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 September 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
(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 - 5,984,136 shares outstanding as of November 2,
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
September 30, 1995 and December 31, 1994 3
Consolidated Statements of Income
Three Months Ended September 30, 1995
and 1994, and Nine Months Ended
September 30, 1995 and 1994 4
Consolidated Statements of Cash Flows
Nine Months Ended September 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
3
BANK OF GRANITE CORPROATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (unaudited) SEPTEMBER 30, December 31,
1995 1994
--------------- ---------------
ASSETS:
Cash and cash equivalents:
Cash and due from banks $ 20,533,872 $ 18,490,835
Federal funds sold 3,000,000 1,000,000
--------------- ---------------
Total cash and cash equivalents 23,533,872 19,490,835
--------------- ---------------
Investment securities:
Available for sale, at fair value 35,700,456 42,567,008
--------------- ---------------
Held to maturity, at amortized cost 79,010,348 70,358,672
--------------- ---------------
Loans 296,420,667 269,851,459
Allowance for loan losses (4,862,770) (3,996,491)
--------------- ---------------
Net loans 291,557,897 265,854,968
--------------- ---------------
Premises and equipment, net 8,181,615 8,232,541
--------------- ---------------
Accrued interest receivable 4,324,247 3,632,726
--------------- ---------------
Other assets 2,796,467 2,030,420
--------------- ---------------
TOTAL $ 445,104,902 $ 412,167,170
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Demand $ 69,322,426 $ 66,963,099
NOW accounts 51,615,309 50,996,639
Money market accounts 30,781,038 34,556,005
Savings 22,728,945 20,676,076
Time deposits of $100,000 or more 83,719,172 71,898,484
Other time deposits 109,394,065 98,239,745
-------------- ---------------
Total deposits 367,560,955 343,330,048
Securities sold under agreement to repurchase 2,629,084 3,280,855
Other borrowed funds - 21,000
Accrued interest payable 1,666,928 1,242,753
Other liabilities 2,258,312 1,124,640
--------------- ---------------
Total liabilities 374,115,279 348,999,296
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SHAREHOLDERS' EQUITY:
Common stock, $1.00 par value, authorized-
10,000,000 shares; issued and outstanding-
1995 - 5,983,668; 1994 - 5,958,209 5,983,668 5,958,209
Capital surplus 21,368,427 21,016,998
Retained earnings 43,368,985 36,918,039
Net unrealized gain (loss) on securities
available for sale, net of deferred
income taxes 268,543 (725,372)
--------------- ---------------
Total shareholders' equity 70,989,623 63,167,874
--------------- ---------------
TOTAL $ 445,104,902 $ 412,167,170
=============== ===============
See notes to consolidated financial statements.
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BANK OF GRANITE CORPORATION AND SUBSIDIARY THREE MONTHS NINE MONTHS
CONSOLIDATED STATEMENTS OF INCOME (unaudited) ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
1995 1994 1995 1994
------------ ----------- ----------- -----------
INTEREST INCOME:
Interest and fees on loans $7,639,685 $6,070,662 $22,121,089 $16,819,236
Federal funds sold 45,074 59,136 141,667 112,572
Investments:
U.S. Treasury 236,643 231,416 738,000 719,521
U.S. Government agencies 500,324 462,901 1,478,450 1,393,623
States and political subdivision 712,266 683,722 2,109,652 2,029,066
Other 160,272 108,315 466,912 315,816
---------- ---------- ----------- -----------
Total interest income 9,294,264 7,616,152 27,055,770 21,389,834
---------- ---------- ----------- -----------
INTEREST EXPENSE:
Time deposits of $100,000 or more 1,222,843 807,902 3,503,455 2,118,738
Other time and savings deposits 2,192,726 1,624,327 6,018,942 4,635,582
Federal funds purchased and securities
sold under agreements to repurchase 45,918 29,840 136,524 91,572
Other borrowed funds 189 635 1,369 3,726
---------- ---------- ----------- -----------
Total interest expense 3,461,676 2,462,704 9,660,290 6,849,618
---------- ---------- ----------- -----------
NET INTEREST INCOME 5,832,588 5,153,448 17,395,480 14,540,216
PROVISION FOR LOAN LOSSES 282,000 108,000 1,032,000 282,000
---------- ---------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 5,550,588 5,045,448 16,363,480 14,258,216
---------- ---------- ----------- -----------
OTHER INCOME:
Service charges on deposit accounts 722,774 673,906 2,099,930 2,081,258
Other service fees and commissions 231,118 338,566 741,957 896,614
Securities gains (losses), net (56,190) - (40,952) -
Other 56,550 26,599 287,645 262,447
---------- ---------- ----------- -----------
Total other income 954,252 1,039,071 3,088,580 3,240,319
---------- ---------- ----------- -----------
OTHER EXPENSES:
Salaries and wages 1,045,821 1,027,332 3,115,366 2,902,917
Profit-sharing and employee benefits 254,291 259,089 796,194 780,570
Occupancy expense, net 108,861 113,532 328,566 317,409
Equipment rentals, depreciation, and maintenance 161,786 211,127 522,131 580,366
Other 631,463 695,498 2,176,509 2,193,014
---------- ---------- ----------- -----------
Total other expenses 2,202,222 2,306,578 6,938,766 6,774,276
---------- ---------- ----------- -----------
INCOME BEFORE INCOME TAXES 4,302,618 3,777,941 12,513,294 10,724,259
INCOME TAXES 1,379,000 1,316,000 4,152,000 3,578,000
---------- ---------- ----------- -----------
NET INCOME $2,923,618 $2,461,941 $ 8,361,294 $ 7,146,259
========== ========== =========== ===========
PER SHARE AMOUNTS:
Net income $ .48 $ .41 $ 1.40 $ 1.19
========== ========== =========== ===========
Cash dividends $ .12 $ .10 $ .34 $ .28
========== ========== =========== ===========
Book value $ 11.86 $ 10.30
=========== ===========
See notes to consolidated financial statements.
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BANK OF GRANITE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30 1995 1994
----------- -----------
Increase (decrease ) in cash and cash equivalents
Cash flows from operating activities:
Interest received $26,456,392 $21,257,823
Fees and commissions received 3,129,532 3,240,319
Interest paid (9,236,115) (6,777,209)
Cash paid to suppliers and employees (6,484,256) (5,715,112)
Income taxes paid (4,284,696) (3,332,586)
------------ -----------
Net cash provided by operating activities 9,580,857 8,673,235
------------ -----------
Cash flows from investing activities:
Proceeds from maturities of securities available for sale 8,486,063 6,000,000
Procceds from maturities of securities held to maturity 8,145,000 8,575,000
Proceeds from sales of securities available for sale 894,378 -
Purchases of securities available for sale (2,042,394) (7,630,795)
Purchases of securities held to maturity (15,553,981) (5,642,129)
Net increase in loans (27,215,410) (20,090,595)
Capital expenditures (451,621) (1,578,718)
Proceeds from sale of equipment 469 3,087
Proceeds from sale of other real estate owned 175,000 -
------------ -----------
Net cash used in investing activities (27,562,496) (20,364,150)
------------ -----------
Cash flows from financing activites:
Net increase in demand deposits, NOW accounts
and savings accounts 1,255,899 9,960,946
Net increase in certificates of deposit 22,975,008 3,567,983
Net increase (decrease) in federal funds purchased and
securities sold under agreements to repurchase (651,771) 219,333
Net decrease in other borrowed funds (21,000) (21,000)
Net proceeds from issuance of common stock 376,888 284,394
Cash paid for fractional shares - (14,953)
Dividends paid (1,910,348) (1,641,658)
------------ -----------
Net cash provided by financing activities 22,024,676 12,355,045
------------ -----------
Net increase in cash and cash equivalents 4,043,037 664,130
Cash and cash equivalents at beginning of period 19,490,835 22,296,865
------------ -----------
Cash and cash equivalents at end of period $23,533,872 $22,960,995
=========== ===========
Reconciliation of net income to net cash
provided by operating activities:
Net Income $ 8,361,294 $ 7,146,259
------------ -----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 501,345 471,190
Provision for loan losses 1,032,000 282,000
Premium amortization (discount accretion), net 89,598 125,523
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Net loss on sale of securities held available for sale 40,952 -
Loss on disposal of equipment 733 22,130
Loss on sale of other real estate owned 44,000 -
Increase (decrease) in taxes payable (132,696) 245,414
Increase in accrued interest receivable (688,976) (257,534)
Increase in accrued interest payable 424,175 72,409
(Increase) decrease in other assets (47,531) 168,803
Increase (decrease) in other liabilities (44,037) 397,041
------------ -----------
Total adjustments 1,219,563 1,526,976
------------ -----------
Net cash provided by operating activites $ 9,580,857 $ 8,673,235
============ ===========
Supplemental Disclosure of Non-Cash Transactions:
Change in net unrealized gains (losses) on securities
held available for sale $ 1,491,458 $ (711,740)
Securities purchased, not yet settled 1,307,860 195,000
Securities matured, funds not yet settled 1,100,000 -
Transfer from loans to other real estate owned 261,481 -
Transfer from retained earnings to capital stock for stock split - 1,190,958
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
September 30, 1995 and December 31, 1994, and the results of their
operations for the three and nine month periods ended September 30,
1995 and 1994, and their cash flows for the nine month periods ended
September 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 nine month period ended September
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 6,002,017 and 5,990,678 for the three month periods
ended September 30, 1995 and 1994, respectively; and 5,993,883 and
5,983,959 for the nine month periods ended September 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 September 30, 1995 and December 31, 1994 was
$46,880,000 and $50,230,000, respectively. Additionally, standby
letters of credit of approximately $3,385,000 and $2,938,000 were
outstanding at September 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 at the loan'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
SEPTEMBER 30, 1995 COMPARED WITH DECEMBER 31, 1994
Total assets increased $32,937,732 from December 31, 1994 to September 30,
1995. This 7.99% of growth in assets resulted primarily from an increase in
deposits of $24,230,907 or 7.06% and the reinvestment of $8,361,294 of net
earnings. As a result, cash and cash equivalents increased $4,043,037, and
gross loans reflected a healthy growth of $26,569,208 or 9.85%. Securities
increased by $148,244, excluding unrealized gains of $442,264 and unrealized
losses of $1,194,616 on held available for sale securities September 30, 1995
and December 31, 1994, respectively. Non-time deposits increased $1,255,899 or
.73%, while time deposits increased $22,975,008 or 13.50%. The growth in time
deposits reflects interest sensitive customers shifting their funds from lower
interest-bearing accounts to higher yielding time deposits as well as a
customer return from annuities and mutual funds to the higher yielding
certificates of deposit. The loan-to-deposits ratios were 80.65% and 78.60% on
September 30, 1995 and December 31, 1994, respectively. Other liabilities
increased $1,133,672. Of this amount $132,696 represented a decrease in income
taxes payable and an accrual of $1,310,405 for securities purchased but not yet
settled. Common stock outstanding increased by 25,459 shares due to the
exercise of stock options and provided cash of $376,888. Retained earnings
reflect the payment of $1,910,348 in cash dividends and earnings of $8,361,294.
The Company had a change in unrealized gains (losses), net of deferred income
taxes, of $993,915 on held available for sale securities. The Company's
liquidity position remained strong.
RESULTS OF OPERATIONS FOR THE THREE
MONTH PERIOD ENDED SEPTEMBER 30, 1995 COMPARED
WITH THE SAME PERIOD IN 1994 AND
FOR THE NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1995 COMPARED WITH THE SAME
PERIOD IN 1994
During the three month period ended September 30, 1995 interest income
increased $1,678,112 or 22.03% 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 8.77% compared to 7.50% during the same period in
1994. Gross loans averaged $293,225,000 compared to $259,205,000 last year, an
increase of 13.12%. Investment income increased by $123,151 or 8.29% due to
lower yielding bonds maturing and reinvesting at higher rates. The increase in
interest expense, $998,972 or 40.56%, 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,
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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.
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 $282,000 would bring the loan
loss reserve to an estimated balance considered to be adequate to absorb
potential losses in the portfolio. At September 30, 1995 the loan loss reserve
was 1.67% of net loans outstanding.
Non-interest income remained relatively flat with a decrease of $28,629 or
2.76%, excluding securities losses of $56,190, compared to $1,039,071 in 1994.
Management continued to place emphasis on non-traditional banking services such
as annuities, leasing and originating mortgage loans, which produced $107,770,
in non-interest income during the quarter compared to $107,486 last year.
Additionally, the gain on the sale of the guaranteed portion of small business
administration loans produced $19,088 in income. During the third quarter the
bank incurred a loss of $56,190 on the sale of an investment held available for
sale. The investment, a mutual fund, was acquired in 1987. The fund was sold
in response to deteriorations in both rate and market value. During the third
quarter the bank received a refund from the FDIC for insurance premiums in the
amount of $214,968. This refund reflects the recapitalization of the Bank
Insurance Fund and a corresponding adjustment in the rate at which payments
were made. The bank previously paid 23c. for each $100 on deposit. The new
rate, at which the assessment was retroactively adjusted, is now 04c. per $100
in deposit. Other expenses increased by $110,612 or 4.80%, excluding the FDIC
assessment refund. Net income increased by $461,677 or 18.76% over the
comparable quarter in 1994.
During the nine month period ended September 30, 1995 interest income increased
$5,665,936 or 26.49% from the same period last year. The increases are
attributable to both rate and volume increase. The prime rate during the nine
month period averaged 8.54% compared 7.00% during the same period in 1994.
Gross loans outstanding averaged $279,981,000 compared to $253,152,000 last
year, an increase of 10.60%. Investment income increased by $334,988 or 7.51%
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, $2,810,672 or 41.03%, 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
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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
1.54% at September 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 nine month
period, management determined a charge to operation of $1,032,000 would bring
the loan loss reserve to an estimated balance considered to be adequate to
absorb potential losses in the portfolio. At September 30, 1995 the loan loss
reserve was 1.67% of net loans outstanding.
Non-interest income remained relatively flat with a decrease of $110,787 or
3.42%, excluding a realized loss of $40,952 on the sale of investments held
available for sale compared to $3,240,319 in 1994. Management continued to
place emphasis on non-traditional banking services such as annuities, leasing
and originating mortgage loans, which produced $306,584 in non-interest income.
Additionally, sales of the guaranteed portion of small business administration
loans produced $151,976 in other income. Other expenses increased $446,584 or
6.70%, excluding non-recurring losses on the sales of other real estate owned
of $44,000 and $111,126 for the nine months ended September 30, 1995 and 1994,
respectively and a $214,968 refund from the FDIC. The refund reflects the
recapitalization of the Bank Insurance Fund and a corresponding adjustment in
rate at which payments were made. Employee salaries and benefits comprised
$228,073 or 51.07% 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 nine months ended September 30, 1995
increased $1,215,035 or 17.00% 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
September 30, 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: November 2, 1995 /s/Randall C. Hall
-----------------------------------
Randall C. Hall
Vice President and Chief Financial
and Principal Accounting Officer
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