Annual Report
1994
(Triad Bank Logo)
A Word Dear Shareholder,
From As we reflect on the first full year of operation of the new Triad
Management Bank, following the merger with Bankers Trust, we have a sense of
accomplishment, yet an attitude that many opportunities remain.
The actual merger was exceptionally smooth because of the months
of planning by the Conversion Committee which anticipated a
multitude of possible problems and provided solutions for them.
Financially, 1994 was a record year for the bank, with net income
of $1,170,000. We also had an outstanding year in loan production.
After a decline in loans during the first quarter, loan growth
over the last nine months of 1994 was at an annualized 20% rate.
Building for the future, several new key staff members were
hired; we have embarked upon a program to increase our
technological capabilities; and one full service branch and two
loan production offices were established in new market areas.
Of greater importance, we have established a new and clearer
vision for the future of Triad Bank. Put simply, our desire
for Triad Bank is that it be the most sought after banking
opportunity in the Piedmont Triad. Whether it is a business or
individual seeking quality banking services and products, a person
seeking employment, or an investor seeking a financial
opportunity, Triad Bank will be their choice because of the
quality of our organization. This is a goal which will require
considerable commitment and performance on the part of every
employee of Triad Bank. We believe our dedicated staff is
capable of delivering this vision.
We look forward with optimism to the future. Hopefully, after
you have read this year's report, you also will feel that
1994's success is just the beginning. Please mark your calendars
to attend the Annual Shareholders' Meeting to be held at 4:00
p.m., April 25, 1995, at the Embassy Suites Hotel in Greensboro.
(signature of (signature of
James E. Mims appears here) Carl I. Carlson, III appears here)
JAMES E. MIMS CARL I. CARLSON, III
Chairman and CEO President
(photo of James E. Mims and Carl I. Carlson, III appear on the
right side of this page)
(Logo of Triad Bank appears here
at bottom of the left hand side.)
Financial
Highlights (In thousands, except per share data)
Percentage
At Year End 1994 1993 Change
Loans (Net) $112,665 $101,518 11.0
Investment Securities 45,940 48,061 (4.4)
Total Assets 178,587 171,724 4.0
Total Deposits 162,633 156,991 3.6
Stockholders' Equity $13,413 $12,383 8.3
Outstanding Shares 1,817 1,721 5.6
For The Year
Net Interest Income $7,746 $4,323 79.7
Provision for Loan Losses 150 225 (33.3)
Other Operating Income 1,768 1,092 61.8
Operating Expenses 7,851 4,614 70.6
Net Income $1,170 $ 604 93.7
Average Shares Outstanding 1,812 980 84.9
Per Share Data
Net Income $ .65 .62 4.8
Book Value at Year End $ 7.38 6.85 7.7
Capital Ratios
at Year End
Tier 1 Leverage 7.65% 7.21% 6.1
Risk Adjusted-Tier 1 11.12% 10.84% 2.6
Risk Adjusted-Total 12.38% 12.10% 2.3
Stock Price Range and Market
Triad Bank stock is traded over the counter with transactions executed through
several brokerage firms. Currently, two firms, Scott and Stringfellow Investment
Corp. and J. C. Bradford & Co., actively make a market in the Bank's stock. At
the end of 1994, there were approximately 1450 stockholders. Stock prices with
approximate quarterly bid and asked trading ranges (obtained from the National
Daily Quotation System "Pink Sheet," published by the National Quotation Bureau,
Inc.) are shown to the right:
1994 1993
Bid Asked Bid Asked
1st Quarter $6.19 None $4.29-4.76 $5.24-5.71
2nd Quarter $6.19-7.14 None $4.76-5.48 $5.71-6.43
3rd Quarter $7.62-8.57 None $5.71-5.95 None
4th Quarter $9.25-10.00 $10.00-11.43 $5.95-6.19 None
1
Performance
Trends
Our strong capital ratios continue to exceed the Well-Capitalized thresholds.
"Well-Capitalized" is the highest regulatory capital category.
Capital
Ratios
(Capital Ratios chart appears here. Plot points are as follows.)
Well-Capitalized 1992 1993 1994
(Customer to fill in plot points)
The trends shown by our
quarterly earnings reflect the steady improvement in the
underlying fundamentals of our operating performance.
Quarterly
Earnings
(Quarterly Earnings chart appears here. Plot points are as follows.)
1992 1993 1994
(Customer to fill in plot points)
Net Income before accounting change
2
(Triad Bank Logo appears in the lower left corner)
Performance
Trends
Our stock price has responded favorably to the Bank's
performance improvement.
Stock
Information
(Stock Information chart appears here. Plot points are as follows.)
Jun-92 Sep-92 Dec-92 Mar-93 Jun-93 Sep-93 Dec-93 Mar-94 Jun-94 Sep-94 Dec-94
(Customer to fill in plot points)
Our business development calling program was effective in increasing loans
outstanding. In fact, we produced over $60 million in new commitments during
1994. Some of this will be funded during 1995 and represents future earnings.
Quarter Ending Loans Outstanding 1994
(Ouarter Ending Loans Outstanding 1994 chart appears here. Plot points are as
follows.)
Dec-93 Mar-94 Jun-94 Sep-94 Dec-94
(Customer to fill in plot points)
3
Investing In
Us Builds
More Than Your
Portfolio
As community bankers, we can focus our entire effort on a small geographic
area. We become involved in the dreams of our customers who live and work in
the communities we serve. They have names, they are real people - young
families just starting out - small business owners investing in their future
- - retired people guarding their financial security. Our business is to help
all of them fulfill their dreams. We strive to stay in tune with their
needs.
Our objective is to continually increase the level of our performance with
greater convenience to our customers. Consider several services we added
last year, each tailor-made for the life and times of those who bank with us.
1994 Additions:
[ ] CheckCard In July, we introduced the Triad Bank CheckCard. This debit
card can serve as an ATM card at any bank's Automated Teller Machine. Its real
advantage, however, is found at a store's checkout counter. There, a cardholder
can make purchases, drawing money directly from their account. The customer, in
turn, gets the convenience of a credit card without having to pay interest.
(Picture of Triad Bank CheckCard)
[ ] Home Savers Program We meet the needs of first-time home buyers with a
special program just for them. Designed to alleviate the stress of buying a new
home, our Home Savers Program helps to build their first down payment. It also
pays a quarter percentage point higher than our regular savings account. This
program isn't a large source of funds for Triad Bank, but it has proven
invaluable in attracting new full- service customers. Also, it confirms our
belief that home ownership is the basis for a stronger community.
(Picture of two women at a desk)
(Triad Bank Logo appears in the lower left corner)
4
(Picture of brochure appears in upper left corner of page. The following
text appears below it.)
The cover design for this year's Annual Report is adapted from the Bank's new
line of product and services brochures produced last year.
[ ] Awareness Through a targeted advertising campaign, we began to educate the
public about the advantages of a responsive local bank. During the last part of
1994, a total of 43 outdoor billboards in Greensboro, Winston-Salem and Asheboro
presented our "Just Ask" theme. By virtually every indicator, the campaign
proved well worth the expense. Our advertising dollars in the near future will
probably continue to be spent on both image-building and product-specific
campaigns.
[ ] Extended Cut-Off Times Many customers find it hard to get their deposits in
by 2:00 p.m., the conventional bank cut-off time. In keeping with our focus on
customers, they can now transact business right up until 5:00 p.m. weekdays and
6:00 p.m. on Fridays. This means they'll receive same-day deposit credit through
the end of Triad's business day. We see these changes giving us a tremendous
advantage over our competition, most of which are too inflexible to adopt the
later cut-off time.
(Picture of Clock appears in on right side of page)
[ ] Friends in the Triad For those over fifty, we continued to develop our
FRIENDS IN THE TRIAD program, organizing trips, financial seminars, dance
classes and other life-enriching activities. Response has steadily grown, and we
believe this program has great potential.
(Picture of a group of people)
(Picture of a group of people)
Whether through innovation or current trends, Triad Bank is moving forward with
home-grown advantages larger banks simply can't offer. As more and more people
learn of these benefits, we are preparing for what looks to be healthy growth in
the months to come.
5
Focusing on Others Means Starting With Ourselves
To move ahead, we're enacting an objective way of looking at ourselves called
Triad Quality Banking - a business-like term that simply means doing things
right the first time, every time. We have just completed the orientation and
planning phases of the process through mid-level management. All share the
vision of what we want to accomplish. It will be a lengthy and ongoing process,
but one we believe will result in developing a reputation as "the" place to
bank.
TQB starts with a careful study of each department, pinpointing ways to make our
services better for our customers and more efficient at the same time. It means
addressing concerns, better training for our associates and installing
computerized efficiency in all areas of our operations.
Plans for this year:
[ ] Expanding Market Area Long-term, we hope to expand our services into the
twelve Piedmont Triad counties. Right now, we serve the central hub of this
area.
(Picture of Triad Bank)
Since June 1994, we have opened new facilities to strengthen our presence in
this region. Additions include a full-service branch at the Airpark Center, an
area with tremendous growth potential.
In December, we opened a new loan production office in Kernersville which we
hope will soon lead to a full-service branch. Likewise, we've extended our reach
eastward with a new loan production office in Burlington, where we envision a
full-service branch within the next year or so.
(Graphic of a Triangle and arrows coming out of center with the words
Greensboro, Burlington, Asheboro, Winston-Salem, Kenersville
[ ] More Efficient Loan Processing This year, we expect to enhance our
reputation for flexibility, fast approval and responsiveness by introducing an
automated loan document preparation system. This PC-based system will shorten
our response time even more by eliminating much of the paperwork of a
conventional bank loan. The system automatically prepares the appropriate
documents for each type of loan, resulting in cost savings and greater accuracy.
[ ] Customer Assistance / Voice Response System At the end of 1993, we
created a Customer Assistance Department to serve as the primary focal point
for inquiries and problem resolution. By monitoring calling activity during
1994, we discovered half the calls were for balance inquiries. This led to our
decision to install a computerized voice-response system for faster, more
convenient service.
(Picture of Woman at computer)
Customers will be able to access their account information without taking time
from our Customer Assistance Representatives. They, in turn, will be free to
address customer problems and cross-sell additional services. As an added plus,
calls will be collected and summarized, providing valuable marketing data to
help us serve our customers in the future.
This improved efficiency, enhanced customer service and detailed information all
work toward our long-term goal: We want to be known in the Triad as "the" place
to bank.
(Triad Bank logo appears on the lower left hand corner of page)
6
Customer Assistance Calls
(Customer Assistance Calls chart appears here. Plot points are as follows.)
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
(Customer to fill in plot points)
In the same vein, we're also excited about a Phone-A-Loan program tied into the
voice-response system. Customers will literally be able to apply for a loan from
the comfort of their living room sofa.
All of this should be available to customers in the first half of '95. Once up
and running, we'll explore the costs and customer benefits of other bank-at-home
technologies.
[ ] ACH Transaction Origination Executing inter-bank transactions through an
electronic automated clearinghouse has been a part of banking for many years.
For a long time, Triad Bank has been able to receive ACH transactions for our
customer's accounts. Beginning in early 1995, Triad Bank will also have the
ability to send ACH transactions to other banks on behalf of our customers. Both
business and consumer clients can tap into this system for such purposes as
paperless payrolls, and loan, insurance and other scheduled payments. We're
excited about the marketing prospects this system will give us.
[ ] Trust Services Already this year, we've introduced yet another
customer-oriented service. Customers can now take advantage of numerous trust
options, including trustee, administrative and investment services. These
services will be provided to Triad Bank customers by the Trust Company of the
South.
In short, as we move into the coming year, gearing for growth prompts several
vital objectives. Streamlining for efficiency. Re-educating employees. Enticing
new customers with increased value and convenience. All our efforts are designed
to make Triad Bank "the" banking opportunity in the Triad.
7
(In Thousands, Except Per Share Data)
Selected Financial Data
Five Year Financial History
Summary Of Operations
1994 1993 1992 1991 1990
Interest Income $ 11,840 $ 6,401 $ 6,690 $ 8,781 $ 9,337
Interest Expense 4,094 2,078 2,583 4,237 5,045
Net Interest Income 7,746 4,323 4,107 4,544 4,292
Provision for Loan Losses 150 225 526 1,960 340
Net Interest Income After
Provision for Loan Losses 7,596 4,098 3,581 2,584 3,952
Other Income 1,795 1,092 1,129 1,036 914
Gain (Loss) -
on Sale of Securities (27) 14 123 10
Other Expense 7,851 4,614 4,501 4,585 4,335
Income (Loss) Before Income
Taxes, Accounting Change
and Extraordinary Item 1,513 576 223 (842) 541
Income Taxes 343 147 41 (253) 129
Net Income (Loss) Before
Accounting Change and
Extraordinary Item 1,170 429 182 (589) 412
Accounting Change and
Extraordinary Item -- 175 41 - -
Net Income (Loss) $ 1,170 $ 604 $ 223 $ (589) $ 412
Per Share Data (1)
Net Income (Loss) (2) $ .65 $ .62 $ .24 $ (.63) $ .44
Book Value 7.38 6.85 6.83 6.62 7.24
Closing Stock Price (3) 9.63 6.19 4.76 5.71 7.14
Balance Sheet Information
Total Assets $ 178,587 $ 171,724 $ 97,047 $103,171 $ 101,291
Investment Securities 45,940 48,061 18,017 18,453 22,596
Loans, Net of Allowance
for Loan Losses 112,665 101,518 60,013 71,490 66,038
Deposits 162,633 156,991 89,851 94,957 93,569
Stockholders' Equity 13,413 12,383 6,460 6,184 6,760
Selected Ratios
Return (Loss)
on Average Assets .68% .63% .23% (.58)% .42%
Return (Loss)
on Average Equity 9.15% 8.67% 3.48% (8.40)% 6.25%
Stockholders' Equity
to Year-End Assets 7.51% 7.21% 6.66% 5.99% 6.67%
Total Loans to Deposits
at Year End 70.81% 66.36% 68.47% 76.84% 72.00%
Net Interest Margin 4.89% 4.98% 4.79% 4.94% 4.88%
(1) All per share data has been restated to give effect to a 5% stock dividend
paid to shareholders of record November 25, 1994.
(2) Income (loss) per share is computed based on the weighted average number of
shares outstanding during the year.
(3) Average of closing bid and asked prices on December 31, restated to give
effect to a 5% stock dividend paid to shareholders of record November 25,
1994.
(Triad Bank logo appears in the bottom left hand corner of page)
8
Management's Discussion
and Analysis
of Financial Condition
and Results
of Operations
The following discussion and analysis is presented to assist in the
understanding and evaluation of the changes in financial position and results of
operations. These comments are intended to supplement, and should be reviewed in
conjunction with, the financial statements and related notes for 1994, 1993, and
1992.
Summary of Operations
Net income for 1994 was $1.170 million compared with $604 thousand in 1993 and
$223 thousand in 1992. The 1993 results include a one-time credit of $175
thousand pertaining to the adoption of new accounting rules for income tax
expense.
On December 17, 1993, BTNC Corp. ("BTNC"), and its wholly-owned subsidiary,
Bankers Trust of North Carolina ("Bankers Trust"), merged with and into the
Bank, which was accounted for as a purchase transaction. The results of
operations of BTNC have been included in the Bank's financial statements from
the date of acquisition. Unless otherwise stated, increased amounts in the 1994
information, compared to 1993 and 1992, are primarily due to this transaction.
Income generated by the loan portfolio, the major component of total income,
increased 89% to $9.3 million from $4.9 million in 1993. The vast majority of
this increase is due to the increase in loans outstanding. Loan income in 1993
was down from 1992 by 10%, mostly from the impact of loan payoffs exceeding new
loan production in 1993. Income from investments and Federal funds sold
increased 71% to $2.5 million in 1994 compared with $1.5 million in 1993 and
$1.2 million in 1992. This increase in 1994 was due to an increase in investment
balances, but the effect of the balance increases was significantly dampened by
declines in the yield earned. The lower yield principally results from the
acquisition of investments in December 1993 from BTNC at market yields at that
time. In 1993, approximately half of the increase was due to income from
interest rate floor contracts, with the remainder due to an increase in balances
of investments outstanding.
Interest expense totaled $4.1 million in 1994, an increase of 97% compared with
$2.1 million in 1993 and $2.6 million in 1992. The increase in rates during 1994
did impact the increase in expense in 1994; however, the major contributor was
the increase in deposits. The decrease in 1993 was substantially due to declines
in rates paid on deposits.
Non-interest income is an important source of income to the Bank, with the total
for 1994 of $1.8 million, up 62% over the 1993 and 1992 levels of approximately
$1.1 million. As a percentage of net revenue (net interest income plus
non-interest income), non-interest income was 18.6% in 1994, 20.2% in 1993, and
21.8% in 1992. Service charges on deposit accounts, which constitute the largest
portion of non-interest income, rose to $1.3 million in 1994, from $1.0 million
in 1993, the same level as 1992. 1994 includes one-time gains from sales of
former bank premises and fixed assets of $137 thousand.
Non-interest expense, which constitutes expenses not related to interest-bearing
liabilities, increased by 70% in 1994 to $7.9 million compared with $4.6 million
in 1993. 1993 was 2% higher than 1992. Personnel expense, as a percentage of
total non-interest expense, was 50.8% in 1994, 48.1% in 1993, and 47.7% in 1992.
Other non-interest expense increased 61% from 1993 to 1994, after remaining
relatively unchanged in total from 1992 to 1993. Other real estate expense,
principally write-downs in the carrying value of properties and gains and losses
on disposals, reflected a net gain for 1994 after increasing markedly in 1993
due to the cleanup of environmentally contaminated property. In late 1991, the
Bank entered into a joint venture arrangement for data processing services and
the costs of those services are separately identified for 1993 and 1992. Due to
the merger with BTNC, the company formed in this arrangement became a
wholly-owned subsidiary of the Bank, and therefore its expenses for 1994 are
included in their natural classifications of salaries and benefits and other
non-interest expense. See Note 13 to the financial statements for further
discussion and analysis.
Income tax expense in 1994 and 1993 was provided using the requirements of
Statement of Financial Accounting Standards No.109, which mandates an asset and
liability approach. As permitted under SFAS 109, prior years' financial
statements have not been restated. The cumulative impact of adopting SFAS 109 is
a nonrecurring credit of $175 thousand, which is reflected in the Statement of
Operations as a change in accounting principle for 1993.
Since the majority of assets and liabilities of a financial institution are
monetary in nature, the impact of inflation on Triad Bank's balance sheet is
minimal. The most significant effect of inflation is on other expenses, which
tend to rise during periods of general inflation.
Other significant income and balance sheet information for each of the five
years ended December 31, 1994 is shown on page 8.
9
Net Interest Income
Loan and investment income, less interest expense related to deposits and other
borrowings, increased 79% in 1994 to $7.7 million compared to $4.3 million in
1993 and $4.1 million in 1992. The net interest margin was 4.89% in 1994
compared with 4.98% in 1993 and 4.79% in 1992. The net interest margin continues
to be favorably impacted by a consistent level of non-interest bearing demand
deposits of approximately 20% of total average deposits for each of the past
three years.
TABLE (1)
AVERAGE BALANCES AND YIELDS AND RATES
(In Thousands)
Average Balance Yield/Rate
1994 1993 1992 1994 1993 1992
Assets
Loans (1) $107,452 $ 62,036 $ 67,183 8.68% 7.95% 8.14%
Investments:
Taxable 46,910 20,187 13,802 4.94% 6.34% 7.22%
Non-Taxable (2) 1,365 1,381 1,624 6.59% 7.39% 7.02%
Total Investments 48,275 21,568 15,426 4.98% 6.40% 7.20%
Federal Funds Sold 2,741 3,256 3,083 4.05% 2.79% 3.57%
Total Earning Assets 158,468 86,860 85,692 7.47% 7.37% 7.81%
Allowance for Loan Losses (2,554) (1,586) (1,551)
Cash & Due From Banks 9,054 7,101 8,091
Bank Premises
& Equipment 3,955 1,639 1,678
Other Assets 3,393 1,667 2,024
Total Assets $172,316 $ 95,681 $ 95,934
Liabilities & Equity
Interest-Bearing Deposits $120,851 $ 67,736 $ 70,558 3.32% 3.07% 3.64%
Short-Term Borrowings 2,585 53 276 3.13% 2.82% 4.71%
Total Interest-
Bearing Liabilities 123,436 67,789 70,834 3.32% 3.07% 3.65%
Demand Deposits 34,886 20,035 17,969
Other Liabilities 1,203 889 720
Stockholders' Equity 12,791 6,968 6,411
Total Liabilities & Equity $172,316 $ 95,681 $95,934
Interest Rate Spread 4.15% 4.30% 4.16%
Net Interest Margin 4.89% 4.98% 4.79%
(1) Including non-accruing loans.
(2) Investment yields are not adjusted for tax benefit.
Net interest income is influenced by changes in the volume and mix of balance
sheet components as well as changes in prevailing rates and yields. As shown in
Table (2), the increase in net interest income in 1994 of $3.4 million was
affected more significantly by changes in earning assets, up 82% from 1993, than
by changes in interest rates. The increase in net interest income in 1993 of $.2
million was affected more significantly by the reduced level of interest-bearing
liabilities, down by 4% from 1992, than by the decline in the level of interest
rates.
(Triad Bank logo appears in the lower left corner of page)
10
TABLE (2)
VOLUME/RATE VARIANCE ANALYSIS (In Thousands)
Income/Expense
1994 1993
Total Change Due to (2) Total Change Due to (2)
Assets 1994 1993 1992 Change Volume Rate Change Volume Rate
Loans $ 9,323 $ 4,929 $ 5,469 $ 4,394 $ 3,608 $ 786 $ (540) $ (419) $ (121)
Investments:
Taxable 2,316 1,279 997 1,037 1,693 (656) 282 461 (179)
Non-Taxable (1) 90 102 114 (12) (1) (11) (12) (17) 5
Total Investments 2,406 1,381 1,111 1,025 1,692 (667) 270 444 (174)
Federal Funds Sold 111 91 110 20 (14) 34 (19) 6 (25)
Total Earning Assets $ 11,840 $ 6,401 $ 6,690 $ 5,439 $ 5,286 $ 153 $ (289) $ 31 $ (320)
Liabilities & Equity
Interest-Bearing Deposits 4,013 2,077 2,570 1,936 1,629 307 (493) (104) (389)
Short-Term Borrowings 81 1 13 80 71 9 (12) (12) -
Total Interest-
Bearing Liabilities 4,094 2,078 2,583 2,016 1,700 316 (505) (116) (389)
Net Interest Income $ 7,746 $ 4,323 $ 4,107 $ 3,423 $ 3,586 $ (163) $ 216 $ 147 $ 69
(1) Investment yields are not adjusted for tax benefit.
(2) Computed on a line-by-line basis. The change due to both rate and volume
is allocated to rate variance.
Loans
Total loans increased by 10% from year-end 1993 to year-end 1994, as a result
of new loan production. The mix by type of loan shifted to more real estate
in nature, as displayed in Table (3). However, most of the Bank's real estate
loans are actually loans to individuals and businesses for business purposes
with real estate as collateral or additional collateral. Therefore, the
Bank's actual real estate lending activity is less than the level portrayed
in Table (3).
TABLE (3)
LOAN PORTFOLIO COMPOSITION AT DECEMBER 31 (In Thousands)
1994 1993 1992
Amount % Amount % Amount %
Real Estate-
Mortgage $ 72,423 62.89% $ 55,298 53.08% $ 33,983 55.24%
Real Estate-
Construction 10,551 9.16% 8,578 8.23% 5,629 9.15%
Commercial 24,407 21.20% 32,006 30.72% 17,833 28.99%
Individuals 7,774 6.75% 8,299 7.97% 4,074 6.62%
Total $ 115,155 100.00% $ 104,181 100.00% $ 61,519 100.00%
11
As shown in Table (4), the majority of the loan portfolio (64%) will mature
within one year. Approximately 65% of the Bank's loans outstanding float with
changes in Prime and are subject to immediate price increases or decreases.
TABLE (4)
LOAN MATURITIES, EXCLUDING NON-ACCRUALS AT DECEMBER 31, 1994 (In Thousands)
One Year One to Over
or Less Five Years Five Years Total
By Interest Rate Basis:
Fixed Rate $ 6,247 $ 28,951 $ 5,112 $ 40,310
Floating Rate 66,269 4,363 2,921 73,553
Total $ 72,516 $ 33,314 $ 8,033 $ 113,863
By Loan Type:
Real Estate-Mortgage $ 40,711 $ 23,002 $ 7,734 $ 71,447
Real Estate-Construction 8,705 1,597 249 10,551
Commercial 19,636 4,485 50 24,171
Individuals 3,464 4,230 - 7,694
Total $ 72,516 $ 33,314 $ 8,033 $ 113,863
During 1992, a number of changes were made in lending policies and
procedures, resulting in a more conservative approach to underwriting and
servicing loans. The Bank's Internal Loan Committee reviews and approves
credit requests exceeding individual account officer credit authorities,
prior to the issuance of commitments. They also regularly review the
status of delinquent and non-performing loans, review progress on watch list
loans, and closely scrutinize the Bank's detailed procedures for providing
adequate allowances to cover potential loan losses. These activities permit
management and the Board of Directors to continuously review the quality of
the Bank's loans, promote the early identification of potential problem
loans, modify lending policies where needed, and evaluate the adequacy of the
allowance for loan losses.
During 1992, management also established an in-house lending limit to any new
single credit relationship of 10% of equity capital. Loans greater than this
generally will be accommodated by participating a portion to a correspondent
bank. While exceptions may be appropriately approved by the Board of Directors,
if the circumstances warrant, management's goal is to minimize the number of
relationships where the Bank retains more than the in-house limit. At the end of
1994, there were two loan relationships outstanding exceeding this limit.
Management and the Board of Directors continuously review the quality of the
Bank's loan portfolio in order to identify potential problem loans, and evaluate
the adequacy of the allowance for loan losses. Management uses a variety of
means to monitor its asset quality including identifying loans that warrant
closer attention due to outdated financial information, financial trends,
industry specific conditions and other reasons. Although these loans are subject
to closer and more frequent oversight, management does not necessarily believe
that they represent potential losses. Management does not currently believe
there are any material potential problem loans in its portfolio not already
reflected in Table (5).
In determining the adequacy of the allowance for loan losses and whether
additional provisions are necessary, management considers economic conditions,
regulatory examinations, delinquency information as well as its internal review
of the loan portfolio and current developments with individual credits. The
consideration of these factors results in the calculation of an allowance based
on current assumptions and conditions which is then compared to actual existing
reserve levels to determine whether any additional provision is necessary.
(Triad Bank logo appears in the lower left corner of page)
12
With respect to other real estate, management periodically compares its carrying
value with external estimates of fair value, typically through external
appraisals, and charges a provision for other real estate losses to operations
should the carrying value exceed the fair value.
Loans are placed in non-accrual status upon becoming 90 days past due as to
either interest or principal, or when in management's judgment, the
collection of interest on a loan appears doubtful. Any interest payments
subsequently received on non-accruing loans are recognized as income on the
cash basis. Table (5) summarizes non-accrual, past due and restructured loans
at the end of each of the past three years, and the loss experience for each
of those years.
TABLE (5)
NON-ACCRUAL, PAST DUE AND RESTRUCTURED LOANS AT DECEMBER 31 (In Thousands)
1994 1993 1992
Non-Accrual Loans $1,292 $2,173 $1,985
Loans Past Due 90 Days or More 39 168 33
Restructured Loans - - 303
Total $1,331 $2,341 $2,321
Summary of loan loss experience (In Thousands)
1994 1993 1992
Total Loans Outstanding
at Year End $115,155 $104,181 $61,519
Average Loans Outstanding $107,452 $ 62,036 $67,183
Allowance for Loan Losses at
Beginning of Year $ 2,663 $1,507 $1,474
Loans Charged Off:
Real Estate 594 179 349
Commercial 7 203 313
Installment Loans to Individuals 109 38 285
Total Charge-Offs 710 420 947
Recoveries of Previous Charge-Offs:
Real Estate 206 159 160
Commercial 128 24 262
Installment Loans to Individuals 53 29 32
Total Recoveries 387 212 454
Net Charge-Offs 323 208 493
Provision Charged to Expense 150 225 526
Allowance for Loan Losses of
Acquired Bank - 1,139 -
Allowance for Loan
Losses at End of Year $2,490 $2,663 $1,507
Allowance as a Percentage of
Total Loans at End of Year 2.16% 2.56% 2.45%
Ratio of Net Charge-Offs to
Average Loans During the Period .30% .34% .73%
During 1994, actual net loan losses represented .30% of average loans
outstanding compared with .34% for 1993 and .73% for 1992. The allowance for
loan losses was 2.16% of loans outstanding on December 31, 1994 compared with
2.56% on December 31, 1993 and 2.45% on December 31, 1992. Management considers
the allowance for loan losses to be adequate based on current projections of
losses inherent in the loan portfolio.
13
Non-performing assets declined 44% during 1994. There was a similar
significant decline during 1993. However, the Bank acquired approximately
$2.3 million in non-performing assets in the December 1993 merger with
Bankers Trust. These improving problem-asset trends, displayed in Table (6),
are the result of focusing considerable attention on improving loan quality
and efforts to dispose of other real estate and strengthen non-performing
loans. During the year ended December 31, 1994, interest income of
approximately $97 thousand would have been recorded on loans accounted for on
a non-accrual basis if the loans had been current throughout the period, but
only approximately $24 thousand in interest income received on such loans was
included in net income for the period.
TABLE (6)
NON-PERFORMING ASSETS (In Thousands)
Dec. 31 Dec. 31 Dec. 31
1994 1993 1992
Non-Accrual Loans $1,292 $2,173 $1,985
Restructured Loans - - 303
Other Real Estate 700 1,369 712
Total Non-Performing Assets $1,992 $3,542 $3,000
Total Non-Performing Assets to
Total Loans and Other Real Estate 1.72% 3.36% 4.82%
Total Non-Performing Assets to Total Assets 1.12% 2.06% 3.09%
Accruing Loans Past Due
90 Days or More $ 39 $ 168 $ 33
Displayed in Table (7) is the allocation of the allowance for loan losses to
the major loan classifications at December 31, 1994 and 1993.
TABLE (7)
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES (In Thousands)
December 31, 1994 December 31, 1993
Percentage of Loans Percentage of Loans
In Category In Category
Amount To Total Loans Amount To Total Loans
Real Estate-
Mortgage $1,306 62.89% $1,430 53.08%
Real Estate-
Construction 131 9.16% 24 8.23%
Commercial 192 21.20% 343 30.72%
Individuals 574 6.75% 606 7.97%
Unallocated 287 260
Total: $2,490 100.00% $2,663 100.00%
(Triad Bank logo appears in the lower left corner of page)
14
Investments
At December 31, 1994, the Bank's investment portfolio plus Federal funds
sold, totaled $48.5 million compared with $49.3 million at the end of 1993.
These amounts represent 27% and 29% of total assets on December 31, 1994 and
1993, respectively.
The Bank adopted Statement of Financial Accounting Standards No. 115
effective January 1, 1994. In order to provide for liquidity needs and
potential future portfolio restructuring, the Bank classified securities with
an amortized cost of $12.33 million as available for sale at their fair value
of $12.38 million. The adoption of this new accounting rule will not have an
impact on the Bank's results of operations.
During 1994 and 1992, the Bank sold securities with a book value of $6.4 million
and $.5 million, respectively, generating a loss of approximately $27 thousand
in 1994 and a gain of $14 thousand in 1992. There were no security sales in
1993. The maturities of the investments in the held to maturity and available
for sale portfolios by type, along with the average yield of each, at December
31, 1994, are displayed in Table (8).
TABLE (8)
INVESTMENT SECURITIES COMPOSITION AND MATURITY (In Thousands)
One Year or Less One to Five Years Five to Ten Years Total
Amortized Market Amortized Market Amortized Market Amortized Market
Held to Maturity Cost Value Cost Value Cost Value Cost Value
U.S. Treasury and Agency $ - $ - $ 28,024 $ 26,223 $ 3,993 $ 3,617 $ 32,017 $ 29,840
Obligations of States and
Political Subdivisions 100 100 1,036 1,074 201 212 1,337 1,386
Other 80 80 30 30 - - 110 110
$ 180 $ 180 $ 29,090 $ 27,327 $ 4,194 $ 3,829 $ 33,464 $ 31,336
Mortgage-Backed Obligations 4,939 4,527
Total $ 38,403 $ 35,863
Weighted Average Yields
U.S. Treasury and Agency - 5.09% 5.79% 5.18%
Obligations of States and
Political Subdivisions (1) 6.79% 6.51% 6.90% 6.59%
Other 3.80% 5.91% - 4.38%
5.46% 5.14% 5.84% 5.23%
Mortgage-Backed Obligations 5.71%
Total 5.29%
Available for Sale
U.S. Treasury and Agency $ 1,752 $ 1,721 $ 3,281 $ 3,132 $ 498 $ 470 $ 5,531 $ 5,323
Obligations of States and
Political Subdivisions - - - - - - - -
Other - - - - - - - -
$ 1,752 $ 1,721 $ 3,281 $ 3,132 $ 498 $ 470 $ 5,531 $ 5,323
Mortgage-Backed Obligations 1,784 1,698
FHLB Stock 516 516
Total $ 7,831 $ 7,537
Weighted Average Yields
U.S. Treasury and Agency 4.45% 4.60% 4.85% 4.57%
Obligations of States and
Political Subdivisions (1) - - - -
Other - - - -
4.45% 4.60% 4.85% 4.57%
Mortgage-Backed Obligations 5.04%
FHLB Stock 7.50%
Total 4.87%
(1) Investment yields are not adjusted for tax benefit.
15
Deposits
Total deposits at the end of 1994 were $162.6 million, a 4% increase from
year-end 1993. Time deposits showed an increase of $4.3 million, or 8%. The Bank
does not consider that it has an excessive concentration of volatile time
deposits of $100 thousand or more. These deposits comprised 9.3%, 7.1%, and
11.4% of total deposits at the end of 1994, 1993, and 1992, respectively, and
the vast majority are from customers who have other banking relationships with
the Bank. The Bank had no brokered deposits in any of the years under review.
The Bank continues to experience a high level of non-interest bearing demand
deposits, approximating 20% of total average deposits during each of the three
years ended December 31, 1994, partly as a result of its high concentration of
business customers. Average deposits and the average rate paid by type for the
past three years are listed in Table (9) below, while the time deposit maturity
schedule at December 31, 1994 is presented in Table (10).
TABLE (9)
DEPOSIT AVERAGE BALANCES AND RATES (In Thousands)
1994 1993 1992
Avg Rate Avg Rate Avg Rate
Balance Paid Balance Paid Balance Paid
Money Market
and NOW $ 54,953 2.55% $ 36,646 2.43% $ 34,405 2.86%
Savings 10,889 2.58% 4,142 2.63% 3,429 3.15%
Time 55,009 4.26% 26,948 4.00% 32,724 4.51%
Total Interest-Bearing 120,851 3.32% 67,736 3.07% 70,558 3.64%
Demand 34,886 20,035 17,969
Total Deposits $ 155,737 2.58% $ 87,771 2.37% $ 88,527 2.90%
TABLE (10)
DEPOSIT MATURITY SCHEDULE AT DECEMBER 31, 1994 (In Thousands)
3 Months 3 to 6 6 to 12 Over 12
or Less Months Months Months Total
Time Certificate of Deposits
of $100,000 or More $ 8,078 $ 3,152 $ 1,438 $ 2,515 $ 15,183
Other Time 12,095 8,788 5,760 16,008 42,651
Total Time Deposits $ 20,173 $ 11,940 $ 7,198 $ 18,523 $ 57,834
Liquidity and Interest Sensitivity
Liquidity defines the Bank's ability to meet the withdrawal needs of its
depositors as well as the borrowing needs of its loan customers on a timely
basis without damaging the financial condition of the Bank.
The Bank's primary source of liquidity is maturities of investment securities
and Federal funds sold. The Bank's investment strategy is to accept some
interest rate risk but little, if any, credit risk. Therefore, the investment
portfolio consists primarily of U.S.Treasury and U.S. Government Agency
obligations.
The primary source of funds to support asset levels is derived from customer
deposits. Because of the steady strength in primary deposits, the Bank has
been able to operate in 1994 and 1993 with a relatively high liquidity
position.
(Triad Bank logo appears in the lower left corner of page)
16
In addition to liquid funds available from operations, the Bank maintains
correspondent relationships with several larger banks. These banks have extended
unsecured lines of credit to the Bank aggregating $11 million, and secured
Federal funds and repurchase agreement lines of credit aggregating $7 million,
to handle daily funding fluctuations. The Federal Reserve also allows banks to
borrow short-term funds through its discount window. Further, the Bank is a
member of the Federal Home Loan Bank of Atlanta which provides a secured
borrowing facility of up to approximately $19 million.
The Bank's liquidity ratio (the ratio of cash and due from banks, Federal
funds sold and investments, to deposits and Federal funds purchased and other
required adjustments) at December 31, 1994 was 37.2% and at December 31, 1993
was 40.4%. During 1994 and 1993, the liquidity ratio averaged 38.4% and
37.7%, respectively. The Bank's liquidity position is actively managed on a
daily basis, monitored regularly by its Asset/Liability Management Committee,
and reviewed periodically with the Board of Directors. The Asset/Liability
Management Committee is responsible for formulating liquidity and investment
strategies and monitoring performance based on established objectives. Table
(11) reflects the earlier of the maturity or repricing dates for various assets
and liabilities at December 31, 1994. The mismatching of asset and
liability repricing characteristics, or "gaps", is a measure of interest
sensitivity. At December 31, 1994, the Bank had a cumulative negative
six-month gap of $17.1 million and a cumulative negative one-year gap of
$17.2 million. This generally indicates that earnings should improve in a
declining interest rate environment as liabilities reprice more quickly than
assets. However, asset/liability simulation projections indicate that the
Bank's earnings are actually negatively impacted by declining interest rates.
To offset the interest rate sensitivity of variable rate assets which include
Federal funds sold and investment securities, the Bank has $11 million in
interest rate floor contracts outstanding. With the interest rate increases
that occurred during 1994, the contracts are currently irrelevant as the
market interest rate exceeds the contracted interest rates. Should interest
rates decline before the contracts expire in 1997, they may again provide
interest rate protection. As management continues to evaluate expected
movements in interest rates and the position of the investment portfolio,
other interest rate protection contracts may be purchased.
Table (11)
Interest Sensitivity Analysis at December 31, 1994 (In Thousands)
Maturity/Rate Sensitivity
0 to 90 91 to 180 181 to 365 Total Total Non-
Days Days Days Sensitive Sensitive (1) Total
Earning Assets $ 2,540 $ - $ - $ 2,540 $ - $ 2,540
Federal Funds Sold 4,050 4,492 3,497 12,039 33,901 45,940
Investments
Loans, Excluding 67,866 1,033 3,615 72,514 41,349 113,863
Non-Accrual $ 74,456 $ 5,525 $ 7,112 $ 87,093 $75,250 $ 162,343
Total Earning Assets
Interest-
Bearing Liabilities
Savings and NOW 27,750 - - 27,750 - 27,750
Money Market Accounts 35,607 - - 35,607 - 35,607
CD's of $100,000
and Over 8,078 3,152 1,438 12,668 2,515 15,183
Other Time Deposits 12,095 8,788 5,760 26,643 16,008 42,651
Short-Term Borrowings 1,591 - - 1,591 - 1,591
Total Interest-
Bearing Liabilities 85,121 11,940 7,198 104,259 18,523 122,782
Interest Sensitivity Gap $(10,665) $ (6,415) $ (86) $(17,166) $56,727 $ 39,561
Cumulative Interest Sensitivity Gap $(10,665)
Cumulative Ratio $ (17,080) $ (17,166)
of Interest Sensitive Assets to Interest
Sensitive Liabilities 87.47% 82.40% 83.54%
(1) Due to maturities beyond one year or fixed interest rates.
17
Capital
The Bank does not have any current plans which require additional capital.
However, should significant expansion be planned, additional capital would be
required. At December 31, 1994, unimpaired capital (stockholders' equity plus
the allowance for loan losses) was $15.9 million or 8.90% of total assets.
Management believes the Bank's capital is sufficient to support growth for
1995.
At December 31, 1994, the Bank's capital ratios place it in the
well-capitalized category as defined by the FDIC Improvement Act of 1991. At
December 31, 1994, the Bank's tier one leverage ratio was 7.65%,
risk-adjusted tier one capital ratio was 11.12%, and risk-adjusted total
capital ratio was 12.38%. At December 31, 1993, these ratios were 7.21%,
10.84%, and 12.10% respectively.
Table (12) outlines key return on asset and equity ratios for each of the
past three years.
Table (12)
Return on assets and equity
1994 1993 1992
Return on Assets
(Net Income/
Average Assets) .68% .63% .23%
Return on Equity
(Net Income/Average
Stockholders' Equity) 9.15% 8.67% 3.48%
Stockholders' Equity to Assets
(Average Stockholders'
Equity/Average Assets) 7.42% 7.28% 6.68%
(Triad Bank logo appears in the lower left corner of page)
18
Balance Sheets
December 31, December 31,
Assets 1994 1993
Cash and Due from Banks $ 10,590,981 $ 13,287,845
Federal Funds Sold 2,540,000 1,200,000
Investment Securities (Note 3):
Held to Maturity (Market Value of
$35,862,781 at December 31, 1994 and
$48,340,532 at December 31, 1993) 38,403,220 48,060,754
Available for sale, at Market Value
(Cost of $7,830,874) 7,537,179 -
Loans (Notes 4 and 15) 115,155,668 104,180,841
Allowance for Loan Losses (Note 5) (2,490,351) (2,663,206)
Net Loans 112,665,317 101,517,635
Bank Premises and Equipment (Note 6) 3,654,511 4,293,944
Other Real Estate 699,568 1,368,586
Closed Bank Premises (Note 6) 812,485 -
Other Assets 1,683,825 1,995,191
Total Assets $ 178,587,086 $ 171,723,955
Liabilities and Stockholders' Equity
Deposits:
Demand $ 41,441,879 $ 36,249,924
Money Market and NOW 53,158,629 56,283,627
Savings 10,197,708 10,956,327
Time (Note 7) 57,834,404 53,500,919
Total Deposits 162,632,620 156,990,797
Short-Term Borrowings (Note 7) 1,591,329 961,452
Other Liabilities (Notes 10 and 11) 950,567 1,388,537
Total Liabilities 165,174,516 159,340,786
Stockholders' Equity (Note 10 and 14)
Common Stock, $2.50 Par Value, Authorized
4,000,000 Shares; Issued and
Outstanding 1,816,829 in 1994
and 1,721,063 in 1993 4,542,072 4,302,658
Surplus 7,520,999 6,734,323
Undivided Profits 1,543,338 1,346,188
Net Unrealized Loss on
Available for Sale Securities (193,839) -
Total Stockholders' Equity 13,412,570 12,383,169
Commitments (Notes 4 and 8)
Total Liabilities and Stockholders' Equity $178,587,086 $ 171,723,955
See Accompanying Notes to Financial Statements
19
Statements of
Operations
Years Ended December 31
Interest Income 1994 1993 1992
Interest and Fees on Loans $9,322,998 $4,929,002 $5,469,283
Interest on Federal Funds Sold 110,951 91,080 110,106
Interest on Investment Securities:
U.S. Treasury and Agency 2,337,481 1,066,244 944,339
Obligations of States and
Political Subdivisions 90,026 102,117 114,445
Other (21,075) 212,098 52,343
Total Interest Income 11,840,381 6,400,541 6,690,516
Interest Expense
Interest on Money Market
and NOW Deposits 1,391,090 890,559 985,379
Interest on Savings Deposits 281,381 109,291 107,691
Interest on Time Deposits (Note 7) 2,340,592 1,077,300 1,477,269
Interest on Short-Term Borrowings 81,504 666 13,121
Total Interest Expense 4,094,567 2,077,816 2,583,460
Net Interest Income 7,745,814 4,322,725 4,107,056
Provision for Loan Losses (Note 5) 150,000 225,000 526,000
Net Interest Income After
Provision For Loan Losses 7,595,814 4,097,725 3,581,056
Noninterest Income (Notes 3 and 12) 1,768,323 1,092,973 1,142,920
Noninterest Expense
Salaries and Employee Benefits (Note 11) 3,991,432 2,220,459 2,147,572
Other (Note 13) 3,859,623 2,393,677 2,353,057
Total Noninterest Expense 7,851,055 4,614,136 4,500,629
Income Before Income Taxes, Accounting
Change and Extraordinary Item 1,513,082 576,562 223,347
Income Tax Expense (Note 9) 343,000 147,300 40,720
Net Income Before Accounting Change
and Extraordinary Item 1,170,082 429,262 182,627
Extraordinary Item (Note 9) - - 40,720
Cumulative Effect of Change
in Accounting for Income
Tax Expense - 175,000 -
Net Income $1,170,082 $604,262 $ 223,347
Net Income per Share Before
Accounting Change and
Extraordinary Item $ .65 $ .44 $ .19
Accounting Change and
Extraordinary Item Per Share $ - $ .18 $ .05
Net Income Per Share $ .65 $ .62 $ .24
See Accompanying Notes to Financial Statements
(Triad Bank logo appears in the lower left corner of page)
20
Statements of
Cash Flows
Years Ended December 31
Cash Flows from Operating Activities 1994 1993 1992
Net Income Before Extraordinary Item $1,170,082 $ 604,262 $ 182,627
Adjustments to Reconcile Net Income
to Cash Provided by Operating Activities:
Extraordinary Item - - 40,720
Depreciation and Amortization 481,041 246,599 261,653
Amortization of Premiums and Discounts, Net 130,550 24,194 5,606
Net Deferred Loan Costs 75,163 (80,372) 26,576
Provision for Loan and Other Real Estate Losses 230,000 266,001 551,075
Deferred Income Tax Expense (Benefit) 193,000 (3,700) (45,880)
Net Loss (Gain) on Investment Securities 26,781 - (13,877)
Net Loss (Gain) on Sale of Other Real Estate (115,387) (40,493) 35,111
Net Loss (Gain) on Sale of Closed Bank Premises and Fixed Assets (137,221) 2,578 -
Decrease in Refundable Income Taxes - - 420,170
(Increase) Decrease in Other Assets 218,222 (724,314) 90,470
Increase (Decrease) in Accrued Expenses and
Other Liabilities (415,655) 387,809 (119,064)
Total Adjustments 686,494 78,302 1,252,560
Net Cash Provided by Operating Activities 1,856,576 682,564 1,435,187
Cash Flows from Investing Activities
Held to Maturity Investment Securities:
Purchases (9,163,129) (29,161,417) (9,681,487)
Proceeds from Maturities 6,389,306 9,711,362 9,598,318
Available for Sale Investment Securities:
Purchases (4,512,811) - -
Proceeds from Maturities 2,542,713 - -
Proceeds from Sales 6,413,250 - 527,500
Net Decrease (Increase) in Loans from Originations and Repayments (11,753,896) (1,435,912) 10,764,374
Cash Acquired in Purchase of Bank - 21,042,138 -
Purchases of Bank Premises and Equipment (1,182,294) (376,886) (107,738)
Proceeds from Sales of Closed Bank Premises and Fixed Assets 665,422 1,000 8,440
Proceeds from Sales of Other Real Estate 1,085,456 353,753 578,960
Net CashProvided (Used)
by Investing Activities (9,515,983) 134,038 11,688,367
Cash Flows from Financing Activities
Net Increase (Decrease) in Deposits 5,641,823 (2,296,761) (5,105,462)
Net Increase (Decrease) in Short-Term Borrowings 629,877 16,969 (1,210,000)
Payout of Fractional Shares (8,777) - -
Proceeds from Issuance of Common Stock 39,620 50,388 52,500
Net Cash Provided (Used)
by Financing Activities 6,302,543 (2,229,404) (6,262,962)
Net Increase (Decrease) in
Cash and Cash Equivalents (1,356,864) (1,412,802) 6,860,592
Cash and Cash Equivalents, Beginning of Year 14,487,845 15,900,647 9,040,055
Cash and Cash Equivalents, End of Year $13,130,981 $14,487,845 $15,900,647
Supplemental Statement of
Cash Flows Disclosures
Interest Paid $4,166,717 $ 1,830,675 $2,718,424
Income Taxes Paid $ 252,505 $ 28,000 $ 21,000
Non-Cash Transactions:
Real Estate Acquired in Settlement of Loans $ 381,051 $ 259 $ 160,000
Issuance of Common Stock $ 22,315 $ 54,891 $ -
Transfer of Held to Maturity Investment Securities
to Available for Sale $12,381,274 $ - $ -
Transfer to Closed Bank Premises $1,413,223 $ - $ -
Stock Dividend Declared $ 965,430 $ - $ -
See Accompanying Notes to Financial Statements
21
Statements of
Stockholders'Equity
Net
Unrealized
Gain (Loss)
Number on Available Total
of Common Undivided for Sale Stockholders'
Shares Stock Surplus Profits Securities Equity
Balance at
December 31, 1991 890,430 $ 2,226,075 $ 3,439,405 $ 518,579 $ - $ 6,184,059
Net Income for 1992 - - - 223,347 - 223,347
Issuance of Common
Stock (Note 10) 10,000 25,000 27,500 - - 52,500
Balance at
December 31, 1992 900,430 2,251,075 3,466,905 741,926 - 6,459,906
Net Income for 1993 - - - 604,262 - 604,262
Issuance of Common
Stock in Acquisition
of Bank (Note 16) 802,111 2,005,278 3,208,444 - - 5,213,722
Issuance of Common
Stock (Note 10) 18,522 46,305 58,974 - - 105,279
Balance at
December 31, 1993 1,721,063 4,302,658 6,734,323 1,346,188 - 12,383,169
Unrealized Gain on
Securities Available for
Sale at January 1, 1994,
Net of Tax Effect of $18,859 - - - - 36,608 36,608
Net Income for 1994 - - - 1,170,082 - 1,170,082
Issuance of Common
Stock Dividend
and Payout of
Fractional Shares 85,816 214,540 750,890 (972,932) - (7,502)
Issuance of Common
Stock (Note 10) 10,146 25,364 36,571 - - 61,935
Payout of Fractional
Shares in Acquisition
of Bank (196) (490) (785) - - (1,275)
Increase in Unrealized Loss
on Available for Sale
Securities, Net of Tax Effect
of $(118,715) - - - - (230,447) (230,447)
Balance at
December 31, 1994 1,816,829 $4,542,072 $7,520,999 $1,543,338 $ (193,839) $13,412,570
See Accompanying Notes to Financial Statements
(Triad Bank logo appears in the lower left corner of page)
22
Notes to Financial Statements
December 31, 1994, 1993
and 1992
(1) Organization and Operations
Triad Bank (the "Bank") was incorporated August 9, 1982, and began banking
operations on October 29, 1982. The Bank is engaged in general commercial and
retail banking in the Piedmont area of North Carolina operating under the
banking laws of North Carolina and rules and regulations of the Federal
Deposit Insurance Corporation. The Bank undergoes periodic examinations by
those regulatory authorities.
On December 17, 1993, BTNC Corp. ("BTNC"), and its wholly-owned subsidiary,
Bankers Trust of North Carolina ("Bankers Trust") merged with the Bank. The
transaction has been accounted for as a purchase and, accordingly, the
results of operations of BTNC have been included in the Bank's financial
statements from December 17, 1993. Effective this same date, Databanc, Inc.,
a data processing company operating as a joint venture with Bankers Trust,
became a wholly-owned subsidiary of the Bank. Databanc, Inc. was merged into
the Bank effective December 31, 1994.
(2) Summary of Significant Accounting Policies
Investment Securities
Effective January 1, 1994, the Bank adopted Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" which addresses the accounting and reporting for
investments in equity securities that have readily determinable fair value
and for all investments in debt securities. Investment securities that the
Bank has the positive intent and ability to hold to maturity are classified
as held to maturity and reported at amortized cost. Investment securities
held for current resale are classified as trading securities and reported at
fair value, with unrealized gains and losses included in earnings. Investment
securities not classified either as securities held to maturity or trading
securities are classified as available for sale and reported at fair value,
with unrealized gains and losses net of the related tax effect excluded from
earnings and reported as a separate component of stockholders' equity. The
classification of investment securities as held to maturity, trading or
available for sale is determined at the date of purchase. Prior to the
adoption of SFAS 115, investment securities were stated at cost, adjusted for
amortization of premium and accretion of discount, as management had the
intent and ability to hold the securities to maturity.
Realized gains and losses from sales of securities are determined based upon
the specific identification method. Premiums and discounts are amortized or
accreted into income using a method which approximates the level-yield
method.
As a member of the Federal Home Loan Bank (FHLB) of Atlanta, the Bank is
required to maintain an investment in the stock of the FHLB. This stock,
which is included in the available for sale category at December 31, 1994, is
carried at cost since it has no quoted market value. See also note 3.
The Bank, as required, has adopted for the year ended December 31, 1994, the
provisions of SFAS No. 119, "Disclosures about Derivative Financial
Instruments and Fair Value of Financial Instruments." The only off-balance
sheet derivative financial instrument utilized by the Bank is interest rate
floor arrangements. Interest rate floors are accounted for on an accrual
basis, and the net differential, including premiums paid, if any, is
recognized as an adjustment to interest income or interest expense of the
related hedged asset or liability. See also note 3.
Bank Premises and Equipment
Bank premises and equipment are stated at cost less accumulated depreciation.
Depreciation is calculated on the straight-line method over the estimated
useful lives of the assets which are 15-30 years for buildings, 5-10 years
for leasehold improvements, and 3-10 years for furniture and equipment.
Leasehold improvements are amortized over the terms of the respective leases
or the estimated useful lives of the improvements, whichever is shorter.
Repairs and maintenance costs are charged to operations as incurred and
additions and improvements to premises and equipment are capitalized. Upon
sale or retirement, the cost and related accumulated depreciation are removed
from the accounts and any gains or losses are reflected in current operations.
Interest Income on Loans
Interest on loans is accrued daily based on the principal amount outstanding.
The Bank discontinues the accrual of interest when, in the opinion of
management, collection of such interest is doubtful. Generally, accrual of
interest income is discontinued when loans
23
Notes to Financial Statements
become contractually past due 90 days. At the time a loan is placed in
non-accrual status, previously accrued but uncollected interest is reversed
by a charge to current interest income, and subsequent interest received is
recognized as income on the cash basis.
Allowance for Loan Losses
The provision for loan losses is based upon management's estimate of the
amount needed to maintain the allowance for loan losses at an adequate level.
In making the evaluation of the adequacy of the allowance for loan losses,
management gives consideration to current and anticipated economic
conditions, statutory examinations of the loan portfolio by regulatory
agencies, delinquency information and management's internal review of the
loan portfolio. While management uses the best information available to make
evaluations, future adjustments to the allowance may be necessary if
conditions differ substantially from the assumptions used in making the
evaluations. In addition, regulatory examiners may require the Bank to
recognize changes to the allowance for loan losses based on their judgments
about information available to them at the time of their examination.
Loan Origination Fees and Related Costs
Loan origination fees and certain direct loan origination costs are deferred,
and the net fee or cost is amortized to interest income using a method which
approximates the level-yield method over the contractual lives of the loans.
Other Real Estate
Real estate acquired through foreclosure, both formal and in-substance, is
initially recorded at the lower of cost (principal balance of the former loan
plus cost of obtaining title and possession) or estimated fair market value less
estimated costs to sell. If there are subsequent declines in value, the property
is written down to value through charges to current operations. Capital
improvements made to facilitate sales are capitalized. Costs of holding real
estate, such as property taxes, insurance and maintenance, less related revenues
during the holding period, are charged to operations. Any gain from the sale of
real estate is recognized in accordance with the criteria for profit recognition
on real estate transactions.
Cash Flows
For purposes of the statement of cash flows, the Bank considers cash on hand,
due from banks and Federal funds sold to be cash and cash equivalents.
Generally, Federal funds are sold for one day periods.
Income Taxes
Effective January 1, 1993, the Bank adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes"(SFAS 109) which changed the
Bank's method of accounting for income taxes from the deferred method
required under APB Opinion 11 to the asset and liability method. Under SFAS
109, deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the tax bases of
assets and liabilities and their carrying amounts for financial reporting
purposes. Deferred tax assets and liabilities are measured using enacted tax
rates in effect for the year in which the temporary differences are expected
to be recovered or settled. Under SFAS 109, deferred tax assets are reduced
by a valuation allowance if it is more likely than not that the tax benefits
will not be realized. Upon adoption, the Bank reported the cumulative effect
of the change in the method of accounting for income taxes in its
consolidated statement of operations for the year ended December 31, 1993.
Prior to 1993, the Bank computed income taxes using APB Opinion 11 under
which deferred income taxes were provided when items of income or expense
were included in different periods for financial reporting and income tax
return purposes.
Income per Share
Income per share is computed based on the weighted average number of shares
outstanding during the year (1,812,263 shares in 1994, 980,294 shares in
1993, and 934,980 shares in 1992). All per share amounts have been restated
to give effect to a 5% stock dividend to shareholders of record November 25,
1994. Outstanding stock options have no material dilutive effect.
Reclassifications
Certain items for 1993 and 1992 have been reclassified to conform with the 1994
presentation. Such reclassifications had no effect on net income or
stockholders' equity as previously reported.
(Triad Bank logo appears in the lower left corner of page)
24
Notes to Financial Statements
(3) Investment Securities
A summary of investment securities follows:
Gross Gross
Amoritized Unrealized Unrealized Approximate
December 31, 1994 Cost Gains Losses Market Value
Held to Maturity:
U.S. Treasury and Agency $32,016,602 $ - $ 2,176,126 $29,840,476
Obligations of States and
Political Subdivisions 1,336,903 51,271 2,499 1,385,675
Mortgage-Backed
Obligations 4,939,715 1,165 414,250 4,526,630
Other 110,000 - - 110,000
Total $38,403,220 $ 52,436 $ 2,592,875 $35,862,781
Available for Sale:
U.S. Treasury and Agency $ 5,530,881 $ - $ 207,489 $ 5,323,392
Obligations of States and
Political Subdivisions - - - -
Mortgage-Backed
Obligations 1,783,593 86,206 1,697,387
Other 516,400 - - 516,400
Total $ 7,830,874 $ - $ 293,695 $ 7,537,179
December 31, 1993
Held to Maturity:
U.S. Treasury and Agency $36,185,698 $ 177,236 $ 39,882 $36,323,052
Obligations of States and
Political Subdivisions 1,335,585 128,477 - 1,464,062
Mortgage-Backed
Obligations 10,140,171 66,151 51,104 10,155,218
Other 399,300 - 1,100 398,200
Total $48,060,754 $ 371,864 $ 92,086 $48,340,532
A summary of investment securities by maturity at December 31, 1994
follows:
Held to Maturity Available for Sale
Amoritized Approximate Amortized Approximate
Cost Market Value Cost Market Value
Maturing within one year $ 180,065 $ 180,450 $ 1,752,024 $ 1,721,594
Maturing after one but with-
in five years 29,089,239 27,326,461 3,281,136 3,131,798
Maturing after five but
within ten years 4,194,201 3,829,240 497,721 470,000
33,463,505 31,336,151 5,530,881 5,323,392
Mortgage-Backed
Obligations 4,939,715 4,526,630 1,783,593 1,697,387
FHLB Stock - - 516,400 516,400
Total $38,403,220 $35,862,781 $ 7,830,874 $ 7,537,179
Investment securities were pledged to collateralize public deposits,
retail repurchase agreements and treasury, tax and loan deposits of
$2,150,000 at December 31, 1994. Proceeds from sales of investment
securities were $6,413,250, $0, and $527,500 in 1994, 1993, and 1992,
respectively. Gross gains (losses) of $(26,781), $0, and $13,877 were
realized on these transactions in 1994, 1993, and 1992, respectively.
25
Notes to Financial Statements
(3) Investment Securities (continued)
The Bank has entered into interest rate floor agreements with another
bank to offset the interest rate sensitivity of variable rate assets
which include Federal funds sold and investment securities. The
agreements require the other bank to pay to the Bank the difference
between the floor interest rate and the quarterly average Federal funds
rate, if less. The Bank has no liability if the Federal funds rate
exceeds the floor interest rate. The Bank's exposure to credit risk is
limited to the ability of the counterparty to make payments to the Bank
that are required pursuant to the floor agreement. The floor interest
rate, expiration date, and notional amount of each of the agreements
outstanding at each year end are as follows:
1994 1993 1992
4.50% Expiring December 1997 $10,000,000 $10,000,000 $10,000,000
5.25% Expiring October 1996 1,000,000 1,000,000 1,000,000
$11,000,000 $11,000,000 $11,000,000
Under these agreements, the Bank received payments of $60,058, $191,353,
and $9,936 in 1994, 1993 and 1992, respectively. These amounts, net of
premium amortization, are included as other investment income in 1994
and 1993 since these contracts were used primarily to offset the
interest rate sensitivity of investment securities, and as interest
income on Federal funds sold in 1992, since they were used to offset the
sensitivity of Federal funds sold. The unamortized premiums paid for the
contracts of $0 and $114,000 at December 31, 1994 and 1993,
respectively, are included in other assets. In 1994, the Bank
accelerated the amortization of premiums due to the rise in interest
rates.
(4) Loans
Following is a summary of loans at December 31, 1994 and 1993:
1994 1993
Real Estate - Mortgage Loans $ 72,423,486 $ 55,297,969
Real Estate - Construction Loans 10,551,062 8,577,741
Commercial and Industrial Loans 24,407,271 32,006,314
Loans to Individuals 7,773,849 8,298,817
Total $115,155,668 $104,180,841
Loans are primarily made in regions of North Carolina that include
Guilford County, Forsyth County and Randolph County. The real estate
portfolio can be affected by the condition of the local real estate
market. The commercial and installment portfolios can be affected by the
local economic conditions.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of conditions established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since some of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Bank
evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Bank, upon
extension of credit is based on management's credit evaluation of the
borrower. Collateral obtained varies but may include real estate,
stocks, bonds, and certificates of deposit. Undisbursed commitments
under outstanding lines of credit aggregated approximately $23,300,000
at December 31, 1994. The Bank had standby letters of credit of
approximately $230,000 outstanding at December 31, 1994.
Loans amounting to $1,291,829 and $2,172,690 were on non-accrual at
December 31, 1994 and 1993, respectively. There were no restructured
loans at December 31, 1994 and 1993. Interest income that would have
been recorded on these non-performing loans had they performed in
accordance with their original terms throughout each of the periods was
approximately $97,000, $129,000 and $214,000 in 1994, 1993, and 1992,
respectively. Interest income actually recorded on these loans was
approximately $24,000, $31,000, and $24,000 in 1994, 1993, and 1992,
respectively.
26
(Triad Bank logo appears in the lower left corner of page)
Notes to Financial Statements
(4) LOANS (continued)
As of December 31, 1994, the Bank had loans of approximately $3,234,000,
or 2.8% of total loans outstanding, to two borrowers or their related
interests where the total indebtedness of the Bank is equal to or
greater than 10% of stockholders' equity. These borrowers are located in
the Bank's market area, and the loans are well secured. There were no
loans at December 31, 1993 exceeding this threshold.
Statement of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan" ("SFAS 114") and Statement of
Financial Accounting Standards No. 118, "Accounting by Creditors for
Impairment of a Loan: Income Recognition and Disclosures" ("SFAS 118")
addresses the accounting by creditors for impairment of certain loans
and income recognition on those loans. It is applicable to all
creditors and to all loans, uncollateralized as well as
collateralized, and requires that the impaired loans be measured
based on the present value of the expected future cash flows
discounted at the loan's effective interest rate, or if more
practical, at the loan's observable market price or the fair value of
the collateral if the loan is collateral-dependent. These statements
apply to financial statements for fiscal years beginning after December
15,1994. The Bank plans to adopt these statements prospectively at the
beginning of 1995 as required, and has determined that these statements
should have no material impact on its financial statements.
(5) Allowance for Loan Losses
An analysis of the allowance for loan losses follows:
1994 1993 1992
Balance at Beginning of Year $2,663,206 $1,506,571 $1,474,327
Provision Charged
to Operations 150,000 225,000 526,000
Charge-Offs (709,646) (419,839) (946,835)
Recoveries 386,791 212,596 453,079
Net Charge-Offs (322,855) (207,243) (493,756)
Allowance of Acquired Bank - 1,138,878 -
Balance at End of Year $2,490,351 $2,663,206 $1,506,571
(6) Bank Premises and Equipment
Following is a summary of bank premises and equipment:
Accumulated Net
Depreciation and Carrying
December 31, 1994 Cost Amortization Value
Land $ 936,431 $ - $ 936,431
Buildings and Leasehold
Improvements 1,837,367 509,937 1,327,430
Furniture and Equipment 4,053,604 2,662,954 1,390,650
Total $6,827,402 $3,172,891 $3,654,511
December 31, 1993
Land $1,901,487 $ - $1,901,487
Buildings and Leasehold
Improvements 2,172,761 626,146 1,546,615
Furniture and Equipment 3,083,383 2,237,541 845,842
Total $7,157,631 $2,863,687 $4,293,944
Depreciation and amortization amounting to $481,041 in 1994, $246,599 in
1993 and $261,653 in 1992, is included in occupancy and furniture and
equipment expense.
27
Notes to Financial Statements
(6) Bank Premises and Equipment (continued)
As a result of the merger with Bankers Trust, three overlapping branch
locations were closed in the first and second quarters of 1994. Two of
these closed bank premises were unsold at December 31, 1994 and were
carried on the balance sheet at estimated fair value of $812,000. One of
these properties with a carrying value of approximately $414,000 was
under contract for sale at December 31, 1994. The sale is expected to
close during the first quarter of 1995 with no loss anticipated.
(7) Time Deposits and short-term Borrowings
Time deposits in denominations of $100,000 or more were approximately
$15,183,000 and $11,200,000 at December 31, 1994 and 1993, respectively.
Interest expense on such deposits aggregated approximately $527,000 in
1994, $258,000 in 1993 and $629,000 in 1992.
At December 31, 1994, the Bank had available lines of credit totaling
$37,000,000 at various financial institutions. Such lines are subject to
annual renewals and are at varying interest rates.
(8) Leases
The Bank leases seven branch office locations under non-cancellable
operating leases.
Future minimum lease payments under these leases for the years ending
December 31 are as follows:
Operating Leases
1995 $ 591,000
1996 538,000
1997 534,000
1998 540,000
1999 470,000
2000 and thereafter 2,228,000
$4,901,000
Total rental expense under operating leases was approximately $516,000
in 1994, $254,000 in 1993, and $249,000 in 1992.
(9) Income Taxes
As of January 1, 1993, the Bank prospectively adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes"(SFAS 109), which requires an asset and liability approach to
accounting for income taxes. As permitted under SFAS 109, prior years'
financial statements have not been restated. The cumulative impact of
adopting SFAS 109 is a tax benefit of $175,000, which is reflected in
the income statement as a change in accounting principle for 1993. The
effect of this change on operating results for 1993, excluding the
cumulative effect of changing methods, is not material.
The provision for income taxes is summarized as follows:
1994 1993 1992
Currently Payable:
Federal $150,000 $135,000 $86,600
State - 16,000 -
Total Currently Payable 150,000 151,000 86,600
Deferred:
Federal 193,000 (3,700) (45,880)
State - - -
Total Deferred 193,000 (3,700) (45,880)
Total Tax Expense $343,000 $147,300 $40,720
(Triad Bank logo appears in the lower left corner of page)
28
Notes to Financial Statements
The reasons for the difference between income tax expense and the amount
computed by applying the statutory federal income tax rate of 34% to
income before taxes were as follows:
1994 1993 1992
Federal Income Taxes at
Statutory Rate $514,000 $196,000 $76,000
Effect of Tax-Exempt
Securities Interest (31,000) (32,000) (27,000)
Adjustment of Valuation
Allowance (196,000) - -
Other Items 56,000 (16,700) (8,280)
Total Tax Expense $343,000 $147,300 $40,720
Under SFAS 109, deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for
income tax purposes. Significant components of the Bank's deferred tax
assets and liabilities at December 31, 1994 and 1993 are as follows:
1994 1993
Deferred Deferred Deferred Deferred
Tax Assets Tax Liabilities Tax Assets Tax Liabilities
Allowance for Loan Losses $ 473,000 $ - $ 638,000 $ -
Investments--
Available for Sale 100,000 - - -
Depreciation - 56,000 - 70,000
Other Real Estate 86,000 - 165,000 -
Deferred Compensation 57,000 - 44,000 -
Net Operating Loss
Carryforward 909,000 - 999,000 -
Other 73,000 - 175,000 20,000
Gross Deferred Taxes 1,698,000 56,000 2,021,000 90,000
Valuation Allowance 1,541,000 - 1,737,000 -
Total Deferred Taxes $ 157,000 $ 56,000 $ 284,000 $ 90,000
Net Recorded
Deferred Taxes $ 101,000 $ 194,000
The net deferred income tax asset amounted to $19,000 at December 31,
1992. The components of the provision for deferred income taxes for the
year ended December 31, 1992 are as follows:
1992
Provision for Loan Losses $(17,000)
Depreciation (19,000)
Deferred Compensation (7,000)
Other (2,880)
Total Deferred Income Taxes $(45,880)
29
Notes to Financial Statements
(10) Common Stock
The Bank has stock option plans which provide for the granting of
incentive and non-qualified stock options to officers and directors at
prices not less than the fair market value of the stock at the date of
grant. Options are exercisable in installments over five years from the
date of grant, and expire after five to ten years. Some of the options
entitle the holder to convert up to 60% into stock appreciation rights
and receive cash for the difference between the option price and market
price at the date of exercise. The following summarizes activity
relating to these options:
Number of Shares Option Price
Outstanding at December 31, 1991 57,558 $7.50-15.00
Granted 30,000 5.25
Forfeited (22,433) 7.50-15.00
Outstanding at December 31, 1992 65,125 5.25-14.29
Granted 104,645 5.00-11.00
Forfeited (22,775) 5.00-13.50
Exercised (10,077) 5.00
Outstanding at December 31, 1993 136,918 5.00-11.00
Granted 38,645 6.19-10.25
Forfeited (16,592) 4.76-9.52
Exercised (6,713) 4.76-5.44
5% Stock Dividend 5,680 -
Outstanding at December 31, 1994 157,938 $4.76-10.48
Exercisable at December 31, 1994 102,425 $4.76-10.48
In addition, the Bank has a deferred compensation plan for non-employee
directors under which a director may choose to defer his compensation
for current year service and receive cash or stock upon his death,
disability, or retirement as a director. The number of shares of stock
to be distributed, and the associated deferred compensation amount, are
based on the stock price at the time of deferral, and the plan requires
the Bank at the time of payment to issue new stock. As of December 31,
1994 and 1993, the number of shares of stock to be distributed under
this plan was 22,730 and 16,182, respectively. There were no cash
deferrals at December 31, 1994. The Bank includes the liability related
to this plan of $167,349 and $112,789 at December 31, 1994 and 1993,
respectively, in other liabilities based on an average stock price of
$7.46 and $6.97, respectively. During 1994, the Bank issued 3,433 shares
of common stock to retired directors.
During 1992, 10,000 shares of common stock were issued in accordance
with the terms of an employment contract with the proceeds included in
stockholders' equity.
(Triad Bank logo appears in the lower left corner of page)
30
Notes to Financial Statements
(11) Employee Benefit Plans
The Bank has a non-contributory defined benefit pension plan covering
substantially all employees. Benefits under the plan are based on length
of service and a percentage of qualifying compensation during the final
years of employment. Contributions to the plan are based upon the
projected unit credit actuarial funding method and comply with the
funding requirements of the Employee Retirement Income Security Act.
Contributions are intended to provide not only for benefits attributed
to service to date but also for those expected to be earned in the
future.
Net periodic pension expense in 1994, 1993 and 1992 includes the
following components:
1994 1993 1992
Service Cost - Benefits Earned During the Year $69,446 $28,105 $58,310
Interest Expense on Projected Benefit Obligation 39,714 35,857 30,935
Actual Return on Plan Assets (26,191) (16,584) (6,106)
Net Amortization and Deferral (15,875) (23,327) (37,183)
Total $67,094 $24,051 $45,956
The following table sets forth the funded status of the plan and amounts
recognized in the balance sheets at December 31, 1994 and 1993:
1994 1993
Accumulated Benefit Obligation, Including Vested Benefits
of $457,713 in 1994 and $439,587 in 1993 $495,730 $466,967
Projected Benefit Obligation for Service Rendered-to-Date $582,186 $528,684
Plan Assets at Fair Value,
Primarily Guaranteed Insurance Contracts 598,532 483,329
Projected Benefit Obligation (Less Than)
Greater Than Plan Assets (16,346) 45,355
Unrecognized Net Asset at January 1, 1989,
Being Recognized over 19 years 3,425 3,710
Unrecognized Prior Service Cost Being
Recognized over 21 years 96,786 102,836
Unrecognized Net Loss from Past Experience
Different from That Assumed and Effects
of Changes in Assumptions (40,155) (73,669)
Pension Liability $43,710 $ 78,232
The weighted average discount rate and the rate of increase in future
compensation levels used in determining the actuarial present value of
the projected benefit obligation was 7.50% and 4.00%, in both 1994 and
1993. The expected long-term rate of return on assets was 7.75% for both
1994 and 1993.
The plan's benefit formula was changed effective January 1, 1992 which
reduced the projected benefit obligation as of that date by
approximately $178,000 and reduced pension expense for 1992 by
approximately $45,000.
The Bank also has a contributory 401(k) savings plan covering
substantially all employees. The plan allows eligible employees to
contribute up to a fixed percentage of their compensation, with the Bank
matching a portion of each employee's contribution. The Bank's
contributions were $60,452, $17,707, and $20,482 for 1994, 1993 and
1992, respectively.
31
Notes to Financial Statements
(12) Noninterest Income
The major components of noninterest income are as follows:
1994 1993 1992
Service Charges on Deposit Accounts $1,267,774 $ 997,505 $1,035,841
Other Fees &Commissions 297,932 51,685 50,219
Gain (Loss) on Sales of Investment Securities (26,781) - 13,877
Gain (Loss) on Sale of Fixed Assets
and Closed Bank Premises 137,221 (2,578) -
Other Income 92,177 46,361 42,983
Total $1,768,323 $1,092,973 $1,142,920
(13) Other Noninterest Expense
The major components of other noninterest expense are as follows:
1994 1993 1992
Occupancy $1,022,375 $ 477,324 $ 480,645
Furniture and Equipment 591,270 281,155 312,021
FDIC Insurance Assessments 344,556 227,402 205,235
Postage, Printing & Office Supplies 359,061 149,684 177,175
Advertising 181,770 96,787 39,261
Other Real Estate, Net (15,993) 167,838 94,950
Non-Credit Losses 25,729 52,792 135,795
Data Processing Fees 33,833 166,868 166,525
Professional Services 271,607 133,633 172,175
Telephone 132,780 70,919 85,282
Deposit Account Related 316,086 195,586 185,895
Other 596,549 373,689 298,098
Total $3,859,623 $2,393,677 $2,353,057
Other real estate expense in 1993 and 1992 includes $130,000 and
$40,000, respectively, to accomplish the clean-up of an
environmentally contaminated property.
(14) Regulatory Matters
The Bank, as a North Carolina banking corporation, may pay dividends
only out of undivided profits as determined pursuant to North Carolina
General statutes. However, regulatory authorities may limit payment of
dividends by any bank when it is determined that such limitation is in
the public interest and is necessary to ensure financial soundness of
the Bank.
Current Federal regulations require that the Bank maintain a minimum ratio of
total capital to "risk weighted" assets of 8.0%, with at least 4.0% being in
the form of tier 1 capital, as defined in the regulations. As of December 31,
1994, the Bank was in accordance with each of these requirements.
32
(Triad Bank logo appears in the lower left corner of page)
Notes to Financial Statements
(15) Transactions with Related Parties
The Bank has loan and deposit relationships with executive officers and
Directors of the Bank and their related interests. Such loans are made on
substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with other borrowers
and, in management's opinion, do not involve more than the normal risk of
collectibility. All loans to Directors or their interests are submitted to
the Board of Directors for approval. A summary of loans to Directors and
their interests follows:
Loans to Directors and Officers as A Group (11)
at December 31, 1991 $3,074,000
Disbursements 1,014,000
Amounts Collected (2,130,000)
Loans to Directors and Officers As a Group (10)
at December 31, 1992 1,958,000
Disbursements 2,907,311
Amounts Collected (2,403,620)
Loans to Directors and Officers as A Group (10)
at December 31, 1993 2,461,691
Disbursements 2,359,980
Amounts Collected (2,685,491)
Loans to Directors and Officers as A Group (10)
at December 31, 1994 $2,136,180
(16) Merger with BTNC Corp. and Bankers Trust of North Carolina
On December 17, 1993, BTNC Corp. ("BTNC") and its wholly-owned
subsidiary, Bankers Trust of North Carolina ("Bankers Trust"), merged
with and into the Bank. The transaction was accounted for as a purchase
and the results of operations of BTNC have been included in the Bank's
financial statements from the date of acquisition. The Bank issued
802,111 shares of common stock to shareholders of BTNC using an exchange
ratio of .938 shares for each share of BTNC. Bankers Trust operated six
branches, five in Greensboro and one in Asheboro, and had $78.4 million
in total assets, $41.3 million in loans and $69.4 million in deposits.
The following unaudited pro forma financial information presents the
combined results of Triad and BTNC as if the acquisition had occurred as
of the beginning of 1993 and 1992. In 1993, through December 17, BTNC
had a net loss, before income taxes, of $829,000. This was principally
the result of loan losses, with the provision for loan losses totaling
$1,256,000, of which $400,000 was recorded in the fourth quarter prior
to the acquisition date. Net charge-offs, year-to-date, in this same
period were $1,760,000. The pro forma financial information does not
necessarily reflect the results of operations that would have occurred
had Triad and BTNC constituted a single entry during such periods.
Pro forma Financial Information Year Ended
(in thousands, except per share data) December 31 (Unaudited)
1993 1992
Net Interest Income $7,155 $ 6,945
Net Loss (225) (30)
Net Loss per Share $(0.13) $(0.02)
33
Independent
Auditors'
Report
The Board of Directors and Shareholders of Triad Bank:
We have audited the balance sheets of Triad Bank as of December 31, 1994 and
1993, and the related statements of operations, cash flows and stockholders'
equity for each of the years in the three-year period ended December 31,
1994. These financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Triad Bank as of December
31, 1994 and 1993 and the results of its operations and its cash flows for
each of the years in the three-year period ended December 31, 1994 in
conformity with generally accepted accounting principles.
As discussed in notes 2 and 3 to the financial statements, the Bank changed
its method of accounting for debt and equity securities to adopt the
provisions of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," at January 1, 1994. In addition, as
discussed in notes 2 and 9 to the financial statements, the Bank changed its
method of accounting for income taxes in 1993 to adopt the provisions of the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes."
KPMG Peat Marwick LLP
Greensboro, North Carolina
January 16, 1995
(Triad Bank logo appears in the lower left corner)
34
Leaders From Across the Triad
Directors
James E. Mims - Chairman &CEO
TRIAD BANK
Carl I. Carlson, III - President
TRIAD BANK
Michael A. Falk-Vice Chairman
President, Falk Integrated Technologies, Inc.
William E. Stanley, Jr. - Secretary
Senior Vice President, W.E. Stanley & Co., Inc.
H. Frank Auman, Jr.
Owner, Auman Construction Co. & Southern Property Management
Stephen C. Carlson
Vice President & Co-Owner, Liberty Embroidery, Inc.
Bobby R. Curtis
Controller, Industrial Air, Inc.
Ronald L. Garber
Physician, Carolina Kidney Associates, P.A.
Kenneth M. Greene
Attorney, Carruthers & Roth, P.A.
Rachel S. Hull
Principal & Director, Electrifleet, Inc.
James A. King, Jr.
President, J.A. King & Co., Inc.
Jerry W. Lawson
President, Baron Financial, Inc.
Larry C. Lewis
President & CEO, Lewis Systems & Service Co.
Ted Y. Matney
Senior Vice President, Triad Bank
David C. Millikan
Vice Pres. & Co-Owner, Trent Capital Management Corp.
James S. Schenck, III
Partner, Lyon, Schenck, Steck, Associates, P.A.
Dwight D. Stone
President, HDS Builders, Inc.
Priscilla P. Taylor
Executive Director, The Cemala Foundation
T. Talmage Timberlake
President, S & T Brokers, Inc.
Executive Officers
James E. Mims
Chairman, Chief Executive Officer
Carl I. Carlson, II
President
Sandra Camastra
Vice President
Randolph J. Cary
Senior Vice President
Edwin M. Cassidy
Senior Vice President
Richard M. Cobb
Senior Vice President
James C. Edwards
Senior Vice President
Christopher J. Frantz
Senior Vice President
William L. Leinster
Senior Vice President
Erline K. Mize
Vice President
Cynthia C. Perkins
Senior Vice President
Advisory Boards
ASHEBORO
Ted Y. Matney - Chairman
Senior Vice President, Triad Bank
Eddie G. Allen
Senior Vice President, Triad Bank
Talmadge S. Baker
Retired
William C. Batten
President, Thermaco Separation Technology
Daljit S. Caberwal
Physician, Asheboro Urology Clinic
William W. Croom
President, Twin Cat Textile Co.
Donald W. Durham
Retired
Evan R. Minier
Retired
Marjorie R. Rankin
Interior Designer
GREENSBORO
Robert T. Cadwallader, Jr.
Consultant
Linda A. Carlisle
President, Copier Consultants, Inc.
Randolph J. Cary Jr.
Senior Vice President, Triad Bank
Patrice A. Hinnant
Attorney
William G. McNairy
Attorney, Brooks, Pierce, McLendon, Humphrey & Leonard LLP
Andrew S. Scott
Director, Housing & Community Development -
City of Greensboro
Diane H. Thompson
Principal, Cornerstone Properties
WINSTON-SALEM
T. Talmage Timberlake - Chairman
President, S & T Brokers, Inc.
Charles A. Bunce, Jr.
President, Foster & Hailey, Inc.
Edwin M. Cassidy
Senior Vice President, Triad Bank
Paul G. Chrysson
President, C.B. Development Co., Inc.
David R. Plyler
Vice President & General Manager, WTOB
Dewitt E. Rhodes
President, Dera, Inc.
35
Unifying A Company Takes Diverse
Individuals
We Proudly List Our Dedicated Staff in This Report
Pauline Adams
Doris Adkins
Eddie Allen
Wendy Andrews
Susan Anthony
Diane Aust
Cynthia Bass
Jeane Batten
Shelley Beeson
Wendy Bennett
Hugh Black
Judy Blake
Carolyn Bowman
Iris Brothers
Sandra Camastra
Sharon Canham
Carl Carlson
Randy Cary
Ed Cassidy
David Church
Donna Clark
Wanda Clark
Gabrielle Cline
Jerry Cobb
Dick Cobb
Alice Cohen
Lanay Coleman
Leslie Cottle
Donna Cox
Sherry Craig
Marcia Crutchfield
Trudy Cundiff
Karen Davis
Laura Davis
Bobbi Edwards
Georgia Edwards
Jim Edwards
Ronda Elliott
Tracey Elmore
Laura Elyea
Rose Engle
Jane Eudy
DeeDee Evans
Carmen Ferguson
Christy Forsyth
Deanna Foster
Lynn Fox
Belinda Franklin
Chris Frantz
Kathy Garst
George Gray
Teresa Green
Virginia Grimes
Stanley Gunter
Mary Ann Hamm
Nancy Harris
Cathy Hawks
Tom Holben
Wanda Huey
Paula James
Maria Jessup
Margaret Johnson
Rhonda Johnson
Judy Kasey
Phetsara Khemvisai
Jim King
Roger King
Kimberly Klagholz
Teddy Kolev
Melinda Landis
Jennifer Lee
Bill Leinster
Lori Lewis
Susie Mabe
Kristy Maerlender
Linda Markland
Marie Maslich
Ted Matney
Jill McClure
Arlene McGee
Kimberly McKinney
Amy Miller
Jim Mims
Erline Mize
Mary Lou Mooney
Marie Morgan
Castlen Morris
Carolee Munsie
Terrie Patrick-Johnson
Craig Patterson
Dangela Pearson
Cynthia Perkins
Laura Perry
Marilyn Person
Sue Phillips
Kim Phillips
Amy Pinyan
Johnny Pleasants
Robin Price
Romantha Prince
Pat Quesinberry
Melissa Rabon
Dava Rayle
Monica Root
Becky Ryan
Dot Salls
Nicole Sammons
Patty Satterfield
Beth Saxton
Ken Scott
Ronda Scott
Janis Shelton
Anne Shields
Jenna Shuck
Sharmaine Siler
Marian Spruill
Janet St. Clair
Jennifer Staley
Debbi Stemple
Mary Sterk
Linda Sugg
Pete Sullivan
Tammy Tacket
Kim Teeters
Delilah Thompson
Michelle Trotter
Amy Varner
Sheryl Wardman
Resa Wellons
Barbara Whitley
Sharon Williams
Karen Worrell
(Triad Bank logo appears in the lower left corner of page)
36
Your Money
Means More
When You
Invest It At
Home
You can play a key role in building the value of your investment in Triad Bank.
1) Bring all your personal and commercial banking to Triad Bank.
2) Refer us to your clients, associates, suppliers and customers for loans and
deposits.
3) Recommend Triad Bank to churches, civic groups, schools and other
organizations.
4) Tell us about new businesses in the area.
5) Let people know you're a proud shareholder of Triad Bank.
The vision for Triad Bank springs from a commitment to a community. The
numbers for 1994 reveal an unprecedented response to this dedication.
Now with momentum, our growth and profitability are expected to continue
to improve.
Sharpened by stiff competition and the strong performance of each department,
one thing seems clear:
This year's success is only the beginning.
GENERAL CORPORATE INFORMATION
[ ] Stock Transfer Agent
Wachovia Bank of North Carolina, N.A. (Bullet) P.O. Box 3001 (Bullet) Winston-
Salem, NC 27102 (Bullet) (800)633-4236
[ ] Thirteenth Annual Shareholder's Meeting
Tuesday, April 25, 1995, 4:00 p.m., Embassy Suites Hotel, 204 Centerport Drive,
Greensboro, NC 27409
[ ] Investor Information
Triad Bank Investor Relations (Bullet) P.O. Box 22006 (Bullet) Greensboro, NC
27420 (Bullet) (910)271-4700
[ ] Stock Listing
Triad Bank stock is traded in the over-the-counter market. Currently, Scott
& Stringfellow Investment Corp. (910/378-1824) and J.C. Bradford and Co.
(910/275-9676) make a market in Triad Bank stock.
Locations
GREENSBORO
Administrative Offices
113 North Greene Street (Bullet) 271-4700
Market Street
4541 West Market Street (Bullet) 271-4740
High Point Road
Stonethrow Shopping Center
3741 Farmington Drive (Bullet) 271-4720
Bessemer
917 East Bessemer Avenue (Bullet) 379-1160
Battleground
2501 Battleground Avenue (Bullet) 271-4730
Elm Street
419 North Elm Street (Bullet) 274-3300
Irving Park
2102-B North Elm Street (Bullet) 378-6166
AirPark
7600 Thorndike Road (Bullet) 271-4737
WINSTON-SALEM
Stratford
500 South Stratford Road (Bullet) 773-1100
North Park
7996 North Point Boulevard (Bullet) 759-9807
ASHEBORO
261 North Fayetteville Street (Bullet) 626-2600
LENDING CENTERS
Burlington
3053 Church Street (Bullet) 584-4056
Kernersville
214 East Mountain Street, Suite 103B (Bullet) 996-9944
(Triad Bank Logo appears here)