<PAGE> 1
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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, 2000
--------------
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
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(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
11,371,801 SHARES OUTSTANDING AS OF APRIL 30, 2000
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Exhibit Index begins on page 15
Bank of Granite Corporation, Form 10-Q, March 31, 2000, page 1 of 16
<PAGE> 2
BANK OF GRANITE CORPORATION
Index
<TABLE>
<CAPTION>
Begins
on Page
-------
<S> <C>
PART I - FINANCIAL INFORMATION
Financial Statements:
Consolidated Balance Sheets
March 31, 2000 and December 31, 1999 3
Statements of Consolidated Income
Three Months Ended March 31, 2000 and 1999 4
Statements of Consolidated Comprehensive Income
Three Months Ended March 31, 2000 and 1999 5
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999 6
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and
Results of Operations 9
PART II - OTHER INFORMATION 13
Signatures 14
Exhibit Index 15
</TABLE>
Bank of Granite Corporation, Form 10-Q, March 31, 2000, page 2 of 16
<PAGE> 3
BANK OF GRANITE CORPORATION
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
MARCH 31, December 31,
2000 1999
<S> <C> <C>
ASSETS:
Cash and cash equivalents:
Cash and due from banks $ 21,895,009 $ 23,219,670
Interest-bearing deposits 306,202 268,826
Federal funds sold 40,300,000 27,650,000
-------------------------------------
Total cash and cash equivalents 62,501,211 51,138,496
-------------------------------------
Investment securities:
Available for sale, at fair value 77,220,492 70,205,689
Held to maturity, at amortized cost 82,030,648 85,139,790
Loans 405,855,851 390,189,234
Allowance for loan losses (5,199,748) (4,746,692)
-------------------------------------
Net loans 400,656,103 385,442,542
-------------------------------------
Premises and equipment, net 9,572,289 9,673,010
Accrued interest receivable 5,901,585 5,456,567
Other assets 4,708,074 3,670,505
-------------------------------------
Total assets $ 642,590,402 $ 610,726,599
-------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Demand $ 96,277,315 $ 91,100,910
NOW accounts 75,296,403 73,907,404
Money market accounts 39,520,502 33,663,278
Savings 26,861,265 24,399,214
Time deposits of $100,000 or more 114,611,570 110,041,565
Other time deposits 140,717,880 138,546,827
-------------------------------------
Total deposits 493,284,935 471,659,198
Overnight borrowings 14,784,466 13,461,774
Other borrowings 9,462,769 8,626,481
Accrued interest payable 2,037,588 2,031,605
Other liabilities 8,410,016 1,496,432
-------------------------------------
Total liabilities 527,979,774 497,275,490
-------------------------------------
Shareholders' equity:
Common stock, $1 par value
Authorized - 25,000,000 shares
Issued - 11,495,897 shares in 2000 and 11,495,897 shares in 1999
Outstanding - 11,383,001 shares in 2000 and 11,439,201 shares in 1999 11,495,897 11,495,897
Capital surplus 22,987,562 22,987,562
Retained earnings 83,494,197 80,976,641
Accumulated other comprehensive loss,
net of deferred income taxes (1,018,693) (746,948)
Less: Cost of common shares in treasury;
Held - 112,896 shares in 2000 and 56,696 shares in 1999 (2,348,335) (1,262,043)
-------------------------------------
Total shareholders' equity 114,610,628 113,451,109
-------------------------------------
Total liabilities and shareholders' equity $ 642,590,402 $ 610,726,599
=====================================
</TABLE>
See notes to consolidated financial statements.
Bank of Granite Corporation, Form 10-Q, March 31, 2000, page 3 of 16
<PAGE> 4
BANK OF GRANITE CORPORATION
Statements of Consolidated
Income (unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
2000 1999
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $10,168,710 $ 9,468,768
Federal funds sold 395,245 238,386
Interest-bearing deposits 5,469 3,553
Investments:
U.S. Treasury 142,631 193,283
U.S. Government agencies 1,028,982 731,753
States and political subdivisions 855,957 921,889
Other 183,147 232,817
-----------------------------------
Total interest income 12,780,141 11,790,449
-----------------------------------
INTEREST EXPENSE:
Time deposits of $100,000 or more 1,536,636 1,281,954
Other deposits 2,445,589 2,397,984
Overnight borrowings 145,734 100,393
Other borrowings 83,502 228,456
-----------------------------------
Total interest expense 4,211,461 4,008,787
-----------------------------------
Net interest income 8,568,680 7,781,662
Provision for loan losses 645,000 164,579
-----------------------------------
Net interest income after
provision for loan losses 7,923,680 7,617,083
-----------------------------------
OTHER INCOME:
Service charges on deposit accounts 882,163 813,668
Other service charges, fees and commissions 633,277 1,402,418
Other 144,241 216,300
-----------------------------------
Total other income 1,659,681 2,432,386
-----------------------------------
OTHER EXPENSES:
Salaries and wages 2,000,053 2,279,903
Employee benefits 433,673 429,781
Occupancy expense, net 208,180 197,264
Equipment expense 329,258 344,472
Other 1,137,277 1,163,270
-----------------------------------
Total other expenses 4,108,441 4,414,690
-----------------------------------
Income before income taxes 5,474,920 5,634,779
Income taxes 1,813,444 1,869,515
-----------------------------------
Net income $ 3,661,476 $ 3,765,264
===================================
PER SHARE AMOUNTS:
Net income - Basic $ 0.32 $ 0.33
Net income - Diluted 0.32 0.33
Cash dividends 0.10 0.09
Book value 10.07 9.41
</TABLE>
See notes to consolidated financial statements.
Bank of Granite Corporation, Form 10-Q, March 31, 2000, page 4 of 16
<PAGE> 5
BANK OF GRANITE CORPORATION
Statements of Consolidated
Comprehensive Income
<TABLE>
<CAPTION>
Three Months
Ended March 31,
2000 1999
<S> <C> <C>
(unaudited)
Net income $ 3,661,476 $ 3,765,264
-----------------------------------
ITEMS OF OTHER COMPREHENSIVE
INCOME:
Unrealized losses on securities available for sale (451,978) (659,738)
Less: Change in deferred income taxes related to change in
unrealized gains or losses on securities available for sale (180,233) (263,070)
-----------------------------------
Other comprehensive losses, net of tax (271,745) (396,668)
-----------------------------------
Comprehensive income $ 3,389,731 $ 3,368,596
===================================
</TABLE>
See notes to consolidated financial statements.
Bank of Granite Corporation, Form 10-Q, March 31, 2000, page 5 of 16
<PAGE> 6
BANK OF GRANITE CORPORATION
Consolidated Statements of
Cash Flows (unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
2000 1999
<S> <C> <C>
INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 12,385,735 $ 11,551,708
Fees and commissions received 1,659,681 2,432,386
Interest paid (4,205,478) (4,391,351)
Cash paid to suppliers and employees 508,254 (5,112,327)
Income taxes paid (128,077) (560,598)
------------------------------------
Net cash provided by operating activities 10,220,115 3,919,818
------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and/or calls of
securities available for sale 6,625,000 1,725,000
Proceeds from maturities and/or calls of
securities held to maturity 3,061,750 4,147,000
Purchase of securities available for sale (14,095,001) (423,640)
Purchase of securities held to maturity -- (7,331,669)
Net decrease (increase) in loans (15,858,561) 12,345,978
Capital expenditures (145,093) (305,136)
Proceeds from sale of fixed assets -- 15,530
------------------------------------
Net cash provided (used) by investing activities (20,411,905) 10,173,063
------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, NOW accounts,
and savings accounts 14,884,679 651,769
Net decrease (increase) in certificates of deposit 6,741,058 (1,326,825)
Net increase in overnight borrowings 1,322,692 1,723,613
Net decrease (increase) in other borrowings 836,288 (16,780,298)
Net proceeds from issuance of common stock -- 370,906
Dividend paid (1,143,920) (1,031,991)
Purchases of common stock for treasury (1,086,292) (44,717)
------------------------------------
Net cash provided (used) by financing activities 21,554,505 (16,437,543)
------------------------------------
Net increase (decrease) in cash equivalents 11,362,715 (2,344,662)
Cash and cash equivalents at beginning of period 51,138,496 58,294,177
------------------------------------
Cash and cash equivalents at end of period $ 62,501,211 $ 55,949,515
====================================
</TABLE>
See notes to consolidated financial statements.
(continued on next page)
Bank of Granite Corporation, Form 10-Q, March 31, 2000, page 6 of 16
<PAGE> 7
BANK OF GRANITE CORPORATION
Consolidated Statements of
Cash Flows (unaudited) - (concluded)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
2000 1999
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
Net Income $ 3,661,476 $ 3,765,264
------------------------------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 245,814 251,474
Provision for loan loss 645,000 164,579
Premium amortization, net 50,612 53,618
Deferred income taxes (114,148) 12,482
Gain on disposal or sale of equipment -- (10,763)
Increase in taxes payable 1,799,515 1,296,435
Increase in accrued interest receivable (445,018) (292,359)
Increase (decrease) in interest payable 5,983 (382,564)
Increase in other assets (743,188) (495,799)
Increase (decrease) in other liabilities 5,114,069 (442,549)
------------------------------------
Net adjustments to reconcile net income to
net cash provided by operating activities 6,558,639 154,554
------------------------------------
Net cash provided by operating activities $ 10,220,115 $ 3,919,818
====================================
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
Decrease in unrealized gains or
losses on securities available for sale $ (451,978) $ (659,738)
Increase in deferred income taxes
on unrealized gains or losses on
securities available for sale (180,233) (263,070)
Transfer from loans to other real estate owned 142,000 16,148
</TABLE>
See notes to consolidated financial statements.
Bank of Granite Corporation, Form 10-Q, March 31, 2000, page 7 of 16
<PAGE> 8
BANK OF GRANITE CORPORATION
Notes to Consolidated Financial Statements
March 31, 2000
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 March 31, 2000 and
December 31, 1999, and the results of its operations and its cash flows for the
three month periods ended March 31, 2000 and 1999.
The consolidated financial statements include the Company's two wholly-owned
subsidiaries, the Bank of Granite (the "Bank"), a full service commercial bank,
and GLL & Associates, Inc. ("GLL"), a mortgage bank.
The accounting policies followed are set forth in Note 1 to the Company's 1999
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
Ended March 31,
<S> <C> <C>
(in shares)
Weighted average shares outstanding 11,419,226 11,483,161
Potentially dilutive effect of stock options 9,225 31,907
--------------------------
Weighted average shares outstanding,
including potentially dilutive effect of
stock options 11,428,451 11,515,068
==========================
</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 March 31, 2000 and December 31, 1999 were as
follows:
<TABLE>
<CAPTION>
MARCH 31, December 31,
2000 1999
<S> <C> <C>
Unfunded commitments $ 80,838,387 $ 74,923,283
Letters of credit 2,541,893 3,188,371
</TABLE>
4. New Accounting Standards - In June 1998, the Financial Accounting Standards
Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS 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. It 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. SFAS 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. SFAS 133 will not be applied
retroactively to financial statements of prior periods. Management has not
evaluated the impact that the adoption of SFAS 133 will have on the Company's
financial statements.
Bank of Granite Corporation, Form 10-Q, March 31, 2000, page 8 of 16
<PAGE> 9
BANK OF GRANITE CORPORATION
Management's Discussion and Analysis
CHANGES IN FINANCIAL CONDITION
MARCH 31, 2000 COMPARED WITH DECEMBER 31, 1999
Total assets increased $31,863,803, or 5.22%, from December 31, 1999 to
March 31, 2000. Earning assets increased $32,259,654, or 5.63%, over the same
three month period. Loans, the largest earning asset, increased $15,666,617, or
4.02%, over the same period, primarily because of a $14,991,342, or 3.95%,
increase as of March 31, 2000 in loans on the Company's bank subsidiary. Also
during this period, cash and cash equivalents increased $11,362,715, or 22.22%,
including an increase of $12,650,000, or 45.75%, in federal funds sold, which
was partially offset by a $1,324,661, or 5.70%, decrease in cash and due from
banks. Investment securities increased $3,905,661, or 2.51%.
Funding the asset growth was a combination of deposit growth, growth in
other borrowings and earnings retained. Deposits increased $21,625,737, or
4.59%, from December 31, 1999 to March 31, 2000. Noninterest-bearing demand
deposits increased $5,176,405, or 5.68%, over the same three month period.
Savings, NOW and money market deposits increased $9,708,274, or 7.36%, while
total time deposits increased $6,741,058, or 2.71%, over the same period. The
loan to deposit ratio was 82.28% as of March 31, 2000 compared to 82.73% as of
December 31, 1999, while the bank subsidiary's loan to deposit ratio was 77.65%
compared to 78.41% when comparing the same periods. The Company has sources of
funding, in addition to deposits, in the form of overnight and other short-term
borrowings. Overnight borrowings are primarily in the form of federal funds
purchased and commercial deposit products that sweep balances overnight into
securities sold under agreements to repurchase or commercial paper issued by the
Company. From December 31, 1999 to March 31, 2000, such overnight borrowings
increased $1,322,692, or 9.83%, including an increase of $517,281, or 4.38%, in
higher overnight borrowings in the form of commercial paper. Other borrowings
increased $836,288, or 9.69%, reflecting an increase in temporary borrowings by
the mortgage subsidiary primarily due to higher mortgage origination activity
near the end of the quarter. Other liabilities increased $6,913,584, or 462.00%,
from December 31, 1999 to March 31, 2000, primarily because of the purchase of
investment securities in the process of settlement.
Common stock outstanding decreased 56,200 shares, or 0.49%, from
December 31, 1999 to March 31, 2000, primarily due to shares repurchased under
the Company's current stock repurchase plan. From December 31, 1999 through
March 31, 2000, the Company repurchased 56,200 shares of its common stock at an
average price of $19.33. Earnings retained were $2,517,556 for the first three
months of 2000, after paying cash dividends of $1,143,920. Accumulated other
comprehensive loss, net of deferred income taxes decreased $271,745, or 36.38%,
from December 31, 1999 to March 31, 2000, primarily because the value of
securities available for sale declined when interest rates rose during the
period.
LIQUIDITY, INTEREST RATE SENSITIVITY AND MARKET RISKS
The objectives of the Company's liquidity management policy include
providing adequate funds to meet the needs of depositors and borrowers at all
times, as well as providing funds to meet the basic needs for on-going
operations of the Company and regulatory requirements. The Company's liquidity
position remained strong.
The Company places great significance on monitoring and managing the
Company's asset/liability position. The Company's policy of managing its
interest margin (or net yield on interest-earning assets) is to maximize net
interest income while maintaining a stable deposit base. The Company's deposit
base is not generally subject to volatility experienced in national financial
markets in recent
(continued on next page)
Bank of Granite Corporation, Form 10-Q, March 31, 2000, page 9 of 16
<PAGE> 10
BANK OF GRANITE CORPORATION
Management's Discussion and Analysis
CHANGES IN FINANCIAL CONDITION - (continued)
years; however, the Company does realize the importance of minimizing such
volatility while at the same time maintaining and improving earnings. A common
method used to manage interest rate sensitivity is to measure, over various time
periods, the difference or gap between the volume of interest-earning assets and
interest-bearing liabilities repricing over a specific time period. However,
this method addresses only the magnitude of funding mismatches and does not
address the magnitude or relative timing of rate changes. Therefore, management
prepares on a regular basis earnings projections based on a range of interest
rate scenarios of rising, flat and declining rates in order to more accurately
measure interest rate risk.
Interest-bearing liabilities and the loan portfolio are generally
repriced to current market rates. The Company's balance sheet is
asset-sensitive, meaning that in a given period there will be more assets than
liabilities subject to immediate repricing as the market rates change. Because
most of the Company's loans are at variable rates, they reprice more rapidly
than rate sensitive interest-bearing deposits. During periods of rising rates,
this results in increased net interest income. The opposite occurs during
periods of declining rates.
The Bank uses several modeling techniques to measure interest rate risk
including the gap analysis previously discussed, the simulation of net interest
income under varying interest rate scenarios and the theoretical impact of
immediate and sustained rate changes referred to as "rate shocks." "Rate shocks"
measure the estimated theoretical impact on the Bank's tax equivalent net
interest income and market value of equity from hypothetical immediate changes
of plus and minus 1%, 2%, 3% and 4% as compared to the estimated theoretical
impact of rates remaining unchanged. The prospective effects of these
hypothetical interest rate changes, is based upon numerous assumptions including
relative and estimated levels of key interest rates. "Rate shock" modeling is of
limited usefulness because it does not take into account the pricing strategies
management would undertake in response to the depicted sudden and sustained rate
changes. Additionally, management does not believe rate changes of the magnitude
described are likely in the foreseeable future.
The Company has not experienced a material change in the mix of its
rate-sensitive assets and liabilities or in interest rates in the market that it
believes would result in a material change in its interest rate sensitivity
since reported at December 31, 1999.
RESULTS OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2000
COMPARED WITH THE SAME PERIOD IN 1999
During the three month period ended March 31, 2000, interest income
increased $989,692, or 8.39%, from the same period last year. The increase is
primarily attributable to increased loan volumes. The prime lending rate during
the three month period averaged 8.64% compared to 7.75% during the same period
in 1999. Yields on loans averaged 10.26% for the quarter, up from 10.05% for the
same quarter last year. Gross loans averaged $396,621,147 compared to
$376,807,852 last year, an increase of $19,813,295, or 5.26%. Average loans of
the bank subsidiary were $387,506,397 compared to $354,339,014 last year, an
increase of $33,167,383, or 9.36%, while average loans of the mortgage
subsidiary were $9,114,750 compared to $22,468,838 last year, a decrease of
$13,354,088, or 59.43%. Interest on securities and overnight investments
increased $289,750, or 12.48%, also due to higher average volumes invested
during the quarter. Average securities and overnight investments were
$187,071,245 compared to $171,320,491 last year, an increase of $15,750,754, or
9.19%.
(continued on next page)
Bank of Granite Corporation, Form 10-Q, March 31, 2000, page 10 of 16
<PAGE> 11
BANK OF GRANITE CORPORATION
Management's Discussion and Analysis
RESULTS OF OPERATIONS - (continued)
Interest expense increased $202,674, or 5.06%, primarily because higher
volumes of interest-bearing time deposits. Total interest-bearing deposits
averaged $386,530,330 compared to $363,064,115 last year, an increase of
$23,466,215, or 6.46%. Savings, NOW and money market deposits averaged
$134,531,174 compared to $122,049,401 last year, an increase of $12,481,773, or
10.23%. Time deposits averaged $251,999,156 compared to $241,014,714 last year,
an increase of $10,984,442, or 4.56%. Overnight borrowings averaged $13,085,510
compared to $9,272,802 last year, an increase of $3,812,708, or 41.12%,
reflecting an increase of $151,449, or 7.55%, in average overnight borrowings in
the form of federal funds purchased and securities sold under agreements to
repurchase and an increase of $4,439,832, or 64.97%, in average overnight
borrowings in the form of commercial paper related to the commercial deposit
sweep arrangements. Other borrowings averaged $7,500,679 compared to $20,800,351
last year, a decrease of $13,299,672, or 63.94%, due to a decrease in temporary
borrowings on the mortgage subsidiary primarily attributable to lower mortgage
origination activity. Other borrowings were the principal source of funding for
the mortgage origination activities of the mortgage subsidiary.
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
month period ended March 31, 2000, management determined a charge to operations
of $645,000 would bring the loan loss reserve to a balance considered to be
adequate to absorb estimated potential losses in the portfolio. At March 31,
2000, the loan loss reserve was 1.30% of net loans outstanding compared to 1.23%
as of December 31, 1999.
At March 31, 2000 and 1999, the recorded investment in loans that are
considered to be impaired under SFAS No. 114 was $1,882,617 ($1,152,630 of which
was on a non-accrual basis) and $1,914,021 ($1,775,317 which was on a
non-accrual basis), respectively. The average recorded balance of impaired loans
during 2000 and 1999 was not significantly different from the balance at March
31, 2000 and 1999, respectively. The related allowance for loan losses
determined in accordance with SFAS No. 114 for these loans was $657,655 and
$624,922 at March 31, 2000 and 1999, respectively. For the three months ended
March 31, 2000 and 1999, the Company recognized interest income on those
impaired loans of approximately $92,636 and $64,739, respectively.
(continued on next page)
Bank of Granite Corporation, Form 10-Q, March 31, 2000, page 11 of 16
<PAGE> 12
BANK OF GRANITE CORPORATION
Management's Discussion and Analysis
RESULTS OF OPERATIONS - (concluded)
For the quarter ended March 31, 2000, total noninterest income was
$1,659,681, down $772,705, or 31.77%, from $2,432,386 earned in the same period
of 1999, primarily because of lower fees from mortgage originations. Fees on
deposit accounts were $882,163 during the first quarter, up $68,495, or 8.42%,
from $813,668 earned in the first quarter of 1999. First quarter other service
fees and commissions were $633,277 for 2000, down $769,141, or 54.84%, from
$1,402,418 earned in the same period of 1999. Included in other service fees was
mortgage origination fee income of $396,784 for 2000, down $730,674, or 64.81%,
from $1,127,458 earned in the same period of 1999. When mortgage rates rose
sharply in the spring of 1999, mortgage origination activity dropped
dramatically and continued at low levels throughout much of the first quarter of
2000. There were no significant gains or losses on sales of securities in the
first quarter of 2000 or 1999. Other noninterest income was $144,241 for the
first quarter of 2000, down $72,059, or 33.31%, from $216,300 earned in the
first quarter of 1999, due to lower sales of small business loans which
generated no fee income in the first quarter of 2000 compared to $82,885 in the
same quarter of 1999. Although management continued to emphasize fees from
nontraditional banking services such as annuities, life insurance, and sales of
mortgage and small business loans, management decided that in 2000 it would
retain the small business loans in the Company's loan portfolio rather than sell
these loans at a one-time gain.
First quarter 2000 noninterest expenses totaled $4,108,441, down
$306,249, or 6.94%, from $4,414,690 in the same quarter of 1999, primarily
because of lower costs associated with the slowdown in mortgage origination
activities. Personnel costs were $2,433,726 during the quarter, down $275,958,
or 10.18%, from $2,709,684 in 1999. Of the $275,958 decrease in personnel costs,
$405,540 were related to mortgage operations, partially offset by a $129,582
increase in the personnel costs of the banking subsidiary.
Noninterest expenses other than for personnel decreased to $1,674,715
during the quarter, or 1.78%, from $1,705,006 incurred in the same period of
1999. Of the $306,249 decrease, $517,871 were related to mortgage operations,
partially offset by a $88,868 increase in the nonpersonnel costs of the banking
subsidiary. Income tax expense was $1,813,444 for the quarter, down $56,071, or
3.00%, from $1,869,515 for the 1999 first quarter. The effective tax rates were
33.12% and 33.18% for the first quarters of 2000 and 1999, respectively. Net
income decreased to $3,661,476 during the quarter, or 2.76%, from $3,765,264
earned in the same period of 1999.
DISCLOSURES ABOUT FORWARD LOOKING STATEMENTS
The discussions included in this document contain forward looking
statements within the meaning of the federal securities laws, including Section
21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act
of 1933, which statements are subject to risks and uncertainties. For the
purposes of these discussions, any statements that are not statements of
historical fact may be deemed to be forward looking statements. Such statements
are often characterized by the use of qualifying words such as "expect,"
"believe," "plan," "project," or other statements concerning opinions or
judgments of the Company and its management about future events. The accuracy of
such forward looking statements could be affected by such factors as, including
but not limited to, the financial success or changing conditions or strategies
of the Company's customers or vendors, actions of government regulators, or
general economic conditions.
Bank of Granite Corporation, Form 10-Q, March 31, 2000, page 12 of 16
<PAGE> 13
BANK OF GRANITE CORPORATION
PART II - Other Information
Item 6 - Exhibits and Reports on Form 8-K
A) Exhibits
27 Financial Data Schedules (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, 2000.
Items 1,2,3,4 and 5 are inapplicable and are omitted.
Bank of Granite Corporation, Form 10-Q, March 31, 2000, page 13 of 16
<PAGE> 14
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: May 8, 2000 /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, March 31, 2000, page 14 of 16
<PAGE> 15
BANK OF GRANITE CORPORATION
Exhibit Index
<TABLE>
<CAPTION>
Begins
on Page
-------
<S> <C>
Exhibit 27 - Financial Data Schedule (March 31, 2000) (for SEC use only) 16
</TABLE>
Bank of Granite Corporation, Form 10-Q, March 31, 2000, page 15 of 16
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF BANK OF GRANITE CORPORATION FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 21,895,009
<INT-BEARING-DEPOSITS> 306,202
<FED-FUNDS-SOLD> 40,300,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 77,220,492
<INVESTMENTS-CARRYING> 82,030,648
<INVESTMENTS-MARKET> 80,680,202
<LOANS> 405,855,851
<ALLOWANCE> 5,199,748
<TOTAL-ASSETS> 642,590,402
<DEPOSITS> 493,284,935
<SHORT-TERM> 24,247,235
<LIABILITIES-OTHER> 10,447,604
<LONG-TERM> 0
0
0
<COMMON> 11,495,897
<OTHER-SE> 103,114,731
<TOTAL-LIABILITIES-AND-EQUITY> 642,590,402
<INTEREST-LOAN> 10,168,710
<INTEREST-INVEST> 2,210,717
<INTEREST-OTHER> 400,714
<INTEREST-TOTAL> 12,780,141
<INTEREST-DEPOSIT> 3,982,225
<INTEREST-EXPENSE> 4,211,461
<INTEREST-INCOME-NET> 8,568,680
<LOAN-LOSSES> 645,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,108,441
<INCOME-PRETAX> 5,474,920
<INCOME-PRE-EXTRAORDINARY> 5,474,920
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,661,476
<EPS-BASIC> 0.32
<EPS-DILUTED> 0.32
<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>
