UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001.
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO ____________
COMMISSION FILE NUMBER: 000-24235
GUARANTY BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-16516431
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 W. ARKANSAS
MT. PLEASANT, TEXAS 75455
(Address of principal executive offices, including zip code)
903-572-9881
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X ]Yes [_] No
As of August 10, 2001, there were 3,004,428 shares of the registrant's Common
Stock, par value $1.00 per share, outstanding.
GUARANTY BANCSHARES, INC.
INDEX TO FORM 10-Q
================================================================================
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets........................................3
Consolidated Statements of Earnings................................4
Condensed Consolidated Statements of Changes in Shareholders'
Equity.............................................................5
Condensed Consolidated Statements of Cash Flows....................6
Consolidated Statements of Comprehensive Income....................7
Notes to Consolidated Financial Statements.........................8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.........................................10
Item 3. Quantitative and Qualitative Disclosures about Market Risk........20
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.................................................21
Item 2. Changes in Securities and Use of Proceeds.........................21
Item 3. Defaults upon Senior Securities ..................................21
Item 4. Submission of Matters to a Vote of Security Holders...............21
Item 5. Other Information.................................................21
Item 6. Exhibits and Reports on Form 8-K..................................21
Signatures................................................................22
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
June 30, December 31,
2001 2000
--------- ---------
(Unaudited)
ASSETS
Cash and due from banks $ 9,209 $ 10,109
Interest bearing deposits in other banks 62 103
--------- ---------
Total cash and cash equivalents 9,271 10,212
Federal funds sold 19,470 4,995
Securities available-for-sale 72,369 81,620
Loans, net of allowance for loan losses of $2,794 and $2,578 297,528 284,757
Premises and equipment, net 13,584 13,532
Accrued interest receivable 3,291 3,742
Other assets 12,630 12,173
--------- ---------
Total assets $ 428,143 $ 411,031
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest-bearing $ 58,484 $ 55,274
Interest-bearing 322,415 302,991
--------- ---------
Total deposits 380,899 358,265
FHLB advances 5,249 12,403
Long-term debt 7,000 7,000
Other liabilities 4,493 3,938
--------- ---------
Total liabilities 397,641 381,606
--------- ---------
Shareholders' equity:
Preferred stock, $5.00 par value, 15,000,000 shares authorized,
no shares issued -- --
Common stock, $1.00 par value, 50,000,000 shares authorized,
3,250,016 issued 3,250 3,250
Additional capital 12,659 12,659
Retained earnings 16,344 15,274
Treasury stock, 243,684 and 205,983 shares at cost (2,631) (2,220)
Accumulated other comprehensive income 880 462
--------- ---------
Total shareholders' equity 30,502 29,425
--------- ---------
Total liabilities and shareholders' equity $ 428,143 $ 411,031
========= =========
See accompanying Notes to Consolidated Financial Statements.
3
GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
-------- -------- -------- --------
Interest income:
Loans $ 6,129 $ 5,596 $ 12,339 $ 10,913
Securities 1,130 1,442 2,267 2,756
Federal funds sold and other temporary investments 234 74 503 118
-------- -------- -------- --------
Total interest income 7,493 7,112 15,109 13,787
Interest expense:
Deposits 3,983 3,633 8,120 7,067
FHLB advances and other borrowed funds 290 347 653 486
-------- -------- -------- --------
Total interest expense 4,273 3,980 8,773 7,553
-------- -------- -------- --------
Net interest income 3,220 3,132 6,336 6,234
Provision for loan losses 185 185 340 315
-------- -------- -------- --------
Net interest income after provision for loan losses 3,035 2,947 5,996 5,919
Noninterest income:
Service charges 687 597 1,305 1,139
Other operating income 354 271 728 640
Realized gain (loss) on available-for-sale securities 51 -- 317 (34)
-------- -------- -------- --------
Total noninterest income 1,092 868 2,350 1,745
-------- -------- -------- --------
Noninterest expense:
Employee compensation and benefits 1,790 1,639 3,710 3,409
Occupancy expenses 460 414 924 831
Other operating expenses 957 871 1,838 1,803
-------- -------- -------- --------
Total noninterest expenses 3,207 2,924 6,472 6,043
-------- -------- -------- --------
Earnings before income taxes 920 891 1,874 1,621
Provision for income taxes 197 203 413 388
-------- -------- -------- --------
Net earnings $ 723 $ 688 $ 1,461 $ 1,233
======== ======== ======== ========
Basic earnings per common share $ 0.24 $ 0.22 $ 0.48 $ 0.39
======== ======== ======== ========
Diluted earnings per common share $ 0.24 $ 0.22 $ 0.48 $ 0.39
======== ======== ======== ========
See accompanying Notes to Consolidated Financial Statements.
4
GUARANTY BANCHSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
2001 2000 2001 2000
-------- -------- -------- --------
Balance at beginning of period $ 30,457 $ 28,727 $ 29,425 $ 28,496
Net income 723 688 1,461 1,233
Cash dividends declared on common stock (391) (372) (391) (372)
Purchases of treasury stock (246) (1,549) (411) (1,549)
Change in unrealized gain (loss) on
securities available for sale, net of tax (41) 94 418 (220)
-------- -------- -------- --------
Balance at end of period $ 30,502 $ 27,588 $ 30,502 $ 27,588
======== ======== ======== ========
See accompanying Notes to Consolidated Financial Statements.
5
GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Six Months
Ended June 30,
-----------------------
2001 2000
-------- --------
Net cash provided by (used by) operating activities $ 2,428 $ (1,222)
-------- --------
Cash flows from investing activities:
Securities available for sale:
Purchases (22,229) (16,243)
Sales 18,368 5,314
Maturities, calls, and principal repayments 14,135 4,170
Net increase in loans (13,685) (8,844)
Purchases of premises and equipment (537) (2,241)
Proceeds from sale of other real estate 376 156
Net (decrease) increase in federal funds sold (14,475) 1,140
-------- --------
Net cash used by investing activities (18,047) (16,548)
-------- --------
Cash flows from financing activities:
Net change in deposits 22,634 10,259
Net change in short-term FHLB advances (7,000) 1,000
Repayment of long-term FHLB advances (154) (146)
Proceeds from issuance of trust preferred securities -- 7,000
Increase in federal funds purchased -- 2,045
Purchase of treasury stock (411) (1,549)
Dividends paid (391) (372)
-------- --------
Net cash provided from financing activities 14,678 18,237
-------- --------
Net (decrease) increase in cash and cash equivalents (941) 467
Cash and cash equivalents at beginning of period 10,212 13,152
-------- --------
Cash and cash equivalents at end of period $ 9,271 $ 13,619
======== ========
Supplemental disclosures:
Cash paid for income taxes $ 58 $ 420
Cash paid for interest 8,448 7,193
Significant non-cash transactions:
Transfers from loans to real estate owned $ 574 $ 582
See accompanying Notes to Consolidated Financial Statements.
6
GUARANTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Six Months
Ended June 30, Ended June 30,
----------------------- -----------------------
2001 2000 2001 2000
------- ------- ------- -------
Net earnings $ 723 $ 688 $ 1,461 $ 1,233
Other comprehensive income:
Unrealized gain (loss) on available for sale securities
arising during the period (11) 143 951 (366)
Reclassification adjustment for amounts realized on
securities sales included in net earnings (51) -- (317) 34
------- ------- ------- -------
Net unrealized gain (loss) (62) 143 634 (332)
Tax effect 21 (49) (216) 112
------- ------- ------- -------
Total other comprehensive income (41) 94 418 (220)
------- ------- ------- -------
Comprehensive income $ 682 $ 782 $ 1,879 $ 1,013
======= ======= ======= =======
See accompanying Notes to Consolidated Financial Statements
7
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Guaranty Bancshares, Inc. (the "Company") and its wholly-owned
subsidiaries Guaranty (TX) Capital Trust I and Guaranty Financial Corp., Inc.,
which wholly owns Guaranty Bank, and one non-bank subsidiary, Guaranty Company.
Guaranty Bank has two wholly owned non-bank subsidiaries, Guaranty Leasing
Company and GB Com, Inc. and one 51% owned non-bank subsidiary, Guaranty
Technology, L.L.C. All significant intercompany balances and transactions have
been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for a complete
presentation of financial position. In the opinion of management, the
accompanying unaudited consolidated financial statements reflect all adjustments
necessary for a fair presentation of the financial position, results of
operations and cash flows of the Company on a consolidated basis, and all such
adjustments are of a normal recurring nature. These financial statements and the
notes thereto should be read in conjunction with the Company's Annual Report on
Form 10-K filed with the Securities and Exchange Commission on March 9, 2001.
The Company has consistently followed the accounting policies described in the
Annual Report in preparing this Form 10-Q. Operating results for the six months
ended June 30, 2001, are not necessarily indicative of the results that may be
expected for the year ending December 31, 2001.
In preparation of the accompanying unaudited consolidated financial
statements, management is required to make estimates and assumptions, which are
based on information available at the time such estimates and assumptions are
made. These estimates and assumptions affect the amounts reported in the
accompanying unaudited consolidated financial statements. Accordingly, future
results may differ if the actual amounts and events are not the same as the
estimates and assumptions of management. The collectability of loans, fair value
of financial instruments and status of contingencies are particularly subject to
change.
Employee compensation expense under stock option plans is reported if
options are granted below market price at grant date. Pro forma disclosures of
net income and earnings per share are shown using the fair value method of
Statement of Financial Accounting Standards No. 123 to measure expense for
options granted, using an option pricing model to estimate fair value.
NOTE 2. EARNINGS PER SHARE
Earnings per share is computed in accordance with Statement of Financial
Accounting Standards No. 128, which requires dual presentation of basic and
diluted earnings per share ("EPS") for entities with complex capital structures.
Basic EPS is based on net earnings divided by the weighted-average number of
shares outstanding during the period. Diluted EPS includes the dilutive effect
of stock options granted using the treasury stock method.
8
The weighted-average number of common shares outstanding for basic and
diluted earnings per share computations was as follows:
Three Months Six Months
Ended June 30, Ended June 30,
2001 2000 2001 2000
--------- --------- --------- ---------
(Unaudited) (Unaudited)
Weighted average common shares used in basic EPS 3,017,755 3,145,457 3,028,424 3,188,936
Potential dilutive common shares 8,832 -- 8,322 --
--------- --------- --------- ---------
Weighted average common and potential dilutive
common shares used in dilutive EPS 3,026,587 3,145,457 3,036,746 3,188,936
========= ========= ========= =========
NOTE 3. STOCK OPTIONS
In 2000, the Company granted nonqualified stock options to certain
executive officers of the Company and Guaranty Bank under the Company's 1998
Stock Incentive Plan. The grants consisted of eight-year options to purchase
89,500 shares at an exercise price of $9.30 per share, which was the market
price of the Company's stock on the date the options were granted. The options
fully vest and become exercisable in five equal installments commencing on the
first anniversary of the date of grant and annually thereafter. At June 30,
2001, none of the options are exercisable and 910,500 options remain available
for future grant under the 1998 Stock Incentive Plan.
The weighted-average fair value per share of options granted during 2000
was $2.03. The fair value of options granted was estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions: Dividend yield of 2.59%; expected volatility of 7.67%; risk-free
interest rate of 6.42%, and an expected life of 8.00 years.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation," requires pro forma disclosures for companies not adopting
its fair value accounting method for stock-based employee compensation. No
compensation expense related to stock options is actually recognized.
Accordingly, the following pro forma information presents net income and
earnings per share for the three months ended June 30, 2001 and 2000 had the
SFAS No. 123 fair value method been used to measure compensation cost for stock
option plans (dollars in thousands, except per share amounts):
Three Months Six Months
Ended June 30, Ended June 30,
2001 2000 2001 2000
--------- --------- --------- ---------
(Unaudited) (Unaudited)
Net earnings:
As reported $ 723 $ 688 $ 1,461 $ 1,233
========= ========= ========= =========
Pro forma $ 717 $ 682 $ 1,449 $ 1,226
========= ========= ========= =========
Earnings per share:
As reported
Basic $ 0.24 $ 0.22 $ 0.48 $ 0.39
========= ========= ========= =========
Diluted $ 0.24 $ 0.22 $ 0.48 $ 0.39
========= ========= ========= =========
Pro forma
Basic $ 0.24 $ 0.22 $ 0.48 $ 0.39
========= ========= ========= =========
Diluted $ 0.24 $ 0.22 $ 0.48 $ 0.39
========= ========= ========= =========
9
The effects of applying Statement of Financial Accounting Standards No. 123
in this pro forma disclosure are not indicative of future amounts. The pro forma
effect may increase in the future if more options are granted.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion addresses information pertaining to the financial
condition and results of operations of Guaranty Bancshares, Inc. and
subsidiaries that may not be otherwise apparent from a review of the
consolidated financial statements and related footnotes. It should be read in
conjunction with those statements, as well as with the other information
presented throughout the report. Certain statements in this Quarterly Report on
Form 10-Q include forward-looking information within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, and are subject to the "Safe Harbor" created
by those sections. These forward-looking statements involve certain risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements. Such risks and uncertainties include, but are
not limited to, the following factors: competitive pressure in the banking
industry significantly increasing; changes in the interest rate environment
reducing margins; general economic conditions, either nationally or regionally,
are less favorable than expected, resulting in, among other things, a
deterioration in credit quality and an increase in the provision for possible
loan losses; changes in the regulatory environment; changes in business
conditions; volatility of rate sensitive deposits; operational risks including
data processing system failures or fraud; asset/liability, matching risks and
liquidity risks; and changes in the securities markets and the factors contained
in the Company's Annual Report on Form 10-K for the year ended December 31, 2000
as filed with the Securities and Exchange Commission.
GENERAL OVERVIEW
Guaranty Bancshares, Inc. (the "Company") is a registered bank holding
company that derives substantially all of its revenues and income from the
operation of its subsidiary, Guaranty Bank (the "Bank"). The Bank is a full
service bank that provides a broad line of financial products and services to
small and medium-sized businesses and consumers through ten banking locations in
the Texas communities of Mount Pleasant (two offices), Bogata, Commerce, Deport,
Paris, Pittsburg, Sulphur Springs, Talco and Texarkana. The Company also
maintains a loan production office in Fort Stockton, Texas to facilitate the
process of securing loans in that market.
FINANCIAL OVERVIEW
Net earnings available to common shareholders for the six months ended June
30, 2001 were $1.5 million or $0.48 per share compared with $1.2 million or
$0.39 per share for the six months ended June 30, 2000, an increase of $228,000
or 18.5%. The increase is due primarily to an increase in net interest income of
$102,000 or 1.6% and an increase in noninterest income of $605,000 or 34.7%
offset by an increase in noninterest expense of $429,000 or 7.1%. These
increases are due in part to the growth in loans, in deposits and in other
liabilities. Net earnings for the three months ended June 30, 2001 were $723,000
or $0.24 per share compared with $688,000 or $0.22 per share for the three
months ended June 30, 2000, an increase of $35,000 or 5.1%. The increase is
primarily due to an increase in net interest income and noninterest income
partly offset by an increase in noninterest expense.
The first six months of year 2001 showed steady growth. Gross loans
increased to $300.3 million at June 30, 2001, from $287.3 million at December
31, 2000, an increase of $13.0 million or 4.5%. Total assets increased to $428.1
million at June 30, 2001, compared with $411.0 million at December 31, 2000. The
increase of $17.1 million in total assets resulted primarily from the investment
of increased deposits of $22.6 million, offset by a reduction in FHLB advances
of $7.2 million. Total deposits increased to $380.9 million at June 30, 2001
compared to $358.3 million at December 31, 2000, an increase of $22.6 million or
6.3%.
Total shareholders' equity was $30.5 million at June 30, 2001, compared
with $29.4 million at December 31, 2000, an increase of $1.1 million or 3.7%.
This increase was due to earnings for the period of $1.5 million and an increase
in accumulated other comprehensive income of $418,000 offset by the purchase of
37,701 shares of treasury stock at cost of $411,000, and the payment of
dividends of $391,000.
10
RESULTS OF OPERATIONS
Interest Income
Interest income for the six months ended June 30, 2001 was $15.1 million,
an increase of $1.3 million or 9.6% compared with the six months ended June 30,
2000. The increase in interest income was due primarily to higher interest
income on loans offset by decreased income on securities. Average loans were
$290.6 million for the six months ended June 30, 2001, compared with $259.0
million for the six months ended June 30, 2000, an increase of $31.6 million or
12.2%. Average securities were $68.5 million for the six months ended June 30,
2001, compared with $84.2 million for the six months ended June 30, 2000, a
decrease of $15.7 million or 18.6%. Interest income for the three months ended
June 30, 2001 was $7.5 million, an increase of $381,000 or 5.4% compared with
the three months ended June 30, 2000. Growth in the average volume of
interest-earning assets was a result in part, due to the growth in loans during
the three and six months periods ended June 30, 2001. The increase in interest
income is also due to an increase in the average yield earned on
interest-earnings assets during the six months period ended June 30, 2001.
Interest Expense
Interest expense on deposits and other interest-bearing liabilities was
$8.8 million for the six months ended June 30, 2001, compared with $7.6 million
for the six months ended June 30, 2000, an increase of $1.2 million or 16.2%.
The increase in interest expense was due primarily to an increase of $35.4
million or 11.9% in average interest-bearing liabilities to $333.2 million for
the six months ended June 30, 2001, from $297.8 million for the six months ended
June 30, 2000. The increase is also due to a rise in average interest rate paid
on interest-bearing liabilities from 5.10% for the six months ended June 30,
2000 to 5.31% for the six months ended June 30, 2001. Interest expense was $4.3
million for the three months ended June 30, 2001, compared with $4.0 million for
the three months ended June 30, 2000, an increase of $293,000 or 7.4%. The
increase for the comparable three -month periods was also due to increases in
average balances offset by a decrease in average interest rates of
interest-bearing liabilities.
Net Interest Income
Net interest income was $6.3 million for the six months ended June 30, 2001
compared with $6.2 million for the six months ended June 30, 2000, an increase
of $102,000 or 1.6%. The increase in net interest income resulted primarily from
growth in average interest-earning assets to $379.7 million for the six months
ended June 30, 2001, from $347.3 million for the six months ended June 30, 2000,
an increase of $32.4 million or 9.3% offset by growth in average
interest-bearing liabilities to $333.2 million for the six months ended June 30,
2001, from $297.8 million for the six months ended June 30, 2000, an increase of
$35.4 million or 11.9%. Net interest income was $3.2 million for the three
months ended June 30, 2001, compared with $3.1 million for the three months
ended June 30, 2000, an increase of $88,000 or 2.8%. The net interest margin
decreased from 3.57% to 3.37% for the three months ended June 30, 2001 and from
3.61% to 3.36% for the six months ended June 30, 2001 compared to the same three
and six-month periods ended June 30, 2000. This decrease can be attributed to
the fact that the percentage growth in average interest-bearing liabilities
exceeded the percentage growth in average interest-earning assets causing the
ratio of average interest-earning assets to average interest-bearing liabilities
to decrease. Additionally, the average rate paid on interest-bearing liabilities
increased at a faster rate than the average rate earned on interest-earning
assets due to the Bank's negative gap position.
The Company's net interest income is affected by changes in the amount and
mix of interest-earning assets and interest-bearing liabilities, referred to as
a "volume change." It is also affected by changes in yields earned on
interest-earning assets and rates paid on interest-bearing deposits and other
borrowed funds, referred to as a "rate change." The following tables set forth,
for each category of interest-earning assets and interest-bearing liabilities,
the average amounts outstanding, the interest earned or paid on such amounts,
and the average rate earned or paid for the three and six months ended June 30,
2001 and 2000, respectively. The tables also set forth the average rate earned
on total interest-earning assets, the average rate paid on total
interest-bearing liabilities, the net interest spread and the net interest
margin for the same periods. The net interest spread is the difference between
the average rate earned on total interest-earning assets less the average rate
paid on total interest-bearing liabilities. The net interest margin is net
interest income as a percentage of average interest-earning assets (dollars in
thousand):
11
Three Months Ended June 30,
--------------------------------------------------------------------------
2001 2000
--------------------------------------------------------------------------
Average Interest Average Average Interest Average
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
--------- --------- --------- --------- --------- ---------
(Dollars in thousands)
(Unaudited)
Assets
Interest-earning assets:
Loans ............................................. $ 291,814 $ 6,129 8.42% $ 260,085 $ 5,596 8.65%
Securities ........................................ 70,112 1,130 6.46% 87,601 1,442 6.62%
Federal funds sold ................................ 21,135 234 4.44% 5,081 73 5.78%
Interest-bearing deposits in
other financial institutions ................. 106 -- 3.90% 23 1 4.36%
--------- --------- --------- --------- --------- ---------
Total interest-earning assets .................. 383,167 7,493 7.84% 352,790 7,112 8.11%
Less allowance for loan losses ...................... (2,778) (2,476)
--------- ---------
Total interest-earning
assets, net of allowance .................. 380,389 350,314
Non-earning assets:
Cash and due from banks ......................... 11,803 11,543
Premises and equipment .......................... 13,561 13,316
Interest receivable and
other assets .............................. 18,023 14,117
Other real estate owned ......................... 511 312
--------- ---------
Total assets ............................. $ 424,287 $ 389,602
========= =========
Liabilities and shareholders'
Interest-bearing liabilities:
NOW, savings, and money
market accounts ............................ $ 105,759 $ 719 2.73% $ 96,728 $ 984 4.09%
Time deposits .................................. 216,020 3,264 6.06% 188,442 2,649 5.65%
--------- --------- --------- ---------
Total interest-bearing
deposits ................................ 321,779 3,983 4.96% 285,170 3,633 5.12%
FHLB advances and federal funds purchased ...... 6,418 97 6.06% 11,236 155 5.55%
Long-term debt ................................. 7,000 193 11.06% 7,000 192 11.03%
--------- --------- --------- --------- --------- ---------
Total interest-bearing
liabilities ............................. 335,197 $ 4,273 5.11% 303,406 $ 3,980 5.28%
--------- ---------
Noninterest-bearing liabilities:
Demand deposits ................................ 54,295 56,101
Accrued interest, taxes and
other liabilities .......................... 4,283 2,542
--------- ---------
Total liabilities .......................... 393,775 362,049
Shareholders' equity ................................ 30,512 27,553
--------- ---------
Total liabilities and
shareholders' equity ................... $ 424,287 $ 389,602
========= =========
Net interest income ................................. $ 3,220 $ 3,132
========= =========
Net interest spread ................................. 2.73% 2.83%
==== ====
Net interest margin ................................. 3.37% 3.57%
==== ====
12
Six Months Ended June 30,
-------------------------------------------------------------------------
2001 2000
----------------------------------- -----------------------------------
Average Interest Average Average Interest Average
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
--------- --------- --------- --------- --------- ---------
(Dollars in thousands)
(Unaudited)
Assets
Interest-earning assets:
Loans ............................................ $ 290,607 $ 12,339 8.56% $ 259,010 $ 10,913 8.47%
Securities ....................................... 68,531 2,267 6.67% 84,183 2,756 6.58%
Federal funds sold ............................... 20,539 503 4.94% 4,129 117 5.70%
Interest-bearing deposits in
other financial institutions ................ 66 -- 3.90% 19 1 4.36%
--------- --------- --------- --------- --------- ---------
Total interest-earning assets ................. 379,743 15,109 8.02% 347,341 13,787 7.98%
Less allowance for loan losses ..................... (2,716) (2,477)
--------- ---------
Total interest-earning
assets, net of allowance ................. 377,027 344,864
Non-earning assets:
Cash and due from banks ........................ 11,840 12,248
Premises and equipment ......................... 13,560 12,807
Interest receivable and
other assets ............................. 17,875 13,062
Other real estate owned ........................ 424 231
--------- ---------
Total assets ............................ $ 420,726 $ 383,212
========= =========
Liabilities and shareholders'
Interest-bearing liabilities:
NOW, savings, and money
market accounts ........................... $ 104,654 $ 1,615 3.11% $ 95,064 $ 1,913 4.05%
Time deposits ................................. 212,853 6,505 6.16% 188,296 5,154 5.50%
--------- --------- --------- ---------
Total interest-bearing
deposits ............................... 317,507 8,120 5.16% 283,360 7,067 5.02%
FHLB advances and federal funds purchased ..... 8,697 270 6.26% 10,556 275 5.24%
Long-term debt ................................ 7,000 383 11.03% 3,846 211 11.03%
--------- --------- -------- --------- ---------
Total interest-bearing
liabilities ............................ 333,204 $ 8,773 5.31% 297,762 $ 7,553 5.10%
--------- ---------
Noninterest-bearing liabilities:
Demand deposits ............................... 53,141 55,131
Accrued interest, taxes and
other liabilities ......................... 4,009 2,367
--------- ---------
Total liabilities ......................... 390,354 355,260
Shareholders' equity ............................... 30,372 27,952
--------- ---------
Total liabilities and
shareholders' equity .................. $ 420,726 $ 383,212
========= =========
Net interest income ................................ $ 6,336 $ 6,234
========= =========
Net interest spread ................................ 2.71% 2.88%
==== ====
Net interest margin ................................ 3.36% 3.61%
==== ====
13
The following tables present the dollar amount of changes in interest
income and interest expense for the major components of interest-earning assets
and interest-bearing liabilities and distinguishes between the increase
(decrease) related to outstanding balances and the volatility of interest rates.
For purposes of these tables, changes attributable to both rate and volume that
can be segregated have been allocated (dollars in thousands):
Three Months Ended June 30,
----------------------------------------
2001 vs. 2000
----------------------------------------
Increase (Decrease)
Due to
------------------------
Volume Rate Total
-------- -------- --------
(Unaudited)
Interest-earning assets:
Loans $ 700 $ (167) $ 533
Securities (285) (27) (312)
Federal funds sold 231 (70) 161
Interest-bearing deposits in other
financial institutions -- (1) (1)
-------- -------- --------
Total increase in interest income 646 (265) 381
-------- -------- --------
Interest-bearing liabilities:
NOW, savings, and money market
accounts 95 (360) (265)
Time deposits 396 219 615
FHLB advances (66) 8 (58)
Long-term debt 1 -- 1
-------- -------- --------
Total increase in interest expense 426 (133) 293
-------- -------- --------
Increase (decrease) in net interest income $ 220 $ (132) $ 88
======== ======== ========
14
Six Months Ended June 30,
----------------------------------------------
2001 vs. 2000
----------------------------------------------
Increase (Decrease)
Due to
----------------------------
Volume Rate Total
---------- ---------- ----------
(Unaudited)
Interest-earning assets:
Loans $ 1,297 $ 129 $ 1,426
Securities (519) 30 (489)
Federal funds sold 463 (77) 386
Interest-bearing deposits in other
financial institutions -- (1) (1)
---------- ---------- ----------
Total increase in interest income 1,241 81 1,322
---------- ---------- ----------
Interest-bearing liabilities:
NOW, savings, and money market
accounts 187 (485) (298)
Time deposits 656 695 1,351
FHLB advances (49) 44 (5)
Long-term debt 172 -- 172
---------- ---------- ----------
Total increase in interest expense 966 254 1,220
---------- ---------- ----------
Increase (decrease) in net interest income $ 275 $ (173) $ 102
========== ========== ==========
Provision for Loan Losses
Provisions for loan losses are charged to income to bring the total
allowance for loan losses to a level deemed appropriate by management of the
Company based on such factors as the industry diversification of the Company's
commercial loan portfolio, the effect of changes in the local real estate market
on collateral values, the results of recent regulatory examinations, the effects
on the loan portfolio of current economic indicators and their probable impact
on borrowers, the amount of charge-offs for the period, the amount of
nonperforming loans and related collateral security, the evaluation of the
Company's loan portfolio by Independent Bank Services, L.C. and the annual
examination of the Company's financial statements by its independent auditors.
The provision for loan losses for the six months ended June 30, 2001, was
$340,000 compared with $315,000 for the six months ended June 30, 2000, an
increase of $25,000 or 7.9%. The provision for loan losses for both the three
months ended June 30, 2001 and 2000, were $185,000. The increase for the
six-month period was due to the increase in average loans of 12.2% over the
period. Management believes increasing the allowance for loan losses is prudent
as total loans, particularly higher-risk commercial, construction, and consumer
loans, increased.
Noninterest Income
The following table presents, for the periods indicated, the major
categories of noninterest income (dollars in thousands):
15
Three months ended Six months ended
June 30, June 30,
---------------------------------------------------------
2001 2000 2001 2000
--------- --------- --------- ---------
(Unaudited) (Unaudited)
Service charges on deposit accounts $ 687 $ 597 $ 1,305 $ 1,139
Fee income 157 134 336 326
Fiduciary income 30 18 63 43
Other noninterest income 167 119 329 271
Realized gain (loss) on securities 51 -- 317 (34)
--------- --------- --------- ---------
Total noninterest income $ 1,092 $ 868 $ 2,350 $ 1,745
========= ========= ========= =========
The Company's primary sources of recurring noninterest income are service
charges on deposit accounts and fee income. Noninterest income for the three and
six-months period ended June 30, 2001 increased $224,000, or 25.8% and $605,000
or 34.7%, respectively, over the same periods ended June 30, 2000. The increase
in noninterest income for the three and six-months ended June 30, 2001 was
primarily due to an increase in service charges on deposit accounts created by
an increase in the number of deposit accounts. Additionally, fee income
increased $23,000 or 17.2%, and $10,000 or 3.1% for the three and six-months
ended June 30, 2001, over the three and six-months ended June 30, 2000. The
increase was primarily due to increases in credit life commission income and
debit card fee income. Other noninterest income increased $48,000 or 40.3% and
$58,000 or 21.4% during the same periods due primarily to the gain on sale of
loans sold into the secondary market and additional income generated by the
bank's subsidiary, Guaranty Leasing. The Company had net gains on sales of
securities for the three and six-months period ended June 30, 2001 of $51,000
and $317,000 respectively.
Noninterest Expenses
The following table presents, for the periods indicated, the major
categories of noninterest expenses (dollars in thousands):
Three months ended Six months ended
June 30, June 30,
---------------------------------------------------------
2001 2000 2001 2000
--------- --------- --------- ---------
(Unaudited) (Unaudited)
Employee compensation and benefits $ 1,790 $ 1,639 $ 3,710 $ 3,409
--------- --------- --------- ---------
Non-staff expenses:
Net bank premises expense 460 414 924 831
Office and computer supplies 63 72 145 174
Legal and professional fees 121 176 191 247
Advertising 69 93 141 162
Postage 53 35 96 74
FDIC insurance 21 17 38 33
Other 630 478 1,227 1,113
--------- --------- --------- ---------
Total non-staff expenses 1,417 1,285 2,762 2,634
--------- --------- --------- ---------
Total noninterest expenses $ 3,207 $ 2,924 $ 6,472 $ 6,043
========= ========= ========= =========
Employee compensation and benefits expense increased $151,000, or 9.2%, and
$301,000, or 8.8%, for the three and six-months ended June 30, 2001 compared to
the same periods in 2000. The increase for both the three and six-month periods
ended June 30, 2001 was due primarily to normal salary increases and additional
staff placement in the Texarkana, Sulphur Springs, Commerce, and Paris locations
to handle customer growth. The number of full-time equivalent employees was 195
at June 30, 2001, compared with 185 at June 30, 2000, an increase of 5.4%.
16
Non-staff expenses increased $132,000 or 10.3%, and $128,000 or 4.9%, for
the three and six-months ended June 30, 2001, compared with the same periods in
2000. Net bank premises expense increased $46,000, or 11.1% and $93,000, or
11.2%, over the comparable periods due to the additions to fixed assets from the
construction and remodeling projects completed in 2000.
Other non-staff expenses increased $152,000, or 31.8% and $114,000, or
10.2%, over the comparable three and six-month periods due to the addition of
new locations which, among other expenses, resulted in increases in director
fees, supplies expense, ATM and debit card expenses, and amortization of
goodwill.
Income Taxes
Income tax expense increased $25,000 to $413,000 for the six months ended
June 30, 2001 from $388,000 for the same period in 2000. Income tax expense was
$197,000 for the three months ended June 30, 2001 compared with $203,000 for the
three months ended June 30, 2000, a decrease of $6,000. The change in income tax
expense is primarily attributable to the change in income before income taxes.
The increase for the six-month period is also a result of fewer tax deductions
available from the Company's leveraged leasing activities. The income stated on
the consolidated statement of earnings differs from the taxable income due to
tax-exempt income, the amount of non-deductible interest expense and the amount
of other non-deductible expense.
FINANCIAL CONDITION
Loan Portfolio
Gross loans were $300.3 million at June 30, 2001, an increase of $13.0
million or 4.5% from $287.3 million at December 31, 2000. Loan growth occurred
primarily in 1- 4 family residential loans and multi-family residential loans
due to the Company's emphasis to have a higher concentration of real estate
based loans. Loans comprised 76.6% of total interest-earning assets at June 30,
2001 compared with 76.8% at December 31, 2000.
The following table summarizes the loan portfolio of the Company by type of
loan as of June 30, 2001 and December 31, 2000 (dollars in thousands):
June 30, 2001 December 31, 2000
------------------------- -------------------------
Amount Percent Amount Percent
--------- --------- --------- ---------
(Unaudited)
Commercial and industrial $ 62,300 20.74% $ 66,616 23.18%
Agriculture 9,415 3.13 8,318 2.89
Real estate:
Construction and land development 6,916 2.30 7,316 2.55
1-4 family residential 110,884 36.92 102,614 35.71
Farmland 9,671 3.22 7,716 2.69
Non-residential and non-farmland 63,806 21.25 61,224 21.31
Multi-family residential 7,431 2.47 4,946 1.72
Consumer 29,899 9.97 28,585 9.95
--------- --------- --------- ---------
Total loans $ 300,322 100.00% $ 287,335 100.00%
========= ========= ========= =========
Allowance for Loan Losses
In originating loans, the Company recognizes that it will experience credit
losses and the risk of loss will vary with, among other things, general economic
conditions, the type of loan being made, the creditworthiness of the borrower
over the term of the loan and, in the case of a collateralized loan, the quality
of the collateral for such loan. The Company maintains an allowance for loan
losses in an amount that it believes is adequate for estimated losses in its
loan portfolio.
17
Management determines the adequacy of the allowance through its evaluation of
the loan portfolio. In addition to unallocated allowances, specific allowances
are provided for individual loans when ultimate collection is considered
questionable by management after reviewing the current status of loans which are
contractually past due and considering the net realizable value of the
collateral for the loan. Loans are charged-off against the allowance for loan
losses when appropriate. Although management believes it uses the best
information available to make determinations with respect to the allowance for
loan losses, future adjustments may be necessary if economic conditions differ
from the assumptions used in making the initial determinations. Loans
charged-off during the six-month period ended June 30, 2001 decreased $103,000
or 25.4% over the same period ended June 30, 2000. At June 30, 2001, and June
30, 2000, the allowance for loan losses totaled $2.8 million or 0.93% of gross
loans and $2.5 million or 0.95% of gross loans respectively. The allowance for
loan losses as a percentage of nonperforming loans was 57.89% at June 30, 2001.
Set forth below is an analysis of the allowance for loan losses for the
periods indicated (dollars in thousands):
Six months Six months
ended ended
June 30, June 30,
2001 2000
----------- -----------
(Unaudited)
Average loans outstanding $ 290,607 $ 259,010
=========== ===========
Gross loans outstanding at end of period $ 300,322 $ 263,375
=========== ===========
Allowance for loan losses at beginning of period $ 2,578 $ 2,491
Provision for loan losses 340 315
Charge-offs:
Commercial and industrial (117) (238)
Real estate (44) (65)
Consumer (141) (102)
Recoveries:
Commercial and industrial 24 29
Real estate 118 7
Consumer 36 54
----------- -----------
Net loan recoveries (charge-offs) (124) (315)
----------- -----------
Allowance for loan losses at end of period $ 2,794 $ 2,491
=========== ===========
Ratio of allowance to end of period loans 0.93% 0.95%
Ratio of net charge-offs to average loans 0.04% 0.12%
Ratio of allowance to end of period nonperforming loans 57.89% 154.24%
18
NONPERFORMING ASSETS
Nonperforming assets were $5.3 million at June 30, 2001 compared with $5.0
million at December 31, 2000. Nonaccrual loans increased $1.6 million from $1.2
million at December 31, 2000 to $2.8 million at June 30, 2001. This increase is
due primarily to two large commercial lines added to non-accrual status totaling
$1.7 million. These lines are currently in a liquidation mode. They have
collateral values, which exceed the total debt, and no loss is anticipated.
Accruing loans 90 or more days past due decreased $1.5 million, from $3.5
million at December 31, 2000 to $2.0 million at June 30, 2001. This decrease is
due primarily to collection efforts of previously past due credits. Other real
estate increased $212,000 during the same period. This increase is primarily the
result of loans that were foreclosed on during the period totaling $585,000, net
of sales of properties with a carrying value of $373,000. Management anticipates
minimal losses on the total of these new nonperforming assets. The ratio of
nonperforming assets to total loans and other real estate was 1.83% and 1.73% at
June 30, 2001, and December 31, 2000, respectively.
The following table presents information regarding nonperforming assets as
of the dates indicated (dollars in thousands):
June 30, December 31,
2001 2000
--------- ---------
(Unaudited)
Nonaccrual loans $ 2,810 $ 1,214
Accruing loans 90 or more days past due 2,016 3,488
--------- ---------
Total nonperforming loans 4,826 4,702
Other real estate 486 274
--------- ---------
Total nonperforming assets $ 5,312 $ 4,976
========= =========
SECURITIES
Securities totaled $72.4 million at June 30, 2001, a decrease of $9.3
million from $81.6 million at December 31, 2000. At June 30, 2001, securities
represented 16.9% of total assets compared with 19.9% of total assets at
December 31, 2000. The yield on average securities for the six-months ended June
30, 2001, was 6.67% compared with 6.58% for the same period in 2000. At June 30,
2001, securities included $7.5 million in U.S. Government securities, $18.4
million in mortgage-backed securities, $35.0 million in collateralized mortgage
obligations, $1.8 million in equity securities, and $9.7 million in municipal
securities. The average life of the securities portfolio at June 30, 2001, is
approximately 3.9 years, however, all of the Company's securities are classified
as available-for-sale.
DEPOSITS
At June 30, 2001, demand, money market and savings deposits account for
approximately 43.8% of total deposits, while certificates of deposit made up
56.2% of total deposits. Total deposits increased $22.6 million or 6.3% from
December 31, 2000 to June 30, 2001. This increase comes primarily from an
increase in certificate of deposits of $12.4 million or 6.2%, due to the
offering of competitive yields on these deposits, and an increase in money
market accounts of $6.0 million or 10.2% due to an attractive yield on the
Company's Premier Money Market account. Noninterest-bearing demand deposits
totaled $58.5 million or 15.4% of total deposits at June 30, 2001, compared with
$55.3 million or 15.4% of total deposits at December 31, 2000. The average cost
of deposits, including noninterest-bearing demand deposits, is 5.36% for the
three months ended June 30, 2001 compared with 4.91% for the same period in
2000.
19
LIQUIDITY
The Company's asset/liability management policy is intended to maintain
adequate liquidity for the Company. Liquidity involves the Company's ability to
raise funds to support asset growth or reduce assets to meet deposit withdrawals
and other payment obligations, to maintain reserve requirements and otherwise to
operate the Company on a continuing basis. The Company's liquidity needs are
primarily met by growth in core deposits. Although access to purchased funds
from correspondent banks is available and has been utilized on occasion to take
advantage of investment opportunities, the Company does not continually rely on
these external-funding sources. The cash and federal funds sold position,
supplemented by amortizing investments along with payments and maturities within
the loan portfolio, has historically created an adequate liquidity position.
The Company's cash flows are composed of three classifications: cash flows
from operating activities, cash flows from investing activities, and cash flows
from financing activities. As summarized in the unaudited condensed consolidated
statements of cash flows, the most significant transactions which affected the
Company's level of cash and cash equivalents, cash flows, and liquidity during
the first six months of 2001 were the net increase in loans of $13.7 million,
securities purchases of $22.2 million, securities sales of $18.4 million,
securities calls, maturities, and principal repayments of $14.1 million, the net
increase in deposits of $22.6 million, and the net increase in federal funds
sold of $14.5 million.
CAPITAL RESOURCES
Both the Board of Governors of the Federal Reserve System ("Federal
Reserve"), with respect to the Company, and the Federal Deposit Insurance
Corporation ("FDIC"), with respect to Guaranty Bank, have established certain
minimum risk-based capital standards that apply to bank holding companies and
federally insured banks, respectively. As of June 30, 2001, the Company's Tier 1
risk-based capital, total risk-based capital and leverage capital ratios were
11.71%, 12.64%, and 8.34%, respectively. As of June 30, 2001, the Bank's
risk-based capital ratios remain above the levels required for the Bank to be
designated as "well capitalized" by the FDIC with Tier 1 risk-based capital,
total risk-based capital and leverage capital ratios of 11.30%, 12.24%, and
7.98%, respectively.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
There have been no material changes in the market risk information
disclosed in the Company's Form 10-K for the year ended December 31, 2000. See
Form 10-K, Item 7A, "Quantitative and Qualitative Disclosures about Market
Risk."
20
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company faces ordinary routine litigation arising in the normal course
of business. In the opinion of management, liabilities (if any) arising from
such claims will not have a material adverse effect upon the business, results
of operations or financial condition of the Company.
In March 2000, the Company filed an action in the District Court of Titus
County, Texas against Guaranty Federal Bank, F.S.B., a thrift institution, after
the Company discovered that Guaranty Federal Bank, F.S.B. was using the name,
"Guaranty Bank", in its business dealings. The case seeks a declaratory
judgement that the Company has the sole right to the name "Guaranty Bank". As
this action involves a determination of intellectual property rights, management
does not believe the case will have any material effect on the financial
condition of the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of shareholders was held on April 17, 2001. The
following matters were submitted for approval to the shareholders:
1. The election of three Class I directors, John Conroy, Clifton A.
Payne, and D.R. Zachry, Jr. 2,339,637 votes for and no votes against.
2. To ratify the appointment of Fisk & Robinson, P.C. as independent
auditors, 2,339,637 votes for and no votes against.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Quarterly Report on
Form 10Q:
(1) Exhibits - The following exhibits are filed as a part of this
Quarterly Report on Form 10Q:
11 Statement regarding computation of earnings per share
(b) Reports on Form 8-K
No report on Form 8-K was filed by Guaranty Bancshares, Inc., during
the three months ended June 30, 2001.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GUARANTY BANCSHARES, INC.
(Registrant)
Date: August 14, 2001 By: /s/ ARTHUR B. SCHARLACH, JR.
--------------------------------
Arthur B. Scharlach, Jr.
President
(Principal Executive Officer)
Date: August 14, 2001 By: /s/ CLIFTON A. PAYNE
--------------------------------
Clifton A. Payne
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer)
22
INDEX TO EXHIBITS
Exhibit
Number Description Page Number
------ ----------- -----------
11 Statement regarding computation Reference is hereby made
of earnings per share to Note 2 of Notes to
Consolidated Financial
Statements on page 8 hereof.
23