<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 March 31, 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 April 28, 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
-----------------
PART I - FINANCIAL INFORMATION PAGE
- ------------------------------ ----
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheets.................................1
Consolidated Statements of Income...........................2
Consolidated Statements of Shareholders' Equity.............3
Consolidated Statements of Changes in Cash Flows ...........4
Notes to Consolidated Financial Statements...............5-10
Item 2 - Management's Discussion and Analysis.......................11
PART II - OTHER INFORMATION
- ---------------------------
Item 6 - Exhibits and Reports on Form 8-K....................................23
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 24
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GRANDBANC, INC
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
March, 31 December 31,
22-Jun-05 1999
- -----------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Cash and Due from banks $ 2,496 $ 4,299
Federal funds sold 3,919 9
------------------------------------------
Total cash and cash equivalents 6,415 4,308
Securities available-for-sale 42,904 44,967
Loans, net of unearned discount and loan fees 58,352 58,993
Less: Allowance for loan losses (681) (690)
------------------------------------------
Loans, net 57,671 58,303
Bank premises and equipment, net 3,884 3,892
Accrued income receivable 778 868
Prepaid expenses and other assets 682 698
Deferred income taxes 3,092 3,100
Intangible assets 977 1,017
Other real estate owned 114 114
------------------------------------------
TOTAL ASSETS $ 116,517 $ 117,267
==========================================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand $ 11,039 $ 10,637
Interest checking 11,296 11,532
Savings 21,786 16,427
Time 58,562 62,660
------------------------------------------
Total Deposits 102,683 101,256
Securities sold under agreement to repurchase
and other borrowed funds 7,629 9,749
Other liabilities 381 449
------------------------------------------
TOTAL LIABILITIES 110,693 111,454
------------------------------------------
SHAREHOLDERS' EQUITY
Common stock 405 405
Surplus 10,963 10,963
Retained earnings (3,894) (3,918)
Accumulated other comprehesive income:
Unrealized holding loss on securities available-for-sale (1,650) (1,637)
------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 5,824 5,813
------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 116,517 $ 117,267
------------------------------------------
BOOK VALUE PER SHARE $ 1.44 $ 1.44
------------------------------------------
ACTUAL SHARES OUTSTANDING 4,050 4,050
------------------------------------------
</TABLE>
See notes to condensed consolidated financial statements.
Page 1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
GRANDBANC, INC
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
For The Three Months Ended
March 31,
---------------------------------
2000 1999
---------------------------------
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 1,391 $ 1,504
Interest on federal funds sold and repurchase agreement 17 49
Interest on Securities 713 610
---------------------------------
TOTAL INTEREST INCOME 2,121 2,163
---------------------------------
INTEREST EXPENSE:
Interest on deposits 996 1,019
Interest on securities sold under agreements to repurchase and other borrowed funds 112 70
---------------------------------
TOTAL INTEREST EXPENSE 1,108 1,089
---------------------------------
NET INTEREST INCOME 1,013 1,074
PROVISION FOR LOAN LOSSES 45 122
---------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 968 952
---------------------------------
NONINTEREST INCOME:
Service charges 138 85
Other 43 52
---------------------------------
TOTAL NONINTEREST INCOME 181 137
---------------------------------
NONINTEREST EXPENSES:
Salaries and employee benefits 521 507
Occupancy 146 166
Equipment 66 73
Other operating expenses 376 443
---------------------------------
TOTAL NONINTEREST EXPENSES 1,109 1,189
---------------------------------
INCOME BEFORE APPLICABLE INCOME TAXES 40 (100)
INCOME TAXES 16 (38)
---------------------------------
NET INCOME $ 24 $ (62)
---------------------------------
PER COMMON SHARE DATA
Basic Earnings $ 0.01 $ (0.02)
Diluted Earnings $ 0.01 $ (0.01)
AVERAGE COMMON SHARES
Basic 4,050 4,050
Diluted 4,218 4,211
</TABLE>
See notes to condensed consolidated financial statements.
Page 2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
GRANDBANC, INC
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Common 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 three months
ended March 31, 1999 - - - (62) - (62)
Common stock issuance - - - - - -
Change in unrealized holding gain
(loss) on securities available for sale - - - - (289) (289)
----------------------------------------------------------------------------------
Balance at March 31, 1999 4,050 $ 405 $10,963 $ (3,710) $ (321) $ 7,337
----------------------------------------------------------------------------------
Balance at December 31, 1999 4,050 $ 405 $10,963 $ (3,918) $ (1,637) $ 5,813
Net income for the trhee months
ended March 31, 1999 - - - 24 - 24
Common stock issuance - - - - - -
Change in unrealized holding gain
(loss) on securities available for sale - - - - (13) (13)
----------------------------------------------------------------------------------
Balance at March 31, 2000 4,050 $ 405 $10,963 $ (3,894) $ (1,650) $ 5,824
----------------------------------------------------------------------------------
</TABLE>
See notes to condensed consolidated financial statements.
Page 3
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
GRANDBANC, INC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
-----------------------------------------------
2000 1999
-----------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ 24 $ (62)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 65 69
Net amortization of securities 11 33
Amortization of intangibles 40 36
Provision for loan losses 45 122
Net realized gain on sale of securities - (1)
Provision (benefit) for deferred income taxes 16 (38)
Change in assets and liabilities:
Accrued income receivable, other assets and other real estate 106 (185)
Other liabilities (68) (228)
-----------------------------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 239 (254)
-----------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in federal funds sold (3,910) 2,153
Proceeds from sales and maturities of
available for sale securities 2,041 1,758
Purchases of available for sale securities (5) (14,031)
Net decrease in loans 582 3,163
Purchase of loans - -
Purchases of bank premises and equipment (57) (2,263)
Proceeds from sale of foreclosed real estate and other assets - -
-----------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (1,349) (9,220)
-----------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 1,427 7,580
Net (decrease) increase in federal funds purchased and
other short-term borrowings (2,090) 1,013
Repayment of long term debt (30) -
-----------------------------------------------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (693) 8,593
-----------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,803) (881)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,299 3,225
-----------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,496 $ 2,344
===============================================
CASH PAID FOR INTEREST $ 1,096 $ 1,038
===============================================
</TABLE>
See notes to condensed consolidated financial statements.
Page 4
<PAGE>
GRANDBANC, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 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 condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Article 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 period ended March 31, 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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Securities
(in thousands)
<TABLE>
<CAPTION>
March 31, 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 $ - $ (1,613) $ 24,392
Mortgage-Backed Securities 19,163 1 (1,135) 18,029
Other Securities 425 58 - 483
-----------------------------------------------------------------------------------
Total $ 45,593 $ 59 $ (2,748) $ 42,904
===================================================================================
</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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Loans
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
For The Periods Ended 2000 1999
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Real Estate-Mortgage $ 40,919 $ 40,995
Real Estate-Construction 269 94
Commercial 12,977 13,429
Consumer 2,264 2,430
Credit Card Receivable 1,964 2,099
---------------------------------
Gross loans 58,393 59,047
---------------------------------
Less: Deferred loan fees and
unearned discount (41) (54)
---------------------------------
Loans, net of unearned discount and
deferred loan fees 58,352 58,993
---------------------------------
Allowance for loan losses (681) (690)
---------------------------------
Loans, net $ 57,671 $ 58,303
---------------------------------
</TABLE>
Page 7
<PAGE>
GRANDBANC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Allowance for Loan Losses
(in thousands)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
----------------------------------
For the Periods Ended 2000 1999
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of period $ 690 $ 927
Provision charged to expense 45 122
Charge-offs:
Commercial and other - -
Consumer 64 139
Real Estate - -
----------------------------------
Total Charge-offs 64 139
Recoveries:
Commercial and other 6 -
Consumer 4 5
Real Estate - -
----------------------------------
Total Recoveries 10 5
Net Charge-Offs (Recoveries) 54 134
----------------------------------
Balance at end of period $ 681 $ 915
----------------------------------
Average Total Loans (1) $ 58,923 $ 59,598
Total Loans at Period End (1) $ 58,352 $ 57,983
Ratio of net charge-offs (recoveries)
to average total loans 0.09% 0.22%
Ratio of allowance for
loan losses to total
loans at period end 1.17% 1.58%
</TABLE>
(1) Total Loans are reported net of unearned income.
Page 8
<PAGE>
GRANDBANC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 6A
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
(Dollars in thousands)
<TABLE>
<CAPTION>
Percent of Percent of
Loans in each Loans in each
category to category to
March 31, Total December 31, Total
2000 Loans 1999 Loans
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Real Estate-Mortgage $196 70.1% $224 69.4%
Real Estate-Construction 1 0.5% 1 0.2%
Commercial 28 22.2% 49 22.7%
Consumer 269 7.2% 304 7.7%
Unallocated 187 N/A 112 N/A
------------------------------------------------------------------------------------------------
Total $681 100.0% $690 100.0%
================================================================================================
</TABLE>
Page 9
<PAGE>
GRANDBANC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 7. Earnings Per Share
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
----------------------------
2000 1999
- -----------------------------------------------------------------------------------------------------------
Basic earnings per share:
<S> <C> <C>
Net income (loss) $ 24 $ (62)
----------------------------
Stock and stock equivalents (average shares):
Common shares outstanding 4,050 4,050
Stock options - -
----------------------------
Total stock and stock equivalents 4,050 4,050
============================
Basic net earnings per common share $ 0.01 $ (0.02)
----------------------------
Diluted earnings per share:
Net income (loss) $ 24 $ (62)
----------------------------
Stock and stock equivalents (average shares):
Common shares outstanding 4,050 4,050
Stock options 168 161
----------------------------
Total stock and stock equivalents 4,218 4,211
============================
Diluted net earning per common share $ 0.01 $ (0.01)
----------------------------
</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 statements by suppliers of data processing
equipment and services, government agencies, 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 March 31, 2000 increased by $86
thousand from the same period in 1999. The company reported net income of $24
thousand or $0.01 per share for the quarter ended March 31, 2000, compared to a
loss of $62 thousand or $0.02 per share for the quarter ended March 31, 1999.
Returns on average assets and average equity for the first quarter of 2000 were
0.08% and 1.68%, respectively, compared to (0.22%) and (3.28%), 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. Noninterest income for the quarterly period ended March 31, 2000
increased to $181 thousand compared to $137 thousand for the same quarter in
1999. This represents an increase of $44 thousand or 32.1%. Noninterest expenses
decreased by $81 thousand or 6.8%, to $1,108 thousand as of March 31, 2000
compared to $1,189 thousand for the same period in 1999.
The Company experienced mixed changes in total assets and liabilities
since December 31, 1999. Total assets decreased by $750 thousand to $116.5
million compared to $117.3 million at December 31, 2000. Loans, net of unearned
discount and fees, decreased by $641 thousand or 1.1% to $58.4 million at March
31, 2000 from $59.0 million at December 31, 1999. The securities portfolio
decreased by $2.1 million to $42.9 million at March 31, 2000 from $45.0 million
at December 31, 1999 representing a decrease of 4.6%. Deposits totaled $102.7
million at the end of the quarter compared to $101.3 million at December 31,
1999, representing an increase of $1.4 million or 1.4%
Shareholders' equity, including the effects of accumulated other
comprehensive income, at March 31, 2000 totaled $5.8 million compared to $5.8
million at December 31, 1999. Accumulated other comprehensive income comprised
of unrealized holding losses on securities available for sale totaled $1.7
million at March 31, 2000 compared to $1.6 million at December 31, 1999. Book
value per share of common stock on March 31, 2000 was $1.44 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 first quarter of 2000
compared to $1,074 thousand for the same period in 1999, representing a decrease
of 5.7%. The decrease in net interest income was primarily attributable to
tightening of the spreads between interest earned on loans, securities, federal
funds, and other investments, and the rates paid on deposits and borrowed funds.
Small
Page 11
<PAGE>
improvements in the volume of earning assets partially offset the decrease in
interest spreads, but it was not material enough to fully absorb the decreases
in interest spreads. Table 2 presents 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 March 31, 2000
decreased to 3.87% from 4.16% for the first quarter of 1999. The declined in net
interest margin for the first quarter was the result of a decline in the yield
of earning assets of 28 basis points. This decrease resulted primarily from a 64
basis point decline in the interest rates earned in loans compounded with a 1.4%
decline in loan volume. The losses in loan volume and loan rates were partially
offset by gains in rates and volume on investment securities. In addition, the
cost of interest bearing liabilities negatively affected the net interest margin
as it increased by 3 basis points to 4.60%. The volume of funding liabilities
also increased by approximately $1.1 million to an average of $97.7 million for
the quarter ended March 31, 2000 compared to $96.6 for the same period in 1999.
In the first three months of 2000, average earning assets increased by
$1.4 million or 1.3% to $106.3 million compared to $104.9 for the first three
months of 1999. Average total loans, the largest component of earning assets,
decreased to $58.9 million for the first three months of 2000 compared to $59.8
million for the first three months of 1999. Average securities and federal funds
sold increased by $2.2 million to $47.4 million for the first three months of
2000, compared to $45.2 million for the first three months of 1999. Although
average interest bearing deposits decreased by $1.8 million compared to the same
period in 1999, the decreased was primarily attributable to losses in jumbo
certificates of deposit. This type of deposit declined by $5.5 million. Average
interest bearing deposits totaled $89.6 million at March 31, 2000 compared to
$91.4 million at March 31, 1999. Average interest bearing liabilities totaled
$97.7 million at March 31, 2000 compared to $96.6 million for the same period in
1999. Average demand deposits increased by $1.4 million to $11.2 million for the
first three months of 2000 compared to $9.8 million for the same period in 1999.
Table 1 presents an analysis of average earning assets, interest bearing
liabilities and demand deposits with the related components of net interest
income.
Page 12
<PAGE>
GRANDBANC, INC.
AVERAGE BALANCES AND INTEREST RATES
(Dollars in Thousands)
Table 1
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
----------------------------------- -------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
----------------------------------- -------------------------------------
Assets
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Securities: (2)
Federal Agency and
Mortgage-Backed Securities 45,750 707 6.27% 40,553 604 6.04%
Other Investments 420 6 5.79% 420 6 5.79%
----------------------------------------------------------------------------------------
Total Securities 46,170 713 6.26% 40,973 610 6.04%
Loans: (1)
Commercial 13,260 323 9.88% 16,551 386 9.46%
Real Estate-Construction 226 6 10.77% 211 4 7.69%
Real Estate-Mortgage 41,155 928 9.14% 37,364 944 10.25%
Consumer 4,282 134 12.69% 5,626 170 12.25%
----------------------------------- -------------------------------------
Total Loans 58,923 1,391 9.57% 59,752 1,504 10.21%
Federal Funds Sold 1,191 17 5.79% 4,141 49 4.80%
----------------------------------- -------------------------------------
Total Interest-Earning Assets 106,284 2,121 8.09% 104,866 2,163 8.37%
Noninterest-Earning Assets:
Cash and Due from Banks 2,850 2,650
Other Assets 8,516 8,028
Allowance for Loan Losses (674) (889)
Deferred Loan Fees (48) (154)
--------- ---------
Total Noninterest-Earning Assets 10,644 9,635
--------- ---------
Total Assets $116,928 $114,501
========= =========
</TABLE>
(1) For the purposes of these computations, nonaccruing loans are included in
the daily average loan amounts outstanding.
(2) Investment securities' unrealized gain (losses) are excluded from
calculation of daily average balances.
Page 13
<PAGE>
AVERAGE BALANCES AND INTEREST RATES
(Dollars in Thousands)
Table 1 (continued)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 2000 March 31, 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 $10,618 $53 2.02% $ 9,906 $50 2.05%
Money Market Deposits 14,509 141 3.94% 11,059 88 3.23%
Savings Deposits 4,430 28 2.56% 4,439 27 2.47%
Certificates of Deposit
$100,000 and over 13,550 170 5.09% 19,034 242 5.16%
Certificates of Deposit 46,495 604 5.27% 46,989 612 5.28%
------------------------------------ ---------------------------------------
Total Interest-Bearing Deposits 89,602 996 4.51% 91,427 1,019 4.52%
Purchased Funds 8,084 112 5.62% 5,212 70 5.45%
------------------------------------ ---------------------------------------
Total Interest-Bearing Liabilities 97,686 1,108 4.60% 96,639 1,089 4.57%
Noninterest-Bearing Liabilities:
Total Demand Deposits 11,243 9,809
Other Liabilities 532 485
--------- -----------
Total Noninterest-Bearing
Liabilities 11,775 10,294
--------- -----------
Total Liabilities 109,461 106,933
Shareholders' Equity 7,467 7,568
--------- -----------
Total Liabilities and Shareholders'
Equity $116,928 $114,501
========= ===========
Interest Spread 3.50% 3.81%
------------------------------------ ---------------------------------------
Net Interest Margin $1,013 3.87% $1,074 4.16%
==================================== =======================================
Cost to fund earning assets 4.23% 4.21%
=============== ===============
</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. Investment securities' unrealized gains (losses) are excluded
from calculation of daily average balances.
Page 14
<PAGE>
GRANDBANC, INC.
Rate and Volume Analysis
- ----------------------------------------
<TABLE>
<CAPTION>
From the three months ended
March 31, 2000 to the
(Dollars in thousands) three months ended
Table 2 March 31, 1999
Change Due to:
-----------------------------------
Total
Increase
(Decrease) Rate Volume
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income:
Securities:
Federal Agency and
Mortgage-Backed Securities 103 $26 $77
Other Investments 0 $0 $0
-----------------------
Total Securities 103 $26 $77
Loans: (1)
Commercial (63) $14 ($77)
Real Estate-Construction 2 $2 $0
Real Estate-Mortgage (16) ($112) $96
Consumer (36) $5 ($41)
-----------------------
Total Loans (113) ($92) ($21)
Federal Funds Sold (32) $3 ($35)
-----------------------
Total interest income (42) ($71) $29
-----------------------
Interest expense:
Interest-Bearing Deposits:
Interest Checking Deposits 3 ($1) $4
Money Market Deposits 53 $26 $27
Savings Deposits 1 $1 ($0)
Certificates of Deposit
$100,000 and over (72) ($2) ($70)
Certificates of Deposit (8) ($1) ($6)
-----------------------
Total Interest-Bearing Deposits (23) ($2) ($20)
Total interest expense 19 $8 $12
-----------------------
Net interest income ($61) ($76) $15
=======================
</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 15
<PAGE>
Provision for Loan Losses
A provision for loan losses of $45 thousand was required for the three
months ended March 31, 2000, compared to a provision of $122 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 March 31, 2000 was
$181 thousand, compared to $137 thousand for the three-month period ended March
31, 1999, representing an increase of $44 thousand or 32.1%.
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 $1,108 thousand for the first three months of 2000
compared to $1,189 thousand for the same period in 1999, representing a decrease
of $81 thousand or 6.8%.
The single largest decrease in year-to-date noninterest expenses was
attributable to other operating expenses. Other operating expenses decreased by
$67 thousand or 15.1 % for the first quarter of 2000 compared to the same period
in 1999. Other operating expenses totaled $376 thousand for the first three
months of 2000 compared to $443 thousand for the same period in 1999. Salaries
and employee benefits expense totaled $521 thousand for the quarter ended March
31, 2000 compared to $507 thousand for the same period in 1999, representing an
increase of $14 thousand or 2.7%. Occupancy and equipment expense totaled $212
thousand for the quarter ended March 31, 2000 compared to $239 thousand in 1999,
a decrease of $27 thousand or 11.3%. The decrease in occupancy costs 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.
Capital Resources
Shareholders' equity on March 31, 2000 was $5.8 million compared to
$5.8 million at December 31, 1999. Book value per share of common stock on March
31, 2000 was $1.44 compared to $1.44 per share at December 31, 1999.
At March 31, 2000 the Company's Tier 1 and total risk-based capital
ratios were 7.76% and 8.69%, respectively, compared to 7.35% and 8.26% at
December 31, 1999. The Company's leverage ratio was 4.94% at March 31, 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 11.21% and 12.25% respectively at March 31, 2000 compared
to 10.10% and 11.00% at December 31, 1999. The Bank's leverage ratio was 6.76%
at March 31, 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 16
<PAGE>
GRANDBANC, INC.
SHAREHOLDERS' EQUITY
(Dollars in thousands)
Table 3
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------------------------------------
Tier 1 Capital:
<S> <C> <C>
Common Stock $ 405 $ 405
Surplus 10,963 10,963
Retained Earnings (3,894) (3,918)
Unrealized holding (loss) gain on securities available-for-sale (1,650) (1,637)
-------------------------------------
Total Shareholders' Equity 5,824 5,813
Less: Unrealized holding loss (gain) on securities available for sale 1,650 1,637
Less: Dissallowed intangibles (1,787) (1,859)
-------------------------------------
Total Tier 1 Capital 5,687 5,591
Tier 2 Capital:
Qualifying allowance for loan losses 681 690
-------------------------------------
Total Tier 2 Capital 681 690
-------------------------------------
Total Risk-Based Capital 6,368 6,281
=====================================
Risk Weighted Assets 73,240 76,055
=====================================
Ratios:
Tier 1 Capital to risk weighted assets 7.76% 7.35%
Tier 2 Capital to risk weighted assets 0.93% 0.91%
-------------------------------------
Total risk-based capital ratio 8.69% 8.26%
=====================================
Leverage Ratio-Tier 1 Capital to quarterly
average assets less intangibles 4.94% 4.79%
=====================================
</TABLE>
Page 17
<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 March 31, 2000
was 1.17% compared to 1.17% at December 31, 1999. The coverage multiple of
allowance for loan losses to nonperforming loans was 10.81 at March 31, 2000
compared to 1.17 at December 31, 1999. Management believes that the allowance
for loan losses at March 31, 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 $529 thousand to $177 thousand at March
31, 2000 from $706 thousand at December 31, 1999. Non-performing assets to total
assets at March 31, 2000 were 0.15% 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 $63 thousand at March 31, 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 $430 thousand at March 31, 2000 compared to $1.9 million at
December 31, 1999.
Table 4 details nonperforming assets, past due loans and asset quality
ratios.
Page 18
<PAGE>
GRANDBANC, INC.
Credit Quality
(Dollars in thousands)
Table 4
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------------------------------
<S> <C> <C>
Nonaccrual Loans $ 63 $ 592
Restructured Loans 0 0
---------------------------------
Total Nonperforming Loans 63 592
Other Real Estate 114 114
---------------------------------
Total Nonperforming Assets 177 706
Loans past due 90 days or
more and accruing interest 430 1,187
---------------------------------
Total Nonperforming Assets and
Loans past due 90 days or more $ 607 $ 1,893
=================================
Total Loans at Period End (1) 58,352 58,993
Allowance for Loan Losses 681 690
Total Assets 116,517 117,267
Asset Quality Ratios:
Allowance for Loan Losses to
Period end Loans 1.17% 1.17%
Allowance for Loan losses to
Nonperforming Loans (Multiple) 10.81 X 1.17 X
Total Nonperforming Loans
to Total Loans 0.11% 1.00%
Total Nonperforming Assets to
Total Assets 0.15% 0.60%
Nonperforming Assets to Total
Loans plus Other Real Estate 0.30% 1.19%
Nonperforming Assets and Loans Past
Due 90 days or more to Total Loans
and Other Real Estate 1.04% 3.20%
</TABLE>
(1) Total loans are reported net of unearned income.
Page 19
<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 March 31, 2000, cash equivalents and securities
available-for-sale totaled $49.3 million similar to the $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, which has an average life of less than five years, provides a steady
stream of cash flows which are reinvested at current market rates, which in turn
helps to manage long term exposure to interest rate changes. Management's goal
is to maximize and stabilize the net interest margin by limiting its exposure to
interest rate changes.
The data in Table 5 reflects repricing or expected maturities of
various assets and liabilities at March 31, 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 March 31, 2000, the Company had a
liability sensitive adjusted gap of $23.1 million.
Page 20
<PAGE>
Interest Rate Gap Analysis
(Dollars in thousands)
Table 5
<TABLE>
<CAPTION>
March 31, 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 $3,919 $0 $0 $0 $0
Securities 502 514 1,031 10,112 33,434
Loans Maturing 792 0 3,465 12,028 7,381
Loans Repricing 19,364 0 6,699 5,117 1,583
Credit Card Receivables 1,964 0 0 0 0
------------------------------------------------------------------------------------
Total $26,541 $514 $11,195 $27,257 $42,398
------------------------------------------------------------------------------------
Cumulative Totals $26,541 $27,055 $38,250 $65,507 $107,905
------------------------------------------------------------------------------------
INTEREST-SENSITIVE LIABILITIES:
- -------------------------------------------
Certificate of Deposits & CD IRA's 19,848 13,105 10,781 14,474 15
Savings Accounts & Savings IRA's 4,456 0 0 0 0
Interest Checking Accounts 11,296 0 0 0 0
Money Market Deposit Accounts 17,670 0 0 0 0
Sweep Accounts 5,116 0 0 0 0
FHLB - Advances 0 0 0 0 0
Other 29 29 608 1847 0
------------------------------------------------------------------------------------
Totals $58,415 $13,134 $11,389 $16,321 $15
------------------------------------------------------------------------------------
Cumulative Totals $58,415 $71,549 $82,938 $99,259 $99,274
------------------------------------------------------------------------------------
Gap (31,874) (12,620) (194) 10,936 42,383
====================================================================================
Cumulative Gap ($31,874) ($44,494) ($44,688) ($33,752) $8,631
====================================================================================
Adjustments:
Beta Adjustments
Interest Checking (beta factor .30) 7,907
Savings accounts (beta factor .30) 3,119
Money Market Accounts (beta factor .40) 10,602
------------------------------------------------------------------------------------
Cumulative Adjusted Gap ($10,246) ($22,866) ($23,060) ($12,124) $30,259
====================================================================================
As Reported Infomration:
Interest-Sensitive Assets/Interest-
Sensitive Liabilites (Cumulative): 45.44% 37.81% 46.12% 66.00% 108.69%
Cumulative Gap/Total Assets (27.36)% (38.19)% (38.35)% (28.97)% 7.41%
Beta Adjusted Information:
Interest-Sensitive Assets/Interest-
Sensitive Liabilites (Cumulative): 72.15% 54.20% 62.39% 84.38% 138.97%
Cumulative Gap/Total Assets (8.79)% (19.62)% (19.79)% (10.41)% 25.97%
</TABLE>
Page 21
<PAGE>
Year 2000
Many computer programs in use prior to the end of 1999 had not been designed to
properly recognize years after 1999. If not corrected, these programs could have
resulted in system and processing failures or create erroneous results. The year
2000 ("Y2K") issue affected the entire banking industry because of its reliance
on computers and other equipment that use computer chips, and may have
significant adverse effects on banking customers, bank regulators, and the
general economy.
The Corporation initiated the process of preparing its computer systems and
applications for the Year 2000 in 1997.
The Corporation's computer systems and business processes successfully handled
the date change from December 31, 1999 to January 1, 2000. The Company is not
aware of any significant year 2000 problems encountered internally or with third
parties with which it interfaces or receives services.
Page 22
<PAGE>
GRANDBANC, INC.
FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 2000
PART II - OTHER INFORMATION
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 23
<PAGE>
GRANDBANC, INC.
FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 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: May 12, 2000 /s/ Steven K. Colliatie
------------ ----------------------------------------------
Steven K. Colliatie
President and Chief Executive Officer
Date: May 12, 2000 /s/ Domingo Rodriguez
------------- ----------------------------------------------
Domingo Rodriguez
Executive Vice President and
Chief Financial Officer
Page 24
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS 10QSB FOR THE QUARTER ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,496
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,919
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 42,904
<INVESTMENTS-CARRYING> 45,593
<INVESTMENTS-MARKET> 42,904
<LOANS> 58,352
<ALLOWANCE> 681
<TOTAL-ASSETS> 116,517
<DEPOSITS> 102,683
<SHORT-TERM> 7,441
<LIABILITIES-OTHER> 381
<LONG-TERM> 188
0
0
<COMMON> 405
<OTHER-SE> 5,419
<TOTAL-LIABILITIES-AND-EQUITY> 116,517
<INTEREST-LOAN> 1,391
<INTEREST-INVEST> 713
<INTEREST-OTHER> 17
<INTEREST-TOTAL> 2,121
<INTEREST-DEPOSIT> 996
<INTEREST-EXPENSE> 1,108
<INTEREST-INCOME-NET> 1,013
<LOAN-LOSSES> 45
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,109
<INCOME-PRETAX> 40
<INCOME-PRE-EXTRAORDINARY> 40
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
<YIELD-ACTUAL> 3.87
<LOANS-NON> 63
<LOANS-PAST> 430
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 690
<CHARGE-OFFS> 64
<RECOVERIES> 10
<ALLOWANCE-CLOSE> 681
<ALLOWANCE-DOMESTIC> 681
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 187
</TABLE>
