Foolish Forecast: Bank of Granite Looks Solid

North Carolina bank holding company Bank of Granite (Nasdaq: GRAN  ) will report fourth-quarter 2006 results on Monday, Jan. 8. Since analyst forecasts are not set in stone, here's a preview of what to expect.

What analysts say:

• Buy, sell, or waffle? Only two analysts cover this independent community bank, and both say hold.
• Revenues. For the quarter, revenues are expected to rise 16% to $15.5 million, up from the $13.3 million brought in the year before. For the year, the bank is expected to record $65 million in revenues, a 6% increase over 2005.
• Earnings. On the other hand, earnings are expected to grow 33% for the quarter, to $0.32 per share, while for the year a 15% increase is anticipated, to $1.32 per share.

What management says:
The Bank of Granite serves the North Carolina market out of 22 branches and 13 mortgage banking locations. You probably haven't heard much about the bank, unless you follow Warren Buffett. More than a decade ago, he called Granite the "best-run bank in the United States," which set off a flurry of interest at the time. It's easy to forget that it has produced profits for more than 50 consecutive years. In the last quarter, assets grew 6.7% to $1.18 billion, loans grew 8.3% to $890 million, and deposits grew 8.9% to $950 million. It had a five-for-four stock split back in September. Former chairman and CEO John Forlines attributes Granite's success to not being like the huge financial institutions, which cater more to "the Wall Street type than the Main Street type."

What management does:
The bank's key performance ratios continue to improve, though revenue and earnings growth slowed a little last quarter as the mortgage division originated fewer loans and had fewer mortgage refinancings as the housing market began its slump in earnest. Net interest income -- which for a bank is the interest and dividend income it earns minus the interest expense it pays -- grew 10% last quarter. Its net interest margin improved to an average 5.08% as the Federal Reserve increased the overnight interest rates.

Efficiency Ratios	08/05	11/05	02/06	05/06	08/06
ROA	1.4	1.4	1.5	1.5	1.5
ROE	10.3	10.7	11.6	11.9	12.1
Y-O-Y Revenue Growth	9.9	14.0	18.6	18.0	14.7
Y-O-Y Earnings Growth	14.0	18.0	26.0	24.6	18.9

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
The Bank of Granite consistently ranks as a top-performing community bank, whether that ranking is from Forbes magazine, from the banking community itself, or from Warren Buffett. But while it performs all the traditional functions of a bank, it remains close to its community, which helps it retain its customers. Yet it's not immune from the forces of the economy that also impact its bigger brethren, and a deepening crisis in home sales could cause cracks in Granite's stock. It's trading near some of its all-time highs right now, so a stumble would be a welcome mat for investors who have been waiting to get in.

Competitors:

• Union Bancshares (Nasdaq: UBSH  )
• First Charter (Nasdaq: FCTR  )
• LSB Bancshares (Nasdaq: LXBK  )
• FNB United (Nasdaq: FNBN  )
• Santander BanCorp (NYSE: SBP  )
• Cardinal Financial (Nasdaq: CFNL  )

For further Foolishness:

• A Closer Look at Bank Stocks
• The Year's Best Financial Stocks

Foolanthropy is celebrating its 10th year! To learn more about our five Foolish charities or to make a donation, visit www.foolanthropy.com.

Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.