<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 June 30, 2000
-------------
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 July 27, 2000, 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
-----------------
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
------------------------------ ----
<S> <C>
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheets...........................................................................1
Consolidated Statements of Income.....................................................................2
Consolidated Statements of Shareholders' Equity.......................................................3
Consolidated Statements of Changes in Cash Flows......................................................4
Notes to Consolidated Financial Statements.........................................................5-10
Item 2 - Management's Discussion and Analysis..............................................................11-24
PART II - OTHER INFORMATION
---------------------------
Item 4 - Submission of Matters to a Vote of Security Holders...........................................................25
Item 6 - Exhibits and Reports on Form 8-K..............................................................................25
6(a) The following exhibits required to be filed herewith:
(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.............................................................................................................26
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GRANDBANC, INC
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and Due from banks $ 2,968 $ 4,299
Federal funds sold 48 9
--------------------------------------------
Total cash and cash equivalents 3,016 4,308
Securities available-for-sale 42,360 44,967
Loans, net of unearned discount and loan fees 59,936 58,993
Less: Allowance for loan losses (668) (690)
--------------------------------------------
Loans, net 59,268 58,303
Bank premises and equipment, net 3,865 3,892
Accrued income receivable 838 868
Prepaid expenses and other assets 655 698
Deferred income taxes 3,070 3,100
Intangible assets 936 1,017
Other real estate owned 114 114
--------------------------------------------
TOTAL ASSETS $ 114,122 $ 117,267
============================================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand $ 11,976 $ 10,637
Interest checking 11,520 11,532
Savings 17,730 16,427
Time 57,352 62,660
--------------------------------------------
Total Deposits 98,578 101,256
Securities sold under agreement to repurchase
and other borrowed funds 9,281 9,749
Other liabilities 402 449
--------------------------------------------
TOTAL LIABILITIES 108,261 111,454
--------------------------------------------
SHAREHOLDERS' EQUITY
Common stock 405 405
Surplus 10,963 10,963
Retained earnings (3,847) (3,918)
Accumulated comprehensive income:
Unrealized holding loss on securities available-for-sale (1,660) (1,637)
--------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 5,861 5,813
--------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 114,122 $ 117,267
============================================
BOOK VALUE PER SHARE $ 1.45 $ 1.44
============================================
ACTUAL SHARES OUTSTANDING 4,050 4,050
============================================
</TABLE>
See notes to consolidated financial statements.
Page 1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
GRANDBANC, INC
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
For The Three Months Ended For The Six Months Ended
June 30, June 30,
-------------------------------- ---------------------------
2000 1999 2000 1999
-------------------------------- ---------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 1,412 $ 1,380 $ 2,803 $ 2,884
Interest on federal funds sold and repurchase agreement 15 24 32 73
Interest on Securities 714 755 1,427 1,365
-------------------------------- ---------------------------
TOTAL INTEREST INCOME 2,141 2,159 4,262 4,322
-------------------------------- ---------------------------
INTEREST EXPENSE:
Interest on deposits 990 1,087 1,986 2,106
Interest on securities sold under agreements to repurchase
and other borrowed funds 138 93 250 164
-------------------------------- ---------------------------
TOTAL INTEREST EXPENSE 1,128 1,180 2,236 2,270
-------------------------------- ---------------------------
NET INTEREST INCOME 1,013 979 2,026 2,052
PROVISION FOR LOAN LOSSES 15 68 60 189
-------------------------------- ---------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 998 911 1,966 1,863
-------------------------------- ---------------------------
NONINTEREST INCOME:
Service charges 153 90 292 175
Other 46 45 89 97
-------------------------------- ---------------------------
TOTAL NONINTEREST INCOME 199 135 381 272
-------------------------------- ---------------------------
NONINTEREST EXPENSES:
Salaries and employee benefits 522 561 1,044 1,067
Occupancy 143 155 289 321
Equipment 71 76 137 149
Other operating expenses 386 415 762 859
-------------------------------- ---------------------------
TOTAL NONINTEREST EXPENSES 1,122 1,207 2,232 2,396
-------------------------------- ---------------------------
INCOME BEFORE APPLICABLE INCOME TAXES 75 (161) 115 (261)
INCOME TAXES 28 (62) 44 (100)
-------------------------------- ---------------------------
NET INCOME $ 47 $ (99) $ 71 $ (161)
================================ ===========================
PER COMMON SHARE DATA
Basic Earnings $ 0.01 $ (0.02) $ 0.02 $ (0.04)
Diluted Earnings $ 0.01 $ (0.02) $ 0.02 $ (0.04)
AVERAGE COMMON SHARES
Basic 4,050 4,050 4,050 4,050
Diluted 4,218 4,211 4,218 4,211
</TABLE>
See notes to consolidated financial statements.
Page 2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
GRANDBANC, INC
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, 1998 4,050 $ 405 $ 10,963 $ (3,648) $ (32) $ 7,688
Net income for the six months
ended June 30, 1999 - - - (161) - (161)
Common stock issuance - - - - - -
Change in unrealized holding gain
(loss) on securities available for sale - - - - (1,079) (1,079)
---------------------------------------------------------------------------------
Balance at June 30, 1999 4,050 $ 405 $ 10,963 $ (3,809) $ (1,111) $ 6,448
=================================================================================
Balance at December 31, 1999 4,050 $ 405 $ 10,963 $ (3,918) $ (1,637) $ 5,813
Net income for the six months
ended June 30, 2000 - - - 71 - 71
Common stock issuance - - - - - -
Change in unrealized holding gain
(loss) on securities available for sale - - - - (23) (23)
---------------------------------------------------------------------------------
Balance at June 30, 2000 4,050 $ 405 $ 10,963 $ (3,847) $ (1,660) $ 5,861
=================================================================================
</TABLE>
See notes to consolidated financial statements.
Page 3
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
GRANDBANC, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
----------------------------------------
2000 1999
----------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 71 $ (161)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 131 143
Net amortization of securities 22 73
Amortization of intangibles 81 72
Provision for loan losses 60 189
Net realized gain on sale of securities - (3)
Provision (benefit) for deferred income taxes 44 (100)
Change in assets and liabilities:
Accrued income receivable, other assets and other real estate 73 141
Other liabilities (47) 80
----------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 435 434
----------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in federal funds sold (39) 4,155
Proceeds from sales and maturities of
available for sale securities 2,547 4,305
Purchases of available for sale securities (5) (21,966)
Net (increase) decrease in loans (1,019) 3,476
Purchases of bank premises and equipment (104) (2,290)
----------------------------------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 1,380 (12,320)
----------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in deposits (2,678) 9,133
Net (decrease) increase in federal funds purchased and
other short-term borrowings (410) 1,859
Repayment of long term debt (58) -
----------------------------------------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (3,146) 10,992
----------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,331) (894)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,299 3,225
----------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,968 $ 2,331
========================================
CASH PAID FOR INTEREST $ 2,223 $ 2,524
========================================
</TABLE>
See notes to consolidated financial statements.
Page 4
<PAGE>
GRANDBANC, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
June 30, 2000
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 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 9 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 six-month periods ended
June 30, 2000 are not necessarily indicative of the results that may be expected
for the year ending December 31, 2000. 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, 1999.
Note 3 - Future Application of Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133). In June 1999, the FASB
issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133," which
delayed the effective date of SFAS No. 133 to January 1, 2001 for calendar year
companies such as the Corporation. This statement requires derivative
instruments be carried at fair value on the balance sheet. The statement
continues to allow derivative instruments to be used to hedge various risks and
sets forth specific criteria to be used in determining when hedge accounting can
be used. The statement also provides for offsetting changes in fair value or
cash flows of both the derivative and the hedged asset or liability to be
recognized in earnings in the same period; however, any changes in fair value or
cash flow that represent the ineffective portion of the hedge are required to be
recognized in earnings and cannot be deferred. For derivative instruments not
accounted for as hedges, changes in fair value are required to be recognized in
earnings.
The Corporation plans to adopt the provisions of this statement, as amended, for
its quarterly and annual reporting beginning January 1, 2001, the statements
effective date. The impact of adopting the provisions of this statement on the
Corporation's financial position, results of operations and cash flows
subsequent to the effective date is not currently estimable and will depend on
the financial position of the Corporation and the nature and purpose of any
derivative instrument in use at that time.
Page 5
<PAGE>
GRANDBANC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Securities
(in thousands)
<TABLE>
<CAPTION>
June 30, 2000
------------------------------------------------------------------------------------------------------------------
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 $ 26,004 $ - $ (1,769) $ 24,235
Mortgage-Backed Securities 18,635 3 (996) 17,642
Other Securities 425 58 - 483
-------------------------------------------------------------
Total $ 45,064 $ 61 $ (2,765) $ 42,360
============================================================
<CAPTION>
December 31, 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 $ 26,505 $ - $ (1,666) $ 24,839
Mortgage-Backed Securities 20,709 2 (1,061) 19,650
Other Securities 420 58 - 478
-------------------------------------------------------------
Total $ 47,634 $ 60 $ (2,727) $ 44,967
=============================================================
</TABLE>
Page 6
<PAGE>
GRANDBANC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Loans
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
For The Periods Ended 2000 1999
---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Real Estate-Mortgage $ 41,014 $ 40,995
Real Estate-Construction 386 94
Commercial 14,266 13,429
Consumer 2,543 2,430
Credit Card Receivable 1,774 2,099
---------------------------------------
Gross loans 59,983 59,047
---------------------------------------
Less: Deferred loan fees and
unearned discount (47) (54)
---------------------------------------
Loans, net of unearned discount and
deferred loan fees 59,936 58,993
---------------------------------------
Allowance for loan losses (668) (690)
---------------------------------------
Loans, net $ 59,268 $ 58,303
======================================
</TABLE>
Page 7
<PAGE>
GRANDBANC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Allowance for Loan Losses
(in thousands)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
--------------------------------------- ---------------------------------------
For the Periods Ended 2000 1999 2000 1999
-------------------------------------------------------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of period $ 681 $ 915 $ 690 $ 927
Provision charged to expense 15 68 60 190
Charge-Offs:
Commercial and other - 21 - 21
Consumer 34 202 98 341
Real Estate 5 - 5 -
----------------------------------------------------------------------------------
Total Charge-offs 39 223 103 362
Recoveries:
Commercial and other 5 12 11 12
Consumer 6 5 10 10
Real Estate - - - -
----------------------------------------------------------------------------------
Total Recoveries 11 17 21 22
Net Charge-Offs (Recoveries) 28 206 82 340
----------------------------------------------------------------------------------
Balance at end of period $ 668 $ 777 $ 668 $ 777
==================================================================================
Average Total Loans (1) $ 58,268 $ 57,859 $ 58,571 $ 58,772
Total Loans at Period End (1) $ 59,936 $ 57,342 $ 59,936 $ 57,342
Ratio of net charge-offs (recoveries)
to average total loans 0.05% 0.36% 0.14% 0.58%
Ratio of allowance for
loan losses to total
loans at period end 1.11% 1.36% 1.11% 1.36%
</TABLE>
(1) Total Loans are reported net of unearned income.
Page 8
<PAGE>
GRANDBANC, INC.
NOTES TO 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
June 30, Total December 31, Total
2000 Loans 1999 Loans
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Real Estate-Mortgage $240 68.4% $224 69.4%
Real Estate-Construction 2 0.6% 1 0.2%
Commercial 43 23.8% 49 22.7%
Consumer 248 7.2% 304 7.7%
Unallocated 135 N/A 112 N/A
---------------------------------------------------------------------------
Total $668 100.0% $690 100.0%
===========================================================================
</TABLE>
Page 9
<PAGE>
GRANDBANC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7. Earnings Per Share
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
--------------------------------- -----------------------------
2000 1999 2000 1999
--------------------------------------------------------------------------------------------- -----------------------------
<S> <C> <C> <C> <C>
Basic earnings per share:
Net income (loss) $ 47 $ (99) $ 71 $ (161)
--------------------------------- -----------------------------
Stock and stock equivalents (average shares):
Common shares outstanding 4,050 4,050 4,050 4,050
Stock options - - - -
--------------------------------- -----------------------------
Total stock and stock equivalents 4,050 4,050 4,050 4,050
================================= -----------------------------
Basic net income per common share $ 0.01 $ (0.02) $ 0.02 $ (0.04)
--------------------------------- -----------------------------
Diluted earnings per share:
Net income (loss) $ 47 $ (99) $ 71 $ (161)
---------------------------------
Stock and stock equivalents (average shares):
Common shares outstanding 4,050 4,050 4,050 4,050
Stock options 178 161 161 182
--------------------------------- -----------------------------
Total stock and stock equivalents 4,228 4,211 4,211 4,232
================================= -----------------------------
Diluted net income per common share $ 0.01 $ (0.02) $ 0.02 $ (0.04)
--------------------------------- -----------------------------
</TABLE>
Page 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 other matters. 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 June 30, 2000 increased by $146
thousand from the same period in 1999. The company reported net income of $47
thousand or $0.01 per share for the quarter ended June 30, 2000, compared to a
loss of $99 thousand or $0.02 per share for the quarter ended June 30, 1999. Net
income for the first six months ended June 30, 2000 increased by $232 thousand
from the same period in 1999. For the six-month period ended June 30, 2000, the
company reported net income after taxes of $71 thousand or $0.02 per share,
compared to a loss of $161 or $0.04 for the same period in 1999. Year-to-date
returns on average assets and average equity were 0.12% and 2.44%, respectively,
compared to (0.27%) and (4.36%), for the same period in 1999.
The increase in earnings for the first quarter of 2000 was primarily
attributed to improvement in noninterest income and a decrease in noninterest
expenses and the provision for loan losses. Noninterest income for the quarterly
period ended June 30, 2000 increased to $199 thousand compared to $135 thousand
for the same quarter in 1999. This represents an increase of $64 thousand or
48.1%. For the six-month period ended June 30, 2000, noninterest income
increased by $109 thousand or 40.0%. Noninterest income for the six-month period
ended June 30, 2000 totaled $381 thousand compared to $272 thousand for the same
period in 1999. Noninterest expenses for the quarterly period ended June 30,
2000 decreased by $85 thousand or 7.0%, to $1,122 thousand as of June 30, 2000
compared to $1,207 thousand for the same period in 1999. For the six-month
period ended June 30, 2000, noninterest expenses decreased by $164 thousand or
6.9%, to $2,232 thousand as of June 30, 2000 compared to $2,396 thousand for the
same period in 1999. The provision for loan losses decreased by $53 for the
quarterly period ended June 30, 2000. The provision allocation for the second
quarter of 2000 was $15 thousand compared to $68 thousand in 1999. For the
six-month period ended June 30, 2000, the provision for loan losses decreased by
$129 thousand to $60 thousand compared to $189 for the same period in 1999.
The Company experienced mixed changes in total assets and liabilities since
December 31, 1999. As of June 30, 2000, total assets decreased by $3.2 million
to $114.1 million compared to $117.3 million at December 31, 1999. Loans, net of
unearned fees and discounts, increased by $943 thousand or 1.6% to $59.9 million
at June 30, 2000 from $59.0 million at December 31, 1999. The securities
portfolio decreased by $2.6 million to $42.4 million at June 30, 2000 from $45.0
million at December 31, 1999 representing a decrease of 5.8%. Deposits totaled
$98.6 million at the end of the quarter compared to $101.3 million at December
31, 1999, representing a decrease of $2.7 million or 2.3%
Shareholders' equity, including the effects of accumulated other
comprehensive income, at June 30, 2000 totaled $5.9 million compared to $5.8
million at December 31, 1999. Accumulated comprehensive income comprised of
unrealized holding losses on securities available for sale totaled ($1.7)
million at June
Page 11
<PAGE>
30, 2000 compared to ($1.6) million at December 31, 1999. Book value per share
of common stock on June 30, 2000 was $1.45 compared to $1.44 per share at
December 31, 1999.
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 $1,013 thousand for the second quarter of 2000
compared to $979 thousand for the same period in 1999, representing an increase
of $34 thousand or 3.47%. Year-to date, net interest income totaled $2,026
thousand compared to $2,052 thousand for the same period in 1999, representing a
decrease of $26 thousand or 1.27%. The decrease in year-to-date net interest
income reflects the effects of the tightening of the spreads between interest
earned on loans, securities, federal funds, and other investments, and the rates
paid on deposits and borrowed funds. The small improvements in the volume of
loans were offset by the decreases in securities and deposits. 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.
Although the Company's net interest margin for the quarter ended June 30,
2000 increased to 3.91% from 3.55% for the first quarter of 1999, the decline in
volume of earning assets and related liabilities mostly offset the increase. The
cost of funds increased to 4.32% compared to 4.28% in 1999. Year-to-date
interest margin increased slightly to 3.87% from 3.85% as of the same period in
1999. The lower volume of earning assets and the higher cost of funds primarily
offset the year-to-date small increase in net interest margin rate.
As of June 30, 2000, year-to-date average earning assets decreased by $2.3
million or 2.1% to $105.5 million compared to $107.8 million for the same period
in 1999. Average total loans, the largest component of earning assets, decreased
to $58.6 million compared to $58.9 million for 1999. Average securities
decreased by approximately $100 thousand to $45.7 million compared to $45.8
million for first six months of 1999. Average federal funds sold and money
market instruments declined by 2.0 million to $1.1 million as of June 30, 2000
compared to $3.1 million for the same period in 1999.
As of June 30, 2000, average interest bearing deposits decreased by $5.2
million or 5.6% to $88.0 million compared to $93.2 million as of the same period
in 1999. The decrease was primarily attributable to declines in certificates of
deposit volume and limited growth in the other deposit categories. Average
interest bearing liabilities totaled $96.6 million at June 30, 2000 compared to
$99.4 million for the same period in 1999. Average demand deposits increased by
$956 thousand to $11.4 million as of June 30, 2000 compared to $10.4 million for
the same period in 1999. Table 1 and Table 1a present analyses of average
earning assets, interest bearing liabilities and demand deposits with the
related components of net interest income for the periods indicated.
Page 12
<PAGE>
GRANDBANC, INC.
AVERAGE BALANCES AND INTEREST RATES
(Dollars in Thousands)
Table 1
<TABLE>
<CAPTION>
Three Months Ended
June 30, 2000
--------------------
Average Average
Balance Interest Rate
----------------------------------------------------
<S> <C> <C> <C>
Assets
Interest-Earning Assets:
Securities:
Federal Agency and
Mortgage-Backed Securities 44,938 707 6.31%
Other Investments 425 7 6.61%
----------------------------------------------------
Total Securities 45,363 714 6.31%
Loans: (1)
Commercial 13,300 345 10.40%
Real Estate-Construction 316 9 11.42%
Real Estate-Mortgage 40,486 924 9.15%
Consumer 4,214 134 12.75%
----------------------------------------------------
Total Loans 58,316 1,412 9.71%
Federal Funds Sold 942 15 6.39%
----------------------------------------------------
Total Interest-Earning Assets 104,621 2,141 8.21%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Noninterest-Earning Assets:
Cash and Due from Banks 2,700
Unrealized Losses - AFS Securities (2,557)
Other Assets 9,395
Allowance for Loan Losses (674)
Deferred Loan Fees (48)
---------------------
Total Noninterest-Earning Assets 8,816
---------------------
Total Assets $113,437
=====================
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
June 30, 1999
----------------
Average Average
Balance Interest Rate
----------------------------------------------
<S> <C> <C> <C>
Assets
Interest-Earning Assets:
Securities:
Federal Agency and
Mortgage-Backed Securities 50,036 748 6.00%
Other Investments 420 7 6.68%
----------------------------------------------
Total Securities 50,456 755 6.00%
Loans: (1)
Commercial 14,862 350 9.43%
Real Estate-Construction 211 5 9.50%
Real Estate-Mortgage 37,703 856 9.11%
Consumer 5,355 169 12.67%
----------------------------------------------
Total Loans 58,131 1,380 9.52%
Federal Funds Sold 2,052 24 4.69%
----------------------------------------------
Total Interest-Earning Assets 110,639 2,159 7.83%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Noninterest-Earning Assets:
Cash and Due from Banks 2,827
Unrealized Losses - AFS Securities (666)
Other Assets 9,083
Allowance for Loan Losses (802)
Deferred Loan Fees (50)
-----------------
Total Noninterest-Earning Assets 10,392
-----------------
Total Assets $121,031
=================
</TABLE>
(1) For the purpose of these computations, nonaccruing loans are included in
the daily average loan amounts outstanding.
Page 13
<PAGE>
AVERAGE BALANCES AND INTEREST RATES
(Dollars in Thousands)
Table 1 (continued)
<TABLE>
<CAPTION>
Three Months Ended
June 30, 2000
--------------------
Average Average
Balance Interest Rate
----------------------------------------------------
<S> <C> <C> <C>
Liabilities and Shareholders' Equity
Interest-Bearing Liabilities:
Interest-Bearing Deposits:
Interest Checking Deposits $11,255 $56 2.00%
Money Market Deposits 14,685 145 3.96%
Savings Deposits 4,503 31 2.76%
Certificates of Deposit
$100,000 and over 12,420 168 5.43%
Certificates of Deposit 43,548 590 5.43%
----------------------------------------------------
Total Interest-Bearing Deposits 86,411 990 4.60%
Purchased Funds & Other Borrowings 9,069 138 6.10%
----------------------------------------------------
Total Interest-Bearing Liabilities 95,480 1,128 4.74%
Noninterest-Bearing Liabilities:
Total Demand Deposits 11,523
Other Liabilities 503
---------------------
Total Noninterest-Bearing
Liabilities 12,026
---------------------
Total Liabilities 107,506
Shareholders' Equity 5,931
---------------------
Total Liabilities and Shareholders'
Equity $113,437
=====================
Interest Spread 3.48%
----------------------------------------------------
Net Interest Margin $1,013 3.88%
====================================================
Cost to fund earning assets 4.32%
===========
<CAPTION>
Three Months Ended
June 30, 1999
----------------
Average Average
Balance Interest Rate
----------------------------------------------
<S> <C> <C> <C>
Liabilities and Shareholders' Equity
Interest-Bearing Liabilities:
Interest-Bearing Deposits:
Interest Checking Deposits $10,369 $52 2.00%
Money Market Deposits 10,923 87 3.21%
Savings Deposits 4,897 31 2.54%
Certificates of Deposit
$100,000 and over 19,012 274 5.78%
Certificates of Deposit 49,755 643 5.18%
----------------------------------------------
Total Interest-Bearing Deposits 94,956 1,087 4.59%
Purchased Funds & Other Borrowings 7,346 93 5.08%
----------------------------------------------
Total Interest-Bearing Liabilities 102,302 1,180 4.63%
Noninterest-Bearing Liabilities:
Total Demand Deposits 11,039
Other Liabilities 504
-----------------
Total Noninterest-Bearing
Liabilities 11,543
-----------------
Total Liabilities 113,845
Shareholders' Equity 7,186
-----------------
Total Liabilities and Shareholders'
Equity $121,031
=================
Interest Spread 3.21%
----------------------------------------------
Net Interest Margin $979 3.55%
==============================================
Cost to fund earning assets 4.28%
=============
</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 14
<PAGE>
GRANDBANC, INC.
AVERAGE BALANCES AND INTEREST RATES
(Dollars in Thousands)
Table 1a
<TABLE>
<CAPTION>
Six Months Ended
June 30, 2000
------------------
Average Average
Balance Interest Rate
-----------------------------------------------
<S> <C> <C> <C>
Assets
Interest-Earning Assets:
Securities:
Federal Agency and
Mortgage-Backed Securities 45,344 1,413 6.28%
Other Investments 423 14 6.67%
-----------------------------------------------
Total Securities 45,767 1,427 6.29%
Loans: (1)
Commercial 13,280 668 10.14%
Real Estate-Construction 271 19 14.14%
Real Estate-Mortgage 40,821 1,848 9.13%
Consumer 4,247 268 12.73%
-----------------------------------------------
Total Loans 58,619 2,803 9.64%
Federal Funds Sold 1,066 32 6.05%
-----------------------------------------------
Total Interest-Earning Assets 105,452 4,262 8.15%
Noninterest-Earning Assets:
Cash and Due from Banks 2,775
Unrealized Losses - AFS Securities (2,703)
Other Assets 9,503
Allowance for Loan Losses (674)
Deferred Loan Fees (48)
-------------------
Total Noninterest-Earning Assets 8,853
-------------------
Total Assets $114,305
===================
<CAPTION>
Six Months Ended
June 30, 1999
------------------
Average Average
Balance Interest Rate
----------------------------------------------
<S> <C> <C> <C>
Assets
Interest-Earning Assets:
Securities:
Federal Agency and
Mortgage-Backed Securities 45,427 1,351 6.00%
Other Investments 411 14 6.87%
-----------------------------------------------------
Total Securities 45,838 1,365 6.01%
Loans: (1)
Commercial 15,702 736 9.45%
Real Estate-Construction 211 9 8.70%
Real Estate-Mortgage 37,471 1,799 9.68%
Consumer 5,490 340 12.47%
----------------------------------------------
Total Loans 58,874 2,884 9.88%
Federal Funds Sold 3,091 73 4.76%
----------------------------------------------
Total Interest-Earning Assets 107,803 4,322 8.08%
Noninterest-Earning Assets:
Cash and Due from Banks 2,739
Unrealized Losses - AFS Securities (432)
Other Assets 8,558
Allowance for Loan Losses (845)
Deferred Loan Fees (102)
------------------
Total Noninterest-Earning Assets 9,918
------------------
Total Assets $117,721
==================
</TABLE>
(1) For the purpose of these computations, nonaccruing loans are included in
the daily average loan amounts outstanding.
Page 15
<PAGE>
AVERAGE BALANCES AND INTEREST RATES
(Dollars in Thousands)
Table 1a (continued)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 2000
------------------
Average Average
Balance Interest Rate
-----------------------------------------------
<S> <C> <C> <C>
Liabilities and Shareholders' Equity
Interest-Bearing Liabilities:
Interest-Bearing Deposits:
Interest Checking Deposits $10,937 $109 2.01%
Money Market Deposits 14,597 286 3.95%
Savings Deposits 4,467 60 2.71%
Certificates of Deposit
$100,000 and over 12,985 338 5.25%
Certificates of Deposit 45,022 1,193 5.34%
-----------------------------------------------
Total Interest-Bearing Deposits 88,008 1,986 4.55%
Purchased Funds & Other Borrowings 8,576 250 5.88%
-----------------------------------------------
Total Interest-Bearing Liabilities 96,584 2,236 4.67%
Noninterest-Bearing Liabilities:
Total Demand Deposits 11,383
Other Liabilities 517
-------------------
Total Noninterest-Bearing
Liabilities 11,900
-------------------
Total Liabilities 108,484
Shareholders' Equity 5,821
-------------------
Total Liabilities and Shareholders'
Equity $114,305
===================
Interest Spread 3.49%
-----------------------------------------------
Net Interest Margin $2,026 3.87%
===============================================
Cost to fund earning assets 4.28%
==========
<CAPTION>
Six Months Ended
June 30, 1999
------------------
Average Average
Balance Interest Rate
----------------------------------------------
<S> <C> <C> <C>
Liabilities and Shareholders' Equit
Interest-Bearing Liabilities:
Interest-Bearing Deposits:
Interest Checking Deposits $10,139 $101 2.01%
Money Market Deposits 10,991 175 3.21%
Savings Deposits 4,669 59 2.55%
Certificates of Deposit
$100,000 and over 19,023 516 5.47%
Certificates of Deposit 48,380 1,255 5.23%
----------------------------------------------
Total Interest-Bearing Deposits 93,202 2,106 4.56%
Purchased Funds & Other Borrowings 6,222 164 5.32%
----------------------------------------------
Total Interest-Bearing Liabilitie 99,424 2,270 4.60%
Noninterest-Bearing Liabilities:
Total Demand Deposits 10,427
Other Liabilities 494
------------------
Total Noninterest-Bearing
Liabilities 10,921
------------------
Total Liabilities 110,345
Shareholders' Equity 7,376
------------------
Total Liabilities and Shareholders'
Equity $117,721
==================
Interest Spread 3.49%
----------------------------------------------
Net Interest Margin $2,052 3.84%
==============================================
Cost to fund earning assets 4.25%
==========
</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 16
<PAGE>
GRANDBANC, INC.
Rate and Volume Analysis
-------------------------------
<TABLE>
<CAPTION>
From the three months ended
June 30, 2000 to the
(Dollars in thousands) three months ended
Table 2 June 30, 1999
Change Due to:
---------------------------
Total
Increase
(Decrease) Rate Volume
------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income:
Securities:
Federal Agency and
Mortgage-Backed Securities ($41) $35 ($76)
Other Investments 0 ($0) $0
-----------------
Total Securities (41) $35 ($76)
Loans: (1)
Commercial (5) $32 ($37)
Real Estate-Construction 4 $2 $2
Real Estate-Mortgage 68 $5 $63
Consumer (35) $1 ($36)
-----------------
Total Loans 32 $28 $4
Federal Funds Sold (9) $4 ($13)
-----------------
Total interest income (18) $100 ($117)
-----------------
Interest expense:
Interest-Bearing Deposits:
Interest Checking Deposits 4 ($0) $4
Money Market Deposits 58 $27 $30
Savings Deposits 0 $2 ($2)
Certificates of Deposit
$100,000 and over (106) ($11) ($95)
Certificates of Deposit (53) $27 ($80)
-----------------
Total Interest-Bearing Deposits (97) $1 ($98)
Total interest expense (52) $27 ($79)
-----------------
Net interest income $34 $88 ($53)
=================
</TABLE>
(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.
Page 17
<PAGE>
GRANDBANC, INC.
Rate and Volume Analysis
----------------------------
<TABLE>
<CAPTION>
From the six months ended
June 30, 2000 to the
(Dollars in thousands) six months ended
Table 2a June 30, 1999
Change Due to:
------------------------
Total
Increase
(Decrease) Rate Volume
-----------------------------------------------------------
<S> <C> <C> <C>
Interest Income:
Securities:
Federal Agency and
Mortgage-Backed Securities 62 $64 ($2)
Other Investments (0) ($0) $0
----------------
Total Securities 62 $64 ($2)
Loans: (1)
Commercial (68) $46 ($114)
Real Estate-Construction 10 $7 $3
Real Estate-Mortgage 49 ($112) $161
Consumer (72) $5 ($77)
----------------
Total Loans (81) ($68) ($12)
Federal Funds Sold (41) $7 ($48)
----------------
Total interest income (60) $35 ($94)
----------------
Interest expense:
Interest-Bearing Deposits:
Interest Checking Deposits 8 $0 $8
Money Market Deposits 111 $54 $57
Savings Deposits 1 $4 ($3)
Certificates of Deposit
$100,000 and over (178) ($14) ($164)
Certificates of Deposit (62) $25 ($87)
----------------
Total Interest-Bearing Deposits (120) ($3) ($117)
Total interest expense (34) $31 ($65)
----------------
Net interest income ($26) $19 ($45)
================
</TABLE>
(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.
Page 18
<PAGE>
Provision for Loan Losses
A provision for loan losses of $15 thousand was required for the three
months ended June 30, 2000, compared to a provision of $68 thousand for the same
period in 1999. For the six-month period ended June 30, 2000, the provision for
loan losses totaled $60 thousand compared to $189 thousand for the same period
in 1999. A more detailed discussion of nonperforming assets and the allowance
for loan losses appears in the "Asset Quality" section.
Noninterest Income
Non-interest income for the six-month period ended June 30, 2000 was $199
thousand, compared to $135 thousand for the three-month period ended March 31,
1999, representing an increase of $64 thousand or 48.1%. For the six-month
period ended June 30, 2000, noninterest income totaled $381 thousand compared to
$272 thousand for the same period in 1999, representing an increase of $109
thousand or 40.0%.
Noninterest Expense
In support of the Company's operations and strategic growth, total
noninterest expenses consisting of employee related costs, occupancy expenses,
and other overhead totaled $2,232 thousand for the first six months of 2000
compared to $2,396 thousand for the same period in 1999, representing a decrease
of $164 thousand or 6.9%.
Salaries and employee benefits totaled $1,044 thousand for the six-month
period ended June 30, 2000 compared to $1,067 for the same period in 1999. This
represents a decrease of $23 thousand, or 2.3%.
Occupancy and equipment expense totaled $492 thousand for the six-month
period ended June 30, 2000 compared to $529 thousand for the same period in
1999. This represents a decrease of $37 thousand or 7.0%. The decrease in
occupancy and equipment cost is partially attributable to the savings gained
from the purchase in early 1999 of the bank building located at 7535 Old
Georgetown Road, Bethesda, Maryland.
Year-to-date other operating expenses decreased by $97 thousand or 11.4 %
when compared to the same period in 1999. For the six-month period ended June
30, 2000, other operating expenses totaled $762 thousand compared to $859 for
the same period in 1999.
Capital Resources
Shareholders' equity on June 30, 2000 was $5.9 million compared to $5.8
million at December 31, 1999. Book value per share of common stock on June 30,
2000 was $1.45 compared to $1.44 per share at December 31, 1999.
At June 30, 2000 the Company's Tier 1 and total risk-based capital ratios
were 7.69% and 8.58%, respectively, compared to 7.35% and 8.26% at December 31,
1999. The Company's leverage ratio was 5.14% at June 30, 2000 compared to 4.79%
at December 31, 1999. 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 10.46% and 11.39% respectively at June 30, 2000 compared
to 10.10% and 11.00% at December 31, 1999. The Bank's leverage ratio was 6.98%
at June 30, 2000 compared to 6.40% at December 31, 1999.
The Bank continues to maintain capital that exceeds 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.
Page 19
<PAGE>
GRANDBANC, INC.
SHAREHOLDERS' EQUITY
(Dollars in thousands)
Table 3
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------------------------------------
<S> <C> <C>
Tier 1 Capital:
Common Stock $ 405 $ 405
Surplus 10,963 10,963
Retained Earnings (3,847) (3,918)
Unrealized holding (loss) gain on securities available-for-sale (1,660) (1,637)
----------------------------------------
Total Shareholders' Equity 5,861 5,813
Less: Unrealized holding loss (gain) on securities available for sale 1,660 1,637
Less: Dissallowed intangibles (1,778) (1,859)
----------------------------------------
Total Tier 1 Capital 5,743 5,591
Tier 2 Capital:
Qualifying allowance for loan losses 668 690
----------------------------------------
Total Tier 2 Capital 668 690
----------------------------------------
Total Risk-Based Capital 6,411 6,281
========================================
Risk Weighted Assets 74,703 76,055
========================================
Ratios:
Tier 1 Capital to risk weighted assets 7.69% 7.35%
Tier 2 Capital to risk weighted assets 0.89% 0.91%
----------------------------------------
Total risk-based capital ratio 8.58% 8.26%
========================================
Leverage Ratio-Tier 1 Capital to quarterly
average assets less intangibles 5.14% 4.79%
========================================
</TABLE>
Page 20
<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 June 30, 2000 was
1.11% compared to 1.17% at December 31, 1999. There were no nonperforming loans
at June 30, 2000. The coverage multiple of allowance for loan losses to
nonperforming loans was 1.17 times at December 31, 1999. Management believes
that the allowance for loan losses at June 30, 2000 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 $592 thousand to $114 thousand at June 30,
2000 from $706 thousand at December 31, 1999. Non-performing assets to total
assets at June 30, 2000 were 0.10% compared to 0.60% at December 31, 1999.
Nonaccrual loans 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 to $0 at June 30, 2000 from $592 thousand at December 31, 1999.
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 $113 thousand at June 30, 2000 compared to $1.9 million at December 31,
1999.
Table 4 details nonperforming assets, past due loans and asset quality
ratios.
Page 21
<PAGE>
GRANDBANC, INC.
Credit Quality
(Dollars in thousands)
Table 4
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------------------------------------------
<S> <C> <C>
Nonaccrual Loans $0 $592
Restructured Loans 0 0
--------------------------------------------
Total Nonperforming Loans 0 592
Other Real Estate 114 114
--------------------------------------------
Total Nonperforming Assets 114 706
Loans past due 90 days or
more and accruing interest 113 1,187
--------------------------------------------
Total Nonperforming Assets and
Loans past due 90 days or more $227 $1,893
============================================
Total Loans at Period End (1) 59,936 58,993
Allowance for Loan Losses 668 690
Total Assets 114,122 117,267
Asset Quality Ratios:
Allowance for Loan Losses to
Period end Loans 1.11% 1.17%
Allowance for Loan losses to
Nonperforming Loans (Multiple) N/A X 1.17 X
Total Nonperforming Loans
to Total Loans 0.00% 1.00%
Total Nonperforming Assets to
Total Assets 0.10% 0.60%
Nonperforming Assets to Total
Loans plus Other Real Estate 0.19% 1.19%
Nonperforming Assets and Loans Past
Due 90 days or more to Total Loans
and Other Real Estate 0.38% 3.20%
</TABLE>
(1) Total loans are reported net of unearned income.
Page 22
<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 June 30, 2000, cash equivalents and securities available-for-sale
totaled $45.4 million compared to $49.3 million recorded at December 31, 1999.
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, the Company's capital position, a large core deposit base, the quality
of assets and future earnings power will ensure the Company's long term
liquidity needs are met.
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 provides a
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 June 30, 2000. 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 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 June 30, 2000, the Company had a liability
sensitive adjusted gap of $21.1 million.
Page 23
<PAGE>
Interest Rate Gap Analysis
(Dollars in thousands)
Table 5
<TABLE>
<CAPTION>
June 30, 2000
------------------------------------------------------------------------------
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 $48 $0 $0 $0 $0
Securities 514 519 2,046 8,578 33,407
Loans Maturing 1,758 1,319 1,613 13,591 6,928
Loans Repricing 21,269 2,372 2,899 4,879 1,583
Credit Card Receivables 1,774 0 0 0 0
----------------------------------------------------------------------------
Total $25,363 $4,210 $6,557 $27,048 $41,918
----------------------------------------------------------------------------
Cumulative Totals $25,363 $29,573 $36,130 $63,178 $105,096
----------------------------------------------------------------------------
INTEREST-SENSITIVE LIABILITIES:
------------------------------------------
Certificate of Deposits & CD IRA's 12,272 8,519 16,589 19,643 15
Savings Accounts & Savings IRA's 4,741 0 0 0 0
Interest Checking Accounts 11,520 0 0 0 0
Money Market Deposit Accounts 13,304 0 0 0 0
Sweep Accounts 4,797 0 0 0 0
FHLB - Advances 2,000 0 0 0 0
Other 386 30 2425 0 0
----------------------------------------------------------------------------
Totals $49,020 $8,549 $19,014 $19,643 $15
----------------------------------------------------------------------------
Cumulative Totals $49,020 $57,569 $76,583 $96,226 $96,241
----------------------------------------------------------------------------
Gap (23,657) (4,339) (12,457) 7,405 41,903
============================================================================
Cumulative Gap ($23,657) ($27,996) ($40,453) ($33,048) $8,855
============================================================================
Adjustments:
Beta Adjustments
Interest Checking (beta factor .30) 8,064
Savings accounts (beta factor .30) 3,319
Money Market Accounts (beta factor .40) 7,982
----------------------------------------------------------------------------
Cumulative Adjusted Gap ($4,292) ($8,631) ($21,088) ($13,683) $28,220
============================================================================
As Reported Information:
Interest-Sensitive Assets/Interest-
Sensitive Liabilites (Cumulative): 51.74% 51.37% 47.18% 65.66% 109.20%
Cumulative Gap/Total Assets -20.73% -24.53% -35.45% -28.96% 7.76%
Beta Adjusted Information:
Interest-Sensitive Assets/Interest-
Sensitive Liabilites (Cumulative): 85.53% 77.41% 63.14% 82.20% 136.71%
Cumulative Gap/Total Assets -3.76% -7.56% -18.48% -11.99% 24.73%
</TABLE>
Page 24
<PAGE>
GRANDBANC, INC.
FORM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 2000
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders was held on May 18, 2000
(b) The following individuals were elected as Directors of the Corporation
to serve for a period of one year. Abbey J. Butler Steven K. Colliatie
Melvyn J. Estrin Avis J. Pointer Joan H. Schonholtz
(c) The matter of the ratification of auditors (Independent Accounting Firm
of Stegman & Company) for the year 2000 was approved by a majority of votes
cast by the shareholders of the Corporation.
Item 6 - Exhibits and Reports on Form 8-K.
A. Exhibits
(11) "Computation of Earnings per Common Share" is presented as Note 7
on Page 9.
(27) Financial Data Schedule: Filed herewith.
B. Reports on Form 8-K
None
Page 25
<PAGE>
GRANDBANC, INC.
FORM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 2000
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: August 14, 2000 /s/ Steven K. Colliatie
--------------- ----------------------------------------------
Steven K. Colliatie
President and Chief Executive Officer
Date: August 14, 2000 /s/ Domingo Rodriguez
--------------- ----------------------------------------------
Domingo Rodriguez
Executive Vice President and
Chief Financial Officer
Page 26
