UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO _________
COMMISSION FILE NUMBER: 000-24235
GUARANTY BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-16516431
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 W. ARKANSAS
MT. PLEASANT, TEXAS 75455
(Address of principal executive offices, including zip code)
903-572-9881
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
As of November 14, 2000, there were 3,053,733 shares of the registrant's Common
Stock, par value $1.00 per share, outstanding.
<PAGE>
GUARANTY BANCSHARES, INC.
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets......................................3
Consolidated Statements of Earnings..............................4
Condensed Consolidated Statements of Changes in
Shareholders' Equity...........................................5
Condensed Consolidated Statements of Cash Flows..................6
Consolidated Statements of Comprehensive Income..................7
Notes to Interim Consolidated Financial Statements...............8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.....................................11
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
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GUARANTY BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and due from banks ............................................ $ 10,101 $ 13,102
Interest bearing deposits in other banks ........................... 133 50
------------- -------------
Total cash and cash equivalents ............................. 10,234 13,152
Federal funds sold ................................................. 6,275 1,140
Securities available-for-sale ...................................... 85,125 79,761
Loans, net of allowance for loan losses of $2,619 and $2,491 ....... 279,804 252,718
Premises and equipment, net ........................................ 13,531 11,662
Accrued interest receivable ........................................ 3,557 2,735
Other assets ....................................................... 12,442 9,270
------------- -------------
Total assets ................................................ $ 410,968 $ 370,438
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest-bearing .......................................... $ 53,596 $ 56,404
Interest-bearing ............................................. 300,972 272,233
------------- -------------
Total deposits ............................................ 354,568 328,637
------------- -------------
FHLB advances ...................................................... 17,479 10,699
Long-term debt ..................................................... 7,000 --
Other liabilities .................................................. 3,470 2,606
------------- -------------
Total liabilities ........................................ 382,517 341,942
------------- -------------
Shareholders' equity:
Preferred stock, $5.00 par value, 15,000,000 shares authorized,
none issued ............................................... -- --
Common stock, $1.00 par value, 50,000,000 shares authorized,
3,250,016 issued .......................................... 3,250 3,250
Additional capital ................................................. 12,659 12,659
Retained earnings .................................................. 14,937 13,535
Treasury stock, 183,572, and 17,600 shares at cost ................. (1,989) (174)
Accumulated other comprehensive income ............................. (406) (774)
------------- -------------
Total shareholders' equity ......................................... 28,451 28,496
------------- -------------
Total liabilities and shareholders' equity ......................... $ 410,968 $ 370,438
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
GUARANTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ------------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest income:
Loans ............................................................. $ 5,925 $ 4,474 $ 16,838 $ 12,288
Securities ........................................................ 1,443 966 4,199 2,449
Federal funds sold and other temporary investments ................ 36 86 154 346
-------- -------- -------- --------
Total interest income .......................................... 7,404 5,526 21,191 15,083
Interest expense:
Deposits .......................................................... 3,981 2,607 11,048 7,121
FHLB advances and federal funds purchased ......................... 323 59 598 163
Long-term debt .................................................... 194 -- 405 --
-------- -------- -------- --------
Total interest expense ......................................... 4,498 2,666 12,051 7,284
-------- -------- -------- --------
Net interest income ............................................ 2,906 2,860 9,140 7,799
Provision for loan losses ............................................ 130 95 445 270
-------- -------- -------- --------
Net interest income after provision for loan losses ............ 2,776 2,765 8,695 7,529
Noninterest income:
Service charges ................................................... 616 493 1,755 1,333
Other operating income ............................................ 377 248 1,017 713
Realized (loss) gain on available-for-sale securities ............. -- (1) (34) 11
-------- -------- -------- --------
Total noninterest income ....................................... 993 740 2,738 2,057
-------- -------- -------- --------
Noninterest expense:
Employee compensation and benefits ................................ 1,688 1,440 5,097 3,934
Net bank premises expense ......................................... 447 360 1,278 1,002
Other operating expenses .......................................... 898 807 2,701 2,195
-------- -------- -------- --------
Total noninterest expenses ..................................... 3,033 2,607 9,076 7,131
-------- -------- -------- --------
Earnings before income taxes ................................... 736 898 2,357 2,455
Provision for income taxes ........................................... 195 190 583 535
-------- -------- -------- --------
Net earnings ................................................... $ 541 $ 708 $ 1,774 $ 1,920
======== ======== ======== ========
Basic earnings per common share ................................ $ 0.18 $ 0.23 $ 0.56 $ 0.65
======== ======== ======== ========
Diluted earnings per common share .............................. $ 0.18 $ 0.23 $ 0.56 $ 0.65
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
GUARANTY BANCHSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance at beginning of period ................................. $ 27,588 $ 24,118 $ 28,496 $ 23,796
Net earnings ................................................... 541 708 1,774 1,920
Less cash dividends declared on common stock ................... -- -- (372) (346)
Less purchases of treasury stock ............................... (266) -- (1,815) (116)
Stock issued to acquire First American ......................... -- 3,517 -- 3,517
Change in unrealized gain/loss on
securities available for sale, net of tax .................. 588 (159) 368 (587)
-------- -------- -------- --------
Balance at end of period ....................................... $ 28,451 $ 28,184 $ 28,451 $ 28,184
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
GUARANTY BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
--------------------------
2000 1999
---------- ----------
<S> <C> <C>
Net cash provided by operating activities .......................................................... $ (338) $ 2,923
Cash flows from investing activities:
Securities available for sale:
Purchases .................................................................................... (16,392) (21,824)
Sales ........................................................................................ 5,314 6,594
Maturities, calls, and principal repayments .................................................. 6,195 7,856
Securities held to maturity:
Purchases .................................................................................... -- (1,253)
Maturities, calls, and principal repayments .................................................. -- 1,343
Net increase in loans ........................................................................ (28,073) (20,218)
Purchases of premises and equipment .......................................................... (2,491) (2,252)
Proceeds from sale of premises, equipment and other real estate .............................. 478 223
Cash paid for acquisitions ................................................................... -- (3,380)
Cash and cash equivalents from acquisitions .................................................. -- 1,983
Net decrease (increase) in federal funds sold ................................................ (5,135) 16,815
---------- ----------
Net cash used by investing activities .................................................. (40,104) (14,113)
---------- ----------
Cash flows from financing activities:
Change in deposits ........................................................................... 25,931 12,492
Net change in short-term FHLB advances ....................................................... 7,000 --
Repayment of long-term FHLB advances ......................................................... (220) (209)
Proceeds from issuance of trust preferred securities ......................................... 7,000 --
Purchase of treasury stock ................................................................... (1,815) (116)
Dividends paid ............................................................................... (372) (346)
---------- ----------
Net cash provided from financing activities ............................................ 37,524 11,821
---------- ----------
Net (decrease) increase in cash and cash equivalents ................................... (2,918) 631
Cash and cash equivalents at beginning of period ................................................... 13,152 11,721
---------- ----------
Cash and cash equivalents at end of period ......................................................... $ 10,234 $ 12,352
========== ==========
Supplemental disclosures:
Cash paid for income taxes .................................................................... $ 420 $ 726
Cash paid for interest ........................................................................ $ 11,711 $ 7,067
Significant non-cash transactions:
Transfers from loans to real estate owned ..................................................... $ 694 $ 331
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
GUARANTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------- ---------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net earnings ................................................................... $ 541 $ 708 $ 1,774 $ 1,920
Other comprehensive income:
Unrealized gain/(loss) on available for sale securities
arising during the period .............................................. 890 (242) 524 (878)
Reclassification adjustment for amounts realized on
securities sales included in net income ................................ -- 1 34 (11)
-------- -------- -------- --------
Net unrealized gain/(loss) ......................................... 890 (241) 558 (889)
Tax effect ......................................................... (302) 82 (190) 302
-------- -------- -------- --------
Total other comprehensive income .............................. 588 (159) 368 (587)
-------- -------- -------- --------
Comprehensive income ........................................................... $ 1,129 $ 549 $ 2,142 $ 1,333
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
GUARANTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include
the accounts of Guaranty Bancshares, Inc. (the "Company") and its wholly-owned
subsidiaries Guaranty (TX) Capital Trust I and Guaranty Financial Corp., Inc.,
which wholly owns Guaranty Bank, and one non-bank subsidiary, Guaranty Company.
Guaranty Bank has three wholly owned non-bank subsidiaries, Guaranty Leasing
Company, Guaranty Mortgage 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 a complete
presentation of financial position. In the opinion of management, the
accompanying unaudited consolidated financial statements reflect all adjustments
necessary for a fair presentation of the financial position, results of
operations and cash flows of the Company on a consolidated basis, and all such
adjustments are of a normal recurring nature. These financial statements and the
notes thereto should be read in conjunction with the Company's Annual Report on
Form 10-K filed with the Securities and Exchange Commission on March 10, 2000.
The Company has consistently followed the accounting policies described in the
Annual Report in preparing this Form 10-Q. Operating results for the nine months
ended September 30, 2000, are not necessarily indicative of the results that may
be expected for the year ending December 31, 2000.
In preparation of the accompanying unaudited consolidated financial
statements, management is required to make estimates and assumptions, which are,
based on information available at the time such estimates and assumptions are
made. These estimates and assumptions affect the amounts reported in the
accompanying unaudited consolidated financial statements. Accordingly, future
results may differ if the actual amounts and events are not the same as the
estimates and assumptions of management. The collectability of loans, fair value
of financial instruments and status of contingencies are particularly subject to
change.
Employee compensation expense under stock option plans is reported if
options are granted below market price at grant date. Pro forma disclosures of
net income and earnings per share are shown using the fair value method of
Statement of Financial Accounting Standards No. 123 to measure expense for
options granted, using an option pricing model to estimate fair value.
NOTE 2. EARNINGS PER SHARE
Earnings per share is computed in accordance with Statement of Financial
Accounting Standards No. 128, which requires dual presentation of basic and
diluted earnings per share ("EPS") for entities with complex capital structures.
Basic EPS is based on net earnings divided by the weighted-average number of
shares outstanding during the period. Diluted EPS includes the dilutive effect
of stock options granted using the treasury stock method.
8
<PAGE>
Earnings per share is computed by dividing net earnings by the
weighted-average number of shares outstanding for the year. The weighted-average
number of common shares outstanding for basic and diluted earnings per share
computations were as follows:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
---------------------- ----------------------
(UNAUDITED)
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted-average shares outstanding - Basic ...... 3,072,021 3,132,771 3,149,680 2,976,444
Effect of stock options .......................... 7,957 -- 4,222 --
---------- ---------- ---------- ----------
Weighted-average shares outstanding - Diluted .... 3,079,978 3,132,771 3,153,902 2,976,444
========== ========== ========== ==========
</TABLE>
NOTE 3. STOCK OPTIONS
In 2000, the Company granted nonqualified stock options to certain
executive officers of the Company and Guaranty Bank under the Company's 1998
Stock Incentive Plan. The grants consist of eight-year options to purchase
94,500 shares at an exercise price of $9.30 per share, which was the market
price of the Company's stock on the date the options were granted. The options
fully vest and become exercisable in five equal installments commencing on the
first anniversary of the date of grant and annually thereafter. At September 30,
2000, none of the options are exercisable and 905,500 options remain available
for future grant under the 1998 Stock Incentive Plan.
The weighted-average fair value per share of options granted during 2000
is $2.03. The fair value of options granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions: Dividend yield of 2.59%; expected volatility of 7.67%; risk-free
interest rate of 6.42%, and an expected life of 8.00 years.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation," requires pro forma disclosures for companies not adopting
its fair value accounting method for stock-based employee compensation.
Accordingly, the following pro forma information presents net income and
earnings per share for the three and nine months ended September 30, 2000 had
the Standard's fair value method been used to measure compensation cost for
stock option plans. No compensation expense related to stock options is actually
recognized.
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 2000
------------- -------------
Net earnings: (UNAUDITED)
As reported ........................ 541,000 1,774,000
Pro forma .......................... 535,000 1,761,000
Earnings per share:
As reported
Basic ............................ 0.18 0.56
Diluted .......................... 0.18 0.56
Pro forma
Basic ............................ 0.17 0.56
Diluted .......................... 0.17 0.56
9
<PAGE>
The effects of applying Statement of Financial Accounting Standards No. 123 in
this pro forma disclosure are not indicative of future amounts. The pro forma
effect may increase in the future if more options are granted.
NOTE 4. GUARANTEED PREFERRED BENEFICIAL INTERESTS IN JUNIOR SUBORDINATED
DEBENTURES
On March 23, 2000, the Company, in a private placement, issued $7,000,000
(7,000 shares with a liquidation amount of $1,000 per security) of 10.875% Fixed
Rate Capital Trust Pass-through Securities ("TruPS") through a newly formed,
wholly-owned subsidiary, Guaranty (TX) Capital Trust I (the "Trust"). The Trust
invested the total proceeds from the sale of the TruPS in 10.875% Junior
Subordinated Deferrable Interest Debentures (the "Debentures") issued by the
Company. The net proceeds from the sale of the Debentures will be used to buy
back shares of the Company's stock, provide a $1.5 million additional capital
contribution to Guaranty Bank and provide for additional working capital to
support growth.
With certain exceptions, the amount of the principal and any accrued and
unpaid interest on the Debentures are subordinated in right of payment to the
prior payment in full of all senior indebtedness of the Company. The terms of
the Debentures are such that they qualify as Tier I capital under the Federal
Reserve Board's regulatory capital guidelines applicable to bank holding
companies. Interest on the Debentures is payable semi-annually on March 8 and
September 8 of each year, commencing September 8, 2000. The interest is
deferrable on a cumulative basis for up to five consecutive years following a
suspension of dividend payments on all other capital stock. No principal
payments are due until maturity on March 8, 2030.
On any March 8 or September 8 on or after March 8, 2010 and prior to
maturity, the Debentures are redeemable for cash at the option of the Company,
on at least 30 but not more than 60 days notice, in whole or in part, at the
redemption prices set forth in the table below, plus accrued interest to the
date of redemption.
IF REDEEMED DURING PERCENTAGE OF IF REDEEMED DURING PERCENTAGE OF
12 MONTHS BEGINNING PRINCIPAL 12 MONTHS BEGINNING PRINCIPAL
MARCH 8, AMOUNT MARCH 31, AMOUNT
------------------- ------------- ------------------- -------------
2010 105.438% 2016 102.175%
2011 104.894% 2017 101.631%
2012 104.350% 2018 101.088%
2013 103.806% 2019 100.544%
2014 103.263% 2020 and after 100.000%
2015 102.719%
Upon the occurrence of certain special events, the Company will have the
right to call the securities at par at any time with the permission of the
Federal Reserve.
These special events include, among other things:
1. A change in the laws or regulations in the United States or
any taxing authority to the effect that the Trust becomes
subject to federal income tax and the interest paid by the
Company is no longer tax deductible.
2. A change in the law by any government agency that would make
the Trust an investment company under the Investment Company
Act of 1940.
3. A change in the law by any government agency that would cause
the Company to not be able to treat the liquidation amount of
the debt security as Tier I Capital.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Management's Discussion and Analysis includes forward-looking
statements. When used in this document, the words or phrases such as, "will
likely result," "are expected to," "will continue," "is anticipated,"
"estimated," "projected," or similar expressions are intended to identify
"forward looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to certain risks and
uncertainties including changes in economic conditions in the Company's market
area, changes in policies by regulatory agencies, fluctuations in interest
rates, demand for loans in the Company's market area and competition, that could
cause actual results to differ materially from historical earnings and those
presently anticipated or projected. Factors listed above could affect the
Company's financial performance and could cause the Company's results for future
periods to differ materially from any statements expressed with respect to
future periods.
The Company does not undertake, and specifically disclaims any obligation,
to publicly revise any forward-looking statements to reflect events or
circumstances after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events.
GENERAL OVERVIEW
Guaranty Bancshares, Inc. (the "Company") is a registered bank holding
company that derives substantially all of its revenues and income from the
operation of its subsidiary, Guaranty Bank (the "Bank"). The Bank is a full
service bank that provides a broad line of financial products and services to
small and medium-sized businesses and consumers through ten banking locations in
the Texas communities of Mount Pleasant (two offices), Bogata, Commerce, Deport,
Paris, Pittsburg, Sulphur Springs, Talco and Texarkana. The Company opened a
loan production office in Fort Stockton, Texas in September 2000 to facilitate
the process of securing loans in that market.
FINANCIAL OVERVIEW
Net earnings available to common shareholders for the nine months ended
September 30, 2000 were $1.8 million or $0.56 per share compared with $1.9
million or $0.65 per share for the nine months ended September 30, 1999, a
decrease of $146,000 or 7.6%. The decrease is due primarily to an increase in
noninterest expenses, offset by increases in net interest income and noninterest
income. Net interest income increased $1.3 million or 17.2% and noninterest
income increased $681,000 or 33.1%. These increases are due in part to the
growth in loans, deposits, and in other liabilities. Noninterest expense
increased $1.9 million or 27.3% primarily due to increases in employee
compensation and benefits due to increased staff to handle larger customer
activity and an increase in bank premises due to expansion and remodeling
efforts. Net earnings for the three months ended September 30, 2000 were
$541,000 or $0.18 per share compared with $708,000 or $0.23 per share for the
three months ended September 30, 1999, a decrease of $167,000 or 23.6%. The
decrease is primarily due to a tighter net interest margin that decreased from
4.03% for the three months ended September 30, 1999 to 3.22% for the three
months ended September 30, 2000.
The first nine months of year 2000 showed steady growth. Gross loans
increased to $282.4 million at September 30, 2000, from $255.2 million at
December 31, 1999, an increase of $27.2 million or 10.7%. Total assets increased
to $411.0 million at September 30, 2000, compared with $370.4 million at
December 31, 1999. The increase of $40.6 million in total assets is primarily in
net loans, securities, and Federal Funds sold which increased $27.1 million,
$5.4 million, and $5.1 million, respectively. These increases result from an
increase in deposits of $26.0 million, an increase of $6.8 million in FHLB
advances, and the issuance of the debentures of $7.0 million. Total deposits
increased to $354.6 million at September 30, 2000 compared to $328.6 million at
December 31, 1999, an increase of $26.0 million or 7.9%. Total FHLB advances
increased from $10.7 million to $17.5 million to help fund the growth in loans.
There were no debentures outstanding at December 31, 1999.
11
<PAGE>
Total shareholders' equity was $28.5 million at September 30, 2000,
representing a decrease of $45,000 or 0.2% from December 31, 1999. This decrease
is due to the purchase of 165,972 shares of treasury stock at a cost of $1.8
million, the payment of dividends of $372,000 offset by earnings for the period
of $1.8 million and an increase in accumulated other comprehensive income of
$368,000.
RESULTS OF OPERATIONS
INTEREST INCOME
Interest income for the nine months ended September 30, 2000 was $21.2
million, an increase of $6.1 million or 40.5% compared with the nine months
ended September 30, 1999. The increase in interest income is due primarily to
higher interest income on loans and securities. Average loans were $262.6
million for the nine months ended September 30, 2000, compared with $202.6
million for the nine months ended September 30, 1999, an increase of $60.0
million or 29.6%. Average securities are $85.1 million for the nine months ended
September 30, 2000, compared with $53.6 million for the nine months ended
September 30, 1999, an increase of $31.5 million or 58.8%. Interest income for
the three months ended September 30, 2000 is $7.4 million, an increase of $1.9
million or 34.0% compared with the three months ended September 30, 1999. Growth
in the average volume of interest-earning assets is a result in part, of the
acquisition of First American. The increases in interest income are also due to
an increase in the average yield earned on interest-earning assets during the
three and nine-month periods ended September 30, 2000.
INTEREST EXPENSE
Interest expense on deposits and other interest-bearing liabilities was
$12.1 million for the nine months ended September 30, 2000, compared with $7.3
million for the nine months ended September 30, 1999, an increase of $4.8
million or 65.4%. The increase in interest expense is due primarily to a 40.0%
increase in average interest-bearing liabilities to $303.3 million for the nine
months ended September 30, 2000, from $216.8 million for the nine months ended
September 30, 1999. The increase is also due to a rise in average interest rate
paid on interest-bearing liabilities from 4.49% for the nine months ended
September 30, 1999 to 5.31% for the nine months ended September 30, 2000.
Interest expense was $4.5 million for the three months ended September 30, 2000,
compared with $2.7 million for the three months ended September 30, 1999, an
increase of $1.8 million or 68.7%. The increase in interest expense for the
comparable three-month periods is also due to increases in average balances and
average interest rates of interest-bearing liabilities.
NET INTEREST INCOME
Net interest income is $9.1 million for the nine months ended September
30, 2000 compared with $7.8 million for the nine months ended September 30,
1999, an increase of $1.3 million or 17.2%. The increase in net interest income
resulted primarily from growth in average interest-earning assets to $351.1
million for the nine months ended September 30, 2000, from $265.8 million for
the nine months ended September 30, 1999, an increase of $85.3 million or 32.1%.
Net interest income is $2.9 million for the three months ended September 30,
2000, compared with $2.9 million for the three months ended September 30, 1999,
an increase of $46,000 or 1.6%. The net interest margin decreased from 4.03% to
3.22% for the three months ended September 30, 2000 and from 3.92% to 3.48% for
the nine months ended September 30, 2000 compared to the same three and
nine-month period ended September 30, 1999. These decreases can be attributed to
the fact that the percentage growth in average interest-bearing liabilities
exceeded the percentage growth in average interest-earning assets causing the
ratio of average interest-earning assets to average interest-bearing liabilities
to decrease. Additionally, the average rate paid on interest-bearing liabilities
increased at a faster rate than the average rate earned on interest-earning
assets due to the Guaranty Bank's negative gap position and the rising interest
rate environment.
12
<PAGE>
The Company's net interest income is affected by changes in the amount and
mix of interest-earning assets and interest-bearing liabilities, referred to as
a "volume change." It is also affected by changes in yields earned on
interest-earning assets and rates paid on interest-bearing deposits and other
borrowed funds, referred to as a "rate change." The following tables set forth,
for each category of interest-earning assets and interest-bearing liabilities,
the average amounts outstanding, the interest earned or paid on such amounts,
and the average rate earned or paid for the three and nine months ended
September 30, 2000 and 1999, respectively. The tables also set forth the average
rate earned on total interest-earning assets, the average rate paid on total
interest-bearing liabilities, the net interest spread and the net interest
margin for the same periods. The net interest spread is the difference between
the average rate earned on total interest-earning assets less the average rate
paid on total interest-bearing liabilities. The net interest margin is net
interest income as a percentage of average interest-earning assets.
13
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------------------------------
2000 1999
------------------------------- -------------------------------
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE
OUTSTANDING EARNED/ YIELD/ OUTSTANDING EARNED/ YIELD/
BALANCE PAID RATE BALANCE PAID RATE
----------- -------- ------- ----------- -------- -------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans ................................................ $ 270,183 $ 5,925 8.72% $ 218,630 $ 4,474 8.30%
Securities ........................................... 86,902 1,443 6.61% 62,130 966 6.31%
Federal funds sold ................................... 2,084 35 6.68% 5,458 68 5.05%
Interest-bearing deposits in
other financial institutions ..................... 29 1 4.61% 1,750 18 4.17%
----------- -------- ----------- --------
Total interest-earning assets ...................... 359,198 7,404 8.20% 287,968 5,526 7.78%
Less allowance for loan losses ......................... (2,535) (1,926)
----------- -----------
Total interest-earning
assets, net of allowance ..................... 356,663 286,042
Non-earning assets:
Cash and due from banks ............................ 12,056 9,914
Premises and equipment ............................. 13,573 8,600
Interest receivable and
other assets ................................. 16,379 11,126
Other real estate owned ............................ 347 159
----------- -----------
Total assets ................................ $ 399,018 $ 315,841
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
NOW, savings, and money
market accounts ............................... $ 98,058 $ 1,040 4.22% $ 76,518 $ 664 3.52%
Time deposits ..................................... 193,884 2,941 6.03% 153,444 1,943 5.14%
----------- -------- ----------- --------
Total interest-bearing
deposits ................................... 291,942 3,981 5.42% 229,962 2,607 4.60%
FHLB advances and federal funds purchased ......... 15,474 323 8.30% 4,174 59 5.73%
Long-term debt .................................... 7,000 194 11.03% -- -- --
----------- -------- ----------- --------
Total interest-bearing
liabilities ................................ 314,416 $ 4,498 5.69% 234,136 $ 2,666 4.62%
-------- --------
Noninterest-bearing liabilities:
Demand deposits ................................... 53,452 52,336
Accrued interest, taxes and
other liabilities ............................. 3,143 2,619
----------- -----------
Total liabilities ............................. 371,011 289,091
Shareholders' equity .................................... 28,007 26,750
----------- -----------
Total liabilities and
shareholders' equity ...................... $ 399,018 $ 315,841
=========== ===========
Net interest income ..................................... $ 2,906 $ 2,860
======== ========
Net interest spread ..................................... 2.51% 3.16%
------- -------
Net interest margin ..................................... 3.22% 4.03%
------- -------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------------------------------
2000 1999
------------------------------- -------------------------------
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE
OUTSTANDING EARNED/ YIELD/ OUTSTANDING EARNED/ YIELD/
BALANCE PAID RATE BALANCE PAID RATE
----------- -------- ------- ----------- -------- -------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans ............................................... $ 262,579 $ 16,838 8.57% $ 202,610 $ 12,288 8.11%
Securities .......................................... 85,089 4,199 6.59% 53,641 2,449 6.10%
Federal funds sold .................................. 3,447 153 5.93% 7,628 275 4.82%
Interest-bearing deposits in
other financial institutions .................... 23 1 4.62% 1,904 71 4.99%
----------- -------- ----------- --------
Total interest-earning assets .................... 351,138 21,191 8.06% 265,783 15,083 7.59%
Less allowance for loan losses ........................ (2,497) (1,661)
----------- -----------
Total interest-earning
assets, net of allowance .................... 348,641 264,122
Non-earning assets:
Cash and due from banks ........................... 12,184 9,265
Premises and equipment ............................ 13,062 7,912
Interest receivable and
other assets ................................ 14,325 9,928
Other real estate owned ........................... 270 142
----------- -----------
Total assets ............................... $ 388,482 $ 291,369
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
NOW, savings, and money
market accounts .............................. $ 96,062 $ 2,953 4.11% $ 70,128 $ 1,733 3.30%
Time deposits .................................... 190,158 8,095 5.69% 142,626 5,388 5.05%
----------- -------- ----------- --------
Total interest-bearing
deposits .................................. 286,220 11,048 5.16% 212,754 7,121 4.48%
FHLB advances and federal funds purchased ........ 12,196 598 6.55% 4,013 163 5.43%
Long-term debt ................................... 4,897 405 11.05% -- -- --
----------- -------- ----------- --------
Total interest-bearing
liabilities ............................... 303,313 $ 12,051 5.31% 216,767 $ 7,284 4.49%
-------- ----------- --------
Noninterest-bearing liabilities:
Demand deposits .................................. 54,572 46,835
Accrued expenses and
other liabilities ............................ 2,626 2,627
----------- -----------
Total liabilities ............................ 360,511 266,229
Shareholders' equity ................................... 27,971 25,140
----------- -----------
Total liabilities and
shareholders' equity ..................... $ 388,482 $ 291,369
=========== ===========
Net interest income .................................... $ 9,140 $ 7,799
======== ========
Net interest spread .................................... 2.75% 3.10%
------- -------
Net interest margin .................................... 3.48% 3.92%
------- -------
</TABLE>
15
<PAGE>
The following tables present the dollar amount of changes in interest
income and interest expense for the major components of interest-earning assets
and interest-bearing liabilities and distinguishes between the increase
(decrease) related to outstanding balances and the volatility of interest rates.
For purposes of these tables, changes attributable to both rate and volume that
can be segregated have been allocated (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
------------------------------------------
2000 VS. 1999
------------------------------------------
INCREASE (DECREASE)
DUE TO
---------------------------
VOLUME RATE TOTAL
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Interest-earning assets:
Loans .............................................. $ 1,162 $ 289 $ 1,451
Securities ......................................... 411 66 477
Federal funds sold ................................. (42) 9 (33)
Interest-bearing deposits in other
financial institutions .......................... (17) -- (17)
------------ ------------ ------------
Total increase in interest income ............. 1,514 364 1,878
------------ ------------ ------------
Interest-bearing liabilities:
NOW, savings, and money market
accounts ........................................ 203 173 376
Time deposits ...................................... 560 438 998
FHLB advances and federal funds purchased .......... 164 100 264
Long term debt ..................................... 194 -- 194
------------ ------------ ------------
Total increase in interest expense ............. 1,121 711 1,832
------------ ------------ ------------
Increase (decrease) in net interest income ..... $ 393 $ (347) $ 46
============ ============ ============
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------
2000 VS. 1999
------------------------------------------
INCREASE (DECREASE)
DUE TO
---------------------------
VOLUME RATE TOTAL
------------ ------------ ------------
Interest-earning assets:
Loans .............................................. $ 3,652 $ 898 $ 4,550
Securities ......................................... 1,439 311 1,750
Federal funds sold ................................. (151) 29 (122)
Interest-bearing deposits in other
financial institutions .......................... (70) -- (70)
------------ ------------ ------------
Total increase in interest
income ............................................. 4,870 1,238 6,108
------------ ------------ ------------
Interest-bearing liabilities:
NOW, savings, and money market
accounts ........................................ 643 577 1,220
Time deposits ...................................... 1,802 905 2,707
FHLB advances and federal funds purchased .......... 333 102 435
Long term debt ..................................... 405 -- 405
------------ ------------ ------------
Total increase in interest expense ............. 3,183 1,584 4,767
------------ ------------ ------------
Increase (decrease) in net interest income ......... $ 1,687 $ (346) $ 1,341
============ ============ ============
</TABLE>
16
<PAGE>
PROVISION FOR LOAN LOSSES
Provisions for loan losses are charged to income to bring the total
allowance for loan losses to a level deemed appropriate by management of the
Company based on such factors as the industry diversification of the Company's
commercial loan portfolio, the effect of changes in the local real estate market
on collateral values, the results of recent regulatory examinations, the effects
on the loan portfolio of current economic indicators and their probable impact
on borrowers, the amount of charge-offs for the period, the amount of
nonperforming loans and related collateral security, the evaluation of the
Company's loan portfolio by Independent Bank Services, L.C. and the annual
examination of the Company's financial statements by its independent auditors.
The provision for loan losses for the nine months ended September 30, 2000, is
$445,000 compared with $270,000 for the nine months ended September 30, 1999, an
increase of $175,000 or 64.8%. The provision for loan losses for the three
months ended September 30, 2000, is $130,000 compared with $95,000 for the three
months ended September 30, 1999, an increase of $35,000 or 36.8%. The increases
are due to the increases in average loans of 23.6% and 29.6% over the comparable
three and nine-month periods. Management believes increasing the allowance for
loan losses is prudent as total loans, particularly higher-risk commercial,
construction, and consumer loans, increase.
NONINTEREST INCOME
The following table presents, for the periods indicated, the major
categories of noninterest income (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Service charges on deposit accounts ........ $ 616 $ 493 $ 1,755 $ 1,333
Fee income ................................. 213 128 539 359
Fiduciary income ........................... 35 17 78 47
Other noninterest income ................... 129 103 400 307
Realized gain (loss) on securities ......... -- (1) (34) 11
-------- -------- -------- --------
Total noninterest income ............. $ 993 $ 740 $ 2,738 $ 2,057
======== ======== ======== ========
</TABLE>
The Company's primary sources of recurring noninterest income are service
charges on deposit accounts and fee income. Noninterest income for the three and
nine-month periods ended September 30, 2000 increased $253,000, or 34.2%, and
$681,000 or 33.1%, respectively, over the same periods ended September 30, 1999.
The increase in noninterest income for the three and nine-month periods ending
September 30, 2000 is primarily due to an increase in service charges on deposit
accounts created by an increase in the number of deposit accounts. Additionally,
fee income increased $85,000 or 66.4%, and $180,000 or 50.1% for the three and
nine-month periods ending September 30, 2000, over the three and nine-month
periods ending September 30, 1999. This increase is primarily due to fee income
from the Cash Flow Manager program initiated in September 1999, increased income
from the Guaranty Bank's mortgage company subsidiary, and additional legal fee
income generated from the Company's internal legal counsel. Other noninterest
income increased $26,000 or 25.2% and $93,000 or 30.3% during the same periods
due primarily to additional earnings generated from the key man life insurance
policies that the Company owns.
17
<PAGE>
NONINTEREST EXPENSES
The following table presents, for the periods indicated, the major
categories of noninterest expenses (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
2000 1999 2000 1999
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Employee compensation and benefits ........... $ 1,688 $ 1,440 $ 5,097 $ 3,934
-------- -------- -------- --------
Non-staff expenses:
Net bank premises expense ................. 447 360 1,278 1,002
Office and computer supplies .............. 86 84 260 229
Legal and professional fees ............... 160 122 407 349
Advertising ............................... 79 46 241 135
Postage ................................... 39 33 113 100
FDIC insurance ............................ 21 9 54 22
Other ..................................... 513 513 1,626 1,360
-------- -------- -------- --------
Total non-staff expenses ............... 1,345 1,167 3,979 3,197
-------- -------- -------- --------
Total noninterest expenses ............. $ 3,033 $ 2,607 $ 9,076 $ 7,131
======== ======== ======== ========
</TABLE>
Employee compensation and benefits expense increased $248,000, or 17.2%,
and $1.2 million, or 29.6%, for the three and nine-month periods ending
September 30, 2000 compared to the same periods in 1999. The increase for both
the three and nine-month periods ending September 30, 2000 is due primarily to
normal salary increases and additional staff placement in the Texarkana, Mt.
Pleasant, and Paris locations to handle customer growth and the recently opened
Sulphur Springs, and Commerce locations, and the new loan production office
opened in September 2000 in Fort Stockton, Texas. The number of full-time
equivalent employees is 196 at September 30, 2000, compared with 178 at
September 30, 1999, an increase of 10.1%.
Non-staff expenses increased $178,000 or 15.3%, and $782,000 or 24.5%, for
the three and nine-month periods ending September 30, 2000, compared with the
same periods in 1999. Advertising expense increased $33,000 or 71.7% and
$106,000 or 78.5% for the three and nine-month periods ending September 30, 2000
due to the hiring of an advertising agency and stronger emphasis on Company
recognition in its newer markets. Net bank premises expense increased $87,000,
or 24.2%, and $276,000, or 27.5%, over the comparable periods due to
construction and remodeling projects and the addition of the new operations
center in Mt. Pleasant, Texas.
Other non-staff expenses stayed the same for the three-month period ending
September 30, 2000, and increased $266,000, or 19.6%, for the nine-month period
due to the addition of new locations which, among other expenses, resulted in
increases in director fees, supplies expense, ATM and debit card expenses, and
amortization of goodwill.
18
<PAGE>
INCOME TAXES
Income tax expense increased $48,000 to $583,000 for the nine months
ended September 30, 2000 from $535,000 for the same period in 1999. Income tax
expense is $195,000 for the three months ended September 30, 2000 compared with
$190,000 for the three months ended September 30, 1999, an increase of $5,000.
The increase is a result of fewer tax deductions available from the Company's
leveraged leasing activities. The income stated on the consolidated statement of
earnings differs from the taxable income due to tax-exempt income, the amount of
non-deductible interest expense and the amount of other non-deductible expense.
FINANCIAL CONDITION
LOAN PORTFOLIO
Gross loans are $282.4 million at September 30, 2000, an increase of
$27.2 million or 10.7% from $255.2 million at December 31, 1999. Loan growth
occurred primarily in 1- 4 family residential loans and commercial and
industrial loans due to continued strong loan demand in the various markets that
the company serves. Loans comprised 75.5% of total interest-earning assets at
September 30, 2000 compared with 75.9% at December 31, 1999.
The following table summarizes the loan portfolio of the Company by
type of loan as of September 30, 2000 and December 31, 1999 (dollars in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------- -------------------
AMOUNT PERCENT AMOUNT PERCENT
-------- --------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Commercial and industrial ........................ $ 69,290 24.53% $ 61,153 23.96%
Agriculture ...................................... 9,550 3.38 9,102 3.57
Real estate:
Construction and land development ...... 8,236 2.92 7,926 3.11
1-4 family residential ................. 96,484 34.17 83,777 32.83
Farmland ............................... 7,248 2.57 7,976 3.13
Non-residential and non-farmland ....... 58,860 20.84 52,303 20.49
Multi-family residential ............... 4,957 1.76 6,239 2.44
Consumer ......................................... 27,798 9.83 26,733 10.47
-------- --------- -------- ---------
Total loans .................. $282,423 100.00% $255,209 100.00%
======== ========= ======== =========
</TABLE>
ALLOWANCE FOR LOAN LOSSES
In originating loans, the Company recognizes that it will experience
credit losses and the risk of loss will vary with, among other things, general
economic conditions, the type of loan being made, the creditworthiness of the
borrower over the term of the loan and, in the case of a collateralized loan,
the quality of the collateral for such loan. The Company maintains an allowance
for loan losses in an amount that it believes is adequate for estimated losses
in its loan portfolio. Management determines the adequacy of the allowance
through its evaluation of the loan portfolio. In addition to unallocated
allowances, specific allowances are provided for individual loans when ultimate
collection is considered questionable by management after reviewing the current
status of loans which are contractually past due and considering the net
realizable value of the collateral for the loan. Loans are charged-off against
the allowance for loan losses when appropriate. Although management believes it
uses the best information available to make determinations with respect to
19
<PAGE>
the allowance for loan losses, future adjustments may be necessary if economic
conditions differ from the assumptions used in making the initial
determinations. Loans charged-off, net of recoveries, during the nine-month
period ending September 30, 2000 increased $172,000 or 118.6% over the same
period ending September 30, 1999. This increase is due primarily to the
Company's recognition of loan losses associated with loans acquired in the First
American acquisition. At September 30, 2000, and September 30, 1999, the
allowance for loan losses totaled $2.6 million or 0.93% of gross loans and $2.5
million or 1.02% of gross loans respectively. The allowance for loan losses as a
percentage of nonperforming loans was 62.75% at September 30, 2000.
Set forth below is an analysis of the allowance for loan losses for the
periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
------------- -------------
(UNAUDITED)
<S> <C> <C>
Average loans outstanding .................................. $ 262,579 $ 202,610
============= =============
Gross loans outstanding at end of period ................... $ 282,423 $ 243,820
============= =============
Allowance for loan losses at beginning of period ........... 2,491 1,512
Provision for loan losses .................................. 445 270
Balance acquired with First American Acquisition ........... 846
Charge-offs:
Commercial and industrial ........................ (245) (54)
Real estate ...................................... (79) (2)
Consumer ......................................... (136) (184)
Recoveries:
Commercial and industrial ........................ 75 41
Real estate ...................................... 7 25
Consumer ......................................... 61 29
------------- -------------
Net loan (charge-offs) recoveries .......................... (317) (145)
------------- -------------
Allowance for loan losses at end of period ................. $ 2,619 $ 2,483
============= =============
Ratio of allowance to end of period loans .................. 0.93% 1.02%
Ratio of net charge-offs to average loans .................. 0.12% 0.07%
Ratio of allowance to end of period nonperforming loans .... 62.75% 130.55%
</TABLE>
20
<PAGE>
NONPERFORMING ASSETS
Nonperforming assets were $4.5 million at September 30, 2000 compared
with $1.1 million at December 31, 1999. Nonaccrual loans increased $1.1 million
from $443,000 at December 31, 1999 to $1.5 million at September 30, 2000. This
increase is due primarily to one large commercial line added to non-accrual
status totaling $800,000. This line is currently in a liquidation mode. It has
collateral values, which exceed the total debt, and no loss is anticipated.
Accruing loans 90 or more days past due increased $2.1 million, from $574,000 at
December 31, 1999 to $2.7 million at September 30, 2000. This increase is due
primarily to two commercial lines totaling $1.7 million that are experiencing
cash flow deficiencies and are currently past due. Both lines are deemed to be
well collateralized and no significant loss is anticipated from either line.
Other real estate increased $226,000 during the same period. This increase is
primarily the result of loans that are foreclosed during the period totaling
$694,000, net of sales of properties with a carrying value of $468,000.
Management anticipates minimal losses on the total of these new nonperforming
assets.
The ratio of nonperforming assets to total loans and other real estate was
1.58% and 0.43% at September 30, 2000, and December 31, 1999, respectively.
The following table presents information regarding nonperforming assets
as of the dates indicated (dollars in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- -------------
(UNAUDITED)
<S> <C> <C>
Nonaccrual loans ..................................... $ 1,487 $ 443
Accruing loans 90 or more days past due .............. 2,687 574
------------- -------------
Total nonperforming loans .................. 4,174 1,017
Other real estate .................................... 305 79
------------- -------------
Total nonperforming assets ................. $ 4,479 $ 1,096
============= =============
</TABLE>
SECURITIES
Securities totaled $85.1 million at September 30, 2000, an increase of
$5.3 million from $79.8 million at December 31, 1999. At September 30, 2000,
securities represented 20.7% of total assets compared with 21.5% of total assets
at December 31, 1999. The yield on average securities for the nine-months ended
September 30, 2000, is 6.59% compared with 6.10% for the same period in 1999. At
September 30, 2000, securities included $29.0 million in U.S. Government
securities, $27.4 million in mortgage-backed securities, $18.2 million in
collateralized mortgage obligations, $1.7 million in equity securities, and $8.8
million in municipal securities. The average life of the securities portfolio at
September 30, 2000, is approximately four years, however, all of the Company's
securities are classified as available-for-sale.
PREMISES AND EQUIPMENT
Premises and equipment totaled $13.5 million at September 30, 2000 and
$11.7 million at December 31, 1999 reflecting an increase of $1.8 million, or
15.4%. The increase is primarily due to the capitalized construction cost
incurred for the Mt. Pleasant operations center, the new full-service bank
location in Pittsburg, Texas, and major remodeling projects in the Sulphur
Springs, Commerce, and Mt. Pleasant, Texas locations.
21
<PAGE>
OTHER ASSETS
On July 1, 1998, the Company invested $3.1 million in single insurance
premium policies, which insure the lives of certain senior officers of the
Company. As of September 30, 2000, and December 31, 1999, the net surrender
values of these policies totaled $4.0 million and $3.9 million respectively.
Goodwill recorded in connection with the First American acquisition in September
1999, the Deport acquisition in 1992 and the Bogata acquisition in 1993 totaled
$3.1 million at September 30, 2000, and at December 31, 1999. The Company's
investment in Guaranty Leasing Company, a wholly-owned non-bank subsidiary of
Guaranty Bank increased from $382,000 at December 31, 1999 to $2.9 million at
September 30, 2000. This increase is the result of acquiring a 2.5% ownership in
an Aircraft Finance Trust, a special-purpose business trust formed to acquire,
finance, refinance, own, lease, sublease, sell, and maintain aircraft.
DEPOSITS
At September 30, 2000, demand, money market and savings deposits account
for approximately 43.0% of total deposits, while certificates of deposit make up
57.0% of total deposits. Total deposits increased $25.9 million or 7.9% from
December 31, 1999 to September 30, 2000. This increase comes primarily from an
increase in certificates of deposits of $20.9 million or 11.5% due to the
offering of competitive yields on these deposits, and an increase in money
market accounts of $6.9 million or 13.5% due to an attractive yield on the
Company's Premier Money Market account. Noninterest-bearing demand deposits
totaled $53.6 million or 15.1% of total deposits at September 30, 2000, compared
with $56.4 million or 17.2% of total deposits at December 31, 1999. The average
cost of deposits, including noninterest-bearing demand deposits, is 4.33% for
the nine months ended September 30, 2000 compared with 3.71% for the same period
in 1999.
LIQUIDITY
The Company's asset/liability management policy is intended to maintain
adequate liquidity for the Company. Liquidity involves the Company's ability to
raise funds to support asset growth or reduce assets to meet deposit withdrawals
and other payment obligations, to maintain reserve requirements and otherwise to
operate the Company on a continuing basis. The Company's liquidity needs are
primarily met by growth in core deposits. Although access to purchased funds
from correspondent banks is available and has been utilized on occasion to take
advantage of investment opportunities, the Company does not continually rely on
these external-funding sources. The cash and federal funds sold position,
supplemented by amortizing investments along with payments and maturities within
the loan portfolio, has historically created an adequate liquidity position.
The Company's cash flows are composed of three classifications: cash flows
from operating activities, cash flows from investing activities, and cash flows
from financing activities. As summarized in the unaudited condensed consolidated
statements of cash flows, the most significant transactions which affected the
Company's level of cash and cash equivalents, cash flows, and liquidity during
the first nine months of 2000 are the net increase in loans of $28.1 million,
securities purchases of $16.4 million, securities sales of $5.3 million,
securities calls, maturities, and principal repayments of $6.2 million, the net
increase in federal funds sold of $5.1 million, the net increase in deposits of
$25.9 million, proceeds from the issuance of long-term debt of $7.0 million, and
the net increase in short-term debt of $7.0 million.
22
<PAGE>
CAPITAL RESOURCES
Total shareholders' equity as of September 30, 2000, is $28.5 million, a
decrease of $45,000 or 0.2% compared with shareholders' equity of $28.5 million
at December 31, 1999. This decrease is due to earnings for the period of $1.8
million offset by the purchase of 165,972 shares of treasury stock at a cost of
$1.8 million, the payment of dividends of $372,000, offset by earnings for the
period of $1.8 million, and an increase in accumulated other comprehensive
income of $368,000.
Both the Board of Governors of the Federal Reserve System ("Federal
Reserve"), with respect to the Company, and the Federal Deposit Insurance
Corporation ("FDIC"), with respect to Guaranty Bank, have established certain
minimum risk-based capital standards that apply to bank holding companies and
federally insured banks, respectively. As of September 30, 2000, the Company's
Tier 1 risk-based capital, total risk-based capital and leverage capital ratios
are 11.22%, 12.13%, and 8.34%, respectively. As of September 30, 2000, Guaranty
Bank's risk-based capital ratios remain above the levels required for Guaranty
Bank to be designated as "well capitalized" by the FDIC with Tier 1 risk-based
capital, total risk-based capital and leverage capital ratios of 9.92%, 10.83%,
and 7.37%, respectively.
YEAR 2000 PREPAREDNESS
The Company successfully completed the Year 2000 changeover without any
problems in its core business processes. The Company has confirmed normal
business operations across all products and markets on a sustained basis.
While management believes it is unlikely, problems associated with
non-compliant third parties could still occur. Management will continue to
monitor all business processes and relationships with third parties during 2000
to ensure that all processes continue to function properly.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
There have been no material changes in the market risk information
disclosed in the Company's Form 10-K for the year ended December 31, 1999. See
Form 10-K, Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Interest Rate Sensitivity and Liquidity."
23
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Quarterly Report
on Form 10Q:
(1) Exhibits - The following exhibits are filed as a part of this
Quarterly Report on Form 10Q:
11 Statement regarding computation of earnings per share
27 Financial Data Schedule.
(b) Reports on Form 8-K
No report on Form 8-K was filed by Guaranty Bancshares, Inc., during
the three months ended September 30, 2000.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GUARANTY BANCSHARES, INC.
(Registrant)
Date: November 13, 2000 By: /S/ ARTHUR B. SCHARLACH
Arthur B. Scharlach, Jr.
President
(Principal Executive Officer)
Date: November 13, 2000 By: /S/ CLIFTON A. PAYNE
Clifton A. Payne
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer)
25
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION PAGE NUMBER
------- ----------- -----------
11 Statement regarding computation Reference is hereby made
of earnings per share to Note 2 of Notes to
unaudited Consolidated
Financial Statements on
page 8 hereof.
27 Financial Data Schedule 27
26
