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
June 30, 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 August 1, 2000, 1,961,727 shares of Common Stock, par value $1.25
per share, were outstanding.
GUARANTY FINANCIAL CORPORATION
QUARTERLY REPORT ON FORM 10-QSB
INDEX
-----
Part I. Financial Information Page No.
- ------------------------------ --------
Item 1 Financial Statements
Consolidated Balance Sheets as of June 30, 2000
(unaudited) and December 31, 1999 3
Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 2000 and
1999 (unaudited) 4
Consolidated Statements of Comprehensive Income
for the Three and Six Months Ended June 30, 2000
and 1999 (unaudited) 5
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 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)
June 30, December 31,
2000 1999
------------ ------------
(Unaudited)
ASSETS
Cash and cash equivalents $ 20,207 $ 12,634
Investment securities
Held-to-maturity 1,264 1,336
Available for sale 21,730 22,197
Investment in FHLB stock at, cost 1,550 1,500
Loans receivable, net 208,828 205,399
Accrued interest receivable 1,939 1,743
Real estate owned 1,250 843
Office properties and equipment, net 9,448 9,331
Mortgage servicing rights 896 568
Other assets 4,964 3,788
------------ ------------
Total assets $ 272,076 $ 259,339
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
- -----------
Deposits:
NOW/MMDA accounts $ 58,310 $ 58,083
Savings accounts 10,802 11,203
Certificates of deposit 157,933 130,308
------------ ------------
227,045 199,594
Bonds payable 883 903
Advances from Federal Home Loan Bank 18,000 20,000
Securities sold under agreement to repurchase 4,488 16,650
Accrued interest payable 754 258
Payments by borrowers for taxes and insurance 372 494
Other liabilities 584 1,099
------------ ------------
Total liabilities 252,126 238,998
------------ ------------
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) (1,873) (1,608)
Retained earnings 4,406 4,479
------------ ------------
Total stockholders' equity 13,938 14,266
------------ ------------
Total liabilities and stockholders' equity $ 272,076 $ 259,339
============ ============
See accompanying notes to consolidated financial statements.
3
GUARANTY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
(unaudited) (unaudited)
Interest income
Loans $ 5,260 $ 3,542 $ 10,028 $ 6,870
Investment securities 590 751 1,149 1,329
---------- ---------- ---------- ----------
Total interest income 5,850 4,293 11,177 8,199
---------- ---------- ---------- ----------
Interest expense
Deposits 2,693 2,064 5,055 4,079
Borrowings 624 585 1,281 1,096
---------- ---------- ---------- ----------
Total interest expense 3,317 2,649 6,336 5,175
---------- ---------- ---------- ----------
Net interest income 2,533 1,644 4,841 3,024
Provision for loan losses 1,075 105 1,205 165
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 1,458 1,539 3,636 2,859
Other income
Loan and deposit fees and servicing income 201 397 365 610
Gain on sale of loans and securities 183 52 112 546
Other 117 95 238 182
---------- ---------- ---------- ----------
Total other income 501 544 715 1,338
---------- ---------- ---------- ----------
Other expenses
Personnel 1,051 895 2,094 1,831
Occupancy 226 234 447 449
Data processing 157 143 376 308
Deposit insurance premiums 60 6 119 9
Other 589 423 1,069 805
---------- ---------- ---------- ----------
Total other expenses 2,083 1,701 4,105 3,402
---------- ---------- ---------- ----------
Income (loss) before income taxes (124) 382 246 795
---------- ---------- ---------- ----------
Provision (benefit) for income taxes (42) 130 84 270
---------- ---------- ---------- ----------
Net income (loss) $ (82) $ 252 $ 162 $ 525
========== ========== ========== ==========
Basic and diluted earnings (loss)
per common share $ (0.04) $ 0.17 $ 0.08 $ 0.35
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
4
GUARANTY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
(unaudited) (unaudited)
Net Income (loss) ($ 82) $ 252 $ 162 $ 525
---------- ---------- ---------- ----------
Other comprehensive income:
Unrealized gains (loss) on securities available for sale (598) (1,421) (401) (2,585)
---------- ---------- ---------- ----------
Other comprehensive income (loss), before tax (598) (1,421) (401) (2,585)
Income tax (expense) benefit related to items of other
comprehensive income 203 483 136 879
---------- ---------- ---------- ----------
Other comprehensive income (loss), net of tax (395) (938) (265) (1,706)
---------- ---------- ---------- ----------
Comprehensive Income (loss) ($ 477) ($ 686) ($ 103) ($ 1,181)
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
5
GUARANTY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Six Months Ended
2000 1999
---------- ----------
(unaudited)
Operating Activities
Net Income $ 162 $ 525
Adjustments to reconcile net income to net cash provided
(absorbed) by operating activities:
Provision for loan losses 1,205 165
Depreciation and amortization 361 328
Deferred loan fees (31) 134
Net amortization of premiums and accretion of discounts 42 165
Loss (gain) on sale of loans (112) (350)
Originations of loans held for sale (21,736) (25,687)
Proceeds from sale of loans 21,848 26,038
Loss (gain) on sale of securities available for sale - (152)
(Gain) loss on trading securities - 273
Purchase of trading securities - (58,471)
Sales of trading securities - 56,312
Changes in:
Accrued interest receivable (196) (82)
Other assets (1,447) (847)
Accrued interest payable 496 1
Prepayments by borrowers for taxes and insurance (122) 510
Other liabilities (518) 32
---------- ----------
Net cash provided (absorbed) by operating activities (48) (1,106)
---------- ----------
Investing activities
Net (increase) decrease in loans (5,006) (24,297)
Mortgage-backed securities principal repayments 328 672
Proceeds from sale of securities available for sale - 4,289
Purchase of securities available for sale (81) (9,236)
Redemption (purchase) of FHLB stock (50) (200)
Purchase of servicing rights (47) (515)
Purchases of office properties and equipment (478) (1,623)
---------- ----------
Net cash provided (absorbed) by investing activities (5,334) (30,910)
---------- ----------
Financing activities
Net increase (decrease) in deposits 27,450 21,177
Proceeds from FHLB advances 28,000 9,000
Repayment of FHLB advances (30,000) -
Increase (decrease) in securities sold under agreement to repurchase (12,162) 1,928
Proceeds from other borrowings - 4,188
Proceeds from the issuance of common stock, net - (2,159)
Repurchase of convertible preferred securities (63) -
Dividends paid on common stock (235) (180)
Principal payments on bonds payable, including unapplied payments (35) (681)
---------- ----------
Net cash provided (absorbed) by financing activities 12,955 33,273
---------- ----------
Increase (decrease) in cash and cash equivalents 7,573 1,257
Cash and cash equivalents, beginning of period 12,634 10,527
---------- ----------
Cash and cash equivalents, end of period $ 20,207 $ 11,784
========== ==========
See accompanying notes to consolidated financial statements.
6
GUARANTY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2000 and 1999
Note 1 Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Guaranty Financial Corporation and its wholly-owned subsidiaries, Guaranty
Capital Trust I and Guaranty Bank, and Guaranty Bank's wholly-owned
subsidiaries, GMSC, Inc., which was organized as a financing subsidiary, and
Guaranty Investments Corp., which was organized to sell insurance annuities and
other non-deposit investment products. All material intercompany accounts and
transactions have been eliminated in consolidation.
Note 2 Basis of Presentation
In the opinion of management, the accompanying unaudited interim consolidated
financial statements contain all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the financial position as of
June 30, 2000 and the results of operations and cash flows for the interim
periods ending June 30, 2000 and 1999. All 2000 interim amounts are subject to
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 and six
months ended June 30, 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 June 30, 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 $12.7 million or 4.9% from $259.3 million at December
31, 1999 to $272.1 million at June 30, 2000. Cash and cash equivalents increased
$7.6 million or 59.9%, to $20.2 million at June 30, 2000 from $12.6 million at
December 31, 1999. This increase was a result of an increase of approximately
$27.6 million in certificates of deposits which was partially offset by a $3.4
million increase in loans and $14.2 million decrease in advances from the
Federal Home Loan Bank and other borrowings. Other assets increased by $1.2
million or 31.1% to $5.0 million at June 30, 2000 from $3.8 million at December
31, 1999. This increase is a direct result of an increase in accounts
receivables due to the addition of a receivable of approximately $2.8 million
due from the sale of loans at December 31, 1999.
Investment securities at June 30, 2000, decreased $489,000, or 2.0% to $24.5
million from $25.0 million at December 31, 1999. At the dates indicated, the
investment portfolio was comprised of the following:
June 30, December 31,
2000 1999
---------- ----------
Mortgage-backed securities
classified as held-to-maturity $ 1,014 $ 1,086
US Treasury Notes classified
as held-to-maturity 250 250
Corporate bonds classified as
available for sale 16,670 17,097
Mortgage-backed securities
classified as available for sale 4,659 4,780
Other investments 1,951 1,820
---------- ----------
$ 24,544 $ 25,033
========== ==========
Net loans were $208.8 million at June 30, 2000, an increase of $3.4 million, or
1.67%, from net loans of $205.4 million at December 31, 1999. The increase in
the loan portfolio was primarily related to growth in commercial business loans
and consumer loans. This increase was partially offset by an addition to the
loan loss reserve of approximately $926,000. This increase was made to bring
total loan loss reserves more in line with the lending risks associated with
prime-based construction, commercial real estate and consumer lending and
industry averages.
Real estate owned increased to $1.2 million at June 30, 2000 from $843,000 at
December 31, 1999, due to the addition of one $865,000 commercial real estate
property during the period. The remainder of real estate owned consists of
developed lots located within a residential subdivision. Net proceeds are
anticipated to approximate the carrying value at June 30, 2000. No material
losses are anticipated on the ultimate sale of these properties.
Deposits were $227.0 million at June 30, 2000, an increase of $27.5 million, or
13.7%, 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
$27.6 million or 21.2%. This increase was a result of growth of our two newest
branches, Lake Montecello and Wellesley.
At June 30, 2000, $18.0 million in advances were borrowed from the FHLB on a
short-term basis, representing a decrease of $2.0 million from December 31,
1999. These advances are comprised
8
entirely of daily rate credits which reprice based on previous days Fed Fund
rate. At June 30, 2000, Guaranty had $4.5 million of securities sold under
agreements to repurchase representing was a decrease of $12.2 million or 73.0%
from $16.6 million at December 31, 1999.
Results of Operations
Net Income
Guaranty reported net income of $162 thousand and $525 thousand for the six
months ended June 30, 2000 and 1999, respectively and a loss of $82 thousand and
income of $252 thousand for the three months ended June 30, 2000 and 1999
respectively. The decrease in both periods is due primarily to an increase in
the provision for loan losses and a decrease in gains on loan sales. Core
earnings increased over 60% in 2000 to $4.8 million from $3.0 million for the
six months ended June 1999 and increased over 50% to $2.5 million from $1.6
million for the quarter ended June 30, 2000.
Net Interest Income
Net interest income after provision for loan loss was $1.4 million for the
quarter ended June 30, 2000, down 5.3% from the $1.5 million earned during the
same period in 1999. This decrease was due to an addition to the loan loss
reserves during the quarter as mentioned above. For the first six months of
2000, net interest income after provision for loan loss was $3.6 million, a
27.2% increase over the first six months of 1999. For the six months ended June
30, 2000, the average balance and average yield on loans was $219.8 million and
9.15%, respectively, compared to $175.0 million and 8.36% for the same period in
1999. Interest rate spread and net interest margin for the six month periods
ending June 30, 2000 and 1999 were 3.6% and 3.9% and 3.0% and 3.2%,
respectively. Interest rate spread and net interest margin for the three month
periods ending June 30, 2000 and 1999 were 3.73% and 4.00%, and 2.83% and 3.01%,
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 $1.1 million and $105,000
for the three months ended June 30, 2000 and 1999 respectively, and a provision
of $1.2 million and $165,000 for the six months ended June 30, 2000 and 1999,
respectively. As of June 30, 2000 the total allowance for loan losses was $2.1
million. The increase in loan loss reserves for both periods was due to
management's efforts to increase the allowance percentage to 1.0% of total loans
which is appropriate for the types of lending that Guaranty focuses on and
brings Guaranty in line with its peer banks. 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 $501 thousand for the second quarter 2000 compared to
$544 thousand for the same period in 1999. For the six months ending June 30,
2000, non-interest income was $715 thousand, down $623 thousand from the $1.3
million reported during the same period in 1999. This decrease was primarily a
result of a decrease in gains on sales of loans and securities and a decrease in
the amount of servicing income, due to the sale of servicing at the end of the
1999 fiscal year.
9
Non-Interest Expense
Operating expenses during the second quarter of 2000 were $2.1 million, a $382
thousand increase over those incurred during the same quarter of 1999. For the
six months ending June 30, 2000, operating expenses were $4.1 million compared
to $3.4 million during 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 Guaranty.
Income Tax Expense
Guaranty recognized income tax expense (benefit) of ($42) thousand for the three
months ended June 30, 2000, compared to $130 thousand for the same period in
1999. Guaranty recognized income tax expense of $84 thousand for the six months
ended June 30, 2000, compared to $270 thousand for the same period in 1999.
Changes in tax expense between periods are 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 June 30,
2000, total approved loan commitments outstanding were approximately $4.7
million. At the same date, commitments under unused lines of credit were
approximately $68.0 million. Certificates of deposit scheduled to mature in one
year or less at June 30, 2000 were $145.7 million. Management believes that a
significant portion of maturing deposits will remain with Guaranty.
At June 30, 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 capital ratio 9.38%
Total risk based capital ratio 10.66%
Tier 1 leverage ratio 7.61%
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
On May 25, 2000, Guaranty's Annual Meeting of Shareholders was held to
elect three directors to serve on its Board of Directors for terms of three
years each. The results of the votes were as follows:
For Withheld
For Term Expiring in 2003 --- --------
-------------------------
Douglas E. Caton 1,690,859 19,744
John R. Metz 1,690,859 19,744
James R. Sipe, Jr. 1,690,859 19,744
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 on Form 8-K - None
11
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, as amended, the registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
GUARANTY FINANCIAL CORPORATION
Date: August 10, 2000 By: /s/ Thomas P. Baker
------------------------------------
Thomas P. Baker
President and Chief Executive Officer
Date: August 10, 2000 By: /s/ L. Benjamin Johnson, III
------------------------------------
L. Benjamin Johnson, III
Vice President and Controller