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
(Exact name of registrant as specified in its charter)
|
|
|
Delaware
|
|
56-1550545
|
|
|
|
(State or other jurisdiction of
incorporation or organization)
|
|
(I.R.S. Employer Identification No.)
|
|
|
|
P.O. Box 128, Granite Falls, N.C.
|
|
28630
|
|
|
|
(Address of principal executive offices)
|
|
(Zip Code)
|
Registrants telephone number, including area code
(828) 496-2000
Securities registered pursuant to Section 12(b) of the Act:
|
|
|
(Title of each class)
|
|
Name of each exchange on which registered
|
|
|
|
Common Stock, $1.00 Par Value Per Share
|
|
The NASDAQ Stock Market, LLC
|
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of
the Securities Act. Yes
o
No
þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. Yes
o
No
þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such
shorter period that the registrant was required to file such reports), and (2) has been
subject to such
filing requirements for the past 90 days. Yes
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate
Web site, if any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405
of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such
shorter period
that the registrant was required to submit and post such files). Yes
o
No
o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is
not contained herein, and will not be contained, to the best of registrants knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check
One):
|
|
|
|
|
|
|
Large accelerated filer
o
|
|
Accelerated filer
o
|
|
Non-accelerated filer
o
|
|
Smaller reporting company
þ
|
|
|
|
|
(Do not check if a smaller reporting company)
|
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes
o
No
þ
As of March 15, 2011, 15,454,000 shares of common stock, $1.00 par value, were outstanding.
As of June 30, 2010, the aggregate market value of the registrants common stock held by
non-affiliates of the registrant was $17,473,000 based on the closing sales price as reported on The
NASDAQ Global Select Market.
DOCUMENTS INCORPORATED BY REFERENCE
PART III: Portions of the Definitive Proxy Statement to be filed pursuant to Regulation 14A of
the Securities Exchange Act of 1934 in connection with the 2011 Annual Meeting of Stockholders.
Exhibit Index begins on page 69
FORM 10-K TABLE OF CONTENTS
2
FORWARD LOOKING STATEMENTS
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 Companys 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.
PART I
ITEM 1 BUSINESS
Bank of Granite Corporation (the Company) is a Delaware corporation that was organized June
1, 1987 as a
bank holding company. The Companys only businesses are the ownership and operation of Bank
of Granite
(the Bank), a state bank chartered under the laws of North Carolina on August 2, 1906, and
Granite
Mortgage, Inc. (Granite Mortgage), a mortgage bank chartered under the laws of North
Carolina on
June 24, 1985. Granite Mortgage ceased mortgage originations during 2009, and its current
activity is
related to the resolution of residual assets and settling existing contractual obligations.
We conduct our community banking business operations from 20 full-service offices located in
Burke, Caldwell,
Catawba, Forsyth, Iredell, Mecklenburg, Watauga, and Wilkes counties in North Carolina.
According to the
Federal Deposit Insurance Corporation (the FDIC), as of December 31, 2010, the Bank ranked
21st in assets
and 17th in deposits among North Carolina banking institutions.
GENERAL BUSINESS
The Banks principal community banking activities include the taking of demand and time
deposits and the
making of loans, secured and unsecured, to individuals, associations, partnerships and
corporations. The
majority of the Banks customers are individuals and small businesses. No material part of
its business is
dependent upon a single customer or a few customers whose loss would have a material adverse
effect on the
business of the Bank. No material portion of the business of the Bank is seasonal.
GENERAL DESCRIPTION OF MARKET AREAS
We conduct our community banking operations primarily in eight counties in the western part
of North
Carolina. The three counties we served prior to 2003 (Caldwell, Catawba and Burke) were
historically known
as a center for the manufacture of fiber optic and coaxial cable, furniture, and apparel.
When the economy
began to weaken in 2001, there were massive layoffs in these industries, and these counties
were significantly
impacted with a sudden rise in their unemployment rates.
3
Since 2003, we have expanded our market area by opening branch offices in counties where the
local economies
had been more diversified and growing. In 2003, we opened new offices in Watauga County
(Boone), Wilkes
County (Wilkesboro), and Mecklenburg County (Matthews), and acquired First Commerce Bank and
its three
banking offices in Mecklenburg County (Charlotte and Cornelius). We opened banking offices
in Forsyth
County (Winston-Salem) in 2004 and in Iredell County (Statesville) in 2006.
Since 2008, economic conditions in our market area declined significantly, as they have in
the U.S. in general.
These economic difficulties negatively affected many of the Companys customers, including
businesses and
individuals. Unemployment rates in our market area increased significantly during 2009 and
2010. Our
operations are significantly influenced by economic conditions in our market area, including
the state of the
real estate market.
TERRITORY SERVED AND COMPETITION
Commercial banking in North Carolina is extremely competitive in large part due to a long
history of statewide
branching. We compete in our market area with some of the largest banking organizations in
the state and the
country and other financial institutions, such as federally and state-chartered savings and
loan institutions and
credit unions, as well as consumer finance companies, mortgage companies and other lenders
engaged in the
business of extending credit. Many of our competitors have broader geographic markets and
higher lending
limits than us and are also able to provide more services and make greater use of media
advertising.
Despite the competition in our market area, we believe that we have certain competitive
advantages that
distinguish us from our competition. We believe that our primary competitive advantages are
our strong local
identity and affiliation with the community and our emphasis on providing specialized
services to small and
medium-sized business enterprises, as well as professional and upper-income individuals. We
are locally
managed and are able to make credit and other decisions in a manner that has a direct bearing
on faster service
and more efficiently obtained credit. We offer customers modern, high-tech banking without
forsaking
community values such as prompt, personal service and friendliness. We offer many
personalized services and
attract customers by being responsive and sensitive to their individualized needs. We also
rely on goodwill and
referrals from shareholders and satisfied customers, as well as traditional newspaper and
radio media to attract
new customers. To enhance a positive image in the community, we support and participate in
local events, and
our officers and directors serve on boards of civic and charitable organizations.
Our community banking operations are required to compete based on rates in order to conduct
loan business in
each of our markets. Our community bank also competes for deposits in each of its markets.
However, we
believe that our focus on and commitment to providing superior customer service is what
distinguishes us from
our competitors.
EMPLOYEES
As of December 31, 2010, the Bank had 195 full-time equivalent employees. The Bank considers
its relationship
with its employees to be excellent.
SUPERVISION AND REGULATION
The Company is extensively regulated under both federal and state law. Generally, these laws
and regulations
are intended to protect depositors and borrowers, not shareholders. To the extent that the
following information
describes statutory and regulatory provisions, it is qualified in its entirety by reference
to the particular
statutory and regulatory provisions. Any change in applicable law or regulation may have a
material effect on
our business.
4
The Bank Holding Company Act
Our Company is a bank holding company within the meaning of the Bank Holding Company Act of
1956, as
amended (the Bank Holding Company Act), and is required to register as such with the Board
of Governors
of the Federal Reserve System (the Federal Reserve Board or FRB). A bank holding company
is required
to file with the FRB annual reports and other information regarding its business operations
and those of its
subsidiaries. It is also subject to examination by the Federal Reserve Board and is required
to obtain Federal
Reserve Board approval prior to acquiring, directly or indirectly, more than 5% of the voting
stock of any bank,
unless it already owns a majority of the voting stock of such bank. Furthermore, a bank
holding company must
engage, with limited exceptions, in the business of banking or managing or controlling banks
or furnishing
services to or performing services for its subsidiary banks. One of the exceptions to this
prohibition is the
ownership of shares of a company the activities of which the FRB has determined to be so
closely related to
banking or managing or controlling banks as to be a proper incident thereto.
State Law
Our Bank is subject to extensive supervision and regulation by the North Carolina
Commissioner of Banks (the
Commissioner). The Commissioner oversees state laws that set specific requirements for bank
capital and
regulate deposits in, and loans and investments by, banks, including the amounts, types, and
in some cases,
rates. The Commissioner supervises and performs periodic examinations of North
Carolina-chartered banks to
assure compliance with state banking statutes and regulations, and the Bank is required to
make regular reports
to the Commissioner describing in detail its resources, assets, liabilities and financial
condition. Among other
things, the Commissioner regulates mergers and acquisitions of state-chartered banks, the
payment of
dividends, loans to officers and directors, record keeping, types and amounts of loans and
investments, and the
establishment of branches.
Deposit Insurance
As a member institution of the Federal Deposit Insurance Corporation (FDIC), the Banks
deposits are
insured up to a maximum of $250,000 per depositor through the deposit insurance fund (DIF),
administered
by the FDIC. An increase in basic federal deposit insurance coverage from $100,000 to
$250,000 per depositor
became effective on October 3, 2008, as part of the Emergency Economic Stabilization Act of
2008.
On July 21, 2010, President Barack Obama signed the Dodd-Frank Wall Street Reform and
Consumer Protection
Act into law, which, in part, permanently raises the current standard maximum deposit
insurance amount
(SMDIA) to $250,000. The FDIC insurance coverage limit applies per depositor, per insured
depository
institution for each account ownership category.
On November 9, 2010, the FDIC issued a Final Rule implementing section 343 of the Dodd-Frank
Wall Street
Reform and Consumer Protection Act that provides for unlimited insurance coverage of
noninterest-bearing
transaction accounts. Beginning December 31, 2010, through December 31, 2012, all
noninterest-bearing
transaction accounts are fully insured, regardless of the balance of the account, at all
FDIC-insured institutions.
The unlimited insurance coverage is available to all depositors, including consumers,
businesses, and
government entities. This unlimited insurance coverage is separate from, and in addition to,
the insurance
coverage provided to a depositors other deposit accounts held at an FDIC-insured
institution.
Each member institution is required to pay quarterly deposit insurance premium assessments to
the FDIC.
During 2009, a large number of bank failures put pressure on the DIF. In an effort to
replenish the DIF, the
FDIC implemented a special assessment of five basis points of each insured institutions
assets minus Tier 1
capital as of June 30, 2009. In addition, the FDIC required insured institutions to prepay
their estimated
quarterly risk-based deposit insurance assessments for the fourth quarter of 2009, as well as
all of 2010, 2011,
and 2012. Although the prepayment of these assessments is mandatory for all insured
depository institutions,
the FDIC retains the discretion as supervisor and insurer to exempt any institution from the
prepayment
requirement under certain circumstances as set forth in its regulations. In accordance with
the discretion
provided to the FDIC under 12 C.F.R. § 327.12(i)(1), the FDIC has exempted the Bank from
prepaying its
quarterly risk-based assessment for the fourth quarter of 2009, and all of 2010, 2011, and
2012. Our
assessments for 2011 and 2012 will continue to be payable quarterly.
5
Capital Requirements
The federal banking regulators have adopted certain risk-based capital guidelines to assist
in the assessment of
the capital adequacy of a banking organizations operations for both transactions reported on
the balance sheet
as assets and transactions, such as letters of credit, and recourse arrangements, which are
recorded as off
balance sheet items. Under these guidelines, nominal dollar amounts of assets and credit
equivalent amounts of
off balance sheet items are multiplied by one of several risk adjustment percentages which
range from 0% for
assets with low credit risk, such as certain U.S. Treasury securities, to 100% for assets
with relatively high
credit risk, such as business loans.
A banking organizations risk-based capital ratios are obtained by dividing its qualifying
capital by its total risk
adjusted assets. The regulators measure risk-adjusted assets, which include off balance sheet
items, against both
total qualifying capital (the sum of Tier 1 capital and limited amounts of Tier 2 capital)
and Tier 1 capital.
Tier 1, or core capital, includes common equity, qualifying noncumulative perpetual
preferred stock,
minority interests in certain equity accounts of consolidated subsidiaries, less goodwill and
other intangibles,
subject to certain exceptions and restricted core capital elements, including trust preferred
securities. Tier 2,
or supplementary capital, includes among other things, limited-life preferred stock, hybrid
capital instruments,
mandatory convertible securities, qualifying subordinated debt, and the allowance for loan
and lease losses,
subject to certain limitations and less required deductions. The inclusion of elements of
Tier 2 capital is subject
to certain other requirements and limitations of the federal banking agencies. Banks and bank
holding
companies subject to the risk-based capital guidelines are required to maintain a ratio of
Tier 1 capital to
risk-weighted assets of at least 4% and a ratio of total capital to risk-weighted assets of
at least 8%. The
appropriate regulatory authority may set higher capital requirements when particular
circumstances warrant.
The federal banking agencies have adopted regulations specifying that they will include, in
their evaluations of
a banks capital adequacy, an assessment of the banks interest rate risk (IRR) exposure.
The standards for
measuring the adequacy and effectiveness of a banking organizations IRR management include a
measurement
of board of directors and senior management oversight, and a determination of whether a
banking organizations
procedures for comprehensive risk management are appropriate for the circumstances of the
specific banking
organization.
Failure to meet applicable capital guidelines could subject a banking organization to a
variety of enforcement
actions, including limitations on its ability to pay dividends, the issuance by the
applicable regulatory authority
of a capital directive to increase capital and, in the case of depository institutions, the
termination of deposit
insurance by the FDIC. See Federal Deposit Insurance Corporation Improvement Act of 1991
below for more
discussion of enforcement actions applicable to undercapitalized institutions. In addition,
future changes in
regulations or practices could further reduce the amount of capital recognized for purposes
of capital adequacy.
Such a change could affect our ability to grow and could restrict the amount of profits, if
any, available for the
payment of dividends to the shareholders.
At December 31, 2010, our Tier I ratio, total capital ratio to risk-adjusted assets, and
leverage ratio were
4.41%, 5.71% and 2.83%, respectively. We were undercapitalized for the Tier I capital
ratio and
significantly undercapitalized for our leverage ratio and total capital. Banking
regulators classify a bank as
critically undercapitalized if it fails to meet a 2% capital leverage ratio. Under prompt
corrective action,
a critically undercapitalized bank must be placed in conservatorship or receivership within
90 days of such
determinations unless the FDIC and appropriate regulators determine that other action would
protect the
deposit insurance fund.
As we reported in our Form 8-K filed with the SEC on September 4, 2009, the Bank entered into
a Stipulation
and Consent (Consent) to the issuance of an Order to Cease and Desist (Order) by the
Federal Deposit
Insurance Corporation (FDIC) and the North Carolina Commissioner of Banks (The
Commissioner).
Based on our Consent, the FDIC and the Commissioner jointly issued the Order on August 27,
2009.
The Order is a formal corrective action pursuant to which the Bank has agreed to address
specific issues set
forth below, through the adoption and implementation of procedures, plan and policies
designed to enhance the
safety and soundness of the Bank.
6
Among other things, the Order requires the Bank to:
|
|
|
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 Banks earnings and evaluate the plan quarterly;
|
|
|
|
|
Formulate and implement a plan to reduce the Banks risk exposure in assets classified
Substandard or Doubtful;
|
|
|
|
|
Reduce the real estate credit concentrations in the Banks loan portfolio;
|
|
|
|
|
Develop a plan to improve the Banks 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.
|
The Order, as set forth above, requires the Bank to achieve and maintain Tier 1 Leverage
Capital Ratio of
not less than 8 percent and a Total Risk-Based Capital of not less than 12 percent for the
life of the Order.
Additionally as set forth in Note 2, Regulatory Matters and Going Concern Considerations,
in the Notes
to Consolidated Financial Statements, the Bank has an existing Memorandum of Understanding
(MOU)
with the Federal Reserve Bank of Richmond (FRB).
See Note 2, Regulatory Matters and Going Concern Considerations, and Note 14, Regulation
and
Regulatory Restrictions, in the Notes to Consolidated Financial Statements for additional
discussion of
our regulatory actions.
Federal Deposit Insurance Corporation Improvement Act of 1991
In December, 1991, Congress enacted the Federal Deposit Insurance Corporation Improvement Act
of 1991
(FDICIA), which substantially revised the bank regulatory and funding provisions of the
Federal Deposit
Insurance Act and made significant revisions to several other federal banking statutes.
FDICIA provides for,
among other things:
|
|
|
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.
|
FDICIA also provides for increased funding of the FDIC insurance funds and the implementation
of risk-based
premiums.
7
A central feature of FDICIA is the requirement that the federal banking agencies take prompt
corrective
action with respect to depository institutions that do not meet minimum capital
requirements. Pursuant to
FDICIA, the federal bank regulatory authorities have adopted regulations setting forth a
five-tiered system for
measuring the capital adequacy of the depository institutions that they supervise. Under
these regulations, a
depository institution is classified in one of the following capital categories: well
capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized and critically
undercapitalized. An
institution may be deemed by the regulators to be in a capitalization category that is lower
than is indicated by
its actual capital position if, among other things, it receives an unsatisfactory examination
rating with respect
to asset quality, management, earnings or liquidity.
FDICIA provides the federal banking agencies with significantly expanded powers to take
enforcement action
against institutions which fail to comply with capital or other standards. Such action may
include the
termination of deposit insurance by the FDIC or the appointment of a receiver or conservator
for the institution.
FDICIA also limits the circumstances under which the FDIC is permitted to provide financial
assistance to an
insured institution before appointment of a conservator or receiver.
Miscellaneous
The dividends that may be paid by the Company are subject to legal limitations. The Bank is
the only source of
dividends that may be paid by the Company. In accordance with North Carolina banking law,
dividends may
not be paid by the Bank unless its capital surplus is at least 50% of its paid-in capital.
The earnings of the Company will be affected significantly by the policies of the Federal
Reserve Board, which
is responsible for regulating the United States money supply in order to mitigate
recessionary and inflationary
pressures. Among the techniques used to implement these objectives are open market
transactions in United
States government securities, changes in the rate paid by banks on bank borrowings, and
changes in reserve
requirements against bank deposits. These techniques are used in varying combinations to
influence overall
growth and distribution of bank loans, investments, and deposits, and their use may also
affect interest rates
charged on loans or paid for deposits.
The monetary policies of the Federal Reserve Board have had a significant effect on the
operating results of
commercial banks in the past and are expected to continue to do so in the future. In view of
changing conditions
in the national economy and money markets, as well as the effect of actions by monetary and
fiscal authorities,
no prediction can be made as to possible future changes in interest rates, deposit levels,
loan demand or the
business and our earnings.
Effective March 11, 2000, the Gramm-Leach-Bliley Act of 1999 allows a bank holding company to
qualify as a
financial holding company and, as a result, be permitted to engage in a broader range of
activities that are
financial in nature and in activities that are determined to be incidental or complementary
to activities that
are financial in nature. The Gramm-Leach-Bliley Act amends the Bank Holding Company Act to
include a list
of activities that are financial in nature, and the list includes activities such as
underwriting, dealing in and
making a market in securities, insurance underwriting and agency activities and merchant
banking. The Federal
Reserve Board is authorized to determine other activities that are financial in nature or
incidental or
complementary to such activities. The Gramm-Leach-Bliley Act also authorizes banks to engage
through
financial subsidiaries in certain of the activities permitted for financial holding
companies. The Company has
elected not to register as a financial holding company.
On October 26, 2001, the USA PATRIOT Act of 2001 was enacted. This act contains the
International Money
Laundering Abatement and Financial Anti-Terrorism Act of 2001, which sets forth anti-money
laundering
measures affecting insured depository institutions, broker-dealers and other financial
institutions. The Act
requires U.S. financial institutions to adopt new policies and procedures to combat money
laundering and grants
the Secretary of the Treasury broad authority to establish regulations and to impose
requirements and
restrictions on the operation of financial institutions. This act has increased the overall
cost of our regulatory
compliance activities.
8
As noted above, on July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection
Act of 2010
(the Dodd-Frank Act) became law. The Dodd-Frank Act establishes a new framework for
systemic risk
oversight within the financial system and includes significant regulatory and compliance
changes. Among other
things, the Dodd-Frank Act creates a new, independent Consumer Financial Protection Bureau
within the
Federal Reserve Board to establish, implement and enforce rules and regulations with respect to
the conduct of
providers of certain consumer financial products and services; gives the Federal Reserve
Board the authority to
establish rules regarding debit card interchange fees; requires federal banking agencies to
establish minimum
leverage and risk-based capital requirements for banks and bank holding companies (which may
be stricter than
existing regulatory standards); strengthens existing limits on a depository institutions
credit exposure to one
borrower; and establishes additional requirements related to corporate governance and
executive compensation
on most US publicly traded companies. Many of the requirements of the Dodd-Frank Act will be
subject to
implementation over the course of several years, and the final requirements could reduce our
revenue, increase
our cost of operations, require changes to certain of our business practices, including
limitations on fee
income opportunities, and impose more stringent capital, liquidity and leverage requirements
on us. These
requirements may also require us to invest significant management attention and resources to
evaluate and
make any changes necessary to comply with new statutory and regulatory requirements.
We cannot predict what other legislation might be enacted or what other regulation might be
adopted or, if
enacted or adopted, the effect thereof.
INVESTMENT POLICIES
For a discussion of our investment policies, see Investment Securities in the Managements
Discussion
and Analysis of Financial Condition and Results of Operations section of this annual report.
LOAN PORTFOLIO
For a discussion of our loan portfolio, see Loans and Provisions and Allowances for Loan
Losses in
the Managements Discussion and Analysis of Financial Condition and Results of Operations
section of
this annual report.
AVAILABLE INFORMATION
Additional information about our company and business is available at our website, at
www.bankofgranite.com.
Our filings with the Securities and Exchange Commission, including annual reports on Form
10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or
furnished
pursuant to Section 13(a) or 15(d) of the Exchange Act of 1934, are available, free of
charge, on our website at
www.bankofgranite.com under the heading Investor Relations SEC Filings. These reports are
available as
soon as reasonably practicable after we electronically file such material with, or furnish it
to, the Securities and
Exchange Commission. In addition, copies of these filings are available at the Securities
and Exchange
Commissions Public Reference Room located at 100 F Street, NE, Washington, DC 20549.
Information on
the operation of the Public Reference Room may be obtained by calling the Securities and
Exchange
Commission at 1-800-SEC-0330. The Securities and Exchange Commissions website, www.sec.gov,
is
another source of this information. Information included on our website is not incorporated
by reference into
this annual report.
9
ITEM 1A RISK FACTORS
There is substantial doubt about our ability to continue as a going concern.
As discussed in Note 2, of the Notes to Consolidated Financial Statements we are under an
Order from the
FDIC and the North Carolina Commissioner of Banks to increase our leverage and total risk-based capital ratios
to at least 8% and 12%, and our capital levels have declined during the past year. We are
not in compliance at
December 31, 2010. Failure to increase our capital ratios or further declines in our capital
ratios exposes us to
additional restrictions and regulatory actions, including potential regulatory receivership.
This uncertainty as to
our ability to meet existing or future regulatory requirements raises substantial doubt about
our ability to
continue as a going concern. We do not expect to meet the capital ratio requirements in the
near term future.
Our audited financial statements were prepared under the assumption that we will continue our
operations on a
going concern basis, which contemplates the realization of assets and the discharge of
liabilities in the normal
course of business. Our financial statements do not include any adjustments that might be
necessary if we are
unable to continue as a going concern. If we cannot continue as a going concern, our
shareholders will lose
some or all of their investment in the Company. In addition, our customers, employees,
vendors, correspondent
institutions, and others with whom we do business may react negatively to the substantial
doubt about our
ability to continue as a going concern. This negative reaction may lead to heightened
concerns regarding our
financial condition that could result in a significant loss in deposits and customer
relationships, key employees,
vendor relationships and our ability to do business with correspondent institutions upon
which we rely.
Failure to comply with regulatory orders is likely to result in adverse actions and
restrictions.
Effective August 27, 2009, the Company is operating under an Order to Cease and Desist with
the Federal
Deposit Insurance Corporation and the North Carolina Commissioner of Banks. The Order
requires the Bank
to report to the regulators at least quarterly to address, among other things, the ongoing
management and
oversight of the Bank, an increase in the Banks capital levels, a reduction in the Banks
classified assets, a
reduction in concentrations of credit and improvement in the Banks earnings. The Bank is
currently not in
compliance with the capital levels required in the Order, and we do not expect to meet the
capital ratio
requirements in the near-term future. Continued failure to comply with the Order is likely
to result in further
adverse regulatory actions and restrictions upon our activities.
Continued losses will further erode our capital levels.
Our capital levels at December 31, 2010 are at a level that is below the well capitalized
level under regulatory
definitions, and our total risk-based capital and leverage capital ratios are at the
significantly undercapitalized
level. Failure to maintain well capitalized status is a violation of the Banks Order with
our regulators,
which could result in adverse regulatory actions against us. Additional significant
increases in our allowance
for loan losses, significant write-downs of foreclosed real estate and other assets, or other
operating losses
would decrease our capital levels further. Banking regulators classify a bank as critically
undercapitalized
if it fails to meet a 2% capital leverage ratio. Under prompt corrective action, a
critically undercapitalized
bank must be placed in conservatorship or receivership within 90 days of such determinations
unless the FDIC
and appropriate regulators determine that other action would protect the deposit insurance
fund.
Our business has been and may be adversely affected by conditions in the financial markets
and economic
conditions generally.
In 2009 and continuing throughout 2010, economic conditions in our market area declined
significantly, as they
have in the U.S. in general. These economic difficulties negatively affected many of our
customers, including
businesses and individuals. Unemployment rates in our market area have increased
significantly. Our financial
performance generally, and in particular the ability of borrowers to pay interest on and
repay principal of
outstanding loans and the value of collateral securing those loans, is highly dependent upon
the business
environment in the market where we operate. In addition, further negative economic
developments may affect
consumer confidence levels and may cause adverse changes in payment patterns, causing
increases in
delinquencies and default rates, which may impact our charge-offs and provision for loan
losses. A worsening
of these conditions would likely exacerbate the adverse effects of these difficult economic
conditions on us and
others in the financial services industry.
10
As a result of the difficult economic environment, many lending institutions, including us,
have experienced
declines in the performance of their loans. Moreover, competition among depository
institutions for deposits
and quality loans has increased significantly. In addition, the value of real estate
collateral supporting many
commercial loans and home mortgages has declined and may continue to decline. Bank and bank
holding
company stock prices have been negatively affected, as has the ability of banks and bank
holding companies
to raise capital or borrow in the debt markets. As a result, there is a potential for
additional federal or state
laws and regulations regarding lending and funding practices and liquidity standards, and
bank regulatory
agencies are expected to be aggressive in responding to concerns and trends identified in
examinations. The
impact of these conditions and any new legislation may negatively impact our operations by
restricting our
business, which could adversely impact our financial performance and our stock price.
Overall, during the past two years, the general business environment has had an adverse
effect on our business,
and we can not predict whether the environment will improve in the near term. Until
conditions improve, we
expect our business, financial condition, and results of operations to be adversely affected.
Economic difficulties could impair the ability of our customers, both individuals and
businesses, to
repay their loans.
Our largest source of revenue is payments on loans that we make to our customers. During
times of economic
downturns, our customers sources of funds to repay loans are adversely affected, and
delinquencies on loans
increase. Weakness in the economy in general, and especially weakness in real estate
markets, adversely
affects our collections and the strength of our loan portfolio. Declines in the ability of
our customers to repay
loans causes loss of revenue and increased levels of nonperforming loans, which results in
higher loan losses,
higher provisions for loan losses, and lower earnings.
Changes in interest rates could cause our earnings to decline.
Our balance sheet is currently asset sensitive, which means that when market interest rates
change, interest
rates on our interest rate sensitive assets, such as loans and investment securities, change
more rapidly than
interest rates on our interest rate sensitive liabilities, such as deposits and borrowings.
Therefore, there are
more assets than liabilities subject to immediate repricing as market interest rates change.
In a decreasing
interest rate environment, our net interest income will tend to fall, and in a rising rate
environment, the
reverse holds.
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.
We face numerous competitors in our community banking operations in all parts of our market
area. In
addition to competing with larger and smaller banks, which tend to be numerous, we compete
with credit
unions, brokerage and insurance firms, and other nonbank businesses, such as manufacturers
and retailers, that
engage in consumer financing activities. Price competition for loans and deposits might
result in earning less
on our loans and paying more on our deposits, which would reduce our net interest income.
Competition also
makes it more challenging to grow loans and deposits and to hire and retain experienced
employees. Some of
the institutions with which we compete have substantially greater resources and lending
limits than we do and
may offer services that we do not provide. We expect competition to continue to increase in
the future as a
result of legislative, regulatory, and technological changes and the continuing trend of
consolidation in the
financial services industry.
11
If significant increases are required to our allowance for loan losses, our earnings would
decrease.
We make various assumptions and judgments about the collectibility of our loan portfolio,
including the
creditworthiness of our borrowers and the value of the real estate and other assets serving
as collateral for the
repayment of many of our loans. In determining the amount of allowance for loan losses, we
review our loans
and our loss and delinquency experience, and we evaluate economic conditions. If one or more
conditions or
events causes our prior assumptions to be incorrect, our allowance for loan losses may not be
sufficient to
cover losses inherent in our loan portfolio, resulting in increases to our allowance and loss
provision. Material
additions to our allowance would materially decrease our net income.
In addition, bank regulators periodically review our allowance for loan losses and may
require us to increase
our provision for loan losses or recognize additional loan charge-offs. Any increase in our
allowance for loan
losses or loan charge-offs required by regulatory authorities could have a material adverse
effect on our
financial condition and results of operations.
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 are required to maintain adequate capital levels to support our operations and to comply
with the existing
regulatory agreements. The current need for the Company to raise capital and the depressed
or almost
nonexistent availability of such capital, increases the uncertainty about our ability to
raise additional capital in
the future on terms acceptable to us. If we can not raise additional capital our ability to
conduct our operations
could be materially impaired.
We operate in a highly regulated environment and may be adversely affected by changes in laws
and
regulations.
Our holding company and community banking businesses are highly regulated. Our holding
company is
regulated by the FRB, the Banking Commission, and the Securities and Exchange Commission. Our
community
banking subsidiary is regulated by the FDIC and the Banking Commission. Such regulation and
supervision
govern the activities in which we may engage and are intended primarily for the protection of
the deposit
insurance fund and depositors. Regulatory authorities have extensive discretion in
connection with their
supervisory and enforcement activities, including the imposition of restrictions on the
operation of an
institution, the classification of assets by the institution and the adequacy of an
institutions allowance for loan
losses. Any change in such regulation and oversight, whether in the form of regulatory
policy, regulations or
legislation, may have a material impact on our operations. In addition to the risks of
noncompliance, we are
required to dedicate considerable time and monetary resources in our efforts to comply with
the numerous laws
and regulations that govern the ways in which we conduct our community banking activities.
The passage of the Dodd-Frank Act may adversely impact our profitability.
The Dodd-Frank Act, which was passed on July 21, 2010, represents a significant overhaul of
many aspects
of the regulation of the financial services industry, addressing, among other things,
systemic risk, capital
adequacy, deposit insurance assessments, consumer financial protection, interchange fees,
lending limits
and corporate governance. Final rules adopted pursuant to the Dodd-Frank Act may impose more
stringent
regulatory requirements on us and may result in lower revenues and higher costs for us.
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.
As a member institution of the FDIC, we are required to pay quarterly deposit insurance
premium
assessments to the FDIC. Due to the recent turmoil in the financial system, including the
failure of
unaffiliated FDIC-insured depository institutions, the deposit insurance premium assessments
paid by all
banks have increased. Continued increases in the assessments would adversely impact our
earnings, perhaps
materially.
12
If investment securities we own suffer a decline in value that we determine to be other than
temporary,
we may be required to record a significant charge to earnings.
We evaluate our investment securities that have declined in value to determine whether we
believe the decline
was due to reasons other than temporary market fluctuations. For example, securities may
decline in value if
the issuer is experiencing difficulties that may jeopardize our ability to recover in a
reasonable time the amount
we invested. Should we determine that a decline in security value is other than temporary, we
are required to
record a charge to earnings in our financial statements during the period in which we made
that determination.
In times of economic stress, declines in the value of securities become more prevalent,
increasing the
likelihood of charges to our earnings.
Changes in accounting may affect our reported earnings and operating income.
Generally accepted accounting principles and accompanying accounting pronouncements,
implementation
guidelines, and interpretations for many aspects of our business, such as accounting for
investments and
loans, are highly complex and involve subjective judgments. Changes in these rules or their
interpretation
could significantly change our reported earnings. See Note 1, Summary of Significant
Accounting Policies,
of the Notes to Consolidated Financial Statements.
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.
The volatility of the real estate development and commercial real estate markets could affect
our assumptions
about the collectibility of our loan portfolio, and the value of the real estate serving as
collateral for the
repayment of these loans. If our assumptions are incorrect, our allowance for loan losses
may not be sufficient
to cover losses inherent in our loan portfolio, and additional loan losses could materially
decrease our net income.
Losing key personnel could negatively affect us.
None of the current members of the Banks executive management team are under employment
contracts, and
the loss of additional key personnel could have a negative impact on us and our future
results of operations.
Further decline in market value of Company stock could trigger delisting on the stock
exchange.
The market value of the Companys stock traded on The NASDAQ Global Select Market declined
below $1.00
per share during 2010, and the Company received notice in September 2010 that it had a 180
calendar day grace
period for the bid price to exceed $1.00 per share for 10 consecutive days to prevent the
Companys stock from
being delisted.
On March 16, 2011, the Company received approval from The NASDAQ Stock Market to transfer the
listing
of its stock to The NASDAQ Capital Market, effective March 21, 2011. Upon the transfer to
The NASDAQ
Capital Market, the Company became eligible for an additional 180 calendar day period, or
until September 19,
2011, to regain compliance with the bid price rule. Approval to transfer to The NASDAQ
Capital Market was
conditioned upon the Company agreeing to effect a reverse stock split during the additional
180 calendar day
period, should it become necessary to do so to meet the minimum $1.00 bid price per share
requirement.
If the Company is not in compliance with NASDAQs bid price requirement by the end of the
extended grace
period, it will execute a reverse stock split sufficient to enable the Company to meet the
bid price requirement
prior to the expiration date of the second 180 day compliance period. If the Companys stock
price does not
regain compliance with or continue to meet the bid price requirement, the stock could be
delisted.
ITEM 1B UNRESOLVED STAFF COMMENTS
None
13
ITEM 2 PROPERTIES
We indirectly own and operate real estate through our ownership of the Bank. The Bank owns its
headquarters, operations and information technology center offices located in Granite Falls, North
Carolina. The Bank also owns banking offices in the North Carolina cities and communities of
Conover, Granite Falls, Hickory, Hudson, Lenoir, Matthews, Morganton, Newton, Wilkesboro and
Winston-Salem. The Bank leases banking offices in the North Carolina cities and communities of
Boone, Charlotte, Cornelius, Granite Falls and Statesville. We believe that the premises occupied
by the Bank are well located and suitably equipped to serve and support our community banking
business. We do not currently anticipate any problems with the renewal of our leases. See also
Note 6, Premises and Equipment, of the Notes to Consolidated Financial Statements.
The Bank both owns and leases its facilities as indicated in the table below. The Banks management
considers its facilities well maintained and sufficiently suitable for present operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate
|
|
|
|
|
|
|
Facility Size
|
|
Lot Size
|
|
Owned
|
Location
|
|
Principal Use
|
|
(square feet)
|
|
(acres)
|
|
or Leased
|
Granite Falls, North Carolina
|
|
|
|
|
|
|
|
|
|
|
|
|
23 North Main Street
|
|
Home office
|
|
|
8,735
|
|
|
|
1.2
|
|
|
owned
|
|
|
Storage building
|
|
|
735
|
|
|
|
0.5
|
|
|
owned
|
56 North Main Street
|
|
Operations center
|
|
|
11,769
|
|
|
|
1.1
|
|
|
owned
|
2630 Connelly
|
|
Banking office in
|
|
|
430
|
|
|
none
|
|
leased
|
Springs Road (Baton)
|
|
Ingles
Supermarket
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boone, North Carolina
|
|
|
|
|
|
|
|
|
|
|
|
|
230 Wilson Drive
|
|
Banking office
|
|
|
5,705
|
|
|
none
|
|
leased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charlotte, North Carolina
|
|
|
|
|
|
|
|
|
|
|
|
|
301 South McDowell Street
|
|
Banking office
|
|
|
6,096
|
|
|
none
|
|
leased
|
3920 Sharon Road
|
|
Banking office
|
|
|
1,955
|
|
|
none
|
|
leased
|
(SouthPark)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conover, North Carolina
|
|
|
|
|
|
|
|
|
|
|
|
|
1109 Conover Blvd, East
|
|
Banking office
|
|
|
4,421
|
|
|
|
1.4
|
|
|
owned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cornelius, North Carolina
|
|
|
|
|
|
|
|
|
|
|
|
|
18825 West Catawba Avenue
|
|
Banking office
|
|
|
3,409
|
|
|
none
|
|
leased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hickory, North Carolina
|
|
|
|
|
|
|
|
|
|
|
|
|
25 3rd Street NW
|
|
Banking office
|
|
|
9,515
|
|
|
|
0.5
|
|
|
owned
|
315 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 Carolina
|
|
|
|
|
|
|
|
|
|
|
|
|
537 Main Street
|
|
Banking office
|
|
|
4,235
|
|
|
|
4.1
|
|
|
owned
|
|
|
|
|
(Continued on next page)
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
(Concluded from previous page)
|
|
|
|
Approximate
|
|
|
|
|
|
|
Facility Size
|
|
Lot Size
|
|
Owned
|
Location
|
|
Principal Use
|
|
(square feet)
|
|
(acres)
|
|
or Leased
|
Lenoir, North Carolina
|
|
|
|
|
|
|
|
|
|
|
|
|
707 College Avenue SW
|
|
Banking office
|
|
|
7,400
|
|
|
|
1.2
|
|
|
owned
|
1351 Norwood
|
|
Banking office
|
|
|
2,530
|
|
|
|
1.0
|
|
|
owned
|
Street SW (Whitnel)
|
|
|
|
|
|
|
|
|
|
|
|
|
701 Wilkesboro
|
|
Banking office closed in 2009
|
|
|
2,480
|
|
|
|
2.1
|
|
|
owned
|
Boulevard NE (Hibriten)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Matthews, North Carolina
|
|
|
|
|
|
|
|
|
|
|
|
|
2432 McKee Road
|
|
Banking office
|
|
|
4,941
|
|
|
|
1.5
|
|
|
owned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Morganton, North Carolina
|
|
|
|
|
|
|
|
|
|
|
|
|
201 East Meeting Street
|
|
Banking office
|
|
|
5,400
|
|
|
|
0.8
|
|
|
owned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Newton, North Carolina
|
|
|
|
|
|
|
|
|
|
|
|
|
311 North Main Avenue
|
|
Banking office
|
|
|
3,612
|
|
|
|
0.9
|
|
|
owned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statesville, North Carolina
|
|
|
|
|
|
|
|
|
|
|
|
|
207 South Center Street
|
|
Banking office
|
|
|
5,000
|
|
|
none
|
|
leased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wilkesboro, North Carolina
|
|
|
|
|
|
|
|
|
|
|
|
|
1305A S. Collegiate Drive
|
|
Banking office
|
|
|
1,600
|
|
|
none
|
|
owned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Winston-Salem, North Carolina
|
|
|
|
|
|
|
|
|
|
|
|
|
791 Jonestown Road, Ste 100
|
|
Banking office
|
|
|
5,000
|
|
|
none
|
|
owned
|
ITEM 3 LEGAL PROCEEDINGS
There were no material legal proceedings pending as of December 31, 2010. During the year ended December 31, 2010, we were not required to
pay any penalties for failure to disclose certain reportable transactions under Section 6707A of the Internal Revenue Code.
ITEM 4 REMOVED AND RESERVED
PART II
ITEM 5 MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock, $1.00 par value, trades on The NASDAQ Capital Market of The NASDAQ Stock Market
®
under the symbol GRAN. On March 21, 2011, the listing of the Companys common stock was
transferred from The NASDAQ Global Select Market of The NASDAQ Stock Market
®
to The NASDAQ Capital
Market. Price and volume information is contained in
The Wall Street Journal
®
and many other
major daily newspapers in the NASDAQ section under the National Market System listings.
During 2010, the market participants making a market in our common stock with the highest volumes
of our shares traded were Knight Capital Americas, L.P., Direct Edge ECN LLC, Citadel Securities LLC,
UBS Securities LLC, and Automated Trading Desk. There were no issuances of unregistered securities
by us during the year ended December 31, 2010.
15
As of December 31, 2010, there were 15,454,000 shares of our common stock outstanding, owned by
approximately 2,300 stockholders of record and an estimated 4,500 holders of shares registered in
street name or as beneficial owners. The following table presents the quarterly market sales prices and
dividend information for the two years in the period ended December 31, 2010.
Quarterly Common Stock Market Price Ranges and Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
Quarter 1
|
|
Quarter 2
|
|
Quarter 3
|
|
Quarter 4
|
Price Range
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
2.38
|
|
|
$
|
3.49
|
|
|
$
|
1.23
|
|
|
$
|
0.91
|
|
Low
|
|
|
0.54
|
|
|
|
0.75
|
|
|
|
0.50
|
|
|
|
0.44
|
|
Close
|
|
|
1.21
|
|
|
|
1.15
|
|
|
|
0.71
|
|
|
|
0.55
|
|
Dividends*
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
Quarter 1
|
|
Quarter 2
|
|
Quarter 3
|
|
Quarter 4
|
Price Range
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
3.61
|
|
|
$
|
3.50
|
|
|
$
|
3.12
|
|
|
$
|
1.04
|
|
Low
|
|
|
1.10
|
|
|
|
1.50
|
|
|
|
1.02
|
|
|
|
0.40
|
|
Close
|
|
|
1.71
|
|
|
|
3.01
|
|
|
|
1.03
|
|
|
|
0.51
|
|
Dividends*
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
*
|
|
The Company suspended its cash dividend in the third quarter of 2008.
|
See also Item 12 Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters for information about securities authorized for issuance under equity
compensation plans and share repurchases.
ITEM 6 SELECTED FINANCIAL DATA
This item is not applicable.
16
ITEM 7 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
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 Companys 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.
INTRODUCTION
Managements Discussion and Analysis (MD&A) is provided to assist in understanding and evaluating
our results of operations and financial condition. The following discussion is intended to provide a
general overview of our performance for the year ended December 31, 2010. Readers seeking more
in-depth information should read the more detailed discussions that follow as well as the
consolidated financial statements and related notes included under Item 8 of this annual report.
All information presented is consolidated data unless otherwise specified.
OVERVIEW
This overview of MD&A highlights selected information in the financial results of the Company and
may not contain all of the information that is important to you. For a more complete understanding
of trends, events, commitments, uncertainties, liquidity, capital resources and critical accounting
policies and estimates, you should carefully read this entire document. Each of these items could
have an impact on the Companys financial condition, results of operations and cash flows.
The operating results, balance sheet position and capital resources discussed in more detail herein
after are primarily reflective of the general conditions in the (broad) national economy and more
specifically to the high level of unemployment in the Banks operating footprint coupled with the
extremely depressed real estate market that affects collateral values that underlie the Banks
loans and the ability of small businesses related in any way to products or activities reliant on
the real estate market to be successful.
The Banks level of losses for loan charge-offs and losses on the disposal of assets taken in lieu
of loan payments, continues at very elevated levels. Nonperforming loans continue at
correspondingly high levels, although the pace of inflow of nonperforming loans has slowed in the
fourth quarter and into 2011.
Losses during 2010 have further eroded the Banks capital levels, and the Bank is now significantly
undercapitalized.
The Companys net loss in 2010 was $23.7 million, or $1.53 per share, compared to a net loss of
$25.6 million, or $1.66 per share, for 2009.
17
The most significant items when comparing overall financial results of 2010 to 2009 are as follows:
|
|
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%.
|
The following sections of this discussion provide more detail regarding current and prior year
matters. Additionally, Note 2, Regulatory Matters and Going Concern Considerations, in the
Notes to Consolidated Financial Statements discusses the regulatory and capital levels in
significantly more detail.
CRITICAL ACCOUNTING POLICIES
Information included in our audited financial statements and managements discussion and analysis
is derived from our accounting records, which are maintained in accordance with accounting
principles generally accepted in the United States of America (US GAAP) and general practices
within the banking industry. While much of the information is definitive, certain accounting issues
are highly dependent upon estimates and assumptions made by management. An understanding of these
estimates and assumptions is vital to understanding the Companys financial statements. Critical
accounting policies are those policies that are most important to the determination of our
financial condition and results of operations, or that require management to make assumptions and
estimates that are subjective or complex.
We periodically evaluate our critical accounting policies, including those related to the allowance
for loan losses and fair value estimates. While we base our estimates on historical experience and
on various other assumptions that we believe to be reasonable under the circumstances, actual
results may differ from these estimates under different assumptions or outcomes.
Certain amounts for periods prior to December 31, 2010 have been reclassified to conform to the
presentation for the period ended December 31, 2010.
ALLOWANCE FOR LOAN LOSSES The Company disaggregates its portfolio loans into portfolio segments
for purposes of determining the allowance for loan losses (ALLL). The Companys portfolio
segments include commercial and industrial; real estate construction; real estate commercial
mortgage and consumer. For an analysis of the Companys ALLL by portfolio segment and credit
quality information by segment, see Note 4, Loans, and Note 5, Allowance for Loan Losses, in
the Notes to Consolidated Financial Statements.
Larger commercial loans included within aggregate borrower relationship balances exceeding $250
thousand that exhibit probable or observed credit weaknesses, as well as loans that have been
modified in a troubled debt restructuring (TDR), are subject to individual review for impairment.
The Company considers the current value of collateral, credit quality of any guarantees, the loan
structure, and other factors when evaluating whether an individual loan is impaired. Other factors
may include the industry of the borrower, size and financial condition of the borrower, cash flow
and leverage of the borrower. When individual loans are impaired, allowances are determined based
on managements estimate of the borrowers ability to repay the loan given the availability of
collateral, other sources of cash flow, as well as evaluation of legal options available to the
Company. Allowances for impaired loans are measured based on the present value of expected future
cash flows discounted at the loans effective interest rate, fair value of the underlying
collateral or readily observable secondary market values. The Company evaluates the collectibility
of both principal and interest when assessing the need for a loss accrual.
18
Historical credit loss rates are applied to commercial loans that are not impaired or are impaired,
but smaller than the established threshold of $250 thousand and thus not subject to specific
allowance allocations. The loss rates are derived from a migration analysis, which tracks the
historical net charge-off experience sustained on loans according to their internal risk grade. The
risk grading system currently utilized for allowance analysis purposes encompasses nine
categories.
Consumer portfolio segments are not individually risk graded. Rather, standard credit scoring
systems and delinquency monitoring are used to assess credit risks, and allowances are established
based on the expected net charge-offs. Loss rates are based on the average net charge-off history
by loan category. Historical loss rates may be adjusted for significant factors that, in
managements judgment, are necessary to reflect losses inherent in the portfolio. Factors that
management considers in the analysis include the effects of the national and local economies;
trends in the nature and volume of delinquencies, charge-offs and nonaccrual loans; changes in loan
mix; credit score migration comparisons; asset quality trends; risk management and loan
administration; changes in the internal lending policies and credit standards; collection
practices; and examination results from bank regulatory agencies and the Companys external credit
reviewers.
The Companys current methodology for determining the ALLL is based on historical loss rates,
current credit grades, specific allocation on TDRs and impaired commercial credits above specified
thresholds and other qualitative adjustments. Allowances on individual commercial loans and
historical loss rates are reviewed quarterly and adjusted as necessary based on changing borrower
and/or collateral conditions and actual collection and charge-off experience. An unallocated
allowance is maintained to recognize the imprecision in estimating and measuring losses when
evaluating allowances for individual loans or pools of loans.
The Companys primary market areas for lending are the middle and western regions of North
Carolina. When evaluating the adequacy of allowances, consideration is given to these regional
geographic concentrations and the closely associated effect changing economic conditions have on
the Companys customers.
FAIR VALUE ESTIMATES The Company reports investment securities available for sale, and certain
impaired loans and other assets at fair value. At December 31, 2010, the percentage of total assets
measured at fair value on a recurring basis was 29.1%. The majority of assets and liabilities
reported at fair value are based on quoted market prices or market prices for similar instruments.
Other financial assets are reported at fair value on a nonrecurring basis, as impaired loans and
other real estate. See Note 18, Fair Value of Financial Instruments, in the Notes to
Consolidated Financial Statements for additional disclosures regarding the fair value of
financial instruments.
RESULTS OF OPERATIONS
Performance Summary for 2010 and 2009
The following table summarizes the Companys 2010 and 2009 operating results. The net loss for
2010 of $23.7 million is only 7.5% lower than the 2009 loss of $25.6 million. However, there are
positive elements to the results. The net interest income remained level year on year as
explained in more detail in a later section. Maintenance of the level of net interest income and
managing a reduction in the extreme levels of credit costs are the key elements in any improvement in the Companys performance in 2011.
The level of charge-offs and the related loan loss provision accompanied an increase of
nonperforming loans to $62.3 million at December 31, 2011. However, the December 31, 2010 amount
is $15.0 million lower than the high point in 2010 and continues to decline into 2011. If the
inflow of nonperforming loans slows as indicated, the credit costs are anticipated to decline in
2011.
The increase in securities interest, $4.5 million or 111.7%, relates primarily to increasing levels
of investments as the Banks lending opportunities have declined.
The other income, while level year on year, reflects a $500 thousand decrease in overdraft fees as
an early indication of new regulatory effects and a $750 thousand decline in Bank Owned Life
Insurance (BOLI) income as a result of the liquidation of most of the BOLI investment in 2009,
offset primarily by $2.4 million of securities gains, which was a $1.5 million increase over 2009.
The decrease in other expenses of $9.4 million in 2010 includes a $5.8 million decrease in
personnel expenses. Approximately $2.8 million of the reduction relates to the Banks continuing
personal rationalization processes, and $2.9 million related to personnel costs included severance
payments for the mortgage company in 2009. Additional components of other expense included a $2.2
million decline in other real estate losses to $5.6 million in 2010.
19
The following table highlights differences in operations for the year ended December 31, 2010
compared to the year ended December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Table dollars in thousands except per share amounts)
|
|
2010
|
|
2009
|
|
$ Change
|
|
% Change
|
Net 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
|
%
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME
Net interest income (the difference between interest earned on interest-earning assets, and
interest paid on interest-bearing liabilities, primarily deposits in the Bank) normally represents
the most significant component of our revenue. Net interest income was approximately $31.2
million and $31.4 million for 2010 and 2009, respectively,
representing a decrease of 0.7% for 2010 over 2009.
The Company was able to maintain the net interest income level despite the loan portfolio
contraction (24.6%) and the increasing nonaccrual component of the loan portfolio year over year.
The yield on loans has remained stable as the loan pricing has continued to focus on risk
assessment that is generally reflective of the loan risk grade. Additionally, the investment
portfolio was expanded substantially after the Banks liquidity was stabilized in early 2010 and
contingency cash fund requirements lessened. As a result of the expansion and a year over year
yield improvement, investment income ($8.5 million) increased 111.7%.
The liquidity provided by the loan portfolio also facilitated a less aggressive deposit pricing
profile, particularly in the fourth quarter coupled with maturing time deposits from the pre-2008
rate environment to reduce deposit costs by 74 basis points (35.9% lower year over year) or $7.6
million.
20
The following table presents our daily average balances, interest income and expense and
average rates earned and paid on interest-earning assets and interest-bearing liabilities for the
last three years.
AVERAGE BALANCES AND INTEREST INCOME ANALYSIS
for the years ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
|
|
|
|
Average
|
|
Interest
|
|
|
|
|
|
Average
|
|
Interest
|
|
|
|
|
|
Average
|
|
Interest
|
|
|
Average
|
|
Yield/
|
|
Income/
|
|
Average
|
|
Yield/
|
|
Income/
|
|
Average
|
|
Yield/
|
|
Income/
|
(Table dollars in thousands)
|
|
Balance
|
|
Cost
|
|
Expense
|
|
Balance
|
|
Cost
|
|
Expense
|
|
Balance
|
|
Cost
|
|
Expense
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans (1)
|
|
$
|
661,387
|
|
|
|
5.48
|
%
|
|
$
|
36,263
|
|
|
$
|
877,432
|
|
|
|
5.54
|
%
|
|
$
|
48,614
|
|
|
$
|
971,560
|
|
|
|
6.41
|
%
|
|
$
|
62,289
|
|
Taxable securities
|
|
|
245,645
|
|
|
|
3.47
|
%
|
|
|
8,536
|
|
|
|
126,253
|
|
|
|
2.90
|
%
|
|
|
3,660
|
|
|
|
83,166
|
|
|
|
3.89
|
%
|
|
|
3,236
|
|
Nontaxable securities (2)
|
|
|
476
|
|
|
|
0.00
|
%
|
|
|
|
|
|
|
8,270
|
|
|
|
6.77
|
%
|
|
|
560
|
|
|
|
30,839
|
|
|
|
6.66
|
%
|
|
|
2,054
|
|
Federal funds sold
|
|
|
|
|
|
|
n/a
|
|
|
|
|
|
|
|
5,116
|
|
|
|
0.16
|
%
|
|
|
8
|
|
|
|
4,667
|
|
|
|
1.35
|
%
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning
assets
|
|
|
907,508
|
|
|
|
4.94
|
%
|
|
|
44,799
|
|
|
|
1,017,071
|
|
|
|
5.20
|
%
|
|
|
52,842
|
|
|
|
1,090,232
|
|
|
|
6.20
|
%
|
|
|
67,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
64,618
|
|
|
|
|
|
|
|
|
|
|
|
39,091
|
|
|
|
|
|
|
|
|
|
|
|
23,919
|
|
|
|
|
|
|
|
|
|
All other assets
|
|
|
15,399
|
|
|
|
|
|
|
|
|
|
|
|
45,497
|
|
|
|
|
|
|
|
|
|
|
|
75,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
987,525
|
|
|
|
|
|
|
|
|
|
|
$
|
1,101,659
|
|
|
|
|
|
|
|
|
|
|
$
|
1,189,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
stockholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW deposits
|
|
$
|
120,482
|
|
|
|
0.53
|
%
|
|
|
641
|
|
|
$
|
140,022
|
|
|
|
0.96
|
%
|
|
|
1,348
|
|
|
$
|
134,919
|
|
|
|
1.14
|
%
|
|
|
1,533
|
|
Money market deposits
|
|
|
154,587
|
|
|
|
0.98
|
%
|
|
|
1,510
|
|
|
|
197,416
|
|
|
|
1.51
|
%
|
|
|
2,981
|
|
|
|
233,782
|
|
|
|
2.89
|
%
|
|
|
6,755
|
|
Savings deposits
|
|
|
19,898
|
|
|
|
0.20
|
%
|
|
|
39
|
|
|
|
20,303
|
|
|
|
0.20
|
%
|
|
|
40
|
|
|
|
21,567
|
|
|
|
0.24
|
%
|
|
|
52
|
|
Time deposits of $100 or
more
|
|
|
241,184
|
|
|
|
2.10
|
%
|
|
|
5,068
|
|
|
|
209,525
|
|
|
|
3.16
|
%
|
|
|
6,630
|
|
|
|
214,208
|
|
|
|
4.07
|
%
|
|
|
8,724
|
|
Other time deposits
|
|
|
271,697
|
|
|
|
2.03
|
%
|
|
|
5,518
|
|
|
|
282,971
|
|
|
|
3.07
|
%
|
|
|
8,699
|
|
|
|
246,424
|
|
|
|
3.89
|
%
|
|
|
9,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits
|
|
|
807,848
|
|
|
|
1.58
|
%
|
|
|
12,776
|
|
|
|
850,237
|
|
|
|
2.32
|
%
|
|
|
19,698
|
|
|
|
850,900
|
|
|
|
3.13
|
%
|
|
|
26,644
|
|
Overnight borrowings
|
|
|
|
|
|
|
n/a
|
|
|
|
|
|
|
|
11,240
|
|
|
|
1.09
|
%
|
|
|
123
|
|
|
|
28,305
|
|
|
|
2.48
|
%
|
|
|
703
|
|
Other borrowings
|
|
|
34,236
|
|
|
|
2.44
|
%
|
|
|
834
|
|
|
|
45,569
|
|
|
|
3.08
|
%
|
|
|
1,403
|
|
|
|
52,857
|
|
|
|
4.55
|
%
|
|
|
2,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing
liabilities
|
|
|
842,084
|
|
|
|
1.62
|
%
|
|
|
13,610
|
|
|
|
907,046
|
|
|
|
2.34
|
%
|
|
|
21,224
|
|
|
|
932,062
|
|
|
|
3.19
|
%
|
|
|
29,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing
deposits
|
|
|
102,228
|
|
|
|
|
|
|
|
|
|
|
|
111,614
|
|
|
|
|
|
|
|
|
|
|
|
131,563
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
6,303
|
|
|
|
|
|
|
|
|
|
|
|
15,134
|
|
|
|
|
|
|
|
|
|
|
|
12,820
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
36,910
|
|
|
|
|
|
|
|
|
|
|
|
67,865
|
|
|
|
|
|
|
|
|
|
|
|
113,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
and stockholders equity
|
|
$
|
987,525
|
|
|
|
|
|
|
|
|
|
|
$
|
1,101,659
|
|
|
|
|
|
|
|
|
|
|
$
|
1,189,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on earning
assets and
net interest income (2)
(3)
|
|
|
|
|
|
|
3.44
|
%
|
|
$
|
31,189
|
|
|
|
|
|
|
|
3.11
|
%
|
|
$
|
31,618
|
|
|
|
|
|
|
|
3.48
|
%
|
|
$
|
37,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest 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.
|
Changes in interest income and interest expense can result from changes in both volume and rates.
The following table sets forth the dollar amount of increase (decrease) in interest income and
interest expense resulting from changes in the volume of interest-earning assets and
interest-bearing liabilities and from changes in yields and rates.
INTEREST RATE AND VOLUME VARIANCE ANALYSIS
for the years ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 compared to 2009
|
|
2009 compared to 2008
|
|
|
Change
|
|
|
|
|
|
Change
|
|
|
|
|
Attributable to
|
|
|
|
|
|
Attributable to
|
|
|
(Table in thousands)
|
|
Volume(1)
|
|
Rate(1)
|
|
Total
|
|
Volume(1)
|
|
Rate(1)
|
|
Total
|
Loans
|
|
$
|
(11,908
|
)
|
|
$
|
(443
|
)
|
|
$
|
(12,351
|
)
|
|
$
|
(5,625
|
)
|
|
$
|
(8,050
|
)
|
|
$
|
(13,675
|
)
|
Taxable securities
|
|
|
3,805
|
|
|
|
1,071
|
|
|
|
4,876
|
|
|
|
1,463
|
|
|
|
(1,039
|
)
|
|
|
424
|
|
Nontaxable 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
LIQUIDITY AND ASSET/LIABILITY MANAGEMENT
The Companys historical liquidity management process included anticipating operating cash
requirements, evaluating time deposit maturities, monitoring loan to deposit ratios, and
correlating these activities to an overall periodic internal liquidity measure. In evaluating our
asset mix, we have sought to maintain a securities portfolio sufficient to provide short-term
liquidity in periods of unusual fluctuations.
As outside funding sources have been withdrawn or restricted to current levels of outstandings, our
liquidity management has focused on insuring adequate internal funding by the Bank.
The Banks primary internal sources of liquidity are customer deposits, cash and balances due from
other Banks, and unencumbered investment securities. These funds, together with loan repayments,
are used to make loans and to fund continuing operations. Additionally, retail and commercial
deposit balances fluctuate significantly, and we target liquidity levels to meet those periodic
declines. The Banks liquidity (cash + unencumbered securities / total deposits) was
approximately $240.0 million, or 29.2% of total deposits at December 31, 2010.
As of December 31, 2010, the Banks core deposits, defined as total deposits, excluding time
deposits of $100 thousand or more, totaled $617.6 million, or 75.1%, of the Banks total deposits
versus $719.0 million, or 74.4%, at December 31, 2009.
The regulatory Order under which we currently operate (see Note 2, Regulatory Matters and Going
Concern Considerations, in the Notes to Consolidated Financial Statements) limits the Banks
participation in the national markets for deposits and requires that local rates conform to rates
that are not more than 75 basis points above the average local market rates for all products.
This restriction does not currently prevent the Bank from offering competitive rates.
Certificates of deposit of $100 thousand or more represented 24.9% and 25.6%, respectively, of the
Banks total deposits at December 31, 2010 and 2009. Management believes that a sizeable portion
of the Banks time deposits are relationship-oriented. Brokered certificates of deposit totaled $0
and $8.2 million at December 31, 2010 and 2009, respectively. While the Bank appreciates the need
to pay competitive rates to retain these deposits, other subjective factors also influence deposit
retention. Based upon prior experience, the Bank anticipates that a substantial portion of
outstanding certificates of deposit will renew upon maturity.
The objective of the Banks asset/liability management process is focused to providing relative
stability and reduction of volatility for the Banks net interest income through various scenarios
of changes in interest rates. The process attempts to balance the need for stability and
predictability of net interest income against competing needs such as balance sheet mix
constraints, overall earnings targets and the risk/return relationships between liquidity, interest
rate risk, market risk and capital adequacy. The Bank maintains an asset/liability management
policy approved by the Banks Board of Directors. This policy and the analysis process undertaken
by management and the Boards Asset/Liability Management Committee (ALCO) provides guidelines to
control the exposure of its earnings to changing interest rates by generally endeavoring to
maintain a position within a range around an earnings neutral position, which is defined as the
mix of assets and liabilities that generate a net interest margin that is least affected by
interest rate changes.
When suitable lending opportunities are not sufficient to utilize available funds, the Bank has
generally invested such funds in securities, primarily securities issued by U.S. governmental
agencies, and in accordance with the balance sheet restructuring to limit any credit risk and risk
based asset allocation. The securities portfolio contributes to the Banks earnings and plays an
important part in overall interest rate management.
The analysis of an institutions interest rate gap (the difference between the repricing of
interest-earning assets and interest-bearing liabilities during a given period of time) is a
standard tool for the measurement of the exposure to interest rate risk. Management believes that
because interest rate gap analysis does not address all factors that can affect earnings
performance, its practical usefulness in managing the Banks interest rate risk is limited, and it
should be used in conjunction with other methods managing expected net interest income.
The Banks gap analysis at December 31, 2010 indicates that its balance sheet is generally asset
sensitive, meaning that in a given period there will be more assets than liabilities subject to
immediate repricing as market rates change. This would indicate that in a decreasing rate
environment, hypothetical net interest income would tend to fall. However, the results of computer
simulation modeling at that date suggest minimal interest rate exposure under moderately increasing
or decreasing interest rate scenarios. Under the moderate rising rate environment, the Banks net
interest income would be expected to increase by approximately 9%.
The management of interest rate risk and the overall asset/liability position is integrated with
the liquidity management process. Currently less than 10% of the Banks loans are directly related
to national market interest rates. The remaining loans are fixed rate or relate to the Banks
independent index, which relates more directly to the Banks operating footprint.
22
|
|
The following table presents interest rate sensitivity of our interest-earning assets and
interest-bearing liabilities.
|
INTEREST RATE SENSITIVITY (GAP ANALYSIS)
As of December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-sensitive
|
|
|
|
|
Interest Sensitive Within
|
|
|
|
|
|
Total
|
|
or Sensitive
|
|
|
|
|
1 to
|
|
91 to
|
|
181 to
|
|
Within
|
|
Beyond
|
|
|
(Table dollars in thousands)
|
|
90 Days
|
|
180 Days
|
|
365 Days
|
|
1 Year
|
|
1 Year
|
|
Total
|
Interest-earning Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing due from banks
|
|
$
|
1,242
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,242
|
|
|
$
|
|
|
|
$
|
1,242
|
|
Securities (at amortized cost) (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,061
|
|
|
|
61,061
|
|
States and political subdivisions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,430
|
|
|
|
5,430
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
187,741
|
|
|
|
187,741
|
|
Other (including corporate bonds)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,500
|
|
|
|
3,500
|
|
Loans (gross):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction
|
|
|
12,042
|
|
|
|
2,155
|
|
|
|
3,068
|
|
|
|
17,265
|
|
|
|
9,655
|
|
|
|
26,920
|
|
Real estate mortgage, commercial
|
|
|
44,382
|
|
|
|
21,200
|
|
|
|
50,873
|
|
|
|
116,455
|
|
|
|
297,306
|
|
|
|
413,761
|
|
Commercial and industrial
|
|
|
8,253
|
|
|
|
6,781
|
|
|
|
12,186
|
|
|
|
27,220
|
|
|
|
42,114
|
|
|
|
69,334
|
|
Consumer
|
|
|
1,454
|
|
|
|
124
|
|
|
|
295
|
|
|
|
1,873
|
|
|
|
50,570
|
|
|
|
52,443
|
|
|
|
|
Total interest-earning assets
|
|
$
|
67,373
|
|
|
$
|
30,260
|
|
|
$
|
66,422
|
|
|
$
|
164,055
|
|
|
$
|
657,377
|
|
|
$
|
821,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings and NOW accounts
|
|
$
|
133,478
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
133,478
|
|
|
$
|
|
|
|
$
|
133,478
|
|
Money market accounts
|
|
|
155,604
|
|
|
|
|
|
|
|
|
|
|
|
155,604
|
|
|
|
|
|
|
|
155,604
|
|
Time deposits of $100 or more
|
|
|
61,644
|
|
|
|
25,926
|
|
|
|
88,453
|
|
|
|
176,023
|
|
|
|
28,726
|
|
|
|
204,749
|
|
Other time deposits
|
|
|
57,155
|
|
|
|
35,376
|
|
|
|
107,894
|
|
|
|
200,425
|
|
|
|
35,706
|
|
|
|
236,131
|
|
Short-term borrowings
|
|
|
11,000
|
|
|
|
2,000
|
|
|
|
5,000
|
|
|
|
18,000
|
|
|
|
|
|
|
|
18,000
|
|
Long-term borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
|
|
6,000
|
|
|
|
|
Total interest-bearing liabilities
|
|
$
|
418,881
|
|
|
$
|
63,302
|
|
|
$
|
201,347
|
|
|
$
|
683,530
|
|
|
$
|
70,432
|
|
|
$
|
753,962
|
|
|
|
|
Interest 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.
|
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
As of December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within
|
|
|
One to
|
|
|
Five
|
|
|
|
|
|
|
One
|
|
|
Five
|
|
|
Years or
|
|
|
|
|
(Table in thousands)
|
|
Year
|
|
|
Years
|
|
|
More
|
|
|
Total
|
|
Real estate construction
|
|
$
|
17,265
|
|
|
$
|
7,677
|
|
|
$
|
1,978
|
|
|
$
|
26,920
|
|
Real estate mortgage, commercial
|
|
|
118,687
|
|
|
|
250,340
|
|
|
|
44,734
|
|
|
|
413,761
|
|
Commercial and industrial
|
|
|
27,238
|
|
|
|
37,074
|
|
|
|
5,022
|
|
|
|
69,334
|
|
Consumer
|
|
|
957
|
|
|
|
4,820
|
|
|
|
46,666
|
|
|
|
52,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
164,147
|
|
|
$
|
299,911
|
|
|
$
|
98,400
|
|
|
$
|
562,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predetermined rate, maturity
greater than one year
|
|
$
|
|
|
|
$
|
137,316
|
|
|
$
|
24,959
|
|
|
$
|
162,275
|
|
Variable rate or maturing within
one year
|
|
|
164,147
|
|
|
|
162,595
|
|
|
|
73,441
|
|
|
|
400,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
164,147
|
|
|
$
|
299,911
|
|
|
$
|
98,400
|
|
|
$
|
562,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our average rate paid on interest-bearing deposits declined to 1.58% in 2010 compared to
2.32% in 2009. Our decline in average deposits was primarily in demand deposits. The daily
average amounts of deposits of the Bank are summarized below.
AVERAGE DEPOSITS
for the years ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
(Table in thousands)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Non-interest-bearing demand deposits
|
|
$
|
102,228
|
|
|
$
|
111,614
|
|
|
$
|
131,563
|
|
Interest-bearing demand deposits
|
|
|
275,069
|
|
|
|
337,438
|
|
|
|
368,701
|
|
Savings deposits
|
|
|
19,898
|
|
|
|
20,303
|
|
|
|
21,567
|
|
Time deposits
|
|
|
512,881
|
|
|
|
492,496
|
|
|
|
460,632
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
910,076
|
|
|
$
|
961,851
|
|
|
$
|
982,463
|
|
|
|
|
|
|
|
|
|
|
|
23
The preceding table includes certificates of deposits $100 thousand and over, which at
December 31, 2010 totaled $204.7 million. The following table presents the maturities of these
time deposits of $100 thousand or more.
MATURITIES OF TIME DEPOSITS OF $100 THOUSAND OR MORE
As of December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within
|
|
Three to
|
|
Six to
|
|
Within
|
|
One to
|
|
|
|
|
Three
|
|
Six
|
|
Twelve
|
|
One
|
|
Five
|
|
|
(In thousands)
|
|
Months
|
|
Months
|
|
Months
|
|
Year
|
|
Years
|
|
Total
|
Time deposits of $100 thousand or more
|
|
$
|
61,644
|
|
|
$
|
25,926
|
|
|
$
|
88,453
|
|
|
$
|
176,023
|
|
|
$
|
28,726
|
|
|
$
|
204,749
|
|
|
|
|
CAPITAL RESOURCES
The levels of capital resources and related regulatory matters are discussed in
detail in Note 2, Regulatory Matters and Going Concern Considerations, and Note 14, Regulation
and Regulatory Restrictions, in the Notes to Consolidated Financial Statements. As set forth
therein, the Banks capital levels are significantly below the capital levels set forth in the
regulatory Order pursuant to which we operate. As a result the Bank is precluded from paying
dividends to the parent company for the duration of the Order.
LOANS
The Companys lending activities have been concentrated in real estate related
loans and commercial loans to small and medium sized businesses. We have a diversified loan
portfolio with no concentrations to any one borrower. The amounts and types of loans outstanding
for the past five years are shown in the following table.
LOANS
As of December 31,
(Table dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Total
|
|
|
|
Amount
|
|
|
Loans
|
|
|
Amount
|
|
|
Loans
|
|
|
Amount
|
|
|
Loans
|
|
|
Amount
|
|
|
Loans
|
|
|
Amount
|
|
|
Loans
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For commercial and industrial loans, the Bank is generally collateralized by all business
assets, including the related real estate where applicable. Also see Note 18, Fair Value of
Financial Instruments in the Notes to Consolidated Financial Statements.
24
NONPERFORMING LOANS AND NONPERFORMING ASSETS
As of December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Table dollars in thousands)
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
Nonperforming assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans
|
|
$
|
40,577
|
|
|
$
|
36,542
|
|
|
$
|
50,591
|
|
|
$
|
36,450
|
|
|
$
|
9,289
|
|
Restructured loans nonaccrual
|
|
|
21,692
|
|
|
|
16,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming loans
|
|
|
62,269
|
|
|
|
53,140
|
|
|
|
50,591
|
|
|
|
36,450
|
|
|
|
9,289
|
|
Foreclosed properties
|
|
|
11,605
|
|
|
|
13,235
|
|
|
|
6,805
|
|
|
|
2,491
|
|
|
|
1,162
|
|
|
|
|
Total nonperforming assets
|
|
$
|
73,874
|
|
|
$
|
66,375
|
|
|
$
|
57,396
|
|
|
$
|
38,941
|
|
|
$
|
10,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans past due 90 days or more and still
accruing interest
|
|
|
7,466
|
|
|
|
1,195
|
|
|
|
114
|
|
|
|
162
|
|
|
|
5,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming 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
|
%
|
We classify loans as nonaccrual when the loan is 90 days past due, or we believe
the loan may be impaired, and the accrual of interest on such loans is discontinued. The recorded
accrued interest receivable deemed uncollectible is reversed to the extent it was accrued in the
current year or charged-off to the extent it was accrued in previous years. A loan classified as
nonaccrual is returned to accrual status when the obligation has been brought current, it has
performed in accordance with its contractual terms for a sufficient period of time, and the
ultimate collection of principal and interest is no longer considered doubtful. Of the Banks $62.3
million nonperforming loans at December 31, 2010, approximately $25.0 million is single family
homes, unimproved land or residential lots in various stages of development. The remaining
population consists of loans to a variety of small business operations that are in default and are
generally secured by commercial real estate. The $7.5 million of 90 day still accruing at December
31, 2010 essentially related to approximately 10 credits (2 accounted for 70% of the balance) that
were in process of renewal and were 90 days past maturity. These are not an issue with the loans
being in the process of collection. All of the loans were renewed in January 2011. There is an
executive level approval process to enable loans to continue on accrual past 90 day delinquency.
All of our investment in impaired loans, $58.0 million at December 31, 2010, is
included in nonaccrual loans in the table above, and the related loan loss allowance for these
loans was $11.6 million. At December 31, 2009 our investment in impaired loans was $38.9 million,
and the related loan loss allowance was $7.7 million. The average recorded balance of impaired
loans was $48.5 million for 2010 and $34.0 million for 2009.
In addition to the nonaccrual loans, the Bank has potential problem loans of
approximately $75.7 million at December 31, 2010. Potential problem loans are loans as to which
management has serious doubts as to the ability of the borrowers to comply with present repayment
terms. These loans do not meet the criteria for, and are therefore not included in, nonperforming
assets. Management defines potential problem loans as those loans graded substandard in the Banks
grading system. These loans were considered in determining the adequacy of the allowance for loan
losses and are closely and regularly monitored to protect the Banks interests.
IMPAIRED LOANS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
December 31, 2009
|
|
|
|
|
|
|
Associated
|
|
|
|
|
|
Associated
|
(Table in thousands)
|
|
Balance
|
|
Impairment
|
|
Balance
|
|
Impairment
|
Impaired loans individually reviewed, with no impairment
|
|
$
|
7,919
|
|
|
$
|
|
|
|
$
|
10,090
|
|
|
$
|
|
|
Impaired loans individually reviewed, with impairment
|
|
|
50,081
|
|
|
|
11,563
|
|
|
|
28,822
|
|
|
|
7,715
|
|
|
|
|
Total impaired loans
|
|
$
|
58,000
|
|
|
$
|
11,563
|
|
|
$
|
38,912
|
|
|
$
|
7,715
|
|
|
|
|
IMPAIRED LOANS (ACROSS ALL SEGMENTS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
December 31, 2009
|
|
|
|
|
|
|
Associated
|
|
|
|
|
|
Associated
|
(Table in thousands)
|
|
Balance
|
|
Impairment
|
|
Balance
|
|
Impairment
|
Real estate construction
|
|
$
|
16,674
|
|
|
$
|
3,175
|
|
|
$
|
13,419
|
|
|
$
|
3,128
|
|
Real estate mortgage, commercial
|
|
|
37,721
|
|
|
|
7,079
|
|
|
|
23,423
|
|
|
|
4,328
|
|
Commercial and industrial
|
|
|
3,605
|
|
|
|
1,309
|
|
|
|
2,070
|
|
|
|
259
|
|
|
|
|
Total impaired loans
|
|
$
|
58,000
|
|
|
$
|
11,563
|
|
|
$
|
38,912
|
|
|
$
|
7,715
|
|
|
|
|
25
The Bank classifies a loan as impaired when, based on current information and events,
management believes it is probable that the Bank will be unable to collect all amounts due
according to the contractual terms of the loan agreement. Impaired loans are measured primarily
based on the fair value of the collateral supporting the loan. The total balance of impaired loans
increased $19.1 million, or 49.1% in 2010 compared to 2009, and the loan loss allowance related to
impaired loans increased $3.8 million. The loan loss allowance related to impaired loans was 19.9%
as of December 31, 2010 compared to 19.8% as of December 31, 2009.
The following table presents troubled debt restructures and the allowance associated with these
loan balances.
TROUBLED DEBT RESTRUCTURES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
December 31, 2009
|
|
|
|
|
|
|
Associated
|
|
|
|
|
|
Associated
|
(Table in thousands)
|
|
Balance
|
|
Impairment
|
|
Balance
|
|
Impairment
|
Troubled debt restructures, with no
impairment
|
|
$
|
7,114
|
|
|
$
|
|
|
|
$
|
8,964
|
|
|
$
|
|
|
Troubled debt restructures, with impairment
|
|
|
14,578
|
|
|
|
2,150
|
|
|
|
7,634
|
|
|
|
2,113
|
|
|
|
|
Total troubled debt restructures
|
|
$
|
21,692
|
|
|
$
|
2,150
|
|
|
$
|
16,598
|
|
|
$
|
2,113
|
|
|
|
|
Troubled debt restructures (TDRs) are a subset of impaired loans. TDRs generally occur
when a borrower is experiencing current financial difficulties. The Bank will work with the
borrower to improve the likelihood of recovery of the loan. To facilitate the process, a
concessionary modification that would not otherwise be considered is granted, resulting in
classification as a TDR. The Bank considers all TDRs to be impaired loans. Currently, all Bank TDRs
are on nonaccrual status. TDRs are periodically evaluated for return to accrual status, which would
occur if the borrowers ability to meet the revised payment schedule is reasonably assured.
For the years ended December 31, 2010 and 2009, the estimated gross interest income
that would have been recorded had the nonaccruing loans been current in accordance with their
original terms was $3.5 million, and $2.8 million, respectively, while the interest recognized on
such loans was immaterial for each period.
PROVISIONS AND ALLOWANCES FOR LOAN LOSSES
The adequacy of the allowance for loan losses is a significant estimate that is
based on assumptions by our management regarding, among other factors, general and local economic
conditions, which are difficult to predict. In estimating these risks and the related allowance
levels, we also consider the financial conditions of specific borrowers and credit concentrations
with specific borrowers, groups of borrowers, and industries.
We use several measures to assess and monitor the credit risks in our loan
portfolio, including a loan grading system that begins upon loan origination and continues until
the loan is collected or collectibility becomes doubtful. When originated or renewed, all loans
over a certain dollar amount receive in-depth reviews and risk assessments by the Banks Credit
Administration. Furthermore, loans and commitments made during the month, as well as commercial
loans past due 30 days or more, are reviewed monthly by the Loan Committee of the Banks Board of
Directors.
Large commercial loans that exhibit probable or observed
credit weaknesses are subject to individual review for impairment. When individual
loans are impaired, the impairment allowance is measured in accordance with the
accounting standard entitled
Accounting By Creditors for Impairment of a Loan
. The
predominant measurement method for the Bank is the evaluation of the fair value of the
underlying collateral. Allowance levels are estimated for other commercial loans in the
portfolio based on their assigned credit risk grade, type of loan and other matters related
to credit risk. The Bank aggregates non-graded retail type loans into pools of similar credits
and reviews the historical loss experience associated with these pools as the criteria
to allocate the allowance to each category.
The allowance for loan losses is comprised of three components: specific reserves,
general reserves and unallocated reserves. Generally, all loans with outstanding balances of $250
thousand or greater that have been identified as impaired are reviewed periodically in order to
determine whether a specific allowance is required. When the value of the impaired loan is less
than the recorded investment in the loan, the amount of the impairment is recorded as a specific
reserve. Loans for which specific reserves are provided are excluded from the general allowance
calculations as described below.
26
The general allowance reflects the best estimate of probable losses that exist
within the portfolios of loans that have not been specifically identified. The general allowance
for the commercial loan portfolio is established considering several factors including: current
loan grades, historical loss rates, estimated future cash flows available to service the loan, and
the results of individual loan reviews and analyses. The allowance for loan losses for consumer
loans, mortgage loans, and leases is determined based on past due levels and historical projected
loss rates relative to each portfolio.
The unallocated allowance is determined through our assessment of probable losses
that are in the portfolio but are not adequately captured by the other two components of the
allowance, including consideration of current economic and business conditions and regulatory
requirements. The unallocated allowance also reflects our acknowledgement of the imprecision and
subjectivity that underlie the assessment of credit risk.
The allowance for loan losses is created by direct charges to operations. Losses on
loans are charged against the allowance for loan losses in the accounting period in which they are
determined by us to be uncollectible. Recoveries during the period are credited to the allowance
for loan losses.
Management is continuing to closely monitor the value of real estate serving as
collateral for our loans, especially lots and land under development, due to continued concern that
the low level of real estate sales activity will continue to have a negative impact on the value of
real estate collateral. In addition, depressed market conditions have adversely impacted, and may
continue to adversely impact, the financial condition and liquidity position of certain of our
borrowers. Additionally, the value of commercial real estate collateral may come under further
pressure from weak economic conditions and prevailing unemployment levels.
We believe that the Companys allowance is an adequate estimation of probable
losses incurred in our loan portfolio at December 31, 2010. No assurance can be given, however,
that adverse economic circumstances or other events, including additional and continued loan
review, future regulatory examination findings or changes in borrowers financial conditions, will
not result in increased losses in the loan portfolio or in the need for increases in the allowance
for loan losses.
The following table presents an analysis of changes in the allowance for loan losses for years
indicated.
CHANGES IN THE ALLOWANCE FOR LOAN LOSSES
for the years ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Table dollars in thousands)
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
Balance at beginning of year
|
|
$
|
27,837
|
|
|
$
|
24,806
|
|
|
$
|
17,673
|
|
|
$
|
15,787
|
|
|
$
|
13,924
|
|
|
|
|
Loans charged off:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction
|
|
|
7,333
|
|
|
|
7,060
|
|
|
|
7,492
|
|
|
|
2,215
|
|
|
|
255
|
|
Real estate mortgage, commercial
|
|
|
16,836
|
|
|
|
15,912
|
|
|
|
7,150
|
|
|
|
12,435
|
|
|
|
1,453
|
|
Commercial and industrial
|
|
|
8,481
|
|
|
|
5,461
|
|
|
|
10,519
|
|
|
|
38,506
|
|
|
|
2,779
|
|
Consumer
|
|
|
729
|
|
|
|
296
|
|
|
|
1,553
|
|
|
|
507
|
|
|
|
716
|
|
|
|
|
Total charge-offs
|
|
|
33,379
|
|
|
|
28,729
|
|
|
|
26,714
|
|
|
|
53,663
|
|
|
|
5,203
|
|
|
|
|
Recoveries of loans previously charged off:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction
|
|
|
503
|
|
|
|
103
|
|
|
|
357
|
|
|
|
100
|
|
|
|
|
|
Real estate mortgage, commercial
|
|
|
999
|
|
|
|
503
|
|
|
|
363
|
|
|
|
74
|
|
|
|
84
|
|
Commercial and industrial
|
|
|
1,375
|
|
|
|
2,222
|
|
|
|
2,640
|
|
|
|
97
|
|
|
|
364
|
|
Consumer
|
|
|
106
|
|
|
|
199
|
|
|
|
259
|
|
|
|
147
|
|
|
|
204
|
|
|
|
|
Total recoveries
|
|
|
2,983
|
|
|
|
3,027
|
|
|
|
3,619
|
|
|
|
418
|
|
|
|
652
|
|
|
|
|
Net charge-offs
|
|
|
30,396
|
|
|
|
25,702
|
|
|
|
23,095
|
|
|
|
53,245
|
|
|
|
4,551
|
|
|
|
|
Provision for loan losses
|
|
|
30,832
|
|
|
|
28,733
|
|
|
|
30,228
|
|
|
|
55,131
|
|
|
|
6,414
|
|
|
|
|
Balance at end of year
|
|
$
|
28,273
|
|
|
$
|
27,837
|
|
|
$
|
24,806
|
|
|
$
|
17,673
|
|
|
$
|
15,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio 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
The following table presents the allocation of the allowance for loan losses by category;
however, the total allowance is available for charging off losses from any category of the entire
portfolio.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
As of December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Total
|
|
(Table dollars in thousands)
|
|
Amount
|
|
|
Loans
|
|
|
Amount
|
|
|
Loans
|
|
|
Amount
|
|
|
Loans
|
|
|
Amount
|
|
|
Loans
|
|
|
Amount
|
|
|
Loans
|
|
Real 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/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
28,273
|
|
|
|
100.0
|
%
|
|
$
|
27,837
|
|
|
|
100.0
|
%
|
|
$
|
24,806
|
|
|
|
100.0
|
%
|
|
$
|
17,673
|
|
|
|
100.0
|
%
|
|
$
|
15,787
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The allowance for loan losses was 5.03%, 3.59% and 2.62% of loans outstanding at
December 31, 2010, 2009 and 2008, respectively, which was consistent with our assessment of the
credit quality of the loan portfolio. The allowance for loan losses for real estate loans was
5.26%, 4.12% and 2.92% of loans outstanding at December 31, 2010, 2009 and 2008, respectively. The
ratios of net charge-offs during the year to average loans outstanding during the period were
4.60%, 2.95% and 2.42% at December 31, 2010, 2009 and 2008, respectively.
INVESTMENT SECURITIES
We invest in securities as permitted under bank regulations. These securities
include all obligations of the U.S. Treasury, agencies of the U.S. government, including
mortgage-backed securities, bank eligible obligations of any state or political subdivision, bank
eligible corporate obligations, including commercial paper, negotiable certificates of deposit,
bankers acceptances, mutual funds and limited types of equity securities.
As noted above, our investments in marketable securities increased substantially
during 2010 as part of our balance sheet restructuring.
Our investment activities are governed
internally by a written, Board-approved policy. Investment strategies are established in
consideration of the interest rate environment, balance sheet mix, actual and anticipated loan
demand, funding opportunities and our overall interest rate sensitivity. In general, the investment
portfolio is managed with a focus on the following goals: (i) to provide a sufficient margin of
liquid assets to meet unanticipated deposit and loan fluctuations and overall funds management
objectives; (ii) to provide eligible securities to secure public funds, trust deposits as
prescribed by law and other borrowings; and (iii) to earn the maximum return on funds invested that
is commensurate with meeting goals (i) and (ii).
At December 31, 2010, the securities classified as available for sale, which are
carried at market value, totaled $255.1 million, with an amortized cost of $257.7 million, compared
to a December 31, 2009 total market value of $190.9 million with an amortized cost of $195.3
million. Securities available for sale are securities that will be held for an indefinite period of
time, including securities that we intend to use as a part of our asset/liability strategy, or that
may be sold in response to changes in interest rates, changes in prepayment risk or the need to
increase regulatory capital or other similar factors. Securities available for sale consist of
securities of U.S. Government agencies with an average life of 10.7 years, State and political
subdivisions with an average life of 10.9 years, mortgage-backed securities with an average life of
21.9 years, and other bonds, notes and debentures with an average life of 9.6 years. During 2010,
$80.5 million in securities matured and approximately $209.7 million in proceeds were received from
securities sold.
28
CONTRACTUAL MATURITIES AND YIELDS OF DEBT SECURITIES
As of December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After One Year but
|
|
|
After Five Years but
|
|
|
|
|
|
|
Within One Year
|
|
|
Within Five Years
|
|
|
Within Ten Years
|
|
|
After Ten Years
|
|
(Table dollars in thousands)
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
Available 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.
|
The following table provides information regarding the composition of our investment
securities portfolio at the end of each of the past three years.
COMPOSITION OF INVESTMENT SECURITIES PORTFOLIO
As of December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
(Table in thousands)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Available for sale (at estimated fair value):
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency
|
|
$
|
59,496
|
|
|
$
|
42,051
|
|
|
$
|
46,063
|
|
State and political subdivisions
|
|
|
5,258
|
|
|
|
|
|
|
|
5,416
|
|
Mortgage-backed securities
|
|
|
186,811
|
|
|
|
147,831
|
|
|
|
|
|
Other
|
|
|
3,539
|
|
|
|
1,039
|
|
|
|
7,097
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
255,104
|
|
|
$
|
190,921
|
|
|
$
|
58,576
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity (at amortized cost):
|
|
|
|
|
|
|
|
|
|
|
|
|
State and political subdivisions
|
|
$
|
|
|
|
$
|
|
|
|
$
|
23,627
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
|
|
|
$
|
23,627
|
|
|
|
|
|
|
|
|
|
|
|
CONTRACTUAL OBLIGATIONS
Our contractual obligations and other commitments are summarized in the table below. Other
commitments include commitments to extend credit. Because not all of these commitments to extend
credit will be drawn upon, the actual cash requirements are likely to be significantly less than
the amounts reported for other commitments below.
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
As of December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within
|
|
|
One to
|
|
|
Three to
|
|
|
Five
|
|
|
|
|
|
|
One
|
|
|
Three
|
|
|
Five
|
|
|
Years or
|
|
|
|
|
(Table in thousands)
|
|
Year
|
|
|
Years
|
|
|
Years
|
|
|
More
|
|
|
Total
|
|
Contractual Cash Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
$
|
18,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
18,000
|
|
Long-term borrowings
|
|
|
|
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
Capitalized lease obligations
|
|
|
444
|
|
|
|
799
|
|
|
|
628
|
|
|
|
1,141
|
|
|
|
3,012
|
|
Operating lease obligations
|
|
|
95
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,539
|
|
|
$
|
6,859
|
|
|
$
|
628
|
|
|
$
|
1,141
|
|
|
$
|
27,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit
|
|
$
|
22,762
|
|
|
$
|
10,324
|
|
|
$
|
3,438
|
|
|
$
|
40,744
|
|
|
$
|
77,268
|
|
Standby letters of credit
|
|
|
1,255
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
1,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
24,017
|
|
|
$
|
10,331
|
|
|
$
|
3,438
|
|
|
$
|
40,744
|
|
|
$
|
78,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
PERFORMANCE RATIOS
For the Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Return 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
|
%
|
OFF-BALANCE SHEET ARRANGEMENTS
We have off-balance sheet commitments to lend in the forms of unfunded commitments to extend
credit and standby letters of credit. As of December 31, 2010 and 2009, such unfunded commitments
to extend credit were approximately $77.3 million and $106.1 million, respectively, while
commitments in the form of standby letters of credit totaled approximately $1.3 million and $3.0
million, respectively.
RELATED PARTY TRANSACTIONS
We have no material related party transactions. We may extend credit to certain directors and
officers in the ordinary course of business. These extensions of credit are made under
substantially the same terms as comparable third-party lending arrangements and are made in
compliance with applicable banking regulations and federal securities laws. Further discussions of
related party transactions are included under Note 4, Loans, in the Notes to Consolidated
Financial Statements.
NEW ACCOUNTING PRONOUNCEMENTS
Note 1, Summary of Significant Accounting Policies, to the Notes to Consolidated
Financial Statements in Item 8 discusses new accounting policies adopted by the Company
during 2010 and the expected impact of accounting policies recently issued but not yet
required to be adopted. To the extent the adoption of new accounting standards materially
affects financial condition, results of operations, or liquidity, the impacts are discussed in
the applicable portions of this section and Notes to the Consolidated Financial
Statements.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This item is not applicable.
30
ITEM 8 FINANCIAL STATEMENTS
Index to Consolidated Financial Statements
|
|
|
|
|
|
|
Begins on
|
|
|
|
Page
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
39
|
|
31
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors
Bank of Granite Corporation
Granite Falls, North Carolina
We have audited the accompanying consolidated balance sheets of Bank of Granite Corporation and
subsidiaries (the Company) as of December 31, 2010 and 2009 and the related consolidated
statements of income (loss), comprehensive loss, changes in stockholders equity and cash flows
for the years then ended. These consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects,
the financial position of Bank of Granite Corporation and subsidiaries at December 31, 2010 and
2009, and the results of their operations and their cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that Bank of Granite
Corporation and subsidiaries will continue as a going concern. The Company incurred net losses in
2010 and 2009, primarily from higher provisions for loan losses. As discussed in Note 2 to the
consolidated financial statements, Bank of Granite Corporations wholly-owned bank subsidiary (the
Bank) is under a regulatory order that requires, among other provisions, higher regulatory
capital requirements. The Bank did not meet the higher capital requirements as of December 31, 2010
and is not in compliance with the regulatory agreement. Failure to comply with the regulatory
agreement may result in additional regulatory enforcement actions. These events raise substantial
doubt about the ability of the Company to continue as a going concern. Management plans with regard
to these matters are discussed in Note 2. The accompanying consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
|
|
|
|
|
|
|
|
|
/s/ Dixon Hughes PLLC
|
|
|
Dixon Hughes PLLC
|
|
|
Charlotte, North Carolina
March 31, 2011
|
|
32
BANK OF GRANITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2010 AND 2009
|
|
|
|
|
|
|
|
|
(In thousands except per share data)
|
|
2010
|
|
|
2009
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
45,982
|
|
|
$
|
71,611
|
|
Interest-bearing deposits
|
|
|
1,242
|
|
|
|
1,763
|
|
|
|
|
Total cash and cash equivalents
|
|
|
47,224
|
|
|
|
73,374
|
|
|
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
Available for sale, at fair value (amortized cost of $257,732 and
$195,302 at December 31, 2010 and 2009, respectively)
|
|
|
255,104
|
|
|
|
190,921
|
|
|
|
|
Loans
|
|
|
562,124
|
|
|
|
775,019
|
|
Allowance for loan losses
|
|
|
(28,273
|
)
|
|
|
(27,837
|
)
|
|
|
|
Net loans
|
|
|
533,851
|
|
|
|
747,182
|
|
|
|
|
Premises and equipment, net
|
|
|
13,666
|
|
|
|
15,556
|
|
Accrued interest receivable
|
|
|
3,338
|
|
|
|
3,917
|
|
Other real estate owned
|
|
|
11,605
|
|
|
|
13,235
|
|
Other assets
|
|
|
11,052
|
|
|
|
15,899
|
|
|
|
|
Total assets
|
|
$
|
875,840
|
|
|
$
|
1,060,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY:
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Demand
|
|
$
|
92,345
|
|
|
$
|
109,673
|
|
NOW accounts
|
|
|
113,213
|
|
|
|
145,833
|
|
Money market accounts
|
|
|
155,604
|
|
|
|
155,745
|
|
Savings
|
|
|
20,265
|
|
|
|
18,794
|
|
Time deposits of $100 or more
|
|
|
204,749
|
|
|
|
247,639
|
|
Other time deposits
|
|
|
236,131
|
|
|
|
288,921
|
|
|
|
|
Total deposits
|
|
|
822,307
|
|
|
|
966,605
|
|
Short-term borrowings
|
|
|
18,000
|
|
|
|
20,000
|
|
Long-term borrowings
|
|
|
6,000
|
|
|
|
20,000
|
|
Accrued interest payable
|
|
|
1,046
|
|
|
|
1,701
|
|
Other liabilities
|
|
|
4,097
|
|
|
|
4,692
|
|
|
|
|
Total liabilities
|
|
|
851,450
|
|
|
|
1,012,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS 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
|
|
|
|
18,981
|
|
Additional paid-in capital
|
|
|
30,195
|
|
|
|
30,195
|
|
Retained earnings
|
|
|
28,644
|
|
|
|
52,308
|
|
Accumulated other comprehensive loss, net of
deferred income taxes of $1,051 and $1,837 at
|
|
|
|
|
|
|
|
|
December 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
|
|
|
|
47,086
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
875,840
|
|
|
$
|
1,060,084
|
|
|
|
|
See notes to consolidated financial statements.
33
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
|
|
|
2009
|
|
INTEREST INCOME:
|
|
|
|
|
|
|
|
|
Interest and fees from loans
|
|
$
|
36,263
|
|
|
$
|
48,614
|
|
Federal funds sold
|
|
|
|
|
|
|
8
|
|
Interest-bearing deposits
|
|
|
135
|
|
|
|
67
|
|
Investments:
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
|
|
|
|
|
|
18
|
|
U.S. Government agencies
|
|
|
8,347
|
|
|
|
3,233
|
|
States and political subdivisions
|
|
|
|
|
|
|
364
|
|
Other
|
|
|
54
|
|
|
|
342
|
|
|
|
|
Total interest income
|
|
|
44,799
|
|
|
|
52,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE:
|
|
|
|
|
|
|
|
|
Time deposits of $100 or more
|
|
|
5,068
|
|
|
|
6,630
|
|
Other time and savings deposits
|
|
|
7,708
|
|
|
|
13,068
|
|
Short-term borrowings
|
|
|
552
|
|
|
|
631
|
|
Long-term borrowings
|
|
|
282
|
|
|
|
895
|
|
|
|
|
Total interest expense
|
|
|
13,610
|
|
|
|
21,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME
|
|
|
31,189
|
|
|
|
31,422
|
|
PROVISION FOR LOAN LOSSES
|
|
|
30,832
|
|
|
|
28,733
|
|
|
|
|
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
|
|
|
357
|
|
|
|
2,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME:
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts
|
|
|
4,760
|
|
|
|
5,423
|
|
Other service fees and commissions
|
|
|
288
|
|
|
|
429
|
|
Mortgage banking income
|
|
|
(4
|
)
|
|
|
748
|
|
Securities gains
|
|
|
2,403
|
|
|
|
1,074
|
|
Other-than-temporary impairment losses
|
|
|
|
|
|
|
(996
|
)
|
Other
|
|
|
1,336
|
|
|
|
2,209
|
|
|
|
|
Total other income
|
|
|
8,783
|
|
|
|
8,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER EXPENSES:
|
|
|
|
|
|
|
|
|
Salaries and wages
|
|
|
8,661
|
|
|
|
13,896
|
|
Employee benefits
|
|
|
1,596
|
|
|
|
2,114
|
|
Occupancy expense, net
|
|
|
1,706
|
|
|
|
2,032
|
|
Equipment rentals, depreciation and
maintenance
|
|
|
1,853
|
|
|
|
2,317
|
|
FDIC assessments
|
|
|
4,485
|
|
|
|
3,704
|
|
Other real estate owned
|
|
|
7,297
|
|
|
|
10,254
|
|
Other
|
|
|
7,996
|
|
|
|
8,679
|
|
|
|
|
Total other expenses
|
|
|
33,594
|
|
|
|
42,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS 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
|
)
|
See notes to consolidated financial statements.
34
BANK OF GRANITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
YEARS ENDED DECEMBER 31, 2010 AND 2009
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
NET 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
|
|
|
|
|
|
|
2,526
|
|
|
|
|
Other 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
|
)
|
|
|
2,129
|
|
Change 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
|
)
|
|
|
|
See notes to consolidated financial statements.
35
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
|
|
|
2009
|
|
COMMON STOCK, $1.00 par value
|
|
|
|
|
|
|
|
|
At beginning of year
|
|
$
|
18,981
|
|
|
$
|
18,981
|
|
|
|
|
At end of year
|
|
|
18,981
|
|
|
|
18,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADDITIONAL PAID-IN CAPITAL
|
|
|
|
|
|
|
|
|
At beginning of year
|
|
|
30,195
|
|
|
|
30,190
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
5
|
|
|
|
|
At end of year
|
|
|
30,195
|
|
|
|
30,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RETAINED EARNINGS
|
|
|
|
|
|
|
|
|
At beginning of year
|
|
|
52,308
|
|
|
|
77,928
|
|
Net loss
|
|
|
(23,664
|
)
|
|
|
(25,620
|
)
|
|
|
|
At end of year
|
|
|
28,644
|
|
|
|
52,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACCUMULATED OTHER
COMPREHENSIVE LOSS,
NET OF DEFERRED INCOME TAXES
|
|
|
|
|
|
|
|
|
At 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
|
|
|
|
|
|
|
1,519
|
|
|
|
|
At end of year
|
|
|
(1,578
|
)
|
|
|
(2,546
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF COMMON STOCK
IN TREASURY
|
|
|
|
|
|
|
|
|
At beginning of year
|
|
|
(51,852
|
)
|
|
|
(51,852
|
)
|
|
|
|
At end of year
|
|
|
(51,852
|
)
|
|
|
(51,852
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
$
|
24,390
|
|
|
$
|
47,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued:
|
|
|
|
|
|
|
|
|
At beginning of year
|
|
|
18,981
|
|
|
|
18,981
|
|
|
|
|
At end of year
|
|
|
18,981
|
|
|
|
18,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common 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
|
|
|
|
|
See notes to consolidated financial statements.
36
BANK OF GRANITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2010 AND 2009
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
INCREASE (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
|
|
|
|
1,753
|
|
Provision for loan losses
|
|
|
30,832
|
|
|
|
28,733
|
|
Investment security premium amortization, net
|
|
|
1,537
|
|
|
|
1,160
|
|
Acquisition premium amortization, net
|
|
|
|
|
|
|
143
|
|
Gains 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
|
|
|
|
|
|
|
996
|
|
Originations of loans held for sale
|
|
|
|
|
|
|
(82,177
|
)
|
Proceeds from loans held for sale
|
|
|
|
|
|
|
99,924
|
|
Gains on loans held for sale
|
|
|
|
|
|
|
(977
|
)
|
Loss on disposal or sale of premises
|
|
|
517
|
|
|
|
1,267
|
|
Loss on disposal or sale of equipment
|
|
|
|
|
|
|
129
|
|
Loss on writedowns or sale of other real estate
|
|
|
5,593
|
|
|
|
7,816
|
|
Decrease in accrued interest receivable
|
|
|
579
|
|
|
|
62
|
|
Decrease 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
|
|
|
|
24,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from maturities, calls and paydowns of
securities available for sale
|
|
|
80,466
|
|
|
|
54,370
|
|
Proceeds from sales, maturities, calls and paydowns
of securities held to maturity
|
|
|
|
|
|
|
24,103
|
|
Proceeds from sales of securities available for sale
|
|
|
209,688
|
|
|
|
173,748
|
|
Purchases of securities available for sale
|
|
|
(351,718
|
)
|
|
|
(366,274
|
)
|
Net decrease in loans
|
|
|
166,120
|
|
|
|
125,443
|
|
Proceeds from sale of bank owned life insurance
|
|
|
|
|
|
|
28,149
|
|
Capital expenditures
|
|
|
(28
|
)
|
|
|
|
|
Proceeds from sales of fixed assets
|
|
|
|
|
|
|
374
|
|
Proceeds from sales of other real estate
|
|
|
12,416
|
|
|
|
7,731
|
|
|
|
|
Net cash provided by investing activities
|
|
|
116,944
|
|
|
|
47,644
|
|
|
|
|
See notes to consolidated financial statements.
(Continued on next page)
37
|
|
|
|
|
|
BANK OF GRANITE CORPORATION AND SUBSIDIARIES
|
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
(Concluded from previous page)
|
YEARS ENDED DECEMBER 31, 2010 AND 2009
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
CASH 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
|
)
|
|
|
39,132
|
|
Net decrease in overnight and short-term borrowings
|
|
|
(2,000
|
)
|
|
|
(28,947
|
)
|
Net increase (decrease) in long-term borrowings
|
|
|
(14,000
|
)
|
|
|
5,925
|
|
|
|
|
Net cash used in financing activities
|
|
|
(160,298
|
)
|
|
|
(48,239
|
)
|
|
|
|
|
NET INCREASE (DECREASE) IN
CASH EQUIVALENTS
|
|
|
(26,150
|
)
|
|
|
24,391
|
|
|
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR
|
|
|
73,374
|
|
|
|
48,983
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS
AT END OF YEAR
|
|
$
|
47,224
|
|
|
$
|
73,374
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid (refunded) during the year for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
14,265
|
|
|
$
|
22,273
|
|
Income tax refunded
|
|
|
(790
|
)
|
|
|
(7,841
|
)
|
Noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
Transfer from loans to other real
estate owned
|
|
|
16,379
|
|
|
|
21,977
|
|
See notes to consolidated financial statements.
38
BANK OF GRANITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2010 AND 2009
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION Bank of Granite Corporation is a bank holding company with two wholly owned
subsidiaries, Bank of Granite (the Bank), a state chartered commercial bank incorporated in
North
Carolina on August 2, 1906 and Granite Mortgage, Inc., a mortgage banking company
incorporated in
North Carolina on June 24, 1985. Bank of Granite Corporation and its two subsidiaries, Bank
of Granite
and Granite Mortgage, Inc. are referred to herein collectively as the Company.
BASIS OF PRESENTATION The consolidated financial statements include the accounts of Bank of
Granite
Corporation and its wholly owned subsidiaries, Bank of Granite and Granite Mortgage, Inc.,
which ceased
mortgage originations during 2009. All significant intercompany accounts and transactions
have been
eliminated. Certain amounts for periods prior to December 31, 2010 have been reclassified to
conform to
the presentation for the period ended December 31, 2010.
USE OF ESTIMATES The preparation of financial statements in conformity with accounting
principles
generally accepted in the United States of America requires management to make estimates and
assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at
the date of the financial statements and the reported amounts of revenues and expenses during
the reporting
period. Actual results could differ from those estimates.
The generally depressed economic environment, which affects values of all asset classes,
could affect the
Companys assumptions about the collectibility of its loan portfolio, and the values assigned
to the collateral for
repayment of these loans. If the Companys assumptions are incorrect, its allowance for loan
losses may not be
sufficient to cover losses inherent in its loan portfolio.
CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash on hand, amounts due from
banks, and short-term interest-bearing deposits.
INVESTMENT SECURITIES Debt securities that the Company has the positive intent and ability
to hold
to maturity are classified as held to maturity securities and reported at amortized cost.
Debt and equity
securities that are bought and held principally for the purpose of selling in the near term
are classified as
trading securities and reported at fair value, with unrealized gains and losses included in
consolidated
earnings. Debt securities not classified as either held to maturity securities or trading
securities, and equity
securities not classified as trading securities, are classified as available for sale
securities and reported at fair
value, with unrealized gains and losses excluded from earnings and reported as a separate
component of
consolidated stockholders equity and as an item of other comprehensive income. Gains and
losses on available
for sale securities are recognized at the time of sale based upon the specific identification
method. Declines
in the fair value of individual held to maturity and available for sale securities below
their cost that are other
than temporary result in write-downs of the individual securities to their fair value. The
related write-downs
are included in consolidated earnings as realized losses. Premiums and discounts are
recognized in interest
income using the interest method over the period to maturity. Transfers of securities between
classifications
are accounted for at fair value. All held to maturity investments were sold in 2009 as part
of the balance
sheet restructuring.
LOANS Loans that management has the intent and ability to hold for the foreseeable future
are reported at
their outstanding principal balances adjusted for any deferred fees or costs. Substantially
all loans earn interest
on the level yield method based on the daily outstanding balance.
39
Loans that are deemed to be impaired (i.e., probable that the Company will be unable to
collect all amounts due
according to the terms of the loan agreement) are measured based on the present value of
expected future cash
flows discounted at the loans effective interest rate at the loans observable market value
or fair value of the
collateral if the loan is collateral dependent. An impairment allowance is established to
record the difference
between the stated loan amount and the present value or market value of the impaired loan.
Impaired loans
may be valued on a loan-by-loan basis (e.g., loans with risk characteristics unique to an
individual borrower)
or on an aggregate basis (e.g., loans with similar risk characteristics). The Companys
policy for recognition
of interest income on impaired loans is the same as its interest income recognition policy
for nonaccrual loans.
The Company discontinues the accrual of interest when the collectibility of such interest
becomes doubtful.
The total of impaired loans, the related allowance for loan losses and interest income
recognized on impaired
loans is disclosed in Note 4,Loans, and Note 5,Allowance for Loan Losses, below.
ALLOWANCE FOR LOAN LOSSES The provision for loan losses charged to operations is an amount
sufficient to bring the allowance for loan losses to an estimated balance considered adequate
to absorb probable
losses in the portfolio at the date of the financial statements. Managements determination
of a reasonable loan
loss allowance is based on ongoing quarterly assessments of the collectibility and historical
loss experience of
the loan portfolio. The Company also evaluates other factors and trends in the economy
related to specific loan
groups in the portfolio, trends in delinquencies and results of periodic loan reviews.
Recovery of the carrying
value of loans is dependent to some extent on future economic, operating and other conditions
that may be
beyond the Companys control. Unanticipated future adverse changes in such conditions could
result in
material adjustments to the allowance for loan losses. Also see Note 5, Allowance for Loan
Losses.
OTHER REAL ESTATE OWNED Real estate acquired by foreclosure is stated at the lower of cost
or
fair value. Any initial losses at the time of foreclosure are charged against the allowance
for loan losses with
any subsequent losses or write-downs included in the consolidated statements of income as a
component of
other expenses.
PREMISES AND EQUIPMENT AND OTHER LONG-LIVED ASSETS Premises and equipment are stated
at cost less accumulated depreciation and amortization. Depreciation and amortization,
computed by the
straight-line method, are charged to operations over the properties estimated useful lives,
which range from 25
to 50 years for buildings and 5 to 15 years for furniture and equipment or, in the case of
leasehold
improvements, the term of the lease if shorter. Maintenance and repairs are charged to
operations in the year
incurred. Gains and losses on dispositions are included in current operations.
The Company reviews long-lived assets for impairment whenever events or changes in
circumstances indicate
that the carrying amounts of such assets may not be recoverable. If the sum of the expected
future cash flows is
less than the stated amount of the asset, an impairment loss is recognized for the difference
between the fair
value of the asset and its carrying amount.
EMPLOYEE BENEFIT PLANS During 2010 and 2009, there were no Company contributions to the
Banks
tax-qualified profit-sharing retirement plan, the Banks non-tax qualified profit-sharing
supplemental executive
retirement plan, and the Banks non-tax qualified and unfunded Salary Continuation Plan. In
October 2009,
the Company curtailed the Banks Salary Continuation Plan and froze all service benefits as
of October 31,
2009. The projected benefit obligation will accrete to the retirement date of each of the 17
active participants
at the discount rate set forth in the Plan and determined each year.
INCOME TAXES Provisions for income taxes are based on amounts reported in the consolidated
statements
of income (after exclusion of non-taxable income such as interest on state and municipal
securities) and include
changes in deferred income taxes. The Company uses the asset and liability method of
accounting for income
taxes pursuant to the accounting standard
Income Taxes
. Under this method, deferred tax
assets and liabilities
are recognized based upon the expected future tax consequences of existing temporary
differences between
the financial reporting and the tax reporting basis of assets and liabilities using enacted
statutory tax rates.
(Valuation allowances are recorded to reduce net deferred tax assets when it is more likely
than not that a tax
benefit will not be realized.) The realization of net deferred tax assets is dependent upon
the generation of
sufficient taxable income; the availability of prior year carry back of taxes previously
paid; or the previous
implementation of tax strategies to increase the likelihood of realization.
40
The Company has adopted the provisions of
Income Taxes
relative to uncertain tax positions.
It is the
Companys policy to recognize interest and penalties associated with uncertain tax positions
as components of
other expenses in the income statement; however, if interest becomes a material amount, it
would be
reclassified as interest expense.
PER SHARE AMOUNTS Per share amounts are computed using both the weighted average number of shares outstanding of common stock for the purposes of computing basic earnings per share and
the weighted
average number of shares outstanding of common stock plus dilutive common stock equivalents
for the purpose
of computing diluted earnings per share.
STOCK-BASED COMPENSATION The Company complies with the accounting standard
Stock
Compensation
to account for share-based compensation to employees, recognizing in the income
statement the
grant-date fair value of stock options and other equity-based compensation. The Company plan
stipulates that
option prices are established at market value on the grant date. Options generally vest and
become exercisable
over a five year period at the rate of 20%, beginning one year from the date of the grant.
NEW ACCOUNTING STANDARDS In January 2010, the Financial Accounting Standards Board
(FASB) issued an update to the accounting standards for the presentation on fair value
disclosures. The new
guidance requires disclosures about inputs and valuation techniques for Level 2 and 3 fair
value measurements,
clarifies two existing disclosure requirements and requires two new disclosures as follows:
(1) a gross
presentation of activities (purchases, sales, and settlements) within the Level 3 rollforward
reconciliation,
which will replace the net presentation format; and (2) detailed disclosures about the
transfers in and out of
Level 1 and 2 measurements. This guidance is effective for the first interim or annual
reporting period
beginning after December 15, 2009, except for the gross presentation of the Level 3
rollforward information,
which is required for annual reporting periods beginning after December 15, 2010, and for
interim reporting
periods within those years. The Company adopted the fair value disclosures guidance on
January 1, 2010,
except for the gross presentation of the Level 3 rollforward information which is not
required to be adopted
by the Company until January 1, 2011.
In July 2010, the FASB issued an update to the accounting standards governing the disclosures
associated with
credit quality and the allowance for loan losses. This new guidance requires additional
disclosures related to
the allowance for loan losses with the objective of providing financial statement users with
greater transparency
about an entitys loan loss reserves and overall credit quality. Additional disclosures
include showing on a
disaggregated basis the aging of receivables, credit quality indicators, and troubled debt
restructures with their
effect on the allowance for loan losses. In January 2011, the FASB issued a deferral of the
effective date for
troubled debt disclosures included in this update for public companies, with an anticipated
effective date for
interim and annual reporting periods ending after June 15, 2011. The remaining disclosures
are effective for
interim and annual reporting periods ending on or after December 15, 2010. The adoption of
this standard
did not have a material impact on the Companys financial position and results of operations;
however, it has
increased the amount of disclosures in the notes to the consolidated financial statements.
In the third quarter of 2010, the SEC amended its rules and forms to reflect the provision of
the Dodd-Frank
Wall Street Reform and Consumer Protection Act that permanently exempts non-accelerated
filers from the
requirement of Section 404 (b) of the Sarbanes-Oxley Act to include in annual reports filed
with the SEC the
auditors attestation report on managements assessment of internal control over financial
reporting. This rule
was effective September 21, 2010, and the Companys 2010 annual reporting is subject to the
exemption.
41
2. REGULATORY MATTERS AND GOING CONCERN CONSIDERATIONS
Regulatory Actions
The Company reported on Form 8-K filed with the SEC on September 4, 2009, that the Bank entered
into a
Stipulation and Consent (Consent) to the issuance of an Order to Cease and Desist (Order) by
the
Federal Deposit Insurance Corporation (FDIC) and the North Carolina Commissioner of Banks (The
Commissioner). Based on the Companys Consent, the FDIC and the Commissioner jointly issued the
Order
on August 27, 2009.
On November 11, 2009, the Company entered into a Memorandum of Understanding (FRB Memorandum)
with the Federal Reserve Bank of Richmond (FRB).
The Order is a formal corrective action pursuant to which the Bank has agreed to address specific
issues set
forth below, through the adoption and implementation of procedures, plans and policies designed to
enhance the
safety and soundness of the Bank.
Among other things, the Order requires the Bank to:
|
|
|
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 Banks earnings and evaluate the plan quarterly;
|
|
|
|
|
Formulate and implement a plan to reduce the Banks risk exposure in assets classified
Substandard or Doubtful;
|
|
|
|
|
Reduce the real estate credit concentrations in the Banks loan portfolio;
|
|
|
|
|
Develop a plan to improve the Banks 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.
|
The FRB Memorandum requires the Company to obtain FRB approval before paying dividends, taking
dividends from its Bank, incurring debt or purchasing/redeeming Company stock. The FRB Memorandum
requires the submission of a capital plan to maintain adequate capital on a consolidated basis and
at the Bank.
The Company must furnish periodic progress reports to the FRB regarding its compliance with the
FRB
Memorandum. The FRB Memorandum will remain in effect until modified or terminated by the FRB.
The Bank reports regularly to its regulators on matters of compliance with the Order, and the
progress made
to comply with the Order. The Company believes it is in substantial compliance with all matters
except the
earnings and capital requirements, and continued issues with asset quality.
42
Going Concern Considerations
The consolidated financial statements have been prepared on a going concern basis, which
contemplates the
realization of assets and the satisfaction of liabilities in the normal course of business for the
foreseeable future.
However, the events and circumstances described herein create a substantial doubt about the
Companys ability
to continue as a going concern.
The Bank has not achieved the required capital levels mandated by the Order. To date the Banks
capital
preservation activities have included balance sheet restructuring that has included curtailed
lending activity;
surrendering bank owned life insurance policies; reorganizing the securities portfolio to minimize
the risk and
related capital requirements; reducing salaries and certain other noninterest expenses; and
curtailing the SERP
pension obligation to reduce future expenses. The Company has engaged external advisors and has
pursued
various capital enhancing transactions and strategies throughout 2009 and 2010. The operating
loss for the
year ended December 31, 2010 and the continuing level of problem loans have further eroded capital
levels
from December 31, 2009. There can be no assurance that any capital raising activities or other
measures will
allow the Bank to meet the capital levels required in the Order. Banking regulators classify a
bank as
critically undercapitalized if it fails to meet a 2% capital leverage ratio. Under prompt
corrective action,
a critically undercapitalized bank must be placed in conservatorship or receivership within 90
days of such
determinations unless the FDIC and appropriate regulators determine that other action would
protect the
deposit insurance fund. Non-compliance with the capital requirements of the Order and the
continued erosion
of capital in the year ended December 31, 2010 may cause the Bank to be subject to further
enforcement
actions by the FDIC or the Commissioner, including potential regulatory receivership.
The financial statements do not include any adjustments that might be necessary if the Company is
unable to
continue as a going concern.
Capital Matters
The Order, as set forth above, requires the Bank to achieve and maintain Tier 1 Leverage Capital
Ratio of not
less than 8 percent and a Total Risk-Based Capital of not less than 12 percent for the life of the
Order.
The minimum capital requirements to be characterized as well capitalized and adequately
capitalized, as
defined by regulatory guidelines, and the Companys actual capital ratios on a consolidated and
Bank-only
basis were as follows as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
Minimum Regulatory Requirement
|
|
|
|
|
|
|
|
|
|
|
|
Adequately
|
|
|
Well
|
|
|
Pursuant to
|
|
|
|
Consolidated
|
|
|
Bank
|
|
|
Capitalized
|
|
|
Capitalized
|
|
|
Order
|
|
Leverage 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
3. INVESTMENT SECURITIES
The amortized cost, gross unrealized gains and losses and fair values of investment
securities at December 31,
2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Table in thousands)
|
|
Amortized
|
|
|
Gross Unrealized
|
|
|
Fair
|
|
Type and Contractual Maturity
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
AVAILABLE FOR SALE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Government agencies due:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 5 years but within 10 years
|
|
$
|
41,985
|
|
|
$
|
|
|
|
$
|
1,310
|
|
|
$
|
40,675
|
|
After 10 years
|
|
|
19,076
|
|
|
|
123
|
|
|
|
378
|
|
|
|
18,821
|
|
|
|
|
Total U.S. Government agencies
|
|
|
61,061
|
|
|
|
123
|
|
|
|
1,688
|
|
|
|
59,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local due:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 5 years but within 10 years
|
|
|
1,265
|
|
|
|
|
|
|
|
48
|
|
|
|
1,217
|
|
After 10 years
|
|
|
4,165
|
|
|
|
|
|
|
|
124
|
|
|
|
4,041
|
|
|
|
|
Total state and local
|
|
|
5,430
|
|
|
|
|
|
|
|
172
|
|
|
|
5,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government agency and other
mortgage-backed securities due:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 10 years
|
|
|
187,741
|
|
|
|
692
|
|
|
|
1,622
|
|
|
|
186,811
|
|
|
|
|
Total mortgage-backed securities
|
|
|
187,741
|
|
|
|
692
|
|
|
|
1,622
|
|
|
|
186,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Others* due:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 5 years but within 10 years
|
|
|
3,500
|
|
|
|
39
|
|
|
|
|
|
|
|
3,539
|
|
|
|
|
Total others
|
|
|
3,500
|
|
|
|
39
|
|
|
|
|
|
|
|
3,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for sale
|
|
$
|
257,732
|
|
|
$
|
854
|
|
|
$
|
3,482
|
|
|
$
|
255,104
|
|
|
|
|
|
|
|
*
|
|
Others include corporate bonds
|
Sales and calls of securities available for sale for the year ended December 31, 2010 resulted in
proceeds of
$253.7 million, $2.6 million in realized gains and $176 thousand in realized losses. There were
no sales or
calls of securities held to maturity in 2010.
As of December 31, 2010, accumulated other comprehensive losses, net of deferred income taxes,
included
unrealized net losses of $2.6 million, net of deferred income tax benefit of $1.1 million, related
to securities available for sale.
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Table in thousands)
|
|
Amortized
|
|
|
Gross Unrealized
|
|
|
Fair
|
|
Type and Contractual Maturity
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
AVAILABLE FOR SALE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Government agencies due:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year
|
|
$
|
1,539
|
|
|
$
|
9
|
|
|
$
|
|
|
|
$
|
1,548
|
|
After 1 year but within 5 years
|
|
|
38,172
|
|
|
|
|
|
|
|
1,434
|
|
|
|
36,738
|
|
After 5 years but within 10 years
|
|
|
4,000
|
|
|
|
|
|
|
|
235
|
|
|
|
3,765
|
|
|
|
|
Total U.S. Government agencies
|
|
|
43,711
|
|
|
|
9
|
|
|
|
1,669
|
|
|
|
42,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government agency and other
mortgage-backed securities due:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 10 years
|
|
|
150,738
|
|
|
|
192
|
|
|
|
3,099
|
|
|
|
147,831
|
|
|
|
|
Total mortgage-backed securities
|
|
|
150,738
|
|
|
|
192
|
|
|
|
3,099
|
|
|
|
147,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Others*:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
853
|
|
|
|
186
|
|
|
|
|
|
|
|
1,039
|
|
|
|
|
Total others
|
|
|
853
|
|
|
|
186
|
|
|
|
|
|
|
|
1,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for sale
|
|
$
|
195,302
|
|
|
$
|
387
|
|
|
$
|
4,768
|
|
|
$
|
190,921
|
|
|
|
|
|
|
|
*
|
|
Others include investments in common stocks, preferred stocks and mutual funds.
|
Sales and calls of securities available for sale for the year ended December 31, 2009 resulted in
proceeds of
$190.6 million, $957 thousand realized gains and $541 thousand realized losses. Calls of
securities held to
maturity resulted in no gains or losses in 2009. The amortized cost of certain equity securities
were written
down $582 thousand in 2009, and certain debt securities were written down $414 thousand in 2009,
for credit
related declines in value deemed to be other than temporary, resulting in a charge to earnings.
At December
31, 2009, the Company only had one security held on which previous other than temporary impairment
was
taken in the amount of $288 thousand.
As of December 31, 2009, accumulated other comprehensive losses, net of deferred income taxes,
included
unrealized net losses of $4.4 million, net of deferred income tax benefit of $1.8 million, related
to securities
available for sale.
The following is the amortized cost and fair value of other investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Gross Unrealized
|
|
|
Fair
|
|
(Table in thousands)
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank stock
|
|
$
|
3,565
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank stock
|
|
$
|
3,914
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,914
|
|
|
|
|
45
The Company has determined that the investment in Federal Home Loan Bank stock of $3.6
million is not
other than temporarily impaired as of December 31, 2010 and ultimate recoverability of the
par value of these
investments is probable. The Company is required to pledge securities for public deposits
and Federal Home
Loan Bank advances. These pledged requirements were approximately $60.0 million at December
31, 2010.
Securities with unrealized losses at December 31, 2010 and 2009 not recognized in income, all
of which have
been in a loss position less than 12 months were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
December 31, 2009
|
(Table in thousands)
|
|
Fair
Value
|
|
Unrealized
Loss
|
|
Fair
Value
|
|
Unrealized
Loss
|
Less than 12 months:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies
|
|
$
|
54,697
|
|
|
$
|
1,688
|
|
|
$
|
40,503
|
|
|
$
|
1,669
|
|
State and Local
|
|
|
5,257
|
|
|
|
172
|
|
|
|
|
|
|
|
|
|
Government agency and other
mortgage-backed securities
|
|
|
116,940
|
|
|
|
1,622
|
|
|
|
124,311
|
|
|
|
3,099
|
|
|
|
|
Total temporarily impaired
|
|
$
|
176,894
|
|
|
$
|
3,482
|
|
|
$
|
164,814
|
|
|
$
|
4,768
|
|
|
|
|
Securities in an unrealized loss position at December 31, 2010 and 2009, were 31 and 19 individual securities, respectively.
Declines in the fair value of available-for-sale securities that are deemed to be
other-than-temporarily impaired
are reflected in earnings as realized losses. In estimating other-than-temporary impairment
losses, management
considers, among other things, (i) the length of time and the extent to which the fair value has
been less than
cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) the intent and
ability of the
Company to retain its investment in the issuer for a period of time sufficient to allow for any
anticipated
recovery of unrealized loss.
Unrealized losses on securities have not been recognized in income because management has the
intent and
ability to hold for the foreseeable future, and the decline in fair value is largely due to
decreases in market
interest rates. The fair value is expected to recover as the securities approach their maturity
date and/or market
interest rates decline. Furthermore, it is not likely that the Company will have to sell any
impaired securities
before a recovery of the amortized cost.
4. LOANS
Loans are made primarily to customers in the Companys market areas. Loans at December 31, 2010
and 2009,
classified by segment, are as follows:
|
|
|
|
|
|
|
|
|
(Table in thousands)
|
|
2010
|
|
2009
|
Real estate construction
|
|
$
|
26,920
|
|
|
$
|
59,701
|
|
Real estate mortgage, commercial
|
|
|
413,761
|
|
|
|
511,771
|
|
Commercial and industrial
|
|
|
69,334
|
|
|
|
143,011
|
|
Consumer
|
|
|
52,443
|
|
|
|
61,186
|
|
|
|
|
|
|
|
562,458
|
|
|
|
775,669
|
|
Deferred origination fees, net
|
|
|
(334
|
)
|
|
|
(650
|
)
|
|
|
|
Total
|
|
$
|
562,124
|
|
|
$
|
775,019
|
|
|
|
|
46
Nonperforming assets at December 31, 2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
(Table in thousands)
|
|
2010
|
|
2009
|
Nonaccrual loans
|
|
$
|
40,577
|
|
|
$
|
36,542
|
|
Restructured loans nonaccrual
|
|
|
21,692
|
|
|
|
16,598
|
|
|
|
|
Total nonperforming loans
|
|
|
62,269
|
|
|
|
53,140
|
|
Foreclosed properties
|
|
|
11,605
|
|
|
|
13,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets
|
|
$
|
73,874
|
|
|
$
|
66,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans 90 days or more and still accruing interest
|
|
$
|
7,466
|
|
|
$
|
1,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans with related loan loss allowance
|
|
$
|
50,081
|
|
|
$
|
28,822
|
|
Impaired loans without related loan loss allowance
|
|
|
7,919
|
|
|
|
10,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment in impaired loans
|
|
$
|
58,000
|
|
|
$
|
38,912
|
|
|
|
|
Loan loss allowance related to impaired loans
|
|
$
|
11,563
|
|
|
$
|
7,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average recorded balance of impaired loans
|
|
$
|
48,456
|
|
|
$
|
34,025
|
|
|
|
|
If interest from nonaccrual loans had been recognized in accordance with the original terms of the
loans,
interest income would have been approximately $3.5 million in 2010 and $2.8 million in 2009,
respectively.
Interest income recognized on nonaccrual loans for 2010 and 2009 was immaterial in each period.
Changes in foreclosed properties for years ended December 31, 2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
(Table in thousands)
|
|
2010
|
|
|
2009
|
|
Balance at beginning of year
|
|
$
|
13,235
|
|
|
$
|
6,805
|
|
Additions
|
|
|
16,379
|
|
|
|
21,977
|
|
Proceeds 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
|
|
|
|
|
Directors and officers of the Company and companies with which they are affiliated are customers
of and
borrowers from the Bank in the ordinary course of business. At December 31, 2010 and 2009,
directors
and principal officers direct and indirect indebtedness to the Bank was an aggregate amount of
$4.3 million
and $4.7 million, respectively. During 2010, additions to such loans were $0.9 million and
repayments totaled
$1.3 million. In the opinion of management, these loans do not involve more than normal risk of
collectibility,
nor do they present other unfavorable features.
47
5. ALLOWANCE FOR LOAN LOSSES
The Bank lends primarily in North Carolina. As of December 31, 2010, a substantial majority of the
principal
amount of the loans in its portfolio was to businesses and individuals in North Carolina. This
geographic
concentration subjects the loan portfolio to the general economic conditions within this area. The
risks created
by this concentration have been considered by management in the determination of the allowance for
loan
losses. Management believes the allowance for loan losses is a reasonable estimation of the
probable losses
incurred on loans at each balance sheet date.
Changes in the allowance for loan losses for the years ended December 31, 2010 and 2009 are as
follows:
|
|
|
|
|
|
|
|
|
(Table in thousands)
|
|
2010
|
|
|
2009
|
|
Balance at beginning of year
|
|
$
|
27,837
|
|
|
$
|
24,806
|
|
Provision for loan losses
|
|
|
30,832
|
|
|
|
28,733
|
|
Loans charged off
|
|
|
(33,379
|
)
|
|
|
(28,729
|
)
|
Recoveries on loans previously charged off
|
|
|
2,983
|
|
|
|
3,027
|
|
|
|
|
Balance at end of year
|
|
$
|
28,273
|
|
|
$
|
27,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance as a percentage of loans
|
|
|
5.03
|
%
|
|
|
3.59
|
%
|
The credit quality indicator presented for all segments (except Consumer) within the loan
portfolio is a
widely-used and standard system representing the degree of risk of nonpayment. The risk-grade
categories
presented in the following table are:
Pass
- Loans categorized as Pass are higher quality loans that have adequate sources of repayment
and little
risk of collection.
Special Mention
- A Special Mention loan has potential weaknesses that deserve managements close
attention.
If left uncorrected, these potential weaknesses may result in deterioration of the repayment
prospects for the
asset or in the institutions credit position at some future date. Special Mention loans are not
adversely
classified and do not expose an institution to sufficient risk to warrant adverse classification.
Substandard
- A Substandard loan is inadequately protected by the current sound worth and paying
capacity
of the obligor or the collateral pledged, if any. Loans so classified have a well-defined
weakness or
weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct
possibility that
the Bank will sustain some loss if the deficiencies are not corrected. Loss potential, while
existing in the
aggregate amount of Substandard loans, does not have to exist in individual assets classified
Substandard.
Impaired
- A loan is graded Impaired when it is probable that the loan will not be collected in
accordance
with its terms. All Impaired loans are placed on nonaccrual and evaluated quarterly for the
appropriate level
of impairment.
Loans categorized as Special Mention are considered Criticized. Loans categorized as Substandard
or Impaired
are considered Classified.
The following table presents loan balances by credit quality indicator as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
Special Mention
|
|
|
Substandard
|
|
|
|
|
|
|
|
(Table in thousands)
|
|
(Ratings 1-4)
|
|
|
(Rating 5)
|
|
|
(Rating 6-8)
|
|
|
|
Impaired
|
|
|
Total
|
|
Real estate -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
$
|
4,948
|
|
|
$
|
3,085
|
|
|
$
|
2,213
|
|
|
$
|
16,674
|
|
|
$
|
26,920
|
|
Mortgage
|
|
|
234,742
|
|
|
|
75,264
|
|
|
|
66,034
|
|
|
|
37,721
|
|
|
|
413,761
|
|
Commercial and
industrial
|
|
|
46,728
|
|
|
|
8,229
|
|
|
|
10,772
|
|
|
|
3,605
|
|
|
|
69,334
|
|
Consumer
|
|
|
48,486
|
|
|
|
2,114
|
|
|
|
1,843
|
|
|
|
|
|
|
|
52,443
|
|
|
|
|
Total
|
|
$
|
334,904
|
|
|
$
|
88,692
|
|
|
$
|
80,862
|
|
|
$
|
58,000
|
|
|
$
|
562,458
|
|
|
|
|
48
The following table presents ALLL activity by portfolio segment for the year ended December 31,
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Real 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
|
|
|
$
|
27,837
|
|
Charge-offs
|
|
|
(7,333
|
)
|
|
|
(16,836
|
)
|
|
|
(8,481
|
)
|
|
|
(729
|
)
|
|
|
(33,379
|
)
|
Recoveries
|
|
|
503
|
|
|
|
999
|
|
|
|
1,375
|
|
|
|
106
|
|
|
|
2,983
|
|
Provision
|
|
|
5,101
|
|
|
|
16,825
|
|
|
|
7,016
|
|
|
|
520
|
|
|
|
29,462
|
|
Unallocated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,370
|
|
|
|
|
Balance at
December 31,
2010
|
|
$
|
3,662
|
|
|
$
|
19,528
|
|
|
$
|
3,214
|
|
|
$
|
499
|
|
|
$
|
28,273
|
|
|
|
|
|
|
|
(1)
|
|
Total includes $390 thousand unallocated at December 31, 2009.
|
The following table presents loans on nonaccrual status by loan segment at December 31, 2010:
|
|
|
|
|
(Table in thousands)
|
|
|
|
|
Real estate construction
|
|
$
|
17,785
|
|
Real estate mortgage, commercial
|
|
|
40,504
|
|
Commercial and industrial
|
|
|
3,797
|
|
Consumer
|
|
|
183
|
|
|
|
|
|
Total
|
|
$
|
62,269
|
|
|
|
|
|
The following table presents an aging analysis of loans as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
Mortgage,
|
|
|
Commercial
|
|
|
|
|
|
|
|
(Table in thousands)
|
|
Construction
|
|
|
Commercial
|
|
|
and Industrial
|
|
|
Consumer
|
|
|
Total
|
|
Past Due:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-29 Days
|
|
$
|
1,052
|
|
|
$
|
44,119
|
|
|
$
|
9,057
|
|
|
$
|
3,815
|
|
|
$
|
58,043
|
|
30-89 Days
|
|
|
|
|
|
|
20,529
|
|
|
|
1,240
|
|
|
|
548
|
|
|
|
22,317
|
|
90 or More Days
|
|
|
|
|
|
|
6,842
|
|
|
|
624
|
|
|
|
|
|
|
|
7,466
|
|
|
|
|
Total Past Due
|
|
|
1,052
|
|
|
|
71,490
|
|
|
|
10,921
|
|
|
|
4,363
|
|
|
|
87,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
8,083
|
|
|
|
301,767
|
|
|
|
54,616
|
|
|
|
47,897
|
|
|
|
412,363
|
|
Nonaccrual
|
|
|
17,785
|
|
|
|
40,504
|
|
|
|
3,797
|
|
|
|
183
|
|
|
|
62,269
|
|
|
|
|
Total Loans
|
|
$
|
26,920
|
|
|
$
|
413,761
|
|
|
$
|
69,334
|
|
|
$
|
52,443
|
|
|
$
|
562,458
|
|
|
|
|
49
The following table presents impaired loan information as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid
|
|
|
|
|
|
|
Average
|
|
|
|
Recorded
|
|
|
Principal
|
|
|
Related
|
|
|
Recorded
|
|
(Table in thousands)
|
|
Investment
|
|
|
Balance
|
|
|
Allowance
|
|
|
Investment
|
|
With no related allowance
recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction
|
|
$
|
1,409
|
|
|
$
|
2,089
|
|
|
$
|
|
|
|
$
|
2,438
|
|
Real estate mortgage,
commercial
|
|
|
5,889
|
|
|
|
7,184
|
|
|
|
|
|
|
|
6,723
|
|
Commercial and industrial
|
|
|
621
|
|
|
|
768
|
|
|
|
|
|
|
|
681
|
|
|
|
|
Total
|
|
$
|
7,919
|
|
|
$
|
10,041
|
|
|
$
|
|
|
|
$
|
9,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction
|
|
$
|
15,265
|
|
|
$
|
16,121
|
|
|
$
|
3,175
|
|
|
$
|
12,609
|
|
Real estate mortgage,
commercial
|
|
|
31,832
|
|
|
|
32,621
|
|
|
|
7,079
|
|
|
|
23,848
|
|
Commercial and industrial
|
|
|
2,984
|
|
|
|
3,221
|
|
|
|
1,309
|
|
|
|
2,157
|
|
|
|
|
Total
|
|
$
|
50,081
|
|
|
$
|
51,963
|
|
|
$
|
11,563
|
|
|
$
|
38,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction
|
|
$
|
16,674
|
|
|
$
|
18,210
|
|
|
$
|
3,175
|
|
|
$
|
15,047
|
|
Real estate mortgage,
commercial
|
|
|
37,721
|
|
|
|
39,805
|
|
|
|
7,079
|
|
|
|
30,571
|
|
Commercial and industrial
|
|
|
3,605
|
|
|
|
3,989
|
|
|
|
1,309
|
|
|
|
2,838
|
|
|
|
|
Total
|
|
$
|
58,000
|
|
|
$
|
62,004
|
|
|
$
|
11,563
|
|
|
$
|
48,456
|
|
|
|
|
6. PREMISES AND EQUIPMENT
Summaries of premises and equipment at December 31, 2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premises and
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Equipment,
|
|
(Table in thousands)
|
|
Cost
|
|
|
Depreciation
|
|
|
Net
|
|
At December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
3,697
|
|
|
$
|
|
|
|
$
|
3,697
|
|
Buildings
|
|
|
12,008
|
|
|
|
5,108
|
|
|
|
6,900
|
|
Leasehold improvements
|
|
|
690
|
|
|
|
417
|
|
|
|
273
|
|
Furniture and equipment
|
|
|
15,952
|
|
|
|
14,329
|
|
|
|
1,623
|
|
Capitalized leases
|
|
|
1,959
|
|
|
|
786
|
|
|
|
1,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
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 and
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Equipment,
|
|
(Table in thousands)
|
|
Cost
|
|
|
Depreciation
|
|
|
Net
|
|
At December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
3,706
|
|
|
$
|
|
|
|
$
|
3,706
|
|
Buildings
|
|
|
12,514
|
|
|
|
4,833
|
|
|
|
7,681
|
|
Leasehold improvements
|
|
|
690
|
|
|
|
366
|
|
|
|
324
|
|
Furniture, equipment and vehicles
|
|
|
15,924
|
|
|
|
13,471
|
|
|
|
2,453
|
|
Capitalized leases
|
|
|
1,959
|
|
|
|
567
|
|
|
|
1,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
34,793
|
|
|
$
|
19,237
|
|
|
$
|
15,556
|
|
|
|
|
50
7. INCOME TAXES
The Company has determined that sufficient evidence to support the future realization of deferred
tax assets is not determinable, and a valuation reserve is established to offset net deferred tax
assets. As a result, any change in deferred tax assets will be offset by changes in the valuation
reserve ($10.7 million in 2010 and $3.3 million in 2009), and the Company will not record tax
expense or tax benefit (except for legislative changes) until positive operating results utilize
all existing tax loss carryforwards and supports the partial or full reinstatement of the deferred
tax assets.
The passage of the Worker, Homeownership and Business Assistance Act of 2009 (the Act) in November
2009 provided that small companies who had not received TARP could carryback tax losses from 2008
or 2009 to previously closed years extending to 2003. As a result, the Company was able to
carryback 2009 partial tax losses and recover approximately $5.8 million which is reflected in 2009
as a current benefit in the Consolidated Financial Statements. There are no additional loss
carrybacks available.
The Company has approximately $25.7 million federal tax loss carryforwards expiring in years
through 2031
and $46.1 million state tax loss carryforwards expiring in years through 2025.
The components of income tax expense (benefit) for the years ended December 31, 2010 and 2009
follow.
|
|
|
|
|
|
|
|
|
(Table in thousands)
|
|
2010
|
|
|
2009
|
|
Income tax expense (benefit)
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
(790
|
)
|
|
$
|
(5,800
|
)
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(790
|
)
|
|
$
|
(5,800
|
)
|
|
|
|
Changes in deferred taxes of approximately $786 thousand and $2.1 million related to unrealized
gains and losses on securities available for sale during 2010 and 2009, respectively, were
allocated to other comprehensive income in the respective years.
Reconciliations of reported income tax expense for the years ended December 31, 2010 and 2009 to
the amount of tax expense (benefit) computed by multiplying income before income taxes by the
statutory federal income tax rate follows.
|
|
|
|
|
|
|
|
|
(Table dollars in thousands)
|
|
2010
|
|
|
2009
|
|
Statutory 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
|
|
|
|
|
|
|
1,711
|
|
Deferred tax asset valuation allowance
|
|
|
10,702
|
|
|
|
3,284
|
|
Other, net
|
|
|
(2,933
|
)
|
|
|
202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
$
|
(790
|
)
|
|
$
|
(5,800
|
)
|
|
|
|
51
The tax effect of the cumulative temporary differences and carryforwards that gave rise to the
deferred tax assets and liabilities at December 31, 2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
(Table in thousands)
|
|
Assets
|
|
|
Liabilities
|
|
|
Total
|
|
Excess book over tax bad debt expense
|
|
$
|
10,822
|
|
|
$
|
|
|
|
$
|
10,822
|
|
Deferred compensation
|
|
|
634
|
|
|
|
|
|
|
|
634
|
|
Operating loss and capital carryforwards
|
|
|
13,061
|
|
|
|
|
|
|
|
13,061
|
|
Other real estate writedowns
|
|
|
1,437
|
|
|
|
|
|
|
|
1,437
|
|
Other, net
|
|
|
1,613
|
|
|
|
(581
|
)
|
|
|
1,032
|
|
Deferred tax asset valuation allowance
|
|
|
(26,986
|
)
|
|
|
|
|
|
|
(26,986
|
)
|
Unrealized losses on securities
available for sale
|
|
|
1,051
|
|
|
|
|
|
|
|
1,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,632
|
|
|
$
|
(581
|
)
|
|
$
|
1,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
(Table in thousands)
|
|
Assets
|
|
|
Liabilities
|
|
|
Total
|
|
Excess book over tax bad debt expense
|
|
$
|
10,520
|
|
|
$
|
|
|
|
$
|
10,520
|
|
Deferred compensation
|
|
|
792
|
|
|
|
|
|
|
|
792
|
|
Excess tax over book loan income
|
|
|
969
|
|
|
|
|
|
|
|
969
|
|
Operating loss and capital carryforwards
|
|
|
2,601
|
|
|
|
|
|
|
|
2,601
|
|
Other real estate writedowns
|
|
|
2,237
|
|
|
|
|
|
|
|
2,237
|
|
Other, net
|
|
|
260
|
|
|
|
(1,095
|
)
|
|
|
(835
|
)
|
Deferred tax asset valuation allowance
|
|
|
(16,284
|
)
|
|
|
|
|
|
|
(16,284
|
)
|
Unrealized losses on securities
available for sale
|
|
|
1,836
|
|
|
|
|
|
|
|
1,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,931
|
|
|
$
|
(1,095
|
)
|
|
$
|
1,836
|
|
|
|
|
8. STOCK OPTIONS
At December 31, 2010 and 2009, 20,486 and 50,327 shares of common stock, respectively, were
reserved for stock options outstanding under the Companys stock
option plans. Shares available for grants under the Companys stock option plans were 749,500
shares at December 31, 2010. Option prices are established at market value on the dates granted by
the Board of Directors.
A summary of the status of the Companys incentive stock option plans at December 31, 2010 and 2009
and changes during the years then ended are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Shares
|
|
|
Exercise Price
|
|
Outstanding at beginning of year
|
|
|
50,327
|
|
|
$
|
10.46
|
|
|
|
90,612
|
|
|
$
|
11.00
|
|
Expired, forfeited or canceled
|
|
|
29,841
|
|
|
|
11.80
|
|
|
|
40,285
|
|
|
|
11.68
|
|
|
|
|
Outstanding at end of year
|
|
|
20,486
|
|
|
$
|
8.52
|
|
|
|
50,327
|
|
|
$
|
10.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of year
|
|
|
19,786
|
|
|
$
|
8.30
|
|
|
|
44,902
|
|
|
$
|
10.60
|
|
|
|
|
Options granted become exercisable in accordance with the vesting schedule specified by the Board
of Directors in the grant. In general, options become exercisable over a five-year period at the
rate of 20% per year beginning one-year from the date of grant. The exercise price of all
outstanding stock options substantially exceeds the market value of Company common stock for all
2010 and 2009 periods.
52
9. LEASES
LESSEE CAPITALIZED The Companys subsidiaries lease certain premises under capitalized lease
agreements. Leases that meet the criteria for capitalization are recorded as assets and the
related obligations are included in other liabilities on the accompanying balance sheets.
Amortization of property under capital lease is included in depreciation expense. Included in
premises and equipment as of December 31, 2010 is $2.0 million as the capitalized cost of these
leases and accumulated amortization of approximately $786 thousand.
As of December 31, 2010, future minimum lease payments under noncancelable capitalized leases are
as follows:
|
|
|
|
|
(Table in thousands)
|
|
|
|
Year
|
|
Payments
|
|
2011
|
|
$
|
444
|
|
2012
|
|
|
442
|
|
2013
|
|
|
357
|
|
2014
|
|
|
314
|
|
2015
|
|
|
314
|
|
2016 and thereafter
|
|
|
1,141
|
|
|
|
|
|
Total minimum lease payments
|
|
|
3,012
|
|
Less amount representing interest
|
|
|
(1,528
|
)
|
|
|
|
|
|
|
|
|
|
Present value of net minimum lease payments
|
|
$
|
1,484
|
|
|
|
|
|
LESSEE OPERATING The Companys subsidiaries lease certain premises and equipment under
operating lease agreements. As of December 31, 2010, future minimum lease payments under
noncancelable operating leases are as follows:
|
|
|
|
|
(Table in thousands)
|
|
|
|
Year
|
|
Payments
|
|
2011
|
|
$
|
95
|
|
2012
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
155
|
|
|
|
|
|
Rental expense charged to operations under all operating lease agreements was approximately $101
thousand and $249 thousand for the years ended December 31, 2010 and 2009, respectively.
10. OVERNIGHT AND SHORT-TERM BORROWED FUNDS
Short-term borrowed funds are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
(Table in thousands)
|
|
2010
|
|
|
2009
|
|
Short-term borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank of Granite:
|
|
|
|
|
|
|
|
|
Short-term borrowings from the Federal Home Loan
Bank
|
|
$
|
18,000
|
|
|
$
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term borrowings
|
|
$
|
18,000
|
|
|
$
|
20,000
|
|
|
|
|
53
A summary of selected data related to overnight and short-term borrowed funds follows:
Overnight borrowings
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
(Table dollars in thousands)
|
|
2010
|
|
|
2009
|
|
Balance outstanding at end of year
|
|
$
|
|
|
|
$
|
|
|
Maximum outstanding at any month-end during the year
|
|
|
|
|
|
|
16,278
|
|
Average daily balance outstanding during the year
|
|
|
|
|
|
|
11,240
|
|
Average interest rate during the year
|
|
|
N/A
|
|
|
|
1.09
|
%
|
Average interest rate at end of year
|
|
|
N/A
|
|
|
|
N/A
|
|
Short-term borrowings
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
(Table dollars in thousands)
|
|
2010
|
|
|
2009
|
|
Balance outstanding at end of year
|
|
$
|
18,000
|
|
|
$
|
20,000
|
|
Maximum outstanding at any month-end during the year
|
|
|
28,000
|
|
|
|
46,059
|
|
Average daily balance outstanding during the year
|
|
|
23,603
|
|
|
|
21,628
|
|
Average interest rate during the year
|
|
|
2.34
|
%
|
|
|
3.17
|
%
|
Average interest rate at end of year
|
|
|
2.35
|
%
|
|
|
2.62
|
%
|
11. LONG-TERM BORROWINGS
Long-term borrowings are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
(Table in thousands)
|
|
2010
|
|
|
2009
|
|
Bank of Granite:
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank convertible advance at
5.22% due March 9, 2011 callable on or after
March 9, 2006
|
|
$
|
|
|
|
$
|
3,000
|
|
Federal Home Loan Bank fixed rate credit
at 1.88% due January 31, 2011
|
|
|
|
|
|
|
5,000
|
|
Federal Home Loan Bank fixed rate credit
at 3.79% due May 31, 2011
|
|
|
|
|
|
|
1,000
|
|
Federal Home Loan Bank fixed rate credit
at 2.18% due July 29, 2011
|
|
|
|
|
|
|
5,000
|
|
Federal Home Loan Bank fixed rate credit
at 2.41% due January 30, 2012
|
|
|
5,000
|
|
|
|
5,000
|
|
Federal Home Loan Bank fixed rate credit
at 4.04% due May 30, 2012
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term borrowings
|
|
$
|
6,000
|
|
|
$
|
20,000
|
|
|
|
|
54
12. MATURITIES OF TIME DEPOSITS
Principal maturities of the Banks time deposits as of December 31, 2010 are as follows:
|
|
|
|
|
(Table in thousands)
|
|
|
|
Year
|
|
Maturities
|
|
2011
|
|
$
|
376,564
|
|
2012
|
|
|
31,922
|
|
2013
|
|
|
13,743
|
|
2014
|
|
|
18,617
|
|
2015
|
|
|
34
|
|
|
|
|
|
Total
|
|
$
|
440,880
|
|
|
|
|
|
13. BASIC EARNINGS PER SHARE
Basic earnings per share (EPS) is computed by dividing net income (loss) by the weighted average
number of common shares outstanding for the period. Basic EPS excludes the dilutive effect that
could occur if any securities or other contracts to issue common stock were exercised or converted
into or resulted in the issuance of common stock.
|
|
|
|
|
|
|
|
|
(Table in thousands except per share data)
|
|
2010
|
|
|
2009
|
|
BASIC LOSS PER SHARE
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(23,664
|
)
|
|
$
|
(25,620
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Divide by: Weighted average shares outstanding
|
|
|
15,454
|
|
|
|
15,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share
|
|
$
|
(1.53
|
)
|
|
$
|
(1.66
|
)
|
|
|
|
There is no dilution of earnings per share for any period as all outstanding stock option
exercise prices are
substantially in excess of market and are anti-dilutive.
14. REGULATION AND REGULATORY RESTRICTIONS
The Company is regulated by the Board of Governors of the Federal Reserve System (FRB) and is
subject to securities registration and public reporting regulations of the Securities and Exchange
Commission. The Bank is regulated by the Federal Deposit Insurance Corporation (FDIC), the North
Carolina State Banking Commission and the FRB.
The minimum capital requirements to be characterized as well capitalized and adequately
capitalized, as defined by regulatory guidelines, and the Companys actual capital ratios on a
consolidated and Bank-only basis were as follows as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adequately
|
|
|
Well
|
|
Consolidated
|
|
Actual
|
|
|
Capitalized
|
|
|
Capitalized
|
|
As of December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 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, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adequately
|
|
|
Well
|
|
Bank Only
|
|
Actual
|
|
|
Capitalized
|
|
|
Capitalized
|
|
As of December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 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, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 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
|
%
|
See Note 2, Regulatory Matters and Going Concern Considerations for further discussion on
regulatory capital matters.
15. FAIR VALUE MEASUREMENTS AND DISCLOSURES
Investment Securities Available for Sale
A significant portion of the Companys available for sale investment portfolio is government
guaranteed, and the fair value measurements were estimated using independent pricing sources that
were determined to be Level 2 measurements, Significant Other Observable Inputs, for the U.S.
Government agencies, mortgage-backed and a portion of the equity securities. The remaining equity
securities were Level 1 measurements from quoted prices in active markets. Unrealized gains and
losses on securities available for sale are reflected in accumulated other comprehensive income and
recognized gains and losses are reported as securities gains and losses in noninterest income.
The following table reflects investment securities available for sale measured at fair value on a
recurring basis at December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at
|
|
|
|
|
|
|
|
Reporting Date Using
|
|
|
|
|
|
|
|
Quoted Prices
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
(Table in thousands)
|
|
Fair Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.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, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.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
Impaired Loans
The fair value of impaired loans is estimated using one of several methods, including collateral
value, market value of similar debt, enterprise value, liquidation value and discounted cash flows.
Those impaired loans not requiring an allowance represent loans for which the fair value of the
expected repayments or collateral exceed the recorded investments in such loans. At December 31,
2010, substantially all of the total impaired loans were evaluated based on the fair value of the
collateral. In accordance with accounting standards for fair value measurements and disclosures,
impaired loans where an allowance is established based on the fair value of collateral require
classification in the fair value hierarchy. When the fair value of the collateral is based on an
observable market price, the Company records the impaired loan as nonrecurring Level 2. When
appraised values are used, or management determines the fair value of the collateral is impaired
below the appraised value, the Company records the impaired loan as nonrecurring Level 3. At
December 31, 2010, all impaired loan values were determined to be Level 3 measurements.
Other Real Estate Owned
Other real estate owned by the Bank resulting from foreclosures is estimated at the fair value of
the collateral based on a current appraised value or other management estimate and is recorded as
nonrecurring Level 3. At December 31, 2010, the fair value measurements for other real estate were
determined to be Level 3 measurements.
The following table reflects certain loans and other real estate measured at fair value on a
nonrecurring basis at December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at
|
|
|
|
|
|
|
|
Reporting Date Using
|
|
|
|
|
|
|
|
Quoted Prices
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
(Table in thousands)
|
|
Fair Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans (1)
|
|
$
|
45,705
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
45,705
|
|
Other real estate owned
|
|
|
11,605
|
|
|
|
|
|
|
|
|
|
|
|
11,605
|
|
|
|
|
Total assets
|
|
$
|
57,310
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
57,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans (1)
|
|
$
|
26,788
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
26,788
|
|
Other real estate owned
|
|
|
13,235
|
|
|
|
|
|
|
|
|
|
|
|
13,235
|
|
|
|
|
Total assets
|
|
$
|
40,023
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
40,023
|
|
|
|
|
|
|
|
(1)
|
|
Net of reserves and loans carried at cost.
|
57
16. PARENT COMPANY CONDENSED FINANCIAL INFORMATION
Condensed financial data for Bank of Granite Corporation (parent company only) follows:
|
|
|
|
|
|
|
|
|
Condensed Balance Sheets
|
|
December 31,
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
543
|
|
|
$
|
343
|
|
Investment in subsidiary bank at equity
|
|
|
23,201
|
|
|
|
45,151
|
|
Investment in subsidiary mortgage bank at equity
|
|
|
108
|
|
|
|
1,592
|
|
Other
|
|
|
538
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
24,390
|
|
|
$
|
47,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity:
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
$
|
24,390
|
|
|
$
|
47,086
|
|
|
|
|
Total
|
|
$
|
24,390
|
|
|
$
|
47,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Results of Operations
|
|
For the Years Ended December 31,
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
Equity in loss of subsidiary bank:
|
|
|
|
|
|
|
|
|
Loss retained
|
|
$
|
(23,418
|
)
|
|
$
|
(22,948
|
)
|
Equity in loss of subsidiary mortgage bank:
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
1,374
|
|
|
|
2,953
|
|
Loss retained
|
|
|
(1,483
|
)
|
|
|
(5,073
|
)
|
Income (expenses), net
|
|
|
(137
|
)
|
|
|
(552
|
)
|
|
|
|
Net loss
|
|
$
|
(23,664
|
)
|
|
$
|
(25,620
|
)
|
|
|
|
58
|
|
|
|
|
|
|
|
|
Condensed Cash Flow
|
|
For the Years Ended December 31,
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
Cash 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
|
|
|
|
25,068
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
5
|
|
Premium amortization and discount
accretion, net
|
|
|
|
|
|
|
(1
|
)
|
Gains on sales or calls of
securities available for sale
|
|
|
|
|
|
|
(174
|
)
|
Impairment losses on securities
|
|
|
|
|
|
|
478
|
|
Decrease in accrued interest receivable
|
|
|
|
|
|
|
32
|
|
Increase 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
|
|
|
|
|
|
|
2,348
|
|
|
|
|
Net cash provided by investing activities
|
|
|
|
|
|
|
2,348
|
|
|
|
|
Cash 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
|
|
|
|
13,380
|
|
|
|
|
Cash at end of year
|
|
$
|
543
|
|
|
$
|
343
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
|
|
|
$
|
139
|
|
Noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
In-kind dividend from subsidiary mortgage bank
|
|
|
500
|
|
|
|
2,953
|
|
59
17. COMMITMENTS AND CONTINGENCIES
The Companys subsidiaries are parties to financial instruments in the ordinary course of business.
The Bank routinely enters into commitments to extend credit and issues standby letters of credit in
order to meet the
financing needs of its customers.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
(Table in thousands)
|
|
2010
|
|
|
2009
|
|
Financial instruments whose contract amounts represent credit risk:
|
|
|
|
|
|
|
|
|
Commitments to extend credit
|
|
$
|
77,268
|
|
|
$
|
106,122
|
|
Standby letters of credit
|
|
|
1,262
|
|
|
|
2,967
|
|
Commitments to extend credit are legally binding agreements to lend to a customer as long as there
is no violation of any condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses. Since many of the commitments are expected to
expire without being drawn upon,
the total commitment amounts outstanding do not necessarily represent future cash requirements.
Standby letters of credit represent conditional commitments issued by the Bank to assure the
performance of a customer to a third party.
The Banks exposure to credit loss for commitments to extend credit and standby letters of credit
is the contractual amount of those financial instruments. The Bank uses the same credit policies
for making commitments and issuing standby letters of credit as it does for on-balance sheet
financial instruments. Each customers creditworthiness is evaluated on an individual case-by-case
basis. The amount and type of collateral,
if deemed necessary by management, is based upon this evaluation of creditworthiness. Collateral
held varies, but may include marketable securities, deposits, property, plant and equipment,
investment assets, inventories and accounts receivable. Management does not anticipate any
significant losses as a result of these financial instruments.
Legal Proceedings
The nature of the businesses of the Companys subsidiaries ordinarily results in a certain amount
of litigation. The Companys subsidiaries are involved in various legal proceedings, all of which
are considered incidental to the normal conduct of business. Management believes that the
liabilities, if any, arising from these
proceedings will not have a material adverse effect on the consolidated financial position or
consolidated results of operations of the Company.
60
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value information about financial instruments, whether or not recognized in the balance sheet,
for which it is practical to estimate the value, is based upon the characteristics of the
instruments and relevant market information. Financial instruments include cash, evidence of
ownership in an entity or contracts that convey
or impose on an entity the contractual right or obligation to either receive or deliver cash for
another financial instrument. These fair value estimates are made at December 31, based on
relevant market information and information about the financial instruments. Fair value estimates
are intended to represent the price for which an asset could be sold or liability could be settled. However, given there is no active market or
observable market transactions for many of the Companys financial instruments, it has made
estimates of many of these fair values which are subjective in nature, involve uncertainties and
matters of significant judgment and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimated values. The fair value estimates are
determined in accordance with the accounting standards for
Fair Value Measurements and
Disclosures.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Estimated
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
(Table in thousands)
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
47,224
|
|
|
$
|
47,224
|
|
|
$
|
73,374
|
|
|
$
|
73,374
|
|
Investment securities
|
|
|
255,104
|
|
|
|
255,104
|
|
|
|
190,921
|
|
|
|
190,921
|
|
Bank owned life insurance
|
|
|
4,320
|
|
|
|
4,320
|
|
|
|
4,106
|
|
|
|
4,106
|
|
Loans (1)
|
|
|
533,851
|
|
|
|
536,000
|
|
|
|
747,182
|
|
|
|
752,000
|
|
Market risk/liquidity adjustment
|
|
|
|
|
|
|
(30,000
|
)
|
|
|
|
|
|
|
(40,000
|
)
|
Net loans
|
|
|
533,851
|
|
|
|
506,000
|
|
|
|
747,182
|
|
|
|
712,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
|
381,427
|
|
|
|
381,427
|
|
|
|
430,045
|
|
|
|
430,045
|
|
Time deposits
|
|
|
440,880
|
|
|
|
441,000
|
|
|
|
536,560
|
|
|
|
539,000
|
|
Short-term borrowings
|
|
|
18,000
|
|
|
|
18,000
|
|
|
|
20,000
|
|
|
|
20,000
|
|
Long-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.
|
Estimating the fair value of the loan portfolio when loan sales and trading markets are illiquid,
are for certain loan types, or are nonexistent, requires significant judgment. Therefore, the
estimated fair value can vary significantly depending on a market participants ultimate
considerations and assumptions. The final value yields a market participants expected return on
investment that is indicative of the current distressed market conditions, but it does not take
into consideration the Companys estimated value from continuing to hold these loans or its lack
of willingness to transact at these estimated values.
The Company estimated fair value based on estimated future cash flows discounted at current
origination rates for loans with similar terms and credit quality. The estimated values in 2010
are a function of higher credit spreads, partially offset by lower risk-free interest rates.
However, the values derived from origination rates at the end of 2010 likely do not represent exit
prices due to the distressed market conditions; therefore, incremental market risks and liquidity
discounts ranging from 3% to 25%, depending on the nature of the loans, were subtracted to reflect
the illiquid and distressed market conditions as of December 31, 2010. The discounted value is a
function of a market participants required yield in the current
environment and is not a reflection of the expected cumulative losses on the loans.
61
The book values of cash and due from banks, interest-bearing deposits, accrued interest receivable,
short-term borrowings, accrued interest payable and other liabilities are considered to be equal to
fair values as a result of the short-term nature of these items. The fair values of investment
securities are based on quoted market prices, dealer quotes and prices obtained from independent
pricing services. The fair value of time deposits, other borrowings, commitments and guarantees is
estimated based on present values using applicable risk-adjusted spreads to the U.S. Treasury curve
to approximate current entry-value interest rates applicable to each category of such financial
instruments.
Demand deposits are shown at their face value.
ITEM 9 CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no disagreements with accountants on accounting and financial disclosures as
described in Item 304 of Regulation S-K.
62
ITEM 9A CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of December 31, 2010, the end of the period covered by this Annual Report on Form 10-K, an
evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules
13(a)-15(e) and 15(d)-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the
Exchange Act)) was performed under the supervision and with the participation of our management,
including our Chief Executive Officer and our Chief Financial Officer. Based upon, and as of the
date of this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and
procedures were effective to ensure that information required to be disclosed by us in the reports
that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commissions rules and forms, and
(ii) accumulated and communicated to our management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
Changes in Internal Control over Financial Reporting
Management of the Company has evaluated, with the participation of the Companys Chief Executive
Officer and Chief Financial Officer, changes in the Companys internal control over financial
reporting (as defined in rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter ended December
31, 2010. Based upon that evaluation, management has determined that there have been no changes to
the Companys internal control over financial reporting that occurred during the Companys fourth
quarter
of 2010 that have materially affected, or are reasonably likely to materially affect, the Companys
internal control over financial reporting.
MANAGEMENTS ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial
reporting for the Company. The Companys internal control over financial reporting is a process
designed under the supervision of the Companys CEO and CFO to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of the Companys financial
statements for external reporting purposes in accordance with U.S. generally accepted accounting
principles. Management has made a comprehensive review, evaluation and assessment of the Companys
internal control over financial reporting as of December 31, 2010. In making its assessment of
internal control over financial reporting, management used the criteria issued by the Committee of
Sponsoring Organizations of the Treadway Commission
(COSO) in
Internal ControlIntegrated Framework
. In accordance with Section 404 of the Sarbanes-Oxley Act of
2002, management makes the following assertions:
|
|
|
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 Companys management assessed the effectiveness of the Companys 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 ControlIntegrated Framework
. Based on that assessment, we believe
that, as of December 31, 2010, the Companys internal control over financial reporting is effective
based on those criteria.
|
This annual report does not include an attestation report of the Companys registered public
accounting firm regarding internal control over financial reporting. Managements report was not
subject to attestation by the Companys registered public accounting firm pursuant to rules of the
Securities and Exchange Commission that permit the Company to provide only managements report in
this annual report.
63
ITEM 9B OTHER INFORMATION
The 2011 Annual Meeting of Stockholders has been rescheduled for Monday, May 16, 2011, at 10:30
a.m. local time at the Crowne Plaza, 1385 Lenoir Rhyne Boulevard, S.E. in Hickory, North Carolina.
PART III
ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item is set forth in our definitive proxy materials to be filed in
connection with our 2011 ANNUAL MEETING OF STOCKHOLDERS, under the captions Information About the
Board of Directors and Committees of the Board, Directors/Nominees and Nondirector Executive
Officers, Section 16(a) Beneficial Ownership Reporting Compliance, and Ethics Policy. The
information required by this item contained in such definitive proxy materials is incorporated
herein by reference.
ITEM 11 EXECUTIVE COMPENSATION
The information required by this item is set forth in our definitive proxy materials to be filed in
connection with our 2011 ANNUAL MEETING OF STOCKHOLDERS, under the captions Summary Compensation
Table, Grant of Plan-Based Awards, Outstanding Equity Awards at Fiscal Year-end, Option
Exercises and Stock Vested, Salary Continuation Plan, and Potential Payments Upon Termination
or Change of Control. The information required by this item contained in such definitive proxy
materials is incorporated
herein by reference.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The information required by this item is set forth in our definitive proxy materials to be filed in
connection with our 2011 ANNUAL MEETING OF STOCKHOLDERS, under the captions Principal Holders of
Voting Securities, Directors/Nominees and Nondirector Executive Officers and Potential Payments
Upon Termination or Change of Control. The information required by this item contained in such
definitive proxy materials is incorporated herein by reference.
The following table sets forth information as of December 31, 2010, regarding shares of our common
stock that may be issued upon exercise of options previously granted and currently outstanding
under our stock option plans, as well as the number of shares available for the grant of options
that had not been granted as of that date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Number of
|
|
|
|
|
|
|
(c) Number of Securities
|
|
|
|
Securities To Be
|
|
|
(b) Weighted-
|
|
|
Remaining Available for
|
|
|
|
Issued Upon Exercise
|
|
|
Average Exercise
|
|
|
Future Issuance Under
|
|
|
|
Of Outstanding
|
|
|
Price Of
|
|
|
Equity Compensation
|
|
|
|
Options, Warrants
|
|
|
Outstanding
|
|
|
Plans
|
|
|
|
and
|
|
|
Options, Warrants
|
|
|
(excluding securities
|
|
|
|
Rights
|
|
|
and Rights
|
|
|
reflected in column (a))
|
|
Equity compensation plans
|
|
|
|
|
|
|
|
|
|
|
|
|
Approved by security holders
|
|
|
20,486
|
|
|
$
|
8.52
|
|
|
|
749,500
|
|
Not approved by security
holders
|
|
|
-0-
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
20,486
|
|
|
$
|
8.52
|
|
|
|
749,500
|
|
|
|
|
|
|
|
|
|
|
|
We suspended our common stock repurchase plan in 2007, which we historically used to (1)
reduce the number of shares outstanding when our share price in the market makes repurchases
advantageous and
(2) manage capital levels. Therefore, there were no share repurchase transactions for the quarter
ended December 31, 2010.
64
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
The information required by this item is set forth in our definitive proxy materials to be filed in
connection with our 2011 ANNUAL MEETING OF STOCKHOLDERS, under the caption Information About the
Board of Directors and Committees of the Board and Transactions With Officers and Directors. The
information required by this item contained in such definitive proxy materials is incorporated
herein by reference.
ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is set forth in our definitive proxy materials filed in
connection with our 2011 ANNUAL MEETING OF STOCKHOLDERS, under the caption Ratification of
Selection of Accountants. The information required by this item contained in such definitive proxy
materials is incorporated herein by reference.
65
PART IV
ITEM 15 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
* Exhibits incorporated by reference into this filing were filed with the Securities and Exchange
Commission.
We provide these documents through our Internet site at www.bankofgranite.com or by mail upon
request to
Investor Relations, Bank of Granite Corporation, P.O. Box 128, Granite Falls, North Carolina
28630.
|
|
|
(a)1.
|
|
Financial Statements
|
|
|
|
|
|
The information required by this item is set forth under Item 8.
|
|
|
|
2.
|
|
Financial Statement Schedules
|
|
|
|
|
|
The information required by this item is set forth in the Notes to Consolidated Financial
Statements under Item 8.
|
|
|
|
3.
|
|
Exhibits
|
|
|
|
3.1
|
|
Certificate of Incorporation, as amended
|
|
|
|
|
|
Bank of Granite Corporations 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 amended
|
|
|
|
|
|
Bank of Granite Corporations Amended and Restated Bylaws, filed as Exhibit 3.1 to the
Registrants Current Report on Form 8-K dated April 28, 2008, is incorporated herein by
reference.
|
|
|
|
4.
|
|
Instruments defining the rights of holders
|
|
|
|
4.1
|
|
Form of stock certificate for Bank of Granite Corporations 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 Contracts
|
|
|
|
10.1
|
|
Bank of Granite Employees Savings & Profit Sharing Plan and Trust, as amended, filed as
Exhibit 4.1 to the Registrants 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 Corporations 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
|
|
|
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 Registrant
|
|
|
|
|
|
The 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 PLLC
|
|
|
|
31.1
|
|
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
|
|
|
|
31.2
|
|
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
|
|
|
|
32.1
|
|
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
|
|
|
|
32.2
|
|
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
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
BANK OF GRANITE CORPORATION
|
|
|
By:
|
/s/ R. Scott Anderson
|
|
|
|
R. Scott Anderson
|
|
|
|
Chief Executive Officer
March 31, 2011
|
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by
the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
Chief Executive Officer and President
|
|
March 31, 2011
|
R. Scott Anderson
|
|
|
|
|
|
|
|
|
|
|
|
Chief Operating Officer and
|
|
March 31, 2011
|
Jerry A. Felts
|
|
Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
Chairman and Director
|
|
March 31, 2011
|
John N. Bray
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
March 31, 2011
|
R. Scott Anderson
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
March 31, 2011
|
Joseph D. Crocker
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
March 31, 2011
|
Leila N. Erwin
|
|
|
|
|
|
|
|
|
|
/s/ Paul M. Fleetwood, III
|
|
Director
|
|
March 31, 2011
|
Paul M. Fleetwood, III
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
March 31, 2011
|
Hugh R. Gaither
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
March 31, 2011
|
Boyd C. Wilson, Jr.
|
|
|
|
|
68
Bank of Granite Corporation
Exhibit Index
|
|
|
|
|
|
|
|
|
Begins
|
Exhibit
|
|
|
|
on Page
|
3.1
|
|
Bank of Granite Corporations Certificate of Incorporation
|
|
*
|
|
|
|
|
|
3.2
|
|
Bank of Granite Corporations 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 Corporations 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 herewith
|
|
|
|
|
|
23.1
|
|
Consent of Independent Auditors
|
|
Filed herewith
|
|
|
|
|
|
31.1
|
|
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 herewith
|
|
|
|
|
|
31.2
|
|
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 herewith
|
|
|
|
|
|
32.1
|
|
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 herewith
|
|
|
|
|
|
32.2
|
|
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
Bank OF Granite (NASDAQ:GRAN)
Historical Stock Chart
From Sep 2024 to Oct 2024
Bank OF Granite (NASDAQ:GRAN)
Historical Stock Chart
From Oct 2023 to Oct 2024