UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-KSB
Annual Report Under Section 13 or 15 (d) of
The Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1997
Commission File Number: 33-60742
Guaranty State Bancorp
----------------------------------------------
(Name of small business issuer in its Charter)
North Carolina 27701 56-1816641
- ---------------------------------------------- ------------------
(State or other jurisdiction of incorporation) (Corporation's ID)
302 West Main Street
Durham, North Carolina 27701
----------------------------------------
(Address of principal executive offices)
(919-688-9361)
---------------------------
(Issuer's Telephone Number)
SECURITIES REGISTERED UNDER SECTION 12 (b) OF THE ACT:
NONE
SECURITIES REGISTERED UNDER SECTION 12 (g) OF THE ACT:
Common Stock, $1 par value
--------------------------
(Title of Class)
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 Bank was
required to file such reports,) and (2) has been subject to such filing
requirements for the past 90 days. Yes [ ]
Indicate by check mark if disclosure filers pursuant to Item 405 of Regulation
S-B is not contained herein, and will not be contained, to the best of the
Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-K. [ ]
AGGREGATE MARKET VALUE OF COMMON STOCK HELD BY NON-AFFILIATES OF
GUARANTY STATE BANCORP AT FEBRUARY 9, 1998: $26,585,474
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AT FEBRUARY 9, 1998:
892,978
<PAGE>
Table of Contents
================================================================================
Part I Item 1 Business
Part I Item 2 Properties
Part I Item 3 Legal Proceedings
Part I Item 4 Submission of Matters to a Vote of Security Holders
Part II Item 5 Market and Related Shareholder Matters
Incorporated by reference - Annual Report
Part II Item 6 Selected Financial Data
Incorporated by reference - Annual Report
Part II Item 7 Management Discussion and Analysis
Incorporated by reference - Annual Report
Part II Item 8 Financial Statements and Supplementary Data
Incorporated by reference - Annual Report
Part II Item 9 Not Applicable
Part III Item 10 Directors and Executive Officers
Incorporated by reference - Proxy Statement
Part III Item 11 Executive Compensation
Incorporated by reference - Proxy Statement
Part III Item 12 Security Ownership
Incorporated by reference - Proxy Statement
Part III Item 13 Certain Transactions
Incorporated by reference - Proxy Statement
Part IV Item 14 Form S-8 Filing
Signatures
================================================================================
<PAGE>
PART I
Item 1. Business
Guaranty State Bancorp ("the Corporation") is a registered bank holding company
headquartered in Durham, North Carolina and is the parent holding company of
Guaranty State Bank, ("the Bank"), a North Carolina chartered commercial bank.
The Corporation was organized on March 26, 1993 and received final regulatory
approval on September 21, 1993, for the Bank to become a wholly owned subsidiary
of the Corporation. On September 21, 1993, the shareholders of the Bank became
shareholders of the Corporation. Guaranty State Bank is the only subsidiary of
the Corporation.
The Bank Holding Company Act of 1956, as amended (The "BHCA"), prohibits the
Corporation from acquiring direct or indirect control of more than 5% of the
outstanding voting stock or substantially all of the assets of any financial
institution, or merging or consolidating with another bank holding company
without prior approval of the Federal Reserve. Guaranty State Bancorp filed
application with The Federal Reserve Bank for approval to merge with and into
Triangle Bancorp of Raleigh, North Carolina. On February 23, 1998, Triangle
Bancorp, Inc. received approval from the Federal Reserve Bank of Richmond to
acquire the shares of Guaranty State Bancorp. If approved by the Corporation's
shareholders at a Special Meeting of the Shareholders to be held on March 30,
1998, the merger is expected to be effective on or about April 16, 1998.
Bank holding companies are required to comply with the Federal Reserve's
risk-based capital guidelines which require a minimum ratio of total capital to
risk-weighted assets or 8%. At least half of the total capital is required to be
Tier 1 capital. A bank holding company is obligated by law to guarantee, subject
to certain limits, the bank subsidiary's compliance with the terms of any
capital restoration plan filed with the subsidiary's federal banking agency. As
a result of its ownership of a North Carolina chartered commercial bank, the
Corporation is registered with and is subject to regulation by the North
Carolina Commissioner of Banks under the state's bank holding company laws.
Guaranty State Bank
- -------------------
Guaranty State Bank was organized and chartered under North Carolina law in 1917
as a Morris Plan Industrial Bank. In 1957 the Bank became a commercial bank and
changed its name to Guaranty State Bank.
The Bank is an independent community bank engaged in the general commercial
banking business at five locations in Durham County, North Carolina.
Competition
- -----------
From its headquarters and four branch offices located in Durham, the Bank serves
substantially all of Durham County, which includes a large segment of Research
Triangle Park. There are 10 banks with offices and or headquarters in Durham
County. Most of the Bank's competitors have broader geographic markets and
higher lending limits than the Bank and are able to make greater use of
large-scale advertising and promotion. After the merger with Triangle Bancorp,
Inc., the Bank will have greater advertising resources that should increase its
marketing presence in Durham.
The Bank competes not only with the largest banking organizations in North
Carolina, but also with a wide range of financial service institutions, credit
unions, investment and brokerage firms and small loan or consumer finance
companies. Competition among financial institutions of all types is virtually
unlimited with respect to legal ability and authority to provide most financial
services.
Diversity of Deposit and Loan Customers
- ---------------------------------------
The majority of the Bank's customers are individuals and small-to-medium sized
businesses headquartered within its service area. Management does not believe
the Bank is dependent on a single customer or group of customers concentrated in
a particular industry whose loss would have a material adverse impact on the
Bank's results of operations. There are no seasonal factors that would have any
material adverse effect on the Bank's business and the Bank does not rely on
foreign sources of funds.
Principal Services and Markets
- ------------------------------
The Bank offers a full range of retail and commercial banking activities. In
1997 management determined through a five-year plan that the need for investment
in new technology and services, deemed essential to remain competitive in the
Durham market, was a necessity. The investment required would cause a
significant downturn in profitability due to high anticipated costs. The Board
of Directors and mangement of Guaranty determined it to be in the best interest
of Guaranty and its shareholders to seek expert advice from qualified investment
bankers as to the status of merger activities of community-oriented banks that
are similarly situated to Guaranty. Reference is made to Form S-4 (The
Registration Statement Under The Securities Act of 1933) filed by Triangle
Bancorp, Inc.
No material changes have occurred in the principal services rendered by the Bank
or in the principal markets over the past three fiscal years.
Patents, Trademarks and Research
- --------------------------------
The Bank holds no material patents, trademark, licenses, franchises or
concessions.
No material research activity occurred during the past two fiscal years relating
to the development of new services. There has been no public announcement nor
does the Bank have immediate plans to develop a new product or service which
will require the investment of a material amount of total assets.
Environmental Impact
- --------------------
The Bank is not aware of any material effects that compliance with Federal,
State and local provisions which have been enacted or adopted regulating the
discharge of materials into the environment or otherwise relating to the
discharge of materials into the environment, may have upon the capital
expenditures, earnings and competitive position of the Bank. The Bank has in
place lending policies and procedures designed to prevent the Bank from
accepting as collateral property which may be environmentally unsafe.
Employment
- ----------
At December 31, 1997, the Corporation and its subsidiary Bank employed 39
full-time equivalent employees. The Corporation is not party to any collective
bargaining agreements and believes its relations with its employees to be good.
Item 2. Properties
The Corporation's principal executive office at 302 West Main Street in the
downtown business district of Durham is owned by the Corporation. Improvements
consist of a three story attached building with approximately 15,300 square feet
of space. This includes 9,300 square feet used by the Bank for its teller and
lobby customer services, data processing, and the administrative offices; and
6,000 square feet leased to outside tenants.
Guaranty State Bank operates four branch offices in Durham. Two of these
locations, which consist of real estate and constructed branch office buildings,
are owned by the Corporation. The other two locations are located on land- lease
properties. The Corporation owns the branch office buildings on each of these
locations. In 1997 the newly constructed branch at 2313 Highway 54 was destroyed
by what authorities assume to be a gas explosion. This office is under
reconstruction and should reopen in mid-April, 1998, as a Triangle Bank branch
office. The building was fully insured for replacement value.
Item 3. Legal Proceedings
The Corporation and Bank have no legal proceedings pending other than ordinary
routine litigation incidental to the business.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the fourth quarter of the fiscal year covered by
this report to a vote of security holders.
PART II
Item 5. Market Price and Cash Dividends
At December 31, 1997, Guaranty State Bancorp had 892,978 shares of common stock
outstanding which were held by 264 shareholders of record.
Morgan Keegan serves as the principal market maker for the Corporation's common
stock in the over the counter market. Monroe Securities, Rochester, New York,
also serves as a market maker. The following table sets forth cash dividends
declared and the range of high and low market quotations for each quarterly
period as indicated.
TABLE 10
<TABLE>
<CAPTION>
Market Price and Cash Dividends
1997 1996
-------------------------------------------------- ---------------------------------------------------
Bid Ask Bid Ask
-------------- ---------------- --------------- ---------------
High Low High Low Dividend High Low High Low Dividend
---- --- ----- --- -------- ---- --- ---- --- --------
Quarter
- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1st $22.75 $22.38 $23.38 $23.25 $ .09 $17.50 $17.00 $20.00 $19.75 $ .08
2nd 22.75 22.38 23.85 23.25 .09 18.00 17.25 19.75 19.50 .08
3rd 24.00 22.75 25.00 23.75 .10 21.00 18.00 25.00 19.50 .09
4th 37.00 24.00 37.00 34.00 .10 22.38 21.00 25.00 25.00 .09
</TABLE>
Cash dividends per share were $ .38, $ .34 and $ .29 in 1997, 1996, and 1995,
respectively. Dividends declared as a percentage of net income amounted to 27.4%
in 1997, 27.6% in 1996, and 25.7% in 1995.
<PAGE>
ITEM 6. SELECTED FINANCIAL INFORMATION:
<TABLE>
<CAPTION>
(Dollars in Thousands)
Year Ended December 31
--------------------------------------------------------
1997 1996 1995 1994 1993
STATEMENT OF INCOME DATA:
<S> <C> <C> <C> <C> <C>
Total interest income $ 8,183 $ 7,457 $ 6,549 $ 5,236 $ 4,855
Total interest expense 3,854 3,597 2,909 2,000 1,892
-------- -------- -------- -------- --------
Net interest income 4,329 3,860 3,640 3,236 2,963
Provision for possible loan losses 211 143 183 144 229
-------- -------- -------- -------- --------
Net interest income after provision for possible 4,118 3,717 3,457 3,092 2,734
loan losses
Other income 522 444 413 451 586
Other expense 2,944 2,564 2,453 2,345 2,185
-------- -------- -------- -------- --------
Income before taxes 1,696 1,597 1,417 1,198 1,135
Income taxes 556 517 445 363 342
-------- -------- -------- -------- --------
Net income $ 1,140 $ 1,080 $ 972 $ 835 $ 793
======== ======== ======== ======== ========
Net income per share - basic $ 1.29 $ 1.23 $ 1.12 $ .97 $ .93
Net income per share assuming dilution (1) $ 1.22 $ 1.18 $ 1.09 $ .95 $ .89
Cash dividends declared (1) $ .38 $ .33 $ .29 $ .24 $ .22
Weighted average shares outstanding 936,089 917,899 891,692 883,179 857,702
Book Value $ 12.73 $ 11.80 $ 11.10 $ 9.91 $ 9.44
BALANCE SHEET DATA:
Assets $106,604 $ 96,560 $ 83,058 $ 75,563 $ 71,601
Net loans 75,971 64,433 58,287 48,216 43,754
Deposits 92,674 83,594 72,623 66,470 61,964
Shareholders' equity 11,399 10,450 9,675 8,597 8,135
</TABLE>
(1) Per share data has been adjusted to reflect the 50% stock dividend issued
October 18, 1995. Fractional amounts have been rounded to the nearest whole
number.
<PAGE>
Dear Guaranty Shareholder:
Guaranty State Bancorp achieved another year of record earnings with net income
reaching $1,140,051 for 1997. Total assets reached a record high at $106.6
million on December 31, 1997, a 10.4% increase, representing $10 million growth
over the previous year.
The net income compared to $1,080,447 in 1996, represented a 5.5% increase.
Diluted earnings per share for 1997 were $1.22 compared to $1.18 the previous
year. Return on average assets was 1.13% and the return on average shareholders'
equity was 10.44%. Without the one time expenses totaling $109,623 associated
with Guaranty's definitive merger agreement with Triangle Bancorp, return on
average assets would be 1.20% and return on average equity would equal 11.04%.
These gains reflect strong loan growth in 1997, continued control of expenses
and 17.4% increase in other operating revenues.
Loan growth continued to be spurred by heavy demand for construction and home
mortgage loans. We closed the year with loans outstanding at $77.1 million, an
increase of 17.7% from last year. The loan growth was funded primarily with a
10.9% increase in deposit growth. At December 31, 1997, deposits totaled $92.7
million.
The charge-off ratio to average loans outstanding decreased to .18% in 1997 from
.27% in 1996. Guaranty's performance in this area ranked well among its peers.
The reserve for possible loan losses at December 31, 1997, was 1.50% of loans
outstanding.
Guaranty shareholders have been notified of the Special Meeting of the
Shareholders on March 30, 1998. At the special meeting shareholders will vote on
a proposal to approve an Amended and Restated Agreement and Plan of
Reorganization and Merger, dated as of November 18, 1997, among Guaranty State
Bancorp, Guaranty State Bank, Triangle Bank and Triangle Bancorp, Inc. The Board
of Directors of Guaranty has unanimously approved the merger agreement. We
believe that Guaranty being merged with and into Triangle Bank is in the best
interest of Guaranty and its shareholders, employees, customers and the Durham
community.
The banking community experiences changes in how business is conducted almost
daily. Technology, competition and a global economy are driving forces behind
these changes. We are indeed fortunate to have the opportunity to associate with
Triangle, a leading regional bank. Triangle's commitment to provide outstanding
banking services and to remain a strong corporate citizen in all the communities
it serves is unparalleled.
We look forward to seeing you at the Special Shareholders Meeting on March 30,
1998.
Sincerely,
Charles J. Stewart
President & CEO
<PAGE>
Item 7. Management Discussion and Analysis
The following analysis highlights the major components affecting the growth of
Guaranty State Bancorp and its subsidiary, Guaranty State Bank, for the three
year period ended December 31, 1997. This presentation includes and should be
reviewed in conjunction with the consolidated financial statements and related
notes elsewhere in this Annual Report.
Earnings Analysis
Guaranty State Bancorp's consolidated net income in 1997 was $1,140,051, a 5.5%
increase over 1996 earnings of $1,080,447. On a per share basis, diluted net
income was $1.22 in 1997, compared to $1.18 for the prior year. Earnings for
1995 were $972,454 or $1. 09 per share.
The improved earnings in 1997 reflected strong loan growth, good expense control
and a 17.4% increase in noninterest income. Net income represented returns of
10.44% on average shareholders' equity and 1.13% on average assets versus 10.72%
and 1.16%, respectively in 1996. The equity and assets used in calculating
returns for both years include unrealized gains or losses, net of tax, on
securities available for sale.
Detailed discussion for each of the factors affecting Guaranty's operating
results and the Corporation's overall financial condition are included in this
analysis.
Net Interest Income
Net interest income, the largest component of Guaranty State Bank's earnings, is
the difference between interest and yield related fee income generated by
earning assets and the interest expense associated with funding these assets.
Net interest income is affected by the interest rate earned or paid and by
volume changes in loans, investment securities, deposits and borrowed funds.
For this discussion, net interest income is presented on a taxable equivalent
basis in order to compare yields on assets having different tax attributes.
For 1997, net interest income represented 89.2% of net revenues (net interest
income plus noninterest income), comparable to 89.7% in 1996. The taxable
equivalent net yield on average earning assets was 8.68% in 1997, compared with
8.57% in 1996 and 8.85% in 1995. The average yield on loans was 9.35% in 1997,
up from 9.30% in 1996.
The increased tax equivalent net interest income realized during 1997 was the
result of a 7.6% increase in average earning assets and an increase of ll basis
points in the net yield of earning assets. In 1997 the average rate paid on
interest-bearing liabilities decreased by 4 basis points.
Strong loan demand led the interest-earning asset growth, with average loans
increasing by 10.8% for the year. Commercial loans and residential and
commercial construction loans paced overall loan growth. On average, loans
constituted 75.5% of earning assets in 1997, compared to 73.3% in 1996. The net
interest margin averaged 4.65% in 1996, up from a net interest margin of 4.52%
during 1996.
The overall cost of interest-bearing liabilities increased by $256,257 or 7.1%,
due primarily to growth in the time deposit category and the MAX savings account
that pays market rates of interest. Time deposits on average in 1997 rose by
9.2%. Savings deposits increased by 12.8% as a result of the popularity of the
MAX savings account. The average yield paid for time deposits in 1997 was 5.78%
compared to 5.77% in 1996, reflecting the relatively stable interest rate
environment in which the bank operated over the past year.
<PAGE>
The following Tables 1 and 2 reflect an analysis of net income and related
changes in 1997 compared to 1996.
TABLE 1
Net Interest Income and Average Balances
<TABLE>
<CAPTION>
1997 1996
-------------------------------------- --------------------------------------
Interest Average Interest Average
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) $ 17,256,356 $1,084,804 6.29% $17,099,145 $1,084,810 6.34%
Nontaxable investment securities (1) 3,418,958 301,325 8.81% 3,197,583 288,570 9.02%
Federal Home Loan Bank Stock 300,795 21,729 7.22% 300,958 20,396 6.78%
Federal funds sold 2,426,238 133,311 5.49% 3,111,848 163,707 5.26%
Loans (2) 72,232,926 6,755,582 9.35% 65,162,324 6,060,796 9.30%
----------- ---------- ----------- ----------
Total interest-earning assets 95,635,273 8,296,751 88,871,858 7,618,279
----------- ---------- ----------- ----------
Average yield on interest earning assets 8.68% 8.57%
Noninterest-earning assets:
Cash and due from banks 2,542,333 2,288,411
Premises and equipment 2,366,984 1,797,420
Allowance for loan losses (1,119,432) (1,140,384)
Interest receivable and other 1,376,236 1,369,407
----------- -----------
Total noninterest-earning assets 5,166,121 4,314,854
----------- -----------
Total assets $100,801,394 $93,186,712
============ ===========
Interest-bearing liabilities:
Demand deposits $ 4,232,338 62,945 1.49% $ 4,111,374 80,573 1.96%
Savings deposits 26,504,405 1,063,849 4.01% 23,496,740 936,942 3.99%
Time deposits 44,901,303 2,596,757 5.78% 41,095,883 2,372,665 5.77%
FHLB borrowings 2,161,052 130,070 6.02% 3,395,551 207,184 6.10%
------------ ---------- ----------- ----------
Total interest-bearing liabilities 77,799,098 3,853,621 72,099,548 3,597,364
------------ ---------- ----------- ----------
Average cost on interest-bearing liabilities 4.95% 4.99%
Noninterest-bearing liabilities:
Demand deposits 11,234,710 10,247,268
Interest payable and other 844,187 757,469
------------ -----------
Total noninterest-bearing liabilities 12,078,897 11,004,737
------------ -----------
Total liabilities 89,877,995 83,104,285
------------ -----------
Stockholders' equity 10,923,399 10,082,427
------------ -----------
Total liabilities and
stockholders' equity $100,801,394 $93,186,712
============ ===========
Net interest income $4,443,130 $4,020,915
========== ==========
Net yield on interest-earning assets 4.65% 4.52%
Interest rate spread (earning asset yield
minus interest-bearing liability) 3.73%
3.58%
</TABLE>
1 Nontaxable income on securities and the related yields are shown on a fully
taxable equivalent basis computed using the Federal statutory tax rate of
34% and the state tax rate of 7%. Taxable income on securities are shown
adjusted for the state tax rate of 7%.
2 For the purpose of calculating loan yield, average balances include
nonaccrual and impaired loans.
<PAGE>
Table 2 shows the variance in rate and volume. Allocation between changes in
rate and changes in volume are on a proportional basis.
TABLE 2
Rate/Volume Variance Analysis
<TABLE>
<CAPTION>
1997 Compared to 1996 1996 Compared to 1995
------------------------------------ ---------------------------------------
Interest Interest
Income/ Income
Expense Expense
Variance Rate Volume Variance Rate Volume
--------- -------- --------- --------- --------- -----------
Interest earning assets:
<S> <C> <C> <C> <C> <C> <C>
Taxable investment securities $ (6) $ (9,889) $ 9,883 $ 180,659 $ 2,181 $ 178,478
Nontaxable investment
securities(1) 12,755 (6,756) 19,511 (24,782) 6,416 (31,198)
Federal Home Loan Bank stock 1,333 1,345 (12) 20,396 -- 20,396
Federal funds sold (30,396) 7,275 (37,671) (64,807) (22,073) (42,734)
Loans 694,786 33,508 661,278 795,111 (234,613) 1,029,724
--------- -------- --------- --------- --------- -----------
Total 678,472 25,483 652,989 906,577 (248,089) 1,154,666
--------- -------- --------- --------- --------- -----------
Interest bearing liabilities:
Demand deposits (17,628) (19,427) 1,799 (7,692) (2,013) (5,679)
Savings deposits 126,907 6,184 120,723 282,645 77,487 205,158
Time deposits 224,092 4,015 220,077 206,326 24,426 181,900
Short-term debt and Other (77,114) (2,812) (74,302) 207,184 -- 207,184
--------- -------- --------- --------- --------- -----------
Total 256,257 (12,040) 268,297 688,463 99,900 588,563
--------- -------- --------- --------- --------- -----------
Net interest income $ 422,215 $ 37,523 $ 384,692 $ 218,114 $(347,989) $ 566,103
========= ======== ========= ========= ========= ===========
</TABLE>
(1) Tax exempt income on investments and related yields are presented on a
taxable equivalent basis computed using the Federal statutory tax rate of
34% and the state tax rate of 7%.
Provision and Allowance for Loan Losses
Guaranty State Bank maintains an allowance for loan losses to absorb possible
losses in the loan portfolio. The level of the allowance is determined by
internally generated credit quality ratings, the general economic condition in
the Bank's market and historical loan loss experience. Guaranty's commitment to
maintain a strong allowance and to have early recognition of possible problems
requires an ongoing review of loans to identify credit weaknesses.
The allowance for loan losses totaled $1,153,568 at December 31, 1997, which was
1.50% of loans outstanding on that date. The allowance equaled 440.2% of
nonperforming assets. These ratios at December 31, 1996 were 1.64% and 365.0%
respectively.
Table 3 presents the relationship of the allowance to the loan portfolio. In
1997 the loan committee appropriated an amount to each loan category according
to grading of loans within the category with the remaining amount allocated to
the general category. The entire allowance is available to be used for
charge-offs in any category.
<PAGE>
TABLE 3
Allocation of the Allowance for Loan Losses (Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996
-------------------- -------------------
Percent in Percent
each in each
category category
to total to total
Amount loans Amount loans
------ ---------- ------ --------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $ 250 3.90% $ 200 5.45%
Real estate-construction 133 19.54% 100 16.94%
Real estate-mortgage 263 67.57% 250 68.38%
Loans to individuals 58 8.56% 50 9.06%
General 350 .43% 473 .17%
------ ------ ------ ------
Total $1,054 100.00% $1,073 100.00%
====== ====== ====== ======
</TABLE>
Table 4 summarizes transactions in the allowance for loan losses and details the
charge-offs, recoveries and net loan losses by loan category for the last three
years. Net charge-offs as a percentage of average loans decreased to .18% for
1997 compared to .27% for the year ended December 31, 1996, and .05% for the
year ended December 31, 1995, one of the lowest annual charge-off percentages in
the Bank's history
TABLE 4
Analysis of Allowance for Loan Losses (Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Balance, beginning $ 1,073 $ 1,103 $ 947
Charge-offs:
Commercial, financial and agricultural (79) (190) --
Real estate, mortgage (24) -- (25)
Loans to individuals (50) (19) (52)
Other (0) (3) (1)
------- ------- -------
Total charge-offs (153) (212) (78)
------- ------- -------
Recoveries:
Commercial, financial and agricultural 1 2 26
Real estate, mortgage 0 25 --
Loans to individuals 21 13 25
------- ------- -------
Total recoveries 22 40 51
------- ------- -------
Net charge-offs (131) (172) (27)
------- ------- -------
Provision charged against income 211 142 183
------- ------- -------
Balance, ending $ 1,153 $ 1,073 $ 1,103
======= ======= =======
Ratio of net charge-offs during the period to average loans
outstanding during the period .18% .27% .05%
</TABLE>
In 1996 a commercial customer declared bankruptcy. The significant increase in
commercial charge-offs was a result of this loan relationship.
<PAGE>
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. Loans are
placed on nonaccrual status when, in the judgment of Bank management, serious
doubt exists as to the collectibility of additional interest within a reasonable
period of time.
Management's review of the loan portfolio based on SFAS 114 resulted in no
additional provision for credit losses in 1996. Statement of Financial Standards
No. 114 ("SFAS 114"), "Accounting by Creditors for Impairment of a Loan" states
that a loan is impaired when current information and events make it probable the
Bank will be unable to collect the schedule payments of principal and interest
when due.
Table 5 provides a summary of nonperforming assets and contractually past due
loans for the most recent three years. Nonperforming assets equaled .35% of
total loans and foreclosed properties at the end of 1997, down from .45% a year
earlier. Real estate secured loans comprise over 63% of the nonperforming loans.
Management reviewed the properties and believes the collateral values are
sufficient to prevent any substantial losses should the loans go into
foreclosure.
TABLE 5
Analysis of Nonperforming Assets (Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Accruing loans past due 90 days or more $ 194 $ 147 $ 166
Nonaccruing loans 74 147 259
Total $ 268 $ 294 $ 425
===== ===== =====
</TABLE>
There was no commitment to lend additional funds to any customer whose loan was
classified as nonperforming at December 31, 1997.
Noninterest Income
Noninterest income at Guaranty consists primarily of service charges on deposit
accounts, origination fees for loans sold in the secondary market, and fees and
charges for various other financial services provided to customers. Total
noninterest income increased by 17.4% in 1997, totaling $522,070. This compares
to $444,528 in 1996, which was a 7.5% increase from 1994's total of $413,545.
Fee income for mortgage loans originated for sale to correspondents totaled
$100,534 in 1997 compared with $116,628 in 1996. In 1995, mortgage loan
origination fees were $82,721.
Service charges on deposit accounts have historically represented the largest
single item of noninterest income. Service charges on deposit accounts increased
by 20.7% in 1997, totaling $269,562. These fees remained at the same level in
1996 and 1995, at $223,245 and $223,509, respectively. Service charge fees did
not increase in 1997. A new accounts receivable financing product introduced in
1997 contributed $22,056 in noninterest income. Profit from the sale of
securities and a fully depreciated bank automobile added $21,709.
Noninterest Expense
Noninterest expenses increased by 14.8% to $2,944,432 in 1997, from $2,563,992
in 1996. Personnel expense increased by 9.6% in 1997 over 1996. Salaries
increased by 7.4%. Employee benefits increased by 21.3%, primarily as a result
of adding an executive supplemental retirement plan for Guaranty's chief
executive officer. One-time expenses associated with Guaranty's pending merger
into Triangle Bank were $109,623.
<PAGE>
Balance Sheet Analysis
Total assets were $106.6 million at the end of 1997, a 10.4% increase from the
1996 amount of $96.6 million. For the year 1997, assets averaged $100.8 million
compared to an average of $93.2 million for 1996. Average earning assets in 1997
were $95.6 million or 94.9% of total average assets, compared with $88.9 million
in 1996 and a ratio of 95.4%. Premises and equipment totaled 2.3% of average
assets in 1997 and 1.9% in 1996. The newest branch office in Durham at Highway
54 opened in April 1997 and was totally destroyed by a gas explosion in August
1997. This office is under reconstruction. Insurance covered the full amount of
reconstruction.
During 1997, interest bearing liabilities averaged $77.8 million, up 7.9% from
the 1996 average of $72.1 million. Time deposits on average increased by 9.3%.
The components of the Bank's average earning assets and interest bearing
liabilities are presented in Table 1.
Loans
The loan portfolio constitutes the Bank's largest earning asset. Average loans
outstanding grew by $7.0 million in 1997 to $72.2 million from $65.2 million in
1996, representing an increase of 10.9%. A detailed analysis of loans at
December 31, 1997 and 1996 is presented in the Note 3 of the Notes to
Consolidated Financial Statements. This analysis is based on the collateral
securing the loan.
The following table shows the Bank's loan maturities by types of loans
indicated, exclusive of residential and commercial real estate loans and
consumer loans as of December 31, 1997.
TABLE 6
Loan Maturities (Dollars in Thousands)
<TABLE>
<CAPTION>
Maturing
--------------------------------------------------
After One
Within One But Within After Five
Year Five Years Years Total
---- ---------- ----- -----
<S> <C> <C> <C> <C>
Commercial, financial and $ 3,392 $637 $170 $ 4,199
agricultural
Construction and development 14,816 -- -- 14,816
------- ---- ---- -------
Total $18,208 $637 $170 $19,015
======= ==== ==== =======
</TABLE>
The average rate earned on loans during 1997 increased to 9.35%, 5 basis points
above the 1996 yield of 9.30%. Interest income and fees on loans grew by
$769,193 in 1997, up 12.7% from the amount earned in 1996. Residential and
commercial construction loans have shown the strongest growth over the last two
years, as illustrated in Note 3. Over 94% of the Bank's loan portfolio was
secured by real estate at December 31, 1997.
Guaranty strives to maintain a diverse loan portfolio in which there are no
industry concentrations. The majority of the Bank's customers are individuals
and small-to-medium sized companies headquartered within Durham County.
Investments and Federal Funds Sold
Investments and Federal funds sold at the end of 1997 totaled $20.5 million and
$2.7 million, respectively, and $22.4 million and $3.7 million in 1996,
respectively. The investment portfolio is concentrated primarily in U.S.
Treasury securities and N.C. Municipal bonds with an average maturity of 1.8
years and provides an appropriate liquidity level for the Bank. Table 7 provides
a detailed analysis of investment securities. In 1995, Guaranty joined the
Federal Home Loan Bank, which requires purchase of stock. Book value of the
stock was $309,200 at December 31, 1997.
TABLE 7
Investment Securities
<TABLE>
<CAPTION>
Amortized Cost
----------------------------------------------------------------------------------------
After One After Five
In One Year Year Through Years Through After Ten Maturity
Or Less Five Years Ten Years Years Total in Years
------- ---------- --------- ----- ----- --------
December 31, 1997
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury $ 6,989,254 $8,018,964 $ - $ - $15,008,218 1.08
U.S. Government agencies 500,288 499,700 - - 999,928 1.50
States and political subs. 175,114 1,998,162 1,997,511 151,767 4,322,554 4.50
----------- ----------- ---------- ------------ ----------- ----
Total $ 7,664,596 $10,516,826 $1,997,511 $ 151,767 $20,330,700 1.83
=========== =========== ========== ============ =========== ====
Estimated market value $ 7,669,060 $10,627,497 $2,037,074 $ 158,818 $20,492,449
*Weighted average yields
U.S. Treasury 6.19% 6.49% - -
U.S. Government agencies 4.86% 6.60% - -
States and political subs. 10.43% 9.50% 7.39% 8.46%
Consolidated 6.20% 7.06% 7.39% 8.46%
December 31, 1996 Book Value Market Value
---------- ------------
U.S. Treasury $15,961,563 $15,974,196
U.S. Government agencies 1,999,746 1,995,569
States and political subs. 4,317,129 4,434,749
----------- -----------
Total $22,278,438 $22,404,514
=========== ===========
</TABLE>
* Yields are presented at December 31, 1997 on a taxable equivalent basis
using the Federal statutory tax rate of 34% and the state tax rate of 7%.
Deposits
The increase in the earning assets over the last several years has been funded
primarily with increases in the deposit base. In 1997 average deposits rose by
$6.9 million for a 10.1% growth over 1996. Guaranty borrowed from the Federal
Home Loan Bank to provide additional funding for the loan growth in 1997. Loans
from FHLB averaged $2.2 million during 1997.
Average noninterest demand deposits increased by 9.6% in 1997, while
certificates of deposit rose by 9.3%. Savings, which includes the money market
accounts, rose on average by 12.8% in 1997. The Bank's average cost of
interest-bearing liabilities was .04% lower in 1997.
The Bank does not solicit brokered deposits and virtually all of its deposits
are generated from its local market area. Table 8 provides maturity information
relating to certificates of deposit of $100,000 or more.
TABLE 8
Large Time Deposit Maturities (Dollars in Thousands)
Analysis of time deposits of $100,000 or more at December 31, 1997:
Remaining maturity of three months or less $ 7,472
Remaining maturity of three through 12 months 5,440
Remaining maturity of 12 months or greater 2,084
-------
Total time deposit of $100,00 or more $14,996
=======
Short-Term Debt
During 1997, all of the Corporation's borrowings were with the Federal Home Loan
Bank and averaged $2.2 million. FHLB debt was used to maintain an appropriate
liquidity during periods of the year with high loan demand. Table 9 provides
information relating to Guaranty's borrowing positions in 1997.
TABLE 9
Borrowings
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996
------ ------
End of year:
<S> <C> <C>
Amount outstanding, end of year $1,800 $1,800
------ ------
Weighted average interest rate, end of year 6.31% 5.71%
------ ------
Maximum amounts:
Maximum amount outstanding at any month-end during the year $2,800 $3,800
------ ------
Averages:
Average outstanding balance during the year $2,161 $3,396
------ ------
Weighted average interest rate during the year 6.02% 6.10%
------ ------
</TABLE>
Capital
The Bank endeavors to maintain equity capital at a level adequate to support
future growth as well as payment of dividends to its shareholders. The primary
source of new capital funds has been through retained earnings. Total
shareholders' equity averaged $10.9 million in 1997, an 8.3% increase over the
prior year. The 1996 average of $10.1 million represented a 9.8% growth over
1995. Average equity as a percentage of total assets was 10.8% in 1997 and 10.6%
in 1996.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
required the establishment of a capital- based supervisory system of prompt
corrective action for all depository institutions. FDICIA defines "well
capitalized" institutions as those whose capital to asset ratios equal or exceed
the minimum ratios:
Tier 1 Capital (primarily shareholder equity) 4%
Total Risk Based Capital (calculated on the 8%
liquidity and credit risks of asset category)
Guaranty's core capital (Tier 1) was 10.8% on December 31, 1997, which exceeded
all regulatory guidelines. Reference is made to Note 11 in the accompanying
notes to the consolidated financial statements.
Market Price and Cash Dividends
At December 31, 1997, Guaranty State Bancorp had 892,978 shares of common stock
outstanding which were held by 264 shareholders of record.
Morgan Keegan serves as the principal market maker for the Corporation's common
stock in the over the counter market. Monroe Securities, Rochester, New York,
also serves as a market maker. The following table sets forth cash dividends
declared and the range of high and low market quotations for each quarterly
period as indicated.
TABLE 10
Market Price and Cash Dividends
<TABLE>
<CAPTION>
1997 1996
-------------------------------------------------- ---------------------------------------------------
Bid Ask Bid Ask
-------------- ---------------- --------------- ---------------
High Low High Low Dividend High Low High Low Dividend
---- --- ---- --- -------- ---- --- ---- --- --------
Quarter
- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1st $22.75 $22.38 $23.38 $23.25 $ .09 $17.50 $17.00 $20.00 $19.75 $ .08
2nd 22.75 22.38 23.85 23.25 .09 18.00 17.25 19.75 19.50 .08
3rd 24.00 22.75 25.00 23.75 .10 21.00 18.00 25.00 19.50 .09
4th 37.00 24.00 37.00 34.00 .10 22.38 21.00 25.00 25.00 .09
</TABLE>
Cash dividends per share were $ .38, $ .34 and $ .29 in 1997, 1996, and 1995,
respectively. Dividends declared as a percentage of net income amounted to 27.4%
in 1997, 27.6% in 1996, and 25.7% in 1995.
Asset and Liability Management
The largest component of the Bank's earnings is net interest income, which can
fluctuate widely when significant interest rate movements occur. The Bank's
management team is responsible for minimizing the Bank's exposure to interest
rate risk and assuring an adequate level of liquidity. This is accomplished by
developing objectives, goals and strategies designed to enhance profitability
and performance.
Ongoing management of the Bank's interest rate sensitivity limits the interest
rate risk by controlling the mix and maturity of assets and liabilities.
Management regularly reviews the Bank's position and evaluates alternative
sources and uses of funds as well as changes in external factors. Various
methods are used to achieve and maintain the desired rate-sensitivity position,
including the sale or purchase of assets and product pricing.
In order to ensure that sufficient funds are available for loan growth and
deposit withdrawals, as well as to provide for general needs, the Bank must
maintain an adequate level of liquidity. Both assets and liabilities provide
sources of liquidity. Asset liquidity comes from the Bank's ability to convert
short-term investments into cash and from the maturity and repayment of loans
and investment securities. Liability liquidity is provided by the Bank's ability
to attract deposits. The primary source of liability liquidity is the Bank's
customer base which provides core deposit growth. As a member of the Federal
Home Loan Bank, Guaranty State Bank has the ability to borrow as another funding
source. The overall liquidity position of the Bank is closely monitored and
evaluated regularly. Management believes the Bank's liquidity sources at
December 31, 1997 are adequate to meet its operating needs.
Because actual and projected repricing volumes may differ, it should be noted
that Table 11 reflects the sensitivity of the balance sheet as of a specific
date and is not necessarily indicative of the Bank's position on other dates. At
December 31, 1997, Guaranty had a cumulative liability sensitive static gap
position (interest-bearing liabilities subject to interest rate changes exceeded
earning assets subject to changes in interest rates) of $19.9 million for one
year. This is due to the inclusion of transaction accounts as repricing
immediately. Such funds have been invested in longer term interest-earning
assets. Experience has shown that the Bank and other peer banks see relatively
modest repricing of their transaction accounts. Management takes this into
consideration in trying to determine acceptable levels of interest sensitivity
and accordingly, developing appropriate strategies. It is Guaranty's policy to
maintain portfolios of earning assets and liabilities with maturities or
repricing opportunities that will afford protection, to the extent practical,
from unanticipated changes in interest rates.
TABLE 11
Interest Rate Sensitivity
(Dollars in Thousands)
<TABLE>
<CAPTION>
1-3 4-12 13-60 Over 60
Months Months Months Months Total
------ ------ ------ ------ -----
Earning assets (1)
<S> <C> <C> <C> <C> <C>
Loans - fixed and adjustable rate $ 29,079 $ 11,538 $35,188 $ 1,077 $76,882
Investments 2,674 5,495 10,628 1,695 20,492
Federal Home Loan Bank Stock 310 -- -- -- 310
-------- -------- ------- ------- -------
Total 32,063 17,033 45,816 2,772 97,684
======== ======== ======= ======= =======
Interest-bearing liabilities:
NOW 7,671 7,671
Money market 9,096 9,096
Savings 17,701 17,701
Certificates of deposit 14,474 20,270 12,134 46,878
Federal Home Loan Bank Borrowings -- 1,800 -- 1,800
-------- -------- ------- ------- -------
Total $ 48,942 $ 20,270 $13,934 $ -- $83,146
======== ======== ======= ======= =======
Interest sensitivity gap $(16,879) $ (3,237) $31,882 $ 2,772
Cumulative gap $(16,879) $(20,116) $11,766 $14,538
Ratio of interest sensitive assets to
interest sensitive liabilities 65.5% 84.0% 328.8% 100.0%
Cumulative ratio of interest sensitive assets
to interest sensitive liabilities 65.5% 70.9% 114.2% 117.5%
</TABLE>
(1) Nonaccrual loans totaling $74,535 are omitted as they are not interest
bearing assets.
Effect of Changing Prices
The results of operations and financial conditions presented in this report are
based on historical cost information, and are unadjusted for the effects of
inflation.
Since the assets and liabilities of banks are primarily monetary in nature
(payable in fixed determinable amounts) the performance of the Bank is affected
more by changes in interest rates than by inflation. Interest rates generally
increase as the rate of inflation increases, but the magnitude of the change in
rates may not be the same.
The effect of inflation on banks is normally not as significant as its influence
on those businesses which have large investments in plants and inventories.
During periods of high inflation there are normally corresponding increases in
the money supply, and banks will normally experience above-average growth in
assets, loans and deposits. Also, increases in the price of goods and services
generally will result in increased operating expenses.
Comparison of Key Financial Ratios
1997 1996 1995
------- ------- -------
Return on assets 1.13% 1.16% 1.22%
Return on equity 10.44% 10.72% 10.59%
Dividend payout ratio 29.46% 27.57% 25.72%
Equity to assets ratio 10.83% 10.82% 11.49%
*Ratios are computed on average balances
Item 8. Financial Statements and Supplementary Data.
GUARANTY STATE BANCORP
CONSOLIDATED FINANCIAL STATEMENTS
as of December 31, 1997 and 1996
and for each of the three years then ended
<PAGE>
GUARANTY STATE BANCORP
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page(s)
Report of Independent Accountants 1
Financial Statements:
Consolidated Balance Sheets 2
Consolidated Statements of Income 3
Consolidated Statements of Changes in Stockholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6 - 24
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
Guaranty State Bancorp
Durham, North Carolina
We have audited the accompanying consolidated balance sheets of Guaranty State
Bancorp and subsidiary as of December 31, 1997 and 1996, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Guaranty State
Bancorp and subsidiary as of December 31, 1997 and 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ Coopers & Lybrand L.L.P.
Raleigh, North Carolina
January 30, 1998
<PAGE>
GUARANTY STATE BANCORP
Consolidated Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
------------ -----------
<S> <C> <C>
Cash and due from banks $ 3,761,982 $ 2,445,899
Federal funds sold 2,670,000 3,744,000
Securities available for sale 20,492,449 22,404,514
Loans held for sale 163,000 354,600
Loans, less allowance for loan losses
of $1,153,568 in 1997
and $1,073,274 in 1996 75,808,149 64,078,398
Federal Home Loan Bank of Atlanta stock 309,200 270,600
Premises and equipment, net 2,037,791 2,155,017
Interest receivable 789,911 700,199
Other assets 571,714 406,769
------------ -----------
Total assets $106,604,196 $96,559,996
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 11,327,748 $10,232,604
Interest-bearing demand 7,671,175 5,221,254
Savings 26,796,627 25,662,273
Large denomination certificates of deposit 14,996,332 12,523,084
Other time deposits 31,881,652 29,954,367
------------ -----------
Total deposits 92,673,534 83,593,582
Borrowings 1,800,000 1,800,000
Interest payable 578,915 542,766
Other liabilities 152,866 174,092
------------ -----------
Total liabilities 95,205,315 86,110,440
------------ -----------
Commitments and contingencies (Notes 5 and 13)
Stockholders' equity:
Common stock, $1 par value, 2,500,000 shares
authorized; 892,978 shares and
880,053 shares issued and outstanding
in 1997 and 1996, respectively 892,978 880,053
Surplus 4,835,242 4,722,289
Undivided profits 5,575,231 4,772,831
Net unrealized gains on securities available for sale 95,430 74,383
------------ -----------
Total stockholders' equity 11,398,881 10,449,556
------------ -----------
Total liabilities and stockholders' equity $106,604,196 $96,559,996
============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE>
GUARANTY STATE BANCORP
Consolidated Statements of Income
for the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
Interest income:
<S> <C> <C> <C>
Loans and fees on loans $6,829,988 $6,060,795 $5,265,685
Federal funds sold 133,311 163,707 228,514
Securities, taxable 1,034,687 1,055,090 862,627
Securities, non-taxable 184,953 177,125 192,336
---------- ---------- ----------
Total interest income 8,182,939 7,456,717 6,549,162
---------- ---------- ----------
Interest expense:
Large denomination certificates of deposit 522,730 697,731 658,855
Other deposits 3,200,822 2,692,449 2,250,046
Other interest expense 130,070 207,184 --
---------- ---------- ----------
Total interest expense 3,853,622 3,597,364 2,908,901
---------- ---------- ----------
Net interest income 4,329,317 3,859,353 3,640,261
---------- ---------- ----------
Provision for loan losses 211,000 142,836 183,268
---------- ---------- ----------
Net interest income after provision
for loan losses 4,118,317 3,716,517 3,456,993
---------- ---------- ----------
Other income:
Service charges on deposit accounts 269,562 223,245 223,509
Other service charges, commissions and fees 172,504 177,868 158,484
Other operating income 80,004 43,415 31,552
---------- ---------- ----------
Total other income 522,070 444,528 413,545
---------- ---------- ----------
Other expenses:
Salaries 1,360,774 1,266,439 1,205,289
Employee benefits 287,139 236,799 228,079
Occupancy expense 311,570 270,775 248,417
Equipment and fixtures expense 118,421 100,687 121,889
FDIC assessment 11,138 2,000 78,670
Other operating expenses 855,390 687,292 571,202
---------- ---------- ----------
Total other expense 2,944,432 2,563,992 2,453,546
---------- ---------- ----------
Income before income taxes 1,695,955 1,597,053 1,416,992
Income taxes 555,904 516,606 444,538
---------- ---------- ----------
Net income $1,140,051 $1,080,447 $ 972,454
========== ========== ==========
Net income per:
Common share $ 1.29 $ 1.23 $ 1.12
========== ========== ==========
Common share - assuming dilution $ 1.22 $ 1.18 $ 1.09
========== ========== ==========
Cash dividends declared per share $ .38 $ .34 $ .29
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
GUARANTY STATE BANCORP
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Gains
(Losses)
Common Stock on Securities Total
-------------------- Undivided Available Stockholders'
Shares Amount Surplus Profits for Sale, Net Equity
------- -------- ---------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 578,338 $578,338 $4,644,812 $ 3,558,813 $(185,426) $ 8,596,537
Exercise of stock options 2,520 2,520 17,152 -- -- 19,672
Cash dividends -- -- -- (250,092) -- (250,092)
Three for two stock dividend 290,404 290,404 -- (290,404) -- --
Net income -- -- -- 972,454 -- 972,454
Change in net unrealized losses,
net of income taxes -- -- -- -- 336,180 336,180
------- -------- ---------- ----------- ------------- ------------
Balance at December 31, 1995 871,262 871,262 4,661,964 3,990,771 150,754 9,674,751
Exercise of stock options 8,791 8,791 60,325 -- -- 69,116
Cash dividends -- -- -- (298,387) -- (298,387)
Net income -- -- -- 1,080,447 -- 1,080,447
Change in net unrealized gains,
net of income taxes -- -- -- -- (76,371) (76,371)
------- -------- ---------- ----------- ------------- ------------
Balance at December 31, 1996 880,053 880,053 4,722,289 4,772,831 74,383 10,449,556
Exercise of stock options 12,925 12,925 112,953 -- -- 125,878
Cash dividends -- -- -- (337,651) -- (337,651)
Net income -- -- -- 1,140,051 -- 1,140,051
Change in net unrealized gains,
net of income taxes -- -- -- -- 21,047 21,047
------- -------- ---------- ----------- ------------- ------------
Balance at December 31, 1997 $892,978 $892,978 $4,835,242 $ 5,575,231 $ 95,430 $ 11,398,881
======== ======== ========== =========== ========= ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
GUARANTY STATE BANCORP
Consolidated Statements of Cash Flows
for the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 1,140,051 $ 1,080,447 $ 972,454
Adjustment to reconcile net income to net cash
provided by operations:
Depreciation and amortization 173,770 154,761 147,038
Amortization of organization costs 9,443 9,443 10,515
Amortization of premiums, (accretion) of
discounts on securities, net (3,610) 18,523 73,544
Provision for loan losses 211,000 142,836 183,268
Realized loss (gain) on sale of securities (14,709) 3,390 780
Deferred tax benefit (39,592) (37,635) (73,369)
Loans held for sale:
Originations (7,823,300) (8,195,182) (5,333,950)
Proceeds 8,014,900 8,051,282 5,279,250
Changes in assets and liabilities:
Interest receivable (89,712) (56,142) (45,538)
Other assets (149,423) 53,227 173,077
Interest payable 36,149 (60,790) 217,082
Other liabilities 8,423 (33,895) 29,160
------------ ------------ ------------
Net cash provided by operating activities 1,473,390 1,130,265 1,633,311
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sales of securities available for sale 1,013,750 1,001,172 4,156
Proceeds from maturity of securities available for sale 4,550,000 7,440,000 6,160,000
Purchase of securities available for sale (3,597,692) (12,323,438) (6,103,989)
Purchase of FHLB of Atlanta stock (38,600) (43,900) (226,700)
Net increase in loans (11,940,751) (6,233,383) (10,199,406)
Capital expenditures (56,544) (552,561) (49,306)
------------ ------------ ------------
Net cash used by investing activities (10,069,837) (10,712,110) (10,415,245)
------------ ------------ ------------
Cash flows from financing activities:
Net increase in deposits 9,079,952 10,970,199 6,152,889
Proceeds from exercise of stock options 96,229 69,116 19,672
Dividends paid (337,651) (298,387) (232,441)
Net proceeds from borrowed funds -- 1,800,000 --
------------ ------------ ------------
Net cash provided by financing activities 8,838,530 12,540,928 5,940,120
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents 242,083 2,959,083 (2,841,814)
Cash and cash equivalents at beginning of year 6,189,899 3,230,816 6,072,630
------------ ------------ ------------
Cash and cash equivalents at end of year $ 6,431,982 $ 6,189,899 $ 3,230,816
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
GUARANTY STATE BANCORP
Notes to Consolidated Financial Statements
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Guaranty State Bancorp (the
"Corporation") follow generally accepted accounting principles and general
practices within the financial services industry. The Corporation operates
four branches in Durham, North Carolina. The Corporation's primary source
of revenue is derived from loans to customers. These loans are
predominately real estate loans secured by 1-4 family residences. Following
is a summary of the more significant policies.
Basis of Presentation
The consolidated financial statements of the Corporation, a bank holding
company established 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.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions at the date of the financial statements that affect the
reported amounts of assets and liabilities at the date of the financial
statements and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from
those estimates.
Securities
Securities are accounted for in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." This statement requires certain securities
to be classified into three categories:
(a) Securities Held-to-Maturity - Debt securities that the entity has the
positive intent and ability to hold to maturity are reported at
amortized cost.
(b) Trading Securities - Debt and equity securities that are bought and
held principally for the purpose of selling in the near term are
reported at fair value, with unrealized gains and losses included in
earnings.
(c) Securities Available-for-Sale - Debt and equity securities not
classified as either securities held to maturity or trading securities
are reported at fair value, with unrealized gains and losses excluded
from earnings and reported as a separate component of stockholders'
equity.
Premiums are amortized and discounts accreted using the interest method
over the remaining terms of the related debt securities. Gains and losses
on the sale of securities are determined using the specific-identification
method and are included in other income at the time of sale.
6
<PAGE>
GUARANTY STATE BANCORP
Notes to Consolidated Financial Statements
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans Held for Sale
Loans held for sale are carried at the lower of cost or estimated market
value, determined on an aggregate basis. Net unrealized losses are
recognized in a valuation allowance by charges to income.
Loans and Allowance for Loan Losses
Loans are stated at the amount of unpaid principal, reduced by an allowance
for loan losses. Interest on loans is calculated by using the simple
interest method on daily balances of the principal amount outstanding.
Deferred loan origination fees and costs are amortized to interest income
over the contractual life of the loan using a method that approximates the
level yield method.
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for
possible loan losses when management believes that the collectibility of
the principal is unlikely. The allowance is an amount that management
believes will be adequate to absorb possible losses on existing loans that
may become uncollectible, based on evaluations of the collectibility of
loans and prior loan loss experience. The evaluations take into
consideration such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem loans, and
current economic conditions and trends that may affect the borrowers'
ability to pay.
The Corporation evaluates it's loan portfolio in accordance with SFAS No.
114, "Accounting by Creditors for Impairment of a Loan", as amended by SFAS
No. 118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosure". Under these standards, a loan is considered
impaired, based on current information and events, if it is probable that
the Corporation will be unable to collect the scheduled payments of
principal and interest when due according to the contractual terms of the
loan agreement. Uncollateralized loans are measured for impairment based on
the present value of expected future cash flows discounted at the
historical effective interest rate, while all collateral-dependent loans
are measured for impairment based on the fair value of the collateral.
7
<PAGE>
GUARANTY STATE BANCORP
Notes to Consolidated Financial Statements
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans and Allowance for Loan Losses (continued)
At December 31, 1997 and 1996, and for the years then ended, there were no
loans material to the financial statements considered to be impaired.
The Corporation uses several factors in determining if a loan is impaired
under SFAS No. 114. The internal asset classification procedures include a
thorough review of significant loans and lending relationships and the
accumulation of related data. This data includes loan payment status,
borrowers' financial data and borrowers' operating factors such as cash
flows, operating income or loss, etc. Loans with a principal balance of
less than $150,000 are considered small balance loans and evaluated
collectively for impairment.
Income Recognition on Impaired and Nonaccrual Loans
Loans, including impaired loans, are generally classified as nonaccrual if
they are past due as to maturity or payment of principal or interest for a
period of more than 90 days, unless such loans are well-secured and in the
process of collection. If a loan or a portion of a loan is classified as
doubtful or is partially charged off, the loan is generally classified as
nonaccrual. Loans that are on a current payment status or past due less
than 90 days may also be classified as nonaccrual if repayment in full of
principal and/or interest is in doubt.
Loans may be returned to accrual status when all principal and interest
amounts contractually due (including arrearages) are reasonably assured of
repayment within a acceptable period of time, and there is a sustained
period of repayment performance by the borrower, generally a minimum of six
months, in accordance with the contractual terms of interest and principal.
While a loan is classified as nonaccrual and the future collectibility of
the recorded loan balance is doubtful, collections of interest and
principal are generally applied as a reduction to the principal
outstanding, except in the case of loans with scheduled amortizations where
the payment is generally applied to the oldest payment due. When the future
collectibility of the recorded loan balance is expected, interest income
may be recognized on a cash basis. In the case where a nonaccrual loan has
been partially charged-off, recognition of interest on a cash basis is
limited to that which would have been recognized on the recorded loan
balance at the contractual interest rate. Receipts in excess of that amount
are recorded as recoveries to the allowance for loan losses until prior
charge-off's have been fully recovered.
8
<PAGE>
GUARANTY STATE BANCORP
Notes to Consolidated Financial Statements
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Foreclosed Assets
Assets acquired as a result of foreclosure are valued at the lower of the
recorded investment in the loan or fair value less estimated costs to sell.
The recorded investment is the sum of the outstanding principal loan
balance and foreclosure costs associated with the loan. Any excess of the
recorded investment over the fair value of the property received at the
time of foreclosure is charged to the allowance for loan losses. Any
subsequent write-downs are charged against other expenses.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed primarily by the
straight-line method based on estimated service lives of assets. Useful
lives range from 10 to 40 years for premises and from 5 to 25 years for
equipment and fixtures. Repairs and maintenance costs are charged to
expense.
Upon retirement or other disposition of the assets, the cost and the
related accumulated depreciation and amortization are removed from the
accounts and any gains or losses are included in other income.
Income Taxes
The Corporation and its subsidiary file a consolidated Federal income tax
return. Separate state income tax returns are filed for each entity. The
Corporation's consolidated federal income tax returns are subject to
examination by taxing authorities for the years 1995 and thereafter.
Deferred tax asset and liability balances are determined by application to
temporary differences of the tax rate expected to be in effect when taxes
will become payable or receivable. Temporary differences are differences
between the tax basis of assets and liabilities and their reported amounts
in the financial statements that will result in taxable or deductible
amounts in future years.
9
<PAGE>
GUARANTY STATE BANCORP
Notes to Consolidated Financial Statements
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities
On January 1, 1997 the Corporation adopted SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities". This statement establishes new criteria for determining
whether a transfer of financial assets should be accounted for as a sale or
as a pledge of collateral in a secured borrowing. This statement also
establishes new accounting requirements for pledged collateral. The
adoption of this statement had no material impact on the Corporation's
financial statements. SFAS No. 127 defers the effective date of certain
provisions of SFAS No. 125 until January 1, 1998. The Corporation does not
anticipate a significant effect on net income or its financial position
from the adoption of this statement.
Net Income per share
The Corporation adopted SFAS No. 128 "Earnings Per Share" on December 31,
1997. As required, all prior period earnings per share have been restated
to conform with the provisions of the statement. There are no material
differences between earnings per share-assuming dilution reported under
SFAS No. 128 and the previously reported amounts for the years ended
December 31, 1996 and 1995.
The following table provides a reconciliation of income available to common
stockholders and the average number of shares outstanding for the years
ended December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- --------
<S> <C> <C> <C>
Net income (numerator) $1,140,051 $1,080,447 $972,454
========== ========== ========
Shares for basic EPS (denominator) 886,558 876,254 870,526
Dilutive effect of stock options 49,628 41,645 21,166
---------- ---------- --------
Adjusted shares for diluted EPS 936,186 917,899 891,692
========== ========== ========
</TABLE>
Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks and federal funds sold. Generally,
federal funds are purchased and sold for one-day periods.
10
<PAGE>
GUARANTY STATE BANCORP
Notes to Consolidated Financial Statements
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Reclassifications
Certain items included in the 1996 and 1995 financial statements have been
reclassified to conform to the 1997 presentation. These reclassifications
had no effect on the net income or stockholders' equity previously
reported.
New Accounting Pronouncements
The Financial Accounting Standards Board has recently issued SFAS No. 130
"Reporting Comprehensive Income" and SFAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information". These statements will
be adopted effective January 1, 1998, with appropriate restatements or
disclosures for prior periods. The adoption is not expected to have a
significant effect on operations or financial position.
2. SECURITIES
The amortized cost and estimated market values of available-for-sale
securities as of December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- --------- ------------ -----------
1997:
<S> <C> <C> <C> <C>
U. S. Treasury $15,008,218 $ 51,020 $ (7,296) $15,051,942
U. S. Government
corporations and
agencies obligations 999,928 3,190 (1,103) 1,002,015
State and political
subdivisions 4,322,554 115,938 -- 4,438,492
----------- --------- ------------ -----------
$20,330,700 $ 170,148 $ (8,399) $20,492,449
=========== ========= ============ ===========
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- --------- ------------ -----------
1996:
<S> <C> <C> <C> <C>
U. S. Treasury $15,961,563 $ 60,549 $ (47,916) $15,974,196
U. S. Government
corporations and
agencies obligations 1,999,746 2,857 (7,034) 1,995,569
State and political
subdivisions 4,317,129 121,102 (3,482) 4,434,749
----------- --------- ------------ -----------
$22,278,438 $ 184,508 $ (58,432) $22,404,514
=========== ========= ============ ===========
</TABLE>
11
<PAGE>
GUARANTY STATE BANCORP
Notes to Consolidated Financial Statements
2. SECURITIES (Continued)
The amortized cost and estimated market value of debt securities at
December 31, 1997, by contractual maturities, are shown below:
<TABLE>
<CAPTION>
After After
In One One Year Five Years
Year Through Through After Ten
or Less Five Years Ten Years Years Total
---------- ----------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
U.S. Treasury $6,989,254 $ 8,018,964 $ -- $ -- $15,008,218
U. S. Government corporations
and agencies obligations 500,228 499,700 -- -- 999,928
States and political
subdivisions 175,114 1,998,162 1,997,511 151,767 4,322,554
---------- ----------- ---------- -------- -----------
Amortized cost $7,664,596 $10,516,826 $1,997,511 $151,767 $20,330,700
========== =========== ========== ======== ===========
Estimated market value $7,669,060 $10,627,497 $2,037,074 $158,818 $20,492,449
========== =========== ========== ======== ===========
</TABLE>
Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
Gross gains of $14,709 were realized on sales of securities during 1997.
Gross losses of $3,390 and $780 were realized on sales of securities during
1996 and 1995, respectively.
Securities with a book value of $2,209,938 and $2,414,681 as of December
31, 1997 and 1996, respectively, were pledged to secure public deposits and
for other banking purposes.
3. LOANS
Major classifications of loans as of December 31, 1997 and 1996, are
summarized as follows (in thousands):
1997 1996
-------- --------
Commercial $ 4,199 $ 3,567
Real estate:
Construction and land development 14,816 11,096
Residential, 1-4 families 32,112 29,747
Residential, 5 or more families 1,437 903
Nonfarm, nonresidential 17,710 13,884
Consumer 6,487 5,927
Other 328 119
-------- --------
Total loans outstanding 77,089 65,243
Less deferred fees (127) (92)
Less allowance for loan losses (1,154) (1,073)
-------- --------
$ 75,808 $ 64,078
======== ========
12
<PAGE>
GUARANTY STATE BANCORP
Notes to Consolidated Financial Statements
3. LOANS (Continued)
At December 31, 1997, the Corporation had entered into a security agreement
with a blanket floating lien pledging all of its real estate loans to
secure actual or potential borrowings for the Federal Home Loan Bank of
Atlanta (see Note 6).
A summary of changes in the allowance for loan losses for the years ended
December 31, 1997, 1996 and 1995, is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning $ 1,073,274 $ 1,102,709 $ 947,022
Provision charged against income 211,000 142,836 183,268
Recoveries 23,000 40,338 50,419
Loans charged off (153,706) (212,609) (78,000)
----------- ----------- -----------
Balance, ending $ 1,153,568 $ 1,073,274 $ 1,102,709
=========== =========== ===========
</TABLE>
Nonperforming assets at December 31, 1997 and 1996, consist of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Loans ninety days or more past due and still accruing interest $193,883 $146,361
Nonaccrual loans 74,535 146,672
-------- --------
$268,418 $293,033
======== ========
</TABLE>
Foregone interest on nonaccrual loans was $40,904, $43,225 and $20,040 for
the years ended December 31, 1997, 1996 and 1995, respectively. There were
no commitments to lend additional funds to customers whose loans were
classified as nonperforming at December 31, 1997 and 1996.
4. PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1997 and 1996, are stated at cost,
less accumulated depreciation and amortization, as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Premises $ 1,997,270 $ 1,724,681
Equipment and fixtures 893,884 764,451
Software 214,773 185,024
Construction in progress -- 400,234
----------- -----------
3,105,927 3,074,390
Less accumulated depreciation and amortization (1,590,071) (1,441,308)
----------- -----------
1,515,856 1,633,082
Land 521,935 521,935
----------- -----------
$ 2,037,791 $ 2,155,017
=========== ===========
</TABLE>
13
<PAGE>
GUARANTY STATE BANCORP
Notes to Consolidated Financial Statements
5. LEASES
The Corporation leases premises under operating leases. Rental expense
related to operating leases was $62,917, $36,732 and $36,732 for 1997, 1996
and 1995, respectively.
The future minimum lease payments under noncancelable operating leases at
December 31, 1997 are as follows:
1998 $ 65,680
1999 65,680
2000 65,680
2001 65,680
2002 65,680
Thereafter 672,172
-----------
Total minimum lease payments $ 1,000,572
===========
6. BORROWINGS
Borrowings represent advances from the Federal Home Loan Bank of Atlanta
and totaled $1,800,000 at both December 31, 1997 and 1996. At December 31,
1997, the weighted average interest rate on these advances was 6.31%, with
a maturity date of July 1999.
The Corporation has pledged all of its stock in the Federal Home Loan Bank
of Atlanta and entered into a security agreement with a blanket floating
lien pledging qualifying real estate loans to secure actual or potential
borrowings. At December 31, 1997, the Corporation had an additional $8.2
million of credit available with the Federal Home Loan Bank of Atlanta.
7. INCOME TAXES
The components of income taxes for the years ended December 31, 1997, 1996
and 1995, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Current $ 595,496 $ 554,241 $ 517,907
Deferred provision (benefit) (39,592) (37,635) (73,369)
--------- --------- ---------
$ 555,904 $ 516,606 $ 444,538
========= ========= =========
</TABLE>
14
<PAGE>
GUARANTY STATE BANCORP
Notes to Consolidated Financial Statements
7. INCOME TAXES (Continued)
Reconciliations of expected income tax at the statutory Federal rate (34%)
with income tax expense for the years ended December 31, 1997, 1996 and
1995, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Expected income tax expense at
statutory rate $ 576,625 $ 542,998 $ 481,777
Increase (decrease) in income tax expense
resulting from:
Tax exempt interest (75,901) (55,355) (68,215)
State income taxes, net of federal benefit 36,938 22,973 20,366
Other, net 18,242 5,990 10,610
--------- --------- ---------
Income tax expense $ 555,904 $ 516,606 $ 444,538
========= ========= =========
</TABLE>
The components of net deferred tax assets included in other assets at
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Allowance for loan losses $ 388,986 $ 359,084
Unrealized securities gains (66,318) (51,691)
Accumulated depreciation (29,599) (29,005)
Deferred loan fees 49,839 35,831
Other, net (33,812) (30,088)
--------- ---------
$ 309,096 $ 284,131
========= =========
</TABLE>
8. EMPLOYEE BENEFIT PLAN
The Corporation has a qualified profit sharing 401(K) plan for employees 21
years of age or over with at least one year of service, which covers
substantially all employees. Under the plan, employees may contribute from
1% to 15% of compensation, subject to an annual maximum as determined under
the Internal Revenue Code. The Corporation matches 50% of such
contributions not exceeding 2% and 100% of such contributions between 2%
and 4% of the participants' compensation. Further, the Corporation may make
additional contributions on a discretionary basis. The plan provides that
employees' contributions are 100% vested at all times and the Corporation's
contributions vest at 20% each year after the first year of service. The
expense related to this plan for the years ended December 31, 1997, 1996
and 1995, was $97,142, $74,844 and $58,953, respectively.
15
<PAGE>
GUARANTY STATE BANCORP
Notes to Consolidated Financial Statements
9. STOCK DIVIDEND
On August 20, 1995, the Corporation declared a three for two stock split
for all shares outstanding as of September 18, 1995, which was paid on
October 18, 1995, and effected as a stock dividend. The dividend was
charged to undivided profits in the aggregate amount of $290,404, the par
value of the shares paid. All references to the outstanding number of
shares and earnings per share amounts have been restated to reflect the
dividend.
10. STOCK OPTIONS
The Corporation has a qualified incentive stock option plan (the "Plan")
under which the Corporation may grant options to its employees for up to
82,500 shares of common stock. Under the Plan, the exercise price of each
option equals the market price of the Corporation's stock on the date of
grant and an option's maximum term is ten years. Generally, the options are
exercisable one year after the date of grant.
On January 1, 1996 the Corporation adopted SFAS No. 123, "Accounting for
Stock Based Compensation". As permitted by SFAS No. 123, the Corporation
has chosen to continue to apply APB Opinion No. 25, "Accounting for Stock
Issued to Employees" (APB No. 25) and related Interpretations in accounting
for its Plans. However, the Corporation is required to disclose the pro
forma effects on net income based on the fair value at the grant dates for
awards under the Plan consistent with the method of SFAS No. 123. The fair
value of each award is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions used for
the 1995 grant: dividend growth of 14%, expected volatility of 10%, risk
free interest rate of 6.25%, and expected life of 5 years. The weighted
average fair value for the options granted in 1995 was $1.43. Had
compensation expense for the Plan been recognized consistent with SFAS No.
123, net income and earnings per share would have been reduced to the pro
forma amounts indicated below:
Net income - 1995 As reported $ 972,454
Pro forma 949,705
Net income per share - Basic As reported $ 1.12
Pro forma 1.09
Net income per share - Diluted As reported $ 1.09
Pro forma 1.03
As there were no grants during 1997 or 1996, nor any deferred expense from
the 1995 grants, pro forma disclosure requirements of SFAS No. 123 are not
applicable for these years.
16
<PAGE>
GUARANTY STATE BANCORP
Notes to Consolidated Financial Statements
10. STOCK OPTIONS (Continued)
A summary of the changes during the years ending December 31, 1997, 1996
and 1995, of the Corporation's Plan is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------------ ------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 64,455 $ 7.54 73,246 $ 7.58 59,838 $ 6.65
Granted -- -- -- -- 15,928 10.17
Exercised (12,925) 7.44 (8,791) 7.83 (2,520) 5.20
------ -------- ------ -------- ------ --------
Outstanding at end of year 51,530 $ 7.37 64,455 $ 7.54 73,246 $ 7.58
====== ======== ====== ======== ====== ========
Options exercisable at year-end 51,530 $ 7.37 64,455 $ 7.54 57,319 $ 6.86
====== ======== ====== ======== ====== ========
</TABLE>
At December 31, 1997 the option exercise prices ranged from $5.17 - $10.17
and have a weighted average remaining contractual life of 3.8 years.
During 1997 there were disqualifying dispositions of incentive stock
options which resulted in a tax benefit to the Corporation of approximately
$30,000.
11. REGULATORY MATTERS AND RESTRICTIONS
The Corporation is a member of the Federal Reserve System and, as such, is
required to maintain certain of their cash and due from banks as reserves
based on regulatory requirements. The reserve requirement approximated
$300,000 at both December 31, 1997 and 1996.
The Corporation is subject to various regulatory capital requirements
administered by the federal and state banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could
have a direct material effect on the Corporation's financial statements.
Management believes, as of December 31, 1997, that the Corporation meets
all capital adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the FDIC
categorized the Corporation as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well
capitalized the Corporation must maintain minimum amounts and ratios, as
set forth in the table below. There are no conditions or events since that
notification that management believes have changed the Corporation's
category.
17
<PAGE>
GUARANTY STATE BANCORP
Notes to Consolidated Financial Statements
11. REGULATORY MATTERS AND RESTRICTIONS (Continued)
The Corporation's actual capital amounts and ratios are also presented in
the table below (dollars in thousands):
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------ ----------------- -----------------
As of December 31, 1997: Amount Ratio Amount Ratio Amount Ratio
---------------------------------------- ------- ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk Weighted Assets) $12,242 16.3% $6,005 8.0% $7,507 10.0%
Tier I Capital (to Risk Weighted Assets) 11,303 15.1 3,003 4.0 4,504 6.0
Tier I Capital (to Average Assets) 11,303 10.8 4,180 4.0 5,225 5.0
As of December 31, 1996:
----------------------------------------
Total Capital (to Risk Weighted Assets) $11,147 18.1% $4,938 8.0% $6,173 10.0%
Tier I Capital (to Risk Weighted Assets) 10,375 16.8 2,469 4.0 3,704 6.0
Tier I Capital (to Average Assets) 10,375 10.6 3,907 4.0 4,883 5.0
</TABLE>
12. UNAUDITED INTERIM FINANCIAL INFORMATION
The following unaudited interim financial information data includes, in the
opinion of management, all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the results of operations for such
periods. The aggregate of the interim information may not agree to annual
information due to rounding:
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
(In thousands of dollars except per share data)
1997:
<S> <C> <C> <C> <C>
Interest income $1,859 $2,015 $2,083 $2,226
Interest expense 897 964 993 1,000
Provision for loan losses 47 43 45 76
Other income 124 133 143 122
Other expense 678 704 702 860
------ ------ ------ ------
Income before taxes 361 437 486 412
Income taxes 114 142 166 134
------ ------ ------ ------
Net income $ 247 $ 295 $ 320 $ 278
====== ====== ====== ======
Net income per:
Common share $ .28 $ .34 $ .36 $ .31
====== ====== ====== ======
Common share -
assuming dilution $ .27 $ .31 $ .34 $ .30
====== ====== ====== ======
</TABLE>
18
<PAGE>
GUARANTY STATE BANCORP
Notes to Consolidated Financial Statements
12. UNAUDITED INTERIM FINANCIAL INFORMATION (Continued)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
(In thousands of dollars except per share data)
1996:
<S> <C> <C> <C> <C>
Interest income $1,751 $1,859 $1,918 $1,928
Interest expense 813 881 959 944
Provision for loan losses 34 36 41 32
Other income 106 115 109 115
Other expense 606 650 642 666
------ ------ ------ ------
Income before taxes 404 407 385 401
Income taxes 132 132 123 130
------ ------ ------ ------
Net income $ 272 $ 275 $ 262 $ 271
====== ====== ====== ======
Net income per:
Common share $ .31 $ .31 $ .30 $ .31
====== ====== ====== ======
Common share -
assuming dilution $ .30 $ .30 $ .28 $ .30
====== ====== ====== ======
</TABLE>
13. COMMITMENTS AND CONTINGENCIES
The Corporation is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit, lines of credit and standby letters of credit. These instruments
involve elements of credit risk in excess of amounts recognized in the
accompanying financial statements.
The Corporation's risk of loss with the commitments to extend credit, lines
of credit and standby letters of credit is represented by the contractual
amount of these instruments. The Corporation uses the same credit policies
in making commitments to borrowers under such instruments as it does for
on-balance sheet instruments. The amount of collateral obtained, if any, is
based on management's credit evaluation of the borrower. Collateral held
varies, but may include accounts receivable, inventory, real estate and
time deposits with financial institutions. Since many of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements.
As of December 31, 1997 and 1996, outstanding financial instruments whose
contract amounts represent credit risk were approximately as follows:
1997 1996
---- ----
Unfunded loans and lines of credit $9,940,520 $8,604,802
========== ==========
Standby letters of credit $ 180,600 $ 232,634
========== ==========
19
<PAGE>
GUARANTY STATE BANCORP
Notes to Consolidated Financial Statements
13. COMMITMENTS AND CONTINGENCIES (Continued)
The Corporation's lending is concentrated primarily in Durham, North
Carolina and the surrounding communities in which it operates. Credit has
been extended to certain of the Corporation's customers through multiple
lending transactions.
14. RELATED PARTY TRANSACTIONS
In the normal course of business, certain directors and executive officers
of the Corporation, including their immediate families and companies in
which they have a 10% or more beneficial interest, were loan customers.
Activity during the years ended December 31, 1997 and 1996, is summarized
as follows:
1997 1996
---- ----
Balance, beginning $ 1,282,048 $ 1,111,391
Loans made 271,000 794,533
Payments received (369,392) (623,876)
----------- -----------
Balance, ending $ 1,183,656 $ 1,282,048
=========== ===========
15. PARENT CORPORATION FINANCIAL STATEMENTS
The Corporation's principal asset is its investment in the Bank. The
balance sheets as of December 31, 1997 and 1996 and statements of income
and cash flows for the three years ended December 31, 1997, for the parent
corporation only, are presented below.
Guaranty State Bancorp (Parent Corporation Only)
Balance Sheets
<TABLE>
<CAPTION>
1997 1996
---- ----
Assets:
<S> <C> <C>
Cash and due from depository institutions
with subsidiary $ 32,399 $ 24,454
Investment in subsidiary 11,364,030 10,414,703
Other assets 5,634 15,077
Dividends receivable from subsidiary 89,298 79,205
----------- -----------
Total assets $11,491,361 $10,533,439
=========== ===========
Liabilities and stockholders' equity:
Other liabilities $ 3,182 $ 4,678
Dividends payable to stockholders 89,298 79,205
----------- -----------
Common stock and surplus 5,728,220 5,602,342
Undivided profits 5,575,231 4,772,831
Net unrealized gains on securities 95,430 74,383
----------- -----------
Stockholders' equity 11,398,881 10,449,556
----------- -----------
Total liabilities and stockholders' equity $11,491,361 $10,533,439
=========== ===========
</TABLE>
20
<PAGE>
GUARANTY STATE BANCORP
Notes to Consolidated Financial Statements
15. PARENT CORPORATION FINANCIAL STATEMENTS (Continued)
Statements of Income
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ---------
<S> <C> <C> <C>
Dividends from wholly-owned subsidiary $ 375,760 $ 330,754 $ 277,893
Amortization expense (9,443) (9,443) (10,515)
Franchise tax (8,588) (22,922) (7,603)
Other expense (20,080) (750) (10,192)
----------- ----------- ---------
Income before equity in undistributed income
of wholly-owned subsidiary 337,649 297,639 249,583
Equity in undistributed income of subsidiary 802,402 782,808 722,871
----------- ----------- ---------
Net income $ 1,140,051 $ 1,080,447 $ 972,454
=========== =========== =========
Statements of Cash Flows
Cash flows from operating activities:
Net income $ 1,140,051 $ 1,080,447 $ 972,454
Equity in undistributed income of
subsidiary (802,402) (782,808) (722,871)
Amortization expense 9,443 9,443 10,515
Increase in receivables and
other assets -- (8,754) (7,136)
Increase (decrease) in other liabilities (1,496) 2,689 18,538
----------- ----------- ---------
Net cash provided by operating
activities 345,596 301,017 271,500
----------- ----------- ---------
Cash flows from financing activities:
Proceeds from exercise of stock options 96,229 69,116 19,672
Increase in investment in subsidiary (96,229) (69,116) (47,512)
Dividends paid (337,651) (288,884) (232,441)
----------- ----------- ---------
Net cash used in financing activities (337,651) (288,884) (260,281)
----------- ----------- ---------
Net increase in cash 7,945 12,133 11,219
Cash at beginning of year 24,454 12,321 1,102
----------- ----------- ---------
Cash at end of year $ 32,399 $ 24,454 $ 12,321
=========== =========== =========
Non-cash financing activities:
Tax benefits from disqualified dispositions
of incentive stock options $ 29,649 -- --
=========== =========== =========
Dividends declared but not paid $ 89,928 $ 79,205 $ 69,701
=========== =========== =========
</TABLE>
21
<PAGE>
GUARANTY STATE BANCORP
Notes to Consolidated Financial Statements
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair values of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosure About Fair Value of Financial Instruments." The estimated fair
values have been determined by the Corporation using the methods and
assumptions described below. However, considerable judgment is required to
interpret market data to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the
amounts the Corporation could realize in a current market exchange. The use
of different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair values.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value:
Cash and Cash Equivalents
-------------------------
The carrying amount is a reasonable estimate of fair value.
Securities Available-for-Sale
-----------------------------
For securities available-for-sale, fair values are based on quoted market
prices or dealer quotes. If a quoted market price is not available, fair
value is estimated using quoted market prices for similar securities.
Loans Receivable
----------------
The fair value of loans receivable is estimated by discounting the future
cash flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining
maturities.
Interest Receivable and Payable and Federal Home Loan Bank of Atlanta stock
---------------------------------------------------------------------------
The carrying amount approximates fair value.
Deposits
--------
The fair value of noninterest-bearing demand, interest-bearing demand and
savings accounts is the amount payable on demand at the reporting date. The
fair value of fixed maturity certificates of deposit is estimated using the
rates currently offered for deposits of similar remaining maturities.
Borrowings
----------
The rate on borrowings approximates the rate offered currently on
borrowings with similar characteristics. Therefore, the carrying amount
approximates the fair value.
22
<PAGE>
GUARANTY STATE BANCORP
Notes to Consolidated Financial Statements
16. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Off-Balance Sheet Financial Instruments
---------------------------------------
The fair value of off-balance sheet financial instruments has not been
considered in determining on balance sheet fair value. As discussed in Note
13, these off-balance sheet financial instruments are commitments to extend
credit and are either short term in nature or subject to immediate
repricing.
The carrying amount and estimated fair value of the Corporation's financial
instruments at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------------- ---------------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
------------ ------------ ----------- -----------
Financial assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 6,431,982 $ 6,431,982 $ 6,189,899 $ 6,189,899
Securities available for sale 20,492,449 20,492,449 22,404,514 22,404,514
Loans held for sale 163,000 163,000 354,600 354,600
Loans less allowance for loan
losses 75,808,149 75,761,744 64,078,398 63,850,105
Federal Home Loan Bank of
Atlanta stock 309,200 309,200 270,600 270,600
Interest receivable 789,911 789,911 700,199 700,199
------------ ------------ ----------- -----------
Total $103,994,691 $103,948,286 $93,998,210 $93,769,917
============ ============ =========== ===========
Financial liabilities:
Deposits $ 92,673,534 $ 92,878,830 $83,593,582 $83,739,436
Borrowings 1,800,000 1,800,000 1,800,000 1,800,000
Interest payable 578,915 578,915 542,766 542,766
------------ ------------ ----------- -----------
Total $ 95,052,449 $ 95,257,745 $85,936,348 $86,082,202
============ ============ =========== ===========
</TABLE>
The Corporation's remaining assets and liabilities are not considered
financial instruments.
23
<PAGE>
GUARANTY STATE BANCORP
Notes to Consolidated Financial Statements
17. CONSOLIDATED STATEMENTS OF CASH FLOWS - SUPPLEMENTAL DISCLOSURES
The following is supplemental information regarding the consolidated cash
flows for the years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
Supplemental disclosure of cash flow
information:
Cash paid for:
<S> <C> <C> <C>
Interest $3,817,473 $3,658,154 $2,691,819
========== ========== ==========
Income taxes $ 647,000 $ 503,806 $ 512,817
========== ========== ==========
Schedule of non-cash investing and
financing activities:
Tax benefits from nonqualified stock options $ 26,649 $ -- $ --
========== ========== ==========
Dividends declared but not paid $ 89,928 $ 79,205 $ 69,701
========== ========== ==========
</TABLE>
18. YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Corporation's computer programs that have date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices, or engage in similar
normal business activities.
Based on a recent assessment, the Corporation has developed a plan to
address the year 2000 issue. The Corporation presently believes that the
majority of the existing software in use is in compliance with the year
2000 issue and plans are in progress to bring the remaining software in
compliance. Although the cost to bring the Corporation's software in
compliance can not be determined at this time, it is not expected to be
material. However, there can be no guarantee that the systems of other
companies on which the Corporation's systems rely will be timely converted,
or that a failure to convert by another company, or a conversion that is
incompatible with the Corporation's systems or inadequate conversion by a
significant loan customer, would not have a material adverse effect on the
Corporation.
19. PENDING MERGER
On November 18, 1997 the Corporation entered into an agreement of
reorganization and merger with Triangle Bancorp, Inc. All regulatory
approvals have been obtained and the Corporation's shareholders will meet
on March 30, 1998 to vote on the proposed merger. The transaction is
expected to be consummated in April 1998.
24
<PAGE>
Item 9. Changes In & Disagreements with Accountants.
Not applicable
Item 10. Directors and Executive Officers
Set forth below is a table showing the name, age, initial year of
election to the Board and principal occupation and employment for the past five
years of each member of the Board of Directors:
<TABLE>
<CAPTION>
Director Principal Occupations
Name Age Since During the Past Five Years
- ---- --- ----- --------------------------
Nominees
<S> <C> <C> <C>
Susan Cranford Ross 42 1994 Associate Dean and Director of Arts and
Sciences Development, Duke University
David W. Wiggins 52 1994 Staff Systems and Procedures Analyst, International
Business Machines Corporation
Charles J. Stewart 48 1993 President and Chief Executive Officer,
*1979 Guaranty State Bancorp and Guaranty
State Bank
E. Spurgeon Booth, Jr. 65 1993 Secretary-Treasurer, Booth Real Estate
*1977 and Insurance, Inc.
N. Wayne Campbell 55 1993 President, Credit Financial Information
*1980 Service Inc. (credit reporting agency)
W.L. Douglas Townsend, Jr. 39 1993 Managing Director and CEO,
*1988 Townsend Frew & Co., L.L.C.
(January, 1996-present investment
banking); Senior Vice President,
Corporate Development, Coastal
Physician Group, Inc. (1991-1995)
Stancil B. Roberts 56 1995 Independent Engineer (1997-present)
Previous - Principal, Knott & Roberts
Engineering Associates, P.A.
Robert F. Baker 62 1993 Partner, Spears, Barnes, Baker,
*1972 Wainio, Brown and Whaley (law firm)
B. W. Harris, III 59 1993 Principal, Harris, Harris & Company,
*1968 CPA's, PLLC(November,1995 -
present); Principal, Bailey,
Self, Harris and Company (certified
public accountants, 1960-1995)
Philip H. Pearce, M.D. 62 1993 Partner, The Durham Women's
Clinic,P.A. (OB/GYN clinic
</TABLE>
- ----------------------
* Director of Bank since year stated.
The following table sets forth certain information with respect to the executive
officers of the Corporation, each of which serves in the same capacity for the
Bank:
Name Age Position
- ---- --- --------
Charles J. Stewart 48 President and Chief Executive Officer
Jean R. Turner 52 Senior Vice President
Joseph M. Johnson 42 Senior Vice President
J. Edwin Causey, Jr. 54 Senior Vice President and Secretary
Charles J. Stewart has been employed by the Bank since 1972. Mr. Stewart
has served as President and Chief Executive Officer of the Bank since 1979 and
of the Corporation since 1993.
Jean R. Turner joined the Bank in 1986 and serves as Chief Administrative
Officer. Ms. Turner was appointed a Senior Vice President of the Bank in 1987
and of the Corporation in 1993.
Joseph M. Johnson joined the Bank in 1987 and serves as the Bank's Chief
Lending Officer. Mr. Johnson was appointed a Senior Vice President of the Bank
in 1991 and of the Corporation in 1993.
J. Edwin Causey, Jr. has been employed by the Bank since 1967 and has
served as a Senior Vice President of the Bank since 1986. Mr. Causey was
appointed a Senior Vice President of the Corporation in 1993. He serves as the
Bank's security officer.
Item 11. Executive Compensation.
The following table sets forth certain information relating to compensation
received by the Corporation's Chief Executive Officer for fiscal years 1995,
1996 and 1997. No other executive officer of the Corporation received total
annual salary and bonus in excess of $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Name and Securities Underlying All Other
Principal Position Year Salary ($) Bonus ($) Options Compensation ($)1
- ------------------ ---- ---------- --------- --------------------- -----------------
<S> <C> <C> <C> <C> <C>
Charles J. Stewart 1997 125,034 50,000 - 24,211
President and Chief 1996 117,480 44,000 - 8,173
Executive Officer 1995 111,881 40,000 6,000 9,056
</TABLE>
- -------------------
(1) 1997 consists of the Corporation's matching and discretionary contributions
to the Corporation's 401(k) profit-sharing plan and a non-qualified
Executive Retirement Plan for Mr. Stewart.. 1995 and 1996 consist only of
the 401(k) profit-sharing plan.
The following table summarizes options exercised by Charles J. Stewart during
the fiscal year ended December 31, 1997 and presents the value of unexercised
options held by Mr. Stewart at the end of fiscal year 1997.
Aggregated Option Exercises in Fiscal Year 1997
and Fiscal Year-End Option Values
-----------------------------------------------
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options
Shares Acquired Value Fiscal Year-End (#) at Fiscal Year-End ($)
Name on Exercise (#) Realized ($) (Exercisable/Unexercisable) (Exercisable/Unexercisable)
---- --------------- ------------ --------------------------- ---------------------------
<S> <C> <C> <C> <C>
Charles J. Stewart 5,500 86,208 36,380/0 1,346,060/0
President and
Chief
Executive
Officer
</TABLE>
Item 12. Security ownership of certain beneficial owners and management
The following table sets forth certain information concerning beneficial
ownership of the Common Stock by (i) each person known by the Corporation to be
a beneficial owner of more than five percent (5%) of the outstanding Common
Stock, (ii) each director of the Corporation, (iii) each of the executive
officers named in the Summary Compensation Table, and (iv) all directors and
executive officers of the Corporation as a group, as of February 9, 1998. The
percentages are based on total shares outstanding as well as immediately
exercisable stock options. Except as otherwise noted, the person named had sole
voting and investment power with respect to the shares reflected in the table
below:
Amount
and
Nature Percent
of of
Beneficial Common
Name Ownership Stock
---- --------- -----
Dwight G. Howard 119,775 (1) 12.71%
Frank Ward 59,499 (2) 6.31%
Charles J. Stewart 67,984 (3) 7.21%
B. W. Harris, III 29,265 (4) 3.10%
David W. Wiggins 20,136 (5) 2.14%
N. Wayne Campbell 15,955 (6) 1.69%
Robert F. Baker 5,049 (7) *
Stancil B. Roberts 3,747 (8) *
W. L. Douglas Townsend, Jr. 2,550 (9) *
Susan Cranford Ross 800 (10) *
E. Spurgeon Booth, Jr. 500 (11) *
Phillip H. Pearce, M.D. 500 (12) *
All Directors and Executive
Officers as a Group 165,371 (13) 17.54%
(13 persons)
- -----------------------------------
* Less than one percent.
(1) Mr. Howard's address is P.O. Box 1962, Durham, North Carolina 27702.
(2) Mr. Ward's address is 518 South Duke Street, Durham, North Carolina 27701.
(3) Includes 36,380 shares subject to a presently exercisable stock option and
900 shares held by Mr. Stewart's spouse.
(4) Includes 4,500 shares subject to a presently exercisable stock option. Mr.
Harris' address is 3942 Nottaway Road, Durham, North Carolina 27707.
(5) Includes 300 shares held by Mr. Wiggins' children under the North Carolina
Uniform Transfers to Minors Act, and 750 shares held by Mr. Wiggins'
spouse. Mr. Wiggins' address is P.O. Box 71244, Durham, North Carolina
27722.
(6) Includes 825 shares held by Mr. Campbell's spouse. Mr. Campbell's address
is 1920 Redding Lane, Durham, North Carolina 27712.
(7) Mr. Baker's address is P.O. Box 891, Durham, North Carolina 27702.
(8) Mr. Roberts' address is 2202 Thunder Road, Durham, North Carolina 27712.
(9) Includes 360 shares held by Mr. Townsend's spouse. Mr. Townsend's address
is 2204 Whitley Drive, Durham, North Carolina 27707.
(10) Mr. Booth's address is P.O. Box 2916, Durham, North Carolina 27715.
(11) Ms. Ross' address is 4102 Westfield Drive, Durham, North Carolina 27705.
(12) Dr. Pearce's address is 30 Brookside Place, Durham, North Carolina 27705.
(13) Includes 49,580 shares subject to presently exercisable stock options.
Item 13. Certain transactions
The Bank has engaged in, and expects to continue to engage in, lending
transactions with the Corporation's directors and officers and with corporations
and other entities with which such individuals are shareholders or principals.
During the last two years, all of such loans were made in the ordinary course of
business, were made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
other persons, and did not involve more than the normal risk of collectibility
or present other unfavorable features.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Forms 8-K
Reference is made to Form 8-K filed October 16, 1997
<PAGE>
SIGNATURES
Under the requirements of the Securities Exchange Act of 1934, the Corporation
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Guaranty State Bancorp
March 27, 1998 By:
----------------------------------
Charles J. Stewart
President and Chief Executive Officer
March 27, 1998 By:
----------------------------------
Jean R. Turner
Senior Vice President
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Forms 8-K.
None
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF GUARANTY STATE BANCORP FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,762
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,670
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 20,802
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 76,955
<ALLOWANCE> 1,145
<TOTAL-ASSETS> 106,565
<DEPOSITS> 92,674
<SHORT-TERM> 0
<LIABILITIES-OTHER> 0
<LONG-TERM> 1,800
0
0
<COMMON> 11,369
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 106,565
<INTEREST-LOAN> 6,756
<INTEREST-INVEST> 1,353
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 8,109
<INTEREST-DEPOSIT> 3,724
<INTEREST-EXPENSE> 130
<INTEREST-INCOME-NET> 4,255
<LOAN-LOSSES> 211
<SECURITIES-GAINS> 14
<EXPENSE-OTHER> 2,892
<INCOME-PRETAX> 1,696
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,140
<EPS-PRIMARY> 1.29
<EPS-DILUTED> 1.22
<YIELD-ACTUAL> 0
<LOANS-NON> 74
<LOANS-PAST> 194
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 153
<RECOVERIES> 22
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 211
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
