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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, 2004
  OR
 
    
[  ]
  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.   28630
  		 
 
(Address of principal executive offices)   (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
13,440,249 shares outstanding as of July 31, 2004

Exhibit Index begins on page 37

1

 

Index

         
    Begins
    on Page
Part I — Financial Information
        
       
    3  
    4  
    5  
    6  
    7  
    9  
    14  
    32  
    32  
       
    33  
    33  
    34  
    36  
    37  

2

 

Item 1. Financial Statements

Bank of Granite Corporation

Consolidated Condensed Balance Sheets
(unaudited)

                 
    June 30,   December 31,
    2004   2003
Assets:
                
Cash and cash equivalents:
                
Cash and due from banks
   $ 29,666,913     $ 29,492,515  
Interest-bearing deposits
     5,013,700       4,103,319  
 
    
 		      
 		  
Total cash and cash equivalents
     34,680,613       33,595,834  
 
    
 		      
 		  
Investment securities:
                
Available for sale, at fair value
     104,288,977       97,666,795  
Held to maturity, at amortized cost
     51,582,778       61,769,566  
Loans
     740,931,727       715,844,632  
Allowance for loan losses
     (11,863,502 )     (10,798,897 )
 
    
 		      
 		  
Net loans
     729,068,225       705,045,735  
 
    
 		      
 		  
Mortgage loans held for sale
     20,820,881       23,092,846  
 
    
 		      
 		  
Premises and equipment, net
     12,382,263       12,218,566  
Accrued interest receivable
     5,890,730       5,620,834  
Investment in bank owned life insurance
     14,967,964       13,360,278  
Intangible assets
     11,362,816       11,420,092  
Other assets
     8,939,912       7,592,181  
 
    
 		      
 		  
Total assets
   $ 993,985,159     $ 971,382,727  
 
    
 		      
 		  
Liabilities and shareholders’ equity:
                
Deposits:
                
Demand accounts
   $ 126,697,710     $ 136,978,161  
NOW accounts
     116,580,334       102,932,609  
Money market accounts
     153,607,117       135,045,811  
Savings accounts
     27,408,803       25,977,333  
Time deposits of $100,000 or more
     154,029,581       160,780,970  
Other time deposits
     166,217,006       173,384,471  
 
    
 		      
 		  
Total deposits
     744,540,551       735,099,355  
Overnight borrowings
     38,873,346       25,205,171  
Other borrowings
     65,541,545       65,294,540  
Accrued interest payable
     1,142,296       1,296,539  
Other liabilities
     3,810,376       2,672,023  
 
    
 		      
 		  
Total liabilities
     853,908,114       829,567,628  
 
    
 		      
 		  
Shareholders’ equity:
                
Common stock, $1 par value
                
Authorized - 25,000,000 shares
                
Issued - 15,069,217 shares in 2004 and 14,993,493 shares in 2003
                
Outstanding - 13,465,982 shares in 2004 and 13,600,182 shares in 2003
     15,069,217       14,993,493  
Capital surplus
     32,192,127       31,497,057  
Retained earnings
     122,123,217       119,081,744  
Accumulated other comprehensive income (loss), net of deferred income taxes
     (535,634 )     768,645  
Less: Cost of common stock in treasury; 1,603,235 shares in 2004 and 1,393,311 shares in 2003
     (28,771,882 )     (24,525,840 )
 
    
 		      
 		  
Total shareholders’ equity
     140,077,045       141,815,099  
 
    
 		      
 		  
Total liabilities and shareholders’ equity
   $ 993,985,159     $ 971,382,727  
 
    
 		      
 		  

See notes to consolidated condensed financial statements.

3

 

Bank of Granite Corporation

Consolidated Condensed Statements of Income
(unaudited)
                                 
    Three Months   Six Months
    Ended June 30,   Ended June 30,
    2004   2003   2004   2003
Interest income:
                                
Interest and fees from loans
   $ 10,753,706     $ 9,069,022     $ 21,417,288     $ 17,872,105  
Interest and fees from mortgage banking
     1,224,952       1,621,077       2,141,626       2,707,227  
Federal funds sold
     823       38,843       823       43,781  
Interest-bearing deposits
     10,747       31,067       22,933       42,648  
Investments:
                                
U.S. Treasury
     42,965       —       86,264       —  
U.S. Government agencies
     807,977       543,024       1,575,112       1,165,187  
States and political subdivisions
     632,143       682,704       1,309,460       1,425,403  
Other
     204,969       89,493       435,773       181,073  
 
    
 		      
 		      
 		      
 		  
Total interest income
     13,678,282       12,075,230       26,989,279       23,437,424  
 
    
 		      
 		      
 		      
 		  
Interest expense:
                                
Time deposits of $100,000 or more
     899,140       779,327       1,851,003       1,515,965  
Other deposits
     1,645,670       1,550,100       3,247,432       2,972,250  
Overnight borrowings
     85,751       49,132       205,217       107,131  
Other borrowings
     442,828       295,917       848,225       465,604  
 
    
 		      
 		      
 		      
 		  
Total interest expense
     3,073,389       2,674,476       6,151,877       5,060,950  
 
    
 		      
 		      
 		      
 		  
Net interest income
     10,604,893       9,400,754       20,837,402       18,376,474  
Provision for loan losses
     1,104,325       1,148,529       2,349,012       2,284,381  
 
    
 		      
 		      
 		      
 		  
Net interest income after provision for loan losses
     9,500,568       8,252,225       18,488,390       16,092,093  
 
    
 		      
 		      
 		      
 		  
Other income:
                                
Service charges on deposit accounts
     1,368,347       1,378,421       2,580,504       2,771,062  
Other service charges, fees and commissions
     194,607       210,107       418,404       445,273  
Mortgage banking income
     979,852       1,954,490       1,906,557       3,415,161  
Securities gains
     14,347       24,177       14,347       12,368  
Other
     317,989       250,060       603,878       506,596  
 
    
 		      
 		      
 		      
 		  
Total other income
     2,875,142       3,817,255       5,523,690       7,150,460  
 
    
 		      
 		      
 		      
 		  
Other expenses:
                                
Salaries and wages
     3,670,158       3,486,451       7,619,174       6,359,228  
Employee benefits
     898,781       539,591       1,769,235       1,262,774  
Occupancy expense, net
     399,158       260,676       834,957       498,459  
Equipment expense
     492,684       340,952       895,395       599,221  
Other
     2,014,376       1,508,555       3,564,456       2,786,965  
 
    
 		      
 		      
 		      
 		  
Total other expenses
     7,475,157       6,136,225       14,683,217       11,506,647  
 
    
 		      
 		      
 		      
 		  
Income before income taxes
     4,900,553       5,933,255       9,328,863       11,735,906  
Income taxes
     1,584,863       2,014,098       3,021,846       3,979,566  
 
    
 		      
 		      
 		      
 		  
Net income
   $ 3,315,690     $ 3,919,157     $ 6,307,017     $ 7,756,340  
 
    
 		      
 		      
 		      
 		  
Per share amounts:
                                
Net income — Basic
   $ 0.25     $ 0.30     $ 0.46     $ 0.59  
Net income — Diluted
     0.24       0.30       0.46       0.59  
Cash dividends
     0.12       0.11       0.24       0.22  
Book value
                     10.40       9.87  

See notes to consolidated condensed financial statements.

4

 

Bank of Granite Corporation

Consolidated Condensed Statements of Comprehensive Income
(unaudited)

                                 
    Three Months   Six Months
    Ended June 30,   Ended June 30,
    2004   2003   2004   2003
Net income
   $ 3,315,690     $ 3,919,157     $ 6,307,017     $ 7,756,340  
 
    
 		      
 		      
 		      
 		  
Items of other comprehensive income:
                                
Items of other comprehensive income (loss), before tax:
                                
Unrealized gains (losses) on securities available for sale
     (3,136,896 )     627,163       (2,185,566 )     465,007  
Less: Reclassification adjustments for securities gains included in net income
     —       24,177       —       12,368  
Unrealized gains (losses) on mortgage derivative instruments
     (42,034 )     380,013       16,158       380,013  
 
    
 		      
 		      
 		      
 		  
Other comprehensive income (loss), before tax
     (3,178,930 )     982,999       (2,169,408 )     832,652  
Less: Change in deferred income taxes related to change in unrealized gains or losses on securities available for sale
     (1,250,840 )     240,442       (871,496 )     180,493  
Less: Change in deferred income taxes related to change in unrealized gains or losses on mortgage derivative instruments
     (16,909 )     152,004       6,367       152,004  
 
    
 		      
 		      
 		      
 		  
Other comprehensive income (loss), net of tax
     (1,911,181 )     590,553       (1,304,279 )     500,155  
 
    
 		      
 		      
 		      
 		  
Comprehensive income
   $ 1,404,509     $ 4,509,710     $ 5,002,738     $ 8,256,495  
 
    
 		      
 		      
 		      
 		  

See notes to consolidated condensed financial statements.

5

 

Bank of Granite Corporation

Consolidated Condensed Statements of Changes in Shareholders’ Equity (unaudited)
                 
    Six Months
    Ended June 30,
    2004   2003
Common stock, $1 par value
                
At beginning of period
   $ 14,993,493     $ 14,420,986  
Par value of shares issued under stock option plans
     75,724       187  
 
    
 		      
 		  
At end of period
     15,069,217       14,421,173  
 
    
 		      
 		  
Capital surplus
                
At beginning of period
     31,497,057       20,694,133  
Surplus of shares issued under stock option plans
     695,070       3,104  
 
    
 		      
 		  
At end of period
     32,192,127       20,697,237  
 
    
 		      
 		  
Retained earnings
                
At beginning of period
     119,081,744       109,982,826  
Net income
     6,307,017       7,756,340  
Cash dividends paid
     (3,265,544 )     (2,921,316 )
 
    
 		      
 		  
At end of period
     122,123,217       114,817,850  
 
    
 		      
 		  
Accumulated other comprehensive income (loss), net of deferred income taxes
                
At beginning of period
     768,645       995,539  
Net change in unrealized gains or losses on securities available for sale, net of deferred income taxes
     (1,314,070 )     272,146  
Net change in unrealized gains or losses on mortgage derivative instruments, net of deferred income taxes
     9,791       228,009  
 
    
 		      
 		  
At end of period
     (535,634 )     1,495,694  
 
    
 		      
 		  
Cost of common stock in treasury
                
At beginning of period
     (24,525,840 )     (18,650,642 )
Cost of common stock repurchased
     (4,246,042 )     (2,741,275 )
 
    
 		      
 		  
At end of period
     (28,771,882 )     (21,391,917 )
 
    
 		      
 		  
Total shareholders’ equity
   $ 140,077,045     $ 130,040,037  
 
    
 		      
 		  
Shares issued
                
At beginning of period
     14,993,493       14,420,986  
Shares issued under stock option plans
     75,724       187  
 
    
 		      
 		  
At end of period
     15,069,217       14,421,173  
 
    
 		      
 		  
Common shares in treasury
                
At beginning of period
     (1,393,311 )     (1,087,312 )
Common shares repurchased
     (209,924 )     (157,534 )
 
    
 		      
 		  
At end of period
     (1,603,235 )     (1,244,846 )
 
    
 		      
 		  
Total shares outstanding
     13,465,982       13,176,327  
 
    
 		      
 		  

See notes to consolidated condensed financial statements.

6

 

Bank of Granite Corporation

Consolidated Condensed Statements of Cash Flows
(unaudited)
                 
    Six Months
    Ended June 30,
    2004   2003
Increase (decrease) in cash & cash equivalents:
                
Cash flows from operating activities:
                
Net Income
   $ 6,307,017     $ 7,756,340  
Adjustments to reconcile net income to net cash provided by operating activities:
                
Depreciation
     606,019       413,901  
Provision for loan loss
     2,349,012       2,284,381  
Investment security premium amortization, net
     259,663       140,952  
Acquisition discount accretion, net
     (139,310 )     —  
Deferred income taxes
     (418,248 )     (1,615 )
Gains on sales or calls of securities available for sale
     —       (2,403 )
Gains on calls of securities held to maturity
     (14,347 )     (9,965 )
Net decrease (increase) in mortgage loans held for sale
     2,288,123       (18,285,609 )
Gains on disposal or sale of equipment
     (1,500 )     (41,180 )
Gains on disposal or sale of other real estate
     (55,880 )     —  
Increase (decrease) in taxes payable
     858,900       (742,819 )
Increase in accrued interest receivable
     (269,896 )     (216,937 )
Decrease in accrued interest payable
     (154,243 )     (48,484 )
Increase in cash surrender value of bank owned life insurance
     (292,686 )     (207,498 )
Increase in other assets
     (597,503 )     (2,651,159 )
Increase (decrease) in other liabilities
     279,453       (459,664 )
 
    
 		      
 		  
Net cash provided by (used in) operating activities
     11,004,574       (12,071,759 )
 
    
 		      
 		  
Cash flows from investing activities:
                
Proceeds from maturities, calls and paydowns of securities available for sale
     6,598,356       15,085,000  
Proceeds from maturities, calls and paydowns of securities held to maturity
     10,161,475       10,549,425  
Proceeds from sales of securities available for sale
     2,950,000       397,235  
Purchase of securities available for sale
     (18,576,107 )     (22,071,933 )
Net increase in loans
     (26,556,857 )     (36,643,945 )
Investment in bank owned life insurance
     (1,315,000 )     —  
Capital expenditures
     (769,716 )     (777,276 )
Proceeds from sale of fixed assets
     1,500       235,909  
Proceeds from sale of other real estate
     589,029       695  
 
    
 		      
 		  
Net cash used in investing activities
     (26,917,320 )     (33,224,890 )
 
    
 		      
 		  
Cash flows from financing activities:
                
Net increase in demand, NOW, money market and savings deposits
     23,360,050       34,017,020  
Net increase (decrease) in time deposits
     (13,579,727 )     18,817,381  
Net increase (decrease) in overnight borrowings
     13,668,175       (3,904,877 )
Net increase in other borrowings
     289,819       18,931,856  
Net proceeds from shares issued under stock option plans
     770,794       3,291  
Dividends paid
     (3,265,544 )     (2,921,316 )
Purchases of common stock for treasury
     (4,246,042 )     (2,741,275 )
 
    
 		      
 		  
Net cash provided by financing activities
     16,997,525       62,202,080  
 
    
 		      
 		  
Net increase in cash equivalents
     1,084,779       16,905,431  
Cash and cash equivalents at beginning of period
     33,595,834       33,384,612  
 
    
 		      
 		  
Cash and cash equivalents at end of period
   $ 34,680,613     $ 50,290,043  
 
    
 		      
 		  

See notes to consolidated condensed financial statements.

(continued on next page)

7

 

Bank of Granite Corporation
Consolidated Condensed Statements of Cash Flows
(unaudited) — (concluded)

                 
    Six Months
    Ended June 30,
    2004   2003
Supplemental disclosure of cash flow information:
                
Cash paid during the period for:
                
Interest
   $ 6,306,120     $ 4,953,775  
Income taxes
     2,561,000       4,724,000  
Noncash investing and financing activities:
                
Transfer from loans to other real estate owned
     494,988       1,375,828  

See notes to consolidated condensed financial statements.

8

 

Bank of Granite Corporation

Notes to Consolidated Condensed Financial Statements
June 30, 2004
(unaudited)

1. UNAUDITED FINANCIAL STATEMENTS

The consolidated condensed balance sheet as of June 30, 2004, the consolidated condensed statements of income and of comprehensive income for the three and six month periods ended June 30, 2004 and 2003, and the consolidated condensed statements of changes in shareholders’ equity and of cash flows for the six month periods ended June 30, 2004 and 2003 are unaudited and reflect all adjustments of a normal recurring nature which are, in the opinion of management, necessary for a fair presentation of the interim period financial statements.

The unaudited interim consolidated condensed financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These interim consolidated condensed financial statements should be read in conjunction with the Company’s December 31, 2003 audited consolidated financial statements and notes thereto included in the Company’s 2003 Annual Report on Form 10-K.

The consolidated financial statements include the Company’s two wholly-owned subsidiaries, Bank of Granite (the “Bank”), a full service commercial bank, and Granite Mortgage, Inc. (“Granite Mortgage”), a mortgage banking company.

The accounting policies followed are set forth in Note 1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003 on file with the Securities and Exchange Commission. There were no changes in significant accounting policies during the six months ended June 30, 2004.

2. EARNINGS PER SHARE

Earnings per share have been computed using the weighted average number of shares of common stock and potentially dilutive common stock equivalents outstanding as follows:

<
                                 
    Three Months   Six Months
    Ended June 30,   Ended June 30,
(in shares)   2004   2003   2004   2003
Weighted average shares outstanding
     13,521,847       13,197,696       13,572,416       13,244,425  
Potentially dilutive effect of stock options
     46,871       2,438       53,711       2,227  
 
    
 		      
 		      
 		      
 		  
Weighted average shares outstanding, including potentially dilutive effect of stock options
     13,568,718       13,200,134       13,626,127       13,246,652