UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-8622 For the Period Ended September 30, 1995
PIEDMONT BANKGROUP INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
Virginia 54-1046817
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
P. O. Box 4751 Martinsville, Virginia 24115
- -------------- ---------------------- -----
(Address of Principal Executive Office) (Zip Code)
(540) 632-2971
--------------
(Registrant's Telephone Number, Including Area Code)
N/A
---
Former Name, Former Address, and Formal Fiscal Year,
If Changes 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
- -
Indicate the number of shares outstanding at each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT OCTOBER 31, 1995
----- -------------------------------
COMMON STOCK $5.00 PAR VALUE 4,262,110
- ---------------------------- ---------
PIEDMONT BANKGROUP INCORPORATED
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Consolidated Balance Sheets -- September 30, 1995 and
December 31, 1994
Consolidated Statements of Income -- Three Months
and Nine Months Ended September 30, 1995 and 1994
Consolidated Statements of Cash flow -
Nine Months Ended September 30, 1995 and 1994
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of the Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
<TABLE>
CONSOLIDATED BALANCE SHEETS
PIEDMONT BANKGROUP INCORPORATED AND SUBSIDIARIES
Unaudited
(In 000's)
<CAPTION>
September December
1994 1995
--------- -----------
<S> <C> <C>
ASSETS:
Cash and Due From Banks (Note 2) $ 25,356 $ 24,680
Interest-Bearing Deposits in Domestic Banks 932 50
Mortgage Loans Held for Sale 1,548 521
Securities Available for Sale (Aggregate Costs of
$173,728 in September, 1995, and $127,337 in December,
1994) (Note 3) 172,000 119,029
Investment Securities (Aggregate Market Values of $118,012
in September, 1995 and $121,041 in December, 1994)
(Note 4)
Taxable 77,325 81,491
Nontaxable 36,147 40,288
--------- --------
113,472 121,779
Loans (Note 5):
Commercial 254,135 235,205
Real Estate 130,551 115,106
Consumer 174,023 157,857
Less: Unearned Income and Deferred Fees (10,884) ( 8,417)
--------- --------
Loans, Net of Unearned Income and Deferred Fees 547,825 499,751
Less: Allowance for Loan Losses ( 8,327) ( 8,191)
--------- -------
Loans, Net 539,498 491,560
Bank Premises and Equipment 10,848 11,240
Other Real Estate Owned 1,768 2,452
Other Assets 17,637 23,646
--------- ---------
TOTAL ASSETS $ 883,059 $ 794,957
========= =========
LIABILITIES:
Deposits:
Demand Deposits (Noninterest-Bearing) $ 95,255 $ 91,570
Interest Checking Accounts 68,078 78,567
Savings Deposits 117,918 152,990
Money Market Investment Accounts 67,816 70,087
Time Deposits
Certificates of Deposit $100,000 and Over 65,944 49,743
Other 298,292 261,613
--------- ---------
TOTAL DEPOSITS 713,303 704,570
Securities Sold Under Repurchase Agreements 69,498 11,307
Other Short-Term Debt 20,190 11,906
7% Convertible Subordinated Debentures (Note 7) 6,207 8,918
Other Long-Term Debt 1,000 ---
Accrued Interest Payable 3,255 2,141
Accrued Loss Contingencies (Note 6) --- 1,341
Other Liabilities 5,162 3,283
--------- ---------
TOTAL LIABILITIES 818,615 743,466
--------- ---------
SHAREHOLDERS' EQUITY: (Note 7)
Preferred Stock, (Par Value $5 Per Share, Authorized
1,000,000 Shares; None Outstanding --- ---
Common Stock, (Par Value $5 Per Share, Authorized
10,000,000 Shares; Issued and Outstanding 3,921,094 Shares
in September, 1995 and 3,755,012 in December, 1994) 19,606 18,775
Capital in Excess of Par 7,165 4,893
Retained Earnings 41,105 35,972
Unrealized Gains (Losses) on Securities Net ( 3,432) ( 8,149)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 64,444 51,491
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 883,059 $ 794,957
========= =========
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
PIEDMONT BANKGROUP INCORPORATED AND SUBSIDIARIES
(In 000's Except Per Share Data)
Unaudited
<CAPTION>
Three Months Ended Nine Months Ended
Sept 30 Sept 30 Sept 30 Sept 30
1995 1994 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans:
Taxable $ 13,079 $ 10,879 $ 37,321 $ 31,265
Nontaxable 41 47 132 145
Interest on Mortgage Loans Held for Sale 39 102 87 495
Interest and Dividends on Securities
Available for Sale 2,668 3,282 6,854 9,783
Interest and Dividends on Investment
Securities
Taxable 1,423 53 4,370 153
Nontaxable 518 585 1,610 1,735
Other Interest Income 19 126 60 354
---------- -------- ---------- --------
Total Interest Income 17,787 15,074 50,434 43,930
INTEREST EXPENSE
Interest on Deposits 7,194 6,014 20,772 17,700
Interest on Short-Term Borrowings 1,078 158 1,741 412
Interest on Long-Term Debt 20 --- 58 ---
Interest on 7% Convertible Subordinated
Debentures 156 161 468 483
---------- -------- ---------- ---------
Total Interest Expense 8,448 6,333 23,039 18,595
---------- -------- ---------- ---------
Net Interest Income 9,339 8,741 27,395 25,335
Provisions for Loan Losses (Note 5) 328 358 985 1,043
---------- -------- ---------- ---------
Net Interest Income After Provision
for Loan Losses 9,011 8,383 26,410 24,292
OTHER OPERATING INCOME
Service Charges and Fees 1,378 1,238 4,129 3,588
Trust Department Income 640 510 1,670 1,560
Securities Gains (Losses), Net
(Notes 3 and 4) ( 15) 171 4 310
---------- -------- ---------- ---------
2,003 1,919 5,803 5,458
OTHER OPERATING EXPENSE
Salaries and Wages 3,028 2,752 8,829 7,892
Employee Benefits 1,037 1,088 3,323 3,034
Net Occupancy Expense 304 333 956 1,020
Equipment 790 722 2,298 2,080
FDIC Assessment ( 34) 445 817 1,214
Stationery and Supplies 178 159 549 472
Advertising 84 104 312 354
Other 1,960 1,649 4,954 5,138
---------- -------- ---------- ---------
7,347 7,252 22,038 21,204
---------- -------- ---------- ---------
Income Before Income Taxes 3,667 3,050 10,175 8,546
Income Tax Expense ( 1,004) ( 853) ( 2,883) ( 1,735)
---------- -------- ---------- ---------
NET INCOME $ 2,663 $ 2,197 $ 7,292 $ 6,811
========== ======== ========== =========
Per Share
Primary:
NET INCOME $ .70 $ .59 $ 1.92 $ 1.82
========== ======== ========== =========
Dividends Per Share $ .20 $ .17 $ .57 $ .49
========== ======== ========== =========
Average Shares Outstanding 3,840 3,758 3,804 3,751
========== ======== ========== =========
Fully Diluted:
NET INCOME $ .65 $ .54 $ 1.78 $ 1.67
========== ======== ========== =========
Average Shares Outstanding 4,277 4,260 4,272 4,253
========== ======== ========== =========
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
PIEDMONT BANKGROUP INCORPORATED AND SUBSIDIARIES
(In 000's)
Unaudited
<CAPTION>
September September
1995 1994
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 7,292 $ 6,811
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities:
Provision for Loan Losses 985 1,043
Depreciation and Amortization of Bank Premises and Equipment 1,434 1,376
Provision for Deferred Income Taxes 25 ( 616)
Amortization of Securities Premiums and Discounts, Net ( 228) ( 5)
Amortization of Intangibles 201 217
Mortgage Loan Originations Held for Sale ( 5,928) ( 9,387)
Mortgage Loans Sold 4,901 19,923
(Increase) Decrease in Other Assets 3,387 350
Increase in Accrued Interest Payable 1,114 461
Increase (Decrease) in Other Liabilities 1,879 ( 834)
Decrease in Accrued Loss Contingencies ( 1,341) ---
Gain (Loss) on Sale of Securities, Net ( 4) ( 310)
----------- ------------
Net Cash Provided by Operating Activities $ 13,717 $ 19,029
Cash Flows From Investing Activities:
Net (Increase) in Federal Funds Sold $ --- $ 12,535
Increase in Interest Bearing Deposits at Banks ( 882) ---
Purchase of Securities Available for Sale ( 66,921) ( 76,119)
Purchases of Investment Securities ( 451) ( 4,101)
Proceeds From Sale of Securities Available for Sale 5,029 55,435
Proceeds From Calls and Maturities of Securities
Available for Sale 15,560 7,205
Proceeds From Calls and Maturities of Investment Securities 9,464 1,750
Net (Increase) in Loans ( 48,923) ( 42,957)
Purchases of Bank Premises and Equipment ( 1,042) ( 2,094)
Net (Increase) in Other Real Estate 684 2,310
---------- ------------
Net Cash Used in Investing Activities $ ( 87,482) $( 46,036)
Cash Flows From Financing Activities:
Net Increase (Decrease) in Demand Deposit, Interest
Checking, Money Market and Savings Accounts $ ( 44,147) $( 2,900)
Net Increase in Time Deposits $100,000 and Over 16,201 14,526
Net Increase in Time Deposits Other 36,679 25,211
Net Increase (Decrease)in Short-Term Debt 66,475 ( 3,986)
Net Increase in Long-Term Debt 1,000 ---
Cash Dividends ( 2,159) ( 1,825)
Proceeds From Issuance of Common Stock 392 508
---------- ------------
Net Cash Provided by Financing Activities $ 74,441 $ 31,534
---------- ------------
Net Increase (Decrease) in Cash and Due From Banks 676 4,527
Cash and Due From Banks at Beginning of Year 24,680 21,670
---------- ------------
Cash and Due From Banks at End of Year $ 25,356 $ 26,197
========== ============
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements of Piedmont BankGroup Incorporated
and its subsidiaries conform to generally accepted accounting principles
and to general banking industry practices. The interim period consolidated
financial statements are unaudited; however, in the opinion of management,
all adjustments of a normal and recurring nature which are necessary for a
fair presentation of the consolidated financial statements herein have been
included. The financial statements herein should be read in conjunction
with the notes to financial statements included in the corporation's 1994
Form 10-K to the SEC.
2. Cash Equivalents
----------------
For purposes of the Statements of Cash Flow, BankGroup considers all Cash
and Due From Bank Accounts to be cash equivalents.
3. Securities Available for Sale
-----------------------------
The following sets forth the composition of securities available for sale,
which are carried at approximate market value at September 30, 1995.
<TABLE>
Gross Gross Approx.
Carrying Unrealized Unrealized Market
Value Gains Losses Value
-------- ---------- ---------- ------
<S> <C> <C> <C> <C>
U. S. Treasury Securities 494 $ --- $ --- $ 494
Obligations of U.S.
Government Agencies 35,046 121 243 34,924
Mortgage-Backed Securities 27,207 242 220 27,229
Corporate Bonds 11,526 415 119 11,822
Other Securities 1,987 508 --- 2,495
Collateralized Mortgage
Obligations and REMICs 97,468 110 2,542 95,036
---------- ---------- --------- --------
Total Securities
Available for Sale $ 173,728 $ 1,396 $ 3,124 $ 172,000
========== ========== ========= ==========
</TABLE>
At September 30, 1995, net unrealized losses of $1.1 million,
net of tax, are reflected in shareholders' equity.
Proceeds from sales and calls of securities available for sale
year to date were $17.1 million. Gross gains of $18,000 were
realized on these transactions. Gross losses of approximately
$27,000 were realized on these transactions.
4. Investment Securities
---------------------
The carrying and approximate market values and gross unrealized gains
and losses of investment securities are as follows at September 30, 1995:
<TABLE>
Gross Gross Approx.
Carrying Unrealized Unrealized Market
Value Gains Losses Value
-------- ---------- ---------- ------
<S> <C> <C> <C> <C>
U. S. Treasury Securities $ 4,908 $ 109 $ --- $ 5,017
Obligations of U.S.
Government Agencies 47,729 2,858 --- 50,587
Mortgage-Backed Securities 21,342 596 21 21,917
Obligations of State and
Political Subdivisions 39,493 1,211 213 40,491
--------- ---------- --------- --------
Total Investment Securities $ 113,472 $ 4,774 $ 234 $ 118,012
========= ========== ========= =========
</TABLE>
At December 31, 1994, BankGroup transferred securities available for
sale with an approximate market value of $72.5 million and a carrying
value of $76.5 million to investment securities. The unrealized losses
of approximately $4,038,000 included as a separate component of
shareholders' equity, is being amortized over the remaining lives of the
securities. This separate component of shareholders' equity at September
30, 1995, net of the related tax effect, was $2.3 million.
Proceeds from calls of investment securities year to date were $5.2
million. Gross gains of $13,000 were realized on these on these
transactions. There were no losses realized on these transactions.
5. Loan Portfolio
--------------
Interest on loans is computed by methods which generally result in level
rates of return on principal amounts outstanding. Loans are
placed on nonaccrual status when it becomes probable that the borrower
will have difficulty meeting either interest or principal payments and the
loan is not in the process of collection and is not well collateralized.
For loans placed on nonaccrual, all interest accrued in the current
fiscal year is reversed against income while prior year accrued interest is
charged against the allowance for loan losses. For payments on nonaccrual
loans and impaired loans, amounts are applied first as a recovery of
principal and then as interest under the cost recovery method.
BankGroup considers a loan to be impaired when, based upon current
information and events, it believes it is probable that BankGroup will be
unable to collect all amounts due according to the contractual terms
of the loan agreement. BankGroup's impaired loans within the scope of SFAS
114 include nonaccrual loans (excluding those collectively reviewed for
impairment), troubled debt restructurings, and certain other nonperforming
loans. For collateral dependent loans, BankGroup bases the measurement of
these impaired loans on the fair value of the loan's collateral properties.
For all other loans, BankGroup bases the measurement of these impaired
loans on the more readily determinable of the present value of expected
future cash flows discounted at the loan's effective interest rate or
the observable market price. Impairment losses are recognized through an
increase in the allowance for loan losses and a corresponding charge to
the provision for loan losses. Adjustments to impairment losses due to
changes in the fair value of impaired loans' collateral properties are
included in the provision for loan losses. When an impaired loan is either
sold, transferred to other real estate owned or written down, any related
valuation allowance is charged off against the allowance for loan losses.
An allowance for loan losses is maintained in order to provide for losses
in collection of loans that can be currently estimated. The level of the
allowance for loan losses is based upon the quality of the loan portfolios
as determined by management after consideration of historical loan loss
experience, diversification as to the type of loans in the portfolios, the
amount of collateralized as compared to uncollateralized loans, banking
industry standards and averages, and general economic conditions. In
preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets
and liabilities as of the date of the consolidated balance sheet and
income and expense for the period. Actual results could differ
significantly from these estimates. In connection with the determination
of the allowance for loan losses and the valuation of real estate owned,
management obtains independent appraisals for significant properties.
Management believes that the allowance for loan losses and the valuation of
real estate owned are adequate. While management uses available
information to recognize losses on loans and real estate owned, future
additions to the allowance for loan losses and additional writedowns in the
valuation of real estate owned may be necessary based on changes in
economic conditions. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review
BankGroup's allowance for loan losses and valuation of real estate owned.
The following table shows the changes in the allowance for loan losses
arising from loans charged off and recoveries on loans previously charged
off by loan category; and additions to the allowance which have been
charged to operating expenses:
(In 000's)
Balance at December 31, 1994 $ 8,191
Charge-offs:
Commercial, Financial and
Agricultural 556
Real Estate - Mortgage 44
Installment 561
-----------
$ 1,161
Recoveries:
Commercial, Financial
and Agricultural 149
Real Estate - Mortgage 4
Installment 159
------------
312
Net Charge-offs 849
Provision for Loan Losses 985
------------
Balance at September 30, 1995 $ 8,327
===========
Nonaccrual loans and loans 90-days past due or more as to interest or
principal payments are considered by BankGroup to be nonperforming loans.
Nonperforming loans were .97% of loans, net of unearned income at
September 30, 1995.
The following table present aggregate loan amounts for nonaccual and
90-day past due loans as of September 30,1995:
Nonaccrual Loans $ 3,742
Loans Past Due 90 Days or
More 1,565
------------
Total Nonperforming Loans 5,307
------------
Other Real Estate Owned 1,768
Other Repossessed Assets 120
------------
Total Foreclosed/Repossessed Assets 1,888
------------
Total Nonperforming Loans and Foreclosed/
Repossessed Assets $ 7,195
============
The effect of nonaccrual loans on interest income for the nine months
ended September 30, 1995 was as follows:
Gross Amount of Interest That Would Have Been
Recorded at Original Rate $ 251
Interest That Was Reflected in Income 10
-----------
Net Impact on Interest Income $ 241
===========
At September 30, 1995, the recorded investment in loans which have been
identified by BankGroup as impaired loans in accordance with Statement
of Financial Accounting Standards (SFAS) No. 114, "Accounting by
Creditors for Impairment of A Loan", totaled $3.7 million. The total
allowance for loan losses related to such loans was $ .8 million.
6. Contingencies and Other Matters
-------------------------------
At March 31, 1995 and December 31, 1994, BankGroup had accrued loss
contingencies of $1.3 million. This contingency was accrued due to a
Trust Department defalcation involving misappropriation of customer funds
by a former Trust Department employee at Piedmont Trust Bank (PTB).
PTB has settled with its insurance carriers on a disputed claim for $5.5
million arising out of the defalcation. On February 28, 1995, the lawsuit
was settled on a basis that included no additional loss to PTB over and
above the previously established reserves. Final settlement payments on
the agreement were received in accordance with the agreement in April,
1995, and with appropriate entries both the insurance receivable account
and the accrued loss contingencies were settled.
As a result of the previously cited Trust Defalcation, PTB was subject to a
Cease and Desist Order (the Order) issued by the Federal Reserve. The
Order required PTB to implement certain corrective measures related to
internal controls and operating procedures in the Trust Department and
required periodic progress reports to appropriate parties. PTB has
implemented the corrective measures as required by the Order. The
Corporation received notification from the Federal Reserve Bank of Richmond
dated October 3, 1995 terminating the Cease and Desist Order.
BankGroup and its subsidiaries, in the normal course of business, are
involved in various legal actions and proceedings. It is the opinion of
management that any liabilities, except as disclosed above, arising from
these matters and not covered by insurance, would not have a material
effect on BankGroup's financial position.
7. 7% Convertible Subordinated Debentures
--------------------------------------
On September 12, 1995, Piedmont BankGroup Incorporated called for
redemption on October 13, 1995 all of its outstanding 7% Convertible
Subordinated Debentures Due 2011 (the "Debentures"). At such date,
$8,043,000 principal amount of Debentures were outstanding. The
redemption price was $1,014.00 plus accrued interest of $34.61 from April
15, 1995 to the redemption date, for a total of $1,048.61 for each $1,000
of principal amount of Debentures. No interest would accrue on the
Debentures from and after October 13, 1995 and holders of outstanding
Debentures would not have any rights as such holders other than the right
to receive the redemption price, without additional interest, upon
surrender of their Debentures.
The Debentures were convertible at any time on and prior to October 5,
1995 into shares of the Company's Common Stock at a conversion rate of
54.945 shares of common stock for each $1,000 principal amount of
Debentures (equivalent to a conversion price of $18.20 per share).
Holders converting Debentures were not entitled to receive interest from
April 15, 1995.
The Company also entered into a Standby Agreement with Scott and
Stringfellow, Incorporated, a broker/dealer headquartered in Richmond,
Virginia providing that Debentures not converted by the holders would,
in effect, be converted by Scott and Stringfellow and the resulting Common
Stock sold in a public offering. All Debentures were converted into
441,839 shares of the Company's Common Stock.
The Company registered Common Stock offered in conversion of the Debentures
with the Securities and Exchange commission (Registration No. 33-62557).
MANAGEMENT DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
- --------
Net income for the first nine months of 1995 was $7.3 million which
equated to $1.92 per primary share. The 1994 income for the first
nine months was $6.8 million, or $1.82 per primary share. The 1995
year-to-date income produced a 1.18% and 16.66% return on assets
and return on equity, respectively. The return on assets and
return on equity for 1994 were 1.16% and 16.09%, respectively.
Net income for the third quarter of 1995 was $2.7 million compared
to $2.2 million in 1994, an increase of 21.2%. The return on
assets and return on equity for the third quarter of 1995 was 1.22%
and 16.86%, respectively compared to 1.10% and 15.83%, respectively
in the third quarter of 1994.
Net Interest Income
- -------------------
Net interest income for the first nine months of 1995 increased
$2.1 million, or 8.1% over 1994 levels. This resulted in a rise
in the interest margin to 4.85% in 1995 from 4.77% in 1994.
Strong loan demand has contributed positively to the net interest
margin, with average loans, net of unearned income increasing by
$49.2 million, or 10.5% over the same period a year ago.
Partially offsetting this positive effect on the interest margin
has been the shift in our deposit structure from interest
checking, money market, and savings to time deposits.
The net interest margin for the third quarter of 1995 was 4.63%
compared to 5.03% in the third quarter of 1994. This decline was
due to the deposit shift to time deposits from interest checking,
money market, and savings accounts; declining interest rates; and
leveraging transactions. The leveraging transactions increased
the interest bearing assets by the purchase of $40 million par
value in adjustable rate collateralized mortgage obligations
(CMO's) funded by repurchase agreements with similar repricing
characteristics.
Noninterest Income
- ------------------
Total noninterest income, excluding securities gains, for the
first nine months of 1995 increased $.7 million, or 12.6% over
the same period in 1994. Service charges on bookkeeping increased
$.2 million, or 15.8% primarily due to implementation of
increased rates and additional charges. Other income increased
$.3 million, or 14.6% over 1994 levels due to increased credit
card income and credit life income. Trust income increased in
1995 $.1 million, or 7.1% over the 1994 income also due to
increased fees.
Noninterest income for the third quarter of 1995 increased $.3
million, or 15.4% in comparison to the third quarter of 1994 due
to the same reasons listed above for the year-to-date
comparisons.
Noninterest Expense
- -------------------
Total noninterest expense for the first nine months of 1995 was
$22.0 million compared to $21.2 million in 1994, a 3.9% increase.
Salaries and wages expense increased $.9 million over 1994 levels
primarily due to a new salary administration program in the
latter part of 1994, additional staffing at the holding company,
and accruals of all costs associated with displaced personnel.
Management believes that personnel costs will improve due to
further consolidation of operations throughout the organization.
Employee benefits increased in 1995 9.5% over the previous year
for the same reasons as salaries and wages. Net occupancy
expense increased 6.3% over 1994 along with an increase in
equipment and equipment service of $.2 million, or 10.5%. FDIC
assessment declined $.4 million, or 32.7% in comparison to 1994
because of the rebate from the Federal Deposit Insurance
Corporation. Supplies expense rose $77 thousand, or 16.3% over
1994 levels, primarily due to the three national banks changing
to a state charter in 1995 requiring all new stationery and
supplies with their new names and logos. Other noninterest
expense declined $.2 million, or 3.6% over 1994 levels.
Total noninterest expense for the third quarter of 1995 was
stable in comparison to 1994 at $7.3 million. Salaries expense
for the quarter increased $.3 million, or 10.0% in comparison to
last year for the same reasons as the aforementioned year-to-date
expense. FDIC assessment declined $.5 million, or 107.6% due to
the rebate for the Federal Deposit Insurance Corporation in the
third quarter. The other noninterest expense category increased
$.3 million, or 16.2% due to credit card expenses and relocation
expenses.
Financial Condition
- -------------------
Total assets at September 30, 1995 were $883.1 million, up $80.5
million, or 10.0%, from September 30, 1994. Period end assets
increased $88.1 million, or 11.1%, compared to December 31, 1994.
Total loans, net of unearned income at September 30, 1995 were
$547.8 million, up $56.7 million or 11.6% from the previous year
at the same period. Loans outstanding at September 30, 1995
increased $48.1 million, or 9.6% from December 31, 1994.
The company previously reported a restructuring of the investment
portfolio in the fourth quarter of 1994, which divested a
substantial position in fixed rate (CMO's), thus reducing the
overall interest rate risk in our balance sheet. Late in the
second quarter and continuing in the third quarter of 1995, the
company invested $40 million par value in adjustable rate
collateralized mortgage obligations (CMO's) funded by repurchase
agreements with similar repricing characteristics. On a
comparative basis, the total CMO holdings had a book value of
$97.5 million at September 30, 1995, slightly up from $95.1
million held at September 30, 1994, and up from $58.8 million at
December 31, 1994. All CMO's are carried in the availablefor-
sale category. The market values at September 30, 1994, December
31, 1994 and September 30, 1994 were $95.0 million, $52.5 million
and $84.6 million, respectively.
Total securities available for sale were $172.0 million at
September 30, 1995, compared to $201.5 million at September 30,
1994 and $119.0 million at December 31, 1994. Total securities
in the held to maturity category were $113.5 million at September
30, 1995, compared to $43.3 million at September 30, 1994 and
$121.8 million at December 31, 1994.
Other assets at September 30, 1995 were $17.6 million compared to
$24.0 million at September 30, 1994 and $23.6 million at December
31, 1994. Of the decline, $5.5 million was an insurance
receivable account. A subsidiary, Piedmont Trust Bank (PTB)
filed a lawsuit against its insurance carriers for $5.5 million
arising from a defalcation involving misappropriation of customer
funds involving a former Trust Department employee. PTB also had
accrued loss contingencies of $1.3 million for the defalcation.
The lawsuit was settled on February 28, 1995 with no
additional loss to PTB. Final payment on the settlement
agreement was received in April, 1995 and with appropriate
entries, both the insurance receivable account and the accrued
loss contingencies were settled.
Total deposits were $713.3 million at the end of the third
quarter in 1995, down $3.2 million or 0.5% compared to September
30, 1994. Compared to December 31, 1994, deposits grew by $8.7
million or 1.2%. Affecting the comparison of deposit totals was
a runoff of a $13.7 million large CD from a single depositor,
which occurred in the third quarter, 1995. The company continued
to experience a shift in deposit mix from savings, money market,
and interest checking accounts to time deposits, compared to the
end of the same quarter in the previous year. At September 30,
1995, savings accounts, money market and NOW accounts were $117.9
million, $67.8 million, and $68.1 million, compared to $159.6
million, $70.8 million and $70.3 million, respectively at
September 30, 1994. These same accounts were $153.0 million,
$70.1 million, and $78.6 million, respectively, at December 31,
1994. Time deposits totaled $364.2 million at September 30,
1995, compared to $323.4 million and $311.4 million on September
30, 1994 and December 31, 1994, respectively.
On September 12, 1995, Piedmont BankGroup Incorporated called for
redemption on October 13, 1995 all of its outstanding 7%
Convertible Subordinated Debentures Due 2011 (the "Debentures").
At such date, $8,043,000 principal amount of Debentures were
outstanding. The redemption price was $1,014.00 plus accrued
interest of $34.61 from April 15, 1995 to the redemption date,
for a total of $1,048.61 for each $1,000 of principal amount of
Debentures. No interest would accrue on the Debentures from and
after October 13, 1995 and holders of outstanding Debentures
would not have any rights as such holders other than the right to
receive the redemption price, without additional interest, upon
surrender of their Debentures.
The Debentures were convertible at any time on and prior to
October 5, 1995 into shares of the Company's Common Stock at a
conversion rate of 54.945 shares of common stock for each $1,000
principal amount of Debentures (equivalent to a conversion price
of $18.20 per share). Holders converting Debentures were not
entitled to receive interest from April 15, 1995.
The Company also entered into a Standby Agreement with Scott and
Stringfellow, Incorporated, a broker/dealer headquartered in
Richmond, Virginia providing that Debentures not converted by the
holders would, in effect, be converted by Scott and Stringfellow
and the resulting Common Stock sold in a public offering. All
Debentures were converted into 441,839 shares of the Company's
Common Stock.
The Company registered Common Stock offered in conversion of the
Debentures with the Securities and Exchange Commission
(Registration No. 33-62557).
Asset Quality
- -------------
Nonperforming loans at the end of September 1995 totaled $5.3
million, compared to $6.9 million at the same period in 1994, and
$4.4 million at December 31, 1994. The nonperforming loans to
total loans ratio improved to .97% compared to 1.41% a year
earlier, but was up from .87% at the year-end 1994. Of the
September 30, 1995 nonperforming number, $3.7 million consisted
of nonaccrual loans, compared to $4.6 million the previous year,
and $2.7 million at December 31, 1994. Other real estate owned
totaled $1.8 million at the end of the third quarter 1995, down
$.9 million from the same period in 1994, and down $.7 million in
comparison to year-end 1994. The ratio of the allowance for loan
loss reserves to nonperforming loans was 156.9%, 188.2%, and
116.9% at September 30, 1995, December 31, 1994 and September 30,
1994, respectively. The net charge-off ratio for the first nine
months was .22% of average loans, net of unearned income,
compared to .39% for the same period of 1994, and .63% at
December 31, 1994. The provision for loan losses was
approximately the same for the comparable
quarters.
Capital
- -------
At September 30, 1995, the leverage and total risk-based capital
ratios were 7.60% and 14.37%, respectively. This compares to the
same ratios of 7.71% and 14.85% at September 30, 1994, and 7.43%
and 14.32% at December 31, 1994.
On January 1, 1994, the corporation adopted FASB 115, "Accounting
for Certain Investments in Debt and Equity Securities". This
pronouncement requires an adjustment to capital for unrealized
gains or losses in the "available for sale" portfolio. At
September 30, 1995, the corporation had $3.4 million in net
unrealized losses, net of tax. This compares to $9.6 million in
net unrealized losses at the end of the third quarter in 1994,
and $8.1 million at December 31, 1994. The capital ratios
indicated above do not consider this accounting adjustment.
At December 31, 1994, Piedmont BankGroup transferred securities
available for sale with an approximate market value of $72.5
million and a carrying value of $76.5 million to the held to
maturity investment category. The unrealized loss was $4.0
million, or $2.7 million, net of tax, which is being amortized
over the remaining life of the securities. At September 30,
1995, the unrealized loss, net of tax was $2.3 million, which is
part of the total $3.4 million unrealized loss, net of tax, shown
in the shareholders' equity section of the balance sheet.
Liquidity
- ---------
While the actual loan-to-deposit ratio increased to 76.8% from
68.5% the previous year, liquidity remains adequate. Management
believes the shifting deposit mix to time deposits should
ultimately provide a greater level of stability in overall
deposits. Demand deposits increased $2.8 million from the
previous year and $3.7 million from December 31, 1994, reflecting
an increasing core deposit base. At September 30,1995, the
corporation had a short-term borrowed funds position of $89.7
million, an increase of $73.7 million over the same period in
1994 and an increase of $66.5 million over December 31, 1994. The
September 30, 1995 borrowed funds position included $36.4 million
in repurchase agreements used in funding the $40 million
adjustable rate CMOs. The large liability dependency ratio
averaged 18.5% in September, which is within internal policy
guidelines.
Contingencies and Other Matters
- -------------------------------
At March 31, 1995 and December 31, 1994, BankGroup had accrued
loss contingencies of $1.3 million. This contingency was
accrued due to a Trust Department defalcation involving
misappropriation of customer funds by a former Trust Department
employee at Piedmont Trust Bank (PTB). PTB has settled with its
insurance carriers on a disputed claim for $5.5 million arising
out of the defalcation. On February 28, 1995, the lawsuit was
settled on a basis that included no additional loss to PTB over
and above the previously established reserves. Final settlement
payments on the agreement were received in accordance with the
agreement in April, 1995, and with appropriate entries both the
insurance receivable account and the accrued loss contingencies
were settled.
As a result of the previously cited Trust Defalcation, PTB was
subject to a Cease and Desist Order (the Order) issued by the
Federal Reserve. The Order required PTB to implement certain
corrective measures related to internal controls and operating
procedures in the Trust Department and required periodic progress
reports to appropriate parties. PTB has implemented the
corrective measures as required by the Order. The Corporation
received notification from the Federal Reserve Bank of Richmond
dated October 3, 1995 terminating the Cease and Desist Order.
BankGroup and its subsidiaries, in the normal course of business,
are involved in various legal actions and proceedings. It is the
opinion of management that any liabilities, except as disclosed
above, arising from these matters and not covered by insurance,
would not have a material effect on BankGroup's financial
position.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
The information required by Part II, Item 1, of the form 10-Q
appears on page 7 of Part I, Item 1, Note 6, of this report and
it herein incorporated by reference.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereof duly authorized.
PIEDMONT BANKGROUP
INCORPORATED (Registrant)
Date: November 9, 1995 JAMES E. ADAMS
------------------------- ----------------------------
James E. Adams
Chief Financial Officer/
Treasurer
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