FORM F-2
Annual Report of Bank
Under Section 13 of
The Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1995
FDIC Certificate # 32995
Granville United Bank
(Exact name of bank as specified in Charter)
109 Hillsboro Street
Oxford, North Carolina 27565
(Address of Principal Executive Offices)
56-1634690 (919) 693-9000
(I.R.S. Employer Identification No.) (Bank's Telephone No.)
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
Common Stock, $5 par value
(Title of Class)
430,000 Shares Outstanding
Indicate by check mark whether the Bank (1) has filed all reports required to be
filed by Section 13 of the Securities Exchange Act of 1934 during the preceding
12 months, and (2) has been subject to such filing requirements for the past 90
days.
YES X NO
Item 1 BUSINESS
Granville United Bank began business on July 5, 1990, in Oxford,
Granville County, North Carolina, with one location. The Bank was chartered as a
state, non-member Bank and 330,000 shares of stock were sold to 1,106 different
shareholders. Opening capital was $3,389,222.91 with only one class of stock.
The Bank was started for the purpose of serving the local needs of
consumers, farmers, professional and small to medium-sized businesses and to
establish a personal banking climate within the community for its customers.
Building and branch expansion were expected to expand dictated by the growth and
demand of Bank business.
The Bank's deposit base is fairly diverse with over 7,000 separate
accounts. The number of accounts almost doubled from December 31, 1994 due to
the acquisition of banks in February, 1995. There is no reliance on any one
account; therefore, the loss of deposits of any one depositor would have no
material adverse effect on the business of the Bank.
The most recent spread of the Bank's loan portfolio shows 21% of loans
are classified as consumer loans, 70% as real estate, and 8% as commercial. Real
estate financing is contributing to the stability of the loan portfolio and is a
service which must be offered to attract customers in a rural-oriented
community.
Competition
The Bank's market area generally consists of the communities in and
about Granville County, Vance County, Person County, Durham County and the
northern portion of Wake County and southside Virginia. These areas have an
approximate population of 75 to 100 thousand residents. The Bank's trading area
has been favorably influenced by growth in the Research Triangle Park area.
At present, there are four commercial banks with representation in
Oxford. Three of these four banks number among the ten largest headquarters
outside Granville County. There is also a state-chartered, membership-owned
credit union in Oxford. Granville United Bank offers extended banking hours by
serving its customer on Saturdays from 9 a.m. to 12:00 noon.
The Bank offers many services which are available at most banks with
the major ones being consumer, farm production, and real estate loans, and a
full range of deposit services. The Bank does not have a trust department but is
able to meet the customer needs through one of our correspondent Banks who
offers trust services.
The Bank has no patents, trademarks, licenses, franchises or
concessions in its operations. There have been no major material costs incurred
relating to the development of
new services, products, or relating to the improvement of existing services,
however, there were some expenses incurred during 1995 relating to the Bank's
acquisition of Southern National Bank's Creedmoor, North Carolina, facility and
deposits and of the Branch Banking & Trust, Butner, North Carolina deposits.
Presently the Bank has 22 full time employees and 4 part-time
employees. This level should remain constant during 1996. With Oxford and
Granville County being a small community area, it is impractical for a community
bank to try to compete based on location. Management has chosen to hire
qualified, experienced individuals with banking backgrounds to run the Bank.
Essentially, the Bank competes with the experience of our people versus
convenience.
The nature of the Bank's business is relatively constant, and with the
exception of farm production loans, which impact the loan portfolio during
harvesting seasons, our business is generally not seasonal.
The Bank ended its fifth full year of operation on December 31, 1995.
During this period, the Bank reported operating income of $469,386 as compared
to $341,297 from 1994, an increase of 37.5%.
Item 2 PROPERTIES
Oxford
Main Office - The Bank's main office is located at 109 Hillsboro Street and
occupies approximately 3,600 square feet which is currently under a five-year
lease with option for future terms if needed.
Linden Avenue - The Bank purchased a lot on Linden Avenue in 1991. A limited
service facility was opened on the lot in March of 1994 which consists of a
building with approximately 1,300 square feet.
Creedmoor - The Bank acquired the Southern National Bank branch building located
at 608 N. Main Street, Creedmoor, NC in the acquisition in February, 1995. A
full-service branch was opened on February 20, 1995 which consists of a building
with approximately 2,400 square feet.
Item 3 LEGAL PROCEEDINGS
See Note 12, Commitments and Contingencies, attached to Financial Statements,
page 16 (Exhibit A).
Item 4 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
See pages 3-4 of the attached Proxy Statement (Exhibit B).
Item 5 MARKET FOR THE BANK'S COMMON STOCK AND
RELATED SECURITY HOLDER MATTERS
Trading in the Bank's stock has not been extensive and such trades
cannot be construed as amounting to a trading market. The Bank's stock is not
listed on any exchange. Therefore, the only knowledge the Bank has of any trades
has been at $15.00 per share.
Granville United Bank's ability to declare and pay dividends depends
upon, among other things, restrictions imposed by the reserve and capital
requirements of North Carolina law, the Bank's income and fiscal condition, tax
considerations and general business conditions; subject to such restrictions.
Dividends may be declared only at the discretion of the Board of Directors. The
Board of Directors voted an approved in December, 1995 not to issue dividend
payments in 1995. The Bank currently plans to retain substantially all of its
earnings for the next three to five years so as to maintain a strong capital
position.
The Bank's transfer agent is First Citizens Bank and Trust located in
Raleigh, North Carolina.
There are approximately 1,127 shareholders of the Bank's 430,000 shares
of stock.
Item 6 SELECTED FINANCIAL DATA
TABLE OF FINANCIAL DATA
1995 1994 1993 1992 1991
Net Interest Income $ 1,791,579 $ 1,285,018 $ 1,243,837 $ 1,045,811 $ 627,957
Other Operating Income $ 441,934 $ 197,777 $ 136,857 $ 116,468 $ 244,397
Provision for loan and
loan losses $ 152,500 $ 32,020 $ 78,000 $ 63,500 $ 58,000
Income (Loss) from
continued operations $ 469,386 $ 341,297 $ 355,985 $ 182,435 $ 64,715
Income (Loss) from continued
operations per common stock share $ 1.12 $ 1.03 $ 1.08 $ .55 $ .20
Total Assets $59,410,202 $38,461,959 $35,531,769 $32,316,802 $31,538,625
Long-term Obligations None None None None None
Redeemable Preferred Stock None None None None None
Cash Dividends declared per
common share $ 0.00 $ 0.00 $ 0.00 N/A N/A
Note 1 - Income after taxes
Note 2 - In accordance with various banking regulations, the Bank could not pay
dividends to the shareholders during its first three years of operation.
Granville United Bank has no subsidiaries. At this time, the Bank has
no debt securities.
Item 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
GRANVILLE UNITED BANK
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
The purpose of this discussion and analysis is to focus on the
significant changes in the financial condition and results of operations of
Granville United Bank during the past five years. The discussion and analysis is
intended to supplement the accompanying financial statements and selected
financial data presented in this report.
HIGHLIGHTS
Granville United Bank experienced a year of significant challenges and
progress in 1995. The agreements that Granville United Bank had entered into
with Southern National Bank and Branch Banking & Trust in September of 1994 to
acquire the deposit base of branches located in Creedmoor and Butner, North
Carolina were completed in February of 1995. The acquisition price of $900,000
included approximately $17,100,000 in deposits, $1,007,000 in loans and
approximately $350,000 in fixed assets. This acquisition has placed the bank in
a positive position for growth in its trade area.
Total assets and deposits reached $59,410,202 and $52,579,862
respectively. Assets increased by 54% and deposits also increased by 54% over
1994. Earnings for the year amounted to $469,386 compared to $341,297 in 1994
which represents a 38% increase. Loans increased by $5,775,433 over 1994
representing an increase of 35% from the close of 1994.
The value of the acquisition and movement into the southern part of
Granville County is reflected in the assets and earnings of Granville United
Bank in 1995. With the tremendous growth shown in Northern Durham and Wake
Counties, the Bank's new location in Southern Granville will have a key impact
on the Bank's future loans and deposits.
EARNINGS ANALYSIS
Net Interest Income
Net interest income, the principal source of the Bank's earnings, is
the amount of income generated by earning assets (primarily loans and investment
securities) less the total interest costs of the funds (primarily deposits)
obtained to carry them. The volume, rate and mix of both earning assets and
related funding sources determine net interest income. The Bank's asset and
liability management strategy is designed to maximize income by actively
managing major components of the balance sheet, while providing adequate
liquidity and maintaining asset quality. Net interest income for 1995 and 1994
is detailed in Table 1. An analysis of the change in the components of net
interest income is presented in Table 2. All interest income and expense items
are presented on the basis of actual income and expense.
For 1995, the Bank's net interest income was $1,791,579 up 39% from the
$1,285,018 for 1994. Interest income totaled $3,913,466 in 1995, a 53% increase
from the $2,556,869 for 1994. A 43% expansion in average earning assets,
concentrated primarily in the loan portfolio and investment security portfolio,
accounted for substantially all of the increase. Total interest expense for 1995
amounted to $2,121,887. Average interest-bearing liabilities increased 43% in
volume.
The Bank's net yield on interest earning assets was 3.55% for 1995,
down 10 basis points from the 1994 net yield of 3.65%. Because the Bank operates
in a highly competitive market, its cost of funds is influenced by competition
as well as financial market conditions.
Table 1
Net Interest Income and Average Balances
1995 1994
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Cost Balance Expense Cost
Interest earning assets:
Taxable investment securities and
time deposits with other financial
institutions $ 29,701 $ 1,914 6.44% $ 19,920 $ 1,202 6.03%
Federal funds sold 1,474 88 5.97% 1,128 43 3.81%
Loans, net 19,257 1,911 9.92% 14,133 1,312 9.28%
------- ----- ------- -----
Total interest-earning assets 50,432 3,913 35,181 2,557
------- ----- ------- -----
Yield on average interest-earning
assets 7.76% 7.27%
Noninterest-earning assets:
Cash and due from banks 1,623 1,490
Premises and equipment 642 354
Interest receivable and other 1,345 590
------- -------
Total noninterest-bearing assets 3,610 2,434
------- -------
Total assets $ 54,042 $ 37,615
======= =======
Interest-bearing liabilities:
Demand Deposits $ 6,807 $ 231 3.39% $ 4,361 $ 155 3.55%
Savings Deposits 11,428 433 3.79% 15,525 619 3.99%
Time Deposits 26,509 1,457 5.50% 11,412 497 4.36%
Short-term debt 0 0 0% 10 1 10.00%
------- ----- ------- -----
Total interest-bearing liabilities 44,744 2,121 31,308 1,272
------- ----- ------- -----
Cost on average interest-bearing
liabilities 4.74% 4.06%
Non-interest bearing liabilities
Demand Deposit 3,442 2,071
Interest payable and other 274 162
------- -------
Total non-interest bearing liabilities 3,716 2,233
------- -------
Total liabilities 48,460 33,541
Stockholders' equity 5,582 4,074
------- -------
Total liability and stockholders'
equity $ 54,042 $ 37,615
======= =======
Net interest income $ 1,792 $ 1,285
===== =====
Net yield on interest-earning assets 3.55% 3.65%
TABLE 2
Rate/Volume Variance Analysis
1995 Compared to 1994
Interest
Income/Expense Variance Attributable to
Variance Rate Volume
(Thousands)
Interest-earning assets:
Taxable investment securities and time deposits
with other financial institutions $ 712 $ 625 $ 87
Federal Funds sold 45 16 29
Loans 599 504 95
------- ------- -------
Total 1,356 1,145 211
------- ------- -------
Interest-bearing liabilities:
Demand deposits 76 83 (7)
Savings deposits (186) (156) (30)
Time deposits 960 802 158
Short-term debt (1) (1) --
------- ------- -------
Total 849 728 121
------- ------- -------
Net interest income $ 507 $ 417 $ 90
======= ======= =======
Allowance for Loan Losses
The $282,424 allowance for loan losses in 1995 increased by $52,016
over the $230,408 allowance in 1994. The increase in the allowance was due to
loan growth. Additional information concerning the allowance for loan losses is
contained in Table 3.
Noninterest Income and Expense
Total noninterest income increased to $441,934 in 1995. Service charges
on deposit accounts increased to $190,538 in 1995 from $126,930 in 1994. This
increase was the result of a significant increase in the number of active
deposit accounts in 1995. The sale of securities was needed for liquidity
purposes and for the funding of loan growth. Security sales resulted in a net
gain of $190,611.
TABLE 3
Loans
Analysis of Loans
1995 1994
---- ----
Commercial $ 598,174 $ 570,585
Real Estate
Construction 1,086,559 521,147
Residential, 1-4 families 9,374,964 7,856,521
Farmland 1,415,304 1,318,622
Nonfarm, Nonresidential 3,702,580 1,912,759
Installment 1,260,293 904,687
Other 4,644,820 3,222,940
--------------- --------------
Total $ 22,082,694 $ 16,307,261
=============== ==============
Analysis of Certain Loan Maturities at December 31, 1995
Real Estate-
Construction
and Land
Commercial Development Total
Due within one year $ 524,174 $ 1,064,042 $ 1,588,216
Due after one year through five years
Fixed rate 47,614 22,517 70,131
Variable rate 26,386 0 26,386
-------- --------- ----------
Total 74,000 22,517 96,517
-------- --------- ----------
Total $ 598,174 $ 1,086,559 $ 1,684,733
-------- --------- ----------
TABLE 3
Continued
Reserve for Loan Loss and Problem Loans
Analysis of Reserve for Loan Losses
1995 1994
---- ----
(Thousands)
Balance Beginning $ 230 $ 190
---- ----
Deduct charge offs:
Commercial, financial and agricultural 93 5
Real Estate, construction and land development 0 0
Real estate, mortgage 0 0
Installment loan to individuals 14 15
Other 2 0
---- ----
Total and net charge-offs 109 20
Addition charged to operations 153 32
Recoveries 8 28
---- ----
Balance, ending $ 282 $ 230
========= ========
Ratio of net charge offs during the period to average .57% .14%
==== ====
loans outstanding during the period
Allocation of the Reserve for Loan Loss
1995 Percent 1994 Percent
Loans in each Loans in each
Category Category
Amount Total Loans Amount Total Loans
(Thousands)
Balance at the end or period applicable to
Commercial, financial and agricultural $ 43 15.25% $ 41 17.83%
Real estate, construction and land development 14 4.96% 53 23.04%
Real estate, mortgage 186 65.96% 111 48.26%
Installment loans to individuals 18 6.38% 13 5.65%
Other 21 7.45% 12 5.22%
---- ------ ---- ------
Total $282 100.00% $230 100.00%
---- ------ ---- ------
Analysis of Nonperforming Assets at December 31, 1995 and 1994
Nonperforming assets are detailed as follows:
1995 1994
---- ----
Nonaccrual Loans $ 3,680 $ 177,124
Loans contractually past due 90 or more
days as to principal or interest 105,700 47,873
------- ------
Total $ 109,380 $ 224,997
======= =======
TABLE 4
Investment Securities and Time Deposits
Book Value at December 31, 1995
Due
In one After One After Five Average
Year Year Through Years Through Market Maturity
or Less Five Years Ten Years Total Value in Years
(Thousands)
Investment Securities:
U.S. Treasury $ 3,507 $ 11,575 $ - $ 15,082 $ 15,497 2.10
U.S. Government Agencies 5,785 9,353 499 15,636 15,723 2.30
Certificates of Deposit 200 200 - 400 421 1.10
Other Investments 499 1,030 254 1,783 1,821 1.60
----- ---------- --------- ----- ------- ----
Total $ 9,991 $ 22,158 $ 753 $ 32,901 $ 33,462 2.20
======= ======== ==== ======= ======= ====
Weighted Average yields:
U.S. Treasury 5.87% 6.84% - 6.69%
U.S. Government Agencies 5.77% 6.00% 8.93% 5.97%
Certificates of Deposit 8.05% 9.04% - 8.55%
Other Investments 8.44% 5.77% 9.00% 7.20%
Consolidated 6.03% 6.47% 8.95% 6.40%
December 31, 1994
Book Market
Value Value
(Thousands)
Investment Securities:
U.S. Treasuries $ 7,986 $ 7,706
U.S. Government Agencies 9,190 8,872
Certificates of Deposit 892 909
Other Investments 1,685 1,653
------------ --------------
Total $ 19,753 $ 19,140
============ ==============
Investments and Federal Funds
Investments, including time deposits with other financial institutions,
and Federal Funds sold at the end of 1995 totaled $33,402 million and $.315
million respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATION
Continued
Loans
The loan portfolio constitutes the Bank's largest earning asset. Net
loans grew by $5,723,417 in 1995 to $21,800,270 from $16,076,853 in 1994,
representing an increase of 36%. Table 3 presents a detailed analysis of loans
at December 31, 1995 and 1994, and selected loan maturities at December 31,
1995.
With increasing interest rates experienced in 1995, the rate earned on
average net loans increased to 9.92%, 64 basis points above the 1994 yield of
9.28%. With the yield increasing, the expanded volume of loans raised interest
and fees on loans to $1,910,741 for 1995, up 46% from the amount earned in 1994.
Asset Quality
The Bank strives to maintain a diverse loan portfolio in which there
are no industry concentrations. The only significant concentration is confined
to real estate which are usually amortized for 15 years with a balloon payment
in five years and which is presented as a separate item in Table 3. This
component of the portfolio, comprises about 50% of loans at December 31, 1995.
Net charge-offs were $108,667 or .50% of loans for 1995 compared to
$20,192 or .13% of loans for 1994. On December 31, 1995, the allowance for loan
losses was 1.30% of net loans, compared to 1.43% one year earlier.
The adequacy of the allowance for loan losses is monitored by
management through an internal loan review process. Among the factors that
affect the level of the allowance are loan growth, projected net charge-offs,
the amount of nonperforming and past due loans, and current and anticipated
economic conditions.
TABLE 5
Large Time Deposit Maturities
Analysis of time deposits of $100,000 or more at December 31, 1995 and 1994:
(in thousands)
1995 1994
---- ----
Remaining maturity of three months or less $ 2,733 $ 1,083
Remaining maturity over three through six months 1,177 302
Remaining maturity six through 12 months 3,378 2,171
Remaining maturity over 12 months 633 432
------- -------
Total time deposits of $100,000 or more $ 7,921 $ 3,988
------- -------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATION
Continued
Deposits
At the close of 1995, total deposits were $52.6 million, an increase of
54% over the close of 1994. Interest-bearing demand deposits increased $2,886
thousand or 129% over 1994. Savings deposits decreased $1,636 million or 8.37%
over 1994. Time deposits increased by $17,116 million or 138%. The increase in
time deposits is primarily due to more conservative pricing of savings accounts
and movement of savings money into time deposit accounts.
Short-Term Debt
As of the end of December 31, 1995, Granville United Bank had no
short-term debt created through repurchase agreements.
Capital
The Bank's primary source of new capital funds is through its retained
earnings. Management feels the Bank has other funding sources if needed,
including the ability to issue additional common stock or debt. The adequacy of
capital is reviewed regularly, in light of current plans and economic
conditions, to ensure that sufficient capital is available for current and
future needs to minimize the Bank's cost of capital and to assure compliance
with regulatory requirements. Additional information regarding regulatory
requirements may be found in footnote 13 to the financial statements.
Recognizing the need to retain sufficient capital to support future
growth which management feels will ultimately provide shareholders a better
return on their investment, the Bank currently plans to retain substantially all
of its earnings for the next three to five years. As the Bank continues to
mature, an appropriate dividend to earnings ratio will be determined.
At December 31, 1995, the Bank had 430,000 shares of common stock
outstanding which was held by approximately 1,150 shareholders.
In February of 1995 the bank issued an additional 100,000 shares of
common stock at $13.00 per share for $1,300,000. This was so that the bank could
maintain sufficient capital to assets for the acquisition previously discussed
in the Highlights section of the Management's Discussion.
Asset and Liability Management
The largest component of the Bank's earnings is net interest income,
which can fluctuate widely when significant interest rate movements occur.
Management is responsible for minimizing the Bank's exposure to interest rate
risk and assuring an adequate level of liquidity. This is accomplished by
developing objectives, goals and strategies designed to enhance profitability
and performance.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATION
Continued
Rate-sensitivity management limits interest rate risk by controlling
the mix and maturity of assets and liabilities. Management regularly reviews the
Bank's sensitivity position and evaluates alternative sources and uses of funds
as well as changes in external factors. Various methods are used to achieve and
maintain the desired rate-sensitivity position, including the sale or purchase
of assets and product pricing.
In order to ensure that sufficient funds are available for loan growth
and deposit withdrawals, as well as to provide for general needs, the Bank must
maintain an adequate level of liquidity. Both assets and liabilities provide
sources of liquidity. Asset liquidity comes from the Bank's ability to convert
short and long-term investments into cash and from the maturity and repayment of
loans and investment securities. Liability liquidity is provided by the
company's ability to attract deposits. The primary source of liability liquidity
is the Bank's customer base which provides core deposit growth. The overall
liquidity position of the Bank is closely monitored and evaluated regularly.
Management believes the Bank's liquidity sources at December 31, 1995, are
adequate to meet its operating needs.
Effect of Changing Prices
The results of operations and financial conditions presented in this
report are based on historical cost information, and are unadjusted for the
effects of inflation.
Since the assets and liabilities of banks are primarily monetary in
nature (payable in fixed, determinable amounts) the performance of the Bank is
affected more by changes in interest rates than by inflation. Interest rates
generally increase as the rate of inflation increases, but the magnitude of the
change in rates may not be the same.
While the effect of inflation on banks is normally not as significant
as is its influence on those businesses which have large investments in plant
and inventories, it does have an effect. During periods of high inflation there
are normally corresponding increases in the money supply, and banks will
normally experience above-average growth in assets, loans and deposits. Also,
increases in the price of goods and services generally will result in increased
operating expenses.
Inflation has not been a significant factor in the Bank's operations to
date as the inflation rate has been moderate since its inception.
TABLE 6
Key Financial Ratios*
1995 1994
---- ----
Return on assets .87% .91%
Return on equity 8.41% 8.38%
Equity to assets 10.33% 10.83%
*Ratios are computed on average balances
Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Exhibits A - 1995 Financial Statements and Notes to Financial
Statements (pages 2 through 18).
Item 9 DIRECTORS AND EXECUTIVE OFFICERS OF THE BANK
See Exhibit B - Proxy Statement (pages 3 through 4).
Item 10 MANAGEMENT REMUNERATION AND TRANSACTIONS
See Exhibit B - Proxy Statement (page 6 through 7).
Item 11 EXHIBITS, FINANCIAL SCHEDULES AND REPORTS
Exhibit A - 1995 Financial Statements
Exhibit B - 1995 Proxy Statements
Reports on Form F-3
No reports on form F-3 were filed during the last quarter of 1995.
Other reports that have been filed on form F-3 can be found at the Regulatory
and Disclosure Section of the FDIC.
By-Laws and Articles of Incorporation
The By-Laws were originally filed on April 29, 1991 as Exhibit D with
form F-1. Addendum I to the By-Laws was passed by the Board of Directors on June
10, 1993 and filed with the December 31, 1993 form F-2. These items can be found
at the Regulatory and Disclosure Section of the FDIC. No further addendums have
been made.
The Articles of Incorporation were last filed with the December 31,
1993 form F-2 and can be found at the Regulatory and Disclosure Section of the
FDIC.
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Bank has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
GRANVILLE UNITED BANK
By: /s/ Billy N. Quick Sr. 3/14/96
Billy N. Quick, Sr., President and CEO Date
Director
By: /s/ J.C. Hamme 3/14/96
Director Date
By: /s/ Nancy W. Darden 3/14/96
Director Date
By: /s/ Harold L. Sherman 3/14/96
Director Date
By: /s/ Ronnie S. Elliott 3/14/96
Director Date
By: /s/ Johnsie C. Cunningham 3/14/96
Director Date
By: /s/ William L. Hopper 3/14/96
Director Date
By: /s/ Joseph K. Bryan Jr. 3/14/96
Director Date
By:
Director Date
By:
Director Date
EXHIBIT A
GRANVILLE UNITED BANK
FINANCIAL STATEMENTS
for the years ended
December 31, 1995, 1994, and 1993
(Langdon & Company Logo) 223 Highway 70
Certified Public Accountants East Pointe, Suite 100
Post Office Box 1309
Garner, North Carolina 27529
(919) 662-1001-FAX (919) 662-1002
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Granville United Bank
Oxford, North Carolina
We have audited the accompanying balance sheets of Granville United Bank as of
December 31, 1995 and 1994, and the related statements of income, changes in
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Bank's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted out audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 1995 and 1994 financial statements referred to above present
fairly, in all material respects, the financial position of Granville United
Bank as of December 31, 1995 and 1994, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Langdon & Company
Garner, North Carolina
January 30, 1996
GRANVILLE UNITED BANK
Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
---- ----
Cash and due from banks (Note 2) $ 1,890,435 $ 1,540,926
Interest-bearing deposits with banks 399,664 892,135
Federal funds sold 315,000 283,944
Securities available-for-sale (at market value) 32,248,510 5,590,079
Investment securities (held to maturity), market
value of $793,000 in 1995 and $12,641,109
in 1994 (Note 3) 753,701 13,117,658
Loans less allowances for credit losses of
$282,424 in 1995 and $230,408 in 1994
(Notes 4, 5 and 14) 21,800,270 16,076,853
Properties and equipment, net (Note 6) 645,408 326,305
Accrued income 715,572 446,537
Other assets (Note 11) 641,642 187,522
------------ ------------
$ 59,410,202 $ 38,461,959
============ ============
Liabilities and Shareholders' Equity
Liabilities
Demand deposits 5,121,324 2,235,395
Savings and NOW deposits 17,910,258 19,546,709
Large denomination time deposits 7,920,567 3,987,673
Other time deposits 21,627,713 8,444,195
------------ ------------
Total deposits 52,579,862 34,213,972
Accrued interest payable 240,506 106,982
Other liabilities (Note 11) 294,705 46,897
------------ ------------
53,115,073 34,367,851
------------ ------------
Commitments and contingencies (Notes 12 and 15)
Shareholders' equity (Notes 8, 13 and 15):
Common stock, $5 par value; 2,000,000 shares
authorized; 430,000 shares issued and outstanding
in 1995 and 330,000 shares issued and
outstanding in 1994 2,150,000 1,650,000
Surplus 2,539,223 1,739,223
Retained earnings 1,275,633 806,247
Unrealized appreciation (depreciation) on investment securities
available-for-sale, net of income taxes (Note 3) 330,273 (101,362)
------------ ------------
6,295,129 4,094,108
------------ ------------
$ 59,410,202 $ 38,461,959
============ ============
See Accompanying Notes to Financial Statements
2
GRANVILLE UNITED BANK
Statements of Income
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993
---- ---- ----
Interest income:
Loans and fees on loans $1,910,741 $1,312,433 $1,164,518
Investment securities available-for-sale 1,791,767 322,146 --
Investment securities (held to maturity) 64,715 785,467 --
Investment securities (available-for-sale
or held to maturity in 1995 and 1994) -- -- 1,110,093
Federal funds sold 88,033 42,759 44,095
Deposits with bank 58,210 94,064 103,437
---------- ---------- ----------
3,913,466 2,556,869 2,422,143
---------- ---------- ----------
Interest expense:
Interest on deposits 2,121,887 1,270,851 1,176,405
Interest on note payable -- 1,000 1,901
---------- ---------- ----------
2,121,887 1,271,851 1,178,306
---------- ---------- ----------
Net interest income 1,791,579 1,285,018 1,243,837
Provision for credit losses (Note 5) 152,500 32,020 78,000
---------- ---------- ----------
Net interest income after provision
for credit losses 1,639,079 1,252,998 1,165,837
---------- ---------- ----------
Other income:
Service charges on deposit accounts 190,538 126,930 89,114
Other service charges and fees 18,865 11,476 8,756
Securities gains (Note 3) 190,611 43,750 25,105
Other income 41,920 15,621 13,882
---------- ---------- ----------
441,934 197,777 136,857
---------- ---------- ----------
Other expense:
Salaries 601,291 408,020 361,257
Employee benefits 113,566 79,162 70,420
Occupancy expense 80,472 52,933 41,658
Equipment expense 100,735 102,169 88,935
Other expense 503,714 315,460 299,834
---------- ---------- ----------
1,399,778 957,744 862,104
---------- ---------- ----------
Income before income taxes 681,235 493,031 440,590
Income tax expense (Note 11) 211,849 151,734 84,605
---------- ---------- ----------
Net income $ 469,386 $ 341,297 $ 355,985
========== ========== ==========
Net income per share $ 1.12 $ 1.03 $ 1.08
========== ========== ==========
See Accompanying Notes to Financial Statements
3
GRANVILLE UNITED BANK
Statements of Changes in Shareholders' Equity
Years ended December 31, 1995, 1994 and 1993
Unrealized
Appreciation
(Depreciation)
on Securities
Common Stock Available
Retained for Total
Shares Amount Surplus Earnings Sale Equity
Balance, December 31, 1992 330,000 $ 1,650,000 $ 1,739,223 $ 108,965 $ -- $ 3,498,188
Net income -- -- -- 355,985 -- 355,985
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1993 330,000 1,650,000 1,739,223 464,950 -- 3,854,173
Net income -- -- -- 341,297 -- 341,297
Unrealized depreciation on
investment securities available-
for-sale, net of income tax -- -- -- -- (101,362) (101,362)
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1994 330,000 1,650,000 1,739,223 806,247 (101,362) 4,094,108
Net income -- -- -- 469,386 -- 469,386
Unrealized appreciation on
investment securities available-
for-sale, net of income tax -- -- -- -- 431,635 431,635
Stock issuance ($5 par value) 100,000 500,000 800,000 -- -- 1,300,000
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1995 430,000 $ 2,150,000 $ 2,539,223 $ 1,275,633 $ 330,273 $ 6,295,129
=========== =========== =========== =========== =========== ===========
See Accompanying Notes to Financial Statements
4
GRANVILLE UNITED BANK
Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993
---- ---- ----
Cash flows from operating activities:
Net income $ 469,386 $ 341,297 $ 355,985
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation 96,864 90,312 77,312
Provision for credit losses 152,500 32,020 78,000
Deferred income taxes (24,274) 9,934 (72,761)
Net investment securities gains (190,611) (43,750) (25,105)
Accretion of discount on securities, net of
amortization of premiums 51,259 18,386 26,720
Changes in assets and liabilities:
Amortization of goodwill 73,311 -- --
Deferred loan income 3,661 3,012 5,211
Accrued income and other assets (827,387) (85,401) 27,333
Accrued interest payable and other liabilities 214,168 (137,763) 78,917
------------ ------------ ------------
Net cash provided by operating activities 18,877 228,047 551,612
------------ ------------ ------------
Cash flows from investing activities:
Net decrease in interest-bearing
deposits in banks 492,471 299,004 197,917
Net (increase) decrease in federal funds sold (31,056) 846,056 255,000
Sales of investment securities, available-for-sale 4,711,562 4,043,130 --
Sales of investment securities (available-for-sale in 1993) -- -- 1,808,060
Maturities of investment securities, available-for-sale 500,000 3,700,000 --
Maturities of investment securities, held to maturity 1,910,893 425,000 --
Maturities of investment securities (available-for-sale
or held to maturity in 1993) -- -- 3,350,000
Purchases of investment securities, available-for-sale (6,964,662) (2,474,985) --
Purchases of investment securities, held to maturity (13,658,921) (7,581,184) --
Purchases of investment securities (available-for-sale
and held to maturity in 1993) -- -- (5,498,018)
Net increase in loans (5,879,578) (2,134,589) (3,059,155)
Purchases of properties and equipment (415,967) (66,877) (91,082)
------------ ------------ ------------
Net cash used in investing activities (19,335,258) (2,944,445) (3,037,278)
------------ ------------ ------------
(Continued)
5
GRANVILLE UNITED BANK
Statements of Cash Flows, Continued
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993
---- ---- ----
Cash flows from financing activities:
Net increase in demand, savings and NOW deposits 1,249,478 2,620,503 7,876,946
Net increase (decrease) in time deposits 17,116,412 221,431 (5,104,583)
Principal repayments on note payable -- (10,000) (10,000)
Proceeds from stock issuance 1,300,000 -- --
----------- ----------- ---------
Net cash provided by financing activities 19,665,890 2,831,934 2,762,363
----------- ----------- ---------
Net increase in cash and cash equivalents 349,509 115,536 276,697
Cash and cash equivalents, beginning 1,540,926 1,425,390 1,148,693
----------- ----------- ---------
Cash and cash equivalents, ending $ 1,890,435 $ 1,540,926 $ 1,425,390
=========== =========== =========
Supplemental disclosure of cash flow information:
Interest paid $ 1,988,363 $ 1,285,398 $ 1,232,606
=========== =========== =========
Taxes paid $ 163,597 $ 269,759 $ 36,634
=========== =========== =========
Unrealized (gain) loss on securities
available-for-sale $ (500,414) $ 153,580 $ --
=========== =========== =========
See Accompanying Notes to Financial Statements
6
GRANVILLE UNITED BANK
Notes to Financial Statements
Note 1. Organization and Summary of Significant Accounting Policies
Organization
Granville United Bank was organized and incorporated under the laws of the State
of North Carolina on July 2, 1990. The Bank commenced operations on July 5,
1990.
The accounting and reporting policies of the Bank follow generally accepted
accounting principles and general practices within the financial services
industry. Following is a summary of the more significant policies.
Cash and Cash Equivalents
For the purpose of presentation in the Statements of Cash Flows, cash and cash
equivalents are defined as those amounts included in the balance sheet caption
"Cash and Due from Banks."
Investment Securities
Effective January 1, 1994, the Bank adopted Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities. Accordingly, debt securities that management has the ability and
intent to hold to maturity are classified as held to maturity and carried at
cost, adjusted for amortization of premiums and accretion of discounts, using
methods approximating the interest method. Other securities are classified as
available-for-sale and carried at fair value. Unrealized gains and losses on
securities available-for-sale are recognized, net of related deferred income
taxes, as direct increases or decreases to stockholders' equity. Prior to
January 1, 1994 all securities were carried at amortized cost. Gains and losses
on the sale of securities are determined by the specific identification method.
The Bank does not hold securities for short-term resale and therefore does not
maintain a trading securities portfolio.
Loans and Allowance for Credit Losses
Loans are stated at the amount of unpaid principal reduced by unearned discount
and an allowance for credit losses and adjusted for net unrecognized origination
fees and costs.
The allowance for credit losses is maintained at a level adequate to absorb
probable losses. Management determines the adequacy of the allowance based upon
reviews of individual credits, recent loss experience, current economic
conditions, the risk characteristics of the various categories of loans and
other pertinent factors. Credits deemed uncollectible are charged to the
allowance. Provisions for credit losses and recoveries on loans previously
charged off are added to the allowance.
Interest on loans is accrued and credited to income based on the principal
amount outstanding. The accrual of interest on loans is discontinued when, in
the opinion of management, there is an indication that the borrower may be
unable to meet payments as they become due. Upon such discontinuance, all unpaid
accrued interest is reversed.
Loan origination and commitment fees and certain direct loan origination costs
are being deferred and the net amount amortized as an adjustment of the related
loan's yield. The Bank is amortizing these amounts over the contractual life.
Commitment fees and fees related to standby letters of credit are recognized
over the commitment period.
7
GRANVILLE UNITED BANK
Notes to Financial Statements
Note 1. Organization and Summary of Significant Accounting Policies, continued
Properties and Equipment
Bank properties and equipment are stated at cost less accumulated depreciation.
Depreciation is computed principally by the straight-line method over the
following estimated useful lives:
Years
Buildings and improvements 15-31
Furniture and equipment 5-10
Foreclosed Properties
Real estate acquired through foreclosure is valued at lower of recorded
investment in the debt or fair market value. The recorded investment is the sum
of outstanding principal balance, any interest earned but not received, and any
associated property acquisition costs. Any excess of the recorded investment
over fair value of property received is charged to the allowance for credit
losses. Any subsequent gain or loss is credited or charged to operations.
Income Taxes
Provision for income taxes is based on amounts reported in the statements of
income (after exclusion of non-taxable income such as interest on state and
municipal securities) and consists of taxes currently due plus deferred taxes on
temporary differences in the recognition of income and expense for tax and
financial statement purposes. Deferred tax assets and liabilities are included
in the financial statements at currently enacted income tax rates applicable to
the period in which the deferred tax assets or liabilities are expected to be
realized or settled. As changes in tax laws or rates are enacted, deferred tax
assets and liabilities are adjusted through the provision for income taxes.
Deferred income tax liability relating to unrealized appreciation (or the
deferred tax asset in the case of unrealized depreciation) on investment
securities available-for-sale is recorded in other liabilities (assets). Such
unrealized appreciation or depreciation is recorded as an adjustment to equity
in the financial statements and not included in income determination until
realized. Accordingly, the resulting deferred income tax liability or asset is
also recorded as an adjustment to equity.
Earnings per Share
Net income per share is computed based on the weighted average number of shares
outstanding during the period.
Off-Balance-Sheet Financial Instruments
In the ordinary course of business the Bank has entered into off-balance-sheet
financial instruments consisting of commitments to extend credit and standby
letters of credit. Such financial instruments are recorded in the financial
statements when they become payable.
8
GRANVILLE UNITED BANK
Notes to Financial Statements
Note 1. Organization and Summary of Significant Accounting Policies, continued
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments, requires disclosure of fair value information
about financial instruments, whether or not recognized in the balance sheet. In
cases where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the instruments.
Statement No. 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the Bank.
The following methods and assumptions were used by the Bank in estimating its
fair value disclosures for financial instruments:
Cash and due from banks: The carrying amounts reported in the balance sheet for
cash and due from banks approximate those assets' fair values.
Interest-bearing deposits with banks: Fair values for time deposits are
estimated using a discounted cash flow analysis that applies interest rates
currently being offered on certificates to a schedule of aggregated contractual
maturities on such time deposits.
Investment securities: Fair values for investment securities are based on quoted
market prices, where available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable instruments.
Loans: For variable-rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying amounts. The fair
values for other loans are estimated using discounted cash flow analysis, based
on interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality. Loan fair value estimates include judgments
regarding future expected loss experience and risk characteristics. The carrying
amount of accrued interest receivable approximates its fair value.
Deposits: The fair values disclosed for demand and savings deposits are, by
definition, equal to the amount payable on demand at the reporting date. The
fair values for certificates of deposit are estimated using a discounted cash
flow calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated contractual maturities on such time
deposits. The carrying amount of accrued interest payable approximates fair
value.
Note 2. Restrictions on Cash
To comply with banking regulations, the Bank is required to maintain certain
average cash reserve balances. The daily average cash reserve requirement was
approximately $1,513,600 and $977,300 for the period including December 31, 1995
and 1994, respectively.
9
GRANVILLE UNITED BANK
Notes to Financial Statements
Note 3. Investment Securities
Effective January 1, 1994 the Bank adopted statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." This statement addresses the accounting and reporting for
investments in equity securities that have readily determinable fair values and
for all investments in debt securities. Those investments are to be classified
in three categories and accounted for as follows:
Debt securities that the Bank has the positive intent and ability to
hold to maturity are classified as investment securities and reported
at amortized cost.
Debt and equity securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading
securities and reported at fair value, with unrealized gains and losses
included in earnings.
Debt and equity securities not classified as either investment
securities or trading securities are classified as available-for-sale
securities and reported at fair value, with unrealized gains and losses
excluded from earnings and reported in a separate component of
stockholders' equity.
In November 1995, the Financial Accounting Standards Board approved a six week
break from Financial Accounting Standard 115 which requires financial
institutions to classify securities as either held-to-maturity,
available-for-sale or trading. As a result, Granville United Bank transferred
some securities previously classified as held-to-maturity to available-for-sale.
The amortized cost basis of the securities at the time of transfer carried over
from the held-to-maturity to the available-for-sale category.
As of December 31, 1995, the Bank classified investments with a cost of
$31,748,096 and a market value of $32,248,510 as available-for-sale securities.
The balance of the Bank's securities were classified as investment securities.
The classification resulted in the following changes to the accounts below:
Securities available-for-sale $ 500,414
Deferred income tax liability (170,141)
----------
Unrealized holding gains $ 330,273
=========
The carrying amounts of investment securities, held to maturity, as shown in the
balance sheets of the Bank and their approximate market values at December 31,
1995 and 1994, were as follows:
Amortized Unrealized Unrealized Market
1995 Cost Gains Losses Value
- ---- ---- ----- ------ -----
Other securities $ 753,701 $ 39,299 $ - $ 793,000
======== =========== ======== ============
10
GRANVILLE UNITED BANK
Notes to Financial Statements
Note 3. Investment Securities, continued
Carrying Unrealized Unrealized Market
1994 Amount Gains Losses Value
- ---- ------ ----- ------ -----
U.S. Treasury Securities $ 2,992,961 $ - $ (147,258) $ 2,845,703
U.S. Government agency securities 8,439,189 8,484 (305,200) 8,142,473
Other securities 1,685,508 9,139 (41,714) 1,652,933
--------- ------- ------- ----------
$ 13,117,658 $ 17,623 $ (494,172) $ 12,641,109
============ ========= ============= ==========
The carrying amounts of securities available-for-sale, as shown in the balance
sheets of the Bank and their approximate market values at December 31, 1995 and
1994, were as follows:
Carrying Unrealized Unrealized Market
1995 Amount Gains Losses Value
- ---- ------ ----- ------ -----
U.S. Treasury Securities $15,082,138 $ 434,705 $ (19,480) $ 15,497,363
U.S. Government agency securities 15,636,030 118,485 (31,603) 15,722,912
Other securities 1,029,928 1,352 (3,045) 1,028,235
----------- ----------- ----------- -----------
$31,748,096 $ 554,542 $ (54,128) $ 32,248,510
=========== =========== =========== ===========
Amortized Unrealized Unrealized Market
1994 Cost Gains Losses Value
- ---- ---- ----- ------ -----
U.S. Treasury Securities $ 4,993,814 $ -- $ (133,345) $ 4,860,469
U.S. Government agency securities 749,845 1,327 (21,562) 729,610
----------- ----------- ----------- -----------
$ 5,743,659 $ 1,327 $ (154,907) $ 5,590,079
=========== =========== =========== ===========
Securities with carrying amounts of $3,487,728 and $3,567,458 at December 31,
1995 and 1994, respectively, were pledged as collateral on public deposits and
for other purposes as required or permitted by law.
Gross realized gains and losses for the years ended December 31, 1995, 1994 and
1993 (on available-for-sale securities in 1995) are as follows:
1995 1994 1993
---- ---- ----
Realized gains $194,909 $ 86,880 $ 25,105
Realized losses 4,298 43,130 --
11
GRANVILLE UNITED BANK
Notes to Financial Statements
Note 3. Investment Securities, continued
The maturities of investment securities and their approximate market value at
December 31, 1995 were as follows:
Amortized Market
Cost Value
Due in one year or less $ 499,398 $ 506,400
Due after one year through five years - -
Due after five years 254,303 286,600
--------- --------
Total $ 753,701 $ 793,000
========= ========
The maturities of available-for-sale securities and their approximate market
value at December 31, 1995 were as follows:
Amortized Market
Cost Value
Due in one year or less $ 9,291,681 $ 9,331,500
Due after one year through five years 21,957,710 22,409,820
Due after five years 498,705 507,190
------------ -------------
Total $ 31,748,096 $ 32,248,510
============ =============
Note 4. Loans
The major components of loans in the balance sheets at December 31, 1995 and
1994 are as follows:
1995 1994
---- ----
Commercial $ 598,174 $ 570,585
Real estate:
Construction 1,686,559 521,147
Residential, 1-4 families 9,374,964 7,856,521
Farmland 1,415,304 1,318,622
Nonfarm, nonresidential 3,702,580 1,912,759
Installment 1,260,293 904,687
Participations sold (600,000) --
Other 4,644,820 3,222,940
------------ ------------
22,082,694 16,307,261
Allowance for credit losses 282,424 230,408
------------ ------------
$ 21,800,270 $ 16,076,853
============ ============
The Bank had $3,680 of nonaccruing loans at December 31, 1995 and $177,124 at
December 31, 1994.
12
GRANVILLE UNITED BANK
Notes to Financial Statements
Note 5. Allowance for Credit Losses
Changes in the allowance for credit losses are as follows:
1995 1994 1993
---- ---- ----
Balance, beginning $ 230,408 $ 190,127 $ 114,409
Provision charged to expense 152,500 32,020 78,000
Recoveries of amounts charged off 8,183 28,453 806
Amounts charged off (108,667) (20,192) (3,088)
---------- ---------- ---------
Balance, ending $ 282,424 $ 230,408 $ 190,127
========= ========== ========
Note 6. Properties and Equipment
Components of properties and equipment and total accumulated depreciation at
December 31, 1995 and 1994, are as follows:
1995 1994
---- ----
Land and improvements $ 142,302 $ 102,302
Bank premises 312,475 55,693
Furniture and equipment 500,529 395,738
Leasehold improvements 111,234 109,624
----------- ---------
1,066,540 663,357
Less accumulated depreciation 421,132 337,052
----------- ---------
$ 645,408 $ 326,305
=========== =========
The Bank leases its main facility under a noncancelable operating lease that
expires June 30, 1997. The lease can be extended, at the Bank's option, through
June 30, 2000. Rent expense related to this lease was $12,000 for the years
ended December 31, 1995, 1994 and 1993, respectively. Future minimum rental
commitments under the noncancelable lease total $18,000.
Note 7. Note Payable
Note payable at December 31, 1993, represented a 10% note payable on demand. The
note was retired during the year ended December 31, 1994.
13
GRANVILLE UNITED BANK
Notes to Financial Statements
Note 8. Fair Value of Financial Instruments
The estimated fair values of the Bank's financial instruments are as follows
(dollars in thousands):
December 31, 1995
Carrying Fair
Amount Value
Assets
Cash and due from banks $ 1,890 $ 1,890
Interest-bearing deposits with banks 400 421
Federal funds sold 315 315
Securities, available-for-sale 32,249 32,249
Securities, held to maturity 754 793
Loans, net of allowance for credit losses 21,800 21,962
Liabilities
Deposits 52,580 52,660
Note 9. Stock Options
The Bank adopted a non-qualified stock option plan which reserves up to 36,300
shares for purchase by eligible employees. Options granted under this plan are
exercisable at the fair market value at the date of grant. The life of such
options is ten years. At December 31, 1994, options which expire in 2003 have
been granted under this plan for the purchase of 25,320 shares of the Bank's
common stock at $12.00 per share. In March of 1995 additional options were
granted under this plan for the purchase of 4,050 shares of the Bank's common
stock at $13.00 per share. No options granted pursuant to this plan have been
exercised.
Note 10. Employee Benefit Plans
Effective January 1, 1993, the Bank adopted an employee savings and profit
sharing plan pursuant to Section 401(k) of the Internal Revenue Code. The plan
covers substantially all employees who have completed six months of service. The
Bank matches employee contributions of up to six percent of compensation at a
rate of 50 percent. The Bank's matching contributions are fully vested
immediately. In addition, the Bank may make profit sharing contributions at the
discretion of the Board of Directors. Participates become vested in the Bank's
profit sharing contributions in 20 percent increments beginning after their
first qualifying year. Employee matched savings and profit sharing contributions
made by the Bank for the years ended December 31, 1995 and 1994 were
approximately $24,000 and $18,000, respectively.
14
GRANVILLE UNITED BANK
Notes to Financial Statements
Note 11. Income Taxes
The components of income tax expense are as follows:
1995 1994 1993
---- ---- ----
Current
Federal $ 187,575 $ 141,800 $ 147,377
State - - 9,989
Deferred 24,274 9,934 ( 72,761)
--------- -------- --------
$ 211,849 $ 151,734 $ 84,605
========= ======== =======
A reconciliation of income tax expense computed at the statutory federal income
tax rate to income tax expense included in the statements of income follows:
1995 1994 1993
---- ---- ----
Tax at statutory federal rate $ 231,620 $ 167,631 $ 149,801
Effect of operating loss carryforwards -- -- (66,990)
Tax exempt interest income (20,628) (12,448) --
State income tax, net of federal benefit -- -- 6,593
Other 857 (3,449) (4,799)
--------- --------- ---------
$ 211,849 $ 151,734 $ 84,605
========= ========= =========
The components of net deferred tax assets (all Federal) at December 31, 1995,
1994 and 1993 are as follows:
1995 1994 1993
---- ---- ----
Deferred Tax Assets $ 97,910 $128,831 $ 90,463
Deferred Tax Liabilities (180,950) (13,786) (17,702)
-------- -------- --------
$(83,040) $115,045 $ 72,761
======== ======== ========
The tax effects of each significant item creating deferred taxes are summarized
below:
1995 1994 1993
---- ---- ----
Net unrealized (appreciation) depreciation on
securities available-for-sale $(170,141) $ 52,218 $ --
Provision for credit loss 79,902 60,023 49,136
Depreciation (4,414) (8,520) (13,958)
Accretion of discount on
investment securities (6,395) (5,266) (3,744)
Pre-opening expenses -- 12,574 38,335
Amortization of goodwill 12,747 -- --
Other 5,261 4,016 2,992
--------- --------- ---------
$ (83,040) $ 115,045 $ 72,761
========= ========= =========
15
GRANVILLE UNITED BANK
Notes to Financial Statements
Note 12. Commitments and Contingencies
Financial Instruments with Off-Balance-Sheet Risk
The Bank is party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit. These instruments
involve, to varying degrees, elements of credit risk in excess of the amount
recognized in the balance sheets.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit is
represented by the contractual amount of those instruments. The Bank uses the
same credit policies in making commitments and conditional obligations as for
on-balance-sheet instruments. The Bank's commitments to extend credit at
December 31, 1995 and 1994 amounted to $2,569,721 and $2,283,186, respectively.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on management's credit
evaluation of the party. Collateral held varies, but may include accounts
receivable, inventory, property and equipment, residential real estate and
income-producing commercial properties.
Concentrations of Credit Risk
Substantially, all of the Bank's loans and commitments to extend credit have
been granted to customers in the Bank's market area and such customers are
generally depositors of the Bank. Investments in state and municipal securities
involve government entities within and outside the Bank's market area. The
concentrations of credit by type of loan are set forth in Note 4. The
distribution of commitments to extend credit approximates the distribution of
loans outstanding. The Bank's primary focus is toward consumer oriented
transactions, and accordingly, it does not have a significant number of credits
to any single borrower or group of related borrowers in excess of $600,000.
The Bank considers its primary market area for lending and deposit activities to
be Granville County. Although the Bank has a diversified loan portfolio, a
substantial portion of its debtors' ability to honor their contracts is reliant
upon the economic stability of the area which is dependent upon the agricultural
and industrial sectors.
The Bank has cash and cash equivalents on deposit with financial institutions
which exceed federally insured limits.
16
GRANVILLE UNITED BANK
Notes to Financial Statements
Note 13. Regulatory Restrictions
Dividends
The Bank, as a North Carolina banking corporation, may pay dividends only out of
undivided profits as determined pursuant to North Carolina General Statutes
Section 53-87. However, regulatory authorities may limit payment of dividends by
any bank when it is determined that such a limitation is in the public interest
and is necessary to ensure financial soundness of the Bank.
Capital Requirements
The Bank is required to maintain minimum amounts of capital to total "risk
weighted" assets, as defined by the banking regulations. At December 31, 1995,
the Bank was required to have minimum Tier 1 and Tier II capital ratios of 4.00%
and 8.00% respectively. The Bank's actual ratios at that date were 24.96% and
26.13%, respectively. The Bank's leverage ratio at December 31, 1995 was 10.04%.
Note 14. Transactions with Related Parties
The Bank has entered into transactions with its directors, significant
shareholders and their affiliates (Related Parties). Such transactions were made
in the ordinary course of business on substantially the same terms and
conditions, including interest rates and collateral, as those prevailing at the
same time for comparable transactions with other customers, and did not, in the
opinion of management, involve more than normal credit risk or present other
unfavorable features. The aggregate amount of loans to such related parties were
approximately $226,765 and $261,800 at December 31, 1995 and 1994, respectively.
Aggregate 1995 and 1994 loan transactions with related parties were as follows:
1995 1994
---- ----
Balance, beginning $ 261,800 $458,900
New loans 272,155 34,600
Repayments (307,190) (231,700)
-------- ---------
Balance, ending $ 226,765 $ 261,800
======== =========
Note 15. Acquisition
On February 15, 1995, the Bank completed the acquisition of bank branches
located in Creedmoor, North Carolina and Butner, North Carolina. In September,
1994, the Bank had entered into an agreement to purchase these branches.
Effective with the date of acquisition, February 15, 1995, the Bank consolidated
the operations of these branches by transferring all accounts and deposits
located in the Butner branch to the Creedmoor branch.
17
GRANVILLE UNITED BANK
Notes to Financial Statements
Note 15. Acquisition, continued
Also on February 15, 1995, in order to maintain capital as compared to its
assets, the Bank issued an additional 100,000 shares of common stock, at $13 per
share pursuant to a common stock offering initiated in November 1994. Proceeds
from the sale of subscriptions were held in escrow until February 15, 1995, the
date of consummation of the purchase of the branches.
At December 31, 1994, $1,297,400 was held in escrow under the agreement. Upon
closing of the purchase agreements, net proceeds received in cash by the Bank
amounted to $15,038,683. The Bank paid a deposit premium of approximately
$550,000 on total deposits of approximately $17,100,000.
18
Exhibit B
GRANVILLE UNITED BANK
109 Hillsboro Street
Oxford, North Carolina 27565
PROXY STATEMENT
This Proxy Statement and the enclosed Proxy and Annual Report are
furnished the shareholders of Granville United Bank, 109 Hillsboro Street,
Oxford, North Carolina 27565 on behalf of the Board of Directors of Granville
United Bank (the "Bank") in connection with the solicitation of proxies for use
at the Annual Meeting of Shareholders to be held on May 14, 1996 or any
adjournment or adjournments thereof, for the purpose set forth in the Notice of
Annual Meeting of Shareholders.
This proxy statement and the accompanying proxy are being mailed on
April 17, 1996.
THE EXECUTION OF THE ENCLOSED PROXY BY THE SHAREHOLDER IS SOLICITED BY
THE BOARD OF DIRECTORS OF THE BANK. The Board of Directors recommends the
proposals presented and favors your vote "For" each proposal presented.
If the enclosed Proxy is properly executed and received by the Bank
prior to the time of the Annual Meeting, all shares represented thereby will be
voted. If the stockholder directs, in the manner provided in the proxy, how such
shares shall be voted on the proposals hereinafter mentioned, they will be voted
thereon as so directed. If no directions are given with respect to the matters
to be acted upon, the shares represented by the Proxy will be voted FOR the
election of Directors designated as Item 1 on the Proxy and FOR the proposal
designated as Item 2 on the Proxy. Any shareholder giving the Proxy has the
power to revoke it before it is exercised either by giving written notice to
Billy N. Quick, Sr., President, Granville United Bank, P. O. Box 528, Oxford,
North Carolina 27565, or by attending the Annual Meeting and voting in person.
Solicitation of Proxies is being made by mail and, if necessary, may be
made in person or by telephone by officers and regular employees of the Bank.
The expense of making this solicitation will consist largely of preparing and
mailing the Proxies, Proxy Statement, and Annual Reports, with all expenses of
solicitation to be borne by the Bank.
1
VOTING SECURITIES AND PRINCIPAL HOLDERS
The record date for shareholders entitled to vote at the Annual Meeting
is April 4, 1996 (the "Record Date") and only shareholders of record at the
close of business on that date will be entitled to vote at the meeting. As of
the record date, 430,000 shares of common stock, par value $5.00 per share of
the Bank were issued and outstanding. Each share of common stock is entitled to
one vote on all matters presented at the meeting.
As a group, as of the record date, Directors and Officers of the Bank
beneficially owned 95,883 shares of common stock of the Bank or approximately
22.298% of the total shares issued and outstanding. As of the record date,
Harold L. Sherman owned individually 30,000 shares. With the exception as noted
above, there was no person known to the Bank to be the beneficial owner of more
than 5% of the common stock of the company.
The Bank's Bylaws provide that the holders of a majority of the
outstanding shares of the Bank entitled to vote, represented in person or by
proxy, shall constitute a quorum at the meeting, and in the absence of a quorum
at the opening of any meeting of shareholders, such meeting may be adjourned
from time to time by a vote of the majority of the shares voted on the motion to
adjourn; and at any adjourned meeting at which a quorum is present, any business
may be transacted which might have been transacted at the original meeting.
ELECTION OF DIRECTORS
The Bylaws of the Bank provide that the number of Directors of the Bank
shall be such number as is determined by the then current Board of Directors
which are to be elected by the shareholders, such number to be not less than
five (5) nor more than fifteen (15).
A plurality of the votes cast is required to elect members of the Board
of Directors. However, under the North Carolina Corporation law, all
shareholders of the Bank have cumulative voting rights in the election of
directors if any shareholder or proxyholder announces in open meeting before the
voting for directors commences, his intention to vote cumulatively. Otherwise,
there shall be no cumulative voting. Under cumulative voting, a shareholder may
cast a number of votes equal to the number of directors being elected multiplied
by the number of shares held by each shareholder, and such votes may be cast for
one nominee or spread among the nominees selected by the shareholder. If any
shareholder announces his intention to vote his shares on a cumulative basis as
described
2
above, the Proxy Committee may, in its discretion, vote the shares to which such
proxy relates on a basis other than equally for each of the nominees named below
and for less than all such nominees, and in such event the Proxy Committee shall
cast such votes in a manner that would tend to elect the greatest number of
nominees (or any substitutes therefor in the case of unavailability) as the
number of votes cast by them would permit.
The names, principal occupations and based upon information provided by
each person, the amount and nature of beneficial ownership of the Bank's common
stock as of April 4, 1996, of each nominee and each Director continuing in
office is indicated below. Each of the Directors has served as a Director of the
Bank since its incorporation on July 2, 1990, with the exception of William L.
Hopper whose directorate was approved January 20, 1993 and Billy N. Quick, Sr.,
President and Chief Executive Officer, whose directorate was approved July 19,
1993.
LISTED BELOW ARE THE NOMINEES FOR DIRECTORS
FOR WHICH ELECTION IS TO BE MADE
AND CURRENT DIRECTORS CONTINUING IN OFFICE
Amount and Nature
of Beneficial
Name, Age, and Ownership of Stock Percent of
Principal Occupation(1) Direct Indirec(2)(3) Stock(4)
NOMINEES
Nancy W. Darden, 61,
Owner, Darden Real
Estate Company 2,100 --- 0.488%
Ronnie S. Elliott, 51,
Business Manager,
Murdoch Center 1,200 1,550 0.640%
William Bobbitt Jenkins,
63, President, NC Farm
Bureau Federation, Inc. 500 100 0.140%
William L. Hopper, 54,
Partner, Hopper &
Hicks 1,100 --- 0.255%
3
DIRECTORS CONTINUING IN OFFICE
TERM EXPIRING IN 1997
Joseph K. Bryan, Jr., 63,
President, Joe Bryan &
Associates, Inc. 2,050 7,453 2.210%
Joseph C. Hamme, 61,
President, High Price-
Owen Warehouse, Inc. 6,600 4,100 2.488%
Harold L. Sherman, 69,
President, Morton &
Sherman Implement Co.,
Inc. 30,000 --- 6.977%
TERM EXPIRING IN 1998
F. Wayne Yancey, 56,
Farmer, Granville County 4,904 2,122 1.634%
Johnsie C. Cunningham, 45,
Director, Granville County
Extension Service 250 --- .058%
Billy N. Quick, Sr., 55,
President, Granville
United Bank 14,199 1,165 3.573%
_______ ______ _______
All Directors and Nominees 62,903 16,490 18.463%
Footnotes to preceding pages:
1. With respect to nominees and Directors, this column contains information as
to the person's principal occupation for at least the past five years.
2. All data in this column is as of April 4, 1996. Unless otherwise noted, each
person has sole voting power and sole investment power with respect to the
securities reported.
3. The shares reported as directly owned represent shares of common stock of the
Bank over which the Nominee, Director or Officer has sole voting and investment
control. Shares indirectly owned include shares of common stock of the Bank
owned by the respective nominee, Officer's or Director's spouse, children, or
other corporation in which the Nominee, Officer or Director is interested, and
shares held by the respective Nominee, Officer or Director in the capacity of
trustee or executor, and are shares over which the Nominee, Director or Officer
disclaims all beneficial interest and voting control.
4. Based on the total of 430,000 shares outstanding.
4
DIRECTORS RELATIONSHIPS
No Director or nominee or executive officer is related to another
Director or nominee or executive officer. No Director or nominee is a director
in any company with a class of securities registered pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") or subject
to the requirements of Section 15 (d) of the Exchange Act, or any company
registered as an investment company under the Investment Company Act of 1940.
Section 16 (a) of the Securities and Exchange Act of 1934 amended
requires reporting of ownership of bank stock by Directors and executive
officers with the FDIC Registrations and Disclosure Section. All reporting
requirements are current.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established an Executive Committee, Loan
Committee, an Audit & Examining Committee, Personnel, Salary & Benefits
Committee, a CRA Committee, an Asset/Liability Management and Investment
Committee and an Officer Loan Committee. The committees with appointed
membership are listed below:
Executive Committee: Loan Committee:
Harold L. Sherman Joseph K. Bryan, Jr., Chairman
Joseph C. Hamme Joseph C. Hamme, Vice Chairman
Johnsie C. Cunningham Harold L. Sherman
Nancy W. Darden Ronnie S. Elliott
William Bobbitt Jenkins F. Wayne Yancey
F. Wayne Yancey William L. Hopper
Joseph K. Bryan, Jr. Billy N. Quick, Sr.
William L. Hopper Lionel B. Burnette, Ex-Officio
Ronnie S. Elliott Harriett D. Watkins, Ex-Officio
Billy N. Quick, Sr.
Audit & Examining Committee: Personnel, Salary & Benefits
Committee:
Nancy W. Darden, Chairman Harold L. Sherman, Chairman
Joseph K. Bryan, Jr., Vice Ch. Billy N. Quick, Sr., Vice Chrmn.
Ronnie S. Elliott William Bobbitt Jenkins
Johnsie C. Cunningham William L. Hopper
William Bobbitt Jenkins Nancy W. Darden
5
CRA Committee: Asset/Liability Management &
Investment Committee:
Lionel B. Burnette, Chairman
Johnsie C. Cunningham Ronnie S. Elliott, Chairman
Harriett D. Watkins William L. Hopper, Vice Chrmn.
Billy N. Quick, Sr. Joseph K. Bryan, Jr.
Joseph C. Hamme Harold L. Sherman
F. Wayne Yancey
Officer Loan Committee: Joseph C. Hamme
Billy N. Quick, Sr.
Billy N. Quick, Sr., Chrmn. Lionel B. Burnette, Ex-Officio
Lionel B. Burnette Harriett D. Watkins, Ex-Officio
Harriett D. Watkins
ATTENDANCE AND FEES
The Board of Directors of the Bank held twelve regular meetings with no
called meetings in 1995. During 1995, all of the nominees attended at least
seventy-five percent (75%) of the aggregate of the meetings of the Board of
Directors of the Bank and all committees on which they served (during the period
they were directors and members of such committees).
Directors who are not officers of the bank were paid $75.00 for
attendance at each regular and special called meeting of the Board in 1995.
Directors who are not officers of the Bank were also paid $20.00 for attendance
at each committee meeting held during January, 1995 through December, 1995.
EXECUTIVE COMPENSATION
The table below indicates the cash compensation paid by Granville
United Bank as well as other compensation paid or accrued to the President and
Chief Executive Officer for services rendered in all capacities during fiscal
years 1995, 1994, and 1993, respectively. No other executive officers had salary
and bonus in excess of $100,000 for 1995.
Long Term Compensation
Annual Compensation Awards
Restricted Securities
Other Annual Stock Underlying All Other
Name & Principal Salary Bonus Compensation Award(s) Options/SARs Compensation
Position Year $ $ ($) ($) (#) ($)
Billy N.Quick,Sr. 1995 85,500 -0- -0- -0- -0- -0-
President & 1994 75,200 -0- -0- -0- -0- -0-
Chief Executive 1993 62,800 -0- -0- -0- -0- -0-
Officer
6
The following table sets forth information with regard to exercises of
stock options during the fiscal year ended December 31, 1995, by the President
and Chief Executive Officer and the 1995 fiscal year-end value of all
unexercised options held by him.
AGGREGATED OPTION EXERCISES IN FISCAL 1995
AND FISCAL YEAR-END OPTION VALUES
Value of Unexercised
Number of Unexercised In-the-Money Options at
Options at FY-End (#) FY-End ($) (1)
Shares Acquired Value
Name on Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ------------------- --------------- ------------ ----------- ------------- ----------- -------------
Billy N. Quick, Sr. -0- -0- 8,712 5,808 $26,136 $17,424
(1) Fair market value of Granville United Bank Stock at December 31, 1995 was
$15.00.
CERTAIN TRANSACTIONS
The Bank has had, and expects to have in the future, banking
transactions including loans in the ordinary course of business with directors,
executive officers, and their associates, on substantially the same terms,
including interest rates and collateral, as those prevailing at the same time
for comparable transactions with other persons which transactions do not involve
more than the normal risk of collectibility nor present other unfavorable
features. As of December 31, 1995, aggregate loans to Directors including those
made to related business interest and their associates, totaled $222,000. All
such loans were made in the ordinary course of the Bank's business, on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other customers and, in
the opinion of management, do not involve any undue credit risks to the Bank.
All loans to Directors or their interests are submitted to the Board of
Directors for approval prior to the granting of the loan.
RATIFICATION OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors selected Langdon & Company as the Bank's
independent certified public accountants for the year ending December 31, 1996.
Representatives of the firm of Langdon & Company will be present at the 1996
Annual Shareholders' Meeting.
The Board of Directors has determined that, although not required, it
would be desirable to request the shareholders to express concurrence in the
Board's selection of the firm of Langdon & Company independent public
accountants to audit the books and accounts of the Bank for the calendar year
which ends December 31,
7
1996. Consequently, a proposal requesting the shareholders to ratify the
selection of Langdon & Company as independent accountants for the year 1996 was
placed on the proxy solicited by the Board of Directors. This proposal is
designated as Item 2 on the enclosed proxy.
The Board of Directors favors a vote FOR Item 2 to ratify the selection
of Langdon & Company as independent accountants for the year 1996. Proxies
solicited by the Board of Directors will be so voted unless shareholders specify
in their proxies a contrary choice.
DATE FOR RECEIPT OF PROPOSALS
In order for shareholder proposals to be included in the proxy
materials for the 1997 Annual Meeting, any such proposals must be received by
the President of the Bank at the Bank's principal office located at 109
Hillsboro Street, Oxford, North Carolina 27565 no later than February 15, 1997.
OTHER MATTERS
At the date of this Proxy Statement, the Board of Directors knows of no
other matters, other than the matters described herein that will be presented
for consideration at the 1996 Annual Shareholders' Meeting. However, if any such
other matters should properly become before the meeting, it is intended that the
shares represented by the Proxies signed and returned by shareholders will be
voted thereon in accordance with the best judgment of the person voting such
shares.
By Order of the Board of Directors
/s/ Billy N. Quick, Sr.
Billy N. Quick, Sr.
President and Chief Executive Officer
8