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Guaranty Federal Bancshares, Inc. Announces Preliminary 2017 Financial Results


SPRINGFIELD, Mo., Jan. 19, 2018 (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 fourth quarter and year ended December 31, 2017.

Fiscal Year 2017 Financial Highlights

Financial Condition – December 31, 2017 versus December 31, 2016

  • Total assets grew $112.4 million (16%) to $800 million.
  • Total gross loans increased $92.4 million (17%).
  • Total deposits increased $101.5 million (20%).
  • Nonperforming assets declined $1.1 million (9%) to $10.2 million, which was 1.28% as a percentage of total assets.
  • Tangible book value per share increased $1.07 (7%) to $17.16 at December 31, 2017.

Results of Operations – Fiscal Year 2017 versus Fiscal Year 2016

  • Total revenues increased $4.9 million (16%).
  • Net interest income increased $2.6 million (12%) and net interest margin increased to 3.36%.
  • Income from sales of mortgage loans held for sale and the guaranteed portion of Small Business Administration (SBA) loans increased $312,730 (18%) and $449,177 (151%), respectively.
  • Efficiency ratio remained strong at 66.45% despite the Company's significant investments in personnel, facilities, technology and one-time, non-operating items.  Excluding one-time items such as impairment on solar tax credit investments and merger costs (both further discussed below), efficiency ratio would have been 63.96% for fiscal year 2017. 
  • Net income available to common shareholders for fiscal year 2017 was $5,429,000 as compared to $5,594,000 in fiscal year 2016.  Diluted earnings per common share was $1.22 for 2017 as compared to $1.27 earned in 2016. The decline was due to the write-down of the Company's deferred tax asset at December 31, 2017 discussed below in "Significant Items".  Excluding the one-time write-down, diluted earnings per common share would have been $1.46 for 2017 (an increase of 15% over 2016).

Significant Items for Fiscal Year and Fourth Quarter 2017

  • As a result of the Tax Cuts and Jobs Act signed into law on December 22, 2017, the Company was required to revalue its deferred tax assets and deferred tax liabilities to account for the future impact of lower corporate tax rates.  As of December 31, 2017, the Company revalued its net deferred tax asset and it resulted in a one-time charge to income tax expense of approximately $1.0 million.  This resulted in a reduction in diluted earnings per share for the fourth quarter and fiscal year 2017 of $.23 and $.24, respectively.   The Company's final analysis and write-down will be based upon a number of factors, including completion of the Company's 2017 consolidated tax returns.
  • In December 2017, the Company announced a merger agreement to acquire Hometown Bancshares, Inc., an approximately $183 million bank holding company in Carthage, Missouri.  Following consummation of the merger, the Company will have approximately $980 million in assets (utilizing December 2017 figures) with 18 branches in Missouri.  The acquisition is expected to be completed in early second quarter of 2018, subject to all required approvals.
  • In November 2017, the Company moved its headquarters to a new, state-of-the-art facility, that also includes a modern, full-service banking center.

Select Quarterly Financial Data

Below are selected financial results for the Company's fourth quarter of 2017, compared to the third quarter of 2017 and the fourth quarter of 2016.

  Quarter ended
  December 31,   September 30,    December 31,
    2017        2017         2016   
  (Dollar amounts in thousands, except per share data)
Net income available to common shareholders $   690     $   1,717     $   1,519  
Diluted income per common share $   0.15     $   0.39     $   0.34  
Common shares outstanding     4,379,225         4,374,725         4,349,072  
Average common shares outstanding , diluted     4,456,539         4,447,566         4,421,870  
Annualized return on average assets   0.36 %     0.91 %     0.89 %
Annualized return on average equity   3.63 %     9.20 %     8.54 %
Net interest margin   3.38 %     3.36 %     3.45 %
Efficiency ratio   71.84 %     65.75 %     63.96 %
Tangible common equity to tangible assets   9.39 %     9.83 %     10.17 %
Tangible book value per common share $   17.16     $   17.06     $   16.09  
Nonperforming assets to total assets   1.28 %     1.35 %     1.64 %

The following key issues contributed to the fourth 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 $1,277,000 (19%) during the quarter.  The average balance of interest-earning assets increased $99,959,000 (16%), while the yield on average interest earning assets increased 12 basis points to 4.23%.  The Company experienced strong loan activity during 2017, in which loan balances increased $92.4 million compared to December 31, 2016.  Despite very competitive loan pricing on new and renewing credits, the yield on loans increased 5 basis points to 4.63% for the quarter when compared to the same quarter in 2016.

Interest expense - Total interest expense increased $517,000 (48%) during the quarter.  The average balance of interest-bearing liabilities increased $82,321,000 (15%), while the average cost of interest-bearing liabilities increased 22 basis points to 1.00%.  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 $250,000 during the quarter, a decrease from the $425,000 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 December 31, 2017, the allowance for loan losses of $7.1 million was 1.12% of gross loans outstanding (excluding mortgage loans held for sale), representing an increase from the 1.06% 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 $294,000 (23%) during the quarter compared to the same quarter in 2016.  This was primarily due to the Company's increased emphasis on SBA lending and its efforts in fixed-rate mortgage lending.  For the quarter, gains on sales of SBA loans increased $203,000 and gains on sales of mortgage loans held for sale increased $23,000.  The Company also recognized gains on foreclosed assets during the quarter.  These gains increased $71,000 over the prior year quarter.       

Non-interest expense – Non-interest expenses increased $1,295,000 (30%) over the prior year quarter due to a few significant factors discussed below.  Generally, the Company's expansion efforts have resulted in an increase in both compensation and occupancy expense.  Management believes these investments are critical in driving long-term growth and profitability in today's competitive environment.  

Salaries and employee benefits increased $515,000 for the quarter.  This is primarily due to the Company's increased expansion in the Joplin, Missouri market (including new mortgage producers) and increases in areas such as commercial banking, operations and information technology.  The Company has also experienced increases in health/retirement benefits and performance incentives due to strong Company results. 

Occupancy expenses increased $157,000 primarily due to the Company's continued enhancements in new and existing facilities, as well as depreciation from significant investments in new technologies.  The ongoing expansion in the Joplin, Missouri market has also played a factor in the increase in expense.

The Company incurred $441,000 of impairment charges on solar tax credit investments during the quarter.  The Company purchased a partnership interest in a utility scale solar energy project.  The project will generate an estimated $557,000 of 2017 investment tax credits (plus anticipated tax losses) assuming certain compliance criteria are met.  The cost of the investment is being 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 $441,000 which were offset by the $557,000 expected reduction in income tax expense related to the investment tax credits. 

Due to the Company's pending merger (as discussed above in "Significant Items"), $151,000 of merger costs were incurred during the quarter.  These costs were comprised of legal and investment advisory fees.

Provision for income taxes – The increase in the provision for income taxes for the quarter is primarily a result of the Company's $1.0 million charge for the deferred tax asset write-down discussed above in "Significant Items", partially offset by the investment tax credit of $557,000.     

Capital – At December 31, 2017, stockholders' equity increased to $75.2 million compared to $70.0 million at December 31, 2016.  Net income for the fiscal year ended December 31, 2017 exceeded dividends paid or declared by $3.6 million.  The equity portion of the Company's unrealized losses on available-for-sale securities and derivatives improved by $1,135,000 at December 31, 2017 as compared to December 31, 2016.  On a per common share basis, stockholders' equity increased to $17.16 at December 31, 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 $10.2 million as of December 31, 2017 as compared to $11.3 million as of December 31, 2016. Nonperforming assets as a percentage of total assets decreased to 1.28% as of December 31, 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
  • Loss on partnership interest related to investment tax credits

A reconciliation of the Company's net income to its operating income for the periods ended December 31, 2017 and 2016 is set forth below.

  Quarter ended   Year ended
  December 31,   December 31,
    2017       2016       2017       2016  
  (Dollar amounts are in thousands)
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