CEO Comments
“The second quarter of 2020 continues to be an
attempt to evaluate the full impact of COVID-19 on many
fronts. Economically, an unprecedented amount of government
stimulus to support employees, businesses and credit markets was
quickly implemented to lessen the financial toll that COVID-19 was
expected to inflict on many. The logistics to get support to
those needing it will be debated over time, but the overall premise
to quickly gird the economy appears to be achieved, for now.
With so much uncertainty, the question remains of how much
will this impact the individuals, businesses and communities we
know and work with? The answers will eventually come, but
until then, we are doing our part to maintain stability in the
areas that Guaranty Bank can make a difference. For us, that
means providing assistance to our customers that are in need of
help, generating 650 small business loans to support local
payrolls, utilizing technology to conduct business in a socially
distant format that still gives our valued customers a first-class
customer service experience and, as we have for over a century,
offering FDIC insured deposit products to eliminate the worry about
where to keep your funds during these times.
Turning to financial results for our second
quarter, we posted solid results with net income of $1.88 million
leading to diluted earnings per share of $0.43 compared to $0.54
from the prior year quarter. This quarter included $750,000
in additional funding of the allowance for loan loss reserves as a
precautionary measure. We anticipate further loan deferment
and payment delays as economic impacts related to COVID-19 continue
to affect segments of our borrowers. Interest rate cuts made
by the Federal Reserve in March of this year continue to lower
asset yields and costs of funds this quarter while spurring
increased refinance activity in our loan portfolio. These
actions are proving to be a slight net positive in the short-term
for the Bank, however, with increased amounts of government
intervention to support economies, we anticipate net interest
margin compression to continue to be a theme as the current low
interest rate environment persists. Bank capital remains
strong and above any regulatory guidelines allowing for dividends
for our shareholders and a means to offset potential loan losses
should they rise in future periods. Measured growth based on
conservative practices in this ever-changing business environment
will continue to be our focus as we support our employees,
customers, shareholders and communities during this time.”
- Shaun A. Burke, President and Chief Executive
Officer
COVID-19 Response Items
- Participation in the SBA Payroll
Protection Program (PPP), a government stimulus program formulated
under the CARES Act that began in April 2020. To date, we
have approved and funded 650 PPP requests for $55.2 million to
support over 8,300 local jobs. Anticipated income from PPP
loans to be included in earnings over the life of this program is
estimated to be $2.2 million.
- Ongoing efforts to support borrowers
to temporarily modify loan agreements and/or defer payments to
navigate the current economic downturn.
Financial Condition – June 30, 2020
versus December 31, 2019
- Total assets increased $116.4 million (12%) to $1.13
billion.
- Total gross loans increased $59.4 million (8%) to $790.5
million.
- Total deposits increased $109.5 million (13%) to $931.0
million.
- The loan to deposit ratio as of June 30, 2020 was 84.92%
compared to 89.01% as of December 31, 2019.
- Stockholders’ equity increased by $1.1 million (1%).
Select Quarterly Financial
Data
Below are selected financial results for the Company’s second
quarter of 2020, compared to the first quarter of 2020 and the
second quarter of 2019.
|
Quarter ended |
|
|
June 30, 2020 |
|
|
March 31, 2020 |
|
|
June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollar amounts in thousands, except per share
data) |
|
Net income available to common
shareholders |
$ |
1,883 |
|
$ |
2,105 |
|
$ |
2,429 |
|
|
|
|
|
|
|
|
|
|
|
Diluted income per common
share |
$ |
0.43 |
|
$ |
0.49 |
|
$ |
0.54 |
|
Common shares outstanding |
|
4,337,615 |
|
|
4,337,115 |
|
|
4,442,216 |
|
Average common shares
outstanding , diluted |
|
4,340,751 |
|
|
4,336,302 |
|
|
4,503,964 |
|
|
|
|
|
|
|
|
|
|
|
Annualized return on average
assets |
|
0.70% |
|
|
0.82% |
|
|
1.00% |
|
Annualized return on average
common equity |
|
8.91% |
|
|
9.84% |
|
|
11.62% |
|
Net interest margin |
|
3.19% |
|
|
3.24% |
|
|
3.49% |
|
Efficiency ratio |
|
70.18% |
|
|
69.29% |
|
|
69.77% |
|
|
|
|
|
|
|
|
|
|
|
Common equity to assets
ratio |
|
7.60% |
|
|
8.15% |
|
|
8.57% |
|
Tangible common equity to
tangible assets |
|
7.30% |
|
|
7.81% |
|
|
8.17% |
|
Book value per common
share |
$ |
19.78 |
|
$ |
19.31 |
|
$ |
18.85 |
|
Tangible book value per common
share |
$ |
18.92 |
|
$ |
18.43 |
|
$ |
17.91 |
|
Nonperforming assets to total
assets |
|
1.06% |
|
|
1.17% |
|
|
1.28% |
|
The following were items impacting the second 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 $1.1 million (10%) during the quarter. The decrease is
primarily due to declining interest rates on earning assets and our
asset mix having greater percentages of cash and investment
holdings rather than loans when compared to prior periods. The
average balance of total interest-earning assets increased $109.2
million (12%) while the yield on average interest earning assets
decreased 99 basis points to 4.04%. During the quarter, $55.2
million of PPP loans were originated contributing to the strong
increase in earning assets, but negatively impacting the overall
yield on interest-earning assets. Compared to the
second quarter of 2019, the average balance of the loan portfolio
increased $4.3 million and the average loan yield decreased by 69
basis points to 4.74%. Loan accretion income recognized from the
Hometown Bancshares acquisition in 2018 was $169,000 during the
quarter compared to $452,000 in the same quarter of 2019.
Partially offsetting this anticipated decline in accretion income
was $197,000 of loan fees recognized from the origination of PPP
loans previously mentioned.
Interest expense - Total interest expense
decreased $1.3 million (38%) during the quarter. The decrease is
primarily driven by lower costs on all interest-bearing deposits
and borrowings in the current low-rate environment. The average
balance of interest-bearing liabilities increased $61.3 million
(8%), while the average cost of interest-bearing liabilities
decreased 76 basis points to 1.03%. Cuts to key interest rates by
the Federal Reserve have caused significant reductions across the
yield curve in 2020, however, pricing strategies by other
institutions in our markets will continue to create competitive
pressures on 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.
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 $12.0 million (9%) as of June 30, 2020,
compared to $11.0 million as of December 31, 2019.
Based on its reserve analysis and methodology, the Company
recorded $750,000 in provision for loan loss expenses during the
quarter compared to $100,000 recorded during the prior year
quarter. The decision to expense this amount was due to segments of
our loan portfolio experiencing weakness as a result of COVID-19
virus related economic slowdowns and travel restrictions. At June
30, 2020, the allowance for loan losses of $8.8 million was 1.11%
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 $580,000
as of June 30, 2020.
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 – Noninterest income
increased $380,000 (20%) during the quarter compared to the same
quarter in 2019. This was primarily due to income of $381,000
(100%) recognized from a new loan swap product that debuted earlier
in 2020, increased income from the sale of mortgage loans of
$321,000 (57%) and an increase in realized gains from the sale of
investment securities of $56,000 (71%). Offsetting these items was
a decrease of income from the sale of SBA loans of $247,000 (100%)
due to none of these loans being sold during the quarter, increased
costs on foreclosed properties of $114,000 (285%) and reduced
service charge income of $105,000 (25%) due to lower volume of
fee-based transactions.
Non-interest Expense – Non-interest expenses
increased $428,000 (6%) 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 $186,000 (5%)
compared to the same quarter in 2019 primarily due to the hiring of
new commercial relationship managers and increased commissions and
incentives related to strong mortgage lending activity.
- Data processing expenses increased $157,000 (37%) for the
quarter due when compared to the prior year due to 2020 having a
full quarter of expenses related to upgrades made to our core
processing system in last half of 2019.
- A non-recurring expense of $134,000 (100%) related to the early
termination of a debit/ATM card processing contract.
- Occupancy expenses increased $58,000 (5%) compared to the same
quarter in 2019, due to increased COVID-19 cleaning expenses at all
of our banking facilities and technology upgrades at certain
facilities.
Capital – As of June 30, 2020, stockholders’
equity increased $1.1 million (1%) to $85.7 million from $84.6
million as of December 31, 2019. Net income for the quarter
exceeded dividends paid or declared by $1.2 million. The
equity portion of the Company’s 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 $18.92 at June 30, 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 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:
- 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 Company’s net income to its operating
income for the three and six months ended June 30, 2020 and 2019 is
set forth below.
|
|
Quarter ended |
|
Six months ended |
|
|
June 30, 2020 |
|
June 30, 2019 |
|
June 30, 2020 |
|
June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
(Dollar amounts are in thousands) |
|
(Dollar amounts are in thousands) |
|
|
|
|
|
|
|
|
|
Net income |
$ |
1,883 |
$ |
2,429 |
$ |
3,988 |
$ |
4,549 |
|
|
|
|
|
|
|
|
|
Add back: |
|
|
|
|
|
|
|
|
Provision for income taxes |
|
449 |
|
429 |
|
857 |
|
804 |
Income before income
taxes |
|
2,332 |
|
2,858 |
|
4,845 |
|
5,353 |
|
|
|
|
|
|
|
|
|
Add back/(subtract): |
|
|
|
|
|
|
|
|
Net gains on investment securities |
|
(135) |
|
(79) |
|
(163) |
|
(48) |
Commercial loan referral income |
|
(381) |
|
- |
|
(936) |
|
- |
Provision for loan losses |
|
750 |
|
100 |
|
1,250 |
|
100 |
Early termination of vendor contract |
|
134 |
|
- |
|
134 |
|
- |
|
|
368 |
|
21 |
|
285 |
|
52 |
|
|
|
|
|
|
|
|
|
Operating income |
$ |
2,700 |
$ |
2,879 |
$ |
5,130 |
$ |
5,405 |
|
|
|
|
|
|
|
|
|
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 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 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.
Financial Highlights
Operating
Data: |
|
Quarter ended |
|
Six months ended |
|
|
June 30, |
|
June 30, |
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
(Dollar amounts are in thousands, except per share data) |
Total interest income |
$ |
10,159 |
$ |
11,300 |
$ |
20,958 |
$ |
22,397 |
Total interest expense |
|
2,136 |
|
3,449 |
|
5,223 |
|
6,771 |
Net interest income |
|
8,023 |
|
7,851 |
|
15,735 |
|
15,626 |
Provision for loan losses |
|
750 |
|
100 |
|
1,250 |
|
100 |
Net interest income after |
|
|
|
|
|
|
|
|
Provision for loan losses |
|
7,273 |
|
7,751 |
|
14,485 |
|
15,526 |
Noninterest income |
|
|
|
|
|
|
|
|
Service charges |
|
314 |
|
419 |
|
723 |
|
821 |
Gain on sale of loans held for sale |
|
883 |
|
562 |
|
1,426 |
|
988 |
Gain on sale of Small Business Administration loans |
|
- |
|
247 |
|
- |
|
497 |
Gain on sale of investments |
|
135 |
|
79 |
|
163 |
|
48 |
Commercial loan referral income |
|
381 |
|
- |
|
936 |
|
- |
Other income |
|
600 |
|
626 |
|
1,164 |
|
1,143 |
|
|
2,313 |
|
1,933 |
|
4,412 |
|
3,497 |
Noninterest expense |
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
4,139 |
|
3,953 |
|
8,089 |
|
7,912 |
Occupancy |
|
1,165 |
|
1,107 |
|
2,316 |
|
2,240 |
Other expense |
|
1,950 |
|
1,766 |
|
3,647 |
|
3,518 |
|
|
7,254 |
|
6,826 |
|
14,052 |
|
13,670 |
Income before income
taxes |
|
2,332 |
|
2,858 |
|
4,845 |
|
5,353 |
Provision for income
taxes |
|
449 |
|
429 |
|
857 |
|
804 |
Net income |
$ |
1,883 |
$ |
2,429 |
$ |
3,988 |
$ |
4,549 |
Net income per common
share-basic |
$ |
0.43 |
$ |
0.55 |
$ |
0.92 |
$ |
1.02 |
Net income per common
share-diluted |
$ |
0.43 |
$ |
0.54 |
$ |
0.92 |
$ |
1.01 |
|
|
|
|
|
|
|
|
|
Annualized return on average
assets |
|
0.70% |
|
1.00% |
|
0.76% |
|
0.95% |
Annualized return on average
equity |
|
8.91% |
|
11.62% |
|
9.38% |
|
11.05% |
Net interest margin |
|
3.19% |
|
3.49% |
|
3.22% |
|
3.50% |
Efficiency ratio |
|
70.18% |
|
69.77% |
|
69.75% |
|
71.49% |
Financial Condition
Data: |
|
As of |
|
|
June 30, |
|
December 31, |
|
|
2020 |
|
2019 |
Cash and cash equivalents |
$ |
113,625 |
$ |
92,672 |
Available-for-sale
securities |
|
154,723 |
|
118,495 |
Loans, net of allowance for
loan losses |
|
|
|
|
6/30/2020 - $8,788; 12/31/2019 - $7,608 |
|
781,762 |
|
723,519 |
Intangibles |
|
3,700 |
|
3,939 |
Premises and equipment,
net |
|
18,500 |
|
19,164 |
Lease right-of-use assets |
|
8,764 |
|
9,053 |
Bank owned life insurance |
|
25,001 |
|
24,698 |
Other assets |
|
22,386 |
|
20,485 |
Total assets |
$ |
1,128,461 |
$ |
1,012,025 |
|
|
|
|
|
Deposits |
$ |
930,956 |
$ |
821,407 |
Advances from correspondent
banks |
|
66,000 |
|
65,000 |
Subordinated debentures |
|
15,465 |
|
15,465 |
Other borrowed funds |
|
11,300 |
|
11,200 |
Lease liabilities |
|
8,836 |
|
9,106 |
Other liabilities |
|
10,124 |
|
5,215 |
Total liabilities |
|
1,042,681 |
|
927,393 |
Stockholders' equity |
|
85,780 |
|
84,632 |
Total liabilities and stockholders' equity |
$ |
1,128,461 |
$ |
1,012,025 |
Common equity to assets
ratio |
|
7.60% |
|
8.36% |
Tangible common equity to
tangible assets ratio (1) |
|
7.30% |
|
8.00% |
Book value per common
share |
$ |
19.78 |
$ |
19.62 |
Tangible book value per common
share (2) |
$ |
18.92 |
$ |
18.71 |
Nonperforming assets |
$ |
12,010 |
$ |
10,995 |
|
|
|
|
|
(1) Stockholder’s Equity less Intangibles divided by Total
Assets less Intangibles (2) Stockholders’ Equity less Intangibles
divided by Common Shares Outstanding
Analysis of Net Interest Income and Margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended 6/30/2020 |
|
|
Three months ended 6/30/2019 |
|
|
Average Balance |
|
|
Interest |
|
|
Yield / Cost |
|
|
Average Balance |
|
|
Interest |
|
|
Yield / Cost |
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
$ |
772,447 |
|
|
$9,094 |
|
|
4.74% |
|
$ |
768,176 |
|
$ |
10,395 |
|
|
5.43% |
Investment securities |
|
136,145 |
|
|
923 |
|
|
2.73% |
|
|
96,422 |
|
|
681 |
|
|
2.83% |
Other assets |
|
102,506 |
|
|
142 |
|
|
0.56% |
|
|
37,253 |
|
|
224 |
|
|
2.41% |
Total interest-earning |
|
1,011,098 |
|
|
10,159 |
|
|
4.04% |
|
|
901,851 |
|
|
11,300 |
|
|
5.03% |
Noninterest-earning |
|
70,534 |
|
|
|
|
|
|
|
|
68,080 |
|
|
|
|
|
|
|
$ |
1,081,632 |
|
|
|
|
|
|
|
$ |
969,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings accounts |
$ |
45,737 |
|
|
17 |
|
|
0.15% |
|
$ |
40,598 |
|
|
32 |
|
|
0.32% |
Transaction accounts |
|
508,861 |
|
|
544 |
|
|
0.43% |
|
|
417,536 |
|
|
1,551 |
|
|
1.49% |
Certificates of deposit |
|
192,793 |
|
|
981 |
|
|
2.05% |
|
|
234,515 |
|
|
1,216 |
|
|
2.08% |
FHLB advances |
|
58,264 |
|
|
284 |
|
|
1.96% |
|
|
51,677 |
|
|
289 |
|
|
2.24% |
Other borrowed funds |
|
11,202 |
|
|
115 |
|
|
4.13% |
|
|
5,000 |
|
|
64 |
|
|
5.13% |
Subordinated debentures |
|
15,465 |
|
|
195 |
|
|
5.07% |
|
|
21,731 |
|
|
297 |
|
|
5.48% |
Total interest-bearing |
|
832,322 |
|
|
2,136 |
|
|
1.03% |
|
|
771,057 |
|
|
3,449 |
|
|
1.79% |
Noninterest-bearing |
|
164,259 |
|
|
|
|
|
|
|
|
115,033 |
|
|
|
|
|
|
Total liabilities |
|
996,581 |
|
|
|
|
|
|
|
|
886,090 |
|
|
|
|
|
|
Stockholders’ equity |
|
85,051 |
|
|
|
|
|
|
|
|
83,841 |
|
|
|
|
|
|
|
$ |
1,081,632 |
|
|
|
|
|
|
|
$ |
969,931 |
|
|
|
|
|
|
Net earning balance |
$ |
178,776 |
|
|
|
|
|
|
|
$ |
130,794 |
|
|
|
|
|
|
Earning yield less costing
rate |
|
|
|
|
|
|
|
3.01% |
|
|
|
|
|
|
|
|
3.24% |
Net interest income, and net
yield spread |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on interest earning assets |
|
|
|
|
$8,023 |
|
|
3.19% |
|
|
|
|
$ |
7,851 |
|
|
3.49% |
Ratio of interest-earning
assets to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest-bearing liabilities |
|
|
|
|
121% |
|
|
|
|
|
|
|
|
117% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contacts: Shaun A. Burke (CEO) or Carter M. Peters (CFO),
1-833-875-2492
Guaranty Federal Bancsha... (NASDAQ:GFED)
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