Annual Report
2013
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
MOrtgage lOan prOductiOn Office:
1100 Spur Drive, Suite 15, Marshfield
417.520.4333 / gbankmo.com
President’s Message
Dear Fellow Shareholders:
During 2013, Guaranty Federal Bancshares, Inc. achieved its most profitable year since the beginning of
the financial crisis. Driven by the primary objectives of increasing shareholder value and positioning
ourselves to compete and grow in a slowly improving economy, the Company produced earnings, after
preferred stock dividends, of $4.4 million compared to $867 thousand in 2012. On a per share basis,
earnings increased to $1.58 per diluted share compared to $0.30 in 2012.
Financial metrics for the Company significantly improved in 2013 and compared well to Exchange traded
banks headquartered in the Midwest with assets between $500 million and $1.5 billion. Return on
average assets improved to 0.82% compared to 0.30% in 2012, and return on average equity increased
from 3.67% in 2012 to 10.34% in 2013. The primary factors that contributed to the improved financial
results include:
an increase in net interest margin from 3.41% in 2012 to 3.44% in 2013;
a significant improvement in credit quality with provisions for loan losses dropping from $5.9
million in 2012 to $1.5 million in 2013;
an increase in core checking and savings transaction deposits of $13.7 million, a 3.9% increase
over 2012;
a meaningful reduction of $27.7 million in higher cost, non-core funding including FHLB
advances and repurchase agreements.
While balance sheet initiatives improved the Company’s cost of funds and improved credit quality
allowed for lower loan provisions during the year, growing quality commercial loans continued to be
challenging in 2013 due to market competition and slow economic growth. Net loans outstanding were
$464 million at December 31, 2013, a decrease of less than 1% from year end 2012.
Looking to the future, the Company is fortunate to serve the Springfield, Missouri metropolitan statistical
area which is the third largest in the state and has a long-standing economic growth record. The local
economy showed beginning signs of stabilization in 2013 and has started down the path to recovery.
Springfield was ranked the 8th best city for cost of doing business by Forbes in a listing released in
August, demonstrating the strength and vitality of our community.
Local unemployment at 4.6% is well below the state 6.0% and national 6.7% levels, and this region has
led the state in job growth for the past few years. Our diversified local economy is anchored by two
regional healthcare providers, four universities and colleges with over 45,000 students, and significant
retail and light manufacturing companies. The Company’s experienced and dedicated team remains
focused on growing profitable relationships and we are confident in our ability to increase market share as
economic activity improves.
In December 2013, the Company distributed approximately 233,000 shares of stock held in its Employee
Stock Ownership Plan to 145 participants further aligning the interest of employee owners with
shareholders. The final liquidation of the Plan shares will reduce ongoing administration and audit costs
associated with the plan.
Other highlights for 2013 include the celebration of the Company’s 100th anniversary, being recognized
by the Springfield Business Journal as an Economic Impact Award honoree for honoring excellence in
business and its impact on the community, and also being recognized by the SBJ as a Choice Employer
for outstanding corporate culture, commitment to associates, and dedication to community service.
In March 2014, we took a significant step in the future of the Company with the public issuance of
1,499,999 shares of common stock, raising approximately $16.1 million in net proceeds. This new capital
will allow us to redeem $12 million of outstanding preferred stock and eliminate the required 9%
dividend. In addition, the enhanced capital position will allow us to consider organic growth
opportunities and potential acquisitions in our region.
In summary, it is a privilege to be affiliated with a company that has been serving generations of families
and businesses in the Ozarks for 100 years. The credit for the Company’s success and longevity is owed
to the dedication and commitment of our employees and directors who work day in and day out to build
Guaranty into a high performing company. We recognize that our employees are our greatest asset and
we put them first. They in turn take care of our clients which allows us to support the community and
ultimately grow your investment as shareholders.
I want to personally thank the board of directors for its continued guidance and support and extend a
special thank you to two retiring directors. Mr. Jack Barham retired December 31, 2013 after serving the
bank and shareholders with distinction for over 40 years. Mr. Greg Ostergren has served as a director
since 1999 and will retire at the end of his current term in May 2014. He has been instrumental in
creating a leadership philosophy dedicated to strong corporate governance that served us well in
navigating the challenges during and after the recession.
And lastly, on behalf of the entire Guaranty Bank team, we appreciate the confidence you entrust in us.
We understand that trust is earned and we will continue forward with optimism and dedication to realize
our mission of increasing shareholder value.
Sincerely,
Shaun A. Burke
President and Chief Executive Officer
Guaranty Federal Bancshares, Inc.
Guaranty Federal Bancshares, Inc.
2013 Annual Report
INVESTOR INFORMATION
ANNUAL MEETING OF STOCKHOLDERS:
The Annual Meeting of Stockholders of the Company will be held
Wednesday, May 28, 2014 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
2 Common Stock Prices &
Dividends
4 Selected Consolidated
Financial and Other Data
Copies of the Company’s Annual Report on Form 10-K, including the
financial statements, filed with the 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
TRANSFER AGENT:
Registrar and Transfer Company
10 Commerce Drive
Cranford , NJ 07016
STOCK TRADING INFORMATION:
5 Management’s Discussion and
Analysis of Financial
Condition and Results of
Operations
19 Consolidated Financial
Statements
Symbol: GFED
SPECIAL LEGAL COUNSEL:
Husch Blackwell LLP
901 St. Louis St., Suite 1900
Springfield, MO 65806
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM:
59 Report of Independent
Registered Public Accounting
Firm
60 Directors and Officers
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.
2013 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 17, 2014,
there were approximately 1,393 holders of shares of the
Company’s common stock. At that date the Company had
6,786,303 shares of common stock issued and 4,260,025
shares of common stock outstanding.
During the years ended December 31, 2013 and 2012, 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 sale prices per the NASDAQ Global Market by quarter
for the years ended December 31, 2013 and 2012.
Year ended
December 31, 2013
Year ended
December 31, 2012
High
Low
High
Low
Quarter ended:
March 31 .................................................... $
June 30 .......................................................
September 30 .............................................
December 31 ..............................................
10.61 $
10.25
14.50
12.12
6.97 $
9.30
10.21
10.42
9.33 $
9.50
8.75
7.90
5.68
6.77
6.29
6.41
2
Guaranty Federal Bancshares, Inc.
2013 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, 2008 and the hypothetical value of that
investment as of the Company’s fiscal years ended December
31, 2009, 2010, 2011, 2012, and 2013, 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 ....................
Period Ending
12/31/08 12/31/09 12/31/10 12/31/11 12/31/12 12/31/13
207.14
281.22
143.84
107.35
170.38
85.52
100.00
100.00
100.00
89.64
171.74
95.55
129.76
200.63
101.50
95.67
145.36
83.70
As a result of a change in the total return data made available to us through our vendor provider, our performance
graphs going forward will be using an index provided by NASDAQ OMX Global Indexes which is comparable to the
NASDAQ Bank Stock Index. Please note, information for the NASDAQ Bank Stock Index is provided only from
December 31, 2008 through December 31, 2013, the last day this data was available by our third-party provider.
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
2013
2012
As of December 31,
2011
2010
2009
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, net .....................................
Bank owned life insurance .......................................
$
LIABILITIES
Deposits .................................................................... $
Federal Home Loan Bank and Federal Reserve
Bank advances .....................................................
Securities sold under agreements to repurchase .......
Subordinated debentures ..........................................
Other liabilities .........................................................
12,303 $
97,772
465,003
1,853
14,204
3,822
10,887
14,044
619,888 $
41,663 $
102,162
468,376
2,055
16,703
4,530
11,286
13,657
660,432 $
26,574 $
86,871
482,664
2,139
18,051
10,012
11,424
10,771
648,506 $
14,145 $
109,891
504,665
2,670
18,982
10,540
11,325
10,450
682,668 $
33,017
119,693
528,503
2,671
25,249
6,760
11,818
10,069
737,780
487,319 $
500,015 $
484,584 $
480,694 $
513,051
55,350
10,000
15,465
1,399
569,533
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
39,750
15,465
2,053
686,369
STOCKHOLDERS' EQUITY ..................................
$
50,355
619,888 $
50,868
660,432 $
54,235
648,506 $
52,041
682,668 $
51,411
737,780
Supplemental Data
2013
2012
As of December 31,
2011
2010
2009
Number of full-service offices .................................
Cash dividends per common share ........................... $
9
- $
9
- $
9
- $
9
- $
9
-
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
2013
25,855 $
5,097
20,758
1,550
19,208
5,319
17,657
6,870
1,630
Years ended December 31,
2011
2010
2012
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)
2009
33,873
20,527
13,346
6,900
6,446
4,240
15,161
(4,475)
(2,134)
5,240 $
795
1,944 $
1,077
3,836 $
1,126
1,131 $
1,126
(2,341)
1,032
shareholders ......................................................... $
4,445 $
867 $
2,710 $
5 $
(3,373)
Basic income (loss) per common share .................... $
Diluted income (loss) per common share ................. $
1.63 $
1.58 $
0.32 $
0.30 $
1.01 $
1.01 $
- $
- $
(1.29)
(1.29)
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, 2012 to December 31, 2013, the Company’s total assets decreased $40,544,083 (6%) to
$619,888,135, liabilities decreased $40,030,746 (7%) to $569,532,902, and stockholders' equity decreased $513,337 (1%)
to $50,355,233. The ratio of stockholders’ equity to total assets increased to 8.1% during this period, compared to 7.7% as
of December 31, 2012.
From December 31, 2012 to December 31, 2013, cash and cash equivalents decreased $29,360,205 (70%) to
$12,303,200. The decrease is primarily due to the Company’s ability to utilize available cash to paydown $30.7 million of
Federal Home Loan Bank advances and securities sold under agreements to repurchase.
5
Guaranty Federal Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
From December 31, 2012 to December 31, 2013, available-for-sale securities decreased $4,287,959 (4%),
primarily due to the decline in unrealized gains in the Company’s available-for-sale securities. As a result of the increases
in market interest rates on many debt securities during the second and third quarters of 2013, the banking industry
experienced a sharp decline in the value of its investment portfolios. The Company’s unrealized gains declined from
$1,271,152 at December 31, 2012 to a net unrealized loss position of $3,978,173 at December 31, 2013.
Stock of the Federal Home Loan Bank of Des Moines (“FHLB”) decreased by $920,400 (24%) to $2,885,100 due
to lower stock requirements necessary from the reduction in FHLB advances.
From December 31, 2012 to December 31, 2013, net loans receivable decreased by $1,152,119 (less than 1%) to
$464,379,854. During the period, permanent loans secured by both owner and non-owner occupied one to four unit
residential real estate decreased $5,584,284 (6%), multi-family permanent loans decreased $216,600 (less than 1%),
construction loans decreased $5,651,166 (12%), permanent loans secured by commercial real estate increased $11,318,583
(7%), commercial loans decreased $2,504,979 (3%), and installment loans increased $586,534 (4%). 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, 2013, management identified loans totaling $16,171,000 as impaired with a related allowance
for loan losses of $1,601,000. Impaired loans decreased by $848,000 during 2013, compared to the balance of $17,277,000
at December 31, 2012.
From December 31, 2012 to December 31, 2013, the allowance for loan losses decreased $938,725 to $7,801,600.
In addition to the provision for loan loss of $1,550,000 recorded by the Company during the year ended December 31,
2013, loan charge-offs of specific loans (classified as nonperforming at December 31, 2012) exceeded recoveries by
$2,488,725 for the year ended December 31, 2013. The decline in the allowance is primarily due to a decline in loan
balances and also a reduction in the reserves associated with the commercial real estate loan category. The allowance
pertaining to this portfolio decreased by approximately $458,000 during the period. First, the general component of the
allowance declined due to reductions in the historical charge-off losses experienced over the prior year. Secondly, various
specific reserves established on nonaccruing loans in the prior year were charged-off in 2013.
The allowance for loan losses as of December 31, 2013 and December 31, 2012 was 1.65% and 1.84% of gross
loans outstanding (excluding mortgage loans held for sale), respectively. As of December 31, 2013, the allowance for loan
losses was 47% of impaired loans versus 51% as of December 31, 2012. 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, 2012 to December 31, 2013, the prepaid FDIC deposit insurance premiums decreased
$1,438,636 (100%) due to the utilization of credits for 2013 assessments and the full reimbursement of the remaining
prepaid balance at June 30, 2013.
As of December 31, 2013, foreclosed assets held for sale consisted primarily of one commercial development in
northwest Arkansas of $2.2 million and one commercial property located in Springfield, Missouri of $759,000.
From December 31, 2012 to December 31, 2013, deposits decreased $12,695,776 (3%) to $487,318,939. During
this period, checking and savings accounts increased by $13.7 million and certificates of deposit decreased by $26.4
million. The increase in the checking and savings accounts was due to the Bank’s continued efforts to increase core
transaction deposits, both personal and commercial. At December 31, 2013, included in the deposit totals are $53.2 million
in deposits classified as “brokered”, an increase of $4.1 million from December 31, 2012.
From December 31, 2012 to December 31, 2013, stockholders’ equity (including unrealized appreciation on
available-for-sale securities, net of tax) decreased $513,337 (1%) to $50,355,233. This is due to several factors. The
Company earned $4,445,187 of net income after preferred stock dividends and accretion for 2013. However, other factors
reduced stockholders’ equity. In May 2013, the Company completed a $2 million repurchase of the warrant issued to the
United States Department of the Treasury in 2009 as part of its Troubled Asset Relief Program’s Capital Purchase Program.
Also, as a result of increases in market interest rates on many debt securities during the year, the Company’s unrealized
gains (losses) on available-for-sale securities, net of income taxes, declined $3.3 million at December 31, 2013 as
compared to December 31, 2012. On a per common share basis, stockholders’ equity decreased $.30 from $14.34 as of
December 31, 2012 to $14.04 as of December 31, 2013.
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, 2013 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, 2013
Year Ended
December 31, 2013
Year Ended
December 31, 2012
Year Ended
December 31, 2011
Yield
/
Balance
Cost
Average
Balance Interest
Yield
/
Cost
Average
Balance
Yield
/
Interest
Cost
Average
Balance Interest
Yield
/
Cost
ASSETS
Interest-earning:
Loans .............................. $ 472,805 5.78% $ 465,796 $ 23,885 5.13% $ 479,699
Investment securities ......
97,230
97,772 1.77% 107,706
Other assets .....................
30,832
30,556
11,792 0.34%
Total interest-earning ..... 582,369 5.00% 604,058 25,855 4.28% 607,761
43,985
Noninterest-earning ........
$ 651,746
37,730
$ 641,788
1,795 1.67%
175 0.57%
37,519
$ 619,888
$ 25,667 5.35% $ 505,365 $ 27,424 5.43%
2,637 3.00%
315 0.93%
27,606 4.54% 627,119 30,376 4.84%
1,756 1.81%
183 0.59%
87,975
33,779
47,031
$ 674,150
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Interest-bearing:
Savings accounts ............ $ 23,726 0.21% $ 24,022 $
Transaction accounts ...... 291,341 0.38% 296,019
Certificates of deposit ..... 123,573 0.88% 135,871
FHLB and Federal
55,350 2.26%
15,465 3.43%
10,000 2.61%
Reserve advances .......
56,168
15,465
Subordinated debentures
Repurchase agreements ..
15,301
Total interest-bearing ..... 519,455 0.83% 542,846
48,280
Noninterest-bearing ........
50,078
591,126
Total liabilities ................ 569,533
50,662
50,355
Stockholders' equity .......
$ 641,788
$ 619,888
Net earning balance ........ $ 62,914
$ 61,212
Earning yield less
54 0.22% $
22,317
1,521 0.51% 274,703
1,284 0.95% 151,765
$
81 0.36% $ 20,480 $
2,012 0.73% 252,915
1,983 1.31% 165,376
118 0.58%
2,580 1.02%
3,080 1.86%
1,295 2.31%
537 3.47%
406 2.65%
68,055
15,465
25,000
5,097 0.94% 557,305
41,356
598,661
53,085
$ 651,746
50,456
$
1,544 2.27%
556 3.60%
682 2.73%
85,516
15,465
37,726
6,858 1.23% 577,478
46,602
670,171
54,167
$ 674,150
$ 49,641
2,164 2.53%
611 3.95%
1,058 2.80%
9,611 1.66%
costing rate .................
4.17%
3.34%
3.31%
3.18%
Net interest income, and
net yield spread on
interest-earning assets
Ratio of interest-earning
assets to interest-
bearing liabilities ........
$ 20,758 3.44%
$ 20,748 3.41%
$ 20,765 3.31%
112%
111%
109%
109%
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
Year ended
December 31, 2013 versus December 31, 2012 December 31, 2012 versus December 31, 2011
Average
Balance
Interest
Rate
Rate &
Balance
Total
Average
Balance
Interest
Rate
Rate &
Balance
Total
Interest income:
Loans ............................. $
Investment securities .....
Other assets ...................
Net change in interest
(744) $ (1,069) $
(135)
189
(6)
(1)
31 $ (1,782) $ (1,378) $
212
39
(15)
(24)
(7)
-
(399) $
(1,012)
(117)
20 $ (1,757)
(881)
(81)
(132)
9
income ........................
(556)
(1,210)
16
(1,750)
(1,190)
(1,528)
(52)
(2,770)
Interest expense:
Savings accounts ...........
Transaction accounts .....
Certificates of deposit ....
FHLB advances .............
Subordinated
debentures ...................
Repurchase agreements .
Net change in interest
6
156
(208)
(270)
-
(264)
(31)
(601)
(549)
27
(19)
(20)
(2)
(47)
57
(4)
-
8
(27)
(492)
(700)
(247)
(19)
(276)
11
222
(253)
(442)
-
(357)
(44)
(728)
(919)
(224)
(4)
(63)
76
46
(37)
(569)
(1,096)
(620)
(55)
(29)
-
10
(55)
(376)
expense .......................
(580)
(1,193)
12
(1,761)
(819)
(1,999)
65
(2,753)
Change in net interest
income ........................ $
24 $
(17) $
4 $
11 $
(371) $
471 $
(117) $
(17)
RESULTS OF OPERATIONS - COMPARISON OF YEAR ENDED DECEMBER 31, 2013 AND DECEMBER 31,
2012
Average for the Year Shown
Ten-Year
Treasury
One-Year
Treasury
Prime
December 31, 2013 ............................................................................
December 31, 2012 ............................................................................
Change in rates ...................................................................................
3.25%
3.25%
0.00%
2.35 %
1.80 %
0.55 %
0.13%
0.17%
-0.04%
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, 2013 and December 31, 2012 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 2013 as the Federal Reserve Open Market Committee (“FOMC”) left the
discount rate at 25 basis points. As of December 31, 2013, the prime rate was 3.25% and unchanged from December 31,
2012.
Interest Income. Total interest income decreased $1,750,302 (6%). The average balance of interest-earning assets
decreased $3,703,000 (1%) while the yield on average interest earning assets decreased 26 basis points to 4.28%.
8
Guaranty Federal Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Interest on loans decreased $1,780,954 (7%) and the average loan receivable balance decreased $13,903,000 (3%)
while the average yield decreased 22 basis points to 5.13%. The Company’s decrease in the average yield on interest
earning assets was primarily due to the decline in loan balances. Also, strong competition is causing a reduction in rates for
new credits as well as maintaining existing credit relationships.
Interest Expense. Total interest expense decreased $1,760,521 (26%) as the average balance of interest-bearing
liabilities decreased $14,467,000 (3%) while the average cost of interest-bearing liabilities decreased 29 basis points to
0.94%.
Interest expense on deposits decreased $1,216,596 (30%) during 2013 as the average balance of interest bearing
deposits increased $7,127,000 (2%) and the average interest rate paid to depositors decreased 28 basis points to 0.63%. 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 2013. As a result, interest
expense on these borrowings decreased $524,944 (24%).
Net Interest Income. The Company’s net interest income increased $10,219 (less than 1%). During the year ended
December 31, 2013, the average balance of interest-earning assets exceeded the average balance of interest-bearing
liabilities by $61,220,000, resulting in a increase in the average net earning balance of $10,764,000 (21%). In addition, the
Company’s spread between the average yield on interest-earning assets and the average cost of interest-bearing liabilities
increased by 3 basis points from 3.31% to 3.34%.
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 $1,550,000
and $5,950,000 for the years ended December 31, 2013 and 2012, respectively. The provision for the 2012 periods relates
to additional reserves determined necessary on a large loan relationship in which a fraud scheme was uncovered. This fraud
scheme related to the borrower’s investment portfolio that was a significant portion of the collateral securing the credits as
well as providing liquidity to operate other business ventures of the borrower in which the Company had a security interest.
Generally, the overall decrease in the provision for loan losses for the year presented has resulted primarily from
declining historic loss rates, which are used to calculate the reserve for the homogenous pool of loans, and an overall
decrease in the loan portfolio. The Company has also experienced lower reserve requirements on newly classified
nonperforming credits during 2013. 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 may need to increase the allowance
for loan losses through charges to the provision for loan losses if anticipated growth in the Bank’s loan portfolio increases
or other circumstances warrant. See further discussions of the allowance for loan losses under “Financial Condition.”
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 $2,063,800 (63%) primarily due to reductions in losses
recognized on foreclosed assets held for sale of $1.1 million and an increase in gains on tax credit assets of $1.2 million.
The Company receives federal and state tax credits in connection with purchases of investments in low-income housing
limited partnerships and utilizes them to reduce annual income taxes due. The Company’s investment strategy is to utilize
these credits to reduce annual income taxes due and only consider a sale of the tax credits in special circumstances. Tax
credits sold during 2013 were executed in connection with a prepayment of a repurchase agreement further discussed
below. Also, gains on sales of fixed-rate mortgage loans were $1,444,318 for 2013, compared to $1,884,923 for 2012 was
due to a decrease in volume associated with the increased mortgage rates on these loans.
9
Guaranty Federal Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Non-Interest Expense. Non-interest expense increased $1,416,271 (9%). This increase was primarily due to a $1.5
million prepayment penalty incurred on the prepayment of a repurchase agreement in May 2013.
Salaries and employee benefits decreased $189,123 (2%). The overall staff decreased from 173 full-time
equivalent employees as of December 31, 2012 to 164 full-time equivalent employees as of December 31, 2013.
FDIC deposit insurance premiums decreased $126,600 (18%). 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.
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, 2013 compared to the year ended December 31, 2012.
Cash Dividends Paid. The Company did not pay dividends on its common shares during 2013 and 2012. During
2013 and 2012, the Company paid $600,000 and $744,444, respectively, in dividends on its preferred stock.
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, 2012 ............................................................................
December 31, 2011 ............................................................................
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%.
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%.
10
Guaranty Federal Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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.
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 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.
11
Guaranty Federal Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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.
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, 2013 and 2012, the Bank’s savings
accounts, checking accounts, and money market deposit accounts totaled $363,745,433 or 75% of its total deposits and
$349,999,522 or 70% of total deposits, respectively. The weighted average rate paid on these accounts decreased 9 basis
points from 0.45% on December 31, 2012 to 0.36% on December 31, 2013 primarily due to the Bank’s efforts to reprice its
retail and business accounts during 2013.
12
Guaranty Federal Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
INTEREST RATE SENSITIVITY ANALYSIS
The following tables set forth as of December 31, 2013 and 2012, 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.
12/31/2013
BP Change
in Rates
+200
+100
NC
-100
-200
12/31/2012
BP Change
in Rates
+200
+100
NC
-100
-200
$
$
$ Amount
Estimated Net Portfolio Value
$ Change
% Change
59,083 $
60,766
63,218
65,226
69,496
(4,135)
(2,452)
-
2,008
6,277
$ Amount
Estimated Net Portfolio Value
$ Change
% Change
60,800 $
58,682
57,396
59,119
67,900
3,405
1,286
-
1,723
10,505
NPV as % of PV of Assets
Change
NPV Ratio
9.89%
9.99%
10.18%
10.26%
10.69%
-0.28%
-0.19%
0.00%
0.09%
0.52%
NPV as % of PV of Assets
Change
NPV Ratio
9.30%
8.87%
8.56%
8.66%
9.78%
0.75%
0.32%
0.00%
0.10%
1.22%
-7%
-4%
0%
3%
10%
6%
2%
0%
3%
18%
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.
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.
13
Guaranty Federal Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 $12,303,200 as of December 31, 2013 and $41,663,405 as of
December 31, 2012, representing a decrease of $29,360,205. 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 $72,509,857 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 35% of assets, the Bank has the ability to borrow an additional $103,862,000 from
the FHLB, as of December 31, 2013. Based on existing collateral, the Bank has the ability to borrow $27,149,000 from the
Federal Reserve Bank as of December 31, 2013. 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 $67,858,000 is 10.7% of average assets as of December 31, 2013. The
Company has an excess of $42,514,000, $47,666,000, and $33,794,000 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.
On March 7, 2014, the Company closed an underwritten offering of its common stock. The Company raised
approximately $17.2 million in gross proceeds by issuing 1,499,999 shares of its common stock, which includes the full
exercise of the over-allotment option granted to the underwriters of 195,652 shares, at a price to the public of $11.50 per
share. Net proceeds from the sale of the shares after underwriting discounts and estimated offering expenses are expected to
be approximately $15.9 million. The Company intends to use the net proceeds from the offering (i) to redeem the
remaining 12,000 shares of the Company’s Series A Preferred Stock and (ii) for working capital and for general corporate
purposes, including potential future acquisitions.
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, 2013 and 2012, the Bank had outstanding commitments to originate loans
of approximately $3,545,000 and $9,217,000, 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, 2013 and 2012, unused lines of credit
to borrowers aggregated approximately $42,518,000 and $33,897,000 for commercial lines and $14,517,000 and
$15,306,000 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
$12,649,000 and $13,930,000 as of December 31, 2013 and 2012, respectively. The commitments extend over varying
periods of time.
14
Guaranty Federal Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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.
AGGREGATE CONTRACTUAL OBLIGATIONS
The following table summarizes the Company’s fixed and determinable contractual obligations by payment date
as of December 31, 2013. 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 .....................................................
FHLB and Federal Reserve advances ......................
Subordinated debentures ..........................................
Operating leases .......................................................
Purchase obligations .................................................
Other long term obligations ......................................
Total ...................................................................... $
363,745 $
123,574
10,000
55,350
15,465
259
-
206
568,599 $
363,745 $
72,510
-
3,000
-
109
-
206
439,570 $
- $
39,320
-
250
-
114
-
-
45,791 $
- $
9,333
-
50,000
-
36
-
-
53,262 $
-
2,411
10,000
2,100
15,465
-
-
-
29,976
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.
15
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 January 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“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 ASU 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 was effective for the Company January 1, 2013, and did not
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 was effective for the Company January 1, 2013, and did
not have a material impact on the Company’s financial position or results of operations.
In July 2013, the FASB issued ASU No. 2013-11 to amend FASB ASC Topic 740, Income Taxes. The objective
of this update is to provide explicit guidance on the financial statement presentation of an unrecognized tax benefit when a
net operating loss carryforward, a similar tax loss, or a tax credit carryforward exist. An unrecognized tax benefit, or a
portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset
for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except in specific situations as
described in the update. The update will be effective for the Company beginning January 1, 2014, and is not expected to
have a material impact on the Company’s financial position or results of operations.
16
Guaranty Federal Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
In January 2014, the FASB issued ASU No. 2014-01 to amend FASB ASC Topic 323, Investments – Equity
Method and Joint Ventures. The objective of this update is to provide guidance on accounting for investments by a
reporting entity in flow-through limited liability entities that manage or invest in affordable housing projects that qualify
for the low-income housing tax credit. The amendments in the update permit reporting entities to make an accounting
policy election to account for their investments in qualified affordable housing projects using the proportional amortization
method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the
investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in
the income statement as a component of income tax expense (benefit). The update will be effective for the Company
beginning January 1, 2015; however, early adoption is permitted. The Company does have significant investments in such
qualified affordable housing projects and is currently reviewing the provisions of this update to determine what, if any,
impacts it may have on the Company’s financial position or results of operations. Based on its preliminary review, the
Company may elect to adopt this update early during the three months ending March 31, 2014. The Company expects that
there will be no material impact on the Company’s financial position or results of operations, except that the investment
amortization expense which is currently included in Other Non-interest Expense in the Consolidated Statements of Income
would be removed from Other Non-interest Expense and included in Provision for Income Taxes in the Consolidated
Statements of Income. This would have the effect of reducing Non-interest Expense and increasing Provision for Income
Taxes, but is not expected to have any impact on Net Income.
In January 2014, the FASB issued ASU No. 2014-04 to amend FASB ASC Topic 310, Receivables – Troubled
Debt Restructurings by Creditors. The objective of the amendments in this update is to reduce diversity by clarifying when
an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical
possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should
be derecognized and the real estate property recognized. The amendments in this update clarify that an in substance
repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real
estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential
real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate
property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal
agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed
residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans
collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the
applicable jurisdiction. The update will be effective for the Company beginning January 1, 2015, 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
Year Ended December 31, 2013, Quarter ended
Mar-13
Jun-13
Sep-13
Dec-13
Interest income ............................................................................. $ 6,419,421 $ 6,467,020 $ 6,349,895 $ 6,619,162
Interest expense ............................................................................ 1,428,154 1,281,353 1,229,708 1,158,279
Net interest income ...................................................................... 4,991,267 5,185,667 5,120,187 5,460,883
700,000
Provision for loan losses ..............................................................
158,802
Gain on loans and investment securities ......................................
Other noninterest income, net ......................................................
580,259
Noninterest expense ..................................................................... 4,425,600 5,532,337 4,010,452 3,688,817
Income before income taxes ......................................................... 1,185,435 2,087,874 1,785,833 1,811,127
437,799
232,782
Provision for income taxes ...........................................................
952,653 1,567,740 1,345,986 1,373,328
Net income ...................................................................................
198,630
Preferred stock dividends and discount accretion ........................
198,630
754,023 $ 1,369,110 $ 1,147,356 $ 1,174,698
Net income available to common shareholders ............................ $
0.43
Basic income per common share .................................................. $
0.42
Diluted income per common share ............................................... $
400,000
250,000
708,268
520,734
499,034 1,976,276
200,000
276,359
599,739
0.50 $
0.49 $
0.42 $
0.41 $
0.28 $
0.25 $
520,134
198,630
198,630
439,847
Year Ended December 31, 2012, Quarter ended
Mar-12
Jun-12
Sep-12
Dec-12
Interest income ............................................................................. $ 6,865,922 $ 6,846,359 $ 6,846,504 $ 7,047,015
Interest expense ............................................................................ 1,850,150 1,732,250 1,703,184 1,572,431
Net interest income ...................................................................... 5,015,772 5,114,109 5,143,320 5,474,584
350,000
Provision for loan losses ..............................................................
571,512
Gain on loans and investment securities ......................................
Other noninterest income, net ......................................................
420,136
Noninterest expense ..................................................................... 4,047,508 3,902,852 4,102,979 4,187,596
151,805 (1,183,196) 1,928,636
Income before income taxes .........................................................
(466,108)
(192,316)
Provision for income taxes (credits) .............................................
446,532
(717,088) 1,482,104
344,121
Net income (loss) .........................................................................
397,910
Preferred stock dividends and discount accretion ........................
198,630
198,630
(53,789) $ (915,718) $ 1,283,474
Net income (loss) available to common shareholders .................. $
0.47
Basic income (loss) per common share ........................................ $
0.45
Diluted income (loss) per common share ..................................... $
900,000 2,100,000 2,600,000
537,203
544,631
399,883
(160,740)
495,917
447,129
915,276
80,554
834,722
281,391
553,331 $
0.20 $
0.20 $
(0.02) $
(0.02) $
(0.34) $
(0.34) $
18
Guaranty Federal Bancshares, Inc.
Consolidated Balance Sheets
December 31, 2013 and 2012
ASSETS
Cash and due from banks .................................................................................................................. $
Interest-bearing deposits in other financial institutions .....................................................................
Cash and cash equivalents .............................................................................................................
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 at December 31, 2013 and 2012 - $7,801,600
December 31,
2013
December 31,
2012
3,453,032 $
8,850,168
12,303,200
97,692,685
79,162
2,885,100
623,432
3,360,102
38,303,303
41,663,405
101,980,644
181,042
3,805,500
2,843,757
and $8,740,325, respectively .........................................................................................................
464,379,854
465,531,973
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, net ..............................................................................................................
Bank owned life insurance ................................................................................................................
Income taxes receivable ....................................................................................................................
Deferred income taxes ......................................................................................................................
$
1,462,881
389,760
5,536,879
-
3,821,976
10,886,720
14,043,697
504,138
5,278,651
619,888,135 $
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
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits ............................................................................................................................................ $
Federal Home Loan Bank and Federal Reserve 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:
487,318,939 $
55,350,000
10,000,000
15,465,000
149,668
998,934
250,361
569,532,902
500,014,715
68,050,000
25,000,000
15,465,000
152,867
481,382
399,684
609,563,648
-
-
Series A preferred stock, $0.01 par value; authorized 2,000,000 shares; issued and outstanding
December 31, 2013 and 2012 - 12,000 shares ...........................................................................
11,983,790
11,789,276
Common stock, $0.10 par value; authorized 10,000,000 shares; issued December 31, 2013 and
2012 - 6,783,603 and 6,781,803 shares, respectively ................................................................
Common stock warrants; December 31, 2012 - 459,459 shares ....................................................
Additional paid-in capital ..................................................................................................................
Retained earnings, substantially restricted ........................................................................................
Accumulated other comprehensive income (loss) .............................................................................
Unrealized gain (loss) on available-for-sale securities, net of income taxes; December 31, 2013
and 2012 - ($1,471,923) and $470,326, respectively ....................................................................
Treasury stock, at cost; December 31, 2013 and December 31, 2012 - 4,051,248 and 4,056,862
shares, respectively .......................................................................................................................
See Notes to Consolidated Financial Statements
$
19
678,360
-
57,655,031
43,769,485
678,180
1,377,811
58,267,529
39,324,292
(2,506,248)
111,580,418
800,826
112,237,914
(61,225,185)
50,355,233
619,888,135 $
(61,369,344)
50,868,570
660,432,218
2013
2012
2011
23,885,654 $
1,794,717
175,127
25,855,498
25,666,608 $ 27,423,897
2,636,799
315,242
27,605,800 30,375,938
1,755,804
183,388
2,859,598
1,295,121
537,178
405,597
5,097,494
20,758,004
1,550,000
19,208,004
1,196,597
219,845
1,444,318
1,441,012
(275,223)
1,292,922
5,319,471
9,058,789
1,752,162
562,163
1,510,000
687,630
425,004
3,661,458
17,657,206
6,870,269
1,630,562
5,239,707 $
794,520
4,445,187 $
4,076,194
1,543,493
556,159
682,169
6,858,015
5,778,263
2,164,259
610,929
1,057,517
9,610,968
20,747,785 20,764,970
3,350,000
17,414,970
5,950,000
14,797,785
1,119,570
168,306
1,884,923
281,561
(1,391,472)
1,192,783
3,255,671
1,315,333
1,505,915
1,345,334
-
(800,250)
1,118,897
4,485,229
9,247,912
1,629,566
688,763
-
566,652
300,000
3,808,042
8,886,713
1,660,802
942,056
1,531,000
529,940
300,000
3,510,944
16,240,935 17,361,455
4,538,744
703,105
3,835,639
1,125,563
2,710,076
1,812,521
(131,338)
1,943,859 $
1,076,561
867,298 $
1.63 $
1.58 $
0.32 $
0.30 $
1.01
1.01
Guaranty Federal Bancshares, Inc.
Consolidated Statements of Income
Years Ended December 31, 2013, 2012 and 2011
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 ..........................................................................
Gain on sale of state low-income housing tax credits .........................
Net loss on foreclosed assets ..............................................................
Other income ......................................................................................
Noninterest Expense
Salaries and employee benefits ...........................................................
Occupancy ..........................................................................................
FDIC deposit insurance premiums .....................................................
Prepayment penalty on repurchase agreements ..................................
Data processing ...................................................................................
Advertising .........................................................................................
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
Guaranty Federal Bancshares, Inc.
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2013, 2012 and 2011
NET INCOME
OTHER ITEMS OF COMPREHENSIVE INCOME (LOSS):
$
Change in unrealized gain (loss) on investment securities
2013
5,239,707 $
2012
1,943,859 $
2011
3,835,639
available-for-sale, before income taxes .......................................
(5,029,478)
183,449
(163,480)
Less: Reclassification adjustment for realized gains on
investment securities included in net income, before income
taxes ............................................................................................
Total other items in comprehensive income (loss) ..........................
Income tax expense (credit) related to other items of
(219,845)
(5,249,323)
(168,306 )
15,143
(1,505,915)
(1,669,395)
comprehensive income ...............................................................
Other comprehensive income (loss) ...............................................
TOTAL COMPREHENSIVE INCOME ....................................... $
(1,942,249)
(3,307,074)
1,932,633 $
5,602
9,541
1,953,400 $
(617,676)
(1,051,719)
2,783,920
See Notes to Consolidated Financial Statements
21
Guaranty Federal Bancshares, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2013, 2012 and 2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ......................................................................................... $
Items not requiring (providing) cash:
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 .....................
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 ...........................
Proceeds from sale of foreclosed assets held for sale .........................
Net cash provided by (used in) investing activities .....................
See Notes to Consolidated Financial Statements
2013
2012
2011
5,239,707 $
1,943,859 $
3,835,639
983,526
822,316
1,550,000
(1,664,163)
163,161
(1,441,012)
555,665
254,508
(49,231,796)
53,871,439
-
(386,217)
1,438,636
202,728
691,294
368,229
406,036
13,824,057
(1,304,007)
101,880
10,582,593
(53,316,013)
31,225,169
10,250,000
(422,626)
-
1,441,012
-
-
920,400
-
436,783
(84,809)
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
22
Guaranty Federal Bancshares, Inc.
Consolidated Statements of Cash Flows (continued)
Years Ended December 31, 2013, 2012 and 2011
2013
2012
2011
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 ........
Proceeds from Federal Reserve advances ..........................................
Repayments of FHLB advances .........................................................
Advances from (repayments to) borrowers for taxes and insurance ..
Repurchase of stock warrants .............................................................
Redemption of preferred stock ...........................................................
Stock options exercised ......................................................................
Common and preferred cash dividends paid ......................................
Treasury stock purchased ...................................................................
Net cash provided by (used in) financing activities ....................
13,745,911 $
(26,441,687)
(15,000,000)
3,000,000
(15,700,000)
(3,199)
(2,003,250)
-
9,408
(600,000)
(106,636)
(43,099,453)
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)
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ..........................................................................
(29,360,205)
15,089,323
12,428,753
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR .
41,663,405
26,574,082
14,145,329
CASH AND CASH EQUIVALENTS, END OF YEAR ................ $
12,303,200 $
41,663,405 $
26,574,082
Supplemental Cash Flows Information
Real estate acquired in settlement of loans ..................................... $
705,070 $
1,101,193 $
5,517,045
Interest paid .................................................................................... $
5,246,817 $
6,977,212 $
9,970,762
Income taxes paid, net of (refunds) ................................................ $
241,000 $
195,000 $
435,000
Sale and financing of foreclosed assets held for sale ...................... $
812,877 $
1,795,070 $
1,461,378
See Notes to Consolidated Financial Statements
23
Guaranty Federal Bancshares, Inc.
Consolidated Statements of Stockholders’ Equity
Years Ended December 31, 2013, 2012 and 2011
Preferred
Stock
Common
Stock
Common
Stock
Warrants
Additional
Paid-In
Capital
Unearned
ESOP
Shares
Treasury
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Balance, January 1, 2011 ........................................................ $ 16,150,350 $
-
Net income ................................................................................
Change in unrealized gain on available-for-sale securities net
of income taxes of $617,676 ...............................................
-
275,562
Preferred stock discount accretion ............................................
Preferred stock dividends (5%) .................................................
-
-
Stock award plans ......................................................................
-
Release of ESOP shares ............................................................
Treasury stock purchased ..........................................................
-
Balance, December 31, 2011 ................................................... 16,425,912
Net income ................................................................................
-
Change in unrealized gain on available-for-sale securities, net
of income taxes of $5,603 ...................................................
-
(5,000,000)
Preferred stock redeemed ..........................................................
Preferred stock discount accretion ............................................
363,364
-
Preferred stock dividends (5%) .................................................
Stock award plans ......................................................................
-
-
Stock options exercised .............................................................
-
Release of ESOP shares ............................................................
Treasury stock purchased ..........................................................
-
Balance, December 31, 2012 ................................................... 11,789,276
Net income ................................................................................
-
Change in unrealized gain (loss) on available-for-sale
securities, net of income taxes of $1,942,249 .....................
-
194,514
Preferred stock discount accretion ............................................
Preferred stock dividends (5%) .................................................
-
-
Common stock warrants repurchased .......................................
-
Stock award plans ......................................................................
-
Stock options exercised .............................................................
Treasury stock purchased ..........................................................
-
Balance, December 31, 2013 ................................................... $ 11,983,790 $
677,980 $
-
1,377,811 $ 58,505,046 $
-
-
(432,930) $ (61,827,409) $ 35,746,914 $
- 3,835,639
-
1,843,004 $ 52,040,766
- 3,835,639
-
-
-
-
-
-
677,980
-
-
-
-
-
-
200
-
-
678,180
-
-
-
-
-
-
-
1,377,811
-
-
-
-
-
-
-
-
-
1,377,811
-
-
-
-
(70,169)
(101,263)
-
58,333,614
-
-
-
-
-
(27,191)
12,188
(51,082)
-
58,267,529
-
-
-
-
-
-
180
-
678,360 $
-
-
-
-
-
-
(625,439)
(1,377,811)
3,713
-
9,228
-
-
-
- $ 57,655,031 $
-
-
-
-
228,000
-
(204,930)
-
-
-
-
256,823
-
(53,230)
-
(275,562)
(850,000)
-
-
-
(61,623,816) 38,456,991
- 1,943,859
(1,051,719) (1,051,719)
-
(850,000)
186,654
126,737
(53,230)
791,285 54,234,847
- 1,943,859
-
-
-
-
-
-
-
-
-
-
-
204,930
-
-
-
-
-
-
-
280,208
-
-
(25,736)
-
-
(363,364)
(713,194)
-
-
-
-
(61,369,344) 39,324,292
- 5,239,707
9,541
9,541
- (5,000,000)
-
-
(713,194)
-
253,017
-
12,388
-
153,848
-
(25,736)
-
800,826 50,868,570
- 5,239,707
-
-
-
-
250,795
-
(106,636)
-
-
(194,514)
-
(600,000)
-
-
-
-
-
-
-
-
-
- $ (61,225,185) $ 43,769,485 $
(3,307,074) (3,307,074)
-
-
-
(600,000)
- (2,003,250)
254,508
-
9,408
-
(106,636)
-
(2,506,248) $ 50,355,233
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 (in years)
Furniture and fixtures and vehicles (in 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 2010.
Cash Equivalents
The Company considers all liquid investments with original maturities of three months or less to be cash
equivalents. At December 31, 2013 and 2012 cash equivalents consisted of interest-bearing deposits and money market
accounts.
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 21, 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, 2013 and 2012, was $7,319,000 and $6,645,000, 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 gain (loss) on available-for-sale securities, unrealized gain
(loss) on available-for-sale securities for which a portion of an other-than-temporary impairment has been recognized in
income, unrealized gain (loss) on held-to-maturity securities for which a portion of an other-than-temporary impairment has
been recognized in income.
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 to qualitative judgments by the regulators about components, risk weightings and other factors. Furthermore, the
Company’s regulators could require adjustments to regulatory capital not reflected in these financial statements.
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, 2013 and
2012, that the Company and the Bank meet all capital adequacy requirements to which they are subject.
As of December 31, 2013, 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.
28
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
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.
Actual
Amount
Ratio
For Capital
Adequacy Purposes
Ratio
Amount
To Be Well Capitalized
Under Prompt Corrective
Action Provisions
Ratio
Amount
As of December 31, 2013
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 .......................................... $
67,858
65,410
10.7% $
10.3% $
25,344
25,300
4.0%
4.0% $
n/a
31,625
n/a
5.0%
67,858
65,410
13.4% $
13.0% $
20,192
20,166
4.0%
4.0% $
n/a
30,248
n/a
6.0%
74,178
71,730
14.7% $
14.2% $
40,384
40,331
8.0%
8.0% $
n/a
50,414
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, 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%
The amount of dividends that the Company and Bank may pay is subject to various regulatory limitations. As of
December 31, 2013 and 2012 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, 2013, the outcome of any such litigation will not have a material adverse effect on the
Company’s financial position or results of operations.
Earnings Per Common Share
The computation for earnings per common share for the years ended December 31, 2013, 2012 and 2011 is as
follows:
Year Ended
December 31,
2013
Year Ended
December 31,
2012
Year Ended
December 31,
2011
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 ..................................................... $
4,445,187 $
2,733,969
79,646
2,813,615
1.63 $
1.58 $
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
Stock options to purchase 154,000, 201,500 and 351,500 shares of common stock were outstanding during the
years ended December 31, 2013, 2012 and 2011, 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.
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, 2013
Equity Securities ......................................................................... $
Debt Securities:
102,212 $
16,007 $
(18,913) $
99,306
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
(Losses)
Approximate
Fair Value
U. S. government agencies ...................................................... 33,198,865
Municipals ............................................................................... 14,133,821
Corporates ................................................................................
990,663
Government sponsored mortgage-backed securities ................ 53,245,297
$101,670,858 $
18,827
3,609
- (1,437,478) 31,761,387
(660,021) 13,492,627
994,272
265,038 (2,165,242) 51,345,093
303,481 $(4,281,654) $ 97,692,685
-
As of December 31, 2012
Equity Securities ......................................................................... $
Debt Securities:
102,212 $
306 $
(31,604) $
70,914
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
(Losses)
Approximate
Fair Value
U. S. government agencies ...................................................... 38,188,554
202,213
Municipals ............................................................................... 10,212,376
250,269
67,889
1,839,976
Corporates ................................................................................
Government sponsored mortgage-backed securities ................ 50,366,374 1,304,242
(39,706) 38,351,061
(84,456) 10,378,189
1,907,865
(398,001) 51,272,615
$100,709,492 $ 1,824,919 $ (553,767) $101,980,644
-
Maturities of available-for-sale debt securities as of December 31, 2013:
1-5 years ...................................................................................................................... $
5-10 years ....................................................................................................................
After ten years .............................................................................................................
Government sponsored mortgage-backed securities not due on a single maturity
Amortized
Cost
16,697,391 $
22,547,532
9,078,426
Approximate
Fair Value
16,346,447
21,282,335
8,619,504
date ..........................................................................................................................
$
53,245,297
101,568,646 $
51,345,093
97,593,379
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, 2013
Debt Securities:
Government sponsored mortgage-backed securities ................. $
79,162 $
1,927 $
- $
81,089
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
(Losses)
Approximate
Fair Value
As of December 31, 2012
Debt Securities:
Government sponsored mortgage-backed securities ................. $
181,042 $
12,440 $
- $
193,482
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
(Losses)
Approximate
Fair Value
Maturities of held-to-maturity securities as of December 31, 2013:
Amortized
Cost
Approximate
Fair Value
Government sponsored mortgage-backed securities not due on a single maturity
date .......................................................................................................................... $
79,162 $
81,089
The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, amounted
to $42,807,840 and $57,378,710 as of December 31, 2013 and 2012, respectively.
Gross gains of $418,990, $168,306 and $1,505,915 and gross losses of $199,145, $0 and $0 resulting from sale of
available-for-sale securities were realized for the years ended December 31, 2013, 2012 and 2011, respectively. The tax
effect of these net gains was $81,343, $62,273 and $557,188 in 2013, 2012 and 2011, 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, 2013,
2012 and 2011.
32
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
Certain other investments in debt and equity securities are reported in the consolidated financial statements at an
amount less than their historical cost. Total fair value of these investments at December 31, 2013 and 2012, was
$85,712,067 and $30,121,495, respectively, which is approximately 88% and 29% 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, 2013 and 2012.
Description of Securities
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Less than 12 Months
December 31, 2013
12 Months or More
Total
Equity Securities .......................... $
- $
U. S. government agencies ........... 24,731,730
Municipals .................................... 10,460,662
Government sponsored mortgage-
- $
29,014 $
(916,208) 7,029,657
(534,440) 1,701,215
29,014 $
(18,913) $
(18,913)
(521,270) 31,761,387 (1,437,478)
(660,021)
(125,581) 12,161,877
backed securities ....................... 32,074,646 (1,655,296) 9,685,143
(509,946) 41,759,789 (2,165,242)
$67,267,038 $ (3,105,944) $18,445,029 $ (1,175,710) $85,712,067 $ (4,281,654)
Description of Securities
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Less than 12 Months
December 31, 2012
12 Months or More
Total
Equity Securities .......................... $
- $
U. S. government agencies ........... 7,298,687
Municipals .................................... 2,648,047
Government sponsored mortgage-
- $
(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)
backed securities ....................... 19,596,531
(398,001)
$29,543,265 $ (514,025) $
-
578,230 $
- 19,596,531
(398,001)
(39,742) $ 30,121,495 $ (553,767)
33
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES
Categories of loans at December 31, 2013 and 2012 include:
December 31,
2013
2012
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 .......................................................................................................... $
93,797,650 $
46,188,434
43,266,130
179,079,433
92,721,783
17,303,392
472,356,822
99,381,934
46,405,034
48,917,296
167,760,850
95,226,762
16,716,858
474,408,734
(7,801,600)
(175,368)
464,379,854 $
(8,740,325)
(136,436)
465,531,973
Classes of loans by aging at December 31, 2013 and 2012 were as follows:
30-59
Days
Past Due
60-89
Days
Past Due
Greater
Than
90 Days
Total
Past
Due
(In Thousands)
Total
Loans
Receivable
Current
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 .............................................. $
246 $
-
-
-
-
19
265 $
337 $
-
-
-
2
-
339 $
- $
-
536
2,604
3,628
63
6,831 $
- 46,188
536 42,730
583 $ 93,215 $ 93,798 $
46,188
43,266
2,604 176,476 179,080
92,722
3,630 89,092
17,303
82 17,221
7,435 $ 464,922 $ 472,357 $
-
-
-
-
-
-
-
30-59
Days
Past Due
60-89
Days
Past Due
Greater
Than
90 Days
Total
Past
Due
(In Thousands)
Total
Loans
Receivable
Current
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 .............................................. $
52 $
-
22
-
10
57
141 $
4 $
-
28
352
610
-
994 $
- $
-
640
-
785
-
1,425 $
56 $ 99,326 $ 99,382 $
46,405
- 46,405
48,917
690 48,227
352 167,409 167,761
95,227
16,717
2,560 $ 471,849 $ 474,409 $
1,405 93,822
57 16,660
-
-
-
-
-
-
-
34
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,
2013
2012
815,746 $
-
4,529,410
3,663,166
6,776,230
63,027
15,847,579 $
2,280,856
-
6,274,241
3,663,771
2,793,457
318,963
15,331,288
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, 2013, 2012 and 2011:
As of December 31, 2013
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
Construction
Commercial
Real Estate
One to four
family
Multi-family
Commercial
(In Thousands)
Consumer
and Other
Unallocated
Total
2,525 $
691
(879)
50
2,387 $
2,517 $
(181)
(277)
-
2,059 $
1,316 $
(203)
(139)
23
997 $
284 $
(75)
-
-
209 $
1,689 $
988
(1,268)
110
1,519 $
255 $
125
(164)
56
272 $
154 $
205 $
- $
- $
359 $
8,740
1,550
(2,727)
239
7,802
890 $
- $
8 $
- $
601 $
102 $
- $
1,601
evaluated for impairment ......... $
1,497 $
2,059 $
989 $
209 $
918 $
170 $
359 $
6,201
Loans:
Ending balance: individually
evaluated for impairment ......... $
4,530 $
3,663 $
886 $
- $
6,776 $
316 $
- $
16,171
Ending balance: collectively
evaluated for impairment ......... $
38,736 $
175,417 $
92,912 $
46,188 $
85,946 $
16,987 $
- $
456,186
As of December 31, 2012
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
Construction
Commercial
Real Estate
One to four
family
Multi-family
Commercial
(In Thousands)
Consumer
and Other
Unallocated
Total
2,508 $
1,324
(1,335)
28
2,525 $
2,725 $
683
(985)
94
2,517 $
1,735 $
(179)
(265)
25
1,316 $
390 $
(106)
-
-
284 $
1,948 $
5,090
(5,547)
198
1,689 $
372 $
(81)
(73)
37
255 $
935 $
(781) $
- $
- $
154 $
10,613
5,950
(8,205)
382
8,740
438 $
350 $
90 $
- $
441 $
48 $
- $
1,367
evaluated for impairment ......... $
2,087 $
2,167 $
1,226 $
284 $
1,248 $
207 $
154 $
7,373
Loans:
Ending balance: individually
evaluated for impairment ......... $
6,275 $
5,673 $
2,360 $
- $
2,555 $
414 $
- $
17,277
Ending balance: collectively
evaluated for impairment ......... $
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
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
Construction
Commercial
Real Estate
One to four
family
Multi-family
Commercial
(In Thousands)
Consumer
and Other
Unallocated
Total
4,547 $
265
(2,381)
77
2,508 $
3,125 $
2,123
(2,744)
221
2,725 $
1,713 $
943
(966)
45
1,735 $
528 $
(138)
-
-
390 $
2,483 $
505
(1,362)
322
1,948 $
687 $
(1,283)
(322)
1,290
372 $
- $
935 $
- $
- $
935 $
13,083
3,350
(7,775)
1,955
10,613
1,355 $
659 $
127 $
- $
399 $
72 $
- $
2,612
evaluated for impairment ......... $
1,153 $
2,066 $
1,608 $
390 $
1,549 $
300 $
935 $
8,001
Loans:
Ending balance: individually
evaluated for impairment ......... $
8,515 $
5,019 $
1,819 $
- $
3,048 $
653 $
- $
19,054
Ending balance: collectively
evaluated for impairment ......... $
36,397 $
189,837 $
96,212 $
43,166 $
85,040 $
20,105 $
- $
470,757
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.
36
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
The following summarizes impaired loans as of and for the years ended December 31, 2013 and 2012:
As of December 31, 2013
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:
620 $
-
96
3,663
2,327
-
267 $
-
4,433
-
4,449
316
620 $
-
940
3,663
2,462
-
267 $
-
4,433
-
5,148
316
- $
-
-
-
-
-
1,908 $
-
3,086
4,310
1,030
91
8 $
-
890
-
601
102
286 $
-
2,606
561
3,047
319
One to four family units .................................... $
Multi-family .....................................................
Real estate - construction .....................................
Real estate - commercial ......................................
Commercial loans .................................................
Consumer and other loans ....................................
Total ..................................................................... $
887 $
-
4,529
3,663
6,776
316
16,171 $
887 $
-
5,373
3,663
7,610
316
17,849 $
8 $
-
890
-
601
102
1,601 $
2,194 $
-
5,692
4,871
4,077
410
17,244 $
5
-
-
40
1
-
-
-
-
-
-
-
5
-
-
40
1
-
46
37
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
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:
One to four family units .................................... $
Multi-family .....................................................
Real estate - construction .....................................
Real estate - commercial ......................................
Commercial loans .................................................
Consumer and other loans ....................................
Total ..................................................................... $
2,245 $
-
5,015
2,430
318
103
115 $
-
1,260
3,243
2,237
311
2,271 $
-
5,575
2,755
689
103
130 $
-
1,260
3,243
2,237
311
- $
-
-
-
-
-
1,961 $
-
3,528
4,054
1,831
266
90 $
-
608
180
441
48
315 $
-
3,316
6,913
3,408
307
2,360 $
-
6,275
5,673
2,555
414
17,277 $
2,401 $
-
6,835
5,998
2,926
414
18,574 $
90 $
-
608
180
441
48
1,367 $
2,276 $
-
6,844
10,967
5,239
573
25,899 $
20
-
-
65
17
11
-
-
-
-
-
-
20
-
-
65
17
11
113
Interest of approximately $199,000 was recognized on average impaired loans of $27,171,000 for the year ended
December 31, 2011.
At December 31, 2013, 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:
2013
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 ....................................................................................
2 $
-
1
2
3
-
8 $
662,598 $
-
73,845
3,275,179
2,889,923
-
6,901,545 $
662,598
-
73,845
3,297,014
3,114,327
-
7,147,784
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 ....................................................................................
3 $
-
3
2
2
-
10 $
1,317,070 $
-
7,626,970
2,316,745
2,270,030
-
13,530,815 $
1,689,268
-
8,193,713
2,316,745
1,844,113
-
14,043,839
The troubled debt restructurings described above increased the allowance for loan losses by $255,679 and resulted
in charge offs of $135,063 during the year ended December 31, 2013.
39
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
The following presents the troubled debt restructurings by type of modification:
Interest Rate
Term
Combination
Total
Modification
2013
Real estate - residential mortgage:
One to four family units ............................................ $
Multi-family .............................................................
Real estate - construction .............................................
Real estate - commercial ..............................................
Commercial loans .........................................................
Consumer and other loans ............................................
Total .......................................................................... $
417,070 $
-
-
-
-
-
417,070 $
245,528 $
-
-
3,297,014
3,114,327
-
6,656,869 $
662,598
-
73,845
3,297,014
3,114,327
-
7,147,784
- $
-
73,845
-
-
-
73,845 $
2012
Interest Rate
Term
Combination
Total
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 .......................................................................... $
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
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, 2013 and 2012:
As of December 31, 2013
Construction
Commercial
Real Estate
One to
four
family
Multi-
family
(In Thousands)
Commercial
Consumer
and Other
Total
Rating:
Pass ............................................... $
Special Mention ............................
Substandard ..................................
Doubtful ........................................
Total .......................................... $
31,433 $
7,253
683
3,897
43,266 $
169,135 $ 83,341 $ 45,768 $
420
8,954
-
1,503
-
-
179,080 $ 93,798 $ 46,188 $
4,721
5,224
-
78,622 $ 16,743 $425,042
107 30,616
9,161
453 10,601
2,738
2,201
6,098
92,722 $ 17,303 $472,357
-
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 $
6,868
5,581
693
48,917 $
156,448 $ 94,209 $ 45,133 $
1,272
1,636
-
3,507
-
30
167,761 $ 99,382 $ 46,405 $
4,976
6,337
-
88,230 $ 15,840 $435,635
93 17,100
2,255
784 20,951
4,742
723
-
95,227 $ 16,717 $474,409
-
41
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
The weighted average interest rate on loans as of December 31, 2013 and 2012 was 5.78% and 5.89%,
respectively.
The Bank serviced mortgage loans for others amounting to $106,079 and $184,045 as of December 31, 2013 and
2012, respectively. The Bank serviced commercial loans for others amounting to $6,531,898 and $2,046,506 as of
December 31, 2013 and 2012, 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,
2013
2,250,789 $
11,763,779
25,115
9,446,636
271,799
23,758,118
(12,871,398)
10,886,720 $
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
Depreciation expense was $822,316, $747,368 and $717,222 for the years ended December 31, 2013, 2012 and
2011, respectively.
NOTE 5: BANK OWNED LIFE INSURANCE
The Company has purchased Bank owned life insurance on certain key members of management. 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, 2013 and 2012 was
$14,043,697 and $13,657,480, 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, 2013 and 2012, the net carrying values of the Company’s
investments in these entities was $4,466,001 and $5,355,254, respectively, and are included in other assets on the
Company’s Consolidated Balance Sheets.
The Company received income tax credits of $1,221,394, $1,247,394 and $1,203,887 during 2013, 2012 and 2011,
respectively. Amortization of the investment costs was $885,478, $885,478 and $863,112 during 2013, 2012 and 2011,
respectively.
42
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
NOTE 7: DEPOSITS
Deposits are comprised of the following at December 31, 2013 and 2012:
December 31, 2013
December 31, 2012
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% $ 48,677,819
0.35% 86,601,344
0.47% 204,740,175
0.21% 23,726,095
0.36% 363,745,433
0.78% 117,625,137
5,259,772
2.46%
4.28%
688,597
0.87% 123,573,506
0.49% $ 487,318,939
10.0%
17.8%
42.0%
4.9%
74.6%
24.1%
1.1%
0.1%
25.4%
100.0%
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
7,049,432
2.59%
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%
The aggregate amount of certificates of deposit with a minimum balance of $100,000 was approximately
$60,941,000 and $71,780,000, as of December 31, 2013 and 2012, respectively.
A summary of certificates of deposit by maturity as of December 31, 2013, is as follows:
2014 .................................................................................................................................................... $
2015 ....................................................................................................................................................
2016 ....................................................................................................................................................
2017 ....................................................................................................................................................
2018 ....................................................................................................................................................
Thereafter ..............................................................................................................................................
$
72,509,857
30,062,334
9,257,696
6,106,503
3,226,028
2,411,088
123,573,506
A summary of interest expense on deposits is as follows:
2013
Years ended December 31,
2012
2011
NOW and Money Market accounts .............................................. $
Savings accounts ..........................................................................
Certificate accounts ......................................................................
Early withdrawal penalties ...........................................................
$
1,521,465 $
53,647
1,295,864
(11,378)
2,859,598 $
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
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 $53,176,000 and $49,072,000 as of December 31, 2013 and 2012, 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, 2013
December 31, 2012
Amount
Weighted Average
Rate
Amount
Weighted Average
Rate
-
250,000
50,000,000
2,100,000
52,350,000
0.00%
4.66%
2.14%
4.87%
2.26% $
15,700,000
250,000
50,000,000
2,100,000
68,050,000
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 35% of assets, the Bank has the ability to borrow an additional $103.9
million from the FHLB, as of December 31, 2013.
Federal Reserve Bank Borrowings
During 2008, the Bank established a borrowing line with the Federal Reserve Bank. The Bank had an outstanding
balance of $3.0 million and the ability to borrow an additional $27.1 million as of December 31, 2013. 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.
Securities Sold Under Agreements to Repurchase
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 $15.0 million in May 2013 and
another agreement in the amount of $5.0 million in November 2011.
The Company has pledged certain investment securities with a fair value of $12.1 million and $29.9 million as of
December 31, 2013 and 2012, respectively, to these repurchase agreements.
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 were
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 were 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.
44
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
NOTE 10: INCOME TAXES
As of December 31, 2013 and 2012, 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, 2013 and 2012.
The provision (credit) for income taxes consists of:
2013
Years Ended December 31,
2012
2011
Taxes currently payable (receivable) .............. $
Deferred income taxes ....................................
$
647,036 $
983,526
1,630,562 $
(292,122 ) $
160,784
(131,338 ) $
(246,017)
949,122
703,105
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, 2013 and 2012
balance sheets are:
Deferred tax assets:
December 31,
2013
December 31,
2012
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 .......................................................................................
Unrealized depreciation on available-for-sale securities .....................................
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 income tax credits ....................................................
Increase for state low income housing tax credits generated ...............................
Ending balance ....................................................................................................
Net deferred tax asset .............................................................................................. $
2,886,592 $
879,113
-
-
64,886
1,471,923
382,723
5,685,237
(68,953 )
-
(273,481 )
(64,152 )
(406,586 )
5,278,651
(1,645,379 )
1,719,978
(74,599 )
-
5,278,651 $
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
(1,708,621)
375,415
(312,173)
(1,645,379)
4,319,928
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 effective rate .................................................................
Years ended December 31,
2013
2012
2011
34.0%
34.0%
34.0%
(9.0%)
-
(1.9%)
-
0.6%
23.7%
(33.1%)
(3.3%)
(7.9%)
(3.5%)
6.6%
(7.2%)
(17.8%)
(5.6%)
(7.1%)
5.1%
6.9%
15.5%
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 consolidated 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, municipals, U.S. corporate 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
consolidated 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, 2013 and 2012 (dollar amounts in thousands):
As of December 31, 2013
Financial assets:
Level 1
inputs
Level 2
inputs
Level 3
inputs
Total fair
value
Equity securities:
Other ................................................................................. $
Debt securities:
U.S. government agencies ................................................
U.S. corporate ...................................................................
Municipals ........................................................................
Government sponsored mortgage-backed securities .........
Available-for-sale securities ................................................. $
99 $
-
-
-
-
99 $
- $
31,762
994
13,493
51,345
97,594 $
- $
-
-
-
-
- $
99
31,762
994
13,493
51,345
97,693
47
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
As of December 31, 2012
Financial assets:
Level 1
inputs
Level 2
inputs
Level 3
inputs
Total fair
value
Equity securities:
Other ................................................................................. $
Debt securities:
U.S. government agencies ................................................
U.S. corporate ...................................................................
Municipals ........................................................................
Government sponsored mortgage-backed securities .........
Available-for-sale securities ................................................. $
71 $
-
-
-
-
71 $
- $
38,351
1,908
10,378
51,273
101,910 $
- $
-
-
-
-
- $
71
38,351
1,908
10,378
51,273
101,981
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 consolidated 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, 2013 and 2012
(dollar amounts in thousands):
Impaired loans:
December 31, 2013 .............................................................. $
December 31, 2012 .............................................................. $
Foreclosed assets held for sale:
December 31, 2013 .............................................................. $
December 31, 2012 .............................................................. $
Level 1
inputs
Level 2
inputs
Level 3
inputs
Total fair
value
- $
- $
- $
10,305 $
10,305
- $
10,557 $
10,557
Level 1
inputs
Level 2
inputs
Level 3
inputs
Total fair
value
- $
- $
- $
2,340 $
2,340
- $
3,883 $
3,883
There were no transfers between valuation levels for any asset during the years ended December 31, 2013 or 2012.
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):
Fair Value
December 31,
2013
Valuation
Technique
Unobservable Input
Range
(Weighted
Average)
Impaired loans (collateral
dependent) .................................... $
9,411 Market Comparable
Discount to reflect
realizable value
0% - 29% (7%)
Impaired loans ................................ $
894 Discounted cash flow
Discount rate
0%
(0%)
Foreclosed assets held for sale ....... $
2,340 Market Comparable
Discount to reflect
realizable value
0% - 10% (5%)
The following methods were used to estimate the fair value of all other financial instruments recognized in the
accompanying consolidated 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 consolidated 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 and Federal Reserve 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, 2013
and 2012.
December 31, 2013
Fair
Value
Carrying
Amount
Hierarchy
Level
December 31, 2012
Fair
Value
Carrying
Amount
Hierarchy
Level
Financial assets:
Cash and cash equivalents .......... $ 12,303,200 $ 12,303,200
81,089
79,162
Held-to-maturity securities .........
2,885,100
Federal Home Loan Bank stock .. 2,885,100
Mortgage loans held for sale .......
623,432
623,432
Loans, net ................................... 464,379,854 466,057,001
1,852,641
Interest receivable ....................... 1,852,641
Financial liabilities:
181,042
3,805,500
2,843,757
1 $ 41,663,405 $ 41,663,405
193,482
2
3,805,500
2
2
2,843,757
3 465,531,973 475,374,676
2,055,369
2
2,055,369
Deposits ...................................... 487,318,939 476,503,513
FHLB and Federal Reserve
2 500,014,715 500,580,070
advances ................................. 55,350,000 57,185,083
2 68,050,000 72,035,160
Securities sold under agreements
to repurchase ........................... 10,000,000
7,978,555
Subordinated debentures ............. 15,465,000 15,465,000
250,361
Interest payable ...........................
250,361
2 25,000,000 25,114,464
3 15,465,000 15,465,000
399,684
2
399,684
Unrecognized financial instruments
(net of
contractual value):
Commitments to extend credit ....
Unused lines of credit .................
-
-
-
-
-
-
-
-
-
-
1
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.
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, 2013,
non-incentive stock options for 25,000 shares and restricted stock for 79,677 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.
50
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
The table below summarizes transactions under the Company’s stock option plans:
Number of shares
Incentive
Stock Option
Non-Incentive
Stock Option
Weighted
Average
Exercise Price
Balance outstanding as of January 1, 2011 ..................................
Granted .....................................................................................
Exercised ..................................................................................
Forfeited ...................................................................................
Balance outstanding as of December 31, 2011 ............................
Granted .....................................................................................
Exercised ..................................................................................
Forfeited ...................................................................................
Balance outstanding as of December 31, 2012 ............................
Granted .....................................................................................
Exercised ..................................................................................
Forfeited ...................................................................................
Balance outstanding as of December 31, 2013 ............................
Options exercisable as of December 31, 2013 .............................
194,750
-
-
(10,250)
184,500
-
(2,003)
(7,997)
174,500
-
(1,800)
(4,600)
168,100
147,300
170,829 $
-
-
(3,829)
167,000
-
-
-
167,000
-
-
(46,000)
121,000 $
104,250 $
16.14
-
-
17.51
16.09
-
6.18
6.18
16.38
-
5.23
15.86
16.54
18.23
As of December 31, 2013, total outstanding stock options of 289,100 had a remaining contractual life of 3.10
years.
The total intrinsic value of outstanding stock options was $0 at both December 31, 2013 and 2012 and the total
intrinsic value of outstanding exercisable stock options was $0 at both December 31, 2013 and 2012. The total fair value of
share awards vested was $432,850 and $306,950 during 2013 and 2012, respectively.
There were no options granted during the years ended December 31, 2013 and 2012. 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 ............................................................... $
December 31, 2010
-
2.15%
5
42.62%
2.04
In January 2013 and 2012, the Company granted restricted stock to directors that was fully vested and thus,
expensed in full during the year ended December 31, 2013 and 2012, respectively. The amount expensed of $116,032 and
$110,009 for 2013 and 2012, respectively, represents 16,576 and 18,520 shares of common stock at a market price of $7.00
and $5.94, 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 2013 and 2012 was $89,357 and $79,330, respectively.
51
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
Total stock-based compensation expense is comprised of expense for restricted stock awards and stock options.
Expense recognized for the years ended December 31, 2013, 2012 and 2011 was $254,508, $253,017 and $186,654,
respectively. As of December 31, 2013, there was $30,755 of unrecognized compensation expense related to nonvested
stock options and $35,380 of unrecognized compensation expense related to nonvested restricted stock awards, which will
be recognized over the remaining vesting periods.
Employee Stock Ownership Plan
The Employee Stock Ownership Plan (the “ESOP”) is a tax-qualified retirement plan sponsored and maintained by
the Bank for the benefit of employees of the Company and the Bank. Effective as of December 31, 2012, the Bank’s Board
of Directors approved the termination of the ESOP. Prior to distributing participant account balances held under the ESOP,
the Bank allocated all then unallocated shares held by the ESOP as of December 31, 2012 to the appropriate participants’
accounts. The Bank also submitted to the Internal Revenue Service an application for a determination letter in connection
with the termination of the ESOP. By letter dated September 9, 2013, the Service indicated that, based upon the
information contained in the Bank’s application, it had determined that the termination of the ESOP does not adversely
affect its qualification for federal tax purposes. Based on the Service’s issuance of a favorable determination letter, the
Bank distributed all 233,224 shares of common stock held in the account balances to all of the ESOP’s 145 participants by
December 31, 2013.
NOTE 14: PREFERRED STOCK AND COMMON STOCK WARRANT
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 entered into a Placement Agency Agreement with the Treasury on April 15, 2013 in connection
with a private auction by the Treasury of the remaining 12,000 shares of Series A Preferred Stock conducted immediately
thereafter. On April 29, 2013, the Treasury settled the sale of such shares of Series A Preferred Stock to the winning
bidders in the private auction, consisting of six parties unrelated to the Company.
On May 8, 2013, the Company notified the Treasury of its intent to repurchase the Warrant at its fair market value.
The Board of Directors of the Company had previously determined that it would be in the best interest of the Company and
its stockholders to repurchase the Warrant and determined the Warrant’s fair market value to be $2,003,250 (the “Fair
Market Value”). On May 10, 2013, the Treasury notified the Company that it had accepted the Company’s offer to
repurchase the Warrant at its Fair Market Value. Accordingly, on May 15, 2013, the Company entered into a Letter
Agreement with Treasury pursuant to which the Company repurchased the Warrant for $2,003,250 in cash. As a result of
the aforementioned, the Warrant is no longer issued or outstanding and the Company’s participation in the CPP is
completed. In addition, though the Series A Preferred Stock remains outstanding, as a result of the Treasury’s sale of the
Series A Preferred stock to third-party investors on April 29, 2013, the Treasury no longer possesses any securities issued
by the Company. Any repurchase or redemption of the Series A Preferred Stock by the Company would require regulatory
approval.
52
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
NOTE 15: OTHER EXPENSES
Other expenses for the years ended December 31, 2013, 2012 and 2011 were as follows:
December 31,
2013
December 31,
2012
December 31,
2011
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 ...................................................................................
243,410 $
111,332
431,519
84,942
74,516
116,661
153,753
87,758
55,234
223,517
124,454
310,853
-
40,000
228,547
885,478
489,484
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
$
3,661,458 $
3,808,042 $
3,510,944
NOTE 16: 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:
2013
Year ended December 31,
2012
2011
Balance, beginning of year ........................................................... $
New Loans ................................................................................
Repayments ..............................................................................
6,095,008 $
782,681
(394,186)
5,794,896 $
464,400
(164,288)
5,982,120
650,095
(837,319)
Balance, end of year ..................................................................... $
6,483,503 $
6,095,008 $
5,794,896
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.
53
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
NOTE 17: 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, 2013 and 2012, the Bank had outstanding commitments to originate fixed-rate mortgage loans
of approximately $3,545,000 and $9,217,000, 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 $12,649,000 and $13,930,000 as of
December 31, 2013 and 2012, 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, 2013 and 2012, these letters of credit aggregated
approximately $10,601,000 and $9,934,000.
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, 2013 and 2012, unused lines of credit to borrowers aggregated approximately $42,518,000
and $33,897,000, respectively, for commercial lines and $14,517,000 and $15,306,000, respectively, for open-end
consumer lines.
54
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
NOTE 18: CONDENSED PARENT COMPANY STATEMENTS
The condensed balance sheets as of December 31, 2013 and 2012, and statements of income and cash flows for the
years ended December 31, 2013, 2012 and 2011 for the parent company, Guaranty Federal Bancshares, Inc., are as follows:
Condensed 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 ............................................................................
Due to subsidiary .............................................................................................................
Deferred income taxes .....................................................................................................
December 31,
2013
2012
822,196 $
99,306
-
62,905,512
465,000
173,698
1,542,319
-
66,008,031 $
681,509
70,914
20,795
64,069,125
465,000
35,579
1,152,319
2,592
66,497,833
15,465,000 $
172,986
6,900
7,912
15,465,000
164,263
-
-
Stockholders' equity
Series A preferred stock ..................................................................................................
Common stock ................................................................................................................
Common stock warrants ..................................................................................................
Additional paid-in capital ................................................................................................
Retained earnings ............................................................................................................
Unrealized gain (loss) on available-for-sale securities, net .............................................
Treasury stock .................................................................................................................
$
11,983,790
678,360
-
57,655,031
43,769,485
(2,506,248 )
(61,225,185 )
66,008,031 $
11,789,276
678,180
1,377,811
58,267,529
39,324,292
800,826
(61,369,344)
66,497,833
55
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
Condensed Statements of Income
Income
Dividends from subsidiary bank ..................................................... $
Interest income:
Related party ...............................................................................
Other ...............................................................................................
Expense
Interest expense:
Years ended December 31,
2012
2011
2013
4,003,250 $
6,500,000 $
1,000,000
-
16,152
4,019,402
8,471
19,510
6,527,981
14,753
18,369
1,033,122
Related party ...............................................................................
Other ...............................................................................................
Income before income taxes and equity in undistributed income
(loss) of subsidiaries .......................................................................
Credit for income taxes ......................................................................
Income before equity in undistributed earnings of subsidiaries .........
Equity in undistributed income (distribution in excess of income) of
537,178
815,865
1,353,043
2,666,359
(412,000)
3,078,359
556,159
878,305
1,434,464
610,929
462,971
1,073,900
5,093,517
(435,000 )
5,528,517
(40,778)
(349,000)
308,222
subsidiaries .....................................................................................
Net income ......................................................................................... $
2,161,348
5,239,707 $
(3,584,658 )
1,943,859 $
3,527,417
3,835,639
56
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
Condensed 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 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 ........................................
Repurchase of stock warrants .........................................................
Redemption of preferred stock .......................................................
Net cash used in financing activities ..................................................
Years ended December 31,
2012
2011
2013
5,239,707 $
1,943,859 $
3,835,639
(2,161,348)
-
-
254,509
(138,119)
(390,000)
8,723
2,813,470
9,408
(600,000)
(106,636)
27,695
(2,003,250)
-
(2,672,783)
3,584,658
-
153,848
253,017
147,929
(435,000 )
9,058
5,657,369
(3,527,417)
38,834
126,737
186,654
104,176
(217,833)
(59,682)
487,108
12,388
(744,444 )
(25,736 )
500
-
(5,000,000 )
(5,757,292 )
-
(850,000)
(53,230)
-
-
-
(903,230)
Increase (Decrease) in cash ..............................................................
140,687
(99,923 )
(416,122)
Cash, beginning of year ...................................................................
681,509
781,432
(417,988)
Cash, end of year .............................................................................. $
822,196 $
681,509 $
(834,110)
57
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 (loss) on investment securities
Years ended December 31,
2012
1,943,859 $
2013
5,239,707 $
2011
3,835,639
available-for-sale, before income taxes ...................................
28,392
8,652
(15,658)
Income tax expense (credit) related to other items of
comprehensive income ............................................................
Other comprehensive income (loss) ............................................
Comprehensive income (loss) of Bank .......................................
TOTAL COMPREHENSIVE INCOME .................................... $
10,505
17,887
(3,324,961)
1,932,633 $
3,200
5,452
4,089
1,953,400 $
(5,794)
(9,864)
(1,041,855)
2,783,920
NOTE 19: SUBSEQUENT EVENT
On March 7, 2014, the Company closed an underwritten offering of its common stock. The Company raised
approximately $17.2 million in gross proceeds by issuing 1,499,999 shares of its common stock, which includes the full
exercise of the over-allotment option granted to the underwriters of 195,652 shares, at a price to the public of $11.50 per
share.
Net proceeds from the sale of the shares after underwriting discounts and estimated offering expenses are expected
to be approximately $15.9 million. The Company intends to use the net proceeds from the offering (i) to redeem the
remaining 12,000 shares of the Company’s Series A Preferred Stock and (ii) for working capital and for general corporate
purposes, including potential future acquisitions.
58
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, 2013 and 2012, 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, 2013. 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, 2013 and 2012,
and the results of its operations and its cash flows for each of the years in the three-year period ended
December 31, 2013, in conformity with accounting principles generally accepted in the United States of
America.
BKD, LLP
Springfield, Missouri
March 28, 2014
Guaranty Federal Bancshares, Inc.
2013 Annual Report
Board of Directors
Guaranty Federal Bancshares, Inc.
and Guaranty Bank
Executive Officers
Guaranty Federal Bancshares, Inc.
and Guaranty Bank
Shaun A. Burke
President,
Chief Executive Officer
Carter M. Peters
Executive Vice President,
Chief 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
Corporate Secretary
Don M. Gibson
Chairman of the Board
Guaranty Federal Bancshares and
Guaranty Bank
Shaun A. Burke
President and CEO
Guaranty Federal Bancshares and
Guaranty Bank
James R. Batten, CPA
Management Consultant
Kurt D. Hellweg
Chairman and CEO
International Dehydrated Foods, Inc. and
American Dehydrated Foods, Inc.
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.
John F. Griesemer
Executive Vice President and COO
Springfield Underground, Inc.
60
This page intentionally left blank
This page intentionally left blank
Annual Report
2013
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
MOrtgage lOan prOductiOn Office:
1100 Spur Drive, Suite 15, Marshfield
417.520.4333 / gbankmo.com