AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
AMENDED AND RESTATED CHARTER

I. Purpose

The Audit Committee (the “Committee”) of the Board of Directors (the “Board”) of Bank of Granite Corporation (the “Corporation”) assists the Board in fulfilling its responsibility for oversight of: (i) the quality and integrity of the Corporation’s accounting and financial reporting processes; (ii) the audits of the Corporation’s financial statements and (iii) the Corporation’s systems of internal controls regarding finance and accounting.

Although the Committee has the responsibilities and authority set forth in this Charter, it is not the duty of the Committee to plan or conduct audits or to determine that the Company’s financial statements are complete and accurate and are in accordance with generally accepted accounting principles. This is the responsibility of management and the independent accountants.

The independent accountants are ultimately accountable to the Board and to the Committee, which has the ultimate authority and responsibility to select, evaluate and, where appropriate, replace the independent accountants. The Committee has direct responsibility for the compensation and oversight of the work of the independent accountants (including resolution of disagreements between management and the independent accountants regarding financial reporting) for the purpose of preparing or issuing an audit report or related work. The independent accountants shall report directly to the Committee.

The Corporation shall provide appropriate funding, as determined by the Committee, for payment of compensation to the independent accountants for all audit and other services approved by the Committee or pursuant to its policies and to discharge any of the Committee’s powers or responsibilities.

II. Composition

The membership of the Committee shall consist of at least three directors appointed by the Board, upon the recommendation of the Nominating and Corporate Governance Committee, each of whom shall be independent within the meaning of applicable SEC regulations, Nasdaq rules and such other criteria as the Board may establish. Committee members must be able to read and understand fundamental financial statements and must not have participated in the preparation of the financial statements of the Corporation or any current subsidiary of the Corporation during the last three years. At least one member of the Committee must be an “audit committee financial expert” within the meaning of applicable SEC regulations, Nasdaq rules and such other criteria as the Board may establish.

Unless the Board appoints a Chair of the Committee, the members of the Committee may designate a Chair by majority vote of the full Committee membership.

III. Meetings

The Committee shall meet at least four times annually, or more frequently as required in order to fulfill its responsibilities. The Committee may, in its discretion, ask members of management or others to attend any of its meetings or to provide information or advice as needed. The Committee is expected to maintain free and open communication with the independent accountants, the internal auditors and the management of the Corporation and should meet with these parties periodically in separate executive sessions in order to discuss any matters that the Committee or any of these groups believes should be discussed privately. The Committee shall report regularly to the Board with respect to its activities and shall make recommendations to the Board, as appropriate.

22


 

IV. Responsibilities

The Committee’s primary responsibilities include:

Review of Documents and Reports; Audit Committee Report

1.

 

Review this Charter at least annually and recommend revisions to the Board.

 

2.

 

Review the Corporation’s annual financial statements and any accompanying certification, report, opinion, or review by the independent accountants.

 

 

 

3.

 

Review the Corporation’s quarterly financial statements, prior to release, with management and the independent accountants. The Chairman of the Committee may represent the entire Committee for this purpose.

 

 

 

4.

 

As necessary to carry out its other responsibilities, retain special legal, accounting or other consultants to advise the Committee, and otherwise to seek information or advice in any manner it deems appropriate.

 

 

 

5.

 

Inquire of management, the internal auditors and the independent accountants about significant risks or exposures and assess the steps that management has taken to minimize such risks to the Corporation.

 

 

 

6.

 

Provide a report or any other disclosures required of the Committee to be included in each proxy statement of the Company. Such report shall include the name of each Committee member, shall comply with the required disclosures of the SEC, and shall:

 

 

 

a.

 

state whether the Committee has reviewed and discussed the audited financial statements with management;

 

b.

 

represent that the Committee has discussed the conduct of the audit with the independent accountants;

 

 

 

c.

 

represent that the Committee has received the written disclosures and the letter from the independent accountants required by Standard No. 1 of the Independence Standards Board;

 

 

 

d.

 

state whether, based on a review of the audited financial statements and discussions with the independent accountants, the Committee recommended that the financial statements be included in the annual report for filing with the Securities and Exchange Commission; and

 

 

 

e.

 

include any other disclosures deemed necessary or advisable by the Committee.

 

 

Internal Auditors

7.

 

In connection with the independent accountants and the internal auditors, provide guidance regarding the internal audit function of the Corporation, including review of the organization of such activity.

 

8.

 

Consider and review with management and the internal auditors:

 

 

 

a.

 

significant findings during the year and management’s responses thereto;

 

b.

 

any difficulties encountered in the course of their audits, including any restrictions on the scope of their work or access to required information;

 

 

 

c.

 

any changes required in the planned scope of their audit plan; and

 

 

 

d.

 

the internal audit department budget and staffing.

 

 

Independent Accountants

9.

 

Select, retain, and, when appropriate, terminate, the independent accountants, considering independence and effectiveness, and approve the scope of the proposed audit for each fiscal year and the fees and other compensation to be paid to the independent accountants for the audit.

 

10.

 

Obtain a formal written statement from the independent accountants, which lists all relationships between the independent accountants and the Corporation, and review and periodically discuss with the accountants all significant relationships the accountants have with the Corporation and others that may affect the accountants’ independence.

 

 

 

11.

 

Review the performance of the independent accountants, and report to the Board about any proposed change with respect to the independent accountants if and when circumstances warrant.

 

 

 

12.

 

Periodically consult with the independent accountants out of the presence of management about the Corporation’s internal controls and financial statements.

 

 

23


 

 

 

13.

 

Pre-approve all auditing services and permitted non-audit services (including the fees and terms thereof) to be performed for the Corporation by its independent accountants, subject to such exceptions for non-audit services as permitted by applicable laws and regulations. The Committee may form and delegate authority to subcommittees consisting of one or more members when appropriate, including the authority to grant pre-approvals of audit and permitted non-audit services, provided that decisions of such subcommittee to grant pre-approvals shall be presented to the full Committee as its next scheduled meeting.

 

14.

 

At least annually, evaluate the qualifications, performance and independence of the independent accountants, including considering whether the provision of permitted non-audit services is compatible with maintaining the accountants’ independence, and taking into account the opinions of management and the internal auditors.

 

 

Financial Reporting Processes

15.

 

In consultation with the independent accountants, review the integrity and adequacy of the Corporation’s financial reporting processes, both internal and external.

 

16.

 

Discuss with the independent accountants their judgments about the quality and appropriateness of the Corporation’s accounting principles as applied in its financial reporting.

 

 

 

17.

 

Review and discuss quarterly reports from the independent accountants on: (a) all critical accounting policies and practices to be used; (b) alternative treatments of financial information within generally accepted accounting principles that have been discussed with the management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent accountants; and (c) other material written communications between the independent accountants and management, such as any management letter or schedule of unadjusted differences.

 

 

 

18.

 

Consider and review with the independent accountants any significant findings and recommendations of those accountants, together with management’s responses thereto.

 

 

 

19.

 

Consider, and approve if appropriate, any major changes to the Corporation’s auditing and accounting principles and practices suggested by the independent accountants or management.

 

 

Process Improvement

20.

 

Facilitate the reporting to the Committee by both management and the independent accountants of any significant judgments made in management’s preparation of the financial statements and the view of both management and the accountants as to appropriateness of such judgments.

 

21.

 

After completion of the annual audit, review separately with both management and the independent accountants any significant difficulties encountered during the course of the audit, including any restrictions on the scope of work or access to required information.

 

 

 

22.

 

Review and resolve any significant disagreement among management and the independent accountants in connection with the preparation of the financial statements.

 

 

 

23.

 

Review with the independent accountants and management the extent to which any changes or improvements in financial or accounting practices that have been approved by the Committee have been implemented.

 

 

Miscellaneous

24.

 

Establish and periodically review the adequacy of procedures for the receipt, retention and treatment of complaints received by the Corporation regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.

 

25.

 

Report Committee activities to the Board of Directors and make such recommendations to the Board of Directors as the Committee deems appropriate.

 

 

 

26.

 

Receive reports regarding, and review, any “related party transactions,” as defined by applicable Nasdaq rules and determine whether to ratify or approve such transactions.

 

 

 

27.

 

Approve any report to be included in the Corporation’s annual report or proxy statement that describes the Committee’s composition and responsibilities and how they were discharged.

 

 

 

28.

 

Conduct and present to the Board an annual evaluation of the Committee’s performance.

 

 

 

29.

 

Perform any other activities consistent with this Charter, the Corporation’s bylaws and governing law that the Committee or the Board may deem necessary or appropriate.

 

 

Approved by the Audit Committee: February 9, 2004
Approved by the Board of Directors:
March 8, 2004