<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, 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
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At October 20, 2000, there were 4,049,665 shares of Common Stock, par value
$.10 per share outstanding.
Transitional Small Business Disclosure Format
YES NO X
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<PAGE>
TABLE OF CONTENTS
-----------------
<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
PART II - OTHER INFORMATION
---------------------------
Item 6 - Exhibits and Reports on Form 8-K. .....................................................................26
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.......................................................................................................27
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GRANDBANC, INC
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
-----------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Cash and Due from banks $ 2,942 $ 4,299
Federal funds sold 325 9
--------------------------
Total cash and cash equivalents 3,267 4,308
Securities available-for-sale 42,405 44,967
Loans, net of unearned discount and loan fees 60,364 58,993
Less: Allowance for loan losses (646) (690)
--------------------------
Loans, net 59,718 58,303
Bank premises and equipment, net 3,856 3,892
Accrued income receivable 803 868
Prepaid expenses and other assets 649 698
Deferred income taxes 2,825 3,100
Intangible assets 897 1,017
Other real estate owned 114 114
--------------------------
TOTAL ASSETS $ 114,534 $ 117,267
==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand $ 10,989 $ 10,637
Interest checking 11,219 11,532
Savings 20,622 16,427
Time 57,714 62,660
--------------------------
Total Deposits 100,544 101,256
Securities sold under agreement to repurchase
and other borrowed funds 7,268 9,749
Other liabilities 478 449
--------------------------
TOTAL LIABILITIES 108,290 111,454
--------------------------
SHAREHOLDERS' EQUITY
Common stock 405 405
Surplus 10,963 10,963
Retained earnings (3,839) (3,918)
Accumulated comprehensive income:
Unrealized holding loss on securities available-for-sale (1,285) (1,637)
--------------------------
TOTAL SHAREHOLDERS' EQUITY 6,244 5,813
--------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 114,534 $ 117,267
==========================
BOOK VALUE PER SHARE $ 1.54 $ 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 Nine Months Ended
September 30, September 30,
--------------------------- -----------------------------
2000 1999 2000 1999
--------------------------- -----------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 1,480 $ 1,353 $ 4,283 $ 4,236
Interest on federal funds sold and repurchase agreement 8 13 40 86
Interest on Securities 707 783 2,134 2,148
--------------------------- -----------------------------
TOTAL INTEREST INCOME 2,195 2,149 6,457 6,470
--------------------------- -----------------------------
INTEREST EXPENSE:
Interest on deposits 1,122 1,058 3,108 3,163
Interest on securities sold under agreements to
repurchase and other borrowed funds 142 87 391 251
--------------------------- -----------------------------
TOTAL INTEREST EXPENSE 1,264 1,145 3,499 3,414
--------------------------- -----------------------------
NET INTEREST INCOME 931 1,004 2,958 3,056
PROVISION FOR LOAN LOSSES -- -- 60 189
--------------------------- -----------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 931 1,004 2,898 2,867
--------------------------- -----------------------------
NONINTEREST INCOME:
Service charges 130 105 422 280
Other 51 57 139 154
--------------------------- -----------------------------
TOTAL NONINTEREST INCOME 181 162 561 434
--------------------------- -----------------------------
NONINTEREST EXPENSES:
Salaries and employee benefits 476 499 1,519 1,567
Occupancy 145 153 434 474
Equipment 73 76 210 225
Other operating expenses 402 441 1,164 1,300
--------------------------- -----------------------------
TOTAL NONINTEREST EXPENSES 1,096 1,169 3,327 3,566
--------------------------- -----------------------------
INCOME BEFORE APPLICABLE INCOME TAXES 16 (3) 132 (265)
INCOME TAXES 8 -- 53 (100)
--------------------------- -----------------------------
NET INCOME $ 8 $ (3) $ 79 $ (165)
=========================== =============================
PER COMMON SHARE DATA
Basic Earnings $ 0.00 $ (0.00) $ 0.02 $ (0.04)
Diluted Earnings $ 0.00 $ (0.00) $ 0.02 $ (0.04)
AVERAGE COMMON SHARES
Basic 4,050 4,050 4,050 4,050
Diluted 4,218 4,241 4,218 4,227
</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
Comprehensive income:
Net income for the nine months
ended September 30, 1999 - - - (165) - (165)
Other comprehensive income net of tax:
Change in unrealized holding gain
(loss) on securities available for sale - - - - (1,219) (1,219)
Total comprehensive loss (1,384)
--------
---------------------------------------------------------------------------
Balance at September 30, 1999 4,050 $ 405 $ 10,963 $ (3,813) $ (1,251) $ 6,304
---------------------------------------------------------------------------
Balance at December 31, 1999 4,050 $ 405 $ 10,963 $ (3,918) $ (1,637) $ 5,813
Comprehensive income:
Net income for the nine months
ended September 30, 2000 - - - 79 - 79
Other comprehensive income net of tax:
Change in unrealized holding gain
(loss) on securities available for sale - - - - 352 352
Total comprehensive Income 431
--------
---------------------------------------------------------------------------
Balance at September 30, 2000 4,050 $ 405 $ 10,963 $ (3,839) $ (1,285) $ 6,244
---------------------------------------------------------------------------
</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 Nine Months Ended
September 30,
---------------------------
2000 1999
---------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 79 $ (165)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 196 215
Net amortization of securities 100 100
Amortization of intangibles 121 121
Provision for loan losses 60 189
Net realized gain on sale of securities - (6)
Provision (benefit) for deferred income taxes 53 (100)
Change in assets and liabilities:
Accrued income receivable, other assets and other real estate 114 339
Other liabilities 29 (77)
---------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 752 616
---------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in federal funds sold (316) 2,343
Proceeds from sales and maturities of
available for sale securities 3,041 8,266
Purchases of available for sale securities (5) (22,465)
Net (increase) decrease in loans (1,476) 2,489
Purchases of bank premises and equipment (160) (2,299)
---------------------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 1,084 (11,666)
---------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in deposits (712) 5,971
Net (decrease) increase in federal funds purchased and
other short-term borrowings (2,394) 4,282
Repayment of long term debt (87) -
---------------------------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (3,193) 10,253
---------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,357) (797)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,299 3,225
---------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,942 $ 2,428
---------------------------
CASH PAID FOR INTEREST $ 3,402 $ 3,374
---------------------------
</TABLE>
See notes to consolidated financial statements.
Page 4
<PAGE>
GRANDBANC, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 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 broad 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 nine-month periods
ended September 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>
September 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 $ 26,005 $ - $ (1,383) $ 24,622
Mortgage-Backed Securities 18,068 1 (769) 17,300
Other Securities 425 58 - 483
--------------------------------------------------------------------
Total $ 44,498 $ 59 $ (2,152) $ 42,405
====================================================================
</TABLE>
<TABLE>
<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)
September 30, December 31,
For The Periods Ended 2000 1999
--------------------------------------------------------------------------------
Real Estate-Mortgage $ 41,705 $ 40,995
Real Estate-Construction - 94
Commercial 14,165 13,429
Consumer 2,911 2,430
Credit Card Receivable 1,638 2,099
-----------------------------
Gross loans 60,419 59,047
-----------------------------
Less: Deferred loan fees and
unearned discount (55) (54)
-----------------------------
Loans, net of unearned discount and
deferred loan fees 60,364 58,993
-----------------------------
Allowance for loan losses (646) (690)
-----------------------------
Loans, net $ 59,718 $ 58,303
-----------------------------
Page 7
<PAGE>
GRANDBANC, INC.
NOTES TO 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 2000 1999 2000 1999
-------------------------------------------------------------------------------------- -------------------------
<S> <C> <C> <C> <C>
Balance at beginning of period $ 668 $ 777 $ 690 $ 927
Provision charged to expense - - 60 190
Charge-offs:
Commercial and other - - - 21
Consumer 70 100 168 441
Real Estate - - 5 -
----------------------------------------------------------
Total Charge-offs 70 100 173 462
Recoveries:
Commercial and other 7 - 18 12
Consumer 2 2 12 12
Real Estate 39 - 39 -
----------------------------------------------------------
Total Recoveries 48 2 69 24
Net Charge-Offs (Recoveries) 22 98 104 438
----------------------------------------------------------
Balance at end of period $ 646 $ 679 $ 646 $ 679
----------------------------------------------------------
Average Total Loans (1) $ 59,948 $ 56,785 $ 59,034 $ 58,162
Total Loans at Period End (1) $ 60,364 $ 58,231 $ 60,364 $ 58,231
Ratio of net charge-offs (recoveries)
to average total loans 0.04% 0.17% 0.18% 0.75%
Ratio of allowance for
loan losses to total
loans at period end 1.07% 1.17% 1.07% 1.17%
</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
September 30, Total December 31, Total
2000 Loans 1999 Loans
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Real Estate-Mortgage $246 69.0% $224 69.4%
Real Estate-Construction 0 0.0% 1 0.2%
Commercial 70 23.4% 49 22.7%
Consumer 247 7.5% 304 7.7%
Unallocated 83 N/A 112 N/A
------------------------------------------------------------------
Total $646 100.0% $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 Nine Months
Ended September 30, Ended September 30,
------------------------------ ------------------------------
2000 1999 2000 1999
---------------------------------------------------------------------------------- ------------------------------
<S> <C> <C> <C> <C>
Basic earnings per share:
Net income (loss) $ 8 $ (3) $ 79 $ (165)
---------------------------- -----------------------------
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 $ 0.00 $ (0.00) $ 0.02 $ (0.04)
---------------------------- -----------------------------
Diluted earnings per share:
Net income (loss) $ 8 $ (3) $ 79 $ (165)
---------------------------- -----------------------------
Stock and stock equivalents (average shares):
Common shares outstanding 4,050 4,050 4,050 4,050
Stock options 174 161 178 191
---------------------------- -----------------------------
Total stock and stock equivalents 4,224 4,211 4,228 4,241
============================ =============================
Diluted net income per common share $ 0.00 $ (0.00) $ 0.02 $ (0.04)
============================ =============================
</TABLE>
Page 10
<PAGE>
Item 2 - MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company makes forward looking statements in this management's
discussion and analysis that are subject to risks and uncertainties. These
forward looking statements include: statements of goals, intentions and
expectations; estimates of risks and of future costs and benefits; projections
of potential liquidity needs and sources; assessments of probable future loan
losses; and statements of the ability to achieve financial and other goals.
These forward looking statements are subject to significant uncertainties
because they are based upon or are affected by: management's estimates and
projections of future interest rates and other economic conditions; future laws
and regulations; and a variety of other matters. Because of these uncertainties,
the actual future results may be materially different from the results indicated
by these forward looking statements. In addition, the Company's past results of
operations do not necessarily indicate its future results.
BUSINESS COMBINATION
On October 11, 2000, the Company entered into an Agreement and Plan of
Merger with Century Bancshares, Inc. The Agreement sets forth the terms of a
strategic business combination in which each outstanding share of GrandBanc,
Inc. common stock, par value $0.10 per share, would be exchanged for 0.3318
shares of Century Bancshares common stock, par value $1.00 per share. Subject to
regulatory and shareholder approvals, the transaction is expected to close in
the first quarter of 2001. See Exhibits and Reports on Form 8-K in Part II of
this Form 10-QSB.
FINANCIAL SUMMARY
Net income for the three months ended September 30, 2000 increased by $11
thousand from the same period in 1999. The company reported net income of $8
thousand for the quarter ended September 30, 2000, compared to a loss of $3
thousand for the quarter ended September 30, 1999. Net income for the first nine
months ended September 30, 2000 increased by $244 thousand from the same period
in 1999. For the nine-month period ended September 30, 2000, the company
reported net income after taxes of $79 thousand or $0.02 per share, compared to
a loss of $165,000 or $0.04 for the same period in 1999. Year-to-date returns on
average assets and average equity were 0.09% and 1.79%, respectively, compared
to (0.19%) and (3.10%), for the same period in 1999.
The increases in earnings for the third quarter of 2000 and year-to-date
were primarily attributed to improvement in noninterest income and decreases in
noninterest expenses and the provision for loan losses. Noninterest income for
the quarterly period ended September 30, 2000 increased to $181 thousand
compared to $162 thousand for the same quarter in 1999. This represents an
increase of $19 thousand or 11.7%. For the nine-month period ended September 30,
2000, noninterest income increased by $127 thousand or 29.3%. Noninterest income
for the nine-month period ended September 30, 2000 totaled $561 thousand
compared to $434 thousand for the same period in 1999. Noninterest expenses for
the quarterly period ended September 30, 2000 decreased by $73 thousand or 6.2%,
to $1,096 thousand as of September 30, 2000 compared to $1,169 thousand for the
same period in 1999. For the nine-month period ended September 30, 2000,
noninterest expenses decreased by $239 thousand or 6.7%, to $3,327 thousand as
of September 30, 2000 compared to $3,566 thousand for the same period in 1999.
The provision for loan losses decreased by $53 for the quarterly period ended
September 30, 2000. For the nine-month period ended September 30, 2000, the
provision for loan losses decreased by $129 thousand to $60 thousand compared to
$189 for the same period in 1999.
Page 11
<PAGE>
As of September 30, 2000, total assets decreased by $2.7 million to $114.5
million compared to $117.3 million at December 31, 1999. Loans, net of unearned
fees and discounts, increased by $1.4 million or 2.3% to $60.4 million at
September 30, 2000 from $59.0 million at December 31, 1999. The securities
portfolio decreased by $2.6 million to $42.4 million at September 30, 2000 from
$45.0 million at December 31, 1999 representing a decrease of 5.7%. Deposits
totaled $100.5 million at the end of the quarter compared to $101.3 million at
December 31, 1999, representing a decrease of $712 thousand or 0.7%
Shareholders' equity, including the effects of accumulated other
comprehensive income, at September 30, 2000 totaled $6.2 million compared to
$5.8 million at December 31, 1999. Accumulated comprehensive income comprised of
unrealized holding losses on securities available for sale totaled ($1.3)
million at September 30, 2000 compared to ($1.6) million at December 31, 1999.
Book value per share of common stock on September 30, 2000 was $1.54 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 $931 thousand for the third quarter of 2000 compared
to $1,004 thousand for the same period in 1999, representing a decrease of $73
thousand or 7.27%. Year-to date, net interest income totaled $2,958 thousand
compared to $3,056 thousand for the same period in 1999, representing a decrease
of $98 thousand or 3.21%. 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. Improvements in the volume of loans were offset by
the decreases in securities. In addition, the high ratio of time deposits to
non-maturing deposits has negatively affected the overall cost of funding
earning assets. 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, 2000
decreased to 3.51% from 3.65% for the third quarter of 1999. Such decline was
attributable to the increased rates on interest bearing liabilities and
a decline in volume of earning assets, which offset the gains in the rates
earned in interest earning assets and the effect of the reduced volume of
interest bearing liabilities. The cost of funding earning assets increased to
4.76% compared to 4.17% in 1999. Year-to-date interest margin decreased slightly
to 3.75% from 3.77% as of the same period in 1999. As it was the case in the
third quarter of 2000, the lower volume of earning assets and the higher cost of
funds primarily offset the year-to-date gains in the rates earned in interest-
earning assets, which negatively affected the overall net interest margin.
As of September 30, 2000, year-to-date average earning assets decreased by
$2.9 million or 2.6% to $105.4 million compared to $108.3 million for the same
period in 1999. Average total loans, the largest component of earning assets,
increased slightly by $840 thousand to $59.1 million compared to $58.2 million
for 1999. However, other earning assets comprised of investment securities and
money market instruments decreased by $3.7 million. Average securities decreased
by approximately $2.2 million to $45.5 million compared to $47.7 million for
first nine months of 1999. Average federal funds sold and money market
instruments declined by 1.5 million to $879 thousand as of September 30, 2000
compared to $2.4 million for the same period in 1999.
Page 12
<PAGE>
As of September 30, 2000, average interest bearing deposits decreased by
$5.9 million or 6.3% to $87.8 million compared to $93.7 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 $96.5 million at
September 30, 2000 compared to $100.1 million for the same period in 1999.
Average demand deposits, which are paramount to controlling cost of funds,
increased by only $922 thousand to $11.3 million as of September 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 13
<PAGE>
GRANDBANC, INC.
AVERAGE BALANCES AND INTEREST RATES
(Dollars in Thousands)
Table 1
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 2000 September 30, 1999
------------------ ------------------
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 44,399 699 6.25% 50,752 776 6.07%
Other Investments 425 8 7.47% 420 7 6.61%
--------------------------------------------------------------------------
Total Securities 44,824 707 6.26% 51,172 783 6.07%
Loans: (1)
Commercial 14,040 370 10.46% 13,512 326 9.57%
Real Estate-Construction 256 9 13.95% 228 6 10.44%
Real Estate-Mortgage 41,328 960 9.22% 38,289 862 8.93%
Consumer 4,378 141 12.78% 4,798 159 13.15%
----------------------------------- ------------------------------------
Total Loans 60,002 1,480 9.79% 56,827 1,353 9.45%
Federal Funds Sold 509 8 6.24% 1,009 13 5.11%
----------------------------------- ------------------------------------
Total Interest-Earning Assets 105,335 2,195 8.27% 109,008 2,149 7.82%
Noninterest-Earning Assets:
Cash and Due from Banks 2,733 2,716
Unrealized Losses - AFS Securities (2,418) (1,598)
Other Assets 9,311 9,301
Allowance for Loan Losses (664) (725)
Deferred Loan Fees (54) (42)
---------- ----------
Total Noninterest-Earning Assets 8,908 9,652
---------- ----------
Total Assets $ 114,243 $ 118,660
========== ==========
</TABLE>
(1) For the purpose of these computations, nonaccruing loans are included in the
daily average loan amounts outstanding.
Page 14
<PAGE>
AVERAGE BALANCES AND INTEREST RATES
(Dollars in Thousands)
Table 1 (continued)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 2000 September 30, 1999
--------------------- ------------------
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 $11,328 $57 2.00% $10,800 $54 1.98%
Money Market Deposits 15,201 166 4.33% 11,374 92 3.21%
Savings Deposits 4,404 36 3.24% 4,748 28 2.34%
Certificates of Deposit
$100,000 and over 13,549 213 6.24% 18,100 242 5.30%
Certificates of Deposit 42,978 649 5.99% 49,609 642 5.13%
------------------------------------ ------------------------------------
Total Interest-Bearing Deposits 87,460 1,121 5.09% 94,631 1,058 4.44%
Purchased Funds & Other Borrowings 8,889 142 6.34% 6,530 87 5.29%
------------------------------------ ------------------------------------
Total Interest-Bearing Liabilities 96,349 1,263 5.20% 101,161 1,145 4.49%
Noninterest-Bearing Liabilities:
Total Demand Deposits 11,326 10,471
Other Liabilities 526 490
--------- ----------
Total Noninterest-Bearing
Liabilities 11,852 10,961
--------- ----------
Total Liabilities 108,201 112,122
Shareholders' Equity 6,042 6,538
--------- ----------
Total Liabilities and Shareholders'
Equity $114,243 $118,660
========= ==========
Interest Spread 3.08% 3.34%
------------------------------------ ------------------------------------
Net Interest Margin $932 3.51% $1,004 3.65%
==================================== ====================================
Cost to fund earning assets 4.76% 4.17%
========== ==========
</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 15
<PAGE>
GRANDBANC, INC.
Rate and Volume Analysis
--------------------------
From the three months ended
September 30, 2000 to the
(Dollars in thousands) three months ended
Table 2 September 30, 1999
Change Due to:
---------------------------
Total
Increase
(Decrease) Rate Volume
-----------------------------------------
Interest Income:
Securities:
Federal Agency and
Mortgage-Backed Securities ($77) $20 ($97)
Other Investments 1 $1 $0
----------
Total Securities (76) $21 ($97)
Loans: (1)
Commercial 44 $31 $13
Real Estate-Construction 3 $2 $1
Real Estate-Mortgage 98 $30 $68
Consumer (18) ($4) ($14)
----------
Total Loans 127 $51 $76
Federal Funds Sold (5) $1 ($6)
----------
Total interest income 46 $118 ($72)
----------
Interest expense:
Interest-Bearing Deposits:
Interest Checking Deposits 3 $0 $3
Money Market Deposits 74 $43 $31
Savings Deposits 8 $10 ($2)
Certificates of Deposit
$100,000 and over (29) $32 ($61)
Certificates of Deposit 7 $93 ($86)
----------
Total Interest-Bearing Deposits 63 $143 ($80)
Total interest expense 118 $172 ($54)
----------
Net interest income ($72) ($38) ($34)
==========
(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 16
<PAGE>
GRANDBANC, INC.
AVERAGE BALANCES AND INTEREST RATES
(Dollars in Thousands)
Table 1a
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999
--------------------- ------------------
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 45,027 2,113 6.27% 47,221 2,128 6.03%
Other Investments 423 21 6.64% 414 20 6.46%
---------------------------------------------------------------------------------
Total Securities 45,450 2,134 6.28% 47,635 2,148 6.03%
Loans: (1)
Commercial 13,535 1,038 10.25% 14,947 1,061 9.49%
Real Estate-Construction 266 28 14.07% 216 15 9.28%
Real Estate-Mortgage 40,991 2,808 9.16% 37,824 2,662 9.41%
Consumer 4,292 409 12.74% 5,257 498 12.67%
---------------------------------------------------------------------------------
Total Loans 59,084 4,283 9.69% 58,244 4,236 9.72%
Federal Funds Sold 879 40 6.08% 2,390 86 4.81%
---------------------------------------------------------------------------------
Total Interest-Earning Assets 105,413 6,457 8.19% 108,269 6,470 7.99%
Noninterest-Earning Assets:
Cash and Due from Banks 2,761 2,732
Unrealized Losses - AFS Securities (2,607) (825)
Other Assets 9,438 8,808
Allowance for Loan Losses (671) (805)
Deferred Loan Fees (50) (82)
---------- ---------
Total Noninterest-Earning Assets 8,871 9,828
---------- ---------
Total Assets $114,284 $118,097
========== =========
</TABLE>
(1) For the purpose of these computations, nonaccruing loans are included in
the daily average loan amounts outstanding.
Page 17
<PAGE>
AVERAGE BALANCES AND INTEREST RATES
(Dollars in Thousands)
Table 1a (continued)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999
--------------------- ------------------
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 $11,068 $166 2.01% $10,362 $156 2.01%
Money Market Deposits 14,800 452 4.08% 11,120 267 3.21%
Savings Deposits 4,446 96 2.89% 4,696 89 2.53%
Certificates of Deposit
$100,000 and over 13,174 551 5.59% 18,712 757 5.41%
Certificates of Deposit 44,336 1,842 5.55% 48,794 1,894 5.19%
------------------------------------- ------------------------------------
Total Interest-Bearing Deposits 87,824 3,107 4.73% 93,684 3,163 4.51%
Purchased Funds & Other Borrowings 8,681 392 6.04% 6,385 251 5.26%
------------------------------------- ------------------------------------
Total Interest-Bearing Liabilities 96,505 3,499 4.85% 100,069 3,414 4.56%
Noninterest-Bearing Liabilities:
Total Demand Deposits 11,364 10,442
Other Liabilities 520 493
---------- ----------
Total Noninterest-Bearing
Liabilities 11,884 10,935
---------- ----------
Total Liabilities 108,389 111,004
Shareholders' Equity 5,895 7,093
---------- ----------
Total Liabilities and Shareholders'
Equity $114,284 $118,097
========== ==========
Interest Spread 3.35% 3.44%
------------------------------------ ------------------------------------
Net Interest Margin $2,958 3.75% $3,056 3.77%
==================================== ====================================
Cost to fund earning assets 4.44% 4.22%
============ ===========
</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 18
<PAGE>
GRANDBANC, INC.
Rate and Volume Analysis
--------------------------
From the nine months ended
September 30, 2000 to the
(Dollars in thousands) nine months ended
Table 2a September 30, 1999
Change Due to:
---------------------------
Total
Increase
(Decrease) Rate Volume
-----------------------------------------
Interest Income:
Securities:
Federal Agency and
Mortgage-Backed Securities (15) $84 ($99)
Other Investments 1 $1 $0
---------
Total Securities (14) $85 ($99)
Loans: (1)
Commercial (23) $77 ($100)
Real Estate-Construction 13 $10 $3
Real Estate-Mortgage 146 ($77) $223
Consumer (89) $2 ($91)
---------
Total Loans 47 ($14) $61
Federal Funds Sold (46) $8 ($54)
---------
Total interest income (13) $158 ($171)
---------
Interest expense:
Interest-Bearing Deposits:
Interest Checking Deposits 10 ($1) $11
Money Market Deposits 185 $97 $88
Savings Deposits 7 $12 ($5)
Certificates of Deposit
$100,000 and over (206) $18 ($224)
Certificates of Deposit (52) $121 ($173)
---------
Total Interest-Bearing Deposits (56) $142 ($198)
Total interest expense 85 $207 ($122)
---------
Net interest income ($98) ($17) ($81)
=========
(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 19
<PAGE>
Provision for Loan Losses
As a result of limited loan volume and improvement in delinquency ratios,
no additional provision for loan losses was required for the three months ended
September 30, 2000. For the nine-month period ended September 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 three-month period ended September 30, 2000 was
$181 thousand, compared to $162 thousand for the three-month period ended
September 30, 1999, representing an increase of $19 thousand or 11.7%. For the
nine-month period ended September 30, 2000, noninterest income totaled $561
thousand compared to $434 thousand for the same period in 1999, representing an
increase of $127 thousand or 29.3%.
Noninterest Expense
In support of the Company's operations, total noninterest expenses
consisting of employee related costs, occupancy expenses, and other overhead
totaled $1,096 thousand for the quarterly period ended September 30, 2000
compared to $1,169 thousand for the same quarterly period in 1999. This
represents a decrease of $73 thousand or 6.2%. Year-to-date noninterest expense
totaled $3,327 thousand compared to $3,566 thousand for the same period in 1999,
representing a decrease of $239 thousand or 6.7%.
Salaries and employee benefits decreased by $23 thousand or 4.6% to $476
thousand for the three-month period ended September 30, 2000 from $499 thousand
for the same three-month period in 1999. For the first nine months of 2000,
salaries and employee benefits totaled $1,519 thousand compared to $1,567
thousand for the same nine-month period in 1999. This represents a decrease of
$48 thousand, or 3.1%.
Occupancy and equipment expense totaled $218 thousand for the three-month
period ended September 30, 2000 compared to $229 thousand for the same period in
1999. For the nine-month period ended September 30, 2000, occupancy and
equipment expense totaled $644 thousand compared to $699 thousand for the same
period in 1999. This represents a decrease of $55 thousand or 7.9%. 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 as well as the Company's efforts to control
overhead.
Other operating expenses for the three-month period ended September 30,
2000 totaled $402 thousand representing a decrease of $39 thousand or 8.9% from
the $441 thousand level of the same period in 1999. Year-to-date other operating
expenses decreased by $136 thousand or 10.5 % when compared to the same period
in 1999. For the nine-month period ended September 30, 2000, other operating
expenses totaled $1,164 thousand compared to $1,300 thousand for the same period
in 1999.
Capital Resources
Shareholders' equity on September 30, 2000 was $6.2 million compared to
$5.8 million at December 31, 1999. Book value per share of common stock on
September 30, 2000 was $1.54 compared to $1.44 per share at December 31, 1999.
These figures include a $1.3 million unrealized holding loss on securities
available for sale recorded as accumulated comprehensive income.
At September 30, 2000 the Company's Tier 1 and total risk-based capital
ratios were 7.93% and 8.80%, respectively, compared to 7.35% and 8.26% at
December 31, 1999. The Company's leverage ratio was 5.26% at September 30, 2000
compared to 4.79% at December 31, 1999. Table 3 details the various components
of shareholders' equity.
Page 20
<PAGE>
Tier 1 and total risk-based capital ratios for GrandBank, the Company's
banking affiliate were 10.76% and 11.67% respectively at September 30, 2000
compared to 10.10% and 11.00% at December 31, 1999. The Bank's leverage ratio
was 7.11% at September 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.
Debt Renewal
The Company has obtained commitments to extend until June 30, 2001 loans
from unaffiliated banks totalling $2.25 million at September 30, 2000.
Page 21
<PAGE>
GRANDBANC, INC.
SHAREHOLDERS' EQUITY
(Dollars in thousands)
Table 3
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
-------------------------------
<S> <C> <C>
Tier 1 Capital:
Common Stock $ 405 $ 405
Surplus 10,963 10,963
Retained Earnings (3,839) (3,918)
Unrealized holding (loss) gain on securities available-for-sale (1,285) (1,637)
-------------------------------
Total Shareholders' Equity 6,244 5,813
Less: Unrealized holding loss (gain) on securities available for sale 1,285 1,637
Less: Dissallowed intangibles (1,605) (1,859)
-------------------------------
Total Tier 1 Capital 5,924 5,591
Tier 2 Capital:
Qualifying allowance for loan losses 646 690
-------------------------------
Total Tier 2 Capital 646 690
-------------------------------
Total Risk-Based Capital 6,570 6,281
===============================
Risk Weighted Assets 74,700 76,055
===============================
Ratios:
Tier 1 Capital to risk weighted assets 7.93% 7.35%
Tier 2 Capital to risk weighted assets 0.86% 0.91%
-------------------------------
Total risk-based capital ratio 8.80% 8.26%
===============================
Leverage Ratio-Tier 1 Capital to quarterly
average assets less intangibles 5.26% 4.79%
===============================
</TABLE>
Page 22
<PAGE>
ASSET QUALITY
The Company employs 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 that 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.
The Bank's objective is to maintain a loan portfolio that is not
concentrated by borrower or industry in order 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,
however, 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, 2000
was 1.07% compared to 1.17% at December 31, 1999. There were no nonperforming
loans at September 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 September 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 September
30, 2000 from $706 thousand at December 31, 1999. Non-performing assets to total
assets at September 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 September 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 $196 thousand at September 30, 2000 compared to $1.9 million at
December 31, 1999.
Table 4 details nonperforming assets, past due loans and asset quality
ratios.
Page 23
<PAGE>
GRANDBANC, INC.
Credit Quality
(Dollars in thousands)
Table 4
September 30, December 31,
2000 1999
---------------------------
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 82 1,187
---------------------------
Total Nonperforming Assets and
Loans past due 90 days or more $196 $1,893
===========================
Total Loans at Period End (1) 60,364 58,993
Allowance for Loan Losses 646 690
Total Assets 114,534 117,267
Asset Quality Ratios:
Allowance for Loan Losses to
Period end Loans 1.07% 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 0.32% 3.20%
(1) Total loans are reported net of unearned income.
Page 24
<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, 2000, cash equivalents and securities available-for-sale
totaled $45.7 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 Bank'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.
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 September 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 September 30, 2000, the Company had a
liability sensitive adjusted gap of $17.8 million.
Page 25
<PAGE>
Interest Rate Gap Analysis
(Dollars in thousands)
Table 5
<TABLE>
<CAPTION>
September 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 $325 $0 $0 $0 $0
Securities 494 488 942 9,867 32,707
Loans Maturing 808 1,746 2,619 15,439 7,218
Loans Repricing 19,985 1,654 2,714 5,029 1,569
Credit Card Receivables 1,638 0 0 0 0
-------------------------------------------------------------------------
Total $23,250 $3,888 $6,275 $30,335 $41,494
-------------------------------------------------------------------------
Cumulative Totals $23,250 $27,138 $33,413 $63,748 $105,242
-------------------------------------------------------------------------
INTEREST-SENSITIVE LIABILITIES:
----------------------------------
Certificate of Deposits & CD IRA's 8,498 5,665 18,440 24,781 15
Savings Accounts & Savings IRA's 4,452 0 0 0 0
Interest Checking Accounts 11,219 0 0 0 0
Money Market Deposit Accounts 16,485 0 0 0 0
Sweep Accounts 3,812 0 0 0 0
FHLB - Advances 1,000 0 0 0 0
Other 2,456 0 0 0 0
-------------------------------------------------------------------------
Totals $47,922 $5,665 $18,440 $24,781 $15
-------------------------------------------------------------------------
Cumulative Totals $47,922 $53,587 $72,027 $96,808 $96,823
-------------------------------------------------------------------------
Gap (24,672) (1,777) (12,165) 5,554 41,479
=========================================================================
Cumulative Gap ($24,672) ($26,449) ($38,614) ($33,060) $8,419
=========================================================================
Adjustments:
Beta Adjustments
Interest Checking (beta factor .30) 7,853
Savings accounts (beta factor .30) 3,116
Money Market Accounts (beta factor .40) 9,891
-------------------------------------------------------------------------
Cumulative Adjusted Gap ($3,811) ($5,588) ($17,753) ($12,199) $29,280
=========================================================================
As Reported Information:
Interest-Sensitive Assets/Interest-
Sensitive Liabilities (Cumulative): 48.52% 50.64% 46.39% 65.85% 108.70%
Cumulative Gap/Total Assets -21.54% -23.09% -33.71% -28.86% 7.35%
Beta Adjusted Information:
Interest-Sensitive Assets/Interest-
Sensitive Liabilities (Cumulative): 85.92% 82.92% 65.30% 83.94% 138.55%
Cumulative Gap/Total Assets -3.33% -4.88% -15.50% -10.65% 25.56%
</TABLE>
Page 26
<PAGE>
GRANDBANC, INC.
FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K.
A. Exhibits
(10.1) Waiver and Consent Agreement by and among GrandBanc,
Inc., GrandBank and Steven K. Colliatie.*
(10.2) Employment Agreement by and between GrandBanc, Inc.,
GrandBank and Steven K. Colliatie.*
(11) "Computation of Earnings per Common Share" is presented as
Note 7 on Page 9.
(27) Financial Data Schedule: Filed herewith.
* Compensatory Contract.
B. Reports on Form 8-K
On October 11, 2000, the Company filed a Form 8-K with respect to
Item 5 announcing that it had entered into an Agreement and Plan of
Merger with Century Bancshares, Inc.
The Agreement sets forth the terms of a strategic business combination
in which each outstanding share of GrandBanc, Inc. common stock, par
value $0.10 per share, would be exchanged for 0.3318 shares of Century
Bancshares common stock, par value $1.00 per share.
Page 27
<PAGE>
GRANDBANC, INC.
FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 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: November 9, 2000 /s/ Steven K. Colliatie
---------------- -------------------------------------
Steven K. Colliatie
President and Chief Executive Officer
Date: November 9, 2000 /s/ Domingo Rodriguez
---------------- -------------------------------------
Domingo Rodriguez
Executive Vice President and
Chief Financial Officer
Page 28
