President’s Message
Dear Fellow Shareholders:
2014 was a very good year for us despite continued headwinds as the economy showed little improvement until
late in the year and interest rates remained at historic lows. We reported net income of $5.43 million, up 22
percent from the $4.44 million earned in 2013. Our return on average assets improved from .82 percent in 2013
to .93 percent in 2014. We grew loans by $22.8 million, improved our efficiency ratio to 65.6%, and strengthened
our capital position.
In March 2014, in an underwritten offering of our common stock we raised approximately $17.2 million in gross
proceeds by selling 1,499,999 shares of treasury stock. The new equity allowed us to redeem all our remaining
preferred stock and was a key factor in our tangible common equity ratio improving to 9.78 percent at year end,
up significantly from 6.19 percent in 2013. Despite stronger earnings, these new shares resulted in return on
equity falling to 9.67 percent in 2014 versus 10.34 percent in the prior year. Net income per diluted common
share also fell slightly, from $1.58 in 2013 to $1.33. The enhanced capital position will allow us to remain
focused on strategic organic growth initiatives and potential acquisitions in our region.
In 2014, we grew tangible book value, an important estimate of shareholder value, to $14.30. At $13.17,
Guaranty Federal’s stock finished the year 19 percent higher than the close of 2013. In the past two years GFED
is up over 91% and hit a new 52-week high of $15.50 on January 27, 2015.
To continue to build shareholder value and fund our growth we must remain focused on our key strategy of
growing low-cost, core deposits. Reducing price sensitive deposits was a primary driver in the improvement in
our net interest margin from 3.44 percent in 2013 to 3.51 percent in 2014. For us to continue to attract high
quality deposits and grow our customer base, we must remain competitive from a product and service standpoint.
Several enhancements have begun and are focused on redefining the retail banking experience and building a
stronger mortgage business. These include the new senior position of Director of Consumer Sales and Customer
Experience; upgrades to our website, online and mobile channels, including the addition of Mobile Check
Deposit; offering consumer lending in all banking centers with a new consumer lending platform; and, regaining
direct FHA lending authority and adding an additional direct endorser underwriter to our mortgage team. These
efforts are aimed at creating new and enhanced touch points with customers to ensure a long relationship with the
bank.
In and industry built around products that are largely the same from one provider to the next, we aim to
differentiate ourselves from the competition by continuing to improve the way we engage with our customers.
Customers have nearly unlimited options when it comes to choosing a bank, so it is more important than ever that
we deliver an unparalleled experience with exceptional service every time, across every channel when a customer
chooses Guaranty Bank.
Overall, we had a successful year in 2014. In spite of challenges that include aggressive competition, a slow
economy and increasing regulatory burden, we are excited about the opportunities in front of us and how we are
positioned as we enter 2015. We have a terrific team of employees committed to delivering a superior banking
experience for every customer and focused on creating long-term value for our shareholders.
On behalf of our associates I would like to thank our excellent board of directors for their engagement, dedication
and leadership. In May 2015, we welcomed David Moore to our board of directors. David is President, Chief
Executive Officer, and member of the board of directors of Paul Mueller Company, a publicly held manufacturer
of milk cooling and processing equipment. He brings significant experience in public company management,
corporate governance, business acquisition, and information and technology development. David is a member of
our Audit and Compensation committees.
Finally, I would like to thank you, our shareholders, for your confidence and continued support as we work to
deliver superior value for all our stakeholders.
Sincerely,
Shaun A. Burke
President and Chief Executive Officer
Guaranty Federal Bancshares, Inc.
Guaranty Federal Bancshares, Inc.
2014 Annual Report
INVESTOR INFORMATION
ANNUAL MEETING OF STOCKHOLDERS:
The Annual Meeting of Stockholders of the Company will be held
Wednesday, May 27, 2015 at 6:00 p.m., local time, at the Guaranty
Bank Operations Center, 1414 W. Elfindale, Springfield, Missouri.
CONTENTS
ANNUAL REPORT ON FORM 10-K:
i President’s Message
1
Investor Information
Copies of the Company’s Annual Report on Form 10-K, including
the financial statements, filed 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
2 Common Stock Prices & Dividends
4 Selected Consolidated Financial and Other Data Computershare Investor Services
TRANSFER AGENT:
5 Management’s Discussion and Analysis of
Financial Condition and Results of Operations
18 Consolidated Financial Statements
57 Report of Independent Registered Public
Accounting Firm
58 Directors and Officers
P.O. Box 43078
Providence, RI 02940-3078
STOCK TRADING INFORMATION:
Symbol: GFED
SPECIAL LEGAL COUNSEL:
Husch Blackwell LLP
901 St. Louis St., Suite 1900
Springfield, MO 65806
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM:
BKD, LLP
910 St. Louis St.
PO Box 1190
Springfield, MO 65801-1190
STOCKHOLDER AND FINANCIAL INFORMATION:
Carter Peters,
Executive Vice President, Chief Financial Officer
417-520-4333
1
Guaranty Federal Bancshares, Inc.
2014 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 18, 2015, there were approximately 1,413 holders
of shares of the Company’s common stock. At that date the Company had
6,844,503 shares of common stock issued and 4,375,969 shares of common
stock outstanding.
During the year ended December 31, 2014, the Company paid dividends of
(i) $0.05 per share on July 18, 2014 to stockholders of record as of July 7,
2014, and (ii) $0.05 per share on October 17, 2014, to stockholders of
record as of October 6, 2014, and also declared a cash dividend of $0.05
per share on December 18, 2014, which was paid on January 16, 2015, to
stockholders of record on January 5, 2015. During the year ended
December 31, 2013, 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, 2014 and 2013.
Year ended
December 31, 2014
Year ended
December 31, 2013
High
Low
High
Low
Quarter ended:
March 31 .................................................. $
June 30 .....................................................
September 30 ............................................
December 31 ............................................
13.12 $
12.99
12.76
13.40
10.70 $
12.17
12.20
12.14
10.61 $
10.25
14.50
12.12
6.97
9.30
10.21
10.42
2
Guaranty Federal Bancshares, Inc.
2014 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, 2009 and
the hypothetical value of that investment as of the Company’s fiscal years
ended December 31, 2010, 2011, 2012, 2013, and 2014, assuming that all
dividends were reinvested. The graph reflects the historical performance of
the Common Stock, and, as a result, may not be indicative of possible future
performance of the Common Stock. The data used to compile this graph
was obtained from NASDAQ.
Index
Guaranty Federal Bancshares, Inc.
NASDAQ - Total US ....................
NASDAQ Bank Index ...................
12/31/09
12/31/10
12/31/11
12/31/12
100.00
100.00
100.00
93.70
118.15
114.16
112.20
117.22
102.17
135.63
138.02
121.26
12/31/13
216.52
193.47
171.86
12/31/14
262.34
222.16
180.31
Period Ending
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, 2009 through December 31, 2014, 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
ASSETS
2014
2013
As of December 31,
2012
2011
2010
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 ........................................................
12,494 $
86,529
487,801
2,030
11,421
3,165
10,603
14,417
628,460 $
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
479,818 $
487,319 $
500,015 $
484,584 $
480,694
60,350
10,000
15,465
1,350
566,983
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
STOCKHOLDERS' EQUITY .................................
$
61,477
628,460 $
50,355
619,888 $
50,868
660,432 $
54,235
648,506 $
52,041
682,668
Supplemental Data
2014
2013
As of December 31,
2012
2011
2010
Number of full-service offices ................................
Cash dividends per common share .......................... $
9
0.15 $
9
- $
9
- $
9
- $
9
-
Summary Statements of Income
Interest income ........................................................ $
Interest expense .......................................................
Net interest income .................................................
Provision for loan losses .........................................
Net interest income after provision for loan losses .
Noninterest income .................................................
Noninterest 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 .......................... $
2014
25,014 $
4,329
20,685
1,275
19,410
3,418
15,819
7,009
1,227
5,782 $
357
5,425 $
1.35 $
1.33 $
4
Years ended December 31,
2012
2011
2013
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
1,944 $
1,077
867 $
3,836 $
1,126
2,710 $
2010
32,331
14,806
17,525
5,200
12,325
4,279
15,530
1,074
(57)
1,131
1,126
5
0.32 $
0.30 $
1.01 $
1.01 $
-
-
25,855 $
5,097
20,758
1,550
19,208
5,319
17,657
6,870
1,630
5,240 $
795
4,445 $
1.63 $
1.58 $
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 active 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 and a third inactive
subsidiary. 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 third subsidiary is a service
corporation which has been inactive since February 1, 2003.
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 Annual Report on Form 10-K for the fiscal year ended December 31, 2014.
FINANCIAL CONDITION
From December 31, 2013 to December 31, 2014, the Company’s total assets increased $8,571,509 (1%) to
$628,459,644, liabilities decreased $2,550,105 (less than 1%) to $566,982,797, and stockholders' equity increased
$11,121,614 (22%) to $61,476,847. The ratio of stockholders’ equity to total assets increased to 9.8% during this period,
compared to 8.1% as of December 31, 2013.
From December 31, 2013 to December 31, 2014, available-for-sale securities decreased $11,224,700 (11%),
primarily due to purchases of $40,823,180 offset by sales, maturities and principal payments received of $54,608,993. The
Company’s unrealized loss decreased from $3,978,171 at December 31, 2013 to $711,779 at December 31, 2014.
Stock of the Federal Home Loan Bank of Des Moines (“FHLB”) increased by $271,800 (9%) to $3,156,900 due to
the purchase of stock necessary to meet the FHLB borrowing requirements.
5
Guaranty Federal Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
From December 31, 2013 to December 31, 2014, net loans receivable increased by $22,206,782 (5%) to
$486,586,696. Permanent loans secured by commercial real estate increased $36,525,621 (20%) primarily secured by owner
occupied retail and low-income housing projects. Construction loans decreased $6,481,546 (15%) due to a few larger credits
being completed and transferred to the commercial real estate category. Permanent multi-family loans decreased $12,402,475
(27%) due primarily to the expected payoff of one large credit, Also, commercial loans decreased $607,567 (1%) which was
due to various expected payoffs and principal reductions, Loans secured by both owner and non-owner occupied one to four
unit residential real estate increased $4,103,164 (4%) and installment loans decreased $56,955 (less than 1%).
As of December 31, 2014, management identified loans totaling $5,381,000 as impaired with a related allowance
for loan losses of $784,000. Impaired loans decreased by $10,790,000 during 2014, compared to the balance of $16,171,000
at December 31, 2013.
From December 31, 2013 to December 31, 2014, the allowance for loan losses decreased $1,213,003 to $6,588,597.
In addition to the provision for loan loss of $1,275,000 recorded by the Company during the year ended December 31, 2014,
loan charge-offs of specific loans (classified as nonperforming at December 31, 2013) exceeded recoveries by $2,488,003
for the year ended December 31, 2014. The Company’s increase in overall loan balances during 2014 has increased the
general component of the allowance for loan loss reserve requirements. However, the overall reserve decreased as a result of
charge-offs of specific reserves established on nonperforming loans. The allowance for loan losses, as a percentage of gross
loans outstanding (excluding mortgage loans held for sale), as of December 31, 2014 and December 31, 2013 was 1.34% and
1.65%, respectively. The allowance for loan losses, as a percentage of nonperforming loans outstanding, as of December 31,
2014 and December 31, 2013 was 124.5% and 49.2%, respectively. 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.
As of December 31, 2014, foreclosed assets held for sale consisted primarily of one commercial development in
northwest Arkansas of $1.6 million and one commercial property located in Springfield, Missouri of $759,000.
From December 31, 2013 to December 31, 2014, deposits decreased $7,500,657 (2%) to $479,818,282. During this
period, checking and savings transaction balances decreased by $4,908,937 and certificates of deposit declined $2,591,720.
The decline in transactional balances is primarily due to the temporary reduction in the balance of one commercial depositor
offset by significant growth in retail checking and public fund deposits. The Company has continued its strong efforts to
grow core transaction deposits, both retail and commercial.
Federal Home Loan Bank and Federal Reserve Bank advances increased $5,000,000 (9%) from $55,350,000 as of
December 31, 2013 to $60,350,000 as of December 31, 2014. During 2014, the Company utilized Federal Home Loan Bank
advances to fund a portion of its loan growth due to the cost effectiveness of those borrowings. Going forward, the Company
will continue to utilize advances to fund a portion of its organic loan growth.
From December 31, 2013 to December 31, 2014, stockholders’ equity (including unrealized depreciation on
available-for-sale securities, net of tax) increased $11,121,614 (22%) to $61,476,847. This increase was due to several factors.
First, in an underwritten offering of its common stock, the Company raised approximately $17,200,000 in gross proceeds by
selling 1,499,999 shares of its treasury stock. The Company utilized approximately $12.0 million of the net proceeds to
redeem the remaining 12,000 shares of its Series A Preferred Stock on May 7, 2014. Second, equity increased due to the
Company’s net income after preferred stock dividends and accretion of $5,425,486 and the elimination of such dividend
obligations after May 7. Finally, as a result of changes in market interest rates, the Company experienced an improvement in
the value of its investment portfolio. The equity portion of the Company’s unrealized losses on available-for-sale securities
improved by $2,057,827 during 2014. On a per common share basis, stockholders’ equity increased from $14.04 as of
December 31, 2013 to $14.30 as of December 31, 2014.
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, 2014 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, 2014
Year Ended
December 31, 2014
Year Ended
December 31, 2013
Year Ended
December 31, 2012
Balance
Yield /
Cost
Average
Balance
Interest
Yield /
Cost
Average
Balance
Interest
Yield /
Cost
Average
Balance
Interest
Yield /
Cost
ASSETS
Interest-earning:
Loans ............................ $
Investment securities ....
Other assets ...................
Total interest-earning ....
Noninterest-earning ......
$
494,390
86,529
12,105
593,024
35,436
628,460
5.09% $
1.64%
0.12%
4.48%
$
465,874
99,887
23,487
589,248
36,036
625,284
$
23,255
1,627
132
25,014
4.99% $
1.63%
0.56%
4.25%
$
465,796
107,706
30,556
604,058
37,730
641,788
$
23,885
1,795
175
25,855
5.13% $
1.67%
0.57%
4.28%
$
479,699
97,230
30,832
607,761
43,985
651,746
$
25,667
1,756
183
27,606
5.35%
1.81%
0.59%
4.54%
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing:
Savings accounts .......... $
Transaction accounts ....
Certificates of deposit ...
FHLB and Federal
0.20% $
0.40%
0.91%
23,619
283,509
120,982
$
24,366
289,175
121,344
49
1,242
1,038
0.20% $
0.43%
0.86%
$
24,022
296,019
135,871
54
1,521
1,284
0.22% $
0.51%
0.95%
22,317
274,703
151,765
$
60,350
15,465
10,000
513,925
53,058
566,983
61,477
628,460
79,099
1.99%
3.43%
2.61%
0.83%
$
$
53,865
15,465
10,000
514,215
51,277
565,492
59,792
625,284
75,033
1,202
533
265
4,329
2.23%
3.45%
2.65%
0.84%
$
$
56,168
15,465
15,301
542,846
48,280
591,126
50,662
641,788
61,212
1,295
537
406
5,097
2.31%
3.47%
2.65%
0.94%
$
$
68,055
15,465
25,000
557,305
41,356
598,661
53,085
651,746
50,456
81
2,012
1,983
1,544
556
682
6,858
0.36%
0.73%
1.31%
2.27%
3.60%
2.73%
1.23%
Reserve advances ......
Subordinated debentures
Repurchase agreements
Total interest-bearing ....
Noninterest-bearing ......
Total liabilities ..............
Stockholders' equity .....
$
Net earning balance ...... $
Earning yield less
costing rate ................
Net interest income, and
net yield spread on
interest-earning assets
Ratio of interest-earning
assets to interest-
bearing liabilities .......
3.65%
3.40%
3.34%
3.31%
$
20,685
3.51%
$
20,758
3.44%
$
20,748
3.41%
115%
115%
111%
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.
December 31, 2014 versus December 31, 2013 December 31, 2013 versus December 31, 2012
Year ended
Year ended
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
4 $
(130)
(41)
(634) $
(41)
(3)
- $
3
1
(630) $
(168)
(43)
(744) $ (1,069) $
(135)
189
(6)
(1)
31 $ (1,782)
39
(15)
(7)
-
income .......................
(167)
(678)
4
(841)
(556)
(1,210)
16
(1,750)
Interest expense:
Savings accounts ..........
Transaction accounts ....
Certificates of deposit ...
FHLB advances ............
Subordinated debentures
....................................
Repurchase agreements
Net change in interest
1
(35)
(137)
(53)
-
(141)
(6)
(249)
(122)
(41)
(4)
(1)
-
6
13
2
-
-
(5)
(278)
(246)
(92)
(4)
(142)
6
156
(208)
(270)
-
(264)
(31)
(601)
(549)
27
(19)
(20)
(2)
(47)
57
(4)
-
8
(27)
(492)
(700)
(247)
(19)
(276)
expense ......................
(365)
(423)
21
(767)
(580)
(1,193)
12
(1,761)
Change in net interest
income ....................... $
198 $
(255) $
(17) $
(74) $
24 $
(17) $
4 $
11
RESULTS OF OPERATIONS - COMPARISON OF YEAR ENDED DECEMBER 31, 2014 AND
DECEMBER 31, 2013
December 31, 2014 ....................................................
December 31, 2013 ....................................................
Change in rates ...........................................................
3.25%
3.25%
0.00%
Prime
Average for the Year Shown
Ten-Year Treasury
One-Year Treasury
0.12%
0.13%
-0.01%
2.54%
2.35%
0.19%
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, 2014 and December 31, 2013 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 2014 as the Federal Reserve Open Market Committee (“FOMC”) left the
discount rate at 25 basis points. As of December 31, 2014, the prime rate was 3.25% and unchanged from December 31,
2013.
Interest Income. Total interest income decreased $841,184 (3%). The average balance of interest-earning assets
decreased $14,810,000 (2%) while the yield on average interest earning assets decreased 3 basis points to 4.25%.
8
Guaranty Federal Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Interest on loans decreased $630,791 (3%) and the average loan receivable balance increased $78,000 (less than
1%) while the average yield decreased 14 basis points to 4.99%. Strong competition is causing a reduction in rates for new
credits and to maintain existing credit relationships.
Interest Expense. Total interest expense decreased $768,189 (15%) as the average balance of interest-bearing
liabilities decreased $28,631,000 (5%) while the average cost of interest-bearing liabilities decreased 10 basis points to
0.84%.
Interest expense on deposits decreased $530,508 (19%) during 2014 as the average balance of interest bearing
deposits decreased $21,027,000 (5%) and the average interest rate paid to depositors decreased 9 basis points to 0.54%. The
primary reason for the 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.
Net Interest Income. The Company’s net interest income decreased $72,995 (less than 1%). During the year ended
December 31, 2014, the average balance of interest-earning assets exceeded the average balance of interest-bearing liabilities
by $75,033,000, resulting in an increase in the average net earning balance of $13,821,000 (23%). In addition, the Company’s
spread between the average yield on interest-earning assets and the average cost of interest-bearing liabilities increased by 6
basis points from 3.34% to 3.40%.
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 $1,275,000 and
$1,550,000 for the years ended December 31, 2014 and 2013, respectively.
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. The Company has also
experienced lower reserve requirements on newly classified nonperforming credits during the year. The Bank will continue
to monitor its allowance for loan losses and make future additions based on economic and regulatory conditions. Management
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”.
Non-Interest Income. Non-interest income decreased $1,901,007 (36%) which was primarily due to the Company
recognizing $1.4 million in gains on the sale of certain tax credit assets in conjunction with a structured transaction to prepay
a $15 million repurchase agreement during the year ended December 31, 2013.
Gains on sales of loans declined $462,715 (32%). This was primarily due to long-term interest rates increasing
significantly during 2013 and into the first quarter of 2014 which dramatically reduced consumer demand for long-term
secondary market mortgage loans throughout 2014.
Non-Interest Expense. Non-interest expense decreased $1,838,458 (10%). This decrease was primarily due to a $1.5
million prepayment penalty incurred on the prepayment of a repurchase agreement (further discussed above).
Salaries and employee benefits decreased $163,436 (2%) due to a decline in the overall number of staff compared
to the prior year periods and a decline in mortgage commissions from reduced mortgage volume.
FDIC deposit insurance premiums decreased $113,488 (20%). This decrease in FDIC deposit insurance premiums
was primarily due to the overall decline in the total assessment base.
9
Guaranty Federal Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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, 2014 compared to the year ended December 31, 2013. Furthermore, the actual effective tax
rate (based on income before income taxes) also declined from the increased utilization of state low income housing tax
credits.
Cash Dividends Paid. The Company paid dividends of $0.05 per share on July 18, 2014 to stockholders of record as
of July 7, 2014, and $0.05 per share on October 17, 2014, to stockholders of record as of October 6, 2014, and also declared
a cash dividend of $0.05 per share on December 18, 2014, which was paid on January 16, 2015, to stockholders of record on
January 5, 2015. During 2014 and 2013, the Company also paid $413,000 and $600,000, respectively, in dividends on its
preferred stock.
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%.
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%.
10
Guaranty Federal Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Provision for Loan Losses. Provisions for loan losses are charged or credited to earnings to bring the total allowance
for loan losses to a level considered adequate by the Company to provide for potential loan losses in the existing loan
portfolio. When making its assessment, the Company considers prior loss experience, volume and type of lending, local
banking trends and impaired and past due loans in the Company’s loan portfolio. In addition, the Company considers general
economic conditions and other factors related to collectability of the Company’s loan portfolio.
Based on its internal analysis and methodology, management recorded a provision for loan losses of $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.
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.
11
Guaranty Federal Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
ASSET / LIABILITY MANAGEMENT
The responsibility of managing and executing the Bank’s Asset Liability Policy falls to the Bank’s Asset/ Liability
Committee (ALCO.) ALCO seeks to manage interest rate risk so as to capture the highest net interest income, and to stabilize
that net interest income, through changing interest rate environments. Management attempts to position the Bank’s instrument
repricing characteristics in line with probable rate movements in order to minimize the impact of changing interest rates on
the Bank’s net interest income. Since the relative spread between financial assets and liabilities is constantly changing, the
Bank’s current net interest income may not be an indication of future net interest income.
The Bank has continued to emphasize the origination of commercial business, home equity, consumer and
adjustable-rate, one- to four-family residential loans while originating fixed-rate, one- to four-family residential loans
primarily for immediate resale in the secondary market. Management continually monitors the loan portfolio for the purpose
of product diversification and over concentration.
The Bank constantly monitors its deposits in an effort to prohibit them from adversely impacting the Bank’s interest
rate sensitivity. Rates of interest paid on deposits at the Bank are priced competitively in order to meet the Bank’s
asset/liability management objectives and spread requirements. As of December 31, 2014 and 2013, the Bank’s savings
accounts, checking accounts, and money market deposit accounts totaled $358,836,495 or 75% of its total deposits and
$363,745,433 or 75% of total deposits, respectively. The weighted average rate paid on these accounts decreased 4 basis
points from 0.36% on December 31, 2013 to 0.32% on December 31, 2014 primarily due to the Bank’s efforts to reprice its
retail and business accounts during 2014.
INTEREST RATE SENSITIVITY ANALYSIS
The following tables set forth as of December 31, 2014 and 2013, 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.
12/31/2014
BP Change
in Rates
+200 ................................................. $
+100 .................................................
NC ...................................................
-100 ..................................................
-200 ..................................................
$ Amount
Estimated Net Portfolio Value
$ Change
NPV as % of PV of Assets
% Change NPV Ratio Change
64,209 $
64,590
64,534
62,667
67,890
(325)
56
-
(1,867)
3,356
-1%
0%
0%
-3%
5%
10.39%
10.33%
10.19%
9.80%
10.53%
0.20%
0.13%
0.00%
-0.39%
0.34%
12/31/2013
BP Change
in Rates
+200 ................................................. $
+100 .................................................
NC ...................................................
-100 ..................................................
-200 ..................................................
$ Amount
Estimated Net Portfolio Value
$ Change
NPV as % of PV of Assets
% Change NPV Ratio Change
59,083 $
60,766
63,218
65,226
69,496
(4,135)
(2,452)
-
2,008
6,277
-7%
-4%
0%
3%
10%
9.89%
9.99%
10.18%
10.26%
10.69%
-0.28%
-0.19%
0.00%
0.09%
0.52%
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.
12
Guaranty Federal Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management cannot predict future interest rates or their effect on the Bank’s EVE in the future. Certain shortcomings
are inherent in the method of analysis presented in the computation of EVE. For example, although certain assets and
liabilities may have similar maturities or periods to repricing, they may react in differing degrees to changes in market interest
rates. Additionally, certain assets, such as floating-rate loans, which represent the Bank’s primary loan product, have an initial
fixed rate period typically from one to five years and over the remaining life of the asset changes in the interest rate are
restricted. In addition, the proportion of adjustable-rate loans in the Bank’s loan portfolio could decrease in future periods
due to refinancing activity if market interest rates remain constant or decrease in the future. Further, in the event of a change
in interest rates, prepayment and early withdrawal levels could deviate significantly from those assumed in the table. Finally,
the ability of many borrowers to service their adjustable-rate debt may decrease in the event of an interest rate increase.
The Bank’s Board of Directors is responsible for reviewing the Bank’s asset and liability policies. The Bank’s
management is responsible for administering the policies and determinations of the Board of Directors with respect to the
Bank’s asset and liability goals and strategies. Management expects that the Bank’s asset and liability policies and strategies
will continue as described above so long as competitive and regulatory conditions in the financial institution industry and
market interest rates continue as they have in recent years.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity refers to the ability to manage future cash flows to meet the needs of depositors and borrowers and fund
operations. Maintaining appropriate levels of liquidity allows the Company to have sufficient funds available for customer
demand for loans, withdrawal of deposit balances and maturities of deposits and other liabilities. The Company’s primary
sources of liquidity include cash and cash equivalents, customer deposits and FHLB borrowings. The Company also has
established borrowing lines available from the Federal Reserve Bank which is considered a secondary source of funds.
The Company’s most liquid assets are cash and cash equivalents, which are cash on hand, amounts due from
financial institutions, and certificates of deposit with other financial institutions that have an original maturity of three months
or less. The levels of such assets are dependent on the Bank’s operating, financing, and investment activities at any given
time. The Company’s cash and cash equivalents totaled $12,493,890 as of December 31, 2014 and $12,303,200 as of
December 31, 2013, representing an increase of $190,690. 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
$68,235,265 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 $95,764,000 from the FHLB, as of
December 31, 2014. Based on existing collateral, the Bank has the ability to borrow $28,990,000 from the Federal Reserve
Bank as of December 31, 2014. 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 $76,927,000 is 12.3% of average assets as of December 31, 2014. The
Company has an excess of $51,907,000, $55,999,000, and $41,607,000 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 offering expenses were approximately $15.8
million. The Company used 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.
13
Guaranty Federal Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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, 2014 and 2013, the Bank had outstanding commitments to originate loans of
approximately $2,483,000 and $3,545,000, 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, 2014 and 2013, unused lines of credit to
borrowers aggregated approximately $47,599,000 and $42,518,000 for commercial lines and $13,859,000 and $14,517,000
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 $15,965,000
and $12,649,000 as of December 31, 2014 and 2013, respectively. The commitments extend over varying periods of time.
In connection with the Company’s issuance of the Trust Preferred Securities and pursuant to two guarantee
agreements by and between the Company and Wilmington Trust Company, the Company issued a limited, irrevocable
guarantee of the obligations of each Trust under the Trust Preferred Securities whereby the Company has guaranteed any and
all payment obligations of the Trusts related to the Trust Preferred Securities including distributions on, and the liquidation
or redemption price of, the Trust Preferred Securities to the extent each Trust does not have funds available.
AGGREGATE CONTRACTUAL OBLIGATIONS
The following table summarizes the Company’s fixed and determinable contractual obligations by payment date as
of December 31, 2014. Dollar amounts are expressed in thousands.
Payments Due By Period
Contractual Obligations
Total
or less
One Year One to
More than
Three to
Three Years Five Years 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 .................................................................. $
358,836 $
120,982
10,000
60,350
15,465
289
-
330
566,252 $
358,836 $
68,235
-
8,250
-
129
-
330
435,780 $
- $
39,698
-
-
-
117
-
-
39,815 $
- $
9,932
10,000
52,100
-
43
-
-
72,075 $
-
3,117
-
-
15,465
-
-
-
18,582
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.
14
Guaranty Federal Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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.
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 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“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 was effective for the Company beginning January 1, 2015. 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. The Company expects that
there will be no material impact on the Company’s financial position or results of operations, except that the investment
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.
15
Guaranty Federal Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
In January 2014, the FASB issued ASU No. 2014-04 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 was effective for the Company beginning January 1, 2015, and the Company does not anticipate that
the update will have a material impact on the Company’s financial position or results of operations.
In June 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU
provides a framework that replaces the existing revenue recognition guidance and is effective for annual periods and interim
periods within that reporting period beginning after December 15, 2016, for public entities. Early adoption is not permitted.
The Company does not expect the adoption of ASU 2014-09 to have a material impact on its consolidated financial
statements.
In June 2014, the FASB issued ASU No, 2014-11, Transfers and Servicing (Topic 860) Repurchase-to-Maturity
Transactions, Repurchase Financings, and Disclosures. This ASU changes the accounting for repurchase-to-maturity
transactions to secured borrowing accounting. Additionally, for repurchase financing arrangements, the amendments of this
ASU require separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement
with the same counterparty, which will result in secured borrowing accounting for the repurchase agreement. The
requirements were effective for public entities for the first interim or annual period beginning after December 15, 2014. The
disclosure of certain transactions accounted for as a sale is required to be presented for interim and annual periods beginning
after December 15, 2014, and the disclosure for repurchase agreements, securities lending transactions, and repurchase-to-
maturity transactions accounted for as securities borrowings is required to be presented for annual periods beginning after
December 15, 2014. The Company’s adoption of ASU No. 2014-01 is not expected to have a significant impact on its
consolidated financial statements.
16
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, 2014, Quarter ended
Mar-14
Jun-14
Sep-14
Dec-14
Interest income ............................................................................ $ 6,360,064 $ 6,037,583 $ 6,147,059 $ 6,469,608
Interest expense ........................................................................... 1,100,897 1,060,346 1,086,163 1,081,899
Net interest income ..................................................................... 5,259,167 4,977,237 5,060,896 5,387,709
300,000
Provision for loan losses .............................................................
320,417
Gain on loans and investment securities .....................................
Other noninterest income, net .....................................................
550,474
Noninterest expense .................................................................... 4,344,604 3,882,983 3,851,068 3,740,093
Income before income taxes ........................................................ 1,532,256 1,631,749 1,627,213 2,218,507
436,403
Provision for income taxes ..........................................................
Net income .................................................................................. 1,301,426 1,338,683 1,360,483 1,782,104
Preferred stock dividends and discount accretion .......................
-
Net income available to common shareholders ........................... $ 1,055,216 $ 1,227,683 $ 1,360,483 $ 1,782,104
0.41
Basic income per common share ................................................. $
0.41
Diluted income per common share .............................................. $
325,000
258,270
604,225
200,000
188,666
629,027
450,000
248,413
618,972
0.29 $
0.28 $
0.33 $
0.33 $
0.32 $
0.31 $
111,000
293,066
266,730
246,210
230,830
-
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
232,782
Provision for income taxes ..........................................................
437,799
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 .............................................. $
250,000
400,000
520,734
708,268
499,034 1,976,276
200,000
276,359
599,739
0.50 $
0.49 $
0.28 $
0.25 $
0.42 $
0.41 $
520,134
198,630
439,847
198,630
17
Guaranty Federal Bancshares, Inc.
Consolidated Balance Sheets
December 31, 2014 and 2013
ASSETS
December 31, December 31,
2014
2013
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, 2014 and 2013 - $6,588,597
3,604,316 $
8,889,574
12,493,890
86,467,985
60,993
3,156,900
1,214,632
3,453,032
8,850,168
12,303,200
97,692,685
79,162
2,885,100
623,432
and $7,801,600, respectively .....................................................................................................
486,586,636
464,379,854
Accrued interest receivable:
Loans .........................................................................................................................................
Investments and interest-bearing deposits .................................................................................
Prepaid expenses and other assets .................................................................................................
Foreclosed assets held for sale ......................................................................................................
Premises and equipment, net .........................................................................................................
Bank owned life insurance ............................................................................................................
Income taxes receivable ................................................................................................................
Deferred income taxes ..................................................................................................................
$
1,704,374
325,684
4,530,191
3,165,447
10,602,763
14,417,220
320,416
3,412,513
628,459,644 $
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
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:
479,818,282 $
60,350,000
10,000,000
15,465,000
143,984
963,386
242,145
566,982,797
487,318,939
55,350,000
10,000,000
15,465,000
149,668
998,934
250,361
569,532,902
-
-
Series A preferred stock, $0.01 par value; authorized 2,000,000 shares; issued and
outstanding December 31, 2013 - 12,000 shares ...................................................................
-
11,983,790
Common stock, $0.10 par value; authorized 10,000,000 shares; issued December 31, 2014
and 2013 - 6,823,203 and 6,783,603 shares, respectively .....................................................
Additional paid-in capital ..............................................................................................................
Retained earnings, substantially restricted ....................................................................................
Accumulated other comprehensive loss ........................................................................................
Unrealized loss on available-for-sale securities, net of income taxes; December 31, 2014 and
2013 - ($263,358) and ($1,471,923), respectively ................................................................
Treasury stock, at cost; December 31, 2014 and December 31, 2013 - 2,492,552 and 4,051,248
shares, respectively ...................................................................................................................
$
See Notes to Consolidated Financial Statements
682,320
50,366,546
48,549,691
678,360
57,655,031
43,769,485
(448,421)
99,150,136
(2,506,248)
111,580,418
(37,673,289)
61,476,847
628,459,644 $
(61,225,185)
50,355,233
619,888,135
18
Guaranty Federal Bancshares, Inc.
Consolidated Statements of Income
Years Ended December 31, 2014, 2013 and 2012
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 .......................... $
2014
2013
2012
23,254,863 $
1,627,460
131,991
25,014,314
23,885,654 $
1,794,717
175,127
25,855,498
25,666,608
1,755,804
183,388
27,605,800
2,329,090
1,202,383
533,207
264,625
4,329,305
20,685,009
1,275,000
19,410,009
1,264,027
34,163
981,603
-
(213,239)
1,351,910
3,418,464
8,895,353
1,697,190
448,675
-
685,028
425,004
3,667,498
15,818,748
7,009,725
1,227,029
5,782,696 $
357,210
5,425,486 $
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
20,747,785
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
9,247,912
1,629,566
688,763
-
566,652
300,000
3,808,042
16,240,935
1,812,521
(131,338)
1,943,859
1,076,561
867,298
Basic Income Per Common Share ................................................. $
Diluted Income Per Common Share .............................................. $
1.35 $
1.33 $
1.63 $
1.58 $
0.32
0.30
See Notes to Consolidated Financial Statements
19
Guaranty Federal Bancshares, Inc.
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2014, 2013 and 2012
NET INCOME ................................................................................. $
OTHER ITEMS OF COMPREHENSIVE INCOME (LOSS):
Change in unrealized gain (loss) on investment securities
2014
5,782,696 $
2013
5,239,707 $
2012
1,943,859
available-for-sale, before income taxes ......................................
3,300,555
(5,029,478 )
183,449
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
(34,163)
3,266,392
(219,845 )
(5,249,323 )
(168,306)
15,143
comprehensive income ..............................................................
Other comprehensive income (loss) ..............................................
TOTAL COMPREHENSIVE INCOME ...................................... $
1,208,565
2,057,827
7,840,523 $
(1,942,249 )
(3,307,074 )
1,932,633 $
5,602
9,541
1,953,400
See Notes to Consolidated Financial Statements
20
Guaranty Federal Bancshares, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2014, 2013 and 2012
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 receivable/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 ................................................
Proceeds from sale of state low-income housing tax credits .............
Proceeds from maturities of interest bearing deposits .......................
Purchase of bank owned life insurance .............................................
(Purchase) redemption of Federal Home Loan Bank stock ...............
Proceeds from sale of foreclosed assets held for sale ........................
Net cash used in investing activities ..............................................
See Notes to Consolidated Financial Statements
2014
2013
2012
5,782,696 $
5,239,707 $
1,943,859
657,573
755,937
1,275,000
(1,015,766)
131,840
-
825,906
242,189
(34,694,993)
35,085,396
-
(373,523)
-
(177,417)
1,006,688
(185,259)
183,722
9,499,989
(23,700,987)
18,169
9,698,931
(40,823,180)
41,759,062
3,151,000
(471,980)
-
-
-
(271,800)
657,431
(9,983,354)
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)
21
Guaranty Federal Bancshares, Inc.
Consolidated Statements of Cash Flows (continued)
Years Ended December 31, 2014, 2013 and 2012
2014
2013
2012
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) 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 FHLB and Federal Reserve advances .......................
Repayments of FHLB and Federal Reserve advances .......................
Proceeds from issuance of common stock .........................................
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 .......................
(4,908,937) $
(2,591,720)
-
8,000,000
(3,000,000)
15,814,312
(5,684)
-
(12,000,000)
210,870
(844,786)
-
674,055
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
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ..........................................................................
190,690
(29,360,205 )
15,089,323
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR .
12,303,200
41,663,405
26,574,082
CASH AND CASH EQUIVALENTS, END OF YEAR ................ $
12,493,890 $
12,303,200 $
41,663,405
Supplemental Cash Flows Information
Real estate acquired in settlement of loans .................................... $
371,971 $
705,070 $
1,101,193
Interest paid ................................................................................... $
4,337,521 $
5,246,817 $
6,977,212
Income taxes paid, net of (refunds) ............................................... $
360,000 $
241,000 $
195,000
Sale and financing of foreclosed assets held for sale ..................... $
239,229 $
812,877 $
1,795,070
See Notes to Consolidated Financial Statements
22
Guaranty Federal Bancshares, Inc.
Consolidated Statements of Stockholders’ Equity
Years Ended December 31, 2014, 2013 and 2012
Preferred
Stock
Common
Stock
Common
Stock
Warrants
Additional
Paid-In
Capital
Unearned
ESOP
Shares
Balance, January 1, 2012 . $ 16,425,912 $ 677,980 $ 1,377,811 $ 58,333,614 $ (204,930) $
Net income ..........................
-
Change in unrealized gain
on available-for-sale
securities, net of income
taxes of $5,603 ................
Preferred stock redeemed ..
Preferred stock discount
-
(5,000,000)
-
-
-
-
-
-
-
-
-
-
-
-
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Treasury
Stock
(61,623,816) $ 38,456,991 $
1,943,859
-
791,285 $
-
Total
54,234,847
1,943,859
-
-
-
-
9,541
-
9,541
(5,000,000)
accretion .........................
363,364
-
-
-
-
-
-
-
-
200
-
-
-
-
-
-
-
-
-
-
-
(363,364 )
-
(27,191)
12,188
(51,082)
-
-
-
-
204,930
-
-
280,208
-
-
(25,736)
(713,194 )
-
-
-
-
-
-
-
-
-
-
-
(713,194)
253,017
12,388
153,848
(25,736)
11,789,276 678,180
-
-
1,377,811
-
58,267,529
-
-
-
(61,369,344)
-
39,324,292
5,239,707
800,826
-
50,868,570
5,239,707
accretion .........................
194,514
Preferred stock dividends
(5%) ................................
Stock award plans ..............
Stock options exercised .....
Release of ESOP shares ....
Treasury stock purchased ..
Balance, December 31,
2012 ................................
Net income .........................
Change in unrealized gain
(loss) on available-for-
sale securities, net of
income taxes of
$1,942,249 ......................
Preferred stock discount
Preferred stock dividends
(5%) ................................
Common stock warrants
repurchased ....................
Stock award plans ..............
Stock options exercised .....
Treasury stock purchased ..
Balance, December 31,
2013 ................................
Net income .........................
Change in unrealized gain
(loss) on available-for-
sale securities, net of
income taxes of
$1,208,565 ......................
Preferred stock redeemed ..
Preferred stock discount
accretion .........................
Preferred stock dividends
(5%) ................................
Dividends on common
stock ($0.15 per share) ...
Stock award plans ..............
Stock options exercised .....
Proceeds from issuance of
common stock ................
Balance, December 31,
2014 ................................ $
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
180
-
(1,377,811)
-
-
-
(625,439)
3,713
9,228
-
11,983,790 678,360
-
-
-
-
57,655,031
-
-
(12,000,000)
16,210
-
-
-
-
-
-
-
-
-
-
-
3,960
-
-
-
-
-
-
-
-
-
-
-
-
(644,722)
206,910
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
250,795
-
(106,636)
-
(3,307,074)
(3,307,074)
(194,514 )
(600,000 )
-
-
-
-
-
-
-
-
-
-
-
(600,000)
(2,003,250)
254,508
9,408
(106,636)
(61,225,185)
-
43,769,485
5,782,696
(2,506,248)
-
50,355,233
5,782,696
-
-
-
-
-
886,911
-
-
-
2,057,827
-
2,057,827
(12,000,000)
(16,210 )
(338,000 )
(648,280 )
-
-
-
-
-
-
-
-
(338,000)
(648,280)
242,189
210,870
-
-
(6,850,673)
-
22,664,985
-
-
15,814,312
- $ 682,320 $
- $
50,366,546 $
- $
(37,673,289) $
48,549,691 $
(448,421) $
61,476,847
See Notes to Consolidated Financial Statements
23
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.
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.
24
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
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.
25
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
costs 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 costs to sell.
Revenue and expenses from operations and changes in the valuation allowance are included in net expenses from foreclosed
assets.
Premises and Equipment
Depreciable assets are stated at cost less accumulated depreciation. Depreciation is charged to expense using the
straight-line and accelerated methods over the estimated useful lives of the assets. The estimated useful lives for each major
depreciable classification of premises and equipment are as follows:
Buildings and improvements (years) ..........................
Furniture and fixtures and vehicles (years) ................
35 - 40
3 - 10
Bank Owned Life Insurance
Bank owned life insurance policies are carried at their cash surrender value. The Company recognizes tax-free
income from the periodic increases in cash surrender value of these policies and from death benefits.
Income Taxes
The Company accounts for income taxes in accordance with income tax accounting guidance (ASC 740, Income
Taxes). The income tax accounting guidance results in two components of income tax expense: current and deferred. Current
income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax
law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the
liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the
differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized
in the period in which they occur.
Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred
tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or
sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined
and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets
the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that
has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of
all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition
threshold considers the facts, circumstances and information available at the reporting date and is subject to management’s
judgment. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more
likely than not that some portion or all of a deferred tax asset will not be realized.
The Company recognizes interest and penalties on income taxes as a component of income tax expense.
The Company files consolidated income tax returns with its subsidiary. With a few exceptions, the Company is no
longer subject to U.S. federal or state income tax examinations by tax authorities for years before 2011.
Cash Equivalents
The Company considers all liquid investments with original maturities of three months or less to be cash equivalents.
At December 31, 2014 and 2013 cash equivalents consisted of interest-bearing deposits and money market accounts.
26
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
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, 2014 and 2013, was $8,171,000 and $7,319,000, 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 and 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 consolidated
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, 2014 and
2013, that the Company and the Bank meet all capital adequacy requirements to which they are subject.
As of December 31, 2014, 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.
27
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, 2014
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 .......................................... $
76,927
72,076
12.3% $
11.5% $
25,020
24,966
4.0%
4.0% $
n/a
31,208
n/a
5.0%
76,927
72,076
14.7% $
13.8% $
20,928
20,914
4.0%
4.0% $
n/a
31,371
n/a
6.0%
83,463
78,612
16.0% $
15.0% $
41,856
41,828
8.0%
8.0% $
n/a
52,285
n/a
10.0%
Actual
Amount RaRtio
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%
The amount of dividends that the Company and Bank may pay is subject to various regulatory limitations. As of
December 31, 2014 and 2013 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.
28
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, 2014, 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, 2014, 2013 and 2012 is as
follows
Year Ended Year Ended Year Ended
December 31,
December 31,
2012
2013
December 31,
2014
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 .................................................... $
5,425,486 $
4,006,461
68,040
4,074,501
1.35 $
1.33 $
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
Stock options to purchase 131,500, 154,000 and 201,500 shares of common stock were outstanding during the years
ended December 31, 2014, 2013 and 2012, 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 year ended December 31,
2012 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.
29
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:
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
(Losses)
Approximate
Fair Value
As of December 31, 2014
Equity Securities ......................................................................... $
Debt Securities:
102,212 $
16,121 $
(13,310) $
105,023
U. S. government agencies ...................................................... 10,528,055
Municipals ............................................................................... 15,474,316
Government sponsored mortgage-backed securities and SBA
-
185,747
(271,282) 10,256,773
(70,173) 15,589,890
loan pools ............................................................................. 61,075,181
$87,179,764 $
235,977
(794,859) 60,516,299
437,845 $ (1,149,624) $ 86,467,985
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
990,663
Corporates ................................................................................
Government sponsored mortgage-backed securities ................ 53,245,297
$101,670,858 $
Maturities of available-for-sale debt securities as of December 31, 2014:
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
-
1-5 years ......................................................................................................................... $
5-10 years .......................................................................................................................
After ten years ................................................................................................................
Government sponsored mortgage-backed securities and SBA loan pools not due on a
Amortized
Cost
6,508,809 $
10,631,947
8,861,614
Approximate
Fair Value
6,415,929
10,438,272
8,992,462
single maturity date ....................................................................................................
$
61,075,181
87,077,551 $
60,516,299
86,362,962
30
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, 2014
Debt Securities:
Government sponsored mortgage-backed securities ................ $
60,993 $
1,626 $
- $
62,619
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
(Losses)
Approximate
Fair Value
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
Maturities of held-to-maturity securities as of December 31, 2014:
Government sponsored mortgage-backed securities not due on a single
maturity date ................................................................................................ $
60,993 $
62,619
Amortized
Cost
Approximate
Fair Value
The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, amounted to
$52,907,065 and $42,807,840 as of December 31, 2014 and 2013, respectively.
Gross gains of $320,888, $418,990 and $168,306 and gross losses of $286,725, $199,145 and $0 resulting from sale
of available-for-sale securities were realized for the years ended December 31, 2014, 2013 and 2012, respectively. The tax
effect of these net gains was $12,640, $81,343 and $62,273 in 2014, 2013 and 2012, 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, 2014,
2013 and 2012.
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, 2014 and 2013, was $60,733,191
and $85,712,067, respectively, which is approximately 70% and 88% 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.
31
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
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, 2014 and 2013.
December 31, 2014
Description of Securities
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Less than 12 Months
12 Months or More
Total
- $
Equity Securities .......................... $
U. S. government agencies ...........
-
Municipals .................................... 2,677,626
Government sponsored mortgage-
backed securities and SBA loan
pools ......................................... 12,703,301
$15,380,927 $
- $
34,618 $
- 10,256,773
(7,692) 5,859,560
(13,310) $
34,618 $
(271,282) 10,256,773
(62,481) 8,537,186
(13,310)
(271,282)
(70,173)
(70,049) 29,201,313
(794,859)
(77,741) $45,352,264 $ (1,071,883) $60,733,191 $ (1,149,624)
(724,810) 41,904,614
December 31, 2013
Description of Securities
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Less than 12 Months
12 Months or More
Total
Equity Securities .......................... $
- $
U. S. government agencies ........... 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)
32
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES
Categories of loans at December 31, 2014 and 2013 include:
Real estate - residential mortgage:
One to four family units ............................................................................... $
Multi-family ................................................................................................
Real estate - construction ................................................................................
Real estate - commercial .................................................................................
Commercial loans ............................................................................................
Consumer and other loans ...............................................................................
Total loans ................................................................................................
Less:
Allowance for loan losses ...............................................................................
Deferred loan fees/costs, net ...........................................................................
Net loans .................................................................................................. $
Classes of loans by aging at December 31, 2014 and 2013 were as follows:
As of December 31, 2014
December 31,
2014
2013
97,900,814 $
33,785,959
36,784,584
215,605,054
92,114,216
17,246,437
493,437,064
(6,588,597)
(261,831)
486,586,636 $
93,797,650
46,188,434
43,266,130
179,079,433
92,721,783
17,303,392
472,356,822
(7,801,600)
(175,368)
464,379,854
30-59
Days
Past Due
60-89
Days
Past Due
Greater
Than
90 Days
Total Past
Due
(In Thousands)
Current
Total
Loans
Receivable
Total Loans
> 90 Days
and
Accruing
Real estate - residential
mortgage:
One to four family units . $
Multi-family ..................
Real estate - construction ..
Real estate - commercial ...
Commercial loans .............
Consumer and other loans
Total .............................. $
As of December 31, 2013
113 $
-
-
-
-
23
136 $
428 $
-
-
-
-
35
463 $
279 $
-
-
-
227
-
506 $
97,081 $ 97,901 $
820 $
33,786
33,786
-
-
36,785
36,785
- 215,605 215,605
92,114
91,887
17,246
17,188
1,105 $ 492,332 $ 493,437 $
227
58
-
-
-
-
-
-
-
30-59
Days
Past Due
60-89
Days
Past Due
Greater
Than
90 Days
Total Past
Due
(In Thousands)
Current
Total
Loans
Receivable
Total Loans
> 90 Days
and
Accruing
Real estate - residential
mortgage:
One to four family units . $
Multi-family ..................
Real estate - construction ..
Real estate - commercial ...
Commercial loans ..............
Consumer and other loans .
Total ............................... $
246 $
-
-
-
-
19
265 $
337 $
-
-
-
2
-
339 $
- $
-
536
2,604
3,628
63
6,831 $
583 $
-
536
93,215 $ 93,798 $
46,188
46,188
43,266
42,730
2,604 176,476 179,080
92,722
89,092
3,630
17,303
17,221
82
7,435 $ 464,922 $ 472,357 $
-
-
-
-
-
-
-
33
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,
2014
2013
911,240 $
-
2,892,772
459,823
1,026,772
-
5,290,607 $
815,746
-
4,529,410
3,663,166
6,776,230
63,027
15,847,579
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, 2014, 2013 and 2012:
As of December 31, 2014
Construction
Commercial
Real Estate
One to
four
family
Multi-
family
Commercial
Consumer
and Other
Unallocated
Total
(In Thousands)
Allowance for loan
losses:
Balance, beginning of year $
2,387 $
2,059 $
997 $
209 $
1,519 $
272 $
359 $
7,802
Provision charged to
expense .....................
Losses charged off .......
Recoveries ....................
Balance, end of year ......... $
Ending balance:
individually evaluated
for impairment ............. $
Ending balance:
collectively evaluated
for impairment ............. $
Loans:
Ending balance:
individually evaluated
for impairment ............. $
Ending balance:
collectively evaluated
for impairment ............. $
(651)
(411)
5
1,330 $
(157)
(9)
99
1,992 $
21
(127)
9
900 $
(82)
-
-
127 $
2,388
(2,018)
65
1,954 $
14
(150)
49
185 $
(258) $
- $
- $
101 $
1,275
(2,715)
227
6,589
376 $
158 $
36 $
- $
203 $
12 $
- $
785
954 $
1,834 $
864 $
127 $
1,751 $
173 $
101 $
5,804
2,893 $
460 $
847 $
- $
1,027 $
801 $
- $
6,028
33,892 $
215,145 $ 97,054 $ 33,786 $
91,087 $
16,445 $
- $ 487,409
34
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
As of December 31, 2013
Construction
Commercial
Real Estate
One to
four family
Multi-
family
Commercial
Consumer
and Other
Unallocated
Total
(In Thousands)
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
2,525 $
2,517 $
1,316 $
284 $
1,689 $
255 $
154 $
8,740
691
(879)
50
2,387 $
(181)
(277)
-
2,059 $
(203)
(139)
23
997 $
(75)
-
-
209 $
988
(1,268)
110
1,519 $
125
(164)
56
272 $
205 $
- $
- $
359 $
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
Construction
Commercial
Real Estate
One to
four family
Multi-
family
Commercial
Consumer
and Other
Unallocated
Total
(In Thousands)
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
2,508 $
2,725 $
1,735 $
390 $
1,948 $
372 $
935 $
10,613
1,324
(1,335)
28
2,525 $
683
(985)
94
2,517 $
(179)
(265)
25
1,316 $
(106)
-
-
284 $
5,090
(5,547)
198
1,689 $
(81)
(73)
37
255 $
(781) $
- $
- $
154 $
5,950
(8,205)
382
8,740
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
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.
35
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
The following summarizes impaired loans as of and for the years ended December 31, 2014 and 2013:
As of December 31, 2014
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 ................................................................. $
632 $
-
74
-
341
-
279 $
-
2,819
460
685
91
911 $
-
2,893
460
1,026
91
5,381 $
632 $
-
74
-
341
-
279 $
-
4,074
460
988
91
911 $
-
4,148
460
1,329
91
6,939 $
- $
-
-
-
-
-
36 $
-
376
158
203
12
36 $
-
376
158
203
12
785 $
692 $
35
84
204
1,924
-
322 $
-
3,554
441
1,175
234
1,014 $
35
3,638
645
3,099
234
8,665 $
2
-
-
-
198
-
-
-
-
-
-
-
2
-
-
-
198
-
200
36
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
As of December 31, 2013
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 ................................................................. $
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
(In Thousands)
Average
Investment
in Impaired
Loans
Interest
Income
Recognized
620 $
-
96
3,663
2,327
-
267 $
-
4,433
-
4,449
316
887 $
-
4,529
3,663
6,776
316
16,171 $
620 $
-
96
3,663
2,462
-
267 $
-
5,484
-
5,148
316
887 $
-
5,580
3,663
7,610
316
18,056 $
- $
-
-
-
-
-
8 $
-
890
-
601
102
8 $
-
890
-
601
102
1,601 $
1,908 $
-
3,086
4,310
1,030
91
286 $
-
2,606
561
3,047
319
2,194 $
-
5,692
4,871
4,077
410
17,244 $
5
-
-
40
1
-
-
-
-
-
-
-
5
-
-
40
1
-
46
Interest of approximately $113,000 was recognized on average impaired loans of $25,899,000 for the year ended
December 31, 2012.
At December 31, 2014, 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.
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.
37
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
The following summarizes information regarding new troubled debt restructurings by class:
2014
Pre-Modification
Outstanding
Number of Loans
Recorded Balance
Post-Modification
Outstanding
Recorded Balance
Real estate - residential mortgage:
One to four family units .........................................
Multi-family ..........................................................
Real estate - construction ..........................................
Real estate - commercial ...........................................
Commercial loans ......................................................
Consumer and other loans .....................................
Total ..........................................................................
1 $
-
-
-
2
-
3 $
287,500 $
-
-
-
831,026
-
1,118,526 $
287,500
-
-
-
831,026
-
1,118,526
2013
Pre-Modification
Outstanding
Number of Loans
Recorded Balance
Post-Modification
Outstanding
Recorded Balance
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
The troubled debt restructurings described above increased the allowance for loan losses by $239,724 and $255,679
and resulted in charge offs of $303,345 and $135,063 during the years ended December 31, 2014 and 2013, respectively.
The following presents the troubled debt restructurings by type of modification:
Interest Rate
Term
Combination
Total
Modification
2014
Real estate - residential mortgage:
One to four family units ........................................... $
Multi-family ............................................................
Real estate - construction ............................................
Real estate - commercial .............................................
Commercial loans ........................................................
Consumer and other loans ...........................................
Total ......................................................................... $
- $
-
-
-
-
-
- $
- $
-
-
-
-
-
- $
287,500 $
-
-
-
831,026
-
1,118,526 $
287,500
-
-
-
831,026
-
1,118,526
38
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
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 $
- $
-
73,845
-
-
-
73,845 $
245,528 $
-
-
3,297,014
3,114,327
-
6,656,869 $
662,598
-
73,845
3,297,014
3,114,327
-
7,147,784
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.
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.
39
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
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, 2014 and 2013:
As of December 31, 2014
Construction
Commercial
Real Estate
One to
four
family
Multi-
family
(In Thousands)
Commercial
Consumer
and Other
Total
Rating:
Pass .............................................. $
Special Mention ...........................
Substandard .................................
Doubtful .......................................
Total ......................................... $
27,370 $
6,522
2,893
-
36,785 $
207,311 $ 94,129 $ 33,786 $
-
2,501
-
1,271
-
-
215,605 $ 97,901 $ 33,786 $
5,076
2,758
460
78,197 $ 17,015 $457,808
10,273
- 24,372
231 10,797
3,644
460
-
92,114 $ 17,246 $493,437
-
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
453 10,601
6,098
92,722 $ 17,303 $472,357
9,161
2,738
2,201
-
The weighted average interest rate on loans as of December 31, 2014 and 2013 was 5.09% and 5.78%, respectively.
The Bank serviced mortgage loans for others amounting to $94,214 and $106,079 as of December 31, 2014 and
2013, respectively. The Bank serviced commercial loans for others amounting to $4,672,175 and $6,531,898 as of December
31, 2014 and 2013, respectively.
40
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
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,
2014
December 31,
2013
2,250,789 $
11,805,406
25,115
9,876,988
271,799
24,230,097
(13,627,334)
10,602,763 $
2,250,789
11,763,779
25,115
9,446,636
271,799
23,758,118
(12,871,398)
10,886,720
Depreciation expense was $755,937, $822,316 and $747,368 for the years ended December 31, 2014, 2013, and
2012, 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, 2014 and 2013 was
$14,417,220 and $14,043,697, 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, 2014 and 2013, the net carrying values of the Company’s investments in these
entities was $3,574,183 and $4,466,001, respectively, and are included in other assets on the Company’s Consolidated
Balance Sheets.
The Company received income tax credits of $1,221,394, $1,221,394 and $1,247,394 during 2014, 2013 and 2012,
respectively. Amortization of the investment costs was $885,478 during each of the fiscal years 2014, 2013 and 2012.
41
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
NOTE 7: DEPOSITS
Deposits are comprised of the following at December 31, 2014 and 2013:
December 31, 2014
December 31, 2013
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% $ 51,707,667
0.34% 111,561,440
0.43% 171,948,057
0.20% 23,619,332
0.32% 358,836,496
0.84% 117,499,869
3,481,917
2.27%
0.00%
-
0.88% 120,981,786
0.47% $ 479,818,282
10.8%
23.3%
35.8%
4.9%
74.8%
24.5%
0.7%
0.0%
25.2%
100.0%
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%
The aggregate amount of certificates of deposit with a minimum balance of $100,000 was approximately
$64,768,000 and $60,941,000, as of December 31, 2014 and 2013, respectively.
A summary of certificates of deposit by maturity as of December 31, 2014, is as follows:
2015 ..................................................................................................................................................... $
2016 .....................................................................................................................................................
2017 .....................................................................................................................................................
2018 .....................................................................................................................................................
2019 .....................................................................................................................................................
Thereafter ...........................................................................................................................................
$
62,038,920
26,874,655
19,020,119
5,229,749
4,701,854
3,116,489
120,981,786
A summary of interest expense on deposits is as follows:
Years ended
December 31,
2013
2014
NOW and Money Market accounts ............................................. $
Savings accounts .........................................................................
Certificate accounts .....................................................................
Early withdrawal penalties ..........................................................
$
1,242,158 $
49,071
1,050,081
(12,220)
2,329,090 $
1,521,465 $
53,647
1,295,864
(11,378)
2,859,598 $
2012
2,011,796
80,968
1,999,060
(15,630)
4,076,194
42
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 $50,331,000 and $53,176,000 as of December 31, 2014 and 2013, respectively.
NOTE 8: BORROWINGS
Federal Home Loan Bank Advances
Federal Home Loan Bank advances consist of the following:
Maturity Date
2015 ..............................................................................
2018 ..............................................................................
2019 ..............................................................................
December 31, 2014
December 31, 2013
Amount
Weighted
Average Rate
Amount
Weighted
Average Rate
8,250,000
50,000,000
2,100,000
$ 60,350,000
250,000
0.41%
50,000,000
2.14%
2,100,000
4.87%
2.00% $ 52,350,000
4.66%
2.14%
4.87%
2.26%
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 $95.8 million
from the FHLB, as of December 31, 2014.
Federal Reserve Bank Borrowings
During 2008, the Bank established a borrowing line with the Federal Reserve Bank. The Bank has the ability to
borrow $29.0 million as of December 31, 2014. 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, 2014. At December 31,
2013, the Bank had an outstanding balance of $3.0 million.
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 $12.6 million and $12.1 million as of
December 31, 2014 and 2013, 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.
43
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
NOTE 10: INCOME TAXES
As of December 31, 2014 and 2013, 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, 2014 and 2013.
The provision (credit) for income taxes consists of:
Years Ended
December 31,
2013
2012
2014
Taxes currently payable ........................................................ $
Deferred income taxes ...........................................................
$
560,468 $
666,561
1,227,029 $
647,036 $
983,526
1,630,562 $
(292,122)
160,784
(131,338)
44
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
The tax effects of temporary differences related to deferred taxes shown on the December 31, 2014 and 2013 balance
sheets are:
Deferred tax assets:
December 31, December 31,
2014
2013
Allowances for loan losses .................................................................................. $
Writedowns on foreclosed assets held for sale ....................................................
Deferred loan fees/costs .......................................................................................
Unrealized depreciation on available-for-sale securities .....................................
Other ....................................................................................................................
Deferred tax liabilities:
FHLB stock dividends .........................................................................................
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 .............................................................................................. $
2,240,123 $
781,870
96,877
263,358
421,873
3,804,101
(52,455 )
(268,503 )
(70,630 )
(391,588 )
3,412,513
-
-
-
-
3,412,513 $
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
A reconciliation of income tax expense at the statutory rate to income tax expense at the Company’s effective rate
is shown below:
Years ended
December 31,
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 .......................................................
2014
2013
2012
34.0%
34.0%
34.0%
(11.1%)
-
(1.8%)
-
(3.6%)
17.5%
(9.0%)
-
(1.9%)
-
0.6%
23.7%
(33.1%)
(3.3%)
(7.9%)
(3.5%)
6.6%
(7.2%)
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:
45
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
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, 2014 and 2013 (dollar amounts in thousands):
As of December 31, 2014
Financial assets:
Equity securities:
Level 1 inputs Level 2 inputs Level 3 inputs Total fair value
Other ............................................................ $
105 $
- $
Debt securities:
U.S. government agencies ............................
Municipals ....................................................
Government sponsored mortgage-backed
securities and SBA loan pools ..................
Available-for-sale securities ................................ $
-
-
-
105 $
10,257
15,590
60,516
86,363 $
- $
-
-
-
- $
105
10,257
15,590
60,516
86,468
As of December 31, 2013
Financial assets:
Equity securities:
Level 1 inputs Level 2 inputs Level 3 inputs Total fair value
Other ............................................................ $
99 $
- $
Debt securities:
U.S. government agencies ............................
U.S. corporate ..............................................
Municipals ....................................................
Government sponsored mortgage-backed
securities ...................................................
Available-for-sale securities ................................ $
-
-
-
-
99 $
31,762
994
13,493
51,345
97,594 $
- $
-
-
-
-
- $
99
31,762
994
13,493
51,345
97,693
46
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
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, 2014 and 2013 (dollar
amounts in thousands):
Impaired loans:
December 31, 2014 ..................................................... $
December 31, 2013 ..................................................... $
- $
- $
- $
- $
4,076 $
10,305 $
4,076
10,305
Level 1 inputs
Level 2 inputs
Level 3 inputs
Total fair
value
Foreclosed assets held for sale:
December 31, 2014 ..................................................... $
December 31, 2013 ..................................................... $
- $
- $
- $
- $
354 $
2,340 $
354
2,340
Level 1 inputs
Level 2 inputs
Level 3 inputs
Total fair
value
There were no transfers between valuation levels for any asset during the years ended December 31, 2014 or 2013.
If valuation techniques are deemed necessary, the Company considers those transfers to occur at the end of the period when
the assets are valued.
The following table presents quantitative information about unobservable inputs used in nonrecurring Level 3 fair
value measurements (dollar amounts in thousands):
Impaired loans (collateral
dependent) .............................. $
Foreclosed assets held for sale . $
Fair Value
December 31,
2014
4,076 Market Comparable
Valuation Technique Unobservable Input
Discount to reflect
realizable value
Discount to reflect
realizable value
354 Market Comparable
Range
(Weighted Average)
0%-34%
(16%)
0%-32%
(21%)
47
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
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.
48
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, 2014
and 2013.
Carrying
Amount
December 31, 2014
Fair
Value
Hierarchy
Level
Carrying
Amount
December 31, 2013
Fair
Value
Hierarchy
Level
Financial assets:
Cash and cash equivalents ....... $ 12,493,890 $ 12,493,890
Held-to-maturity securities ......
62,619
Federal Home Loan Bank stock
60,993
3,156,900
.............................................. 3,156,900
Mortgage loans held for sale .... 1,214,632
1,214,632
Loans, net ................................ 486,586,636 487,244,753
2,030,058
Interest receivable .................... 2,030,058
Financial liabilities:
Deposits ................................... 479,818,282 476,519,750
FHLB and Federal Reserve
advances ............................... 60,350,000 61,615,252
Securities sold under
agreements to repurchase ..... 10,000,000 10,371,866
Subordinated debentures .......... 15,465,000 15,465,000
242,145
Interest payable ........................
242,145
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
-
-
$ 12,303,200 $ 12,303,200
81,089
79,162
623,432
2,885,100 2,885,100
623,432
464,379,854 466,057,001
1,852,641 1,852,641
487,318,939 476,503,513
55,350,000 57,185,083
10,000,000 7,978,555
15,465,000 15,465,000
250,361
250,361
-
-
-
-
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, 2014, non-
incentive stock options for 25,000 shares and restricted stock for 114,239 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.
49
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, 2012 .................................
Granted ....................................................................................
Exercised .................................................................................
Forfeited ..................................................................................
Balance outstanding as of December 31, 2012 ...........................
Granted ....................................................................................
Exercised .................................................................................
Forfeited ..................................................................................
Balance outstanding as of December 31, 2013 ...........................
Granted ....................................................................................
Exercised .................................................................................
Forfeited ..................................................................................
Balance outstanding as of December 31, 2014 ...........................
Options exercisable as of December 31, 2014 ............................
184,500
-
(2,003)
(7,997)
174,500
-
(1,800)
(4,600)
168,100
-
(25,100)
(2,700)
140,300
133,900
167,000 $
-
-
-
167,000
-
-
(46,000)
121,000
-
(14,500)
(24,000)
82,500 $
79,500 $
16.09
-
6.18
6.18
16.38
-
5.23
15.86
16.54
-
5.33
19.03
18.23
18.81
As of December 31, 2014, total outstanding stock options of 222,800 had a remaining contractual life of 3.10 years.
The total intrinsic value of outstanding stock options was $727,827 and $778,860 for the years ended December 31,
2014 and 2013. The total intrinsic value of outstanding exercisable stock options was $651,781 and $560,199 for the years
ended December 31, 2014 and 2013. The total fair value of share awards vested was $361,517 and $432,850 during 2014
and 2013, respectively.
In February 2014 and 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, 2014, 2013 and 2012, respectively. The amount expensed of
$122,538, $116,032 and $110,009 for 2014, 2013 and 2012, respectively, represents 11,242, 16,576 and 18,520 shares of
common stock at a market price of $10.90, $7.00 and $5.94, respectively, at the date of grant.
During 2014, the Company granted 23,320 shares of restricted stock to officers that have a cliff vesting at the end
of three years. 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 the CEO, who has a three year cliff vesting. The expense is being recognized over the applicable
vesting period. The amount expensed during 2014, 2013 and 2012 was $102,099, $89,357 and $79,330, respectively.
Total stock-based compensation expense is comprised of expense for restricted stock awards and stock options.
Expense recognized for the years ended December 31, 2014, 2013 and 2012 was $254,340, $254,508 and $253,017,
respectively. As of December 31, 2014, there was $235 of unrecognized compensation expense related to nonvested stock
options and $190,858 of unrecognized compensation expense related to nonvested restricted stock awards, which will be
recognized over the remaining vesting periods.
50
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
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, the Company issued and sold, and the Treasury purchased, (1) 17,000 shares of the Company’s
Fixed Rate Cumulative Perpetual Preferred Stock Series A (the “Series A Preferred Shares”), and (2) a ten-year warrant to
purchase up to 459,459 shares of the Company's common stock at an exercise price of $5.55 per share (the “Warrant”), for
an aggregate purchase price of $17.0 million. The Certificate of Designations by which the Series A Preferred Shares were
created (the “Certificate of Designations”) provided, among other things, that the Series A Preferred Shares were redeemable
at the liquidation amount of $1,000 per share plus accrued but unpaid dividends. The Certificate of Designations also provided
for a dividend rate of 5% per annum for the first five years from the date of issuance which increased to 9% per annum
thereafter. The Series A Preferred Shares qualified as Tier 1 capital.
On June 13, 2012, with regulatory approval, the Company redeemed 5,000 Series A Preferred Shares for $5 million
plus accrued and unpaid dividends of $19,444, leaving 12,000 Series A Preferred Shares remaining outstanding and owned
by Treasury.
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 all of its remaining 12,000 Series A Preferred Shares which was conducted immediately
thereafter (the “Private Auction”). On April 29, 2013, the Treasury settled the sale of such Series A Preferred Shares to the
winning bidders in the Private Auction, consisting of six parties unrelated to the Company.
Shortly thereafter, the Company repurchased the Warrant from Treasury pursuant to the terms thereof for the
aggregate purchase price of $2,003,250 in cash. As a result of the Warrant repurchase, the Company’s participation in the
CPP was completed.
On April 3, 2014, the Company received approval from the Board of Governors of the Federal Reserve System to
redeem the Company’s remaining 12,000 Series A Preferred Shares from the parties who had purchased them from Treasury
or their affiliates, for the liquidation amount of $12 million plus accrued but unpaid dividends of $19.50 per Series A Preferred
Share. At the time of the redemption, the Series A Preferred Shares carried a coupon rate of 9.0% per annum. The Company
provided the holders of the Series A Preferred Stock with a formal notice of redemption and thirty days thereafter redeemed
the Series A Preferred Stock on May 7, 2014, plus all accrued and unpaid dividends.
NOTE 15: COMMON STOCK OFFERING
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 selling 1,499,999 shares of its Treasury 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.
51
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
Net proceeds from the sale of the shares after underwriting discounts and estimated offering expenses were
approximately $15.8 million. The Company used the net proceeds from the offering to redeem the remaining 12,000 shares
of the Company’s Series A Preferred Stock on May 7, 2014 and intends to use the remaining net proceeds for working capital
and for general corporate purposes, including potential future acquisitions.
NOTE 16: OTHER EXPENSES
Other expenses for the years ended December 31, 2014, 2013 and 2012 were as follows:
December 31, December 31, December 31,
2013
2012
2014
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 ..................................................................................
215,465 $
96,660
246,545
67,710
77,909
118,268
149,379
106,139
57,359
217,280
146,845
269,016
-
50,004
253,457
885,478
709,984
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
$
3,667,498 $
3,661,458 $
3,808,042
NOTE 17: RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Bank has granted loans to executive officers and directors and their affiliates.
Annual activity consisted of the following:
2014
Year ended December 31,
2013
2012
Balance, beginning of year .............................................. $
New Loans ...................................................................
Repayments .................................................................
6,483,503 $
394,269
(2,468,128)
6,095,008 $
782,681
(394,186)
5,794,896
464,400
(164,288)
Balance, end of year ........................................................ $
4,409,644 $
6,483,503 $
6,095,008
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.
52
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
NOTE 18: COMMITMENTS AND CREDIT RISK
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require
payment of a fee. Since a portion of the commitments may expire without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements. The Bank evaluates each customer's credit worthiness on a case-by-
case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory,
property and equipment, commercial real estate and residential real estate.
As of December 31, 2014 and 2013, the Bank had outstanding commitments to originate fixed-rate mortgage loans
of approximately $2,483,000 and $3,545,000, 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 $15,965,000 and $12,649,000 as of December
31, 2014 and 2013, respectively, with terms ranging from 1 year to 5 years.
The Bank has confirming letters of credit from the FHLB issued for collateral on public deposits and to enhance
Bank issued letters of credit granted to various customers for industrial revenue bond issues. As of December 31, 2014 and
2013, these letters of credit aggregated approximately $23,884,000 and $10,601,000.
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, 2014 and 2013, unused lines of credit to borrowers aggregated approximately $47,599,000 and
$42,518,000, respectively, for commercial lines and $13,859,000 and $14,517,000, respectively, for open-end consumer
lines.
53
Guaranty Federal Bancshares, Inc.
Notes to Consolidated Financial Statements
NOTE 19: CONDENSED PARENT COMPANY STATEMENTS
The condensed balance sheets as of December 31, 2014 and 2013, and statements of income and cash flows for the
years ended December 31, 2014, 2013 and 2012 for the parent company, Guaranty Federal Bancshares, Inc., are as follows:
Condensed Balance Sheets
Assets
Cash ............................................................................................................................. $
Available-for-sale securities ........................................................................................
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,
2014
2013
3,882,370 $
105,024
71,626,420
465,000
15,954
1,216,032
7,947
77,318,747 $
15,465,000 $
370,000
6,900
-
822,196
99,306
62,905,512
465,000
173,698
1,542,319
-
66,008,031
15,465,000
172,986
6,900
7,912
Stockholders' equity
Series A preferred stock ..............................................................................................
Common stock ............................................................................................................
Additional paid-in capital ............................................................................................
Retained earnings ........................................................................................................
Unrealized loss on available-for-sale securities, net ...................................................
Treasury stock .............................................................................................................
$
-
682,320
50,366,546
48,549,691
(448,421)
(37,673,289)
77,318,747 $
11,983,790
678,360
57,655,031
43,769,485
(2,506,248)
(61,225,185)
66,008,031
Condensed Statements of Income
Years ended December 31,
2013
2012
2014
Income
Dividends from subsidiary bank .................................................... $
Interest income:
Related party ..............................................................................
Other ..............................................................................................
- $
4,003,250 $
6,500,000
-
16,069
16,069
-
16,152
4,019,402
8,471
19,510
6,527,981
Expense
Interest expense:
Related party ..............................................................................
Other ..............................................................................................
Income (loss) before income taxes and equity in undistributed
income (loss) of subsidiaries .........................................................
Credit for income taxes .....................................................................
Income (loss) before equity in undistributed earnings of subsidiaries
Equity in undistributed income (distribution in excess of income) of
533,207
765,848
1,299,055
537,178
815,865
1,353,043
(1,282,986)
(399,000)
(883,986)
2,666,359
(412,000 )
3,078,359
556,159
878,305
1,434,464
5,093,517
(435,000)
5,528,517
subsidiaries ....................................................................................
Net income ........................................................................................ $
6,666,682
5,782,696 $
2,161,348
5,239,707 $
(3,584,658)
1,943,859
54
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:
Years ended December 31,
2013
2012
2014
5,782,696 $
5,239,707 $
1,943,859
(6,666,682)
(17,976)
-
242,189
(2,161,349 )
-
-
254,508
3,584,658
-
153,848
253,017
147,929
(435,000)
9,058
5,657,369
Prepaid expenses and other assets ..............................................
Income taxes payable/refundable ...............................................
Accrued expenses .......................................................................
Net cash provided by (used in) operating activities ..........................
157,745
326,287
55,519
(120,222)
(138,119 )
(390,000 )
8,723
2,813,470
Cash Flows From Financing Activities
Proceeds from issuance of common stock .....................................
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 provided by (used in) financing activities ..........................
15,814,312
210,870
(844,786)
-
-
-
(12,000,000)
3,180,396
-
9,408
(600,000 )
(106,636 )
27,695
(2,003,250 )
-
(2,672,783 )
-
12,388
(744,444)
(25,736)
500
-
(5,000,000)
(5,757,292)
Increase (Decrease) in cash .............................................................
3,060,174
140,687
(99,923)
Cash, beginning of year ..................................................................
822,196
681,509
781,432
Cash, end of year ............................................................................. $
3,882,370 $
822,196 $
681,509
55
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,
2013
5,239,707 $
2014
5,782,696 $
2012
1,943,859
available-for-sale, before income taxes ......................................
5,718
28,392
8,652
Income tax expense related to other items of comprehensive
income ........................................................................................
Other comprehensive income ........................................................
Comprehensive income (loss) of Bank ..........................................
TOTAL COMPREHENSIVE INCOME ...................................... $
2,117
3,601
2,054,226
7,840,523 $
10,505
17,887
(3,324,961 )
1,932,633 $
3,200
5,452
4,089
1,953,400
56
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, 2014 and 2013, 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, 2014. 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, 2014 and 2013,
and the results of its operations and its cash flows for each of the years in the three-year period ended
December 31, 2014, in conformity with accounting principles generally accepted in the United States of
America.
BKD, LLP
Springfield, Missouri
March 27, 2015
Guaranty Federal Bancshares, Inc.
2014 Annual Report
Board of Directors
Guaranty Federal Bancshares, Inc.
and Guaranty Bank
Executive Officers
Guaranty Federal Bancshares, Inc.
and Guaranty Bank
Don M. Gibson
Chairman of the Board
Guaranty Federal Bancshares and
Guaranty Bank
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.
David T. Moore
President and CEO
Paul Mueller Company
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.
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
58
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