<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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, 1998
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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
- ------------------------------- ------------------------------------
(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
-------------------------------------------------
(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
--- ---
At October 31, 1998, there were 4,049,655 shares of Common Stock, par value
$.10 per share outstanding.
Transitional Small Business Disclosure Format
YES NO X
--- ---
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
- ------------------------------ ----
<S> <C>
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheets.....................................................................1
Consolidated Statements of Income...............................................................2
Consolidated Statements of Shareholders' Equity.................................................3
Consolidated Statements of Changes in Cash Flows ...............................................4
Notes to Consolidated Financial Statements....................................................5-9
Item 2 - Management's Discussion and Analysis
Financial Condition ........................................................................10-13
Results of Operations.......................................................................13-15
<CAPTION>
PART II - OTHER INFORMATION
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<S> <C>
Items 1 -5..............................................................................................16
Item 6 - Exhibits and Reports on Form 8-K...............................................................16
SIGNATURES..............................................................................................17
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GRANDBANC, INC
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and Due from banks $ 2,246 $ 2,460
Federal funds sold 21 2,837
-----------------------------
Total cash and cash equivalents 2,267 5,297
Securities available-for-sale 15,145 3,395
Securities held-to-maturity 4,298 10,970
Loans, net of unearned discount and loan fees 72,086 77,446
Less: Allowance for loan losses (1,056) (1,702)
-----------------------------
Loans, net 71,030 75,744
Bank premises and equipment, net 1,869 1,971
Accrued income receivable 559 603
Prepaid expenses and other assets 1,156 1,061
Deferred income taxes 1,950 2,057
Intangible assets 1,218 1,338
Other real estate owned 521 1,435
-----------------------------
TOTAL ASSETS $ 100,013 $ 103,871
=============================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand $ 8,885 $ 9,933
Interest checking 8,553 8,559
Savings 14,956 16,120
Time 52,668 54,086
-----------------------------
Total Deposits 85,062 88,698
Securities sold under agreement to repurchase
and other borrowed funds 6,747 7,198
Other liabilities 389 490
-----------------------------
TOTAL LIABILITIES 92,198 96,386
-----------------------------
SHAREHOLDERS' EQUITY
Common stock 405 404
Surplus 10,963 10,928
Retained earnings (3,597) (3,747)
Accumulated comprehensive income:
Unrealized holding loss on securities available-for-sale 44 (100)
-----------------------------
TOTAL SHAREHOLDERS' EQUITY 7,815 7,485
-----------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 100,013 $ 103,871
=============================
BOOK VALUE PER SHARE $ 1.93 $ 1.85
=============================
ACTUAL SHARES OUTSTANDING 4,050 4,041
=============================
</TABLE>
See notes to condensed consolidated financial statements.
Page 1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
<TABLE>
<CAPTION>
GRANDBANC, INC
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
For The Nine Months Ended For The Three Months Ended
September 30, September 30,
-------------------------------------------------------------------
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 5,340 $ 5,245 $ 1,769 $ 1,755
Interest on federal funds sold and repurchase agreement 193 135 33 50
Interest on Securities 596 765 229 240
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TOTAL INTEREST INCOME 6,129 6,145 2,031 2,045
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INTEREST EXPENSE:
Interest on deposits 2,765 2,869 898 981
Interest on securities sold under agreements to
repurchase and other borrowed funds 235 230 75 78
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TOTAL INTEREST EXPENSE 3,000 3,099 973 1,059
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NET INTEREST INCOME 3,129 3,046 1,058 986
PROVISION FOR LOAN LOSSES 10 30 - 22
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NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 3,119 3,016 1,058 964
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OTHER INCOME:
Service charges 242 264 73 117
Other 220 149 71 61
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TOTAL OTHER INCOME 462 413 144 178
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OTHER EXPENSES:
Salaries and employee benefits 1,334 1,513 442 514
Occupancy 571 565 193 205
Equipment 188 158 66 51
Other operating expenses 1,259 1,055 445 444
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TOTAL OTHER EXPENSES 3,352 3,291 1,146 1,214
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INCOME BEFORE APPLICABLE INCOME TAXES 229 138 56 (72)
INCOME TAXES 79 - 20 -
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NET INCOME $ 150 $ 138 $ 36 $ (72)
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Other Comprehensive Income, net of tax
Net unrealized gain on investments available for sale,
net of taxes $ 44 $ (76) $ 31 $ (15)
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Comprehensive Income $ 194 $ 62 $ 67 $ (87)
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Basic Net Income Per Common Share $ 0.04 $ 0.03 $ 0.01 $ (0.02)
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Diluted Net Income Per Common Share $ 0.04 $ 0.03 $ 0.01 $ (0.02)
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Weighted Average Shares Outstanding 4,049 4,042 4,050 4,041
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Adjusted Weighted Average Shares Outstanding 4,210 4,163 4,211 4,162
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</TABLE>
Page 2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
GRANDBANC, INC
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Common
Stock Unrealized
Shares Common Retained Gain (Loss)
Outstanding Stock Surplus Earnings On Securities Total
====================================================================================
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 3,926 $ 393 $ 10,405 $ (4,597) $ (180) $ 6,021
Net income for the nine months
ended September 30, 1997 -- -- -- 138 -- 138
Common stock issuance 115 11 523 -- -- 534
Change in unrealized holding gain
(loss) on securities available for sale -- -- -- -- 56 56
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Balance at September 30, 1997 4,041 $ 404 $ 10,928 $ (4,459) $ (124) $ 6,749
====================================================================================
Balance at December 31, 1997 4,041 $ 404 $ 10,928 $ (3,747) $ (100) $ 7,485
Net income for the nine months
ended September 30, 1998 -- -- -- 150 -- 150
Common stock issuance 9 1 35 -- -- 36
Change in unrealized holding gain
(loss) on securities available for sale -- -- -- -- 144 144
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Balance at September 30, 1998 4,050 $ 405 $ 10,963 $ (3,597) $ 44 $ 7,815
====================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
Page 3
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
GRANDBANC, INC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
----------------------------------------
1998 1997
----------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 150 $ 138
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 187 167
Net amortization of securities 33 (2)
Amortization of intangibles 119 120
Provision for loan losses 10 30
Other real estate owned-write downs - -
(Benefit) provision for deferred income taxes - -
Change in assets and liabilities:
Accrued income receivable, other assets and other real estate 971 (1,424)
Accrued expenses and other liabilities (101) 116
----------------------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 1,369 (855)
----------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities/principal payments on
available for sale securities 5,743 1,500
Proceeds from maturities/principal payments on
held to maturity securities 6,672 5,327
Proceeds from maturity of time deposit - 3,300
Purchases of available for sale securities (17,356) (2,688)
Purchases of held to maturity securities - (2,600)
Net (increase) decrease in loans 4,714 (1,594)
Purchases of bank premises and equipment (85) (362)
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NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (312) 2,883
----------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits (3,636) (488)
Net increase in federal funds purchased and
other short-term borrowings (451) 207
Proceeds from issuance of common stock - 534
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NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (4,087) 253
----------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,030) 2,281
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,297 3,079
----------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,267 $ 5,360
========================================
INTEREST PAID $ 2,877 $ 3,007
========================================
</TABLE>
Page 4
<PAGE>
GrandBanc, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 1998
Note 1 - Organization
GrandBanc, Inc. (the "Corporation"), is a Maryland bank holding company. The
Corporation's operations primarily consist of managing the operations of
GrandBank, its wholly owned subsidiary. GrandBank (the "Bank") is a community
oriented commercial bank. It provides a full range of banking services to
small-to-medium sized businesses, professionals, and individuals in its primary
market that encompasses the metropolitan Washington D.C. area including suburban
Maryland and northern Virginia. The Bank, in addition to its headquarters in
Rockville, has branch offices in Bethesda and Germantown, Maryland and
Alexandria, Virginia. The Corporation's other wholly owned subsidiary, Facility
Holdings, Inc., a Virginia corporation, was established in the first quarter of
1998 and owns the real property of the Corporation located in Alexandria,
Virginia. The Corporation and Bank are subject to the regulations of certain
Federal and State agencies and undergoes periodic examinations by those
regulatory agencies.
Note 2 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine-month period ended September 30,
1998 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1998. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1997.
Note 3 - Recently Adopted Accounting Standards
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
which establishes standards for reporting and displaying comprehensive income
and its components (revenues, expenses, gains and losses) in financial
statements. In addition, SFAS No. 130 requires the Company to classify items of
other comprehensive income by their nature in a separate financial statement or
as a component of the statement of operations or the statement of shareholders'
equity and display the accumulated balance of other comprehensive income
separately in the shareholders' equity section of the statement of financial
condition. The Corporation adopted SFAS No. 130 on January 1, 1998, as required.
Page 5
<PAGE>
GRANDBANC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Securities
(in thousands)
<TABLE>
<CAPTION>
September 30, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
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<S> <C> <C> <C> <C>
Securities Available-for-Sale
U.S. Government Agencies and Corporations $ 7,610 $ 45 $ - $ 7,655
Mortgage-Backed Securities 7,020 22 (9) 7,033
Other Securities 399 58 - 457
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Total $ 15,029 $ 125 $ (9) $ 15,145
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Securities Held-to-Maturity
U.S. Government Agencies and Corporations $ 2,450 $ 20 $ (8) $ 2,462
Mortgage-Backed Securities 1,848 41 - 1,889
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Total $ 4,298 $ 61 $ (8) $ 4,351
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</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
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<S> <C> <C> <C> <C>
Securities Available-for-Sale
U.S. Government Agencies and Corporations $ 3,005 $ 7 $ (8) $ 3,004
Mortgage-Backed Securities - - - -
Other Securities 391 - - 391
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Total $ 3,396 $ 7 $ (8) $ 3,395
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Securities Held-to-Maturity
U.S. Government Agencies and Corporations $ 8,642 $ 27 $ (14) $ 8,655
Mortgage-Backed Securities 2,328 50 - 2,378
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Total $ 10,970 $ 77 $ (14) $ 11,033
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</TABLE>
Page 6
<PAGE>
GRANDBANC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Loans
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
For The Periods Ended 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial $ 20,537 $ 21,684
Real Estate-Construction 658 434
Real Estate-Mortgage 43,969 47,149
Consumer 3,941 4,501
Credit Card Receivable 3,149 3,810
-----------------------------------
Gross loans 72,254 77,578
-----------------------------------
Less: Deferred loan fees and
unearned discount (168) (132)
-----------------------------------
Loans, net of unearned discount and
deferred loan fees 72,086 77,446
-----------------------------------
Allowance for loan losses (1,056) (1,702)
-----------------------------------
Loans, net $ 71,030 $ 75,744
===================================
</TABLE>
Page 7
<PAGE>
GRANDBANC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Allowance for Loan Losses
(in thousands)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, 1998 Ended September 30, 1998
------------------------------------------ --------------------------------------
For the Periods Ended 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of period $ 1,204 $ 824 $ 1,702 $ 1,016
Provision charged to expense -- 22 10 30
Charge-offs:
Commercial and other 2 57 156 277
Consumer 175 9 288 27
Real Estate 336 23 621 23
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Total Charge-offs 513 89 1,065 327
Recoveries:
Commercial and other 288 3 331 33
Consumer -- 1 1 9
Real Estate 77 -- 77 --
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Total Recoveries 365 4 409 42
Net Charge-Offs (Recoveries) 148 85 656 285
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Balance at end of period $ 1,056 $ 761 $ 1,056 $ 761
=====================================================================================
Average Total Loans (1) $ 72,449 $ 74,662 $ 74,263 $ 74,564
Total Loans at Period End (1) $ 72,086 $ 74,991 $ 72,086 $ 74,991
Ratio of net charge-offs (recoveries)
to average total loans 0.20% 0.11% 0.88% 0.38%
Ratio of allowance for
loan losses to total
loans at period end 1.46% 1.01% 1.46% 1.01%
</TABLE>
(1) Total Loans are reported net of unearned income.
Page 8
<PAGE>
GRANDBANC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 7. Earnings Per Share
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, 1998 Ended September 30, 1998
-----------------------------------------------------------------------
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic earnings per share:
Net income $ 36 $ (72) $ 150 $ 138
Stock and stock equivalents (average shares):
Common shares outstanding 4,050 4,014 4,049 4,013
Stock options -- -- -- --
---------------------------------------------------------------------
Total stock and stock equivalents 4,050 4,014 4,049 4,013
---------------------------------------------------------------------
Basic net income per common share $ 0.01 $ (0.02) $ 0.04 $ 0.03
=====================================================================
Diluted earnings per share:
Net income $ 36 $ (72) $ 150 $ 138
Stock and stock equivalents (average shares):
Common shares outstanding 4,050 4,014 4,049 4,013
Stock options 161 121 161 120
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Total stock and stock equivalents 4,211 4,135 4,210 4,133
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Diluted net income per common share $ 0.01 $ (0.02) $ 0.04 $ 0.03
=====================================================================
</TABLE>
Page 9
<PAGE>
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.
Financial Condition
The Corporation's total assets at September 30, 1998 of $100.0 million reflected
a decrease of $3.9 million or 3.8 % from December 31, 1997.
The Corporation's Shareholders' Equity of $7.8 million at September 30, 1998,
reflected an increase of $330 thousand or 4.0 % from December 31, 1997. The
increase is primarily attributable to earnings from operations of $150 thousand
and an increase in unrealized holding gains (net of tax effect) on investment
securities of $180 thousand.
Total loans of the Bank at September 30, 1998 of $72.1 million reflected a
decrease of $5.3 million from December 31, 1997. The decrease is primarily due
to prepayments and maturities of loans. In the fourth quarter of 1998 and in the
first quarter of 1999, management will direct business development and lending
activities toward the consumer and small business markets in the region in order
to develop new loan relationships and further expand the Bank's existing
customer relationships.
Total deposits of the Bank at September 30, 1998 of $85.1 million reflected a
decrease of $3.6 million or 4.1% from December 1997. During the nine-month
period ended September 30, 1998, non-interest bearing deposits decreased $1.1
million or 10.1% while interest bearing deposits decreased $2.6 million or 3.3%.
At September 30, 1998, non-interest bearing deposits totaled approximately 10.4
% of total deposits. The decrease in overall deposits was attributed primarily
to the overall decrease in loan demand.
The Company's loan to deposit ratio was 84.7% at September 30, 1998, compared to
87.3 % at December 31, 1997.
Investment Activity. The Corporation invests in various types of liquid assets,
- -------------------
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 nine-month
period ended September 30, 1998, securities totaling $12.4 million matured or
were called and securities totaling $17.4 million were acquired.
Allowance for Loan Losses. The allowance for loan losses at September 30, 1998
- -------------------------
was $1.056 million or 1.46% of total loans outstanding, compared to $1.702
million or 2.2% of total loans outstanding at December 31, 1997. Net charge-offs
during the nine-month period ended September 30, 1998 totaled $148 thousand
compared to $656 thousand during the same period ended September 30, 1997, an
improvement of $508 thousand.
At September 30, 1998, the allowance for loan losses was 126% of non-performing
loans compared to 61% at December 31, 1997. In management's opinion the
allowance for loan losses as of September 30, 1998 was more than adequate to
cover potential losses that can be anticipated at this time based on current
risks and knowledge of the portfolio.
Page 10
<PAGE>
Credit Quality. The Bank's non-performing assets as of September 30, 1998
- --------------
totaling $1.4 million consist of non-accrual loans and foreclosed real estate.
The percentage of non-performing assets to total assets decreased to 1.36 % at
September 30, 1998 from 4.05 % at December 31, 1997.
Non-performing loans totaled $836 thousand at September 30, 1998 compared to
$2.8 million at December 31, 1997. Non-performing loans at September 30, 1998
consist of non-accrual loans totaling $836 thousand.
At September 30, 1998, foreclosed real estate was $521 thousand compared to $1.4
million at December 31, 1997. The decrease of $914 thousand is primarily the
result of sales of foreclosed property during the nine months ended September
30, 1998. Generally, the Bank evaluates the fair value of each property owned at
least annually. These evaluations may be appraisals or other market studies. In
management's opinion, the carrying values as of September 30, 1998 for
foreclosed real estate assets approximated their fair value.
Loans past due 90 days or more and still accruing interest totaled $366 thousand
at September 30, 1998. This amount consists of real estate, commercial and
credit card balances. (See Table #1 for more details)
Page 11
<PAGE>
Credit Quality
(Dollars in thousands)
Table 1
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
-------------------------------------------------
<S> <C> <C>
Nonaccrual Loans $836 $2,772
Restructured Loans 0 0
-------------------------------------------------
Total Nonperforming Loans 836 2,772
Other Real Estate 521 1,435
-------------------------------------------------
Total Nonperforming Assets 1,357 4,207
Loans past due 90 days or
more and accruing interest 366 13
-------------------------------------------------
Total Nonperforming Assets and
Loans past due 90 days or more $1,723 $4,220
=================================================
Total Loans at Period End (1) $72,086 $77,446
Allowance for Loan Losses 1,056 1,702
Total Assets 100,013 103,871
Asset Quality Ratios:
Allowance for Loan Losses to
Period end Loans 1.46% 2.20%
Allowance for Loan losses to
Nonperforming Loans (Multiple) 1.26X 0.61X
Total Nonperforming Loans
to Total Loans 1.16% 3.58%
Total Nonperforming Assets to
Total Assets 1.36% 4.05%
Nonperforming Assets to Total
Loans plus Other Real Estate 1.87% 5.33%
Nonperforming Assets and Loans Past
Due 90 days or more to Total Loans
and Other Real Estate 2.37% 5.35%
</TABLE>
(1) Total loans are reported net of unearned income.
Page 12
<PAGE>
Short-term debt. The Corporation's short-term debt of $1.9 million at September
- ----------------
30, 1998 reflects a decrease of $50 thousand compared to December 31, 1997 due
to principal payments. Short-term borrowings of the Bank at September 30, 1998
increased to $4.6 million from $3.7 million at December 31, 1998. Current
short-term borrowings represent securities sold under agreement to repurchase
and fed funds borrowed. The repurchase agreement product was developed to meet
the overnight investment needs of the Bank's commercial customers. Under the
repurchase agreement program, available customer balances are invested overnight
in an uninsured account in the Bank. Available balances are determined by the
investable balances of the Bank's sweep account commercial customers.
Long-term debt. Long-term debt of the Corporation at September 30, 1998 of $200
- ---------------
thousand reflected a decrease of $1.3 million compared to December 31, 1997.
During the nine-month period ended September 30, 1998, the Corporation retired
$1.3 million of a $1.5 million note to an unaffiliated bank, by transferring the
real property owned by the Corporation located in Alexandria, Virginia to its
newly formed subsidiary, Facility Holdings, Inc.. GrandBank holds a note by
Facility Holdings, Inc. and pays rent to Facility Holdings, Inc. for leased
space in the building on the property. The same unaffiliated bank continues to
hold a note from the Corporation in the amount of $200,000. Interest is payable
monthly to GrandBank and the unaffiliated bank.
Principal is due to both banks October 1, 1999.
Liquidity. The Bank's liquidity position, those assets invested in cash, federal
- ----------
funds, and obligations of the U.S. Government, its agencies and sponsored
entities classified as available for sale, totaling $17.4 million, reflected an
increase of $8.7 million or 100% from December 31, 1997. The increase consists
primarily of an increase of investment securities available for sale of $11.8
million. Fed funds sold decreased by $2.8 million. The increase in investment in
available for sale securities is primarily due to prepayments and maturities of
loans and a shift from fed funds to higher-yield assets. 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 and financial stability is maintained.
Stockholders' Equity. Stockholders' equity of $7.8 million at September 30, 1998
- ---------------------
increased $330 thousand from December 31, 1997. The increase results primarily
from earnings of $150 thousand for the period and an increase in unrealized
holding gains (net of tax effect) on investment securities of $180 thousand in
the nine-month period ended September 30, 1998, compared to December 31, 1997.
Capital Adequacy and Regulatory Requirements. At September 30, 1998, the Bank's
- ---------------------------------------------
ratio of Tier I capital to total average assets equaled 7.6%, which exceeded the
minimum leverage capital ratio of 4.0% by 3.6%. The Bank's Tier I capital to
risk weighted assets ratio was 9.6% which exceeded the minimum required ratio of
4.0% by 5.6%. The Bank's total capital to risk-weighted assets ratio at
September 30, 1998 was 10.9 % which exceeded the minimum required ratio of 8% by
2.9%.
Year 2000 Issue. Many computer programs now in use have not been designed to
- ----------------
properly recognize years after 1999. If not corrected, these programs could fail
or create erroneous results. The year 2000 ("Y2K") issue affects the entire
banking industry because of its reliance on computers and other equipment that
use computer chips, and may have significant adverse effects on banking
customers, bank regulators, and the general economy.
Page 13
<PAGE>
In 1997, the management of the Company created a task force and established a
Y2K Plan to prevent or mitigate adverse effects of the Y2K issue on the Company
and its customers. Goals of the Y2K Plan include identifying risks, testing data
processing and other systems and equipment used by the Company, informing
customers of Y2K issues and risks, establishing a contingency plan for operating
if Y2K issues cause important systems or equipment failures, implementing
changes necessary to achieve Y2K compliance, and verifying that these changes
are effective. The Company's Board of Directors reviews progress under the plan
on a monthly basis.
Management designed the Y2K Plan to comply with the requirements for Y2K efforts
established by the Federal Deposit Insurance Corporation, the primary federal
regulator of the Bank.
The Company has met its Y2K goals to date and believes that it will continue to
meet the goals of the Y2K Plan. By September 30, 1998, the Company had performed
risk assessments, had assessed the Y2K preparedness of suppliers of data
processing services to the Company, had implemented its customer awareness
program, had developed its Y2K contingency Plan, and had tested and implemented
necessary changes in hardware and software. Elements of the Y2K Plan, such as
risk assessments, customer communications, and the continuing testing and
evaluation of systems and equipment, are processes that will continue into the
year 2000. The Y2K contingency plan calls for the company to manually process
bank transactions and to use other data processing methods, in the event that
Y2K efforts of the Company and its data services providers are not successful.
The Company's primary supplier of data processing services also has adopted a
Y2K plan and time table to make changes necessary for it to provide services in
the year 2000, and has provided written assurances to the Company of its
progress. The supplier and the Company have successfully tested the software
changes that have been made to date. The Company is also monitoring the progress
of its other suppliers of data processing services.
Management believes that the cost of resolving Y2K issues related to the
Company's computer programs and those used by its suppliers of significant data
processing services will not be material to the Company's business, operations,
liquidity, capital resources, or financial condition, based on the information
developed to date and communications from data processing suppliers. The Company
is funding its Y2K expenditures through continuing operations.
Although the Company has completed an assessment of the Y2K effects on its
current commercial lending and other customers, the actual effects on
individual, corporate and governmental customers of the Company and on
governmental authorities that regulate the Company and its subsidiaries, and any
resulting consequences to the Company, can not be determined with any assurance.
The Company's belief that it and its primary suppliers of data processing
services will achieve Y2K compliance are based on a number of assumptions and on
statements made by third parties, and are subject to uncertainty. The Company
also is not able to predict the effects, if any, on the Company, financial
markets or society in general of the public's reaction to Y2K. Because of this
uncertainty and reliance upon assumptions and statements of third parties, the
Company can not be assured that the results of its Y2K Plan will be achieved.
However, management believes that the Company will be able to accomplish its Y2K
goals.
Page 14
<PAGE>
Results of Operations
For the quarter ended September 30, 1998, the corporation had net income of $36
thousand, compared to a loss of $72 thousand for the quarter ended September 30,
1997. For the nine-month period ended September 30, 1998, the Corporation had
net income of $150 thousand, compared to $138 thousand for the nine-month period
ended September 30, 1997, representing an increase of $12 thousand. The increase
is primarily attributable to improvements in salary costs and a control in the
growth of other operating expenses.
Earnings per share were $.04 for the nine months ended September 30, 1998,
compared to $.03 for the period ended September 30, 1997.
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,
1998 of $3.129 million reflected an increase of $83 thousand or 2.7%, compared
to the nine-month period ended September 30, 1997. Interest income for the
nine-month period ended September 30, 1998 was $6.129 million, representing a
decrease of $16 thousand or 0.3% from the nine-month period ended September 30,
1997. Interest expense of $3 million for the period ended September 30, 1998
reflected a decrease of $99 thousand or 3.2%.
The average yield on interest earning assets for the nine-month period ended
September 30, 1998, was 8.81%, compared to 8.69% for the nine-month period ended
September 30, 1997. The average cost of funds for the nine-month period ended
September 30, 1998, was 4.16%, compared to 4.17% for the same period in 1997.
Additionally, the net interest margin was 4.82 % for the period ended September
30, 1998, compared to 4.59% for the corresponding period in 1997.
Provision for Loan Losses. There was a provision for loan losses in the amount
- -------------------------
of $10 thousand during the nine-month period ended September 30, 1998.
Noninterest Income. Non-interest income for the nine-month period ended
- ------------------
September 30, 1998, was $462 thousand, compared to $413 thousand for the
nine-month period ended September 30, 1997, representing an increase of $49
thousand or 11.9%.
Noninterest Expense. Non-interest expense for the nine-month period ended
- -------------------
September 30, 1998 of $3.4 million reflected an increase of $61 thousand or
1.9%, compared to the nine-month period ended September 30, 1997. Salaries and
benefits decreased by $179 thousand or 11.8%. Occupancy and equipment increased
by $36 thousand or 5.0%. Other operating expenses increased by $204 thousand or
19.3% compared to the same period in 1997. This increase was attributable
primarily to data processing systems enhancements which were implemented during
the second quarter of 1997 in order to expand products and services offered by
the Bank and to improve the efficiency of operations. Also, the implementation
of the Bank's credit card program during the third quarter of 1997 have affected
the increase in other operating costs.
Applicable Income Tax. The income tax expense of $79 thousand reflects the
- ---------------------
amount of the deferred tax asset realized during the nine-month period ended
September 30, 1998.
Page 15
<PAGE>
GrandBanc, Inc.
Form 10-QSB
For the Period Ended September 30, 1998
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. N/A
Item 5 - Other Information. N/A
Item 6 - Exhibits and Reports on Form 8-K.
A. Exhibits
(11) "Computation of Earnings per Common Share" is
presented as Note 7 on Page 9.
(27) Financial Data Schedule: Filed herewith.
B. Reports on Form 8-K
None
Page 16
<PAGE>
GrandBanc, Inc.
Form 10-QSB
For the Period Ended September 30, 1998
SIGNATURES
----------
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 13, 1998 /s/ Steven K. Colliatie
----------------- -----------------------------------
Steven K. Colliatie
President and Chief Executive
Officer
Date: November 13, 1998 /s/ Domingo Rodriguez
----------------- -----------------------------------
Domingo Rodriguez
Executive Vice President and
Chief Financial Officer
Page 17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-QSB FOR THE PERIOD ENDED SEPTEMBER 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000719488
<NAME> GRANDBANC, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,246
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 21
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 15,145
<INVESTMENTS-CARRYING> 19,327
<INVESTMENTS-MARKET> 19,496<F1>
<LOANS> 72,086
<ALLOWANCE> 1,056
<TOTAL-ASSETS> 100,013
<DEPOSITS> 85,062
<SHORT-TERM> 6,547
<LIABILITIES-OTHER> 389
<LONG-TERM> 200
0
0
<COMMON> 405
<OTHER-SE> 7,410
<TOTAL-LIABILITIES-AND-EQUITY> 100,013
<INTEREST-LOAN> 5,340
<INTEREST-INVEST> 596
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<LOANS-NON> 0
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