UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO ____________ COMMISSION FILE NUMBER: 000-24235 GUARANTY BANCSHARES, INC. (Exact name of registrant as specified in its charter) TEXAS 75-16516431 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 100 W. ARKANSAS MT. PLEASANT, TEXAS 75455 (Address of principal executive offices, including zip code) 903-572-9881 (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 such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X]Yes [ ] No As of May 15, 2000, there were 3,128,416 shares of the registrant's Common Stock, par value $1.00 per share, outstanding.
GUARANTY BANCSHARES, INC. INDEX TO FORM 10-Q - -------------------------------------------------------------------------------- PART I - FINANCIAL INFORMATION PAGE ---- Item 1. Financial Statements Consolidated Balance Sheets................................... 2 Consolidated Statements of Earnings........................... 3 Condensed Consolidated Statements of Changes in Shareholders' Equity ....................................... 3 Condensed Consolidated Statements of Cash Flows............... 4 Consolidated Statements of Comprehensive Income............... 5 Notes to Interim Consolidated Financial Statements............ 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .................................. 8 Item 3. Quantitative and Qualitative Disclosures about Market Risk.... 18 PART II - OTHER INFORMATION Item 1. Legal Proceedings.............................................. 18 Item 2. Changes in Securities and Use of Proceeds...................... 18 Item 3. Defaults upon Senior Securities ............................... 18 Item 4. Submission of Matters to a Vote of Security Holders............ 18 Item 5. Other Information.............................................. 18 Item 6. Exhibits and Reports on Form 8-K............................... 18 Signatures.............................................................. 19 1
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS GUARANTY BANCSHARES, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <TABLE> <CAPTION> MARCH 31, DECEMBER 31, 2000 1999 --------------- --------------- (UNAUDITED) <S> <C> <C> ASSETS Cash and due from banks ................................................................... $ 12,468 $ 13,102 Interest bearing deposits in other banks .................................................. 80 50 --------------- --------------- Total cash and cash equivalents ..................................................... 12,548 13,152 Federal funds sold ........................................................................ 9,155 1,140 Securities available-for-sale ............................................................. 81,292 79,761 Loans, net of allowance for loan losses of $2,549 and $2,491 .............................. 256,559 252,718 Premises and equipment, net ............................................................... 13,041 11,662 Accrued interest receivable ............................................................... 2,840 2,735 Other assets .............................................................................. 9,976 9,270 --------------- --------------- Total assets ........................................................................ $ 385,411 $ 370,438 =============== =============== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Deposits: Noninterest-bearing ................................................................... $ 59,130 $ 56,404 Interest-bearing ...................................................................... 279,635 272,233 --------------- --------------- Total deposits ...................................................................... 338,765 328,637 --------------- --------------- FHLB advances ............................................................................. 8,627 10,699 Long-term debt ............................................................................ 7,000 -- Other liabilities ......................................................................... 2,292 2,606 --------------- --------------- Total liabilities ................................................................... 356,684 341,942 --------------- --------------- Shareholders' equity: Preferred stock, $5.00 par value, 15,000,000 shares authorized, none issued ...................................................................... -- -- Common stock, $1.00 par value, 50,000,000 shares authorized, 3,250,016 issued ................................................................. 3,250 3,250 Additional capital ..................................................................... 12,659 12,659 Retained earnings ...................................................................... 14,080 13,535 Treasury stock, 17,600 shares at cost .................................................. (174) (174) Accumulated other comprehensive income ................................................. (1,088) (774) --------------- --------------- Total shareholders' equity ............................................................. 28,727 28,496 --------------- --------------- Total liabilities and shareholders' equity ............................................. $ 385,411 $ 370,438 =============== =============== </TABLE> See accompanying Notes to Interim Consolidated Financial Statements. 2
GUARANTY BANCSHARES, INC. CONSOLIDATED STATEMENTS OF EARNINGS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, ----------------------------------- 2000 1999 --------------- --------------- <S> <C> <C> Interest income: Loans .................................................................................... $ 5,317 $ 3,881 Securities ............................................................................... 1,314 772 Federal funds sold and other temporary investments ....................................... 44 110 --------------- --------------- Total interest income ................................................................. 6,675 4,763 Interest expense: Deposits ................................................................................ 3,434 2,221 Other borrowed funds .................................................................... 139 --------------- --------------- Total interest expense ................................................................ 3,573 2,273 --------------- --------------- Net interest income ................................................................... 3,102 2,490 Provision for loan losses ................................................................... 130 105 --------------- --------------- Net interest income after provision for loan losses ................................... 2,972 2,385 Noninterest income: Service charges .......................................................................... 542 405 Other operating income ................................................................... 369 252 Realized (loss) gain on available-for-sale securities .................................... (34) 5 --------------- --------------- Total noninterest income .............................................................. 877 662 --------------- --------------- Noninterest expense: Employee compensation and benefits ....................................................... 1,770 1,268 Net bank premises expense ................................................................ 417 309 Other operating expenses ................................................................. 932 650 --------------- --------------- Total noninterest expenses ............................................................ 3,119 2,227 --------------- --------------- Earnings before income taxes .......................................................... 730 820 Provision for income taxes .................................................................. 185 165 --------------- --------------- Net earnings .......................................................................... $ 545 $ 655 =============== =============== Basic earnings per common share ....................................................... $ 0.17 $ 0.23 =============== =============== Diluted earnings per common share ..................................................... $ 0.17 $ 0.23 =============== =============== </TABLE> See accompanying Notes to Interim Consolidated Financial Statements. GUARANTY BANCSHARES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DOLLARS IN THOUSANDS) (UNAUDITED) <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, ---------------------------------- 2000 1999 --------------- --------------- <S> <C> <C> Balance at beginning of period ............................................................... $ 28,496 $ 23,796 Net income ................................................................................... 545 655 Change in unrealized gain/loss on securities available for sale, net of tax ................................................ (314) (166) --------------- --------------- Balance at end of period ..................................................................... $ 28,727 $ 24,285 =============== =============== </TABLE> See accompanying Notes to Interim Consolidated Financial Statements. 3
GUARANTY BANCSHARES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED) <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, ---------------------------------- 2000 1999 --------------- --------------- <S> <C> <C> Net cash provided by operating activities .................................................... 171 745 Cash flows from investing activities: Securities available for sale: Purchases .......................................................................... (9,727) (2,627) Sales .............................................................................. 5,314 1,006 Maturities, calls, and principal repayments ........................................ 2,387 3,439 Securities held to maturity: Purchases .......................................................................... -- (708) Maturities, calls, and principal repayments ........................................ -- 593 Net increase in loans .............................................................. (4,283) (11,219) Purchases of premises and equipment ................................................ (1,563) (588) Proceeds from sale of premises, equipment and other real estate .................... 56 31 Net increase in federal funds sold ................................................. (8,015) (3,615) --------------- --------------- Net cash used by investing activities ......................................... (15,831) (13,688) --------------- --------------- Cash flows from financing activities: Change in deposits ..................................................................... 10,128 11,385 Net change in short-term FHLB advances ................................................. (2,000) -- Repayment of long-term FHLB advances ................................................... (72) (69) Proceeds from issuance of long-term debt ............................................... 7,000 -- --------------- --------------- Net cash provided from financing activities ...................................... 15,056 11,316 --------------- --------------- Net increase in cash and cash equivalents ........................................ (604) (1,627) Cash and cash equivalents at beginning of period ............................................. 13,152 11,721 --------------- --------------- Cash and cash equivalents at end of period ................................................... $ 12,548 $ 10,094 =============== =============== Supplemental disclosures: Cash paid for income taxes .............................................................. $ 170 $ 115 Cash paid for interest .................................................................. 3,504 2,255 Significant non-cash transactions: Transfers from loans to real estate owned ............................................... 132 67 </TABLE> See accompanying Notes to Interim Consolidated Financial Statements. 4
GUARANTY BANCSHARES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, ---------------------------------- 2000 1999 --------------- --------------- <S> <C> <C> Net income ................................................................................ 545 655 Other comprehensive income: Unrealized gain/(loss) on available for sale securities arising during the period ......................................................... (509) (247) Reclassification adjustment for amounts realized on securities sales included in net income ........................................... 34 (5) --------------- --------------- Net unrealized gain/(loss) .................................................... (475) (252) Tax effect .................................................................... 161 86 --------------- --------------- Total other comprehensive income ......................................... (314) (166) --------------- --------------- Comprehensive income....................................................................... $ 231 $ 489 =============== =============== </TABLE> 5
GUARANTY BANCSHARES, INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2000 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) NOTE 1. BASIS OF PRESENTATION The consolidated financial statements include the accounts of Guaranty Bancshares, Inc. (the "Company") and its wholly-owned subsidiaries Guaranty (TX) Capital Trust I and Guaranty Financial Corp., Inc., which wholly owns Guaranty Bank, and one non-bank subsidiary, Guaranty Company. Guaranty Bank has three wholly-owned non-bank subsidiaries, Guaranty Leasing Company, Guaranty Mortgage Company and GB Com, Inc. All significant intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the statements reflect all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows of the Company on a consolidated basis, and all such adjustments are of a normal recurring nature. These financial statements and the notes thereto should be read in conjunction with the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 10, 2000. The Company has consistently followed the accounting policies described in the Annual Report in preparing this Form 10-Q. Operating results for the first quarter ended March 31, 2000, are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. To prepare financial statements in conformity with generally accepted accounting principles, management makes estimates and assumptions based on available information. These estimates and assumptions affect amounts reported in the financial statements and disclosures provided; future results could differ. The collectibility of loans, fair value of financial instruments and status of contingencies are particularly subject to change. NOTE 2. EARNINGS PER SHARE The following table illustrates the computation of earnings per share ("EPS") (dollars in thousands, except share data): <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, --------------------------------- 2000 1999 --------------- --------------- (UNAUDITED) <S> <C> <C> Net earnings available to common shareholders ............................................. $ 545 $ 655 Weighted average common shares used in basic EPS .......................................... 3,232,416 2,898,280 Potential dilutive common shares .......................................................... -- -- --------------- --------------- Weighted average common and potential dilutive common shares used in dilutive EPS .................................................. 3,232,416 2,898,280 =============== =============== Basic earnings per common share ........................................................... $ 0.17 $ 0.23 =============== =============== Diluted earnings per common share ......................................................... $ 0.17 $ 0.23 =============== =============== </TABLE> 6
NOTE 3. GUARANTEED PREFERRED BENEFICIAL INTERESTS IN JUNIOR SUBORDINATED DEBENTURES On March 23, 2000, the Company, in a private placement, issued $7,000,000 (7,000 shares with a liquidation amount of $1,000 per security) of 10.875% Fixed Rate Capital Trust Pass-through Securities ("TruPS") through a newly formed, wholly-owned subsidiary, Guaranty (TX) Capital Trust I (the "Trust"). The Trust invested the total proceeds from the sale of the TruPS in 10.875% Junior Subordinated Deferrable Interest Debentures (the "Debentures") issued by the Company. The net proceeds from the sale of the Debentures will be used to buy back shares of the Company's stock, provide a $1.5 million additional capital contribution to Guaranty Bank and provide for additional working capital to support growth. With certain exceptions, the amount of the principal and any accrued and unpaid interest on the Debentures are subordinated in right of payment to the prior payment in full of all senior indebtedness of the Company. The terms of the Debentures are such that they qualify as Tier I capital under the Federal Reserve Board's regulatory capital guidelines applicable to bank holding companies. Interest on the Debentures is payable semi-annually on March 8 and September 8 of each year, commencing September 8, 2000. The interest is deferrable on a cumulative basis for up to five consecutive years following a suspension of dividend payments on all other capital stock. No principal payments are due until maturity on March 8, 2030. On any March 8 or September 8 on or after March 8, 2010 and prior to maturity, the Debentures are redeemable for cash at the option of the Company, on at least 30 but not more than 60 days notice, in whole or in part, at the redemption prices set forth in the table below, plus accrued interest to the date of redemption. IF REDEEMED IF REDEEMED DURING PERCENTAGE OF DURING PERCENTAGE OF 12 MONTHS BEGINNING PRINCIPAL 12 MONTHS BEGINNING PRINCIPAL MARCH 8, AMOUNT MARCH 31, AMOUNT - -------------------- ------------------ ------------------ ---------------- 2010 105.438% 2016 102.175% 2011 104.894% 2017 101.631% 2012 104.350% 2018 101.088% 2013 103.806% 2019 100.544% 2014 103.263% 2020 and after 100.000% 2015 102.719% Upon the occurrence of certain special events, the Company will have the right to call the securities at par at any time with the permission of the Federal Reserve. These special events include, among other things: 1. A change in the laws or regulations in the United States or any taxing authority to the effect that the Trust becomes subject to federal income tax and the interest paid by the Company is no longer tax deductible. 2. A change in the law by any government agency that would make the Trust an investment company under the Investment Company Act of 1940. 3. A change in the law by any government agency that would cause the Company to not be able to treat the liquidation amount of the debt security as Tier I Capital. 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management's Discussion and Analysis includes forward-looking statements. When used in this document, the words or phrases such as, "will likely result," "are expected to," "will continue," "is anticipated," "estimated," "projected," or similar expressions are intended to identify "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties including changes in economic conditions in the Company's market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Company's market area and competition, that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. Factors listed above could affect the Company's financial performance and could cause the Company's results for future periods to differ materially from any statements expressed with respect to future periods. The Company does not undertake, and specifically disclaims any obligation, to publicly revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. GENERAL OVERVIEW Guaranty Bancshares, Inc. (the "Company") is a registered bank holding company that derives substantially all of its revenues and income from the operation of its subsidiary, Guaranty Bank (the "Bank"). The Bank is a full service bank that provides a broad line of financial products and services to small and medium-sized businesses and consumers through ten banking locations in the Texas communities of Mount Pleasant (two offices), Bogata, Commerce, Deport, Paris, Pittsburg, Sulphur Springs, Talco and Texarkana. FINANCIAL OVERVIEW Net earnings available to common shareholders for the three months ended March 31, 2000 were $545,000 or $0.17 per share compared with $655,000 or $0.23 per share for the three months ended March 31, 1999, a decrease of $110,000 or 16.8%. The decrease in net earnings was due primarily to an increase in noninterest expense of $892,000 or 40.1%, and an increase in the provision for loan losses of $25,000 or 23.8%, offset by an increase in net interest income of $612,000 or 24.6% and an increase in noninterest income of $215,000 or 32.5%. The three-month period ended March 31, 2000 showed steady growth. Gross loans increased to $259.1 million at March 31, 2000, from $255.2 million at December 31, 1999, an increase of $3.9 million or 1.5%. Total assets were $385.4 million at March 31, 2000, compared with $370.4 million at December 31, 1999. The increase of $15.0 million in total assets resulted primarily from the investment of funds provided from an increase in deposits of $10.1 million and the issuance of the Debentures of $7.0 million - See Note 3 to the Interim Consolidated Financial Statements. Total deposits were $338.8 million at March 31, 2000 compared to $328.7 million at December 31, 1999, an increase of $10.1 million or 3.1%. There were no Debentures outstanding at December 31, 1999. Total shareholders' equity was $28.7 million at March 31, 2000, compared with $28.5 million at December 31, 1999, an increase of $231,000 or 0.81%. This increase was due to earnings for the period of $545,000 less a decrease in accumulated comprehensive income of $314,000. 8
RESULTS OF OPERATIONS INTEREST INCOME Interest income for the three months ended March 31, 2000 was $6.7 million, an increase of $1.9 million or 40.1% compared with the three months ended March 31, 1999. The increase in interest income was due primarily to higher interest income on loans. Average loans were $257.9 million for the three months ended March 31, 2000, compared with $190.7 million for the three months ended March 31, 1999, an increase of $67.2 million or 35.2%. Average securities were $79.1 million for the three months ended March 31, 2000, compared with $51.2 million for the three months ended March 31, 1999, an increase of $27.9 million or 54.3%. INTEREST EXPENSE Interest expense on deposits and other interest-bearing liabilities was $3.6 million for the three months ended March 31, 2000, compared with $2.3 million for the three months ended March 31, 1999, an increase of $1.3 million or 57.2%. The increase in interest expense was due primarily to a 42.0% increase in average interest-bearing liabilities to $292.1 million for the three months ended March 31, 2000, from $205.6 million for the three months ended March 31, 1999. The increase is also due to a rise in average interest rates from 4.48% for the three months ended March 31, 1999 to 4.92% for the first three months ended March 31, 2000. NET INTEREST INCOME Net interest income was $3.1 million for the three months ended March 31, 2000 compared with $2.5 million for the three months ended March 31, 1999, an increase of $612,000 or 24.6%. The increase in net interest income resulted primarily from growth in average interest-earning assets to $340.2 million for the three months ended March 31, 2000, from $250.9 million for the three months ended March 31, 1999, an increase of $89.3 million or 35.6%. The Company's net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities, referred to as a "volume change." It is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds, referred to as a "rate change." The following tables set forth, for each category of interest-earning assets and interest-bearing liabilities, the average amounts outstanding, the interest earned or paid on such amounts, and the average rate earned or paid for the three months ended March 31, 2000 and 1999, respectively. The tables also set forth the average rate earned on total interest-earning assets, the average rate paid on total interest-bearing liabilities, and the net interest margin on average total interest-earning assets for the same periods. 9
<TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, ------------------------------------------------------------------------- 2000 1999 ------------------------------------ --------------------------------- AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE OUTSTANDING EARNED/ YIELD/ OUTSTANDING EARNED/ YIELD/ BALANCE PAID RATE BALANCE PAID RATE --------- --------- --------- --------- --------- --------- (DOLLARS IN THOUSANDS) (UNAUDITED) <S> <C> <C> <C> <C> <C> <C> Assets Interest-earning assets: Loans: Commercial and industrial ..................... $ 67,823 $ 1,393 8.26% $ 58,230 $ 1,163 8.10% Agriculture ................................... 8,723 208 9.59 -- -- -- Real estate-mortgage and construction ................................ 153,937 3,084 8.06 111,495 2,206 8.02 Installment and other ......................... 27,447 629 9.22 20,989 501 9.68 Fees on loans ................................. 3 11 Securities .................................... 79,066 1,314 6.69 51,227 772 6.11 Federal funds sold ............................ 3,177 44 5.61 6,936 83 4.85 Interest-bearing deposits in other financial institutions ................ -- -- -- 1,980 27 5.53 --------- --------- --------- --------- Total interest-earning assets ................. 340,173 6,675 7.89% 250,857 4,763 7.70% Less allowance for loan losses ..................... (2,479) (1,525) --------- --------- Total interest-earning assets, net of allowance ................. 337,694 249,332 Non-earning assets: Cash and due from banks ........................ 12,967 8,682 Premises and equipment ......................... 12,298 7,226 Interest receivable and other assets ............................. 13,714 9,321 Other real estate owned ........................ 150 135 --------- --------- Total assets ............................ $ 376,823 $ 274,696 ========= ========= LIABILITIES AND SHAREHOLDERS' Interest-bearing liabilities: NOW, savings, and money market accounts ........................... $ 93,399 $ 929 4.00% $ 65,569 $ 512 3.17% Time deposits ................................. 188,150 2,505 5.36 136,085 1,709 5.09 --------- --------- --------- --------- Total interest-bearing deposits ............................... 281,549 3,434 4.91 201,654 2,221 4.47 FHLB advances ................................. 9,877 120 4.89 3,995 52 5.28 Long-term debt ................................ 692 19 10.87 -- -- -- --------- --------- --------- --------- Total interest-bearing liabilities ............................ 292,118 $ 3,573 4.92% 205,649 $ 2,273 4.48% --------- --------- Noninterest-bearing liabilities: Demand deposits ............................... 54,162 42,249 Accrued interest, taxes and other liabilities ......................... 2,190 2,556 --------- --------- Total liabilities ......................... 348,470 250,454 Shareholders' equity ................................ 28,353 24,242 --------- --------- Total liabilities and shareholders' equity .................. $ 376,823 $ 274,696 ========= ========= Net interest income ................................. $ 3,102 $ 2,490 ========= ========= Net interest spread ................................. 2.97% 3.22% ========= ========= Net interest margin ................................. 3.67% 4.03% ========= ========= </TABLE> 10
The following table presents the dollar amount of changes in interest income and interest expense for the major components of interest-earning assets and interest-bearing liabilities and distinguishes between the increase (decrease) related to outstanding balances and the volatility of interest rates. For purposes of this table, changes attributable to both rate and volume that can be segregated have been allocated. <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, ----------------------------------------------------- 2000 VS. THREE MONTHS ENDED MARCH 31, 1999 ----------------------------------------------------- INCREASE (DECREASE) DUE TO VOLUME RATE TOTAL --------------- --------------- --------------- (DOLLARS IN THOUSANDS) (UNAUDITED) <S> <C> <C> <C> Interest-earning assets: Loans ........................................................ $ 1,399 $ 37 $ 1,436 Securities ................................................... 428 114 542 Federal funds sold ........................................... (45) 6 (39) Interest-bearing deposits in other financial institutions .................................... (27) -- (27) --------------- --------------- --------------- Total increase (decrease) in interest income ....................................................... 1,755 157 1,912 --------------- --------------- --------------- Interest-bearing liabilities: NOW, savings, and money market accounts .................................................. 221 196 417 Time deposits ................................................ 660 136 796 FHLB advances ................................................ 78 (10) 68 Long-term debt ............................................... 19 -- 19 --------------- --------------- --------------- Total increase (decrease) in interest expense ............................................ 978 322 1,300 --------------- --------------- --------------- Increase (decrease) in net interest income ................... $ 777 $ (165) $ 612 =============== =============== =============== </TABLE> 11
PROVISION FOR LOAN LOSSES Provisions for loan losses are charged to income to bring the total allowance for loan losses to a level deemed appropriate by management of the Company based on such factors as the industry diversification of the Company's commercial loan portfolio, the effect of changes in the local real estate market on collateral values, the results of recent regulatory examinations, the effects on the loan portfolio of current economic indicators and their probable impact on borrowers, the amount of charge-offs for the period, the amount of nonperforming loans and related collateral security, the evaluation of the Company's loan portfolio by Independent Bank Services, L.C. and the annual examination of the Company's financial statements by its independent auditors. The provision for loan losses for the three months ended March 31, 2000, was $130,000 compared with $105,000 for the three months ended March 31, 1999, an increase of $25,000 or 23.8%. Management believes increasing the allowance for loan losses is prudent as total loans, particularly commercial, construction, and consumer loans, increase. NONINTEREST INCOME The Company's primary sources of recurring noninterest income are service charges on deposit accounts and fee income. Noninterest income for the three months ended March 31, 2000 increased to $877,000 from $662,000 for the three months ended March 31, 1999, an increase of $215,000 or 32.5%. The increase in noninterest income for the three months ended March 31, 2000, resulted primarily from an increase in service charges on deposit accounts due to an increase in the number of deposit accounts. Additionally, fee income increased from $117,000 for the three months ended March 31, 1999 to $192,000 for the three months ended March 31, 2000. The increase was primarily due to fee income from the Cash Flow Manager program initiated in September 1999 and additional legal fee income generated from the Company's internal legal counsel. Other noninterest income increased $34,000 during the same period due primarily to additional earnings generated from the key man life insurance policies that have been in place since July 1998. The following table presents, for the periods indicated, the major categories of noninterest income (dollars in thousands): THREE MONTHS ENDED MARCH 31, ------------------------ 2000 1999 ---------- ---------- (UNAUDITED) Service charges on deposit accounts ......... $ 542 $ 405 Fee income .................................. 192 117 Fiduciary income ............................ 25 17 Other noninterest income .................... 152 118 Realized gain on securities ................. (34) 5 ---------- ---------- Total noninterest income .............. $ 877 $ 662 ========== ========== 12
NONINTEREST EXPENSES Noninterest expenses totaled $3.1 million for the three months ended March 31, 2000 compared with $2.2 million for the three months ended March 31, 1999, an increase of $892,000 or 40.1%. The following table presents, for the periods indicated, the major categories of noninterest expenses (dollars in thousands): THREE MONTHS ENDED MARCH 31, ----------------------- 2000 1999 ---------- ---------- (UNAUDITED) Employee compensation and benefits ................................ $ 1,770 $ 1,268 ---------- ---------- Non-staff expenses: Net bank premises expense .............. 417 309 Office and computer supplies ........... 102 51 Legal and professional fees ............ 71 101 Advertising ............................ 69 42 Postage ................................ 39 34 FDIC insurance ......................... 16 Other .................................. 635 415 ---------- ---------- Total non-staff expenses ............ 1,349 959 ---------- ---------- Total noninterest expenses .......................... $ 3,119 $ 2,227 ========== ========== Employee compensation and benefits expense for the three months ended March 31, 2000 was $1.8 million, an increase of $502,000 or 39.6% compared with $1.3 million for the same period in 1999. The increase for the three-month period ended March 31, 2000 was due primarily to normal salary increases and additional staff placement in the Texarkana, Mt. Pleasant, and Paris locations to handle customer growth and the recently opened Pittsburg, Sulphur Springs, and Commerce locations. The number of full-time equivalent employees was 189.0 at March 31, 2000, compared with 135.5 at March 31, 1999, an increase of 39.5%. Non-staff expenses were $1.3 million for the three months ended March 31, 2000, compared with $959,000 for the same period in 1999, an increase of $390,000 or 40.7%. Net bank premises expense increased $108,000 or 35.0% during the same period to $417,000 due to construction and remodeling projects and the addition of the new Operations Center in Mt. Pleasant, Texas. Other non-staff expenses increased $220,000 or 53.0% to $635,000 as of March 31, 2000. The primary reason for this increase is the addition of new locations which, among other expenses, resulted in an increase of $18,000 in director fees, an increase of $36,000 in supplies expense, an increase of $23,000 in ATM and debit card expenses, and an increase of $37,000 in amortization of goodwill. 13
INCOME TAXES Income tax expense increased $20,000 to $185,000 for the three months ended March 31, 2000 from $165,000 for the same period in 1999. The increase is primarily a result of fewer tax deductions available from the Company's leveraged leasing activities. The income stated on the consolidated statement of earnings differs from the taxable income due to tax-exempt income, the amount of non-deductible interest expense and the amount of other non-deductible expense. FINANCIAL CONDITION LOAN PORTFOLIO Gross loans were $259.1 million at March 31, 2000, an increase of $3.9 million or 1.5% from $255.2 million at December 31, 1999. Loan growth occurred primarily in 1-4 family residential loans, non-residential and non-farmland loans, and construction and land development loans. Loans comprised 74.1% of total interest-earning assets at March 31, 2000 compared with 75.9% at December 31, 1999. The following table summarizes the loan portfolio of the Company by type of loan as of March 31, 2000 and December 31, 1999: <TABLE> <CAPTION> (DOLLARS IN THOUSANDS) ---------------------------------------------------------------------- MARCH 31, 2000 DECEMBER 31, 1999 --------------------------------- --------------------------------- AMOUNT PERCENT AMOUNT PERCENT --------------- --------------- --------------- --------------- (UNAUDITED) <S> <C> <C> <C> <C> Commercial and industrial ................... $ 57,890 22.34% $ 61,153 23.96% Agriculture ................................. 8,528 3.29 9,102 3.57 Real estate: Construction and land ............. 9,188 3.55 7,926 3.11 1-4 family residential ............ 87,755 33.87 83,777 32.83 Farmland .......................... 7,831 3.02 7,976 3.13 Non-residential and non-farmland. . 56,387 21.76 52,303 20.49 Multi-family residential .......... 4,525 1.75 6,239 2.44 Consumer .................................... 27,004 10.42 26,733 10.47 --------------- --------------- --------------- --------------- Total loans ............. $ 259,108 100.00% $ 255,209 100.00% =============== =============== =============== =============== </TABLE> ALLOWANCE FOR LOAN LOSSES In originating loans, the Company recognizes that it will experience credit losses and the risk of loss will vary with, among other things, general economic conditions, the type of loan being made, the creditworthiness of the borrower over the term of the loan and, in the case of a collateralized loan, the quality of the collateral for such loan. The Company maintains an allowance for loan losses in an amount that it believes is adequate for estimated losses in its loan portfolio. Management determines the adequacy of the allowance through its evaluation of the loan portfolio. In addition to unallocated allowances, specific allowances are provided for individual loans when ultimate collection is considered questionable by management after reviewing the current status of loans which are contractually past due and considering the net realizable value of the collateral for the loan. Loans are charged-off against the allowance for loan losses when appropriate. Although management believes it uses the best information available to make determinations with respect to the allowance for loan losses, future adjustments may be necessary 14
if economic conditions differ from the assumptions used in making the initial determinations. At March 31, 2000, and December 31, 1999, the allowance for loan losses totaled $2.5 million or 0.98% of gross loans. The allowance for loan losses as a percentage of nonperforming loans was 140.29% at March 31, 2000. Set forth below is an analysis of the allowance for loan losses for the periods indicated (dollars in thousands): <TABLE> <CAPTION> THREE MONTHS YEAR ENDED ENDED MARCH 31, DECEMBER 31, 2000 1999 --------------- --------------- (UNAUDITED) <S> <C> <C> Average loans outstanding ................................................................. $ 257,930 $ 213,737 =============== =============== Gross loans outstanding at end of period .................................................. $ 259,108 $ 255,209 =============== =============== Allowance for loan losses at beginning of period .......................................... 2,491 1,512 Provision for loan losses ................................................................. 130 310 Balance acquired with First American Acquisition .......................................... 846 Charge-offs: Commercial and industrial ....................................................... (82) (64) Real estate ..................................................................... (21) (2) Consumer ........................................................................ (25) (267) Recoveries: Commercial and industrial ....................................................... 22 65 Real estate ..................................................................... 8 42 Consumer ........................................................................ 26 49 --------------- --------------- Net loan (charge-offs) recoveries ......................................................... (72) (177) --------------- --------------- Allowance for loan losses at end of period ................................................ $ 2,549 $ 2,491 =============== =============== Ratio of allowance to end of period loans ................................................. 0.98% 0.98% Ratio of net charge-offs to average loans ................................................. 0.03% 0.08% Ratio of allowance to end of period nonperforming loans ................................... 140.29% 244.94% </TABLE> 15
NONPERFORMING ASSETS Nonperforming assets were $2.0 million at March 31, 2000 compared with $1.1 million at December 31, 1999. Four lines of credit totaling $1.3 million were added to nonaccrual loans during the quarter ended March 31, 2000, while three lines of credit were removed totaling $560,000. Management anticipates minimal losses on the total of these new nonperforming assets. The ratio of nonperforming assets to total loans and other real estate was 0.76% and 0.43% at March 31, 2000, and December 31, 1999, respectively. The following table presents information regarding nonperforming assets as of the dates indicated (dollars in thousands): MARCH 31, DECEMBER 31, 2000 1999 --------------- --------------- (UNAUDITED) Nonaccrual loans .......................... $ 1,185 $ 443 Accruing loans 90 or more days past due ... 632 574 --------------- --------------- Total nonperforming loans ....... 1,817 1,017 Other real estate ......................... 157 79 --------------- --------------- Total nonperforming assets ...... $ 1,974 $ 1,096 =============== =============== SECURITIES Securities totaled $81.3 million at March 31, 2000, an increase of $1.5 million from $79.8 million at December 31, 1999. At March 31, 2000, securities represented 21.1% of total assets compared with 21.5% of total assets at December 31, 1999. The yield on average securities for the three months ended March 31, 2000, was 6.69% compared with 6.11% for the same period in 1999. At March 31, 2000, securities included $27.9 million in U.S. Government securities, $29.9 million in mortgage-backed securities, $16.6 million in collateralized mortgage obligations, $1.6 million in equity securities, and $5.3 million in municipal securities. The average life of the securities portfolio at March 31, 2000, was approximately five years. PREMISES AND EQUIPMENT Premises and equipment totaled $13.0 million at March 31, 2000 and $11.7 million at December 31, 1999. The net change reflects an increase of $1.3 million or 11.8%, in fixed assets. The increase is primarily due to the capitalized construction cost incurred for the Mt. Pleasant Operations Center, the new full-service bank location in Pittsburg, Texas, and major remodeling projects in the Sulphur Springs, Commerce, and Mt. Pleasant, Texas locations. OTHER ASSETS On July 1, 1998, the Company invested $3.1 million in single insurance premium policies, which insure the lives of certain senior officers of the Company. As of March 31, 2000, and December 31, 1999, the net surrender values of these policies totaled $3.9 million. Goodwill recorded in connection with the First American Acquisition in September 1999, the Deport Acquisition in 1992 and the Bogata Acquisition in 1993 totaled $3.1 million at March 31, 2000, and at December 31, 1999. 16
DEPOSITS At March 31, 2000, demand, money market and savings deposits accounted for approximately 45.0% of total deposits, while certificates of deposit made up 55.0% of total deposits. Noninterest-bearing demand deposits totaled $59.1 million or 17.5% of total deposits at March 31, 2000, compared with $56.4 million or 17.2% of total deposits at December 31, 1999. The average cost of deposits, including noninterest-bearing demand deposits, was 4.11% for the three months ended March 31, 2000 compared with 3.69% for the same period in 1999. LIQUIDITY The Company's Asset/Liability Management Policy is intended to maintain adequate liquidity for the Company. Liquidity involves the Company's ability to raise funds to support asset growth or reduce assets to meet deposit withdrawals and other payment obligations, to maintain reserve requirements and otherwise to operate the Company on an ongoing basis. The Company's liquidity needs are primarily met by growth in core deposits. Although access to purchased funds from correspondent banks is available and has been utilized on occasion to take advantage of investment opportunities, the Company does not rely on these external-funding sources. The cash and federal funds sold position, supplemented by amortizing investments along with payments and maturities within the loan portfolio, has historically created an adequate liquidity position. The Company's cash flows are composed of three classifications: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities. As summarized in the Condensed Consolidated Statements of Cash Flow, the most significant transactions which affected the Company's level of cash and cash equivalents, cash flows, and liquidity during the first quarter of 2000 were the net increase in federal funds sold of $8.0 million, the net increase in loans of $4.3 million, securities purchases of $9.7 million, securities sales of $5.3 million, the net increase in deposits of $10.1 million, and proceeds from the issuance of long-term debt of $7.0 million. CAPITAL RESOURCES Total shareholders' equity as of March 31, 2000, was $28.7 million, an increase of $231,000 or 0.81% compared with shareholders' equity of $28.5 million at December 31, 1999. This increase was due to earnings for the period of $545,000 less a decrease in accumulated comprehensive income of $314,000. Both the Board of Governors of the Federal Reserve System ("Federal Reserve"), with respect to the Company, and the Federal Deposit Insurance Corporation ("FDIC"), with respect to the Bank, have established certain minimum risk-based capital standards that apply to bank holding companies and federally insured banks, respectively. As of March 31, 2000, the Company's Tier 1 risk-based capital, total risk-based capital and leverage capital ratios were 12.38%, 13.34%, and 8.65%, respectively. As of March 31, 2000, the Bank's risk-based capital ratios remain above the levels required for the Bank to be designated as "well capitalized" by the FDIC with Tier 1 risk-based capital, total risk-based capital and leverage capital ratios of 9.27%, 10.23%, and 6.52%, respectively. YEAR 2000 PREPAREDNESS The Company successfully completed the Year 2000 changeover without any problems in its core business processes. The Company has confirmed normal business operations across all products and markets on a sustained basis. While management believes it is unlikely, problems associated with non-compliant third parties could still occur. Management will continue to monitor all business processes and relationships with third parties during 2000 to ensure that all processes continue to function properly. 17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. There have been no material changes in the market risk information disclosed in the Company's Form 10-K for the year ended December 31, 1999. See Form 10-K, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Interest Rate Sensitivity and Liquidity." PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS (a) None (b) None (c) None (d) None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit - 11, Statement regarding computation of earnings per share. Exhibit - 27, Financial Data schedule. (b) Reports on Form 8-K Form 8-K was filed on January 25, 2000. Under Item 4, changes in Registrant's Certifying Accountant, the Company announced the dismissal of Arnold, Walker, Arnold & Co., P.C. as its independent auditors effective upon the completion of the audit of the Company's 1999 financial statements. Additionally, the Company announced the engagement of Fisk & Robinson, P.C. to serve as the Company's independent auditors for the 2000 financial statements. Form 8-K/A was filed on February 25, 2000. The Company amended the prior Form 8-K filed on January 25, 2000 to report February 23, 2000 as the effective date of dismissal of Arnold, Walker, Arnold & Co., P.C. as the Company's independent auditors. 18
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GUARANTY BANCSHARES, INC. (Registrant) Date: May 15, 2000 By: /s/ ARTHUR B. SCHARLACH ------------------------------- Arthur B. Scharlach, Jr. President (Principal Executive Officer) Date: May 15, 2000 By: /s/ CLIFTON A. PAYNE ------------------------------- Clifton A. Payne Senior Vice President and Chief Financial Officer (Principal Financial Officer) 19
INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION PAGE NUMBER - ------- ----------- ----------- 10 Amended and Restated Declaration of Trust - Guaranty (TX) Trust I - Dated as of March 23, 2000 23 11 Statement regarding computation Reference is hereby made of earnings per share to Note 2 of Notes to Interim Consolidated Financial Statements on page 6 hereof. 27 Financial Data Schedule 21 20