FORM 10-Q
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, 1998
Commission File No. 0-14895
Granite State Bankshares, Inc.
(Exact name of registrant as specified in its charter)
New Hampshire 02-0399222
(State or other jurisdiction
of incorporation or organization) (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 12, 1998 was 5,898,226, $1.00 par value per share.
INDEX
Granite State Bankshares, Inc. and Subsidiary
Part I Financial Information Page
Item 1. Financial Statements:
Consolidated Statements of Financial Condition
June 30, 1998 and December 31, 1997 3
Consolidated Statements of Earnings
Three and Six months ended June 30, 1998 and 1997 4
Consolidated Statements of Comprehensive Income
Three and Six months ended June 30, 1998 and 1997 5
Consolidated Statements of Cash Flows
Three and Six months ended June 30, 1998 and 1997 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
Part II Other Information
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds 19
Item 3. Defaults upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
<TABLE>
<CAPTION>
Granite State Bankshares, Inc. and Subsidiary
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Statements of Financial Condition
June 30, December 31,
($ in thousands, except par values) 1998 1997
--------- -------------
<S> <C> <C>
(Unaudited)
ASSETS
Cash and due from banks $ 40,260 $ 28,677
Interest bearing deposits in Federal Home
Loan Bank of Boston, at cost, which
approximates market value 19,974 27,452
Securities available for sale (amortized cost
$156,345 at June 30, 1998 and $169,373 at
December 31, 1997) 163,916 178,680
Securities held to maturity
(Market value $14,429 at June 30, 1998
and $34,170 at December 31, 1997) 14,220 33,910
Stock in Federal Home Loan Bank of Boston 7,201 7,201
Loans held for sale 1,301 1,068
Loans 545,676 509,165
Less: Unearned income (1,549) (1,432)
Allowance for possible loan losses (7,327) (7,651)
-------- --------
Net loans 536,800 500,082
Premises and equipment 18,800 18,863
Other real estate owned 1,491 1,905
Other assets 17,208 15,832
------- -------
Total assets $ 821,171 $ 813,670
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing deposits $ 553,182 $ 577,713
Noninterest bearing deposits 77,970 71,270
------- -------
Total deposits 631,152 648,983
Securities sold under agreements to repurchase 68,006 66,025
Other borrowings 45,492 25,877
Other liabilities 4,282 5,871
------- -------
Total liabilities 748,932 746,756
Preferred stock, $1.00 par value; authorized
7,500,000 shares; none issued
Common stock, $1.00 par value; authorized
12,500,000 shares; 6,796,031 and 6,493,640
shares issued at June 30, 1998 and
December 31, 1997, respectively 6,796 6,494
Additional paid-in capital 37,923 34,730
------- -------
44,719 41,224
Accumulated other comprehensive income 4,647 5,713
Retained earnings 29,933 26,389
------- -------
79,299 73,326
Less: Treasury stock, at cost, 897,805 and
920,305 shares at June 30, 1998 and
December 31, 1997, respectively (6,135) (6,305)
Unearned compensation - ESOP and
Recognition and Retention Plan (925) (107)
------- -------
Total stockholders' equity 72,239 66,914
------- -------
Total liabilities and stockholders' equity $ 821,171 $ 813,670
======= =======
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) 1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
(Unaudited) (Unaudited)
Interest and dividend income:
Loans $ 11,595 $ 10,370 $ 22,870 $ 20,161
Debt securities available for sale 1,909 2,781 4,185 5,335
Marketable equity securities available for sale 190 126 369 296
Securities held to maturity 248 1,415 768 2,901
Dividends on Federal Home Loan Bank of Boston stock 114 116 230 220
Other interest 226 140 307 317
------- ------- ------- -------
14,282 14,948 28,729 29,230
Interest expense:
Savings deposits 1,961 1,866 3,850 3,668
Time deposits 3,572 3,931 7,451 7,698
Borrowed funds 1,096 1,624 2,014 3,218
------- ------- ------- -------
6,629 7,421 13,315 14,584
------- ------- ------- -------
Net interest and dividend income 7,653 7,527 15,414 14,646
Provision for possible loan losses 225 700 525 925
------- ------- ------- -------
Net interest and dividend income after
provision for possible loan losses 7,428 6,827 14,889 13,721
Noninterest income:
Customer account fees and service charges 515 741 1,087 1,440
Mortgage service fees 143 155 291 320
Net gains on sales of securities available for sale 800 13 1,899 2,073
Net gains on sales of loans 192 73 324 146
Other 323 350 619 596
------- ------- ------- -------
1,973 1,332 4,220 4,575
Noninterest expense:
Salaries and employee benefits 2,996 3,776 5,971 6,838
Occupancy and equipment 1,060 1,038 2,077 2,097
Other real estate owned 75 16 202 39
Other 1,434 1,973 3,174 3,956
------- ------- ------- -------
5,565 6,803 11,424 12,930
------- ------- ------- -------
Earnings before income taxes 3,836 1,356 7,685 5,366
Income taxes 1,325 536 2,667 1,709
------- ------- ------- -------
Net earnings $ 2,511 $ 820 $ 5,018 $ 3,657
======= ======= ======= =======
Weighted average common shares outstanding:
Basic 5,831,872 5,403,342 5,789,698 5,404,531
Diluted 5,999,398 5,730,565 5,985,044 5,701,500
Net earnings per common share -basic $ 0.43 $ 0.15 $ 0.87 $ 0.68
Net earnings per common share -diluted $ 0.42 $ 0.14 $ 0.84 $ 0.64
Dividends declared per share $ 0.125 $ 0.06 $ 0.25 $ 0.12
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 Comprehensive Income
Three Months Ended Six Months Ended
June 30, June 30,
($ in thousands) ------------------- ------------------
1998 1997 1998 1997
------ ------ ------ ------
<C> <C> <C> <C>
(Unaudited) (Unaudited)
<S>
Net earnings $ 2,511 $ 820 $ 5,018 $ 3,657
Other comprehensive income (loss), net of income taxes (benefits):
Unrealized holding gains (losses) arising
during period (523) 1,639 100 2,109
Less: reclassification adjustment for (gains)
losses realized in net earnings (491) (8) (1,166) (1,272)
------ ------ ------ ------
Other comprehensive income (loss) (1,014) 1,631 (1,066) 837
------ ------ ------ ------
Comprehensive income $ 1,497 $ 2,451 $ 3,952 $ 4,494
====== ====== ====== ======
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) ------------------ -----------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net earnings $ 2,511 $ 820 $ 5,018 $ 3,657
Adjustments to reconcile net earnings to net cash
provided by operating activities
Provision for possible loan losses 225 700 525 925
Provision for depreciation and amortization 609 592 1,204 1,179
Net (accretion) amortization of security
discounts and premiums 26 25 (32) 24
Provision for loss on other real estate owned 20 43
Realized gains on sales of securities available
for sale, net (800) (13) (1,899) (2,073)
Loans originated for sale (11,541) (7,841) (19,058) (11,887)
Proceeds from sale of loans originated for sale 11,652 7,464 19,149 12,289
Realized gains on sales of loans (192) (73) (324) (146)
Increase in unearned income 75 80 117 122
Realized (gain) loss on sales of
other real estate owned 24 (18) 58 (21)
Deferred income tax (benefit) 868 (57) 966 (77)
Increase in other assets (2,772) (6,723) (1,627) (6,674)
Increase (decrease) in other liabilities 963 (455) (976) 333
Net cash provided by (used in) operating ------- ------- ------- -------
activities 1,668 (5,499) 3,164 (2,349)
Cash flows from investing activities:
Purchase of securities held to maturity (6,000)
Proceeds from maturities and calls of securities
held to maturity 4,000 19,765 9,000
Principal payments received on securities held
to maturity 647 1,189
Proceeds from sales of securities available
for sale 1,072 34,041 2,551 63,845
Proceeds from maturities and calls of securities
available for sale 16,000 28,250 27,000
Purchase of securities available for sale (19,494) (31,718) (22,080) (84,272)
Principal payments received on securities
available for sale 4,371 3,905 6,163 6,895
Purchase of Federal Home Loan Bank of Boston stock (449) (836)
Loan originations, net of repayments (17,620) (28,153) (37,485) (40,999)
Purchase of premises and equipment (311) (808) (918) (1,649)
Proceeds from sales of other real estate owned 179 757 438 1,344
Net (increase) decrease in interest-bearing
deposits with Federal Home Loan Bank of Boston (10,243) 5,033 7,478 10,642
Other 41 2 28 (25)
------- ------- ------- -------
Net cash provided by (used in) investing
activities (42,005) 3,257 4,190 (13,866)
Cash flows from financing activities:
Net increase in demand, NOW, money market and
savings accounts 7,583 10,732 14,230 17,856
Net increase (decrease) in time certificates (9,691) 3,182 (32,061) 12,986
Net increase (decrease) in securities sold under
agreements to repurchase 5,328 4,269 1,981 (9,844)
Net increase (decrease) in other borrowings 39,907 (8,827) 19,615 1,348
Proceeds from issuance of common stock 246 809 2,095 1,087
Purchase of treasury stock (304)
Dividends paid on common stock (730) (336) (1,350) (621)
Other (281) (281)
------- ------- ------- -------
Net cash provided by financing activities 42,362 9,829 4,229 22,508
------- ------- ------- -------
Net increase in cash and due from banks 2,025 7,587 11,583 6,293
Cash and due from banks at beginning of period 38,235 29,265 28,677 30,559
------- ------- ------- -------
Cash and due from banks at end of period $ 40,260 $ 36,852 $ 40,260 $ 36,852
======= ======= ======= =======
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, 1998
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-Q 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, 1998 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-K for the year ended December 31, 1997.
The consolidated financial statements and per share data for the three
and six months ended June 30, 1997, included herein, have been restated to
reflect the pooling of interests with Primary Bank, which was completed after
the close of business on October 31, 1997, as if the transaction had been in
effect as of the beginning of all periods presented.
Certain information in the 1997 financial statements has been
reclassified to conform with the 1998 presentation.
Note 2. Earnings Per Share
The Company adopted Financial Accounting Standards Board Statement
No. 128, "Earnings Per Share" ("SFAS No. 128"), effective December 31, 1997 and
has restated earnings per share ("EPS") for all prior-period EPS data presented.
SFAS No. 128 specifies the computation, presentation and disclosure requirements
for EPS for entities with publicly held common stock or potential common stock.
Basic EPS is computed by dividing net earnings by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the Company.
Note 3. Comprehensive Income
The Company adopted Financial Accounting Standards Board Statement
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"), effective
January 1, 1998. SFAS No. 130 establishes standards for reporting comprehensive
income and its components (revenues, expenses, gains and losses). Components of
comprehensive income are net income and all other non-owner changes in equity.
The Statement requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. Reclassification of financial statements for earlier
periods provided for comparative purposes is required.
The Company has chosen to disclose comprehensive income in a separate
statement of comprehensive income, in which the components of comprehensive
income are displayed net of income taxes.
The following table sets forth the related tax effects allocated to
each element of comprehensive income for the three and six months ended
June 30, 1998 and 1997:
<TABLE>
<CAPTION>
Three Months Ended June 30,
-------------------------------------------------------------------------------
1998 1997
------------------------------------- -------------------------------------
Before-Tax Related Net-of-Tax Before-Tax Related Net-of-Tax
Amount Tax Effect Amount Amount Tax Effect Amount
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
(In Thousands)
Unrealized gains (losses) on
securities available for sale:
Unrealized holding gains (losses)
arising during period $ (852) $ 329 $ (523) $ 2,670 $ (1,031) $ 1,639
Less: reclassification adjustment
for (gains) losses realized
in net income (800) 309 (491) (13) 5 (8)
------ ------ ------ ------ ------ ------
Net unrealized gains (losses) (1,652) 638 (1,014) 2,657 (1,026) 1,631
------ ------ ------ ------ ------ ------
Other comprehensive income (loss) $ (1,652) $ 638 $ (1,014) $ 2,657 $ (1,026) $ 1,631
====== ====== ====== ====== ====== ======
<CAPTION>
Six Months Ended June 30,
-------------------------------------------------------------------------------
1998 1997
------------------------------------- -------------------------------------
Before-Tax Related Net-of-Tax Before-Tax Related Net-of-Tax
Amount Tax Effect Amount Amount Tax Effect Amount
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
(In Thousands)
Unrealized gains (losses) on
securities available for sale:
Unrealized holding gains (losses)
arising during period $ 163 $ (63) $ 100 $ 3,436 $ (1,327) $ 2,109
Less: reclassification adjustment
for (gains) losses realized
in net income (1,899) 733 (1,166) (2,073) 801 (1,272)
------ ------ ------ ------ ------ ------
Net unrealized gains (losses) (1,736) 670 (1,066) 1,363 (526) 837
------ ------ ------ ------ ------ ------
Other comprehensive income (loss) $ (1,736) $ 670 $ (1,066) $ 1,363 $ (526) $ 837
====== ====== ====== ====== ====== ======
</TABLE>
The following table sets forth the components of accumulated other
comprehensive income for the three and six months ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------- --------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
(In Thousands)
Beginning balance $ 5,661 $ 795 $ 5,713 $ 1,589
Unrealized gains (losses) on
securities available for sale,
net of income taxes (1,014) 1,631 (1,066) 837
------ ------ ------ ------
Ending balance $ 4,647 $ 2,426 $ 4,647 $ 2,426
====== ====== ====== ======
</TABLE>
Note 4. Operating Segments
The Company adopted Financial Accounting Standards Board Statement No.
131, "Disclosures About Segments of an Enterprise and Related Information",
("SFAS No. 131"), effective January 1, 1998. This Statement establishes
standards for reporting information about segments in annual and interim
financial statements. SFAS No. 131 introduces a new model for segment reporting
called the "management approach". The management approach is based on the way
the chief operating decision-makers organize segments within the company for
making operating decisions and assessing performance. Reportable segments are
based on products and services, geography, legal structure, management structure
and any other manner in which management disaggregates a company. Based on the
"management approach" model, the Company has determined that its business is
comprised of a single operating segment and that SFAS No. 131 has no impact on
its financial statements.
Note 5. 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 part of accumulated
other comprehensive income, net of related tax effects. At June 30, 1998 and
December 31, 1997, the Company had no securities classified as trading
securities.
The amortized cost, estimated market value and carrying value of
securities at June 30, 1998 and December 31, 1997 were as follows:
<TABLE>
<CAPTION>
Amortized Estimated Carrying
At June 30, 1998 Cost Market Value Value
--------- ------------ ---------
<S> <C> <C> <C>
(In Thousands)
Securities held to maturity
US Government agency obligations $ 14,220 $ 14,429 $ 14,220
------ ------ ------
Total securities held to maturity $ 14,220 $ 14,429 $ 14,220
====== ====== ======
Securities available for sale
US Treasury obligations $ 82,495 $ 83,087 $ 83,087
US Government agency obligations 15,993 15,960 15,960
Other corporate obligations 25,620 25,687 25,687
Mortgage-backed securities:
FNMA 9,137 9,106 9,106
FHLMC 3,788 3,746 3,746
GNMA 1,637 1,682 1,682
SBA 668 683 683
------ ------ ------
Total mortgage-backed securities 15,230 15,217 15,217
Mutual Funds 6,165 6,275 6,275
Marketable equity securities 10,842 17,690 17,690
------- ------- -------
Total securities available for sale $ 156,345 $ 163,916 $ 163,916
======= ======= =======
<CAPTION>
Amortized Estimated Carrying
At December 31, 1997 Cost Market Value Value
--------- ------------ --------
<S> <C> <C> <C>
(In Thousands)
Securities held to maturity
US Government agency obligations $ 33,910 $ 34,170 $ 33,910
------ ------ ------
Total securities held to maturity $ 33,910 $ 34,170 $ 33,910
====== ====== ======
Securities available for sale
US Treasury obligations $ 82,470 $ 82,969 $ 82,969
US Government agency obligations 44,218 44,199 44,199
Other corporate obligations 8,493 8,508 8,508
Mortgage-backed securities:
FNMA 11,723 11,677 11,677
FHLMC 6,562 6,547 6,547
GNMA 2,418 2,502 2,502
SBA 765 782 782
------ ------ ------
Total mortgage-backed securities 21,468 21,508 21,508
Mutual Funds 6,005 6,113 6,113
Marketable equity securities 6,719 15,383 15,383
------- ------- -------
Total securities available for sale $ 169,373 $ 178,680 $ 178,680
======= ======= =======
</TABLE>
Note 6. Loans
<TABLE>
<CAPTION>
Loans consist of the following at:
June 30, December 31,
1998 1997
--------- ------------
<S> <C> <C>
(In Thousands)
Commercial, financial and agricultural $ 58,908 $ 68,513
Real estate-residential 299,839 245,577
Real estate-commercial 150,440 151,474
Real estate-construction and
land development 3,152 6,000
Installment 9,802 11,588
Other 23,535 26,013
------- -------
Total loans 545,676 509,165
Less:
Unearned income (1,549) (1,432)
Allowance for possible loan losses (7,327) (7,651)
------- -------
Net loans $ 536,800 $ 500,082
======= =======
</TABLE>
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 subsequently received
on nonaccrual loans is either applied against principal or recorded as income
according to management's judgment as to the collectibility of principal.
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,
------------------ ------------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
(In Thousands)
Balance, beginning of period $ 7,492 $ 6,199 $ 7,651 $ 6,253
Provision for possible loan losses 225 700 525 925
Loans charged off (577) (423) (1,176) (737)
Recoveries of loans previously charged off 187 41 327 76
------ ------ ------ ------
Balance, end of period $ 7,327 $ 6,517 $ 7,327 $ 6,517
====== ====== ====== ======
</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. The average recorded investment in impaired
loans was $3,269,000 and $2,573,000 for the six months ended June 30, 1998 and
1997, respectively. During the three and six months ended June 30, 1998 and
1997, the Company recognized no income on impaired loans.
<TABLE>
<CAPTION>
Impaired loans consist of the following at:
June 30, December 31,
1998 1997
--------- ------------
<S> <C> <C>
(In Thousands)
Recorded investment in impaired loans $ 3,047 $ 4,559
===== =====
Impaired loans with specific loss allowances $ 3,047 $ 4,559
===== =====
Loss allowances reserved on impaired loans $ 455 $ 1,054
===== =====
</TABLE>
Note 7. Interest Bearing Deposits
<TABLE>
<CAPTION>
Interest bearing deposits consist of the following at:
June 30, December 31,
1998 1997
-------- ------------
<S> <C> <C>
(In Thousands)
NOW and Super NOW accounts $ 184,805 $ 166,773
Savings accounts 87,625 89,278
Money market deposit accounts 22,637 31,486
Time certificates 258,115 290,176
------- -------
$ 553,182 $ 577,713
======= =======
</TABLE>
Note 8. Supplemental Disclosures of Cash Flow Information
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------ -----------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
(In Thousands)
Cash paid for interest $ 6,421 $ 7,355 $13,195 $14,542
Income taxes paid 2,050 1,200 2,255 1,200
Non-cash investing activities:
Real estate acquired in settlement of loans 125 116 125 387
</TABLE>
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, 1998
General
All information within this section should be read in conjunction with
the consolidated financial statements and notes included elsewhere in this Form
10-Q. 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 information for the three and six months
ended June 30, 1997, included herein, reflects the pooling of interests with
Primary Bank, which was completed after the close of business on
October 31, 1997 as if the transaction had been in effect as of the beginning
of all periods presented.
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.
The Company has made, and may continue to make, various forward-looking
statements with respect to its financial condition and results of operations.
The Company cautions that these forward-looking statements are subject to
numerous assumptions, risks and uncertainties, and that statements for periods
subsequent to June 30, 1998 are subject to greater uncertainty because of the
increased likelihood of changes in underlying factors and assumptions. Actual
results could differ materially from forward-looking statements. The following
factors could cause actual results to differ materially from such forward-
looking statements: continued pricing pressure on loans and deposit products,
actions of competitors, changes in economic conditions, the ability of the
Company and its competitors, vendors and customers to respond effectively to
issues related to the Year 2000, the extent and timing of actions of the Federal
Reserve, customers' acceptance of the Company's products and services and the
extent and timing of legislative and regulatory actions and reforms. The
Company's forward-looking statements speak only as of the date on which such
statements are made. By making forward-looking statements, the Company assumes
no duty to update them to reflect new, changing or unanticipated events or
circumstances.
Financial Condition
Total assets increased by $7,501,000 or .92%, from $813,670,000 at
December 31, 1997 to $821,171,000 at June 30, 1998.
Interest bearing deposits with the Federal Home Loan Bank of Boston
decreased $7,478,000, from $27,452,000 at December 31, 1997 to $19,974,000 at
June 30, 1998. Such investments are short-term overnight investments and the
level of the Company's investment in these instruments fluctuates as investments
are made in other interest earning assets such as loans, securities held to
maturity and securities available for sale, and as balances of interest bearing
liabilities such as deposits, securities sold under agreements to repurchase and
other borrowings fluctuate. These instruments are also used to fund cash and
due from bank requirements.
Securities held to maturity decreased $19,690,000, from $33,910,000 at
December 31, 1997 to $14,220,000 at June 30, 1998. Securities available for
sale decreased $14,764,000, from $178,680,000 at December 31, 1997 to
$163,916,000 at June 30, 1998. Proceeds from decreases in securities held to
maturity and securities available for sale were primarily used to fund increases
in residential real estate loans and deposit outflows.
Net loans were $536,800,000 at June 30, 1998, an increase of $36,718,000
from $500,082,000 at December 31, 1997. The increase reflects strong loan
demand in the residential real estate market as a result of the continued low
interest rate environment which encouraged refinancing, as well as new home
purchases in the subsidiary bank's market areas.
Total deposits decreased $17,831,000, from $648,983,000 at
December 31, 1997 to $631,152,000 at June 30, 1998. The significant changes in
deposits related primarily to decreases in time certificates and money market
accounts of $32,061,000 and $8,849,000, respectively, partially offset by an
increase in NOW and Super NOW accounts of $18,032,000 and an increase in
noninterest bearing deposits of $6,700,000. The decrease in time certificates
and a portion of the money market accounts related primarily to depositors
looking to achieve higher yields by investing their funds in alternate sources
outside of traditional bank products, while the continued success of the NOW
account product introduced by the subsidiary bank in 1995 contributed to the
increase in NOW and Super NOW accounts and the decrease in a portion of the
money market accounts as some money market accounts shifted into the NOW account
product.
Securities sold under agreements to repurchase increased $1,981,000,
from $66,025,000 at December 31, 1997 to $68,006,000 at June 30, 1998. A
significant portion of these accounts are represented by municipalities
investing their excess cash. Such accounts usually reach a peak in June and
December as municipalities invest the real estate taxes they collect and
decrease after those periods as the municipalities use their invested cash.
Other borrowings consisted of borrowings and advances from the Federal
Home Loan Bank of Boston and amounted to $45,492,000 at June 30, 1998 and
$25,877,000 at December 31, 1997. The increase of $19,615,000 was primarily
used to fund increases in residential real estate loans and deposit outflows.
Stockholders' equity increased by $5,325,000 during the first six months
of 1998, from $66,914,000 at December 31, 1997, to $72,239,000 at June 30, 1998.
The increase was primarily due to $5,018,000 of net earnings and $3,128,000
relating to the issuance of common stock upon the exercise of common stock
options including $1,033,000 of related tax benefits associated with the
exercise of nonstatutory options, partially offset by $1,475,000 of common stock
dividends declared and a $1,066,000 decrease in unrealized gains on securities
available for sale, net of related income tax effects.
Results of Operations
Net Earnings
Net earnings for the three and six months ended June 30, 1998 were
$2,511,000 and $5,018,000 compared to $820,000 and $3,657,000 for the three and
six months ended June 30, 1997. Basic earnings per share were $.43 and $.87 for
the three and six months ended June 30, 1998, compared to $.15 and $.68 for the
three and six months ended June 30, 1997. Diluted earnings per share were $.42
and $.84 for the three and six months ended June 30, 1998 compared to $.14 and
$.64 for the three and six months ended June 30, 1997. Included in net earnings
were gains on sales of securities available for sale of $800,000 and $1,899,000,
respectively, for the three and six months ended June 30, 1998 compared to
$13,000 and $2,073,000 for the three and six months ended June 30, 1997.
Earnings before income taxes, excluding gains on sales of securities available
for sale, were $3,036,000 and $5,786,000 for the three and six months ended
June 30, 1998 compared to $1,343,000 and $3,293,000 for the three and six months
ended June 30, 1997, representing an increase of 126.06% and 75.71%,
respectively. Net earnings after taxes, exclusive of the after tax effect of
gains on sales of securities available for sale were $2,020,000 and $3,853,000
for the three and six months ended June 30, 1998 compared to $813,000 and
$2,385,000 for the three and six months ended June 30, 1997, representing an
increase of 148.46% and 61.55%, respectively.
Interest and Dividend Income
Interest and dividend income for the three and six months ended
June 30, 1998 was $14,282,000 and $28,729,000 compared to $14,948,000 and
$29,230,000 for the corresponding periods in 1997. The decrease in interest
income for the three and six months ended June 30, 1998 compared to the same
periods in 1997 is primarily due to a decrease in the average balance of
interest earning assets of $31,715,000 and $26,102,000, respectively, partially
offset by an overall increase in yield to 8.06% for the six months ended
June 30, 1998 compared with 7.92% for the same period in 1997, while the yield
for the three months ended June 30, 1998 and 1997 remained relatively stable at
7.93% and 7.95%, respectively. The increase in the yield on average interest
earning assets for the six months relates to a change in the mix of those
assets, with the average balance of higher yielding loans increasing $72,090,000
in 1998 compared to 1997, while the average balance of securities held to
maturity, securities available for sale and other interest earning assets
decreased by $98,192,000. Yields on loans and securities and interest earning
investments declined from 8.95% and 6.35%, respectively, for the quarter ended
June 30, 1997 to 8.62% and 5.91%, respectively, for the quarter ended
June 30, 1998; however the change in the asset mix accounted for the relatively
stable yields on interest earning assets.
Interest Expense
Interest expense for the three and six months ended June 30, 1998 was
$6,629,000 and $13,315,000 compared to $7,421,000 and $14,584,000 for the
corresponding periods in 1997. The decrease in interest expense for the three
and six months ended June 30, 1998 compared to the same periods in 1997 is
primarily due to a decrease in the average balance of total interest bearing
liabilities of $43,071,000 and $37,696,000, respectively, coupled with a
decrease in the cost of those liabilities to 4.11% and 4.16% for the three and
six months ended June 30, 1998 compared to 4.31% and 4.30%, respectively, for
the same periods in 1997. The average balance of other borrowed funds decreased
$33,720,000 and $40,627,000 for the three and six months ended June 30, 1998
compared to the same periods in 1997, as did the cost of borrowings to 4.94% and
4.92% for the three and six months ended June 30, 1998 compared to 5.31% and
5.27%, respectively, for the same periods in 1997. The average balance of time
deposits decreased $23,937,000 and $10,107,000 for the three and six months
ended June 30, 1998 compared to the same periods in 1997 which was partially
offset by increases in the average balances of savings deposits of $14,586,000
and $13,038,000, respectively for the three and six months ended June 30, 1998
compared to the same periods in 1997. The average cost of savings deposits was
relatively stable at 2.63% and 2.64% for the three and six months ended
June 30, 1998 compared to 2.63% for the three and six months ended
June 30, 1997, while the cost of time deposits was 5.54% and 5.58% for the three
and six months ended June 30, 1998 compared to 5.58% and 5.56% for the same
periods in 1997.
Net Interest and Dividend Income
Net interest and dividend income increased by $126,000 for the three
months ended June 30, 1998 compared to the same period in 1997 and increased by
$768,000 for the six months ended June 30, 1998 compared to the same period in
1997. The increase for the three and six months ended June 30, 1998 compared to
the same periods in 1997 relates to increases in the interest rate spread and
the net yield on interest earning assets. The Company's interest rate spread
increased from 3.64% and 3.62% for the three and six months ended June 30, 1997
to 3.82% and 3.91% for the three and six months ended June 30, 1998. The net
yield on interest earning assets increased from 4.00% and 3.97% for the three
and six months ended June 30, 1997 to 4.25% and 4.33% for the three and six
months ended June 30, 1998.
Provision for Possible Loan Losses
The provision for possible loan losses for the three and six months
ended June 30, 1998 was $225,000 and $525,000, compared to $700,000 and $925,000
for the three and six months ended June 30, 1997. The decrease in the provision
for the three and six months ended June 30, 1998, compared to the same periods
in 1997, is based on management's overall evaluation of the adequacy of the
level of the allowance, in relation to nonperforming loans and total loans. The
level of net charge-offs for the three and six months ended June 30, 1998 was
$390,000 and $849,000, compared to $382,000 and $661,000, 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, 1998
totaled $1,973,000 and $4,220,000, compared to $1,332,000 and $4,575,000 for the
same periods in 1997. The increase of $641,000 for the three months ended
June 30, 1998 compared to the same period in 1997 relates primarily to an
increase of $787,000 in net gains on sales of securities available for sale and
an increase of $119,000 in gains on sales of loans in to the secondary mortgage
market, partially offset by a decrease in customer account fees and service
charges of $226,000. For the six months ended June 30, 1998, noninterest income
decreased by $355,000. The decrease relates primarily to a decrease in customer
account fees and service charges of $353,000 and a decrease of $174,000 in net
gains on sales of securities available for sale, partially offset by an increase
of $178,000 in net gains on sales of loans in to the secondary mortgage market.
Noninterest Expense
Noninterest expense for the three months ended June 30, 1998 decreased
$1,238,000 from $6,803,000 for the three months ended June 30, 1997 to
$5,565,000 for the three months ended June 30, 1998. The decrease for the three
months ended June 30, 1998, compared to 1997 relates primarily to efficiencies
realized from the merger with Primary Bank in the areas of salaries and
employee benefits and data transmission costs, partially offset by normal
salary increases. Salaries and employee benefits also decreased by $798,000
due to the inclusion of expenses relating to the vesting of performance based
options during the three months ended June 30, 1997. Noninterest expense for
the six months ended June 30, 1998 decreased $1,506,000 from $12,930,000 for the
six months ended June 30, 1997 to $11,424,000 for the six months ended
June 30, 1998. The decrease for the six months ended June 30, 1998 compared to
the same period in 1997, are for the same reasons mentioned above for the three
months ended June 30, 1998 compared to the same period in 1997, partially
offset by costs incurred during the first quarter of 1998 to convert Primary
Bank's computer records onto Granite Bank's data processing systems.
Income Taxes
Income tax expense for the three and six months ended June 30, 1998 was
$1,325,000 and $2,667,000, compared with $536,000 and $1,709,000 for the same
periods in 1997. The increase in income tax expense for the three and six
months ended June 30, 1998, compared to the same periods in 1997, related
primarily to the increase in pretax income for the three and six months ended
June 30, 1998 compared to the same periods in 1997. Income tax expense as a
percentage of earnings before income taxes was 34.54% and 34.70% for the three
and six months ended June 30, 1998 and 39.53% and 31.85% for the three and six
months ended June 30, 1997.
Risk Elements
Total nonperforming loans decreased from $7,145,000 or 1.40% of total
loans, at December 31, 1997, to $5,784,000 or 1.06% of total loans, at
June 30, 1998. During the same period, other real estate owned, declined from
$1,905,000 to $1,491,000. The allowance for possible loan losses as a percent
of total nonperforming loans was 126.68% at June 30, 1998, compared with 107.08%
at December 31, 1997.
As shown in the following table, nonperforming assets as a percentage of
total assets were 0.89% and 1.11%, as of June 30, 1998 and December 31, 1997,
respectively.
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
($ in Thousands)
Loans 90 days or more past due
and still accruing $ 617 $ 535
===== =====
Nonaccrual/nonperforming loans $ 5,784 $ 7,145
Other real estate owned 1,491 1,905
----- -----
Total nonperforming assets $ 7,275 $ 9,050
===== =====
Allowance for possible loan losses $ 7,327 $ 7,651
===== =====
Nonperforming loans as a percent of
total loans 1.06% 1.40%
Allowance for possible loan losses
as a percent of total
nonperforming loans 126.68% 107.08%
Nonperforming assets as a percent of
total assets 0.89% 1.11%
</TABLE>
Liquidity
The Company's primary sources of liquidity, through its subsidiary bank,
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, 1998,
short-term and long-term borrowings from the Federal Home Loan Bank of Boston
were $45,492,000, with an additional available borrowing capacity of
approximately $234,000,000; interest bearing deposits with the Federal Home Loan
Bank of Boston were $19,974,000 and securities available for sale were
$163,916,000. Included in securities held to maturity and securities available
for sale are debt securities with a carrying value of $138,954,000. The
weighted average maturity for debt securities held to maturity and available
for sale, excluding mortgage-backed securities with a carrying value of
$15,217,000, is approximately 36 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, 1998 and December 31, 1997.
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, 1998 and December 31, 1997, the subsidiary
bank was in compliance with all regulatory capital requirements. Additionally,
at June 30, 1998, the subsidiary bank was considered "well capitalized" for
purposes of the FDIC's prompt corrective action regulations.
At June 30, 1998 the Company's and the subsidiary bank's regulatory
capital ratios as a percentage of assets are as follows:
<TABLE>
<CAPTION>
June 30, 1998
---------------------
Subsidiary
Bank Company
---------- ---------
<S> <C> <C>
Tier I leverage capital 8.05% 8.43%
Tier I capital to risk-weighted assets 12.66% 13.25%
Total capital to risk-weighted assets 13.91% 14.50%
</TABLE>
Year 2000
The Company is aware of the issues associated with the programming code
in existing computer systems as the millennium (year 2000) approaches. The
"year 2000" problem is pervasive and complex as virtually every computer
operation will be affected in some way by the rollover of the two digit year
value to 00. The issue is whether computer systems will properly recognize date
sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail.
The Company is utilizing both internal and external resources to
identify, correct or reprogram, and test the systems for the year 2000
compliance. It is anticipated that all reprogramming efforts will be completed
by December 31, 1998, allowing adequate time for testing. To date,
confirmations have been received from the Company's primary processing vendors
that plans are developed to address processing of transactions in the year 2000
and plans are in the process of being developed for actual testing. Management
believes that costs related to the year 2000 compliance will not have any
significant adverse affect on the Company's earnings.
The Company may incur various liquidity requirements as the year 2000
approaches as depositors may reduce their deposits to fund and anticipate their
own year 2000 liquidity needs, along with the impact year 2000 may have on the
ability of borrowers to repay their loans. The Company has reviewed all
significant deposit and borrowing relationships and management believes these
relationships will not have a significant adverse affect on the Company's
liquidity or operations.
Consolidated Quarterly Average Balances and Interest Rates
The table on the following page presents, for the periods indicated,
average balances of assets and liabilities, as well as yields on interest
earning assets and the cost of interest bearing liabilities.
<TABLE>
<CAPTION>
Granite State Bankshares, Inc. and Subsidiary
Consolidated Quarterly Average Balances and Interest Rates
(dollars in thousands)
1998 QTD 1997 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 $ 539,783 8.62% $ 513,365 8.91% $ 499,316 8.93% $ 488,820 8.86%
Securities and
interest earning
investments 182,375 5.91% 200,856 6.40% 232,678 6.23% 250,838 6.30%
Total interest ------- ------- ------- -------
earning assets 722,158 7.93% 714,221 8.20% 731,994 8.07% 739,658 7.99%
Noninterest earning
assets 77,019 79,945 77,425 73,898
Allowance for loan
losses (7,532) (7,749) (7,248) (6,632)
------- ------- ------- -------
Total Assets $ 791,645 $ 786,417 $ 802,171 $ 806,924
======= ======= ======= =======
Liabilities and
stockholders' equity:
Savings deposits $ 299,353 2.63% $ 289,066 2.65% $ 288,095 2.60% $ 284,281 2.61%
Time Deposits 258,483 5.54% 279,405 5.63% 290,428 5.67% 284,698 5.64%
Other borrowed funds 88,977 4.94% 76,021 4.90% 79,722 5.03% 102,852 5.21%
Total int. bearing ------- ------- ------- -------
liabilities 646,813 4.11% 644,492 4.21% 658,245 4.25% 671,831 4.29%
Noninterest bearing
deposits 69,895 66,622 70,227 64,624
Other liabilities 3,108 5,787 7,095 5,133
Stockholders' equity 71,829 69,516 66,604 65,336
------- ------- ------- -------
Total liab. and stock-
holders' equity $ 791,645 $ 786,417 $ 802,171 $ 806,924
======= ======= ======= =======
Interest rate spread 3.82% 3.99% 3.82% 3.70%
===== ===== ===== =====
Net average earning
balance / Net yield on
interest earning assets $ 75,345 4.25% $ 69,729 4.41% $ 73,749 4.25% $ 67,827 4.09%
======= ===== ======= ===== ======= ===== ======= =====
<CAPTION>
1997 QTD 1996 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 $ 464,524 8.95% $ 444,479 8.93% $ 433,683 9.01% $ 423,761 8.90%
Securities and
interest earning
investments 289,349 6.35% 290,168 6.28% 287,014 6.10% 279,605 5.98%
Total interest ------- ------- ------- -------
earning assets 753,873 7.95% 734,647 7.88% 720,697 7.85% 703,366 7.74%
Noninterest earning
assets 71,612 70,575 70,125 66,284
Allowance for loan
losses (6,205) (6,279) (6,459) (6,373)
------- ------- ------- -------
Total Assets $ 819,280 $ 798,943 $ 784,363 $ 763,277
======= ======= ======= =======
Liabilities and
stockholders' equity:
Savings deposits $ 284,767 2.63% $ 277,594 2.63% $ 279,459 2.67% $ 276,521 2.63%
Time Deposits 282,420 5.58% 275,527 5.54% 267,595 5.53% 261,105 5.60%
Other borrowed funds 122,697 5.31% 123,633 5.23% 113,202 5.16% 107,733 5.18%
Total int. bearing ------- ------- ------- -------
liabilities 689,884 4.31% 676,754 4.29% 660,256 4.25% 645,359 4.26%
Noninterest bearing
deposits 62,872 57,893 62,285 59,498
Other liabilities 4,382 3,630 3,931 3,367
Stockholders' equity 62,142 60,666 57,891 55,053
------- ------- ------- -------
Total liab. and stock-
holders' equity $ 819,280 $ 798,943 $ 784,363 $ 763,277
======= ======= ======= =======
Interest rate spread 3.64% 3.59% 3.60% 3.48%
===== ===== ===== =====
Net average earning
balance / Net yield on
interest earning assets $ 63,989 4.00% $ 57,893 3.93% $ 60,441 3.95% $ 58,007 3.83%
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
Granite State Bankshares, Inc. and Subsidiary
Part I Item 3 and Part II - Other Information
June 30, 1998
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There has been no material changes in the Company's assessment of its
sensitivity to market risk since its presentation in the 1997 annual report
filed with the SEC.
Part II - Other Information
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 and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
On April 14, 1998, 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) Dr. David M. Bartley 4,827,952 0 10,060 0
B) Charles W. Smith 4,829,938 0 8,074 0
C) C. Robertson Trowbridge 4,759,711 0 78,301 0
D) James C. Wirths III 4,830,774 0 7,238 0
Election of the following directors
for two year terms or until their
successors are qualified and elected:
A) Christopher J. Flynn 4,830,191 0 7,822 0
B) Forrest D. McKerley 4,827,671 0 10,341 0
Election of the following directors
for a one year term or until their
successors are qualified and elected:
A) David J. Houston 4,825,394 0 12,618 0
2)Approval of the Granite State Bankshares, Inc.
1997 Long-Term Incentive Stock Benefit Plan 3,267,291 482,124 0 33,247
3)Ratification of Grant Thorton LLP as the Company's
auditors for the fiscal year ended December 31, 1998 4,821,507 7,053 0 9,453
</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 12, 1998 By: Charles W. Smith
Chairman and
Chief Executive Officer
/s/ William G. Pike
________________________________________
Dated : August 12, 1998 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-Q and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 40,260
<INT-BEARING-DEPOSITS> 19,974
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 163,916<F1>
<INVESTMENTS-CARRYING> 14,220
<INVESTMENTS-MARKET> 14,429
<LOANS> 544,127<F2>
<ALLOWANCE> 7,327
<TOTAL-ASSETS> 821,171
<DEPOSITS> 631,152
<SHORT-TERM> 72,841<F3>
<LIABILITIES-OTHER> 4,282
<LONG-TERM> 40,657<F4>
0
0
<COMMON> 6,796
<OTHER-SE> 65,443
<TOTAL-LIABILITIES-AND-EQUITY> 821,171
<INTEREST-LOAN> 22,870
<INTEREST-INVEST> 5,322
<INTEREST-OTHER> 537
<INTEREST-TOTAL> 28,729
<INTEREST-DEPOSIT> 11,301
<INTEREST-EXPENSE> 13,315
<INTEREST-INCOME-NET> 15,414
<LOAN-LOSSES> 525
<SECURITIES-GAINS> 1,899
<EXPENSE-OTHER> 11,424
<INCOME-PRETAX> 7,685
<INCOME-PRE-EXTRAORDINARY> 5,018
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,018
<EPS-PRIMARY> 0.87
<EPS-DILUTED> 0.84
<YIELD-ACTUAL> 4.33
<LOANS-NON> 5,784
<LOANS-PAST> 617
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,651
<CHARGE-OFFS> 1,176
<RECOVERIES> 327
<ALLOWANCE-CLOSE> 7,327
<ALLOWANCE-DOMESTIC> 7,327
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>Securities available for sale, at market value
<F2>Loans net of unearned income, gross of allowance for possible loan losses
and excluding loans held for sale
<F3>Securities sold under agreements to repurchase of $68,006 and short term
borrowings with the Federal Home Loan Bank of Boston of $4,835
<F4>Includes other borrowings with the Federal Home Loan Bank of Boston of
$40,657
</FN>
</TABLE>
