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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, 2010
 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
  (Title of each class)
    
    Name of each exchange on which registeredCommon Stock, $1.00 Par Value Per Share
    
    The NASDAQ Stock Market, LLC
  None
 
 o þ
 o þ
 þ o
 o o
 þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




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##### 



2010Form 10-KPagePART IItem 1  Business
    
    
    3Item 1A  Risk Factors
    
    
    10Item 1B  Unresolved Staff Comments
    
    
    13Item 2  Properties
    
    
    14Item 3  Legal Proceedings
    
    
    15Item 4  Removed and Reserved
    
    
    15PART IIItem 5  Market for the Registrants Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    15Item 6  Selected Financial Data
    
    
    16Item 7  Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    17Item 7A  Quantitative and Qualitative Disclosures
about Market Risk
    
    
    30Item 8  Financial Statements
    
    
    31Item 9  Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
    
    
    62Item 9A  Controls and Procedures
    
    
    63Item 9B  Other Information
    
    
    64PART IIIItem 10  Directors, Executive Officers and Corporate Governance
    
    
    64Item 11  Executive Compensation
    
    
    64Item 12  Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
    
    15 and 64Item 13  Certain Relationships and Related Transactions and Director Independence
    
    
    65Item 14  Principal Accountant Fees and Services
    
    
    65PART IVItem 15  Exhibits and Financial Statement Schedules
    
    
    66Signatures
    
    
    68EX-21EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2
  2




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The discussions included in this annual report contain statements that may be deemed
forward looking statements
within the meaning of the Private Securities Litigation Act of 1995, including Section 21E of
the Securities
Exchange Act of 1934 and Section 27A of the Securities Act of 1933. Such statements involve
known and
unknown risks, uncertainties and other factors that may cause actual results to differ
materially from these
statements. For the purposes of these discussions, any statements that are not statements of
historical fact may
be deemed to be forward looking statements. Such statements are often characterized by the
use of qualifying
words such as expects, anticipates, believes, estimates, plans, projects, or
other statements
concerning opinions or judgments of the Company and its management about future events. The
accuracy of
such forward looking statements could be affected by certain factors, including but not
limited to, the financial
success or changing conditions or strategies of the Companys customers or vendors,
fluctuations in interest
rates, actions of government regulators, the availability of capital and personnel, failure
to comply with
regulatory orders, and general economic conditions.
 
  
        3




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4




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The Bank Holding Company Act
  State Law
  Deposit Insurance
     5




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Capital Requirements
        6




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
    
    Present a written capital plan to the FDIC and the Commissioner by which the Bank would
achieve a Tier 1 Leverage Capital Ratio of not less than 8 percent and Total Risk-Based
Capital Ratio of not less than 12 percent during the life of the Order;
    
    Formulate a plan to improve the Banks earnings and evaluate the plan quarterly;
    
    Formulate and implement a plan to reduce the Banks risk exposure in assets classified
Substandard or Doubtful;
    
    Reduce the real estate credit concentrations in the Banks loan portfolio;
    
    Develop a plan to improve the Banks liquidity; monitor contingent funding needs and
improve asset liability management, and review and revise the plan on a quarterly basis;
    
    Not pay cash dividends without the prior written consent of the FDIC and the Commissioner;
    
    Neither renew, roll-over nor increase the amount of brokered deposits above the amount
outstanding at the date of the Order.
    Federal Deposit Insurance Corporation Improvement Act of 1991
  
    
    Publicly available annual financial condition and management reports for certain
financial institutions, including audits by independent accountants;
    
    The establishment of uniform accounting standards by federal banking agencies;
    
    The establishment of a prompt corrective action system of regulatory supervision
and intervention, based on capitalization levels, with greater scrutiny and
restrictions placed on depository institutions with lower levels of capital;
    
    Additional grounds for the appointment of a conservator or receiver; and
    
    Restrictions or prohibitions on accepting brokered deposits, except for institutions
which significantly exceed minimum capital requirements.
  7




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Miscellaneous
      8




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9




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There is substantial doubt about our ability to continue as a going concern.
  Failure to comply with regulatory orders is likely to result in adverse actions and
restrictions.
  Continued losses will further erode our capital levels.
  Our business has been and may be adversely affected by conditions in the financial markets
and economic
conditions generally.
  10




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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.
  11




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If significant increases are required to our allowance for loan losses, our earnings would
decrease.
   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.
  The passage of the Dodd-Frank Act may adversely impact our profitability.
  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.
  12




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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.
  Changes in accounting may affect our reported earnings and operating income.
  A concentration of real estate development and commercial real estate loans in our portfolio
could result
in additional increases in our allowance for loan losses, and corresponding decreases in our
earnings, if
the general economy or real estate markets continue to experience a downward trend.
  Losing key personnel could negatively affect us.
  Further decline in market value of Company stock could trigger delisting on the stock
exchange.
    
   13




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ApproximateFacility Size
    
    Lot Size
    
    OwnedLocation
    
    Principal Use
    
    (square feet)
    
    (acres)
    
    or LeasedGranite Falls, North Carolina23 North Main Street
    
    Home office
    
    
    8,735
    
    
    
    1.2
    
    
    ownedStorage building
    
    
    735
    
    
    
    0.5
    
    
    owned56 North Main Street
    
    Operations center
    
    
    11,769
    
    
    
    1.1
    
    
    owned2630 Connelly
    
    Banking office in
    
    
    430
    
    
    none
    
    leasedSprings Road (Baton)
    
    Ingles
 SupermarketBoone, North Carolina230 Wilson Drive
    
    Banking office
    
    
    5,705
    
    
    none
    
    leasedCharlotte, North Carolina301 South McDowell Street
    
    Banking office
    
    
    6,096
    
    
    none
    
    leased3920 Sharon Road
    
    Banking office
    
    
    1,955
    
    
    none
    
    leased(SouthPark)Conover, North Carolina1109 Conover Blvd, East
    
    Banking office
    
    
    4,421
    
    
    
    1.4
    
    
    ownedCornelius, North Carolina18825 West Catawba Avenue
    
    Banking office
    
    
    3,409
    
    
    none
    
    leasedHickory, North Carolina25 3rd Street NW
    
    Banking office
    
    
    9,515
    
    
    
    0.5
    
    
    owned315 1st Avenue NW
    
    Support offices
    
    
    15,092
    
    
    
    0.5
    
    
    owned(Bank of Granite Plaza)2220 12th Avenue NE
    
    Banking office
    
    
    3,612
    
    
    
    1.6
    
    
    owned(Springs Road)281 14th Avenue NE
    
    Banking office
    
    
    4,200
    
    
    
    2.0
    
    
    owned(Viewmont)2900 Highway 127 South
    
    Banking office
    
    
    2,480
    
    
    
    1.8
    
    
    owned(Mountain View)Hudson, North Carolina537 Main Street
    
    Banking office
    
    
    4,235
    
    
    
    4.1
    
    
    owned(Continued on next page)
 14




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(Concluded from previous page)
    
    
    
    ApproximateFacility Size
    
    Lot Size
    
    OwnedLocation
    
    Principal Use
    
    (square feet)
    
    (acres)
    
    or LeasedLenoir, North Carolina707 College Avenue SW
    
    Banking office
    
    
    7,400
    
    
    
    1.2
    
    
    owned1351 Norwood
    
    Banking office
    
    
    2,530
    
    
    
    1.0
    
    
    ownedStreet SW (Whitnel)701 Wilkesboro
    
    Banking office closed in 2009
    
    
    2,480
    
    
    
    2.1
    
    
    ownedBoulevard NE (Hibriten)Matthews, North Carolina2432 McKee Road
    
    Banking office
    
    
    4,941
    
    
    
    1.5
    
    
    ownedMorganton, North Carolina201 East Meeting Street
    
    Banking office
    
    
    5,400
    
    
    
    0.8
    
    
    ownedNewton, North Carolina311 North Main Avenue
    
    Banking office
    
    
    3,612
    
    
    
    0.9
    
    
    ownedStatesville, North Carolina207 South Center Street
    
    Banking office
    
    
    5,000
    
    
    none
    
    leasedWilkesboro, North Carolina1305A S. Collegiate Drive
    
    Banking office
    
    
    1,600
    
    
    none
    
    ownedWinston-Salem, North Carolina791 Jonestown Road, Ste 100
    
    Banking office
    
    
    5,000
    
    
    none
    
    owned
 
   
  
  
 
 ® ® The Wall Street Journal ®
  15




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Quarterly Common Stock Market Price Ranges and Dividends
 2010
    
    Quarter 1
    
    Quarter 2
    
    Quarter 3
    
    Quarter 4Price RangeHigh
    
    $
    2.38
    
    
    $
    3.49
    
    
    $
    1.23
    
    
    $
    0.91Low
    
    
    0.54
    
    
    
    0.75
    
    
    
    0.50
    
    
    
    0.44Close
    
    
    1.21
    
    
    
    1.15
    
    
    
    0.71
    
    
    
    0.55Dividends*
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a2009
    
    Quarter 1
    
    Quarter 2
    
    Quarter 3
    
    Quarter 4Price RangeHigh
    
    $
    3.61
    
    
    $
    3.50
    
    
    $
    3.12
    
    
    $
    1.04Low
    
    
    1.10
    
    
    
    1.50
    
    
    
    1.02
    
    
    
    0.40Close
    
    
    1.71
    
    
    
    3.01
    
    
    
    1.03
    
    
    
    0.51Dividends*
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
 
 *
    
    The Company suspended its cash dividend in the third quarter of 2008.  
   16




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The discussions included in this annual report contain statements that may be deemed forward
looking statements within the meaning of the Private Securities Litigation Act of 1995, including
Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933.
Such statements involve known and unknown risks, uncertainties and other factors that may cause
actual results to differ materially from these statements. For the purposes of these discussions,
any statements that are not statements of historical fact may be deemed to be forward looking
statements. Such statements are often characterized by the use of qualifying words such as
expects, anticipates, believes, estimates, plans, projects, or other statements
concerning opinions or judgments of the Company and its management about future events. The
accuracy of such forward looking statements could be affected by certain factors, including but not
limited to, the financial success or changing conditions or strategies of the Companys customers
or vendors, fluctuations in interest rates, actions of government regulators, the availability of
capital and personnel, failure to comply with regulatory orders, and general economic conditions.
         17




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
    
    The provision for loan losses increased by $2.1 million from 2009 to 2010, caused mainly by the
factors discussed above.
    
    The 2009 operating loss reflected approximately a $2.1 million loss for the mortgage company,
which operation was closed in the third quarter of 2009.
    
    The deleveraging of the Bank continues. The limited lending opportunities and the aggressive
problem loan resolution program has reduced the loan portfolio by $212.9 million, or 27.5%, in
2010. Deposits have declined by $144.3 million, or 14.9%. The significant component of the decline
has been the result of reducing deposit pricing from the 2009 levels. The improved liquidity
position versus 2009 has facilitated a less aggressive deposit pricing model.
    
    Other more significant differences between 2010 and 2009 are:
 
    
    Securities gains in 2010, which were $2.4 million compared to gains and write downs in 2009
of net $78 thousand.
    
    2010 salaries and benefits declined $5.8 million, or 35.9%, versus 2009, as our headcount was
reduced in accordance with our contracting operations.
    
    Other real estate owned expenses declined $3.0 million, or 28.8%.
        18




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Performance Summary for 2010 and 2009
      19




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(Table dollars in thousands except per share amounts)
    
    2010
    
    2009
    
    $ Change
    
    % ChangeNet loss
    
    $
    (23,664
    )
    
    $
    (25,620
    )
    
    $
    1,956
    
    
    
    7.6
    %Net loss per share
    
    
    (1.53
    )
    
    
    (1.66
    )
    
    
    0.13
    
    
    
    7.8
    %Interest income
    
    
    44,799
    
    
    
    52,646
    
    
    
    (7,847
    )
    
    
    -14.9
    %Interest expense
    
    
    13,610
    
    
    
    21,224
    
    
    
    (7,614
    )
    
    
    -35.9
    %Net interest income
    
    
    31,189
    
    
    
    31,422
    
    
    
    (233
    )
    
    
    -0.7
    %Interest and fees from loans
    
    
    36,253
    
    
    
    46,948
    
    
    
    (10,695
    )
    
    
    -22.8
    %Average gross loans
    
    
    661,387
    
    
    
    877,432
    
    
    
    (216,045
    )
    
    
    -24.6
    %Provision for loan losses
    
    
    30,832
    
    
    
    28,733
    
    
    
    2,099
    
    
    
    7.3
    %Charge-offs, net of recoveries
    
    
    30,396
    
    
    
    25,702
    
    
    
    4,694
    
    
    
    18.3
    %Nonperforming loans
    
    
    62,269
    
    
    
    53,140
    
    
    
    9,129
    
    
    
    17.2
    %Interest on securities and overnight investments
    
    
    8,536
    
    
    
    4,032
    
    
    
    4,504
    
    
    
    111.7
    %Total other income
    
    
    8,783
    
    
    
    8,887
    
    
    
    (104
    )
    
    
    -1.2
    %Total noninterest expenses
    
    
    33,594
    
    
    
    42,996
    
    
    
    (9,402
    )
    
    
    -21.9
    %Personnel expenses
    
    
    10,257
    
    
    
    16,010
    
    
    
    (5,753
    )
    
    
    -35.9
    %Other noninterest expenses
    
    
    23,337
    
    
    
    26,986
    
    
    
    (3,649
    )
    
    
    -13.5
    %Income tax benefit
    
    
    (790
    )
    
    
    (5,800
    )
    
    
    5,010
    
    
    
    -86.4
    %Net interest margin
    
    
    3.44
    %
    
    
    3.11
    %Average prime rate
    
    
    3.25
    %
    
    
    3.25
    %Yield on loans
    
    
    5.48
    %
    
    
    5.54
    %Yield on securities and overnight investments
    
    
    3.47
    %
    
    
    3.03
    %Cost of interest-bearing deposits
    
    
    1.58
    %
    
    
    2.32
    %
     20




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2010
    
    2009
    
    2008Average
    
    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)
    
    $
    661,387
    
    
    
    5.48
    %
    
    $
    36,263
    
    
    $
    877,432
    
    
    
    5.54
    %
    
    $
    48,614
    
    
    $
    971,560
    
    
    
    6.41
    %
    
    $
    62,289Taxable securities
    
    
    245,645
    
    
    
    3.47
    %
    
    
    8,536
    
    
    
    126,253
    
    
    
    2.90
    %
    
    
    3,660
    
    
    
    83,166
    
    
    
    3.89
    %
    
    
    3,236Nontaxable securities (2)
    
    
    476
    
    
    
    0.00
    %
    
    
    
    
    
    
    8,270
    
    
    
    6.77
    %
    
    
    560
    
    
    
    30,839
    
    
    
    6.66
    %
    
    
    2,054Federal funds sold
    
    
    
    
    
    
    n/a
    
    
    
    
    
    
    
    5,116
    
    
    
    0.16
    %
    
    
    8
    
    
    
    4,667
    
    
    
    1.35
    %
    
    
    63Total interest-earning
assets
    
    
    907,508
    
    
    
    4.94
    %
    
    
    44,799
    
    
    
    1,017,071
    
    
    
    5.20
    %
    
    
    52,842
    
    
    
    1,090,232
    
    
    
    6.20
    %
    
    
    67,642Cash and due from banks
    
    
    64,618
    
    
    
    
    
    
    
    
    
    
    
    39,091
    
    
    
    
    
    
    
    
    
    
    
    23,919All other assets
    
    
    15,399
    
    
    
    
    
    
    
    
    
    
    
    45,497
    
    
    
    
    
    
    
    
    
    
    
    75,549Total assets
    
    $
    987,525
    
    
    
    
    
    
    
    
    
    
    $
    1,101,659
    
    
    
    
    
    
    
    
    
    
    $
    1,189,700Liabilities and
stockholders equityNOW deposits
    
    $
    120,482
    
    
    
    0.53
    %
    
    
    641
    
    
    $
    140,022
    
    
    
    0.96
    %
    
    
    1,348
    
    
    $
    134,919
    
    
    
    1.14
    %
    
    
    1,533Money market deposits
    
    
    154,587
    
    
    
    0.98
    %
    
    
    1,510
    
    
    
    197,416
    
    
    
    1.51
    %
    
    
    2,981
    
    
    
    233,782
    
    
    
    2.89
    %
    
    
    6,755Savings deposits
    
    
    19,898
    
    
    
    0.20
    %
    
    
    39
    
    
    
    20,303
    
    
    
    0.20
    %
    
    
    40
    
    
    
    21,567
    
    
    
    0.24
    %
    
    
    52Time deposits of $100 or
more
    
    
    241,184
    
    
    
    2.10
    %
    
    
    5,068
    
    
    
    209,525
    
    
    
    3.16
    %
    
    
    6,630
    
    
    
    214,208
    
    
    
    4.07
    %
    
    
    8,724Other time deposits
    
    
    271,697
    
    
    
    2.03
    %
    
    
    5,518
    
    
    
    282,971
    
    
    
    3.07
    %
    
    
    8,699
    
    
    
    246,424
    
    
    
    3.89
    %
    
    
    9,580Interest-bearing deposits
    
    
    807,848
    
    
    
    1.58
    %
    
    
    12,776
    
    
    
    850,237
    
    
    
    2.32
    %
    
    
    19,698
    
    
    
    850,900
    
    
    
    3.13
    %
    
    
    26,644Overnight borrowings
    
    
    
    
    
    
    n/a
    
    
    
    
    
    
    
    11,240
    
    
    
    1.09
    %
    
    
    123
    
    
    
    28,305
    
    
    
    2.48
    %
    
    
    703Other borrowings
    
    
    34,236
    
    
    
    2.44
    %
    
    
    834
    
    
    
    45,569
    
    
    
    3.08
    %
    
    
    1,403
    
    
    
    52,857
    
    
    
    4.55
    %
    
    
    2,406Total interest-bearing
liabilities
    
    
    842,084
    
    
    
    1.62
    %
    
    
    13,610
    
    
    
    907,046
    
    
    
    2.34
    %
    
    
    21,224
    
    
    
    932,062
    
    
    
    3.19
    %
    
    
    29,753Noninterest-bearing
deposits
    
    
    102,228
    
    
    
    
    
    
    
    
    
    
    
    111,614
    
    
    
    
    
    
    
    
    
    
    
    131,563Other liabilities
    
    
    6,303
    
    
    
    
    
    
    
    
    
    
    
    15,134
    
    
    
    
    
    
    
    
    
    
    
    12,820Stockholders equity
    
    
    36,910
    
    
    
    
    
    
    
    
    
    
    
    67,865
    
    
    
    
    
    
    
    
    
    
    
    113,255Total liabilities
and stockholders equity
    
    $
    987,525
    
    
    
    
    
    
    
    
    
    
    $
    1,101,659
    
    
    
    
    
    
    
    
    
    
    $
    1,189,700Net yield on earning
assets and
net interest income (2)
(3)
    
    
    
    
    
    
    3.44
    %
    
    $
    31,189
    
    
    
    
    
    
    
    3.11
    %
    
    $
    31,618
    
    
    
    
    
    
    
    3.48
    %
    
    $
    37,889Interest rate spread (4)
    
    
    
    
    
    
    3.32
    %
    
    
    
    
    
    
    
    
    
    
    2.86
    %
    
    
    
    
    
    
    
    
    
    
    3.01
    %
 
 (1)
    
    Nonaccrual 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 2010, 2009 and 2008. The taxable equivalent adjustments were approximately $0, $196 thousand and $719 thousand for
2010, 2009 and 2008, 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.  
 2010 compared to 2009
    
    2009 compared to 2008Change
    
    
    
    
    
    ChangeAttributable to
    
    
    
    
    
    Attributable to(Table in thousands)
    
    Volume(1)
    
    Rate(1)
    
    Total
    
    Volume(1)
    
    Rate(1)
    
    TotalLoans
    
    $
    (11,908
    )
    
    $
    (443
    )
    
    $
    (12,351
    )
    
    $
    (5,625
    )
    
    $
    (8,050
    )
    
    $
    (13,675
    )Taxable securities
    
    
    3,805
    
    
    
    1,071
    
    
    
    4,876
    
    
    
    1,463
    
    
    
    (1,039
    )
    
    
    424Nontaxable securities
    
    
    (264
    )
    
    
    (296
    )
    
    
    (560
    )
    
    
    (1,516
    )
    
    
    22
    
    
    
    (1,494
    )Federal funds sold
    
    
    (8
    )
    
    
    
    
    
    
    (8
    )
    
    
    3
    
    
    
    (58
    )
    
    
    (55
    )Interest-earning assets
    
    $
    (8,375
    )
    
    $
    332
    
    
    $
    (8,043
    )
    
    $
    (5,675
    )
    
    $
    (9,125
    )
    
    $
    (14,800
    )\NOW deposits
    
    $
    (146
    )
    
    $
    (561
    )
    
    $
    (707
    )
    
    $
    54
    
    
    $
    (239
    )
    
    $
    (185
    )Money market deposits
    
    
    (533
    )
    
    
    (938
    )
    
    
    (1,471
    )
    
    
    (800
    )
    
    
    (2,974
    )
    
    
    (3,774
    )Savings deposits
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )
    
    
    (3
    )
    
    
    (9
    )
    
    
    (12
    )Time deposits of $100 or
more
    
    
    834
    
    
    
    (2,396
    )
    
    
    (1,562
    )
    
    
    (169
    )
    
    
    (1,925
    )
    
    
    (2,094
    )Other time deposits
    
    
    (288
    )
    
    
    (2,893
    )
    
    
    (3,181
    )
    
    
    1,272
    
    
    
    (2,153
    )
    
    
    (881
    )Interest-bearing deposits
    
    
    (134
    )
    
    
    (6,788
    )
    
    
    (6,922
    )
    
    
    354
    
    
    
    (7,300
    )
    
    
    (6,946
    )Overnight borrowings
    
    
    (123
    )
    
    
    
    
    
    
    (123
    )
    
    
    (305
    )
    
    
    (275
    )
    
    
    (580
    )Other borrowings
    
    
    (313
    )
    
    
    (256
    )
    
    
    (569
    )
    
    
    (278
    )
    
    
    (725
    )
    
    
    (1,003
    )Interest-bearing liabilities
    
    $
    (570
    )
    
    $
    (7,044
    )
    
    $
    (7,614
    )
    
    $
    (229
    )
    
    $
    (8,300
    )
    
    $
    (8,529
    )
 
 (1)
    
    The rate/volume variance for each category has been allocated equally on a consistent basis
between rate and volume variances. 21




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22




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The following table presents interest rate sensitivity of our interest-earning assets and
interest-bearing liabilities.
 
 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
    
    $
    1,242
    
    
    $
    
    
    
    $
    
    
    
    $
    1,242
    
    
    $
    
    
    
    $
    1,242Securities (at amortized cost) (1):U.S. Government agencies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61,061
    
    
    
    61,061States and political subdivisions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,430
    
    
    
    5,430Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    187,741
    
    
    
    187,741Other (including corporate bonds)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,500
    
    
    
    3,500Loans (gross):Real estate  construction
    
    
    12,042
    
    
    
    2,155
    
    
    
    3,068
    
    
    
    17,265
    
    
    
    9,655
    
    
    
    26,920Real estate  mortgage, commercial
    
    
    44,382
    
    
    
    21,200
    
    
    
    50,873
    
    
    
    116,455
    
    
    
    297,306
    
    
    
    413,761Commercial and industrial
    
    
    8,253
    
    
    
    6,781
    
    
    
    12,186
    
    
    
    27,220
    
    
    
    42,114
    
    
    
    69,334Consumer
    
    
    1,454
    
    
    
    124
    
    
    
    295
    
    
    
    1,873
    
    
    
    50,570
    
    
    
    52,443Total interest-earning assets
    
    $
    67,373
    
    
    $
    30,260
    
    
    $
    66,422
    
    
    $
    164,055
    
    
    $
    657,377
    
    
    $
    821,432Interest-bearing LiabilitiesInterest-bearing deposits:Savings and NOW accounts
    
    $
    133,478
    
    
    $
    
    
    
    $
    
    
    
    $
    133,478
    
    
    $
    
    
    
    $
    133,478Money market accounts
    
    
    155,604
    
    
    
    
    
    
    
    
    
    
    
    155,604
    
    
    
    
    
    
    
    155,604Time deposits of $100 or more
    
    
    61,644
    
    
    
    25,926
    
    
    
    88,453
    
    
    
    176,023
    
    
    
    28,726
    
    
    
    204,749Other time deposits
    
    
    57,155
    
    
    
    35,376
    
    
    
    107,894
    
    
    
    200,425
    
    
    
    35,706
    
    
    
    236,131Short-term borrowings
    
    
    11,000
    
    
    
    2,000
    
    
    
    5,000
    
    
    
    18,000
    
    
    
    
    
    
    
    18,000Long-term borrowings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,000
    
    
    
    6,000Total interest-bearing liabilities
    
    $
    418,881
    
    
    $
    63,302
    
    
    $
    201,347
    
    
    $
    683,530
    
    
    $
    70,432
    
    
    $
    753,962Interest sensitivity gap
    
    $
    (351,508
    )
    
    $
    (33,042
    )
    
    $
    (134,925
    )
    
    $
    (519,475
    )Cumulative interest sensitivity gap
    
    
    (351,508
    )
    
    
    (384,550
    )
    
    
    (519,475
    )
    
    
    (519,475
    )Interest earning-assets as a percentage
of interest-bearing liabilities
    
    
    16
    %
    
    
    48
    %
    
    
    33
    %
    
    
    24
    %
 
 (1)
    
    Interest sensitivity periods for debt securities are based on contractual maturities. The following table presents the maturity distribution of our loans by type, including fixed
rate loans.
 
 Within
    
    
    One to
    
    
    FiveOne
    
    
    Five
    
    
    Years or(Table in thousands)
    
    Year
    
    
    Years
    
    
    More
    
    
    TotalReal estate  construction
    
    $
    17,265
    
    
    $
    7,677
    
    
    $
    1,978
    
    
    $
    26,920Real estate  mortgage, commercial
    
    
    118,687
    
    
    
    250,340
    
    
    
    44,734
    
    
    
    413,761Commercial and industrial
    
    
    27,238
    
    
    
    37,074
    
    
    
    5,022
    
    
    
    69,334Consumer
    
    
    957
    
    
    
    4,820
    
    
    
    46,666
    
    
    
    52,443Total
    
    $
    164,147
    
    
    $
    299,911
    
    
    $
    98,400
    
    
    $
    562,458Predetermined rate, maturity
greater than one year
    
    $
    
    
    
    $
    137,316
    
    
    $
    24,959
    
    
    $
    162,275Variable rate or maturing within
one year
    
    
    164,147
    
    
    
    162,595
    
    
    
    73,441
    
    
    
    400,183Total
    
    $
    164,147
    
    
    $
    299,911
    
    
    $
    98,400
    
    
    $
    562,458
  
 (Table in thousands)
    
    2010
    
    
    2009
    
    
    2008Non-interest-bearing demand deposits
    
    $
    102,228
    
    
    $
    111,614
    
    
    $
    131,563Interest-bearing demand deposits
    
    
    275,069
    
    
    
    337,438
    
    
    
    368,701Savings deposits
    
    
    19,898
    
    
    
    20,303
    
    
    
    21,567Time deposits
    
    
    512,881
    
    
    
    492,496
    
    
    
    460,632Total
    
    $
    910,076
    
    
    $
    961,851
    
    
    $
    982,463
 23




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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
    
    $
    61,644
    
    
    $
    25,926
    
    
    $
    88,453
    
    
    $
    176,023
    
    
    $
    28,726
    
    
    $
    204,749
     
 (Table dollars in thousands)
 2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofTotal
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    TotalAmount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    LoansLoansReal estate -Construction
    
    $
    26,920
    
    
    
    4.8
    %
    
    $
    59,701
    
    
    
    7.7
    %
    
    $
    146,167
    
    
    
    15.4
    %
    
    $
    182,457
    
    
    
    19.2
    %
    
    $
    161,072
    
    
    
    17.6
    %Mortgage
    
    
    413,761
    
    
    
    73.6
    %
    
    
    511,771
    
    
    
    66.0
    %
    
    
    537,495
    
    
    
    56.6
    %
    
    
    466,475
    
    
    
    49.2
    %
    
    
    442,819
    
    
    
    48.4
    %Commercial
and industrial
    
    
    69,334
    
    
    
    12.3
    %
    
    
    143,011
    
    
    
    18.4
    %
    
    
    198,440
    
    
    
    20.9
    %
    
    
    237,667
    
    
    
    25.1
    %
    
    
    248,388
    
    
    
    27.2
    %Consumer
    
    
    52,443
    
    
    
    9.3
    %
    
    
    61,186
    
    
    
    7.9
    %
    
    
    67,639
    
    
    
    7.1
    %
    
    
    61,515
    
    
    
    6.5
    %
    
    
    61,890
    
    
    
    6.8
    %Total loans
    
    
    562,458
    
    
    
    100.0
    %
    
    
    775,669
    
    
    
    100.0
    %
    
    
    949,741
    
    
    
    100.0
    %
    
    
    948,114
    
    
    
    100.0
    %
    
    
    914,169
    
    
    
    100.0
    %Deferred origination
fees, net
    
    
    (334
    )
    
    
    
    
    
    
    (650
    )
    
    
    
    
    
    
    (1,592
    )
    
    
    
    
    
    
    (1,788
    )
    
    
    
    
    
    
    (1,677
    )Total loans, net of
deferred fees
    
    $
    562,124
    
    
    
    
    
    
    $
    775,019
    
    
    
    
    
    
    $
    948,149
    
    
    
    
    
    
    $
    946,326
    
    
    
    
    
    
    $
    912,492
  24




---



##### Table of Contents



(Table dollars in thousands)
    
    2010
    
    2009
    
    2008
    
    2007
    
    2006Nonperforming assetsNonaccrual loans
    
    $
    40,577
    
    
    $
    36,542
    
    
    $
    50,591
    
    
    $
    36,450
    
    
    $
    9,289Restructured loans  nonaccrual
    
    
    21,692
    
    
    
    16,598
    
    
    
    
    
    
    
    
    
    
    
    Total nonperforming loans
    
    
    62,269
    
    
    
    53,140
    
    
    
    50,591
    
    
    
    36,450
    
    
    
    9,289Foreclosed properties
    
    
    11,605
    
    
    
    13,235
    
    
    
    6,805
    
    
    
    2,491
    
    
    
    1,162Total nonperforming assets
    
    $
    73,874
    
    
    $
    66,375
    
    
    $
    57,396
    
    
    $
    38,941
    
    
    $
    10,451Loans past due 90 days or more and still
accruing interest
    
    
    7,466
    
    
    
    1,195
    
    
    
    114
    
    
    
    162
    
    
    
    5,074Nonperforming loans to total loans
    
    
    11.08
    %
    
    
    6.86
    %
    
    
    5.34
    %
    
    
    3.85
    %
    
    
    1.02
    %Allowance for loan losses to nonperforming loans
    
    
    45.40
    %
    
    
    52.38
    %
    
    
    49.03
    %
    
    
    48.49
    %
    
    
    169.95
    %Nonperforming loans to total assets
    
    
    7.11
    %
    
    
    5.01
    %
    
    
    4.41
    %
    
    
    2.99
    %
    
    
    0.77
    %Nonperforming assets to total assets
    
    
    8.43
    %
    
    
    6.26
    %
    
    
    5.00
    %
    
    
    3.19
    %
    
    
    0.87
    %
     December 31, 2010
    
    December 31, 2009Associated
    
    
    
    
    
    Associated(Table in thousands)
    
    Balance
    
    Impairment
    
    Balance
    
    ImpairmentImpaired loans individually reviewed, with no impairment
    
    $
    7,919
    
    
    $
    
    
    
    $
    10,090
    
    
    $
    Impaired loans individually reviewed, with impairment
    
    
    50,081
    
    
    
    11,563
    
    
    
    28,822
    
    
    
    7,715Total impaired loans
    
    $
    58,000
    
    
    $
    11,563
    
    
    $
    38,912
    
    
    $
    7,715
  December 31, 2010
    
    December 31, 2009Associated
    
    
    
    
    
    Associated(Table in thousands)
    
    Balance
    
    Impairment
    
    Balance
    
    ImpairmentReal estate  construction
    
    $
    16,674
    
    
    $
    3,175
    
    
    $
    13,419
    
    
    $
    3,128Real estate  mortgage, commercial
    
    
    37,721
    
    
    
    7,079
    
    
    
    23,423
    
    
    
    4,328Commercial and industrial
    
    
    3,605
    
    
    
    1,309
    
    
    
    2,070
    
    
    
    259Total impaired loans
    
    $
    58,000
    
    
    $
    11,563
    
    
    $
    38,912
    
    
    $
    7,715
 25




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##### Table of Contents



December 31, 2010
    
    December 31, 2009Associated
    
    
    
    
    
    Associated(Table in thousands)
    
    Balance
    
    Impairment
    
    Balance
    
    ImpairmentTroubled debt restructures, with no
impairment
    
    $
    7,114
    
    
    $
    
    
    
    $
    8,964
    
    
    $
    Troubled debt restructures, with impairment
    
    
    14,578
    
    
    
    2,150
    
    
    
    7,634
    
    
    
    2,113Total troubled debt restructures
    
    $
    21,692
    
    
    $
    2,150
    
    
    $
    16,598
    
    
    $
    2,113
      Accounting By Creditors for Impairment of a Loan
  26




---



##### Table of Contents



(Table dollars in thousands)
    
    2010
    
    2009
    
    2008
    
    2007
    
    2006Balance at beginning of year
    
    $
    27,837
    
    
    $
    24,806
    
    
    $
    17,673
    
    
    $
    15,787
    
    
    $
    13,924Loans charged off:Real estate  construction
    
    
    7,333
    
    
    
    7,060
    
    
    
    7,492
    
    
    
    2,215
    
    
    
    255Real estate  mortgage, commercial
    
    
    16,836
    
    
    
    15,912
    
    
    
    7,150
    
    
    
    12,435
    
    
    
    1,453Commercial and industrial
    
    
    8,481
    
    
    
    5,461
    
    
    
    10,519
    
    
    
    38,506
    
    
    
    2,779Consumer
    
    
    729
    
    
    
    296
    
    
    
    1,553
    
    
    
    507
    
    
    
    716Total charge-offs
    
    
    33,379
    
    
    
    28,729
    
    
    
    26,714
    
    
    
    53,663
    
    
    
    5,203Recoveries of loans previously charged off:Real estate  construction
    
    
    503
    
    
    
    103
    
    
    
    357
    
    
    
    100
    
    
    
    Real estate  mortgage, commercial
    
    
    999
    
    
    
    503
    
    
    
    363
    
    
    
    74
    
    
    
    84Commercial and industrial
    
    
    1,375
    
    
    
    2,222
    
    
    
    2,640
    
    
    
    97
    
    
    
    364Consumer
    
    
    106
    
    
    
    199
    
    
    
    259
    
    
    
    147
    
    
    
    204Total recoveries
    
    
    2,983
    
    
    
    3,027
    
    
    
    3,619
    
    
    
    418
    
    
    
    652Net charge-offs
    
    
    30,396
    
    
    
    25,702
    
    
    
    23,095
    
    
    
    53,245
    
    
    
    4,551Provision for loan losses
    
    
    30,832
    
    
    
    28,733
    
    
    
    30,228
    
    
    
    55,131
    
    
    
    6,414Balance at end of year
    
    $
    28,273
    
    
    $
    27,837
    
    
    $
    24,806
    
    
    $
    17,673
    
    
    $
    15,787Ratio of net charge-offs during the year
to average loans outstanding during the year
    
    
    4.60
    %

    
    
    2.95
    %
    
    
    2.42
    %
    
    
    5.70
    %
    
    
    0.52
    %Allowance coverage of net charge-offs
    
    
    93.02
    %
    
    
    108.31
    %
    
    
    107.41
    %
    
    
    33.25
    %
    
    
    346.88
    %Allowance as a percentage of gross loans
    
    
    5.03
    %
    
    
    3.59
    %
    
    
    2.62
    %
    
    
    1.87
    %
    
    
    1.73
    %
 27




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##### Table of Contents



2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofTotal
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    Total(Table dollars in thousands)
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    LoansReal estate -Construction
    
    $
    3,662
    
    
    
    4.8
    %
    
    $
    5,391
    
    
    
    7.7
    %
    
    $
    6,509
    
    
    
    15.4
    %
    
    $
    4,516
    
    
    
    19.2
    %
    
    $
    4,119
    
    
    
    17.6
    %Mortgage
    
    
    19,528
    
    
    
    73.6
    %
    
    
    18,150
    
    
    
    66.0
    %
    
    
    13,424
    
    
    
    56.6
    %
    
    
    9,314
    
    
    
    49.2
    %
    
    
    8,493
    
    
    
    48.4
    %Commercial
and industrial
    
    
    3,214
    
    
    
    12.3
    %
    
    
    3,304
    
    
    
    18.4
    %
    
    
    3,960
    
    
    
    20.9
    %
    
    
    2,747
    
    
    
    25.1
    %
    
    
    2,506
    
    
    
    27.2
    %Consumer
    
    
    499
    
    
    
    9.3
    %
    
    
    602
    
    
    
    7.9
    %
    
    
    481
    
    
    
    7.1
    %
    
    
    334
    
    
    
    6.5
    %
    
    
    307
    
    
    
    6.8
    %Unallocated
    
    
    1,370
    
    
    
    n/a
    
    
    
    390
    
    
    
    n/a
    
    
    
    432
    
    
    
    n/a
    
    
    
    762
    
    
    
    n/a
    
    
    
    362
    
    
    
    n/aTotal loans
    
    $
    28,273
    
    
    
    100.0
    %
    
    $
    27,837
    
    
    
    100.0
    %
    
    $
    24,806
    
    
    
    100.0
    %
    
    $
    17,673
    
    
    
    100.0
    %
    
    $
    15,787
    
    
    
    100.0
    %
       28




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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
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    41,985
    
    
    
    2.73
    %
    
    $
    19,076
    
    
    
    3.81
    %State and political subdivisions (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,265
    
    
    
    4.20
    %
    
    
    4,165
    
    
    
    5.14
    %Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    187,741
    
    
    
    3.09
    %Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,500
    
    
    
    6.10
    %
    
    
    
    
    
    
    Total
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    46,750
    
    
    
    3.02
    %
    
    $
    210,982
    
    
    
    3.20
    %
 
 (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
2010.  
 (Table in thousands)
    
    2010
    
    
    2009
    
    
    2008Available for sale (at estimated fair value):U.S. government agency
    
    $
    59,496
    
    
    $
    42,051
    
    
    $
    46,063State and political subdivisions
    
    
    5,258
    
    
    
    
    
    
    
    5,416Mortgage-backed securities
    
    
    186,811
    
    
    
    147,831
    
    
    
    Other
    
    
    3,539
    
    
    
    1,039
    
    
    
    7,097Total
    
    $
    255,104
    
    
    $
    190,921
    
    
    $
    58,576Held to maturity (at amortized cost):State and political subdivisions
    
    $
    
    
    
    $
    
    
    
    $
    23,627Total
    
    $
    
    
    
    $
    
    
    
    $
    23,627
   
 Within
    
    
    One to
    
    
    Three to
    
    
    FiveOne
    
    
    Three
    
    
    Five
    
    
    Years or(Table in thousands)
    
    Year
    
    
    Years
    
    
    Years
    
    
    More
    
    
    TotalContractual Cash ObligationsShort-term borrowings
    
    $
    18,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    18,000Long-term borrowings
    
    
    
    
    
    
    6,000
    
    
    
    
    
    
    
    
    
    
    
    6,000Capitalized lease obligations
    
    
    444
    
    
    
    799
    
    
    
    628
    
    
    
    1,141
    
    
    
    3,012Operating lease obligations
    
    
    95
    
    
    
    60
    
    
    
    
    
    
    
    
    
    
    
    155Total
    
    $
    18,539
    
    
    $
    6,859
    
    
    $
    628
    
    
    $
    1,141
    
    
    $
    27,167Other CommitmentsCommitments to extend credit
    
    $
    22,762
    
    
    $
    10,324
    
    
    $
    3,438
    
    
    $
    40,744
    
    
    $
    77,268Standby letters of credit
    
    
    1,255
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    1,262Total
    
    $
    24,017
    
    
    $
    10,331
    
    
    $
    3,438
    
    
    $
    40,744
    
    
    $
    78,530
 29




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##### Table of Contents



2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Return on average assets
    
    
    -2.40
    %
    
    
    -2.33
    %
    
    
    -3.05
    %
    
    
    -1.27
    %
    
    
    1.56
    %Return on average equity
    
    
    -64.11
    %
    
    
    -37.75
    %
    
    
    -32.01
    %
    
    
    -10.95
    %
    
    
    12.57
    %Average equity to average assets
    
    
    3.74
    %
    
    
    6.16
    %
    
    
    9.52
    %
    
    
    11.59
    %
    
    
    12.42
    %Dividend payout
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    -11.08
    %
    
    
    -53.38
    %
    
    
    43.04
    %Efficiency ratio
    
    
    84.04
    %
    
    
    106.15
    %
    
    
    101.46
    %
    
    
    55.64
    %
    
    
    48.26
    %
       
   30




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##### Table of Contents



Begins onPageReport of Independent Registered Public Accounting Firm
    
    
    32Financial Statements:Consolidated Balance Sheets
December 31, 2010 and 2009
    
    
    33Consolidated Statements of Income (Loss)
Years Ended December 31, 2010 and 2009
    
    
    34Consolidated Statements of Comprehensive Loss
Years Ended December 31, 2010 and 2009
    
    
    35Consolidated Statements of Changes in Stockholders Equity
Years Ended December 31, 2010 and 2009
    
    
    36Consolidated Statements of Cash Flows
Years Ended December 31, 2010 and 2009
    
    
    37Notes to Consolidated Financial Statements
Years Ended December 31, 2010 and 2009
    
    
    39
 31




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
        /s/ Dixon Hughes PLLCDixon Hughes PLLCCharlotte, North Carolina 
March 31, 2011 32




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##### Table of Contents



BANK OF GRANITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2010 AND 2009
 (In thousands except per share data)
    
    2010
    
    
    2009ASSETS:Cash and cash equivalents:Cash and due from banks
    
    $
    45,982
    
    
    $
    71,611Interest-bearing deposits
    
    
    1,242
    
    
    
    1,763Total cash and cash equivalents
    
    
    47,224
    
    
    
    73,374Investment securities:Available for sale, at fair value (amortized cost of $257,732 and
$195,302 at December 31, 2010 and 2009, respectively)
    
    
    255,104
    
    
    
    190,921Loans
    
    
    562,124
    
    
    
    775,019Allowance for loan losses
    
    
    (28,273
    )
    
    
    (27,837
    )Net loans
    
    
    533,851
    
    
    
    747,182Premises and equipment, net
    
    
    13,666
    
    
    
    15,556Accrued interest receivable
    
    
    3,338
    
    
    
    3,917Other real estate owned
    
    
    11,605
    
    
    
    13,235Other assets
    
    
    11,052
    
    
    
    15,899Total assets
    
    $
    875,840
    
    
    $
    1,060,084LIABILITIES AND STOCKHOLDERS EQUITY:Deposits:Demand
    
    $
    92,345
    
    
    $
    109,673NOW accounts
    
    
    113,213
    
    
    
    145,833Money market accounts
    
    
    155,604
    
    
    
    155,745Savings
    
    
    20,265
    
    
    
    18,794Time deposits of $100 or more
    
    
    204,749
    
    
    
    247,639Other time deposits
    
    
    236,131
    
    
    
    288,921Total deposits
    
    
    822,307
    
    
    
    966,605Short-term borrowings
    
    
    18,000
    
    
    
    20,000Long-term borrowings
    
    
    6,000
    
    
    
    20,000Accrued interest payable
    
    
    1,046
    
    
    
    1,701Other liabilities
    
    
    4,097
    
    
    
    4,692Total liabilities
    
    
    851,450
    
    
    
    1,012,998STOCKHOLDERS EQUITY:Common stock, $1.00 par value, Authorized  25,000 shares;
Issued  18,981 shares in 2010 and 2009;Outstanding  15,454 shares in 2010 and 2009
    
    
    18,981
    
    
    
    18,981Additional paid-in capital
    
    
    30,195
    
    
    
    30,195Retained earnings
    
    
    28,644
    
    
    
    52,308Accumulated other comprehensive loss, net of
deferred income taxes of $1,051 and $1,837 atDecember 31, 2010 and 2009, respectively
    
    
    (1,578
    )
    
    
    (2,546
    )Less: Cost of common stock in treasury;
3,527 shares in 2010 and 2009
    
    
    (51,852
    )
    
    
    (51,852
    )Total stockholders equity
    
    
    24,390
    
    
    
    47,086Total liabilities and stockholders equity
    
    $
    875,840
    
    
    $
    1,060,084
  33




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##### Table of Contents



BANK OF GRANITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
YEARS ENDED DECEMBER 31, 2010 AND 2009
 (In thousands except per share data)
    
    2010
    
    
    2009INTEREST INCOME:Interest and fees from loans
    
    $
    36,263
    
    
    $
    48,614Federal funds sold
    
    
    
    
    
    
    8Interest-bearing deposits
    
    
    135
    
    
    
    67Investments:U.S. Treasury
    
    
    
    
    
    
    18U.S. Government agencies
    
    
    8,347
    
    
    
    3,233States and political subdivisions
    
    
    
    
    
    
    364Other
    
    
    54
    
    
    
    342Total interest income
    
    
    44,799
    
    
    
    52,646INTEREST EXPENSE:Time deposits of $100 or more
    
    
    5,068
    
    
    
    6,630Other time and savings deposits
    
    
    7,708
    
    
    
    13,068Short-term borrowings
    
    
    552
    
    
    
    631Long-term borrowings
    
    
    282
    
    
    
    895Total interest expense
    
    
    13,610
    
    
    
    21,224NET INTEREST INCOME
    
    
    31,189
    
    
    
    31,422PROVISION FOR LOAN LOSSES
    
    
    30,832
    
    
    
    28,733NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
    
    
    357
    
    
    
    2,689OTHER INCOME:Service charges on deposit accounts
    
    
    4,760
    
    
    
    5,423Other service fees and commissions
    
    
    288
    
    
    
    429Mortgage banking income
    
    
    (4
    )
    
    
    748Securities gains
    
    
    2,403
    
    
    
    1,074Other-than-temporary impairment losses
    
    
    
    
    
    
    (996
    )Other
    
    
    1,336
    
    
    
    2,209Total other income
    
    
    8,783
    
    
    
    8,887OTHER EXPENSES:Salaries and wages
    
    
    8,661
    
    
    
    13,896Employee benefits
    
    
    1,596
    
    
    
    2,114Occupancy expense, net
    
    
    1,706
    
    
    
    2,032Equipment rentals, depreciation and
maintenance
    
    
    1,853
    
    
    
    2,317FDIC assessments
    
    
    4,485
    
    
    
    3,704Other real estate owned
    
    
    7,297
    
    
    
    10,254Other
    
    
    7,996
    
    
    
    8,679Total other expenses
    
    
    33,594
    
    
    
    42,996LOSS BEFORE INCOME
TAX BENEFIT
    
    
    (24,454
    )
    
    
    (31,420
    )INCOME TAX BENEFIT
    
    
    (790
    )
    
    
    (5,800
    )NET LOSS
    
    $
    (23,664
    )
    
    $
    (25,620
    )Net loss per share  basic and diluted
    
    $
    (1.53
    )
    
    $
    (1.66
    )
  34




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##### Table of Contents



BANK OF GRANITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
YEARS ENDED DECEMBER 31, 2010 AND 2009
 (In thousands)
    
    2010
    
    
    2009NET LOSS
    
    $
    (23,664
    )
    
    $
    (25,620
    )ITEMS OF OTHER COMPREHENSIVE LOSS:Items of other comprehensive loss,
before tax:Change in unrealized losses on securities
available for sale
    
    
    (649
    )
    
    
    (4,713
    )Reclassification adjustment for
available for sale securities
gains (losses) included in net income
    
    
    2,403
    
    
    
    (404
    )Prior service cost and net actuarial
loss  SERP
    
    
    
    
    
    
    2,526Other comprehensive income (loss), before tax
    
    
    1,754
    
    
    
    (2,591
    )Change in deferred income taxes
related to change in unrealized gains
or losses on securities available for sale
    
    
    (786
    )
    
    
    2,129Change 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
    
    
    968
    
    
    
    (1,469
    )COMPREHENSIVE LOSS
    
    $
    (22,696
    )
    
    $
    (27,089
    )
  35




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##### Table of Contents



BANK OF GRANITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
YEARS ENDED DECEMBER 31, 2010 AND 2009
 (In thousands except per share data)
    
    2010
    
    
    2009COMMON STOCK, $1.00 par valueAt beginning of year
    
    $
    18,981
    
    
    $
    18,981At end of year
    
    
    18,981
    
    
    
    18,981ADDITIONAL PAID-IN CAPITALAt beginning of year
    
    
    30,195
    
    
    
    30,190Stock-based compensation expense
    
    
    
    
    
    
    5At end of year
    
    
    30,195
    
    
    
    30,195RETAINED EARNINGSAt beginning of year
    
    
    52,308
    
    
    
    77,928Net loss
    
    
    (23,664
    )
    
    
    (25,620
    )At end of year
    
    
    28,644
    
    
    
    52,308ACCUMULATED OTHER
COMPREHENSIVE LOSS,
NET OF DEFERRED INCOME TAXESAt beginning of year
    
    
    (2,546
    )
    
    
    (1,077
    )Net change in unrealized gains or losses on securities
available for sale, net of deferred income taxes
    
    
    968
    
    
    
    (2,988
    )Net change in prior service cost and net actuarial
loss  SERP, net of deferred income taxes
    
    
    
    
    
    
    1,519At end of year
    
    
    (1,578
    )
    
    
    (2,546
    )COST OF COMMON STOCK
IN TREASURYAt beginning of year
    
    
    (51,852
    )
    
    
    (51,852
    )At end of year
    
    
    (51,852
    )
    
    
    (51,852
    )Total stockholders equity
    
    $
    24,390
    
    
    $
    47,086Shares issued:At beginning of year
    
    
    18,981
    
    
    
    18,981At end of year
    
    
    18,981
    
    
    
    18,981Common shares in treasury:At beginning of year
    
    
    (3,527
    )
    
    
    (3,527
    )At end of year
    
    
    (3,527
    )
    
    
    (3,527
    )Total shares outstanding
    
    
    15,454
    
    
    
    15,454
  36




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##### Table of Contents



BANK OF GRANITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2010 AND 2009
 (In thousands)
    
    2010
    
    
    2009INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (23,664
    )
    
    $
    (25,620
    )Adjustments to reconcile net loss to net cash
provided by operating activities:Depreciation
    
    
    1,401
    
    
    
    1,753Provision for loan losses
    
    
    30,832
    
    
    
    28,733Investment security premium amortization, net
    
    
    1,537
    
    
    
    1,160Acquisition premium amortization, net
    
    
    
    
    
    
    143Gains on sales or calls of securities
available for sale
    
    
    (2,403
    )
    
    
    (592
    )Gains on sales or calls of securities
held to maturity
    
    
    
    
    
    
    (482
    )Impairment losses on securities
    
    
    
    
    
    
    996Originations of loans held for sale
    
    
    
    
    
    
    (82,177
    )Proceeds from loans held for sale
    
    
    
    
    
    
    99,924Gains on loans held for sale
    
    
    
    
    
    
    (977
    )Loss on disposal or sale of premises
    
    
    517
    
    
    
    1,267Loss on disposal or sale of equipment
    
    
    
    
    
    
    129Loss on writedowns or sale of other real estate
    
    
    5,593
    
    
    
    7,816Decrease in accrued interest receivable
    
    
    579
    
    
    
    62Decrease in accrued interest payable
    
    
    (655
    )
    
    
    (1,049
    )Decrease (increase) in other assets
    
    
    4,150
    
    
    
    (234
    )Decrease in other liabilities
    
    
    (683
    )
    
    
    (5,866
    )Net cash provided by
operating activities
    
    
    17,204
    
    
    
    24,986CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from maturities, calls and paydowns of
securities available for sale
    
    
    80,466
    
    
    
    54,370Proceeds from sales, maturities, calls and paydowns
of securities held to maturity
    
    
    
    
    
    
    24,103Proceeds from sales of securities available for sale
    
    
    209,688
    
    
    
    173,748Purchases of securities available for sale
    
    
    (351,718
    )
    
    
    (366,274
    )Net decrease in loans
    
    
    166,120
    
    
    
    125,443Proceeds from sale of bank owned life insurance
    
    
    
    
    
    
    28,149Capital expenditures
    
    
    (28
    )
    
    
    Proceeds from sales of fixed assets
    
    
    
    
    
    
    374Proceeds from sales of other real estate
    
    
    12,416
    
    
    
    7,731Net cash provided by investing activities
    
    
    116,944
    
    
    
    47,644
   37




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##### Table of Contents



BANK OF GRANITE CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS
    
    (Concluded from previous page)YEARS ENDED DECEMBER 31, 2010 AND 2009
 (In thousands)
    
    2010
    
    
    2009CASH FLOWS FROM FINANCING ACTIVITIES:Net decrease in demand, NOW, money
market and savings deposits
    
    $
    (48,618
    )
    
    $
    (64,349
    )Net increase (decrease) in time deposits
    
    
    (95,680
    )
    
    
    39,132Net decrease in overnight and short-term borrowings
    
    
    (2,000
    )
    
    
    (28,947
    )Net increase (decrease) in long-term borrowings
    
    
    (14,000
    )
    
    
    5,925Net cash used in financing activities
    
    
    (160,298
    )
    
    
    (48,239
    )NET INCREASE (DECREASE) IN
CASH EQUIVALENTS
    
    
    (26,150
    )
    
    
    24,391CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR
    
    
    73,374
    
    
    
    48,983CASH AND CASH EQUIVALENTS
AT END OF YEAR
    
    $
    47,224
    
    
    $
    73,374SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid (refunded) during the year for:Interest
    
    $
    14,265
    
    
    $
    22,273Income tax refunded
    
    
    (790
    )
    
    
    (7,841
    )Noncash investing and financing activities:Transfer from loans to other real
estate owned
    
    
    16,379
    
    
    
    21,977
  38




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##### Table of Contents



BANK OF GRANITE CORPORATION AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  YEARS ENDED DECEMBER 31, 2010 AND 2009
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
        39




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##### Table of Contents



Income Taxes
 40




---



##### Table of Contents



Income Taxes
  Stock
Compensation
    41




---



##### Table of Contents



2. REGULATORY MATTERS AND GOING CONCERN CONSIDERATIONS
 Regulatory Actions
     
    
    Present a written capital plan to the FDIC and the Commissioner by which the Bank would
achieve a Tier 1 Leverage Capital Ratio of not less than 8 percent and Total Risk-Based
Capital Ratio of not less than 12 percent during the life of the Order;
    
    Formulate a plan to improve the Banks earnings and evaluate the plan quarterly;
    
    Formulate and implement a plan to reduce the Banks risk exposure in assets classified
Substandard or Doubtful;
    
    Reduce the real estate credit concentrations in the Banks loan portfolio;
    
    Develop a plan to improve the Banks liquidity; monitor contingent funding needs and
improve asset liability management, and review and revise the plan on a quarterly basis;
    
    Not pay cash dividends without the prior written consent of the FDIC and the
Commissioner;
    
    Neither renew, roll-over nor increase the amount of brokered deposits above the amount
outstanding at the date of the Order.
   42




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##### Table of Contents



Going Concern Considerations
    Capital Matters
   Actual
    
    
    Minimum Regulatory RequirementAdequately
    
    
    Well
    
    
    Pursuant toConsolidated
    
    
    Bank
    
    
    Capitalized
    
    
    Capitalized
    
    
    OrderLeverage capital
    
    
    2.83
    %
    
    
    2.69
    %
    
    
    4.00
    %
    
    
    5.00
    %
    
    
    8.00
    %Risk-based capital:Tier 1 capital
    
    
    4.41
    %
    
    
    4.21
    %
    
    
    4.00
    %
    
    
    6.00
    %
    
    
    8.00
    %Total capital
    
    
    5.71
    %
    
    
    5.51
    %
    
    
    8.00
    %
    
    
    10.00
    %
    
    
    12.00
    %
 43




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##### Table of Contents



3. INVESTMENT SECURITIES
  (Table in thousands)
    
    Amortized
    
    
    Gross Unrealized
    
    
    FairType and Contractual Maturity
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueAVAILABLE FOR SALEAt December 31, 2010:U. S. Government agencies due:After 5 years but within 10 years
    
    $
    41,985
    
    
    $
    
    
    
    $
    1,310
    
    
    $
    40,675After 10 years
    
    
    19,076
    
    
    
    123
    
    
    
    378
    
    
    
    18,821Total U.S. Government agencies
    
    
    61,061
    
    
    
    123
    
    
    
    1,688
    
    
    
    59,496State and local due:After 5 years but within 10 years
    
    
    1,265
    
    
    
    
    
    
    
    48
    
    
    
    1,217After 10 years
    
    
    4,165
    
    
    
    
    
    
    
    124
    
    
    
    4,041Total state and local
    
    
    5,430
    
    
    
    
    
    
    
    172
    
    
    
    5,258Government agency and other
mortgage-backed securities due:After 10 years
    
    
    187,741
    
    
    
    692
    
    
    
    1,622
    
    
    
    186,811Total mortgage-backed securities
    
    
    187,741
    
    
    
    692
    
    
    
    1,622
    
    
    
    186,811Others* due:After 5 years but within 10 years
    
    
    3,500
    
    
    
    39
    
    
    
    
    
    
    
    3,539Total others
    
    
    3,500
    
    
    
    39
    
    
    
    
    
    
    
    3,539Total available for sale
    
    $
    257,732
    
    
    $
    854
    
    
    $
    3,482
    
    
    $
    255,104
 
 *
    
    Others include corporate bonds   44




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##### Table of Contents



(Table in thousands)
    
    Amortized
    
    
    Gross Unrealized
    
    
    FairType and Contractual Maturity
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueAVAILABLE FOR SALEAt December 31, 2009:U. S. Government agencies due:Within 1 year
    
    $
    1,539
    
    
    $
    9
    
    
    $
    
    
    
    $
    1,548After 1 year but within 5 years
    
    
    38,172
    
    
    
    
    
    
    
    1,434
    
    
    
    36,738After 5 years but within 10 years
    
    
    4,000
    
    
    
    
    
    
    
    235
    
    
    
    3,765Total U.S. Government agencies
    
    
    43,711
    
    
    
    9
    
    
    
    1,669
    
    
    
    42,051Government agency and other
mortgage-backed securities due:After 10 years
    
    
    150,738
    
    
    
    192
    
    
    
    3,099
    
    
    
    147,831Total mortgage-backed securities
    
    
    150,738
    
    
    
    192
    
    
    
    3,099
    
    
    
    147,831Others*:Equity securities
    
    
    853
    
    
    
    186
    
    
    
    
    
    
    
    1,039Total others
    
    
    853
    
    
    
    186
    
    
    
    
    
    
    
    1,039Total available for sale
    
    $
    195,302
    
    
    $
    387
    
    
    $
    4,768
    
    
    $
    190,921
 
 *
    
    Others include investments in common stocks, preferred stocks and mutual funds.    Amortized
    
    
    Gross Unrealized
    
    
    Fair(Table in thousands)
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueDecember 31, 2010Federal Home Loan Bank stock
    
    $
    3,565
    
    
    $
    
    
    
    $
    
    
    
    $
    3,565December 31, 2009Federal Home Loan Bank stock
    
    $
    3,914
    
    
    $
    
    
    
    $
    
    
    
    $
    3,914
 45




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##### Table of Contents



December 31, 2010
    
    
    
    December 31, 2009(Table in thousands)
    
    Fair
Value
    
    Unrealized
Loss
    
    Fair
Value
    
    Unrealized
LossLess than 12 months:U.S. Government agencies
    
    $
    54,697
    
    
    $
    1,688
    
    
    $
    40,503
    
    
    $
    1,669State and Local
    
    
    5,257
    
    
    
    172
    
    
    
    
    
    
    
    Government agency and other
mortgage-backed securities
    
    
    116,940
    
    
    
    1,622
    
    
    
    124,311
    
    
    
    3,099Total temporarily impaired
    
    $
    176,894
    
    
    $
    3,482
    
    
    $
    164,814
    
    
    $
    4,768
    4. LOANS
  (Table in thousands)
    
    2010
    
    2009Real estate  construction
    
    $
    26,920
    
    
    $
    59,701Real estate  mortgage, commercial
    
    
    413,761
    
    
    
    511,771Commercial and industrial
    
    
    69,334
    
    
    
    143,011Consumer
    
    
    52,443
    
    
    
    61,186562,458
    
    
    
    775,669Deferred origination fees, net
    
    
    (334
    )
    
    
    (650
    )Total
    
    $
    562,124
    
    
    $
    775,019
 46




---



##### Table of Contents



(Table in thousands)
    
    2010
    
    2009Nonaccrual loans
    
    $
    40,577
    
    
    $
    36,542Restructured loans  nonaccrual
    
    
    21,692
    
    
    
    16,598Total nonperforming loans
    
    
    62,269
    
    
    
    53,140Foreclosed properties
    
    
    11,605
    
    
    
    13,235Total nonperforming assets
    
    $
    73,874
    
    
    $
    66,375Loans 90 days or more and still accruing interest
    
    $
    7,466
    
    
    $
    1,195Impaired loans with related loan loss allowance
    
    $
    50,081
    
    
    $
    28,822Impaired loans without related loan loss allowance
    
    
    7,919
    
    
    
    10,090Total investment in impaired loans
    
    $
    58,000
    
    
    $
    38,912Loan loss allowance related to impaired loans
    
    $
    11,563
    
    
    $
    7,715Average recorded balance of impaired loans
    
    $
    48,456
    
    
    $
    34,025
   (Table in thousands)
    
    2010
    
    
    2009Balance at beginning of year
    
    $
    13,235
    
    
    $
    6,805Additions
    
    
    16,379
    
    
    
    21,977Proceeds from sale
    
    
    (12,416
    )
    
    
    (7,731
    )Write-downs and net loss on sale
    
    
    (5,593
    )
    
    
    (7,816
    )Balance at end of year
    
    $
    11,605
    
    
    $
    13,235
  47




---



##### Table of Contents



5. ALLOWANCE FOR LOAN LOSSES
   (Table in thousands)
    
    2010
    
    
    2009Balance at beginning of year
    
    $
    27,837
    
    
    $
    24,806Provision for loan losses
    
    
    30,832
    
    
    
    28,733Loans charged off
    
    
    (33,379
    )
    
    
    (28,729
    )Recoveries on loans previously charged off
    
    
    2,983
    
    
    
    3,027Balance at end of year
    
    $
    28,273
    
    
    $
    27,837Allowance as a percentage of loans
    
    
    5.03
    %
    
    
    3.59
    %
  Pass
 Special Mention
 Substandard
 Impaired
   Pass
    
    
    Special Mention
    
    
    Substandard(Table in thousands)
    
    (Ratings 1-4)
    
    
    (Rating 5)
    
    
    (Rating 6-8)
    
    
    
    Impaired

    
    
    TotalReal estate -Construction
    
    $
    4,948
    
    
    $
    3,085
    
    
    $
    2,213
    
    
    $
    16,674
    
    
    $
    26,920Mortgage
    
    
    234,742
    
    
    
    75,264
    
    
    
    66,034
    
    
    
    37,721
    
    
    
    413,761Commercial and
industrial
    
    
    46,728
    
    
    
    8,229
    
    
    
    10,772
    
    
    
    3,605
    
    
    
    69,334Consumer
    
    
    48,486
    
    
    
    2,114
    
    
    
    1,843
    
    
    
    
    
    
    
    52,443Total
    
    $
    334,904
    
    
    $
    88,692
    
    
    $
    80,862
    
    
    $
    58,000
    
    
    $
    562,458
 48




---



##### Table of Contents



Real EstateReal Estate
    
    
    Mortgage,
    
    
    Commercial
    
    
    
    
    
    
    
    Total(Table in thousands)
    
    Construction
    
    
    Commercial
    
    
    and Industrial
    
    
    Consumer
    
    
    
    (1)Allowance for loan losses:Balance at January 1, 2010
    
    $
    5,391
    
    
    $
    18,540
    
    
    $
    3,304
    
    
    $
    602
    
    
    $
    27,837Charge-offs
    
    
    (7,333
    )
    
    
    (16,836
    )
    
    
    (8,481
    )
    
    
    (729
    )
    
    
    (33,379
    )Recoveries
    
    
    503
    
    
    
    999
    
    
    
    1,375
    
    
    
    106
    
    
    
    2,983Provision
    
    
    5,101
    
    
    
    16,825
    
    
    
    7,016
    
    
    
    520
    
    
    
    29,462Unallocated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,370Balance at
December 31,
2010
    
    $
    3,662
    
    
    $
    19,528
    
    
    $
    3,214
    
    
    $
    499
    
    
    $
    28,273
 
 (1)
    
    Total includes $390 thousand unallocated at December 31, 2009.  (Table in thousands)Real estate  construction
    
    $
    17,785Real estate  mortgage, commercial
    
    
    40,504Commercial and industrial
    
    
    3,797Consumer
    
    
    183Total
    
    $
    62,269
  Real EstateReal Estate
    
    
    Mortgage,
    
    
    Commercial(Table in thousands)
    
    Construction
    
    
    Commercial
    
    
    and Industrial
    
    
    Consumer
    
    
    TotalPast Due:1-29 Days
    
    $
    1,052
    
    
    $
    44,119
    
    
    $
    9,057
    
    
    $
    3,815
    
    
    $
    58,04330-89 Days
    
    
    
    
    
    
    20,529
    
    
    
    1,240
    
    
    
    548
    
    
    
    22,31790 or More Days
    
    
    
    
    
    
    6,842
    
    
    
    624
    
    
    
    
    
    
    
    7,466Total Past Due
    
    
    1,052
    
    
    
    71,490
    
    
    
    10,921
    
    
    
    4,363
    
    
    
    87,826Current
    
    
    8,083
    
    
    
    301,767
    
    
    
    54,616
    
    
    
    47,897
    
    
    
    412,363Nonaccrual
    
    
    17,785
    
    
    
    40,504
    
    
    
    3,797
    
    
    
    183
    
    
    
    62,269Total Loans
    
    $
    26,920
    
    
    $
    413,761
    
    
    $
    69,334
    
    
    $
    52,443
    
    
    $
    562,458
 49




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##### Table of Contents



Unpaid
    
    
    
    
    
    
    AverageRecorded
    
    
    Principal
    
    
    Related
    
    
    Recorded(Table in thousands)
    
    Investment
    
    
    Balance
    
    
    Allowance
    
    
    InvestmentWith no related allowance
recorded:Real estate  construction
    
    $
    1,409
    
    
    $
    2,089
    
    
    $
    
    
    
    $
    2,438Real estate  mortgage,
commercial
    
    
    5,889
    
    
    
    7,184
    
    
    
    
    
    
    
    6,723Commercial and industrial
    
    
    621
    
    
    
    768
    
    
    
    
    
    
    
    681Total
    
    $
    7,919
    
    
    $
    10,041
    
    
    $
    
    
    
    $
    9,842With an allowance recorded:Real estate  construction
    
    $
    15,265
    
    
    $
    16,121
    
    
    $
    3,175
    
    
    $
    12,609Real estate  mortgage,
commercial
    
    
    31,832
    
    
    
    32,621
    
    
    
    7,079
    
    
    
    23,848Commercial and industrial
    
    
    2,984
    
    
    
    3,221
    
    
    
    1,309
    
    
    
    2,157Total
    
    $
    50,081
    
    
    $
    51,963
    
    
    $
    11,563
    
    
    $
    38,614Total:Real estate  construction
    
    $
    16,674
    
    
    $
    18,210
    
    
    $
    3,175
    
    
    $
    15,047Real estate  mortgage,
commercial
    
    
    37,721
    
    
    
    39,805
    
    
    
    7,079
    
    
    
    30,571Commercial and industrial
    
    
    3,605
    
    
    
    3,989
    
    
    
    1,309
    
    
    
    2,838Total
    
    $
    58,000
    
    
    $
    62,004
    
    
    $
    11,563
    
    
    $
    48,456
 6. PREMISES AND EQUIPMENT
  Premises andAccumulated
    
    
    Equipment,(Table in thousands)
    
    Cost
    
    
    Depreciation
    
    
    NetAt December 31, 2010:Land
    
    $
    3,697
    
    
    $
    
    
    
    $
    3,697Buildings
    
    
    12,008
    
    
    
    5,108
    
    
    
    6,900Leasehold improvements
    
    
    690
    
    
    
    417
    
    
    
    273Furniture and equipment
    
    
    15,952
    
    
    
    14,329
    
    
    
    1,623Capitalized leases
    
    
    1,959
    
    
    
    786
    
    
    
    1,173Total
    
    $
    34,306
    
    
    $
    20,640
    
    
    $
    13,666
 Included in buildings are assets with a carrying value of $2.6 million that are currently held for
sale for which the Company has taken impairment charges of $1.5 million.
 Premises andAccumulated
    
    
    Equipment,(Table in thousands)
    
    Cost
    
    
    Depreciation
    
    
    NetAt December 31, 2009:Land
    
    $
    3,706
    
    
    $
    
    
    
    $
    3,706Buildings
    
    
    12,514
    
    
    
    4,833
    
    
    
    7,681Leasehold improvements
    
    
    690
    
    
    
    366
    
    
    
    324Furniture, equipment and vehicles
    
    
    15,924
    
    
    
    13,471
    
    
    
    2,453Capitalized leases
    
    
    1,959
    
    
    
    567
    
    
    
    1,392Total
    
    $
    34,793
    
    
    $
    19,237
    
    
    $
    15,556
 50




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##### Table of Contents



7. INCOME TAXES
     (Table in thousands)
    
    2010
    
    
    2009Income tax expense (benefit)Current
    
    $
    (790
    )
    
    $
    (5,800
    )Deferred
    
    
    
    
    
    
    Total
    
    $
    (790
    )
    
    $
    (5,800
    )
   (Table dollars in thousands)
    
    2010
    
    
    2009Statutory federal income tax rate
    
    
    35
    %
    
    
    35
    %Tax expense (benefit) at statutory rate
    
    $
    (8,559
    )
    
    $
    (10,997
    )Increase (decrease) in income taxes
resulting from:Redemption of investment in BOLI
    
    
    
    
    
    
    1,711Deferred tax asset valuation allowance
    
    
    10,702
    
    
    
    3,284Other, net
    
    
    (2,933
    )
    
    
    202Income tax expense (benefit)
    
    $
    (790
    )
    
    $
    (5,800
    )
 51




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##### Table of Contents



December 31, 2010(Table in thousands)
    
    Assets
    
    
    Liabilities
    
    
    TotalExcess book over tax bad debt expense
    
    $
    10,822
    
    
    $
    
    
    
    $
    10,822Deferred compensation
    
    
    634
    
    
    
    
    
    
    
    634Operating loss and capital carryforwards
    
    
    13,061
    
    
    
    
    
    
    
    13,061Other real estate writedowns
    
    
    1,437
    
    
    
    
    
    
    
    1,437Other, net
    
    
    1,613
    
    
    
    (581
    )
    
    
    1,032Deferred tax asset valuation allowance
    
    
    (26,986
    )
    
    
    
    
    
    
    (26,986
    )Unrealized losses on securities
available for sale
    
    
    1,051
    
    
    
    
    
    
    
    1,051Total
    
    $
    1,632
    
    
    $
    (581
    )
    
    $
    1,051
 December 31, 2009(Table in thousands)
    
    Assets
    
    
    Liabilities
    
    
    TotalExcess book over tax bad debt expense
    
    $
    10,520
    
    
    $
    
    
    
    $
    10,520Deferred compensation
    
    
    792
    
    
    
    
    
    
    
    792Excess tax over book loan income
    
    
    969
    
    
    
    
    
    
    
    969Operating loss and capital carryforwards
    
    
    2,601
    
    
    
    
    
    
    
    2,601Other real estate writedowns
    
    
    2,237
    
    
    
    
    
    
    
    2,237Other, net
    
    
    260
    
    
    
    (1,095
    )
    
    
    (835
    )Deferred tax asset valuation allowance
    
    
    (16,284
    )
    
    
    
    
    
    
    (16,284
    )Unrealized losses on securities
available for sale
    
    
    1,836
    
    
    
    
    
    
    
    1,836Total
    
    $
    2,931
    
    
    $
    (1,095
    )
    
    $
    1,836
 8. STOCK OPTIONS
   2010
    
    
    2009Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageShares
    
    
    Exercise Price
    
    
    Shares
    
    
    Exercise PriceOutstanding at beginning of year
    
    
    50,327
    
    
    $
    10.46
    
    
    
    90,612
    
    
    $
    11.00Expired, forfeited or canceled
    
    
    29,841
    
    
    
    11.80
    
    
    
    40,285
    
    
    
    11.68Outstanding at end of year
    
    
    20,486
    
    
    $
    8.52
    
    
    
    50,327
    
    
    $
    10.46Options exercisable at end of year
    
    
    19,786
    
    
    $
    8.30
    
    
    
    44,902
    
    
    $
    10.60
  52




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9. LEASES
   (Table in thousands)Year
    
    Payments2011
    
    $
    4442012
    
    
    4422013
    
    
    3572014
    
    
    3142015
    
    
    3142016 and thereafter
    
    
    1,141Total minimum lease payments
    
    
    3,012Less amount representing interest
    
    
    (1,528
    )Present value of net minimum lease payments
    
    $
    1,484
  (Table in thousands)Year
    
    Payments2011
    
    $
    952012
    
    
    60Total
    
    $
    155
  10. OVERNIGHT AND SHORT-TERM BORROWED FUNDS
  December 31,(Table in thousands)
    
    2010
    
    
    2009Short-term borrowingsBank of Granite:Short-term borrowings from the Federal Home Loan
Bank
    
    $
    18,000
    
    
    $
    20,000Total short-term borrowings
    
    $
    18,000
    
    
    $
    20,000
 53




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##### Table of Contents



December 31,(Table dollars in thousands)
    
    2010
    
    
    2009Balance outstanding at end of year
    
    $
    
    
    
    $
    Maximum outstanding at any month-end during the year
    
    
    
    
    
    
    16,278Average daily balance outstanding during the year
    
    
    
    
    
    
    11,240Average interest rate during the year
    
    
    N/A
    
    
    
    1.09
    %Average interest rate at end of year
    
    
    N/A
    
    
    
    N/A
  December 31,(Table dollars in thousands)
    
    2010
    
    
    2009Balance outstanding at end of year
    
    $
    18,000
    
    
    $
    20,000Maximum outstanding at any month-end during the year
    
    
    28,000
    
    
    
    46,059Average daily balance outstanding during the year
    
    
    23,603
    
    
    
    21,628Average interest rate during the year
    
    
    2.34
    %
    
    
    3.17
    %Average interest rate at end of year
    
    
    2.35
    %
    
    
    2.62
    %
 11. LONG-TERM BORROWINGS
  December 31,(Table in thousands)
    
    2010
    
    
    2009Bank of Granite:Federal Home Loan Bank convertible advance at
5.22% due March 9, 2011 callable on or after
March 9, 2006
    
    $
    
    
    
    $
    3,000Federal Home Loan Bank fixed rate credit
at 1.88% due January 31, 2011
    
    
    
    
    
    
    5,000Federal Home Loan Bank fixed rate credit
at 3.79% due May 31, 2011
    
    
    
    
    
    
    1,000Federal Home Loan Bank fixed rate credit
at 2.18% due July 29, 2011
    
    
    
    
    
    
    5,000Federal Home Loan Bank fixed rate credit
at 2.41% due January 30, 2012
    
    
    5,000
    
    
    
    5,000Federal Home Loan Bank fixed rate credit
at 4.04% due May 30, 2012
    
    
    1,000
    
    
    
    1,000Total long-term borrowings
    
    $
    6,000
    
    
    $
    20,000
 54




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12. MATURITIES OF TIME DEPOSITS
  (Table in thousands)Year
    
    Maturities2011
    
    $
    376,5642012
    
    
    31,9222013
    
    
    13,7432014
    
    
    18,6172015
    
    
    34Total
    
    $
    440,880
 13. BASIC EARNINGS PER SHARE
  (Table in thousands except per share data)
    
    2010
    
    
    2009BASIC LOSS PER SHARENet loss
    
    $
    (23,664
    )
    
    $
    (25,620
    )Divide by: Weighted average shares outstanding
    
    
    15,454
    
    
    
    15,454Basic loss per share
    
    $
    (1.53
    )
    
    $
    (1.66
    )
  14. REGULATION AND REGULATORY RESTRICTIONS
   Adequately
    
    
    WellConsolidated
    
    Actual
    
    
    Capitalized
    
    
    CapitalizedAs of December 31, 2010Tier I capital to average assets
    
    
    2.83
    %
    
    
    4.00
    %
    
    
    5.00
    %Tier I capital to risk weighted assets
    
    
    4.41
    %
    
    
    4.00
    %
    
    
    6.00
    %Total capital to risk weighted assets
    
    
    5.71
    %
    
    
    8.00
    %
    
    
    10.00
    %As of December 31, 2009Tier I capital to average assets
    
    
    4.84
    %
    
    
    4.00
    %
    
    
    5.00
    %Tier I capital to risk weighted assets
    
    
    6.44
    %
    
    
    4.00
    %
    
    
    6.00
    %Total capital to risk weighted assets
    
    
    7.73
    %
    
    
    8.00
    %
    
    
    10.00
    %
 55




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##### Table of Contents



Adequately
    
    
    WellBank Only
    
    Actual
    
    
    Capitalized
    
    
    CapitalizedAs of December 31, 2010Tier I capital to average assets
    
    
    2.69
    %
    
    
    4.00
    %
    
    
    5.00
    %Tier I capital to risk weighted assets
    
    
    4.21
    %
    
    
    4.00
    %
    
    
    6.00
    %Total capital to risk weighted assets
    
    
    5.51
    %
    
    
    8.00
    %
    
    
    10.00
    %As of December 31, 2009Tier I capital to average assets
    
    
    4.66
    %
    
    
    4.00
    %
    
    
    5.00
    %Tier I capital to risk weighted assets
    
    
    6.19
    %
    
    
    4.00
    %
    
    
    6.00
    %Total capital to risk weighted assets
    
    
    7.48
    %
    
    
    8.00
    %
    
    
    10.00
    %
  15. FAIR VALUE MEASUREMENTS AND DISCLOSURES
 Investment Securities Available for Sale
   Fair Value Measurements atReporting Date UsingQuoted Prices
    
    
    Significantin Active
    
    
    Other
    
    
    SignificantMarkets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    Inputs(Table in thousands)
    
    Fair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)December 31, 2010U.S. Government agencies
    
    $
    59,496
    
    
    $
    
    
    
    $
    59,496
    
    
    $
    State and local
    
    
    5,258
    
    
    
    
    
    
    $
    5,258
    
    
    
    GNMA Mortgage-backed securities
    
    
    186,811
    
    
    
    
    
    
    
    186,811
    
    
    
    Corporate bonds
    
    
    3,539
    
    
    
    
    
    
    
    3,539
    
    
    
    Total investment securities
available for sale
    
    $
    255,104
    
    
    $
    
    
    
    $
    255,104
    
    
    $
    December 31, 2009U.S. Government agencies
    
    $
    42,051
    
    
    $
    
    
    
    $
    42,051
    
    
    $
    GNMA Mortgage-backed securities
    
    
    147,831
    
    
    
    
    
    
    
    147,831
    
    
    
    Equities
    
    
    1,039
    
    
    
    1,039
    
    
    
    
    
    
    
    Total investment securities
available for sale
    
    $
    190,921
    
    
    $
    1,039
    
    
    $
    189,882
    
    
    $
    
 56




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Impaired Loans
  Other Real Estate Owned
   Fair Value Measurements atReporting Date UsingQuoted Prices
    
    
    Significantin Active
    
    
    Other
    
    
    SignificantMarkets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    Inputs(Table in thousands)
    
    Fair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)December 31, 2010Impaired loans (1)
    
    $
    45,705
    
    
    $
    
    
    
    $
    
    
    
    $
    45,705Other real estate owned
    
    
    11,605
    
    
    
    
    
    
    
    
    
    
    
    11,605Total assets
    
    $
    57,310
    
    
    $
    
    
    
    $
    
    
    
    $
    57,310December 31, 2009Impaired loans (1)
    
    $
    26,788
    
    
    $
    
    
    
    $
    
    
    
    $
    26,788Other real estate owned
    
    
    13,235
    
    
    
    
    
    
    
    
    
    
    
    13,235Total assets
    
    $
    40,023
    
    
    $
    
    
    
    $
    
    
    
    $
    40,023
 
 (1)
    
    Net of reserves and loans carried at cost. 57




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16. PARENT COMPANY CONDENSED FINANCIAL INFORMATION
  Condensed Balance Sheets
    
    December 31,(In thousands)
    
    2010
    
    
    2009Assets:Cash and cash equivalents
    
    $
    543
    
    
    $
    343Investment in subsidiary bank at equity
    
    
    23,201
    
    
    
    45,151Investment in subsidiary mortgage bank at equity
    
    
    108
    
    
    
    1,592Other
    
    
    538
    
    
    
    Total
    
    $
    24,390
    
    
    $
    47,086Liabilities and Stockholders Equity:Stockholders equity
    
    $
    24,390
    
    
    $
    47,086Total
    
    $
    24,390
    
    
    $
    47,086
 Condensed Results of Operations
    
    For the Years Ended December 31,(In thousands)
    
    2010
    
    
    2009Equity in loss of subsidiary bank:Loss retained
    
    $
    (23,418
    )
    
    $
    (22,948
    )Equity in loss of subsidiary mortgage bank:Dividends
    
    
    1,374
    
    
    
    2,953Loss retained
    
    
    (1,483
    )
    
    
    (5,073
    )Income (expenses), net
    
    
    (137
    )
    
    
    (552
    )Net loss
    
    $
    (23,664
    )
    
    $
    (25,620
    )
 58




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Condensed Cash Flow
    
    For the Years Ended December 31,(In thousands)
    
    2010
    
    
    2009Cash flows from operating activities:Net loss
    
    $
    (23,664
    )
    
    $
    (25,620
    )Adjustments to reconcile net loss to net cash
provided (used) by operating activities:Equity in losses of subsidiaries
    
    
    24,402
    
    
    
    25,068Stock-based compensation expense
    
    
    
    
    
    
    5Premium amortization and discount
accretion, net
    
    
    
    
    
    
    (1
    )Gains on sales or calls of
securities available for sale
    
    
    
    
    
    
    (174
    )Impairment losses on securities
    
    
    
    
    
    
    478Decrease in accrued interest receivable
    
    
    
    
    
    
    32Increase in other assets
    
    
    (538
    )
    
    
    Decrease in other liabilities
    
    
    
    
    
    
    (4
    )Net cash provided (used) by operating activities
    
    
    200
    
    
    
    (216
    )Cash flows from investing activities:Proceeds from sales of securities
available for sale
    
    
    
    
    
    
    2,348Net cash provided by investing activities
    
    
    
    
    
    
    2,348Cash flows from financing activities:Net decrease in overnight and
short-term borrowings
    
    
    
    
    
    
    (15,169
    )Net cash used by financing activities
    
    
    
    
    
    
    (15,169
    )Net increase (decrease) in cash
    
    
    200
    
    
    
    (13,037
    )Cash at beginning of year
    
    
    343
    
    
    
    13,380Cash at end of year
    
    $
    543
    
    
    $
    343Supplemental disclosure of cash flow information:Cash paid during the year for:Interest
    
    $
    
    
    
    $
    139Noncash investing and financing activities:In-kind dividend from subsidiary mortgage bank
    
    
    500
    
    
    
    2,953
 59




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17. COMMITMENTS AND CONTINGENCIES
  December 31,(Table in thousands)
    
    2010
    
    
    2009Financial instruments whose contract amounts represent credit risk:Commitments to extend credit
    
    $
    77,268
    
    
    $
    106,122Standby letters of credit
    
    
    1,262
    
    
    
    2,967
     60




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18. FAIR VALUE OF FINANCIAL INSTRUMENTS
 Fair Value Measurements and
Disclosures.
 December 31, 2010
    
    
    December 31, 2009Estimated
    
    
    
    
    
    
    EstimatedCarrying
    
    
    Fair
    
    
    Carrying
    
    
    Fair(Table in thousands)
    
    Amount
    
    
    Value
    
    
    Amount
    
    
    ValueAssets:Cash and cash equivalents
    
    $
    47,224
    
    
    $
    47,224
    
    
    $
    73,374
    
    
    $
    73,374Investment securities
    
    
    255,104
    
    
    
    255,104
    
    
    
    190,921
    
    
    
    190,921Bank owned life insurance
    
    
    4,320
    
    
    
    4,320
    
    
    
    4,106
    
    
    
    4,106Loans (1)
    
    
    533,851
    
    
    
    536,000
    
    
    
    747,182
    
    
    
    752,000Market risk/liquidity adjustment
    
    
    
    
    
    
    (30,000
    )
    
    
    
    
    
    
    (40,000
    )Net loans
    
    
    533,851
    
    
    
    506,000
    
    
    
    747,182
    
    
    
    712,000Liabilities:Demand deposits
    
    
    381,427
    
    
    
    381,427
    
    
    
    430,045
    
    
    
    430,045Time deposits
    
    
    440,880
    
    
    
    441,000
    
    
    
    536,560
    
    
    
    539,000Short-term borrowings
    
    
    18,000
    
    
    
    18,000
    
    
    
    20,000
    
    
    
    20,000Long-term borrowings
    
    
    6,000
    
    
    
    6,000
    
    
    
    20,000
    
    
    
    21,000
 
 (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.   61




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62




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Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  MANAGEMENTS ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
 Internal ControlIntegrated Framework
 
    
    Management has implemented a process to monitor and assess both the design and
operating effectiveness of internal control over financial reporting.
    
    All internal control systems, no matter how well designed, have inherent limitations.
Therefore, even those systems determined to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation.
    
    The Companys management assessed the effectiveness of the Companys internal control over
financial reporting as of December 31, 2010. In making this assessment,
it used criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commissions (COSO) in Internal ControlIntegrated Framework. Based on that assessment, we believe
that, as of December 31, 2010, the Companys internal control over financial reporting is effective
based on those criteria.
  63




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##### Table of Contents



(a) Number of
    
    
    
    
    
    
    (c) Number of SecuritiesSecurities To Be
    
    
    (b) Weighted-
    
    
    Remaining Available forIssued Upon Exercise
    
    
    Average Exercise
    
    
    Future Issuance UnderOf Outstanding
    
    
    Price Of
    
    
    Equity CompensationOptions, Warrants
    
    
    Outstanding
    
    
    Plansand
    
    
    Options, Warrants
    
    
    (excluding securitiesRights
    
    
    and Rights
    
    
    reflected in column (a))Equity compensation plans Approved by security holders
    
    
    20,486
    
    
    $
    8.52
    
    
    
    749,500Not approved by security
holders
    
    
    -0-
    
    
    
    n/a
    
    
    
    n/aTotal
    
    
    20,486
    
    
    $
    8.52
    
    
    
    749,500
  64




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##### Table of Contents



65




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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 Savings & 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
    
    Written Description of Director Compensation pursuant to Item 601(b)(10)(iii)(A) of
Regulation S-K, dated August 24, 2009, filed as Exhibit 10.3 to our Annual Report on
Form 10-K for the fiscal year ended December 31, 2009, is incorporated herein by reference.10.3
    
    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.**
 66




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##### Table of Contents



10.4
    
    Summary of Agreement between Bank of Granite and Jerry A. Felts, Chief Operating
Officer and Chief Financial Officer, effective as of July 1, 2009, filed as Exhibit 10.6 to
our Annual Report on Form 10-K for the fiscal year ended December 31, 2009, is
incorporated herein by reference.**10.5
    
    Form of Amended and Restated Bank of Granite Salary Continuation Plan, effective
January 1, 2008 filed as Exhibit 10.7 to our Annual Report on Form 10-K for the fiscal
year ended December 31, 2008, is incorporated herein by reference.**10.6
    
    Amended and Restated Change of Control Agreement, dated December 19, 2008, between
the Company and R. Scott Anderson, filed as Exhibit 10.8 to our Annual Report on
Form 10-K for the fiscal year ended December 31, 2008, is incorporated herein by
reference.**10.7
    
    Amended and Restated Change of Control Agreement, dated December 19, 2008, between
the Company and D. Mark Stephens, filed as Exhibit 10.10 to our Annual Report on
Form 10-K for the fiscal year ended December 31, 2009, is incorporated herein by
reference.**10.8
    
    Stipulation and Consent between Bank of Granite and the Federal Deposit Insurance
Corporation and the North Carolina Commissioner of Banks and related Order to Cease
and Desist, filed as Exhibit 10.1 to our Current Report on Form 8-K, dated August 27,
2009, is incorporated herein by reference.10.9
    
    Amendment to Bank of Granite Salary Continuation Plan, effective November 1, 2009,
filed as Exhibit 10.1 to our Current Report on Form 8-K, dated October 30, 2009, is
incorporated herein by reference.**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 67




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BANK OF GRANITE CORPORATIONBy:
    /s/ R. Scott AndersonR. Scott AndersonChief Executive OfficerMarch 31, 2011  Signature
    
    Title
    
    Date/s/ R. Scott Anderson
    
    Chief Executive Officer and President
    
    March 31, 2011R. Scott Anderson/s/ Jerry A. Felts
    
    Chief Operating Officer and
    
    March 31, 2011Jerry A. Felts
    
    Chief Financial Officer/s/ John N. Bray
    
    Chairman and Director
    
    March 31, 2011John N. Bray/s/ R. Scott Anderson
    
    Director
    
    March 31, 2011R. Scott Anderson/s/ Joseph D. Crocker
    
    Director
    
    March 31, 2011Joseph D. Crocker/s/ Leila N. Erwin
    
    Director
    
    March 31, 2011Leila N. Erwin/s/ Paul M. Fleetwood, III
    
    Director
    
    March 31, 2011Paul M. Fleetwood, III/s/ Hugh R. Gaither
    
    Director
    
    March 31, 2011Hugh R. Gaither/s/ Boyd C. Wilson, Jr.
    
    Director
    
    March 31, 2011Boyd C. Wilson, Jr.
 68




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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 Savings & Profit Sharing Plan and Trust
    
    *10.2
    
    Written Description of Director Compensation
    
    *10.3
    
    Bank of Granite Corporations 2007 Stock Incentive Plan**
    
    *10.4
    
    Summary of Agreement between Bank of Granite and
Jerry A. Felts**
    
    *10.5
    
    Form of Amended and Restated Bank of Granite Salary
Continuation Plan**
    
    *10.6
    
    Amended and Restated Change of Control Agreement
between the Company and R. Scott Anderson**
    
    *10.7
    
    Amended and Restated Change of Control Agreement
between the Company and D. Mark Stephens**
    
    *10.8
    
    Stipulation and Consent between Bank of Granite and
the Federal Deposit Insurance Corporation and
the North Carolina Commissioner of Banks and
related Order to Cease and Desist
    
    *10.9
    
    Amendment to Bank of Granite Salary Continuation Plan**
    
    *14
    
    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 69