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 March 31, 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 881,553
------------ -----------------------------
Class Outstanding at March 31, 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
2
<PAGE>
GUARANTY STATE BANCORP
CONSOLIDATED BALANCE SHEETS
Guaranty State Bancorp and Subsidiary
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
3-31 3-31 12-31
1997 1996 1996
Unaudited Unaudited Audited
--------- --------- -------
ASSETS
<S> <C> <C> <C>
Cash and due from banks $3,241,394 $2,554,327 $2,445,899
Federal funds sold 1,596,000 2,490,000 3,744,000
Investment securities available for sale 20,467,006 20,889,298 22,404,514
Loans held for sale 643,100 338,000 354,600
Loans: 69,098,391 63,808,642 65,151,672
Less allowance for possible loan losses 1,074,155 1,162,066 1,073,274
----------- ----------- -----------
Net loans 68,024,236 62,646,576 64,078,398
Federal Home Loan Bank of Atlanta stock 309,200 305,500 270,600
Premises and equipment 2,400,727 1,785,815 2,155,017
Interest receivable 684,467 748,201 700,199
Other assets 580,681 546,997 406,769
----------- ----------- -----------
Total assets $97,946,811 $92,304,714 $96,559,996
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $12,006,040 $11,078,190 $10,232,604
Interest-bearing demand 3,570,855 4,017,388 5,221,254
Savings 25,576,749 22,942,848 25,662,273
Large denomination certificates of deposit 13,171,509 12,641,512 12,523,084
Other time 29,463,853 27,207,329 29,954,367
----------- ----------- -----------
Total deposits 83,789,006 77,887,267 83,593,582
Federal Home Loan Bank of Atlanta
short-term borrow 2,800,000 3,800,000 1,800,000
Interest payable 534,879 538,063 542,766
Other liabilities 268,616 262,111 174,092
----------- ----------- -----------
Total liabilities 87,392,501 82,487,441 86,110,440
Shareholders' Equity:
Common stock: $1.00 par value, 2,500,000
shares authorized; 881,553, 880,053 and
872,912 shares issued and outstanding on
3/31/97, 12/31/96 and 3/31/96, respectively 881,553 872,912 880,053
Surplus 4,736,039 4,672,814 4,722,289
Undivided profits 4,940,860 4,193,065 4,772,831
Net unrealized gain (loss) investment securities, (4,142) 78,482 74,383
----------- ----------- -----------
Total shareholders' equity 10,554,310 9,817,273 10,449,556
----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $97,946,811 $92,304,714 $96,559,996
=========== =========== ===========
</TABLE>
3
<PAGE>
GUARANTY STATE BANCORP
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Guaranty State Bancorp and Subsidiary
THREE MONTHS ENDED
ENDED MARCH 31
1997 1996
-------- --------
Interest income:
Loans and fees on loans $1,502,069 $1,463,359
Federal funds sold 36,044 17,037
Investment securities, taxable 276,383 223,782
Investment securities, non-taxable 44,567 46,755
---------- ----------
Total interest income 1,859,063 1,750,933
---------- ----------
Interest Expense:
Large denomination certificates of deposit 182,398 181,824
Other deposits 685,739 588,688
Other interest expense 27,619 42,036
---------- ----------
Total interest expense 895,756 812,548
---------- ----------
Net interest income 963,307 938,385
Provision for loan losses 47,442 34,152
---------- ----------
Net interest income after
provision for loan losses 915,865 904,233
Other income:
Service charges on deposit accounts 63,347 54,876
Other service charges, commissions and fees 31,874 42,127
Profit (loss) from sale of securities 14,709 -
Other operating income 13,599 9,008
---------- ----------
Total other income 123,529 106,011
Other expense:
Salaries 327,385 303,978
Employee benefits 66,789 57,360
Occupancy expense 84,334 70,815
Equipment and fixture expense 29,584 32,451
Other operating expense 170,166 141,019
---------- ----------
Total other expense 678,258 605,623
---------- ----------
Income before income taxes 361,136 404,621
Income taxes 113,769 132,495
---------- ----------
Net income $ 247,367 $ 272,126
========== ==========
*Net income per share primary and fully diluted $ 0.27 $ 0.30
========== ==========
Cash divdends per share $ 0.09 $ 0.08
========== ==========
Book value per share $ 11.97 $ 11.25
========== ==========
*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
THREE MONTHS ENDED
MARCH 31 MARCH 31
1997 1996
-------- --------
Cash flows from operating activities:
Net income $247,367 $272,126
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 38,100 32,789
Amortization of premiums on investment
securities net of accretion discount 2,155 12,054
Provision for deferred taxes (17,636) (3,178)
Realized loss (gain) on sale of securities 14,709 0
Provision for loan losses 47,442 34,152
Changes in assets and liabilities:
Interest receivable 15,732 (104,144)
Other assets (173,912) (294,125)
Interest payable (7,887) (65,493)
Other liabilities 94,524 105,815
---------- ----------
Net cash (used in) provided by operating
activities 260,594 (10,004)
---------- ----------
Cash flows from investing activities:
Proceeds from maturity of investment
securities 2,354,040 2,097,963
Purchase of investment securities (586,081) (4,519,313)
Net decrease (increase) in loans (4,234,338) (4,697,369)
Capital expenditures (283,810) (64,317)
---------- ----------
Net cash (used)/provided by investing
activities (2,750,189) (7,183,036)
---------- ----------
Cash flows from financing activities:
Net increase (decrease) in deposits 195,424 5,263,884
Proceeds from exercise of stock options 15,250 12,500
Dividends paid (79,340) (69,833)
Proceeds from borrowed funds 2,800,000 3,800,000
Repayment of borrowed funds (1,800,000) -
---------- ----------
Net cash (used)/provided by financing
activities 1,131,334 9,006,551
---------- ----------
Net increase (decrease) in cash and
and cash equivalents (1,358,261) 1,813,511
Cash and cash equivalents at beginning
of period 6,189,899 3,230,816
---------- ----------
Cash and cash equivalents at end of period $4,837,394 $5,044,327
========== ==========
5
<PAGE>
GUARANTY STATE BANCORP
CONSOLIDATED
STATEMENT OF CHANGES IN EQUITY CAPITAL
Guaranty State Bancorp and Subsidiary
- --------------------------------------------------------------------------------
For the year ended December 31, 1996
<TABLE>
<CAPTION>
Unrealized
Gain/(losses)
Common Stock Securities Total
-------------------------- Undivided Available Stockholders'
Shares Amount Surplus Profits for Sale Equity
----------- ----------- ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE JANUARY 1, 1996 880,053 $880,053 $4,722,289 $4,772,831 $74,385 $10,449,558
Exercise of stock options 1,500 1,500 13,750 - - 15,250
Net income - - 247,367 - 247,367
Cash dividends - - (79,340) - (79,340)
Change in unrealized gain (loss)
on investment securities held
for sale net of income taxes - - - (78,525) (78,525)
----------- ----------- ----------- ----------- ------------ -----------
BALANCE SEPTEMBER 30, 1996 881,553 $881,553 $4,736,039 $4,940,858 ($4,140) $10,554,310
=========== =========== =========== =========== ============ ===========
</TABLE>
6
<PAGE>
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
ENDED MARCH 31
1997 1996
------------- -------------
Balance, beginning $1,073,274 $1,102,709
Provision charged against income 47,442 34,152
Recoveries 4,489 27,996
Losses charged off (51,050) (2,791)
------------- -------------
Balance, ending $1,074,155 $1,162,066
============= =============
- --------------------------------------------------------------------------------
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 March, 1997
At March 31, 1997
$000's
---------------
Accruing loans past due 90 days or more $ 2,103
Nonaccrual loans 153
---------------
Total $ 2,256
===============
- --------------------------------------------------------------------------------
Key Finacial Ratios Annualized as of March 31, 1997:
(computed on average balances)
Return on equity 9.36%
Return on assets 1.03%
Equity to assets 11.01%
7
<PAGE>
Net Interest Income and Average Balances (Annualized)
3
MONTH
As of March 31 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) $18,535,123 $1,135,794 6.13% $14,964,593 $938,486 6.27%
Nontaxable investment securities (1) 3,016,563 290,433 9.63% 3,464,468 304,692 8.79%
Federal Home Loan Bank Stock 285,542 22,216 7.78% 287,706 17,375 6.04%
Federal Funds sold and securities
purchased with agreements to resell 2,592,097 146,174 5.64% 1,365,119 68,148 4.99%
Loans and fees on loans (2) 66,612,420 6,088,537 9.14% 62,384,922 5,853,436 9.38%
----------- --------- ----------- ---------
Total interest earning assets 91,041,745 7,683,155 82,466,808 7,182,136
----------- --------- ----------- ---------
Average yield on interest earning assets 8.44% 8.71%
Noninterest earning assets:
Cash and due from banks 2,365,298 2,019,305
Premises and equipment 2,226,079 1,687,898
Allowance for loan losses (1,088,774) (1,130,728)
Interest receivable and other 1,455,688 1,197,925
----------- -----------
Total noninterest earning assets 4,958,291 3,774,400
----------- -----------
Total assets $96,000,036 $86,241,208
=========== ===========
Interest bearing liabilities:
Demand deposits $ 3,987,581 $ 68,750 1.72% $ 3,852,443 $ 78,416 2.04%
Savings deposits 25,577,235 1,022,560 4.00% 20,265,515 734,004 3.62%
Time deposits 42,268,205 2,429,468 5.75% 38,956,499 2,236,684 5.74%
FHLB Borrowings 1,929,032 110,476 5.73% 2,956,395 168,144 5.69%
----------- --------- ----------- ---------
Total interest bearing liabilities 73,762,053 3,631,254 66,030,852 3,217,248
----------- --------- ----------- ---------
Average cost on interest bearing liabilities 4.92% 4.87%
Noninterest bearing liabilities:
Demand deposits 10,904,871 9,629,570
Interest payable and other 761,267 763,802
----------- -----------
Total noninterest bearing liabilities 11,666,138 10,393,372
----------- -----------
Total liabilities 85,428,191 76,424,224
----------- -----------
Stockholders' equity 10,571,845 9,816,984
----------- -----------
Total liabilities and stockholders' equity $96,000,036 $86,241,208
=========== ===========
Net interest income $4,051,901 $3,964,888
========== ==========
Net yield on interest earning assets (margin) 4.45% 4.81%
Interest rate spread (earning asset yield minus
interest-bearing liability rate) 3.52% 3.84%
</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.
8
<PAGE>
Rate Volume
<TABLE>
<CAPTION>
Rate/Volume Variance Analysis
As of March 31, annualized 1997 Compared to 1996
---------------------------------------------------
Variance Attributable To
Interest ---------------------------
Income/Expense
Variance Rate Volume
---------------------------------------------------
<S> <C> <C> <C>
Interest earning assets:
Taxable investment securities $ 197,308 $ (21,487) $ 218,795
Nontaxable investment securities (14,259) 28,865 (43,124)
Federal Home Loan Bank stock 4,841 5,009 (168)
Federal Funds sold and securities
purchased with agreements to resell 78,026 8,834 69,192
Loans 235,101 (151,302) 386,404
--------- --------- ---------
Total 501,018 (130,080) 631,098
--------- --------- ---------
Interest bearing liabilities:
Demand deposits (9,666) (11,996) 2,330
Savings deposits 288,556 76,197 212,359
Time deposits 192,784 2,436 190,348
Federal Home Loan Bank borrowings (57,668) 1,169 (58,837)
--------- --------- ---------
Total 414,006 67,806 346,200
--------- --------- ---------
Net interest income $ 87,012 ($197,886) $ 284,898
========= ========== =========
</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
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 inconformity 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. All significant
intercompany transactions have been eliminated.
10
<PAGE>
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 March 31, 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:
Three Months
Ended March 31
------------------
1997 1996
----- ----
Basic income per common share:
- ------------------------------
Net income $247,367 $272,126
Weighted average common shares
outstanding: 880,503 871,706
Basic income per common share $ 0.28 $ 0.31
======== ========
Diluted income per common share:
- --------------------------------
Net income $247,367 $272,126
Weighted average shares:
------------------------
Common shares outstanding 880,503 871,706
Dilutive effect of stock options 49,572 36,022
-------- --------
Total shares 930,075 907,728
Diluted income per common share $ 0.27 $ 0.30
======== ========
11
<PAGE>
Item 2. Managements' Discussion and Analaysis and Results of Operations
Guaranty State Bancorp's net income for the first quarter of 1997 was $247,367
and fully diluted earnings per share were $.27. For the three months ended March
31, 1996, net income totaled $272,126 and fully diluted earnings per share were
$.30. Management anticipated a decline in net income for this quarter when the
1997 budget plan was prepared. The new branch office and the management
reorganization, which was outlined in the Annual Report to Shareholders,
increased operating expenses notably in the first quarter.
For the three month period ending March 31, 1997, the Corporation incurred over
$18,000 in land lease, salary and advertising expenses associated with the new
RTP branch office. Guaranty opened this office on April 7, 1997, and believes
the growth potential in this area of the market to be excellent. Noninterest
expenses unrelated to the new branch increased 9.0% in the first quarter of 1997
compared to 1996. The increase resulted primarily from higher personnel costs
due to the recent reorganization of staff responsibilities. Another factor
affecting earnings was an $11,000 decrease in noninterest fee income from
mortgage loans sold to correspondents. Annualized return on average equity and
assets at 9.36% and 1.03%, respectively, were not as strong as in recent
quarters because of these items.
Net interest income increased by 1.3% from March 31, 1996, to March 31, 1997,
due to the growth in earning assets. At the same time, the taxable equivalent
interest margin decreased to 4.45% for three months annualized in 1997, compared
to 4.81% for the first quarter last year. Management projected a decrease in
interest margin as a result of the local competitive market which requires
aggressive pricing for quality business development. Guaranty offers very
attractive products, such as the MaxSavings deposit account and the one-closing
construction/permanent mortgage loan, that enable us to attract new customer
relationships on a continuing basis.
Total assets were $97.9 million at March 31, 1997, an increase of 6.1% over
March 31, 1996. Loans outstanding grew to $69.1 million, for a growth rate of
8.3%. Deposits were $83.8 million at the end of March, compared to $77.9 million
last year, an increase of 7.6%.
On April 1, 1997, Guaranty State Bancorp paid shareholders of record as of March
14, 1997, a quarterly dividend of $.09 per share, a 12.5% increase over the
first quarter dividend declared in 1996.
With its strong capital base and now with five convenient locations in Durham,
the management at Guaranty believe the bank is well-positioned for quality
growth in an excellent market.
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
The following items were submitted to a vote of security holders
through solicitation of proxies for the regular annual meeting of
shareholders which was held on May 1, 1997.
1. The amendment in its entirety of Article IV of the Articles of
Incorporation to increase the number of authorized shares from
2,500,000 shares of common stock to 4,000,000, and to authorize the
issuance of up to 1,000,000 shares of serial preferred stock, which
may be issued from time to time by the Board of Directors.
Votes For 535,409 Votes Against 144,555
------- -------
2. To provide for a new Article XIV to the Articles of Incorporation
whereby directors may be removed only for "cause".
Votes For 652,415 Votes Against 20,187
------- ------
3. Election of Directors for a three-year term ending 2000.
Votes For Votes Against
--------- -------------
a. Susan C. Ross 765,883 60
b. David W. Wiggins 765,883 60
c. Charles J. Stewart 638,708 120,056
4. Ratification of Coopers & Lybrand, L.L.P., independent public
accountants to audit the Corporation's books for fiscal 1997.
Votes For Votes Against Abstain
--------- ------------- -------
770,108 2,467 5,225
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(27) Financial Data Schedule
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.
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: May 6, 1997 By:_______________________________
----------- Charles J. Stewart
President and CEO
Date: May 6, 1997 By:_______________________________
----------- Jean R. Turner
Senior Vice President
14
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF GUARANTY STATE BANCORP FOR THE THREE MONTHS ENDED MARCH
31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-01-1997
<CASH> 3,241
<SECURITIES> 7,020
<RECEIVABLES> 69,832
<ALLOWANCES> 1,074
<INVENTORY> 0
<CURRENT-ASSETS> 14,429
<PP&E> 2,345
<DEPRECIATION> 0
<TOTAL-ASSETS> 97,941
<CURRENT-LIABILITIES> 87,393
<BONDS> 0
0
0
<COMMON> 10,549
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 97,941
<SALES> 0
<TOTAL-REVENUES> 1,983
<CGS> 0
<TOTAL-COSTS> 896
<OTHER-EXPENSES> 678
<LOSS-PROVISION> 47
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 361
<INCOME-TAX> 114
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 247
<EPS-PRIMARY> .27
<EPS-DILUTED> 0
</TABLE>
