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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 June 30, 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 - 5,982,272 shares outstanding as of August 10, 1995.
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BANK OF GRANITE CORPORATION AND SUBSIDIARY
INDEX PAGE
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PART I FINANCIAL INFORMATION:
Financial Statements:
Consolidated Balance Sheets
June 30, 1995 and December 31, 1994 3
Consolidated Statements of Income
Three Months Ended June 30, 1995
and 1994, and Six Months Ended
June 30, 1995 and 1994 4
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1995
and 1994 5
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
PART II Other Information 11
SIGNATURE 12
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BANK OF GRANITE CORPROATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (unaudited) JUNE 30, December 31,
1995 1994
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ASSETS:
Cash and cash equivalents:
Cash and due from banks $ 21,263,117 $ 18,490,835
Federal funds sold - 1,000,000
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Total cash and cash equivalents 21,263,117 19,490,835
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Investment securities:
Available for sale, at fair value 41,802,304 42,567,008
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Held to maturity, at amortized cost 72,477,716 70,358,672
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Loans 288,489,627 269,851,459
Allowance for loan losses (4,581,822) (3,996,491)
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Net loans 283,907,805 265,854,968
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Premises and equipment, net 8,074,258 8,232,541
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Accrued interest receivable 3,995,962 3,632,726
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Other assets 1,505,628 2,030,420
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TOTAL $ 433,026,790 $ 412,167,170
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Demand $ 69,706,562 $ 66,963,099
NOW accounts 51,061,713 50,996,639
Money market accounts 30,170,188 34,556,005
Savings 22,029,259 20,676,076
Time deposits of $100,000 or more 80,047,130 71,898,484
Other time deposits 106,331,380 98,239,745
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Total deposits 359,346,232 343,330,048
Securities sold under agreement to repurchase 2,746,185 3,280,855
Other borrowed funds - 21,000
Accrued interest payable 1,580,640 1,242,753
Other liabilities 678,287 1,124,640
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Total liabilities 364,351,344 348,999,296
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SHAREHOLDERS' EQUITY:
Common stock, $1.00 par value, authorized-
10,000,000 shares; issued and outstanding-
1995 - 5,982,272; 1994 - 5,958,209 5,982,272 5,958,209
Capital surplus 21,349,693 21,016,998
Retained earnings 41,163,240 36,918,039
Net unrealized gain (loss) on securities
available for sale, net of deferred
income taxes 180,241 (725,372)
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Total shareholders' equity 68,675,446 63,167,874
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TOTAL $ 433,026,790 $ 412,167,170
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See notes to consolidated financial statements.
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BANK OF GRANITE CORPORATION AND SUBSIDIARY THREE MONTHS SIX MONTHS
CONSOLIDATED STATEMENTS OF INCOME (unaudited) ENDED JUNE 30 ENDED JUNE 30
1995 1994 1995 1994
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INTEREST INCOME:
Interest and fees on loans $7,480,668 $5,656,181 $14,481,404 $10,748,574
Federal funds sold 82,954 36,201 96,593 53,436
Investments:
U.S. Treasury 247,677 230,054 501,357 488,105
U.S. Government agencies 499,904 460,914 978,126 930,722
States and political subdivision 694,920 687,685 1,397,386 1,345,344
Other 155,112 105,113 306,640 207,501
---------- ---------- ---------- ----------
Total interest income 9,161,235 7,176,148 17,761,506 13,773,682
---------- ---------- ---------- ----------
INTEREST EXPENSE:
Time deposits of $100,000 or more 1,246,264 666,903 2,280,612 1,310,836
Other time and savings deposits 2,022,106 1,536,176 3,826,216 3,011,255
Federal funds purchased and securities
sold under agreements to repurchase 36,102 33,937 90,606 61,732
Other borrowed funds 517 1,451 1,180 3,091
---------- ---------- ---------- ----------
Total interest expense 3,304,989 2,238,467 6,198,614 4,386,914
---------- ---------- ---------- ----------
NET INTEREST INCOME 5,856,246 4,937,681 11,562,892 9,386,768
PROVISION FOR LOAN LOSSES 310,000 144,000 750,000 174,000
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 5,546,246 4,793,681 10,812,892 9,212,768
---------- ---------- ---------- ----------
OTHER INCOME:
Service charges on deposit accounts 697,920 733,426 1,377,156 1,407,352
Other service fees and commissions 260,975 252,107 510,839 558,048
Other 110,990 71,338 246,333 235,848
---------- ---------- ---------- ----------
Total other income 1,069,885 1,056,871 2,134,328 2,201,248
---------- ---------- ---------- ----------
OTHER EXPENSES:
Salaries and wages 1,038,832 961,009 2,069,545 1,875,585
Profit-sharing and employee benefits 220,101 250,712 541,903 521,481
Occupancy expense, net 105,748 108,541 219,705 203,877
Equipment rentals, depreciation, and maintenance 187,659 183,081 360,345 369,239
Federal Deposit Insurance Corporation
insurance premiums 195,835 178,478 379,245 356,956
Other 667,093 568,408 1,165,801 1,140,560
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Total other expenses 2,415,268 2,250,229 4,736,544 4,467,698
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 4,200,863 3,600,323 8,210,676 6,946,318
INCOME TAXES 1,369,000 1,161,000 2,773,000 2,262,000
---------- ---------- ---------- ----------
NET INCOME $2,831,863 $2,439,323 $5,437,676 $4,684,318
========== ========== ========== ==========
PER SHARE AMOUNTS:
Net income $ .47 $ .40 $ .91 $ .78
========== ========== ========== ==========
Cash dividends $ .12 $ .10 $ .22 $ .18
========== ========== ========== ==========
Book value $ 11.48 $ 10.00
========== ==========
See notes to consolidated financial statements.
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BANK OF GRANITE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
FOR THE SIX MONTHS ENDED JUNE 30 1995 1994
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Increase (Decrease) in cash and cash equivalents
Cash flows from operating activities:
Interest received $ 17,458,250 $ 13,867,639
Fees and commissions received 2,128,653 2,201,248
Interest paid (5,860,727) (4,345,148)
Cash paid to suppliers and employees (4,682,970) (3,633,977)
Income taxes paid (2,944,696) (1,947,586)
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Net cash provided by operating activities 6,098,510 6,142,176
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Cash flows from investing activities:
Proceeds from maturities of securities available for sale 4,051,500 7,470,000
Procceds from maturities of securities held to maturity 4,775,000 4,000,000
Purchases of securities available for sale (1,795,047) (3,890,554)
Purchases of securities held to maturity (6,948,640) (3,058,070)
Net increase in loans (19,021,837) (10,864,002)
Capital expenditures (187,470) (902,560)
Proceeds from sale of equipment 469 3,087
Proceeds from sale of other real estate owned 175,000 -
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Net cash used in investing activities (18,951,025) (7,242,099)
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Cash flows from financing activites:
Net increase (decrease) in demand deposits, NOW accounts
and savings accounts (224,097) 1,517,430
Net increase in certificates of deposit 16,240,281 3,630,721
Net increase (decrease) in federal funds purchased and
securities sold under agreements to repurchase (534,670) 382,006
Net decrease in other borrowed funds (21,000) (21,000)
Net proceeds from issuance of common stock 356,758 266,174
Cash paid for fractional shares - (14,953)
Dividends paid (1,192,475) (1,045,951)
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Net cash provided by financing activities 14,624,797 4,714,427
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Net increase in cash and cash equivalents 1,772,282 3,614,504
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 $ 21,263,117 $ 25,911,369
============ ============
Reconciliation of net income to net cash
provided by operating activities:
Net Income $ 5,437,676 $ 4,684,318
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Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 344,551 316,146
Provision for loan losses 750,000 174,000
Premium amortization (discount accretion), net 59,980 98,462
Gains on sales of securities available for sale (5,675) -
Loss on disposal of equipment 733 22,131
Loss on sale of other real estate owned 44,000 -
Increase (decrease) in taxes payable (171,696) 314,414
Increase in accrued interest receivable (363,236) (4,505)
Increase in accrued interest payable 337,887 41,766
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(Increase) decrease in other assets (61,053) 294,951
Increase (decrease) in other liabilities (274,657) 200,493
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Total adjustments 660,834 1,457,858
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Net cash provided by operating activites $ 6,098,510 $ 6,142,176
============ ============
Supplemental Disclosure of Non-Cash Transactions:
Transfers of loans to other real estate owned $ 219,000 -
Change in net unrealized gain (loss) on securities
available for sale 1,491,458 -
See notes to consolidated financial statements.
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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
June 30, 1995 and December 31, 1994, and the results of their
operations for the three and six month periods ended June 30, 1995 and
1994, and their cash flows for the six month periods ended June 30,
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.
The results of operations for the six month period ended June 30, 1995
are not necessarily indicative of the results expected for the full
year.
2. Earnings per share have been computed using the weighted average
number of shares of common stock and dilutive common stock equivalents
outstanding of 5,996,431 and 5,985,579 for the three month periods
ended June 30, 1995 and 1994, respectively; and 5,991,543 and
5,980,543 for the six month periods ended June 30, 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 June 30, 1995 and December 31, 1994 was $45,993,000 and
$50,230,000, respectively. Additionally, standby letters of credit of
approximately $3,461,000 and $2,938,000 were outstanding at June 30,
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.
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BANK OF GRANITE CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
CHANGES IN FINANCIAL CONDITION
JUNE 30, 1995 COMPARED WITH DECEMBER 31, 1994
Total assets increased $20,859,620 from December 31, 1994 to June 30, 1995.
This 5.06% of growth in assets resulted primarily from an increase in deposits
of $16,016,184 or 4.66% and the reinvestment of $5,437,676 of net earnings. As
a result, cash and cash equivalents increased $1,772,282, and gross loans
reflected a healthy growth of $18,638,168 or 6.91%. Securities decreased by
$137,118, excluding unrealized gains of $296,842 and unrealized losses of
$1,194,616 on held available for sale securities June 30, 1995 and December 31,
1994, respectively. Non-time deposits decreased $224,097 or .13%, while time
deposits increased $16,240,281 or 9.55%. 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
80.28% and 78.60% on June 30, 1995 and December 31, 1994, respectively. Other
liabilities decreased $446,353. Of this amount $171,696 represented a decrease
in income taxes payable. Common stock outstanding increased by 24,063 shares
due to the exercise of stock options and provided cash of $356,758. Retained
earnings reflect the payment of $1,192,475 in cash dividends and earnings of
$5,437,676. The Company had a change in unrealized gains (losses), net of
deferred income taxes, of $905,613 on held available for sale securities. The
Company's liquidity position remained strong.
RESULTS OF OPERATIONS FOR THE THREE
MONTH PERIOD ENDED JUNE 30, 1995 COMPARED
WITH THE SAME PERIOD IN 1994 AND
FOR THE SIX MONTH PERIOD ENDED
JUNE 30, 1995 COMPARED WITH THE SAME
PERIOD IN 1994
During the three month period ended June 30, 1995 interest income increased
$1,985,087 or 27.66% from the same period last year. The increases are
attributable to both rate and volume increases. The prime rate during the
three month period averaged 9.00% compared to 7.00% during the same period in
1994. Gross loans averaged $279,941,000 compared to $253,465,000 last year, an
increase of 10.45%. Investment income increased by $113,847 or 7.67% due to
lower yielding bonds maturing and reinvesting at higher rates. The increase in
interest expense, $1,066,522 or 47.65%, is attributable to lower yielding
deposits maturing and reinvesting at higher yields, as well as a shift in
deposits from lower yielding non-time deposits to higher yielding time
deposits.
Management determines the allowance for loan losses based on a number of
factors including reviewing and evaluating the Company's loan portfolio in
order to identify potential problem loans, credit concentrations and other risk
factors connected to the loan portfolio as well as current and projected
economic conditions locally and nationally. Upon loan origination, management
evaluates the relative quality of each loan and assigns a corresponding loan
grade. All loans are periodically reviewed to determine whether any changes in
these loan grades are necessary. The loan grading
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system assists management in determining the overall risk in the loan
portfolio.
Management realizes that general economic trends greatly affect loan losses and
no assurances can be made that further charges to the loan loss allowance may
not be significant in relation to the amount provided during a particular
period or that further evaluation of the loan portfolio based on conditions
then prevailing may not require sizeable additions to the allowance, thus
necessitating similarly sizeable charges to operations. During the quarter,
management determined a charge to operation of $310,000 would bring the loan
loss reserve to an estimated balance considered to be adequate to absorb
potential losses in the portfolio. At June 30, 1995 the loan loss reserve was
1.61% of net loans outstanding.
Non-interest income remained relatively flat with an increase of $13,014 or
1.23% compared to $1,056,871 in 1994. Management continued to place emphasis
on non-traditional banking services such as annuities, leasing and originating
mortgage loans, which produced $113,075, an increase of 12.62%, in non-interest
income during the quarter. Additionally, the gain on the sale of the
guaranteed portion of small business administration loans produced $69,967 in
income. Other expenses increased by $121,039 or 5.38%, excluding a
non-recurring loss of $44,000 on the sale of other real estate owned during the
second quarter in 1995. Employee salaries and benefits comprised $47,212 or
39.01% of the increase in non-interest expense. Net income for the quarter
increased $392,540 or 16.09% over the comparable quarter in 1994.
During the six month period ended June 30, 1994 interest income increased
$3,897,824 or 28.95% from the same period last year. The increases are
attributable to both rate and volume increase. The prime rate during the six
month period averaged 8.90% compared 6.825% during the same period in 1994.
Gross loans outstanding averaged $275,520,000 compared to $250,094,000 last
year, an increase of 10.17%. Investment income increased by $211,837 or 7.13%
due to higher yields earned in the portfolio, which resulted from lower
yielding investments maturing and reinvesting at higher market rates. The
increase in interest expense, $1,811,700 or 41.30%, is attributable to lower
yielding deposits maturing and reinvesting at higher rates, as well as a shift
in lower yielding non-time deposits to higher yielding time deposits.
Management determines the allowance for loan losses based on a number of
factors including reviewing and evaluating the Company's loan portfolio in
order to identify potential problem loans, credit concentrations and other risk
factors connected to the loan portfolio as well as current and projected
economic conditions locally and nationally. Upon loan origination, management
evaluates the relative quality of each loan and assigns a corresponding loan
grade. All loans are periodically reviewed to determine whether any changes in
these loan grades are necessary. The loan grading system assists management in
determining the overall risk in the loan portfolio. The delinquency ratio was
1.38% at June 30, 1995.
Management realizes that general economic trends greatly affect loan losses and
no assurances can be made that further charges to the loan loss allowance may
not be significant in relation to the amount provided during a particular
period or that further evaluation of the loan portfolio based on conditions
then prevailing may not require sizeable additions to the allowance, thus
necessitating similarly sizeable charges to operations. During the six month
period, management determined a
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charge to operation of $750,000 would bring the loan loss reserve to an
estimated balance considered to be adequate to absorb potential losses in the
portfolio. At June 30, 1995 the loan loss reserve was 1.61% of net loans
outstanding.
Non-interest income remained relatively flat with a decrease of $66,920 or
3.04% compared to $2,201,248 in 1994. Management continued to place emphasis
on non-traditional banking services such as annuities, leasing and originating
mortgage loans, which produced $198,814 in non-interest income. Additionally,
sales of the guaranteed portion of small business administration loans produced
$132,888 in other income. Also included in other income is a $5,675 gain on
the sale of an investment held available for sale. The investment security was
called at a premium which produced the gain. Other expenses increased $335,972
or 7.71%, excluding non-recurring losses on the sales of other real estate
owned of $44,000 and $111,126 for the six months ended June 30, 1995 and 1994,
respectively. Employee salaries and benefits comprised $214,382 or 63.81% of
the increase in non-interest expense. The increases in salaries and benefits
reflect general pay increases and increased costs in providing benefits. Net
income for the six months ended June 30, 1995 increased $753,358 or 16.08% over
the comparable period in 1994.
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PART II OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
A) Exhibits
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.
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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: August 10, 1995
/s/ Randall C. Hall
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Randall C. Hall
Vice President and Chief Financial
and Principal Accounting Officer
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