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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 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 (Zip Code)
executive offices)
Telephone Number: (417) 520-4333
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Class Outstanding at November 8, 2002
----- -------------------------------
Common Stock, Par Value $0.10 3,035,188 Shares
GUARANTY FEDERAL BANCSHARES, INC.
Form 10-Q
TABLE OF CONTENTS
Item Page
PART I. Financial Information
1. Consolidated Financial Statements (Unaudited):
Statements of Financial Condition 3
Statements of Income 4
Statements of Stockholders' Equity 5
Statements of Cash Flows 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 14
4. Control and Procedures 16
PART II. Other Information
1. Legal Proceedings 17
2. Changes in Securities 17
3. Defaults Upon Senior Securities 17
4. Submission of Matters to Vote of Common Stockholders 17
5. Other Information 17
6. Exhibits and Reports on Form 8-K 17
Signatures
Certification of the Principal Executive Officer
Certification of the Principal Financial Officer
2
PART I
Item 1. Financial Statements
GUARANTY FEDERAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 2002 (UNAUDITED) AND JUNE 30, 2002
ASSETS 9/30/02 6/30/02
------------- -------------
Cash $ 3,205,779 3,251,579
Interest-bearing deposits in other financial institutions 12,863,111 13,711,923
------------- -------------
Cash and cash equivalents 16,068,890 16,963,502
Available-for-sale securities 15,789,744 16,463,460
Held-to-maturity securities 2,954,398 3,219,091
Stock in Federal Home Loan Bank, at cost 8,600,400 8,600,400
Mortgage loans held for sale 5,130,714 3,131,138
Loans receivable, net of allowance for loan losses;
9/30/02 - $2,633,639; 6/30/02 $2,649,872 318,309,989 316,785,118
Accrued interest receivable:
Loans 1,503,546 1,569,260
Investments 70,107 85,251
Prepaid expenses and other assets 1,682,050 2,082,897
Foreclosed assets held for sale 109,861 683,329
Premises and equipment 7,217,818 7,356,098
------------- -------------
$ 377,437,517 376,939,544
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 222,689,772 223,652,319
Federal Home Loan Bank advances 111,912,947 111,083,163
Securities sold under agreements to repurchase 847,929 1,093,074
Advances from borrowers for taxes and insurance 1,391,698 1,048,297
Accrued expenses and other liabilities 1,910,733 2,124,805
Accrued interest payable 905,842 759,099
Dividend payable 417,197 347,656
Income taxes payable 462,734 163,897
Deferred income taxes 1,184,173 1,232,357
------------- -------------
341,723,025 341,504,667
------------- -------------
STOCKHOLDERS' EQUITY
Common stock:
$0.10 par value; authorized 10,000,000 shares;
issued; 9/30/02 - 6,368,687 shares, 6/30/02 - 6,365,404 shares 636,869 636,540
Additional paid-in capital 49,984,387 49,842,032
Unearned ESOP shares (2,343,570) (2,406,070)
Retained earnings, substantially restricted 27,851,784 27,372,935
Accumulated other comprehensive income
Unrealized appreciation on available-for-sale securities,
net of income taxes; 9/30/02 - $1,520,844, 6/30/02 - $1,731,122 2,588,704 2,947,587
------------- -------------
78,718,174 78,393,024
Treasury stock, at cost; 9/30/02 - 3,336,304 shares, 6/30/02 - 3,333,089 shares (43,003,682) (42,958,147)
------------- -------------
35,714,492 35,434,877
------------- -------------
$ 377,437,517 376,939,544
============= =============
See Notes to Condensed Consolidated Financial Statements
3
GUARANTY FEDERAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED)
9/30/02 9/30/01
----------- -----------
INTEREST INCOME
Loans $ 5,488,439 6,360,382
Investment securities 125,994 193,725
Other 132,023 187,369
----------- -----------
Total Interest Income 5,746,456 6,741,476
----------- -----------
INTEREST EXPENSE
Deposits 1,616,380 1,807,373
Federal Home Loan Bank advances 1,500,718 2,133,283
Other 3,077 12,188
----------- -----------
Total Interest Expense 3,120,175 3,952,844
----------- -----------
Net Interest Income 2,626,281 2,788,632
Provision for Loan Losses 100,000 75,000
----------- -----------
Net Interest Income after
Provision for Loan Losses 2,526,281 2,713,632
----------- -----------
NONINTEREST INCOME
Service charges 440,580 353,025
Late charges and other fees 156,851 29,018
Gain on loans and investment securities 224,577 342,498
Loss on foreclosed assets (4,793) --
Other income 46,237 65,195
----------- -----------
Total Noninterest Income 863,452 789,736
----------- -----------
NONINTEREST EXPENSE
Salaries and employee benefits 1,121,186 1,081,705
Occupancy 336,803 318,133
SAIF deposit insurance premiums 9,859 6,956
Data processing fees 141,140 134,622
Advertising 49,113 78,412
Other expense 368,128 386,463
----------- -----------
Total Noninterest Expense 2,026,229 2,006,291
----------- -----------
Income Before Income Taxes 1,363,504 1,497,077
Provision for Income Taxes 467,458 527,997
----------- -----------
NET INCOME 896,046 969,080
OTHER COMPREHENSIVE LOSS
Unrealized depreciation on
available-for-sale securities, net of income taxes of ($210,278)
and ($264,339) for 2002 and 2001, respectively (358,883) (450,091)
----------- -----------
COMPREHENSIVE INCOME $ 537,163 518,989
=========== ===========
BASIC EARNINGS PER SHARE $ 0.32 0.25
=========== ===========
DILUTED EARNINGS PER SHARE $ 0.32 0.25
=========== ===========
See Notes to Condensed Consolidated Financial Statements
4
GUARANTY FEDERAL BANCSHARES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED SEPTEMBER 30, 2002 (UNAUDITED)
Additional
Common Paid-In Unearned Retained
Stock Capital ESOP Shares Earnings
----------- ----------- ----------- -----------
Balance, July 1, 2002 $ 636,540 49,842,032 (2,406,070) 27,372,935
Net income -- -- -- 896,046
Dividends on common stock,
($0.15 per share on 3,781,315 shares) -- -- -- (417,197)
Stock award plans -- 97,549 -- --
Stock options exercised 329 19,506 -- --
Release of ESOP shares -- 25,300 62,500 --
Treasury stock purchased -- -- -- --
Change in unrealized appreciation on
available-for-sale securitites, net of
income taxes of ($210,278) -- -- -- --
----------- ----------- ----------- -----------
Balance, September 30, 2002 $ 636,869 49,984,387 (2,343,570) 27,851,784
=========== =========== =========== ===========
Accumulated Other
Comprehensive Income
--------------------
Unrealized
Appreciation on
Available-for-Sale Treasury
Securities, Net Stock Total
-------------------- ----------- -----------
Balance, July 1, 2002 2,947,587 (42,958,147) 35,434,877
Net income -- -- 896,046
Dividends on common stock,
($0.15 per share on 3,781,315 shares) -- -- (417,197)
Stock award plans -- -- 97,549
Stock options exercised -- -- 19,835
Release of ESOP shares -- -- 87,800
Treasury stock purchased -- (45,535) (45,535)
Change in unrealized appreciation on
available-for-sale securitites, net of
income taxes of ($210,278) (358,883) -- (358,883)
----------- ----------- -----------
Balance, September 30, 2002 2,588,704 (43,003,682) 35,714,492
=========== =========== ===========
See Notes to Condensed Consolidated Financial Statements
5
GUARANTY FEDERAL BANCSHARES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED SEPTEMBER 30, 2001 (UNAUDITED)
Additional
Common Paid-In Unearned Retained
Stock Capital ESOP Shares Earnings
----------- ----------- ----------- -----------
Balance, July 1, 2001 $ 626,840 48,451,515 (2,640,800) 25,951,537
Net income -- -- -- 969,080
Dividends on common stock,
($0.25 per share on 3,800,279 shares) -- -- -- (950,070)
Stock award plans -- 101,911 -- --
Stock options exercised 2,564 169,962 -- --
Release of ESOP shares -- 17,157 57,410 --
Treasury stock purchased -- -- -- --
Change in unrealized appreciation on
available-for-sale securitites, net of
income taxes of ($264,339) -- -- -- --
----------- ----------- ----------- -----------
Balance, September 30, 2001 $ 629,404 48,740,545 (2,583,390) 25,970,547
=========== =========== =========== ===========
Accumulated Other
Comprehensive Income
--------------------
Unrealized
Appreciation on
Available-for-Sale Treasury
Securities, Net Stock Total
-------------------- ----------- -----------
Balance, July 1, 2001 3,948,203 (26,131,504) 50,205,791
Net income -- -- 969,080
Dividends on common stock,
($0.25 per share on 3,800,279 shares) -- -- (950,070)
Stock award plans -- -- 101,911
Stock options exercised -- -- 172,526
Release of ESOP shares -- -- 74,567
Treasury stock purchased -- (204,875) (204,875)
Change in unrealized appreciation on
available-for-sale securitites, net of
income taxes of ($264,339) (450,091) -- (450,091)
----------- ----------- -----------
Balance, September 30, 2001 3,498,112 (26,336,379) 49,918,839
=========== =========== ===========
See Notes to Condensed Consolidated Financial Statements
6
GUARANTY FEDERAL BANCSHARES, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED)
9/30/02 9/30/01
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 896,046 969,080
Items not requiring (providing) cash:
Deferred income taxes 162,094 62,214
Depreciation 200,693 222,877
Provision for loan losses 100,000 75,000
Gain on loans and investment securities (224,577) (342,498)
Loss on sale of foreclosed assets 2,973 --
Amortization of deferred income, premiums and discounts 1,047 (27,823)
RRP/RSP expense 89,998 123,560
Origination of loans held for sale (15,680,114) (13,539,408)
Proceeds from sale of loans held for sale 13,905,115 12,054,893
Release of ESOP shares 87,800 74,567
Changes in:
Accrued interest receivable 80,858 165,847
Prepaid expenses and other assets 400,847 (329,436)
Accounts payable and accrued expenses (67,329) 741,067
Income taxes payable 305,766 464,889
------------ ------------
Net cash provided by operating activities 261,217 714,829
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans (1,804,261) (4,928,695)
Principal payments on available-for-sale securities 101,307 495,196
Principal payments on held-to-maturity securities 271,392 423,340
Proceeds from maturities of available-for-sale securities 3,000,000 2,000,000
Purchase of premises and equipment (62,413) (48,345)
Purchase of available-for-sale securities (2,978,928) (4,915,229)
Proceeds from sale of available-for-sale securities -- 402,342
Proceeds from sale of foreclosed assets 724,315 4,200
------------ ------------
Net cash used in investing activities (748,588) (6,567,191)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Stock options exercised 19,835 172,526
Cash dividends paid (347,656) --
Cash dividends received on RRP stock 622 --
Net increase in demand deposits,
NOW accounts and savings accounts 4,563,088 4,942,036
Net increase (decrease) in certificates of deposit and securities sold
under agreements to repurchase (5,770,780) 5,666,655
Proceeds from FHLB advances 5,000,000 24,500,000
Repayments of FHLB advances (4,170,216) (30,755,629)
Advances from borrowers for taxes and insurance 343,401 393,359
Treasury stock purchased (45,535) (204,875)
------------ ------------
Net cash provided by (used in) financing activities (407,241) 4,714,072
------------ ------------
DECREASE IN CASH AND CASH EQUIVALENTS (894,612) (1,138,290)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 16,963,502 10,313,558
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 16,068,890 9,175,268
============ ============
See Notes to Condensed Consolidated Financial Statements
7
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 2002 filed with the
Securities and Exchange Commission. The condensed consolidated balance sheet of
the Company as of June 30, 2002, 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 accompanying consolidated financial statements include the accounts of
Guaranty Federal Bancshares, Inc. (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. All significant
intercompany transactions and balances 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 2000 Stock
Compensation Plan (the "2000 SCP") with both a stock award component and a stock
option component. On March 22, 2001, the directors of the Company established
the 2001 Stock Compensation Plan (the "2001 SCP") with both a stock award
component and a stock option component. As of September 30, 2002, all of the
RRP,RSP, 2000 SCP and 2001 SCP shares have been purchased and all except 7,837
shares have been awarded. The Company is amortizing the RRP, RSP and SCP expense
over each participant's vesting period. The Company recognized $89,998 and
$123,560 of expense under these stock award plans for the three month periods
ended September 30, 2002 and 2001, respectively. The SOP, 1998 SOP and the 2000
SCP authorized stock options on shares to be issued to officers and employees of
the Bank, as of September 30, 2002 all options except those on 63,703 shares
have been granted. The RRP, RSP, SOP,1998 SOP and 2000 SCP vest over a five year
period. As of September 30, 2002, there were 422,497 unexercised options that
have been granted at prices ranging from $5.83 to $13.89 per share and 46,949
RRP, RSP, 2000 SCP and 2001 SCP shares were unvested.
8
Note 4: Earnings Per Share
For three months ended September 30, 2002
-----------------------------------------------------------
Average
Income Available Shares
to Stockholders Outstanding Per-share
---------------- ----------- ---------
Basic Earnings per Share $ 896,046 2,793,044 $ 0.32
========= =========
Effect of Dilutive Securities: Stock Options 48,309
---------
Diluted Earnings per Share $ 896,046 2,841,353 $ 0.32
========= ========= =========
For three months ended September 30, 2001
-----------------------------------------------------------
Average
Income Available Shares
to Stockholders Outstanding Per-share
---------------- ----------- ---------
Basic Earnings per Share $ 969,080 3,807,070 $ 0.25
========= =========
Effect of Dilutive Securities: Stock Options 46,201
---------
Diluted Earnings per Share $ 969,080 3,853,271 $ 0.25
========= ========= =========
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
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 salaries and benefits, occupancy
expenses and other expenses. The following discussion reviews the financial
condition at September 30, 2002, and the results of operations for the three
months ended September 30, 2002 and 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; and changes in the
general level of interest rates.
9
Financial Condition
The Company's total assets increased $497,973 from $376,939,544 as of June
30, 2002, to $377,437,517 as of September 30, 2002.
Interest-bearing deposits in other financial institutions decreased
$848,812 (6%) from $13,711,923 as of June 30, 2002, to $12,863,111 as of
September 30, 2002, as the funds were used to fund new loans.
Securities available-for-sale decreased $673,716 (4%) from $16,463,460 as
of June 30, 2002, to $15,789,744 as of September 30, 2002. The Bank continues to
hold 82,000 shares of Federal Home Loan Mortgage Corporation ("FHLMC") stock
with an amortized cost of $80,294 in the available-for-sale category. As of
September 30, 2002, the gross unrealized gain on the stock was $4,496,126, a
decrease from $5,044,706 as of June 30, 2002.
Securities held-to-maturity decreased due to principal repayments, by
$264,693 (8%) from $3,219,091 as of June 30, 2002, to $2,954,398 as of September
30, 2002.
Net loans receivable increased by $1,524,871 from $316,785,118 as of June
30, 2002, to $318,309,989 as of September 30, 2002. During this period the Bank
continued its increased emphasis on commercial lending. As a result, commercial
loans have increased by $2,913,688 during this period. In addition the Bank is
selling conforming loans on single family residences, while retaining the
servicing rights. As a result permanent mortgage loans secured by both owner and
non-owner occupied residential real estate decreased by $1,791,178 while loans
held for sale increased by $1,999,576. The Bank continued to be active in
construction lending. As a result construction loans increased by $5,401,529
during the period. Loan growth is anticipated to continue and represents a major
part of the Bank's planned asset growth.
Allowance for loan losses decreased $16,233 from $2,649,872 as of June 30,
2002 to $2,633,639 as of September 30, 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 September 30, 2002 and June 30, 2002 was 0.81%
and 0.83%, respectively, of net loans outstanding. As of September 30, 2002, the
allowance for loan losses was 858% of impaired loans versus 151% as of June 30,
2002.
Premises and equipment decreased $138,280 (2%) from $7,356,098, as of June
30, 2002 to $7,217,818 as of September 30, 2002, primarily due to the
depreciation recognized on these assets.
Deposits decreased $962,547 from $223,652,319 as of June 30, 2002, to
$222,689,772 as of September 30, 2002. For the three months ended September 30,
2002, checking and savings accounts increased by $4,563,088 (5%) while
certificates of deposits decreased by $5,525,635 (4%).
Federal Home Loan Bank advances increased by $829,784 (1%) from
$111,083,163 as of June 30, 2002, to $111,912,947 as of September 30, 2002.
Advances from borrowers for taxes and insurance increased $343,301 (33%)
from $1,048,297 of June 30, 2002, to $1,391,698 as of September 30, 2002.
Stockholders' equity (including unrealized appreciation on securities
available-for-sale, net of tax) increased $279,615 (1%) from $35,434,877 as of
June 30, 2002, to $35,714,492 as of September 30, 2002. This increase was due to
several factors. During this period the Company net income was $896,046 which
was partially offset by dividends in the amount of $417,197 ($0.15 per share)
which were declared prior to September 30, 2002 and paid on October 18, 2002, to
stockholders' of record as of October 4, 2002. There was a decrease in the
unrealized appreciation on available-for-sale securities of $358,883. In
addition, the Company repurchased 3,215 shares of treasury stock at a cost of
$45,535 (an average cost of $14.16 per share). As of September 30, 2002, 28,494
shares remain to be repurchased under the repurchase plan announced January 5,
2001. On a per share basis, stockholders' equity increased from $12.69 as of
June 30, 2002 to $12.76 as of September 30, 2002.
10
Average Balances, Interest and Average Yields
The Company's profitability is primarily dependent upon net interest
income, which represents the difference between interest and fees earned on
loans and debt and equity securities, and the cost of deposits and borrowings.
Net interest income is dependent on the difference between the average balances
and rates earned on interest-earning assets and the average balances and rates
paid on interest-bearing liabilities. Non-interest income, non-interest expense,
and income taxes also impact net income.
The following table sets forth certain information relating to the
Company's average consolidated statements of financial condition and reflects
the average yield on assets and average cost of liabilities for the periods
indicated. Such yields and costs are derived by dividing income or expense
annualized by the average balance of assets or liabilities, respectively, for
the periods shown. Average balances were derived from average daily balances.
The average balance of loans includes loans on which the Company has
discontinued accruing interest. The yields and costs include fees which are
considered adjustments to yields. All dollar amounts are in thousands.
11
Three Months ended 9/30/2002 Three Months ended 9/30/2001
---------------------------- ----------------------------
Average Yield / Average Yield /
Balance Interest Cost Balance Interest Cost
-------- -------- ------ -------- -------- ------
ASSETS
Interest-earning:
Loans $322,643 5,488 6.80% $324,298 6,360 7.84%
Investment securities 12,404 126 4.06% 15,535 194 5.00%
Other assets 25,460 132 2.07% 23,357 187 3.20%
-------- -------- ---- -------- -------- ----
Total interest-earning 360,507 5,746 6.38% 363,190 6,741 7.42%
-------- ---- -------- ----
Noninterest-earning 14,224 13,084
-------- --------
$374,731 $376,274
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing:
Savings accounts $ 17,685 74 1.67% $ 7,428 38 2.05%
Transaction accounts 65,621 244 1.49% 46,438 268 2.31%
Certificates of deposit 128,318 1,298 4.05% 113,852 1,502 5.28%
FHLB Advances 109,350 1,501 5.49% 143,146 2,133 5.96%
Other borrowed funds 1,014 3 1.18% 1,868 12 2.57%
-------- -------- ---- -------- -------- ----
Total interest-bearing 321,988 3,120 3.88% 312,732 3,953 5.06%
-------- ---- -------- ----
Noninterest-bearing 16,455 12,617
-------- --------
Total liabilities 338,443 325,349
Stockholders' equity 36,288 50,925
-------- --------
$374,731 $376,274
======== ========
Net earning balance $ 38,519 $ 50,458
======== ========
Earning yield less costing rate 2.50% 2.36%
==== ====
Net interest income, and net yield spread
on interest earning assets $ 2,626 2.91% $ 2,788 3.07%
======== ==== ======== ====
Ratio of interest-earning assets to
interest-bearing liabilities 112% 116%
======== ========
Results of Operations - Comparison of Three Month Periods Ended September 30,
2002 and 2001
Income for the three months ended September 30, 2002 was $896,046 ($0.32
per share) as compared to $969,080, ($0.25 per share) for the three months ended
September 30, 2001, which represents a decrease in earnings of $73,034 for the
three month period ended September 30, 2002, compared to the same period in
2001.
Interest Income
Total interest income for the three months ended September 30, 2002,
decreased $995,020 (15%) as compared to the three months ended September 30,
2001. For the three month period ended September 30, 2002 compared to the same
period in 2001, the average yield on interest earning assets decreased 104 basis
points to 6.38%, while the average balance of interest earnings assets decreased
$2,683,000.
12
Interest Expense
Total interest expense for the three months ended September 30, 2002,
decreased $832,669 (21%) when compared to the three months ended September 30,
2001. For the three month period ended September 30, 2002, the average cost of
interest bearing liabilities decreased 118 basis points to 3.88% while the
average balance increased $9,256,000 when compared to the same period in 2001.
Net Interest Income
Net interest income for the three months ended September 30, 2002,
decreased $162,351 (6%) when compared to the same period in 2001. The average
balance of interest bearing liabilities increased $11,939,000 more than the
average balance in interest earning assets. For the three month period ended
September 30, 2002, the earning yield minus the costing rate spread increased 14
basis points to 2.50% compared to the same period in 2001.
Provision for Loan Losses
Based primarily on the continued growth of the loan portfolio, management
decided to increase the allowance for loan losses through a provision for loan
loss of $100,000 for the three months ended September 30, 2002, and of $75,000
for the same period 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 $73,716 (9%) for the three months ended
September 30, 2002, when compared to the three months ended September 30, 2001.
These increases were primarily due to checking service charges of $87,555 (25%)
and late charges and prepayment penalties on loans of $127,833 (441%). These
increases were partially offset by a decrease of $117,921 (34%) on sales of
loans and investments. During the three month period ended September 30, 2002
there was a profit on sale of loans of $224,577. During this same period there
were no sales of investments. During the three month period ended September 30,
2001 there was a profit on sale of loans of $180,785 and a profit on sale of
investments of $161,713. The profit on sale of investments was due the sale of
various equity securities including 2,000 shares of FHLMC stock.
Noninterest Expense
Noninterest expense increased $19,938 (1%) for the three months ended
September 30, 2002, when compared to the three months ended September 30, 2001.
This small increase can be attributed to the Company's aggressive approach to
controlling expenses. There was no significant change in any individual expense
category.
Provision for Income Taxes
The provision for income taxes decreased $60,539 (11%) for the three
months ended September 30, 2002, as compared to the same period in 2001. This
decrease was due to the decrease in before tax income for the three months ended
September 30, 2002, compared to the same period in 2001.
Nonperforming Assets
The allowance for loan losses is calculated based upon an evaluation of
pertinent factors underlying the various types and quality of the loans.
Management considers such factors as the repayment status of a loan, the
estimated net realizable value of the underlying collateral, the borrower's
intent and ability to repay the loan, local economic conditions and the Bank's
historical loss ratios. The Bank's allowance for loan losses as of September 30,
13
2002, was $2,633,639 or 0.81% of loans receivable. Total assets classified as
substandard or loss as of September 30, 2002, were $296,304 or 0.1% 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.
9/30/02 6/30/02 6/30/01
------ ------ ------
Nonperforming loans $ 407 1,751 4,948
Real estate acquired in settlement of loans 110 683 4
------ ------ ------
Total nonperforming assets $ 517 2,434 4,952
====== ====== ======
Total nonperforming assets as a percentage of total assets 0.14% 0.65% 1.32%
Allowance for loan losses $2,634 2,650 2,697
Allowance for loan losses as a percentage of average net loans 0.82% 0.82% 0.87%
Impact of Recent Accounting Pronouncements
The Financial Accounting Standards Board (FASB) recently adopted Statement
of Financial Accounting Standards No. 142 (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 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 has
adopted SFAS 142 in the quarter ending September 30, 2002. Adoption of SFAS 142
as of that date had no effect on the Company's financial statements.
The FASB recently adopted SFAS 147, "Acquisitions of Certain Financial
Institutions." This statement removes acquisitions of financial institutions
from the scope of SFAS 72, "Accounting for Certain Acquisitions of Banking or
Thrift Institutions" if those acquisitions meet the definition of a business
combination. Financial institutions meeting certain conditions in SFAS 147 will
be required to cease amortizing certain intangible assets acquired in
transactions previously accounted for under SFAS 72 and restate previously
issued interim financial information. The provisions of the Statement are
effective on October 1, 2002. Management believes initial adoption of SFAS 147
will have no material effect on the Company's financial statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
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, the Bank 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.
14
As a part of its asset and liability management strategy the Bank
implemented an adjustable rate mortgage loan ("ARM") program beginning in the
early 1980s. Throughout the past several years, the Bank has continued to
emphasize the origination of adjustable-rate, one- to four-family residential
loans and adjustable-rate or relatively short-term commercial real estate,
commercial business and consumer loans, while originating fixed-rate, one- to
four-family residential loans primarily for immediate resale in the secondary
market on a service-retained basis. This allows the Bank to serve the customer's
needs and retain a banking relationship without the risk of carrying a long-term
fixed-rate loan on the books.
The Bank is also managing interest rate risk by the origination of
construction loans. As of September 30, 2002, such loans made up 17.3% of the
net loans receivable. 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, 2002, the Bank's savings
accounts, checking accounts, and money market deposit accounts totaled
$92,070,160 or 41% of its total deposits. As of September 30, 2002, these
accounts totaled $96,633,248 or 43% of total deposits. The Bank believes, based
on historical experience, that a substantial portion of such accounts represents
non-interest rate sensitive, core deposits.
Interest Rate Sensitivity Analysis
The following table sets forth as of June 30, 2002 (the most recent
available), the OTS estimate of the projected changes in net portfolio value
("NPV") in the event of 100, 200, and 300 basis point ("bp") instantaneous and
permanent increases and a 100 basis point instantaneous and permanent decrease
in market interest rates. Dollar amounts are expressed in thousands.
Estimated Net Portfolio Value NPV as % of PV of Assets
BP Change -------------------------------------------- ------------------------
in Rates $ Amount $ Change % Change NPV Ratio Change
- --------- -------- -------- -------- --------- ------
+300 $39,398 $ (111) 0% 10.58% 0.33%
+200 40,059 550 1% 10.62% 0.37%
+100 40,098 589 1% 10.51% 0.26%
NC 39,509 -- -- 10.25% --
-100 37,785 (1,724) -4% 9.74% -0.51%
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 steady 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
15
Bank's management is responsible for administering the policies and
determinations of the Board of Directors with respect to the Bank's asset and
liability goals and strategies.
Liquidity and Capital Resources
The Bank's primary sources of funds are deposits, principal and interest
payments on loans and securities and extensions of credit from the Federal Home
Loan Bank of Des Moines. While scheduled loan and security repayments and the
maturity of short-term investments are somewhat predictable sources of funding,
deposit flows are influenced by many factors, which make their cash flows
difficult to anticipate.
The Bank uses its liquidity resources principally to satisfy its ongoing
commitments which include funding loan commitments, funding maturing
certificates of deposit as well as deposit withdrawals, maintaining liquidity,
purchasing investments, and meeting operating expenses. As of September 30,
2002, the Bank had approximately $4,620,000 in commitments to originate mortgage
loans and $21,924,000 in loans-in-process on mortgage loans. These commitments
will be funded through existing cash balances, cash flow from operations and, if
required, FHLB advances . Management believes that anticipated cash flows and
deposit growth will be adequate to meet the Bank's liquidity needs.
Item 4. Controls and Procedures
(a) The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the Company's Exchange
Act reports is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms, and that such information is
accumulated and communicated to the Company's management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure based closely on the definition of
"disclosure controls and procedures" in Rule 13a-14(c).
Within 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and the Company's
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on the foregoing, the
Company's Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures were effective.
(b) There have been no significant changes in the Company's internal controls or
in other factors that could significantly affect the internal controls
subsequent to the date the Company completed its evaluation.
16
PART II
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to Vote of Common Stockholders
The annual meeting of stockholders of the registrant was held on October
23, 2002. At the meeting the stockholders elected Wayne V. Barnes, Gregory V.
Ostergren and James L. Sivils, III to three-year terms and Don M. Gibson and Tim
Rosenbury to two-year terms as directors of the Company, while Gary Lipscomb,
Jack L. Barham and Kurt Hellweg continue to serve as directors. Also at that
meeting, BKD, LLP was ratified as Independent Certified Public Accountants.
These same entities serve in identical capacities for the subsidiary bank of the
registrant.
The results of voting are shown for each matter considered.
Director election:
Nominee Votes For Votes Withheld
- ------- --------- --------------
Wayne V. Barnes 2,494,470 51,770
Gregory V. Ostergren 2,596,964 49,285
James L. Sivils, III 2,495,971 50,269
Don M. Gibson 2,494,593 51,647
Tim Rosenbury 2,496,875 49,365
Auditor ratification:
Votes for 2,525,371
Votes against 8,076
Abstentions 12,793
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a) List of Exhibits
99.1 CEO certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
99.2 CFO certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
b) Reports on Form 8-K None.
17
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 November 12, 2002
------------------------------------------------- -----------------
Don M. Gibson
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Bruce Winston November 12, 2002
------------------------------------------------- -----------------
Bruce Winston
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
18
Certification of the Principal Executive Officer
(Section 302 of the Sarbanes-Oxley Act of 2002)
I, Don M. Gibson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Guaranty Federal
Bancshares, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
/s/ Don M. Gibson
-----------------
Don M. Gibson
President and Chief Executive Officer
(Principal Executive Officer)
19
Certification of the Principal Financial Officer
(Section 302 of the Sarbanes-Oxley Act of 2002)
I, Bruce Winston, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Guaranty Federal
Bancshares, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
/s/ Bruce Winston
-----------------
Bruce Winston
Chief Financial Officer
(Principal Financial Officer)
20