UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended Commission File No. 0-25905
March 31, 2002
GUARANTY FINANCIAL CORPORATION
Virginia 54-1786496
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1658 State Farm Blvd., Charlottesville, VA 22911
(Address of Principal Executive Offices)
(434) 970-1100
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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. Yes _X_ No __
As of May 1, 2002, 1,962,777 shares of Common Stock, par value $1.25
per share, were outstanding.
GUARANTY FINANCIAL CORPORATION
QUARTERLY REPORT ON FORM 10-QSB
INDEX
-----
Part I. Financial Information Page No.
------- --------------------- --------
Item 1 Financial Statements
Consolidated Balance Sheets as of March 31, 2002
(unaudited) and December 31, 2001 3
Consolidated Statements of Operations for the
Three Months Ended March 31, 2002 and
2001 (unaudited) 4
Consolidated Statements of Comprehensive Income
for the Three Months Ended March 31, 2002
and 2001 (unaudited) 5
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2002 and 2001 (unaudited) 6
Notes to Consolidated Financial Statements (unaudited) 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II. Other Information
-------- -----------------
Item 1 Legal Proceedings 16
Item 2 Changes in Securities 16
Item 3 Defaults upon Senior Securities 16
Item 4 Submission of Matters to a Vote of Security Holders 16
Item 5 Other Information 16
Item 6 Exhibits and Reports on Form 8-K 16
Signatures 17
2
Part I. Financial Information
------------------------------
Item 1 Financial Statements
GUARANTY FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
March 31, December 31,
2002 2001
-------------- ---------------
ASSETS (Unaudited)
Cash and cash equivalents $ 16,856 $ 12,437
Investment securities
Held-to-maturity 957 970
Available for sale 20,344 20,567
Investment in FHLB and other stocks 1,972 1,972
Loans receivable, net 163,584 177,579
Accrued interest receivable 1,281 1,245
Real estate owned 327 764
Office properties and equipment, net 7,981 8,110
Other assets 4,496 1,522
-------------- ---------------
Total assets $ 217,798 $ 225,166
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Interest bearing demand $ 26,687 $ 25,460
Non-interest bearing demand 23,005 22,110
Money market accounts 20,322 22,394
Savings accounts 13,546 12,992
Certificates of deposit 103,238 117,676
-------------- ---------------
186,798 200,632
Bonds payable 591 595
Advances from Federal Home Loan Bank 7,000 1,000
Accrued interest payable 105 137
Payments by borrowers for taxes and insurance 350 165
Other liabilities 590 546
-------------- ---------------
Total liabilities 195,434 203,075
-------------- ---------------
Convertible preferred securities 6,012 6,012
-------------- ---------------
STOCKHOLDERS' EQUITY
Preferred stock, par value $1 per share, 500,000
shares authorized, none issued - -
Common stock, par value $1.25 per share,
4,000,000 shares authorized, 1,962,777
issued and outstanding (1,961,727 in 2001) 2,453 2,452
Additional paid-in capital 8,960 8,953
Accumulated comprehensive loss (836) (695)
Retained earnings 5,775 5,369
-------------- ---------------
Total stockholders' equity 16,352 16,079
-------------- ---------------
Total liabilities and stockholders' equity $ 217,798 $ 225,166
============== ===============
See accompanying notes to consolidated financial statements
3
GUARANTY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
Three Months Ended
March 31,
--------------------------
2002 2001
------------ ------------
(unaudited)
Interest income
Loans $ 3,060 $ 4,598
Investment securities 412 507
------------ ------------
Total interest income 3,472 5,105
------------ ------------
Interest expense
Deposits 1,209 2,593
Borrowings 179 336
------------ ------------
Total interest expense 1,388 2,929
------------ ------------
Net interest income 2,084 2,176
Provision for loan losses 25 150
------------ ------------
Net interest income after provision
for loan losses 2,059 2,026
Non-interest income
Deposit account fees 183 177
Mortgage banking income 314 175
Investment sales commissions 26 94
Other 115 116
------------ ------------
Total noninterest income 638 562
------------ ------------
Non-interest expense
Personnel 1,144 1,261
Occupancy 289 339
Information services 291 278
Marketing 14 63
Deposit insurance premiums 25 26
Other 331 367
------------ ------------
Total noninterest expense 2,094 2,334
------------ ------------
Income before income taxes 603 254
------------ ------------
Provision for income taxes 197 86
------------ ------------
Net income $ 406 $ 168
============ ============
Basic and diluted earnings
per common share $ 0.21 $ 0.09
============ ============
See accompanying notes to consolidated financial statements.
4
GUARANTY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
Three Months Ended
March 31,
----------------------------
2002 2001
------------ ------------
(unaudited)
Net income $ 406 $ 168
------------ ------------
Other comprehensive income:
Unrealized gain (loss) on securities available for sale (213) 641
------------ ------------
Other comprehensive income (loss), before tax (213) 641
Income tax (expense) benefit related to items of other
comprehensive income 72 (218)
------------ ------------
Other comprehensive income (loss), net of tax (141) 423
------------ ------------
Comprehensive income $ 265 $ 591
============ ============
See accompanying notes to consolidated financial statements.
5
GUARANTY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Three Months Ended
March 31,
2002 2001
--------- ----------
(unaudited)
Operating Activities
Net Income $ 406 $ 168
Adjustments to reconcile net income to net cash provided
(absorbed) by operating activities:
Provision for loan losses 25 150
Provision for loss on sale of other real estate owned 40 60
Depreciation and amortization 151 398
Deferred loan fees (16) (24)
Net amortization of premiums and accretion of discounts 44 7
Gain on sale of loans (314) (326)
Originations of loans held for sale (12,366) (15,333)
Proceeds from sale of loans 19,975 15,659
Gain on sale of other real estate owned (18) -
Other - (218)
Changes in:
Accrued interest receivable (36) (7)
Other assets 89 141
Accrued interest payable (32) 282
Prepayments by borrowers for taxes and insurance 185 419
Other liabilities 44 (246)
---------- ----------
Net cash provided by operating activities 8,177 1,130
---------- ----------
Investing activities
Net decrease in loans 6,683 6,812
Mortgage-backed securities principal repayments 169 35
Purchase of securities held to maturity (406) -
Proceeds from maturity of securities held to maturity 250 -
Purchase of securities available for sale - (8,000)
Proceeds from sale of real estate owned 415 -
Purchase of bank-owned life insurance (3,000) -
Origination of servicing rights - (230)
Proceeds from sale of office properties and equipment 21 -
Purchase of office properties and equipment (34) (275)
---------- ----------
Net cash provided by investing activities 4,098 (1,658)
---------- ----------
Financing activities
Net increase in deposits (13,834) 9,224
Proceeds from FHLB advances 21,000 15,000
Repayment of FHLB advances (15,000) (23,000)
Proceeds from issuance of common stock 8 -
Principal payments on bonds payable, including unapplied payments (30) (33)
---------- ----------
Net cash absorbed by financing activities (7,856) 1,191
---------- ----------
Increase in cash and cash equivalents 4,419 663
Cash and cash equivalents, beginning of period 12,437 15,550
---------- ----------
Cash and cash equivalents, end of period $ 16,856 $ 16,213
========== ==========
See accompanying notes to consolidated financial statements.
6
GUARANTY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2002 and 2001
(unaudited)
Note 1 Principles of Presentation
The accompanying consolidated financial statements of Guaranty Financial
Corporation ("Guaranty") have not been audited by independent accountants,
except for the balance sheet at December 31, 2001. These financial statements
have been prepared in accordance with the regulations of the Securities and
Exchange Commission in regard to quarterly (interim) reporting. In management's
opinion, the financial information presented reflects all adjustments, comprised
only of normal recurring accruals, that are necessary for a fair presentation of
the results for the interim periods. Significant accounting policies and
accounting principles have been consistently applied in both the interim and
annual consolidated financial statements. Certain notes and the related
information have been condensed or omitted from the interim financial statements
presented in this Quarterly Report on Form 10-QSB. Therefore, these financial
statements should be read in conjunction with Guaranty's Annual Report on Form
10-KSB for the year ended December 31, 2001. The results for the three months
ended March 31, 2002, are not necessarily indicative of future financial
results.
The accompanying consolidated financial statements include Guaranty's accounts
and its wholly-owned subsidiaries, Guaranty Capital Trust I and Guaranty Bank,
and Guaranty Bank's wholly-owned subsidiaries, GMSC, Inc., which was organized
as a financing subsidiary, and Guaranty Investments Corporation, which was
organized to sell non-deposit investment products. All material intercompany
accounts and transactions have been eliminated in consolidation.
Amounts in the year 2001 financial statements have been reclassified to conform
to the year 2002 presentation. These reclassifications had no effect on
previously reported net income.
Note 2 Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Note 3 Earnings Per Share
Basic earnings per share is based on net income divided by the weighted average
number of common shares outstanding during the period. Diluted earnings per
share shows the dilutive effect of additional common shares issuable under stock
option plans. The basic and diluted earnings per share for the three months
ended March 31, 2002 and 2001, have been determined by dividing net income by
the weighted average number of shares of common stock outstanding during these
periods. The following table indicates the weighted average shares outstanding
for each period.
March 31, March 31,
2002 2001
----------------- ------------------
Basic shares 1,962,777 1,961,727
Diluted shares 1,970,631 1,961,727
7
Note 4 Loans
The loan portfolio is comprised of the following:
March 31, December 31,
2002 2001
------------ ------------
(In thousands)
Mortgage loans:
Residential $ 30,445 $ 39,864
Commercial 12,803 16,277
Construction and land loans 36,444 36,307
--------- ---------
Total real estate loans 79,692 92,448
Commercial business loans 65,127 66,603
Consumer loans 21,227 20,973
--------- ---------
Total loans receivable 166,046 180,024
Adjustments:
Allowance for losses (2,537) (2,512)
Deferred costs 75 67
--------- ---------
Total loans receivable, net $ 163,584 $ 177,579
========= =========
Note 5 Allowance for Loan Loss
The following is a summary of transactions in the allowance for loan loss:
March 31, December 31,
2002 2001
------------ ------------
(In thousands)
Balance at January 1 $ 2,512 $ 2,396
Provision charged to operating expense 25 333
Recoveries added to the reserve 0 9
Loans charged off 0 (226)
-------- --------
Balance at the end of the period $ 2,537 $ 2,512
======== ========
8
Note 6 Investments
The investment portfolio was comprised of the following:
March 31, December 31,
2002 2001
----------------- -----------------
(In thousands)
Held to maturity:
Mortgage-backed securities $ 551 $ 720
U.S. Government obligations 406 250
Available for sale:
Corporate Bonds 12,496 12,597
U.S. Government obligations 7,848 7,970
Other:
Federal Home Loan Bank stock 1,550 1,550
Federal Reserve Bank & other stocks $ 422 422
----------------- -----------------
$ 23,273 $ 23,509
================= =================
9
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Guaranty Financial Corporation ("Guaranty") is a single bank holding company
organized under Virginia law that provides financial services through its
primary operating subsidiary, Guaranty Bank (the "Bank"). The Bank is a full
service commercial bank offering a wide range of banking and related financial
services, including time and demand deposits, as well as commercial, industrial,
residential construction, residential and commercial mortgage and consumer
loans. Guaranty Investments Corporation, a subsidiary of the Bank, provides a
full range of investment services and, through a contractual arrangement with a
third party, sells mutual funds, stocks, bonds and annuities.
Management's discussion and analysis is presented to aid the reader in
understanding and evaluating the financial condition and results of operations
of Guaranty. The analysis focuses on the consolidated financial statements, the
footnotes thereto, and the other financial data herein. Highlighted in the
discussion are material changes from prior reporting periods and any
identifiable trends affecting Guaranty. Amounts are rounded for presentation
purposes, while the percentages presented are computed based on unrounded
amounts.
Analysis of Financial Condition
Total assets decreased 3.3% to $217.8 million at March 31, 2002, from $225.2
million at December 31, 2001. Cash and cash equivalents increased $4.4 million
or 35.5%, to $16.9 million at March 31, 2002, from $12.4 million at December 31,
2001. Net loans were $163.6 million at March 31, 2002, a decrease of $14.0
million, or 7.9%, from net loans of $177.6 million at December 31, 2001. Total
deposits at March 31, 2002, were $186.8 million compared to $200.6 million at
December 31, 2001. FHLB borrowings were $7.0 million at March 31, 2002, compared
to $1.0 million at December 31, 2001. Total stockholders' equity at March 31,
2002, increased by $300,000 to $16.4 million from $16.1 million at December 31,
2001.
The factors causing the fluctuations in the major balance sheet categories are
further discussed in the following sections.
Loans
During the first three months of 2002, Guaranty continued to strategically
reposition its loan portfolio. Net loans receivable decreased by 7.9% to $163.6
million at March 31, 2002, from $177.6 million at December 31, 2001. This change
was primarily attributable to a $9.4 million reduction in residential mortgage
loans and a $3.5 million reduction in commercial mortgage loans. During the most
recent quarter, Guaranty originated $12.4 million in residential mortgage loans
and sold $19.7 million in residential mortgage loans in the secondary market.
Residential mortgage loans held for sale were $7.1 million at March 31, 2002,
down from $14.3 million at December 31, 2001. All other segments of the loan
portfolio were relatively constant during the most recent quarter.
Investments
Total investments declined by 1.0% to $23.3 million at March 31, 2002, compared
to $23.5 million at December 31, 2001. The majority of this change was due to an
increase in the mark to market loss adjustment of Guaranty's available for sale
investments of approximately $141,000.
10
Real Estate Owned
Real estate owned decreased to $327,000 at March 31, 2002, from $764,000 at
December 31, 2001. The decline was primarily due to the sale of a residential
property during the period. The remainder of real estate owned consists of
developed lots listed for sale. No material losses are anticipated on the
ultimate sale of these properties.
Office Properties and Equipment
Guaranty's investment in office properties and equipment decreased to $8.0
million at March 31, 2002, from $8.1 million at December 31, 2001. This decrease
was primarily due to depreciation of existing assets.
Other Assets
Other assets increased to $4.5 million at March 31, 2002, primarily due to the
purchase of $3.0 million of bank owned life insurance.
Deposits
Deposits were $186.8 million at March 31, 2002, a decrease of $13.8 million, or
6.9%, from total deposits of $200.6 million at December 31, 2001. Although total
deposits declined during the most recent quarter, demand accounts increased by
4.5% to $49.7 million from $47.6 million. This increase represents Guaranty's
continued emphasis on providing full service banking relationships to its
customers. Certificates of deposit comprise 55.3% of total deposits at March 31,
2002, compared to 58.7% at December 31, 2001.
FHLB Borrowings
Guaranty's borrowings from the Federal Home Loan Bank ("FHLB") at March 31, 2002
increased to $7.0 million from $1.0 million at December 31, 2001. Guaranty was
able to reduce its cost on certificates of deposit by increasing its borrowings
from the FHLB. At March 31, 2002, Guaranty's available but unused borrowings
with the FHLB were approximately $19.6 million.
Stockholders' Equity
Stockholders' equity at March 31, 2002, increased by 1.7% to $16.4 million from
$16.1 million at December 31, 2001. The primary factors for the increase were
the quarterly net income of $406,000 and $8,000 related to the issuance of 1,050
shares for the 2002 annual retainer for outside directors offset by an increase
in the mark to market loss adjustment of Guaranty's available for sale
investments by approximately $141,000.
11
Results of Operations
Net Income
Guaranty reported net income of $406,000 ($.21 per share) for the three months
ended March 31, 2002, compared with a net income of $168,000 ($.09 per share)
for the three months ended March 31, 2001. The increase in the net income was
primarily due to the combination of reduced operating expenses, a lower
provision for loan loss, and increased mortgage banking income which offset
lower net interest income.
Net Interest Income
Net interest income decreased to $2.1 million for the three months ended March
31, 2002, from the $2.2 million reported during the same period in 2001. The
primary cause for the decline in net interest income was due to the decline in
average earning assets for the most recent quarter. Average earning assets for
the three months ended March 31, 2002, were $201.1 million compared to $232.9
million for the same period in 2001. The decline in average loans outstanding to
$171.6 million from $203.1 million represented the majority of this change. For
these same periods, certificates of deposit decreased by $36.7 million to $110.5
million. The negative impact on net interest income because of the decrease in
earning assets was partially offset by an increase in Guaranty's net interest
margin percentage during the most recent quarter. The net interest margin
percentage increased to 4.20% for the most recent quarter from 3.79% for the
same period a year ago. The cost of interest bearing deposits declined by 238
basis points primarily due to lower interest rates being paid on certificates of
deposit. For the same time periods, the yield on loans decreased by 195 basis
points to 7.23%, primarily due to the impact of prime rate reductions throughout
2001 on adjustable rate loans. The following table summarizes the factors
determining net interest income (dollars in thousands).
Three Months Three Months
Ended Ended
March 31, March 31,
--------- ---------
2002 2001
---- ----
Average Interest Earning Assets $ 201,140 $ 232,835
Average Yield 7.00% 8.89%
Average Interest Bearing Liabilities $ 180,359 $ 219,188
Average Cost 3.13% 5.42%
Interest Spread 3.87% 3.48%
Interest Margin 4.20% 3.79%
12
Provision for Loan Losses
Guaranty recorded a provision of $25,000 and $150,000 for the three months ended
March 31, 2002 and 2001, respectively. The decrease in the provision for the
current year resulted from the decrease in the size of the loan portfolio and
the increased level of the allowance for loan losses as a percentage of total
loans. The allowance for loan losses is maintained at a level considered by
management to be adequate to absorb future loan losses currently inherent in the
loan portfolio. Management's assessment of the adequacy of the allowance is
based upon type and volume of the loan portfolio, past loan loss experience,
existing and anticipated economic conditions, and other factors that deserve
current recognition in estimating future loan losses. Management's assessment of
the adequacy of the allowance is subject to evaluation and adjustment by
Guaranty's regulators.
There were no loan charge-offs for the three months ended March 31, 2002,
compared to $34,000 for the same period a year ago. At March 31, 2002, Guaranty
had $338,000 of loans that were 90 days or more past due. Of this total,
$187,000 of loans were considered to be non-accrual. At March 31, 2002, the
allowance for loan losses was $2.5 million or 1.53% of total loans. Management
believes that the allowance for loan losses is adequate to cover loan losses
inherent in the loan portfolio at March 31, 2002, and that loans classified as
special mention, substandard, doubtful and loss have been adequately reserved.
Although management believes that it uses the best information available to make
such determinations, future adjustments to the allowance for loan losses may be
necessary, and net income could be significantly affected, if circumstances
differ substantially from assumptions used in making the initial determinations.
Non-interest Income
Non-interest income was $638,000 for the three months ended March 31, 2002,
compared with $562,000 for the same period a year ago. This change was primarily
due to an increase in mortgage banking income to $314,000 for the most recent
quarter compared to $175,000 for the same period a year ago. During 2001
Guaranty changed its mortgage banking business model to sell all residential
fixed rate mortgage loans on a servicing released basis. In addition, Guaranty
sold its mortgage loan servicing rights related to mortgage loans serviced for
others. The revised mortgage banking business model eliminates the secondary
market interest rate risk through simultaneously locking a mortgage loan rate
with the borrower and a correspondent investor at the same time. The 2001 sale
of existing mortgage servicing rights and the continued sale of mortgage loans
on a servicing released basis eliminates the valuation volatility associated
with retained servicing rights. The results for the three months ended March 31,
2001, included a $151,000 charge for impairment in the value of the mortgage
loan servicing rights.
Fees on deposit accounts increased by 3.4% to $183,000 for the most recent
quarter compared to $177,000 for the same period a year ago. This increase is
related to an increase in demand accounts. Investment sales commissions
decreased to $26,000 for the three months ended March 31, 2002, compared to
$94,000 for the same period a year ago due to reduced sales volume.
13
Non-interest Expense
Non-interest expense was $2.1 million for the quarter ended March 31, 2002, a
$240,000 decrease over the amount reported for the same period last year. The
decrease is primarily attributable to the elimination of personnel and occupancy
expenses due to the sale of a retail banking office in the suburban Richmond
market and limited marketing expense in the most recent quarter. The expenses
related to the suburban Richmond retail banking office were included in the 2001
financial statements until July 2001 when the sale transaction was consummated.
Marketing expense was $14,000 for the most recent quarter compared to $63,000
for the same period a year ago. Marketing expense should increase throughout the
remainder of 2002 as activity increases.
Income Tax Expense
Guaranty recognized income tax expense of $197,000 for the three months ended
March 31, 2002, compared to income tax expense of $86,000 for the same period in
2001. The effective tax rate for the most recent quarter was 32.7% compared to
33.9% for the same period a year ago. The lower effective tax rate for the most
recent quarter was due to an increase in non-taxable income from bank owned
insurance. The net increase in income tax expense between periods was a result
of increases in the level of taxable income.
Liquidity and Capital Resources
Liquidity is the ability to meet present and future financial obligations either
through the sale of existing assets or through the acquisition of additional
funds through asset and liability management. Guaranty's primary sources of
funds are deposits, borrowings and amortization, prepayments and maturities of
outstanding loans and securities. While scheduled payments from the amortization
of loans and securities are relatively predictable sources of funds, deposit
flows and loan prepayments are greatly influenced by general interest rates,
economic conditions and competition. Excess funds are invested in overnight
deposits to fund cash requirements experienced in the normal course of business.
Guaranty has been able to generate sufficient cash through its deposits as well
as through its borrowings.
Guaranty uses its sources of funds primarily to meet its on-going operating
expenses, to pay deposit withdrawals and to fund loan commitments. During the
most recent quarter, total loans declined by approximately $14.0 million and
certificates of deposit declined by approximately $14.5 million. These decreases
were a result of strategic decisions. Guaranty has been very targeted in its
lending approach and has desired to reduce its funding reliance on certificates
of deposit. At March 31, 2002, total approved loan commitments outstanding were
approximately $5.6 million. At the same date, commitments under unused lines of
credit were approximately $51.8 million. Certificates of deposit scheduled to
mature in one year or less at March 31, 2002, were $92.4 million. Management
believes that a significant portion of maturing deposits will remain with
Guranty. If these certificates of deposit do not remain with Guaranty, it will
have to seek other sources of funding that may be at higher rates or reduce
assets.
14
The reduction in total assets has positively impacted Guaranty's regulatory
capital ratios. At March 31, 2002, regulatory capital was in excess of amounts
required by Federal Reserve regulations to be considered well capitalized as
shown in the following table (dollars in thousands):
Actual Actual Amount Percent Excess
Amount Percentage Required Required Amount
-------------- -------------- ----------------- ----------- ----------------
Leverage Ratio $ 22,919 10.45% $ 8,770 4.00% $ 14,149
Tier 1 Risk Based Capital 22,919 12.96% 7,074 4.00% 15,845
Total Risk Based Capital 25,417 14.37% 14,147 8.00% 11,270
Regulatory Issues
In October 2000, Guaranty and the Bank entered into a written agreement with the
Federal Reserve Bank of Richmond ("FRB") and the Bureau of Financial
Institutions of the Commonwealth of Virginia ("BFI") with respect to various
operating policies and procedures. Various bank operating policies including
asset/liability management, liquidity, risk management, loan administration and
capital adequacy were rewritten and approved by bank regulators in 2001.
Guaranty is restricted from paying future dividends or incurring any debt at the
parent company level without prior regulatory approval. In addition, the Bank is
prohibited from paying intercompany dividends to Guaranty without prior
regulatory approval. Absent this intercompany dividend, Guaranty does not have
sufficient resources to make the payments due on its outstanding subordinated
debt securities.
Guaranty and the Bank have received regulatory approval for an intercompany
dividend in an amount sufficient to make the June 15, 2002, payment due on its
subordinated debt securities. While the FRB and the BFI have approved all
quarterly dividend payment requests since the written agreement was executed, no
assurances can be given that future requests will be approved.
Forward Looking Statements
Certain statements in this quarterly report on Form 10-QSB may include
"forward-looking statements" 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. These forward-looking statements are generally identified by the use
of words such as "believe", "expect", "anticipate", "should", "planned",
"estimated", and "potential". These statements are based on Guaranty's current
expectations. A variety of factors could cause Guaranty's actual results to
differ materially from the anticipated results or other expectations expressed
in such forward-looking statements. The risks and uncertainties that may affect
the operations, performance, development, and results of Guaranty's business
include interest rate movements, competition from both financial and
non-financial institutions, the timing and occurrence (or nonoccurrence) of
transactions and events that may be subject to circumstances beyond Guaranty's
control, and general economic conditions.
15
Part II. Other Information
---------------------------
Item 1 Legal Proceedings
Not Applicable
Item 2 Changes in Securities
Not Applicable
Item 3 Defaults Upon Senior Securities
Not Applicable
Item 4 Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5 Other Information
Not Applicable
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - None
16
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, as amended, the registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
GUARANTY FINANCIAL CORPORATION
Date: May 14, 2002 By: /s/ William E. Doyle, Jr.
--------------------------------------------------
William E. Doyle, Jr.
President and Chief Executive Officer
Date: May 14, 2002 By: /s/ Thomas F. Crump
--------------------------------------------------
Thomas F. Crump
Senior Vice President and Chief Financial Officer
17