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 June 30, 1997
-------------
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 (I.R.S. 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 886,653
------------ ----------------------------
Class Outstanding at June 30, 1997
<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
(7) Financial Ratios page 7
(8) Net Yield and Rate/Volume Analysis page 8 - 9
(9) Notes to Consolidated
Financial Statements page 10 - 11
Item 2. Management Discussion and Analysis page 12
and Results of Operations
PART II - OTHER INFORMATION
Item 1. Legal Proceedings page 13
Item 2. Changes in Securities page 13
Item 3. Defaults Upon Senior Securities page 13
Item 4. Submission of Matters to a Vote
of Security Holders page 13
Item 5. Other Information page 13
Item 6. Exhibits and Reports on Form 8-K page 13
Signatures page 14
2
<PAGE>
GUARANTY STATE BANCORP
CONSOLIDATED BALANCE SHEETS
Guaranty State Bancorp and Subsidiary
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
6-30 6-30 12-31
1997 1996 1996
Unaudited Unaudited Audited
------------- ------------ ------------
ASSETS
<S> <C> <C> <C>
Cash and due from banks $ 2,803,076 $ 3,453,820 $ 2,445,899
Federal funds sold 3,266,000 1,692,000 3,744,000
Investment securities available for sale 19,387,331 21,173,497 22,404,514
Loans held for sale 799,200 940,100 354,600
Loans: 72,776,634 65,773,500 65,151,672
Less allowance for possible loan losses 1,120,275 1,195,472 1,073,274
------------ ------------ ------------
Net loans 72,455,559 65,518,128 64,432,998
Federal Home Loan Bank of Atlanta stock 309,200 305,500 270,600
Premises and equipment 2,471,405 1,768,309 2,155,017
Interest receivable 706,401 716,645 700,199
Other assets 1,070,671 448,515 406,769
------------ ------------ ------------
Total assets $102,469,643 $ 95,076,414 $ 96,559,996
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 12,183,169 $ 11,064,546 $ 10,232,604
Interest-bearing demand 4,059,880 4,449,727 5,221,254
Savings 27,109,240 24,038,759 25,662,273
Large denomination certificates of deposit 13,826,037 12,911,293 12,523,084
Other time 30,818,004 27,970,600 29,954,367
------------ ------------ ------------
Total deposits 87,996,330 80,434,925 83,593,582
Federal Home Loan Bank of Atlanta short-term borrowings 2,800,000 3,800,000 1,800,000
Interest payable 564,027 544,184 542,766
Other liabilities 249,593 164,927 174,092
------------ ------------ ------------
Total liabilities 91,609,950 84,944,036 86,110,440
Shareholders' Equity:
Common stock: $1.00 par value, 4,000,000 shares authorized;
886,653, 880,053 and 878,275 shares issued and
outstanding on 6/30/97, 12/31/96 and 6/30/96, respectively 886,653 878,275 880,053
Surplus 4,764,002 4,708,139 4,722,289
Undivided profits 5,156,153 4,397,288 4,772,831
Net unrealized gain (loss) investment securities 52,885 148,676 74,383
------------ ------------ ------------
Total shareholders' equity 10,859,693 10,132,378 10,449,556
------------ ------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $102,469,643 $ 95,076,414 $ 96,559,996
============ ============ ============
</TABLE>
3
<PAGE>
GUARANTY STATE BANCORP
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Guaranty State Bancorp and Subsidiary
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS ENDED
ENDED JUNE 30 ENDED JUNE 30
1997 1996 1997 1996
Interest income: ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Loans and fees on loans $1,692,757 $1,517,908 $3,194,826 $2,981,267
Federal funds sold 26,232 27,829 62,276 44,866
Investment securities, taxable 245,912 268,291 522,295 492,073
Investment securities, non-taxable 48,606 44,871 93,173 91,626
---------- ---------- ---------- ----------
Total interest income 2,013,507 1,858,899 3,872,570 3,609,832
---------- ---------- ---------- ----------
Interest Expense:
Large denomination certificates of deposit 190,648 184,137 373,046 365,961
Other deposits 731,962 643,903 1,417,701 1,232,591
Other interest expense 40,919 53,260 68,538 95,296
---------- ---------- ---------- ----------
Total interest expense 963,529 881,300 1,859,285 1,693,848
---------- ---------- ---------- ----------
Net interest income 1,049,978 977,599 2,013,285 1,915,984
Provision for loan losses 42,558 36,228 90,000 70,380
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 1,007,420 941,371 1,923,285 1,845,604
Other income:
Service charges on deposit accounts 64,379 56,811 127,726 111,687
Other service charges, commissions and fees 47,553 44,471 79,427 86,598
Profit (loss) from sale of securities -- -- 14,709 --
Other operating income 20,899 12,700 34,498 21,708
---------- ---------- ---------- ----------
Total other income 132,831 113,982 256,360 219,993
Other expense:
Salaries 338,285 312,911 665,670 616,889
Employee benefits 65,381 58,686 132,170 116,046
Occupancy expense 75,579 67,420 159,913 138,235
Equipment and fixture expense 33,452 30,537 63,036 62,988
Other operating expense 190,838 180,497 361,004 321,516
---------- ---------- ---------- ----------
Total other expense 703,535 650,051 1,381,793 1,255,674
---------- ---------- ---------- ----------
Income before income taxes 436,716 405,302 797,852 809,923
Income taxes 141,623 131,187 255,392 263,682
---------- ---------- ---------- ----------
Net income $ 295,093 $ 274,115 $ 542,460 $ 546,241
========== ========== ========== ==========
*Net income per share primary and fully diluted $ 0.32 $ 0.30 $ 0.59 $ 0.60
========== ========== ========== ==========
Cash dividends per share $ 0.09 $ 0.08 $ 0.18 $ 0.16
========== ========== ========== ==========
Book value per share $ 12.25 $ 11.54 $ 12.25 $ 11.54
========== ========== ========== ==========
</TABLE>
* Earnings per share are based on weighted average number of shares
outstanding for the applicable period.
4
<PAGE>
GUARANTY STATE BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
Guaranty State Bancorp and Subsidiary
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30 JUNE 30
1997 1996
------------ ------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 542,460 $ 546,241
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 79,776 76,756
Amortization of premiums on investment
securities net of accretion discount 4,426 21,421
Provision for deferred taxes 884 (3,178)
Realized loss (gain) on sale of securities and assets (14,709) --
Provision for loan losses 90,000 70,380
Gain on sale of premises and equipment (7,000) --
Changes in assets and liabilities:
Interest receivable (6,202) (72,588)
Other assets (664,561) (135,651)
Interest payable 21,261 (59,372)
Other liabilities 75,501 8,631
------------ ------------
Net cash (used in) provided by operating
activities 121,836 452,640
------------ ------------
Cash flows from investing activities:
Proceeds from maturity of investment
securities 4,049,040 4,854,075
Purchase of investment securities (1,102,589) (7,566,879)
Net decrease (increase) in loans (8,022,561) (7,230,921)
Capital expenditures (458,472) (118,917)
------------ ------------
Net cash (used)/provided by investing
activities (5,534,582) (10,062,642)
------------ ------------
Cash flows from financing activities:
Net increase (decrease) in deposits 4,402,748 7,811,542
Proceeds from exercise of stock options 48,313 53,188
Dividends paid (159,139) (139,724)
Proceeds from borrowed funds 2,800,000 3,800,000
Repayment of borrowed funds (1,800,000) --
------------ ------------
Net cash (used)/provided by financing
activities 5,291,922 11,525,006
------------ ------------
Net increase (decrease) in cash and
and cash equivalents (120,823) 1,915,004
Cash and cash equivalents at beginning
of period 6,189,899 3,230,816
------------ ------------
Cash and cash equivalents at end of period $ 6,069,076 $ 5,145,820
============ ============
</TABLE>
5
<PAGE>
GUARANTY STATE BANCORP
CONSOLIDATED
STATEMENT OF CHANGES IN EQUITY CAPITAL
Guaranty State Bancorp and Subsidiary
- --------------------------------------------------------------------------------
For the six months ended June 30, 1997
<TABLE>
<CAPTION>
Unrealized
Common Stock Gain/(losses) Total
------------------ Undivided Securities Stockholders'
Shares Amount Surplus Profits Available for Sale Equity
------- -------- ---------- ---------- ------------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE JANUARY 1, 1997 880,053 $880,053 $4,722,289 $4,772,831 $74,384 $10,449,557
Exercise of stock options 6,600 6,600 41,713 - - 48,313
Net income - - 542,460 - 542,460
Cash dividends - - (159,139) - (159,139)
Change in unrealized gain (loss) on
investment securities held for sale
net of income taxes - - - (21,498) (21,498)
------- -------- ---------- ---------- ------- -----------
BALANCE JUNE 30, 1997 886,653 $886,653 $4,764,002 $5,156,152 $52,886 $10,859,693
======= ======== ========== ========== ======= ===========
</TABLE>
6
<PAGE>
Guaranty State Bancorp
RESERVE FOR LOAN LOSSES
The following is an analysis of the reserve for loan losses as of the periods
indicated:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, beginning $ 1,074,155 $ 1,162,066 $ 1,073,274 $ 1,102,709
Provision charged against income 42,558 36,228 90,000 70,380
Recoveries 4,483 4,996 8,972 32,994
Losses charged off (921) (7,818) (51,971) (10,611)
----------- ----------- ----------- -----------
Balance, ending $ 1,120,275 $ 1,195,472 $ 1,120,275 $ 1,195,472
=========== =========== =========== ===========
</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 June 1997:
At June 30, 1997
$000's
Accruing loans past due 90 days or more $ 36
Nonaccrual loans 112
Total $ 148
- --------------------------------------------------------------------------------
Key Financial Ratios Annualized as of June 30, 1997:
(computed on average balances)
Return on equity 10.28%
Return on assets 1.11%
Equity to assets 10.84%
7
<PAGE>
Net Interest Income And Average Balances (Annualized)
As of June 30 Annualized
<TABLE>
<CAPTION>
1997 1996
------------------------------------ ------------------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance (Expense) (Cost) Balance (Expense) (Cost)
Interest earning assets: ----------- ---------- ------ ----------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Taxable investment securities (1) $17,440,813 $1,073,189 6.15% $15,573,851 $1,012,273 6.50%
Nontaxable investment securities (1) 3,369,312 303,594 9.01% 3,750,183 298,550 7.96%
Federal Home Loan Bank Stock 292,390 20,982 7.18% 296,603 19,553 6.59%
Federal Funds sold and securities
purchased with agreements to resell 2,307,173 125,584 5.44% 1,752,828 90,223 5.15%
Loans and fees on loans (2) 69,478,395 6,440,505 9.27% 63,999,290 5,993,863 9.37%
----------- ---------- ----------- ----------
Total interest earning assets 92,888,083 7,963,855 85,372,755 7,414,462
----------- ---------- ----------- ----------
Average yield on interest earning assets 8.57% 8.68%
Noninterest earning assets:
Cash and due from banks 2,571,209 2,142,118
Premises and equipment 2,302,619 1,703,393
Allowance for loan losses (1,094,947) (1,155,350)
Interest receivable and other 1,469,971 1,435,903
Total noninterest earning assets 5,248,852 4,126,064
----------- -----------
Total assets $98,136,935 $89,498,819
=========== ===========
Interest bearing liabilities:
Demand deposits $ 3,955,165 $ 65,113 1.65% $3,937,920 $ 80,405 2.04%
Savings deposits 25,699,105 1,030,756 4.01% 21,695,618 830,339 3.83%
Time deposits 43,546,032 2,515,306 5.78% 39,753,068 2,303,928 5.80%
FHLB Borrowings 2,371,640 137,076 5.78% 3,378,198 188,498 5.58%
----------- ---------- ----------- ----------
Total interest bearing liabilities 75,571,942 3,748,251 68,764,804 3,403,170
----------- ---------- ----------- ----------
Average cost on interest bearing liabilities 4.96% 4.95%
Noninterest bearing liabilities:
Demand deposits 11,197,164 10,087,870
Interest payable and other 769,903 754,260
----------- -----------
Total noninterest bearing liabilities 11,967,067 10,842,130
----------- -----------
Total liabilities 87,539,009 79,606,934
----------- -----------
Stockholders' equity 10,641,185 9,891,885
----------- -----------
Total liabilities and stockholders'
equity $98,180,194 $89,498,819
=========== ===========
Net interest income $4,215,604 $4,011,292
========== ==========
Net yield on interest earning assets (margin) 4.54% 4.70%
Interest rate spread (earning asset yield
minus interest-bearing liability rate) 3.61% 3.74%
</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.
8
<PAGE>
Rate Volume
<TABLE>
<CAPTION>
TABLE 2
Rate/Volume Variance Analysis
As of June 30, annualized 1997 Compared to 1996
----------------------------------------
Interest Variance Attributable To
Income/Expense ------------------------
Variance Rate Volume
--------- --------- ---------
Interest earning assets:
<S> <C> <C> <C>
Taxable investment securities $ 60,916 $ (53,964) $ 114,880
Nontaxable investment securities 5,044 39,363 (34,319)
Federal Home Loan Bank stock 1,429 1,731 (302)
Federal Funds sold and securities
purchased with agreements to resell 35,361 5,187 30,174
Loans 446,642 (61,260) 507,902
--------- --------- ---------
Total 549,393 (68,943) 618,335
--------- --------- ---------
Interest bearing liabilities:
Demand deposits (15,292) (15,576) 284
Savings deposits 200,417 39,843 160,574
Time deposits 211,378 (7,711) 219,089
Federal Home Loan Bank borrowings (51,422) 6,755 (58,177)
--------- --------- ---------
Total 345,081 23,310 321,770
--------- --------- ---------
Net interest income $ 204,312 ($92,253) $296,565
========= ========= =========
</TABLE>
9
<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 which 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 "Corporation") 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. No significant intercompany
transactions occurred in this reporting period.
10
<PAGE>
Earnings Per Share
GUARANTY STATE BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
Note 2: Earnings Per Share
Guaranty State Bancorp will adopt Statement of Financial Accounting Standards
(SFAS) No. 128, Earnings Per Share on December 31, 1997. SFAS No. 128 requires
the Corporation to change its method of computing, presenting and disclosing
earnings per share information. Upon adoption, all prior period data presented
will be restated to conform to the provisions of SFAS No.128.
If the Corporation adopted SFAS No. 128 for the period ended June 30, 1997, the
following computation would have been used to arrive at basic income per common
share and diluted income per common share that would have been presented on the
consolidated statements of income:
<TABLE>
<CAPTION>
Six Months
Ended June 30
---------------------
1997 1996
-------- --------
Basic income per common share:
- ------------------------------
<S> <C> <C>
Net income $542,460 $546,241
Weighted average common shares
outstanding: 881,790 874,769
Basic income per common share $ 0.62 $ 0.62
=====================
Diluted income per common share:
- --------------------------------
Net income $542,460 $546,241
Weighted average shares:
------------------------
Common shares outstanding 881,790 874,769
Dilutive effect of stock options 51,246 36,022
-------- --------
Total shares 933,036 910,791
Diluted income per common share $ 0.58 $ 0.60
=====================
</TABLE>
11
<PAGE>
Item 2. MANAGEMENTS' DISCUSSION AND ANALAYSIS AND RESULTS OF OPERATIONS
Increased earnings for the second quarter were recorded by Guaranty State
Bancorp. For the quarter ended June 30, 1997, net income totaled $295,093, up
7.7% over $274,115 reported for the same period a year ago. Per share, the
comparison was $.32 for the second quarter of 1997 versus $.30 for the second
quarter of 1996, an increase of 6.7%. For the six month period, net income was
$542,460. Compared to $546,241 in 1996.
The second quarter increase indicates positive results from Guaranty's
business development efforts. Total assets increased 7.8%, reaching a record
level of $102.4 million at June 30, 1997, compared with $95.1 million one year
ago. Net loans increased 10.6% to $72.5 million and deposits increased 9.4% to
total $88.0 million. Net interest income increased 5.1% through growth in
earning assets. The yield on earning assets decreased over the first half of the
year, from 4.70% at June 30, 1996, to 4.54% at June 30, 1997. Other assets,
which increased by 138%, 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. At June 30, 1997, annualized returns on average equity and assets were
10.28% and 1.11%, respectively.
Through the first six months of 1997, noninterest income increased by
16.5%, resulting from a 14.4% rise in service charge income. Nonrecurring income
from the sale of an investment security and fully depreciated bank assets
contributed to noninterest income. Noninterest expense increased by 10.0%,
primarily due to occupancy and staff expenses associated with Guaranty's newest
branch office located at Research Triangle Park.
Guaranty remained on target with the profit and growth plan for the first
six months of 1997. The local economy remains strong and according to Charles J.
Stewart, president and CEO, management looks forward to a successful second half
of the year.
On July 1, 1997, shareholders of record as of June 13, 1997, were paid a
quarterly dividend of $.09 per share, a 12.5% increase over that paid through
the same period last year.
Stewart said the Bank remains focused on quality growth that will build
shareholder value.
12
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings involving the
Corporation.
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
Exhibit 27 - Financial Data Schedule
All other items are omitted due to the absence of the
conditions under which they are required or because the
information is included in Part I.
13
<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: August 6, 1997 By:
--------------------- -------------------------------
Charles J. Stewart
President and CEO
Date: August 6, 1997 By:
--------------------- ------------------------------
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 JUNE 30,
1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 649
<SECURITIES> 19,697
<RECEIVABLES> 86,090
<ALLOWANCES> 1,120
<INVENTORY> 0
<CURRENT-ASSETS> 985
<PP&E> 3,969
<DEPRECIATION> 1,498
<TOTAL-ASSETS> 102,470
<CURRENT-LIABILITIES> 91,610
<BONDS> 0
0
0
<COMMON> 10,860
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 102,470
<SALES> 0
<TOTAL-REVENUES> 2,338
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,382
<LOSS-PROVISION> 90
<INTEREST-EXPENSE> 69
<INCOME-PRETAX> 798
<INCOME-TAX> 256
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 542
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0.59
</TABLE>
