GlobeNewswire Inc | Jul 22, 2021 09:00AM EDT

July 22, 2021

SPRINGFIELD, Mo., July 22, 2021 (GLOBE NEWSWIRE) --

CEO Comments

The recent economic recovery solidified its footing in the second quarter as consumers and businesses alike appear willing to put COVID-induced restrictions behind them. Government supported stimulus programs continue to assist the overall economy while maintaining low interest rates.The current impact of these circumstances is increased liquidity to financial institutions and a continual repricing of assets at lower rates resulting in compressed net interest margins and strong mortgage activity that has lasted over a year. We have assisted our clients through many hurdles during the pandemic and I am continually reminded of the vital role a community bank like Guaranty plays in our markets to provide quality products, knowledgeable team members and to become a trusted partner for those that we serve.

For the second quarter of 2021, the Company experienced strong earnings improvement and loan growth over 2020, coupled with a significant reduction in non-performing assets and loan modifications. Net interest margin increased during the quarter as excess cash balances were utilized to fund new loan and investment activity. Additionally, higher cost time deposits continue to reprice lower as they mature and the full repayment during May of a 6.92% fixed rate trust preferred issuance will positively impact interest expense going forward. The low interest rate environment and strong housing market continues to keep our mortgage loan team closing loans at a record pace which contributed significant fee income to our quarterly results. We hope to carry our momentum throughout the remainder of this year and look forward to sharing updates on our progress in the coming quarters.

- Shaun A. Burke, President and Chief Executive Officer

Highlights of Second Quarter 2021

-- Net income available to common shareholders for the quarter was $2.5 million as compared to $2.2 million in the first quarter of 2021 and $1.9 million earned during the second quarter of 2020. This resulted in diluted earnings per common share of $0.58 for the second quarter of 2021 compared to $0.51 for the first quarter of 2021 and $0.43 earned during the second quarter of 2020 (a 35% increase). -- Total gross loans increased $53.4 million (7%) during the quarter. The Company experienced growth of $63.4 million primarily in the commercial/industrial and construction categories, offset by a $10 million net decline in balances forgiven under the SBAs Paycheck Protection Program (PPP). -- Non-performing asset balances declined $7.3 million (40%) to $11.2 million. This results in a percentage to total assets of 0.93% as of June 30, 2021. -- As of June 30, 2021, there were no loans remaining under modification or deferment originated out of financial hardship from the COVID-19 pandemic. All 13 remaining loans for $19.4 million modified or deferred as of March 31, 2021, have now successfully resumed scheduled payments during the second quarter of 2021. -- Income from mortgage production and SBA loan activity were $1.0 million and $474,000, respectively, compared to $883,000 and $0, respectively, during the second quarter of 2020. -- On May 24, 2021, the Company fully redeemed $5.2 million of subordinated debentures bearing a fixed cost of 6.92%. This will reduce annual interest expense by approximately $357,000 going forward. -- GFED common shares ended the second quarter 2021 with a closing price of $24.42, a 26% increase from the first quarter 2021 closing price of $19.35 and an 83% increase from its 52-week low price of $13.35 on August 5, 2020. -- The Company declared its 29th consecutive quarterly dividend on June 25, 2021.

Select Quarterly Financial Data

Below are selected financial results for the Companys second quarter of 2021, compared to the first quarter of 2021 and the second quarter of 2020.

Quarter ended June 30, March June 30, 2021 31, 2021 2020 (Dollar amounts in thousands, except per share data)Net income available to $ 2,516 2,216 $ 1,883 common shareholders Diluted income per $ 0.58 $ 0.51 $ 0.43 common shareCommon shares 4,346,467 4,346,467 4,337,615 outstandingAverage common shares 4,372,205 4,350,096 4,340,751 outstanding , diluted Annualized return on 0.83 % 0.75 % 0.70 %average assetsAnnualized return on 11.03 % 9.94 % 8.91 %average common equityNet interest margin 2.94 % 2.84 % 3.19 %Efficiency ratio 68.34 % 70.86 % 70.18 % Common equity to assets 7.78 % 7.27 % 7.60 %ratioTangible common equity 7.53 % 7.02 % 7.30 %to tangible assetsBook value per common $ 21.45 $ 20.55 $ 19.78 shareTangible book value per $ 20.71 $ 19.78 $ 18.92 common shareNonperforming assets to 0.93 % 1.51 % 1.06 %total assets

The following were items impacting the second quarter 2021 operating results as compared to the same quarter in 2020 and the financial condition results compared to December 31, 2020:

Interest income Total interest income increased $30,000 (less than 1%) during the quarter. The Company experienced a significant $128.3 million increase in the average balance of total interest-earning assets during the quarter, however that growth was primarily in lower yielding cash and investment securities. A sharp decline in key interest rates over the past year offset the strong volume and compressed yields on new and existing earning assets, negatively impacting the yield on the loan portfolio. The Companys total earning asset yield declined to 3.59% during the quarter (a 0.45% decline). Included in interest income during the quarter was fee income from PPP loan activity of $393,000 compared to $197,000 during the same quarter of 2020.

Interest expense - Total interest expense decreased $308,000 (14%) during the quarter. The decrease is primarily driven by lower costs on nearly all interest-bearing deposits and borrowings in the current low-rate environment. The average balance of interest-bearing liabilities increased $29.2 million (4%), while the average cost of interest-bearing liabilities decreased 18 basis points to 0.85%. 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 necessary.

See the Analysis of Net Interest Income and Margin table below for more detailed information.

Asset Quality, Provision for Loan Loss Expense and Allowance for Loan Losses The Companys nonperforming assets decreased to $11.2 million (42%) as of June 30, 2021, compared to $19.2 million as of December 31, 2020.

Based on its reserve analysis and methodology, the Company recorded $300,000 in provision for loan loss expense during the quarter compared to $750,000 recorded during the prior year quarter. The expense amount was considered necessary primarily due to loan portfolio growth, offset by reductions in non-performing, delinquent and loans impacted by COVID-19. As of June 30, 2021, the allowance for loan losses of $10.5 million was 1.30% of gross loans outstanding (excluding mortgage loans held for sale), an increase from the 1.28% as of December 31, 2020.

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 $460,000 as of June 30, 2021.

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

Non-interest Income Non-interest income increased $503,000 (22%) during the quarter compared to the same quarter in 2020. This was due to an increase of income from the sale of SBA loans of $474,000 (100%), increased income from the sale of mortgage loans of $161,000 (18%) and increased service charge income of $127,000 (40%). Offsetting these items was a decline of $318,000 (83%) in fees generated from commercial loan swap products when compared to the same quarter of 2020.

Non-interest Expense Non-interest expenses increased $384,000 (5%) during the quarter when compared to the same quarter in 2020. The main driver behind this increase relates to salaries and employee benefit expenses which increased $343,000 (8%) due to a few significant factors. First, executive leadership and managerial positions were hired in the commercial banking area beginning in April 2020. Second, due to the record mortgage production activity, wages, commissions and incentives have significantly increased over the prior year quarter for the mortgage banking area.

Capital As of June 30, 2021, stockholders equity increased $4.2 million (5%) to $93.2 million from $89.0 million as of December 31, 2020. Net income for the six months ended exceeded dividends paid or declared by $3.4 million and was also positively impacted by the equity portion of the Companys unrealized losses on available-for-sale securities and effects of interest rate swaps which increased equity by $629,000. On a per common share basis, tangible book value increased to $20.71 at June 30, 2021 as compared to $19.71 as of December 31, 2020.

From a regulatory capital standpoint, all capital ratios for the Company and 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 for income taxes -- Gains on sales of investment securities -- Commercial loan referral income -- Provision for loan loss expense -- Early termination fee of vendor contract

A reconciliation of the Companys net income to its operating income for the three and six months ended June 30, 2021 and 2020 is set forth below.

Quarter ended Six months ended June June June June 30, 30, 30, 30, 2021 2020 2021 2020 (Dollar amounts are in (Dollar amounts are in thousands) thousands) Net income $ 2,516 $ 1,883 $ 4,732 $ 3,988 Add back: Provision for income 723 449 1,173 857 taxesIncome before income 3,239 2,332 5,905 4,845 taxes Add back/(subtract): Net (gains) losses on 6 (135 ) (66 ) (163 )investment securitiesCommercial loan (63 ) (381 ) (63 ) (936 )referral incomeProvision for loan 300 750 700 1,250 lossesEarly termination of - 134 - 134 vendor contract 243 368 571 285 Operating income $ 3,482 $ 2,700 $ 6,476 $ 5,130

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 provide its customers surcharge free access to over 37,000 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 Six months ended June 30, June 30, 2021 2020 2021 2020 (Dollar amounts are in thousands, except per share data) Total interest $ 10,189 $ 10,159 $ 20,166 $ 20,958 incomeTotal interest 1,828 2,136 3,899 5,223 expenseNet interest 8,361 8,023 16,267 15,735 incomeProvision for loan 300 750 700 1,250 lossesNet interest income afterprovision for loan 8,061 7,273 15,567 14,485 lossesNoninterest income Service charges 441 314 805 723 Gain on sale ofloans held for 1,044 883 2,116 1,426 saleGain on sale ofSmall Business 474 - 898 - AdministrationloansGain (loss) onsale of (6 ) 135 66 163 investmentsCommercial loan 63 381 63 936 referral incomeOther income 800 600 1,483 1,164 2,816 2,313 5,431 4,412 Noninterest expenseSalaries and 4,482 4,139 8,848 8,089 employee benefitsOccupancy 1,143 1,165 2,272 2,316 Other expense 2,013 1,950 3,973 3,647 7,638 7,254 15,093 14,052 Income before 3,239 2,332 5,905 4,845 income taxesProvision for 723 449 1,173 857 income taxesNet income $ 2,516 $ 1,883 $ 4,732 $ 3,988 Net income per $ 0.58 $ 0.43 $ 1.09 $ 0.92 common share-basicNet income percommon $ 0.58 $ 0.43 $ 1.09 $ 0.92 share-diluted Annualized return 0.83 % 0.70 % 0.79 % 0.76 %on average assetsAnnualized return 11.03 % 8.91 % 10.49 % 9.38 %on average equityNet interest 2.94 % 3.19 % 2.89 % 3.22 %marginEfficiency ratio 68.34 % 70.18 % 69.56 % 69.75 %

Financial Condition Data: As of June 30, December 31, 2021 2020 (Dollar amounts are in thousands, except per share data)Cash and cash equivalents $ 117,627 $ 148,423 Available-for-sale securities 196,267 168,881 Loans, net of allowance for loan losses6/30/2021 - $10,526; 12/31/2020 - 804,625 753,508 $9,617Intangibles 3,223 3,462 Premises and equipment, net 17,451 17,898 Lease right-of-use assets 8,339 8,470 Bank owned life insurance 31,563 25,295 Other assets 19,455 20,316 Total assets $ 1,198,550 $ 1,146,253 Deposits $ 993,673 $ 938,673 Advances from correspondent banks 66,000 66,000 Subordinated debentures 10,310 15,465 Subordinated notes 19,587 19,564 Lease liabilities 8,450 8,561 Other liabilities 7,305 9,022 Total liabilities 1,105,325 1,057,285 Stockholders' equity 93,225 88,968 Total liabilities and stockholders' $ 1,198,550 $ 1,146,253 equityCommon equity to assets ratio 7.78 % 7.76 %Tangible common equity to tangible 7.53 % 7.48 %assets ratio (1)Book value per common share $ 21.45 $ 20.51 Tangible book value per common share $ 20.71 $ 19.71 (2)Nonperforming assets $ 11,191 $ 19,175

(1) Total Assets less Intangibles divided by Stockholders Equity(2) Stockholders Equity less Intangibles divided by Common Shares Outstanding

Analysis of NetInterest Income and Margin: Three months ended 6/30/2021 Three months ended 6/30/2020 Average Yield Average Yield Balance Interest / Balance Interest / Cost CostASSETS Interest-earning: Loans $ 782,728 $ 8,884 4.55 % $ 772,447 $ 9,094 4.74 %Investment 192,708 1,200 2.50 % 136,145 923 2.73 %securitiesOther assets 163,950 105 0.26 % 102,506 142 0.56 %Total 1,139,386 10,189 3.59 % 1,011,098 10,159 4.04 %interest-earningNoninterest-earning 74,230 70,534 $ 1,213,616 $ 1,081,632 LIABILITIES ANDSTOCKHOLDERS? EQUITYInterest-bearing: Savings accounts $ 55,902 17 0.12 % $ 45,737 17 0.15 %Transaction 539,439 483 0.36 % 508,861 544 0.43 %accountsCertificates of 166,306 591 1.43 % 192,793 981 2.05 %depositFHLB advances 66,000 313 1.90 % 58,264 284 1.96 %Other borrowed 541 2 1.48 % 11,202 115 4.13 %fundsSubordinated notes, 19,579 263 5.39 % - - 0.00 %netSubordinateddebentures issued 13,709 159 4.65 % 15,465 195 5.07 %to Capital TrustsTotal 861,476 1,828 0.85 % 832,322 2,136 1.03 %interest-bearingNoninterest-bearing 260,698 164,259 Total liabilities 1,122,174 996,581 Stockholders? 91,442 85,051 equity $ 1,213,616 $ 1,081,632 Net earning balance $ 277,910 $ 178,776 Earning yield less 2.74 % 3.01 %costing rateNet interestincome, and net yield spreadon interest earning $ 8,361 2.94 % $ 8,023 3.19 %assetsRatio ofinterest-earning assets tointerest-bearing 132 % 121 % liabilities

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