<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1997
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Commission File Number 0-16187
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GRANDBANC, INC.
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(Exact name of small business issuer as specified in its charter)
Maryland 52-1332050
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(State or other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1800 Rockville Pike, Rockville, Maryland 20852
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(Address of principal executive offices)
(301) 770-1300
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(Issuer's telephone number, including area code)
Check whether the issuer: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
YES X NO
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At October 31, 1997, there were 4,040,915 shares of Common Stock, par
value $.10 per share outstanding.
Transitional Small Business Disclosure Format
YES NO X
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<PAGE>
TABLE OF CONTENTS
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PART I - FINANCIAL INFORMATION PAGE
- ------------------------------ ----
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheets.......................................1
Consolidated Statements of Income (Loss)..........................2
Consolidated Statements of Changes in Stockholders' Equity........3
Consolidated Statements of Changes in Cash Flows..................4
Notes to Consolidated Financial Statements........................5
Item 2 - Management's Discussion and Analysis
Financial Condition.............................................5-9
Results of Operations.........................................10-12
PART II - OTHER INFORMATION
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Items 1 -5............................................................13
Item 6 - Exhibits and Reports on Form 8-K.............................13
SIGNATURES............................................................14
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GRANDBANC, INC.
CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
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Unaudited Audited
<S> <C> <C>
ASSETS
Cash and due from banks $1,800 $2,455
Federal funds sold 3,560 624
Time deposits with banks --- 3,300
Investment securities:
Available for sale - at fair value 4,779 3,657
Held to maturity - at amortized cost 10,163 12,821
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Total Investment Securities 14,942 16,478
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Loans 74,991 73,724
Less allowance for loan losses (762) (1,016)
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Loans - net 74,229 72,708
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Bank premises and equipment 2,018 1,823
Foreclosed real estate 1,496 975
Accrued interest receivable 752 618
Intangible assets 1,378 1,479
Other assets 1,404 665
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TOTAL ASSETS $101,579 $101,125
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LIABILITIES
Non-interest bearing deposits $10,220 9,806
Interest bearing deposits 80,575 81,477
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Total deposits 90,795 91,283
Short-term borrowings 2,207 2,000
Long-term debt 1,500 1,500
Accrued expenses and other liabilities 328 321
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Total liabilities 94,830 95,104
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STOCKHOLDERS' EQUITY
Common stock - $.10 par value; 7,500,000 shares
authorized; shares outstanding 4,040,915 and
3,925,499, respectively 404 393
Additional paid-in capital 10,928 10,405
Accumulated deficit (4,459) (4,597)
Net unrealized holding loss on investment securities (124) (180)
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Total stockholders' equity 6,749 6,021
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TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $101,579 $101,125
============== =============
</TABLE>
1
<PAGE>
GRANDBANC, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the Nine Third Quarter
Months Ended Ended
September 30, September 30,
------------------------- ------------------------
1997 1996 1997 1996
-------- -------- -------- -------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $5,245 $2,395 $1,755 $868
Interest on investment securities:
U. S. Government, its agencies and sponsored entities 707 296 233 108
Other investments 58 19 7 11
Interest on federal funds sold 135 51 50 29
-------- -------- -------- -------
Total interest income 6,145 2,761 2,045 1,016
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INTEREST EXPENSE:
Interest on certificates of deposit of $100,000 or more 559 74 251 31
Interest on other deposits 2,310 804 730 316
-------- -------- -------- -------
2,869 878 981 347
Interest on short-term borrowings 111 91 42 35
Interest on long term debt 119 --- 36 0
-------- -------- -------- -------
Total interest expense 3,099 969 1,059 382
-------- -------- -------- -------
NET INTEREST INCOME 3,046 1,792 986 634
PROVISION FOR LOAN LOSSES 30 (35) 22 (35)
-------- -------- -------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 3,016 1,827 964 669
-------- -------- -------- -------
NON-INTEREST INCOME:
Service charges on deposit accounts 264 270 117 95
Other income 149 98 61 33
-------- -------- -------- -------
Total non-interest income 413 368 178 128
-------- -------- -------- -------
NON-INTEREST EXPENSE:
Salaries and employee benefits 1,513 976 514 352
Occupancy and equipment expense 723 481 256 203
Data processing services 327 190 137 63
FDIC insurance 32 11 11 6
Insurance 48 49 21 14
Legal fees 40 102 15 14
Other real estate owned expense 17 56 6 39
Other expenses 591 284 254 95
-------- -------- -------- -------
Total non-interest expense 3,291 2,149 1,214 786
-------- -------- -------- -------
INCOME (LOSS) BEFORE INCOME TAXES 138 46 (72) 11
APPLICABLE INCOME TAX --- 4 --- 1
-------- -------- -------- -------
NET INCOME (LOSS) $138 $42 ($72) $10
======== ======== ======== =======
EARNINGS PER COMMON SHARE: $0.03 $0.01 ($0.02) $0.00
</TABLE>
2
<PAGE>
GRANDBANC, INC.
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Additional Unrealized Total
Common Paid-In Accumulated Holding (Loss) Stockholders'
Stock Capital (Deficit) on Securities Equity
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 326 $ 8,476 $(4,805) $ (257) $ 3,740
Net income for the six months
ended September 30, 1996 -- -- 42 -- 42
Issuance of common stock 67 1,929 -- -- 1,996
Net change in unrealized loss on
investment securities -- -- -- 43 43
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Balance at September 30, 1996 $ 393 $10,405 $(4,763) $ (214) $ 5,821
======= ======= ======= ======= =======
Balance at December 31, 1996 $ 393 $10,405 $(4,597) $ (180) $ 6,021
Net income for the six months
ended September 30, 1997 -- -- 138 -- 138
Issuance of common stock 11 523 -- -- 534
Net change in unrealized loss on
investment securities -- -- -- 56 56
------- ------- ------- ------- -------
Balance at September 30, 1997 $ 404 $10,928 $(4,459) $ (124) $ 6,749
======= ======= ======= ======= =======
</TABLE>
3
<PAGE>
GRANDBANC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For Nine Months Ended
September 30,
1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $138 $42
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 167 85
Accretion and amortization of securities (2) (10)
Amortization of intangibles 120 --
Net changes in:
Accrued interest receivable (134) (304)
Foreclosed real estate (521) 77
Other assets (739) (28)
Accrued expenses and other liabilities 7 109
Other - net 109 172
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Net cash provided (used) by operating activities (855) 143
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CASH FLOWS FROM INVESTING ACTIVITIES:
Net funds received in acquisition -- 21,006
Purchase of time deposit -- (4,500)
Proceeds from maturity of time deposit 3,300 95
Net (increase) decrease in federal funds sold (2,936) (14,532)
Purchases of available for sale securities (2,688) (407)
Purchases of held to maturity securities (2,600) (4,869)
Proceeds from maturities/principal payments on
available for sale securities 1,000 250
Proceeds from maturities/principal payments on
held to maturity securities 5,327 500
Proceeds from sale of available for sale securities 500 204
Net increase in loans originated (3,084) (5,538)
Proceeds from sale of loans 1,490 3,796
Proceeds from disposition of other real estate owned -- 42
Purchases of bank premises and equipment (362) (1,731)
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Net cash provided (used) by investing activities (53) (5,684)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings -- 3,500
Net increase (decrease) in deposits (488) 991
Net increase in federal funds purchased and
other short-term borrowings 207 (59)
Proceeds from issuance of common stock 534 1,996
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Net cash provided (used) by financing activities 253 6,428
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (655) 887
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,455 1,557
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,800 $2,444
========= =========
Supplemental disclosures:
Interest payments $3,007 $816
Income tax payments -- 4
Noncash investing and financing activities:
Unrealized gain (loss) on investment securities available for sale (15) 43
</TABLE>
4
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Management is responsible for the financial statements, which have been prepared
in accordance with generally accepted accounting principles. The financial
statements contained herein, except for the financial statements as of December
31, 1996, are unaudited. In management's opinion, the financial statements
present fairly the financial condition of the Corporation and its subsidiary at
September 30, 1996 and September 30, 1997, and all adjustments necessary to
fairly state the results of operations and financial condition are reflected and
such adjustments are of a normal recurring nature. The results of operations
presented for the three and nine months ended September 30, 1997 are not
necessarily indicative of the results of operations to be expected for the
remainder of the year.
Item 2 - Management's Discussion and Analysis
This Management's Discussion and Analysis contains forward-looking statements,
including statements of goals, intentions and expectations, regarding or based
upon general economic conditions, interest rates, developments in national and
local markets, and other matters, and which, by their nature, are subject to
significant uncertainties so that actual future results may differ from those
stated.
5
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FINANCIAL CONDITION
GrandBanc, Inc.'s (the "Corporation") total assets at September 30, 1997 of
$101.6 million reflected an increase of $454 thousand or .45% from December 31,
1996.
The Corporation's Stockholders' Equity of $6.7 million at September 30, 1997
reflected an increase of $728 thousand or 12.1% from December 31, 1996. The
increase is attributable primarily to earnings from operations of $138 thousand
and the proceeds from the private placement of shares of common stock at an
aggregate price of $535 thousand.
Total loans of the Corporation's wholly owned financial institution subsidiary,
GrandBank, (the "Bank") at September 30, 1997 of $75 million reflected an
increase of $1.3 million from December 31, 1996. The increase in loans includes
$2.9 million in credit card balances outstanding as a result of a new credit
card program launched by the Bank in the third quarter of 1997.
Other assets increased primarily as a result of capitalization of costs
associated with data processing improvements and establishing the credit card
product. These costs will be charged to operations over future periods.
Total deposits of the Bank at September 30, 1997 of $91 million reflected a
decrease of $488 thousand or .53% from December 1996. During the nine months
ended
6
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September 30, 1997, non-interest bearing deposits increased $414 thousand
or 4.22% while interest bearing deposits decreased $902 thousand or 1.11%. At
September 30, 1997, non-interest bearing deposits are approximately 11% of total
deposits.
Other borrowings of the Bank at September 30, 1997 increased to $207 thousand.
This represents balances in an overnight investment product offered to
commercial customers for the first time during the quarter ended September 30,
1997.
Liquidity. The Bank's liquidity position, those assets invested in cash, federal
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funds, and obligations of the U.S. Government, its agencies and sponsored
entities classified as available for sale, totaling $9.7 million, reflected a
decrease of $60 thousand or .61% from December 31, 1996. Funds available through
the Bank's sources of short term borrowing, asset maturities, and available-for-
sale securities are considered adequate to meet current needs. However, the Bank
continues to evaluate the asset and liability mix to ensure that adequate
liquidity is maintained.
The Bank's loan to deposit ratio was 82% at September 30, 1997 compared to
81% at December 31, 1996.
Investment Activity. The Corporation invests in various types of liquid assets,
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including United States Treasury obligations, securities of federal government
agencies and government sponsored entities, certain certificates of deposit,
federal funds and other qualifying liquid investments. During the first quarter
of 1997, securities totaling
7
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$2 million matured or were called and securities totaling $1.8 million were
acquired. During the second quarter of 1997, securities totaling $1 million
matured or were called and securities totaling $1 million were acquired. During
the third quarter of 1997, securities totaling $3.5 million were called or sold
and securities totaling $2.5 million were purchased.
Allowance for Loan Losses. The allowance for loan losses at September 30, 1997
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was $762 thousand or 1.01% of total loans outstanding, compared to $1 million or
1.38% at December 31, 1996. Charge offs during the nine months ended September
30, 1997 totaled $327 thousand consisting primarily of one foreclosed real
estate loan that was written down by $235 thousand to reflect its estimated fair
value at foreclosure. At September 30, 1997, the allowance for loan losses was
63% of non-performing loans compared to 79% at December 31, 1996. In
management's opinion the allowance for loan losses as of September 30, 1997 was
adequate to cover potential losses that can be anticipated at this time based on
current risks and knowledge of the portfolio.
Non-performing Loans and Assets. The Bank's non-performing assets totaling $2.7
- -------------------------------
million consist of loans delinquent 90 days or more, non-accrual loans and
foreclosed real estate. The percentage of non-performing assets to total assets
increased to 2.66% at September 30, 1997 from 2.24% at December 31, 1996.
Non-performing loans totaled $1.2 million at September 30, 1997 compared to $1.3
million at December 31, 1996. Non-performing loans at September 30, 1997 consist
8
<PAGE>
of loans delinquent 90 days or more totaling $366 thousand and non-accrual loans
totaling $838 thousand. A loan in the amount of $356 which had been classified
as a restructured loan in a prior period was paid off.
At September 30, 1997, foreclosed real estate was $1.5 million compared to $975
thousand at December 31, 1996. The increase is a result of the foreclosure of
one property in the first quarter of 1997 and two properties in the third
quarter of 1997. Generally, the Bank evaluates the fair value of each property
owned annually. These evaluations may be appraisals or other market studies. At
September 30, 1997, management believes the carrying amounts for foreclosed real
estate approximate fair value.
Stockholders' Equity. Stockholders' equity of $6.7 million at September 30, 1997
- --------------------
increased $728 thousand from December 31, 1996. The increase results primarily
from earnings of $138 thousand for the period and $535 thousand proceeds from
the sale of common stock in private transactions completed in February 1997.
Capital Adequacy and Regulatory Requirements. At September 30, 1997, the Bank's
- --------------------------------------------
ratio of Tier I capital to total average assets equaled 7.40%, which exceeded
the minimum leverage capital ratio of 4% by 3.40%. The Tier I capital to risk
weighted assets ratio was 9.30% which exceeded the minimum required ratio of 4%
by 5.30%. The Bank's total capital to risk-weighted assets ratio at September
30, 1997 was 10.26% which exceeded the minimum required ratio of 8% by 2.26%.
9
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RESULTS OF OPERATIONS
For the nine months ended September 30, 1997, the Corporation had net income of
$138 thousand compared to net income from the corresponding period in 1996 of
$42 thousand, an increase of $96 thousand. The Corporation had a net loss of $72
thousand in the quarter ended September 30, 1997 as a result of a decline in net
interest margin, an increase in the provision for loan losses and an increase in
noninterest expenses.
Earnings per share were $0.03 for the nine months ended September 30, 1997,
compared to $0.01 for the same period in 1996.
Net Interest Income. Net interest income is the difference between interest
- -------------------
income on earning assets and interest expense on interest bearing deposits and
borrowings. Net interest income for the nine month period ended September 30,
1997 of $3.05 million reflected an increase of $1.3 million or 70% compared to
the corresponding period in 1996. Interest income for the nine month period
ended September 30, 1997 was $6.1 million, an increase of $3.4 million or 123%
from the same period in 1996. Interest expense of $3.1 million for the period
ended September 30, 1997 reflected an increase of $2.1 million or 220%. Each of
these increases is due to increases in the average outstanding balances
resulting from the acquisition of certain assets and liabilities of First
Commonwealth Savings Bank of Alexandria Virginia in September 1996.
10
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The average yield on interest earning assets for the nine month period ended
September 30, 1997, was 8.65% compared to 8.69% for the nine months ended
September 30, 1996. The average cost of funds for the nine months ended
September 30, 1997, was 4.17% compared to 3.83% for the same period in 1996.
Additionally, the net interest margin was 4.59% for the period ended September
30, 1997 compared to 5.64% for the corresponding period in 1996. The decline in
net interest margin is primarily the result of a higher cost of funds due to the
acquisition previously described. Deposits acquired were mostly certificates of
deposit that pay higher interest than demand deposits and money market accounts.
Provision for Loan Losses. There was a provision for loan losses in the amount
- -------------------------
of $30 thousand in the nine month period ended September 30, 1997.
Noninterest Income. Non-interest income for the nine months ended September 30,
- ------------------
1997, was $413 thousand compared to $368 thousand for the nine months ended
September 30, 1996, an increase of $45 thousand or 12.2%. The increase is
primarily the result of fees generated by the Bank's new credit card program
begun during the third quarter of 1997.
Noninterest Expense. Noninterest expense for the nine months ended September 30,
- -------------------
1997 of $3.3 million reflected an increase of $1.1 million or 53% compared to
the corresponding period of 1996. Salaries and benefits increased by $537
thousand or 55%. Occupancy and equipment increased by $242 thousand or 50%. Data
11
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processing services increased by $137 thousand or 72% and other expenses
increased by $307 thousand or 108%. These increases are primarily the result of
the acquisition previously described.
Applicable Income Tax. Net operating loss carryforwards offset current taxable
- ---------------------
income.
12
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings N/A
Item 2 - Changes in Securities N/A
Item 3 - Defaults Upon Senior Securities N/A
Item 4 - Submission of Matters to a Vote of Security Holders
Item 5 - Other Information N/A
Item 6 - Exhibits and Reports on Form 8-K
A. Exhibits
(11) Statement regarding computation of per share earnings:
Earnings per share have been computed based upon 4,013,007 shares,
the weighted average number of shares outstanding during the period
ended September 30, 1997.
(27) Financial Data Schedule: Filed herewith.
B. Reports on Form 8-K
None
13
<PAGE>
SIGNATURES
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In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
GRANDBANC, INC.
(Registrant)
Date: November 3, 1997 /s/ Steven K. Colliatie
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Steven K. Colliatie
President & CEO
Date: November 3, 1997 /s/ David L. Erickson
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David L. Erickson
Chief Financial Officer
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,800
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,560
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,779
<INVESTMENTS-CARRYING> 10,163
<INVESTMENTS-MARKET> 0<F1>
<LOANS> 74,991
<ALLOWANCE> 762
<TOTAL-ASSETS> 101,579
<DEPOSITS> 90,795
<SHORT-TERM> 2,207
<LIABILITIES-OTHER> 328
<LONG-TERM> 1,500
0
0
<COMMON> 404
<OTHER-SE> 6,345
<TOTAL-LIABILITIES-AND-EQUITY> 101,579
<INTEREST-LOAN> 5,245
<INTEREST-INVEST> 765
<INTEREST-OTHER> 135
<INTEREST-TOTAL> 6,145
<INTEREST-DEPOSIT> 2,869
<INTEREST-EXPENSE> 3,099
<INTEREST-INCOME-NET> 3,046
<LOAN-LOSSES> 30
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 3,291
<INCOME-PRETAX> 138
<INCOME-PRE-EXTRAORDINARY> 138
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 138
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
<YIELD-ACTUAL> 4.59
<LOANS-NON> 838
<LOANS-PAST> 366
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,016
<CHARGE-OFFS> 327
<RECOVERIES> 42
<ALLOWANCE-CLOSE> 762
<ALLOWANCE-DOMESTIC> 217
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 545<F2>
<FN>
<F1>NOT BROKEN OUT IN QSB
<F2>ALL UNALLOCATED IS FOR DOMESTIC LOANS.
</FN>
</TABLE>
