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 June 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)
(703)632-2971
--------------
(Registrant's Telephone Number, Including Area Code)
N/A
----
Former Name, Former Address, and Formal Fiscal Year,
if Changed Since Last Report
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
- -
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 JULY 31, 1995
----- ----------------------------
COMMON STOCK $5.00 PAR VALUE 3,807,901
- ---------------------------- ---------
PIEDMONT BANKGROUP INCORPORATED
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -- June 30, 1995 and
December 31, 1994 1
Consolidated Statements of Income -- Three Months
and Six Months Ended June 30, 1995 and 1994 2
Consolidated Statements of Cash Flow - Six Months
Ended June 30, 1995 and 1994 3
Notes to Consolidated Financial Statements 4-7
Item 2. Management's Discussion and Analysis of the Financial
Condition and Results of Operations 8-11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
<TABLE>
CONSOLIDATED BALANCE SHEETS
UNAUDITED
(IN 000'S)
<CAPTION>
June December
1995 1994
---- ----
<S> <C> <C>
ASSETS:
Cash and Due From Banks (Note 2) $ 25,538 $ 24,680
Interest-Bearing Deposits in Domestic Banks 856 50
Federal Funds Sold 5,220 --
Mortgage Loans Held for Sale 795 521
Securities Available for Sale (Aggregate Costs of
$157,242 in June, 1995, and $127,337 in December,
1994) (Note 3) 156,689 119,029
Investment Securities (Aggregate Market Values of
$122,227 in June, 1995, and $121,041 in December,
1994) (Note 4)
Taxable 80,530 81,491
Nontaxable 36,778 40,288
-------- -------
117,308 121,779
Loans (Note 5):
Commercial 250,551 235,205
Real Estate 123,636 115,106
Consumer 164,975 157,857
Less: Unearned Income and Deferred Fees (9,704) (8,417)
--------- ---------
Loans, Net of Unearned Income and Deferred Fees 529,458 499,751
Less: Allowance for Loan Losses (8,124) (8,191)
--------- ---------
Loans, Net 521,334 491,560
Bank Premises and Equipment 10,938 11,240
Other Real Estate Owned 2,021 2,452
Other Assets 16,826 23,646
-------- --------
TOTAL ASSETS $857,525 $794,957
======== ========
LIABILITIES:
Deposits:
Demand Deposits (Noninterest-Bearing) $106,970 $ 91,570
Interest Checking Accounts 69,601 78,567
Savings Deposits 123,187 152,990
Money Market Investment Accounts 52,788 70,087
Time Deposits
Certificates of Deposit $100,000 and Over 64,919 49,743
Other 292,549 261,613
-------- --------
TOTAL DEPOSITS 710,014 704,570
Securities Sold Under Repurchase Agreements 54,457 11,307
Other Short-Term Debt 16,000 11,906
7% Convertible Subordinated Debentures 8,493 8,918
Other Long-Term Debt 1,000 --
Accrued Interest Payable 2,621 2,141
Accrued Loss Contingencies (Note 6) -- 1,341
Other Liabilities 4,178 3,283
-------- --------
TOTAL LIABILITIES 796,763 743,466
-------- --------
SHAREHOLDERS' EQUITY:
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
3,790,209 Shares in June, 1995, and 3,755,012 in
December, 1994) 18,951 18,775
Capital in Excess of Par 5,403 4,893
Retained Earnings 39,205 35,972
Unrealized Gains (Losses) on Securities Net (2,797) (8,149)
-------- ---------
TOTAL SHAREHOLDERS' EQUITY 60,762 51,491
-------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $857,525 $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 Six Months Ended
June 30 June 30
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans:
Taxable $12,438 $10,450 $24,242 $20,386
Nontaxable 45 49 91 98
Interest on Mortgage Loans
Held for Sale 29 167 48 393
Interest and Dividends on Securities
Available for Sale 2,182 3,340 4,186 6,501
Interest and Dividends on Investment
Securities:
Taxable 1,468 50 2,947 100
Nontaxable 536 577 1,092 1,150
Other Interest Income 27 91 41 228
------- ------- ------ -------
Total Interest Income 16,725 14,724 32,647 28,856
INTEREST EXPENSE
Interest on Deposits 7,068 5,877 13,578 11,686
Interest on Short-Term Borrowings 424 145 701 254
Interest on Long-Term Debt 156 161 312 322
------- -------- ------- -------
Total Interest Expense 7,648 6,183 14,591 12,262
------- -------- ------- -------
Net Interest Income 9,077 8,541 18,056 16,594
Provisions for Loan Losses (Note 5) 329 358 657 685
------- ------- ------- -------
Net Interest Income After
Provision for Loan Losses 8,748 8,183 17,399 15,909
OTHER OPERATING INCOME
Service Charges and Fees 1,546 1,329 2,751 2,350
Trust Department Income 535 525 1,030 1,050
Securities Gains (Losses), Net
(Notes 3 and 4) 12 58 19 139
------- ------- ------- -------
2,093 1,912 3,800 3,539
OTHER OPERATING EXPENSE
Salaries and Wages 2,942 2,547 5,801 5,139
Employee Benefits 1,178 1,033 2,286 1,947
Net Occupancy Expense 312 346 652 687
Equipment 763 704 1,508 1,358
FDIC Assessment 422 386 851 769
Stationery and Supplies 174 158 371 313
Advertising 113 140 228 250
Other 1,472 1,905 2,994 3,489
------- ------- ------- -------
7,376 7,219 14,691 13,952
------- ------- ------- -------
Income Before Income Taxes 3,465 2,876 6,508 5,496
Income Tax Expense 1,011 161 1,879 882
------- ------- ------- -------
NET INCOME $ 2,454 $ 2,715 $ 4,629 $ 4,614
======= ======= ======= =======
Per Share
Primary:
NET INCOME .64 .72 1.22 1.23
====== ======= ======= =======
Dividends Per Share .20 .16 .37 .32
====== ======= ======= =======
Average Shares Outstanding 3,796 3,749 3,790 3,746
====== ======= ======= =======
Fully Diluted:
NET INCOME .60 .66 1.13 1.13
====== ======= ======= =======
Average Shares Outstanding 4,275 4,254 4,273 4,251
====== ======= ======= =======
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
PIEDMONT BANKGROUP INCORPORATED AND SUBSIDIARIES
(IN 000'S)
<CAPTION>
June June
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 4,629 $ 4,614
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities:
Provision for Loan Losses 657 685
Depreciation and Amortization of Bank Premises and Equipment 964 905
Provision for Deferred Income Taxes 47 (616)
Amortization of Securities Premiums and Discounts, Net (155) (14)
Amortization of Intangibles 134 139
Mortgage Loan Originations Held for Sale (2,895) (11,186)
Mortgage Loans Sold 2,621 14,116
(Increase) Decrease in Other Assets 3,882 (792)
Increase in Accrued Interest Payable 480 57
Increase (Decrease) in Other Liabilities 895 (627)
Decrease in Accrued Loss Contingencies (1,341) --
Gain (Loss) on Sale of Securities, Net (19) (139)
-------- --------
Net Cash Provided by Operating Activities $ 9,899 $ 7,142
CASH FLOWS FROM INVESTING ACTIVITIES
Net (Increase) in Federal Funds Sold $ (5,220) $ 22,810
Increase in Interest Bearing Deposits at Banks (806) --
Purchase of Securities Available for Sale (37,783) (54,430)
Purchases of Investment Securities (79) (2,893)
Proceeds From Sale of Securities Available for Sale 5,029 30,033
Proceeds From Calls and Maturities of Securities
Available for Sale 2,907 6,955
Proceeds From Calls and Maturities of Investment Securities 5,020 1,250
Net (Increase) in Loans (30,431) (32,158)
Purchases of Bank Premises and Equipment (662) (1,385)
Net (Increase) in Other Real Estate 431 2,444
-------- --------
Net Cash Used in Investing Activities $(61,594) $(27,374)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase (Decrease) in Demand Deposit, Interest
Checking, Money Market and Savings Accounts $(40,668) $ 5,829
Net Increase in Time Deposits $100,000 and Over 15,176 1,840
Net Increase in Time Deposits Other 30,936 9,849
Net Increase (Decrease) in Short-Term Debt 47,244 5,447
Net Increase in Long-Term Debt 1,000 --
Cash Dividends (1,396) (1,190)
Proceeds From Issuance of Common Stock 261 394
-------- --------
Net Cash Provided by Financing Activities $ 52,553 $ 22,169
Net Increase (Decrease) in Cash and Due From Banks 858 1,937
Cash and Due From Banks at Beginning of Year 24,680 21,670
-------- --------
Cash and Due From Banks at End of Year $ 25,538 $ 23,607
======== ========
</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 June 30, 1995:
<TABLE>
<CAPTION>
Gross Gross Approx.
Carrying Unrealized Unrealized Market
Value Gains Losses Value
-------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U. S. Treasury Securities $ 987 $ -- $ (1) $ 986
Obligations of U. S.
Government Agencies 45,337 189 (183) 45,343
Mortgage-Backed Securities 19,345 288 (39) 19,594
Corporate Bonds 11,528 477 (120) 11,885
Other Securities 1,580 471 -- 2,051
Collateralized Mortgage
Obligations and REMICs 78,465 265 (1,900) 76,830
-------- ------- -------- --------
Total Securities Available
For Sale $157,242 $ 1,690 $(2,243) $156,689
======== ======= ======== ========
</TABLE>
At June 30, 1995, net unrealized losses of $.5 million, net of tax, are
reflected in shareholders' equity.
Proceeds from sales and calls of securities available for sale year to date
were $5.8 million. Gross gains of $15,000 were realized on these
transactions. Gross losses of $9,000 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 June 30, 1995:
<TABLE>
<CAPTION>
Gross Gross Approx.
Carrying Unrealized Unrealized Market
Value Gains Losses Value
----- ----- ------ -----
<S> <C> <C> <C> <C>
U. S. Treasury Securities $ 4,892 $ 135 $ -- $ 5,027
Obligations of U. S.
Government Agencies 50,052 3,317 -- 53,369
Mortgage-Backed Securities 22,240 740 91 22,889
Obligations of State and
Political Subdivisions 40,124 1,150 332 40,942
------- ------- -------- --------
Total Investment Securities $117,308 $ 5,342 $ 423 $122,227
======== ======= ======== ========
</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 loss of
approximately $4,038,000 included as a separate component of shareholders'
equity, is being amortized over the remaining life of the securities.
This separate component of shareholders' equity at June 30, 1995, net of
the related tax effect, was $2.3 million.
Proceeds from calls of investment securities year to date were $1.7
million. Gross gains of $13,000 were realized 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 expenses 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 write-downs 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 (462)
Real Estate - Mortgage (107)
Installment (313)
-------
(882)
-------
Recoveries:
Commercial, Financial and Agricultural 59
Real Estate - Mortgage 3
Installment 96
-------
158
-------
Net Charge-offs 724
Provision for Loan Losses 657
-------
Balance at June 30, 1995 $8,124
=======
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 .98% of loans, net of unearned income at June 30,
1995.
The following table presents aggregate loan amounts for nonaccrual and 90-
day past due loans as of June 30, 1995:
Nonaccrual Loans $4,187
Loans Past Due 90 Days or More 1,026
------
Total Nonperforming Loans 5,213
------
Other Real Estate Owned 2,021
Other Repossessed Assets 111
------
Total Foreclosed/Repossessed Assets 2,132
------
Total Nonperforming Loans and Foreclosed/Repossessed Assets $7,345
======
The effect of nonaccrual loans on interest income for the six months ended
June 30, 1995 was as follows:
Gross Amount of Interest That Would Have Been Recorded
at Original Rate $ 191
Interest That Was Reflected in Income 8
-------
Net Impact on Interest Income $ 183
=======
At June 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 $4.3 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 is subject to a
Cease and Desist Order (the Order) issued by the Federal Reserve. The
Order requires PTB to implement certain corrective measures related to
internal controls and operating procedures in the Trust Department and
requires periodic progress reports to appropriate parties. PTB has
implemented the corrective measures as required by the 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
- --------
Net income for the first six months of 1995 was $4.63 million, or $1.22 per
share, compared to $4.61 million, or $1.23 per share, for the period in 1994.
The first six month's earnings equated to a return on assets of 1.16% and
return on equity of 16.56%.
Net interest income rose by $1.46 million to $18.06 million, reflecting an
increase of 8.8% over the same period in 1994. The increase was due to a
combination of higher volume in earning assets and an increase in the net
interest margin. Strong loan demand contributed positively to the net interest
margin, with average loans, net of unearned income increasing by $49.7 million,
or 10.85% over the same period a year ago. The net interest margin for the
period was 4.96%, which reflected a 32 basis point increase over the same
period last year.
NONINTEREST INCOME
- ------------------
Noninterest income, excluding securities gains of $19 thousand during the first
six months of 1995 and $139 thousand during the same period a year ago,
increased 11.2% to $3.78 million. The increase in this category was due to
improvements in bookkeeping charges, insurance commissions, and credit card
income. Trust income remained relatively stable for the period. The first six
months of 1994 included $.2 million in net nonrecurring income recorded in this
category, consisting of a legal recovery offset partially by a write down
related to mortgage loans held for sale. Noninterest income for the quarter,
excluding securities gains of $12 thousand in 1995 and $58 thousand in 1994,
increased 12.2% to $2.1 million for the same reasons as mentioned for the first
six months.
NONINTEREST EXPENSES
- --------------------
Noninterest expenses totaled $14.69 million for the first six months of 1995,
an increase of 5.3% from the same period of 1994. The most significant change
from the comparable period was in the salaries and benefits expense category,
increasing $1.0 million, or 14.1%. This increase was primarily due to the
implementation of a new salary administration program in the latter part of
1994, as well as additional staffing at the holding company throughout the
year. Management believes that personnel costs will improve in the latter part
of 1995 and early 1996 due to further consolidation of operations throughout
the organization. Occupancy expenses declined by $35 thousand, while equipment
expense increased $150 thousand compared to the first six months in 1994. FDIC
assessments were up $82 thousand, or 10.7%, over the same period last year.
Other noninterest expenses declined $459 thousand, or 11.3%. The 1994 expense
contained $325 thousand of nonrecurring interest expense associated with a
partial settlement on a federal tax audit discussed under income taxes below.
As legal activity with the Trust Department defalcation diminished, legal
expense decreased $290 thousand in comparison to June 30, 1994. These were
offset somewhat by increases in supplies and postage.
Total noninterest expense for the quarter ending June 30, 1995 was $7.4
million, up $.2 million, or 2.2%, compared to the second quarter of 1994.
Salaries expense for the second quarter was $4.1 million and $3.6 million for
1995 and 1994, respectively. The reason for this increase of $.5 million was
the same as for the aforementioned year-to-date expense. Also, in comparing
quarter 1995 to quarter 1994, net occupancy expense dropped $34 thousand;
equipment costs increased $59 thousand; and FDIC assessment increased $36
thousand. The other noninterest expense category decreased $444 thousand of
which $325 thousand was due to the aforementioned tax audit.
INCOME TAXES
- ------------
In June 1994, the Corporation entered into an agreement extended by the
Internal Revenue Service to settle outstanding tax matters related to core
deposit expense, which decreased the book tax expense by approximately $.6
million. This benefit was not present in the current year.
FINANCIAL CONDITION
- -------------------
Total Assets at June 30, 1995 were $857.5 million, up $63.3 million, or 8.0%,
from June 30, 1994. Period end assets increased $62.6 million, or 8.0%,
compared to December 31, 1994.
Total loans, net of unearned income at June 30, 1995 were $529.5 million, up
$48.7 million, or 10.1%, from the previous year at the same period. Loans
outstanding at June 30, 1995 increased $29.7 million, or 5.9%, from December
31, 1994.
In the fourth quarter of 1994, the company restructured the investment
portfolio, divesting of a substantial position in collateralized mortgage
obligations (CMO's). As a result of this restructuring, the CMO holdings had
a book value of $78.5 million at June 30, 1995, down from $96.0 million held at
June 30, 1994. These securities had a book value of $58.8 million at December
31, 1994. All CMO's are carried in the available-for-sale category. The
market values at June 30, 1995, December 31, 1994 and June 30, 1994 were $76.8
million, $52.5 million and $88.4 million, respectively.
Other assets at June 30, 1995 were $16.8 million compared to $23.5 million at
June 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 $710.0 million at the end of the second quarter in 1995, up
$12.8 million, or 1.8%, compared to June 30, 1994. Compared to December 31,
1994, deposits grew by $5.4 million or .77%. The company experienced a
significant 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 June 30, 1995, savings accounts, money market and
interest checking accounts were $123.2 million, $52.8 million, and $69.6
million, compared to $171.8 million, $70.8 million and $69.6 million,
respectively at June 30, 1994. These same accounts were $153.0 million, $70.1
million, and $78.6 million, respectively, at December 31, 1994. Time deposits
totaled $357.5 million at June 30, 1995, compared to $295.4 million and $311.4
million on June 30, 1994 and December 31,1994, respectively.
During the second quarter, we entered into a leveraging transaction by
purchasing par value of $20.8 million in adjustable rate CMO's and
simultaneously funding this investment with a repurchase agreement against
those securities. Additionally, we entered into a repurchase agreement of
$22.8 million as a funding source for the increase in the loan demand. This
transaction was collateralized with existing securities in the portfolio and
decreased the federal funds purchased position. At June 30, 1995, our short-
term borrowed funds position, including the above mentioned transaction,
amounted to $71.5 million, compared to $23.2 million at December 31, 1994 and
$25.4 million at June 30, 1994.
ASSET QUALITY
- -------------
Nonperforming loans at the end of June 1995 totaled $5.2 million, compared to
$7.8 million at the same period in 1994, and $4.4 million at December 31, 1994.
The nonperforming loans to total loans ratio improved to .98% compared to 1.63%
a year earlier, but was up from .87% at year-end 1994. Of the June 30, 1995
nonperforming number, $4.2 million consisted of nonaccrual loans, compared to
$5.0 million the previous year, and $2.7 million at December 31, 1994. Other
real estate owned totaled $2.0 million at the end of the second quarter 1995,
down $.6 million from the same period in 1994, and down $.4 million in
comparison to year-end 1994. The ratio of the allowance for loan losses to
nonperforming loans was 155.8%, 188.2%, and 104.7% at June 30, 1995, December
31, 1994, and June 30, 1994, respectively. The net charge-off ratio for the
first six months was .29% of average loans, net of unearned income, compared to
.37% in the first half of 1994, and .36% at December 31, 1994. The provision
for loan losses was approximately the same for the comparable quarters.
CAPITAL
- -------
At June 30, 1995, the leverage and total risk-based capital ratios were 7.39%
and 14.59%, respectively. This compares to the same ratios of 7.61% and 14.07%
at June 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 June 30, 1995, the corporation had $2.8
million in net unrealized losses, net of tax. This compares to $6.2 million
in net unrealized losses at the end of the second 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 investment securities. 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 June 30, 1995, the unrealized loss, net of tax, was $2.3
million, which is part of the total $2.8 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 70.6% from 66.0% 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 $17.4 million from
the previous year and $15.4 million from December 31, 1994, reflecting an
increasing core deposit base. At June 30, 1995, the corporation was in a
slight fed funds sold position.
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 is subject to a
Cease and Desist Order (the Order) issued by the Federal Reserve. The Order
requires PTB to implement certain corrective measures related to internal
controls and operating procedures in the Trust Department and requires periodic
progress reports to appropriate parties. PTB has implemented the corrective
measures as required by the 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 is 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
----------------- ----------------------------------
James E. Adams
Chief Financial Officer/Treasurer
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