10-K 1 gran-10k.txt BODY OF FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the fiscal year ended Commission File No. 0-14895 December 31, 2001 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 Securities registered pursuant to Section 12 (b) of the Act: None Securities registered pursuant to Section 12 (g) of the Act: Common Stock, $1.00 par value 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 ( ) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (X) The aggregate market value of the voting common stock held by non- affiliates of the Registrant, based on the closing bid price of March 1, 2002, was $109,001,906. For purposes of this calculation, the affiliates of the Registrant include its directors and executive officers. Although such directors and executive officers of the Registrant performing policy-making functions were assumed to be "affiliates" of the Registrant, this classification is not to be interpreted as an admission of such status. As of March 1, 2002, the number of shares of the Registrant's common stock outstanding of record (exclusive of treasury shares) was 5,191,274. 1 DOCUMENTS INCORPORATED BY REFERENCE The following documents, in whole or in part, are specifically incorporated by reference in the indicated Part of the Annual Report on Form 10-K: Document Part -------- ---- Annual Report to Stockholders for Part I, Item 1 (c) (5), the year ended December 31, 2001 "Statistical Information" Part II, Item 6 "Selected Financial Data" Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" Part II, Item 7a, "Quantitative and Qualitative Disclosures About Market Risk" Part II, Item 8 "Financial Statements and Supplementary Data" Proxy Statement for the 2002 Part III, Item 10, Annual Meeting of Stockholders "Directors and Executive Officers of the Registrant" Part III, Item 11, "Executive Compensation" Part III, Item 12, "Security Ownership of Certain Beneficial Owners and Management" Part III, Item 13, "Certain Relationships and Related Transactions" 2 Form 10-K Annual Report -- Table of Contents PART I Page ---- Item 1. Description of Business 5 a. General Development of Business 5 b. Financial Information About Industry Segments 5 c. Narrative Description of Business 5 1. General Description of Business 6 2. Regulation & Supervision 7 3. Monetary Policies 12 4. Employees 12 5. Statistical Information 12 A. Distribution of Assets, Liabilities, and Stockholders' Equity; Interest Rates and Interest Differential 13 B. Rate/Volume Analysis 13 C. Investment Portfolio 13 D. Loan Portfolio 17 E. Maturity of Loans 17 F. Nonperforming Loans and Assets 18 G. Summary of Loan Loss Experience and Allocation of the Allowance for Possible Loan Losses 19 H. Risks Associated with Commercial Real Estate, Commercial and Construction Loans 22 I. Deposits 22 J. Maturities of Time Deposits 23 K. Return on Equity and Assets 23 L. Borrowings 23 M. Competition 25 N. Subsidiaries 26 d. Financial Information About Foreign and Domestic Operations and Export Sales 26 Item 2. Properties 27 Item 3. Legal Proceedings 27 Item 4. Submission of Matters to a Vote of Security Holders 27 Additional Item. Executive Officers 28 3 PART II Page ---- Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 29 a. Market Information 29 b. Holders 29 c. Dividends 29 Item 6. Selected Financial Data 29 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 30 Item 7a. Quantitative and Qualitative Disclosures About Market Risk 30 Item 8. Financial Statements and Supplementary Data 30 a. Financial Statements Required by Regulation S-X 30 b. Supplementary Financial Information 30 1. Selected Quarterly Financial Data 30 2. Information on the Effects of Changing Prices 30 3. Information About Oil and Gas Producing Activities 30 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 30 PART III Item 10. Directors and Executive Officers of the Registrant 31 Item 11. Executive Compensation 31 Item 12. Security Ownership of Certain Beneficial Owners and Management 31 Item 13. Certain Relationships and Related Transactions 31 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 31 a. List of Documents filed as Part of this Report 31 1. Financial Statements 31 2. Financial Statement Schedules 32 b. Reports on Form 8-K 32 c. Exhibits 32 Signatures 34 4 PART I Item 1. Description of Business (a) General Development of Business Granite State Bankshares, Inc. ("Granite State" or "Company") is a single-bank holding company which was formed in 1986 to acquire all of the stock of the Granite Bank, formerly Granite Bank of Keene and Keene Savings Bank, upon its conversion from a mutual savings bank to a state-chartered guaranty (stock) savings bank. Since that time, the Company has acquired the two branch offices of Olde Port Bank (a division of Webster Bank), Primary Bank, the Durham Trust Company, First Northern Co-operative Bank, First National Bank of Peterborough and the Granite Bank of Amherst. In March of 1987, Granite State organized a mortgage corporation, GSBI Mortgage Corporation, for purposes of expanding the residential loan programs it could offer, as well as improving the efficiency and effectiveness of its participation in the secondary mortgage markets. The mortgage corporation now operates as a division of Granite Bank and services Cheshire, Hillsborough, Strafford, Merrimack and Rockingham counties, New Hampshire, with a wide variety of mortgage loan products. In July of 1987, the Granite Bank of Amherst opened for business as a state-chartered guaranty (stock) savings bank, and was the result of the purchase from the Amoskeag Bank of their Amherst branch office. In June of 1989 it was merged into the First National Bank of Peterborough under the name of Granite Bank, N.A. In March of 1990 Granite Bank, N.A. was merged into Granite Bank. In October of 1988, First Peterborough Bank Corp. was merged into Granite State, leaving Granite State with the First National Bank of Peterborough ("First National"). First National was a national bank engaged in substantially all of the business operations customarily conducted by a commercial bank in New Hampshire. In June of 1989 the name was changed to Granite Bank, N.A., when it absorbed Granite Bank of Amherst. In March of 1990, Granite Bank, N.A. was merged into Granite Bank. In August of 1991, Granite Bank entered into a purchase and assumption agreement with the Resolution Trust Company ("RTC"), whereby it acquired certain assets and assumed certain liabilities of First Northern Co-operative Bank ("First Northern"), headquartered in Keene, New Hampshire, which was under RTC conservatorship. In November of 1991, Granite Bank entered into a purchase and assumption agreement with the Federal Deposit Insurance Corporation ("FDIC"), whereby it acquired certain assets and assumed certain liabilities of Durham Trust Company ("Durham"), headquartered in Durham, New Hampshire. The FDIC was the liquidating agent of Durham Trust Company. Granite Bank completed its conversion from a state-chartered guaranty (stock) savings bank to a New Hampshire state-chartered commercial bank during 1991. Effective after the close of business October 31, 1997, the Company completed its acquisition of Primary Bank by the merger of Primary Bank with and into the Company's subsidiary, Granite Bank. Effective at year end 2000, the Company completed its acquisition of two branch offices of Olde Port Bank, a division of Webster Bank. See also Note 2 to the Consolidated Financial Statements in the Annual Report to Stockholders for the year ended December 31, 2001, which is incorporated herein by reference. (b) Financial Information about Industry Segments Not applicable. (c) Narrative Description of Business 5 (1) General Description of Business Granite State operates as a single bank holding company by virtue of its ownership of 100% of the stock of Granite Bank, a New Hampshire chartered commercial bank (referred to as the "Bank"). The Company has grown profitably over the past several years through several strategic acquisitions and by leveraging its capital. This activity strengthened the franchise and assisted in the transition from a thrift institution into a full-service commercial bank. Currently, the Company does not transact any significant business other than through the Bank. The Bank is a community oriented commercial bank offering a variety of financial services. The principal business of the Bank consists of attracting deposits from the general public and underwriting loans secured by residential and commercial real estate and other loans. The Bank also originates residential real estate loans for sale in the secondary mortgage market. The Company has devoted and continues to devote considerable resources toward the enhancement of computer systems and operating procedures to position itself to compete effectively in its local markets. The Bank offers a wide range of consumer and commercial services, including: commercial demand deposits, consumer regular and interest- bearing (NOW) checking and regular savings accounts; certificates of deposit; residential and commercial real estate loans; secured and unsecured consumer and commercial loans; and cash management services. The Company's distribution network for its services is comprised of its main office in Keene, full-service banking offices in Antrim, Chesterfield, Concord, Durham, Hampton, Hillsborough, Jaffrey, Merrimack, Milford, Nashua, Portsmouth, Peterborough and Weare and 45 automatic teller machines ("ATMs") located in Antrim, Amherst, Chesterfield, Concord, Dublin, Durham, Fitzwilliam, Greenfield, Hampton, Hillsborough, Jaffrey, Keene, Merrimack, Milford, Nashua, Portsmouth, Peterborough, West Swanzey, North Swanzey and Weare. All of the office and ATM locations are in the State of New Hampshire. The Bank offers its products and services online through its internet banking branch, GRANITe-bank. Risk Management --------------- In the normal course of business, the Company is subject to various risks, the most significant of which are credit, liquidity and market risk, which includes interest rate risk. Although the Company cannot eliminate these risks, it has risk management processes designed to provide for risk identification, measurement, monitoring and control. The Board of Directors establishes policies with respect to risk management, lending, investment, asset/liability management and interest rate risk and reviews and approves these policies annually. The Board of Directors delegates the responsibility for carrying out these policies to management. Credit Risk ----------- Credit risk represents the possibility that a customer or counterparty may not perform in accordance with contractual terms. Credit risk results from extending credit to customers, purchasing securities and entering into certain off-balance-sheet financial transactions (which are primarily commitments to originate loans, unused lines and standby letters of credit or unadvanced portions of construction loans). Risk associated with the extension of credit (including off-balance sheet items) includes general risk, which is inherent in the lending business, and risk specific to individual borrowers. Risk associated with purchasing securities primarily centers around the credit quality of the issuer of the security. The Company seeks to manage credit risk through portfolio diversification, investments in highly rated securities, loan underwriting policies and procedures and loan monitoring practices. 6 Liquidity Risk -------------- Liquidity represents an institution's ability to generate cash or otherwise obtain funds at reasonable rates to satisfy commitments to borrowers and demands of depositors and to invest in strategic initiatives. Liquidity risk represents the likelihood the Company would be unable to generate cash or otherwise obtain funds at reasonable rates for such purposes. Liquidity is managed through the coordination of the relative maturities of assets, liabilities and off-balance sheet positions and is enhanced by the ability to raise funds with direct borrowings. Market Risk ----------- Market risk reflects the risk of economic loss resulting from adverse changes in market prices and interest rates. The risk of loss can be reflected in diminished current values and/or reduced potential net interest income in future periods. The Company's market risk arises primarily from interest rate risk. The Company is also exposed to market price risk through its investments in marketable equity securities. Market price risk related to investments in marketable equity securities is the potential loss in estimated fair value resulting from adverse changes in prices quoted by stock markets. The Company manages this risk by closely monitoring market developments and reviewing current financial statements and other reports published by the issuers of the equity securities. Interest Rate Risk ------------------ Interest rate risk arises primarily through the Company's normal business activities of extending loans and taking deposits. Interest rate risk is the sensitivity of net interest income and the market value of financial instruments to the timing, magnitude and frequency of changes in interest rates. Interest rate risk results from various repricing frequencies and the maturity structure of assets, liabilities and off- balance-sheet positions. Interest rate risk also results from, among other factors, changes in the relationship or spread between interest rates. Many factors, including economic and financial conditions, general movements in market interest rates and consumer preferences, affect the spread between interest earned on assets and interest paid on liabilities. Interest rate caps are used to alter the interest rate characteristics on the net interest spread. The Company uses a number of measures to monitor and manage interest rate risk, including financial planning models which recalculates the estimated net present value of equity and net interest and dividend income of the Company assuming instantaneous, permanent parallel shifts in market interest rates. For additional information relating to the Company's risk management processes, see Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Annual Report to Stockholders for the year ended December 31, 2001, which is incorporated herein by reference. (2) Regulation and Supervision General ------- Granite State is a registered bank holding company under the Bank Holding Company Act of 1956 ("BHCA"), and as such, is subject to regulation by the Federal Reserve Board ("FRB"). Granite Bank is a New Hampshire- chartered commercial bank, the deposit accounts of which are insured by the FDIC. As such, it is subject to the regulation, supervision and examination of the New Hampshire Bank Commissioner ("Commissioner") and the FDIC. See "New Hampshire Law" and "Insurance of Deposits". It is a member of the Federal Home Loan Bank ("FHLB") of Boston. The federal and state laws and regulations which are applicable to banks regulate, among other things, the scope of their business, their investments, the reserves required to be kept against deposits, the timing of the availability of deposited funds and the nature and amount of collateral for certain loans. The laws and regulations governing the Bank generally have been promulgated to protect depositors and not for the purpose of protecting stockholders. The regulatory structure also gives the regulatory authorities extensive 7 discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in such regulation, whether by the Commissioner, the FRB, the FDIC or the United States Congress, could have a material adverse impact on the Company, the Bank and their operations. New Hampshire Law ----------------- As a New Hampshire-chartered commercial bank, Granite Bank is subject to the applicable provisions of state law and the regulations adopted thereunder by the Commissioner. Granite Bank derives its lending and investment powers from New Hampshire law and is subject to periodic examination by and reporting requirements of the Commissioner, who also has specific statutory jurisdiction over certain banking activities, mergers and the creation of new powers. The Commissioner has authority to take various enforcement actions against banks, or bank directors or officers, that engage in violations of law or unsafe or unsound practices. The Commissioner also may appoint a receiver or conservator for a bank under certain circumstances. The Bank is required under New Hampshire law to maintain a reserve of the lesser of not less than 12% of the amount of demand deposits and 5% of the amount of time and savings deposits in cash or in specified short-term investments, or the reserve requirements established by the FRB. At December 31, 2001 this requirement was satisfied. Granite State is also subject to the periodic examination and reporting requirements of the Commissioner. Under New Hampshire law, Granite State may not acquire ownership or control of more than 12 banking affiliates, including (i) banking institutions chartered by the state and actively engaged in business as such in the State and (ii) national banks authorized to transact business in the State, neither may it acquire ownership or control of any of the foregoing if, as a result, the Company and its banking affiliates would hold deposits in New Hampshire in excess of 30% of the total deposits of all federal and state-chartered banking institutions, including savings associations, operating in New Hampshire. At the present time the total of the Bank's deposits are substantially less than 30% of total New Hampshire deposits. The Bank pays assessments to the Commissioner's office to support its operations. In 2001, these assessments totaled $18,416. Federal Deposit Insurance Corporation ------------------------------------- Safety and Soundness Regulations -------------------------------- The federal regulatory agencies, including the FDIC, were required to prescribe standards for depository institutions under their jurisdiction relating to a variety of operating matters such as internal controls, information systems and internal audit systems, loan documentation and credit underwriting, interest rate risk exposure, asset growth and quality and employee compensation. The federal banking agencies have adopted a final rule containing Interagency Guidelines Prescribing Standards for Safety and Soundness ("Guidelines") to implement safety and soundness standards required under the Federal Deposit Insurance Act. The Guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. The standards set forth in the Guidelines address internal controls and information systems; internal audit systems; credit underwriting; loan documentation; interest rate risk exposure; asset growth; and compensation, fees and benefits. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the Guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard, as required by the Federal Deposit Insurance Act. The final rule establishes deadlines for the submission and review of such safety and soundness compliance plans when such plans are required. 8 Investment Authority -------------------- The FDIC regulations restrict investments by and activities of insured state banks such as the Bank. Effective December 19, 1992, neither state banks nor their subsidiaries may engage in activities, as principal, not permissible for national banks or their subsidiaries unless the FDIC determines that the activity would pose no significant risk to the deposit insurance fund and the bank is in compliance with and continues to comply with applicable federal capital standards. Additionally, subject to exceptions for majority-owned subsidiaries and certain other limited exceptions, state banks may not acquire or retain any equity investment of a type or in an amount not permissible for national banks. The Federal Deposit Insurance Act does contain a partial exception from these requirements for stock and mutual fund ownership by banks which were authorized to make such investments by state law and had made such investments during a specified time period. The Bank believed it qualified for the exception and applied to the FDIC for approval. During 1993, the Bank received approval from the FDIC to invest in equity securities listed on a national exchange and registered shares of mutual funds, which are otherwise impermissible investments for national banks, in an amount not to exceed 100 percent of its Tier 1 capital, which amounted to $71,595,000 at December 31, 2001. Capital Requirements -------------------- The FDIC has issued regulations that require Bank Insurance Fund- insured banks, such as the Bank, to maintain minimum levels of capital. The regulations establish a minimum leverage (core) capital requirement of not less than 3% core capital to total assets for banks in the strongest financial and managerial condition, with a CAMELS Rating of 1 (the highest rating of the FDIC for banks). For all other banks, the minimum leverage capital requirement is 3% plus an additional cushion of at least 1% to 2%. Core capital is comprised of the sum of common stockholders' equity, noncumulative perpetual preferred stock (including any related surplus) and minority interests in consolidated subsidiaries, minus all intangible assets (other than qualifying servicing rights and purchased credit card relationships), identified losses and investments in certain subsidiaries. At December 31, 2001, the Bank's ratio of core capital to average total assets equaled 7.00%, which exceeded the minimum leverage requirement. The FDIC also requires that banks meet a risk-based capital standard. The risk-based capital standard requires the maintenance of a ratio of total capital (which is defined as core capital and supplementary capital) to risk-weighted assets of 8.00%. In determining the amount of risk- weighted assets, all assets, including certain off-balance sheet assets, are multiplied by a risk-weight of 0% to 100%, based on the risks the FDIC believes are inherent in the type of asset. The components of core capital are equivalent to those discussed earlier under the leverage capital requirement. The components of supplementary capital currently include cumulative perpetual preferred stock, long-term perpetual preferred stock, mandatory convertible securities, subordinated debt and intermediate preferred stock and allowance for loan and lease losses. Allowance for loan and lease losses included in supplementary capital is limited to a maximum of 1.25% of risk-weighted assets. Overall, the amount of capital counted toward supplementary capital cannot exceed 100% of core capital. At December 31, 2001, the Bank met its risk based capital requirements with a core risk-based capital to risk-weighted assets ratio of 10.38% and a total risk-based capital to risk-weighted assets ratio of 11.55%. Prompt Corrective Action Regulations ------------------------------------ Effective December 19, 1992, the regulatory agencies, including the FDIC, were authorized to take certain supervisory actions against undercapitalized banks. The severity of such action depends upon the degree of undercapitalization. The regulations generally require subject to a narrow exception, the appointment of a receiver or conservator for banks whose tangible capital level falls below 2% of assets, which appointment is to be made within a maximum of 270 days after the threshold is reached. At December 31, 2001, the subsidiary bank was considered "well capitalized" for purposes of the FDIC's prompt corrective action regulations. See also Capital Resources and Liquidity - Capital Resources in the Management's Discussion and Analysis Section of the Annual Report to Stockholders for the year ended December 31, 2001. 9 The FDIC may institute proceedings against any insured bank or any director, trustee, officer or employee of such bank who engages in unsafe and unsound practices, or the violation of applicable laws and regulations. The FDIC has the authority to terminate or suspend insurance of accounts pursuant to procedures established for that purpose and may appoint a receiver or conservator under certain circumstances. Community Reinvestment Act -------------------------- Under the Community Reinvestment Act, as amended ("CRA"), every FDIC- insured institution has a continuing and affirmative obligation consistent with safe and sound banking practices to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA requires the FDIC to assess the Bank's record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications, such as a merger or the establishment of a branch, by the Bank. An unsatisfactory rating may be used as the basis for the denial of an application by the FDIC. The Bank's latest CRA rating, received from the FDIC was "satisfactory". Insurance of Deposits --------------------- The deposit accounts of the Bank are insured by the FDIC up to applicable limits, generally $100,000 per insured depositor. The FDIC issues regulations, conducts periodic examinations, requires the filing of reports and generally supervises the operations of its insured banks. The approval of the FDIC is required prior to a merger or consolidation, or the establishment or relocation of an office facility. The majority of the Bank's deposits are insured by the Bank Insurance Fund ("BIF"). Approximately 6.0% of the Bank's deposits are OAKAR deposits, which are deposits purchased from institutions previously insured by the Savings Association Insurance Fund ("SAIF"), and which are assessed at the premium rate applicable to SAIF deposits. During 2001, the Bank paid annual insurance premiums of $129,000 compared with $130,000 in 2000. The FDIC has established a system for setting deposit insurance premiums based upon the risks a particular bank or savings association posed to its deposit insurance funds. Under the risk-based deposit insurance assessment system, the FDIC assigns an institution to one of three capital categories based on the institution's financial information, as of the reporting period ending six months before the assessment period. The three capital categories are (1) well capitalized, (2) adequately capitalized and (3) undercapitalized. The FDIC also assigns an institution to supervisory subgroups within each capital group, based on a supervisory evaluation provided to the FDIC by the institution's primary federal regulator and information that the FDIC determines to be relevant to the institution's financial condition and the risk posed to the deposit insurance funds, which may include information provided by the institution's state supervisor. An institution's assessment rate depends on the capital category and supervisory category to which it is assigned. Under the final risk-based assessment system, there are nine assessment risk classifications or combinations of capital groups and supervisory subgroups, to which different assessment rates are applied. Assessment rates for deposit insurance for both BIF and SAIF currently range from 0 basis points to 27 basis points. The capital and supervisory subgroup to which an institution is assigned by the FDIC is confidential and may not be disclosed. A bank's rate of deposit insurance assessments will depend upon the category and subcategory to which the bank is assigned by the FDIC. The FDIC is required to maintain a ratio of reserves to insured deposits of 1.25% for each of the BIF and the SAIF. The FDIC may increase its assessment rates in order to maintain the required reserve ratio. Any increase in insurance assessments could have an adverse effect on the Bank's earnings. Under the Deposit Insurance Funds Act of 1996, the assessment base for the payments on the bonds issued in the late 1980's by the Financing Corporation ("FICO") to recapitalize the now defunct Federal 10 Savings and Loan Insurance Corporation was expanded to include, beginning January 1, 1997, the deposits of institutions insured by the BIF, such as the Bank. Until December 31, 1999, the rate of assessment for BIF- assessable deposits was one-fifth of the rate imposed on deposits insured by the SAIF. Effective January 1, 2000, the rate of assessment for BIF and SAIF deposits is the same. The weighted average annual assessment rate for 2001 on the Bank's deposits was 0.01895%. Federal Reserve System ---------------------- Under FRB regulations, the Bank is required to maintain reserves against its transaction accounts (primarily checking and NOW accounts), non-personal money market deposit accounts, and non-personal time deposits. Because reserves must generally be maintained in cash or in non-interest bearing accounts, the effect of the reserve requirement is to increase the Bank's cost of funds. For most of 2001, these regulations required reserves of 3% of total transaction accounts of up to $42.8 million. Total transaction accounts amounting to over $42.8 million required a reserve of $1.1 million plus 10% (this rate is set by the FRB and can range from 8% to 14%) of that portion of total transaction accounts in excess of such amount. Institutions were permitted to designate and exempt $5.5 million of reservable liabilities from these reserve requirements. These amounts and percentages are subject to adjustment by the FRB. The Bank was in compliance with its reserve requirements at December 31, 2001. The Bank also has the authority to borrow from the Federal Reserve Board "discount window" to meet its short-term liquidity needs. During December, 2001, the amount of reservable liabilities exempt from reserve requirements was increased to $5.7 million and the level at which reservable liabilities would be subject to the 10% rate was lowered to $41.3 million. Holding Company Regulation -------------------------- Under the Federal Change in Bank Control Act ("CIBCA"), a prior notice must be submitted to the FRB if any person or group acting in concert seeks to acquire 10% or more of Granite State common stock, unless (if less than 25% is to be beneficially owned) the FRB finds that the acquisition will not result in change in control. Under CIBCA, the FRB has 60 days within which to act, taking into consideration factors similar to those under the Bank Holding Company Act ("BHCA"). Under the BHCA, any company would be required to obtain prior approval from the FRB before obtaining control of the Holding Company. Control generally is defined as beneficial ownership of 25 percent or more of any class of voting securities of the Company. An existing bank holding company would need to receive prior FRB approval before acquiring more than 5% of the voting securities of the Company. Granite State and its subsidiary are subject to examination, regulation and periodic reporting by the FRB under the BHCA. FRB approval is required for acquisitions of either financial institutions or other entities, or the commencement of new activities by the Company. Interstate holding company acquisitions of banks are permitted generally without regard to state law, except state laws regarding deposit concentration. The FRB has adopted capital adequacy guidelines for bank holding companies (on a consolidated basis) substantially similar to those of the FDIC for the Bank. The Federal Reserve Board has issued guidelines for a risk-based approach to measuring the capital adequacy of bank holding companies and state-chartered banks which are members of the Federal Reserve System. These capital requirements generally call for an 8 percent total capital ratio, of which 4 percent must be comprised of Tier I capital. Risk-based capital ratios are calculated by weighting assets and off-balance sheet instruments according to their relative credit risks. In addition to the risk-based capital standard, bank holding companies such as the Company must maintain a minimum leverage ratio of Tier I capital to total assets of at least 4 percent, with Tier I capital for this purpose being defined consistent with the risk-based capital guidelines. At December 31, 2001, Granite State had consolidated Tier I and total risk-based capital ratios of 10.51% and 11.69%, respectively and a leverage ratio of Tier I capital to average total assets of 7.09%. In addition, a bank holding company, which does not qualify as a "financial holding company" under the recently enacted Gramm-Leach-Bliley Financial Services Modernization Act, is generally prohibited 11 from engaging in, or acquiring direct or indirect control of, any company engaged in non-banking activities. One of the principal exceptions to this prohibition is for activities found by the FRB to be so closely related to banking or managing or controlling banks as to be permissible. Some of the principal activities that the FRB has determined by regulation to be so closely related to banking as to be permissible are: making or servicing loans; performing certain data processing services; providing discount brokerage services; acting as fiduciary, investment or financial advisor; leasing personal or real property; making investments in corporations or projects designed primarily to promote community welfare; and acquiring a savings and loan association. Bank holding companies that do qualify as a financial holding company may engage in activities that are financial in nature or incidental to activities which are financial in nature. Bank holding companies may qualify to become a financial holding company if: . each of its depository institution subsidiaries is "well capitalized," . each of its depository institution subsidiaries is "well managed"; . each of its depository institution subsidiaries has at least a "satisfactory" CRA rating at its most recent examination; and . the bank holding company has filed a certification with the FRB that it elects to become a financial holding company. Federal Home Loan Bank System ----------------------------- Granite Bank is a member of the FHLB of Boston, which is one of 12 regional Federal Home Loan Banks. The FHLB serves as a reserve or central bank for its members. It is funded primarily from proceeds derived from the sale of consolidated obligations of the Federal Home Loan Bank system. It makes advances (i.e., loans) to members in accordance with policies and procedures established by the Board of Directors of the FHLB. The Bank's membership in the FHLB is voluntary and can be terminated by the Bank at any time when its advances are paid. As a member of the FHLB, the Bank is required to purchase and hold stock in the FHLB in an amount equal to the greater of 1% of the aggregate of unpaid residential mortgage loan balances and the carrying value of mortgage-backed securities outstanding at the end of the year; or 5% of its outstanding advances from the FHLB of Boston. As of December 31, 2001, Granite Bank held stock in the FHLB in the amount of $7,201,000 and was required to maintain an investment in such stock of $6,773,000. (3) Monetary Policies Granite State and the Bank are affected by the monetary and fiscal policies of various agencies of the United States Government, including the Federal Reserve System. In view of changing conditions in the national economy and in the money markets, it is impossible for the management of Granite State to accurately predict future changes in monetary policy or the effect of such changes on the business or financial condition of Granite State. (4) Employees As of December 31, 2001, Granite State and its subsidiary employed 302 full time equivalent officers and employees. Granite State considers relations with its employees to be satisfactory. None of the employees of the Company or its subsidiary are represented by a collective bargaining group. (5) Statistical Information The statistical information on Granite State set forth in the following sections is furnished pursuant to Industry Guide 3 under the Securities Exchange Act of 1934. 12 (A) Distribution of Assets, Liabilities, and Stockholders' Equity; Interest Rates and Interest Differential Information regarding the distribution of assets, liabilities and stockholders' equity; interest rates and interest differential for each of the three years in the period ended December 31, 2001, on page 24 of the Annual Report to Stockholders for the year ended December 31, 2001 are incorporated herein by reference. (B) Rate/Volume Analysis Information regarding the dollar amount of changes in interest income and interest expense for interest earning assets and interest bearing liabilities attributable to changes in interest rates and changes in volume for each of the two years in the period ended December 31, 2001, on page 25 of the Annual Report to Stockholders for the year ended December 31, 2001 are incorporated herein by reference. (C) Investment Portfolio 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 in accumulated other comprehensive income (loss) as a separate component of stockholders' equity, net of estimated income taxes. The Company classifies its securities into three categories: held-to- maturity, available-for-sale and held for trading. The Company had no securities classified as trading securities at or during the years ended December 31, 2001, 2000 and 1999. The following table sets forth the amortized cost, unrealized gains and losses, and estimated market values of securities held to maturity and securities available for sale at December 31, 2001, 2000 and 1999. 13

As a member of the FHLB of Boston, the Bank is required to invest in $100 par value stock of the FHLB of Boston in the amount of 1% of its outstanding loans secured by residential housing, or 5% of its outstanding advances from the FHLB of Boston, whichever is higher. When such stock is redeemed, the Bank would receive from the FHLB of Boston an amount equal to the par value of the stock. As of December 31, 2001, 2000 and 1999, the Company had investments in FHLB of Boston stock of $7,201,000 for each of the three years, respectively. At December 31, 2001 the weighted average yield on FHLB of Boston stock was 4.50%. The following table sets forth the maturity distribution of securities held to maturity and securities available for sale at December 31, 2001 and the weighted average yields of such securities (calculated on the basis of the amortized cost and effective yields weighted for the scheduled maturity of each security). 15

Included in total debt securities above are other corporate obligations classified as securities held to maturity, with an amortized cost of $5,006,000 which are due after one year, but within five years, with a yield of 6.21%. All other debt securities are classified as securities available for sale. *Mutual fund shares and marketable equity securities have no stated maturity, and are therefore considered to be due after 10 years. The Company did not own any securities of an individual issuer, with a book value in excess of 10% of stockholders' equity, excluding U.S. Treasury and U.S. Government agency obligations, at December 31, 2001. 16 (D) Loan Portfolio The following table shows Granite State's loan distribution as of December 31:

(E) Maturity of Loans The following table shows the maturity distribution of loans outstanding, excluding non-accrual loans of $3,015,000 as of December 31, 2001.

Included in the loan maturity table above, are loans with a variable interest rate totaling $26,206,000 which are scheduled to mature in one to five years, of which $18,992,000 are scheduled to reprice within one year or less, with the remaining $7,214,000 scheduled to reprice within one to five years. Also included in the loan maturity table, are loans with a variable interest rate totaling $424,190,000 which are scheduled to mature after five years, of which $122,244,000 are scheduled to reprice within one year or less; $261,647,000 which are scheduled to reprice within one to five years, with the remaining $40,299,000 scheduled to reprice after five years. 17 (F) Nonperforming Loans and Assets The following table summarizes Granite State's nonperforming loans and assets at December 31. Amounts shown reflect principal only.

Accrual of interest on loans is discontinued either when reasonable doubt exists as to the full, timely collection of interest or principal, or when a loan becomes contractually past due by ninety days unless the loan is well secured and in the process of collection. When a loan is placed on nonaccrual status, all interest previously accrued and not received is reversed against current period earnings. For the year ended December 31, 2001, the gross interest income on nonperforming loans that would have been recorded, had such loans been current in accordance with their original terms amounted to $263,000. The amount of interest income on those loans included in net earnings for the year ended December 31, 2001 amounted to $28,000. Other real estate owned is comprised of properties acquired through foreclosure proceedings or acceptance of a deed in lieu of foreclosure. Real estate formally acquired in settlement of loans is recorded at the lower of the carrying value of the loan or the fair value of the property received less an allowance for estimated costs to sell. Loan losses arising from the acquisition of such properties are charged against the allowance for possible loan losses. Provisions to reduce the carrying value to net realizable value are charged to current period earnings as realized and reflected as an addition to the valuation allowance. Operating expenses and gains and losses upon disposition are reflected in earnings as realized. 18 Other real estate owned at December 31 was comprised as follows:

As of December 31, 2001, there were no loan concentrations exceeding 10% of total loans. As of December 31, 2001, neither Granite State nor its subsidiary, Granite Bank, had any foreign loans. (G) Summary of Loan Loss Experience and Allocation of the Allowance for Possible Loan Losses The allowance for possible loan losses is maintained through provisions for possible loan losses based upon management's ongoing evaluation of the losses 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 and historical loan charge-off experience. At December 31, 1998, the level of the allowance was lower than the 1997 level, due to reductions in the level of nonperforming and impaired loans in 1998 compared with 1997, increased net charge-offs for 1998 compared with 1997, as well as a change in the mix of loans to primarily residential real estate loans which accounted for 52.6% of the total loan portfolio at December 31, 1998 compared to 41.1% at December 31, 1997, while commercial real estate and commercial, financial and agricultural loans accounted for 35.0% of the total loan portfolio in 1998 compared to 43.2% in 1997. The amount of the allowance for possible loan losses decreased at December 31, 1999 compared to December 31, 1998, primarily as a result of decreases in nonperforming and impaired loans, the low level of net charge-offs in 1999 and the continuing change in the composition of the loan portfolio which was more predominantly residential real estate in 1999, partially offset by the overall growth of the loan portfolio. Residential real estate loans comprised 55.7% of the loan portfolio at December 31, 1999 compared to 52.6% at December 31, 1998. Commercial real estate loans and commercial, financial and agricultural loans comprised 31.4% of the loan portfolio at December 31, 1999 compared to 35.0% at December 31, 1998. At December 31, 2000 the level of the allowance was higher than at December 31, 1999, primarily as a result of an increase in nonperforming and impaired loans, the overall growth of the loan portfolio and the allowance of the loan portfolio acquired in connection with the year end 2000 acquisition of the two 19 Olde Port Bank branch offices. At December 31, 2001 the level of the allowance was higher than at December 31, 2000, primarily as a result of increases in commercial real estate loans, multifamily real estate loans and construction and land development real estate loans as well as a provision to increase the allowance related to one nonperforming commercial real estate loan. While management believes that the allowance for possible loan losses at December 31, 2001 is adequate based on its current review and estimates, further provisions to the allowance may be necessary. Additionally, regulatory agencies review the Company's allowance for loan losses as part of their examination process. Such agencies may require the Company to recognize additions to the allowance based upon judgments which may be different from those of management. Changes in the allowance for possible loan losses for the year ended December 31 are as follows:

A summary of loan charge-offs by loan category for the year ended December 31, follows:

A summary of loan recoveries by loan category for the year ended December 31, follows:

20 The ratio of net loan charge-offs to average loans outstanding for the year ended December 31, is summarized as follows:

An allocation of the allowance for possible loan losses as of December 31 follows:

The allowance for possible loan losses as a percentage of loans outstanding at December 31 of each reported period is as follows:

21 (H) Risks Associated with Commercial Real Estate, Commercial and Construction Loans Commercial real estate and commercial lending involves significant additional risks compared with one-to-four family residential mortgage lending, and therefore typically accounts for a disproportionate share of delinquent loans and real estate owned through foreclosure or by deed in lieu of foreclosure. Such lending generally involves larger loan balances to single borrowers or groups of related borrowers than does residential lending, and repayment of the loan depends in part on the underlying business and financial condition of the borrower and is more susceptible to adverse future developments. If the cash flow from income-producing property is reduced, for example, because leases are not obtained or renewed, the borrower's ability to repay the loan may be materially impaired. These risks can be significantly affected by considerations of supply and demand in the market for office, manufacturing and retail space and by general economic conditions. As a result, commercial real estate and commercial loans are likely to be subject, to a greater extent than residential real estate loans, to adverse conditions in the general economy. Construction loans are, in general, subject to the same risks as commercial real estate loans, but involve additional risks as well. Such additional risks are due to uncertainties inherent in estimating construction costs, delays arising from labor problems, shortages of material, uncertain marketability of a complete project and other unpredictable contingencies that make it relatively difficult to determine accurately the total loan funds required to complete a project or the value of the completed project. Construction loan funds are advanced on the security of the project under construction, which is of uncertain value prior to the completion of construction. This uncertainty is increased in depressed real estate markets. When a construction project encounters cost overruns, marketing or other problems, it may become necessary, in order to sustain the project and preserve collateral values, for the lender to advance additional funds and to extend the maturity of its loan. In a declining market, there is no assurance that this strategy will successfully enable the lender to recover outstanding loan amounts and interest due. Moreover, foreclosing on such properties results in administrative expense and substantial delays in recovery of outstanding loan amounts and provides no assurance that the lender will recover all monies due to it, either by developing the property, subject to regulatory limitations and to the attendant risks of development, or by selling the property to another developer. (I) Deposits The average balance of deposits and the average rates paid thereon are summarized as follows:

22 (J) Maturities of Time Deposits The maturity distribution of time certificates of deposit of $100,000 or more at December 31, 2001 follows:

(K) Return on Equity and Assets Operating and capital ratios for the year ended December 31 follows:

(L) Borrowings Information regarding borrowings in Note 13 to the Consolidated Financial Statements in the Annual Report to Stockholders for the year ended December 31, 2001 is incorporated herein by reference. Short-Term Borrowings --------------------- Outstanding short-term borrowings at December 31 were as follows:

23 The maximum amount of securities sold under agreements to repurchase and short-term and current portion of other borrowings outstanding at any month end during the year ended December 31 were as follows:

The average balance of securities sold under agreements to repurchase and short-term and current portion of other borrowings and weighted average interest rates thereon for the year ended December 31 were as follows:

24 Other borrowings, consist of advances from the FHLB of Boston. Scheduled maturities and interest rates on such advances at December 31, are as follows:

Principal payments due on long-term borrowings after December 31, 2001 are $54,000 in 2002, $30,058,000 in 2003, $62,000 in 2004, $60,000 in 2005, $4,000 in 2006 and $105,226,000 in years thereafter. The FHLB of Boston has the right to call and require the repayment of $70,000,000 of borrowings during 2002, $20,000,000 of which is at an interest rate of 4.49% maturing in 2008; $10,000,000 of which is at an interest rate of 5.58% maturing in 2009; $30,000,000 of which is at a weighted average interest rate of 5.60% maturing in 2010 and $10,000,000 of which is at an interest rate of 3.99% maturing in 2011. Additionally, the FHLBB has the right to call and require repayment of $10,000,000 of borrowings during 2003, which is at a weighted average interest rate of 4.53% maturing in 2011 and $15,000,000 of borrowings during 2004, which is at a weighted average interest rate of 4.64% maturing in 2011. (M) Competition The Bank continues to experience substantial competition in attracting and retaining deposit accounts and in making mortgage and other loans. There are numerous federally-insured banks and thrifts with offices within Granite Bank's principal market areas, many of which are headquartered there. In addition, the Bank experiences competition from credit unions and other financial intermediaries which are not subject to similar State and Federal regulations. The primary factors in competing for deposit accounts are service, interest rates, convenience and, to a lesser extent, products offered. Competitors for deposit accounts include other depository institutions and other investment vehicles such as mutual funds, government and corporation obligations, and the equity capital markets. 25 The primary factors in competing for loans are interest rates, loan origination fees and the quality and range of lending products and services offered. Competition for origination of loans comes primarily from savings institutions, mortgage banking firms, and other commercial banks. (N) Subsidiaries Granite State owns 100% of the capital stock of Granite Bank, a New Hampshire chartered commercial bank, its sole subsidiary. (d) Financial Information about Foreign and Domestic Operations and Export Sales Not applicable. 26 Item 2. Properties The following table sets forth the location of the Company's offices as of December 31, 2001. See also Notes 10 and 14 to the Consolidated Financial Statements in the Annual Report to Stockholders for the year ended December 31, 2001 which are incorporated herein by reference.

Additionally, the Company operates twenty-four ATMs at other locations in Keene, Fitzwilliam, Milford, Amherst, Durham, West Swanzey, North Swanzey, Peterborough, Hillsborough, Concord, Dublin and Greenfield, New Hampshire. The ATM facilities and their enclosures are owned by the Company; the property on which they are located is leased. All offices and ATM facilities are located in New Hampshire. The Company believes that its current facilities are adequate to meet its present needs. Item 3. Legal Proceedings The Company is a defendant in various legal actions incident to its business, none of which is believed by management to be material to the financial condition of the Company. Item 4. Submission of Matters to a Vote of Security Holders None. 27 Additional Item. Executive Officers Information regarding executive officers not listed as directors in the Proxy Statement is as follows: Charles B. Paquette (age 49) is the Executive Vice President, Secretary and Chief Operations Officer of Granite State and Senior Executive Vice President, Secretary and Chief Operations Officer of Granite Bank, positions he assumed in 1986 and 1991, respectively. Mr. Paquette has been employed in a management position by the Company and Granite Bank since 1980. William C. Henson (age 46) is the Executive Vice President of Granite State and Senior Executive Vice President and Chief Credit Officer of Granite Bank, positions he assumed in 1986 and 2000, respectively. Mr. Henson joined the Bank in 1980, and since 1982 has served in an executive management capacity. William G. Pike (age 50) is the Executive Vice President and Chief Financial Officer of Granite State and Senior Executive Vice President and Chief Financial Officer of Granite Bank, positions he assumed in 1991 and 2000, respectively. Mr. Pike has served in an executive management position in the Bank since 1991. 28 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters (a) Market Information Granite State's common stock is quoted on the Nasdaq Stock Market under the symbol GSBI. The following table shows the range of the high and low closing prices and dividend information on a quarterly basis for Granite State's common stock for 2001 and 2000. The table does not reflect inter-dealer prices, potential mark-ups, mark-downs or commissions, and may not necessarily represent actual transactions.

29 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's Discussion and Analysis of Financial Condition and Results of Operations on pages 13 to 31, inclusive, of the Annual Report to Stockholders for the year ended December 31, 2001 is incorporated herein by reference. Item 7a. Quantitative and Qualitative Disclosures About Market Risk Quantitative and Qualitative Disclosures About Market Risk on pages 18 to 22 inclusive, of the Annual Report to Stockholders for the year ended December 31, 2001 is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data (a) Financial Statements Required by Regulation S-X Information relating to financial statements on pages 33 to 60, inclusive, of the Annual Report to Stockholders for the year ended December 31, 2001 is incorporated herein by reference. (b) Supplementary Financial Information (1) Selected Quarterly Financial Data The Selected Quarterly Financial Data on page 60 of the Annual Report to Stockholders for the year ended December 31, 2001 is incorporated herein by reference. (2) Information on the Effects of Changing Prices Management's discussion of the effects of inflation on page 30 of the Annual Report to Stockholders for the year ended December 31, 2001 is incorporated herein by reference. (3) Information About Oil and Gas Producing Activities Not applicable. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 30 PART III Item 10. Directors and Executive Officers of the Registrant Information regarding directors and executive officers of Granite State on pages 3 and 4 of the Proxy Statement for the 2002 Annual Meeting of Stockholders is incorporated herein by reference. Item 11. Executive Compensation Information regarding executive compensation on pages 5 to 10 of the Proxy Statement for the 2002 Annual Meeting of Stockholders is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management Information regarding security ownership of certain beneficial owners and Granite State's management on pages 2 to 4 of the Proxy Statement for the 2002 Annual Meeting of Stockholders is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions Information regarding certain relationships and related transactions on page 10 of the Proxy Statement for the 2002 Annual Meeting of Stockholders is incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) List of Documents Filed as Part of this Report (1) Financial Statements The financial statements listed below and the report of independent certified public accountants are incorporated herein by reference to the Annual Report to Stockholders for the year ended December 31, 2001, in Item 8. Page references are to such Annual Report. Financial Statements Page Reference -------------------- -------------- Granite State Bankshares, Inc. and Subsidiary Report of Independent Certified Public Accountants 33 Consolidated Statements of Financial Condition 34 Consolidated Statements of Earnings 35 Consolidated Statements of Comprehensive Income 36 Consolidated Statements of Stockholders' Equity 37 Consolidated Statements of Cash Flows 38 Notes to Consolidated Financial Statements 39 - 60 31 (2) Financial Statements Schedules Schedules of the Consolidated Financial Statements required by the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. The remaining information appearing in the Annual Report to Stockholders for the year ended December 31, 2001, is not deemed to be filed as part of this report, except as expressly provided herein. (b) Reports on Form 8-K None (c) Exhibits The exhibits listed below are filed herewith or are incorporated by reference to other filings. Exhibit Index to Form 10-K Exhibit 2 Agreement and Plan of Reorganization by and among Granite State, Granite Bank and Primary Bank, as amended, dated as of April 29, 1997 and the Agreement and Plan of Merger among Granite Bank and Primary Bank and joined in by Granite State* Exhibit 3.1 Articles of Incorporation** Exhibit 3.2 Bylaws *** Exhibit 10.1 Stock Option Plan** Exhibit 10.2 Employment Agreement with Charles W. Smith** Exhibit 10.3 Amendment No. 1 to Employment Agreement with Charles W. Smith*** Exhibit 10.4 Form of Special Termination Agreement with Messrs. Charles B. Paquette, William C. Henson, William G. Pike and William D. Elliott*** Exhibit 10.5 Employee Stock Ownership Plan** Exhibit 10.7 1997 Granite State Bankshares, Inc. Long-Term Incentive Stock Benefit Plan**** Exhibit 10.8 Restated Executive Supplemental Retirement Income Agreement for Charles W. Smith***** Exhibit 10.9 Form of Executive Supplemental Retirement Income Agreement with Messrs. Charles B. Paquette, William C. Henson and William G. Pike ****** Exhibit 11 Calculations of Basic Earnings Per Share and Diluted Earnings Per Share (See Note 3 to Notes to Consolidated Financial Statements) Exhibit 13 Portions of the Annual Report to Stockholders for the year ended December 31, 2001 32 Exhibit 21 Subsidiary of Granite State Bankshares, Inc. (See Part I, Item 1(a) and Item 1 (c)(5)(N) of Form 10-K.) Exhibit 23.1 Consent of Independent Certified Public Accountant- Grant Thornton LLP * Incorporated by reference from Appendix A to the Granite State Bankshares, Inc., and Primary Bank Joint Proxy Statement dated August 8, 1997. ** Incorporated by reference from Granite State Bankshares, Inc., Form S-1, filed on April 18, 1986. *** Incorporated by reference from Granite State Bankshares, Inc., Form 10-KSB, filed on March 27, 1997. **** Incorporated by reference from Appendix A to the Proxy Statement for the 1998 Annual Meeting of Stockholders. ***** Incorporated by reference from Granite State Bankshares, Inc. Form 10K, Exhibit 10.8 filed on March 27, 1998. ****** Incorporated by reference from Granite State Bankshares, Inc. Form 10Q, Exhibit 10.9 filed on August 12, 1999.

33 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Granite State Bankshares, Inc., 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 : March 15, 2002 By: Charles W. Smith Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934 this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Charles W. Smith 3/15/02 Chief Executive Officer -------------------- (Principal Executive Officer) and Charles W. Smith Chairman of the Board /s/ William G. Pike 3/15/02 Executive Vice President ------------------- and Chief Financial Officer William G. Pike (Principal Financial and Accounting Officer) /s/ Dr. David M.Bartley 3/15/02 Director ----------------------- Dr.David M.Bartley /s/ Philip M. Hamblet 3/15/02 Director --------------------- Philip M. Hamblet /s/ Joseph S. Hart 3/15/02 Director ------------------ Joseph S. Hart /s/ David J. Houston 3/15/02 Director -------------------- David J. Houston 34 /s/ James L. Koontz 3/15/02 Director ------------------- James L. Koontz /s/ Peter C. Read 3/15/02 Director ----------------- Peter C. Read /s/ William Smedley V 3/15/02 Director --------------------- William Smedley V /s/ James C. Wirths III 3/15/02 Director ----------------------- James C. Wirths III /s/ E. Story Wright 3/15/02 Director ------------------- E. Story Wright 35

GRANITE STATE BANKSHARES INC 10-K