ITEM 1 - BUSINESS
Bank of Granite Corporation (the "Registrant") is a Delaware Corporation organized June 1, 1987 as a holding company. The Registrant currently engages in no operations other than ownership and operation of Bank of Granite (the "Bank"), a state bank chartered under the laws of North Carolina in 1906. The Registrant conducts its business from eleven banking offices located in Caldwell, Catawba, and Burke counties in North Carolina. As of December 31, 1996, the Bank was the ninth largest bank in North Carolina.
GENERAL BUSINESS
The Bank's principal activities include the taking of demand and time deposits and the making of loans, secured and unsecured, to individuals, associations, partnerships, and corporations. Bank of Granite is an independent community bank. The majority of its customers are individuals and small businesses. No material part of its business is dependent upon a single customer or a few customers whose loss would have an adverse effect on the business of the Bank. No material portion of the business of the Bank is seasonal.
TERRITORIAL SERVED AND COMPETITION
The Bank now operates banking offices in Granite Falls, Lenoir, and the Hibriten and Whitnel sections of Lenoir, Hudson, Newton, Morganton, Hickory, and the Springs Road, Viewmont and Long View sections of Hickory for a total of eleven offices. Banking laws of North Carolina allow statewide branching, resulting in commercial banking in the state being extremely competitive.
There are six other commercial banks located in the Bank's service area in Caldwell County and one credit union. The most recent FDIC figures available indicate that Bank of Granite has funds on deposit amounting to 24% of the total commercial bank deposits in Caldwell County as of June 30, 1996.
There are nine other commercial banks and eight credit unions located in the Bank's service area in Catawba County. The most recent FDIC figures available show that Bank of Granite's deposits comprise 14% of the total commercial bank deposits in Catawba as of June 30, 1996.
On July 10, 1989 Bank of Granite opened a full service office in Morganton. Competing in the same service area are five other commercial banks, five credit unions, and one savings and loan bank. The most recent FDIC figures available show that Bank of Granite's deposits comprise 4% of the total commercial bank deposits in Burke County as of June 30, 1996.
EMPLOYEES
As of December 31, 1996, Bank of Granite had 170 full-time equivalent employees. The Registrant considers its relationship with its employees to be excellent.
SUPERVISION AND REGULATION
The following summaries of statutes and regulations affecting bank holding companies and banks do not purport to be complete. Such summaries are qualified in their entirety by reference to such statutes and regulations.
The Bank Holding Company Act
The Registrant is a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended (the "Bank Holding Company Act"), and is required to register as such with the Board of Governors of the Federal Reserve System (the "Federal Reserve Board").
A bank holding company is required to file with the Federal Reserve Board annual reports and other information regarding its business operations and those of its subsidiaries. It is also subject to examination by the approval prior to acquiring , directly or indirectly, more than 5% of the voting stock of such bank, unless it already owns a majority of the voting stock of such bank. Furthermore, a bank holding company is, with limited exceptions, prohibited from acquiring direct or indirect ownership or holding company, and must engage only in the business of banking or managing or controlling banks or furnishing services to or performing services for its subsidiary banks. One of the exceptions to this prohibition is the ownership of shares of a company the activities of which the Federal Reserve Board has determined to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.
The Federal Reserve Board has cease-and-desist powers over parent bank holding companies and non-banking subsidiaries where their action would constitute a serious threat to the safety, soundness or stability of a subsidiary bank.
While the Registrant is not presently subject to any regulatory restrictions on dividends, the Registrant's ability to pay dividends will depend to a large extent on the amount of dividends paid by the Bank and any other subsequently acquired entities. The Bank, as a North Carolina banking corporation, may pay dividends only out of undivided profits as determined pursuant to North Carolina General Statutes Section 53-87. As of December 31, 1996, the Bank had undivided profits of approximately $70.0 million. Additionally, current federal regulations require that the Bank maintain a ratio of total capital to assets, as defined by regulatory authorities, in excess of 6%. As of December 31, 1996, this ratio was 16.7%, leaving approximately $40.8 million of the Bank's undivided profits available for the payment of dividends. The Bank is, and such other entities may be subject to regulatory restrictions on the payment of dividends.
In an effort to achieve a measurement of capital adequacy that is more sensitive to the individual risk profiles of financial institutions, the various financial institution regulators mandate minimum capital regulations and guidelines that categorize various components of capital and types of assets and measure capital adequacy in relation to a particular institution's relative levels of those capital components and the level of risk associated with various types of assets of that financial institution. The FDIC and the FRB statements of policy on "risk-based capital" require the Company to maintain a level of capital commensurate with the risk profile assigned to its assets in accordance with the policy statements. The capital standards call for minimum total capital of 8 percent of risk-adjusted assets. At December 31, 1996, the Company's tier 1 ratio and capital ratio to risk-adjusted assets was 23.4% and 24.6% respectively. The Company's leverage ratio at December 31, 1996 was 17.6%. The Company is in compliance with all regulatory capital requirements.
The Company cannot predict what other legislation might be enacted or what other regulation might be adopted or, if enacted or adopted, the effect thereof.
The Bank is subject to supervision and regulation, of which regular bank examinations are a part, by the Federal Deposit Insurance Corporation and North Carolina State Banking Commission. The Bank is a member of the Federal Deposit Insurance Corporation (the "FDIC"), which currently insures the deposits of each member bank to a maximum of $100,000 per depositor. For this protection, each bank pays a semi-annual statutory assessment and is subject to the rules and regulations of the FDIC.
Federal banking laws applicable to all depository financial institutions, among other things, (I) afford federal bank regulatory agencies with powers to prevent unsafe and unsound banking practices; (II) restrict preferential loans by bands to "insiders" of banks; (III) require banks to keep information on loans to major shareholders and executive officers, and (IV) bar certain directory
and officer interlocks between financial institutions. The prohibitions against preferential loans and certain director and officer interlocks may inhibit the ability of the Bank and the Registrant to obtain experienced and capable officers and directors, to replace presently proposed officers and directors, or to add to their number.
The registrant is an "affiliate" of the Bank within the meaning of the Federal Reserve Act, which imposes restrictions on loans by the Bank to the Registrant, on investments by the Bank in the stock or securities of the security for loans by the Bank to any borrower. The Registrant is also subject to certain restrictions with respect to engaging in the business of issuing, underwriting and distributing securities.
Shareholders of banks (including bank holding companies which own stock in banks) may be compelled by bank regulatory authorities to invest additional capital in the event their banks experience either significant loan losses or rapid growth of loans or deposits. In addition, the Registrant may also be required to provide additional capital to any additional banks which it acquires as a condition to obtaining the approvals and consents of regulatory authorities in connection with such acquisitions.
Effects of Governmental Monetary Policy and Economic Controls
The Registrant is directly affected by governmental monetary policy and by regulatory measures affecting the banking industry in general. Of primary importance is the Federal Reserve Board, whose actions directly affect the money supply and, in general, affect banks' lending abilities by increasing or decreasing the cost and availability of bank credit in order to combat recession and curb inflationary pressures in the economy by open market operations in the United States government securities, changes in the discount rate on the member bank borrows, and changes in reserve requirements against bank deposits.
Deregulation of interest rates paid by banks on deposits and the types of deposits that may be offered by banks have eliminated minimum balance requirements and rate ceilings on various types of time deposit accounts. The effect of these specific actions and, in general, the deregulation of deposit interest rates have increased banks' costs of funds and made the more sensitive to fluctuations in money market rates.
In view of changing conditions in the national economy and money markets, as well as the effect of actions by monetary and fiscal authorities, no prediction can be made as to possible future changes in interest rates, deposit levels, loan demand or the business and earnings of the Registrant.
ITEM 2
ITEM 2 - PROPERTIES
Bank of Granite owns all of its properties which are listed below.
GRANITE FALLS, NC
Granite Falls office (home office) - 8,735 square foot building located on a 1.2 acre lot.
A masonry and frame storage building containing 735 square feet with an adjoining 100' x 221' lot.
Operations Center - 70' x 168' building containing 11,769 square foot which located on a 1.05 acre lot.
15' x 25' building which houses our print shop.
LENOIR, NC
Lenoir office - building is approximately 7,400 square feet.
Whitnel office - building is approximately 2,530 square feet located on a lot containing 45,500 square feet.
Hibriten office - building is approximately 2,480 square feet situated on 2.10 acres of land.
HUDSON, NC
Hudson office - building is approximately 4,235 square feet located on a 4.10 acre lot.
HICKORY, NC
Hickory office - 54' x 81' structure containing 9,515 square feet situated on a 100' x 200' lot.
Bank of Granite Plaza - two story building with two sections. One section contains approximately 7,520 square feet, the other sections contains 7,572 square feet.
Newton office - 43' x 84' structure located on a 200' x 200' lot.
Springs Road office - 43' x 84' structure located on a 1.6 acre lot.
Viewmont office - approximately 4,200 square feet located on a two acre lot.
Longview office - 2,440 square feet brick building located on a corner lot containing 1.1 acres.
MORGANTON, NC
Morganton office contains approximately 5,400 square feet situated on a lot containing .78 acre.
ITEM 3
ITEM 3 - LEGAL PROCEEDINGS
There were no significant legal proceedings outstanding at December 31, 1995.
ITEM 4
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of shareholders in the Fourth Quarter of the Company's fiscal year.
PART II
ITEM 5
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER'S MATTERS
The information required by this item is set forth on Pages 2 and 18 on the Company's 1996 ANNUAL REPORT TO SHAREHOLDERS under the headings "Market and Dividend Summary" and "Shareholder Information", and respectively, on Page I-3 of the 1997 PROXY STATEMENT under the heading "Principal Holders of Voting Securities". The above information is incorporated by reference.
ITEM 6
ITEM 6 - SELECTED FINANCIAL DATA
The information required by this item is set forth on Page 14 in the Company's 1996 ANNUAL REPORT TO SHAREHOLDERS under the heading "Selected Financial Data" of which information is incorporated herein by reference.
ITEM 7
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information required by this item is set forth on Pages II-1 through II-11 in the Company's 1997 PROXY STATEMENT for the heading "Management's Discussion and Analysis", which is incorporated herein by reference.
ITEM 8
ITEM 8 - FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
The Consolidated financial statements, and notes thereto and the independent auditors' report on Pages II-12 through II-35 of the 1997 PROXY STATEMENT for the year ended December 31, 1996 are incorporated herein by reference.
ITEM 9
ITEM 9 - CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There has been no disagreement with accountants on accounting and financial disclosure as defined by Item 304 of Regulation S-K.
PART III
ITEM 10
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is set forth on Page I-10 under the heading "Directors and Executive Officers of Bank of Granite Corporation" in the definitive proxy materials of the Company filed in connection with its 1997 ANNUAL MEETING OF SHAREHOLDERS. The information required by this item contained in such definitive proxy materials is incorporated herein by reference.
ITEM 11
ITEM 11 - EXECUTIVE COMPENSATION
The information required by this item is set forth on Pages I-11 through I-16 in the definitive proxy materials of the Company filed in connection with its 1997 ANNUAL MEETING OF SHAREHOLDERS, which information is incorporated herein by reference.
ITEM 12
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth on Pages I-3 and I-10 in the definitive proxy materials of the Company filed in connection with its 1997 ANNUAL MEETING OF SHAREHOLDERS, which information is incorporated herein by reference.
ITEM 13
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth on Page I-18 under the heading "Transactions with Officers and Directors" in the definitive proxy materials of the Company filed in connection with its 1997 ANNUAL MEETING OF SHAREHOLDERS, which information is incorporated herein by reference.
PART IV
1. Financial Statements The information required by this item is set forth on Pages II-12 through II-35 in the Company's 1997 PROXY STATEMENT TO SHAREHOLDERS, which is incorporated herein by reference.
2. Financial Statement Schedules None
13. Annual Report to Security Holders
21. Subsidiaries of the Registrant Bank of Granite Corporation has one subsidiary, Bank of Granite, incorporated in 1906 and operates in North Carolina
27. Financial Data Schedule (for SEC use only)
B. No reports on Form 8-K were filed during the year.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on behalf by the undersigned, thereunto duly authorized.
BANK OF GRANITE CORPORATION
By: s/John A. Forlines, Jr. ------------------------------------ John A. Forlines, Jr. Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities and 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.
Signature Title Date
s/John A. Forlines, Jr. Chairman and Chief March 10, 1997 - ----------------------- Executive Officer John A. Forlines, Jr.
s/Randall C. Hall Vice President and March 10, 1997 - ----------------------- Chief Financial Randall C. Hall Officer and Principal Accounting Officer
s/John N. Bray Director March 10, 1997 - ----------------------- John N. Bray
s/Robert E. Cline Director March 10, 1997 - ----------------------- Robert E. Cline
s/John A. Forlines, Jr. Director March 10, 1997 - ----------------------- John A. Forlines, Jr.
s/Barbara F. Freiman Director March 10, 1997 - ----------------------- Barbara F. Freiman
s/Myron L. Moore, Jr. Director March 10, 1997 - ----------------------- Myron L. Moore, Jr.
s/Charles M. Snipes Director March 10, 1997 - ----------------------- Charles M. Snipes
s/Boyd C. Wilson, Jr. Director March 10, 1997 - ----------------------- Boyd C. Wilson, Jr.