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 September 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 November 10, 1998 was 5,918,226, $1.00 par value per share.
INDEX
Granite State Bankshares, Inc. and Subsidiary
Part I Financial Information Page
Item 1. Financial Statements:
Consolidated Statements of Financial Condition
September 30, 1998 and December 31, 1997 3
Consolidated Statements of Earnings
Three and Nine Months Ended September 30, 1998 and 1997 4
Consolidated Statements of Comprehensive Income
Three and Nine Months Ended September 30, 1998 and 1997 5
Consolidated Statements of Cash Flows
Three and Nine Months Ended September 30, 1998 and 1997 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 20
Part II Other Information
Item 1. Legal Proceedings 20
Item 2. Changes in Securities and Use of Proceeds 20
Item 3. Defaults upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
<TABLE>
<CAPTION>
Granite State Bankshares, Inc. and Subsidiary
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Statements of Financial Condition
September December 31,
($ in Thousands, except par values) 1998 1997
--------- ------------
<S> <C> <C>
(Unaudited)
ASSETS
Cash and due from banks $ 22,688 $ 28,677
Interest bearing deposits in other banks,
at cost, which approximates market value 10,751 27,452
Securities available for sale (amortized cost
$187,107 at September 30, 1998 and $169,373
at December 31, 1997) 191,278 178,680
Securities held to maturity
(Market value $24,708 at September 30, 1998
and $34,170 at December 31, 1997) 24,266 33,910
Stock in Federal Home Loan Bank of Boston 7,201 7,201
Loans held for sale 1,714 1,068
Loans 543,644 509,165
Less: Unearned income (1,490) (1,432)
Allowance for possible loan losses (7,514) (7,651)
------- -------
Net loans 534,640 500,082
Premises and equipment 18,529 18,863
Other real estate owned 1,787 1,905
Other assets 17,855 15,832
------- -------
Total assets $ 830,709 $ 813,670
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing deposits $ 566,308 $ 577,713
Noninterest bearing deposits 74,227 71,270
------- -------
Total deposits 640,535 648,983
Securities sold under agreements to repurchase 72,797 66,025
Other borrowings 41,726 25,877
Other liabilities 3,612 5,871
------- -------
Total liabilities 758,670 746,756
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 September 30, 1998 and
December 31, 1997, respectively 6,796 6,494
Additional paid-in capital 37,941 34,730
------- -------
44,737 41,224
Accumulated other comprehensive income 2,560 5,713
Retained earnings 31,526 26,389
------- -------
78,823 73,326
Less: Treasury stock, at cost, 897,805 and
920,305 shares at September 30, 1998 and
December 31, 1997, respectively (6,135) (6,305)
Unearned compensation - ESOP and
Recognition and Retention Plan (649) (107)
------- -------
Total stockholders' equity 72,039 66,914
------- -------
Total liabilities and stockholders' equity $ 830,709 $ 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 Nine Months Ended
September 30, September 30,
------------------ -----------------
($ in Thousands, except per share data) 1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
(Unaudited) (Unaudited)
Interest and dividend income:
Loans $ 11,515 $ 10,913 $ 34,385 $ 31,074
Debt securities available for sale 2,377 2,268 6,562 7,603
Marketable equity securities available for sale 165 121 534 417
Securities held to maturity 321 1,313 1,089 4,214
Dividends on Federal Home Loan Bank of Boston stock 115 117 345 337
Other interest 349 162 656 479
------- ------- ------- -------
14,842 14,894 43,571 44,124
Interest expense:
Savings deposits 1,947 1,867 5,797 5,535
Time deposits 3,717 4,051 11,168 11,749
Borrowed funds 1,497 1,350 3,511 4,568
------- ------- ------- -------
7,161 7,268 20,476 21,852
------- ------- ------- -------
Net interest and dividend income 7,681 7,626 23,095 22,272
Provision for possible loan losses 250 700 775 1,625
Net interest and dividend income after provision ------- ------- ------- -------
for possible loan losses 7,431 6,926 22,320 20,647
Noninterest income:
Customer account fees and service charges 591 791 1,678 2,231
Mortgage service fees 137 158 428 478
Net gains on sales of securities available for sale 481 115 2,380 2,188
Net gains on sales of loans 202 120 526 266
Other 324 316 943 912
------ ------ ------ ------
1,735 1,500 5,955 6,075
Noninterest expense:
Salaries and employee benefits 2,921 3,284 8,892 10,122
Occupancy and equipment 1,072 1,055 3,149 3,152
Other real estate owned (19) 16 183 55
Other 1,586 1,808 4,760 5,764
------ ------ ------ ------
5,560 6,163 16,984 19,093
------ ------ ------ ------
Earnings before income taxes 3,606 2,263 11,291 7,629
Income taxes 1,276 587 3,943 2,296
------ ------ ------ ------
Net earnings $ 2,330 $ 1,676 $ 7,348 $ 5,333
====== ====== ====== ======
Weighted average common shares outstanding:
Basic 5,848,765 5,417,027 5,809,599 5,469,573
Diluted 6,001,897 5,799,854 5,990,503 5,732,623
Net earnings per common share -basic $ 0.40 $ 0.31 $ 1.26 $ 0.98
Net earnings per common share -diluted $ 0.39 $ 0.29 $ 1.23 $ 0.93
Dividends declared per share $ 0.125 $ 0.06 $ 0.375 $ 0.18
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 Nine Months Ended
September 30, September 30,
------------------ -----------------
(In Thousands) 1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
(Unaudited) (Unaudited)
Net earnings $ 2,330 $ 1,676 $ 7,348 $ 5,333
------ ------ ------ ------
Other comprehensive income (loss),
net of income taxes (benefits):
Unrealized holding gains (losses)
arising during period (1,792) 1,457 (1,692) 3,566
Less: reclassification adjustment
for gains realized in net earnings (295) (71) (1,461) (1,343)
------ ------ ------ ------
Other comprehensive income (loss) (2,087) 1,386 (3,153) 2,223
------ ------ ------ ------
Comprehensive income $ 243 $ 3,062 $ 4,195 $ 7,556
====== ====== ====== ======
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
Granite State Bankshares, Inc. and Subsidiary
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Statements of Cash Flows
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
Increase (decrease) in cash (In Thousands) 1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net earnings $ 2,330 $ 1,676 $ 7,348 $ 5,333
Adjustments to reconcile net earnings to net cash
provided by operating activities
Provision for possible loan losses 250 700 775 1,625
Provision for depreciation and amortization 628 595 1,832 1,774
Net amortization (accretion) of security
discounts and premiums 23 3 (9) 27
Provision for loss on other real estate owned 25 43 25
Realized gains on sales of securities available
for sale, net (481) (115) (2,380) (2,188)
Loans originated for sale (10,431) (6,698) (29,489) (18,585)
Proceeds from sales of loans originated for sale 10,220 7,081 29,369 19,370
Realized gains on sales of loans (202) (120) (526) (266)
Increase (decrease) in unearned income (59) 51 58 173
Realized (gains) losses on sales of
other real estate owned (38) (14) 20 (35)
Deferred income taxes (benefits) 3 (230) 969 (307)
(Increase) decrease in other assets 264 6,340 (1,363) (334)
Increase (decrease) in other liabilities (122) 439 (1,098) 772
------ ------ ------ ------
Net cash provided by operating activities 2,385 9,733 5,549 7,384
Cash flows from investing activities:
Purchase of securities held to maturity (15,012) (1,000) (15,012) (7,000)
Proceeds from maturities and calls of securities
held to maturity 5,000 9,550 24,765 18,550
Principal payments received on securities
held to maturity 553 1,742
Proceeds from sales of securities available for sale 539 18,696 3,090 82,541
Proceeds from maturities and calls of securities
available for sale 1,000 8,499 29,250 35,499
Purchase of securities available for sale (33,993) (1,971) (56,073) (86,243)
Principal payments received on securities
available for sale 2,115 3,645 8,278 10,540
Purchase of Federal Home Loan Bank of Boston stock (836)
Loan repayments (originations), net 1,585 (14,095) (35,900) (55,094)
Purchase of premises and equipment (229) (300) (1,147) (1,949)
Proceeds from sales of other real estate owned 126 579 564 1,923
Net (increase) decrease in interest-bearing deposits
with other banks 9,223 (11,341) 16,701 (699)
Other (36) 28 (61)
------ ------ ------ ------
Net cash provided by (used in) investing
activities (29,646) 12,779 (25,456) (1,087)
Cash flows from financing activities:
Net increase (decrease) in demand, NOW, money market
and savings accounts (1,360) 1,938 12,870 19,794
Net increase (decrease) in time certificates 10,743 2,956 (21,318) 15,942
Net increase (decrease) in securities sold under
agreements to repurchase 4,791 3,826 6,772 (6,018)
Net increase (decrease) in other borrowings (3,766) (34,374) 15,849 (33,026)
Proceeds from issuance of common stock 18 286 2,113 1,373
Purchase of treasury stock (304)
Dividends paid on common stock (737) (328) (2,087) (949)
Other (281)
------ ------ ------ ------
Net cash provided by (used in) financing activities 9,689 (25,696) 13,918 (3,188)
------ ------ ------ ------
Net increase (decrease) in cash and due from banks (17,572) (3,184) (5,989) 3,109
Cash and due from banks at beginning of period 40,260 36,852 28,677 30,559
------ ------ ------ ------
Cash and due from banks at end of period $ 22,688 $ 33,668 $ 22,688 $ 33,668
====== ====== ====== ======
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
Granite State Bankshares, Inc. and Subsidiary
Part I - Financial Information
Item 1. Financial Statements
Notes to Unaudited Consolidated Financial Statements
September 30, 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 nine months ended
September 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 nine months ended September 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 nine months ended
September 30, 1998 and 1997:
<TABLE>
<CAPTION>
Three Months Ended September 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 $ (2,919) $ 1,127 $ (1,792) $ 2,373 $ (916) $ 1,457
Less: reclassification adjustment
for (gains) losses realized
in net earnings (481) 186 (295) (115) 44 (71)
------ ------ ------ ------ ------ ------
Net unrealized gains (losses) (3,400) 1,313 (2,087) 2,258 (872) 1,386
------ ------ ------ ------ ------ ------
Other comprehensive income (loss) $ (3,400) $ 1,313 $ (2,087) $ 2,258 $ (872) $ 1,386
====== ====== ====== ====== ====== ======
<CAPTION>
Nine Months Ended September 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 $ (2,757) $ 1,065 $ (1,692) $ 5,810 $ (2,244) $ 3,566
Less: reclassification adjustment
for (gains) losses realized
in net earnings (2,380) 919 (1,461) (2,188) 845 (1,343)
------ ------ ------ ------ ------ ------
Net unrealized gains (losses) (5,137) 1,984 (3,153) 3,622 (1,399) 2,223
------ ------ ------ ------ ------ ------
Other comprehensive income (loss) $ (5,137) $ 1,984 $ (3,153) $ 3,622 $ (1,399) $ 2,223
====== ====== ====== ====== ====== ======
</TABLE>
The following table sets forth the components of accumulated other
comprehensive income for the three and nine months ended September 30, 1998 and
1997:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------ -----------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
(In Thousands)
Beginning balance $ 4,647 $ 2,426 $ 5,713 $ 1,589
Unrealized gains (losses) on
securities available for sale,
net of income taxes (benefits) (2,087) 1,386 (3,153) 2,223
------ ------ ------ ------
Ending balance $ 2,560 $ 3,812 $ 2,560 $ 3,812
====== ====== ====== ======
</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 September 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 September 30, 1998 and December 31, 1997 were as follows:
<TABLE>
<CAPTION>
Amortized Estimated Carrying
At September 30, 1998 Cost Market Value Value
--------- ------------ --------
<S> <C> <C> <C>
(In Thousands)
Securities held to maturity
US Government agency obligations $ 19,254 $ 19,630 $ 19,254
Other corporate obligations 5,012 5,078 5,012
------ ------ ------
Total securities held to maturity $ 24,266 $ 24,708 $ 24,266
====== ====== ======
Securities available for sale
US Treasury obligations $ 82,508 $ 84,133 $ 84,133
US Government agency obligations 44,975 45,374 45,374
Mortgage-backed securities:
FNMA 7,863 7,828 7,828
FHLMC 3,265 3,232 3,232
All other 1,915 1,997 1,997
------ ------ ------
Total mortgage-backed securities 13,043 13,057 13,057
Other corporate obligations 25,939 26,122 26,122
Mutual Funds 6,246 6,306 6,306
Marketable equity securities 14,396 16,286 16,286
------- ------- -------
Total securities available for sale $ 187,107 $ 191,278 $ 191,278
======= ======= =======
<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
Mortgage-backed securities:
FNMA 11,723 11,677 11,677
FHLMC 6,562 6,547 6,547
All other 3,183 3,284 3,284
------ ------ ------
Total mortgage-backed securities 21,468 21,508 21,508
Other corporate obligations 8,493 8,508 8,508
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:
September 30, December 31,
1998 1997
------------ -----------
<S> <C> <C>
(In Thousands)
Commercial, financial and agricultural $ 48,181 $ 68,513
Real estate-residential 311,318 245,577
Real estate-commercial 149,668 151,474
Real estate-construction and
land development 2,637 6,000
Installment 8,845 11,588
Other 22,995 26,013
------- -------
Total loans 543,644 509,165
Less:
Unearned income (1,490) (1,432)
Allowance for possible loan losses (7,514) (7,651)
------- -------
Net loans $ 534,640 $ 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 Nine months ended
September 30, September 30,
------------------ -----------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
(In Thousands)
Balance, beginning of period $ 7,327 $ 6,517 $ 7,651 $ 6,253
Provision for possible loan losses 250 700 775 1,625
Loans charged off (155) (256) (1,331) (993)
Recoveries of loans previously charged off 92 57 419 133
----- ----- ----- -----
Balance, end of period $ 7,514 $ 7,018 $ 7,514 $ 7,018
===== ===== ===== =====
</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 $3,607,000 and $2,605,000 for the nine months ended September 30, 1998
and 1997, respectively. During the three and nine months ended
September 30, 1998 and 1997, the Company recognized no income on impaired loans.
<TABLE>
<CAPTION>
Impaired loans consist of the following at:
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
(In Thousands)
Recorded investment in impaired loans $ 4,056 $ 4,559
===== =====
Impaired loans with specific loss allowances $ 4,056 $ 4,559
===== =====
Loss allowances reserved on impaired loans $ 898 $ 1,054
===== =====
</TABLE>
Note 7. Interest Bearing Deposits
<TABLE>
<CAPTION>
Interest bearing deposits consist of the following at:
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
(In Thousands)
NOW accounts $ 188,588 $ 166,773
Savings accounts 88,150 89,278
Money market deposit accounts 20,712 31,486
Time certificates 268,858 290,176
------- -------
$ 566,308 $ 577,713
======= =======
</TABLE>
Note 8. Supplemental Disclosures of Cash Flow Information
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------ -----------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
(In Thousands)
Cash paid for interest $ 7,152 $ 7,447 $ 20,347 $ 21,989
Income taxes paid 552 815 2,807 2,015
Non-cash investing activities:
Real estate acquired in settlement of loans 384 67 509 454
</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
September 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 nine months
ended September 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 and dividend income earned by the Company's subsidiary, Granite
Bank ("the subsidiary bank"). Net interest and dividend 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 September 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 $17,039,000 or 2.09%, from $813,670,000 at
December 31, 1997 to $830,709,000 at September 30, 1998.
Interest bearing deposits with other banks, which primarily consist of
deposits with the Federal Home Loan Bank of Boston, decreased $16,701,000, from
$27,452,000 at December 31, 1997 to $10,751,000 at September 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 $9,644,000, from $33,910,000 at
December 31, 1997 to $24,266,000 at September 30, 1998. Securities available
for sale increased $12,598,000, from $178,680,000 at December 31, 1997 to
$191,278,000 at September 30, 1998. Proceeds from decreases in securities held
to maturity were primarily used to fund increases in net loans and deposit
outflows. Proceeds from the decreases in interest bearing deposits with other
banks and cash and due from banks were primarily used to fund increases in
securities available for sale, increases in net loans and deposit outflows.
Net loans were $534,640,000 at September 30, 1998, an increase of
$34,558,000 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 $8,448,000, from $648,983,000 at
December 31, 1997 to $640,535,000 at September 30, 1998. The significant changes
in deposits related primarily to decreases in time certificates and money market
accounts of $21,318,000 and $10,774,000, respectively, partially offset by an
increase in NOW accounts of $21,815,000 and an increase in noninterest bearing
deposits of $2,957,000. 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 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 $6,772,000,
from $66,025,000 at December 31, 1997 to $72,797,000 at September 30, 1998. The
increase in repurchase agreements relates primarily to an individual account
that increased $10,081,000 during this period, partially offset by a decrease in
municipal account balances. Municipal accounts usually reach a peak in June and
December as municipalities invest the real estate taxes they collect and
decrease after those periods as they use their invested cash.
Other borrowings consisted primarily of borrowings and advances from the
Federal Home Loan Bank of Boston and amounted to $41,726,000 at
September 30, 1998 and $25,877,000 at December 31, 1997. The increase of
$15,849,000 was primarily used to fund increases in net loans and deposit
outflows.
Stockholders' equity increased by $5,125,000 during the first nine
months of 1998, from $66,914,000 at December 31, 1997, to $72,039,000 at
September 30, 1998. The increase was primarily due to $7,348,000 of net earnings
and $3,146,000 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 stock options), partially offset by $2,211,000
of common stock dividends declared and a $3,153,000 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 nine months ended September 30, 1998 were
$2,330,000 and $7,348,000 compared to $1,676,000 and $5,333,000 for the three
and nine months ended September 30, 1997. Basic earnings per share were $.40
and $1.26 for the three and nine months ended September 30, 1998, compared to
$.31 and $.98 for the three and nine months ended September 30, 1997. Diluted
earnings per share were $.39 and $1.23 for the three and nine months ended
September 30, 1998 compared to $.29 and $.93 for the three and nine months ended
September 30, 1997. Included in net earnings were gains on sales of securities
available for sale of $481,000 and $2,380,000, respectively, for the three and
nine months ended September 30, 1998 compared to $115,000 and $2,188,000 for the
three and nine months ended September 30, 1997. Earnings before income taxes,
excluding gains on sales of securities available for sale, were $3,125,000 and
$8,911,000 for the three and nine months ended September 30, 1998 compared to
$2,148,000 and $5,441,000 for the three and nine months ended
September 30, 1997, representing an increase of 45.48% and 63.78%, respectively.
Interest and Dividend Income
Interest and dividend income for the three and nine months ended
September 30, 1998 was $14,842,000 and $43,571,000 compared to $14,894,000 and
$44,124,000 for the corresponding periods in 1997. The decrease in interest
income for the three months ended September 30, 1998 compared to the same period
in 1997 is primarily due to a decrease in overall yield on interest earning
assets to 7.68% for the three months ended September 30, 1998 compared with
7.99% for the same period in 1997, as a result of the continued lower interest
rate environment during 1998 compared to 1997, partially offset by an increase
in the average balance of interest earning assets of $26,912,000. The decrease
in interest income for the nine months ended September 30, 1998 compared to the
same period in 1997 is primarily due to a decrease in the average balance of
interest earning assets of $8,236,000 while yields remained relatively stable
at 7.93% for the nine months ended September 30, 1998 compared with 7.94% for
the same period in 1997. Yields on loans and securities and interest earning
investments declined from 8.91% and 6.31%, respectively, for the nine months
ended September 30, 1997 to 8.65% and 6.06%, respectively, for the same period
in 1998; however the change in the asset mix into higher yielding loans from
lower yielding securities and interest earning investments during 1998,
accounted for the relatively stable yields on interest earning assets for these
periods.
Interest Expense
Interest expense for the three and nine months ended September 30, 1998
was $7,161,000 and $20,476,000 compared to $7,268,000 and $21,852,000 for the
corresponding periods in 1997. The decrease in interest expense for the three
months ended September 30, 1998 compared to the same period in 1997 is primarily
due to a decrease in the cost of liabilities from 4.29% for the three months
ended September 30, 1997 to 4.18% for the same period in 1998, partially offset
by an increase in the average balance of total interest bearing liabilities of
$6,851,000 for the three months ended September 30, 1998 compared to the same
period in 1997. The average balance of other borrowed funds increased
$14,530,000 for the three months ended September 30, 1998 compared to the same
period in 1997, which was offset by a decrease in the cost of borrowings to
5.06% for the three months ended September 30, 1998 compared to 5.21% for the
same period in 1997. The average balance of time deposits decreased
$18,822,000 for the three months ended September 30, 1998 compared to the same
period in 1997 which was partially offset by an increase in the average balance
of savings deposits of $11,143,000 for the three months ended September 30, 1998
compared to the same period in 1997. The average cost of savings deposits
remained stable at 2.61% for the three months ended September 30, 1998 and
September 30, 1997, while the cost of time deposits was 5.55% for the three
months ended September 30, 1998 compared to 5.64% for the same period in 1997.
The decrease in interest expense for the nine months ended September 30, 1998
compared to the same period in 1997 is primarily due to a decrease in the
average balance of total interest bearing liabilities of $22,684,000, coupled
with a decrease in the cost of those liabilities to 4.17% for the nine months
ended September 30, 1998 compared to 4.30% for the same period in 1997. The
average balance of other borrowed funds decreased $22,040,000 for the nine
months ended September 30, 1998 compared to the same period in 1997, as did the
cost of borrowings to 4.98% for the nine months ended September 30, 1998
compared to 5.24% for the same period in 1997. The average balance of time
deposits decreased $13,043,000 for the nine months ended September 30, 1998
compared to the same period in 1997 which was partially offset by an increase in
the average balance of savings deposits of $12,399,000 for the nine months ended
September 30, 1998 compared to the same period in 1997. The average cost of
savings deposits was relatively stable at 2.63% for the nine months ended
September 30, 1998 compared to 2.62% for the same period in 1997, while the cost
of time deposits was 5.57% for the nine months ended September 30, 1998 compared
to 5.59% for the same period in 1997.
Net Interest and Dividend Income
Net interest and dividend income increased by $55,000 and $823,000 for
the three and nine months ended September 30, 1998 compared to the same periods
in 1997. The increase for the three months ended September 30, 1998 is
primarily due to an increase in net interest earning assets of $20,061,000
compared to the same period in 1997, partially offset by a decrease in net
interest rate spread from 3.70% for the three months ended September 30, 1997
to 3.50% for the three months ended September 30, 1998. The increase for the
nine months ended September 30, 1998 compared to the same period in 1997 is
primarily due to an increase in net interest earning assets of $14,448,000
coupled with an increase in the interest rate spread from 3.64% for the nine
months ended September 30, 1997 to 3.77% for the same period in 1998. The net
yield on interest earning assets increased from 4.01% for the nine months ended
September 30, 1997 to 4.21% for the same period in 1998.
Provision for Possible Loan Losses
The provision for possible loan losses for the three and nine months
ended September 30, 1998 was $250,000 and $775,000, compared to $700,000 and
$1,625,000 for the three and nine months ended September 30, 1997. The decrease
in the provision for the three and nine months ended September 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 nine months ended September 30, 1998 was $63,000 and $912,000, compared to
$199,000 and $860,000, for the corresponding periods a year ago.
The adequacy of the allowance for possible loan losses is evaluated by
management on a quarterly basis. This review includes an assessment of problem
loans and potential unknown losses based on current economic conditions, the
regulatory environment and historical experience. The provision for possible
loan losses represents charges to operations necessary to maintain the allowance
at a level which management believes will be adequate to absorb possible losses.
Management believes that the allowance for possible loan losses is adequate.
While management evaluates the allowance for possible loan losses based upon
available information, future additions to the allowance may be necessary.
Additionally, regulatory agencies review the Company's allowance for possible
loan losses as part of their examination process. Such agencies may require the
Company to recognize additions to the allowance based on judgments, which may be
different from those of management.
Noninterest Income
Noninterest income for the three and nine months ended
September 30, 1998 totaled $1,735,000 and $5,955,000, compared to $1,500,000 and
$6,075,000 for the same periods in 1997. The increase of $235,000 for the three
months ended September 30, 1998 compared to the same period in 1997 relates
primarily to an increase of $366,000 in net gains on sales of securities
available for sale and an increase of $82,000 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 $200,000. For the nine months ended
September 30, 1998, noninterest income decreased by $120,000. The decrease
relates primarily to a decrease in customer account fees and service charges of
$553,000, partially offset by an increase of $192,000 in net gains on sales of
securities available for sale and an increase of $260,000 in net gains on sales
of loans in to the secondary mortgage market.
Noninterest Expense
Noninterest expense for the three months ended September 30, 1998
decreased $603,000 from $6,163,000 for the three months ended September 30, 1997
to $5,560,000 for the three months ended September 30, 1998. The decrease for
the three months ended September 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 $120,000 due
to the inclusion of expenses relating to the vesting of performance based
options during the three months ended September 30, 1997. Noninterest expense
for the nine months ended September 30, 1998 decreased $2,109,000 from
$19,093,000 for the nine months ended September 30, 1997 to $16,984,000 for the
nine months ended September 30, 1998. The decrease for the nine months ended
September 30, 1998 compared to the same period in 1997, is the result of
efficiencies realized in the merger with Primary Bank mentioned above, as well
as a decrease of $918,000 for salaries and employee benefits relating to the
vesting of performance based options during the second and third quarters of
1997.
Income Taxes
Income tax expense for the three and nine months ended
September 30, 1998 was $1,276,000 and $3,943,000, compared with $587,000 and
$2,296,000 for the same periods in 1997. The increase in income tax expense for
the three and nine months ended September 30, 1998, compared to the same periods
in 1997, related primarily to the increase in pretax income for the three and
nine months ended September 30, 1998 compared to the same periods in 1997.
Risk Elements
Total nonperforming loans decreased from $7,145,000 or 1.40% of total
loans, at December 31, 1997, to $6,144,000 or 1.13% of total loans, at
September 30, 1998. During the same period, other real estate owned, declined
from $1,905,000 to $1,787,000. The allowance for possible loan losses as a
percent of total nonperforming loans was 122.30% at September 30, 1998, compared
with 107.08% at December 31, 1997.
As shown in the following table, nonperforming assets as a percentage of total
assets were 0.95% and 1.11%, as of September 30, 1998 and December 31, 1997,
respectively.
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
($ in Thousands)
Loans 90 days or more past due
and still accruing $ 767 $ 535
===== =====
Nonaccrual/nonperforming loans $ 6,144 $ 7,145
Other real estate owned 1,787 1,905
----- -----
Total nonperforming assets $ 7,931 $ 9,050
===== =====
Allowance for possible loan losses $ 7,514 $ 7,651
===== =====
Nonperforming loans as a percent of
total loans 1.13% 1.40%
Allowance for possible loan losses
as a percent of total nonperforming
loans 122.30% 107.08%
Nonperforming assets as a percent of
total assets 0.95% 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 other banks and securities available for sale,
particularly short-term investments. At September 30, 1998, other borrowings
were $41,726,000, with an additional available borrowing capacity with the
Federal Home Loan Bank of Boston of approximately $263,000,000; interest-bearing
deposits with other banks were $10,751,000 and securities available for sale
were $191,278,000. Included in securities held to maturity and securities
available for sale are debt securities with a carrying value of $192,952,000.
The weighted average maturity for debt securities held to maturity and available
for sale, excluding mortgage-backed securities with a carrying value of
$13,057,000, is approximately 44 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
September 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 September 30, 1998 and December 31, 1997, the
subsidiary bank was in compliance with all regulatory capital requirements.
Additionally, at September 30, 1998, the subsidiary bank was considered "well
capitalized" for purposes of the FDIC's prompt corrective action regulations.
At September 30, 1998 the Company's and the subsidiary bank's regulatory
capital ratios as a percentage of assets are as follows:
<TABLE>
<CAPTION>
September 30, 1998
----------------------
Subsidiary
Bank Company
---------- -------
<S> <C> <C>
Tier I leverage capital 7.91% 8.30%
Tier I capital to risk-weighted assets 13.02% 13.66%
Total capital to risk-weighted assets 14.27% 14.92%
</TABLE>
Year 2000
The Company is aware of the issues associated with the programming code
in existing computer systems and non-computer related embedded technology 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 has developed a Year 2000 Policy Statement which was
approved by the Company's Board of Directors and is utilizing both internal and
external resources to identify, correct and test the systems for Year 2000
compliance. The Year 2000 Policy Statement contains a phases approach which
includes the following phases: awareness, inventory, assessment, renovation,
validation, implementation and post implementation. As of September 30, 1998,
the Company has completed the assessment phase and is actively working on the
renovation, validation and implementation phases along with the Year 2000
remediation and business resumption contingency plans. It is anticipated that
any necessary corrections, vendor reprogramming and testing efforts will be
completed by December 31, 1998, allowing adequate time for any potential
modifications. The Company has determined that its major systems will be able
to be repaired within the Company or by the respective vendors. After
December 31, 1998, the Company will be in the post-implementation phase, which
will utilize and test the contingency plans to enhance back-up steps and
procedures to prepare for worst case scenarios. The Company's contingency plans
are expected to be completed by the second quarter of 1999. To date, the Company
has received a warranty of compliance from its processing vendor for loans,
deposits and related products. Additionally, letters have been received from the
Company's remaining vendors that plans are being developed to address the Year
2000 issue. Management's estimate of the costs related to the Year 2000
compliance are approximately $300,000, of which approximately $20,000 has been
incurred as of September 30, 1998. The Year 2000 costs are expected to be
substantially incurred in the fourth quarter of 1998 and the first quarter of
1999.
The Company reviewed its loan relationships over $250,000 and assessed a
Year 2000 compliance risk for each customer. The risk assessment consisted of a
detailed questionnaire relating to the customer's Year 2000 efforts and resulted
in the assignment of risk levels of low, medium and high risk for noncompliance
with the Year 2000. The review of borrowers included the respective borrower's
customer base and the likelihood of their noncompliance. As of
September 30, 1998, no relationships were assessed a high risk of noncompliance
with the Year 2000. In the first quarter of 1999, the Company will review all
medium risk borrowing relationships and assess any exposure, which may exist at
that time. The Company has also incorporated this review into the approval
process for all new borrowing relationships. In addition to the analyses of the
loan relationships, the Bank has also identified deposit as well as repurchase
agreement accounts with balances greater than $250,000 and identified large
community employers in communities where branches are located in order to
determine an estimate of additional liquidity that may be needed as a result of
the Year 2000 project. Based on the Company's review of significant deposit and
borrowing relationships, management believes these relationships will not have a
material adverse affect on the Company's liquidity, financial condition or
results of operations.
The most significant risk anticipated by the Company is the possibility
of interruption to its account processing systems. Due to the progress described
above, the Company does not presently foresee any interruptions to these
systems, but cannot predict consequences of interruptions to these systems from
outside factors, such as the loss of telecommunication and electrical power
(worst case scenario). The Company's business resumption contingency plan will
address resumption of business should the Company lose its telecommunications or
electrical power.
Consolidated Quarterly Average Balances and Interest Rates
The table on the following page presents, for the periods indicated,
average balances of assets and liabilities, as well as yields on interest
earning assets and the cost of interest bearing liabilities.
<TABLE>
<CAPTION>
Granite State Bankshares, Inc. and Subsidiary
Consolidated Quarterly Average Balances and Interest Rates
($ in Thousands)
1998 QTD 1997 QTD
------------------------------------------------------ ----------------
Third Quarter Second Quarter First Quarter Fourth Quarter
Avg. bal. Rate Avg. bal. Rate Avg. bal. Rate Avg. bal. Rate
--------- ----- --------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Loans $ 542,139 8.43% $ 539,783 8.62% $ 513,365 8.91% $ 499,316 8.93%
Securities and
interest earning
investments 224,431 5.88% 182,375 5.91% 200,856 6.40% 232,678 6.23%
Total interest ------- ------- ------- -------
earning assets 766,570 7.68% 722,158 7.93% 714,221 8.20% 731,994 8.07%
Noninterest earning
assets 65,235 77,019 79,945 77,425
Allowance for loan
losses (7,385) (7,532) (7,749) (7,248)
------- ------- ------- -------
Total Assets $ 824,420 $ 791,645 $ 786,417 $ 802,171
======= ======= ======= =======
Liabilities and
stockholders' equity:
Savings deposits $ 295,424 2.61% $ 299,353 2.63% $ 289,066 2.65% $ 288,095 2.60%
Time deposits 265,876 5.55% 258,483 5.54% 279,405 5.63% 290,428 5.67%
Other borrowed funds 117,382 5.06% 88,977 4.94% 76,021 4.90% 79,722 5.03%
------- ------- ------- -------
Total int. bearing
liabilities 678,682 4.18% 646,813 4.11% 644,492 4.21% 658,245 4.25%
Noninterest bearing
deposits 70,014 69,895 66,622 70,227
Other liabilities 3,130 3,108 5,787 7,095
Stockholders' equity 72,594 71,829 69,516 66,604
------- ------- ------- -------
Total liab. and stock-
holders' equity $ 824,420 $ 791,645 $ 786,417 $ 802,171
======= ======= ======= =======
Interest rate spread 3.50% 3.82% 3.99% 3.82%
===== ===== ===== =====
Net average earning
balance / Net yield on
interest earning assets $ 87,888 3.98% $ 75,345 4.25% $ 69,729 4.41% $ 73,749 4.25%
====== ===== ====== ===== ====== ===== ====== =====
<CAPTION>
1997 QTD 1996 QTD
------------------------------------------------------ ----------------
Third Quarter Second Quarter First Quarter Fourth Quarter
Avg. bal. Rate Avg. bal. Rate Avg. bal. Rate Avg. bal. Rate
--------- ----- --------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Loans $ 488,820 8.86% $ 464,524 8.95% $ 444,479 8.93% $ 433,683 9.01%
Securities and
interest earning
investments 250,838 6.30% 289,349 6.35% 290,168 6.28% 287,014 6.10%
Total interest ------- ------- ------- -------
earning assets 739,658 7.99% 753,873 7.95% 734,647 7.88% 720,697 7.85%
Noninterest earning
assets 73,898 71,612 70,575 70,125
Allowance for loan
losses (6,632) (6,205) (6,279) (6,459)
------- ------- ------- -------
Total Assets $ 806,924 $ 819,280 $ 798,943 $ 784,363
======= ======= ======= =======
Liabilities and
stockholders' equity:
Savings deposits $ 284,281 2.61% $ 284,767 2.63% $ 277,594 2.63% $ 279,459 2.67%
Time deposits 284,698 5.64% 282,420 5.58% 275,527 5.54% 267,595 5.53%
Other borrowed funds 102,852 5.21% 122,697 5.31% 123,633 5.23% 113,202 5.16%
------- ------- ------- -------
Total int. bearing
liabilities 671,831 4.29% 689,884 4.31% 676,754 4.29% 660,256 4.25%
Noninterest bearing
deposits 64,624 62,872 57,893 62,285
Other liabilities 5,133 4,382 3,630 3,931
Stockholders' equity 65,336 62,142 60,666 57,891
------- ------- ------- -------
Total liab. and stock-
holders' equity $ 806,924 $ 819,280 $ 798,943 $ 784,363
======= ======= ======= =======
Interest rate spread 3.70% 3.64% 3.59% 3.60%
===== ===== ===== =====
Net average earning
balance / Net yield on
interest earning assets $ 67,827 4.09% $ 63,989 4.00% $ 57,893 3.93% $ 60,441 3.95%
====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
Granite State Bankshares, Inc. and Subsidiary
Part I Item 3 and Part II - Other Information
September 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
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
1. Exhibits
27 Financial Data Schedule
2. Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant, has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GRANITE STATE BANKSHARES, INC.
/s/ Charles W. Smith
________________________________________
Dated : November 10, 1998 By: Charles W. Smith
Chairman and
Chief Executive Officer
/s/ William G. Pike
________________________________________
Dated : November 10, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 22,688
<INT-BEARING-DEPOSITS> 10,751
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 191,278<F1>
<INVESTMENTS-CARRYING> 24,266
<INVESTMENTS-MARKET> 24,708
<LOANS> 542,154<F2>
<ALLOWANCE> 7,514
<TOTAL-ASSETS> 830,709
<DEPOSITS> 640,535
<SHORT-TERM> 73,797<F3>
<LIABILITIES-OTHER> 3,612
<LONG-TERM> 40,726
0
0
<COMMON> 6,796
<OTHER-SE> 65,243
<TOTAL-LIABILITIES-AND-EQUITY> 830,709
<INTEREST-LOAN> 34,385
<INTEREST-INVEST> 8,185
<INTEREST-OTHER> 1,001
<INTEREST-TOTAL> 43,571
<INTEREST-DEPOSIT> 16,965
<INTEREST-EXPENSE> 20,476
<INTEREST-INCOME-NET> 23,095
<LOAN-LOSSES> 775
<SECURITIES-GAINS> 2,380
<EXPENSE-OTHER> 16,984
<INCOME-PRETAX> 11,291
<INCOME-PRE-EXTRAORDINARY> 7,348
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,348
<EPS-PRIMARY> 1.26
<EPS-DILUTED> 1.23
<YIELD-ACTUAL> 4.21
<LOANS-NON> 6,144
<LOANS-PAST> 767
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,651
<CHARGE-OFFS> 1,331
<RECOVERIES> 419
<ALLOWANCE-CLOSE> 7,514
<ALLOWANCE-DOMESTIC> 7,514
<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 $72,797 and short term
borrowings with Federal Home Loan Bank of Boston of $1,000
<F4>Includes other borrowings with the Federal Home Loan Bank of Boston of
$40,726
</FN>
</TABLE>
