U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number 0-13664
GRANGE NATIONAL BANC CORP
PENNSYLVANIA 23-2314065
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
198 E. Tioga St., Tunkhannock, Pennsylvania
-----------------------------------
(Address of principal executive offices)
(717) 836-2100
-----------------------------------
(Registrant'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 preceding 12
months (or for such shorter periods 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
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practical date: 771,743
Transitional Small Business Disclosure Format (Check one): Yes ____; No X
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GRANGE NATIONAL BANC CORP. AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
ITEM 1. Unaudited Financial Statements
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Page
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Consolidated Statements of Financial Position as
of June 30, 1999 and December 31, 1998........................................................2
Consolidated Statements of Income and Comprehensive Income For the
Three and Six Months Ended June 30, 1999 and 1998.............................................3
Consolidated Statements of Changes to Stockholder's Equity For the Six Months
Ended June 30, 1999 and 1998..................................................................4
Consolidated Statements of Cash Flows For the Six Months ended
June 30, 1999 and 1998........................................................................5
Notes to Consolidated Financial Statements................................................6 - 7
ITEM 2. Management's Discussion and Analysis of Financial Condition..............................8 - 14
PART II. OTHER INFORMATION:
ITEM 6. Exhibits and Reports on Form 8-K............................................................15
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GRANGE NATIONAL BANC CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION,
JUNE 30, 1999 AND DECEMBER 31, 1998
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1999 1998
(UNAUDITED) (AUDITED)
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ASSETS:
Cash and due from banks ............................................. $ 3,014,682 $ 2,615,466
Interest bearing deposits ........................................... 2,699,911 5,610,125
Investment securities, available for sale (Note 3) .................. 43,861,082 30,251,442
Investment securities, held to maturity
(fair value 1999, $14,797,000; 1998, $16,677,000) ................. 14,858,888 16,454,603
Loans, net of unearned interest ..................................... 91,865,725 90,499,161
Less: allowance for loan losses .................................... 1,051,423 940,150
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Loans - net .................................................. 90,814,302 89,559,011
Bank premises and equipment - net ................................... 3,041,922 3,135,784
Other real estate ................................................... 247,799 107,789
Accrued interest and other assets ................................... 2,868,457 2,080,598
Intangible assets ................................................... 136,598 138,384
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TOTAL ASSETS ...................................................... $ 161,543,641 $ 149,953,202
============= =============
LIABILITIES:
Domestic deposits:
Non-interest bearing deposits ..................................... $ 21,844,843 $ 20,710,241
Interest bearing deposits ......................................... 113,914,209 109,181,088
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Total deposits .................................................. 135,759,052 129,891,329
Other borrowed funds ................................................ 9,903,680 4,471,214
Accrued interest and other liabilities .............................. 804,050 823,343
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TOTAL LIABILITIES ............................................... 146,466,782 135,185,886
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STOCKHOLDERS' EQUITY:
Preferred stock authorized 1,000,000 shares of $5 par;
None issued .........................................................
Common stock authorized 5,000,000 shares of $5 par value, 771,745
and 751,558 shares issued and outstanding in 1999 and 1998 (Note 4) 3,858,725 3,757,790
Additional paid-in capital .......................................... 1,168,630 731,661
Retained earnings ................................................... 10,743,552 10,017,937
Accumulated other comprehensive income .............................. (694,000) 260,000
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Total ................................................................ 15,076,907 14,767,388
Treasury stock, 6 shares in 1999 and 1998 at cost ................. (48) (72)
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TOTAL STOCKHOLDERS' EQUITY ...................................... 15,076,859 14,767,316
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............................ $ 161,543,641 $ 149,953,202
============= =============
</TABLE>
See Notes to Consolidated Financial Statements
2
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GRANGE NATIONAL BANC CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME (UNAUDITED)
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THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
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1999 1998 1999 1998
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INTEREST INCOME:
Interest and fees on loans $1,981,022 $1,854,471 $3,922,060 $3,599,587
Interest and dividends
on investment securities 782,400 548,011 1,463,614 1,137,105
Interest on deposits in banks 54,060 54,762 111,002 79,186
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TOTAL INTEREST INCOME 2,817,482 2,457,244 5,496,676 4,815,878
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INTEREST EXPENSE:
Interest on deposits 1,137,091 1,079,568 2,263,922 2,094,306
Interest on borrowed funds 107,012 11,090 170,724 34,956
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TOTAL INTEREST EXPENSE 1,244,103 1,090,658 2,434,646 2,129,262
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NET INTEREST INCOME 1,573,379 1,366,586 3,062,030 2,686,616
Provision for loan losses 60,000 50,000 150,000 125,000
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NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,513,379 1,316,586 2,912,030 2,561,616
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OTHER INCOME:
Service charges and other income 264,415 194,483 465,699 383,685
Gain (loss) on sale of securities 8,394 8,394
Gain (loss) on sale of other real estate 23,005 (24,961) 28,984 (24,961)
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TOTAL OTHER INCOME 295,814 169,522 503,077 358,724
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OTHER EXPENSES:
Salaries and employee benefits 498,120 446,361 988,830 877,651
Occupancy expense 107,623 81,362 212,973 171,283
Equipment expense 88,603 65,153 166 012 140,590
Other operating expense 297,426 268,816 549,541 502,430
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TOTAL OTHER EXPENSES 991,772 861,692 1,917,356 1,691,954
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INCOME BEFORE INCOME TAXES 817,421 624,416 1,497,751 1,228,386
Provision for income taxes 227,000 194,000 412,861 384,000
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NET INCOME $590,421 $430,416 $1,084,890 $844,386
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OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized gains on securities:
Unrealized holding gain (loss) arising
during period ($808,000) $20,000 ($954,000) $23,500
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COMPREHENSIVE INCOME ($217,579) $450,416 $130,890 $867,886
=========================================================
EARNINGS PER SHARE (NOTE 4) $0.69 $0.53 $1.27 $1.05
=========================================================
WEIGHTED AVERAGE COMMON SHARES 855,486 807,156 853,965 803,940
</TABLE>
See Notes to Consolidate Financial Statements
3
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GRANGE NATIONAL BANC CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
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FOR THE SIX MONTHS ENDED JUNE 30, 1999 1998
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STOCKHOLDERS' EQUITY, JANUARY 1 $14,767,316 $12,637,804
COMMON STOCK, $5.00 PAR VALUE
Options exercised 64,310 7,850
Stock dividend $0.47 and $0.62 per share in 1999 and 1998,
plus cash in lieu of fractional shares 36,625 16,865
ADDITIONAL PAID-IN CAPITAL
Options exercised 129,319 34,640
Stock dividend $0.47 and $0.62 per share in 1999 and 1998,
plus cash in lieu of fractional shares 307,650 192,261
RETAINED EARNINGS
Stock dividend $0.47 and $0.62 per share in 1999 and 1998,
plus cash in lieu of fractional shares (344,275) (209,126)
Cash paid in lieu of fractional shares due to stock divdend. (15,000) (17,095)
Net income 1,084,890 844,386
ACCUMULATED OTHER COMPREHENSIVE INCOME
Other comprehensive income (loss), net of tax (954,000) 23,500
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TREASURY STOCK
Reissuance of common stock
(1 and 5 shares in 1999 and 1998, respectively, at cost) 24 120
STOCKHOLDERS' EQUITY, JUNE 30 $15,076,859 $13,531,205
======================================
</TABLE>
See Notes to Consolidated Financial Statements
4
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GRANGE NATIONAL BANC CORP. AND SUBSIDIARY
Consolidated Statements of Cash Flows
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For the Six Months Ended June 30, 1999 1998
OPERATING ACTIVITIES:
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Net income ............................................................................. $ 1,084,890 $ 844,386
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ........................................................ 154,500 137,700
Provision for loan losses ............................................................ 150,000 125,000
Increase (decrease) in deferred income taxes ......................................... (486,000) (119,500)
Changes in operating assets and liabilities:
Increase (decrease) in accrued interest income and other assets ....................... (242,073) 89,939
Increase (decrease) in accrued interest expense and other liabilities ................. (77,293) 69,001
NET CASH PROVIDED BY OPERATING ACTIVITIES ............................................. 584,024 1,146,526
INVESTING ACTIVITIES:
Purchase bank premises and equipment ................................................... (60,638) (47,752)
Decrease (increase) in other real estate ............................................... (140,010) 22,791
Purchase of securities "available for sale" ............................................ (11,099,470) (6,786,772)
Decrease (increase) in mortgage-backed securities "available for sale" ................. (6,297,172) 335,826
Sales of securities "available for sale" ............................................... 2,340,722
Redemptions of securities "available for sale" ......................................... 529,164 817,533
Purchase of securities "held to maturity" .............................................. (2,560,779) (1,496,875)
Redemptions of securities "held to maturity" ........................................... 3,769,487 4,375,130
Decrease (increase) in mortgage-backed securities "held to maturity" ................... 350,122 256,673
Increase in loans to customers ......................................................... (1,405,291) (4,718,394)
Increase in deposits in banks .......................................................... 2,910,215 (6,193,316)
NET CASH USED IN INVESTING ACTIVITIES ................................................. (11,663,650) (13,435,156)
FINANCING ACTIVITIES:
Increase in deposits before interest credited .......................................... 3,835,896 8,601,578
Increase (decrease) in borrowed funds .................................................. 5,432,466 1,862,418
Interest credited to deposits .......................................................... 2,031,827 1,856,722
Cash dividends paid .................................................................... (15,000) (17,095)
Decrease in treasury stock ............................................................. 24 120
Issuance of common stock ............................................................... 193,629 42,490
NET CASH PROVIDED BY FINANCING ACTIVITIES ............................................. 11,478,842 12,346,233
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................................... 399,216 57,603
CASH AND CASH EQUIVALENTS, January 1 .................................................... 2,615,466 2,514,202
CASH AND CASH EQUIVALENTS, June 30 ...................................................... $ 3,014,682 $ 2,571,805
SUPPLEMENTARY SCHEDULE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest .............................................................................. $ 237,908 $ 223,350
Income taxes .......................................................................... $ 460,000 $ 378,000
Non-cash investing and financing activities:
Unrealized gains (losses) on securities ............................................... $ (954,000) $ 45,000
Stock dividend ........................................................................ 344,275 209,126
</TABLE>
See Notes to Consolidated Financial Statements
5
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GRANGE NATIONAL BANC CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BUSINESS COMBINATION AND PRINCIPLES OF COMBINATION:
Grange National Banc Corp. (Company) was organized and incorporated
under the laws of the Commonwealth of Pennsylvania on October 2, 1984,
for the purpose of becoming a bank holding company. On April 30, 1985
the Company acquired the Grange National Bank of Wyoming County (Bank)
pursuant to a plan of reorganization and merger. The Bank became a
wholly owned subsidiary of the Company, and each outstanding share of
Bank common stock was converted into one share of Company common stock.
The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiary (Bank) with the
reorganization accounted for as a pooling of interests.
2. BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements have been
prepared in conformity with the accounting principles and practices
reflected in the annual financial statements, and reflect all
adjustments which are normal and recurring and, in the opinion of
management, necessary for a fair presentation of the results of
operations for the interim periods. The results of operations reported
in interim financial statements are not necessarily indicative of
results to be expected for the year.
3. COMPREHENSIVE INCOME:
In 1997, the Financial Accounting Standards Board issued statement No.
130 -- "Reporting Comprehensive Income," which is effective for years
beginning after December 15, 1997. This statement establishes standards
for reporting and display of comprehensive income and its components in
a full set of general-purpose financial statements. The purpose of
reporting comprehensive income is to report a measure of all changes in
equity that result from recognized transactions and other economic
events of the period other than transactions with owners in their
capacity as owners. Prior to the issuance of this statement, some of
those changes in equity were displayed in a statement that reports the
results of operations, while others were included directly in a
statement of financial position. The 1997 financial statements have
been restated where applicable to reflect the adoption of SFAS No. 130.
4. STOCK OPTIONS:
In January 1994, the Board adopted an Employee Stock Option Plan in
which common stock options may be granted to all officers and key
employees of the Company. The
6
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aggregate number of shares which may be issued upon exercise of the
options under the plan is 43,271. Options are exercisable up to
one-third in the second year after the date of grant, up to two-thirds
in the third year after the date of grant and up to 100% in the fourth
year after the date of grant, with options expiring at the end of ten
years after the date of grant.
The Board of Directors also adopted a Stock Option Plan for
non-employee Directors which will be available to all non-employee
members of the Board of Directors. The aggregate number of shares which
may be issued upon exercise of the options under the Director's plan is
43,271 shares and are exercisable in part from time to time beginning
one year after the date of grant and expiring ten years thereafter. The
Plan provides for adjustments to the number of options to compensate
for stock dividends and splits. Accordingly all effected figures have
been adjusted to reflect stock dividends. April 1, 1994 and 1997,
options to purchase 2,163 shares of common stock were automatically
granted to each non-employee Director under this plan expiring April 1,
2004.
The Board of Directors adopted an additional Stock Option Plan (the
"Plan") in November 1995 covering the employees and directors. The Plan
authorizes the grant of options to purchase not more than 118,996
shares of Common Stock under the Plan. Options granted under the Plan
are intended to be either incentive stock options or nonstatutory stock
options. As of July 31, 1999 options for 83,824 shares of Common Stock
having various exercise prices were outstanding, 16,313 shares have
been exercised, and 18,859 shares were available for future option
grants under the Plan. Of the 118,996 shares of Common Stock
outstanding for options, 74,170 shares of Common Stock were issued as
incentive stock options. The remaining shares outstanding for options
were granted to each non-employee director equally as nonstatutory
stock options. Pursuant to Section 422 of the Internal Revenue Code,
shareholder approval is required for the incentive stock options to
qualify for favorable tax treatment. Exercise prices of options granted
under all plans are current prices at time of grant.
PREFERRED STOCK:
The Company authorized 1,000,000 of preferred stock at $5 par value. At
December 31, 1998 and June 30, 1999, no shares were issued nor
outstanding.
7
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION:
Net income for the three months ending June 30, 1999 totaled $590,000 which is a
37% increase over the $430,000 reported for the same period in 1998. Net
interest income for the three months ending June 30, 1999 increased by $206,000
to $1,573,000 compared to $1,367,000 for the same period in 1998. This
constitutes an increase of 15% over the previous year. Interest income for this
period increased by $360,000 or 15% compared to 1998, and interest expense
increased as well by $153,000 or 14% compared to 1998.
The increase in interest income has been principally from interest on investment
securities which increased $234,000 or 43% compared to the same period last
year. Interest income from loans increased by $127,000 or 7% compared to the
same period last year. Interest rates on loans have trended steadily down from
June of 1997 until the end of June 1999. Although the New York prime rate had
not changed from March of 1997 until July 1, 1999, competitive pressures reduced
the Bank's spread to the prime on new loans. In addition, new loan volume has
been slower during the first half of 1999 and has mostly offset by customers
refinancing existing loans either with the bank or elsewhere. Management has
increased its purchases of longer term municipal bonds and mortgage-backed bonds
to increase the yield of the bond portfolio. The municipal bonds currently being
purchased, mostly have maturities of around ten years and a few with twenty year
maturities, and are classified as "available for sale". If interest rates
increase sufficiently these bonds can be sold. Interest on deposits in banks
decreased by $1,000 from $55,000 to $54,000 due mainly to lower rates.
The increase in interest expense is due to the increase in interest bearing
deposits during the second quarter of 1999 as compared to the second quarter of
1998, and an increase in other borrowed funds.. The average total sources to
fund earning assets increased by $26,467,000, from $124,830,000 to $151,297,000
in 1999, while the average interest rate was unchanged.
The increase in deposits continues to provide funds for loans and liquidity.
Loan demand during the second quarter was steady but offset by customers
refinancing existing loans. As a result of the refinancing, loans only increased
$1,367,000 or 2% from $90,499,000 in at December 31, 1998 to $91,865,000 at June
30, 1999. Loan demand has increased and is expected to be strong during the
third quarter. The steady decline in interest rates for the last two years
appears to have stopped and management expects refinancing of loans to slow
considerably. Balances of investment securities increased by $12,014,000 or 26%
since December 31, 1998. Management has borrowed $4,000,000 from the Federal
Home Loan Bank (FHLB) in term advances, during 1999, and used the funds to
purchase long term municipal bonds. The bank will have a guaranteed interest
spread until the call dates on the FHLB term advances, at which time the bank
can payback the advances if the FHLB adjusts the rates or pay the new rates.
Management will plan for sufficient liquidity to pay the advances when it
expects the FHLB will change the rates. This arbitrage accounts for part of the
increase in the interest income from investment
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securities. Interest bearing deposits at banks decreased by $2,910,000 to
$2,700,000 from $5,610,000 due to management investing in securities.
The provision for loan loss during the three months ending June 30, 1999 was
$60,000 compared to $50,000 for the same period in 1998, as management tries to
keep the allowance for loan losses in line with the size of the loan portfolio.
The allowance for loan losses was $1,051,000 and $940,000 at June 30, 1999 and
December 31, 1998, respectively. This represents 1.14% and 1.04% of total loans,
321% and 437% of non-performing loans, and 183% and 291% of non-performing
assets, respectively. Management performs a quarterly analysis of the Bank's
potential loan losses on a "worst case" basis. A loan review process is
performed by an independent loan review officer on a continuing basis. This
information is closely reviewed by the Board of Directors and used to evaluate
the adequacy of the loan loss reserve in order to provide coverage for
identifiable losses, provide coverage for unexpected losses, and to keep the
size of the reserves in proportion to the growing size of the loan portfolio.
The following sets forth loans past due 90 days or more on which interest has
continued to be accrued for June 30, 1997 and December 31, 1998.
June 1998 December 1998
(In thousands)
Real estate mortgages $1
Commercial $6
Installment 9
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Total $6 $10
==== ====
Non-accrual loans increased from $205,000 at December 31, 1998 to $321,000 at
June 30, 1999. The overall quality remains very good, and management expects
non-performing assets to remain at substantially the same levels as a proportion
of loans. Other real estate owned increased from $108,000 at December 1998 to
$248,000 at June 1999. The bank has a signed sales agreement for one property
and expects to close on the sale during the third quarter. The other properties
will probably take up to a year to sell.
Investments in securities and deposits in banks increased by $12,014,000 or 26 %
from December 31, 1998 to June 30, 1999. The average rate earned on available
for sale, held to maturity and deposits in banks were 6.27%, 6.35% and 5.28% for
the three months ended June 30, 1999, as compared to 6.32%, 5.50% and 5.66% for
the three months ended June 30, 1998. As of June 30, 1999, the amortized value
of the Bank's investments classified as held to maturity exceeded their fair
value by $99,000, and the amortized value exceeded the fair value of investments
classified as available for sale by $1,062,000. This is reflected as an decrease
in the Bank's equity of approximately $694,000, net of deferred tax effects.
Higher interest rates at June 30, 1999 account for the unrealized gain on the
available for sale securities reflected on the balance sheet. Rates are expected
to continue their slow but steady decline. This will result in moderate
increases of the fair value of securities available for sale.
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Because the Bank has extended the length of the securities it purchases,
interest rate changes have a greater impact on the fair value of those
securities. The amount of increased interest rate risk is offset by higher
yields on the securities. The Bank has been purchasing slightly longer term
investments, generally tax-free bonds up to ten years and mortgage pools with
stated final maturities of up to 15 years.
Management continues to purchase only high quality investments to minimize
credit risk to the value of the Bank's investments. There have been no adverse
credit valuations on any of the investments. Although investment opportunities
exist which will produce higher yields, they generally contain higher credit or
interest rate risk.
The addition of employees for the Pine Mall office, Trust Department and back
office, along with annual raises contributed to the increase in salary expense.
Costs associated with the Pine Mall Office also attributed to the increased
occupancy expense. Salaries and employee benefits have increased by $111,000 or
13% from $878,000 to $989,000 and occupancy expense increased $42,000 or 25%
from $171,000 to $213,000. Equipment expense increased $25,000 or 18% from
$141,000 to $166,000, and other operating expenses increased $48,000 or 10% from
$502,000 to $550,000.
Management performs an interest rate and liquidity analysis on a monthly basis
to monitor the Bank's interest rate sensitivity gap and liquidity needs. These
reports are reviewed by the Board of Directors and used to formulate ways to
improve the Bank's interest rate gap. The Bank continues to place great emphasis
on adjustable rate loan products, such as variable rate home equity loans and
annually adjustable mortgage loans as well as adjustable rate and short term
investments, in order to minimize interest rate risk.
Since 1991 the Comptroller of the currency has required all national banks to
meet certain "Risk Based Capital" standards. These standards weight certain
assets based on the risk of the asset, and also includes certain off-balance
sheet items. The table below sets forth the Bank's Tier 1 and Tier 2 capital,
risk adjusted assets (including off-balance sheet items) and the Bank's risk-
based capital ratios under the guidelines, for June 30, 1998 and December 31,
1998.
(In thousands, except ratios) 1999 1998
Tier I capital:
Shareholders' equity ....................... $ 14,429 $14,369
Tier II capital:
Loan loss reserve .......................... 1,051 940
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Total Qualifying Capital ........................ $ 15,480 $15,309
======== =======
Risk-adjusted assets (including off balance sheet items).. $107,606 $95,881
Tier I Capital Ratio (4.00% required) .................... 14.18% 15.41%
Total Capital Ratio (8.00% required) ..................... 14.39% 15.97%
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YEAR 2000 IMPACT
The Bank has a Year 2000 policy addressing the "Year 2000" Issue concerning
computers and equipment using computer chips and their ability to recognize and
process information based on dates in the year 2000 and beyond. If the computer
chips do not recognize the dates in the Year 2000 accurately, certain problems
may result, particularly those concerning calculations based on dates.
Inaccuracies in interest accruals, payment and due dates or other unanticipated
results such as computer shut downs or crashes may occur if the computers or
equipment with computer chips can not properly recognize dates after December
31, 1999. The Bank's policy requires testing of all "mission critical" systems
to determine if they will operate correctly in the year 2000. The Bank's policy
also requires it to test systems (hardware and software) used to interface with
other systems, as well as to determine the Year 2000 readiness of systems of its
partners which provide mission critical services to the Bank.
The Bank's policy addresses five major components: (1) Awareness; (2)
Assessment; (3) Renovation; (4) Validation and Testing; and (5) Implementation.
The Bank has completed the first three phases, and tested all mission critical
systems. Test results of all mission critical systems have been validated.
The Bank has developed a contingency plan in the event vendors of mission
critical systems fail to be Year 2000 ready in time, or unexpected problems
occur. The contingency plan has been reviewed and approved by the Board of
Directors, but it will be continually revised and updated throughout the
remainder of the year. At this time the Bank can not estimate the cost, if any,
that might be required to implement such contingency plans.
The Bank anticipates that its total Year 2000 related costs will not exceed
$30,000. This estimate is based on current information and includes costs for
review and testing by third parties. The estimate may change as the Bank
progresses with its Year 2000 program and obtains additional information with
and conducts further testing with third parties. Lost interest income may be the
Bank's largest Year 2000 expense, as it builds its cash holdings in anticipation
of customer demand. The Bank is currently in process of determining how much
cash it will need to meet the demand. At this time, no significant problems have
arisen concerning Year 2000 issues.
The Office of the Comptroller of the Currency, which is the bank's primary
regulator, has been conducting Year 2000 compliance examinations. The failure to
implement an adequate Year 2000 program can be identified as an unsafe and
unsound banking practice. The OCC has established an examination procedure which
contains three categories of ratings: "Satisfactory", "Needs Improvement", and
"Unsatisfactory". Banks that receive a Year 2000 rating of Unsatisfactory may be
subject to formal enforcement action, supervisory agreements, cease and desist
orders, civil money penalties, or the appointment of a conservator. In addition,
the OCC will be taking into account Year 2000 compliance programs when reviewing
applications and may deny an application based on Year 2000 related issues.
Failure of the Bank to adequately prepare for Year 2000 issues could negatively
impact the Bank's operations, including the impositions of restrictions on its
operations by the OCC.
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Although the Bank has no reason to believe that it will suffer systems
disruptions due to the Year 2000 issue, and is confident that it will not, there
can be no assurance that partial or total systems interruptions or the costs
necessary to update hardware and software would not have a material adverse
effect on the Bank's business, financial condition, results of operations, and
business prospects.
12
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GRANGE NATIONAL BANC CORP. AND SUBSIDIARY
AVERAGE BALANCES, INTEREST INCOME/EXPENSE AND RATES
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1998
--------------------------------- ---------------------------------
(1) Interest Average (1) Interest Average
Average Income/ Interest Average Income/ Interest
(Dollars in thousands) Balance Expense Rate Balance Expense Rate
- ---------------------- -------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Loans:
Mortgages .......................................... $ 45,391 $ 971 8.56% $ 44,491 $ 998 8.97%
Installment ........................................ 2,755 73 10.60 4,774 131 10.98
Commercial ......................................... 43,791 964 8.81 31,410 742 9.45
Total loans ...................................... 91,937 2,008 8.74 80,675 1,871 9.28
Securities available for sale:
U.S. Treasury securities ........................... 5,258 76 5.78 7,619 113 5.93
U.S. government agencies ........................... 23,645 335 5.67 4,850 76 6.27
Municipal bonds .................................... 10,674 200 7.49 3,158 56 7.09
Other securities ................................... 816 22 10.78 642 12 7.48
Total available for sale ....................... 40,393 633 6.27 16,269 257 6.32
Securities held to maturity:
U.S. government agencies ........................... 7,476 115 6.15 18,240 234 5.13
Municipal bonds .................................... 2,903 52 7.17 3,510 59 6.72
Other securities ................................... 4,496 69 6.14 2,246 37 6.59
Total held to maturity ........................... 14,875 236 6.35 23,996 330 5.50
Deposits in banks ................................... 4,092 54 5.28 3,890 55 5.66
TOTAL .......................................... $151,297 2,931 7.75 $124,830 2,513 8.05
INTEREST BEARING LIABILITIES:
Deposits:
NOW and super-NOW .................................. $ 17,421 86 1.97 $ 10,582 60 2.27
Savings and money market ........................... 32,055 196 2.45 28,877 201 2.78
Certificates of deposit ............................ 65,086 853 5.24 58,264 816 5.60
Other time deposits ................................ 200 2 4.00 200 2 4.00
Total deposits ................................... 114,762 1,137 3.96 97,923 1,079 4.41
Other borrowed funds ................................ 9,086 107 4.71 1,224 11 3.59
TOTAL .......................................... 123,848 1,244 4.02 99,147 1,090 4.40
Non-interest bearing
funds, net (2) ...................................... 27,449 25,683
TOTAL SOURCES TO FUND
EARNING ASSETS ....................................... $151,297 1,244 3.29 $124,830 1,090 3.49
NET INTEREST/YIELD ................................... $ 1,687 4.46% $ 1,423 4.56%
</TABLE>
(1) Average balances are daily averages.
(2) Demand deposits, stockholders's equity and other non-interest bearing
liabilities less non-interest earning assets.
Non-accrual loans are reflected in the loan balances, but contributing no
interest income.
NOTE - Tax exempt interest income has been converted to a tax equivalent basis
at the U.S. federal income tax rate of 34%.
See Notes to Consolidated Financial Statements
13
<PAGE>
GRANGE NATIONAL BANC CORP. AND SUBSIDIARY
AVERAGE BALANCES, INTEREST INCOME/EXPENSE AND RATES
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1998
-------------------------------- --------------------------------
(1) Interest Average (1) Interest Average
Average Income/ Interest Average Income/ Interest
Balance Expense Rate Balance Expense Rate
------- -------- -------- ------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Loans:
Mortgages ............................ $ 46,166 $ 1,959 8.49% $ 44,005 $ 1,950 8.86%
Installment .......................... 3,096 163 10.53 5,557 265 9.54
Commercial ........................... 42,583 1,854 8.71 30,520 1,414 9.27
-------- -------- -------- --------
Total loans ........................ 91,845 3,976 8.66 80,082 3,629 9.06
-------- -------- -------- --------
Securities available for sale:
U.S. Treasury securities ............. 5,325 155 5.82 7,087 212 5.98
U.S. government agencies ............. 19,536 590 6.04 3,837 134 6.98
Municipal bonds ...................... 9,562 340 7.11 2,647 98 7.40
Other securities ..................... 739 22 5.95 602 19 6.31
-------- -------- -------- --------
Total available for sale ......... 35,162 1,107 6.30 14,173 463 6.53
-------- -------- -------- --------
Securities held to maturity:
U.S. government agencies ............. 8,849 288 6.51 17,423 554 6.36
Municipal bonds ...................... 3,462 103 5.95 3,898 124 6.36
Other securities ..................... 3,790 116 6.12 2,204 72 6.53
-------- -------- -------- --------
Total held to maturity ............. 16,101 507 6.30 23,525 750 6.38
-------- -------- -------- --------
Deposits in banks ..................... 2,671 111 8.31 2,671 79 5.92
-------- -------- -------- --------
TOTAL ............................ $145,779 5,701 7.82 $120,451 4,921 8.17
======== -------- ======== --------
INTEREST BEARING LIABILITIES:
Deposits:
NOW and super-NOW .................... $ 16,394 163 1.99 $ 11,446 118 2.06
Savings and money market ............. 31,427 388 2.47 27,993 380 2.71
Certificates of deposit .............. 65,334 1,709 5.23 57,199 1,591 5.56
Other time deposits .................. 200 4 4.00 200 5 5.00
-------- -------- -------- --------
Total deposits ..................... 113,355 2,264 3.99 96,838 2,094 4.32
Other borrowed funds .................. 7,398 171 4.62 1,445 35 4.84
-------- -------- -------- --------
TOTAL ............................ 120,753 2,435 4.03 98,283 2,129 4.33
Non-interest bearing
funds, net (2) ........................ 25,026 22,168
-------- -------- -------- --------
TOTAL SOURCES TO FUND
EARNING ASSETS ......................... $145,779 2,435 3.34 $120,451 2,129 3.54
NET INTEREST/YIELD ..................... $ 3,266 4.48% $ 2,792 4.64%
======== ========
</TABLE>
(1) Average balances are daily averages.
(2) Demand deposits, stockholders's equity and other non-interest bearing
liabilities less non-interest earning assets. Non-accrual loans are reflected in
the loan balances, but contributing no interest income.
NOTE - Tax exempt interest income has been converted to a tax equivalent basis
at the U.S. federal income tax rate of 34%.
See Notes to Consolidated Financial Statements
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
(ii) Statement re: computation of earnings per share:
Primary earnings per share is computed by dividing net income
by the weighted average number of shares of common stock and
common stock equivalents outstanding during the quarter. Stock
options are considered common stock equivalents and are
included in the computation of the number of shares
outstanding using the treasury stock method. The number of
shares used to calculate earnings per share for the periods
presented are as indicated in each period.
During the current fiscal quarter, there have been no events of a nature
required to be filed on Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GRANGE NATIONAL BANC CORP.
---------------------------
(Registrant)
Date August 13, 1999 /s/ Thomas A. McCullough
------------------------ ---------------------------
Thomas A. McCullough
President
Chief Executive Officer
Chief Financial Officer
Date August 13, 1999 /s/ Philip O. Farr
------------------------ ---------------------------
Philip O. Farr
Chief Accounting Officer
15
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM OUR JUNE 30, 1999 1-QSB AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINNCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,015
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 43,861
<INVESTMENTS-HELD-FOR-SALE> 14,859
<INVESTMENTS-CARRYING> 14,797
<INVESTMENTS-MARKET> 90,814
<LOANS> 1,051
<ALLOWANCE> 161,544
<TOTAL-ASSETS> 135,759
<DEPOSITS> 2,904
<SHORT-TERM> 804
<LIABILITIES-OTHER> 7,000
<LONG-TERM> 0
0
5,027
<COMMON> 10,050
<OTHER-SE> 161,544
<TOTAL-LIABILITIES-AND-EQUITY> 1,981
<INTEREST-LOAN> 782
<INTEREST-INVEST> 54
<INTEREST-OTHER> 2,817
<INTEREST-TOTAL> 1,137
<INTEREST-DEPOSIT> 1,244
<INTEREST-EXPENSE> 1,573
<INTEREST-INCOME-NET> 60
<LOAN-LOSSES> 8
<SECURITIES-GAINS> 992
<EXPENSE-OTHER> 817
<INCOME-PRETAX> 817
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> (218)
<NET-INCOME> 590
<EPS-BASIC> 0.69
<EPS-DILUTED> 0.69
<YIELD-ACTUAL> 4.46
<LOANS-NON> 321
<LOANS-PAST> 6
<LOANS-TROUBLED> 108
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1012
<CHARGE-OFFS> 21
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1051
<ALLOWANCE-DOMESTIC> 1051
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
