BANK OF GRANITE CORP - 10-Q Quarterly Report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(mark one)

[x]

Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2003

[ ]	Transition report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the transition period from _________________ to __________________

Commission file number 0-15956

Bank of Granite Corporation

(Exact name of registrant as specified in its charter)


Delaware		56-1550545

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


Post Office Box 128, Granite Falls, N.C. (Address of principal executive offices)		28630 (Zip Code)

(828) 496-2000

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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 Rule 12b-2 of the Exchange Act) Yes [x] No [ ]

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common stock, $1 par value
13,164,802 shares outstanding as of July 31, 2003

Exhibit Index begins on page 33

TABLE OF CONTENTS


	Item 1. Financial Statements
		Consolidated Balance Sheets
		Consolidated Statements of Income
		Consolidated Statements of Comprehensive Income
		Consolidated Statements of Changes in Shareholders’ Equity
		Consolidated Statements of Cash Flows
		Notes to Consolidated Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
Part II - Other Information
	Item 4 - Submission of Matters to a Vote of Security Holders
	Item 6 - Exhibits and Reports on Form 8-K
Signatures
Exhibit Index
Ex-31.1 Section 302 Certification of CEO
Ex-31.2 Section 302 Certification of CFO
Ex-32.1 Section 906 Certification of CEO
Ex-32.2 Section 906 Certification of CFO

Index


		Begins
		on Page

Part I - Financial Information
Item 1. Financial Statements:
	Consolidated Balance Sheets June 30, 2003 and December 31, 2002		3
	Consolidated Statements of Income Three Months Ended June 30, 2003 and 2002 And Six Months Ended June 30, 2003 and 2002		4
	Consolidated Statements of Comprehensive Income Three Months Ended June 30, 2003 and 2002 And Six Months Ended June 30, 2003 and 2002		5
	Consolidated Statements of Changes in Shareholders’ Equity Six Months Ended June 30, 2003 and 2002		6
	Consolidated Statements of Cash Flows Six Months Ended June 30, 2003 and 2002		7
	Notes to Consolidated Financial Statements		9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			13
Item 3. Quantitative and Qualitative Disclosures About Market Risk			29
Item 4. Controls and Procedures			29
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders			30
Item 6. Exhibits and Reports on Form 8-K			30
Signatures			32
Exhibit Index			33

Item 1. Financial Statements

Bank of Granite Corporation
Consolidated Balance Sheets
(unaudited)


		June 30,			December 31,
		2003			2002
Assets:
Cash and cash equivalents:
	Cash and due from banks	$	30,465,199		$	24,829,541
	Interest-bearing deposits		4,024,844			2,655,071
	Federal funds sold		15,800,000			5,900,000

Total cash and cash equivalents			50,290,043			33,384,612

Investment securities:
	Available for sale, at fair value		59,227,287			52,264,131
	Held to maturity, at amortized cost		62,061,338			72,660,165
Loans			567,301,335			533,185,315
Allowance for loan losses			(8,854,445	)		(8,834,611	)

Net loans			558,446,890			524,350,704

Mortgage loans held for sale			50,737,771			32,188,784

Premises and equipment, net			8,338,797			8,170,150
Accrued interest receivable			5,008,359			4,791,422
Investment in bank owned life insurance			9,314,246			9,106,748
Other assets			7,660,855			5,097,958

Total assets		$	811,085,586		$	742,014,674

Liabilities and shareholders’ equity:
Deposits:
	Demand accounts	$	106,011,205		$	100,281,675
	NOW accounts		93,511,668			89,142,366
	Money market accounts		108,460,320			84,874,514
	Savings accounts		26,125,859			25,793,477
	Time deposits of $100,000 or more		127,192,525			114,696,822
	Other time deposits		138,782,139			132,460,461

	Total deposits		600,083,716			547,249,315
Overnight borrowings			12,815,530			16,720,407
Other borrowings			64,609,169			45,677,313
Accrued interest payable			1,140,880			1,189,364
Other liabilities			2,396,254			3,735,433

Total liabilities			681,045,549			614,571,832

Shareholders’ equity:
Common stock, $1 par value
	Authorized - 25,000,000 shares
	Issued - 14,421,173 shares in 2003 and 14,420,986 shares in 2002
	Outstanding - 13,176,327 shares in 2003 and 13,333,674 shares in 2002		14,421,173			14,420,986
Capital surplus			20,697,237			20,694,133
Retained earnings			114,817,850			109,982,826
Accumulated other comprehensive income, net of deferred income taxes			1,495,694			995,539
Less: Cost of common stock in treasury;
	1,244,846 shares in 2003 and 1,087,312 shares in 2002		(21,391,917	)		(18,650,642	)

Total shareholders’ equity			130,040,037			127,442,842

Total liabilities and shareholders’ equity		$	811,085,586		$	742,014,674

See notes to consolidated financial statements.

Bank of Granite Corporation
Consolidated Statements of Income
(unaudited)


		Three Months				Six Months
		Ended June 30,				Ended June 30,
		2003		2002		2003		2002
Interest income:
Interest and fees from loans		$	9,069,022	$	8,623,838	$	17,872,105	$	17,139,435
Interest and fees from mortgage banking			1,621,077		782,465		2,707,227		1,673,137
Federal funds sold			38,843		—		43,781		—
Interest-bearing deposits			31,067		7,640		42,648		11,869
Investments:
	U.S. Treasury		—		28,814		—		57,732
	U.S. Government agencies		543,024		855,210		1,165,187		1,828,316
	States and political subdivisions		682,704		814,784		1,425,403		1,674,586
	Other		89,493		141,038		181,073		314,368

Total interest income			12,075,230		11,253,789		23,437,424		22,699,443

Interest expense:
Time deposits of $100,000 or more			779,327		905,998		1,515,965		1,852,300
Other deposits			1,550,100		1,553,909		2,972,250		3,178,781
Overnight borrowings			49,132		168,288		107,131		393,458
Other borrowings			295,917		75,164		465,604		176,404

Total interest expense			2,674,476		2,703,359		5,060,950		5,600,943

Net interest income			9,400,754		8,550,430		18,376,474		17,098,500
Provision for loan losses			1,148,529		1,007,249		2,284,381		1,798,284

Net interest income after provision for loan losses			8,252,225		7,543,181		16,092,093		15,300,216

Other income:
Service charges on deposit accounts			1,378,421		1,316,241		2,771,062		2,536,733
Other service charges, fees and commissions			210,107		243,848		445,273		553,343
Mortgage banking income			1,954,490		764,801		3,415,161		1,560,839
Securities gains			24,177		3,170		12,368		3,170
Other			250,060		139,876		506,596		463,972

Total other income			3,817,255		2,467,936		7,150,460		5,118,057

Other expenses:
Salaries and wages			3,486,451		2,464,305		6,359,228		4,929,779
Employee benefits			539,591		654,883		1,262,774		1,266,878
Occupancy expense, net			260,676		231,649		498,459		443,586
Equipment expense			340,952		383,757		599,221		745,835
Other			1,508,555		1,355,717		2,786,965		2,524,413

Total other expenses			6,136,225		5,090,311		11,506,647		9,910,491

Income before income taxes			5,933,255		4,920,806		11,735,906		10,507,782
Income taxes			2,014,098		1,469,271		3,979,566		3,273,908

Net income		$	3,919,157	$	3,451,535	$	7,756,340	$	7,233,874

Per share amounts:
Net income - Basic		$	0.30	$	0.25	$	0.59	$	0.53
Net income - Diluted			0.30		0.25		0.59		0.53
Cash dividends			0.11		0.10		0.22		0.19
Book value							9.87		9.32

See notes to consolidated financial statements.

Bank of Granite Corporation
Consolidated Statements of
Comprehensive Income
(unaudited)


		Three Months				Six Months
		Ended June 30,				Ended June 30,
		2003		2002		2003		2002
Net income		$	3,919,157	$	3,451,535	$	7,756,340	$	7,233,874

Items of other comprehensive income:
Items of other comprehensive income, before tax:
	Unrealized gains on securities available for sale		627,163		1,197,531		465,007		342,590
	Less: Reclassification adjustments for securities gains included in net income		24,177		3,170		12,368		3,170
	Unrealized gains on mortgages held for sale		380,013		—		380,013		—

Items of other comprehensive income, before tax			982,999		1,194,361		832,652		339,420
	Less: Change in deferred income taxes related to change in unrealized gains or losses on securities available for sale		240,442		476,249		180,493		135,340
	Less: Change in deferred income taxes related to change in unrealized gains or losses on mortgages held for sale		152,004		—		152,004		—

Other comprehensive income, net of tax			590,553		718,112		500,155		204,080

Comprehensive income		$	4,509,710	$	4,169,647	$	8,256,495	$	7,437,954

See notes to consolidated financial statements.

Bank of Granite Corporation
Consolidated Statements of Changes in
Shareholders’ Equity (unaudited)


	Six Months
	Ended June 30,
	2003			2002
Common stock, $1 par value
At beginning of period	$	14,420,986		$	11,537,515
Shares issued under incentive stock option plans		187			—
Transferred from capital surplus for shares issued due to stock splits		—			2,883,471

At end of period		14,421,173			14,420,986

Capital surplus
At beginning of period		20,694,133			23,577,604
Shares issued under incentive stock option plans		3,104			—
Transferred to common stock for shares issued due to stock splits		—			(2,883,471	)

At end of period		20,697,237			20,694,133

Retained earnings
At beginning of period		109,982,826			100,492,853
Net income		7,756,340			7,233,874
Cash dividends paid		(2,921,316	)		(2,627,342	)
Cash paid for fractional shares		—			(17,528	)

At end of period		114,817,850

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