10-Q 1 d10q.txt 10-Q 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 March 31, 2002 -------------- 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 May 6, 2002 ----- -------------------------- Common Stock, Par Value $0.10 3,028,315 Shares GUARANTY FEDERAL BANCSHARES, INC. Form 10-Q TABLE OF CONTENTS
Item Page PART I. Financial Information 1. Condensed Consolidated Financial Statements (Unaudited): Statements of Financial Condition 3 Statements of Income 4 Statements of 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 15 PART II. Other Information 1. Legal Proceedings 17 2. Changes in Securities and Use of Proceeds 17 3. Defaults Upon Senior Securities 17 4. Submission of Matters to Vote of Security Holders 17 5. Other Information 17 6. Exhibits and Reports on Form 8-K 17 Signatures 18
2 GUARANTY FEDERAL BANCSHARES, INC. FORM 10-Q FOR MARCH 31, 2002 PART I Item 1. Financial Statements ---------------------------- GUARANTY FEDERAL BANCSHARES, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION MARCH 31, 2002 (UNAUDITED) AND JUNE 30, 2001
3/31/02 6/30/2001 ------------- ------------ ASSETS Cash $ 2,705,325 2,665,287 Interest-bearing deposits in other financial institutions 32,719,899 7,648,271 ------------- ------------ Cash and cash equivalents 35,425,224 10,313,558 Available-for-sale securities 16,921,859 19,447,892 Held-to-maturity securities 3,513,110 4,545,866 Stock in Federal Home Loan Bank, at cost 8,600,400 8,600,400 Mortgage loans held for sale 3,493,430 2,862,793 Loans receivable, net of allowance for loan losses; 3/31/2002 - $2,607,423; 6/30/2001 - $2,697,389 314,666,388 317,243,111 Accrued interest receivable: Loans 1,635,004 1,940,922 Investments 77,156 207,831 Prepaid expenses and other assets 1,807,400 1,168,750 Foreclosed assets held for sale 530,727 4,200 Premises and equipment 7,580,809 7,758,082 ------------- ------------ $ 394,251,507 374,093,405 ============= ============ LIABILITIES AND STOCKHOLDERS ' EQUITY LIABILITIES Deposits $ 229,212,040 170,647,500 Federal Home Loan Bank advances 112,611,859 146,656,583 Securities sold under agreements to repurchase 1,039,738 1,264,448 Advances from borrowers for taxes and insurance 684,798 1,293,062 Accrued expenses and other liabilities 2,236,537 1,344,804 Accrued interest payable 1,131,080 950,674 Income taxes payable 352,360 121,725 Deferred income taxes 1,336,091 1,608,818 ------------- ------------ 348,604,503 323,887,614 ------------- ------------ STOCKHOLDERS' EQUITY Common Stock: $0.10 par value; authorized 10,000,000 shares; issued; 3/31/2002 - 6,355,409 shares, 6/30/2001 - 6,268,394 shares 635,541 626,840 Additional paid-in capital 49,618,309 48,451,515 Unearned ESOP shares (2,468,570) (2,640,800) Retained earnings, substantially restricted 26,846,934 25,951,537 Accumulated other comprehensive income Unrealized appreciation on available-for-sale securities, net of income taxes; 3/31/2002 - $1,869,102, 6/30/2001 - $ 2,318,786 3,181,453 3,948,203 ------------- ------------ 77,813,667 76,337,295 Treasury stock, at cost; 3/31/2002 - 2,607,393 shares, 6/30/2001 - 2,200,950 shares (32,166,663) (26,131,504) ------------- ------------ 45,647,004 50,205,791 ------------- ------------ $ 394,251,507 374,093,405 ============= ============
See Notes to Condensed Consolidated Financial Statements 3 GUARANTY FEDERAL BANCSHARES, INC. FORM 10-Q FOR MARCH 31, 2002 GUARANTY FEDERAL BANCSHARES, INC. CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 2002 AND 2001 (UNAUDITED)
Three months ended Nine months ended ------------------------- ------------------------- 3/31/02 3/31/01 3/31/02 3/31/01 ----------- ---------- ----------- ----------- INTEREST INCOME Loans $ 5,814,637 6,317,661 18,334,644 18,655,823 Investment securities 124,568 306,084 508,516 876,201 Other 211,435 204,750 545,563 711,111 ----------- ---------- ----------- ----------- Total Interest Income 6,150,640 6,828,495 19,388,723 20,243,135 ----------- ---------- ----------- ----------- INTEREST EXPENSE Deposits 1,788,768 1,639,262 5,412,180 4,959,116 Federal Home Loan Bank advances 1,533,044 2,549,823 5,521,305 7,190,901 Other 5,094 6,363 27,276 6,363 ----------- ---------- ----------- ----------- Total Interest Expense 3,326,906 4,195,448 10,960,761 12,156,380 ----------- ---------- ----------- ----------- Net Interest Income 2,823,734 2,633,047 8,427,962 8,086,755 Provision for Loan Losses 66,000 115,000 216,000 215,000 ----------- ---------- ----------- ----------- Net Interest Income after Provision for Loan Losses 2,757,734 2,518,047 8,211,962 7,871,755 ----------- ---------- ----------- ----------- NONINTEREST INCOME Service charges 375,755 292,648 1,118,174 923,758 Late charges and other fees 39,345 64,052 98,312 173,168 Gain on loans and investment securities 376,111 146,711 1,260,963 301,469 Income (loss) on foreclosed assets (673) - 188 (625) Other income 58,253 37,223 179,405 104,864 ----------- ---------- ----------- ----------- Total Noninterest Income 848,791 540,634 2,657,042 1,502,634 ----------- ---------- ----------- ----------- NONINTEREST EXPENSE Salaries and employee benefits 1,257,596 1,099,597 3,484,973 3,016,358 Occupancy 325,866 284,764 941,947 742,185 SAIF deposit insurance premiums 8,278 6,902 25,643 21,979 Data processing fees 208,941 244,208 555,341 479,174 Advertising 91,735 94,985 277,318 306,699 Other expense 472,224 279,887 1,465,108 999,684 ----------- ---------- ----------- ----------- Total Noninterest Expense 2,364,640 2,010,343 6,750,330 5,566,079 ----------- ---------- ----------- ----------- Income Before Income Taxes 1,241,885 1,048,338 4,118,674 3,808,310 Provision for Income Taxes 424,328 352,213 1,399,349 1,351,560 ----------- ---------- ----------- ----------- NET INCOME 817,557 696,125 2,719,325 2,456,750 OTHER COMPREHENSIVE INCOME (LOSS) Unrealized appreciation (depreciation) on available-for-sale securities, net of income taxes of ($113,742), ($102,706), ($449,684) and $756,520, respectively (194,741) (174,878) (766,750) 1,288,128 ----------- ---------- ----------- ----------- COMPREHENSIVE INCOME 622,816 521,247 1,952,575 3,744,878 =========== ========== =========== =========== BASIC EARNINGS PER SHARE $ 0.22 $ 0.17 $ 0.72 $ 0.58 =========== ========== =========== =========== DILUTED EARNINGS PER SHARE $ 0.21 $ 0.17 $ 0.71 $ 0.58 =========== ========== =========== ===========
See Notes to Condensed Consolidated Financial Statements. 4 GUARANTY FEDERAL BANCSHARES, INC. FORM 10-Q FOR MARCH 31, 2002 GUARANTY FEDERAL BANCSHARES, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY NINE MONTHS ENDED MARCH 31, 2002 (UNAUDITED)
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 --------- ---------- ----------- ----------- ------------------ ------------ ---------- Balance, July 1, 2001 $ 626,840 48,451,515 (2,640,800) 25,951,537 3,948,203 (26,131,504) 50,205,791 Net income - - - 2,719,325 - - 2,719,325 Dividends on common stock, ($0.25 per share on 3,800,279 shares & $0.25 per share on 3,495,430 shares) - - - (1,823,928) - - (1,823,928) Recognition and Retention Plan (RRP) & Restricted Stock Plan (RSP): RRP and RSP expense - 302,274 - - - - 302,274 Tax liability of RRP & RSP shares - (17,164) - - - - (17,164) Stock options exercised 8,701 819,405 - - - - 828,106 Dividends on RRP stock - 1,647 - - - - 1,647 Release of ESOP shares - 60,632 172,230 - - - 232,862 Treasury stock purchased - - - - - (6,035,159) (6,035,159) Change in unrealized appreciation on available-for-sale securitites, net of income taxes of ($449,684) - - - - (766,750) - (766,750) --------- ---------- ----------- ---------- ------------------ ----------- ---------- Balance, March 31, 2002 $ 635,541 49,618,309 (2,468,570) 26,846,934 3,181,453 (32,166,663) 45,647,004 ========= ========== =========== ========== ================== =========== ==========
See Notes to Condensed Consolidated Financial Statements 5 GUARANTY FEDERAL BANCSHARES, INC. FORM 10-Q FOR MARCH 31, 2002 GUARANTY FEDERAL BANCSHARES, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY NINE MONTHS ENDED MARCH 31, 2001 (UNAUDITED)
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 --------- ---------- ----------- ----------- ------------------ ----------- ---------- Balance, July 1, 2000 $ 625,004 47,921,681 (2,870,440) 24,654,965 2,398,947 (16,144,767) 56,585,390 Net income - - - 2,456,750 - - 2,456,750 Dividends on common stock, ($0.23 per share on 4,346,561 shares & $0.24 per share on 3,902,882 shares) - - - (1,936,401) - - (1,936,401) Recognition and Retention Plan (RRP) & Restricted Stock Plan (RSP): RRP and RSP expense - 368,611 - - - - 368,611 Tax provision for RRP & RSP - (2,010) - - - - (2,010) Stock options exercised 1,628 96,054 - - - - 97,682 Dividends on RRP stock - 4,525 - - - - 4,525 Stock purchased for 2000 stock awards - (85,945) - - - - (85,945) Release of ESOP shares - 24,418 174,077 - - - 198,495 Treasury stock purchased - - - - - (8,688,289) (8,688,289) Change in unrealized appreciation on available-for-sale securitites, net of income taxes of $756,520 - - - - 1,288,128 - 1,288,128 --------- ---------- ----------- ----------- ------------------ ----------- ---------- Balance, March 31, 2001 $ 626,632 48,327,334 (2,696,363) 25,175,314 3,687,075 (24,833,056) 50,286,936 ========= ========== =========== =========== ================== =========== ==========
See Notes to Condensed Consolidated Financial Statements 6 GUARANTY FEDERAL BANCSHARES, INC. FORM 10-Q FOR MARCH 31, 2002 GUARANTY FEDERAL BANCSHARES, INC CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED MARCH 31, (UNAUDITED)
3/31/02 3/31/01 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 2,719,325 2,456,750 Items not requiring (providing) cash: Deferred income taxes 176,957 (16,563) Depreciation 703,160 440,868 Provision for loan losses securities 216,000 215,000 Gain on loans and investment (1,260,963) (301,469) Gain on sale of premises and equipment - (2,743) (Gain) loss on sale of foreclosed assets (4,340) 1,070 Amortization of deferred income, premiums and discounts (37,430) (79,748) RRP/RSP expense 302,274 368,611 Origination of loans held for sale (51,212,246) (21,793,131) Proceeds from sale of loans held for sale 51,257,520 17,519,803 Release of ESOP shares 232,862 198,495 Changes in: Accrued interest receivable 514,781 (314,088) Prepaid expenses and other assets (619,545) (445,513) Accounts payable and accrued expenses 13,855 1,375,461 Income taxes payable 213,471 (183,376) ------------ ------------ Net cash provided by (used in) operating activities 3,215,681 (560,573) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Net collections (originations) of loans 17,276,322 (22,495,626) Principal payments on available-for-sale securities 1,714,347 73,320 Principal payments on held-to-maturity securities 1,026,325 1,652,964 Purchase of premises and equipment (332,119) (1,426,255) Proceeds from sale of premises and equipment - 5,622 Purchase of available-for-sale securities (8,396,776) (4,008,379) Proceeds from sale of available-for-sale securities 2,680,154 278,986 Proceeds from maturities of available-for-sale securities 6,000,000 - Purchase of FHLB stock - (1,725,000) Proceeds from sale of fore closed assets 56,020 555 Cash acquired in purchase of Commercial Federal Bank branches 25,556,972 - ------------ ------------ Net cash provided by (used in) investing activities 45,581,245 (27,643,813) ------------ ------------ CASH FLOWS FROM FINANCIANG ACTIVITIES Stock options exercised 828,106 97,682 Cash dividends paid (950,070) (999,710) Cash dividends received on RRP stock 1,647 4,525 Net increase in demand deposits, NOW accounts and savings accounts 14,414,469 2,764,650 Net increase in certificates of deposit 2,933,445 436,433 Net increase (decrease) in securities sold under agreement store purchase (224,710) 880,927 Proceeds from FHLB advances 46,500,000 72,500,000 Repayments of FHLB advances (80,544,724) (39,173,777) Advances from borrowers for taxes and insura nce (608,264) (431,653) Stock purchased for stock awards - (85,945) Treasury stock purchased (6,035,159) (8,688,289) ------------ ------------ Net cash provided by (used in) financing activities (23,685,260) 27,304,843 ------------ ------------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 25,111,666 (899,543) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 10,313,558 9,157,271 ------------ ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD $ 35,425,224 8,257,728 ============ ============
See Notes to Condensed Consolidated Financial Statements 7 GUARANTY FEDERAL BANCSHARES, INC. FORM 10-Q FOR MARCH 31, 2002 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 2001 filed with the Securities and Exchange Commission. The condensed consolidated balance sheet of the Company as of June 30, 2001, 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 (the "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 The Company has established four stock award plans for the benefit of certain directors, officers and employees of the Bank and its subsidiary. The plans provide a proprietary interest in the Company in a manner designed to encourage these individuals to remain with the Bank. A Committee of the Bank's Board of Directors administers the plans. The Company accounts for the cost of share purchases under the plans as a reduction of stockholders' equity. 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 are awarded to employees. 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. On March 22, 2001, the directors of the Company established the Stock Compensation Plan (the "2001 SCP") with both a stock award component and stock option component. As of March 31, 2002, all of the RRP, RSP and 2000 SCP shares have been purchased and all except 18,076 shares have been awarded. As of March 31, 2002, 10,239 of the 2001 SCP shares have been awarded. The Company is amortizing the RRP, RSP and SCP expense over each participant's vesting period. The Company recognized $302,274 of expense under these stock award plans for the nine month period ended March 31, 2002. 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 March 31, 2002 all options except those on 62,500 shares have been granted. The RRP, RSP, SOP, 1998 SOP and 2000 SCP vest over a five year period. As of March 31, 2002, there were 440,052 unexercised options that have been granted at prices ranging from $5.83 to $13.89 per share and 74,139 RRP, RSP, 2000 SCP and 2001 SCP shares were unvested. 8 GUARANTY FEDERAL BANCSHARES, INC. FORM 10-Q FOR MARCH 31, 2002 Note 4: Earnings Per Share
For three months ended March 31, 2002 For nine months ended March 31, 2002 ------------------------------------- ------------------------------------ Income Shares Per-share Income Shares Per-share Basic EPS Income available to common stockholders $ 817,557 3,788,810 $ 0.22 $ 2,719,325 3,800,258 $ 0.72 ======= ======= Effect of Dilutive Securities Stock Options 45,437 39,091 --------- ----------- ---------- Income available to common stockholders $ 817,557 3,834,247 $ 0.21 $ 2,719,325 3,839,349 $ 0.71 ========= =========== ======= =========== ========== ======= For three months ended March 31, 2001 For nine months ended March 31, 2001 ------------------------------------- ------------------------------------ Income Shares Per-share Income Shares Per-share Basic EPS Income available to common stockholders $ 696,125 3,980,180 $ 0.17 $ 2,456,750 4,218,857 $ 0.58 ======= ======= Effect of Dilutive Securities Stock Options - 53,324 - 44,368 --------- ----------- ----------- ---------- ------- Income available to common stockholders $ 696,125 4,033,504 $ 0.17 $ 2,456,750 4,263,225 $ 0.58 ========= =========== ======= =========== ========== =======
Options to purchase 15,000 shares of common stock at $13.89 per share, outstanding during the three months and nine months ended March 31, 2002, were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of the common shares. Note 5: Branch Acquisition On December 6, 2001, the Bank completed an acquisition of certain assets and liabilities of five branches of Commercial Federal Bank in Springfield, Missouri. The Bank acquired approximately $15.5 million in select consumer and home equity loans and assumed approximately $41.2 million in deposit liabilities. The Bank has also assumed the leases and equipment at all but one of the branches. The transaction has been accounted for as a purchase by recording the acquired assets and liabilities at their estimated fair values at the acquisition date. Net proceeds received by the Bank below their fair values was recorded as goodwill. The consolidated operations of the Company include the interest income and expense on the acquired loan assets and deposit liabilities from the acquisition date. Information necessary to present the results of operations on a pro forma basis for the current and comparable prior periods is unavailable. Note 6: Impact of Recent Accounting Pronouncements The Financial Accounting Standards Board (FASB) recently adopted Statement of Financial Accounting Standards (SFAS) 142, Goodwill and Other Intangible Assets. This Statement establishes new financial accounting and reporting standards for acquired goodwill and other intangible assets. The Statement addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. It also addresses how goodwill and other intangible assets (including those acquired in a business combination) should be accounted for after they have been initially recognized in the financial statements. SFAS 142 is effective for fiscal years beginning after December 15, 2001. The Company will first apply SFAS 142 in the first quarter of its fiscal year ending June 30, 2003. The impact of adopting SFAS 142 is expected to be immaterial. Note 7: Subsequent Event On April 2, 2002, the Company repurchased 717,647 shares of its common stock from its largest group of shareholders for approximately $10.7 million. 9 GUARANTY FEDERAL BANCSHARES, INC. FORM 10-Q FOR MARCH 31, 2002 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 March 31, 2002, and the results of operations for the nine months ended March 31, 2002 and 2001. The Bank completed its acquisition of the Springfield branch offices of Commercial Federal Bank on December 6, 2001, in which it assumed approximately $41.2 million in deposit liabilities, and purchased approximately $15.5 million in loan assets. In addition the Bank acquired four " in store" branches located in Dillons Supermarkets. The acquisition increased the number of offices from five to nine. The Company recently completed the repurchase of shares of its common stock for approximately $15.7 million, comprised of 330,381 shares purchased on March 28, 2002 and 717,647 shares purchased on April 2, 2002. The stock was purchased from the Company's two largest groups of shareholders. The transaction resolves a dispute involving the Company and each of the selling parties regarding claims that the Company had a prior obligation to purchase the shares. The transaction was funded with cash the Company received as a result of the acquisition of the Springfield branch offices of Commercial Federal Bank in December 2001. 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 not 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; changes in the general level of interest rates; the effect of regulatory or government legislative changes; technology changes; and fluctuation in inflation. Financial Condition The Company's total assets increased $20,158,102 (5%) from $374,093,405 as of June 30, 2001, to $394,251,507 as of March 31, 2002. Interest-bearing deposits in other financial institutions increased $25,071,628 (328%) from $7,648,271 as of June 30, 2001, to $32,719,899 as of March 31, 2002, as the Company received approximately $25.6 million cash as a result of its acquisition of the Springfield branches of Commercial Federal Bank. Securities available-for-sale decreased $2,526,033 (13%) from $19,447,892 as of June 30, 2001, to $16,921,859 as of March 31, 2002. This is primarily due to purchases of $8,396,776 of investment securities, which was offset by maturities of $6,000,000 in securities, $2,680,154 in sales of securities, and the decrease in fair value of various equity securities. The Bank continues to hold 85,000 shares of Federal Home Loan Mortgage Corporation ("FHLMC") stock with an amortized cost of $83,231 in the available-for-sale category. As of March 31,2002, the gross unrealized gain on the stock was $5,303,219, a decrease from $6,237,587 as of June 30, 2001. Securities held-to-maturity decreased due to principal repayments, by $1,032,756 (23%) from $4,545,866 as of June 30, 2001, to $3,513,110 as of March 31, 2002. 10 Net loans receivable decreased by $2,576,723 (1%) from $317,243,111 as of June 30, 2001, to $314,666,388 as of March 31, 2002. As a part of the Commercial Federal acquisition, the Company purchased approximately $15.5 million in consumer and home equity loans. Also, during this period the Bank continued its increased emphasis on commercial lending. As a result commercial loans have increased by $19,583,591 during this period. The Bank has begun selling conforming loans on single family residences, while retaining the servicing rights. As a result of the majority of new loan originations being designated as loans held for sale, permanent mortgage loans secured by both owner and non-owner occupied residential real estate decreased by $21,027,792 while loans held for sale increased by $630,637. The Bank continues to be active in construction lending. However, during the period construction loans decreased by $14,463,073. Loan growth is anticipated to represent a major part of the Bank's future asset growth. Allowance for loan losses decreased $89,964 (3%) from $2,697,389 as of June 30, 2001 to $2,607,423 as of March 31, 2002. The allowance decreased due to net loan charge-offs exceeding the provision for loan losses for the period. The allowance for loan losses as of March 31, 2002 and June 30, 2001 was 0.83% and 0.85% respectively, of net loans outstanding. As of March 31, 2002, the allowance for loan losses was 113% of impaired loans versus 55% as of June 30, 2001. Premises and equipment decreased $177,273 (2%) from $7,758,082, as of June 30, 2001 to $7,580,809 as of March 31, 2002 primarily due to the depreciation recognized on these assets. Deposits increased $58,564,540 (34%) from $170,647,500 as of June 30, 2001, to $229,212,040 as of March 31, 2002. As a result of the Commercial Federal acquisition, the Company assumed approximately $41.2 million in deposits. Excluding the acquisition, for the nine months ended March 31, 2002, checking and savings accounts increased by $14,414,469 (25%) while certificates of deposits increased by $2,933,445 (3%). In order to comply with the Federal Home Loan Bank (the "FHLB") limitation of advances to 35% of assets, the Company decreased borrowings from the FHLB by $34,044,724 (23%) from $146,656,583 as of June 30, 2001, to $112,611,859 as of March 31, 2002. The Company plans to reduce its FHLB borrowings to a level that will provide a borrowing capacity sufficient to provide for contingencies. Advances from borrowers for taxes and insurance decreased $608,264 (47%) from $1,293,062 as of June 30, 2001, to $684,798 as of March 31, 2001. This was primarily due to the payment of 2001 real estate taxes from borrower's escrow accounts. Accrued expenses and other liabilities increased $891,733 (66%) from $1,344,804 as of June 30, 2001, to $2,236,537 as of March 31, 2002. This was primarily due to $873,858 ($0.25 per share) of dividends that were declared but unpaid as of March 31, 2002. Stockholders' equity (including unrealized appreciation on securities available-for-sale, net of tax) decreased $4,558,787 from $50,205,791 as of June 30, 2001, to $45,647,004 as of March 31, 2002. During this period the Company repurchased a total of 406,443 of its outstanding shares in the open market at a cost of $6,035,159. In addition, dividends in the amount of $950,070 ($0.25 per share) were declared and paid, on October 15, 2001, to stockholders' of record as of September 4, 2001 and $873,858 ($0.25 per share) were declared and paid on April 12, 2002, to stockholders of record as of April 1, 2002. There was a decrease in the unrealized appreciation on available-for-sale securities of $766,750. On a per share basis, stockholders' equity decreased from $13.20 as of June 30, 2001 to $13.04 as of March 31, 2002. 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. 11 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.
Three Months ended 3/31/2002 Three Months ended 3/31/2001 ----------------------------- ------------------------------- Average Yield / Average Yield / Balance Interest Cost Balance Interest Cost --------- ---------- ------- --------- ---------- -------- ASSETS Interest-earning: Loans $ 310,445 5,815 7.49% $ 309,963 6,318 8.15% Investment securities 13,984 124 3.55% 17,227 306 7.11% Other assets 47,959 212 1.77% 16,575 204 4.92% --------- ------- ---- --------- -------- ----- Total interest-earning 372,388 6,151 6.61% 343,765 6,828 7.94% Noninterest-earning 28,986 7,531 --------- --------- $ 401,374 $ 351,296 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing: Savings accounts $ 17,945 83 1.85% $ 7,654 49 2.56% Transaction accounts 59,253 217 1.46% 38,323 289 3.02% Certificates of Deposit 142,402 1,490 4.19% 89,442 1,301 5.82% FHLB Advances 114,456 1,533 5.36% 159,711 2,550 6.39% Other Borrowed Funds 1,707 5 1.17% 358 6 6.70% --------- ------- ---- --------- -------- ----- Total interest-bearing 335,763 3,328 3.96% 295,488 4,195 5.68% Noninterest-bearing 14,543 4,003 --------- --------- Total liabilities 350,306 299,491 Stockholders' equity 51,068 51,805 --------- --------- $ 401,374 $ 351,296 ========= ========= Net earning balance $ 36,625 $ 48,277 ========= ========= Earning yield less costing rate 2.64% 2.27% ==== ===== Net interest income, and net yield spread on interest earning assets $ 2,823 3.03% $ 2,633 3.06% ======= ==== ======= ===== Ratio of interest-earning assets to interest-bearing liabilities 111% 116% ======= =======
12 GUARANTY FEDERAL BANCSHARES, INC. FORM 10-Q FOR MARCH 31, 2002
Nine Months ended 3/31/2002 Nine Months ended 3/31/2001 ------------------------------ ------------------------------ Average Yield / Average Yield / Balance Interest Cost Balance Interest Cost --------- -------- -------- --------- -------- -------- ASSETS Interest-earning: Loans $ 326,753 18,335 7.48% $ 305,626 18,656 8.14% Investment securities 15,482 508 4.37% 15,822 876 7.38% Other assets 33,758 546 2.16% 16,440 711 5.77% --------- ------- ---- --------- ------- ---- Total interest-earning 375,993 19,389 6.88% 337,888 20,243 7.99% Noninterest-earning 13,488 8,572 --------- --------- $ 389,481 $ 346,460 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing: Savings accounts $ 12,242 166 1.81% $ 7,767 159 2.73% Transaction accounts 52,343 703 1.79% 37,914 889 3.13% Certificates of Deposit 127,232 4,544 4.76% 89,628 3,911 5.82% FHLB Advances 131,349 5,521 5.60% 153,293 7,191 6.25% Other Borrowed Funds 1,977 27 1.82% 179 6 4.47% --------- ------- ---- --------- ------- ---- Total interest-bearing 325,143 10,961 4.49% 288,781 12,156 5.61% Noninterest-bearing 13,504 4,525 --------- --------- Total liabilities 338,647 293,306 Stockholders' equity 50,834 53,154 --------- --------- $ 389,481 $ 346,460 ========= ========= Net earning balance $ 50,850 $ 49,107 ========= ========= Earning yield less costing rate 2.39% 2.38% ==== ==== Net interest income, and net yield spread on interest earning assets $ 8,428 2.99% $ 8,087 3.19% ======= ==== ======= ==== Ratio of interest-earning assets to interest-bearing liabilities 116% 117% === ===
Results of Operations - Comparison of Three Month and Nine Month Periods Ended March 31, 2002 and 2001. Net income for the three months and nine months ended March 31, 2002 was $817,557 and $2,719,325 as compared to $696,125 and $2,456,750 for the three months and nine months ended March 31, 2001 which represents an increase in earnings of $121,432 or 17% for the three month period, and an increase in earnings of $262,575 or 11% for the nine month period. The increase in net income for the three months and nine months ended can be attributed to several factors which are discussed below. Interest Income --------------- Total interest income for the three months and nine months ended March 31, 2002 decreased $677,855 or 10% and $854,412 or 4% as compared to the three months and nine months ended March 31, 2001. For the three month and nine month periods ended March 31, 2002 compared to the same periods in 2001, the average yield on interest earning assets decreased 133 basis points to 6.61% and 111 basis points to 6.88% while the average balance of interest earnings assets increased $28,623,000 and $38,105,000 respectively. 13 GUARANTY FEDERAL BANCSHARES, INC. FORM 10-Q FOR MARCH 31, 2002 Interest Expense ---------------- Total interest expense for the three months and nine months ended March 31, 2002, decreased $868,542 or 21% and $1,195,619 or 10% when compared to the three months and nine months ended March 31, 2001. For the three month and nine month periods ended March 31, 2002 compared to the same periods in 2001, the average cost of interest bearing liabilities decreased 172 basis points to 3.96% and 112 basis points to 4.49% while the average balance increased $40,275,000 and $36,362,000 respectively. Net Interest Income ------------------- Net interest income for the three months ended March 31, 2002, increased $190,687, or 7% and $341,207, or 4% for the nine months ended March 31, 2002, when compared to the same period in 2001. The yield on interest earning assets minus the cost on interest bearing liabilities increased by 37 basis points, to 2.64% and 1 basis point to 2.39% for the three months and nine months ended March 31, 2002, respectively, when compared to the same periods one year ago. Provision for Loan Losses ------------------------- Based on the decline of the loan portfolio at March 31, 2002, management decided to decrease the allowance for loan loss. The provision for loan losses was $66,000 and $216,000 for the three months and nine months ended March 31, 2002, respectively, compared to $115,000 and $215,000 for the same periods in 2001. 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 $308,157, or 57% and $1,154,408, or 77% for the three months and nine months ended March 31, 2002, when compared to the three months and nine months ended March 31, 2001. For the three and nine month periods, the gain on sale of loans and investment securities increased $229,400 and $959,494 respectively, when compared to the same period in 2001. The gain on sale of loans is the result of mortgage banking activities related to the sale of single family conforming residential loans. The gain on sale of investments is primarily the result of the sale of 8,000 shares of FHLMC stock during the nine month period. In addition, for the three and nine month periods, checking account service charges increased $83,107 or 28% and $194,416 or 21% respectively, compared to the same periods in 2001, due to the continued growth in the number of customer checking accounts. Noninterest Expense ------------------- Noninterest expense increased $354,297, or 18% for the three months ended March 31, 2002, and increased $1,184,251, or 21% for the nine month period ending March 31, 2002 when compared to the three months and nine months ended March 31, 2001. Increases in salaries and employee benefits, occupancy and data processing expense are principally attributable to the Company's recent expansion through branch additions and an overall increase in accounts served. There was approximately $183,000 in "one-time" costs in connection with the Commercial Federal branch acquisition. There were also approximately $122,000 in legal and professional expenses in connection with the settlement of a dispute over the repurchase of the Company's stock. Provision for Income Taxes -------------------------- There was a $72,115 and $47,789 increase in the provision for income taxes for the three months and nine months ended March 31, 2002, as compared to the same period in 2001. This increase was due to the increase in before tax income for the three months and nine months ended March 31, 2002, compared to the same periods in 2001. 14 GUARANTY FEDERAL BANCSHARES, INC. FORM 10-Q FOR MARCH 31, 2002 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. 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 March 31, 2002, the Bank had approximately $4,114,000 in commitments to originate mortgage loans and $16,332,000 in mortgage loans-in-process. 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. 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 March 31, 2002, was $2,607,423 or 0.83% of loans receivable. Total assets classified as substandard or loss as of March 31, 2002 were $1,935,096 or 0.49% 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.
3/31/02 6/30/01 6/30/00 --------- --------- --------- Nonperforming loans $ 2,306 4,948 4,757 Real estate acquired in settlement of loans 531 4 2 --------- --------- --------- Total nonperforming assets $ 2,837 4,952 4,759 ========= ========= ========= Total nonperforming assets as a percentage of total assets 0.72% 1.32% 1.39% Allowance for loan losses $ 2,607 2,697 2,520 Allowance for loan losses as a percentage of average net loans 0.80% 0.87% 0.89%
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 15 GUARANTY FEDERAL BANCSHARES, INC. FORM 10-Q FOR MARCH 31, 2002 of June 30, 2001 and March 31, 2002, ARMs constituted 58% and 55% of the Bank's loan portfolio, respectively. Of the ARMs originated during fiscal year 2002, borrowers preferred initial fixed rate periods of three or five years. The Bank is also managing interest rate risk by the origination of construction loans. As of March 31, 2002, such loans made up 13% 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, 2001, the Bank's savings accounts, checking accounts, and money market deposit accounts totaled $58,644,912 or 34% of its total deposits. As of March 31, 2002, these accounts totaled $90,927,442 or 40% 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 December 31, 2001 (the most recent available), the Office of Thrift Supervision ("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 100 basis point instantaneous decrease 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 56,672 $ (1,470) -3% 14.04% 0.19% +200 57,670 (471) -1% 14.09% 0.24% +100 58,130 (11) 0% 14.01% 0.16% NC 58,141 - 0% 13.85% 0.00% -100 57,241 (900) -2% 13.50% -0.35% 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 unchanged 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. 16 GUARANTY FEDERAL BANCSHARES, INC. FORM 10-Q FOR MARCH 31, 2002 PART II Item 1. Legal Proceedings None. Item 2. Changes in Securities and Use of Proceeds Not applicable. Item 3. Defaults Upon Senior Securities Not applicable. Item 4. Submission of Matters to Vote of Security Holders None Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K a) Exhibits b) Reports on Form 8-K March 26, 2002 GUARANTY FEDERAL BANCSHARES, INC. FORM 10-Q FOR MARCH 31, 2002 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/ Don M. Gibson May 6, 2002 ------------------ ----------- Don M. Gibson President and Chief Executive Officer (Principal Executive Officer) /s/ Bruce Winston May 6, 2002 ----------------- ----------- Bruce Winston Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)