FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For quarterly period ended September 30, 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 November 9, 2000 was 5,340,220, $1.00 par value per share.
INDEX
Granite State Bankshares, Inc. and Subsidiary
Part I Financial Information Page
Item 1. Financial Statements:
Consolidated Statements of Financial Condition
September 30, 2000 and December 31, 1999 3
Consolidated Statements of Earnings
Three and Nine Months Ended September 30, 2000 and 1999 4
Consolidated Statements of Comprehensive Income
Three and Nine Months Ended September 30, 2000 and 1999 5
Consolidated Statements of Cash Flows
Three and Nine Months Ended September 30, 2000 and 1999 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 20
Part II Other Information
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
PAGE 2
<TABLE>
<CAPTION>
Granite State Bankshares, Inc. and Subsidiary
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Statements of Financial Condition
September 30, December 31,
($ in thousands, except par values) 2000 1999
------------- ------------
<S> <C> <C>
(Unaudited)
ASSETS
Cash and due from banks $ 21,864 $ 18,575
Interest bearing deposits in other banks,
at cost which approximates market value 27 4,402
Securities available for sale (amortized cost
$206,838 at September 30, 2000 and $222,673
at December 31, 1999) 202,710 215,572
Securities held to maturity (market value
$17,574 at September 30, 2000 and $17,232 at
December 31, 1999) 18,012 18,017
Stock in Federal Home Loan Bank of Boston 7,201 7,201
Loans held for sale 420 479
Loans 601,183 568,694
Less: Unearned income (1,126) (1,248)
Allowance for possible loan losses (7,157) (7,032)
------- -------
Net loans 592,900 560,414
Premises and equipment 15,851 16,967
Other real estate owned 266 1,288
Other assets 25,878 24,762
------- -------
Total assets $ 885,129 $ 867,677
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing deposits $ 557,341 $ 555,222
Noninterest bearing deposits 83,156 72,796
------- -------
Total deposits 640,497 628,018
Securities sold under agreements to repurchase 79,008 75,042
Other borrowings 91,450 90,563
Other liabilities 3,338 3,685
------- -------
Total liabilities 814,293 797,308
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 September 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 (2,507) (4,312)
Retained earnings 44,760 39,870
------- -------
86,883 80,267
Less: Treasury stock, at cost, 1,413,362
and 1,039,089 shares at September 30, 2000
and December 31, 1999, respectively (15,715) (9,418)
Unallocated common stock acquired by
the ESOP (36) (36)
Unearned restricted stock (296) (444)
------- -------
Total stockholders' equity 70,836 70,369
------- -------
Total liabilities and stockholders' equity $ 885,129 $ 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 Nine Months Ended
September 30, September 30,
($ in thousands, except per share data) -------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
(Unaudited) (Unaudited)
Interest and dividend income:
Loans $ 12,307 $ 11,290 $ 35,598 $ 33,876
Debt securities available for sale 3,091 2,711 9,344 8,249
Marketable equity securities available for sale 145 185 522 550
Securities held to maturity 289 288 866 959
Dividends on Federal Home Loan Bank of Boston stock 144 117 404 348
Other interest 66 341 201 573
------ ------ ------ ------
16,042 14,932 46,935 44,555
Interest expense:
Deposits 5,549 5,159 16,196 15,635
Securities sold under agreements to repurchase 1,206 757 3,069 1,914
Other borrowings 1,171 1,061 3,542 3,173
------ ------ ------ ------
7,926 6,977 22,807 20,722
------ ------ ------ ------
Net interest and dividend income 8,116 7,955 24,128 23,833
Provision for possible loan losses 150 0 230 50
------ ------ ------ ------
Net interest and dividend income after
provision for possible loan losses 7,966 7,955 23,898 23,783
Noninterest income:
Customer account fees and service charges 658 627 2,071 1,918
Mortgage service fees 103 121 335 368
Net gains on sales of securities available for sale 83 404 89 695
Net gains on sales of loans 141 174 262 447
Other 435 325 1,311 811
------ ------ ------ ------
1,420 1,651 4,068 4,239
Noninterest expense:
Salaries and benefits 3,061 3,038 8,901 8,857
Occupancy and equipment 1,073 999 3,321 3,109
Other real estate owned (71) 147 (41) 355
Other 1,385 1,271 4,021 4,055
------ ------ ------ ------
5,448 5,455 16,202 16,376
------ ------ ------ ------
Earnings before income taxes 3,938 4,151 11,764 11,646
Income taxes 1,422 1,504 4,217 4,172
------ ------ ------ ------
Net earnings $ 2,516 $ 2,647 $ 7,547 $ 7,474
====== ====== ====== ======
Shares used in computing net earnings per share:
Basic 5,396,932 5,757,767 5,553,735 5,797,538
Diluted 5,423,346 5,914,424 5,586,705 5,953,246
Net earnings per share -basic $ 0.47 $ 0.46 $ 1.36 $ 1.29
Net earnings per share -diluted $ 0.46 $ 0.45 $ 1.35 $ 1.26
Cash dividends declared per share $ 0.16 $ 0.14 $ 0.48 $ 0.42
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 Nine Months Ended
September 30, September 30,
($ in thousands) -------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
(Unaudited) (Unaudited)
Net earnings $ 2,516 $ 2,647 $ 7,547 $ 7,474
Other comprehensive income (loss):
Unrealized holding gains (losses) arising
during the period 4,264 (2,817) 3,062 (5,611)
Related income tax effects (1,676) 1,108 (1,203) 2,187
------ ------ ------ ------
Net unrealized holding gains (losses),
net of related income tax effects 2,588 (1,709) 1,859 (3,424)
------ ------ ------ ------
Less: reclassification adjustment for gains
realized in net earnings:
Realized gains (83) (404) (89) (695)
Related income tax effects 33 161 35 273
------ ------ ------ ------
Net reclassification adjustment (50) (243) (54) (422)
------ ------ ------ ------
Total other comprehensive income (loss) 2,538 (1,952) 1,805 (3,846)
------ ------ ------ ------
Comprehensive Income $ 5,054 $ 695 $ 9,352 $ 3,628
====== ====== ====== ======
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 Nine Months Ended
September 30, September 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 $ 2,516 $ 2,647 $ 7,547 $ 7,474
Adjustments to reconcile net earnings to net cash
provided by operating activities
Provision for possible loan losses 150 230 50
Provision for depreciation and amortization 591 588 1,773 1,774
Writedown of premises and equipment 93
Net amortization of security discounts and premiums 49 12 170
Provision for loss on other real estate owned 84 50 146
Realized gains on sales of securities available for
sale, net (83) (404) (89) (695)
Loans originated for sale (6,141) (6,269) (12,547) (20,189)
Proceeds from sale of loans originated for sale 6,003 6,761 12,868 21,746
Realized gains on sales of loans (141) (174) (262) (447)
Gains on sales of other assets (11)
Decrease in unearned income (30) (54) (122) (148)
Realized gain on sales of other real estate owned (58) (71) (6)
Deferred income taxes 69 26 64 668
(Increase) decrease in other assets (1,555) 9 (2,620) (5,311)
Increase (decrease) in other liabilities 516 519 (394) 177
Decrease in unearned restricted stock 49 75 148 225
------ ------ ------ ------
Net cash provided by operating activities 1,886 3,857 6,680 5,623
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 14,794 780 27,301 47,616
Proceeds from maturities and calls of securities
available for sale 10,000 35,000
Purchase of securities available for sale (12,447) (9,014) (12,596) (65,957)
Principal payments received on securities available
for sale 484 734 1,212 3,491
Loan originations, net of repayments (14,108) (1,274) (32,949) (9,748)
Purchase of premises and equipment (185) (247) (451) (1,148)
Proceeds from sales of other assets 760
Proceeds from sales of other real estate owned 405 1,398 846
Net decrease in interest-bearing deposits in other
banks 4,265 6,080 4,375 4,732
Other 254
------ ------ ------ ------
Net cash provided by (used in) investing activities (6,792) 7,059 (11,710) 20,146
Cash flows from financing activities:
Net increase (decrease) in demand, NOW, money market
deposit and savings accounts (4,918) (12,327) 17,069 (3,176)
Net decrease in time certificates (4,845) (11,858) (4,590) (21,699)
Net increase (decrease) in securities sold under
agreements to repurchase 4,911 10,460 3,966 (895)
Net increase (decrease) in other borrowings 10,911 (12) 887 (34)
Reissuance of common stock from treasury 33 225
Purchase of treasury stock (2,404) (1,414) (6,442) (3,013)
Dividends paid on common stock (883) (819) (2,604) (2,376)
------ ------ ------ ------
Net cash provided by (used in) financing activities 2,772 (15,970) 8,319 (30,968)
------ ------ ------ ------
Net increase (decrease) in cash and due from banks (2,134) (5,054) 3,289 (5,199)
Cash and due from banks at beginning of period 23,998 23,361 18,575 23,506
------ ------ ------ ------
Cash and due from banks at end of period $ 21,864 $ 18,307 $ 21,864 $ 18,307
====== ====== ====== ======
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
September 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 nine months ended
September 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 Nine Months Ended
September 30, September 30,
------------------------------ ---------------------------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
($ in Thousands, except per share data) ($ in Thousands, except per share data)
Net earnings $ 2,516 $ 2,647 $ 7,547 $ 7,474
===== ===== ===== =====
Weighted average common
shares outstanding-Basic 5,396,932 5,757,767 5,553,735 5,797,538
Dilutive effect of stock
options and restricted stock
awards computed using the
treasury stock method 26,414 156,657 32,970 155,708
--------- --------- --------- ---------
Weighted average common
shares outstanding-Diluted 5,423,346 5,914,424 5,586,705 5,953,246
========= ========= ========= =========
Net earnings per share-Basic $ 0.47 $ 0.46 $ 1.36 $ 1.29
===== ===== ===== =====
Net earnings per share-Diluted $ 0.46 $ 0.45 $ 1.35 $ 1.26
===== ===== ===== =====
</TABLE>
Weighted average options to purchase 399,250 and 75,000 shares of common
stock were outstanding at September 30, 2000 and September 30, 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 September 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 September 30, 2000 and December 31, 1999 were as follows:
<TABLE>
<CAPTION>
Amortized Estimated Carrying
At September 30, 2000 Cost Market Value Value
--------- ------------ ---------
<S> <C> <C> <C>
(In Thousands)
Securities held to maturity
US Government agency obligations $ 13,003 $ 12,739 $ 13,003
Other corporate obligations 5,009 4,835 5,009
------ ------ ------
Total securities held to maturity $ 18,012 $ 17,574 $ 18,012
====== ====== ======
Securities available for sale
US Government agency obligations $ 105,458 $ 103,366 $ 103,366
Other corporate obligations 84,234 82,359 82,359
Mortgage-backed securities:
FNMA 4,003 4,016 4,016
FHLMC 1,184 1,182 1,182
GNMA 808 854 854
SBA 326 326 326
------ ------ ------
Total mortgage-backed securities 6,321 6,378 6,378
Mutual Funds 900 852 852
Marketable equity securities 9,925 9,755 9,755
------- ------- -------
Total securities available for sale $ 206,838 $ 202,710 $ 202,710
======= ======= =======
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>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
(In Thousands)
Commercial, financial and agricultural $ 42,288 $ 41,837
Real estate-residential 379,150 356,368
Real estate-commercial 140,898 136,566
Real estate-construction and
land development 8,496 3,886
Installment 6,002 5,952
Other 24,349 24,085
------- -------
Total loans 601,183 568,694
Less:
Unearned income (1,126) (1,248)
Allowance for possible loan losses (7,157) (7,032)
------- -------
Net loans $ 592,900 $ 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 Nine months ended
September 30, September 30,
-------------------- -------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
(In Thousands) (In Thousands)
Balance, beginning of period $ 7,032 $ 7,170 $ 7,032 $ 7,122
Provision for possible loan losses 150 0 230 50
Loans charged off (36) (128) (274) (425)
Recoveries of loans previously charged off 11 21 169 316
----- ----- ----- -----
Balance, end of period $ 7,157 $ 7,063 $ 7,157 $ 7,063
===== ===== ===== =====
</TABLE>
Information with respect to impaired loans consisted of the following
at:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
(In Thousands)
Recorded investment in impaired loans $ 1,607 $ 489
===== ====
Impaired loans with specific loss allowances $ 1,607 $ 489
===== ====
Loss allowances reserved on impaired loans $ 380 $ 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 $604,000 and $1,101,000 for the nine months ended September 30, 2000
and 1999, respectively. During the three and nine months ended September 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>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
(In Thousands)
NOW accounts $ 208,488 $ 195,833
Savings accounts 84,597 85,770
Money market deposit accounts 12,743 17,516
Time certificates 251,513 256,103
------- -------
$ 557,341 $ 555,222
======= =======
</TABLE>
Note 6. Supplemental Disclosures of Cash Flow Information
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------- ------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
(In Thousands) (In Thousands)
Cash paid for interest $ 7,879 $ 7,009 $ 22,932 $ 20,804
Income taxes paid 1,100 850 4,625 2,875
Non-cash investing activities:
Real estate acquired in settlement of loans 0 113 355 758
</TABLE>
Note 7. Stock Repurchase Programs
On August 11, 1998, the Company announced a Stock Repurchase Program
("Program"), whereby the Company's Board of Directors authorized the repurchase
of up to 5% of the Company's outstanding common shares from time to time. As of
May 3, 2000, the Company completed the repurchase of its stock under this
Program.
On May 3, 2000, the Company announced another Stock Repurchase Program,
whereby the Company's Board of Directors authorized the repurchase of up to 10%
(or approximately 566,000 shares), of the Company's outstanding common shares
from time to time. Shares repurchased under this Program may be held in
treasury, retired or used for general corporate purposes. As of September 30,
2000, the Company had repurchased approximately 285,000 shares of common stock,
with approximately 281,000 shares still available to be purchased under this
Program.
Note 8. Subsequent Event
On October 3, 2000 Granite Bank, the Company's wholly-owned subsidiary,
signed a definitive agreement with Webster Bank, a subsidiary of Webster
Financial Corp., to purchase the two branch offices of their Olde Port Bank
division located in the city of Portsmouth and the town of Hampton, both in New
Hampshire. Based upon information obtained from Webster records, as of September
30, 2000, the loans to be acquired totaled approximately $45 million and the
deposit and repurchase agreement liabilities to be assumed totaled approximately
$46 million. Subject to regulatory approvals, the transaction is expected to
close by December 31, 2000 and will be accounted for under the purchase method
of accounting.
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
September 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.
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. Forward-
looking statements are subject to numerous risks and uncertainties, 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 wishes to caution readers not to place undue reliance on any
such forward-looking statements, which speak only as of the date made. The
Company wishes to advise readers that the factors listed above could affect the
Company's financial performance and could cause the Company's actual results for
future periods to differ materially from any opinions or statements expressed
with respect to future periods in any current statements. The Company does not
undertake and specifically declines any obligation to publicly release the
result of any revisions which may be made to any forward-looking statements to
reflect events or circumstances after the date of such statements or to reflect
the occurrence of anticipated or unanticipated events.
Financial Condition
Total assets increased by $17,452,000 or 2.01%, from $867,677,000 at
December 31, 1999 to $885,129,000 at September 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 and interest
bearing deposits in other banks.
Cash and due from banks increased $3,289,000, from $18,575,000 at
December 31, 1999 to $21,864,000 at September 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.
PAGE 12
Interest bearing deposits with other banks, which primarily consist of
deposits with the Federal Home Loan Bank of Boston, decreased $4,375,000, from
$4,402,000 at December 31, 1999 to $27,000 at September 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 $12,862,000, from $215,572,000
at December 31, 1999 to $202,710,000 at September 30, 2000. Proceeds from
decreases in securities available for sale were primarily used to fund increases
in net loans.
Net loans were $592,900,000 at September 30, 2000, an increase of
$32,486,000 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 $22,782,000 to $379,150,000 or 63.07% of total loans
outstanding at September 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
$4,610,000 and $4,332,000, 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 $12,479,000, or 1.99%, from $628,018,000 at
December 31, 1999 to $640,497,000 at September 30, 2000. The significant changes
in deposits related to an increase in NOW accounts and demand deposits of
$12,655,000 and $10,360,000, respectively, partially offset by a decrease in
money market deposit accounts, time certificates and savings accounts of
$4,773,000, $4,590,000 and $1,173,000, respectively. The increase in NOW
accounts and demand deposits relates primarily to the success the Company has
had in targeting these accounts as growth accounts. The changes in the balances
of savings accounts related primarily to the timing of the cash needs of
depositors. The decrease in money market deposit accounts and 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 increased $3,966,000,
from $75,042,000 at December 31, 1999 to $79,008,000 at September 30, 2000. The
increase related primarily to business investors having additional cash to
invest in this product at September 30, 2000 compared to December 31, 1999.
Other borrowings, which consist of borrowings from the Federal Home Loan
Bank of Boston ("FHLB"), increased $887,000 to $91,450,000 at September 30, 2000
from $90,563,000 at December 31, 1999. Changes in other borrowings during the
nine months ended September 30, 2000 include the repayment of $20,000,000 of
callable FHLB advances, with interest at the rate of 4.18% per annum, which were
called by the FHLB in March 2000, partially offset by additional borrowings of
$10,000,000 from the FHLB in March 2000 at a 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. Repayments of amortizing FHLB debt were
$36,000 during the nine months ended September 30, 2000. Additionally, at
September 30, 2000, short-term overnight borrowings from the FHLB were
$10,923,000, with interest at a weighted average rate of 6.90% per annum on
September 30, 2000.
Stockholders' equity increased $467,000 from $70,369,000 at December 31,
1999 to $70,836,000 at September 30, 2000. The increase related primarily to net
earnings of $7,547,000 and a decrease in accumulated other comprehensive loss of
$1,805,0000, partially offset by decreases of $6,297,000 for the purchase of
treasury stock, net of shares reissued from treasury for stock options, and
dividends declared of $2,657,000.
PAGE 13
Subsequent Event
On October 3, 2000 Granite Bank, the Company's wholly-owned subsidiary,
signed a definitive agreement with Webster Bank, a subsidiary of Webster
Financial Corp., to purchase the two branch offices of their Olde Port Bank
division located in the city of Portsmouth and the town of Hampton, both in New
Hampshire. Based upon information obtained from Webster records, as of September
30, 2000, the loans to be acquired totaled approximately $45 million and the
deposit and repurchase agreement liabilities to be assumed totaled approximately
$46 million. Subject to regulatory approvals, the transaction is expected to
close by December 31, 2000 and will be accounted for under the purchase method
of accounting. The transaction is expected to be immediately accretive to
earnings in the year 2001.
Results of Operations
Net Earnings
Net earnings for the three and nine months ended September 30, 2000 were
$2,516,000 and $7,547,000, compared to $2,647,000 and $7,474,000 for the three
and nine months ended September 30, 1999. Basic earnings per share were $.47 and
$1.36 for the three and nine months ended September 30, 2000, compared to $.46
and $1.29 for the three and nine months ended September 30, 1999. Diluted
earnings per share were $.46 and $1.35 for the three and nine months ended
September 30, 2000 compared to $.45 and $1.26 for the three and nine months
ended September 30, 1999. Earnings before income taxes, exclusive of net gains
on sales of securities available for sale were $3,855,000 and $11,675,000,
respectively, for the three and nine months ended September 30, 2000, compared
to $3,747,000 and $10,951,000, respectively, for the three and nine months ended
September 30, 1999, representing increases of 2.88% and 6.61%, respectively.
Interest and Dividend Income
Interest and dividend income for the three and nine months ended
September 30, 2000 was $16,042,000 and $46,935,000 compared to $14,932,000 and
$44,555,000 for the corresponding periods in 1999. The increase in interest and
dividend income for the three and nine months ended September 30, 2000 compared
to the three and nine months ended September 30, 1999 is attributable to an
increase in the average balance of interest earning assets of $17,758,000 and
$15,783,000, respectively, as well as an increase in the overall yield on
interest earning assets to 7.70% and 7.63% for the three and nine months ended
September 30, 2000 compared with 7.30% and 7.40% 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 nine months ended September 30, 2000 compared to the same periods
in 1999. Additionally the higher interest rate environment during 2000 as
compared to 1999 resulted in an increase in the yield on loans to 8.26% and
8.21% for the three and nine months ended September 30, 2000 compared to 8.00%
and 8.12% for the three and nine months ended September 30, 1999 and an increase
in the yield on securities and interest earning investments from 5.75% and 5.76%
for the three and nine months ended September 30, 1999 to 6.28% and 6.25% for
the three and nine months ended September 30, 2000.
Interest Expense
Interest expense for the three and nine months ended September 30, 2000
was $7,926,000 and $22,807,000 compared to $6,977,000 and $20,722,000 for the
corresponding periods in 1999. The increase in interest expense for the three
and nine months ended September 30, 2000 compared to the same periods in 1999 is
primarily due to an increase in the cost of interest bearing liabilities to
4.35% and 4.23% for the three and nine months ended September 30, 2000 compared
to 3.88% and 3.91% for the three and nine months ended September 30, 1999, as
well as an increase in the average balance of total interest bearing liabilities
of $11,860,000 and $10,627,000 for the three and nine months ended September 30,
2000 compared to the same periods in 1999. The average cost of savings deposits
increased to 2.59% and 2.56% for the three and nine months ended September 30,
2000 compared to 2.41% and 2.39%, for the
PAGE 14
three and nine months ended September 30, 1999, and the average cost of time
deposits increased to 5.57% and 5.41% for the three and nine months ended
September 30, 2000 compared to 5.18% and 5.25% for the same periods in 1999.
Average balances of savings deposits decreased $4,392,000 and $2,755,000 for the
three and nine months ended September 30, 2000 compared to the same periods in
1999, while average time deposits increased $3,504,000 and decreased $2,592,000
for the three and nine months ended September 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 5.70% and 5.51% for the three
and nine months ended September 30, 2000 compared to 4.71% for both the three
and nine months ended September 30, 1999. The average balance of securities sold
under agreements to repurchase and other borrowed funds increased $12,748,000
and $15,974,000 for the three and nine months ended September 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 nine months ending September 30, 2000 as compared
to the same periods in 1999. In addition, competition for time deposits amongst
financial institutions contributed to the increase in the cost of these
deposits. It is expected that competition for time deposits will continue,
thereby increasing the cost of these deposits in future periods.
Net Interest and Dividend Income
Net interest and dividend income increased by $161,000 and $295,000 for
the three and nine months ended September 30, 2000 compared to the same periods
in 1999. The increase for the three and nine months ended September 30, 2000
compared to the same periods in 1999 is primarily due to an increase in average
net interest earning assets of $5,898,000 and $5,156,000, partially offset by a
decrease in net interest rate spread from 3.42% and 3.49% for the three and nine
months ended September 30, 1999 to 3.35% and 3.40% for the three and nine months
ended September 30, 2000. The net yield on interest earning assets was 3.89% for
both the three months ended September 30, 1999 and September 30, 2000 and
decreased from 3.96% for the nine months ended September 30, 1999 to 3.92% for
the nine months ended September 30, 2000.
Provision for Possible Loan Losses
The provision for possible loan losses for the three and nine months
ended September 30, 2000 was $150,000 and $230,000, compared to $0 and $50,000
for the three and nine months ended September 30, 1999. The increase for the
three and nine months ended September 30, 2000, compared to the same periods in
1999, is primarily related to growth in the loan portfolio and an increase of
$242,000 in nonperforming loans to $2,340,000 at September 30, 2000 compared to
$2,098,000 at September 30, 1999. Net charge-offs for the three and nine months
ended September 30, 2000 was $25,000 and $105,000, compared to $107,000 and
$109,000, 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.
PAGE 15
Noninterest Income
Noninterest income for the three and nine months ended September 30,
2000 totaled $1,420,000 and $4,068,000, compared to $1,651,000 and $4,239,000
for the same periods in 1999. The decrease of $231,000 and $171,000 for the
three and nine months ended September 30, 2000 compared to the same periods in
1999 relates primarily to decreases in net gains on sales of securities
available for sale of $321,000 and $606,000, respectively, and decreases in net
gains on sales of loans of $33,000 and $185,000, respectively, partially offset
by increases in customer account fees and service charges of $31,000 and
$153,000, respectively, and other noninterest income of $110,000 and $500,000,
respectively. 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 nine months of 2000,
which encouraged borrowers into adjustable rate loan products which the bank
retains in its loan portfolio. The higher interest rate environment also slowed
refinance activity. 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.
Noninterest Expense
Noninterest expense for the three and nine months ended September 30,
2000 was $5,448,000 and $16,202,000, respectively, compared to $5,455,000 and
$16,376,000, respectively, for the same periods a year earlier. The decrease of
$7,000 for the three months ended September 30, 2000 compared to the same period
in 1999 relates primarily to a decrease of $218,000 in other real estate owned
expense, partially offset by increases in salaries and benefits expense,
occupancy and equipment expense and other expense of $23,000, $74,000 and
$114,000, respectively. The decrease of $174,000 for the nine months ended
September 30, 2000, compared to the same period in 1999 relates primarily to
decreases of $396,000 in other real estate owned expense and $34,000 in other
noninterest expenses, partially offset by increases of $44,000 in salaries and
benefits expense and $212,000 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, including
net gains realized on sales of 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.
Income Taxes
Income tax expense for the three and nine months ended September 30,
2000 was $1,422,000 and $4,217,000, compared with $1,504,000 and $4,172,000 for
the same periods in 1999. Income tax expense as a percentage of earnings before
income taxes was 36.11% and 35.85%, respectively, for the three and nine months
ended September 30, 2000 and 36.23% and 35.82%, respectively, for the three and
nine months ended September 30, 1999.
Risk Elements
Total nonperforming loans increased from $1,516,000 or 0.27% of total
loans, at December 31, 1999, to $2,340,000 or 0.39% of total loans, at September
30, 2000. During the same period, other real estate owned, decreased from
$1,288,000 to $266,000. The allowance for possible loan losses as a percent of
total nonperforming loans was 305.85% at September 30, 2000, compared with
463.85% at December 31, 1999.
PAGE 16
As shown in the following table, nonperforming assets as a percentage of
total assets were 0.29% and 0.32%, as of September 30, 2000 and December 31,
1999, respectively.
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------ -----------------
<S> <C> <C>
($ in Thousands)
Loans 90 days or more past due
and still accruing $ 11 $ 4
=== ===
Nonaccrual/nonperforming loans $ 2,340 $ 1,516
Other real estate owned 266 1,288
----- -----
Total nonperforming assets $ 2,606 $ 2,804
===== =====
Allowance for possible loan losses $ 7,157 $ 7,032
Nonperforming loans as a percent
of total loans 0.39% 0.27%
Allowance for possible loan losses
as a percent of total nonperforming
loans 305.85% 463.85%
Nonperforming assets as a percent
of total assets 0.29% 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 September 30, 2000, short-term and long-
term borrowings from the Federal Home Loan Bank of Boston were $91,450,000, with
an additional available borrowing capacity of approximately $258,516,000;
interest bearing deposits with other banks were $27,000 and securities available
for sale were $202,710,000. Included in securities held to maturity and
securities available for sale are debt securities with a carrying value of
$210,115,000. The weighted average maturity for debt securities held to maturity
and available for sale, excluding mortgage-backed securities with a carrying
value of $6,378,000, is approximately 68 months. In addition to these liquidity
sources, the Company has significant cash flow from the amortization of loans
through its subsidiary bank.
Capital Resources
Under the Federal Reserve Board's guidelines, bank holding companies
such as the Company currently are required to maintain a minimum ratio of
qualifying total capital to total assets and off-balance sheet instruments, as
adjusted to reflect their relative credit risks, of 8.0 percent. At least one-
half of total capital must be comprised of common equity, retained earnings,
non-cumulative perpetual preferred stock, and a limited amount of cumulative
perpetual preferred stock, less goodwill ("Tier I capital").
The Federal Reserve Board also has established an additional capital
adequacy guideline referred to as the Tier I leverage capital ratio, which
measures the ratio of Tier I capital to total assets less goodwill. Although the
most highly-rated bank holding companies will be required to maintain a minimum
Tier I leverage capital ratio of 3.0 percent, most bank holding companies will
be required to maintain Tier I leverage capital ratios of 4.0 percent to 5.0
percent or more. The actual required ratio will be based on the Federal Reserve
Board's assessment of the individual bank holding company's asset quality,
earnings performance, interest rate risk, and liquidity. The Company was in
compliance with all regulatory capital requirements at September 30, 2000 and
December 31, 1999.
PAGE 17
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
September 30, 2000 and December 31, 1999, the subsidiary bank was in
compliance with all regulatory capital requirements. Additionally, at September
30, 2000, the subsidiary bank was considered "well capitalized" for purposes of
the FDIC's prompt corrective action regulations.
At September 30, 2000 the Company's and the subsidiary bank's regulatory
capital ratios as a percentage of assets are as follows:
<TABLE>
<CAPTION>
September 30, 2000
---------------------
Subsidiary
Bank Company
---------- -------
<S> <C> <C>
Tier I leverage capital to average assets 8.02% 8.15%
Tier I capital to risk-weighted assets 11.91% 12.11%
Total capital to risk-weighted assets 13.11% 13.31%
</TABLE>
On August 11, 1998, the Company announced a Stock Repurchase Program
("Program"), whereby the Company's Board of Directors authorized the repurchase
of up to 5% of the Company's outstanding common shares from time to time. As of
May 3, 2000, the Company completed the repurchase of its stock under this
Program.
On May 3, 2000, the Company announced another Stock Repurchase Program,
whereby the Company's Board of Directors authorized the repurchase of up to 10%
(or approximately 566,000 shares), of the Company's outstanding common shares
from time to time. Shares repurchased under this Program may be held in
treasury, retired or used for general corporate purposes. As of September 30,
2000, the Company had repurchased approximately 285,000 shares of common stock,
with approximately 281,000 shares still available to be purchased under this
Program.
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
-------------------------------------------------------- ----------------
Third Quarter Second Quarter First Quarter Fourth Quarter
Avg. Bal. Rate Avg. Bal. Rate Avg. Bal. Rate Avg. Bal. Rate
--------- ----- --------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Loans $ 592,378 8.26% $ 576,778 8.27% $ 567,743 8.10% $ 565,229 8.01%
Securities and
interest earning
investments 236,683 6.28% 239,212 6.26% 251,451 6.21% 255,355 5.96%
------- ------- ------- -------
Total interest
earning assets 829,061 7.70% 815,990 7.68% 819,194 7.52% 820,584 7.37%
Noninterest earning
assets 56,406 54,330 54,015 61,975
Allowance for possible
loan losses (7,054) (7,028) (7,013) (7,058)
------- ------- ------- -------
Total Assets $ 878,413 $ 863,292 $ 866,196 $ 875,501
======= ======= ======= =======
Liabilities and
stockholders' equity:
Savings deposits $ 303,556 2.59% $ 307,725 2.60% $ 300,055 2.50% $ 310,601 2.41%
Time deposits 255,179 5.57% 255,729 5.40% 256,757 5.27% 251,269 5.28%
Securities sold under
agreements to repurchase
and other borrowed funds 165,869 5.70% 150,780 5.55% 164,566 5.27% 161,129 4.77%
------- ------- ------- -------
Total int. bearing
liabilities 724,604 4.35% 714,234 4.22% 721,378 4.12% 722,999 3.93%
Noninterest bearing
deposits 81,693 76,955 71,336 76,860
Other liabilities 2,100 2,168 2,664 2,792
Stockholders' equity 70,016 69,935 70,818 72,850
------- ------- ------- -------
Total liab. and
stockholders' equity $ 878,413 $ 863,292 $ 866,196 $ 875,501
======= ======= ======= =======
Interest rate spread 3.35% 3.46% 3.40% 3.44%
===== ===== ===== =====
Net average earning
balance / Net yield
on interest earning
assets $ 104,457 3.89% $ 101,756 3.98% $ 97,816 3.89% $ 97,585 3.90%
======= ===== ======= ===== ====== ===== ====== =====
<CAPTION>
1999 1998
-------------------------------------------------------- ----------------
Third Quarter Second Quarter First Quarter Fourth Quarter
Avg. Bal. Rate Avg. Bal. Rate Avg. Bal. Rate Avg. Bal. Rate
--------- ----- --------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Loans $ 560,027 8.00% $ 556,014 8.14% $ 557,245 8.22% $ 550,627 8.25%
Securities and
interest earning
investments 251,276 5.75% 241,779 5.74% 250,600 5.78% 250,425 5.72%
------- ------- ------- -------
Total interest
earning assets 811,303 7.30% 797,793 7.42% 807,845 7.47% 801,052 7.46%
Noninterest earning
assets 58,521 59,725 56,931 60,832
Allowance for possible
loan losses (7,164) (7,198) (7,133) (7,565)
------- ------- ------- -------
Total Assets $ 862,660 $ 850,320 $ 857,643 $ 854,319
======= ======= ======= =======
Liabilities and
stockholders' equity:
Savings deposits $ 307,948 2.41% $ 309,037 2.38% $ 302,555 2.37% $ 302,579 2.47%
Time deposits 251,675 5.18% 259,576 5.22% 264,321 5.36% 267,443 5.49%
Securities sold under
agreements to repurchase
and other borrowed funds 153,121 4.71% 133,366 4.72% 146,797 4.69% 135,860 4.64%
------- ------- ------- -------
Total int. bearing
liabilities 712,744 3.88% 701,979 3.88% 713,673 3.96% 705,882 4.03%
Noninterest bearing
deposits 75,088 72,709 67,801 71,709
Other liabilities 2,546 2,144 2,998 3,248
Stockholders' equity 72,282 73,488 73,171 73,480
------- ------- ------- -------
Total liab. and
stockholders' equity $ 862,660 $ 850,320 $ 857,643 $ 854,319
======= ======= ======= =======
Interest rate spread 3.42% 3.54% 3.51% 3.43%
===== ===== ===== =====
Net average earning
balance / Net yield
on interest earning
assets $ 98,559 3.89% $ 95,814 4.01% $ 94,172 3.97% $ 95,170 3.90%
======= ===== ======= ===== ====== ===== ====== =====
</TABLE>
PAGE 19
Granite State Bankshares, Inc. and Subsidiary
Part I Item 3 and Part II - Other Information
September 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
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.
PAGE 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant, has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GRANITE STATE BANKSHARES, INC.
/s/ Charles W. Smith
_______________________________________
Dated: November 10, 2000 By: Charles W. Smith
Chairman and
Chief Executive Officer
/s/ William G. Pike
_______________________________________
Dated: November 10, 2000 By: William G. Pike
Executive Vice President and
Chief Financial Officer
PAGE 21
