U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) APRIL 16, 1998
TRIANGLE BANCORP, INC.
NORTH CAROLINA 0-21346
(STATE OR OTHER JURISDICTION OF INCORPORATION) (COMMISSION FILE NUMBER)
56-1764546
(IRS EMPLOYER IDENTIFICATION NO.)
4300 GLENWOOD AVENUE, RALEIGH, NORTH CAROLINA 27612
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (919) 881-0455
<PAGE>
Item 5. Other Information
As previously reported, Triangle Bancorp, Inc. ("Triangle") announced that on
October 16, 1997, Triangle executed an Agreement and Plan of Reorganization and
Merger with Guaranty State Bancorp ("Guaranty") and its subsidiary, Guaranty
State Bank, whereby Guaranty would be merged into Triangle and Guaranty State
Bank would be merged into Triangle's subsidiary, Triangle Bank. The merger of
Guaranty into Triangle occurred on April 16, 1998.
As a result of the merger with Guaranty, which was accounted for as a
pooling-of-interests, the financial statements of Triangle have been restated.
Attached as an exhibit hereto are supplemental consolidated financial statements
of Triangle as of December 31, 1997 and 1996, and for each of the three years
ended December 31, 1997, 1996 and 1995.
Item 7. Financial Statements and Exhibits
23 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule
99(a) Supplemental Consolidated Financial Statements of Triangle Bancorp, Inc.
and Subsidiaries as of December 31, 1997 and 1996 and for each of the
three years in the period ended December 31, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
Triangle Bancorp, Inc. has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
TRIANGLE BANCORP, INC.
(Registrant)
Date June 17, 1998 By: Debra L. Lee
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
23 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule
99(a) Supplemental Consolidated Financial Statements of Triangle Bancorp, Inc.
and Subsidiaries as of December 31, 1997 and 1996 and for each of the
three years ended December 31, 1997, 1996 and 1995.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Triangle Bancorp, Inc. on Forms S-8 (File Nos. 33-82020, 33-82022, 333-17511,
333-23131, 333-30091, 333-40931, 333-51553 and 333-53521) of our report dated
June 16, 1998, on our audits of the supplemental consolidated financial
statements of Triangle Bancorp, Inc. as of December 31, 1997 and 1996, and for
each of the three years in the period ended December 31, 1997, which report is
included in this Current Report on Form 8-K.
/S/ Coopers & Lybrand L.L.P.
Raleigh, North Carolina
June 16, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 54,162 42,587
<INT-BEARING-DEPOSITS> 23,027 916
<FED-FUNDS-SOLD> 4,219 6,302
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 432,722 309,185
<INVESTMENTS-CARRYING> 94,793 98,112
<INVESTMENTS-MARKET> 95,946 98,667
<LOANS> 1,033,510 828,581
<ALLOWANCE> 14,954 11,963
<TOTAL-ASSETS> 1,711,616 1,337,954
<DEPOSITS> 1,284,586 1,109,345
<SHORT-TERM> 61,506 38,980
<LIABILITIES-OTHER> 215,091 73,443
<LONG-TERM> 19,951 0
0 0
0 0
<COMMON> 81,290 82,272
<OTHER-SE> 49,202 33,914
<TOTAL-LIABILITIES-AND-EQUITY> 1,711,616 1,377,954
<INTEREST-LOAN> 89,030 73,831
<INTEREST-INVEST> 23,420 23,119
<INTEREST-OTHER> 2,328 604
<INTEREST-TOTAL> 114,778 97,554
<INTEREST-DEPOSIT> 48,538 42,373
<INTEREST-EXPENSE> 56,816 47,925
<INTEREST-INCOME-NET> 57,962 49,629
<LOAN-LOSSES> 3,669 2,473
<SECURITIES-GAINS> 1,473 1,140
<EXPENSE-OTHER> 40,458 35,307
<INCOME-PRETAX> 27,450 22,085
<INCOME-PRE-EXTRAORDINARY> 27,450 22,085
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 17,724 14,300
<EPS-PRIMARY> .83 .69
<EPS-DILUTED> .80 .67
<YIELD-ACTUAL> 4.24 4.24
<LOANS-NON> 2,216 1,813
<LOANS-PAST> 4,191 2,253
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 11,963 10,761
<CHARGE-OFFS> 3,195 1,987
<RECOVERIES> 1,311 815
<ALLOWANCE-CLOSE> 14,954 11,963
<ALLOWANCE-DOMESTIC> 14,954 11,963
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 0
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 0
<ALLOWANCE> 0
<TOTAL-ASSETS> 0
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 0
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 0
<INTEREST-LOAN> 61,881
<INTEREST-INVEST> 17,645
<INTEREST-OTHER> 866
<INTEREST-TOTAL> 80,392
<INTEREST-DEPOSIT> 34,197
<INTEREST-EXPENSE> 37,178
<INTEREST-INCOME-NET> 43,214
<LOAN-LOSSES> 706
<SECURITIES-GAINS> 284
<EXPENSE-OTHER> 36,053
<INCOME-PRETAX> 15,193
<INCOME-PRE-EXTRAORDINARY> 15,193
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,086
<EPS-PRIMARY> .49
<EPS-DILUTED> .48
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
Triangle Bancorp, Inc.
Raleigh, North Carolina
We have audited the supplemental consolidated balance sheets of Triangle
Bancorp, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related
supplemental consolidated statements of income, changes in shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1997. These supplemental financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
supplemental financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The supplemental financial statements referred to above give retroactive effect
to the merger of Triangle Bancorp, Inc. and Guaranty State Bancorp on April 16,
1998, which has been accounted for as a pooling of interests as described in
Notes 1 and 2 to the supplemental consolidated financial statements. Generally
accepted accounting principles proscribe giving effect to a consummated business
combination accounted for by the pooling of interests methods in financial
statements that do not include the date of consummation. These financial
statements do not extend through the date of consummation; however, they will
become the historical consolidated financial statements of Triangle Bancorp.
Inc. and subsidiaries after financial statements covering the date of
consummation of the business combination are issued.
In our opinion, the supplemental financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Triangle Bancorp, Inc. and subsidiaries as of December 31, 1997 and 1996, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles applicable after financial statements
are issued for a period which includes the date of consummation of the business
combination.
/S/ Coopers & Lybrand L.L.P.
Raleigh, North Carolina
June 16, 1998
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
Supplemental Consolidated Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS 1997 1996
----------- ---------
(in thousands, except share data)
Cash and due from banks $ 54,162 $ 42,587
Federal funds sold 4,219 6,302
Interest-bearing deposits in banks 23,027 916
Securities available for sale 432,722 309,185
Securities held to maturity, estimated market value $95,946
in 1997 and $98,667 in 1996 94,793 98,112
Loans held for sale - 2,605
Loans, net 1,018,556 816,618
Premises and equipment, net 34,541 28,582
Interest receivable 13,416 11,127
Deferred income taxes 6,876 7,100
Intangible assets, net 27,688 12,623
Other assets 1,616 2,197
----------- -----------
$ 1,711,616 $ 1,337,954
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 192,997 $ 164,247
Interest-bearing demand 175,322 141,063
Savings and money market accounts 268,924 213,281
Large denomination certificates of deposit 120,655 114,063
Other time 526,688 476,691
----------- -----------
Total deposits 1,284,586 1,109,345
----------- -----------
Short-term debt 61,506 38,980
Federal Home Loan Bank of Atlanta advances 195,300 59,800
Corporation obligated manditorily redeemable capital securities 19,951 -
Interest payable 9,125 9,127
Other liabilities 10,656 4,516
----------- -----------
Total liabilities 1,581,124 1,221,768
----------- -----------
Commitments and contingencies (Notes 14 and 16)
Shareholders' equity:
Common stock; no par value; 50,000,000 shares authorized;
21,359,868 shares and 20,740,866 shares issued and
outstanding in 1997 and 1996, respectively 81,290 82,272
Retained earnings 48,899 33,825
Net unrealized gains on securities available for sale 303 89
----------- -----------
Total shareholders' equity 130,492 116,186
----------- -----------
$ 1,711,616 $ 1,337,954
=========== ==========
</TABLE>
The accompanying notes are an integral part of the supplemental consolidated
financial statements.
2
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
Supplemental Consolidated Statements of Income
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(in thousands, except per share data)
Interest income:
<S> <C> <C> <C>
Loans and fees on loans $ 89,030 $ 73,831 $ 61,881
Federal funds sold and securities purchased under
resale agreements 2,163 564 754
Securities 23,420 23,119 17,645
Deposits with other financial institutions 165 40 112
------- ------ ------
Total interest income 114,778 97,554 80,392
======= ====== ======
Interest expense:
Large denomination certificates of deposit 6,914 6,612 5,513
Other deposits 41,624 35,761 28,684
Borrowed funds 8,278 5,552 2,981
------- ------ ------
Total interest expense 56,816 47,925 37,178
------ ------ ------
Net interest income 57,962 49,629 43,214
Provision for loan losses 3,669 2,473 706
------ ------ ------
Net interest income after provision for loan losses 54,293 47,156 42,508
------ ------ ------
Noninterest income:
Service charges on deposit accounts 6,598 6,023 5,041
Other service charges, commissions and fees 1,925 1,904 2,124
Net gain on sales of securities 792 1,140 284
Net gain on trading account securities 681 -- --
Gain on sale of deposits 2,000 558 --
Other operating income 1,624 611 1,289
----- --- -----
Total noninterest income 13,620 10,236 8,738
------ ------ -----
Noninterest expense:
Salaries and employee benefits 16,842 16,422 15,826
Occupancy expense 3,578 3,231 2,523
Equipment expense 2,990 2,829 2,813
Amortization of intangible assets 2,180 1,528 1,065
Merger expenses 2,651 494 2,582
Legal and professional fees 2,392 1,695 2,093
Other operating expense 9,820 9,108 9,151
----- ----- -----
Total noninterest expense 40,453 35,307 36,053
------ ------ ------
Income before income taxes 27,460 22,085 15,193
Income tax expense 9,736 7,785 5,107
------ ------ ------
Net income $17,724 $14,300 $10,086
======= ======= =======
Basic earnings per share $ .83 $ .69 $ .49
======= ======= =======
Diluted earnings per share $ .80 $ .67 $ .48
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the supplemental consolidated
financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
Supplemental Consolidated Statements
of Changes in Shareholders' Equity
For the years ended December 31, 1997, 1996 and 1995
<S> <C>
Unrealized
Gain (Loss)
Common Stock on Securities Total
------------ Undivided Available Shareholders
Shares Amount Profits for Sale, Net Equity
------ ------ ------- ------------- ------
(in thousands, except share and per share data)
Balance, December 31, 1994, as previously
reported 12,309,937 $ 74,876 $ 12,264 $ (4,253) $ 82,887
Adjustment for 3 for 2 stock split effected
as a 50% stock dividend (Note 13) 6,154,968 -- -- -- --
Adjustment for pooling of interests 1,834,557 5,513 3,269 (185) 8,597
--------- ----- ----- ---- -----
Balance, December 31, 1994, as restated 20,299,462 80,389 15,533 (4,438) 91,484
Shares issued under stock plans 106,401 466 -- -- 466
Common shares issued to the public 262,500 1,300 -- -- 1,300
Repurchased shares (22,500) (188) -- -- (188)
Cash payments for fractional shares (1,527) (11) -- -- (11)
Cash dividends paid ($.11 per share) -- -- (2,265) -- (2,265)
Change in unrealized loss, net -- -- -- 5,673 5,673
Net income -- -- 10,086 -- 10,086
----------- ------ ------ ------ ------
Balance, December 31, 1995 20,644,336 81,956 23,354 1,235 106,545
Shares issued under stock plans 125,196 596 -- -- 596
Repurchased shares (28,350) (277) -- -- (277)
Cash payments for fractional shares (316) (3) -- -- (3)
Cash dividends paid ($.19 per share) -- -- (3,829) -- (3,829)
Change in unrealized gain, net -- -- -- (1,146) (1,146)
Net income -- -- 14,300 -- 14,300
---------- ------ ------ ------ ------
Balance, December 31, 1996 20,740,866 82,272 33,825 89 116,186
Pooling adjustment 487,500 40 2,894 -- 2,934
Shares issued under stock plans 312,102 1,710 -- -- 1,710
Repurchased shares (180,600) (2,732) -- -- (2,732)
Cash dividends paid ($.26 per share) -- -- (5,544) -- (5,544)
Change in unrealized gain, net -- -- -- 214 214
Net income -- -- 17,724 -- 17,724
---------- --------- -------- ------- -------
Balance, December 31, 1997 21,359,868 $ 81,290 $ 48,899 $ 303 $ 130,492
========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the supplemental consolidated
financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
Supplemental Consolidated Statements of Cash Flows
For the years ended December 31, 1997, 1996 and 1995
<S> <C>
1997 1996 1995
---- ---- ----
(in thousands)
Cash flows from operating activities:
Net income $ 17,724 $ 14,300 $ 10,086
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 4,779 3,768 2,898
Writedown of fixed assets 5 -- 1,358
Net accretion of discount on securities 1,346 741 356
Provision for loan losses 3,669 2,473 706
Gain on sales of securities (1,473) (1,140) (284)
Gain on market valuation of loans held for sale -- (25) --
Loss (gain) on sale of premises and equipment (114) 239 (146)
Gain on sale of mortgage servicing portfolio -- -- (529)
Gain on sale of deposits (2,000) (558) --
Net change in trading securities 42,548 -- --
Loans held for sale:
Originations (8,771) (29,992) (25,756)
Sales 11,376 33,986 23,155
Provision (benefit) for deferred taxes (74) (317) 599
Gain on sales of foreclosed assets (7) (14) (66)
Changes in assets and liabilities:
Interest receivable (1,720) (1,515) (1,785)
Other assets 979 286 634
Interest payable (363) 277 3,438
Other liabilities (727) (402) (826)
------ ------ ------
Net cash provided by operating activities 67,177 22,107 13,838
------ ------ ------
Cash flows from investing activities:
Proceeds from maturity and principal paydowns of
securities available for sale 41,390 47,104 47,879
Proceeds from maturity and principal paydowns of
securities held to maturity 40,893 24,918 9,454
Proceeds from sales of securities available for sale 298,217 309,647 100,268
Proceeds from sales of securities held to maturity -- 14,645 --
Purchase of securities available for sale (505,399) (435,224) (178,897)
Purchase of securities held to maturity (37,509) (43,796) (34,428)
Net increase in loans (145,267) (124,429) (105,600)
Net capital expenditures, premises and equipment (5,520) (7,611) (5,314)
Proceeds from sales of foreclosed assets 323 307 382
Proceeds from sale of premises and equipment 261 475 218
Proceeds from sale of mortgage servicing portfolio -- -- 1,467
Net cash acquired in acquisitions and divestitures 102,613 74,281 32,164
------- ------ ------
Net cash used in investing activities (209,998) (139,683) (132,407)
-------- -------- --------
</TABLE>
(Continued)
5
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
Supplemental Consolidated Statements of Cash Flows (Continued)
For the years ended December 31, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
(in thousands)
Cash flows from financing activities:
Net increase in deposit accounts $ 3,670 $ 112,421 $ 59,020
Net increase (decrease) in short-term debt 22,526 (20,732) 34,561
Proceeds from FHLB advances, net 135,500 19,800 17,500
Proceeds from issuance of corporation obligated
manditorily redeemable capital securities 19,951 -- --
Debt issuances costs (627) -- --
Repurchase of stock (2,732) (277) (188)
Proceeds from common stock issuance -- -- 1,300
Cash payments for fractional shares -- (3) (11)
Shares issued under stock plans 1,680 596 466
Cash dividends paid (5,544) (3,829) (2,265)
------ ------ ------
Net cash provided by financing activities 174,424 107,976 110,383
------- ------- -------
Net increase (decrease) in cash and cash
equivalents 31,603 (9,600) (8,186)
Cash and cash equivalents at beginning of year 49,805 59,405 67,591
------ ------ ------
Cash and cash equivalents at end of year $ 81,408 $ 49,805 $ 59,405
========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 56,817 $ 47,315 $ 33,649
========= ========= =========
Income taxes $ 9,151 $ 7,936 $ 3,611
========= ========= =========
Non cash financing activity:
Tax benefit from disqualification of incentive stock options $ 30 $ -- $ --
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the supplemental consolidated
financial statements.
6
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED 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.
Basis of Presentation
The historical consolidated financial statements of the Company have been
restated to include the accounts and operations of Guaranty State Bancorp
("Guaranty") which was acquired and accounted for as a pooling of interests as
discussed in Note 2. These financial statements do not extend through the date
of consummation; however, they will become the historical consolidated financial
statements of Triangle Bancorp. Inc. and subsidiaries after financial statements
covering the date of consummation of the business combination are issued.
Principles of Consolidation
The supplemental 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 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.
7
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Loans and Allowance for Loan Losses
Loans are stated at the amount of unpaid principal, reduced by an allowance for
loan 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, based on current information and events, if 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 1997 and 1996 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.
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.
8
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Income Recognition on Impaired and Nonaccrual Loans (Continued)
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.
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.
9
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
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.
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.
Reclassifications
Certain items included in the 1996 and 1995 financial statements have been
reclassified to conform to the 1997 presentation. These reclassifications have
no effect on the net income or shareholders' equity previously reported.
10
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
New Accounting Pronouncements
The Company will adopt 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 in a full set of general-purpose financial statements.
The Company will adopt SFAS No. 131, "Disclosure About Segments of an Enterprise
and Related Information" on January 1, 1998. SFAS No. 131 specifies revised
guidelines for determining an entity's operating segments and the type and level
of financial information to be disclosed. The impact of adopting this statement
is not expected to be material to the Company's supplemental consolidated
financial statements.
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.
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities
The Company adopted SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities" on January 1, 1997. The
adoption of this pronouncement had no material effect on the Company's
supplemental consolidated financial statements.
2. MERGERS AND ACQUISITIONS
On April 16, 1998 the Company completed the acquisition of 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 1.50
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.
On October 24, 1996 the Company completed the merger of Granville United Bank
("Granville") with and into Triangle through the issuance of 2.63 shares of the
Company's common stock for each share of the outstanding common stock of
Granville, or 1,128,434 shares. These mergers were accounted for as poolings of
interests, however, due to materiality, Coastal was pooled for 1997 only.
11
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
2. MERGERS AND ACQUISITIONS (Continued)
Separate results of the pooled entities for the year ended December 31, 1997 and
1996 are as follows:
Company(1) Guaranty Combined
---------- -------- --------
1997:
Total income $119,761 $ 8,637 $128,398
Net interest income 53,586 4,376 57,962
Net income 16,584 1,140 17,724
1996:
Total income $ 99,907 $ 7,883 $107,790
Net interest income 45,632 3,997 49,629
Net income 13,220 1,080 14,300
</TABLE>
(1) Prior to Guaranty merger
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.
Mecklenburg and Coastal, prior to their merger with the Company, reported total
income of $15.9 million and $1.9 million, respectively, net interest income of
$4.3 million and $1.3 million, respectively, and net income of $1.8 million and
$166,000, respectively, for the nine months ended September 30, 1997.
In August 1997, Triangle acquired ten branches with approximately $195 million
in deposits and $61 million in loans; paid a premium of approximately $15.8
million and recorded $920,000 in goodwill. The deposit premium is being
amortized over ten years and the goodwill is being amortized over three years.
This acquisition was accounted for as a purchase and therefore, the results of
operations have been included in the supplemental consolidated financial
statements from the date of the acquisition.
The Trust Securities described in Note 9 were issued in anticipation of the 1997
branch acquisition.
See Note 21 to these supplemental consolidated financial statements for a
summary of branch acquisitions in 1997 and 1996.
12
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
3. SECURITIES
The amortized cost and estimated market value of securities at December 31, 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ----------- ---------- ----------
1997:
Available for sale:
U.S. Treasury securities $ 113,277 $ 836 $ 41 $ 114,072
U.S. Agency obligations 11,233 21 6 11,248
Mortgage-backed securities 467 - - 467
Obligations of states and political subdivisions 35,824 941 3 36,762
Collateralized mortgage obligations 251,332 - 1,277 250,055
Other investments 20,118 - - 20,118
--------- -------- ------- ---------
$ 432,251 $ 1,798 $ 1,327 $ 432,722
========= ======== ======= =========
Held to maturity:
U.S. Agency obligations $ 72,128 $ 835 $ 82 $ 72,881
Mortgage-backed securities 6,376 8 41 6,343
Obligations of states and political subdivisions 12,998 409 2 13,405
Collateralized mortgage obligations 3,038 10 4 3,044
Other investments 253 20 - 273
--------- -------- ------- ---------
$ 94,793 $ 1,282 $ 129 $ 95,946
========= ======== ======= =========
1996:
Available for sale:
U.S. Treasury securities $ 133,693 $ 542 $ 359 $ 133,876
U.S. Agency obligations 14,179 50 76 14,153
Mortgage-backed securities 127,818 491 279 128,030
Obligations of states and political subdivisions 18,686 201 111 18,776
Collateralized mortgage obligations 2,145 - 37 2,108
End-user derivatives 4,293 473 916 3,850
Other investments 8,392 - - 8,392
--------- -------- ------- ---------
$ 309,206 $ 1,757 $ 1,778 $ 309,185
========= ======== ======= =========
Held to maturity:
U.S. Agency obligations $ 72,134 $ 680 $ 231 $ 72,583
Mortgage-backed securities 8,711 5 152 8,564
Obligations of states and political subdivisions 13,663 296 41 13,918
Collateralized mortgage obligations 3,050 - 25 3,025
Other investments 554 23 - 577
--------- -------- ------- ---------
$ 98,112 $ 1,004 $ 449 $ 98,667
========= ======== ======= =========
</TABLE>
13
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
3. SECURITIES (Continued)
The amortized cost and estimated market value of securities at December 31, 1997
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.
<TABLE>
<CAPTION>
<S> <C> <C>
Estimated
Amortized Market
Cost Value
------------- -------------------
Available for sale:
Due in one year or less $ 19,152 $ 19,193
Due after one year through five years 107,532 108,369
Due after five years through ten years 10,733 10,864
Due after ten years 274,716 274,178
Other investments 20,118 20,118
---------- ----------
$432,251 $432,722
========== ==========
Held to maturity:
Due in one year or less $ 30,988 $ 30,966
Due after one year through five years 45,087 45,671
Due after five years through ten years 12,261 12,692
Due after ten years 6,457 6,617
--------- ---------
$ 94,793 $ 95,946
========= =========
</TABLE>
Gross realized gains and losses on sales of securities for the years ended
December 31, 1997, 1996 and 1995 are summarized below:
1997 1996 1995
---- ---- ----
Gross realized gains $ 1,978 $ 3,727 $ 849
========== ========== =========
Gross realized losses $ 1,186 $ 2,587 $ 565
========== ========== =========
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 Granville investment
portfolio, 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.
Securities with an amortized cost of approximately $132 million and $156 million
as of December 31, 1997 and 1996, respectively, were pledged to secure public
deposits, FHLB advances and for other banking purposes.
14
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
4. LOANS AND ALLOWANCE FOR LOAN LOSSES
Major classifications of loans as of December 31, 1997 and 1996, are summarized
as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
------ ------
Commercial $ 193,681 $ 187,456
Real estate:
Construction and land development 94,492 67,173
Residential, 1-4 families 339,954 309,037
Residential, 5 or more families 6,442 4,457
Farmland 13,595 7,326
Nonfarm, nonresidential 242,376 147,430
Agricultural production 16,664 10,674
Consumer 108,162 88,507
Other 17,236 7,011
Net deferred loan costs (fees) 908 (490)
---------- -----------
1,033,510 828,581
Less allowance for loan losses 14,954 11,963
---------- -----------
$1,018,556 $ 816,618
========= ==========
</TABLE>
A summary of the allowance for loan losses for the years ended December 31,
1997, 1996 and 1995, is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1997 1996 1995
------ ------ ------
Balance, beginning of year $ 11,963 $ 10,761 $ 11,108
Provision charged against income 3,669 2,473 706
Loans charged off, net of recoveries (1,883) (1,173) (1,053)
Allowance on purchased (sold) loans 1,205 (98) --
-------- --------- --------
Balance, end of year $ 14,954 $ 11,963 $ 10,761
======== ========= ========
</TABLE>
Nonperforming assets at December 31, 1997 and 1996, consist of the following:
1997 1996
------- -------
Loans past due ninety days or more $4,191 $2,253
Nonaccrual loans 2,216 1,813
Foreclosed assets (included in other assets) 246 507
------ ------
$6,653 $4,573
====== ======
15
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
5. PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1997 and 1996, are as follows:
1997 1996
---------- ----------
Premises $20,641 $18,620
Equipment and fixtures 16,834 13,737
Leasehold improvements 712 550
-------- --------
38,187 32,907
Less accumulated depreciation and amortization 13,016 11,175
-------- --------
25,171 21,732
Construction in process 2,038 1,084
Land 7,332 5,766
-------- --------
$34,541 $28,582
======== ========
6. INTANGIBLE ASSETS
Intangible assets at December 31, 1997 and 1996 are as follows:
1997 1996
---- ----
Core deposit premiums $30,470 $14,646
Goodwill 2,083 1,174
Other intangibles 1,002 376
-------- --------
33,555 16,196
Less accumulated amortization 5,867 3,573
-------- --------
$27,688 $12,623
======== ========
Amortization expense, principally related to the core deposit premiums, amounted
to approximately $2,294,000, $1,528,000, and $1,065,000 for the years ended
December 31, 1997, 1996 and 1995, respectively.
7. SHORT-TERM DEBT
Short term debt consisted of the following as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
<S> <C>
1997 1996
---- ----
Securities sold under repurchase agreements $20,601 $34,738
Federal funds purchased 24,800 3,900
Masternotes 15,705 --
Other 400 342
------- ------
$61,506 $38,980
======= =======
</TABLE>
The weighted average rate on short term debt was 5.15% and 5.11% at December 31,
1997 and 1996, respectively.
The Company has pledged certain securities to collateralize the repurchase
agreements. These agreements generally mature and are renewed daily.
16
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
8. FEDERAL HOME LOAN BANK OF ATLANTA ADVANCES
FHLB Advances with interest rates and maturity dates and weighted average rates
(WAR) as of December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 1996
---- ----
Amount WAR Amount WAR
------ --- ------ ---
Due in one year $125,000 5.79% $ 8,000 6.95%
Due after one year within two years 6,800 6.19 50,000 5.56
Due after two years within three
years -- -- 1,800 6.31
Due after four years within five years 63,500 6.19 -- --
------ ---- ------- -----
$195,300 5.93% $ 59,800 5.77%
======== ==== ======== ====
</TABLE>
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.
9. CORPORATION OBLIGATED MANDITORILY REDEEMABLE CAPITAL SECURITIES
Corporation obligated manditorily redeemable capital securities ("Trust
Securities") aggregating $20,000,000 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.
17
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
10. INCOME TAXES
The components of income tax expense for the years ended December 31, 1997, 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 1996 1995
---- ---- ----
Current expense $ 9,810 $ 8,102 $ 4,508
Deferred expense (benefit) (74) (317) 599
--- ---- ---
$ 9,736 $ 7,785 $ 5,107
======= ======= =======
</TABLE>
The reconciliation of expected income tax at the statutory Federal rate (35%)
with income tax expense for the years ended December 31, 1997, 1996 and 1995, is
as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 1996 1995
---- ---- ----
Expected income tax expense at statutory rate $ 9,611 $ 7,729 $ 5,317
Increase (decrease) in income tax expense
resulting from:
State taxes, net of federal tax benefit 765 606 359
Benefit of net operating loss carryforward -- (229) (217)
Tax exempt interest (682) (446) (412)
Non-deductible interest 63 13 34
Other, net (21) 112 26
--- --- --
Income tax expense $ 9,736 $ 7,785 $ 5,107
======= ======= =======
</TABLE>
The components of net deferred tax assets at December 31, 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1997 1996
---- ----
Allowance for loan losses $ 3,834 $ 3,335
Accumulated depreciation 2,920 1,602
Deferred compensation 344 190
Net operating loss carryforwards 1,858 2,038
Depreciable basis of fixed assets (1,915) (368)
Other 12 182
Unrealized securities (gains) losses (177) 121
------ ------
$ 6,876 $ 7,100
======= =======
</TABLE>
The Company has federal net operating loss carryforwards of approximately
$6,000,000, which expire in years 2003 through 2008. Use of the net operating
loss carryforwards is limited to approximately $600,000 each year.
18
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
11. EMPLOYEE BENEFIT PLAN
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. In 1997 neither Mecklenburg nor Coastal employees were included in
the Company's plan. 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. Mecklenburg also maintains a 401(k) Plan
which covers substantially all employees. Employees may contribute up to 6% of
their salary with the employer matching up to 6% of eligible contributions.
Guaranty maintains a 401(K) plan which substantially covers all employees.
Employees may contribute up to 15% of their eligible compensation, subject to
IRS Limitations. The employer matches up to 5% of employee contributions and is
able to make additional directionary contributions. The Company contributed
approximately $704,000, $580,000 and $471,000 to the plans in 1997, 1996 and
1995, 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 for a six month period beginning July 1, 1997. The discount is
taken on the lower of the market price on July 1 or December 31 with shares
being issued out of authorized but unissued shares. A total of 375,000 shares
have been authorized for the plan with 11,352 issued on January 1, 1998.
12. 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 on income available to common
shareholders and the average number of shares outstanding for the years ended
December 31, 1997, 1996, and 1995.
<TABLE>
<CAPTION>
<S> <C>
1997 1996 1995
---- ---- ----
Net income
$ 17,724 $ 14,300 $ 10,086
=========== =========== ===========
Average outstanding shares for basic EPS 21,273,639 20,690,844 20,581,032
Dilutive effect of stock options and warrants 831,839 688,577 376,788
------- ------- -------
Total shares for diluted EPS 22,105,478 21,379,421 20,957,820
========== ========== ==========
</TABLE>
19
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
13. COMMON STOCK
On April 28, 1998 the Company's shareholders approved increasing the number of
shares authorized to 50,000,000. This amendment has been reflected in the
accompanying supplemental consolidated balance sheets.
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 is June
15, 1998 and the dividend will be 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.
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 "Stock Option Plans"). The
Stock Option Plans expire on January 4, 1998, and as such, no new awards will be
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.
On January 27, 1998, the Board of Directors of the Company approved the Triangle
Bancorp, Inc. 1998 Omnibus Stock Plan. This plan, which is subject to approval
by the shareholders of the Company, reserves 1,000,000 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 will be granted at fair market value
and will 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 Stock Option Plans or the ESPP.
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:
<TABLE>
<CAPTION>
<S> <C>
Year ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
Net income:
As reported $ 17,724 $ 14,300 $ 10,086
Pro Forma $ 17,293 $ 14,050 $ 10,021
Basic earnings per share:
As reported $ .83 $ .69 $ .49
Pro Forma $ .81 $ .68 $ .49
Diluted earnings per share:
As reported $ .80 $ .67 $ .48
Pro Forma $ .78 $ .66 $ .48
</TABLE>
20
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
13. COMMON STOCK (Continued)
The fair value of options granted during 1997, 1996 and 1995 was estimated using
the Black-Scholes option pricing model with the following weighted average
assumptions.
<TABLE>
<CAPTION>
<S> <C>
Year Ended December 31,
1997 1996 1995
---- ---- ----
1997 Employee Stock Purchase Plan:
Weighted average grant date fair value $ 3.53 -- --
Dividend yield 2.10% -- --
Risk free interest rates 6.00% -- --
Expected lives (years) 0.50 -- --
Volatility 32.00% -- --
Stock Option Plans:
Weighted average grant date fair value $ 4.28 $ 2.32 $ 1.73
Dividend yield 3.30% 3.90% 3.70%
Risk free interest rates 6.00% 6.00% 6.30%
Expected lives (years) 6.96 7.00 7.00
Volatility 32.00% 21.00% 25.00%
</TABLE>
A summary of the status of the Stock Option Plans as of December 31, 1997, 1996
and 1995, and changes during the years ending on those dates, including weighted
average exercise price (Price), is presented below:
<TABLE>
<CAPTION>
<S> <C>
1997 1996 1995
---- ---- ----
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
Outstanding at beginning year 1,721,284 $ 5.94 1,458,791 $ 5.13 1,212,666 $ 5.02
Pooling adjustment 126,558 3.14
Granted 166,943 13.67 429,720 8.46 220,269 6.23
Exercised (281,604) 5.06 (101,309) 4.04 (55,736) 3.11
Forfeited (69,125) 7.72 (65,918) 7.37 (44,966) 4.72
------- ---- ------- ---- ------- ----
Outstanding at end of year 1,537,498 $ 6.83 1,721,284 $ 5.94 1,458,791 $ 5.13
========= ========= ========= ======== ========= ========
</TABLE>
The following table summarizes information about the Stock Option Plans at
December 31, 1997 including weighted average remaining contractual term in years
Term) and weighted average exercise price (Price).
<TABLE>
<CAPTION>
<S> <C>
Options Outstanding Options Exercisable
------------------- -------------------
Range of Exercise Prices Number Term Price Number Price
------------------------ ------ ---- ----- ------ -----
$ 2.44 26,490 3.08 $ 2.44 26,490 $ 2.44
2.67 - 4.00 243,571 3.37 3.83 181,629 3.76
4.17 - 4.53 209,931 2.20 4.37 209,931 4.37
4.57 - 5.33 230,657 5.11 4.85 198,737 4.83
5.36 - 6.67 234,311 6.10 6.14 124,947 6.00
7.17 - 7.67 247,080 8.40 7.64 245,250 7.66
8.25 - 10.00 132,015 8.27 9.80 24,155 9.91
10.79 - 12.25 162,840 7.17 12.19 46,305 12.10
12.59 - 15.67 18,750 9.52 15.05 -- --
17.83 - 23.33 31,853 9.83 18.18 -- --
--------- ---- ------- --------- ----------
1,537,498 5.72 $ 6.83 1,057,444 $ 5.99
========= ==== ======= ========= ==========
</TABLE>
21
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
13. COMMON STOCK (Continued)
During 1997, 11,700 of the Company's warrants were exercised leaving 6,300
remaining. All the warrants have an exercise price of $6.11 and expire on
December 31, 2000.
14. 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, 1997
and 1996, the Banks were required to maintain such balances aggregating
approximately $10,615,000 and $8,732,000, 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, 1997, that the Company and the Banks meet all capital
adequacy requirements to which they are subject.
As of December 31, 1997 and 1996, the most recent notification from the FDIC
categorized the Company and the Banks as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized
the Banks must maintain minimum amounts and ratios, as set forth in the table
below. There are no conditions or events since that notification that management
believes have changed the Company's or the Banks' category.
A summary of the Company's required and actual capital components follows:
<TABLE>
<CAPTION>
To Be Well Capitalized
Under Prompt
For Capital Corrective
Actual Adequacy Purposes Action Provisions
---------------------- --------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
As of December 31, 1997:
- - ------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital ( to Risk Weighted Assets) 136,059 12.5% $ 87,200 8.0% $ 109,000 10.0%
Tier I Capital ( to Risk Weighted Assets) 122,459 11.2 43,600 4.0 65,400 6.0%
Tier I Capital (to Average Assets) 122,459 7.8 62,689 4.0 78,362 5.0%
As of December 31, 1996:
- - ------------------------
Total Capital ( to Risk Weighted Assets) $ 113,998 13.0% $ 70,229 8.0% $ 87,786 10.0%
Tier I Capital ( to Risk Weighted Assets) 103,616 11.8 35,115 4.0 52,672 6.0
Tier I Capital ( to Average Assets) 103,616 8.1 51,126 4.0 63,907 5.0
</TABLE>
22
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
14. REGULATORY RESTRICTIONS (Continued)
A summary of Triangle's required and actual capital components follows:
<TABLE>
<CAPTION>
To Be Well Capitalized
Under Prompt
For Capital Corrective
Actual Adequacy Purposes Action Provisions
---------------------- --------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
As of December 31, 1997:
- - ------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital ( to Risk Weighted Assets) $ 104,585 11.2% $ 74,411 8.0% $ 93,013 10.0%
Tier I Capital ( to Risk Weighted Assets) 92,908 10.0 37,205 4.0 55,800 6.0
Tier I Capital (to Average Assets) 92,908 7.0 52,906 4.0 66,132 5.0
As of December 31, 1996:
- - ------------------------
Total Capital ( to Risk Weighted Assets) $ 93,890 12.8% $ 58,743 8.0% $ 73,429 10.0%
Tier I Capital ( to Risk Weighted Assets) 84,687 11.5 29,372 4.0 44,058 6.0
Tier I Capital ( to Average Assets) 84,687 8.0 42,519 4.0 53,148 5.0
</TABLE>
A summary of Mecklenburg's required and actual capital components follows:
<TABLE>
<CAPTION>
To Be Well Capitalized
Under Prompt
For Capital Corrective
Actual Adequacy Purposes Action Provisions
---------------------- --------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
As of December 31, 1997:
- - ------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital ( to Risk Weighted Assets) $ 21,359 15.1% $ 11,352 8.0% $ 14,190 10.0%
Tier I Capital ( to Risk Weighted Assets) 19,772 13.9 5,676 4.0 8,514 6.0
Tier I Capital (to Average Assets) 19,772 7.3 10,805 4.0 13,507 5.0
As of December 31, 1996:
- - ------------------------
Total Capital ( to Risk Weighted Assets) $ 19,155 14.9% $ 10,286 8.0% $ 12,858 10.0%
Tier I Capital ( to Risk Weighted Assets) 17,980 14.0 5,143 4.0 7,715 6.0
Tier I Capital ( to Average Assets) 17,980 6.8 10,551 4.0 13,189 5.0
</TABLE>
15. LEASE OBLIGATIONS
The Company leases a portion of its facilities under various operating leases.
Rental expense related to such leases amounted to approximately $1,222,917,
$1,136,732 and $861,732 in 1997, 1996 and 1995, respectively.
Noncancelable, long-term lease commitments at December 31, 1997 range from
$1,066,000 in 1998 to $766,000 in 2002.
23
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
16. 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, 1997 and 1996, outstanding financial instruments whose
contract amounts represent credit risk were as follows:
1997 1996
---- ----
Unfunded loans and lines of credit $ 211,685 $ 158,394
========= =========
Standby letters of credit $ 3,446 $ 4,668
========= =========
The Company's lending is concentrated primarily in North Carolina. Credit has
been extended to certain of the Company's customers through multiple lending
transactions.
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.
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. As of December
31, 1997, the aggregate notional principal amount of all outstanding financial
instrument contracts used for interest rate management totaled approximately $31
million. At December 31, 1997, the carrying amount of financial instruments used
for interest rate risk management was approximately $17,000 and the estimated
market value was $33,000.
24
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
16. COMMITMENTS AND CONTINGENCIES (Continued)
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, 1997, off-balance sheet financial
instruments and their related fair value methods and assumptions, and fair
values are as follows:
<TABLE>
<CAPTION>
Estimated Contract or
Carrying Fair Notional
Amount Value Amount
----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Financial instruments used for interest rate
risk management, the designated asset or
liability and terms:
Interest rate swap agreements:
Certificates of deposit:
Receive fixed 5.97% pay 3 month
LIBOR February 1997 - March 1998 $ - $ 8 $ 8,000
Receive 3 month fixed 6.00%, pay 3
month LIBOR March 1997 - March
1998) - 8 8,000
----------- --------- -----------
$ - $ 16 $ 16,000
========== ========= ===========
Purchased interest rate floors:
Unassigned (Strike price 5%, 3
month LIBOR index, March 1996 -
January 1997) $ 17 $ 17 $ 15,000
========== ========= ===========
</TABLE>
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.
17. 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 is summarized as follows :
1997 1996
---- ----
Balance, beginning of year $ 4,008 $ 4,827
Loans made 1,038 2,705
Payment received (1,420) (3,100)
Changes in composition 1,450 (424)
------------- --------------
Balance, end of year $ 5,076 $ 4,008
============= ==============
25
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
18. 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, 1997 and 1996 and
for the years ended December 31, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- -----------
<S> <C> <C>
Condensed Balance Sheets
Cash $ 16,193 $ 393
Investments in wholly-owned subsidiaries 143,229 115,551
Loan to subsidiary 6,200 -
Other assets 1,379 380
--------- -----------
Total assets $ 167,001 $ 116,324
========= ===========
Short-term debt $ 15,705 $ -
Other liabilities 236 138
Junior subordinated deferred interest
debentures 20,568 -
--------- -----------
Total liabilities 36,509 138
Shareholders' equity 130,492 116,186
--------- -----------
Total liabilities and shareholders' equity $ 167,001 $ 116,324
========= ===========
Condensed Statements of Income 1997 1996 1995
--------- ----------- -----------
Dividends from wholly-owned subsidiaries $ 6,580 $ 3,778 $ 867
Interest income 773 8 -
--------- ----------- -----------
Total income 7,353 3,786 867
Interest expense 1,441 - -
Other expenses 217 151 266
--------- ----------- -----------
Total expenses 1,658 151 266
--------- ----------- -----------
Income before equity in earnings of wholly-owned
subsidiaries 5,695 3,635 601
--------- ----------- -----------
Equity in undistributed earnings of wholly-owned
subsidiaries 12,029 10,665 9,485
--------- ----------- -----------
Net income $ 17,724 $ 14,300 $ 10,086
========= =========== ===========
Condensed Statements of Cash Flows 1997 1996 1995
--------- ----------- -----------
Cash flows from operating activities:
Net income $ 17,724 $ 14,300 $ 10,086
Equity in undistributed earnings of
wholly-owned subsidiaries (12,029) (10,665) (9,485)
Amortization 19 10 11
Decrease (increase) in other assets 226 (309) 389
Increase (decrease) in other liabilities 98 41 (25)
--------- ----------- -----------
Net cash provided by operating
activities 6,038 3,377 976
--------- ----------- -----------
Cash flows from investing activities:
Investment in subsidiary (12,471) 185 (1,118)
Net increase in loans to subsidiary (6,200) - -
Purchases of common securities (617) - -
--------- ----------- -----------
Net cash provided by (used in)
investing activities (19,288) 185 (1,118)
--------- ----------- -----------
</TABLE>
(Continued)
26
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
18. PARENT COMPANY FINANCIAL DATA (Continued)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase in masternotes $ 15,705 $ - $ -
Proceeds from junior subordinated debentures 20,568 - -
Common shares issued to the public - - 1,300
Shares issued under stock plans 1,680 596 466
Dividends (5,544) (3,829) (2,265)
Cash issued for fractional shares - (3) (11)
Debt issuance cost (627) - -
Repurchased shares (2,732) (277) (188)
--------- --------- ---------
Net cash provided by (used in)
financing activities 29,050 (3,513) (698)
--------- --------- ---------
Net increase (decrease) in cash 15,800 49 (840)
Cash at beginning of year 393 344 1,184
Cash at end of year --------- --------- ---------
$ 16,193 $ 393 $ 344
========= ========= =========
</TABLE>
19. FAIR VALUE OF FINANCIAL INSTRUMENTS
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.
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. Loans held for
sale are considered short term assets that are carried at market value at
December 31, 1996. 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.
27
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
19. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
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
manditorily redeemable capital securities were determined by discounting
contractual cash flows using current rates for similar borrowings.
The fair value of off-balance sheet financial instruments has not been
considered in determining on balance sheet 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, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
-------------------------------- --------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 54,162 $ 54,162 $ 42,587 $ 42,587
Federal funds sold 4,219 4,219 6,302 6,302
Interest-bearing deposits in banks 23,027 23,027 916 916
Securities 527,515 528,668 407,297 407,852
Loans held for sale - - 2,605 605
Loans, less allowance for loan losses 1,018,556 1,028,500 816,618 817,818
Interest receivable 13,416 13,416 11,127 11,127
-------------- --------------- -------------- --------------
Total financial assets $ 1,640,895 $ 1,651,992 $ 1,287,452 $ 1,287,207
============== ============== ============== ==============
Financial liabilities:
Deposits $ 1,284,586 $ 1,292,495 $ 1,109,345 $ 1,110,611
Short-term debt 61,506 61,502 38,980 38,980
Federal Home Loan Bank of Atlanta advances 195,300 196,545 59,800 59,800
Corporation obligated manditorily redeemable
capital securities 19,951 18,093 - -
Interest payable 9,125 9,125 9,127 9,127
-------------- --------------- -------------- --------------
Total financial liabilities $ 1,570,468 $ 1,577,760 $ 1,217,252 $ 1,218,518
============== ============== ============== ==============
</TABLE>
The Company's remaining assets and liabilities are not considered financial
instruments.
28
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
20. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized unaudited quarterly financial data for the years ended December 31,
1997 and 1996 is as follows:
<TABLE>
<CAPTION>
Fourth Third Second First
-------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
1997:
Interest income $ 31,233 $ 29,846 $ 27,684 $ 26,015
Interest expense 15,411 15,221 13,568 12,616
Provision for loan losses 950 1,150 978 591
Noninterest income 2,976 3,069 4,960 2,615
Noninterest expense 12,411 9,741 9,134 9,167
Income tax expense 1,756 2,346 3,302 2,332
-------------- -------------- --------------- --------------
Net income $ 3,681 $ 4,457 $ 5,662 $ 3,924
============== ============== =============== ==============
Basic earnings per share $ .17 $ .21 $ .27 $ .18
============== ============== =============== ==============
Diluted earnings per share $ .16 $ .20 $ .26 $ .18
============== ============== =============== ==============
1996:
Interest income $ 25,489 $ 25,399 $ 24,124 $ 22,542
Interest expense 12,502 12,723 11,926 10,774
Provision for loan losses 860 389 783 441
Noninterest income 2,174 2,414 3,239 2,409
Noninterest expense 8,834 9,149 8,721 8,603
Income tax expense 1,854 2,047 2,037 1,847
-------------- -------------- --------------- --------------
Net income $ 3,613 $ 3,505 $ 3,896 $ 3,286
============== ============== =============== ==============
Basic earnings per share $ .18 $ .17 $ .18 $ .16
============== ============== =============== ==============
Diluted earnings per share $ .17 $ .16 $ .18 $ .15
============== ============== =============== ==============
</TABLE>
21. 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; transfers to
securities held to maturity of $4,557,000 and $22,149,000 in 1996 and 1995,
respectively, and transfers to securities available for sale of $44,332,000 in
1995.
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, assets acquired and 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
============== ==============
29
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
21. 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. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. The Company has made a
preliminary assessment of its software and does not believe it has any
significant systems that require modifications. An outside firm is undergoing an
extensive study of all of the Company's internal and external systems and this
is expected to be completed in 1998. As such, the costs of becoming year 2000
compliant cannot be estimated at this time. Additionally, there can be no
guarantee that the systems of other companies on which the Company's systems
rely will be timely converted, or that an inadequate conversion of a significant
loan customer would not have a material adverse effect on the Company.
22. PENDING ACQUISITIONS
On March 4, 1998, Triangle entered in an agreement to acquire United Federal
Savings Bank, Rocky Mount, North Carolina ("United Federal"). United Federal is
a federally-chartered savings bank whose deposits are insured by the Savings
Association Insurance Fund of the FDIC. At December 31, 1997, United Federal had
total assets of approximately $304 million. The United Federal acquisition will
be accounted for using the pooling of interests method of accounting and is
subject to the approval of United Federal's shareholders and all applicable
regulatory agencies. The transaction is expected to be consummated in the third
quarter of 1998.
30
