1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 29549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
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OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transaction period from to
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Commission file number 0-15956
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Bank of Granite Corporation
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(Exact name of registrant as specified in its charter)
Delaware 56-1550545
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(State or other jurisdiction of (I.R.S. Employer Identification
No.) incorporation or organization)
Post Office Box 128, Granite Falls, N. C. 28630
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(Address of principal executive offices) (Zip Code)
(704) 496-2000
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report.)
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. Yes X No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common stock, $1 par value - 5,967,453 shares outstanding as of May 10, 1995.
2
BANK OF GRANITE CORPORATION AND SUBSIDIARY
INDEX PAGE
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PART I FINANCIAL INFORMATION:
Financial Statements:
Consolidated Balance Sheets
March 31, 1995 and December 31, 1994 3
Consolidated Statements of Income
Three Months Ended March 31, 1995
and 1994 4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1995
and 1994 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7
PART II Other Information 9
SIGNATURE 10
3
BANK OF GRANITE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (unaudited)
MARCH 31, DECEMBER 31,
ASSETS: 1995 1994
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Cash and cash equivalents:
Cash and due from banks $ 20,463,529 $ 18,490,835
Federal funds sold 500,000 1,000,000
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Total cash and cash equivalents 20,963,529 19,490,835
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Investment securities:
Available for sale, at fair value 42,647,468 42,567,008
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Held to maturity, at amortized cost 70,760,770 70,358,672
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Loans 277,030,879 269,851,459
Allowance for loan losses (4,362,617) (3,996,491)
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Net loans 272,668,262 265,854,968
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Premises and equipment, net 8,099,864 8,232,541
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Accrued interest receivable 4,054,970 3,632,726
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Other assets 2,565,046 2,030,420
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TOTAL $421,759,909 $412,167,170
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Demand $ 67,679,524 $ 66,963,099
NOW accounts 51,955,887 50,996,639
Money market accounts 32,051,830 34,556,005
Savings 21,828,780 20,676,076
Time deposits of $100,000 or more 76,130,552 71,898,484
Other time deposits 99,498,115 98,239,745
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Total deposits 349,144,688 343,330,048
Securities sold under agreements to repurchase 2,817,325 3,280,855
Other borrowed funds - 21,000
Accrued interest payable 1,337,272 1,242,753
Other liabilities 2,787,820 1,124,640
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Total liabilities 356,087,105 348,999,296
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SHAREHOLDERS' EQUITY:
Common stock, $1.00 par value, authorized-
10,000,000 shares; issued and outstanding-
1995 - 5,961,850; 1994 - 5,958,209 5,961,850 5,958,209
Capital surplus 21,075,740 21,016,998
Retained earnings 38,928,031 36,918,039
Net unrealized loss on securities available
for sale, net of deferred income taxes (292,817) (725,372)
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Total shareholders' equity 65,672,804 63,167,874
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TOTAL $421,759,909 $412,167,170
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See notes to consolidated financial statements.
4
BANK OF GRANITE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 1994
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INTEREST INCOME:
Interest and fees on loans $7,000,736 $5,092,393
Federal funds sold 13,639 17,235
Investments:
U.S. Treasury 253,680 258,051
U.S. Government agencies 478,222 469,808
States and political subdivision 702,466 657,659
Other 151,528 102,388
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Total interest income 8,600,271 6,597,534
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INTEREST EXPENSE:
Time deposits of 100,000 or more 1,034,348 643,933
Other time and savings deposits 1,804,110 1,475,079
Federal funds purchased and securities
sold under agreements to repurchase 54,504 27,795
Other borrowed funds 663 1,640
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Total interest expense 2,893,625 2,148,447
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NET INTEREST INCOME 5,706,646 4,449,087
PROVISION FOR LOAN LOSSES 440,000 30,000
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NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 5,266,646 4,419,087
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OTHER INCOME:
Service charges on deposits accounts 679,236 673,926
Other service fees and commissions 249,864 305,941
Other 135,343 164,510
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Total other income 1,064,443 1,144,377
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OTHER EXPENSES:
Salaries and wages 1,030,713 914,576
Profit sharing and employee benefits 321,802 270,769
Occupancy expense, net 113,957 95,336
Equipment rentals, depreciation, and maintenance 172,686 186,158
Federal Deposit Insurance Corporation
insurance premiums 183,410 178,478
Other 498,708 572,152
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Total other expenses 2,321,276 2,217,469
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INCOME BEFORE INCOME TAXES 4,009,813 3,345,995
INCOME TAXES 1,404,000 1,101,000
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NET INCOME $2,605,813 $2,244,995
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PER SHARE AMOUNTS:
Net income $ .44 $ .38
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Cash dividends $ .10 $ .09
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Book Value $ 11.02 $ 9.74
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See notes to consolidated financial statements.
5
BANK OF GRANITE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
FOR THE THREE MONTHS ENDED MARCH 31 1995 1994
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Increase (Decrease ) in cash and cash equivalents
Cash flows from operating activities:
Interest received $ 8,208,404 $ 6,510,051
Fees and commissions received 1,058,768 1,144,377
Interest paid (2,799,106) (2,163,199)
Cash paid to suppliers and employees (3,159,096) (1,874,349)
Income taxes paid (329,696) (52,586)
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Net cash provided by operating activities 2,979,274 3,564,294
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Cash flows from investing activities:
Proceeds from maturities of securities available for sale 2,051,500 -
Procceds from maturities of securities held to maturity 1,570,000 2,980,000
Purchases of securities available for sale (1,416,696) (1,891,782)
Purchases of securities held to maturity (999,375) (1,500,151)
Net increase in loans (7,472,294) (6,052,025)
Capital expenditures (36,387) (775,871)
Proceeds from sale of equipment - 86
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Net cash used in investing activities (6,303,252) (7,239,743)
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Cash flows from financing activites:
Net increase in demand deposits, NOW accounts
and savings accounts 324,202 5,523,480
Net increase in certificates of deposit 5,490,438 3,774,280
Net increase (decrease) in federal funds purchased and
securities sold under agreements to repurchase (463,530) 297,216
Net decrease in other borrowed funds (21,000) (21,000)
Net proceeds from issuance of common stock 62,383 134,329
Dividends paid (595,821) (522,648)
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Net cash provided by financing activities 4,796,672 9,185,657
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Net increase in cash and cash equivalents 1,472,694 5,510,208
Cash and cash equivalents at beginning of period 19,490,835 22,296,865
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Cash and cash equivalents at end of period $20,963,529 $27,807,073
=========== ===========
Reconciliation of net income to net cash
provided by operating activities:
Net Income $ 2,605,813 $ 2,244,995
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Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 169,064 158,799
Provision for loan losses 440,000 30,000
Premium amortization (discount accretion), net 30,377 70,635
Gains on sales of securities available for sale (5,675) -
Loss on disposal of equipment - 25,131
Increase in taxes payable 1,074,304 1,048,414
Increase in accrued interest receivable (422,244) (158,118)
Increase (decrease) in accrued interest payable 94,519 (14,752)
(Increase) decrease in other assets (595,447) 131,487
Increase (decrease) in other liabilities (411,437) 27,703
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Total adjustments 373,461 1,319,299
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Net cash provided by operating activites $ 2,979,274 $ 3,564,294
=========== ===========
Supplemental Disclosure of Non-Cash Transactions:
Transfers of loans to other realestate owned 219,000 -
Change in net unrealized loss on securities available for sale 712,376 -
See notes to consolidated financial statements.
6
BANK OF GRANITE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of management, the accompanying consolidated financial
statements contain all adjustments necessary to present fairly the
financial position of Bank of Granite Corporation and subsidiary as of
March 31, 1995 and December 31, 1994, and the results of their
operations for the three month periods ended March 31, 1995 and 1994,
and their cash flows for the three month periods ended March 31, 1995
and 1994.
The accounting policies followed are set forth in Note 1 to the
Corporation's 1994 Annual Report to Shareholders on file with the
Securities and Exchange Commission.
2. Earnings per share have been computed using the weighted average
number of shares of common stock and dilutive common stock equivalents
outstanding, adjusted for a 5-for-4 stock split, of 5,986,600 and
5,978,403 for the three month periods ended March 31, 1995 and 1994,
respectively.
3. In the normal course of business there are various commitments and
contingent liabilities such as commitments to extend credit, which are
not reflected on the financial statements. The unused portion of loan
commitments at March 31, 1995 and December 31, 1994 was $46,600,000
and $50,230,000, respectively. Additionally, standby letters of
credit of approximately $4,063,000 and $2,938,000 were outstanding at
March 31, 1995 and December 31, 1994, respectively. Management does
not anticipate any significant losses to result from these
transactions.
4. Effective January 1, 1995 the Company adopted a new accounting
standard issued by the financial Accounting Standards Board ("FASB"),
"Accounting by Creditors for Impairment of a Loan" (SFAS No. 114)
(subsequently amended by SFAS No. 118). The Statement requires that
impaired loans be measured based on the present value of expected
future cash flows discounted a the loans's effective interest rate or,
as a practical matter, at the loan's observable market value or fair
value of the collateral if the loan is collateral dependent. The
implementation of the Statement did not have a material impact on the
financial position or results of operations.
7
BANK OF GRANITE CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
CHANGES IN FINANCIAL CONDITION
MARCH 31, 1995 COMPARED WITH DECEMBER 31, 1994
Total assets increased $9,592,739 from December 31, 1994 to March 31, 1995.
This 2.33% of growth in assets resulted primarily from an increase in deposits
of $5,814,640 or 1.69% and the reinvestment of $2,605,813 of net earnings. As
a result, cash and cash equivalents increased $1,472,694, and gross loans
reflected a modest growth of $7,179,420 or 2.66%. Securities decreased by
$226,818, excluding unrealized losses on available for sale securities of
$482,240 and $1,194,616, at March 31, 1995 and December 31, 1994, respectively.
Deposits revealed an increase of $5,814,640 or 1.69%. Non-time deposits
increased $324,202 or .19%, while time deposits increased $5,490,438 or 3.23%.
The growth in time deposits reflects interest sensitive customers shifting
their funds from lower interest-bearing accounts to higher yielding time
deposits. The loan-to-deposits ratios were 79.35% and 78.6% on March 31, 1995
and December 31, 1994, respectively. Other liabilities increased $1,663,180.
Of this amount $1,000,313 represents an accrued liability for securities
purchased but not yet settled. Common stock outstanding increased by 3,641
shares due to the exercise of stock options and provided cash of $62,383.
Retained earnings reflect the payment of $595,821 in cash dividends and
earnings of $2,605,813. The Company had a $292,817 unrealized loss, net of
deferred income taxes, on held available for sale securities. The Company's
liquidity position remained strong.
RESULTS OF OPERATIONS FOR THE THREE
MONTH PERIOD ENDED MARCH 31, 1995
COMPARED WITH THE SAME PERIOD IN 1994
Increases in interest income are primarily attributable to increases in rates.
Although gross loans increased by 10.9%, the prime rate increased by
approximately 300 basis points over the comparable quarter in 1994. The
increase in interest expense is attributable to lower yielding deposits
maturing and reinvesting at higher interest rates, as well as a shift in
deposits from lower yielding non-time deposits to higher yielding time
deposits.
The provision for loan losses charged to operations is an amount sufficient to
bring the allowance for loan losses to an estimated balance considered to be
adequate to absorb potential losses in the portfolio. Management's
determination of the adequacy of the allowance is based on an evaluation of the
portfolio, current economic conditions, historical loan loss experience and
other risk factors. This evaluation is heavily dependent upon estimates and
appraisals which are susceptible to rapid changes because of changing economic
conditions and the economic prospects of borrowers. The bank's delinquency
ratio was 1.79% compared to 1.28% on March 31, 1995 and 1994, respectively.
In view of the increase in delinquent loans, management charged $440,000 to
operations for the addition to the allowance for loan losses during the first
quarter. At March 31, 1995 the loan loss reserve was 1.60% of net loans
outstanding.
8
Non-interest income decreased $79,934 or 6.98% compared to $1,144,377 in 1994.
The decrease reflects lower volumes in the bank's non-traditional banking
services. Fees from the origination of mortgage loans decreased by $33,368 and
commission from the sales of annuities decreased by $26,618 compared to March
31, 1994. The decreases arose as a result of rising interest rates. Included
in other income is a $5,675 gain that arose from a available for sale security
being called at a premium. Other expenses increased by $215,354 or 10.23%,
excluding a non-recurring loss of $111,547 on the sale of other real estate
owned during 1994. Employee salaries and benefits comprised $167,170 or 77.63%
of the increase in non-interest expense. The increase in salaries and benefits
reflects general pay increases and increased costs in providing benefits.
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PART II OTHER INFORMATION
ITEM 4 - OTHER INFORMATION
Bank of Granite Corporation's Annual Shareholders Meeting was held on
April 24, 1995. Submission of matters to be voted upon resulted in the
following:
1. Members of the Corporation's Board of Directors were reelected to
serve until the next annual meeting. They are John A. Forlines, Jr.,
Charles M. Snipes, John N. Bray, Robert E. Cline, Barbara F. Freiman,
William F. Howard, III, and Myron L. Moore, Jr.
2. Shareholders ratified the selection of Deloitte & Touche LLP as the
Corporation's independent auditors for the year ending December 31,
1995.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
A) Exhibits
Exhibit 27 Financial Data Schedule (for SEC use only)
B) Reports on Form 8-K
No reports on Form 8-K have been filed for the
quarter ended March 31, 1995.
Items 1,2,3,4 and 5 are inapplicable and are omitted.
10
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Bank of Granite Corporation
(Registrant)
Date: May 10, 1995 /s/Randall C. Hall
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Randall C. Hall
Vice President and Chief Financial
and Principal Accounting Officer