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 March 31, 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 of (I.R.S. Employer Identification No.)
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 May 8, 2000 was 5,658,447, $1.00 par value per share.
INDEX
Granite State Bankshares, Inc. and Subsidiary
Part I Financial Information Page
Item 1. Financial Statements:
Consolidated Statements of Financial Condition
March 31, 2000 and December 31, 1999 3
Consolidated Statements of Earnings
Three months ended March 31, 2000 and 1999 4
Consolidated Statements of Comprehensive Income
Three months ended March 31, 2000 and 1999 5
Consolidated Statements of Cash Flows
Three months ended March 31, 2000 and 1999 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
Part II Other Information
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
<TABLE>
<CAPTION>
Granite State Bankshares, Inc. and Subsidiary
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Statements of Financial Condition
March 31, December 31,
($ in thousands, except par values) 2000 1999
---------- ------------
<S> <C> <C>
(Unaudited)
ASSETS
Cash and due from banks $ 20,637 $ 18,575
Interest bearing deposits in other banks,
at cost which approximates market value 3,955 4,402
Securities available for sale (amortized cost
$209,874 at March 31, 2000 and $222,673 at
December 31, 1999) 201,494 215,572
Securities held to maturity (market value
$17,231 at March 31, 2000 and $17,232 at
December 31, 1999) 18,016 18,017
Stock in Federal Home Loan Bank of Boston 7,201 7,201
Loans held for sale 67 479
Loans 571,299 568,694
Less: Unearned income (1,200) (1,248)
Allowance for possible loan losses (7,025) (7,032)
------- -------
Net loans 563,074 560,414
Premises and equipment 16,552 16,967
Other real estate owned 1,173 1,288
Other assets 26,487 24,762
------- -------
Total assets $ 858,656 $ 867,677
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing deposits $ 561,701 $ 555,222
Noninterest bearing deposits 77,492 72,796
------- -------
Total deposits 639,193 628,018
Securities sold under agreements to repurchase 64,350 75,042
Other borrowings 80,551 90,563
Other liabilities 3,877 3,685
------- -------
Total liabilities 787,971 797,308
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
March 31, 2000 and December 31, 1999 6,790 6,790
Additional paid-in capital 37,806 37,919
------- -------
44,596 44,709
Accumulated other comprehensive loss (5,088) (4,312)
Retained earnings 41,464 39,870
------- -------
80,972 80,267
Less: Treasury stock, at cost, 1,067,889 and
1,039,089 shares at March 31, 2000 and
December 31, 1999, respectively (9,856) (9,418)
Unallocated common stock acquired by
the ESOP (36) (36)
Unearned restricted stock (395) (444)
------- -------
Total stockholders' equity 70,685 70,369
------- -------
Total liabilities and stockholders' equity $ 858,656 $ 867,677
======= =======
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
March 31,
---------------------
($ in thousands, except per share data) 2000 1999
-------- --------
<S> <C> <C>
(Unaudited)
Interest and dividend income:
Loans $ 11,434 $ 11,296
Debt securities available for sale 3,213 2,801
Marketable equity securities available for sale 183 182
Securities held to maturity 289 382
Dividends on Federal Home Loan Bank of Boston stock 125 114
Other interest 70 95
------ ------
15,314 14,870
Interest expense:
Deposits 5,228 5,263
Securities sold under agreements to repurchase 941 637
Other borrowings 1,214 1,062
------ ------
7,383 6,962
------ ------
Net interest and dividend income 7,931 7,908
Provision for possible loan losses 30 50
------ ------
Net interest and dividend income after
provision for possible loan losses 7,901 7,858
Noninterest income:
Customer account fees and service charges 693 628
Mortgage service fees 113 125
Net gains on sales of securities available for sale 6 5
Net gains on sales of loans 58 153
Other 402 203
------ ------
1,272 1,114
Noninterest expense:
Salaries and benefits 2,920 2,909
Occupancy and equipment 1,079 1,086
Other real estate owned 41 90
Other 1,240 1,361
------ ------
5,280 5,446
------ ------
Earnings before income taxes 3,893 3,526
Income taxes 1,384 1,256
------ ------
Net earnings $ 2,509 $ 2,270
====== ======
Shares used in computing net earnings per share:
Basic 5,704,777 5,830,661
Diluted 5,752,907 5,978,915
Net earnings per share -basic $ 0.44 $ 0.39
Net earnings per share -diluted $ 0.44 $ 0.38
Cash dividends declared per share $ 0.16 $ 0.14
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
March 31,
($ in thousands) --------------------
2000 1999
-------- --------
<S> <C> <C>
(Unaudited)
Net earnings $ 2,509 $ 2,270
Other comprehensive income (loss):
Unrealized holding losses arising during the period (1,273) (1,865)
Related income tax effects 501 720
------ ------
Net unrealized holding losses, net of related
income tax effects (772) (1,145)
------ ------
Less: reclassification adjustment for gains realized
in net earnings:
Realized gains (6) (5)
Related income tax effects 2 2
------ ------
Net reclassification adjustment (4) (3)
------ ------
Total other comprehensive loss (776) (1,148)
------ ------
Comprehensive Income $ 1,733 $ 1,122
====== ======
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
March 31,
-------------------
Increase (decrease) in cash ($ In Thousands) 2000 1999
-------- --------
<S> <C> <C>
(Unaudited)
Cash flows from operating activities:
Net earnings $ 2,509 $ 2,270
Adjustments to reconcile net earnings to net cash
provided by operating activities
Provision for possible loan losses 30 50
Provision for depreciation and amortization 591 595
Net amortization of security discounts and premiums 8 56
Provision for loss on other real estate owned 50
Realized gains on sales of securities available
for sale, net (6) (5)
Loans originated for sale (2,493) (6,324)
Proceeds from sale of loans originated for sale 2,963 6,762
Realized gains on sales of loans (58) (153)
Decrease in unearned income (48) (19)
Realized (gains) losses on sales of other real
estate owned 25 (1)
Deferred income taxes (benefits) (48) 654
(Increase) decrease in other assets (1,272) 206
Increase (decrease) in other liabilities 83 (95)
Decrease in unearned restricted stock 49 75
------ ------
Net cash provided by operating activities 2,383 4,071
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 12,507
Proceeds from maturities and calls of securities
available for sale 15,000
Purchase of securities available for sale (52) (5,509)
Principal payments received on securities available
for sale 343 1,613
Loan originations, net of repayments (2,722) (1,437)
Purchase of premises and equipment (78) (549)
Proceeds from sales of other real estate owned 120 363
Net decrease in interest-bearing deposits in other
banks 447 2,670
------ ------
Net cash provided by investing activities 10,565 16,451
Cash flows from financing activities:
Net increase (decrease) in demand, NOW, money market
deposit and savings accounts 12,784 (3,705)
Net decrease in time certificates (1,609) (5,147)
Net decrease in securities sold under agreements
to repurchase (10,692) (16,165)
Net decrease in other borrowings (10,012) (11)
Reissuance of common stock from treasury 33 216
Purchase of treasury stock (584) (1,030)
Dividends paid on common stock (806) (737)
------ ------
Net cash used in financing activities (10,886) (26,579)
------ ------
Net increase (decrease) in cash and due from banks 2,062 (6,057)
Cash and due from banks at beginning of period 18,575 23,506
------ ------
Cash and due from banks at end of period $ 20,637 $ 17,449
====== ======
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
March 31, 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 months ended March 31, 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
March 31,
--------------------
2000 1999
-------- --------
<S> <C> <C>
($ in Thousands, except per share data)
Net earnings $ 2,509 $ 2,270
====== ======
Weighted average common
shares outstanding-Basic 5,704,777 5,830,661
Dilutive effect of stock
options and restricted stock
awards computed using the
treasury stock method 48,130 148,254
--------- ---------
Weighted average common
shares outstanding-Diluted 5,752,907 5,978,915
========= =========
Net earnings per share-Basic $ 0.44 $ 0.39
===== =====
Net earnings per share-Diluted $ 0.44 $ 0.38
===== =====
</TABLE>
Weighted average options to purchase 99,750 and 75,000 shares of common
stock were outstanding at March 31, 2000 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.
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 March 31, 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 March 31, 2000 and December 31, 1999 were as follows:
<TABLE>
<CAPTION>
Amortized Estimated Carrying
At March 31, 2000 Cost Market Value Value
--------- ------------ --------
<S> <C> <C> <C>
(In Thousands)
Securities held to maturity
US Government agency obligations $ 13,006 $ 12,506 $ 13,006
Other corporate obligations 5,010 4,725 5,010
------ ------ ------
Total securities held to maturity $ 18,016 $ 17,231 $ 18,016
====== ====== ======
Securities available for sale
US Treasury obligations $ 7,489 $ 7,467 $ 7,467
US Government agency obligations 105,455 101,613 101,613
Other corporate obligations 71,829 68,666 68,666
Mortgage-backed securities:
FNMA 4,562 4,550 4,550
FHLMC 1,420 1,411 1,411
GNMA 860 888 888
SBA 365 361 361
------- ------- -------
Total mortgage-backed securities 7,207 7,210 7,210
Mutual Funds 7,201 7,039 7,039
Marketable equity securities 10,693 9,499 9,499
------- ------- -------
Total securities available for sale $ 209,874 $ 201,494 $ 201,494
======= ======= =======
<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>
March 31, December 31,
2000 1999
--------- ------------
<S> <C> <C>
(In Thousands)
Commercial, financial and agricultural $ 41,909 $ 41,837
Real estate-residential 358,353 356,368
Real estate-commercial 137,384 136,566
Real estate-construction and
land development 4,178 3,886
Installment 5,575 5,952
Other 23,900 24,085
------- -------
Total loans 571,299 568,694
Less:
Unearned income (1,200) (1,248)
Allowance for possible loan losses (7,025) (7,032)
------- -------
Net loans $ 563,074 $ 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 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
March 31,
--------------------
2000 1999
-------- --------
<S> <C> <C>
(In Thousands)
Balance, beginning of period $ 7,032 $ 7,122
Provision for possible loan losses 30 50
Loans charged off (133) (242)
Recoveries of loans previously charged off 96 95
----- -----
Balance, end of period $ 7,025 $ 7,025
===== =====
</TABLE>
Information with respect to impaired loans consisted of the following
at:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
<S> <C> <C>
(In Thousands)
Recorded investment in impaired loans $ 482 $ 489
==== ====
Impaired loans with specific loss allowances $ 482 $ 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 $486,000 and $1,425,000 for the three months ended March 31, 2000 and
1999, respectively. During the three months ended March 31, 2000 and 1999, the
Company recognized no income on impaired loans.
Note 5. Interest Bearing Deposits
Interest bearing deposits consist of the following at:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
<S> <C> <C>
(In Thousands)
NOW accounts $ 204,610 $ 195,833
Savings accounts 86,870 85,770
Money market deposit accounts 15,727 17,516
Time certificates 254,494 256,103
------- -------
$ 561,701 $ 555,222
======= =======
</TABLE>
Note 6. Supplemental Disclosures of Cash Flow Information
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------
2000 1999
-------- --------
<S> <C> <C>
(In Thousands)
Cash paid for interest $ 7,505 $ 6,915
Income taxes paid 750 100
Non-cash investing activities:
Real estate acquired in settlement of loans 80 541
</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
March 31, 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 March 31, 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 decreased by $9,021,000 or 1.04%, from $867,677,000 at
December 31, 1999 to $858,656,000 at March 31, 2000. The decrease in assets
resulted primarily from decreases in securities available for sale, partially
offset by increases in cash and due from banks, net loans and other assets.
Cash and due from banks increased $2,062,000, from $18,575,000 at
December 31, 1999 to $20,637,000 at March 31, 2000. Interest bearing deposits
with other banks, which primarily consist of deposits with the Federal Home Loan
Bank of Boston, decreased $447,000, from $4,402,000 at December 31, 1999 to
$3,955,000 at March 31, 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 $14,078,000, from $215,572,000
at December 31, 1999 to $201,494,000 at March 31, 2000. Proceeds from decreases
in securities available for sale were primarily used to fund decreases in
securities sold under agreements to repurchase and other borrowings.
Net loans were $563,074,000 at March 31, 2000, an increase of $2,660,000
from $560,414,000 at December 31, 1999. The most significant changes in the loan
portfolio related to residential real estate loans and commercial real estate
loans. Residential real estate loans increased $1,985,000 to $358,353,000 or
62.73% of total loans outstanding at March 31, 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 fixed interest rates encouraged borrowers into adjustable rate
product. Commercial real estate loans increased $818,000.
Total deposits increased $11,175,000, or 1.78%, from $628,018,000 at
December 31, 1999 to $639,193,000 at March 31, 2000. The significant changes in
deposits related to an increase in NOW accounts, demand deposits, and savings
accounts of $8,777,000, $4,696,000 and $1,100,000, respectively, partially
offset by a decrease in time certificates and money market deposit accounts of
$1,609,000 and $1,789,000, respectively. The changes in the balances of NOW
accounts, demand deposits, money market deposit accounts and savings accounts
related primarily to the timing of the cash needs of depositors. The decrease
in the time certificates related primarily to depositors looking to achieve
higher yields by investing their funds in alternate investment products.
Securities sold under agreements to repurchase decreased $10,692,000,
from $75,042,000 at December 31, 1999 to $64,350,000 at March 31, 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 $10,012,000 to $80,551,000 at March 31, 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.
Results of Operations
Net Earnings
Net earnings for the three months ended March 31, 2000 were $2,509,000,
compared to $2,270,000 for the three months ended March 31, 1999. Basic earnings
per share were $.44 for the three months ended March 31, 2000, compared to $.39
for the three months ended March 31, 1999. Diluted earnings per share were $.44
for the three months ended March 31, 2000 compared to $.38 for the three months
ended March 31, 1999.
Interest and Dividend Income
Interest and dividend income for the three months ended March 31, 2000
increased by $444,000 to $15,314,000 compared to $14,870,000 for the
corresponding period in 1999. The increase in interest and dividend income for
the three months ended March 31, 2000 compared to the three months ended March
31, 1999 is primarily attributable to an increase in the average balance of
interest earning assets of $11,349,000 to $819,194,000 for the three months
ended March 31, 2000 compared to $807,845,000 for the three months ended March
31, 1999, as well as an increase in the overall yield on interest earning assets
to 7.52% for the three months ended March 31, 2000 from 7.47% for the three
months ended March 31, 1999. The increase in overall yield on interest earning
assets resulted from a change in the mix of assets to higher yielding loans for
the three months ended March 31, 2000 compared to March 31, 1999. The yield on
loans decreased from 8.22% for the three months ended March 31, 1999 to 8.10%
for the three months ended March 31, 2000, while the yield on securities and
interest earning investments increased from 5.78% for the three months ended
March 31, 1999 to 6.21% for the three months ended March 31, 2000. The decrease
in loan yield is due to a shift in the mix of loans from commercial real estate
and commercial and industrial loans which comprised 31.38% and 33.59% of the
loan portfolio at March 31, 2000 and March 31, 1999, respectively, to lower
yielding residential real estate loans which comprised 62.73% and 60.47% of the
loan portfolio at March 31, 2000 and March 31, 1999, respectively. 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 quarter 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 months ended March 31, 2000 increased by
$421,000 to $7,383,000 compared to $6,962,000 for the corresponding period in
1999. The increase in interest expense for the three months ended March 31, 2000
compared to the same period in 1999 is primarily due to an increase in the cost
of interest bearing liabilities to 4.12% for the three months ended March 31,
2000 compared to 3.96% for the three months ended March 31, 1999 as well as an
increase in the average balance of total interest bearing liabilities of
$7,705,000, to $721,378,000 for the three months ended March 31, 2000 compared
to $713,673,000 for the three months ended March 31, 1999. The average cost of
savings deposits increased to 2.50% for the three months ended March 31, 2000
compared to 2.37% for the three months ended March 31, 1999, while the average
cost of time deposits decreased to 5.27% for the three months ended March 31,
2000 compared to 5.36% for the same period in 1999. Average balances of savings
deposits and time deposits decreased $2,500,000 and $7,564,000, respectively for
the three months ended March 31, 2000 compared to the same period in 1999. The
average cost of securities sold under agreements to repurchase and other
borrowed funds increased to 5.27% for the three months ended March 31, 2000
compared to 4.69% for the three months ended March 31, 1999. The average balance
of securities sold under agreements to repurchase and other borrowed funds
increased $17,769,000 for the three months ended March 31, 2000 compared to the
same period in 1999.
Net Interest and Dividend Income
Net interest and dividend income increased by $23,000 for the three
months ended March 31, 2000 compared to the same period in 1999. The increase
for the three months ended March 31, 2000 compared to the same period in 1999
is primarily due to an increase in net interest earning assets of $3,644,000,
partially offset by a decrease in net interest rate spread from 3.51% for the
three months ended March 31, 1999 to 3.40% for the three months ended March 31,
2000. The net yield on interest earning assets decreased from 3.97% for the
three months ended March 31, 1999 to 3.89% for the three months ended March 31,
2000.
Provision for Possible Loan Losses
The provision for possible loan losses for the three months ended March
31, 2000 was $30,000, compared to $50,000 for the three months ended March 31,
1999. The decrease for the three months ended March 31, 2000, compared to the
same period in 1999, is primarily related to the low level of net charge-offs
for the three months ended March 31, 2000 compared with the same period a year
ago. Net charge-offs for the three months ended March 31, 2000 was $37,000,
compared to $147,000, for the corresponding period 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 months ended March 31, 2000 totaled
$1,272,000, compared to $1,114,000 for the same period in 1999. The increase of
$158,000 relates primarily to increases in customer account fees and service
charges of $65,000 and other noninterest income of $199,000, partially offset by
a decrease in net gains on sales of loans of $95,000. 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. 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 quarter of 2000, which slowed
refinancing activity for residential real estate loans.
Noninterest Expense
Noninterest expense for the three months ended March 31, 2000 decreased
$166,000, or 3.05% to $5,280,000 as compared to $5,446,000 for the same period a
year earlier. The decrease for the three months ended March 31, 2000, compared
to the same period in 1999 relates primarily to decreases of $121,000 in other
noninterest expenses and $49,000 in other real estate owned expense. The
decrease in other real estate owned expense is due to the Bank continuing its
effort to reduce the number of properties held in other real estate owned. 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 months ended March 31, 2000 was
$1,384,000, compared with $1,256,000 for the same period in 1999. Income tax
expense as a percentage of earnings before income taxes was 35.55% for the three
months ended March 31, 2000 and 35.62% for the three months ended March 31,
1999.
Risk Elements
Total nonperforming loans increased slightly from $1,516,000 or 0.27%
of total loans, at December 31, 1999, to $1,745,000 or 0.31% of total loans, at
March 31, 2000. During the same period, other real estate owned, decreased from
$1,288,000 to $1,173,000. The allowance for possible loan losses as a percent of
total nonperforming loans was 402.58% at March 31, 2000, compared with 463.85%
at December 31, 1999.
As shown in the following table, nonperforming assets as a percentage of
total assets were 0.34% and 0.32%, as of March 31, 2000 and December 31, 1999,
respectively.
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
($ in Thousands)
Loans 90 days or more past due
and still accruing $ 177 $ 4
==== ====
Nonaccrual/nonperforming loans $ 1,745 $ 1,516
Other real estate owned 1,173 1,288
----- -----
Total nonperforming assets $ 2,918 $ 2,804
===== =====
Allowance for possible loan losses $ 7,025 $ 7,032
Nonperforming loans as a percent of
total loans 0.31% 0.27%
Allowance for possible loan losses
as a percent of total nonperforming loans 402.58% 463.85%
Nonperforming assets as a percent of total
assets 0.34% 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 March 31, 2000, short-term and long-term
borrowings from the Federal Home Loan Bank of Boston were $80,551,000, with an
additional available borrowing capacity of approximately $236,759,000; interest
bearing deposits with other banks were $3,955,000 and securities available for
sale were $201,494,000. Included in securities held to maturity and securities
available for sale are debt securities with a carrying value of $202,972,000.
The weighted average maturity for debt securities held to maturity and available
for sale, excluding mortgage-backed securities with a carrying value of
$7,210,000, is approximately 64 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 March 31, 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 March
31, 2000 and December 31, 1999, the subsidiary bank was in compliance with all
regulatory capital requirements. Additionally, at March 31, 2000, the subsidiary
bank was considered "well capitalized" for purposes of the FDIC's prompt
corrective action regulations.
At March 31, 2000 the Company's and the subsidiary bank's regulatory
capital ratios as a percentage of assets are as follows:
<TABLE>
<CAPTION>
March 31, 2000
---------------------
Subsidiary
Bank Company
---------- -------
<S> <C> <C>
Tier I leverage capital to average assets 8.24% 8.45%
Tier I capital to risk-weighted assets 12.60% 12.91%
Total capital to risk-weighted assets 13.83% 14.14%
</TABLE>
Subsequent to quarter end, effective May 3, 2000, the Company announced
that it had completed its Stock Repurchase Program of August 11, 1998, whereby
the Company repurchased up to 5% of its common stock, or approximately 295,000
shares. At the same time, the Board of Directors authorized another Stock
Repurchase Program whereby the Company may repurchase up to 10%, or
approximately 566,000 shares, of its outstanding common shares, from time to
time. Shares repurchased may be held in treasury, retired, or used for general
corporate purposes.
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)
2000 1999
----------------- --------------------------------------------------------------
First Quarter Fourth Quarter Third Quarter Second Quarter
Avg. Bal. Rate Avg. Bal. Rate Avg. Bal. Rate Avg. Bal. Rate
--------- ----- --------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Loans $ 567,743 8.10% $ 565,229 8.01% $ 560,027 8.00% $ 556,014 8.14%
Securities and
interest earning
investments 251,451 6.21% 255,355 5.96% 251,276 5.75% 241,779 5.74%
Total interest ------- ------- ------- -------
earning assets 819,194 7.52% 820,584 7.37% 811,303 7.30% 797,793 7.42%
Noninterest earning
assets 54,015 61,975 58,521 59,725
Allowance for possible
loan losses (7,013) (7,058) (7,164) (7,198)
------- ------- ------- -------
Total Assets $ 866,196 $ 875,501 $ 862,660 $ 850,320
======= ======= ======= =======
Liabilities and
stockholders' equity:
Savings deposits $ 300,055 2.50% $ 310,601 2.41% $ 307,948 2.41% $ 309,037 2.38%
Time deposits 256,757 5.27% 251,269 5.28% 251,675 5.18% 259,576 5.22%
Securities sold under
agreements to repurchase
and other borrowed funds 164,566 5.27% 161,129 4.77% 153,121 4.71% 133,366 4.72%
------- ------- ------- -------
Total int. bearing
liabilities 721,378 4.12% 722,999 3.93% 712,744 3.88% 701,979 3.88%
Noninterest bearing
deposits 71,336 76,860 75,088 72,709
Other liabilities 2,664 2,792 2,546 2,144
Stockholders' equity 70,818 72,850 72,282 73,488
------- ------- ------- -------
Total liab. and
stockholders' equity $ 866,196 $ 875,501 $ 862,660 $ 850,320
======= ======= ======= =======
Interest rate spread 3.40% 3.44% 3.42% 3.54%
===== ===== ===== =====
Net average earning
balance / Net yield on
interest earning assets $ 97,816 3.89% $ 97,585 3.90% $ 98,559 3.89% $ 95,814 4.01%
====== ===== ====== ===== ====== ===== ====== =====
<CAPTION>
1999 1998
----------------- --------------------------------------------------------------
First Quarter Fourth Quarter Third Quarter Second Quarter
Avg. Bal. Rate Avg. Bal. Rate Avg. Bal. Rate Avg. Bal. Rate
--------- ----- --------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Loans $ 557,245 8.22% $ 550,627 8.25% $ 542,139 8.43% $ 539,783 8.62%
Securities and
interest earning
investments 250,600 5.78% 250,425 5.72% 224,431 5.88% 182,375 5.91%
Total interest ------- ------- ------- -------
earning assets 807,845 7.47% 801,052 7.46% 766,570 7.68% 722,158 7.93%
Noninterest earning
assets 56,931 60,832 65,235 77,019
Allowance for possible
loan losses (7,133) (7,565) (7,385) (7,532)
------- ------- ------- -------
Total Assets $ 857,643 $ 854,319 $ 824,420 $ 791,645
======= ======= ======= =======
Liabilities and
stockholders' equity:
Savings deposits $ 302,555 2.37% $ 302,579 2.47% $ 295,424 2.61% $ 299,353 2.63%
Time deposits 264,321 5.36% 267,443 5.49% 265,876 5.55% 258,483 5.54%
Securities sold under
agreements to repurchase
and other borrowed funds 146,797 4.69% 135,860 4.64% 117,382 5.06% 88,977 4.94%
------- ------- ------- -------
Total int. bearing
liabilities 713,673 3.96% 705,882 4.03% 678,682 4.18% 646,813 4.11%
Noninterest bearing
deposits 67,801 71,709 70,014 69,895
Other liabilities 2,998 3,248 3,130 3,108
Stockholders' equity 73,171 73,480 72,594 71,829
------- ------- ------- -------
Total liab. and
stockholders' equity $ 857,643 $ 854,319 $ 824,420 $ 791,645
======= ======= ======= =======
Interest rate spread 3.51% 3.43% 3.50% 3.82%
===== ===== ===== =====
Net average earning
balance / Net yield on
interest earning assets $ 94,172 3.97% $ 95,170 3.90% $ 87,888 3.98% $ 75,345 4.25%
====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
Granite State Bankshares, Inc. and Subsidiary
Part I Item 3 and Part II - Other Information
March 31, 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
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: May 11, 2000 By: Charles W. Smith
Chairman and
Chief Executive Officer
/s/ William G. Pike
______________________________________
Dated: May 11, 2000 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 20,637
<INT-BEARING-DEPOSITS> 3,955
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 201,494<F1>
<INVESTMENTS-CARRYING> 18,016
<INVESTMENTS-MARKET> 17,231
<LOANS> 570,099<F2>
<ALLOWANCE> 7,025
<TOTAL-ASSETS> 858,656
<DEPOSITS> 639,193
<SHORT-TERM> 64,350<F3>
<LIABILITIES-OTHER> 3,877
<LONG-TERM> 80,551<F4>
0
0
<COMMON> 6,790
<OTHER-SE> 63,895
<TOTAL-LIABILITIES-AND-EQUITY> 858,656
<INTEREST-LOAN> 11,434
<INTEREST-INVEST> 3,685
<INTEREST-OTHER> 195
<INTEREST-TOTAL> 15,314
<INTEREST-DEPOSIT> 5,228
<INTEREST-EXPENSE> 7,383
<INTEREST-INCOME-NET> 7,931
<LOAN-LOSSES> 30
<SECURITIES-GAINS> 6
<EXPENSE-OTHER> 5,280
<INCOME-PRETAX> 3,893
<INCOME-PRE-EXTRAORDINARY> 2,509
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,509
<EPS-BASIC> 0.44
<EPS-DILUTED> 0.44
<YIELD-ACTUAL> 3.89
<LOANS-NON> 1,745
<LOANS-PAST> 177
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,032
<CHARGE-OFFS> 133
<RECOVERIES> 96
<ALLOWANCE-CLOSE> 7,025
<ALLOWANCE-DOMESTIC> 5,856
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,169
<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 $64,350
<F4>Includes other borrowings with the Federal Home Loan Bank of Boston of
$80,551
</FN>
</TABLE>
