<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 quarter ended September 30, 1999
Commission File Number: 0-16187
GRANDBANC, INC.
--------------------------------------------------------------------
(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
----------------------------------------------
(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 November 8, 1999, there were 4,049,665 shares of Common Stock, par value
$.10 per share outstanding.
Transitional Small Business Disclosure Format
YES NO X
-------- --------
<PAGE>
TABLE OF CONTENTS
-----------------
PART I - FINANCIAL INFORMATION PAGE
- ------------------------------ ----
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.....................5-10
Item 2 - Management's Discussion and Analysis.........................11
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K.................................29
6(a) Exhibits:
3.1 GrandBanc, Inc. Articles of Incorporation (Incorporated by
reference to Exhibit 3.1 to Grandbanc, Inc. Form 10-QSB for the
Quarterly Period Ended June 30, 1997.)
3.2 GrandBank, Inc. By-Laws
10.1 Form of Employment Agreement between GrandBank and Domingo A.
Rodriquez, Executive Vice President and CFO, dated December ,
1998.
10.2 Form of Employment Agreement between GrandBank and Gary L.
Hobert, Executive Vice President-Lending, dated March 3, 1999.
10.3 Form of Employment Agreement between GrandBanc, Inc., GrandBank
and Steven K. Colliatie, President and Chief Executive Officer,
dated June 17, 1999.
11 "Computation of Earnings per Common Share" is presented as Note 7
on page 10
27 Financial Data Schedule
6(b). Reports on Form 8-K
Signatures................................................................30
<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,
1999 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and Due from banks $ 2,428 $ 3,225
Federal funds sold 2,789 5,132
-----------------------------------
Total cash and cash equivalents 5,217 8,357
Securities available-for-sale 46,221 34,080
Securities held-to-maturity - -
Loans, net of unearned discount and loan fees 58,231 61,300
Less: Allowance for loan losses (679) (927)
-----------------------------------
Loans, net 57,552 60,373
Bank premises and equipment, net 3,909 1,825
Accrued income receivable 835 669
Prepaid expenses and other assets 768 892
Deferred income taxes 2,791 1,924
Intangible assets 1,058 1,179
Other real estate owned 114 374
-----------------------------------
TOTAL ASSETS $ 118,465 $ 109,673
===================================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand $ 10,488 $ 10,069
Interest checking 10,360 9,970
Savings 14,976 14,547
Time 66,872 62,139
-----------------------------------
Total Deposits 102,696 96,725
Securities sold under agreement to repurchase
and other borrowed funds 9,046 4,764
Other liabilities 419 496
-----------------------------------
TOTAL LIABILITIES 112,161 101,985
-----------------------------------
SHAREHOLDERS' EQUITY
Common stock 405 405
Surplus 10,963 10,963
Retained earnings (3,813) (3,648)
Accumulated comprehensive income:
Unrealized holding loss on securities available-for-sale (1,251) (32)
-----------------------------------
TOTAL SHAREHOLDERS' EQUITY 6,304 7,688
-----------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 118,465 $ 109,673
===================================
BOOK VALUE PER SHARE $ 1.56 $ 1.90
===================================
ACTUAL SHARES OUTSTANDING 4,050 4,050
===================================
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
GRANDBANC, INC
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
For The Three Months Ended For The Nine Months Ended
September 30, September 30,
------------------------------ ------------------------------
1999 1998 1999 1998
============================== ==============================
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 1,353 $ 1,769 $ 4,236 $ 5,339
Interest on federal funds sold and repurchase agreement 13 33 86 193
Interest on Securities 783 229 2,148 596
------------------------------ ------------------------------
TOTAL INTEREST INCOME 2,149 2,031 6,470 6,128
------------------------------ ------------------------------
INTEREST EXPENSE:
Interest on deposits 1,058 898 3,163 2,764
Interest on securities sold under agreements to
repurchase and other borrowed funds 87 75 251 235
------------------------------ ------------------------------
TOTAL INTEREST EXPENSE 1,145 973 3,414 2,999
------------------------------ ------------------------------
NET INTEREST INCOME 1,004 1,058 3,056 3,129
PROVISION FOR LOAN LOSSES - - 189 10
------------------------------ ------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,004 1,058 2,867 3,119
------------------------------ ------------------------------
NONINTEREST INCOME:
Service charges 105 73 280 242
Other 57 71 154 219
------------------------------ ------------------------------
TOTAL NONINTEREST INCOME 162 144 434 461
------------------------------ ------------------------------
NONINTEREST EXPENSES:
Salaries and employee benefits 499 442 1,567 1,334
Occupancy 153 193 474 571
Equipment 76 66 225 188
Other operating expenses 441 445 1,300 1,258
------------------------------ ------------------------------
TOTAL NONINTEREST EXPENSES 1,169 1,146 3,566 3,351
------------------------------ ------------------------------
INCOME BEFORE APPLICABLE INCOME TAXES (3) 56 (265) 229
INCOME TAXES - 20 (100) 79
------------------------------ ------------------------------
NET INCOME $ (3) $ 36 $ (165) $ 150
============================== ==============================
PER COMMON SHARE DATA
Basic Earnings $ (0.00) $ 0.01 $ (0.04) $ 0.04
Diluted Earnings $ (0.00) $ 0.01 $ (0.04) $ 0.04
AVERAGE COMMON SHARES
Basic 4,050 4,049 4,050 4,048
Diluted 4,241 4,273 4,227 4,230
</TABLE>
See notes to condensed consolidated financial statements.
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 Accumulated
Stock Other
Shares Common Retained Comprehensive
Outstanding Stock Surplus Earnings Income, Net Total
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 4,041 $ 404 $ 10,928 $ (3,747) $ (100) $ 7,485
Net income for the six months
ended June 30, 1998 - - - 150 - 150
Common stock issuance 9 1 35 - - 36
Change in unrealized holding gain
(loss) on securities available for sale - - - - 144 144
----------------------------------------------------------------------------------
Balance at September 30, 1998 4,050 $ 405 $ 10,963 $ (3,597) $ 44 $ 7,815
==================================================================================
Balance at December 31, 1998 4,050 $ 405 $ 10,963 $ (3,648) $ (32) $ 7,688
Net income for the six months
ended June 30, 1999 - - - (165) - (165)
Common stock issuance - - - - - -
Change in unrealized holding gain
(loss) on securities available for sale - - - - (1,219) (1,219)
----------------------------------------------------------------------------------
Balance at September 30, 1999 4,050 $ 405 $ 10,963 $ (3,813) $ (1,251) $ 6,304
==================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
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,
---------------------------------
1999 1998
=================================
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (165) $ 150
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 215 187
Net amortization of securities 100 33
Amortization of intangibles 121 119
Provision for loan losses 189 10
Other real estate owned - writedowns - 10
Net realized gain on sale of securities (6) -
(Benefit) provision for deferred income taxes (100) 79
Change in assets and liabilities:
Accrued income receivable, other assets and other real estate 339 (32)
Accrued expenses and other liabilities (77) (101)
---------------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 616 455
---------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease (increase) in federal funds sold 2,343 2,816
Proceeds from sales and maturities of
available for sale securities 8,266 5,743
Proceeds from sales and maturities of
held to maturity securities - 6,672
Purchases of available for sale securities (22,465) (17,356)
Net decrease in loans 2,489 4,714
Purchases of bank premises and equipment (2,299) (85)
Proceeds from sale of foreclosed real estate and other assets - 914
---------------------------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (11,666) 3,418
---------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 5,971 (3,636)
Net increase (decrease) in federal funds purchased and
other short-term borrowings 4,282 (451)
Net decrease in long term debt - -
---------------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 10,253 (4,087)
---------------------------------
NET INCREASE (DECREASE) IN CASH (797) (214)
CASH AT BEGINNING OF PERIOD 3,225 2,460
---------------------------------
CASH AT END OF PERIOD $ 2,428 $ 2,246
=================================
INTEREST PAID $ 3,374 $ 2,877
=================================
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
GRANDBANC, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 1999
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 undergo 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 three-month and nine-month periods
ended September 30, 1999 are not necessarily indicative of the results that may
be expected for the year ending December 31, 1999. 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, 1998.
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.
5
<PAGE>
GRANDBANC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Securities
(in thousands)
<TABLE>
<CAPTION>
September 30, 1999
- -------------------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Securities Available-for-Sale
U.S. Government Agencies and Corporations $ 26,506 $ 2 $ (1,233) $ 25,275
Mortgage-Backed Securities 21,334 18 (884) 20,468
Other Securities 420 58 - 478
-----------------------------------------------------------
Total $ 48,260 $ 78 $ (2,117) $ 46,221
===========================================================
Securities Held-to-Maturity
U.S. Government Agencies and Corporations $ - $ - $ - $ -
Mortgage-Backed Securities - - - -
-----------------------------------------------------------
Total $ - $ - $ - $ -
===========================================================
<CAPTION>
December 31, 1998
- -------------------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Securities Available-for-Sale
U.S. Government Agencies and Corporations $ 17,601 $ 28 $ (111) $ 17,518
Mortgage-Backed Securities 16,133 52 (80) 16,105
Other Securities 399 58 - 457
-----------------------------------------------------------
Total $ 34,133 $ 138 $ (191) $ 34,080
-----------------------------------------------------------
Securities Held-to-Maturity
U.S. Government Agencies and Corporations $ - $ - $ - $ -
Mortgage-Backed Securities - - - -
-----------------------------------------------------------
Total $ - $ - $ - $ -
-----------------------------------------------------------
</TABLE>
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 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Commercial $ 13,753 $ 17,477
Real Estate-Construction 254 211
Real Estate-Mortgage 39,561 37,845
Consumer 2,461 2,890
Credit Card Receivable 2,251 3,065
-----------------------------------
Gross loans 58,280 61,488
-----------------------------------
Less: Deferred loan fees and
unearned discount (49) (188)
-----------------------------------
Loans, net of unearned discount and
deferred loan fees 58,231 61,300
-----------------------------------
Allowance for loan losses (679) (927)
-----------------------------------
Loans, net $ 57,552 $ 60,373
===================================
</TABLE>
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, Ended September 30,
------------------------------------ -----------------------------------
For the Periods Ended 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of period $ 777 $ 1,204 $ 927 $ 1,702
Provision charged to expense - - 190 10
Charge-offs:
Commercial and other - 2 21 156
Consumer 100 175 441 288
Real Estate - 336 - 621
---------------------------------------------------------------------------
Total Charge-offs 100 513 462 1,065
Recoveries:
Commercial and other - 288 12 331
Consumer 2 - 12 1
Real Estate - 77 - 77
---------------------------------------------------------------------------
Total Recoveries 2 365 24 409
Net Charge-Offs (Recoveries) 98 148 438 656
---------------------------------------------------------------------------
Balance at end of period $ 679 $ 1,056 $ 679 $ 1,056
===========================================================================
Average Total Loans (1) $ 56,785 $ 72,449 $ 58,162 $ 74,263
Total Loans at Period End (1) $ 58,231 $ 72,086 $ 58,231 $ 72,086
Ratio of net charge-offs (recoveries)
to average total loans 0.17% 0.20% 0.75% 0.88%
Ratio of allowance for
loan losses to total
loans at period end 1.17% 1.46% 1.17% 1.46%
</TABLE>
(1) Total Loans are reported net of unearned income.
8
<PAGE>
GRANDBANC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 6A
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
(Dollars in thousands)
<TABLE>
<CAPTION>
Percent of Percent of
Loans in each Loans in each
category to category to
September 30, Total December 31, Total
1999 Loans 1998 Loans
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $63 23.6% $114 28.4%
Real Estate-Construction 1 0.4% 1 0.3%
Real Estate-Mortgage 214 67.9% 450 61.5%
Consumer 341 8.1% 281 9.7%
Unallocated 60 N/A 81 N/A
-------------------------------------------------------------------
Total $679 100.0% $927 100.0%
===================================================================
</TABLE>
9
<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, Ended September 30,
---------------------------------------------------------
1999 1998 1999 1998
================================================================================================================
<S> <C> <C> <C> <C>
Basic earnings per share:
Net income $ (3) $ 36 $ (165) $ 150
Stock and stock equivalents (average shares):
Common shares outstanding 4,050 4,049 4,050 4,048
Stock options - - - -
--------------------------------------------------------
Total stock and stock equivalents 4,050 4,049 4,050 4,048
--------------------------------------------------------
Basic net income per common share $ (0.00) $ 0.01 $ (0.04) $ 0.04
========================================================
Diluted earnings per share:
Net income $ (3) $ 36 $ (165) $ 150
Stock and stock equivalents (average shares):
Common shares outstanding 4,050 4,049 4,050 4,048
Stock options 191 224 191 182
--------------------------------------------------------
Total stock and stock equivalents 4,241 4,273 4,241 4,230
--------------------------------------------------------
Diluted net income per common share $ (0.00) $ 0.01 $ (0.04) $ 0.04
========================================================
</TABLE>
10
<PAGE>
Item 2 - MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Management's Discussion and Analysis contains forward-looking statements,
including statements of goals, intentions and expectations, regarding or based
on assumptions about the future, including future economic conditions, interest
rates, and statements by suppliers of data processing equipment and services,
government agencies, and other third parties as to Year 2000 compliance and
compliance costs. Because of these uncertainties and the assumptions on which
statements in this report are based, the actual future results may differ
materially from those indicated in this report.
FINANCIAL SUMMARY
Net income for the three months ended September 30, 1999 decreased by $39
thousand from the same period in 1998. The company reported a loss of $3
thousand or slightly less than $0.01 per share for the quarter ended September
30, 1999 compared to net income of $36 thousand or $0.01 per share. Returns on
average assets and average equity for the third quarter of 1999 were (0.01%) and
(0.18%), respectively, compared to 0.14% and 1.84% for the same period in 1998.
Net income for the first nine months ended September 30, 1999 decreased by $315
thousand from the same period in 1998. The company reported a loss of $165
thousand or $0.04 per share for the nine-month period ended September 30, 1999
compared to net income of $150 thousand or $0.04 per share for the same period
in 1998. Year-to-date returns on average assets and average equity were (0.19%)
and (3.10%), respectively, compared to 0.20% and 2.59% for the same period in
1998.
Contributing to the decrease in earnings for the third quarter and the first
nine months of 1999 were a higher than anticipated charge to the provision for
loan losses to cover credit card receivable losses, the decline in net interest
margin, and increases in noninterest expenses. The provision for loan losses
totaled $189 thousand for the first nine months of 1999 compared to $10 thousand
for the same period in 1998. Net interest income for the quarter ended
September 30, 1999 totaled $1.0 million compared to $1.1 million for the same
period in 1998. For the nine months ended September 30, 1999, net interest
income decreased by $73 thousand from the levels of 1998. Noninterest expenses
increased by $23 thousand or 2.00%, to $1,169 thousand for the three months
ended September 30, 1999 compared to $1,146 thousand for the same period in
1998. Year-to-date, non interest expenses totaled $3,566 thousand compared to
$3,351 thousand for the same period in 1998 representing an increase of $215
thousand, or 6.42%
The Company continued to experience growth as total assets increased to $118.4
million at September 30, 1999 compared to $109.7 million at December 31, 1999
representing an increase of $8.7 million or 7.93%. Loans, net of unearned
discount and fees, decreased by $3.1 million or 5.05% to $58.2 million at
September 30, 1999 from $61.3 million at December 31, 1998. The decrease in
loans reflects the results of the effort to improve the quality of the loan
portfolio. The securities portfolio increased by $12.1 million to $46.2 million
at September 30, 1999 from $34.1 million at December 31, 1998 representing an
increase of 35.5%. Total deposits were $105.9 million at September 30, 1999
compared to $96.7 million at December 31, 1998, representing an increase of $6.0
million or 6.20%
Shareholders' equity at September 30, 1999 totaled $6.3 million compared to
$7.6 million at December 31, 1998. Book value per share of common stock on
September 30, 1999 was $1.56 compared to
11
<PAGE>
$1.90 per share at December 31, 1998. The decrease in book value per share was
primarily attributable to the effect of the accounting adjustment to reflect the
"Unrealized holding loss on securities available for sale". This adjustment is a
requirement of FASB #115, to report the decline in the fair market value of the
portfolio of investment securities available-for-sale.
EARNINGS ANALYSIS
Net Interest Income
Net interest income is the Company's primary source of earnings and represents
the difference between interest and fees earned on earning assets and the
interest expense paid on deposits and other interest bearing liabilities. Net
interest income totaled $1,004 thousand for the third quarter of 1999 compared
to $1,058 thousand for the same period in 1998, representing a decrease of $54
thousand or 5.10%. Year-to date, net interest income totaled $3,056 thousand
compared to $3,129 thousand for the same period in 1998, representing a decrease
of $73 thousand or 2.33%. The decreases in net interest income were
attributable to a lower than anticipated volume of loans. Although significant
improvement was reported on volume and rates associated with the securities
portfolio, such improvement was significantly offset by the decrease in loan
volume, and the tightening of the interest spread between interest earned on
loans, securities, federal funds, and other investments, and the rates paid on
deposits and borrowed funds. Table 2 and Table 2A present the Company's
analysis of changes in interest income and interest expense relating to volume
and rate for the periods indicated.
The Company's net interest margin for the quarter ended September 30, 1999
decreased to 3.71% from the 4.64% recorded for the third quarter of 1998. The
decline in net interest margin for the third quarter was the result of a decline
in the yield of earning assets of 98 basis points. This decrease resulted
primarily from a 21.7% decrease in loan volume. Quarterly average loans
decreased from $74.1 million at September 30, 1998 to $56.8 million at September
30, 1999. This shift in loan volume was partially offset by a decrease in the
cost of interest bearing liabilities of 27 basis points from 4.76% at September
30, 1998 to 4.49% at September 30, 1999. Year-to-date interest margin
decreased to 3.80% from 4.50% as of the same period in 1998. The year-to-date
decline in net interest margin was primarily the result of lower volume in the
category of loans, which materially outpaced the gains in rate and volume
recorded by the other categories of earning assets. The overall margin for the
nine month period ended September 30, 1999 declined by 70 basis points from
prior year's levels. As of September 30, 1999, average loans totaled $58.2
million compared to $74.4 million at September 30, 1998. This represents a
decline of $16.2 million or 21.8%.
As of September 30, 1999, year-to-date average earning assets increased by
$14.4 million or 15.5% to $107.4 million compared to $93.0 million for the same
period in 1998. Average total loans, the largest component of earning assets,
decreased to $58.6 million compared to $74.4 million for 1998. Average
securities increased by $32.7 million to $46.8 million compared to $14.1 million
for first nine months of 1998. Average federal funds sold and money market
instruments declined by 2.0 million or 45.9% to $2.4 million as of September 30,
1999 compared to $4.4 million for the same period in 1998.
The overall growth in earning assets was primarily funded by increases in time
deposits, interest checking accounts, and customer repurchase agreements.
Average interest bearing deposits increased to $93.7 million as of September 30,
1999 from $78.5 million for the same period in 1998, representing an increase
of $15.2 million, or 19.4%. Average demand deposits increased slightly to $10.4
million for the first nine months of 1999 compared to $10.2 million for the same
period in 1998. Table 1 and Table 1A
12
<PAGE>
presents an analysis of average earning assets, interest bearing liabilities and
demand deposits with the related components of net interest income.
13
<PAGE>
GRANDBANC, INC.
AVERAGE BALANCES AND INTEREST RATES
(Dollars in Thousands)
Table 1
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1999 September 30, 1998
---------------------------------- -----------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
---------------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-Earning Assets:
Securities:
Federal Agency and
Mortgage-Backed Securities 49,154 776 6.26% 15,718 223 5.63%
Other Investments 420 7 6.61% 399 6 5.97%
-----------------------------------------------------------------------------------------------
Total Securities 49,574 783 6.27% 16,117 229 5.64%
Loans: (1)
Commercial 13,512 326 9.57% 20,293 528 10.32%
Real Estate-Construction 228 6 10.44% 431 8 7.36%
Real Estate-Mortgage 38,289 862 8.93% 44,906 1,021 9.02%
Consumer 4,798 159 13.15% 6,987 212 12.04%
------------------------------------------------- ------------------------------------------
Total Loans 56,827 1,353 9.45% 72,617 1,769 9.66%
Federal Funds Sold 1,009 13 5.11% 1,648 33 7.94%
------------------------------------------------- ------------------------------------------
Total Interest-Earning Assets 107,410 2,149 7.94% 90,382 2,031 8.92%
Noninterest-Earning Assets:
Cash and Due from Banks 2,716 3,221
Other Assets 9,301 7,489
Allowance for Loan Losses (725) (1,118)
Deferred Loan Fees (42) (168)
------------------- -------------
Total Noninterest-Earning Assets 11,250 9,424
------------------- -------------
Total Assets $118,660 $99,806
=================== =============
</TABLE>
(1) For the purpose of these computations, nonaccruing loans are included in the
daily average loan amounts outstanding.
14
<PAGE>
AVERAGE BALANCES AND INTEREST RATES
(Dollars in Thousands)
Table 1 (continued)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1999 September 30, 1998
----------------------------------- ----------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
----------------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Liabilities and Shareholders' Equity
Interest-Bearing Liabilities:
Interest-Bearing Deposits:
Interest Checking Deposits $10,800 $54 1.98% $8,975 $51 2.25%
Money Market Deposits 11,374 92 3.21% 11,158 92 3.27%
Savings Deposits 4,748 28 2.34% 4,347 26 2.37%
Certificates of Deposit
$100,000 and over 18,100 242 5.30% 15,159 215 5.63%
Certificates of Deposit 49,609 642 5.13% 36,531 514 5.58%
-------------------------------------------- -------------------------------------------
Total Interest-Bearing Deposits 94,631 1,058 4.44% 76,170 898 4.68%
Purchased Funds & Other Borrowings 6,530 87 5.29% 4,924 75 6.04%
-------------------------------------------- -------------------------------------------
Total Interest-Bearing Liabilities 101,161 1,145 4.49% 81,094 973 4.76%
Noninterest-Bearing Liabilities:
Total Demand Deposits 10,471 10,441
Other Liabilities 490 445
------------------ -------------
Total Noninterest-Bearing
Liabilities 10,961 10,886
------------------ -------------
Total Liabilities 112,122 91,980
Shareholders' Equity 6,538 7,826
------------------ -------------
Total Liabilities and Shareholders'
Equity $118,660 $99,806
================== =============
Interest Spread 3.46% 4.15%
-------------------------------------------- -------------------------------------------
Net Interest Margin $1,004 3.71% $1,058 4.64%
============================================ ===========================================
Cost to fund earning assets 4.23% 4.27%
================ ================
</TABLE>
Note: Average balances are calculated on a daily average basis. Allowance for
loan losses is excluded from calculation of average balances and average
rates, as appropriate. Nonaccruing loans are included in the average loan
balance.
<PAGE>
GRANDBANC, INC.
Rate and Volume Analysis
- ----------------------------------
From the three months ended
September 30, 1999 to the
(Dollars in thousands) three months ended
Table 2 September 30, 1998
Change Due to:
------------------------------
Total
Increase
(Decrease) Rate Volume
----------------------------------------------
Interest Income:
Securities:
Federal Agency and
Mortgage-Backed Securities 553 $79 $474
Other Investments 1 $1 $0
---------------------------------------------
Total Securities 554 $79 $475
Loans: (1)
Commercial (202) ($26) ($176)
Real Estate-Construction (2) $2 ($4)
Real Estate-Mortgage (159) ($9) ($150)
Consumer (53) $13 ($66)
---------------------------------------------
Total Loans (416) ($31) ($385)
Federal Funds Sold (20) ($7) ($13)
---------------------------------------------
Total interest income 118 ($265) $383
---------------------------------------------
Interest expense:
Interest-Bearing Deposits:
Interest Checking Deposits 3 ($7) $10
Money Market Deposits (0) ($2) $2
Savings Deposits 2 ($0) $2
Certificates of Deposit
$100,000 and over 27 ($15) $42
Certificates of Deposit 128 ($56) $184
---------------------------------------------
Total Interest-Bearing Deposits 160 ($58) $218
Total interest expense 172 ($69) $241
---------------------------------------------
Net interest income ($54) ($253) $199
=============================================
(1) For the purpose of these computations, nonaccruing loans are included in the
daily average loan amounts outstanding.
* Variances are computed on a line-by-line basis and are non-additive
The increase or decrease due to a change in average volume has been
determined by multiplying the change in average volume by the average rate
during the preceding period, and the increase or decrease due to a change in
average rate has been determined by multiplying the current average volume by
the change in average rate.
16
<PAGE>
GRANDBANC, INC.
AVERAGE BALANCES AND INTEREST RATES
(Dollars in Thousands)
Table 1a
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 1998
---------------------- -----------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
--------------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-Earning Assets:
Securities:
Federal Agency and
Mortgage-Backed Securities 46,338 2,128 6.14% 13,686 576 5.63%
Other Investments 472 20 5.67% 450 20 5.94%
--------------------------------------------------------------------------------------------
Total Securities 46,810 2,148 6.14% 14,136 596 5.64%
Loans: (1)
Commercial 14,947 1,061 9.49% 20,836 1,557 9.99%
Real Estate-Construction 216 15 9.28% 325 24 9.87%
Real Estate-Mortgage 37,824 2,662 9.41% 45,781 3,091 9.03%
Consumer 5,257 498 12.67% 7,470 667 11.94%
---------------------------------------------- -------------------------------------------
Total Loans 58,244 4,236 9.72% 74,412 5,339 9.59%
Federal Funds Sold 2,390 86 4.81% 4,420 193 5.84%
---------------------------------------------- -------------------------------------------
Total Interest-Earning Assets 107,444 6,470 8.05% 92,968 6,128 8.81%
Noninterest-Earning Assets:
Cash and Due from Banks 2,732 2,661
Other Assets 8,808 7,786
Allowance for Loan Losses (805) (1,310)
Deferred Loan Fees (82) (150)
------------- -----------
Total Noninterest-Earning Assets 10,653 8,987
------------- -----------
Total Assets $118,097 $101,955
============= ===========
</TABLE>
(1) For the purpose of these computations, nonaccruing loans are included in the
daily average loan amounts outstanding.
<PAGE>
AVERAGE BALANCES AND INTEREST RATES
(Dollars in Thousands)
Table 1a (continued)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 1998
------------------ ------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
--------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Liabilities and Shareholders' Equity
Interest-Bearing Liabilities:
Interest-Bearing Deposits:
Interest Checking Deposits $10,362 $156 2.01% $8,875 $149 2.24%
Money Market Deposits 11,120 267 3.21% 11,375 271 3.19%
Savings Deposits 4,696 89 2.53% 4,341 81 2.49%
Certificates of Deposit
$100,000 and over 18,712 757 5.41% 15,544 675 5.81%
Certificates of Deposit 48,794 1,894 5.19% 38,394 1,588 5.53%
-------------------------------------- -------------------------------------------
Total Interest-Bearing Deposits 93,684 3,163 4.51% 78,529 2,764 4.71%
Purchased Funds & Other Borrowings 6,385 251 5.26% 4,784 235 6.57%
-------------------------------------- -------------------------------------------
Total Interest-Bearing Liabilities 100,069 3,414 4.56% 83,313 2,999 4.81%
Noninterest-Bearing Liabilities:
Total Demand Deposits 10,442 10,166
Other Liabilities 493 761
------------- -------------
Total Noninterest-Bearing
Liabilities 10,935 10,927
------------- -------------
Total Liabilities 111,004 94,240
Shareholders' Equity 7,093 7,715
------------- -------------
Total Liabilities and Shareholders'
Equity $118,097 $101,955
============= =============
Interest Spread 3.50% 4.00%
-------------------------------------- -------------------------------------------
Net Interest Margin $3,056 3.80% $3,129 4.50%
====================================== ===========================================
Cost to fund earning assets 4.25% 4.31%
============= ===============
</TABLE>
Note: Average balances are calculated on a daily average basis. Allowance for
loan losses is excluded from calculation of average balances and average
rates, as appropriate. Nonaccruing loans are included in the average loan
balance.
<PAGE>
GRANDBANC, INC.
Rate and Volume Analysis
- ------------------------
From the nine months ended
September 30, 1999 to the
(Dollars in thousands) nine months ended
Table 2a September 30, 1998
Change Due to:
------------------
Total
Increase
(Decrease) Rate Volume
-----------------------------------------
Interest Income:
Securities:
Federal Agency and
Mortgage-Backed Securities 1,552 $178 $1,374
Other Investments 0 ($1) $1
-----------------------------------------
Total Securities 1,552 $174 $1,378
Loans: (1)
Commercial (496) ($56) ($440)
Real Estate-Construction (9) ($1) ($8)
Real Estate-Mortgage (429) $108 ($537)
Consumer (169) $29 ($198)
-----------------------------------------
Total Loans (1,103) $57 ($1,160)
Federal Funds Sold (107) ($18) ($89)
-----------------------------------------
Total interest income 342 ($612) $954
=========================================
Interest expense:
Interest-Bearing Deposits:
Interest Checking Deposits 7 ($18) $25
Money Market Deposits (4) $2 ($6)
Savings Deposits 8 $1 $7
Certificates of Deposit
$100,000 and over 82 ($56) $138
Certificates of Deposit 306 ($124) $430
-----------------------------------------
Total Interest-Bearing Deposits 399 ($134) $533
Total interest expense 415 ($188) $603
=========================================
Net interest income ($73) ($560) $487
=========================================
(1) For the purpose of these computations, nonaccruing loans are included in the
daily average loan amounts outstanding.
* Variances are computed on a line-by-line basis and are non-additive
The increase or decrease due to a change in average volume has been
determined by multiplying the change in average volume by the average rate
during the preceding period, and the increase or decrease due to a change in
average rate has been determined by multiplying the current average volume by
the change in average rate.
19
<PAGE>
Provision for Loan Losses
As in the third quarter of 1998, no provision for loan losses was required for
the three months ended September 30, 1999. For the nine-month period ended
September 30, 1999, the required provision for loan losses totaled $189 thousand
compared to $10 thousand for the same period in 1998. A more detailed
discussion and analysis of nonperforming assets and the allowance for loan
losses appears in the "Asset Quality" section.
Noninterest Income
Non-interest income for the three-month period ended September 30, 1999 was
$162 thousand, compared to $144 thousand for the three-month period ended
September 30, 1998, representing an increase of $18 thousand or 12.5%. For the
nine-month period ended September 30, 1999, noninterest income totaled $434
thousand compared to $461 thousand for the same period in 1998, representing a
decrease of $27 thousand or 5.9%.
Noninterest Expense
In support of the Company's strategic growth, total noninterest expenses
consisting of employee related costs, occupancy expenses, and other overhead
totaled $1,169 thousand for the third quarter of 1999, compared to $1,146
thousand for the same period in 1998, representing an increase of $23 thousand
or 2.0%. For the first nine months of 1999, noninterest expenses totaled $3,566
thousand compared to $3,351 thousand for the same period in 1998, representing
an increase of $215 thousand or 6.4%
The single largest increases in noninterest expenses were attributable to
employee salaries and benefits. Salaries and employee benefits expense totaled
$499 thousand for the quarter ended September 30, 1999 compared to $442 thousand
for the same period in 1998, representing an increase of $57 thousand or 12.9%.
For the nine-month period ended September 30, 1999, salaries and employee
benefits totaled $1,567 thousand compared to $1,334 thousand for the same period
of 1998. This represents an increase of $233 thousand, or 17.5%
Occupancy expense totaled $153 thousand for the quarter ended September 30,
1999 compared to $193 thousand in 1998. Year-to-date September 30, 1999,
occupancy costs were $474 thousand compared to $571 thousand for the same period
in 1998. The decreases in occupancy costs are attributable to the savings
gained from the purchase of the building housing the finance and operations
departments and the Bethesda/Metro branch. The building is located at 7535 Old
Georgetown Road, Bethesda, Maryland.
Other operating expenses decreased by $4.0 thousand or 0.90 % for the third
quarter of 1999 compared to the same period in 1998. For the quarter ended
September 30, 1999, other operating expenses totaled $441 thousand compared to
$445 thousand for the same period in 1998. For the first nine months of 1999,
other operating expenses totaled $1,300 thousand compared to $1,258 thousand for
the first nine months of 1998, representing an increase of $42 thousand or
3.34%.
Capital Resources
Shareholders' equity on September 30, 1999 was $6.3 million compared to $7.6
million at December 31, 1998. Book value per share of common stock on September
30, 1999 was $1.56 compared to $1.90 per share at December 31, 1998. Factors
contributing to the decrease in shareholders' equity were the reported net
operating loss and the decline in the fair market value of the securities
available-for-sale portfolio.
At September 30, 1999 the Company's Tier 1 and total risk-based capital ratios
were 7.64% and 8.55%, respectively, compared to 7.95% and 9.24% at December 31,
1998. The Company's leverage ratio
20
<PAGE>
was 4.87% at September 30, 1999 compared to 5.60% at December 31, 1998. Table 3
details the various components of shareholders' equity.
Tier 1 and total risk-based capital ratios for GrandBank, the Company's
banking affiliate were 10.24% and 11.18% respectively at September 30, 1999
compared to 10.70% and 12.00% at December 31, 1998. The Bank's leverage ratio
was 6.54% at September 30, 1999 compared to 7.60% at December 31, 1998.
The Bank continues to maintain capital levels that exceed the minimum
regulatory guidelines for "well capitalized" institutions. The Company plans to
maintain a capital base sufficient to be able to take advantage of business
opportunities while ensuring that it has the resources to protect against the
risks inherent in its business.
21
<PAGE>
GRANDBANC, INC.
SHAREHOLDERS' EQUITY
(Dollars in thousands)
Table 3
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---------------------------------------------
<S> <C> <C>
Tier 1 Capital:
Common Stock $ 405 $ 405
Surplus 10,963 10,963
Retained Earnings (3,813) (3,648)
Unrealized holding (loss) gain on securities available-for-sale (1,251) (32)
---------------------------------------------
Total Shareholders' Equity 6,304 7,688
Less: Unrealized holding loss (gain) on securities available for sale 1,251 32
Less: Dissallowed intangibles (1,869) (1,864)
---------------------------------------------
Total Tier 1 Capital 5,686 5,856
Tier 2 Capital:
Qualifying allowance for loan losses 679 953
---------------------------------------------
Total Tier 2 Capital 679 953
==============================================
Total Risk-Based Capital 6,365 6,809
=============================================
Risk Weighted Assets 74,421 73,676
=============================================
Ratios:
Tier 1 Capital to risk weighted assets 7.64% 7.95%
Tier 2 Capital to risk weighted assets 0.91% 1.29%
---------------------------------------------
Total risk-based capital ratio 8.55% 9.24%
=============================================
Leverage Ratio-Tier 1 Capital to quarterly
average assets less intangibles 4.87% 5.60%
=============================================
</TABLE>
22
<PAGE>
ASSET QUALITY
The Company employs extensive written policies and procedures to enhance
management of credit risk. The loan portfolio is managed under a specifically
defined credit process. This process includes formulation of portfolio
management strategy, guidelines for underwriting standards and risk assessment,
procedures for on-going identification and management of credit deterioration,
and regular portfolio reviews to estimate loss exposure and to ascertain
compliance with the Company's policies. The Bank's loan approval policies
provide for various levels of officer lending authority. Loans which in the
aggregate exceed the level of officer lending authority must be presented to the
Executive Committee for approval. This Committee is comprised of the Bank's
Chairman of the Board, the President and CEO and the other three members of the
Board of Directors.
A major element of credit risk management is the diversification of risk. The
Bank's objective is to maintain a diverse loan portfolio to minimize the impact
of any single event or set of circumstances. Concentration parameters are based
upon individual risk factors, policy constraints, economic conditions,
collateral and products. The Bank generally does not make loans outside its
market area unless the borrower has an established relationship with the Bank.
Consequently, the Bank and its borrowers are directly affected by the economic
conditions prevailing in its market area.
Allowance for Loan Losses
The allowance for loan losses represents management's view as to the amount
necessary to absorb potential losses in the loan portfolio. The amount of the
provision charged to expense each period is dependent upon an assessment of the
loan quality, current economic trends and conditions, evaluation of specific
client compositions, past loan experience, and the level of net charge-offs
during the period.
The ratio of allowance for loan losses to total loans at September 30, 1999
was 1.17% compared to 1.51% at December 31, 1998. The coverage multiple of
allowance for loan losses to nonperforming loans was 2.47 at September 30, 1999
compared to 1.73 at December 31, 1998. Management believes that the allowance
for loan losses at September 30, 1999 is adequate to cover losses inherent in
the loan portfolio. Loans classified as loss, doubtful, substandard, or special
mention are adequately reserved for and are not expected to have a material
impact beyond what has been reserved.
Nonperforming Assets and Past Due Loans
Nonperforming assets, consisting of nonaccrual loans, restructured loans and
other real estate decreased by $520 thousand to $389 thousand at September 30,
1999 from $909 thousand at December 31, 1998. Non performing assets to total
assets at September 30, 1999 were 0.33% compared to 0.83% at December 31, 1998.
Nonaccrual loans, the single largest category of nonperforming assets, are
those loans on which the accrual of interest has been discontinued. Commercial
loans are generally placed on nonaccrual status when either principal or
interest is past due 90 days or more, or when management believes the collection
of principal or interest is in doubt. Nonaccrual loans decreased by $260
thousand to $275 thousand at September 30, 1999 from $535 thousand at December
31, 1998.
Past due loans are defined as those loans which are 90 days or more past due
as to principal and interest but are still accruing interest because they are
well secured and are in the process of collection. The Company had past due
loans of $181 thousand at September 30, 1999 compared to $127 thousand at
December 31, 1998.
23
<PAGE>
Table 4 details nonperforming assets, past due loans and asset quality ratios.
24
<PAGE>
GRANDBANC, INC.
Credit Quality
(Dollars in thousands)
Table 4
September 30, December 31,
1999 1998
----------------------------------------
Nonaccrual Loans $275 $535
Restructured Loans 0 0
---------------------------------------
Total Nonperforming Loans 275 535
Other Real Estate 114 374
---------------------------------------
Total Nonperforming Assets 389 909
Loans past due 90 days or
more and accruing interest 181 127
---------------------------------------
Total Nonperforming Assets and
Loans past due 90 days or more $570 $1,036
=======================================
Total Loans at Period End (1) 58,231 61,300
Allowance for Loan Losses 679 927
Total Assets 118,465 109,673
Asset Quality Ratios:
Allowance for Loan Losses to
Period end Loans 1.17% 1.51%
Allowance for Loan losses to
Nonperforming Loans (Multiple) 2.47 X 1.73 X
Total Nonperforming Loans
to Total Loans 0.47% 0.87%
Total Nonperforming Assets to
Total Assets 0.33% 0.83%
Nonperforming Assets to Total
Loans plus Other Real Estate 0.67% 1.47%
Nonperforming Assets and Loans Past
Due 90 days or more to Total Loans
and Other Real Estate 0.98% 1.68%
(1) Total loans are reported net of unearned income.
<PAGE>
ASSET LIABILITY MANAGEMENT
Liquidity and Interest Rate Sensitivity Analysis
The primary functions of asset/liability management are to maintain
adequate levels of liquidity while minimizing fluctuations in net interest
margin as a percentage of total assets.
At September 30, 1999, cash equivalents and securities available-for-sale
totaled $51.4 million compared to $42.4 million at December 31, 1998. The cash
flows from the securities and loan portfolios are relatively predictable and
satisfy the Company's need for liquidity. To further satisfy liquidity needs,
the Bank maintains lines of credit with the Federal Home Loan Bank of Atlanta
and federal funds facilities with its correspondent banks. In addition,
management believes that the Company's capital position, core deposit base, the
quality of assets and future earnings will provide sufficient long term
liquidity.
An important element of asset/liability management is the monitoring of the
Company's sensitivity to interest rate movements. In order to measure the
effect of interest rates on the Company's net interest income, management takes
into consideration the expected cash flows from the securities and loan
portfolios as well as the expected magnitude of the repricing of specific asset
and liability categories by assigning earnings changes ratios to individual
balance sheet items. The Company evaluates interest sensitivity risk and then
formulates guidelines to manage risk based upon its outlook regarding the
economy, forecasted interest rate movements and other business factors.
Management uses the securities portfolio, which consists predominantly of fixed
rate securities, to hedge against changes in the loan portfolio, as well as
changes in deposit rates, which are both variable and fixed. The securities
portfolio, which has an average life of less than five years, provides a steady
stream of cash flows which are reinvested at current market rates, which in turn
helps to manage long term exposure to interest rate changes. Management's goal
is to maximize and stabilize the net interest margin by limiting its exposure to
interest rate changes.
The data in Table 5 reflects repricing or expected maturities of various
assets and liabilities at September 30, 1999. This gap represents the
difference between interest-sensitive assets and liabilities in a specific time
interval. Interest sensitivity gap analysis presents a position that existed at
one particular point in time, does not take into consideration potential cash
flows and assumes that assets and liabilities with similar repricing
characteristics will reprice to the same degree. Therefore, the Company's
static gap position is not indicative of the impact of changes in interest rates
on net interest income. Therefore, in addition to the traditional "static gap
presentation" Table 5 also presents interest sensitivity on an adjusted basis
using Beta adjustments. Essentially, the Beta adjustments recognize that
certain assets and liabilities do not reprice to the same degree. The Beta
adjustments reflect the tendency for movements in deposit rates to lag movements
in open market rates. On a cumulative one year basis at September 30, 1999, the
Company had a negative adjusted gap of $11.7 million or 9.91% of excess interest
sensitive liabilities over interest sensitive assets. Management believes that
its current gap position effectively insulates the Bank from significant
interest rate risk.
26
<PAGE>
Interest Rate Gap Analysis
(Dollars in thousands)
Table 5
<TABLE>
<CAPTION>
September 30, 1999
-----------------------------------------------------------------------------------------
1-90 91-180 181-365 1-5 Over 5
INTEREST-SENSITIVE ASSETS: Days Days Days Years Years
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Federal Funds Sold 2,789 $0 $0 $0 $0
Securities 523 558 1,660 11,711 33,807
Loans Maturing 860 0 361 14,296 5,943
Loans Repricing 22,373 0 6,109 4,438 1,600
Credit Card Receivables 2,251 0 0 0 0
----------------------------------------------------------------------------------------
Total $28,796 $558 $8,130 $30,445 $41,350
----------------------------------------------------------------------------------------
Cumulative Totals $28,796 $29,354 $37,484 $67,929 $109,279
----------------------------------------------------------------------------------------
INTEREST-SENSITIVE LIABILITIES:
- ------------------------------------------
Certificate of Deposits & CD IRA's 10,991 7,186 17,929 33,109 0
Savings Accounts & Savings IRA's 4,468 0 0 0 0
Interest Checking Accounts 10,360 0 0 0 0
Money Market Deposit Accounts 10,864 0 0 0 0
Repurchase Agreements 0 0 0 0 0
Sweep Accounts 3,799 0 0 0 0
FHLB - Advances 0 0 0 0 0
Other 25 223 275 1725 0
----------------------------------------------------------------------------------------
Totals $40,507 $7,409 $18,204 $34,834 $0
----------------------------------------------------------------------------------------
Cumulative Totals $40,507 $47,916 $66,120 $100,954 $100,954
----------------------------------------------------------------------------------------
Gap (11,711) (6,851) (10,074) (4,389) 41,350
========================================================================================
Cumulative Gap ($11,711) ($18,562) ($28,636) ($33,025) $8,325
========================================================================================
Adjustments:
Beta Adjustments
Interest Checking (beta factor .30) 7,252
Savings accounts (beta factor .30) 3,128
Money Market Accounts (beta factor .40) 6,518
----------------------------------------------------------------------------------------
Cumulative Adjusted Gap $5,187 ($1,664) ($11,738) ($16,127) $25,223
========================================================================================
As Reported Infomration:
Interest-Sensitive Assets/Interest-
Sensitive Liabilites (Cumulative): 71.09% 61.26% 56.69% 67.29% 108.25%
Cumulative Gap/Total Assets -9.89% -15.67% -24.17% -27.88% 7.03%
Beta Adjusted Information:
Interest-Sensitive Assets/Interest-
Sensitive Liabilites (Cumulative): 121.97% 94.64% 76.15% 80.81% 130.01%
Cumulative Gap/Total Assets 4.38% -1.40% -9.91% -13.61% 21.29%
</TABLE>
<PAGE>
Year 2000
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.
The Corporation initiated the process of preparing its computer systems and
applications for the Year 2000 in 1997. The process involves modifying or
replacing certain hardware and software maintained by the Corporation as well as
communicating with external service providers to ensure that they are taking the
appropriate action to remedy their Y2K issues. Specific 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 failure, 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.
As of September 30, 1999, the Corporation had met its Y2K goals and will
continue to meet the goals of the overall Y2K Plan. By September 30, 1999, the
Corporation had performed risk assessments, had assessed the Y2K preparedness of
suppliers of data processing services to the Corporation, 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 Corporation and its data services
providers are not successful.
The Corporation'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 Corporation of its
progress. The suppliers and the Corporation have successfully tested the
software changes that have been made to date. The Corporation is also
monitoring the progress of its other suppliers of data processing services.
Purchases of hardware and software have been and, if applicable, will continue
to be capitalized in accordance with normal policy. Internal personnel and all
other costs related to the project are being expensed and will continue to be
expensed as incurred. Because of the high level of dependency on outside data
service providers, the cost of resolving Y2K issue has not been significant to
the Corporation. Management believes that any additional cost related to Y2K
issues both internal and external will not be material to the Corporation's
business, operations, liquidity, capital resources, or financial condition,
based on the information developed to date and communications from data
processing suppliers. The Corporation is funding its Y2K expenditures through
continuing operations as part of the overall data processing budget. The 1999
budget for this category is $475,000.
28
<PAGE>
GRANDBANC, INC.
FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K.
A. Exhibits
3.1 GrandBanc, Inc. Articles of Incorporation (Incorporated by
reference to Exhibit 3.1 to Grandbanc, Inc. Form 10-QSB for the
Quarterly Period Ended June 30, 1997.)
3.2 GrandBank, Inc. By-Laws
10.1 Form of Employment Agreement between GrandBank and Domingo A.
Rodriquez, Executive Vice President and CFO, dated December,
1998.*
10.2 Form of Employment Agreement between GrandBank and Gary L.
Hobert, Executive Vice President-Lending, dated March 3, 1999.*
10.3 Form of Employment Agreement between GrandBanc, Inc., GrandBank
and Steven K. Colliatie, President and Chief Executive Officer,
dated June 17, 1999.*
11 "Computation of Earnings per Common Share" is presented as Note 7
on Page 9.
27 Financial Data Schedule
B. Reports on Form 8-K
None
-------------
* Compensatory contract.
<PAGE>
GRANDBANC, INC.
FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
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 8, 1999 /s/ Steven K. Colliatie
---------------- -------------------------------------
Steven K. Colliatie
President and Chief Executive Officer
Date: November 8, 1999 /s/ Domingo Rodriguez
---------------- -------------------------------------
Domingo Rodriguez
Executive Vice President and
Chief Financial Officer
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Exhibit 3.2
GRANDBANC, INC.
BY-LAWS
ARTICLE I.
STOCKHOLDERS
SECTION 1.01 Annual Meeting. The Corporation shall hold an annual
---------------
meeting of its stockholders to elect directors and transact any other business
within its powers, at 9:00 A.M., local time, on the third Tuesday of April of
each year, if not a legal holiday, or at such other time or on such other date
within thirty days thereafter as the Board of Directors shall determine. Except
as the Charter or statute provides otherwise, any business may be considered at
any annual meeting without the purpose of the meeting having been specified in
the notice. Failure to hold an annual meeting does not invalidate the
Corporation's existence or affect any otherwise valid corporate acts.
SECTION 1.02. Special Meeting. At any time in the interval between
----------------
annual meetings, a special meeting of the stockholders may be called by the
Chairman of the Board or the President or by a majority of the Board of
Directors by vote at a meeting or in writing (addressed to the Secretary of the
Corporation) with or without a meeting.
SECTION 1.03. Place of Meetings. Meetings of stockholders shall be
------------------
held at such place in the United States as is set from time to time by the Board
of Directors.
SECTION 1.04. Notice of Meetings; Waiver of Notice. Not less than
ten nor more than 90 days before each stockholders' meeting, the Secretary shall
give written notice of the meeting to each stockholder entitled to vote at the
meeting and each other stockholder entitled to notice of the meeting. The
notice shall state the time and place of the meeting and, if the meeting is a
special meeting or notice of the purpose is required by statute, the purpose of
the meeting. Notice is given to a stockholder when it is personally delivered
to him, left at his residence or usual place of business, or mailed to him at
his address as it appears on the records of the Corporation. Notwithstanding
the forgoing provisions, each person who is entitled to notice waives notice if
he before or after the meeting signs a waiver of the notice which is filed with
the records of stockholders' meetings, or is present at the meeting in person or
by proxy. A meeting of stockholders convened on the date for which it was
called may be adjourned from time to time without further notice to a date not
more than 120 days after the original record date.
SECTION 1.05. Quorum; Voting. Unless statute or the Charter provides
---------------
otherwise, at a meeting of stockholders the presence in person or by proxy of
stockholders entitled to cast a majority of all the votes entitled to be cast at
the meeting constitutes a quorum and a majority of all the votes cast at a
meeting at which a quorum is present is sufficient to approve any matter which
properly comes before the meeting. In the absence of a quorum, the stockholders
present in person or by proxy, by majority vote and without notice other than by
announcement, may adjourn the meeting from time to time until a quorum shall
attend. At any such adjourned meeting at which a quorum shall be present, any
business may be transacted which might have been transacted at the meeting as
originally notified. In the event that at any
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meeting a quorum exists for the transaction of some business but does not exist
for the transaction of other business, the business as to which a quorum is
present may be transacted by the holders of stock present in person or by proxy
who are entitled to vote thereon.
SECTION 1.06. General Right to Vote; Proxies. Unless the Charter
-------------------------------
provides for a greater or lesser number of votes per share or limits or denies
voting rights, each outstanding share of stock, regardless of class, is entitled
to one vote on each matter submitted to a vote at a meeting of stockholders. In
all elections for directors, each share of stock may be voted for as many
individuals as there are directors to be elected and for whose election the
share is entitled to be voted. A stockholder may vote the stock he owns of
record either in person or by written proxy signed by the stockholder or by his
duly authorized attorney in fact. Unless a proxy provides otherwise, it is not
valid more than 11 months after its date.
SECTION 1.07. List of Stockholders. At each meeting of stockholders,
---------------------
a full, true and complete list of all stockholders entitled to vote at such
meeting, showing the number and class of shares held by each and certified by
the transfer agent for such class or by the Secretary, shall be furnished by the
Secretary.
SECTION 1.08. Conduct of Voting. At all meetings of stockholders,
------------------
unless the voting is conducted by judges, the proxies and ballots shall be
received, and all questions touching the qualification of voters and the
validity of proxies and the acceptance or rejection of votes shall be decided,
by the chairman of the meeting. If demanded by stockholders, present in person
or by proxy, entitled to cast ten percent in number of votes entitled to be
cast, or if ordered by the chairman, the vote upon any election or question
shall be taken by ballot and, upon like demand or order, the voting shall be
conducted by two inspectors, in which event the proxies and ballots shall be
received, and all questions touching the qualification of voters and the
validity of proxies and the acceptance or rejection of votes shall be decided,
by such inspectors. Unless so demanded or ordered, no vote need be by ballot
and voting need not be conducted by inspectors. The stockholders at any meeting
may choose an inspector or inspectors to act at such meeting, and in default of
such election the chairman of the meeting may appoint an inspector or
inspectors. No candidate for election as a director at a meeting shall serve as
an inspector thereat.
SECTION 1.09. Conduct of Stockholders Meeting. The organizations of
--------------------------------
each meeting of stockholders, the order of business thereat and all matters
relating to the manner of conducting the meeting shall be determined by the
chairman of the meeting, whose decisions may be overruled only by majority vote
of the stockholders present and entitled to vote at the meeting in person or by
proxy. Meetings shall be conducted in a manner designed to accomplish the
business of the meeting in a prompt and orderly fashion and to be fair and
equitable to all stockholders, but it shall not be necessary to follow Roberts'
Rule of Order or any manual of parliamentary procedure.
SECTION 1.10. Notice of Stockholder Proposals.
-------------------------------
(a) General. The business to be conducted at any meeting of stockholders
--------
of the Corporation shall be limited to such business and nominations as shall
comply with the procedures set forth in this Article I and Article II, Sections
2.03 and 2.05 of these Bylaws.
(b) Notification of Stockholder Business. At any special meeting of
-------------------------------------
stockholders only such business shall be conducted as shall be set forth in the
notice of special meeting. At an annual meeting
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of stockholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before an annual
meeting, business must be (i) specified in the notice of meeting or any
supplement thereto given by or at the direction of the Board of Directors, (ii)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (iii) otherwise (a) properly requested to be brought
before the meeting by a stockholder of record entitled to vote in the election
of directors generally, and (b) constitute, as determined by the chairman of the
meeting and subject to the provisions of Section 1.09 of Article I, a proper
subject to be brought before such meeting.
For business to be properly brought before an annual meeting of
stockholders, the stockholder must have given timely notice thereof in writing
to the Secretary of the Corporation. To be timely, a stockholder's notice must
be either delivered or mailed and received at the principal executive offices of
the Corporation not later than 90 days in advance of such meeting. At
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposed to bring before the annual meeting (a) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business, (b) the name and address, as they appear on the
Corp[oration's books, of the stockholder intending to propose such business, (c)
the class and number of shares of capital stock of the Corporation which are
beneficially owned by the stockholder, (d) a representation that stockholder is
a holder of record of capital stock of the Corporation entitled to vote at such
meeting and intends to appear in person or by proxy at the meeting to present
such business, and (e) any material interest of the stockholder in such
business.
(c) Notification of Nominations. Except for directors elected pursuant to
----------------------------
the provisions of Section 2.05 of Article II dealing with the filling of Board
vacancies, only individuals nominated for election to the Board of Directors
pursuant to and in accordance with the provisions of this Section may be elected
to and may serve upon the Board of Directors of the Corporation. Subject to the
rights of holders of any class or series of stock of the Corporation, if any,
having a preference over Common Stock as to dividends or upon liquidation to
elect directors under specified circumstances, nominations for the election of
directors may be made by the Board of Directors or by any stockholder entitled
to vote in the election of directors generally. Subject to the foregoing, only
a stockholder of record entitled to vote in the election of directors generally
may nominate one or more persons for election as directors at a meeting of
stockholder and only if written notice of such stockholder's intent to make such
nomination or nominations has been given, either by personal delivery or mailed
and received at the principal executive offices of the Corporation by the
Secretary not later than the following dates: (i) with respect to an election
to be held at an annual meeting of stockholders, 60 days in advance of such
meeting if such meeting is to be held on a day which is with 30 days preceding
the anniversary of the previous year's annual meeting, or 90 days in advance of
such meeting if such meeting is to be held on or after the anniversary of the
previous year's annual meeting, and (ii) with respect to an election to be held
at a special meeting of stockholders for the election of directors, the close of
business on the tenth day following the date on which notice of such meetings is
first given to stockholders. For purposes of this Section, notice shall be
deemed to first be given to stockholders when disclosure of such date is first
made in a press release by the Corporation reported in a local daily newspaper
of general circulation or in a document publicly filed by the Corporation with
the Securities and Exchange Commission pursuant to the applicable regulation.
Each notice shall set forth (a) the name and address of the stockholder who
intends to make the nomination and the person or persons to be nominated, (b) a
representation that the stockholder is a holder of record of stock of the
Corporation entitled to vote at such meeting and intends to appear in
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person or by proxy at the meeting to nominate the person or persons specified in
the notice, (c) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons, naming such person
or persons, pursuant to which the nomination or nominations are to be made by
the stockholder, and (d) such other information regarding each nominee proposed
by such stockholder as would be required to be included in a proxy statement
filed pursuant to the proxy rules of the Securities and Exchange Commission, had
the nominee been nominated or intended to be nominated, by the Board of
Directors.
(d) Meeting Delay. For the purposes of this Section, reference to a
--------------
requirement to deliver notice or information to the Corporation a set number of
days in advance of an annual meeting shall mean that such notice must be
delivered such number of days in advance of the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is advanced by more than 30 days or delayed by more
than 60 days from the first anniversary of the preceding year's annual meeting,
notice by the stockholder to be timely must be delivered not later than the
close of business on the later of the 60th day prior to such annual meeting or
the tenth day following the day on which notice of such meeting is first given
to stockholders. For the purposes of this Section, notice shall be deemed to
first be given to stockholders when disclosure of such date is first made in a
press release by the Corporation, reported in a local daily newspaper of general
circulation or in a document publicly filed by the Corporation with the
Securities and Exchange Commission pursuant to applicable regulations.
ARTICLE II.
BOARD OF DIRECTORS
SECTION 2.01. Function of Directors. The business and affairs of the
----------------------
Corporation shall be managed under the direction of its Board of Directors. All
powers of the Corporation may be exercised by or under authority of the Board of
Directors, except as conferred on or reserved to the stockholders by statute or
by the Charter or By-Laws.
SECTION 2.02. Number of Directors. The Corporate shall have at least
--------------------
three directors; provided that, if there is no stock outstanding, the number of
Directors may be less that three but not less than one, and, if there is stock
outstanding and so long as there are less than three stockholders, the number of
Directors may be less than three but not less than the number of stockholders.
The Corporation shall have the number of directors provided in the Charter until
changed as herein provided. A majority of the entire Board of Directors may
alter the number of directors set by the Charter to not exceeding 25 nor less
than the minimum number then permitted therein, but the action may not affect
the tenure of office of any director.
SECTION 2.03. Election and Tenure of Directors. At each annual
---------------------------------
meeting, the stockholders shall elect directors to hold office until the next
annual meeting and until their successors are elected and qualify.
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SECTION 2.04. Removal of Director. The stockholders may remove any
--------------------
director, with or without cause, by the affirmative vote of a majority of all
the votes entitled to be cast for the election of directors.
SECTION 2.05. Vacancy of Board. The stockholders may elect a
-----------------
successor to fill a vacancy on the Board of Directors which results from the
removal of a director. A majority of the remaining directors, whether or not
sufficient to constitute a quorum, may fill a vacancy on the Board of Directors
which results from any cause except an increase in the number of directors and a
majority of the entire Board of Directors may fill a vacancy which results from
an increase in the number of directors. A director elected by the Board of
Directors to fill a vacancy serves until the next annual meeting of stockholders
and until his successor is elected and qualifies. A director elected by the
stockholders to fill a vacancy which results from the removal of a director
serves for the balance of the term of the removed director.
SECTION 2.06. Regular Meetings. After each meeting of stockholders
-----------------
at which a Board of Directors shall have been elected, the Board of Directors so
elected shall meet as soon as practicable for the purpose of organization and
the transaction of other business; and, in the event that no other time is
designated by the stockholders, the Board of Directors shall meet one hour after
the time for such stockholders' meeting or immediately following the close of
such meeting, whichever is later, on the day of such meeting. Such first
regular meeting shall be held at any place in or out of the State of Maryland as
may be designated by the stockholders, or in default of such designation at the
place designated by the Board of Directors for such first regular meeting, or in
default of such designation at the place of the holding of the immediately
preceding meeting of stockholders. No notice of such first meeting shall be
necessary if held as hereinabove provided. Any other regular meeting of the
Board of Directors shall be held on such date and at any place in or out of the
State of Maryland as may be designated form time to time by the Board of
Directors.
SECTION 2.07. Special Meetings. Special meetings of the Board of
-----------------
Directors may be called at any time by the Chairman of the Board or the
President or by a majority of the Board of Directors by vote at a meeting, or in
writing with or without a meeting. A special meeting of the Board of Directors
shall be held on such date and at any place in or out of the State of Maryland
as may be designated from time to time by the Board of Directors. In the
absence of such designation such meeting shall be held at such place as may be
designated in the call.
SECTION 2.08. Notice of Meeting. Except a provided in Section 2.06,
------------------
the Secretary shall give notice to each director of each regular and special
meeting of the Board of Directors. The notice shall state the time and place of
the meeting. Notice is given to a director when it is delivered personally to
him, left at his residence or usual place of business, or sent by telegraph or
telephone, at least 24 hours before the time of the meeting or, in the
alternative by mail to his address as it shall appear on the record of the
Corporation, at least 72 hours before the time of the meeting. Unless the By-
Laws or a resolution of the Board of Directors provide otherwise, the notice
need not state the business to be transacted at or the purpose of any regular or
special meeting of the Board of Directors. No notice of any meeting of the
Board of Directors need be given to any director who attends, or to any director
who, in writing executed and filed with the records of the meeting either before
or after the holding thereof, waives such notice. Any meeting of the Board of
Directors, regular or special, may adjourn from time to time to reconvene at the
same or some other place, and no notice need be given of any such adjourned
meeting other than by announcement.
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SECTION 2.09. Action By Directors. Unless statute or the Charter or
--------------------
By-Laws require a greater proportion, the action of a majority of the directors
present at a meeting at which a quorum is present is action of the Board of
Directors. A majority of the entire Board of Directors shall constitute a
quorum for the transaction of business. In the absence of a quorum, the
directors present by majority vote and without notice other than by announcement
may adjourn the meeting from time to time until a quorum shall attend. At any
such adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally
notified. Any action required or permitted to be taken at a meeting of the
Board of Directors may be taken without a meeting, if an unanimous written
consent which sets forth the action is signed by each member of the Board and
filed with the minutes of proceedings of the Board.
SECTION 2.10. Meeting by Conference Telephone. Members of the Board
--------------------------------
of Directors may participate in a meeting by means of a conference telephone or
similar communication equipment if all persons participating in the meeting can
hear each other at the same time. Participation in a meeting by these means
constitutes presence in person at a meeting.
SECTION 2.11. Compensation. By resolution of the Board of Directors
-------------
a fixed sum and expenses, if any, for attendance at each regular or special
meeting of the Board of Directors or of committees thereof, and other
compensation for their services as such or on committees of the Board of
Directors, may be paid to directors. A director who serves the Corporation, in
any other capacity also may receive compensation for such other services,
pursuant to a resolution of the directors.
ARTICLE III.
COMMITTEES
SECTION 3.01. Committees. The Board of Directors may appoint from
-----------
among its members an Executive Committee and other committees composed of two or
more directors and delegate to these committees any of the powers of the Board
of Directors, except the power to declare dividends or other distributions on
stock, elect directors, issue stock other than as provided in the next sentence,
recommend to the stockholders any action which requires stockholder approval,
amend the By-Laws, or approve any merger or share exchange which does not
require stockholder approval. If the Board of Directors has given general
authorization for the issuance of stock, a committee of the Board, in accordance
with a general formula or method specified by the Board by resolution or by
adoption of a stock option or other plan, may fix the terms of stock subject to
classification or reclassification and the terms on which any stock may be
issued, including all terms and conditions required or permitted to be
established or authorized by the Board of Directors.
SECTION 3.02. Committee Procedure. Each committee may fix rules of
--------------------
procedure for its business. A majority of the members of a committee shall
constitute a quorum for the transaction of business and the act of a majority of
those present at a meeting at which a quorum is present shall be the act of the
committee. The members of a committee present at any meeting, whether or not
they constitute a quorum, may appoint a director to act in the place of an
absent member. Any action required or permitted to be taken at a meeting of a
committee may be taken without a meeting, if an unanimous
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written consent which sets forth the action is signed by each member of the
committee and filed with the minutes of the committee. The members of a
committee may conduct any meeting thereof by conference telephone in accordance
with the provisions of Section 2.10.
SECTION 3.03. Emergency. In the event of a state of disaster of
----------
sufficient severity to prevent the conduct and management of the affairs and
business of the Corporation by its directors and officers as contemplated by the
Charter and the By-Laws, any two or more available members of the then incumbent
Executive Committee shall constitute a quorum of that Committee for the full
conduct and management of the affairs and business of the Corporation in
accordance with the provision of Section 3.01. In the event of the
unavailability, at such time, of a minimum of two members of then incumbent
Executive Committee, the available directors shall elect an Executive Committee
consisting of any two members of the Board of Directors, whether or not they be
officers of the Corporation, which two members shall constitute the Executive
Committee for the full conduct and management of the affairs of the Corporation
in accordance with the foregoing provisions of this Section. This Section shall
be subject to implementation by resolution of the Board of Directors passed from
time to time for that purpose, and any provisions of the By-Laws (other than
this Section) and any resolutions which are contrary to the provisions of this
Section or to the provisions of any such implementary resolutions shall be
suspended until it shall be determined by any interim Executive Committee acting
under this Section that it shall be to the advantage of the Corporation to
resume the conduct and management of its affairs and business under all the
other provisions of the By-Laws.
ARTICLE IV.
OFFICERS
SECTION 4.01. Executive Officers. The Corporation shall have a
-------------------
President, a Secretary and a Treasurer. It may also have a Chairman of the
Board, who shall be a director of the Corporation, and one or more Vice-
Presidents, one or more Assistant Vice-Presidents, one or more Assistant
Secretaries and one or more Assistant Treasurers. A person may hold more than
one office in the Corporation but may not serve concurrently as both President
and Vice-President of the Corporation.
SECTION 4.02 Chairman of the Board. The Chairman of the Board, if
----------------------
one be elected, shall preside at all meetings of the Board of Directors and of
the stockholders at which he shall be present. He shall have and may exercise
such powers as are from time to time assigned to him by the Board of Directors.
SECTION 4.03. President. In the absence of the Chairman of the
----------
Board, the President shall preside at all meetings of the stockholders and of
the Board of Directors at which he shall be present; he shall have general
charge and supervision of the assets and affairs of the Corporation; he may sign
and execute, in the name of the Corporation, all authorized deeds, mortgages,
bonds, contracts or other instruments, except in cases in which the signing and
execution thereof shall have been expressly delegated to some other officer or
agent of the Corporation; and, in general, he shall perform all duties incident
to the office of a president of a corporation, and such other duties as are from
time to time assigned to him by the Board of Directors.
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SECTION 4.04. Vice-Presidents. The Vice-President or Vice-
----------------
Presidents, at the request of the President or in his absence or during his
inability to act, shall perform the duties and exercise the functions of the
President, and when so acting shall have the powers of the President. If there
be more than one Vice-President, the Board of Directors may determine which one
or more of the Vice-Presidents shall perform any of such duties or exercise any
of such functions, or if such determination is not made by the Board of
Directors, the President may make such determination; otherwise any of the Vice-
Presidents may perform any of such duties or exercise any of such functions.
The Vice-President or Vice-Presidents shall have such other powers and perform
such other duties, and have such additional descriptive designations in their
titles (if any), as are from time to time assigned to them by the Board of
Directors or the President.
SECTION 4.05. Secretary. The Secretary shall keep the minutes of the
----------
meetings of the stockholders, of the Board of Directors and of any committees,
in books provided for the purpose; he shall see that all notices are duly given
in accordance with the provisions of the By-Laws or as required by the law; he
shall be custodian of the records of the Corporation; he shall witness all
documents on behalf of the Corporation, the execution of which is duly
authorized, see that the corporate seal is affixed where such document is
required to be under its seal, and, when so affixed, may attest the same; and,
in general, he shall perform all duties incident to the office of a secretary of
a corporation, and such other duties as are from time to time assigned to him by
the Board of Directors or the President.
SECTION 4.06. Treasurer. The Treasurer shall have charge of and be
----------
responsible for all funds, securities, receipts and disbursements of the
Corporation, and shall deposit, or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust companies
or others depositories as shall, from time to time, be selected by the Board of
Directors; he shall render to the President and to the Board of Directors,
whenever requested, an account of the financial condition of the Corporation;
and, in general, he shall perform all the duties incident to the office of a
treasurer of a corporation, and such other duties as are from time to time
assigned to him by the Board of Directors or the President.
SECTION 4.07. Assistant Officers. The Assistant Vice-Presidents
-------------------
shall have such duties as are from time to time assigned to them by the Board of
Directors or the President. The Assistant Secretaries shall have such duties as
are from time to time assigned to them by the Board of Directors or the
Secretary. The Assistant Treasurer shall have such duties as are from time to
time assigned to them by the Board of Directors or the Treasurer.
SECTION 4.08. Subordinate Officers. The Corporation may have such
---------------------
subordinate officers as the Board of Directors may from time to time deem
desirable. Each such officer shall hold office for such period and perform such
duties as the Board of Directors, the President or the committee or officer
designated pursuant to Section 4.10 may prescribe.
SECTION 4.09. Compensation. The Board of Directors shall have power
-------------
to fix the salaries and other compensation and remuneration, of whatever kind,
of all officers of the Corporation. It may authorize any committee or officer,
upon whom the power of appointing Subordinate officers may have been conferred,
to fix the salaries, compensation and remuneration of such subordinate officers.
SECTION 4.10. Election, Tenure and Removal of Officers. The Board of
----------------------------------------
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Directors shall elect the officers. The Board of Directors may from time to
time authorize any committee or officer to appoint subordinate officers. An
officer serves from one year and until his successor is elected and qualifies.
The Board of Directors may remove an officer or agent at any time. The removal
of an officer or agent does not prejudice any of his contract rights. The Board
of Directors (or any committee or officer authorized by the Board of Directors)
may fill a vacancy which occurs in any office for the unexpired portion of the
term.
ARTICLE V.
STOCK
SECTION 5.01. Certificates of Stock. Each stockholder is entitled to
----------------------
certificates which represent and certify the shares of stock he holds in the
Corporation. Each stock certificate shall include on its face the name of the
corporation that issues it, the name of the stockholder or other person to whom
it is issued, and the class of stock and number of shares it represents. It
shall be in such form, not inconsistent with law or with the Charter, as shall
be approved by the Board of Directors or any officer or officers designated for
such purpose by resolution of the Board of Directors. Each stock certificate
shall be signed by the Chairman of the Board, the President, or a Vice-
President, and countersigned by the Secretary, an Assistant Secretary, the
Treasurer, or an Assistant Treasurer. Each certificate may be sealed with the
actual corporate seal or a facsimile of it or in any other form and the
signatures may be either manual or facsimile signatures. A certificate is valid
and may be issued whether or not an officer who signed it is still an officer
when it is issued.
SECTION 5.02. Transfers. The Board of Directors shall have power and
----------
authority to make such rules and regulation as it may deem expedient concerning
the issue, transfer and registration of certificates of stock; and may appoint
transfer agents and registrars thereof. The duties of transfer agent and
register may be combined.
SECTION 5.03. Record Date and Closing of Transfer Books. The Board
------------------------------------------
of Directors may set a record date or direct that the stock transfer books be
closed for a stated period for the purpose of making any proper determination
with respect to stockholders, including which stockholders are entitled to
notice of a meeting, vote at a meeting, receive a dividend, or be allotted other
rights. The record date may not be more than 90 days before the date on which
the action requiring the determination will be taken; the transfer books may not
be closed for a period longer than 20 days; and, in case of a meeting of
stockholders, the record date of the closing of the transfer books shall be at
least ten days before the date of the meeting.
SECTION 5.04. Stock Ledger. The Corporation shall maintain a stock
-------------
ledger which contains the name and address of each stockholder and the number of
shares of stock of each class which the stockholder holds. The stock ledger may
be in written form or in any other form for visual inspection. The original or
a duplicate of the stock ledger shall be kept at the offices of a transfer agent
for the particular class of stock, within or without the State of Maryland, or,
if none, at the principal office or the principal executive offices of the
Corporation in the State of Maryland.
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SECTION 5.05. Certificate of Beneficial Owners. The Board of
---------------------------------
Directors may adopt by resolution a procedure by which a stockholder of the
Corporation may certify in writing to the Corporation that any shares of stock
registered in the name of the stockholder are held for the account of a
specified person other than the stockholder. The resolution shall set forth the
class of stockholders who may certify; the purpose for which the certification
may be made; the form of certification and the information to be contained in
it; if the certification is with respect to a record date or closing of the
stock transfer books, the time after the record date or closing of the stock
transfer books within which the certification must be received by the
Corporation; and any other provisions with respect to the procedure which the
Board considers necessary or desirable. On receipt of a certification which
complies with the procedure adopted by the Board in accordance with this
Section, the person specified in the certification is, for the purpose set forth
in the certification, the holder of record of the specified stock in place of
the stockholder who makes the certification.
SECTION 5.06. Lost Stock Certificates. The Board of Directors of the
------------------------
Corporation may determine the conditions for issuing a new stock certificate in
place of one which is alleged to have been lost, stolen, or destroyed, or the
Board of Directors may delegate such power to any officer or officers of the
Corporation. In their discretion, the Board of Directors or such officer or
officers may refuse to issue such new certificate save upon the order of some
court having jurisdiction in the premises.
ARTICLE VI.
FINANCE
SECTION 6.01. Checks, Drafts, Etc. All checks, drafts and orders for
--------------------
payment of money, notes and other evidences of indebtedness, issued in the name
of the Corporation, shall, unless otherwise provided by resolution of the Board
of Directors, be signed by the President, a Vice-President or Assistant Vice-
President and countersigned by the Treasurer, an Assistant Treasurer, the
Secretary or an Assistant Secretary.
SECTION 6.02. Annual Statement of Affairs. There shall be prepared
----------------------------
annually a full and correct statement of affairs of the Corporation, to include
a balance sheet and a financial statement of operations for the preceding fiscal
year. The statement of affairs shall be submitted at the annual meeting of the
stockholders and, within 20 days after the meeting, placed on file at the
Corporation's principal office.
SECTION 6.03. Fiscal Year. The fiscal year of the Corporation shall
------------
be the twelve calendar months period ending December 31 in each year, unless
otherwise provided by the Board of Directors.
10
<PAGE>
ARTICLE VII.
SUNDRY PROVISIONS
SECTION 7.01. Books and Records. The Corporation shall keep correct
------------------
and complete books and records of its accounts and transactions and minutes of
the proceedings of its stockholders and Board of Directors and of any executive
or other committee when exercising any of the powers of the Board of Directors.
The books and records of a Corporation may be in written form or in any other
form which can be converted within a reasonable time into written form for
visual inspection. Minutes shall be recorded in written form but may be
maintained in the form of a reproduction.
SECTION 7.02. Corporate Seal. The Board of Directors shall provide a
---------------
suitable seal, bearing the name of the Corporation, which shall be in the charge
of the Secretary. The Board of Directors may authorize one or more duplicate
seals and provide for the custody thereof.
SECTION 7.03. Bonds. The Board of Directors may require any officer,
------
agent or employee of the Corporation to give a bond to the Corporation,
conditioned upon the faithful discharge of his duties, with one or more sureties
and in such amount as may be satisfactory to the Board of Directors.
SECTION 7.04. Voting Upon Shares in Other Corporations. Stock of
-----------------------------------------
other corporations or associations, registered in the name of the Corporation,
may be voted by the President, a Vice-President, or a proxy appointed by either
of them. The Board of Directors, however, may by resolution appoint some other
person to vote such shares, in which case such person shall be entitled to vote
such shares upon the production of a certified copy of such resolution.
SECTION 7.05. Mail. Any notice or other document which is required
-----
by these By-Laws to be mailed shall be deposited in the United States mail,
postage prepaid.
SECTION 7.06. Execution of Documents. A person who holds more than
-----------------------
one office in the Corporation may not act in more than one capacity to execute,
acknowledge, or verify an instrument required by law to be executed,
acknowledged, or verified by more than one officer.
SECTION 7.07. Amendments. Subject to the special provisions of
-----------
Section 2.02, (a) any and all provisions of these By-Laws may be altered or
repealed and new by-laws may be adopted at any annual meeting of the
stockholders, or at any special meeting called for that purpose, and (b) the
Board of Directors shall have the power, at any regular or special meeting
thereof, to make and adopt new by-laws, or to amend, alter or repeal any of the
By-Laws of the Corporation.
11
<PAGE>
Exhibit 10.1
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT made as of this __ day of December, 1998, between GRAND BANK
(the "Bank"), a corporation organized and existing under the laws of the State
of Maryland, with principal offices at 1800 Rockville Pike, Rockville, Maryland
20852, and Domingo A. Rodriguez ("Rodriguez"), currently residing at 1501 Seneca
Forest Cr., Germantown, MD 20876, also referred to below, collectively, as the
"parties" and, individually, as a "party."
WITNESSETH THAT, in consideration of the mutual covenants and
obligations hereinafter set forth, the parties hereto agree as follows:
1. Period of Employment. The Bank shall continue to employ Rodriguez as
--------------------
its Executive Vice President CFO through December 31, 1999. Rodriguez agrees to
serve the Bank in such capacity. As the Executive Vice President - CFO,
Rodriguez's duties shall be those normally undertaken by such officers of banks
similar to the Bank in nature and size.
2. Commitment of Executive. So long as this Agreement shall continue in
-----------------------
effect, Rodriguez shall faithfully and diligently discharge his duties and
responsibilities under this Agreement, shall use his best efforts to implement
the policies established by the Board of Directors of the Bank, and shall devote
all of his business time and attention to the affairs of the Bank, except as
otherwise agreed by the Board of Directors.
3. Compensation.
------------
A. The Bank shall compensate Rodriguez at the initial rate of
ninety thousand dollars ($90,000) per year through December 31, 1999.
B. Salary as provided above will be payable less appropriate
deductions as required by law and shall be paid in appropriate installments to
conform with the Bank's regular payroll dates.
C. Rodriguez shall be entitled to four weeks vacation plus personal
and sick leave in accordance with Bank policy.
D. Rodriguez shall be entitled to participate in any and all
pension, retirement, profit-sharing, stock purchase, stock option, life
insurance, accident insurance, medical reimbursement, health insurance or
hospitalization plan, deferred compensation plan or any other fringe benefits in
which other employees or executives of the Bank are eligible to participate at a
comparable level.
F. Rodriguez shall be given a five hundred dollar ($500) per month
car allowance.
G. Rodriguez shall be reimbursed for reasonable traveling and other
expenses incurred or paid by Rodriguez in accordance with the Bank's policy and
in connection with the performance of his services under this Agreement, upon
presentation of expense statements or vouchers or such other supporting
information as may from time to time be requested
1
<PAGE>
H. Rodriguez will be granted 20,000 stock options in accordance
with the Employee Stock Option Plan now in effect.
5. Confidentiality. Rodriguez agrees that he will regard and preserve
---------------
as confidential all proprietary information pertaining to the business of the
Bank, its customers, subsidiaries, or affiliates that may be obtained by him
during the course of his employment, and thereafter, to the extent that such
information does not become public knowledge, that he will not, without written
authority from the Bank, directly or indirectly, disclose to others during his
employment or thereafter, any of such proprietary information obtained by him
while employed hereunder. The above shall not be construed as restricting
Rodriguez from disclosing such information to employees of the Bank who
reasonably require access to such information in order to discharge their
duties.
6. Binding Effect. This Agreement shall be binding upon and shall inure
--------------
to the benefit of the parties, the successors and assigns of the Bank (the term
"Bank" as used herein shall include all such successors and assigns), and the
heirs, executors, administrators, guardians and other personal representatives
of Rodriguez.
7. Term. This Agreement shall be effective as of the date first above
----
written and shall remain in effect through December 31, 1999.
8. Entire Agreement. This instrument contains the entire agreement of
----------------
the parties relating to the subject matter hereof and supersedes and cancels all
prior written and oral agreements and understandings between the parties
relating to the subject matter of this Agreement, which are not set forth
herein. No amendment or modification of this Agreement shall be valid unless
made in writing and signed by the parties hereto. No term or condition of this
Agreement shall be deemed to have been waived except by written instrument of
the party charged with such waiver.
9. Governing Law. This Agreement will be construed in accordance with
-------------
the laws of the State of Maryland.
IN WITNESS WHEREOF, the parties have executed this Employment Agreement
as of the day and year first above written.
ATTEST: GRAND BANK
a Maryland corporation
By:
- ----------------------------------- --------------------------------
Steven K. Colliatie, President/CEO
ATTEST: Domingo A. Rodriguez
- ----------------------------------- -----------------------------------
2
<PAGE>
Exhibit 10.2
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT made as of this 3rd day of March, 1999, between GRAND BANK
(the "Bank"), a corporation organized and existing under the laws of the State
of Maryland, with principal offices at 1800 Rockville Pike, Rockville, Maryland
20852, and GARY L. HOBERT ("Hobert"), currently residing at 515 Beulah Road,
N.E., Vienna, Virginia 22180, also referred to below, collectively, as the
"parties" and, individually, as a "party."
WITNESSETH THAT, in consideration of the mutual covenants and
obligations hereinafter set forth, the parties hereto agree as follows:
1. Period of Employment. The Bank shall continue to employ Hobert as
--------------------
its Executive Vice President through December 31, 1999. Hobert agrees to serve
the Bank in such capacity. As the Executive Vice President--Lending, Hobert's
duties shall be those normally undertaken by such officers of banks similar to
the Bank in nature and size.
2. Commitment of Executive. So long as this Agreement shall continue in
-----------------------
effect, Hobert shall faithfully and diligently discharge his duties and
responsibilities under this Agreement, shall use his best efforts to implement
the policies established by the Board of Directors of the Bank, and shall devote
all of his business time and attention to the affairs of the Bank, except as
otherwise agreed by the Board of Directors.
3. Compensation.
------------
A. The Bank shall compensate Hobert at the initial rate of
eighty-five thousand dollars ($85,000) per year through December 31, 1999.
B. Salary as provided above will be payable less appropriate
deductions as required by law and shall be paid in appropriate installments to
conform with the Bank's regular payroll dates.
C. Hobert shall be entitled to four weeks vacation plus personal
and sick leave in accordance with Bank policy.
D. Hobert shall be entitled to participate in any and all pension,
retirement, profit-sharing, stock purchase, stock option, life insurance,
accident insurance, medical reimbursement, health insurance or hospitalization
plan, deferred compensation plan or any other fringe benefits in which other
employees or executives of the Bank are eligible to participate at a comparable
level.
F. Hobert shall be given a five hundred dollar ($500) per month
car allowance.
G. Hobert shall be reimbursed for reasonable traveling and other
expenses incurred or paid by Hobert in accordance with the Bank's policy and in
connection with the performance of his services under this Agreement, upon
presentation of expense statements or vouchers or such other supporting
information as may from time to time be requested
H. Hobert will be granted 15,000 stock options in accordance with
the Employee Stock Option Plan now in effect.
1
<PAGE>
5. Confidentiality. Hobert agrees that he will regard and preserve as
---------------
confidential all proprietary information pertaining to the business of the Bank,
its customers, subsidiaries, or affiliates that may be obtained by him during
the course of his employment, and thereafter, to the extent that such
information does not become public knowledge, that he will not, without written
authority from the Bank, directly or indirectly, disclose to others during his
employment or thereafter, any of such proprietary information obtained by him
while employed hereunder. The above shall not be construed as restricting Hobert
from disclosing such information to employees of the Bank who reasonably require
access to such information in order to discharge their duties.
6. Binding Effect. This Agreement shall be binding upon and shall inure
--------------
to the benefit of the parties, the successors and assigns of the Bank (the term
"Bank" as used herein shall include all such successors and assigns), and the
heirs, executors, administrators, guardians and other personal representatives
of Hobert.
7. Term. This Agreement shall be effective as of the date first above
----
written and shall remain in effect through December 31, 1999.
8. Entire Agreement. This instrument contains the entire agreement of
----------------
the parties relating to the subject matter hereof and supersedes and cancels all
prior written and oral agreements and understandings between the parties
relating to the subject matter of this Agreement, which are not set forth
herein. No amendment or modification of this Agreement shall be valid unless
made in writing and signed by the parties hereto. No term or condition of this
Agreement shall be deemed to have been waived except by written instrument of
the party charged with such waiver.
9. Governing Law. This Agreement will be construed in accordance with
-------------
the laws of the State of Maryland.
IN WITNESS WHEREOF, the parties have executed this Employment Agreement
as of the day and year first above written.
ATTEST: GRAND BANK
a Maryland corporation
By:
- ----------------------------------- -----------------------------------
Steven K. Colliatie, President/CEO
ATTEST: GARY L. HOBERT
- ----------------------------------- -----------------------------------
2
<PAGE>
Exhibit 10.3
EMPLOYMENT AGREEMENT
--------------------
This Agreement, made as of the 17 day of June , 1999 by and between the
GRANDBANC, INC. (the "Company"), a Maryland corporation located at 1800
Rockville Pike, Rockville, Maryland 20852; The GRANDBANK (the "Bank"), a
commercial bank chartered under the laws of the State of Maryland with its main
office also at such address, and Steven K. Colliatie, residing at 1817
Abbotsford Dr., Vienna, Virginia 22182 (the "Employee").
WITNESSETH
----------
WHEREAS, the Company and the Bank each desire to employ the Employee as its
President and Chief Executive officer on the terms and conditions set forth in
this Agreement; and
WHEREAS, the Employee desires to become an employee of the Company and the
Bank upon such terms and conditions;
NOW THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, the Employee, the Company and the Bank each hereby agree as
follows:
1. Term of Employment. The Company and the Bank each agree to employ the
--------------------
Employee and Employee agrees to remain in the employment of the Company, in
accordance with the terms and provisions of this Agreement, for a one-year
period commencing on the date hereof (the "Effective Date"). On the anniversary
date of the Effective Date, the Employee's term of employment with the Bank and
the Company shall be extended for an additional one-year period, provided the
Board of Directors of the Bank and the Company, respectively, have determined by
duly adopted resolution that the performance of the Employee has met the
reasonable requirements of the respective Board of Directors and that this
Agreement shall be extended.
2. Nature of Employment. Employee shall be employed as President and Chief
----------------------
Executive Officer of the Company and the Bank. In such employment, Employee
shall have the responsibility and authority usual for chief executive officers
of corporations and banks, including responsibility and full authority for the
day-to-day operations and general management of the Company and the Bank and
shall have such other responsibility and authority which, consistent therewith,
are delegated to him by the respective Board of Directors. Such duties shall
include, but not be limited to, making recommendations to the Boards of
Directors of the Company and the Bank concerning the strategies, tactics, and
general operations of the Company and the Bank, promotion of the Company and the
Bank and their services, supervising other employees of the Company and the
Bank, managing the efforts of the Company and the Bank to comply with applicable
laws and regulations, and providing prompt and accurate reports to the Boards of
Directors of the Company and the Bank regarding the affairs and condition of the
Company and the Bank, respectively.
The Company agrees to nominate the Employee as a member of the Board of
Directors of the Company to serve during the term of this Agreement, including
any renewals, and to elect or appoint the Employee as a director of the Bank
during such term. The Employee agrees to accept such nominations, and to serve
as a member of the Boards of Directors of the Company and the Bank. Employee
also shall serve on the Executive Committee and any other committees of the
Boards of Directors of the Company and the Bank except as he and the respective
Board of Directors may agree or as required by law or regulation.
1
<PAGE>
3. Compensation. Employee shall be paid a base salary under this agreement in
--------------
the amount of One Hundred Fifty Five Thousand Dollars and No Cents ($155,000)
per year, payable in arrears in equal semi-monthly installments on regular pay
days of the Bank. The base compensation shall be reviewed annually and may be
increased, but not decreased.
4. Bonus. The Employee shall be paid a bonus at the discretion of the
-------
Board.
5. Expenses. The Employee is hereby authorized to incur customary, ordinary and
----------
reasonable expenses for promoting the business of the Company and the Bank and
improving his professional status, including expenses for entertainment,
professional membership fees, club dues, and costs of attending meetings and
conventions, which the Employee incurs in his capacity as President and Chief
Executive Officer of the Company or the Bank and which are reasonably necessary
for the performance of his duties and responsibilities.
6. Car Allowances. Employee will be provided a monthly allowance of Seven
----------------
Hundred Sixty Five Dollars and No Cents ($765.00), at his option to be used for
the lease of an auto of his choice or as a monthly allowance, plus expenses.
7. Vacation. Employee shall be entitled to five (5) weeks of vacation for the
----------
twelve month period beginning May 1, 1999, and for each successive twelve month
period. Vacation time for a twelve month period shall vest on the first day of
the period, i.e., May 1. Beginning with the Effective Date Employee must take
two (2) weeks consecutively, but cannot take more than two (2) weeks
consecutively without the prior approval of the respective Board of Directors.
Unused vacation will accrue.
8. Insurance. Employee shall receive and Company shall provide Employees' family
-----------
with health insurance, major medical insurance, dental insurance, long term
disability insurance, and life insurance at two and one half times the Employee
Base Salary. The Employee will accrue two weeks per year of sick leave which
will be capped at ninety days.
9. Stock Options. Employee will be entitled to participate on the same basis as
---------------
other employees in similar capacity at the discretion of the Board.
10. Termination, Change in Control. The Company may terminate this Agreement by
--------------------------------
providing the Employee with prior written notice of its decision to terminate
the Agreement and indicating the date on which the termination is effective, as
provided below.
(a) The Board of Directors of the Bank or the Company may, by written notice to
the Employee in the form and manner specified in this paragraph, immediately
terminate his employment with the Bank or the Company, respectively, at any
time, for Just Cause. The Employee shall have no right to receive compensation
or other benefits for any period after termination for Just Cause. Termination
for "Just Cause" shall mean termination because of, in the good faith
determination of the Company's or the Bank's Board of Directors, the Employee's
personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule or regulation (other this Agreement. Notwithstanding
the foregoing, the Employee shall not be deemed to have been terminated for Just
Cause unless there shall have been delivered to the Employee a copy of a
resolution duly adopted by the affirmative vote of not less than a majority of
the entire membership of the Board of Directors of the Bank or the Company at a
meeting of the Board called and held for the purpose (after reasonable notice to
the Employee and an opportunity for the Employee to be heard before the Board),
finding that in the good faith opinion of the Board the Employee was guilty of
conduct described above and specifying the particulars thereof.
2
<PAGE>
(b) Notwithstanding any provision herein to the contrary, if the Employee's
employment under this Agreement is terminated by the Company or the Bank (other
than by reason of death or disability) without the Employee' s prior written
consent and for a reason other than Just Cause, the Company, in full settlement
and discharge of its obligations under this Agreement, shall pay to the Employee
(i) any salary or other compensation to the Employee and reimbursement for
expenses accrued but unpaid as of the date of any termination, (ii) any accrued
vacation and sick time available but not yet taken, and (iii) an additional
amount equal to 2.0 times his annual salary at the rate in effect immediately
prior to the termination of his employment, plus continue to provide all
insurance benefits then in place during the two year period, not to be
considered additional salary. Said amounts shall be paid in equal monthly
amounts over the remaining term of the Agreement. In addition, the Option
Agreements entered in connection with the options granted pursuant to Section 9
of this Agreement will provide that, if the Employee is terminated for any
reason other than for Cause, Death or Disability, as defined in the Plan, the
Employee will become immediately vested in all stock options then outstanding
and shall have two (2) years to exercise any such unexercised options, subject
to the limitations upon exercise of stock options contained in the Plan.
(c) Notwithstanding any other provision of this Agreement to the contrary,
the Employee may voluntarily terminate his employment under this Agreement
within twelve (12) months following a change in control of the Bank or the
Company, and the Employee shall thereupon be entitled to receive the payment
described in paragraph 1 l(b) of this Agreement, upon the occurrence of any of
the following events, or within ninety (90) days thereafter, which have not been
consented to in advance by the Employee in writing: (i) the requirement that the
Employee move his personal residence, or perform his principal executive
functions, more than thirty-five (35) miles from his primary office as of the
effective date of this Agreement; (ii) a significant reduction in the Employee's
compensation and benefits provided for under this Agreement, taken as a whole,
immediately prior to or after such change in control; (iii) the assignment to
the Employee of duties and responsibilities substantially inconsistent with
those normally associated with his position described in Section 2; (iv) a
failure of the Employee to be elected or reelected to the Board of Directors of
the Bank or the Company; or (v) a material reduction in the Employee's
responsibilities or authority (including reporting responsibilities) in
connection with his employment with the Bank or the Company.
(d) In no event may the aggregate amount payable under this section in
connection with a change in control of the Company or the Bank equal or exceed
the difference between (i) the product of 2.99 times his "base amount" as
defined in Section 280G(b)(3) of the Code and regulations promulgated
thereunder, and (ii) the sum of any other parachute payments (as defined under
Section 280G(b)(2) of the Code) that the Employee receives on account of a
change in control. The term "control" for purposes of determining whether a
"change in control" has occurred for purposes of this section shall occur after
the Effective Date (w) upon the acquisition by any person of ownership, or power
to vote more than twenty-five percent (25%) of the Bank's or Company's voting
stock, (x) upon acquisition by any person of the control of the election of a
majority of the Bank's or Company's directors, (y) upon the exercise of a
controlling influence over the management or policies of the Bank or the Company
by any person or by persons acting as a group within the meaning of Section
13(d) of the Securities Exchange Act of 1934 (which imposes certain reporting
obligations upon such groups in certain circumstances), or (z) at such time
that, during any period of two (2) consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the Company or the
Bank (in either case, the "Company Board") (the "Continuing Directors") cease
for any reason to constitute at least two-thirds (2/3) of such board, provided
that any individual whose election or nomination for election as a member of the
Company Board was approved by a vote of at least two-thirds (2/3) of the
Continuing Directors then in office shall be considered a Continuing Director.
The term "person" means an individual (other than the Employee), corporation,
partnership, trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or any other form of entity not
specifically listed herein.
3
<PAGE>
(e) If the Employee is removed and/or permanently prohibited from participating
in the conduct of the Bank's affairs by an order issued under Sections 8(e)(4)
or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12 U.S.C. (S)(S)
1818(e)(4) and (g)(1)), all obligations of the Bank under this Agreement shall
terminate, as of the effective date of the order, but vested rights of the
parties shall not be affected. If the Bank is in default (as defined in Section
3(x)(1) of FDIA), all obligations of the Bank under this Agreement shall
terminate as of the date of default; however, this Paragraph shall not affect
the vested rights of the parties. If a notice served under Sections 8(e)(3) or
(g)(1) of the FDIA (12 U.S.C. (S)(S) 1818(e)(3) and (g)(1)) suspends and/or
temporarily prohibits the Employee from participating in the conduct of the
Bank's affairs, the Bank's obligations under this Agreement shall be suspended
as of the date of such service, unless stayed by appropriate proceedings. If the
charges in the notice are dismissed, the Bank may, in its discretion, (i) pay
the Employee all or part of the compensation withheld while its contract
obligations were suspended, and (ii) reinstate (in whole or in part) any of its
obligations which were suspended.
(f) In the event that any dispute arises between the Employee and the Bank or
the Company or the Bank as to the terms or interpretation of this Agreement,
including, without limitation, any action that the Employee takes to enforce the
terms of this Section 11 or to defend against any action taken by the Bank or
the Company, all Parties hereby agree to abide by and accept the final decision
of an arbitrator under the American Arbitration Rules as the ultimate resolution
of the complaint(s) for all events that arise out of this agreement. The Bank
and Company agree to pay all costs associated with such arbitration.
(g) Any payments made to the Employee pursuant to this Agreement are
subject to and conditioned upon their compliance with Section 18(k) of the FDIA
(12 U.S.C. (S) 1828 (k), relating to "golden parachute" and indemnification
payments and certain other benefits) and any regulations promulgated thereunder.
11. Modification. This Agreement cannot be changed, modified or discharged other
--------------
than by an agreement in writing signed by both parties. The parties expressly
agree that the obligations of the Bank under this Agreement may be limited by
law and regulations of federal and state banking authorities, and agree to make
such amendments to this Agreement as they may jointly determine, with the advice
of legal counsel, are appropriate to reflect such limits.
12. Survival and Benefit. Except as otherwise herein expressly provided, this
----------------------
Agreement shall inure to the benefit of and be binding upon the Company and the
Bank, its successors and assigns, including, but not limited to, any corporation
which may acquire all, or substantially all, of the assets or business of the
Company or the Bank or with which the Company or the Bank may be consolidated or
merged. The parties hereto agree that the responsibility for the performance of
Employee's duties hereunder may not be delegated.
13. Severability. The invalidity or enforceability of any provision hereof shall
--------------
in no way affect the validity or enforceability of any other provision.
14. Interpretation and Jurisdiction. Except to the extent preempted by Federal
---------------------------------
law, the laws of the State of Maryland shall govern this Agreement in all
respects, whether as to its validity, construction, capacity, performance or
otherwise.
15. Headings. The titles and headings that appear in this Agreement have been
----------
included for purposes of each of reference and shall not be considered in the
interpretation or construction of this Agreement.
16. Notices. All notices required by this Agreement shall be in writing and
---------
shall be sent be registered or certified mail to the respective parties at the
addresses shown, unless and until notice is given of a change of address.
4
<PAGE>
To the Company or the Bank:
GRANDBANC, Inc.
The GRANDBANK
1800 Rockville Pike
Rockville, Maryland 20852
Attn: Melvyn Estrin
Chairman of the Board
To the Employee:
Steven K. Colliatie
1817 Abbotsford Drive
Vienna, Virginia 22182
17. Joint and Severally Liability. To the extent permitted by law, except as
-----------------------------
otherwise provided herein, the Company and the Bank shall be jointly and
severally liable for the payment of all amounts due under this Agreement.
18. No Mitigation. The Employee shall not be required to mitigate the amount of
-------------
any payment provided for in this Agreement by seeking other employment or
otherwise and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Employee in any subsequent employment.
19. Entire Agreement. This Agreement constitutes the entire Agreement among the
----------------
parties, and there are no other understandings, representations or warranties,
oral or written, relating to the subject matter hereof other than as expressly
provided herein.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first herein above written.
ATTEST: GRANDBANC, INC.
Secretary Its: CHAIRMAN
ATTEST:
THE GRANDBANK
Secretary
Its: CHAIRMAN
WITNESS: EMPLOYEE
5
<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, 1999, and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<CIK> 0000719488
<NAME> GRANDBANC, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,428
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,789
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 46,221
<INVESTMENTS-CARRYING> 48,259
<INVESTMENTS-MARKET> 46,221<F1>
<LOANS> 58,231
<ALLOWANCE> (679)
<TOTAL-ASSETS> 118,465
<DEPOSITS> 102,696
<SHORT-TERM> 8,846
<LIABILITIES-OTHER> 419
<LONG-TERM> 200
0
0
<COMMON> 405
<OTHER-SE> 5,899
<TOTAL-LIABILITIES-AND-EQUITY> 118,465
<INTEREST-LOAN> 4,236
<INTEREST-INVEST> 2,148
<INTEREST-OTHER> 86
<INTEREST-TOTAL> 6,470
<INTEREST-DEPOSIT> 3,163
<INTEREST-EXPENSE> 3,414
<INTEREST-INCOME-NET> 3,056
<LOAN-LOSSES> 189
<SECURITIES-GAINS> 6
<EXPENSE-OTHER> 3,566
<INCOME-PRETAX> (265)
<INCOME-PRE-EXTRAORDINARY> (265)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (165)
<EPS-BASIC> (0.04)
<EPS-DILUTED> (0.04)
<YIELD-ACTUAL> 0
<LOANS-NON> 275
<LOANS-PAST> 181
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 927
<CHARGE-OFFS> 462
<RECOVERIES> 24
<ALLOWANCE-CLOSE> 679
<ALLOWANCE-DOMESTIC> 679
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>NOT BROKEN OUT IN KSB
</FN>
</TABLE>
