SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT T0 SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
or the quarterly period ended September 30, 1996
------------------
Commission File Number - 33-60742
GUARANTY STATE BANCORP
----------------------
(Exact name of small business issuer as specified in its charter)
North Carolina 56-1816641
- ------------------------------- -------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
302 West Main Street
Durham, North Carolina 27701
-----------------------------
(Address of principal executive offices)
Telephone: (919) 688-9361
---------------------------
(Issuer's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock 878,770
------------ ---------------------------------
Class Outstanding at September 30, 1996
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
The Statements of Financial Condition, Results of Operations and
Cash Flows have been included as Attachments to this report.
(1) Balance Sheets page 3
(2) Statements of Income page 4
(3) Consolidated Statement of Cash Flow page 5
(4) Statement of Changes in
Capital Accounts page 6
(5) Loan Loss Reserve Analysis page 7
(6) Nonperforming Assets page 7
(6) Net Yield Analysis page 8
(7) Notes to Consolidated
Financial Statements page 9
Item 2. Management Discussion and Analysis page 10
and Results of Operations
-2-
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
Guaranty State Bancorp and Subsidiary
09-30 09-30 12-31
1996 1995 1995
Unaudited Unaudited Audited
ASSETS
<S> <C> <C> <C>
Cash and due from banks $2,787,963 $2,232,940 $2,575,816
Federal funds sold 3,647,000 5,695,000 655,000
Investment securities available for sale 21,923,407 17,588,059 18,665,226
Loans held for sale 333,681 162,000 210,700
Loans: 65,758,542 55,085,456 59,179,216
Less allowance for possible loan losses 1,082,887 1,088,460 1,102,709
----------- ----------- -----------
Net loans 65,009,336 54,158,996 58,287,207
Federal Home Loan Bank of Atlanta stock 305,500 226,700
Premises and equipment 1,865,216 1,717,454 1,682,180
Interest receivable 689,871 595,117 644,057
Other assets 683,969 476,630 321,800
----------- ----------- -----------
Total assets $96,912,262 $82,690,896 $83,057,986
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $10,110,229 $10,306,021 $10,026,166
Interest-bearing demand 4,113,400 4,418,159 4,150,956
Savings 25,239,965 18,829,220 18,753,457
Large denomination certificates of deposit 13,296,472 13,293,686 13,665,346
Other time 29,442,686 25,663,676 26,027,458
----------- ----------- -----------
Total deposits 82,202,752 72,510,762 72,623,383
Federal Home Loan Bank of Atlanta short-term borrowings 3,800,000 - -
Interest payable 529,972 574,881 603,556
Other liabilities 197,816 171,875 156,296
----------- ----------- -----------
Total liabilities 86,730,540 73,257,518 73,383,235
Shareholders' Equity:
Common stock: $1.00 par value, 2,500,000 shares authorized;
878,770, 871,262 and 580,858 shares issued and
outstanding on 9/30/96, 12/31/95 and 9/30/95, respectively 878,770 580,858 871,262
Surplus 4,711,394 4,661,964 4,661,964
Undivided profits 4,577,876 4,095,835 3,990,771
Net unrealized gain (loss) investment securities, 13,682 94,721 150,754
----------- ----------- -----------
Total shareholders' equity 10,181,722 9,433,378 9,674,751
----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $96,912,262 $82,690,896 $83,057,986
=========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Guaranty State Bancorp and Subsidiary
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
1996 1995 1996 1995
Interest income: ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Loans and fees on loans $1,546,699 $1,377,393 $4,527,966 $3,852,866
Federal funds sold 54,736 69,231 99,602 172,544
Investment securities, taxable 274,300 218,962 766,373 648,438
Investment securities, non-taxable 42,082 47,774 133,708 144,602
---------- ---------- ---------- ----------
Total interest income 1,917,817 1,713,360 5,527,649 4,818,450
Interest Expense:
Large denomination certificates of deposit 187,641 259,412 553,602 570,879
Other deposits 705,244 520,712 1,937,835 1,556,818
Other interest expense 66,256 - 161,552 -
---------- ---------- ---------- ----------
Total interest expense 959,141 780,124 2,652,989 2,127,697
---------- ---------- ---------- ----------
Net interest income 958,676 933,236 2,874,660 2,690,753
Provision for loan losses 41,228 42,756 111,608 128,268
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 917,448 890,480 2,763,052 2,562,485
Other income:
Service charges on deposit accounts 55,574 52,513 167,261 165,647
Other service charges, commissions and fees 43,770 57,886 130,368 123,703
Profit (loss) from sale of securities (3,390) - (3,390) -
Other operating income 12,698 7,799 34,406 23,399
---------- ---------- ---------- ----------
Total other income 108,652 118,198 328,645 312,749
Other expense:
Salaries 315,442 302,176 932,331 899,774
Employee benefits 57,120 51,033 173,166 155,850
Occupancy expense 67,003 64,832 205,238 189,788
Equipment and fixture expense 25,195 31,500 76,069 89,059
FDIC assessment - (3,920) 2,000 71,632
Other operating expense 178,141 141,712 509,771 422,544
---------- ---------- ---------- ----------
Total other expense 642,901 587,333 1,898,575 1,828,647
---------- ---------- ---------- ----------
Income before income taxes 383,199 421,345 1,193,122 1,046,587
Income taxes 123,158 137,874 386,840 329,499
---------- ---------- ---------- ----------
Net income $260,041 $283,471 $806,282 $717,088
========== ========== ========== ==========
*Net income per share $0.30 $0.33 $0.92 $0.83
========== ========== ========== ==========
**Cash divdends per share $0.09 $0.07 $0.25 $0.21
========== ========== ========== ==========
**Book value per share $11.59 $10.83 $11.59 $10.83
========== ========== ========== ==========
</TABLE>
*Earnings per share are based on weighted average number of shares outstanding
for the applicable period. 1995 earnings are adjusted for the October, 1995
50 % stock dividend.
**1995's cash dividends and book value per share are adjusted for the October,
1995 50% stock dividend.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Guaranty State Bancorp and Subsidiary
NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $806,282 $717,088
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 97,110 108,966
Amortization of premiums on investment
securities net of accretion discount 20,652 57,583
Provision for loan losses 111,608 128,268
Changes in assets and liabilities:
Interest receivable (45,814) 3,402
Other assets (362,169) (12,047)
Interest payable (73,584) 188,407
Other liabilities 41,520 62,390
----------- -----------
Net cash (used in) provided by operating
activities 595,605 1,254,057
----------- -----------
Cash flows from investing activities:
Proceeds from maturity of investment
securities 6,858,637 4,164,680
Purchase of investment securities (10,464,949) (3,323,897)
Net decrease (increase) in loans (6,722,129) (6,070,895)
Capital expenditures (280,146) (46,509)
----------- -----------
Net cash (used)/provided by investing
activities (10,608,587) (5,276,621)
----------- -----------
Cash flows from financing activities:
Net increase (decrease) in deposits 9,579,369 6,040,268
Proceeds from exercise of stock options 56,938 19,672
Dividends paid (219,178) (182,066)
Proceeds from borrowed funds 3,800,000 -
Repayment of borrowed funds - -
Net cash (used)/provided by financing
activities 13,217,129 5,877,874
----------- -----------
Net increase (decrease) in cash and
and cash equivalents 3,204,147 1,855,310
Cash and cash equivalents at beginning
of period 3,230,816 6,072,630
----------- -----------
Cash and cash equivalents at end of period 6,434,963 7,927,940
=========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED
STATEMENT OF CHANGES IN EQUITY CAPITAL
Guaranty State Bancorp and Subsidiary
Nine months ended September 30, 1996
Unrealized
Common Stock Gain/(losses) Total
---------------- Undivided Securities Stockholders'
Shares Amount Surplus Profits Available for Equity
------- -------- ---------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE JANUARY 1, 1996 871,262 $871,262 $4,661,964 $3,990,771 $150,754 $9,674,751
Exercise of stock options 7,508 7,508 49,430 - - 56,938
Net income - - 806,283 - 806,283
Cash dividends - - (219,178) - (219,178)
Change in unrealized gain (loss) on
investment securities held for sale
net of income taxes - - - (137,072) (137,072)
------- -------- ---------- ---------- ------- -----------
BALANCE SEPTEMBER 30, 1996 878,770 $878,770 $4,711,394 $4,577,876 $13,682 $10,181,722
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Guaranty State Bancorp
RESERVE FOR LOAN LOSSESS
The following is an analysis of the reserve for loan losses as of the periods indicated:
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, beginning $1,195,472 $1,059,775 $1,102,709 $947,022
Provision charged against income 41,228 42,756 111,608 128,268
Recoveries 3,681 1,643 36,675 54,169
Losses charged off (157,495) (15,714) (168,106) (40,999)
---------- ---------- ---------- ----------
Balance, ending $1,082,886 $1,088,460 $1,082,886 $1,088,460
========== ========== ========== ==========
</TABLE>
Analysis of Nonperforming Assets
Nonperforming assets consist of nonaccruing loans, foreclosed assets and loans
which are 90 days or more past due but are still accruing interest. The table
below provides a summary of nonperforming assets and contractually past due
loans at the end of September, 1996.
At September 30, 1996
$000's
Accruing loans past due 90 days or more $ 311
Nonaccrual loans 230
Total $ 541
Key Finacial Ratios Annualized as of September 30, 1996:
(computed on average balances)
Return on equity 10.56%
Return on assets 1.17%
Equity to assets 10.51%
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER MARGIN
TABLE 1
Net Interest Income and Average Balances
9 MONTH
SEPTEMBER ANNUALIZED 1996 1995
-------------------------------- --------------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance (Expense) (Cost) Balance (Expense) (Cost)
------- --------- ------ ------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Taxable investment securities (1) $16,487,632 $1,050,597 6.37% $13,975,421 $900,249 6.44%
Nontaxable investment securities (1) 3,290,727 290,448 8.83% 3,903,696 314,115 8.05%
Federal Home Loan Bank Stock 299,569 20,729 6.92% - - -
Federal Funds sold and securities
purchased with agreements to resell 2,499,504 133,045 5.32% 4,015,932 230,691 5.74%
Loans and fees on loans (2) 64,856,645 6,047,564 9.32% 52,877,365 5,150,421 9.74%
----------- ---------- ----------- ----------
Total interest earning assets 87,434,077 7,542,383 74,772,414 6,595,474
----------- ---------- ----------- ----------
Average yield on interest earning assets 8.63% 8.82%
Noninterest earning assets:
Cash and due from banks 2,281,215 2,267,208
Premises and equipment 1,740,386 1,750,947
Allowance for loan losses (1,159,334) (1,018,966)
Interest receivable and other 1,398,433 1,129,402
Total noninterest earning assets 4,260,700 4,128,591
----------- -----------
Total assets 91,694,777 $78,901,005
=========== ===========
Interest bearing liabilities:
Demand deposits 3,992,781 82,456 2.07% $ 4,561,539 91,190 2.00%
Savings deposits 22,769,894 900,516 3.95% 18,071,692 648,293 3.59%
Time deposits 40,539,917 2,345,005 5.78% 37,353,246 2,105,236 5.64%
FHLB Borrowings 3,518,799 212,258 6.03%
----------- ---------- ----------- ----------
Total interest bearing liabilities 70,821,391 3,540,235 59,986,477 2,844,719
----------- ---------- ----------- ----------
Average cost on interest bearing liabilities 5.00% 4.74%
Noninterest bearing liabilities:
Demand deposits 10,121,917 9,257,802
Interest payable and other 748,642 604,524
----------- -----------
Total noninterest bearing liabilities 10,870,559 9,862,326
----------- -----------
Total liabilities 81,691,950 69,848,803
----------- -----------
Stockholders' equity 10,002,830 9,052,202
----------- -----------
Total liabilities and stockholders'
equity $91,694,780 $78,901,005
=========== ===========
Net interest income $4,002,148 $3,750,755
========== ==========
Net yield on interest earning assets (margin) 4.58% 5.02%
Interest rate spread (earning asset yield minus interest-bearing liability rate)3.63% 4.08%
</TABLE>
(1)Tax exempt income on investments and the related yield are shown on a fully
taxable equivalent basis computed using the Federal statutory tax rate of 34%
and the state tax rate of 7%.
(2)For purposes of calculating loan yield, average loan balances include
nonaccrual loans and are net of allowance for loan losses.
<PAGE>
GUARANTY STATE BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statement
1. These financial statements have been prepared in accordance with
instructions to Form 10- QSB and therefore, do not include information of
footnotes necessary for a fair presentation of financial position, results
of operations and statement of cash flows in conformity with generally
accepted accounting principles. However, all adjustments that are in the
opinion of management necessary for a fair presentation have been included.
All adjustments are of a normal recurring nature.
The accounting and reporting policies of Guaranty State Bancorp ("GSB" or
the "Company") follow generally accepted accounting principles and general
practices within the financial services industry. The consolidated
financial statements of GSB, a bank holding company incorporated under the
laws of the State of North Carolina, include the accounts of Guaranty State
Bank ("the Bank"), its wholly owned subsidiary. All significant
intercompany transactions have been eliminated.
Statement of Financial Accounting Standards No. 119 (SFAS No. 119),
"Disclosure about Derivative Financial Instruments and Fair Value of
Financial Instruments", has been issued and is effective for fiscal years
beginning after December 15, 1995. As SFAS No. 119 relates only to
disclosure issues, no impact on the financial position of the Company is
expected upon adoption.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND
RESULTS OF OPERATIONS
Guaranty State Bancorp had record earnings for the nine months of 1996,
although earnings were down for the third quarter. For the nine months ended
September 30, 1996, net income totaled $806,282, a 12.4% increase compared to
$717,088 for the nine month period in 1995. Net income for the third quarter of
1996 totaled $260,041, compared to $283,471 for the corresponding quarter last
year.
Several factors contributed to the third quarter results. For the three
month period ending September 30, 1996, noninterest fee income from mortgage
loans sold to correspondents decreased more than $14,000 from the same period
last year. Year-to-date, however, these fees are up 37.7% over 1995.
Noninterest expenses increased only 3.8% for the nine months in 1996 compared to
1995, yet increased 9.5% for the quarterly comparison. The quarter's increase
in noninterest expense resulted primarily from higher losses in teller
operations than is normally experienced and expenses related to the new RTP
branch office.
Net interest margin is another factor that affected earnings. Net
interest income increased by 6.8% for the nine months ending September 30, 1996,
compared to the same period in 1995. This increase was caused by growth in
earning assets. Net interest income increased $25,440 in the third quarter of
1996, compared to that period in 1995. In September 1995, $46,588 in interest
income was collected on a loan previously classified as nonaccrual. Without
this extraordinary interest income, the 1996 third quarter interest income would
have increased by $72,028, which is 8.1% over 1995.
The growth thus far in 1996 reflects Guaranty's aggressive business
development strategy. Total assets were $96.9 million at September 30, 1996, an
increase of 17.2% over September 30, 1995. Loans outstanding grew to $65.8
million, for a growth rate of 19.4%. Deposits were $82.2 million at the end of
September, compared to $72.6 million last year, an increase of 13.45. Annualized
return on average equity and assets was 10.56% and 1.17%, respectively, compared
to 10.53% and 1.21% in 1995. Other assets include treasurer's checks in a
suspense file for loans pending closing at attorney's offices. This amount
varies greatly from quarter to quarter, depending on the number of loans in
process at the end of each quarter.
On October 1, 1996, Guaranty State Bancorp paid shareholders of record
as of September 13, 1996, a quarterly dividend of $.09 per share, a 21.0%
increase over dividends declared through the same period last year.
Management efforts remain focused on building shareholder value through
growth in quality assets and deposits.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings involving the Company.
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
None since last filing
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
All items are omitted due to the absence of the conditions under which
they are required or because the information is included in Part I.
<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 State Bancorp
Date: November 8, 1996 By: /s/ Charles J. Stewart
-------------------------------
Charles J. Stewart
President and CEO
Date: November 8, 1996 By: /s/ Jean R. Turner
------------------------------
Jean R. Turner
Senior Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF GUARANTY STATE BANCORP FOR THE SIX MONTHS ENDED
SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 504
<SECURITIES> 22229
<RECEIVABLES> 66852
<ALLOWANCES> 1083
<INVENTORY> 0
<CURRENT-ASSETS> 90668
<PP&E> 1865
<DEPRECIATION> 0
<TOTAL-ASSETS> 96912
<CURRENT-LIABILITIES> 86731
<BONDS> 0
0
0
<COMMON> 10182
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 96912
<SALES> 0
<TOTAL-REVENUES> 5858
<CGS> 0
<TOTAL-COSTS> 4552
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 41
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1193
<INCOME-TAX> 387
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 806
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
