<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
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: 0-24235
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 June 26, 1998, there were 2,898,280 shares of the registrant's Common
Stock, par value $1.00 per share, outstanding.
<PAGE>
GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
<S> <C>
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1998 (unaudited) and December 31, 1997............................ 2
Consolidated Statements of Earnings for the Three Months Ended March 31, 1998 and 1997 (unaudited)............ 4
Consolidated Statement of Changes in Shareholders' Equity..................................................... 6
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1998 and 1997 (unaudited)................................................................... 7
Consolidated Statements of Comprehensive Income for the Three Months
Ended March 31, 1998 and 1997 (unaudited)................................................................... 9
Notes to Interim Consolidated Financial Statements............................................................ 10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................... 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk...................................................... 23
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................................................................... 24
Item 2. Changes in Securities and Use of Proceeds....................................................................... 24
Item 3. Defaults upon Senior Securities ................................................................................ 24
Item 4. Submission of Matters to a Vote of Security Holders............................................................. 24
Item 5. Other Information............................................................................................... 24
Item 6. Exhibits and Reports on Form 8-K................................................................................ 24
Signatures................................................................................................................ 25
</TABLE>
1
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
Cash and due from banks........................................ $ 7,848 $ 9,750
Federal funds sold............................................. 12,895 7,720
Securities:
Available-for-sale............................................ 40,273 42,906
Held-to-maturity.............................................. 12,307 15,233
-------- --------
Total securities............................................. 52,580 58,139
-------- --------
Loans, net of allowance for loan losses of $1,494 and $1,129... 161,567 156,266
Premises and equipment, net.................................... 6,362 6,359
Accrued interest receivable.................................... 2,175 2,224
Other assets................................................... 4,061 3,699
======== ========
Total assets....................................................$247,488 $244,157
======== ========
</TABLE>
2
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing.......................... $ 39,146 $ 46,295
Interest-bearing............................. 186,012 176,666
-------- --------
Total deposits.............................. 225,158 222,961
-------- --------
Other liabilities............................. 3,350 2,943
-------- --------
Total liabilities........................... 228,508 225,904
-------- --------
Shareholders' equity:
Preferred stock.............................. 827 827
Common stock................................. 2,548 2,548
Additional capital........................... 5,396 5,396
Retained earnings............................ 9,961 9,240
Accumulated other comprehensive income....... 250 242
-------- --------
18,982 18,253
Less common stock held in treasury--at cost... 2 0
-------- --------
Total shareholders' equity.................. 18,980 18,253
-------- --------
Total liabilities and shareholders' equity.. $247,488 $244,157
======== ========
See accompanying Notes to Interim Consolidated Financial Statements.
3
<PAGE>
GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------
1998 1997
-------- -------
<S> <C> <C>
Interest income:
Loans ....................................................................................... $ 3,447 $ 3,001
Securities................................................................................... 895 551
Federal funds sold and other temporary investments........................................... 139 346
------ ------
Total interest income....................................................................... 4,481 3,898
Interest expense.............................................................................. 2,232 1,915
------ ------
Net interest income......................................................................... 2,249 1,983
Provision for loan losses..................................................................... 370 20
------ ------
Net interest income after provision for loan
losses...................................................................................... 1,879 1,963
------ ------
Noninterest income:
Service charges.............................................................................. 287 253
Other operating income....................................................................... 875 133
------ ------
Total noninterest income.................................................................... 1,162 386
------ ------
Noninterest expense:
Employee compensation and benefits........................................................... 1,082 932
Net bank premises expense.................................................................... 286 274
Other operating expenses..................................................................... 658 630
------ ------
Total noninterest expenses.................................................................. 2,026 1,836
------ ------
Earnings before income taxes................................................................ 1,015 513
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Provision for income taxes.................................................................... 295 75
------ ------
Net earnings before preferred stock dividends............................................... 720 438
Preferred stock dividends................................................................... 0 0
------ ------
Net earnings available to common shareholders............................................... $ 720 $ 438
====== ======
Basic earnings per common share............................................................. $0.28 $0.17
====== ======
Diluted earnings per common share........................................................... $0.28 $0.17
====== ======
</TABLE>
See accompanying Notes to Interim Consolidated Financial Statements.
5
<PAGE>
GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Accumulated
other Total
compre- Common share-
Preferred Common Additional Retained hensive stock in holders'
stock stock capital earnings income treasury equity
--------- ------- ---------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997................... $ 827 $2,548 $5,396 $7,480 $ 19 $ (20) $16,250
Sale of treasury stock....................... ---- ---- ---- ---- ---- 20 20
Dividends
Preferred - $0.45 per share................. ---- ---- ---- (74) ---- ---- (74)
Common - $0.22 per share.................... ---- ---- ---- (566) ---- ---- (566)
Net change in unrealized gain
on available-for-sale
securities, net of tax of $114.............. ---- ---- ---- ---- 223 ---- 223
Net earnings for the year.................... ---- ---- ---- 2,400 ---- ---- 2,400
--------- ------- ---------- ------ ------- -------- -------
Balance at December 31, 1997................. $ 827 $2,548 $5,396 $9,240 $242 $ ---- $18,253
Purchase of Treasury Stock................... ---- ---- ---- ---- ---- (2) (2)
Rounding..................................... ---- ---- ---- 1 ---- ---- 1
Net change in unrealized gain
on available-for-sale
securities, net of tax of
$4(1)....................................... ---- ---- ---- ---- 8 ---- 8
Net earnings(1).............................. ---- ---- ---- 720 ---- ---- 720
--------- ------- ---------- ------ ------- -------- -------
Balance at March 31, 1998(1) ................ $ 827 $2,548 $5,396 $9,961 $ 250 $ (2) $18,980
========= ======= ========== ====== ======= ======== =======
(1) Unaudited
</TABLE>
See accompanying Notes to Interim Consolidated Financial Statements.
6
<PAGE>
GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings...................................................................... $ 720 $ 438
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation...................................................................... 136 133
Amortization of premiums, net of (accretion) of discounts on securities........... 37 (29)
Provision for loan loss........................................................... 370 20
Gain on sale of premises, equipment and other real estate......................... (3) (3)
Write down of ORE and repossessed assets.......................................... 15 12
Proceeds from sale of loans....................................................... 1,967 0
(Decrease) increase in accrued interest receivable and other assets............... (343) 662
Increase in accrued interest and other liabilities................................ 404 33
------- --------
Net cash provided by operating activities.................................... 3,303 1,266
Cash flows from investing activities:
Purchases of held-to-maturity securities.......................................... 0 (7,179)
Proceeds from sales, maturities and repayments of available-for-sale securities... 5,042 1,024
Purchases of available-for-sale securities........................................ (2,434) (21,083)
Proceeds from maturities and repayments of held-to-maturity securities............ 2,925 5,555
Net increase in loans............................................................. (7,638) (2,225)
Purchases of premises and equipment............................................... (139) (14)
Proceeds from sale of premises, equipment and other real estate................... 19 6
Net (increase) decrease in federal funds sold..................................... (5,175) 13,020
------- --------
</TABLE>
7
<PAGE>
Net cash used by investing activities......... (7,400) (10,896)
Cash flows from financing activities:
Change in deposits................................. 2,197 8,392
Repayment of borrowings............................ 0 (68)
Purchase of treasury stock......................... (2) 0
Sale of treasury stock............................. 0 1
------- --------
Net cash provided from financing activities... 2,195 8,325
------- --------
Net decrease in cash and cash equivalents..... (1,902) (1,305)
Cash and cash equivalents at beginning of period....... 9,750 15,809
------- --------
Cash and cash equivalents at end of period............. $ 7,848 $ 14,504
======= ========
See accompanying Notes to Interim Consolidated Financial Statements.
8
<PAGE>
GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Three months ended
March 31,
------------------
1998 1997
---- ----
Net earnings.................................................. $ 720 $ 438
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities:
Unrealized gains (losses) arising during the period......... 8 (14)
----- -----
Comprehensive income.......................................... $ 728 $ 424
===== =====
See accompanying Notes to Interim Consolidated Financial Statements.
9
<PAGE>
GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
(1) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Guaranty
Bancshares, Inc. (collectively referred to as the Company) and its wholly-owned
subsidiary Guaranty Financial Corp., Inc. which wholly owns Guaranty Bank and
one non-bank subsidiary Guaranty Company. Guaranty Bank has two non-bank
subsidiaries, Guaranty Leasing Company and GB Com, Inc. 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 complete
financial statements. In the opinion of management, the 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
Prospectus which is a part of the Registration Statement on Form S-1
(Registration No. 333-48959) filed with the SEC on May 11, 1998. Operating
results for the three month period ended March 31, 1998, are not necessarily
indicative of the results that may be expected for the year ending December 31,
1998.
(2) INCOME PER COMMON SHARE
Income per common share was computed based on the following: (All
computations show the effects of a seven for one common shares stock
split effective March 24, 1998)
<TABLE>
<CAPTION>
For the quarter ended
March 31,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Net earnings available to common shareholders.................. $ 720 $ 438
Weighted average common shares used in basic EPS............... 2,548,280 2,548,280
Potential dilutive common shares............................... 0 0
---------- ----------
Weighted average common and potential dilutive
common shares used in dilutive EPS ........................... 2,548,280 2,548,280
Basic earnings per common share ............................... $ 0.28 $ 0.17
========== ==========
Diluted earnings per common share ............................. $ 0.28 $ 0.17
========== ==========
</TABLE>
10
<PAGE>
GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company has adopted Financial Accounting
Standards No. 130, Reporting Comprehensive Income, which requires the reporting
of comprehensive income in addition to net income from operations. Comprehensive
income is a more inclusive financial reporting methodology which includes
disclosure of certain financial information that historically has not been
recognized in the calculation of net earnings.
The tax effects for components of comprehensive income are as follows:
<TABLE>
<CAPTION>
Three months ended March 31,
--------------------------------------------------------------------
1998 1997
------------------------------ ------------------------------
Before Tax Net of Before Tax Net of
Tax (Expense)/ Tax Tax (Expense)/ Tax
Amount Benefit Amount Amount Benefit Amount
------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Unrealized gains (losses) on
securities arising during the
period............................ $ 12 $ (4) $ 8 $ (21) $ 7 $ (14)
------------------------------ ------------------------------
Other comprehensive income.......... $ 12 $ (4) $ 8 $ (21) $ 7 $ (14)
============================== ==============================
</TABLE>
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 seven banking locations
in the Texas communities of Mount Pleasant (two offices), Bogata, Deport, Paris,
Talco and Texarkana. The following Management's Discussion and Analysis of
Financial Condition and Results of Operations may contain certain forward-
looking statements regarding future financial condition, results of operations,
and the Company's business operations. Such statements involve risks,
uncertainties and assumptions, including, but not limited to monetary policy and
general economic conditions in Texas and more specifically Northeast Texas, the
actions of competitors and customers, the success of the Company in implementing
its strategic plan, and the effects of regulatory restrictions imposed on banks
and bank holding companies generally. Should one or more of these risks or
uncertainties materialize or should these underlying assumptions prove
incorrect, actual outcomes may vary materially from outcomes expected or
anticipated by the Company.
OVERVIEW
Net earnings for the three months ended March 31, 1998 were $720,000 or
$0.28 per share compared to $438,000 or $0.17 per share for the three months
ended March 31, 1997, an increase of 64.4%. While aided by an increase in net
interest income, the improvement in net earnings was primarily the result of a
gain on the sale of $2.0 million in principal amount of mortgage loans that were
originally purchased in 1991 at a discount from the Resolution Trust
Corporation("RTC"). In March of 1998, the Company sold the mortgage loans at
par, which resulted in a gain of $444,000, net of $230,000 in taxes expensed as
a result of the sale. The Company did not have a gain from the sale of loans in
the first quarter of 1997. The gain on the sale of the loans in 1998 was
partially offset by an increase in the provision for loan losses from $20,000 in
the first quarter of 1997 to $370,000 in the first quarter of 1998 primarily as
the result of a $22.2 million or 15.9% increase in loans during the same time
period. Accordingly, after giving effect to these transactions, core earnings
for the period were $606,000 or $0.24 per share for the first quarter of 1998
compared to $438,000 or $0.17 per share for the first quarter of 1997, a 38.4%
increase.
The quarter ended March 31, 1998 showed stable growth. Total loans
increased to $163.1 million at March 31, 1998 from $157.4 million at December
31, 1997, an increase of $5.7 million or 3.6%. Total assets were $247.5 million
at March 31, 1998 compared with $244.2 million at December 31, 1997. The
increase in total assets resulted mainly from an increase in total deposits to
$225.2 million at March 31, 1998 from $223.0 million at December 31, 1997, an
increase of $2.2 million or 1.0%. Common shareholders' equity was $18.2 million
at March 31, 1998 compared with $17.4 million at December 31, 1997, an increase
of $727,000 or 4.2%.
RESULTS OF OPERATIONS
Interest Income
Interest income for the quarter ended March 31, 1998 was $4.5 million, an
increase of $583,000 or 15.0% from the quarter ended March 31, 1997. The
increase in interest income was due primarily to higher
12
<PAGE>
interest income on loans and securities. Average loans were $161.4 million for
the quarter ended March 31, 1998 compared with $140.5 million for the quarter
ended March 31, 1997, an increase of $20.9 million or 14.9%. Internal growth
accounted for all of the $20.9 million increase in average loans. Average
securities were $55.0 million for the quarter ended March 31, 1998 compared with
$34.6 million for the quarter ended March 31, 1997, an increase of $20.4 million
or 59.0%.
Interest Expense
Interest expense on deposits and other interest-bearing liabilities was
$2.2 million for the quarter ended March 31, 1998 compared with $1.9 million for
the quarter ended March 31, 1997, an increase of $317,000 or 16.6%. The increase
in interest expense was due primarily to an increase in average interest-bearing
liabilities, to $182.0 million for the quarter ended March 31, 1998 from $162.6
million for the quarter ended March 31, 1997, an increase of $19.4 million or
11.9%. In addition, the interest rate on average interest-bearing liabilities
increased to 4.97% from 4.78% for the same periods.
Net Interest Income
Net interest income was $2.2 million for the quarter ended March 31, 1998
compared with $2.0 million for the quarter ended March 31, 1997, an increase of
$266,000 or 13.4%. The increase in net interest income resulted primarily from
growth in average earning assets to $225.3 million for the quarter ended March
31, 1998 from $193.4 million for the quarter ended March 31, 1997, an increase
of $31.9 million or 16.5%.
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 quarters ended March 31, 1998 and 1997.
The tables also set forth the average rate earned on total interest-earning
assets, the average rate paid on total interest-bearing liabilities, and the net
interest margin on average total interest-earning assets for the same periods.
13
<PAGE>
<TABLE>
<CAPTION>
Three months ended March 31,
------------------------------------------------------------------------
1998 1997
------------------------------------ ---------------------------------
Average Interest Average Average Interest Average
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
----------- ---------- --------- ----------- -------- --------
ASSETS: (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans................................. $161,375 $ 3,447 8.66% $140,539 $3,001 8.66%
Securities............................ 55,046 895 6.59% 34,557 551 6.47%
Federal funds sold and other temporary
investments...................... 8,862 139 6.36% 18,332 346 7.65%
-------------------------------- -----------------------------
Total interest-earning assets.... 225,283 $ 4,481 8.07% 193,428 $3,898 8.17%
Less allowance for loan losses.............. (1,174) (1,062)
-------- --------
Total interest-earning assets, net
of allowance............................. 224,109 192,366
Nonearning assets........................... 22,069 26,716
-------- --------
Total assets..................... $246,178 $219,082
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing liabilities:
Interest-bearing demand deposits...... $ 19,207 $ 133 2.81% $ 18,325 $ 131 2.90%
Savings and money market accounts..... 40,028 392 3.97% 38,668 363 3.81%
Certificates of deposit............... 122,734 1,707 5.54% 105,613 1,421 5.46%
-------------------------------- -----------------------------
Total interest-bearing
liabilities...................... 181,969 2,232 4.97% 162,606 1,915 4.78%
-------------------------------- -----------------------------
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits... 42,347 36,717
Other liabilities..................... 3,095 3,205
-------- --------
Total liabilities................ 227,411 202,528
Shareholders' equity........................ 18,767 16,554
-------- --------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Total liabilities and
shareholders' equity............ $246,178 $219,082
======== ========
Net interest income........................ $ 2,249 $1,983
======== ======
Net interest spread........................ 3.10% 3.39%
==== ====
Net interest margin........................ 4.05% 4.16%
==== ====
</TABLE>
15
<PAGE>
The following table presents 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 this table, changes attributable to both rate and volume which
can be segregated have been allocated.
Three months ended March 31,
-------------------------------
1998 vs. 1997
-------------------------------
Increase (Decrease)
Due to
--------------------
Volume Rate Total
--------- -------- --------
(Dollars in thousands)
Interest-earning assets:
Loans.................................... $ 446 $ 0 $ 446
Securities............................... 333 11 344
Federal funds sold and other temporary
investments............................. (148) (59) (207)
----- ----- -----
Total increase in interest income 631 (48) 583
----- ----- -----
Interest-bearing liabilities:
Interest-bearing demand deposits......... 6 (4) 2
Savings and money market accounts........ 13 16 29
Certificates of deposit.................. 238 48 286
----- ----- -----
Total increase in interest
expense............................... 257 60 317
----- ----- -----
Increase in net interest income.......... $ 374 $(108) $ 266
===== ===== =====
16
<PAGE>
Provision and Allowance for Loan Losses
In originating loans, the Company recognizes that credit losses will be
experienced 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 based upon, among other things, historical experience, the
volume and type of lending conducted by the Company, the amount of nonperforming
assets, regulatory policies, generally accepted accounting principles, general
economic conditions, and other factors related to the collectibility of loans in
the Company's 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.
Management actively monitors the Company's asset quality and provides
specific loss allowances when necessary. 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. As of March 31, 1998, the allowance for loan losses amounted to
$1.5 million or 0.92% of total loans. The allowance for loan losses as a
percentage of nonperforming loans was 162.7% at March 31, 1998.
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 historical experience, the volume and type of
lending conducted by the Company, the amount of nonperforming assets, regulatory
policies, generally accepted accounting principles, general economic conditions,
and other factors related to the collectibility of loans in the Company's
portfolio.
The provision for loan losses for the quarter ended March 31, 1998 was
$370,000 compared with $20,000 for the quarter ended March 31, 1997. The
increase in provision came as a result of the growth in the loan portfolio from
$140.4 million at March 31, 1997 to $163.1 million at March 31, 1998. The
provision was incurred to increase the allowance for loan loss to a more
appropriate level and to allow for continued loan growth. For the quarter ended
March 31, 1998, net charge-offs were $5,000.
17
<PAGE>
Set forth below is an analysis of the allowance for loan losses for the
three months ended March 31, 1998:
Three months
ended
March 31, 1998
--------------
(Dollars in
thousands)
Average loans outstanding ................................. $ 161,375
---------
Gross loans outstanding at end of period .................. $ 163,061
---------
Allowance for loan losses at beginning of period .......... 1,129
Provision for loan losses ................................. 370
Charge-offs:
Commercial and industrial ................................ (12)
Real estate .............................................. (1)
Consumer ................................................. (15)
Recoveries:
Commercial and industrial ................................ 7
Real estate .............................................. 7
Consumer ................................................. 9
---------
Net loan (charge-offs) recoveries ......................... (5)
---------
Allowance for loan losses at end of period ................ $ 1,494
=========
Ratio of allowance to end of period loans ................. 0.92%
Ratio of net charge-offs to average loans ................. 0.01%
Ratio of allowance to end of period nonperforming loans ... 162.7%
Noninterest Income
The Company's primary sources of recurring noninterest income are service
charges on deposit accounts and fee income. Excluding a $674,000 nonrecurring
gain from the sale of loans, noninterest income for the quarter ended March 31,
1998 increased to $488,000 from $386,000 for the quarter ended March 31, 1997,
an increase of $102,000 or 26.4%. The gain on sale of loans was recorded when
the Company sold $2.0 million of loans originally purchased at a discount in
June of 1991 from the RTC. The following table presents, for the periods
indicated, the major categories of noninterest income:
Three months ended
March 31,
------------------
1998 1997
-------- --------
(Dollars in thousands)
Service charges on deposit accounts........ $ 287 $ 253
Fee Income................................. 153 88
Fiduciary Income........................... 16 14
Gain on sale of loans...................... 674 0
Other noninterest income................... 32 31
------ -----
Total noninterest income ................. $1,162 $ 386
====== =====
18
<PAGE>
After excluding the nonrecurring gain on the sale of loans, the increase in
noninterest income from March 31, 1997 to March 31, 1998, resulted primarily
from an increase in service charges on deposit accounts and fee income due to an
increase in the number of deposit accounts. Additionally, the Company's
increased emphasis on fee based services resulted in greater income from check
cashing, ATM fees, appraisal fees and wire transfer fees.
Noninterest Expenses
Noninterest expenses totaled $2.0 million for the quarter ended March 31, 1998
compared with $1.8 million for the quarter ended March 31, 1997, an increase of
$190,000 or 10.3%. The following table presents, for the periods indicated, the
major categories of noninterest expenses:
Three months ended
March 31,
------------------
1998 1997
------ ------
(Dollars in thousands)
Employee compensation and benefits.... $1,082 $ 932
Non-staff expenses:
Net bank premises expense......... 286 274
Office and computer supplies...... 60 74
Legal and professional fees....... 102 78
Advertising....................... 53 46
Postage........................... 31 31
FDIC insurance.................... 6 4
Other............................. 406 397
------ ------
Total non-staff expenses..... 944 904
====== ======
Total noninterest expenses... $2,026 $1,836
====== ======
Employee compensation and benefits expense for the quarter ended March 31,
1998 was $1.1 million, an increase of $150,000 or 16.1% over the same period in
1997. The increase was due primarily to normal salary increases and the staffing
of a new location in Texarkana, which opened in August of 1997 and additional
staff at the Mt. Pleasant location to handle customer growth. The number of
full-time equivalent employees was 127.5 at March 31, 1998 compared with 111.5
at March 31, 1997, an increase of 14.3%.
Non-staff expenses were $944,000 for the quarter ended March 31, 1998 compared
with $904,000 for the same period in 1997, an increase of $40,0000 or 4.4%. Net
bank premises expense increased $12,000 or 4.4% to $286,000, due primarily to
the addition of the Texarkana banking facility.
Legal and professional fees increased $24,000 or 30.8% due primarily to
independent loan review expenses and bankruptcy and litigation proceedings. The
increase in advertising of $6,000 or 13.0% was due to additional advertising
campaigns initiated in early 1998 as compared to the same time period of 1997.
Other non-staff expenses include director fees, insurance, franchise tax,
telephone expense and other miscellaneous expenses, the combination of which
increased $9,000 or 2.3% to $406,000 as of March 31, 1998.
19
<PAGE>
Income Taxes
Income tax expense increased approximately $220,000 to $295,000 for the
quarter ended March 31, 1998 from $75,000 for the same period in 1997. The
increase was primarily attributable to the gain on sale of loans in the amount
of $674,000. The Company did not have a gain from the sale of loans in the
first quarter of 1997.
FINANCIAL CONDITION
Loan Portfolio
Total loans were $163.1 million at March 31, 1998, an increase of $5.7
million or 3.6% from $157.4 million at December 31, 1997. Loan growth occurred
primarily in commercial loans. Loans comprised 71.4% of total earning assets at
March 31, 1998 compared with 70.5% at December 31, 1997.
The following table summarizes the loan portfolio of the Company by type of
loan as of March 31, 1998 and December 31, 1997:
<TABLE>
<CAPTION>
March 31,1998 December 31, 1997
------------------ -------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial and industrial .................. $ 49,214 30.18% $ 44,772 28.45%
Real estate:
Construction and land
development............................... 3,033 1.86 3,072 1.95
1-4 family residential .................... 41,987 25.75 41,398 26.30
Commercial mortgages ...................... 42,576 26.11 42,363 26.92
Farmland................................... 7,269 4.46 6,492 4.12
Multi-family residential................... 354 0.22 360 0.23
Consumer.................................... 18,628 11.42 18,938 12.03
------- ------ ------- ------
Total loans .............................. $163,061 100.00% $157,395 100.00%
======== ====== ======== ======
</TABLE>
20
<PAGE>
NONPERFORMING ASSETS
Nonperforming assets were $1.6 million at March 31, 1998 compared with $1.9
million at December 31, 1997, reflecting continued strong asset quality. The
ratio of nonperforming assets to total loans and other real estate was 1.0% and
1.2% at March 31, 1998 and December 31, 1997, respectively.
The following table presents information regarding nonperforming assets as
of the dates indicated:
March 31, December 31,
1998 1997
--------- ------------
(Dollars in thousands)
Nonaccrual loans.......................... $ 39 $ 298
Accruing loans 90 or more days past due... $ 879 $ 918
------ ------
Total nonperforming loans................. 918 1,216
Other real estate......................... 716 714
------ ------
Total nonperforming assets................ $1,634 $1,930
====== ======
SECURITIES
Securities totaled $52.6 million at March 31, 1998, a decline of $5.5
million from $58.1 million at December 31, 1997. The decline occurred as
maturing securities were used to fund loans. At March 31, 1998, securities
represented 21.2% of total assets compared with 23.8% of total assets at
December 31, 1997. The yield on average securities for the quarter ended March
31, 1998 was 6.66% compared with 6.61% for the same period in 1997. At March 31,
1998, securities included $10.4 million in U.S. Treasury securities, $20.7
million in U.S. Government securities, $19.3 million in mortgage-backed
securities, $1.1 million in equity securities and $1.1 million in municipal
securities. The average life of the securities portfolio at March 31, 1998 was
approximately two years and six months.
PREMISES AND EQUIPMENT
Premises and equipment totaled $6.4 million at March 31, 1998 and at March
31, 1997. Although the net change shows only a slight increase in fixed assets,
some assets were capitalized during the period and normal depreciation was
recorded.
DEPOSITS
At March 31, 1998, demand, money market and savings deposits accounted for
approximately 44.1% of total deposits, while certificates of deposit made up
55.9% of total deposits. Noninterest-bearing demand deposits totaled $39.1
million or 17.4% of total deposits at March 31, 1998 compared with $46.3 million
or 20.8% of total deposits at December 31, 1997. The average cost of deposits,
including noninterest-bearing demand deposits, was 3.98% for the quarter ended
March 31, 1998 compared with 3.84% for the same period in 1997. The increase in
the average cost of deposits was primarily due to the increased share of
interest-bearing deposits.
21
<PAGE>
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 an ongoing 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 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, have 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. Net cash provided by operating activities was $3.3
million and $1.3 million for the quarters ended March 31, 1998 and 1997,
respectively. The difference related mainly to the proceeds from the sale of
loans in the quarter ended March 31, 1998.
Net cash (used) by investing activities was $(7.4) million and $(10.9)
million for the quarters ended March 31, 1998 and 1997, respectively. In the
quarter ended March 31, 1998, the Company funded more loans than it received in
maturing investments. The Company also experienced an increase in federal funds
in the quarter ended March 31, 1998 over the quarter ended March 31, 1997.
Net cash provided by financing activities was $2.2 million and $8.3 million
for the quarters ended March 31, 1998 and 1997, respectively. The difference was
due primarily to a greater increase in deposits during the quarter ended March
31, 1997.
CAPITAL RESOURCES
Total shareholders' equity as of March 31, 1998 was $19.0 million, an
increase of $727,000 or 4.0% compared with shareholders' equity of $18.3 million
at December 31, 1997. The increase was largely attributable to net earnings for
the quarter ended March 31,1998 of $720,000.
Both the Board of Governors of the Federal Reserve System, with respect to
the Company, and the Federal Deposit Insurance Corporation, with respect to the
Bank, have established certain minimum risk-based capital standards that apply
to bank holding companies and federally insured banks, respectively. The
Company's risk-based capital ratios remain above the levels designated as "well
capitalized" on March 31, 1998, with Tier 1 capital, total risk-based capital
and leverage capital ratios of 11.13%, 12.01% and 7.61%, respectively. The
Bank's risk-based capital ratios remain above the levels designated as "well
capitalized" on March 31, 1998, with Tier-1 capital, total risk-based capital
and leverage capital ratios of 10.90%, 11.82% and 7.25%, respectively.
YEAR 2000
The Company established a Year 2000 Task Force in September 1997 to ensure
there will be no material adverse effect on customers or disruption to business
operations as a result of a failure of the
22
<PAGE>
Company or third parties to properly process any data on or after January 1,
2000. The project plan consists of five phases - Awareness, Assessment,
Renovation, Validation and Implementation. The Awareness and Assessment phases
are complete and the Renovation and Validation phases are currently in process
and on schedule. The inventory of systems has been performed and the risk
assessment and prioritizing of those systems is complete. The Company does not
utilize any in-house developed software. All software utilized has been provided
by established software companies who retain the responsibility for Year 2000
compliance. These respective vendors have been contacted and requested to
provide the current compliance status of their respective software and hardware
systems. Their responses are being actively monitored and testing schedules are
being developed and deployed based on the responses. It is anticipated that the
validation phase will be complete by late 1998 or the first quarter 1999.
Incremental costs for causing computer applications to be Year 2000 compliant
are presently estimated to be immaterial. The Company is currently conducting
thorough internal testing of all third party hardware and software systems in an
attempt to ensure Year 2000 compliance. The Company is also developing detailed
contingency plans in the event of any system failure associated with Year 2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's primary market risk exposure is to changes in market interest
rates. The Company's exposure to such risk is reviewed on a regular basis by
the Asset Liability Committee. Interest rate risk is the potential of economic
losses due to future interest rate changes. These economic losses can be
reflected as a loss of future net interest income and/or a loss of current fair
market values. The objective is to measure the effect on net interest income and
to adjust the balance sheet to minimize the inherent risk while at the same time
maximizing income. Management realizes certain risks are inherent, and that the
goal is to identify and accept the risks.
The Company applies a market value ("MV") methodology to gauge its interest
rate risk exposure as derived from its simulation model. Generally, MV is the
discounted present value of the difference between incoming cash flows on
interest-earning assets and other investments and outgoing cash flows on
interest-bearing liabilities. The application of the methodology attempts to
quantify interest rate risk by measuring the change in the MV that would result
from a theoretical 200 basis point change in market interest rates. Both a 200
basis point increase and a 200 basis point decrease in market rates are
considered.
At March 31, 1998, it was estimated that the Company's MV would decrease
19.3% in the event of a 200 basis point increase in market interest rates. The
Company's MV at the same date would increase 11.2% in the event of a 200 basis
point decrease in market interest rates.
23
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable
(b) Not applicable
(c) Not applicable
(d) Use of Proceeds
Use of Proceeds
The effective date of the Registration Statement for which use of proceeds
information is being disclosed herein was May 13, 1998 and the SEC file number
assigned to the Registration Statement was 333-48959. The offering (the
"Offering") to which the Registration Statement related commenced on May 6, 1998
and has been terminated following the sale of all securities registered. The
managing underwriter for the Offering was Hoefer & Arnett, Incorporated. The
class of securities registered by the Registration Statement was the Company's
Common Stock, par value $1.00 per share.
For the account of the Company, the number of shares of Common Stock
registered and sold was 350,000 and the aggregate offering price of such shares
was $4,987,500.
In connection with the Offering, the Company incurred expenses of $314,213
for underwriter's discounts and other expenses of $204,900, resulting in total
expenses of $519,113. No Offering expenses were paid to an affiliate of the
Company.
The net proceeds of the Offering to the Company were $4,468,387, of which
the Company will use $864,507 for redemption of the Company's Series A
Preferred Stock, which will be completed on June 30, 1998, and $3,603,880 for
working capital.
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 FORM 8-K
(a) The following exhibit is filed with this report:
Exhibit 27. Financial Data Schedule
(b) No reports on Form 8-K were filed by the Company during the three
months ended March 31, 1998.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GUARANTY BANCSHARES, INC.
(Registrant)
Date: June 26, 1998 By: /s/ Arthur B. Scharlach
-----------------------------------
Arthur B. Scharlach
President and Chief Executive Officer
(Principal Executive Officer)
Date: June 26, 1998 By: /s/ Clifton A. Payne
-------------------------------------
Clifton A. Payne
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer)
25
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 7,848
<INT-BEARING-DEPOSITS> 186,012
<FED-FUNDS-SOLD> 12,895
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 40,273
<INVESTMENTS-CARRYING> 12,307
<INVESTMENTS-MARKET> 12,474
<LOANS> 163,061
<ALLOWANCE> 1,494
<TOTAL-ASSETS> 247,488
<DEPOSITS> 225,158
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,350
<LONG-TERM> 0
0
827
<COMMON> 2,548
<OTHER-SE> 15,607
<TOTAL-LIABILITIES-AND-EQUITY> 247,488
<INTEREST-LOAN> 3,447
<INTEREST-INVEST> 895
<INTEREST-OTHER> 139
<INTEREST-TOTAL> 4,481
<INTEREST-DEPOSIT> 2,232
<INTEREST-EXPENSE> 2,232
<INTEREST-INCOME-NET> 2,249
<LOAN-LOSSES> 370
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,026
<INCOME-PRETAX> 1,015
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 720
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.28
<YIELD-ACTUAL> 8.07
<LOANS-NON> 39
<LOANS-PAST> 879
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,129
<CHARGE-OFFS> 28
<RECOVERIES> 23
<ALLOWANCE-CLOSE> 1,494
<ALLOWANCE-DOMESTIC> 1,494
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
