<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 29549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
-------------------------------------------
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transaction period from to
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Commission file number 0-15956
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Bank of Granite Corporation
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 56-1550545
- -----------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Post Office Box 128, Granite Falls, N.C. 28630
- -----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(704) 496-2000
- -----------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- -----------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has 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 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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common stock, $1 par value - 5,998,575 shares outstanding as of May 3, 1996.
<PAGE> 2
BANK OF GRANITE CORPORATION AND SUBSIDIARY
<TABLE>
<CAPTION>
INDEX PAGE
- ----- ----
<S> <C>
PART I FINANCIAL INFORMATION:
Financial Statements:
Consolidated Balance Sheets
March 31, 1996 and December 31, 1995 3
Consolidated Statements of Income
Three Months Ended March 31, 1996
and 1995 4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1996
and 1995 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7
PART II Other Information 9
SIGNATURE 10
</TABLE>
<PAGE> 3
BANK OF GRANITE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------------- -------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents:
Cash and due from banks $ 21,717,184 $ 19,621,179
Federal funds sold 5, 500,000 1,500,000
-------------- --------------
Total cash and cash equivalents 27,217,184 21,121,179
-------------- --------------
Investment securities:
Available for sale, at fair value 48,772,692 50,129,581
-------------- --------------
Held to maturity, at amortized cost 74,221,965 74,141,480
-------------- --------------
Loans 302,854,729 301,685,399
Allowance for loan losses (4,847,378) (4,644,725)
-------------- --------------
Net loans 298,007,351 297,040,674
-------------- --------------
Premises and equipment, net 8,144,205 8,153,776
-------------- --------------
Accrued interest receivable 4,665,906 4,201,673
-------------- --------------
Other assets 2,869,256 1,663,969
-------------- --------------
TOTAL $ 463,898,559 $ 456,452,332
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Demand $ 71,043,665 $ 72,686,095
NOW accounts 54,972,214 56,047,252
Money market accounts 27,955,552 27,341,113
Savings 22,488,610 21,355,568
Time deposits of $100,000 or more 87,464,651 84,145,051
Other time deposits 115,849,808 115,468,065
-------------- --------------
Total deposits 379,774,500 377,043,144
Securities sold under agreement to repurchase 3,699,480 2,982,870
Accrued interest payable 1,674,463 1,872,764
Other liabilities 3,082,862 933,303
-------------- --------------
Total liabilities 388,231,305 382,832,081
-------------- --------------
SHAREHOLDERS' EQUITY:
Common stock, $1.00 par value, authorized-
10,000,000 shares; issued and outstanding-
1996 - 5,987,337; 1995 - 5,984,604 5,987,337 5,984,604
Capital surplus 21,413,868 21,378,741
Retained earnings 48,034,883 45,806,595
Net unrealized gain (loss) on securities
available for sale, net of deferred
income taxes 231,166 450,311
-------------- --------------
Total shareholders' equity 75,667,254 73,620,251
-------------- --------------
TOTAL $ 463,898,559 $ 456,452,332
============== ==============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
<TABLE>
<CAPTION>
BANK OF GRANITE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 1996 1995
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<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 7,552,316 $ 7,000,736
Federal funds sold 69,913 13,639
Investments:
U.S. Treasury 222,938 253,680
U.S. Government agencies 591,102 478,222
States and political subdivision 753,392 702,466
Other 172,459 151,528
------------ ------------
Total interest income 9,362,120 8,600,271
------------ ------------
INTEREST EXPENSE:
Time deposits of 100,000 or more 1,210,056 1,034,348
Other time and savings deposits 2,273,655 1,804,110
Federal funds purchased and securities
sold under agreements to repurchase 44,091 54,504
Other borrowed funds 156 663
------------ ------------
Total interest expense 3,527,958 2,893,625
------------ ------------
NET INTEREST INCOME 5,834,162 5,706,646
PROVISION FOR LOAN LOSSES 185,000 440,000
------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 5,649,162 5,266,646
------------ ------------
OTHER INCOME:
Service charges on deposits accounts 705,755 679,236
Other service fees and commissions 255,835 249,864
Securities gains - 5,675
Other 286,323 129,668
------------ ------------
Total other income 1,247,913 1,064,443
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OTHER EXPENSES:
Salaries and wages 1,151,028 1,030,713
Profit sharing and employee benefits 381,214 321,802
Occupancy expense, net 99,443 113,957
Equipment rentals, depreciation, and maintenance 198,620 172,686
Other 605,329 682,118
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Total other expenses 2,435,634 2,321,276
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INCOME BEFORE INCOME TAXES 4,461,441 4,009,813
INCOME TAXES 1,515,000 1,404,000
------------ ------------
NET INCOME $ 2,946,441 $ 2,605,813
============ ============
PER SHARE AMOUNTS:
Net income $ .33 $ .29
============ ============
Cash dividends $ .08 $ .07
============ ============
Book Value $ 12.64 $ 11.02
============ ============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
BANK OF GRANITE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31 1996 1995
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<S> <C> <C>
Increase (Decrease) in cash and cash equivalents
Cash flows from operating activities:
Interest received $ 8,953,875 $ 8,208,404
Fees and commissions received 1,247,913 1,058,768
Interest paid (3,726,259) (2,799,106)
Cash paid to suppliers and employees (2,534,162) (3,159,096)
Income taxes paid (526,797) (329,696)
------------- ------------
Net cash provided by operating activities 3,414,570 2,979,274
------------- ------------
Cash flows from investing activities:
Proceeds from maturities of securities available for sale 5,100,000 2,051,500
Procceds from maturities of securities held to maturity 3,215,000 1,570,000
Purchases of securities available for sale (4,082,827) (1,416,696)
Purchases of securities held to maturity (2,990,938) (999,375)
Net increase in loans (1,151,677) (7,472,294)
Capital expenditures (175,796) (36,387)
------------- ------------
Net cash used in investing activities (86,238) (6,303,252)
------------- ------------
Cash flows from financing activites:
Net increase (decrease) in demand deposits, NOW accounts
and savings accounts (969,987) 324,202
Net increase in certificates of deposit 3,701,343 5,490,438
Net increase (decrease) in federal funds purchased and
securities sold under agreements to repurchase 716,610 (463,530)
Net decrease in other borrowed funds - (21,000)
Net proceeds from issuance of common stock 37,860 62,383
Dividends paid (718,153) (595,821)
------------- ------------
Net cash provided by financing activities 2,767,673 4,796,672
------------- ------------
Net increase (decrease) in cash and cash equivalents 6,096,005 1,472,694
Cash and cash equivalents at beginning of period 21,121,179 19,490,835
------------- ------------
Cash and cash equivalents at end of period $ 27,217,184 $ 20,963,529
============= ============
Reconciliation of net income to net cash
provided by operating activities:
Net Income $ 2,946,441 $ 2,605,813
------------- ------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 185,367 169,064
Provision for loan losses 185,000 440,000
Premium amortization (discount accretion), net 37,387 30,377
Gains on sales of securities available for sale - (5,675)
Increase in taxes payable 988,203 1,074,304
Increase in accrued interest receivable (445,632) (422,244)
Increase (decrease) in accrued interest payable (198,301) 94,519
Increase in other assets (86,598) (595,447)
Decrease in other liabilities (197,297) (411,437)
------------- ------------
Total adjustments 468,129 373,461
------------- ------------
Net cash provided by operating activites $ 3,414,570 $ 2,979,274
============= ============
Supplemental Disclosure of Non-Cash Transactions:
Transfers of loans to other realestate owned - 219,000
Change in net unrealized gain (loss) on securities available for sale (337,834) 712,376
Matured securities held to maturity, funds not yet collected 1,000,000 -
Purchased securities available for sale, not yet settled 1,340,052 -
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
BANK OF GRANITE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of management, the accompanying consolidated financial
statements contain all adjustments necessary to present fairly the
financial position of Bank of Granite Corporation and subsidiary as of
March 31, 1996 and December 31, 1995, and the results of their
operations for the three month periods ended March 31, 1996 and 1995,
and their cash flows for the three month periods ended March 31, 1996
and 1995.
The accounting policies followed are set forth in Note 1 to the
Corporation's 1995 Annual Report to Shareholders on file with the
Securities and Exchange Commission.
2. Earnings per share have been computed using the weighted average
number of shares of common stock and dilutive common stock equivalents
outstanding, of 9,016,402 and 8,979,900, adjusted for a 3 for 2 stock
split declared on April 22, 1996 for shareholders of record as of May
10, 1996 and payable on May 31, 1996, for the three month periods
ended March 31, 1996 and 1995, respectively.
3. In the normal course of business there are various commitments and
contingent liabilities such as commitments to extend credit, which are
not reflected on the financial statements. The unused portion of loan
commitments at March 31, 1996 and December 31, 1995 was $55,193,000
and $50,276,000, respectively. Additionally, standby letters of
credit of approximately $1,885,000 and $3,568,000 were outstanding at
March 31, 1996 and December 31, 1995, respectively. Management does
not anticipate any significant losses to result from these
transactions.
4. In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-lived Assets and for Assets to
be Disposed of." It requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The
implementation of SFAS No. 121 did not have a material impact on the
Company's financial condition or results of operations.
5. In October 1995, The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation," which was effective for the
Company beginning January 1, 1996. SFAS No. 123 requires expanded
disclosures of stock-based compensation arrangements with employees
and encourages (but does not require) compensation cost to be measured
based on the fair value of the equity instrument awarded. Companies
are permitted, however, to continue to apply APB Opinion No. 25, which
recognizes compensation cost based on the intrinsic value of the
equity instrument awarded. The Company will continue to apply APB No.
25 to its stock based compensation awards to employees and will
disclose the required pro forma effect on net income and earnings per
share.
6
<PAGE> 7
BANK OF GRANITE CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
CHANGES IN FINANCIAL CONDITION
MARCH 31, 1996 COMPARED WITH DECEMBER 31, 1995
Total assets increased $7,446,227 from December 31, 1995 to March 31, 1996.
This 1.63% of growth in assets resulted primarily from an increase in deposits
of $2,731,356 or .72% and the reinvestment of $2,946,441 of net earnings. As a
result, cash and cash equivalents increased $6,096,005, and gross loans
reflected a modest growth of $1,169,330 or .39%. Securities decreased by
$938,570, excluding unrealized gains on available for sale securities of
$403,784 and $741,618, at March 31, 1996 and December 31, 1995, respectively.
Other assets increased $1,205,287. Of this amount $1,000,000 represents a
matured investment for which funds had not been collected from the paying
agent. Deposits revealed an increase of $2,731,356 or .72%. Non-time deposits
decreased $969,987 or .55%, while time deposits increased $3,701,343 or 1.85%.
The growth in time deposits reflects interest sensitive customers shifting
their funds from lower interest-bearing accounts to higher yielding time
deposits as well as normal growth. The loan-to-deposits ratios were 79.75% and
80.01% on March 31, 1996 and December 31, 1995, respectively. Other
liabilities increased $2,149,559. Of this amount $1,358,653 represents an
accrued liability for securities purchased but not yet settled and $988,203 for
accrued income taxes. Common stock outstanding increased by 2,733 shares due
to the exercise of stock options and provided cash of $37,860. Retained
earnings reflect the payment of $718,153 in cash dividends and earnings of
$2,946,441. The Company had a $231,166 unrealized gain, net of deferred income
taxes, on held available for sale securities. The Company's liquidity position
remained strong.
RESULTS OF OPERATIONS FOR THE THREE
MONTH PERIOD ENDED MARCH 31, 1996
COMPARED WITH THE SAME PERIOD IN 1995
Increases in interest income are primarily attributable to increases in volume.
Gross loans increased by .39% while the prime rate decreased by approximately
50 basis points over the comparable quarter in 1995. The increase in interest
expense is attributable to increases in interest bearing time deposits, as well
as a shift in deposits from lower yielding non-time deposits to higher yielding
time deposits.
The provision for loan losses charged to operations is an amount sufficient to
bring the allowance for loan losses to an estimated balance considered to be
adequate to absorb potential losses in the portfolio. Management's
determination of the adequacy of the allowance is based on an evaluation of the
portfolio, current economic conditions, historical loan loss experience and
other risk factors. This evaluation is heavily dependent upon estimates and
appraisals which are susceptible to rapid changes because of changing economic
conditions and the economic prospects of borrowers. The bank's delinquency
ratio was 1.14% compared to 1.79% on March 31, 1996 and 1995, respectively.
During the quarter, management charged $185,000 to operations
7
<PAGE> 8
for the addition to the allowance for loan losses during the first quarter. At
March 31, 1996 the loan loss reserve was 1.63% of net loans outstanding.
At March 31, 1996, the recorded investment in loans that are considered to be
impaired under SFAS No. 114 was $646,139 ($312,209 of which is on a nonaccrual
basis). The average recorded balance of impaired loans during 1996 is not
significantly different from the balance at March 31, 1996. The related
allowance for loan losses determined in accordance with SFAS No. 114 for these
loans was $347,038 at March 31, 1996. For the quarter ended March 31, 1996,
the Bank recognized interest income on those impaired loans of approximately
$8,102.
Non-interest income increased $183,470 or 17.24% compared to $1,064,443 in
1995. The increase reflects higher volumes in the bank's non-traditional
banking services. Fees from the origination of mortgage loans increased by
$33,794 to $100,040, while gains on the sales of the guaranteed portion of
Small Business Administration loans increased $62,921 to $199,446. Other
expenses increased by $225,905 or 10.22%, excluding a non-recurring loss of
$111,547 on the sale of other real estate owned during 1994. Employee salaries
and benefits comprised $179,727 or 79.56% of the increase in non-interest
expense. The increase in salaries and benefits reflects general pay increases
and increased costs in providing benefits.
8
<PAGE> 9
PART II OTHER INFORMATION
ITEM 4 - OTHER INFORMATION
Bank of Granite Corporation's Annual Shareholders Meeting was held on
April 22, 1996. Submission of matters to be voted upon resulted in the
following:
1. Approved an amendment to the Certificate of Incorporation which
effectively increases the authorized common stock from 10,000,000 to
15,000,000 shares.
2. Members of the Corporation's Board of Directors were reelected to
serve until the next annual meeting. They are John A. Forlines, Jr.,
Charles M. Snipes, John N. Bray, Robert E. Cline, Barbara F. Freiman,
Myron L. Moore, Jr., and Boyd C. Wilson, Jr.
3. Shareholders ratified the selection of Deloitte & Touche LLP as the
Corporation's independent auditors for the year ending December 31,
1996.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
A) Exhibits
27 - Financial Data Schedule (For SEC use only)
B) Reports on Form 8-K
No reports on Form 8-K have been filed for the
quarter ended March 31, 1996.
Items 1,2,3,4 and 5 are inapplicable and are omitted.
9
<PAGE> 10
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Bank of Granite Corporation
(Registrant)
Date: May 3, 1996 /s/ Randall C. Hall
---------------------------------
Randall C. Hall Vice
President and Chief Financial
and Principal Accounting Officer
10
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 21,717,184
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,500,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 48,772,692
<INVESTMENTS-CARRYING> 74,221,965
<INVESTMENTS-MARKET> 75,900,188
<LOANS> 302,854,729
<ALLOWANCE> 4,847,378
<TOTAL-ASSETS> 463,898,559
<DEPOSITS> 379,774,500
<SHORT-TERM> 3,699,480
<LIABILITIES-OTHER> 4,757,325
<LONG-TERM> 0
0
0
<COMMON> 5,987,337
<OTHER-SE> 69,679,917
<TOTAL-LIABILITIES-AND-EQUITY> 463,898,559
<INTEREST-LOAN> 7,552,316
<INTEREST-INVEST> 1,809,804
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 9,362,120
<INTEREST-DEPOSIT> 3,483,711
<INTEREST-EXPENSE> 3,527,958
<INTEREST-INCOME-NET> 5,834,162
<LOAN-LOSSES> 185,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,435,634
<INCOME-PRETAX> 4,461,441
<INCOME-PRE-EXTRAORDINARY> 2,946,441
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,946,441
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
