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. 33-76064
September 30, 1996
GUARANTY FINANCIAL CORPORATION
Virginia 54-1786496
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1700 Seminole Trail, Charlottesville, VA 22901
(Address of Principal Executive Office)
(804) 974-1100
(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 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. Yes _X_ No ___ (not subject to filing
requirements for the past 90 days).
As of November 13, 1996, 924,008 shares were outstanding.
GUARANTY FINANCIAL CORPORATION
QUARTERLY REPORT ON FORM 10-QSB
INDEX
Part I. Financial Information Page No.
Item 1 Financial Statements
Consolidated Statements of Financial Condition
as of September 30, 1996 and June 30, 1996......................................................3
Consolidated Statements of Operations for the
Three Months Ended September 30, 1996 and 1995..................................................4
Consolidated Statements of Cash Flows for the
Three Months Ended September 30, 1996 and 1995..................................................5
Notes to Consolidated Financial Statements......................................................7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................................................9
Part II. Other Information
Item 1 Legal Proceedings..............................................................................12
Item 2 Changes in Securities..........................................................................12
Item 3 Defaults upon Senior Securities................................................................12
Item 4 Submission of Matters to a Vote of Securitiy Holders...........................................12
Item 5 Other Information..............................................................................12
Item 6 Exhibits and Reports on Form 8-K...............................................................12
Signatures.....................................................................................13
GUARANTY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
(In Thousands)
SEPTEMBER 30, JUNE 30,
1996 1996
-----------------------------
ASSETS (Unaudited)
Cash and cash equivalents $6,480 $5,431
Investment securities
Held-to-maturity 3,529 3,731
Available for sale 11,416 9,564
Investment in FHLB stock at cost 1,360 1,360
Loans receivable, net 86,132 84,081
Accrued interest receivable 725 712
Real estate owned 130 33
Office properties and equipment, net 3,963 3,525
Other assets 1,494 1,724
------------ -------------
Total assets $115,229 $110,161
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
NOW/MMDA accounts $10,331 $9,653
Savings accounts 5,047 4,654
Certificates of deposit 63,278 60,380
------------ -------------
$78,656 $74,687
Bonds payable 3,006 3,144
Advances from Federal Home Loan Bank 22,500 17,500
Securities sold under agreement to repurchase 2,920 6,104
Accrued interest payable 65 99
Deferred income taxes 44 0
Payments by borrowers for taxes and insurance 319 146
Other liabilities 1,382 2,131
------------ -------------
Total liabilities $108,892 $103,811
------------ -------------
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, 919,168 issued
and outstanding $1,149 $1,149
Additional paid-in capital 1,981 1,982
Net unrealized gain (loss) on securities
avaiable for sale (258) (279)
Retained earnings 3,465 3,498
------------ -------------
Total stockholders' equity $6,337 $6,350
------------ -------------
Total liabilities and stockholders' equity $115,229 $110,161
============ =============
GUARANTY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
Three Months
Ended
September 30,
-----------------------------
1996 1995
------------ -------------
(unaudited)
Interest income
Loans $1,740 $1,553
Mortgage-backed securities 283 118
Investment securities 136 127
Trading account assets 0 17
------------ -------------
Total interest income $2,159 $1,815
------------ -------------
Interest expense
Deposits 968 685
Borrowings 475 560
------------ -------------
Total interest expense $1,443 $1,245
------------ -------------
Net interest income 716 570
Provision (credit) for loan losses 46 (4)
------------ -------------
Net interest income after provision
for loan losses 670 574
Other income
Loan fees and servicing income 149 139
Gain (loss) on sale of loans and securities 68 77
Service fees on checking 25 21
Other 32 25
------------ -------------
Total other income 274 262
------------ -------------
Other expenses
Personnel 294 257
Occupancy 58 79
Data processing 76 68
BIF/SAIF premium disparity assessment 347 0
Deposit insurance premiums 54 51
Other 166 143
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Total other expenses 995 598
------------ -------------
Income before income taxes (51) 238
------------ -------------
Provision for income taxes (18) 83
------------ -------------
Net income (33) 155
============ =============
Earnings per common share (0.04) 0.17
============ =============
GUARANTY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended September 30, 1995 and 1996
(In Thousands)
1996 1995
------------ -------------
Operating activities
Net Income (33) 155
Adjustments to reconcile net income to net cash provided
(absorbed) by operating activities:
Provision for loan losses 46 (4)
Depreciation and amortization 32 23
Amortization of deferred loan fees 30 27
Net amortization of premiums and accretion of discounts 31 48
Loss (gain) on sale of loans (77) 0
Originations of loans held for sale (4,364) 0
Proceeds from sale of loans 4,371 0
Loss (gain) on sale of mortgage-backed securities (20) (38)
Loss (gain) on sale of securities available for sale 0 (4)
(Gain) loss on disposal of office properties and equipment 0 (1)
(Gain) loss on sale of trading securities 28 (34)
Purchase of trading securities (24,065) (24,913)
Sales of trading securities 24,037 24,947
(Gain) loss on sale of real estate owned 1 0
(Increase) decrease in real estate owned (97) (45)
Changes in:
Accrued interest receivable (14) (62)
Other assets 213 112
Accrued interest payable (34) 1
Prepayment by borrowers for taxes and insurance 173 121
Other liabilities (749) 144
------------ -------------
Net Cash provided (absorbed) by operating activities (491) 477
------------ -------------
Investing activities
Net (increase) decrease in loans (2,110) (3,871)
Mortgage- backed securities principal repayments 317 282
Purchase of mortgage-backed securities (3,940) (4,079)
Proceeds from sale of mortgage-backed securities 2,005 4,113
Purchase of securities available for sale 0 (4,003)
Proceeds from sales of securities available for sale 0 2,008
Proceeds from sale of office equipment 0 5
Purchase of office properties and equipment (65) (15)
Disbursement on construction of office building (279) 0
Purchase of land (3) 0
------------ -------------
Net cash provided (absorbed) by investing activities (4,075) (5,560)
------------ -------------
GUARANTY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
Financing activities
Net increase (decrease) in deposits 3,968 3,616
Repayment of FHLB advances 0 (3,000)
Proceeds from FHLB advances 5,000 3,000
Increase (decrease) in securities sold under agreement to repurchase (3,184) 1,875
Principal payments on bonds payable, including unapplied payments (169) (298)
------------ -------------
Net cash provided (absorbed) by financing activities 5,615 5,193
------------ -------------
Increase (decrease) in cash and cash equivalents 1,049 110
------------ -------------
Cash and cash equivalents, beginning of period 5,431 5,753
------------ -------------
Cash and cash equivalents, end of period 6,480 5,863
============ =============
GUARANTY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months ended September 30, 1996 and 1995
Note 1 Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Guaranty Financial Corporation ("the Company") and its wholly-owned
subsidiaries, Guaranty Savings and Loan , F.A. ("the Association"), GMSC, Inc.,
which was organized as a financing subsidiary, and Guaranty Investments Corp.
which was organized to sell insurance annuities. All material intercompany
accounts and transactions have been eliminated in consolidation.
Note 2 Basis of Presentation
The accompanying interim financial statements are unaudited; however, such
information reflects all adjustments which are, in the opinion of management,
necessary for a fair presentation of the consolidated financial statements. All
adjustments are of a normal recurring nature.
Note 3 New Accounting Pronouncements
In March 1995, the FASB issued its Statements of Financial Accounting Standards
No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of." SFAS 121 requires that long-lived
assets and certain intangibles to be held and used by an entity be reviewed for
impairment when events or changes in circumstances indicate that the carrying
amount may not be recoverable. In addition SFAS 121 requires long-lived assets
and certain intangibles to be disposed of to be reported at the lower of
carrying amount or fair value less costs to sell. SFAS 121 is effective for
fiscal years beginning after December 15, 1995. Management does not expect the
application of this pronouncement to have a material effect on the financial
statements of Guaranty.
In May 1995, the FASB issued its Statement of Financial Accounting Standards No.
122 ("SFAS 122"), "Accounting for Mortgage Servicing Rights an Amendment of FASB
Statement No. 65." SFAS 122 requires entities that acquire mortgage servicing
rights through either the purchase or origination of mortgage loans and sells or
securitizes those loans with the servicing rights retained should allocate the
total cost of the mortgage loans to the mortgage servicing rights and the loans
(without the mortgage servicing rights) based on their relative fair values. In
addition, SFAS 122 requires entities to assess their capitalized mortgage
servicing rights for impairment based on the fair value of those rights. SFAS
122 is effective for fiscal years beginning after December 15, 1995. Guaranty
elected early adoption and recorded a gain of $161, 000 in fiscal year 1996 on
the sale of $12.2 million mortgage loans.
In October 1995, SFAS No. 123, "Accounting for Stock-Based Compensation," was
issued. The statement is effective for fiscal years beginning after December 15,
1995. The statement encourages, but does not require, companies to expense the
fair value of employee stock options, based on the fair value on the date of the
grant. Companies that elect to continue to follow existing accounting rules (the
intrinsic value method which often results in no compensation results) must
provide pro forma disclosures of net income and earnings per share which would
have been had the new fair value method been used. In addition, SFAS 123
requires all companies to make significantly more disclosures regarding employee
stock options than is currently required. Guaranty plans to adopt the disclosure
requirements only of SFAS 123 effective July 1, 1997.
In June 1996, the FASB issued its Statement of Financial Accounting Standards
No. 125 ("SFAS 125"), "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of
Liabilities." This statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities.
After a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes liabilities
when extinguished. In addition, a transfer of financial assets in which the
transferor surrenders control over those assets is accounted for as a sale to
the extent that consideration other than beneficial interests in the transferred
assets is received in exchange. SFAS 125 is effective for transfers and
servicing of financial assets and extinguishments of liabilities after December
31, 1996, and is to be applied prospectively. Management does not expect the
application of this pronouncement to have a material effect on the financial
statements of Guaranty.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Changes in Financial Condition
Deposit growth during the three months ended September 30, 1996 enabled Guaranty
to increase assets. Total assets increased by $5.1 million, or 4.6%, from $110.2
million at June 30, 1996 to $115.2 million at September 30, 1996. This deposit
growth of all local funds, was invested in mortgage-backed securities and in
local residential mortgage loans.
Cash and cash equivalents increased $1.0 million, or 19.32%, to $6.5 million at
September 30, 1996.
Investment securities, at September 30, 1996, increased by $1.65 million, or
11.3%, to $16.3 million from June 30, 1996. Since loan growth was not increasing
at the rate of deposit growth, the excess funds were invested in mortgage-backed
securities. Included in the investment portfolio are $3.5 million of
mortgage-backed securities, classified as held to maturity, which collateralize
the bonds payable, $11.4 million of GNMA and FHLMC mortgage-backed securities
classified as available for sale and $1.4 million of Federal Home Loan Bank
stock, recorded at cost.
The loan portfolio consists primarily of mortgage loans, the majority of which
are residential first mortgage loans. Of the $87.3 million of gross loans
outstanding at Septemebr 30, 1996, 85.1% represent residential first mortgages.
Net loans were $86.1 million at September 30, 1996, a 2.44% increase in net
loans of $84.1 million at June 30, 1996.
Real estate owned increased by $97 thousand to $130 thousand, or 294% at
September 30, 1996 from $33 thousand at June 30, 1996. These are assets acquired
through foreclosure and at September 30, 1996 consisted of two properties. Both
properties are guaranteed by FHA/VA, and no significant losses are expected.
Deposits increased by $3.97 million, or 5.31% between June 30, 1996 and
September 30, 1996. The the majority of the growth was in certificates of
deposit, which increased $2.9 million at September 30, 1996. This growth, which
is all local funds, is a reflection of increased marketing, consolidation of
other financial institutions in Charlottesville, and a favorable deposit
environment.
Office properties and equipment increased $438 thousand, or 12.4% since June 30,
1996. This increase is due to the construction in progress on the new operations
center and fourth retail branch which is located on the east side of
Charlottesville on Pantops mountain. The construction is expected to be
completed the end of November 1996.
Other borrowed money decreased $3.2 million, or 52.16%, while Federal Home Loan
Bank advances increased $5.0 million, or 28.57%, from June 30, 1996. A two year
advance was made in September to extend short term borrowing to match asset
maturites.
Results of Operations
Net Income
Guaranty reported a net loss of $33 thousand for the three months ended
September 30, 1996 compared to net income of $155 thousand for the same period
in 1995. This decrease in earnings is due to the Federal legislation enacted in
September 1996 to recapitalize the Savings
Association Insurance Fund ("SAIF"). The one-time special assessment based on
deposits of March 31, 1995 equaled $347 thousand for Guaranty.
Net income, excluding the special assessment, for the quarter ending September
30, 1996 was $192 thousand. An increase of $37 thousand or 23.87% over the same
period in 1995. This increase is the result of an increase in the net interest
margin.
Net Interest Income
Net interest income increased by $146 thousand or 25.61%, in the three months
ended September 30, 1996 to $716 thousand compared to $570 thousand in the same
period in 1995. Average earning assets increased to $108.0 million for the three
months ended September 30, 1996 compared to an average of $95.6 million for
fiscal year June 30, 1996. The average rate earned also increase for the quarter
ended September 30, 1996 to 8.00% from 7.97% at June 30, 1996. Average interest
bearing liabilities also increased for the three months ended September 30, 1996
to $104.5 million from an averge of $91.2 million for fiscal year 1996 while the
average rate paid decreased 17 basis points to 5.52%. The majority of this
improvement in net interest income is due to the decrease in the rate paid on
borrowed money. The average rate paid on FHLB advances and other borrowings
decreased 49 basis point to 5.54% for the three months ended September 30, 1996
from 6.03% for fiscal year 1996.
Provision for loan losses
Management analyzes the potential risk of loss on the Company's loan portfolio,
given the loan balances and the value of the underlying collateral. The
allowance for loan losses is reviewed monthly and based on the loan
classification system, which classifies problem loans as substandard, doubtful,
or loss, additional provisions are added when necessary. Based on this
evaluation, Guaranty recorded a provision of $46 thousand for the three months
ended September 30, 1996. For the same three month period in 1995, Guaranty had
a credit to the loss provision of $4 thousand due to recoveries on loans
previously expensed as a loss. As of September 30, 1996 the total allowance for
loan losses amounted to $834 thousand of which $677 thousand was not
specifically allocated to identified problem loans.
Non-Interest Income
Non-interest income for the three months ended September 30, 1996 was $274
thousand, an increase of $12 thousand, or 4.58%, over non-interest income for
the same period one year ago. This increase was from loan fees and servicing
income.
Non-Interest Expense
Non-interest expense increased $50 thousand, or 8.36%, for the three months
ended September 30, 1996 compared to the three month period ended September 30,
1995 from $598 thousand to $648 thousand. The majority of this increase was in
personnel expense. Additional personnel have been hired to staff the new retail
branch opening in December 1996 and to begin consumer and commercial lending.
Income Tax Expense
Due to a net loss, Guaranty recognized an income tax credit of $18,000 for the
three months ended September 30, 1996 compared to income tax expense of $83,000
for the comparable period in 1995.
Liquidity and Capital Resources
Liquidity is the ability to meet present and future financial obligations either
through the sale of existing assets or the acquisition of additional funds
through asset and liability management. By regulatory definition, liquid assets
include cash, interest bearing deposits with banks, federal funds sold, and
government agency and high rated corporate securities with maturities of five
years or less. Guaranty is required to maintain liquid assets on an average
monthly basis equal to at least 5% of its liquidity base. Liquidity base is
further defined as total deposits plus all short term borrowings. At September
30, 1996, Guaranty's liquidity ratio was 5.46%.
Guaranty's primary sources of funds are deposits, borrowings, and amortization,
prepayments and maturities of outstanding loans and mortgage-backed securities.
While scheduled payments from the amortization of loans and mortgage-backed
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
borrowings.
Guaranty uses its sources of funds primarily to meet its on going commitments,
to pay deposit withdrawals and fund loan commitments. At September 30, 1996, the
total approved loan commitments outstanding amounted to $5.2 million. At the
same date, commitments under unused lines of credit amounted to $5.8 million.
Certificate of deposits scheduled to mature in one year or less at September 30,
1996 totaled $51.2 million. Management believes that a significant portion of
maturing deposits will remain with Guaranty.
Guaranty is subject to OTS regulations requiring savings institutions to meet
the following minimum levels of regulatory capital (1) tangible capital of at
least 1.5% of total adjusted assets, (2) core capital of 3% of total adjusted
assets and (3) risk-based capital of 8% of total risk-weighted assets. At
September 30, 1996, Guaranty exceeded all such regulatory capital requirements
as shown in the following table.
Percent of
(Dollars in thousands) Amount Adjusted Assets
- ---------------------------------------------------------------------------------------------------
Tangible Capital:
Regulatory capital $6,596 5.71%
Minimum capital requirement 1,732 1.50%
- ---------------------------------------------------------------------------------------------------
Excess regulatory capital $4,864 4.21%
- ---------------------------------------------------------------------------------------------------
Core Capital:
Regulatory capital $6,596 5.71%
Minimum capital requirement 3,465 3.00%
- ---------------------------------------------------------------------------------------------------
Excess regulatory capital $3,131 2.71%
- ---------------------------------------------------------------------------------------------------
Risk-based Capital:
Regulatory capital $7,273 12.78%
Minimum capital requirement 4,392 8.00%
- ---------------------------------------------------------------------------------------------------
Excess regulatory capital $2,881 4.78%
- ---------------------------------------------------------------------------------------------------
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 - None
(b) Reports on Form 8-K - None
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: November 13, 1996 By:/s/ Thomas P. Baker
-------------------
Thomas P. Baker
President and Chief Executive Officer
Date: November 13, 1996 By:/s/ Kathleen M. Focht
---------------------
Kathleen M. Focht
Vice President, Secretary, Treasurer,
and Chief Financial Officer