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UNITED STATES
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, 2008
 Commission file number 0-15956
 Bank of Granite Corporation
 
  Delaware
    
    56-1550545(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)P.O. Box 128, Granite Falls, N.C.
    
    28630(Address of principal executive offices)
    
    (Zip Code)
 (828) 496-2000
  Common Stock, $1.00 par value
 None
 
 o þ
 o þ
 þ o
 o
  Large accelerated filer o   
    Accelerated filer þ
    Non-accelerated filer o
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
 SM




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##### 



20092008
    
    ProxyForm 10-K
    
    StatementPage
    
    PagePART IItem 1  Business
    
    
    3
    
    
    
    n/aItem 1A  Risk Factors
    
    
    9
    
    
    
    n/aItem 1B  Unresolved Staff Comments
    
    
    13
    
    
    
    n/aItem 2  Properties
    
    
    13
    
    
    
    n/aItem 3  Legal Proceedings
    
    
    13
    
    
    
    n/aItem 4  Submission of Matters to a Vote of Security Holders
    
    
    13
    
    
    
    n/aPART IIItem 5  Market for the Registrants Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    13
    
    
    
    n/aItem 6  Selected Financial Data
    
    
    16
    
    
    
    n/aItem 7  Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    17
    
    
    
    n/aItem 7A  Quantitative and Qualitative Disclosures
about Market Risk
    
    
    37
    
    
    
    n/aItem 8  Financial Statements and Supplementary Data
    
    
    38
    
    
    
    n/aItem 9  Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
    
    
    78
    
    
    
    n/aItem 9A  Controls and Procedures
    
    
    79
    
    
    
    n/aItem 9B  Other Information
    
    
    82
    
    
    
    n/aPART IIIItem 10  Directors, Executive Officers and Corporate Governance
    
    
    83
    
    
    5, 6, 8,  9 and 26*Item 11  Executive Compensation
    
    
    83
    
    
    
    11-25
    *Item 12  Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
    
    14 and 83
    
    
    2 and 10*Item 13  Certain Relationships and Related Transactions and Director Independence
    
    83
    
    
    5 and 25*Item 14  Principal Accountant Fees and Services
    
    
    83
    
    
    
    27
    *PART IVItem 15  Exhibits and Financial Statement Schedules
    
    
    84
    
    
    
    n/aSignatures
    
    
    86
    
    
    
    n/aEX-10.3EX-10.7EX-10.8EX-10.9EX-10.10EX-10.11EX-21EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2
  
 *
    
    Incorporated by reference from the registrants definitive Proxy Statement for the
2009 Annual Meeting of Stockholders to be filed with the Securities and Exchange
Commission on or before April 27, 2009. 2




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3




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Month of December
    
    2008
    
    2007
    
    2006
    
    2005
    
    2004Unemployment Rates*Caldwell County
    
    
    10.7
    %
    
    
    6.5
    %
    
    
    8.0
    %
    
    
    7.4
    %
    
    
    7.1
    %Catawba County
    
    
    10.7
    %
    
    
    5.7
    %
    
    
    5.1
    %
    
    
    5.2
    %
    
    
    6.1
    %Burke County
    
    
    11.7
    %
    
    
    6.1
    %
    
    
    5.4
    %
    
    
    5.6
    %
    
    
    6.0
    %Watauga County
    
    
    5.7
    %
    
    
    3.3
    %
    
    
    3.3
    %
    
    
    3.5
    %
    
    
    3.9
    %Wilkes County
    
    
    9.2
    %
    
    
    4.9
    %
    
    
    5.6
    %
    
    
    4.8
    %
    
    
    5.9
    %Mecklenburg County
    
    
    8.3
    %
    
    
    4.7
    %
    
    
    4.1
    %
    
    
    4.2
    %
    
    
    4.8
    %Forsyth County
    
    
    7.4
    %
    
    
    4.4
    %
    
    
    4.0
    %
    
    
    4.1
    %
    
    
    4.5
    %Iredell County
    
    
    9.2
    %
    
    
    4.6
    %
    
    
    4.1
    %
    
    
    4.3
    %
    
    
    5.2
    %Guilford County
    
    
    8.3
    %
    
    
    4.6
    %
    
    
    4.3
    %
    
    
    4.5
    %
    
    
    5.1
    %North Carolina
    
    
    8.7
    %
    
    
    4.7
    %
    
    
    4.7
    %
    
    
    5.0
    %
    
    
    5.4
    %United States
    
    
    7.2
    %
    
    
    4.9
    %
    
    
    4.4
    %
    
    
    4.8
    %
    
    
    5.4
    %
 
 *
    
    Source: Employment Security Commission of North Carolina  July 2009
    
    July 2007
    
    April 2000Projections
    
    Estimates
    
    CensusPopulation Projections and Estimates*Caldwell County
    
    
    80,052
    
    
    
    79,376
    
    
    
    77,386Catawba County
    
    
    157,190
    
    
    
    153,404
    
    
    
    141,686Burke County
    
    
    88,460
    
    
    
    88,439
    
    
    
    89,145Watauga County
    
    
    45,472
    
    
    
    44,696
    
    
    
    42,693Wilkes County
    
    
    67,509
    
    
    
    67,182
    
    
    
    65,632Mecklenburg County
    
    
    919,372
    
    
    
    863,147
    
    
    
    695,370Forsyth County
    
    
    349,449
    
    
    
    338,679
    
    
    
    306,067Iredell County
    
    
    159,443
    
    
    
    150,421
    
    
    
    122,660Guilford County
    
    
    475,826
    
    
    
    460,780
    
    
    
    421,048North Carolina
    
    
    9,397,397
    
    
    
    9,069,398
    
    
    
    8,046,485
 
 *
    
    Source of projection, estimate and census data: North Carolina Office of State Budget and Management 4




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(Deposit dollars in millions)
 June 30, 2008
    
    June 30, 2007Bank of Granite
    
    Market
    
    Bank of Granite
    
    MarketCounty
    
    Deposits
    
    Market Share
    
    Deposits
    
    No. of Banks
    
    Deposits
    
    Market Share
    
    Deposits
    
    No. of BanksCaldwell
    
    $
    322.2
    
    
    
    38.7
    %
    
    $
    833.4
    
    
    
    10
    
    
    $
    318.5
    
    
    
    38.5
    %
    
    $
    828.2
    
    
    
    9Catawba
    
    
    364.2
    
    
    
    14.1
    %
    
    
    2,589.1
    
    
    
    13
    
    
    
    368.9
    
    
    
    14.7
    %
    
    
    2,517.9
    
    
    
    13Burke
    
    
    60.3
    
    
    
    7.7
    %
    
    
    781.1
    
    
    
    10
    
    
    
    59.0
    
    
    
    7.7
    %
    
    
    763.5
    
    
    
    9Watauga
    
    
    56.5
    
    
    
    6.6
    %
    
    
    856.7
    
    
    
    14
    
    
    
    61.4
    
    
    
    7.1
    %
    
    
    868.3
    
    
    
    13Wilkes
    
    
    24.4
    
    
    
    3.2
    %
    
    
    759.9
    
    
    
    11
    
    
    
    20.3
    
    
    
    2.6
    %
    
    
    788.4
    
    
    
    11Mecklenburg
    
    
    173.5
    
    
    
    0.2
    %
    
    
    100,909.3
    
    
    
    25
    
    
    
    173.9
    
    
    
    0.2
    %
    
    
    90,353.0
    
    
    
    25Forsyth
    
    
    9.5
    
    
    
    0.1
    %
    
    
    14,416.8
    
    
    
    20
    
    
    
    17.8
    
    
    
    0.1
    %
    
    
    14,299.9
    
    
    
    19Iredell
    
    
    7.8
    
    
    
    0.4
    %
    
    
    2,121.4
    
    
    
    23
    
    
    
    2.4
    
    
    
    0.1
    %
    
    
    2,123.0
    
    
    
    18
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8




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Our business has been and may be adversely affected by conditions in the financial markets and economic
conditions generally.
    9




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Economic difficulties could impair the ability of our customers, both individuals and businesses, to
repay their loans.
  Changes in interest rates could cause our earnings to decline.
  Strong competition within our market areas may limit our growth and profitability. Larger banks and
numerous other financial institutions with greater resources may be able to compete more effectively
than we can.
   If significant increases are required to our allowance for loan losses, our earnings would decrease.
   10




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Continued losses could further erode our capital levels.
  Failure to maintain compliance with regulatory standards and mandates could result in adverse regulatory
action against us.
  We may be required to raise additional capital in the future, but that capital may not be available or
may not be available on terms acceptable to us when it is needed.
  We operate in a highly regulated environment and may be adversely affected by changes in laws and
regulations.
  11




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The FDIC Deposit Insurance assessments that we are required to pay will increase, possibly materially,
in the future, which would have an adverse effect on our earnings.
  If investment securities we own suffer a decline in value that we determine to be other than temporary,
we may be required to record a significant charge to earnings.
  We may have additional tax liabilities.
  Changes in accounting may affect our reported earnings and operating income.
  A concentration of real estate development loans in our portfolio could result in additional increases
in our allowance for loan losses, and corresponding decreases in our earnings, if the economy continues
to experience a downward trend.
  Losing key personnel could negatively affect us.
  12




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SM ® The Wall Street
Journal ®
   13




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Quarterly Common Stock Market Price Ranges and Dividends
 2008
    
    Quarter 1
    
    Quarter 2
    
    Quarter 3
    
    Quarter 4Price RangeHigh
    
    $
    12.99
    
    
    $
    11.85
    
    
    $
    8.58
    
    
    $
    5.00Low
    
    
    9.75
    
    
    
    6.66
    
    
    
    2.29
    
    
    
    2.15Close
    
    
    10.98
    
    
    
    7.11
    
    
    
    2.38
    
    
    
    2.45Dividends*
    
    
    0.13
    
    
    
    0.13
    
    
    
    n/a
    
    
    
    n/a
 2007
    
    Quarter 1
    
    Quarter 2
    
    Quarter 3
    
    Quarter 4Price RangeHigh
    
    $
    19.39
    
    
    $
    18.29
    
    
    $
    17.43
    
    
    $
    14.00Low
    
    
    16.19
    
    
    
    15.27
    
    
    
    12.43
    
    
    
    9.62Close
    
    
    17.92
    
    
    
    16.69
    
    
    
    13.54
    
    
    
    10.57Dividends
    
    
    0.13
    
    
    
    0.13
    
    
    
    0.13
    
    
    
    0.13
 
 *
    
    The Company suspended its cash dividend in the third quarter of 2008.  (a) Number of
    
    
    (b) Weighted-
    
    
    (c) Number of SecuritiesSecurities To Be
    
    
    Average Exercise
    
    
    Remaining Available forIssued Upon Exercise
    
    
    Price Of
    
    
    Future Issuance UnderOf Outstanding
    
    
    Outstanding
    
    
    Equity Compensation PlansOptions, Warrants and
    
    
    Options, Warrants
    
    
    (excluding securitiesRights
    
    
    and Rights
    
    
    reflected in column (a))Equity compensation plans Approved by security holders
    
    
    90,612
    
    
    $
    11.00
    
    
    
    738,500Not approved by security holders
    
    
    -0-
    
    
    
    n/a
    
    
    
    n/aTotal
    
    
    90,612
    
    
    $
    11.00
    
    
    
    738,500
  14




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STOCKHOLDER PERFORMANCE GRAPH
  BANK OF GRANITE CORPORATION
Five Year Performance Index
 
 2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008Bank of Granite Corporation
    
    
    
    100.0
    
    
    
    
    98.4
    
    
    
    
    89.7
    
    
    
    
    118.2
    
    
    
    
    68.0
    
    
    
    
    16.5SNL Bank Index
    
    
    
    100.0
    
    
    
    
    114.6
    
    
    
    
    111.1
    
    
    
    
    124.8
    
    
    
    
    97.9
    
    
    
    
    71.1NASDAQ Composite Total Return Index
    
    
    
    100.0
    
    
    
    
    108.6
    
    
    
    
    110.1
    
    
    
    
    120.6
    
    
    
    
    132.4
    
    
    
    
    78.7
 Source: SNL Financial LC, Charlottesville, Virginia © 2009
 15




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For the Years Ended December 31,(In thousands except per share data)
    
    2008
    
    2007
    
    2006
    
    2005
    
    2004Interest income
    
    $
    66,923
    
    
    $
    89,315
    
    
    $
    86,373
    
    
    $
    68,015
    
    
    $
    55,217Interest expense
    
    
    29,753
    
    
    
    36,848
    
    
    
    31,777
    
    
    
    20,173
    
    
    
    13,108Net interest income
    
    
    37,170
    
    
    
    52,467
    
    
    
    54,596
    
    
    
    47,842
    
    
    
    42,109Provision for loan losses
    
    
    30,228
    
    
    
    55,131
    
    
    
    6,414
    
    
    
    5,194
    
    
    
    5,439Net interest income (loss) after
provision for loan losses
    
    
    6,942
    
    
    
    (2,664
    )
    
    
    48,182
    
    
    
    42,648
    
    
    
    36,670Other income
    
    
    10,378
    
    
    
    13,179
    
    
    
    12,678
    
    
    
    12,055
    
    
    
    11,306Other expense
    
    
    48,974
    
    
    
    37,001
    
    
    
    32,948
    
    
    
    31,815
    
    
    
    29,115Income (loss) before income
tax expense (benefit)
    
    
    (31,654
    )
    
    
    (26,486
    )
    
    
    27,912
    
    
    
    22,888
    
    
    
    18,861Income tax expense (benefit)
    
    
    4,597
    
    
    
    (11,183
    )
    
    
    9,880
    
    
    
    7,878
    
    
    
    6,143Net income (loss)
    
    $
    (36,251
    )
    
    $
    (15,303
    )
    
    $
    18,032
    
    
    $
    15,010
    
    
    $
    12,718Per shareNet income (loss)Basic*
    
    $
    (2.35
    )
    
    $
    (0.97
    )
    
    $
    1.12
    
    
    $
    0.91
    
    
    $
    0.75Diluted*
    
    
    (2.35
    )
    
    
    (0.97
    )
    
    
    1.12
    
    
    
    0.91
    
    
    
    0.75Dividends*
    
    
    0.26
    
    
    
    0.52
    
    
    
    0.48
    
    
    
    0.42
    
    
    
    0.39Book value*
    
    
    4.80
    
    
    
    7.47
    
    
    
    9.14
    
    
    
    8.66
    
    
    
    8.47Share priceHigh*
    
    
    12.99
    
    
    
    19.39
    
    
    
    19.69
    
    
    
    17.45
    
    
    
    18.34Low*
    
    
    2.15
    
    
    
    9.62
    
    
    
    14.62
    
    
    
    13.28
    
    
    
    14.14Close*
    
    
    2.45
    
    
    
    10.57
    
    
    
    18.97
    
    
    
    14.82
    
    
    
    16.72Average shares outstandingBasic*
    
    
    15,448
    
    
    
    15,775
    
    
    
    16,049
    
    
    
    16,414
    
    
    
    16,850Diluted*
    
    
    15,448
    
    
    
    15,775
    
    
    
    16,104
    
    
    
    16,469
    
    
    
    16,912Performance ratiosReturn on average assets
    
    
    -3.05
    %
    
    
    -1.27
    %
    
    
    1.56
    %
    
    
    1.41
    %
    
    
    1.28
    %Return on average equity
    
    
    -32.01
    %
    
    
    -10.95
    %
    
    
    12.57
    %
    
    
    10.70
    %
    
    
    9.02
    %Average equity to
average assets
    
    
    9.52
    %
    
    
    11.59
    %
    
    
    12.42
    %
    
    
    13.14
    %
    
    
    14.20
    %Dividend payout
    
    
    -11.08
    %
    
    
    -53.38
    %
    
    
    43.04
    %
    
    
    46.50
    %
    
    
    52.06
    %Efficiency ratio
    
    
    101.46
    %
    
    
    55.64
    %
    
    
    48.26
    %
    
    
    52.11
    %
    
    
    53.17
    %Balances at year-endAssets
    
    $
    1,146,955
    
    
    $
    1,219,148
    
    
    $
    1,199,773
    
    
    $
    1,106,724
    
    
    $
    1,032,238Investment securities
    
    
    82,203
    
    
    
    142,622
    
    
    
    166,606
    
    
    
    151,619
    
    
    
    153,546Loans (gross)
    
    
    948,149
    
    
    
    946,326
    
    
    
    912,492
    
    
    
    832,447
    
    
    
    778,137Allowance for loan losses
    
    
    24,806
    
    
    
    17,673
    
    
    
    15,787
    
    
    
    13,924
    
    
    
    13,665Mortgage loans held for sale
    
    
    16,770
    
    
    
    15,319
    
    
    
    11,797
    
    
    
    14,219
    
    
    
    21,554Liabilities
    
    
    1,072,785
    
    
    
    1,103,883
    
    
    
    1,053,340
    
    
    
    966,876
    
    
    
    891,222Deposits
    
    
    991,822
    
    
    
    971,989
    
    
    
    963,837
    
    
    
    879,111
    
    
    
    749,862Stockholders equity
    
    
    74,170
    
    
    
    115,265
    
    
    
    146,433
    
    
    
    139,848
    
    
    
    141,016Asset quality ratiosNet charge-offs
to average loans
    
    
    2.42
    %
    
    
    5.70
    %
    
    
    0.52
    %
    
    
    0.61
    %
    
    
    0.35
    %Nonperforming assets
to total assets
    
    
    5.01
    %
    
    
    3.21
    %
    
    
    1.29
    %
    
    
    1.04
    %
    
    
    1.18
    %Allowance coverage of
nonperforming loans
    
    
    48.92
    %
    
    
    48.27
    %
    
    
    109.91
    %
    
    
    130.96
    %
    
    
    125.82
    %
 
 *
    
    Amounts for periods prior to September 25, 2006 have been adjusted to reflect the 5-for-4 stock split distributed September 25, 2006. 16




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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    2008 in Review
  Financial Highlights
    
    2008
    
    
    2007
    
    
    % change(Table dollars in thousands except per share data)EarningsNet interest income
    
    $
    37,170
    
    
    $
    52,467
    
    
    
    -29.2
    %Provision for loan losses
    
    
    30,228
    
    
    
    55,131
    
    
    
    -45.2
    %Other income
    
    
    10,378
    
    
    
    13,179
    
    
    
    -21.3
    %Other expense
    
    
    48,974
    
    
    
    37,001
    
    
    
    32.4
    %Net loss
    
    
    (36,251
    )
    
    
    (15,303
    )
    
    
    136.9
    %Per shareNet loss- Basic
    
    $
    (2.35
    )
    
    $
    (0.97
    )
    
    
    142.3
    %- Diluted
    
    
    (2.35
    )
    
    
    (0.97
    )
    
    
    142.3
    %At year-endAssets
    
    $
    1,146,955
    
    
    $
    1,219,148
    
    
    
    -5.9
    %Loans
    
    
    948,149
    
    
    
    946,326
    
    
    
    0.2
    %Deposits
    
    
    991,822
    
    
    
    971,989
    
    
    
    2.0
    %RatiosReturn on average assets
    
    
    -3.05
    %
    
    
    -1.27
    %Return on average equity
    
    
    -32.01
    %
    
    
    -10.95
    %Average equity to average assets
    
    
    9.52
    %
    
    
    11.59
    %Efficiency ratio (1)
    
    
    101.46
    %
    
    
    55.64
    %
 
 (1)
    
    Calculated by dividing noninterest expense by the sum of tax equivalent net interest income and
noninterest income Significant Factors Affecting Earnings and Financial Position in 2008
 Realizability of Net Deferred Tax Assets
  17




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Valuation of Goodwill
     Additional factors that significantly affected our earnings and financial position in 2008 were:
 o
    
    Our 2008 provision for loan losses was $30.2 million. Of this amount, $16.8 million was recognized
in the fourth quarter, resulting from the continuing deterioration in our loan portfolio, as discussed
above. Nonaccruing loans increased to $50.6 million as of December 31, 2008 compared to $36.5
million as of December 31, 2007.o
    
    Net interest income decreased $15.3 million, primarily related to multiple rate reductions by the
Federal Reserve during 2008, and the continued aggressive competition for deposits in our market.
Three of the Federal rate reductions in 2008 occurred during the fourth quarter. Our net interest
margin was further compressed by increasing levels of nonperforming assets throughout 2008. Our
net interest margin decreased 129 basis points to 3.48% in 2008 compared to 4.77% in 2007.o
    
    Other income decreased $2.8 million, primarily related to $1.9 million in other-than-temporary
impairment losses in 2008 on investments in securities available for sale, of which $1.3 million was
recognized in the fourth quarter.o
    
    Excluding goodwill impairment, other expenses, or operating overhead, increased $1.2 million
compared to 2007. The Banks increase in overhead expenses was driven by a $1.1 million increase
in FDIC deposit insurance premiums and a $1.5 million increase in salaries and other expenses,
partially offset by a $1.7 million decrease in employee benefit costs, which included suspension of
performance based incentives and profit sharing contributions. Total overhead expenses excluding
goodwill impairment decreased $1.1 million for the fourth quarter of 2008 compared to 2007,
primarily in personnel expenses.
 
 18




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Outlook for 2009
         19




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20




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##### Table of Contents



(Table dollars in thousands except per share amounts)
    
    2008
    
    2007
    
    $ Change
    
    % ChangeNet loss
    
    $
    (36,251
    )
    
    $
    (15,303
    )
    
    $
    (20,948
    )
    
    
    136.9
    %Net loss per share
    
    
    (2.35
    )
    
    
    (0.97
    )
    
    
    (1.38
    )
    
    
    142.3
    %Interest income
    
    
    66,923
    
    
    
    89,315
    
    
    
    (22,392
    )
    
    
    -25.1
    %Interest expense
    
    
    29,753
    
    
    
    36,848
    
    
    
    (7,095
    )
    
    
    -19.3
    %Net interest income
    
    
    37,170
    
    
    
    52,467
    
    
    
    (15,297
    )
    
    
    -29.2
    %Interest and fees from loans
    
    
    57,953
    
    
    
    77,066
    
    
    
    (19,113
    )
    
    
    -24.8
    %Average gross loansBank
    
    
    939,777
    
    
    
    916,294
    
    
    
    23,483
    
    
    
    2.6
    %Granite Mortgage
    
    
    31,867
    
    
    
    33,385
    
    
    
    (1,518
    )
    
    
    -4.5
    %Consolidated
    
    
    971,560
    
    
    
    949,574
    
    
    
    21,986
    
    
    
    2.3
    %Provision for loan losses
    
    
    30,228
    
    
    
    55,131
    
    
    
    (24,903
    )
    
    
    -45.2
    %Charge-offs, net of recoveries
    
    
    23,095
    
    
    
    53,245
    
    
    
    (30,150
    )
    
    
    -56.6
    %Nonperforming loans
    
    
    50,705
    
    
    
    36,612
    
    
    
    14,093
    
    
    
    38.5
    %Interest on securities and overnight investments
    
    
    5,353
    
    
    
    8,266
    
    
    
    (2,913
    )
    
    
    -35.2
    %Average securities and overnight investments
    
    
    118,672
    
    
    
    167,457
    
    
    
    (48,785
    )
    
    
    -29.1
    %Average interest-bearing deposits
    
    
    850,900
    
    
    
    823,348
    
    
    
    27,552
    
    
    
    3.3
    %Average NOW deposits
    
    
    134,919
    
    
    
    122,345
    
    
    
    12,574
    
    
    
    10.3
    %Average money market deposits
    
    
    233,782
    
    
    
    244,361
    
    
    
    (10,579
    )
    
    
    -4.3
    %Average savings deposits
    
    
    21,567
    
    
    
    22,677
    
    
    
    (1,110
    )
    
    
    -4.9
    %Average time deposits
    
    
    460,632
    
    
    
    433,965
    
    
    
    26,667
    
    
    
    6.1
    %Average deposits
    
    
    982,463
    
    
    
    969,911
    
    
    
    12,552
    
    
    
    1.3
    %Average overnight and short-term borrowingsBank
    
    
    17,296
    
    
    
    14,610
    
    
    
    2,686
    
    
    
    18.4
    %Granite Mortgage
    
    
    24,910
    
    
    
    26,809
    
    
    
    (1,899
    )
    
    
    -7.1
    %Holding Company
    
    
    24,696
    
    
    
    27,922
    
    
    
    (3,226
    )
    
    
    -11.6
    %Consolidated
    
    
    66,902
    
    
    
    69,341
    
    
    
    (2,439
    )
    
    
    -3.5
    %Total other income
    
    
    10,378
    
    
    
    13,179
    
    
    
    (2,801
    )
    
    
    -21.3
    %Mortgage banking income
    
    
    3,573
    
    
    
    3,916
    
    
    
    (343
    )
    
    
    -8.8
    %Total other expenses
    
    
    48,974
    
    
    
    37,001
    
    
    
    11,973
    
    
    
    32.4
    %Personnel expenses
    
    
    21,497
    
    
    
    22,296
    
    
    
    (799
    )
    
    
    -3.6
    %Noninterest expenses other than for personnel
    
    
    27,477
    
    
    
    14,705
    
    
    
    12,772
    
    
    
    86.9
    %Goodwill impairment
    
    
    10,763
    
    
    
    
    
    
    
    10,763
    
    
    
    n/aIncome tax expense (benefit)
    
    
    4,597
    
    
    
    (11,183
    )
    
    
    15,780
    
    
    
    -141.1
    %Net interest margin
    
    
    3.48
    %
    
    
    4.77
    %Average prime rate
    
    
    5.09
    %
    
    
    8.05
    %Yield on loans
    
    
    6.41
    %
    
    
    8.63
    %Yield on securities and overnight investments
    
    
    4.51
    %
    
    
    4.94
    %Cost of interest-bearing deposits
    
    
    3.13
    %
    
    
    3.99
    %
 21




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22




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(Table dollars in thousands except per share amounts)
    
    2007
    
    2006
    
    $ Change
    
    % ChangeNet income (loss)
    
    $
    (15,303
    )
    
    $
    18,032
    
    
    $
    (33,335
    )
    
    
    -184.9
    %Net income (loss) per share
    
    
    (0.97
    )
    
    
    1.12
    
    
    
    (2.09
    )
    
    
    -186.6
    %Interest income
    
    
    89,315
    
    
    
    86,373
    
    
    
    2,942
    
    
    
    3.4
    %Interest expense
    
    
    36,848
    
    
    
    31,777
    
    
    
    5,071
    
    
    
    16.0
    %Net interest income
    
    
    52,467
    
    
    
    54,596
    
    
    
    (2,129
    )
    
    
    -3.9
    %Interest and fees from loans
    
    
    77,066
    
    
    
    73,682
    
    
    
    3,384
    
    
    
    4.6
    %Average gross loansBank
    
    
    916,294
    
    
    
    860,221
    
    
    
    56,073
    
    
    
    6.5
    %Granite Mortgage
    
    
    33,385
    
    
    
    26,116
    
    
    
    7,269
    
    
    
    27.8
    %Consolidated
    
    
    949,574
    
    
    
    886,257
    
    
    
    63,317
    
    
    
    7.1
    %Provision for loan losses
    
    
    55,131
    
    
    
    6,414
    
    
    
    48,717
    
    
    
    759.5
    %Charge-offs, net of recoveries
    
    
    53,245
    
    
    
    4,551
    
    
    
    48,694
    
    
    
    n/mNonperforming loans
    
    
    36,612
    
    
    
    14,363
    
    
    
    22,249
    
    
    
    154.9
    %Interest on securities and overnight investments
    
    
    8,266
    
    
    
    9,290
    
    
    
    (1,024
    )
    
    
    -11.0
    %Average securities and overnight investments
    
    
    167,457
    
    
    
    187,686
    
    
    
    (20,229
    )
    
    
    -10.8
    %Average interest-bearing deposits
    
    
    823,348
    
    
    
    778,372
    
    
    
    44,976
    
    
    
    5.8
    %Average NOW deposits
    
    
    122,345
    
    
    
    125,594
    
    
    
    (3,249
    )
    
    
    -2.6
    %Average money market deposits
    
    
    244,361
    
    
    
    192,751
    
    
    
    51,610
    
    
    
    26.8
    %Average savings deposits
    
    
    22,677
    
    
    
    23,505
    
    
    
    (828
    )
    
    
    -3.5
    %Average time deposits
    
    
    433,965
    
    
    
    436,522
    
    
    
    (2,557
    )
    
    
    -0.6
    %Average deposits
    
    
    969,911
    
    
    
    923,903
    
    
    
    46,008
    
    
    
    5.0
    %Average overnight and short-term borrowingsBank
    
    
    14,610
    
    
    
    12,804
    
    
    
    1,806
    
    
    
    14.1
    %Granite Mortgage
    
    
    26,809
    
    
    
    20,585
    
    
    
    6,224
    
    
    
    30.2
    %Holding Company
    
    
    27,922
    
    
    
    28,286
    
    
    
    (364
    )
    
    
    -1.3
    %Consolidated
    
    
    69,341
    
    
    
    61,675
    
    
    
    7,666
    
    
    
    12.4
    %Total other income
    
    
    13,179
    
    
    
    12,678
    
    
    
    501
    
    
    
    4.0
    %Mortgage banking income
    
    
    3,916
    
    
    
    3,975
    
    
    
    (59
    )
    
    
    -1.5
    %Total other expenses
    
    
    37,001
    
    
    
    32,948
    
    
    
    4,053
    
    
    
    12.3
    %Personnel expenses
    
    
    22,296
    
    
    
    20,646
    
    
    
    1,650
    
    
    
    8.0
    %Noninterest expenses other than for personnel
    
    
    14,705
    
    
    
    12,302
    
    
    
    2,403
    
    
    
    19.5
    %Income tax expense (benefit)
    
    
    (11,183
    )
    
    
    9,880
    
    
    
    (21,063
    )
    
    
    -213.2
    %Net interest margin
    
    
    4.77
    %
    
    
    5.18
    %Average Prime Rate
    
    
    8.05
    %
    
    
    7.96
    %Yield on loans
    
    
    8.63
    %
    
    
    8.81
    %Yield on securities and overnight investments
    
    
    4.94
    %
    
    
    4.95
    %Cost of interest-bearing deposits
    
    
    3.99
    %
    
    
    3.62
    %
 23




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24




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##### Table of Contents



2008
    
    
    2007
    
    
    2006Average
    
    
    Interest
    
    
    
    
    
    
    Average
    
    
    Interest
    
    
    
    
    
    
    Average
    
    
    InterestAverage
    
    
    Yield/
    
    
    Income/
    
    
    Average
    
    
    Yield/
    
    
    Income/
    
    
    Average
    
    
    Yield/
    
    
    Income/(Table dollars in thousands)
    
    Balance
    
    
    Cost
    
    
    Expense
    
    
    Balance
    
    
    Cost
    
    
    Expense
    
    
    Balance
    
    
    Cost
    
    
    ExpenseAssetsLoans (1)
    
    $
    971,560
    
    
    
    6.41
    %
    
    $
    62,289
    
    
    $
    949,574
    
    
    
    8.63
    %
    
    $
    81,906
    
    
    $
    886,256
    
    
    
    8.81
    %
    
    $
    78,079Taxable securities
    
    
    83,166
    
    
    
    3.89
    %
    
    
    3,236
    
    
    
    128,848
    
    
    
    4.44
    %
    
    
    5,726
    
    
    
    131,613
    
    
    
    4.39
    %
    
    
    5,772Nontaxable securities (2)
    
    
    30,839
    
    
    
    6.66
    %
    
    
    2,054
    
    
    
    36,861
    
    
    
    6.64
    %
    
    
    2,449
    
    
    
    42,789
    
    
    
    6.65
    %
    
    
    2,847Federal funds sold
    
    
    4,667
    
    
    
    1.35
    %
    
    
    63
    
    
    
    1,748
    
    
    
    5.21
    %
    
    
    91
    
    
    
    13,285
    
    
    
    5.04
    %
    
    
    670Total interest-earning assets
    
    
    1,090,232
    
    
    
    6.20
    %
    
    
    67,642
    
    
    
    1,117,031
    
    
    
    8.07
    %
    
    
    90,172
    
    
    
    1,073,943
    
    
    
    8.14
    %
    
    
    87,368Cash and due from banks
    
    
    23,919
    
    
    
    
    
    
    
    
    
    
    
    25,779
    
    
    
    
    
    
    
    
    
    
    
    28,271All other assets
    
    
    75,549
    
    
    
    
    
    
    
    
    
    
    
    63,101
    
    
    
    
    
    
    
    
    
    
    
    53,260Total assets
    
    $
    1,189,700
    
    
    
    
    
    
    
    
    
    
    $
    1,205,911
    
    
    
    
    
    
    
    
    
    
    $
    1,155,474Liabilities and
stockholders equityNOW deposits
    
    $
    134,919
    
    
    
    1.14
    %
    
    
    1,533
    
    
    $
    122,345
    
    
    
    1.28
    %
    
    
    1,572
    
    
    $
    125,594
    
    
    
    1.16
    %
    
    
    1,452Money market deposits
    
    
    233,782
    
    
    
    2.89
    %
    
    
    6,755
    
    
    
    244,361
    
    
    
    4.25
    %
    
    
    10,381
    
    
    
    192,751
    
    
    
    4.02
    %
    
    
    7,744Savings deposits
    
    
    21,567
    
    
    
    0.24
    %
    
    
    52
    
    
    
    22,677
    
    
    
    0.39
    %
    
    
    89
    
    
    
    23,505
    
    
    
    0.36
    %
    
    
    85Time deposits of $100
or more
    
    
    214,208
    
    
    
    4.07
    %
    
    
    8,724
    
    
    
    204,249
    
    
    
    4.91
    %
    
    
    10,036
    
    
    
    206,782
    
    
    
    4.51
    %
    
    
    9,324Other time deposits
    
    
    246,424
    
    
    
    3.89
    %
    
    
    9,580
    
    
    
    229,716
    
    
    
    4.67
    %
    
    
    10,734
    
    
    
    229,740
    
    
    
    4.16
    %
    
    
    9,559Interest-bearing deposits
    
    
    850,900
    
    
    
    3.13
    %
    
    
    26,644
    
    
    
    823,348
    
    
    
    3.99
    %
    
    
    32,812
    
    
    
    778,372
    
    
    
    3.62
    %
    
    
    28,164Overnight borrowings
    
    
    28,305
    
    
    
    2.48
    %
    
    
    703
    
    
    
    36,357
    
    
    
    3.87
    %
    
    
    1,407
    
    
    
    29,806
    
    
    
    3.21
    %
    
    
    956Other borrowings
    
    
    52,857
    
    
    
    4.55
    %
    
    
    2,406
    
    
    
    48,503
    
    
    
    5.42
    %
    
    
    2,629
    
    
    
    48,168
    
    
    
    5.52
    %
    
    
    2,658Total interest-bearing liabilities
    
    
    932,062
    
    
    
    3.19
    %
    
    
    29,753
    
    
    
    908,208
    
    
    
    4.06
    %
    
    
    36,848
    
    
    
    856,346
    
    
    
    3.71
    %
    
    
    31,778Noninterest-bearing deposits
    
    
    131,563
    
    
    
    
    
    
    
    
    
    
    
    146,563
    
    
    
    
    
    
    
    
    
    
    
    145,530Other liabilities
    
    
    12,820
    
    
    
    
    
    
    
    
    
    
    
    11,376
    
    
    
    
    
    
    
    
    
    
    
    10,103Stockholders equity
    
    
    113,255
    
    
    
    
    
    
    
    
    
    
    
    139,764
    
    
    
    
    
    
    
    
    
    
    
    143,495Total liabilities and
stockholders equity
    
    $
    1,189,700
    
    
    
    
    
    
    
    
    
    
    $
    1,205,911
    
    
    
    
    
    
    
    
    
    
    $
    1,155,474Net yield on earning assets and
net interest income (2)(3)
    
    
    
    
    
    
    3.48
    %
    
    $
    37,889
    
    
    
    
    
    
    
    4.77
    %
    
    $
    53,324
    
    
    
    
    
    
    
    5.18
    %
    
    $
    55,590Interest rate spread (4)
    
    
    
    
    
    
    3.01
    %
    
    
    
    
    
    
    
    
    
    
    4.01
    %
    
    
    
    
    
    
    
    
    
    
    4.43
    %
 
 (1)
    
    Non-accrual loans have been included.(2)
    
    Yields and interest income on tax-exempt investments have been adjusted to tax equivalent basis using a 35% tax rate for 2008, 2007 and 2006.
The taxable equivalent adjustments were approximately $719 thousand, $857 thousand and $997 thousand for 2008, 2007 and 2006, respectively.(3)
    
    Net yield on earning assets is computed by dividing net interest earned by average earning assets.(4)
    
    The interest rate spread is the interest earning assets rate less the interest bearing liabilities rate.  
 2008 compared to 2007
    
    2007 compared to 2006Change
    
    
    
    
    
    ChangeAttributable to
    
    
    
    
    
    Attributable to(Table in thousands)
    
    Volume(1)
    
    Rate(1)
    
    Total
    
    Volume(1)
    
    Rate(1)
    
    TotalLoans
    
    $
    1,653
    
    
    $
    (21,270
    )
    
    $
    (19,617
    )
    
    $
    5,520
    
    
    $
    (1,693
    )
    
    $
    3,827Taxable securities
    
    
    (1,904
    )
    
    
    (586
    )
    
    
    (2,490
    )
    
    
    (122
    )
    
    
    76
    
    
    
    (46
    )Nontaxable securities
    
    
    (401
    )
    
    
    6
    
    
    
    (395
    )
    
    
    (394
    )
    
    
    (4
    )
    
    
    (398
    )Federal funds sold
    
    
    96
    
    
    
    (124
    )
    
    
    (28
    )
    
    
    (591
    )
    
    
    12
    
    
    
    (579
    )Interest-earning assets
    
    $
    (556
    )
    
    $
    (21,974
    )
    
    $
    (22,530
    )
    
    $
    4,413
    
    
    $
    (1,609
    )
    
    $
    2,804NOW deposits
    
    $
    152
    
    
    $
    (191
    )
    
    $
    (39
    )
    
    $
    (40
    )
    
    $
    160
    
    
    $
    120Money market deposits
    
    
    (378
    )
    
    
    (3,248
    )
    
    
    (3,626
    )
    
    
    2,133
    
    
    
    504
    
    
    
    2,637Savings deposits
    
    
    (4
    )
    
    
    (33
    )
    
    
    (37
    )
    
    
    (3
    )
    
    
    7
    
    
    
    4Time deposits of $100
or more
    
    
    447
    
    
    
    (1,759
    )
    
    
    (1,312
    )
    
    
    (119
    )
    
    
    831
    
    
    
    712Other time deposits
    
    
    715
    
    
    
    (1,869
    )
    
    
    (1,154
    )
    
    
    (1
    )
    
    
    1,176
    
    
    
    1,175Interest-bearing deposits
    
    
    932
    
    
    
    (7,100
    )
    
    
    (6,168
    )
    
    
    1,970
    
    
    
    2,678
    
    
    
    4,648Overnight borrowings
    
    
    (256
    )
    
    
    (448
    )
    
    
    (704
    )
    
    
    232
    
    
    
    219
    
    
    
    451Other borrowings
    
    
    217
    
    
    
    (440
    )
    
    
    (223
    )
    
    
    18
    
    
    
    (47
    )
    
    
    (29
    )Interest-bearing liabilities
    
    $
    893
    
    
    $
    (7,988
    )
    
    $
    (7,095
    )
    
    $
    2,220
    
    
    $
    2,850
    
    
    $
    5,070
 
 (1)
    
    The rate/volume variance for each category has been allocated equally on a consistent basis between rate and volume variances 25




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26




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27




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##### Table of Contents



Non-sensitiveInterest Sensitive Within
    
    Total
    
    or Sensitive1 to
    
    91 to
    
    181 to
    
    Within
    
    Beyond(Table dollars in thousands)
    
    90 Days
    
    180 Days
    
    365 Days
    
    1 Year
    
    1 Year
    
    TotalInterest-earning AssetsInterest-bearing due from banks
    
    $
    6,819
    
    
    
    
    
    
    
    
    
    
    $
    6,819
    
    
    
    
    
    
    $
    6,819Federal funds sold
    
    
    16,000
    
    
    
    
    
    
    
    
    
    
    
    16,000
    
    
    
    
    
    
    
    16,000Securities (at amortized cost) (1):U.S. Government agencies
    
    
    
    
    
    $
    14,899
    
    
    $
    6,000
    
    
    
    20,899
    
    
    $
    24,611
    
    
    
    45,510States and political subdivisions
    
    
    2,530
    
    
    
    3,923
    
    
    
    
    
    
    
    6,454
    
    
    
    22,655
    
    
    
    29,109Other (including equity securities)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,848
    
    
    
    6,848Loans (gross):Real estate  Construction
    
    
    92,986
    
    
    
    7,010
    
    
    
    826
    
    
    
    100,822
    
    
    
    45,345
    
    
    
    146,167Real estate  Mortgage
    
    
    355,484
    
    
    
    4,056
    
    
    
    10,185
    
    
    
    369,725
    
    
    
    223,508
    
    
    
    593,233Commercial, financial and agricultural
    
    
    150,964
    
    
    
    1,861
    
    
    
    1,844
    
    
    
    154,669
    
    
    
    44,701
    
    
    
    199,370Consumer
    
    
    2,656
    
    
    
    353
    
    
    
    818
    
    
    
    3,827
    
    
    
    6,886
    
    
    
    10,713All other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    258
    
    
    
    258Mortgages held for sale
    
    
    16,770
    
    
    
    
    
    
    
    
    
    
    
    16,770
    
    
    
    
    
    
    
    16,770Total interest-earning assets
    
    $
    644,209
    
    
    $
    32,102
    
    
    $
    19,673
    
    
    $
    695,984
    
    
    $
    374,812
    
    
    $
    1,070,796Interest-bearing LiabilitiesInterest-bearing deposits:Savings and NOW accounts
    
    $
    173,118
    
    
    
    
    
    
    
    
    
    
    $
    173,118
    
    
    
    
    
    
    $
    173,118Money market accounts
    
    
    204,108
    
    
    
    
    
    
    
    
    
    
    
    204,108
    
    
    
    
    
    
    
    204,108Time deposits of $100 or more
    
    
    47,250
    
    
    $
    26,730
    
    
    $
    105,005
    
    
    
    178,985
    
    
    $
    29,017
    
    
    
    208,002Other time deposits
    
    
    58,589
    
    
    
    40,321
    
    
    
    154,490
    
    
    
    253,400
    
    
    
    36,026
    
    
    
    289,426Overnight and short-term borrowings
    
    
    41,947
    
    
    
    2,000
    
    
    
    5,000
    
    
    
    48,947
    
    
    
    
    
    
    
    48,947Long-term borrowings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,075
    
    
    
    14,075Total interest-bearing liabilities
    
    $
    525,012
    
    
    $
    69,051
    
    
    $
    264,495
    
    
    $
    858,558
    
    
    $
    79,118
    
    
    $
    937,676Interest sensitivity gap
    
    $
    119,197
    
    
    $
    (36,949
    )
    
    $
    (244,822
    )
    
    $
    (162,574
    )Cumulative interest sensitivity gap
    
    
    119,197
    
    
    
    82,248
    
    
    
    (162,574
    )
    
    
    (162,574
    )Interest earning-assets as a percentage
of interest-bearing liabilities
    
    
    123
    %
    
    
    46
    %
    
    
    7
    %
    
    
    81
    %
 
 (1)
    
    Interest sensitivity periods for debt securities are based on contractual maturities.   28




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##### Table of Contents



Estimated Resulting Theoretical Tax Equivalent Net Interest IncomeFor the Twelve-month Periods FollowingDecember 31, 2008
    
    December 31, 2007(Table dollars in thousands)
    
    Amount
    
    % Change
    
    Amount
    
    % Change3% interest rate changes prorated over a twelve-month period+3%
    
    $
    32,072
    
    
    
    0.9
    %
    
    $
    50,368
    
    
    
    -2.0
    %0%
    
    
    31,794
    
    
    
    0.0
    %
    
    
    51,411
    
    
    
    0.0
    %- 3%
    
    
    34,487
    
    
    
    8.5
    %*
    
    
    49,824
    
    
    
    -3.1
    %*Hypothetical immediate and sustained rate changes of 1%, 2%, 3% and 4%+4%
    
    $
    31,952
    
    
    
    3.4
    %
    
    $
    47,885
    
    
    
    -4.5
    %+3%
    
    
    31,694
    
    
    
    2.6
    %
    
    
    48,475
    
    
    
    -3.3
    %+2%
    
    
    31,354
    
    
    
    1.5
    %
    
    
    49,041
    
    
    
    -2.2
    %+1%
    
    
    31,040
    
    
    
    0.5
    %
    
    
    49,602
    
    
    
    -1.1
    %0%
    
    
    30,896
    
    
    
    0.0
    %
    
    
    50,141
    
    
    
    0.0
    %- 1%
    
    
    29,920
    
    
    
    -3.2
    %*
    
    
    50,510
    
    
    
    0.7
    %- 2%
    
    
    n/m
    
    
    
    n/m
    
    
    
    49,753
    
    
    
    -0.8
    %- 3%
    
    
    n/m
    
    
    
    n/m
    
    
    
    48,949
    
    
    
    -2.4
    %*- 4%
    
    
    n/m
    
    
    
    n/m
    
    
    
    46,252
    
    
    
    -7.8
    %*
 
 *
    
    The Federal Reserves overnight federal funds rate target was 0% to 0.25% at December 31,
2008 and 4.25% at December 31, 2007. As the overnight federal funds target rate approaches
0%, there is significantly greater compression in the spreads between yields earned on assets
and rates paid on interest-bearing liabilities, which effectively reduces net interest
income.    Within
    
    
    One to
    
    
    FiveOne
    
    
    Five
    
    
    Years or(Table in thousands)
    
    Year
    
    
    Years
    
    
    More
    
    
    TotalReal estate  Construction
    
    $
    89,851
    
    
    $
    44,635
    
    
    $
    11,681
    
    
    $
    146,167Real estate  Mortgage
    
    
    131,799
    
    
    
    299,562
    
    
    
    161,872
    
    
    
    593,233Commercial, financial and agricultural
    
    
    96,200
    
    
    
    75,004
    
    
    
    28,166
    
    
    
    199,370Consumer
    
    
    2,977
    
    
    
    7,586
    
    
    
    150
    
    
    
    10,713All other
    
    
    258
    
    
    
    
    
    
    
    
    
    
    
    258Total
    
    $
    321,085
    
    
    $
    426,787
    
    
    $
    201,869
    
    
    $
    949,741Predetermined rate, maturity
greater than one year
    
    $
    
    
    
    $
    200,845
    
    
    $
    75,806
    
    
    $
    276,651Variable rate or maturing within
one year
    
    
    321,085
    
    
    
    225,942
    
    
    
    126,063
    
    
    
    673,090Total
    
    $
    321,085
    
    
    $
    426,787
    
    
    $
    201,869
    
    
    $
    949,741
  
 (Table in thousands)
    
    2008
    
    
    2007
    
    
    2006Non-interest-bearing demand deposits
    
    $
    131,563
    
    
    $
    146,563
    
    
    $
    145,530Interest-bearing demand deposits
    
    
    368,701
    
    
    
    366,706
    
    
    
    318,345Savings deposits
    
    
    21,567
    
    
    
    22,677
    
    
    
    23,505Time deposits
    
    
    460,632
    
    
    
    433,965
    
    
    
    436,522Total
    
    $
    982,463
    
    
    $
    969,911
    
    
    $
    923,902
  29




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##### Table of Contents



Within
    
    Three to
    
    Six to
    
    Within
    
    One toThree
    
    Six
    
    Twelve
    
    One
    
    Five(In thousands)
    
    Months
    
    Months
    
    Months
    
    Year
    
    Years
    
    TotalTime deposits of $100 thousand or more
    
    $
    47,250
    
    
    $
    26,730
    
    
    $
    105,005
    
    
    $
    178,985
    
    
    $
    29,017
    
    
    $
    208,002
       2008

    

    2007
    
    2006

    
    2005
    
    2004% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofTotal
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    Total(Table dollars in thousands)
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    LoansLoansReal estate -
Construction
    
    $
    146,167
    
    
    
    15.4
    %
    
    $
    182,457
    
    
    
    19.2
    %
    
    $
    161,072
    
    
    
    17.6
    %
    
    $
    125,555
    
    
    
    15.1
    %
    
    $
    105,111
    
    
    
    13.5
    %Mortgage
    
    
    593,233
    
    
    
    62.5
    %
    
    
    513,140
    
    
    
    54.1
    %
    
    
    488,347
    
    
    
    53.4
    %
    
    
    455,322
    
    
    
    54.6
    %
    
    
    420,860
    
    
    
    54.0
    %Commercial,
financial and
agricultural
    
    
    199,370
    
    
    
    21.0
    %
    
    
    238,469
    
    
    
    25.2
    %
    
    
    248,691
    
    
    
    27.2
    %
    
    
    231,229
    
    
    
    27.7
    %
    
    
    223,605
    
    
    
    28.7
    %Consumer
    
    
    10,713
    
    
    
    1.1
    %
    
    
    13,481
    
    
    
    1.4
    %
    
    
    15,317
    
    
    
    1.7
    %
    
    
    20,911
    
    
    
    2.5
    %
    
    
    29,015
    
    
    
    3.7
    %All other
    
    
    258
    
    
    
    0.0
    %
    
    
    567
    
    
    
    0.1
    %
    
    
    742
    
    
    
    0.1
    %
    
    
    915
    
    
    
    0.1
    %
    
    
    704
    
    
    
    0.1
    %Total loans
    
    
    949,741
    
    
    
    100.0
    %
    
    
    948,114
    
    
    
    100.0
    %
    
    
    914,169
    
    
    
    100.0
    %
    
    
    833,932
    
    
    
    100.0
    %
    
    
    779,295
    
    
    
    100.0
    %Deferred origination
fees, net
    
    
    (1,592
    )
    
    
    
    
    
    
    (1,788
    )
    
    
    
    
    
    
    (1,677
    )
    
    
    
    
    
    
    (1,485
    )
    
    
    
    
    
    
    (1,158
    )Total loans, net of
deferred fees
    
    $
    948,149
    
    
    
    
    
    
    $
    946,326
    
    
    
    
    
    
    $
    912,492
    
    
    
    
    
    
    $
    832,447
    
    
    
    
    
    
    $
    778,137
  30




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##### Table of Contents



(Table dollars in thousands)
    
    2008
    
    2007
    
    2006
    
    2005
    
    2004Nonperforming assetsNonaccrual loans
    
    $
    50,591
    
    
    $
    36,450
    
    
    $
    9,289
    
    
    $
    6,424
    
    
    $
    6,634Loans past due 90 days or more
and still accruing interest
    
    
    114
    
    
    
    162
    
    
    
    5,074
    
    
    
    4,208
    
    
    
    4,227Foreclosed properties
    
    
    6,805
    
    
    
    2,491
    
    
    
    1,162
    
    
    
    926
    
    
    
    1,280Total
    
    $
    57,510
    
    
    $
    39,103
    
    
    $
    15,525
    
    
    $
    11,558
    
    
    $
    12,141Nonperforming loans to total loans
    
    
    5.35
    %
    
    
    3.87
    %
    
    
    1.57
    %
    
    
    1.28
    %
    
    
    1.40
    %Allowance for loan losses to nonperforming loans
    
    
    48.92
    %
    
    
    48.27
    %
    
    
    109.91
    %
    
    
    130.96
    %
    
    
    125.82
    %Nonperforming loans to total assets
    
    
    4.42
    %
    
    
    3.00
    %
    
    
    1.20
    %
    
    
    0.96
    %
    
    
    1.05
    %Nonperforming assets to total assets
    
    
    5.01
    %
    
    
    3.21
    %
    
    
    1.29
    %
    
    
    1.04
    %
    
    
    1.18
    %
      (Table in thousands)
    
    2008
    
    2007
    
    2006
    
    2005
    
    2004Total investment in impaired loans
    
    $
    42,615
    
    
    $
    27,017
    
    
    $
    15,516
    
    
    $
    11,046
    
    
    $
    12,138Loan loss allowance related to impaired loans
    
    $
    5,400
    
    
    $
    3,029
    
    
    $
    3,926
    
    
    $
    3,249
    
    
    $
    4,325
   31




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##### Table of Contents



32




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##### Table of Contents



(Table dollars in thousands)
    
    2008
    
    2007
    
    2006
    
    2005
    
    2004Balance at beginning of year
    
    $
    17,673
    
    
    $
    15,787
    
    
    $
    13,924
    
    
    $
    13,665
    
    
    $
    10,799Loans charged off:Real estate
    
    
    15,550
    
    
    
    14,850
    
    
    
    1,708
    
    
    
    919
    
    
    
    930Commercial, financial and agricultural
    
    
    10,557
    
    
    
    30,955
    
    
    
    2,808
    
    
    
    3,484
    
    
    
    1,040Credit cards and related plans
    
    
    16
    
    
    
    15
    
    
    
    26
    
    
    
    45
    
    
    
    88Installment loans to individuals
    
    
    396
    
    
    
    177
    
    
    
    410
    
    
    
    540
    
    
    
    683Demand deposit overdraft program
    
    
    195
    
    
    
    233
    
    
    
    251
    
    
    
    262
    
    
    
    297Asset-based lending
    
    
    
    
    
    
    7,433
    
    
    
    
    
    
    
    
    
    
    
    Total charge-offs
    
    
    26,714
    
    
    
    53,663
    
    
    
    5,203
    
    
    
    5,250
    
    
    
    3,038Recoveries of loans previously charged off:Real estate
    
    
    1,340
    
    
    
    233
    
    
    
    84
    
    
    
    63
    
    
    
    24Commercial, financial and agricultural
    
    
    2,041
    
    
    
    19
    
    
    
    282
    
    
    
    29
    
    
    
    70Credit cards and related plans
    
    
    1
    
    
    
    4
    
    
    
    10
    
    
    
    3
    
    
    
    4Installment loans to individuals
    
    
    145
    
    
    
    47
    
    
    
    138
    
    
    
    42
    
    
    
    220Demand deposit overdraft program
    
    
    92
    
    
    
    115
    
    
    
    138
    
    
    
    178
    
    
    
    147Total recoveries
    
    
    3,619
    
    
    
    418
    
    
    
    652
    
    
    
    315
    
    
    
    465Net charge-offs
    
    
    23,095
    
    
    
    53,245
    
    
    
    4,551
    
    
    
    4,935
    
    
    
    2,573Provision for loan losses
    
    
    30,228
    
    
    
    55,131
    
    
    
    6,414
    
    
    
    5,194
    
    
    
    5,439Balance at end of year
    
    $
    24,806
    
    
    $
    17,673
    
    
    $
    15,787
    
    
    $
    13,924
    
    
    $
    13,665Ratio of net charge-offs during the year to
average loans outstanding during the year
    
    
    2.42
    %
    
    
    5.70
    %
    
    
    0.52
    %
    
    
    0.61
    %
    
    
    0.35
    %Allowance coverage of net charge-offs
    
    
    107.41
    %
    
    
    33.19
    %
    
    
    346.95
    %
    
    
    282.14
    %
    
    
    531.08
    %Allowance as a percentage of gross loans
    
    
    2.62
    %
    
    
    1.87
    %
    
    
    1.73
    %
    
    
    1.67
    %
    
    
    1.76
    %
  
 2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofTotal
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    Total(Table dollars in thousands)
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    LoansReal estate
    
    $
    20,164
    
    
    
    77.9
    %
    
    $
    12,421
    
    
    
    73.3
    %
    
    $
    5,091
    
    
    
    71.0
    %
    
    $
    4,448
    
    
    
    69.7
    %
    
    $
    5,782
    
    
    
    67.5
    %Commercial,
financial,
and agricultural
    
    
    3,965
    
    
    
    21.0
    %
    
    
    3,899
    
    
    
    25.2
    %
    
    
    9,891
    
    
    
    27.2
    %
    
    
    8,401
    
    
    
    27.7
    %
    
    
    6,759
    
    
    
    28.7
    %Consumer
    
    
    211
    
    
    
    1.1
    %
    
    
    281
    
    
    
    1.4
    %
    
    
    443
    
    
    
    1.7
    %
    
    
    577
    
    
    
    2.5
    %
    
    
    617
    
    
    
    3.7
    %All other loans
    
    
    34
    
    
    
    0.0
    %
    
    
    310
    
    
    
    0.1
    %
    
    
    
    
    
    
    0.1
    %
    
    
    
    
    
    
    0.1
    %
    
    
    
    
    
    
    0.1
    %Unallocated
    
    
    432
    
    
    
    n/a
    
    
    
    762
    
    
    
    n/a
    
    
    
    362
    
    
    
    n/a
    
    
    
    498
    
    
    
    n/a
    
    
    
    507
    
    
    
    n/aTotal loans
    
    $
    24,806
    
    
    
    100.0
    %
    
    $
    17,673
    
    
    
    100.0
    %
    
    $
    15,787
    
    
    
    100.0
    %
    
    $
    13,924
    
    
    
    100.0
    %
    
    $
    13,665
    
    
    
    100.0
    %
   33




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##### Table of Contents



After One Year but
    
    
    After Five Years butWithin One Year
    
    
    Within Five Years
    
    
    Within Ten Years
    
    
    After Ten Years(Table dollars in thousands)
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    YieldAvailable for sale: (1)U.S. government agency
    
    $
    20,899
    
    
    
    3.96
    %
    
    $
    24,611
    
    
    
    3.63
    %
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    State and political subdivisions (2)
    
    
    
    
    
    
    
    
    
    
    1,847
    
    
    
    5.12
    %
    
    
    847
    
    
    
    5.45
    %
    
    
    2,788
    
    
    
    5.93
    %Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,693
    
    
    
    7.54
    %Total
    
    $
    20,899
    
    
    
    3.96
    %
    
    $
    26,458
    
    
    
    3.73
    %
    
    $
    847
    
    
    
    5.45
    %
    
    $
    5,481
    
    
    
    6.72
    %Held to maturity:State and political subdivisions (2)
    
    $
    6,454
    
    
    
    6.54
    %
    
    $
    12,654
    
    
    
    6.70
    %
    
    $
    2,938
    
    
    
    7.31
    %
    
    $
    1,581
    
    
    
    7.44
    %Total
    
    $
    6,454
    
    
    
    6.54
    %
    
    $
    12,654
    
    
    
    6.70
    %
    
    $
    2,938
    
    
    
    7.31
    %
    
    $
    1,581
    
    
    
    7.44
    %
 
 (1)
    
    Securities available for sale are stated at amortized cost.(2)
    
    Yields on tax-exempt investments have been adjusted to tax equivalent basis using 35% for
2008. 34




---



##### Table of Contents



(Table in thousands)
    
    2008
    
    
    2007
    
    
    2006Available for sale (at estimated fair value):U.S. Treasury
    
    $
    
    
    
    $
    5,055
    
    
    $
    4,994U.S. government agency
    
    
    46,063
    
    
    
    93,763
    
    
    
    111,740State and political subdivisions
    
    
    5,416
    
    
    
    5,520
    
    
    
    5,533Other
    
    
    7,097
    
    
    
    8,628
    
    
    
    12,046Total
    
    $
    58,576
    
    
    $
    112,966
    
    
    $
    134,313Held to maturity (at amortized cost):State and political subdivisions
    
    $
    23,627
    
    
    $
    29,656
    
    
    $
    35,254Total
    
    $
    23,627
    
    
    $
    29,656
    
    
    $
    35,254
   
 Within
    
    
    One to
    
    
    Three to
    
    
    FiveOne
    
    
    Three
    
    
    Five
    
    
    Years or(Table in thousands)
    
    Year
    
    
    Years
    
    
    Years
    
    
    More
    
    
    TotalContractual Cash ObligationsOvernight borrowings
    
    $
    12,669
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    12,669Short-term borrowings
    
    
    36,278
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,278Long-term borrowings
    
    
    
    
    
    
    13,075
    
    
    
    1,000
    
    
    
    
    
    
    
    14,075Capitalized lease obligations
    
    
    444
    
    
    
    888
    
    
    
    799
    
    
    
    1,768
    
    
    
    3,899Operating lease obligations
    
    
    396
    
    
    
    636
    
    
    
    60
    
    
    
    
    
    
    
    1,092Total
    
    $
    49,787
    
    
    $
    14,599
    
    
    $
    1,859
    
    
    $
    1,768
    
    
    $
    68,013Other CommitmentsCommitments to extend credit
    
    $
    77,841
    
    
    $
    14,321
    
    
    $
    6,078
    
    
    $
    64,718
    
    
    $
    162,958Standby letters of credit
    
    
    4,617
    
    
    
    378
    
    
    
    3
    
    
    
    
    
    
    
    4,998Total
    
    $
    82,458
    
    
    $
    14,699
    
    
    $
    6,081
    
    
    $
    64,718
    
    
    $
    167,956
     35




---



##### Table of Contents



Community Banking
  2008 compared to 2007
    
    
    
    
    
    
    
    
    
    2007 compared to 2006(Table dollars in thousands)
    
    2008
    
    2007
    
    $ Change
    
    % Change
    
    2007
    
    2006
    
    $ Change
    
    % ChangeNet interest income
    
    $
    34,345
    
    
    $
    50,093
    
    
    $
    (15,748
    )
    
    
    -31.4
    %
    
    $
    50,093
    
    
    $
    52,393
    
    
    $
    (2,300
    )
    
    
    -4.4
    %Provision for loan losses
    
    
    30,143
    
    
    
    55,083
    
    
    
    (24,940
    )
    
    
    -45.3
    %
    
    
    55,083
    
    
    
    6,366
    
    
    
    48,717
    
    
    
    765.3
    %Securities gains (losses)
    
    
    (754
    )
    
    
    1
    
    
    
    (755
    )
    
    
    n/m
    
    
    
    1
    
    
    
    (26
    )
    
    
    27
    
    
    
    -103.8
    %Total other income
    
    
    7,988
    
    
    
    9,263
    
    
    
    (1,275
    )
    
    
    -13.8
    %
    
    
    9,263
    
    
    
    8,585
    
    
    
    678
    
    
    
    7.9
    %Salaries and wages
    
    
    13,480
    
    
    
    12,603
    
    
    
    877
    
    
    
    7.0
    %
    
    
    12,603
    
    
    
    11,948
    
    
    
    655
    
    
    
    5.5
    %Employee benefits
    
    
    3,401
    
    
    
    5,126
    
    
    
    (1,725
    )
    
    
    -33.7
    %
    
    
    5,126
    
    
    
    4,136
    
    
    
    990
    
    
    
    23.9
    %Goodwill impairment
    
    
    10,763
    
    
    
    
    
    
    
    10,763
    
    
    
    n/a
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    n/aTotal other expenses
    
    
    41,773
    
    
    
    30,105
    
    
    
    11,668
    
    
    
    38.8
    %
    
    
    30,105
    
    
    
    26,033
    
    
    
    4,072
    
    
    
    15.6
    %Income tax expense (benefit)
    
    
    4,842
    
    
    
    (11,437
    )
    
    
    16,279
    
    
    
    -142.3
    %
    
    
    (11,437
    )
    
    
    9,613
    
    
    
    (21,050
    )
    
    
    -219.0
    %Net income (loss)
    
    
    (34,425
    )
    
    
    (14,395
    )
    
    
    (20,030
    )
    
    
    139.1
    %
    
    
    (14,395
    )
    
    
    18,966
    
    
    
    (33,361
    )
    
    
    -175.9
    %Identifiable segment assets
    
    
    1,112,029
    
    
    
    1,179,466
    
    
    
    (67,437
    )
    
    
    -5.7
    %
    
    
    1,179,466
    
    
    
    1,166,171
    
    
    
    13,295
    
    
    
    1.1
    %
    Mortgage Banking
  2008 compared to 2007
    
    
    
    
    
    
    
    
    
    2007 compared to 2006(Table dollars in thousands)
    
    2008
    
    2007
    
    $ Change
    
    % Change
    
    2007
    
    2006
    
    $ Change
    
    % ChangeNet interest income
    
    $
    3,158
    
    
    $
    3,249
    
    
    $
    (91
    )
    
    
    -2.8
    %
    
    $
    3,249
    
    
    $
    3,226
    
    
    $
    23
    
    
    
    0.7
    %Provision for loan losses
    
    
    85
    
    
    
    48
    
    
    
    37
    
    
    
    77.1
    %
    
    
    48
    
    
    
    48
    
    
    
    
    
    
    
    0.0
    %Total other income
    
    
    3,560
    
    
    
    3,916
    
    
    
    (356
    )
    
    
    -9.1
    %
    
    
    3,916
    
    
    
    3,975
    
    
    
    (59
    )
    
    
    -1.5
    %Salaries and wages
    
    
    4,221
    
    
    
    4,172
    
    
    
    49
    
    
    
    1.2
    %
    
    
    4,172
    
    
    
    4,222
    
    
    
    (50
    )
    
    
    -1.2
    %Employee benefits
    
    
    380
    
    
    
    380
    
    
    
    
    
    
    
    0.0
    %
    
    
    380
    
    
    
    319
    
    
    
    61
    
    
    
    19.1
    %Total other expenses
    
    
    6,870
    
    
    
    6,482
    
    
    
    388
    
    
    
    6.0
    %
    
    
    6,482
    
    
    
    6,485
    
    
    
    (3
    )
    
    
    0.0
    %Income tax expense (benefit)
    
    
    (245
    )
    
    
    254
    
    
    
    (499
    )
    
    
    -196.5
    %
    
    
    254
    
    
    
    267
    
    
    
    (13
    )
    
    
    -4.9
    %Net income
    
    
    8
    
    
    
    381
    
    
    
    (373
    )
    
    
    -97.9
    %
    
    
    381
    
    
    
    401
    
    
    
    (20
    )
    
    
    -5.0
    %Identifiable segment assets
    
    
    31,885
    
    
    
    35,167
    
    
    
    (3,282
    )
    
    
    -9.3
    %
    
    
    35,167
    
    
    
    28,557
    
    
    
    6,610
    
    
    
    23.1
    %
  36




---



##### Table of Contents



Other
    
   37




---



##### Table of Contents



Begins onPageReport of Independent Registered Public Accounting Firm
    
    
    39Financial Statements:Consolidated Balance Sheets
    
    
    40December 31, 2008 and 2007Consolidated Statements of Income
    
    
    41Years Ended December 31, 2008, 2007 and 2006Consolidated Statements of Comprehensive Income
    
    
    42Years Ended December 31, 2008, 2007 and 2006Consolidated Statements of Changes in Stockholders Equity
    
    
    43Years Ended December 31, 2008, 2007 and 2006Consolidated Statements of Cash Flows
    
    
    44Years Ended December 31, 2008, 2007 and 2006Notes to Consolidated Financial Statements
    
    
    46Years Ended December 31, 2008, 2007 and 2006Supplementary Financial Data:Selected Quarterly Financial Data (Unaudited)
    
    
    78Years Ended December 31, 2008 and 2007
 38




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Internal Control 
Integrated Framework
 /s/ Dixon Hughes PLLCDIXON HUGHES PLLCCharlotte, North CarolinaMarch 30, 2009
 39




---



##### Table of Contents



BANK OF GRANITE CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 DECEMBER 31, 2008 AND 2007
 (In thousands except per share data)
    
    2008
    
    2007ASSETS:Cash and cash equivalentsCash and due from banks
    
    $
    26,164
    
    
    $
    29,905Interest-bearing deposits
    
    
    6,819
    
    
    
    3,419Federal funds sold
    
    
    16,000
    
    
    
    Total cash and cash equivalents
    
    
    48,983
    
    
    
    33,324Investment securitiesAvailable for sale, at fair value (amortized cost of $57,840 and
$113,129 at December 31, 2008 and 2007, respectively)
    
    
    58,576
    
    
    
    112,966Held to maturity, at amortized cost (fair value of $24,292 and
$30,395 at December 31, 2008 and 2007, respectively)
    
    
    23,627
    
    
    
    29,656Loans
    
    
    948,149
    
    
    
    946,326Allowance for loan losses
    
    
    (24,806
    )
    
    
    (17,673
    )Net loans
    
    
    923,343
    
    
    
    928,653Mortgage loans held for sale
    
    
    16,770
    
    
    
    15,319Premises and equipment, net
    
    
    19,079
    
    
    
    15,462Accrued interest receivable
    
    
    3,979
    
    
    
    6,949Investment in bank owned life insurance
    
    
    31,278
    
    
    
    30,090Intangible assets
    
    
    143
    
    
    
    10,969Other assets
    
    
    21,177
    
    
    
    35,760Total assets
    
    $
    1,146,955
    
    
    $
    1,219,148LIABILITIES AND STOCKHOLDERS EQUITY:DepositsDemand
    
    $
    117,168
    
    
    $
    143,945NOW accounts
    
    
    153,444
    
    
    
    130,354Money market accounts
    
    
    204,108
    
    
    
    242,872Savings
    
    
    19,674
    
    
    
    21,169Time deposits of $100 or more
    
    
    208,002
    
    
    
    208,271Other time deposits
    
    
    289,426
    
    
    
    225,378Total deposits
    
    
    991,822
    
    
    
    971,989Overnight and short-term borrowings
    
    
    48,947
    
    
    
    100,190Long-term borrowings
    
    
    14,075
    
    
    
    17,607Accrued interest payable
    
    
    2,750
    
    
    
    3,212Other liabilities
    
    
    15,191
    
    
    
    10,885Total liabilities
    
    
    1,072,785
    
    
    
    1,103,883STOCKHOLDERS EQUITY:Common stock, $1.00 par value, authorized - 25,000 shares;
issued - 18,981 shares in 2008 and 18,965 shares in 2007;
outstanding - 15,454 shares in 2008 and 15,438 shares in 2007
    
    
    18,981
    
    
    
    18,965Additional paid-in capital
    
    
    30,190
    
    
    
    30,053Retained earnings
    
    
    77,928
    
    
    
    118,196Accumulated other comprehensive loss, net of
deferred income taxes of $714 and $64 at
December 31, 2008 and 2007, respectively
    
    
    (1,077
    )
    
    
    (97
    )Less: Cost of common stock in treasury;
3,527 shares in 2008 and 3,527 shares in 2007
    
    
    (51,852
    )
    
    
    (51,852
    )Total stockholders equity
    
    
    74,170
    
    
    
    115,265Total liabilities and stockholders equity
    
    $
    1,146,955
    
    
    $
    1,219,148
  40




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##### Table of Contents



BANK OF GRANITE CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME
 YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
 (In thousands except per share data)
    
    2008
    
    2007
    
    2006INTEREST INCOME:Interest and fees from loans
    
    $
    57,953
    
    
    $
    77,066
    
    
    $
    73,682Interest and fees from mortgage banking
    
    
    4,336
    
    
    
    4,840
    
    
    
    4,398Federal funds sold
    
    
    63
    
    
    
    91
    
    
    
    670Interest-bearing deposits
    
    
    339
    
    
    
    252
    
    
    
    755Investments:U.S. Treasury
    
    
    150
    
    
    
    173
    
    
    
    173U.S. Government agencies
    
    
    2,129
    
    
    
    4,718
    
    
    
    4,309States and political subdivisions
    
    
    1,335
    
    
    
    1,592
    
    
    
    1,851Other
    
    
    618
    
    
    
    583
    
    
    
    535Total interest income
    
    
    66,923
    
    
    
    89,315
    
    
    
    86,373INTEREST EXPENSE:Time deposits of $100 or more
    
    
    8,724
    
    
    
    10,036
    
    
    
    9,324Other time and savings deposits
    
    
    17,920
    
    
    
    22,776
    
    
    
    18,839Overnight and short-term borrowings
    
    
    2,431
    
    
    
    3,348
    
    
    
    2,694Long-term borrowings
    
    
    678
    
    
    
    688
    
    
    
    920Total interest expense
    
    
    29,753
    
    
    
    36,848
    
    
    
    31,777NET INTEREST INCOME
    
    
    37,170
    
    
    
    52,467
    
    
    
    54,596PROVISION FOR LOAN LOSSES
    
    
    30,228
    
    
    
    55,131
    
    
    
    6,414NET INTEREST INCOME (LOSS) AFTER
PROVISION FOR LOAN LOSSES
    
    
    6,942
    
    
    
    (2,664
    )
    
    
    48,182OTHER INCOME:Service charges on deposit accounts
    
    
    5,664
    
    
    
    5,876
    
    
    
    5,755Other service charges, fees and commissions
    
    
    703
    
    
    
    919
    
    
    
    863Mortgage banking income
    
    
    3,573
    
    
    
    3,916
    
    
    
    3,975Securities gains (losses)
    
    
    (1,938
    )
    
    
    1
    
    
    
    92Other
    
    
    2,376
    
    
    
    2,467
    
    
    
    1,993Total other income
    
    
    10,378
    
    
    
    13,179
    
    
    
    12,678OTHER EXPENSES:Salaries and wages
    
    
    17,701
    
    
    
    16,775
    
    
    
    16,170Employee benefits
    
    
    3,796
    
    
    
    5,521
    
    
    
    4,476Occupancy expense, net
    
    
    2,443
    
    
    
    2,456
    
    
    
    2,291Equipment rentals, depreciation and
maintenance
    
    
    2,568
    
    
    
    2,293
    
    
    
    2,488Goodwill impairment
    
    
    10,763
    
    
    
    
    
    
    
    Other
    
    
    11,703
    
    
    
    9,956
    
    
    
    7,523Total other expenses
    
    
    48,974
    
    
    
    37,001
    
    
    
    32,948INCOME (LOSS) BEFORE INCOME
TAXES (BENEFIT)
    
    
    (31,654
    )
    
    
    (26,486
    )
    
    
    27,912INCOME TAX EXPENSE (BENEFIT)
    
    
    4,597
    
    
    
    (11,183
    )
    
    
    9,880NET INCOME (LOSS)
    
    $
    (36,251
    )
    
    $
    (15,303
    )
    
    $
    18,032PER SHARE AMOUNTSNet income (loss)  Basic
    
    $
    (2.35
    )
    
    $
    (0.97
    )
    
    $
    1.12Net income (loss)  Diluted
    
    
    (2.35
    )
    
    
    (0.97
    )
    
    
    1.12Dividends
    
    
    0.26
    
    
    
    0.52
    
    
    
    0.48Book value
    
    
    4.80
    
    
    
    7.47
    
    
    
    9.14
  41




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##### Table of Contents



BANK OF GRANITE CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
 (In thousands)
    
    2008
    
    2007
    
    2006NET INCOME (LOSS)
    
    $
    (36,251
    )
    
    $
    (15,303
    )
    
    $
    18,032ITEMS OF OTHER COMPREHENSIVE
INCOME (LOSS):Items of other comprehensive income (loss),
before tax:Unrealized gains on securities
available for sale
    
    
    2,839
    
    
    
    1,357
    
    
    
    126Reclassification adjustment for
gains (losses) included in net income
    
    
    (1,943
    )
    
    
    1
    
    
    
    90Unrealized gains (losses) on mortgage
derivative instruments
    
    
    
    
    
    
    100
    
    
    
    (41
    )Prior service cost and net actuarial loss  SERP
    
    
    (2,526
    )
    
    
    
    
    
    
    Other comprehensive income (loss),
before tax
    
    
    (1,630
    )
    
    
    1,458
    
    
    
    175Change in deferred income taxes
related to change in unrealized gains
or losses on securities available for sale
    
    
    (357
    )
    
    
    (541
    )
    
    
    (86
    )Change in deferred income taxes
related to change in unrealized gains
or losses on mortgage derivative instruments
    
    
    
    
    
    
    (40
    )
    
    
    16Change in deferred income taxes related to
prior service cost and net actuarial loss  SERP
    
    
    1,007
    
    
    
    
    
    
    
    Items of other comprehensive income (loss),
net of tax
    
    
    (980
    )
    
    
    877
    
    
    
    105COMPREHENSIVE INCOME (LOSS)
    
    $
    (37,231
    )
    
    $
    (14,426
    )
    
    $
    18,137
  42




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BANK OF GRANITE CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
 YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
 (In thousands except per share data)
    
    2008
    
    2007
    
    2006COMMON STOCK, $1.00 par valueAt beginning of year
    
    $
    18,965
    
    
    $
    18,922
    
    
    $
    15,097Par value of shares issued under stock option plan
    
    
    16
    
    
    
    43
    
    
    
    41Transfer from surplus due to stock splits
    
    
    
    
    
    
    
    
    
    
    3,784At end of year
    
    
    18,981
    
    
    
    18,965
    
    
    
    18,922ADDITIONAL PAID-IN CAPITALAt beginning of year
    
    
    30,053
    
    
    
    29,524
    
    
    
    32,679Surplus of shares issued under stock option plan
    
    
    112
    
    
    
    456
    
    
    
    574Tax benefit from nonqualifying dispositions
of stock options
    
    
    10
    
    
    
    58
    
    
    
    34Stock-based compensation expense
    
    
    15
    
    
    
    15
    
    
    
    21Transfer to common stock due to stock splits
    
    
    
    
    
    
    
    
    
    
    (3,784
    )At end of year
    
    
    30,190
    
    
    
    30,053
    
    
    
    29,524RETAINED EARNINGSAt beginning of year
    
    
    118,196
    
    
    
    141,662
    
    
    
    133,209Cumulative effect of adoption of SAB 108
    
    
    
    
    
    
    
    
    
    
    (1,807
    )Net income (loss)
    
    
    (36,251
    )
    
    
    (15,303
    )
    
    
    18,032Dividends
    
    
    (4,017
    )
    
    
    (8,163
    )
    
    
    (7,761
    )Cash paid for fractional shares
    
    
    
    
    
    
    
    
    
    
    (11
    )At end of year
    
    
    77,928
    
    
    
    118,196
    
    
    
    141,662ACCUMULATED OTHER
COMPREHENSIVE INCOME,
NET OF DEFERRED INCOME TAXESAt beginning of year
    
    
    (97
    )
    
    
    (974
    )
    
    
    (1,079
    )Net change in unrealized gains or losses on securities
available for sale, net of deferred income taxes
    
    
    539
    
    
    
    817
    
    
    
    130Net change in unrealized gains or losses on mortgage
derivative instruments, net of deferred income taxes
    
    
    
    
    
    
    60
    
    
    
    (25
    )Net change in prior service cost and net actuarial
loss  SERP, net of deferred income taxes
    
    
    (1,519
    )
    
    
    
    
    
    
    At end of year
    
    
    (1,077
    )
    
    
    (97
    )
    
    
    (974
    )COST OF COMMON STOCK
IN TREASURYAt beginning of year
    
    
    (51,852
    )
    
    
    (42,701
    )
    
    
    (40,058
    )Cost of common stock repurchased
    
    
    
    
    
    
    (9,151
    )
    
    
    (2,643
    )At end of year
    
    
    (51,852
    )
    
    
    (51,852
    )
    
    
    (42,701
    )Total stockholders equity
    
    $
    74,170
    
    
    $
    115,265
    
    
    $
    146,433Shares issuedAt beginning of year
    
    
    18,965
    
    
    
    18,922
    
    
    
    15,097Shares issued under incentive stock option plans
    
    
    16
    
    
    
    43
    
    
    
    41Shares issued due to stock splits
    
    
    
    
    
    
    
    
    
    
    3,784At end of year
    
    
    18,981
    
    
    
    18,965
    
    
    
    18,922Common shares in treasuryAt beginning of year
    
    
    (3,527
    )
    
    
    (2,899
    )
    
    
    (2,185
    )Common shares repurchased
    
    
    
    
    
    
    (628
    )
    
    
    (134
    )Shares issued due to stock splits
    
    
    
    
    
    
    
    
    
    
    (580
    )At end of year
    
    
    (3,527
    )
    
    
    (3,527
    )
    
    
    (2,899
    )Total shares outstanding
    
    
    15,454
    
    
    
    15,438
    
    
    
    16,023
  43




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BANK OF GRANITE CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
 (In thousands)
    
    2008
    
    2007
    
    2006INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    (36,251
    )
    
    $
    (15,303
    )
    
    $
    18,032Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Depreciation
    
    
    1,946
    
    
    
    1,671
    
    
    
    1,795Provision for loan losses
    
    
    30,228
    
    
    
    55,131
    
    
    
    6,414Goodwill impairment
    
    
    10,763
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    15
    
    
    
    15
    
    
    
    21Investment security premium amortization, net
    
    
    192
    
    
    
    203
    
    
    
    239Acquisition premium amortization, net
    
    
    46
    
    
    
    79
    
    
    
    212Deferred income taxes
    
    
    9,507
    
    
    
    (1,602
    )
    
    
    (1,635
    )Losses (gains) on sales or calls of securities
available for sale
    
    
    6
    
    
    
    (1
    )
    
    
    (90
    )Gains on calls of securities
held to maturity
    
    
    (5
    )
    
    
    
    
    
    
    (2
    )Impairment losses on securities
    
    
    1,937
    
    
    
    
    
    
    
    Originations of loans held for sale
    
    
    (254,684
    )
    
    
    (267,163
    )
    
    
    (248,945
    )Proceeds from loans held for sale
    
    
    256,538
    
    
    
    266,073
    
    
    
    250,896Losses (gains) on loans held for sale
    
    
    (3,305
    )
    
    
    (2,432
    )
    
    
    335Losses on hedged mortgage loan commitments
    
    
    
    
    
    
    100
    
    
    
    Loss on disposal or sale of premises
    
    
    39
    
    
    
    2
    
    
    
    103Gains on disposal or sale of equipment
    
    
    (10
    )
    
    
    (1
    )
    
    
    (13
    )Loss (gain) on sale of other real estate
    
    
    681
    
    
    
    728
    
    
    
    (25
    )Decrease in taxes payable
    
    
    
    
    
    
    (583
    )
    
    
    (195
    )Decrease (increase) in accrued interest receivable
    
    
    2,970
    
    
    
    1,672
    
    
    
    (1,234
    )Increase (decrease) in accrued interest payable
    
    
    (462
    )
    
    
    (115
    )
    
    
    826Increase in cash surrender value of bank
owned life insurance
    
    
    (1,188
    )
    
    
    (1,164
    )
    
    
    (863
    )Decrease (increase) in other assets
    
    
    4,017
    
    
    
    (19,808
    )
    
    
    (1,032
    )Increase in other liabilities
    
    
    3,787
    
    
    
    207
    
    
    
    1,696Net cash provided by
operating activities
    
    
    26,767
    
    
    
    17,709
    
    
    
    26,536CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from maturities, calls and paydowns of
securities available for sale
    
    
    68,152
    
    
    
    20,361
    
    
    
    15,898Proceeds from maturities, calls and paydowns of
securities held to maturity
    
    
    6,010
    
    
    
    5,565
    
    
    
    6,071Proceeds from sales of securities available for sale
    
    
    275
    
    
    
    4,326
    
    
    
    760Purchases of securities available for sale
    
    
    (15,251
    )
    
    
    (6,758
    )
    
    
    (38,545
    )Net increase in loans
    
    
    (24,933
    )
    
    
    (87,117
    )
    
    
    (84,685
    )Investment in bank owned life insurance
    
    
    
    
    
    
    (2,001
    )
    
    
    (6,369
    )Capital expenditures
    
    
    (5,602
    )
    
    
    (3,719
    )
    
    
    (2,465
    )Proceeds from sales of fixed assets
    
    
    10
    
    
    
    11
    
    
    
    1,959Proceeds from sales of other real estate
    
    
    1,027
    
    
    
    655
    
    
    
    748Net cash provided (used) by investing activities
    
    
    29,688
    
    
    
    (68,677
    )
    
    
    (106,629
    )
   44




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BANK OF GRANITE CORPORATION AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
    
    (concluded from previous page)
 YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
 (In thousands)
    
    2008
    
    2007
    
    2006CASH FLOWS FROM FINANCING ACTIVITIES:Net increase (decrease) in demand deposits, NOW
and savings deposits
    
    $
    (43,946
    )
    
    $
    24,241
    
    
    $
    38,466Net increase (decrease) in time deposits
    
    
    63,779
    
    
    
    (16,089
    )
    
    
    46,260Net increase (decrease) in overnight and
short-term borrowings
    
    
    (51,243
    )
    
    
    40,492
    
    
    
    (608
    )Net increase (decrease) in long-term borrowings
    
    
    (3,500
    )
    
    
    2,500
    
    
    
    (2,000
    )Proceeds from shares issued under stock option plan
    
    
    128
    
    
    
    499
    
    
    
    581Tax benefit on shares issued under stock option plan
    
    
    10
    
    
    
    58
    
    
    
    34Dividends paid
    
    
    (6,024
    )
    
    
    (8,239
    )
    
    
    (7,485
    )Purchases of common stock for treasury
    
    
    
    
    
    
    (9,151
    )
    
    
    (2,643
    )Cash paid for fractional shares
    
    
    
    
    
    
    
    
    
    
    (11
    )Net cash provided (used) by financing activities
    
    
    (40,796
    )
    
    
    34,311
    
    
    
    72,594NET INCREASE (DECREASE) IN
CASH EQUIVALENTS
    
    
    15,659
    
    
    
    (16,657
    )
    
    
    (7,501
    )CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR
    
    
    33,324
    
    
    
    49,981
    
    
    
    57,482CASH AND CASH EQUIVALENTS
AT END OF YEAR
    
    $
    48,983
    
    
    $
    33,324
    
    
    $
    49,981SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid during the year for:Interest
    
    $
    30,215
    
    
    $
    36,963
    
    
    $
    30,951Income taxes
    
    
    4,597
    
    
    
    (10,600
    )
    
    $
    10,075Noncash investing and financing activities:Transfer from surplus to common
stock due to stock split
    
    
    
    
    
    
    
    
    
    
    3,784Transfer from loans to other real
estate owned
    
    
    6,022
    
    
    
    3,277
    
    
    
    1,281
  45




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BANK OF GRANITE CORPORATION AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         46




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48




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2008
    
    2007
    
    2006Risk-free rate
    
    3.41%
    
    4.57%
    
    5.00%Average expected term (years)
    
    5.5 years
    
    5.5 years
    
    5.6 yearsExpected volatility
    
    43.22%
    
    33.42%
    
    34.24%Expected dividend yield
    
    3.18%
    
    3.09%
    
    2.85%Expected turnover
    
    8.76%
    
    8.79%
    
    8.66%
      49




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50




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51




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2. INVESTMENT SECURITIES
  (Table in thousands)
    
    Amortized
    
    Gross Unrealized
    
    FairType and Contractual Maturity
    
    Cost
    
    Gains
    
    Losses
    
    ValueAVAILABLE FOR SALEAt December 31, 2008:U. S. Government agencies due:Within 1 year
    
    $
    20,899
    
    
    $
    340
    
    
    $
    
    
    
    $
    21,239After 1 year but within 5 years
    
    
    24,611
    
    
    
    218
    
    
    
    5
    
    
    
    24,824Total U.S. Government agencies
    
    
    45,510
    
    
    
    558
    
    
    
    5
    
    
    
    46,063State and local due:After 1 year but within 5 years
    
    
    1,847
    
    
    
    37
    
    
    
    
    
    
    
    1,884After 5 years but within 10 years
    
    
    847
    
    
    
    4
    
    
    
    4
    
    
    
    847After 10 years
    
    
    2,788
    
    
    
    
    
    
    
    103
    
    
    
    2,685Total state and local
    
    
    5,482
    
    
    
    41
    
    
    
    107
    
    
    
    5,416Others* due:After 10 years
    
    
    2,693
    
    
    
    210
    
    
    
    
    
    
    
    2,903Equity securities
    
    
    4,155
    
    
    
    39
    
    
    
    
    
    
    
    4,194Total others
    
    
    6,848
    
    
    
    249
    
    
    
    
    
    
    
    7,097Total available for sale
    
    $
    57,840
    
    
    $
    848
    
    
    $
    112
    
    
    $
    58,576HELD TO MATURITYAt December 31, 2008:State and local due:Within 1 year
    
    $
    6,454
    
    
    $
    50
    
    
    $
    
    
    
    $
    6,504After 1 year but within 5 years
    
    
    12,654
    
    
    
    404
    
    
    
    
    
    
    
    13,058After 5 years but within 10 years
    
    
    2,938
    
    
    
    133
    
    
    
    
    
    
    
    3,071After 10 years
    
    
    1,581
    
    
    
    78
    
    
    
    
    
    
    
    1,659Total state and local
    
    
    23,627
    
    
    
    665
    
    
    
    
    
    
    
    24,292Total held to maturity
    
    $
    23,627
    
    
    $
    665
    
    
    $
    
    
    
    $
    24,292
 
 *
    
    Others include investments in common stocks, preferred stocks and mutual funds.   52




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(Table in thousands)
    
    Amortized
    
    
    Gross Unrealized
    
    
    FairType and Contractual Maturity
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueAVAILABLE FOR SALEAt December 31, 2007:U. S. Treasury due:Within 1 year
    
    $
    5,056
    
    
    $
    
    
    
    $
    1
    
    
    $
    5,055Total U.S. Treasury
    
    
    5,056
    
    
    
    
    
    
    
    1
    
    
    
    5,055U. S. Government agencies due:Within 1 year
    
    
    28,713
    
    
    
    
    
    
    
    81
    
    
    
    28,632After 1 year but within 5 years
    
    
    62,850
    
    
    
    309
    
    
    
    28
    
    
    
    63,131After 5 years but within 10 years
    
    
    1,999
    
    
    
    1
    
    
    
    
    
    
    
    2,000Total U.S. Government agencies
    
    
    93,562
    
    
    
    310
    
    
    
    109
    
    
    
    93,763State and local due:After 1 year but within 5 years
    
    
    981
    
    
    
    1
    
    
    
    
    
    
    
    982After 5 years but within 10 years
    
    
    1,733
    
    
    
    14
    
    
    
    
    
    
    
    1,747After 10 years
    
    
    2,803
    
    
    
    2
    
    
    
    14
    
    
    
    2,791Total state and local
    
    
    5,517
    
    
    
    17
    
    
    
    14
    
    
    
    5,520Others* due:After 10 years
    
    
    3,145
    
    
    
    207
    
    
    
    28
    
    
    
    3,324Equity securities
    
    
    5,849
    
    
    
    229
    
    
    
    774
    
    
    
    5,304Total others
    
    
    8,994
    
    
    
    436
    
    
    
    802
    
    
    
    8,628Total available for sale
    
    $
    113,129
    
    
    $
    763
    
    
    $
    926
    
    
    $
    112,966HELD TO MATURITYAt December 31, 2007:State and local due:Within 1 year
    
    $
    5,783
    
    
    $
    20
    
    
    $
    
    
    
    $
    5,803After 1 year but within 5 years
    
    
    18,225
    
    
    
    418
    
    
    
    
    
    
    
    18,643After 5 years but within 10 years
    
    
    3,604
    
    
    
    165
    
    
    
    
    
    
    
    3,769After 10 years
    
    
    2,044
    
    
    
    136
    
    
    
    
    
    
    
    2,180Total state and local
    
    
    29,656
    
    
    
    739
    
    
    
    
    
    
    
    30,395Total held to maturity
    
    $
    29,656
    
    
    $
    739
    
    
    $
    
    
    
    $
    30,395
 
 *
    
    Others include investments in common stocks, preferred stocks and mutual funds.     53




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Less than 12 months
    
    12 months or more
    
    TotalFair
    
    Unrealized
    
    Fair
    
    Unrealized
    
    Fair
    
    Unrealized(Table in thousands)
    
    Value
    
    Loss
    
    Value
    
    Loss
    
    Value
    
    Loss2008U.S. Government agencies
    
    $
    1,995
    
    
    $
    (5
    )
    
    $
    
    
    
    $
    
    
    
    $
    1,995
    
    
    $
    (5
    )State and local
    
    
    985
    
    
    
    (60
    )
    
    
    2,128
    
    
    
    (47
    )
    
    
    3,113
    
    
    
    (107
    )Total temporarily impaired
    
    $
    2,980
    
    
    $
    (65
    )
    
    $
    2,128
    
    
    $
    (47
    )
    
    $
    5,108
    
    
    $
    (112
    )2007U.S. Treasury
    
    $
    
    
    
    $
    
    
    
    $
    5,055
    
    
    $
    (1
    )
    
    $
    5,055
    
    
    $
    (1
    )U.S. Government agencies
    
    
    
    
    
    
    
    
    
    
    47,596
    
    
    
    (109
    )
    
    
    47,596
    
    
    
    (109
    )State and local
    
    
    1,223
    
    
    
    (9
    )
    
    
    1,405
    
    
    
    (5
    )
    
    
    2,628
    
    
    
    (14
    )Others
    
    
    2,483
    
    
    
    (370
    )
    
    
    4,303
    
    
    
    (432
    )
    
    
    6,786
    
    
    
    (802
    )Total temporarily impaired
    
    $
    3,706
    
    
    $
    (379
    )
    
    $
    58,359
    
    
    $
    (547
    )
    
    $
    62,065
    
    
    $
    (926
    )
       54




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##### Table of Contents



3. LOANS
  (Table in thousands)
    
    2008
    
    2007Real estate:Construction
    
    $
    146,167
    
    
    $
    182,457Mortgage
    
    
    593,233
    
    
    
    513,140Commercial, financial and agricultural
    
    
    199,370
    
    
    
    238,469Consumer
    
    
    10,713
    
    
    
    13,481All other loans
    
    
    258
    
    
    
    567949,741
    
    
    
    948,114Deferred origination fees, net
    
    
    (1,592
    )
    
    
    (1,788
    )Total
    
    $
    948,149
    
    
    $
    946,326
  (Table in thousands)
    
    2008
    
    2007
    
    % ChangeNonaccrual loans
    
    $
    50,591
    
    
    $
    36,450
    
    
    
    38.8
    %Loans 90 days or more and still
accruing interest
    
    
    114
    
    
    
    162
    
    
    
    -29.6
    %Foreclosed properties
    
    
    6,805
    
    
    
    2,491
    
    
    
    173.2
    %Total
    
    $
    57,510
    
    
    $
    39,103
    
    
    
    47.1
    %Impaired loans with related loan loss allowance
    
    $
    20,816
    
    
    $
    3,529
    
    
    
    489.9
    %Impaired loans without related loan loss allowance
    
    
    21,799
    
    
    
    23,488
    
    
    
    -7.2
    %Total investment in impaired loans
    
    $
    42,615
    
    
    $
    27,017
    
    
    
    57.7
    %Loan loss allowance related to impaired loans
    
    $
    5,400
    
    
    $
    3,029
    
    
    
    78.3
    %Average recorded balance of impaired loans
    
    $
    29,000
    
    
    $
    22,500
    
    
    
    28.9
    %
    (Table in thousands)
    
    2008Balance at beginning of year
    
    $
    2,491Additions
    
    
    6,022Proceeds from sale
    
    
    (1,027
    )Write-downs and net gain (loss) on sale
    
    
    (681
    )Balance at end of year
    
    $
    6,805
 55




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##### Table of Contents



4. ALLOWANCE FOR LOAN LOSSES
  (Table in thousands)
    
    2008
    
    2007
    
    2006Balance at beginning of year
    
    $
    17,673
    
    
    $
    15,787
    
    
    $
    13,924Loans charged off:Real estate
    
    
    15,550
    
    
    
    14,850
    
    
    
    1,708Commercial, financial and agricultural
    
    
    10,557
    
    
    
    30,955
    
    
    
    2,808Credit cards and related plans
    
    
    16
    
    
    
    15
    
    
    
    26Installment loans to individuals
    
    
    396
    
    
    
    177
    
    
    
    410Demand deposit overdraft program
    
    
    195
    
    
    
    233
    
    
    
    251Asset-based lending
    
    
    
    
    
    
    7,433
    
    
    
    Total charge-offs
    
    
    26,714
    
    
    
    53,663
    
    
    
    5,203Recoveries of loans previously charged off:Real estate
    
    
    1,340
    
    
    
    233
    
    
    
    84Commercial, financial and agricultural
    
    
    2,041
    
    
    
    19
    
    
    
    282Credit cards and related plans
    
    
    1
    
    
    
    4
    
    
    
    10Installment loans to individuals
    
    
    145
    
    
    
    47
    
    
    
    138Demand deposit overdraft program
    
    
    92
    
    
    
    115
    
    
    
    138Total recoveries
    
    
    3,619
    
    
    
    418
    
    
    
    652Net charge-offs
    
    
    23,095
    
    
    
    53,245
    
    
    
    4,551Provision for loan losses
    
    
    30,228
    
    
    
    55,131
    
    
    
    6,414Balance at end of year
    
    $
    24,806
    
    
    $
    17,673
    
    
    $
    15,787Ratio of net charge-offs during the year to
average loans outstanding during the year
    
    
    2.42
    %
    
    
    5.70
    %
    
    
    0.52
    %
 5. PREMISES AND EQUIPMENT
  Premises andAccumulated
    
    Equipment,(Table in thousands)
    
    Cost
    
    Depreciation
    
    NetAt December 31, 2008:Land
    
    $
    3,937
    
    
    $
    
    
    
    $
    3,937Buildings
    
    
    13,935
    
    
    
    4,618
    
    
    
    9,317Leasehold improvements
    
    
    768
    
    
    
    389
    
    
    
    379Furniture, equipment and vehicles
    
    
    16,842
    
    
    
    13,078
    
    
    
    3,764Capitalized leases
    
    
    1,959
    
    
    
    349
    
    
    
    1,610Construction in progress
    
    
    72
    
    
    
    
    
    
    
    72Total
    
    $
    37,513
    
    
    $
    18,434
    
    
    $
    19,079
 56




---



##### Table of Contents



Premises andAccumulated
    
    Equipment,(Table in thousands)
    
    Cost
    
    Depreciation
    
    NetAt December 31, 2007:Land
    
    $
    2,814
    
    
    $
    
    
    
    $
    2,814Buildings
    
    
    11,295
    
    
    
    4,271
    
    
    
    7,024Leasehold improvements
    
    
    770
    
    
    
    281
    
    
    
    489Furniture, equipment and vehicles
    
    
    15,650
    
    
    
    11,882
    
    
    
    3,768Capitalized leases
    
    
    1,460
    
    
    
    155
    
    
    
    1,305Construction in progress
    
    
    62
    
    
    
    
    
    
    
    62Total
    
    $
    32,051
    
    
    $
    16,589
    
    
    $
    15,462
 6. OTHER INCOME AND EXPENSES
  (Table in thousands)
    
    2008
    
    2007
    
    2006Items included in service charges on deposit accountsFees from demand deposit overdrafts
    
    $
    4,004
    
    
    $
    4,157
    
    
    $
    4,085Items included in other incomeIncrease in cash value of BOLI
    
    
    1,188
    
    
    
    1,164
    
    
    
    863Items included in other expensesTelephone
    
    
    820
    
    
    
    811
    
    
    
    781Outside consulting services
    
    
    1,097
    
    
    
    916
    
    
    
    557Marketing
    
    
    797
    
    
    
    875
    
    
    
    924Legal fees (other than collection)
    
    
    922
    
    
    
    1,127
    
    
    
    284FDIC deposit insurance premiums
    
    
    1,176
    
    
    
    117
    
    
    
    117Loss on other real estate owned
    
    
    828
    
    
    
    778
    
    
    
    122
 7. INCOME TAXES
  (Table in thousands)
    
    2008
    
    2007
    
    2006Income tax expense (benefit)Current
    
    $
    (4,910
    )
    
    $
    (9,581
    )
    
    $
    11,515Deferred
    
    
    9,507
    
    
    
    (1,602
    )
    
    
    (1,635
    )Total
    
    $
    4,597
    
    
    $
    (11,183
    )
    
    $
    9,880
   57




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##### Table of Contents



(Table dollars in thousands)
    
    2008
    
    2007
    
    2006Statutory federal income tax rate
    
    
    35
    %
    
    
    35
    %
    
    
    35
    %Tax expense (benefit) at statutory rate
    
    $
    (10,550
    )
    
    $
    (9,270
    )
    
    $
    9,769Increase (decrease) in income taxes
resulting from:Deferred tax asset valuation allowance
    
    
    13,000
    
    
    
    
    
    
    
    Goodwill impairment
    
    
    3,767
    
    
    
    
    
    
    
    Investment security write-offs
    
    
    678
    
    
    
    
    
    
    
    State income taxes net of federal tax benefit
    
    
    (2,292
    )
    
    
    (1,128
    )
    
    
    1,012Tax-exempt interest income
    
    
    (474
    )
    
    
    (572
    )
    
    
    (668
    )Other, net
    
    
    468
    
    
    
    (213
    )
    
    
    (233
    )Income tax expense (benefit)
    
    $
    4,597
    
    
    $
    (11,183
    )
    
    $
    9,880
   December 31, 2008(Table in thousands)
    
    Assets
    
    Liabilities
    
    TotalExcess book over tax bad debt expense
    
    $
    9,877
    
    
    $
    
    
    
    $
    9,877Deferred compensation
    
    
    2,361
    
    
    
    
    
    
    
    2,361Deferred retirement prior service costs
    
    
    1,007
    
    
    
    
    
    
    
    1,007State taxes on loss carryforward
    
    
    1,511
    
    
    
    
    
    
    
    1,511Excess tax over book loan interest income
    
    
    988
    
    
    
    
    
    
    
    988Excess tax over book loan fee income
    
    
    653
    
    
    
    
    
    
    
    653Deferred tax asset valuation allowance
    
    
    (13,000
    )
    
    
    
    
    
    
    (13,000
    )OID loan fee deferrals
    
    
    
    
    
    
    (587
    )
    
    
    (587
    )Excess tax over book fixed asset depreciation
    
    
    
    
    
    
    (512
    )
    
    
    (512
    )Excess tax over book prepaid amortization
    
    
    
    
    
    
    (166
    )
    
    
    (166
    )Unrealized gain on securities
available for sale
    
    
    
    
    
    
    (293
    )
    
    
    (293
    )Other, net
    
    
    72
    
    
    
    (340
    )
    
    
    (268
    )Total
    
    $
    3,469
    
    
    $
    (1,898
    )
    
    $
    1,571
 December 31, 2007(Table in thousands)
    
    Assets
    
    Liabilities
    
    TotalExcess book over tax bad debt expense
    
    $
    6,990
    
    
    $
    
    
    
    $
    6,990Deferred compensation
    
    
    1,746
    
    
    
    
    
    
    
    1,746State taxes on loss carryforward
    
    
    1,511
    
    
    
    
    
    
    
    1,511Excess tax over book loan fee income
    
    
    706
    
    
    
    
    
    
    
    706Excess tax over book loan interest income
    
    
    685
    
    
    
    
    
    
    
    685OID loan fee deferrals
    
    
    
    
    
    
    (563
    )
    
    
    (563
    )Excess tax over book fixed asset depreciation
    
    
    
    
    
    
    (455
    )
    
    
    (455
    )Excess tax over book prepaid amortization
    
    
    
    
    
    
    (255
    )
    
    
    (255
    )Unrealized losses on securities
available for sale
    
    
    64
    
    
    
    
    
    
    
    64Other, net
    
    
    262
    
    
    
    (263
    )
    
    
    (1
    )Total
    
    $
    11,964
    
    
    $
    (1,536
    )
    
    $
    10,428
 58




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##### Table of Contents



8. STOCK OPTIONS
   2008
    
    2007
    
    2006Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    Average
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    Exercise
    
    
    
    
    
    ExerciseShares
    
    Price
    
    Shares
    
    Price
    
    Shares
    
    PriceOutstanding at beginning of year
    
    
    153,837
    
    
    $
    13.08
    
    
    
    207,210
    
    
    $
    12.86
    
    
    
    271,890
    
    
    $
    12.90Granted
    
    
    5,000
    
    
    
    7.30
    
    
    
    6,500
    
    
    
    14.29
    
    
    
    2,500
    
    
    
    15.36Exercised
    
    
    16,036
    
    
    
    7.99
    
    
    
    43,723
    
    
    
    11.41
    
    
    
    51,401
    
    
    
    11.97Expired, forfeited or canceled
    
    
    52,189
    
    
    
    17.69
    
    
    
    16,150
    
    
    
    15.29
    
    
    
    15,779
    
    
    
    16.81Outstanding at end of year
    
    
    90,612
    
    
    $
    11.00
    
    
    
    153,837
    
    
    $
    13.08
    
    
    
    207,210
    
    
    $
    12.86Options exercisable at end of year
    
    
    76,662
    
    
    $
    10.83
    
    
    
    140,212
    
    
    $
    12.94
    
    
    
    194,210
    
    
    $
    12.74
 59




---



##### Table of Contents



Outstanding Options
    
    
    
    Exercisable OptionsWeightedShares
    
    Average
    
    Weighted
    
    
    
    Shares
    
    WeightedOutstanding at
    
    Remaining
    
    Average
    
    
    
    Exercisable at
    
    AverageRange of
    
    December 31,
    
    Contractual
    
    Exercise
    
    
    
    December 31,
    
    ExerciseExercise Prices
    
    2008
    
    Life (years)
    
    Price
    
    
    
    2008
    
    Price$
    0.00 - 8.25
    
    
    
    23,228
    
    
    
    2.1
    
    
    $
    6.01
    
    
    
    
    
    20,728
    
    
    $
    6.278.26 - 10.25
    
    
    
    20,732
    
    
    
    1.8
    
    
    
    9.18
    
    
    
    
    
    20,732
    
    
    
    9.1810.26 - 14.25
    
    
    
    14,750
    
    
    
    2.0
    
    
    
    13.37
    
    
    
    
    
    8,450
    
    
    
    14.1014.26 - 15.25
    
    
    
    25,152
    
    
    
    1.5
    
    
    
    14.47
    
    
    
    
    
    24,152
    
    
    
    14.4715.26 - 18.25
    
    
    
    6,750
    
    
    
    2.5
    
    
    
    15.64
    
    
    
    
    
    2,600
    
    
    
    15.835.74 - 20.96
    
    
    
    90,612
    
    
    
    1.9
    
    
    
    11.00
    
    
    
    
    
    76,662
    
    
    
    10.83
  9. EMPLOYEE BENEFIT PLANS
 Bank Profit-Sharing Plan
  Bank Savings SERP
  Bank Officers SERP
  60




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##### Table of Contents



At January 1, 2008Prior to
    
    Effect of
    
    AfterApplying
    
    Applying
    
    Applying(Table in thousands)
    
    SFAS No. 158
    
    SFAS No. 158
    
    SFAS No. 158Accrued pension liability/projected benefit obligation
    
    $
    (4,117
    )
    
    $
    (2,009
    )
    
    $
    (6,126
    )Deferred income tax asset-SERP
    
    
    
    
    
    
    802
    
    
    
    2,444Accumulated other comprehensive income (expense),
net of tax
    
    
    
    
    
    
    1,207
    
    
    
    3,682
  (Table in thousands)
    
    2008Change in Benefit Obligation:Benefit obligation at beginning of year
    
    $
    6,126Service cost
    
    
    795Interest cost
    
    
    384Amendments to plan
    
    
    Net actuarial gain
    
    
    682Benefits paid
    
    
    (76
    )Benefit obligation at end of year
    
    $
    7,911Change in Plan Assets:Fair value of plan assets at beginning of year
    
    $
    Actual return on plan assets
    
    
    Employer contributions
    
    
    76Benefits paid
    
    
    (76
    )Fair value of plan assets at end of year
    
    $
    Funded Status at December 31
    
    $
    (7,911
    )Amounts Recognized in the Consolidated Balance SheetOther liabilities
    
    $
    (7,911
    )Amounts Recognized in Accumulated and OtherComprehensive IncomeNet actuarial loss
    
    $
    682Prior service cost
    
    
    1,844Deferred tax benefit
    
    
    (1,007
    )Net amount recognized
    
    $
    1,519
 61




---



##### Table of Contents



(Table in thousands)Service cost
    
    $
    795Interest cost
    
    
    384Amortization of net obligation at transition
    
    
    165Net periodic pension cost
    
    $
    1,344
       Granite Mortgage Plan
  10. LEASES
  62




---



##### Table of Contents



(Table in thousands)Year
    
    Payments2009
    
    $
    4442010
    
    
    4442011
    
    
    4442012
    
    
    4422013
    
    
    3572014 and thereafter
    
    
    1,768Total minimum lease payments
    
    
    3,899Less amount representing interest
    
    
    (2,109
    )Present value of net minimum lease payments
    
    $
    1,790
  (Table in thousands)Year
    
    Payments2009
    
    $
    3962010
    
    
    3242011
    
    
    3122012
    
    
    60Total
    
    $
    1,092
   63




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##### Table of Contents



11. OVERNIGHT AND SHORT-TERM BORROWED FUNDS
  December 31,(Table in thousands)
    
    2008
    
    2007Overnight borrowingsBank of Granite Corporation:Commercial deposits swept into commercial paper
    
    $
    12,669
    
    
    $
    22,629Bank of Granite:Federal funds purchased
    
    
    
    
    
    
    9,900Securities sold under agreements to repurchase
    
    
    
    
    
    
    1,470Overnight borrowings from the Federal Home Loan Bank
    
    
    
    
    
    
    30,700Total overnight borrowings
    
    
    12,669
    
    
    
    64,699Short-term borrowingsBank of Granite Corporation:Unsecured line of credit
    
    
    2,500
    
    
    
    Bank of Granite:Short-term borrowings from the Federal Home Loan Bank
    
    
    13,000
    
    
    
    8,000Granite Mortgage:Warehouse line of credit
    
    
    20,778
    
    
    
    27,491Total short-term borrowings
    
    
    36,278
    
    
    
    35,491Total overnight and short-term borrowings
    
    $
    48,947
    
    
    $
    100,190
   December 31,(Table dollars in thousands)
    
    2008
    
    2007
    
    2006Balance outstanding at end of year
    
    $
    12,669
    
    
    $
    64,699
    
    
    $
    31,152Maximum outstanding at any month-end during the year
    
    
    59,090
    
    
    
    75,567
    
    
    
    35,786Average daily balance outstanding during the year
    
    
    28,306
    
    
    
    36,357
    
    
    
    29,805Average interest rate during the year
    
    
    2.49
    %
    
    
    3.87
    %
    
    
    3.20
    %Average interest rate at end of year
    
    
    1.49
    %
    
    
    3.93
    %
    
    
    3.70
    %
  December 31,(Table dollars in thousands)
    
    2008
    
    2007
    
    2006Balance outstanding at end of year
    
    $
    36,278
    
    
    $
    35,491
    
    
    $
    28,546Maximum outstanding at any month-end during the year
    
    
    49,870
    
    
    
    40,556
    
    
    
    40,502Average daily balance outstanding during the year
    
    
    38,317
    
    
    
    29,740
    
    
    
    35,130Average interest rate during the year
    
    
    4.52
    %
    
    
    5.33
    %
    
    
    5.80
    %Average interest rate at end of year
    
    
    3.93
    %
    
    
    5.90
    %
    
    
    6.18
    %
  64




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##### Table of Contents



12. LONG-TERM BORROWINGS
  December 31,(Table in thousands)
    
    2008
    
    2007Bank of Granite Corporation:Unsecured line of credit at 30-day LIBOR
plus 1.20% due June 30, 2009
    
    $
    
    
    
    $
    2,500Bank of Granite:Federal Home Loan Bank convertible advance at
5.22% due March 9, 2011 callable on or after
March 9, 2006
    
    
    3,075
    
    
    
    3,107Federal Home Loan Bank fixed rate credit
at 4.99% due February 9, 2009
    
    
    
    
    
    
    5,000Federal Home Loan Bank fixed rate credit
at 4.70% due September 21, 2009
    
    
    
    
    
    
    2,000Federal Home Loan Bank fixed rate credit
at 4.67% due September 20, 2010
    
    
    5,000
    
    
    
    5,000Federal Home Loan Bank fixed rate credit
at 3.31% due February 11, 2010
    
    
    3,000
    
    
    
    Federal Home Loan Bank fixed rate credit
at 3.44% due June 1, 2010
    
    
    1,000
    
    
    
    Federal Home Loan Bank fixed rate credit
at 3.79% due May 31, 2011
    
    
    1,000
    
    
    
    Federal Home Loan Bank fixed rate credit
at 4.04% due May 30, 2012
    
    
    1,000
    
    
    
    Total long-term borrowings
    
    $
    14,075
    
    
    $
    17,607
 65




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##### Table of Contents



13. MATURITIES OF TIME DEPOSITS
  (Table in thousands)Year
    
    Maturities2009
    
    $
    432,3842010
    
    
    39,8762011
    
    
    6,9882012
    
    
    18,180Total
    
    $
    497,428
 14. RECONCILIATION OF BASIC AND DILUTED EARNINGS PER SHARE
  (Table in thousands except per share data)
    
    2008
    
    2007
    
    2006BASIC EARNINGS (LOSS) PER SHARENet income (loss)
    
    $
    (36,251
    )
    
    $
    (15,303
    )
    
    $
    18,032Divide by: Weighted average shares outstanding
    
    
    15,448
    
    
    
    15,775
    
    
    
    16,049Basic earnings (loss) per share
    
    $
    (2.35
    )
    
    $
    (0.97
    )
    
    $
    1.12DILUTED EARNINGS (LOSS) PER SHARENet income (loss)
    
    $
    (36,251
    )
    
    $
    (15,303
    )
    
    $
    18,032Divide by: Weighted average shares outstanding
    
    
    15,448
    
    
    
    15,775
    
    
    
    16,049Potentially dilutive effect of
stock options
    
    
    
    
    
    
    
    
    
    
    55Weighted average shares outstanding,
including potentially dilutive effect
of stock options
    
    
    15,448
    
    
    
    15,775
    
    
    
    16,104Diluted earnings (loss) per share
    
    $
    (2.35
    )
    
    $
    (0.97
    )
    
    $
    1.12
 15. REGULATION AND REGULATORY RESTRICTIONS
  66




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##### Table of Contents



Adequately
    
    WellConsolidated
    
    Actual
    
    Capitalized
    
    Capitalized(Table dollars in thousands)
    
    Amount      Ratio
    
    Amount      Ratio
    

Amount      RatioAs of December 31, 2008Total capital to risk weighted assets
    
    $
    87,852   8.73
    %
    
    $
    80,504   8.00
    %
    
    $
    100,630 10.00
    %Tier I capital to risk weighted assets
    
    
    75,105   7.46
    %
    
    
    40,252   4.00
    %
    
    
    60,378   6.00
    %Tier I capital to average assets
    
    
    75,105   6.49
    %
    
    
    46,304   4.00
    %
    
    
    57,880   5.00
    %As of December 31, 2007Total capital to risk weighted assets
    
    $
    117,174 11.22
    %
    
    $
    83,518   8.00
    %
    
    $
    104,398 10.00
    %Tier I capital to risk weighted assets
    
    
    104,067   9.97
    %
    
    
    41,759   4.00
    %
    
    
    62,639   6.00
    %Tier I capital to average assets
    
    
    104,067   8.76
    %
    
    
    47,524   4.00
    %
    
    
    59,405   5.00
    %
 Adequately
    
    WellBank Only
    
    Actual
    
    Capitalized
    
    Capitalized(Table dollars in thousands)
    
    Amount      Ratio
    
    Amount      Ratio
    
    Amount      RatioAs of December 31, 2008Total capital to risk weighted assets
    
    $
    79,982   8.14
    %
    
    $
    78,596   8.00
    %
    
    $
    98,246 10.00
    %Tier I capital to risk weighted assets
    
    
    67,548   6.88
    %
    
    
    39,298   4.00
    %
    
    
    58,947   6.00
    %Tier I capital to average assets
    
    
    67,548   6.00
    %
    
    
    45,060   4.00
    %
    
    
    56,325   5.00
    %As of December 31, 2007Total capital to risk weighted assets
    
    $
    106,140 10.41
    %
    
    $
    81,598   8.00
    %
    
    $
    101,997 10.00
    %Tier I capital to risk weighted assets
    
    
    93,331   9.15
    %
    
    
    40,799   4.00
    %
    
    
    61,198   6.00
    %Tier I capital to average assets
    
    
    93,331   8.11
    %
    
    
    46,035   4.00
    %
    
    
    57,543   5.00
    %
   67




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##### Table of Contents




    
    $16.0 million of Federal Funds sold
    
    $67.6 million of borrowing capacity at the Atlanta FHLB, of which $27.0 million was outstanding
as of December 31, 2008.
    16. ADOPTION OF STAFF ACCOUNTING BULLETIN NUMBER 108
     68




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17. ADOPTION OF FINANCIAL ACCOUNTING STANDARD NUMBER 157
  Observable
inputs
 
    
    Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or
liabilities that the reporting entity has the ability to access at the measurement date.
    
    Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable
for the asset or liability, either directly or indirectly through corroboration with observable
market data (market-corroborated inputs). If the asset or liability has a specified (contractual)
term, a Level 2 input must be observable for substantially the full term of the asset or liability.
 Unobservable
inputs
 
    
    Level 3 inputs are unobservable inputs for the asset or liability, that is, inputs that reflect
the reporting entitys own assumptions about the assumptions market participants would use in
pricing in the circumstances. Unobservable inputs will be used to measure fair value to the extent
that observable inputs are not available, thereby allowing for situations in which there is little,
if any, market activity for the asset or liability at the measurement date.
 Investment Securities Available for Sale
   Fair Value Measurements atReporting Date UsingQuoted Prices
    
    Significantin Active
    
    Other
    
    SignificantMarkets for
    
    Observable
    
    UnobservableFair Value at
    
    Identical Assets
    
    Inputs
    
    Inputs(Table in thousands)
    
    December 31, 2008
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Investment securities
available for sale
    
    $
    58,576
    
    
    $
    1,643
    
    
    $
    56,933
    
    
    $
    
 69




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##### Table of Contents



Derivatives
  Mortgage Loans Held for Sale
  Impaired Loans
   Fair Value Measurements atReporting Date UsingQuoted Prices
    
    Significantin Active
    
    Other
    
    SignificantMarkets for
    
    Observable
    
    UnobservableFair Value at
    
    Identical Assets
    
    Inputs
    
    Inputs(Table in thousands)
    
    December 31, 2008
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Mortgage loans held for sale
    
    $
    16,770
    
    
    $
    
    
    
    $
    16,770
    
    
    $
    Impaired loans (1)
    
    
    35,298
    
    
    
    
    
    
    
    
    
    
    
    35,298Total assets
    
    $
    52,068
    
    
    $
    
    
    
    $
    16,770
    
    
    $
    35,298
 
 (1)
    
    Net of reserves and loans carried at cost. 70




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18. PARENT COMPANY CONDENSED FINANCIAL INFORMATION
  Condensed Balance Sheets
 December 31,(In thousands)
    
    2008
    
    2007Assets:Cash and cash equivalents
    
    $
    13,380
    
    
    $
    27,345Investment in subsidiary bank at equity
    
    
    66,465
    
    
    
    104,406Investment in subsidiary mortgage bank at equity
    
    
    6,665
    
    
    
    6,661Other
    
    
    2,832
    
    
    
    3,994Total
    
    $
    89,342
    
    
    $
    142,406Liabilities and Stockholders Equity:Overnight and short-term borrowings
    
    $
    15,169
    
    
    $
    22,629Long-term borrowings
    
    
    
    
    
    
    2,500Other
    
    
    3
    
    
    
    2,012Stockholders equity
    
    
    74,170
    
    
    
    115,265Total
    
    $
    89,342
    
    
    $
    142,406
 Condensed Results of Operations
 For the Years Ended December 31,(In thousands)
    
    2008
    
    2007
    
    2006Equity in earnings (loss) of subsidiary bank:Dividends
    
    $
    2,257
    
    
    $
    19,734
    
    
    $
    11,211Earnings (loss) retained
    
    
    (36,682
    )
    
    
    (34,129
    )
    
    
    7,755Equity in earnings of subsidiary mortgage bank:Dividends
    
    
    
    
    
    
    168
    
    
    
    Earnings
    
    
    8
    
    
    
    213
    
    
    
    401Income (expenses), net
    
    
    (1,834
    )
    
    
    (1,289
    )
    
    
    (1,335
    )Net income (loss)
    
    $
    (36,251
    )
    
    $
    (15,303
    )
    
    $
    18,032
 71




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##### Table of Contents



Condensed Cash Flow
 For the Years Ended December 31,(In thousands)
    
    2008
    
    2007
    
    2006Cash flows from operating activities:Net income (loss)
    
    $
    (36,251
    )
    
    $
    (15,303
    )
    
    $
    18,032Adjustments to reconcile net income (loss) to net cash
cash provided by operating activities:Equity in undistributed earnings of subsidiaries
    
    
    36,674
    
    
    
    33,917
    
    
    
    (8,156
    )Stock-based compensation expense
    
    
    15
    
    
    
    15
    
    
    
    21Premium amortization and discount
accretion, net
    
    
    (3
    )
    
    
    (2
    )
    
    
    (2
    )Losses (gains) on sales or calls of
securities available for sale
    
    
    67
    
    
    
    
    
    
    
    (118
    )Impairment losses on securities
    
    
    1,104
    
    
    
    
    
    
    
    Decrease in accrued interest receivable
    
    
    
    
    
    
    11
    
    
    
    4Increase (decrease) in accrued interest payable
    
    
    (1
    )
    
    
    
    
    
    
    1Decrease (increase) in other assets
    
    
    1
    
    
    
    434
    
    
    
    (4
    )Decrease in other liabilities
    
    
    (2
    )
    
    
    (4
    )
    
    
    (299
    )Net cash provided by operating activities
    
    
    1,604
    
    
    
    19,068
    
    
    
    9,479Cash flows from investing activities:Proceeds from maturities of securities
available for sale
    
    
    2
    
    
    
    406
    
    
    
    398Proceeds from sales of securities
available for sale
    
    
    275
    
    
    
    
    
    
    
    485Purchases of securities available for sale
    
    
    
    
    
    
    (200
    )
    
    
    (895
    )Net cash provided (used) by investing activities
    
    
    277
    
    
    
    206
    
    
    
    (12
    )Cash flows from financing activities:Net increase (decrease) in overnight and
short-term borrowings
    
    
    (7,460
    )
    
    
    (7,033
    )
    
    
    2,872Net decrease in long-term borrowings
    
    
    (2,500
    )
    
    
    (2,500
    )
    
    
    Net proceeds from issuance of common stock
    
    
    138
    
    
    
    557
    
    
    
    615Net dividends paid
    
    
    (6,024
    )
    
    
    (8,239
    )
    
    
    (7,485
    )Purchases of common stock for treasury
    
    
    
    
    
    
    (9,151
    )
    
    
    (2,643
    )Cash paid for fractional shares
    
    
    
    
    
    
    
    
    
    
    (11
    )Net cash used by financing activities
    
    
    (15,846
    )
    
    
    (26,366
    )
    
    
    (6,652
    )Net increase (decrease) in cash
    
    
    (13,965
    )
    
    
    (7,092
    )
    
    
    2,815Cash at beginning of year
    
    
    27,345
    
    
    
    34,437
    
    
    
    31,622Cash at end of year
    
    $
    13,380
    
    
    $
    27,345
    
    
    $
    34,437Supplemental disclosure of non-cash transactions:Cash paid during the year for:Interest paid
    
    $
    643
    
    
    $
    1,199
    
    
    $
    1,328Transfer from surplus to common
stock due to stock split
    
    
    
    
    
    
    
    
    
    
    3,784
 72




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19. COMMITMENTS AND CONTINGENCIES
  December 31,(Table in thousands)
    
    2008
    
    2007Financial instruments whose contract amounts represent credit riskCommitments to extend credit
    
    $
    162,958
    
    
    $
    202,451Standby letters of credit
    
    
    4,998
    
    
    
    7,839Financial instruments whose notional or contract amounts are
intended to hedge against interest rate riskForward commitments and options to sell mortgage-backed securities
    
    
    14,702
    
    
    
    7,330
      73




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20. FAIR VALUE OF FINANCIAL INSTRUMENTS
  December 31, 2008
    
    December 31, 2007Estimated
    
    
    
    
    
    EstimatedCarrying
    
    Fair
    
    Carrying
    
    Fair(Table in thousands)
    
    Amount
    
    Value
    
    Amount
    
    ValueAssets:Cash and cash equivalents
    
    $
    48,983
    
    
    $
    48,983
    
    
    $
    33,324
    
    
    $
    33,324Marketable securities
    
    
    82,203
    
    
    
    82,868
    
    
    
    142,622
    
    
    
    143,361Loans
    
    
    923,343
    
    
    
    929,447
    
    
    
    928,653
    
    
    
    930,015Market risk/liquidity adjustment
    
    
    
    
    
    
    (45,000
    )
    
    
    
    
    
    
    Net loans
    
    
    923,343
    
    
    
    884,447
    
    
    
    928,653
    
    
    
    930,015Mortgage loans held for sale
    
    
    16,770
    
    
    
    16,949
    
    
    
    15,319
    
    
    
    15,515Liabilities:Demand deposits
    
    
    494,394
    
    
    
    494,394
    
    
    
    538,340
    
    
    
    538,340Time deposits
    
    
    497,428
    
    
    
    509,447
    
    
    
    433,649
    
    
    
    436,915Overnight and short-term borrowings
    
    
    48,947
    
    
    
    48,947
    
    
    
    100,190
    
    
    
    100,190Long-term borrowings
    
    
    14,075
    
    
    
    15,158
    
    
    
    17,607
    
    
    
    18,224
 
 (1)
    
    Loan fair values are based on a hypothetical exit price, which does not
represent the estimated intrinsic value
of the loan if held for investment. The assumptions used are expected to
approximate those that a market
participant purchasing the loans would use to value the loans, including a
market risk premium and liquidity
discount.   74




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21. DERIVATIVE FINANCIAL INSTRUMENTS
  Derivative Financial Instruments
 December 31, 2008
    
    December 31, 2007Estimated
    
    
    
    
    
    EstimatedNotional
    
    Fair
    
    Notional
    
    Fair(Table in thousands)
    
    Amount
    
    Value
    
    Amount
    
    ValueMortgage interest rate lock
commitments
    
    $
    29,805
    
    
    $
    (22
    )
    
    $
    11,053
    
    
    $
    (18
    )Forward commitments and options
to sell mortgage-backed securities
    
    
    14,702
    
    
    
    (174
    )
    
    
    7,330
    
    
    
    (61
    )Total
    
    $
    44,507
    
    
    $
    (196
    )
    
    $
    18,383
    
    
    $
    (79
    )
  75




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##### Table of Contents



22. OPERATING SEGMENTS
    COMMUNITY BANKING
  MORTGAGE BANKING
  OTHER
   (Table in thousands)
    
    2008
    
    2007
    
    2006COMMUNITY BANKINGNet interest income
    
    $
    34,345
    
    
    $
    50,093
    
    
    $
    52,393Provision for loan losses
    
    
    30,143
    
    
    
    55,083
    
    
    
    6,366Total other income
    
    
    7,988
    
    
    
    9,263
    
    
    
    8,585Total other expenses
    
    
    41,773
    
    
    
    30,105
    
    
    
    26,033Income (loss) before income taxes (benefits)
    
    
    (29,583
    )
    
    
    (25,832
    )
    
    
    28,579Net income (loss)
    
    
    (34,425
    )
    
    
    (14,395
    )
    
    
    18,966Identifiable segment assets
    
    
    1,112,029
    
    
    
    1,179,466
    
    
    
    1,166,171
 76




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##### Table of Contents



(Table in thousands)
    
    2008
    
    2007
    
    2006MORTGAGE BANKINGNet interest income
    
    $
    3,158
    
    
    $
    3,249
    
    
    $
    3,226Provision for loan losses
    
    
    85
    
    
    
    48
    
    
    
    48Total other income
    
    
    3,560
    
    
    
    3,916
    
    
    
    3,975Total other expenses
    
    
    6,870
    
    
    
    6,482
    
    
    
    6,485Income (loss) before income taxes (benefits)
    
    
    (237
    )
    
    
    635
    
    
    
    668Net income
    
    
    8
    
    
    
    381
    
    
    
    401Identifiable segment assets
    
    
    31,885
    
    
    
    35,167
    
    
    
    28,557ALL OTHERNet interest expense
    
    
    (333
    )
    
    
    (875
    )
    
    
    (1,023
    )Total other income
    
    
    (1,170
    )
    
    
    
    
    
    
    118Total other expenses
    
    
    331
    
    
    
    414
    
    
    
    430Loss before income tax benefits
    
    
    (1,834
    )
    
    
    (1,289
    )
    
    
    (1,335
    )Net loss
    
    
    (1,834
    )
    
    
    (1,289
    )
    
    
    (1,335
    )Identifiable segment assets
    
    
    3,041
    
    
    
    4,515
    
    
    
    5,045TOTAL SEGMENTSNet interest income
    
    
    37,170
    
    
    
    52,467
    
    
    
    54,596Provision for loan losses
    
    
    30,228
    
    
    
    55,131
    
    
    
    6,414Total other income
    
    
    10,378
    
    
    
    13,179
    
    
    
    12,678Total other expenses
    
    
    48,974
    
    
    
    37,001
    
    
    
    32,948Income (loss) before income taxes (benefits)
    
    
    (31,654
    )
    
    
    (26,486
    )
    
    
    27,912Net income (loss)
    
    
    (36,251
    )
    
    
    (15,303
    )
    
    
    18,032Identifiable segment assets
    
    
    1,146,955
    
    
    
    1,219,148
    
    
    
    1,199,773
 77




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23. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
 BANK OF GRANITE CORPORATION AND SUBSIDIARIES
 
 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
YEARS ENDED DECEMBER 31, 2008 AND 2007
 (In thousands except per share data)
 2008
    
    Quarter 1
    
    Quarter 2
    
    Quarter 3
    
    Quarter 4Interest income
    
    $
    18,904
    
    
    $
    17,072
    
    
    $
    16,367
    
    
    $
    14,580Interest expense
    
    
    8,611
    
    
    
    7,190
    
    
    
    6,881
    
    
    
    7,071Net interest income
    
    
    10,293
    
    
    
    9,882
    
    
    
    9,486
    
    
    
    7,509Provision for loan losses
    
    
    1,411
    
    
    
    8,445
    
    
    
    3,581
    
    
    
    16,791Net interest income (loss) after
provision for loan losses
    
    
    8,882
    
    
    
    1,437
    
    
    
    5,905
    
    
    
    (9,282
    )Other income
    
    
    3,278
    
    
    
    3,103
    
    
    
    2,494
    
    
    
    1,503Other expense
    
    
    9,659
    
    
    
    10,409
    
    
    
    8,775
    
    
    
    20,131Income (loss) before income
tax expense (benefit)
    
    
    2,501
    
    
    
    (5,869
    )
    
    
    (376
    )
    
    
    (27,910
    )Income tax expense (benefit)
    
    
    786
    
    
    
    (2,507
    )
    
    
    (105
    )
    
    
    6,423Net income (loss)
    
    $
    1,715
    
    
    $
    (3,362
    )
    
    $
    (271
    )
    
    $
    (34,333
    )Net income (loss) per shareBasic
    
    $
    0.11
    
    
    $
    (0.22
    )
    
    $
    (0.02
    )
    
    $
    (2.22
    )Diluted
    
    
    0.11
    
    
    
    (0.22
    )
    
    
    (0.02
    )
    
    
    (2.22
    )Average shares outstandingBasic
    
    
    15,438
    
    
    
    15,446
    
    
    
    15,454
    
    
    
    15,454Diluted
    
    
    15,457
    
    
    
    15,446
    
    
    
    15,454
    
    
    
    15,454
 2007
    
    Quarter 1
    
    Quarter 2
    
    Quarter 3
    
    Quarter 4Interest income
    
    $
    22,357
    
    
    $
    22,986
    
    
    $
    21,904
    
    
    $
    22,068Interest expense
    
    
    8,960
    
    
    
    9,192
    
    
    
    9,387
    
    
    
    9,309Net interest income
    
    
    13,397
    
    
    
    13,794
    
    
    
    12,517
    
    
    
    12,759Provision for loan losses
    
    
    1,917
    
    
    
    7,471
    
    
    
    42,737
    
    
    
    3,006Net interest income (loss) after
provision for loan losses
    
    
    11,480
    
    
    
    6,323
    
    
    
    (30,220
    )
    
    
    9,753Other income
    
    
    3,197
    
    
    
    3,254
    
    
    
    3,193
    
    
    
    3,535Other expense
    
    
    8,336
    
    
    
    8,789
    
    
    
    9,380
    
    
    
    10,496Income (loss) before income
tax expense (benefit)
    
    
    6,341
    
    
    
    788
    
    
    
    (36,407
    )
    
    
    2,792Income tax expense (benefit)
    
    
    2,297
    
    
    
    51
    
    
    
    (14,391
    )
    
    
    860Net income (loss)
    
    $
    4,044
    
    
    $
    737
    
    
    $
    (22,016
    )
    
    $
    1,932Net income (loss) per shareBasic
    
    $
    0.25
    
    
    $
    0.05
    
    
    $
    (1.40
    )
    
    $
    0.12Diluted
    
    
    0.25
    
    
    
    0.05
    
    
    
    (1.40
    )
    
    
    0.12Average shares outstandingBasic
    
    
    16,018
    
    
    
    15,928
    
    
    
    15,694
    
    
    
    15,468Diluted
    
    
    16,074
    
    
    
    15,970
    
    
    
    15,694
    
    
    
    15,490
 
 The quarterly financial data
may not aggregate to annual
amounts due to rounding. 
   78




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Evaluation of Disclosure Controls and Procedures
  Remediation of Prior Year Material Weaknesses
  
    
    We have restructured our lending staff, reassigned portfolio responsibilities, and revised
loan officer lending authorities.
    
    Credit Administration has produced more detailed underwriting guidance and conducted
related training for the loan officer population.
    
    We have added additional resources to our Credit Administration staff. These additions
have resulted in improving our loan risk grading effectiveness.
    
    New and renewed loans for large credit lines, real estate acquisition and development
loans and classified loans require Credit Administration approval, which improves
underwriting.
    
    We have developed a more effective process for estimating the allowance for loan losses.
The specific elements of improvement are:
 
    
    The involvement of more experienced personnel, including the Chief
Operating Officer, the Chief Credit Officer and the Chief Financial
Officer in the accumulation of information and the development of the
estimation of the periodic allowance for loan losses. These individuals
evaluate the reasonableness of loan grade factors, the appropriate
unallocated amounts and individual loan impairment amounts as
part of the process.
    
    Timely monitoring of past due accounts and customer contacts
(primarily by Credit Administration), which increases the early
identification of loan grading differences and more timely
identification of loans for impairment evaluation.
 
 79




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##### Table of Contents




    
    We have evaluated our personnel resources. We believe the current compliment of
personnel resources is able to execute the new monitoring and reporting policies and
procedures.
    
    While we continue to assess current lending and credit administration policies and
procedures, and are revising them as necessary to develop and implement policies and
procedures that will promote a culture of compliance and accountability, we believe they
are currently adequate to allow us to gather, evaluate and report credit information
effectively.
    
    We completed the exit from the asset based lending activity.
  Changes in Internal Control over Financial Reporting
  MANAGEMENTS ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
 Internal
ControlIntegrated Framework
    80




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal ControlIntegrated Framework
    81




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##### Table of Contents



Internal Control
Integrated Framework
   /s/ Dixon Hughes PLLCDIXON HUGHES PLLCCharlotte, North CarolinaMarch 30, 2009
 
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##### Table of Contents



(a)1.
    
    Financial StatementsThe information required by this item is set forth under Item 8.2.
    
    Financial Statement SchedulesThe information required by this item is set forth in the Notes to Consolidated
Financial Statements under Item 8.3.
    
    Exhibits3.1
    
    Certificate of Incorporation, as amendedBank of Granite Corporations Restated Certificate of Incorporation, filed as Exhibit 3.1
to our Quarterly Report on Form 10-Q dated May 9, 2006, is incorporated herein by
reference.3.2
    
    Bylaws of the Registrant, as amendedBank of Granite Corporations Amended and Restated Bylaws, filed as Exhibit 3.1 to the
Registrants Current Report on Form 8-K dated April 28, 2008, is incorporated herein by
reference.4.
    
    Instruments defining the rights of holders4.1
    
    Form of stock certificate for Bank of Granite Corporations common stock, filed as
Exhibit 4.1 to our Registration Statement on Form S-4 (Registration Statement No. 333-104233)
on April 1, 2003, is incorporated herein by reference.4.2
    
    Articles 5, 6, 7, 10 and 13 of the Restated Certificate of Incorporation of Bank of
Granite Corporation (included in Exhibit 3.1 hereto).10.
    
    Material Contracts10.1
    
    Bank of Granite Employees Profit Sharing Plan and Trust, as amended, filed as
Exhibit 4.1 to the Registrants Registration Statement on Form S-8 (Registration
Statement
No. 333-102383) on January 7, 2003, is incorporated herein by reference.10.2
    
    Severance Agreement and Release In Full, dated February 23, 2009, between Granite
Mortgage, Inc. and Gary L. Lackey filed as Exhibit 10.1 to the Registrants Current
Report on Form 8-K dated February 23, 2009 is incorporated herein by reference.**10.3
    
    Written Description of Director Compensation pursuant to Item 601(b)(10)(iii)(A) of
Regulation S-K, dated May 19, 2008.
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10.4
    
    Consulting Agreement, dated December 19, 2005, between the Bank and John A. Forlines,
Jr. filed as Exhibit 10.1 to our Current Report on Form 8-K dated December 19, 2005, is
incorporated herein by reference.10.5
    
    Bank of Granite Corporations 2007 Stock Incentive Plan, filed as Exhibit 10.2 to our
Quarterly Report on Form 10-Q dated August 9, 2007, is incorporated herein by
reference.**10.6
    
    Summary of Agreement between Bank of Granite and Jerry A. Felts, Chief Operating
Officer, effective as of July 14, 2008, filed as Exhibit 10.1 to our Quarterly Report on
Form 10-Q dated August 8, 2008, is incorporated herein by reference.**10.7
    
    Form of Amended and Restated Bank of Granite Salary Continuation Plan, effective
January 1, 2008.10.8
    
    Amended and Restated Change of Control Agreement, dated December 19, 2008,
between the Company and R. Scott Anderson.10.9
    
    Amended and Restated Change of Control Agreement, dated December 19, 2008,
between the Company and Kirby A. Tyndall.10.10
    
    Amended and Restated Change of Control Agreement, dated December 19, 2008,
between the Company and Jefferson C. Easley.10.11
    
    Amended and Restated Change of Control Agreement, dated December 19, 2008,
between the Company and Samuel M. Black.14.
    
    Ethics Policy, dated March 8, 2004, filed as Exhibit 14 to our Annual Report on Form
10-K for the fiscal year ended December 31, 2004 is incorporated herein by reference.21.
    
    Subsidiaries of the RegistrantThe information required by this item is also set forth under Item 8, Note 1, Summary
of Significant Accounting Policies.23.1
    
    Consent of Dixon Hughes PLLC31.1
    
    Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 200231.2
    
    Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 200232.1
    
    Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 **
    
    Management Compensatory plan or arrangement 85




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##### Table of Contents



BANK OF GRANITE CORPORATIONBy:
    /s/ R. Scott AndersonR. Scott Anderson
Chief Executive Officer
March 31, 2009  Signature
    
    Title
    
    Date/s/ R. Scott Anderson

R. Scott Anderson
    
    Chief Executive Officer
    
    March 31, 2009/s/ Kirby A. Tyndall

Kirby A. Tyndall
    
    Secretary, Treasurer, Chief
Financial
Officer and Principal
    
    March 31, 2009Accounting OfficerJames Y. Preston
    
    Chairman and Director
    
    March 31, 2009/s/ R. Scott Anderson
    
    Director
    
    March 31, 2009R. Scott Anderson/s/ John N. Bray
    
    Director
    
    March 31, 2009John N. Bray/s/ Joseph D. Crocker
    
    Director
    
    March 31, 2009Joseph D. Crocker/s/ Leila N. Erwin
    
    Director
    
    March 31, 2009Leila N. Erwin/s/ Paul M. Fleetwood, III
    
    Director
    
    March 31, 2009Paul M. Fleetwood, III/s/ Hugh R. Gaither
    
    Director
    
    March 31, 2009Hugh R. Gaither/s/ Boyd C. Wilson, Jr.
    
    Director
    
    March 31, 2009Boyd C. Wilson, Jr.
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##### Table of Contents



BeginsExhibit
    
    
    
    on Page3.1
    
    Bank of Granite Corporations Certificate of Incorporation
    
    *3.2
    
    Bank of Granite Corporations Bylaws
    
    *4.1
    
    Form of stock certificate
    
    *4.2
    
    Articles 5, 6, 7, 10 and 13 of the Restated Certificate of
Incorporation
    
    *10.1
    
    Bank of Granite Employees Profit Sharing Plan and Trust
    
    *10.2
    
    Severance Agreement and Release In Full between Granite
Mortgage, Inc. and Gary L. Lackey**
    
    *10.3
    
    Written Description of Director Compensation**
    
    Filed herewith10.4
    
    Consulting Agreement between the Company and
John A. Forlines, Jr.
    
    *10.5
    
    Bank of Granite Corporations 2007 Stock Incentive Plan**
    
    *10.6
    
    Summary of Agreement between Bank of Granite and
Jerry A. Felts**
    
    *10.7
    
    Form of Amended and Restated Bank of Granite Salary
Continuation Plan**
    
    Filed herewith10.8
    
    Amended and Restated Change of Control Agreement
between the Company and R. Scott Anderson**
    
    Filed herewith10.9
    
    Amended and Restated Change of Control Agreement
between the Company and Kirby A. Tyndall**
    
    Filed herewith10.10
    
    Amended and Restated Change of Control Agreement
between the Company and Jefferson C. Easley**
    
    Filed herewith10.11
    
    Amended and Restated Change of Control Agreement
between the Company and Samuel M. Black**
    
    Filed herewith14
    
    Ethics Policy
    
    *21
    
    Subsidiaries of the Registrant
    
    Filed herewith23.1
    
    Consent of Independent Auditors
    
    Filed herewith31.1
    
    Chief Executive Officer Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 302(a) of the
Sarbanes-Oxley Act of 2002
    
    Filed herewith31.2
    
    Chief Financial Officer Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 302(a) of the
Sarbanes-Oxley Act of 2002
    
    Filed herewith32.1
    
    Chief Executive Officer Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
    
    Filed herewith32.2
    
    Chief Financial Officer Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
    
    Filed herewith
 
 *
    
    Incorporated herein by reference**
    
    Management compensatory plan or arrangement 87