UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended Commission File No. 33-76064
September 30, 1999
GUARANTY FINANCIAL CORPORATION
Virginia 54-1786496
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1658 State Farm Blvd., Charlottesville, VA 22911
(Address of Principal Executive Office)
(804) 970-1100
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes _X_ No ___ (not subject to filing requirements for the
past 90 days).
As of November 3, 1999, 1,501,727 shares of the Registrant's Common
Stock, par value $1.25 per share, were outstanding.
<PAGE>
GUARANTY FINANCIAL CORPORATION
QUARTERLY REPORT ON FORM 10-QSB
INDEX
Part I. Financial Information Page No.
--------
Item 1 Financial Statements
Consolidated Balance Sheets
as of September 30, 1999 (unaudited) and December 31, 1998 3
Consolidated Statements of Operations for the
Three and Nine months Ended September 30, 1999 and 1998 (unaudited) 4
Consolidated Statements of Comprehensive Income
For the Nine Months Ended September 30, 1999 and 1998 (unaudited) 5
Consolidated Statements of Cash Flows for the
Nine months Ended September 30, 1999 and 1998 (unaudited) 6
Notes to Consolidated Financial Statements 8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. Other Information
Item 1 Legal Proceedings 15
Item 2 Changes in Securities 15
Item 3 Defaults upon Senior Securities 15
Item 4 Submission of Matters to a Vote of Security Holders 15
Item 5 Other Information 15
Item 6 Exhibits and Reports on Form 8-K 15
Signatures 16
2
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PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
GUARANTY FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
ASSETS (Unaudited)
Cash and cash equivalents $13,949 $10,527
Investment securities
Held-to-maturity 1,411 2,344
Available for sale 23,506 26,638
Trading 0 1,000
Investment in FHLB stock, at cost 1,150 1,300
Investment in FRB stock, at cost 271 271
Loans receivable, net 189,293 162,369
Accrued interest receivable 1,706 1,651
Real estate owned 1,159 488
Office properties and equipment, net 8,773 7,050
Mortgage servicing rights 419 1,978
Other assets 4,191 1,404
---------- ----------
Total assets $245,828 $217,020
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
NOW/MMDA accounts $57,262 $45,752
Savings accounts 11,106 9,863
Certificates of deposit 128,451 117,190
---------- ----------
196,819 172,805
Bonds payable 1,233 1,786
Advances from Federal Home Loan Bank 23,000 21,000
Securities sold under agreement to repurchase 4,800 1,009
Other borrowings - -
Accrued interest payable 285 125
Income taxes payable - 243
Payments by borrowers for taxes and insurance 1,309 128
Other liabilities 899 470
---------- ----------
Total liabilities 228,345 197,566
---------- ----------
COMMITMENTS & CONTINGENCIES
Convertible preferred securities 6,900 6,900
STOCKHOLDERS' EQUITY
Preferred stock, par value $1 per share, 500,000
shares authorized, none issued - -
Common stock, par value $1.25 per share,
4,000,000 shares authorized, 1,501,383
issued and outstanding 1,877 1,877
Additional paid-in capital 5,725 5,725
Accumulated comprehensive income (loss), net (1,251) 89
Retained earnings 4,232 4,863
---------- ----------
Total stockholders' equity 10,583 12,554
---------- ----------
Total liabilities and stockholders' equity 245,828 217,020
========== ==========
</TABLE>
3
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GUARANTY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Interest income
Loans $ 3,988 $ 2,927 $ 10,858 $ 7,497
Mortgage-backed securities 27 49 101 160
Investment securities 637 429 1,892 1,116
---------- ---------- ---------- ----------
Total interest income 4,652 3,405 12,851 8,773
---------- ---------- ---------- ----------
Interest expense
Deposits 2,101 1,569 6,180 4,465
Borrowings 620 496 1,716 857
---------- ---------- ---------- ----------
Total interest expense 2,721 2,065 7,896 5,322
---------- ---------- ---------- ----------
Net interest income 1,931 1,340 4,955 3,451
Provision for loan losses 216 49 381 136
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 1,715 1,291 4,574 3,315
Other income (expense)
Loan fees and servicing income 156 187 513 499
Service fees on checking 134 102 386 265
Loss (gain) on sale of loans and securities (1,426) 483 (880) 984
Loss on sale of originated servicing (146) - (146) -
Other 143 59 326 158
---------- ---------- ---------- ----------
Total other income (expense) (1,139) 831 199 1,906
---------- ---------- ---------- ----------
Other expenses
Personnel 971 883 2,877 1,954
Occupancy 277 279 794 765
Deposit insurance premiums 5 - 15 11
Data processing 196 153 503 379
Other 468 292 1,130 905
---------- ---------- ---------- ----------
Total other expenses 1,917 1,607 5,319 4,014
---------- ---------- ---------- ----------
Income (loss) before income taxes (1,341) 515 (546) 1,207
---------- ---------- ---------- ----------
Income tax expense (benefit) (456) 201 (186) 462
---------- ---------- ---------- ----------
Net income (loss) $ (885) $ 314 $ (360) $ 745
========== ========== ========== ==========
Basic and diluted earnings (loss)
per common share $ (0.59) $ 0.21 $ (0.24) $ 0.50
========== ========== ========== ==========
</TABLE>
4
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GUARANTY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ---------------------------
1999 1998 1999 1998
------------ ------------- ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net Income $ (885) $ 314 $ (360) $ 745
------------ ------------- ------------ ------------
Other comprehensive income:
Unrealized gains (loss) on securities available for sale $ (538) $ 3 $ (1,956) $ (56)
Less: reclassification adjustment for gains (losses)
included in net income (1,093) - 75 62
------------ ------------- ------------ ------------
Other comprehensive income (loss), before tax 555 3 (2,031) (118)
Income tax (expense) benefit related to items of other
comprehensive income (189) (1) 691 40
------------ ------------- ------------ ------------
Other comprehensive income (loss), net of tax 366 2 (1,340) (78)
------------ ------------- ------------ ------------
Comprehensive Income (loss) $ (519) $ 316 $ (1,700) $ 667
------------ ------------- ------------ ------------
</TABLE>
5
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GUARANTY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1999 and 1998
(In Thousands)
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(unaudited)
<S> <C> <C>
Operating Activities
Net Income $ (360) $ 745
Adjustments to reconcile net income to net cash provided
(absorbed) by operating activities:
Provision for loan losses 381 136
Depreciation and amortization 478 371
Loss on sale of purchased servicing 146 -
Deferred loan fees 148 139
Net amortization of premiums and accretion of discounts 223 (45)
Loss (gain) on sale of loans (304) (1,002)
Originations of loans held for sale (40,040) (49,952)
Proceeds from sale of loans 40,344 50,037
Loss (gain) on sale of securities available for sale 1,298 (313)
(Gain) loss on trading securities 222 323
Purchase of trading securities (63,397) (77,440)
Sales of trading securities 64,175 78,149
(Gain) loss on sale of real estate owned - -
Other, net - 580
Changes in:
Accrued interest receivable (55) (387)
Other assets (3,481) (1,925)
Accrued interest payable 160 22
Prepayments by borrowers for taxes and insurance 95 125
Other liabilities 1,272 784
---------- ----------
Net cash provided (absorbed) by operating activities 1,305 347
---------- ----------
Investing activities
Net (increase) decrease in loans (28,124) (32,599)
Mortgage-backed securities principal repayments 929 743
Proceeds from sale of securities available for sale 17,562 47,421
Purchase of securities available for sale (17,145) (45,284)
Purchase of servicing rights (666) -
Sale of servicing rights 2,696 -
Redemption (purchase) of FHLB stock 150 (180)
Purchases of office properties and equipment (2,124) (1,050)
---------- ----------
Net cash provided (absorbed) by investing activities (26,722) (30,949)
---------- ----------
</TABLE>
6
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GUARANTY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(unaudited)
<S> <C> <C>
Financing activities
Net increase in deposits 24,014 29,288
Proceeds from FHLB advances 14,000 39,000
Repayment of FHLB advances (12,000) (30,000)
Increase (decrease) in securities sold under agreement to repurchase 3,791 (2,989)
Proceeds from the issuance of covertible preferred securities, net - 6,400
Dividends paid on common stock (271) (90)
Principal payments on bonds payable, including unapplied payments (695) (460)
---------- ----------
Net cash provided by financing activities 28,839 41,149
---------- ----------
Increase in cash and cash equivalents 3,422 10,547
Cash and cash equivalents, beginning of period 10,527 5,917
---------- ----------
Cash and cash equivalents, end of period $ 13,949 $ 16,464
========== ==========
</TABLE>
7
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GUARANTY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Nine months ended September 30, 1999 and 1998
Note 1 Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Guaranty Financial Corporation (the "Corporation") and its wholly-owned
subsidiaries, Guaranty Capital Trust I and Guaranty Bank (the "Bank"), and the
Bank's wholly-owned subsidiaries, GMSC, Inc., which was organized as a financing
subsidiary, and Guaranty Investments Corp., which was organized to sell
insurance annuities and other non-deposit investment products. All material
intercompany accounts and transactions have been eliminated in consolidation.
Note 2 Basis of Presentation
In the opinion of management, the accompanying unaudited interim consolidated
financial statements contain all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the financial position as of
September 30, 1999 and the results of operations and cash flows for the interim
periods ending September 30, 1999 and 1998. All 1999 interim amounts are subject
to year-end audit, and the results of operations for the interim periods is not
necessarily indicative of the results of operations to be expected for the year.
8
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Expansion of Existing Branch Network
A full service branch was opened in Henrico County in the Wellesley development
in mid-September 1999. This office is our first entry into the west Richmond
market and is large enough to accommodate a regional loan group along with the
retail operation.
A site has been obtained in the Forest Lakes development in northern Albemarle
County for a full service branch office. Regulatory approval has been granted,
and a spring 2000 opening is anticipated.
Changes in Financial Condition
Total assets increased by $28.8 million, or 13.3%, from $217.0 million at
December 31, 1998 to $245.8 million at September 30, 1999. Deposit growth and
proceeds from Federal Home Loan Bank ("FHLB") advances and other borrowings
funded this growth. These proceeds were primarily invested in loans,
investment-grade corporate bonds and short-term interest earning deposit
accounts.
Cash and cash equivalents increased $3.4 million, or 32.5%, to $13.9 million at
September 30, 1999 from $10.5 million at December 31, 1998. This increase in
cash was primarily due to the combination of increased deposits, proceeds from
FHLB advances and other borrowings, and proceeds from loan sales.
Investment securities, at September 30, 1999, decreased $5.1 million, or 16.9%,
to $24.9 million from $30.0 million at December 31, 1998. This change was
primarily a result of a $3.1 million net decrease in holdings of
investment-grade corporate bonds and a decrease of $1.0 million in treasury
notes classified as trading securities. Principal payments were received on
mortgage-backed securities of approximately $933 thousand. At the dates
indicated, the investment portfolio is comprised of the following:
September 30, December 31,
1999 1998
---------------- ----------------
(in thousands)
Mortgage-backed securities
classified as held-to-maturity $ 1,411 $ 2,344
Corporate bonds classified
as available-for-sale 23,506 26,638
US Treasury Notes classified
as trading - 1,000
---------------- ----------------
$ 24,917 $ 29,982
================ ================
Net loans were $189.3 million at September 30, 1999, an increase of $26.9
million, or 16.6%, from net loans of $162.4 million at December 31, 1998. The
primary focus of portfolio lending continues to be prime-based construction
loans (including builder lines of credit), commercial real estate and business
loans and consumer loans which are typically priced 175 to 250 basis points
above fixed-rate residential loans. The increase in the loan portfolio was
primarily related to new commercial and consumer loan business and a slight
increase in residential mortgage loans. During the third quarter of 1999, the
bank continued to underwrite substantially all fixed rate residential mortgage
loans for immediate sale in the secondary market.
Real estate owned of $488 thousand at December 31, 1998 was sold during the
second quarter of 1999. No unreserved losses were recognized on this sale. At
September 30, 1999, real estate
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owned was comprised of one residential property at approximately $133 thousand
and three secured lines of credit to one individual who has filed for
bankruptcy. No material losses are anticipated on the ultimate sale of these
properties.
Deposits were $196.8 million at September 30, 1999, an increase of $24.0
million, or 13.9%, from total deposits of $172.8 million at December 31, 1998.
The majority of this growth was due to an increase in certificates of deposit of
$11.3 million or 9.6%, an increase in money market accounts of $6.1 million or
26.8% and an increase in NOW accounts of $5.4 million or 23.5%. Management plans
to continue its marketing efforts aimed at corporate customers as well as
individual checking, savings and money market accounts to attract lower cost
funds and reduce reliance on certificates of deposit as a primary funding
source. However, no assurances can be given that these strategies will be
successful, or if successful, will reduce the bank's reliance on certificates of
deposit as a primary funding source.
Office properties and equipment increased $1.7 million since December 31, 1998.
This increase was primarily due to capital expenditures relating to the purchase
and improvements of the branch sites at Wellesley in Henrico County, Virginia
and Forest Lakes in Albemarle County, Virginia.
At September 30, 1999, $23.0 million in advances was borrowed from the FHLB on a
short-term basis, an increase of $2.0 million from December 31, 1998. These
advances are comprised entirely of daily rate credits which reprice based on the
previous day's Federal Funds rate.
Results of Operations
Net Income
Guaranty reported a net loss of $360 thousand and a net income of $745 thousand
for the nine months ended September 30, 1999 and 1998, respectively, and a loss
of $885 thousand compared to net income of $314 thousand for the three months
ended September 30, 1999 and 1998, respectively. The losses in 1999 resulted
primarily from the sale of approximately $13 million in long term corporate
bonds and the sale of Guaranty's mortgage loan servicing rights, resulting in
net after tax losses of $857 thousand and $97 thousand, respectively. These
actions were taken to significantly reduce market rate risk in Guaranty's
balance sheet and improve net interest margin going forward.
Net Interest Income
Net interest income was $1.9 million for the quarter ended September 30, 1999,
up 45.5% from the $1.3 million earned during the same period in 1998. For the
first nine months of 1999, net interest income was $5.1 million, a 51.8%
increase over the first nine months of 1998. For the nine months ended September
30, 1999, the average balance and average yield on loans was $180.1 million and
8.52%, respectively, compared to $115.5 million and 8.72% for the same period in
1998. Loan growth is primarily related to prime based residential construction
loans, including builder lines of credit, and commercial loans located in the
Bank's primary market of Central Virginia.
The average balance of interest bearing deposits was $179.4 million for the
first nine months of 1999 compared to $122.1 million for the same period in
1998. The corresponding average rate paid on these deposits decreased 28 basis
points to 4.61% from 4.89% during the same periods.
Provision for Loan Losses
Guaranty provides valuation allowances for anticipated losses on loans and real
estate when its management determines that a significant decline in the value of
the collateral has occurred and if the value of the collateral is less than the
amount of the unpaid principal of the related loan, plus estimated costs of
acquisition and sale. In addition, Guaranty also provides reserves based on the
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dollar amount and type of collateral securing its loans, in order to protect
against unanticipated losses. A loss experience percentage is established for
each loan type and is reviewed annually. Each quarter, the loss percentage is
applied to the portfolio, by product type, to determine the minimum amount of
reserves required. Guaranty recorded a provision of $216 thousand for the three
months ended September 30, 1999, and a provision of $49 thousand for the same
period in 1998. For the nine-month periods ended September 30, 1999 and 1998,
Guaranty recorded a provision of $381 thousand and $136 thousand, respectively.
As of September 30, 1999 the total allowance for loan losses was $1.3 million.
Although management believes that it uses the best information available to make
such determinations, future adjustments to reserves may be necessary, and net
income could be significantly affected if circumstances differ substantially
from assumptions used in making the initial determinations.
Non-Interest Income
Non-interest income was $(1.1) million for the third quarter 1999 compared to
$831 thousand for the same period in 1998. For the nine months ending September
30, 1999, non-interest income was $199 thousand, down $1.7 million from the $1.9
million reported during the same period in 1998. This decrease was primarily a
result of losses from the sale of securities and mortgage serving rights.
Non-Interest Expense
Operating expenses during the third quarter of 1999 were $1.9 million, a $310
thousand increase over those incurred during the same quarter of 1998. For the
nine months ending September 30, 1999, operating expenses were $5.3 million
compared to $4.0 million during the same period in 1998. These increases are
primarily attributable to the increased size of the bank and expansion of the
residential and commercial lending divisions.
Income Tax Expense
As a result of third quarter losses, Guaranty recognized an income tax benefit
of $456 thousand for the quarter ending September 30, 1999 and $186 thousand for
the nine months ending September 30, 1999. This is compared to tax expense of
$201 thousand and $462 thousand for the three and nine month periods ending
September 30, 1998, respectively. Changes in tax expense between periods are
primarily a result of changes in the level of taxable income.
Liquidity and Capital Resources
Liquidity is the ability to meet present and future financial obligations either
through the sale of existing assets or through the acquisition of additional
funds through asset and liability management. Guaranty's primary sources of
funds are deposits, borrowings and amortization, prepayments and maturities of
outstanding loans and securities. While scheduled payments from the amortization
of loans and securities are relatively predictable sources of funds, deposit
flows and loan prepayments are greatly influenced by general interest rates,
economic conditions and competition. Excess funds are invested in overnight
deposits to fund cash requirements experienced in the normal course of business.
Guaranty has been able to generate sufficient cash through its deposits as well
as through its borrowings.
Guaranty uses its sources of funds primarily to meet its on-going operating
expenses, to pay deposit withdrawals and to fund loan commitments. At September
30, 1999 total approved loan commitments outstanding were approximately $10.5
million. At the same date, commitments under unused lines of credit were
approximately $52.4 million. Certificates of deposit scheduled to mature
11
<PAGE>
in one year or less at September 30, 1999 were $113.9 million. Management
believes that a significant portion of maturing deposits will remain with
Guaranty.
At September 30, 1999, regulatory capital was in excess of amounts required by
Federal Reserve Regulations to be considered well capitalized as shown in the
following table:
Tier 1 risk based 7.46%
Total risk based 9.46%
Tier 1 to average adjusted total assets 6.30%
Year 2000 Project
Many existing computer programs use only two digits to identify a year in the
date field. These programs were designed and developed without considering the
impact of the change in the century. If not corrected, many date-sensitive
applications could fail or create erroneous results by or in the Year 2000.
Guaranty understands the importance of having systems and equipment operational
through the Year 2000 and beyond and is committed to addressing these challenges
while continuing to fulfill its obligations to its customers.
Year 2000 readiness is a major undertaking involving the review and modification
of multiple, interacting information technology systems, including Guaranty's
systems, equipment, facilities, services and products as well as those of third
parties, including vendors, service contractors, creditors, borrowers and other
financial service organizations. Certain equipment and facilities, such as
telephones, voicemail and elevators, may contain embedded chips or
microcontrollers that will need to be replaced.
Guaranty began its formal Year 2000 compliance program in 1998 to analyze the
possible application to Guaranty of the Year 2000 issue and the development of a
plan to prevent the problem from adversely affecting its operations. Guaranty
currently has a Year 2000 committee, a Year 2000 Implementation Plan and a Year
2000 Contingency Plan. Guaranty's Year 2000 plans are subject to guidelines and
recommendations promulgated by the Federal Financial Institutions Examination
Council ("FFIEC"). The Federal Reserve Bank of Richmond periodically reviews the
status of Guaranty's plans and progress with site visits and teleconferences.
In accordance with current FFIEC regulations, the Year 2000 plans, as adopted
and refined by Guaranty to handle Year 2000 issues, can be divided into two
principal areas:
1. Resolution of the internal aspects of the Year 2000 issue. The focus
of this area includes the effects of the Year 2000 issue on Guaranty's
technology, including computer hardware and software systems.
Guaranty's internal technology plan includes (a) locating, listing and
prioritizing the specific technology that is potentially subject to the
Year 2000 issue (referred to as the "awareness" phase), (b) assessing
the actual exposure of such technology to the Year 2000 issue by
inquiry, research, testing and other means (the "assessment" phase),
(c) selecting the method necessary to resolve the Year 2000 issues that
were identified, including replacement, upgrade, repair or abandonment
and implementing the selected resolution method (the "renovation"
phase), and (d) testing the remediated or converted technology to
determine the efficacy of the resolutions (the "validation" phase).
2. Determination and control of the external aspects of the Year 2000
issue. The focus of this area includes (a) assessing the potential for
credit and liquidity risks within Guaranty as a result of the
investments in, loans to and deposits from our significant customers as
well as the risk of possible business interruption by relying on
vendors of goods and services whose
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technology or business is affected by the Year 2000 issue, and (b)
developing contingency plans to address failures by external parties to
remediate fully any Year 2000 issues that are material to Guaranty.
Assessment of external parties is accomplished by written and verbal
inquiry, and by research to the extent that reliable information is
available.
The Year 2000 committee has spent considerable time testing both the internal
and external applications deemed as "mission critical" to daily business
operations. These applications affect Guaranty's customer information files. The
testing was completed before FFIEC's June 30, 1999 deadline to confirm
compliance with Year 2000 data processing standards deadline.
Guaranty's Year 2000 Contingency Plan, in accordance with FFIEC regulations,
sets forth in detail the procedures that Guaranty and its employees will follow
in order to handle the most reasonably likely worst case Year 2000 scenario.
These procedures cover, among other concerns, how Guaranty will continue to
maintain customer records and accept banking transactions in the event of a
systems or other power or communications failure and how it will likewise
continue its daily banking operations. The contingency plan and all test results
on Guaranty's internal and external applications were reviewed by the Virginia
State Corporation Commission's Year 2000 examiner. The review yielded the
highest rating for Year 2000 readiness (satisfactory).
As part of the 1998 strategic plan, and in conjunction with the Year 2000
readiness plan, Guaranty upgraded its entire computer system, including hardware
and software. The changes not only make the institution better prepared for any
potential Year 2000 problems, but have also allowed Guaranty to offer more
sophisticated products, lower potential down time and increase customer service.
Total costs are approximately $325,000, with the majority of the expenses being
incurred in late 1998 and the first quarter of 1999. Included in non-interest
expense for the first six months of 1999 is $200,000 associated with the Year
2000 issue. All of the system changes are currently fully operational and
Guaranty continually assesses the systems for full functionality.
Additionally, Guaranty monitors the readiness of its vendors and larger
customers to insure that the risk to Guaranty is minimized. Currently, Guaranty
requires all credit customers with total exposure of over $1 million to fill out
a Year 2000 readiness assessment form. The progress reflected in the answers is
reported to the Year 2000 committee on a regular basis.
Guaranty and its Year 2000 committee feel strongly that customer education and
awareness are crucial to the success of the year 2000 plans. Notifications of
the test results were sent out to customers in June 1999. In addition, Guaranty
has trained all customer contact employees on responding to customer concerns
over Y2K issues. Additional training was conducted again in October 1997.
Guaranty believes that it has identified all of the business systems vital to
its operations and that its Year 2000 plans will result in the continuation of
Guaranty's operations to and through the Year 2000 and beyond. However, the Year
2000 issue and its resolution are complex and multifaceted; Guaranty believes
that no entity can address the virtually unlimited possible circumstances
relating to year 2000 issues, including risks outside of Guaranty's primary
market area. The success of a response plan cannot be conclusively known until
the Year 2000 is reached (or an earlier date to the extent that systems and
equipment address Year 2000 date data prior to year 2000). Even with appropriate
and diligent pursuit of a well-conceived response plan, including testing
procedures, there is no certainty that any company will achieve complete
success. However, Guaranty is diligently trying to ensure that its significant
systems, equipment, facilities, services and products will not be adversely
affected by the Year 2000 problem.
At this time, Guaranty believes that the most likely worst case Year 2000
scenario would not have a material effect on Guaranty's results of operations,
liquidity and financial condition for the year ending December 31, 2000.
Guaranty does not foresee a material loss of revenue due to the Year 2000
problem. The Year 2000 contingency plan, however, is based on assessments of the
likelihood of a problematic occurrence. While considered highly unlikely, the
failure of Guaranty to successfully
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implement its Year 2000 plans, including modifications and conversions, or to
adequately assess the likelihood of various events relating to the Year 2000
issue, could have a material adverse effect on Guaranty's results of operations
and financial condition.
Additionally, there can be no assurances that the federal regulators will not
issue new regulatory requirements that require additional work by Guaranty, and
if issued, that new regulatory requirements will not increase the cost or delay
the completion of Guaranty's Year 2000 plan.
The cost of the project and the date on which Guaranty plans to complete the
Year 2000 modifications are based on management's best estimates, which are
based on numerous assumptions of future events, including the continued
availability of certain resources, third party modification plans and other
factors. There can be no guarantee that these estimates will be achieved and
actual results could differ materially from Guaranty's plans. Specific factors
that might cause such material differences include, but are not limited to, the
availability of personnel trained in this area, the ability of third party
vendors to correct their software and hardware, the ability of significant
customers to remedy their Year 2000 issues and similar uncertainties.
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PART II. OTHER INFORMATION
Item 1 Legal Proceedings
Not Applicable
Item 2 Changes in Securities
Not Applicable
Item 3 Defaults Upon Senior Securities
Not Applicable
Item 4 Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5 Other Information
Not Applicable
Item 6 Exhibits and Reports on 8-K
(a) Exhibits
27 Financial Data Schedule
(filed electronically only)
(b) Reports on Form 8-K - None
15
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
GUARANTY FINANCIAL CORPORATION
Date: November 15, 1999 By: /s/ Thomas P. Baker
---------------------------------
Thomas P. Baker
President, CEO and Director
By: /s/ L. Ben Johnson
---------------------------------
L. Ben Johnson
Vice President & Controller
16
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-QSB FOR GUARANTY FINANCIAL CORPORATION FOR THE
PERIOD ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 7,482
<INT-BEARING-DEPOSITS> 6,467
<FED-FUNDS-SOLD> 493
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 24,927
<INVESTMENTS-CARRYING> 1,411
<INVESTMENTS-MARKET> 1,447
<LOANS> 190,567
<ALLOWANCE> 1,274
<TOTAL-ASSETS> 245,828
<DEPOSITS> 196,819
<SHORT-TERM> 23,000
<LIABILITIES-OTHER> 2,493
<LONG-TERM> 0
0
0
<COMMON> 1,877
<OTHER-SE> 8,706
<TOTAL-LIABILITIES-AND-EQUITY> 245,828
<INTEREST-LOAN> 10,858
<INTEREST-INVEST> 1,892
<INTEREST-OTHER> 101
<INTEREST-TOTAL> 12,851
<INTEREST-DEPOSIT> 6,180
<INTEREST-EXPENSE> 7,896
<INTEREST-INCOME-NET> 4,955
<LOAN-LOSSES> 381
<SECURITIES-GAINS> (1,520)
<EXPENSE-OTHER> 5,319
<INCOME-PRETAX> (546)
<INCOME-PRE-EXTRAORDINARY> (546)
<EXTRAORDINARY> 186
<CHANGES> 0
<NET-INCOME> (360)
<EPS-BASIC> 0.24
<EPS-DILUTED> 0.24
<YIELD-ACTUAL> 8.05
<LOANS-NON> 1,375
<LOANS-PAST> 88
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,002
<CHARGE-OFFS> 115
<RECOVERIES> 6
<ALLOWANCE-CLOSE> 1,274
<ALLOWANCE-DOMESTIC> 1,274
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
