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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 DECEMBER 31, 1998
-------------------------
Commission file number 0-15956
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BANK OF GRANITE CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 56-1550545
- --------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
P.O. BOX 128, GRANITE FALLS, N.C. 28630
- ---------------------------------------- -----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (828) 496-2000
----------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
COMMON STOCK NASDAQ
- -------------------------- ------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $1.00 PAR VALUE
-------------------------------
(Title of Class)
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 best of registrant's knowledge, in the 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]
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 [_]
As of March 8, 1999, 11,494,067 shares of common stock, $1 par value,
were outstanding and the aggregate market value of the voting stock held by
non-affiliates was $307,987,330.
Documents Incorporated by Reference
PARTS I AND II: Annual Report to Shareholders for the fiscal year ended
December 31, 1998 (with the exception of those portions which are specifically
incorporated by reference in this Form 10-K, the Annual Report to Shareholders
is not deemed to be filed as part of this report).
PART III: Definitive Proxy Statement dated March 22, 1999 as filed
pursuant to Section 14 of the Securities Exchange Act of 1934 in connection with
the 1999 Annual Meeting of Shareholders.
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Exhibit Index begins on page 13
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FORM 10-K CROSS-REFERENCE INDEX
<TABLE>
<CAPTION>
1998 1999
1998 Annual Proxy
Form 10-K Report Statement
Page Page Page
--------- ---------- ----------
<S> <C> <C> <C>
PART I
Item 1 - Business 3 n/a n/a
Item 2 - Properties 7 n/a n/a
Item 3 - Legal Proceedings 9 n/a n/a
Item 4 - Submission of Matters to a
Vote of Security Holders 9 n/a n/a
PART II
Item 5 - Market for the Registrant's
Common Equity and
Related Shareholder Matters 9 4 & 18 I-2
Item 6 - Selected Financial Data 9 22
Item 7 - Management's Discussion
and Analysis of Financial
Condition and Results of
Operations 9 17 II-1 - II-13
Item 8 - Financial Statements and
Supplementary Data 9 21,23 & 24 II-14 - II-37
Item 9 - Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure 9 n/a n/a
PART III
Item 10 - Directors and Executive
Officers of the Registrant 10 n/a I-5
Item 11 - Executive Compensation 10 n/a I-6 - I-10
Item 12 - Security Ownership of Certain
Beneficial Owners and
Management 10 n/a I-2 & I-5
Item 13 - Certain Relationships and
Related Transactions 10 n/a I-13
PART IV
Item 14 - Exhibits, Financial Statement
Schedules and Reports on
Forms 8-K 11 n/a II-14 - II-37
</TABLE>
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PART I
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, 1998. 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.
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According to June 30, 1998 data provided by the Federal Deposit Insurance
Corporation (the "FDIC"), there were six other commercial banks in the Bank's
Caldwell County market. The Bank of Granite had $176 million, or 27.6%, of the
$638.1 million in total deposits in Caldwell County 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, 1998. The Bank of Granite had $249.8
million, or 15.2%, of the $1,641.5 million in total deposits in Catawba County
as of June 30, 1998.
In the Bank's Burke County market, there were six commercial banks and one
savings institution as of June 30, 1998 according to the FDIC. The Bank of
Granite had $25.1 million, or 4.3%, of the $588.4 million in total deposits in
Burke County 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 and
Newton. GLL plans to open an office in Shelby in the first quarter of 1999.
EMPLOYEES
As of December 31, 1998, the Bank had 183 and GLL had 44 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").
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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 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, 1998, the Bank had undivided profits of
approximately $88.5 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, 1998, this ratio was
17.65%, leaving approximately $65.9 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, 1998, the Registrant's tier 1
ratio and total capital ratio to risk-adjusted assets was 25.1% and 26.2%
respectively. The Registrant's leverage ratio at December 31, 1998 was 17.8%.
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.
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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.
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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 - 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 100' x 221' lot.
Operations Center - 11,769 square foot building located on a 1.05 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 45,500 square foot lot.
Hibriten office - 2,480 square foot building located on a 2.10 acre lot.
HUDSON, NC
Hudson office - 4,235 square foot building located on a 4.10 acre lot.
HICKORY, NC
Hickory office - 9,515 square foot building located on a 20,000 square foot lot.
Bank of Granite Plaza - two story building with two sections containing 7,520
square feet and 7,572 square feet.
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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 1.81 acre lot.
NEWTON, NC
Newton office - 3,612 square foot building located on a 40,000 square foot lot.
MORGANTON, NC
Morganton office - 5,400 square foot building located on a 0.78 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) - 6,974 square foot building located on a
0.61 acre lot.
Charlotte office - 878 square foot office in a 150,000 square foot office
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 (opening in March 1999) - 400 square foot office in a 12,000
square foot office building.
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ITEM 3 - LEGAL PROCEEDINGS
There were no significant legal proceedings as of December 31, 1998.
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 1998.
PART II
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 1998 ANNUAL REPORT TO SHAREHOLDERS under the headings "Market and
Dividend Summary" and "Shareholder Information", and respectively, and on page
I-2 of the 1999 PROXY STATEMENT under the heading "Principal Holders of Voting"
Securities". The above information is incorporated by reference.
ITEM 6 - SELECTED FINANCIAL DATA
The information required by this item is set forth on page 22 in the
Registrant's 1998 ANNUAL REPORT TO SHAREHOLDERS under the heading "Selected
Financial Data" of which information is incorporated herein by reference.
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-13 of the
Registrant's 1999 PROXY STATEMENT for the heading "Management's Discussion and
Analysis", which is incorporated herein by reference.
ITEM 8 - FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
The Consolidated financial statements, the notes thereto and the independent
auditors' report is set forth on pages II-14 - II-37 of the 1999 PROXY STATEMENT
for the year ended December 31, 1998 are incorporated herein by reference.
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.
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PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is set forth on page I-5 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 1999
ANNUAL MEETING OF SHAREHOLDERS. The information required by this item contained
in such definitive proxy materials is incorporated herein by reference.
ITEM 11 - EXECUTIVE COMPENSATION
The information required by this item is set forth on pages I-6 - I-10 in the
definitive proxy materials of the Company filed in connection with its 1999
ANNUAL MEETING OF SHAREHOLDERS, which information is incorporated herein by
reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth on pages I-2 & I-5 in the
definitive proxy materials of the Company filed in connection with its 1999
ANNUAL MEETING OF SHAREHOLDERS, which information is incorporated herein by
reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth on page I-13 under the
heading "Transactions with Officers and Directors" in the definitive proxy
materials of the Company filed in connection with its 1999 ANNUAL MEETING OF
SHAREHOLDERS, which information is incorporated herein by reference.
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PART IV
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-14 - II-37 of the Registrant's 1999 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
b. On December 18, 1998, the Company filed a report on
Form 8-K regarding its December 14, 1998 new release
in which it announced that its Board of Directors had
approved a plan to purchase up to $5 million of its
common stock on the open market or in privately
negotiated transactions as conditions warrant. The
repurchase plan is effective until December 2001. As
of November 30, 1998, the Company had 11,464,913
shares outstanding.
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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.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ John A. Forlines, Jr. Chairman and Chief March 8, 1999
- ---------------------------------------------- Executive Officer
John A. Forlines, Jr.
/s/ Kirby A. Tyndall Secretary/Treasurer, March 8, 1999
- ---------------------------------------------- Chief Financial
Kirby A. Tyndall Officer and Principal
Accounting Officer
/s/ John N. Bray Director March 8, 1999
- ----------------------------------------------
John N. Bray
/s/ Paul M. Fleetwood, III Director March 8, 1999
- ----------------------------------------------
Paul M. Fleetwood, III
/s/ John A. Forlines, Jr. Director March 8, 1999
- ----------------------------------------------
John A. Forlines, Jr.
/s/ Barbara F. Freiman Director March 8, 1999
- ----------------------------------------------
Barbara F. Freiman
Director March 8, 1999
- ----------------------------------------------
Hugh R. Gaither
/s/ Charles M. Snipes Director March 8, 1999
- ----------------------------------------------
Charles M. Snipes
/s/ Boyd C. Wilson, Jr. Director March 8, 1999
- ----------------------------------------------
Boyd C. Wilson, Jr.
</TABLE>
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Bank of Granite Corporation
Exhibit Index
<TABLE>
<CAPTION>
Begins
on Page
<S> <C>
Exhibit 13 -- Annual Report To Shareholders 14
Exhibit 21 -- Subsidiaries of the Registrant 41
Exhibit 27 -- Financial Data Schedules 42
</TABLE>
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Exhibit 13 -- Annual Report To Shareholders
[Front Cover]
[Photo] [Photo]
Bank of Granite Corporation
1998 Annual Report
windows of opportunity every day . . .
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our customers' lives . . . [Photo]
are so much a part of our Bank's destiny. The children they raise,
the homes they build, the businesses they run, and yes, the bumps they encounter
along the way are integrally interwoven with the services we provide. Every day
thousands of opportunities walk through our doors, each one a window to our
future. We strive to serve them well and to maintain our status as "the best
little bank in America."
2
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<TABLE>
<CAPTION>
[Photo] Table of Contents
<S> <C>
Financial Highlights 5-6
Letter to Shareholders 7-10
Testimonials 11-12
Board of Directors 13
Bank Officers 14
Local Boards of Directors 15-16
Financial Overview 17-21
Financial Data 22-26
Look
through
any
window . . .
in our marketplace and you're apt to
find Bank of Granite there. In this
community, our roots are deep; our
futures, intertwined. We are very
clear about our place here and know
the community's success is vital to
our own.
[Photo caption]
Meet the Longs. The Bank has been an
integral partner in developing their real
estate business. A new home is in the
works and their boys will soon be college
age. We hope to be with them every step
of the way.
</TABLE>
3
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This chart reflects a record-breaking 45 years of increased cash dividends to
our shareholders. Beginning in 1954, when the dividend was $3,000, it has
increased each year, and in 1998 totaled $3,895,419.
Bank of Granite Corporation stock is traded on the national over-the-counter
market and is quoted through the Nasdaq National Market under the symbol GRAN.
[Bar chart of Cash Dividends Paid since 1954 presented here]
[Bar chart caption]
Stock splits or dividends in
these years: 1956, 1959,
1962, 1964, 1966, 1968,
1971, 1974, 1977, 1982-85,
1987, 1989, 1992, 1994,
1996 and 1998.
Investment firms making a market in Bank of Granite Corporation stock include
Interstate/Johnson Lane, Scott & Stringfellow, Inc. and Wheat First Union. There
were 11,464,913 shares outstanding as of December 31, 1998 owned by
approximately 3,500 shareholders. The summary on page 6 reflects quarterly
market and dividend information for the two years ended December 31, 1998.
4
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[Photo] [Bar chart of Market
Value versus Equity
Growth 1994 - 1998
presented here]
[Bar chart caption]
Market value increased
$3.98 for every $1.00 of
equity added.
Future
growth
In 1998 we opened two new offices, one in
the quickly expanding community of Mt. View
and an in-store facility at Honey's Grocery
in Vale. We will be looking for expansion
opportunities in the coming year as well.
[Photo caption]
Our new office in Mt. View is a plus for the
Lehmans. With three young boys, Denise
relies on the convenience of our new ATMs,
extended drive-thru hours and, always, a
friendly face.
5
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FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1998 (2) 1997 (2)(3) % change
<S> <C> <C> <C>
Earnings
Interest income $ 47,577,091 $ 44,027,854 8.1%
Interest expense 16,075,876 15,459,548 4.0%
-------------------------------
Net interest income 31,501,215 28,568,306 10.3%
Provision for loan losses 4,321,740 1,175,000 267.8%
Other income 8,663,553 8,110,184 6.8%
Other expense 15,835,804 14,119,050 12.2%
-------------------------------
Income before income taxes 20,007,224 21,384,440 -6.4%
Income taxes 6,558,789 6,953,253 -5.7%
-------------------------------
Net income $ 13,448,435 $ 14,431,187 -6.8%
-------------------------------
Cash dividends paid $ 3,895,419 $ 3,340,932 16.6%
Per share (1)
Net income
- Basic $ 1.17 $ 1.26 -7.1%
- Diluted 1.17 1.26 -7.1%
Cash dividends 0.34 0.30 13.3%
Book value 9.20 8.33 10.4%
Average shares outstanding (1)
- Basic 11,461,685 11,426,660 0.3%
- Diluted 11,509,645 11,479,682 0.3%
At Year-end
Assets $606,175,042 $528,979,733 14.6%
Deposits 458,697,169 414,576,184 10.6%
Loans (gross) 385,590,204 357,845,513 7.8%
Allowance for loan losses 4,619,586 5,202,578 -11.2%
Shareholders' equity 105,441,971 95,216,723 10.7%
Ratios
Return on average assets 2.39% 2.81%
Return on average equity 13.35% 16.21%
Average capital to average assets 17.90% 17.36%
Efficiency ratio 37.70% 36.74%
</TABLE>
(1) Per share amounts and average shares outstanding reflect the 5-for-4 stock
split paid
(2) All amounts reflect the November 1997 merger with GLL & Associates, Inc.
("GLL"), which was accounted for as a pooling of interests.
(3) Nonrecurring items related to GLL: Fourth quarter 1997 - gain on sale of
mortgage servicing rights of $360,681 (after-tax) and merger expenses of
$258,162 (after-tax).
MARKET AND DIVIDEND SUMMARY
<TABLE>
<CAPTION>
1998 Quarter 1 (1) Quarter 2 Quarter 3 Quarter 4
<S> <C> <C> <C> <C>
Price Range
High $ 25.80 $ 35.00 $ 34.50 $ 47.00
Low 24.00 24.80 26.91 25.00
Close 25.60 31.50 28.88 27.63
Dividend $ 0.08 $ 0.08 $ 0.09 $ 0.09
1997(1) Quarter 1 Quarter 2 Quarter 3 Quarter 4
Price Range
High $ 24.20 $ 24.50 $ 26.50 $ 26.80
Low 21.80 21.70 23.00 23.40
Close 23.60 24.20 26.20 24.60
Dividend $ 0.07 $ 0.07 $ 0.07 $ 0.08
</TABLE>
(1) Amounts reflect the 5-for-4 stock split paid May 29, 1998.
6
Page 19
<PAGE> 7
To Our Shareholders, Customers, and Friends. . .
1998 was Bank of Granite's 92nd year of service as an independent community
bank. Even though our incredible string of sixty-two consecutive quarters of
improved earnings ended after the second quarter, we nevertheless had a
significant year of growth and progress. From an earnings standpoint, 1998 was
the second best year in our history. In view of the remarkable strides made in
the quality of our relationships with our customers, we believe, from a human
standpoint, 1998 was truly our best year ever. Once again we owe a great
debt of gratitude to our dedicated employees who worked tirelessly as a team
during a year of great challenges and change in our industry. A few significant
highlights of the year are worth mentioning:
[Photo]
- -- Cash dividends to our shareholders increased for the 45th consecutive
year.
- -- For the 13th consecutive year, our return on average assets exceeded
2%--a remarkable achievement in the banking industry.
- -- Assets exceeded $600 million at year end--an all time high.
Also, deposit and loan totals reached new record highs. GLL & Associates, our
mortgage bank subsidiary, which we acquired in 1997, made an enormous
contribution to our excellent earnings.
[Caption]
We understand that our
business is a human
endeavor based upon the
quality of personal
relationships
We encourage you to review our financial highlights on Page 6 and to read more
financial details in the Financial Overview section of this report. Also, once
again our external accountants, Deloitte & Touche LLP, have given us an
unqualified "clean" opinion and this is found on Page 25.
7
Page 20
<PAGE> 8
[Caption]
Bank of Granite made over
$5 million in SBA loans
during the year, more than
any community bank in
North Carolina.
We are pleased to report to our customers and shareholders our progress in
preparing for the year 2000-Century change. Much of our time in 1998 was
dedicated to these preparations. Our year 2000 task force has been working
extremely hard on this for over a year. According to Mark Stephens, our year
2000 task force chairman and director of operations, we have substantially
completed the successful testing of the systems we have identified as critical
to conducting our day-to-day banking businesses. Fortunately, no systems have
been identified which are expected to cause any major disruptions. Please read
more about our progress later in this report, call Mark, or visit our website
at www.bankofgranite.com for updates regarding our preparations.
[Map caption]
[Map of Office Locations presented here]
Bank of Granite
Granite Falls*
Granite Falls/Baton
Hickory
Hickory/Viewmont
Hickory/Springs Road
Hickory/Long View
Hickory/Mt. View
Hudson
Lenoir/Uptown
Lenoir/Hibriten
Lenoir/Whitnel
Morganton
Newton
Vale
GLL & Associates
Charlotte
Hickory
High Point
Lenoir
Morganton
Newton
Salisbury
Shelby (opening in March 1999)
Winston-Salem*
*denotes home office
Again in 1998 we placed a special emphasis on lending to small businesses.
According to The Small Business Administration, we made over $5 million in SBA
Loans during the year, more than any community bank in North Carolina. Our goal
is to double this amount in 1999. Since inception of the SBA 504 Program in our
market area, Bank of Granite has made 43 out of a total of 52 loans originated
by all financial institutions. SBA estimates that a total of 1,290 jobs were
either created or saved as a result of these loans.
A word about the performance of our Bank of Granite Corporation stock, traded
on the National Market System under the symbol "GRAN". Despite a volatile year
for bank stocks, our stock increased 12.3%, closing the year at $27.625. This
compares with a 16.1% increase in the Dow-Jones
8
Page 21
<PAGE> 9
shareholders, customers and friends letter (continued)
Industrial average. Since the public underwriting of our stock in 1984, our
stock has handily outperformed the Dow, 1977.4% vs 716.6%. Needless to say, we
are proud of this performance. Also, those shareholders who bought one share of
Bank of Granite Corporation stock for $211.55 in 1954, the year present
management came aboard, would now have 2,940 shares (due to stock dividends and
splits). These shares, based on the closing price (NASDAQ: GRAN) of $27.625 on
December 31, 1998 would be worth $81,217.50. This does not include cash
dividends.
[Line chart of Cumulative Percentage Growth Bank of
Granite Corporation versus the Dow Jones Industrial
Average 1984 - 1998 presented here]
We are very excited about the future. Traditionally, we do well in a low
interest rate environment and we expect interest rates, which saw three
reductions in the prime lending rate in late 1998 in response to Federal
Reserve action, to remain low and relatively stable in 1999. We expect another
great year from the standpoint of mortgage originations and we are projecting
good growth in our noninterest fee income. We will continue to improve our
technology enabling us to provide more efficient, personal service to our
customers. Plans are underway in 1999 to complete the upgrade of our ATM
systems and to automate all of our teller stations. Later in the year we will
explore a number of innovative services, such as on-line internet banking.
We will continue to
improve our technology
enabling us to provide
more efficient, personal
service to our customers.
9
Page 22
<PAGE> 10
I would be remiss if I did not mention the solid corps of key employees and
managers who share the long-established people-first values of our bank. Five
of our officers who were promoted in 1998, pictured below, are just a few of
the folks we rely on daily to keep our bank vital, personal and
up-to-the-minute.
As we reflect on this past year and look ahead to the future, let us never
forget that we are in the "people" business. We feel that we can say with pride
and assurance that Bank of Granite delivers the best customer service in our
market area. We understand that our business is a human endeavor based upon the
quality of personal relationships. To our loyal customers, to the employees
whose hard work and positive attitudes inspire us every day, and to our
Directors who help guide our course toward the new millennium, we extend our
profound and sincere gratitude. We look forward to your continued support and
friendship.
JOHN A. FORLINES, JR. CHARLES M. SNIPES
Chairman & Chief President
Executive Officer
February 10, 1999 February 10, 1999
We can say with pride Bank of Granite delivers the best customer service in our
market area.
[Photo]
[Photo caption]
Officers receiving
promotions in August,
1998 from left to right:
Rahn Chase,
Assistant Vice President
Diane Cannoles,
Assistant Vice President
Teresa Martin,
Assistant Vice President
Ben Davis,
Senior Vice President
Sheila Taylor,
Vice President
10
Page 23
<PAGE> 11
We're about people. Service. Success.
A Player in Our Communities
Community involvement is part of every bank employee's job description. Year
after year we report record contributions to the March of Dimes -- this year
more than $17,500. Our work in the community starts at the top: Chairman John
Forlines heads tha annual Hospice fund drive, which in 1998 netted upwards of
$80,000. President and CEO Charles Snipes was recognized as a Distinguished
Citizen by the March of Dimes and cited by the National Society of Fund Raising
Executives for his ambitious efforts in western North Carolina. United Way, the
community colleges, Communities in Schools and partnership schools have come to
rely on volunteers from each of our local offices. We gladly nurture a corporate
environment that encourages and allows all of our employees to act as good
citizens.
"The Bank's Associate of the Year Award is just one of the ways Bank of Granite
impacts our school system. By recognizing a nonteaching support staff member
each year, not only does the Bank show its respect and regard for non-teaching
staff, but raises the bar for those employed with the school system. This Bank
is changing lives."
Dr. Tom McNeel, Superintendent of Caldwell County Schools
[Photo]
[Photo caption]
Associate of the Year
Charmion S. Frizell, a
teacher assistant at Baton
Elementary, with Tom
McNeel, superintendent of
Caldwell County Schools.
Service With a Smile
Our most valued asset is our people and, in this competitive market, we are
proud to have employees that repeatedly rank tops in customer service and
dedication. We continue to invest heavily in concentrated training programs both
for newcomers and long-term employees. This year we initiated a "mystery
shopper" program which ensures improved service over the course of the year
while rewarding those, like Nancy Summey (pictured at right), who go the extra
mile. Finally, we have made a concerted effort to expand our corps of key
management employees who will assume increasingly important roles in the Bank's
future.
"It is always difficult to single out one employee from such a rich pool of
talent, but Nancy distinguishes herself in every way. Her eagerness to help, to
get the hard jobs done, sets an example for us all." John Forlines, Bank of
Granite Chairman
[Photo]
[Photo caption]
Nancy Summey,
"Distinguished Service
Award" winner.
11
Page 24
<PAGE> 12
Expanding Services, Market Share and Support
Grand openings at new offices in Mt. View and within the Honey's Grocery in
rural Vale drew enthusiastic crowds in March and May, respectively, and business
has been robust in both offices from day one. We have discovered in-store
banking is an entirely different animal and have successfully adjusted our
marketing efforts in the grocery outlets.
New technology has allowed us to utilize our customer data-base for highly
targeted direct mail promotion of individual products such as our Lifestyle 50
checking account and IRAs. Our customer service representatives have received
rigorous sales training and have enthusiastically learned to be successful
salespeople for our expanding product line.
[Photo]
[Photo caption]
"Hickory is one of the
fastest growing MSAs in
the nation. As a developer
in a competitive market, I
have to move quickly.
Bank of Granite is right
there with me. All it takes
is a phone call."
Guy Long
LA Properties
The Bank continues its aggressive support of small business and, because of our
ability to process loan requests without the Big Bank red tape, local
businesses turn repeatedly to the "hometown bank" for support and assistance.
Our fourteen offices span one of the fastest Metropolitan Statistical Areas in
the nation. It is no surprise we made SBA loans in excess of $5,000,000 in the
past fiscal year and have been responsible for 83% of the SBA 504 Program loans
generated in our region since 1983.
In addition to our community involvement, customer service and focus on
developing new business, Bank of Granite was also recognized as an industry
leader. US Banker Magazine once again named the Bank the best performing bank
in America among the top 200 midsized banks. Celebrated investor Warren Buffett
applauded the Bank's profitability. The Bank earned KPMG Peat Marwick's 1998
Project Excellence Award and received the Blue Ribbon designation by Veribanc,
Inc., an independent bank research, analysis and rating firm.
12
Page 25
<PAGE> 13
Board of Directors
Board of Directors Directors Emeriti
John N. Bray Robert E. Cline
President President
Vanguard Furniture Co., Inc. Cline Realty Co., Inc.
Paul M. Fleetwood, III Robert A. Gibbons
President & Owner Retired Electrical Contractor
Corporate Management Gibbons Electrical Co.
Services, Inc.
Myron L. Moore, Jr.
John A. Forlines, Jr. Treasurer
Chairman Lenoir Mirror Co.
Bank of Granite
Chairman & CEO Floyd C. Wilson
Bank of Granite Corporation Partner
Wilson-Abernethy
Barbara F. Freiman Hardware Co.
Executive Director
Foundation of Caldwell Corporation Officers
Community College and John A. Forlines, Jr.
Technical Institute Chairman & CEO
Hugh R. Gaither Charles M. Snipes
President & CEO President
Ridgeview, Inc.
Kirby A. Tyndall
Charles M. Snipes Secretary/Treasurer
President & CEO
Bank of Granite Melodie R. Mathes
President Assistant Secretary/Treasurer
Bank of Granite Corporation
Boyd C. Wilson, Jr.
Vice President & Controller
Kincaid Furniture Co.
[Photo of Chairman and CEO, President, and Board of
Directors and photo caption presented here]
[Photo of
Directors
Emeriti and
photo caption
presented
here]
13
Page 26
<PAGE> 14
Bank Officers
<TABLE>
<S> <C> <C>
John A. Forlines, Jr. Gary D. Prewitt Judy R. Hendrix
Chairman Vice President Assistant Vice President
Charles M. Snipes C. L. (Ruben) Sipe, Jr. W. David Keller
President & CEO Vice President Assistant Vice President
Ben L. Davis D. Mark Stephens Teresa F. Martin
Senior Vice President Vice President & Assistant Vice President
Director of Operations
Kim T. Hutchens Dan F. Stewart Trudy S. Morton
Senior Vice President & Vice President Assistant Vice President
Director of
Human Resources
John S. Gabriel, Jr. Kelly D. Stroud Clarence Lee Pugh, Jr.
Senior Vice President Vice President Assistant Vice President
Kirby A. Tyndall Sheila R. Taylor Peter W. Whitener, Jr.
Senior Vice President & Vice President Assistant Vice President
Chief Financial Officer
Wyman C. (Corky) Upchurch Diane L. Cannoles Janet H. Winkler
Senior Vice President & Assistant Vice President Assistant Vice President
Office Administrator
Donald D. McSwain T. Rahn Chase W. Bradley Chastain
Vice President Assistant Vice President Banking Officer
David L. Phillips, Jr. Pam T. Harwell Nickey H. Mathes
Vice President Assistant Vice President Auditor
Mortgage Bank Officers
Gary L. Lackey Dixie Jones
President & CEO Assistant Vice President
Ann Tucker Lisa Clayton
Senior Vice President Assistant Vice President
Ruth Veenstra Brenda Jurney
Senior Vice President Assistant Vice President
Pat Beyersdorfer Donna Newton
Senior Vice President Assistant Vice President &
Assistant Secretary
Arthur S. Newton, III Kirby Tyndall
Senior Vice President Secretary & Treasurer
Ginger Nelson Charles Snipes
Senior Vice President & Chairman
Assistant Treasurer
Natalie Dillard
Vice President
</TABLE>
[Photo of GLL President
& CEO presented here]
14
Page 27
<PAGE> 15
Local Boards of Directors
<TABLE>
<S> <C> <C>
Granite Falls
Rudy L. Snow* Barry Hayes Trudy S. Morton
Senior Pharmaceutical Owner, Hayes & Co. Assistant Vice President
Sales Specialist Bank of Granite
ECR Pharmaceuticals Larry L. Huffman
Pharmacist & Owner Dr. Dan N. Stallings
Claudia D. Bujold Granite Drug Center Real Estate Development
Civic & Community Leader
Michael M. Mackie Linda K. Story
Dr. T. Eugene Carpenter Vice President & Town Manager
Career Center Coordinator General Manager Granite Falls
Caldwell County Mackie Furniture Co.
Career Center Mary Frances B. Sullivan
Civic & Community Leader
Hickory
Landon B. Lane, Jr.* Betsey M. Haymond David H. Sain
Private Investor Realtor, Prudential Hickor Retired Area General Manager
Metro Real Estate Lowe's Companies, Inc.
J. Steve Brackett
Attorney Frances R. Hilton Wyman C. (Corky) Upchurch
Rudisill & Brackett, P.A. President & Owner Senior Vice President
Chapter One Booksellers, L Bank of Granite
Lee G. Brown
President James L. Houston, Jr. Reverend E. B. Wilkerson, Sr.
LB Enterprises, Inc. Retired Senior Vice President Minister
Wheat First Butcher Singer Friendship Baptist Church
Forest M. Gaines
President Dr. J. Ward Kurad Rosemary Bass Young
Gaines Motor Lines President President
Vantage SeniorCare Service Bass-Smith Funeral Home
Kathryn T. Greathouse
Partner Steve M. Mull
Greathouse Construction Co Owner & Operator
Fresh Air Galaxy/Viewmont
Hudson
W. Barry Spicer* Judy R. Hendrix Bryce H. Sherrill
Corporate Risk Manager, Assistant Vice President Retired Vice President
Hickory Springs Bank of Granite Bank of Granite
Manufacturing
Carolyn A. Icard Tommy Sherrill
James K. Hawkins Literacy Specialist Retired Building Contractor
Owner & Manager Burke County Schools
Western Electronics Co. Tim R. Sigmon
William M. Lovelace, Jr. Manager
Dr. Allen R. Hefner Retired President Sigmon's Fashions, Inc.
Dentist Hudson Drug Co.
J. C. Sullivan
Jimmy D. Hemphill Dr. Paul Moss President,
Assistant to the President Retired Physician Bost Lumber Co.
Caldwell Community College
</TABLE>
*Denotes Chairman of Local Board
[Photo of local director
presented here]
15
Page 28
<PAGE> 16
Local Boards of Directors
<TABLE>
<S> <C> <C>
Lenoir
Margaret (Peg) Broyhill* Dr. F. Ted Holcher W. David Keller
Branch Manager Dentist Assistant Vice President
First Vice President/ Bank of Granite
Investments Clarence A. Holden
Interstate/Johnson Lane Retired Furniture Executive Dr. Donald W. Lackey
Retired Veterinarian
Helen P. Hall B. Stephen Huntley
Personnel Director Partner, Joan G. Rogers
Caldwell County Schools Huntley, Sigmon, Civic & Community Leader
Walton & Wilson CPAs
Leslie D. Hines, Jr. Scott R. Ross
President Douglas W. Johnson Vice President &
Histrand Chemicals, Inc. Chief Executive Officer General Manager,
Blue Ridge Electric Autumn House, Inc.
Membership Corporation
Morganton
Dr. Alfred W. Hamer, Jr.* Sharon S. Marlow Gary D. Prewitt
Obstetrician/Gynecologist Owner & Managing Broker Vice President
Sharon Marlow Realty Bank of Granite
Daniel A. Boggs
Partner, Robert T. McGimsey Peggy M. Saunders
Bowman, Boggs & Crump Certified Public Accountant Attorney,
CPAs Byrd, Byrd, Ervin, Whisnant,
W. F. (Mac) McIntosh McMahon & Ervin, P.A.
Frank G. Bowers Retired Educator
Owner Burke County Public Schools
Bowers Insurance Agency
Newton/Eastern Catawba
Bob J. McCreary* R. Gary Corne David B. Radke
President & Owner Attorney President
McCreary Modern, Inc. Corne, Pitts, Corne & Grant InterContinental Corp.
Larry A. Bowman Carolyn V. Isenhower C. Leon Robinson
President & CEO Civic & Community Leader President
Prodelin Corporation Robinson Builders Mart
Jerry T. Hodge
George W. Clark Publisher Sybil B. Stewart
President & CEO Observer News Enterprise Civic & Community Leader
Catawba Sox, Inc.
David L. Phillips, Jr. Dr. Gerald F. Wooten
Vice President Optometrist
Bank of Granite
</TABLE>
*Denotes Chairman of Local Board
[Photo of Jerry T. Hodge]
16
Page 29
<PAGE> 17
Financial Overview
RETURNS REMAIN STRONG
In 1998, Bank of Granite Corporation (the "Company") produced strong earnings
despite a significant third quarter loan charge that ended the Company's record
of successive earnings increases. Even with this loan charge of $1,882,995
after tax, the Company managed to return 2.39% on assets and 13.35% on equity,
though 1998 net income decreased 6.8% to $13,448,435. Diluted earnings per
share declined 7.1% to $1.17 from $1.26 in 1997. 1998 marked the 13th
consecutive year of returns on assets in excess of 2%.
Earnings in 1998 were the second best in the Company's history, although 1998
did bring a number of other "first's" for the Company. In the fourth quarter,
total assets exceeded $600 million for the first time. The Company also posted
record levels of loans and deposits during the fourth quarter.
Factors that significantly effected 1998 earnings:
* GLL & Associates posted record 1998 earnings 29% higher than in 1997
* Net interest income increased $2,932,909 or 10.3%
* Interest-earning assets grew 17.2%, supported by a 10.6% growth in deposits
* Noninterest income increased $553,369 or 6.8%
* Operating efficiency ratio of 37.7%, believed to be among the
best in the United States banking industry
GLL POSTS 1998 INCREASE OF 29%
GLL & Associates, Inc. ("GLL"), the Company's mortgage banking subsidiary,
earned $1,025,273 in 1998, a 29% increase over 1997. A combination of a
favorable interest rate environment and new mortgage production offices in the
communities of Salisbury, Newton and Lenoir accounted for the increase. GLL
specializes in FHA and VA mortgages, originating a significant share of such
mortgages in its home market. GLL plans to continue its expansion into its
service area which now includes the Catawba Valley in addition to the Central
and Southern Piedmont regions of North Carolina. GLL also plans to expand its
relationships to originate mortgages for other community banks.
NET INTEREST INCOME INCREASED 10.3% PERCENT
1998 net interest income increased $2,932,909, or 10.3%, compared to 1997.
Interest income grew $3,549,237, or 8.1%, resulting primarily from growth in
average interest-earning assets. Interest expense increased $616,328, or 4%,
which was attributable
13TH
CONSECUTIVE
YEAR OF
RETURNS ON
ASSETS IN
EXCESS OF 2%
[Bar chart of
Return on
Assets
1994 - 1998
presented here]
17
Page 30
<PAGE> 18
to growth in average interest-bearing liabilities. Bank of Granite (the
"Bank's") balance sheet remains moderately asset-sensitive because of its high
level of variable rate loans. "Asset-sensitive" means that when interest rates
in the overall economy change, rates on the Bank's loans change more quickly
than the rates on its deposits. Therefore, when rates rise, the Bank's
interest income rises at a faster pace than the interest expense it pays on
its deposits and other borrowings. Likewise, when rates fall, the Bank's
interest income on loans declines at a faster pace than the interest it pays
on deposits and other borrowings. For 1999, the Company anticipates operating
in a relatively stable interest rate environment in which market rates may
fall further. A continued slowing in loan demand is also expected in 1999 in
the Bank's highly competitive market. As a result, net interest margins are
expected to tighten at least initially until funding rate decreases catch up
with asset rate decreases. However, the Company does have other services that
normally perform well when rates fall, such as mortgage originations and sales
of annuity products.
[Bar chart of
Noninterest
Income
Components
1994 - 1998
presented here]
1998 BROUGHT HIGHER BALANCE SHEET GROWTH
Assets grew 14.6% in 1998 to end the year at a record $606,175,042.
Interest-earning assets rose 17.2%, comprising 94.6% of 1998 ending assets
compared to 92.5% at the end of 1997. The loan growth of 7.8% was primarily
experienced by GLL's mortgages in process, which accounted for 7% of the loan
growth. The Bank's loan growth was less than 1%, indicative of a slowing loan
demand in a more highly competitive market. Because of the low loan growth, the
rise in interest-earning assets was mostly reflected in the levels of
investments in securities and overnight funds. The asset growth was supported
by a 15.5% increase in deposits and other short-term borrowings. As stated
above, the Bank anticipates continued low loan demand in 1999.
NONINTEREST
INCOME GREW 6.8%
NONINTEREST INCOME GREW 6.8%
New and additional sources of noninterest income remained a high priority in
1998. In recent years, nontraditional banking services, such as fees from the
origination of mortgage loans, sales of the guaranteed portions of small
business administration loans, and sales of annuities and life insurance
continued to grow in importance to the Company's product lines. Unlike
traditional banking services, these nontraditional sources of income bring
greater volatility to earnings. For example, mortgage origination and annuity
sales activity may increase significantly when interest rates decline. Although
noninterest income posted an increase of 6.8% in 1998, the growth was 15.4% if
1997's nonrecurring gains on sales of mortgage servicing were excluded. Income
from nontraditional banking services grew 23% in 1998 to $4,080,070 and
accounted for 47.1% of all noninterest income. Noninterest income in 1997
included $601,135 in nonrecurring gains from the sale by GLL of mortgage
servicing rights.
18
Page 31
<PAGE> 19
If, as anticipated, interest rates remain flat or decline slightly in 1999,
demand for mortgage loans, small business loans and annuity products may
strengthen. Service charges on deposit accounts should grow somewhat relative
to deposit growth.
EFFICIENCY
RATIO
BELIEVED TO
BE AMONG
THE BEST
EFFICIENCY RATIO BELIEVED TO BE AMONG THE BEST
The growth in fee income largely results from receiving value for services
provided. Costs are usually incurred to provide such services. Although
noninterest expenses increased 12.2% in 1998, the Company still achieved a
37.7% efficiency ratio, which is believed to be among the best in the country.
Expressed another way, the Company spends 37.7 cents for every dollar of
taxable-equivalent net interest and other revenues earned. In 1998, costs were
incurred for two new banking offices and three new mortgage origination
offices. 1997 expenses included nonrecurring merger-related costs of $405,678.
In 1999, growth in operating expenses remains likely as investments continue in
technology and Ratio alternative delivery systems, new offices and new or
expanded services to generate fee income. Over the next year, significant]
resources, primarily time resources, are committed to continue the Company's
preparation for the year 2000. The Bank will begin to automate its teller
stations, complete upgrades to its ATM network, and explore innovative ways,
such as internet banking, in which to serve both existing and future customers.
As in the past, investments will be evaluated relative to the value they are
anticipated to generate.
[Bar chart of
Efficiency
1994 - 1998
presented here
ASSET QUALITY
In 1998 and 1997, both the furniture and hosiery manufacturing industries
experienced economically challenging periods. Furniture and hosiery
manufacturing are important industries to the Bank's Catawba Valley market
area. Although commercial and consumer loans past-due and in bankruptcy
remained higher throughout 1998 and 1997 than previous historical levels, they
were slightly lower at the end of 1998 than they were at the end of 1997.
Nonperforming assets totaled $3,884,082, or 0.64% of assets, at the end of
1998. The Bank's credit administration and collections departments continue to
monitor problem loans in an effort to minimize losses and delinquencies. Net
loans charged-off increased to $4,904,732 in 1998 primarily due to the
$3,687,842 charge-off related to the loan charge announced in the third quarter
of 1998. During 1998, the Bank continued to provide loan loss reserves, ending
the year with reserves of $4,619,586, or 1.21% of net loans outstanding. At
year-end 1998, the allowance for loan losses covered 129% of nonperforming
loans.
The Bank anticipates little change in asset quality in 1999, assuming an
economic climate similar to 1998. The Bank plans to make prudent additions to
its loan loss reserves and to sustain its emphasis on conservative lending
practices.
19
Page 32
<PAGE> 20
PREPARING FOR THE YEAR 2000
All levels of the Company's management and its Board of Directors are aware of
the technology challenges presented by the Year 2000 century change and, if
neglected, the potentially serious effects on the technologies of the Company
and its customers. The Company has an active Year 2000 project team under the
guidance of an independent technology consulting firm. The Company's Year 2000
readiness plan includes steps to (1) identify, assess, evaluate, test and
validate its own date-sensitive systems, including the development of
contingency and remediation plans, (2) amend its loan underwriting policies to
include assessments, as appropriate, regarding Year 2000 readiness by
commercial loan customers, (3) offer education to customers regarding Year 2000
issues in their own lives and businesses, and (4) inform the Company's
customers as to the Company's Year 2000 compliance process. Although the
Company relies entirely upon outside vendors for its computer software,
hardware and its security and environmental equipment, all of the Company's
systems identified as being date-sensitive are being or will be evaluated for
Year 2000 compliance.
During 1998, the Company substantially completed the successful testing of its
significant systems identified as "mission critical critical to conducting its
day-to-day banking businesses. The term "systems" includes both hardware and
software. Examples of the mission critical hardware systems identified and
successfully tested include mainframe computers, imaging and item processing
equipment, personal computers, network file servers, automated teller machines
or ATM's and security systems. Examples of the mission critical software
systems (or applications) identified and successfully tested include operating
software for the mainframe and network computers, software related to loans,
deposits, general ledger, ATM network and wire transfer, and third-party
software used for various purposes. Testing of systems with lower priorities is
planned for early 1999, which should allow ample time in 1999 for validation
and follow-up. The Company is also developing contingency plans for certain
computer processes, including the use of alternative systems, the extension of
operating hours and the manual processing of certain operations.
[Bar chart of
Gross Loans
1994 - 1998
presented here]
To inform and educate customers about the status of its Year 2000 readiness,
the Company hosted two Year 2000 seminars in March 1998 and two additional
seminars in February 1999. The seminars provide an opportunity not only for the
Company to share information about its Year 2000 readiness, but also to share
general information about the banking industry and ideas to help customers in
their efforts to make their businesses ready for the Year 2000. In 1998, the
Bank mailed its deposit customers a summary of its Year 2000 readiness status.
20
Page 33
<PAGE> 21
The Bank also posted this summary in its office lobbies and on its internet web
site. The Bank plans to provide similar updates during 1999.
Also during 1998, the Bank made progress in its assessments of the Year 2000
readiness of its significant commercial loan customers. These assessments will
continue to be performed and monitored throughout 1999. The Bank includes these
assessments as a part of its analysis of the adequacy of its loan loss reserves
and may determine that additional reserves in 1999 are prudent based upon
changes in these assessments.
During 1998, the Company spent approximately $86,000 on its Year 2000
preparations, of which approximately $22,000 were capitalized new equipment and
software and approximately $64,000 were expensed against 1998 earnings. The
Company estimates that its total costs of Year 2000 compliance will be
approximately $125,000 to $175,000, of which an estimated $37,000 will be
capitalized in 1999 and an estimated $28,000 will be charged to operations in
1999. In providing these amounts, the Company has excluded the technology
upgrade costs that were planned in the normal course of business and not
necessarily in response to its Year 2000 compliance plan. For example, the
Company's routine technology upgrades for 1997, 1998 and 1999 included a new
imaging system to replace its aging item processing system, new ATM's and
personal computer file servers throughout those respective networks, a new
teller automation system throughout its offices, and numerous personal computer
hardware and software systems previously scheduled for replacement. The Company
routinely makes investments in technology in its efforts to improve customer
service and to efficiently manage its product and service delivery systems.
[Bar chart of
Earnings
Retained
versus
Dividends
Paid
1994 - 1998
presented here]
A WORD ABOUT YEAR 2000 READINESS DISCLOSURES
AND FORWARD LOOKING STATEMENTS
The discussions presented in this annual report contain year 2000 readiness
disclosures within the meaning of the Year 2000 Information and Readiness
Disclosure Act of 1998 and forward looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. For this purpose, any
statements that are not statements of historical fact may be deemed to be
forward looking statements. The accuracy of such year 2000 readiness
disclosures and forward looking statements could be affected by such factors
as, including but not limited to, the financial success or changing strategies
of the Company's customers or vendors, actions of government regulators, or
general economic conditions.
21
Page 34
<PAGE> 22
SELECTED FINANCIAL DATA
Bank of Granite Corporation and Subsidiaries
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------------------------------
1998 (2) 1997 (2)(3) 1996 (2) 1995 (2) 1994 (2)
<S> <C> <C> <C> <C> <C>
Interest income $ 47,577,091 $ 44,027,854 $ 40,664,063 $ 38,264,504 $ 31,783,764
Interest expense 16,075,876 15,459,548 15,133,509 13,998,536 10,225,632
----------------------------------------------------------------------------
Net interest income 31,501,215 28,568,306 25,530,554 24,265,968 21,558,132
Provision for loan losses 4,321,740 1,175,000 820,000 1,117,000 704,000
----------------------------------------------------------------------------
Net interest income after
provision for loan losses 27,179,475 27,393,306 24,710,554 23,148,968 20,854,132
Other income 8,663,553 8,110,184 7,239,670 6,145,112 6,712,147
Other expense 15,835,804 14,119,050 12,363,995 11,650,576 12,711,683
----------------------------------------------------------------------------
Income before income taxes 20,007,224 21,384,440 19,586,229 17,643,504 14,854,596
Income taxes 6,558,789 6,953,253 6,220,357 5,598,532 4,622,525
----------------------------------------------------------------------------
Net income $ 13,448,435 $ 14,431,187 $ 13,365,872 $ 12,044,972 $ 10,232,071
----------------------------------------------------------------------------
Per share (1)
Net income
Basic $ 1.17 $ 1.26 $ 1.17 $ 1.06 $ 0.91
Diluted $ 1.17 $ 1.26 $ 1.17 $ 1.06 $ 0.90
----------------------------------------------------------------------------
Cash dividends $ 0.34 $ 0.30 $ 0.28 $ 0.23 $ 0.20
----------------------------------------------------------------------------
Book value $ 9.20 $ 8.33 $ 7.37 $ 6.55 $ 5.64
----------------------------------------------------------------------------
Share price (1)
High $ 47.00 $ 26.80 $ 26.40 $ 15.47 $ 15.47
Low $ 24.00 $ 21.70 $ 14.67 $ 12.80 $ 12.16
Close $ 27.63 $ 24.60 $ 23.20 $ 15.47 $ 13.33
----------------------------------------------------------------------------
Average shares outstanding (1)
Basic 11,461,685 11,426,660 11,381,040 11,336,521 11,292,595
Diluted 11,509,645 11,479,682 11,440,705 11,378,174 11,357,996
----------------------------------------------------------------------------
Performance ratios
Return on average assets 2.39% 2.81% 2.76% 2.70% 2.47%
Return on average equity 13.35% 16.21% 16.98% 17.42% 16.94%
Average equity to
average assets 17.90% 17.36% 16.24% 15.50% 14.56%
Dividend payout 28.97% 23.15% 22.89% 21.82% 21.87%
Efficiency ratio 37.70% 36.74% 35.94% 36.47% 42.75%
----------------------------------------------------------------------------
Balance at year end
Assets $606,175,042 $528,979,733 $498,192,379 $468,139,374 $423,098,161
Securities 149,008,531 131,109,218 128,661,064 124,283,449 112,932,093
Loans (gross) 385,590,204 357,845,513 329,744,072 312,779,662 279,942,537
Allowance for loan losses 4,619,586 5,202,578 4,793,889 4,644,725 3,996,491
Liabilities 500,733,071 433,763,010 414,173,810 393,768,044 359,313,211
Deposits 458,697,169 414,576,184 397,697,991 377,043,144 343,330,048
Shareholders' equity 105,441,971 95,216,723 84,018,569 74,371,330 63,784,950
----------------------------------------------------------------------------
Asset quality ratios
Net charge-offs
to average loans 1.31% 0.22% 0.21% 0.16% 0.12%
Nonperforming assets
to total assets 0.64% 0.51% 0.21% 0.14% 0.53%
Allowance coverage of
nonperforming loans 128.53% 198.07% 453.11% 691.18% 179.38%
</TABLE>
(1) Per share amounts and average shares outstanding reflect the 5-for-4
stock split paid May 29, 1998.
(2) All amounts reflect the November 1997 merger with GLL & Associates,
Inc. ("GLL"), which was accounted for as a pooling of interests.
(3) Nonrecurring items related to GLL: Fourth quarter 1997 - gain on sale
of mortgage servicing rights of $360,681 (after-tax) and merger
expenses of $258,162 (after-tax).
22
Page 35
<PAGE> 23
BANK OF GRANITE
CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
ASSETS:
Cash and cash equivalents:
Cash and due from banks $ 19,518,740 $ 27,707,850
Interest-bearing deposits 175,437 157,507
Federal funds sold 38,600,000 --
------------- -------------
Total cash and cash equivalents 58,294,177 27,865,357
------------- -------------
Investment securities:
Available for sale, at fair value
(amortized cost of $60,690,796 and $51,285,077
at December 31, 1998 and 1997, respectively) 61,954,639 52,072,834
Held to maturity, at amortized cost
(fair value of $89,541,513 and $80,733,959
at December 31, 1998 and 1997, respectively) 87,053,892 79,036,384
Loans 385,590,204 357,845,513
Allowance for loan losses (4,619,586) (5,202,578)
------------- -------------
Net loans 380,970,618 352,642,935
------------- -------------
Premises and equipment, net 10,095,628 9,583,429
Accrued interest receivable 5,104,174 4,972,654
Other assets 2,701,914 2,806,140
------------- -------------
TOTAL $ 606,175,042 $ 528,979,733
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Demand $ 91,967,287 $ 80,637,746
NOW accounts 69,804,107 62,792,730
Money market accounts 29,970,288 25,697,397
Savings 23,904,317 23,848,043
Time deposits of $100,000 or more 92,103,176 92,588,469
Other time deposits 150,947,994 129,011,799
------------- -------------
Total deposits 458,697,169 414,576,184
Federal funds purchased and
securities sold under agreements to repurchase 1,538,350 8,882,016
Other borrowings 36,357,016 6,287,700
Accrued interest payable 2,220,988 2,138,430
Other liabilities 1,919,548 1,878,680
------------- -------------
Total liabilities 500,733,071 433,763,010
------------- -------------
Shareholders' equity:
Common stock, $1 par value,
authorized - 25,000,000 shares;
issued and outstanding - 11,464,913 shares in 1998 and
9,146,272 shares in 1997 11,464,913 9,146,272
Capital surplus 22,615,559 22,234,753
Retained earnings 70,601,642 63,362,060
Accumulated other comprehensive income,
net of deferred income taxes 759,857 473,638
------------- -------------
Total shareholders' equity 105,441,971 95,216,723
------------- -------------
TOTAL $ 606,175,042 $ 528,979,733
============= =============
</TABLE>
23
Page 36
<PAGE> 24
BANK OF GRANITE
CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
For the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 (2) 1997 (2)(3) 1996 (2)
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 38,894,447 $ 36,246,226 $ 33,006,697
Federal funds sold 950,669 197,939 312,516
Interest-bearing deposits 12,652 10,766 6,732
Investments:
U.S. Treasury 1,095,055 1,208,692 1,144,098
U.S. Government agencies 2,384,251 2,200,475 2,442,745
States and political subdivisions 3,414,134 3,253,315 3,022,204
Other 825,883 910,441 729,071
----------------------------------------------------
Total interest income 47,577,091 44,027,854 40,664,063
INTEREST EXPENSE:
Time deposits of $100,000 or more 5,247,018 5,132,118 4,973,875
Other time and savings deposits 9,771,008 9,465,803 9,192,464
Federal funds purchased and securities
sold under agreements to repurchase 183,525 217,916 188,176
Other borrowed funds 874,325 643,711 778,994
----------------------------------------------------
Total interest expense 16,075,876 15,459,548 15,133,509
----------------------------------------------------
NET INTEREST INCOME 31,501,215 28,568,306 25,530,554
PROVISION FOR LOAN LOSSES 4,321,740 1,175,000 820,000
----------------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 27,179,475 27,393,306 24,710,554
OTHER INCOME: ----------------------------------------------------
Service charges on deposit accounts 3,552,422 3,273,187 3,107,378
Other service fees and commissions 4,359,295 3,690,047 3,296,063
Securities gains 1,733 3,695 174,086
Other 750,103 1,143,255 662,143
----------------------------------------------------
Total other income 8,663,553 8,110,184 7,239,670
----------------------------------------------------
OTHER EXPENSES:
Salaries and wages 8,181,895 6,916,428 6,231,710
Employee benefits 1,261,228 1,344,946 1,273,246
Occupancy expense, net 756,656 603,298 610,683
Equipment rentals, depreciation,
and maintenance 1,407,846 1,187,293 1,050,971
Other 4,228,179 4,067,085 3,197,385
----------------------------------------------------
Total other expenses 15,835,804 14,119,050 12,363,995
----------------------------------------------------
INCOME BEFORE INCOME TAXES 20,007,224 21,384,440 19,586,229
INCOME TAXES 6,558,789 6,953,253 6,220,357
----------------------------------------------------
NET INCOME $ 13,448,435 $ 14,431,187 $ 13,365,872
----------------------------------------------------
PER SHARE AMOUNTS (1):
Net income
Basic $ 1.17 $ 1.26 $ 1.17
Diluted $ 1.17 $ 1.26 $ 1.17
Cash dividends $ 0.34 $ 0.30 $ 0.28
</TABLE>
(1) Per share amounts and average shares outstanding reflect the 5-for-4
stock split paid May 29, 1998.
(2) All amounts reflect the November 1997 merger with GLL & Associates,
Inc. ("GLL"), which was accounted for as a pooling of interests.
(3) Nonrecurring items related to GLL: Fourth quarter 1997 - gain on sale
of mortgage servicing rights of $360,681 (after-tax) and merger
expenses of $258,162 (after-tax).
24
Page 37
<PAGE> 25
QUARTERLY FINANCIAL SUMMARY
Unaudited
<TABLE>
<CAPTION>
1998 (2) Quarter 1 Quarter 2 Quarter 3 Quarter 4
<S> <C> <C> <C> <C>
Interest income $11,544,983 $ 11,977,498 $ 11,976,777 $ 12,077,833
Interest expense 3,818,347 3,935,563 4,075,771 4,246,195
--------------------------------------------------------
Net interest income 7,726,636 8,041,935 7,901,006 7,831,638
Provision for loan losses 333,410 313,410 3,361,510 313,410
--------------------------------------------------------
Net interest income after
provision for loan losses 7,393,226 7,728,525 4,539,496 7,518,228
Other income 1,995,117 2,255,538 2,121,845 2,291,053
Other expense 3,829,261 4,126,602 3,879,601 4,000,340
--------------------------------------------------------
Income before income taxes 5,559,082 5,857,461 2,781,740 5,808,941
Income taxes 1,845,741 1,963,425 817,829 1,931,794
--------------------------------------------------------
Net income $ 3,713,341 $ 3,894,036 1,963,911 $ 3,877,147
========================================================
Net income per share (1)
Basic $ 0.32 $ 0.34 $ 0.17 $ 0.34
Diluted $ 0.32 $ 0.34 $ 0.17 $ 0.34
Average shares outstanding (1)
Basic 11,453,219 11,462,915 11,464,756 11,432,700
Diluted 11,495,468 11,514,906 11,514,903 11,488,753
1997 (2) Quarter 1 Quarter 2 Quarter 3 Quarter 4 (3)
Interest income $10,361,843 $ 11,033,537 $ 11,319,840 $ 11,312,634
Interest expense 3,662,081 3,840,653 3,990,624 3,966,190
--------------------------------------------------------
Net interest income 6,699,762 7,192,884 7,329,216 7,346,444
Provision for loan losses 255,000 320,000 300,000 300,000
--------------------------------------------------------
Net interest income after
provision for loan losses 6,444,762 6,872,884 7,029,216 7,046,444
Other income 1,781,254 1,759,434 1,847,100 2,722,396
Other expense 3,127,528 3,489,025 3,656,814 3,845,683
--------------------------------------------------------
Income before income taxes 5,098,488 5,143,293 5,219,502 5,923,157
Income taxes 1,728,758 1,558,410 1,580,380 2,085,705
--------------------------------------------------------
Net income $ 3,369,730 $ 3,584,883 $ 3,639,122 $ 3,837,452
========================================================
Net income per share (1)
Basic $ 0.30 $ 0.31 $ 0.32 $ 0.34
Diluted $ 0.29 $ 0.31 $ 0.32 $ 0.33
Average shares outstanding (1)
Basic 11,412,144 11,425,408 11,431,506 11,432,846
Diluted 11,502,511 11,480,353 11,484,888 11,486,341
</TABLE>
(1) Per share amounts and average shares outstanding reflect the 5-for-4
stock split paid May 29, 1998.
(2) All amounts reflect the November 1997 merger with GLL & Associates,
Inc. ("GLL"), which was accounted for as a pooling of interests.
(3) Nonrecurring items related to GLL: Fourth quarter 1997 - gain on sale
of mortgage servicing rights of $360,681 (after-tax) and merger
expenses of $258,162 (after-tax).
25
Page 38
<PAGE> 26
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Bank of Granite Corporation:
We have audited the consolidated balance sheets of Bank of Granite Corporation
and its subsidiaries (the "Company") as of December 31, 1998 and 1997, and the
related consolidated statements of income, comprehensive income, changes in
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1998. Such consolidated financial statements and our report
thereon dated January 22, 1999, expressing an unqualified opinion (which are not
included herein) are included in the proxy statement for the 1999 annual meeting
of shareholders. The accompanying consolidated balance sheets and consolidated
statements of income as set forth on pages 23 and 24 are the responsibility of
the Company's management. Our responsibility is to express an opinion on such
consolidated balance sheets and consolidated statements of income in relation to
the complete consolidated financial statements.
In our opinion, the information set forth on pages 23 and 24 in the accompanying
consolidated balance sheets as of December 31, 1998 and 1997 and the related
consolidated statements of income for each of the three years in the period
ended December 31, 1998 is fairly stated in all material respects in relation to
the basic consolidated financial statements from which it has been derived.
DELOITTE & TOUCHE LLP
Hickory, North Carolina
January 22, 1999
SHAREHOLDER INFORMATION
Common Stock
Bank of Granite Corporation's common stock trades on the NASDAQ National Market
System, where the symbol is GRAN. Price and volume information is contained in
the Wall Street Journal and most major daily newspapers in the Nasdaq section
under the National Market System listing.
Annual Meeting
The Annual Meeting of the shareholders of the Bank of Granite Corporation will
be held at 10:30 am, Monday, April 26, 1999, at the Holiday Inn, 1385 Lenoir
Rhyne Boulevard Southeast, Hickory, North Carolina (located off Interstate 40
at Exit 125).
Equal Opportunity Employer
It is the policy of Bank of Granite Corporation to treat all employees and
applicants for employment without regard to race, creed, color, national origin,
sex or age.
Copies of Form 10-K
Copies of the Bank of Granite Corporation's Annual Report to the Securities and
Exchange Commission on Form 10-K may be obtained by shareholders at no charge by
searching the "EDGAR" archives at the SEC's internet site at www.sec.gov or by
writing: Kirby A. Tyndall, Secretary/Treasurer, Bank of Granite Corporation,
Post Office Box 128, Granite Falls, North Carolina 28630. (email:
[email protected]).
Stock Transfer Agent and Registrar
Registrar and Transfer Company, 10 Commerce Drive, Cranford, New Jersey 07016
908/272-8511 or 800/368-5948
Dividend Reinvestment
Registered holders of Bank of Granite Corporation stock are eligible to
participate in the Corporation's Dividend Reinvestment Plan, a convenient and
economical way to purchase additional shares of Bank of Granite Corporation
common stock. For an informational folder and authorization form or to receive
additional information on this plan, contact Registrar and Transfer Company (see
bottom of preceding column).
Shareholder Information
For additional information, contact Melodie R. Mathes, Shareholder Relations,
Bank of Granite Corporation, Post Office Box 128, Granite Falls, North Carolina
28630, 828/496-2022.
Independent Auditors
Deloitte & Touche LLP, 200 1st Avenue NW, Post Office Box 9197, Hickory, North
Carolina 28603
Market Information
Bank of Granite serves the people and businesses of the Blue Ridge Foothills and
Catawba Valley of North Carolina, which is located approximately 70 miles
northwest of Charlotte. This region offers a remarkable quality of life, with
both scenic and cultural treasures, to over 300,000 citizens. The area is also
known as a manufacturing capital for furniture, hosiery and fiber optic
telecommunications.
26
Page 39
<PAGE> 27
[Back Cover]
[Logo of Bank of
Granite Corporation
presented here]
MEMBER FDIC
windows of opportunity every day
<TABLE>
<S> <C> <C>
MAIN OFFICE
Granite Falls Hickory/Springs Road Lenoir/Hibriten
23 North Main Street, 2220 12th Avenue NE 701 Wilkesboro Boulevard NE
P O Box 128 828/345-6888 828/757-4070
Granite Falls, NC 28630 Hickory/Viewmont Lenoir/Whitnel
828/496-2000 281 14th Avenue NE 1351 Norwood Street
www.bankofgranite.com 828/345-6868 Southwest
Hickory/Longview 828/757-4060
BANKING OFFICES 2637 1st Avenue SW Morganton
Granite Falls 828/345-6848 201 East Meeting Street
23 North Main Street Hickory/Mt. View 828/439-2151
828/496-2027 2900 Highway 127 South Newton
Granite Falls/Baton at 828/294-7000 311 North Main Avenue
Ingles Hudson 828/466-5060
2630 Connelly Springs Road 537 Main Street Vale at Honey's
828/757-8990 828/728-1850 9580 Hwy 10 West
Hickory Lenoir/Uptown 704/462-5180
25 3rd Street Northwest 707 College Avenue SW
828/345-6800 828/757-4040
MORTGAGE OFFICES
Charlotte Morganton
8210 University Executive 201 East Meeting Street
Park Drive, Suite 150-A 828/439-2170
704/549-0724 Newton
704/549-9686 Fax 311 North Main Avenue
Hickory 828/466-5060
315 First Avenue NW Salisbury
828/345-6850 315 North Main Street
828/345-6883 Fax 704/633-8007
High Point 704/633-7803 Fax
211 West Lexington Avenue Shelby (opening in March 1999)
Suite 102 215 S. Washington Street
336/887-5438 Suite 102
336/887-5489 Fax Shelby, NC 28150
Lenoir 704/471-0048
707 College Avenue SW Winston-Salem
828/757-4046 154 Charlois Boulevard
828/754-8739 Fax 336/760-4911
336/760-4915 Fax
</TABLE>
Page 40
<PAGE> 1
Exhibit 21 -- Subsidiaries of the Registrant
Bank of Granite Corporation has two subsidiaries as follows:
<TABLE>
<CAPTION>
Date of State of
Name Incorporation Incorporation
<S> <C> <C>
Bank of Granite August 2, 1906 North Carolina
GLL & Associates, Inc. June 24, 1985 North Carolina
</TABLE>
Page 41
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF BANK OF GRANITE CORPORATION FOR THE 12 MONTHS ENDED
12/31/98 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 19,518,740
<INT-BEARING-DEPOSITS> 175,437
<FED-FUNDS-SOLD> 38,600,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 61,954,639
<INVESTMENTS-CARRYING> 60,690,796
<INVESTMENTS-MARKET> 89,541,513
<LOANS> 385,590,204
<ALLOWANCE> 4,619,586
<TOTAL-ASSETS> 606,175,042
<DEPOSITS> 458,697,169
<SHORT-TERM> 37,895,366
<LIABILITIES-OTHER> 4,140,536
<LONG-TERM> 0
0
0
<COMMON> 11,464,913
<OTHER-SE> 93,977,058
<TOTAL-LIABILITIES-AND-EQUITY> 606,175,042
<INTEREST-LOAN> 38,894,447
<INTEREST-INVEST> 7,719,323
<INTEREST-OTHER> 963,321
<INTEREST-TOTAL> 47,577,091
<INTEREST-DEPOSIT> 15,018,026
<INTEREST-EXPENSE> 16,075,876
<INTEREST-INCOME-NET> 31,501,215
<LOAN-LOSSES> 4,321,740
<SECURITIES-GAINS> 1,733
<EXPENSE-OTHER> 15,835,804
<INCOME-PRETAX> 20,007,224
<INCOME-PRE-EXTRAORDINARY> 20,007,224
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,448,435
<EPS-PRIMARY> 1.17
<EPS-DILUTED> 1.17
<YIELD-ACTUAL> 6.33
<LOANS-NON> 639,041
<LOANS-PAST> 2,955,113
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,203,000
<CHARGE-OFFS> 5,088,000
<RECOVERIES> 183,000
<ALLOWANCE-CLOSE> 4,620,000
<ALLOWANCE-DOMESTIC> 4,620,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 198,000
</TABLE>
