SPRINGFIELD:
2144 East Republic Road, Suite F200
1341 West Battlefield
2109 North Glenstone
4343 South National
1905 West Kearney
1510 East Sunshine
2155 West Republic Road
NIXA:
709 West Mount Vernon
291 East Hwy CC
OZARK:
1701 West State Hwy J
JOPLIN:
1429 East 32nd Street
3016 McClelland Boulevard
1936 Range Line Road Suite A
CARTHAGE:
312 West Central Avenue
2435 Fairlawn Drive
NEOSHO:
1285 South Neosho Boulevard
MORTGAGE LOAN PRODUCTION OFFICE:
1100 Spur Drive, Suite 15, Marshfield
OPERATIONS CENTER:
1414 West Elfindale Street, Springfield
833.875.2492 / gbankmo.com
2020
Annual Report
and Proxy
MISSION
Guaranty Bank
actively invests
in the communities
we serve.
We do this
by delivering
world-class solutions
to our customers,
engaging and rewarding
opportunities for
our employees, and
superior value to
our shareholders.
EXECUTIVE OFFICERS
INVESTOR INFORMATION
Guaranty Federal Bancshares, Inc.
2020 ANNUAL REPORT
Guaranty Federal Bancshares, Inc. and Guaranty Bank
Shaun A. Burke
President and CEO
Joined the Company in 2004
Carter M. Peters
Executive Vice President
Chief Financial Officer
Joined the Company in 2005
Robin E. Robeson
Executive Vice President
Chief Operating Officer
Joined the Company in 2012
Sheri D. Biser
Executive Vice President
Chief Credit Officer
Joined the Company in 2009
Craig Dunn
Executive Vice President
Chief Commercial Banking Officer
Joined the Company in 2020
ANNUAL MEETING OF STOCKHOLDERS:
The Annual Meeting of Stockholders of the Company will be held Wednesday, May 26, 2021 at 6:00 p.m.,
local time, at the bank’s Farmers Park headquarters, 2144 E. Republic Road, Building F, Springfield, MO.
ANNUAL REPORT ON FORM 10-K:
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.
2144 East Republic Road, Suite F200, Springfield, MO 65804
TRANSFER AGENT:
Computershare Investor Services
PO Box 43078
Providence, RI 02940-3078
STOCK TRADING INFORMATION:
Symbol: GFED
SPECIAL LEGAL COUNSEL:
Husch Blackwell LLP
901 St. Louis Street, Suite 1900
Springfield, MO 65806
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM:
BKD, LLP
910 St. Louis Street
PO Box 1190
Springfield, MO 65801-1190
STOCKHOLDER AND FINANCIAL INFORMATION:
Carter Peters
Executive Vice President, Chief Financial Officer
833-875-2492
COMPANY OVERVIEW
BRANCH MAP
BOARD OF DIRECTORS
• 16 full-service branches in Southwest Missouri
• 32,000+ MoneyPass ATMs
IOWA
• Loan Production Office in Marshfield, Missouri
ILLINOIS
Guaranty Federal Bancshares, Inc. and Guaranty Bank
Guaranty Federal Bancshares, Inc.
2020 ANNUAL REPORT
• Acquired Hometown Bancshares, Inc.
(Carthage/Joplin, Missouri) in Q2 2018
adding $180MM in assets
• Ameriprise Financial Services partnership
launched in 2019
• Experienced Management Team
• 240 Employees
FINANCIAL HIGHLIGHTS:
YEAR ENDED DECEMBER 31, 2020
Balance Sheet (dollars in thousands)
Total Assets
Total Loans
Total Deposits
Total Equity
Profitability
Return on Average Assets
Return on Average Equity
Net Interest Margin
Efficiency Ratio
$ 1,146,253
753,508
938,673
88,968
0.63%
7.85%
3.06%
71.77%
Asset Quality
Nonperforming Assets/Total Assets
1.67%
Capital
Tangible Common Equity Ratio
7.48%
Tangible Book Value per Common Share $19.71
Kansas City
St. Louis
MISSOURI
KANSAS
Joplin
Springfield
OKLAHOMA
Branson
ARKANSAS
BRANCH LOCATIONS
Springfield
Nixa
Ozark
Carthage
Joplin
Neosho
Branch Locations (16) Major Cities
James R. Batten
Chairman
Management Consultant
Joined the Board in 2006
Shaun A. Burke
President and CEO
Guaranty Federal Bancshares and
Guaranty Bank
Joined the Company in 2004
John F. Griesemer
President/CEO
Erlen Group
Joined the Board in 2008
Kurt D. Hellweg
Retired
Joined the Board in 2000
Greg A. Horton
Chief Executive Officer
Integrity Pharmacy and
Integrity Home Care
Joined the Board in 2016
David T. Moore
President and CEO
Paul Mueller Company
Joined the Board in 2014
Tim Rosenbury, AIA
James L. Sivils, III, JD
Director of Quality of Place Initiatives for
CEO
The City of Springfield, Missouri
Joined the Board in 2002
Environmental Works, Inc.
Joined the Board in 2002
Tony Scavuzzo
Principal
Castle Creek Capital
Joined the Board in 2018
BANK ON COMMUNITY.
A MESSAGE FROM THE PRESIDENT
DEAR FELLOW SHAREHOLDERS:
For the past several years, we focused our time and attention on addressing the pace of change in our industry and
building the capabilities needed to successfully meet our customers’ expectations and to compete and grow well into
the future. We entered 2020 with momentum and optimism following a year that saw record earnings and the company
surpassing $1 billion in assets. We had all the right elements to succeed including strong leadership, a great team, a
strong culture, loyal customers, and a solid financial foundation.
Starting in the second quarter, a global pandemic quickly turned economic tailwinds into headwinds. “Optimism” turned
to “uncertainty” as gross domestic product collapsed at an historic rate, unemployment rose, consumer spending dropped
significantly, and the industry booked near-record loan-loss provisions. The recovery from this bottom in the second
quarter has been aided in remarkable ways by aggressive monetary and fiscal policy. The Federal Reserve slashed interest
rates to zero and provided extraordinary liquidity into the system by expanding its market operations. Congress passed
the largest stimulus package in our country’s history and with this came the launch of the Small Business Administration’s
Paycheck Protection Program, placing the banking sector on the front lines of the economic recovery.
I am proud of our 240 team members and their response to the pandemic and the related economic situation. We kept
people healthy and safe while managing our business well, and we continued to serve our communities by refinancing
record amounts of mortgages, advanced technological initiatives to assist our team and customers in socially distanced
settings, and we supported our customers and their families by generating hundreds of modifications and SBA Paycheck
Protection Program loans.
Despite the tumultuous impacts of the pandemic, we are well-positioned for success. In an operating environment more
uncertain and challenging than any in recent memory, we increased assets 13% in 2020 supported by our continued
success in growing core deposits. We earned $6.8 million and $1.57 per diluted common share compared to $9.4 million
and $2.11 per share in 2019. The decrease in earnings was mostly due to the $3.6 million in credit reserves we took in
2020, compared to just $200,000 in 2019. Our precautionary loan loss reserve build was in response to the uncertain
economy and potential negative impact on certain borrowers. After meeting the capital and liquidity needs of our clients,
we closed out the year with capital ratios exceeding well-capitalized thresholds, and we increased tangible book value
per share 5.3% during the year to $19.71 at December 31, 2020.
In a year of unprecedented change and challenges our team proved its resilience and determination. I am thankful for
their dedication, our customers for their trust, and you, our shareholders, for your continued support.
Sincerely,
Shaun A. Burke
President & Chief Executive Officer
Guaranty Federal Bancshares, Inc.
OUR COMMUNITY
BANK CULTURE
Choice Employer
• Value employee
contribution and
perspective
• Provide development
to reach full potential
Authentic Culture
and Values
• Foster communication,
collaboration,
accountability, trust
and respect
• Moments of Magic
world-class customer
service
Shared Vision
• Simple, powerful strategic
blueprint for success
Relationship
Banking Focus
• Thriving communities
need community banks
LOCAL ISN’T JUST WHERE WE ARE,
IT’S WHO WE ARE.
TOTAL ASSETS ($M)
1200.0
1100.0
1000.0
900.0
800.0
700.0
600.0
500.0
400.0
300.0
200.0
100.0
0.0
2014Y 2015Y 2016Y 2017Y 2018Y 2019Y
2020Y
TOTAL 1-YEAR
SHAREHOLDER RETURN
GFED
SNL U.S. Bank
0.00
(5.00)
(10.00)
%
N
(15.00)
R
U
T
(20.00)
E
R
L
A
(25.00)
T
O
T
(30.00)
(35.00)
(40.00)
(45.00)
NET INCOME AVAILABLE
TO COMMON
SHAREHOLDERS ($M)
9.4
5.7
5.6
5.2
7.3
6.8
2019Q4
2020Q1
2020Q2
2020Q3 2020Q4
SNL U.S. Bank: Includes all Major Exchange
(NYSE, NYSE MKT, NASDAQ) Banks in
SNL’s coverage universe.
2015Y
2016Y
2017Y
2018Y
2019Y
2020Y
TANGIBLE BOOK VALUE
(TBV) PER SHARE
TBV ($)
20.00
19.50
19.00
18.50
18.00
17.50
17.00
16.50
16.00
15.50
15.00
14.50
14.00
13.50
13.00
12.50
12.00
11.50
TBV / Share ($)
Price / TBV (%)
132
131
134
127
100
93
89
2014Y 2015Y 2016Y 2017Y 2018Y 2019Y 2020Y
TBV (%)
260.00
240.00
220.00
200.00
180.00
160.00
140.00
120.00
100.00
80.00
60.00
40.00
20.00
0.00
TOTAL 3-YEAR
SHAREHOLDER RETURN
GFED
SNL U.S. Bank
20.00
15.00
10.00
5.00
0.00
(5.00)
%
N
R
U
T
E
R
(10.00)
L
A
T
O
(15.00)
T
(20.00)
2017Y
2018Y
2019Y
2020Y
SNL U.S. Bank: Includes all Major Exchange
(NYSE, NYSE MKT, NASDAQ) Banks in
SNL’s coverage universe.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number: 0-23325
Guaranty Federal Bancshares, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
43-1792717
(IRS Employer Identification No.)
2144 E Republic Rd, Suite F200
Springfield, Missouri
(Address of principal executive offices)
65804
(Zip Code)
Registrant’s telephone number: 1-833-875-2492
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, Par Value $0.10 per share
Trading Symbol(s)
GFED
Name of each exchange on which registered
NASDAQ Global Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 of Section 15(d) of the Exchange Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements
for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an
emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in
Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Smaller reporting company ☒ Emerging growth
company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period of complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. Yes ☐ No ☒
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant, based on the average bid and asked
prices of the registrant's Common Stock as quoted on the Global Market of The NASDAQ Stock Market on June 30, 2020 (the last business day of the registrant’s
most recently completed fiscal second quarter) was $45.6 million. As of March 1, 2021, there were 4,381,352 shares of the registrant's Common Stock, par value
of $0.10 per share outstanding.
Portions of the Company’s Proxy Statement for the Annual Meeting of Stockholders (the “Proxy Statement”) will be filed with the Securities and
Exchange Commission no later than 120 days after December 31, 2020 are incorporated by reference into Part III hereof.
DOCUMENTS INCORPORATED BY REFERENCE
FORM 10-K
This page intentionally left blank
FORM 10-K GUARANTY FEDERAL BANCSHARES, INC.
Form 10-K
TABLE OF CONTENTS
Item
Page
PART I
1
Business ..................................................................................................................................................... 1
1A
Risk Factors ............................................................................................................................................... 25
1B
Unresolved Staff Comments ...................................................................................................................... 39
2
3
4
5
6
7
Properties ................................................................................................................................................... 39
Legal Proceedings ...................................................................................................................................... 39
Mine Safety Disclosures ............................................................................................................................ 39
PART II
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities ................................................................................................................................................. 40
Selected Financial Data ............................................................................................................................. 43
Management's Discussion and Analysis of Financial Condition and Results of Operations ..................... 44
7A
Quantitative and Qualitative Disclosures About Market Risk ................................................................... 56
8
9
Financial Statements and Supplementary Data .......................................................................................... 58
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ..................... 102
9A
Controls and Procedures ............................................................................................................................ 102
9B
Other Information ...................................................................................................................................... 102
PART III
10
11
12
13
14
15
16
Directors, Executive Officers and Corporate Governance ......................................................................... 103
Executive Compensation ........................................................................................................................... 103
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ... 103
Certain Relationships and Related Transactions, and Director Independence ........................................... 104
Principal Accounting Fees and Services .................................................................................................... 104
PART IV
Exhibits and Financial Statement Schedules.............................................................................................. 104
Form 10-K Summary ................................................................................................................................. 107
FORM 10-K
This page intentionally left blank
FORM 10-K Item 1. Business
Guaranty Federal Bancshares, Inc.
PART I
Guaranty Federal Bancshares, Inc. (hereinafter referred to as “we,” “us,” “our,” or the “Company”) is a Delaware-
chartered corporation that was formed in September 1997. The Company became a unitary savings and loan holding company
for Guaranty Federal Savings Bank, a federal savings bank (the "Bank") on December 30, 1997, in connection with a plan of
conversion and reorganization involving the Bank and its then existing mutual holding company. The mutual holding company
structure had been created in April 1995 at which time more than a majority of the shares of the Bank were issued to the mutual
holding company and the remaining shares were sold in a public offering. In connection with the conversion and reorganization
on December 30, 1997, the shares of the Bank held by the mutual holding company were extinguished along with the mutual
holding company, and the shares of the Bank held by the public were exchanged for shares of the Company. All of the shares of
the Bank which remained outstanding after the conversion are owned by the Company.
On June 27, 2003, the Bank converted from a federal savings bank to a state-chartered trust company with banking
powers in Missouri, and the Company became a bank holding company. On this date, the name of the Bank was changed from
Guaranty Federal Savings Bank to Guaranty Bank. The primary activity of the Company is to oversee its investment in the Bank.
The Company engages in few other activities. For this reason, unless otherwise specified, references to the Company include
operations of the Bank. Further, information in a chart or table based on Bank only data is identical to or immaterially different
from information that would be provided on a consolidated basis. In addition to the Bank, the Company owns Guaranty Statutory
Trust I and Guaranty Statutory Trust II, both Delaware statutory trusts.
On April 2, 2018, the Company completed the acquisition of Carthage, Missouri-based Hometown Bancshares, Inc.
(“Hometown”) including its wholly owned bank subsidiary, Hometown Bank, National Association and Hometown Bancshares
Statutory Trust I, a Delaware statutory trust. Under the terms of the Agreement and Plan of Merger, each share of Hometown
common stock was exchanged for $20.00 in cash and the transaction was valued at approximately $4.6 million. Hometown’s
subsidiary bank, Hometown Bank, National Association, was merged into Guaranty Bank on June 8, 2018. Including the effects
of acquisition method accounting adjustments, the Company acquired approximately $178.8 million in assets, including
approximately $143.9 million in loans (inclusive of loan discounts) and approximately $161.2 million in deposits. Goodwill of
$1.4 million was also recorded as a result of this transaction. The acquisition strengthened the Company’s position in Southwest
Missouri and has allowed the Company to achieve cost savings by integrating the two companies and combining accounting,
data processing and other administrative functions.
At December 31, 2020, the Company’s consolidated assets were $1.1 billion, net loans were $742.1 million, deposits
were $938.7 million and total stockholders’ equity was $89.0 million. See Item 6 “Selected Financial Data” for further details
regarding the Company’s financial position and results of operations for the previous five fiscal years.
Guaranty Bank
The Bank's principal business has been, and continues to be, attracting retail deposits from the general public and
investing those deposits, together with funds generated from operations, in commercial real estate loans, multi-family residential
mortgage loans, construction loans, permanent one- to four-family residential mortgage loans, business, consumer and other
loans. The Bank also invests in mortgage-backed securities, U.S. Government and federal agency securities and other marketable
securities. The Bank's revenues are derived principally from interest on its loans and other investments and fees charged for
services provided, and gains generated from sales of loans and investment securities, and the Bank’s results of operations are
primarily dependent on net interest margin, which is the difference between interest income on interest-earning assets and interest
expense on interest-bearing liabilities. The Bank's primary sources of funds are: deposits, borrowings, amortization and
prepayments of loan principal, and amortizations, prepayments and maturities of investment securities.
The Bank is regulated by the Missouri Division of Finance (“MDF”) and its deposits are insured by the Deposit
Insurance Fund of the Federal Deposit Insurance Corporation (the "FDIC"). See discussion under section captioned “Supervision
and Regulation” in this Item 1. The Bank is a member of the FHLB of Des Moines, which is one of 11 regional Federal Home
Loan Banks (“FHLB”).
1
FORM 10-K
Internet Website
The Company’s internet website address is www.gbankmo.com. The information contained on that website is not
included as part of, or incorporated by reference into, this Annual Report on Form 10-K. The Company makes available through
its website its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and any
amendments to these reports as soon as reasonably practicable after they are electronically filed or furnished to the Securities
and Exchange Commission (the “SEC”). These materials are also available free of charge on the SEC’s website at
www.sec.gov.
Market Area
The Bank's primary market areas are Greene, Christian, Jasper, and Newton Counties, which are in the southwestern
corner of Missouri and include the cities of Springfield, Nixa, Ozark, Joplin, Carthage and Neosho, Missouri (our “Market Area”).
The major components of the Market Area’s economy are service industries, education, retail, light manufacturing, hospitality
and health care. There is a significant regional health care presence with three large regional hospitals. There also are four
accredited colleges and two major universities. Part of the area’s growth can be attributed to its proximity to Branson, Missouri,
which has developed a strong tourism industry related to country music, entertainment and outdoor recreation. Branson is located
30 miles south of Springfield and normally attracts between six and seven million tourists each year, many of whom pass through
Springfield. However, Branson’s tourism industry was negatively impacted in 2020 and continues to be negatively impacted by
the effects of the coronavirus or COVID-19 pandemic (“COVID-19”) which is discussed in more detail below. The Bank also
has one Loan Production Office in Webster County, Missouri.
Lending Activities
Like many commercial banks in our market, our loan portfolio is comprised of different types of industries. However,
real estate lending is a significant portion of our business and accounted for 78% of our loan portfolio by value as of December
31, 2020. Set forth below is selected data relating to the composition of the Bank’s loan portfolio at the dates indicated:
2020
2019
As of December 31,
2018
2017
2016
$
%
$
%
$
%
$
%
$
%
(Dollars in Thousands)
Mortgage loans (includes loans held
for sale):
One to four family (1) ..... $ 127,158 17 % $ 121,611 17 % $ 133,928 17 % $ 108,223 17 % $ 108,594 20 %
Multi-family ................... 90,029 12 % 87,448 13 % 90,548 12 % 85,225 13 % 48,483 9 %
Construction ................... 70,847 9 % 77,309 10 % 88,554 11 % 64,744 10 % 40,912 7 %
Commercial real estate ... 305,673 40 % 300,619 41 % 322,921 41 % 261,866 41 % 249,581 46 %
Total mortgage loans .......... 593,707 78 % 586,987 81 % 635,951 81 % 520,058 81 % 447,570 82 %
Commercial business
loans ............................ 144,326 19 % 114,048 15 % 119,369 15 % 94,523 15 % 75,405 14 %
4 % 23,606 4 %
Consumer loans .............. 26,734 3 % 30,666 4 % 33,091 4 % 24,716
Total consumer and other
loans ................................ 171,060 22 % 144,714 19 % 152,460 19 % 119,239 19 % 99,011 18 %
Total loans .......................... 764,767 100 % 731,701 100 % 788,411 100 % 639,297 100 % 546,581 100 %
Less:
Deferred loan fees/costs,
net ................................
1,642
574
600
663
382
Allowance for loan
losses ...........................
9,617
Total Loans, net .................. $ 753,508
7,608
$ 723,519
7,996
$ 779,815
7,107
$ 631,527
5,742
$ 540,457
(1) Includes mortgage loans held for sale of $11,359
2
FORM 10-K
The following table sets forth the maturity of the Bank's loan portfolio as of December 31, 2020. The table shows loans
that have adjustable rates as due in the period during which they contractually mature. The table does not include prepayments
or scheduled principal amortization.
12/31/2020
Loan Maturities
Due in One
Year or Less
Due After
One Through
Five Years
Due After
Five Years
Total
One to four family ......................................................... $
Multi-family ..................................................................
Construction ..................................................................
Commercial real estate ..................................................
Commercial loans .........................................................
Consumer loans .............................................................
Total loans (1) ........................................................... $
Less:
Deferred loan fees/costs ................................................
Allowance for loan losses .............................................
Loans receivable net .....................................................
(1) Includes mortgage loans held for sale of $11,359
(Dollars in thousands)
14,853 $
3,589
14,179
24,409
23,440
6,071
86,541 $
47,560 $
43,381
56,168
184,120
84,779
8,608
424,616 $
64,745 $
43,059
500
97,144
36,107
12,055
253,610 $
$
127,158
90,029
70,847
305,673
144,326
26,734
764,767
1,642
9,617
753,508
The following table sets forth the dollar amount of all loans due after December 2021, before deductions for unearned
discounts, deferred loan fees/costs and allowance for loan losses, which have pre-determined interest rates and those which have
adjustable interest rates.
Fixed and Adjustable Rate Loans by Type
Fixed Rates
Adjustable
Rates
(Dollars in Thousands)
Total
%
Adjustable
One to four family ....................................................... $
Multi-family ................................................................
Construction ................................................................
Commercial real estate ................................................
Commercial loans .......................................................
Consumer loans ...........................................................
Total loans (1) ............................................................. $
59,740 $
27,981
18,618
132,876
82,313
7,405
328,933 $
52,565 $
58,459
38,050
148,388
38,573
13,258
349,293 $
112,305
86,440
56,668
281,264
120,886
20,663
678,226
47 %
68 %
67 %
53 %
32 %
64 %
52 %
(1) Before deductions for unearned discounts, deferred loan fees/costs and allowances for loan losses.
Commercial Real Estate Loans. As of December 31, 2020, the Bank had commercial real estate loans totaling $305.7
million or 40% of the Bank's total loan portfolio. Commercial real estate loans are generally originated in amounts up to 80% of
the appraised value of the mortgaged property. The majority of the Bank’s commercial real estate loans have been originated
with adjustable rates of interest, the majority of which are quoted at a spread to the Wall Street Journal Prime rate for the initial
fixed rate period with subsequent adjustments at a spread to the Wall Street Journal Prime rate. The Bank's commercial real estate
loans are generally permanent loans secured by improved property such as office buildings, retail stores, small shopping centers,
medical offices, motels, churches and other non-residential buildings.
To originate commercial real estate loans, the Bank generally requires a mortgage and security interest in the subject
real estate, personal guarantees of the principals, a security interest in the related personal property, and a standby assignment of
rents and leases. The Bank has established its loan-to-one borrower limitation, which was $30.2 million as of December 31,
2020, as its maximum commercial real estate loan amount.
3
FORM 10-K
Loans secured by commercial real estate are generally larger and involve a greater degree of risk than residential
mortgage loans. Because payments on loans secured by commercial real estate are often dependent on successful operation or
management of the properties, repayment of such loans may be subject, to a greater extent, to adverse conditions in the real estate
market or the economy. The Bank seeks to minimize these risks by careful underwriting, requiring personal guarantees, lending
only to established customers and borrowers otherwise known by the Bank, and generally restricting such loans to its primary
Market Area.
As of December 31, 2020, the Bank’s commercial real estate loan portfolio included approximately $14.2 million, or
1.9% of the Bank’s total loan portfolio in loans to develop land into residential lots. The Bank utilizes its knowledge of the local
market conditions and appraisals to evaluate the development cost and estimate projected lot prices and absorption rates to assess
loans on residential subdivisions. The Bank typically loans up to 75% of the appraised value over terms up to two years.
Development loans generally involve a greater degree of risk than residential mortgage loans because (1) the funds are advanced
upon the security of the land which has a materially lower value prior to completion of the infrastructure required of a subdivision,
(2) the cash flow available for debt repayment is a function of the sale of the individual lots, and (3) the amount of interest
required to service the debt is a function of the time required to complete the development and sell the lots.
Commercial Business Loans. As of December 31, 2020, the Bank had commercial business loans totaling $144.3
million or 19% of the Bank's total loan portfolio. Commercial business loans are generally secured by business assets, such as
accounts receivable, equipment and inventory. Unlike residential mortgage loans, which generally are made on the basis of the
borrower's ability to make repayment from his or her employment and other income and which are secured by real property
whose value tends to be more easily ascertainable, commercial business loans are of higher risk and typically are made on the
basis of the borrower's ability to make repayment from the cash flow of the borrower's business. As a result, the availability of
funds for the repayment of commercial business loans may be substantially dependent on the success of the business itself.
Further, the collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value based
on the success of the business. The Bank expects to continue to expand its commercial business lending as opportunities present
themselves. Included in this category as of December 31, 2020 are $37.3 million loans originated during the year under the Small
Business Administration (“SBA”) Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief and Economic
Security (“CARES”) Act with the majority of the loans having an original duration of two years or less. Detailed information
regarding PPP loans and loan modifications are included below in the General Section of Part II. Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations.
Assumable Rate Conversion (“ARC”) Loans. Within our loan portfolio, the Bank offers certain loan customers the
ability to effectively convert a variable-rate loan agreement to a fixed-rate commercial loan agreement. This is accomplished by
the Bank entering into variable-rate loan agreements (Master Servicing Agreement) with commercial loan customers, and the
customer simultaneously enters into an interest swap agreement directly with a third-party (the “counterparty”). The customer is
required to enter into a transaction agreement as part of each loan. The agreement states that in an event of default by the loan
customer, the Bank must pay a termination value to the extent it is positive. The termination value is defined by the Master
Agreement, which is in essence the fair value of the derivative on the event date. The counterparty pays a fee to the Company
for brokering the transaction and for servicing the loan/swap agreement between the customer and the counterparty. As of
December 31, 2020, $72.4 million of these loans are included in the Commercial Business Loan category noted in the previous
paragraph.
One- to Four-Family Mortgage Loans. The Bank offers fixed- and adjustable-rate (“ARM”) first mortgage loans
secured by one- to four-family residences in the Bank's primary lending area. Typically, such residences are single family homes
that serve as the primary residence of the owner. However, there are a number of loans originated by the Bank which are secured
by non-owner occupied properties. Loan originations are generally obtained from existing or past customers, members of the
local community, established builders and realtors within our Market Area. Originated mortgage loans in the Bank's portfolio
include due-on-sale clauses which provide the Bank with the contractual right to deem the loan immediately due and payable in
the event that the borrower transfers ownership of the property without the Bank's consent.
As of December 31, 2020, $127.2 million or 17% of the Bank’s total loan portfolio consisted of one- to four-family
residential loans. The Bank currently offers ARM and balloon loans that have fixed interest rate periods of one to seven years.
Generally, ARM loans provide for limits on the maximum interest rate adjustment ("caps") that can be made at the end of each
applicable period and throughout the duration of the loan. ARM loans are originated for a term of up to 30 years on owner-
occupied properties and generally up to 25 years on non-owner occupied properties. Typically, interest rate adjustments are
calculated based on U.S. treasury securities adjusted to a constant maturity of one year (CMT), plus a 2.50% to 2.75% margin.
Interest rates charged on fixed-rate loans are competitively priced based on market conditions and the cost of funds existing at
4
FORM 10-K
the time the loan is committed. The Bank's fixed-rate mortgage loans are made for terms of 15 to 30 years with the majority
currently being sold on the secondary market.
Generally, ARM loans pose credit risks different from the risks inherent in fixed-rate loans, primarily because as interest
rates rise, the underlying payments of the borrower rise, thereby increasing the potential for default. At the same time, the
marketability of the underlying property may be adversely affected by higher interest rates. The Bank does not originate ARM
loans that provide for negative amortization.
The Bank generally originates both owner occupied and non-owner occupied one- to four-family residential mortgage
loans in amounts up to 80% of the appraised value or the selling price of the mortgaged property, whichever is lower. The Bank
on occasion may make loans up to 95% of appraised value or the selling price of the mortgaged property, whichever is lower.
However, the Bank typically requires private mortgage insurance for the excess amount over 80% for mortgage loans with loan
to value percentages greater than 80%.
Multi-Family Mortgage Loans. The Bank originates multi-family mortgage loans in its primary lending area. As of
December 31, 2020, $90.0 million or 12% of the Bank's total loan portfolio consisted of multi-family residential real estate loans.
With regard to multi-family mortgage loans, the Bank generally requires personal guarantees of the principals as well as a security
interest in the real estate. Multi-family mortgage loans are generally originated in amounts of up to 80% of the appraised value
of the property. A portion of the Bank’s multi-family mortgage loans have been originated with adjustable rates of interest which
are quoted at a spread to the FHLB advance rate for the initial fixed rate period with subsequent adjustments based on the Wall
Street prime rate. The loan-to-one-borrower limitation, $30.2 million as of December 31, 2020, is the maximum the Bank will
lend on a multi-family residential real estate loan.
Loans secured by multi-family residential real estate generally involve a greater degree of credit risk than one- to four-
family residential mortgage loans and carry larger loan balances. This increased credit risk is a result of several factors, including
the concentration of principal in a limited number of loans and borrowers, the effects of general economic conditions on income
producing properties, and the increased difficulty of evaluating and monitoring these types of loans. Furthermore, the repayment
of loans secured by multi-family residential real estate is typically dependent upon the successful operation of the related real
estate property. If the cash flow from the project is reduced, the borrower's ability to repay the loan may be impaired.
Construction Loans. As of December 31, 2020, construction loans totaled $70.8 million or 9% of the Bank's total loan
portfolio. Construction loans originated by the Bank are generally secured by permanent mortgage loans for the construction of
owner-occupied residential real estate or to finance speculative construction secured by residential real estate or owner-operated
commercial real estate. This portion of the Bank’s loan portfolio consists of speculative loans, i.e., loans to builders who are
speculating that they will be able to locate a purchaser for the underlying property prior to or shortly after the time construction
has been completed.
Construction loans are made to contractors who have sufficient financial strength and a proven track record, for the
purpose of resale, as well as on a "pre-sold" basis. Construction loans made for the purpose of resale generally provide for interest
only payments at floating rates and have terms of six months to fifteen months. Construction loans for speculative purposes,
models, and commercial properties typically have loan to value ratios of up to 80%. Loan proceeds are disbursed in increments
as construction progresses and as inspections warrant.
Construction lending by its nature entails significant additional risks as compared with one-to four-family mortgage
lending, attributable primarily to the fact that funds are advanced upon the security of the project under construction prior to its
completion. As a result, construction lending often involves the disbursement of substantial funds with repayment dependent on
the success of the ultimate project and the ability of the borrower or guarantor to repay the loan. Because of these factors, the
analysis of the prospective construction loan projects requires an expertise that is different in significant respects from that which
is required for residential mortgage lending. The Bank attempts to address these risks through its underwriting and construction
monitoring procedures.
Consumer and Other Loans. The Bank also offers consumer loans, primarily consisting of loans secured by certificates
of deposit, automobiles, recreational vehicles, boats and home equity loans. As of December 31, 2020, the Bank has such loans
totaling $26.7 million or 3% of the Bank’s total loan portfolio.
Director and Insider Loans. Management believes that loans to Directors and Officers are prudent and within the
normal course of business. These loans reflect normal credit terms and represent no more collection risk than any other loan in
the portfolio.
5
FORM 10-K
Delinquencies, Non-Performing and Problem Assets.
Delinquent Loans. As of December 31, 2020, the Bank had 18 loans 90 days or more past due with an aggregate principal
balance of $10,225,731 and 25 loans between 30 and 89 days past due with an aggregate principal balance of $3,278,544. The
Bank generally does not accrue interest on loans past due more than 90 days.
The following table sets forth the Bank's loans that were accounted for on a non-accrual basis or 90 days or more
delinquent at the dates indicated.
Delinquency Summary
Loans accounted for on a non-accrual basis
or contractually past due 90 days or more
Mortgage Loans:
One to four family ........................................... $
Multi-family ....................................................
Construction ....................................................
Commercial real estate ....................................
Non-mortgage loans:
Commercial loans ............................................
Consumer and other loans ...............................
Total non-accrual loans ................................
Accruing loans which are contractually past
maturity or past due 90 days or more:
Mortgage Loans:
One to four family ...........................................
Multi-family ....................................................
Construction ....................................................
Commercial real estate ....................................
Non-mortgage loans:
Commercial loans ............................................
Consumer and other loans ...............................
Total past maturity or past due accruing
loans .........................................................
Total accounted for on a non-accrual basis or
contractually past maturity or 90 days or
more past due ................................................. $
Total accounted for on a non-accrual basis or
contractually past maturity or 90 days or
more past due as a percentage of net loans ....
Total accounted for on a non-accrual basis or
contractually past maturity or 90 days or
more past due as a percentage of total assets .
2020
2019
As of
December 31,
2018
(Dollars in Thousands)
2017
2016
$
$
$
3,086
-
6,240
3,932
13,258
5,250
121
5,371
18,629
2,398
-
3,738
2,941
9,077
856
70
926
10,003
4,136
-
4,088
3,593
11,817
1,263
2
1,265
13,082
$
4,423
-
4,452
162
9,037
803
122
925
9,962
2,060
-
5,447
162
7,669
925
38
963
8,632
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
18,629
$
10,003
$
13,082
$
9,962
$
8,632
2.47%
1.38%
1.68%
1.58%
1.60%
1.63%
0.99%
1.36%
1.24%
1.25%
6
FORM 10-K
Non-Performing Assets. Loans are reviewed on a regular basis and are placed on non-accrual status when, in the opinion
of management, the collection of all interest at contractual rates becomes doubtful. As part of such review, mortgage loans are
placed on non-accrual status generally when either principal or interest is more than 90 days past due, or when other
circumstances indicate the collection of principal or interest is in doubt. Interest accrued and unpaid at the time a loan is placed
on non-accrual status is charged against interest income.
Real estate acquired by the Bank as a result of foreclosure or by deed in lieu of foreclosure is deemed a foreclosed asset
held for sale until such time as it is sold. When a foreclosed asset held for sale is acquired it is recorded at its estimated fair value,
less estimated selling expenses. Valuations of such foreclosed assets are periodically performed by management, and any
subsequent decline in estimated fair value is charged to operations.
The following table shows the principal amount of non-performing loans (i.e. loans that are not performing under
regulatory guidelines) and all foreclosed assets, including assets acquired in settlement of loans and the resulting impact on
interest income for the periods then ended.
Non-Performing Assets
Non-accrual loans:
Mortgage loans:
As of
December 31,
2020
2019
2018
2017
2016
(Dollars in Thousands)
One to four family ........................................... $
Multi-family ....................................................
Construction ....................................................
Commercial real estate ....................................
Non-mortgage loans:
Commercial loans ............................................
Consumer and other loans ...............................
Total non-accrual loans ................................
Real estate and other assets acquired in
3,086 $
-
6,240
3,932
13,258
5,250
121
5,371
18,629
2,398 $
-
3,738
2,941
9,077
856
70
926
10,003
4,136 $
-
4,088
3,593
11,817
1,263
2
1,265
13,082
-
4,423 $ 2,060
-
4,452 5,447
162
9,037 7,669
162
803
122
925
925
38
963
9,962 8,632
settlement of loans ...........................................
Total non-performing assets ............................... $
546
19,175 $
992
10,995 $
1,127
14,209 $
283 2,682
10,245 $11,314
Total non-accrual loans as a percentage of net
loans ................................................................
2.47%
1.38%
1.68%
1.58%
1.60%
Total non-performing assets as a percentage of
total assets .......................................................
1.67%
1.09%
1.47%
1.28%
1.64%
Impact on interest income for the period:
Interest income that would have been recorded
on non-accruing loans ..................................... $
811 $
398 $
299 $
95 $
90
Problem Assets. Federal regulations require that the Bank review and classify its assets on a regular basis to determine
those assets considered to be of lesser quality. In addition, in connection with examinations of insured institutions, bank
examiners have authority to identify problem assets and, if appropriate, require them to be classified. There are three
classifications for problem assets: substandard, doubtful, and loss. "Substandard assets" must have one or more defined
weaknesses and are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies
are not corrected. "Doubtful assets" have the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly
questionable, and improbable. An asset classified "loss" is considered uncollectible and of such little value that continuance as
an asset of the institution is not warranted. The regulations have also created a “special mention” category, described as assets
which do not currently expose an insured institution to a sufficient degree of risk to warrant classification but do possess credit
deficiencies or potential weaknesses deserving management's close attention. Federal regulations require the Bank to establish
general allowances for loan losses from assets classified as substandard or doubtful. If an asset or portion thereof is classified as
loss, the insured institution must either establish specific allowances for loan losses in the amount of 100% of the portion of the
7
FORM 10-K
asset classified loss or charge off such amount. A portion of general loss allowances established to cover possible losses related
to assets classified substandard or doubtful may be included in determining an institution's regulatory capital.
The following table shows the aggregate amounts of the Bank's classified assets as of December 31, 2020.
2020
Classification of Assets
Special Mention
Number Amount Number Amount Number Amount Number Amount
(Dollars in Thousands)
Substandard
Doubtful
Total
Loans:
One to four family ...............
Multi-family ........................
Construction ........................
Commercial real estate ........
Commercial .........................
Consumer and Other ............
Total loans ..............................
Foreclosed assets held-for-sale:
One to four family ...............
Land and other assets ..........
Total foreclosed assets ............
Total ....................................
- $
-
-
3
3
-
6
-
-
-
4,442
123
-
4,565
5,184
49 $
-
-
14
6,316
38 38,460
20 13,329
202
4
125 63,491
-
-
-
-
-
-
6 $ 4,565
-
2
2
-
546
546
127 $ 64,037
- $
-
-
-
-
-
-
-
-
-
- $
-
-
-
-
-
-
-
-
-
-
-
-
49 $ 5,184
-
14 6,316
41 42,902
23 13,452
202
4
131 68,056
-
2
2
-
546
546
133 $68,602
Allowance for Loan Losses and Provision for Loan Losses
The allowance for loan losses is established through a provision for loan losses based on management's evaluation of
the risk inherent in its loan portfolio and the general economy. Such evaluation, which includes a review of all loans on which
full collectability may not be reasonably assured, considers among other matters, the estimated fair value of the underlying
collateral, economic conditions, historical loan loss experience, and other factors that warrant recognition in providing for an
adequate loan loss allowance. In addition, various regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses and valuation of foreclosed assets held for sale. Such agencies may
require the Bank to recognize additions to the allowance based on their judgments about information available to them at the
time of their examination.
As of December 31, 2020, the Bank's total allowance for loan losses was $9.6 million or 1.28% of gross loans
outstanding (excluding mortgage loans held for sale), an increase of $2.0 million from December 31, 2019. During 2020, the
Bank proactively provisioned for loan losses based on uncertainties in the loan portfolio from COVID-19 related economic
pressures while also experiencing loan charge offs in excess of recoveries as management charged off specific loans that had
been previously identified and classified as impaired. This allowance reflects not only management's determination to maintain
an allowance for loan losses consistent with regulatory expectations for non-performing or problem assets, but also reflects the
regional economy and the Bank's policy of evaluating the risks inherent in its loan portfolio.
Management records a provision for loan losses to bring the total allowance for loan losses to a level considered adequate
based on the Bank’s internal analysis and methodology. During 2020, the Bank recorded a provision for loan loss expense, as
shown in the following table. Management anticipates the need to continue adding to the allowance through charges to provision
for loan losses as growth in the loan portfolio, economic uncertainties related to COVID-19 and/or other circumstances warrant.
In accordance with generally accepted accounting principles for acquisition accounting, the loans acquired through the
acquisition of Hometown were recorded at fair value; therefore, there was no allowance associated with Hometown’s loans at
acquisition. Management continues to evaluate the allowance needed on the acquired Hometown loans factoring in the net
remaining discount of approximately $550,000 at December 31, 2020.
8
FORM 10-K
Allocation of Allowance for Loan Losses
The following table shows the amount of the allowance allocated to the mortgage and non-mortgage loan categories
and the respective percent of that loan category to total loans.
2020
2019
Amount %
Amount %
As of
December 31,
2018
Amount %
(Dollars in thousands)
2017
2016
Amount %
Amount %
Mortgage Loans .............. $ 7,259
2,358
Non-Mortgage Loans ......
72 %
28 %
Total ........................ $ 9,617 100% $ 7,608 100% $ 7,996 100% $ 7,107 100% $ 5,742 100 %
64% $ 4,126
1,616
36%
79% $ 4,577
2,530
21%
76% $ 6,337
1,659
24%
75% $ 5,762
1,846
25%
The following tables set forth certain information concerning the Bank's allowance for loan losses for the periods
indicated.
Allowance for Loan Losses
Beginning balance ................................ $
Gross loan charge offs
Mortgage Loans:
One to four family ..............................
Multi-family .......................................
Construction .......................................
Commercial real estate .......................
Non-mortgage loans:
Commercial loans ..............................
Consumer and other loans ..................
Total charge offs ............................
Recoveries
Mortgage Loans:
One to four family ..............................
Multi-family .......................................
Construction .......................................
Commercial real estate .......................
Non-mortgage loans:
Commercial loans ..............................
Consumer and other loans ..................
Total recoveries ..............................
Net loan charge-offs .............................
Provision charged to expense .................
Ending balance ..................................... $
Net charge-offs as a percentage of
2020
2019
Year ended
December 31,
2018
(Dollars in Thousands)
2017
2016
7,608
$
7,996
$
7,107
$
5,742
$
5,812
(2)
-
(738)
-
(740)
(709)
(261)
(970)
(1,710)
6
-
-
7
13
40
66
106
119
(1,591)
3,600
9,617
$
(272)
-
-
(122)
(394)
(381)
(280)
(661)
(1,055)
8
-
252
31
291
125
51
176
467
(588)
200
7,608
$
(8)
-
-
(37)
(45)
(110)
(382)
(492)
(537)
32
-
97
2
131
17
53
70
201
(336)
1,225
7,996
$
(11)
-
-
(72)
(83)
(240)
(213)
(453)
(536)
19
-
74
-
93
12
46
58
151
(385)
1,750
7,107
$
(47)
-
(1,222)
(69)
(1,338)
(171)
(190)
(361)
(1,699)
34
-
91
32
157
8
89
97
254
(1,445)
1,375
5,742
average loans, net ...............................
0.21%
0.08%
0.04%
0.06%
0.28%
Allowance for loan losses as a
percentage of average loans, net .........
1.26%
1.00%
1.03%
1.17%
1.12%
Allowance for loan losses as a
percentage of total non-performing
loans ...................................................
52%
76%
61%
71%
67%
9
FORM 10-K
Investment Activities
The investment policy of the Company, which is established by the Company’s Board of Directors and reviewed by the
Asset/Liability Committee of the Company’s Board of Directors, is designed primarily to provide and maintain liquidity, to
generate a favorable return on investments, to help mitigate interest rate and credit risk, and to complement the Bank's lending
activities. The policy currently provides for held-to-maturity and available-for-sale investment security portfolios. The Company
does not currently engage in trading investment securities and does not anticipate doing so in the future. As of December 31,
2020, the Company has investment securities with an amortized cost of $159.3 million and an estimated fair value of $164.1
million. See Note 1 of the “Notes to Consolidated Financial Statements” for description of the accounting policy for investments.
As of December 31, 2020, all of the Company’s investment securities are considered as available-for-sale.
From time to time, the Company will sell a security to change its interest rate risk profile or restructure the portfolio and
its cash flows. In 2020, the Company sold or had called $39.0 million in securities and recognized $461,029 of net gains from
these transactions.
The Company has the authority to invest in various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies, corporate securities, trust preferred securities, certain certificates of deposit of insured
banks and savings institutions, certain bankers' acceptances, repurchase agreements, and sale of federal funds.
Composition of Investment Securities Portfolio
The following tables set forth the amortized cost and approximate fair market values of the available-for-sale securities
and held-to-maturity securities.
As of December 31, 2020
AVAILABLE-FOR-SALE SECURITIES:
Debt Securities:
U.S. government agencies ....................................... $
Municipals ...............................................................
Corporates ...............................................................
Mortgage-backed securities - private label –
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
(Losses)
Approximate
Fair Value
6,282,000 $
58,754,912
30,510,893
6,519 $
3,241,133
261,740
(4,885) $
(26,991)
(171,811)
6,283,634
61,969,054
30,600,822
commercial ...........................................................
5,399,385
55,712
(10,650)
5,444,447
Mortgage-backed securities - private label –
consumer ..............................................................
9,249,375
228,469
(25,747)
9,452,097
Government sponsored mortgage-backed securities
and SBA loan pools .............................................
49,053,252
$ 159,249,817 $
1,391,728
5,185,301 $
(74,165)
50,370,815
(314,249) $ 164,120,869
As of December 31, 2019
AVAILABLE-FOR-SALE SECURITIES:
Debt Securities:
U.S. government agencies ....................................... $
Municipals ...............................................................
Corporates ...............................................................
Mortgage-backed securities - private label ..............
Government sponsored mortgage-backed securities
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
(Losses)
Approximate
Fair Value
2,499,755 $
35,625,038
15,395,190
13,788,728
- $
675,382
154,942
52,035
(11,962) $
(125,693)
(14,945)
(29,392)
2,487,793
36,174,727
15,535,187
13,811,371
and SBA loan pools .............................................
49,844,049
$ 117,152,760 $
585,641
1,468,000 $
(193,454)
50,236,236
(375,446) $ 118,245,314
10
FORM 10-K
The following tables set forth certain information regarding the weighted average yields and maturities of the Bank's
investment securities portfolio as of December 31, 2020.
Investment Portfolio Maturities and Average Weighted Yields
Due in one to five years ......................................................................
Due in five to ten years .......................................................................
Due after ten years ..............................................................................
Mortgage-backed securities - private label not due on a single
Amortized
Cost
1,150,000
36,190,647
58,207,158
Weighted
Average Yield
3.30%
3.57%
2.73%
Approximate
Fair Value
1,149,433
36,551,663
61,152,414
maturity date ....................................................................................
14,648,760
2.39%
14,896,544
Government sponsored mortgage-backed securities and SBA loan
pools not due on a single maturity date ...........................................
49,053,252
$ 159,249,817
1.98%
2.74%
50,370,815
$ 164,120,869
After One
Through
Five
Years
After Five
Through Ten
Years
After Ten
Years
Securities
Not Due on a
Single
Maturity
Date
Total
As of December 31, 2020
Debt Securities:
U.S. government agencies ................................ $
Municipals ........................................................
Corporates ........................................................
Mortgage-backed securities - private label –
commercial ...................................................
Mortgage-backed securities - private label –
consumer .......................................................
Government sponsored mortgage-backed
- $ 6,283,634 $
- $
150,024 4,102,942 57,716,088
999,409 26,165,087 3,436,326
- $
6,283,634
- 61,969,054
- 30,600,822
-
-
-
-
- 5,444,447
5,444,447
- 9,452,097
9,452,097
securities and SBA loan pools ......................
- 50,370,815 50,370,815
$ 1,149,433 $ 36,551,663 $ 61,152,414 $ 65,267,359 $ 164,120,869
-
-
Sources of Funds
General. The Company's primary sources of funds are retail and commercial deposits, FHLB borrowings, amortization
and prepayments of loans and amortization, prepayments and maturities of investment securities. Secondary sources of funds are
brokered deposits, internet deposits and federal funds lines of credit from correspondent banks.
Deposits. The Bank offers a variety of deposit accounts having a range of interest rates and terms. The Bank has
concentrated on a diverse deposit mix, such that transaction accounts make up a greater percent of funding than in the past. The
Bank offers various checking accounts, money markets, savings, fixed-term certificates of deposit and individual retirement
accounts.
The flow of deposits is influenced significantly by general economic conditions, changes in prevailing interest rates,
local competition and competition from non-bank financial service providers. The Company closely monitors its deposit position
and mix to manage interest rate risk and net interest margin. The Bank's deposits are typically obtained from the areas in which
its offices are located. The Bank relies primarily on experienced customer service, long-term relationships with customers and
convenient banking center locations to attract and retain a high level of core deposits.
11
FORM 10-K
Deposit Account Types
The following table sets forth the distribution of the Bank's deposit accounts at the dates indicated (dollars in thousands).
As of December 31,
2020
As of December 31,
2019
As of December 31,
2018
Average
Interest
Rate
Percent
of Total
Amount Deposits
Average
Interest
Rate
Percent
of Total
Amount Deposits
Average
Interest
Rate
Percent
of Total
Amount Deposits
Transaction ...........
Savings .................
Non-interest
0.35 % $ 560,971
0.13 % 47,839
60 %
5 %
0.93 % $ 487,622
0.28 % 39,204
59 %
5 %
1.16 % $ 388,515
0.30 % 39,664
bearing demand.
Total ..............
0.00 % 144,911
753,721
15 %
80 %
0.00 % 87,598
614,424
11 %
75 %
0.00 % 88,908
517,087
Certificates of
Deposit: (fixed-
rate, fixed-term)
1-11 months ......
12-23 months ....
24-35 months ....
36-47 months ....
48-59 months ....
60-71 months ....
72-95 months ....
Total ..............
Total Deposits .......
1.90 % 133,586
1.83 % 41,850
3,206
1.15 %
2.40 %
1,880
1,045
1.28 %
2,809
1.58 %
576
1.57 %
184,952
$ 938,673
14 %
4 %
1 %
0 %
0 %
1 %
0 %
20 %
100 %
1.79 % 91,295
2.34 % 113,335
1,008
1.97 %
1,292
2.97 %
45
1.59 %
8
1.59 %
-
0.00 %
206,983
$ 821,407
11 %
14 %
0 %
0 %
0 %
0 %
0 %
25 %
100 %
0.91 % 139,255
1.49 % 53,954
1.95 % 34,246
4,172
2.00 %
843
1.39 %
58
2.05 %
4
1.59 %
232,532
$ 749,619
52 %
5 %
12 %
69 %
19 %
7 %
4 %
1 %
0 %
0 %
0 %
31 %
100 %
Maturities of Certificates of Deposit of $100,000 or More
(Dollars in
thousands)
As of December 31,
2020
Three months or less ................................................................................................................................ $
Over three through six months .................................................................................................................
Over six through twelve months ..............................................................................................................
Over twelve months .................................................................................................................................
Total ......................................................................................................................................................... $
24,748
29,491
25,594
23,523
103,356
Borrowings
The Company’s borrowings at December 31, 2020 consist of FHLB advances, issuances of subordinated debentures for
Capital Trust purposes as described below under “Subordinated Debentures issued to Capital Trusts” and newly issued unsecured
subordinated notes. Other borrowings available to the Company include borrowings from the Federal Reserve Bank, Securities
Sold Under Agreements to Repurchase and a line of credit at another financial institution.
Deposits are the primary source of funds for the Bank's lending activities and other general business purposes. However,
during periods when the supply of lendable funds cannot meet the demand for such loans, the FHLB System, of which the Bank
is a member, makes available, subject to compliance with eligibility standards, a portion of the funds necessary through loans
(advances) to its members. Use of FHLB advances is a common practice, allowing the Bank to provide funding to its customers
at a time when significant liquidity is not present, or at a rate advantageous relative to current market deposit rates. FHLB
advances, due to their structure, allow the Bank to better manage its interest rate and liquidity risk.
12
FORM 10-K
The following table presents certain data for FHLB advances as of the dates indicated.
Remaining maturity:
Less than one year .................................................................. $
One to two years ....................................................................
Two to three years ..................................................................
Three to four years .................................................................
Four to five years ...................................................................
Over five years .......................................................................
Total ................................................................................... $
2020
As of December 31,
2019
(Dollars in Thousands)
2018
50,000
-
6,500
-
6,500
3,000
66,000
$
$
65,000
-
-
-
-
-
65,000
$
$
105,300
-
-
-
-
-
105,300
Weighted average rate at end of period ..................................
0.45%
1.83%
2.69%
For the period:
Average outstanding balance .............................................. $
Weighted average interest rate ...........................................
60,467
$
1.95%
53,358
$
2.42%
96,957
2.29%
Maximum outstanding as of any month end .......................... $
66,000
$
71,100
$
112,800
Subordinated Debentures issued to Capital Trusts:
On December 15, 2005, the Company completed an offering of $15 million of trust preferred securities (the “GFED
Trust Preferred Securities”). The Company formed two wholly-owned subsidiaries, Guaranty Statutory Trust I (“Trust I”) and
Guaranty Statutory Trust II (“Trust II”) each a Delaware statutory trust (each a “Trust”, and collectively, the “Trusts”), for the
purpose of issuing the $15 million of GFED Trust Preferred Securities. The proceeds of the sale of GFED Trust Preferred
Securities, together with the proceeds of the Trusts’ sale of their common securities to the Company, were used by each Trust to
purchase certain debentures from the Company. The Company issued 30-year junior subordinated deferrable interest debentures
to the Trusts in the principal amount of $5,155,000 (“Trust I Debentures”) and $10,310,000 (“Trust II Debentures”, and together
with the Trust I Debentures, the “Debentures”) pursuant to the terms of Indentures dated December 15, 2005 by and between the
Company and Wilmington Trust Company, as trustee. The Trust I Debentures bear interest at a fixed rate of 6.92%, payable
quarterly. The Trust II Debentures bear interest at a fixed rate of 6.47% for 5 years, payable quarterly, after issuance and thereafter
at a floating rate equal to the three month LIBOR plus 1.45%. The interest payments by the Company to the Trusts will be used
to pay the dividends payable by the Trusts to the holders of the GFED Trust Preferred Securities. The Debentures mature on
February 23, 2036. Subject to prior approval by the Federal Reserve Board, the Debentures and the GFED Trust Preferred
Securities are each callable by the Company or the Trusts, respectively and as applicable, at its option after five years from
issuance, and sooner in the case of a special redemption at a special redemption price ranging up to 103.2% of the principal
amount thereof, and upon the occurrence of certain events, such as a change in the regulatory capital treatment of the GFED
Trust Preferred Securities, either Trust being deemed an investment company or the occurrence of certain adverse tax events. In
addition, the Company and the Trusts may defer interest and dividend payments, respectively, for up to five consecutive years
without resulting in a default. An event of default may occur if the Company declares bankruptcy, fails to make the required
payments within 30 days or breaches certain covenants within the Debentures. The Debentures are subordinated to the prior
payment of any other indebtedness of the Company. 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
GFED Trust Preferred Securities whereby the Company has guaranteed any and all payment obligations of the Trusts related to
the GFED Trust Preferred Securities including distributions on, and the liquidation or redemption price of, the GFED Trust
Preferred Securities to the extent each Trust does not have funds available.
On April 2, 2018 the Company acquired Carthage, Missouri-based Hometown Bancshares. Pursuant to a Second
Supplemental Indenture dated April 2, 2018 by and among the Company, Hometown and Wilmington Trust Company, as
Trustee, the Company assumed Hometown’s rights, duties and obligations under the original Indenture of a wholly owned
subsidiary, Hometown Bancshares Capital Trust I, a Delaware statutory trust formed on October 29, 2002 (“Capital Trust I”)
(“Trust I, Trust II and Capital Trust I each a “Capital Trust”, and collectively, the “Capital Trusts”). Capital Trust I was formed
for the purposes of issuing $6.0 million of trust preferred securities (the “Hometown Trust Preferred Securities”). Hometown
issued 30-year junior subordinated deferrable interest debentures to Capital Trust I in the principal amount of $6,186,000
13
FORM 10-K
(“Hometown Trust I Debentures”) pursuant to the terms of Indentures dated October 29, 2002 by and between the Company and
Wilmington Trust Company, as trustee. These debentures bore interest at a floating rate equal to the three-month LIBOR plus
5.00%, payable quarterly, until May 2019. The rate from May 2019 until maturity in 2032 was a floating rate equal to the three-
month LIBOR plus 6.00%, payable quarterly, with a maximum interest rate of 12.5%. The interest payments by the Company to
Capital Trust I were to be used to pay the dividends payable by Capital Trust I to the holders of the Hometown Trust Preferred
Securities. The Hometown Trust I Debentures had an original maturity date of November 7, 2032. However, the Company fully
redeemed the debentures on July 5, 2019 at 100% of principal amount plus accrued interest after receiving all necessary approvals
by the Federal Reserve Board.
The following table sets forth certain information as to the Company's subordinated debentures issued to Capital Trusts
at the dates indicated.
Selected Data for Subordinated Debentures issued to Capital Trusts
2020
As of December 31,
2019
(Dollars in Thousands)
2018
Subordinated debentures ........................................... $
15,465
$
15,465
$
21,761
Weighted average interest rate of subordinated
debentures .............................................................
3.42%
4.55 %
4.72 %
Subordinated Notes:
On July 29, 2020, the Company completed a private offering of $20.0 million aggregate principal amount of 5.25%
fixed-to-floating rate subordinated notes due 2030 (the “Notes”). The Notes were issued by the Company to the purchasers at a
price equal to 100% of their face amount. Costs related to the issuance of $454,445 reduced the proceeds received by the
Company and will be amortized over the life of the Notes. The Notes are intended to qualify as Tier 2 capital for regulatory
purposes. The Notes have a stated maturity of September 30, 2030, are redeemable by the Company at its option, in whole or in
part, on or after September 30, 2025, and at any time upon the occurrences of certain events. Prior to September 30, 2025, the
Company may redeem the Notes, in whole but not in part, only under certain limited circumstances set forth in the Notes. On or
after September 30, 2025, the Company may redeem the Notes, in whole or in part, at its option, on any interest payment date.
Any redemption by the Company would be at a redemption price equal to 100% of the principal amount of the Notes being
redeemed, together with any accrued and unpaid interest on the Notes being redeemed to but excluding the date of redemption.
The Notes are not subject to redemption at the option of the holder. The Notes will bear interest at a fixed rate of 5.25% per year
until September 30, 2025 or earlier redemption date. From October 1, 2025 to, but excluding the maturity date or earlier
redemption date, the interest rate will reset quarterly at a variable rate equal to the then current three-month term SOFR plus 519
basis points. Principal and interest on the Notes are subject to acceleration only in limited circumstances. The Notes are
unsecured, subordinated obligations of the Company, are not obligations of, and are not guaranteed by, any subsidiary of the
Company, and rank junior in right of payment to the Company’s current and future senior indebtedness.
The following table sets forth certain information as to the Company's Notes at the dates indicated.
Selected Data for Subordinated Notes
As of December 31,
2020
2019
2018
(Dollars in Thousands)
Subordinated notes .......................................................... $
19,564
$
- $
Weighted average interest rate of subordinated note ......
5.25%
N/A
-
N/A
14
FORM 10-K
Note Payable to Bank
During 2019, the Company established a note payable for $11.2 million with another financial institution. The funds
were used to provide additional capital for funding Bank asset growth and to redeem Hometown Bancshares subordinated
debentures noted above. The note carried a variable interest rate tied to 30-day LIBOR plus 250 basis points that was set to
mature in June 2024, however, on July 30, 2020, the note was completely repaid with proceeds from the issuance of the Notes.
A balance of $11.2 million was outstanding on this note as of December 31, 2019 and that balance was unchanged during 2020
until its full repayment on July 30, 2020.
Line of Credit to Bank
During 2019, the Company established a $3.0 million revolving line of credit with another financial institution. No
amounts were borrowed on this line as of December 31, 2020 and 2019. The funds, if used, will be to provide additional capital
for funding Bank asset growth, repurchasing outstanding common shares or general corporate purposes. The note carries a
variable interest rate tied to 30-day LIBOR plus 250 basis points and matures on June 28, 2021.
Federal Reserve Bank Borrowings
During 2008, the Bank established a borrowing line with Federal Reserve Bank. The Bank had the ability to borrow
$37.2 million as of December 31, 2020. The Federal Reserve Bank requires the Bank to maintain collateral in relation to
borrowings outstanding. The Bank had no borrowings on this line as of December 31, 2020 and 2019.
Subsidiary Activity and Segment Information
The Company has three wholly-owned subsidiaries: (i) the Bank, the Company’s principal subsidiary and a state-
chartered bank with trust powers in Missouri; (ii) Trust I; and (iii) Trust II. As discussed in more detail above, Trust I and Trust
II were formed in December 2005 for the exclusive purpose of issuing GFED Trust Preferred Securities to acquire junior
subordinated debentures issued by the Company. Those debentures are the sole assets of the Trusts. The interest payments by the
Company on the debentures are the sole revenues of the Trusts and are used by the Trusts to pay the dividends to the holders of
the GFED Trust Preferred Securities. The Company has guaranteed any and all payment obligations of the Trusts related to the
GFED Trust Preferred Securities. Under generally accepted accounting principles, the financial statements of the trusts are not
consolidated with financial statements of the Company.
The Bank has one service corporation subsidiary, Guaranty Financial Services of Springfield, Inc., a Missouri
corporation. This service corporation, which has been inactive since February 1, 2003, had agreements with third party providers
for the sale of securities and casualty insurance products.
The Company’s banking operation conducted through its principal subsidiary, the Bank, is the Company’s only
reportable segment. Other information about the Company’s business segment is contained in the section captioned “Segment
Information” in Note 1 to the Notes of the Consolidated Financial Statements in this report.
Return on Equity and Assets
The following table sets forth certain dividend, equity and asset ratios of the Company for the periods indicated.
Year ended
Year ended
Year ended
December 31,
December 31,
December 31,
2020
2019
2018
Common Dividend Payout Ratio .....................................................
38%
26%
Return on Average Assets ................................................................
0.63%
0.96%
Return on Average Equity ...............................................................
7.85%
11.26%
Stockholders' Equity to Assets .........................................................
7.76%
8.36%
EPS Diluted ..................................................................................... $
Dividends on Common Shares ......................................................... $
1.57
0.60
$
$
2.11
0.54
$
$
30%
0.77%
9.35%
8.34%
1.64
0.49
15
FORM 10-K
Employees
As of December 31, 2020, the Bank had 217 full-time employees and 17 part-time employees. As of December 31,
2020, the Company had no employees. None of the Bank's employees are represented by a collective bargaining group.
Competition
The Bank experiences substantial competition both in attracting and retaining deposit accounts and in the origination of
loans. The Bank's primary competition consists of commercial banks, credit unions, and savings institutions.
Direct competition for deposit accounts comes from other commercial banks, credit unions, regional bank and thrift
holding companies, and savings institutions located in the remainder of our Market Area. Significant competition for the Bank's
other deposit products and services come from money market mutual funds, brokerage firms, insurance companies, and retail
stores. Companies specializing in online-only business models continue to expand their financial product and services offerings
to consumers and may have advantages in technological resources compared to traditional financial institutions. The primary
factors in competing for loans are interest rates and loan origination fees and the range of services offered by various financial
institutions. Our larger competitors have a greater ability to finance wide-ranging marketing campaigns through their greater
capital resources. Our marketing efforts depend heavily upon referrals from officers, directors and shareholders, selective
advertising in local media, electronic means and direct mail solicitations. The Bank believes it is able to compete effectively in
its primary Market Area by offering competitive interest rates and loan fees, a variety of deposit products and by emphasizing
personal customer service.
Supervision and Regulation
General
The Company and the Bank are subject to an extensive regulatory framework under federal and state law. Consequently,
the Company’s growth and earnings performance may be affected by the requirements of federal and state statutes and by
regulations and policies of various bank regulatory authorities, including the:
● Board of Governors of the Federal Reserve System (“FRB”);
● Missouri Division of Finance (“MDF”);
● Federal Deposit Insurance Corporation (“FDIC”); and
● Consumer Financial Protection Bureau (“CFPB”).
Additionally, the Company’s business may be impacted by assorted laws and rules, including:
●
anti-money laundering laws enforced by the U.S. Department of Treasury (“Treasury”);
●
taxation laws administered by the Internal Revenue Service (“IRS”) and state taxing authorities;
●
accounting rules developed by the Financial Accounting Standards Board (“FASB”); and
●
securities laws administered by the Securities and Exchange Commission (“SEC”) and state securities authorities.
Regulatory agencies often have significant discretion regarding their supervisory and enforcement activities. This
comprehensive supervisory and regulatory framework significantly impacts the Company’s operations and results. Additionally,
new legislation is introduced from time to time that could impact the Company and the Bank in substantial ways and the nature,
extent, or impact of new statutes or regulations on the Company’s or the Bank’s operations or financial conditions cannot be
predicted with any certainty.
Set forth below is a brief summary of certain material laws and regulations applicable to the Company and the Bank.
These laws and regulations are primarily intended for the protection of the Bank’s customers and depositors and not for the
16
FORM 10-K
benefit of the stockholders or creditors of the Company. The following description does not purport to be complete and is
qualified in its entirety by reference to the full text of the statutes and regulations described below.
Dodd-Frank Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act” or “Dodd-Frank”)
significantly changed the regulatory framework for financial institutions and their holding companies. Among other provisions,
the Dodd-Frank Act:
●
●
created the CFPB, which is responsible for implementing, supervising, and enforcing compliance with consumer
financial protection laws;
increased the deposit insurance coverage limit and changed the assessment base for calculating a bank’s deposit
insurance assessments;
●
repealed the prohibition on payment of interest on demand deposits;
●
provided for new disclosures related to executive compensation and corporate governance and prohibited
compensation arrangements that encourage inappropriate risks or that could provide excessive compensation;
●
imposed new capital requirements on banking institutions (see “Minimum Capital Requirements” below);
●
enhanced the authority of the Federal Reserve Board to examine the Company and its non-bank subsidiaries; and
●
imposed new requirements and restrictions on consumer mortgage banking.
The Dodd-Frank Act contains numerous provisions scheduled to be implemented through rulemakings by various
federal regulatory agencies over a period of several years. Many, but not all, of the regulations have been issued and full
implementation of the Dodd-Frank Act is still not complete. This law will continue to significantly influence the regulatory
environment in which the Bank and the Company operate. As a result, the Company cannot predict the Dodd-Frank Act’s ultimate
impact on the Company or the Bank at this time. Certain rules proposed or adopted under the Dodd-Frank Act are discussed
throughout this section.
Minimum Capital Requirements
On September 17, 2019, a final ruling by federal banking regulators provided a simpler method of measuring adequate
capital ratios for community banking organizations compared to previous standards established and agreed to by the U.S. federal
banking agencies approved under the 2013 International Basel Committee on Bank Supervision that incorporated changes
required by the Dodd-Frank Act (the “Basel III Rule”).
The 2019 Community Bank Leverage Ratio (“CBLR”) framework is an optional framework that is designed to reduce
burdens on institutions by removing the requirements for calculating and reporting risk-based capital ratios for qualifying
community banking organizations that opt into the framework. The framework provides a simple measure of capital adequacy
for qualifying community banking organizations, consistent with section 201 of the Economic Growth, Regulatory Relief and
Consumer Protection Act. Qualifying community banking organizations that elect to use the CBLR framework and that maintain
a leverage ratio of greater than 9.00% percent are considered to have satisfied the risk-based and leverage capital requirements
in the generally applicable capital rule. These institutions also must have met well-capitalized ratio requirements for purposes of
section 38 of the Federal Deposit Insurance Act. The final rule went into effect on January 1, 2020, however, certain portions of
the framework were granted temporary exceptions under the CARES Act due to concerns over COVID-19 impacts on financial
institutions in April 2020. Most notably, the leverage ratio requirements were reduced to 8.00% for the remainder of 2020, 8.50%
for 2021, and then to the already established 9.00% for 2022 and beyond. The Company and the Bank opted into the revised
CBLR framework during 2020 having met all capital requirements under the new standard. Despite the ability to meet capital
standards currently, federal banking guidelines provide that financial institutions experiencing significant growth could be
expected to maintain capital levels above the minimum requirements without significant reliance on intangible assets.
Additionally, higher capital levels could be required under certain circumstances, such as situations involving interest rate risk,
risk from concentrations of credit, or nontraditional activities. Accordingly, the Company and the Bank could be required to
maintain higher capital levels in the future even if we otherwise fully comply with the CBLR rule. If unable to maintain these
17
FORM 10-K
capital levels, a grace period to retain compliance may be granted or the Bank and Company can opt to revert to previous Basel
III standards as noted below.
The Basel III Rule distinguishes between banking organizations subject to the “advanced approaches” method of
computing risk-based regulatory capital, which are those with $250 billion or more in total consolidated assets or $10 billion or
more in foreign exposures, and other banking organizations that successfully opt-in (“Advanced Banks”) and other banking
organizations, such as the Company and the Bank, which operate under the “standardized approach” (“Standardized Banks”).
The new rules became effective for the Company and the Bank on January 1, 2015, including certain requirements that were
phased-in between January 2016 and January 2019.
The Basel III Rule, among other features:
●
Introduces a new capital measure, Common Equity Tier 1 (“CET1” or “Tier 1 Common”), which is defined
as common stock instruments, related surplus (net of Treasury stock), and retained earnings, subject to
certain regulatory adjustments; and
● Requires banking institutions to maintain:
o
o
o
a new minimum ratio of CET1 to risk-weighted assets of at least 4.50% (plus a capital conservation
buffer);
a minimum amount of Tier 1 capital (the sum of CET1 and Additional Tier 1 capital) to risk-
weighted assets of at least 6%, which is an increase from 4% (plus a capital conservation buffer);
a total capital (the sum of Tier 1 and Tier 2 capital) ratio of at least 8% of risk-weighted assets (plus
a capital conservation buffer); and
o
a minimum leverage ratio of Tier 1 capital of 4%.
In addition, the Basel III Rule requires that banking organizations maintain a “capital conservation buffer” comprised
of CET1 in order to avoid restrictions on the ability to make capital distributions (including dividends and stock purchases) and
pay discretionary bonuses to executive officers. The capital conservation buffer is equal to 2.5% of risk-weighted assets, in
addition to the minimum CET1, Tier 1, and total capital ratios. The capital conservation buffer was phased-in beginning at
0.625% of risk-weighted assets on January 1, 2016, and increasing each subsequent year by an additional 0.625%, to reach the
final level of 2.5% of risk-weighted assets on January 1, 2019. Accordingly, factoring in the capital conservation buffer, the
minimum ratios noted above increased to 7% for CET1, 8.5% for Tier 1 capital, and 10.5% for total capital.
Furthermore, the Basel III Rule includes more restrictive definitions for the components of capital. For example,
cumulative perpetual preferred stock and trust preferred securities have been phased-out of Tier 1 capital. However, for smaller
entities with less than $15 billion in assets as of December 31, 2009, such as the Bank, the final rule permanently grandfathers
as Tier 1 capital trust preferred securities and similar instruments issued by such entities prior to May 19, 2010, until such entity
exceeds $15 billion in assets. The final Basel III Rule provides entities such as the Company and the Bank with a one time “opt-
out” right to continue excluding accumulated other comprehensive income (“AOCI”) from CET1 capital. This opt-out was
required to be made in the first quarter of 2015 and the Company and Bank made this election. Accordingly, the Bank and the
Company need not include AOCI in CET1 capital going forward. The rule also requires that goodwill and certain other intangible
assets, other than mortgage servicing assets, net of associated deferred tax liabilities, be deducted from CET1 capital.
Additionally, certain deferred tax assets and mortgage servicing assets must be deducted from CET1 capital if such assets exceed
a certain percentage of an institution’s CET1 capital. Generally, greater deductions from CET1 reduce an institution’s capital
base.
Moreover, the Basel III Rule changes the risk-weightings for certain assets that are used to calculate capital ratios. All
else being equal, a higher risk weight results in a higher risk-weighted asset amount which, in turn, gives rise to a lower risk-
based capital ratio. The final rule assigns a higher risk-weighting of 150% (up from 100%) for exposures that are more than 90
days past due and assigns a higher risk-weighting of 150% (up from 100%) for high-volatility commercial real estate loans,
which are credit facilities that, prior to conversion to permanent financing, finance or have financed the acquisition, development,
or construction of real property, subject to certain exclusions. Although initially contemplated, there was no change to the risk-
weighting treatment of residential mortgage loans in the final Basel III Rule.
18
FORM 10-K
Regulation of the Bank
General. The Bank, as a Missouri-chartered non-member depository trust company, is primarily regulated by the MDF
and FDIC. The Bank is subject to extensive federal and state regulatory oversight in all areas of banking operations, including,
but not limited to, lending activities, investments, loans, deposits, interest rates payable on deposits, establishment of branches,
corporate restructuring, and capital adequacy. The Bank is also subject to certain reserve requirements promulgated by the FRB.
The MDF, in conjunction with the FDIC, regularly examines the Bank and reports to the Bank's Board of Directors on
any deficiencies that are found in the Bank's operations. The Bank must also file reports with the MDF and the FDIC concerning
its activities and financial condition, in addition to obtaining regulatory approvals prior to entering into certain transactions such
as mergers with or acquisitions of other banks or savings institutions. These regulatory authorities have extensive discretion in
connection with their supervisory and enforcement activities and examination policies. Regulation by these agencies is designed
to protect the Bank’s depositors and not the Company’s shareholders.
Insurance of Deposit Accounts and Assessments. The deposit accounts held by the Bank are insured by the DIF, as
part of the FDIC. The Dodd-Frank Act permanently increased the maximum amount of deposit insurance for banks, savings
institutions, and credit unions to $250,000 per insured depositor, retroactive to January 1, 2009. The Dodd-Frank Act also
increased the minimum ratio of net worth to insured deposits of the DIF from 1.15% to 1.35%.
A bank's insurance assessment is determined quarterly by multiplying its assessment rate by its assessment base. Per
FDIC rules, a bank’s assessment base is the institution’s average consolidated total assets minus its average tangible equity. The
FDIC has adopted a risk-based system for assessment rates. For banks with less than $10 billion in assets, such as the Bank, the
risk classification is based on the Bank’s capital levels and level of supervisory risk. Assessment rates are subject to adjustment
and (1) decrease for issuance of long-term unsecured debt (including senior unsecured debt and subordinated debt); (2) increase
for holdings of long-term unsecured or subordinated debt issued by other insured banks; and (3) for banks that are not well-rated
or not well-capitalized, increase for significant holdings of brokered deposits.
The FDIC may terminate a bank’s deposit insurance if it finds that the institution has engaged in unsafe and unsound
practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order
or condition imposed by the FDIC.
Regulatory Capital Requirements and Prompt Corrective Action. The FDIC is required to take prompt corrective
action if an insured depository institution, such as the Bank, does not meet its minimum capital requirements. The FDIC has
established five capital tiers: “well-capitalized”, “adequately capitalized”, “undercapitalized”, “significantly undercapitalized”
and “critically undercapitalized”. A depository institution’s capital tier depends upon its capital levels in relation to various
relevant capital measures, which, among others, include a Tier 1 and total risk-based capital measure and a leverage ratio capital
measure. The Prompt Corrective Action rules were amended effective January 1, 2015 to incorporate changes under the Basel
III Rule, including the CET1 requirements, and to raise capital requirements for certain categories. An insured financial institution
is considered:
●
●
●
●
“Well-capitalized” if it has a Tier 1 leverage ratio of 5% or greater, a CET1 to risk-based capital ratio of 6.5% or
greater, a Tier 1 to risk-based capital ratio of 8% or greater, a leverage ratio of 9% or greater if following CBLR
framework, a total risk-based capital ratio of 10% or greater and is not subject to any written agreement, order, capital
directive, or prompt corrective action directive;
“Adequately capitalized” if it has it has a Tier 1 leverage ratio of 4% or greater, a CET1 to risk-based capital ratio
of 4.5% or greater, a Tier 1 to risk-based capital ratio of 6% or greater, and a total risk-based capital ratio of 8% or
greater;
“Undercapitalized” if it has a Tier 1 leverage ratio of less than 4%, a CET1 to risk-based capital ratio of less than
4.5%, a Tier 1 to risk-based capital ratio of less than 6% and a total risk-based capital ratio of less than 8%;
“Significantly undercapitalized” if it has a Tier 1 leverage ratio of less than 3%, a CET1 to risk-based capital ratio
of less than 3%, a Tier 1 to risk-based capital ratio of less than 4%, and a total risk-based capital ratio of less than
6%; and
●
“Critically undercapitalized” if it has a tangible equity capital to total assets ratio equal to or less than 2%.
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FORM 10-K
The FDIC may, under certain circumstances, reclassify a well-capitalized insured depository institution as adequately
capitalized. It is also permitted to require an adequately capitalized or undercapitalized institution to comply with supervisory
provisions as if the institution were in the next lower category (but not treat a significantly undercapitalized institution as critically
undercapitalized) based on supervisory information other than the capital levels of the institution. An institution may be
reclassified if the FDIC determines (after notice and opportunity for hearing) that the institution is in an unsafe or unsound
condition or deems the institution to be engaging in an unsafe or unsound practice.
Federal banking agencies are required to take prompt corrective action to resolve capital deficiencies at insured
depository institutions. Failure to meet the capital guidelines could subject a bank to a variety of enforcement actions, including
the issuance of a capital directive, prohibition on paying dividends or management fees, prohibition on accepting brokered
deposits, and restrictions on paying bonuses or increasing compensation for executive officers. For critically undercapitalized
institutions, a receiver may be appointed.
The Bank met its minimum capital adequacy guidelines under the CBLR framework and was categorized as “well-
capitalized”, as of December 31, 2020. Applicable capital and ratio information is contained under the section titled “Regulatory
Matters” in Note 1 to the “Notes of the Consolidated Financial Statements” in this report.
Safety and Soundness Standards. The federal bank regulators have adopted guidelines to promote the safety and
soundness of federally insured depository institutions. The guidelines set forth standards for internal controls, information
systems and internal audit systems, loan documentation, credit underwriting, interest-rate-risk exposure, asset growth, asset
quality, earnings, stock valuation and compensation, fees and benefits and other operational and managerial standards. The
guidelines provide standards in each area and an institution must establish its own procedures to achieve such goals.
If an institution fails to meet a standard, a regulator may require the institution to submit an acceptable plan to achieve
compliance with the standard. If an institution fails to submit an acceptable plan or fails to implement an accepted plan, an agency
must, by order, require the institution to correct the deficiency. The agency may, and in some cases must, take other supervisory
actions until the deficiency has been corrected.
Federal Home Loan Bank System. The Bank is a member of the FHLB of Des Moines, which is one of 11 regional
FHLBs. The FHLB system’s primary purpose is to provide stable funding to member institutions that such institutions in turn
use to make loans to families, farms and businesses. The FHLBs are overseen by the Federal Housing Finance Agency (“FHFA”).
As a member, the Bank is required to purchase and maintain a minimum investment in the stock of the FHLB. As of December
31, 2020, the Bank was in compliance with this requirement.
Dividend Limitations. The amount of dividends that the Bank may pay is subject to various regulatory limitations.
Under federal law, an FDIC-insured institution may not pay dividends if it is undercapitalized or if payment would cause it to be
undercapitalized. If the FDIC believes that a bank is engaged in, or about to engage in, an unsafe or unsound practice, the FDIC
may require, after notice and hearing, that the bank cease and desist from that practice. In addition, under Missouri law, the Bank
may pay dividends to the Company only from a portion of its undivided profits and may not pay dividends if its capital is
impaired. Additionally, under Missouri statute, dividends paid by the Bank are restricted by a statutory formula, which provides
for the maintenance of a surplus fund and prohibits the payment of dividends which would impair the surplus fund.
Anti-Money Laundering and Anti-Terrorism Regulation. The Bank Secrecy Act (“BSA”) establishes the framework
for anti-money laundering (“AML”) obligations imposed on U.S. financial institutions. The purpose of the BSA is to prevent
banks and other financial services providers from being used as intermediaries for, or to hide the transfer or deposit of money
derived from, drug trafficking, money laundering, and other crimes. The Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (“USA Patriot Act”) amended the BSA and imposes
a number of obligations on banks, including the requirement to implement policies, procedures and controls reasonably designed
to detect and report instances of money laundering and terrorism financing. The USA Patriot Act also requires financial
institutions to develop written customer identification programs. In addition, the U.S. Department of Treasury’s Office of Foreign
Asset Controls (“OFAC”) administers and enforces economic and trade sanctions based on U.S. foreign policy and national
security against entities such as targeted foreign countries and terrorists.
Consumer Protection Laws. In connection with its banking activities, the Bank is subject to a number of federal and
state laws designed to protect consumers in their transactions with banks. These laws include, but are not limited to, the Equal
Credit Opportunity Act (“ECOA”), Fair Credit Reporting Act (“FCRA”), Fair and Accurate Credit Transaction Act of 2003
(“FACTA”), Gramm-Leach-Bliley Act (“GLBA”), Electronic Funds Transfer Act (“EFTA”), Home Mortgage Disclosure Act
(“HMDA”), Real Estate Settlement Procedures Act (“RESPA”), and Truth in Lending Act (“TILA”), and their various state
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FORM 10-K
counterparts. In addition, the Dodd-Frank Act prohibits unfair, deceptive, or abusive acts or practices (“UDAAP”). Moreover,
several federal laws, including GLBA, FCRA, and FACTA, regulate consumer financial privacy and restrict the sharing of
consumer financial information. The Bank also must comply with various state statutes related to maintaining the security of
consumer financial information and take steps to prevent and report data breaches if they arise.
Transactions with Affiliates and Insiders. Federal law imposes certain limitations on the ability of a bank to engage
in “covered transactions” with affiliates. The Company is an affiliate of the Bank for purposes of these restrictions. The definition
of “covered transactions,” which was expanded under the Dodd-Frank Act, includes extensions of credit to affiliates, investments
in stock or other securities of affiliates, and acceptance of the stock or other securities of an affiliate as collateral for loans.
Additionally, federal law prohibits institutions from engaging in certain transactions with affiliates unless the transactions are on
terms substantially the same as, or at least as favorable to the Bank as, those prevailing at the time for comparable transactions
with non-affiliated companies. Federal law also restricts the Bank’s ability to extend credit to its executive officers, directors,
principal shareholders, and their related interests, including that such credit extensions must be made on substantially the same
terms, including interest rate and collateral, as those prevailing at the time for comparable transactions with unrelated third
parties, and not involve more than the normal risk of repayment or present other unfavorable features.
Transaction Account Reserve Requirements. The FRB typically requires insured depository institutions to maintain
reserves against specified deposit liabilities. Reservable liabilities consist of net transaction accounts, non-personal time deposits,
and Eurocurrency liabilities. On March 26, 2020, reserve requirements were waived due to potential economic impacts as a result
of the COVID-19 pandemic. Previously, the first $16.9 million of otherwise reservable balances were exempt from the reserve
requirements; a 3% reserve requirement was necessary for net transaction accounts between $16.9 million and $127.5 million;
and a 10% reserve requirement was in place for net transaction accounts in excess of $127.5 million. The FRB has the ability to
re-impose reserve requirements and requirement ratios may change in the future if conditions warrant and are subject to annual
adjustments.
Commercial Real Estate Lending. The Bank may be subject to greater scrutiny from federal banking regulators based
on its concentration of commercial real estate (“CRE”) loans. Federal regulators have issued guidance to address concerns about
CRE concentrations and to provide expectations for managing a concentrated portfolio. The guidance includes development and
construction loans for which repayment is dependent upon the sale of the property, as well as properties for which repayment is
dependent upon rental income.
Per the guidance, institutions that may have significant CRE concentration risk are those that have experienced rapid
growth in CRE lending, have notable exposures to a specific type of CRE, or are approaching or exceed the following supervisory
criteria: (i) total loans for construction, land development, and other land represent 100% or more of the institution’s total capital;
or (ii) total CRE loans represent 300% or more of the institution’s total capital, and the outstanding balance of the institution’s
CRE loan portfolio has increased by 50% or more during the prior 36 months. If a bank’s portfolio goes outside of these general
guidelines, the bank must engage in heightened risk management practices.
Residential Real Estate Lending. The CFPB has issued rules implementing several Dodd-Frank requirements
regarding residential mortgage lending. Lenders must assess a borrower’s ability to repay the mortgage-related obligation and
must consider certain underwriting factors. Lenders also receive certain protections from liability if they make “qualified
mortgages.” Additionally, new rules prohibit certain loan features, such as negative amortization, interest-only payment, balloon
payments, and restrict points and fees paid by a borrower and prepayment penalties.” CFPB also issued servicing standards
applying to mortgage servicers generally but in particular with defaulted loans.
Volcker Rule. The Volcker Rule, issued by the federal banking and securities regulators pursuant to the Dodd-Frank
Act, generally prohibits insured depository institutions and their affiliated companies from: (i) short-term proprietary trading in
securities and other financial instruments; and (ii) sponsoring or acquiring or retaining an ownership interest in private equity
and hedge funds, subject to certain exceptions.
Community Reinvestment Act. Under the Community Reinvestment Act of 1977 (“CRA”), the Bank has a continuing
and affirmative obligation, consistent with safe and sound operation, to help meet the credit needs of its communities, including
low- and moderate-income neighborhoods. As part of its examinations, the FDIC evaluates the Bank’s record in meeting these
obligations. CRA ratings are also taken into account by regulators in evaluating applications for mergers, acquisitions, or to open
a new branch or facility. Based on its most recent CRA compliance examinations, the Bank has received a “Satisfactory” CRA
rating.
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FORM 10-K
Regulation of the Company
General. The Company is a registered bank holding company subject to regulation and supervision by the FRB under
the Bank Holding Company Act of 1956 (“BHCA”). The Company is required to file periodic reports of its operations with the
FRB. Additionally, the Company is legally obligated to act as a source of strength to the Bank and to commit resources to support
the Bank.
Restrictions on Dividends and Stock Repurchases. The Company’s source of funds (including cash flow to pay
dividends to stockholders) is dividends paid to it by the Bank. The right of the Company to receive dividends or other distributions
from the Bank is subject to the prior claims of creditors of the Bank, including depositors, and applicable regulatory restrictions,
including prior approval in certain situations.
The amount of dividends that the Company may pay is subject to various regulatory limitations, including the
requirement to maintain adequate capital. Financial institutions are generally prohibited from paying dividends if, following
payment of dividends, the institution would be considered undercapitalized. Additionally, under the Basel III Rule, institutions
seeking to pay dividends must maintain the required capital conservation buffer. Also, the FRB strongly encourages financial
institutions to consult with the agency prior to paying dividends. The FRB has indicated that a board of directors should
“eliminate, defer, or severely limit” dividends if:
●
●
●
the bank holding company’s net income available to shareholders for the past four quarters, net of dividends paid
during that period, is not sufficient to fully fund the dividends;
the bank holding company’s rate of earnings retention is inconsistent with capital needs and overall macroeconomic
outlook; or
the bank holding company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy
ratios.
Banking regulators also have the authority to prohibit banks and bank holding companies from paying a dividend if
such payment would be an unsafe or unsound practice.
Generally, a bank holding company must notify the FRB prior to the purchase or redemption of its outstanding equity
securities if the gross consideration for the purchase or redemption, when aggregated with the net consideration paid for all such
purchases during the preceding twelve months is equal to 10% or more of the bank holding company’s consolidated net worth.
Prior approval may not be required if the bank holding company, among other things, will meet or exceed “well capitalized”
thresholds both before and after the repurchase, is considered “well managed,” and is not subject to any unresolved supervisory
issues. Additionally, bank holding companies are expected to consult with the FRB before redeeming or repurchasing stock if:
●
the bank holding company is at “significant risk” of developing a financial weakness;
●
the bank holding company is considering expansion (either acquisition or new activities); and
●
if such redemption or repurchase will cause a net reduction in capital from the beginning of the quarter in which the
redemption or repurchase occurs.
The FRB may disapprove of the purchase or redemption if it determines, among other things, that the proposal would
constitute an unsafe or unsound business practice.
Support of Banking Subsidiaries. Under FRB policy, the Company is expected to act as a source of financial strength
to the Bank and, where required, to commit resources to support the Bank. Financial support from the Company may be required
even when the Company might not otherwise be inclined to provide it. Moreover, if the Bank should become undercapitalized,
the Company would be required to guarantee the Bank's compliance with its capital restoration plan in order for such plan to be
accepted by the FDIC.
Acquisitions, Activities, and Changes in Control. Under the BHCA, the Company must obtain the prior approval of
the FRB before the Company may: (i) acquire substantially all the assets of a bank; (ii) acquire direct or indirect ownership or
control of more than 5% of the voting shares of any bank; or (iii) or merge or consolidate with any other bank holding company.
The BHCA also restricts the Company’s ability to acquire direct or indirect ownership or control of 5% or more of any class of
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FORM 10-K
voting shares of any nonbanking corporation. The FRB is required to consider the financial and managerial resources and future
prospects of the bank holding companies and banks concerned and the convenience and needs of the community to be served.
Consideration of financial resources generally focuses on capital adequacy. Consideration of convenience and needs includes the
involved institutions’ performance under the CRA. The FRB may not approve a transaction if it would result in or tend to create
a monopoly, substantially lessen competition, or otherwise function as a restraint of trade, unless the anti-competitive effects are
clearly outweighed by the public interest in meeting the needs and convenience of the community to be served.
Additionally, FRB approval is required prior to any person or company acquiring “control” of a bank holding company.
“Control” is conclusively presumed to exist if a person or company acquires 25% or more of the outstanding voting shares of a
bank holding company. There is a rebuttable presumption of control if a person or company acquires more than 10% but less
than 25% of any class of voting securities.
Moreover, bank holding companies are generally prohibited from engaging in any business other than that of banking,
managing, and controlling banks or furnishing services to banks and their subsidiaries, although bank holding companies are
permitted to engage in activities that are determined to be “closely related to banking” and “a proper incident thereto.”
Transactions with Affiliates. As discussed above, federal regulations restrict the extent to which the Company and its
officers and directors may engage in certain “covered transactions” with the Bank, including borrowing or otherwise obtaining
credit from or selling assets or securities to the Bank. Additionally, any transactions that are “covered transactions” with the
Bank must be on non-preferential terms.
Federal Securities Regulation and Corporate Governance. The Company’s stock is registered with the SEC and,
therefore, the Company is subject to SEC restrictions and requirements, including rules regarding information sharing, proxy
solicitation, and insider trading.
The Sarbanes-Oxley Act of 2002 (“SOX”) addresses, among other issues, corporate governance, auditing and
accounting, executive compensation, and enhanced and timely disclosure of corporate information. Per SOX, the Company’s
Chief Executive Officer (CEO) and Chief Financial Officer (CFO) are required to certify that the quarterly and annual reports
do not contain any untrue statement of a material fact. The SEC’s rules regarding CEO and CFO certifications require these
officers to certify, among others, that: (i) they are responsible for establishing, maintaining and regularly evaluating the
effectiveness of internal controls over financial reporting; (ii) they have made certain disclosures to auditors and the audit
committee of the board of directors; and (iii) they have included information in quarterly and annual reports about their evaluation
and whether there have been changes in internal controls over financial reporting or in other factors that could materially affect
internal control over financial reporting.
The Dodd-Frank Act provides other investor protections, corporate governance, and executive compensation
requirements that affect U.S. publicly traded companies. For example, the Dodd-Frank Act requires companies to give
shareholders a non-binding vote approving executive compensation and “golden parachute” payments. Pursuant to the Dodd
Frank Act, in July 2015, the SEC proposed a rule that companies whose securities are listed on national securities exchanges and
associations (including the Company whose securities are listed on the NASDAQ Global Market) would be required to develop
and enforce recovery policies that, in the event of an accounting restatement, would “claw back” from current and former
executive officers incentive-based compensation they should not have received based on the restatement. Recovery would be
required without regard to fault and without regard to whether any misconduct occurred in connection with or an executive
officer’s responsibility for the erroneous misstatement. The proposed rules would also require disclosure of listed companies’
recovery policies, and their actions under those policies. The proposed rules are not yet final.
Tax Reform. The impact of any Tax Reform Legislation on the Company’s financial results is not quantifiable until
details of proposed changes are known. With prior changes to corporate tax rates and regulations, future earnings may be
impacted as well as the valuation of previously booked tax planning items already in place may be revalued.
Information about our Executive Officers
Set forth below is information concerning the executive officers of the Company. Each executive officer is annually
elected to a one-year term by the Board of Directors of the Company.
Shaun A. Burke joined the Bank in March 2004 as President and Chief Executive Officer and was appointed President
and Chief Executive Officer of the Company on February 28, 2005. He has over 36 years of banking experience. Mr. Burke
received a Bachelor of Science Degree in Finance from Missouri State University and is a graduate of the Graduate School of
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FORM 10-K
Banking of Colorado. Mr. Burke served as Chairman of the Board of the Missouri Bankers Association in 2018/2019 and
previously served as Chairman of the Legislative Affairs Committee and Chairman of the Audit Committee. In 2019 he was
appointed to the Government Relations Council of the American Bankers Association and previously served on the Community
Bankers Council from 2014 to 2017. In March 2016, he was appointed to the Federal Reserve Bank of St. Louis’ Community
Depository Institutions Advisory Council and served a three-year term ending in 2018. From 2012 to 2014, he was a Board
Member of the Springfield Area Chamber of Commerce serving as Vice Chairman of Economic Development in 2014. From
2009 through 2014, he was a Board Member of the Springfield Business Development Corporation, the economic development
subsidiary of the Springfield Area Chamber of Commerce serving as President in 2012. He is also a past Member of the United
Way Allocations and Agency Relations Executive Committee, Salvation Army Board and Big Brothers Big Sisters Board.
Carter M. Peters is Executive Vice President and Chief Financial Officer of the Bank and the Company. Mr. Peters
has over 28 years of experience in the financial services and public accounting industries. Prior to joining the Company in
August 2005, Mr. Peters served as the Chief Financial Officer of Southern Missouri Bank for approximately two years and was
employed by BKD, LLP, a certified public accounting and advisory firm, for eleven years. He is a Certified Public Accountant
with a Bachelor of Science Degree in Accounting from Missouri State University. He is a member of the American Institute of
Certified Public Accountants and the Missouri Society of Certified Public Accountants. Mr. Peters has been recognized by the
Springfield Business Journal as a “40 Under 40” honoree. He has served several not-for-profit organizations, including past
Chairman of the Southwest Missouri Regional Board of the Make-A-Wish Foundation of Missouri, as well as the Missouri
Bankers Association.
Craig E. Dunn is Executive Vice President and Chief Commercial Banking Officer of the Bank. He has over 27 years
of banking experience. Prior to joining the Bank in April 2020, Craig held multiple leadership roles for various banks in
Springfield, including Regional President for Bear State Bank and Market President for Regent Bank. He has a Bachelor of
Science Degree in Agricultural Economics from Missouri State University and a Masters Degree in Business Administration
from Southwest Baptist University. He is also a graduate of the Graduate School of Banking in Madison, Wisconsin. Mr. Dunn
has held numerous local leadership positions, including President of the Child Advocacy Center, President of Wilson’s Creek
National Battlefield Foundation, President of the Ozark Empire Fairgrounds, Vice President of Life’s Journey, Treasurer of
Young Presidents’ Organization and was a founding member of the Missouri Bankers Association Young Bankers Leadership
Division Board. He was a recipient of the Springfield Business Journal’s 40 Under 40, was a member of Leadership Springfield
Class 27, and was a recipient of the 2018 Springfield Business Journal’s Men of the Year award.
Sheri Biser is Executive Vice President and Chief Credit Officer of the Bank. She joined the Bank in February 2009.
Ms. Biser has over 30 years of banking experience. Prior to joining the Bank, Ms. Biser served as Chief Credit Officer of
Metropolitan National Bank for nearly eight years and worked in credit administration for fourteen years at another financial
institution. She received a Bachelor of Science Degree in Accounting from Fort Hays State University.
Robin E. Robeson is Executive Vice President and Chief Operating Officer of the Bank. She joined the Bank in July
2012. Ms. Robeson has over 30 years of experience in the financial services industry and three years of executive management
experience in the technology industry. She has a Bachelor of Art Degree in Communication from the University of Missouri and
was awarded the Certified Trust & Financial Advisor (CTFA) professional designation from the Institute of Certified Bankers.
She serves as a Board Member for CoxHealth and the Springfield Business and Development Corporation and is Chairman for
the Springfield Area Chamber of Commerce. She previously served as board Vice Chairman for City Utilities of Springfield, as
Past President of the Big Brothers/Big Sisters of the Ozarks and Rotary Club of Springfield boards and as a member of the Ozarks
Transportation Organization board. She is a graduate of Leadership Springfield Class XIII, and has been recognized by the
Springfield Business Journal as one of the “20 Most Influential Women in Business” and been named a “40 Under 40” honoree.
As of December 31, 2020, the age of these individuals was 57 for Mr. Burke, 51 for Mr. Peters, 49 for Mr. Dunn, 57 for
Ms. Biser and 54 for Ms. Robeson.
24
FORM 10-K
Item 1A. Risk Factors
Our business and operations are subject to, and may be adversely affected by, certain risks and uncertainties. An
investment in our common stock is subject to risks inherent in our business. Before making an investment decision, you should
carefully consider the risks and uncertainties described below together with all of the other information included and incorporated
by reference in this report. In addition to the risks and uncertainties described below, other risks and uncertainties not currently
known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition
and results of operations. The value or market price of our common stock could decline due to any of these identified or other
risks, and you could lose all or part of your investment.
Economic Risk
The COVID-19 pandemic has adversely affected us and our customers, employees and third-party service providers, and the
adverse impacts on our business, financial position and operations have been and are expected to continue to be significant.
As a result of the unprecedented uncertainty, volatility and disruption in financial markets and in governmental,
commercial and consumer activity caused by the COVID-19 pandemic, business and consumer customers of the Bank are
experiencing varying degrees of financial distress, which is expected to increase over coming months and will likely adversely
affect their ability to timely pay interest and principal on their loans and the value of the collateral securing their obligations. For
the year ended December 31, 2020, our financial results were adversely impacted by the COVID-19 pandemic, primarily due to
the increased provision for loan loss expense based on expected stresses in the loan portfolio and, to a lesser extent, by loan
payment deferrals and loan modifications particularly as certain businesses remain closed or are operating at decreased capacity
and as more customers are expected to draw on their lines of credit or seek additional loans to help finance their businesses. Our
future business and financial results are also expected to be adversely impacted by COVID-19.
COVID-19 does not yet appear to be contained and could affect significantly more households and businesses. Given
the ongoing and dynamic nature of the circumstances, it is not possible to accurately predict the extent, severity or duration of
these conditions or when normal economic and operating conditions will resume. For this reason, the extent to which the COVID-
19 pandemic affects our business, operations and financial condition, as well as our regulatory capital and liquidity ratios and
credit ratings, is highly uncertain and unpredictable and depends on, among other things, new information that may emerge
concerning the scope, duration and severity of the COVID-19 pandemic, actions taken by governmental authorities and other
parties in response to the pandemic, the scale of distribution and public acceptance of any vaccines for COVID-19 and the
effectiveness of such vaccines in stemming or stopping the spread of COVID-19. Further, variant strains of the COVID-19 virus
have appeared, further complicating efforts of the medical community and federal, state and local governments in response to
the pandemic. The adverse impact on the markets in which we operate and on our business, operations and financial condition is
expected to remain elevated until the pandemic subsides.
In order to protect the health of our customers and employees, and to comply with applicable government directives,
we have modified our business practices, including periodically allowing our employees to work remotely from their homes and
cancelling certain in-person meetings . We may take further such actions that we determine are in the best interest of our
employees, customers and communities or as may be required by government order. These actions in response to the COVID-
19 pandemic, and similar actions by our vendors and business partners, have not materially impaired our ability to support our
employees, conduct our business and serve our customers, but there is no assurance that these actions will be sufficient to
successfully mitigate the risks presented by COVID-19 or that our ability to operate will not be materially affected going forward.
For instance, our business operations may be disrupted if key personnel or significant portions of our employees are unable to
work effectively, including because of illness, quarantines, government actions, or other restrictions in connection with the
COVID-19 pandemic. Similarly, if any of our vendors or business partners become unable to continue to provide their products
and services, which we rely upon to maintain our day-to-day operations, our ability to serve our customers could be impacted.
Our business is concentrated in and largely dependent upon the continued growth and welfare of the general geographical
markets in which we operate.
Our operations are heavily concentrated in the Greene, Christian, Jasper and Newton Counties, which are in the
southwestern corner of Missouri, including the cities of Springfield, Nixa, Ozark, Joplin, Carthage and Neosho, Missouri (our
“Market Area”). Our success depends to a significant extent upon the business activity, population, income levels, deposits and
real estate activity in these markets. Although our customers' business and financial interests may extend well beyond our Market
Area, adverse economic conditions that affect our Market Area could reduce our growth rate, affect the ability of our customers
to repay their loans to us, affect the value of collateral underlying loans and generally affect our financial condition and results
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FORM 10-K
of operations. Because of our geographic concentration, we are less able than other regional or national financial institutions to
diversify our credit risks across multiple markets.
Our loan portfolio possesses increased risk due to our relatively high concentration of real estate loans, which involve risks
specific to real estate values.
Real estate lending comprises a significant portion of our lending business. Real estate loans were $593.7 million, or
approximately 78% of our total loan portfolio, as of December 31, 2020. The market value of real estate securing our real estate
loans can fluctuate significantly in a short period of time as a result of market conditions in our Market Area which is where most
of the real estate on which our real estate loans are made is located. Adverse developments affecting real estate values in our
Market Area could increase the credit risk associated with our loan portfolio. Additionally, real estate lending typically involves
higher loan principal amounts and the repayment of the loans generally is dependent, in large part, on sufficient income from the
properties securing the loans to cover operating expenses and debt service. Economic events or governmental regulations outside
of our control or that of our borrowers could negatively impact the future cash flow and market values of the affected properties
impairing the ability of our borrowers to repay their loans which could materially and adversely affect the Bank’s financial
condition and results of operations depending on the severity of the economic downturn or the nature of the regulatory changes.
Deterioration in asset quality could have an adverse impact on our business.
A significant source of risk for us arises from the possibility that losses will be sustained because borrowers, guarantors
and related parties may fail to perform in accordance with the terms of their loans. With respect to secured loans, the collateral
securing the repayment of these loans includes a wide variety of diverse real and personal property that may be affected by
changes in prevailing economic, environmental and other conditions, including declines in the value of real estate, changes in
interest rates, changes in monetary and fiscal policies of the federal government, environmental contamination (as discussed in
more detail below) and other external events. In addition, decreases in real estate values due to the nature of the Bank’s loan
portfolio (discussed above) could affect the ability of customers to repay their loans. The Bank’s loan policies and procedures
may not prevent unexpected losses that could have a material adverse effect on our business, financial condition, results of
operation or liquidity.
Our future success is dependent on our ability to compete effectively in the highly competitive banking industry.
We face competition in attracting and retaining deposits, making loans, and providing other financial services
throughout our market area. Our competitors include other community banks, regional and super-regional banking institutions,
national banking institutions, and a wide range of other financial institutions such as credit unions, government-sponsored
enterprises, mutual fund companies, insurance companies, brokerage companies, and other non-bank businesses. Many of these
competitors have substantially greater resources than we do and some are not subject to the same regulatory restrictions as we
are. Many of our competitors compete across geographic boundaries and are able to provide customers with a feasible alternative
to traditional banking services.
As we try to meet our competitors’ terms and pricing, increased competition in our markets may result in:
●
●
●
●
interest rate changes to various types of accounts;
a decrease in the amounts of our loans and deposits;
reduced spreads between loan rates and deposit rates; or
loan terms that are more favorable to the borrower and less favorable to the Bank.
Any of these results could have a material adverse effect on our ability to grow and remain profitable. If increased
competition causes us to significantly discount the interest rates we offer on loans or increase the amount we pay on deposits,
our net interest income could be adversely impacted.
The soundness of other financial institutions could negatively affect our business.
Our ability to engage in routine funding and other transactions could be negatively affected by the actions and
commercial soundness of other financial institutions. Financial services institutions, including the Bank, are interrelated as a
result of trading, clearing, counterparty or other relationships. Defaults by, or even rumors or questions about, one or more
financial services institutions, or the financial services industry generally, have led to market-wide liquidity problems and losses
of depositor, creditor and counterparty confidence and could lead to losses or defaults by us or by other institutions. We could
experience increases in deposits and assets as a result of the difficulties or failures of other banks, which would increase the
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capital we need to support our growth. There can be no assurance that we could raise the necessary capital to support our growth
on terms satisfactory to us or at all.
Credit and Interest Rate Risk
Effects of COVID-19 substantially increases our credit risk.
Our risks of non-timely loan repayment and deterioration in the value of collateral supporting the loans are affected by
the strength of our borrower’s businesses. Concern about the spread of COVID-19 has caused and is likely to continue to cause
business shutdowns, limitations on commercial activity and financial transactions, labor disruptions, supply chain interruptions,
increased unemployment and commercial property vacancy rates, reduced profitability, and overall economic and financial
market instability, all of which may cause our customers to be unable to make scheduled loan and mortgage payments. If the
effects of COVID-19 result in widespread and sustained repayment shortfalls on loans in our portfolio, we could incur significant
delinquencies, foreclosures and credit losses, particularly if the available collateral is insufficient to cover our exposure. The
future effects of COVID-19 on economic activity could negatively affect the collateral values associated with our existing loans,
the ability to liquidate the real estate collateral securing our residential and commercial real estate loans, our ability to maintain
loan origination volume and to obtain additional financing, the future demand for or profitability of our lending and other services,
and the financial condition and credit risk of our customers. Further, regulatory changes and policies designed to protect
borrowers may slow or prevent us from making our business decisions or may result in a delay in us taking certain remediation
actions, such as foreclosure, in the event of delinquencies. In addition, we have unfunded commitments to extend credit to
customers. During a challenging economic environment like this, our customers are more dependent on our credit commitments
and increased borrowings under these commitments could adversely impact our liquidity. Furthermore, in an effort to support
our communities during the COVID-19 pandemic, we are participating in the PPP under the CARES Act whereby loans to small
businesses are made and those loans are subject to the regulatory requirements that would require forbearance of loan payments
for a specified time or that would limit our ability to pursue all available remedies in the event of a loan default. If the borrower
under the PPP loan fails to qualify for loan forgiveness, we are at heightened risk of holding these loans at unfavorable interest
rates as compared to the loans to customers to which we would have otherwise extended credit. Detailed information regarding
PPP loans and loan modifications are included below in the General section of Part II. Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations.
Effects of COVID-19 may materially adversely increase interest rate risk.
Our net interest income, lending activities, deposits and profitability could be negatively affected by volatility in interest
rates caused by uncertainties stemming from COVID-19. In March 2020, the Federal Reserve lowered the target range for the
federal funds rate by 150 basis points to a range from 0 to 0.25 percent, citing concerns about the impact of COVID-19 on overall
markets. A prolonged period of extremely volatile and unstable market conditions would likely increase our funding costs and
negatively affect market risk mitigation strategies. Higher income volatility from changes in interest rates and spreads to
benchmark indices could cause a loss of future net interest income and a decrease in current fair market values of our assets.
Fluctuations in interest rates will impact both the level of income and expense recorded on most of our assets and liabilities and
the market value of all interest-earning assets and interest-bearing liabilities, which in turn could have a material adverse effect
on our net income, operating results, or financial condition. Because there have been no comparable recent global pandemics
that resulted in similar global impacts, we do not yet know the full extent of COVID-19’s effects on our business, operations, or
the global economy as a whole. Any future development will be highly uncertain and cannot be predicted, including the scope
and duration of the pandemic, the effectiveness of our work from home arrangements, third party providers’ abilities to support
our operations, and any actions taken by governmental authorities and other third parties in response to the pandemic. The
uncertain future development of this crisis could materially and adversely affect our business, operations, operating results,
financial condition, liquidity or capital levels.
Our loan portfolio possesses increased risk due to the percentage of commercial real estate loans and commercial business
loans.
Our loan portfolio includes a significant amount of commercial real estate loans and commercial business loans. The
credit risk related to these types of loans is considered to be greater than the risk related to owner-occupied residential real estate
loans or consumer loans because commercial loans often have larger balances, and repayment usually depends on the borrowers’
successful business operations. The underlying commercial real estate values, customer cash flow and payment expectations on
such loans can be more easily influenced by adverse conditions in the related industries, the real estate market or in the economy
in general. Any significant deterioration in the credit quality of the commercial loan portfolio or underlying collateral values
would have a material adverse effect on our financial condition and results of operation.
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Management’s analysis of the necessary funding for the allowance for loan loss account may be incorrect or may suddenly
change resulting in lower earnings.
The funding of the allowance for loan loss account is the most significant estimate made by management in its financial
reporting to stockholders and regulators. The determination of the appropriate level of the allowance for loan losses involves a
high degree of subjectivity and requires us to make significant estimates of current credit risks and future trends, all of which are
subject to material changes.
Although management believes that the allowance for loan losses as of December 31, 2020 was adequate to absorb
losses on any existing loans that may become uncollectible, we cannot predict loan losses with certainty, and we cannot assure
you that our allowance for loan losses will prove sufficient to cover actual loan losses in the future, particularly if economic
conditions are more difficult than management currently expects. If negative changes to the performance of our loan portfolio
were to occur, management may find it necessary to or be required to fund the allowance for loan loss account through additional
charges to our provision for loan loss expense. These changes may occur suddenly and be dramatic in nature. Additional
provisions to the allowance for loan losses and loan losses in excess of said allowance may adversely affect our business, financial
condition and results of operations.
A new accounting standard will likely require us to increase our allowance for loan losses and may have a material adverse
effect on our financial condition and results of operations.
The FASB has adopted a new accounting standard that is scheduled to be effective for us on January 1, 2023. This
standard, referred to as Current Expected Credit Loss, or CECL, will require financial institutions to determine periodic estimates
of lifetime expected credit losses on loans, and recognize the expected credit losses as allowances for loan losses. This will
change the current method of providing allowances for loan losses that are probable, which may require us to increase our
allowance for loan losses, and to greatly increase the types of data we will need to collect and review to determine the appropriate
level of the allowance for loan losses. Any increase in our allowance for loan losses or expenses incurred to determine the
appropriate level of the allowance for loan losses may have a material adverse effect on our financial condition and results of
operations.
Rapidly changing interest rate environments could reduce our net interest margin and otherwise negatively impact our results
of operations.
Interest and fees on loans and securities, net of interest paid on deposits and borrowings, are a large part of our net
income. Interest rates are the key drivers of our net interest margin and are subject to many factors beyond the control of
management. As interest rates change, our net interest income is affected. Rapid increases in interest rates in the future could
result in our interest expense increasing faster than interest income because of mismatches in the maturities of our assets and
liabilities. Furthermore, substantially higher rates generally reduce loan demand and may result in slower loan growth for us.
Decreases or increases in interest rates could have a negative effect on the spreads between our interest rates earned on assets
and our rates of interest paid on liabilities, and therefore decrease our net interest income, which would have a material adverse
effect on our financial condition and results of operations.
Interest rate changes may affect borrowers’ repayment schedules, negatively impacting our financial condition.
Interest rate increases often result in larger payment requirements for our borrowers, which increase the potential for
default. At the same time, the marketability of underlying collateral may be adversely affected by any reduced demand resulting
from higher interest rates. In a declining interest rate environment, there may be an increase in prepayments on certain of our
loans as borrowers refinance at lower rates. Fluctuation in interest rates may therefore change borrowers’ timing of repayment
of, or ability to repay loans, which could have a material adverse impact on our financial condition.
Changes in interest rates could negatively impact our nonperforming assets, decreasing net interest income.
Changes in interest rates also can affect the value of loans. An increase in interest rates that adversely affects the ability
of borrowers to pay the principal or interest on loans may lead to an increase in our nonperforming assets and a reduction of
income recognized, which could have a material adverse effect on our results of operations and cash flows. Further, when we
place a loan on nonaccrual status, we reverse any accrued but unpaid interest receivable, which decreases interest income.
Subsequently, we continue to have a cost to fund the loan, which is reflected as interest expense, without any interest income to
offset the associated funding expense. Thus, an increase in the amount of nonperforming assets resulting from changes in interest
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rates would have an adverse impact on net interest income, which could have a material adverse effect on our financial condition
and results of operation.
The replacement of LIBOR could adversely affect our revenue or expenses and the value of those assets or obligations.
In 2017, the United Kingdom’s Financial Conduct Authority announced that after 2021 it would no longer compel banks
to submit the rates required to calculate the London Interbank Offered Rate (“LIBOR”). This announcement indicated that the
continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. Consequently, at this time, it is not
possible to predict whether and to what extent banks will continue to provide submissions for the calculation of LIBOR. Similarly,
it is not possible to predict whether LIBOR will continue to be viewed as an acceptable market benchmark or what the effect of
any such changes in views or alternatives may be on the markets for LIBOR-indexed financial instruments.
If LIBOR ceases to exist or if the methods of calculating LIBOR change from current methods for any reason, interest
rates on our floating rate obligations, derivatives, and other financial instruments tied to LIBOR rates, as well as the revenue and
expenses associated with those financial instruments, may be adversely affected. Any uncertainty regarding the continued use
and reliability of LIBOR as a benchmark interest rate could adversely affect the value of our floating rate obligations, derivatives,
and other financial instruments tied to LIBOR rates.
As of December 31, 2020, the Company had derivative financial instruments, a line of credit with another financial
institution, certain investment securities and segments of commercial and consumer loans indexed to LIBOR. Management
continues to monitor developments with the transition to a new benchmark and will adopt fallback language on existing contracts
as well as select an alternative benchmark during 2021. As there are still uncertainties in adopting a new index rate, the overall
impact of this change on our financial results is unknown at this time.
Operational Risk
The effects of COVID-19 may continue to adversely affect the operations of the Bank.
Restrictions on our workforce’s access to our facilities could limit our ability to meet customer servicing expectations
and have a material adverse effect on our operations. We rely on business processes and branch activity that largely depend on
people and technology, including access to information technology systems as well as information, applications, payment systems
and other services provided by third parties. In response to COVID-19, we have modified our business practices periodically
allowing our employees to work remotely from their homes to have our operations uninterrupted as much as possible. Further,
technology in employees’ homes may not be as robust as in our offices and could cause the networks, information systems,
applications, and other tools available to employees to be more limited or less reliable than in our offices. The continuation of
these remote work measures also introduces additional operational risk, including increased cybersecurity risk. These
cybersecurity risks include increased phishing, malware, and other cybersecurity attacks, vulnerability to disruptions of our
information technology infrastructure and telecommunications systems for remote operations, increased risk of unauthorized
dissemination of confidential information, limited ability to restore the systems in the event of a systems failure or interruption,
greater risk of a security breach resulting in destruction or misuse of valuable information, and potential impairment of our ability
to perform critical functions, including wiring funds, all of which could expose us to risks of data or financial loss, litigation and
liability and could seriously disrupt our operations and the operations of any impacted customers.
Moreover, we rely on many third parties in our business operations, including appraisers of the real property collateral
securing our loans, vendors that supply essential services such as loan servicers, providers of financial information, systems and
analytical tools and providers of electronic payment and settlement systems, and local and federal government agencies, offices,
and courthouses. In light of the developing measures responding to the COVID-19 pandemic, many of these entities may limit
the availability and access of their services. For example, loan originations could be delayed due to the limited availability of
real estate appraisers for the collateral. Loan closings could be delayed related to reductions in available staff in recording offices
or the closing of courthouses in certain counties, which slows the process for title work, mortgage and UCC filings in those
counties. If the third-party service providers continue to have limited capacities for a prolonged period or if additional limitations
or potential disruptions in these services materialize, it may negatively affect our operations.
We are subject to environmental liability risk associated with real estate collateral securing our loans.
A significant portion of our loan portfolio is secured by real property. Under certain circumstances, we may take title to
the real property collateral through foreclosure or other means. As the titleholder of the property, we may be responsible for
environmental risks, such as hazardous materials, which attach to the property. For these reasons, prior to extending credit, we
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conduct an environmental review to identify any known environmental risks associated with the real property that will secure
our loans. In addition, we routinely inspect properties prior to foreclosing. If environmental risks are found, environmental laws
and regulations may prescribe our approach to remediation. As a result, while we have ownership of a property, we may incur
substantial expense and bear potential liability for any damages caused. The environmental risks may also materially reduce the
property’s value or limit our ability to use or sell the property. We also cannot guarantee that our environmental review will
detect all environmental issues relating to a property, which could subject us to additional liability.
Our operations are concentrated in one subsidiary bank. An event or a series of events having a material adverse impact on
the financial condition and results of operations of the Bank would have a material adverse impact on our financial condition
and results of operation and, accordingly, on your investment in us.
As a holding company with only one subsidiary bank, our investment risk is concentrated in just one primary operating
asset in a relatively small geographic location. A substantial portion of our cash flow comes from dividends paid directly to us
by the Bank. If and to the extent the Bank is not successful or an event were to occur that prevents it or hinders it from operating
effectively, our financial condition and results of operations could be materially and adversely impacted. Larger bank holding
companies with more subsidiary banks or bank facilities and which are more geographically dispersed are not as susceptible to
the concentrated risks we are if one of their subsidiary banks or facilities was not able to operate effectively.
A failure in or breach of our information security controls, or those of our third-party service providers, including as a result
of cyber-attacks, could result in unintentional disclosure or misuse of confidential or proprietary information, adversely
impact our financial condition and cause reputational harm.
Information pertaining to us and our customers is maintained, and transactions are executed, on networks and systems
maintained by us and certain third-party vendors, such as our online banking, mobile banking and accounting systems. Our
operations are heavily dependent on the secure maintenance and transmission of confidential information, as well as the execution
of transactions over these networks and systems.
As a bank, we are susceptible to electronic fraudulent activity, information security breaches and cybersecurity-related
incidents that may be committed against us or our customers. In addition, our customers may use personal mobile or computing
devices to access our products or services that are outside of our network environment and are subject to their own cybersecurity
risks. If one or more of these events occurs, it may result in financial losses or increased costs to us or our customers, inadvertent
and unintentional disclosure or misuse of our information or our customer information, misappropriation of assets, litigation or
damage to our reputation. In addition, we may be required to expend significant additional resources to modify our protective
measures or to investigate and remediate vulnerabilities.
The risk of such incidents within the financial services industry has increased significantly in recent years in part because
of the proliferation of new technologies, the use of the internet and telecommunication technologies to conduct financial
transactions, and the increased sophistication and activities of attackers, such as hackers. In recent periods, several large
corporations, including financial institutions and retail companies, have suffered major data breaches, in some cases exposing
not only confidential and proprietary corporate information, but also sensitive financial and other personal information of their
customers and employees and subjecting them to potential fraudulent activity.
Fraudulent activity may take many forms, including check fraud, electronic fraud, wire fraud, phishing, social
engineering and other dishonest acts. Information security breaches and cybersecurity-related incidents may include fraudulent
or unauthorized access to systems used by us or our customers, denial or degradation of service attacks and malware or other
cyber-attacks. Breaches of information security also may occur through intentional or unintentional acts by those having access
to our systems or our customers’ confidential information, including our employees and our third-party vendors.
Although we have implemented security measures that are designed to prevent security breaches and endeavor to modify
them as circumstances warrant, there is no assurance that all of our security measures will be effective, especially as cyber-
attacks are becoming more sophisticated and increasing in volume, and attackers respond rapidly to changes in defensive
measures. Failure to mitigate breaches of security could result in violations of applicable privacy laws, regulatory fines, litigation
exposure, and increased security compliance costs, all of which could damage our reputation and result in the loss of customers
and business. Any of these occurrences could have a material adverse impact on our results of operations.
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We depend upon third-party vendors for a significant portion of our operations.
We rely on third-party service providers for a substantial portion of our operations, including communication, record
retention, and financial control systems technology. While we endeavor to select reliable and competent vendors, we cannot
control our vendors or their actions. The potential for operational risk exposure exists because of our interactions with, and
reliance on, third parties in our daily and ongoing operations. Any problems caused by or suffered by a third-party vendor,
including a vendor’s failure to provide contracted services, poor performance by a vendor, disruption of a vendor’s business
operations, or otherwise, could materially and adversely affect our ability to serve our customers or to conduct our business
efficiently and effectively. Replacing a vendor could entail significant delay and expense.
Our third-party vendors are also subject to the cybersecurity risks discussed above. A cyberattack, information or
security breach, or a technology failure of a third-party vendor could have a material adverse effect on our business. Although
we review the security practices of third-party vendors before contracting with them, we cannot control their systems or security.
If our data or the data of our customers is improperly accessed, used, transmitted, or otherwise obtained because of, or due in
part to, actions or inactions caused by our third-party vendors, we could face significant operational harm, legal and financial
exposure, and reputational damage.”
We continually encounter technological change, and we cannot predict how changes in technology will affect our business.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new
technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions
to better serve customers and reduce costs. Our future success will depend, in part, upon our ability to address the needs of our
customers by using technology to provide products and services that will satisfy customer demands for convenience, as well as
to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in
technological improvements than we do. We may not be able to effectively implement new technology-driven products and
services or be successful in marketing these products and services to our customers. Failure to successfully keep pace with
technological change affecting the financial services industry could have a material adverse effect on our business and, in turn,
our financial condition and results of operations.
Changes in consumer use of banks and changes in consumer spending and savings habits could adversely affect our financial
results.
Technology and other changes now allow many customers to complete financial transactions without using banks. For
example, consumers can pay bills and transfer funds directly without going through a bank. This process of eliminating banks as
intermediaries could result in loss of fee income, as well as the loss of customer deposits and income generated from those
deposits. In addition, changes in consumer spending and saving habits could adversely impact our operations, and we may be
unable to timely develop competitive new products and services in response to these changes.
The financial condition of the Bank’s customers and borrowers could adversely affect the Bank’s liquidity, financial condition
and its results of operations.
Two of the Bank’s primary sources of funds are customer deposits and loan repayments. Customer deposit levels may
also be affected by a number of factors, including the competitive interest rate environment in both the national market and our
Market Area, local and national economic conditions, natural disasters such as earthquakes, landslides, wildfires, extreme
weather conditions, hurricanes, floods, and other acts of nature, geopolitical events such as those involving civil unrest, changes
in the government regimes, terrorism or military conflict, and pandemics and other public health crises, and other catastrophic
events.
Though scheduled loan repayments are a relatively stable source of liquidity, they are subject to the borrowers’ ability
to repay their loans. The ability of the borrowers to repay their loans can be adversely affected by a number of factors, including
but not limited to those noted above, including concerns about the occurrence of such events.
The foregoing events or concerns about the occurrence of any such events, could impair our borrowers’ ability to service
their loans, decrease the level and duration of deposits by customers, erode the value of loan collateral, result in an increase in
the amount of our non-performing loans and a higher level of non-performing assets (including real estate owned), net charge-
offs, and provision for loan losses, lead to other operational difficulties and impair our ability to manage our business, which
could materially and adversely affect our business, financial condition, results of operations and the value of our common stock.
We also could be adversely affected if our key personnel or a significant number of our employees were to become unavailable
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due to a public health crisis or an outbreak of a contagious disease (such as the current COVID-19 pandemic), natural disaster,
war, act of terrorism, accident, or other reason. Natural disasters, geopolitical events, public health crises (again, such as COVID-
19) and other catastrophic events could also negatively affect our customers, counterparties and service providers, as well as
result in disruptions in general economic activity and the financial and real estate markets.
There continue to be broad and continuing concerns related to the effects of the COVID-19 outbreak. If COVID-19 has
an adverse effect on (i) customer deposits, (ii) the ability of our borrowers to satisfy their obligations to us, (iii) the demand for
our loans or our other products and services, (iv) other aspects of our business operations, or (v) on financial markets or economic
growth, this could, depending on the extent of the decline in customer deposits or loan defaults, materially and adversely affect
our liquidity and financial condition and the results of operations could be materially and adversely affected.
Liquidity needs could adversely affect our results of operations and financial condition.
Adequate liquidity is critical in our ability to meet the needs of our customers. An inability to access funding through
customer deposits, available borrowings, sales of loans or investments could have an adverse effect on our liquidity. Furthermore,
regional and community banks, including the Bank, generally have less access to the capital markets, than do the national and
super-regional banks because of their smaller size and limited analyst coverage. Any significant decline in available funding
could adversely impact our ability in the future to originate loans, invest in securities, meet our expenses, pay dividends to our
stockholders, or fulfill obligations such as repaying our borrowings or meeting deposit withdrawal demands, any of which could
have a material adverse impact on our liquidity, business, results of operations and financial condition.
A decrease in cash flows from our investment portfolio may adversely affect our liquidity.
Another primary source of liquidity for the Bank is cash flows from investment securities. Cash flows from the
investment portfolio may be affected by changes in interest rates, resulting in excessive levels of cash flow during periods of
declining interest rates and lower levels of cash flow during periods of rising interest rates. These changes may be beyond our
control and could significantly influence our available cash.
If we are required to rely on secondary sources of liquidity, those sources may not be immediately available.
We may be required from time to time to rely on secondary sources of liquidity to meet withdrawal demands or otherwise
fund operations. Such sources include the FHLB advances, brokered deposits and federal funds lines of credit from correspondent
banks. Our ability to borrow could be impaired by factors that are not specific to us, such as severe disruption of the financial
markets or negative publicity about the financial services industry as a whole. We may also be required to pledge investments as
collateral to borrow money from third parties. In certain cases, we may be required to sell investment instruments for sizable
losses to meet liquidity needs, thereby reducing interest income and resultantly net income. While we believe that we are currently
sufficiently liquid, there can be no assurance we will not in the future be required to turn to these secondary sources of liquidity
which may not be available or only at costs that could materially and adversely affect our financial condition and results of
operation.
Inability to hire or retain certain key professionals, management and staff could adversely affect our revenues, net income
and growth plans.
Our performance is largely dependent on the talents and efforts of highly skilled individuals and their ability to attract
and retain customer relationships in a community bank environment. We rely on key personnel to manage and operate our
business, including major revenue generating functions such as our loan and deposit portfolios. Certain key management team
members and loan officers are not subject to employment contracts with us. Such employees are at-will and thus are not restricted
from terminating their employment. The lack of employment contracts with key employees could have a material adverse impact
on our ability to retain such employees. The loss of key management or our key loan officers with their contacts in the business
communities within our Market Area may adversely affect our ability to maintain and manage these portfolios effectively, which
could negatively affect our revenues.
If we do struggle with employee retention, our success may also be impacted if we are unable to recruit replacement
management and key employees in a reasonable amount of time. There is intense competition in the financial services industry
for qualified employees. In addition, loss of key personnel could result in increased recruiting, hiring, and training expenses,
resulting in lower net income.
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We are subject to certain operational risks, including, but not limited to, customer or employee fraud.
Employee errors and employee and customer misconduct could subject us to financial losses, regulatory sanctions,
lawsuits and seriously harm our reputation. Misconduct by our employees could include hiding unauthorized activities from us,
improper or unauthorized activities on behalf of our customers, or improper use of confidential information. We maintain a
system of internal controls and insurance coverage to mitigate against operational risks. However, if our internal controls fail to
prevent or detect an occurrence, or if any resulting loss is not insured or exceeds applicable insurance limits, such failures could
have a material adverse effect on our business, financial condition and results of operations.
Strategic Risk
Acquisitions may not produce revenue enhancements or cost savings at levels or within timeframes originally anticipated and
may result in unforeseen integration difficulties and dilution to existing shareholder value.
We have acquired, and in the future may continue to acquire, other financial institutions or parts of those institutions.
We may also consider and enter into new lines of business or offer new products or services.
We may incur substantial costs to expand, and we can give no assurances such expansion will result in the levels of
profits we seek. There can be no assurances that integration efforts for any mergers of acquisitions will be successful. Also, we
may issue equity securities in connection with acquisitions, which could cause ownership and economic dilution to our current
shareholders. There is no assurance that, following any mergers or acquisitions, our integration efforts will achieve profits
comparable to, or better than, our historical experience.
Acquisitions and mergers involve a number of expenses and risks, including:
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the time and costs associated with identifying potential new markets, as well as acquisition and merger targets;
the accuracy of the estimates and judgements used to evaluate credit, operations, management and market risk with
respect to the target institution;
the time and costs of evaluating new markets, hiring experienced local management and opening new offices, and
the time lags between these activities and generation of sufficient assets and deposits to support the costs of
expansion;
our ability to finance an acquisition and possible dilution to our existing shareholders;
the diversion of our management’s attention to the negotiation of a transaction, and the integration of the operations
and personnel of the combined businesses;
entry in to markets where we lack experience;
the introduction of new products and services into our business;
the incurrence and possible impairment of goodwill associated with an acquisition and possible adverse short-term
effects on our results of operations;
closing delays and increased expenses related to the resolution of lawsuits filed by shareholders of targets; and
the risk of loss of key employees and customers.
Generally, the Company must receive federal regulatory approval before it can acquire a bank or bank holding company.
We cannot be certain when or if, or on what terms and conditions, any required regulatory approvals will be granted. The sale of
branches as a condition of receiving regulatory approval may be required.
Future acquisitions could be material to the Company’s financial statements. Additional shares of stock may be issued
to pay for acquisitions, which would dilute current shareholders’ ownership interests.
The effects of COVID-19 may adversely affect our ability to implement our strategic plans.
Our results may be affected by a variety of external factors that may affect the price or marketability of our products
and services, changes in interest rates that may negatively impact our funding costs, reduced demand for our financial products
due to economic conditions and the various responses of governmental, non-governmental and regulatory authorities. In recent
months, the COVID-19 pandemic has significantly increased economic and demand uncertainty and has led to disruption and
volatility in the global capital markets. Furthermore, many of the governmental actions have been directed toward curtailing
household and business activity to contain COVID-19. These actions have been rapidly expanding in scope and intensity. In our
two major market areas of Springfield and Joplin, Missouri, local governments have previously acted to temporarily close or
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restrict the operations of businesses. The future effects of COVID-19 on economic activity could negatively affect the future
banking products we provide, including a decline in originating of loans and lower usage of ATMs and debit cards.
Regulatory and Compliance Risk
We are subject to extensive regulation that may significantly affect our operations or earnings.
We are subject to significant federal and state regulation and supervision, as discussed in more detail below, which is
primarily for the benefit and protection of the Bank’s customers and not for the benefit of investors. As a result, various statutory
provisions restrict the amount of dividends our Bank subsidiary can pay to us without regulatory approval. Our regulatory
compliance is costly. We are subject to examination, supervision, and comprehensive regulation by various agencies, including
the FRB, the MDF and FDIC. These regulators have broad discretion in their supervisory and enforcement activities. We are
also subject to capitalization guidelines established by our regulators, as discussed under “Business – Supervision and
Regulation” in Item 1 of this report, which require that we and the Bank maintain adequate capital to support our growth and the
Bank’s growth. To the extent our activities and/or the Bank’s activities are restricted or limited by regulation or regulators’
supervisory authority, our future profitability may be adversely affected.
An uncertain regulatory environment could impact our business, financial performance, and results of operations.
Many aspects of the Dodd-Frank Act are subject to continued rulemaking and will take effect over several years, making
it difficult to anticipate the overall financial impact on us. The U.S. Congress continues to propose new legislation that could
increase or change regulation of the financial services industry and impact the operations of the Bank or Company.
On February 3, 2017, Executive Order 13772 announcing new “Core Principles” for regulating the U.S. financial system
was enacted. Among other things, the Secretary of the Treasury, in consultation with federal regulatory agencies, was directed
to review existing laws and regulations and report on the extent to which they were consistent with the Core Principles.
Indications were also made in public statements that the Dodd-Frank Act will be under scrutiny and that some of its provisions
and the rules promulgated thereunder may be revised, repealed or amended. It is not clear when, or if, changes to existing statutory
or regulatory requirements may be implemented.
The implementation, amendment, or repeal of federal financial services laws or regulations may impact our profitability,
limit our business opportunities, impose additional costs, or otherwise adversely affect our business. Any changes may also
require us to invest management attention and resources to achieve compliance. In addition, any proposed legislative or regulatory
changes that could benefit our business may not occur in the timeframe proposed, may appear different in final form than
proposed, or may not occur at all.
Changes in federal or state regulation may increase our costs.
The laws, regulations, policies, and interpretations that govern our industry are constantly evolving and may change
significantly over time. The Dodd-Frank Act reshaped regulation of banking institutions and the numerous requirements
stemming from the Dodd-Frank Act have resulted in increased compliance costs for institutions both large and small, including
us and the Bank. As these regulations continue to be implemented, interpreted, and enforced, our compliance must evolve as
well. The CFPB has shown that it is a proactive agency and we anticipate that the CFPB will continue to expand its supervisory
and enforcement authority into new areas and to issue new rules and guidance.
We cannot predict the nature or effect of current or proposed legislative or regulatory changes on us or the Bank with
any certainty. Changes in laws or regulations could impact our business practices and profitability. We also cannot predict the
cost of new compliance that may be required to keep pace with industry regulatory changes.
Decreases in capital and changes to the formulas for calculating adequate capital may negatively impact us or result in
increased regulatory supervision.
Federal rules require banking institutions to maintain an adequate level of regulatory capital (net assets available to
absorb losses). Due to the risks associated with the industry, banking institutions are generally required to hold more capital than
other businesses. Revised minimum capital adequacy requirements under the Basel III Rule became effective for us and the Bank
on January 1, 2015, with additional requirements, such as the capital conservation buffer (discussed below). These requirements
change the definition of capital, increase minimum required risk-based capital ratios, and increase the risk-weights for certain
assets. Cumulatively, the Basel III Rule is more stringent than prior requirements and requires financial institutions to hold more
34
FORM 10-K
and better capital against their assets, decreasing the size of their balance sheets. Although the impact on us has been minimal to
date, we cannot guarantee that will continue.
Financial institutions that adopted the CBLR framework must maintain capital conservation buffers above the minimum
risk-based capital requirements. The buffer must be maintained to avoid limitations on capital distributions and discretionary
bonus payments to executive officers. If we or the Bank fall below thresholds, we could be subject to increasingly strict
limitations on capital distributions and bonus payments. Additional details are listed below.
Federal law provides regulators with broad powers to take "prompt corrective action" to resolve capital deficiencies at
insured depository institutions that do not meet minimum capital requirements. There are five capital tiers: "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized" and "critically undercapitalized." As an
institution’s capital levels deteriorates and it falls below the “well capitalized” threshold, such institution faces increasing
penalties. Regulator’s corrective powers include, but are not limited to:
●
●
●
●
●
●
●
●
requiring a waiver to accept brokered deposits;
requiring submission of a capital plan;
limiting growth or restricting activities;
requiring the issuance of additional capital stock;
restricting transactions with affiliates;
prohibiting executive bonuses or raises;
prohibiting the payment of subordinated debt; and
appointing a receiver.
A final rule issued on September 17, 2019 by federal banking regulators provides a simpler method of measuring
adequate capital ratios for community banking organizations. The community bank leverage ratio (CBLR) framework is an
optional framework that is designed to reduce burden by removing the requirements for calculating and reporting risk-based
capital ratios for qualifying community banking organizations that opt into the framework. The framework provides a simple
measure of capital adequacy for qualifying community banking organizations, consistent with section 201 of the Economic
Growth, Regulatory Relief and Consumer Protection Act. Qualifying community banking organizations that elect to use the
CBLR framework and that maintain a leverage ratio of greater than 9 percent are considered to have satisfied the risk-based and
leverage capital requirements in the generally applicable capital rule. These institutions also must have met well-capitalized ratio
requirements for purposes of section 38 of the Federal Deposit Insurance Act. The final rule went into effect on January 1, 2020.
The Company opted into the new CBLR method during 2020. The decision to adopt this framework did not have a material
impact on financial results of the Company.
Accordingly, we and the Bank could be subject to regulatory penalties and restrictions if capital falls below certain
minimum thresholds set by federal banking regulators.
Monetary policies and regulations of the Federal Reserve could adversely affect our business, financial condition and results
of operations.
In addition to being affected by general economic conditions, including economic conditions specifically in our Market
Area, our earnings and growth are affected by the policies of the Federal Reserve. An important function of the Federal Reserve
is to regulate the money supply and credit conditions. Among the instruments used by the Federal Reserve to implement these
objectives are open market operations in U.S. government securities, adjustments of the discount rate and changes in reserve
requirements against bank deposits. These instruments are used in varying combinations to influence overall economic growth
and the distribution of credit, bank loans, investments and deposits. Their use also affects interest rates charged on loans or paid
on deposits.
The effects of the monetary policies and regulations of the Federal Reserve upon our business, financial condition and
results of operations in the future cannot be predicted, but have had a significant effect on the operating results of commercial
banks, including our Bank, in the past.
Changes in the federal or state tax laws may negatively impact our financial performance.
We are subject to tax law changes that could increase the effective tax rate payable to the state or federal government.
These changes may be retroactive to previous periods and as a result, could negatively affect our current and future financial
35
FORM 10-K
performance. Should future changes to tax regulations and rates occur, the Company’s customers are likely to experience varying
effects from changes in both the individual and business tax provisions. Such changes could include (i) limiting the deductibility
of mortgage interest on single family residential mortgage loans, (ii) limitations on interest deductions for home equity loans,
(iii) a limitation on the deductibility of business interest expense and (iv) a limitation on the deductibility of property taxes and
state and local income taxes. Recent changes in the tax laws may have an adverse effect on the market for, and valuation of,
residential properties, and on the demand for such loans in the future, and could make it harder for borrowers to make their loan
payments. If home ownership becomes less attractive, demand for mortgage loans could decrease. The value of the properties
securing loans in our loan portfolio may be adversely impacted as a result of the changing economics of home ownership, which
could require an increase in our provision for loan losses, which would reduce our profitability and could materially adversely
affect our business, financial condition and results of operations.
We face legal risks, both from regulatory investigations and proceedings and from private actions brought against us.
We could in the future become subject to lawsuits or regulatory proceedings challenging the legality of our lending or
business practices. Future actions against us may result in judgments, settlements, fines, penalties or other results adverse to us,
which could materially adversely affect our business, financial condition or results of operations, or cause serious reputational
harm to us. As a participant in the financial services industry, we are exposed to a high level of potential litigation related to our
businesses and operations. Although we maintain insurance, the scope of this coverage may not provide us with full, or even
partial, coverage in any particular case.
Our businesses and operations are also subject to increasing regulatory oversight and scrutiny, which may lead to
additional regulatory investigations or enforcement actions. These and other initiatives from federal and state officials may
subject us to further judgments, settlements, fines or penalties, or cause us to be required to restructure our operations and
activities, all of which could lead to reputational issues, or higher operational costs, thereby reducing our revenue.
Risks Related to Investment in Common Stock
Anti-takeover provisions could negatively impact our stockholders.
Provisions in our governing documents, the General Corporation Law of the State of Delaware (the “DGCL”) and
federal regulations could delay or prevent a third party from acquiring us, despite the possible benefit to our stockholders.
These provisions include, but are not limited to:
●
●
●
●
●
●
a prohibition on voting shares of common stock beneficially owned in excess of 10% of total shares
outstanding without prior Board approval;
supermajority voting requirements for certain business combinations with any person who beneficially owns
10% or more of our outstanding common stock;
advance notice requirements for director nominations and for proposing matters that stockholders may act
on at stockholder meetings;
the election of directors to staggered terms of three years;
a requirement that only directors may fill a vacancy in our Board of Directors; and
supermajority voting requirements to remove any of our directors.
In addition, because we are a bank holding company, purchasers of 10% or more of our common stock may be required
to obtain approvals under the Change in Bank Control Act of 1978, as amended, or the Bank Holding Company Act of 1956, as
amended (the “BHCA”), and in certain cases such approvals may be required at a lesser percentage of ownership.
These provisions may discourage potential takeover attempts, discourage bids for our common stock at a premium over
market price or adversely affect the market price of, and the voting and other rights of the holders of, our common stock. These
provisions could also discourage proxy contests and make it more difficult for holders of our common stock to elect directors
other than the candidates nominated by our Board of Directors.
There are restrictions on our ability to pay dividends on and repurchase our common stock.
Holders of our common stock are entitled to receive dividends only when, as and if declared by our Board of Directors.
Our ability to pay dividends is limited by Delaware law, as well as regulatory restrictions and the need to maintain sufficient
consolidated capital. The ability of the Bank to pay dividends to us is limited by its obligation to maintain sufficient capital and
36
FORM 10-K
liquidity and by other general restrictions on dividends that are applicable to the Bank. If current or any future regulatory
requirements are not met, the Bank will not be able to pay dividends to us, and we may be unable to pay dividends on our
common stock.
The DGCL provides that dividends by a Delaware corporation may be paid only from: (1) “surplus” determined in the
manner described in the DGCL, or (2) in case there is no “surplus,” net profits for the fiscal year in which the dividend is declared
and/or the preceding fiscal year. Dividends paid from the second source may not be paid unless the capital represented by the
issued and outstanding stock of all classes having a preference upon the distribution of assets at current market value is intact.
Moreover, as a bank holding company, our ability to declare and pay dividends is subject to the guidelines of the Federal
Reserve regarding capital adequacy and dividends. The Federal Reserve guidelines generally require us to review the effects of
the cash payment of dividends on common stock and other Tier 1 capital instruments (i.e., perpetual preferred stock and trust
preferred debt) in light of our earnings, capital adequacy and financial condition. As a general matter, the Federal Reserve
indicates that the Board of Directors of a bank holding company should eliminate, defer or significantly reduce the dividends if:
●
●
●
the company’s net income available to stockholders for the past four quarters, net of dividends previously
paid during that period, is not sufficient to fully fund the dividends;
the prospective rate of earnings retention is inconsistent with the company’s capital needs and overall current
and prospective financial condition; or
the company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.
In the future, if we default on certain of our outstanding debts, we will be prohibited from making dividend payments
on our common stock until such payments have been brought current.
Failure to pay interest on our debt may adversely impact our ability to pay common stock dividends.
As of December 31, 2020, we had $15.5 million of subordinated debentures held by two Capital Trusts. Interest
payments on the Company’s existing debentures, which totaled $785,000 for 2020, must be paid before the Company can pay
dividends on its capital stock, including its common stock. The Company has the right to defer interest payments on the
debentures for up to 20 consecutive quarters. However, if it elects to defer interest payments, all deferred interest must be paid
before the Company can pay dividends on its capital stock.
Although the Company expects to be able to pay all required interest on the junior subordinated debentures, there is no
guarantee that it will be able to do so.
There is a limited trading market for our common stock, and you may not be able to resell your shares at or above the price
you paid for them.
Although our common stock is listed for trading on the NASDAQ Global Market, it has a low average daily trading
volume relative to many other stocks whose shares are also quoted on the NASDAQ Global Market. A public trading market
having the desired characteristics of depth, liquidity and orderliness depends on the presence in the market of willing buyers and
sellers of our common stock at any given time. This presence depends on the individual decisions of investors and general
economic and market conditions over which we have no control. We cannot assure you that the volume of trading in our common
stock will increase in the future.
Additionally, general market forces may have a negative effect on our stock price, independent of factors affecting our
stock specifically. Factors beyond our control, including price and trading fluctuation, can significantly influence the fair value
of securities in our portfolio and can cause potential adverse changes to the fair value of these securities. These conditions may
result in (i) volatility in the level of, and fluctuations in, the market prices of stocks generally and, in turn, our common stock and
(ii) sales of substantial amounts of our common stock in the market, in each case that could be unrelated or disproportionate to
changes in our operating performance. These broad market fluctuations may adversely affect the market value of our common
stock.
Specifically, the following factors may cause the market price of our shares to fluctuate:
●
●
●
announcements of developments related to our business model;
economic conditions in our market area;
fluctuations in our results from operations;
37
FORM 10-K
●
●
●
a shortfall or excess in revenues or earnings compared to analyst’ expectations;
changes in analysts’ recommendations or projections; and
announcements of new acquisitions or projects.
Other
Our reputation could be damaged by negative publicity.
Reputational risk, or the risk to us from negative publicity, is inherent in our business. Negative publicity can result
from actual or alleged conduct in a number of areas, including legal and regulatory compliance, lending practices, corporate
governance, litigation, inadequate protection of customer data, unethical behavior of our employees, and from actions taken by
regulators, ratings agencies and others as a result of that conduct. Damage to our reputation could impact our ability to attract
new or maintain existing loan and deposit customers, employees and business relationships.
The preparation of our consolidated financial statements requires us to make estimates and judgments, which are subject to
an inherent degree of uncertainty and which may differ from actual results.
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles and
general reporting practices within the U.S. financial services industry, which require us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities.
Some accounting policies, such as those pertaining to our allowance for loan losses, require the application of significant
judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these
estimates and judgments are subject to an inherent degree of uncertainty and actual results may differ from these estimates and
judgments under different assumptions or conditions. If actual results vary significantly, there may be a material adverse effect
on our financial condition or results of operations in subsequent periods.
38
FORM 10-K
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
The Company’s corporate offices and operations center are located in Springfield, Missouri. At December 31, 2020, the
Company had 16 banking centers in Southwest Missouri. Of the 16 banking centers, the Company owns eight of its locations
and eight are leased for various terms ranging from one to 20 years. In addition to the banking center locations, the Company has
a loan production office located in Webster County, Missouri that is leased with annual renewals. All buildings and facilities
which are owned by the Company are free of encumbrances and mortgages. Management considers all properties to be in good
condition and suitable for intended use. Recorded amounts of premises and equipment are included in Note 7 of the “Notes to
Consolidated Financial Statements” in this Report.
Item 3. Legal Proceedings
(a)
Material Legal Proceedings
The Company and the Bank, from time to time, may be parties to ordinary routine litigation, which arises in the normal
course of business, such as claims to enforce liens, 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. While the ultimate outcome of such legal proceedings cannot be predicted with certainty, after reviewing
pending and threatened litigation with legal counsel, management believes at this time that the outcome of any such litigation
will not have a material adverse effect on the Company’s business, financial condition or results of operations.
(b) Proceedings Terminated During the Last Quarter of the Fiscal Year Covered by This Report
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
39
FORM 10-K
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
The common stock of Guaranty Federal Bancshares, Inc. (the “Company”) is listed for trading on the NASDAQ Global
Market under the symbol “GFED”.
Shareholders
As of March 1, 2021, there were approximately 1,400 record holders of shares of the Company’s common stock. These
numbers do not include beneficial owners whose shares are held by brokerage firms or banks.
Dividends and Common Stock Prices
The table below sets forth the cash dividends per share on the Company’s common stock for the years ended December
31, 2020 and 2019.
Year ended
December 31, 2020
Year ended
December 31, 2019
Declared
Paid
Dividend Per
Share
Declared
Paid
Dividend Per
Share
Quarter ended:
Quarter ended:
March 31 .......... 3/27/2020 4/17/2020 $
June 30 ............. 6/26/2020 7/17/2020 $
September 30 .... 9/25/2020 10/16/2020 $
December 31 .... 12/18/2020 1/15/2021 $
0.15 March 31 ........... 3/29/2019 4/19/2019 $
0.15 June 30 .............. 6/28/2019 7/18/2019 $
0.15 September 30 .... 9/27/2019 10/18/2019 $
0.15 December 31 ..... 12/20/2019 1/16/2020 $
0.13
0.13
0.13
0.15
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, 2020 and 2019.
Year ended
December 31, 2020
Year ended
December 31, 2019
High
Low
High
Low
Quarter ended:
March 31 ................................................................. $
June 30 ....................................................................
September 30 ...........................................................
December 31 ...........................................................
25.21 $
16.95
15.79
19.76
13.50 $
12.70
13.35
13.85
24.00 $
23.94
24.75
26.93
20.98
22.37
23.19
23.90
40
FORM 10-K
Financial Performance
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 – Composite Index and (b) the cumulative
total stockholder return on stocks included in the SNL U.S. Bank NASDAQ Index. All investment comparisons assume the
investment of $100 as of the close of business on December 31, 2015 and the hypothetical value of that investment as of the
Company’s fiscal years ended December 31, 2016, 2017, 2018, 2019 and 2020, 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 Composite Index ....................
SNL U.S. Bank NASDAQ Index .............
12/31/15
100.00
100.00
100.00
12/31/16
141.68
108.87
138.65
12/31/17
12/31/18
152.40
141.13
145.97
151.25
137.12
123.04
12/31/19 12/31/20
178.54 128.44
187.44 271.64
154.47 132.56
Period Ending
Source: S&P Global Market Intelligence
© 2021
41
FORM 10-K
Securities Authorized for Issuance under Equity Compensation Plans
With respect to the equity compensation plan information required by this item, see “Item 12. Security Ownership of
Certain Owners and Management and Related Stockholder Matters” in this report.
Issuer Purchases of Equity Securities
The following table summarizes the monthly repurchase activity of the Company’s Common Stock during the fiscal
year ended December 31, 2020.
Period
(a) Total Number
of Shares
Purchased
(b) Average Price
Paid per Share
(c) Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs (1)
(d) Maximum
Number of Shares
that May Yet Be
Purchased Under
The Plans or
Programs
- - - 2,307
January 1, 2020 - January 31, 2020
2,307 24.06 2,307 -
February 1, 2020 - February 29, 2020
14,409 23.23 14,409 235,591
March 1, 2020 - March 31, 2020
- - - 235,591
April 1, 2020 - April 30, 2020
- - - 235,591
May 1, 2020 - May 31, 2020
- - - 235,591
June 1, 2020 - June 30, 2020
- - - 235,591
July 1, 2020 - July 31, 2020
August 1, 2020 - August 31, 2020
- - - 235,591
September 1, 2020 - September 30, 2020 - - - 235,591
October 1, 2020 - October 31, 2020
- - - 235,591
November 1, 2020 - November 30, 2020 - - - 235,591
- - - 235,591
December 1, 2020 - December 31, 2020
(1) During the first quarter of 2020, the Company concluded a stock repurchase plan that was originally announced
on August 20, 2007. This plan authorized the purchase by the Company of up to 350,000 shares of the Company’s
common stock. On February 28, 2020, a new stock repurchase plan for up to 250,000 shares of the Company’s
common stock was approved. As of December 31, 2020, 235,591 shares could be repurchased under this plan.
The newest plan has an expiration date of December 31, 2022 and is the only repurchase plan in effect.
42
FORM 10-K
Item 6. Selected Financial Data
The following tables include certain information concerning the financial position and results of operations of the
Company (including consolidated data from operations of the Bank) as of the dates indicated. Dollar amounts are expressed in
thousands except per share.
Summary Balance Sheets
2020
2019
As of December 31,
2018
2017
2016
ASSETS
Cash and cash equivalents ........................................ $
Investments and interest-bearing deposits ................
Loans receivable, net ...............................................
Accrued interest receivable ......................................
Prepaids and other assets ..........................................
Intangibles ................................................................
Foreclosed assets ......................................................
Premises and equipment, net ....................................
Bank owned life insurance .......................................
148,423 $
168,881
753,508
4,061
24,179
3,462
546
17,898
25,295
92,672 $
118,495
723,519
3,512
25,034
3,939
992
19,164
24,698
$ 1,146,253 $ 1,012,025 $
34,122 $
86,528
779,815
3,391
15,446
4,416
1,127
20,095
20,198
965,138 $
37,407 $
81,495
631,527
2,450
10,950
-
283
10,607
19,741
794,460 $
9,088
92,427
540,457
1,947
11,234
-
2,682
10,871
19,273
687,979
LIABILITIES
Deposits ................................................................... $
Federal Home Loan Bank and Federal Reserve
938,673 $
821,407 $
749,619 $
607,364 $
505,363
Bank advances ......................................................
66,000
65,000
105,300
94,300
95,700
Subordinated debentures issued to Capital
Trusts ....................................................................
Subordinated notes, net ............................................
Notes payable ...........................................................
Other liabilities ........................................................
15,465
19,564
-
17,583
1,057,285
15,465
-
11,200
14,321
927,393
21,761
-
5,000
2,979
884,659
15,465
-
-
2,439
719,568
15,465
-
-
1,477
618,005
STOCKHOLDERS' EQUITY ..................................
88,968
84,632
$ 1,146,253 $ 1,012,025 $
80,479
965,138 $
74,892
794,460 $
69,974
687,979
Supplemental Data
2020
2019
As of December 31,
2018
2017
2016
Number of full-service offices .................................
Cash dividends per common share ........................... $
16
0.60 $
16
0.54 $
16
0.49 $
11
0.42 $
9
0.34
Summary Statements of Income
Years ended December 31,
2020
2019
2018
2017
2016
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 for income taxes .......................................
40,870 $
9,611
31,259
3,600
27,659
10,073
29,665
8,067
1,235
45,226 $
13,535
31,691
200
31,491
7,105
27,498
11,098
1,683
43,246 $
9,928
33,318
1,225
32,093
6,552
29,458
9,187
1,855
29,441 $ 25,389
4,177
6,087
21,212
23,354
1,375
1,750
19,837
21,604
4,870
5,727
17,100
19,603
7,607
7,728
2,013
2,570
Net income ............................................................... $
6,832 $
9,415 $
7,332 $
5,158 $
5,594
Basic income per common share .............................. $
Diluted income per common share ........................... $
1.58 $
1.57 $
2.14 $
2.11 $
1.66 $
1.64 $
1.18 $
1.16 $
1.28
1.27
43
FORM 10-K
Item 7. 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, agriculture, Small Business
Administration (“SBA”), 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 (“MDF”) 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 acquired Carthage, Missouri-based Hometown Bancshares, Inc. (“Hometown”) including its wholly
owned bank subsidiary, Hometown Bank, National Association and Hometown Bancshares Statutory Trust I, a Delaware
statutory trust (which has since been dissolved) on April 2, 2018. Hometown’s subsidiary bank, Hometown Bank, National
Association, was merged into Guaranty Bank on June 8, 2018. Including the effects of acquisition method accounting
adjustments, the Company acquired approximately $178.8 million in assets, including approximately $143.9 million in loans
(inclusive of loan discounts) and approximately $161.2 million in deposits. Goodwill of $1.4 million was also recorded as a result
of this transaction. The acquisition strengthened the Company’s position in Southwest Missouri and has allowed the Company
to achieve cost savings by integrating the two companies and combining accounting, data processing and other administrative
functions all of which gave rise to the goodwill recorded. The goodwill is not deductible for tax purposes.
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. The Guaranty Trusts
were formed in December 2005. The exclusive purpose of each Trust was 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. A third subsidiary is a service corporation which has been
inactive since February 1, 2003.
FORWARD-LOOKING STATEMENTS
The Company may from time to time make written or oral "forward-looking statements", including statements contained
in the Company's filings with the Securities and Exchange Commission (including this Annual Report on Form 10-K and the
exhibits thereto), in its reports to stockholders and in other communications by the Company, which are made in good faith by
the Company pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. When used in this
Annual Report on Form 10-K, words such as “anticipates,” “estimates,” “believes,” “expects,” and similar expressions are
intended to identify such forward-looking statements but are not the exclusive means of identifying such statements.
These forward-looking statements involve risks and uncertainties, such as statements of the Company's plans,
objectives, expectations, estimates and intentions that are subject to change based on various important factors (some of which
are beyond the Company's control). The following factors, among others, could cause the Company's financial performance to
differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements:
the severity, magnitude and duration of COVID-19 and the direct and indirect impact of COVID-19, as well as responses to
COVID-19 by the government, businesses and consumers; the disruption of global, national, state and local economies associated
with COVID-19; the strength of the United States economy in general and the strength of the real estate values and the local
economies in which the Company conducts operations; future mergers or acquisitions; the impact of recent and potential future
44
FORM 10-K
changes in the laws, rules, regulations, interpretations and policies relating to financial institutions, accounting, tax, monetary
and fiscal matters and their application by our regulators; the effects of, and changes in, trade, monetary and fiscal policies and
laws, changes in interest rates; changes in LIBOR; the impact of the possible elimination of LIBOR and resultant transition to a
new benchmark; the timely development of and acceptance of new products and services of the company and the perceived
overall value of these products and services by users, including the features, pricing and quality compared to competitors'
products and services; the impact of changes in financial services' laws and regulations (including laws concerning taxes,
banking, securities and insurance); asset quality deterioration; environmental liability associated with real estate collateral;
technological changes and cybersecurity risks; acquisitions; employee retention; the success of the Company at managing the
risks resulting from these factors; and other factors set forth in reports and other documents filed by the Company with the SEC
from time to time. For further information about these and other risks, uncertainties and factors, please review the disclosure
included in Item 1A. “Risk Factors” of this report.
The Company cautions that the listed factors are not exclusive. The Company does not undertake to update any forward-
looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company.
Impacts from COVID-19 on Our Financial Statements and Results of Operations
The spread of the COVID-19 pandemic has created a global public health crisis that has resulted in unprecedented
uncertainty, volatility and disruption in financial markets and in governmental, commercial and consumer activity in the United
States, including the markets that we serve. Governmental responses to the pandemic have included orders closing businesses
not deemed essential and directing individuals to restrict their movements, observe social distancing and shelter in place. These
actions, together with responses to the pandemic by businesses and individuals, have resulted in rapid decreases in commercial
and consumer activity, temporary closures of many businesses that have led to a loss of revenues and a rapid increase in
unemployment, disrupted supply chains, market downturns and volatility, changes in consumer behavior related to pandemic
fears, related emergency response legislation and an expectation that Federal Reserve policy will maintain a low interest rate
environment for the foreseeable future.
Financial Impacts to the Bank: Unemployment and business closings will continue to be elevated in our markets while there are
infections and changing community health guidelines. Due to segments of our loan portfolio experiencing weakness as a result
of COVID-19-related economic slowdowns and travel restrictions, we recorded a significant increase in our provision for loan
losses in 2020. The provision for loan losses during 2020 totaled $3,600,000, compared to $200,000 for 2019. We may continue
to experience increases in our provision for loan losses and we may also offer additional relief in the form of loan payment
deferrals and loan modifications as management believes are needed. The Bank expects other ramifications to include increases
in realized losses on loans and decreased fee income due to lower loan originations, partially offset by increases in loan
origination fees from PPP loans funded by the Bank and deposit activity. Market interest rates have declined significantly and
these reductions, have adversely affected and if prolonged, could continue to adversely affect our net interest income, net interest
margin and overall earnings.
Paycheck Protection Program (PPP) Activity: The Federal government has approved various stimulus packages to assist small
businesses, individuals, health care entities and certain governmental entities over the past year. Availability and coverage of
these programs continues to evolve as the economic impact from COVID-19 continues to unfold. One of the most notable
programs is the CARES Act which made available relief to small businesses through SBA PPP loans that, based on certain
qualifications, provided funds to qualified borrowers for payroll and certain other costs. All or a portion of such loans have been
and will be forgiven if use of funds criteria are met. The Federal government authorized an initial amount of $349 billion of PPP
funds in late March 2020 which was fully exhausted within two weeks of start-up. The Federal government authorized an
additional $321 billion of PPP funds in late April 2020 with those funds being available to qualified applicants until early August
2020. The Bank approved and funded 661 PPP loans totaling $55.1 million as of December 31, 2020, benefitting nearly 8,400
jobs in the communities we serve. Approximately $2.2 million in origination fees will be recognized over the life of the individual
PPP loans by the Bank with $1.1 million being included in 2020 earnings. During the fourth quarter of 2020, $17.0 million in
PPP loans originated by the Bank were granted forgiveness by the SBA. The Bank continues to monitor guidelines on this
program and intends to participate in the second round of PPP loans that will begin in the first quarter of 2021.
Market Volatility Risk: As noted herein, the COVID-19 pandemic has led to disruption and volatility in the global capital markets.
These conditions may require us to recognize an elevated level of other than temporary impairments on investment securities in
our portfolio as issues of these securities are negatively impacted by the economic slowdown. Declines in fair value of investment
securities in our portfolio could also reduce the unrealized gains reported as part of our consolidated comprehensive income.
45
FORM 10-K
Loan Modifications: Increased loan payment deferrals and other loan modifications have adversely impacted, and we expect that
they will continue to adversely impact, the performance of our loan portfolio. Based on recent guidance by federal banking
regulators, the Securities and Exchange Commission (SEC), the Financial Accounting Standards Board (FASB) and provisions
within the CARES Act, short-term loan modifications made in response to COVID-19 to borrowers with a current payment status
are not considered troubled debt restructurings (TDRs) for reporting purposes. As of December 31, 2020, 20 loans with an
aggregate balance of $28.6 million remained modified for periods from one to twelve months. 84% of loan modifications made
during 2020 have resumed scheduled payments with the remaining 16% projected to return to their contractual payment terms
within the next six months. Additional details on the modified loans are in the following table.
COVID-19 MODIFICATIONS - Types of Modifications
Full
Payment
Deferral
3 Months +
Interest
Only 3
Months or
Less
Full
Payment
Deferral 3
Months +
Interest Only
> 3 Months
Full
Payment
Deferral 3
Interest
Only 4-6
Months
Interest
Only 3
Months
or Less
Amount of
Loans
Modified ($)
$ 16,018,273 $
10,586,792
Full
Payment
Deferral >
6 Months
- $ 1,849,520 $ 7,962,876 $ 6,205,877
- $
3,826,974 6,759,818
-
-
-
-
411,029 123,236 287,793
-
-
-
-
- 168,852
-
-
$ 28,557,924 $ 123,236 $ 380,893 $ 168,852 $ 1,849,520 $ 13,069,728 $ 12,965,695
-
1,279,878
-
-
1,279,878
168,852
93,100
-
-
-
-
-
-
-
-
Months
- $
-
93,100
# Loans
Modified
9
5
2
1
2
1
20
Collateral Type
Hotel/Motel ....................................
Theatre ...........................................
Restaurant (C&I & RE) ..................
Land & Land Development ............
1-4 Family Consumer .....................
Other ..............................................
Total Modified Loans .....................
FINANCIAL CONDITION
From December 31, 2019 to December 31, 2020, the Company’s total assets increased $134,228,314 (13%) to
$1,146,252,939, liabilities increased $129,891,830 (14%) to $1,057,284,573, and stockholders' equity increased $4,336,484 (5%)
to $88,968,366. The ratio of stockholders’ equity to total assets was 7.8% and 8.4% at December 31, 2020 and 2019, respectively.
From December 31, 2019 to December 31, 2020, available-for-sale securities increased $45,875,555 (39%). The
Company increased investment purchases during the year to better utilize excess cash as interest rates fluctuations provided
favorable buying opportunities throughout 2020. During 2020, the Company purchased $108,674,561 of investments while
having sales, calls and principal payments received of $62,160,271. The Company had net unrealized gains of $4,871,052 at
December 31, 2020 compared to net unrealized gains of $1,092,554 at December 31, 2019.
From December 31, 2019 to December 31, 2020, net loans receivable increased by $21,416,869 (3%) to $742,149,271.
During the year, commercial business loans increased $30,278,000 (27%), permanent 1-4 family loans increased $5,547,000
(5%), commercial real estate loans increased $5,054,000 (2%) and multi-family loans increased $2,581,000 (3%) while
construction loans decreased $6,462,000 (8%), and consumer and other loans decreased $3,932,000 (13%). Commercial lending
increased during the year due to PPP lending activity with increased competition in our markets limiting loan growth in other
lending categories. The Company continues to focus its lending efforts in the commercial and small business lending categories.
As of December 31, 2020, management identified loans totaling $19,014,000 as impaired with a related allowance for
loan losses of $421,000. Impaired loans increased by $7,046,000 during 2020, compared to the balance of $11,968,000 at
December 31, 2019. The increase was primarily due to the result of a $8,273,000 relationship moved to nonperforming status
during the fourth quarter of 2020. This relationship has been significantly impacted by the economic slowdown and market
volatility. The credit is secured by real estate and a brokerage account.
From December 31, 2019 to December 31, 2020, the allowance for loan losses increased $2,009,437 (26%) to
$9,617,024. In addition to the provision for loan losses of $3,600,000 recorded by the Company during the year ended December
31, 2020, loan charge-offs of specific loans (previously classified as nonperforming) exceeded recoveries by $1,590,562 for the
year ended December 31, 2020. The increase in the allowance was primarily due to increased provisioning due to COVID-19
restrictions impacting portions of our loan portfolio. The allowance for loan losses, as a percentage of gross loans outstanding
(excluding mortgage loans held for sale), as of December 31, 2020 and December 31, 2019 was 1.28% and 1.04%, respectively.
The allowance for loan losses, as a percentage of nonperforming loans outstanding, as of December 31, 2020 and December 31,
46
FORM 10-K
2019 was 51.6% and 76.1%, 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.
From December 31, 2019 to December 31, 2020, deposits increased $117,266,009 (14%) to $938,672,541. Checking
and savings transaction balances increased by $139,296,873 (23%) and certificates of deposit decreased by $22,030,864 (11%).
The increase in transaction balances was primarily due to the addition of new public fund customers and increased balances from
nearly all depositor groups during 2020. Brokered deposits decreased $53,515,000 (99%) during 2020. The Company utilizes
brokered deposits as a tool to manage cost of funds and to efficiently match changes in liquidity needs based on loan growth.
Federal Home Loan Bank advances increased $1,000,000 (2%) from $65,000,000 as of December 31, 2019 to
$66,000,000 as of December 31, 2020. Due to strong deposit growth, minimal borrowings were utilized during the year.
Subordinated debentures issued to Capital Trusts were unchanged from the prior year at $15,465,000. A newly issued
series of unsecured subordinated notes (the “Notes”) were issued in July 2020 totaling $20,000,000. The Notes have a fixed rate
of 5.25% for the first five years and then will have a yield tied to three-month SOFR plus 519 basis points. The Notes are callable
after the first five years with proper notice at 100% of the principal amount in addition to any interest earned and not yet paid.
Note payable to bank decreased by $11,200,000 (100%) when compared to December 31, 2019 due to the full repayment
of the note with proceeds from the July 2020 Notes.
From December 31, 2019 to December 31, 2020, stockholders’ equity (including accumulated comprehensive loss, net
of tax) increased $4,336,484 (5%) to $88,968,366. Net income for the year ended December 31, 2020 exceeded dividends paid
or declared by $4,212,957. The equity portion of the Company’s unrealized losses on available-for-sale securities and effects of
interest rate swaps decreased by $377,657 during 2020. On a per common share basis, stockholders’ equity increased from $19.62
as of December 31, 2019 to $20.51 as of December 31, 2020.
47
FORM 10-K
AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS
The following table shows the balances as of December 31, 2020 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.
Year Ended
December 31, 2020
Year Ended
December 31, 2019
Average
Balance
Interest
Yield /
Cost
Average
Balance
Interest
Yield /
Cost
ASSETS
Interest-earning:
Loans ......................................................... $ 764,707 $
143,380
Investment securities .................................
Other assets ...............................................
112,333
Total interest-earning ................................ 1,020,420
71,326
Noninterest-earning ...................................
$ 1,091,746
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing:
Savings accounts ....................................... $
Transaction accounts .................................
Certificates of deposit ...............................
FHLB advances .........................................
Subordinated debentures issued to Capital
45,894 $
511,357
192,412
60,467
15,465
Trusts .....................................................
8,238
Subordinated notes, net .............................
6,599
Other borrowed funds ...............................
840,432
Total interest-bearing ................................
Noninterest-bearing ...................................
164,302
Total liabilities .......................................... 1,004,734
87,012
Stockholders' equity ..................................
$ 1,091,746
Net earning balance ................................... $ 179,988
Earning yield less costing rate ...................
Net interest income, and net yield spread
36,226
3,843
801
40,870
4.74 % $ 762,159 $
99,299
2.68 %
54,976
0.71 %
916,434
4.01 %
67,743
$ 984,177
41,234
2,792
1,201
45,227
5.41%
2.81%
2.18%
4.94%
79
2,949
3,897
1,178
785
443
280
9,611
0.17 % $
0.58 %
2.03 %
1.95 %
40,325 $
440,790
229,392
53,067
120
6,144
4,727
1,203
970
-
371
13,535
5.08 %
5.38 %
4.24 %
1.14 %
19,211
-
7,933
790,718
109,866
900,584
83,593
$ 984,177
$ 125,716
2.86 %
0.30%
1.39%
2.06%
2.27%
5.05%
0.00%
4.68%
1.71%
3.22%
on interest-earning assets .......................
$
31,259
3.06 %
$
31,692
3.46%
Ratio of interest-earning assets to interest-
bearing liabilities ...................................
121%
116%
48
FORM 10-K
The following table sets forth information regarding changes in interest income and interest expense for the periods
indicated resulting from changes in average balances and average rates shown in the previous table. For each category of interest-
earning assets and interest-bearing liabilities information is provided with respect to changes attributable to: (i) changes in balance
(change in balance multiplied by the old rate), (ii) changes in interest rates (change in rate multiplied by the old balance); and
(iii) the combined effect of changes in balance and interest rates (change in balance multiplied by change in rate). Dollar amounts
are expressed in thousands.
Year ended
December 31, 2020 versus
December 31, 2019
Rate &
Interest
Balance Total
Rate
Average
Balance
Year ended
December 31, 2019 versus
December 31, 2018
Rate &
Interest
Balance Total
Rate
Average
Balance
Interest income:
Loans ........................................ $
Investment securities ................
Other assets ..............................
Net change in interest income ..
Interest expense:
Savings accounts ......................
Transaction accounts ................
Certificates of deposit ..............
FHLB advances ........................
Subordinated debentures issued
to Capital Trusts ...................
Subordinated notes, net ............
Other borrowed funds ..............
Net change in interest expense .
Change in net interest income .. $
138 $ (5,129) $
(130)
(809)
(6,068)
1,239
1,253
2,630
(17) $ (5,008) $
1,051
(58)
(400)
(844)
(4,357)
(919)
(929) $
177
1,032
280
1,307 $
571
(52)
1,826
348
(30) $
799
51
834
(146)
(125) 1,981
17
983
(762)
168
(51)
(3,602)
(81)
(169)
(7)
(576)
13
(24)
(41)
(3,195)
(830)
(25)
(3)
378
236
(621)
21
1,250
1,810
89
(1)
17
107 1,735
170 2,216
(563)
(31)
(189)
-
(63)
154
5
-
(34)
(3,932)
2,476 $ (2,136) $
(1)
443
6
(146)
(773) $
(185)
443
(91)
(3,924)
(433) $
72
(112)
-
-
89
93
(29)
3,331
309 $ (1,505) $
(48)
(8)
-
-
68
250
305 3,607
(430) $(1,626)
RESULTS OF OPERATIONS - COMPARISON OF YEAR ENDED DECEMBER 31, 2020 AND DECEMBER 31, 2019
Interest Rates
Average for the Year Shown
Ten-Year
Treasury
One-Year
Treasury
Prime
December 31, 2020 ..................................................................
December 31, 2019 ..................................................................
Change in rates .........................................................................
3.54%
5.28%
-1.74%
0.89%
2.05%
-1.16%
0.37%
2.14%
-1.77%
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, 2020 and December 31,
2019 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.
In response to an expected economic downturn due to COVID-19 impacts, the Federal Reserve Open Market Committee
(“FOMC”) decreased the discount rate by 150 basis points in March 2020. Rates remained low for the remainder of 2020 with
guidance from the FOMC that a lower rate environment will likely continue for the near future. As of December 31, 2020, the
prime rate was 3.25% which is a 150 basis point decrease from December 31, 2019.
Interest Income. Total interest income decreased $4,356,627 (10%). The decrease was primarily driven by lower interest
rates on interest-earning assets and increased balances in cash and investment securities compared to the loan portfolio. The
average balance of interest-earning assets increased $103,986,000 (11%), while the yield on average interest earning assets
decreased 93 basis points to 4.01%.
49
FORM 10-K
Interest income on loans decreased $5,007,727 (12%). The decrease was primarily due to lower loan offering rates on
new credit, the repricing downward of existing adjustable rate loans and an influx of PPP loans added to the portfolio during the
year at rates well below standard offering rates. Loan accretion income of $407,000 fell by 73% when compared to the 2019
amount of $1,489,000 as loans from our 2018 Hometown acquisition continued to pay off or amortize steadily during the year.
Offsetting the decline in accretion income from purchased loans was $1,120,000 of fee income generated on PPP loan
originations. The average balance of loans increased only $2,548,000 (less than 1%) in 2020, while the average yield decreased
67 basis points to 4.74%. Pricing on loans continues to be challenging due to significant competition on new and renewing
credits.
Interest Expense. Total interest expense decreased $3,923,813 (29%). The decrease was primarily driven by lower rates
across all deposit products due to the previously mentioned FOMC action to cut benchmark interest rates in March 2020. The
average balance of interest-bearing liabilities increased $49,714,000 (6%) despite the average cost of interest-bearing liabilities
decreasing 57 basis points to 1.14% as many customers maintained elevated cash balances during the year. Specifically, interest
expense on deposits decreased $4,066,627 (37%) during 2020 as the average balance of interest-bearing deposits increased
$39,156,000 (6%), while the average interest rate paid to depositors decreased 62 basis points to 0.93%. To fund its asset growth
going forward, the Company intends to continue to utilize a cost-effective mix of retail and commercial core deposits along with
non-core, wholesale funding (including brokered and internet deposits when deemed appropriate).
Interest expense on FHLB advances decreased $25,217 (2%) during 2020 as the average balance of advances increased
$7,400,000 (14%), while the average interest rate paid on the advances decreased 32 basis points to 1.95%. The higher average
amount of borrowings with the FHLB was due to securing longer duration fixed-rate FHLB funding during the second quarter
of 2020 in the current low-rate environment.
Interest expense on subordinated debentures and notes increased $258,142 (27%) during 2020 as the Company issued
$20.0 million of Notes during the third quarter. These Notes carry a fixed rate of 5.25% with proceeds being used to pay off an
existing line of credit and note payable with another financial institution. Partially offsetting the increased interest expense from
the Notes was a decrease of $90,111 (24%) experienced from the payoff of the note payable and line of credit items.
Net Interest Income. The Company’s net interest income decreased $432,814 (1%) primarily due to the decrease in
overall rates on interest earnings assets, reduced loan accretion amounts included in income and increases in interest-bearing
liabilities. Refer to the tables in the “Average Balances, Interest and Average Yields” section above for additional information
on components of net interest income.
Provision for Loan Losses. Provisions for loan losses are charged or credited to earnings to bring the total allowance for
loan losses to a level considered adequate by the Company to provide for potential loan losses in the existing loan portfolio.
When making its assessment, the Company considers prior loss experience, volume and type of lending, local banking trends
and impaired and past due loans in the Company’s loan portfolio. In addition, the Company considers general economic
conditions and other factors related to collectability of the Company’s loan portfolio.
Based on its internal analysis and methodology, management recorded a provision for loan losses of $3,600,000 and
$200,000 for the years ended December 31, 2020 and 2019, respectively. The Company’s increase in the provision for loan losses
was primarily due to elevated risk of losses from loans to borrowers operating in industries hardest hit by COVID-19 restrictions
and maintaining general portfolio reserves at a level deemed appropriate in accordance with its methodology. 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 if COVID-19 continues to negatively impact the Market Area in which our
borrowers operate or other circumstances warrant. See further discussions of the allowance for loan losses under “Financial
Condition” above.
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 $2,968,551 (42%) when compared to 2019. Primary drivers
leading to this increase were increased gains on mortgage loans sold of $1,479,565 (67%) due to record volumes of refinance
activity, increased fees from a new commercial loan product of $1,148,681 (100%), a reduction in losses on foreclosed assets by
$271,451 (115%) and increased realized gains from the sale of investment securities of $371,465 (415%).
50
FORM 10-K
The increases in non-interest income were offset by reduced service charge income of $237,277 (14%) due to lower
fee-based transaction activity compared to 2019 and lower SBA lending income of $411,443 (40%) as a result of efforts to fund
SBA PPP loans taking precedence over typical SBA activity during periods of 2020.
Non-Interest Expense. Non-interest expense increased $2,166,593 (8%) due to a few significant factors noted below.
Salaries and employee benefits increased $1,240,333 (8%) which was primarily due to the hiring of new executive
leadership and relationship managers in the commercial banking area and increased commissions and incentives related to strong
mortgage lending activity.
Data processing expenses increased $674,765 (40%) compared to 2019 due to the current year having a full twelve
months of expenses related to processing system upgrades made in the last half of 2019.
Income Taxes. The provision for income taxes decreased $447,980 (27%) from 2019 which was primarily due to the
reduction of pre-tax income compared to the prior year. However, the overall effective tax rate did increase slightly during the
year due to the reduction in federal and state income tax credits available.
Cash Dividends Paid. The Company paid dividends of $0.15 per share on April 17, 2020 to stockholders of record as
of April 7, 2020, $0.15 per share on July 17, 2020, to stockholders of record as of July 7, 2020, and $0.15 per share on October
16, 2020, to stockholders of record as of October 6, 2020. The Company also declared a cash dividend of $0.15 per share on
December 18, 2020, which was paid on January 15, 2021, to stockholders of record on January 5, 2021. During 2020, 2019 and
2018, the Company paid $2,615,028, $2,313,661 and $2,132,221 in dividends on common stock.
RESULTS OF OPERATIONS - COMPARISON OF YEAR ENDED DECEMBER 31, 2019 AND DECEMBER 31, 2018
Interest Rates
Average for the Year Shown
Ten-Year
Treasury
One-Year
Treasury
Prime
December 31, 2019 ..................................................................
December 31, 2018 ..................................................................
Change in rates .........................................................................
5.28%
4.91%
0.37%
2.05%
2.91%
-0.86%
2.14%
2.33%
-0.19%
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, 2019 and December 31,
2018 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 trended downward during late 2019 as the Federal Reserve Open Market Committee (“FOMC”) decreased the
discount rate by 25 basis points in each of July, September and October 2019. As of December 31, 2019, the prime rate was
4.75% which is a 75 basis point decrease from December 31, 2018.
Interest Income. Total interest income increased $1,980,799 (5%). The increase was primarily driven by having a full
year of earning assets as a result of the Hometown acquisition and increased balances in cash and investment securities. The
average balance of interest-earning assets increased $30,930,000 (3%), while the yield on average interest earning assets
increased 6 basis points to 4.94%.
Interest income on loans increased $347,267 (1%). The increase was primarily due to higher loan offering rates and a
full year of interest income from loans acquired from Hometown in 2018. Offsetting these increases were decreased amounts of
loan accretion income of $2,175,000 (59%) due to acquired loans continuing to amortize and fewer loan payoffs on the acquired
loans occurring in 2019 compared to 2018. The average loan receivable balance decreased $17,722,000 (2%) while the average
yield increased 17 basis points to 5.41%. The Company experienced several unanticipated large loan payoffs and paydowns
during 2019 along with decreased loan originations. Pricing on loans continued to be challenging due to significant competition
on new and renewing credits.
51
FORM 10-K
Interest Expense. Total interest expense increased $3,607,395 (36%). The increase is primarily driven by a full year of
interest-bearing deposits as a result of the Hometown acquisition compared to a partial year in 2018 as well as higher rates being
paid on term-driven products. The average balance of interest-bearing liabilities increased $25,690,000 (3%), while the average
cost of interest-bearing liabilities increased 41 basis points to 1.71%.
Interest expense on deposits increased $3,968,167 (57%) during 2019 as the average balance of interest-bearing deposits
increased $53,395,000 (8%), while the average interest rate paid to depositors increased 48 basis points to 1.55%. The increase
in asset growth opportunities among institutions in our market (primarily during the first half of 2019) created significant
competitive pressures on deposit rates.
Interest expense on FHLB advances decreased $563,570 (32%) during 2019 as the average balance of advances
decreased $28,772,000 (35%), while the average interest rate paid on the advances increased 11 basis points to 2.27%. Excess
funds generated from deposit growth initiatives were used during 2019 to decrease borrowings with the FHLB.
Net Interest Income. The Company’s net interest income decreased $1,626,596 (5%) primarily due to the decrease in
overall average balances of loans, reduced loan accretion amounts included in income and increases in interest-bearing liabilities.
Refer to the tables in the “Average Balances, Interest and Average Yields” section above for additional information on
components of net interest income.
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 considered 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 considered 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 $200,000 and
$1,225,000 for the years ended December 31, 2019 and 2018, respectively. The Company’s decrease in the provision for loan
losses was primarily due to the decreased loan balances and maintaining general portfolio reserves at a level deemed appropriate
in accordance with its methodology.
Non-Interest Income. Non-interest income increased $552,953 (8%) due to a few significant factors.
The Company had continued growth in SBA lending that led to increased gains on the sale of SBA loans by $199,308
(24%). Gains on mortgage loans sold increased $191,787 (9%), a reduction in losses on foreclosed assets by $125,498 (35%)
and increased realized gains from the sale of investment securities of $97,655 (1,207%) were all positive impacts on non-interest
income when compared to 2018.
The increases in income above were offset by reduced service charge income of $298,088 (15%) compared to 2018.
Non-Interest Expense. Non-interest expense decreased $1,960,199 (7%) due to a few significant factors noted below.
Merger expenses related to the Hometown acquisition decreased $3,637,986 (99%) during 2019. The one-time costs
incurred in 2018 related to legal, accounting and investment advisory fees, as well as the cost incurred for the termination of
software contracts.
Salaries and employee benefits increased $1,189,104 (8%) which was primarily due to having a full year of costs
associated with Hometown employees which continued our expansion in the Joplin, Missouri market along with increases in
other key areas of commercial banking, operations and technology.
The Company’s occupancy expense increased $511,234 (13%) primarily due to the Company’s continued enhancements
in facilities (including signage) and significant investments in new technologies. A full year of occupancy expense on facilities
acquired during the Hometown acquisition in the Joplin, Missouri market also played a factor in the increased expense.
Income Taxes. The provision for income taxes decreased $171,655 (9%) over 2018 which was primarily due to the
impact of lower effective tax rates and the use of tax credits earned as part of low-income housing programs.
Cash Dividends Paid. The Company paid dividends of $0.13 per share on April 19, 2019 to stockholders of record as
of April 9, 2019, $0.13 per share on July 18, 2019, to stockholders of record as of July 8, 2019, and $0.13 per share on October
52
FORM 10-K
18, 2019, to stockholders of record as of October 8, 2019. The Company also declared a cash dividend of $0.15 per share on
December 20, 2019, which was paid on January 16, 2020, to stockholders of record on January 6, 2020. During 2019, 2018 and
2017, the Company paid $2,313,661, $2,132,221 and $1,767,486 in dividends on common stock.
LIQUIDITY
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, available-for-sale securities, customer deposits and FHLB borrowings. The
Company also has established a borrowing line with 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 $148,422,908 as of December 31, 2020 and $92,671,909 as of December 31, 2019,
representing an increase of $55,750,999 (60%). 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 $140,242,445 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 45% of assets, the Bank had the ability to borrow an additional $162,393,000 from the FHLB, as of December 31,
2020. Based on existing collateral, the Bank had the ability to borrow $37,237,000 from the Federal Reserve Bank as of December
31, 2020. The Bank plans to maintain its FHLB and Federal Reserve Bank borrowings at 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.
CAPITAL REQUIREMENTS
The Company meets the eligibility criteria of a small bank holding company in accordance with the Federal Reserve's
Small Bank Holding Company Policy Statement issued in February 2015, and is no longer obligated to report consolidated
regulatory capital. The Bank continues to be subject to various capital requirements administered by banking agencies. Failure
to meet minimum capital requirements can trigger certain mandatory and discretionary actions by regulators that could have a
direct material effect on the Company's financial statements. The Bank's capital amounts and classifications are also subject to
qualitative judgments by regulators about components, risk weightings and other factors.
The Bank is classified as “well capitalized” under current regulatory guidelines. See also additional information
provided under the caption “Regulatory Matters” in Note 1 of the Notes to Consolidated Financial Statements. The final CBLR
rule went into effect on January 1, 2020. Qualifying community banking organizations that elect to use the CBLR framework
and that maintain a leverage ratio greater than 9 percent are considered to have satisfied the risk-based and leverage capital
requirements in the generally applicable capital rule. During the first quarter of 2020, the CARES Act introduced interim CBLR
provisions that allow institutions that fall below the 9.0 percent threshold to gradually increase their ratio from minimums of 8.0
percent in 2020, 8.5 percent in 2021 and 9.0 percent in 2022. Additionally, federal banking guidelines provide that financial
institutions experiencing significant growth could be expected to maintain capital levels above the minimum requirements
without significant reliance on intangible assets. Additionally, higher capital levels could be required under certain circumstances,
such as situations involving interest rate risk, risk from concentrations of credit, or nontraditional activities. Accordingly, the
Company and the Bank could be required to maintain higher capital levels in the future even if we otherwise fully comply with
the CBLR rule. The Company adopted the CBLR framework during 2020 with no material impact on the financial results of the
Company.
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, 2020 and 2019, the Bank had outstanding commitments to originate loans of approximately
$32,095,000 and $6,690,000, 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, 2020 and 2019, unused lines of credit to borrowers aggregated
approximately $107,444,000 and $108,257,000, respectively, for commercial lines and $24,746,000 and $24,373,000,
53
FORM 10-K
respectively, 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 $10,256,000 and $5,446,000
as of December 31, 2020 and 2019, respectively. The commitments extend over varying periods of time.
Within our loan portfolio, the Bank offers certain loan customers the ability to effectively convert a variable-rate
commercial loan agreement to a fixed-rate commercial loan agreement. This is accomplished by the Bank entering into variable-
rate loan agreements with loan customers, and the customer simultaneously entering into an interest swap agreement directly
with a counterparty. In the event that the customer defaults and the termination value, based on current rates, is in a loss position,
the Bank could potentially be liable for termination amounts owed to the counterparty.
In connection with the Company’s issuance of the GFED Trust Preferred Securities and pursuant to two remaining
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 GFED Trust Preferred Securities whereby the Company has guaranteed any
and all payment obligations of the Trusts related to the GFED Trust Preferred Securities including distributions on, and the
liquidation or redemption price of, the GFED 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, 2020. Dollar amounts are expressed in thousands.
Payments Due By Period
Contractual Obligations
Total
or less
One Year One to
More than
Three Years Five Years Five Years
Three to
Deposits without stated maturity ............................. $
Time and brokered certificates of deposit ...............
FHLB advances .......................................................
Subordinated debentures issued to Capital Trusts ...
Subordinated notes ..................................................
Leases ......................................................................
Other long term obligations .....................................
753,721 $
184,952
66,000
15,465
19,564
13,419
699
Total ................................................................. $ 1,053,820 $
753,721 $
140,243
50,000
-
-
1,214
699
945,877 $
- $
38,510
6,500
-
-
2,291
-
47,301 $
- $
2,867
6,500
-
-
1,686
-
11,053 $
-
3,332
3,000
15,465
19,564
8,228
-
49,589
IMPACT OF INFLATION AND CHANGING PRICES
The Company prepared the consolidated financial statements and related data presented herein in accordance with
accounting principles generally accepted in the United States of America which require the measurement of financial position
and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over
time due to inflation.
Unlike most companies, the assets and liabilities of a financial institution are primarily monetary in nature. As a result,
interest rates have a more significant impact on a financial institution’s performance than the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or in the same magnitude as the price of goods and services, since
such prices are affected by inflation. In the current interest rate environment, liquidity and the maturity structure of the Bank’s
assets and liabilities are critical to the maintenance of acceptable performance levels.
CRITICAL ACCOUNTING POLICIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon the Company’s
consolidated financial statements and the notes thereto, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these financial statements requires management to make
estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and
54
FORM 10-K
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 loans acquired with the possibility of impairment and 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.
Goodwill and intangible assets that have indefinite useful lives are subject to periodic impairment testing. This testing
is to be performed annually, or more frequently if events occur that lead to the possibility that the valuation of such assets could
be considered unrecoverable.
The Company has identified the accounting policies for the allowance for loan losses, goodwill and intangible assets,
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.
55
FORM 10-K
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
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 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 continues to focus its lending efforts in the commercial and small business lending categories 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, 2020 and 2019, the Bank’s savings accounts, checking
accounts, and money market deposit accounts totaled $753,720,899 or 80% of its total deposits and $614,424,026 or 75% of total
deposits, respectively. The weighted average rate paid on these accounts decreased 57 basis points from 0.76% on December 31,
2019 to 0.19% on December 31, 2020 primarily due to declines in Treasury rates during the year impacting our variable rate
deposit accounts.
INTEREST RATE SENSITIVITY ANALYSIS
The following tables set forth as of December 31, 2020 and 2019, 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.
12/31/2020
BP Change
in Rates
+200 ................. $
+100 .................
NC ....................
-100 ..................
12/31/2019
BP Change
in Rates
+200 ................. $
+100 .................
NC ....................
-100 ..................
-200 ..................
$ Amount
Estimated Net Portfolio Value
$ Change
% Change
123,822 $
111,299
93,991
87,015
29,831
17,308
-
(6,976)
$ Amount
Estimated Net Portfolio Value
$ Change
% Change
NPV as % of PV of Assets
NPV Ratio
% Change
32%
18%
0%
-7%
11.07 %
9.84 %
8.24 %
7.56 %
2.83%
1.60%
0.00%
-0.68%
NPV as % of PV of Assets
NPV Ratio
% Change
130,184 $
123,436
113,502
96,640
90,053
16,682
9,934
-
(16,862)
(23,449)
15%
9%
0%
-15%
-21%
13.22%
12.41%
11.31%
9.57%
8.88%
1.90 %
1.09 %
0.00 %
-1.74 %
-2.43 %
Computations of prospective effects of hypothetical interest rate changes are based on an internally generated model
using actual maturity and repricing schedules for the Bank’s loans and deposits, and are based on numerous assumptions,
including relative levels of market interest rates, loan repayments and deposit run-offs, and should not be relied upon as indicative
of actual results. Further, the computations do not contemplate any actions the Bank may undertake in response to changes in
interest rates. All EVE and earnings projections are based on a point in time static balance sheet.
Management cannot predict future interest rates or their effect on the Bank’s EVE in the future. Certain shortcomings
are inherent in the method of analysis presented in the computation of EVE. For example, although certain assets and liabilities
may have similar maturities or periods to repricing, they may react in differing degrees to changes in market interest rates.
Additionally, certain assets, such as floating-rate loans, which represent the Bank’s primary loan product, have an initial fixed
rate period typically from one to five years and over the remaining life of the asset changes in the interest rate are restricted. In
56
FORM 10-K
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.
57
FORM 10-K
Item 8. Financial Statements and Supplementary Data
GUARANTY FEDERAL BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2020 and 2019
December 31,
December 31,
2020
2019
ASSETS
Cash and due from banks ........................................................................................................... $
Interest-bearing demand deposits in other financial institutions ................................................
Cash and cash equivalents ......................................................................................................
Interest-bearing time deposits at other financial institutions ......................................................
Available-for-sale securities .......................................................................................................
Stock in Federal Home Loan Bank, at cost ................................................................................
Mortgage loans held for sale ......................................................................................................
Loans receivable, net of allowance for loan losses of December 31, 2020 and 2019 -
6,366,370 $
142,056,538
148,422,908
4,760,089
164,120,869
3,896,900
11,359,174
5,114,067
87,557,842
92,671,909
250,000
118,245,314
3,757,500
2,786,564
$9,617,024 and $7,607,587, respectively ...............................................................................
Accrued interest receivable ........................................................................................................
Prepaid expenses and other assets ..............................................................................................
Goodwill .....................................................................................................................................
Core deposit intangible ...............................................................................................................
Foreclosed assets held for sale ...................................................................................................
Premises and equipment, net ......................................................................................................
Operating lease right-of-use asset ..............................................................................................
Bank owned life insurance .........................................................................................................
Deferred and receivable income taxes ........................................................................................
742,149,271
4,060,795
7,741,903
1,434,982
2,026,910
546,450
17,898,409
8,469,661
25,294,780
4,069,838
720,732,402
3,511,875
8,862,954
1,434,982
2,503,910
991,885
19,164,496
9,052,941
24,698,438
3,359,455
$ 1,146,252,939 $ 1,012,024,625
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits ...................................................................................................................................... $
Federal Home Loan Bank advances ...........................................................................................
Subordinated debentures issued to Capital Trusts ......................................................................
Subordinated notes, net ..............................................................................................................
Note payable to bank ..................................................................................................................
Advances from borrowers for taxes and insurance .....................................................................
Accrued expenses and other liabilities .......................................................................................
Operating lease liabilities ...........................................................................................................
Accrued interest payable ............................................................................................................
938,672,541 $
66,000,000
15,465,000
19,564,131
-
218,846
7,870,991
8,560,892
932,172
1,057,284,573
821,406,532
65,000,000
15,465,000
-
11,200,000
268,200
4,153,762
9,105,503
793,746
927,392,743
COMMITMENTS AND CONTINGENCIES
-
-
STOCKHOLDERS' EQUITY
Capital Stock:
Common stock, $0.10 par value; authorized 10,000,000 shares; issued December 31, 2020
and 2019 - 6,919,503 and 6,919,503 shares; respectively ...................................................
Additional paid-in capital ...........................................................................................................
Retained earnings, substantially restricted .................................................................................
Accumulated other comprehensive loss .....................................................................................
Treasury stock, at cost; December 31, 2020 and 2019 - 2,553,851 and 2,582,041 shares,
691,950
51,337,219
77,073,707
(53,378)
129,049,498
691,950
51,908,867
72,860,750
(431,035)
125,030,532
respectively .............................................................................................................................
(40,081,132)
88,968,366
(40,398,650)
84,631,882
$ 1,146,252,939 $ 1,012,024,625
See Notes to Consolidated Financial Statements
58
FORM 10-K
Guaranty Federal Bancshares, Inc.
Consolidated Statements of Income
Years Ended December 31, 2020, 2019 and 2018
Interest Income
Loans .............................................................................................. $
Investment securities ......................................................................
Other ...............................................................................................
Interest Expense
Deposits ..........................................................................................
Federal Home Loan Bank advances ...............................................
Subordinated debentures issued to Capital Trusts ..........................
Subordinated notes, net ...................................................................
Other ...............................................................................................
Net Interest Income ..........................................................................
Provision for Loan Losses ................................................................
Net Interest Income After
2020
2019
2018
36,225,797 $
3,843,325
800,754
40,869,876
41,233,524 $
2,791,612
1,201,367
45,226,503
40,886,257
1,992,442
367,005
43,245,704
6,924,826
1,177,491
785,078
443,333
280,473
9,611,201
31,258,675
3,600,000
10,991,453
1,202,708
970,269
-
370,584
13,535,014
31,691,489
200,000
7,023,286
1,766,278
1,017,552
-
120,503
9,927,619
33,318,085
1,225,000
Provision for Loan Losses ............................................................
27,658,675
31,491,489
32,093,085
Noninterest Income
Service charges ...............................................................................
Net gain (loss) on sale of investment securities ..............................
Gain on sale of mortgage loans held for sale ..................................
Gain on sale of Small Business Administration loans ....................
Commercial loan referral income ...................................................
Net gain (loss) on foreclosed assets ................................................
Other income ..................................................................................
Noninterest Expense
Salaries and employee benefits .......................................................
Occupancy ......................................................................................
FDIC deposit insurance premiums .................................................
Data processing ..............................................................................
Advertising .....................................................................................
Merger costs ...................................................................................
Amortization of core deposit intangible .........................................
Other expense .................................................................................
Income Before Income Taxes ..........................................................
Provision for Income Taxes .............................................................
Net Income ........................................................................................ $
1,469,160
461,029
3,702,098
618,506
1,148,681
36,057
2,637,913
10,073,444
17,348,133
4,623,440
312,121
2,369,224
488,998
-
477,000
4,045,811
29,664,727
8,067,392
1,235,178
6,832,214 $
1,706,437
89,564
2,222,533
1,029,949
-
(235,394)
2,291,804
7,104,893
16,107,800
4,582,433
297,628
1,694,459
499,998
34,011
477,000
3,804,805
27,498,134
11,098,248
1,683,158
9,415,090 $
2,004,525
(8,091)
2,030,746
830,641
-
(360,892)
2,055,011
6,551,940
14,918,696
4,071,199
437,602
1,477,034
534,650
3,671,997
408,571
3,938,584
29,458,333
9,186,692
1,854,813
7,331,879
Basic Income Per Common Share .................................................. $
Diluted Income Per Common Share ............................................... $
1.58 $
1.57 $
2.14 $
2.11 $
1.66
1.64
See Notes to Consolidated Financial Statements
59
FORM 10-K
Guaranty Federal Bancshares, Inc.
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2020, 2019 and 2018
NET INCOME .................................................................................. $
OTHER ITEMS OF COMPREHENSIVE INCOME:
Change in unrealized gain (loss) on investment securities
2020
6,832,214 $
2019
9,415,090 $
2018
7,331,879
available-for-sale, before income taxes .......................................
4,239,526
3,018,580
(1,130,514)
Change in unrealized gain (loss) on interest rate swaps, before
income taxes ................................................................................
(3,312,874)
(2,899,860)
791,465
Less: Reclassification adjustment for realized (gains) losses on
investment securities included in net income, before income
taxes ............................................................................................
Total other items of comprehensive income (loss) .........................
Income tax expense (benefit) related to other items of
(461,029)
465,623
(89,564)
29,156
8,091
(330,958)
comprehensive income ................................................................
Other comprehensive income (loss) ...............................................
TOTAL COMPREHENSIVE INCOME ....................................... $
87,966
377,657
7,209,871 $
7,435
21,721
9,436,811 $
(84,395)
(246,563)
7,085,316
See Notes to Consolidated Financial Statements
60
FORM 10-K
GUARANTY FEDERAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ......................................................................................... $
Items not requiring (providing) cash:
Deferred income taxes ....................................................................
Depreciation and amortization ........................................................
Provision for loan losses .................................................................
Gain on sale of Small Business Administration loans ....................
Gain on sale of mortgage loans held for sale and investment
2020
2019
2018
6,832,214 $
9,415,090 $
7,331,879
(470,145)
1,989,545
3,600,000
(618,506)
224,142
1,970,442
200,000
(1,029,949)
624,386
1,593,974
1,225,000
(830,641)
securities .....................................................................................
(4,163,127)
Loss (gain) on sale of foreclosed assets ..........................................
(51,836)
Gain on sale of premises, equipment and other assets ....................
-
Amortization of deferred income, premiums and discounts, net ....
1,707,861
Amortization of intangible assets ...................................................
477,000
Amortization of subordinated notes issuance costs ........................
18,576
Stock award plan expense ...............................................................
136,138
(406,650)
Accretion of purchase accounting adjustments ...............................
Origination of loans held for sale ................................................... (147,179,016)
Proceeds from sale of loans held for sale ....................................... 142,308,504
(596,342)
Increase in cash surrender value of bank owned life insurance ......
(2,312,097)
(164,636)
(6,069)
349,442
477,000
-
615,385
(1,629,721)
(80,689,007)
81,641,824
(500,364)
(2,022,656)
315,108
(4,652)
481,189
408,571
-
517,053
(3,407,340)
(72,116,229)
74,551,946
(457,451)
Changes in:
Accrued interest receivable .............................................................
Prepaid expenses and other assets ..................................................
Accounts payable and accrued expenses ........................................
Net cash provided by operating activities ................................
(548,920)
1,121,052
466,607
4,622,955
(120,931)
(1,302,099)
1,188,354
8,326,806
(941,097)
6,676,684
(1,620,868)
12,324,856
CASH FLOWS FROM INVESTING ACTIVITIES
(30,441,139)
Net change in loans ............................................................................
5,425,103
Proceeds from sale of loans ................................................................
23,111,582
Principal payments on available-for-sale securities ...........................
11,617,890
Proceeds from maturities of available-for-sale securities ...................
(684,789)
Purchase of premises and equipment .................................................
Net cash received for acquisition .......................................................
-
Purchase of available-for-sale securities ............................................ (108,674,561)
27,430,799
Proceeds from sale of available-for-sale securities ............................
-
Purchase of bank owned life insurance ..............................................
(139,400)
Redemption (purchase) of FHLB stock ..............................................
-
Proceeds from sale of premises and equipment .................................
(256,260)
Purchase of tax credit investments .....................................................
181,905
Proceeds from sale of foreclosed assets held for sale .........................
(72,428,870)
Net cash provided by (used in) investing activities .................
49,550,984
9,317,249
7,576,466
750,000
(981,146)
-
(75,518,385)
37,855,257
(4,000,000)
1,629,700
-
(3,168,435)
1,343,072
24,354,762
(14,645,559)
12,997,662
13,362,984
-
(3,436,389)
2,455,964
(26,151,079)
13,602,508
-
(789,700)
2,425,000
(3,930,176)
292,003
(3,816,782)
See Notes to Consolidated Financial Statements
61
FORM 10-K
GUARANTY FEDERAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW accounts and
97,367,801
(25,548,954)
-
savings accounts ............................................................................. 139,296,873
(22,030,864)
-
Net increase (decrease) in certificates of deposit ...............................
Net decrease of securities sold under agreements to repurchase ........
Proceeds from FHLB advances ..........................................................
Repayments of FHLB advances .........................................................
Proceeds from issuance of notes payable ...........................................
Repayments of notes payable .............................................................
Isuance of subordinated notes, net of issuance costs ..........................
Repayment of Hometown Bancshares subordinated debentures ........
Advances from (repayments to) borrowers for taxes and insurance ..
Stock options exercised ......................................................................
Cash dividends paid ...........................................................................
Treasury stock purchased ...................................................................
1,800,000
(13,000,000)
19,545,555
-
(49,354)
-
(2,615,028)
(390,268)
Net cash provided by (used in) financing activities ................. 123,556,914
(40,855,842)
22,077,932
(2,159,000)
26,000,000 115,815,000 609,971,000
(25,000,000) (156,115,000) (600,971,000)
5,000,000
(3,000,000)
-
-
109,539
166,230
(2,132,221)
-
(11,793,362)
7,450,000
(1,250,000)
-
(6,000,000)
(21,608)
90,000
(2,313,661)
(3,604,879)
25,868,699
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ...........................................................................
55,750,999
58,550,267
(3,285,288)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD.........................................................................................
92,671,909
CASH AND CASH EQUIVALENTS, END OF PERIOD ............ $ 148,422,908 $
34,121,642
92,671,909 $
37,406,930
34,121,642
Supplemental Cash Flows Information
Foreclosed assets acquired in settlement of loans ........................... $
124,134 $
1,664,258 $
368,878
Interest paid .................................................................................... $
9,472,775 $
13,563,079 $
9,401,351
Income taxes paid ........................................................................... $
840,000 $
199,000 $
-
Sale and financing of foreclosed assets held for sale ...................... $
439,500 $
620,900 $
181,300
See Notes to Consolidated Financial Statements
62
FORM 10-K
Guaranty Federal Bancshares, Inc.
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 2020, 2019 and 2018
Common
Stock
Additional
Paid-In
Capital
Treasury
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
(206,193) 74,891,493
- 7,331,879
(246,563)
(246,563)
- (2,181,500)
517,053
-
166,230
-
(452,756) 80,478,592
- 9,415,090
21,721
21,721
- (2,384,027)
- (3,604,879)
615,385
-
90,000
-
(431,035) 84,631,882
- 6,832,214
377,657
377,657
- (2,619,257)
(390,268)
-
136,138
-
(53,378) $88,968,366
Balance, January 1, 2018 ............... 687,850 50,856,069 (37,125,541 ) 60,679,308
- 7,331,879
-
Net income .......................................
Other comprehensive loss ................
-
-
-
Dividends on common stock ($0.49
-
-
- (2,181,500 )
-
per share) ......................................
-
-
Stock award plans ............................
Stock options exercised ....................
-
2,350
Balance, December 31, 2018 .......... 690,200 51,382,585 (36,971,124 ) 65,829,687
- 9,415,090
-
Net income .......................................
Other comprehensive income ...........
-
-
-
Dividends on common stock ($0.54
-
362,636
163,880
154,417
-
-
-
- (2,384,027 )
-
per share) ......................................
-
-
Treasury stock purchased .................
-
-
Stock award plans ............................
Stock options exercised ....................
-
1,750
Balance, December 31, 2019 .......... 691,950 51,908,867 (40,398,650 ) 72,860,750
- 6,832,214
-
Net income .......................................
Other comprehensive income ...........
-
-
-
Dividends on common stock ($0.60
-
-
438,032
88,250
(3,604,879 )
177,353
-
-
-
- (2,619,257 )
-
per share) ......................................
-
-
Treasury stock purchased .................
Stock award plans ............................
-
-
Balance, December 31, 2020 .......... $ 691,950 $ 51,337,219 $ (40,081,132 ) $ 77,073,707 $
-
-
(571,648)
(390,268 )
707,786
See Notes to Consolidated Financial Statements
63
FORM 10-K
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 loans acquired with the possibility of impairment and 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.
Goodwill and intangible assets are subject to periodic impairment testing. This testing is to be performed annually, or
more frequently if events occur that lead to the possibility that the valuation of such assets could be considered unrecoverable.
The valuation of goodwill and intangible assets involves many factors that are judgmental and highly complex.
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
64
FORM 10-K
mortgage loans are sometimes acquired to reduce market risk on mortgage loans in the process of origination and mortgage loans
held for sale. Gains and losses resulting from sales of mortgage loans are recognized when the respective loans are sold to
investors. Gains and losses are determined by the difference between the selling price and the carrying amounts of the loans sold,
and are recorded in noninterest income. Direct loan origination costs and fees are deferred at origination of the loan and are
recognized in noninterest income upon sale of the loan.
Loans
For loans amortized at cost, interest income is accrued based on the unpaid principal balance. Loan origination fees net
of certain direct origination costs, are deferred and amortized as a level yield adjustment over the respective term of the loan.
The accrual of interest on loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured
and in process of collection. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual
or charged off at an earlier date if collection of principal or interest is considered doubtful.
All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest
income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to
accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current
and future payments are reasonably assured.
Loans acquired without the evidence of credit impairment and for which obligated principal and interest cash flows are
expected to be received are accounted for under the accounting guidance for receivables - non refundable fees and other costs
(ASC 310-20). Additionally, any difference between the initial investment and the principal amount of a purchased loan or debt
security will be recorded as an adjustment of yield over the contractual life of the instrument. Loans acquired with evidence of
deterioration of credit quality since origination are considered credit impaired. Evidence of credit quality deterioration may
include information such as past-due and nonaccrual status, borrower credit scores and recent loan to value percentages. Such
loans are accounted for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality
(ASC 310-30) and initially measured at fair value, which includes estimated future credit losses expected to be incurred over the
life of the loan.
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 non-classified 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.
65
FORM 10-K
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.
Acquired loans determined to be deteriorated in quality do not have an allowance for credit loss associated with them
when recorded by the Bank. Estimates based on cash flows expected to be collected using internal risk models, which incorporate
the estimates of current key assumptions, such as default rates, severity and prepayment speeds are used to determine the amount
of impairment. As these loans are paid the pre-established amount of impairment is proportionally then included in income.
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.
Goodwill and Intangible Assets
An annual assessment is performed to determine whether it is more likely than not the fair value of goodwill is less than
the carrying amount. If, based on the assessment, it is determined that there is an impairment, goodwill would be written down
to its implied fair value. Any subsequent increases in goodwill fair value are not recognized in the financial statements. As a
result of the 2018 acquisition of Hometown, a goodwill amount of $1,434,982 is presented in the balance sheet as of December
31, 2020 and 2019.
Core deposit intangible assets are being amortized on the straight-line basis over a period of seven years. Such assets
are periodically evaluated as to the recoverability of their carrying value. A core deposit intangible of $3,520,000 was calculated
at the time of the Hometown acquisition. At December 31, 2020 and 2019, the amount remaining to be amortized is $2,026,910
and $2,503,910, respectively.
Premises and Equipment
Depreciable assets are stated at cost less accumulated depreciation. Depreciation is charged to expense using the straight-
line method 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 ......................................................................................................................
Furniture and fixtures and vehicles ............................................................................................................
Years
35
3
- 40
- 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.
66
FORM 10-K
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 2017.
Cash Equivalents
The Company considers all liquid investments with original maturities of three months or less to be cash equivalents.
At December 31, 2020 and 2019 cash equivalents consisted of interest-bearing deposits and money market accounts.
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 equal to a
set percentage of deposits. During March of 2020, the Federal Reserve Bank reduced its reserve requirement to zero to encourage
institutions to lend out funds to assist with pandemic assistance efforts, therefore, our required reserve on December 31, 2020
was $0. The reserve requirement will be monitored by the Federal Reserve and likely reinstated when economic conditions return
to pre-pandemic levels.
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
securities for which a portion of an other-than-temporary impairment has been recognized in income and unrealized gain (loss)
on interest rate swap agreements designated as cash flow hedges.
Interest Rate Swap Agreements Designated as Cash Flow Hedges
Cash flow hedge relationships mitigate exposure to the variability of future cash flows or other forecasted
transactions. The Company uses interest rate swaps to manage overall cash flow changes related to interest rate risk exposure
on benchmark interest rate loans. The effective portion of the gain or loss related to the derivative instrument is recognized as a
component of other comprehensive income and subsequently reclassified into interest income when the forecasted transaction
affects income. The ineffective portion of the gain or loss is recognized immediately as noninterest income. The Company
assesses the effectiveness of the hedging derivative by comparing the change in fair value of the respective derivative instrument
and the change in fair value of an effective hypothetical derivative instrument.
Revenue from Contracts with Customers
Descriptions of our significant revenue-generating transactions that are within the scope of Topic 606, which are
presented in the consolidated statements of income as components of non-interest income, are as follows:
●
Service Charges on Deposit Accounts – Services charges on deposit accounts include general service fees for monthly
account maintenance, account analysis fees, non-sufficient funds fees, wire transfer fees and other deposit account
related fees. Revenue is recognized when the performance obligation is completed which is generally monthly for
account maintenance services or when a transaction has been completed (such as a wire transfer). Payment for service
charges on deposit accounts is received immediately or in the following month through a direct charge to
customers’ accounts.
● Gains/Losses on Sales of OREO – Gains/Losses on sales of OREO are recorded from the sale when control of the
property transfers to the buyer, which generally occurs at the time of an executed deed.
Regulatory Matters
The Bank is 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 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 Bank to maintain minimum
amounts and ratios (set forth in the tables below). Management believes, as of December 31, 2020 and 2019, that the Bank met
all capital adequacy requirements to which it is subject. Additionally, as of December 31, 2020, the most recent notification from
67
FORM 10-K
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. There are no conditions or events since that notification that management
believes have changed the Bank’s category.
During the fourth quarter of 2019, federal banking agencies issued a final ruling, which provides for a simple measure
of capital adequacy for qualifying community banking organizations, consistent with Section 201 of the Economic Growth,
Regulatory Relief, and Consumer Protection Act. The Community Bank Leverage Ratio (CBLR) framework which became
effective January 1, 2020, provides an optional simple leverage capital measure, which is generally calculated the same as the
generally applicable capital rule’s leverage ratio. A banking organization (depository institution or depository institution holding
company) that has less than $10 billion in total consolidated assets can elect to opt into the framework if its leverage ratio is
greater than 9 percent and the banking organization meets the framework’s qualifying criteria of: (i) the generally applicable
risk-based and leverage capital requirements in the agencies’ capital rules; (ii) the capital ratio requirements to be considered
well capitalized under the agencies’ prompt corrective action (PCA) framework (in the case of insured depository institutions);
and (iii) any other applicable capital or leverage requirements. A qualifying banking organization can opt into or out of the CBLR
framework at any time by following the prescribed procedures and completing the associated reporting line items that are required
on its Call Report and/or form FR Y-9C, as applicable. If a CBLR banking organization fails to satisfy one of the qualifying
criteria but has a leverage ratio of greater than 8 percent, the banking organization can continue to apply the CBLR framework
and be considered “well capitalized” for a grace period of up to two quarters.
During March 2020, relief from the 9% threshold was approved as part of the CARES Act. The interim thresholds
beginning on March 27, 2020 and for the remainder of 2020 was 8% with 2021 increasing to 8.5% and the originally established
9% to be in effect starting in 2022.
The Bank opted into the CBLR framework during the first quarter of 2020. Capital ratios under this framework as of
December 31, 2020 are as below with dollar amounts expressed in thousands.
Actual
For Capital
Adequacy Purposes
To Be Well Capitalized
Under Prompt Corrective
Action Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
As of December 31, 2020
Community Bank Leverage Ratio
Bank ................................................ $
111,098
10.0%
N/A
N/A $
89,175
8.0%
The Bank's 2019 actual capital amounts and ratios are as presented in the table below. 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
Amount
Ratio
As of December 31, 2019
Tier 1 (core) capital, and ratio to
adjusted total assets
Bank ................................................ $
Tier 1 (core) capital, and ratio to risk-
weighted assets
Bank ................................................ $
Total risk-based capital, and ratio to
risk-weighted assets
Bank ................................................ $
Common equity tier 1 capital ratio to
risk-weighted assets
Bank ................................................ $
104,480
10.5% $
40,083
4.0% $
50,103
5.0%
104,480
12.4% $
50,727
6.0% $
67,636
8.0%
112,088
13.3% $
67,636
8.0% $
84,545
10.0%
104,480
12.4% $
38,045
4.5% $
54,954
6.5%
68
FORM 10-K
The 2019 minimum capital requirements exclude the capital conservation buffer required to avoid limitations on capital
distributions, including dividend payments and certain discretionary bonus payments to executive officers. The capital
conservation buffer was 2.50% at December 31, 2019. The net unrealized gain or loss on available-for-sale securities is not
included in computing regulatory capital. To be categorized as well capitalized in 2019, the Bank was to maintain minimum total
risk-based, Tier I risk-based, Tier I leverage and Common Equity Tier 1 risk-based ratios as set forth in the above table.
The amount of dividends that the Bank may pay is subject to various regulatory limitations. As of December 31, 2020
and 2019, the Bank exceeded the minimum capital requirements. The Bank may not pay dividends which would reduce capital
below the minimum requirements shown above.
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, 2020, 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, 2020, 2019 and 2018 is as follows:
Year Ended
December 31,
2020
Year Ended
December 31,
2019
Year Ended
December 31,
2018
Net income available to common shareholders ..................................... $
Weighted average common shares outstanding ....................................
Effect of dilutive securities ...................................................................
Weighted average diluted shares outstanding .......................................
Basic income per common share ........................................................... $
Diluted income per common share ........................................................ $
6,832,214 $
4,330,525
19,499
4,350,024
1.58 $
1.57 $
9,415,090 $
4,405,575
57,984
4,463,559
2.14 $
2.11 $
7,331,879
4,410,422
72,261
4,482,683
1.66
1.64
For the years ended December 31, 2020, 2019 and 2018 all outstanding stock options were included in the above
computation because their exercise price was less than the average market price.
Concentration of Cash Holdings
During the normal course of business, the Bank may have excess cash on deposit at other financial institution’s. Each
institution’s deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. At December 31, 2020,
the Bank had $70.9 million in deposits above FDIC insured limits. These funds are held with three institutions that are each
shown to be well capitalized as of December 31, 2020. Additionally, the Bank held $65.1 million in deposits at the Federal
Reserve Bank at December 31, 2020.
69
FORM 10-K
NOTE 2: ACQUISITION
On April 2, 2018, the Company completed the acquisition of Carthage, Missouri-based Hometown Bancshares, Inc.
(“Hometown”) including its wholly owned bank subsidiary, Hometown Bank, National Association and Hometown Bancshares
Statutory Trust I, a Delaware statutory trust. Under the terms of the Agreement and Plan of Merger, each share of Hometown
common stock was exchanged for $20.00 in cash and the transaction was valued at approximately $4.6 million. Hometown’s
subsidiary bank, Hometown Bank, National Association, was merged into Guaranty Bank on June 8, 2018.
Including the effects of the acquisition method accounting adjustments, the Company acquired approximately $180.0
million in assets, including approximately $143.9 million in loans (inclusive of loan discounts) and approximately $161.2 million
in deposits. Goodwill of $1.4 million was recorded as a result of the transaction. The merger strengthened the Company’s position
in Southwest Missouri and the Company believed it would be able to achieve cost savings by integrating the two companies and
combining accounting, data processing, and other administrative functions all of which gave rise to the goodwill recorded. The
goodwill will not be deductible for tax purposes.
In accordance with generally accepted accounting principles for acquisition accounting, the loans acquired through the
acquisition of Hometown were recorded at fair value; therefore, there was no allowance associated with Hometown’s loans at
acquisition. Management continues to evaluate the allowance needed on the acquired Hometown loans factoring in the net
remaining discount of approximately $550,000 at December 31, 2020.
NOTE 3: 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, 2020
Debt Securities:
U. S. government agencies ........................................................ $
Municipals .................................................................................
Corporates ..................................................................................
Mortgage-backed securities - private label – commercial .........
Mortgage-backed securities - private label – consumer .............
Government sponsored mortgage-backed securities and SBA
6,282,000 $
6,519 $
58,754,912 3,241,133
261,740
30,510,893
55,712
5,399,385
228,469
9,249,375
(4,885)
(26,991)
(171,811)
(10,650)
(25,747)
6,283,634
61,969,054
30,600,822
5,444,447
9,452,097
loan pools ...............................................................................
49,053,252 1,391,728
50,370,815
$ 159,249,817 $ 5,185,301 $ (314,249) $ 164,120,869
(74,165)
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
(Losses)
Approximate
Fair Value
As of December 31, 2019
Debt Securities:
U. S. government agencies ........................................................ $
Municipals .................................................................................
Corporates ..................................................................................
Mortgage-backed securities - private label ................................
Government sponsored mortgage-backed securities and SBA
2,499,755 $
35,625,038
15,395,190
13,788,728
- $
675,382
154,942
52,035
(11,962)
(125,693)
(14,945)
(29,392)
2,487,793
36,174,727
15,535,187
13,811,371
loan pools ...............................................................................
49,844,049
50,236,236
$ 117,152,760 $ 1,468,000 $ (375,446) $ 118,245,314
(193,454)
585,641
70
FORM 10-K
Maturities of available-for-sale debt securities as of December 31, 2020:
1-5 years ..................................................................................................................... $
5-10 years ...................................................................................................................
After ten years ............................................................................................................
Mortgage-backed securities - private label - commercial not due on a single
Amortized
Cost
Approximate
Fair Value
1,150,000 $
36,190,647
58,207,158
1,149,433
36,551,663
61,152,414
maturity date ...........................................................................................................
5,399,385
5,444,447
Mortgage-backed securities - private label - consumer not due on a single maturity
date .........................................................................................................................
9,249,375
9,452,097
Government sponsored mortgage-backed securities and SBA loan pools not due on
a single maturity date ..............................................................................................
$
49,053,252
159,249,817 $
50,370,815
164,120,869
The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, amounted to
$8,749,409 and $5,358,929 as of December 31, 2020 and 2019, respectively.
Gross gains of $552,366, $244,777 and $48,931 and gross losses of $91,337, $155,213 and $57,022 resulting from sale
of available-for-sale securities were realized for the years ended December 31, 2020, 2019 and 2018, respectively. The tax effect
of these net gains (losses) was $96,816, $18,809 and ($2,063) in 2020, 2019 and 2018, 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, 2020, 2019
and 2018.
Certain investments in debt 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, 2020 and 2019, was $30,049,473 and $42,570,363,
respectively, which is approximately 18% and 36% of the Company’s investment portfolio. These declines primarily resulted
from changes in market interest rates.
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, 2020 and 2019.
Less than 12 Months
December 31, 2020
12 Months or More
Total
Description of Securities
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
U.S. government agencies ......................... $ 1,495,116 $
Municipals ................................................. 4,011,492
Corporates ................................................. 14,869,853
Mortgage-backed securities - private label
(4,885) $
(26,991)
(171,811)
– commercial ....................................... 1,481,805
(10,650)
Mortgage-backed securities - private label
– consumer ........................................... 2,391,511
(25,747)
Government sponsored mortgage-backed
securities and SBA loan pools ............. 5,799,696
(74,165)
$ 30,049,473 $ (314,249) $
- $
-
-
-
-
-
- $
- $ 1,495,116 $
- 4,011,492
- 14,869,853
(4,885)
(26,991)
(171,811)
- 1,481,805
(10,650)
- 2,391,511
(25,747)
- 5,799,696
(74,165)
- $ 30,049,473 $ (314,249)
71
FORM 10-K
Less than 12 Months
December 31, 2019
12 Months or More
Total
Description of Securities
Fair Value
Fair Value
Fair Value
Unrealized
Losses
Unrealized
Losses
Unrealized
Losses
U.S. government agencies ........................ $ 2,487,795 $
(11,962) $
Municipals ................................................ 7,083,208 (125,693)
Corporates ................................................ 2,452,005
(14,945)
Mortgage-backed securities - private
label ...................................................... 9,416,669
(29,392)
Government sponsored mortgage-backed
- $
-
-
-
- $ 2,487,795 $
(11,962)
- 7,083,208 (125,693)
(14,945)
- 2,452,005
- 9,416,669
(29,392)
securities and SBA loan pools .............. 18,112,148 (125,906) 3,018,538
$ 39,551,825 $ (307,898) $ 3,018,538 $
(67,548) 21,130,686 (193,454)
(67,548) $ 42,570,363 $ (375,446)
NOTE 4: LOANS AND ALLOWANCE FOR LOAN LOSSES
Categories of loans at December 31, 2020 and 2019 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, 2020 and 2019 were as follows:
As of December 31, 2020
December 31,
2020
2019
115,799,200 $
90,028,775
70,847,330
305,673,212
144,326,350
26,733,546
753,408,413
(9,617,024)
(1,642,118)
742,149,271 $
118,823,731
87,448,418
77,308,551
300,619,387
114,047,753
30,666,185
728,914,025
(7,607,587)
(574,036)
720,732,402
30-59
Days
Past Due
60-89
Days
Past Due
Greater
Than
90 Days
Total Past
Due
Current
Total Loans
Receivable
Total
Loans >
90 Days
and
Accruing
(In Thousands)
Real estate - residential mortgage:
One to four family units .............. $
Multi-family ................................
Real estate – construction ...................
Real estate – commercial....................
Commercial loans ...............................
Consumer and other loans ..................
Total ................................................ $
623 $
-
1,239
264
6
10
2,142 $
1,058 $
-
-
76
1
1
2,752 $ 113,047 $ 115,799 $
90,029
70,847
305,673
144,326
26,734
1,136 $ 10,226 $ 13,504 $ 739,904 $ 753,408 $
- 90,029
5,428 65,419
501 305,172
4,791 139,535
32 26,702
1,071 $
-
4,189
161
4,784
21
-
-
-
-
-
-
-
72
FORM 10-K
As of December 31, 2019
30-59
Days
60-89
Days
Greater
Than
Past Due
Past Due
90 Days
Total Past
Due
Current
Total Loans
Receivable
(In Thousands)
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 .................................................. $
83 $
-
338
-
134
48
603 $
437 $
-
-
-
105
26
568 $
125 $
-
-
43
17
-
185 $
645 $ 118,179 $
87,448
-
338
76,971
43 300,576
256 113,792
30,592
74
1,356 $ 727,558 $
118,824 $
87,448
77,309
300,619
114,048
30,666
728,914 $
-
-
-
-
-
-
-
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,
2020
2019
3,086,159 $
-
6,239,326
3,932,241
5,249,782
121,090
18,628,598 $
2,398,379
-
3,738,410
2,941,143
855,761
69,784
10,003,477
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, 2020, 2019 and 2018:
As of December 31, 2020
Construction
Commercial
Real Estate
One to
four
family
Multi-
family Commercial
(In Thousands)
Consumer
and Other Unallocated Total
Allowance for loan losses:
Balance, beginning of year ...... $
Provision charged to
expense ...........................
Losses charged off ..............
Recoveries ...........................
Balance, end of year ................ $
Ending balance: individually
evaluated for impairment .... $
Ending balance: collectively
1,749 $
2,267 $ 1,001 $
746 $
1,129 $
443 $
273 $ 7,608
121
(738 )
-
1,132 $
1,350
-
7
312
-
-
3,624 $ 1,445 $ 1,058 $
440
(2 )
6
669
(709 )
40
1,129 $
323
(261 )
66
571 $
385 $ 3,600
- $ (1,710 )
119
- $
658 $ 9,617
114 $
117 $
112 $
- $
62 $
15 $
- $
420
evaluated for impairment .... $
1,018 $
3,507 $ 1,333 $ 1,058 $
1,066 $
556 $
658 $ 9,196
Ending balance: loans acquired
with deteriorated credit
quality ................................. $
Loans:
Ending balance: individually
- $
- $
- $
- $
1 $
- $
- $
1
evaluated for impairment .... $
6,239 $
1,810 $ 3,110 $
- $
5,111 $
202 $
- $ 16,472
Ending balance: collectively
evaluated for impairment .... $
64,608 $
301,453 $ 112,689 $ 90,029 $ 139,083 $ 26,532 $
- $ 734,394
Ending balance: loans acquired
with deteriorated credit
quality ................................. $
- $
2,410 $
- $
- $
132 $
- $
- $ 2,542
73
FORM 10-K
As of December 31, 2019
Construction
Commercial
Real Estate
One to
four
family
Multi-
family Commercial
(In Thousands)
Consumer
and Other Unallocated Total
$
Allowance for loan losses:
Balance, beginning of year
Provision charged to
expense ...........................
Losses charged off ..............
Recoveries ...........................
Balance, end of year ................ $
Ending balance: individually
2,306 $
2,093
$ 1,297 $
641 $
1,160 $
373 $
126 $ 7,996
(809 )
-
252
1,749 $
265
(122 )
31
2,267
(32 )
(272 )
8
$ 1,001 $
105
-
-
746 $
225
(381 )
125
1,129 $
299
(280 )
51
443 $
147 $
200
- $ (1,055 )
467
- $
273 $ 7,608
evaluated for impairment .... $
553 $
24
$
197 $
- $
299 $
21 $
- $ 1,094
Ending balance: collectively
evaluated for impairment .... $
1,196 $
2,243
$
804 $
746 $
830 $
422 $
273 $ 6,514
Ending balance: loans acquired
with deteriorated credit
quality ................................. $
Loans:
Ending balance: individually
- $
-
$
- $
- $
- $
- $
- $
-
evaluated for impairment .... $
4,742 $
650
$ 2,613 $
- $
908 $
220 $
- $ 9,133
Ending balance: collectively
evaluated for impairment .... $
72,567 $ 297,318
$ 116,211 $ 87,448 $ 112,956 $ 30,446 $
- $ 716,946
Ending balance: loans acquired
with deteriorated credit
quality ................................. $
As of December 31, 2018
- $
2,651
$
- $
- $
184 $
- $
- $ 2,835
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
2,244 $
1,789 $
946 $
464 $
1,031 $
454 $
179 $ 7,107
(35 )
-
97
2,306 $
339
(37 )
2
327
(8 )
32
2,093 $ 1,297 $
177
-
-
641 $
222
(110 )
17
1,160 $
248
(382 )
53
373 $
(53 ) $ 1,225
(537 )
201
126 $ 7,996
- $
- $
552 $
106 $
573 $
- $
363 $
18 $
- $ 1,612
evaluated for impairment .. $
1,754 $
1,987 $
724 $
641 $
797 $
355 $
126 $ 6,384
Ending balance: loans
acquired with deteriorated
credit quality ..................... $
Loans:
Ending balance: individually
- $
- $
- $
- $
- $
- $
- $
-
evaluated for impairment .. $
4,088 $
1,588 $ 4,520 $ 5,952 $
1,062 $
169 $
- $ 17,379
Ending balance: collectively
evaluated for impairment .. $
84,507 $ 317,488 $ 128,258 $ 84,663 $ 118,459 $ 32,968 $
- $ 766,343
Ending balance: loans
acquired with deteriorated
credit quality ..................... $
- $
2,782 $
- $
- $
216 $
175 $
- $ 3,173
74
FORM 10-K
A loan is considered impaired, in accordance with the impairment accounting guidance (ASC-310-10-35-16), when
based on current information and events, it is probable the Bank will be unable to collect all amounts due from the borrower in
accordance with the contractual terms of the loan. Impaired loans include nonperforming commercial loans but also include loans
modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties.
These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal,
forbearance or other actions intended to maximize collection.
The following summarizes impaired loans as of and for the years ended December 31, 2020 and 2019:
As of December 31, 2020
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
2,780 $
-
5,081
3,419
4,902
100
330 $
-
1,158
801
341
102
3,110 $
-
6,239
4,220
5,243
202
19,014 $
2,780 $
-
5,081
3,419
4,902
100
330 $
-
3,129
801
341
102
3,110 $
-
8,210
4,220
5,243
202
20,985 $
- $
-
-
-
-
-
112 $
-
114
117
63
15
112 $
-
114
117
63
15
421 $
1,199 $
-
423
3,152
455
110
1,183 $
-
4,093
365
792
136
2,382 $
-
4,516
3,517
1,247
246
11,908 $
-
-
-
4
-
13
-
-
-
-
-
-
-
-
-
4
-
13
17
75
FORM 10-K
As of December 31, 2019
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
1,392 $
-
-
3,199
33
70
1,221 $
-
4,742
162
999
150
2,613 $
-
4,742
3,361
1,032
220
11,968 $
1,392 $
-
-
3,199
33
70
1,221 $
-
5,975
162
999
150
2,613 $
-
5,975
3,361
1,032
220
13,201 $
- $
-
-
-
-
-
197 $
-
553
24
301
21
197 $
-
553
24
301
21
1,096 $
1,075 $
5,438
-
3,274
127
230
1,781 $
-
3,924
533
756
153
2,856 $
5,438
3,924
3,807
883
383
17,291 $
1
-
-
4
-
2
-
-
-
-
-
-
1
-
-
4
-
2
7
At December 31, 2020, 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.
In March 2020, our regulators issued a statement titled “Interagency Statement on Loan Modifications and Reporting
for Financial institutions with Customers Affected by the Coronavirus” that encouraged financial institutions to work prudently
with borrowers who were expected to have difficulty in meeting payment obligations due to the effects of COVID-19.
Additionally, Section 4013 of the CARES Act further clarifies that qualified loan modifications are exempt by law from being
76
FORM 10-K
classified as a TDR as defined by GAAP from March 1, 2020 until December 31, 2020. In December 2020, the Economic Aid
to Hard Hit Small Businesses, Non-Profits and Ventures Act was enacted, which extended the CARES Act provisions until
January 1, 2022. The Bank continues to work with impacted entities in the form of modifications, payment deferrals, extensions
of repayment terms and/or other delays in payments, as necessary.
Due to the before mentioned regulatory changes, there were no troubled debt restructuring charge offs or increases to
the allowance for loan losses related to TDRs during 2020. In 2019, there were no debt restructuring charge offs and $37,379 in
increased allowances for loan losses.
Impacts from COVID-19 have increased loan payment deferrals and other loan modifications in our loan portfolio.
During 2020, guidance by federal banking regulators, the Securities and Exchange Commission (SEC), the Financial Accounting
Standards Board (FASB) and provisions within the CARES Act noted that short-term loan modifications made in response to
COVID-19 to borrowers with a current payment status are not considered troubled debt restructurings (TDRs) for reporting
purposes. As of December 31, 2020, 20 loans with an aggregate balance of $28.6 million remained modified for periods from
one to twelve months. 84% of loan modifications made during 2020 have resumed scheduled payments with the remaining 16%
projected to return to their contractual payment terms with the next six months. Additional details on the modified loans are in
the following table.
COVID-19 MODIFICATIONS - Types of Modifications
Full
Payment
Deferral 3
Months +
Interest
Only 3
Months or
Less
Interest
Only 3
Months
or Less
Amount of
Loans
Modified ($)
$ 16,018,273 $
10,586,792
Full
Payment
Deferral 3
Months +
Interest
Only > 3
Months
- $ 1,849,520 $ 7,962,876 $ 6,205,877
- $
- 3,826,974 6,759,818
-
-
-
-
-
-
411,029 123,236 287,793
-
- 1,279,878
-
-
-
-
-
- 168,852
-
-
-
-
$ 28,557,924 $ 123,236 $ 380,893 $ 168,852 $ 1,849,520 $ 13,069,728 $ 12,965,695
1,279,878
168,852
93,100
Full
Payment
Deferral > 6
Months
Full
Payment
Deferral
3 Months
Interest
Only 4-6
Months
-
-
-
- $
-
93,100
# Loans
Modified
9
5
2
1
2
1
20
Collateral Type
Hotel/Motel ...........................
Theatre ..................................
Restaurant (C&I & RE) .........
Land & Land Development ...
1-4 Family Consumer ............
Other .....................................
Total Modified Loans ............
The following summarizes information regarding troubled debt restructurings by class as of and for the years ended
December 31, 2020 and 2019:
Real estate - residential mortgage:
One to four family units ............................................................................... $
Multi-family .................................................................................................
Real estate – construction ....................................................................................
Real estate – commercial.....................................................................................
Commercial loans ................................................................................................
Total ................................................................................................................. $
December 31,
2020
2019
1,178,876 $
-
3,700,084
893,992
368,310
6,141,262 $
1,163,782
-
3,738,409
161,491
572,683
5,636,365
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.
77
FORM 10-K
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.
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. Included in this category as of December 31, 2020 are $37.3 million
in Small Business Administration PPP loans originated during the year with the majority of the loans having an original duration
of two years or less.
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.
78
FORM 10-K
The following table provides information about the credit quality of the loan portfolio using the Bank’s internal rating
system as of December 31, 2020 and 2019:
As of December 31, 2020
Construction
Commercial
Real Estate
One to
four
family
Multi-
family
Commercial
Consumer
and Other Total
(In Thousands)
Rating:
Pass ............................................. $
Special Mention ..........................
Substandard ................................
Doubtful ......................................
Total ........................................ $
64,531 $
-
6,316
-
70,847 $
262,771 $ 110,615 $
-
5,184
-
305,673 $ 115,799 $
4,442
38,460
-
90,029 $
-
-
-
90,029 $
As of December 31, 2019
130,874 $ 26,532 $ 685,352
4,565
202 63,491
-
144,326 $ 26,734 $ 753,408
123
13,329
-
-
-
Construction
Commercial
Real Estate
One to
four
family
Multi-
family
Commercial
Consumer
and Other Total
(In Thousands)
Rating:
Pass ............................................. $
Special Mention ..........................
Substandard ................................
Doubtful ......................................
Total ........................................ $
73,489 $
-
3,820
-
77,309 $
292,674 $ 115,622 $
535
2,667
-
300,619 $ 118,824 $
1,476
6,469
-
87,448 $
-
-
-
87,448 $
100,658 $ 29,666 $ 699,557
- 10,804
1,000 18,553
-
114,048 $ 30,666 $ 728,914
8,793
4,597
-
-
The tables include purchased credit impaired loan amounts. At December 31, 2020 and 2019, purchased credit impaired
loans rated as “Substandard” were $2.5 and $3.2 million, respectively.
The weighted average interest rate on loans as of December 31, 2020 and 2019 was 4.45% and 5.65%, respectively.
The Bank serviced mortgage loans for others amounting to $24,868 and $29,222 as of December 31, 2020 and 2019,
respectively. The Bank serviced commercial loans for others amounting to $62,261,930 and $51,381,794 as of December 31,
2020 and 2019, respectively.
NOTE 5: ACCOUNTING FOR CERTAIN LOANS ACQUIRED
The Company acquired loans during the quarter ended June 30, 2018 as part of the acquisition of Hometown. At
acquisition, certain acquired loans evidenced deterioration of credit quality since origination and it was probable, at acquisition,
that all contractually required payments would not be collected.
Loans purchased with the evidence of credit deterioration since origination and for which it is probable that all
contractually required payments will not be collected are considered to be credit impaired. Evidence of credit quality deterioration
as of the purchase date may include information such as past-due and nonaccrual status, borrower credit scores or recent loan to
value percentages. Purchased credit impaired loans are accounted for under the accounting guidance for loans and debt securities
acquired with deteriorated credit quality (ASC 310-30) and initially measured at fair value, which includes estimated future credit
losses expected to be incurred over the life of the loan. Accordingly, an allowance for credit losses related to these loans is not
carried over and recorded at the acquisition date. Management estimated the cash flows expected to be collected at acquisition
using our internal risk models, which incorporate the estimate of current key assumptions, such as default rates, severity and
prepayment speeds. Loan accretion income recognized during the years ended December 31, 2020 and 2019 were $0.41 million
and $1.49 million, respectively.
79
FORM 10-K
The carrying amount of remaining purchased credit impaired loans are included in the balance sheet amounts of loans
receivable at December 31, 2020 and 2019. The amount of these loans is shown below:
Real estate – commercial............................................................................................................................... $
Commercial loans ..........................................................................................................................................
Consumer and other loans .............................................................................................................................
Outstanding balance ............................................................................................................................... $
Carrying amount, net of fair value adjustment of $386 at December 31, 2020 ............................................. $
2,751
177
-
2,928
2,542
December 31,
2020
(In Thousands)
Real estate – commercial............................................................................................................................... $
Commercial loans ..........................................................................................................................................
Consumer and other loans .............................................................................................................................
Outstanding balance ............................................................................................................................... $
Carrying amount, net of fair value adjustment of $476 at December 31, 2019 ............................................. $
3,069
242
-
3,311
2,835
Changes in the carrying amount of the accretable yield for all purchased credit impaired loans were as follows for years
ended December 31, 2020 and 2019:
December 31,
2019
(In Thousands)
Balance at beginning of period ...................................................................................................................... $
Additions ...................................................................................................................................................
Reclassification from nonaccretable difference .........................................................................................
Accretion ...................................................................................................................................................
Disposals....................................................................................................................................................
Balance at end of period ................................................................................................................................ $
(69)
-
(98)
167
-
-
Year ended
December 31,
2020
(In Thousands)
Year ended
December 31,
2019
(In Thousands)
Balance at beginning of period ...................................................................................................................... $
Additions ...................................................................................................................................................
Reclassification from nonaccretable difference .........................................................................................
Accretion ...................................................................................................................................................
Disposals....................................................................................................................................................
Balance at end of period ................................................................................................................................ $
265
-
-
(334)
-
(69)
During the years ended December 31, 2020 and 2019, the Company did not increase or reverse any allowance for loan
losses related to these purchased credit impaired loans.
NOTE 6: GOODWILL AND OTHER INTANGIBLE ASSETS
The Company recorded $1.4 million of goodwill as a result of its 2018 Hometown acquisition and the goodwill is not
deductible for tax purposes. Goodwill is assessed annually, or more often if warranted, for impairment. If the implied fair value
of goodwill is lower than its carrying amount, goodwill impairment is indicated, and goodwill is written down to its implied
value. Goodwill impairment was neither indicated nor recorded during 2020. Subsequent increases in goodwill value are not
recognized in the financial statements. Goodwill totaled $1.4 million as of December 31, 2020 and 2019, respectively.
80
FORM 10-K
Core deposit intangible premiums are amortized over a seven-year period and are periodically evaluated, at least
annually, as to the recoverability of their carrying value. Core deposit premiums of $3.5 million were recorded during the second
quarter of 2018 as part of the Hometown acquisition.
The Company’s goodwill and other intangibles (carrying basis and accumulated amortization) at December 31, 2020
and 2019 were as follows:
December 31,
December 31,
2020
2019
Goodwill..................................................................................................................... $
Core deposit intangible ..............................................................................................
Gross carrying amount ............................................................................................
Accumulated amortization ......................................................................................
Core deposit intangible, net.................................................................................
Remaining balance .............................................................................................. $
1,435 $
3,520
(1,493)
2,027
3,462 $
(in Thousands)
(in Thousands)
1,435
3,520
(1,016)
2,504
3,939
The Company’s estimated remaining amortization expense on intangibles as of December 31, 2020 is as follows:
Amortization Expense
(in Thousands)
Remainder of:
2021 .................................................................................................................................................. $
2022 ..................................................................................................................................................
2023 ..................................................................................................................................................
2024 ..................................................................................................................................................
2025 ..................................................................................................................................................
Thereafter ..........................................................................................................................................
Total .................................................................................................................................................. $
477
477
477
477
119
-
2,027
NOTE 7: PREMISES AND EQUIPMENT
Major classifications of premises and equipment, stated at cost, are as follows:
December 31,
December 31,
2020
2019
Land ....................................................................................................................... $
Buildings and Improvements .................................................................................
Automobile .............................................................................................................
Furniture, Fixtures and Equipment .........................................................................
Leasehold Improvements .......................................................................................
Less accumulated depreciation ...............................................................................
Net premises and equipment........................................................................ $
4,360,353 $
11,896,382
52,404
13,924,839
2,394,953
32,628,931
(14,730,522)
17,898,409 $
4,360,353
11,907,331
52,404
13,485,163
2,394,953
32,200,204
(13,035,708)
19,164,496
NOTE 8: LEASES
As discussed in Note 19, on January 1, 2019, the Company adopted ASU 2016-02, “Leases”. The Company recorded
initial balances during the quarter ending March 31, 2019 for operating Right of Use (“ROU”) assets and liabilities of $9,655,304.
Additionally, the Company recorded initial balances for financing ROU assets and liabilities of $481,830. As of December 31,
2020, operating lease liability balances were $8,560,892 and financing lease liability amounts were $510,526. We maintain
operating leases on land and buildings for certain branch facilities and our headquarters. Financing leases are primarily for
equipment used at banking facilities. Most leases include options to renew, with renewal terms extending between one to twenty
years. The exercise of renewal options is based on judgement of management as to whether or not the renewal option is reasonably
81
FORM 10-K
certain to be exercised. Factors in determining whether or not the renewal option is reasonably certain to be exercised include,
but are not limited to, the value of the leasehold improvements, the value of the renewal rate compared to market rates and the
presence of factors that would cause significant economic penalty to the Company if the option is not exercised.
Expenses for finance leases are included in other interest expense and occupancy expense line items, whereas, operating
leases are expensed entirely in the occupancy expense line item. Leases with a term of less than twelve months are not recorded
on the balance sheet and are expensed on a straight-line basis over the lease term. Discount rates used for the purpose of valuing
the leases were based on rates available to the Company on fixed rate borrowings for similar lease terms.
The components of lease expense and their impact on the statement of income as of December 31, 2020 and 2019 is as
follows:
Year ended
December 31,
2020
2019
(In Thousands)
Finance lease cost:
Amortization of right-of-use assets ........................................................................ $
Interest on lease liabilities ......................................................................................
Operating lease cost ...................................................................................................
Sublease income .........................................................................................................
$
142,582
7,736
1,081,620
(47,200)
111,559
8,346
1,080,226
(45,200 )
Total lease costs ......................................................................................................... $
1,184,738
$
1,154,931
Additional lease information:
Weighted-average remaining lease term - financing leases (in years) ....................
Weighted-average remaining lease term - operating leases (in years) ....................
Weighted-average discount rate - financing leases .................................................
Weighted-average discount rate - operating leases .................................................
3.4
14.4
1.32%
5.68%
3.5
15.2
1.96 %
5.60 %
The following table sets forth the future minimum lease cash payments and a reconciliation of the undiscounted cash
flows to the lease liability as of December 31, 2020:
2021 ................................................................................. $
2022 .................................................................................
2023 .................................................................................
2024 .................................................................................
2025 .................................................................................
Thereafter .................................................................................
Total undiscounted future minimum lease cash payments ....... $
Present value discount ..............................................................
Lease liability ........................................................................... $
NOTE 9: BANK OWNED LIFE INSURANCE
Financing
Operating
(In Thousands)
Total
175 $
170
97
53
25
-
520 $
(9)
511 $
1,020 $
1,011
1,014
856
752
8,228
12,881 $
(4,320)
8,561 $
1,195
1,181
1,111
909
777
8,228
13,401
(4,329 )
9,072
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, 2020 and 2019 was $25,294,780 and
$24,698,438, respectively.
82
FORM 10-K
NOTE 10: 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
proportional amortization method if certain conditions are met. The Company does not have the ability to exert significant
influence over the partnerships. For a minimum fifteen-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, 2020 and 2019, the net
carrying values of the Company’s investments in these entities was $5,712,577 and $6,663,662, respectively, and are included
in other assets on the Company’s Consolidated Balance Sheets.
The Company received total income tax credits of $1,056,493, $1,183,140 and $1,324,581 during 2020, 2019 and 2018,
respectively. Amortization of the investment costs was $937,270, $1,041,863 and $1,120,363 during each of the fiscal years
2020, 2019 and 2018, respectively.
NOTE 11: DEPOSITS
Deposits are comprised of the following at December 31, 2020 and 2019:
December 31, 2020
December 31, 2019
Weighted
Average
Rate
Balance
Percentage
of Deposits
Weighted
Average
Rate
Balance
Percentage
of Deposits
Non-interest bearing transaction ......
Interest bearing transaction ..............
Savings .............................................
Certificates:
0.00% - 0.99% ..................................
1.00% - 1.99% ..................................
2.00% - 3.99% ..................................
Total Deposits ..................................
0.00% $ 144,911,156
0.35% 560,970,668
0.13% 47,839,075
0.27% 753,720,899
0.62% 49,395,262
1.47% 13,875,409
2.41% 121,680,971
1.86% 184,951,642
0.58% $ 938,672,541
15.4%
59.8%
5.1%
80.3%
5.2%
1.5%
13.0%
19.7%
100.0%
0.00% $ 87,598,281
0.93% 487,621,927
0.28% 39,203,818
0.76% 614,424,026
0.65% 30,075,341
1.65% 29,828,669
2.49% 147,078,496
2.10% 206,982,506
1.10% $ 821,406,532
10.7%
59.3%
4.8%
74.8%
3.7%
3.6%
17.9%
25.2%
100.0%
The aggregate amount of certificates of deposit with a minimum balance of $100,000 was approximately $103,356,000
and $123,765,000 as of December 31, 2020 and 2019, respectively. The aggregate amount of certificates of deposit with a
minimum balance of $250,000 was approximately $35,412,000 and $54,654,000, as of December 31, 2020 and 2019,
respectively.
A summary of certificates of deposit by maturity as of December 31, 2020, is as follows:
2021 ....................................................................................................................................................... $
2022 .......................................................................................................................................................
2023 .......................................................................................................................................................
2024 .......................................................................................................................................................
2025 .......................................................................................................................................................
Thereafter ...................................................................................................................................................
$
140,242,445
36,240,989
2,269,299
1,805,072
1,061,795
3,332,042
184,951,642
83
FORM 10-K
A summary of interest expense on deposits is as follows:
2020
Years ended
December 31,
2019
Transaction accounts ........................................................... $
Savings accounts .................................................................
Certificate accounts .............................................................
Early withdrawal penalties ..................................................
$
2,948,835 $
78,806
3,912,688
(15,503)
6,924,826 $
6,144,802 $
119,730
4,754,944
(28,023)
10,991,453 $
2018
4,427,407
105,592
2,524,098
(33,811)
7,023,286
The Bank utilizes brokered deposits as an additional funding source. The aggregate amount of brokered deposits was
approximately $35,000 and $53,548,000 as of December 31, 2020 and 2019, respectively.
NOTE 12: BORROWINGS
Federal Home Loan Bank Advances
Federal Home Loan Bank advances consist of the following:
December 31, 2020
December 31, 2019
Maturity Date
2021
2023
2025
2027
Amount
50,000,000
6,500,000
6,500,000
3,000,000
66,000,000
$
Weighted
Average Rate
0.35%
0.59%
0.82%
1.12%
0.45%
Maturity Date
Amount
Weighted
Average Rate
2020
65,000,000
1.83%
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 45% of assets, the Bank has the ability to borrow an additional $162.4 million from
the FHLB, as of December 31, 2020.
Federal Reserve Bank Borrowings
During 2008, the Bank established a borrowing line with the Federal Reserve Bank. The Bank has the ability to borrow
$37.2 million as of December 31, 2020. 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, 2020 and 2019.
Note Payable to Bank
As of December 31, 2019, the Company had an established note payable of $11.2 million with another financial
institution. The note was fully drawn as of December 31, 2019 with the original purpose to provide additional capital for funding
Bank asset growth and to redeem Hometown Bancshares subordinated debentures discussed in Note 13. The note carried a
variable interest rate tied to 30-day LIBOR plus 250 basis points (4.24% at December 31, 2019). In July 2020, proceeds from a
subordinated debt offering, discussed in Note 14, were used to completely pay off the note payable.
Line of Credit to Bank
During 2019, The Company established a $3.0 million revolving line of credit with another financial institution. The
funds, if used, will be to provide additional capital for funding Bank asset growth or repurchasing outstanding common shares
of stock. The note carries a variable interest rate tied to 30-day LIBOR plus 250 basis points with a floor of 400 basis points and
matures on June 28, 2021. No amounts were borrowed on this line as of December 31, 2020 or 2019.
84
FORM 10-K
NOTE 13: SUBORDINATED DEBENTURES ISSUED TO CAPITAL TRUSTS
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.
As part of the April 2, 2018 acquisition of Hometown Bancshares, Inc., and pursuant to a Second Supplemental
Indenture by and among the Company, Hometown and Wilmington Trust Company, as Trustee, the Company assumed
Hometown’s rights, duties and obligations under the original Indenture of a wholly owned subsidiary, Hometown Bancshares
Capital Trust I, a Delaware statutory trust formed on October 29, 2002. This Trust was formed for the purposes of issuing $6.0
million of Trust Preferred Securities. Hometown issued 30-year junior subordinated deferrable interest debentures to the Trust
in the principal amount of $6,186,000 (“Hometown Trust I Debentures”) pursuant to the terms of Indentures dated October 29,
2002 by and between the Company and Wilmington Trust Company, as trustee. These debentures bore interest at a floating rate
equal to the three-month LIBOR plus 5.00%, payable quarterly, until May 2019. The rate from May 2019 until maturity in 2032
was a floating rate equal to the three-month LIBOR plus 6.00%, payable quarterly, with a maximum interest rate of 12.5%. The
interest payments by the Company to the Trust was used to pay the dividends payable by the Trust to the holders of the Trust
Preferred Securities. The Hometown Trust I Debentures had an original maturity date of November 7, 2032, however, the
Company fully redeemed the debentures on July 5, 2019 at 100% of principal amount plus accrued interest after receiving all
necessary approvals by the Federal Reserve Board.
NOTE 14: SUBORDINATED NOTES
On July 29, 2020, the Company completed a private offering of $20.0 million aggregate principal amount of 5.25%
fixed-to-floating rate subordinated notes due 2030 (the “Notes”). The Notes were issued by the Company to the purchasers at a
price equal to 100% of their face amount. Costs related to the issuance of $454,445 reduced the proceeds received by the
Company and will be amortized over the life of the notes. The Notes are intended to qualify as Tier 2 capital for regulatory
purposes. The Notes have a stated maturity of September 30, 2030, are redeemable by the Company at its option, in whole or in
part, on or after September 30, 2025, and at any time upon the occurrences of certain events. Prior to September 30, 2025, the
Company may redeem the Notes, in whole but not in part, only under certain limited circumstances set forth in the Note. On or
after September 30, 2025, the Company may redeem the Notes, in whole or in part, at its option, on any interest payment date.
Any redemption by the Company would be at a redemption price equal to 100% of the principal amount of the Notes being
redeemed, together with any accrued and unpaid interest on the Notes being redeemed to but excluding the date of redemption.
The Notes are not subject to redemption at the option of the holder. The Notes will bear interest at a fixed rate of 5.25% per year
until September 30, 2025 or earlier redemption date. From October 1, 2025 to, but excluding the maturity date or earlier
redemption date, the interest rate will reset quarterly at a variable rate equal to the then current three-month term SOFR plus 519
basis points. Principal and interest on the Notes are subject to acceleration only in limited circumstances. The Notes are
unsecured, subordinated obligations of the Company, are not obligations of, and are not guaranteed by, any subsidiary of the
Company, and rank junior in right of payment to the Company’s current and future senior indebtedness.
NOTE 15: INCOME TAXES
As of December 31, 2020 and 2019, 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 $1,218,000 as of December 31, 2020.
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FORM 10-K
The provision for income taxes consists of:
2020
Years Ended
December 31,
2019
2018
Taxes currently payable ........................................................... $
Deferred income taxes ..............................................................
$
1,705,323 $
(470,145)
1,235,178 $
1,459,016 $
224,142
1,683,158 $
1,230,427
624,386
1,854,813
The tax effects of temporary differences related to deferred taxes shown on the December 31, 2020 and 2019 balance
sheets are:
Deferred tax assets:
December 31,
December 31,
2020
2019
Allowances for loan losses .......................................................................................... $
Writedowns on foreclosed assets held for sale ............................................................
Unrealized loss on interest rate swaps .........................................................................
Deferred loan fees/costs ...............................................................................................
Lease Liabilities ...........................................................................................................
Other purchase accounting adjustments ......................................................................
Tax credit partnerships and related tax credit carryforwards .......................................
Other ............................................................................................................................
Deferred tax liabilities:
FHLB stock dividends .................................................................................................
Unrealized gain on available-for-sale securities ..........................................................
Lease ROU assets ........................................................................................................
Accumulated depreciation ...........................................................................................
Other ............................................................................................................................
Net deferred tax asset ...................................................................................................... $
2,308,086 $
152,192
1,185,887
368,937
2,177,140
567,187
1,322,240
100,565
8,182,235
(20,968)
(1,169,053)
(2,155,245)
(525,995)
(635,280)
(4,506,541)
3,675,694 $
1,825,853
409,031
390,804
96,700
-
690,341
1,354,315
284,925
5,051,969
(30,062)
(262,217)
-
(598,785)
(749,964)
(1,641,028)
3,410,941
A reconciliation of income tax expense at the statutory rate to income tax expense at the Company’s effective rate is
shown below:
Computed at statutory rate .......................................................
Increase (reduction) in taxes resulting from:
State financial institution tax and credits ..............................
Cash surrender value of life insurance ..................................
Tax exempt interest ..............................................................
Non-dedecutible merger costs
Other .....................................................................................
Actual effective rate .................................................................
2020
Years ended
December 31,
2019
21.0%
21.0%
2018
(1.2%)
(1.6%)
(1.8%)
-
(1.1%)
15.3%
(2.3%)
(1.0%)
(1.1%)
-
(1.4%)
15.2%
21.0%
(1.3%)
(1.1%)
(1.4%)
1.0%
2.0%
20.2%
As part of the acquisition of Hometown, the Company acquired net operating loss (NOL) carryforwards that Hometown
had accumulated through acquisition date. The Company estimates the amount of NOL that it expects to utilize in the future will
be approximately $1,900,000 and has recorded a deferred tax asset related to the NOL, which is included in the purchase
accounting adjustments above.
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FORM 10-K
NOTE 16: DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES
ASC Topic 820, Fair Value Measurements, defines fair value as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at the measurement date. Topic 820 also specifies a
fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices in active markets for identical assets or liabilities
Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices
in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities
Level 3: Unobservable inputs supported by little or no market activity and are significant to the fair value of the assets
or liabilities
The following is a description of the inputs and valuation methodologies used for assets and liabilities 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 and other mortgage-backed
securities. The Company has no Level 3 securities.
Derivative financial instruments (Cash flow hedges): The Company’s open derivative positions are interest rate swap agreements.
Those classified as Level 2 open derivative positions are valued using externally developed pricing models based on observable
market inputs provided by a third party and validated by management. The Company has considered counterparty credit risk in
the valuation of its interest rate swap assets.
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, 2020 and 2019 (dollar amounts in thousands):
As of December 31, 2020
Financial assets:
Debt securities:
Level 1 inputs Level 2 inputs Level 3 inputs Total fair value
U.S. Government agencies ........................................ $
Municipals .................................................................
Corporates ..................................................................
Mortgage-backed securities - private label –
commercial .............................................................
Mortgage-backed securities - private label –
consumer ................................................................
Government sponsored mortgage-backed securities
and SBA loan pools................................................
Available-for-sale securities .......................................... $
Financial liabilities:
Interest Rate Swaps ....................................................... $
- $
-
-
-
-
-
- $
6,284 $
61,969
30,601
5,444
9,452
50,371
164,121 $
- $
-
-
-
-
-
- $
6,284
61,969
30,601
5,444
9,452
50,371
164,121
- $
4,941 $
- $
4,941
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FORM 10-K
As of December 31, 2019
Financial assets:
Debt securities:
Level 1 inputs Level 2 inputs Level 3 inputs Total fair value
U.S. Government agencies .......................................... $
Municipals ...................................................................
Corporates ....................................................................
Mortgage-backed securities - private label ..................
Government sponsored mortgage-backed securities
and SBA loan pools..................................................
Available-for-sale securities ............................................ $
Financial liabilities:
Interest Rate Swaps ......................................................... $
- $
-
-
-
-
- $
2,488 $
36,175
15,535
13,811
50,236
118,245 $
- $
-
-
-
-
- $
2,488
36,175
15,535
13,811
50,236
118,245
- $
1,628 $
- $
1,628
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, 2020 and 2019 (dollar amounts
in thousands):
Impaired loans:
December 31, 2020 ...................................................... $
December 31, 2019 ...................................................... $
- $
- $
- $
5,809 $
5,809
- $
1,483 $
1,483
Level 1 inputs Level 2 inputs Level 3 inputs
Total fair
value
Foreclosed assets held for sale:
December 31, 2020 ...................................................... $
December 31, 2019 ...................................................... $
- $
- $
- $
- $
371 $
233 $
371
233
Level 1 inputs Level 2 inputs Level 3 inputs
Total fair
value
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FORM 10-K
The following table presents quantitative information about unobservable inputs used in nonrecurring Level 3 fair value
measurements (dollar amounts in thousands):
Fair Value
December 31,
2020
Valuation Technique
Impaired loans (collateral
dependent) ............................ $
Foreclosed assets held for
sale ....................................... $
5,809 Market Comparable
371 Market Comparable
Fair Value
December 31,
2019
Valuation Technique
Impaired loans (collateral
dependent) ............................ $
Foreclosed assets held for
sale ....................................... $
1,483 Market Comparable
233 Market Comparable
Unobservable Input
Discount to reflect
realizable value
Discount to reflect
realizable value
Unobservable Input
Discount to reflect
realizable value
Discount to reflect
realizable value
Range
(Weighted
Average)
1% - 80% (7%)
4% - 4%
(4%)
Range
(Weighted
Average)
0%
- 100% (22%)
30%
- 30% (30%)
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 on an exit price basis incorporating contractual cash flow, prepayment discount
spreads, credit loss and liquidity premiums.
Deposits
Deposits include demand deposits, savings accounts, NOW accounts and certain money market deposits. The carrying
amount approximates fair value. The fair value of fixed-maturity certificates of deposit is estimated by discounting the future
cash flows using rates currently offered for deposits of similar remaining maturities.
Federal Home Loan Bank advances
The fair value of advances is estimated by using rates on debt with similar terms and remaining maturities.
Subordinated debentures and Note Payable to Bank
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.
Subordinated notes
For these fixed rate instruments, the fair value is calculated over the remaining term of the notes compared to similar
duration products. There is currently a limited market for similar debt instruments and the Company has the option to call the
subordinated notes at par in 2025.
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
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FORM 10-K
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.
The following table presents estimated fair values of the Company’s financial instruments at December 31, 2020 and
2019.
December 31, 2020
December 31, 2019
Carrying
Amount
Fair
Value
Hierarchy
Level
Carrying
Amount
Fair
Value
Hierarchy
Level
Financial assets:
Cash and cash equivalents .............. $ 148,422,908 $ 148,422,908
Interest-bearing time deposits at
4,771,605
other institutions ..........................
Federal Home Loan Bank stock .....
3,896,900
Mortgage loans held for sale ........... 11,359,174 11,626,174
Loans, net ....................................... 742,149,271 737,701,011
4,060,795
Interest receivable ...........................
4,760,089
3,896,900
4,060,795
Financial liabilities:
Deposits .......................................... 938,672,541 939,806,149
FHLB advances .............................. 66,000,000 66,089,183
Subordinated debentures issued to
Capital Trusts .............................. 15,465,000 15,465,000
Subordinated notes, net ................... 19,564,131 25,608,997
-
Note payable to bank ......................
932,172
Interest payable ...............................
-
932,172
Unrecognized financial instruments
(net of contractual value):
Commitments to extend credit ........
Unused lines of credit .....................
-
-
-
-
1
2
2
2
3
2
2
2
3
3
3
2
-
-
$ 92,671,909 $ 92,671,909
250,000
3,757,500
2,786,564
250,315
3,757,500
2,786,564
720,732,402 718,594,936
3,511,875
3,511,875
821,406,532 822,046,988
65,000,000 65,015,635
15,465,000 15,465,000
-
-
11,200,000 11,200,000
793,746
793,746
-
-
-
-
1
2
2
2
3
2
2
2
3
-
3
2
-
-
NOTE 17: 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 18: EMPLOYEE BENEFIT PLANS
Equity Plans
On May 27, 2015, the Company’s stockholders voted to approve the Guaranty Federal Bancshares, Inc. 2015 Equity
Plan (the”2015 Plan”). The Plan provides for the grant of up to 250,000 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, 2020, restricted stock for
90,016 shares of Common Stock and 108,898 of performance stock units has been granted under the Plan.
On May 26, 2010, the Company’s stockholders voted to approve the Guaranty Federal Bancshares, Inc. 2010 Equity
Plan (the”2010 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, 2020, non-incentive stock
options for 25,000 shares and restricted stock for 139,330 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
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FORM 10-K
only to participants who are employees of the Company or its subsidiary. The option price must not be less than the market value
of the Company stock on the date of grant. All options expire no later than ten years from the date of grant. The options vest at
the rate of 20% per year over a five-year period.
The tables below summarize transactions under the Company’s equity plans:
Stock Options
Number of shares
Incentive
Stock Option
Non-Incentive
Stock Option
Weighted
Average Exercise
Price
Balance outstanding as of January 1, 2018 .........................
Granted ............................................................................
Exercised .........................................................................
Forfeited ..........................................................................
Balance outstanding as of December 31, 2018 ...................
Granted ............................................................................
Exercised .........................................................................
Forfeited ..........................................................................
Balance outstanding as of December 31, 2019 ...................
Granted ............................................................................
Exercised .........................................................................
Forfeited ..........................................................................
Balance outstanding as of December 31, 2020 ...................
Options exercisable as of December 31, 2020 ....................
46,000
-
(13,500)
(20,000)
12,500
-
(12,500)
-
-
-
-
-
-
-
25,000 $
-
(10,000)
(10,000)
5,000 $
-
(5,000)
-
- $
-
-
-
- $
- $
15.74
-
7.07
28.71
5.14
-
5.12
-
-
-
-
-
-
-
All stock options issued in prior years were exercised in 2019 and no stock options vested during 2020, 2019 and 2018.
Restricted Stock
Number of
shares
Weighted
Average Grant-
Fair Value
Balance of shares non-vested as of January 1, 2018 ..............................................
Granted ...............................................................................................................
Vested .................................................................................................................
Forfeited .............................................................................................................
Balance of shares non-vested as of December 31, 2018 ........................................
Granted ...............................................................................................................
Vested .................................................................................................................
Forfeited .............................................................................................................
Balance of shares non-vested as of December 31, 2019 ........................................
Granted ...............................................................................................................
Vested .................................................................................................................
Forfeited .............................................................................................................
Balance of shares non-vested as of December 31, 2020 ........................................
45,550 $
13,338
(26,539)
-
32,349 $
15,434
(20,771)
(2,634)
24,378 $
20,213
(11,464)
(5,090)
28,037 $
16.44
22.41
16.40
-
18.93
23.85
17.67
22.38
22.75
20.99
22.13
22.37
21.80
In February 2020, the Company granted 5,579 shares of restricted stock to directors pursuant to the 2015 Equity Plan
that have a one year cliff vesting and expensed over that same period. In March 2019, the Company granted 5,502 shares of
restricted stock to directors pursuant to the 2015 Equity Plan that have a one year cliff vesting and expensed over that same
period. In February 2018, the Company granted 5,852 shares of restricted stock to directors pursuant to the 2015 Equity Plan that
have a one year cliff vesting and expensed over that same period. The expense is being recognized over the applicable vesting
period. The expense relating to these awards for the years ended December 31, 2020, 2019 and 2018 was $135,110, $131,443
and $138,200, respectively.
During 2020, 2019 and 2018, the Company granted 14,634, 9,932 and 7,486 shares of restricted stock to officers that
all have a cliff vesting at the end of three years. The expense is being recognized over the applicable vesting period. The expense
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FORM 10-K
relating to these awards for the years ended December 31, 2020, 2019 and 2018 was $114,357, $149,279 and $183,815,
respectively.
Performance Stock Units
Performance
Stock Units
Weighted
Average Grant-
Date Fair Value
Balance of shares non-vested as of January 1, 2018 ..............................................
Granted ...............................................................................................................
Vested .................................................................................................................
Forfeited .............................................................................................................
Balance of shares non-vested as of December 31, 2018 ........................................
Granted ...............................................................................................................
Vested .................................................................................................................
Forfeited .............................................................................................................
Balance of shares non-vested as of December 31, 2019 ........................................
Granted ...............................................................................................................
Vested .................................................................................................................
Forfeited .............................................................................................................
Balance of shares non-vested as of December 31, 2020 ........................................
55,823 $
-
-
(8,501)
47,322 $
-
(30,919)
(16,403)
- $
53,075
-
-
53,075 $
20.48
-
-
20.48
20.48
-
20.48
20.48
-
15.40
-
-
15.40
During 2020, the Company granted restricted stock units representing 53,075 hypothetical shares of performance stock
units to officers. There are three possible levels of incentive awards: threshold (25%); target (50%); and maximum (100%). The
performance stock units vest based on two financial performance factors over the period from grant date to December 31, 2022
(the “Performance Period”). The two performance measurements of the Company (and the weight given to each measurement)
applicable to each award level are as follows: (i) Earnings Per Share (50%) and (ii) Return on Average Assets (50%). In
determining compensation expense, the fair value of the restricted stock unit awards was determined based on the closing price
of the Company’s common stock on the date of grant, which averaged $15.40 per share. The expense is being recognized over
the applicable vesting period. Due to the fact that the measurements cannot be determined at the time of the grant, the Company
currently estimates that the most likely outcome is the achievement between the target and maximum levels. If during the
Performance Period, additional information becomes available to lead the Company to believe a different level will be achieved
for the Performance Period, the Company will reassess the number of units that will vest for the grant and adjust its compensation
expense accordingly on a prospective basis. The total amount of expense for performance stock units during the years ended
December 31, 2020, 2019 and 2018 was $54,948, $359,606 and $263,204, respectively.
Total stock-based compensation expense is comprised of expense for restricted stock awards, restricted stock units and
stock options. Expense recognized for the years ended December 31, 2020, 2019 and 2018 was $304,415, $640,328 and
$585,219, respectively. As of December 31, 2020, there was $429,294 of unrecognized compensation expense related to non-
vested restricted stock awards and restricted stock units, which will be recognized over the remaining vesting periods.
NOTE 19: NEW ACCOUNTING PRONOUNCEMENTS
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” ASU 2016-02 establishes a right-of-use (ROU)
model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than
12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition
in the income statement. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods
within those fiscal years. In July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842) Targeted Improvements” which
provides additional transition options including allowing entities to not apply the lease standard to the comparative periods
presented in their financial statements in the year of adoption. The Company adopted this standard along with certain practical
expedients during the quarter ending March 31, 2019 adding operating Right of Use (“ROU”) assets and liabilities of $9,655,304.
Additionally, the Company recorded initial balances for financing ROU assets and liabilities of $481,130. There was no
significant impact made to the income statement.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments. Codification Improvements to Topic 326, Financial Instruments – Credit Losses, have been
released in November 2018 (2018-19), November 2019 (2019-10 and 2019-11) and a January 2020 Update (2020-02) that
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FORM 10-K
provided additional guidance on this Topic. Among other things, the amendments in this ASU require the measurement of all
expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and
reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to
better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although
the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the
accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. For SEC
filers meeting certain criteria, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2019. For SEC filers that meet the criteria of a smaller reporting company (including this
Company) and for non-SEC registrant public companies and other organizations, the amendments in this ASU are effective for
fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption will be permitted
for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The
Company has formed a committee that is assessing our data and evaluating the impact of adopting ASU 2016-13. The Company
has also selected a third-party vendor to assist in generating loan level cash flows and disclosures. Based on the results from
larger SEC filers and preliminary internal calculations there is likely a significant financial impact of adopting this standard.
Estimated amounts and decisions pertaining to implementation of this standard will be evaluated over the next several quarters.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles: Goodwill and Other: Simplifying the Test for
Goodwill Impairment. To simplify the subsequent measurement of goodwill, the amendments eliminate Step 2 from the goodwill
impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit
with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the
reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting
unit. In addition, the income tax effects of tax deductible goodwill on the carrying amount of the reporting unit should be
considered when measuring the goodwill impairment loss, if applicable. An entity still has the option to perform the a qualitative
assessment for a reporting unit to determine if the quantitative impairment test is necessary. The amendments should be applied
on a prospective basis. This standard was adopted during 2020 and had no impact on the Company’s consolidated financial
statements.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted improvements to
accounting for hedging activities. Additional guidance on this Topic was released in October 2018 (ASU 2018-16), November
2019 (2019-10) and January 2020 (2020-01). The purpose of this updated guidance is to better align financial reporting for
hedging activities with the economic objectives of those activities. The amendments in this update were effective for fiscal years
beginning after December 15, 2018, with early adoption, including adoption in an interim period, permitted. The standard
required the modified retrospective transition approach as of the date of adoption. Implementation of this standard did not have
a material impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework –
Changes to the Disclosure Requirements for Fair Value Measurement. This ASU applies to all entities that are required, under
existing GAAP, to make disclosures about recurring or nonrecurring fair value measurements. Disclosures removed by this ASU
are the amount and reasons for transfers between Level 1 and Level 2, the policy for timing of transfers between levels and the
valuation process for Level 3 measurements. This ASU modifies disclosures relating to investments in certain entities that
calculate net asset value. Additional disclosures require by the ASU include: 1) change in unrealized gains and losses included
in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and 2) range
and weighted average of significant observable inputs used to develop Level 3 measurements. The prospective method of
transition is required for the new disclosure requirements. The other amendments should be applied retrospectively. This ASU
is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years or January 1,
2020 for the Company. Early adoption is permitted. The Company adopted this standard during the first quarter of 2020 with no
significant impact on the financial statements.
93
FORM 10-K
NOTE 20: OTHER EXPENSES
Other expenses for the years ended December 31, 2020, 2019 and 2018 were as follows:
December 31,
December 31,
December 31,
2020
2019
2018
Directors compensation ............................................................ $
Outside services .......................................................................
Legal expense ...........................................................................
Deposit expense .......................................................................
Office supplies .........................................................................
Telephone .................................................................................
Postage .....................................................................................
Insurance ..................................................................................
Supervisory exam .....................................................................
Accounting ...............................................................................
Organization dues .....................................................................
Loan expense ............................................................................
Contributions ............................................................................
ATM expense ...........................................................................
Other operating.........................................................................
238,704 $
139,737
292,451
81,725
123,334
145,396
149,783
183,380
68,320
350,370
181,155
415,436
132,200
307,999
1,235,821
232,826 $
164,930
313,520
80,879
129,988
143,411
197,775
161,032
63,619
387,102
170,017
417,736
82,200
252,192
1,007,578
235,060
122,715
249,572
78,892
160,727
183,732
175,614
113,610
67,222
453,000
172,259
410,177
60,000
245,892
1,210,112
$
4,045,811 $
3,804,805 $
3,938,584
NOTE 21: 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:
2020
Year ended December 31,
2019
2018
Balance, beginning of year .................................................. $
New Loans .......................................................................
Repayments .....................................................................
4,030,844 $
1,815,200
(1,489,063)
5,797,809 $
500,000
(2,266,965)
6,528,933
2,795,734
(3,526,858)
Balance, end of year ............................................................ $
4,356,981 $
4,030,844 $
5,797,809
In management's opinion, such loans and other extensions of credit and deposits were made in the ordinary course of
business and were made on substantially the same terms as those prevailing at the time for comparable transactions with other
persons. Further, in management's opinion, these loans did not involve more than normal risk of collectability or present other
unfavorable features.
NOTE 22: 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, 2020 and 2019, the Bank had outstanding commitments to originate fixed-rate mortgage loans of
approximately $32,095,000 and $6,690,000, respectively. The commitments extend over varying periods of time with the
majority being disbursed within a thirty-day period.
94
FORM 10-K
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 $10,256,000 and $5,446,000 as of December 31,
2020 and 2019, 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, 2020 and 2019, these
letters of credit aggregated approximately $62,239,000 and $57,771,000.
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, 2020 and 2019, unused lines of credit to borrowers aggregated approximately $107,444,000 and
$108,257,000, respectively, for commercial lines and $24,746,000 and $24,373,000, respectively, for open-end consumer lines.
The Bank offers certain loan customers the ability to effectively convert a variable-rate commercial loan agreement to
a fixed-rate commercial loan agreement via an Assumable Rate Conversion (“ARC”) loan agreement. This is accomplished by
the Bank entering into variable-rate loan agreements with loan customers, and the customer simultaneously entering into an
interest swap agreement directly with a third-party. The customer is required to enter into a transaction agreement as part of each
loan. The agreement states that in an event of default by the loan customer, the Bank must pay a termination value to the extent
it is positive. The termination value is defined by the Master Agreement. During 2020, the Bank originated $72.4 million of
these agreements and earned $1.1 million in brokerage fees that is included in non-interest income. The Bank evaluates these
guarantees on a quarterly basis and would record a liability if it became probable that it would be required to pay a termination
value. No liability was recorded as of December 31, 2020.
NOTE 23: DERIVATIVE FINANCIAL INSTRUMENTS
The Company records all derivative financial instruments at fair value in the financial statements. Derivatives are used
as a risk management tool to hedge the exposure to changes in interest rates or other identified market risks.
When a derivative is intended to be a qualifying hedged instrument, the Company prepares written hedge documentation
that designates the derivative as 1) a hedge of fair value of a recognized asset or liability (fair value hedge) or 2) a hedge of a
forecasted transaction, such as, the variability of cash flows to be received or paid related to a recognized asset or liability (cash
flow hedge). The written documentation includes identification of, among other items, the risk management objective, hedging
instrument, hedged item, and methodologies for assessing and measuring hedge effectiveness and ineffectiveness, along with
support for management’s assertion that the hedge will be highly effective.
In June 2017, the Company entered into a forward start interest rate swap agreement totaling $50 million notional
amount to hedge against interest rate risk on FHLB advances. As a cash flow hedge, the portion of the change in the fair value
of the derivative that has been deemed highly effective is recognized in other comprehensive income until the related cash flows
from the hedged item are recognized in earnings. At December 31, 2020, the Company reported a $2,857,818 unrealized loss,
net of a $902,469 tax effect, in accumulated other comprehensive income related to this cash flow hedge.
In March 2019, the Company entered into an interest rate swap agreement totaling $10.3 million notional amount to
hedge against interest rate risk on variable rate subordinated debentures. As a cash flow hedge, the portion of the change in the
95
FORM 10-K
fair value of the derivative that has been deemed highly effective is recognized in other comprehensive income until the related
cash flows from the hedged item are recognized in earnings. At December 31, 2020, the Company reported a $897,491 unrealized
loss, net of a $283,418 tax effect, in accumulated other comprehensive income related to this cash flow hedge.
For each instrument, the Company documents at inception and periodically over the life of the hedge, its analysis of
actual and expected hedge effectiveness. To the extent that the hedge of future cash flows is deemed ineffective, changes in the
fair value of the derivative are recognized in earnings as a component of other noninterest expense. For the years ended December
31, 2020 and 2019, there was no ineffectiveness attributable to either cash flow hedge.
As of December 31, 2020, based on current fair values, the Company pledged cash collateral of $5.1 million to its
counterparty for the swaps. As of December 31, 2019, based on current fair values, the Company pledged cash collateral of $1.9
million to its counterparty for the swaps
A summary of the Company’s derivative financial instruments at December 31, 2020 and 2019 is shown in the following
table:
Forward Start
Inception Date
Termination Derivative
Date
Type
Notional
Amount
Rate
Paid
Rate
Balance Sheet
Hedged Classfication
December 31,
2020
2019
2/28/2018
2/28/2025
5/23/2019
2/23/2026
Interest rate
swap - FHLB
Advances
Interest rate
swap -
Subordinated
Debentures
$ 50,000,000 2.12 %
$ 10,310,000 4.09 %
3 month
LIBOR
Floating
3 month
LIBOR
Floating
+145 bps
Other
liabilites
Other
liabilites
$
(3,760,287 ) $
(1,067,935 )
$
(1,180,909 ) $
(560,388 )
The following table presents the net amounts included in the consolidated statements of income for derivatives
designated as hedging instruments for the periods indicated:
Derivative
Type
Income Statement
Classfication
Years ended December 31,
2020
2019
Interest rate swap - FHLB Advances
Interest expense
Interest rate swap - Subordinated Debentures
Interest expense
$
$
630,870 $
(155,062)
184,537 $
24,065
NOTE 24: ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of accumulated other comprehensive loss, included in stockholders’ equity, are as follows:
The components of accumulated other comprehensive loss, included in
stockholders' equity, are as follows:
Net unrealized gain (loss) on available-for-sale securities ...................................... $
Net unrealized gain (loss) on interest rate swap instrument ....................................
December 31,
2020
2019
4,871,052 $
(4,941,196)
(70,144)
1,092,554
(1,628,323)
(535,769)
Tax effect .................................................................................................................
Net-of-tax amount ............................................................................................ $
16,766
(53,378) $
104,734
(431,035)
96
FORM 10-K
NOTE 25: CONDENSED PARENT COMPANY STATEMENTS
The condensed balance sheets as of December 31, 2020 and 2019, and statements of income, comprehensive income
and cash flows for the years ended December 31, 2020, 2019 and 2018 for the parent company, Guaranty Federal Bancshares,
Inc., are as follows:
Condensed Balance Sheets
Assets
Cash ............................................................................................................................ $
Investment in subsidiary.............................................................................................
Investment in Capital Trusts ......................................................................................
Prepaid expenses and other assets ..............................................................................
Deferred and receivable income taxes ........................................................................
$
Liabilities
Subordinated debentures issued to Capital Trusts ...................................................... $
Subordinated notes, net ..............................................................................................
Note payable to bank ..................................................................................................
Accrued expenses and other liabilities .......................................................................
Due to subsidiary........................................................................................................
December 31,
2020
2019
7,940,245 $
115,472,127
465,000
218,411
2,197,483
126,293,266 $
15,465,000 $
19,564,131
-
2,288,869
6,900
1,783,729
108,504,578
465,000
336,796
1,625,872
112,715,975
15,465,000
-
11,200,000
1,412,193
6,900
Stockholders' equity
Common stock ...........................................................................................................
Additional paid-in capital ...........................................................................................
Retained earnings .......................................................................................................
Accumulated other comprehensive loss .....................................................................
Treasury stock ............................................................................................................
$
691,950
51,337,219
77,073,707
(53,378)
(40,081,132)
126,293,266 $
691,950
51,908,867
72,860,750
(431,035)
(40,398,650)
112,715,975
Condensed Statements of Income
2020
Years ended December 31,
2019
2018
Income
Dividends from subsidiary bank .................................................. $
Net gain on foreclosed assets .......................................................
Interest income:
Other .....................................................................................
Expense
Interest expense ...........................................................................
Other ............................................................................................
Income before income taxes and equity in undistributed income
of subsidiaries ..............................................................................
Credit for income taxes ...................................................................
Income before equity in undistributed earnings of subsidiaries ......
Equity in undistributed income of subsidiaries ...............................
Net income ...................................................................................... $
2,500,000 $
74,716
8,000,000 $
-
14,000,000
-
22,515
2,597,231
40,855
8,040,855
31,016
14,031,016
716,070
1,839,930
2,556,000
41,231
(681,092)
722,323
6,109,891
6,832,214 $
362,079
2,439,799
2,801,878
5,238,977
(721,649)
5,960,626
3,454,464
9,415,090 $
120,503
2,773,018
2,893,521
11,137,495
(780,131)
11,917,626
(4,585,747)
7,331,879
97
FORM 10-K
Condensed Statements of Cash Flows
Cash Flows From Operating Activities
Years ended December 31,
2019
2020
2018
Net income ........................................................................................ $
Items not requiring (providing) cash:
(Equity in undistributed income) distributions in excess of
subsidiaries ................................................................................
Deferred income taxes ..................................................................
Accretion of purchase accounting adjustment...............................
Stock award plan expense .............................................................
Changes in:
6,832,214 $
9,415,090 $
7,331,879
(6,109,891)
(237,281)
-
136,138
(3,454,464)
(633,608)
(109,829)
615,385
4,585,747
(196,399)
(65,897)
517,053
Prepaid expenses and other assets .................................................
Income taxes payable/refundable ..................................................
Accrued expenses ..........................................................................
Net cash provided by operating activities ............................................
118,386
(193,812)
270,503
816,257
(28,124)
157,458
(26,374)
5,935,534
(113,711)
(341,404)
(1,360,728)
10,356,540
Cash Flows From Investing Activities
Capital contributions to subsidiary bank ..........................................
Cash paid for acquisition ..................................................................
Net cash used in investing activities .....................................................
Cash Flows From Financing Activities
Proceeds from stock options exercised .............................................
Cash dividends paid on common stock .............................................
Proceeds from issuance of notes payable .........................................
Proceeds from issuance of subordinated notes, net ..........................
Repayment of notes payable .............................................................
Repayment of Capital Trust ..............................................................
Treasury Stock purchased .................................................................
Net cash provided by (used in) financing activities .............................
-
-
-
-
-
-
(5,000,000)
(4,627,810)
(9,627,810)
-
(2,615,028)
1,800,000
19,545,555
(13,000,000)
-
(390,268)
5,340,259
90,000
(2,313,661)
7,450,000
-
(1,250,000)
(6,000,000)
(3,604,879)
(5,628,540)
166,230
(2,132,221)
5,000,000
-
(3,000,000)
-
-
34,009
Increase in cash ..................................................................................
6,156,516
306,994
762,739
Cash, beginning of year .....................................................................
1,783,729
1,476,735
713,996
Cash, end of year ................................................................................ $
7,940,245 $
1,783,729 $
1,476,735
Statements of Comprehensive Income
NET INCOME ................................................................................ $
OTHER ITEMS OF COMPREHENSIVE INCOME:
Change in unrealized loss on interest rate swaps, before income
Years ended December 31,
2019
9,415,090 $
2020
6,832,214 $
2018
7,331,879
taxes ...........................................................................................
(620,521)
(560,388)
-
Income tax benefit related to other items of comprehensive
income .......................................................................................
Other comprehensive loss .............................................................
Comprehensive income (loss) of Bank .........................................
TOTAL COMPREHENSIVE INCOME ......................................... $
(140,519)
(480,002)
857,659
7,209,871 $
(142,899)
(417,489)
439,210
9,436,811 $
-
-
(246,563)
7,085,316
98
FORM 10-K
NOTE 26: UNAUDITED QUARTERLY OPERATING RESULTS
Year Ended December 31, 2020, Quarter ended
Mar-20
Jun-20
Sep-20
Dec-20
Interest income .............................................................................. $ 10,798,857 $ 10,159,058 $ 9,968,256 $ 9,943,705
Interest expense ............................................................................. 3,086,525 2,136,409 2,236,743 2,151,524
Net interest income ....................................................................... 7,712,332 8,022,649 7,731,513 7,792,181
500,000
Provision for loan losses ...............................................................
950,000 1,400,000
Gain on loans and investment securities .......................................
571,310 1,018,516 1,992,185 1,199,622
Other noninterest income, net ....................................................... 1,527,822 1,294,202 1,278,146 1,191,641
Noninterest expense ...................................................................... 6,798,629 7,253,331 7,735,249 7,877,518
905,926
Income before income taxes .......................................................... 2,512,835 2,332,036 2,316,595
(40,284)
Provision for income taxes ............................................................
418,819
946,210
Net income available to common shareholders ............................. $ 2,104,845 $ 1,883,383 $ 1,897,776 $
0.22
0.44 $
Basic income per common share ................................................... $
0.22
0.43 $
Diluted income per common share ................................................ $
0.43 $
0.43 $
0.49 $
0.49 $
407,990
750,000
448,653
Year Ended December 31, 2019, Quarter ended
Mar-19
Jun-19
Sep-19
Dec-19
Interest income .............................................................................. $ 11,096,436 $ 11,299,507 $ 11,581,621 $ 11,248,939
Interest expense ............................................................................. 3,321,718 3,449,152 3,459,478 3,304,666
Net interest income ....................................................................... 7,774,718 7,850,355 8,122,143 7,944,273
Provision for loan losses ...............................................................
-
752,688
Gain on loans and investment securities .......................................
Other noninterest income, net .......................................................
917,402
Noninterest expense ...................................................................... 6,843,559 6,826,483 6,953,456 6,874,636
Income before income taxes .......................................................... 2,495,494 2,857,210 3,005,817 2,739,727
424,042
Provision for income taxes ............................................................
Net income available to common shareholders ............................. $ 2,120,364 $ 2,428,499 $ 2,550,542 $ 2,315,685
0.54
Basic income per common share ................................................... $
0.53
Diluted income per common share ................................................ $
-
645,469
918,866 1,045,038
100,000
100,000
888,300 1,055,589
881,541
0.48 $
0.47 $
0.55 $
0.54 $
0.58 $
0.57 $
375,130
455,275
428,711
99
FORM 10-K
Report of Independent Registered Public Accounting Firm
To the Stockholders, Board of Directors, and Audit Committee
Guaranty Federal Bancshares, Inc.
Springfield, Missouri
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Guaranty Federal Bancshares, Inc. (the
“Company”) as of December 31, 2020 and 2019, 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, 2020, and the related notes (collectively referred to as the “financial statements”). In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations
and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity
with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on the Company’s financial statements based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (PCAOB) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement, whether due to error or fraud. Our audits included performing procedures
to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures include examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.
FORM 10-K To the Stockholders, Board of Directors, and Audit Committee
Guaranty Federal Bancshares, Inc.
Page 2
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the
financial statements that was communicated or required to be communicated to the audit committee and
that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved
our especially challenging, subjective, or complex judgments. The communication of critical audit
matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are
not, by communicating the critical audit matter below, providing separate opinions on the critical audit
matter or on the accounts or disclosures to which they relate.
Allowance for Loan Losses
As more fully described in Notes 1 and 4 to the Company’s consolidated financial statements, the
allowance for loan losses represents losses that are estimated to have occurred. The allowance for loan
losses is based on 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. The allowance consists of allocated and
general components. The allocated component relates to specific allowances on loans that are classified
as impaired. The general component relates to loans that are not classified as impaired and is based on
historical charge-off experience and the expected loss, given default, derived from the Company’s internal
risk rating process. Other adjustments have been 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. Management discloses that this evaluation is inherently subjective, as it requires
estimates that are susceptible to significant revision as more information becomes available.
We identified the valuation of the allowance for loan losses as a critical audit matter. Auditing the
allowance for loan losses involves a high degree of subjectivity in evaluating management’s estimates,
such as evaluating management’s assessment of economic conditions and other qualitative or
environmental factors, evaluating the adequacy of specific allowances associated with impaired loans or
loans acquired that have experienced a deterioration in credit quality post-acquisition, and assessing the
appropriateness of loan grades.
The primary procedures we performed to address this critical audit matter included:
Testing the design and operating effectiveness of controls, including those related to technology,
over the allowance for loan losses, including data completeness and accuracy, classifications of
loans by loan segment, historical loss data, the calculation of loss rates, the establishment of
qualitative adjustments, grading and risk classification of loans and establishment of specific
reserves on impaired loans, and management’s review and disclosure controls over the allowance
for loan losses;
Testing of completeness and accuracy of the information utilized in the calculation of the
allowance for loan losses;
Testing the allowance for loan losses model’s computational accuracy;
FORM 10-K To the Stockholders, Board of Directors, and Audit Committee
Guaranty Federal Bancshares, Inc.
Page 3
Evaluating the qualitative adjustments to historical loss rates, including assessing the basis for the
adjustments and the reasonableness of the significant assumptions;
Testing the internal loan review function and evaluating the accuracy of loan grades, including
utilizing our internal loan review professionals to assist us;
Assessing the reasonableness of specific allowances on certain impaired loans;
Evaluating the overall reasonableness of significant assumptions used by management,
considering the past performance of the Company and evaluating trends identified within peer
groups;
Evaluating the accuracy and completeness of disclosures in the consolidated financial statements.
BKD, LLP
We have served as the Company’s auditor since 1980.
Springfield, Missouri
March 12, 2021
FORM 10-K Item 9. Changes in and Disagreements with Accountants On Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed in the
Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the
Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure.
The Company carried out an evaluation, under the supervision and with the participation of the Company’s management,
including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure
controls and procedures. Based on the foregoing evaluation, the Company’s Chief Executive Officer and Chief Financial Officer
concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2020.
Internal Control Over Financial Reporting
There have been no changes in the Company’s internal controls over financial reporting during the fourth quarter ending
December 31, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls
over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
The management of Guaranty Federal Bancshares, Inc. (the “Company”) is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Company’s
internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of the financial statements for external purposes in accordance with accounting principles generally
accepted in the United States of America. The Company’s internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of
America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of
management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and
the circumvention of overriding controls. Accordingly, even effective internal controls over financial reporting can provide only
reasonable assurance with respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31,
2020, based on the framework set forth in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on that assessment, management concluded that, as of December 31, 2020,
the Company’s internal control over financial reporting was effective.
Item 9B. Other Information
Not applicable.
103
FORM 10-K
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The information contained under the section captioned "First Proposal: Election of Directors" (excluding any
information contained under the section captioned “Meetings and Committees of the Board of Directors”) of the Proxy Statement
is incorporated herein by reference.
The Company has adopted a Code of Conduct and Ethics, and it applies to all of the members of the Board of Directors,
officers and employees of the Company (including the Bank), with special emphasis on compliance by the directors of the
Company and the Company’s Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer or Controller or
persons performing similar functions for the Company. The Company’s Code of Conduct and Ethics is available on the
Company’s website at www.gbankmo.com and may be accessed by logging onto the Company’s website and clicking on the
“Disclosures” link and then the “Code of Conduct” link. You will then be able to click on, and access, the Company’s Code of
Conduct and Ethics. Amendments to, and waivers granted under, the Company’s Code of Conduct and Ethics, if any, will be
posted to the Company’s website as well.
The information required by Item 10 regarding an audit committee financial expert and the identification of the members
of the audit committee, a separately designated committee of the Company’s Board of Directors established in accordance with
section 3(a)(58)(A) of the Securities Exchange Act of 1934, is contained under the section captioned “Report of the Audit
Committee” of the Proxy Statement and is incorporated herein by reference.
Additional information required by this item is contained in the section captioned "Information about our Executive
Officers of the Registrant" in Item 1 of this report.
Item 11. Executive Compensation
The information contained in the Proxy Statement under the section captioned "Report of the Compensation Committee”
is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information required by this item is contained under the section captioned "Ownership of Certain Beneficial Owners
and Management" in the Proxy Statement and is incorporated herein by reference.
The following table sets forth information as of December 31, 2020 with respect to equity plans under which shares of
the Company’s common stock may be issued:
2020 Equity Compensation Plan Information
(a)
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(b)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(c)
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column
(a))
Plan category
Equity compensation plans approved by security
holders ..................................................................
Equity compensation plans not approved by
security holders .....................................................
Totals ........................................................................
- $
-
- $
-
-
-
102,981
-
102,981
104
FORM 10-K
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is contained under the sections captioned "Indebtedness of Management and
Directors and Transactions with Certain Related Persons" and “Director Independence” in the Proxy Statement and is
incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
The information required by this item is contained under the section captioned "Principal Accountant Fees and Services"
in the Proxy Statement and is incorporated herein by reference.
Item 15. Exhibits and Financial Schedules
1. Financial Statements
PART IV
The following consolidated financial statements and the report of independent registered public accounting firm are filed as
part of this report under Item 8.
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2020 and 2019.
Consolidated Statements of Income for the Years Ended December 31, 2020, 2019 and 2018.
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2020, 2019 and 2018.
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019 and 2018.
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2020, 2019 and 2018.
Notes to Consolidated Financial Statements.
2. Financial statement schedules for which provision is made in the applicable accounting regulations of the SEC are not
required under the related instructions or are inapplicable and therefore have been omitted.
3. The following exhibits are filed with this report or incorporated herein by reference:
Exhibit
Number
2.1
3.1
3.2
4.1
4.2
10.1
10.2
10.3
10.4
10.5
Index to Exhibits
Exhibit Description
Agreement and Plan of Merger, between Guaranty Federal Bancshares, Inc. and Hometown Bancshares, Inc. dated
November 30, 2017 (1)
Restated Certificate of Incorporation of Guaranty Federal Bancshares, Inc. (2)
Bylaws of Guaranty Federal Bancshares, Inc., as amended (3)
Description of the Registrant’s Securities (4)
Form of 5.25% Fixed-to-Float Rate Subordinated Note due 2030 (5)
Guaranty Federal Bancshares, Inc. 2010 Equity Plan *(6)
Guaranty Federal Bancshares, Inc. 2015 Equity Plan *(7)
Employment Agreement dated March 24, 2014 between the Company and Shaun A. Burke * (8)
Employment Agreement dated March 24, 2014 between the Company and Carter M. Peters (9)*
Employment Agreement dated March 24, 2014 between the Company and Robin E. Robeson (10)*
105
FORM 10-K
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
21
23
31.1
31.2
32
101
Employment Agreement dated March 24, 2014 between the Company and Sheri D. Biser (11)*
Amendment to Employment Agreement dated June 1, 2016 between the Company and Shaun A. Burke (12)*
Amendment to Employment Agreement dated June 1, 2016 between the Company and Carter M. Peters (13)*
Amendment to Employment Agreement dated June 1, 2016 between the Company and Robin E. Robeson (14)*
Amendment to Employment Agreement dated June 1, 2016 between the Company and Sheri D. Biser (15)*
Written Description of 2020 Executive Incentive Compensation Annual Plan for Shaun A. Burke (16)*
Written Description of 2020 Executive Incentive Compensation Annual Plan for Carter Peters (17)*
Written Description of 2020 Executive Incentive Compensation Annual Plan for Robin Robeson (18)*
Written Description of 2020 Executive Incentive Compensation Annual Plan for Sheri Biser (19)*
Written Description of 2020 Executive Long-Term Incentive Performance Share/Restricted Stock Unit Award
Agreement Plan for Shaun A. Burke (20)*
Written Description of 2020 Executive Long-Term Incentive Performance Share/Restricted Stock Unit Award
Agreement Plan for Carter Peters (21)*
Written Description of 2020 Executive Long-Term Incentive Performance Share/Restricted Stock Unit Award
Agreement Plan for Robin Robeson (22)*
Written Description of 2020 Executive Long-Term Incentive Performance Share/Restricted Stock Unit Award
Agreement Plan for Sheri Biser (23)*
Employment Agreement dated April 20, 2020 between the Company and Craig E. Dunn (24)*
Written Description of 2020 Executive Incentive Compensation Annual Plan for Craig E. Dunn (25)*
Written Description of 2020 Executive Long-Term Incentive Performance Share/Restricted Stock Unit Award
Agreement Plan for Craig E. Dunn (26)*
Subordinated Note Purchase Agreement, dated July 29, 2020, by and among Guaranty Federal Bancshares, Inc.
and the Purchasers (27)
Subsidiaries of the Registrant†
Consent of BKD, LLP†
Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act†
Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act†
Officer certifications pursuant to 18 U.S.C. Section 1350†
The following materials from Guaranty Federal Bancshares, Inc.’s Annual Report on Form 10-K for the year ended
December 31, 2020 formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Condensed
Consolidated Statements of Financial Condition (unaudited), (ii) Condensed Consolidated Statements of
Operations (unaudited), (iii) Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited),
(iv) Condensed Consolidated Statement of Stockholders’ Equity (unaudited), (v) the Consolidated Statements of
Cash Flows (unaudited), and (vi) related notes.
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
104
* Management contract or compensatory plan or arrangement
† Filed herewith
____________________
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Filed as Exhibit 2.1 to the Current Report on Form 8-K filed by the Registrant on December 1, 2017 and incorporated
herein by reference.
Filed as Exhibit 3(i) to the Annual Report on Form 10-K for the fiscal year ended June 30, 1998 (SEC File No. 0-
23325) and incorporated herein by reference.
Filed as Exhibit 3(ii) to the Annual Report on Form 10-K for the fiscal year ended June 30, 1998 (SEC File No. 0-
23325) and incorporated herein by reference.
Filed as Exhibit 4.1 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and incorporated
herein by reference.
Filed as Exhibit A to Exhibit 10.1 to the Current Report on Form 8-K filed by the Registrant on July 30, 2020 and
incorporated herein by reference.
Filed as Exhibit 99.1 to the Form S-8 Registration Statement filed by the Registrant on October 29, 2010 (SEC File
No. 333-170205) and incorporated herein by reference.
Filed as Exhibit 10.1 to the Current Report on Form 8-K filed by the Registrant on May 28, 2015 and incorporated
herein by reference.
Filed as Exhibit 10.1 to the Current Report on Form 8-K filed by the Registrant on March 26, 2014 and incorporated
herein by reference
106
FORM 10-K
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(24)
(25)
(26)
(27)
Filed as Exhibit 10.2 to the Current Report on Form 8-K filed by the Registrant on March 26, 2014 and incorporated
herein by reference
Filed as Exhibit 10.3 to the Current Report on Form 8-K filed by the Registrant on March 26, 2014 and incorporated
herein by reference
Filed as Exhibit 10.5 to the Current Report on Form 8-K filed by the Registrant on March 26, 2014 and incorporated
herein by reference
Filed as Exhibit 10.1 to the Current Report on Form 8-K filed by the Registrant on June 3, 2016 and incorporated herein
by reference
Filed as Exhibit 10.2 to the Current Report on Form 8-K filed by the Registrant on June 3, 2016 and incorporated herein
by reference
Filed as Exhibit 10.3 to the Current Report on Form 8-K filed by the Registrant on June 3, 2016 and incorporated herein
by reference
Filed as Exhibit 10.4 to the Current Report on Form 8-K filed by the Registrant on June 3, 2016 and incorporated herein
by reference
Filed as Exhibit 10.1 to the Current Report on Form 8-K filed by the Registrant on March 25, 2020 and incorporated
herein by reference
Filed as Exhibit 10.2 to the Current Report on Form 8-K filed by the Registrant on March 25, 2020 and incorporated
herein by reference
Filed as Exhibit 10.3 to the Current Report on Form 8-K filed by the Registrant on March 25, 2020 and incorporated
herein by reference
Filed as Exhibit 10.4 to the Current Report on Form 8-K filed by the Registrant on March 25, 2020 and incorporated
herein by reference
Filed as Exhibit 10.5 to the Current Report on Form 8-K filed by the Registrant on March 25, 2020 and incorporated
herein by reference
Filed as Exhibit 10.6 to the Current Report on Form 8-K filed by the Registrant on March 25, 2020 and incorporated
herein by reference
Filed as Exhibit 10.7 to the Current Report on Form 8-K filed by the Registrant on March 25, 2020 and incorporated
herein by reference
Filed as Exhibit 10.8 to the Current Report on Form 8-K filed by the Registrant on March 25, 2020 and incorporated
herein by reference
Filed as Exhibit 10.1 to the Current Report on Form 8-K filed by the Registrant on April 22, 2020 and incorporated
herein by reference
Filed as Exhibit 10.1 to the Current Report on Form 8-K filed by the Registrant on May 12, 2020 and incorporated
herein by reference
Filed as Exhibit 10.2 to the Current Report on Form 8-K filed by the Registrant on May 12, 2020 and incorporated
herein by reference
Filed as Exhibit 10.1 to the Current Report on Form 8-K filed by the Registrant on July 30, 2020 and incorporated
herein by reference
107
FORM 10-K
Item 16. Form 10-K Summary
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GUARANTY FEDERAL BANCSHARES, INC.
Dated: March 12, 2021
By: /s/ Shaun A. Burke
Shaun A. Burke
President and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
By:
/s/ Shaun A. Burke
Shaun A. Burke
President and Chief Executive Officer
and Director
(Principal Executive Officer)
Date: March 12, 2021
By:
/s/ Carter M. Peters
Carter M. Peters
EVP and Chief Financial Officer
(Principal Accounting and Financial
Officer)
Date: March 12, 2021
By:
/s/ John F. Griesemer
John F. Griesemer
Director
Date: March 12, 2021
By:
/s/ David T. Moore
David T. Moore
Director
Date: March 12, 2021
By:
/s/ Kurt D. Hellweg
Kurt D. Hellweg
Director
Date: March 12, 2021
By:
/s/ Tim Rosenbury
Tim Rosenbury
Director
Date: March 12, 2021
By:
/s/ James R. Batten
James R. Batten
Chairman of the Board and Director
Date: March 12, 2021
By:
/s/ James L. Sivils, III
James L. Sivils, III
Director
Date: March 12, 2021
By:
/s/ Greg A. Horton
Greg A. Horton
Director
Date: March 12, 2021
By:
/s/ Tony Scavuzzo
Tony Scavuzzo
Director
Date: March 12, 2021
108
FORM 10-K
GUARANTY FEDERAL BANCSHARES, INC.
2144 E. Republic Rd. Suite F200
SPRINGFIELD, MO 65804
(417) 520-4333
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on May 26, 2021
Notice is hereby given that an annual meeting of the stockholders (the “Meeting”) of Guaranty Federal Bancshares, Inc.
(the “Company”) will be held at the Guaranty Bank headquarters, 2144 E. Republic Rd., Suite F200, Springfield, Missouri, on May
26, 2021, at 6:00 p.m., local time. Stockholders of record at the close of business on April 5, 2021 are the stockholders entitled to
notice of and to vote at the Meeting. As part of our precautions regarding the coronavirus or COVID-19, we are planning for the
possibility that the Meeting may be held solely by means of remote communication. If we take this step, we will announce the
decision to do so in advance and will provide details on how to participate.
The Meeting is being held for the purpose of considering and acting upon:
1.
2.
3.
4.
The election of three directors.
The advisory (non-binding) vote to approve the Company’s named executive officer compensation.
The ratification of BKD, LLP as independent registered public accounting firm to the Company for the fiscal
year ending December 31, 2021.
Such other matters as may come properly before the Meeting or any adjournments thereof. Except with respect
to procedural matters incident to the conduct of the Meeting, the Board of Directors is not aware of any other
business to come before the Meeting.
Important Notice Regarding the Availability of Proxy Materials for the 2021 Annual Stockholders’ Meeting to be
Held on May 26, 2021. Pursuant to the rules promulgated by the Securities and Exchange Commission, we have elected to provide
access to our proxy materials by notifying you of the availability of our proxy materials on the internet. We encourage you to access
and review all of the important information contained in these proxy materials before voting. If you want to receive a paper or e-
mail copy of these documents, you must request one. There is no charge to you for requesting a copy. Please make your request for
a copy as instructed below on or before May 16, 2021 to facilitate timely delivery. This Notice of Annual Meeting, Proxy
Statement, related materials and our 2020 Annual Report may be accessed at www.gbankmo.com or
www.investorvote.com/GFED.
BY ORDER OF THE BOARD OF DIRECTORS
Springfield, Missouri
April 13, 2021
James Batten
Chairman of the Board
THE BOARD OF DIRECTORS URGES YOU TO VOTE YOUR PROXY AS PROVIDED IN THE PROXY MATERIALS
AS SOON AS POSSIBLE, EVEN IF YOU CURRENTLY PLAN TO ATTEND THE ANNUAL MEETING. AS
DESCRIBED HEREIN, YOU MAY VOTE ONLINE, USE THE TOLL-FREE TELEPHONE NUMBER, OR, IF YOU
WISH TO VOTE BY PROXY CARD, REQUEST A PAPER COPY OF THE MATERIALS, THEN SIGN AND RETURN
THE PROXY CARD IN THE POSTAGE PREPAID ENVELOPE IN WHICH THE PROXY CARD WILL BE MAILED
TO YOU. THIS WILL NOT PREVENT YOU FROM VOTING IN PERSON AT THE ANNUAL MEETING IF YOU
DESIRE, AND YOU MAY REVOKE YOUR PROXY AS DESCRIBED HEREIN AT ANY TIME PRIOR TO THE VOTE
AT THE ANNUAL MEETING. IF YOU ARE A STOCKHOLDER WHOSE SHARES ARE NOT REGISTERED IN
YOUR OWN NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM YOUR RECORD HOLDER TO
VOTE PERSONALLY AT THE MEETING.
PROXY STATEMENT
This page intentionally left blank
PROXY STATEMENT 2144 E. Republic Rd. Ste F200 ▪ Springfield, MO 65804
417-520-4333 ▪ www.gbankmo.com
April 13, 2021
Dear Fellow Stockholder:
On behalf of the Board of Directors and management of Guaranty Federal Bancshares, Inc., I cordially invite you to
attend the 2021 Annual Meeting of Stockholders to be held at the Guaranty Bank headquarters, 2144 E. Republic Rd., Suite
F200, Springfield, Missouri, on Wednesday, May 26, 2021 at 6:00 p.m., local time. The Notice of Annual Meeting of
Stockholders and Proxy Statement describe the formal business to be transacted at the meeting. Following the formal meeting,
I will report on the operations of the Company. Directors and officers of the Company, as well as representatives of BKD,
LLP, our independent registered public accounting firm, will be present to respond to any questions that stockholders may
have. As part of our precautions regarding the coronavirus or COVID-19, we are planning for the possibility that the annual
meeting may be held solely by means of remote communication. If we take this step, we will announce the decision to do so
in advance and will provide details on how to participate.
Whether or not you plan to attend the meeting, please vote online or via the toll-free telephone number, as provided
in the proxy materials, or request a paper copy of the proxy materials to receive a proxy card as soon as possible to vote, sign
and return in the postage prepaid envelope in which the proxy card will be mailed to you. This will not prevent you from
voting in person at the meeting but will assure that your vote is counted if you are unable to attend the meeting.
Respectfully,
Shaun A. Burke
President and CEO
PROXY STATEMENT
This page intentionally left blank
PROXY STATEMENT GUARANTY FEDERAL BANCSHARES, INC.
2144 E. REPUBLIC RD. SUITE F200
SPRINGFIELD, MISSOURI 65804
PROXY STATEMENT
This Proxy Statement has been prepared in connection with the solicitation of proxies by the Board of Directors of
Guaranty Federal Bancshares, Inc. (the “Company”) for use at the annual meeting of stockholders to be held on May 26,
2021 (the “Annual Meeting”), and at any adjournment(s) thereof. The Annual Meeting will be held at 6:00 p.m., local time,
at the Guaranty Bank headquarters, 2144 E. Republic Rd, Suite F200, Springfield, Missouri. As part of our precautions
regarding the coronavirus or COVID-19, we are planning for the possibility that the Annual Meeting may be held solely by
means of remote communication. If we take this step, we will announce the decision to do so in advance and will provide
details on how to participate. This Proxy Statement will first be made available to stockholders on April 13, 2021.
RECORD DATE--VOTING--VOTE REQUIRED FOR APPROVAL
All persons who were holders of record of the common stock, par value $0.10 per share (“Common Stock”) of the
Company at the close of business on April 5, 2021 (the “Record Date”) will be entitled to notice of and to cast votes at the
Annual Meeting. Article XIII of the Company’s Restated Certificate of Incorporation provides that the number of shares of
Common Stock that may be voted by a record holder who beneficially owns Common Stock in excess of 10% of the
outstanding shares of Common Stock as of the Record Date (the “Limit”), will be determined pursuant to a formula set forth
in Article XIII. However, if the Company’s Board of Directors (the “Board of Directors” or the “Board”) approved the
acquisition of the shares of Common Stock that resulted in the record owner beneficially owning more than 10% of the
outstanding Common Stock, Article XIII is not applicable. Further, this restriction does not apply to employee benefit plans
of the Company.
Voting may be by proxy or in person. As of the Record Date, the Company had 4,385,031 shares of Common Stock
issued and outstanding. Holders of a majority of the outstanding shares of Common Stock entitled to vote (after giving effect,
if required, to Article XIII) will constitute a quorum for purposes of transacting business at the Annual Meeting.
Stockholders are urged to vote in one of the following manners: (i) via the Internet at www.investorvote.com/GFED;
(ii) by telephone at 1-800-652-VOTE (8683); or (iii), for stockholders who request a paper copy, by indicating their vote in
the appropriate spaces on the proxy card. Each proxy solicited hereby, if properly submitted or executed, duly received by
the Board of Directors and not revoked prior to the Annual Meeting, will be voted at the Annual Meeting in accordance with
the stockholder’s instructions indicated thereon. Where no instructions are indicated, proxies will be voted by those named
in the proxies FOR the approval of the specific proposals presented in this Proxy Statement and on the proxy card and in the
discretion of those named in the proxies upon any other business that may properly come before the Annual Meeting or any
adjournment thereof. Each stockholder shall have one vote for each share of Common Stock owned. No appraisal or
dissenters’ rights exist for any action to be taken at the Annual Meeting.
A stockholder giving a proxy has the power to revoke the proxy at any time before it is exercised by submitting a
valid, later-dated proxy card/voting instruction form, submitting a valid, subsequent vote by telephone or the internet, filing
with the Secretary of the Company written instructions revoking the proxy or completing a written ballot at the Annual
Meeting. If your shares are held in a brokerage account in your broker or nominee’s name, you should follow the instructions
for changing or revoking your vote provided by your broker or nominee.
1
PROXY STATEMENT
To the extent necessary to assure sufficient representation at the Annual Meeting, proxies may be solicited by
officers, directors and regular employees of the Company personally, by telephone, by internet or by further correspondence.
Officers, directors and regular employees of the Company will not be compensated for their solicitation efforts. The cost of
soliciting proxies from stockholders will be borne by the Company. The Company will also reimburse brokerage firms and
other custodians, nominees and fiduciaries for reasonable expenses incurred by them in sending proxy materials to the
beneficial owners of Common Stock.
Regardless of the number of shares of the Company’s Common Stock owned, it is important that stockholders be
represented by proxy or be present in person at the Annual Meeting. In order for any proposals considered at the Annual
Meeting to be approved by the Company’s stockholders, a quorum must be present. Stockholders are requested to vote by
visiting the internet at www.investorvote.com/GFED, calling 1-800-652-VOTE (8683) or by requesting a paper proxy card
and returning it signed and dated in the enclosed postage-paid envelope.
Only holders of record of the Common Stock on the Record Date are entitled to vote at the Annual Meeting. An
abstention occurs when a holder of record of Common Stock who has the right to vote such shares on a particular matter does
not vote such shares on that matter. Brokers who are record holders of Common Stock are entitled to vote the shares they
hold for their customers in “street name” only on routine matters when their customers (i.e. the “beneficial owners”) do not
instruct the brokers how to vote their shares on that routine matter. Only Proposal Three, the ratification of BKD, LLP as the
Company’s independent registered public accounting firm, is deemed to be a routine matter. Therefore, brokers will be
entitled to vote shares of Common Stock they hold in street name for their customers in the absence of instructions on how
to vote by the beneficial owners only on Proposal Three. Proposals One and Two are not deemed to be routine matters and,
as such, brokers are not entitled to vote shares of Common Stock they hold in street name on Proposals One and Two in the
absence of instructions from the beneficial owners on how to vote their shares. These are referred to as “broker non-votes”.
Proposal 1 is the election of nominees for positions as directors of the Company. Directors are elected by a plurality
of the votes cast, meaning that the three director nominees who receive the highest number of shares voted “for” their election
are elected. Withheld votes will have no effect on the election of the nominees for positions as directors. Because the election
of directors is considered to be a non-routine matter, brokers are not entitled to vote in the election. Accordingly, broker non-
votes will have no effect on the election of the nominees for positions as directors.
Proposal 2 is the advisory (non-binding) vote on named executive officers’ compensation. Approval requires the
affirmative vote of the holders of a majority of the outstanding shares of Common Stock present in person or represented by
proxy and entitled to vote on that matter at the Annual Meeting. This means that of the shares represented at the meeting and
entitled to vote, a majority of them must be voted for Proposal 2 for it to be approved. Abstentions will have the same effect
as a vote “against” Proposal 2. Because Proposal 2 is deemed to be a non-routine matter, brokers are not entitled to vote on
it. Accordingly, broker non-votes will have no effect on the vote for Proposal 2.
Proposal 3 is the ratification of BKD, LLP as the Company’s independent registered public accounting firm for the
Company’s fiscal year ending December 31, 2021. Approval requires the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock present in person or represented by proxy and entitled to vote on that matter at the
Annual Meeting. This means that of the shares represented at the meeting and entitled to vote, a majority of them must be
voted for Proposal 3 for it to be approved. Abstentions will have the same effect as a vote “against” Proposal 3. Because
ratification of accountants is deemed to be a routine matter permitting brokers to vote even in the absence of instructions from
the beneficial owner, there will not be broker non-votes with respect to Proposal 3.
Article XIII of the Company’s Restated Certificate of Incorporation restricts the voting of all shares of Common
Stock beneficially owned by record holders who beneficially own in excess of the Limit unless the Board approved the
acquisition of the shares that resulted in the record owner beneficially owning more than the Limit.
2
PROXY STATEMENT
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Persons and groups owning in excess of 5% of the Common Stock are required to file certain reports regarding such
ownership pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Article XIII of the Restated
Certificate of Incorporation of the Company restricts the voting of all shares of Common Stock beneficially owned by record
holders who beneficially own in excess of 10% of the outstanding shares of Common Stock unless the Board approved the
acquisition of the shares that resulted in the record owner beneficially owning more than the Limit. This restriction does not
apply to employee benefit plans of the Company. The following table sets forth, as of the Record Date, persons or groups
who are known by the Company to beneficially own more than 5% of the Common Stock.
Name and Address
of Beneficial Owner
Amount and
Nature of
Beneficial
Ownership
Percent of Total
Outstanding
Common Shares
Castle Creek Capital Parners V, LP
6051 El Tordo
Racho Santa Fe, CA 92067 ....................................................................................
918,804(1)
20.95%
FJ Capital Management, LLC
1313 Dolley Madison Blvd, Ste 306
McLean, VA 22101 ................................................................................................
429,959(2)
9.81%
(1)
(2)
Information based solely on a joint Schedule 13D/A filed with the Securities and Exchange Commission (the “SEC”)
on March 6, 2018 by Castle Creek Capital Partners V, LP (“Fund V”), Castle Creek Capital V LLC (“CCC V”),
John M. Eggemeyer III, Mark G. Merlo, John T. Pietrzak and J. Mikesell Thomas as the “Reporting Persons.” Each
of the Reporting Persons may be deemed to be the beneficial owner of the 918,804 shares of Common Stock held
directly by Fund V. CCC V is the sole general partner of Fund V. Mr. Eggemeyer, Mr. Merlo, Mr. Pietrzak, and Mr.
Thomas share voting and dispositive power over the 918,804 shares beneficially owned by Fund V, due to the fact
that each is a managing principal of CCC V. CCC V, Mr. Eggemeyer, Mr. Merlo, Mr. Pietrzak, and Mr. Thomas
each disclaim beneficial ownership of the Common Stock, except to the extent of their respective pecuniary interest
in Fund V. The record holder of the shares of Common Stock beneficially owned by Fund V may vote all 918,804
shares of Common Stock beneficially owned by it, without restrictions on voting imposed by Article XIII of the
Company’s Restated Certificate of Incorporation, because the Board of Directors approved the acquisition of the
shares of Common Stock that exceed the Limit.
Information based solely on a joint Schedule 13G/A filed with the SEC on February 13, 2020 by FJ Capital
Management LLC (“FJ Capital”), Financial Opportunity Fund LLC (“Financial Opportunity”), Financial Hybrid
Opportunity Fund SPV I LLC (“Financial Hybrid Opportunity”), Martin Friedman(“Mr. Friedman”), Bridge
Equities III, LLC (“Bridge III”), Bridge Equities VIII, LLC (“Bridge VIII”), Bridge Equities IX, LLC (“Bridge IX”),
Bridge Equities X, LLC (“Bridge X”), Bridge Equities XI, LLC (“Bridge XI”), SunBridge Manager, LLC
(“SunBridge Manager”), SunBridge Holdings, LLC (“SunBridge Holdings”) and Realty Investment Company, Inc.
(“RIC”) as the “Reporting Persons.”
According to such Schedule 13G/A, each Reporting Person beneficially owns an aggregate of the following number
of shares: FJ Capital - 429,959 shares, Financial Opportunity – 119,101 shares, Financial Hybrid Opportunity –
37,136 shares, Mr. Friedman – 429,959 shares, Bridge III – 240,591 shares, Bridge VIII – 2,730 shares, Bridge IX
– 3,178 shares, Bridge X – 2,243 shares, Bridge XI – 8,551 shares, SunBridge Manager – 257,293 shares, SunBridge
Holdings - 257,293 shares, and RIC – 257,293 shares.
According to such Schedule 13G/A, each Reporting Person shares voting power with respect to the following
number of shares: FJ Capital - 429,959 shares, Financial Opportunity – 119,101 shares, Financial Hybrid
Opportunity – 37,136 shares, Mr. Friedman – 429,959 shares, Bridge III – 240,591 shares, Bridge VIII – 2,730
shares, Bridge IX – 3,178 shares, Bridge X – 2,243 shares, Bridge XI – 8,551 shares, SunBridge Manager – 257,293
shares, SunBridge Holdings - 257,293 shares, and RIC – 257,293 shares. According to such Schedule 13G/A, each
Reporting Person shares dispositive power with respect to the following number of shares: FJ Capital – 172,666
shares, Financial Opportunity – 119,101 shares, Financial Hybrid Opportunity – 37,136 shares, Mr. Friedman –
172,666 shares, Bridge III – 240,591 shares, Bridge VIII – 2,730 shares, Bridge IX – 3,178 shares, Bridge X – 2,243
shares, Bridge XI – 8,551 shares, SunBridge Manager – 257,293 shares, SunBridge Holdings - 257,293 shares, and
RIC – 257,293 shares. According to such Schedule 13G/A, no Reporting Person has sole voting or dispositive power
with respect to any of the shares.
3
PROXY STATEMENT
The following table sets forth certain information as of the Record Date, with respect to the shares of Common Stock
beneficially owned by each of the directors, nominees for director and Named Executive Officers (as defined below in the
section titled “Summary Compensation Table”) of the Company, and the total shares beneficially owned by directors and
executive officers as a group. The Company’s policy is for each director with five years or more of experience on the Board
to own a minimum of 2,500 shares, exclusive of stock grants and non-exercised stock options. Directors with less than five
years of experience on the Board are required to own a minimum of 500 shares for each full year of service on the Board, up
to 2,500 shares. Less than 1% stock ownership is shown below with an asterisk (*).
Name of Beneficial Owner
Shaun A. Burke ...........................................................................
Kurt Hellweg ...............................................................................
Tim Rosenbury ............................................................................
Jamie Sivils, III ...........................................................................
James Batten ...............................................................................
John Griesemer ...........................................................................
David Moore ...............................................................................
Greg Horton ................................................................................
Tony Scavuzzo ............................................................................
Carter Peters ................................................................................
Sheri Biser ...................................................................................
Robin Robeson ............................................................................
Craig Dunn ..................................................................................
Total owned by all directors and executive officers as a group
Amount and Nature of
Beneficial
Ownership (1)
Percent of Total
Outstanding
Common Shares
1.5%
2.3%
*
*
*
3.0%
*
*
21.0%
*
*
*
*
66,996
99,854
25,566
27,408
26,363
131,189
7,617
6,233
918,804 (2)
34,325
20,874
17,291
1,500
(Thirteen persons) ....................................................................
1,384,020
31.6%
(1) Amounts may include shares held directly, as well as shares held jointly with family members, in retirement accounts,
in a fiduciary capacity, by certain family members, by certain related entities or by trusts of which the directors and
executive officers are trustees or substantial beneficiaries, with respect to which shares the respective director or
executive officer may be deemed to have sole or shared voting and/or investment powers. Due to the rules for
determining beneficial ownership, the same securities may be attributed as being beneficially owned by more than one
person. The holders may disclaim beneficial ownership of the included shares which are owned by or with family
members, trusts or other entities.
(2) Includes 918,804 shares held by Castle Creek Capital Partners V, LP. Mr. Scavuzzo is a Principal at Castle Creek and
Disclaims beneficial ownership.
4
PROXY STATEMENT
PROPOSAL 1: ELECTION OF DIRECTORS
The number of directors constituting the Board will be nine. The Board is divided into three classes. The term of
office of one class of directors expires each year in rotation so that the class up for election at each annual meeting of
stockholders has served for a three-year term. The terms of three of the present directors (Messrs. Burke, Hellweg and Batten)
are expiring at the Annual Meeting.
Messrs. Burke, Hellweg and Batten have been nominated, upon the recommendation of the Nominating Committee
of the Board, by the Board and, upon election at the Annual Meeting, will hold office for a three-year term expiring in 2024
or until their successors are elected and qualified. Each nominee has indicated that he is willing and able to serve as a director
if elected and has consented to being named as a nominee in this Proxy Statement.
Unless otherwise specified on the proxies received by the Company, it is intended that each properly executed or
submitted proxy received in response to this solicitation will be voted in favor of the election of each person named in the
following table to be a director of the Company for the term as indicated, or until his successor is elected and qualified. There
are no arrangements or understandings between the nominees or directors and any other person pursuant to which any such
person was or is selected as a director or nominee.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT YOU VOTE FOR THE FOLLOWING NOMINEES FOR THREE-YEAR TERMS EXPIRING 2024
Name
Age (1)
Director Since
Shaun Burke
Kurt Hellweg
James R Batten, Chairman
57
63
58
2004
2000
2006
Current Term
Expires
2021
2021
2021
In addition to the three nominees proposed to serve on the Board as described above, the following individuals are
also directors of the Company, each serving for the current term indicated.
Directors Who Are Not Nominees
Who Will Continue in Office After the Annual Meeting
Name
Greg A. Horton
Tim Rosenbury
Tony Scavuzzo
David T. Moore
James L. Sivils
John F. Griesemer
(1) As of the Record Date
Age (1)
61
64
39
49
56
53
Director Since
2016
2002
2018
2014
2002
2008
Current Term
Expires
2022
2022
2022
2023
2023
2023
5
PROXY STATEMENT
Biographical Information
Set forth below are brief summaries of the background and business experience, including principal occupation, of
each nominee and director currently serving on the Board.
James R. Batten, CPA, was Chief Financial Officer of International Dehydrated Foods (“IDF”), a privately-held
manufacturer of ingredients for the food industry, from September 2016 through January 2020. Prior to joining IDF, Mr.
Batten served as a management consultant serving businesses and non-profit organizations from March 2014 through August
2016. Mr. Batten was the Executive Vice President of Convoy of Hope, an international nonprofit relief organization from
April 2009 through February 2014. Mr. Batten served as Chief Operations Officer and Executive Vice President of AG
Financial Solutions from September 2007 through March 2009. Mr. Batten served as the Executive Vice President of
Finance, Chief Financial Officer and Treasurer of O’Reilly Automotive, Inc. (NASDAQ: ORLY) from January 1993 through
March 2007. Prior to joining O’Reilly, Mr. Batten was employed by the accounting firms of Whitlock, Selim & Keehn, from
1986 to 1993 and Deloitte, Haskins & Sells from 1984 until 1986. Mr. Batten is a member of the Board of AG Financial
Solutions, Foundation Capital Resources, and Gilsbar, LLC and Treasurer of Hope Church. Mr. Batten is a former member
of the NASDAQ Issuer Affairs Committee. He has also served on a number of other professional and civic boards including
the Springfield Area Chamber of Commerce, Big Brothers Big Sisters of the Ozarks and New Covenant Academy. Mr.
Batten’s extensive experience in public accounting and long tenure with a publicly-traded company, along with strong
community service makes him a valuable member of the Board.
John F. Griesemer has been President and Chief Executive Officer of Erlen Group since 2017 and a member of the
Board of Directors of the Erlen Group since 1993. The Erlen Group is a privately-held family of industrial companies,
including Springfield Underground, Westside Stone, and Joplin Stone. Mr. Griesemer holds a B.S. degree in Industrial
Management and Engineering from Purdue University. He is the past Chairman and current member of the Board of Mercy
Springfield Communities, member of the Springfield Catholic Schools Board and a member of the Board of the National
Stone Sand and Gravel Association. He is a past Member of the Board of the Missouri Limestone Producers Association,
Catholic Campus Ministries, Junior Achievement of the Ozarks and Ozark Technical Community College Foundation. Mr.
Griesemer brings to the Board a strong organizational and leadership background, management experience and deep ties in
the local community.
Kurt D. Hellweg is the Chairman of the Board of IsoNova Technologies, L.L.C. (“IsoNova”), which is a joint
venture with Rembrandt Enterprises, Inc., and past Chairman of the Board of International Dehydrated Foods, Inc. (“IDF”),
American Dehydrated Foods, Inc. (“ADF”) and Food Ingredients Technology Company, L.L.C. (“FITCO”), which is a joint
venture with Mars Petcare. IsoNova, IDF, ADF and FITCO are privately-held companies that manufacture and market
ingredients for both the food and feed industries. Mr. Hellweg joined ADF in 1987 and has previously served as Vice
President of Sales, Senior Vice President of Operations, and President and Chief Operating Officer. Prior to joining ADF,
Mr. Hellweg was an officer in the U.S. Navy from 1980 to 1987. During that time, he served tours as a helicopter pilot in the
Atlantic Fleet and as an instructor pilot. Mr. Hellweg holds a B.S. degree in Engineering from the University of Nebraska.
He is a past Board Member of the Springfield Area Chamber of Commerce, the Springfield Area Arts Council, and the
Springfield Symphony. He is the founding member of the Greater Ozarks Chapter of World Presidents’ Organization
(“WPO”) (where he is still active) and has previously chaired the Greater Ozarks Chapter of the Young Presidents’
Organization. He is a Black Belt in Taekwondo, a member of Mensa, and enjoys competing in ultra-distance bicycling races.
He currently serves on the following Boards in addition to IsoNova: CoxHealth, the Darr Family Foundation and Hammons
Products Company. Mr. Hellweg brings to the Board a strong organizational and leadership background, a long history with
the Company and deep ties in the local community.
Tim Rosenbury, a member of the American Institute of Architects, is the Director of Quality of Place Initiatives
for The City of Springfield, Missouri. In his role he oversees capital investments in infrastructure and facilities, with an
emphasis on design quality and civic engagement. He retired from the practice of architecture on February 29, 2020, after 35
years as a Partner of Butler, Rosenbury & Partners, Inc., an architecture and planning firm in Springfield, Missouri. He
graduated with a B.Arch. from Mississippi State University in 1980, which in 1999 awarded him the designation of Alumni
Fellow, and for which he serves on the professional advisory board of The School of Architecture. He is a member of a
number of professional and civic organizations, many of which he has held leadership positions, including Chairman of the
Springfield Area Chamber of Commerce and President of the Board of Education for Springfield Public Schools. Mr.
Rosenbury brings to the Board strong community leadership and significant experience in general business and real estate
development and management.
6
PROXY STATEMENT
James L. Sivils, III, JD, has been the Chief Executive Officer of Environmental Works, Inc., a privately-held
environmental consulting firm with offices in Springfield, Missouri, Kansas City, Missouri and St. Louis, Missouri, since
2013. Mr. Sivils began his career as a Missouri licensed attorney in 1990. In 1993, Mr. Sivils began developing real estate
and became a licensed Missouri real estate broker. Mr. Sivils has developed numerous commercial and residential projects
in Southwest Missouri. Mr. Sivils holds a J.D. degree from the University of Missouri – Kansas City Law School and a B.A.
degree from the University of Missouri – Columbia. Mr. Sivils is a member and past Chapter Chair of the Ozarks Chapter
of the Young Presidents’ Organization (YPO) and is now a member and Chapter Chair of the Ozarks Chapter of YPO-
Gold. Mr. Sivils’ legal background, knowledge and experience with real estate matters and experience running a company
with over 200 employees make him a valuable resource to the Board.
David T. Moore is President, Chief Executive Officer, and member of the Board of Directors of Paul Mueller
Company. Paul Mueller Company is a publicly-held manufacturer of milk cooling equipment and processing equipment
headquartered in Springfield, Missouri. Mr. Moore has worked at Paul Mueller Company since 2002, serving as the President
since 2011. Additionally, he has been a member of the company’s Board of Directors since 1997. Prior to joining Paul Mueller
Company, Mr. Moore was Vice President of Product Development at Corporate Document Systems, a computer software
company, for six years. Mr. Moore holds an MBA from The University of Chicago - Booth School of Business and a B.A.
from Middlebury College. Mr. Moore is a valuable asset to the Board due to his significant experience in public company
management, corporate governance, business acquisition and integration, and information and technology development. In
addition, Mr. Moore has long-term personal and business ties to the local community.
Greg A. Horton, CPA, is Chief Executive Officer and co-owner of Integrity Home Care & Hospice, a privately-
held multi-line home health care enterprise that has over 2,000 employees and serves over 5,000 clients in Missouri and
Kansas, and co-founder of its affiliate, Integrity Pharmacy. Prior to launching Integrity Home Care & Hospice in 2000, Mr.
Horton was a partner in the accounting firm Whitlock, Selim & Keehn, LLP. He has twenty years of experience in public
accounting with an emphasis in management consulting, information systems, and auditing services. Mr. Horton holds a
Bachelor of Science in Business Administration with an Accounting Specialization from Central Missouri State
University. He is a member of the American Institute of Certified Public Accountants and has been active in board and
volunteer service with the Fellowship of Christian Athletes, Boys & Girls Town of Missouri, Rotary Club of Springfield
Southeast, and the Springfield Area Chamber of Commerce. Greg is a board member of Foundation Capital Resources, Inc.
and Developmental Center of the Ozarks. Mr. Horton’s expertise in large service-based organizations and his background in
public accounting make him a valuable resource to the Board.
Tony Scavuzzo, is a Chartered Financial Analyst and is a Principal at Castle Creek Capital, an alternative asset
management firm, joining the firm in 2009. Mr. Scavuzzo is responsible for the identification and evaluation of investment
opportunities, transaction execution, and portfolio company monitoring. He has led or supported investments in numerous
recapitalizations, distressed, and growth situations and works with executive management teams on strategic planning,
operational improvements, acquisitions, and capital financings. Mr. Scavuzzo currently serves on the boards of directors of
Enterprise Financial Services Corp. (Nasdaq: EFSC) and SouthCrest Financial Group, Inc. (OTC Pink: SGSC). Mr. Scavuzzo
also currently serves on the boards of directors of the following private banking institutions: First Bancshares of Texas, Inc.,
McGregor Bancshares and Lincoln Bancshares Inc. Mr. Scavuzzo previously served on the boards of directors of other public
and privately-owned financial and banking institutions. Most recently, he served as a member of the board of directors of
Trinity Capital Corp (OTC: TRIN) until it was acquired by Enterprise Financial Services Corp in March 2019 and the board
of directors of MBT Financial Corp. (previously Nasdaq: MBFT). Mr. Scavuzzo was formerly Treasurer and member of the
Board of Directors for the CFA Society of San Diego and past Chairman of the Finance Committee for the CFA Society of
Chicago. Mr. Scavuzzo holds an MBA in Finance, Accounting and Entrepreneurship from the University of Chicago Booth
School of Business and a BBA in Finance from the University of Iowa. He is also a CFA Charterholder. Mr. Scavuzzo brings
to the Board his many years of extensive experience with multiple financial institutions.
7
PROXY STATEMENT
Shaun A. Burke joined the Bank in March 2004 as President and Chief Executive Officer and was appointed
President and Chief Executive Officer of the Company in February 2005. He has over 37 years of banking experience. Mr.
Burke received a Bachelor of Science Degree in Finance from Missouri State University and is a graduate of the Graduate
School of Banking of Colorado. Mr. Burke served as Chairman of the Board of the Missouri Bankers Association in 2018
and 2019 and previously served as Chairman of the Legislative Affairs Committee and Chairman of the Audit Committee. In
2019, he was appointed to the Government Relations Council of the American Bankers Association and previously served
on the Community Bankers Council from 2014 to 2017. In March 2016, he was appointed to the Federal Reserve Bank of St.
Louis’ Community Depository Institutions Advisory Council and served a term ending in 2018. From 2012 to 2014, he was
a Board Member of the Springfield Area Chamber of Commerce serving as Vice Chairman of Economic Development in
2014. From 2009 through 2014, he was a Board Member of the Springfield Business Development Corporation, the economic
development subsidiary of the Springfield Area Chamber of Commerce serving as President in 2012. He is also a past
Member of the United Way Allocations and Agency Relations Executive Committee, Salvation Army Board, and Big
Brothers Big Sisters Board. Mr. Burke brings to the Board his many years of banking experience and an extensive knowledge
of the bank and its history.
Director Independence
The Board has determined that all of the directors, except for Mr. Burke who is an executive officer of the Company,
are “independent directors” as that term is defined in Rule 5605(a)(2) of the Marketplace Rules of The NASDAQ Stock
Market (“NASDAQ”). These directors constitute a majority of the Board.
Board Leadership Structure
Throughout its history, the Company has kept the positions of Chairman of the Board and Chief Executive Officer
separate. Mr. Batten has held the position of Chairman of the Board since 2016 and Mr. Burke holds the position of Chief
Executive Officer. Mr. Batten is considered to be “independent” according to NASDAQ listing requirements.
The Board believes that having separate positions and having an independent outside director serve as Chairman is
the appropriate leadership structure for the Company at this time and demonstrates our commitment to good corporate
governance. Separating these positions allows our Chief Executive Officer to focus on our day-to-day business, while
allowing the Chairman to lead the Board in its fundamental role of providing advice to and independent oversight of
management. We believe that having an independent Chairman eliminates the conflicts of interest that may arise when the
positions are held by one person. In addition, this leadership structure allows the Board to more effectively monitor and
evaluate the performance of our Chief Executive Officer.
Board’s Role in Risk Oversight
It is necessary to effectively manage risk when managing and operating any financial institution. We face a number
of risks, including but not limited to, general economic risks, credit risks, regulatory risks, audit risks, information security
and technology risks, reputational risks, business competition, risks of natural disasters and pandemics and other public health
crises. Management is responsible for the day-to-day management of risks the Company faces, while the Board, as a whole
and through its committees, has responsibility for the general oversight of risk management. In its role of risk oversight, the
Board has the responsibility to satisfy itself that the risk management processes and procedures designed and implemented
by management are appropriate and functioning as designed.
While the full Board is charged with ultimate oversight responsibility for risk management, various committees of
the Board and members of management also have specific responsibilities with respect to our risk oversight. Each Board
committee has been assigned oversight responsibility for specific areas of risk and risk management, and each committee
considers risks within its areas of responsibility. Each of these committees receives regular reports from management
regarding our risks and reports regularly to the Board concerning risk.
8
PROXY STATEMENT
We believe that providing for full and open communication between management and the Board is essential for
effective risk management and oversight. Certain senior management personnel, consistent with their specific areas of
responsibility, attend Board meetings and/or Board committee meetings on a regular and consistent basis. We have regular
and ongoing reporting and communication mechanisms in place to ensure that oversight is effective.
Meetings and Committees of the Board of Directors
The business of the Company is conducted at regular and special meetings of the full Board of Directors and its
standing committees. The standing committees consist of the Executive, Audit, Compensation, Nominating, Investment,
Special, Building and Asset/Liability. During the twelve months ended December 31, 2020, the Board held twelve regular
meetings. All directors attended at least 75% of the aggregate of the total number of those meetings and the number of
meetings held by all committees of the Board of Directors on which they served.
Although the Company does not have a formal policy regarding director attendance at the Company’s annual
stockholders’ meeting, all directors are expected to attend these annual meetings absent extenuating circumstances. All
current directors attended the Company’s annual meeting of stockholders held on May 27, 2020 with the exception of Mr.
Scavuzzo.
Stockholder Communications with Directors
Stockholders and other interested persons who wish to communicate with the Board of Directors of the Company,
or any individual director, should send their written correspondence by mail to: Vicki Lindsay, Secretary, Guaranty Federal
Bancshares, Inc., 2144 E. Republic Rd., Ste F200, Springfield, Missouri, 65804.
Audit Committee
The Company has a separately designated Audit Committee established in accordance with Section 3(a)(58)(A) of
the Exchange Act. The Audit Committee of the Board currently consists of four directors: Messrs. Committee Chairman
Moore, Horton, Batten, and Hellweg, each of whom is an “independent director” as defined under the NASDAQ listing
standards and the criteria for independence set forth in Rule 10A-3 of the Exchange Act. The Board has determined that Mr.
Moore qualifies as an Audit Committee Financial Expert, as defined in the rules and regulations of the SEC. This standing
committee, among other things, (i) regularly meets with the internal auditor to review audit programs and the results of audits
of specific areas as well as other regulatory compliance issues, (ii) meets at least annually in executive session with the
Company’s independent auditors to review the results of the annual audit and other related matters, and (iii) meets quarterly
with management and the independent auditors to review the Company’s financial statements and significant findings based
on the independent auditor’s review. The Audit Committee is responsible for hiring, retaining, compensating and terminating
the Company’s independent auditors. The Audit Committee operates under a written charter adopted by the Company’s Board
of Directors. A copy of the Audit Committee Charter can be viewed on our Guaranty Bank website at www.gbankmo.com
by clicking on “Stock Performance” and then “Committee Charting” under “Corporate Information” under “Investor Menu”.
During the twelve months ended December 31, 2020, the Audit Committee met five times.
9
PROXY STATEMENT
Nominating Committee
The Nominating Committee of the Board is to be comprised of three or more directors as appointed by the Board,
each of whom is required to be an “independent director” as defined under the NASDAQ listing standards. Currently, the
Nominating Committee consists of four directors, Messrs. Committee Chairman Sivils, Batten, Moore, and Horton, each of
whom is an “independent director.” During the twelve months ended December 31, 2020, the Nominating Committee met
two times. The Nominating Committee operates under a formal written charter adopted by the Board of Directors. A copy of
the Nominating Committee Charter can be viewed on our Guaranty Bank website at www.gbankmo.com by clicking on
“Stock Performance” and then “Committee Charting” under “Corporate Information” under “Investor Menu”.
The Nominating Committee is responsible for identifying individuals qualified to serve as members of the Board
and recommending to the Board the director nominees for election and appointment to the Board, as well as director nominees
for each of the committees of the Board. In accordance with its charter, the Nominating Committee recommends candidates
(including incumbent nominees) based on the following criteria: business experience, education, integrity and reputation,
independence, conflicts of interest, diversity, age, number of other directorships and commitments (including charitable
obligations), tenure on the Board, attendance at Board and committee meetings, stock ownership, specialized knowledge
(such as an understanding of banking, accounting, marketing, finance, regulation and public policy) and a commitment to the
Company’s communities and shared values, as well as overall experience in the context of the needs of the Board as a whole.
The Nominating Committee monitors the mix of skills and experience of its directors and committee members in order to
assess whether the Board has the appropriate tools to perform its oversight function effectively. The Nominating Committee
does not have a separate diversity policy, but the Nominating Committee does consider the diversity of its directors and
nominees in terms of knowledge, experience, skills, expertise, and other demographics which may contribute to the Board.
With respect to nominating existing directors, the Nominating Committee reviews relevant information available to
it and assesses their continued ability and willingness to serve as a director. The Nominating Committee will also assess such
person’s contribution in light of the mix of skills and experience the Nominating Committee has deemed appropriate for the
Board as a whole. With respect to nominations of new directors, the Nominating Committee will conduct a thorough search
to identify candidates based upon criteria the Nominating Committee deems appropriate and considering the mix of skills
and experience necessary to complement existing members of the Board. The Nominating Committee will then review
selected candidates and make its recommendation to the Board.
Nominations by a stockholder will be considered by the Nominating Committee if such nomination is written and
delivered or mailed by first class United States mail, postage prepaid, to the Secretary of the Company between 30 and 60
days prior to the meeting at which such nominee may be considered. However, if less than 31 days’ notice of the meeting is
given by the Company to stockholders, written notice of the stockholder nomination must be given to the Secretary of the
Company as provided above no later than the tenth day after notice of the meeting was mailed to stockholders. A nomination
must set forth, with respect to the nominee, (i) name, age, and business address and if known, the residence address, (ii)
principal occupation or employment, (iii) Common Stock beneficially owned, and (iv) other information that would be
required in a proxy statement including such nominee’s written consent to be named in the proxy statement as a nominee and
to serving as a director if elected. The stockholder giving notice must list his or her name and address, as they appear on the
Company’s books, and the amount of Common Stock beneficially owned by him or her. In addition, the stockholder making
such nomination must promptly provide to the Company any other information reasonably requested by the Company.
Nominations from stockholders will be considered and evaluated using the same criteria as all other nominations.
10
PROXY STATEMENT
Compensation Committee
The Board of Directors of the Company and the Board of Directors of the Bank are comprised of the same persons.
The Compensation Committee of the Company’s Board of Directors and of the Bank’s Board of Directors (the
“Compensation Committee”) are comprised of the same persons and consist solely of non-employee directors of the Company
and the Bank, namely Messrs. Committee Chairman Hellweg, Griesemer, Moore, Scavuzzo and Horton. Each of these
committee members is an “independent director” as defined under the NASDAQ listing standards. The Company has no
employees and relies on employees of the Bank for the limited services received by the Company. All compensation paid to
executive officers of the Company is paid by the Bank.
The Compensation Committee, together with the full Board, is responsible for designing the compensation and
benefit plans for all executive officers and directors of the Company and all employees, executive officers and directors of
the Bank, including the Chief Executive Officer, based on its review of performance measures, industry salary surveys and
the recommendations of management concerning compensation. See “Report on Executive Compensation” below. The
Compensation Committee recommends adjustments to the compensation of the Chief Executive Officer and the other Named
Executive Officers of the Company based upon its assessment of individual performance and the Bank’s performance, and
makes other recommendations, when appropriate, to the full Board of Directors. Independent consultants may be engaged
directly by the Compensation Committee to evaluate the Company’s executive compensation. The Compensation Committee,
together with the full Board, determines the compensation of all other officers. The Compensation Committee may delegate
its authority to a subcommittee of the Compensation Committee.
During the twelve months ended December 31, 2020, the Compensation Committee met one time. The
Compensation Committee operates under a formal written charter adopted by the Company’s and the Bank’s boards of
directors. A copy of the Compensation Committee Charter can be viewed on our Guaranty Bank website at
www.gbankmo.com by clicking on “Stock Performance” and then “Committee Charting” under “Corporate Information”
under “Investor Menu”.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended December 31, 2020, the Compensation Committee was comprised of Messrs. Committee
Chairman Hellweg, Griesemer, Moore, Scavuzzo and Horton, each of whom is a non-employee director of the Company and
the Bank. Mr. Burke, the current President and Chief Executive Officer of the Company and the Bank, did not serve as a
member of the Compensation Committee during 2020. No executive officer of the Company served on the compensation
committee or board of directors of any company that employed any member of the Compensation Committee or Board of
Directors.
COMPENSATION DISCUSSION AND ANALYSIS
Overall Compensation Philosophy and Objectives
The Compensation Committee, together with the full Board, has designed the compensation and benefit plans for
all employees, executive officers and directors in order to attract and retain individuals who have the skills, experience and
work ethic to provide a coordinated work force that will effectively and efficiently carry out the policies adopted by the Board
and to manage the Company and the Bank to meet the Company’s mission, goals and objectives.
To determine the compensation of executive officers and directors, the Compensation Committee reviews industry
compensation statistics based on our asset size, makes cost of living adjustments, and establishes salary ranges for each
executive officer and fees for the Board. The Compensation Committee then reviews (i) the financial performance of the
Bank over the most recently completed fiscal year (including Return on Assets, Return on Equity, asset quality, etc.)
compared to results at comparable companies within the industry, and (ii) the responsibilities and performance of each
executive officer and the salary compensation levels of each executive officer compared to like positions at comparable
companies within the industry. The Compensation Committee evaluates all factors subjectively in the sense that they do not
attempt to tie any factors to a specific level of compensation.
11
PROXY STATEMENT
The Compensation Committee offers long-term incentives for executive officers and other management personnel
primarily in the form of restricted stock awards. We believe that our stock award programs are an important component of
compensation to attract and retain talented executives, provide an incentive for long-term corporate performance, and to align
the long-term interests of executives and stockholders.
All executive officers may participate on an equal, non-discriminatory basis with all other employees of the Bank in
the Bank’s contributory 401(k) tax-deferred savings plan, medical insurance plan, long-term disability plan and group life
insurance plan. The Compensation Committee recommends all compensation and benefit plans to the full Board for approval
annually and, where necessary, for the Board to submit to the stockholders for approval.
Executive Compensation Philosophy and Objectives
The Compensation Committee is guided by the following four key principles in determining the compensation of
the Company’s executive officers:
● Competition. Compensation should reflect the competitive marketplace, so the Company can attract, retain and
motivate talented personnel.
● Accountability for Business Performance. Compensation should be tied in part to the Company’s financial
performance, so that executives are held accountable through their compensation for the performance of the
Company.
● Accountability for Individual Performance. Compensation should be tied in part to the individual’s performance to
reflect individual contributions to the Company’s performance.
● Alignment with Stockholder Interests. Compensation should be tied in part to the Company’s stock performance
through long-term incentives such as restricted stock, to align the executive’s interests with those of the Company’s
stockholders.
Consideration of 2020 Say on Pay
At the Company’s 2020 annual meeting of stockholders, 95.50% of voting stockholders approved the non-binding
advisory proposal on the compensation of the Named Executive Officers (or “NEOs”), commonly referred to as a “say-on-
pay” vote.
The Board and the Compensation Committee pay careful attention to communications received from stockholders
regarding executive compensation, including the non-binding advisory vote. The Company carefully considered the result of
the 2020 advisory vote on executive compensation but not for specific 2020 compensation decisions. Based on this
consideration and the other factors described in this Compensation Discussion and Analysis, the Compensation Committee
did not materially alter the policies or structure for the NEOs’ compensation for 2021.
Report on Executive Compensation
The compensation of the Chief Executive Officer (the “CEO”) and other NEOs is recommended by the
Compensation Committee with final approval from the full Board. The CEO is not a member of the Compensation Committee
and does not attend any Compensation Committee meetings unless specifically requested to do so by the Chairman of the
Compensation Committee. The CEO may act as a key discussion partner with the Compensation Committee members to
provide information regarding business context, the market environment and our strategic direction. The CEO also provides
recommendations to the Compensation Committee on individual performance evaluations and compensation for the NEOs,
other than himself. The Compensation Committee strives to provide total compensation that is aligned and competitive with
compensation data, based on a peer group of selected public-traded companies within the banking industry, a similar
geographic location and with comparable financial performance. This information was compiled in 2019 by
ChaseCompGroup, LLC, a compensation consulting group engaged by the Compensation Committee. The peer group
provides a reference point when making pay decisions and benchmarking short-term and long-term incentive plan awards
and mechanics. The compensation packages reflect a range based on this analysis, augmented by the performance of the
individual executive officer and the Company. Grants under the various equity plans described below are intended to provide
long-term incentive to stay with the Company, but should not replace, or override, maintenance of the compensation ranges
established from the peer group.
The Compensation Committee has reviewed all components of the CEO’s and the other NEO’s compensation,
including salary, bonus, accumulated and realized and unrealized stock options and restricted stock awards. Based on this
review, the Committee finds the CEO’s and other NEOs’ total compensation in the aggregate to be reasonable and not
12
PROXY STATEMENT
excessive. It should be noted that when the Compensation Committee considers any component of the CEO’s and other
NEOs’ total compensation, the aggregate amounts and mix of all the components, including accumulated and realized and
unrealized stock options and restricted stock awards, are taken into consideration in the Committee’s decisions.
COMPENSATION COMMITTEE REPORT
The Compensation Committee reviewed and discussed the Compensation Discussion and Analysis included in this
Proxy Statement with management. Based on such review and discussion, the Compensation Committee recommended to
the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement for filing with the
SEC and incorporated by reference in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31,
2020.
MEMBERS OF THE COMPENSATION COMMITTEE
Kurt D. Hellweg, Chairman
David T. Moore
Tony Scavuzzo
John F. Griesemer
Greg A. Horton
Summary Compensation Table
The following table sets forth information with respect to the compensation awarded to, paid to or earned for the
periods indicated by the Chief Executive Officer (“CEO”), the Chief Financial Officer (“CFO”), the Chief Operating Officer
(“COO”), the Chief Credit Officer (“CCO”) and the Chief Commercial Banking Officer (“CCBO”). These executive officers
are collectively referred to as the “Named Executive Officers” or “NEOs”. During the fiscal year ended December 31, 2020,
no other person served as the CEO or CFO of the Company, and no other executive officer received annual compensation
that exceeded $100,000.
Name and
Principal
Position
Year
Salary
(1)
Bonus
(2)
Stock
Awards
(3)
Option
Awards
Non-Equity
Incentive Plan
Compensation
Nonqualified
Deferred
Compensation
All Other
Compensation
Carter Peters
EVP/CFO
Shaun A. Burke 2020 $ 326,655 $ 81,932 $ 63,995 $
-
President/CEO 2019 320,300
-
54,621 35,551
-
63,510
-
72,188
59,563 38,769
-
69,257
78,719
-
49,689 32,349
-
57,225
62,907
-
56,250 36,613
95,266
2018 314,167 108,282
2020 217,770
2019 213,500
2018 208,333
Robin Robeson 2020 237,473
2019 232,817
EVP/COO
2018 226,667
2020 197,825
2019 191,333
2018 181,833
2020 157,670
Sheri Biser
EVP/CCO
Craig Dunn
EVP/CCBO
- $
-
-
-
-
-
-
-
-
-
-
-
-
- $
-
-
-
-
-
-
-
-
-
-
-
-
- $
-
-
-
-
-
-
-
-
-
-
-
-
Total
Compensation
485,541
432,543
439,490
322,948
293,623
293,968
344,435
313,274
313,662
287,776
258,728
252,013
258,633
12,959 (4) $
16,977 (4)
17,041 (4)
15,006 (5)
16,613 (5)
13,447 (5)
8,630 (6)
11,200 (6)
8,276 (6)
7,913 (7)
10,170 (7)
7,273 (7)
8,100 (8)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
No director fees were paid to Mr. Burke for any of the years presented. Mr. Dunn was employed by the Company as its Chief Commercial
Banking Officer in April 2020.
Cash bonuses were awarded to NEOs for 2020 in accordance with established annual incentive compensation arrangements as described
in more detail below under “Executive Incentive Compensation Annual Plan”.
This column represents compensation related to performance share unit awards granted in accordance with established long-term incentive
performance share arrangements as described in more detail below under “Long-Term Incentive Performance Share Arrangements”.
Amounts represent the aggregate grant date fair value computed in accordance with Accounting Standards Codification Topic 718 (“ASC
Topic 718”). The compensation amount is estimated utilizing the threshold level incentive. The number of shares used and grant price to
each executive was as follows: Mr. Burke: – 4,097 shares at a per share grant price of $15.62; Mr. Peters – 2,276 shares at a per share grant
price of $15.62; Ms. Robeson – 2,482 shares at a per share grant price of $15.62; Ms. Biser – 2,071 shares at a per share grant price of
$15.62; and Mr. Dunn – 2,344 shares at a per share grant price of $14.34. The performance share unit awards will vest on December 31,
2022.
Amount is comprised of payments to Mr. Burke of $7,589, $11,200, and $11,000 in 2020, 2019, and 2018, respectively, for the Company’s
401(k) matching contribution and payments of $5,370, $5,777, and $6,041, respectively, for country club dues.
Amount is comprised of payments to Mr. Peters of $8,711, $8,333 and $7,900 in 2020, 2019, and 2018, respectively, for the Company’s
401(k) matching contribution and payments of $6,295, $5,413, and $5,114, respectively, for country club dues.
Amount is comprised of payments to Ms. Robeson of $8,630, $11,200, and $8,276 in 2020, 2019, and 2018, respectively, for the Company’s
401(k) matching contribution.
Amount is comprised of payments to Ms. Biser of $7,913, $10,170, and $7,273 in 2020, 2019, and 2018, respectively, for the Company’s
401(k) matching contribution.
Amount is comprised of payments to Mr. Dunn of $4,500 in 2020 for the Company’s 401(k) matching contributions and payments of
$3,600 for county club dues
13
PROXY STATEMENT
Employment Agreements, Potential Payments Upon Termination or Change-in-Control
In March 2014, the Company entered into employment agreements with the NEOs then in office, namely Mr. Burke,
Mr. Peters, Ms. Robeson and Ms. Biser, and were amended in June 2016. In April 2020, the Company entered into an
employment agreement with Mr. Dunn. Each employment agreement has a term of one year, which automatically renews
each year unless terminated, or unless earlier terminated pursuant to its terms, and sets forth a minimum base salary payable
to the officer and provides that the officer is eligible to participate in the Company’s bonus, incentive, retirement, health and
other insurance benefit plans made available to executive-level employees.
Each employment agreement obligates the Company to pay the officer severance in the event the officer’s
employment is terminated by the Company without cause. In the event of the officer’s involuntary termination without cause
prior to a change in control of the Company (as defined in the employment agreement), each officer other than Mr. Burke
would receive 6 months base pay. Mr. Burke would receive 12 months base pay. Such severance would be made in periodic
installments and is conditioned upon the officer executing a release and waiver of claims in favor of the Company.
In the event of involuntary termination without cause within 12 months after a change in control of the Company,
each officer other than Mr. Burke would receive 24 months base pay. Mr. Burke would receive 36 months base pay. Such
severance would be made in a single lump sum and is conditioned upon the officer executing a release and waiver of claims
in favor of the Company.
As a condition of entering into the employment agreement, each officer has agreed not to divulge any confidential
information during his or her employment or to solicit the Company’s employees or customers for a period of 12 months (24
months in the case of Mr. Burke) following the officer’s termination of employment.
Executive Incentive Compensation Annual Plan
On March 24, 2020, the Company entered into incentive compensation arrangements for Mr. Burke, Mr. Peters, Ms.
Robeson, and Ms. Biser and, on May 11, 2020, for Mr. Dunn with respect to bonuses payable in 2021 for the calendar year
2020. Pursuant to these plans, a maximum amount of 50% of base pay may be paid to each of them, 100% of which bonus
amount will be paid in cash. There are three possible levels of incentive awards: threshold (25%); target (50%); and maximum
(100%). For any bonus amount to be paid, the threshold level of performance must be achieved. The three performance
measurements of the Company (and the weight given to each measurement) applicable to each award level are as follows: (i)
return on average assets (50%); (ii) net interest margin (25%); and (iii) efficiency ratio (25%). Certain criteria, however, must
be satisfied before an award is paid under these plans. The Board may adjust the incentive based on achievement of the above
measurements and other criteria and other pertinent factors including, but not limited to, the executive’s contribution to the
Bank’s goals and objective, attitude, teamwork, initiative, interpersonal relationships and adherence to policies. The Board
will also consider the executive’s overall compensation relevant to peer group.
In February 2021, the Board upon recommendation of the Compensation Committee approved the grant of bonuses
for 2020 to each of the NEOs as set forth in “Bonus” column for 2020 in the Summary Compensation Table above and such
bonuses were paid in cash.
Long-Term Incentive Performance Share Arrangements
On March 19, 2020, the Company entered into long-term incentive performance share arrangements for Mr. Burke,
Mr. Peters, Ms. Robeson, and Ms. Biser and, on May 11, 2020, for Mr. Dunn. As used herein, “Grant Date” shall mean May
11, 2020 for Mr. Dunn and March 19, 2020 for the other NEOs. The performance period under the plans began May 11, 2020
for Mr. Dunn and March 19, 2020 for the other NEOs and ends December 31, 2022 (the “Performance Period”). One hundred
percent (100%) of the incentive amount is granted in performance units (the “Units”), representing the right to receive, on a
one-for-one basis, shares of the Company’s Common Stock to the extent earned. The plan is to pay a maximum number of
shares of which there are three possible levels of incentive awards: threshold (25%); target (50%); and maximum (100%).
For any bonus amount to be paid, the threshold level of performance must have been achieved. The bonus amount is to be
prorated for performance achievements between the threshold and target levels and between the target and maximum levels.
The two performance measurements of the Company (and the weight given to each measurement) applicable to each award
level are as follows: (i) Return on Average Assets (50%) and (ii) Earnings Per Share (50%). There are also other minimum
criteria that must all have been satisfied before an award is to be paid under the plan. These plans are to pay a maximum
number of shares per individual as follows: Mr. Burke – 16,386 shares; Mr. Peters – 9,104 shares; Ms. Robeson – 9,927
shares; Ms. Biser – 8,283 shares; and Mr. Dunn – 9,375 shares.
14
PROXY STATEMENT
Outstanding Equity Awards at Fiscal Year End 2020
The following table summarized the option and stock awards the Company has made to the NEOs which were
outstanding as of December 31, 2020.
OPTION AWARDS
STOCK AWARDS
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
-
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
-
-
-
-
-
-
-
-
-
Name and
Principal
Position
Shaun A. Burke
President/CEO
Carter Peters
EVP/CFO
Sheri Biser
EVP/CCO
Robin Robeson
EVP/COO
Craig Dunn
EVP/CCBO
Equity Incentive
Plan
Awards:Number
of Securities
Underlying
Unexercised
Unearned Options
(#)
Equity
Incentive Plan
Awards:Number
of Unearned
Shares, Units or
Other Rights
That Have Not
Vested (#)
Equity
Incentive Plan
Awards:Market
or Payout Value
Unearned of
Shares, Units or
Other Rights
That Have Not
Vested ($)(6)
Option
Exercise
Price
Option
Expiration
Date
- $
-
-
-
-
-
-
-
-
-
-
-
-
-
-
16,386(1) $
286,100
9,104(2) $
158,956
8,283(3) $
144,621
9,927(4) $
173,325
9,375(5) $
163,688
(1)
(2)
(3)
(4)
(5)
(6)
Restricted stock awards vest as follows: 16,386 – 12/31/22
Restricted stock awards vest as follows: 9,104 – 12/31/22
Restricted stock awards vest as follows: 8,283 – 12/31/22
Restricted stock awards vest as follows: 9,927 – 12/31/22
Restricted stock awards vest as follows: 9,375 – 12/31/22
Represents aggregate unvested stock awards at a per share price of $17.46, the closing price of the Company’s Common Stock
on December 31, 2020.
Directors’ Compensation
During 2020, each non-employee member of the Board received cash compensation from the Bank of $830 per each
Bank board meeting attended, payable monthly. In addition to the cash compensation, each non-employee member of the
Board receives equity compensation from the Company. Directors receive fees for committee memberships or attendance at
committee meetings comprised of $200 per meeting for the Executive, Audit and Compensation Committees and $125 per
meeting for any other committee. Asset/Liability Committee members receive a $200 monthly fee. The Chairman of the
Board receives an additional $500 monthly fee in addition to the regular per meeting fee. The Chairman of the Audit
Committee receives an additional $417 monthly fee in addition to the regular per meeting fee. Building and Compensation
Committees Chairman receives an additional $170 monthly fee in addition to the regular per meeting fee.
Directors may participate in the Company’s 2015 Equity Plan. During fiscal years 2020, 2019, and 2018, restricted
stock awards of 797 shares, 786 shares, and 836 shares, respectively, were granted to each independent, non-employee
director (except Mr. Scavuzzo) to provide equity compensation from the Company. Annual equity compensation is
determined at the discretion of the Compensation Committee.
15
PROXY STATEMENT
The following table sets forth information with respect to the compensation received in fiscal years 2020, 2019, and
2018 for serving as a non-employee director of the Company and the Bank.
Name
James Batten
Kurt Hellweg
Tim Rosenbury
James Sivils
John Griesemer
David Moore
Greg Horton
Tony Scavuzzo
Fees Earned
or Paid in
Cash ($)
Stock
Awards
($)(1)
Total
Compensa-
tion ($)
15,350
14,215
14,060
13,795
11,030
13,215
12,920
12,340
13,500
10,880
11,005
12,210
11,695
14,435
13,685
15,184
15,798
13,250
11,210
11,410
10,960
12,560
11,150
5,980
18,730
18,746
18,735
18,730
18,746
18,735
18,730
18,746
18,735
18,730
18,746
18,735
18,730
18,746
18,735
18,730
18,746
18,735
18,730
18,746
18,735
-
-
-
34,080
32,961
32,795
32,525
29,776
31,950
31,650
31,086
32,235
29,610
29,751
30,945
30,425
33,181
32,420
33,914
34,544
31,985
29,940
30,156
29,695
12,560
11,150
5,980
Year
2020
2019
2018
2020
2019
2018
2020
2019
2018
2020
2019
2018
2020
2019
2018
2020
2019
2018
2020
2019
2018
2020
2019
2018
(1) This column represents equity compensation from the Company and is the aggregate grant date fair value of restricted
stock awards granted under the 2015 Equity Plan. The compensation for 2020 per director of $18,730 represents 797
shares granted at a per share price of $23.50. The compensation for 2019 per director of $18,746 represents 786 shares
granted at a per price share of $23.85. The compensation for 2018 per director of $18,735 represents 836 shares
granted at a per price share of $22.41.
Indebtedness of Management and Directors and Transactions with Certain Related Persons
Loans made to a director or executive officer in excess of the greater of $25,000 or 5% of the Company’s capital
and surplus (up to a maximum of $500,000) must be approved in advance by a majority of the disinterested members of the
Board of Directors. The Bank, like other financial institutions, provides loans to its officers, directors, and employees to
purchase or refinance personal residences as well as consumer loans. As an additional benefit to eligible Bank directors and
employees, the Bank offers an employee mortgage loan program (the “Loan Program”). The Loan Program provides
mortgage loans at favorable interest rates, namely a one-year adjustable- rate mortgage priced at the Bank’s cost of funds
with a 1% floor. The purpose of the loan must be to purchase or refinance a primary or secondary residence (i.e., no investment
properties). All full-time employees that have completed the 30-day probation period are eligible to participate in this Loan
Program. Underwriting includes standard application and financial disclosures, which must qualify to standard secondary
market requirements. The borrower is responsible for all third-party closing costs. The index rate is the Bank’s all-in cost of
funds with a 1% floor. The index will be the last month-end calculation within 45 days prior to closing. The maximum
adjustment per year is 2% with a 6% lifetime maximum. Each loan has up to a 30-year note/amortization. If the borrower’s
employment is terminated for reasons other than normal retirement, disability or death, or if the property securing the
promissory note evidencing each eligible participant’s loan (the “Note”) ceases to be the primary or secondary residence of
the employee, the interest rate will adjust to the rate that would have been in effect pursuant to the original provision of the
Note. The payment will adjust the following month to amortize the outstanding balance of the Note using the new interest
rate and the remaining term. Other than the interest rate with respect to the Loan Program, all loans provided under the Loan
Program and any other loans provided to directors and executive officers have been made in the ordinary course of business,
on substantially the same terms and collateral as those of comparable transactions prevailing at the time, and, in the opinion
16
PROXY STATEMENT
of management of the Company, do not involve more than the normal risk of collectability or present other unfavorable
features.
No directors, executive officers or their affiliates had aggregate indebtedness to the Company or the Bank on below
market rate loans exceeding the lesser of (i) $120,000 or (ii) one percent of the average of the Company’s total assets at year-
end for the last two completed fiscal years, at any time since January 1, 2020 except as noted in the following table.
Largest
Principal
Amount
Outstanding
Since
01/01/20
Date of Loan
Principal
Balance as of
12/31/20
Interest
Rate at
12/31/20
Type
1/14/2011
$
212,215 $
-
N/A
Home Mortgage
8/25/2020
7/18/2016
9/22/2020
10/27/2008
6/1/2014
6/13/2017
5/9/2016
9/4/2020
6/28/2018
$
$
$
$
$
$
$
$
$
335,200 $
325,302 $
400,000 $
363,413 $
335,636 $
219,651 $
702,010 $
1,080,000 $
1,081,778 $
332,802
-
396,986
346,242
323,759
212,908
-
1,074,850
1,022,089
1.00%
N/A
1.00%
1.00%
1.00%
1.00%
N/A
1.00%
1.00%
Home Mortgage
Home Mortgage
Home Mortgage
Home Mortgage
Home Mortgage
Home Mortgage
Home Mortgage
Home Mortgage
Home Mortgage
Position
President, CEO
& Director
President, CEO
& Director
EVP, CFO
EVP, CFO
Director
Director
Director
Director
Director
Director
Director
6/19/2008
$
106,376 $
93,161
1.00%
Home Mortgage
Name
The Burke Family
Trust (Shaun A. Burke)
The Burke Family
Trust (Shaun A. Burke)
Carter M. Peters
Carter M. Peters
James R. Batten
James L. Sivils III
James L. Sivils III
John F. Griesemer
John F. Griesemer
Kurt Hellwegg
George Timothy
Rosenbury
Hedging Transactions
Under the Company’s Insider Trading Policy, Directors and Officers are prohibited from engaging in hedging
transactions related to Company stock, such as puts, calls, other derivative transactions, forward sale contracts, swaps, and
other arrangements intended to hedge exposure to Company stock or provide protection against declines in the value of
Company stock.
PROPOSAL 2
ADVISORY (NON-BINDING) VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION
Background of the Proposal
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) and Section
14A of the Exchange Act require that we permit the Company’s stockholders to vote to approve, on an advisory and non-
binding basis, the compensation of Company’s named executive officers as disclosed in this Proxy Statement in accordance
with SEC rules. At our 2020 annual meeting of stockholders, our stockholders approved, on an advisory basis, that an advisory
vote on named executive officer compensation should be held annually. Based on such result, our Board determined that the
advisory vote on our named executive officers’ compensation will be held every year until the next advisory vote on the
frequency of future advisory votes on our named executive officers’ compensation. As a result, the following proposal will
be presented at the Annual Meeting in the form of the following resolution:
17
PROXY STATEMENT
Proposal
RESOLVED, that the stockholders approve the compensation of the Company’s named executive officers, as
disclosed in the Compensation Discussion and Analysis, and the compensation tables (together with the accompanying
narrative disclosure) and related material in the Company’s Proxy Statement for the Annual Meeting.
Effect of Proposal
As provided under the SEC rules, this vote will not be binding on the Company’s Board of Directors or the
Compensation Committee and may not be construed as overruling a decision by the Board or as creating or implying any
additional fiduciary duty of the Board. Further, the vote shall not affect any compensation paid or awarded to any executive.
The Compensation Committee and the Board may, however, take into account the outcome of the vote when considering
future executive compensation arrangements.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
PROPOSAL ON NAMED EXECUTIVE OFFICER COMPENSATION.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board is composed of four directors. The Board has determined that each of these
directors is independent as defined under the NASDAQ listing standards and the criteria for independence set forth in Rule
10A-3 of the Securities Exchange Act of 1934. The Board has also determined that Mr. Moore qualifies as an Audit
Committee Financial Expert as defined by the rules and regulations of the SEC.
The primary duties and responsibilities of the Audit Committee are to (i) monitor the Company’s financial reporting
process and systems of internal control, (ii) monitor the independence and performance of the Company’s independent
registered public accounting firm and internal auditors, and (iii) assure that management, the Board of Directors, the internal
auditors and the independent auditors have the opportunity to communicate with one another.
The Audit Committee has reviewed and discussed the audited consolidated financial statements with management
and with BKD, LLP, the Company’s independent registered public accounting firm and has also discussed with BKP, LLP
matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board (the
“PCAOB”) and the SEC.
The Audit Committee has also received the written disclosures and the letter from BKD, LLP, the Company’s
independent registered public accounting firm, required by the applicable requirements of the PCAOB regarding the
independent accountant’s communications with the Audit Committee concerning independence. The Audit Committee has
discussed with the independent registered public accounting firm that firm’s independence. The Audit Committee has
considered whether the provision of non-audit services is compatible with maintaining the independence of the independent
registered public accounting firm. The Audit Committee has concluded that the independent registered public accounting
firm is independent from the Company.
Based upon the Audit Committee’s discussions and review described above, the Audit Committee recommended to
the Board of Directors that the audited consolidated financial statements be included in the Company’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2020 for filing with the SEC.
18
PROXY STATEMENT
MEMBERS OF THE AUDIT COMMITTEE
David T. Moore, Chairman
Greg A. Horton
Kurt D. Hellweg
James R. Batten
PRINCIPAL ACCOUNTANT FEES AND SERVICES
During the calendar years ended December 31, 2020 and 2019, BKD, LLP, the Company’s independent registered
public accounting firm, provided various audit, audit related and non-audit services, including tax, to the Company. Set forth
below are the aggregate fees billed for these services during these periods and a brief description of such services:
(a) Audit fees: Aggregate fees billed for professional services rendered for the audits of the Company’s annual financial
statements and internal control over financial reporting and reviews of quarterly financial statements were $264,295
for the calendar year ended December 31, 2020 and $281,433 for the calendar year ended December 31, 2019.
(b) Audit-related fees: Aggregate fees billed for assurance and related services rendered and consultation on accounting
matters not otherwise reported in (a) above were $6,795 for the calendar year ended December 31, 2020 and $9,364
for the calendar year ended December 31, 2019.
(c) Tax fees: Aggregate fees billed for professional services rendered related to tax compliance, tax advice and tax
planning were $35,970 for the calendar year ended December 31, 2020 and $46,170 for the calendar year ended
December 31, 2019.
(d) All other fees: Aggregate fees billed for all other professional services, were $2,370 for the calendar year ended
December 31, 2020, and $1,430 for the calendar year ended December 31, 2019.
The Audit Committee pre-approves all audit and permissible non-audit services to be provided by BKD, LLP and
the estimated fees for these services. There are no other specific policies or procedures relating to the pre-approval of services
performed by BKD, LLP. The Audit Committee considered whether the audit and non-audit services rendered by BKD, LLP
were compatible with maintaining BKD, LLP’s independence as auditors of our financial statements.
PROPOSAL 3
RATIFICATION OF BKD, LLP AS
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The independent registered public accounting firm for the period ended December 31, 2020 for the Company and
its subsidiary, the Bank, was BKD, LLP. In accordance with its charter, the Audit Committee has selected and appointed
BKD, LLP to continue as the independent registered public accounting firm of the Company for the fiscal year ending
December 31, 2021. As part of good corporate practice, the Audit Committee and the Company’s Board of Directors are
requesting that its stockholders ratify such appointment. The Audit Committee is not required to take any action as a result
of the outcome of the vote on this proposal. If the stockholders do not ratify the appointment, however, the Audit Committee
may investigate the reasons for stockholder rejection and may consider whether to retain BKD, LLP or to appoint another
independent registered public accounting firm.
A representative of BKD, LLP will be present at the Annual Meeting. The representative will have an opportunity
to make a statement, if so desired, and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS A VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF BKD, LLP AS THE COMPANY’S INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2021.
19
PROXY STATEMENT
MISCELLANEOUS
The Board of Directors is not aware of any business to come before the Annual Meeting other than those matters
described above in this Proxy Statement. However, if any other matters should properly come before the meeting, it is
intended that proxies that are received from stockholders will be voted in respect thereof in the discretion of the persons
named in the accompanying proxy. If the Company does not have notice of a matter on or before May 1, 2021, it is expected
that the persons named in the proxy will exercise discretionary authority when voting on that matter.
It is anticipated that the Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be held
on May 26, 2021 will be mailed on April 13, 2021, to all stockholders of record as of the Record Date. We encourage you to
access and review all of the important information contained in the proxy materials before voting. If you want to receive a
paper or e-mail copy of these documents, you must request one. There is no charge to you for requesting a copy. Please make
your request for a copy as instructed on the Notice by May 16, 2021.
STOCKHOLDER PROPOSALS
In order to be eligible for inclusion in the Company’s proxy materials for next year’s annual meeting of stockholders,
any stockholder proposal to take action at such meeting must be received at the Company’s executive offices at 2144 E.
Republic Rd., Suite F200, Springfield, Missouri 65804, no later than December 14, 2021.
If a stockholder wishes to nominate a director or bring other business before the stockholders at next year’s annual
meeting the Company’s Certificate of Incorporation provides that notice of such stockholder proposal must be received at the
Company’s executive offices between 60 days and 30 days prior to the meeting, or the proposal will not be eligible for
presentation at that meeting. If next year’s annual meeting is held on May 25, 2022, then stockholder proposals would have
to be delivered to the Company between March 26, 2022 and April 25, 2022. However, if less than 31 days’ notice of the
annual meeting is provided by the Company, a stockholder’s proposal would have to be received no later than 10 days after
notice was mailed to the stockholders by the Company for that meeting.
In the event the Company receives notice of a stockholder proposal to take action at next year’s annual meeting of
stockholders that is not submitted for inclusion in the Company’s proxy materials, or is submitted for inclusion but is properly
excluded from the proxy materials, the persons named in the proxy sent by the Company to its stockholders intend to exercise
their discretion to vote on the stockholder proposal if notice of such proposal is received at the Company’s executive offices
between 60 days and 30 days prior to the meeting.
A COPY OF THE COMPANY’S ANNUAL REPORT ON FORM 10-K (INCLUDING THE FINANCIAL
STATEMENTS) FOR THE PERIOD ENDED DECEMBER 31, 2020, AS FILED WITH THE SEC, WILL BE
FURNISHED WITHOUT CHARGE TO STOCKHOLDERS AS OF THE RECORD DATE UPON WRITTEN
REQUEST AS INSTRUCTED ON THE NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR GUARANTY FEDERAL BANCSHARES, INC. THERE IS NO CHARGE FOR REQUESTING A COPY.
Dated: April 13, 2021
20
PROXY STATEMENT
LOCAL ISN’T JUST WHERE WE ARE,
IT’S WHO WE ARE.
OUR COMMUNITY
BANK CULTURE
Choice Employer
• Value employee
contribution and
perspective
• Provide development
to reach full potential
Authentic Culture
and Values
• Foster communication,
collaboration,
accountability, trust
and respect
• Moments of Magic
world-class customer
service
Shared Vision
• Simple, powerful strategic
blueprint for success
Relationship
Banking Focus
• Thriving communities
need community banks
TOTAL ASSETS ($M)
TOTAL 1-YEAR
SHAREHOLDER RETURN
GFED
SNL U.S. Bank
1200.0
1100.0
1000.0
900.0
800.0
700.0
600.0
500.0
400.0
300.0
200.0
100.0
0.0
20.00
19.50
19.00
18.50
18.00
17.50
17.00
16.50
16.00
15.50
15.00
14.50
14.00
13.50
13.00
12.50
12.00
11.50
2014Y 2015Y 2016Y 2017Y 2018Y 2019Y
2020Y
NET INCOME AVAILABLE
TO COMMON
SHAREHOLDERS ($M)
9.4
5.7
5.6
5.2
7.3
6.8
2015Y
2016Y
2017Y
2018Y
2019Y
2020Y
TANGIBLE BOOK VALUE
(TBV) PER SHARE
TBV ($)
TBV / Share ($)
Price / TBV (%)
132
131
134
127
100
93
2014Y 2015Y 2016Y 2017Y 2018Y 2019Y 2020Y
TBV (%)
260.00
240.00
220.00
200.00
180.00
160.00
140.00
120.00
100.00
80.00
60.00
40.00
20.00
0.00
0.00
(5.00)
(10.00)
(15.00)
(20.00)
E
%
N
R
U
T
R
L
A
T
O
T
(25.00)
(30.00)
(35.00)
(40.00)
(45.00)
20.00
15.00
10.00
5.00
0.00
(5.00)
%
N
R
U
T
E
R
A
T
O
L
(10.00)
(15.00)
T
(20.00)
2019Q4
2020Q1
2020Q2
2020Q3 2020Q4
SNL U.S. Bank: Includes all Major Exchange
(NYSE, NYSE MKT, NASDAQ) Banks in
SNL’s coverage universe.
TOTAL 3-YEAR
SHAREHOLDER RETURN
GFED
SNL U.S. Bank
89
2017Y
2018Y
2019Y
2020Y
SNL U.S. Bank: Includes all Major Exchange
(NYSE, NYSE MKT, NASDAQ) Banks in
SNL’s coverage universe.
BANK ON COMMUNITY.
A MESSAGE FROM THE PRESIDENT
DEAR FELLOW SHAREHOLDERS:
For the past several years, we focused our time and attention on addressing the pace of change in our industry and
building the capabilities needed to successfully meet our customers’ expectations and to compete and grow well into
the future. We entered 2020 with momentum and optimism following a year that saw record earnings and the company
surpassing $1 billion in assets. We had all the right elements to succeed including strong leadership, a great team, a
strong culture, loyal customers, and a solid financial foundation.
Starting in the second quarter, a global pandemic quickly turned economic tailwinds into headwinds. “Optimism” turned
to “uncertainty” as gross domestic product collapsed at an historic rate, unemployment rose, consumer spending dropped
significantly, and the industry booked near-record loan-loss provisions. The recovery from this bottom in the second
quarter has been aided in remarkable ways by aggressive monetary and fiscal policy. The Federal Reserve slashed interest
rates to zero and provided extraordinary liquidity into the system by expanding its market operations. Congress passed
the largest stimulus package in our country’s history and with this came the launch of the Small Business Administration’s
Paycheck Protection Program, placing the banking sector on the front lines of the economic recovery.
I am proud of our 240 team members and their response to the pandemic and the related economic situation. We kept
people healthy and safe while managing our business well, and we continued to serve our communities by refinancing
record amounts of mortgages, advanced technological initiatives to assist our team and customers in socially distanced
settings, and we supported our customers and their families by generating hundreds of modifications and SBA Paycheck
Protection Program loans.
Despite the tumultuous impacts of the pandemic, we are well-positioned for success. In an operating environment more
uncertain and challenging than any in recent memory, we increased assets 13% in 2020 supported by our continued
success in growing core deposits. We earned $6.8 million and $1.57 per diluted common share compared to $9.4 million
and $2.11 per share in 2019. The decrease in earnings was mostly due to the $3.6 million in credit reserves we took in
2020, compared to just $200,000 in 2019. Our precautionary loan loss reserve build was in response to the uncertain
economy and potential negative impact on certain borrowers. After meeting the capital and liquidity needs of our clients,
we closed out the year with capital ratios exceeding well-capitalized thresholds, and we increased tangible book value
per share 5.3% during the year to $19.71 at December 31, 2020.
In a year of unprecedented change and challenges our team proved its resilience and determination. I am thankful for
their dedication, our customers for their trust, and you, our shareholders, for your continued support.
Sincerely,
Shaun A. Burke
President & Chief Executive Officer
Guaranty Federal Bancshares, Inc.
COMPANY OVERVIEW
BRANCH MAP
BOARD OF DIRECTORS
Guaranty Federal Bancshares, Inc. and Guaranty Bank
• 16 full-service branches in Southwest Missouri
• 32,000+ MoneyPass ATMs
IOWA
• Loan Production Office in Marshfield, Missouri
ILLINOIS
Guaranty Federal Bancshares, Inc.
2020 ANNUAL REPORT
• Acquired Hometown Bancshares, Inc.
(Carthage/Joplin, Missouri) in Q2 2018
adding $180MM in assets
• Ameriprise Financial Services partnership
launched in 2019
• Experienced Management Team
• 240 Employees
FINANCIAL HIGHLIGHTS:
YEAR ENDED DECEMBER 31, 2020
Balance Sheet (dollars in thousands)
Total Assets
Total Loans
Total Deposits
Total Equity
Profitability
Return on Average Assets
Return on Average Equity
Net Interest Margin
Efficiency Ratio
$ 1,146,253
753,508
938,673
88,968
0.63%
7.85%
3.06%
71.77%
Asset Quality
Nonperforming Assets/Total Assets
1.67%
Capital
Tangible Common Equity Ratio
7.48%
Tangible Book Value per Common Share $19.71
Kansas City
St. Louis
MISSOURI
KANSAS
Joplin
Springfield
OKLAHOMA
Branson
ARKANSAS
BRANCH LOCATIONS
Springfield
Joplin
Nixa
Ozark
Carthage
Neosho
Branch Locations (16) Major Cities
James R. Batten
Chairman
Management Consultant
Joined the Board in 2006
Shaun A. Burke
President and CEO
Guaranty Federal Bancshares and
Guaranty Bank
Joined the Company in 2004
John F. Griesemer
President/CEO
Erlen Group
Joined the Board in 2008
Kurt D. Hellweg
Retired
Joined the Board in 2000
Greg A. Horton
Chief Executive Officer
Integrity Pharmacy and
Integrity Home Care
Joined the Board in 2016
David T. Moore
President and CEO
Paul Mueller Company
Joined the Board in 2014
Tim Rosenbury, AIA
Director of Quality of Place Initiatives for
The City of Springfield, Missouri
Joined the Board in 2002
James L. Sivils, III, JD
CEO
Environmental Works, Inc.
Joined the Board in 2002
Tony Scavuzzo
Principal
Castle Creek Capital
Joined the Board in 2018
EXECUTIVE OFFICERS
INVESTOR INFORMATION
Guaranty Federal Bancshares, Inc. and Guaranty Bank
Shaun A. Burke
President and CEO
Joined the Company in 2004
Carter M. Peters
Executive Vice President
Chief Financial Officer
Joined the Company in 2005
Robin E. Robeson
Executive Vice President
Chief Operating Officer
Joined the Company in 2012
Sheri D. Biser
Executive Vice President
Chief Credit Officer
Joined the Company in 2009
Craig Dunn
Executive Vice President
Chief Commercial Banking Officer
Joined the Company in 2020
Guaranty Federal Bancshares, Inc.
2020 ANNUAL REPORT
ANNUAL MEETING OF STOCKHOLDERS:
The Annual Meeting of Stockholders of the Company will be held Wednesday, May 26, 2021 at 6:00 p.m.,
local time, at the bank’s Farmers Park headquarters, 2144 E. Republic Road, Building F, Springfield, MO.
ANNUAL REPORT ON FORM 10-K:
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.
2144 East Republic Road, Suite F200, Springfield, MO 65804
TRANSFER AGENT:
Computershare Investor Services
PO Box 43078
Providence, RI 02940-3078
STOCK TRADING INFORMATION:
Symbol: GFED
SPECIAL LEGAL COUNSEL:
Husch Blackwell LLP
901 St. Louis Street, Suite 1900
Springfield, MO 65806
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM:
BKD, LLP
910 St. Louis Street
PO Box 1190
Springfield, MO 65801-1190
STOCKHOLDER AND FINANCIAL INFORMATION:
Executive Vice President, Chief Financial Officer
Carter Peters
833-875-2492
MISSION
Guaranty Bank
actively invests
in the communities
we serve.
We do this
by delivering
world-class solutions
to our customers,
engaging and rewarding
opportunities for
our employees, and
superior value to
our shareholders.
SPRINGFIELD:
2144 East Republic Road, Suite F200
1341 West Battlefield
2109 North Glenstone
4343 South National
1905 West Kearney
1510 East Sunshine
2155 West Republic Road
NIXA:
709 West Mount Vernon
291 East Hwy CC
OZARK:
1701 West State Hwy J
JOPLIN:
1429 East 32nd Street
3016 McClelland Boulevard
1936 Range Line Road Suite A
CARTHAGE:
312 West Central Avenue
2435 Fairlawn Drive
NEOSHO:
1285 South Neosho Boulevard
MORTGAGE LOAN PRODUCTION OFFICE:
1100 Spur Drive, Suite 15, Marshfield
OPERATIONS CENTER:
1414 West Elfindale Street, Springfield
833.875.2492 / gbankmo.com
2020
Annual Report
and Proxy