UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT UNDER Section 13 or 15 (d) OF THE SECURITIES
- -------- EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998, or
TRANSITION REPORT Pursuant to Section 13 or 15(d) of THE
- -------- SECURITIES EXCHANGE ACT of 1934
Commission File Number 0-21346
TRIANGLE BANCORP, INC.
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(Exact Name of Registrant as specified in its Charter)
NORTH CAROLINA 56-1764546
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(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
4300 Glenwood Avenue
Raleigh, North Carolina 27612
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(Address of principal executive offices) (Zip Code)
(919) 881-0455
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(Registrant's Telephone Number Including Area Code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock - No Par Value
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(Title of Class)
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
YES X NO
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Check if there is no disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.___________
The aggregate market value of the voting stock held by
non-affiliates of the Registrant as of February 28, 1999, based upon the closing
price of the Common Stock ($16.1875) on March 5, 1999, was approximately
$368,700,000. Shares of Common Stock held by each officer and director and by
each person who owns 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
As of March 5, 1999, 25,213,945 shares of no par value common stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The 1998 Annual Report to Shareholders (the "Annual Report to
Shareholders") is incorporated by reference into Part II hereof.
The definitive Proxy Statement for the 1999 Annual Shareholders
Meeting (the "Proxy Statement") is incorporated by reference into Part III
hereof.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Triangle Bancorp, Inc. (the "Corporation") was incorporated under
the laws of North Carolina on November 27, 1991 for the purpose of becoming a
one-bank holding company. The Corporation acquired Triangle Bank ("Triangle
Bank") in August 1992 as part of the reorganization of Triangle Bank into a
one-bank holding company structure. Pursuant to the reorganization, the former
shareholders of Triangle Bank became shareholders of the Corporation. On October
2, 1997, the Corporation acquired Bank of Mecklenburg, Charlotte, North Carolina
("Mecklenburg"), as a wholly-owned subsidiary, and became a multi-bank holding
company. Triangle Bank and Mecklenburg are referred to herein collectively as
the "Banks". On October 31, 1997, the Corporation acquired Coastal Leasing LLC,
Greenville, North Carolina ("Coastal Leasing"). To date, the Corporation has not
engaged in any material activities other than its ownership and management of
the Banks and Coastal Leasing and the issuance of trust preferred securities in
June 1997.
As a bank holding company, the Corporation's primary business is
that of owning the capital stock of the Banks and Coastal Leasing and promoting
the general development of its business. At December 31, 1998, the Corporation
had consolidated assets of approximately $2.1 billion and was the eighth largest
banking organization headquartered in North Carolina.
RECENT ACQUISITIONS
On April 16, 1998, the Corporation acquired Guaranty State
Bancorp ("Guaranty State") and its commercial bank subsidiary, Guaranty State
Bank, both located in Durham, North Carolina. The acquisition of Guaranty State
added approximately $103 million in assets, $77 million in loans, $89 million in
deposits, and $12 million in shareholders' equity and four branches in Durham,
North Carolina.
On September 17, 1998, Triangle acquired United Federal Savings
Bank, Rocky Mount, North Carolina ("United Federal"), a federally-chartered
savings bank whose deposits are insured by the Savings Association Insurance
Fund of the FDIC. The United Federal acquisition added approximately $302
million in assets, $248 million in loans, $266 million in deposits, and $22
million in shareholders' equity and eight branches in eastern North Carolina and
two mortgage origination offices located in Charlotte and Wilmington, North
Carolina.
As both the Guaranty State and United Federal acquisitions were
accounted for using the pooling-of-interests method of accounting, all
historical information has been restated to reflect both entities. As a result,
the Corporation's total assets and net income as of and for the year ended
December 31, 1997, have been restated from $1.6 billion to $2 billion and from
$16.6 million to $19.5 million, respectively.
In addition, it is anticipated that the Corporation will continue
to investigate and hold discussions and negotiations in connection with possible
acquisitions of, or combinations with, other banks and financial service
entities. As of the date hereof, the Corporation has not entered into any
agreements or understandings with respect to any such transactions.
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TRUST SECURITIES ISSUANCE
In May 1997, the Corporation caused a Delaware statutory business
trust subsidiary to be created which issued trust preferred securities in the
amount of $19.33 million to eight qualified institutional buyers, and $619,000
in trust common securities to the Corporation (collectively, the "Trust
Securities"), both sales occurring on June 3, 1997. The Trust Securities have a
maturity of 30 years, pay dividends at the rate of 9.375% and are treated as
tier 1 capital by the Corporation. To fund the trust, the Corporation sold to
the trust $19.95 million of junior subordinated notes with a yield and maturity
identical to the Trust Securities. Holders of the Trust Securities are entitled
to receive preferential cumulative cash distributions accumulating from the date
of original issuance and payable semi-annually in arrears on the first day of
June and December of each year, commencing December 1, 1997, at an annual rate
equal to 9.375%. The distribution rate and distribution payment dates of the
Trust Securities correspond to the interest rate and interest payment dates of
the junior subordinated debentures, which are the sole assets of the trust. The
Corporation, through various agreements, has irrevocably and unconditionally
guaranteed all of the trust's obligations under the Trust Securities regarding
the payment of distributions and payment on liquidation or redemption of the
Trust Securities, but only to the extent of funds held by the trust. The Trust
Securities are subject to mandatory redemption in whole, but not in part, upon
repayment of the junior subordinated debentures at their stated maturity or upon
their early redemption. The junior subordinated debentures may be redeemed prior
to their stated maturity upon the occurrence of certain events or at the option
of the Corporation on or after June 1, 2007. The Corporation caused the Trust
Securities to be issued because they are a relatively inexpensive form of
regulatory capital for the Corporation. The sale of the Trust Securities was
effected in a transaction exempt from the registration requirements of the
Securities Act of 1933. In November 1997, the trust preferred securities sold to
institutional buyers were registered under the Securities Act of 1933 and an
exchange offer conducted whereby all but $1.0 million of such trust preferred
securities were exchanged for registered securities.
BUSINESS OF THE CORPORATION
BANKING. The Corporation's largest subsidiary is Triangle Bank.
Triangle Bank, headquartered in Raleigh, North Carolina, and Mecklenburg,
headquartered in Charlotte, North Carolina, are both chartered as state banks
under the laws of the State of North Carolina and are members of the Federal
Reserve System (the "Federal Reserve"). Deposit insurance is provided by the
Bank Insurance Fund ("BIF") and the Savings Association Insurance Fund ("SAIF")
of the FDIC. The sole business of the Banks is to provide banking services to
businesses and individuals in the communities they serve through 69 branches of
Triangle Bank in eastern and south-central North Carolina and three branches of
Mecklenburg in Charlotte, North Carolina. The Banks primarily serve small and
medium-sized businesses as well as consumers within their markets.
Triangle Bank began business on January 4, 1988. On June 30,
1991, Enterprise Bancorp, Inc., a North Carolina bank holding company, and its
wholly-owned subsidiary, Enterprise Bank, National Association, merged into
Triangle Bank, adding approximately $34 million in assets to Triangle Bank. On
December 28, 1993, New East Bancorp, a North Carolina holding company, and its
wholly-owned subsidiaries, New East Bank of the Albemarle, New East Bank of the
Cape Fear, New East Bank of Goldsboro, New East Bank of Greenville and New East
Bank of New Bern, merged into Triangle Bank, adding approximately $131 million
in assets to the Bank. Triangle Bank merged with Columbus National Bank,
Standard Bank and Trust, Unity Bank and Trust Co. and The Village Bank as well
as acquiring three branch offices from NationsBank during 1995, adding
approximately $409 million in assets. Triangle Bank's wholly-owned subsidiary,
Unity Financial Services (acquired through Unity Bank and Trust Co. merger),
changed its name to Triangle Investment Services in October 1995. This
subsidiary provides brokerage services. Triangle Bank merged with Granville
United Bank in October 1996, acquired four branches from First Union in January
1996 and completed a branch swap transaction in June 1996. In June 1997,
Triangle Bank sold two branches in Sanford, North Carolina and in August 1997
acquired 10 branches as a result of the UCB/BB&T merger adding a net of
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$174 million in deposits and $52 million in loans. In 1998, Triangle Bank merged
with Guaranty Sate Bank and United Federal. Through the acquisition of United
Federal, Triangle Bank began a sizeable mortgage loan operation, which services
are offered through Triangle Bank branches as well as mortgage loan production
offices in Charlotte and Wilmington, North Carolina.
Mecklenburg began business on July 12, 1989 with one office in
Charlotte. Mecklenburg opened a second office in Charlotte in 1991, and
purchased a third office, with $28 million in deposits, in March 1996 from Essex
Savings Bank.
BANKING SERVICES. The Banks offer a wide range of banking
services, including acceptance of deposits, checking services, debit cards,
24-hour phone access to account information, commercial and consumer loans,
mortgages, real estate development and construction loans, safe deposit boxes,
and credit cards. The Banks offer their customers fully-automated, 24-hour
teller machines ("ATMs"). This service is provided by ATM machines at selected
branch locations and by giving the Banks' customers access to the ATM network of
the Cirrus system and the HONOR system, which operate ATMs in many states.
DEPOSITS. The Banks offer a variety of deposit accounts,
including savings, checking and time deposits of various types ranging from
daily "money market" accounts to longer-term certificates of deposit. Retirement
accounts, such as Individual Retirement Accounts, are also offered. At December
31, 1998, Triangle Bank and Mecklenburg had deposits of approximately $1.5
billion and $181 million, respectively. The Banks seek to maintain stability in
their deposits by establishing direct relationships with their depositors. In
addition, in the fourth quarter of 1998, the Banks, in compliance with FDIC
regulations, began accepting a limited amount of brokered deposits pursuant to
agreements with regional brokerage firms. These brokered deposits are part of
the Banks' asset-liability management plan and provide a source of deposits
without creating disintermediation in the Banks' deposit accounts.
LENDING ACTIVITIES. The Banks offer a wide range of consumer,
commercial, real estate development, construction, and mortgage loans to small
to medium-sized businesses and to individuals. Loans are generally secured by
real property, equipment, inventory, accounts receivable, or other assets. In
addition, the Banks often obtain personal guarantees from the owners of the
businesses to which loans are extended. The Banks' lending policies are
established and periodically reviewed by their Boards of Directors. Loan
policies are also subject to the regulations of federal and state bank
regulators.
Real estate loans constituted the largest portion of the Banks'
loans. Real estate loans include both loans to businesses to finance or
refinance real estate used for the business and loans to individuals for
residential real estate. Commercial loans include credit lines for working
capital, short-term seasonal, or inventory financing as well as longer term
loans. The Banks also offer residential real estate, construction, and land
development loans to developers and builders. Finally, the Banks offer consumer
loans to individuals. Consumer loans constitute the least significant portion of
the Banks' loan portfolios.
Real estate development and construction loans accounted for
approximately 13% of the Banks' loans at December 31, 1998. In addition, when
loans that are substantially secured by real estate are taken into account,
loans secured in full or in part by real estate constituted approximately 73% of
the outstanding loans at December 31, 1998. The Banks closely monitor their loan
portfolios and believe their current loan loss reserves adequately reflect
problem loans that have been identified to date.
LEASING. The Corporation conducts leasing activities through its
wholly-owned subsidiary, Coastal Leasing. Coastal Leasing is headquartered in
Greenville, North Carolina and operates four offices in addition to its
Greenville office. At December 31, 1998, Coastal Leasing had approximately $28
million in total assets, $28 million in leases, and $3.8 million in
shareholders' equity. Coastal Leasing began business in 1971
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in Greenville, North Carolina, opening its other offices in eastern North
Carolina and tidewater Virginia over the years as its business grew. Coastal
engages in business equipment leasing. Coastal's leasing activities complement
the financing activities of the Banks and provide alternatives to small business
customers of the Banks.
INVESTMENTS. The Corporation and its subsidiaries seek to
maintain liquidity by maintaining investments in liquid securities. Currently,
investments include primarily collateralized mortgage obligations, United States
Treasury obligations and federal agency and municipal securities. At December
31, 1998, the average maturity, based on contractual maturities, of the
Corporation's available for sale and held to maturity investment portfolios were
approximately 9.9 and 5.1 years, respectively.
COMPETITION. Commercial banking in North Carolina is extremely
competitive, due in large part to statewide and interstate branching and
banking. Currently, many of the Corporation's banking competitors are
significantly larger and have greater resources than the Corporation. The
Corporation continues to encounter significant competition from a number of
sources, including bank holding companies, commercial banks, thrift and savings
and loan institutions, credit unions, and other financial institutions and
financial intermediaries. Among commercial banks, Triangle Bank and Mecklenburg
compete in their market areas with some of the largest banking organizations in
the state, several of which have as many as 200 to 300 branches in North
Carolina and many billions in assets. The Banks also compete for
interest-bearing funds with a number of investment alternatives, including
brokerage firms, "money-market" mutual funds, insurance companies, government
and corporate bonds, and other securities. Competition with the Banks is not
limited to financial institutions based in North Carolina. The enactment of
federal legislation authorizing nationwide interstate banking has greatly
increased the size and financial resources of some of the Banks' competitors.
Consequently, many of the Banks' competitors have substantially higher lending
limits due to their greater total capitalization, and many perform functions for
their customers, such as trust services that the Banks do not offer. As a result
of the interstate banking legislation, the Banks' markets are open to future
penetration by banks located in other states thereby increasing competition.
The management of the Corporation believes banks compete in the
following areas: convenience of location, interest rates for deposits and loans,
types of accounts and services offered, and quality of the personnel providing
services. The Banks endeavor to provide quality service by operating
centrally-located branches, staffed with experienced bank personnel. The Banks
offer a variety of accounts and loans comparable to those offered by other
banks. The Banks also rely on the personal contacts of its officers and
directors to attract depositors and borrowers in its target market of small to
medium-sized businesses.
EMPLOYEES. At December 31, 1998, the Corporation's subsidiaries
employed 590 full-time employees and 185 part-time employees. None of its
employees are covered by a collective bargaining agreement. The Corporation
believes its subsidiaries' relationships with their employees to be good.
The Corporation has a 401(k) plan for substantially all of its
and its subsidiaries' employees. The Corporation has an Omnibus Stock Plan which
provides qualified incentive stock options for key officers and employees of the
Corporation and its subsidiaries, and non-qualified stock options for directors
and certain officers of the Corporation and its subsidiaries. The Omnibus Stock
Plan also enables the Corporation to offer restricted stock awards and other
forms of stock compensation, if desired by the Corporation. The Corporation also
has an employee stock purchase plan which allows employees to purchase the
Corporation's stock at a 15% discount from the stock's fair market value through
payroll deductions. The Corporation also has change of control agreements and
employment agreements that contain "change of control" provisions with certain
officers that would benefit such officers in the event of a change of control of
the Corporation and its subsidiaries.
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PROPERTIES
The Corporation's executive offices are located at 4300 Glenwood
Avenue, Raleigh, North Carolina. The Corporation owns the four-story, 27,000
square foot building which was purchased and renovated by the Corporation in
1996. The executive office building also serves as the headquarters of Triangle
Bank and houses a branch of Triangle Bank. Triangle Bank operates 69 branch
locations of which 27 are either leased buildings or property on which Triangle
Bank has branch offices. Mecklenburg's headquarters office is located at 2000
Randolph Road, Charlotte, North Carolina, which building is a two-story, 10,000
square foot building owned by Mecklenburg. Mecklenburg operates two other
branches in Charlotte, both of which are owned by Mecklenburg. Coastal is
headquartered at 2820 East Tenth Street, Greenville, North Carolina, in a
one-story, 5,000 square foot building. Coastal leases all of its offices. In
addition, the Corporation owns two buildings, with an aggregate of approximately
28,000 square feet, which house its operations center in Selma, North Carolina.
The Corporation believes its facilities and those of its subsidiaries are
adequate for their business needs.
GOVERNMENTAL REGULATION
GENERAL. Holding companies, banks and many of their nonbank
affiliates are extensively regulated under both federal and state law. The
following is a brief summary of certain statutes, rules and regulations
affecting the Corporation and the Banks. This summary is qualified in its
entirety by reference to the particular statutory and regulatory provisions
referred to below and is not intended to be an exhaustive description of the
statutes or regulations applicable to the Corporation's business. Supervision,
regulation and examination of the Corporation and the Banks by the bank
regulatory agencies are intended primarily for the protection of the Banks'
depositors rather than holders of the common stock of the Corporation.
In 1994, Congress adopted legislation which permits adequately
capitalized and managed bank holding companies to acquire control of a bank in
any state (the "Interstate Banking Law"). Existing state laws setting minimum
age restrictions on target banks can be retained, so long as the age requirement
does not exceed five years. Acquisitions will be subject to anti-trust
provisions that cap at 10% the portion of the United States' bank deposits a
single bank holding company may control, and cap at 30% the portion of a state's
deposits a single bank holding company may control. States have the authority to
waive the 30% cap.
Under the Interstate Banking Law, beginning on June 1, 1997,
banks have been permitted to merge with one another across state lines, subject
to concentration, capital and Community Reinvestment Act requirements and
regulatory approval. Only Texas and Montana have opted out of interstate
branching through legislation. A state can also choose to permit out-of-state
banks to open new branches within its borders. In addition, if a state chooses
to allow interstate acquisition of branches, then an out-of-state bank also may
acquire branches by merger.
Interstate branches that primarily siphon off deposits without
servicing a community's credit needs will be prohibited. If loans are less than
50% of the average of all institutions in the state, the branch will be reviewed
to see if it is meeting community credit needs. If it is not, the branch may be
closed and the bank may be restricted from opening a new branch in the state.
HOLDING COMPANY REGULATION
GENERAL. The Corporation is a holding company registered with the
Federal Reserve under the Bank Holding Company Act (the "BHC Act"). As such, the
Corporation and its subsidiaries are subject to the supervision, examination and
reporting requirements contained in the BHC Act and the regulation of the
Federal Reserve. The BHC Act requires that a bank holding company obtain the
prior approval of the Federal Reserve before (i) acquiring direct or indirect
ownership or control of more than 5% of the voting shares of any bank, (ii)
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taking any action that causes a bank to become a subsidiary of the bank holding
company, (iii) acquiring all or substantially all of the assets of any bank, or
(iv) merging or consolidating with any other bank holding company.
The BHC Act generally prohibits a bank holding company, with
certain exceptions, from engaging in activities other than banking, or managing
or controlling banks or other permissible subsidiaries, and from acquiring or
retaining direct or indirect control of any company engaged in any activities
other than those activities determined by the Federal Reserve to be closely
related to banking, or managing or controlling banks, as to be a proper incident
thereto. In determining whether a particular activity is permissible, the
Federal Reserve must consider whether the performance of such an activity can
reasonably be expected to produce benefits to the public, such as greater
convenience, increased competition or gains in efficiency, that outweigh
possible adverse effects, such as undue concentration of resources, decreased or
unfair competition, conflicts of interest or unsound banking practices. For
example, factoring accounts receivable, acquiring or servicing loans, leasing
personal property, conducting discount securities brokerage activities,
performing certain data processing services, acting as agent or broker in
selling credit life insurance and certain other types of insurance underwriting
activities have all been determined by regulations of the Federal Reserve to be
permissible activities of bank holding companies. Pursuant to delegated
authority, the Federal Reserve Bank of Richmond has authority to approve certain
activities of holding companies within its district, including the Corporation,
provided the nature of the activity has been approved by the Federal Reserve.
Despite prior approval, the Federal Reserve has the power to order a holding
company or its subsidiaries to terminate any activity or to terminate its
ownership or control of any subsidiary when it has reasonable cause to believe
that continuation of such activity or such ownership or control constitutes a
serious risk to the financial safety, soundness or stability of any bank
subsidiary of that bank holding company.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve on any extensions of credit to the
bank holding company or any of its subsidiaries, investments in the stock or
securities thereof and the acceptance of such stock or securities as collateral
for loans to any borrower. A bank holding company and its subsidiaries are also
prevented from engaging in certain tie-in arrangements in connection with any
extension of credit, lease or sale of property or furnishing of services.
The Federal Reserve may issue cease and desist orders against
bank holding companies and non-bank subsidiaries to stop actions believed to
present a serious threat to a subsidiary bank. The Federal Reserve also
regulates certain debt obligations, changes in control of bank holding companies
and capital requirements.
Under the provisions of the North Carolina law, the Holding
Company is registered with and subject to supervision by the North Carolina
Commissioner of Banks (the "Commissioner").
CAPITAL REQUIREMENTS. The Federal Reserve has established
risk-based capital guidelines for bank holding companies and state member banks
based on the capital framework for international banking organizations developed
by the Basle Committee on Banking Regulations and Supervisory Practices. The
minimum standard for the ratio of capital to risk-weighted assets (including
certain off balance sheet obligations, such as standby letters of credit) is 8%.
At least half of this capital must consist of common equity, retained earnings
and a limited amount of perpetual preferred stock, less certain goodwill items
("Tier I capital"). The remainder ("Tier 2 capital") may consist of a limited
amount of other preferred stock, subordinated debt and a limited amount of loan
loss reserves.
The Federal Reserve also has adopted a minimum (leverage) ratio
of Tier 1 capital to total assets of 4%. The 4% Tier 1 capital to total assets
ratio constitutes the leverage standard for bank holding companies and state
member banks, and will be used in conjunction with the risk-based ratio in
determining the overall capital adequacy of banking organizations. In proposing
such standards, the Federal Reserve emphasized that in
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all cases the suggested standards are supervisory minimums and that an
institution would be permitted to maintain such minimum levels of capital only
if it were a strong banking organization, rated composite one under the CAMEL
rating system for banks or the BOPEC rating system for bank holding companies.
The Federal Reserve noted that most expansion-oriented banking organizations
have maintained leverage capital ratios of between 4% and 5% of total assets,
and it is likely that these ratios will be applied to the Corporation. At
December 31, 1998, the Corporation had not been advised by the Federal Reserve
of a minimum leverage capital ratio requirement specifically applicable to it.
As of December 31, 1998 the Corporation had Tier I risk-adjusted,
total regulatory capital and leverage capital of approximately 10.2%, 11.4% and
7.9%, respectively, all in excess of the minimum requirements.
BANK REGULATION
The Banks are subject to numerous state and federal statutes and
regulations that affect their business, activities, and operations, and are
supervised and examined by the Commissioner and the Federal Reserve. The Federal
Reserve and the Commissioner regularly examine the operations of banks over
which they exercise jurisdiction. They have the authority to approve or
disapprove the establishment of branches, mergers, consolidations, and other
similar corporate actions, and to prevent the continuance or development of
unsafe or unsound banking practices and other violations of law. The Federal
Reserve and the Commissioner regulate and monitor all areas of the operations of
banks and their subsidiaries, including loans, mortgages, issuances of
securities, capital adequacy, loss reserves, and compliance with the CRA and
other laws and regulations. Interest and certain other charges collected and
contracted for by the Banks are also subject to state usury laws and certain
federal laws concerning interest rates.
The great majority of the deposit accounts of the Banks are
insured by the BIF of the FDIC up to a maximum of $100,000 per insured
depositor. At December 31, 1998, approximately $32 million of Mecklenburg's
deposits were insured by the SAIF as those deposits were acquired by Mecklenburg
from a SAIF-insured savings bank and approximately $266 million of Triangle
Bank's deposits were insured by the SAIF due to Triangle Bank's acquisition of
United Federal in September 1998. The FDIC issues regulations and conducts
periodic examinations, requires the filing of reports, and generally supervises
the operations of its insured banks. This supervision and regulation is intended
primarily for the protection of depositors. Any insured bank that is not
operated in accordance with or does not conform to FDIC regulations, policies,
and directives may be sanctioned for noncompliance. Civil and criminal
proceedings may be instituted against any insured bank or any director, officer,
or employee of such bank for the violation of applicable laws and regulations,
breaches of fiduciary duties, or engaging in any unsafe or unsound practice. The
FDIC has the authority to terminate insurance of accounts pursuant to procedures
established for that purpose.
Although the Corporation is not subject to any direct legal or
regulatory restrictions on dividends (other than the requirements under the
North Carolina corporation laws that a distribution may not be made if, after
giving effect to it, the corporation would not be able to pay its debts as they
become due in the usual course of business or the corporation's total assets
would be less than its liabilities), the Corporation's ability to pay cash
dividends is dependent upon the amount of dividends paid by its subsidiaries.
The ability of the Banks to pay dividends to the Corporation is subject to
statutory and regulatory restrictions on the payment of cash dividends,
including the requirement under the North Carolina banking laws that cash
dividends be paid only out of undivided profits and only if the bank has surplus
of a specified level. Federal bank regulatory agencies also have the general
authority to limit the dividends paid by insured banks and bank holding
companies if such payment is deemed to constitute an unsafe and unsound
practice.
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Like the Corporation, the Banks are required by federal
regulations to maintain certain minimum capital levels. The levels required of
the Banks are the same as required for the Corporation. At December 31, 1998,
Triangle Bank had Tier I risk-adjusted, total regulatory capital and leverage
capital of approximately 9.4%, 10.6% and 7.3%, respectively, all in excess of
the minimum requirements. Similarly, Mecklenburg had Tier I risk-adjusted, total
regulatory capital and leverage capital of approximately 12.1%, 13.1% and 9.5%,
respectively, all in excess of the minimum requirements.
The Banks are subject to insurance assessments imposed by the
FDIC. Effective January 1, 1997, the FDIC adopted a risk-based assessment
schedule providing for annual assessment rates ranging from 0% to .27% of an
institution's average assessment base, applicable to institutions insured by
both the BIF and the SAIF. The actual assessment to be paid by each insured
institution is based on the institution's assessment risk classification, which
is based on whether the institution is considered "well capitalized",
"adequately capitalized" or "under capitalized", as such terms are defined in
the applicable federal regulations, and whether the institution is considered by
its supervisory agency to be financially sound or to have supervisory concerns.
The FDIC also is authorized to impose one or more special assessments in any
amount deemed necessary to enable repayment of amounts borrowed by the FDIC from
the United States Treasury Department and, beginning in 1997, all banks pay
additional annual assessments at the rate of .013% of their average assessment
base. In recent years, there have been various proposals to merge the SAIF and
the BIF insurance funds of the FDIC. One of the principal issues is the amount
of additional funds needed to recapitalize the SAIF prior to the merger. In
September 1996, a one-time special assessment was levied on SAIF-insured
deposits (including such deposits held by commercial banks) at the rate of .657%
on all SAIF-insured deposits held as of March 31, 1995; however, Mecklenburg was
not assessed the special assessment on its SAIF-insured deposits due to a
regulatory exemption obtained by Essex Savings Bank, FSB from whom Mecklenburg
obtained the deposits. It cannot be predicted as to whether any further
assessments will be made on BIF-insured and SAIF-insured deposits. At December
31, 1998, premium rates remained at their 1997 level. There can be no assurance
as to whether insurance premiums will remain at their current levels in the
foreseeable future or whether the BIF and the SAIF insurance funds will merge or
remain separate.
Banks are subject to the Community Reinvestment Act of 1977
("CRA"). Under the CRA, the appropriate federal bank regulatory agency is
required, in connection with its examination of a bank, to assess such bank's
record in meeting the credit needs of the community served by that bank,
including low and moderate-income neighborhoods. The regulatory agency's
assessment of the bank's record is made available to the public. Further, such
assessment is required of any bank which has applied to (i) charter a national
bank, (ii) obtain deposit insurance coverage for a newly chartered institution,
(iii) establish a new branch office that will accept deposits, (iv) relocate an
office, or (v) merge or consolidate with, or acquire the assets or assume the
liabilities of, a federally regulated financial institution. In the case of a
bank holding company applying for approval to acquire a bank or other bank
holding company, the Federal Reserve will assess the record of each subsidiary
bank of the applicant bank holding company, and such records may be the basis
for denying the application.
MONETARY POLICY AND ECONOMIC CONTROLS
The Corporation and the Banks are directly affected by government
policy and by regulatory measures affecting the banking industry in general. Of
primary importance is the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"), whose actions directly affect the money supply and, in
general, affect banks' lending abilities by increasing or decreasing the cost
and availability of funds to banks. The Federal Reserve Board regulates the
availability of bank credit in order to combat recession and curb inflationary
pressures in the economy by open market operations in United States government
securities, changes in the discount rate on member bank borrowings, changes in
reserve requirements against bank deposits, and limitations on interest rates
that banks may pay on time and savings deposits.
9
Deregulation of interest rates paid by banks on deposits and the
types of deposits that may be offered by banks have eliminated minimum balance
requirements and rate ceilings on various types of time deposit accounts. The
effect of these specific actions and, in general, the deregulation of deposit
interest rates have generally increased banks' cost of funds and made them more
sensitive to fluctuations in money market rates. In view of the changing
conditions in the national economy and money markets, as well as the effect of
actions by monetary and fiscal authorities, no prediction can be made as to
possible future changes in interest rates, deposit levels, loan demand, or the
business and earnings of the Banks or the Corporation. As a result, banks,
including the Banks, are facing a significant challenge to maintain acceptable
net interest margins.
GUIDE 3 DISCLOSURES
The following schedule is provided as an index to the disclosure
requirements under Guide 3 of the Guides for the Preparation and Filing of
Reports and Registration Statements under the Securities Exchange Act of 1934.
INDEX TO REFERENCE TO
GUIDE 3 FORM 10-K PAGE
DISCLOSURES TABLE NUMBER
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
(A) Average Balance Sheets 1 12
(B) Net Income Analysis 1 12
(C) Net Interest Income and Volume/Rate Variance 2 13
II. SECURITIES PORTFOLIO
(A) Book Value of Securities 4 19
(B) Securities by Maturities 4 20, 21
(C) This item is not applicable since no items exist that related to this
disclosure
III. LOAN AND LEASE PORTFOLIO
(A) Types of Loans and Leases 3 14
(B) Maturities and Sensitivity of Loans to Changes in Interest Rates 3 15
Risk Elements
(C) Management's policy is to discontinue the accrual of interest and reverse
unpaid interest when management deems that collection of additional interest
is doubtful.
(D) This item is not applicable since no items existed from inception through
December 31, 1998 that related to the disclosure of this item.
IV. SUMMARY OF LOAN LOSS EXPERIENCE
(A) Analysis of Allowance for Loan Losses 3 16
(B) Allocation of the Allowance for Loan Losses 3 17
V. DEPOSITS
(A) Average Deposits and Rates paid 1 12
10
(B) Items B, C and E are not applicable
(C) Outstanding balances and maturities of certificates of 5 22
deposits in amounts of $100,00 or more as of December 31, 1998
VI. RETURN ON EQUITY AND ASSETS 7 24
VII. SHORT-TERM BORROWINGS 6 23
VIII. INTEREST SENSITIVITY TABLE 8 25
11
- ------------------------------------------------------------------------------------------------------------------------------------
TRIANGLE BANCORP INC. Table 1
INTEREST INCOME AND AVERAGE BALANCES
(IN THOUSANDS)
1998 1997
--------------------------------- -----------------------------------
Interest Interest
Average Income/ Average Average Income/ Average
Balance Expense Yield/Rate Balance Expense Yield/Rate
--------------------------------- -----------------------------------
INTEREST EARNING ASSETS:
Taxable investment securities and
interest bearing due from banks $ 58,636 $ 2,804 4.78% $ 167,463 $ 9,004 5.38%
Non-taxable investment securities
and interest bearing due from banks* 488,675 32,766 6.71% 305,976 22,293 7.29%
Federal funds sold and securities purchased
with agreements to resell 1,180 62 5.25% 3,032 165 5.44%
Gross loans and leases** 1,321,526 121,640 9.20% 1,171,539 109,432 9.34%
Allowance for loan and lease losses (18,526) - 0.00% (15,977) - 0.00%
--------------------------------- -----------------------------------
Total Interest Earning Assets 1,851,491 157,272 8.49% 1,632,033 140,894 8.63%
--------------------------------- -----------------------------------
NONINTEREST EARNING ASSETS
Cash and due from banks 49,951 43,489
Premises and equipment, Net 41,206 36,321
Interest receivable and other assets 69,491 46,130
Unrealized gain (loss) on
securities available for sale (2,385) 175
--------------
-------------
Total Noninterest Earning Assets 158,263 126,115
------------- --------------
TOTAL AVERAGE ASSETS $2,009,754 $ 1,758,148
============= ==============
INTEREST BEARING LIABILITIES:
Demand deposits $ 186,970 4,151 2.22% $ 187,496 4,230 2.26%
Money market and savings deposits 289,249 9,844 3.40% 240,885 9,270 3.85%
Time deposits 906,763 50,756 5.60% 842,312 47,858 5.68%
Borrowed funds 235,937 13,947 5.91% 141,787 8,355 5.89%
--------------------------------- -----------------------------------
Total Interest Bearing Liabilities 1,618,919 78,698 4.86% 1,412,480 69,713 4.94%
--------------------------------- -----------------------------------
NONINTEREST BEARING LIABILITIES:
Demand deposits 200,135 169,220
Custodial deposits 8,886 9,060
Interest payable and other 22,193 21,438
------------- --------------
Total Noninterest Bearing Liabilities 231,214 199,718
------------- --------------
Total Liabilities 1,850,133 1,612,198
Shareholders' Equity 159,621 145,950
------------- --------------
Total Liabilities and
Shareholders' Equity $2,009,754 $ 1,758,148
============= ==============
Interest Rate Spread 3.63% 3.69%
========== ===========
Taxable Equivalent Net Interest Income and
Net Yield on Interest Earning Assets $ 78,574 4.24% $ 71,181 4.36%
==================== =====================
1996
----------------------------------
Interest
Average Income/ Average
Balance Expense Yield/Rate
----------------------------------
INTEREST EARNING ASSETS:
Taxable investment securities and
interest bearing due from banks $ 259,680 $ 14,833 5.71%
Non-taxable investment securities
and interest bearing due from banks* 213,129 15,772 7.40%
Federal funds sold and securities purchased
with agreements to resell 5,606 306 5.46%
Gross loans and leases** 952,620 88,734 9.31%
Allowance for loan and lease losses (14,396) - 0.00%
----------------------------------
----------------------------------
Total Interest Earning Assets 1,416,639 119,645 8.45%
----------------------------------
NONINTEREST EARNING ASSETS
Cash and due from banks 41,119
Premises and equipment, Net 29,908
Interest receivable and other assets 40,544
Unrealized gain (loss) on
securities available for sale 518
--------------
Total Noninterest Earning Assets 112,089
--------------
TOTAL AVERAGE ASSETS $1,528,728
==============
INTEREST BEARING LIABILITIES:
Demand deposits $ 152,957 3,575 2.34%
Money market and savings deposits 209,336 7,246 3.46%
Time deposits 758,558 43,343 5.71%
Borrowed funds 103,093 5,621 5.45%
----------------------------------
Total Interest Bearing Liabilities 1,223,944 59,785 4.88%
----------------------------------
NONINTEREST BEARING LIABILITIES:
Demand deposits 149,022
Custodial deposits 4,636
Interest payable and other 20,187
--------------
Total Noninterest Bearing Liabilities 173,845
--------------
Total Liabilities 1,397,789
Shareholders' Equity 130,939
--------------
Total Liabilities and
Shareholders' Equity $1,528,728
==============
Interest Rate Spread 3.57%
==========
Taxable Equivalent Net Interest Income and
Net Yield on Interest Earning Assets $ 59,860 4.23%
====================
*Tax equivalent adjustment of $3,944, $2,791, and $1,802 made in 1998, 1997
and 1996, respectively. The effective tax rates used were 36% for federally
tax exempt amounts and 7.75% for state tax exempt amounts.
**Includes nonaccrual loans and loans held for sale.
- ------------------------------------------------------------------------------------------------------------------------------------
12
- --------------------------------------------------------------------------------------------------------------------
TRIANGLE BANCORP INC. Table 2
RATE/VOLUME VARIANCE ANALYSIS
(IN THOUSANDS)
1998 compared to 1997 1997 compared to 1996
Interest Interest
Income Income
Expense Volume Rate Expense Volume Rate
Variance Variance Variance Variance Variance Variance
------------------------------- ------------------------------
INTEREST EARNING ASSETS:
Taxable investment securities and
interest bearing due from banks $(6,200) $(5,298) $ (902) $(5,829) $(5,002) $ (827)
Non-taxable investment securities
and interest bearing due from banks 10,473 12,391 (1,918) 6,521 6,768 (247)
Federal funds sold and securities purchased
with agreements to resell (103) (97) (6) (141) (140) (1)
Gross loans and leases 12,208 13,827 (1,619) 20,698 20,448 250
------------------------------- ------------------------------
Total Interest Earning Assets $ 16,378 $ 20,823 $(4,445) $ 21,249 $ 22,074 $ (825)
=============================== ==============================
INTEREST BEARING LIABILITIES:
Demand deposits $ (79) $ (12) $ (67) $ 655 $ 783 $ (128)
Money market and savings deposits 574 1,725 (1,151) 2,024 1,162 862
Time deposits 2,898 3,616 (718) 4,515 4,760 (245)
Borrowed funds 5,592 5,565 27 2,734 2,396 338
------------------------------- ------------------------------
Total Interest Bearing Liabilities $ 8,985 $ 10,894 $(1,909) $ 9,928 $ 9,101 $ 827
=============================== ==============================
- --------------------------------------------------------------------------------------------------------------------
13
--------------------------------------------------------------------------------------------------------------------
TRIANGLE BANCORP, INC. Table 3
LOANS AND LEASES
(IN THOUSANDS)
1998 1997 1996 1995 1994
Analysis of loans and leases:
Commercial, financial and agricultural $218,737 $ 233,034 $ 209,798 $185,406 $171,575
Real estate, construction and land development 180,243 159,815 119,927 123,898 113,858
Real estate, mortgage 732,120 672,634 525,377 397,351 301,446
Real estate, equity lines of credit 95,539 82,320 57,111 44,244 36,198
Consumer loans and leases 152,792 140,754 105,214 95,449 75,999
Other 3,706 2,379 3,672 7,050 6,542
--------------------------------------------------------------
TOTAL $1,383,137 $1,290,936 $ 1,021,099 $853,398 $705,618
==============================================================
--------------------------------------------------------------------------------------------------------------------
14
------------------------------------------------------------------------------------------
TRIANGLE BANCORP, INC. Table 3
ANALYSIS OF CERTAIN LOAN MATURITIES AT DECEMBER 31, 1998
(IN THOUSANDS)
Real Estate
Commercial Construction
Financial and Land
& Agricultural Development Total
Due within one year $ 102,057 $ 133,153 $235,210
Due after one year - five years
Fixed Rate 56,687 20,548 77,235
Variable Rate 46,870 16,938 63,808
------------ ------------- -----------
Total 103,557 37,486 141,043
------------ ------------- -----------
Due after five - ten years
Fixed Rate 4,923 4,887 9,810
Variable Rate 8,200 4,717 12,917
------------ ------------- -----------
Total 13,123 9,604 22,727
------------ ------------- -----------
Total $ 218,737 $ 180,243 $398,980
============ ============= ===========
------------------------------------------------------------------------------------------
15
------------------------------------------------------------------------------------------------------
TRIANGLE BANCORP, INC. Table 3
RESERVE FOR LOAN AND LEASE LOSSES AND NONPERFORMING ASSETS
(IN THOUSANDS)
For the year ended December 31,
1998 1997 1996 1995 1994
---------------------------------------------------
Beginning balance $ 17,797 $ 14,812 $ 13,738 $ 14,871 $ 17,033
Deduct charge-offs:
Commercial, financial and agricultural 2,056 1,665 1,040 1,295 1,659
Real estate, construction and land development - - - - 1,151
Real estate, mortgage - 43 249 383 193
Consumer loans and leases 1,700 2,144 695 633 782
Other 149 802 218 3 10
---------------------------------------------------
TOTAL 3,905 4,654 2,202 2,314 3,795
Add recoveries:
Commercial, financial and agricultural 269 995 594 789 211
Real estate, construction and land development - - - 7 12
Real estate, mortgage 31 52 68 136 195
Consumer loans and leases 237 199 152 218 109
Other 40 67 45 - -
---------------------------------------------------
TOTAL 577 1,313 859 1,150 527
---------------------------------------------------
Net charge-offs 3,328 3,341 1,343 1,164 3,268
Additions charged to operations 5,115 5,121 2,515 31 1,008
Provision for acquired loans and leases - 1,205 (98) - 98
Allowance acquired in mergers - - - - -
---------------------------------------------------
Ending balance $ 19,584 $ 17,797 $ 14,812 $ 13,738 $ 14,871
===================================================
Ratio of net charge-offs during the period to
average loans and leases outstanding
during the period 0.25% 0.29% 0.14% 0.15% 0.50%
------------------------------------------------------------------------------------------------------
16
Table 3
TRIANGLE BANCORP, INC.
ALLOCATION OF THE RESERVE FOR LOAN AND LEASE LOSSES
AT DECEMBER 31,
(DOLLARS IN THOUSANDS)
----------------------------------------------------------------------------------------------------
1998 1997 1996
----------------------------------------------------------------------------------------------------
% of loans in % of loans in % of loans in
each category each category each category
Amount to Total Loans Amount to Total Loans Amount to Total Loans
----------------------------------------------------------------------------------------------------
Commercial, Financial and
Agricultural $ 5,659 15.81% $ 6,004 18.05% $ 4,746 20.55%
Real Estate, Construction
and Land Development 808 13.03% 823 12.38% 376 11.74%
Real Estate, Mortgage 4,200 52.93% 3,245 52.10% 2,456 51.45%
Real Estate, Equity Lines
of Credit 1,085 6.91% 650 6.38% 402 5.59%
Consumer Loans and Leases 2,613 11.05% 2,620 10.91% 3,439 10.30%
Other 63 0.27% 829 0.18% 530 0.37%
Unallocated 5,156 0.00% 3,626 0.00% 2,863 0.00%
----------------------------------------------------------------------------------------------------
TOTAL $ 19,584 100.00% $ 17,797 100.00% $ 14,812 100.00%
====================================================================================================
--------------------------------------------------------------------
1995 1994
--------------------------------------------------------------------
% of loans in % of loans in
each category each category
Amount to Total Loans Amount to Total Loans
--------------------------------------------------------------------
Commercial, Financial and
Agricultural $ 4,382 21.73% $ 3,924 24.31%
Real Estate, Construction
and Land Development 495 14.52% 852 16.14%
Real Estate, Mortgage 2,779 46.56% 4,447 42.72%
Real Estate, Equity Lines
of Credit 340 5.18% 274 5.12%
Consumer Loans and Leases 3,491 11.18% 3,643 10.77%
Other 78 0.83% 25 0.94%
Unallocated 2,173 0.00% 1,706 0.00%
------------------------------------------------------------------
TOTAL $ 13,738 100.00% $ 14,871 100.00%
==================================================================
17
- -------------------------------------------------------------------------------------------------------------------------
TRIANGLE BANCORP, INC. Table 3
ANALYSIS OF NONPERFORMING ASSETS
(IN THOUSANDS)
As of December 31,
1998 1997 1996 1995 1994
------------------------------------------------------------
Nonaccrual loans $4,945 $2,497 $3,655 $3,015 $3,044
Loans contractually past due 90 or
or more days as to principal or interest 5,682 6,078 3,591 2,865 2,729
Foreclosed assets 2,101 594 587 707 1,065
============================================================
Total $ 12,728 $9,169 $7,833 $6,587 $6,838
============================================================
- -------------------------------------------------------------------------------------------------------------------------
18
- ----------------------------------------------------------------------------------------------------------------------------------
TRIANGLE BANCORP, INC. Table 4
SECURITIES
(IN THOUSANDS)
December 31,
-------------------------------------------------------------------------
1998 1998 1997 1997
AVAILABLE FOR SALE Book Value Market Value Book Value Market Value
---------- ------------ ---------- ------------
U.S. Treasury securities $ 55,276 $ 55,839 $ 113,277 $ 114,072
U.S. Agency obligations 92,598 92,682 22,263 22,364
Obligations of state and political subdivisions 69,434 71,077 35,824 36,762
Collateralized mortgage obligations and
mortgage-backed securities 237,029 228,384 251,799 250,522
FHLB, Federal Reserve and Federal
Home Loan Mortgage Corporation Stock 17,222 17,153 22,249 22,269
Corporate securities 16,196 15,956 - -
Other investments 1,065 1,064 374 374
=========================================================================
Total $ 488,820 $ 482,155 $ 445,786 $ 446,363
=========================================================================
HELD TO MATURITY
U.S. Agency obligations $ 62,232 $ 63,307 $ 72,128 $ 72,881
Obligations of state and political subdivisions 12,043 12,594 12,998 13,405
Collateralized mortgage obligations and
mortgage-backed securities 6,416 6,423 15,287 15,420
Other investments 447 466 253 273
=========================================================================
Total $ 81,138 $ 82,790 $ 100,666 $ 101,979
=========================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
19
- ------------------------------------------------------------------------------------------------------------------------------
TRIANGLE BANCORP, INC. Table 4
SECURITIES
(IN THOUSANDS)
WEIGHTED AVERAGE YIELDS AT DECEMBER 31, 1998
Due in One After
AVAILABLE FOR SALE Year or less 1 - 5 years 5 - 10 years 10 years Total
----------------------------------------------------------------
U.S. Treasury securities 6.12% 6.14% 6.12%
U.S. Agency oligations 5.12% 5.42% 6.81% 5.26%
Obligations of state and political subdivisions 5.12% 4.76% 4.77%
Mortgage-backed securities* 5.72% 5.53% 5.56%
Collateralized mortgage obligations* 6.40% 6.09% 4.61% 4.83%
Other investments 5.12% 5.50% 5.35%
----------------------------------------------------------------
Total 5.54% 5.69% 6.02% 4.77% 5.12%
----------------------------------------------------------------
HELD TO MATURITY
U.S. Agency oligations 6.06% 6.25% 6.19%
Obligations of state and political subdivisions 5.15% 5.09% 5.37% 5.66% 5.35%
Mortgage-backed securities* 5.97% 5.00% 5.88% 6.93% 5.75%
Collateralized mortgage obligations* 5.99% 5.58% 5.85%
Other investments 8.81% 8.81%
----------------------------------------------------------------
Total 6.04% 6.31% 5.60% 5.78% 6.05%
----------------------------------------------------------------
* Analysis performed using contractual maturities.
- ------------------------------------------------------------------------------------------------------------------------------
20
- ------------------------------------------------------------------------------------------------------------------------------------
TRIANGLE BANCORP, INC. Table 4
SECURITIES
(IN THOUSANDS)
Book Value as of December 31, 1998
-------------------------------------------------------------------------
Due in One After No stated
AVAILABLE FOR SALE Year or less 1 - 5 years 5 - 10 years 10 years maturity
-------------------------------------------------------------------------
U.S. Treasury securities $ 44,131 $11,145 $ - $ -
U.S. Agency obligations 55,951 35,647 1,000 -
Obligations of state and political subdivisions - - 1,698 67,736
Mortgage-backed securities* - - 3,084 23,368
Collateralized mortgage obligations* - 6,062 25,171 179,344
FHLB, Federal Reserve and Federal
Home Loan Mortgage Corporation Stock - - - - 17,222
Corporate securities 6,201 - - 9,995 -
Other investments - - - - 1,065
=========================================================================
Total $ 106,283 $52,854 $ 30,953 $ 280,443 $ 18,287
=========================================================================
HELD TO MATURITY
U.S. Agency obligations $ 19,402 $42,830 $ - $ - $ -
Obligations of state and political subdivisions 460 3,392 5,371 2,820 -
Mortgage-backed securities* 237 1,085 1,596 471 -
Collateralized mortgage obligations* - - 2,021 1,006 -
Other investments - 447 - - -
=========================================================================
Total $ 20,099 $47,754 $ 8,988 $ 4,297 $ -
=========================================================================
Book Value
as of
December 31, 1998
-----------
Average
Market Maturity
AVAILABLE FOR SALE Total Value in Years
--------------------------------------
U.S. Treasury securities $ 55,276 $ 55,839 1.07
U.S. Agency obligations 92,598 92,682 2.76
Obligations of state and political subdivisions 69,434 71,077 11.08
Mortgage-backed securities* 26,452 26,413 14.05
Collateralized mortgage obligations* 210,577 201,971 11.62
FHLB, Federal Reserve and Federal
Home Loan Mortgage Corporation Stock 17,222 17,153 -
Corporate securities 16,196 15,956 18.68
Other investments 1,065 1,064 -
======================================
Total $ 488,820 $ 482,155 9.88
======================================
HELD TO MATURITY
U.S. Agency obligations $ 62,232 $ 63,307 1.03
Obligations of state and political subdivisions 12,043 12,594 5.33
Mortgage-backed securities* 3,389 3,393 6.20
Collateralized mortgage obligations* 3,027 3,030 13.67
Other investments 447 466 2.26
======================================
Total $ 81,138 $ 82,790 5.13
======================================
* Analysis performed using contractual maturities.
- ------------------------------------------------------------------------------------------------------------------------------------
21
- --------------------------------------------------------------------------------------------------------
TRIANGLE BANCORP, INC. Table 5
LARGE TIME DEPOSIT MATURITIES
(IN THOUSANDS)
Analysis of Time Deposits of $100,000 or more at December 31, 1998:
Remaining maturity of three months or less $ 95,503
Remaining maturity of over three months through twelve months 103,568
Remaining maturity of over twelve months 18,527
---------------
Total time deposits of $100,000 or more $217,598
===============
- --------------------------------------------------------------------------------------------------------
22
- ------------------------------------------------------------------------------------------------------------------------------------
TRIANGLE BANCORP, INC. Table 6
SHORT-TERM DEBT
(DOLLARS IN THOUSANDS)
1998
-------------------------------------------------------------------------------
Securities
Federal Sold Under Reverse TT & L
Funds Agreement to Repurchase Master Note
Purchased Repurchase Agreement Note Option Combined
End of year:
Amount outstanding $67,000 $ 18,583 $ 44,667 $28,386 $ 344 $ 158,980
Weighted average interest rate 5.73% 4.05% 4.87% 4.26% 1.28% 5.02%
Maximum amount outstanding $67,000 $ 22,028 $ 44,667 $28,386 $ 400 $ 162,481
at any month end
Averages:
Average outstanding during year $21,874 $ 17,980 $ 7,517 $18,308 $ 365 $ 66,044
Weighted average interest rate 5.47% 4.48% 4.92% 4.44% 1.20% 4.83%
during the year
1997
----------------------------------------------------------------
Securities
Federal Sold Under TT & L
Funds Agreement to Master Note
Purchased Repurchase Note Option Combined
End of year:
Amount outstanding $24,800 $ 20,602 $15,704 $ 400 $61,506
Weighted average interest rate 5.85% 4.56% 4.80% 5.27% 5.15%
Maximum amount outstanding $30,800 $ 25,360 $15,704 $ 400 $72,264
at any month end
Averages:
Average outstanding during year $ 3,503 $ 19,971 $ 6,884 $ 288 $30,646
Weighted average interest rate 5.76% 4.61% 4.70% 4.24% 4.76%
during the year
1996
-----------------------------------------------------
Securities
Federal Sold Under TT & L
Funds Agreement to Note
Purchased Repurchase Option Combined
End of year:
Amount outstanding $ 3,900 $ 34,738 $ 342 $38,980
Weighted average interest rate 7.00% 4.90% 5.15% 5.11%
Maximum amount outstanding $ 35,745 $ 39,466 $ 400 $75,611
at any month end
Averages:
Average outstanding during year $ 10,876 $ 31,502 $ 395 $42,773
Weighted average interest rate 5.74% 5.17% 3.15% 5.30%
during the year
- -----------------------------------------------------------------------------------------------------------------------------------
23
- ----------------------------------------------------------------------------------------------------------------------------
TRIANGLE BANCORP, INC. Table 7
SELECTED KEY FINANCIAL RATIOS
For the year ended December 31,
1998 1997 1996
---------------------------------------------
Return on Average Assets 1.09% 1.11% 0.97%
Return on Average Equity 13.69% 13.38% 11.30%
Dividends Paid ratio 38.10% 32.00% 30.00%
Average Equity to Average Assets 7.94% 8.30% 8.57%
- ----------------------------------------------------------------------------------------------------------------------------
24
- ---------------------------------------------------------------------------------------------------------------------
TRIANGLE BANCORP Table 8
INTEREST SENSITIVITY
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
0 - 3 4 to 12 1 to 5 Over 5
Balance Months Months Years Years
-----------------------------------------------------------------------
Federal funds sold $ 911 $ 911 $ - $ - $ -
Securities 563,293 53,046 73,713 100,837 335,697
Loans and leases, net 1,363,553 577,823 92,634 474,600 218,496
-----------------------------------------------------------------------
Earning assets 1,927,757 631,780 166,347 575,437 554,193
-----------------------------------------------------------------------
Total assets $ 2,123,084
================
Interest bearing demand deposits $ 201,042 80,417 - 80,417 40,208
Savings deposits 74,778 - - 59,822 14,956
Money market account deposits 218,874 - 109,437 109,437 -
Time deposits 906,472 295,798 471,888 138,786 -
Short-term debt 158,980 158,980 - - -
FHLB advances 130,300 5,000 1,800 123,500 -
Corporation obligated
manditorily redeemable securities 19,952 - - - 19,952
-----------------------------------------------------------------------
Costing liabilities $ 1,710,398 $540,195 $ 583,125 $ 511,962 $75,116
-----------------------------------------------------------------------
GAP $ 91,585 $(416,778) $63,475 $ 479,077
-------------------------------------------------------
% of total assets 4.31% -19.63% 2.99% 22.57%
-------------------------------------------------------
Cumulative GAP $ 91,585 $(325,193) $(261,718) $ 217,359
-------------------------------------------------------
% of total assets 4.31% -15.32% -12.33% 10.24%
-------------------------------------------------------
Assumptions regarding non-maturing deposits follow the FDICIA section 305
maximums.
- ---------------------------------------------------------------------------------------------------------------------
25
MARKET RISK
As discussed in the Asset and Liability Management and Market Risk section of
the Management Discussion and Analysis, the Company's market risk relates to the
interest rate risk in herent in its lending and deposit taking activities. The
Banks use a model to simulate interest movements and the effect such movements
would have on the market value of portfolio equity. The market value of
portfolio equity is the present value of expected cash flows from assets,
liabilities and off balance sheet contracts using current market discount rates.
In executing the model, assumptions, which may or may not actually occur in
rapid interest rate changes, are used. The assumptions related to non-maturing
deposits are based on the FDICIA 305 maximum maturities. Assumptions regarding
expected cash flows are based on the individual maturities of the Banks'
securities, loans, deposits and other borrowings.
The table below illustrates the effect of interest rate movements, both up and
down, of 100 and 200 basis points for each of the Banks.
- --------------------------------------------------------------------------------
December 31, 1998
Market Value
of Portfolio
Equity
(In thousands)
Change from
Base
$ $ %
--------------------------------------------
TRIANGLE BANK
Up 200 163,479 14,592 9.80%
Up 100 156,211 7,324 4.92%
Base 148,887 - 0.00%
Down 100 141,542 (7,345) -4.93%
Down 200 134,219 (14,668) -9.85%
BANK OF MECKLENBURG
Up 200 13,089 2,228 1.50%
Up 100 11,932 1,071 0.72%
Base 10,861 - 0.00%
Down 100 9,913 (948) -0.64%
Down 200 9,139 (1,722) -1.16%
- --------------------------------------------------------------------------------
26
ITEM 2. PROPERTIES
See Item 1. Description of Business-Properties.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending to which the
Corporation or its direct or indirect subsidiaries is a party or of which any of
their property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the Corporation's shareholders in
the fourth quarter of 1998.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The stock price and shareholder data appear on page 29 of the
Annual Report to Shareholders. Restrictions on paying dividends
are described in Item 1 on Form 10-K under the heading "Bank
Regulation".
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data appears on page 1 of the
Annual Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and
results of operations for the years ended December 31, 1998 and
December 31, 1997 appears on pages 16 through 23 of the Annual
Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements, together with the report
thereon of PricewaterhouseCoopers LLP dated January 19, 1999,
appears on pages FS-1 through FS-32 of this Annual Report on Form
10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
No changes in accountants or disagreements on accounting or
financial disclosure occurred in the period from January 1, 1997
through the date hereof.
27
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained under the captions "Section 16(a)
Beneficial Ownership Reporting Compliance", "Proposal 1. Election
of Directors", "Incumbent Directors", "Director Relationships",
and "Executive Officers" in the Proxy Statement is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the captions "Director
Compensation", "Compensation Committee Report", "Compensation
Committee Interlocks and Insider Participation", "Executive
Compensation" and "Performance Graph" in the Proxy Statement is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the caption "Beneficial Ownership
of Voting Securities" in the Proxy Statement is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the captions "Indebtedness of
Management" and "Transactions with Management" in the Proxy
Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
Financial Statements:
Report of Independent Accounts......................................FS-1
Consolidated Balance Sheets as of
December 31, 1998 and 1997..........................................FS-2
Consolidated Statements of Income
for the years ended December 31, 1998, 1997 and 1996................FS-3
Consolidated Statements of Changes in
Shareholders' Equity for the years ended
December 31, 1998, 1997 and 1996....................................FS-4
Consolidated Statements of Cash
Flows for the years ended December 31,
1998, 1997 and 1996.........................................FS-5 to FS-6
Notes to Consolidated Financial Statements.................FS-7 to FS-32
28
The following exhibits listed in accordance with the number assigned to
each in the Exhibit Table of Item 601 of Regulation S-K under the Securities Act
of 1933, as amended, are included in this Form 10-K.
EXHIBIT
NUMBER
3(a) Articles of Incorporation of Triangle Bancorp, Inc. as amended at the
meeting of shareholders on April 28, 1998
3(b) Bylaws of Triangle Bancorp, Inc. as amended at the special meeting
of shareholders on April 28, 1997 and by the Board of Directors on
January 27, 1998 (incorporated by reference to Exhibit 3(b) to the
Registrant's Form 10-K for the fiscal year ended December 31, 1997
as filed with the Commission on March 27, 1998)
4 Specimen of Common Stock Certificate of Triangle Bancorp, Inc.
(incorporated by reference to Exhibit (4) to the Registrant's Form 10-K
for the fiscal year ended December 31, 1997 as filed with the Commission
on March 27, 1998)
10(a) Triangle Bancorp, Inc. 1988 Incentive Stock Option Plan, as amended
on August 19, 1997 and on November 18, 1997 (incorporated by
reference to Exhibit 10(a) to the Registrant's Form 10-K for the
fiscal year ended December 31, 1997 as filed with the Commission on
March 27, 1998)
10(b) Triangle Bancorp, Inc. 1988 Non-Qualified Stock Option Plan, as
amended on August 19, 1997 and on November 18, 1997 (incorporated
by reference to Exhibit 10(b) to the Registrant's Form 10-K for the
fiscal year ended December 31, 1997 as filed with the Commission on
March 27, 1998)
10(c) Triangle Bancorp, Inc. 1998 Omnibus Stock Plan
10(d) Triangle Bancorp, Inc. Deferred Compensation Plan for Outside
Directors (incorporated by reference to Exhibit 10(c) to the
Registrant's Form 10-K for the fiscal year ended December 31, 1993
as filed with the Commission on March 31, 1994)
10(e) Triangle Bancorp, Inc. 1997 Deferred Compensation Plan for Outside
Directors (incorporated by reference to Exhibit 10(e) to the
Registrant's Form 10-K for the fiscal year ended December 31, 1997
as filed with the Commission on March 27, 1998)
10(f) Employment Agreement between Triangle Bancorp, Inc. and Michael S.
Patterson (incorporated by reference to Exhibit 10(a) to the
Registrant's Form 10-K for the fiscal year ended December 31, 1993 as
filed with the Commission on March 31, 1994)
29
10(g) Deferred Compensation Agreement between Triangle Bancorp, Inc. and
Michael S. Patterson (incorporated by reference to Exhibit 10(g) to the
Registrant's Form S-4 (Registration No.33-86226) as declared effective
by the Commission on January 20, 1995)
10(h) Deferred Compensation Agreement between Triangle Bancorp, Inc. and
Debra L. Lee (incorporated by reference to Exhibit 10(h) to the
Registrant's Form S-4 (Registration No. 33-86226) as declared effective
by the Commission on January 20, 1995)
10(i) Split Dollar Insurance Agreement and Deferred Compensation Agreement
between Triangle Bancorp, Inc. and Michael S. Patterson (incorporated by
reference to Exhibit 10(n) to the Registrant's Form 10-K filed on March
31, 1996)
10(j) Change of Control Agreement among Triangle Bancorp, Inc., Triangle
Bank and Steven R. Ogburn (incorporated by reference to Exhibit
10(l) to the Registrant's Form 10-K for the fiscal year ended
December 31, 1997 as filed with the Commission on March 27, 1998)
10(k) Change of Control Agreement among Triangle Bancorp, Inc., Triangle
Bank and Debra L. Lee (incorporated by reference to Exhibit 10(m)
to the Registrant's Form 10-K for the fiscal year ended December
31, 1997 as filed with the Commission on March 27, 1998)
10(l) Employment Agreement between Triangle Bancorp, Inc. and Billy N. Quick,
Sr. (incorporated by reference to Exhibit 10(n) to the Registrant's Form
10-K for the fiscal year ended December 31, 1997 as filed with the
Commission on March 27, 1998)
10(m) Change of Control Agreement among Triangle Bancorp, Inc., Triangle
Bank and Edward O. Wessell (incorporated by reference to Exhibit
10(o) to the Registrant's Form 10-K for the fiscal year ended
December 31, 1997 as filed with the Commission on March 27, 1998)
10(n) Change of Control Agreement among Triangle Bancorp, Inc., Triangle Bank
and Robert E. Branch
10(o) Supplemental Employee Retirement Plan dated January 1, 1998 between
Triangle Bank and Michael S. Patterson (incorporated by reference
to Exhibit 10(p) to the Registrant's Form 10-K for the fiscal year
ended December 31, 1997 as filed with the Commission on March 27,
1998)
10(p) Form of Supplemental Employee Retirement Plan between Triangle Bank
and each of Debra L. Lee, Steven R. Ogburn and Edward O. Wessell
and Robert E. Branch (incorporated by reference to Exhibit 10(q) to
the Registrant's Form 10-K for the fiscal year ended December 31,
1997 as filed with the Commission on March 27, 1998)
30
13 1998 Annual Report to Shareholders
21 Subsidiaries of Registrant
23 Consent of PricewaterhouseCoopers LLP
27 Financial Data Schedule for the year and quarter ended December 31, 1998
(b) Reports on Form -8K
On March 11, 1998, a Form 8-K was filed to report the execution
of an Agreement and Plan of Reorganization and Merger with United Federal.
On March 20, 1998, a Form 8-K was filed to report the
authorization of the repurchase of up to 100,000 shares of Registrant's common
stock.
On June 17, 1998, a Form 8-K was filed to restate historical
financial information due to the acquisition of Guaranty State.
On August 10, 1998, a Form 8-K was filed to report an Amendment
to the Agreement and Plan of Reorganization and Merger with United Federal.
On September 2, 1998, a Form 8-K was filed to report an Amendment
to the Agreement and Plan of Reorganization and Merger with United Federal.
On September 30, 1998, a Form 8-K was filed to report the
completion of the acquisition of United Federal.
31
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TRIANGLE BANCORP, INC.
By /s/ Michael S. Patterson
-----------------------------
Michael S. Patterson
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
/s/ Michael S. Patterson President, Chief Executive Officer, March 16, 1999
--------------------------- Chairman and Director (Principal
Michael S. Patterson Executive Officer
/s/ Debra L. Lee Executive Vice President and March 16, 1999
--------------------------- Chief Financial Officer
Debra L. Lee (Principal Financial Officer)
/s/ Lisa F. Campbell Senior Vice President March 16, 1999
---------------------------- (Principal Accounting Officer)
Lisa F. Campbell
/s/ Carole S. Anders Director March 16, 1999
-----------------------------
Carole S. Anders
/s/ Charles H. Ashford, Jr. Director March 16, 1999
-----------------------------
Charles H. Ashford, Jr.
/s/ John A. Barker Director March 16, 1999
------------------------------
John A. Barker
/s/ Edwin B. Borden Director March 16, 1999
-------------------------------
Edwin B. Borden
32
/s/ Robert E. Bryan, Jr. Director March 16, 1999
--------------------------------
Robert E. Bryan, Jr.
/s/ David T. Clancy Director March 16, 1999
---------------------------------
David T. Clancy
Director March 16, 1999
---------------------------------
N. Leo Daughtry
/s/ Willie S. Edwards Director March 16, 1999
---------------------------------
Willie S. Edwards
Director March 16, 1999
---------------------------------
James P. Godwin, Sr.
/s/ Robert L. Guthrie Director March 16, 1999
---------------------------------
Robert L. Guthrie
/s/ B. W. Harris, III Director March 16, 1999
---------------------------------
B. W. Harris, III
/s/ John B. Harris, Jr. Director March 16, 1999
---------------------------------
John B. Harris, Jr.
/s/ George W. Holt Director March 16, 1999
---------------------------------
George W. Holt
/s/ Earl Johnson, Jr. Director March 16, 1999
---------------------------------
Earl Johnson, Jr.
/s/ Michael A. Maxwell Director March 16, 1999
---------------------------------
Michael A. Maxwell
/s/ Wendell H. Murphy Director March 16, 1999
---------------------------------
Wendell H. Murphy
/s/ Patrick H. Pope Director March 16, 1999
---------------------------------
Patrick H. Pope
33
/s/ William R. Pope Director March 16, 1999
---------------------------------
William R. Pope
/s/ Beverly B. Poston Director March 16, 1999
---------------------------------
Beverly B. Poston
/s/ Edythe M. Poyner Director March 16, 1999
---------------------------------
Edythe M. Poyner
/s/ Billy N. Quick, Sr. Director March 16, 1999
---------------------------------
Billy N. Quick, Sr.
/s/ J. Dal Snipes Director March 16, 1999
---------------------------------
J. Dal Snipes
/s/ Charles J. Stewart Director March 16, 1999
---------------------------------
Charles J. Stewart
/s/ N. Johnson Tilghman Director March 16, 1999
----------------------------------
N. Johnson Tilghman
/s/ Sydnor M. White, Jr. Director March 16, 1999
----------------------------------
Sydnor M. White, Jr.
/s/ J. Blount Williams Director March 16, 1999
----------------------------------
J. Blount Williams
34
REPORT OF INDEPENDENT ACCOUNTANTS
January 19, 1999
The Board of Directors and Shareholders
Triangle Bancorp, Inc. and Subsidiaries
Raleigh, North Carolina
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows present fairly, in all material respects, the financial position of
Triangle Bancorp, Inc. and subsidiaries at December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
FS-1
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
- -------------------------------------------------------------------------------------------------------------------
1998 1997
----------- -----------
(in thousands, except share data)
ASSETS
Cash and due from banks $ 76,624 $ 59,938
Federal funds sold - 4,219
Interest-bearing deposits in banks 911 34,195
Securities available for sale 482,155 446,363
Securities held to maturity, estimated market value $82,790
in 1998 and $101,979 in 1997 81,138 100,666
Loans and leases, net 1,363,553 1,273,139
Premises and equipment, net 40,492 40,281
Interest receivable 16,468 15,687
Deferred income taxes 10,597 7,695
Intangible assets, net 24,207 27,688
Other assets 26,939 5,766
----------- -----------
Total assets $ 2,123,084 $ 2,015,637
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 224,732 $ 199,746
Interest-bearing demand 201,042 192,577
Savings and money market accounts 293,652 288,977
Large denomination certificates of deposit 217,598 156,536
Other time 688,874 712,404
----------- -----------
Total deposits 1,625,898 1,550,240
----------- -----------
Short-term debt 158,980 61,506
Federal Home Loan Bank of Atlanta advances 130,300 205,300
Corporation obligated mandatorily redeemable capital securities 19,952 19,951
Custodial accounts for loans serviced 7,243 5,197
Interest payable 8,292 9,380
Other liabilities 9,392 11,592
----------- -----------
Total liabilities 1,960,057 1,863,166
----------- -----------
Commitments and contingencies (Notes 15 and 17)
Shareholders' equity:
Common stock; no par value; 50,000,000 shares authorized;
25,183,597 shares and 24,839,775 shares issued and
outstanding in 1998 and 1997, respectively 86,549 84,886
Retained earnings 80,753 67,217
Accumulated other comprehensive income (loss) (4,275) 368
----------- -----------
Total shareholders' equity 163,027 152,471
----------- -----------
$ 2,123,084 $ 2,015,637
=========== ===========
The accompanying notes are an integral part of these financial statements.
FS-2
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------------------------------------------
1998 1997 1996
---------- ---------- ----------
(in thousands, except per share data)
Interest income:
Loans and fees on loans $ 121,640 $ 109,432 $ 88,734
Federal funds sold and securities purchased under
resale agreements 62 165 306
Securities 30,148 25,751 27,485
Deposits with other financial institutions 1,478 2,755 1,318
---------- ---------- ----------
Total interest income 153,328 138,103 117,843
---------- ---------- ----------
Interest expense:
Large denomination certificates of deposit 11,503 8,670 7,894
Other deposits 53,248 52,688 46,270
Borrowed funds 13,947 8,355 5,621
---------- ---------- ----------
Total interest expense 78,698 69,713 59,785
---------- ---------- ----------
Net interest income 74,630 68,390 58,058
Provision for loan and lease losses 5,115 5,121 2,515
---------- ---------- ----------
Net interest income after provision for loan and lease losses 69,515 63,269 55,543
---------- ---------- ----------
Noninterest income:
Service charges on deposit accounts 8,306 7,131 6,551
Other service charges, commissions and fees 3,669 2,559 2,500
Mortgage servicing fees, net of amortization 738 1,101 1,266
Net gain on sales of securities 1,671 1,389 1,142
Net gain on trading account securities - 681 -
Gain on sale of deposits - 2,000 558
Gain on sale of government loans 1,028 338 -
Gain on sale of mortgage loans 613 400 312
Investment commissions and fees 783 471 370
Other operating income 1,648 852 270
---------- ---------- ----------
Total noninterest income 18,456 16,922 12,969
---------- ---------- ----------
Noninterest expense:
Salaries and employee benefits 21,750 22,051 20,623
Occupancy expense 5,006 4,421 3,875
Equipment expense 4,700 3,540 3,140
Amortization of intangible assets 3,175 2,180 1,528
SAIF assessment - - 1,316
Merger expenses 4,373 2,651 494
Legal and professional fees 2,707 3,109 2,320
Other operating expense 13,185 12,173 11,580
---------- ---------- ----------
Total noninterest expense 54,896 50,125 44,876
---------- ---------- ----------
Income before income taxes 33,075 30,066 23,636
Income tax expense 11,217 10,540 8,840
Net income $ 21,858 $ 19,526 $ 14,796
========== ========== ==========
Basic earnings per share $ .87 $ .79 $ .62
========== ========== ==========
Diluted earnings per share $ .84 $ .76 $ .60
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
FS-3
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- ----------------------------------------------------------------------------------------------------------------------------
ACCUMULATED
OTHER TOTAL
Common Stock RETAINED COMPREHENSIVE SHAREHOLDERS'
Shares Amount Earnings Income (Loss) Equity
---------- -------- -------- ---------- -----------
(in thousands, except share and per share data)
Balance, December 31, 1995, as previously
reported 20,644,336 $ 81,956 $ 23,354 $ 1,235 $ 106,545
Adjustment for pooling of interests 3,365,440 2,689 17,338 688 20,715
Balance, December 31, 1995 24,009,776 84,645 40,692 1,923 127,260
Net income - - 14,796 - 14,796
Other comprehensive loss - - - (1,526) (1,526)
-----------
Comprehensive income 13,270
Shares issued under stock plans 125,196 596 - - 596
Repurchased shares (28,350) (277) - - (277)
Cash payments for fractional shares (316) (3) - - (3)
Cash dividends paid ($.18 per share) - - (4,442) - (4,442)
---------- -------- -------- ---------- -----------
Balance, December 31, 1996 24,106,306 84,961 51,046 397 136,404
Adjustment for pooling of interests 487,500 40 2,894 - 2,934
Net income - - 19,526 - 19,526
Other comprehensive loss - - - (29) (29)
-----------
Comprehensive income 19,497
Shares issued under stock plans 426,569 2,332 - - 2,332
Repurchased shares (180,600) (2,732) - - (2,732)
Tax effect of nonqualified stock options - 285 - - 285
Cash dividends paid ($.25 per share) - - (6,249) - (6,249)
---------- -------- -------- ---------- -----------
Balance, December 31, 1997 24,839,775 84,886 67,217 368 152,471
Net income - - 21,858 - 21,858
Other comprehensive loss - - - (4,643) (4,643)
-----------
Comprehensive income 17,215
Shares issued under stock plans 462,190 3,084 - - 3,084
Repurchased shares (117,362) (2,217) - - (2,217)
Cash payments for fractional shares (1,006) (18) - - (18)
Tax effect of nonqualified stock options - 814 - - 814
Cash dividends paid ($.32 per share) - - (8,322) - (8,322)
---------- -------- -------- ---------- -----------
Balance, December 31, 1998 25,183,597 $ 86,549 $ 80,753 $ (4,275) $ 163,027
========== ======== ======== ========== ===========
The accompanying notes are an integral part of these financial statements.
FS-4
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------------------------------------------
1998 1997 1996
-------- -------- --------
(in thousands)
Cash flows from operating activities:
Net income $21,858 $19,526 $14,796
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,975 5,966 4,615
Net accretion of discount on securities 2,933 1,344 704
Provision for loan and lease losses 5,115 5,121 2,515
Gain on sales of securities (1,671) (2,070) (1,142)
Gain on market valuation of loans held for sale - - (25)
(Gain) loss on sale of premises and equipment (202) (114) 239
Gain on sale of loans held for sale (1,641) (400) (312)
Gain on sale of deposits - (2,000) (558)
Net change in trading securities - 42,548 -
Loans held for sale:
Originations (49,155) (42,956) (60,606)
Sales 49,976 45,650 64,856
(Benefit) provision for deferred taxes (304) (871) 23
Gain on sales of foreclosed assets (30) (7) (14)
Changes in assets and liabilities:
Interest receivable (781) (2,159) (1,454)
Other assets (2,416) 377 146
Interest payable (1,088) (363) 277
Other liabilities (1,386) (37) (156)
-------- -------- --------
Net cash provided by operating activities 29,183 69,555 23,904
-------- -------- --------
Cash flows from investing activities:
Proceeds from maturity and principal paydowns of
securities available for sale 102,830 41,390 47,104
Proceeds from maturity and principal paydowns of
securities held to maturity 37,990 44,894 24,918
Proceeds from sales of securities available for sale 81,200 337,109 341,247
Proceeds from sales of securities held to maturity - - 10,645
Purchase of securities available for sale (224,659) (519,431) (435,224)
Purchase of securities held to maturity (22,128) (37,509) (43,796)
Purchase of bank owned life insurance (20,089) - -
Net increase in loans (94,709) (209,221) (166,474)
Net capital expenditures, premises and equipment (4,437) (6,998) (9,710)
Proceeds from sales of foreclosed assets 1,226 350 592
Proceeds from sale of premises and equipment 752 266 575
Cost of loan servicing rights (681) (924) (269)
Net cash acquired in acquisitions and divestitures - 102,613 74,281
-------- -------- --------
Net cash used in investing activities (142,705) (247,461) (156,111)
-------- -------- --------
The accompanying notes are an integral part of these financial statements.
FS-5
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------------------------------------------
1998 1997 1996
-------- -------- --------
(in thousands)
Cash flows from financing activities:
Net increase in deposit accounts $ 75,658 $ 34,119 $ 127,533
Net increase (decrease) in short-term debt 97,474 22,525 (20,732)
Net increase (decrease) in custodial deposit accounts 2,046 1,056 (1,077)
(Repayments) proceeds from FHLB advances, net (75,000) 145,500 19,800
Proceeds from issuance of corporation obligated
mandatorily redeemable capital securities - 19,951 -
Debt issuance costs - (627) -
Repurchase of stock (2,217) (2,732) (277)
Cash payments for fractional shares (18) - (3)
Shares issued under stock plans 3,084 2,332 596
Cash dividends paid (8,322) (6,249) (4,442)
-------- -------- --------
Net cash provided by financing activities 92,705 215,875 121,398
-------- -------- --------
Net (decrease) increase in cash and cash
equivalents (20,817) 37,969 (10,809)
Cash and cash equivalents at beginning of year 98,352 60,383 71,192
-------- -------- --------
Cash and cash equivalents at end of year $ 77,535 $ 98,352 $ 60,383
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 79,786 $ 69,589 $ 59,239
======== ======== ========
Income taxes $ 11,151 $ 10,903 $ 8,687
======== ======== ========
Non cash financing activity:
Tax benefit from disqualification of incentive stock options $ 814 $ 285 $ -
======== ======== ========
The accompanying notes are an integral part of these financial statements.
FS-6
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF OPERATIONS
Triangle Bancorp, Inc. (the "Company") is a bank holding company
incorporated in November 1991 under the laws of the State of North
Carolina, with four wholly-owned subsidiaries, Triangle Bank
("Triangle") and Bank of Mecklenburg ("Mecklenburg"), (collectively,
the "Banks"), Coastal Leasing LLC ("Coastal"), and Triangle Capital
Trust (the "Trust").
The accounting and reporting policies of the Company and its
subsidiaries follow generally accepted accounting principles and
general practices within the financial services industry. All amounts
in tabular format are in thousands of dollars unless otherwise noted.
Following is a summary of the more significant policies.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
SECURITIES
The Company classifies its securities into three types as follows:
a. Securities Held to Maturity - Debt securities that the Company has
the positive intent and ability to hold to maturity which are
reported at amortized cost,
b. Trading Securities - Debt and equity securities that are bought
and held principally for the purpose of selling in the near term
which are reported at fair value, with unrealized gains and losses
included in earnings, or
c. Securities Available for Sale - Debt and equity securities not
classified as either Securities Held to Maturity or Trading
Securities which are reported at fair value, with unrealized gains
and losses reported as other comprehensive income, a separate
component of shareholders' equity.
The classification of securities is generally determined at the date of
purchase. Gains and losses on sales of securities, computed based on
specific identification of the adjusted cost of each security, are
included in other income at the time of the sales. Premiums and
discounts on debt securities are recognized in interest income on the
interest method over the period to maturity.
FS-7
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
LOANS AND LEASES AND ALLOWANCE FOR LOAN AND LEASE LOSSES
Loans and leases are stated at the amount of unpaid principal, reduced
by an allowance for loan and lease losses, unearned discounts and net
deferred loan origination fees and costs. Interest on loans is
calculated by using the simple interest method on daily balances of the
principal amount outstanding. Deferred loan fees and costs are
amortized to interest income over the contractual life of the loan
using a method that approximates the level yield method.
A loan is considered impaired if, based on current information and
events, it is probable that the Company will be unable to collect the
scheduled payments of principal and interest when due according to the
contractual terms of the loan agreement. Uncollateralized loans are
measured for impairment based on the present value of expected future
cash flows discounted at the original contractual interest rate, while
all collateral-dependent loans are measured for impairment based on the
fair value of the collateral. During 1998 and 1997 there were no loans
material to the consolidated financial statements that were impaired as
defined.
The Company uses several factors in determining if a loan is impaired.
The internal asset classification procedures include a thorough review
of significant loans and lending relationships and include the
accumulation of related data. This data includes loan payment status,
borrowers' financial data and borrowers' operating factors such as cash
flows, operating income or loss, etc.
The allowance for loan losses is established through a provision for
loan losses charged to expense. Loans are charged against the allowance
for loan losses when management believes that collection of the
principal is unlikely. The allowance is an amount that management
believes will be adequate to absorb possible losses on existing loans
that may become uncollectible, based on evaluations of the
collectibility of loans and prior loan loss experience. The evaluations
take into consideration such factors as changes in the nature and
volume of the loan portfolio, overall portfolio quality, review of
specific problem loans, and current economic conditions and trends that
may affect the borrowers' ability to pay. It is possible that
management's evaluation will change due to changes in these factors or
unforseen events.
INCOME RECOGNITION ON IMPAIRED AND NONACCRUAL LOANS
Loans, including impaired loans, are generally classified as nonaccrual
if they are past due as to maturity or payment of principal or interest
for a period of more than 90 days, unless such loans are well-secured
and in the process of collection. Loans that are on a current payment
status or past due less than 90 days may also be classified as
nonaccrual if repayment in full of principal and/or interest is in
doubt.
Loans may be returned to accrual status when all principal and interest
amounts contractually due (including arrearages) are reasonably assured
of repayment within an acceptable period of time, and there is a
sustained period of repayment performance (generally a minimum of six
months) by the borrower, in accordance with the contractual terms of
interest and principal.
FS-8
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
While a loan is classified as nonaccrual and the future collection of
the recorded loan balance is doubtful, collections of interest and
principal are generally applied as a reduction to the principal
outstanding, except in the case of loans with scheduled amortizations
where the payment is generally applied to the oldest payment due. When
the future collection of the recorded loan balance is expected,
interest income may be recognized on a cash basis. In the case where a
nonaccrual loan had been partially charged-off, recognition of interest
on a cash basis is limited to that which would have been recognized on
the recorded loan balance at the contractual interest rate. Receipts in
excess of that amount are recorded as recoveries to the allowance for
loan losses until prior charge-offs have been fully recovered.
MORTGAGE SERVICING RIGHTS
On January 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 122, "Accounting for Mortgage
Servicing Rights". The Statement required that the total cost of
purchasing or originating mortgage loans which are subsequently sold or
securitized with servicing rights retained be allocated between the
mortgage servings rights and the loans based on the relative fair
values of the loans and the mortgage servicing rights. On January 1,
1997, the Company adopted SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities". The
Statement superseded SFAS No. 122 and requires that mortgage servicing
assets be amortized in proportion to and over the period of estimated
net servicing income, and the assessment for asset impairment be based
upon the servicing rights' fair value. The adoption of the two
statements had an immaterial effect on the financial statements of the
Company.
FORECLOSED ASSETS
Assets acquired as a result of foreclosure are valued at the lower of
the recorded investment in the loan or fair value less estimated costs
to sell. The recorded investment is the sum of the outstanding
principal loan balance and foreclosure costs associated with the loan.
Any excess of the recorded investment over the fair value of the
property received is charged to the allowance for loan losses.
Any subsequent write-downs are charged against other expenses.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation and amortization are computed by the
straight-line method based on estimated service lives of assets, or,
for leasehold improvements, over the terms of the related leases, if
shorter.
INTANGIBLE ASSETS
Intangible assets are composed primarily of core deposit premiums and
goodwill. Amortization of core deposit premiums and goodwill is
computed using the straight-line method based on the estimated useful
lives of assets. Useful lives range from 7 to 10 years for the core
deposit premiums and from 3 to 15 years for goodwill.
The Company evaluates intangible assets for potential impairment by
analyzing the operating results, trends and prospects of the Company.
The Company also takes into consideration recent acquisition patterns
within the banking industry and any other events or circumstances which
might indicate potential impairment.
FS-9
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
On June 15, 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging
Activities". SFAS No. 133 requires that all derivative instruments be
recorded on the balance sheet at fair value. Changes in the fair value
of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated
as part of a hedge transaction and, if it is, the type of hedge
transactions. SFAS No. 133 is effective for all fiscal quarters of all
fiscal years beginning after June 15, 1999 with earlier adoption
allowed. The Company elected to defer adoption of SFAS No. 133 until
January 1, 1999. Due to its limited use of derivative instruments, the
adoption of SFAS No. 133 is not expected to have a significant effect
on the Company's results of operations or its financial position.
INTEREST RATE SWAPS, FLOORS AND CAPS
Prior to being acquired by the Company, Mecklenburg used interest rate
swaps, floors and caps for interest rate risk management. These
instruments were designated as hedges of specific assets and
liabilities when purchased. The net interest payable or receivable on
swaps, caps, and floors is accrued and recognized as an adjustment to
interest income or interest expense of the related asset or liability.
Premiums paid for purchased caps and floors were amortized over the
term of the related asset or liability. Upon the early termination of
swaps, floors and caps, the net proceeds received or paid, including
premiums, were deferred and included in other assets or liabilities and
amortized over the shorter of the remaining contract life or the
maturity of the related asset or liability. Upon disposition or
settlement of the asset or liability being hedged, deferral accounting
was discontinued and any related premium or change in fair value of the
hedge instrument was recognized in earnings. If the hedge instrument
was retained subsequent to the disposition or settlement of the
underlying asset or liability, it would be reassigned to specific
assets or liabilities and any change in fair value of the instrument
recognized in earnings in connection with the previous disposition of
the underlying asset or liability would be recorded as a purchase
premium and amortized into interest income over the contract term as a
yield adjustment of the related asset or liability.
INCOME TAXES
The Company files a consolidated Federal income tax return. State
income tax returns are filed for each entity.
Deferred tax asset and liability balances are determined by application
to temporary differences of the tax rate expected to be in effect when
taxes will become payable or receivable. Temporary differences are
differences between the tax basis of assets and liabilities and their
reported amounts in the financial statements that will result in
taxable or deductible amounts in future years. The effect on deferred
taxes of a change in tax rates is recognized in income in the period
that includes the enactment date.
FS-10
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
CASH FLOW
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks and Federal funds sold. Generally,
Federal funds are purchased and sold for one-day periods.
COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income" on January 1, 1998.
SFAS No. 130 establishes standards for reporting and displaying
comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general-purpose financial statements.
As required by SFAS No. 130, prior year information has been modified
to conform with the new presentation. The Company's only component of
other comprehensive income relates to unrealized losses on available
for sale securities. Information concerning the Company's other
comprehensive income (loss) for the years ended December 31, 1998, 1997
and 1996 follows:
1998 1997 1996
--------------- ---------------- ----------------
Holding (losses) gains on available for sale securities,
net of taxes of $(1,816), $471 and $(485) in 1998,
1997, and 1996, respectively $ (3,539) $ 873 $ (811)
Reclassification of gains recognized in net income,
net of taxes of $567, $487 and $427 in 1998,
1997 and 1996, respectively (1,104) (902) (715)
=============== ================ ================
Other comprehensive loss $ (4,643) $ (29) $ (1,526)
=============== ================ ================
SEGMENT INFORMATION
During the year ended December 31, 1998, the Company adopted the
provisions of SFAS No. 131 "Disclosures about Segments of an Enterprise
and Related Information." The Statement requires that public business
enterprises report certain information about operating segments in
their annual financial statements and in condensed financial statements
of interim periods issued to shareholders. It also requires that the
public business enterprises report related disclosures and descriptive
information about products and services provided by significant
segments, geographic areas, and major customers, differences between
the measurements used in reporting segment information and those used
in the enterprise's general-purpose financial statements, and changes
in the measurement of segment amounts from period to period.
Operating segments are components of an enterprise about which separate
financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources,
and in assessing performance. The Company has determined that it has
one significant operating segment, the providing of general financial
services to customers located in the single geographic area of North
Carolina. The various products are those generally offered by financial
institutions, and the allocation of resources is based on the overall
performance of the institution, versus the individual branches or
products.
FS-11
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
There are no differences between the measurements used in reporting
segment information and those used in the enterprise's general-purpose
financial statements, and the measurement of segment amounts has not
changed for 1998 from prior years.
USE OF ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
2. MERGERS AND ACQUISITIONS
On September 17, 1998 the Company completed the acquisition of United
Federal Savings Bank ("United Federal") through the issuance of 1.098
shares of the Company's common stock for each share of United Federal's
outstanding common stock, or 3,612,338 shares. On April 16, 1998 the
Company completed the acquisition of Guaranty State Bancorp
("Guaranty") through the issuance of 2.12 shares of the Company's
common stock for each share of Guaranty's outstanding common stock, or
1,888,481 shares. On October 2, 1997 the Company completed the
acquisition of Mecklenburg through the issuance of 1.5 shares of the
Company's common stock for each share of the outstanding common stock
of Mecklenburg, or 3,277,602 shares. On October 31, 1997 the Company
acquired Coastal through the issuance of 487,500 shares of the
Company's stock. These mergers were accounted for as poolings of
interests, however, due to materiality, Coastal was pooled for 1997
only.
Separate results of the pooled entities for the years ended December
31, 1997 and 1996 are as follows:
1997: Company(1) United Federal Guaranty Combined
---------- -------------- -------- --------
Total income $ 119,761 $ 26,627 $ 8,637 $ 155,025
Net interest income 53,586 10,428 4,376 68,390
Net income 16,584 1,802 1,140 19,526
1996:
Total income $ 99,907 $ 23,022 $ 7,883 $ 130,812
Net interest income 45,632 8,429 3,997 58,058
Net income 13,220 496 1,080 14,796
(1) Prior to United Federal and Guaranty mergers
United Federal, prior to the merger with the Company, reported total
income of $12.9 million, net interest income of $4.8 million and net
income of $953,000 for the six months ended June 30, 1998.
Guaranty, prior to the merger with the Company, reported total income
of $2.2 million, net interest income of $1.2 million and net income of
$334,000 for the three months ended March 31, 1998.
FS-12
3. SECURITIES
The amortized cost and estimated market value of securities at December
31, 1998 and 1997 are as follows:
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------------- ---------------- --------------- ----------------
1998:
Available for sale:
U.S. Treasury securities $ 55,276 $ 563 $ - $ 55,839
U.S. Agency obligations 92,598 173 89 92,682
Mortgage-backed securities and
collateralized mortgage obligations 237,029 309 8,954 228,384
Obligations of states and political
subdivisions 69,434 1,915 272 71,077
FHLB, Federal Reserve Bank and
Federal Home Loan Mortgage Corporation
Stock 17,222 - 69 17,153
Corporate securities 16,196 1 241 15,956
Other investments 1,065 - 1 1,064
---------------- ---------------- --------------- ----------------
$ 488,820 $ 2,961 $ 9,626 $482,155
---------------- ---------------- --------------- ----------------
Held to maturity:
U.S. Agency obligations $ 62,232 $ 1,078 $ 3 $ 63,307
Mortgage-backed securities and
collateralized mortgage obligations 6,416 15 8 6,423
Obligations of states and political
subdivisions 12,043 553 2 12,594
Other investments 447 19 - 466
---------------- ---------------- --------------- ----------------
$ 81,138 $ 1,665 $ 13 $ 82,790
---------------- ---------------- --------------- ----------------
1997:
Available for sale:
U.S. Treasury securities $113,277 $ 836 $ 41 $114,072
U.S. Agency obligations 22,263 107 6 22,364
Mortgage-backed securities and
collateralized mortgage obligations 251,799 - 1,277 250,522
Obligations of states and political
subdivisions 35,824 941 3 36,762
FHLB, Federal Reserve Bank and
Federal Home Loan Mortgage Corporation
Stock 22,249 20 - 22,269
Other investments 374 - - 374
---------------- ---------------- --------------- ----------------
$445,786 $1,904 $ 1,327 $446,363
---------------- ---------------- --------------- ----------------
Held to maturity:
U.S. Agency obligations $ 72,128 $ 835 $ 82 $ 72,881
Mortgage-backed securities and
collateralized mortgage obligations 15,287 184 51 15,420
Obligations of states and political
subdivisions 12,998 409 2 13,405
Other investments 253 20 - 273
---------------- ---------------- --------------- ----------------
$100,666 $ 1,448 $ 135 $101,979
---------------- ---------------- --------------- ----------------
FS-13
The amortized cost and estimated market value of securities at December
31, 1998 by contractual maturities are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Estimated
Amortized Market
Cost Value
---------------- ----------------
Available for sale:
Due in one year or less $ 106,283 $ 106,660
Due after one year through five years 52,854 53,083
Due after five years through ten years 30,953 31,335
Due after ten years 280,443 272,860
Other equity securities 18,287 18,217
---------------- ----------------
$ 488,820 $ 482,155
---------------- ----------------
Held to maturity:
Due in one year or less $ 20,099 $ 20,196
Due after one year through five years 47,754 48,852
Due after five years through ten years 8,988 9,237
Due after ten years 4,297 4,505
---------------- ----------------
$ 81,138 $ 82,790
---------------- ----------------
Gross realized gains and losses on sales of available for sale
securities for the years ended December 31, 1998, 1997 and 1996 are
summarized below:
1998 1997 1996
--------------- ---------------- ----------------
Gross realized gains $ 1,745 $ 2,575 $ 3,831
--------------- ---------------- ----------------
Gross realized losses $ 74 $ 1,186 $ 2,689
--------------- ---------------- ----------------
Included in the 1996 gross realized gains and losses are gross gains of
$1,889,051 and gross losses of $682,049 on terminations or marks to
market of end-user derivatives.
During 1996, the Company, upon evaluation of the acquired investment
portfolio of Granville United Bank, transferred securities with an
amortized cost of $4,557,000 and an estimated market value of
$4,400,000 from the available for sale category to the held to maturity
category.
Mecklenburg liquidated its Held to Maturity portfolio during 1996. The
carrying value of the liquidated securities was approximately
$14,715,000 and a loss of approximately $70,000 was recognized on the
related sales.
FS-14
Securities with an amortized cost of approximately $152 million and
$147 million as of December 31, 1998 and 1997, respectively, were
pledged to secure public deposits, certain short term debt, Federal
Home Loan Bank ("FHLB") advances and for other banking purposes.
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. LOANS AND LEASES AND ALLOWANCE FOR LOAN AND LEASE LOSSES
Major classifications of loans as of December 31, 1998 and 1997, are
summarized as follows:
1998 1997
---------------- ----------------
Commercial $ 204,395 $ 216,370
Real estate:
Construction and land development 180,243 159,815
Residential, 1-4 families 432,214 442,434
Residential, 5 or more families 13,653 23,296
Farmland 26,672 13,595
Nonfarm, nonresidential 355,120 275,629
Agricultural production 14,342 16,664
Consumer 125,194 127,367
Leases 27,598 13,387
Other 617 2,005
Net deferred loan costs 3,089 374
---------------- ----------------
1,383,137 1,290,936
Less allowance for loan and lease losses 19,584 17,797
---------------- ----------------
Net loans $1,363,553 $1,273,139
================ ================
A summary of the allowance for loan and lease losses for the years
ended December 31, 1998, 1997 and 1996, is as follows:
1998 1997 1996
--------------- ---------------- ----------------
Balance, beginning of year $ 17,797 $ 14,812 $ 13,738
Provision charged against income 5,115 5,121 2,515
Loans and leases charged off, net of recoveries (3,328) (3,341) (1,343)
Allowance on purchased (sold) loans and leases - 1,205 (98)
--------------- ---------------- ----------------
Balance, end of year $ 19,584 $ 17,797 $ 14,812
=============== ================ ================
FS-15
Nonperforming assets at December 31, 1998 and 1997, consist of the
following:
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1998 1997
---------------- ---------------
Loan past due ninety days or more $ 5,682 $ 6,078
Nonaccrual loans 4,945 2,497
Foreclosed assets (included in other assets) 2,101 594
---------------- ---------------
$ 12,728 $ 9,169
================ ===============
5. MORTGAGE LOAN SERVICING
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The unpaid principal balances of these
loans at December 31, 1998 and 1997 are summarized as follows:
1998 1997
---------------- ----------------
Mortgage loans and mortgage loans underlying pass-through securities:
GNMA $ 122,665 $ 160,138
FHLMC 113,025 127,726
FNMA 64,091 87,781
NCHFA 103,796 81,761
Other investors 2,678 2,482
---------------- ----------------
$ 406,255 $ 459,888
================ ================
Custodial balances maintained in connection with the foregoing loan
servicing arrangements were $7,216,334 and $4,484,743 at December 31,
1998 and 1997, respectively.
FS-16
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following is an analysis of the changes in mortgage servicing
rights and excess servicing fees receivable balances for the years
1998, 1997 and 1996. Upon adoption of SFAS No. 125 in 1997, the balance
of excess servicing fees was combined with and incorporated as a part
of mortgage servicing rights. Mortgage servicing rights are included in
other assets.
Mortgage Excess
Servicing Servicing
Rights Fees
---------------- ----------------
Balance, December 31, 1995 $ 2,628 $ 212
Additions 270 -
Amortization (372) (105)
---------------- ----------------
Balance, December 31, 1996 2,526 107
Additions 924 -
Amortization (551) -
Transfer of excess servicing fees 107 (107)
---------------- ----------------
Balance, December 31, 1997 3,006 -
Additions 681 -
Amortization (817) -
---------------- ----------------
Balance, December 31, 1998 $ 2,870 $ -
================ ================
Additions to mortgage servicing rights in 1998 and 1997 include
approximately $343,000 and $520,000, respectively, paid to purchase the
rights to service FHLMC and FNMA loans with unpaid principal balances
of approximately $28 million and $54 million, respectively.
6. PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1998 and 1997, are as follows:
1998 1997
---------------- ----------------
Premises $ 26,742 $ 25,653
Equipment and fixtures 23,393 19,818
Leasehold improvements 1,145 1,003
---------------- ----------------
51,280 46,474
Less accumulated depreciation and amortization 19,427 16,170
---------------- ----------------
31,853 30,304
Construction in process 387 1,606
Land 8,252 8,371
---------------- ----------------
$ 40,492 $ 40,281
================ ================
FS-17
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. INTANGIBLE ASSETS
Intangible assets at December 31, 1998 and 1997 are as follows:
1998 1997
---------------- ----------------
Core deposit premiums $ 30,470 $ 30,470
Goodwill 2,083 2,083
Other intangibles 1,002 1,002
---------------- ----------------
33,555 33,555
Less accumulated amortization 9,348 5,867
---------------- ----------------
$ 24,207 $ 27,688
================ ================
Amortization expense, principally related to the core deposit premiums,
amounted to approximately $3,481,000, $2,294,000, and $1,528,000 for
the years ended December 31, 1998, 1997 and 1996, respectively.
8. SHORT-TERM DEBT
Short-term debt consisted of the following as of December 31, 1998 and
1997:
1998 1997
---------------- ----------------
Securities sold under repurchase agreements $ 18,583 $ 20,602
Reverse repurchase agreements 44,667 -
Federal funds purchased 67,000 24,800
Masternotes 28,386 15,704
Other 344 400
---------------- ----------------
$ 158,980 $ 61,506
================ ================
The weighted average rate on short-term debt was 5.02% and 5.15% at
December 31, 1998 and 1997, respectively.
The Company has pledged certain securities to collateralize the
repurchase agreements. These agreements generally mature and are
renewed daily.
FS-18
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. FEDERAL HOME LOAN BANK OF ATLANTA ADVANCES
FHLB advances with maturity dates and weighted average rates (WAR) as
of December 31, 1998 and 1997 are as follows:
1998 1997
Amount WAR Amount WAR
--------- ----- --------- -----
Due in one year $ 6,800 6.18% $ 135,000 5.79%
Due after one year within two years - - 6,800 6.18%
Due after two years within three
years 60,000 4.68% - -
Due after three years within
four years 63,500 6.19% - -
Due after four years within five years - - 63,500 6.19%
--------- ----- --------- -----
$ 130,300 5.49% $ 205,300 5.92%
========= ==== ========= ====
The advances are collateralized by qualifying mortgage loans and
investment securities.
Each of the Banks is required to purchase and hold certain amounts of
FHLB stock in order to obtain FHLB advances. No ready market exists for
the FHLB stock and it has no quoted market value. This stock has a
carrying value based on cost and is redeemable at $100 per share
subject to certain limitations set by the FHLB.
10. CORPORATION OBLIGATED MANDATORILY REDEEMABLE CAPITAL SECURITIES
Corporation obligated mandatorily redeemable capital securities ("Trust
Securities") aggregating $20 million were issued in June 1997 through
the Trust, a statutory business trust registered in the State of
Delaware. These Trust Securities bear interest at the rate of 9.375%
and have a maturity of thirty years.
The proceeds from the Trust Securities were used by the Trust to
purchase junior subordinated debentures of the Company with a yield and
maturity identical to the Trust Securities. The distribution rate and
payment dates of the Trust Securities correspond to the distribution
rate and interest payment dates of the junior subordinated debentures,
which are the sole assets of the Trust. The Company has irrevocably and
unconditionally guaranteed all of the Trust's obligations under the
Trust Securities, but only to the extent of funds held by the Trust.
The Trust Securities are subject to mandatory redemption in whole, but
not in part, upon repayment of the junior subordinated debentures at
their stated maturity or upon their early redemption. The junior
subordinated debentures may be redeemed prior to their stated maturity
upon the occurrence of certain events or at the option of the Company
on or after June 1, 2007.
FS-19
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
11. INCOME TAXES
The components of income tax expense for the years ended December 31,
1998, 1997 and 1996 are as follows:
1998 1997 1996
--------------- ---------------- ----------------
Current expense $ 11,521 $ 11,411 $ 8,817
Deferred expense (benefit) (304) (871) 23
--------------- ---------------- ----------------
$ 11,217 $ 10,540 $ 8,840
=============== ================ ================
The reconciliation of expected income tax at the statutory Federal rate
(35%) with income tax expense for the years ended December 31, 1998,
1997 and 1996, is as follows:
1998 1997 1996
--------------- ---------------- ----------------
Expected income tax expense at statutory rate $ 11,576 $ 10,497 $ 8,256
Increase (decrease) in income tax expense
resulting from:
State taxes, net of federal tax benefit 240 765 606
Benefit of net operating loss carryforward - - (229)
Tax exempt interest (1,265) (682) (446)
Non-deductible interest 180 63 13
Other, net 486 (103) 640
--------------- ---------------- ----------------
Income tax expense $ 11,217 $ 10,540 $ 8,840
=============== ================ ================
The components of net deferred tax assets at December 31, 1998 and 1997
are as follows:
1998 1997
---------------- ----------------
Allowance for loan and lease losses $ 6,999 $ 4,927
Accumulated depreciation 2,900 2,920
Deferred compensation 601 528
Net operating loss carryforwards 1,841 1,858
Depreciable basis of fixed assets (2,299) (1,981)
Net investment in direct financing leases and related equipment (1,000) (827)
Other (827) 486
Unrealized securities losses (gains) 2,382 (216)
---------------- ----------------
$ 10,597 $ 7,695
================ ================
FS-20
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company has federal net operating loss carryforwards of
approximately $4,655,000, which expire in years 2003 through 2008. Use
of the net operating loss carryforwards is limited to approximately
$654,000 each year.
12. EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) plan for its subsidiaries' employees 21
years of age or over with at least one year of service, which covers
substantially all employees. Under the plan, employees may contribute
from 2% to 15% of compensation, subject to an annual maximum as
determined under the Internal Revenue Code. Employees may elect for up
to 25% of their contributions to be invested in the Company's common
stock. The Company matches, in contributions of the Company's common
stock, 100% of the employee's first 2% of contributions and 50% of the
next 4% of contributions. The Company contributed approximately
$792,000, $890,000 and $601,000 to the plans in 1998, 1997 and 1996,
respectively.
The Company maintains an Employee Stock Purchase Plan (the "ESPP") that
allows employees to purchase stock of up to 10% of their compensation
through payroll deduction. In May 1997 this plan was amended to allow
the purchase of the stock at a 15% discount. The discount is taken on
the lower of the market price at the beginning or end of each six month
period, with shares being issued out of authorized but unissued shares.
A total of 375,000 shares have been authorized for the plan with 43,070
issued as of December 31, 1998.
13. EARNINGS PER SHARE
The Company adopted SFAS No. 128 "Earnings Per Share" on December 31,
1997. As required, all prior period earnings per share have been
restated to conform with the provisions of the statement.
The following table provides a reconciliation of the numerator (income
available to shareholders) and denominator (average number of shares
outstanding) for the purpose of the basic and diluted EPS calculations
for the years ended December 31, 1998, 1997, and 1996.
1998 1997 1996
--------------- ---------------- ----------------
Net income $ 21,858 $ 19,526 $ 14,796
=============== ================ ================
Average outstanding shares for basic EPS 25,112 24,657 24,056
Dilutive effect of stock options and warrants 791 904 729
--------------- ---------------- ----------------
Total shares for diluted EPS 25,903 25,561 24,785
=============== ================ ================
14. COMMON STOCK
On April 28, 1998 the Company's shareholders approved increasing the
number of shares authorized to 50,000,000. On May 12, 1998 the
Company's Board of Directors approved a three for two stock split
effected in the form of a 50% stock dividend. The date of record was
June 15, 1998 and the dividend was paid on June 30, 1998. All share and
per share information has been adjusted to reflect the stock split.
The Company has a Long-Term Incentive Plan which allows the Board of
Directors to award any combination of stock options, restricted stock
and cash.
FS-21
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company has a qualified incentive stock option plan for the benefit
of certain of the Company's key officers and employees and a
non-qualified stock option plan for directors and certain officers (the
"1988 Stock Option Plans"). The 1988 Stock Option Plans expired on
January 4, 1998, and as such, no new awards were made after that date.
Options under these plans are exercisable at no less than fair market
value at the date of grant and are subject to a prorated five-year, and
in some instances three-year, vesting requirement. The options are
exercisable as they vest and expire no later than ten years after that
date.
The 1998 Omnibus Stock Plan ("1998 Omnibus Plan") reserves 1,500,000
shares for future grants in the form of stock options, restricted stock
awards and stock appreciation rights, the terms and conditions of which
are to be determined at the date of grant. Incentive options under this
plan are granted at fair market value and have ten year lives.
On January 1, 1996 the Company adopted SFAS No. 123, "Accounting for
Stock Based Compensation". As permitted by SFAS No. 123, the Company
has chosen to continue to apply APB Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25) and related Interpretations.
Accordingly, no compensation cost has been recognized for options
granted under the 1988 Stock Option Plans, the 1998 Omnibus Plan or the
ESPP. The disclosure below of the pro forma net income and earnings per
share, had the fair value based method of accounting been used, applies
only to options granted after December 31, 1994. Therefore, the effects
of applying SFAS No. 123 during the initial phase in period may not be
representative of future years.
The pro forma effect on net income and earnings per share of recording
compensation expense in accordance with SFAS No. 123 is presented in
the table below:
YEAR ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
--------- --------- ---------
Net income:
As reported $ 21,858 $ 19,526 $ 14,796
Pro Forma 21,304 18,989 14,525
Basic earnings per share:
As reported $ .87 $ .79 $ .62
Pro Forma .85 .77 .60
Diluted earnings per share:
As reported $ .84 $ .76 $ .60
Pro Forma .82 .74 .59
FS-22
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The fair value of options granted during 1998, 1997 and 1996 was
estimated using the Black-Scholes option pricing model with the
following weighted average assumptions.
YEAR ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
--------- --------- ---------
Employee Stock Purchase Plan:
Weighted average grant date fair value $ .91 $ 3.53 $ -
Dividend yield 2.02% 2.10% -
Risk free interest rates 4.54% 6.00% -
Expected lives (years) .50 .50 -
Volatility 33.71% 32.00% -
1988 STOCK OPTION PLANS:
Weighted average grant date fair value $ - $ 4.28 $ 2.32
Dividend yield - 3.30% 3.90%
Risk free interest rates - 6.00% 6.00%
Expected lives (years) - 6.96 7.0
Volatility - 32.00% 21.00%
1998 OMNIBUS PLAN:
Weighted average grant date fair value $ 5.79 $ - $ -
Dividend yield 2.26% - -
Risk free interest rates 4.54% - -
Expected lives (years) 5.0 - -
Volatility 33.71% - -
A summary of the status of the 1988 Stock Option Plans and the 1998
Omnibus Plan as of December 31, 1998, 1997 and 1996, and changes during
the years ending on those dates, including weighted average exercise
price (Price), is presented below:
1998 1997 1996
------------------------- ----------------------- -----------------------
Shares Price Shares Price Shares Price
--------- -------- --------- ------- --------- -------
Outstanding at
beginning of year 1,737,039 $ 6.82 1,989,842 $ 6.10 1,458,791 $ 5.43
Pooling adjustment 268,558
Granted 252,749 19.45 194,393 13.71 429,720 9.97
Exercised (479,186) 5.56 (396,071) 5.37 (101,309) 4.12
Forfeited (48,804) 9.88 (51,125) 8.00 (65,918) 7.39
--------- -------- --------- ------- --------- -------
Outstanding at end
of year 1,461,798 $ 9.31 1,737,039 $ 6.82 1,989,842 $ 6.10
========= ======== ========= ======= ========= =======
FS-23
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following table summarizes information about the Stock Option Plans
and the 1998 Omnibus Stock Plan at December 31, 1998 including weighted
average remaining contractual term in years (Term) and weighted average
exercise price (Price).
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
RANGE OF EXERCISE --------------------------------------------- -------------------------
PRICE NUMBER TERM PRICE NUMBER PRICE
- -------------------------- --------- ---- -------- ------- --------
$ 2.44 - 4.00 222,286 1.73 $ 3.68 191,318 $ 3.63
4.17 - 4.81 160,053 4.34 4.43 160,053 4.43
4.93 - 5.97 145,077 4.40 5.31 131,929 5.31
6.00 - 7.33 141,120 6.23 6.59 87,660 6.59
7.67 235,000 7.43 7.67 235,000 7.67
8.25 - 12.12 159,938 5.80 10.43 89,058 10.92
12.25 - 18.75 148,290 8.33 13.73 29,253 13.76
19.42 224,619 9.07 19.42 - -
19.46 - 23.33 25,415 9.30 20.19 367 23.33
--------- ---- -------- ------- --------
1,461,798 6.01 $ 9.31 924,638 $ 6.34
========= ==== ======== ======= ========
During 1998, 990 of the Company's warrants were exercised leaving 5,310
remaining. All the warrants have an exercise price of $6.11 and expire
on December 31, 2000.
15. REGULATORY RESTRICTIONS
The Banks, as North Carolina banking corporations, may pay dividends
only out of undivided profits as determined pursuant to North Carolina
General Statutes Section 53-87. However, regulatory authorities may
limit payment of dividends by any bank when it is determined that such
a limitation is in the public interest and is necessary to ensure the
financial soundness of the bank.
Under regulations of the Federal Reserve, banking affiliates are
required to maintain certain minimum average reserve balances which
include both cash on hand and deposits with the Federal Reserve. These
deposits are included in cash and cash equivalents in the accompanying
balance sheets. At December 31, 1998 and 1997, the Banks were required
to maintain such balances aggregating approximately $12,957,000 and
$11,336,000, respectively.
The Company and the Banks are subject to various regulatory capital
requirements administered by the federal and state banking agencies.
Failure to meet minimum capital requirements can initiate certain
mandatory, and possibly additional discretionary, actions by regulators
that, if undertaken, could have a direct material effect on the
consolidated financial statements. Management believes, as of December
31, 1998, that the Company and the Banks meet all capital adequacy
requirements to which they are subject.
As of June 30, 1998, the most recent notification from regulators, the
Company and the Banks were categorized as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as
well capitalized the Company and the Banks must maintain minimum
amounts and ratios, as set forth in the tables below. There are no
conditions or events since that notification that management believes
have changed the Company's or the Banks' category.
FS-24
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
A summary of the Company's, Triangle's, and Mecklenburg's required and
actual capital components in the categories of total capital to risk
weighted assets (Total/RWA); tier 1 capital to risk weighted assets
(Tier 1/RWA); and tier 1 capital to average assets (Tier 1/AA) for
capital adequacy purposes (Capital Adequacy) and to be well capitalized
under the prompt corrective action provisions (Well Capitalized) is as
follows:
Actual Capital Adequacy Well Capitalized
-------------------- --------------------- -----------------------
As of December 31, 1998: Amount Ratio Amount Ratio Amount Ratio
- ------------------------ --------- --------- ---------- --------- ----------- ----------
Total/RWA $ 182,343 11.4% $ 128,035 8.0% $ 160,044 10.0%
Tier 1/RWA 162,759 10.2% 64,017 4.0% 96,026 6.0%
Tier 1/AA 162,759 7.9% 80,413 4.0% 100,516 5.0%
As of December 31, 1997:
- ------------------------
Total/RWA $ 160,370 12.1% $ 106,229 8.0% $ 132,786 10.0%
Tier 1/RWA 144,372 10.9% 53,114 4.0% 79,672 6.0%
Tier 1/AA 144,372 7.7% 75,022 4.0% 93,777 5.0%
Triangle:
As of December 31, 1998:
- ------------------------
Total/RWA $ 148,461 10.6% $ 111,593 8.0% $ 139,492 10.0%
Tier 1/RWA 131,258 9.4% 55,797 4.0% 83,695 6.0%
Tier 1/AA 131,258 7.3% 71,442 4.0% 89,303 5.0%
As of December 31, 1997:
- ------------------------
Total/RWA $ 128,896 11.0% $ 93,900 8.0% $ 117,375 10.0%
Tier 1/RWA 114,821 9.8% 46,950 4.0% 70,425 6.0%
Tier 1/AA 114,821 7.1% 64,913 4.0% 81,141 5.0%
Mecklenburg:
As of December 31, 1998:
- ------------------------
Total/RWA $ 23,363 13.1% $ 14,217 8.0% $ 17,771 10.0%
Tier 1/RWA 21,416 12.1% 7,108 4.0% 10,663 6.0%
Tier 1/AA 21,416 9.5% 8,978 4.0% 11,223 5.0%
As of December 31, 1997:
- ------------------------
Total/RWA $ 21,359 15.1% $ 11,352 8.0% $ 14,190 10.0%
Tier 1/RWA 19,772 13.9% 5,676 4.0% 8,514 6.0%
Tier 1/AA 19,772 7.3% 10,805 4.0% 13,507 5.0%
FS-25
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
15. LEASE OBLIGATIONS
The Company leases a portion of its facilities under various operating
leases. Rental expense related to such leases amounted to approximately
$1,339,000, $1,240,000 and $1,170,000 in 1998, 1997 and 1996,
respectively.
Noncancelable, long-term lease commitments at December 31, 1998 range
from $1,360,000 in 1999 to $1,048,000 in 2003.
16. SPECIAL SAIF ASSESSMENT
On September 30, 1996, the "Deposit Insurance Funds Act of 1996" was
enacted. The legislation included a special assessment to recapitalize
the SAIF insurance fund up to its statutory goal of 1.25% of insured
deposits. The assessment required United Federal to pay an amount equal
to approximately 65.7 basis points of its SAIF assessable deposit base
as of March 31, 1995, which resulted in a charge to income during the
year ended December 31, 1996 of $1,316,280.
17. COMMITMENTS AND CONTINGENCIES
The Company is party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of
its customers. These financial instruments include commitments to
extend credit, lines of credit and standby letters of credit. These
instruments involve elements of credit risk in excess of amounts
recognized in the accompanying financial statements.
The Company's risk of loss in the event of nonperformance by the other
party to the commitment to extend credit, line of credit and standby
letter of credit is represented by the contractual amount of these
instruments. The Company uses the same credit policies in making
commitments under such instruments as it does for on-balance sheet
instruments. The amount of collateral obtained, if any, is based on
management's credit evaluation of the counterparty. Collateral held
varies, but may include accounts receivable, inventory, real estate and
time deposits with financial institutions. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements.
As of December 31, 1998 and 1997, outstanding financial instruments
whose contract amounts represent credit risk were as follows:
1998 1997
--------- ---------
Unfunded loans and lines of credit $ 311.317 $ 263.890
========= =========
Standby letters of credit $ 4,047 $ 3,852
========= =========
Mecklenburg used off-balance sheet financial contracts to assist in
managing interest rate risk. Instruments used for this purpose include
interest rate swaps, interest rate caps and interest rate floors.
Mecklenburg managed the counterparty credit risk associated with these
instruments through credit approvals, limits and monitoring procedures.
FS-26
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
For interest rate swaps, interest rate caps and interest rate floors,
notional principal amounts often are used to express the volume of
transactions however, the amount potentially subject to credit risk is
much smaller.
All these instruments involve, to varying degrees, elements of credit
and interest rate risk in excess of the amounts recognized in the
consolidated financial statements. At December 31, 1998, off-balance
sheet financial instruments and their related fair values are as
follows:
Estimated Contract or
Fair Notional
Amount Value Amount
------ ----- ------
Purchased interest rate floors:
Unassigned (Strike price 5%, 3 month LIBOR
index, March 1996-March 2000) $ 17 $ 17 $ 15,000
====== ======= =========
Various legal proceedings against the Company and its subsidiaries have
arisen from time to time in the normal course of business. Management
believes liabilities arising from these proceedings, if any, will have
no material adverse effect on the financial position or results of
operations of the Company or its subsidiaries.
18. RELATED PARTY TRANSACTIONS
In the normal course of business, certain directors and executive
officers of the Company, including their immediate families and
companies in which they have an interest, were loan customers.
Activity in these loans for the year ended December 31, 1998 is
summarized as follows :
Balance, beginning of year $ 5,076
Loans made 8,936
Payment received (5,984)
Changes in composition (1,407)
--------------
Balance, end of year $ 6,621
==============
FS-27
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
19. PARENT COMPANY FINANCIAL DATA
The Company's principal asset is its investment in its subsidiaries.
Condensed financial statements for the parent company as of December
31, 1998 and 1997 and for the years ended December 31, 1998, 1997 and
1996 are as follows:
1998 1997
---------- -----------
CONDENSED BALANCE SHEETS
Cash $ 8,320 $ 16,161
Securities available for sale 5,001 -
Investments in wholly-owned subsidiaries 176,485 165,241
Loan to subsidiary 20,400 6,200
Other assets 1,777 1,468
---------- -----------
Total Assets $ 211,983 $ 189,070
========== ===========
Short-term debt 28,386 15,705
Other liabilities - 326
Junior subordinated deferred interest debentures 20,570 20,568
---------- -----------
Total liabilities $ 48,956 $ 36,599
Shareholders equity 163,027 152,471
---------- -----------
Total liabilities and shareholders' equity $ 211,983 $ 189,070
========== ===========
1998 1997 1996
---------- ----------- -----------
CONDENSED STATEMENTS OF INCOME
Dividends from wholly-owned subsidiaries $ 8,029 $ 6,580 $ 3,778
Interest income 1,383 773 8
---------- ----------- -----------
Total income 9,412 7,353 3,786
---------- ----------- -----------
Interest expense 2,748 1,441 -
Other expenses 282 217 151
---------- ----------- -----------
Total expenses 3,030 1,658 151
---------- ----------- -----------
Income before tax benefit and equity in earnings of
wholly-owned subsidiaries 6,382 5,695 3,635
Income tax benefit 643 - -
---------- ----------- -----------
Income before equity in undistributed earnings
of wholly-owned subsidiaries 7,025 5,695 3,635
Equity in undistributed earnings of wholly-owned
subsidiaries 14,833 13,831 11,161
---------- ----------- -----------
Net income $ 21,858 $ 19,526 $ 14,796
========== =========== ===========
FS-28
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------------------------------------------
1998 1997 1996
---------- ----------- -----------
CONDENSED STATEMENT OF CASH FLOWS
Cash flows from operating activities:
Net income $ 21,858 $ 19,526 $ 14,796
Equity in undistributed earnings of wholly-owned
subsidiaries (14,833) (13,831) (11,161)
Amortization 22 19 10
Decrease (increase) in other assets (328) 223 (309)
Increase (decrease) in other liabilities (326) 98 41
---------- ------------ ------------
Net cash provided by operating activities 6,393 6,035 3,377
---------- ------------ ------------
Cash flows from investing activities
Investment in subsidiary (242) (12,447) 798
Net increase in loan to subsidiary (14,200) (6,200) -
Purchase of securities available for sale (5,000) - -
Purchase of common securities - (617) -
---------- ------------ ------------
Net cash provided by (used in) investing
activities (19,442) (19,264) 798
---------- ------------ ------------
Cash flows from financing activities:
Net increase in masternotes 12,681 15,705 -
Proceeds fro junior subordinated debentures - 20,568 -
Shares issued under stock plans 3,084 2,332 596
Dividends paid (8,322) (6,249) (4,442)
Cash issued for fractional shares (18) - (3)
Debt issuance cost - (627) -
Repurchased shares (2,217) (2,732) (277)
---------- ------------ -------------
Net cash provided by (used in) financing activities 5,208 28,997 (4,126)
---------- ------------ -------------
Net increase (decrease) in cash (7,841) 15,768 49
Cash at beginning of year 16,161 393 344
---------- ------------ -------------
Cash at end of year $ 8,320 $ 16,161 $ 393
========== ============ =============
20. FAIR VALUE OF FINANCIAL STATEMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments",
requires the disclosure of estimated fair values for financial
instruments. Quoted market prices, if available, are utilized as an
estimate of the fair value of financial instruments. Because no quoted
market prices exist for a significant part of the Company's financial
instruments, the fair value of such instruments has been derived based
on management's assumptions with respect to future economic conditions,
the amount and timing of future cash flows and estimated discount
rates. Different assumptions could significantly affect these
estimates. Accordingly, the net realizable value could be materially
different from the estimates presented below. In addition, these
estimates are only indicative of individual financial instruments'
values and should not be considered an indication of the fair value of
the Company taken as a whole.
FS-29
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The carrying values of cash and due from banks, Federal funds sold and
interest-bearing deposits in banks are equal to the fair value due to
the nature of the financial instruments. The fair value of securities
is estimated based upon bid quotations received from various securities
dealers. The fair value of the Company's loans is determined by
discounting the scheduled cash flows through the loan's estimated
maturity using estimated market discount rates that most reflect the
credit and interest rate risk inherent in the loan. The estimate of
maturity is based upon the stated average maturity of management's
estimates of prepayments considering current economic conditions and
prevailing interest rates.
The fair value of deposits with no stated maturities, such as
noninterest-bearing deposits, interest checking, money market and
savings accounts, are equal to the amount payable as required by SFAS
No. 107. The fair value of time deposits, such as certificates of
deposit and Individual Retirement Accounts, are based on the discounted
contractual cash flows. The discount rate is estimated using rates
currently offered for deposits of similar maturities.
Short-term debt includes repurchase agreements and Federal funds
purchased, which reprice daily or monthly to allow for their market
value to equal their carrying value. The fair value of FHLB advances
and the corporation obligated mandatorily redeemable capital securities
are determined by discounting contractual cash flows using current
rates for similar borrowings.
The carrying value of accrued interest approximates the fair value.
The fair value of unfunded loans and lines of credit and standby
letters of credit approximates the stated value since they are either
short term in nature or subject to immediate repricing.
The following table presents information for financial assets and
liabilities as of December 31, 1998 and 1997:
1998 1997
----------------------- -----------------------
Carrying Fair Carrying Fair
Value Value Value Value
----------- ----------- ------------- --------------
Financial assets:
Cash and due from banks $ 76,624 $ 76,624 $ 59,938 $ 59,938
Federal funds sold - - 4,219 4,219
Interest-bearing deposits in banks 911 911 34,195 34,195
Securities 563,293 564,945 547,029 548,341
Loans, net 1,363,553 1,374,490 1,273,139 1,281,100
Mortgage servicing rights 2,870 3,545 3,006 4,543
Interest receivable 16,468 16,468 15,687 15,687
----------- ------------ ------------- --------------
Total financial assets $2,023,719 $ 2,036,983 $ 1,937,213 $ 1,948,023
=========== ============ ============= ==============
Financial liabilities:
Deposits $1,625,898 $ 1,633,867 $ 1,550,240 $ 1,558,872
Short-term debt 158,980 158,902 61,506 61,502
Federal Home Loan Bank of Atlanta
advances 130,300 129,770 205,300 206,545
Corporation obligated mandatorily
redeemable capital securities 19,952 17,919 19,951 18,093
Interest payable 8,292 8,292 9,380 9,380
---------- ----------- ------------- -------------
Total financial liabilities $1,943,422 $ 1,948,750 $ 1,846,377 $ 1,854,392
========== =========== ============= =============
FS-30
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company's remaining assets and liabilities are not considered
financial instruments.
21. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized unaudited quarterly financial data for the years ended
December 31, 1998 and 1997 is as follows:
Fourth Third Second First
------------ ------------ ------------ ------------
1998:
Inerest income $ 37,909 $ 38,717 $ 38,305 $ 38,397
Interest expense 19,264 19,699 19,622 20,113
Provision for loan losses 1,286 1,223 1,155 1,451
Noninterest income 5,499 4,451 4,659 3,847
Noninterest expense 12,556 15,666 14,130 12,544
Income tax expense 3,549 2,141 2,773 2,754
------------ ------------- ------------- ------------
Net income $ 6,753 $ 4,439 $ 5,284 $ 5,382
============ ============= ============= =============
Basic earnings per share $ .27 $ .18 $ .21 $ .21
============ ============= ============= =============
Diluted earnings per share $ .26 $ .17 $ .20 $ .21
============ ============= ============= =============
1997:
Interest income $ 37,573 $ 35,830 $ 33,357 $ 31,343
Interest expense 18,889 18,469 16,705 15,650
Provision for loan losses 1,631 1,291 1,572 627
Noninterest income 3,809 3,691 6,060 3,362
Noninterest expense 15,028 12,246 11,499 11,352
Income tax expense 1,803 2,557 3,552 2,628
------------ ------------ ------------- -------------
Net income $ 4,031 4,958 6,089 4,448
============ ============= ============= =============
Basic earnings per share $ .16 $ .20 $ .25 $ .18
============ ============= ============= =============
Diluted earnings per share $ .16 $ .19 $ .24 .17
============ ============= ============= =============
22. OTHER INVESTING AND FINANCING ACTIVITIES
Excluded from the consolidated statements of cash flows was the effect
of transfers to trading securities of $41,867,000 during 1997 and
transfers to securities held to maturity of $4,577,000 in 1996.
FS-31
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company acquired ten branches and divested of two branches in 1997
and acquired five branches and divested of one branch in 1996. In
conjunction with these transactions, net assets acquired and net
liabilities assumed were as follows:
1997 1996
------------ --------------
Deposits $ 173,584 $ 80,195
Loans (51,931) 117
Premium paid on deposits (15,824) (5,026)
Premises and equipment (3,028) (1,015)
Other assets (593) (132)
Other liabilities 405 142
------------ --------------
Net cash acquired $ 102,613 $ 74,281
============ ==============
FS-32