UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission number 0-23325
-------
Guaranty Federal Bancshares, Inc.
---------------------------------
(Exact name of registrant as specified in its charter)
Delaware 43-1792717
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1341 West Battlefield
---------------------
Springfield, Missouri 65807
(Address of principal executive offices) (Zip Code)
Telephone Number: (417) 889-2494
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Class Outstanding at November 12, 1999
----- --------------------------------
Common Stock, Par Value $0.10 5,457,746 Shares
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC
Form 10-Q
TABLE OF CONTENTS
Item Page
- ---- ----
PART I. Financial Information
-----------------------------
1. Consolidated Financial Statement (Unaudited):
Statements of Financial Condition 3
Statements of Income 4
Statements of Changes in Stockholders' Equity 5
Statements of Cash Flow 7
Notes to Consolidated Financial Statement 8
2. Management's Discussion and Analysis of Financial Condition and 11
Results of Operations
3. Quantitative and Qualitative Disclosures about Market Risk 19
PART II. Other Information
--------------------------
1. Legal Proceedings 23
2. Changes in Securities and Use of Proceeds 23
3. Defaults Upon Senior Securities 23
4. Submission of Matters to Vote of Security-holders 23
5. Other Information 23
6. Exhibits and Reports on Form 8-K 23
Signatures 24
2
<PAGE>
PART I
Item 1. Financial Statements
---------------------
GUARANTY FEDERAL SAVINGS BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 1999 (UNAUDITED) AND JUNE 30, 1999
<TABLE>
<CAPTION>
ASSETS 9/30/99 6/30/99
---------- ----------
<S> <C> <C>
Cash $ 1,467,815 1,656,648
Interest-bearing deposits in other financial institutions 4,270,083 8,032,473
----------- -----------
Cash and cash equivalents 5,737,898 9,689,121
Available-for-sale securities 8,060,096 8,951,175
Held-to-maturity securities 10,015,085 15,394,643
Mortgage loans held for sale 628,653 769,074
Loans receivable, net 274,189,244 263,499,778
Accrued interest receivable:
Loans 1,489,599 1,459,508
Investments 130,853 297,431
Prepaid expenses and other assets 5,740,625 5,671,845
Foreclosed assets held for sale - 101,546
Premises and equipment 7,359,161 7,365,392
----------- -----------
$313,351,214 313,199,513
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $143,168,633 141,137,154
Federal Home Loan Bank advances 103,334,272 104,794,640
Advances from borrowers for taxes and insurance 1,666,593 1,195,545
Accrued expenses and other liabilities 1,457,508 499,221
Accrued interest payable 551,599 543,641
Income taxes payable 652,092 235,587
Deferred income taxes 1,229,480 1,360,503
----------- -----------
252,060,177 249,766,291
----------- -----------
STOCKHOLDERS' EQUITY
Common Stock:
$0.10 par value; authorized 10,000,000 shares;
issued; 9/30/99 - 6,246,273 shares, 6/30/99 - 6,245,775 shares 624,627 624,578
Additional paid-in capital 47,482,357 47,366,264
Unearned ESOP shares (3,042,670) (3,100,080)
Retained earnings, substantially restricted 23,068,857 23,236,009
Accumulated other comprehensive income
Unrealized appreciation on available-for-sale securities,
net of income taxes; 9/30/99 - $1,799,944,
6/30/99 - $2,026,448 3,064,770 3,438,826
----------- -----------
71,197,941 71,565,597
Treasury stock, at cost - 9/30/99 - 788,527 shares,
6/30/99 - 642,127 shares (9,906,904) (8,132,375)
------------ ------------
61,291,037 63,433,222
$ 313,351,214 313,199,513
============= ============
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
GUARANTY FEDERAL SAVINGS BANCSHARES, INC
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
<TABLE>
<CAPTION>
9/30/99 9/30/98
------- -------
<S> <C> <C>
INTEREST INCOME
Loans $ 5,179,899 4,383,216
Investment securities 211,967 432,603
Other 169,928 118,070
----------- -----------
5,561,794 4,933,889
----------- -----------
INTEREST EXPENSE
Deposits 1,499,578 1,586,184
Federal Home Loan Bank advances 1,485,396 915,979
----------- -----------
2,984,974 2,502,163
----------- -----------
NET INTEREST INCOME 2,576,820 2,431,726
PROVISION FOR LOAN LOSSES 45,000 45,000
----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,531,820 2,386,726
----------- -----------
NONINTEREST INCOME (LOSS)
Service charges 272,417 205,900
Late charges and other fees 56,611 25,388
Gain (loss) on loans and investment securities (14,586) 9,750
Income (expense) on foreclosed assets 13,372 (6,170)
Other income 45,524 36,040
----------- -----------
373,338 270,908
----------- -----------
NONINTEREST EXPENSE
Salaries and employee benefits 807,058 740,490
Occupancy 205,092 174,330
SAIF deposit insurance 20,072 22,374
Data processing 113,739 116,318
Advertising 90,331 107,896
Other expense 296,609 248,389
----------- -----------
1,532,901 1,409,797
----------- -----------
INCOME BEFORE INCOME TAXES 1,372,257 1,247,837
PROVISION FOR INCOME TAXES 512,159 449,734
----------- -----------
NET INCOME 860,098 798,103
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized appreciation (depreciation) on
available-for-sale securities, net of taxes of $219,684
and $66,580 for 1999 and 1998, respectively (374,056) 113,366
----------- -----------
COMPREHENSIVE INCOME $ 486,042 911,469
=========== ===========
BASIC EARNINGS PER SHARE $ 0.16 0.14
=========== ===========
DILUTED EARNINGS PER SHARE $ 0.16 0.14
=========== ===========
</TABLE>
4
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
Income
------
Unrealized
Appreciation on
Additional Unearned Available-for-Sale
Common Paid-In ESOP Treasury Retained Securities
tock Capital Shares Stock Earnings Net Total
---- ------- ------ ----- -------- --- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1999 $624,578 47,366,264 (3,100,080) (8,132,375) 23,236,009 3,438,826 63,433,222
Net income -- -- -- -- 860,098 -- 860,098
Dividends on common stock,
($0.20 per share on
5,136,256 shares) -- -- -- -- (1,027,250) -- (1,027,250)
Recognition and Retention Plan
(RRP) expense & Restricted Stock
Plan (RSP) expense -- 121,336 -- -- -- -- 121,336
Stock options exercised 49 2,949 -- -- -- -- 2,998
Treasury stock purchased -- -- -- (1,774,529) -- -- (1,774,529)
Release of ESOP shares -- 11,247 57,410 -- -- -- 68,657
Tax liability of RRP shares -- (19,439) -- -- -- -- (19,439)
Change in unrealized
appreciation on
available-for-sale
securitites, net of
income taxes of $219,684 -- -- -- -- -- (374,056) (374,056)
-------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, September 30, 1999 $624,627 47,482,357 (3,042,670) (9,906,904) 23,068,857 3,064,770 61,291,037
======== =========== =========== =========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
Income
------
Unrealized
Appreciation on
Additional Unearned Available-for-Sale
Common Paid-In ESOP Treasury Retained Securities
Stock Capital Shares Stock Earnings Net Total
---- ------- ------ ----- -------- --- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1998 $ 622,804 49,016,992 (3,444,540) -- 21,682,950 2,811,892 70,690,098
Net income -- -- -- -- 798,103 -- 798,103
Dividends on common stock,
($0.16 per share) -- -- -- -- (946,679) -- (946,679)
Recognition and Retention Plan
(RRP) expense & Restricted
Stock Plan (RSP) expense -- 133,485 -- -- -- -- 133,485
RSP stock purchased -- (2,373,065) -- -- -- -- (2,373,065)
Treasury stock purchased -- -- -- (4,280,238) -- -- (4,280,238)
Change in unrealized appreciation
on available-for-sale securitites,
net of income taxes of $66,580 -- -- -- -- -- 113,366 113,366
----------- ---------- ---------- ---------- ---------- --------- ----------
Balance, September 30, 1998 $ 622,804 46,777,412 (3,444,540) (4,280,238) 21,534,374 2,925,258 64,135,070
=========== ========== ========== ========== ========== ========= ==========
</TABLE>
6
See Notes to Consolidated Financial Statements
<PAGE>
GUARANTY FEDERAL SAVINGS BANCSHARES, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
------------ ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 860,098 798,103
Items not requiring (providing) cash:
Deferred income taxes 88,661 (92,984)
Depreciation 104,523 97,240
Provision for loan losses 45,000 45,000
(Gain) loss on loans and investment securities 14,586 (9,750)
Gain on sale of foreclosed assets (13,372) (138)
Amortization of deferred income, premiums and discounts 24,086 1,438
RRP/RSP expense 121,336 133,485
Origination of loans held for sale (570,534) (2,316,051)
Proceeds from sale of loans held for sale 696,369 1,748,403
Release of ESOP shares 68,657 --
Changes in:
Accrued interest receivable 136,487 83,431
Prepaid expenses and other assets 50,720 (1,407,598)
Accounts payable and accrued expenses (61,005) 331,536
Income taxes payable 397,066 367,717
------------ ---------
Net cash provided by (used in) operating activities 1,962,678 (220,168)
------------ ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans (10,752,440) (18,073,801)
Principal payments on available-for-sale securities 296,260 121,110
Principal payments held-to-maturity securities 674,525 1,376,562
Purchase of premises and equipment (98,292) (26,087)
Purchase of available-for-sale securities -- (345,176)
Proceeds from maturities of held-to-maturity securities 4,700,000 168,369
Purchase of FHLB stock (119,500) --
Proceeds from sale of foreclosed assets 114,918 262,138
------------ ---------
Net cash used in investing activities (5,184,529) (16,516,885)
------------ ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Stock options exercised 2,998 --
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts (66,696) 1,507,899
Net increase (decrease) in certificates of deposit 2,098,175 (8,136,679)
Proceeds from FHLB advances 3,019,600 29,840,000
Repayments of FHLB advances (4,479,968) (2,211,594)
Advances from borrowers for taxes and insurance 471,048 438,999
RSP stock purchased -- (2,373,065)
Treasury stock purchased (1,774,529) (4,280,238)
------------ ---------
Net cash provided by (used in) financing activities (729,372) 14,785,322
------------ ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,951,223) (1,951,731)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 9,689,121 7,304,923
------------ ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,737,898 5,353,192
============ =========
</TABLE>
7
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Conversion, Reorganization and Stock Issuance
---------------------------------------------
On December 30, 1997, Guaranty Federal Bancshares, Inc. completed the
conversion from a federally chartered mutual holding company, (formerly Guaranty
Federal Bancshares, M. H. C.) to a Delaware-chartered stock corporation.
Stockholders' equity increased to $69.5 million primarily due to the conversion
in which Guaranty Federal Bancshares, Inc. exchanged 1,880,710 shares of its
common stock for all the Bank's common stock not held by Guaranty Federal
Bancshares, M. H. C. This exchange ratio was 1.931. In addition 4,340,812 shares
at $10.00 per share were sold in the stock offering, including 344,454 shares to
the employee stock ownership plan ( the "ESOP"). Total shares of common stock
outstanding following the offering and exchange was 6,221,522.
In April 1995 Guaranty Federal Savings and Loan Association (the
"Association") reorganized from a federally chartered mutual savings and loan
association into a federal mutual holding company, Guaranty Federal Bancshares,
M. H. C. (the "MHC"). As part of the reorganization, the Association
incorporated a de novo federally chartered stock savings bank, Guaranty Federal
Savings Bank (the "Bank") and transferred most of its assets and all its
liabilities to the Bank. The Bank issued 3,125,000 shares of its common stock
(par value $1.00) of which 972,365 shares were sold to parties other than the
MHC, thus creating a minority ownership interest in the Bank. The shares had an
initial public offering price of $8 per share, resulting in gross sales proceeds
of $7,778,920. Costs related to the stock issuance of $654,388 were applied to
reduce the gross proceeds. Also $100,000 was transferred to the MHC for the
initial capitalization in connection with reorganization.
Note 2: Basis of Presentation
---------------------
The accompanying unaudited interim consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) considered necessary for a fair
presentation have been included.
8
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3: Principles of Consolidation
---------------------------
As more fully described in Note 1, the Company is a Delaware-chartered
stock corporation organized to facilitate the conversion from the mutual holding
company form of ownership of the Bank to the stock holding company form of
ownership of the Bank and hold all of the capital stock of the Bank. In
connection with the conversion, Guaranty Federal Bancshares, M. H. C., which had
owned 69% of the common stock of the Bank, was merged with and into the Bank,
and its shares of the Bank were canceled.
The consolidated financial statements include the accounts of the
Company, its wholly -owned subsidiary, Guaranty Federal Savings Bank and the
wholly-owned subsidiary of the Bank, Guaranty Financial Services of Springfield,
Inc. Significant intercompany accounts and transactions have been eliminated in
consolidation.
Note 4: Earnings Per Share
------------------
<TABLE>
<CAPTION>
For three months ended September 30, 1999
---------------------------------------------------
Income Shares Per-share
<S> <C> <C> <C>
Basic EPS
Income available to common stockholders $ 860,098 5,216,265 $ 0.16
======
Effect of Dilutive Securities
Stock Options 57,869
--------- ---------
Income available to common stockholders $ 860,098 5,274,134 $ 0.16
========= ========= ======
</TABLE>
<TABLE>
<CAPTION>
For three months ended September 30, 1998
---------------------------------------------------
Income Shares Per-share
<S> <C> <C> <C>
Basic EPS
Income available to common stockholders $ 798,103 5,683,949 $ 0.14
======
Effect of Dilutive Securities
Stock Options 70,265
--------- ---------
Income available to common stockholders $ 798,103 5,754,214 $ 0.14
========= ========= ======
</TABLE>
Options to purchase 16,704 shares, 5,000 shares and 426,515 shares of
common stock at $12.25, $12.63 per share and $13.44 per share, respectively were
outstanding during the three months ended September 30, 1999, but were not
included in the computation of diluted EPS because the options' exercise price
was greater than the average market price of the common shares.
9
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5: Benefit Plans
-------------
On October 18, 1995, the Bank's stockholders voted to approve both a
Recognition and Retention Plan ("RRP") and a Stock Option Plan ("SOP"). On July
22, 1998, the Company's stockholders voted to approve both a 1998 Restricted
Stock Plan (" RSP") and a 1998 Stock Option Plan ("1998 SOP"). The RRP and RSP
authorized shares to be issued to directors, officers and employees of the Bank.
As of September 30, 1999, all of the RRP and RSP shares have been purchased and
all except 2,925 shares have been awarded. The Bank is amortizing the RRP and
RSP expense over each participant's vesting period and the financial statements
reflect $121,336 RRP and RSP expense for the three month period ending September
30, 1999. The SOP and 1998 SOP authorized stock options on shares to be issued
to officers and employees of the Bank, as of September 30, 1999 all options
except those on 24,231 shares have been granted. The RRP, RSP, SOP and 1998 SOP
vest over a five year period. The RRP and SOP have been adjusted to reflect the
conversion, reorganization and stock issuance described in Note 1 with all
vesting periods remaining unchanged. At September 30, 1999, there were 569,582
unexercised options that have been granted at prices ranging from $5.83 to
$13.44 per share and 161,869 RRP and RSP shares were unvested.
10
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
General
The accompanying Consolidated Financial Statements include the accounts
of Guaranty Federal Bancshares, Inc. (the "Company"), and all accounts of its
wholly owned subsidiary , Guaranty Federal Savings Bank (the "Bank") and all
accounts of the wholly-owned subsidiary of the Bank, Guaranty Financial Services
of Springfield, Inc. All significant intercompany transactions and balances have
been eliminated in consolidation.
However, because the conversion, reorganization and stock issuance of
the Company, the Bank and related entities did not occur until December 30,
1997, all results prior to that date reflect the accounts of the Bank and its
subsidiary. The Company realized approximately $39.2 million in net proceeds
from the stock issuance of which the Company provided $19.9 million to the Bank
as capital and the Company provided a loan of $3.44 million to fund the purchase
of stock for the employee stock ownership plan.
Other than the loan for the ESOP, most of the funds received have been invested
in loans.
The primary function of the Company has been to monitor its investment
in the Bank, as a result, the results of operation of the Company are derived
primarily from operations of the Bank. The Bank's results of operations are
primarily dependent on net interest margin, which is the difference between
interest income on interest-earning assets and interest expense on
interest-bearing liabilities. The Bank's income is also affected by the level of
its noninterest expenses, such as employee salary and benefits, occupancy
expenses and other expenses. The following discussion reviews the financial
condition at September 30, 1999, and the results of operations for the three
months ended September 30, 1999 and 1998.
The discussion set forth below, as well as other portions of this Form
10-Q, may contain forward-looking comments. Such comments are based upon the
information currently available to management of the Company and management's
perception thereof as of the date of the Form 10-Q. Actual results of the
Company's operations could materially differ from those forward-looking
comments. The differences could be caused by a number of factors or combination
of factors including, but limited to; changes in demand for banking services;
changes in portfolio composition; changes in management strategy; increased
competition from both bank and non-bank companies; and the ability to discover
and correct potential Year 2000 problem, which is discussed later.
11
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC.
Financial Condition
- -------------------
The Bank's total assets increased $151,701, or 0.1%, from $313,199,513
as of June 30, 1999, to $313,351,214 as of September 30, 1999.
Interest-bearing deposits in other financial institutions decreased
$3,762,390, or 46.8% from $8,032,473 as of June 30, 1999, to $4,270,083 as of
September 30, 1999.
Securities available-for-sale decreased $891,079, or 10.0% from
$8,951,175 as of June 30, 1999, to $8,060,096 as of September 30, 1999, this is
primarily due to the decrease in fair value of various equity securities.
Securities held-to-maturity decreased due to maturities and principal
repayments, by $5,379,558, or 34.9%, from $15,394,643 as of June 30, 1999, to
$10,015,085 as of September 30, 1999. The Bank continues to hold 96,000 shares
of Federal Home Loan Corporation ("FHLMC") stock with a amortized cost of
$94,000 in the available-for-sale category. As of September 30, 1999, the gross
unrealized gain on the stock was $4,898,000 a decrease from $5,474,000 as of
June 30, 1999.
Net loans receivable increased by $10,689,466, or 4.1%, from
$263,499,778, as of June 30, 1999, to $274,189,244, as of September 30, 1999,
and loans held-for-sale decreased by $140,421, or 18.3% from $769,074 as of June
30, 1999 to $628,653 as of September 30, 1999. Growth consisted of loans secured
by both owner and non-owner occupied residential real estate, which increased by
$4,068,000. In addition construction loans increased by $2,185,000, this was
primarily due to an increase of $2,873,000 on loans for the construction of 1-4
family units. Growth in loans receivable is anticipated to continue and
represents a major part of the Bank's planned assets growth.
Allowance for loan losses increased $45,000 or 1.9% from $2,349,328 of
June 30, 1999, to $2,394,328 as of September 30, 1999. The allowance increased
due to an increase in the provision for loan losses. The allowance for loan
losses as of September 30, 1999 and June 30, 1999 was .85%, and .89%
respectively, of net loans outstanding. As of September 30, 1999, the allowance
for loan losses was 275.2% of impaired loans versus 259.3% as of June 30, 1999.
Fair value of foreclosed assets held-for-sale decreased $101,546 from
$101,546 as of June 30, 1999, to $0 as of September 30, 1999. This decrease was
due to the sale of all foreclosed assets. The Bank recorded a gain of $13,372 on
the sale of these assets.
Deposits increased $2,031,479 or 1.4%, from $141,137,154 as of June 30,
1999, to $143,168,633 as of September 30, 1999. For the three months ending
September 30, 1999, checking and passbook accounts decreased by $66,696, or 0.1%
while certificates of deposits increased by $2,098,175 or 2.2%.
12
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC.
Financial Condition, continued
- ------------------------------
As a result of the increase in deposits, and decrease in loan demand,
FHLB advances decreased $1,460,368 or 1.4%, from $104,794,640 as of June 30,
1999, to $103,334,272 of September 30, 1999. As of September 30, 1999, the Bank
had the ability to borrow an additional $72.3 million from the FHLB.
Accrued expenses and other liabilities increased $958,287 or 192.0%
from $499,221 as of June 30, 1999, to $1,457,508 as of September 30, 1999. The
majority of this increase is due to a $0.20 per share dividend payable to
stockholders of record September 7, 1999, totaling $1,027,250.
Stockholders' equity (including unrealized appreciation on securities
available-for-sale, net of tax) decreased $2,142,185, or 3.4%, from $63,433,222
as of June 30, 1999, to $61,291,037 as of September 30, 1999. This decrease was
due to several factors. During this period a total of 146,400 shares of Company
stock were repurchased in the open market at a cost of $1,774,529. In addition,
dividends in the amount of $1,027,250 ($0.20 per share) were declared and
payable, at September 30, 1999, to stockholders' of record as of September 7,
1999. There was also a decrease in the unrealized appreciation on
available-for-sale securities of $374,056. On a per share basis, stockholders'
equity decreased from $11.98 as of June 30, 1999 to $11.89 as of September 30,
1999.
Analysis of core earnings
- -------------------------
The Company's profitability is primarily dependent upon net interest
income, which represents the difference between interest and fees earned on
loans and debt and equity securities, and the cost of deposits and borrowings.
Net interest income is dependent on the difference between the average balances
and rates earned on interest-earning assets and the average balances and rates
paid on interest-bearing liabilities. Net income is further affected by
non-interest income, non-interest expense and income taxes.
13
<PAGE>
The following table sets forth certain information relating to the
Company's average consolidated statements of financial condition and reflects
the average yield on assets and average cost of liabilities for the periods
indicated. Such yields and costs are derived by dividing income or expense
annualized by the average balance of assets or liabilities, respectively, for
the periods shown. Average balances were derived from average daily balances.
The average balance of loans includes loans on which the Company has
discontinued accruing interest. The yields and costs include fees which are
considered adjustments to yields.
<TABLE>
<CAPTION>
Three months ended Three months ended
September 30, 1999 September 30, 1998
-------------------------------- ----------------------------------
Average Yield/ Average Average Yield/ Average
Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ----
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning:
Loans $ 268,378 5,180 7.72% $ 215,962 4,383 8.12%
Investment securities 13,141 212 6.45% 29,182 433 5.94%
Other assets 17,403 170 3.91% 10,957 118 4.31%
------- ---- ----- ------- ---- -----
Total interest-earning 298,922 5,562 7.44% 256,101 4,934 7.71%
------ ----- ------ -----
Noninterest-earning 8,161 7,537
-------- --------
$ 307,083 $ 263,638
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing:
Savings accounts $ 8,526 48 2.25% $ 8,366 57 2.73%
Transaction accounts 34,077 243 2.85% 26,026 183 2.81%
Certificates of deposit 95,570 1,209 5.06% 98,950 1,346 5.44%
FHLB advances 101,464 1,485 5.85% 59,801 916 6.13%
-------- ------ ----- ------- ---- -----
Total interest-bearing 239,637 2,985 4.98% 193,143 2,502 5.18%
------ ----- ------ -----
Noninterest-bearing 4,130 3,104
------ ------
Total liabilities 243,767 196,247
Stockholders' equity 63,316 67,390
------- -------
$ 307,083 $ 263,637
========= =========
Net earning balance 59,285 62,958
======= =======
Earning yield less costing rate 2.46% 2.53%
===== =====
Net interest income, and
net yield spread on
interest earning assets $ 2,577 3.45% 2,432 3.80%
======== ===== ====== =====
Ratio on interest-earning assets to
interest-bearing liabilities 125% 133%
==== ====
</TABLE>
14
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC.
Results of Operations - Comparison of Three Month Periods
Ended September 30, 1999 and 1998
Net income for the three months ended September 30, 1999 was $860,098,
compared to net income of $798,103 for the three months ended September 30, 1998
which represents a increase in earnings of $61,995, or 7.8% for the three month
period.
Interest Income
- ---------------
Total interest income for the three months ended September 30, 1999,
increased $627,905 or 12.7% as compared to the three months ended September 30,
1998. For the three month period, the average yield on interest earning assets
decreased 27 basis points to 7.44% and the average balance outstanding increased
$42,821,000.
Interest Expense
- ----------------
Total interest expense for the three months ended September 30, 1999,
increased $482,811 or 19.3% when compared to the three months ended September
30, 1998. For the three month period, the average cost of interest bearing
liabilities decreased 20 basis points to 4.98% while the average balance
outstanding increased $46,494,000.
Net Interest Income
- -------------------
Net interest income for the three months ended September 30, 1999,
increased $145,094, or 6.0% when compared to the three months ended September
30, 1998. The increases in average balances of interest earning assets and
interest bearing liabilities discussed above contributed to the increase in net
interest income by approximately $227,000. This was offset by the decrease in
net earning yield by 7 basis points which resulted in a decrease in net interest
income of approximately $82,000.
Provision for Loan Losses
- -------------------------
Based primarily on the continued growth of the loan portfolio,
management decided to increase the loan loss reserve through a provision for
loan loss of $45,000 for the three months ended September 30, 1999, compared to
$45,000 for the three months ended September 30, 1998. The Bank will continue to
monitor its allowance for loan losses and make future additions based on
economic and regulatory conditions. Although the Bank maintains its allowance
for loan losses at a level which it considers to be sufficient to provide for
potential losses, there can be no assurance that future losses will not exceed
internal estimates. In addition, the amount of the allowance for loan losses is
subject to review by regulatory agencies which can order the establishment of
additional loss provisions.
15
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC.
Noninterest Income
- ------------------
Noninterest income increased $102,430 for the three months ended
September 30, 1999, or 37.8% compared to the three months ended September 30,
1998. The increase was primarily due to the increase in checking account
customers which has resulted in more service charge income. Service charges on
checking accounts increased $66,517 for the three months ended September 30,
1999, or 32.3% compared to the three months ended September 30, 1998.
Noninterest Expense
- -------------------
Noninterest expense increased $123,104 for the three months ended
September 30, 1999 or 8.7% as compared to the three months ended September 30,
1998. In general this increase can be attributed to the overall increase in
accounts served. There were no significant changes in any individual expense
category.
Provision for Income Taxes
- --------------------------
There was a $62,245 increase in the provision for income taxes for the
three months ended September 30, 1999, as compared to the same period in 1998.
This increase was due to the increase in before tax income for the three months
ended September 30, 1999, compared to the same period in 1998.
16
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC.
Nonperforming Assets
- --------------------
The allowance for loan losses is calculated based upon an evaluation of
pertinent factors underlying the various types and quality of the loans.
Management considers such factors as the repayment status of a loan, the
estimated net realizable value of the underlying collateral, the borrower's
intent and ability to repay the loan, local economic conditions and the Bank's
historical loss ratios. The Bank's allowance for loan losses as of September 30,
1999, was $2,394,328 or 0.9% of loans receivable. Total assets classified as
substandard or loss as of September 30, 1999, were $1,063,685 or 0.3% of total
assets. Management has considered nonperforming and total classified assets in
evaluating the adequacy of the Bank's allowance for loan losses.
The ratio of nonperforming assets to total assets is another useful
tool in evaluating exposure to credit risk. Nonperforming assets of the Bank
include nonperforming loans (nonaccruing loans) and assets which have been
acquired as a result of foreclosure or deed-in-lieu of foreclosure.
9/30/99 6/30/99 6/30/98
(Dollars In Thousands)
Nonperforming loans $ 870 906 1,012
Real estate acquired in
settlement of loans - 101 286
----- ----- -----
Total Nonperforming Assets $ 870 1,007 1,298
===== ===== =====
Total Nonperforming Assets
as a Percentage of Total
Assets 0.28% 0.32% 0.50%
Allowance for loan losses $2,394 2,349 2,191
Allowance for loan losses as a
Percentage of average loans, net 0.89% 1.00% 1.24%
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. 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.
17
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC.
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, 1999, ARMs constituted 59.3% of the Bank's mortgage loan portfolio. As of
September 30, 1999, ARMs represent 60.3% of the loan portfolio. Of the ARMs
originated during the first quarter of fiscal year 2000, borrowers preferred
initial fixed rate periods of three or five years. The Bank has continued to
fund fixed rate loans through a program of borrowing longer-term funds from the
FHLB.
The Bank is also managing interest rate risk by the origination of
construction loans. As of September 30, 1999, such loans made up 9.7% 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, 1999, the Bank's savings
accounts, checking accounts, and money market deposit accounts totaled
$46,736,183 or 33.1% of its total deposits. As of September 30,1999, these
accounts totaled $46,669,487 or 32.6% 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.
18
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC.
Interest Rate Sensitivity Analysis
- ----------------------------------
The following table sets forth as of June 30, 1999 (the most recent
available), 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.
<TABLE>
<CAPTION>
BP Change Estimated Net Portfolio Value NPV as % of PV of Assets
- --------- ---------------------------------------------- ------------------------
in Rates $ Amount $ Change % Change NPV Ratio BP Change
<S> <C> <C> <C> <C> <C>
+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
</TABLE>
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.
19
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC.
Interest Rate Sensitivity Analysis, continued
- ---------------------------------------------
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. 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's primary sources of funds are deposits, principal and
interest payments on loans, and securities and extensions of credit from the
Federal Home Loan Bank of Des Moines. While scheduled loan and security
repayments and the maturity of short-term investments are somewhat predictable
sources of funding, deposit flows are influenced by many factors which make
their cash flows difficult to anticipate. Office of Thrift Supervision
regulations require the Bank to maintain cash and eligible investments in an
amount equal to at least 4% of customer accounts and short-term borrowings to
assure its ability to meet demands for withdrawals and repayment of short-term
borrowings. As of September 30, 1999, the Bank's liquidity ratio was 11.6%,
which exceeded the minimum regulatory requirement.
The Bank uses its liquidity resources principally to satisfy its
ongoing commitments which include funding loan commitments, funding maturing
certificates of deposit as well as deposit withdrawals, maintaining liquidity,
purchasing investments, and meeting operating expenses. As of September 30,
1999, the Bank had approximately $4,448,000 in commitments to originate mortgage
loans and $16,685,000 in loans-in-process on mortgage loans. These commitments
will be funded through existing cash balances, cash flow from operations and, if
required, FHLB advances . Management believes that anticipated cash flows and
deposit growth will be adequate to meet the Bank's liquidity needs.
20
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC.
Impact of Year 2000
As with all financial institutions, the Year 2000 issue is considered
high priority. Through much evaluation and testing, the banking industry is
being regarded as one of the most prepared. We have evaluated and tested all
systems we consider mission-critical. Mission-critical systems are defined as
systems that the Bank considers being crucial to the basic daily operation.
Core business processes have also been evaluated.
In addition to our own in-house testing, the Bank participated as a
proxy institution in testing services and applications provided by our online
service bureau. This means our actual data in regards to accounts and balances,
date specific processes, as well as calculations were used in the testing
process. It was our opinion that actually using our own data for testing was
more important than relying on other institutions' results-based reports.
The evaluation of risk was categorized into three areas: (1) our own
systems, (2) systems used by borrowers, depositors, and business partners, and
(3) systems provided by data processing services.
Our own systems. The Bank has spent $175,000 for hardware and software
upgrades to our computer systems. We do not expect any further material costs.
We believe our computers are Year 2000 compliant in all material respects.
Systems 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 feel that most of our residential
customers are not dependent on their individual 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 favorably evaluated the responses.
21
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC.
Impact of Year 2000, continued
Systems provided by data processing services. This category is the most
vital to the core business processes the Bank performs. We use an online data
service bureau and other third-party vendors to process all transactional and
reporting business. As mentioned, we have participated as a proxy institution in
testing the core processing system with our service bureau. The Bank went
through the processes of gathering pertinent account information and test
transactions, entering data in a staged post-Year2000 environment, documenting
information, and reviewing testing results. Our findings were addressed by the
service bureau, and corrections made where applicable. Other third-party vendors
have also been tested, either directly by us or, when applicable, in conjunction
with our service bureau. In the aggregate, testing has been completed on these
systems.
Contingency planning. We have identified potential points of failure
for each of our mission critical systems. For each potential failure we have
developed 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.
22
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC.
PART II
Item 1. Legal Proceedings
- ------- -----------------
None.
Item 2. Changes in Securities
- ------- ---------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
- ------- -------------------------------
Not applicable.
Item 4. Submission of Matters to Vote of Common Stockholders
- ------- ----------------------------------------------------
None.
Item 5. Other Information
- ------- -----------------
None.
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
a) Exhibits
None.
b) Reports on Form 8-K
None.
23
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Guaranty Federal Bancshares, Inc.
Signatures Date
---------- ----
/s/ James E. Haseltine November 12, 1999
- ------------------------- ---------------------------
James E. Haseltine
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Bruce Winston November 12, 1999
- ------------------------- ---------------------------
Bruce Winston
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
24
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> SEP-30-1999
<CASH> 1,468
<INT-BEARING-DEPOSITS> 4,270
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8,060
<INVESTMENTS-CARRYING> 10,015
<INVESTMENTS-MARKET> 10,350
<LOANS> 277,212
<ALLOWANCE> 2,394
<TOTAL-ASSETS> 313,351
<DEPOSITS> 143,169
<SHORT-TERM> 103,334
<LIABILITIES-OTHER> 5,557
<LONG-TERM> 0
0
0
<COMMON> 625
<OTHER-SE> 60,666
<TOTAL-LIABILITIES-AND-EQUITY> 313,351
<INTEREST-LOAN> 5,180
<INTEREST-INVEST> 212
<INTEREST-OTHER> 170
<INTEREST-TOTAL> 5,562
<INTEREST-DEPOSIT> 1,500
<INTEREST-EXPENSE> 1,485
<INTEREST-INCOME-NET> 2,577
<LOAN-LOSSES> (15)
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 373
<INCOME-PRETAX> 1,372
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 860
<EPS-BASIC> .16
<EPS-DILUTED> .16
<YIELD-ACTUAL> 3.45
<LOANS-NON> 870
<LOANS-PAST> 105
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 876
<ALLOWANCE-OPEN> 2,349
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 2,394
<ALLOWANCE-DOMESTIC> 2,394
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
