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 MARCH 31, 1996
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 May 10, 1996 was 2,004,442, $1.00 par value per share.
INDEX
GRANITE STATE BANKSHARES, INC. AND SUBSIDIARY
Part I Financial Information Page
Item 1. Financial Statements:
Consolidated Statements of Financial Condition
March 31, 1996 and December 31, 1995 3
Consolidated Statements of Earnings
Three months ended March 31, 1996 and 1995 4
Consolidated Statements of Stockholders' Equity
Three months ended March 31, 1996 and 1995 5
Consolidated Statements of Cash Flows
Three months ended March 31, 1996 and 1995 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Part II Other Information
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
<TABLE>
<CAPTION>
GRANITE STATE BANKSHARES, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, December 31,
($ in thousands, except par values) 1996 1995
---------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 15,803 $ 17,771
Interest bearing deposits - Federal Home Loan Bank of Boston 4,538 24,239
Securities held to maturity
(Market value $2,993 at March 31, 1996) 3,000
Securities available for sale, at market value 119,035 95,016
Stock in Federal Home Loan Bank of Boston 3,215 3,215
Loans 188,696 192,354
Less: Unearned income (2,423) (2,356)
Allowance for possible loan losses (3,727) (3,704)
---------- ----------
Net Loans 182,546 186,294
Premises and equipment 10,434 9,937
Other real estate owned 2,540 2,691
Other assets 7,047 7,251
---------- ----------
$ 348,158 $ 346,414
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits $ 263,573 $ 255,208
Noninterest-bearing deposits 29,631 31,922
---------- ----------
Total Deposits 293,204 287,130
Securities sold under agreements to repurchase 22,175 26,189
Long-term debt 720 728
Other liabilities 2,592 2,578
---------- ----------
Total Liabilities 318,691 316,625
Common stock, $1.00 par value; authorized 12,500,000 shares;
issued 2,543,033 and 2,535,833 shares, respectively 2,543 2,536
Additional paid-in capital 19,247 19,218
---------- ----------
21,790 21,754
Unrealized gain (loss) on securities available for sale,
net of related tax effects 1,005 1,630
Retained earnings 11,128 10,529
---------- ----------
33,923 33,913
Less: Treasury stock, at cost, 520,252 and 500,252
shares, respectively (4,456) (4,124)
---------- ----------
Total Stockholders' Equity 29,467 29,789
---------- ----------
$ 348,158 $ 346,414
========== ==========
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
March 31,
($ in thousands, except per share data) ------------------------
1996 1995
---------- ----------
(Unaudited)
<S> <C> <C>
Interest and dividend income:
Interest on loans $ 4,438 $ 4,415
Interest on securities held to maturity 2 210
Interest on securities available for sale 1,360 1,121
Dividends on Federal Home Loan Bank of Boston stock 50 57
Dividends on equity securities available for sale 112 32
Other interest 316 2
---------- ----------
6,278 5,837
Interest expense:
Savings deposits 1,145 841
Time deposits 1,489 973
Borrowed funds 284 589
---------- ----------
2,918 2,403
---------- ----------
Net interest income 3,360 3,434
Provision for possible loan losses 225 50
---------- ----------
Net interest income after provision for possible loan losses 3,135 3,384
Noninterest income:
Mortgage service fees 168 176
Net gains on sales of securities available for sale 189
Net gains on sales of loans 167 47
Other 327 301
---------- ----------
851 524
Noninterest expense:
Salaries and employee benefits 1,333 1,208
Occupancy, net 265 250
Equipment 246 206
Other real estate owned 36 86
Other 747 836
---------- ----------
2,627 2,586
---------- ----------
Earnings before income taxes 1,359 1,322
Applicable income taxes 478 479
---------- ----------
Net earnings $ 881 $ 843
========== ==========
Weighted average common shares outstanding:
Primary 2,139,516 2,181,424
Fully diluted 2,142,330 2,181,650
Net earnings per common share -primary $ 0.41 $ 0.39
Net earnings per common share -fully diluted $ 0.41 $ 0.39
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
March 31,
($ in thousands) --------------------------
1996 1995
---------- ----------
(Unaudited)
<S> <C> <C>
Balance, beginning of period $ 29,789 $ 25,641
Net earnings 881 843
Dividends declared on common stock,
$.14 per share in 1996 and $.12 per share in 1995 (282) (250)
Stock options exercised 36
Purchase of treasury stock (332) (92)
Decrease in unearned compensation -ESOP 21
Increase (decrease) in net unrealized gains on
securities available for sale, net of related tax effects (625) 984
---------- ----------
Net change in stockholders' equity (322) 1,506
---------- ----------
Balance, end of period $ 29,467 $ 27,147
========== ==========
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
March 31,
Increase (decrease) in cash (In Thousands) --------------------------
1996 1995
---------- ----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 881 $ 843
Adjustments to reconcile net earnings to net cash
provided by operating activities
Provision for possible loan losses 225 50
Provision for depreciation and amortization 302 300
Net accretion on securities (21) (57)
Realized gains on sales of securities available for sale (189)
Loans originated for sale (8,770) (3,022)
Proceeds from sales of loans originated for sale 9,562 3,396
Realized gains on sales of loans (167) (47)
Realization of unearned income (34) (224)
Provision for loss on other real estate owned 36 38
Realized gains on sales of other real estate owned (30) (25)
Deferred income taxes (benefits) (79) 25
Decrease in other assets 214 1,198
Increase (decrease) in other liabilities 376 (173)
Decrease in unearned compensation-ESOP 21
---------- ----------
Net cash provided by operating activities 2,306 2,323
Cash flows from investing activities:
Purchase of securities held to maturity (3,000)
Proceeds from sale of securities available for sale 3,836
Proceeds from maturities of securities available for sale 12,000
Purchase of securities available for sale (40,593) (2,988)
Loan (originations) repayments, net 2,103 (2,604)
Purchase of premises and equipment (698) (178)
Advances made on other real estate owned (20)
Advances on real estate held for investment (8) (3)
Proceeds from sales of other real estate owned 873 540
Net (increase) decrease in interest-bearing deposits with
Federal Home Loan Bank of Boston 19,701 (28)
---------- ----------
Net cash used in investing activities (5,786) (5,281)
Cash flows from financing activities:
Net increase in time certificates of deposit 911 18,938
Net increase (decrease) in demand, NOW, regular savings and
money market deposit accounts 5,163 (3,842)
Net decrease in securities sold under agreements to repurchase (4,014) (6,005)
Net decrease in short-term borrowings (4,486)
Payments of long-term borrowings (8) (1)
Repayment of liability relating to ESOP (21)
Proceeds from exercise of stock options 36
Purchase of treasury stock (332) (92)
Dividends paid on common stock (244) (252)
---------- ----------
Net cash provided by financing activities 1,512 4,239
---------- ----------
Net increase (decrease) in cash and due from banks (1,968) 1,281
Cash and due from banks at beginning of period 17,771 9,255
---------- ----------
Cash and due from banks at end of period $ 15,803 $ 10,536
========== ==========
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 Unaudited Consolidated Financial Statements
March 31, 1996
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 months ended March 31, 1996 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, 1995.
Certain information in the 1995 financial statements has been
reclassified to conform with the 1996 presentation.
NOTE 2. SECURITIES
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 related tax effects.
The amortized cost, estimated market value and carrying value of
securities at March 31, 1996 and December 31, 1995 were as follows:
<TABLE>
<CAPTION>
Amortized Estimated Carrying
AT MARCH 31, 1996 Cost Market Value Value
--------- --------- ---------
(In Thousands)
<S> <C> <C> <C>
SECURITIES HELD TO MATURITY
US Government agency obligations $ 3,000 $ 2,993 $ 3,000
--------- --------- ---------
Total securities held to maturity $ 3,000 $ 2,993 $ 3,000
========= ========= =========
SECURITIES AVAILABLE FOR SALE
US Treasury obligations $ 65,802 $ 66,014 $ 66,014
US Government agency obligations 41,748 41,242 41,242
Other corporate obligations 3,497 3,474 3,474
Mutual Fund 3,076 3,076 3,076
Marketable equity securities 3,389 5,229 5,229
--------- --------- ---------
Total securities available for sale $ 117,512 $ 119,035 $ 119,035
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Amortized Estimated Carrying
AT DECEMBER 31, 1995 Cost Market Value Value
--------- --------- ---------
(In Thousands)
<S> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
US Treasury obligations $ 59,016 $ 59,452 $ 59,452
US Government agency obligations 17,000 17,007 17,007
Other corporate obligations 9,495 9,444 9,444
Mutual Fund 3,000 3,009 3,009
Marketable equity securities 4,036 6,104 6,104
--------- --------- ---------
Total securities available for sale $ 92,547 $ 95,016 $ 95,016
========= ========= =========
</TABLE>
At March 31, 1996, US Treasury obligations with carrying and market
values of $37,646,000 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
March 31
----------------------
1996 1995
------ ------
(In Thousands)
<S> <C> <C>
Balance, beginning of period $ 3,704 $ 4,230
Provision for possible loan losses 225 50
Loans charged off (493) (300)
Recoveries of loans previously charged off 291 62
--------- ---------
Balance, end of period $ 3,727 $ 4,042
========= =========
</TABLE>
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan,"
as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures," on January 1, 1995. This
standard requires that a creditor measure impairment based on the present
value of expected future cash flows discounted at the loan's effective
interest rate, except that as a practical expedient, a creditor may measure
impairment based on a loan's observable market price, or the fair value of
the collateral if the loan is collateral dependent. Regardless of the
measurement method, a creditor must measure impairment based on the fair
value of the collateral when the creditor determines that foreclosure is
probable. The adoption of SFAS No. 114, as amended by SFAS No. 118, on
January 1, 1995 did not have a material impact on the Company's
consolidated financial position or consolidated results of operations.
The following presents information on impaired loans at or for the
three months ended March 31, 1996:
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
Recorded investment in impaired loans at March 31, 1996 $ 1,096
========
Average year-to-date recorded investment in impaired loans $ 791
========
Impaired loans with specific loss allowances at March 31, 1996 $ 1,096
========
Loss allowances reserved on impaired loans at March 31, 1996 $ 228
========
Income recognized on impaired loans during
the first three months of 1996 $ 4
========
</TABLE>
The Company's policy for interest income recognition on impaired loans
is to recognize income on impaired loans on the cash basis when the loans
are both current and the collateral on the loan is sufficient to cover the
outstanding obligation to the Company; if these factors do not exist, the
Company will not recognize income.
NOTE 4. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Three months ended
March 31
----------------------
1996 1995
------ ------
(In Thousands)
<S> <C> <C>
Cash paid for interest $ 2,942 $ 2,352
Income taxes paid 0 0
Non-cash investing activities:
Real estate acquired in settlement of loans 728 351
</TABLE>
NOTE 5. ACCOUNTING CHANGES
In May 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 122, "Accounting
for Mortgage Servicing Rights" ("SFAS No. 122"). SFAS No. 122 is
effective for years beginning after December 15, 1995 and requires that
mortgage banking enterprises recognize as separate assets the right to
service mortgage loans regardless of whether such rights are obtained
through the direct purchase of servicing rights or from the origination of
mortgage loans intended to be sold with servicing retained. SFAS No. 122
also requires assessments of capitalized servicing rights for impairment
based on the fair value of those rights. As required, the Company
prospectively adopted SFAS No. 122 effective January 1, 1996. The impact
of adopting this statement was to increase gains on sales of loans by
$81,000 as a result of capitalizing servicing rights in connection with
loans originated for sale. This resulted in an increase to net earnings
for the three months ended March 31, 1996 of $53,000, or $.02 per common
share.
GRANITE STATE BANKSHARES, INC. AND SUBSIDIARY
Part I - Financial Information
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
March 31, 1996
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 interest 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 $1,744,000 or 0.50%, from $346,414,000 at
December 31, 1995 to $348,158,000 at March 31, 1996.
Interest bearing deposits with the Federal Home Loan Bank of Boston
decreased $19,701,000, from $24,239,000 at December 31, 1995 to $4,538,000
at March 31, 1996. Proceeds from the decrease were primarily invested in
higher yielding 2 to 3 year fixed income securities available for sale, and
securities held to maturity.
Securities held to maturity increased $3,000,000, from $0 at December
31, 1995 to $3,000,000 at March 31, 1996, as proceeds from decreases in
interest bearing deposits with the Federal Home Loan Bank of Boston were
invested in higher yielding instruments.
Securities available for sale increased $24,019,000, from $95,016,000
at December 31, 1995 to $119,035,000 at March 31, 1996. The increase
relates primarily to proceeds from decreases in interest bearing deposits
with the Federal Home Loan Bank of Boston, which were invested in higher
yielding instruments, as well as proceeds from decreases in loans and
proceeds from a portion of the increase in deposit liabilities.
Net loans were $182,546,000 at March 31, 1996, a decrease of
$3,748,000 from $186,294,000 at December 31, 1995. The decrease reflects
continued weak loan demand in the commercial and commercial real estate
sectors of the market, as well as residential real estate borrowers
continuing to refinance their adjustable rate loans to fixed rate loans,
which the Company sells in the secondary mortgage market.
Total deposits increased $6,074,000, from $287,130,000 at December 31,
1995 to $293,204,000 at March 31, 1996. A portion of the increase in
deposits was used to fund the decrease in securities sold under agreements
to repurchase, with the remainder invested in securities available for
sale.
Securities sold under agreements to repurchase decreased $4,014,000,
from $26,189,000 at December 31, 1995 to $22,175,000 at March 31, 1996.
The decrease was funded by an increase in deposits.
Stockholders' equity decreased by $322,000 during the first three
months of 1996, from $29,789,000 at December 31, 1995, to $29,467,000 at
March 31, 1996. The decrease was due to $282,000 of common stock dividends
declared, $332,000 in repurchases of treasury stock, and a $625,000
decrease in unrealized gains on securities available for sale, net of
related tax effects, partially offset by $881,000 of net earnings and
$36,000 relating to the issuance of common stock upon the exercise of
common stock options.
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 March 31, 1996, the Company has
repurchased 144,600 shares under the Plan, representing 6.69% of common
shares outstanding at the date of announcement of the Plan.
RESULTS OF OPERATIONS
Net Earnings
Net earnings for the three months ended March 31, 1996 were $881,000,
compared to $843,000 for the three months ended March 31, 1995. Net
earnings for the three months ended March 31, 1996, increased 4.51% over
net earnings for the three months ended March 31, 1995. Earnings per
common share for the three months ended March 31, 1996 were $0.41, compared
to $0.39 for the three months ended March 31, 1995. The increase in
earnings was primarily due to an increase in noninterest income of
$327,000, partially offset by a decrease in net interest income of $74,000
and increases in the provision for possible loan losses of $175,000 and
noninterest expense of $41,000.
Contributing to the increase in noninterest income was the Company's
prospective adoption of SFAS No. 122, Accounting for Mortgage Servicing
Rights on January 1, 1996, as required by the FASB. The adoption of SFAS
No. 122 resulted in an increase in gains on sales of loans of $81,000
during the first quarter of 1996.
Interest and Dividend Income
Interest and dividend income for three months ended March 31, 1996 was
$6,278,000, compared to $5,837,000 for the corresponding period in 1995.
Average interest earning assets for the three months ended March 31, 1996
were $310,460,000 and for the three months ended March 31, 1995 were
$281,393,000. The yield on interest earning assets was 8.13% for the three
months ended March 31, 1996, compared to 8.30% for the same period in 1995.
The increase in interest and dividend income for the three months
ended March 31, 1996 compared to the three months ended March 31, 1995 is
primarily attributable to an increase in average interest earning assets
for 1996 compared to 1995, partially offset by lower yields on interest
earning assets. The lower yields in 1996 compared to 1995, are primarily
the result of a larger percentage of interest earning assets being comprised
of lower yielding securities and interest earning investments rather than
higher yielding loans during the first quarter of 1996, compared to the
first quarter of 1995.
Interest Expense
Interest expense for the three months ended March 31, 1996 was
$2,918,000, compared to $2,403,000 for the corresponding period in 1995.
Average interest bearing liabilities for the three months ended March 31,
1996 were $283,761,000 and for the three months ended March 31, 1995 were
$258,521,000. The rates paid on interest bearing liabilities were 4.14%
for the three months ended March 31, 1996, compared to 3.72% for the same
period in 1995.
The increase in interest expense for the three months ended March 31,
1996 compared to the same period in 1995 is primarily due to an increase in
the average balance of interest bearing liabilities coupled with an
increase in the interest rates paid on these liabilities.
Net Interest Income
Net interest income decreased by $74,000 for the three months ended
March 31, 1996 compared to the same period in 1995. The slight decrease
for the three months ended March 31, 1996 compared to the same period in
1995 relates to reductions in the interest rate spread and the net yield on
interest earning assets, as the rates paid for interest bearing liabilities
increased and the yields realized on interest earning assets decreased in
the first quarter of 1996 compared to the same period in 1995, partially
offset by a larger increase in interest earning assets than interest
bearing liabilities. The Company's interest rate spread was 3.99%, for the
three months ended March 31, 1996, compared to 4.58% for the three months
ended March 31, 1995. The net yield on interest earning assets for the
three months ended March 31, 1996 was 4.33%, compared to 4.88% for the
three months ended March 31, 1995.
Provision for Possible Loan Losses
The provision for possible loan losses for the three months ended
March 31, 1996 was $225,000, compared to $50,000 for the three months ended
March 31, 1995. The increase in the provision for the three months ended
March 31, 1996, compared to the same period in 1995, related primarily to
management's overall evaluation of the adequacy of the level of the
allowance, in relation to nonperforming loans and total loans.
Nonperforming loans totaled $2,218,000 at March 31, 1996, an increase
of $420,000 from $1,798,000 at December 31, 1995. The increase in
nonperforming loans was primarily attributable to an increase in
nonperforming commercial real estate loans. The level of net charge-offs
for the three months ended March 31, 1996 was $202,000, compared to
$238,000, for the corresponding period 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 months ended March 31, 1996 totaled
$851,000, compared to $524,000 for the same period in 1995. The
significant changes in the components of noninterest income for the three
months ended March 31, 1996 compared to the same period in 1995 were
primarily net gains on sales of securities available for sale of $189,000
for the three months ended March 31, 1996, compared to $0 for the three
months ended March 31, 1995, and net gains on sales of loans of $167,000
for the three months ended March 31, 1996, compared to $47,000 for the
three months ended March 31, 1995. The $120,000 increase in net gains on
sales of loans in the first quarter of 1996 compared to the same period in
1995, relates primarily to the adoption of SFAS No. 122, Accounting for
Mortgage Servicing Rights, which increased the net gains on sales of loans
by $81,000, as well as the increased volume in the sale of loans into the
secondary mortgage market, as a result of residential real estate borrowers
refinancing their adjustable rate loans into fixed rate loans to take
advantage of the low interest rate environment. The Company sells its
fixed rate residential real estate loans in the secondary mortgage market
and holds the adjustable rate loans in its portfolio.
Noninterest Expense
Noninterest expense for the three months ended March 31, 1996 totaled
$2,627,000, compared to $2,586,000 for the same period a year earlier. The
increase for the three months ended March 31, 1996, compared to 1995
relates primarily to an increase of $125,000 associated with salaries and
benefit expenses, and an increase of $55,000 in occupancy and equipment
expenses, partially offset by a decrease of $50,000 in costs associated
with the holding and disposition of other real estate owned and decreased
costs of $118,000 associated with Federal Deposit Insurance Corporation
("FDIC") insurance premiums. The increase in salaries and benefits
expense relates to normal salary adjustments, an increase in full time
equivalent employees to 135 from 133, higher salary costs associated with
loan origination and higher medical costs. The increase in occupancy and
equipment expense relates primarily to higher depreciation and maintenance
of equipment costs, as a result of the Company upgrading its data
processing systems during the third quarter of 1995. The decrease in costs
associated with the holding and disposition of other real estate owned
result primarily from the lower levels of other real estate owned in the
Company's portfolio in the first quarter of 1996, compared to the same
period in 1995. The decrease in FDIC insurance premiums to $20,000 for the
three months ended March 31, 1996, compared to $138,000 for the three
months ended March 31, 1995, relates to lower deposit insurance premiums
charged by the FDIC, since the Bank Insurance Fund surpassed its
congressionally mandated reserve ratio of 1.25 percent of insured deposits
in May of 1995. It is estimated that the lower rate of insurance premiums
will result in a reduction in insurance premiums of approximately $190,000
for the entire year of 1996 as compared to 1995.
Income Taxes
Income taxes for the three months ended March 31, 1996 were $478,000,
compared with $479,000 for the same period in 1995.
Risk Elements
Total nonperforming loans increased from $1,798,000 or .93% of total
loans, at December 31, 1995, to $2,218,000 or 1.18% of total loans, at
March 31, 1996. The increase was primarily attributable to an increase in
nonperforming commercial real estate loans. During the same period, other
real estate owned, declined from $2,691,000 to $2,540,000. The allowance
for possible loan losses as a percent of total nonperforming loans was
168.03% at March 31, 1996, compared with 206.01% at December 31, 1995.
As shown in the following table, nonperforming assets as a percentage
of total assets were 1.37% and 1.30%, as of March 31, 1996 and December 31,
1995, respectively.
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
($ in Thousands)
<S> <C> <C>
Loans 90 days or more past due
and still accruing $ 525 $ 0
========= =========
Nonaccrual/nonperforming loans $ 2,218 $ 1,798
Other real estate owned 2,540 2,691
--------- ---------
Total nonperforming assets $ 4,758 $ 4,489
========= =========
Allowance for possible loan losses $ 3,727 $ 3,704
Nonperforming loans as a percent of total loans 1.18% 0.93%
Allowance for possible loan losses
as a percent of total nonperforming loans 168.03% 206.01%
Nonperforming assets as a percent of total assets 1.37% 1.30%
</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 and
securities available for sale, particularly short-term investments. At
March 31, 1996, short-term and long-term borrowings from the Federal Home
Loan Bank of Boston were $720,000, with an additional available borrowing
capacity of approximately $159,000,000; interest bearing deposits with the
Federal Home Loan Bank of Boston were $4,538,000 and securities available
for sale were $119,035,000. Included in securities held to maturity and
securities available for sale are debt securities with a carrying value of
$113,730,000, all of which have remaining maturities of less than five
years and a weighted-average maturity of approximately twenty one 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 performance, interest rate
risk, and liquidity. The Company was in compliance with all regulatory
capital requirements at March 31, 1996 and December 31, 1995.
Substantially similar rules have been issued by the FDIC with respect
to state-chartered banks which are not members of the Federal Reserve
System such as the subsidiary bank. At March 31, 1996 and December 31,
1995, the subsidiary bank was in compliance with all regulatory capital
requirements. Additionally, at March 31, 1996, the subsidiary bank was
considered "well capitalized" for purposes of the FDIC's prompt
corrective action regulations.
At March 31, 1996 the Company's and the subsidiary bank's regulatory
capital ratios as a percentage of assets are as follows:
<TABLE>
<CAPTION>
March 31, 1996
------------------
Subsidiary
Company Bank
------- -------
<S> <C> <C>
Tier I leverage capital 7.58% 7.20%
Tier I capital to risk-weighted asset 15.31% 14.55%
Total capital to risk-weighted assets 16.39% 15.63%
</TALBE>
</TABLE>
<TABLE>
<CAPTION>
GRANITE STATE BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED QUARTERLY AVERAGE BALANCES AND INTEREST RATES
(dollars in thousands)
1996 QTD 1995 QTD
---------------- ----------------------------------------------------
First Quarter Fourth Quarter Third Quarter Second 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 $ 184,293 9.69% $ 185,279 9.98% $ 188,123 9.83% $ 190,713 9.79%
Securities and
interest earning investments 126,167 5.87% 124,825 5.67% 114,100 5.81% 95,953 5.87%
--------- --------- --------- ---------
Total interest earning assets 310,460 8.13% 310,104 8.24% 302,223 8.31% 286,666 8.48%
Noninterest earning assets 34,481 33,967 32,349 31,696
--------- --------- --------- ---------
Total Assets $ 344,941 $ 344,071 $ 334,572 $ 318,362
========= ========= ========= =========
Liabilities and stockholders' equity:
Savings deposits $ 153,937 2.99% $ 151,261 3.13% $ 145,659 3.05% $ 139,481 2.90%
Time Deposits 105,626 5.67% 105,370 5.75% 105,489 5.63% 101,166 5.36%
Other borrowed funds 24,198 4.72% 23,425 4.85% 24,599 5.24% 21,569 5.56%
--------- --------- --------- ---------
Total int. bearing liabilities 283,761 4.14% 280,056 4.26% 275,747 4.24% 262,216 4.07%
Noninterest bearing deposits 27,953 30,139 28,083 26,996
Other liabilities 2,240 4,113 1,961 1,484
Stockholders' equity 30,987 29,763 28,781 27,666
--------- --------- --------- ---------
Total liab. and stockholders' equity $ 344,941 $ 344,071 $ 334,572 $ 318,362
========= ========= ========= =========
Interest rate spread 3.99% 3.98% 4.07% 4.41%
===== ===== ===== =====
Net average earning balance /
Net yield on interest earning assets $ 26,699 4.33% $ 30,048 4.39% $ 26,476 4.45% $ 24,450 4.76%
========= ===== ========= ===== ========= ===== ========= =====
<CAPTION>
1995 QTD 1994 QTD
---------------- -----------------------------------------------------
First Quarter Fourth Quarter Third Quarter Second 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 $ 187,370 9.43% $ 187,882 8.88% $ 188,102 8.56% $ 184,933 8.17%
Securities and
interest earning investments 94,023 6.05% 96,737 6.03% 98,840 5.23% 94,013 4.67%
--------- --------- --------- ---------
Total interest earning assets 281,393 8.30% 284,619 7.91% 286,942 7.41% 278,946 6.99%
Noninterest earning assets 29,593 30,530 29,930 29,779
--------- --------- --------- ---------
Total Assets $ 310,986 $ 315,149 $ 316,872 $ 308,725
========= ========= ========= =========
Liabilities and stockholders' equity:
Savings deposits $ 134,158 2.51% $ 146,515 2.36% $ 148,644 2.33% $ 150,750 2.24%
Time Deposits 84,671 4.60% 74,446 4.01% 75,100 3.86% 77,450 3.69%
Other borrowed funds 39,692 5.94% 36,911 5.66% 38,253 4.68% 26,222 4.33%
--------- --------- --------- ---------
Total int. bearing liabilities 258,521 3.72% 257,872 3.31% 261,997 3.12% 254,422 2.90%
Noninterest bearing deposits 25,467 28,876 27,326 26,901
Other liabilities 880 1,617 1,128 1,189
Stockholders' equity 26,118 26,784 26,421 26,213
--------- --------- --------- ---------
Total liab. and stockholders' equity $ 310,986 $ 315,149 $ 316,872 $ 308,725
========= ========= ========= =========
Interest rate spread 4.58% 4.60% 4.29% 4.09%
===== ===== ===== =====
Net average earning balance /
Net yield on interest earning assets $ 22,872 4.88% $ 26,747 4.92% $ 24,945 4.57% $ 24,524 4.35%
========= ===== ========= ===== ========= ===== ========= =====
</TABLE>
GRANITE STATE BANKSHARES, INC. AND SUBSIDIARY
Part II - Other Information
March 31, 1996
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
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 : May 13, 1996 By: Charles W. Smith
Chairman and
Chief Executive Officer
/s/ William G. Pike
-------------------------
Dated : May 13, 1996 By: William G. Pike
Executive Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This scedule 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 15,803
<INT-BEARING-DEPOSITS> 4,538
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 119,035<F1>
<INVESTMENTS-CARRYING> 3,000
<INVESTMENTS-MARKET> 2,993
<LOANS> 186,273<F2>
<ALLOWANCE> 3,727
<TOTAL-ASSETS> 348,158
<DEPOSITS> 293,204
<SHORT-TERM> 22,175<F3>
<LIABILITIES-OTHER> 2,592
<LONG-TERM> 720
0
0
<COMMON> 2,543
<OTHER-SE> 26,924
<TOTAL-LIABILITIES-AND-EQUITY> 348,158
<INTEREST-LOAN> 4,438
<INTEREST-INVEST> 1,524
<INTEREST-OTHER> 316
<INTEREST-TOTAL> 6,278
<INTEREST-DEPOSIT> 2,634
<INTEREST-EXPENSE> 2,918
<INTEREST-INCOME-NET> 3,360
<LOAN-LOSSES> 225
<SECURITIES-GAINS> 189
<EXPENSE-OTHER> 2,627
<INCOME-PRETAX> 1,359
<INCOME-PRE-EXTRAORDINARY> 881
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 881
<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.41
<YIELD-ACTUAL> 4.33
<LOANS-NON> 2,218
<LOANS-PAST> 525
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,704
<CHARGE-OFFS> 493
<RECOVERIES> 291
<ALLOWANCE-CLOSE> 3,727
<ALLOWANCE-DOMESTIC> 3,727
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>Securities available for sale, 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>
