Guaranty Federal Bancshares, Inc. Announces Preliminary Second Quarter 2018 Financial Results and Successful Closing and Merger of Hometown Bancshares, Inc. and Its Subsidiary, Hometown Bank, National Association


SPRINGFIELD, Mo., July 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 second quarter ended June 30, 2018.  The results were negatively impacted by the expected $3.2 million of one-time, nonrecurring costs associated with its acquisition of Hometown Bancshares, Inc. (“Hometown”).  These additional costs incurred during the quarter included a significant core processing vendor contract termination of approximately $2 million.  Other acquisition costs included legal, professional, employee benefit and other data processing expense.

Net loss available to common shareholders for the quarter ended June 30, 2018 was ($343,000) and diluted earnings (loss) per common share (“EPS”) was ($0.08).  Excluding the acquisition costs discussed above, the Company would have reported net income and diluted EPS of $1,916,000 and $0.43, respectively.  For the second quarter of 2017, the Company reported net income of $1,593,000 and diluted EPS of $0.36, respectively.

For the six months ended June 30, 2018, the Company reported net income and EPS of $1,012,761 and $0.23, respectively.  Excluding the above acquisition costs, the Company would have reported net income and diluted EPS of $3,418,000 and $0.76, respectively.  For the six months ending June 30, 2017, the Company reported net income and EPS of $3,022,000 and $0.68, respectively.

Acquisition of Hometown, Headquartered in Carthage, Missouri

As previously announced, on April 2, 2018 (the “Acquisition Date”), the Company completed its $4.6 million cash purchase of Hometown.  Hometown’s subsidiary bank, Hometown Bank, National Association, was merged into Guaranty Bank on June 8, 2018.

Shaun A. Burke, President and Chief Executive Officer of the Company stated, “We are entering an exciting new era.  The merger expands our footprint in Southwest Missouri and creates economies of scale to create the operational efficiencies found in a larger company. We are excited to finally have the Hometown team join our organization and are already encouraged by the growth opportunities in the Joplin MSA.  Once we get past the ‘noise in the numbers’ and the nonrecurring merger expenses, we are confident the results of the combined company will further enhance long-term shareholder value.”   

As of the Acquisition Date, Hometown’s balance sheet had total assets of $177.7 million, consisting primarily of loans totaling $150.4 million.  Total deposits were $161.0 million.  Preliminary purchase accounting adjustments were recorded as of the Acquisition Date, resulting in goodwill of $2.6 million.  A table below summarizes the assets acquired and liabilities assumed from Hometown.

Select Quarterly Financial Data

Below are selected financial results for the Company’s second quarter of 2018, compared to the first quarter of 2018 and the second quarter of 2017. 

        
  Quarter ended 
  June 30, 2018  March 31, 2018   June 30, 2017  
  (Dollar amounts in thousands, except per share data) 
 Net income (loss) available to common shareholders$  (343) $  1,356  $  1,593  
        
 Diluted income (loss) per common share$  (0.08) $  0.30  $  0.36  
 Common shares outstanding   4,406,432     4,403,965     4,374,725  
 Average common shares outstanding , diluted   4,471,893     4,466,786     4,426,411  
        
 Annualized return on average assets -0.14%  0.70%  0.85% 
 Annualized return on average equity -1.48%  7.25%  8.68% 
 Net interest margin 3.54%  3.28%  3.34% 
 Efficiency ratio 102.99%  74.50%  62.95% 
        
 Tangible common equity to tangible assets 7.26%  9.40%  9.75% 
 Tangible book value per common share$  15.73  $  17.22  $  16.76  
 Nonperforming assets to total assets 1.42%  1.21%  1.47% 
        

The following were key items impacting the second quarter operating results as compared to the same quarter in 2017 and the financial condition results compared to December 31, 2017:

Net Interest income – Net interest income totaled $7,972,267 for the quarter as compared to $5,889,199 during the prior year quarter, an increase of 35%.  Net interest income attributable to Hometown totaled $1,250,672 for the quarter and net interest income attributable to purchase accounting adjustments, primarily the accretion of the loan discount, was $454,792.  Net interest margin was 3.54% as compared to 3.34% for the prior year quarter.  See the Analysis of Net Interest Income and Margin table below for the second quarter.

Asset Quality, Provision for Loan Loss Expense and Allowance for Loan Losses – The Company’s nonperforming assets increased to $13.6 million as of June 30, 2018 as compared to $10.2 million as of December 31, 2017. $3.9 million of this increase was due to the acquisition of Hometown.  Based on its reserve analysis and methodology, the Company recorded a provision for loan loss expense of $500,000 during the quarter, a decrease from the $575,000 recognized during the prior year quarter.  The provision for the quarter was primarily due to the increased reserves needed for growing loan balances for construction lending and various reserves on a few specific problem credits.  At June 30, 2018, the allowance for loan losses of $7.6 million was 0.97% of gross loans outstanding (excluding mortgage loans held for sale), representing a decrease from the 1.12% as of December 31, 2017.

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 ($5.6 million at June 30, 2018).

Management believes the allowance for loan losses is at a sufficient level to provide for loan losses in the Bank’s existing loan portfolio.

Noninterest Income Non-interest income increased $586,752 (43%) during the quarter primarily due to the Company’s increased income from sales of fixed-rate mortgage loans and Small Business Administration (“SBA”) loans, $194,000 combined.  The Company also experienced a significant increase of approximately $262,000 in service charges, primarily due to the Hometown acquisition.

Noninterest Expense – Non-interest expenses increased $5,654,721 (124%) due to a few significant factors discussed below. 

Due to the acquisition, $3,192,050 of one-time, nonrecurring merger costs were incurred during the quarter (further detailed above). 

Salaries and employee benefits increased $1,167,093 for the quarter and is primarily due to the Hometown acquisition, $604,000, and also the Company’s existing expansion in the Joplin, Missouri market, pre-acquisition.   

Occupancy expenses increased $552,511 for the quarter primarily due to the Company’s move to a new headquarters during the fourth quarter of 2017.  Lease expense on the new facility began in January 2018 and total expense was $154,867 for the quarter.  The remaining increase relates to depreciation on furniture and fixtures for the new facility and Hometown.

Amortization expense of the core deposit intangible from the Hometown acquisition was $220,000 for the quarter.  There was no amortization during the prior year quarter.

Capital – At June 30, 2018, stockholders’ equity increased to $75.2 million compared to $74.9 million at December 31, 2017.  On a per common share basis, tangible book value decreased to $15.73 at June 30, 2018 as compared to $17.10 as of December 31, 2017.  This reduction was due to the acquisition of Hometown.

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


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 (losses) on sales of available-for-sale securities
  • Gains (losses) on foreclosed assets held for sale
  • Provision for loan loss expense
  • Provision (credit) for income taxes
  • Merger costs

A reconciliation of the Company’s net income to its operating income for the three and six months ended June 30, 2018 and 2017 is set forth below.

          
  Quarter ended Six months ended 
  June 30, 2018 June 30, 2017 June 30, 2018 June 30, 2017 
  (Dollar amounts are in thousands) 
          
 Net income (loss)$  (343) $  1,593  $  1,013  $  3,022  
          
 Add back:        
   Provision (credit) for income taxes   (454)    521     (160)    1,024  
 Income (loss) before income taxes   (797)    2,114     853     4,046  
          
 Add back/(subtract):        
   Gain (loss) on investment securities   10     (62)    7     (62) 
   Net loss (gains) on foreclosed assets held for sale   (76)    30     (121)    (8) 
   Merger costs   3,192     -     3,420     -  
   Provision for loan losses   500     575     725     1,050  
     3,626     543     4,031     980  
          
 Operating income$  2,829  $  2,657  $  4,884  $  5,026  
          

About Guaranty Federal Bancshares, Inc.
Guaranty Federal Bancshares, Inc. (NASDAQ:GFED) has a subsidiary corporation offering full banking services.  The principal subsidiary, Guaranty Bank, is headquartered in Springfield, Missouri, and has 18 full-service branches in Greene, Christian, Jasper Newton and McDonald Counties and a Loan Production Office in Webster County.  Guaranty Bank is a member of the MoneyPass and TransFund ATM networks which provide its customers surcharge free access to over 24,000 ATMs nationwide. For more information visit the Guaranty Bank website: www.gbankmo.com

The Company may from time to time make written or oral “forward-looking statements,” including statements contained in the Company’s filings with the SEC, 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. 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 strength of the United States economy in general and the strength of the local economies in which we conduct operations;
  • the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve, inflation, interest rates, market and monetary fluctuations;
  • the timely development of and acceptance of new products and services 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 willingness of users to substitute competitors’ products and services for our products and services;
  • our success in gaining regulatory approval of our products and services, when required;
  • the impact of changes in financial services laws and regulations (including laws concerning taxes, banking, securities and insurance);
  • technological changes;
  • the ability to successfully manage and integrate any future acquisitions if and when our board of directors and management conclude any such acquisitions are appropriate;
  • changes in consumer spending and saving habits;
  • our success 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.

          
 Financial Highlights:        
  Quarter ended Six months ended 
 Operating Data:June 30, 2018 June 30, 2017 June 30, 2018 June 30, 2017 
  (Dollar amounts are in thousands, except per share data) 
          
 Total interest income$  10,379  $  7,242  $  18,335  $  14,013  
 Total interest expense   2,407     1,352     4,332     2,526  
   Net interest income   7,972     5,890     14,003     11,487  
 Provision for loan losses   500     575     725     1,050  
   Net interest income after        
   provision for loan losses   7,472     5,315     13,278     10,437  
 Noninterest income        
   Service charges   552     290     869     558  
   Gain on sale of loans held for sale   617     524     997     932  
   Gain on sale of Small Business Administration loans   225     125     396     255  
   Other income   560     428     1,011     851  
     1,954     1,367     3,273     2,596  
 Noninterest expense        
   Salaries and employee benefits   4,102     2,935     7,275     5,792  
   Occupancy   1,038     485     1,808     971  
   Merger costs   3,192     -     3,420     -  
   Amortization of core deposit intangible    220     -     220     -  
   Other expense   1,671     1,148     2,975     2,224  
     10,223     4,568     15,698     8,987  
 Income (loss) before income taxes   (797)    2,114     853     4,046  
 Provision (credit) for income taxes   (454)    521     (160)    1,024  
 Net income (loss) available for common shareholders$  (343) $  1,593  $  1,013  $  3,022  
 Net income (loss) per common share-basic$  (0.08) $  0.36  $  0.23  $  0.69  
 Net income (loss) per common share-diluted$  (0.08) $  0.36  $  0.23  $  0.68  
          
 Annualized return on average assets -0.14%  0.85%  0.23%  0.83% 
 Annualized return on average equity -1.48%  8.68%  2.42%  8.42% 
 Net interest margin 3.54%  3.34%  3.43%  3.34% 
 Efficiency ratio 102.99%  62.95%  90.87%  63.82% 
          
    At At   
 Financial Condition Data:  June 30, 2018 December 31, 2017   
 Cash and cash equivalents  $  30,357  $  37,407    
 Investments     89,581     81,495    
 Loans, net of allowance for loan losses        
   6/30/2018 - $7,573; 12/31/2017 - $7,107     774,289     631,527    
 Goodwill     2,615     -    
 Core deposit intangible     3,300     -    
 Premises and equipment, net     22,307     10,607    
 Bank owned life insurance     19,967     19,741    
 Other assets     18,103     13,683    
   Total assets  $  960,519  $  794,460    
          
 Deposits  $  764,772  $  607,364    
 Advances from correspondent banks     90,400     94,300    
 Subordinated debentures     21,805     15,465    
 Other borrowed funds     5,000     -    
 Other liabilities     3,294     2,439    
   Total liabilities     885,271     719,568    
 Stockholders' equity     75,248     74,892    
   Total liabilities and stockholders' equity  $  960,519  $  794,460    
 Tangible common equity to tangible assets ratio   7.26%  9.43%   
 Tangible book value per common share  $  15.73  $  17.10    
 Nonperforming assets  $  13,609  $  10,245    
          


Analysis of Net Interest Income and Margin:          
 Three months ended 6/30/2018 Three months ended 6/30/2017
 
Average
Balance 
 Interest  Yield
/ Cost 
 Average
Balance 
 Interest  Yield
/ Cost 
 ASSETS            
 Interest-earning:            
 Loans $  797,034 $  9,819  4.94% $  608,269 $  6,744  4.45%
 Investment securities    88,755    528  2.39%    88,267    454  2.06%
 Other assets    16,725    32  0.77%    10,289    44  1.72%
 Total interest-earning    902,514    10,379  4.61%    706,825    7,242  4.11%
 Noninterest-earning    64,965        39,043    
 $  967,479     $  745,868    
 LIABILITIES AND STOCKHOLDERS’ EQUITY            
 Interest-bearing:            
 Savings accounts $  43,012    26  0.24% $  29,509    14  0.19%
 Transaction accounts    425,153    1,126  1.06%    340,975    459  0.54%
 Certificates of deposit    211,246    568  1.08%    114,227    273  0.96%
 FHLB advances    77,991    406  2.09%    104,255    450  1.73%
 Other borrowed funds    1,109    4  0.00%    -    -  0.00%
 Subordinated debentures    21,651    277  5.13%    15,465    156  4.05%
 Total interest-bearing    780,162    2,407  1.24%    604,431    1,352  0.90%
 Noninterest-bearing    94,344        68,342    
 Total liabilities    874,506        672,773    
 Stockholders’ equity    92,973        73,095    
 $  967,479     $  745,868    
 Net earning balance $  122,352     $  102,394    
 Earning yield less costing rate     3.38%     3.21%
 Net interest income, and net yield spread            
 on interest earning assets   $  7,972  3.54%   $  5,890  3.34%
 Ratio of interest-earning assets to            
  interest-bearing liabilities    116%      117%  
            


 

Guaranty Federal Bancshares, Inc. 
Net Assets Acquired from Hometown 
April 2, 2018 
        
 April 2, 2018 
        
  Acquired from Fair Value  Fair  
  Hometown Adjustments Value 
Assets Acquired(Dollar amounts are expressed in thousands) 
Cash and Due From Banks $  7,083  $  -   $  7,083 
Investment Securities    7,521     -      7,521 
Loans    150,390     (6,471)    143,919 
Allowance for Loan Losses    (2,348)    2,348     -  
  Net Loans    148,042     (4,123)    143,919 
        
Fixed Assets    9,268     798     10,066 
Foreclosed Assets held for sale    1,647     (400)    1,247 
Core Deposit Intangible    -      3,520     3,520 
Other Assets    4,146     1,283     5,429 
        
  Total Assets Acquired $  177,707  $  1,078  $  178,785 
        
Liabilities Assumed       
Deposits    161,001     247     161,248 
Federal Home Loan Bank advances    2,000     -      2,000 
Securities Sold Under Agreements to Repurchase    2,159     -      2,159 
Other borrowings    3,000     -      3,000 
Subordinated debentures    6,186     176     6,362 
Other Liabilities    2,003     -      2,003 
  Total Liabilities Assumed     176,349  $  423     176,772 
        
Stockholders' Equity       
Common Stock    231     (231)    -  
Capital Surplus    18,936     (18,936)    -  
Retained Earnings    (17,587)    17,587     -  
Accumulated Other Comprehensive Loss    (222)    222     -  
Treasury Stock    -      -      -  
  Total Stockholders' Equity Assumed    1,358  $  (1,358)    -  
        
  Total Liabilities and Stockholders' Equity Assumed $  177,707  $  (935) $  176,772 
        
Net Assets Acquired     $  2,013 
Purchase Price        4,628 
Goodwill     $   2,615  
        

Contacts:

Shaun A. Burke, President and CEO or Carter M. Peters, CFO
2144 E Republic Road, Suite F200
Springfield, MO  65804
417-520-4333