<PAGE>
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, 2000
------------------
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) 520-4333
--------------
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 13, 2000
----- --------------------------------
Common Stock, Par Value $0.10 4,448,965 Shares
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC.
Form 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Page
PART I. Financial Information
<S> <C>
1. Consolidated Financial Statements (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 Statements 8
2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9
3. Quantitative and Qualitative Disclosures about Market Risk 13
PART II. Other Information
1. Legal Proceedings 16
2. Changes in Securities and Use of Proceeds 16
3. Defaults Upon Senior Securities 16
4. Submission of Matters to Vote of Security-holders 16
5. Other Information 16
6. Exhibits and Reports on Form 8-K 16
Signatures 17
</TABLE>
2
<PAGE>
Guaranty Federal Bancshares, Inc.
Form 10-Q for September 30, 2000
PART I
Item 1. Financial Statements
----------------------------
GUARANTY FEDERAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 2000 (UNAUDITED) AND JUNE 30, 2000
<TABLE>
<CAPTION>
9/30/2000 6/30/2000
--------- ---------
<S> <C> <C>
ASSETS
Cash $ 2,052,335 1,906,757
Interest-bearing deposits in other financial institutions 6,295,524 7,250,514
------------- -------------
Cash and cash equivalents 8,347,859 9,157,271
Available-for-sale securities 16,528,550 13,645,307
Held-to-maturity securities 6,411,195 6,768,672
Stock in Federal Home Loan Bank, at cost 7,400,400 6,875,400
Mortgage loans held for sale 1,273,503 995,286
Loans receivable, net of allowance for loan losses;
9/30/2000 - $2,548,255; 6/30/2000 - $2,519,946 299,404,477 295,057,753
Accrued interest receivable:
Loans 1,749,559 1,651,760
Investments 199,314 174,123
Prepaid expenses and other assets 1,204,802 728,989
Foreclosed assets held for sale - 1,625
Premises and equipment 7,248,325 6,800,198
------------- -------------
$ 349,767,984 341,856,384
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 140,220,897 144,607,238
Federal Home Loan Bank advances 148,006,790 136,507,147
Advances from borrowers for taxes and insurance 1,831,368 1,384,231
Accrued expenses and other liabilities 2,313,511 828,709
Accrued interest payable 818,717 959,354
Income taxes payable 844,614 333,772
Deferred income taxes 1,138,568 650,543
------------- -------------
295,174,465 285,270,994
------------- -------------
STOCKHOLDERS' EQUITY
Common Stock:
$0.10 par value; authorized 10,000,000 shares;
issued; 9/30/2000 - 6,252,197 shares, 6/30/2000 - 6,250,037 shares 625,220 625,004
Additional paid-in capital 48,047,679 47,921,681
Unearned ESOP shares (2,811,183) (2,870,440)
Retained earnings, substantially restricted 24,517,614 24,654,965
Accumulated other comprehensive income
Unrealized appreciation on available-for-sale securities,
net of income taxes; 9/30/2000 - $1,787,111, 6/30/2000 - $1,408,906 3,042,918 2,398,947
------------- -------------
73,422,248 72,730,157
Treasury stock, at cost;
9/30/2000 - 1,602,434 shares, 6/30/2000 - 1,383,321 shares (18,828,729) (16,144,767)
------------- -------------
54,593,519 56,585,390
------------- -------------
$ 349,767,984 341,856,384
============= =============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
<PAGE>
GUARANTY FEDERAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Guaranty Federal Three Bancshares Months Ended September 30, 2000 And 1999
(Unaudited)
Form 10-Q for September 30, 2000
<TABLE>
<CAPTION>
9/30/00 9/30/99
------------ ------------
<S> <C> <C>
INTEREST INCOME
Loans $ 5,968,170 5,179,899
Investment securities 293,749 211,967
Other 275,868 169,928
------------ ------------
Total Interest Income 6,537,787 5,561,794
------------ ------------
INTEREST EXPENSE
Deposits 1,629,321 1,499,578
Federal Home Loan Bank advances 2,216,867 1,485,396
------------ ------------
Total Interest Expense 3,846,188 2,984,974
------------ ------------
Net Interest Income 2,691,599 2,576,820
Provision for Loan Losses 30,000 45,000
------------ ------------
Net Interest Income after
Provision for Loan Losses 2,661,599 2,531,820
------------ ------------
NONINTEREST INCOME (LOSS)
Service charges 307,765 272,417
Late charges and other fees 58,239 56,611
Gain (loss) on loans and investment securities 42,953 (14,586)
Income on foreclosed assets 280 13,372
Other income 30,669 45,524
------------ ------------
Total Noninterest Income 439,906 373,338
------------ ------------
NONINTEREST EXPENSE
Salaries and employee benefits 937,243 807,058
Occupancy 212,340 205,092
SAIF deposit insurance premiums 99,013 20,072
Data processing fees 7,661 113,739
Advertising 126,553 90,331
Other expense 355,802 296,609
------------ ------------
Total Noninterest Expense 1,738,612 1,532,901
------------ ------------
Income Before Income Taxes 1,362,893 1,372,257
Provision for Income Taxes 499,458 512,159
------------ ------------
NET INCOME 863,435 860,098
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized appreciation (depreciation) on
available-for-sale securities, net of income taxes of $378,204
and $(219,684) for 2000 and 1999, respectively 643,971 (374,056)
------------ ------------
COMPREHENSIVE INCOME $ 1,507,406 486,042
============ ============
BASIC EARNINGS PER SHARE $ 0.19 0.16
============ ============
DILUTED EARNINGS PER SHARE $ 0.19 0.16
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
<PAGE>
Guaranty Federal Bancshares, Inc.
Form 10-Q For September 30, 2000
GUARANTY FEDERAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
Accumulated Other
Comprehensive
Income
-------------------
Unrealized
Additional Appreciation on
Common Paid-In Unearned Retained Available-for-Sale Treasury
Stock Capital ESOP Shares Earnings Securities, Net Stock Total
--------- ---------- ------------ ---------- ------------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 2000 $625,004 47,921,681 (2,870,440) 24,654,965 2,398,947 (16,144,767) 56,585,390
Net income - - - 863,435 - - 863,435
Dividends on common stock,
($0.23 per share on 4,351,241 shares) - - - (1,000,786) - - (1,000,786)
Recognition and Retention Plan (RRP) &
Restricted Stock Plan (RSP):
RRP and RSP expense - 133,936 - - - - 133,936
Tax liability of RRP & RSP shares - (26,474) - - - - (26,474)
Stock options exercised 216 12,787 - - - - 13,003
Release of ESOP shares - 5,749 59,257 - - - 65,006
Treasury stock purchased - - - - - (2,683,962) (2,683,962)
Change in unrealized appreciation on
available-for-sale securitites, net of
income taxes of $378,204 - - - - 643,971 - 643,971
-------- ---------- ---------- ---------- --------- ----------- ----------
Balance, September 30, 2000 $625,220 48,047,679 (2,811,183) 24,517,614 3,042,918 (18,828,729) 54,593,519
======== ========== ========== ========== ========= =========== ==========
</TABLE>
See Notes to Condensed Consolidated Finacial Statements
5
<PAGE>
Guaranty Federal Bancshares, Inc.
Form 10-Q For September 30, 2000
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
Additional (Depreciation) on
Common Paid-In Unearned Retained Available-for-Sale Treasury
Stock Capital ESOP Shares Earnings Securities, Net Stock Total
--------- ---------- ------------ ---------- ------------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1999 $624,578 47,366,264 (3,100,080) 23,236,009 3,438,826 (8,132,375) 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) &
Restricted Stock Plan (RSP):
RRP and RSP expense - 121,336 - - - - 121,336
Tax liability of RRP shares - (19,439) - - - - (19,439)
Stock options exercised 49 2,949 - - - - 2,998
Release of ESOP shares - 11,247 57,410 - - - 68,657
Treasury stock purchased - - - - - (1,774,529) (1,774,529)
Change in unrealized appreciation on
available-for-sale securities, net of
income taxes of $(219,684) - - - - (374,056) - (374,056)
-------- ---------- ---------- ---------- --------- ---------- ----------
Balance, September 30, 1999 $624,627 47,482,357 (3,042,670) 23,068,857 3,064,770 (9,906,904) 61,291,037
======== ========== ========== ========== ========= ========== ==========
</TABLE>
See Notes to Condensed Cosolidate Financial Statements
6
<PAGE>
Guaranty Federal Bancshares, Inc.
Form 10-Q for September 30, 2000
GUARANTY FEDERAL BANCSHARES, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
9/30/00 9/30/99
--------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 863,435 860,098
Items not requiring (providing) cash:
Deferred income taxes 109,821 88,661
Depreciation 130,233 104,523
Provision for loan losses 30,000 45,000
(Gain) loss on loans and investment securities (42,953) 14,586
(Gain) loss on sale of foreclosed assets 1,070 (13,372)
Amortization of deferred income, premiums and discounts (2,338) 24,086
RRP/RSP expense 133,936 121,336
Origination of loans held for sale (4,757,435) (570,534)
Proceeds from sale of loans held for sale 4,521,189 696,369
Release of ESOP shares 65,006 68,657
Changes in:
Accrued interest receivable (122,990) 136,487
Prepaid expenses and other assets (475,813) 50,720
Accounts payable and accrued expenses 343,379 (61,005)
Income taxes payable 484,368 397,066
--------------- -------------
Net cash provided by operating activities 1,280,908 1,962,678
--------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans (4,372,613) (10,752,440)
Principal payments on available-for-sale securities 21,000 296,260
Principal payments on held-to-maturity securities 355,750 674,525
Purchase of premises and equipment (578,360) (98,292)
Purchase of available-for-sale securities (2,000,000) -
Proceeds from maturities of held-to-maturity securities - 4,700,000
Proceeds from sale of available-for-sale securities 118,868 -
Purchase of FHLB stock (525,000) (119,500)
Proceeds from sale of foreclosed assets 555 114,918
--------------- -------------
Net cash used in investing activities (6,979,800) (5,184,529)
--------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Stock options exercised 13,003 2,998
Net decrease in demand deposits,
NOW accounts and savings accounts (2,765,009) (66,696)
Net increase (decrease) in certificates of deposit (1,621,332) 2,098,175
Proceeds from FHLB advances 24,000,000 3,019,600
Repayments of FHLB advances (12,500,357) (4,479,968)
Advances from borrowers for taxes and insurance 447,137 471,048
Treasury stock purchased (2,683,962) (1,774,529)
--------------- -------------
Net cash provided by (used in) financing activities 4,889,480 (729,372)
--------------- -------------
DECREASE IN CASH AND CASH EQUIVALENTS (809,412) (3,951,223)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 9,157,271 9,689,121
--------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 8,347,859 5,737,898
=============== =============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
7
<PAGE>
Guaranty Federal Bancshares, Inc.
Form 10-Q for September 30, 2000
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: 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.
The results of operations for the period are not necessarily indicative of
the results to be expected for the full year.
These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Form 10-K annual report for 2000 filed with the
Securities and Exchange Commission. The condensed consolidated balance sheet of
the Company as of June 30, 2000, has been derived from the audited consolidated
balance sheet of the Company as of that date. Certain information and note
disclosures normally included in the Company's annual financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted.
Note 2: Principles of Consolidation
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 3: 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.
On February 17, 2000, the directors of the Company established the Stock
Compensation Plan (the "2000 SCP") with both a stock award component and stock
option component. Under the stock award component of this plan, the Committee
awarded 7,125 shares of the Company's common stock. As of September 30, 2000,
all of the RRP and RSP shares have been purchased and all except 1,661 shares
have been awarded. As of September 30, 2000, the stock award component of the
2000 SCP has not been funded. The Bank is amortizing the RRP, RSP and SCP
expense over each participant's vesting period. The Company recognized $133,936
of expense under these stock award plans for the three month period ended
September 30, 2000. The SOP, 1998 SOP and the 2000 SCP authorized stock options
on shares to be issued to officers and employees of the Bank, as of September
30, 2000 all options except those on 27,619 shares have been granted. The RRP,
RSP, SOP,1998 SOP and 2000 SCP vest over a five year period. As of September 30,
2000, there were 577,825 unexercised options that have been granted at prices
ranging from $5.83 to $13.44 per share and 132,639 RRP ,RSP and 2000 SCP shares
were unvested.
8
<PAGE>
Guaranty Federal Bancshares, Inc.
Form 10-Q for September 30, 2000
Note 4: Earnings Per Share
<TABLE>
<CAPTION>
For three months ended September 30, 2000
-------------------------------------------
Average
Income Available Shares
to Stockholders Outstanding Per-share
---------------- ----------- ---------
<S> <C> <C> <C>
Basic Earnings per Share $ 863,435 4,469,004 $ 0.19
=========
Effect of Dilutive Securities: Stock Options 54,103
---------
Diluted Earnings per Share $ 863,435 4,523,107 $ 0.19
========== ========= =========
<CAPTION>
For three months ended September 30, 1999
-------------------------------------------
Average
Income Available Shares
to Stockholders Outstanding Per-share
---------------- ----------- ---------
<S> <C> <C> <C>
Basic Earnings per Share $ 860,098 5,216,265 $ 0.16
=========
Effect of Dilutive Securities: Stock Options 57,869
---------
Diluted Earnings per Share $ 860,098 5,274,134 $ 0.16
========== ========= =========
</TABLE>
Options to purchase 5,000, 16,704, 5,000 and 417,630 shares of common stock
at $11.75, $12.25, $12.63 and $13.44 per share, respectively, outstanding during
the three months ended September 30, 2000, 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.
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.
The primary function of the Company has been to monitor its investment in
the Bank. As a result, the results of operations 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, 2000, and the results of operations for the three months ended
September 30, 2000 and 1999.
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 changes in the general
level of interest rates.
9
<PAGE>
Guaranty Federal Bancshares, Inc.
Form 10-Q for September 30, 2000
Financial Condition
The Company's's total assets increased $7,911,600 (2%) from $341,856,384 as
of June 30, 2000, to $349,767,984 as of September 30, 2000.
Interest-bearing deposits in other financial institutions decreased
$954,990 (13%) from $7,250,514 as of June 30, 2000, to $6,295,524 as of
September 30, 2000, as the funds were used to fund new loans.
Securities available-for-sale increased $2,883,243 (21%) from $13,645,307
as of June 30, 2000, to $16,528,550 as of September 30, 2000. This is primarily
due to purchases of $2,000,000 of investment securities and the increase in fair
value of various equity securities. The Bank continues to hold 96,000 shares of
Federal Home Loan Mortgage Corporation ("FHLMC") stock with an amortized cost of
$94,000 in the available-for-sale category. As of September 30, 2000, the gross
unrealized gain on the stock was $5,096,000, a increase from $3,794,000 as of
June 30, 2000.
Securities held-to-maturity decreased due to maturities and principal
repayments, by $357,477 (5%) from $6,768,672 as of June 30, 2000, to $6,411,195
as of September 30, 2000.
Net loans receivable increased by $4,346,724 (1%) from $295,057,753 as of
June 30, 2000, to $299,404,477 as of September 30, 2000. Permanent mortgage
loans secured by both owner and non-owner occupied residential real estate
increased by $5,295,000 and construction loans increased by $1,217,000. Loan
growth is anticipated to continue and represents a major part of the Bank's
planned assets growth.
Allowance for loan losses increased $28,309 (1%) from $2,519,946 as of June
30, 2000 to $2,548,255 as of September 30, 2000. The allowance increased due to
the provision for loan losses for the period exceeding net loan charge-offs.
The allowance for loan losses as of September 30, 2000 and June 30, 2000 was
0.85%, of net loans outstanding. As of September 30, 2000, the allowance for
loan losses was 54% of impaired loans versus 53% as of June 30, 2000.
Premises and equipment increased $448,127 (7%) from $6,800,198 as of June
30, 2000 to $7,248,325 as of September 30, 2000. The increase is due to the
additions related to the Company's new branch office.
Deposits decreased $4,386,341 (3%) from $144,607,238 as of June 30, 2000,
to $140,220,897 as of September 30, 2000. For the three months ended September
30, 2000, checking and savings accounts decreased by $2,765,009 (5%) while
certificates of deposits decreased by $1,621,332 (2%).
In order to fund the increase in loan demand and the repurchase of Company
stock, the Company increased borrowings from the Federal Home Loan Bank (the
"FHLB") by $11,499,643 (8%) from $136,507,147 as of June 30, 2000, to
$148,006,790 as of September 30, 2000. As of September 30, 2000, the Bank had
the ability to borrow an additional $47 million from the FHLB.
Advances from borrowers for taxes and insurance increased $447,137 (32%)
from $1,384,231 of June 30, 2000, to $1,831,368 as of September 30, 2000.
Accrued expenses and other liabilities increased $1,484,802 (179%) from
$828,709 as of June 30, 2000, to $2,313,511 as of September 30, 2000. The
majority of this increase is due to a $0.23 per share dividend payable to
stockholders of record September 5, 2000, totaling $1,000,786.
Stockholders' equity (including unrealized appreciation on securities
available-for-sale, net of tax) decreased $1,991,871 (4%) from $56,585,390 as of
June 30, 2000, to $54,593,519 as of September 30, 2000. This decrease was due
to several factors. During this period the Company repurchased a total of
219,113 of its outstanding shares in the open market at a cost of $2,683,962.
In addition, dividends in the amount of $1,000,786 ($0.23 per share) were
declared and paid, on October 15, 2000, to stockholders' of record as of
September 5, 2000. There was an increase in the unrealized appreciation on
available-for-sale securities of $643,971. On a per share basis, stockholders'
equity increased from $12.36 as of June 30, 2000 to $12.50 as of September 30,
2000.
10
<PAGE>
Guaranty Federal Bancshares, Inc.
Form 10-Q for September 30, 2000
Average Balances, Interest and Average Yields
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. Non-interest income, non-interest expense,
and income taxes also impact net income.
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. All dollar amounts are in thousands.
<TABLE>
<CAPTION>
Three Months ended 9/30/2000 Three Months ended 9/30/1999
-------------------------------- -------------------------------
Average Yield / Average Yield/
Balance Interest Cost Balance Interest Cost
--------- -------- -------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning:
Loans $ 297,971 5,968 8.01% $ 268,378 5,180 7.72%
Investment securities 15,392 294 7.64% 13,141 212 6.45%
Other assets 16,786 276 6.58% 17,403 170 3.91%
--------- ------- ----- --------- ------ -----
Total interest-earning 330,149 6,538 7.92% 298,922 5,562 7.44%
Noninterest-earning 7,697 8,161
--------- ---------
$ 337,846 $ 307,083
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing:
Savings accounts $ 8,257 59 2.86% $ 8,526 48 2.25%
Transaction accounts 37,380 296 3.17% 34,077 243 2.85%
Certificates of Deposit 90,014 1,275 5.67% 95,570 1,209 5.06%
FHLB Advances 141,355 2,217 6.27% 101,464 1,485 5.85%
--------- ------- ----- --------- ------ -----
Total interest-bearing 277,006 3,847 5.56% 239,637 2,985 4.98%
Noninterest-bearing 5,141 4,130
--------- ---------
Total liabilities 282,147 243,767
Stockholders' equity 55,699 63,316
--------- ---------
$ 337,846 $ 307,083
========= =========
Net earning balance $ 53,143 $ 59,285
========= =========
Earning yield less costing rate 2.36% 2.46%
===== =====
Net interest income, and net yield
spread on interest earning assets $ 2,691 3.26% $ 2,577 3.45%
======= ===== ======= =====
Ratio of interest-earning assets to
interest-bearing liabilities 119% 125%
======= =======
</TABLE>
11
<PAGE>
Guaranty Federal Bancshares, Inc.
Form 10-Q for September 30, 2000
Results of Operations - Comparison of Three Month Periods Ended September 30,
2000 and 1999
Net income for the three months ended September 30, 2000 was $863,435
($0.19 per share) as compared to $860,098 ($0.16 per share) for the three months
ended September 30, 1999, which represents an increase in earnings of $3,337 for
the three month period.
Interest Income
Total interest income for the three months ended September 30, 2000,
increased $975,993 (18%) as compared to the three months ended September 30,
1999. For the three month period ended September 30, 2000 compared to the same
period in 1999, the average yield on interest earning assets increased 48 basis
points to 7.92%, while the average balance of interest earnings assets increased
$31,227,000.
Interest Expense
Total interest expense for the three months ended September 30, 2000,
increased $861,214 (29%) when compared to the three months ended September 30,
1999. For the three month period ended September 30, 2000, the average cost of
interest bearing liabilities increased 58 basis points to 5.56% while the
average balance increased $37,369,000 when compared to the same period in 1999.
Net Interest Income
Net interest income for the three months ended September 30, 2000,
increased $114,779 (4%) when compared to the same period in 1999. The average
balance of interest bearing liabilities increased $6,142,000 more than the
average balance in interest earning assets. This reduction in net interest
earning assets was due to the purchase of treasury stock funded by Federal Home
Loan Bank borrowings. For the three month period ended September 30, 2000, the
earning yield minus the costing rate spread declined 10 basis points to 2.36%.
Provision for Loan Losses
Based primarily on the continued growth of the loan portfolio,
management decided to increase the allowance for loan losses through a provision
for loan loss of $30,000 for the three months ended September 30, 2000, and of
$45,000 for the same period in 1999. The Bank will continue to monitor its
allowance for loan losses and make future additions based on economic and
regulatory conditions. Although the Bank maintains its allowance for loan losses
at a level, which it considers to be sufficient to provide for potential losses,
there can be no assurance that future losses will not exceed internal estimates.
In addition, the amount of the allowance for loan losses is subject to review by
regulatory agencies which can order the establishment of additional loss
provisions.
Noninterest Income
Noninterest income increased $66,568 (18%) for the three months ended
September 30, 2000, when compared to the three months ended September 30, 1999.
These increases were primarily due to an increase in checking account service
charges, of $35,348 (13%) for the three months.
Noninterest Expense
Noninterest expense increased $205,711 (13%) for the three months ended
September 30, 2000, when compared to the three months ended September 30, 1999.
This increase can be attributed to the Company's conversion from a service
bureau to an in-house computer system and the overall increase in accounts
served.
Provision for Income Taxes
The provision for income taxes decreased $12,701 (2%) for the three
months ended September 30, 2000, as compared to the same period in 1999. This
decrease was due to the decrease in before tax income for the three months ended
September 30, 2000, compared to the same period in 1999.
12
<PAGE>
Guaranty Federal Bancshares, Inc.
Form 10-Q for September 30, 2000
Item 3. Quantitative and Qualitative Disclosures about Market Risk
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,
2000, was $2,548,255 or 0.8% of loans receivable. Total assets classified as
substandard or loss as of September 30, 2000, were $6,181,053 or 1.8% of total
assets. Management has considered nonperforming and total classified assets in
evaluating the adequacy of the Bank's allowance for loan losses.
The ratio of nonperforming assets to total assets is another useful
tool in evaluating exposure to credit risk. Nonperforming assets of the Bank
include nonperforming loans (nonaccruing loans) and assets which have been
acquired as a result of foreclosure or deed-in-lieu of foreclosure. All dollar
amounts are in thousands.
<TABLE>
<CAPTION>
9/30/00 6/30/00 6/30/99
------- ------- -------
<S> <C> <C> <C>
Nonperforming loans $ 4,708 4,757 906
Real estate acquired in settlement of loans - 2 101
------- ------- -------
Total nonperforming assets $ 4,708 4,759 1,007
======= ======= =======
Total nonperforming assets as a percentage of total assets 1.35% 1.39% 0.32%
Allowance for loan losses $ 2,548 2,520 2,349
Allowance for loan losses as a percentage of average net loans 0.86% 0.89% 1.00%
</TABLE>
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 designed to
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.
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, 2000, ARMs constituted 62% of the Bank's loan portfolio. As of September 30,
2000, ARMs represent 65% of the loan portfolio. Of the ARMs originated during
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, 2000, such loans made up 9.3% 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, 2000, the Bank's savings
accounts, checking accounts, and money market deposit accounts totaled
$53,098,478 or 37% of its total deposits. As of September 30, 2000, these
13
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Guaranty Federal Bancshares, Inc.
Form 10-Q for September 30, 2000
accounts totaled $50,333,469 or 36% 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, 2000 (the most recent
available), 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.
BP Change Estimated Net Portfolio Value NPV as % of PV of Assets
------------------------------ ------------------------
in Rates $ Amount $ Change % Change NPV Ratio Change
--------- -------- --------- -------- --------- ------
+300 $ 53,481 $ (6,843) 11% 16.74% -1.07%
+200 56,555 (3,769) -6% 17.32% -0.49%
+100 58,925 (1,399) -2% 17.70% -0.11%
NC 60,324 17.81%
-100 60,587 263 0% 17.63% -0.18%
-200 59,318 (1,006) -2% 17.07% -0.74%
-300 57,585 (2,739) -5% 16.40% -1.41%
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. 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.
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-
14
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Guaranty Federal Bancshares, Inc.
Form 10-Q for September 30, 2000
term borrowings. As of September 30, 2000, the Bank's liquidity ratio was 11.2%
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,
2000, the Bank had approximately $1,734,000 commitments to originate mortgage
loans and $17,273,395 in loans-in-process on mortgage loans. These commitments
will be funded through existing cash balances, cash flow from operations and, if
required, FHLB advances . Management believes that anticipated cash flows and
deposit growth will be adequate to meet the Bank's liquidity needs.
15
<PAGE>
Guaranty Federal Bancshares, Inc.
Form 10-Q for September 30, 2000
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
The annual meeting of stockholders of the registrant was held on
October 25, 2000. At the meeting the stockholders elected Gary Lipscomb and Kurt
Hellweg to three-year terms as director of the Savings Bank, while Jack Barham,
Wayne Barnes, James Haseltine, Ivy Rogers and Raymond Tripp continue to serve as
directors. Also at that meeting , Baird, Kurtz and Dobson was ratified as
Independent Certified Public Accountants. These same entities serve in identical
capacities for the subsidiary bank of the registrant.
The results of voting are shown for each matter considered.
Director election:
Nominee Votes For Votes Withheld
------- --------- --------------
Kurt Hellweg 4,007,699 83,172
Gary Lipscomb 4,009,099 81,772
Auditor ratification:
Votes for 4,061,771
Votes against 18,147
Abstentions 10,953
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
10.6 2000 Stock Compensation Plan
b) Reports on Form 8-K
None.
<PAGE>
Guaranty Federal Bancshares,Inc.
Form 10-Q for September 30, 2000
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Guaranty Federal Bancshares, Inc.
Signature and Title Date
/s/ James E. Haseltine November 13, 2000
---------------------- -----------------
James E. Haseltine
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Bruce Winston
-----------------
Bruce Winston November 13, 2000
-----------------
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
