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Guaranty Federal Bancshares reports $1.6M 2Q loss

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Springfield-based Guaranty Federal Bancshares Inc., the holding company for Guaranty Bank, posted a $1.6 million loss in the second quarter because of an increase in nonperforming assets and a substantial provision for loan losses.

The bank's loss is improved from a $2.5 million loss in second-quarter 2008 but nearly triple the $592,000 loss in first-quarter 2009. After preferred dividends, the loss per share was 73 cents, compared to a 96-cent loss per share a year ago.

Guaranty experienced a decline in its net interest margin - at 1.82 percent, compared to 2.67 percent in second-quarter 2008 - due largely to the Federal Reserve's interest rate cuts in 2007 and 2008 that have dramatically impacted the company's yield on loans, which are tied to the prime rate. The net interest margin did improve compared to this year's first quarter, however.

The bank also had a 29 percent increase in nonperforming assets, at $34 million as of June 30.

Deposits were up 17.5 percent to $525.4 million as of June 30, compared to $447 million at the end of last year. The growth increased liquidity but also increased the bank's cost of funds in the near term.

Guaranty recorded a $3.3 million provision for loan losses during the quarter, down from $5.7 million last year, to compensate for increased reserves on a few specific credits.

Noninterest expenses increased 26 percent during the quarter, primarily because of a 973 percent, or $608,000, increase in the bank's Federal Deposit Insurance Corp. insurance premium compared to the same period last year.

Despite year-over-year declines, the bank did post several improvements compared to first-quarter 2009. Net interest margin grew 9 percent, noninterest income grew 88 percent on gains from sales of loans and available sale securities, and noninterest expenses dropped 1 percent.

"Due to the continuing significant challenges in the economy our nonperforming assets remain elevated, but manageable," President and CEO Shaun Burke said in the July 17 earnings release. "We are maintaining our conservative stance on provisioning for potential problem credits, and the additions to the loan loss reserve were again the most significant factor in the loss for the quarter. Capital and core liquidity are key factors during these challenging times."

Company shares (Nasdaq:GFED) closed Monday at $6.50, compared to a 52-week range of $3.29 to $14.74.[[In-content Ad]]

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