U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
Commission file number - 000-21346
TRIANGLE BANCORP, INC.
(Exact name of registrant as specified in its charter)
North Carolina 56-1764546
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4300 Glenwood Avenue
Raleigh, North Carolina 27612
(Address of principal executive offices)
(Zip Code)
Telephone: (919) 881-0455
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 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__
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock 25,132,681
------------ ----------
Class Outstanding at May 5, 1999
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The Consolidated Balance Sheets as of March 31, 1999 and December 31,
1998 and the Consolidated Statements of Income and Cash Flows for the
three month periods ended March 31, 1999 and March 31, 1998 have been
included as attachments to this report.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
GENERAL
The purpose of this discussion is to provide the reader with a concise
understanding of the performance and financial condition of Triangle
Bancorp, Inc. (the "Company"). The Company is a multibank holding
company incorporated in November 1991 under the laws of the State of
North Carolina, with four wholly-owned subsidiaries: Triangle Bank
("Triangle"); Bank of Mecklenburg ("Mecklenburg") (collectively, the
"Banks"); Coastal Leasing LLC ("Coastal"); and Triangle Capital Trust.
OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
---------------------------------------------------------------------
The Company's net income for the three months ended March 31, 1999 was
$6,602,000 compared to $5,382,000 for the same period in 1998, an
increase of 23%. Diluted earnings per share were $0.26 for the three
months ended March 31, 1999 compared to $0.21 per share for the same
period in 1998. Excluding after-tax nonrecurring merger expenses in the
first quarter of 1998, net income was $5,586,000 and diluted earnings
per share were $.22.
For the three months ended March 31, 1999, the annualized returns on
average assets and equity were 1.27% and 16.08%, respectively, compared
to 1.09% and 14.00%, respectively, for the same period in 1998.
Excluding nonrecurring merger expenses in the first quarter of
1998, the annualized returns on average assets and equity were 1.14%
and 14.53%, respectively.
Net taxable equivalent interest income for the three months ended March
31, 1999 was $19,576,000 compared to $19,211,000 for the same period in
1998, an increase of $365,000. Average earning assets increased $104
million with loans increasing $109 million and investments declining by
$5 million. While the volume of earning assets increased, the taxable
equivalent yields declined due to the overall interest rate environment
including the reduction in the prime based lending rate and accelerated
mortgage prepayments on collateralized mortgage obligations in the
investment portfolio. Average costing liabilities increased by $75
million, with deposits growing $34 million, short-term debt increasing
$94 million and FHLB advances declining $54 million. The increase in
short-term debt is attributable to the Company being in a federal funds
purchased position for much of the first quarter of 1999 as compared to
1998. Also, reverse repurchase agreements were used as an alternative
to higher priced deposits to fund loan growth. The cost of liabilities
decreased when comparing the first quarter of 1999 to 1998, again due
to the overall interest rate environment. The net taxable equivalent
yield on interest earning assets decreased by 15 basis points to 4.08%
for the quarter ended March 31, 1999 to 4.23% for the quarter ended
March 31, 1998.
For the three months ended March 31, 1999, a loan loss provision of
$1,315,000 was made compared to a provision of $1,451,000 for the same
period in 1998. Net charge-offs to average loans for the quarter ended
March 31, 1999 were .35% compared to .41% for the quarter ended March
31, 1998.
Noninterest income for the three months ended March 31, 1999 was
$4,773,000 compared to $3,847,000 for the same period in 1998, an
increase of $926,000 or 24%. An increase of $253,000 was seen in
securities gains over 1998. Service charges on deposit accounts
increased $147,000, with growth in activity charges and overdraft
charges. Investment commissions and fees increased $176,000 due to
increased volume at Triangle Investment Services. Other operating
income increased $272,000 primarily due to income on bank owned life
insurance purchased by the Company in the third quarter of 1998 and the
first quarter of 1999.
Recurring noninterest expenses decreased $271,000, or 2%, for the three
months ended March 31, 1999 compared to the same period in 1998. The
decrease is attributable to efficiencies achieved from two mergers in
1998, Guaranty State Bancorp in April and United Federal Savings Bank
in September. The primary areas of decreases were salaries and
benefits, office expenses and other operating expenses. Furniture and
equipment expense increased over 1998 due to the addition of a new main
frame computer and operations facility late in the first quarter of
1998.
FINANCIAL CONDITION
-------------------
Total assets were $2.15 billion as of March 31, 1999, an increase of
$31 million from December 31, 1998. Net loans grew $48 million to $1.4
billion as of March 31, 1999 from December 31, 1998. The loan growth
was funded by decreases in investments and cash as well as deposit
growth. Additional bank owned life insurance was purchased in the first
quarter of 1999 increasing other assets by $20 million over the
December 31, 1998 balance.
The Company continued to maintain strong loan and lease loss reserves
during the period with a reserve balance of $19,682,000 at March 31,
1999. Nonperforming assets increased slightly to $13 million at March
31, 1999 from $12.7 million at December 31, 1998. The loan and lease
loss reserves at March 31, 1999 were 1.37% of gross loans and leases
and 176% of nonperforming and nonaccrual loans compared to 1.42% and
184%, respectively, at December 31, 1998. Management feels loan and
lease loss reserves are adequate. A summary of certain information
related to the loan and loss reserves and nonperforming assets as of
March 31, 1999 follows:
RESERVE FOR LOAN AND LEASE LOSSES AND NONPERFORMING ASSETS
(DOLLARS IN THOUSANDS)
ANALYSIS OF RESERVE FOR LOAN AND LEASE LOSSES:
Beginning balance, January 1, 1999 $19,584
-------
Deduct charge-offs:
Commercial financial and agricultural 947
Real estate, construction and land development 0
Installment loans to individuals 413
Credit card and related plans 0
-
1,360
-----
Add recoveries:
Commercial, financial and agricultural 32
Real estate, construction and land development 4
Installment loans to individuals 107
Credit card and related plans 00
-----
143
Net charge-offs 1,217
Additions charged to operations 1,315
Ending balance, March 31, 1999 $19,682
=======
Ratio of net charge-offs to average loans and
leases outstanding during the period 0.35%
ANALYSIS OF NONPERFORMING ASSETS AT MARCH 31, 1999:
Nonaccrual loans:
Commercial, financial and agricultural $2,962
Real estate, construction and land development 1,662
Installment loans to individuals 84
Credit card and related plans 00
------
4,708
Loans contractually past due 90 days or more
as to principal or interest 6,470
Foreclosed assets 1,857
------
TOTAL $13,035
======
Total deposits were $1.7 billion at March 31, 1999, an increase of $56
million from December 31, 1998. Significant growth in time deposits
were offset somewhat by declines in noninterest bearing and interest
bearing demand deposits. The growth in time deposits greater than
$100,000 was the result of the Company implementing a program late in
the fourth quarter of 1998 of accepting a limited amount of brokered
deposits as an alternative to higher priced retail deposits.
Short-term debt declined $29 million from December 31, 1998 to March
31, 1999 with federal funds purchased decreasing $20 million,
masternotes decreasing $5.5 million and repurchase agreements
decreasing $3.5 million. Federal Home Loan Bank advances declined $5
million at March 31, 1999 due to a maturity during the quarter.
CAPITAL
-------
The adequacy of capital is reviewed regularly by the Company's
management, in light of current plans and economic conditions, to
ensure that sufficient capital is available for current and future
needs, to minimize the Company's cost of capital and to assure
compliance with regulatory requirements. The Company's capital ratios
as of March 31, 1999 were as follows:
ACTUAL REQUIRED EXCESS
PERCENT PERCENT PERCENT
Tier 1 Capital to Risked Based Assets 9.97 % 4.00 % 5.97 %
Total Capital to Risked Based Assets 11.15 % 8.00 % 3.15 %
Leverage Ratio 8.09 % 4.00 % 4.09 %
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings involving the Company.
Item 2. Changes in Securities
There have been no changes in the rights of the holders of the common
stock of the Company.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
On April 27, 1999, the Annual Shareholders Meeting was held by the
Company to consider the following matters: (i) to elect 8 members to
the Board of Directors; and (ii) to consider and act upon a proposal to
ratify the appointment of PricewaterhouseCoopers LLP as independent
public accountants of the Company for 1999.
All directors nominated in proposal (i) were elected as directors.
Proxies were solicited pursuant to Regulation 14 under the Securities
and Exchange Act of 1934, and there was no solicitation in opposition
to the nominees.
The results of proposal (ii), to consider and act upon a proposal to
ratify the appointment of PricewaterhouseCoopers LLP as independent
public accountants of the Company for 1999, were 18,640,359 for;
270,373 against; and 72,246 abstain.
Item 5. Other Information
Impact of Year 2000 Issue
-------------------------
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. As a
result, many automated applications may fail to function properly or
may cease to function unless corrected or replaced.
The Company is a "turnkey" institution; it does not write or develop
any of its own computer applications, but instead purchases or licenses
its applications from third party vendors. The Company has adopted a
plan which calls for the Company's applications to properly process
dates in the Year 2000 and beyond by April 30, 1999. As a "turnkey"
institution, the Company is in dialogue with all of its vendors as to
their preparedness for Year 2000. In addition, the Company has hired an
independent consultant to assist it in all phases of its Year 2000
plan.
In 1998, the Company completed its assessment of its existing computer
systems and applications and had identified 30 mission critical
applications. As of March 31, 1999, the Company had completed
renovation, validation and implementation of all but four of its
mission critical and three of its non-mission critical applications.
Validation and implementation of all existing functions, both mission
critical and non-mission critical, are expected to be completed by May
31, 1999. Since its original assessment, the Company has added four new
applications, all of which have been scheduled for renovation and
validation which is expected to be completed by July 31, 1999. As
validation of a function occurs, the Company will develop a contingency
plan for each function. As of March 31, 1999 the Company had begun
contingency planning for all functions, which plan is to be completed
by June 30, 1999.
The Company has budgeted $1,000,000 for the Year 2000 plan, with
approximately $50,000 for 1997, $750,000 for 1998 and $200,000 for
1999. The Company spent approximately $40,000 and $614,000 in 1997 and
1998, respectively, on Year 2000 issues. The amount spent on Year 2000
issues in the quarter ended March 31, 1999 was $94,000. The Company
does not expect the costs of this process to be material to its
financial condition or results of operations.
Based on information now available, the Company anticipates its systems
will properly process dates in the year 2000 and beyond.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
(27) Financial data schedule.
b) Reports on Form 8-K
A form 8-K was filed on March 19, 1999 to announce a stock repurchase
program of up to 400,000 shares of the Company's common stock.
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Three Months Ended March 31, 1999 and 1998
(Unaudited)
1. Financial statement presentation and management representation
--------------------------------------------------------------
The consolidated financial statements include the accounts and
results of operations of Triangle Bancorp, Inc. and its four
wholly-owned subsidiaries, Triangle Bank, Bank of Mecklenburg,
Coastal Leasing LLC, and Triangle Capital Trust. All
significant intercompany transactions and accounts are
eliminated in consolidation. 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.
The interim consolidated financial statements as of and for
the three months ended March 31, 1999 and 1998 are unaudited.
In the opinion of management, the consolidated financial
statements contain all adjustments, consisting of normal
recurring adjustments, necessary to present fairly, in all
material respects, the consolidated financial position as of
March 31, 1999 and 1998, and the results of operations and
cash flows for the periods ended March 31, 1999 and 1998. The
results for the interim periods are not necessarily indicative
of what results will be for the year ended December 31, 1999.
2. Accounting for Derivative Instruments and Hedging Activities
------------------------------------------------------------
On June 15, 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities
(FAS 133). FAS 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 transaction. FAS 133 is effective
for all fiscal quarters of all fiscal years beginning after
June 15, 1999 , with earlier adoption allowed. The Company
adopted FAS 133 as of January 1, 1999. As part of the
adoption, the Company reclassified approximately $28 million
of held to maturity securities to available for sale during
the first quarter of 1999. The adoption had no other
significant effect on the Company's results of operations or
its financial position.
3. Comprehensive Income
--------------------
The Company's only component of other comprehensive income
relates to unrealized gains or losses on available for sale
securities. Information concerning the Company's other
comprehensive income for the quarter ended March 31, 1999
follows (in thousands):
Holding gains on available for sale securities, net
of taxes of $731 $1,416
Reclassification of gains recognized in net income,
net of taxes of $99 (193)
------
Other comprehensive income $1,223
------
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
IN THOUSANDS
UNAUDITED
March 31, 1999 December 31, 1998
-------------- -----------------
ASSETS
Cash and due from banks $ 58,535 $ 76,624
Interest-bearing deposits in banks 4,169 911
Securities available for sale 497,941 482,155
Securities held to maturity, market value;
$44,834 and $82,790 44,406 81,138
Loans and Leases, less allowance for losses of
$19,682 and $19,584 1,411,806 1,363,553
Premises and equipment, net 39,864 40,492
Interest receivable 15,712 16,468
Deferred income taxes 9,989 10,597
Intangible assets 23,339 24,207
Other assets 47,884 26,939
----------------- --------------------
Total Assets $ 2,153,645 $ 2,123,084
================= ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 219,404 $ 224,732
Interest-bearing demand 181,543 201,042
Savings and money market 296,060 293,652
Large denomination certificates of deposit 267,363 217,598
Other time 718,040 688,874
----------------- --------------------
Total Deposits 1,682,410 1,625,898
Short-term debt 129,671 158,980
Federal Home Loan Bank advances 125,300 130,300
Corporation obligated mandatorily
redeemable securities 19,953 19,952
Custodial deposits 7,703 7,243
Interest payable 8,786 8,292
Other liabilities 11,670 9,392
----------------- --------------------
Total other liabilties 303,083 334,159
----------------- --------------------
Total liablities 1,985,493 1,960,057
----------------- --------------------
Commitments and contingencies*
SHAREHOLDERS' EQUITY
Common stock, no par value 50,000
authorized; 25,166 shares and
25,184 shares outstanding at March 31,
1999 and December 31, 1998, respectively 86,120 86,549
Undivided profits 85,084 80,753
Accumulated other comprehensive income (3,052) (4,275)
----------------- --------------------
Total shareholders' equity 168,152 163,027
----------------- --------------------
Total liablities and shareholders' equity $ 2,153,645 $ 2,123,084
================= ====================
*Standby letters of credit outstanding at March 31, 1999 amounted to $4,750. The
accompanying notes are an integral part of the consolidated financial
statements.
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
IN THOUSANDS, EXCEPT PER SHARE DATA
UNAUDITED
For the three For the three
months ended months ended
March 31, 1999 March 31, 1998
---------------- ---------------
INTEREST INCOME
Interest and fees on loans $ 30,368 $ 29,623
Securities 7,320 8,229
Interest bearing deposits 65 517
Federal funds sold 4 28
---------------- ---------------
Total interest income 37,757 38,397
INTEREST EXPENSE:
Large denomination certificates of deposit 3,501 2,724
Other deposits 11,808 13,645
Capital securities 469 469
Short-term debt 1,768 587
Other borrowed funds 1,713 2,688
---------------- ---------------
Total interest expense 19,259 20,113
---------------- ---------------
Net interest income 18,498 18,284
Provision for loan losses 1,315 1,451
---------------- ---------------
Net interest income after
provision for loan losses 17,183 16,833
---------------- ---------------
NONINTEREST INCOME:
Service charges on deposit accounts 2,106 1,958
Other commissions and fees 930 886
Mortgage servicing fees net of amortization 264 231
Gain on sale of securities, net 292 39
Gain on sale of government loans 145 199
Gain on sale of mortgage loans 189 135
Investment commissions and fees 312 136
Other operating income 535 263
---------------- ---------------
Total noninterest income 4,773 3,847
---------------- ---------------
NONINTEREST EXPENSES:
Salaries and employee benefits 5,201 5,588
Occupancy expenses 1,347 1,259
Furniture and equipment expenses 1,215 1,040
Professional fees 497 456
Federal deposit insurance expense 63 93
Advertising and public relations 404 259
Office expenses 320 462
Telephone and communication 363 396
Merger expense - 329
Amortization of intangible assets 792 794
Other operating expense 1,742 1,868
---------------- ---------------
Total noninterest expenses 11,944 12,544
---------------- ---------------
Net income before taxes 10,012 8,136
Income tax expense 3,410 2,754
---------------- ---------------
Net income $ 6,602 $ 5,382
================ ===============
Basic income per share data:
Net income $ 0.26 $ 0.22
Average shares outstanding 25,190 25,011
Diluted income per share data:
Net income $ 0.26 $ 0.21
Average common equivalent shares 25,800 25,875
Cash dividends declared per share $ 0.09 $ 0.07
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS
UNAUDITED
MARCH 31, MARCH 31,
1999 1998
Cash flows from operating activities:
Net income $ 6,602 $ 5,382
Adjustments to reconcile net income to net cash provided by (used in)
operations:
Depreciation and amortization 2,060 1,950
Accretion of discount on investment securities,
net of amortization of premiums 1,743 464
Provision for loan losses 1,315 1,451
Gain on sale of investments (292) (39)
Gain on sale of loans (334) (334)
Mortgage loans held for sale:
Originations (23,858) (18,205)
Sales 21,519 19,100
Provision (benefit) for deferred taxes (50) (50)
Change in other assets and liabilities:
Interest receivable 756 (98)
Other assets (801) (1,286)
Interest payable 494 (1,426)
Other liabilities 2,311 (997)
----------------- -----------------
Net cash provided by operating activities 11,465 5,912
----------------- -----------------
Cash flows from investing activities:
Proceeds from maturities and principal paydowns of securities AFS 72,325 18,177
Proceeds from maturities and principal paydowns of securities HTM 8,819 13,028
Proceeds from sales of investment securities AFS 16,910 13,454
Purchases of investment securities AFS (76,678) (12,691)
Purchases of investment securities HTM - (8,994)
Purchase of bank owned life insurance (20,000) -
Cost of loan servicing rights (239) (94)
Net increase in loans made to customers (46,895) (15,051)
Proceeds from sale of foreclosed assets - -
Capital expenditures, bank premises and equipment, net (468) (1,968)
----------------- -----------------
Net cash provided by (used in) investing activities (46,226) 5,861
----------------- -----------------
Cash flows from financing activities:
Net increase in deposit accounts 56,512 67,896
Net increase in custodail accounts 460 2,910
Net decrease in short-term debt (29,309) (21,197)
Net decrease in FHLB advances (5,000) (50,000)
Repurchase of common stock (1,240) -
Cash dividends paid (2,271) (1,854)
Shares issued under stock plans 778 1,777
----------------- -----------------
Net cash provided by (used in) financing activities 19,930 (468)
----------------- -----------------
Net increase (decrease) in cash and cash equivalents (14,831) 11,305
Cash and cash equivalents at beginning of period 77,535 98,352
----------------- -----------------
Cash and cash equivalents at end of period $ 62,704 $ 109,657
================= =================
The accompanying notes are an integral part of the consolidated
financial statements.
SIGNATURES
Pursuant to the requirements 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.
Date: May 17, 1999 \s\ Debra L. Lee
-----------------
Debra L. Lee,
EVP/Chief Financial Officer
TRIANGLE BANCORP, INC.
EXHIBIT INDEX
EXHIBIT
NUMBER NAME PAGE
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27 Financial Data Schedule