Granite State Bankshares, Inc. Announces Fourth Quarter and Year End Earnings


KEENE, N.H., Jan. 22, 2003 (PRIMEZONE) -- Granite State Bankshares, Inc. (Nasdaq:GSBI) today announced net earnings for the three and twelve months ended December 31, 2002 of $1,875,000 and $12,379,000 compared to net earnings of $3,138,000 and $11,389,000 for the three and twelve months ended December 31, 2001. Basic earnings per share were $.36 and $2.41 for the three and twelve months ended December 31, 2002 compared to $.60 and $2.16 for the three and twelve months ended December 31, 2001. Diluted earnings per share were $.35 and $2.32 for the three and twelve months ended December 31, 2002 compared to $.59 and $2.11 for the three and twelve months ended December 31, 2001.

On November 7, 2002, Granite State Bankshares, Inc. (the "Company") entered into a definitive merger agreement whereby Chittenden Corporation will acquire the Company and its subsidiary, Granite Bank. Net earnings for the three and twelve months ended December 31, 2002 excluding the after tax impact of merger-related charges of $1,895,000 were $3,770,000 and $14,274,000, respectively. Basic earnings per share for the three and twelve months ended December 31, 2002 excluding the after tax impact of merger-related charges were $.73 and $2.78. Diluted earnings per share for the three and twelve months ended December 31, 2002 excluding the after tax impact of merger-related charges were $.70 and $2.68.

Net interest and dividend income for the three and twelve months ended December 31, 2002 was $9,908,000 and $39,694,000 compared with $9,995,000 and $37,010,000 for the three and twelve months ended December 31, 2001. The net interest margin for the three and twelve months ended December 31, 2002 was 3.78% and 3.93% compared with 4.10% and 3.98% for the three and twelve months ended December 31, 2001.

The provision for possible loan losses for the three and twelve months ended December 31, 2002 was $0 and $325,000 compared with $300,000 and $660,000 for the three and twelve months ended December 31, 2001.

Gains on sales of loans in the secondary mortgage market for the three and twelve months ended December 31, 2002 were $1,510,000 and $3,597,000 compared with $803,000 and $1,722,000 for the three and twelve months ended December 31, 2001. The large increase in 2002 relates to the continued lower interest rate environment, which encouraged residential borrowers to refinance into fixed rate loan products which the Company primarily sells in the secondary mortgage market.

As a result of the lower interest rate environment during the third and fourth quarters of 2002, refinance activity and therefore prepayments on residential mortgage loans increased substantially. As a result of increases in prepayment speeds, the Bank recorded provisions for a valuation allowance of $180,000 and $555,000 related to impairment on its mortgage servicing assets during the three and twelve months ended December 31, 2002, respectively.

Total assets at December 31, 2002 were $1,110,341,000 compared to $1,018,942,000 at December 31, 2001.

Total nonperforming loans and nonperforming assets were $1,310,000 or 0.12% of total assets at December 31, 2002. At December 31, 2001, total nonperforming loans and nonperforming assets were $3,015,000 or 0.30% of total assets.

Stockholders' equity at December 31, 2002 and December 31, 2001 was $90,993,000 and $80,537,000, respectively, representing 8.20% and 7.90% of total assets, respectively.

Chairman and CEO Charles W. Smith said, "We are pleased to report solid earnings and a significant increase in net earnings and earnings per share, as adjusted for the after tax impact of merger-related charges for the three and twelve months ended December 31, 2002 over the same periods in 2001."

Forward-looking Statements

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.

Granite State Bankshares, Inc. is the parent company for Granite Bank, a New Hampshire state-chartered commercial bank with 19 offices operating throughout southern New Hampshire.


             GRANITE STATE BANKSHARES, INC. and SUBSIDIARY
                      Selected Balance Sheet Data
                ($ in thousands, except per share data)



                                          December 31,    December 31,
                                              2002            2001
                                         ------------    ------------
                                                 (unaudited)

 Total assets                           $   1,110,341   $   1,018,942
 Securities held to maturity                    5,005           5,006
 Securities available for sale                396,970         274,201
 Stock in Federal Home Loan Bank
  of Boston                                     8,271           7,201
 Loans held for sale                           19,611          14,821

 Loans                                        610,127         655,000
 Unearned income                                  851           1,075
 Allowance for possible loan losses             7,968           8,085
 Net loans                                    601,308         645,840

 Total nonperforming loans and
  nonperforming assets                          1,310           3,015
 Nonperforming assets as a percent
  of total assets                                0.12%           0.30%
 Allowance for possible loan losses
  as a percent of nonperforming loans          608.24%         268.16%

 Total deposits                          $     760,664   $     714,143

 Securities sold under agreements
  to repurchase                                 89,883          85,013

 Other borrowings                              163,838         135,464


 Stockholders' equity                           90,993          80,537
 
 Book value per share                            17.40           15.38


             GRANITE STATE BANKSHARES, INC. and SUBSIDIARY
              Selected Operating Statement and Other Data
                ($ in thousands, except per share data)


                             Three Months Ended   Twelve Months Ended
                                December 31,        December 31,
                             ------------------   -------------------
                               2002      2001       2002       2001
                              ------    ------     ------     ------
                                 (unaudited)          (unaudited)

 Interest and dividend
  income                      $15,596   $ 16,942   $63,606    $68,922
 Interest expense               5,688      6,947    23,912     31,912
                               ------     ------    ------     ------
  Net interest and
   dividend income              9,908      9,995    39,694     37,010
 Provision for possible
  loan losses                       0        300       325        660
                               ------     ------    ------     ------
  Net interest and
   dividend income after
   provision for possible
   loan losses                  9,908      9,695    39,369     36,350
 Net gains (losses) on
  securities available
  for sale                        286        (54)      834        403
 Net gains on sales of
  loans                         1,510        803     3,597      1,722
 Other noninterest
  income                        2,016      1,476     7,916      5,367
 Merger-related charges         2,789          0     2,789          0
 Other noninterest
  expenses                      7,762      6,795    28,703     25,680
                               ------     ------    ------     ------
  Earnings before income
   taxes                        3,169      5,125    20,224     18,162
 Income taxes                   1,294      1,987     7,845      6,773
                               ------     ------    ------     ------
  Net earnings                $ 1,875    $ 3,138   $12,379    $11,389
                               ======     ======    ======     ======

  Adjusted net
   earnings (a)               $ 3,770    $ 3,138   $14,274    $11,389
                               ======     ======    ======     ======
 Weighted average shares
  outstanding
   Basic                    5,155,229  5,189,767 5,142,851  5,264,873
   Diluted                  5,359,069  5,310,393 5,335,712  5,389,746

 Net earnings per
  share-basic                 $  0.36     $ 0.60    $ 2.41    $  2.16
                                =====      =====     =====      =====

 Net earnings per
  share-diluted               $  0.35     $ 0.59    $ 2.32    $  2.11
                                =====      =====     =====      =====

 Adjusted net earnings
  per share-basic (a)         $  0.73     $ 0.60    $ 2.78     $ 2.16
                                =====      =====     =====      =====

 Adjusted net earnings
  per share -diluted (a)      $  0.70     $ 0.59    $ 2.68     $ 2.11
                                =====      =====     =====      =====

 Dividends declared per
  share                       $  0.19     $ 0.17    $ 0.76     $ 0.68
                                =====      =====     =====      =====

 Key Operating Ratios
  (Annualized):

  Weighted Average
  Interest Rate Spread           3.46%      3.71%     3.61%      3.53%
                                =====      =====     =====      =====

  Net Yield on Average
   Interest Earning
   Assets                        3.78%      4.10%     3.93%      3.98%
                                =====      =====     =====      =====

  Return on Average
   Assets                        0.67%      1.20%     1.15%      1.15%
                                =====      =====     =====      =====

  Return on Average
   Equity                        8.28%     15.14%    14.40%     14.39%
                                =====     ======    ======     ======

  Adjusted Return on
   Average Assets (a)            1.34%      1.20%     1.32%      1.15%
                                =====      =====     =====      =====

  Adjusted Return on
   Average Equity (a)           16.64%     15.14%    16.61%     14.39%
                               ======     ======    ======     ======

 (a) Adjusted net earnings, adjusted net earnings per share-basic,
     adjusted net earnings per share-diluted, adjusted return on
     average assets and adjusted return on average equity for the
     three and twelve months ended December 31, 2002 are calculated
     based on net earnings plus the after tax impact of merger-related
     charges of $1,895.

             GRANITE STATE BANKSHARES, INC. and SUBSIDIARY
                      Average Balance Sheet Data
                           ($ in thousands)


                           Three Months Ended     Twelve Months Ended
                               December 31,           December 31,
                          -------------------    --------------------
                             2002       2001         2002       2001
                           --------   --------     --------   --------
                              (unaudited)             (unaudited)

 Average Balance Sheet Data:

 Average loans and loans
  held for sale          $  637,121 $  674,246   $  649,709  $ 667,963
                            =======    =======      =======    =======

 Average interest earning
  assets                 $1,039,260 $  967,967   $1,009,401  $ 929,468
                          =========    =======    =========    =======

 Average interest bearing
  deposits               $  656,129 $  625,351   $  644,351  $ 608,540
                            =======    =======      =======    =======

 Average interest bearing
  liabilities            $  905,508 $  851,660   $  886,098  $ 821,767
                            =======    =======      =======    =======

 Average stockholders'
  equity                 $   89,869 $   82,224   $   85,958  $  79,118
                             ======     ======       ======     ======

 Average assets          $1,112,467 $1,034,015   $1,077,510  $ 992,782
                          =========  =========    =========    =======


            

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