GlobeNewswire Inc | Jan 21, 2021 09:00AM EST

January 21, 2021

SPRINGFIELD, Mo., Jan. 21, 2021 (GLOBE NEWSWIRE) --

CEO Comments

2020 will go down as the year that the COVID-19 pandemic impacted nearly every facet of our lives. For those in the financial industry the year included multiple rounds of stimulus to support individuals and business alike, closed facilities, restricted meetings, abrupt interest rate cuts and numerous regulatory changes. Despite these events, we continued to serve our communities by refinancing record amounts of mortgages, experienced unprecedented growth in deposits, advanced technological initiatives to assist customers in socially distanced settings and supported over 8,000 local jobs by originating 650 loans via the SBA Paycheck Protection Program (PPP). These figures are noteworthy, but in my opinion, the real story is the efforts by over 230 dedicated team members during the year to realize these results. To recognize our most valuable assets and their efforts in these very trying times, the Bank worked to support our staff throughout the year by making additional resources available to them. Specifically, bank-wide cash bonuses were paid out, a crisis fund was started to assist employees who are experiencing financial hardships, work-from-home policies were expanded and extensive cleaning and sanitizing efforts were utilized so that our team could safely complete their tasks. Guaranty Bank has weathered many events since its founding in 1913, with 2020 being no different. We look forward to 2021 as we continue to serve our valued customers with the highest level of service possible while delivering solid returns to our shareholders.

Preliminary financial results for 2020 included a strong 13% growth in assets supported by continued success in growing our core deposits. Annual net income was $6.8 million resulting in diluted earnings per share of $1.57 compared to net income of $9.4 million and diluted earnings per share of $2.11 for 2019. The decrease in earnings is primarily due to $3.6 million in additional funding of the allowance for loan loss reserves as a precautionary response to negative economic conditions impacting the local economy and select borrowers. Loan modifications and deferrals have receded from highs seen in the second and third quarters, however, certain industries continue to face difficulties returning to pre-pandemic levels. Additional government assistance was approved near the end of 2020 along with the continuation of other regulatory relief items to support economic recovery. Net interest margin compression became a headwind as interest rate cuts made by the Federal Reserve in March reset earning asset rates at a faster pace than our deposit products. Our capital position remains above all regulatory thresholds and was aided with the issuance of $20.0 million of subordinated debt by our holding company in the third quarter. Measured growth based on sound business practices remains our focus as we support our employees, customers, shareholders and communities as we begin to navigate 2021.

- Shaun A. Burke, President and Chief Executive Officer

2020 Fiscal Year Highlights

-- Total assets grew $134.2 million (13%), with $37.3 million of this growth attributed to PPP loans to help support local businesses still in our loan portfolio as of December 31, 2020. -- Total deposits grew $117.3 million (14%), of which transaction balances accounted for $130.7 million of the growth with declines of $13.4 million in savings and certificate account balances. -- Tangible book value grew 5% during the year to $19.71 from $18.71. -- Income from mortgage originations of $3.7 million was recognized during the year due to record levels of refinance activity in the current low-rate environment. -- Shareholder dividends increased 11% over 2019 and the Company maintained a strong dividend yield, which was 3.50% at December 31, 2020. -- $20.0 million in fixed-to-floating rate subordinated debt was issued to strengthen capital ratios and to provide additional liquidity as necessary for other growth initiatives.

COVID-19 Loan Modifications

Due to financial hardships caused by the COVID-19 pandemic, loan modifications were granted to borrowers across all collateral types. As of December 31, 2020, 20 loans remained modified for $28.6M (table below) for periods from one to twelvemonths. As of December 31, 2020, 84% of original modifications have resumed scheduled payments with the remaining 16% projected to resume their contractual payments during the first or second quarters of 2021.

Full Payment Full Payment Amount of Interest Interest Full Deferral Deferral Full PaymentCollateral # Loans Loans Only 3 Only Payment 3 Months + 3 Months + DeferralType Modified Modified ($) Months or 4-6 Deferral Interest Interest >6 Months Less Months 3 Months Only Only 3 Months or > 3 Months LessHotel/Motel 9 $ 16,018,273 $ - $ - $ - $ 1,849,520 $ 7,962,876 $ 6,205,877Theatre 5 10,586,792 - - - - 3,826,974 6,759,818Restaurant 2 411,029 123,236 287,793 - - - -(C&I & RE)Land & Land 1 1,279,878 - - - - 1,279,878 -Development1-4 Family 2 168,852 - - 168,852 - - -ConsumerOther 1 93,100 - 93,100 - - - -TotalModified 20 $ 28,557,924 $ 123,236 $ 380,893 $ 168,852 $ 1,849,520 $ 13,069,728 $ 12,965,695Loans

Select Quarterly Financial Data

Below are selected financial results for the Companys fourth quarter of 2020, compared to the third quarter of 2020 and the fourth quarter of 2019.

Quarter ended December 31, 2020 September 30, 2020 December 31, 2019 (Dollar amounts in thousands, except per share data)Net incomeavailable to $ $ $ common 946 1,898 2,316shareholders Diluted income per $ 0.22 $ 0.44 $ 0.53common shareCommon shares 4,337,615 4,337,615 4,313,083outstandingAveragecommon shares 4,359,119 4,346,277 4,397,506outstanding ,diluted Annualizedreturn on 0.33% 0.67% 0.91%averageassetsAnnualizedreturn on 4.22% 8.60% 10.86%averagecommon equityNet interest 2.94% 2.90% 3.38%marginEfficiency 77.35% 70.31% 71.50%ratio Common equityto assets 7.76% 7.74% 8.36%ratioTangiblecommon equity 7.48% 7.45% 8.00%to tangibleassetsBook value per common $ 20.51 $ 20.24 $ 19.62shareTangible book value per $ 19.71 $ 19.42 $ 18.71common shareNonperformingassets to 1.67% 1.03% 1.09%total assets

The following were items impacting the fourth quarter operating results as compared to the same quarter in 2019 and the financial condition results compared to December 31, 2019:

Interest income Total interest income decreased $1.3 million (12%) during the quarter. The decrease is due to a sharp decline in interest rates on earning assets and the Companys asset mix having greater percentages of cash and investment holdings rather than loans when compared to prior periods. Included in the decreased interest income, is the reversal of $0.4 million of accrued interest amounts on a loan relationship that was moved to nonperforming status during the quarter. The reversal of accrued interest on this relationship negatively impacted loan yield and net interest margin by 21 and 15 basis points, respectively, during the quarter.

The yield on average interest earning assets decreased 104 basis points to 3.75% with the average balance of total interest-earning assets increasing $122.4 million (13%). Compared to the fourth quarter of 2019, the average balance of the loan portfolio increased $25.0 million and the average loan yield decreased by 86 basis points to 4.54%. Other factors impacting loan interest income and yield on loans was loan accretion amounts on purchased loans declining by $297,000 during the quarter when compared to the same quarter in 2019 being offset by increased income of $680,000 from PPP loan origination fees that were able to be recognized during the quarter as loans continued to season or were forgiven and repaid by the Small Business Administration.

Interest expense - Total interest expense decreased $1.2 million (35%) during the quarter. The decrease is primarily driven by lower costs on all interest-bearing deposits and borrowings in the current rate environment. The average balance of interest-bearing liabilities increased $54.2 million (7%) as many depositors maintained higher balances than in prior periods, while the average cost of interest-bearing liabilities decreased 64 basis points to 1.01%. Cuts to key interest rates by the Federal Reserve caused significant reductions across the yield curve in 2020, however, pricing strategies by other institutions in our markets and overall economic conditions will continue to pressure deposit rates. To fund its asset growth and maintain prudent liquidity levels going forward, the Company will continue to utilize a cost-effective mix of retail and commercial core deposits along with non-core, wholesale funding, as needed.

See the Analysis of Net Interest Income and Margin table below for the fourth quarter.

Asset Quality, Provision for Loan Loss Expense and Allowance for Loan Losses The Companys nonperforming assets increased to $19.2 million (75%) as of December 31, 2020, compared to $11.0 million as of December 31, 2019. The increase is primarily the result of a $8.3 million 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.

Based on its reserve analysis and methodology, the Company recorded $1.4 million in provision for loan loss expenses during the quarter compared to no provision recorded during the prior year quarter. The decision to increase reserves was due to segments of our loan portfolio continuing to experience weakness as a result of COVID-19 and related economic slowdowns and uncertainties. At December 31, 2020, the allowance for loan losses of $9.6 million was 1.28% of gross loans outstanding (excluding mortgage loans held for sale), an increase from the 1.04% reserved as of December 31, 2019.

In accordance with generally accepted accounting principles for acquisition accounting, the loans acquired through a prior acquisition were recorded at fair value; therefore, there was no allowance associated with the loans at acquisition. Management continues to evaluate the allowance needed on the acquired loans factoring in the net remaining discount of approximately $550,000 as of December 31, 2020.

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

Non-interest Income Non-interest income increased $720,000 (43%) during the quarter compared to the same quarter in 2019. This was primarily due to increased income from the sale of mortgage loans of $568,000 (111%), increased gains on the sale of foreclosed assets of $207,000 (170%) and income of $51,000 (100%) recognized from a new loan swap product that debuted earlier in 2020. Offsetting these items was decreased income from the sale of SBA loans of $111,000 (48%) and reduced service charge income of $68,000 (15%) due to the volume of fee-based transactions being down from the prior quarter.

Non-interest Expense Non-interest expenses increased $1,002,000 (15%) when compared to the same quarter in 2019. This increase was made up of several items with the following being the largest contributors:

-- Salaries and employee benefit expenses increased $620,000 (15%) compared to the same quarter in 2019 due to a few primary factors. First, executive leadership and managerial positions were hired in the commercial banking area throughout the year. Second, due to the record mortgage production activity, wages, commissions and incentives significantly increased over the prior year quarter for the mortgage banking area. -- Data processing expenses increased $84,000 (16%) for the quarter when compared to the prior year quarter due to continued upgrades to our core processing system and additional technology and system purchases during 2020. -- FDIC assessment premiums increased $80,000 (200%) compared to the same quarter in 2019, due to credits being used in the prior year period to offset nearly all assessment related expenses. -- Other non-interest expenses increased when compared to the same quarter in 2019 by $244,000 (29%). Primary drivers of this were the funding of the previously mentioned employee crisis fund, professional fees for consulting services and higher expenses related to increased loan refinancing volumes.

Capital As of December 31, 2020, stockholders equity increased $4.4 million (5%) to $89.0 million from $84.6 million as of December 31, 2019. Net income for the quarter exceeded dividends paid or declared by $0.3 million. The equity portion of the Companys unrealized gains and losses related to our available-for-sale securities and interest rate swaps positively impacted equity balances by $0.8 million during the recently completed quarter. On a per common share basis, tangible book value increased to $19.71 at December 31, 2020 as compared to $18.71 as of December 31, 2019.

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 Companys 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:

-- Provision (credit) for income taxes -- Net gains on the sale of investment securities -- Commercial loan referral income -- Net (gains) and losses on foreclosed assets held for sale -- Provision for loan loss expense

A reconciliation of the Companys net income to its operating income for the quarter and year ended December 31, 2020 and 2019 is set forth below.

Quarter ended Year ended December December December December 31, 2020 31, 2019 31, 2020 31, 2019 (Dollar amounts are in (Dollar amounts are in thousands) thousands) Net income $ 946 $ 2,316 $ 6,832 $ 9,415 Add back: Provision (credit) for (40 ) 424 1,235 1,683 income taxesIncome before income 906 2,740 8,067 11,098 taxes Add back/(subtract): Net gains on investment - (10 ) (461 ) (90 )securitiesCommercial loan referral (51 ) - (1,149 ) - incomeNet (gain) losses onforeclosed assets held (85 ) 122 (36 ) 235 for saleProvision for loan 1,400 - 3,600 200 losses 1,264 112 1,954 345 Operating income $ 2,170 $ 2,852 $ 10,021 $ 11,443



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 16 full-service branches in Greene, Christian, Jasper and Newton Counties and a Loan Production Office in Webster County. Guaranty Bank is a member of the MoneyPass ATM network which provides its customers surcharge-free access to over 32,000 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 Companys 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 Companys plans, objectives, expectations, estimates and intentions, that are subject to change based on various important factors (some of which are beyond the Companys control). The following factors, among others, could cause the Companys 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 the COVID-19 pandemic, including on our credit quality and business operations, as well as its impact on general economic and financial market conditions; -- 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.

(GFEDER)

Financial Highlights

Operating Data: Quarter ended Year ended December 31, December 31, 2020 2019 2020 2019 (Dollar amounts are in thousands, except per share data) Total interest income $ 9,944 $ 11,249 $ 40,870 $ 45,226 Total interest expense 2,152 3,305 9,611 13,535 Net interest income 7,792 7,944 31,259 31,691 Provision for loan losses 1,400 - 3,600 200 Net interest income after Provision for loan losses 6,392 7,944 27,659 31,491 Noninterest income Service charges 376 444 1,469 1,706 Gain on sale of loans held 1,080 512 3,702 2,223 for saleGain on sale of SmallBusiness Administration 120 231 619 1,030 loansGain on sale of - 10 461 90 investmentsNet gain (loss) on 85 (122 ) 36 (235 )foreclosed assetsCommercial loan referral 51 - 1,149 - incomeOther income 679 596 2,637 2,291 2,391 1,671 10,073 7,105 Noninterest expense Salaries and employee 4,671 4,051 17,348 16,108 benefitsOccupancy 1,142 1,193 4,623 4,582 Other expense 2,064 1,631 7,694 6,808 7,877 6,875 29,665 27,498 Income before income taxes 906 2,740 8,067 11,098 Provision for income taxes (40 ) 424 1,235 1,683 Net income $ 946 $ 2,316 $ 6,832 $ 9,415 Net income per common $ 0.22 $ 0.54 $ 1.58 $ 2.14 share-basicNet income per common $ 0.22 $ 0.53 $ 1.57 $ 2.11 share-diluted Annualized return on 0.33% 0.91% 0.63% 0.96% average assetsAnnualized return on 4.22% 10.86% 7.85% 11.26% average equityNet interest margin 2.94% 3.38% 3.06% 3.46% Efficiency ratio 77.35% 71.50% 71.77% 70.88%



Financial Condition Data: As of December 31, December 31, 2020 2019Cash and cash equivalents $ $ 148,423 92,672Available-for-sale securities 168,881 118,495Loans, net of allowance for loanlosses 12/31/2020 - $9,617; 12/31/ 753,508 723,5192019 - $7,608Intangibles 3,462 3,939Premises and equipment, net 17,898 19,164Lease right-of-use assets 8,470 9,053Bank owned life insurance 25,295 24,698Other assets 20,316 20,485Total assets $ $ 1,146,253 1,012,025 Deposits $ $ 938,673 821,407Advances from correspondent banks 66,000 65,000Subordinated debentures 15,465 15,465Subordinated notes 19,564 -Other borrowed funds - 11,200Lease liabilities 8,561 9,106Other liabilities 9,022 5,215Total liabilities 1,057,285 927,393Stockholders' equity 88,968 84,632Total liabilities and $ $ stockholders' equity 1,146,253 1,012,025 Common equity to assets ratio 7.76% 8.36%Tangible common equity to tangible 7.48% 8.00%assets ratio (1)Book value per common share $ $ 20.51 19.62Tangible book value per common $ $ share (2) 19.71 18.71Nonperforming assets $ $ 19,175 10,995 (1) Stockholder?s Equity less Intangibles divided by Total Assets lessIntangibles(2) Stockholders? Equity less Intangibles divided by Common Shares Outstanding



Analysis of Net Interest Income and Margin Three months ended 12/31/2020 Three months ended 12/31/2019 Average Yield Average Yield Balance Interest / Balance Interest / Cost CostASSETS Interest-earning: Loans $ 767,404 $ 8,764 4.54% $ 742,373 $ 10,105 5.40%Investment 159,098 1,032 2.58% 110,382 778 2.80%securitiesOther assets 148 0.46% 1.84% 127,587 78,967 366Total 1,054,089 9,944 3.75% 931,722 11,249 4.79%interest-earningNoninterest-earning 70,958 72,998 $ $ 1,125,047 1,004,720 LIABILITIES ANDSTOCKHOLDERS? EQUITYInterest-bearing: Savings accounts $ 48,987 16 0.13% $ 40,488 28 0.27%Transaction 511,945 485 0.38% 461,214 1,494 1.29%accountsCertificates of 187,010 888 1.89% 216,081 1,184 2.17%depositFHLB advances 66,000 317 1.91% 50,280 275 2.17%Other borrowed - 2 0.00% 11,271 127 4.47%fundsSubordinateddebentures issued 15,465 181 4.58% - - 0.00%to Capital TrustsSubordinated notes, 263 5.35% 5.05%net 19,557 15,465 197Total 848,964 2,152 1.01% 794,799 1.65%interest-bearing 3,305Noninterest-bearing 186,953 125,289Total liabilities 1,035,917 920,088 Stockholders? equity 89,130 84,632 $ $ 1,125,047 1,004,720Net earning balance $ $ 205,125 136,923Earning yield less 2.74% 3.14%costing rateNet interestincome, and net yield spread on $ 7,792 2.94% $ 7,944 3.38%interest earningassetsRatio ofinterest-earningassets to 124% 117% interest-bearingliabilities

Contacts: Shaun A. Burke (CEO) or Carter M. Peters (CFO), 1-833-875-2492