<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 June 30, 1998
OR
[ ] Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 For the transition period from _______________ to
_______________
Commission file number 0-15956
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)
(828) 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
11,463,742 shares outstanding as of July 31, 1998
================================================================================
Exhibit Index begins on page 16
Bank of Granite Corporation, Form 10-Q, June 30, 1998, page 1 of 18
<PAGE> 2
Bank of Granite Corporation
Index
Begins
on Page
-------
Part I - Financial Information
Financial Statements:
Consolidated Balance Sheets
June 30, 1998 and December 31, 1997 3
Statements of Consolidated Income
Three Months Ended June 30, 1998 and 1997
And Six Months Ended June 30, 1998 and 1997 4
Statements of Consolidated Comprehensive Income
Three Months Ended June 30, 1998 and 1997
And Six Months Ended June 30, 1998 and 1997 5
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1998 and 1997 6
Notes to Consolidated Financial Statements 9
Management's Discussion and Analysis of
Financial Condition and
Results of Operations 10
PART II - Other Information 14
Signatures 15
Exhibit Index 16
Bank of Granite Corporation, Form 10-Q, June 30, 1998, page 2 of 18
<PAGE> 3
<TABLE>
<CAPTION>
Bank of Granite Corporation
Consolidated Balance Sheets June 30, December 31,
(unaudited) 1998 1997
<S> <C> <C>
Assets:
Cash and cash equivalents:
Cash and due from banks $ 25,631,138 $ 27,707,850
Interest-bearing deposits 113,702 157,507
Federal funds sold 33,000,000 --
------------- -------------
Total cash and cash equivalents 58,744,840 27,865,357
------------- -------------
Investment securities:
Available for sale, at fair value 54,532,488 52,072,834
Held to maturity, at amortized cost 81,058,203 79,036,384
Loans 370,622,053 357,845,513
Allowance for loan losses (5,427,827) (5,202,578)
------------- -------------
Net loans 365,194,226 352,642,935
------------- -------------
Premises and equipment, net 10,039,123 9,583,429
Accrued interest receivable 4,827,141 4,972,654
Other assets 2,913,442 2,806,140
------------- -------------
Total $ 577,309,463 $ 528,979,733
============= =============
Liabilities and shareholders' equity:
Deposits:
Demand $ 82,264,898 $ 80,637,746
NOW accounts 85,300,067 62,792,730
Money market accounts 27,509,307 25,697,397
Savings 25,222,687 23,848,043
Time deposits of $100,000 or more 91,988,370 92,588,469
Other time deposits 137,166,528 129,011,799
------------- -------------
Total deposits 449,451,857 414,576,184
Federal funds purchased and securities
sold under agreements to repurchase 4,141,449 8,882,016
Other borrowings 19,209,917 6,287,700
Accrued interest payable 2,029,452 2,138,430
Other liabilities 1,093,746 1,878,680
------------- -------------
Total liabilities 475,926,421 433,763,010
------------- -------------
Shareholders' equity:
Common stock, $1 par value
Authorized: 25,000,000 shares
Issued and outstanding: 11,463,742 shares in 1998
and 9,146,272 shares in 1997 11,463,742 9,146,272
Capital surplus 22,602,490 22,234,753
Retained earnings 66,824,161 63,362,060
Accumulated other comprehensive income:
Net unrealized gain on securities available
for sale, net of deferred income taxes 492,649 473,638
------------- -------------
Total shareholders' equity 101,383,042 95,216,723
------------- -------------
Total $ 577,309,463 $ 528,979,733
============= =============
See notes to consolidated financial statements.
</TABLE>
Bank of Granite Corporation, Form 10-Q, June 30, 1998, page 3 of 18
<PAGE> 4
<TABLE>
<CAPTION>
Bank of Granite Corporation Three Months Six Months
Statements of Consolidated Ended June 30, Ended June 30,
Income (unaudited) 1998 1997 1998 1997
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 9,847,344 $ 9,072,442 $19,405,577 $17,488,604
Federal funds sold 180,037 51,808 271,078 106,317
Interest-bearing deposits 3,014 2,404 5,521 5,389
Investments:
U.S. Treasury 279,429 300,709 596,290 594,448
U.S. Government agencies 575,501 567,089 1,083,148 1,153,350
States and political subdivisions 874,532 805,468 1,747,254 1,599,380
Other 217,641 233,617 413,613 447,892
----------- ----------- ----------- -----------
Total interest income 11,977,498 11,033,537 23,522,481 21,395,380
----------- ----------- ----------- -----------
Interest expense:
Time deposits of $100,000
or more 1,292,076 1,250,656 2,609,898 2,495,352
Other time and savings deposits 2,368,882 2,350,482 4,670,991 4,597,572
Federal funds purchased and
securities sold under
agreements to repurchase 52,684 65,476 104,922 109,638
Other borrowed funds 221,921 174,039 368,099 300,172
----------- ----------- ----------- -----------
Total interest expense 3,935,563 3,840,653 7,753,910 7,502,734
----------- ----------- ----------- -----------
Net interest income 8,041,935 7,192,884 15,768,571 13,892,646
Provision for loan losses 313,410 320,000 646,820 575,000
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 7,728,525 6,872,884 15,121,751 13,317,646
----------- ----------- ----------- -----------
Other income:
Service charges on deposit
accounts 888,670 804,144 1,740,790 1,588,286
Other service charges, fees
and commissions 1,082,470 876,139 1,956,294 1,610,561
Securities gains 99 -- 99 --
Other 284,299 79,151 553,472 341,841
----------- ----------- ----------- -----------
Total other income 2,255,538 1,759,434 4,250,655 3,540,688
----------- ----------- ----------- -----------
Other expenses:
Salaries and wages 2,039,732 1,718,082 3,942,082 3,344,661
Employee benefits 398,558 344,850 811,111 716,254
Occupancy expense, net 198,655 142,660 366,878 282,686
Equipment expense 372,256 276,069 712,402 527,497
Other 1,117,401 1,007,364 2,123,390 1,745,455
----------- ----------- ----------- -----------
Total other expenses 4,126,602 3,489,025 7,955,863 6,616,553
----------- ----------- ----------- -----------
Income before income taxes 5,857,461 5,143,293 11,416,543 10,241,781
Income taxes 1,963,425 1,558,410 3,809,166 3,287,168
----------- ----------- ----------- -----------
Net income $ 3,894,036 $ 3,584,883 $ 7,607,377 $ 6,954,613
=========== =========== =========== ===========
Per share amounts:
Net income - Basic $ 0.34 $ 0.31 $ 0.66 $ 0.61
Net income - Diluted 0.34 0.31 0.66 0.61
Cash dividends 0.08 0.07 0.16 0.14
Book value 8.84 7.83
See notes to consolidated financial statements
</TABLE>
Bank of Granite Corporation, Form 10-Q, June 30, 1998, page 4 of 18
<PAGE> 5
<TABLE>
<CAPTION>
Bank of Granite Corporation Three Months Six Months
Statements of Consolidated Ended June 30, Ended June 30,
Comprehensive Income 1998 1997 1998 1997
(unaudited)
<S> <C> <C> <C> <C>
Net income $ 3,894,036 $ 3,584,883 $ 7,607,377 $ 6,954,613
----------- ----------- ----------- -----------
Items of other comprehensive income:
Other comprehensive income,
before tax:
Unrealized gains (losses)
during the period on
securities available for sale (63,807) 322,350 31,659 (9,218)
Less: Income taxes related to
unrealized gains or losses on
securities available for sale 25,444 (128,810) (12,649) 3,920
----------- ----------- ----------- -----------
Other comprehensive
income (losses), net of tax (38,363) 193,540 19,010 (5,298)
----------- ----------- ----------- -----------
Comprehensive income $ 3,855,673 $ 3,778,423 $ 7,626,387 $ 6,949,315
=========== =========== =========== ===========
See notes to consolidated financial statements.
</TABLE>
Bank of Granite Corporation, Form 10-Q, June 30, 1998, page 5 of 18
<PAGE> 6
<TABLE>
<CAPTION>
Bank of Granite Corporation Six Months
Consolidated Statements of Ended June 30,
Cash Flows (unaudited) 1998 1997
<S> <C> <C>
Increase (decrease) in cash & cash equivalents:
Cash flows from operating activities:
Interest received $ 23,682,748 $ 21,114,184
Fees and commissions received 4,250,556 3,366,263
Interest paid (7,862,888) (7,529,371)
Cash paid to suppliers and employees (7,633,651) (6,648,159)
Income taxes paid (4,483,877) (3,867,634)
------------ ------------
Net cash provided by operating activities 7,952,888 6,435,283
------------ ------------
Cash flows from investing activities:
Proceeds from maturities and/or calls of
securities available for sale 8,190,000 9,820,000
Proceeds from maturities and/or calls of
securities held to maturity 8,427,657 3,252,250
Proceeds from sales of securities
available for sale 200,000 --
Purchase of securities available for sale (10,831,959) (10,076,212)
Purchase of securities held to maturity (10,450,066) (5,193,594)
Net increase in loans (13,198,111) (26,535,805)
Capital expenditures (1,015,730) (1,287,628)
Proceeds from sale of fixed assets 7,550 20,000
------------ ------------
Net cash used by investing activities (18,670,659) (30,000,989)
------------ ------------
Cash flows from financing activities:
Net increase in demand deposits, NOW accounts,
and savings accounts 27,321,043 8,585,795
Net increase in certificates of deposit 7,554,630 6,625,584
Net decrease (increase) in federal funds purchased
and securities sold under agreements to
repurchase and other borrowings (4,740,567) 898,912
Net increase in other borrowings 12,922,217 4,607,650
Net proceeds from issuance of common stock 393,352 297,508
Dividend paid (1,831,840) (1,623,886)
Subsidiary's premerger distribution of income
as a Subchapter S corporation -- (160,000)
Cash paid for fractional shares (21,581) --
------------ ------------
Net cash provided by financing activities 41,597,254 19,231,563
------------ ------------
Net increase (decrease) in cash equivalents 30,879,483 (4,334,143)
Cash and cash equivalents at beginning of period 27,865,357 29,645,178
------------ ------------
Cash and cash equivalents at end of period $ 58,744,840 $ 25,311,035
============ ============
See notes to consolidated financial statements
</TABLE>
(continued on next page)
Bank of Granite Corporation, Form 10-Q, June 30, 1998, page 6 of 18
<PAGE> 7
<TABLE>
<CAPTION>
Bank of Granite Corporation Six Months
Consolidated Statements of Ended June 30,
Cash Flows (unaudited) - (concluded) 1998 1997
<S> <C> <C>
Reconciliation of net income to net cash provided by
operating activities:
Net Income $ 7,607,377 $ 6,954,613
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 550,413 435,283
Provision for loan loss 646,820 575,000
Premium amortization, net 14,754 79,583
Deferred income taxes 3,671 (13,852)
Gains on sales or calls of securities
available for sale (99) --
Loss (gain) on disposal or sale of equipment 1,973 (525)
Decrease in taxes payable (678,382) (566,614)
Increase (decrease) in accrued interest receivable 145,513 (360,779)
Decrease in interest payable (108,978) (26,637)
Increase in other assets (123,622) (174,425)
Decrease in other liabilities (106,552) (466,364)
----------- -----------
Net adjustments to reconcile net income to
net cash provided by operating activities 345,511 (519,330)
----------- -----------
Net cash provided by operating activities $ 7,952,888 $ 6,435,283
=========== ===========
Supplemental disclosure of non-cash transactions:
Increase (decrease) in unrealized gains or
losses on securities available for sale $ 31,659 $ (9,218)
Decrease (increase) in deferred income taxes
on unrealized gains or losses on
securities available for sale (12,649) 3,920
Transfer from retained earnings to common stock
for stock split 2,291,855 --
Transfer from loans to other real estate owned 21,525 40,000
See notes to consolidated financial statements
</TABLE>
Bank of Granite Corporation, Form 10-Q, June 30, 1998, page 7 of 18
<PAGE> 8
Bank of Granite Corporation
Notes to Consolidated Financial Statements
June 30, 1998
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 (the "Company") as of June 30, 1998 and
December 31, 1997, and the results of its operations for the three and six month
periods ended June 30, 1998 and 1997, and its cash flows for the six month
periods ended June 30, 1998 and 1997.
Results of operations and cash flows for the periods ended June 30, 1997 have
been restated to include the merger of GLL & Associates, Inc. acquired in
November 1997 and accounted for as a pooling of interests.
Per share amounts and average shares have been adjusted to reflect the 5-for-4
stock split paid May 19, 1998.
Balances in federal funds sold, total assets, NOW account deposits and total
deposits included a $24,427,643 deposit made on June 30, 1998 by one of the
Bank's trustee account customers. The customer had disbursed these funds by July
3, 1998. Excluding this unusual deposit, federal funds sold, total assets, NOW
account deposits and total deposits were $8,572,357, $552,881,820, $60,872,424
and $425,024,214, respectively.
The accounting policies followed are set forth in Note 1 to the Company's 1997
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 potentially dilutive common stock equivalents
outstanding as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Weighted average shares
outstanding 11,462,915 11,425,408 11,458,067 11,418,776
Potentially dilutive effect of
stock options 51,991 54,945 47,459 54,938
---------- ---------- ---------- ----------
Weighted average shares
outstanding, including
potentially dilutive effect of
stock options 11,514,906 11,480,353 11,505,526 11,473,714
========== ========== ========== ==========
</TABLE>
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. Management does not anticipate any significant losses to
result from these transactions. The unfunded portion of loan commitments and
standby letters of credit as of June 30, 1998 and December 31, 1997 were as
follows:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
<S> <C> <C>
Unfunded commitments $56,243,723 $57,413,913
Letters of credit 4,560,022 3,773,055
</TABLE>
(continued on next page)
Bank of Granite Corporation, Form 10-Q, June 30, 1998, page 8 of 18
<PAGE> 9
Bank of Granite Corporation
Notes to Consolidated Financial Statements - (concluded)
June 30, 1998
4. New Accounting Standards - In June 1997, the Financial Accounting Standards
Board issued Financial Accounting Standard No. 130, "Reporting Comprehensive
Income." FAS No. 130 requires disclosure of comprehensive income (which is
defined as "the change in equity during a period excluding changes resulting
from investments by shareholders and distributions to shareholders") and its
components. FAS No. 130 is effective for fiscal years beginning after December
15, 1997, with reclassification of comparative years. The Company adopted FAS
No. 130 in the quarter ended March 31, 1998. The disclosures required by FAS No.
130 are included in this filing as a separate statement captioned "Statements of
Consolidated Comprehensive Income."
Also in June 1997, FAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information" was issued. FAS No. 131 is effective for the Company in the
fiscal year ending December 31, 1998. FAS No. 131 redefines how operating
segments are determined and requires disclosure of certain financial and
descriptive information about a company's operating segments. Management does
not believe that the adoption of FAS No. 131 will have a material impact on the
Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued Financial
Accounting Standard ("FAS") No. 133, "Accounting for Derivative Instruments and
Hedging Activities." FAS No. 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives) and for hedging
activities. The new standard requires that an entity recognize all derivatives
as either assets or liabilities in the statement of financial position and
measure those instruments at fair value. FAS No. 133 will be effective for the
year ending December 31, 2000. Because the Company does not currently use
derivative instruments and has no plans to do so in the foreseeable future,
management does not believe that the adoption of FAS No. 133 will have a
material impact on the Company's financial statements.
Bank of Granite Corporation, Form 10-Q, June 30, 1998, page 9 of 18
<PAGE> 10
Bank of Granite Corporation
Management's Discussion and Analysis
CHANGES IN FINANCIAL CONDITION
JUNE 30, 1998 COMPARED WITH DECEMBER 31, 1997
On June 30, 1998, one of the Bank's trustee account customers deposited
$24,427,643 into their account. The customer had disbursed these funds by July
3, 1998. Because of the unusual size of this deposit transaction, management has
excluded it from the discussions of changes in financial condition below.
Excluding this unusually large deposit, federal funds sold, total assets, NOW
account deposits and total deposits were $8,572,357, $552,881,820, $60,872,424
and $425,024,214, respectively.
Excluding the unusual deposit discussed above, total assets increased
$23,902,087, or 4.52%, from December 31, 1997 to June 30, 1998. Earning assets
increased $25,786,565, or 5.27%, over the same six month period. Loans, the
largest earning asset, increased $12,776,540, or 3.57%, over the same period,
while federal funds sold increased $8,572,357 and investment securities
increased $4,481,473. Also during this period, cash and cash equivalents
increased $6,451,840, or 23.15%. Funding the asset growth was a combination of
deposit growth, growth in other borrowings and earnings retained. Deposits
increased $10,448,030, or 2.52%, from December 31, 1997 to June 30, 1998.
Noninterest-bearing demand deposits increased $1,627,152, or 2.02%, over the
same six month period. Savings, NOW and money market deposits increased
$1,374,644, or 5.76%, while total time deposits increased $7,554,630, or 3.41%,
over the same period. The loan to deposit ratio was 87.20% as of June 30, 1998
compared to 86.32% as of December 31, 1997. Also from December 31, 1997 to June
30, 1998, federal funds purchased and securities sold under agreements to
repurchase decreased $4,740,567, or 53.37%, while other borrowings increased
$12,922,217, or 205.52%, primarily due to temporary borrowings used to fund
mortgage origination activity. Common stock outstanding increased 2,317,470
shares, or 25.34%, from December 31, 1997 to June 30, 1998, primarily due to
shares issued in connection with the 5-for-4 stock split in May 1998 and the
exercise of stock options. The Company's liquidity position remained strong.
RESULTS OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED JUNE 30, 1998 COMPARED WITH
THE SAME PERIOD IN 1997 AND FOR THE SIX MONTH PERIOD ENDED
JUNE 30, 1998 COMPARED WITH THE SAME PERIOD IN 1997
Results of operations for the periods ended June 30, 1997 have been
restated to include the merger of GLL & Associates, Inc. acquired in November
1997 and accounted for as a pooling of interests.
During the three month period ended June 30, 1998, interest income
increased $943,961, or 8.56%, from the same period last year. The increase is
primarily attributable to increased loan volume. Gross loans averaged
$374,975,516 compared to $347,205,362 last year, an increase of $27,770,154, or
8.00%. Interest expense increased $94,910, or 2.47%, primarily because of growth
in interest-bearing deposits and other borrowings. Interest-bearing deposits
averaged $347,664,462 compared to $328,785,852 last year, an increase of
$18,878,610, or 5.74%. Other borrowings averaged $18,948,571 compared to
$11,388,144 last year, an increase of $7,560,427, or 66.39%, primarily used to
fund increased mortgage origination activity.
(continued on next page)
Bank of Granite Corporation, Form 10-Q, June 30, 1998, page 10 of 18
<PAGE> 11
Bank of Granite Corporation
Management's Discussion and Analysis
RESULTS OF OPERATIONS - (continued)
For substantially the same reasons, interest income and expense were higher
for the six month period ended June 30, 1998. During the first six months of
1998, interest income increased $2,127,101, or 9.94%, from the same period last
year. The increase is primarily attributable to increased loan volume. Gross
loans averaged $371,390,344 compared to $339,727,468 last year, an increase of
$31,662,876, or 9.32%. Interest expense increased $251,176, or 3.35%, primarily
because of growth in interest-bearing deposits and other borrowings.
Interest-bearing deposits averaged $344,225,433 compared to $325,383,204 last
year, an increase of $18,842,229, or 5.79%. Other borrowings averaged
$16,772,802 compared to $9,795,974 last year, an increase of $6,976,828, or
71.22%, primarily used to fund increased mortgage origination activity.
Management determines the allowance for loan losses based on a number of
factors including reviewing and evaluating the Company's loan portfolio in order
to identify potential problem loans, credit concentrations and other risk
factors connected to the loan portfolio as well as current and projected
economic conditions locally and nationally. Upon loan origination, management
evaluates the relative quality of each loan and assigns a corresponding loan
grade. All loans are periodically reviewed to determine whether any changes in
these loan grades are necessary. The loan grading system assists management in
determining the overall risk in the loan portfolio.
Management realizes that general economic trends greatly affect loan losses
and no assurances can be made that further charges to the loan loss allowance
may not be significant in relation to the amount provided during a particular
period or that further evaluation of the loan portfolio based on conditions then
prevailing may not require sizable additions to the allowance, thus
necessitating similarly sizable charges to operations. During the three and six
month periods ended June 30, 1998, management determined a charge to operations
of $313,410 and $646,820, respectively, would bring the loan loss reserve to a
balance considered to be adequate to absorb estimated potential losses in the
portfolio. At June 30, 1998 the loan loss reserve was 1.49% of net loans
outstanding.
As of June 30, 1998, the Bank had one group of large loans to a commercial
loan customer, a textile manufacturer, that is experiencing cash flow problems.
The borrower, and its owners, owe the Bank approximately $4.1 million, for which
the Bank has collateral with an estimated aggregate value of $850,000 and
reserves for possible losses of $597,000. The estimated collateral value of
$850,000 is 50% of appraised value in operation and may or may not be indicative
of ultimate liquidation value. The Bank is monitoring the ability of this
borrower to meet its obligations to its suppliers and employees as well as to
the Bank. If this borrower is unable to meet its obligations, the Bank will need
to increase its reserves in order to cover its unreserved exposure of
approximately $2.6 million, or $1.6 million after tax, assuming a realizable
collateral value of $850,000.
At June 30, 1998 and 1997, the recorded investment in loans that are
considered to be impaired under SFAS No. 114 was $1,433,916 ($1,230,744 of which
was on a non-accrual basis) and $1,338,738 ($948,750 which was on a non-accrual
basis), respectively. The average recorded balance of impaired loans during 1998
and 1997 was not significantly different from the balance at June 30, 1998 and
1997, respectively. The related allowance for loan losses determined in
accordance with SFAS No. 114 for these loans was $822,400 and $770,570 at June
30, 1998 and 1997, respectively. For the six months ended June 30, 1998 and
1997, the Company recognized interest income on those impaired loans of
approximately $18,385 and $20,468, respectively.
(continued on next page)
Bank of Granite Corporation, Form 10-Q, June 30, 1998, page 11 of 18
<PAGE> 12
Bank of Granite Corporation
Management's Discussion and Analysis
RESULTS OF OPERATIONS - (continued)
For the quarter ended June 30, 1998, total noninterest income was
$2,255,538, up $496,104, or 28.20%, from $1,759,434 earned in the same period of
1997. Fees on deposit accounts were $888,670 during the second quarter, up
$84,526, or 10.51%, from $804,144 earned in the second quarter of 1997. Second
quarter other service fees and commissions were $1,082,470 for 1998, up
$206,331, or 23.55%, from $876,139 earned in the same period of 1997. There were
no significant gains or losses on sales of securities in the second quarter of
1998 or 1997. Other noninterest income was $284,299 for the second quarter of
1998, up $205,148, or 259.19%, from $79,151 earned in the second quarter of
1997. Management continued to place emphasis on nontraditional banking services
such as annuities, life insurance, and sales of mortgage and small business
loans, which produced $1,119,655 in nontraditional fee income during the second
quarter of 1998, up 52.66% from the second quarter of 1997.
Second quarter 1998 noninterest expenses totaled $4,126,602, up $637,577,
or 18.27%, from $3,489,025 in the second quarter of 1997, primarily because of
overhead costs associated with (1) meeting the higher demand for mortgage
banking services, (2) organizing a department to administer a new cashflow
management product launched in June 1997 for commercial customers, (3) opening
of three new retail offices in April 1997, March 1998 and May 1998, and (4)
additional depreciation and maintenance of new imaging and data communications
technology installed in September 1997. Salaries and wages were $2,039,732
during the quarter, up $321,650, or 18.72%, from $1,718,082 in 1997. Profit
sharing and employee benefits were $398,558, up $53,708, or 15.57%, compared to
$344,850 in the second quarter of 1997. Occupancy expenses for the quarter were
$198,655, up $55,995, or 39.25%, from $142,660 in the same period of 1997.
Equipment expenses were $372,256 during the second quarter, up $96,187, or
34.84%, from $276,069 in the same period of 1997. Second quarter other
noninterest expenses were $1,117,401 in 1998, up $110,037, or 10.92%, from
$1,007,364 in the same quarter a year ago. Income tax expense was $1,963,425 for
the quarter, up $405,015, or 25.99%, from $1,558,410 for the 1997 second
quarter. Net income increased to $3,894,036 during the quarter, or 8.62%, from
$3,584,883 earned in the same period of 1997.
For the six months ended June 30, 1998, total noninterest income was
$4,250,655, up $709,967, or 20.05%, from $3,540,688 earned in the first six
months of 1997. Fees on deposit accounts were $1,740,790 during the first six
months of 1998, up $152,504, or 9.60%, from $1,588,286 in the same period of
1997. Also for the year-to-date period, other service fees and commissions were
$1,956,294, up $345,733, or 21.47%, from $1,610,561 in 1997. There were no
significant gains or losses on sales of securities in the year-to-date periods
of 1998 or 1997. Other noninterest income was $553,472 during the six months
ended June 30, 1998, up $211,631, or 61.91%, from $341,841 in the same period of
1997. Management continued to place emphasis on nontraditional banking services
such as annuities, life insurance, and sales of mortgage and small business
loans, which produced $1,957,778 in nontraditional fee income during the first
six months of 1998, up 32.15% from 1997.
(continued on next page)
Bank of Granite Corporation, Form 10-Q, June 30, 1998, page 12 of 18
<PAGE> 13
Bank of Granite Corporation
Management's Discussion and Analysis
RESULTS OF OPERATIONS - (concluded)
Total noninterest expenses were $7,955,863 during the first six months of
1998, up $1,339,310, or 20.24%, from $6,616,553 in the same period of 1997. As
was the case for the second quarter, the year-to-date increases in the various
overhead captions also included costs associated with (1) meeting the higher
demand for mortgage banking services, (2) organizing a department to administer
a new cashflow management product launched in June 1997 for commercial
customers, (3) opening of three new retail offices in April 1997, March 1998 and
May 1998, and (4) additional depreciation and maintenance of new imaging and
data communications technology installed in September 1997. Salaries and wages
were $3,942,082 during the first six months of 1998, up $597,421, or 17.86%,
from $3,344,661 in the same period of 1997, while profit sharing and employee
benefits were $811,111 up $94,857, or 13.24%, from $716,254. Year-to-date
occupancy expenses were $366,878, up $84,192, or 29.78%, from $282,686 in 1997,
and equipment expenses were $712,402, up $184,905, or 35.05%, from $527,497 in
the same year-to-date period of 1997. Other noninterest expenses were $2,123,390
for the six months ended June 30, 1998, up $377,935, or 21.65%, from $1,745,455
in the same period of 1997. Year-to-date income tax expense was $3,809,166 in
1998, up $521,998, or 15.88%, from $3,287,168 in 1997. Net income was $7,607,377
during the first six months of 1998, up $652,764, or 9.39%, from $6,954,613
earned in the same year-to-date period of 1997.
YEAR 2000 COMPLIANCE ISSUES
All levels of the Company's management and its Board of Directors are aware
of the issues presented by the Year 2000 century change and the serious effects
it may have on the Company and its customers. The Company has a Year 2000
project team under the counsel of an independent consultant to guide it through
its action plan for addressing Year 2000 issues. The plan includes steps to be
taken by the Company (1) to identify, assess, evaluate, test and validate its
own date sensitive systems, (2) to amend its loan underwriting policies to
include assessments, as appropriate, regarding Year 2000 readiness by commercial
loan applicants, (3) to offer education to business customers regarding Year
2000 issues in their own businesses, and (4) to inform the Company's customers
as to the Company's Year 2000 compliance process. Although the Company relies
entirely upon outside vendors for its computer software and hardware and its
security and environmental equipment, all date sensitive systems are being or
will be evaluated for Year 2000 compliance. It is the Company's goal to have the
systems it has identified as "critical" to conducting its banking businesses in
compliance and tested by the end of 1998. Testing of systems with lower
priorities is planned for early 1999, which should allow ample time in 1999 for
validation and follow-up. Regarding the Company's business customers, the
Company hosted two well attended seminars in March 1998 to educate customers
concerning Year 2000 compliance issues. The Company is also contacting large
depositors to advise them of the Company's plans related to Year 2000
compliance. The Company estimates that its total costs of Year 2000 compliance
will be $125,000 to $150,000, of which an estimated $60,000 will be capitalized
and an estimated $75,000 will be charged to operations in 1998 and 1999.
FORWARD LOOKING STATEMENTS
The foregoing discussion may contain forward looking statements within the
meaning of the Private Securities Litigation Reform Act. The accuracy of such
forward looking statements could be affected by such factors as, including but
not limited to, the financial success or changing strategies of the Company's
customers, actions of government regulators, or general economic conditions.
Bank of Granite Corporation, Form 10-Q, June 30, 1998, page 13 of 18
<PAGE> 14
Bank of Granite Corporation
PART II - Other Information
Item 4 - Submission of Matters to a Vote of Shareholders
The following proposals were considered and acted upon at the annual
meeting of shareholders of the Company held on April 27, 1998:
Proposal 1. To consider the amendment of the Certificate of
Incorporation of the Company to increase the authorized common stock
from 15,000,000 to 25,000,000 shares.
FOR 7,696,316 AGAINST 208,743 ABSTAIN 66,627
Proposal 2. To consider the election of seven persons named as director
nominees in the Proxy Statement dated March 23, 1998.
<TABLE>
<S> <C> <C> <C> <C>
John N. Bray FOR 7,904,832 WITHHELD 66,854
Paul M. Fleetwood, III, CPA FOR 7,905,254 WITHHELD 66,433
John A. Forlines, Jr. FOR 7,905,249 WITHHELD 66,437
Barbara F. Freiman FOR 7,863,437 WITHHELD 108,249
Hugh R. Gaither FOR 7,904,919 WITHHELD 66,768
Charles M. Snipes FOR 7,905,254 WITHHELD 66,433
Boyd C. Wilson, Jr., CPA FOR 7,905,254 WITHHELD 66,433
</TABLE>
Proposal 3. To consider the ratification of the selection of Deloitte &
Touche LLP as the Company's independent Certified Public Accountants
for the fiscal year ending December 31, 1998.
FOR 7,844,505 AGAINST 43,837 ABSTAIN 83,344
No other business came before the meeting, or any adjournment or
adjournments thereof.
Item 6 - Exhibits and Reports on Form 8-K
A) Exhibits
27 Financial Data Schedules
B) Reports on Form 8-K
No reports on Form 8-K have been filed for the quarter ended June 30,
1998.
Items 1,2,3 and 5 are inapplicable and are omitted.
Bank of Granite Corporation, Form 10-Q, June 30, 1998, page 14 of 18
<PAGE> 15
Bank of Granite Corporation
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: August 11, 1998 /s/ Kirby A. Tyndall
--------------------------------
Kirby A. Tyndall
Senior Vice President and
Chief Financial Officer and
Principal Accounting Officer
Bank of Granite Corporation, Form 10-Q, June 30, 1998, page 15 of 18
<PAGE> 16
Bank of Granite Corporation
Exhibit Index
Begins
on Page
---------
Exhibit 27.1 - Financial Data Schedule (June 30, 1998) 17
Exhibit 27.2 - Financial Data Schedule (June 30, 1997 - RESTATED) 18
Bank of Granite Corporation, Form 10-Q, June 30, 1998, page 16 of 18
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 25,631,138
<INT-BEARING-DEPOSITS> 113,702
<FED-FUNDS-SOLD> 33,000,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 54,532,488
<INVESTMENTS-CARRYING> 81,058,203
<INVESTMENTS-MARKET> 82,880,066
<LOANS> 370,622,053
<ALLOWANCE> 5,427,827
<TOTAL-ASSETS> 577,309,463
<DEPOSITS> 449,451,857
<SHORT-TERM> 23,351,366
<LIABILITIES-OTHER> 3,123,198
<LONG-TERM> 0
0
0
<COMMON> 11,463,742
<OTHER-SE> 89,919,300
<TOTAL-LIABILITIES-AND-EQUITY> 577,309,463
<INTEREST-LOAN> 19,405,577
<INTEREST-INVEST> 3,840,305
<INTEREST-OTHER> 276,599
<INTEREST-TOTAL> 23,522,481
<INTEREST-DEPOSIT> 7,280,889
<INTEREST-EXPENSE> 7,753,910
<INTEREST-INCOME-NET> 15,768,571
<LOAN-LOSSES> 646,820
<SECURITIES-GAINS> 99
<EXPENSE-OTHER> 7,955,863
<INCOME-PRETAX> 11,416,543
<INCOME-PRE-EXTRAORDINARY> 11,416,543
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,607,377
<EPS-PRIMARY> 0.66
<EPS-DILUTED> 0.66
<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>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 24,986,081
<INT-BEARING-DEPOSITS> 324,954
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 51,457,685
<INVESTMENTS-CARRYING> 79,312,132
<INVESTMENTS-MARKET> 80,573,978
<LOANS> 355,977,795
<ALLOWANCE> 5,066,808
<TOTAL-ASSETS> 523,345,588
<DEPOSITS> 412,909,369
<SHORT-TERM> 18,098,055
<LIABILITIES-OTHER> 2,856,658
<LONG-TERM> 0
0
0
<COMMON> 9,143,280
<OTHER-SE> 80,338,226
<TOTAL-LIABILITIES-AND-EQUITY> 523,345,588
<INTEREST-LOAN> 17,488,604
<INTEREST-INVEST> 3,795,070
<INTEREST-OTHER> 111,706
<INTEREST-TOTAL> 21,395,380
<INTEREST-DEPOSIT> 7,092,924
<INTEREST-EXPENSE> 7,502,734
<INTEREST-INCOME-NET> 13,892,646
<LOAN-LOSSES> 575,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6,616,553
<INCOME-PRETAX> 10,241,781
<INCOME-PRE-EXTRAORDINARY> 10,241,781
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,954,613
<EPS-PRIMARY> 0.61
<EPS-DILUTED> 0.61
<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>
