UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended Commission File No. 0-25905
March 31, 2000
GUARANTY FINANCIAL CORPORATION
Virginia 54-1786496
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1658 State Farm Blvd., Charlottesville, VA 22911
(Address of Principal Executive Office)
(804) 970-1100
(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 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. Yes _X_ No ___ (not subject to filing requirements for the
past 90 day days).
As of April 18, 2000, 1,961,727 shares of the Registrant's Common
Stock, par value $1.25 per share, were outstanding.
GUARANTY FINANCIAL CORPORATION
QUARTERLY REPORT ON FORM 10-QSB
INDEX
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Part I. Financial Information Page No.
- ------------------------------ --------
Item 1 Financial Statements
Consolidated Balance Sheets
as of March 31,2000 (unaudited) and December 31, 1999 3
Consolidated Statements of Operations for the
Three Months Ended March 31, 2000 and 1999 (unaudited) 4
Consolidated Statements of Comprehensive Income
For the Three Months Ended March 31, 2000 and 1999 (unaudited) 5
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2000 and 1999 (unaudited) 6
Notes to Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. Other Information
- --------------------------
Item 1 Legal Proceedings 11
Item 2 Changes in Securities 11
Item 3 Defaults upon Senior Securities 11
Item 4 Submission of Matters to a Vote of Security Holders 11
Item 5 Other Information 11
Item 6 Exhibits and Reports on Form 8-K 11
Signatures 12
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GUARANTY FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
March 31, December 31,
2000 1999
------------- -------------
ASSETS (Unaudited)
Cash and cash equivalents $ 12,887 $ 12,634
Investment securities
Held-to-maturity 1,296 1,336
Available for sale 22,361 22,197
Investment in FHLB stock at, cost 1,550 1,500
Loans receivable, net 220,281 205,399
Accrued interest receivable 2,019 1,743
Real estate owned 803 843
Office properties and equipment, net 9,288 9,331
Mortgage servicing rights 654 568
Other assets 1,998 3,788
------------- -------------
Total assets $ 273,137 $ 259,339
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
NOW/MMDA accounts $ 59,483 $ 58,083
Savings accounts 11,458 11,203
Certificates of deposit 149,813 130,308
------------- -------------
220,754 199,594
Bonds payable 918 903
Advances from Federal Home Loan Bank 25,000 20,000
Securities sold under agreement to repurchase 4,488 16,650
Accrued interest payable 415 258
Payments by borrowers for taxes and insurance 542 494
Other liabilities 475 1,099
------------- -------------
Total liabilities 252,592 238,998
------------- -------------
COMMITMENTS & CONTINGENCIES
Convertible preferred securities 6,012 6,075
STOCKHOLDERS' EQUITY
Preferred stock, par value $1 per share, 500,000
shares authorized, none issued - -
Common stock, par value $1.25 per share,
4,000,000 shares authorized, 1,961,727
issued and outstanding 2,452 2,452
Additional paid-in capital 8,953 8,943
Accumulated comprehensive income (loss) (1,478) (1,608)
Retained earnings 4,606 4,479
------------- -------------
Total stockholders' equity 14,533 14,266
------------- -------------
Total liabilities and stockholders' equity $ 273,137 $ 259,339
============= =============
3
GUARANTY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
Three Months Ended
March 31,
----------------------------------
2000 1999
--------------- ---------------
(unaudited)
Interest income
Loans $ 4,768 $ 3,328
Investment securities 559 578
--------------- ---------------
Total interest income 5,327 3,906
--------------- ---------------
Interest expense
Deposits 2,362 2,015
Borrowings 657 511
--------------- ---------------
Total interest expense 3,019 2,526
--------------- ---------------
Net interest income 2,308 1,380
Provision for loan losses 130 60
--------------- ---------------
Net interest income after provision
for loan losses 2,178 1,320
Other income
Loan and deposit fees and servicing income 164 213
Gain (loss) on sale of loans and securities (71) 494
Other 121 87
--------------- ---------------
Total other income 214 794
--------------- ---------------
Other expenses
Personnel 1,043 968
Occupancy 221 180
Data processing 219 165
Deposit insurance premiums 59 3
Other 480 385
--------------- ---------------
Total other expenses 2,022 1,701
--------------- ---------------
Income before income taxes 370 413
--------------- ---------------
Provision for income taxes 126 140
--------------- ---------------
Net income $ 244 $ 273
=============== ===============
Basic and diluted earnings per
common share $ 0.12 $ 0.18
=============== ===============
4
GUARANTY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
Three Months Ended
March 31,
----------------------------
2000 1999
------------ ------------
(unaudited)
Net Income $ 244 $ 273
------------ ------------
Other comprehensive income:
Unrealized gains (loss) on securities available for sale $197 ($1,164)
Less: reclassification adjustment for gains (losses)
included in net income - -
------------ ------------
Other comprehensive income (loss), before tax 197 (1,164)
Income tax (expense) benefit related to items of other
comprehensive income (67) 396
------------ ------------
Other comprehensive income (loss), net of tax 130 (768)
------------ ------------
Comprehensive Income (loss) $ 374 $ (495)
============ ============
5
GUARANTY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Three Months Ended
March 31,
2000 1999
------------- -------------
(unaudited)
Operating Activities
Net Income $ 244 $ 273
Adjustments to reconcile net income to net cash provided
(absorbed) by operating activities:
Provision for loan losses 130 60
Depreciation and amortization 179 140
Deferred loan fees (18) (31)
Net amortization of premiums and accretion of discounts (25) 418
Loss (gain) on sale of loans 71 (180)
Originations of loans held for sale (3,921) (18,217)
Proceeds from sale of loans 3,850 18,397
Loss (gain) on sale of securities available for sale - (89)
(Gain) loss on trading securities - 22
Purchase of trading securities - (10,057)
Sales of trading securities - 7,345
Changes in:
Accrued interest receivable (276) (88)
Other assets 1,761 (294)
Accrued interest payable 157 124
Prepayments by borrowers for taxes and insurance 48 1,095
Other liabilities (627) 469
------------- -------------
Net cash provided (absorbed) by operating activities 1,573 (613)
------------- -------------
Investing activities
Net increase in loans (14,950) (13,756)
Mortgage-backed securities principal repayments 46 372
Proceeds from sale of securities available for sale - 5,073
Purchase of securities available for sale - (6,000)
Proceeds from sale of FHLB stock 500 -
Purchase of FHLB stock (550) -
Purchase of servicing rights (47) -
Purchase of office properties and equipment (136) (1,056)
------------- -------------
Net cash absorbed by investing activities (15,137) (15,367)
------------- -------------
Financing activities
Net increase in deposits 21,159 15,359
Proceeds from FHLB advances 11,000 -
Repayment of FHLB advances (6,000) -
Increase (decrease) in securities sold under agreement to repurchase (12,162) 1,932
Repurchase of convertible preferred securities (63) -
Dividends paid on common stock (117) -
Principal payments on bonds payable, including unapplied payments - (25)
------------- -------------
Net cash provided by financing activities 13,817 17,266
------------- -------------
Increase in cash and cash equivalents 253 1,286
Cash and cash equivalents, beginning of period 12,634 10,527
------------- -------------
Cash and cash equivalents, end of period $ 12,887 $ 11,813
============= =============
6
GUARANTY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2000
Note 1 Principles of Consolidation
The consolidated financial statements include the accounts of Guaranty Financial
Corporation (the "Corporation") and its wholly-owned subsidiaries, Guaranty
Capital Trust I and Guaranty Bank (the "Bank"), and the Bank's wholly owned
subsidiaries, GMSC, Inc. and Guaranty Investment Corp., which was organized to
sell insurance annuities and other non-deposit investment products. All material
intercompany accounts and transactions have been eliminated in the
consolidation.
Note 2 Basis of Presentation
In the opinion of management, the accompanying unaudited interim consolidated
financial statements contains all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the financial position as of
March 31, 2000 and the results of operations and cash flows for the interim
periods ending March 31, 2000 and 1999. All 2000 interim amounts are subject to
a year-end audit, and the results of operations for the interim periods is not
necessarily indicative of the results of operations to be expected for the year.
Note 3 Earnings Per Share
Basic earnings per share is based on net income divided by the weighted average
number of common shares outstanding during the period. Diluted earnings per
share shows the dilutive effect of additional common shares issuable under stock
option plans. The basic and diluted earnings per share for the three months
ended March 31, 2000 and 1999 have been determined by dividing net income by the
weighted average number of shares of common stock outstanding during these
periods 1,961,727 and 1,501,727, respectively.
Note 4 Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Note 5 Reclassifications
Certain reclassifications have been made in the prior period consolidated
financial statements to conform to the March 31, 2000 presentation.
7
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Changes in Financial Condition
Total assets increased by $13.7 million or 5.3% from $259.3 million at December
31, 1999 to $273.1 million at March 31, 2000 primarily as a result of an
increase in loan volume during the quarter. Cash and cash equivalents increased
$253,000 or 2.0%, to $12.9 million at March 31, 2000 from $12.6 million at
December 31, 1999. Other assets decreased by $1.8 million or 47.2% to $2.0
million at March 31, 2000 from $3.8 million at December 31, 1999. This decrease
is a direct result of a decrease in accounts receivables due to the receipt of
approximately $2.0 million due from the sale of serviced loans at December 31,
1999.
Investment securities, at March 31, 2000, increased $174,000, or .7% to $25.2
million from $25.0 million at December 31, 1999. This change was due primarily
to an increase in Federal Home Loan Bank stock and an increase in market value
of available for sale securities which was partially offset by principal
repayments of mortgage backed securities which are classified as
held-to-maturity. At the dates indicated, the investment portfolio is comprised
of the following:
March 31, December 31,
2000 1999
----------------- ----------------
Mortgage-backed securities
classified as held-to-maturity $1,046 $1,086
US Treasury Notes classified
as held-to-maturity 250 250
Corporate bonds classified as
available for sale 17,241 17,097
Mortgage-backed securities
classified as available for sale 4,800 4,780
Other investments 1,870 1,820
----------------- ----------------
$25,207 $25,033
================= ================
Net loans were $220.3 million at March 31, 2000, an increase of $14.8 million,
or 7.2%, from net loans of $205.4 million at December 31, 1999. The primary
focus of portfolio lending continues to be prime-based construction loans,
(including builder lines of credit), commercial real estate, business loans and
consumer loans which are typically priced 175 to 250 basis points above
fixed-rate residential loans. The increase in the loan portfolio was primarily
related to growth in commercial business loans, prime based construction loans
and consumer loans. This increase was partially offset by a slight decrease in
commercial real estate loans.
Real estate owned of $803,000 at March 31, 2000 and $843,000 at December 31,
1999 consisted primarily of developed lots located within a residential
subdivision. Net proceeds are anticipated to approximate the carrying value at
March 31, 2000. No material losses are anticipated on the ultimate sale of these
properties.
Deposits were $220.8 million at March 31, 2000, an increase of $21.2 million, or
10.6%, from total deposits of $199.6 million at December 31, 1999. The deposit
growth was primarily the result of an increase in certificates of deposits of
$19.5 million or 15.0% and an increase in NOW/MMDA accounts of $1.4 million or
2.4%. This increase was a result of promotional rates offered by the Bank during
the quarter.
8
At March 31, 2000, $25.0 million in advances were borrowed from the FHLB on a
short-term basis, representing an increase of $5.0 million from December 31,
1999. These advances are comprised entirely of daily rate credits which reprice
based on previous days Fed Fund rate.
Results of Operations
Net Income
Guaranty reported net income of $ 244,000 and $273,000 for the three month
periods ended March 31, 2000 and 1999, respectively. The overall source of
income has changed dramatically with the new operating plan of the Bank. Core
earnings increased over 600% from a loss of $81,000 in the first quarter of 1999
to income of $441,000 for the same period of 2000.
Net Interest Income
Net interest income increased by $928,000, or 67.2%, to $2.3 million for the
three months ended March 31, 2000, compared to $1.4 million for the same period
in 1999. Average earning assets increased to $249.3 million for the three months
ended March 31, 2000, compared to an average balance of $211.0 million for the
same period in 1999. The average rate earned also increased to 8.8% for the
three months ended March 31, 2000 from 7.8% for the same period of 1999.
Interest rate spread and net interest margin for the three month periods ending
March 31, 2000 and 1999 were 3.5% and 3.7% and 2.8% and 3.0%, respectively.
Provision for Loan Losses
Guaranty provides valuation allowances for anticipated losses on loans and real
estate when its management determines that a significant decline in the value of
the collateral has occurred, and if the value of the collateral is less than the
amount of the unpaid principal of the related loan, plus estimated costs of
acquisition and sale. In addition, Guaranty also provides reserves based on the
dollar amount and type of collateral securing its loans, in order to protect
against unanticipated losses. A loss experience percentage is established for
each loan type and is reviewed annually. Each quarter, the loss percentage is
applied to the portfolio, by product type, to determine the minimum amount of
reserves required. Guaranty recorded a provision of $130,000 for the three
months ended March 31, 2000, and a provision of $60,000 for the same period in
1999. As of March 31, 2000 the total allowance for loan losses was $1.4 million.
Although management believes that it uses the best information available to make
such determinations, future adjustments to reserves may be necessary, and net
income could be significantly affected, if circumstances differ substantially
from assumptions used in making the initial determinations.
Non-Interest Income
Non-interest income was $214,000 for the first quarter 2000 compared to $794,000
for the same period in 1999. This decrease was primarily due to a decrease in
loan sales and related gains on the sales of these loans and securities.
Non-Interest Expense
Non-interest expense increased $321,000, or 18.9% to $2.0 million for the three
months ended March 31, 2000 compared to $1.7 million for the same period in
1999. This increase was primarily due to increases in overall operating expenses
and increased advertising expenses related to the increased size of the bank and
expansion of the residential and commercial lending divisions and the consumer
banking franchise.
9
Income Tax Expense
Guaranty recognized income tax expense of $126,000 for the three months ended
March 31, 2000, compared to $140,000 for the same period in 1999. This change in
tax expense between periods is primarily a result of changes in the level of
taxable income.
Liquidity and Capital Resources
Liquidity is the ability to meet present and future financial obligations either
through the sale of existing assets or through the acquisition of additional
funds through asset and liability management. Guaranty's primary sources of
funds are deposits, borrowings and amortization, prepayments and maturities of
outstanding loans and securities. While scheduled payments from the amortization
of loans and securities are relatively predictable sources of funds, deposit
flows and loan prepayments are greatly influenced by general interest rates,
economic conditions and competition. Excess funds are invested in overnight
deposits to fund cash requirements experienced in the normal course of business.
Guaranty has been able to generate sufficient cash through its deposits as well
as through its borrowings.
Guaranty uses its sources of funds primarily to meet its on-going operating
expenses, to pay deposit withdrawals and to fund loan commitments. At March 31,
2000, the total approved loan commitments outstanding amounted to $4.2 million.
At the same date, commitments under unused lines of credit amounted to $68.1
million. Certificates of deposit scheduled to mature in one year or less at
March 31, 2000 totaled $142.4 million. Management believes that a significant
portion of maturing deposits will remain with Guaranty.
At March 31, 2000, regulatory capital was in excess of amounts required by
Federal Reserve Regulations to be considered well capitalized as shown in the
following table:
Tier 1 risk based 9.22%
Total risk based 10.12%
Tier 1 to average adjusted total assets 7.94%
Forward Looking Statements
Certain statements in this quarterly report on Form 10-QSB are forward-looking
and may be identified by the use of words such as "believe", "expect",
"anticipate", "should", "planned", "estimated", and "potential". These
statements are based on Guaranty's current expectations. A variety of factors
could cause Guaranty's actual results to differ materially from the anticipated
results or other expectations expressed in such forward-looking statements. The
risks and uncertainties that may affect the operations, performance,
development, and results of Guaranty's business include interest rate movements,
competition from both financial and non-financial institutions, the timing and
occurrence (or nonoccurence) of transactions and events that may be subject to
circumstances beyond Guaranty's control, and general economic conditions.
10
PART II. OTHER INFORMATION
Item 1 Legal Proceedings
Not Applicable
Item 2 Changes in Securities
Not Applicable
Item 3 Defaults Upon Senior Securities
Not Applicable
Item 4 Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5 Other Information
Not Applicable
Item 6 Exhibits and Reports on 8-K
(a) Exhibits
27 Financial Data Schedule (filed electronically only)
(b) Reports of Form 8-K - None
11
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
GUARANTY FINANCIAL CORPORATION
Date: May 15,2000 By: /s/ Thomas P. Baker
-------------------------------------
Thomas P. Baker
President and Chief Executive Officer
Date: May 15,2000 By: /s/ L. Ben Johnson
-------------------------------------
L. Ben Johnson
Vice President and Controller
12