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, 2000
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 (I.R.S. Employer Identification No.)
of incorporation or organization)
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 9, 2000 was 5,388,747, $1.00 par value per share.
INDEX
Granite State Bankshares, Inc. and Subsidiary
Part I Financial Information Page
Item 1. Financial Statements:
Consolidated Statements of Financial Condition
June 30, 2000 and December 31, 1999 3
Consolidated Statements of Earnings
Three and Six Months Ended June 30, 2000 and 1999 4
Consolidated Statements of Comprehensive Income
Three and Six Months Ended June 30, 2000 and 1999 5
Consolidated Statements of Cash Flows
Three and Six Months Ended June 30, 2000 and 1999 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 20
Part II Other Information
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
PAGE 2
<TABLE>
<CAPTION>
Granite State Bankshares, Inc. and Subsidiary
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Statements of Financial Condition
June 30, December 31,
($ in thousands, except par values) 2000 1999
-------- ------------
<S> <C> <C>
(Unaudited)
ASSETS
Cash and due from banks $ 23,998 $ 18,575
Interest bearing deposits in other banks,
at cost which approximates market value 4,292 4,402
Securities available for sale (amortized cost
$209,585 at June 30, 2000 and $222,673 at
December 31, 1999) 201,276 215,572
Securities held to maturity (market value
$17,291 at June 30, 2000 and $17,232 at
December 31, 1999) 18,014 18,017
Stock in Federal Home Loan Bank of Boston 7,201 7,201
Loans held for sale 141 479
Loans 587,100 568,694
Less: Unearned income (1,156) (1,248)
Allowance for possible loan losses (7,032) (7,032)
------- -------
Net loans 578,912 560,414
Premises and equipment 16,157 16,967
Other real estate owned 613 1,288
Other assets 26,134 24,762
------- -------
Total assets $ 876,738 $ 867,677
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing deposits $ 561,659 $ 555,222
Noninterest bearing deposits 88,601 72,796
------- -------
Total deposits 650,260 628,018
Securities sold under agreements to repurchase 74,097 75,042
Other borrowings 80,539 90,563
Other liabilities 2,845 3,685
------- -------
Total liabilities 807,741 797,308
Preferred stock, $1.00 par value; authorized
7,500,000 shares; none issued
Common stock, $1.00 par value; authorized
12,500,000 shares; 6,789,582 shares issued
at June 30, 2000 and December 31, 1999 6,790 6,790
Additional paid-in capital 37,840 37,919
------- -------
44,630 44,709
Accumulated other comprehensive loss (5,045) (4,312)
Retained earnings 43,104 39,870
------- -------
82,689 80,267
Less: Treasury stock, at cost, 1,272,535
and 1,039,089 shares at June 30, 2000
and December 31, 1999, respectively (13,311) (9,418)
Unallocated common stock acquired by
the ESOP (36) (36)
Unearned restricted stock (345) (444)
------- -------
Total stockholders' equity 68,997 70,369
------- -------
Total liabilities and stockholders' equity $ 876,738 $ 867,677
======= =======
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
PAGE 3
<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) ------------------- -------------------
2000 1999 2000 1999
------- -------- ------- --------
<S> <C> <C> <C> <C>
(Unaudited) (Unaudited)
Interest and dividend income:
Loans $ 11,857 $ 11,290 $ 23,291 $ 22,586
Debt securities available for sale 3,040 2,737 6,253 5,538
Marketable equity securities available for sale 194 183 377 365
Securities held to maturity 288 289 577 671
Dividends on Federal Home Loan Bank of Boston stock 135 117 260 231
Other interest 65 137 135 232
------ ------ ------ ------
15,579 14,753 30,893 29,623
Interest expense:
Deposits 5,419 5,213 10,647 10,476
Securities sold under agreements to repurchase 922 520 1,863 1,157
Other borrowings 1,157 1,050 2,371 2,112
------ ------ ------ ------
7,498 6,783 14,881 13,745
------ ------ ------ ------
Net interest and dividend income 8,081 7,970 16,012 15,878
Provision for possible loan losses 50 0 80 50
------ ------ ------ ------
Net interest and dividend income after
provision for possible loan losses 8,031 7,970 15,932 15,828
Noninterest income:
Customer account fees and service charges 720 663 1,413 1,291
Mortgage service fees 119 122 232 247
Net gains on sales of securities available for sale 0 286 6 291
Net gains on sales of loans 63 120 121 273
Other 474 283 876 486
------ ------ ------ ------
1,376 1,474 2,648 2,588
Noninterest expense:
Salaries and benefits 2,920 2,910 5,840 5,819
Occupancy and equipment 1,169 1,024 2,248 2,110
Other real estate owned (11) 118 30 208
Other 1,396 1,423 2,636 2,784
------ ------ ------ ------
5,474 5,475 10,754 10,921
------ ------ ------ ------
Earnings before income taxes 3,933 3,969 7,826 7,495
Income taxes 1,411 1,412 2,795 2,668
------ ------ ------ ------
Net earnings $ 2,522 $ 2,557 $ 5,031 $ 4,827
====== ====== ====== ======
Shares used in computing net earnings per share:
Basic 5,561,220 5,804,985 5,632,999 5,817,752
Diluted 5,585,656 5,967,108 5,669,282 5,972,978
Net earnings per share -basic $ 0.45 $ 0.44 $ 0.89 $ 0.83
Net earnings per share -diluted $ 0.45 $ 0.43 $ 0.89 $ 0.81
Cash dividends declared per share $ 0.16 $ 0.14 $ 0.32 $ 0.28
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
PAGE 4
<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) --------------------- ---------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
(Unaudited) (Unaudited)
Net earnings $ 2,522 $ 2,557 $ 5,031 $ 4,827
Other comprehensive income (loss):
Unrealized holding gains (losses) arising
during the period 71 (929) (1,202) (2,794)
Related income tax effects (28) 359 473 1,079
----- ----- ----- -----
Net unrealized holding gains (losses),
net of related income tax effects 43 (570) (729) (1,715)
----- ----- ----- -----
Less: reclassification adjustment for gains
realized in net earnings:
Realized gains 0 (286) (6) (291)
Related income tax effects 0 110 2 112
----- ----- ----- -----
Net reclassification adjustment 0 (176) (4) (179)
----- ----- ----- -----
Total other comprehensive income (loss) 43 (746) (733) (1,894)
----- ----- ----- -----
Comprehensive Income $ 2,565 $ 1,811 $ 4,298 $ 2,933
===== ===== ===== =====
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
PAGE 5
<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) -------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net earnings $ 2,522 $ 2,557 $ 5,031 $ 4,827
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities
Provision for possible loan losses 50 80 50
Provision for depreciation and amortization 591 591 1,182 1,186
Writedown of premises and equipment 93 93
Net amortization of security discounts and premiums 4 65 12 121
Provision for loss on other real estate owned 62 50 62
Realized gains on sales of securities available for
sale, net (286) (6) (291)
Loans originated for sale (3,913) (7,596) (6,406) (13,920)
Proceeds from sale of loans originated for sale 3,902 8,223 6,865 14,985
Realized gains on sales of loans (63) (120) (121) (273)
Gains on sales of other assets (11) (11)
Decrease in unearned income (44) (75) (92) (94)
Realized gain on sales of other real estate owned (38) (5) (13) (6)
Deferred income taxes (benefit) 43 (12) (5) 642
(Increase) decrease in other assets 207 (5,526) (1,065) (5,320)
Decrease in other liabilities (993) (247) (910) (342)
Decrease in unearned restricted stock 50 75 99 150
----- ------ ------ ------
Net cash provided by (used in) operating activities 2,411 (2,305) 4,794 1,766
Cash flows from investing activities:
Proceeds from maturities and calls of securities
held to maturity 4,300
Proceeds from sales of securities available for sale 46,836 12,507 46,836
Proceeds from maturities and calls of securities
available for sale 10,000 25,000
Purchase of securities available for sale (97) (51,434) (149) (56,943)
Principal payments received on securities available
for sale 385 1,144 728 2,757
Loan originations, net of repayments (16,119) (7,037) (18,841) (8,474)
Purchase of premises and equipment (188) (352) (266) (901)
Proceeds from sales of other assets 760 760
Proceeds from sales of other real estate owned 873 483 993 846
Net (increase) decrease in interest-bearing deposits
in other banks (337) (4,018) 110 (1,348)
Other 254 254
------- ------ ------ ------
Net cash provided by (used in) investing activities (15,483) (3,364) (4,918) 13,087
Cash flows from financing activities:
Net increase in demand, NOW, money market deposit
and savings accounts 9,203 12,856 21,987 9,151
Net increase (decrease) in time certificates 1,864 (4,694) 255 (9,841)
Net increase (decrease) in securities sold under
agreements to repurchase 9,747 4,810 (945) (11,355)
Net decrease in other borrowings (12) (11) (10,024) (22)
Reissuance of common stock from treasury 9 33 225
Purchase of treasury stock (3,454) (569) (4,038) (1,599)
Dividends paid on common stock (915) (820) (1,721) (1,557)
------ ------ ------ ------
Net cash provided by (used in) financing activities 16,433 11,581 5,547 (14,998)
------ ------ ------ ------
Net increase (decrease) in cash and due from banks 3,361 5,912 5,423 (145)
Cash and due from banks at beginning of period 20,637 17,449 18,575 23,506
------ ------ ------ ------
Cash and due from banks at end of period $ 23,998 $ 23,361 $ 23,998 $ 23,361
====== ====== ====== ======
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
PAGE 6
Granite State Bankshares, Inc. and Subsidiary
Part I - Financial Information
Item 1. Financial Statements
Notes to Unaudited Consolidated Financial Statements
June 30, 2000
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, 2000 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, 1999.
Note 2. Earnings Per Share
Basic earnings per share is computed by dividing net earnings by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share 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. Information regarding the computation of
earnings per share is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- ---------------------------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
($ in Thousands, except per share data) ($ in Thousands, except per share data)
Net earnings $ 2,522 $ 2,557 $ 5,031 $ 4,827
===== ===== ===== =====
Weighted average common
shares outstanding-Basic 5,561,220 5,804,985 5,632,999 5,817,752
Dilutive effect of stock
options computed using
the treasury stock method 24,436 162,123 36,283 155,226
--------- --------- --------- ---------
Weighted average common
shares outstanding-Diluted 5,585,656 5,967,108 5,669,282 5,972,978
========= ========= ========= =========
Net earnings per share-Basic $ 0.45 $ 0.44 $ 0.89 $ 0.83
===== ===== ===== =====
Net earnings per share-Diluted $ 0.45 $ 0.43 $ 0.89 $ 0.81
===== ===== ===== =====
</TABLE>
Weighted average options to purchase 399,250, 99,750, 75,000 and 75,000
shares of common stock were outstanding at June 30, 2000, March 31, 2000, June
30, 1999 and March 31, 1999, respectively, but were not included in the
computation of weighted average common shares outstanding for purposes of
computing diluted earnings per share, because the effect would have been
antidilutive.
PAGE 7
Note 3. 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 loss, net of related income tax effects. At June 30, 2000
and December 31, 1999, the Company had no securities classified as trading
securities.
The amortized cost, estimated market value and carrying value of
securities at June 30, 2000 and December 31, 1999 were as follows:
<TABLE>
<CAPTION>
Amortized Estimated Carrying
At June 30, 2000 Cost Market Value Value
--------- ------------ --------
<S> <C> <C> <C>
(In Thousands)
Securities held to maturity
US Government agency obligations $ 13,005 $ 12,532 $ 13,005
Other corporate obligations 5,009 4,759 5,009
------ ------ ------
Total securities held to maturity $ 18,014 $ 17,291 $ 18,014
====== ====== ======
Securities available for sale
US Treasury obligations $ 7,491 $ 7,474 $ 7,474
US Government agency obligations 105,457 101,908 101,908
Other corporate obligations 71,833 68,733 68,733
Mortgage-backed securities:
FNMA 4,397 4,404 4,404
FHLMC 1,252 1,243 1,243
GNMA 816 838 838
SBA 348 345 345
------ ------ ------
Total mortgage-backed securities 6,813 6,830 6,830
Mutual Funds 7,298 7,094 7,094
Marketable equity securities 10,693 9,237 9,237
------- ------- -------
Total securities available for sale $ 209,585 $ 201,276 $ 201,276
======= ======= =======
PAGE 8
<CAPTION>
Amortized Estimated Carrying
At December 31, 1999 Cost Market Value Value
--------- ------------ --------
<S> <C> <C> <C>
(In Thousands)
Securities held to maturity
US Government agency obligations $ 13,007 $ 12,525 $ 13,007
Other corporate obligations 5,010 4,707 5,010
------ ------ ------
Total securities held to maturity $ 18,017 $ 17,232 $ 18,017
====== ====== ======
Securities available for sale
US Treasury obligations $ 19,988 $ 20,031 $ 20,031
US Government agency obligations 105,454 102,026 102,026
Other corporate obligations 71,824 69,424 69,424
Mortgage-backed securities:
FNMA 4,772 4,748 4,748
FHLMC 1,526 1,505 1,505
GNMA 870 910 910
SBA 397 398 398
------ ------ ------
Total mortgage-backed securities 7,565 7,561 7,561
Mutual Funds 7,149 7,024 7,024
Marketable equity securities 10,693 9,506 9,506
------- ------- -------
Total securities available for sale $ 222,673 $ 215,572 $ 215,572
======= ======= =======
</TABLE>
Note 4. Loans
Loans consist of the following at:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------- ------------
<S> <C> <C>
(In Thousands)
Commercial, financial and agricultural $ 42,158 $ 41,837
Real estate-residential 369,805 356,368
Real estate-commercial 137,861 136,566
Real estate-construction and
land development 7,020 3,886
Installment 5,344 5,952
Other 24,912 24,085
------- -------
Total loans 587,100 568,694
Less:
Unearned income (1,156) (1,248)
Allowance for possible loan losses (7,032) (7,032)
------- -------
Net loans $ 578,912 $ 560,414
======= =======
</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
PAGE 9
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,
--------------------- ---------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
(In Thousands) (In Thousands)
Balance, beginning of period $ 7,025 $ 7,025 $ 7,032 $ 7,122
Provision for possible loan losses 50 0 80 50
Loans charged off (105) (55) (238) (297)
Recoveries of loans previously charged off 62 200 158 295
----- ----- ----- -----
Balance, end of period $ 7,032 $ 7,170 $ 7,032 $ 7,170
===== ===== ===== =====
</TABLE>
Information with respect to impaired loans consisted of the following
at:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------- ------------
<S> <C> <C>
(In Thousands)
Recorded investment in impaired loans $ 475 $ 489
==== ====
Impaired loans with specific loss allowances $ 475 $ 489
==== ====
Loss allowances reserved on impaired loans $ 252 $ 252
==== ====
</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 $483,000 and $1,090,000 for the six months ended June 30, 2000 and
1999, respectively. During the three and six months ended June 30, 2000 and
1999, the Company recognized no income on impaired loans.
PAGE 10
Note 5. Interest Bearing Deposits
Interest bearing deposits consist of the following at:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------- ------------
<S> <C> <C>
(In Thousands)
NOW accounts $ 205,583 $ 195,833
Savings accounts 85,651 85,770
Money market deposit accounts 14,067 17,516
Time certificates 256,358 256,103
------- -------
$ 561,659 $ 555,222
======= =======
</TABLE>
Note 6. Supplemental Disclosures of Cash Flow Information
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
--------------------- ---------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
(In Thousands) (In Thousands)
Cash paid for interest $ 7,548 $ 6,833 $ 15,053 $ 13,842
Income taxes paid 2,775 1,800 3,525 1,900
Non-cash investing activities:
Real estate acquired in settlement of loans 275 104 355 645
</TABLE>
PAGE 11
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, 2000
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 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.
Certain statements contained herein are not based on historical facts
and are "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements which are based on various assumptions (some of which
are beyond the Company's control), are subject to numerous risks and
uncertainties and statements for periods subsequent to June 30, 2000 are subject
to greater uncertainty because of the increased likelihood of changes in
underlying factors and assumptions. Such forward-looking statements may be
identified by reference to a future period or periods, or by the use of forward-
looking terminology, such as "may," "will," "believe," "expect," "estimate,"
"anticipate," "continue," or similar terms or variations on those terms, or the
negative of those terms. Actual results could differ materially from those set
forth in forward-looking statements due to a variety of factors, including, but
not limited to, those related to the economic environment, particularly in the
market areas in which the Company operates, competitive products and pricing,
fiscal and monetary policies of the U.S. Government, changes in government
regulations affecting financial institutions, including regulatory fees and
capital requirements, changes in prevailing interest rates, acquisitions and the
integration of acquired businesses, credit risk management, asset-liability
management, the financial and securities markets and the availability of and
costs associated with sources of liquidity.
The Company does not undertake, and specifically disclaims any
obligation, to publicly release the result of any revisions which may be made to
any forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.
Financial Condition
Total assets increased by $9,061,000 or 1.04%, from $867,677,000 at
December 31, 1999 to $876,738,000 at June 30, 2000. The increase in assets
resulted primarily from increases in cash and due from banks and net loans,
partially offset by a decrease in securities available for sale.
Cash and due from banks increased $5,423,000, from $18,575,000 at
December 31, 1999 to $23,998,000 at June 30, 2000. The increase related
primarily to an increase in the amount of items processed through the Company's
depository bank accounts that settled subsequent to the end of the reporting
period.
Interest bearing deposits with other banks, which primarily consist of
deposits with the Federal Home Loan Bank of Boston, decreased $110,000, from
$4,402,000 at December 31, 1999 to $4,292,000 at
PAGE 12
June 30, 2000. Interest bearing deposits with other banks 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 available for sale decreased $14,296,000, from $215,572,000
at December 31, 1999 to $201,276,000 at June 30, 2000. Proceeds from decreases
in securities available for sale were primarily used to fund repayments of other
borrowings.
Net loans were $578,912,000 at June 30, 2000, an increase of $18,498,000
from $560,414,000 at December 31, 1999. The most significant changes in the loan
portfolio related to residential real estate loans, construction and land
development real estate loans and commercial real estate loans. Residential real
estate loans increased $13,437,000 to $369,805,000 or 62.99% of total loans
outstanding at June 30, 2000 from $356,368,000 or 62.66% of total loans
outstanding at December 31, 1999. The increase in residential real estate loans
is the result of an increase in 3 to 7 year adjustable rate loans as higher
interest rates encouraged borrowers into adjustable rate loans. Construction and
land development real estate loans and commercial real estate loans increased
$3,134,000 and $1,295,000, respectively. The increase in construction and land
development real estate loans related primarily to two commercial real estate
construction loans for which construction commenced in the second quarter of
2000.
Total deposits increased $22,242,000, or 3.54%, from $628,018,000 at
December 31, 1999 to $650,260,000 at June 30, 2000. The significant changes in
deposits related to an increase in demand deposits and NOW accounts of
$15,805,000 and $9,750,000, respectively, partially offset by a decrease in
money market deposit accounts of $3,449,000. The changes in the balances of
demand deposits, NOW accounts and money market deposit accounts related
primarily to the timing of the cash needs of depositors.
Securities sold under agreements to repurchase decreased $945,000, from
$75,042,000 at December 31, 1999 to $74,097,000 at June 30, 2000. 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, which consist of borrowings from the Federal Home Loan
Bank of Boston ("FHLB"), decreased $10,024,000 to $80,539,000 at June 30, 2000
from $90,563,000 at December 31, 1999. The decrease related primarily to
callable advances from the FHLB of $20,000,000 with interest at 4.18% per annum
and a maturity date of March 2013, which were called by the FHLB and repaid in
March 2000, partially offset by $10,000,000 of additional borrowings from the
FHLB at an interest rate of 6.09% per annum with a maturity date of March 2010,
callable at the option of the FHLB in March 2001 and quarterly thereafter until
maturity.
Stockholders' equity decreased $1,372,000 from $70,369,000 at December
31, 1999 to $68,997,000 at June 30, 2000. The decrease related primarily to a
decrease of $3,893,000 for the purchase of treasury stock, net of shares
reissued from treasury for stock options, dividends declared of $1,798,000 and
an increase in accumulated other comprehensive loss of $733,000, partially
offset by net earnings of $5,031,000.
Results of Operations
Net Earnings
Net earnings for the three and six months ended June 30, 2000 were
$2,522,000 and $5,031,000, compared to $2,557,000 and $4,827,000 for the three
and six months ended June 30, 1999. Basic earnings per share were $.45 and $.89
for the three and six months ended June 30, 2000, compared to $.44 and $.83 for
the three and six months ended June 30, 1999. Diluted earnings per share were
$.45 and $.89 for the
PAGE 13
three and six months ended June 30, 2000 compared to $.43 and $.81 for the three
and six months ended June 30, 1999. Earnings before income taxes, exclusive of
net gains on sales of securities available for sale were $3,933,000 and
$7,820,000, respectively, for the three and six months ended June 30, 2000,
compared to $3,683,000 and $7,204,000, respectively, for the three and six
months ended June 30, 1999, representing increases of 6.79% and 8.55%,
respectively.
Interest and Dividend Income
Interest and dividend income for the three and six months ended June 30,
2000 was $15,579,000 and $30,893,000 compared to $14,753,000 and $29,623,000 for
the corresponding periods in 1999. The increase in interest and dividend income
for the three and six months ended June 30, 2000 compared to the three and six
months ended June 30, 1999 is attributable to an increase in the average balance
of interest earning assets of $18,197,000 and $14,801,000, respectively, as well
as an increase in the overall yield on interest earning assets to 7.68% and
7.60% for the three and six months ended June 30, 2000 compared with 7.42% and
7.44% for the same periods in 1999. The increase in overall yield on interest
earning assets resulted from a change in the mix of assets to higher yielding
loans from lower yielding securities for the three and six months ended June 30,
2000 compared to June 30, 1999. The yield on loans increased from 8.14% for the
three months ended June 30, 1999 to 8.27% for the three months ended June 30,
2000, while the yield on loans for the six months ended June 30, 2000 and June
30, 1999 was 8.18% for both periods. The yield on securities and interest
earning investments increased from 5.74% and 5.76% for the three and six months
ended June 30, 1999 to 6.26% and 6.23% for the three and six months ended June
30, 2000. The increase in loan yield for the three months ended June 30, 2000 is
primarily the result of the higher interest rate environment that was prevalent
during the second half of 1999 and the first half of 2000. The increase in the
yield on securities and interest earning assets was primarily the result of the
higher interest rate environment that was prevalent during the second half of
1999 and the first half of 2000, which allowed proceeds from securities which
matured or were sold, to be reinvested at higher interest rates.
Interest Expense
Interest expense for the three and six months ended June 30, 2000 was
$7,498,000 and $14,881,000 compared to $6,783,000 and $13,745,000 for the
corresponding periods in 1999. The increase in interest expense for the three
and six months ended June 30, 2000 compared to the same periods in 1999 is
primarily due to an increase in the cost of interest bearing liabilities to
4.22% and 4.17% for the three and six months ended June 30, 2000 compared to
3.88% and 3.92% for the three and six months ended June 30, 1999, as well as an
increase in the average balance of total interest bearing liabilities of
$12,255,000 and $10,013,000 for the three and six months ended June 30, 2000
compared to the same periods in 1999. The average cost of savings deposits
increased to 2.60% and 2.55% for the three and six months ended June 30, 2000
compared to 2.38% for both the three and six months ended June 30, 1999, and the
average cost of time deposits increased to 5.40% and 5.33% for the three and six
months ended June 30, 2000 compared to 5.22% and 5.29% for the same periods in
1999. Average balances of savings deposits decreased $1,312,000 and $1,924,000
while average time deposits decreased $3,847,000 and $5,692,000, respectively
for the three and six months ended June 30, 2000 compared to the same periods in
1999. The average cost of securities sold under agreements to repurchase and
other borrowed funds increased to 5.55% and 5.40% for the three and six months
ended June 30, 2000 compared to 4.72% and 4.71% for the three and six months
ended June 30, 1999. The average balance of securities sold under agreements to
repurchase and other borrowed funds increased $17,414,000 and $17,629,000 for
the three and six months ended June 30, 2000 compared to the same periods in
1999. The increase in the cost of interest bearing liabilities related primarily
to the higher interest rate environment that was prevalent during the three and
six months ending June 30, 2000 as compared to the same periods in 1999.
Net Interest and Dividend Income
Net interest and dividend income increased by $111,000 and $134,000 for
the three and six months ended June 30, 2000 compared to the same periods in
1999. The increase for the three and six
PAGE 14
months ended June 30, 2000 compared to the same periods in 1999 is primarily due
to an increase in net interest earning assets of $5,942,000 and $4,788,000,
partially offset by a decrease in net interest rate spread from 3.54% and 3.53%
for the three and six months ended June 30, 1999 to 3.46% and 3.43% for the
three and six months ended June 30, 2000. The net yield on interest earning
assets decreased from 4.01% and 3.99% for the three and six months ended June
30, 1999 to 3.98% and 3.94% for the three and six months ended June 30, 2000.
Provision for Possible Loan Losses
The provision for possible loan losses for the three and six months
ended June 30, 2000 was $50,000 and $80,000, compared to $0 and $50,000 for the
three and six months ended June 30, 1999. The increase for the three and six
months ended June 30, 2000, compared to the same periods in 1999, is primarily
related to growth in the loan portfolio and an increase in the level of net
charge-offs for the three and six months ended June 30, 2000 compared with the
same periods a year ago, partially offset by a decrease of $783,000 in
nonperforming loans to $1,315,000 at June 30, 2000 compared to $2,098,000 at
June 30, 1999. Net charge-offs (recoveries) for the three and six months ended
June 30, 2000 was $43,000 and $80,000, compared to $(145,000) and $2,000, for
the corresponding periods a year ago.
The allowance for possible loan losses is maintained through provisions
for possible loan losses based upon management's ongoing evaluation of the risks
inherent in the loan portfolio. The methodology for determining the amount of
the allowance for possible loan losses consists of several elements.
Nonperforming, impaired and delinquent loans are reviewed individually and the
value of any underlying collateral is considered in determining estimates of
possible losses associated with those loans. Another element involves estimating
losses inherent in categories of loans, based primarily on historical
experience, industry trends and trends in the real estate market and the current
economic environment in the Company's primary market areas. The last element is
based on management's evaluation of various conditions, and involves a higher
degree of uncertainty because they are not identified with specific problem
credits or portfolio segments. The conditions evaluated in connection with this
element include the following: industry and regional conditions and/or
concentrations; seasoning of the loan portfolio and changes in the composition
of and growth in the loan portfolio; the strength and duration of the current
business cycle; existing general economic and business conditions in the lending
areas; credit quality trends, including trends in nonperforming loans expected
to result from existing conditions; historical loan charge-off experience; and
the results of bank regulatory examinations.
Noninterest Income
Noninterest income for the three and six months ended June 30, 2000
totaled $1,376,000 and $2,648,000, compared to $1,474,000 and $2,588,000 for the
same periods in 1999. The decrease of $98,000 for the three months ended June
30, 2000 compared to the same period in 1999 relates primarily to decreases in
net gains on sales of securities available for sale and net gains on sales of
loans of $286,000 and $57,000, respectively, partially offset by increases in
customer account fees and service charges of $57,000 and other noninterest
income of $191,000. The increase of $60,000 for the six months ended June 30,
2000 compared to the same period in 1999 relates primarily to increases in
customer account fees and service charges of $122,000 and other noninterest
income of $390,000, partially offset by decreases in net gains on sales of
securities available for sale and net gains on sales of loans of $285,000 and
$152,000, respectively. The increase in customer account fees and service
charges relates primarily to changes in certain fees and service charges for
both commercial and retail customers which were implemented January 1, 2000. The
increase in other noninterest income is primarily related to increases in the
cash surrender value of life insurance policies as well as increases in
commissions from brokerage activities. The decrease in net gains on sales of
loans in the secondary mortgage market was as a result of a decrease in loans
originated for and sold into the secondary mortgage market in 2000 compared to
1999, due to increases in interest rates in the latter part of 1999 and the
first half of 2000, which slowed refinancing activity for residential real
estate loans.
PAGE 15
Noninterest Expense
Noninterest expense for the three and six months ended June 30, 2000
decreased $1,000 and $167,000 compared to the same periods a year earlier. The
decrease for the three months ended June 30, 2000 compared to the same period in
1999 relates primarily to decreases of $129,000 and $27,000, respectively, in
other real estate owned expense and other expense, partially offset by increases
in salaries and benefits expense and occupancy and equipment expense of $10,000
and $145,000, respectively. The decrease for the six months ended June 30, 2000,
compared to the same period in 1999 relates primarily to decreases of $178,000
in other real estate owned expense and $148,000 in other noninterest expenses,
partially offset by increases of $21,000 in salaries and benefits expense and
$138,000 in occupancy and equipment expense. The decrease in other real estate
owned expense is due to the Company continuing its effort to reduce the number
of properties held in other real estate owned. The increase in occupancy and
equipment expense is attributable to a $93,000 writedown of bank buildings on
property used as a branch office which closed in July 2000 and an increase in
expense related to maintenance agreements. The decrease in other noninterest
expense is due to decreases in costs associated with advertising, year 2000
compliance, professional fees and printing and supplies.
Income Taxes
Income tax expense for the three and six months ended June 30, 2000 was
$1,411,000 and $2,795,000, compared with $1,412,000 and $2,668,000 for the same
periods in 1999. Income tax expense as a percentage of earnings before income
taxes was 35.88% and 35.71% for the three and six months ended June 30, 2000 and
35.58% and 35.60% for the three and six months ended June 30, 1999.
Risk Elements
Total nonperforming loans decreased from $1,516,000 or 0.27% of total
loans, at December 31, 1999, to $1,315,000 or 0.22% of total loans, at June 30,
2000. During the same period, other real estate owned, decreased from $1,288,000
to $613,000. The allowance for possible loan losses as a percent of total
nonperforming loans was 534.75% at June 30, 2000, compared with 463.85% at
December 31, 1999.
PAGE 16
As shown in the following table, nonperforming assets as a percentage of
total assets were 0.22% and 0.32%, as of June 30, 2000 and December 31, 1999,
respectively.
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------- -----------------
<S> <C> <C>
($ in Thousands)
Loans 90 days or more past due
and still accruing $ 18 $ 4
=== ===
Nonaccrual/nonperforming loans $ 1,315 $ 1,516
Other real estate owned 613 1,288
----- -----
Total nonperforming assets $ 1,928 $ 2,804
===== =====
Allowance for possible loan losses $ 7,032 $ 7,032
Nonperforming loans as a percent
of total loans 0.22% 0.27%
Allowance for possible loan losses
as a percent of total nonperforming
loans 534.75% 463.85%
Nonperforming assets as a percent of
total assets 0.22% 0.32%
</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 June 30, 2000, short-term and long-term
borrowings from the Federal Home Loan Bank of Boston were $80,539,000, with an
additional available borrowing capacity of approximately $244,370,000; interest
bearing deposits with other banks were $4,292,000 and securities available for
sale were $201,276,000. Included in securities held to maturity and securities
available for sale are debt securities with a carrying value of $202,959,000.
The weighted average maturity for debt securities held to maturity and available
for sale, excluding mortgage-backed securities with a carrying value of
$6,830,000, is approximately 61 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
PAGE 17
performance, interest rate risk, and liquidity. The Company was in compliance
with all regulatory capital requirements at June 30, 2000 and December 31, 1999.
Substantially similar rules have been issued by the Federal Deposit
Insurance Corporation ("FDIC"), with respect to state-chartered banks which are
not members of the Federal Reserve System such as the subsidiary bank. At June
30, 2000 and December 31, 1999, the subsidiary bank was in compliance with all
regulatory capital requirements. Additionally, at June 30, 2000, the subsidiary
bank was considered "well capitalized" for purposes of the FDIC's prompt
corrective action regulations.
At June 30, 2000 the Company's and the subsidiary bank's regulatory
capital ratios as a percentage of assets are as follows:
<TABLE>
<CAPTION>
June 30, 2000
---------------------
Subsidiary
Bank Company
---------- -------
<S> <C> <C>
Tier I leverage capital to average assets 8.03% 8.25%
Tier I capital to risk-weighted assets 11.96% 12.29%
Total capital to risk-weighted assets 13.16% 13.49%
</TABLE>
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.
PAGE 18
<TABLE>
<CAPTION>
Granite State Bankshares, Inc. and Subsidiary
Consolidated Quarterly Average Balances and Interest Rates
($ in Thousands)
2000 1999
------------------------------------ ------------------------------------
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 $ 576,778 8.27% $ 567,743 8.10% $ 565,229 8.01% $ 560,027 8.00%
Securities and
interest earning
investments 239,212 6.26% 251,451 6.21% 255,355 5.96% 251,276 5.75%
------- ------- ------- -------
Total interest
earning assets 815,990 7.68% 819,194 7.52% 820,584 7.37% 811,303 7.30%
Noninterest earning
assets 54,330 54,015 61,975 58,521
Allowance for possible
loan losses (7,028) (7,013) (7,058) (7,164)
------- ------- ------- -------
Total Assets $ 863,292 $ 866,196 $ 875,501 $ 862,660
======= ======= ======= =======
Liabilities and
stockholders' equity:
Savings deposits $ 307,725 2.60% $ 300,055 2.50% $ 310,601 2.41% $ 307,948 2.41%
Time deposits 255,729 5.40% 256,757 5.27% 251,269 5.28% 251,675 5.18%
Securities sold under
agreements to repurchase
and other borrowed funds 150,780 5.55% 164,566 5.27% 161,129 4.77% 153,121 4.71%
------- ------- ------- -------
Total int. bearing
liabilities 714,234 4.22% 721,378 4.12% 722,999 3.93% 712,744 3.88%
Noninterest bearing
deposits 76,955 71,336 76,860 75,088
Other liabilities 2,168 2,664 2,792 2,546
Stockholders' equity 69,935 70,818 72,850 72,282
------- ------- ------- -------
Total liab. and
stockholders' equity $ 863,292 $ 866,196 $ 875,501 $ 862,660
======= ======= ======= =======
Interest rate spread 3.46% 3.40% 3.44% 3.42%
===== ===== ===== =====
Net average earning
balance / Net yield
on interest earning
assets $ 101,756 3.98% $ 97,816 3.89% $ 97,585 3.90% $ 98,559 3.89%
======= ===== ====== ===== ====== ===== ====== =====
<CAPTION>
1999 1998
------------------------------------ ------------------------------------
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 $ 556,014 8.14% $ 557,245 8.22% $ 550,627 8.25% $ 542,139 8.43%
Securities and
interest earning
investments 241,779 5.74% 250,600 5.78% 250,425 5.72% 224,431 5.88%
------- ------- ------- -------
Total interest
earning assets 797,793 7.42% 807,845 7.47% 801,052 7.46% 766,570 7.68%
Noninterest earning
assets 59,725 56,931 60,832 65,235
Allowance for possible
loan losses (7,198) (7,133) (7,565) (7,385)
------- ------- ------- -------
Total Assets $ 850,320 $ 857,643 $ 854,319 $ 824,420
======= ======= ======= =======
Liabilities and
stockholders' equity:
Savings deposits $ 309,037 2.38% $ 302,555 2.37% $ 302,579 2.47% $ 295,424 2.61%
Time deposits 259,576 5.22% 264,321 5.36% 267,443 5.49% 265,876 5.55%
Securities sold under
agreements to repurchase
and other borrowed funds 133,366 4.72% 146,797 4.69% 135,860 4.64% 117,382 5.06%
------- ------- ------- -------
Total int. bearing
liabilities 701,979 3.88% 713,673 3.96% 705,882 4.03% 678,682 4.18%
Noninterest bearing
deposits 72,709 67,801 71,709 70,014
Other liabilities 2,144 2,998 3,248 3,130
Stockholders' equity 73,488 73,171 73,480 72,594
------- ------- ------- -------
Total liab. and
stockholders' equity $ 850,320 $ 857,643 $ 854,319 $ 824,420
======= ======= ======= =======
Interest rate spread 3.54% 3.51% 3.43% 3.50%
===== ===== ===== =====
Net average earning
balance / Net yield
on interest earning
assets $ 95,814 4.01% $ 94,172 3.97% $ 95,170 3.90% $ 87,888 3.98%
======= ===== ====== ===== ====== ===== ====== =====
</TABLE>
PAGE 19
Granite State Bankshares, Inc. and Subsidiary
Part I Item 3 and Part II - Other Information
June 30, 2000
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 1999 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
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
On April 11, 2000, 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) Philip M. Hamblet 4,727,387 N/A 39,145 N/A
B) Joseph S. Hart 4,731,805 N/A 34,727 N/A
C) James L. Koontz 4,724,570 N/A 41,923 N/A
2) Ratification of Grant Thornton as the Company's
auditors for the fiscal year ended December 31,2000 4,747,949 6,500 0 12,083
</TABLE>
PAGE 20
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.
PAGE 21
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 10, 2000 By: Charles W. Smith
Chairman and
Chief Executive Officer
/s/ William G. Pike
________________________________________
Dated: August 10, 2000 By: William G. Pike
Executive Vice President and
Chief Financial Officer
PAGE 22
