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 JUNE 30, 2005.
OR
o
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 incorporation or organization)
(I.R.S. Employer 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.
Yesx
Noo
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
As of August 11, 2005, there were 2,825,748 shares of the registrant’s Common Stock, par value $1.00 per share, outstanding.
GUARANTY BANCSHARES, INC. INDEX TO FORM 10-Q
Page
PART I - FINANCIAL INFORMATION
Item 1.
Unaudited Interim Consolidated Financial Statements
Unaudited Consolidated Balance Sheets
3
Unaudited Consolidated Statements of Earnings
4
Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity
5
Unaudited Condensed Consolidated Statements of Cash Flows
6
Unaudited Consolidated Statements of Comprehensive Income
7
Notes to Interim Consolidated Financial Statements
8
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
13
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
26
Item 4.
Controls and Procedures
PART II - OTHER INFORMATION
Legal Proceedings
Unregistered Sales of Equity Securities and Use of Proceeds
27
Defaults upon Senior Securities
Submission of Matters to a Vote of Security Holders
Item 5.
Other Information
Item 6.
Exhibits
28
Signatures
29
2
PART I – FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS GUARANTY BANCSHARES, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT PAR VALUE)
June 30, 2005
December 31, 2004
(Unaudited)
ASSETS
Cash and due from banks
$
16,187
14,949
Federal funds sold
510
9,075
Interest-bearing deposits
212
210
Total cash and cash equivalents
16,909
24,234
Interest-bearing time deposits
13,122
12,823
Securities available for sale
119,645
103,751
Loans held for sale
1,524
1,749
Loans, net of allowance for loan losses of $4,423 and $4,154
383,350
371,431
Premises and equipment, net
14,183
13,471
Other real estate
672
692
Accrued interest receivable
3,163
2,794
Goodwill
2,338
Cash surrender value of life insurance
5,345
5,260
Other assets
4,044
3,423
Total assets
564,295
541,966
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits
Noninterest-bearing
87,858
82,302
Interest-bearing
358,378
351,441
Total deposits
446,236
433,743
Accrued interest and other liabilities
5,032
4,736
Federal Home Loan Bank advances
65,363
54,553
Junior subordinated debentures
10,310
Total liabilities
526,941
503,342
Commitments and Contingencies
—
Shareholders’ equity
Preferred stock, $5.00 par value, 15,000,000 shares authorized, no shares issued
Common stock, $1.00 par value, 50,000,000 shares authorized, 3,252,016 shares issued
3,252
Additional paid-in capital
12,881
12,882
Retained earnings
27,850
26,405
Treasury stock, 426,268 and 339,339 shares at cost
(6,195
)
(4,179
Accumulated other comprehensive (loss) income
(434
264
Total shareholders’ equity
37,354
38,624
Total liabilities and shareholders’ equity
See accompanying notes to interim consolidated financial statements.
GUARANTY BANCSHARES, INC. CONSOLIDATED STATEMENTS OF EARNINGS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
Three Months Ended June 30,
Six Months Ended June 30,
2005
2004
Interest income
Loans, including fees
6,244
5,640
12,153
11,328
Securities
Taxable
957
805
1,927
1,763
Nontaxable
200
350
43
Federal funds sold and interest-bearing deposits
132
38
245
78
Total interest income
7,533
6,512
14,675
13,212
Interest expense
2,090
1,424
3,967
2,823
FHLB advances and federal funds purchased
574
496
1,090
996
251
501
502
Total interest expense
2,915
2,171
5,558
4,321
Net interest income
4,618
4,341
9,117
8,891
Provision for loan losses
60
230
260
480
Net interest income after provision for loan losses
4,558
4,111
8,857
8,411
Noninterest income
Service charges
776
797
1,476
1,521
Net realized gain on securities transactions
42
Other operating income
627
438
1,318
900
Total noninterest income
1,403
1,235
2,463
Noninterest expense
Employee compensation and benefits
2,579
2,346
5,135
4,822
Occupancy expenses
559
542
1,096
1,052
Other operating expenses
1,188
1,202
2,342
2,330
Total noninterest expenses
4,326
4,090
8,573
8,204
Earnings before provision for income taxes
1,635
1,256
3,078
2,670
Provision for income taxes
537
415
997
Net earnings
1,098
841
2,081
1,873
Basic earnings per common share
0.39
0.29
0.73
0.64
Diluted earnings per common share
0.38
0.28
0.71
0.63
GUARANTY BANCSHARES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DOLLARS IN THOUSANDS) (UNAUDITED)
Balance at beginning of period
38,543
37,629
36,448
Cash dividends declared on common stock
(594
(584
Purchases of treasury stock
(2,197
(2,218
Exercise of stock options
159
Change in unrealized gain (loss) on securities available for sale, net of tax
426
(1,357
(698
(1,208
Balance at end of period
36,531
GUARANTY BANCSHARES, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(DOLLARS IN THOUSANDS)(UNAUDITED)
Net cash provided by operating activities
3,092
3,566
Cash flows from investing activities
Securities available for sale:
Purchases
(26,772
(17,334
Sales
1,542
Proceeds from maturities and principal repayments
9,441
15,580
Net purchases of interest-bearing time deposits
(299
(1,472
Net increase in loans
(12,243
(7,331
Net purchases of premises and equipment
(1,276
(778
Net proceeds from sale of other real estate
82
138
Net cash used in investing activities
(31,067
(9,655
Cash flows from financing activities
Net change in deposits
12,493
5,403
Proceeds from FHLB advances
35,000
4,000
Repayment of FHLB advances
(24,190
(180
Net change in federal funds purchased
(6,215
Purchase of treasury stock
Dividends paid
Net cash provided by financing activities
20,650
2,426
Net change in cash and cash equivalents
(7,325
(3,663
Cash and cash equivalents at beginning of period
20,816
Cash and cash equivalents at end of period
17,153
Supplemental disclosures:
Cash paid for income taxes
630
1,005
Cash paid for interest
5,421
4,350
Significant non-cash transactions:
Transfers from loans to real estate owned
64
Deconsolidation of Guaranty (TX) Capital Trust I and II
310
GUARANTY BANCSHARES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (DOLLARS IN THOUSANDS) (UNAUDITED)
Other comprehensive income:
Unrealized gain (loss) on available for sale securities arising during the period
645
(2,056
(1,058
(1,789
Reclassification adjustment for amounts realized on securities sales included in net earnings
(42
Net unrealized gain (loss)
(1,831
Tax effect
(219
699
360
623
Total other comprehensive income (loss)
Comprehensive income (loss)
(516
1,383
665
GUARANTY BANCSHARES, INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2005 (UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the accounts of Guaranty Bancshares, Inc. (the “Company”) and its wholly owned subsidiary Guaranty Financial Corp., Inc., which wholly owns Guaranty Bond Bank (the “Bank”). Guaranty Bond Bank has three wholly owned non-bank subsidiaries, Guaranty Leasing Company, Guaranty Company and GB Com, Inc. and partial interests in two non-bank subsidiaries, BSC Securities, L.C. (“BSC”) and Independent Bank Services, L.C. (“IBS”). All entities combined are collectively referred to as the “Company”. 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 accounting principles generally accepted in the United States of America for a complete presentation of the financial position. In the opinion of management, the accompanying unaudited consolidated financial 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 audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004, filed with the Securities and Exchange Commission on March 18, 2005. The Company has consistently followed the accounting policies described in the audited financial statements in preparing these interim financial statements. Operating results for the three and six months ended June 30, 2005, are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.
In preparation of the accompanying unaudited consolidated financial statements, management is required to make estimates and assumptions, which are based on information available at the time such estimates and assumptions are made. These estimates and assumptions affect the amounts reported in the accompanying unaudited consolidated financial statements. Accordingly, future results may differ if the actual amounts and events are not the same as the estimates and assumptions of management. The collectability of loans, fair value of financial instruments and other real estate values and status of contingencies are particularly subject to change.
NOTE 2. RECENT DEVELOPMENTS
On June 7, 2005, the Board of Directors of the Company publicly announced that it had entered an agreement and plan of merger that will result in the suspension of its duty to file supplemental and periodic information, documents and reports, including Forms 10-K, 10-Q and 8-K, with the SEC. Under the terms of the agreement, which is subject to shareholder approval, Guaranty Facilitation, Inc., a Texas corporation and wholly owned subsidiary of the Company, will be merged with and into the Company, with the Company as the surviving entity. Pursuant to the merger, shareholders owning less than 600 shares of the Company’s common stock as of the effective time of the merger will receive $24.00 in cash for each share of common stock they own. Shareholders owning 600 or more shares will continue to hold their shares after the merger. Based on share ownership records as of May 25, 2005, management expects that 61,749 shares of Company common stock, or 2.18% of the outstanding common stock, will be converted into the right to receive cash in the merger. On July 11, 2005, the Company filed a preliminary proxy statement on Schedule 14A and a Schedule 13E-3 Transaction Statement with the SEC. The Company will mail a definitive proxy statement to shareholders with respect to the special meeting to be held to consider and vote upon approval of the merger.
NOTE 3. EARNINGS PER SHARE
Earnings per share is computed in accordance with the Statement of Financial Accounting Standards No. 128, which requires dual presentation of basic and diluted earnings per share (“EPS”) for entities with complex capital structures. Basic EPS is based on net earnings divided by the weighted-average number of shares outstanding during the period. Diluted EPS includes the dilutive effect of stock options granted using the treasury stock method. The weighted-average number of common shares outstanding for basic and diluted earnings per share computations as of the dates indicated were as follows:
Weighted-average shares outstanding - Basic
2,828,801
2,921,950
2,870,381
2,921,939
Effect of stock options
41,911
40,382
44,199
41,790
Weighted-average shares outstanding - Diluted
2,870,712
2,962,332
2,914,580
2,963,729
NOTE 4. STOCK OPTIONS
In 1998, the Company’s Board of Directors, with the approval of shareholders, adopted the 1998 Stock Incentive Plan. Under the provisions of this plan, 1,000,000 shares have been reserved for issuance. The plan provides for the grant of nonqualified and incentive stock options, restricted stock awards, stock appreciation rights, phantom stock awards and performance awards. As of June 30, 2005, only incentive stock options have been granted under the plan. The exercise prices of all such options have been equal to the fair market value per share of the Company’s common stock on the date of the grant. Options granted under the plan generally expire after eight years and generally vest and become exercisable in five equal annual installments commencing on the first anniversary of the date of grant and annually thereafter.
9
A summary of the status of the Company’s stock options as of the dates indicated and the changes during the periods ended on those dates is presented below:
# Shares of Underlying Options
Weighted- Average Exercise Price
Outstanding at beginning of the period
161,300
13.50
142,500
11.33
141,300
11.58
144,500
11.42
Granted
1,500
21.00
29,500
21.97
Exercised
(8,200
10.17
(200
15.23
(16,200
9.74
Canceled
(2,000
17.78
Outstanding at end of the period
154,600
13.75
142,300
Exercisable at end of the period
92,500
10.48
83,000
10.14
Weighted-average fair value of options granted during the period
3.44
N/A
3.54
The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes method of option pricing with the following weighted-average assumptions for grants in 2005: dividend yield of 1.82%; expected volatility of 9.60%; risk-free interest rate of 4.09%, and an expected life of 7.00 years. There were no options granted in the six months ended June 30, 2004.
The following table summarizes information about stock options outstanding at June 30, 2005:
Exercise Price Range
Options Outstanding
Options Exercisable
Weighted- Average Remaining Contractual Life in Years
$0.00 - 9.30
69,500
2.75
9.30
9.31 - 12.50
15,000
9,000
4.67
12.50
12.51 - 15.23
35,600
14,000
5.83
15.24 - 19.50
3,000
7.08
19.50
19.51 - 21.75
6,000
7.53
21.56
21.76 - 21.79
5,000
7.58
21.79
21.80 - 22.06
18,000
7.67
22.06
Greater than $22.06
2,500
22.48
4.72
10
In accordance with accounting standard, SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure, an Amendment of FASB Statement No. 123”, the Company transitioned to the fair value method of accounting for stock-based compensation during 2002 using the modified prospective method prescribed by the standard. Under the modified prospective method, the Company began recognizing stock-based employee compensation expense from the beginning of 2002 as if the fair value method had been used to account for all employee awards granted, modified, or settled in fiscal years beginning after December 15, 1994. The fair value of options granted is determined using the Black-Scholes option valuation model. Stock-based employee compensation expense totaled approximately $12,000 and $22,000 for the three months ended June 30, 2005 and 2004, respectively and approximately $36,000 and $43,000 for the six months ended June 30, 2005 and 2004, respectively.
NOTE 5. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company enters into various transactions, which, in accordance with accounting principles generally accepted in the United States of America, are not included in the consolidated balance sheets. These transactions are referred to as “off-balance sheet commitments.” The Company enters into these transactions to meet the financing needs of its customers. These transactions include commitments to extend credit and letters of credit, which involve elements of credit risk in excess of the amounts recognized in the consolidated balance sheets. The Company minimizes its exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures.
The Company enters into contractual commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Customers use credit commitments to ensure that funds will be available for working capital purposes, for capital expenditures and to ensure access to funds at specified terms and conditions. Substantially all of the Company’s commitments to extend credit are contingent upon customers maintaining specific credit standards at the time of loan funding. Management assesses the credit risk associated with certain commitments to extend credit in determining the level of the allowance for loan losses.
Letters of credit are written conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The Company’s policies generally require that letters of credit arrangements contain security and debt covenants similar to those contained in loan agreements. In the event the customer does not perform in accordance with the terms of the agreement with the third party, the Company would be required to fund the commitment. The maximum potential amount of future payments the Company could be required to make is represented by the contractual amount shown in the table below. If the commitments were funded, the Company would be entitled to seek recovery from the customer. As of June 30, 2005 and December 31, 2004, no amounts have been recorded as liabilities for the Company’s potential obligations under these guarantees.
Outstanding commitments and letters of credit as of the dates indicated are approximately as follows since commitments associated with letters of credit and commitments to extend credit may expire unused, the amounts shown do necessarily reflect the actual future cash funding requirements (dollars in thousands):
Contract or Notional Amount
Commitments to extend credit
28,308
29,166
Letters of credit
1,710
1,416
11
The Company is involved in certain claims and lawsuits occurring in the normal course of business. The Company accrues for estimated losses in the accompanying financial statements for those matters where management believes the likelihood of an adverse outcome is probable and the amount of the loss is reasonably estimable. After consultation with legal counsel, management currently believes the outcome of outstanding legal proceedings, claims and litigation involving the Company will not have a material adverse effect on the Company’s business, financial condition or results of operations.
Guaranty Leasing Company is a substantial partner in various complex equipment leasing transactions primarily originated in 1992, 1994 and 1995 (collectively, the “Partnerships” or individually, the “1992 Partnership”, “1994 Partnership” and “1995 Partnership”, respectively) involving leveraged leases. In November 1998, Guaranty Leasing was informed by the Internal Revenue Service (the “Service”) that it has taken the position that certain losses taken by the 1992 Partnership during 1994, 1995 and 1996 of $302,000, $410,000, and $447,000, respectively, would be disallowed. In October 2001, Guaranty Leasing was informed by the Service that it has taken the position that certain losses taken by that Partnership during 1997 of $487,000 would also be disallowed. In September 2002, the Company received from the Service a Notice of Final Partnership Administrative Adjustment disallowing these deductions. Based upon the advice of counsel, the Company believes that it has correctly reported these transactions for tax purposes and that it has obtained appropriate legal, accounting and appraisal opinions and authority to support its positions. The Company recorded and expensed the tax affect of the disallowed deductions in 2002.
In February 2003, the Company filed a petition to begin the process to litigate the matter in the United States District Court for the Eastern District of Texas (the “Texas Court”). In October 2003, the Government filed a Motion to Transfer Venue from the Texas Court to the United States District Court for the Eastern District for Virginia, (the “Virginia Court”) but in the alternative, claimed the Texas Court had no jurisdiction to hear the case. In November 2003, the Government filed a Motion to Stay Proceedings. In December 2003, and still in effect, the Texas Court issued an Order to Stay Proceedings pending the Court’s ruling on the Government’s Motion to Transfer Venue.
In March 2005 the Federal Circuit in TCLA, 1990-II v. United States held that Section 6226(a)(2)’s “principal place of business” language is a venue provision, not a jurisdictional requirement and notified by letter the Texas Court. In April 2005 the Texas Court, based on the “Federal Circuit” definitive ruling on the jurisdictional requirement, determined that the Texas Court does have jurisdiction, and subsequently, denied the government’s request for change of venue. The Texas Court has determined that venue lies within the Eastern District of Texas and on May 18, 2005 issued a Scheduling Order that put into effect deadlines leading up to a Final Pretrial Conference for June 2006.
In March 2004, the Company was informed by the Service that it had taken the position that certain losses taken by the 1994 Partnership during the tax years of 1994 through 1999 would be disallowed and tax owed totaling $439,000 would be assessed. As of June 30, 2005, the Company has not received a Notice of Final Partnership Administrative Adjustment on this Partnership. Based upon the advice of counsel, the Company believes that it has correctly reported these transactions for tax purposes and that it has obtained appropriate legal, accounting and appraisal opinions and authority to support its positions.
In addition to the ongoing litigation regarding the Partnerships, the Service is currently in the process of examining the tax deductions taken for the 1995 Partnership. No determination has been made regarding the disallowance of similar deductions taken by this Partnership. Should the Service ultimately disallow the related tax deductions taken during the remaining years of the 1992 Partnership as well as the other two Partnerships, the Company will be required to recognize an additional maximum tax liability of approximately $3.9 million plus possible penalty and interest. The Company is actively contesting the position of the Service in connection with this matter, and has taken and will continue to take, appropriate steps necessary to protect its legal position. Any final determination with respect to the Partnerships will be binding on the Company.
12
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements in this Quarterly Report on Form 10-Q include forward-looking information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the “Safe Harbor” created by those sections. When used in this document, the words “believes,” “plans,” “expects,” “anticipates,” “intends,” “continue,” “may,” “will,” “should” or the negative of such terms and similar expressions as they relate to the Company, its customers or its management, are intended to identify forward-looking statements. These forward-looking statements may involve known and unknown risks and uncertainties and other factors beyond the Company’s control that could cause actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include, but are not limited to, the following factors: competitive pressure in the banking industry significantly increasing; changes in the interest rate environment reducing margins; general economic conditions, either nationally or regionally, are less favorable than expected, resulting in, among other things, a deterioration in credit quality and an increase in the provision for loan losses; changes in the regulatory environment; changes in business conditions; volatility of rate sensitive deposits; operational risks including data processing system failures or fraud; asset/liability matching risks and liquidity risks; and changes in the securities markets and the factors contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 as filed with the Securities and Exchange Commission.
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 Bond 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 eleven banking locations in the Texas communities of Mount Pleasant (two offices), Bogata, Commerce, Mount Vernon, Paris, Pittsburg, Sulphur Springs, Talco and Texarkana (two offices). The Company also maintains an office in Fort Stockton, Texas that limits its product offerings to loans and time deposits.
FINANCIAL OVERVIEW
Net earnings for the three months ended June 30, 2005 were $1.1 million ($0.38 per diluted share) compared to $841,000 ($0.28 per diluted share) for the three months ended June 30, 2004, an increase of $257,000 or 30.6%. For the three months ended June 30, 2005 compared with the same period in 2004, net interest income increased $277,000, or 6.4%, noninterest income increased $168,000, or 13.6%, and the provision for loan loss decreased $170,000, or 73.9%. These changes were partially offset by an increase in noninterest expense of $236,000, or 5.8%, and an increase in provision for income taxes of $122,000, or 29.4%. Net earnings for the six months ended June 30, 2005 were $2.1 million ($0.71 per diluted share) compared to $1.9 million ($0.63 per diluted share) for the six months ended June 30, 2004, an increase of $208,000 or 11.1%. For the six months ended June 30, 2005 compared with the same period in 2004, net interest income increased $226,000, or 2.5%, noninterest income increased $331,000, or 13.4%, and the provision for loan loss decreased $220,000, or 45.8%. These changes were partially offset by an increase in noninterest expense of $369,000, or 4.5%, and an increase in provision for income taxes of $200,000, or 25.1%.
Gross loans, including loans held for sale, increased to $389.3 million at June 30, 2005, from $377.3 million at December 31, 2004, an increase of $12.0 million or 3.2%. Total assets increased to $564.3 million at June 30, 2005, compared with $542.0 million at December 31, 2004. The $22.3 million increase in total assets is primarily due to the $12.0 million increase in gross loans and a $15.9 million increase in securities available for sale, partially offset by a decrease in federal funds sold of $8.6 million. Total deposits increased to $446.2 million at June 30, 2005 compared with $433.7 million at December 31, 2004. This increase comes primarily from an increase in certificates of deposit of $12.4 million, or 5.7%, and an increase in demand deposits of $3.9 million, or 4.7%. Federal Home Loan Bank advances increased to $65.4 million at June 30, 2005 compared with $54.6 million at December 31, 2004.
Total shareholders’ equity was $37.4 million at June 30, 2005, representing a decrease of $1.3 million from December 31, 2004. This decrease was due to a decrease in accumulated other comprehensive income of $698,000, purchases of treasury stock of $2.2 million and dividends declared on common stock of $594,000. These changes were offset by net earnings for the six month period of $2.1 million and proceeds from exercise of stock options of $159,000.
RESULTS OF OPERATIONS
Interest Income
Interest income for the three months ended June 30, 2005 was $7.5 million, an increase of $1.0 million or 15.7%, compared with the three months ended June 30, 2004. The increase in interest income is due primarily to the increase in volume of average interest-earning assets from $472.2 million for the quarter ended June 30, 2004 to $518.7 million for the same period in 2005. Average loans increased $13.6 million, or 3.7%, and average securities increased $24.5 million, or 26.4%. The average interest rate earned on interest-earning assets increased from 5.55% for the three months ended June 30, 2004 to 5.83% for the three months ended June 30, 2005. Interest income for the six months ended June 30, 2005 was $14.7 million, an increase of $1.5 million or 11.1%, compared with the six months ended June 30, 2004. The increase in interest income is due primarily to the increase in volume of average interest-earning assets from $470.9 million for the six months ended June 30, 2004 to $511.9 million for the same period in 2005. Average loans increased $14.1 million, or 3.8%, and average securities increased $19.7 million, or 20.8%. The average interest rate earned on interest-earning assets increased from 5.64% for the six months ended June 30, 2004 to 5.78% for the six months ended June 30, 2005.
Interest Expense
Interest expense on deposits and other interest-bearing liabilities was $2.9 million for the three months ended June 30, 2005 compared with $2.2 million for the three months ended June 30, 2004, an increase of $744,000 or 34.3%. The increase in interest expense was primarily due to an increase in cost of funds from 2.18% for the quarter ended June 30, 2004 compared to 2.71% for the quarter ended June 30, 2005. Average interest-bearing liabilities increased from $401.3 million for the quarter ended June 30, 2004 to $431.9 million for the same period in 2005. The increase in total average interest-bearing liabilities is primarily due to a $22.0 million, or 6.5%, increase in average deposits from $338.9 million for the three months ended June 30, 2004, to $360.9 million for the three months ended June 30, 2005. Interest expense on deposits and other interest-bearing liabilities was $5.6 million for the six months ended June 30, 2005 compared with $4.3 million for the six months ended June 30, 2004, an increase of $1.2 million or 28.6%. The increase in interest expense was primarily due to an increase in cost of funds from 2.16% for the six months ended June 30, 2004 compared to 2.62% for the six months ended June 30, 2005. Average interest-bearing liabilities increased from $402.8 million for the six months ended June 30, 2004 to $427.4 million for the same period in 2005. The increase in total average interest-bearing liabilities is primarily due to a $17.9 million, or 5.2%, increase in average interest-bearing deposits from $340.6 million for the six months ended June 30, 2004 to $358.4 million for the six months ended June 30, 2005.
Net Interest Income
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.”
14
Net interest income was $4.6 million for the three months ended June 30, 2005 compared with $4.3 million for the three months ended June 30, 2004, an increase of $277,000 or 6.4%. The increase in net interest income is driven by an increase in yield on average interest-earning assets from 5.55% for the three months ended June 30, 2004 to 5.83% for the three months ended June 30, 2005 and an increase in volume of average interest-earning assets from $472.2 million for the quarter ended June 30, 2004 compared to $518.7 million for the same period in 2005. The increase in net interest income was partially offset by the increase in cost of funds from 2.18% for the three months ended June 30, 2004 to 2.71% for the three months ended June 30, 2005. The net interest margin for the three months ended June 30, 2005 compared to the same three months ended June 30, 2004 decreased to 3.57% from 3.70%. Net interest income was $9.1 million for the six months ended June 30, 2005 compared with $8.9 million for the six months ended June 30, 2004, an increase of $226,000 or 2.5%. The net interest margin decreased to 3.59% from 3.80% for the six months ended June 30, 2005 compared to the same three months ended June 30, 2004.
The following tables present for the periods indicated, an analysis of net interest income by each major category of interest-earning assets and interest-bearing liabilities, the average amounts outstanding, and the interest earned or paid on such amounts. The tables also set forth the average yield 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. No tax equivalent adjustments were made and all average balances are daily average balances. Nonaccruing loans have been included in the tables as loans carrying a zero yield.
15
Average Outstanding Balance
Interest Earned/ Paid
Average Yield/ Rate
(Dollars in thousands) (Unaudited)
Assets
Interest-earning assets:
Loans
383,982
6.52
%
370,410
6.12
117,699
1,157
3.94
93,151
834
3.60
17,002
3.11
8,628
1.77
Total interest-earning assets
518,683
472,189
5.55
Less allowance for loan losses
(4,405
(4,023
Total interest-earning assets, net of allowance
514,278
468,166
Non-earning assets:
16,399
20,327
Premises and equipment
13,820
13,300
Interest receivable and other assets
16,687
16,078
Other real estate owned
644
887
561,828
518,758
Liabilities and shareholders’ equity
Interest-bearing liabilities:
NOW, savings, and money market accounts
131,759
512
1.56
120,377
262
0.88
Time deposits
229,125
1,578
2.76
218,536
1,162
2.14
Total interest-bearing deposits
360,884
2.32
338,913
1.69
FHLB advances, federal funds purchased, and other liabilities
60,741
3.79
52,112
3.83
9.76
9.79
Total interest-bearing liabilities
431,935
2.71
401,335
2.18
Noninterest-bearing liabilities:
Demand deposits
87,581
76,097
Accrued interest, taxes and other liabilities
4,897
4,466
524,413
481,898
37,415
36,860
Net interest spread
3.12
3.37
Net interest margin
3.57
3.70
16
Interest Earned/Paid
Average Yield/Rate
381,181
6.43
367,125
6.21
114,520
2,277
4.01
94,804
1,806
16,244
3.04
8,987
1.75
511,945
5.78
470,916
5.64
(4,328
(3,978
507,617
466,938
16,649
20,706
13,665
13,231
Interest receivable and
other assets
16,595
16,314
641
850
555,167
518,039
132,988
982
1.49
121,891
492
0.81
225,446
2,985
2.67
218,681
2,331
358,434
2.23
340,572
1.67
58,676
3.75
52,061
3.85
9.80
10,207
9.89
427,420
2.62
402,840
2.16
84,733
73,516
4,923
4,638
517,076
480,994
38,091
37,045
3.16
3.48
3.59
3.80
17
The following tables present for the periods indicated 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 changes in interest income and interest expense attributable to changes in average outstanding balances and changes in interest rates. For purposes of these tables, changes attributable to both rate and volume, which can be segregated, have been allocated proportionately to changes due to rate and changes due to volume.
Three Months Ended June 30, 2005 vs. 2004
Increase (Decrease) Due to
Volume
Rate
Total
595
604
220
103
323
37
57
94
Total increase in interest income
266
755
1,021
25
225
250
56
416
(4
Total increase in interest expense
163
581
744
Total increase in net interest income
174
277
18
Six Months Ended June 30, 2005 vs. 2004
433
392
825
374
97
471
63
104
167
870
593
1,463
45
445
490
72
582
654
126
(32
(1
243
994
1,237
Total increase (decrease) in net interest income
(401
226
Provision for Loan Losses
The Company’s provision for loan losses is established through charges to operating income in the form of the provision in order to bring the total allowance for loan losses to a level deemed appropriate by management of the Company based on such factors as historical loan loss experience, the volume and type of lending conducted by the Company, the amount of nonperforming assets, regulatory policies, generally accepted accounting principles, general economic conditions, and other factors related to the collectability of loans in the Company’s portfolio as discussed under “Allowance for Loan Losses”.
The Company’s provision for loan losses for the three months ended June 30, 2005 was $60,000 compared with $230,000 for the same period in 2004. The decrease in the provision was due primarily to a decrease in net charge-offs of $133,000. The Company experienced net charge-offs of $55,000 for the three months ended June 30, 2005 compared to net charge-offs of $188,000 for the three months ended June 30, 2004. The Company’s provision for loan losses for the six months ended June 30, 2005 was $260,000 compared with $480,000 for the same period in 2004. The Company experienced net recoveries of $9,000 for the six months ended June 30, 2005 compared to net charge-offs of $315,000 for the six months ended June 30, 2004. Average loans outstanding increased from $367.1 million for six months ended June 30, 2004 to $381.2 million for six months ended June 30, 2005, an increase of $14.1 million or 3.8%. Management believes the allowance for loan losses at June 30, 2005 is adequate based on the Company’s loan asset quality and its historical charge-off experience.
19
Noninterest Income
The Company’s primary sources of recurring noninterest income are service charges on deposit accounts and fee income. The Company also has nonrecurring sources of noninterest income derived from fiduciary income, net gains on the sale of mortgage loans and net gains on the sale of assets.
The following table presents for the periods indicated the major categories of noninterest income (dollars in thousands):
Three months ended June 30,
Six months ended June 30,
Realized gain on securities
Fee income
286
254
583
525
Fiduciary income
79
59
154
116
Earnings from key-man life insurance
46
53
93
110
Gain on sale of mortgage loans, net
70
372
139
Gain on sale of assets, net
1
98
Gain (loss) on sale of other real estate, net
23
(13
Impairment of Aircraft Finance Trust
(40
(30
(70
(60
Other noninterest income
101
Noninterest income for the three months ended June 30, 2005 increased $168,000, or 13.6%, over the same period in 2004. The increase in noninterest income is primarily due to the increase in gains on the sale of mortgage loans into the secondary market. During the three months ended June 30, 2005, the Company realized a net gain on sale of mortgage loans of $230,000 compared with a net gain on the sale of mortgage loans of $70,000 during the three months ended June 30, 2004. Service charges and fee income remained constant at $1.1 million in the second quarter of 2005 compared to the second quarter of 2004. Noninterest income for the six months ended June 30, 2005 increased $331,000, or 13.4%, over the same period in 2004. The increase in noninterest income is primarily due to the increase in the net gain on sale of mortgage loans into the secondary market of $233,000 and income of $95,000 from the merger of PULSE EFT Association and Discover Financial Services, Inc. which is reflected as a net gain on the sale of assets.
20
Noninterest Expenses
The following table presents for the periods indicated the major categories of noninterest expense (dollars in thousands):
Non-staff expenses:
Legal and professional fees
255
261
565
540
Director and committee fees
151
130
288
Advertising
84
100
192
ATM and debit card expense
189
198
Office and computer supplies
73
118
145
Postage
50
41
92
Phone expense
61
137
Other
420
432
779
771
Total non-staff expenses
1,747
1,744
3,438
3,382
Employee compensation and benefits expense for the three months ended June 30, 2005 increased $233,000, or 9.9%, over the same period in 2004. The increase is due primarily to normal salary increases and an increase in number of full-time equivalent employees. The number of full-time equivalent employees was 236 at June 30, 2005 compared with 226 at June 30, 2004. Employee compensation and benefits expense for the six months ended June 30, 2005 increased $313,000, or 6.5%, over the same period in 2004. The Company has opened two additional locations and closed one location since the second quarter of 2004.
Non-staff expenses for the three months ended June 30, 2005 remained constant at $1.7 million compared to the same period in 2004. Non-staff expenses for the six months ended June 30, 2005 increased $56,000, or 1.7%, over the comparable period in 2004. Legal and professional expense increased by $25,000, or 4.6%, over the same period in 2004. Occupancy expenses increased $44,000, or 4.2%, over the comparable six months period in 2004 related to the two new locations.
The Company’s efficiency ratio was 71.85% for the three months ended June 30, 2005 compared to 73.35% for the three months ended June 30, 2004 and 71.98% for the six months ended June 30, 2005 compared to 72.26% for the six months ended June 30, 2004. The efficiency ratio is a supplemental financial measure utilized in management’s internal evaluation of the Company’s performance and is not defined under generally accepted accounting principles. The efficiency ratio is calculated by dividing total noninterest expense, excluding securities losses, by net interest income plus noninterest income, excluding securities gains. Taxes are not part of this calculation. An increase in the efficiency ratio indicates that more resources are being utilized to generate the same volume of income, while a decrease would indicate a more efficient allocation of resources.
21
Income Taxes
Income tax expense increased $122,000, or 29.4%, to $537,000 for the three months ended June 30, 2005 compared with $415,000 for the same period in 2004. Income tax expense was $997,000 for the six months ended June 30, 2005 compared with $797,000 for the six months ended June 30, 2004, an increase of $200,000 or 25.1%. 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 expenses.
FINANCIAL CONDITION
Loan Portfolio
Gross loans, including loans held for sale, were $389.3 million at June 30, 2005, an increase of $12.0 million, or 3.2%, from $377.3 million at December 31, 2004. Loan growth occurred primarily in real estate commercial and in 1– 4 family residential loans. Average loans comprised 74.5% of total average interest-earning assets for the six months ended June 30, 2005 compared with 78.0% for the same period in 2004.
The following table summarizes the loan portfolio (including loans held for sale) of the Company by type of loan as of the dates indicated (dollars in thousands):
Amount
Percent
Commercial
63,078
16.20
61,602
16.33
Agriculture
10,704
10,963
2.91
Real estate:
Construction and land development
28,765
7.39
31,917
8.46
1-4 family residential
151,799
38.99
145,886
38.66
0.46
Farmland
16,721
4.30
16,178
4.29
80,912
20.79
75,183
19.92
Multi-family residential
6,276
1.61
5,052
1.34
Consumer, net of unearned discounts
29,518
28,804
7.63
Gross loans
389,297
100.00
377,334
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 if economic conditions differ from the assumptions
22
used in making the initial determinations. During the six months ended June 30, 2005, the Company had net recoveries of $9,000, a decrease of $324,000, compared with the net charge-offs of $315,000 in the same period in 2004. At June 30, 2005 and June 30, 2004, the allowance for loan losses totaled $4.4 million, or 1.14% of gross loans and $4.1 million, or 1.09% of gross loans, respectively. The allowance for loan losses as a percentage of nonperforming loans was 138.13% and 104.90% at June 30, 2005 and 2004, respectively.
The following table presents for the periods indicated an analysis of the allowance for loan losses and other related data (dollars in thousands):
Average loans outstanding
Gross loans outstanding at end of period
372,833
Allowance for loan losses at beginning of period
4,154
3,906
Charge-offs:
(21
(111
Real estate
(2
(130
Consumer
(96
(114
Recoveries:
36
24
Net recoveries (charge-offs)
(315
Allowance for loan losses at end of period
4,423
4,071
Ratio of allowance to end of period loans
1.14
1.09
Ratio of net charge-offs to average loans
0.00
0.09
Ratio of allowance to end of period nonperforming loans
138.13
104.90
Nonperforming Assets
Nonperforming assets were $3.9 million at June 30, 2005 compared to $4.3 million at December 31, 2004, a decrease of $394,000 or 9.2%. Nonaccrual loans decreased $669,000 from $3.0 million at December 31, 2004 to $2.3 million at June 30, 2005. This decrease is primarily due to the sale of collateral and reduction of total loans for three lines of credit. Other real estate decreased $20,000 during the same period. These decreases were partially offset by the increase of $295,000 in accruing loans 90 or more days past due from $565,000 at December 31, 2004 to $860,000 at June 30, 2005. 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 0.99% and 1.14% at June 30, 2005, and December 31, 2004, respectively.
The following table presents information regarding past due loans and nonperforming assets as of the dates indicated (dollars in thousands):
Nonaccrual loans
3,011
Accruing loans past due 90 days or more
860
Total nonperforming loans
3,202
3,576
Total nonperforming assets
3,874
4,268
Securities totaled $119.6 million at June 30, 2005, an increase of $15.9 million from $103.8 million at December 31, 2004. At June 30, 2005, securities represented 21.2% of total assets compared with 19.1% of total assets at December 31, 2004. The yield on average securities for the six months ended June 30, 2005 was 4.01% compared with 3.83% for the same period in 2004. At June 30, 2005, securities included $10.1 million in U.S. Government securities, $79.2 million in mortgage-backed securities, $4.2 million in equity securities, $1.0 million in collateralized mortgage obligations and $25.1 million in municipal securities. The average life of the securities portfolio at June 30, 2005, was approximately 3.83 years, however, all of the Company’s securities are classified as available for sale.
At June 30, 2005, demand, money market and savings deposits accounted for approximately 48.4% of total deposits, while certificates of deposit comprised 51.6% of total deposits. Total deposits increased $12.5 million, or 2.9%, from December 31, 2004 to June 30, 2005. This increase comes primarily from an increase in certificates of deposit of $12.4 million, or 5.7%, due to the Company offering of competitive yields on these deposits. Noninterest-bearing demand deposits totaled $87.9 million, or 19.7% of total deposits, at June 30, 2005 compared with $82.3 million, or 19.0% of total deposits, at December 31, 2004. The average cost of deposits, including noninterest-bearing demand deposits, was 1.81% for the six months ended June 30, 2005 compared with 1.37% for the same period in 2004.
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 a continuing 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 continually rely on this external funding source. 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 unaudited condensed consolidated statements of cash flows, the most significant transactions which affected the Company’s level of cash and cash equivalents, cash flows, and liquidity during the first six months of 2005 were net increases of securities of $17.3 million, net increases in loans of $12.2 million and the net change in deposits of $12.5 million.
Off-Balance Sheet Arrangements
Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The Company’s policies generally require that letters of credit arrangements contain security and debt covenants similar to those contained in loan agreements. In the event the customer does not perform in accordance with the terms of the agreement with the third party, the Company would be required to fund the commitment. The maximum potential amount of future payments the Company could be required to make is represented by the contractual amount shown in the table below. If the commitment is funded, the Company would be entitled to seek recovery from the customer. As of June 30, 2005 and December 31, 2004, no amounts have been recorded as liabilities for the Bank’s potential obligations under these guarantees.
Capital Resources
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 June 30, 2005, the Company’s Tier 1 risk-based capital, total risk-based capital and leverage capital ratios were 11.90%, 13.06%, and 8.22%, respectively. As of June 30, 2005, 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 11.22%, 12.38%, and 7.75%, respectively.
On March 1, 2005, the Federal Reserve issued a final rule regarding the capital treatment of trust preferred securities. The Federal Reserve’s final rule limits restricted core capital elements (including trust preferred securities and qualifying perpetual preferred stock) to 25% of all core capital elements, net of goodwill less any associated deferred tax liability. Because the Company’s aggregate amount of trust preferred securities is below the limit of 25% of Tier I
capital, net of goodwill, the rule has no effect on the amount of trust preferred securities that the Company can include in Tier I capital. Additionally, the rules provide that trust preferred securities would no longer qualify for Tier I capital within five years of their maturity, but would be included as Tier 2 capital. However, the trust preferred securities would be amortized out of Tier 2 capital by one-fifth each year and excluded from Tier 2 capital completely during the year prior to maturity of the junior subordinated debentures.
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, 2004. See Form 10-K, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk.”
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company conducted an evaluation, under the supervision and with the participation of its management, including its principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective to ensure that the information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
(b) Changes in Internal Controls Over Financial Reporting
There were no changes in the Company’s internal controls over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to various claims and legal actions occurring in the normal course of business. The Company accrues for estimated losses in the accompanying financial statements for those matters where management believes the likelihood of an adverse outcome is probable and the amount of the loss is reasonably estimable. After consultation with legal counsel, management currently believes the outcome of any outstanding legal proceedings, claims and litigation involving the Company will not have a material adverse effect on the Company’s business, financial condition or results of operation.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table provides information about Company purchases of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act during the three months ended June 30, 2005:
Period
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)
Average Price Paid per Share
Total Number of Shares Purchased Under the Plans or Programs
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
April 1, 2005 - April 30, 2005
101,713
21.50
188,616
61,384
May 1, 2005 - May 31, 2005
June 1, 2005 - June 30, 2005
464
22.40
189,080
60,920
102,177
21.71
(1) Under a stock repurchase program approved by the Company’s Board of Directors on August 20, 2002, publicly announced on August 27, 2002 and implemented effective November 15, 2002, the Company was authorized to repurchase up to 100,000 shares of its Common Stock. The repurchase program does not have an expiration date. On March 9, 2005, the Company’s Board of Directors authorized the repurchase, over a period of twelve months, of up to 150,000 shares of its Common Stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS
Exhibits – The following exhibits are filed as a part of this Quarterly Report on Form 10-Q:
Exhibit Number
Description of Exhibit
31.1
Certification of the Chief Executive Officer pursuant to Rule 13(a)-14(a) of the Securities Exchange Act of 1934, as amended, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of the Chief Financial Officer pursuant to Rule 13(a)-14(a) of the Securities Exchange Act of 1934, as amended, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
GUARANTY BANCSHARES, INC.
(Registrant)
Date: August 11, 2005
By:
/s/ ARTHUR B. SCHARLACH, JR.
Arthur B. Scharlach, Jr.
Chairman of the Board & Chief Executive Officer
(Principal Executive Officer)
/s/ CLIFTON A. PAYNE
Clifton A. Payne
Senior Vice President & Chief Financial Officer
(Principal Financial Officer)
Index to Exhibits
30