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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, 2003.

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
|_| Yes  |X| No

As of August 8, 2003, there were 2,921,928 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.   Interim Financial Statements    
        Consolidated Balance Sheets   3  
        Consolidated Statements of Earnings   4  
        Condensed Consolidated Statements of Changes in Shareholders’ Equity   5  
        Condensed Consolidated Statements of Cash Flows   6  
        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   11  
    Item 3.   Quantitative and Qualitative Disclosures about Market Risk   23  
    Item 4.   Controls and Procedures   23  
 
PART II – OTHER INFORMATION  
 
    Item 1.   Legal Proceedings   24  
    Item 2.   Changes in Securities and Use of Proceeds   24  
    Item 3.   Defaults upon Senior Securities   24  
    Item 4.   Submission of Matters to a Vote of Security Holders   24  
    Item 5.   Other Information   25  
    Item 6.   Exhibits and Reports on Form 8-K   25  
    Signatures 25  


2




PART I – FINANCIAL INFORMATION
ITEM 1. INTERIM FINANCIAL STATEMENTS

GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)


June 30,
2003
December 31,
2002
(Unaudited)
 
ASSETS
 
Cash and cash equivalents   $   19,859   $   18,055  
Interest-bearing deposits   204   189  
      Total cash and cash equivalents   20,063   18,244  
Interest-bearing time deposits   6,776   —  
Federal funds sold   —   1,530  
Securities available-for-sale   115,611   106,992  
Loans held for sale   1,749   5,727  
Loans, net of allowance for loan losses of $3,830 and $3,692, respectively   356,429   356,196  
Premises and equipment, net   13,356   13,565  
Other real estate   1,552   1,111  
Accrued interest receivable   2,853   3,002  
Goodwill   2,338   2,338  
Other assets   9,667   9,263  
      Total assets   $ 530,394   $ 517,968  

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
Liabilities      
   Deposits  
      Noninterest-bearing   $   73,722   $   68,514  
      Interest-bearing   355,552   356,436  
        Total deposits   429,274   424,950  
FHLB advances and federal funds purchased   50,838   42,763  
Company obligated mandatorily redeemable preferred  
   securities of subsidiary trusts   10,000   10,000  
Other liabilities   4,772   5,611  
        Total liabilities   494,884   483,324  
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 issued and outstanding at June 30, 2003 and  
          at December 31, 2002   3,252   3,252  
   Additional capital   12,725   12,725  
   Retained earnings   22,472   21,149  
   Treasury stock, 330,088 and 320,088 shares, respectively, at cost   (3,981 ) (3,820 )
   Accumulated other comprehensive income   1,042   1,338  
   Total shareholders’ equity   35,510   34,644  
   Total liabilities and shareholders’ equity   $ 530,394   $ 517,968  


See accompanying Notes to Interim Consolidated Financial Statements.

3




GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)


Three Months Ended
June 30, 		  Six Months Ended
June 30,
2003
  2002
  2003
  2002
Interest income:          
   Loans   $5,964   $5,935   $11,919   $11,878  
   Securities   1,014   1,202   2,087   2,289  
   Federal funds sold   16   56   29   105  
   Interest-bearing deposits   7   1   8   2  
      Total interest income   7,001   7,194   14,043   14,274  
Interest expense:  
   Deposits   2,010   2,514   4,125   5,134  
   FHLB advances and federal funds purchased   511   395   976   731  
   Minority interest expense-trust preferred securities   250   190   499   374  
      Total interest expense   2,771   3,099   5,600   6,239  
      Net interest income   4,230   4,095   8,443   8,035  
Provision for loan losses   150   450   525   700  
      Net interest income after provision for loan losses   4,080   3,645   7,918   7,335  
Noninterest income:  
   Service charges   724   761   1,407   1,405  
   Other operating income   546   434   1,108   787  
   Realized gain on available-for-sale securities   30   280   171   317  
      Total noninterest income   1,300   1,475   2,686   2,509  
Noninterest expense:  
   Employee compensation and benefits   2,345   2,107   4,684   4,214  
   Occupancy expenses   508   486   1,008   960  
   Other operating expenses   1,264   981   2,377   1,890  
      Total noninterest expenses   4,117   3,574   8,069   7,064  
      Earnings before income taxes   1,263   1,546   2,535   2,780  
Provision for income taxes   478   453   715   705  
      Net earnings   $   785   $1,093   $  1,820   $  2,075  
      Basic earnings per common share   $  0.27   $  0.36   $    0.62   $    0.69  
      Diluted earnings per common share   $  0.27   $  0.36   $    0.62   $    0.69  


See accompanying Notes to Interim Consolidated Financial Statements.

4




GUARANTY BANCHSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS’ EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)


Three Months Ended
June 30,
  Six Months Ended
June 30,
2003
  2002
  2003
  2002
Balance at beginning of period   $ 35,081   $ 32,568   $ 34,644   $ 31,827  
Net income   785   1,093   1,820   2,075  
Cash dividends declared on common stock   (497 ) (450 ) (497 ) (450 )
Purchases of treasury stock   —   —   (161 ) (130 )
Proceeds from stock option exercises   —   19   —   19  
Change in accumulated other comprehensive income, net of tax   141   516   (296 ) 405  
Balance at end of period   $ 35,510   $ 33,746   $ 35,510   $ 33,746  


See accompanying Notes to Interim Consolidated Financial Statements.

5




GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)


Six Months
Ended June 30,
2003
  2002
 
Net cash from operating activities   $   6,566   $   4,823  
Cash flows from investing activities:  
      Purchase of interest-bearing time deposits   (6,776 ) —  
      Securities available for sale:  
           Purchases   (75,151 ) (47,239 )
           Sales   32,602   19,629  
           Maturities, calls, and principal repayments   32,801   15,284  
      Net increase in loans   (1,521 ) (19,194 )
      Purchases of premises and equipment   (298 ) (269 )
      Proceeds from sale of other real estate   325   1,476  
      Net change in federal funds sold   1,530   (8,380 )
            Net cash from investing activities   (16,488 ) (38,693 )
Cash flows from financing activities:  
      Net change in deposits   4,324   19,488  
      Net change in short-term FHLB advances   7,500   10,000  
      Repayment of long-term FHLB advances   (170 ) (162 )
      Net change in federal funds purchased   745   —  
      Stock options exercised   —   19  
      Purchase of treasury stock   (161 ) (130 )
      Dividends paid   (497 ) (450 )
            Net cash from financing activities   11,741   28,765  
            Net change in cash and cash equivalents   1,819   (5,105 )
Cash and cash equivalents at beginning of period   18,244   15,410  
Cash and cash equivalents at end of period   $ 20,063   $ 10,305  
Supplemental disclosures:  
     Cash paid for income taxes   $      730   $   1,180  
     Cash paid for interest   5,712   6,412  
Significant non-cash transactions:  
     Transfers from loans to real estate owned   $      763   $   2,672  


See accompanying Notes to Interim Consolidated Financial Statements.

6




GUARANTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)


Three Months Ended
June 30,
  Six Months Ended
June 30,
2003
  2002
  2003
  2002
Net earnings   $ 785   $ 1,093   $ 1,820   $ 2,075  
Other comprehensive income:  
    Unrealized gain (loss) on available for sale securities  
        arising during the period   244   1,062   (277 ) 930  
    Reclassification adjustment for amounts realized on  
        securities sales included in net earnings   (30 ) (280 ) (171 ) (317 )
            Net unrealized gain (loss)   214   782   (448 ) 613  
            Tax effect   (73 ) (266 ) 152   (208 )
                 Total other comprehensive income (loss)   141   516   (296 ) 405  
Comprehensive income   $ 926   $ 1,609   $ 1,524   $ 2,480  


See accompanying Notes to Interim Consolidated Financial Statements.

7




GUARANTY BANCSHARES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003
(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 subsidiaries Guaranty (TX) Capital Trust I, Guaranty (TX) Capital Trust II, and Guaranty Financial Corp., Inc., which wholly owns Guaranty Bond Bank (the“Bank”). The Bank has three wholly owned non-bank subsidiaries, Guaranty Leasing Company, Guaranty 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 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 Company’s Annual Report on Form 10-K for the year ended December 31, 2002, filed with the Securities and Exchange Commission on March 14, 2003. The Company has consistently followed the accounting policies described in the Annual Report in preparing this Form 10-Q. Operating results for the three and six months ended June 30, 2003, are not necessarily indicative of the results that may be expected for the year ending December 31, 2003.

        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 and status of contingencies are particularly subject to change.

        Certain items in prior financial statements have been reclassified to conform with the current presentation.

NOTE 2.    NEW ACCOUNTING PRONOUNCEMENTS

        In January 2003, the Financial Accounting Standards Board (FASB) issue Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, which establishes criteria to identify and assess a company’s interest in variable interest entities and for consolidating those entities. FIN 46 is currently effective for variable interest entities created or obtained after January 2003, and will be effective for all variable interest entities for interim periods beginning after June 15, 2003. The adoption of FIN 46 is not expected to require the consolidation by the Company of any additional entities.

        In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150 (SFAS No. 150), “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”, which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. It is to be implemented by reporting the cumulative effect of a change in accounting principle for financial instruments created before the issuance date of the Statement and still existing at the beginning of the interim period of adoption. Adoption of SFAS No. 150 on July 1, 2003 did not have a material effect on the Company’s consolidated financial statements.

8




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