ITEM 1 - BUSINESS
Bank of Granite Corporation (the "Registrant") is a Delaware Corporation organized January 30, 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 on August 2, 1906 and GLL & Associates, Inc. ("GLL"), a mortgage bank chartered under the laws of North Carolina on June 24, 1985. GLL merged with the Registrant on November 5, 1997. The Registrant conducts its banking business from 14 offices located in Caldwell, Catawba, and Burke counties in North Carolina. According to the North Carolina Banking Commission, the Bank ranked 14th and 13th among North Carolina commercial banks based on assets and deposits, respectively, as of December 31, 1999. The Registrant conducts its mortgage banking business from 8 offices in the Central and Southern Piedmont and Catawba Valley regions of 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.
GLL's principal activities include the origination and underwriting of mortgage loans to individuals. GLL also sells mortgage servicing rights and appraisal services. GLL specializes in government guaranteed mortgage products. The majority of its customers are individuals. 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 GLL. The mortgage business is sensitive to changes in interest rates in the market. When rates decline, GLL experiences an increase in its mortgage business. When rates rise, GLL's business declines.
TERRITORY SERVED AND COMPETITION
The Bank operates banking offices in Granite Falls and the Baton section of Granite Falls; Lenoir and the Hibriten and Whitnel sections of Lenoir; Hudson; Newton; Morganton; Hickory and the Springs Road, Viewmont, Long View and Mountain View sections of Hickory; and Vale for a total of 14 offices. Banking laws of North Carolina allow statewide branching, resulting in commercial banking in the state being extremely competitive.
The Federal Deposit Insurance Corporation (the "FDIC") collects deposit data from insured depository institutions as of June 30 of each year.
According to June 30, 1999 data provided by the FDIC, there were six other commercial banks in the Bank's Caldwell County market. As of June 30, 1999, the Bank of Granite had $198.8 million, or 30.3%, of total county deposits of $655.3 million, compared with $176 million, or 27.6%, of total county deposits of $638.1 million as of June 30, 1998.
According to the FDIC data, in the Bank's Catawba County market, there were ten other commercial banks as of June 30, 1999. The Bank of Granite had $240.8 million, or 14.2%, of total county deposits of $1.7 billion, compared with $249.8 million, or 15.2%, of total county deposits of $1.6 billion as of June 30 of the previous year. The Bank's deposits in the previous year included a $24.4 million deposit by one of the Bank's trustee account customers on June 30 that was paid out by the trustee on July 3. Excluding these temporarily deposited funds, the Bank had $225.4 million, or 13.7%, of Catawba County's total deposits as of June 30, 1998.
In the Bank's Burke County market, there were five other commercial banks and one savings institution as of June 30, 1999 according to the FDIC. The Bank of Granite had $26.5 million, or 4.4%, of total county deposits of $600.6 million, compared with $25.1 million, or 4.3%, of $588.4 million in total Burke County deposits as of June 30, 1998.
The mortgage banking business is also highly competitive, with both bank and nonbank mortgage originators. GLL conducts its mortgage banking business from eight offices in the North Carolina cities of Winston-Salem, Charlotte, Hickory, High Point, Lenoir, Morganton, Newton and Salisbury. In 1998, the Bank merged its mortgage department with GLL, extending GLL's services to the Catawba Valley region of North Carolina with the offices in Hickory, Lenoir, Morganton, Newton and Shelby, which opened in 1999.
EMPLOYEES
As of December 31, 1999, the Bank had 194 and GLL had 36 full-time equivalent employees. Both the Bank and GLL consider its relationship with its employees to be excellent.
SUPERVISION AND REGULATION
The following summaries of statutes and regulations affecting bank holding companies, banks and mortgage 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" or "FRB").
A bank holding company is required to file with the FRB annual reports and other information regarding its business operations and those of its subsidiaries. It is also subject to examination by the Federal Reserve Board and is required to obtain Federal Reserve Board 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 must engage, with limited exceptions, 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 FRB has determined to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.
The FRB 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 subsidiaries. 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, 1999, the Bank had undivided profits of approximately $96.5 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, 1999, this ratio was 18.01%, leaving approximately $72.4 million of the Bank's undivided profits available for the payment of dividends. The Bank is, and such other subsidiaries 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 Registrant 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, 1999, the Registrant's tier 1 ratio and total capital ratio to risk-adjusted assets was 26.5% and 27.6% respectively. The Registrant's leverage ratio at December 31, 1999 was 18.7%. The Registrant is in compliance with all regulatory capital requirements.
The Registrant 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 FDIC and North Carolina State Banking Commission (the "Banking Commission"). The Bank is a member of 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.
GLL, as a mortgage bank, is regulated by the Banking Commission. Because GLL is a nonbank subsidiary of a bank holding company, it is also regulated by both the Banking Commission and the FRB. In addition, because GLL underwrites mortgages guaranteed by the government, it is subject to other audits and examinations as required by the government agencies or the investors who purchase the mortgages.
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 FRB, 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 facilities, except for the leased grocery store offices in Baton and Vale, which are listed below.
GRANITE FALLS, NC
Granite Falls office (home office) - 8,735 square foot building located on a 1.2 acre lot.
Storage building - 735 square foot building with an adjoining 0.6 acre lot.
Operations Center - 11,769 square foot building located on a 1.1 acre lot.
Print shop - 375 square foot building.
Baton office - 430 square office area located inside a supermarket.
LENOIR, NC
Lenoir office - 7,400 square foot building.
Whitnel office - 2,530 square foot building located on a 1 acre lot.
Hibriten office - 2,480 square foot building located on a 2.1 acre lot.
HUDSON, NC
Hudson office - 4,235 square foot building located on a 4.1 acre lot.
HICKORY, NC
Hickory office - 9,515 square foot building located on a 0.5 acre lot.
Bank of Granite Plaza - two story building with two sections containing 7,520 square feet and 7,572 square feet.
Springs Road office - 3,612 square foot building located on a 1.6 acre lot.
Viewmont office - 4,200 square foot building located on a 2 acre lot.
Longview office - 2,440 square foot building located on a 1.1 acre lot.
Mountain View office - 2,480 square foot building located on a 1.8 acre lot.
NEWTON, NC
Newton office - 3,612 square foot building located on a 0.9 acre lot.
MORGANTON, NC
Morganton office - 5,400 square foot building located on a 0.8 acre lot.
VALE, NC
Vale office - 400 square foot office area located inside a supermarket.
GLL leases all of its facilities which are listed below.
Winston-Salem office (home office) - 8,353 square foot building.
Hickory office - 1,080 square foot office in the 15,092 square foot Bank of Granite Plaza office building.
High Point office - 830 square foot office in a 7,200 square foot office building.
Lenoir office - 200 square foot office in the 7,400 square foot Bank of Granite office building.
Morganton office - 196 square foot office in the 5,400 square foot Bank of Granite office building.
Newton office - 64 square foot office in the 3,612 square foot Bank of Granite office building.
Salisbury office - 457 square foot office in a 6,500 square foot office building.
Shelby office - 400 square foot office in a 12,000 square foot office building.
ITEM 3
ITEM 3 - LEGAL PROCEEDINGS
There were no significant legal proceedings as of December 31, 1999.
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 1999.
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 4 & 18 of the Registrant's 1999 ANNUAL REPORT TO SHAREHOLDERS under the headings "Market and Dividend Summary" and "Shareholder Information", and respectively, and on page I-2 of the 2000 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 22 in the Registrant's 1999 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 - II-11 of the Registrant's 2000 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, the notes thereto and the independent auditors' report is set forth on pages II-12 - II-35 of the 2000 PROXY STATEMENT for the year ended December 31, 1999 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-4 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 2000 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-5 - I-9 in the definitive proxy materials of the Company filed in connection with its 2000 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-2 & I-4 in the definitive proxy materials of the Company filed in connection with its 2000 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-12 under the heading "Transactions with Officers and Directors" in the definitive proxy materials of the Company filed in connection with its 2000 ANNUAL MEETING OF SHAREHOLDERS, which information is incorporated herein by reference.
PART IV
ITEM 14
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORMS 8-K
a. 1. Financial Statements The information required by this item is set forth on pages II-12 - II-35 of the Registrant's 2000 PROXY STATEMENT TO SHAREHOLDERS, which is incorporated herein by reference.
2. Financial Statement Schedules None
3. Exhibits 10. Material Contracts None
13. Annual Report to Shareholders
21. Subsidiaries of the Registrant
27. Financial Data Schedule (for SEC use only)
b. No reports on Form 8-K were filed for the quarter ended December 31, 1999.
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.
Bank of Granite Corporation Exhibit Index