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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, 1997
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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
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 - 9,035,748 shares outstanding as of
July 28, 1997.
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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, 1997 and December 31, 1996 3
Consolidated Statements of Income
Three Months Ended June 30, 1997 and 1996
And Six Months Ended June 30, 1997 and 1996 4
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of
Financial Condition and
Results of Operations 7
PART II OTHER INFORMATION 10
SIGNATURE 11
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BANK OF GRANITE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (unaudited)
JUNE 30, December 31,
1997 1996
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ASSETS:
Cash and cash equivalents:
Cash and due from banks $ 24,957,413 $ 24,336,258
Interest-bearing deposits 56,742 10,025
Federal funds sold -- 4,500,000
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Total cash and cash equivalents 25,014,155 28,846,283
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Investment securities:
Available for sale, at fair value 51,440,960 51,195,230
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Held to maturity, at amortized cost 79,312,133 77,449,108
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Loans 341,520,323 320,280,400
Allowance for loan losses (5,066,808) (4,793,889)
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Net loans 336,453,515 315,486,511
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Premises and equipment, net 8,902,929 8,103,713
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Accrued interest receivable 4,627,290 4,272,255
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Other assets 2,175,531 2,196,756
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TOTAL $ 507,926,513 $ 487,549,856
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LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Demand $ 82,331,342 $ 78,480,411
NOW accounts 60,472,301 60,575,240
Money market accounts 29,714,420 27,290,026
Savings 24,684,442 22,271,033
Time deposits of $100,000 or more 91,557,598 88,267,044
Other time deposits 124,149,267 120,814,237
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Total deposits 412,909,370 397,697,991
Securities sold under agreement to repurchase 3,854,146 2,955,234
Accrued interest payable 1,952,075 1,978,712
Other liabilities 566,458 1,611,805
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Total liabilities 419,282,049 404,243,742
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SHAREHOLDERS' EQUITY:
Common stock, $1.00 par value, authorized-
15,000,000 shares; issued and outstanding-
1997 - 9,035,298; 1996 - 9,008,570 9,035,298 9,008,570
Capital surplus 21,960,849 21,690,069
Retained earnings 57,476,472 52,430,332
Net unrealized gain (loss) on securities
available for sale, net of deferred
income taxes 171,845 177,143
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Total shareholders' equity 88,644,464 83,306,114
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TOTAL $ 507,926,513 $ 487,549,856
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See notes to consolidated financial statements.
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BANK OF GRANITE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
1997 1996 1997 1996
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INTEREST INCOME:
Interest and fees on loans $ 8,568,598 $7,650,048 $16,565,315 $15,202,364
Federal funds sold 51,808 113,982 106,317 183,895
Interest-Bearing deposits 650 -- 948 --
Investments:
U.S. Treasury 300,709 301,084 594,448 524,022
U.S. Government agencies 567,089 591,948 1,153,350 1,183,050
States and political subdivision 805,468 731,012 1,599,380 1,484,404
Other 233,619 177,374 447,894 349,833
----------- ---------- ----------- -----------
Total interest income 10,527,941 9,565,448 20,467,652 18,927,568
----------- ---------- ----------- -----------
INTEREST EXPENSE:
Time deposits of $100,000 or more 1,250,656 1,252,782 2,495,352 2,462,838
Other time and savings deposits 2,350,482 2,252,298 4,597,572 4,525,953
Federal funds purchased and securities
sold under agreements to repurchase 65,476 55,169 109,638 99,260
Other borrowed funds 365 693 727 849
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Total interest expense 3,666,979 3,560,942 7,203,289 7,088,900
----------- ---------- ----------- -----------
NET INTEREST INCOME 6,860,962 6,004,506 13,264,363 11,838,668
PROVISION FOR LOAN LOSSES 320,000 100,000 575,000 285,000
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 6,540,962 5,904,506 12,689,363 11,553,668
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OTHER INCOME:
Service charges on deposit accounts 804,144 778,838 1,588,286 1,484,593
Other service fees and commissions 306,790 250,865 599,174 506,700
Securities gains -- 15,039 -- 15,039
Other 79,151 113,349 341,841 399,672
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Total other income 1,190,085 1,158,091 2,529,301 2,406,004
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OTHER EXPENSES:
Salaries and wages 1,269,709 1,138,854 2,492,688 2,289,882
Profit-sharing and employee benefits 326,988 337,535 680,566 718,749
Occupancy expense, net 115,497 133,227 228,187 232,670
Equipment rentals, depreciation, and maintenance 232,630 204,630 444,808 403,250
Other 814,510 639,440 1,415,221 1,244,769
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Total other expenses 2,759,334 2,453,686 5,261,470 4,889,320
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INCOME BEFORE INCOME TAXES 4,971,713 4,608,911 9,957,194 9,070,352
INCOME TAXES 1,558,410 1,495,000 3,287,168 3,010,000
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NET INCOME $ 3,413,303 $3,113,911 $ 6,670,026 $ 6,060,352
=========== ========== =========== ===========
PER SHARE AMOUNTS:
Net income $ .38 $ .34 $ .74 $ .67
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Cash dividends $ .09 $ .09 $ .18 $ .17
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Book value $ 9.81 $ 8.66
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See notes to consolidated financial statements.
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BANK OF GRANITE CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30 1997 1996
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Increase (Decrease) in Cash & Cash Equivalents:
Cash flows from operating activities:
Interest received $ 20,192,200 $ 18,918,416
Fees and commissions received 2,554,446 2,390,965
Interest paid (7,229,926) (7,168,407)
Cash paid to suppliers and employees (5,327,593) (5,090,618)
Income taxes paid (3,867,634) (3,526,797)
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Net cash provided by operating activities 6,321,493 5,523,559
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Cash flow from investing activities:
Proceeds from maturities of securities available for sale 9,820,000 6,100,000
Proceeds from maturities of securities held to maturity 3,252,250 8,592,779
Purchase of securities available for sale (10,076,212) (8,720,863)
Purchase of securities held to maturity (5,193,594) (11,792,984)
Net increase in loans (21,542,004) (5,568,629)
Capital expenditures (1,217,974) (386,504)
Proceeds from sale of fixed assets 20,000 750
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Net cash provided by investing activities (24,937,534) (11,775,451)
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Cash flow from financing activities:
Net increase in Demand deposits, NOW accounts,
and savings accounts 8,585,795 6,821,688
Net increase in certificates of deposit 6,625,584 8,150,044
Net increase in federal funds purchased and securities sold
under agreement to repurchase 898,912 1,440,631
Net proceeds from issuance of common stock 297,508 253,463
Cash paid for fractional shares 0 (17,413)
Dividend paid (1,623,886) (1,437,757)
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Net cash provided by financing activities 14,783,913 15,210,656
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Net increase (decrease) in cash equivalents (3,832,128) 8,958,764
Cash and cash equivalents at beginning of period 28,846,283 21,121,179
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Cash and cash equivalents at end of period $ 25,014,155 $ 30,079,943
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Reconciliation of net income to net cash provided by operating activities:
Net Income $ 6,670,026 $ 6,060,352
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Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 399,283 374,841
Provision for loan loss 575,000 285,000
Premium amortization 79,583 80,118
Gains on sales of securities held to maturity 0 (15,039)
Loss on disposal of equipment 0 2,116
Gain of sale of fixed assets (525) 0
Decrease in taxes payable (580,466) (516,797)
Increase in accrued interest receivable (355,035) (89,270)
Decrease in interest payable (26,637) (79,507)
Decrease (increase) in other assets 25,145 (835,916)
Increase (decrease) in other liabilities (464,881) 257,661
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Net cash provided by operating activities (348,533) (536,793)
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Net Cash Provided by Operating Activities $ 6,321,493 $ 5,523,559
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Supplemental Disclosure on Non-Cash Transaction:
Change in net unrealized gain (loss) on securities available for sale 9,218 (834,964)
Purchased securities available for sale, not yet settled 0 1,494,375
Purchased securities held for maturity, not yet settled 0 1,000,000
Transfer from Retained Earnings to Common Stock for
stock split 0 3,000,827
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, 1997 and December 31, 1996, and the results of their
operations for the three and six month periods ended June 30, 1997 and
1996, and their cash flows for the six month periods ended June 30,
1997 and 1996.
The accounting policies followed are set forth in Note 1 to the
Corporation's 1996 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, of 9,076,300 and 9,043,348, for the three month periods
ended June 30, 1997 and 1996 respectively; and 9,073,299 and 9,028,960
for the six month periods ended June 30, 1997 and 1996 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, 1997 and December 31, 1996 as $54,859,000 and
$56,138,000, respectively. Additionally, standby letters of credit of
approximately $2,340,000 and $2,251,000 were outstanding at June 30,
1997 and December 31, 1996, respectively. Management does not
anticipate any significant losses to result from these transactions.
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BANK OF GRANITE CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
CHANGES IN FINANCIAL CONDITION
JUNE 30, 1997 COMPARED WITH DECEMBER 31, 1996
Total assets increased $20,376,657 from December 31, 1996 to June 30, 1997. This
4.18% asset growth resulted primarily from an increase in deposits of
$15,211,379 or 3.82% and the reinvestment of $5,046,140 of net earnings
retained. Total loans also continued to grow when compared with total loans at
December 31, 1996. At June 30, 1997, total loans exceeded December 31, 1996
levels by 6.63% or $21,239,923. Cash and cash equivalents decreased $3,832,128
which resulted from a decline in Fed funds sold. Securities increased by
$2,108,755, including unrealized gains of $286,216 and $295,433 on securities
available for sale as of June 30, 1997 and December 31, 1996, respectively.
Non-time deposits increased $8,585,795 or 4.55%, while time deposits increased
$6,625,584 or 3.17%. The loan-to-deposits ratio was 82.71% and 80.53% on June
30, 1997 and December 31, 1996, respectively. Other liabilities decreased
$1,045,347. Of this amount $200,327 represented securities settling that had
been purchased, $221,883 for decrease in profit sharing payable, $566,614 for
decreases in income taxes payable. Common stock outstanding increased by 26,728
shares due to the exercise of stock options which provided cash of $297,508.
Retained earnings reflect the payment of $1,623,885 in cash dividends and
earnings of $6,670,026. The Company had a change in unrealized gains on
securities available for sale, net of deferred income taxes, of $5,298. The
Company's liquidity position remained strong.
RESULTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED JUNE 30, 1997 COMPARED
WITH THE SAME PERIOD IN 1996 AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
COMPARED WITH THE SAME PERIOD IN 1996
During the three month period ended June 30, 1997 interest income increased
$962,493 or 10.06% from the same period last year. The increase is attributable
to increased loan volume. The prime rate during the three month period averaged
8.50% compared to 8.25% during the same period in 1996. Gross loans averaged
$335,445,000 compared to $304,736,000 last year, an increase of 10.08%.
Investment income increased by $105,467 or 5.85% due to growth in the investment
portfolio. The increase in interest expense, $106,037 or 2.98%, is primarily
attributable growth in interest-bearing deposits.
During the six month period ended June 30, 1997 interest income increased
$1,540,084 or 8.14% from the same period last year. The year-to-date increase is
also attributable to increased loan volumes. The prime rate during the six month
period averaged 8.38% compared 8.30% during the same period in 1996. Gross loans
outstanding averaged $329,708,000 compared to $303,826,000 last year, an
increase of 8.53%. Investment income increased by $253,763 or 7.17% due to
portfolio growth. The increase in interest expense, $114,389 or 1.61%, is
attributable growth in interest-bearing deposits.
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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.
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 three and six
month periods ended June 30, 1997, management determined a charge to operations
of $320,000 and $575,000, respectively, would bring the loan loss reserve to an
estimated balance considered to be adequate to absorb potential losses in the
portfolio. At June 30, 1997 the loan loss reserve was 1.51% of net loans
outstanding.
At June 30, 1997 and 1996, the recorded investment in loans that are considered
to be impaired under SFAS No. 114 was $1,338,738 ($948,750 of which was on a
non-accrual basis) and $864,530 ($577,418 which was on a non-accrual basis),
respectively. The average recorded balance of impaired loans during 1997 and
1996 was not significantly different from the balance at June 30, 1997 and 1996,
respectively. The related allowance for loan losses determined in accordance
with SFAS No. 114 for these loans was $770,570 and $500,450 at June 30, 1997 and
1996, respectively. For the period ended June 30, 1997 and 1996, the Bank
recognized interest income on those impaired loans of approximately $20,468 and
$ 18,688, respectively.
Total non-interest income was $1,190,085 during the second quarter of 1997, up
$31,994 or 2.76% from the $1,158,091 earned during the same period in 1996.
Management continued to place emphasis on non-traditional banking services such
as annuities, leasing and originating mortgage loans, which produced $244,152,
in non-interest income during the quarter. Additionally, the gain on the sale of
the guaranteed portion of small business administration loans produced $4,702 in
income. Other expenses increased by $305,648 or 12.46%, primarily because
employee salaries and benefits increased $120,308 or 8.15% which resulted from
general salary increases, increased costs in providing benefits, and additional
staff to operate the new Baton office which opened on April 28, 1997. Other
noninterest expenses increased by $175,070, or 27.38%. Net income for the
quarter increased $299,392 or 9.61% over the comparable quarter in 1996.
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Total non-interest income was $2,529,301 during the first six months of 1997, up
$123,297 or 5.12% from $2,406,004 earned during the same period in 1996.
Management continued to place emphasis on non-traditional banking services such
as annuities, leasing and originating mortgage loans, which produced $449,987 in
non-interest income. Additionally, sales of the guaranteed portion of small
business administration loans produced $188,820 in other income. Also included
in other income in 1996 was $15,039 in securities gains. The gains resulted from
investments being called at a premium. Other expenses increased $372,150 or
7.61%, for the six months ended June 30, 1997. Employee salaries and benefits
increased $164,623 or 5.47%. The increases in salaries and benefits reflect
general pay increases, the increased costs in providing benefits, and additional
staff to operate the new Baton office which opened on April 28, 1997. Other
expenses increased by $170,452, or 13.69% which was primarily attributable to an
increase of $42,672 in marketing expense and a $22,960 increase in FDIC
premiums. Net income for the six months ended June 30, 1997 increased $609,674
or 10.06% over the comparable period in 1996.
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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 June 30,
1997.
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 11, 1997
/s/ Kirby A. Tyndall
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Kirby A. Tyndall
Senior Vice President and Chief Financial
and Principal Accounting Officer
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