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SECURITIES AND EXCHANGE COMMISSION

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, 2002

Commission file number 0-15956

Bank of Granite Corporation

Securities registered pursuant to Section 12(b) of the Act:   None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $1.00 par value

     Indicate by check mark 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 [  ]

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12-b-2).     Yes [X]      No [  ]

     As of March 10, 2003, 13,265,957 shares of common stock, $1 par value, were outstanding. As of June 28, 2002, the aggregate market value of voting stock held by non-affiliates was $245,665,967.

Documents Incorporated by Reference

     PART III: Definitive Proxy Statement dated March 21, 2003 as filed pursuant to Section 14 of the Securities Exchange Act of 1934 in connection with the 2003 Annual Meeting of Shareholders.

Exhibit Index begins on page 63

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FORM 10-K CROSS-REFERENCE INDEX

*  Exhibits, Financial Statement Schedules and Reports on Forms 8-K, included in or incorporated by reference into this filing were filed with the Securities and Exchange Commission. Bank of Granite Corporation provides these documents through its Internet site at www.bankofgranite.com or by mail upon request.

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PART I

ITEM 1 - BUSINESS

Bank of Granite Corporation (the “Company”) is a Delaware Corporation organized June 1, 1987 as a bank holding company. The Company 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 was acquired by the Company on November 5, 1997. The Company conducts its banking business from 13 offices located in Caldwell, Catawba, and Burke counties in North Carolina. According to the Federal Deposit Insurance Corporation (the “FDIC”), the Bank ranked 16th in assets and 14th in deposits among North Carolina commercial banks as of September 30, 2002. The Company conducts its mortgage banking business from 7 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; for a total of 13 offices. The Bank has entered into an agreement to sell its banking office in Vale, North Carolina.

The FDIC collects deposit data from insured depository institutions as of June 30 of each year.

According to June 30, 2002 data provided by the FDIC, there were 15 other commercial banks and 2 savings institutions in the Bank’s Metropolitan Statistical Area (“MSA”). As of June 30, 2002, the Bank had $531.7 million, or 13.9%, of total MSA deposits of $3.8 billion, compared with $543.9 million, or 14.9%, of total MSA deposits of $3.6 billion as of June 30, 2001.

There were 7 other commercial banks in the Bank’s Caldwell County market. As of June 30, 2002, the Bank had $243.7 million, or 33.9%, of total county deposits of $719.9 million, compared with $244.1 million, or 34.4%, of total county deposits of $709.9 million as of June 30, 2001.

According to the FDIC data, in the Bank’s Catawba County market, there were 10 other commercial banks as of June 30, 2002. The Bank had $256.9 million, or 12%, of total county deposits of $2.1 billion, compared with $267 million, or 13.4%, of total county deposits of $2 billion as of June 30, 2001.

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In the Bank’s Burke County market, there were 7 other commercial banks and 1 savings institution as of June 30, 2002 according to the FDIC. The Bank had $31.2 million, or 4.8%, of total county deposits of of $650 million, compared with $32.8 million, or 5.2%, of $634.1 million in total Burke County deposits as of June 30, 2001.

The mortgage banking business is also highly competitive, with both bank and nonbank mortgage originators. GLL conducts its mortgage banking business from 7 offices in the North Carolina cities of Winston-Salem, Hickory, High Point, Lenoir, Morganton, Newton and Salisbury.

EMPLOYEES

As of December 31, 2002, the Bank had 191 and GLL had 40 full-time equivalent employees. Each of the Bank and GLL considers 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 Company 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 a bank, unless it already owns a majority of the voting stock of the bank. Furthermore, a bank holding company must only 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 Company is not presently subject to any regulatory restrictions on dividends, the Company’s ability to pay dividends depends 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, 2002, the Bank had undivided profits of approximately $105.5 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, 2002, this ratio was 16.88% for the Bank, leaving approximately $75.2 million of the Bank’s undivided profits available for the payment of dividends.

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In an effort to achieve a measurement of capital adequacy that is more sensitive to the individual risk profiles of financial institutions, the various financial institution regulators mandate minimum capital regulations and guidelines that categorize various components of capital and types of assets and measure capital adequacy in relation to a particular institution’s relative levels of those capital components and the level of risk associated with various types of assets of that financial institution. The FDIC and the FRB statements of policy on “risk-based capital” require the Company to maintain a level of capital commensurate with the risk profile assigned to its assets in accordance with the policy statements. The capital standards call for minimum total capital of 8 percent of risk-adjusted assets. At December 31, 2002, the Company’s tier 1 ratio and total capital ratio to risk-adjusted assets was 21.1% and 22.4% respectively. The Company’s leverage ratio at December 31, 2002 was 17.5%. The Company is in compliance with all regulatory capital requirements.

The Bank is subject to supervision and regulation, of which regular bank examinations are a part, by the FDIC and the 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 banks to “insiders” of banks; (iii) require banks to keep information on loans to major shareholders and executive officers, and (iv) bar certain director 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 Company to obtain experienced and capable officers and directors, to replace presently proposed officers and directors, or to add to their number.

The Company is an “affiliate” of the Bank within the meaning of the Federal Reserve Act, which imposes restrictions on loans by the Bank to the Company and on investments by the Bank in the stock or securities of the Company, which serve as security for loans by the Bank to any borrower. The Company 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 Company 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.

The Company cannot predict what other legislation might be enacted or what other regulation might be adopted or, if enacted or adopted, the effect thereof.

EFFECTS OF GOVERNMENTAL MONETARY POLICY AND ECONOMIC CONTROLS

The Company 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 member bank borrowings, 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 them 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 Company.

AVAILABLE INFORMATION

Additional information about the Company and its business is available at the Company’s website, at www.bankofgranite.com. The Company’s filings with the Securities and Exchange Commission, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports files or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act of 1934, are available on the Company’s website under the heading “Investor Relations - SEC Filings.”

ITEM 2 - PROPERTIES

The Bank owns all of its facilities, except for the leased grocery store offices in Baton and Vale, which are listed in the table below. The Bank’s management considers its facilities well maintained and sufficiently suitable for present operations.

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*   The Bank has entered into an agreement to sell its banking office in Vale, North Carolina.

GLL leases all of its facilities which are listed below. GLL’s management considers its facilities well maintained and sufficiently suitable for present operations.

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ITEM 3 - LEGAL PROCEEDINGS

There were no significant legal proceedings as of December 31, 2002.

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 2002.

PART II

ITEM 5 - MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

The Company’s common stock, $1 par value, trades on The NASDAQ National Market^® tier of The NASDAQ Stock Market^® under the symbol 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 listings.

During 2002, the investment firms making a market in the Company’s common stock with the highest volumes of Company shares traded were Wachovia Securities, Inc., Spear, Leeds & Kellogg, Knight Securities, LP, First Union Securities, Inc. and Herzog, Heine, Geduld, LLC.

As of December 31, 2002, there were 13,333,674 shares outstanding, owned by approximately 2,400 shareholders of record and an estimated 3,100 holders of shares registered in street name or as beneficial owners. The following table presents the quarterly market sales prices and dividend information for the two years in the period ended December 31, 2002.

Quarterly Common Stock Market Price Ranges and Dividends

•     Amounts for periods prior to May 31, 2002 have been restated to reflect the 5-for-4 stock split paid May 31, 2002.

The following table sets forth information as of December 31, 2002 regarding shares of the Company’s common stock that may be issued upon exercise of options previously granted and currently outstanding options under the Company’s stock option plans, as well as the number of shares available for the grant of options that had not been granted as of that date.

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ITEM 6 — SELECTED FINANCIAL DATA

Bank of Granite Corporation and Subsidiaries