FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For quarterly period ended September 30, 1995
Commission File No. 0-14895
Granite State Bankshares, Inc.
(Exact name of registrant as specified in its charter)
New Hampshire
(State or other jurisdiction of incorporation or organization)
02-0399222
(I.R.S. Employer Identification No.)
122 West Street, Keene, New Hampshire 03431
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (603) 352-1600
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 ( )
The number of shares outstanding of each of the issuer's classes of
common stock, as of November 9, 1995 was 2,045,081, $1.00 par value per share.
INDEX
Granite State Bankshares, Inc. and Subsidiary
Part I Financial Information Page
Item 1. Financial Statements:
Consolidated Statements of Financial Condition
September 30, 1995 and December 31, 1994 3
Consolidated Statements of Earnings
Three and nine months ended September 30, 1995 and 1994 4
Consolidated Statements of Stockholders' Equity
Three and nine months ended September 30, 1995 and 1994 5
Consolidated Statements of Cash Flows
Three and nine months ended September 30, 1995 and 1994 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Part II Other Information
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
<TABLE>
<CAPTION>
Granite State Bankshares, Inc. and Subsidiary
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Statements of Financial Condition
September 30, December 31,
($ in thousands, except par values) 1995 1994
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 14,259 $ 9,255
Interest-bearing deposits - Federal Home Loan Bank of Boston 32,115 26
Investment securities - held to maturity (note 2)
(Market value $2,999 at September 30, 1995
and $15,260 at December 31, 1994) 3,000 15,499
Available for sale securities, at market value (note 2) 80,712 73,032
Stock in Federal Home Loan Bank of Boston 3,215 3,215
Loans (note 3) 190,575 195,251
Less: Unearned income (2,484) (2,930)
Allowance for possible loan losses (3,556) (4,230)
------------ ------------
Net Loans 184,535 188,091
Premises and equipment 9,901 9,776
Real estate acquired by foreclosure or substantively repossessed 2,176 3,009
Other assets 7,236 8,937
------------ ------------
$ 337,149 $ 310,840
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits $ 254,437 $ 213,478
Noninterest-bearing deposits 29,860 26,551
------------ ------------
Total Deposits 284,297 240,029
Securities sold under agreements to repurchase 20,609 21,968
Short-term borrowings from the Federal Home Loan Bank of Boston 20,904
Long-term debt 262 328
Other liabilities 2,708 1,970
------------ ------------
Total Liabilities 307,876 285,199
Common stock, $1.00 par value; authorized 12,500,000 shares;
issued 2,535,833 shares 2,536 2,536
Additional paid-in capital 19,218 19,218
------------ ------------
21,754 21,754
Unrealized gain (loss) on available for sale securities, net 1,375 (703)
Retained earnings 9,903 8,083
------------ ------------
33,032 29,134
Less: Treasury stock, at cost, 478,252 and 453,752
shares, respectively (3,759) (3,429)
(64)
Unearned compensation - ESOP ------------ ------------
Total Stockholders' Equity 29,273 25,641
------------ ------------
$ 337,149 $ 310,840
============ ============
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
Granite State Bankshares, Inc. and Subsidiary
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Statements of Earnings
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
($ in thousands, except per share data) 1995 1994 1995 1994
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Interest and dividend income:
Interest on loans $ 4,622 $ 4,025 $ 13,705 $ 11,416
Interest on securities held to maturity 124 241 533 909
Interest on securities available for sale 1,103 890 3,322 1,723
Interest on trading securities 67 335
Dividends on Federal Home Loan Bank of Boston stock 54 69 168 117
Dividends on equity securities available for sale 43 26 105 75
Other interest 334 359 139
---------- ---------- ---------- ----------
6,280 5,318 18,192 14,714
Interest expense:
Savings deposits 1,112 866 2,965 2,549
Time deposits 1,485 725 3,813 2,188
Borrowed funds 322 448 1,211 835
---------- ---------- ---------- ----------
2,919 2,039 7,989 5,572
---------- ---------- ---------- ----------
Net interest income 3,361 3,279 10,203 9,142
Provision for possible loan losses (note 3) 225 450
---------- ---------- ---------- ----------
Net interest income after provision for possible loan losses 3,136 3,279 9,753 9,142
Noninterest income:
Loan fees 41 20 146 108
Mortgage service fees 194 160 545 573
Net gains on securities available for sale 0 43 205 43
Net gains (losses) on trading securities 16 (145)
Net gains on sale of loans 112 52 248 215
Other 269 236 739 751
---------- ---------- ---------- ----------
616 527 1,883 1,545
Noninterest expense:
Salaries and employee benefits 1,228 1,077 3,696 3,428
Occupancy, net 211 223 685 728
Equipment 168 209 563 670
Real estate acquired by foreclosure or substantively repossessed 26 218 237 280
Other 797 821 2,455 2,340
---------- ---------- ---------- ----------
2,430 2,548 7,636 7,446
---------- ---------- ---------- ----------
Earnings before income taxes 1,322 1,258 4,000 3,241
Applicable income taxes 458 453 1,435 1,082
---------- ---------- ---------- ----------
Net earnings $ 864 $ 805 $ 2,565 $ 2,159
========== ========== ========== ==========
Weighted average common shares outstanding:
Primary 2,175,781 2,220,345 2,178,789 2,236,484
Fully diluted 2,181,547 2,220,405 2,191,059 2,245,289
Net earnings per common share -primary $ 0.40 $ 0.36 $ 1.18 $ .97
Net earnings per common share -fully diluted $ 0.40 $ 0.36 $ 1.17 $ .96
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
Granite State Bankshares, Inc. and Subsidiary
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Statements of Stockholders' Equity
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
($ in thousands) 1995 1994 1995 1994
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Balance, beginning of period $ 28,320 $ 26,345 $ 25,641 $ 25,381
Net earnings 864 805 2,565 2,159
Dividends declared on common stock (248) (169) (745) (515)
Purchase of treasury stock (107) (547) (330) (547)
Decrease in unearned compensation -ESOP 21 21 64 64
Increase (decrease) in net unrealized gains on
available for sale securities, net of related income taxes 423 (15) 2,078 (102)
---------- ---------- ---------- ----------
Net change in stockholders' equity 953 95 3,632 1,059
---------- ---------- ---------- ----------
Balance, end of period $ 29,273 $ 26,440 $ 29,273 $ 26,440
========== ========== ========== ==========
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
Granite State Bankshares, Inc. and Subsidiary
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Statements of Cash Flows
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
Increase (decrease) in cash (In Thousands) 1995 1994 1995 1994
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 864 $ 805 $ 2,565 $ 2,159
Adjustments to reconcile net earnings to net cash
provided by operating activities
Provision for possible loan losses 225 450
Provision for depreciation and amortization 288 318 876 971
Net accretion on securities (18) (92) (107) (307)
Net decrease in trading securities 16,429
Unrealized (gain) loss on trading securites (15) 75
Realized gain on securities available for sale (43) (205) (43)
Realized (gain) loss on trading securities (1) 70
Loans originated for sale (5,880) (3,555) (20,664) (14,830)
Proceeds from sales of loans originated for sale 6,723 4,209 21,019 18,105
Realized gains on sales of loans (112) (52) (248) (215)
Realization of unearned income (74) (99) (446) (331)
Provision for loss on real estate acquired by
foreclosure or substantively repossessed 105 203 109
Realized gain on sales of other real estate owned (20) (3) (159) (101)
Deferred income taxes (benefits) 14 (74) 142 (24)
(Increase) decrease in other assets 680 (167) 1,009 (720)
Increase (decrease) in other liabilities 332 369 (106) 417
Decrease in unearned compensation-ESOP 21 21 64 64
---------- ---------- ---------- ----------
Net cash provided by operating activities 3,043 1,726 4,393 21,828
Cash flows from investing activities:
Proceeds from maturities of securities held to maturity 12,500 10,000 12,500 14,500
Purchase of securities held to maturity (503)
Proceeds from sale of securities available for sale 15,000 656 15,000
Proceeds from maturities of securities available for sale 3,000 3,095 5,998 3,095
Purchase of securities available for sale (7,318) (21,997) (10,875) (65,015)
Loan (originations) repayments, net 4,548 90 1,674 (9,438)
Purchase of premises and equipment (224) (151) (665) (426)
Advances made on other real estate owned and
substantively repossessed (9) (22) (12)
Advances on real estate held for investment (9) (6) (57)
Proceeds from sales of other real estate owned 663 689 2,582 2,192
Net (increase) decrease in interest-bearing deposits with
Federal Home Loan Bank of Boston (25,737) (142) (32,089) 12,246
---------- ---------- ---------- ----------
Net cash provided by (used in) investing activities (12,568) 6,566 (20,247) (28,418)
Cash flows from financing activities:
Net increase (decrease) in time certificates of deposit 1,878 (2,094) 30,630 (9,205)
Net increase in demand, NOW, regular savings and
money market deposit accounts 7,711 3,651 13,638 408
Net increase (decrease) in securities
sold under agreements to repurchase 491 (2,668) (1,359) 1,672
Net increase (decrease) in short-term borrowings (7,700) (20,904) 15,300
Net increase (decrease) in long-term borrowings 139 (2) 264
Repayment of liability relating to ESOP (21) (21) (64) (64)
Purchase of treasury stock (107) (547) (330) (547)
Dividends paid on common stock (249) (169) (751) (515)
---------- ---------- ---------- ----------
Net cash provided by (used in) financing activities 9,703 (9,409) 20,858 7,313
---------- ---------- ---------- ----------
Net increase (decrease) in cash and due from banks 178 (1,117) 5,004 723
Cash and due from banks at beginning of period 14,081 11,433 9,255 9,593
---------- ---------- ---------- ----------
Cash and due from banks at end of period $ 14,259 $ 10,316 $ 14,259 $ 10,316
========== ========== ========== ==========
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
Granite State Bankshares, Inc. and Subsidiary
Part I - Financial Information
Item 1. Financial Statements
Notes to Consolidated Financial Statements (Unaudited)
September 30, 1995
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three and nine months ended September 30, 1995 are not necessarily
indicative of the results that may be expected for the current fiscal year.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-KSB for
the year ended December 31, 1994.
Certain information in the 1994 financial statements has been
reclassified to conform with the 1995 presentation.
Note 2. Securities
Effective December 31, 1993, the Company adopted Financial
Accounting Standards Board Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities". Under SFAS No. 115, debt securities that the Company has the
positive intent and ability to hold to maturity are classified as
held-to-maturity and reported at amortized cost; debt and equity securities
that are bought and held principally for the purpose of selling in the near
term are classified as trading and reported at fair value, with unrealized
gains and losses included in earnings; and debt and equity securities not
classified as either held-to-maturity or trading are classified as
available-for-sale and reported at fair value, with unrealized gains
and losses excluded from earnings and reported as a separate component of
stockholders' equity, net of estimated income taxes.
The amortized cost, estimated market value and carrying value of
securities at September 30, 1995 and December 31, 1994 were as follows:
<TABLE>
<CAPTION>
Amortized Estimated Carrying
At September 30, 1995 Cost Market Value Value
------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C>
Securities held to maturity
Other corporate obligations $ 3,000 $ 2,999 $ 3,000
------------ ------------ ------------
Total securities held to maturity $ 3,000 $ 2,999 $ 3,000
============ ============ ============
Securities available for sale
US Treasury obligations $ 59,001 $ 59,239 $ 59,239
US Government agency obligations 6,000 6,001 6,001
Other corporate obligations 9,492 9,453 9,453
Marketable equity securities 4,136 6,019 6,019
------------ ------------ ------------
Total securities available for sale $ 78,629 $ 80,712 $ 80,712
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Amortized Estimated Carrying
At December 31, 1994 Cost Market Value Value
------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C>
Securities held to maturity
Other corporate obligations $ 15,499 $ 15,260 $ 15,499
------------ ------------ ------------
Total securities held to maturity $ 15,499 $ 15,260 $ 15,499
============ ============ ============
Securities available for sale
US Treasury obligations $ 58,912 $ 57,502 $ 57,502
US Government agency obligations 3,000 2,955 2,955
Other corporate obligations 9,484 9,282 9,282
Marketable equity securities 2,701 3,293 3,293
------------ ------------ ------------
Total securities available for sale $ 74,097 $ 73,032 $ 73,032
============ ============ ============
</TABLE>
At September 30, 1995, US Treasury and Federal Agency obligations
with carrying and market values of $32,574,000 were pledged as collateral for
securities sold under agreements to repurchase and government deposit accounts.
Note 3. Loans
Real estate mortgage loans and other loans are stated at the amount of
unpaid principal, less unearned income and the allowance for possible loan
losses.
Interest on loans is accrued and credited to operations based upon the
principal amount outstanding. When management determines that significant
doubt exists as to collectibility of principal or interest on a loan, the loan
is placed on nonaccrual status. In addition, loans past due 90 days or more
as to principal or interest are placed on nonaccrual status, except those
loans which, in management's judgment, are fully secured and in the process
of collection. Interest accrued but not received on loans placed on
nonaccrual status is reversed and charged against current operations.
Interest on nonaccrual loans is recognized only when received. Loans are
restored to accrual status when the borrower has demonstrated the ability to
make future payments of principal and interest, as scheduled.
Loans considered to be uncollectible are charged against the allowance
for possible loan losses. The allowance is increased by charges to current
operations in amounts sufficient to maintain the adequacy of the allowance.
The adequacy of the allowance is determined by management's evaluation of the
extent of existing risks in the loan portfolio and prevailing economic
conditions.
Changes in the allowance for possible loan losses are as follows:
<TABLE>
<CAPTION>
Three months ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1995 1994 1995 1994
--------- --------- --------- ---------
(In Thousands)
<S> <C> <C> <C> <C>
Balance, beginning of period $ 3,725 $ 3,809 $ 4,230 $ 4,004
Provision for possible loan losses 225 0 450 0
Loans charged off (415) (10) (1,250) (227)
Recoveries of loans previously charged off 21 24 126 46
------------ ------------ ------------ ------------
Balance, end of period $ 3,556 $ 3,823 $ 3,556 $ 3,823
============ ============ ============ ============
</TABLE>
Unearned income on loans is being amortized as a yield adjustment over
the estimated lives of the loans.
Note 4. Supplemental Disclosures of Cash Flow Information
<TABLE>
<CAPTION>
Three months ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1995 1994 1995 1994
--------- --------- --------- ---------
(In Thousands)
<S> <C> <C> <C> <C>
Cash paid for interest $ 2,898 $ 2,061 $ 7,864 $ 5,639
Income taxes paid 375 400 1,375 1,000
Non-cash investing activities:
Real estate acquired in settlement of loans 892 193 1,771 959
</TABLE>
Note 5. Accounting Changes
Effective January 1, 1995, the Company prospectively adopted Statement
of Financial Accounting Standards ("SFAS") No. 114, entitled Accounting by
Creditors for Impairment of a Loan, as required by the Financial Accounting
Standards Board ("FASB"). Concurrent with the adoption of SFAS No. 114, the
Company also adopted SFAS No. 118, which amended certain of the revenue
recognition provisions of SFAS No. 114. The impact of adopting SFAS Nos. 114
and 118, had no material effect on the consolidated financial position of the
Company at September 30, 1995 or on its consolidated results of operations for
the three and nine months ended September 30, 1995.
Granite State Bankshares, Inc. and Subsidiary
Part I - Financial Information
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
September 30, 1995
General
All information within this section should be read in conjunction with
the consolidated financial statements and notes included elsewhere in this Form
10-QSB. All references in the discussion to financial condition and results of
operations are to the consolidated financial position of the Company and its
subsidiary taken as a whole.
The principal business of the Company is to serve as a financial
intermediary attracting deposits from the general public and making both secured
and unsecured loans. The operating results of the Company depend primarily on
net interest income earned by the Company's subsidiary, Granite Bank ("the
subsidiary bank"). Net interest income is the difference between interest and
dividend income on earning assets, primarily loans and securities, and interest
expense on interest-bearing liabilities, which consist of deposits and
borrowings. Operating results of the Company also depend upon the provision
for possible loan losses, noninterest income and noninterest expense.
Financial Condition
Total assets increased by $26,309,000 or 8.46%, from $310,840,000 at
December 31, 1994 to $337,149,000 at September 30, 1995.
Interest bearing deposits with the Federal Home Loan Bank of Boston
increased $32,089,000, from $26,000 at December 31, 1994 to $32,115,000 at
September 30, 1995.
Securities held to maturity decreased $12,499,000, from $15,499,000 at
December 31, 1994 to $3,000,000 at September 30, 1995, as a result of
$12,500,000 in securities which matured.
Securities available for sale increased $7,680,000, from $73,032,000 at
December 31, 1994 to $80,712,000 at September 30, 1995.
Net loans were $184,535,000 at September 30, 1995, a decrease of
$3,556,000 from $188,091,000 at December 31, 1994.
Total deposits increased $44,268,000, from $240,029,000 at December
31, 1994 to $284,297,000 at September 30, 1995. The increase in deposits of
$44,268,000 resulted primarily from the introduction of a new deposit product,
as well as a change in pricing strategy, whereby higher interest rates were
offered for certain deposit products.
Securities sold under agreements to repurchase decreased $1,359,000,
from $21,968,000 at December 31, 1994 to $20,609,000 at September 30, 1995.
Short-term borrowings from the Federal Home Loan Bank of Boston of
$20,904,000, at December 31, 1994 have all been repaid during 1995.
Stockholders' equity increased by $3,632,000 during the first nine
months of 1995, from $25,641,000 at December 31, 1994, to $29,273,000 at
September 30, 1995. The increase was due to $2,565,000 of net earnings, a
$2,078,000 increase in unrealized gains on securities available for sale, net
and a $64,000 decrease in unearned compensation associated with the employee
stock ownership plan, partially offset by $745,000 of common stock dividends .
declared and a $330,000 increase in treasury stock.
The increase in assets of $26,309,000 was primarily funded by increases
in deposits of $44,268,000 and stockholders' equity of $3,632,000, partially
offset by a decrease in securities sold under agreements to repurchase of
$1,359,000 and repayments of short-term borrowings from the Federal Home Loan
Bank of Boston of $20,904,000.
The increase in assets, as well as the net cash produced from maturities
of securities held to maturity and reductions of loans, partially offset by the
increase in securities available for sale were primarily invested in interest
bearing deposits - Federal Home Loan Bank of Boston. Funds have been
temporarily invested in interest bearing deposits - Federal Home Loan Bank of
Boston as a result of management's assessment of the prevailing flat interest
yield curve, which management believes would not produce a significant enough
benefit to invest the assets in longer term maturities at this time.
Stock Repurchase Plan
On June 14, 1994, the Company announced a Stock Repurchase Plan
("Plan"), whereby the Company's Board of Directors authorized the repurchase of
up to 9% of its outstanding common shares from time to time. Shares
repurchased under the Plan may be held in treasury, retired or used for general
corporate purposes. As of September 30, 1995, the Company has repurchased
102,600 shares under the Plan, representing 4.75% of common shares
outstanding at the date of announcement of the Plan.
Results of Operations
Net Earnings
Net earnings for the three and nine months ended September 30, 1995
were $864,000 and $2,565,000, compared to $805,000 and $2,159,000 for the
three and nine months ended September 30, 1994. Net earnings for the three and
nine months ended September 30, 1995, increased 7.33% and 18.81%,
respectively, over net earnings for the three and nine months ended September
30, 1994. Earnings per common share for the three and nine months ended
September 30, 1995 were $0.40 and $1.18 per share ($0.40 and $1.17 per share
fully diluted), compared to $0.36 and $0.97 per share ($0.36 and $0.96 per share
fully diluted) for the three and nine months ended September 30, 1994.
Interest and Dividend Income
Interest and dividend income for three and nine months ended
September 30, 1995 was $6,280,000 and $18,192,000, respectively, compared to
$5,318,000 and $14,714,000, for the corresponding periods in 1994. Average
interest-earning assets for the nine months ended September 30, 1995 were
$290,170,000 and for the nine months ended September 30, 1994 were
$278,419,000. The yield on interest-earning assets was 8.31% and 8.36%,
respectively for the three and nine months ended September 30, 1995, compared
to 7.41% and 7.04%, respectively for the same periods in 1994.
The increase in interest and dividend income for the three and nine
months ended September 30, 1995 compared to the three and nine months ended
September 30, 1994 is primarily attributable to an increase in average interest
earning assets for 1995 compared to 1994, and higher yields on interest earning
assets. The higher yields in 1995 compared to 1994, are the result of the
increasing interest rate environment, which began in the first quarter of 1994
and continued throughout 1994 and into the first quarter of 1995, which has
increased the yields realized on securities and loans.
Interest Expense
Interest expense for the three and nine months ended September 30,
1995 was $2,919,000 and $7,989,000, respectively, compared to $2,039,000 and
$5,572,000 for the corresponding periods in 1994. Average interest-bearing
liabilities for the nine months ended September 30, 1995 were $265,558,000 and
for the nine months ended September 30, 1994 were $254,615,000. The rates
paid on interest-bearing liabilities were 4.24% and 4.01%, respectively for the
three and nine months ended September 30, 1995, compared to 3.12% and 2.92%
for the same periods in 1994.
The increase in interest expense for the three and nine months ended
September 30, 1995 compared to the same periods in 1994 is primarily due to an
increase in the average balance of interest bearing liabilities and an increase
in the interest rates paid on these liabilities.
Net Interest Income
Net interest income increased by $82,000 and $1,061,000 for the three
and nine months ended September 30, 1995 compared to the same periods in
1994. The slight increase for the three months ended September 30, 1995
compared to the same period in 1994 relates to a larger increase in interest
earning assets than interest bearing liabilities, partially offset by reductions
in the interest rate spread and the net yield on interest-earning assets, as the
rates paid on interest-bearing liabilities increased more rapidly than the
yields realized on interest earning assets. The large increase in net
interest income for the nine months ended September 30, 1995, compared to the
same period in 1994 result primarily from the Company's yields on
interest-earning assets increasing more rapidly than the cost of
interest-bearing liabilities. The Company's yields on its interest-earning
assets increased more rapidly than the cost of its interest-bearing
liabilities in the first and second quarters of 1995 and was partially offset in
the third quarter of 1995, when the cost of interest-bearing liabilities
increased, while the yields on interest-earning assets decreased slightly,
compared with yields in the second quarter of 1995. A general decline in
interest rates during the second and third quarters of 1995 decreased the
yields on interest-earning assets in the third quarter, while the shift of
deposits from low rate savings, NOW and money market accounts into new
deposit products offered by the Company and longer term higher cost time
certificates increased the cost of interest-bearing liabilities during the
third quarter. The Company's interest rate spread was 4.07% and 4.35%, for
the three and nine months ended September 30, 1995, compared to 4.29% and
4.12% for the three and nine months ended September 30, 1994. The net yield
on interest earning assets for the three and nine months ended September 30,
1995 was 4.45% and 4.70%, compared to 4.57% and 4.38% for the three and nine
months ended September 30, 1994.
Provision for Possible Loan Losses
The provision for possible loan losses for the three and nine months
ended September 30, 1995 was $225,000 and $450,000, respectively, compared to
no provision for the three and nine months ended September 30, 1994. The
increase in the provision for the three and nine months ended September 30,
1995, compared to the same periods in 1994, related primarily to management's
overall evaluation of the adequacy of the allowance, in consideration of the
increase in nonperforming loans, as well as replenishing the allowance due to
the increased charge off activity for the three and nine months ended
September 30, 1995 compared to the same periods in 1994.
Nonperforming loans totaled $2,458,000 at September 30, 1995, an
increase of $174,000 from $2,284,000 at December 31, 1994. The increase in
nonperforming loans was primarily attributable to an increase in nonperforming
commercial real estate loans, partially offset by a reduction in nonperforming
residential real estate loans. The level of net charge-offs for the three and
nine months ended September 30, 1995 was $394,000 and $1,124,000, compared to a
net recovery of $14,000 and net charge-offs of $181,000, for the corresponding
periods a year ago.
The adequacy of the allowance for possible loan losses is evaluated by
management on a quarterly basis. This review includes an assessment of problem
loans and potential unknown losses based on current economic conditions, the
regulatory environment and historical experience. The provision for possible
loan losses represents charges to operations necessary to maintain the
allowance at a level which management believes will be adequate to absorb
possible losses. Management believes that the allowance for possible loan
losses is adequate. While management evaluates the allowance for possible
loan losses based upon available information, future additions to the
allowance may be necessary. Additionally, regulatory agencies review the
Company's allowance for possible loan losses as part of their examination
process. Such agencies may require the Company to recognize additions to the
allowance based on judgments which may be different from those of management.
Noninterest Income
Noninterest income for the three and nine months ended September 30,
1995 totaled $616,000 and $1,883,000, respectively, compared to $527,000 and
$1,545,000 for the same periods in 1994. The significant changes in the
components of noninterest income for the three months ended September 30,
1995 compared to the same period in 1994 were primarily mortgage service fees
of $194,000 for the three months ended September 30, 1995, compared to
$160,000 for the same period in 1994, and net gains on sales of loans of
$112,000 for the three months ended September 30, 1995, compared to $52,000
for the same period in 1994, partially offset by net gains on available for
sale securities of $0 for the three months ended September 30, 1995, compared to
$43,000 for the same period in 1994. The significant changes in the
components of noninterest income for the nine months ending September 30,
1995 compared to the same period in 1994, were net gains on available for
sale securities of $205,000 for the nine months ended September 30, 1995,
compared to $43,000 for the nine months ended September 30, 1994, and net
losses on trading securities of $145,000 for the nine months ended September
30, 1994, compared to $0 for the nine months ended September 30, 1995.
Noninterest Expense
Noninterest expense for the three and nine months ended September 30,
1995 totaled $2,430,000 and $7,636,000, respectively, compared to $2,548,000
and $7,446,000 for the same periods a year earlier. The decrease for the three
months ended September 30, 1995, compared to 1994 relates primarily to a
decreased cost of $192,000 associated with the holding and disposition of real
estate acquired by foreclosure or substantively repossessed and decreased
costs of $53,000 associated with occupancy and equipment expenses, partially
offset by an increase of $151,000 in salaries and benefit expenses. The
increase for the nine months ended September 30, 1995, compared to 1994 is
primarily attributable to increases in salaries and benefits expense of
$268,000, which is comprised of normal salary increases and increased medical
costs, and increased costs of $105,000 associated with advertising a new deposit
product, partially offset by a reduction of $150,000 in occupancy and equipment
expenses.
Income Taxes
Income taxes for the three and nine months ended September 30, 1995
were $458,000 and $1,435,000, respectively, compared with $453,000 and
$1,082,000 for the same periods in 1994. The increase in 1995, compared to
1994 primarily relates to the increase in earnings before income taxes.
Risk Elements
Total nonperforming loans increased from $2,284,000 or 1.21% of net
loans, at December 31, 1994, to $2,458,000 or 1.33% of net loans, at September
30, 1995. The increase was primarily attributable to an increase in
nonperforming commercial real estate loans, partially offset by a decrease in
nonperforming residential real estate loans. During the same period, real
estate acquired by foreclosure or substantively repossessed, declined from
$3,009,000 to $2,176,000. The allowance for loan losses as a percent of
total nonperforming loans was 144.67% at September 30, 1995, compared with
185.20% at December 31, 1994.
As shown in the following table, nonperforming assets as a percentage of
total assets were 1.37% and 1.70%, as of September 30, 1995 and December 31,
1994, respectively.
<TABLE>
<CAPTION>
September 30, 1995 December 31, 1994
------------------ -----------------
($ in Thousands)
<S> <C> <C>
Loans 90 days or more past due
and still accruing $ 500 $ 21
============ ============
Nonaccrual/nonperforming loans $ 2,458 $ 2,284
Real estate acquired by foreclosure or
substantively repossessed 2,176 3,009
------------ ------------
Total nonperforming assets $ 4,634 $ 5,293
============ ============
Allowance for possible loan losses $ 3,556 $ 4,230
Nonperforming loans as a percent of net loans 1.33% 1.21%
Allowance for possible loan losses
as a percent of total nonperforming loans 144.67% 185.20%
Nonperforming assets as a percent of total assets 1.37% 1.70%
</TABLE>
Liquidity
The Company's primary sources of liquidity, through its subsidiary, are
its borrowing capacity with the Federal Home Loan Bank of Boston, interest
bearing deposits with the Federal Home Loan Bank of Boston, securities held to
maturity, and securities available for sale, particularly short-term
investments. At September 30, 1995, short-term and long-term borrowings from
the Federal Home Loan Bank of Boston were $262,000, with an additional
available borrowing capacity of approximately $141,216,000; interest bearing
deposits with the Federal Home Loan Bank of Boston were $32,115,000,
securities held to maturity were $3,000,000 and securities available for sale
were $80,712,000. Included in securities held to maturity and securities
available for sale are debt securities with a carrying value of $77,693,000, all
of which have remaining maturities of less than five years and a weighted-
average maturity of approximately fourteen months. In addition to these
liquidity sources, the Company has significant cash flow from the amortization
of loans through its subsidiary bank.
Capital Resources
Under the Federal Reserve Board's guidelines, bank holding companies
such as the Company currently are required to maintain a minimum ratio of
qualifying total capital to total assets and off-balance sheet instruments, as
adjusted to reflect their relative credit risks, of 8.0 percent. At least
one-half of total capital must be comprised of common equity, retained
earnings, non-cumulative perpetual preferred stock, and a limited amount of
cumulative perpetual preferred stock, less goodwill ("Tier I capital").
The Federal Reserve Board also has established an additional capital
adequacy guideline referred to as the Tier I leverage capital ratio, which
measures the ratio of Tier I capital to total assets less goodwill. Although
the most highly-rated bank holding companies will be required to maintain a
minimum Tier I leverage capital ratio of 3.0 percent, most bank holding
companies will be required to maintain Tier I leverage capital ratios of 4.0
percent to 5.0 percent or more. The actual required ratio will be based on the
Federal Reserve Board's assessment of the individual bank holding company's
asset quality, earnings Management believes that the allowance for possible
loan losses is adequate. While management evaluates the allowance for possible
loan losses based upon available information, future additions to the
allowance may be necessary. Additionally, regulatory agencies review the
Company's allowance for possible loan losses as part of their examination
process. Such agencies may require the Company to recognize additions to the
allowance based on judgments which may be different from those of management.
Noninterest Income
Noninterest income for the three and nine months ended September 30,
percentage of assets are as follows:
<TABLE>
<CAPTION>
September 30, 1995
------------------------------------
Subsidiary
Company Bank
------------ ------------
<S> <C> <C>
Tier I leverage capital 7.64% 7.18%
Tier I capital to risk-weighted assets 14.75% 13.86%
Total capital to risk-weighted assets 15.83% 14.96%
</TABLE>
Accounting Pronouncements
Effective January 1, 1995, the Company prospectively adopted Statement
of Financial Accounting Standards ("SFAS") No. 114, entitled Accounting by
Creditors for Impairment of a Loan, as required by the Financial Accounting
Standards Board ("FASB"). Concurrent with the adoption of SFAS No. 114, the
Company also adopted SFAS No. 118, which amended certain of the revenue
recognition provisions of SFAS No. 114. The impact of adopting SFAS Nos. 114
and 118, had no material effect on the consolidated financial position of the
Company at September 30, 1995 or on its consolidated results of operations for
the three and nine months ended September 30, 1995.
In May 1995, the FASB promulgated SFAS No. 122, "Accounting for
Mortgage Servicing Rights." The Statement requires that the Company recognize
as separate assets rights to service mortgage loans for others, regardless of
how those servicing rights were acquired. An institution that acquires
mortgage servicing rights through either the purchase or origination of mortgage
loans and sells those loans with servicing rights retained would allocate some
of the cost of the loans to the mortgage servicing rights. The Statement also
requires that an enterprise allocate the cost of purchasing or originating the
mortgage loans between the mortgage servicing rights and the loans when mortgage
loans are securitized, if it is practicable to estimate the fair value of
mortgage servicing rights. Additionally, the Statement requires the capitalized
mortgage servicing rights and capitalized excess servicing receivables be
assessed for impairment. Impairment would be measured based on fair value.
The Statement is to be applied prospectively to fiscal years beginning
after December 15, 1995, to transactions in which an entity acquires mortgage
servicing rights and to impairment evaluations of all capitalized mortgage
servicing rights and capitalized excess servicing receivables whenever acquired.
Retroactive application would be prohibited. The Company's management does
not anticipate that the Statement will have a material effect on the Company's
consolidated financial position or consolidated results of operations.
<TABLE>
<CAPTION>
Granite State Bankshares, Inc. and Subsidiary
Consolidated Quarterly Average Balances and Interest Rates
(dollars in thousands)
1995 QTD 1994 QTD
---------------------------------------------- --------------
Third Quarter Second Quarter First Quarter Fourth Quarter
Avg bal Rate Avg bal Rate Avg bal Rate Avg bal Rate
-------- ----- -------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Loans, net $188,123 9.83% $190,713 9.79% $187,370 9.43% $187,882 8.88%
Securities and
interest-earning investments 114,100 5.81% 95,953 5.87% 94,023 6.05% 96,737 6.03%
-------- -------- -------- --------
Total interest-earning assets 302,223 8.31% 286,666 8.48% 281,393 8.30% 284,619 7.91%
Noninterest-earning assets 32,349 31,696 29,593 30,530
-------- -------- -------- --------
Total Assets $334,572 $318,362 $310,986 $315,149
======== ======== ======== ========
Liabilities & stockholders' equity:
Savings deposits $145,659 3.05% $139,481 2.90% $134,158 2.51% $146,515 2.36%
Time Deposits 105,489 5.63% 101,166 5.36% 84,671 4.60% 74,446 4.01%
Other borrowed funds 24,599 5.24% 21,569 5.56% 39,692 5.94% 36,911 5.66%
-------- -------- -------- --------
Total int-bearing liabilities 275,747 4.24% 262,216 4.07% 258,521 3.72% 257,872 3.31%
Noninterest-bearing deposits 28,083 26,996 25,467 28,876
Other liabilities 1,961 1,484 880 1,617
Stockholders' equity 28,781 27,666 26,118 26,784
-------- -------- -------- --------
Total liab & stockholders' equity $334,572 $318,362 $310,986 $315,149
======== ======== ======== ========
Interest rate spread 4.07% 4.41% 4.58% 4.60%
===== ===== ====== =====
Net average earning balance /
Net yield on interest-earning assets $ 26,476 4.45% $ 24,450 4.76% $ 22,872 4.88% $ 26,747 4.92%
======== ===== ======== ===== ======== ===== ======== =====
<CAPTION>
1994 QTD 1993 QTD
---------------------------------------------- --------------
Third Quarter Second quarter First quarter Fourth quarter
Avg bal Rate Avg bal Rate Avg bal Rate Avg bal Rate
-------- ----- -------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Loans, net $188,102 8.56% $184,933 8.17% $180,298 8.01% $182,245 8.11%
Securities and
interest-earning investments 98,840 5.23% 94,013 4.67% 88,876 4.09% 88,644 4.06%
-------- -------- -------- --------
Total interest-earning assets 286,942 7.41% 278,946 6.99% 269,174 6.72% 270,889 6.79%
Noninterest-earning assets 29,930 29,779 29,899 32,586
-------- -------- -------- --------
Total Assets $316,872 $308,725 $299,073 $303,475
======== ======== ======== ========
Liabilities & stockholders' equity:
Savings deposits $148,644 2.33% $150,750 2.24% $151,485 2.21% $153,020 2.35%
Time Deposits 75,100 3.86% 77,450 3.69% 80,965 3.70% 83,934 3.90%
Other borrowed funds 38,253 4.68% 26,222 4.33% 14,614 2.82% 11,775 2.92%
-------- -------- -------- --------
Total int-bearing liabilities 261,997 3.12% 254,422 2.90% 247,064 2.74% 248,729 2.90%
Noninterest-bearing deposits 27,326 26,901 24,957 28,643
Other liabilities 1,128 1,189 1,271 962
Stockholders' equity 26,421 26,213 25,781 25,141
-------- -------- -------- --------
Total liab & stockholders' equity $316,872 $308,725 $299,073 $303,475
======== ======== ======== ========
Interest rate spread 4.29% 4.09% 3.98% 3.89%
===== ===== ===== =====
Net average earning balance /
Net yield on interest-earning assets $ 24,945 4.57% $ 24,524 4.35% $ 22,110 4.21% $ 22,160 4.12%
======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
Granite State Bankshares, Inc. and Subsidiary
Part II - Other Information
September 30, 1995
Item 1. Legal Proceedings
The Company is a defendant in ordinary and routine pending legal actions
incident to its business, none of which is believed by management to be
material to the financial condition of the Company.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
1. Exhibits
3(i) Articles of Incorporation, incorporated by reference to
the Form 10-QSB for the quarter ended June 30, 1995.
3(ii) Bylaws, incorporated by reference to the Form 10-QSB
for the quarter ended June 30, 1995.
27 Financial Data Schedule
2. Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant, has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GRANITE STATE BANKSHARES, INC.
/s/ Charles W. Smith
_____________________________________
Dated : November 13, 1995 By: Charles W. Smith
Chairman and
Chief Executive Officer
/s/ William G. Pike
_____________________________________
Dated : November 13, 1995 By: William G. Pike
Executive Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Form 10-QSB and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1995
<CASH> 14,259
<INT-BEARING-DEPOSITS> 32,115
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 80,712<F1>
<INVESTMENTS-CARRYING> 3,000
<INVESTMENTS-MARKET> 2,999
<LOANS> 188,091<F2>
<ALLOWANCE> 3,556
<TOTAL-ASSETS> 337,149
<DEPOSITS> 284,297
<SHORT-TERM> 20,609<F3>
<LIABILITIES-OTHER> 2,708
<LONG-TERM> 262
<COMMON> 2,536
0
0
<OTHER-SE> 26,737
<TOTAL-LIABILITIES-AND-EQUITY> 337,149
<INTEREST-LOAN> 13,705
<INTEREST-INVEST> 3,960
<INTEREST-OTHER> 527
<INTEREST-TOTAL> 18,192
<INTEREST-DEPOSIT> 6,778
<INTEREST-EXPENSE> 7,989
<INTEREST-INCOME-NET> 10,203
<LOAN-LOSSES> 450
<SECURITIES-GAINS> 205
<EXPENSE-OTHER> 7,636
<INCOME-PRETAX> 4,000
<INCOME-PRE-EXTRAORDINARY> 2,565
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,565
<EPS-PRIMARY> 1.18
<EPS-DILUTED> 1.17
<YIELD-ACTUAL> 4.70
<LOANS-NON> 2,458
<LOANS-PAST> 500
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,230
<CHARGE-OFFS> 1,250
<RECOVERIES> 126
<ALLOWANCE-CLOSE> 3,556
<ALLOWANCE-DOMESTIC> 3,556
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>Available for sale securities, at market value
<F2>Loans net of unearned income and gross of allowance for possible loan losses
<F3>Securities sold under agreements to repurchase
</FN>
</TABLE>
