Market Overview

Guaranty Federal Bancshares, Inc. Announces Preliminary Third Quarter 2017 Financial Results


SPRINGFIELD, Mo., Oct. 17, 2017 (GLOBE NEWSWIRE) -- Guaranty Federal Bancshares, Inc., (NASDAQ:GFED), the holding company (the "Company") for Guaranty Bank (the "Bank"), today announces the following preliminary results for the third quarter ended September 30, 2017. 

Third Quarter Financial Results

The Company experienced the following financial highlights for the third quarter of 2017:

  • Diluted earnings per share increased to $0.39 compared to $0.36 for the second quarter of 2017 (an 8% increase) and $0.35 for the third quarter of 2016 (an 11% increase).
  • Return on average assets improved to .91% compared to .85% for the second quarter of 2017 and .90% for the third quarter of 2016.
  • Return on average equity increased to 9.20% compared to 8.68% for the second quarter of 2017 and 8.64% for the third quarter of 2016.
  • Net interest margin improved to 3.36% compared to 3.34% for the second quarter of 2017 and 3.28% for the third quarter of 2016.
  • Fixed-rate mortgage loan income increased 17% over the same quarter in 2016.
  • Net loans increased $9.3 million during the quarter primarily in the commercial category.
  • Total deposits increased $17.1 million during the quarter, of which $12.1 million came from growth in transaction deposit balances.
  • Nonperforming assets (NPAs), as a percentage of total assets, declined to 1.35%.

Below are additional selected financial highlights for the Company's third quarter of 2017, compared to the second quarter of 2017 and the third quarter of 2016.

    Quarter ended  
    September 30,   June 30,   September 30,  
      2017        2017         2016     
    (Dollar amounts in thousands, except per share data)  
  Net income available to common shareholders $   1,717     $   1,593     $   1,542    
  Diluted income per common share $   0.39     $   0.36     $   0.35    
  Common shares outstanding     4,374,725         4,374,725         4,371,072    
  Average common shares outstanding , diluted     4,447,566         4,426,411         4,427,553    
  Annualized return on average assets   0.91 %     0.85 %     0.90 %  
  Annualized return on average equity   9.20 %     8.68 %     8.64 %  
  Net interest margin   3.36 %     3.34 %     3.28 %  
  Efficiency ratio   65.75 %     62.95 %     65.29 %  
  Tangible common equity to tangible assets   9.83 %     9.75 %     10.46 %  
  Tangible book value per common share $   17.06     $   16.76     $   16.26    
  Nonperforming assets to total assets   1.35 %     1.47 %     2.06 %  

Select Quarterly Financial Data

The following key issues contributed to the third quarter operating results as compared to the same quarter in 2016 and the financial condition results compared to December 31, 2016:

Interest income – Total interest income increased $1,171,000 (18%) during the quarter.  The average balance of interest-earning assets increased $70,319,000 (11%), while the yield on average interest earning assets increased 25 basis points to 4.18%.  The Company has experienced strong loan activity during 2017, in which loan balances have increased $78.9 million compared to December 31, 2016.  Despite pricing on loans remaining very competitive on new and renewing credits, the yield on loans increased 10 basis points to 4.52% for the third quarter when compared to the same quarter in 2016.

Interest expense - Total interest expense increased $417,000 (39%) during the quarter.  The average balance of interest-bearing liabilities increased $62,764,000 (11%), while the average cost of interest-bearing liabilities increased 19 basis points to 0.95%.  The increase in asset growth opportunities among most institutions in our market have created significant competitive pressures on deposit rates.  To fund its asset growth going forward, the Company will continue to utilize a cost effective mix of retail and commercial core deposits along with non-core, wholesale funding.        

Provision for loan loss expense and allowance for loan losses –Based on its reserve analysis and methodology, the Company recorded a provision for loan loss expense of $450,000 during the quarter, an increase from the $200,000 recognized during the prior year quarter.  The provision for the quarter was primarily due to the increased loan balances and various reserves on a few specific problem credits.

At September 30, 2017, the allowance for loan losses of $7.0 million was 1.12% of gross loans outstanding (excluding mortgage loans held for sale), representing a decrease from the 1.17% as of December 31, 2016. Management believes the allowance for loan losses is at a sufficient level to provide for loan losses in the Bank's existing loan portfolio.

Non-interest income Non-interest income increased $255,000 (19%) during the quarter compared to the same quarter in 2016.  This was primarily due to the Company's emphasis on Small Business Administration (SBA) lending and its continued efforts in fixed-rate mortgage lending.  For the quarter, gains on sales of SBA loans increased $143,000 and gains on sales of mortgage loans held for sale increased $90,000.       

Non-interest expense – Non-interest expenses increased $694,000 (16%) over the prior year quarter due to a few significant factors. 

First, salaries and employee benefits increased $358,000.  This is primarily due to the Company's recent expansion in the Joplin, Missouri market and increases in other areas of commercial banking, operations, technology and health/retirement benefits.  Also impacting compensation were mortgage commissions which increased due to the significant mortgage activity for the quarter.

Second, the Company's occupancy expenses increased $127,000 primarily due to Company's continued enhancements in facilities (including signage) and significant investments in technology.  The ongoing expansion in the Joplin, Missouri market has also played a factor in the increase in expense.

Third, the Company incurred $147,000 of impairment charges on solar tax credit investments.  The Company purchased an interest in a utility scale solar energy project.  The project will generate an estimated $557,000 of 2017 investment tax credits assuming certain compliance criteria are met.  The cost of the investment will be accounted for under the equity and hypothetical liquidation at book value methods.  Under these methods, an impairment charge is recorded on the investment equal to the discounted future cash flows compared to the carrying value of the investment.  The impairment charge recorded on this investment during the quarter was $147,000. 

Provision for income taxes – The decrease in the provision for income taxes for the quarter is primarily related to the Company's investment tax credits discussed above.

Capital – At September 30, 2017, stockholders' equity increased to $74.6 million compared to $70.0 million at December 31, 2016.  Net income for the nine months ended September 30, 2017 exceeded dividends paid or declared by $3.4 million.  The equity portion of the Company's unrealized losses on available-for-sale securities and derivatives improved by $936,000 at September 30, 2017 as compared to December 31, 2016.  On a per common share basis, stockholders' equity increased to $17.06 at September 30, 2017 as compared to $16.09 as of December 31, 2016.

From a regulatory capital standpoint, all capital ratios for both the Company and the Bank remain strong and above regulatory requirements.

Asset quality – The Company's nonperforming assets decreased to $10.3 million as of September 30, 2017 as compared to $11.3 million as of December 31, 2016. Nonperforming assets as a percentage of total assets decreased to 1.35% as of September 30, 2017 as compared to 1.64% as of December 31, 2016.

Non-Generally Accepted Accounting Principle (GAAP) Financial Measures

In addition to the GAAP financial results presented in this press release, the Company presents non-GAAP financial measures discussed below.  These non-GAAP measures are provided to enhance investors' overall understanding of the Company's current financial performance.  Additionally, Company management believes that this presentation enables meaningful comparison of financial performance in various periods.  However, the non-GAAP financial results presented should not be considered a substitute for results that are presented in a manner consistent with GAAP.  A limitation of the non-GAAP financial measures presented is that the adjustments concern gains, losses or expenses that the Company does expect to continue to recognize; the adjustments of these items should not be construed as an inference that these gains or expenses are unusual, infrequent or non-recurring.  Therefore, Company management believes that both GAAP measures of its financial performance and the respective non-GAAP measures should be considered together. 

Operating Income
Operating income is a non-GAAP financial measure that adjusts net income for the following non-operating items:

  • Gains on sales of available-for-sale securities
  • Gains on sales of SBA loans
  • Gains and losses on foreclosed assets held for sale
  • Provision for loan loss expense
  • Provision for income taxes
  • Effects of investment tax credits

A reconciliation of the Company's net income to its operating income for the periods ended September 30, 2017 and 2016 is set forth below.

    Quarter ended   Nine months ended    
    September 30,   September 30,    
      2017       2016       2017       2016      
    (Dollar amounts are in thousands)    
  Net income $   1,717     $   1,542     $   4
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