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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1999
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- or -
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-23325
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GUARANTY FEDERAL BANCSHARES, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 43-1792717
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(State or Other Jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification No.)
1341 West Battlefield, Springfield, Missouri 65807
- -------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (417) 889-2494
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.10 per share
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(Title of Class)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based on the average bid and asked prices of the Registrant's
Common Stock as quoted on the National Market of The Nasdaq Stock Market on
September 23, 1999, was $56.4 million (4,908,632 shares at $11.50 per share).
As of September 23, 1999 there were outstanding 5,495,246 shares of the
Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Annual Report to Stockholders for the fiscal year ended
June 30, 1999. (Parts II and IV)
2. Portions of the Proxy Statement for the 1999 Annual Meeting of
Stockholders. (Part III)
GUARANTY FEDERAL BANCSHARES, INC.
Form 10-K
TABLE OF CONTENTS
Item Page
- ---- ----
PART I
1. Business.......................................................................................4
2. Properties....................................................................................30
3. Legal Proceedings.............................................................................30
4. Submission of Matters to a Vote of Security Holders...........................................30
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters.........................30
6. Selected Financial Data.......................................................................30
7. Management's Discussion and Analysis of Financial Condition and Results of Operations.........30
7A. Quantitative and Qualitative Disclosures About Market Risk....................................30
8. Financial Statements and Supplementary Data...................................................31
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..........31
PART III
10. Directors and Executive Officers of the Registrant............................................31
11. Executive Compensation........................................................................31
12. Security Ownership of Certain Beneficial Owners and Management
13. Certain Relationships and Related Transactions................................................32
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...............................32
Signatures
GUARANTY FEDERAL BANCSHARES, INC. (THE "COMPANY") MAY FROM TIME TO TIME
MAKE WRITTEN OR ORAL "FORWARD-LOOKING STATEMENTS", INCLUDING STATEMENTS
CONTAINED IN THE COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION
(INCLUDING THIS ANNUAL REPORT ON FORM 10-K AND THE EXHIBITS THERETO), IN ITS
REPORTS TO STOCKHOLDERS AND IN OTHER COMMUNICATIONS BY THE COMPANY, WHICH ARE
MADE IN GOOD FAITH BY THE COMPANY PURSUANT TO THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, SUCH AS
STATEMENTS OF THE COMPANY'S PLANS, OBJECTIVES, EXPECTATIONS, ESTIMATES AND
INTENTIONS, THAT ARE SUBJECT TO CHANGE BASED ON VARIOUS IMPORTANT FACTORS (SOME
OF WHICH ARE BEYOND THE COMPANY'S CONTROL). THE FOLLOWING FACTORS, AMONG OTHERS,
COULD CAUSE THE COMPANY'S FINANCIAL PERFORMANCE TO DIFFER MATERIALLY FROM THE
PLANS, OBJECTIVES, EXPECTATIONS, ESTIMATES AND INTENTIONS EXPRESSED IN SUCH
FORWARD-LOOKING STATEMENTS: THE STRENGTH OF THE UNITED STATES ECONOMY IN GENERAL
AND THE STRENGTH OF THE LOCAL ECONOMIES IN WHICH THE COMPANY CONDUCTS
OPERATIONS; THE EFFECTS OF, AND CHANGES IN, TRADE, MONETARY AND FISCAL POLICIES
AND LAWS, INCLUDING INTEREST RATE POLICIES OF THE BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM, INFLATION, INTEREST RATES, MARKET AND MONETARY
FLUCTUATIONS; THE TIMELY DEVELOPMENT OF AND ACCEPTANCE OF NEW PRODUCTS AND
SERVICES OF THE COMPANY AND THE PERCEIVED OVERALL VALUE OF THESE PRODUCTS AND
SERVICES BY USERS, INCLUDING THE FEATURES, PRICING AND QUALITY COMPARED TO
COMPETITORS' PRODUCTS AND SERVICES; THE WILLINGNESS OF USERS TO SUBSTITUTE
COMPETITORS' PRODUCTS AND SERVICES FOR THE COMPANY'S PRODUCTS AND SERVICES; THE
SUCCESS OF THE COMPANY IN GAINING REGULATORY APPROVAL OF ITS PRODUCTS AND
SERVICES, WHEN REQUIRED; THE IMPACT OF CHANGES IN FINANCIAL SERVICES' LAWS AND
REGULATIONS (INCLUDING LAWS CONCERNING TAXES, BANKING, SECURITIES AND
INSURANCE); TECHNOLOGICAL CHANGES; DISRUPTION DATA PROCESSING CAUSED BY COMPUTER
MALFUNCTIONS ASSOCIATED WITH THE YEAR 2000 PROBLEM; ACQUISITIONS; CHANGES IN
CONSUMER SPENDING AND SAVING HABITS; AND THE SUCCESS OF THE COMPANY AT MANAGING
THE RISKS RESULTING FROM THESE FACTORS.
THE COMPANY CAUTIONS THAT THE LISTED FACTORS ARE NOT EXCLUSIVE. THE COMPANY
DOES NOT UNDERTAKE TO UPDATE ANY FORWARD-LOOKING STATEMENT, WHETHER WRITTEN OR
ORAL, THAT MAY BE MADE FROM TIME TO TIME BY OR ON BEHALF OF THE COMPANY.
3
PART I
Item 1. Business
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Business of the Company
The Company is a Delaware-chartered corporation that was created in
September 1997 at the direction of Guaranty Federal Savings Bank (the "Bank").
The Company became the holding company for the Bank on December 30, 1997, in
connection with a plan of conversion and reorganization involving the Bank and
its then existing mutual holding company. The mutual holding company structure
had been created in April 1995 (the "Conversion") at which time more than a
majority of the shares of the Bank were issued to the mutual holding company and
the remainder were sold in a public offering. In connection with the conversion
and reorganization on December 30, 1997, the shares of the Bank held by the
mutual holding company were extinguished along with the mutual holding company
and the shares of the Bank held by the public were exchanged for shares of the
Company. Additional shares of the Company were issued on December 30, 1997.
The Company is a unitary savings and loan holding company which, under
existing laws, generally is not restricted in the types of business activities
in which it may engage provided the Bank retains a specified amount of its
assets in housing-related investments. The Company is not an operating company
and has not engaged in any significant business to date. As such, references
herein to the Bank include the Company unless the context otherwise indicates.
Business of the Bank
The Bank is a Federally-chartered stock savings bank that obtained its
current name in April 1995 at the time it reorganized from a mutual savings
association known as "Guaranty Federal Savings and Loan Association" into a
mutual holding company structure.
The Bank's principal business has been, and continues to be, attracting
retail deposits from the general public and investing those deposits, together
with funds generated from operations, in both permanent and construction one-to
four-family residential mortgage loans, multi-family residential mortgage loans,
commercial real estate loans, and consumer and other loans. The Bank also
invests in mortgage-backed securities, U.S. Government and federal agency
securities and other marketable securities. The Bank's revenues are derived
principally from interest on its loans and other investments and fees charged
for services provided. The Bank's primary sources of funds are: deposits;
borrowings; amortization and prepayments of loan principal; and amortizations,
prepayments and maturing of mortgage-backed securities.
The Bank is regulated by the Office of Thrift Supervision ("OTS") and its
deposits are insured by the Savings Association Insurance Fund ("SAIF") of the
Federal Deposit Insurance Corporation (the "FDIC").
4
Market Area
The Bank's primary market area is Greene County, which is in the
southwestern corner of Missouri. While the population of Greene County increased
12.4% between 1980 and 1990 and its per capita income grew approximately 32%
between 1985 and 1990, the average per capita income in 1990 still was lower
than the average per capita income for Missouri and the United States.
Springfield has a Metropolitan Statistical Area population of approximately
250,000. The local economy is well diversified with the majority of jobs in
light manufacturing and service industries. There is a large regional health
care presence with two large regional hospitals employing over 8,000. There also
are four accredited colleges and one major university with total enrollment
approaching 25,000. Part of Greene County's growth can be attributed to its
proximity to Branson, Missouri, which has developed a strong tourism industry
related to country music and entertainment. Branson is located 30 miles south of
Springfield, and receives between five and six million tourists each year, many
of whom pass through Springfield.
5
Lending Activities
Set forth below is selected data relating to the composition of the Bank's
loan portfolio at the dates indicated:
The following table sets forth the dollar amount, before deductions for
unearned discounts, deferred loan costs and allowance for loan losses, at June
30, 1999 of all loans due after June 30, 2000, which have pre-determined
interest rates and which have adjustable interest rates.
Composition of Loan Portfolio
At June 30,
-----------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Dollars Percent Dollars Percent Dollars Percent Dollars Percent Dollars Percent
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(Dollars in Thousands)
Mortgage loans (includes loans held for sale):
One to four units $178,680 63.28% $148,396 66.27% $116,441 68.11% $ 98,918 68.26% $ 92,104 71.84%
Multi-family 35,795 12.68% 21,536 9.62% 15,457 9.04% 13,701 9.45% 12,169 9.49%
Construction 38,605 13.67% 34,729 15.51% 25,149 14.71% 21,729 14.99% 17,887 13.95%
Commercial real estate 20,771 7.36% 12,721 5.68% 8,323 4.87% 8,739 6.03% 5,162 4.03%
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total mortgage loans 273,851 96.99% 217,382 97.08% 165,370 96.73% 143,087 98.73% 127,322 99.30%
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Commercial business loans 544 0.19% 646 0.29% 383 0.22% 255 0.18% 219 0.17%
Share loans 573 0.20% 623 0.28% 720 0.42% 530 0.37% 522 0.41%
Automobile 2,016 0.71% 2,018 0.90% 1,765 1.03% 1,005 0.69% 106 0.08%
Other 5,389 1.91% 3,251 1.45% 2,727 1.60% 48 0.03% 45 0.04%
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total consumer and other loans 8,522 3.01% 6,538 2.92% 5,595 3.27% 1,838 1.27% 892 0.70%
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total loans 282,373 100.00% 223,920 100.00% 170,965 100.00% 144,925 100.00% 128,214 100.00%
====== ====== ====== ====== ======
Less:
Loans in process 15,466 15,235 10,476 7,572 6,537
Deferred loan fees/costs, net 180 84 (39) (22) (116)
Unearned discounts 109 190 216 238 233
Allowance for loan losses 2,349 2,191 2,177 2,108 1,718
Total Loans, Net $264,269 $206,220 $158,135 $135,029 $119,842
======= ======= ======= ======= =======
6
The following table sets forth the dollar amount, before deductions for
unearned discounts, deferred loan costs and allowance for loan losses, at June
30, 1999 of all loans due after June 2000, which have pre-determined interest
rates and which have adjustable interest rates.
Fixed and Adjustable Rate Loans by Type
Adjustable
Fixed Rates Rates Total
----------- ----- -----
(Dollars in Thousands)
One-to four-family $ 56,568 115,267 171,835
Multi-family 10,919 23,707 34,626
Construction 239 2,198 2,437
Commercial real estate 5,151 8,837 13,988
Consumer & other loans 1,349 - 1,349
------- ------- -------
Total loans (1) $ 74,226 150,009 224,235
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(1) Before deductions for unearned discounts, deferred loan costs, net and
allowances for loan losses.
7
The following table sets forth the Bank's loan originations, purchases,
sales, and principal repayments.
Origination, Purchase and Sale of Loans
Year ended June 30,
-------------------
1999 1998 1997
---- ---- ----
(Dollars in Thousands)
Total gross loans receivable at
beginning of period $ 223,920 $ 170,965 144,925
Loans originated:
One- to- four-family 66,282 66,385 47,942
Multi-family 8,444 19 2,259
Construction 44,503 35,800 28,863
Commercial real estate 10,440 7,793 3,398
Consumer and other 7,643 6,008 4,499
-------- ------- -------
Total loans originated 137,312 116,005 86,961
Loans purchased:
Total loans purchased 7,896 -- --
Loans sold:
Whole loans (10,376) (6,364) (4,134)
Loan principal repayments (61,734) (53,684) (45,924)
other items, net (1) (14,647) (3,002) (10,863)
-------- ------- -------
Net loan activity 58,451 52,955 26,040
Total gross loans receivable at
end of period $ 282,371 $ 223,920 170,965
======== ======== =======
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(1) Includes non-cash portion of loan originations.
8
The following table sets forth the maturity of the Bank's loan portfolio at
June 30, 1999. The table shows loans that have adjustable-rates as due in the
period during which they contractually mature. The table does not include
prepayments or scheduled principal amortization. Prepayments and scheduled
principal repayments on loans totaled $61.7 million for the year ended June 30,
1999.
Loan Maturities
Due After
Due One Year One Through Due After
or Less Five Years Five Years Total
------- ---------- ---------- -----
(Dollars in thousands)
One to four family $ 6,816 18,896 152,939 178,651
Multi family 1,169 9,929 24,697 35,795
Construction 22,344 818 1,619 24,781
Commercial real estate 5,170 5,355 8,633 19,158
Consumer and other loans 7,173 1,293 56 8,522
------- ------- ------- -------
Total loans (1) $ 42,672 36,291 187,944 266,907
------- ------- ------- -------
Less:
Deferred loan fees/costs 180
Unearned discounts 109
Allowance for loan losses 2,349
-------
Loans receivable net 264,269
=======
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(1) Includes mortgage loans held for sale
One- to Four-Family Mortgage Loans. The Bank offers fixed- and
adjustable-rate first mortgage loans secured by one- to four-family residences
in the Bank's primary lending area. Typically, such residences are single family
homes that serve as the primary residence of the owner. However, there are a
significant number of loans originated by the Bank which are secured by
non-owner occupied properties. Loan originations are generally obtained from
existing or past customers, members of the local community, referrals from
attorneys, established builders, and realtors within the Bank's market area.
Originated mortgage loans in the Bank's portfolio include due-on-sale clauses
which provide the Bank with the contractual right to deem the loan immediately
due and payable in the event that the borrower transfers ownership of the
property without the Bank's consent.
As of June 30, 1999, 63.3% of mortgage loans receivable consisted of one-
to four-family residential loans, of which 65.7% were ARM loans. The Bank
currently offers ARM loans that have fixed interest rates for either one, three
or five years and, following that initial fixed period, adjust annually. The
Bank has also offered ARM loans for which interest rates adjust every one, three
or five years. Generally, ARM loans provide for limits on the maximum interest
rate adjustment ("caps") that can be made at the end of each applicable period
and throughout the duration of the loan. ARM loans are originated for a term of
up to 30 years on owner-occupied properties and generally up to 25 years on
non-owner occupied properties. Typically, interest rate adjustments are
calculated based on U.S. treasury securities adjusted to a constant maturity of
one year (CMT), plus a 2.5% to 2.75% margin. Interest rates charged on
fixed-rate loans are competitively priced based on market conditions and the
cost of funds existing at the time the loan is committed. The Bank's fixed-rate
mortgage loans currently are made for terms of 15 and 30 years.
9
Generally, ARM loans pose credit risks different from the risks inherent in
fixed-rate loans, primarily because as interest rates rise the underlying
payments of the borrower rise, thereby increasing the potential for default. At
the same time, the marketability of the underlying property may be adversely
affected by higher interest rates. The Bank does not originate ARM loans that
provide for negative amortization.
The Bank generally originates both owner occupied and non-owner occupied
one- to four-family residential mortgage loans in amounts up to 80% of the
appraised value or the selling price of the mortgaged property, whichever is
lower. The Bank may on occasion make loans up to 95% of appraised value or the
selling price of the mortgage property, whichever is lower, however, the Bank
typically requires private mortgage insurance for the excess percentage over 80%
for mortgage loans with loan to value percentages over 80%.
Multi-Family Mortgage Loans. The Bank originates multi-family mortgage
loans in its primary lending area. As of June 30, 1999, $35.8 million or 12.7%
of the Bank's total loan portfolio consisted of multi-family residential loans.
With regard to multi-family mortgage loans, the Bank generally requires personal
guarantees of the principals as well as security interest in real estate.
Multi-family mortgage loans are generally originated in amounts of up to 80% of
the appraised value of the property. The majority of the Bank's multi-family
mortgage loans have been originated with adjustable rate of interest, the
majority of which are tied to the Bank's prime rate. The loan-to-one-borrower
limitation, $8.2 million as of June 30, 1999, is the maximum the Bank will lend
on a multi-family real estate loan. Loans above $500,000 require Board of
Directors approval on a case-by-case basis.
Loans secured by multi-family residential real estate generally involve a
greater degree of credit risk than one- to four-family residential mortgage
loans and carry larger loan balances. This increased credit risk is a result of
several factors, including the concentration of principal in a limited number of
loans and borrowers, the effects of general economic conditions on income
producing properties, and the increased difficulty of evaluating and monitoring
these types of loans. Furthermore, the repayment of loans secured by
multi-family residential real estate is typically dependent upon the successful
operation of the related real estate property. If the cash flow from the project
is reduced, the borrower's ability to repay the loan may be impaired.
Construction Loans. As of June 30, 1999, construction loans totaled $38.6
million or 13.7% of the Bank's total loans outstanding. Construction loans are
made to certain builders for construction of single family homes for resale, as
well as to individuals in connection with long-term, permanent loans to be made
upon completion of the construction. This portfolio predominantly consists of
speculative loans i.e. loans to builders who are speculating that they will be
able to locate a purchaser for the underlying property prior to or shortly after
the time construction has been completed.
The Bank principally finances the construction of single-family homes.
Construction loans are made to contractors who have sufficient financial
strength and a proven track record, for the purpose of resale, as well as on a
"pre-sold" basis. Construction loans made for the purpose of resale generally
provide for interest only payments at fixed rates and have terms of six months
to one year. Construction loans on "pre-sold" homes may convert into a permanent
ARM loan upon completion of construction. Construction loans to a borrower who
will occupy a home, or to a builder who has pre-sold the home, typically have
loan to value ratios of up to 85%. Construction loans for speculative purposes,
models, and commercial properties typically have loan to value ratios of up to
80%. Loan proceeds are disbursed in increments as
10
construction progresses and as inspections warrant. The Bank employs inspectors
rather than paying title companies for construction disbursement purposes.
Construction lending by its nature entails significant additional risks as
compared with one-to four-family mortgage lending, attributable primarily to the
fact that funds are advanced upon the security of the project under construction
prior to its completion. As a result, construction lending often involves the
disbursement of substantial funds with repayment dependent on the success of the
ultimate project and the ability of the borrower or guarantor to repay the loan.
Because of these factors, the analysis of the prospective construction loan
projects require an expertise that is different in significant respects from
that which is required for residential mortgage lending. The Bank has attempted
to address these risks through its underwriting procedures.
Commercial Real Estate. As of June 30, 1999, the Bank had commercial real
estate loans totaling $20.8 million or 7.4% of the Bank's total loan portfolio.
Commercial real estate loans are generally originated in amounts up to 80% of
the appraised value of the mortgaged property. The majority of the Bank's
commercial real estate loans have been originated with adjustable rate of
interest, the majority of which are tied to the Bank's prime rate. The Bank's
commercial real estate loans are generally permanent loans secured by improved
property such as office buildings, retail stores, small shopping centers,
medical offices, motels, churches and other non-residential buildings. Less than
$4 million in commercial real estate loans are located outside the Bank's market
area.
To originate commercial real estate loans, the Bank generally requires a
security interest in the real estate, personal guarantees of the principals, a
security interest in personal property, and a standby assignment of rents and
leases. The Bank has established its loan-to-one borrower limitation, which was
$8.2 million as of June 30, 1999, as its maximum commercial real estate loan
amount. Commercial loans above $500,000 require Board of Directors approval on a
case-by-case basis. Because of the small number of commercial real estate loans
made, and the relationship of each borrower to the Bank, each such loan has
differing terms and conditions applicable to the particular borrower.
Loans secured by commercial real estate are generally larger and involve a
greater degree of risk than residential mortgage loans. Because payments on
loans secured by commercial real estate are often dependent on successful
operation or management of the properties, repayment of such loans may be
subject, to a greater extent, to adverse conditions in the real estate market or
the economy. The Bank seeks to minimize these risks by careful underwriting,
requiring personal guaranty, lending only to established customers and borrowers
otherwise known to the Bank, and generally restricting such loans to its primary
market area.
At June 30, 1999, the Bank also included approximately $5.0 million in
loans to develop land into residential lots and loans on completed lots in the
commercial real estate loan portfolio. The Bank utilizes its knowledge of the
local market conditions and appraisals to evaluate the development cost, and
estimate projected lot prices and absorption rates to assess loans on
residential subdivisions. The Bank typically loans up to 80% of the appraised
value over terms up to two years. Development loans generally involve a greater
degree of risk than residential mortgage loans because (1) the funds are
advanced upon the security of the land which has a materially lower value prior
to completion of the infrastructure required of a subdivision, (2) the cash flow
available for debt repayment is a function of the sale of the individual lots,
and (3) the interest required to service the debt is a function of the time
required to complete the development and sell the lots.
11
Consumer and Other Lending. The Bank also offers other loans, primarily loans
secured by certificates of deposit, commercial business assets, consumer loans,
home equity and automobile loans. As of June 30, 1999, $8.5 million or 3.1%, of
the Bank's loan portfolio consisted of such loans. The Bank will continue to
expand its consumer lending as opportunities present themselves.
Loan Approval Authority and Underwriting. All loans must have the approval
of the members of the loan committee which consists of six senior officers. The
loan committee meets periodically to review and approve loans made within the
scope of its authority. Real estate loans in excess of $500,000 require prior
approval by the Board of Directors.
For all loans originated by the Bank, upon receipt of a completed loan
application from a prospective borrower, a credit report is requested, income,
assets, and certain other information are verified and, if necessary, additional
financial information is requested. An appraisal of the real estate intended to
secure the proposed loan is generally required, which currently is performed by
certified appraisers. It is the Bank's policy to obtain appropriate insurance
protection on all real estate first mortgage loans. Borrowers generally must
also obtain hazard insurance prior to closing. Borrowers generally are required
to advance funds for certain items such as real estate taxes, flood insurance
and private mortgage insurance, when applicable.
Delinquencies and Problem Assets.
Delinquent Loans. As of June 30, 1999, the Bank had two loans with total
principal blances of $212,000 that were 90 days or more past due and twelve
loans with total principal balances of $665,000 between 30 and 89 days past due.
The Bank generally does not accrue interest on loans past due more than 90 days.
12
The following table sets forth the Bank's loans that were 90 days or more
delinquent at the dates indicated.
Delinquency Summary
At June 30,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in Thousands)
Loans contractually past due 90 days or more
accounted for on a non-accrual basis:
Mortgage Loans:
One- to four-family $ 110 - 279 - -
Multi-family - - 286 - -
Construction - - 190 273 -
Commercial real estate - - - - 1,882
---- ---- ---- ----- -----
Total mortgage loans 110 - 755 273 1,882
---- ---- ---- ----- -----
Non-mortgage loans:
Commercial loans - - - 120 -
Consumer and other loans - - - - -
---- ---- ---- ----- -----
Total non-mortgage loans - - - 120 -
---- ---- ---- ----- -----
Total 90 days or more past due non-accrual loans 110 - 755 393 1,882
Accruing loans which are contractually past
due 90 days or more:
Mortgage Loans:
One to four family - - - 246 -
Multi family - - - - -
Construction 102 121 113 1,047 -
Commercial real estate - - - 91 -
---- ---- ---- ----- -----
Total mortgage loans 102 121 113 1,384 -
---- ---- ---- ----- -----
Non-mortgage loans:
Commercial loans - - - - -
Consumer and other loans - - - - -
Total non-mortgage loans - - - - -
---- ---- ---- ----- -----
Total 90 days or more past due accruing loans 102 121 113 1,384 -
---- ---- ---- ----- -----
Total 90 days or more past due loans $ 212 121 868 1,777 1,882
==== ==== ==== ===== =====
Total 90 days or more past due loans as a percentage
of net loans 0.08% 0.06% 0.55% 1.32% 1.57%
==== ==== ==== ===== =====
Total 90 days or more past due loans as a percentage
of total assets 0.07% 0.05% 0.44% 0.96% 1.10%
==== ==== ==== ===== =====
13
Non-Performing Assets. Loans are reviewed on a regular basis and are placed
on non-accrual status when, in the opinion of management, the collection of
additional interest is doubtful. Mortgage loans are placed on non-accrual status
generally when either principal or interest is more than 90 days past due.
Interest accrued and unpaid at the time a loan is placed on non-accrual status
is charged against interest income.
Real estate acquired by the Bank as a result of foreclosure or by deed in
lieu of foreclosure is deemed a foreclosed asset held for sale until such time
as it is sold. When a foreclosed asset held for sale is acquired it is recorded
at its estimated fair value, less estimated selling expenses. Valuations are
periodically performed by management, and any subsequent decline in fair value
is charged to operations.
As of July 1, 1995, the Bank implemented Statement of Financial Accounting
Standards No. 114 (SFAS 114). While implementation had no material effect on net
income, in accordance with the pronouncement, loans totaling $851,818, net of
the valuation allowance, which were previously classified as in-substance
foreclosures, and reported as part of foreclosed assets held-for-sale were
reclassified to loans along with $199,033 of related allowances for
collectibility.
Prior to the implementation of SFAS 114, the Bank considered collateral for
a loan to be in-substance foreclosed if: (1) the borrower had little or no
equity in the collateral; (ii) proceeds for repayment of the loan could be
expected to come only from the operation or sale of the collateral; and (iii)
the borrower had either formally or effectively abandoned control of the
collateral to the Bank, or retained control of the collateral but was unlikely
to be able to rebuild equity in the collateral or otherwise repay the loan in
the foreseeable future. Cash flow attributable to in-substance foreclosures was
used to reduce the carrying value of the collateral.
14
The following table shows the principal amount of non-performing assets and
the resulting impact on interest income for the periods then ended.
Non-Performing Assets
As of June 30,
--------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in Thousands)
Mortgage Loans:
One-to four-family $ 151 213 279 -- --
Multi family 751 775 286 -- --
Construction -- -- 190 273 --
Commercial real estate -- -- 502 -- 1,882
----- ----- ----- ---- -----
Total mortgage loans 902 988 1,257 273 1,882
----- ----- ----- ---- -----
Non-mortgage loans:
Commercial loans -- -- -- 120 --
Consumer and other loans 4 24 -- -- --
----- ----- ----- ---- -----
Total non-mortgage loans 4 24 -- 120 --
----- ----- ----- ---- -----
Total non-performing loans 906 1,012 1,257 393 1,882
Real estate acquired in settlement of loans 102 286 210 2 2
Non-performing loans classified as in-substance
foreclosures -- -- -- -- 698
----- ----- ----- ---- -----
Total non-performing assets $1,008 1,298 1,467 395 2,584
===== ===== ===== ==== =====
Total non-performing loans as a percentage of
net loans 0.34% 0.49% 0.79% 0.29% 1.57%
Total non-performing assets as a percentage of
total assets 0.32% 0.50% 0.74% 0.21% 1.51%
Impact on interest income for the period
Interest income that would have been recorded on
non-accruing loans $ 10 $ 16 $ 31 $ 15 $ --
15
Problem Assets. Federal regulations require that the Bank review and
classify its assets on a regular basis. In addition, in connection with
examinations of insured institutions, OTS examiners have authority to identify
problem assets and, if appropriate, require them to be classified. There are
three classifications for problem assets: substandard, doubtful, and loss.
"Substandard assets" must have one or more defined weaknesses and are
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. "Doubtful assets" have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values, questionable, and there is a high
possibility of loss. An asset classified "loss" is considered uncollectible and
of such little value that continuance as an asset of the institution is not
warranted. The regulations have also created a special mention category,
described as assets which do not currently expose an insured institution to a
sufficient degree of risk to warrant classification but do possess credit
deficiencies or potential weaknesses deserving management's close attention.
Assets classified as substandard or doubtful require the institution to
establish general allowances for loan losses. If an asset or portion thereof is
classified loss, the insured institution must either establish specific
allowances for loan losses in the amount of 100% of the portion of the asset
classified loss or charge off such amount. A portion of general loss allowances
established to cover possible losses related to assets classified substandard or
doubtful may be included in determining an institution's regulatory capital,
while specific valuation allowances for loan losses generally do not qualify as
regulatory capital.
As of June 30, 1999, the Bank had total classified assets of $2.5 million
of which $1.1 million was considered substandard and $124,000 was classified as
loss. Special mention assets totaled $1.3 million as of June 30, 1999.
One borrower is obligated to the Bank on loans secured by first and second
deeds of trust on nine condominium units aggregating approximately $296,000 as
of June 30, 1999. This same borrower also owes the Bank approximately $456,000
secured by a first deed of trust on a multi-family dwelling. Each of these loans
was current as of June 30, 1999. The Bank considers these as impaired because
these properties have not historically generated sufficient cash flow to
properly maintain the properties and service the debt.
As of June 30, 1999, the Bank had $98,000 in real estate obtained through
foreclosure, and $3,000 in other repossessed property. Subsequent to June 30,
1999 both assets were sold with net proceeds in excess of book value.
16
The following table shows the aggregate amounts of the Bank's classified
assets as of June 30, 1999.
Classification of Assets
As of June 30, 1999
--------------------
Substandard Doubtful Loss Special Mention
----------- -------- ---- ---------------
Number Amount Number Amount Number Amount Number Amount
------ ------ ------ ------ ------ ------ ------ ------
(Dollars in Thousands)
Loans:
One- to four-family 8 $ 227 - - - - 21 1,182
Multi-family 3 680 - - 3 124 - -
Commercial real estate - - - - - - 1 123
Construction and land - - - - - - - -
Other loans 7 65 - - - - - -
---- ---- ---- ---- ---- ---- ---- -----
Total loans 18 $ 972 - - 3 124 22 1,305
==== ==== ==== ==== ==== ==== ==== =====
Foreclosed assets held-for-sale:
One- to four-family 1 $ 98 - - - - - -
Commercial real estate - - - - - - - -
Land and other loans 1 4 - - - - - -
---- ---- ---- ---- ---- ---- ---- -----
Total foreclosed assets 2 102 - - - - - -
---- ---- ---- ---- ---- ---- ---- -----
Total 20 $ 1,074 - - 3 124 22 1,305
==== ==== ==== ==== ==== ==== ==== =====
17
Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan
losses based on management's evaluation of the risk inherent in its loan
portfolio and the general economy. Such evaluation, which includes a review of
all loans on which full collectibility may not be reasonably assured, considers
among other matters, the estimated fair value of the underlying collateral,
economic conditions, historical loan loss experience, and other factors that
warrant recognition in providing for an adequate loan loss allowance. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the Bank's allowance for loan losses and valuation
of foreclosed assets held for sale. Such agencies may require the Bank to
recognize additions to the allowance based on their judgments about information
available to them at the time of their examination.
As of June 30, 1999, the Bank's total allowance for loan losses was $2.3
million that amounted to 0.83% of total loans. This allowance reflects not only
management's determination to maintain an allowance for loan losses consistent
with regulatory expectations for non-performing assets, but also reflects the
Bank's policy of evaluating the risks inherent in its loan portfolio, and the
regional economy.
In March 1996 the Bank had $1.2 million of loan recovery on a commercial
loan which was previously partially charged off. The loan recovery represents
amounts recovered in excess of the carrying balance of the loan as reflected by
the original terms of the loan, including accrued interest and previously
charged-off principal. Consequently, the Bank determined that the allowance for
loan losses was sufficient prior to the recovery, and credited the provision for
loan losses. During fiscal year 1997, the Bank again experienced a net recovery
and based on a review discussed above, elected to make no further addition to
the allowance. During fiscal year 1999, the Bank experienced loan charge-offs in
excess of recoveries of $22,000, and based on a review discussed above, elected
to add $180,000 to the allowance. Management anticipates the need to continue
adding to loss reserves through charges to provision for loan losses if growth
in the loan portfolio continues as anticipated.
18
The following tables set forth certain information concerning the Bank's
allowance for possible loan losses for the periods indicated.
Allowance for Loan Losses
Year Ended June 30,
-------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in Thousands)
Allowance for loan losses:
Beginning balance $ 2,191 2,177 2,108 1,718 1,703
------ ----- ----- ----- -----
Gross loan charge offs
(non-residential commercial
residential one to four-family) (29) (151) (63) (4) (5)
Recoveries
(residential one to four-family and commercial) 7 42 132 1,407 4
------ ----- ----- ----- -----
Net loans recoveries (charge-offs) (22) (109) 69 1,403 (1)
Provision for loan losses
(charged to expense) 180 123 - (1,212) 16
Allowance reclassified to loans which were previously
classified as insubstance foreclosures - - - 199 -
------ ----- ----- ----- -----
Ending balance $ 2,349 2,191 2,177 2,108 1,718
====== ===== ===== ===== =====
Net charge-offs as a percentage
of average loans, net -0.01% -0.06% 0.05% 1.10% 0.00%
Allowance for loan losses as a
percentage of average loans, net 1.00% 1.24% 1.49% 1.66% 1.52%
Allowance for loan losses as a
percentage to total non-performing loans 259.35% 216.50% 173.19% 536.39% 91.29%
Allocation of Allowance for Loan Losses
The following table shows the amount of the allowance allocated to each
loan category and the percent of that loan category to total loans.
Allocation of Allowance for Loan Losses
At June 30,
-----------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Amount % Amount % Amount % Amount % Amount %
-------- ------- -------- ------- ------- -------- ------- ------- ------- -------
(Dollars in thousands)
Mortgage Loans $ 2,341 96.99% 2,185 97.08% 2,099 96.73% 2,071 98.73% 1,700 99.30%
Consumer and other loans 8 3.01% 6 2.92% 78 3.27% 37 1.27% 18 0.70%
------ ------ ----- ------ ----- ------ ----- ------ ----- ------
Total $ 2,349 100.00% 2,191 100.00% 2,177 100.00% 2,108 100.00% 1,718 100.00%
====== ====== ===== ====== ===== ====== ===== ====== ===== ======
19
Investment Activities
The investment policy of the Company, which is established by the Board of
Directors and reviewed by the Investment Committee, is designed primarily to
provide and maintain liquidity, to generate a favorable return on investments
without incurring undue interest rate and credit risk, and to complement the
Bank's lending activities. The policy currently provides for held-to-maturity
and available-for-sale portfolios. The Company has adopted an investment policy
which strictly prohibits speculation in investment securities. The Company does
not currently engage in trading investment securities and does not anticipate
doing so in the future. As of June 30, 1999, the Company had investment
securities with an estimated fair value of $24.6 million and a carrying value of
$24.3 million. Of those securities $8.9 million, or 36.8%, of the Company's
investment securities portfolio was available-for-sale.
The Company has the authority to invest in various types of liquid assets,
including United States Treasury obligations, securities of various federal
agencies, certain certificates of deposit of insured banks and savings
institutions, certain bankers' acceptances, repurchase agreements, and loans on
federal funds.
20
The following tables set forth the amortized cost and approximate fair
market values of the available-for-sale securities and held-to-maturity
securities:
Composition of Investment Portfolio
June 30, 1999
-------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gains (Losses) Fair Value
---------- ---------- ----------- ------------
AVAILABLE-FOR-SALE SECURITIES:
FHLMC stock $ 94,000 5,474,000 - 5,568,000
Other stock 735,762 106,973 (72,700) 770,035
Mortgage-backed securities 2,644,526 7,168 (38,554) 2,613,140
HELD-TO-MATURITY SECURITIES:
U. S. government agencies 7,442,210 32 (6,800) 7,435,442
Mortgage-backed securities 7,952,433 300,020 (63,913) 8,188,540
----------- --------- -------- ----------
$ 18,868,931 5,888,193 (181,967) 24,575,157
=========== ========= ======== ==========
June 30, 1998
-------------
AVAILABLE-FOR-SALE SECURITIES:
FHLMC stock $ 94,000 4,424,000 - 4,518,000
Other stock 215,697 32,522 (1,198) 247,021
Mortgage-backed securities 9,047,661 7,997 - 9,055,658
HELD-TO-MATURITY SECURITIES:
U. S. government agencies 8,922,389 14,358 (75,747) 8,861,000
Mortgage-backed securities 11,948,654 522,116 (21,770) 12,449,000
----------- --------- -------- ----------
$ 30,228,401 5,000,993 (98,715) 35,130,679
=========== ========= ======== ==========
June 30, 1997
-------------
AVAILABLE-FOR-SALE SECURITIES:
FHLMC stock $ 94,000 3,266,000 - 3,360,000
HELD-TO-MATURITY SECURITIES:
U. S. government agencies 8,585,753 5,143 (217,896) 8,373,000
Mortgage-backed securities 15,813,890 511,722 (234,612) 16,091,000
----------- --------- -------- ----------
$ 24,493,643 3,782,865 (452,508) 27,824,000
=========== ========= ======== ==========
21
The following table sets forth certain information regarding the carrying
values, weighted average yields and maturities of the Bank's investment
securities portfolio at June 30, 1999:
Investment Portfolio Maturities and Average Weighted Yields
Weighted
Amortized Average Approximate
Cost Yield Fair Value
---------- -------- -------------
Due in less than one year (1) $ 6,701,362 7.06% 6,694,562
Due after ten years (1) 740,848 6.00% 740,880
Equity securities not due on
a single maturity date 829,762 0.00% 6,338,035
Mortgage-backed securities not due on a
single maturity date 10,596,959 7.35% 10,801,680
----------- ----- ----------
$ 18,868,931 6.87% 24,575,157
=========== ===== ==========
- --------------------
(1) Consists of U. S. government agencies
22
Sources of Funds
General. The Bank's primary sources of funds are deposits, borrowings,
amortization and prepayments on loans and mortgage-backed securities.
Deposits. The Bank offers a variety of deposit accounts having a range of
interest rates and terms. The Bank's deposits principally consist of fixed-term
certificates, passbook savings, money market, individual retirement accounts
("IRAs") and NOW (checking) accounts. The flow of deposits is influenced
significantly by general economic conditions, the restructuring of the thrift
industry, changes in money market and prevailing interest rates and competition.
The Bank's deposits are typically obtained from the areas in which its offices
are located. The Bank relies primarily on customer service and long-standing
relationships with customers to attract and retain these deposits.
The Bank seeks to maintain a high level of stable core deposits by
providing convenient and high quality service through its offices.
23
The following table sets forth the distribution of the Bank's deposit
accounts at the dates indicated.
Deposit Account Types
As of June 30,
-------------------------------------------------------------------------------------------
1999 1998 1997
---- ---- ----
Average Percentage Average Percentage Average Percentage
Interest of Total Interest of Total Interest of Total
Category Term Rate Amount Deposits Rate Amount Deposits Rate Amount Deposits
- -------- ------ (Dollars in Thousands)
NOW accounts None 1.91% $ 18,068 12.80% 2.24% $ 14,468 10.26% 2.05% 9,386 6.21%
Savings accounts None 2.23% 8,751 6.20% 2.68% 8,658 6.14% 2.80% 8,621 5.70%
Money Market accounts None 3.81% 15,546 11.01% 3.64% 10,587 7.51% 2.98% 8,288 5.48%
Non-interest bearing
demand accounts None 0.00% 4,371 3.10% 0.00% 3,142 2.23% 0.00% 2,334 1.54%
------- ----- ------- ------ ------- ------
Total 46,736 33.11% 36,855 26.14% 28,629 18.93%
------- ----- ------- ------ ------- ------
Certificate of Deposit:
Fixed-rate, fixed-term 1-11 months 4.40% $15,041 10.66% 5.00% 14,169 10.05% 4.96% 16,846 11.14%
Fixed-rate, fixed-term 12-23 months 4.71% 34,874 24.71% 5.19% 38,059 27.00% 5.29% 47,682 31.53%
Fixed-rate, fixed-term 24-35 months 5.14% 21,545 15.27% 5.64% 26,415 18.74% 5.63% 28,485 18.83%
Fixed-rate, fixed-term 36-47 months 5.48% 8,862 6.28% 5.71% 10,147 7.20% 5.77% 12,013 7.94%
Fixed-rate, fixed-term 48-59 months 5.73% 1,784 1.26% 5.98% 1,789 1.27% 5.87% 1,718 1.14%
Fixed-rate, fixed-term 60-71 months 6.09% 7,752 5.49% 6.04% 8,354 5.93% 5.92% 10,615 7.02%
Fixed-rate, fixed-term 72-95 months 6.24% 4,543 3.22% 6.28% 5,187 3.68% 5.92% 5,258 3.48%
------- ----- ------- ------ ------- ------
Total 94,401 66.89% 104,120 73.86% 122,617 81.07%
------- ----- ------- ------ ------- ------
Total Deposits $ 141,137 100.00% 140,975 100.00% 151,246 100.00%
======= ====== ======= ====== ======= ======
24
The following table indicates the approximate amount of the Bank's
certificate accounts of $100,000 or more by time remaining until maturity as of
June 30, 1999.
Maturities of Certificates of Deposit of $100,000 or More
At June 30, 1999
----------------------
Maturity Period (Dollars in Thousands)
- ---------------
Three months or less $ 1,679
Over three through six months 835
Over six through twelve months 2,448
Over twelve months 2,277
------
Total $ 7,239
======
Borrowings
Deposits are the primary source of funds for the Bank's lending activities
and other general business purposes. However, during periods when supply of
lendable funds cannot meet the demand for such loans, the FHLB System makes
available, subject to compliance eligibility standards, a portion of the funds
necessary through loans (advances) to its members.
As of June 30, 1999, 1998 and 1997 there were $104.8, $45.1, and $18.2
million outstanding advances from the FHLB, respectively. The weighted average
interest rate on such advances at June 30, 1999 was 5.71%. The average balance
of outstanding advances during 1999, 1998 and 1997, was $80.0 million, $27.6
million and $13.8 million, respectively, and the approximate average interest
rate was 5.90%, 6.13% and 6.09%, respectively. During 1999, 1998 and 1997, the
maximum outstanding at any month end was $104.8, $45.1 million and $21.2
million, respectively.
Subsidiary Activity
The Bank is a subsidiary of the Company. The Bank has one service
corporation subsidiary, Guaranty Financial Services of Springfield, Inc. The
Bank had an investment of $44,000 in its service corporation as of June 30,
1999. The service corporation sells mutual funds, fixed and variable annuities,
unit investment trusts, individual stocks and bonds and life insurance. Such
sales are completed through an agreement with "INVEST" for providing brokerage
services. In addition, the service corporation acts as a real estate broker for
properties owned by the Bank.
25
Financial Highlights
Year Ended June 30,
-------------------
1999 1998 1997
---- ---- ----
Dividend Payout Ratio
Since conversion December 1997 56% 52% n/a
Return of Average Assets 1.19% 1.25% 0.60%
Return of Average Equity 5.15% 5.81% 4.30%
Stockholders' Equity to Assets 20.25% 27.20% 13.80%
Employees
Substantially, all of the activities of the Company are conducted through
the Bank. At June 30, 1999 the Company had no salaried employees.
As of June 30, 1999, the Bank had 72 full-time employees and 22 part time
employees. None of the Bank's employees are represented by a collective
bargaining group. The Bank believes that its relationship with its employees is
good.
Competition
The Bank experiences substantial competition both in attracting and
retaining deposit accounts and in the making of mortgage and other loans.
Direct competition for savings accounts comes from other savings
institutions, credit unions, regional bank and thrift holding companies and
commercial banks located in its primary market area. Significant competition for
the Bank's other deposit products and services comes from money market mutual
funds, brokerage firms, insurance companies and retail stores. The primary
factors in competing for loans are interest rates and loan origination fees and
the range of services offered by various financial institutions. Competition for
origination of real estate loans normally comes from other savings institutions,
commercial banks, mortgage bankers, mortgage brokers and insurance companies.
The Bank's primary competition comprises the financial institutions near
each of the Bank's branch offices. In the Springfield metropolitan area, where
the Bank's main office and four branch offices are located, primary competition
consists of one thrift institution and 25 commercial banks and 13 credit unions.
The Bank believes it is able to compete effectively in its primary market
area by offering competitive interest rates and loan fees, and a variety of
deposit products, and by emphasizing personal customer service.
26
Regulation
Set forth below is a brief description of certain laws which relate to the
regulation of the Company and the Bank. The description does not purport to be
complete and is qualified in its entirety by reference to applicable laws and
regulations.
Company Regulation
General. The Company is a unitary savings and loan holding company subject
to regulatory oversight by the OTS. As such, the Company is required to register
and file reports with the OTS and is subject to regulation and examination by
the OTS. In addition, the OTS has enforcement authority over the Company and its
non-savings bank subsidiaries, which also permits the OTS to restrict or
prohibit activities that are determined to be a serious risk to the subsidiary
savings bank. This regulation and oversight is intended primarily for the
protection of the depositors of the Bank and not for the benefit of stockholders
of the Company.
Qualified Thrift Lender Test. As a unitary savings and loan holding
company, the Company generally is not subject to activity restrictions, provided
the Bank satisfies the Qualified Thrift Lender ("QTL") test or a somewhat
similar test for domestic building and loan associations. If the Company
acquires control of another savings association as a separate subsidiary, it
would become a multiple savings and loan holding company, and the activities of
the Company and any of its subsidiaries (other than the Bank or any other
SAIF-insured savings association) would become subject to restrictions
applicable to bank holding companies unless such other associations each also
qualifies as a QTL or domestic building and loan association and were acquired
in a supervisory acquisition. See "- Regulation of the Bank - Qualified Thrift
Lender Test."
Regulation of the Bank
General. As a federally chartered, SAIF-insured savings association, the
Bank is subject to extensive regulation by the OTS and the Federal Deposit
Insurance Corporation ("FDIC"). Lending activities and other investments must
comply with various federal statutory and regulatory requirements. The Bank is
also subject to certain reserve requirements promulgated by the Board of
Governors of the Federal Reserve System.
The OTS, in conjunction with the FDIC, regularly examines the Bank and
prepares reports for the consideration of the Bank's Board of Directors on any
deficiencies that are found in the Bank's operations. The Bank's relationship
with its depositors and borrowers is also regulated to a great extent by federal
and state law, especially in such matters as the ownership of savings accounts
and the form and content of the Bank's mortgage documents.
The Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other savings institutions. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the SAIF and depositors.
The regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes. Any change in such regulations, whether by the OTS, the
27
FDIC, or the Congress could have a material adverse impact on the Company, the
Bank, and their operations.
Insurance of Deposit Accounts. The deposit accounts held by the Bank are
insured by the SAIF to a maximum of $100,000 for each insured member (as defined
by law and regulation). Insurance of deposits may be terminated by the FDIC upon
a finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
institution's primary regulator.
As a member of the SAIF, the Bank paid an insurance premium to the FDIC
equal to a minimum of 0.23% of its total deposits. The FDIC also maintains
another insurance fund, the Bank Insurance Fund ("BIF"), which primarily insures
commercial bank deposits. In 1996, the annual insurance premium for most BIF
members was lowered to $2,000. The lower insurance premiums for BIF members
placed SAIF members at a competitive disadvantage to BIF members. Effective
September 30, 1996, federal law was revised to mandate a one-time special
assessment on SAIF members such as the Bank of approximately .657% of deposits
held on March 31, 1995. Beginning January 1, 1997, the deposit insurance
assessment for most SAIF members was reduced to .064% of deposits on an annual
basis through the end of 1999. During this same period, BIF members will be
assessed approximately .013% of deposits. After 1999, assessments for BIF and
SAIF members should be the same. It is expected that these continuing
assessments for both SAIF and BIF members will be used to repay outstanding
Financing Corporation bond obligations. As a result of these changes, beginning
January 1, 1997, the rate of deposit insurance assessed the Bank declined by
approximately 70%.
Regulatory Capital Requirements. OTS capital regulations require savings
associations to meet three capital standards: (1) a tangible capital requirement
of 1.5% of total adjusted assets, (2) a leverage ratio (core capital)
requirement of 4% of total adjusted assets and (3) a risk-based capital
requirement equal to 8% of total risk-weighted assets. Regulations that enable
the OTS to take prompt and corrective action against savings associations
effectively impose higher capital requirements on savings associations.
Dividend and Other Capital Distribution Limitations. The Bank must give the
OTS 30 days advance notice of any proposed declaration of dividends to the
Company, and the OTS has the authority under its supervisory powers to prohibit
the payment of dividends to the Company. In addition, the Bank may not declare
or pay a cash dividend on its capital stock if the dividend would (1) reduce the
regulatory capital of the Bank below the amount required for the liquidation
account established in connection with the conversion from mutual to stock form
or (2) reduce the amount of capital of the Bank below the amounts required in
accordance with other OTS regulations. In contrast, the Company has fewer
restrictions on the payment of dividends.
Qualified Thrift Lender Test. Savings institutions must meet either the QTL
test pursuant to OTS regulations or the definition of a domestic building and
loan association in section 7701 of the Internal Revenue Code (the "Code"). If
the Bank maintains an appropriate level of certain specified investments
(primarily residential mortgages and related investments, including certain
mortgage-related securities) and otherwise qualifies as a QTL or a domestic
building and loan association, it will continue to enjoy full borrowing
privileges from the FHLB of Des Moines. The required percentage of
28
investments under the QTL test is 65% of assets while the Code requires
investments of 60% of assets. A bank must be in compliance with the QTL test or
definition of domestic building and loan association on a monthly basis in nine
out of every 12 months.
Federal Reserve System. The Board of Governors of the Federal Reserve
System requires all depository institutions to maintain non-interest bearing
reserves at specified levels against their transaction accounts (primarily
checking, NOW, and Super NOW checking accounts) and non-personal time deposits.
Executive Officers of the Registrant
Set forth below is information concerning the three executive officers of
the Company.
James E. Haseltine joined the Bank in 1983, and has served as Director,
president and Chief Executive Officer since 1990. Mr. Haseltine has held the
same positions with the Company since its formation in September 1997. After
graduating Drury College in 1968, he entered military service with the U.S. Army
and served in the Republic of Vietnam. He has served as a founding member and
Chairman of the Affordable Housing Action Board of Springfield, Inc., an
organization serving low to moderate income families. He is a licensed real
estate broker.
He is a past president of the Rotary Club of Springfield, serves as
director of the Springfield Business and Development Corporation and the
Springfield Finance and Development Corporation (not for profit community
organizations), and is a member of First and Calvary Presbyterian Church.
William B. Williams joined the Bank in 1995 as Executive Vice President and
Chief Operating Officer. Mr. Williams has held the same positions with the
Company since its formation in September 1997. Prior to joining the Bank, Mr.
Williams worked as a consultant to Midland Loan Services, L.P., a commercial
mortgage banker in Kansas City, Missouri. From 1987 to 1994, Mr. Williams worked
for North American Savings Bank in Grandview, Missouri, most recently as
Executive Vice President and Chief Financial Officer. Mr. Williams received a
BSBA degree from the University of Arkansas in 1969 and after serving as an
officer in the U.S. Navy, he received a MBA degree from Tulane University in
1974. He is a CPA.
Bruce Winston is Vice President and Chief Financial Officer of the Bank. He
joined the Bank in 1992. Mr. Winston has held the same positions with the
Company since its formation in September 1997. Prior to joining the Bank, he
served in various other capacities with two other financial institutions over a
period of 20 years. He is a graduate of Southwest Missouri State University, and
is a member of First Presbyterian Church, where he has served as an Elder and
Treasurer.
At June 30, 1999, the years of age of these individuals was 52 for Mr.
Haseltine, 52 for Mr. Williams and 51 for Mr. Winston.
29
Item 2. Properties
- ------------------
The offices of the Company are located in the main office of the Bank.
The Bank's office facilities currently consist of the main office in
Springfield, Greene County, Missouri and three full-service branch offices in
Springfield and one in-store branch located in the Walmart Supercenter in Nixa,
Christian County, Missouri. The Bank has a relatively new main office building,
which provides the Bank with a modern office for customer services and projects
Item 3. Legal Proceedings
- -------------------------
The Company and the Bank, from time to time, may be parties to ordinary
routine litigation, which arises in the normal course of business, such as
claims to enforce liens, condemnation proceedings, on properties in which the
Bank holds security interests, claims involving the making and servicing of real
property loans, and other issues incident to the business of the Company and the
Bank. At June 30, 1999, there were no claims or lawsuits pending or known to be
contemplated against the Company or the Bank that would have had a material
effect on the Company or the Bank.
Item 4. Submission of Matters to a Vote of Security Holders
- -------------------------------------------------------------
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
- --------------------------------------------------------------------------------
The information on page 1 of the Annual Report to Stockholders of the
Registrant for the fiscal year ended June 30, 1999 (the "1999 Annual Report") is
incorporated herein by reference.
Item 6. Selected Financial Data
- --------------------------------
The information contained on page 3 of the 1999 Annual Report is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Conditions and Results
of Operations
- --------------------------------------------------------------------------------
The information contained on pages 4 through 14 of the 1999 Annual Report
is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
- --------------------------------------------------------------------
The information contained on pages 10 and 11 under the headings
"Asset/Liability Management" and "Interest Rate Sensitivity Analysis" of the
1999 Annual Report is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
30
The financial statements set forth on pages 15 to 44 of the 1999 Annual
Report, are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants On Accounting and
Financial Disclosure
- --------------------------------------------------------------------------------
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
The information contained under the section captioned "First Proposal,
Election of Directors" in the proxy statement for the Annual Meeting of
Stockholders to be held October 27, 1999 (the "Proxy Statement") is incorporated
herein by reference.
Additional information concerning executive officers and directors is
included in the Proxy Statement in the section captioned "Section 16(a)
Beneficial Ownership Reporting Compliance" and under "Executive Officers of the
Registrant" in Item 1 of this report.
Item 11. Executive Compensation
- --------------------------------
The information contained in the sections captioned "Directors
Compensation", "Executive Compensation" "Compensation Committee Interlocks and
Insider Participation", "Compensation Committee Report on Executive
Compensation," "Summary Compensation Table," "Employment Agreements," "Option
/SAR Grants in Last Fiscal Year," and "Aggregated Option/SAR Exercises and
Fiscal Year end Option/SAR Values," in the Proxy Statement is incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by reference
to the section captioned "Voting Securities and Principal Holders
Thereof" in the Proxy Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by reference
to the second chart in the section captioned "Voting Securities and
Principal Holders Thereof" in the Proxy Statement.
(c) Not applicable.
31
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information required by this item is incorporated herein by reference
to the section captioned "Certain Transactions with Related Persons" in the
Proxy Statement.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- ------------------------------------------------------------------------
(a) The following documents are filed as a part of this report:
1. The following financial statements and the report of independent
accountants included in the 1999 Annual Report are incorporated herein by
reference and also in Item 8 of this report.
Independent Accountants' Report
Consolidated Balance Sheets as of June 30, 1999 and 1998.
Consolidated Statements of Income for the Years Ended June 30, 1999,
1998 and 1997.
Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended June 30, 1999, 1998 and 1997.
Consolidated Statements of Cash Flows for the Years Ended June 30,
1999, 1998 and 1997.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedules for which provision is made in the
applicable accounting regulations of the SEC are not required under the related
instructions or are inapplicable and therefore have been omitted.
3. The following exhibits are included in this Report or incorporated
herein by reference:
(a) List of Exhibits:
3(i) Certificate of Incorporation of Guaranty Federal Bancshares,
Inc.*
3(ii) Bylaws of Guaranty Federal Bancshares, Inc.*
10.1 1994 Stock Option Plan**
10.2 Recognition and Retention Plan***
10.3 1998 Stock Option Plan****
10.4 Restricted Stock Plan*****
32
10.5 Employment Agreements
13 Annual Report to Stockholders for the fiscal year ended June 30,
1999
21 Subsidiaries of the Registrant*
23 Consent of Baird Kurtz & Dobson
27 Financial Data Schedule (Electronic Filing only)
(b) No reports on Form 8-K were filed during the last quarter of the
period covered by this report.
- ---------------------
* Incorporated by reference to the identically numbered exhibit of the Annual
Report on Form 10-K for the fiscal year ended June 30, 1998 (SEC file
number 0-23325).
** Incorporated by reference to Exhibit 10.1 of the Registration Statement on
Form S-1 filed by the Registrant on September 22, 1997 (SEC file number
333-36141).
*** Incorporated by reference to Exhibit 10.2 of the Registration Statement on
Form S-1 filed by the Registrant on September 22, 1997 (SEC file number
333-36141).
**** Incorporated by reference to Exhibit A of the proxy statement for a special
meeting of stockholders held on July 22, 1998 (SEC file number 0-23325).
*****Incorporated by reference to Exhibit B of the proxy statement for a
special meeting of stockholders held on July 22, 1998 (SEC file number
0-23325).
33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GUARANTY FEDERAL BANCSHARES, INC.
Dated: September 23, 1999 By: /s/James E. Haseltine
-----------------------------------------
James E. Haseltine
President and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/James E. Haseltine By: /s/Ivy L. Rogers
------------------------------------- ---------------------------------
James E. Haseltine Ivy L. Rogers
President and Chief Executive Officer Director
(Principal Executive Officer)
Date: September 23, 1999 Date: September 23, 1999
By: /s/Bruce Winston By: /s/Gary Lipscomb
------------------------------------- ---------------------------------
Bruce Winston Gary Lipscomb
Vice President and Chief Financial Officer Director
(Principal Accounting and
Financial Officer)
Date: September 23, 1999 Date: September 23, 1999
By: /s/Wayne V. Barnes By: /s/Jack L. Barham
------------------------------------- ---------------------------------
Wayne V. Barnes Jack L. Barham
Director Chairman of the Board and Director
Date: September 23, 1999 Date: September 23, 1999
By: /s/George L. Hall By: /s/Raymond D. Tripp
------------------------------------- ---------------------------------
George L. Hall Raymond D. Tripp
Director Director
Date: September 23, 1999 Date: September 23, 1999
By: /s/Gregory V. Ostergren
-------------------------------------
Gregory V. Ostergren
Director
Date: September 23, 1999