Losses slowed slightly at Bank of Granite Corp. in fiscal 2010, but the struggling lender still lost more than $23 million for the year as its deposits sunk more than $100 million.

Granite Falls-based Bank of Granite also disclosed in its annual report Thursday that it is still struggling to meet capital requirements placed on it by regulators last year.

The community bank lost $23.7 million in fiscal 2010, compared with $25.6 million the previous fiscal year. Total deposits held by Bank of Granite fell from $967 million to $822 million at the end of the year.

In its report, the bank attributed its losses largely to "the high level of unemployment in the Bank's operating footprint coupled with the extremely depressed real estate market." The bank does much of its business in Caldwell and Catawba counties, two of the state's hardest-hit in the recession.

As it also said last year, the bank said its results raise "substantial doubt" about its ability to stay in business.

Federal regulators in 2009 told Bank of Granite to increase its Tier I capital level to 8 percent, above the 4 percent level that is generally considered adequately capitalized. But the bank ended 2010 with a capital level of 4.21 percent, less than its level of more than 7 percent last year.

A poor lending environment and continuing efforts to resolve bad loans caused the bank's lending portfolio to shrink to $562 million, down from $775 million last year.

The bank set aside $28.3 million for bad loans in 2010, up from $27.8 million in 2009. Although the dollar increase was small, the amount jumped from 3.6 percent to 5 percent of the bank's lending portfolio.

In one positive sign, Bank of Granite said the pace of loans going bad fell in the fourth quarter, and was expected to keep falling through 2011.

"The December 31, 2010 amount is $15.0 million lower than the high point in 2010 and continues to decline into 2011," the bank said of its non-performing loans. "If the inflow of nonperforming loans slows as indicated, the credit costs are anticipated to decline in 2011."