Bank of Granite Stonewalled

It must feel like death by a thousand cuts at Bank of Granite (Nasdaq: GRAN). Although the bank is undoubtedly well-run, the company's results continue to lag because of a tough banking environment, as well as exposure to lackluster local economies.

In the first quarter of 2007, Bank of Granite earned $4 million, down 9% from $4.4 million a year ago. The slight drop-off was due to an increase in loan loss provisions of roughly $700,000, although overall credit quality indicators remain healthy. Most indicators were down. For the year, return on average assets dropped to 1.36% from 1.62%, return on equity dropped to 10.99% from 12.84%, and the efficiency ratio increased to 49.54% from 49.07%. Keep in mind: All of those numbers are pretty decent -- an ROA of more than 1.25%, an ROE of more than 10%, and an efficiency ratio of less than 50% are not bad at all. However, they're not the same stellar numbers the company is used to posting.

I don't fault anyone at Bank of Granite for the tepid results. As everyone knows, being a spread lender in a flat/inverted yield curve environment isn't all it's cracked up to be. Mercantile Bank (Nasdaq: MBWM), Bank of the Ozarks (Nasdaq: OZRK), and GB&T (Nasdaq: GBTB) -- I could go on -- are just some of the other mid-cap banks that have experienced similar struggles.

I do, however, salute management for its willingness to accept accountability. Chairman Charles Snipes remarked: "While many banks our size would have been pleased to report this level of quarterly earnings, we are disappointed in these results." This should be pleasing to shareholders. When management publicly gives itself a bad grade, you know it's working on the solution.

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Fool contributor Emil Lee is an analyst and a disciple of value investing. He doesn't own shares in any of the companies mentioned above. Emil appreciates your comments, concerns, and complaints. The Motley Fool has a disclosure policy.