2012
A n n u A l R e p o R t
S t r e n g t h. G r o w t h. V i s i o n.
President’s Message
Dear Fellow Shareholders:
In an environment of unprecedented low interest rates, sluggish economic growth and significant new
bank regulation, in 2012, Guaranty Federal Bancshares, Inc. remained focused on improving asset
quality, growing our core deposits, expanding net interest margins and core operating income and
ultimately creating increased value for our shareholders. Our management team’s continued objective is
to position our company to compete and grow in a consolidating banking sector.
Our regional and national economy continues to recover despite lack of substantive reform on long-term
fiscal and entitlement issues, and more intrusive government regulation. Our relationship with regulators
is excellent; however, more regulation and red tape adds costs to the banking industry, decreases
innovation and may ultimately limit the availability of consumer credit. Pressure on industry earnings
will continue in 2013 as we anticipate modest economic growth and the continuation of exceptionally low
interest rates. Given these prolonged challenges, we are pleased with many of our company’s
achievements in 2012.
2012 PERFORMANCE HIGHLIGHTS
Asset Quality - Improving asset quality was a top priority in 2012 and we were aggressive in our
process of liquidating other real estate owned and working with our troubled borrowers to find
resolution. Non-performing assets, comprised of non-accrual loans and other real estate owned,
declined 26.3% dropping from $27.0 million at December 31, 2011 to $19.9 million at year end
2012. Non-accruals improved 9.8% dropping to $15.3 million at year end and other real estate
owned was reduced over 55% to $4.5 million.
Deposit Growth - For the year, deposits increased $15.4 million, or 3%, to $500.0 million as a
result of our continuing efforts to expand relationships and build core deposits. During the year,
core checking and savings accounts increased by $20.8 million.
Profitability - Net income before preferred stock dividends and accretion was $1,944,000, a
disappointing drop from the $3,836,000 earned in 2011. The primary factors behind the decline
in net income were increases in the allowance for loan losses and additional write-downs on
foreclosed assets, both lingering issues from the recent downturn recession. During 2012, the
provision for loan losses increased to $5.95 million compared to $3.35 million in 2011.
Provisions for a single loan relationship accounted for $5.46 million of the 2012 total. In
addition, real estate values continued to decline resulting in an increase in loss of foreclosed
assets of $591,222 in 2012, a 74% increase over 2011. Targeted balance sheet initiatives and
disciplined pricing resulted in an increase in our net interest margin from 3.29% in 2011 to 3.40%
in 2012. In addition, the primary component of non-interest income was the gain on the sales of
secondary market real estate loans which jumped 40% in 2012 to $1,884,923. Historically, we
have had favorable efficiency ratios and our dedication to strong expense control continued in
2012 with an efficiency ratio of 67.66% an improvement from 68.76% in 2011.
Capital - The Company’s book value per common share increased $.27 to $14.34 as of the end of
2012. Also, the Company continues to maintain capital ratios in excess of regulatory standards
for well-capitalized institutions. At December 31, 2012, the Company’s Tier 1 capital to average
assets ratio was 9.9%, Tier 1 capital to risk-weighted assets ratio was 13.2% and total risk-based
capital to risk-weighted assets was 14.5%. The $17.0 million in capital we received under the
TARP program has supported our lending efforts in serving small businesses and consumers. We
were pleased to repay $5.0 million of the TARP funds to the Treasury in June of 2012 and we
continue to pursue strategies to eliminate Treasury’s role in our preferred securities in the near
future.
We are extremely proud that 2013 marks the 100th anniversary of Guaranty Bank’s service to southwest
Missouri. Our bank has always been a customer-focused organization with meaningful, long-term
relationships. Our associates and clients appreciate the mutual understanding that we rely upon one
another to succeed. We have endured significant challenges in the past few years and the community
banking model is under siege by current monetary policies and regulations which have the potential to
shrink the number of banks in our country. We firmly believe that a community banking company like
ours will weather the present challenges and deliver sound results as our economy heals. We are blessed
with a talented board and management team, solid capital and an efficient operating platform that is
poised to take advantage of the rapidly changing environment. Based on these factors, I am confident that
we will deliver growth in shareholder value in this continuously changing and challenging banking
environment. Thank you to our employees, shareholders and customers for your continued loyalty and
faith in Guaranty Bank.
Sincerely,
Shaun A. Burke
President & Chief Executive Officer
Guaranty Federal Bancshares, Inc.
Guaranty Federal Bancshares, Inc.
2012 Annual Report
Investor Information
ANNUAL MEETING OF STOCKHOLDERS:
The Annual Meeting of Stockholders of the Company will be held
Wednesday, May 22, 2013 at 6:00 p.m., local time, at the Guaranty Bank
Operations Center, 1414 W. Elfindale, Springfield, Missouri.
Contents
ANNUAL REPORT ON FORM 10-K:
i President’s Message
1
Investor Information
Copies of the Company’s Annual Report on Form 10-K, including the
financial statements, filed withthe Securities and Exchange Commission are
available without charge upon written request to:
Vicki Lindsay, Secretary
Guaranty Federal Bancshares, Inc.,
1341 W. Battlefield St., Springfield, MO 65807-4181
2 Common Stock Prices & Dividends
4 Selected Consolidated Financial
and Other Data
5 Management’s Discussion and
Analysis of Financial Condition
TRANSFER AGENT:
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016
STOCK TRADING INFORMATION:
and Results of Operations
Symbol: GFED
19 Consolidated Financial Statements SPECIAL LEGAL COUNSEL:
Husch Blackwell LLP
60 Report of Independent Registered
Public Accounting Firm
901 St. Louis St., Suite 1900
Springfield, MO 65806
61 Directors and Officers
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM:
BKD, LLP
910 St. Louis St.
PO Box 1190
Springfield, MO 65801-1190
STOCKHOLDER AND FINANCIAL INFORMATION:
Carter Peters,
Executive Vice President, Chief Financial Officer
417-520-4333
1
Guaranty Federal Bancshares, Inc.
2012 Annual Report
COMMON STOCK PRICES & DIVIDENDS
The common stock of Guaranty Federal Bancshares, Inc. (the “Company”) is listed for trading
on the NASDAQ Global Market under the symbol “GFED”. As of March 19, 2013, there were
approximately 1,169 holders of shares of the Company’s common stock. At that date the
Company had 6,781,803 shares of common stock issued and 2,741,517 shares of common stock
outstanding.
During the years ended December 31, 2012 and 2011, the Company did not declare a cash
dividend on its shares of common stock. Any future dividends will be at the discretion of the
Company’s Board of Directors and will depend on, among other things, the Company’s results
of operations, cash requirements and surplus, financial condition, regulatory limitations and
other factors that the Company’s Board of Directors may consider relevant.
The table below reflects the range of common stock high and low closing prices per the
NASDAQ Global Market by quarter for the years ended December 31, 2012 and 2011.
Quarter ended:
March 31
June 30
September 30
December 31
Year ended
December 31, 2012
Low
High
Year ended
December 31, 2011
Low
High
$
9.20 $
9.05
8.40
7.90
5.83 $
7.05
6.57
6.47
6.85 $
6.83
5.42
6.40
4.60
4.97
4.50
4.20
2
Guaranty Federal Bancshares, Inc.
2012 Annual Report
Set forth below is a stock performance graph comparing the cumulative total shareholder return
on the Common Stock with (a) the cumulative total stockholder return on stocks included in The
Nasdaq – Total U.S. Index and (b) the cumulative total stockholder return on stocks included in
The Nasdaq Bank Index. All three investment comparisons assume the investment of $100 as of
the close of business on December 31, 2007 and the hypothetical value of that investment as of
the Company’s fiscal years ended December 31, 2008, 2009, 2010, 2011, and 2012, assuming
that all dividends were reinvested. The graph reflects the historical performance of the Common
Stock, and, as a result, may not be indicative of possible future performance of the Common
Stock. The data used to compile this graph was obtained from NASDAQ.
Index
Guaranty Federal Bancshares, Inc.
NASDAQ - Total US
NASDAQ Bank Index
12/31/07
100.00
100.00
100.00
12/31/08
18.92
60.02
78.46
Period Ending
12/31/09
18.10
87.24
65.67
12/31/10
16.96
103.08
74.97
12/31/11
20.31
102.26
67.10
12/31/12
24.55
120.42
79.64
3
Guaranty Federal Bancshares, Inc.
Selected Consolidated Financial and Other Data
The following tables include certain information concerning the financial position and results of operations of
Guaranty Federal Bancshares, Inc. (including consolidated data from operations of Guaranty Bank) as of the dates
indicated. Dollar amounts are expressed in thousands except per share data.
Summary Balance Sheets
ASSETS
Cash and cash equivalents
Investments and interest-bearing
deposits
Loans receivable, net
Accrued interest receivable
Prepaids and other assets
Foreclosed assets
Premises and equipment
Bank owned life insurance
$
$
LIABILITIES
Deposits
Federal Home Loan Bank
advances
Securities sold under agreements to
repurchase
Subordinated debentures
Other liabilities
2012
2011
As of December 31,
2010
2009
2008
$
41,663
$
26,574
$
14,145 $
33,017 $
15,097
102,162
468,376
2,055
16,703
4,530
11,286
13,657
660,432
$
86,871
482,664
2,139
18,051
10,012
11,424
10,771
648,506
$
109,891
504,665
2,670
18,982
10,540
11,325
10,450
682,668 $
119,693
528,503
2,671
25,249
6,760
11,818
10,069
737,780 $
66,062
558,327
2,632
16,573
5,655
11,324
-
675,670
500,015
$
484,584
$
480,694 $
513,051 $
447,079
68,050
25,000
15,465
1,034
609,564
68,050
25,000
15,465
1,172
594,271
93,050
39,750
15,465
1,668
630,627
116,050
132,436
39,750
15,465
2,053
686,369
51,411
737,780 $
39,750
15,465
3,627
638,357
37,313
675,670
STOCKHOLDERS' EQUITY
$
50,868
660,432
$
54,235
648,506
$
52,041
682,668 $
Supplemental Data
2012
2011
As of December 31,
2010
2009
2008
Number of full-service offices
Cash dividends per common share $
9
-
$
9
-
$
9
-
$
9
- $
10
0.36
Summary Statements of
Operations
$
Interest income
Interest expense
Net interest income
Provision for loan losses
Net interest income after provision
for loan losses
Noninterest income
Noninterest expense
Income (loss) before income taxes
Provision (credit) for income taxes
Net income (loss)
Preferred stock dividends and
discount accretion
Net income (loss) available to
common shareholders
Basic income (loss) per common
share
Diluted income (loss) per common
share
$
$
$
$
2012
2011
Years ended December 31,
2010
2009
2008
$
27,606
6,858
20,748
5,950
14,798
3,256
16,241
1,813
(131)
$
30,376
9,611
20,765
3,350
17,415
4,485
17,361
4,539
703
32,331 $
14,806
17,525
5,200
12,325
4,279
15,530
1,074
(57)
33,873 $
20,527
13,346
6,900
6,446
4,240
15,161
(4,475)
(2,134)
36,363
19,524
16,839
14,744
2,095
2,316
12,760
(8,349)
(2,989)
1,944
$
3,836
$
1,131 $
(2,341) $
(5,360)
1,077
1,126
1,126
1,032
-
867
$
2,710
$
5 $
(3,373) $
(5,360)
0.32
$
1.01
$
0.30
$
1.01
$
- $
- $
(1.29) $
(1.29) $
(2.06)
(2.06)
4
Guaranty Federal Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition And Results of Operations
GENERAL
Guaranty Federal Bancshares, Inc. (the “Company”) is a Delaware corporation organized on December 30,
1997 that operates as a one-bank holding company. Guaranty Bank (the “Bank”) is a wholly-owned subsidiary of the
Company.
The primary activity of the Company is to oversee its investment in the Bank. The Company engages in few
other activities, and the Company has no significant assets other than its investment in the Bank. For this reason, unless
otherwise specified, references to the Company include the operations of the Bank. The Company’s principal business
consists of attracting deposits from the general public and using such deposits to originate multi-family, construction and
commercial real estate loans, mortgage loans secured by one- to four-family residences, and consumer and business
loans. The Company also uses these funds to purchase government sponsored mortgage-backed securities, US
government and agency obligations, and other permissible securities. When cash outflows exceed inflows, the Company
uses borrowings and brokered deposits as additional financing sources.
The Company derives revenues principally from interest earned on loans and investments and, to a lesser
extent, from fees charged for services. General economic conditions and policies of the financial institution regulatory
agencies, including the Missouri Division of Finance and the Federal Deposit Insurance Corporation (“FDIC”)
significantly influence the Company’s operations. Interest rates on competing investments and general market interest
rates influence the Company’s cost of funds. Lending activities are affected by the interest rates at which such financing
may be offered. The Company intends to focus on commercial, one- to four-family residential and consumer lending
throughout southwestern Missouri.
The Company has two wholly-owned subsidiaries other than the Bank, its principal subsidiary: (i) Guaranty
Statutory Trust I, a Delaware statutory trust; and (ii) Guaranty Statutory Trust II, a Delaware statutory trust. These
Trusts were formed in December 2005 for the exclusive purpose of issuing trust preferred securities to acquire junior
subordinated debentures issued by the Company. The Company’s banking operation conducted through the Bank is the
Company’s only reportable segment. See also the discussion contained in the section captioned “Segment Information”
in Note 1 of the Notes to Consolidated Financial Statements in this report.
The discussion set forth below, and in any other portion of this report, may contain forward-looking statements.
Such statements are based upon the information currently available to management of the Company and management’s
perception thereof as of the date of this report. When used in this document, words such as “anticipates,” “estimates,”
“believes,” “expects,” and similar expressions are intended to identify forward-looking statements but are not the
exclusive means of identifying such statements. Such statements are subject to risks and uncertainties. Actual results of
the Company’s operations could materially differ from those forward-looking comments. The differences could be
caused by a number of factors or combination of factors including, but not limited to: changes in demand for banking
services; changes in portfolio composition; changes in management strategy; increased competition from both bank and
non-bank companies; changes in the general level of interest rates; and other factors set forth in reports and other
documents filed by the Company with the Securities and Exchange Commission from time to time including the risk
factors of the Company set forth in Item 1A. of the Company’s Form 10-K.
FINANCIAL CONDITION
From December 31, 2011 to December 31, 2012, the Company’s total assets increased $11,926,360 (2%) to
$660,432,218, liabilities increased $15,292,637 (3%) to $609,563,648, and stockholders' equity decreased $3,366,277
(6%) to $50,868,570. The ratio of stockholders’ equity to total assets decreased to 7.7% during this period, compared to
8.4% as of December 31, 2011.
From December 31, 2011 to December 31, 2012, cash and cash equivalents increased $15,089,323 (57%) to
$41,663,405 and interest-bearing deposits decreased $5,587,654 (100%) to $0.
From December 31, 2011 to December 31, 2012, available-for-sale securities increased $20,915,766 (26%),
primarily due to purchases of $80.4 million offset by sales, maturities and principal payments received of $59.0 million.
5
Guaranty Federal Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition And Results of Operations
From December 31, 2011 to December 31, 2012, held-to-maturity securities decreased $37,529 (17%) to
$181,042 due to principal repayments received during the year.
Stock of the Federal Home Loan Bank of Des Moines (“FHLB”) decreased by $41,400 (1%) to $3,805,500 due
to lower stock requirements necessary from the reduction in FHLB advances.
From December 31, 2011 to December 31, 2012, net loans receivable decreased by $13,428,763 (3%) to
$465,531,973 primarily due to declines in the commercial real estate portfolio. During the period, permanent loans
secured by both owner and non-owner occupied one to four unit residential real estate increased $1,351,216 (1%), multi-
family permanent loans increased $3,239,339 (8%), construction loans increased $4,005,247 (9%), permanent loans
secured by commercial real estate decreased $27,095,524 (14%), commercial loans increased $7,138,182 (8%), and
installment loans decreased $4,041,169 (19%). A portion of this decrease is due to certain payoffs and charge offs of
various commercial and commercial real estate loans
As of December 31, 2012, management identified loans totaling $17,277,000 as impaired with a related
allowance for loan losses of $1,367,000. Impaired loans decreased by $1,777,000 during 2012, compared to the
balance of $19,054,000 at December 31, 2011.
From December 31, 2011 to December 31, 2012, the allowance for loan losses decreased $1,872,820 to
$8,740,325. In addition to the provision for loan loss of $5,950,000 recorded by the Company during the year ended
December 31, 2012, loan charge-offs of specific loans (classified as nonperforming at December 31, 2011) exceeded
recoveries by $7,822,820 for the year ended December 31, 2012. Also, the Company experienced a decline in loan
balances and a decline in impaired loans, nonaccrual loans and delinquent loans during fiscal year 2012 that has reduced
allowance for loan loss reserve requirements. The allowance for loan losses as of December 31, 2012 and December 31,
2011 was 1.84% and 2.17% of gross loans outstanding (excluding mortgage loans held for sale), respectively. As of
December 31, 2012, the allowance for loan losses was 51% of impaired loans versus 56% as of December 31,
2011. Management believes the allowance for loan losses is at a level to be sufficient in providing for potential loan
losses in the Bank’s existing loan portfolio.
From December 31, 2011 to December 31, 2012, the prepaid FDIC deposit insurance premiums decreased
$650,440 (31%) to $1,438,636 due to the utilization of credits for 2012 assessments. The remaining balance consists of
estimated insurance assessments to be incurred for fiscal years 2013 and 2014.
As of December 31, 2012, foreclosed assets held for sale consisted primarily of real estate related to single
family residences, one commercial property located in Branson, Missouri of $828,382, one commercial property located
in Springfield, Missouri of $759,000 and one commercial development in northwest Arkansas of $2.2 million.
From December 31, 2011
to
$500,014,715. During this period, checking and savings accounts increased by $20.8 million and certificates of deposit
decreased by $5.4 million. The increase in the checking and savings accounts was due to the Bank’s significant efforts
to increase core transaction deposits, both personal and commercial. At December 31, 2012, included in the deposit
totals are $49.1 million in deposits classified as “brokered”, an increase of $26.8 million from December 31, 2011.
to December 31, 2012, deposits
increased $15,431,050
(3%)
From December 31, 2011 to December 31, 2012, stockholders’ equity (including unrealized appreciation on
available-for-sale securities, net of tax) decreased $3,366,277 (6%) to $50,868,570. In conjunction with the Series A
Preferred Stock, the Company redeemed $5 million in principal and recorded $744,444 of dividends (5%) as of
December 31, 2012. The Company earned net income for the year ended December 31, 2012 of $1,943,859. On a per
common share basis, stockholders’ equity increased $.27 from $14.07 as of December 31, 2011 to $14.34 as of
December 31, 2012.
6
Guaranty Federal Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition And Results of Operations
AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS
The following table shows the balances as of December 31, 2012 of various categories of interest-earning assets
and interest-bearing liabilities and the corresponding yields and costs, and, for the periods indicated: (1) the average
balances of various categories of interest-earning assets and interest-bearing liabilities, (2) the total interest earned or
paid thereon, and (3) the resulting weighted average yields and costs. In addition, the table shows the Company’s rate
spreads and net yields. Average balances are based on daily balances. Tax-free income is not material; accordingly,
interest income and related average yields have not been calculated on a tax equivalent basis. Average loan balances
include non-accrual loans. Dollar amounts are expressed in thousands.
As of
December 31, 2012
Year Ended
December 31, 2012
Year Ended
December 31, 2011
Year Ended
December 31, 2010
Balance
Yield /
Cost
Average
Balance Interest
Yield /
Cost
Average
Balance
Interest
Yield /
Cost
Average
Balance Interest
Yield /
Cost
ASSETS
Interest-earning:
Loans
Investment
securities
Other assets
Total interest-
earning
Noninterest-
earning
$ 477,116
5.89% $ 480,886
$ 25,667
5.34% $ 506,323
$ 27,424
5.42% $ 517,133
$ 28,348
5.48%
102,162
42,164
1.69% 98,430
0.15% 31,272
1,756
183
1.78% 91,114
0.59% 33,779
2,637
315
2.89% 110,149
0.93% 48,054
3,477
506
3.16%
1.05%
621,442
4.81% 610,588
27,606
4.52% 631,216
30,376
4.81% 675,336
32,331
4.79%
38,990
$ 660,432
41,158
$ 651,746
47,031
$ 678,247
48,148
$ 723,484
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing:
Savings accounts
Transaction
accounts
Certificates of
deposit
FHLB advances
Subordinated
debentures
Repurchase
$ 23,659
0.29% $ 22,317
$
81
0.36% $ 20,480
$
118
0.58% $ 17,322
$
140
0.81%
277,477
0.51% 274,703
2,012
0.73% 252,915
2,580
1.02% 257,629
3,968
1.54%
150,015
68,050
1.14% 151,765
2.23% 68,055
1,983
1,544
1.31% 165,376
2.27% 85,516
3,080
2,164
1.86% 201,090
2.53% 110,613
5,520
2,989
2.75%
2.70%
15,465
3.56% 15,465
agreements
25,000
2.60% 25,000
556
682
3.60% 15,465
611
3.95% 15,465
1,024
6.62%
2.73% 37,726
1,058
2.80% 39,750
1,166
2.93%
Total interest-
bearing
Noninterest-
bearing
Total liabilities
Stockholders'
equity
Net earning
balance
Earning yield less
costing rate
Net interest
559,666
1.06% 557,305
6,858
1.23% 577,478
9,611
1.66% 641,869
14,807
2.31%
49,898
609,564
50,868
$ 660,432
41,356
598,661
53,085
$ 651,746
46,602
624,080
54,167
$ 678,247
28,302
670,171
53,313
$ 723,484
$ 61,776
$ 53,283
$ 53,738
$ 33,467
3.75%
3.29%
3.15%
2.48%
income, and net
yield spread
on interest-
earning assets
Ratio of interest-
earning assets
to interest-
bearing
liabilities
$ 20,748
3.40%
$ 20,765
3.29%
$ 17,524
2.59%
111%
110%
109%
105%
7
Guaranty Federal Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition And Results of Operations
The following table sets forth information regarding changes in interest income and interest expense for the
periods indicated resulting from changes in average balances and average rates shown in the previous table. For each
category of interest-earning assets and interest-bearing liabilities information is provided with respect to changes
attributable to: (i) changes in balance (change in balance multiplied by the old rate), (ii) changes in interest rates (change
in rate multiplied by the old balance); and (iii) the combined effect of changes in balance and interest rates (change in
balance multiplied by change in rate). Dollar amounts are expressed in thousands.
Year ended
December 31, 2012 versus
December 31, 2011
Rate &
Interest
Balance Total
Rate
Average
Balance
Year ended
December 31, 2011 versus
December 31, 2010
Rate &
Interest
Balance Total
Rate
Average
Balance
Interest income:
Loans
Investment securities
Other assets
Net change in interest
income
$ (1,378) $
212
(24)
(399) $
(1,012)
(117)
20 $ (1,757) $
(881)
(81)
(132)
9
(593) $
(601)
(150)
(338) $
(289)
(58)
7 $
50
17
(924)
(840)
(191)
(1,190)
(1,528)
(52)
(2,770)
(1,344)
(685)
74
(1,955)
Interest expense:
Savings accounts
Transaction accounts
Certificates of deposit
FHLB advances
Subordinated
debentures
Repurchase agreements
Net change in interest
11
222
(253)
(442)
-
(357)
(44)
(728)
(919)
(224)
(55)
(29)
(4)
(63)
76
46
(37)
(569)
(1,096)
(620)
25
(73)
(980)
(678)
(40)
(1,340)
(1,775)
(190)
(7)
25
315
43
(22)
(1,388)
(2,440)
(825)
-
10
(55)
(376)
-
(59)
(413)
(51)
-
2
(413)
(108)
expense
(819)
(1,999)
65
(2,753)
(1,765)
(3,809)
378
(5,196)
Change in net interest
income
$
(371) $
471 $
(117) $
(17) $
421 $
3,124 $
(304) $
3,241
RESULTS OF OPERATIONS - COMPARISON OF YEAR ENDED DECEMBER 31, 2012 AND DECEMBER
31, 2011
Average for the Year Shown
Ten-Year
Treasury
One-Year
Treasury
Prime
December 31, 2011
December 31, 2010
Change in rates
3.25%
3.25%
0.00%
1.80%
2.78%
-0.98%
0.17%
0.18%
-0.01%
Interest Rates. The Bank charges borrowers and pays depositors interest rates that are largely a function of the
general level of interest rates. The above table sets forth the weekly average interest rates for the 52 weeks ending
December 31, 2012 and December 31, 2011 as reported by the Federal Reserve. The Bank typically indexes its
adjustable rate commercial loans to prime and its adjustable rate mortgage loans to the one-year treasury rate. The ten-
year treasury rate is a proxy for 30-year fixed rate home mortgage loans.
Rates were steady and remained low for 2012 as the Federal Reserve Open Market Committee (“FOMC”) left
the discount rate at 25 basis points. As of December 31, 2012, the prime rate was 3.25% and unchanged from December
31, 2011.
Interest Income. Total interest income decreased $2,770,138 (9%). The average balance of interest-earning
assets decreased $20,628,000 (3%) while the yield on average interest earning assets decreased 29 basis points to 4.52%.
8
Guaranty Federal Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition And Results of Operations
Interest on loans decreased $1,757,289 (6%) and the average loan receivable balance decreased $25,437,000
(5%) while the average yield decreased 8 basis points to 5.34%. The Company’s yield on loans was negatively impacted
due to the higher level of nonaccrual loans during 2012 and declining loan balances. The Company’s nonaccrual loans
have decreased to $15.3 million as of December 31, 2012, as compared to $17.0 million as of December 31,
2011. Another factor that has negatively impacted the Company’s yield on interest earning assets was the average yield
on investments which decreased 111 basis points to 1.78%. This was primarily due to a series of investment transactions
in the fourth quarter of 2011 to sell certain investment securities in order to prepay $14.75 million of repurchase
agreements. The securities carried a weighted average yield of 5.00% at the time of sale.
Interest Expense. Total interest expense decreased $2,752,953 (29%) as the average balance of interest-bearing
liabilities decreased $20,173,000 (3%) while the average cost of interest-bearing liabilities decreased 43 basis points to
1.23%.
Interest expense on deposits decreased $1,702,069 (29%) during 2012 as the average balance of interest bearing
deposits decreased $10,014,000 (2%) and the average interest rate paid to depositors decreased 41 basis points to
0.91%. The primary reason for the significant decrease in the average cost of interest bearing deposits was the continued
decline in higher cost certificates of deposits as well as reductions in the average rate paid on transaction deposit
balances. Also, the Company reduced FHLB advances and securities sold under agreements to repurchase during the
latter half of 2011. As a result, interest expense on these borrowings decreased $996,114 (31%).
Net Interest Income. The Company’s net interest income decreased $17,185 (0%). During the year ended
December 31, 2012, the average balance of interest-earning assets exceeded the average balance of interest-bearing
liabilities by $53,283,000, resulting in a decrease in the average net earning balance of $455,000 (1%). In addition, the
Company’s spread between the average yield on interest-earning assets and the average cost of interest-bearing liabilities
increased by 14 basis points from 3.15% to 3.29%.
Provision for Loan Losses. Provisions for loan losses are charged or credited to earnings to bring the total
allowance for loan losses to a level considered adequate by the Company to provide for potential loan losses in the
existing loan portfolio. When making its assessment, the Company considers prior loss experience, volume and type of
lending, local banking trends and impaired and past due loans in the Company’s loan portfolio. In addition, the
Company considers general economic conditions and other factors related to collectability of the Company’s loan
portfolio.
Based on its internal analysis and methodology, management recorded a provision for loan losses of $5,950,000
and $3,350,000 for the years ended December 31, 2012 and 2011, respectively. Provisions recorded in 2012 are due to
the Bank’s charge-offs during the year, continuing concerns over the local and national economy and over certain
specific borrowers.
The Bank will continue to monitor its allowance for loan losses and make future additions based on economic
and regulatory conditions. Management of the Company anticipates the need to continue increasing the allowance for
loan losses through charges to the provision for loan losses if growth in the Bank’s loan portfolio is experienced or other
circumstances warrant. Although the Bank maintains its allowance for loan losses at a level which it considers to be
sufficient to provide for potential loan losses in its existing loan portfolio, there can be no assurance that future loan
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 loan loss provisions.
9
Guaranty Federal Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition And Results of Operations
Non-Interest Income. Non-interest income decreased $1,229,558 (27%). The gain on sale of loans of
$1,884,923 for 2012, compared to $1,345,334 for 2011 was due to an increase in volume associated with the Bank’s
selling of fixed rate mortgage loans. Gains on sales of investment securities for the year ended December 31, 2012 were
$168,306 compared to $1,505,915 for the year ended December 31, 2011. The gains in fiscal 2011 were primarily the
result of the sale of $28.1 million of available-for-sale securities to prepay two repurchase agreements totaling $14.75
million during the fourth quarter of 2011. Deposit service charges decreased $195,763 (15%) due primarily to declines
in overdraft charges, which is partially due to the adoption of Regulation E. Regulation E has negatively impacted
overdraft income due to new requirements on debit card and ATM transactions. The long-term impact cannot be fully
determined. Loss on foreclosed assets increased $591,222 (74%) in 2012. The Company sold two properties for a
combined loss of $350,000 and recognized write-downs on three existing foreclosed properties for $670,000 based on
current estimated fair value. The Company also sold certain state low-income housing tax credits on two projects
recognizing $282,000 gain on sale during 2012. The Company did not sell any tax credit assets in 2011.
Non-Interest Expense. Non-interest expense decreased $1,120,520 (6%). This decrease was primarily due to
the prepayment penalty on repurchase agreements of $1,531,000 which occurred in 2011.
Salaries and employee benefits increased $361,199 (4%). The increase in compensation was due to additions of
associates throughout 2011 in the areas of human resources, information systems and risk management, as well as
normal pay increases. The overall staff decreased from 176 full-time equivalent employees as of December 31, 2011 to
173 full-time equivalent employees as of December 31, 2012.
FDIC deposit insurance premiums decreased $253,293 (27%). This decrease in FDIC deposit insurance
premiums was primarily due to the change in the Company’s assessment base and rate structure that went into effect in
2012.
The Company also recognized expenses of $221,000 during the third quarter of 2012 in connection with a
Registration Statement on Form S-1 filed with the Securities and Exchange Commission. The purpose of the filing had
been to register the offering by the United States Treasury (“Treasury”) in an auction of $12.0 million of the Company’s
Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the “Series A Shares”). The Company had originally issued
and sold to Treasury all of its authorized Series A shares for an aggregate purchase price of $17.0 million (along with a
warrant to purchase 459,459 shares of the Company’s Common Stock) in January 2009 as part of Treasury’s Troubled
Asset Relief Program's Capital Purchase Program. The Company redeemed at 100% of their liquidation value $5.0
million Series A Shares during the second quarter of 2012. Pursuant to the agreement under which the Series A Shares
had been sold to Treasury, Treasury had the right to compel the Company to register the sale by Treasury of all or any
portion of the Series A Shares. After the auction terminated in accordance with its terms, Treasury decided not to accept
the two bids submitted offering to purchase a portion of the Series A Shares for 92% of their liquidation
value. Accordingly, Treasury continues to own all of the $12.0 million Series A Shares issued and outstanding and the
warrant.
Income Taxes. The decrease in income tax expense is a direct result of the Company’s decrease in taxable
income for the year ended December 31, 2012 compared to the year ended December 31, 2011.
Cash Dividends Paid. The Company did not pay dividends on its common shares during 2012 and
2011. During 2012 and 2011, the Company paid $744,444 and $850,000, respectively, in dividends on its preferred
stock.
10
Guaranty Federal Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition And Results of Operations
RESULTS OF OPERATIONS - COMPARISON OF YEAR ENDED DECEMBER 31, 2011 AND DECEMBER
31, 2010
Average for the Year Shown
Ten-Year
Treasury
One-Year
Treasury
Prime
December 31, 2011
December 31, 2010
Change in rates
3.25%
3.25%
0.00%
2.78%
3.22%
-0.44%
0.18%
0.32%
-0.14%
Interest Rates. The Bank charges borrowers and pays depositors interest rates that are largely a function of the
general level of interest rates. The above table sets forth the weekly average interest rates for the 52 weeks ending
December 31, 2011 and December 31, 2010 as reported by the Federal Reserve. The Bank typically indexes its
adjustable rate commercial loans to prime and its adjustable rate mortgage loans to the one-year treasury rate. The ten-
year treasury rate is a proxy for 30-year fixed rate home mortgage loans.
Rates were steady and remained low for 2011 as the FOMC left the discount rate at 25 basis points. As of
December 31, 2011, the prime rate was 3.25% and unchanged from December 31, 2010.
Interest Income. Total interest income decreased $1,955,538 (6%). The average balance of interest-earning
assets decreased $44,120,000 (7%) while the yield on average interest earning assets increased 2 basis points to 4.81%.
Interest on loans decreased $924,105 (3%) and the average loan receivable balance decreased $10,810,000 (2%)
while the average yield decreased 6 basis points to 5.42%. The Company’s yield on loans was negatively impacted due
to the expiration of interest income being recognized on a matured interest rate swap as of June 30, 2010. The income
recognized for the year ending December 31, 2010 was approximately $509,000. Another factor that has negatively
impacted the Company’s yield on loans is the high level of nonaccrual loans which has decreased to $17.0 million as of
December 31, 2011, as compared to $23.0 million as of December 31, 2010.
Interest Expense. Total interest expense decreased $5,195,911 (35%) as the average balance of interest-bearing
liabilities decreased $64,391,000 (10%) while the average cost of interest-bearing liabilities decreased 65 basis points to
1.66%.
Interest expense on deposits decreased $3,849,870 (40%) during 2011 as the average balance of interest bearing
deposits decreased $37,270,000 (1%) and the average interest rate paid to depositors decreased 70 basis points to
1.32%. The primary reason for the significant decrease in the average cost of interest bearing deposits was the continued
reduction throughout 2011 in the cost of money market deposits generated through an aggressive deposit campaign in
the first quarter of 2009 as well as higher cost certificates of deposit maturing throughout 2011.
The average balance of FHLB advances decreased $25,097,000 (23%) while the average cost of those advances
decreased 17 basis points to 2.53%. As a result, interest expense on these advances decreased $824,289 (28%). As of
December 31, 2011, FHLB advances were 10% of total assets, compared to 14% of total assets as of December 31,
2010.
Net Interest Income. The Company’s net interest income increased $3,240,373 (18%). During the year ended
December 31, 2011, the average balance of interest-earning assets exceeded the average balance of interest-bearing
liabilities by $53,738,000, resulting in an increase in the average net earning balance of $20,271,000 (61%), a result of
management’s intent to roll off certain high priced deposits with low yielding assets. In addition, the Company’s spread
between the average yield on interest-earning assets and the average cost of interest-bearing liabilities increased by 67
basis points from 2.48% to 3.15%.
11
Guaranty Federal Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition And Results of Operations
Provision for Loan Losses. Provisions for loan losses are charged or credited to earnings to bring the total
allowance for loan losses to a level considered adequate by the Company to provide for potential loan losses in the
existing loan portfolio. When making its assessment, the Company considers prior loss experience, volume and type of
lending, local banking trends and impaired and past due loans in the Company’s loan portfolio. In addition, the
Company considers general economic conditions and other factors related to collectability of the Company’s loan
portfolio.
Based on its internal analysis and methodology, management recorded a provision for loan losses of $3,350,000
and $5,200,000 for the years ended December 31, 2011 and 2010, respectively. Provisions recorded in 2011 are due to
the Bank’s charge-offs during the year, continuing concerns over the local and national economy and over certain
specific borrowers.
The Bank will continue to monitor its allowance for loan losses and make future additions based on economic
and regulatory conditions. Management of the Company anticipates the need to continue increasing the allowance for
loan losses through charges to the provision for loan losses if growth in the Bank’s loan portfolio is experienced or other
circumstances warrant. Although the Bank maintains its allowance for loan losses at a level which it considers to be
sufficient to provide for potential loan losses in its existing loan portfolio, there can be no assurance that future loan
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 loan loss provisions.
Non-Interest Income. Non-interest income increased $205,876 (5%). The gain on sale of loans of $1,345,334
for 2011, compared to $1,749,857 for 2010 was due to a decline in volume associated with the Bank’s selling of fixed
rate mortgage loans. Gains on investment securities for the year ended December 31, 2011 were $1,505,915 compared
to $275,125 for the year ended December 31, 2010. The gains in fiscal 2011 were primarily the result of the sale of
$28.1 million of available-for-sale securities to prepay two repurchase agreements totaling $14.75 million during the
fourth quarter of 2011. Deposit service charges decreased $237,290 (15%) due primarily to declines in overdraft
charges, which is partially due to the adoption of Regulation E. Regulation E has negatively impacted overdraft income
due to new requirements on debit card and ATM transactions. The long-term impact cannot be fully determined. Loss
on foreclosed assets increased $307,708 (62%) in 2011. The Company continues to experience declines in real estate
values on foreclosed properties held or sold by the Company.
Non-Interest Expense. Non-interest expense increased $1,831,528 (12%). This increase was primarily due to
the prepayment penalty on repurchase agreements of $1,531,000. Also, salaries and employee benefits increased
$250,198 (3%) offsetting the decrease in FDIC deposit insurance premiums of $278,533 (23%).
The increase in compensation was due to normal salary and benefits increases for the Bank’s employees. The
overall staff increased from 170 full-time equivalent employees as of December 31, 2010 to 176 full-time equivalent
employees as of December 31, 2011.
The decreases in FDIC deposit insurance premiums were driven primarily by the change in the FDIC’s
assessment base rate structure that went into effect in the second quarter of 2011.
Income Taxes. The increase in income tax expense is a direct result of the Company’s increase in taxable
income for the year ended December 31, 2011 compared to the year ended December 31, 2010.
Cash Dividends Paid. The Company did not pay dividends on its common shares during 2011. During 2011,
the Company paid $850,000 in dividends on its preferred stock.
12
Guaranty Federal Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition And Results of Operations
ASSET / LIABILITY MANAGEMENT
The responsibility of managing and executing the Bank’s Asset Liability Policy falls to the Bank’s Asset/
Liability Committee (ALCO.) ALCO seeks to manage interest rate risk so as to capture the highest net interest income,
and to stabilize that net interest income, through changing interest rate environments. Management attempts to position
the Bank’s instrument repricing characteristics in line with probable rate movements in order to minimize the impact of
changing interest rates on the Bank’s net interest income. Since the relative spread between financial assets and
liabilities is constantly changing, the Bank’s current net interest income may not be an indication of future net interest
income.
The Bank has continued to emphasize the origination of commercial business, home equity, consumer and
adjustable-rate, one- to four-family residential loans while originating fixed-rate, one- to four-family residential loans
primarily for immediate resale in the secondary market. Management continually monitors the loan portfolio for the
purpose of product diversification and over concentration.
The Bank constantly monitors its deposits in an effort to prohibit them from adversely impacting the Bank’s
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 December 31, 2012 and 2011, the Bank’s
savings accounts, checking accounts, and money market deposit accounts totaled $349,999,523 or 70% of its total
deposits and $329,174,830 or 68% of total deposits, respectively. The weighted average rate paid on these accounts
decreased 2 basis points from 0.56% on December 31, 2011 to 0.54% on December 31, 2012 primarily due to the Bank’s
efforts to reprice its retail and business accounts during 2012.
INTEREST RATE SENSITIVITY ANALYSIS
The following table sets forth as of December 31, 2012 and 2011, management’s estimates of the projected
changes in Economic Value of Equity (“EVE”) in the event of instantaneous and permanent increases and decreases in
market interest rates. Dollar amounts are expressed in thousands.
12/31/2012
BP Change
in Rates
12/31/2011
BP Change
in Rates
+200
+100
NC
-100
-200
+300
+200
+100
NC
-100
-200
Estimated Net Portfolio Value
$ Change
% Change
$ Amount
$
60,800 $
58,682
57,396
59,119
67,900
3,405
1,286
-
1,723
10,505
NPV as % of PV of Assets
NPV Ratio Change
6%
2%
0%
3%
18%
9.30%
8.87%
8.56%
8.66%
9.78%
0.75%
0.32%
0.00%
0.10%
1.22%
$ Amount
$
Estimated Net Portfolio Value
$ Change
% Change
NPV as % of PV of Assets
NPV Ratio Change
62,123 $
63,408
64,769
66,224
67,870
72,049
(4,101)
(2,816)
(1,455)
-
1,646
5,825
-6%
-4%
-2%
0%
2%
9%
9.71%
9.82%
9.94%
10.06%
10.21%
10.74%
-0.35%
-0.24%
-0.12%
0.00%
0.15%
0.68%
Computations of prospective effects of hypothetical interest rate changes are based on an internally generated
model using actual maturity and repricing schedules for the Bank’s loans and deposits, 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. All EVE and earnings projections are based on a point in time static
balance sheet.
13
Guaranty Federal Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition And Results of Operations
Management cannot predict future interest rates or their effect on the Bank’s EVE in the future. Certain
shortcomings are inherent in the method of analysis presented in the computation of EVE. 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 floating-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 loan
portfolio could decrease in future periods due to refinancing activity if market interest rates remain constant or decrease
in the future. Further, in the event of a change in interest rates, prepayment and early withdrawal levels could deviate
significantly from those assumed in the table. Finally, the ability of many borrowers to service their adjustable-rate debt
may decrease in the event of an interest rate increase.
The Bank’s Board of Directors is responsible for reviewing the Bank’s asset and liability policies. The Bank’s
management is responsible for administering the policies and determinations of the Board of Directors with respect to
the Bank’s asset and liability goals and strategies. Management expects that the Bank’s asset and liability policies and
strategies will continue as described above so long as competitive and regulatory conditions in the financial institution
industry and market interest rates continue as they have in recent years.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity refers to the ability to manage future cash flows to meet the needs of depositors and borrowers and
fund operations. Maintaining appropriate levels of liquidity allows the Company to have sufficient funds available for
customer demand for loans, withdrawal of deposit balances and maturities of deposits and other liabilities. The
Company’s primary sources of liquidity include cash and cash equivalents, customer deposits and FHLB
borrowings. The Company also has established borrowing lines available from the Federal Reserve Bank which is
considered a secondary source of funds.
The Company’s most liquid assets are cash and cash equivalents, which are cash on hand, amounts due from
financial institutions, and certificates of deposit with other financial institutions that have an original maturity of three
months or less. The levels of such assets are dependent on the Bank’s operating, financing, and investment activities at
any given time. The Company’s cash and cash equivalents totaled $41,663,405 as of December 31, 2012 and
$26,574,082 as of December 31, 2011, representing an increase of $15,089,323. The Company’s interest-bearing
deposits totaled $0 as of December 31, 2012 and $5,587,654 as of December 31, 2011. The variations in levels of cash
and cash equivalents are influenced by deposit flows and anticipated future deposit flows, which are subject to, and
influenced by, many factors. The Bank has $90,458,398 in certificates of deposit that are scheduled to mature in one
year or less. Management anticipates that the majority of these certificates will renew in the normal course of
operations. Based on existing collateral as well as the FHLB’s limitation of advances to 25% of assets, the Bank has the
ability to borrow an additional $64.6 million from the FHLB, as of December 31, 2012. Based on existing collateral, the
Bank has the ability to borrow $30.9 million from the Federal Reserve Bank as of December 31, 2012. The Bank plans
to maintain its FHLB and Federal Reserve Bank borrowings to a level that will provide a borrowing capacity sufficient
to provide for contingencies. Management has many policies and controls in place to attempt to manage the appropriate
level of liquidity.
The Company’s Tier 1 capital position of $65,047,000 is 9.9% of average assets as of December 31, 2012. The
Company has an excess of $38,791,000, $45,405,000, and $31,917,000 of required regulatory levels of tangible, core,
and risk-based capital, respectively. In addition, under current regulatory guidelines, the Bank is classified as well
capitalized. See also additional information provided under the caption “Regulatory Matters” in Note 1 of the Notes to
Consolidated Financial Statements.
14
Guaranty Federal Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition And Results of Operations
With regards to the securities sold to the Treasury under the Capital Purchase Program on June 13, 2012, the
Company used $5,019,444 of its available cash to redeem 5,000 shares of the Company’s Series A Preferred Stock held
by the Treasury which included accrued and unpaid dividends of $19,444. The Company filed a Registration Statement
on Form S-1 with the Securities and Exchange Commission in August of 2012. The purpose of the filing had been to
register the offering by the Treasury in an auction the remaining $12.0 million of the Company’s Series A Preferred
Stock. Pursuant to the agreement under which the Series A Preferred Stock had been sold to Treasury, Treasury had the
right to compel the Company to register the sale by Treasury of all or any portion of the shares of Series A Preferred
Stock held by Treasury. After the auction terminated in accordance with its terms, Treasury decided not to accept the
two bids submitted offering to purchase a portion of the Series A Preferred Stock for 92% of their liquidation
value. Accordingly, Treasury continues to own all of the $12.0 million of Series A Preferred Stock issued and
outstanding and the warrant. If the Company is unable to redeem the Series A Preferred Stock within five years of its
issuance, the cost of capital to the Company will increase significantly from 5% per annum ($600,000 annually) to 9%
per annum ($1,080,000 annually). Depending on the Company’s financial condition at the time, the increase in the
annual dividend rate on the Series A Preferred Stock could have a material adverse effect on the Company’s liquidity
and net income available to common stockholders.
OFF-BALANCE SHEET ARRANGEMENTS
Various commitments and contingent liabilities arise in the normal course of business, which are not required to
be recorded on the balance sheet. The most significant of these are loan commitments, lines of credit and standby letters
of credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any
condition established in the contract. As of December 31, 2012 and 2011, the Bank had outstanding commitments to
originate loans of approximately $9,217,000 and $10,955,000, respectively. Lines of credit are agreements to lend to a
customer as long as there is no violation of any condition established in the contract. As of December 31, 2012 and
2011, unused lines of credit to borrowers aggregated approximately $33,897,000 and $36,931,000 for commercial lines
and $15,306,000 and $17,625,000 for open-end consumer lines. Since a portion of the loan commitment and line of
credit may expire without being drawn upon, the total unused commitments and lines do not necessarily represent future
cash requirements.
Standby letters of credit are irrevocable conditional commitments issued by the Bank to guarantee the
performance of a customer to a third party. The credit risk involved in issuing standby letters of credit is essentially the
same as that involved in extending loans to customers. The Bank had total outstanding standby letters of credit
amounting to $13,930,000 and $14,233,000 as of December 31, 2012 and 2011, respectively. The commitments extend
over varying periods of time.
In connection with the Company’s issuance of the Trust Preferred Securities and pursuant to two guarantee
agreements by and between the Company and Wilmington Trust Company, the Company issued a limited, irrevocable
guarantee of the obligations of each Trust under the Trust Preferred Securities whereby the Company has guaranteed any
and all payment obligations of the Trusts related to the Trust Preferred Securities including distributions on, and the
liquidation or redemption price of, the Trust Preferred Securities to the extent each Trust does not have funds available.
15
Guaranty Federal Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition And Results of Operations
AGGREGATE CONTRACTUAL OBLIGATIONS
The following table summarizes the Company’s fixed and determinable contractual obligations by payment
date as of December 31, 2012. Dollar amounts are expressed in thousands.
Payments Due By Period
Contractual Obligations
Total
One Year
or less
One to
Three Years
Three to
Five Years
More than
Five Years
Deposits without stated
maturity
Time and brokered
certificates of deposit
Other borrowings
Federal Home Loan Bank
advances
Subordinated debentures
Operating leases
Purchase obligations
Other long term obligations
Total
$
$
350,000 $
350,000 $
- $
- $
-
150,015
25,000
68,050
15,465
389
64
284
609,267 $
90,458
-
15,700
-
149
64
284
456,655 $
46,788
-
250
-
169
-
-
47,207 $
12,260
-
-
-
61
-
-
12,321 $
509
25,000
52,100
15,465
11
-
-
93,085
IMPACT OF INFLATION AND CHANGING PRICES
The Company prepared the consolidated financial statements and related data presented herein in accordance
with accounting principles generally accepted in the United States of America which require the measurement of
financial position and operating results in terms of historical dollars, without considering changes in the relative
purchasing power of money over time due to inflation.
Unlike most companies, the assets and liabilities of a financial institution are primarily monetary in nature. As
a result, interest rates have a more significant impact on a financial institution’s performance than the effects of general
levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the price of
goods and services, since such prices are affected by inflation. In the current interest rate environment, liquidity and the
maturity structure of the Bank’s assets and liabilities are critical to the maintenance of acceptable performance levels.
CRITICAL ACCOUNTING POLICIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon the
Company’s consolidated financial statements and the notes thereto, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The preparation of these financial statements
requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reported periods. On an on-going basis, management evaluates its estimates and judgments.
Management bases its estimates and judgments on historical experience and on various other factors that are
believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the
carrying values of assets and liabilities that are not readily apparent from other sources. There can be no assurance that
actual results will not differ from those estimates. If actual results are different than management’s judgments and
estimates, the Company’s financial results could change, and such change could be material to the Company.
16
Guaranty Federal Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition And Results of Operations
Material estimates that are particularly susceptible to significant change in the near term relate to the
determination of the allowance for loan losses, the valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans and fair values. In connection with the determination of the allowance for loan losses and the
valuation of foreclosed assets held for sale, management obtains independent appraisals for significant properties.
The Company has identified the accounting policies for the allowance for loan losses and related significant
estimates and judgments as critical to its business operations and the understanding of its results of operations. For a
detailed discussion on the application of these significant estimates and judgments and our accounting policies, also see
Note 1 of the notes to consolidated financial statements in this report.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In December 2011, ASU No. 2011-12 “Deferral of the Effective Date for Amendments to the Presentation of
Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU No. 2011-05” was issued. The
purpose of ASU 2011-05 was to improve the comparability, consistency and transparency of financial reporting related
to other comprehensive income as part of the statement of stockholder’s equity. In order to defer only those changes in
ASU 2011-05 that relate to the presentation of reclassification adjustments, the paragraphs in ASU 2011-12 supersede
certain pending paragraphs in ASU 2011-05. The amendments were made to allow the Financial Accounting Standards
Board time to re-deliberate whether to present on the face of the financial statements the effects of reclassifications out
of accumulated other comprehensive income on the components of net income and other comprehensive income for all
periods presented. While the Financial Accounting Standards Board is considering the operational concerns about the
presentation requirements for reclassification adjustments and the needs of financial statement users for additional
information about reclassification adjustments, entities are required to continue to report reclassifications out of
accumulated other comprehensive income consistent with the presentation requirements in effect before ASU 2011-05.
All other requirements in ASU 2011-05 are not affected by ASU 2011-12, including the requirement to report
comprehensive income either in a single continuous financial statement or in two separate but consecutive financial
statements. The provisions of ASU 2011-12 have no impact on our consolidated financial statements.
In January 2013, FASB issued ASU No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of
Disclosures about Offsetting Assets and Liabilities. The Update clarifies the scope of transactions that are subject to the
disclosures about offsetting. The Update clarifies that ordinary trade receivables and receivables are not in the scope of
Accounting Standards Update No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and
Liabilities. Specifically, Update 2011-11 applies only to derivatives, repurchase agreements and reverse purchase
agreements, and securities borrowing and securities lending transactions that are either offset in accordance with specific
criteria contained in FASB Accounting Standards Codification or subject to a master netting arrangement or similar
agreement. The Update will be effective for the Company January 1, 2013, and is not expected to have a material
impact on the Company’s financial position or results of operations.
In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220): Reporting of
Amounts Reclassified Out of Accumulated Other Comprehensive Income, to improve the transparency of reporting
reclassifications out of accumulated other comprehensive income. The amendments in the Update do not change the
current requirements for reporting net income or other comprehensive income in financial statements. All of the
information that this Update requires already is required to be disclosed elsewhere in the financial statements under U.S.
GAAP. The new amendments will require an organization to present (either on the face of the statement where net
income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of
accumulated other comprehensive income–but only if the item reclassified is required under U.S. GAAP to be
reclassified to net income in its entirety in the same reporting period. Or, the organization may cross-reference to other
disclosures currently required under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP)
to be reclassified directly to net income in their entirety in the same reporting period. The Update will be effective for
the Company January 1, 2013, and is not expected to have a material impact on the Company’s financial position or
results of operations.
17
Guaranty Federal Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition And Results of Operations
SUMMARY OF UNAUDITED QUARTERLY OPERATING RESULTS
$
$
$
$
$
Interest income
Interest expense
Net interest income
Provision for loan losses
Gain on loans and investment securities
Other noninterest income, net
Noninterest expense
Income before income taxes
Provision for income taxes (credits)
Net income (loss)
Preferred stock dividends and discount
accretion
Net income (loss) available to common
shareholders
Basic income per common share
Diluted income per common share
Interest income
Interest expense
Net interest income
Provision for loan losses
Gain on loans and investment securities
Other noninterest income, net
Noninterest expense
Income before income taxes
Provision for income taxes
Net income
Preferred stock dividends and discount
accretion
Net income available to common shareholders
Basic income per common share
Diluted income per common share
$
$
$
Year Ended December 31, 2012, Quarter ended
Mar-12
Jun-12
Sep-12
Dec-12
6,865,922 $
1,850,150
5,015,772
900,000
399,883
447,129
4,047,508
915,276
80,554
834,722
6,846,359 $
1,732,250
5,114,109
2,100,000
544,631
495,917
3,902,852
151,805
(192,316)
344,121
6,846,504 $
1,703,184
5,143,320
2,600,000
537,203
(160,740)
4,102,979
(1,183,196)
(466,108)
(717,088)
7,047,015
1,572,431
5,474,584
350,000
571,512
420,136
4,187,596
1,928,636
446,532
1,482,104
281,391
397,910
198,630
198,630
553,331 $
0.20 $
0.20 $
(53,789) $
(0.02) $
(0.02) $
(915,718) $
(0.34) $
(0.34) $
1,283,474
0.47
0.45
Year Ended December 31, 2011, Quarter ended
Mar-11
Jun-11
Sep-11
Dec-11
7,530,118 $
2,686,311
4,843,807
900,000
281,904
475,995
4,152,224
549,482
26,520
522,962
281,391
241,571 $
0.09 $
0.09 $
7,641,494 $
2,540,220
5,101,274
1,000,000
364,229
350,970
3,918,807
897,666
108,124
789,542
281,390
508,152 $
0.19 $
0.19 $
7,729,579 $
2,398,198
5,331,381
900,000
452,552
543,668
3,884,544
1,543,057
327,427
1,215,630
281,391
934,239 $
0.35 $
0.35 $
7,474,747
1,986,239
5,488,508
550,000
1,752,564
263,347
5,405,880
1,548,539
241,034
1,307,505
281,391
1,026,114
0.38
0.38
18
Guaranty Federal Bancshares, Inc.
Consolidated Balance Sheets
December 31, 2012 and 2011
ASSETS
Cash and due from banks
Interest-bearing deposits in other financial institutions
Cash and cash equivalents
Interest-bearing deposits
Available-for-sale securities
Held-to-maturity securities
Stock in Federal Home Loan Bank, at cost
Mortgage loans held for sale
Loans receivable, net of allowance for loan losses of December 31, 2012 and 2011 - $8,740,325
and $10,613,145, respectively
Accrued interest receivable:
Loans
Investments and interest-bearing deposits
Prepaid expenses and other assets
Prepaid FDIC deposit insurance premiums
Foreclosed assets held for sale
Premises and equipment
Bank owned life insurance
Income taxes receivable
Deferred income taxes
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Federal Home Loan Bank advances
Securities sold under agreements to repurchase
Subordinated debentures
Advances from borrowers for taxes and insurance
Accrued expenses and other liabilities
Accrued interest payable
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Capital Stock:
$
$
$
December 31,
2012
December 31,
2011
3,360,102 $
38,303,303
41,663,405
-
101,980,644
181,042
3,805,500
2,843,757
7,200,969
19,373,113
26,574,082
5,587,654
81,064,878
218,571
3,846,900
3,702,849
465,531,973
478,960,736
1,674,814
380,555
6,228,173
1,438,636
4,529,727
11,286,410
13,657,480
910,174
4,319,928
660,432,218 $
1,752,786
386,534
7,116,067
2,089,076
10,012,035
11,423,822
10,770,887
512,666
4,486,315
648,505,858
500,014,715 $
68,050,000
25,000,000
15,465,000
152,867
481,382
399,684
609,563,648
484,583,665
68,050,000
25,000,000
15,465,000
156,509
496,956
518,881
594,271,011
-
-
Series A preferred stock, $0.01 par value; authorized 2,000,000 shares; issued and outstanding
December 31, 2012 and 2011 - 12,000 and 17,000 shares, respectively
11,789,276
16,425,912
Common stock, $0.10 par value; authorized 10,000,000 shares; issued December 31, 2012 and
2011 - 6,781,803 and 6,779,800 shares, respectively
Common stock warrants; December 31, 2012 and 2011 - 459,459 shares
Additional paid-in capital
Unearned ESOP shares
Retained earnings, substantially restricted
Accumulated other comprehensive income
Unrealized appreciation on available-for-sale securities, et of income taxes; December 31, 2012
and 2011 - $470,326 and $464,723, respectively
Treasury stock, at cost; December 31, 2012 and December 31, 2011 - 4,056,862 and 4,072,156
shares, respectively
678,180
1,377,811
58,267,529
-
39,324,292
677,980
1,377,811
58,333,614
(204,930)
38,456,991
800,826
112,237,914
791,285
115,858,663
(61,369,344)
50,868,570
660,432,218 $
(61,623,816)
54,234,847
648,505,858
$
See Notes to Consolidated Financial Statements
19
2012
2011
2010
$
25,666,608 $
1,755,804
183,388
27,605,800
27,423,897 $
2,636,799
315,242
30,375,938
28,348,002
3,476,721
506,753
32,331,476
4,076,194
1,543,493
556,159
682,169
6,858,015
20,747,785
5,950,000
5,778,263
2,164,259
610,929
1,057,517
9,610,968
20,764,970
3,350,000
9,628,133
2,988,548
1,023,783
1,166,415
14,806,879
17,524,597
5,200,000
14,797,785
17,414,970
12,324,597
1,119,570
168,306
1,884,923
(1,391,472)
1,474,344
3,255,671
9,247,912
1,629,566
688,763
566,652
300,000
-
3,808,042
16,240,935
1,812,521
(131,338)
1,943,859 $
1,076,561
867,298 $
1,315,333
1,505,915
1,345,334
(800,250)
1,118,897
4,485,229
8,886,713
1,660,802
942,056
529,940
300,000
1,531,000
3,510,944
17,361,455
4,538,744
703,105
3,835,639 $
1,125,563
2,710,076 $
1,552,623
275,125
1,749,857
(492,542)
1,194,290
4,279,353
8,636,515
1,704,790
1,220,589
454,611
300,000
-
3,213,422
15,529,927
1,074,023
(56,748)
1,130,771
1,125,563
5,208
0.32 $
0.30 $
1.01 $
1.01 $
-
-
Guaranty Federal Bancshares, Inc.
Consolidated Statements of Income
Years Ended December 31, 2012, 2011 and 2010
Interest Income
Loans
Investment securities
Other
Interest Expense
Deposits
Federal Home Loan Bank advances
Subordinated debentures
Securities sold under agreements to repurchase
Net Interest Income
Provision for Loan Losses
Net Interest Income After
Provision for Loan Losses
Noninterest Income
Service charges
Gain on sale of investment securities
Gain on sale of loans
Loss on foreclosed assets
Other income
Noninterest Expense
Salaries and employee benefits
Occupancy
FDIC deposit insurance premiums
Data processing
Advertising
Prepayment penalty on repurchase agreements
Other expense
Income Before Income Taxes
Provision (Credit) for Income Taxes
Net Income
Preferred Stock Dividends and Discount Accretion
Net Income Available to Common Shareholders
Basic Income Per Common Share
Diluted Income Per Common Share
$
$
$
$
See Notes to Consolidated Financial Statements
20
2012
1,943,859 $
2011
3,835,639 $
2010
1,130,771
183,449
(163,480)
507,668
(168,306)
15,143
(1,505,915)
(1,669,395)
(275,125)
232,543
5,602
9,541
1,953,400 $
(617,676)
(1,051,719)
2,783,920 $
86,041
146,502
1,277,273
$
Guaranty Federal Bancshares, Inc.
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2012, 2011 and 2010
$
NET INCOME
OTHER ITEMS OF COMPREHENSIVE INCOME (LOSS):
Change in unrealized gain on investment securities available-
for-sale and interest rate swaps, before income taxes
Less: Reclassification adjustment for realized gains on
investment securities included in net income, before income
taxes
Total other items in comprehensive income
Income tax expense (credit) related to other items of
comprehensive income
Other comprehensive income (loss)
TOTAL COMPREHENSIVE INCOME
See Notes to Consolidated Financial Statements
21
Guaranty Federal Bancshares, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2012, 2011 and 2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Items not requiring (providing) cash:
2012
2011
2010
$
1,943,859 $
3,835,639 $
1,130,771
Deferred income taxes
Depreciation
Provision for loan losses
Gain on sale of loans and investment securities
Loss on sale of foreclosed assets
Gain on sale of state low-income housing tax credits
Accretion of gain on termination of interest rate swaps
Amortization of deferred income, premiums and discounts, net
Stock award plans
Origination of loans held for sale
Proceeds from sale of loans held for sale
Release of ESOP shares
Increase in cash surrender value of bank owned life insurance
Changes in:
Prepaid FDIC deposit insurance premiums
Accrued interest receivable
Prepaid expenses and other assets
Accrued expenses and other liabilities
Income taxes payable
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in loans
Principal payments on held-to-maturity securities
Principal payments on available-for-sale securities
Purchase of available-for-sale securities
Proceeds from sales of available-for-sale securities
Proceeds from maturities of available-for-sale securities
Purchase of premises and equipment
Purchase of tax credit investments
Proceeds from sale of state low-income housing tax credits
Proceeds from maturities of interest bearing deposits
Purchase of bank owned life insurance
Redemption of Federal Home Loan Bank stock
Capitalized costs on foreclosed assets held for sale
Insurance proceeds on foreclosed assets held for sale
Proceeds from sale of foreclosed assets held for sale
Net cash provided by (used in) investing activities
160,784
747,368
5,950,000
(2,053,229)
1,356,464
(281,561)
-
548,635
253,017
(80,713,138)
83,457,153
153,848
(386,593)
650,440
83,951
887,894
(103,521)
(397,508)
12,257,863
6,478,698
37,530
8,123,388
(80,356,225)
31,688,102
19,162,654
(609,956)
-
281,561
5,587,654
(2,500,000)
41,400
-
-
5,227,038
(6,838,156)
949,122
717,222
3,350,000
(2,851,249)
520,255
-
-
529,016
186,654
(58,776,634)
59,104,282
126,737
(321,257)
888,280
530,954
(4,120)
(349,891)
(681,017)
7,753,993
14,093,653
42,385
15,633,730
(73,537,207)
46,274,707
26,775,000
(816,359)
(950,086)
-
7,197,346
-
1,178,300
(102,804)
-
5,627,426
41,416,091
(217,737)
826,440
5,200,000
(2,024,982)
341,376
-
(508,746)
587,769
109,386
(81,958,753)
84,488,527
100,014
(380,090)
1,158,519
1,289
569,548
(551,779)
3,887,321
12,758,873
7,493,436
211,827
13,855,527
(55,262,990)
17,516,564
28,956,500
(333,609)
-
-
5,000,000
-
951,400
(737,336)
637,427
6,295,990
24,584,736
See Notes to Consolidated Financial Statements
22
Guaranty Federal Bancshares, Inc.
Consolidated Statements of Cash Flows (continued)
Years Ended December 31, 2012, 2011 and 2010
2012
2011
2010
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits, NOW accounts and savings
accounts
Net decrease in certificates of deposit
Net decrease in securities sold under agreements to repurchase
Repayments of FHLB advances
Advances from borrowers for taxes and insurance
Redemption of preferred stock
Stock options exercised
Common and preferred cash dividends paid
Treasury stock purchased
Net cash provided by (used in) financing activities
$
20,824,692 $
(5,393,642)
-
-
(3,642)
(5,000,000)
12,388
(744,444)
(25,736)
9,669,616
24,675,024 $
(20,785,632)
(14,750,000)
(25,000,000)
22,507
-
-
(850,000)
(53,230)
(36,741,331)
5,504,374
(37,861,203)
-
(23,000,000)
(1,608)
-
-
(850,000)
(6,540)
(56,214,977)
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
15,089,323
12,428,753
(18,871,368)
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR
26,574,082
14,145,329
33,016,697
CASH AND CASH EQUIVALENTS, END OF YEAR
$
41,663,405 $
26,574,082 $
14,145,329
Supplemental Cash Flows Information
Real estate acquired in settlement of loans
Interest paid
Income taxes paid, net of (refunds)
Sale and financing of foreclosed assets held for sale
$
$
$
$
1,101,193 $
5,517,045 $
17,564,615
6,977,212 $
9,970,762 $
15,326,326
195,000 $
435,000 $
(3,726,331)
1,795,070 $
1,461,378 $
7,246,939
See Notes to Consolidated Financial Statements
23
Guaranty Federal Bancshares, Inc.
Consolidated Statements of Stockholders’ Equity
Years Ended December 31, 2012, 2011 and 2010
Preferred
Stock
Common
Stock
Common
Stock
Warrants
Additional
Paid-In
Capital
Unearned
ESOP
Shares
Treasury
Stock
Retained
Earnings
-
-
Balance, January 1, 2010 $ 15,874,788 $ 677,980 $ 1,377,811 $ 58,523,646 $ (660,930) $(61,820,869) $ 35,741,705 $
Net income
1,130,771
Change in unrealized
appreciation on
available-for-sale
securities and interest
rate swaps, net of
income taxes of
$86,041
-
-
-
-
-
-
-
-
-
-
-
Preferred stock discount
accretion
Preferred stock dividends
Stock award plans
Release of ESOP shares
Treasury stock purchased
Balance, December 31,
275,562
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
109,386
(127,986)
-
-
-
-
228,000
-
-
-
-
-
(6,540)
(275,562)
(850,000)
-
-
-
2010
Net income
16,150,350 677,980 1,377,811
-
-
-
58,505,046
-
(432,930) (61,827,409) 35,746,914
3,835,639
-
-
Accumulated
Other
Comprehensive
Income
Total
1,696,502 $51,410,633
- 1,130,771
146,502
146,502
-
-
-
-
-
-
(850,000)
109,386
100,014
(6,540)
1,843,004 52,040,766
- 3,835,639
Change in unrealized
appreciation on
available-for-sale
securities, net of
income taxes of
$617,676
Preferred stock discount
accretion
Preferred stock dividends
(5%)
Stock award plans
Release of ESOP shares
Treasury stock purchased
Balance, December 31,
-
275,562
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(70,169)
(101,263)
-
-
-
228,000
-
-
256,823
-
(53,230)
16,425,912 677,980 1,377,811
-
-
-
58,333,614
-
(204,930) (61,623,816) 38,456,991
1,943,859
-
-
-
(1,051,719) (1,051,719)
(275,562)
(850,000)
-
-
-
-
-
-
-
-
-
(850,000)
186,654
126,737
(53,230)
791,285 54,234,847
- 1,943,859
2011
Net income
Change in unrealized
appreciation on
available-for-sale
securities, net of
income taxes of $5,603
-
Preferred stock redeemed (5,000,000)
Preferred stock discount
accretion
Preferred stock dividends
(5%)
Stock award plans
Stock options exercised
Release of ESOP shares
Treasury stock purchased
Balance, December 31,
363,364
-
-
-
-
-
-
-
-
-
-
200
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(27,191)
12,188
(51,082)
-
-
-
-
204,930
-
-
280,208
-
-
(25,736)
-
-
9,541
9,541
- (5,000,000)
(363,364)
(713,194)
-
-
-
-
-
-
-
-
-
-
-
(713,194)
253,017
12,388
153,848
(25,736)
2012
$ 11,789,276 $ 678,180 $ 1,377,811 $ 58,267,529 $
- $(61,369,344) $ 39,324,292 $
800,826 $50,868,570
See Notes to Consolidated Financial Statements
24
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Company operates as a one-bank holding company. The Bank is primarily engaged in providing a full
range of banking and mortgage services to individual and corporate customers in southwest Missouri. The Bank is
subject to competition from other financial institutions. The Company and the Bank are also subject to the regulation of
certain federal and state agencies and receive periodic examinations by those regulatory authorities.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary,
the Bank. All significant intercompany profits, transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change in the near term relate to the
determination of the allowance for loan losses, the valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans and fair values. In connection with the determination of the allowance for loan losses and the
valuation of foreclosed assets held for sale, management obtains independent appraisals for significant properties.
Securities
Certain debt securities that management has the positive intent and ability to hold to maturity are classified as
“held to maturity” and recorded at amortized cost. Securities not classified as held to maturity are classified as
“available-for-sale” and are carried at fair value, with unrealized gains and losses excluded from earnings and reported in
other comprehensive income. Purchase premiums are recognized in interest income using the interest method over the
terms of the securities. Gains and losses on the sale of securities are recorded on the trade date and are determined using
the specific identification method.
For debt securities with fair value below carrying value when the Company does not intend to sell a debt
security, and it is more likely than not, the Company will not have to sell the security before a recovery of its cost basis,
it recognizes the credit component of an other-than-temporary impairment of a debt security in earnings and the
remaining portion in other comprehensive income. For held-to-maturity debt securities, the amount of an other-than-
temporary impairment recorded in other comprehensive income for the noncredit portion of a previous other-than-
temporary impairment is amortized prospectively over the remaining life of the security on the basis of the timing of
future estimated cash flows of the security.
The Company’s consolidated statements of income reflect the full impairment (that is, the difference between
the security’s amortized cost basis and fair value) on debt securities that the Company intends to sell or would more
likely than not be required to sell before the expected recovery of the amortized cost basis. For available-for-sale and
held-to-maturity debt securities that management has no intent to sell and believes that it more likely than not will not be
required to sell prior to recovery, only the credit loss component of the impairment is recognized in earnings, while the
noncredit loss is recognized in accumulated other comprehensive income. The credit loss component recognized in
earnings is identified as the amount of principal cash flows not expected to be received over the remaining term of the
security as projected based on cash flow projections.
25
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
Mortgage Loans Held for Sale
Mortgage loans held for sale are carried at the lower of cost or fair value, determined using an aggregate
basis. Write-downs to fair value are recognized as a charge to earnings at the time a decline in value occurs. Forward
commitments to sell mortgage loans are sometimes acquired to reduce market risk on mortgage loans in the process of
origination and mortgage loans held for sale. Gains and losses resulting from sales of mortgage loans are recognized
when the respective loans are sold to investors. Gains and losses are determined by the difference between the selling
price and the carrying amounts of the loans sold, and are recorded in noninterest income. Direct loan origination costs
and fees are deferred at origination of the loan and are recognized in noninterest income upon sale of the loan.
Loans
For loans amortized at cost, interest income is accrued based on the unpaid principal balance. Loan origination
fees net of certain direct origination costs, are deferred and amortized as a level yield adjustment over the respective
term of the loan.
The accrual of interest on loans is discontinued at the time the loan is 90 days past due unless the credit is well-
secured and in process of collection. Past due status is based on contractual terms of the loan. In all cases, loans are
placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.
All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against
interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying
for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due
are brought current and future payments are reasonably assured.
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have occurred through a provision for
loan losses charged to income. Loan losses are charged against the allowance when management believes the
uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s
periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan
portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral
and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible
to significant revision as more information becomes available.
The allowance consists of allocated and general components. The allocated component relates to loans that are
classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted
cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that
loan. The general component covers nonclassified loans and is based on historical charge-off experience and expected
loss given default derived from the Bank’s internal risk rating process. Other adjustments may be made to the allowance
for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the
historical loss or risk rating data.
A loan is considered impaired when, based on current information and events, it is probable that the Bank will
be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the
loan agreement. Factors considered by management in determining impairment include payment status, collateral value
and the probability of collecting scheduled principal and interest payments when due. Loans that experience
insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines
the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the
circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the
borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest
owed. Impairment is measured on a loan-by-loan basis by either the present value of expected future cash flows
discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the
loan is collateral dependent.
26
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
Groups of loans with similar risk characteristics are collectively evaluated for impairment based on the group’s
historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of
the loans.
Foreclosed Assets Held for Sale
Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value
less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are
periodically performed by management and the assets are carried at the lower of carrying amount or fair value less
estimated cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in net
expenses from foreclosed assets.
Premises and Equipment
Depreciable assets are stated at cost less accumulated depreciation. Depreciation is charged to expense using
the straight-line and accelerated methods over the estimated useful lives of the assets. The estimated useful lives for
each major depreciable classification of premises and equipment are as follows:
Buildings and improvements (years)
Furniture and fixtures and vehicles (years)
35 - 40
3 - 10
Bank Owned Life Insurance
Bank owned life insurance policies are carried at their cash surrender value. The Company recognizes tax-free
income from the periodic increases in cash surrender value of these policies and from death benefits.
Income Taxes
The Company accounts for income taxes in accordance with income tax accounting guidance (ASC 740,
Income Taxes). The income tax accounting guidance results in two components of income tax expense: current and
deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the
provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company
determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax
asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and
enacted changes in tax rates and laws are recognized in the period in which they occur.
Deferred income tax expense results from changes in deferred tax assets and liabilities between
periods. Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax
position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than
50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation
processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently
measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon
settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or
not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances and
information available at the reporting date and is subject to management’s judgment. Deferred tax assets are reduced by
a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a
deferred tax asset will not be realized.
The Company recognizes interest and penalties on income taxes as a component of income tax expense.
The Company files consolidated income tax returns with its subsidiary. With a few exceptions, the Company is
no longer subject to U.S. federal or state income tax examinations by tax authorities for years before 2009.
Cash Equivalents
The Company considers all liquid investments with original maturities of three months or less to be cash
equivalents. At December 31, 2012 and 2011, the Company had no cash equivalents.
27
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
Pursuant to legislation enacted in 2010, the FDIC fully insured all noninterest-bearing transaction accounts
beginning December 31, 2010, through December 31, 2012, at all FDIC-insured institutions. This legislation expired on
December 31, 2012. Beginning January 1, 2013, noninterest-bearing transaction accounts are subject to the $250,000
limit on FDIC insurance per covered institution.
Restriction on Cash and Due From Banks
The Company is required to maintain reserve funds in cash and/or on deposit with the Federal Reserve
Bank. The reserve required on December 31, 2012 and 2011, was $6,645,000 and $7,899,000, respectively.
Comprehensive Income
Comprehensive income consists of net income and other comprehensive income (loss), net of applicable
income taxes. Other comprehensive income (loss) includes unrealized appreciation (depreciation) on available-for-sale
securities, unrealized appreciation (depreciation) on available-for-sale securities for which a portion of an other-than-
temporary impairment has been recognized in income, unrealized appreciation (depreciation) on held-to-maturity
securities for which a portion of an other-than-temporary impairment has been recognized in income, and unrealized
gains on interest rate swaps.
Regulatory Matters
The Company and the Bank are subject to various regulatory capital requirements administered by the federal
banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct and material effect on the Company's financial
statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company
and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are
also subject
risk weightings and other
factors. Furthermore, the Company’s regulators could require adjustments to regulatory capital not reflected in these
financial statements.
regulators about components,
judgments by
to qualitative
the
Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank
to maintain minimum amounts and ratios (set forth in the table below). Management believes, as of December 31, 2012
and 2011, that the Company and the Bank meet all capital adequacy requirements to which they are subject.
As of December 31, 2012, the most recent notification from the Missouri Division of Finance and the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier I risk-
based and Tier I leverage ratios as set forth in the following table. There are no conditions or events since that
notification that management believes have changed the Company’s or the Bank’s category.
The Company’s and the Bank's actual capital amounts and ratios are also presented in the table. No amount
was deducted from capital for interest-rate risk. Dollar amounts are expressed in thousands.
28
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
Actual
Amount
Ratio
For Capital
Adequacy Purposes
Ratio
Amount
To Be Well Capitalized
Under Prompt Corrective
Action Provisions
Ratio
Amount
As of December 31, 2012
Tier 1 (core) capital, and ratio to
adjusted total assets
Company
Bank
Tier 1 (core) capital, and ratio to
risk-weighted assets
Company
Bank
Total risk-based capital, and ratio
to risk-weighted assets
Company
Bank
$
$
65,047
63,249
9.9% $
9.7% $
26,256
26,193
4.0%
4.0% $
n/a
32,742
n/a
5.0%
$
$
65,047
63,249
13.2% $
12.9% $
19,642
19,601
4.0%
4.0% $
n/a
29,402
n/a
6.0%
$
$
71,201
69,407
14.5% $
14.2% $
39,284
39,202
8.0%
8.0% $
n/a
49,003
n/a
10.0%
Actual
Amount
Ratio
For Capital
Adequacy Purposes
Ratio
Amount
To Be Well Capitalized
Under Prompt Corrective
Action Provisions
Ratio
Amount
As of December 31, 2011
Tier 1 (core) capital, and ratio to
adjusted total assets
Company
Bank
Tier 1 (core) capital, and ratio to
risk-weighted assets
Company
Bank
Total risk-based capital, and ratio
to risk-weighted assets
Company
Bank
$
$
68,419
66,834
10.4% $
10.2% $
26,256
26,249
4.0%
4.0% $
n/a
32,811
n/a
5.0%
$
$
68,419
66,834
13.2% $
12.9% $
20,755
20,730
4.0%
4.0% $
n/a
31,095
n/a
6.0%
$
$
74,948
73,363
14.4% $
14.2% $
41,511
41,460
8.0%
8.0% $
n/a
51,825
n/a
10.0%
The amount of dividends that the Company and Bank may pay is subject to various regulatory limitations. As
of December 31, 2012 and 2011 the Company and Bank exceeded their minimum capital requirements. The Bank may
not pay dividends which would reduce capital below the minimum requirements shown above.
29
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
Segment Information
The principal business of the Company is overseeing the business of the Bank. The Company has no
significant assets other than its investment in the Bank. The banking operation is the Company’s only reportable
segment. The banking segment is principally engaged in the business of originating mortgage loans secured by one-to-
four family residences, multi-family, construction, commercial and consumer loans. These loans are funded primarily
through the attraction of deposits from the general public, borrowings from the Federal Home Loan Bank and brokered
deposits. Selected information is not presented separately for the Company’s reportable segment, as there is no material
difference between that information and the corresponding information in the consolidated financial statements.
General Litigation
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, and 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. After reviewing pending and threatened litigation with legal counsel,
management believes that as of December 31, 2012, the outcome of any such litigation will not have a material adverse
effect on the Company’s results of operations.
Earnings Per Common Share
The computation for earnings per common share for the years ended December 31, 2012, 2011 and 2010 is as
follows:
Net income available to common shareholders
Average common shares outstanding
Effect of dilutive securities
Average diluted shares outstanding
Basic income per common share
Diluted income per common share
Year Ended
December 31,
2012
Year Ended
December 31,
2011
Year Ended
December 31,
2010
$
$
$
867,298 $
2,715,186
144,743
2,859,929
0.32 $
0.30 $
2,710,076 $
2,675,654
826
2,676,480
1.01 $
1.01 $
5,208
2,644,355
-
2,644,355
0.00
0.00
Stock options to purchase 201,500, 351,500 and 365,579 shares of common stock were outstanding during the
years ended December 31, 2012, 2011 and 2010, respectively, but were not included in the computation of diluted
income per common share because their exercise price was greater than the average market price of the common shares.
Stock warrants to purchase 459,459 shares of common stock were outstanding during the years ended
December 31, 2012 and 2011 and were included in the computation of diluted income per common share because their
exercise price was less than the average market price of the common shares during the period. These warrants were also
outstanding during 2010 but were not included in the computation of diluted income per common share because their
exercise price was greater than the average market price of the common shares.
30
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
NOTE 2: SECURITIES
The amortized cost and approximate fair values, together with gross unrealized gains and losses, of securities
classified as available-for-sale are as follows:
As of December 31, 2012
Equity Securities
Debt Securities:
U. S. government agencies
Municipals
Corporates
Government sponsored mortgage-backed
securities
As of December 31, 2011
Equity Securities
Debt Securities:
U. S. government agencies
U. S. treasuries
Municipals
Government sponsored mortgage-backed
securities
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
(Losses)
Approximate
Fair Value
$
102,212 $
306 $
(31,604) $
70,914
38,188,554
10,212,376
1,839,976
202,213
250,269
67,889
(39,706)
(84,456)
-
38,351,061
10,378,189
1,907,865
50,366,374
$ 100,709,492 $
1,304,242
1,824,919 $
(398,001)
51,272,615
(553,767) $ 101,980,644
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
(Losses)
Approximate
Fair Value
$
102,212 $
- $
(39,950) $
62,262
34,668,833
2,037,168
4,049,701
122,093
5,469
138,736
(64,264)
-
(44,038)
34,726,662
2,042,637
4,144,399
38,950,955
79,808,869 $
$
1,148,789
1,415,087 $
(10,826)
(159,078) $
40,088,918
81,064,878
Maturities of available-for-sale debt securities as of December 31, 2012:
Within one year
1-5 years
5-10 years
After ten years
Government sponsored mortgage-backed securities not due on a single
maturity date
Amortized
Cost
Approximate
Fair Value
$
500,000 $
12,082,163
30,436,756
7,221,987
500,675
12,224,858
30,567,166
7,344,416
50,366,374
51,272,615
$100,607,280 $101,909,730
31
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
The amortized cost and approximate fair values, together with gross unrealized gains and losses, of securities
classified as held to maturity are as follows:
As of December 31, 2012
Debt Securities:
Government sponsored mortgage-backed
securities
As of December 31, 2011
Debt Securities:
Government sponsored mortgage-backed
securities
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
(Losses)
Approximate
Fair Value
$
181,042 $
12,440 $
- $
193,482
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
(Losses)
Approximate
Fair Value
$
218,571 $
17,003 $
- $
235,574
Maturities of held-to-maturity securities as of December 31, 2012:
Amortized
Cost
Approximate
Fair Value
Government sponsored mortgage-backed securities not due on a single maturity date
$
181,042 $
193,482
The carrying value of securities pledged as collateral, to secure public deposits and for other purposes,
amounted to $57,378,710 and $60,222,048 as of December 31, 2012 and 2011, respectively.
Gross gains of $168,306, $1,505,915 and $275,125 and gross losses of $0, $0 and $0 resulting from sale of
available-for-sale securities were realized for the years ended December 31, 2012, 2011 and 2010, respectively. The tax
effect of these net gains was $62,273, $557,188 and $101,796 in 2012, 2011 and 2010, respectively.
The Company evaluates all securities quarterly to determine if any unrealized losses are deemed to be other
than temporary. Certain investment securities are valued less than their historical cost. These declines are primarily the
result of the rate for these investments yielding less than current market rates, or declines in stock prices of equity
securities. Based on evaluation of available evidence, management believes the declines in fair value for these securities
are temporary. It is management’s intent to hold the debt securities to maturity or until recovery of the unrealized loss.
Should the impairment of any of these debt securities become other than temporary, the cost basis of the investment will
be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is
identified, to the extent the loss is related to credit issues, and to other comprehensive income to the extent the decline on
debt securities is related to other factors and the Company does not intend to sell the security prior to recovery of the
unrealized loss.
No securities were written down for other-than-temporary impairment during the years ended December 31,
2012, 2011 and 2010.
32
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
Certain other investments in debt and equity securities are reported in the financial statements at an amount less
than their historical cost. Total fair value of these investments at December 31, 2012 and 2011, was $30,121,495 and
$29,766,876, respectively, which is approximately 29% and 37% of the Company’s investment portfolio. These
declines primarily resulted from changes in market interest rates and failure of certain investments to meet projected
earnings targets.
The following table shows gross unrealized losses and fair value, aggregated by investment category and length
of time that individual securities have been in a continuous unrealized loss position at December 31, 2012 and 2011.
December 31, 2012
Description of Securities
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Less than 12 Months
12 Months or More
Total
Equity Securities
U. S. government agencies
Municipals
Government sponsored
mortgage-backed securities
$
- $
7,298,687
2,648,047
- $
(39,706)
(76,318)
39,930 $
-
538,300
(31,604) $
39,930 $
- 7,298,687
(8,138) 3,186,347
(31,604)
(39,706)
(84,456)
19,596,531
(398,001)
$ 29,543,265 $ (514,025) $
-
578,230 $
- 19,596,531
(398,001)
(39,742) $ 30,121,495 $ (553,767)
December 31, 2011
Description of Securities
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Less than 12 Months
12 Months or More
Total
Equity Securities
U. S. government agencies
Municipals
Government sponsored
mortgage-backed securities
26,316 $
$
21,351,961
1,045,521
(4,361) $
(64,264)
(44,038)
35,946 $
-
-
(35,589) $
62,262 $
- 21,351,961
- 1,045,521
(39,950)
(64,264)
(44,038)
7,307,132
(10,826)
$ 29,730,930 $ (123,489) $
-
35,946 $
- 7,307,132
(10,826)
(35,589) $ 29,766,876 $ (159,078)
33
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES
Categories of loans at December 31, 2012 and 2011 include:
Real estate - residential mortgage:
One to four family units
Multi-family
Real estate - construction
Real estate - commercial
Commercial loans
Consumer and other loans
Total loans
Less:
Allowance for loan losses
Deferred loan fees/costs, net
Net loans
December 31,
2012
2011
$ 99,381,934 $ 98,030,718
46,405,034 43,165,695
48,917,296 44,912,049
167,760,850 194,856,374
95,226,762 88,088,580
16,716,858 20,758,027
474,408,734 489,811,443
(8,740,325) (10,613,145)
(237,562)
$ 465,531,973 $ 478,960,736
(136,436)
Classes of loans by aging at December 31, 2012 and 2011 were as follows:
As of December 31, 2012
30-59
Days
Past Due
60-89
Days
Past Due
Greater
Than
90 Days
Total
Past
Due
(In Thousands)
Current
Total
Loans
Receivable
Total
Loans >
90 Days
and
Accruing
Real estate - residential mortgage:
One to four family units
Multi-family
Real estate - construction
Real estate - commercial
Commercial loans
Consumer and other loans
Total
As of December 31, 2011
$
$
52 $
-
22
-
10
57
141 $
4 $
-
28
352
610
-
994 $
- $
-
640
-
785
-
1,425 $
56 $ 99,326 $ 99,382 $
46,405
- 46,405
690 48,227
48,917
352 167,409 167,761
95,227
16,717
1,405 93,822
57 16,660
2,560 $ 471,849 $ 474,409 $
-
-
-
-
-
-
-
30-59
Days
Past Due
60-89
Days
Past Due
Greater
Than
90 Days
Total
Past
Due
(In Thousands)
Current
Total
Loans
Receivable
Total
Loans >
90 Days
and
Accruing
Real estate - residential mortgage:
One to four family units
Multi-family
Real estate - construction
Real estate - commercial
Commercial loans
Consumer and other loans
Total
$
$
5 $
-
728
167
32
14
946 $
206 $
-
-
-
-
18
224 $
33 $
-
157
1,193
548
20
1,951 $
34
244 $ 97,787 $ 98,031 $
- 43,166
885 44,027
43,166
44,912
1,360 193,496 194,856
88,088
20,758
580 87,508
52 20,706
3,121 $ 486,690 $ 489,811 $
-
-
-
-
-
-
-
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
Nonaccruing loans are summarized as follows:
Real estate - residential mortgage:
One to four family units
Multi-family
Real estate - construction
Real estate - commercial
Commercial loans
Consumer and other loans
Total
December 31,
2012
2011
$ 2,280,856 $ 1,671,245
-
-
6,274,241 8,514,187
3,663,771 4,082,416
2,793,457 2,377,081
357,060
$ 15,331,288 $ 17,001,989
318,963
The following tables present the activity in the allowance for loan losses and the recorded investment in loans
based on portfolio segment and impairment method as of and for the years ended December 31, 2012, 2011 and 2010:
As of December 31, 2012
Construction
Commercial
Real Estate
One to
four
family
Multi-
family Commercial
Consumer
and Other Unallocated Total
Allowance for loan
losses:
Balance, beginning of
year
Provision charged to
expense
Losses charged off
Recoveries
Balance, end of year
Ending balance:
(In Thousands)
$
2,508 $
2,725 $
1,735 $
390 $
1,948 $
372 $
935 $ 10,613
1,324
(1,335 )
28
2,525 $
683
(985)
94
2,517 $
(179)
(265)
25
1,316 $
(106)
-
-
284 $
5,090
(5,547)
198
1,689 $
(81 )
(73 )
37
255 $
(781) $
- $
- $
154 $
5,950
(8,205)
382
8,740
$
individually evaluated
for impairment
$
608 $
180 $
90 $
- $
441 $
48 $
- $
1,367
Ending balance:
collectively evaluated
for impairment
Loans:
Ending balance:
individually evaluated
for impairment
Ending balance:
collectively evaluated
for impairment
$
2,087 $
2,167 $
1,226 $
284 $
1,248 $
207 $
154 $
7,373
$
6,275 $
5,673 $
2,360 $
- $
2,555 $
414 $
- $ 17,277
$
42,642 $ 162,088 $ 97,022 $ 46,405 $
92,672 $ 16,303 $
- $ 457,132
35
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
As of December 31, 2011
Construction
Commercial
Real Estate
One to
four
family
Multi-
family Commercial
Consumer
and Other Unallocated Total
Allowance for loan
losses:
Balance, beginning of
year
Provision charged to
expense
Losses charged off
Recoveries
Balance, end of year
Ending balance:
individually evaluated
for impairment
Ending balance:
collectively evaluated
for impairment
Loans:
Ending balance:
individually evaluated
for impairment
Ending balance:
collectively evaluated
for impairment
As of December 31, 2010
(In Thousands)
$
4,547 $
3,125 $
1,713 $
528 $
2,483 $
687 $
- $ 13,083
265
(2,381 )
77
2,508 $
2,123
(2,744)
221
2,725 $
943
(966)
45
1,735 $
(138)
-
-
390 $
505
(1,362)
322
1,948 $
(1,283 )
(322 )
1,290
372 $
935 $
- $
- $
3,350
(7,775)
1,955
935 $ 10,613
$
$
1,355 $
659 $
127 $
- $
399 $
72 $
- $
2,612
$
1,153 $
2,066 $
1,608 $
390 $
1,549 $
300 $
935 $
8,001
$
8,515 $
5,019 $
1,819 $
- $
3,048 $
653 $
- $ 19,054
$
36,397 $ 189,837 $ 96,212 $ 43,166 $
85,040 $ 20,105 $
- $ 470,757
Construction
Commercial
Real Estate
One to
four
family
Multi-
family Commercial
Consumer
and Other Unallocated Total
(In Thousands)
$
2,810 $
2,923 $
1,646 $
393 $
3,554 $
2,750 $
- $ 14,076
5,620
(3,893 )
10
4,547 $
563
(373)
12
3,125 $
948
(906)
25
1,713 $
135
-
-
528 $
716
(1,847)
60
2,483 $
(2,782)
(366)
1,085
687 $
$
5,200
- $
(7,385)
- $
- $
1,192
- $ 13,083
$
3,134 $
1,384 $
149 $
- $
1,052 $
307 $
- $
6,026
$
1,413 $
1,741 $
1,564 $
528 $
1,431 $
380 $
- $
7,057
$
9,281 $
5,150 $
3,363 $
- $
8,409 $
1,008 $
- $ 27,211
$
54,027 $ 190,740 $ 99,689 $ 44,138 $
77,019 $ 22,418 $
- $ 488,031
Allowance for loan
losses:
Balance, beginning of
year
Provision charged to
expense
Losses charged off
Recoveries
Balance, end of year
Ending balance:
individually evaluated
for impairment
Ending balance:
collectively evaluated
for impairment
Loans:
Ending balance:
individually evaluated
for impairment
Ending balance:
collectively evaluated
for impairment
36
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
A loan is considered impaired, in accordance with the impairment accounting guidance (ASC-310-10-35-16),
when based on current information and events, it is probable the Bank will be unable to collect all amounts due from the
borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming commercial loans
but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers
experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment
extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.
The following summarizes impaired loans as of and for the years ended December 31, 2012 and 2011:
As of December 31, 2012
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
(In Thousands)
Average
Investment
in Impaired
Loans
Interest
Income
Recognized
Loans without a specific valuation
allowance
Real estate - residential mortgage:
One to four family units
Multi-family
$
Real estate - construction
Real estate - commercial
Commercial loans
Consumer and other loans
Loans with a specific valuation allowance
Real estate - residential mortgage:
One to four family units
Multi-family
$
Real estate - construction
Real estate - commercial
Commercial loans
Consumer and other loans
Total
Real estate - residential mortgage:
2,245 $
-
5,015
2,430
318
103
115 $
-
1,260
3,243
2,237
311
One to four family units
Multi-family
Real estate - construction
Real estate - commercial
Commercial loans
Consumer and other loans
Total
$
$
2,360 $
-
6,275
5,673
2,555
414
17,277 $
2,271 $
-
5,575
2,755
689
103
130 $
-
1,260
3,243
2,237
311
2,401 $
-
6,835
5,998
2,926
414
18,574 $
- $
-
-
-
-
-
90 $
-
608
180
441
48
90 $
-
608
180
441
48
1,367 $
1,961 $
-
3,528
4,054
1,831
266
315 $
-
3,316
6,913
3,408
307
2,276 $
-
6,844
10,967
5,239
573
25,899 $
20
-
-
65
17
11
-
-
-
-
-
-
20
-
-
65
17
11
113
37
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
As of December 31, 2011
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
(In Thousands)
Average
Investment
in Impaired
Loans
Interest
Income
Recognized
Loans without a specific valuation
allowance
Real estate - residential mortgage:
One to four family units
Multi-family
$
Real estate - construction
Real estate - commercial
Commercial loans
Consumer and other loans
Loans with a specific valuation allowance
Real estate - residential mortgage:
One to four family units
Multi-family
$
Real estate - construction
Real estate - commercial
Commercial loans
Consumer and other loans
Total
Real estate - residential mortgage:
1,424 $
-
1,181
4,646
1,148
376
395 $
-
7,334
373
1,900
277
One to four family units
Multi-family
Real estate - construction
Real estate - commercial
Commercial loans
Consumer and other loans
Total
$
$
1,819 $
-
8,515
5,019
3,048
653
19,054 $
1,424 $
-
1,181
5,985
1,459
376
421 $
-
7,854
373
1,900
277
1,845 $
-
9,035
6,358
3,359
653
21,250 $
- $
-
-
-
-
-
127 $
-
1,355
659
399
72
127 $
-
1,355
659
399
72
2,612 $
2,373 $
-
3,705
4,609
1,573
458
1,396 $
-
7,697
2,189
2,790
381
3,769 $
-
11,402
6,798
4,363
839
27,171 $
50
-
-
57
55
37
-
-
-
-
-
-
50
-
-
57
55
37
199
Interest of approximately $358,000 was recognized on average impaired loans of $28,996,000 for the year
ended December 31, 2010.
At December 31, 2012, the Bank’s impaired loans shown in the table above included loans that were classified
as troubled debt restructurings (TDR). The restructuring of a loan is considered a TDR if both (i) the borrower is
experiencing financial difficulties and (ii) the creditor has granted a concession.
In assessing whether or not a borrower is experiencing financial difficulties, the Bank considers information
currently available regarding the financial condition of the borrower. This information includes, but is not limited to,
whether (i) the debtor is currently in payment default on any of its debt; (ii) a payment default is probable in the
foreseeable future without the modification; (iii) the debtor has declared or is in the process of declaring bankruptcy and
(iv) the debtor’s projected cash flow is sufficient to satisfy the contractual payments due under the original terms of the
loan without a modification.
38
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
The Bank considers all aspects of the modification to loan terms to determine whether or not a concession has
been granted to the borrower. Key factors considered by the Bank include the debtor’s ability to access funds at a
market rate for debt with similar risk characteristics, the significance of the modification relative to unpaid principal
balance or collateral value of the debt, and the significance of a delay in the timing of payments relative to the original
contractual terms of the loan. The most common concessions granted by the Bank generally include one or more
modifications to the terms of the debt, such as (i) a reduction in the interest rate for the remaining life of the debt, (ii) an
extension of the maturity date at an interest rate lower than the current market rate for new debt with similar risk, (iii) a
reduction of the face amount or maturity amount of the debt as stated in the original loan, (iv) a temporary period of
interest-only payments, (v) a reduction in accrued interest, and (vi) an extension of amortization.
The following summarizes information regarding new troubled debt restructurings by class:
December 31, 2012
Pre-
Modification
Outstanding
Recorded
Balance
Post-
Modification
Outstanding
Recorded
Balance
Number of
Loans
Real estate - residential mortgage:
One to four family units
Multi-family
Real estate - construction
Real estate - commercial
Commercial loans
Consumer and other loans
Total
Real estate - residential mortgage:
One to four family units
Multi-family
Real estate - construction
Real estate - commercial
Commercial loans
Consumer and other loans
Total
-
3 $ 1,317,070 $ 1,689,268
-
-
7,626,970 8,193,713
3
2,316,745 2,316,745
2
2,270,030 1,844,113
2
-
-
10 $ 13,530,815 $ 14,043,839
-
December 31, 2011
Pre-
Modification
Outstanding
Recorded
Balance
Post-
Modification
Outstanding
Recorded
Balance
Number of
Loans
- $
-
-
- $
-
-
8,526,970 8,925,340
3
6,526,382 4,591,406
3
-
-
-
-
6 $ 15,053,352 $ 13,516,746
-
-
The troubled debt restructurings described above increased the allowance for loan losses by $723,359 and
resulted in charge offs of $26,173 during the year ended December 31, 2012.
39
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
The following presents the troubled debt restructurings by type of modification:
Real estate - residential mortgage:
One to four family units
Multi-family
Real estate - construction
Real estate - commercial
Commercial loans
Consumer and other loans
Total
Real estate - residential mortgage:
One to four family units
Multi-family
Real estate - construction
Real estate - commercial
Commercial loans
Consumer and other loans
Total
December 31, 2012
Interest Rate
Term
Combination
Total
Modification
$
$
305,600 $
-
6,884,800
-
-
-
7,190,400 $
1,383,668 $
-
1,308,913
391,745
1,844,113
-
4,928,439 $
- $
-
-
1,925,000
-
-
1,689,268
-
8,193,713
2,316,745
1,844,113
-
1,925,000 $ 14,043,839
December 31, 2011
Interest Rate
Term
Combination
Total
Modification
$
$
- $
-
6,884,800
-
-
-
6,884,800 $
- $
-
2,040,540
-
-
-
2,040,540 $
- $
-
-
4,591,406
-
-
-
-
8,925,340
4,591,406
-
-
4,591,406 $ 13,516,746
As part of the on-going monitoring of the credit quality of the Bank’s loan portfolio, management tracks loans
by an internal rating system. All loans are assigned an internal credit quality rating based on an analysis of the
borrower’s financial condition. The criteria used to assign quality ratings to extensions of credit that exhibit potential
problems or well-defined weaknesses are primarily based upon the degree of risk and the likelihood of orderly
repayment, and their effect on the Bank’s safety and soundness. The following are the internally assigned ratings:
Pass-This rating represents loans that have strong asset quality and liquidity along with a multi-year track
record of profitability.
Special mention-This rating represents loans that are currently protected but are potentially weak. The credit
risk may be relatively minor, yet constitute an increased risk in light of the circumstances surrounding a specific loan.
Substandard-This rating represents loans that show signs of continuing negative financial trends and
unprofitability and therefore, is inadequately protected by the current sound worth and paying capacity of the obligor or
of the collateral pledged, if any.
Doubtful-This rating represents loans that have all the weaknesses of substandard classified loans with the
additional characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing
facts, conditions and values, highly questionable and improbable.
Risk characteristics applicable to each segment of the loan portfolio are described as follows.
Real estate-Residential 1-4 family: The residential 1-4 family real estate loans are generally secured by owner-
occupied 1-4 family residences. Repayment of these loans is primarily dependent on the personal income and credit
rating of the borrowers. Credit risk in these loans can be impacted by economic conditions within the Bank’s market
areas that might impact either property values or a borrower’s personal income. Risk is mitigated by the fact that the
loans are of smaller individual amounts and spread over a large number of borrowers.
40
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
Real estate-Construction: Construction and land development real estate loans are usually based upon estimates
of costs and estimated value of the completed project and include independent appraisal reviews and a financial analysis
of the developers and property owners. Sources of repayment of these loans may include permanent loans, sales of
developed property or an interim loan commitment from the Bank until permanent financing is obtained. These loans
are considered to be higher risk than other real estate loans due to their ultimate repayment being sensitive to interest rate
changes, general economic conditions and the availability of long-term financing. Credit risk in these loans may be
impacted by the creditworthiness of a borrower, property values and the local economies in the Bank’s market areas.
Real estate-Commercial: Commercial real estate loans typically involve larger principal amounts, and
repayment of these loans is generally dependent on the successful operations of the property securing the loan or the
business conducted on the property securing the loan. These loans are viewed primarily as cash flow loans and
secondarily as loans secured by real estate. Credit risk in these loans may be impacted by the creditworthiness of a
borrower, property values and the local economies in the Bank’s market areas.
Commercial: The commercial portfolio includes loans to commercial customers for use in financing working
capital needs, equipment purchases and expansions. The loans in this category are repaid primarily from the cash flow
of a borrower’s principal business operation. Credit risk in these loans is driven by creditworthiness of a borrower and
the economic conditions that impact the cash flow stability from business operations.
Consumer: The consumer loan portfolio consists of various term and line of credit loans such as automobile
loans and loans for other personal purposes. Repayment for these types of loans will come from a borrower’s income
sources that are typically independent of the loan purpose. Credit risk is driven by consumer economic factors (such as
unemployment and general economic conditions in the Bank’s market area) and the creditworthiness of a borrower.
The following table provides information about the credit quality of the loan portfolio using the Bank’s internal
rating system as of December 31, 2012 and 2011:
As of December 31, 2012
Construction
Commercial
Real Estate
One to four
family
Multi-
family
(In Thousands)
Commercial
Consumer
and Other
Total
Rating:
Pass
$
Special Mention
Substandard
Doubtful
Total
$
35,775 $ 156,448 $
6,868
5,581
693
4,976
6,337
-
48,917 $ 167,761 $
94,209 $
1,636
3,507
30
99,382 $
45,133 $
1,272
-
-
46,405 $
88,230 $
2,255
4,742
-
95,227 $
15,840 $
93
784
-
16,717 $
435,635
17,100
20,951
723
474,409
As of December 31, 2011
Construction
Commercial
Real Estate
One to four
family
Multi-
family
(In Thousands)
Commercial
Consumer
and Other
Total
Rating:
Pass
$
Special Mention
Substandard
Total
$
27,646 $ 162,019 $
6,372
10,894
44,912 $ 194,856 $
20,406
12,431
91,503 $
3,214
3,314
98,031 $
42,668 $
498
-
43,166 $
80,529 $
2,183
5,376
88,088 $
19,522 $
309
927
20,758 $
423,887
32,982
32,942
489,811
The weighted average interest rate on loans as of December 31, 2012 and 2011 was 5.89% and 5.82%,
respectively.
41
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
The Bank serviced mortgage loans for others amounting to $184,045 and $199,256 as of December 31, 2012
and 2011, respectively. The Bank serviced commercial loans for others amounting to $2,046,506 and $4,143,374 as of
December 31, 2012 and 2011, respectively.
NOTE 4: PREMISES AND EQUIPMENT
Major classifications of premises and equipment, stated at cost, are as follows:
Land
Buildings and improvements
Automobile
Furniture, fixtures and equipment
Leasehold improvements
Less accumulated depreciation
Net premises and equipment
December 31, December 31,
2012
2,250,789 $
11,812,386
16,479
9,000,767
271,799
23,352,220
(12,065,810)
11,286,410 $
2011
2,250,789
11,860,040
16,479
8,343,157
271,799
22,742,264
(11,318,442)
11,423,822
$
$
Depreciation expense was $747,368, $717,222 and $826,440 for the years ended December 31, 2012, 2011, and
2010, respectively.
NOTE 5: BANK OWNED LIFE INSURANCE
In October 2009 and February 2012, the Company purchased Bank owned life insurance on certain key
members of management, in the amounts of $10 million and $2.5 million, respectively. Such policies are recorded at
their cash surrender value, or the amount that can be realized. The increase in cash surrender value in excess of the
single premium paid is reported as other noninterest income. The balance at December 31, 2012 and 2011 was
$13,657,480 and $10,770,887, respectively.
NOTE 6: INVESTMENTS IN AFFORDABLE HOUSING PARTNERSHIPS
The Company has purchased investments in limited partnerships that were formed to operate low-income
housing apartment complexes and single-family housing units throughout Missouri. The investments are accounted for
under the cost method as the Company does not have the ability to exert significant influence over the partnerships. For
a minimum 15 year compliance period, each partnership must adhere to affordable housing regulatory requirements in
order to maintain the utilization of the tax credits. At December 31, 2012 and 2011, the net carrying values of the
Company’s investments in these entities was $5,355,254 and $6,249,021, respectively, and are included in other assets
on the Company’s Consolidated Balance Sheets.
The Company received federal tax credits of $839,532, $806,324 and $551,000 during 2012, 2011 and 2010,
respectively. Amortization of the investment costs was $885,478, $676,700 and $480,322 during 2012, 2011 and 2010,
respectively.
42
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
NOTE 7: DEPOSITS
Deposits are comprised of the following at December 31, 2012 and 2011:
December 31, 2012
December 31, 2011
Weighted
Average
Rate
Balance
Percentage
of
Deposits
Weighted
Average
Rate
Balance
Percentage
of
Deposits
Demand
NOW
Money market
Savings
Certificates:
0% - 1.99%
2.00% - 3.99%
4.00% - 6.00%
Total Deposits
0.00 % $ 48,862,874
0.41 % 86,422,323
0.63 % 191,054,957
0.14 % 23,659,368
0.45 % 349,999,522
0.93 % 139,257,653
2.59 % 7,049,432
5.03 % 3,708,108
1.11 % 150,015,193
0.65 % $ 500,014,715
9.8%
17.3%
38.2%
4.7%
70.0%
27.9%
1.4%
0.7%
30.0%
100.0%
0.00% $ 56,315,467
0.56% 81,804,342
0.77% 169,759,166
0.44% 21,295,855
0.56% 329,174,830
1.08% 127,813,801
2.88% 15,059,924
5.05% 12,535,110
1.57% 155,408,835
0.89% $484,583,665
11.6%
16.9%
35.0%
4.4%
67.9%
26.4%
3.1%
2.6%
32.1%
100.0%
The aggregate amount of certificates of deposit with a minimum balance of $100,000 was approximately
$71,780,000 and $63,823,000, as of December 31, 2012 and 2011, respectively.
A summary of certificates of deposit by maturity as of December 31, 2012, is as follows:
2013
2014
2015
2016
2017
Thereafter
$ 90,458,398
32,391,050
14,397,163
7,192,495
5,067,428
508,659
$150,015,193
A summary of interest expense on deposits is as follows:
Years ended
December 31,
2011
2010
2012
NOW and Money Market accounts
Savings accounts
Certificate accounts
Early withdrawal penalties
$
$
2,011,796 $
80,968
1,999,060
(15,630)
4,076,194 $
2,580,341 $
118,432
3,099,265
(19,775)
5,778,263 $
3,968,205
140,382
5,536,701
(17,155)
9,628,133
43
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
The Bank utilizes brokered deposits as an additional funding source. The aggregate amount of brokered
deposits was approximately $49,072,000 and $22,229,000 as of December 31, 2012 and 2011, respectively.
NOTE 8: BORROWINGS
Federal Home Loan Bank Advances
Federal Home Loan Bank advances consist of the following:
Maturity Date
2013
2015
2018
2019
December 31, 2012
December 31, 2011
Amount
15,700,000
250,000
50,000,000
2,100,000
68,050,000
$
Weighted
Average Rate
2.14%
4.66%
2.14%
4.87%
2.23% $
Amount
15,700,000
250,000
50,000,000
2,100,000
68,050,000
Weighted
Average Rate
2.14%
4.66%
2.14%
4.87%
2.23%
The FHLB requires the Bank to maintain collateral in relation to outstanding balances of advances. For
collateral purposes, the FHLB values mortgage loans free of other pledges, liens and encumbrances at 80% of their fair
value, and investment securities free of other pledges, liens and encumbrances at 95% of their fair value. Based on
existing collateral as well as the FHLB’s limitation of advances to 25% of assets, the Bank has the ability to borrow an
additional $64.6 million from the FHLB, as of December 31, 2012.
Federal Reserve Bank Borrowings
During 2008, the Bank established a borrowing line with the Federal Reserve Bank. The Bank has the ability to
borrow $30.9 million as of December 31, 2012. The Federal Reserve Bank requires the Bank to maintain collateral in
relation to borrowings outstanding. The Bank had no borrowings outstanding on this line as of December 31, 2012 and
2011.
Securities Sold Under Agreements to Repurchase
The Company borrowed $9.8 million under a structured repurchase agreement in September 2007. Effective in
September 2009, interest was based on a fixed rate of 3.56% until maturity in September 2014. The counterparty,
Barclay’s Capital, Inc., had the option to terminate the agreement on a quarterly basis until maturity date. Prior to the
stated maturity date, the Company paid off this agreement in November 2011.
The Company borrowed $30.0 million under three structured repurchase agreements in January 2008. Interest
is based on a fixed weighted average rate of 2.65% until maturity in January 2018. Beginning in February 2010, the
counterparty, Barclay’s Capital, Inc., has the option to terminate the agreements on a quarterly basis until maturity. Prior
to the stated maturity date, the Company paid off one of these agreements in the amount of $5.0 million in November
2011.
The Company has pledged certain investment securities with a fair value of $29.9 million and $32.2 million as
of December 31, 2012 and 2011, respectively, to these repurchase agreements.
44
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
NOTE 9: SUBORDINATED DEBENTURES
During 2005, the Company formed two wholly owned grantor trust subsidiaries, Guaranty Statutory Trust I and
Guaranty Statutory Trust II, to issue preferred securities representing undivided beneficial interests in the assets of the
trusts and to invest the gross proceeds of the preferred securities in notes of the Company. Trust I issued $5,000,000 of
preferred securities and Trust II issued $10,000,000 of preferred securities. The sole assets of Trust I were originally
$5,155,000 aggregate principal amount of the Company’s fixed rate subordinated debenture notes due 2036, which are
redeemable beginning in 2011. The sole assets of Trust II were originally $10,310,000 aggregate principal amount of
the Company’s fixed/variable rate subordinated debenture notes due 2036, which are redeemable beginning in
2011. Trust II subordinated debenture notes bear interest at a fixed rate for five years and thereafter at a floating rate
based on LIBOR. The preferred securities qualify as either Tier I or Tier II capital for regulatory purposes, subject to
certain limitations.
NOTE 10: INCOME TAXES
As of December 31, 2012 and 2011, retained earnings included approximately $5,075,000 for which no
deferred income tax liability has been recognized. This amount represents an allocation of income to bad debt
deductions for tax purposes only. Reduction of amounts so allocated for purposes other than tax bad debt losses or
adjustments arising from carryback of net operating losses would create income for tax purposes only, which would be
subject to the then current corporate income tax rate. The unrecorded deferred income tax liability on the above amount
was approximately $1,878,000 as of both December 31, 2012 and 2011.
The provision (credit) for income taxes consists of:
Taxes currently payable
Deferred income taxes
Years Ended
December 31,
2011
2010
2012
$
$
(292,122) $
160,784
(131,338) $
(246,017) $
949,122
703,105 $
160,989
(217,737)
(56,748)
45
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
The tax effects of temporary differences related to deferred taxes shown on the December 31, 2012 and 2011
balance sheets are:
Deferred tax assets:
Allowances for loan losses
Writedowns on foreclosed assets held for sale
State low income housing tax credits
Federal low income housing tax and other credits
Deferred loan fees/costs
Other
Deferred tax liabilities:
FHLB stock dividends
Unrealized appreciation on available-for-sale securities
Accumulated depreciation
Other
Deferred tax asset before valuation allowance
Valuation allowance:
Beginning balance
Decrease from sale of state low income housing tax credits
Increase for state low income housing tax credits generated
Ending balance
Net deferred tax asset
December 31,
2012
December 31,
2011
$
3,233,920 $
897,297
1,645,379
740,276
50,481
241,658
6,809,011
(120,632)
(470,326)
(175,448)
(77,298)
(843,704)
5,965,307
3,926,864
589,773
1,708,621
478,223
87,898
241,658
7,033,037
(120,632)
(473,711)
(175,448)
(68,310)
(838,101)
6,194,936
(1,708,621)
375,415
(312,173)
(1,645,379)
4,319,928 $
(1,476,757)
-
(231,864)
(1,708,621)
4,486,315
$
A reconciliation of income tax expense at the statutory rate to income tax expense at the Company’s effective
rate is shown below:
Computed at statutory rate
Increase (reduction) in taxes resulting from:
State financial institution tax and credits
ESOP
Cash surrender value of life insurance
Valuation allowance
Other
Actual tax provision (credit)
Years ended December 31,
2012
2011
2010
34.0%
34.0%
34.0%
(33.1%)
(3.3%)
(7.9%)
(3.5%)
6.6%
(7.2%)
(17.8%)
(5.6%)
(7.1%)
5.1%
6.9%
15.5%
(83.7%)
(4.4%)
(8.0%)
64.3%
(7.5%)
(5.3%)
46
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
NOTE 11: DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES
ASC Topic 820, Fair Value Measurements, defines fair value as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Topic 820
also specifies a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the
use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to
measure fair value:
Level 1: Quoted prices in active markets for identical assets or liabilities
Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or liabilities
Level 3: Unobservable inputs supported by little or no market activity and are significant to the fair value of the
assets or liabilities
The following is a description of the inputs and valuation methodologies used for assets measured at fair value
on a recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such
assets pursuant to the valuation hierarchy.
Available-for-sale securities: Where quoted market prices are available in an active market, securities are classified
within Level 1 of the valuation hierarchy. Level 1 securities include equity securities. If quoted market prices are not
available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics
or discounted cash flows. Level 2 securities include U.S. government agencies and government sponsored mortgage-
backed securities. The Company has no Level 3 securities.
The following table presents the fair value measurements of assets recognized in the accompanying balance
sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value
measurements fall at December 31, 2012 and 2011 (dollar amounts in thousands):
As of December 31, 2012
Financial assets:
Equity securities:
Other
Debt securities:
Level 1
inputs
Level 2
inputs
Level 3
inputs
Total fair
value
$
71 $
- $
- $
-
-
-
-
- $
71
38,351
1,908
10,378
51,273
101,981
U.S. government agencies
U.S. corporate
Municipals
Government sponsored mortgage-backed
securities
Available-for-sale securities
$
-
-
-
38,351
1,908
10,378
-
71 $
51,273
101,910 $
47
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
As of December 31, 2011
Financial assets:
Equity securities:
Other
Debt securities:
Level 1
inputs
Level 2
inputs
Level 3
inputs
Total fair
value
$
62 $
- $
U.S. government agencies
U. S. treasuries
Municipals
Government sponsored mortgage-backed securities
Available-for-sale securities
$
-
2,043
-
-
2,105 $
34,727
-
4,144
40,089
78,960 $
- $
-
-
-
-
- $
62
34,727
2,043
4,144
40,089
81,065
The following is a description of the valuation methodologies used for assets measured at fair value on a
nonrecurring basis and recognized in the accompanying balance sheets, as well as the general classification of such
assets pursuant to the valuation hierarchy.
Foreclosed Assets Held for Sale: Fair value is estimated using recent appraisals, comparable sales and other estimates
of value obtained principally from independent sources, adjusted for selling costs. Foreclosed assets held for sale are
classified within Level 3 of the valuation hierarchy.
Impaired loans (Collateral Dependent): Loans for which it is probable that the Company will not collect all principal
and interest due according to contractual terms are measured for impairment. Allowable methods for determining the
amount of impairment include estimating fair value using the fair value of the collateral for collateral dependent loans.
If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of
impairment is utilized. This method requires obtaining a current independent appraisal of the collateral and applying a
discount factor to the value. Impaired loans that are collateral dependent are classified within Level 3 of the fair value
hierarchy when impairment is determined using the fair value method.
The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis
and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2012 and 2011
(dollar amounts in thousands):
Impaired loans:
December 31, 2012
December 31, 2011
Foreclosed assets held for sale:
December 31, 2012
December 31, 2011
Level 1
inputs
Level 2
inputs
Level 3
inputs
Total fair
value
- $
- $
- $
10,557 $
10,557
- $
11,243 $
11,243
Level 1
inputs
Level 2
inputs
Level 3
inputs
Total fair
value
- $
- $
- $
- $
3,883 $
3,883
3,626 $
3,626
$
$
$
$
There were no transfers between valuation levels for any asset during the years ended December 31, 2012 or
2011. If valuation techniques are deemed necessary, the Company considers those transfers to occur at the end of the
period when the assets are valued.
48
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
The following table presents quantitative information about unobservable inputs used in nonrecurring Level 3
fair value measurements (dollar amounts in thousands):
Impaired loans
(collateral dependent)
Impaired loans
$
$
Fair Value
December 31,
2012
Valuation Technique
9,022 Market Comparable
Unobservable Input
Discount to reflect
realizable value
Range
(Weighted Average)
0% - 100% (5%)
1,535 Discounted cash flow
Discount rate
0% - 17% (17%)
Foreclosed assets held for sale
$
3,883 Market Comparable
Discount to reflect
realizable value
0% - 44% (15%)
The following methods were used to estimate the fair value of all other financial instruments recognized in the
accompanying balance sheets at amounts other than fair value.
Cash and cash equivalents, interest-bearing deposits and Federal Home Loan Bank stock
The carrying amounts reported in the balance sheets approximate those assets' fair value.
Held-to-maturity securities
Fair value is based on quoted market prices, if available. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.
Loans
The fair value of loans is estimated by discounting the future cash flows using the market rates at which similar
loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar
characteristics were aggregated for purposes of the calculations. The carrying amount of accrued interest approximates
its fair value.
Deposits
Deposits include demand deposits, savings accounts, NOW accounts and certain money market deposits. The
carrying amount approximates fair value. The fair value of fixed-maturity certificates of deposit is estimated by
discounting the future cash flows using rates currently offered for deposits of similar remaining maturities.
Federal Home Loan Bank advances and securities sold under agreements to repurchase
The fair value of advances and securities sold under agreements to repurchase is estimated by using rates on
debt with similar terms and remaining maturities.
Subordinated debentures and notes payable
For these variable rate instruments, the carrying amount is a reasonable estimate of fair value. There is
currently a limited market for similar debt instruments and the Company has the option to call the subordinated
debentures at an amount close to its par value.
Interest payable
The carrying amount approximates fair value.
Commitments to originate loans, letters of credit and lines of credit
The fair value of commitments to originate loans is estimated using the fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreements and the present credit worthiness of the
counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of
interest rates and the committed rates. The fair value of letters of credit and lines of credit is based on fees currently
charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the
counterparties at the reporting date.
49
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
The following table presents estimated fair values of the Company’s financial instruments at December 31,
2012 and 2011.
December 31, 2012
Fair
Value
Carrying
Amount
Hierarchy
Level
December 31, 2011
Fair
Value
Carrying
Amount
Hierarchy
Level
Financial assets:
Cash and cash equivalents
Interest-bearing deposits
Held-to-maturity securities
Federal Home Loan Bank
stock
Mortgage loans held for sale
Loans, net
Interest receivable
Financial liabilities:
Deposits
Federal Home Loan Bank
advances
Securities sold under
agreements to repurchase
Subordinated debentures
Interest payable
$ 41,663,405 $ 41,663,405
-
-
193,482
181,042
1 $ 26,574,082 $ 26,574,082
5,587,654 5,587,654
-
235,574
2
218,571
3,805,500
3,805,500
2,843,757
2,843,757
465,531,973 475,374,676
2,055,369
2,055,369
3,846,900 3,846,900
2
2
3,702,849 3,702,849
3 478,960,736 485,714,408
2,139,320 2,139,320
2
500,014,715 500,580,070
2 484,583,665 485,803,947
68,050,000 72,035,160
2 68,050,000 70,815,606
25,000,000 25,114,464
15,465,000 15,465,000
399,684
399,684
2 25,000,000 25,025,344
3 15,465,000 15,465,000
518,881
2
518,881
Unrecognized financial
instruments (net of contractual
value):
Commitments to extend credit
Unused lines of credit
-
-
-
-
-
-
-
-
-
-
1
2
2
2
2
3
2
2
2
2
3
2
-
-
NOTE 12: SIGNIFICANT ESTIMATES AND CONCENTRATIONS
Accounting principles generally accepted in the United States of America require disclosure of certain
significant estimates and current vulnerabilities due to certain concentrations. Estimates related to the allowance for loan
losses are reflected in the footnote regarding loans. Current vulnerabilities due to certain concentrations of credit risk are
discussed in the footnote regarding loans.
The current protracted economic decline continues to present financial institutions with circumstances and
challenges which in some cases have resulted in large declines in the fair values of investments and other assets,
constraints on liquidity and significant credit quality problems, including severe volatility in the valuation of real estate
and other collateral supporting loans. The financial statements have been prepared using the values and information
currently available to the Company.
Given the volatility of current economic conditions, the values of assets and liabilities recorded in the financial
statements could change rapidly, resulting in material future adjustments in asset values, the allowance for loan losses, or
capital that could negatively impact the Company’s ability to meet regulatory capital requirements and maintain
sufficient liquidity. Furthermore, the Company’s regulators could require material adjustments to asset values or the
allowance for loan losses for regulatory capital purposes that could affect the Company’s measurement of regulatory
capital and compliance with the capital adequacy guidelines under the regulatory framework for prompt corrective
action.
50
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
NOTE 13: EMPLOYEE BENEFIT PLANS
Equity Plans
On May 26, 2010, the Company’s stockholders voted to approve the Guaranty Federal Bancshares, Inc. 2010
Equity Plan (the ”Plan”). The Plan provides for the grant of up to 200,000 shares of Common Stock under equity awards
including stock options, stock awards, restricted stock, stock appreciation rights, performance units, or other equity-
based awards payable in cash or stock to key employees and directors of the Company and the Bank. As of December
31, 2012, non-incentive stock options for 25,000 shares and restricted stock for 62,785 shares of Common Stock have
been granted under the Plan.
In addition, the Company established four stock option plans for the benefit of certain directors, officers and
employees of the Company and its subsidiary. A committee of the Company’s Board of Directors administers the
plans. The stock options under these plans may be either incentive stock options or nonqualified stock
options. Incentive stock options can be granted only to participants who are employees of the Company or its
subsidiary. The option price must not be less than the market value of the Company stock on the date of grant. All
options expire no later than ten years from the date of grant. The options vest at the rate of 20% per year over a five-
year period.
The table below summarizes transactions under the Company’s stock option plans:
Number of shares
Balance outstanding as of January 1, 2010
Granted
Exercised
Forfeited
Balance outstanding as of December 31, 2010
Granted
Exercised
Forfeited
Balance outstanding as of December 31, 2011
Granted
Exercised
Forfeited
Balance outstanding as of December 31, 2012
Options exercisable as of December 31, 2012
Incentive
Stock Option
148,750
46,000
-
-
194,750
-
-
(10,250)
184,500
-
(2,003)
(7,997)
174,500
130,900
Non-Incentive
Stock Option
Weighted
Average
Exercise Price
19.40
5.24
-
10.50
16.14
-
-
17.51
16.09
6.18
6.18
16.38
18.95
136,704 $
45,000
-
(10,875)
170,829
-
-
(3,829)
167,000
-
-
-
167,000 $
131,000 $
As of December 31, 2012, total outstanding stock options of 341,500 had a remaining contractual life of 3.55
years.
The total intrinsic value of outstanding stock options was $0 at both December 31, 2012 and 2011 and the total
intrinsic value of outstanding exercisable stock options was $0 at both December 31, 2012 and 2011. The total fair
value of share awards vested was $306,950 and $237,525 during 2012 and 2011, respectively.
51
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
There were no options granted during the years ended December 31, 2012 and 2011. The fair value of each
option granted is estimated on the date of the grant using the Black-Scholes pricing model with the following weighted-
average assumptions for 2010.
Dividends per share
Risk-free interest rate
Expected life of options (years)
Weighted-average volatility
Weighted-average fair value of options granted during year
$
$
-
2.15%
5
42.62%
2.04
December 31,
2010
In January 2012 and 2011, the Company granted restricted stock to directors that was fully vested and thus,
expensed in full during the year ended December 31, 2012 and 2011, respectively. The amount expensed of $110,009
and $100,017 for 2012 and 2011, respectively, represents 18,520 and 16,952 shares of common stock at a market price
of $5.94 and $5.90, respectively, at the date of grant.
During 2012, the Company granted 27,313 shares of restricted stock to officers that have a cliff vesting at the
end of two years, except for the CEO, who has a three year cliff vesting. The expense is being recognized over the
applicable vesting period. The amount expensed during 2012 was $79,330.
Total stock-based compensation expense is comprised of expense for restricted stock awards and stock
options. Expense recognized for the years ended December 31, 2012, 2011 and 2010 was $253,017, $186,654 and
$109,386, respectively. As of December 31, 2012, there was $82,892 of unrecognized compensation expense related to
nonvested stock options and $119,951 of unrecognized compensation expense related to nonvested restricted stock
awards, which will be recognized over the remaining vesting periods.
Employee Stock Ownership Plan
The Bank sponsors an internally-leveraged Employee Stock Ownership Plan (ESOP). All employees are
eligible to participate after they attain age twenty-one and complete twelve consecutive months of service during which
they work at least 1,000 hours. The ESOP borrowed $3,444,540 from the Company and purchased 344,454 shares of the
common stock of the Company. The ESOP debt is secured by shares of the Company. The loan will be repaid from
contributions to the ESOP as approved annually by the Bank’s Board of Directors. As the debt is repaid, shares are
released from collateral and allocated to employees’ accounts. The shares pledged as collateral are reported as unearned
ESOP shares in the consolidated balance sheets. When shares are committed for release, the shares become outstanding
for earnings per share computations. Dividends on allocated ESOP shares are recorded as a reduction of retained
earnings and may be paid directly to participants or credited to their account; dividends are not paid on unallocated
ESOP shares. Compensation expense is recognized ratably based on the average fair value of shares committed to be
released. Compensation expense attributed to the ESOP was $153,848, $126,737 and $100,014 for the years ended
December 31, 2012, 2011 and 2010, respectively.
The following is a summary of ESOP shares as of December 31, 2012:
Beginning ESOP shares
Released shares
Shares committed for release
Unreleased shares
Fair value of unreleased shares
344,454
(321,836)
(22,618)
-
-
Effective December 31, 2012, the Company’s Board of Directors approved to terminate the ESOP after all
shares had been allocated to employees. Subject to approval from the Internal Revenue Service, the plan will be
terminated, all employee accounts will become fully vested and the plan shares will be distributed.
52
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
NOTE 14: DERIVATIVE FINANCIAL INSTRUMENTS
The Company recorded all derivative financial instruments at fair value in the financial statements. Derivatives
were used as a risk management tool to hedge the exposure to changes in interest rates or other identified market risks.
When a derivative is intended to be a qualifying hedged instrument, the Company prepares written hedge
documentation that designates the derivative as 1) a hedge of fair value of a recognized asset or liability (fair value
hedge) or 2) a hedge of a forecasted transaction, such as, the variability of cash flows to be received or paid related to a
recognized asset or liability (cash flow hedge). The written documentation includes identification of, among other items,
the risk management objective, hedging instrument, hedged item, and methodologies for assessing and measuring hedge
effectiveness and ineffectiveness, along with support for management’s assertion that the hedge will be highly effective.
On November 7, 2008, the Company elected to terminate three interest rate swap agreements with a total
notional value of $90 million. At termination, the swaps had a market value (gain) of approximately $1.7 million. The
gain was deferred and was accreted into income. The Company recognized $508,746 of this gain in 2010. As of June
30, 2010, the original gain at termination was fully accreted into income in accordance with the stated maturity date of
the original agreement.
NOTE 15: PREFERRED STOCK AND COMMON STOCK WARRANTS
On January 30, 2009, as part of the U.S. Department of the Treasury's Troubled Asset Relief Program's Capital
Purchase Program (“CPP”), the Company entered into a Securities Purchase Agreement - Standard Terms with the
United States Department of the Treasury (the "Treasury") pursuant to which the Company sold to the Treasury 17,000
shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the "Series A Preferred Stock") and issued a ten
year warrant (the "Warrant") to purchase 459,459 shares of the Company's common stock (the "Common Stock") for
$5.55 per share (the "Warrant Shares") for a total purchase price of $17.0 million (the "Transaction").
The Series A Preferred Stock qualifies as Tier 1 capital and is entitled to cumulative preferred dividends at a
rate of 5% per year for the first five years, payable quarterly, and 9% thereafter. The Series A Preferred Stock has a
liquidation preference of $1,000 per share, plus accrued and unpaid dividends. The failure by the Company to pay a
total of six quarterly dividends, whether or not consecutive, gives the holders of the Series A Preferred Stock the right to
elect two directors to the Company's Board of Directors.
On June 13, 2012, with regulatory approval, the Company redeemed $5 million of the Series A Preferred Stock,
including accrued and unpaid dividends of $19,444. The Company may redeem additional shares of the Series A
Preferred Stock for $1,000 per share, plus accrued and unpaid dividends, in whole or in part, subject to regulatory
approval.
The Company filed a Registration Statement on Form S-1 with the Securities and Exchange Commission during
the third quarter of 2012. The purpose of the filing had been to register the offering by Treasury in an auction of the
remaining $12.0 million of the Series A Preferred Stock following the June redemption. Pursuant to the agreement
under which the Series A Preferred Stock had been sold to Treasury, Treasury had the right to compel the Company to
register the sale by Treasury of all or any portion of the Series A Preferred Stock. After the auction terminated in
accordance with its terms, Treasury decided not to accept the two bids submitted offering to purchase a portion of the
Series A Preferred Stock for 92% of their liquidation value. Accordingly, Treasury continues to own all of the issued
and outstanding $12.0 million of Series A Preferred Stock and the Warrant.
The Warrant is exercisable immediately upon issuance and expires in ten years. The Warrant has anti-dilution
protections and certain other protections for the holder of the Warrant, as well as potential registration rights upon
written request from the Treasury. The Treasury has agreed not to exercise voting rights with respect to the Warrant
Shares that it may acquire upon exercise of the Warrant. If the Series A Preferred Stock is redeemed in whole, the
Company has the right to purchase any shares of the Common Stock held by the Treasury at their fair market value at
that time.
53
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
The Company is subject to certain contractual restrictions under the CPP and the Certificate of Designations for
the Series A Preferred Stock that could prohibit the Company from declaring or paying dividends on its common stock
or the Series A Preferred Stock.
The proceeds from the CPP were allocated between the Series A Preferred Stock and the Warrant based on a
fair value assigned using a discounted cash flow model. This resulted in an initial value of $15,622,189 for the Series A
Preferred Stock and $1,377,811 for the Warrants. The discount of approximately $1.4 million on the Series A Preferred
Stock is being accreted over the straight-line method (which approximates the level-yield method) over five years ending
February 28, 2014.
On February 17, 2009, the American Recovery and Reinvestment Act of 2009 (the “ARRA”) was signed into
law. The ARRA imposes certain additional executive compensation and corporate expenditure limits on all current and
future CPP recipients. These limits are in addition to those previously imposed by the Treasury under the Emergency
Economic Stabilization Act of 2008 (the “EESA”). The Treasury released an interim final rule (the “IFR”) on TARP
standards for compensation and corporate governance on June 10, 2009, which implemented and further expanded the
limitations and restrictions imposed by EESA and ARRA. The IFR applies to the Company as of the date of publication
in the Federal Register on June 15, 2009, but was subject to comment which ended on August 14, 2009. The Treasury
has not yet published a final version of the IFR.
As a result of the Company’s participation in the CPP, the restrictions and standards established under EESA
and ARRA are applicable to the Company. Neither the ARRA nor the EESA restrictions shall apply to any CPP
recipient, including the Company, at such time that the federal government no longer holds any of the Company’s Series
A Preferred Stock.
NOTE 16: OTHER EXPENSES
Other expenses for the years ended December 31, 2012, 2011 and 2010 were as follows:
Directors compensation
Outside services
Legal expense
Deposit expense
Office supplies
Telephone
Postage
Insurance
Supervisory exam
Accounting
Organization dues
Loan expense
Mortgage buyback
Contributions
ATM expense
Federal and state tax credits amortization
Other operating
December 31,
2012
December 31,
2011
December 31,
2010
$
235,478 $
62,675
471,363
219,778
81,814
114,182
157,986
87,436
57,109
256,850
118,653
239,701
147,119
40,000
231,893
885,478
400,527
215,980 $
55,000
628,444
73,712
94,002
116,826
165,837
74,287
58,609
149,475
118,568
307,021
-
40,118
219,329
676,700
517,036
178,376
55,000
444,904
44,864
109,424
107,738
172,792
68,628
60,115
165,000
114,037
427,775
-
40,140
200,224
480,322
544,083
$
3,808,042 $
3,510,944 $
3,213,422
54
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
NOTE 17: RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Bank has granted loans to executive officers and directors and their
affiliates. Annual activity consisted of the following:
Year ended December 31,
2011
2010
2012
Balance, beginning of year
New Loans
Repayments
$ 5,794,896 $ 5,982,120 $ 6,829,498
-
(847,378)
650,095
(837,319)
464,400
(164,288)
Balance, end of year
$ 6,095,008 $ 5,794,896 $ 5,982,120
In management's opinion, such loans and other extensions of credit and deposits were made in the ordinary
course of business and were made on substantially the same terms as those prevailing at the time for comparable
transactions with other persons. Further, in management's opinion, these loans did not involve more than normal risk of
collectability or present other unfavorable features.
NOTE 18: COMMITMENTS AND CREDIT RISK
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since a portion of the commitments may expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension
of credit, is based on management's credit evaluation of the counterparty. Collateral held varies but may include
accounts receivable, inventory, property and equipment, commercial real estate and residential real estate.
As of December 31, 2012 and 2011, the Bank had outstanding commitments to originate fixed-rate mortgage
loans of approximately $9,217,000 and $10,955,000, respectively. The commitments extend over varying periods of
time with the majority being disbursed within a thirty-day period.
Standby letters of credit are irrevocable conditional commitments issued by the Bank to guarantee the
performance of a customer to a third party. Financial standby letters of credit are primarily issued to support public and
private borrowing arrangements, including commercial paper, bond financing and similar transactions. Performance
standby letters of credit are issued to guarantee performance of certain customers under non-financial contractual
obligations. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in
extending loans to customers. Fees for letters of credit are initially recorded by the Bank as deferred revenue and are
included in earnings at the termination of the respective agreements. Should the Bank be obligated to perform under the
standby letters of credit, the Bank may seek recourse from the customer for reimbursement of amounts paid.
The Bank had total outstanding standby letters of credit amounting to $13,930,000 and $14,233,000 as of
December 31, 2012 and 2011, respectively, with terms ranging from 1 year to 5 years.
The Bank has confirming letters of credit from the FHLB issued to enhance Bank issued letters of credit
granted to various customers for industrial revenue bond issues. As of December 31, 2012 and 2011, these letters of
credit aggregated approximately $9,934,000 and $10,656,000.
55
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
Lines of credit are agreements to lend to a customer as long as there is no violation of any condition established
in the contract. Lines of credit generally have fixed expiration dates. Since a portion of the line may expire without
being drawn upon, the total unused lines do not necessarily represent future cash requirements. Each customer's credit
worthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on
management's credit evaluation of the counterparty. Collateral held varies but may include accounts receivable,
inventory, property and equipment, commercial real estate and residential real estate. Management uses the same credit
policies in granting lines of credit as it does for on balance sheet instruments.
As of December 31, 2012 and 2011, unused lines of credit to borrowers aggregated approximately $33,897,000
and $36,931,000, respectively, for commercial lines and $15,306,000 and $17,625,000, respectively, for open-end
consumer lines.
NOTE 19: CONDENSED PARENT COMPANY STATEMENTS
The condensed balance sheets as of December 31, 2012 and 2011, and statements of income and cash flows for
the years ended December 31, 2012, 2011 and 2010 for the parent company, Guaranty Federal Bancshares, Inc., are as
follows:
Balance Sheets
Assets
Cash
Available-for-sale securities
Due from subsidiary
Investment in subsidiary
Investment in Capital Trust I & II
Prepaid expenses and other assets
Refundable income taxes
Deferred income taxes
Liabilities
Subordinated debentures
Accrued expenses and other liabilities
Stockholders' equity
Series A preferred stock
Common stock
Common stock warrants
Additional paid-in capital
Unearned ESOP shares
Retained earnings
Unrealized appreciation on available-for-sale securities, net
Treasury stock
December 31,
2012
2011
681,509 $
70,914
20,795
64,069,125
465,000
35,579
1,152,319
2,592
781,432
62,262
21,295
67,649,693
465,000
183,508
717,319
5,793
66,497,833 $ 69,886,302
15,465,000 $ 15,465,000
186,455
164,263
16,425,912
11,789,276
677,980
678,180
1,377,811
1,377,811
58,333,614
58,267,529
(204,930)
-
38,456,991
39,324,292
791,285
800,826
(61,369,344)
(61,623,816)
66,497,833 $ 69,886,302
$
$
$
$
56
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
Statements of Income
Income
Dividends from subsidiary bank
Interest income:
Related party
Other
Expense
Interest expense:
Related party
Other
Income (loss) before income taxes and equity in undistributed
income (loss) of subsidiaries
Credit for income taxes
Income (loss) before equity in undistributed earnings of
Years ended December 31,
2011
2012
2010
$
6,500,000 $
1,000,000 $
-
8,471
19,510
6,527,981
14,753
18,369
1,033,122
25,933
30,783
56,716
556,159
878,305
1,434,464
610,929
462,971
1,073,900
1,023,783
463,502
1,487,285
5,093,517
(435,000)
(40,778)
(349,000)
(1,430,569)
(480,000)
subsidiaries
5,528,517
308,222
(950,569)
Equity in undistributed income (distribution in excess of income)
of subsidiaries
Net income
(3,584,658)
1,943,859 $
3,527,417
3,835,639 $
2,081,340
1,130,771
$
57
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
Statements of Cash Flows
Cash Flows From Operating Activities
Net income
Items not requiring (providing) cash:
(Equity in undistributed income) distributions in excess of
income of subsidiaries
Deferred income taxes
Release of ESOP shares
Stock award plan expense
Changes in:
Prepaid expenses and other assets
Income taxes payable/refundable
Accrued expenses
Net cash provided by (used in) operating activities
Cash Flows From Financing Activities
Stock options exercised
Cash dividends paid on common and preferred stock
Treasury stock purchased
Repayment of advances from subsidiary
Redemption of preferred stock
Net cash used in financing activities
Decrease in cash
Cash, beginning of year
Cash, end of year
Years ended December 31,
2011
2012
2010
$
1,943,859 $
3,835,639 $
1,130,771
3,584,658
-
153,848
253,017
147,929
(435,000)
9,058
5,657,369
12,388
(744,444)
(25,736)
500
(5,000,000)
(5,757,292)
(3,527,417)
38,834
126,737
186,654
(2,081,340)
-
100,014
109,386
104,176
(217,833)
(59,682)
487,108
-
(850,000)
(53,230)
-
-
(903,230)
103,787
(104,143)
(18,376)
(759,901)
-
(850,000)
(6,540)
900
-
(855,640)
(99,923)
(416,122)
(1,615,541)
781,432
1,197,553
2,813,094
$
681,509 $
781,431 $
1,197,553
58
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
Statements of Comprehensive Income
$
NET INCOME
OTHER ITEMS OF COMPREHENSIVE INCOME (LOSS):
Change in unrealized gain on investment securities available-
for-sale, before income taxes
Income tax expense (credit) related to other items of
comprehensive income
Other comprehensive income (loss)
Comprehensive income (loss) of Bank
TOTAL COMPREHENSIVE INCOME
$
Years ended December 31,
2011
3,835,639 $
2012
1,943,859 $
2010
1,130,771
8,652
(15,658)
12,872
3,200
5,452
4,089
1,953,400 $
(5,794)
(9,864)
(1,041,855)
2,783,920 $
4,763
8,109
138,393
1,277,273
59
Report of Independent Registered Public Accounting Firm
Audit Committee, Board of Directors and Stockholders
Guaranty Federal Bancshares, Inc.
Springfield, Missouri
We have audited the accompanying consolidated balance sheets of Guaranty Federal Bancshares, Inc. as
of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive
income, stockholders’ equity and cash flows for each of the years in the three-year period ended
December 31, 2012. The Company’s management is responsible for these financial statements. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
Our audits included consideration of internal control over financial reporting as a basis for designing
auditing procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we
express no such opinion. Our audits also included examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Guaranty Federal Bancshares, Inc. as of December 31, 2012 and 2011,
and the results of its operations and its cash flows for each of the years in the three-year period ended
December 31, 2012, in conformity with accounting principles generally accepted in the United States of
America.
BKD, LLP
Springfield, Missouri
March 28, 2013
60
Guaranty Federal Bancshares, Inc.
2012 Annual Report
Board of Directors
Guaranty Federal Bancshares, Inc.
and Guaranty Bank
Executive Officers
Guaranty Federal Bancshares, Inc.
and Guaranty Bank
Don M. Gibson
Chairman of the Board
Guaranty Federal Bancshares and
Guaranty Bank
Jack L. Barham
Vice Chairman of the Board
Guaranty Federal Bancshares
Shaun A. Burke
President and CEO
Guaranty Federal Bancshares and
Guaranty Bank
James R. Batten, CPA
Executive Vice President
Convoy of Hope
Kurt D. Hellweg
Chairman and CEO
International Dehydrated Foods, Inc. and
American Dehydrated Foods,
Gregory V. Ostergren
Chairman, President and CEO
American National Property and Casualty
Insurance Companies
Tim Rosenbury, AIA
Executive Vice President and Chairman
Butler, Rosenbury and Partners, Inc.
James L. Sivils, III, JD
CEO, Environmental Works, Inc.
Partner, Morelock Ross Companies
John F. Griesemer
Executive Vice President and COO
Springfield Underground, Inc.
Shaun A. Burke
President,
Chief Executive Officer
Carter M. Peters
Executive Vice President,
Financial Officer
H. Michael Mattson
Executive Vice President,
Chief Lending Officer
Sheri Biser
Executive Vice President,
Chief Credit Officer
Robin Robeson
Executive Vice President,
Chief Operating Officer
Vicki Lindsay
Coporate Secretary
61
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S t r e n g t h. G r o w t h. V i s i o n.
Springfield:
1341 West Battlefield • 2109 North Glenstone • 4343 South National
1905 West Kearney • 1510 East Sunshine • 2155 West Republic
nixa:
709 West Mount Vernon • 291 East Hwy CC
ozark:
1701 West State Hwy J
loan production offices:
1015 West Highway 248, Suite J, Branson
1100 Spur Drive, Suite 15, Marshfield
417.520.4333
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