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, 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 November 5, 1996 was 1,962,942, $1.00 par value per share.
INDEX
GRANITE STATE BANKSHARES, INC. AND SUBSIDIARY
Part I Financial Information Page
Item 1. Financial Statements:
Consolidated Statements of Financial Condition
September 30, 1996 and December 31, 1995 3
Consolidated Statements of Earnings
Three and nine months ended September 30, 1996 and 1995 4
Consolidated Statements of Stockholders' Equity
Three and nine months ended September 30, 1996 and 1995 5
Consolidated Statements of Cash Flows
Three and nine months ended September 30, 1996 and 1995 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Part II Other Information
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
<TABLE>
<CAPTION>
GRANITE STATE BANKSHARES, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, December 31,
($ in thousands, except par values) 1996 1995
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 16,933 $ 17,771
Interest bearing deposits - Federal Home Loan Bank of Boston 20,448 24,239
Securities held to maturity
(Market value $7,985 at September 30, 1996) 8,000
Securities available for sale, at market value 93,356 95,016
Stock in Federal Home Loan Bank of Boston 3,215 3,215
Loans 200,748 192,354
Less: Unearned income (2,244) (2,356)
Allowance for possible loan losses (3,842) (3,704)
--------- ---------
Net Loans 194,662 186,294
Premises and equipment 10,873 9,937
Other real estate owned 1,651 2,691
Other assets 8,008 7,251
--------- ---------
$ 357,146 $ 346,414
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits $ 267,075 $ 255,208
Noninterest-bearing deposits 32,713 31,922
--------- ---------
Total Deposits 299,788 287,130
Securities sold under agreements to repurchase 23,744 26,189
Long-term debt 700 728
Other liabilities 2,687 2,578
--------- ---------
Total Liabilities 326,919 316,625
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 1,274 1,630
Retained earnings 12,495 10,529
--------- ---------
35,559 33,913
Less: Treasury stock, at cost, 568,091 and 500,252
shares, respectively (5,332) (4,124)
--------- ---------
Total Stockholders' Equity 30,227 29,789
--------- ---------
$ 357,146 $ 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 Nine Months Ended
September 30, September 30,
--------------------- ---------------------
($ in thousands, except per share data) 1996 1995 1996 1995
--------- --------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Interest and dividend income:
Interest on loans $ 4,558 $ 4,622 $ 13,361 $ 13,705
Interest on securities held to maturity 129 124 255 533
Interest on securities available for sale 1,430 1,103 4,353 3,322
Dividends on Federal Home Loan Bank of Boston stock 53 54 155 168
Dividends on equity securities available for sale 106 43 306 105
Other interest 133 334 500 359
--------- --------- --------- ---------
6,409 6,280 18,930 18,192
Interest expense:
Savings deposits 1,185 1,112 3,464 2,965
Time deposits 1,485 1,485 4,398 3,813
Borrowed funds 335 322 888 1,211
--------- --------- --------- ---------
3,005 2,919 8,750 7,989
--------- --------- --------- ---------
Net interest income 3,404 3,361 10,180 10,203
Provision for possible loan losses 150 225 600 450
--------- --------- --------- ---------
Net interest income after provision for possible loan losses 3,254 3,136 9,580 9,753
Noninterest income:
Mortgage service fees 173 194 511 545
Net gains on sales of securities available for sale 186 475 205
Net gains on sales of loans 124 112 451 248
Other 373 310 1,077 885
--------- --------- --------- ---------
856 616 2,514 1,883
Noninterest expense:
Salaries and employee benefits 1,316 1,228 3,935 3,696
Occupancy, net 253 211 737 685
Equipment 252 168 739 563
Other real estate owned 47 26 232 237
Other 763 797 2,176 2,455
--------- --------- --------- ---------
2,631 2,430 7,819 7,636
--------- --------- --------- ---------
Earnings before income taxes 1,479 1,322 4,275 4,000
Applicable income taxes 504 458 1,470 1,435
--------- --------- --------- ---------
Net earnings $ 975 $ 864 $ 2,805 $ 2,565
========= ========= ========= =========
Weighted average common shares outstanding:
Primary 2,097,172 2,175,781 2,121,174 2,178,789
Fully diluted 2,098,039 2,181,547 2,123,556 2,191,059
Net earnings per common share -primary $ 0.46 $ 0.40 $ 1.32 $ 1.18
Net earnings per common share -fully diluted $ 0.46 $ 0.40 $ 1.32 $ 1.17
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) 1996 1995 1996 1995
--------- --------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Balance, beginning of period $ 29,489 $ 28,320 $ 29,789 $ 25,641
Net earnings 975 864 2,805 2,565
Dividends declared on common stock,
$.14 per share and $.42 per share, respectively,
for the three and nine months ended September 30, 1996
and $.12 per share and $.36 per share, respectively,
for the three and nine months ended September 30, 1995 (276) (248) (839) (745)
Stock options exercised 36
Purchase of treasury stock (451) (107) (1,208) (330)
Decrease in unearned compensation -ESOP 21 64
Increase (decrease) in net unrealized gains on
securities available for sale, net of related tax effects 490 423 (356) 2,078
--------- --------- --------- ---------
Net change in stockholders' equity 738 953 438 3,632
--------- --------- --------- ---------
Balance, end of period $ 30,227 $ 29,273 $ 30,227 $ 29,273
========= ========= ========= =========
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) 1996 1995 1996 1995
--------- --------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 975 $ 864 $ 2,805 $ 2,565
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities
Provision for possible loan losses 150 225 600 450
Provision for depreciation and amortization 329 288 935 876
Net accretion on securities (13) (18) (48) (107)
Realized gains on sales of securities available for sale (186) (475) (205)
Loans originated for sale (7,997) (5,880) (24,249) (20,664)
Proceeds from sales of loans originated for sale 6,860 6,723 24,569 21,019
Realized gains on sales of loans (124) (112) (451) (248)
Realization of unearned income (47) (74) (112) (446)
Provision for loss on other real estate owned 15 101 203
Realized gains on sales of other real estate owned (53) (20) (80) (159)
Deferred income taxes 203 14 67 142
(Increase) decrease in other assets (541) 680 (815) 1,009
Increase (decrease) in other liabilities 51 332 195 (106)
Decrease in unearned compensation-ESOP 21 64
--------- --------- --------- ---------
Net cash provided by (used in) operating activities (378) 3,043 3,042 4,393
Cash flows from investing activities:
Purchase of securities held to maturity (8,000)
Proceeds from maturities of securities held to maturity 12,500 12,500
Proceeds from sale of securities available for sale 510 17,526 656
Proceeds from maturities of securities available for sale 19,000 3,000 31,000 5,998
Purchase of securities available for sale (1,386) (7,318) (46,884) (10,875)
Loan (originations) repayments, net (4,389) 4,548 (9,655) 1,674
Purchase of premises and equipment (249) (224) (1,557) (665)
Advances made on other real estate owned (22)
Proceeds from sales of other real estate owned 508 663 1,949 2,582
Net (increase) decrease in interest-bearing deposits with
Federal Home Loan Bank of Boston (20,447) (25,737) 3,791 (32,089)
Other cash used in investing activities (67) (256) (6)
--------- --------- --------- ---------
Net cash used in investing activities (6,520) (12,568) (12,086) (20,247)
Cash flows from financing activities:
Net increase in time certificates of deposit 3,989 1,878 3,779 30,630
Net increase in demand, NOW, regular savings and
money market deposit accounts 2,378 7,711 8,879 13,638
Net increase (decrease) in securities sold
under agreements to repurchase 2,355 491 (2,445) (1,359)
Net decrease in short-term borrowings (4,704) (20,904)
Payments of long-term borrowings (10) (28) (2)
Repayment of liability relating to ESOP (21) (64)
Proceeds from exercise of stock options 36
Purchase of treasury stock (451) (107) (1,208) (330)
Dividends paid on common stock (280) (249) (807) (751)
--------- --------- --------- ---------
Net cash provided by financing activities 3,277 9,703 8,206 20,858
--------- --------- --------- ---------
Net increase (decrease) in cash and due from banks (3,621) 178 (838) 5,004
Cash and due from banks at beginning of period 20,554 14,081 17,771 9,255
--------- --------- --------- ---------
Cash and due from banks at end of period $ 16,933 $ 14,259 $ 16,933 $ 14,259
========= ========= ========= =========
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
September 30, 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 and nine months ended
September 30, 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 September 30, 1996 and December 31, 1995 were as follows:
<TABLE>
<CAPTION>
Amortized Estimated Carrying
AT SEPTEMBER 30, 1996 Cost Market Value Value
------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C>
SECURITIES HELD TO MATURITY
US Government agency obligations $ 8,000 $ 7,985 $ 8,000
--------- --------- ---------
Total securities held to maturity $ 8,000 $ 7,985 $ 8,000
========= ========= =========
SECURITIES AVAILABLE FOR SALE
US Treasury obligations $ 33,836 $ 33,828 $ 33,828
US Government agency obligations 44,748 44,220 44,220
Other corporate obligations 3,498 3,482 3,482
Mutual Fund 3,168 3,165 3,165
Marketable equity securities 6,177 8,661 8,661
--------- --------- ---------
Total securities available for sale $ 91,427 $ 93,356 $ 93,356
========= ========= =========
</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 September 30, 1996, US Treasury obligations with carrying and
market values of $32,319,000 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,
------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C>
Balance, beginning of period $ 3,701 $ 3,725 $ 3,704 $ 4,230
Provision for possible loan losses 150 225 600 450
Loans charged off (117) (415) (940) (1,250)
Recoveries of loans previously charged off 108 21 478 126
-------- -------- -------- --------
Balance, end of period $ 3,842 $ 3,556 $ 3,842 $ 3,556
======== ======== ======== ========
</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 September
30, 1996 or for the three and nine months ended September 30, 1996:
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
Recorded investment in impaired loans at September 30, 1996 $ 917
=========
Average year-to-date recorded investment in impaired loans $ 569
=========
Impaired loans with specific loss allowances at September 30, 1996 $ 917
=========
Loss allowances reserved on impaired loans at September 30, 1996 $ 323
=========
Income recognized on impaired loans during
the three months ended September 30, 1996 0
=========
Income recognized on impaired loans during
the nine months ended September 30, 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 Nine months ended
September 30, September 30,
------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C>
Cash paid for interest $ 3,191 $ 2,898 $ 8,764 $ 7,864
Income taxes paid 200 375 1,300 1,375
Non-cash investing activities:
Real estate acquired in settlement of loans 148 892 930 1,771
</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 $60,000 and $218,000, respectively, for the three and nine
months ended September 30, 1996, 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 and nine months ended September
30, 1996 of $40,000 and $144,000, respectively, or $.02 and $.07,
respectively, per common share.
NOTE 6. OTHER NONINTEREST EXPENSE
Included in other noninterest expense for the three and nine months
ended September 30, 1996 is $187,000 relating to a special one-time
deposit insurance assessment by the Federal Deposit Insurance Corporation
("FDIC") on the Company's Savings Association Insurance Fund ("SAIF")
assessable Oakar deposits, as a result of legislation signed by the
President on September 30, 1996 to recapitalize the SAIF.
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, 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, noninterest expense and income taxes.
FINANCIAL CONDITION
Total assets increased by $10,732,000 or 3.10%, from $346,414,000 at
December 31, 1995 to $357,146,000 at September 30, 1996. The increase in
total assets related primarily to net loans, which increased $8,368,000,
with most of the remaining changes made up of changes in other interest
earning assets, with securities held to maturity increasing $8,000,000,
securities available for sale decreasing $1,660,000 and interest bearing
deposits with the Federal Home Loan Bank of Boston decreasing $3,791,000.
The increase in net loans of $8,368,000, from $186,294,000 at
December 31, 1995 to $194,662,000 at September 30, 1996, reflects
strengthening loan demand in the commercial real estate sector of the
market during the second quarter of 1996, as well as an increase in the
demand for adjustable rate residential real estate loans in the second
and third quarters of 1996. Adjustable rate residential real estate
loans are held by the Company in its loan portfolio.
The increase in assets was primarily funded by proceeds from an
increase in deposits of $12,658,000 from $287,130,000 at December 31,
1995 to $299,788,000 at September 30, 1996, less a decrease in securities
sold under agreements to repurchase of $2,445,000 from $26,189,000 at
December 31, 1995 to $23,744,000 at September 30, 1996. The deposit
increase was comprised of an increase in interest bearing deposits of
$11,867,000 and an increase in noninterest bearing deposits of $791,000.
Stockholders' equity increased by $438,000 during the first nine
months of 1996, from $29,789,000 at December 31, 1995, to $30,227,000 at
September 30, 1996. The increase was due to $2,805,000 of net earnings
and $36,000 relating to the issuance of common stock upon the exercise of
common stock options, partially offset by $839,000 of common stock
dividends declared, $1,208,000 in repurchases of treasury stock, and a
$356,000 decrease in unrealized gains on securities available for sale,
net of related tax effects.
Stock Repurchase Program
On June 14, 1994, the Company announced a Stock Repurchase Program
("Program"), 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 Program may be held in treasury,
retired or used for general corporate purposes. Effective August 13,
1996, the Company successfully completed the repurchase of its stock
under this Program.
On August 13, 1996, the Company announced a Stock Repurchase Program
("Program"), whereby the Company's Board of Directors authorized the
repurchase of up to 10% of its outstanding common shares from time to
time. Shares repurchased under the Program may be held in treasury,
retired or used for general corporate purposes. As of September 30,
1996, the Company has repurchased 3,000 shares under the Program,
representing 0.15% of common shares outstanding at August 13, 1996.
RESULTS OF OPERATIONS
Net Earnings
Net earnings for the three and nine months ended September 30, 1996
were $975,000 and $2,805,000, compared to $864,000 and $2,565,000 for the
three and nine months ended September 30, 1995. Net earnings for the
three and nine months ended September 30, 1996, increased 12.85% and
9.36%, respectively, over net earnings for the three and nine months
ended September 30, 1995. Earnings per common share for the three and
nine months ended September 30, 1996 were $0.46 and $1.32, compared to
$0.40 and $1.18 ($0.40 and $1.17 fully diluted) for the three and nine
months ended September 30, 1995. The increase in net earnings for the
three months ended September 30, 1996, compared to the three months ended
September 30, 1995, was primarily due to a slight increase in net
interest income, an increase in noninterest income and a decrease in the
provision for possible loan losses, partially offset by an increase in
noninterest expense, as further discussed below. The increase in net
earnings for the nine months ended September 30, 1996, compared to net
earnings for the nine months ended September 30, 1995, was primarily due
to an increase in noninterest income, partially offset by a slight
decrease in net interest income and increases in the provision for
possible loan losses and noninterest expense, as further discussed below.
Interest and Dividend Income
Interest and dividend income for three and nine months ended
September 30, 1996 was $6,409,000 and $18,930,000, compared to $6,280,000
and $18,192,000 for the corresponding periods in 1995. Average interest
earning assets for the three and nine months ended September 30, 1996
were $317,405,000 and $312,280,000, respectively, and for the three and
nine months ended September 30, 1995 were $302,223,000 and $290,170,000,
respectively. The yield on interest earning assets was 8.03% and 8.10%,
respectively, for the three and nine months ended September 30, 1996,
compared to 8.31% and 8.36%, respectively, for the same periods in 1995.
The increase in interest and dividend income for the three and nine
months ended September 30, 1996 compared to the three and nine months
ended September 30, 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.
Interest Expense
Interest expense for the three and nine months ended September 30,
1996 was $3,005,000 and $8,750,000, compared to $2,919,000 and $7,989,000
for the corresponding periods in 1995. Average interest bearing
liabilities for the three and nine months ended September 30, 1996 were
$292,369,000 and $286,372,000, respectively, and for the three and nine
months ended September 30, 1995 were $275,747,000 and $265,558,000,
respectively. The rates paid on interest bearing liabilities were 4.09%
and 4.08%, respectively, for the three and nine months ended September
30, 1996, compared to 4.24% and 4.01%, respectively, for the same periods
in 1995.
The increase in interest expense for the three and nine months ended
September 30, 1996 compared to the same periods 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
for the nine months ended September 30, 1996 compared to the same period
in 1995, and partially offset by a decrease in the rates paid on these
liabilities for the three months ended September 30, 1996 compared to the
same period in 1995.
Net Interest Income
Net interest income was fairly stable, increasing by $43,000 for the
three months ended September 30, 1996 compared to the same period in 1995
and decreasing by $23,000 for the nine months ended September 30, 1996
compared to the same period in 1995. Interest rate spreads and the net
yield on interest earning assets were lower during the three and nine
months ended September 30, 1996 compared to the same periods in 1995, as
the yields realized on interest earning assets decreased during the three
and nine months ended September 30, 1996 compared to the same periods in
1995 and the rates paid for interest bearing liabilities decreased for
the three months ended September 30, 1996 compared to the same period in
1995 and increased for the nine months ended September 30, 1996 compared
to the same period in 1995. However, the increase in the volume of
average interest earning assets, which yielded a higher rate than the
interest bearing liabilities, offset the impact of the lower interest
rate spreads and net yield on interest earning assets. The Company's
interest rate spread was 3.94% and 4.01%, for the three and nine months
ended September 30, 1996, compared to 4.07% and 4.35% for the three and
nine months ended September 30, 1995. The net yield on interest earning
assets for the three and nine months ended September 30, 1996 was 4.27%
and 4.35%, compared to 4.45% and 4.70% for the three and nine months
ended September 30, 1995.
Provision for Possible Loan Losses
The provision for possible loan losses for the three and nine months
ended September 30, 1996 was $150,000 and $600,000, compared to $225,000
and $450,000 for the three and nine months ended September 30, 1995. The
increase in the provision for the nine months ended September 30, 1996
and the decrease in the third quarter, compared to the same periods in
1995, related primarily to management's overall evaluation of the loan
portfolio, as well as their evaluation of the adequacy of the level of
the allowance in relation to nonperforming loans and total loans.
Nonperforming loans totaled $2,128,000 at September 30, 1996, an
increase of $330,000 from $1,798,000 at December 31, 1995. The level of
net charge-offs for the three and nine months ended September 30, 1996
was $9,000 and $462,000, compared to $394,000 and $1,124,000, 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,
1996 totaled $856,000 and $2,514,000, compared to $616,000 and $1,883,000
for the same periods in 1995. The significant changes in the components
of noninterest income for the three and nine months ended September 30,
1996 compared to the same periods in 1995 were primarily deposit account
fees and service charges of $209,000 and $645,000, respectively for the
three and nine months ended September 30, 1996 compared to $201,000 and
$580,000, respectively, for the three and nine months ended September 30,
1995, net gains on sales of securities available for sale of $186,000 and
$475,000 for the three and nine months ended September 30, 1996, compared
to $0 and $205,000 for the three and nine months ended September 30, 1995
and net gains on sales of loans of $124,000 and $451,000 for the three
and nine months ended September 30, 1996, compared to $112,000 and
$248,000 for the three and nine months ended September 30, 1995. The
increase in net gains on sales of loans in the three and nine months
ending September 30, 1996 compared to the same periods 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
$60,000 and $218,000, respectively, as well as the increased volume in
the sale of loans into the secondary mortgage market during the first
quarter of 1996, compared to the first quarter of 1995, 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 generally 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 and nine months ended September
30, 1996 totaled $2,631,000 and $7,819,000, compared to $2,430,000 and
$7,636,000 for the same periods a year earlier. The increase for the
three and nine months ended September 30, 1996, compared to 1995 relates
primarily to salaries and benefit expenses of $1,316,000 and $3,935,000
for the three and nine months ended September 30, 1996, compared to
$1,228,000 and $3,696,000 for the three and nine months ended September
30, 1995, occupancy and equipment expenses of $505,000 and $1,476,000 for
the three and nine months ended September 30, 1996, compared to $379,000
and $1,248,000 for the same periods in 1995, and a $187,000 special one-
time deposit insurance assessment by the Federal Deposit Insurance
Corporation ("FDIC") on the Company's Savings Association Insurance
Fund ("SAIF") assessable Oakar deposits, as a result of legislation
signed by the President on September 30, 1996 to recapitalize the SAIF,
partially offset by a reduction in advertising expense of $41,000 and
$143,000 for the three and nine months ending September 30, 1996 and a
decrease for the three and nine months ended September 30, 1996 of
$137,000 and $365,000 associated with FDIC insurance premiums, exclusive
of the special deposit insurance assessment on the Company's SAIF
assessable Oakar deposits. The increase in salaries and benefits expense
relates to normal salary adjustments, an increase in full time equivalent
employees to 137 from 133, in part due to the opening of a new branch
office in downtown Portsmouth, New Hampshire in April of 1996 and higher
salary costs associated with loan origination. 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 FDIC insurance premiums, exclusive of the special deposit insurance
assessment on the Company's SAIF assessable Oakar deposits, to $24,000
and $73,000, respectively, for the three and nine months ended September
30, 1996, compared to $161,000 and $438,000, respectively, for the three
and nine months ended September 30, 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. The decrease in FDIC deposit insurance
premiums commenced in the third quarter of 1995. A portion of the
Company's deposits are Oakar deposits (approximately $42,400,000 at
December 31, 1995) which are insured by the FDIC through the SAIF. As a
result of legislation signed by the President on September 30, 1996, the
Company expensed $187,000 in the third quarter of 1996, relating to a
special one-time deposit insurance assessment by the FDIC on the
Company's SAIF assessable Oakar deposits.
Income Taxes
Income taxes for the three and nine months ended September 30, 1996
were $504,000 and $1,470,000, compared with $458,000 and $1,435,000 for
the same periods in 1995.
Risk Elements
Total nonperforming loans increased from $1,798,000 or .93% of total
loans, at December 31, 1995, to $2,128,000 or 1.06% of total loans, at
September 30, 1996. During the same period, other real estate owned,
declined from $2,691,000 to $1,651,000. The allowance for possible loan
losses as a percent of total nonperforming loans was 180.55% at September
30, 1996, compared with 206.01% at December 31, 1995.
As shown in the following table, nonperforming assets as a
percentage of total assets were 1.06% and 1.30%, as of September 30, 1996
and December 31, 1995, respectively.
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
($ in Thousands)
<S> <C> <C>
Loans 90 days or more past due
and still accruing $ 0 $ 0
========== ==========
Nonaccrual/nonperforming loans $ 2,128 $ 1,798
Other real estate owned 1,651 2,691
---------- ----------
Total nonperforming assets $ 3,779 $ 4,489
========== ==========
Allowance for possible loan losses $ 3,842 $ 3,704
Nonperforming loans as a percent of total loans 1.06% 0.93%
Allowance for possible loan losses
as a percent of total nonperforming loans 180.55% 206.01%
Nonperforming assets as a percent of total assets 1.06% 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
September 30, 1996, short-term and long-term borrowings from the Federal
Home Loan Bank of Boston were $700,000, with an additional available
borrowing capacity of approximately $166,815,000; interest bearing
deposits with the Federal Home Loan Bank of Boston were $20,448,000 and
securities available for sale were $93,356,000. Included in securities
held to maturity and securities available for sale are debt securities
with a carrying value of $89,530,000, all of which have remaining
maturities of less than five years and a weighted-average maturity of
approximately twenty four months. In addition, 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 September 30, 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 September 30, 1996 and
December 31, 1995, the subsidiary bank was in compliance with all
regulatory capital requirements. Additionally, at September 30, 1996,
the subsidiary bank was considered "well capitalized" for purposes of
the FDIC's prompt corrective action regulations.
At September 30, 1996 the Company's and the subsidiary bank's
regulatory capital ratios as a percentage of assets are as follows:
<TABLE>
<CAPTION>
September 30, 1996
---------------------
Subsidiary
Company Bank
--------- ---------
<S> <C> <C>
Tier I leverage capital 7.57% 7.32%
Tier I capital to risk-weighted assets 14.58% 14.10%
Total capital to risk-weighted assets 15.67% 15.20%
</TABLE>
<TABLE>
<CAPTION>
GRANITE STATE BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED QUARTERLY AVERAGE BALANCES AND INTEREST RATES
(dollars in thousands)
1996 QTD 1995 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 $ 192,119 9.44% $ 183,823 9.55% $ 184,293 9.69% $ 185,279 9.98%
Securities and
interest earning investments 125,286 5.88% 125,097 6.04% 126,167 5.87% 124,825 5.67%
--------- --------- --------- ---------
Total interest earning assets 317,405 8.03% 308,920 8.13% 310,460 8.13% 310,104 8.24%
Noninterest earning assets 37,006 35,570 34,481 33,967
--------- --------- --------- ---------
Total Assets $ 354,411 $ 344,490 $ 344,941 $ 344,071
========= ========= ========= =========
Liabilities and stockholders' equity:
Savings deposits $ 157,093 3.00% $ 155,830 2.93% $ 153,937 2.99% $ 151,261 3.13%
Time Deposits 106,790 5.53% 105,344 5.44% 105,626 5.67% 105,370 5.75%
Other borrowed funds 28,486 4.68% 21,745 4.98% 24,198 4.72% 23,425 4.85%
--------- --------- --------- ---------
Total int. bearing liabilities 292,369 4.09% 282,919 4.02% 283,761 4.14% 280,056 4.26%
Noninterest bearing deposits 30,303 29,410 27,953 30,139
Other liabilities 1,905 2,089 2,240 4,113
Stockholders' equity 29,834 30,072 30,987 29,763
--------- --------- --------- ---------
Total liab. and stockholders' equity $ 354,411 $ 344,490 $ 344,941 $ 344,071
========= ========= ========= =========
Interest rate spread 3.94% 4.11% 3.99% 3.98%
===== ===== ===== =====
Net average earning balance /
Net yield on interest earning assets $ 25,036 4.27% $ 26,001 4.45% $ 26,699 4.33% $ 30,048 4.39%
========= ===== ========= ===== ========= ===== ========= =====
<CAPTION>
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 and 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. and 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%
========= ===== ========= ===== ========= ===== ========= =====
</TABLE>
GRANITE STATE BANKSHARES, INC. AND SUBSIDIARY
Part II - Other Information
September 30, 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 : November 5, 1996 By: Charles W. Smith
Chairman and
Chief Executive Officer
/s/ William G. Pike
_____________________________
Dated : November 5, 1996 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-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 16,933
<INT-BEARING-DEPOSITS> 20,448
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 93,356<F1>
<INVESTMENTS-CARRYING> 8,000
<INVESTMENTS-MARKET> 7,985
<LOANS> 198,504<F2>
<ALLOWANCE> 3,842
<TOTAL-ASSETS> 357,146
<DEPOSITS> 299,788
<SHORT-TERM> 23,744<F3>
<LIABILITIES-OTHER> 2,687
<LONG-TERM> 700
0
0
<COMMON> 2,543
<OTHER-SE> 27,684
<TOTAL-LIABILITIES-AND-EQUITY> 357,146
<INTEREST-LOAN> 13,361
<INTEREST-INVEST> 5,069
<INTEREST-OTHER> 500
<INTEREST-TOTAL> 18,930
<INTEREST-DEPOSIT> 7,862
<INTEREST-EXPENSE> 8,750
<INTEREST-INCOME-NET> 10,180
<LOAN-LOSSES> 600
<SECURITIES-GAINS> 475
<EXPENSE-OTHER> 7,819
<INCOME-PRETAX> 4,275
<INCOME-PRE-EXTRAORDINARY> 2,805
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,805
<EPS-PRIMARY> 1.32
<EPS-DILUTED> 1.32
<YIELD-ACTUAL> 4.35
<LOANS-NON> 2,128
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,704
<CHARGE-OFFS> 940
<RECOVERIES> 478
<ALLOWANCE-CLOSE> 3,842
<ALLOWANCE-DOMESTIC> 3,842
<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>Includes securities sold under agreements to repurchase of $23,744
</FN>
</TABLE>
