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 JUNE 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 August 6, 1996 was 1,977,942, $1.00 par value per share.
INDEX
GRANITE STATE BANKSHARES, INC. AND SUBSIDIARY
Part I Financial Information Page
Item 1. Financial Statements:
Consolidated Statements of Financial Condition
June 30, 1996 and December 31, 1995 3
Consolidated Statements of Earnings
Three and six months ended June 30, 1996 and 1995 4
Consolidated Statements of Stockholders' Equity
Three and six months ended June 30, 1996 and 1995 5
Consolidated Statements of Cash Flows
Three and six months ended June 30, 1996 and 1995 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Part II Other Information
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
<TABLE>
<CAPTION>
GRANITE STATE BANKSHARES, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, December 31,
($ in thousands, except par values) 1996 1995
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 20,554 $ 17,771
Interest bearing deposits - Federal Home Loan Bank of Boston 1 24,239
Securities held to maturity
(Market value $7,955 at June 30, 1996) 8,000
Securities available for sale, at market value 110,539 95,016
Stock in Federal Home Loan Bank of Boston 3,215 3,215
Loans 195,255 192,354
Less: Unearned income (2,292) (2,356)
Allowance for possible loan losses (3,701) (3,704)
--------- ---------
Net Loans 189,262 186,294
Premises and equipment 10,846 9,937
Other real estate owned 1,973 2,691
Other assets 7,508 7,251
--------- ---------
$ 351,898 $ 346,414
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits $ 256,764 $ 255,208
Noninterest-bearing deposits 36,657 31,922
--------- ---------
Total Deposits 293,421 287,130
Securities sold under agreements to repurchase 21,389 26,189
Short-term borrowings from the Federal Home Loan Bank of Boston 4,704
Long-term debt 710 728
Other liabilities 2,185 2,578
--------- ---------
Total Liabilities 322,409 316,625
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 784 1,630
Retained earnings 11,796 10,529
--------- ---------
34,370 33,913
Less: Treasury stock, at cost, 543,591 and 500,252
shares, respectively (4,881) (4,124)
--------- ---------
Total Stockholders' Equity 29,489 29,789
--------- ---------
$ 351,898 $ 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 Six Months Ended
June 30, June 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 $ 4,365 $ 4,668 $ 8,803 $ 9,083
Interest on securities held to maturity 124 199 126 409
Interest on securities available for sale 1,563 1,098 2,923 2,219
Dividends on Federal Home Loan Bank of Boston stock 52 57 102 114
Dividends on equity securities available for sale 88 30 200 62
Other interest 51 23 367 25
--------- --------- --------- ---------
6,243 6,075 12,521 11,912
Interest expense:
Savings deposits 1,134 1,012 2,279 1,853
Time deposits 1,424 1,355 2,913 2,328
Borrowed funds 269 300 553 889
--------- --------- --------- ---------
2,827 2,667 5,745 5,070
--------- --------- --------- ---------
Net interest income 3,416 3,408 6,776 6,842
Provision for possible loan losses 225 175 450 225
--------- --------- --------- ---------
Net interest income after provision for possible loan losses 3,191 3,233 6,326 6,617
Noninterest income:
Mortgage service fees 170 175 338 351
Net gains on sales of securities available for sale 100 205 289 205
Net gains on sales of loans 160 89 327 136
Other 377 274 704 575
--------- --------- --------- ---------
807 743 1,658 1,267
Noninterest expense:
Salaries and employee benefits 1,286 1,260 2,619 2,468
Occupancy, net 219 224 484 474
Equipment 241 189 487 395
Other real estate owned 149 125 185 211
Other 666 822 1,413 1,658
--------- --------- --------- ---------
2,561 2,620 5,188 5,206
--------- --------- --------- ---------
Earnings before income taxes 1,437 1,356 2,796 2,678
Applicable income taxes 488 498 966 977
--------- --------- --------- ---------
Net earnings $ 949 $ 858 $ 1,830 $ 1,701
========= ========= ========= =========
Weighted average common shares outstanding:
Primary 2,125,087 2,177,879 2,133,243 2,179,720
Fully diluted 2,125,087 2,177,879 2,134,937 2,181,977
Net earnings per common share -primary $ 0.45 $ 0.39 $ 0.86 $ 0.78
Net earnings per common share -fully diluted $ 0.45 $ 0.39 $ 0.86 $ 0.78
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 Six Months Ended
June 30, June 30,
------------------- -------------------
($ in thousands) 1996 1995 1996 1995
-------- -------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Balance, beginning of period $ 29,467 $ 27,147 $ 29,789 $ 25,641
Net earnings 949 858 1,830 1,701
Dividends declared on common stock,
$.14 per share and $.28 per share, respectively,
for the three and six months ended June 30, 1996
and $.12 per share and $.24 per share, respectively,
for the three and six months ended June 30, 1995 (281) (247) (563) (497)
Stock options exercised 36
Purchase of treasury stock (425) (131) (757) (223)
Decrease in unearned compensation -ESOP 22 43
Increase (decrease) in net unrealized gains on
securities available for sale, net of related tax effects (221) 671 (846) 1,655
-------- -------- -------- --------
Net change in stockholders' equity 22 1,173 (300) 2,679
-------- -------- -------- --------
Balance, end of period $ 29,489 $ 28,320 $ 29,489 $ 28,320
======== ======== ======== ========
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 Six Months Ended
June 30, June 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 $ 949 $ 858 $ 1,830 $ 1,701
Adjustments to reconcile net earnings to net cash
provided by operating activities
Provision for possible loan losses 225 175 450 225
Provision for depreciation and amortization 304 288 606 588
Net accretion on securities (14) (32) (35) (89)
Realized gains on sales of securities available for sale (100) (205) (289) (205)
Loans originated for sale (7,482) (11,762) (16,252) (14,784)
Proceeds from sales of loans originated for sale 8,147 10,900 17,709 14,296
Realized gains on sales of loans (160) (89) (327) (136)
Realization of unearned income (132) (148) (65) (372)
Provision for loss on other real estate owned 50 165 86 203
Realized (gains) losses on sales of other real estate owned 3 (114) (27) (139)
Deferred income taxes (benefits) (57) 103 (136) 128
(Increase) decrease in other assets (488) (869) (274) 329
Increase (decrease) in other liabilities (232) (265) 144 (438)
Decrease in unearned compensation-ESOP 22 43
-------- -------- -------- --------
Net cash provided by (used in) operating activities 1,013 (973) 3,420 1,350
Cash flows from investing activities:
Purchase of securities held to maturity (5,000) (8,000)
Proceeds from sale of securities available for sale 13,180 656 17,016 656
Proceeds from maturities of securities available for sale 2,998 12,000 2,998
Purchase of securities available for sale (4,905) (569) (45,498) (3,557)
Loan (originations) repayments, net (7,369) (270) (5,266) (2,874)
Purchase of premises and equipment (610) (263) (1,308) (441)
Advances made on other real estate owned (2) (22)
Proceeds from sales of other real estate owned 568 1,379 1,441 1,919
Net (increase) decrease in interest-bearing deposits with
Federal Home Loan Bank of Boston 4,537 (6,324) 24,238 (6,352)
Other cash used in investing activities (80) (3) (189) (6)
-------- -------- -------- --------
Net cash provided by (used in) investing activities 321 (2,398) (5,566) (7,679)
Cash flows from financing activities:
Net increase (decrease) in time certificates of deposit (1,121) 9,814 (210) 28,752
Net increase in demand, NOW, regular savings and
money market deposit accounts 1,338 9,769 6,501 5,927
Net increase (decrease) in securities sold under agreements to repurchase (786) 4,155 (4,800) (1,850)
Net increase (decrease) in short-term borrowings 4,704 (16,418) 4,704 (20,904)
Payments of long-term borrowings (10) (1) (18) (2)
Repayment of liability relating to ESOP (22) (43)
Proceeds from exercise of stock options 36
Purchase of treasury stock (425) (131) (757) (223)
Dividends paid on common stock (283) (250) (527) (502)
-------- -------- -------- --------
Net cash provided by financing activities 3,417 6,916 4,929 11,155
-------- -------- -------- --------
Net increase in cash and due from banks 4,751 3,545 2,783 4,826
Cash and due from banks at beginning of period 15,803 10,536 17,771 9,255
-------- -------- -------- --------
Cash and due from banks at end of period $ 20,554 $ 14,081 $ 20,554 $ 14,081
======== ======== ======== ========
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
June 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 six months ended June 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 June 30, 1996 and December 31, 1995 were as follows:
<TABLE>
<CAPTION>
Amortized Estimated Carrying
AT JUNE 30, 1996 Cost Market Value Value
--------- --------- ---------
(In Thousands)
<S> <C> <C> <C>
SECURITIES HELD TO MATURITY
US Government agency obligations $ 8,000 $ 7,955 $ 8,000
--------- --------- ---------
Total securities held to maturity $ 8,000 $ 7,955 $ 8,000
========= ========= =========
SECURITIES AVAILABLE FOR SALE
US Treasury obligations $ 52,823 $ 52,834 $ 52,834
US Government agency obligations 44,748 44,000 44,000
Other corporate obligations 3,497 3,490 3,490
Mutual Fund 3,121 3,115 3,115
Marketable equity securities 5,162 7,100 7,100
--------- --------- ---------
Total securities available for sale $ 109,351 $ 110,539 $ 110,539
========= ========= =========
</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 June 30, 1996, US Treasury obligations with carrying and market
values of $44,293,000 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 Six months ended
June 30, June 30,
------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C>
Balance, beginning of period $ 3,727 $ 4,042 $ 3,704 $ 4,230
Provision for possible loan losses 225 175 450 225
Loans charged off (330) (535) (823) (835)
Recoveries of loans previously charged off 79 43 370 105
-------- -------- -------- --------
Balance, end of period $ 3,701 $ 3,725 $ 3,701 $ 3,725
======== ======== ======== ========
<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 June 30,
1996 or for the three and six months ended June 30, 1996:
</TABLE>
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
Recorded investment in impaired loans at June 30, 1996 $ 388
=======
Average year-to-date recorded investment in impaired loans $ 660
=======
Impaired loans with specific loss allowances at June 30, 1996 $ 388
=======
Loss allowances reserved on impaired loans at June 30, 1996 $ 118
Income recognized on impaired loans during =======
the three months ended June 30, 1996 $ 0
Income recognized on impaired loans during =======
the six months ended June 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>
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C>
Cash paid for interest $ 2,631 $ 2,614 $ 5,573 $ 4,966
Income taxes paid 1,100 1,000 1,100 1,000
Non-cash investing activities:
Real estate acquired in settlement of loans 54 528 782 879
<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
$77,000 and $158,000, respectively, for the three and six months ended June
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 six months ended June 30, 1996 of $51,000 and $104,000,
respectively, or $.02 and $.05, respectively, 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
June 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 $5,484,000 or 1.58%, from $346,414,000 at
December 31, 1995 to $351,898,000 at June 30, 1996.
Cash and due from banks increased $2,783,000 from $17,771,000 at
December 31, 1995 to $20,554,000 at June 30, 1996. The increase was funded
primarily with short-term borrowings from the Federal Home Loan Bank of
Boston.
Interest bearing deposits with the Federal Home Loan Bank of Boston
decreased $24,238,000, from $24,239,000 at December 31, 1995 to $1,000 at
June 30, 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 $8,000,000, from $0 at
December 31, 1995 to $8,000,000 at June 30, 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 $15,523,000, from
$95,016,000 at December 31, 1995 to $110,539,000 at June 30, 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.
Net loans were $189,262,000 at June 30, 1996, an increase of
$2,968,000 from $186,294,000 at December 31, 1995. The increase 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 during the second
quarter of 1996. Adjustable rate residential loans are held by the Company
in its loan portfolio. The increase in loans was funded primarily with
proceeds from short-term borrowings from the Federal Home Loan Bank of
Boston.
Total deposits increased $6,291,000, from $287,130,000 at December
31, 1995 to $293,421,000 at June 30, 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
$4,800,000, from $26,189,000 at December 31, 1995 to $21,389,000 at June
30, 1996. The decrease was funded by an increase in deposits.
Short-term borrowings from the Federal Home Loan Bank of Boston
increased $4,704,000, from $0 at December 31, 1995 to $4,704,000 at June
30, 1996. The increase in borrowings was used primarily to fund loan
growth and the increase in cash and due from banks.
Stockholders' equity decreased by $300,000 during the first six
months of 1996, from $29,789,000 at December 31, 1995, to $29,489,000 at
June 30, 1996. The decrease was due to $563,000 of common stock dividends
declared, $757,000 in repurchases of treasury stock, and an $846,000
decrease in unrealized gains on securities available for sale, net of
related tax effects, partially offset by $1,830,000 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 June 30, 1996, the Company has
repurchased 167,939 shares under the Plan, representing 7.77% of common
shares outstanding at the date of announcement of the Plan.
RESULTS OF OPERATIONS
Net Earnings
Net earnings for the three and six months ended June 30, 1996 were
$949,000 and $1,830,000, compared to $858,000 and $1,701,000 for the three
and six months ended June 30, 1995. Net earnings for the three and six
months ended June 30, 1996, increased 10.61% and 7.58%, respectively, over
net earnings for the three and six months ended June 30, 1995. Earnings
per common share for the three and six months ended June 30, 1996 were
$0.45 and $0.86, compared to $0.39 and $0.78 for the three and six months
ended June 30, 1995. The increase in net earnings for the three months
ended June 30, 1996, compared to the three months ended June 30, 1995, was
primarily due to an increase in noninterest income of $64,000 and a
decrease in noninterest expense of $59,000 partially offset by an increase
in the provision for possible losses of $50,000. The increase in net
earnings for the six months ended June 30, 1996, compared to net earnings
for the six months ended June 30, 1995, was primarily due to an increase in
noninterest income of $391,000 partially offset by a decrease in net
interest income of $66,000 and an increase in the provision for possible
loan losses of $225,000.
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
$77,000 and $158,000, respectively, during the three and six months ended
June 30, 1996.
Interest and Dividend Income
Interest and dividend income for three and six months ended June
30, 1996 was $6,243,000 and $12,521,000, compared to $6,075,000 and
$11,912,000 for the corresponding periods in 1995. Average interest
earning assets for the three and six months ended June 30, 1996 were
$308,920,000 and $309,690,000,respectively, and for the three and six
months ended June 30, 1995 were $286,666,000 and $284,044,000,
respectively. The yield on interest earning assets was 8.13% and 8.13%,
respectively, for the three and six months ended June 30, 1996, compared to
8.48% and 8.39%, respectively, for the same periods in 1995.
The increase in interest and dividend income for the three and six
months ended June 30, 1996 compared to the three and six months ended June
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 six months ended June 30, 1996
was $2,827,000 and $5,745,000, compared to $2,667,000 and $5,070,000 for
the corresponding periods in 1995. Average interest bearing liabilities
for the three and six months ended June 30, 1996 were $282,919,000 and
$283,340,000, respectively, and for the three and six months ended June 30,
1995 were $262,216,000 and $260,378,000, respectively. The rates paid on
interest bearing liabilities were 4.02% and 4.08%, respectivley, for the
three and six months ended June 30, 1996, compared to 4.07% and 3.90%,
respectively, for the same periods in 1995.
The increase in interest expense for the three and six months ended
June 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
six months ended June 30, 1996 compared to the same period in 1995 and
partially offset by a slight decrease in the rates paid on these
liabilities for the three months ended June 30, 1996 compared to the same
period in 1995.
Net Interest Income
Net interest income was fairly stable, increasing by $8,000 for the
three months ended June 30, 1996 compared to the same period in 1995. Net
interest income decreased by $66,000 for the six months ended June 30, 1996
compared to the same period in 1995. The decrease for the six months ended
June 30, 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 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 4.11% and 4.05%, for the three and six months ended June 30,
1996, compared to 4.41% and 4.49% for the three and six months ended June
30, 1995. The net yield on interest earning assets for the three and six
months ended June 30, 1996 was 4.45% and 4.40%, compared to 4.76% and 4.82%
for the three and six months ended June 30, 1995.
Provision for Possible Loan Losses
The provision for possible loan losses for the three and six months
ended June 30, 1996 was $225,000 and $450,000, compared to $175,000 and
$225,000 for the three and six months ended June 30, 1995. The increase in
the provision for the three and six months ended June 30, 1996, 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 $1,817,000 at June 30, 1996, an
increase of $19,000 from $1,798,000 at December 31, 1995. The level of net
charge-offs for the three and six months ended June 30, 1996 was $251,000
and $453,000, compared to $492,000 and $730,000, 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 six months ended June 30, 1996
totaled $807,000 and $1,658,000, compared to $743,000 and $1,267,000 for
the same periods in 1995. The significant changes in the components of
noninterest income for the three and six months ended June 30, 1996
compared to the same periods in 1995 were primarily deposit account fees
and service charges of $223,000 and $436,000, respectively for the three
and six months ended June 30, 1996 compared to $198,000 and $379,000,
respectively, for the three and six months ended June 30, 1995, net gains
on sales of securities available for sale of $100,000 and $289,000 for the
three and six months ended June 30, 1996, compared to $205,000 and $205,000
for the three and six months ended June 30, 1995, and net gains on sales of
loans of $160,000 and $327,000 for the three and six months ended June 30,
1996, compared to $89,000 and $136,000 for the three and six months ended
June 30, 1995. The increase in net gains on sales of loans in the three
and six months ending June 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
$77,000 and $158,000, 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 six months ended June 30,
1996 totaled $2,561,000 and $5,188,000, compared to $2,620,000 and
$5,206,000 for the same periods a year earlier. The decrease for the three
months ended June 30, 1996, compared to 1995 relates primarily to a
decrease of $109,000 associated with Federal Deposit Insurance Corporation
("FDIC") insurance premiums, partially offset by an increase of $26,000
associated with salaries and benefit expenses, an increase of $47,000 in
occupancy and equipment expenses, and an increase of $24,000 in costs
associated with the holding and disposition of other real estate owned.
The decrease for the six months ended June 30, 1996, compared to 1995
relates to a decrease of $228,000 associated with FDIC insurance premiums
and a reduction of $26,000 in costs associated with the holding and
disposition of other real estate owned, partially offset by an increase of
$151,000 associated with salaries and benefit expenses, and an increase of
$102,000 in occupancy and equipment expenses. The increase in salaries and
benefits expense relates to normal salary adjustments, an increase in full
time equivalent employees to 142 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, partially offset
by lower 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 FDIC insurance premiums
to $29,000 and $49,000, respectively, for the three and six months ended
June 30, 1996, compared to $138,000 and $277,000, respectively, for the
three and six months ended June 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. As a result, deposit
insurance premiums for the third and fourth quarters of 1996 are not
expected to differ significantly from those which were expensed during the
third and fourth quarters 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 Savings Association Insurance Fund and as
to which deposit insurance premiums have not been reduced by the FDIC.
Income Taxes
Income taxes for the three and six months ended June 30, 1996 were
$488,000 and $966,000, compared with $498,000 and $977,000 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 $1,817,000 or .93% of total loans, at
June 30, 1996. During the same period, other real estate owned, declined
from $2,691,000 to $1,973,000. The allowance for possible loan losses as a
percent of total nonperforming loans was 203.69% at June 30, 1996, compared
with 206.01% at December 31, 1995.
As shown in the following table, nonperforming assets as a
percentage of total assets were 1.08% and 1.30%, as of June 30, 1996 and
December 31, 1995, respectively.
</TABLE>
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
($ in Thousands)
<S> <C> <C>
Loans 90 days or more past due
and still accruing $ 15 $ 0
======== ========
Nonaccrual/nonperforming loans $ 1,817 $ 1,798
Other real estate owned 1,973 2,691
-------- --------
Total nonperforming assets $ 3,790 $ 4,489
======== ========
Allowance for possible loan losses $ 3,701 $ 3,704
Nonperforming loans as a percent of total loans 0.93% 0.93%
Allowance for possible loan losses
as a percent of total nonperforming loans 203.69% 206.01%
Nonperforming assets as a percent of total assets 1.08% 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
June 30, 1996, short-term and long-term borrowings from the Federal Home
Loan Bank of Boston were $5,414,000, with an additional available borrowing
capacity of approximately $157,000,000; interest bearing deposits with the
Federal Home Loan Bank of Boston were $1,000 and securities available for
sale were $110,539,000. Included in securities held to maturity and
securities available for sale are debt securities with a carrying value of
$108,324,000, all of which have remaining maturities of less than five
years and a weighted-average maturity of approximately twenty four 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 June 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 June 30, 1996 and December
31, 1995, the subsidiary bank was in compliance with all regulatory capital
requirements. Additionally, at June 30, 1996, the subsidiary bank was
considered "well capitalized" for purposes of the FDIC's prompt
corrective action regulations.
At June 30, 1996 the Company's and the subsidiary bank's regulatory
capital ratios as a percentage of assets are as follows:
</TABLE>
<TABLE>
<CAPTION>
June 30, 1996
------------------
Subsidiary
Company Bank
------- -------
<S> <C> <C>
Tier I leverage capital 7.58% 7.26%
Tier I capital to risk-weighted assets 14.92% 14.29%
Total capital to risk-weighted assets 15.99% 15.38%
<TABLE/>
</TABLE>
<TABLE>
<CAPTION>
GRANITE STATE BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED QUARTERLY AVERAGE BALANCES AND INTEREST RATES
(dollars in thousands)
1996 QTD 1995 QTD
---------------------------------- ----------------------------------
Second Quarter First Quarter Fourth Quarter Third 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 $ 183,823 9.55% $ 184,293 9.69% $ 185,279 9.98% $ 188,123 9.83%
Securities and
interest earning investments 125,097 6.04% 126,167 5.87% 124,825 5.67% 114,100 5.81%
--------- --------- --------- ---------
Total interest earning assets 308,920 8.13% 310,460 8.13% 310,104 8.24% 302,223 8.31%
Noninterest earning assets 35,570 34,481 33,967 32,349
--------- --------- --------- ---------
Total Assets $ 344,490 $ 344,941 $ 344,071 $ 334,572
========= ========= ========= =========
Liabilities and stockholders' equity:
Savings deposits $ 155,830 2.93% $ 153,937 2.99% $ 151,261 3.13% $ 145,659 3.05%
Time Deposits 105,344 5.44% 105,626 5.67% 105,370 5.75% 105,489 5.63%
Other borrowed funds 21,745 4.98% 24,198 4.72% 23,425 4.85% 24,599 5.24%
--------- --------- --------- ---------
Total int. bearing liabilities 282,919 4.02% 283,761 4.14% 280,056 4.26% 275,747 4.24%
Noninterest bearing deposits 29,410 27,953 30,139 28,083
Other liabilities 2,089 2,240 4,113 1,961
Stockholders' equity 30,072 30,987 29,763 28,781
--------- --------- --------- ---------
Total liab. and stockholders' equity $ 344,490 $ 344,941 $ 344,071 $ 334,572
========= ========= ========= =========
Interest rate spread 4.11% 3.99% 3.98% 4.07%
===== ===== ===== =====
Net average earning balance /
Net yield on interest earning assets $ 26,001 4.45% $ 26,699 4.33% $ 30,048 4.39% $ 26,476 4.45%
========= ===== ========= ===== ========= ===== ========= =====
<CAPTION>
1995 QTD 1994 QTD
---------------------------------- ----------------------------------
Second Quarter First Quarter Fourth Quarter Third 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 $ 190,713 9.79% $ 187,370 9.43% $ 187,882 8.88% $ 188,102 8.56%
Securities and
interest earning investments 95,953 5.87% 94,023 6.05% 96,737 6.03% 98,840 5.23%
--------- --------- --------- ---------
Total interest earning assets 286,666 8.48% 281,393 8.30% 284,619 7.91% 286,942 7.41%
Noninterest earning assets 31,696 29,593 30,530 29,930
--------- --------- --------- ---------
Total Assets $ 318,362 $ 310,986 $ 315,149 $ 316,872
========= ========= ========= =========
Liabilities and stockholders' equity:
Savings deposits $ 139,481 2.90% $ 134,158 2.51% $ 146,515 2.36% $ 148,644 2.33%
Time Deposits 101,166 5.36% 84,671 4.60% 74,446 4.01% 75,100 3.86%
Other borrowed funds 21,569 5.56% 39,692 5.94% 36,911 5.66% 38,253 4.68%
--------- --------- --------- ---------
Total int. bearing liabilities 262,216 4.07% 258,521 3.72% 257,872 3.31% 261,997 3.12%
Noninterest bearing deposits 26,996 25,467 28,876 27,326
Other liabilities 1,484 880 1,617 1,128
Stockholders' equity 27,666 26,118 26,784 26,421
--------- --------- --------- ---------
Total liab. and stockholders' equity $ 318,362 $ 310,986 $ 315,149 $ 316,872
========= ========= ========= =========
Interest rate spread 4.41% 4.58% 4.60% 4.29%
===== ===== ===== =====
Net average earning balance /
Net yield on interest earning assets $ 24,450 4.76% $ 22,872 4.88% $ 26,747 4.92% $ 24,945 4.57%
========= ===== ========= ===== ========= ===== ========= =====
</TABLE>
GRANITE STATE BANKSHARES, INC. AND SUBSIDIARY
Part II - Other Information
June 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
On April 9, 1996, the Company held its Annual Meeting of
Stockholders. The matters which were submitted to a vote of the
security holders and the results of the voting at such meeting were
as follows.
<TABLE>
<CAPTION>
Results of Stockholder Vote
------------------------------------------
Abstentions
and Broker
Matter Submitted For Against Withheld Non-Votes
---------------- --------- ------- ---------- ---------
<S> <C> <C> <C> <C>
1) Election of the following directors
for three year terms or until their
successors are qualified and elected:
A) Jane B. Reynolds 1,854,618 0 4,718 0
B) William Smedley, V 1,857,208 0 2,128 0
2) Ratification of Grant Thornton as the Company's
auditors for the fiscal year ended December 31, 1996 1,858,529 0 0 807
<TABLE/>
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 : August 6, 1996 By: Charles W. Smith
Chairman and
Chief Executive Officer
/s/ William G. Pike
--------------------------------
Dated : August 6, 1996 By: William G. Pike
Executive Vice President and
Chief Financial Officer
</TABLE>
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 20,554
<INT-BEARING-DEPOSITS> 1
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 110,539<F1>
<INVESTMENTS-CARRYING> 8,000
<INVESTMENTS-MARKET> 7,955
<LOANS> 192,963<F2>
<ALLOWANCE> 3,701
<TOTAL-ASSETS> 351,898
<DEPOSITS> 293,421
<SHORT-TERM> 26,093<F3>
<LIABILITIES-OTHER> 2,185
<LONG-TERM> 710
0
0
<COMMON> 2,543
<OTHER-SE> 26,946
<TOTAL-LIABILITIES-AND-EQUITY> 351,898
<INTEREST-LOAN> 8,803
<INTEREST-INVEST> 3,351
<INTEREST-OTHER> 367
<INTEREST-TOTAL> 12,521
<INTEREST-DEPOSIT> 5,192
<INTEREST-EXPENSE> 5,745
<INTEREST-INCOME-NET> 6,776
<LOAN-LOSSES> 450
<SECURITIES-GAINS> 289
<EXPENSE-OTHER> 5,188
<INCOME-PRETAX> 2,796
<INCOME-PRE-EXTRAORDINARY> 1,830
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,830
<EPS-PRIMARY> .86
<EPS-DILUTED> .86
<YIELD-ACTUAL> 4.40
<LOANS-NON> 1,817
<LOANS-PAST> 15
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,704
<CHARGE-OFFS> 823
<RECOVERIES> 370
<ALLOWANCE-CLOSE> 3,701
<ALLOWANCE-DOMESTIC> 3,701
<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 $21,389 and
Short-term borrowings from the Federal Home Loan Bank of Boston of $4,704
</FN>
</TABLE>
