
disclosures are not likely to be representative of the effects on reported net
income for future years because options vest over several years and additional
awards generally are made each year.
NOTE 12: EMPLOYEE BENEFIT PLANS (Continued)
Employee Stock Ownership Plan
- -----------------------------
In conjunction with the conversion discussed in Note 16, the Bank
established an internally-leveraged Employee Stock Ownership Plan (ESOP). All
employees are eligible to participate after they attain age 21 and complete 12
consecutive months of service during which they work at least 1,000 hours. The
ESOP borrowed $3,444,540 from the Company and purchased 344,454 shares of the
common stock of the Company. The ESOP
38
<PAGE>
Notes to Consolidated Financial Statements
debt is secured by shares of the Company. The loan will be repaid from
contributions to the ESOP as approved annually by the Bank's Board of Directors.
As the debt is repaid, shares are released from collateral and allocated to
employees' accounts. The shares pledged as collateral are reported as unearned
ESOP shares in the consolidated balance sheet. When shares are released from
collateral, the shares become outstanding for Earnings Per Share computations.
Dividends on allocated ESOP shares are recorded as a reduction of retained
earnings and may be paid directly to participants or credited to their account;
dividends on unallocated ESOP shares are recorded as a reduction of the unearned
ESOP shares and accrued interest. Compensation expense is recognized ratably
based on the average fair value of shares committed to be released. Compensation
expense attributed to the ESOP was $268,234 and $141,566 for the years ended
June 30, 1999 and June 30, 1998, respectively. The following is a summary of
ESOP shares at June 30, 1999:
Allocated shares 22,964
Shares committed for release 11,484
Unreleased shares 310,006
-----------
Total ESOP shares 344,454
===========
Fair value of unreleased shares $ 3,642,570
===========
Employment Agreements
- ---------------------
The Bank has entered into employment agreements with James E.
Haseltine, President and Chief Executive Officer and certain other executive
officers of the Bank. Mr. Haseltine's employment agreement covers a term of two
years. The agreements will be terminable by the Bank for "just cause" as defined
in the agreements. If the Bank terminates the employee without just cause, the
employee will be entitled to a continuation of the employee's salary from the
date of termination through the remaining term of the agreement. Mr. Haseltine's
employee agreement contains a provision stating that in the event of the
termination of employment in connection with any future change in control of the
Bank, as defined in the agreement, Mr. Haseltine will be paid in a lump sum as
amount equal to 1.99 times Mr. Haseltine's five year average annual taxable
compensation. In addition, the Bank has entered into employment agreements with
eight other officers, which will provide a severance payment upon termination
without just cause in the event of a change in control, as defined in the
agreements. The agreements may be renewed annually by the Board of Directors
upon a determination of satisfactory performance within the Board's sole
discretion.
NOTE 13: TRANSACTION WITH RELATED PARTIES
Certain directors and executive officers of the Company and the Bank
were customers of and had transactions with the Bank in the ordinary course of
business. As of June 30, 1999 and 1998, loans outstanding to these directors and
executive officers amounted to $593,762 and $485,224, respectively. In
management's opinion, such loans and other extensions of credit and deposits
were made in the ordinary course of business and were made on substantially the
same terms (including interest rates and collateral) as those prevailing at the
time for comparable transactions with other persons. Further, in management's
opinion, these loans did not involve more than normal risk of collectability or
present other unfavorable features.
NOTE 14: COMMITMENTS AND CREDIT RISK
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since a portion of the commitments may expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on management's credit
evaluation of the
39
<PAGE>
Notes to Consolidated Financial Statements
counterparty. Collateral held varies but may include accounts receivable,
inventory, property and equipment, commercial real estate and residential real
estate.
As of June 30, 1999 and 1998, the Bank had outstanding commitments to
originate loans of approximately $6,593,000 and $12,741,000, respectively. The
commitments extend over varying periods of time with the majority being
disbursed within a thirty-day period. As of June 30, 1999 and 1998, commitments
of $5,071,000 and $11,568,000, respectively, were at fixed rates and $1,522,000
and $1,173,000, respectively, were at floating market rates.
Forward commitments to sell mortgage loans are obligations to deliver
loans at a specified price on or before a specified date. The Bank acquires such
commitments to reduce market risk on mortgage loans in the process of
origination and mortgage loans held for sale. As of June 30, 1999 and June 30,
1998, there were no such commitments outstanding.
Letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements, including
commercial paper and similar transactions. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loans to
customers. The Bank had outstanding letters of credit of $263,000 and $29,000 as
of June 30, 1999 and 1998, respectively.
Lines of credit are agreements to lend to a customer as long as there
is no violation of any condition established in the contract. Lines of credit
generally have fixed expiration dates. Since a portion of the line may expire
without being drawn upon, the total unused lines do not necessarily represent
future cash requirements. Each customer's credit worthiness is evaluated on a
case-by-case basis. The amount of collateral obtained, if deemed necessary, is
based on management's credit evaluation of the counterparty. Collateral held
varies but may include accounts receivable, inventory, property and equipment,
commercial real estate and residential real estate. Management uses the same
credit policies in granting lines of credit as it does for on balance sheet
instruments.
As of June 30, 1999, unused lines of credit to borrowers aggregated
approximately $316,000 for commercial lines and $6,945,000 for open-end consumer
lines. As of June 30, 1998, unused lines of credit to borrowers aggregated
approximately $173,000 for commercial lines and $5,247,000 for open-end consumer
lines.
Although the Bank grants consumer loans, the majority of its loan
originations are single or multi-family residential real estate in Springfield,
Missouri, and the surrounding area. As of June 30, 1999 the Bank had thirty-one
borrowers with balances in excess of $1,000,000 each, aggregating $77,311,000,
for which the collateral is primarily single-family and multi-family residential
rental real estate and commercial real estate. As of June 30, 1998, the Bank had
eighteen borrowers with balances in excess of $1,000,000 each, aggregating
$49,304,000, for which the collateral is primarily single-family and
multi-family residential rental real estate and commercial real estate. Also, as
of June 30, 1999 and 1998, the Bank had $29,563,000 and $25,848,000,
respectively, in construction loans to or guaranteed by builders of primarily
residential property.
NOTE 15: REORGANIZATION TO A MUTUAL HOLDING COMPANY
In connection with the Reorganization 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
40
<PAGE>
Notes to Consolidated Financial Statements
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 initial capitalization in
connection with Reorganization. The net proceeds of $7,024,532 were included in
common stock and capital surplus of the Bank.
As long as they remain depositors of the Bank, persons who prior to the
reorganization had liquidation rights with respect to the Association will
continue to have such rights with respect to the Bank.
NOTE 16: CONVERSION TO STOCK FORM OF OWNERSHIP
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 all shares of common stock of the Bank held by public
stockholders were exchanged for 1,880,710 shares of common stock of the Company
at an exchange ratio of 1.931. 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.
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 was paid) were issued in exchange for the common stock of the Bank.
The expenses for the offering were $780,067 resulting in net proceeds
of $42,628,053 of which $19,943,834 was directly contributed to the Bank, and
$22,684,219 was retained by the Company. The proceeds retained by the Company
were used for various investments, including interest-bearing advances to the
Bank.
41
<PAGE>
NOTE 17: CONDENSED PARENT COMPANY STATEMENTS
The condensed balance sheet as of June 30, 1999 and 1998, and
statements of income and cash flows for the year ended June 30, 1999, and for
the period December 30, 1997 to June 30, 1998, for the parent company, Guaranty
Federal Bancshares, Inc., are as follows:
<TABLE>
<CAPTION>
Balance Sheets As of June 30,
- -------------- -----------------------------
1999 1998
------------- ------------
<S> <C> <C>
Assets
Cash $ 84,261 51,587
Due from subsidiary 5,717,734 17,523,918
Investment in subsidiary 55,972,802 51,908,392
Land 1,228,799 1,228,799
Available-for sale securities 770,035 247,021
Prepaid expenses and other assets 165,187 --
Deferred income taxes 8,380 9,471
------------ ----------
$ 63,947,198 70,969,188
============ ==========
Liabilities and Stockholders' Equity
Accrued expenses and other liabilities $ -- 7,090
Income taxes payable 513,976 272,000
Stockholders' equity
Common stock 624,578 622,804
Additional paid-in capital 47,366,264 49,016,992
Unearned ESOP shares (3,100,080) (3,444,540)
Retained earnings 23,236,009 21,682,950
Unrealized appreciation on available-for-sale securities, net 3,438,826 2,811,892
Treasury stock (8,132,375) --
------------ ----------
$ 63,947,198 70,969,188
============ ==========
</TABLE>
<TABLE>
<CAPTION>
Statements of Income For the year end For six months ended
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Income
Interest income:
Related party $ 922,842 734,464
Other 10,104 508
Other -- 550
Total income 932,946 735,522
Expense
Occupancy 9,190 4,500
Other 71,061 17,355
Total expense 80,251 21,855
Income before income taxes and equity in
undistributed earnings of subsidiary 852,695 713,667
Provision for income taxes 316,584 272,000
Income before equity
in undistributed earnings of subsidiary 536,111 441,667
Equity in undistributed earnings of subsidiary 2,822,017 1,288,133
------------ ---------
Net income $ 3,358,128 1,729,800
============ =========
</TABLE>
NOTE 17: CONDENSED PARENT COMPANY STATEMENTS (Continued)
42
<PAGE>
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Statements of Cash Flows For the year ended For six months ended
- ------------------------ June 30, 1999 June 30, 1998
------------------ --------------------
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 3,358,128 1,729,800
Items not providing cash:
Undistributed earnings of net income
of subsidiary (2,822,017) (1,288,133)
Release of ESOP shares 344,460 --
Changes in:
Prepaid expenses and other assets (165,187) --
Income taxes payable 241,976 272,000
Accrued expenses (7,090) 7,090
------------ ------------
Net cash provided by operating activities 950,270 720,757
------------ ------------
Cash Flows From Investing Activities
Investment in subsidiary -- (19,943,834)
Loan to ESOP -- (3,444,540)
Purchase of land -- (1,228,799)
Purchase of available-for-sale securities (520,065) (272,619)
Net (increase) decrease in advance to subsidiary 11,806,186 (17,523,918)
------------ ------------
Net cash provided by (used in) investing activities 11,286,121 (42,413,710)
------------ ------------
Cash Flows From Financing Activities
Proceeds from sale of common stock, net -- 42,628,053
Stock options exercised 106,792 40,454
Cash dividends received on RRP shares -- 9,875
Cash dividends paid (1,805,069) (933,842)
RSP stock purchased (2,373,065) --
Treasury stock purchased (8,132,375) --
------------ ------------
Net cash provided by (used in) financing activities (12,203,717) 41,744,540
------------ ------------
Increase in cash 32,674 51,587
Cash, beginning of period 51,587 --
------------ ------------
Cash, end of period $ 84,261 51,587
============ ============
Noncash Investing and Financing Activities
Acquisition of Guaranty Federal Savings Bank
through stock conversion $ -- 30,316,999
============ ============
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Baird Hammons Tower
Kurtz & 901 E. St. Louis Street, Suite 1000 1034 W. Main Street
Dobson P.O. Box 1190 P.O. Box 1277 http://www.bkd.com
Certified Public Accountants Springfield, MO 65801-1190 Branson, MO 65615-1277
417 865-8701 Fax: 417 865-0682 417 334-5165 Fax: 417 334-3823 Member of
Moores Rowland International
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Independent Accountants' Report
Board of Directors
Guaranty Federal Bancshares, Inc.
Springfield, Missouri
We have audited the accompanying consolidated balance sheets of GUARANTY
FEDERAL BANCSHARES, INC. as of June 30, 1999 and 1998, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the three years in the period ended June 30, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of GUARANTY FEDERAL BANCSHARES,
INC. as of June 30, 1999 and 1998, and the results of its operations and its
cash flows for each of the three years in the period ended June 30, 1999, in
conformity with generally accepted accounting principles.
/s/Baird, Kutz & Dobson
July 23, 1999
Springfield, Missouri
[Baird, Kurtz & Dobson letterhead]
Consent of Independent Accountants
Board of Directors
Guaranty Federal Bancshares, Inc.
Springfield, Missouri
We consent to the incorporation by reference in the Registration Statement No.
333-47241 on Form S-8 of Guaranty Federal Bancshares, Inc. of our report dated
July 23, 1999, relating to the consolidated balance sheets of Guaranty Federal
Bancshares, Inc. as of June 30, 1999 and 1998, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for each of
the three years in the period ended June 30, 1999, which report appears in the
June 30, 1999 annual report on Form 10-K of Guaranty Federal Bancshares, Inc.
/s/ Baird, Kurtz & Dobson
----------------------------------
September 28, 1999
Springfield, Missouri
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,657
<INT-BEARING-DEPOSITS> 8,032
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8,951
<INVESTMENTS-CARRYING> 15,395
<INVESTMENTS-MARKET> 15,624
<LOANS> 265,849
<ALLOWANCE> 2,349
<TOTAL-ASSETS> 313,200
<DEPOSITS> 141,137
<SHORT-TERM> 104,795
<LIABILITIES-OTHER> 3,834
<LONG-TERM> 0
0
0
<COMMON> 625
<OTHER-SE> 62,808
<TOTAL-LIABILITIES-AND-EQUITY> 313,200
<INTEREST-LOAN> 18,617
<INTEREST-INVEST> 1,605
<INTEREST-OTHER> 541
<INTEREST-TOTAL> 20,763
<INTEREST-DEPOSIT> 5,980
<INTEREST-EXPENSE> 4,723
<INTEREST-INCOME-NET> 10,060
<LOAN-LOSSES> 180
<SECURITIES-GAINS> 68
<EXPENSE-OTHER> 5,957
<INCOME-PRETAX> 5,123
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,358
<EPS-BASIC> .61
<EPS-DILUTED> .60
<YIELD-ACTUAL> 3.38
<LOANS-NON> 110
<LOANS-PAST> 212
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,008
<ALLOWANCE-OPEN> 2,191
<CHARGE-OFFS> 29
<RECOVERIES> 7
<ALLOWANCE-CLOSE> 2,349
<ALLOWANCE-DOMESTIC> 2,349
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
