UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT UNDER Section 13 or 15 (d) OF THE SECURITIES
- -------- EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998, or
TRANSITION REPORT Pursuant to Section 13 or 15(d) of THE
- -------- SECURITIES EXCHANGE ACT of 1934
Commission File Number 0-21346
TRIANGLE BANCORP, INC.
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(Exact Name of Registrant as specified in its Charter)
NORTH CAROLINA 56-1764546
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(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
4300 Glenwood Avenue
Raleigh, North Carolina 27612
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(Address of principal executive offices) (Zip Code)
(919) 881-0455
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(Registrant's Telephone Number Including Area Code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock - No Par Value
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(Title of Class)
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
YES X NO
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Check if there is no disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.___________
The aggregate market value of the voting stock held by
non-affiliates of the Registrant as of February 28, 1999, based upon the closing
price of the Common Stock ($16.1875) on March 5, 1999, was approximately
$368,700,000. Shares of Common Stock held by each officer and director and by
each person who owns 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
As of March 5, 1999, 25,213,945 shares of no par value common stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The 1998 Annual Report to Shareholders (the "Annual Report to
Shareholders") is incorporated by reference into Part II hereof.
The definitive Proxy Statement for the 1999 Annual Shareholders
Meeting (the "Proxy Statement") is incorporated by reference into Part III
hereof.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Triangle Bancorp, Inc. (the "Corporation") was incorporated under
the laws of North Carolina on November 27, 1991 for the purpose of becoming a
one-bank holding company. The Corporation acquired Triangle Bank ("Triangle
Bank") in August 1992 as part of the reorganization of Triangle Bank into a
one-bank holding company structure. Pursuant to the reorganization, the former
shareholders of Triangle Bank became shareholders of the Corporation. On October
2, 1997, the Corporation acquired Bank of Mecklenburg, Charlotte, North Carolina
("Mecklenburg"), as a wholly-owned subsidiary, and became a multi-bank holding
company. Triangle Bank and Mecklenburg are referred to herein collectively as
the "Banks". On October 31, 1997, the Corporation acquired Coastal Leasing LLC,
Greenville, North Carolina ("Coastal Leasing"). To date, the Corporation has not
engaged in any material activities other than its ownership and management of
the Banks and Coastal Leasing and the issuance of trust preferred securities in
June 1997.
As a bank holding company, the Corporation's primary business is
that of owning the capital stock of the Banks and Coastal Leasing and promoting
the general development of its business. At December 31, 1998, the Corporation
had consolidated assets of approximately $2.1 billion and was the eighth largest
banking organization headquartered in North Carolina.
RECENT ACQUISITIONS
On April 16, 1998, the Corporation acquired Guaranty State
Bancorp ("Guaranty State") and its commercial bank subsidiary, Guaranty State
Bank, both located in Durham, North Carolina. The acquisition of Guaranty State
added approximately $103 million in assets, $77 million in loans, $89 million in
deposits, and $12 million in shareholders' equity and four branches in Durham,
North Carolina.
On September 17, 1998, Triangle acquired United Federal Savings
Bank, Rocky Mount, North Carolina ("United Federal"), a federally-chartered
savings bank whose deposits are insured by the Savings Association Insurance
Fund of the FDIC. The United Federal acquisition added approximately $302
million in assets, $248 million in loans, $266 million in deposits, and $22
million in shareholders' equity and eight branches in eastern North Carolina and
two mortgage origination offices located in Charlotte and Wilmington, North
Carolina.
As both the Guaranty State and United Federal acquisitions were
accounted for using the pooling-of-interests method of accounting, all
historical information has been restated to reflect both entities. As a result,
the Corporation's total assets and net income as of and for the year ended
December 31, 1997, have been restated from $1.6 billion to $2 billion and from
$16.6 million to $19.5 million, respectively.
In addition, it is anticipated that the Corporation will continue
to investigate and hold discussions and negotiations in connection with possible
acquisitions of, or combinations with, other banks and financial service
entities. As of the date hereof, the Corporation has not entered into any
agreements or understandings with respect to any such transactions.
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TRUST SECURITIES ISSUANCE
In May 1997, the Corporation caused a Delaware statutory business
trust subsidiary to be created which issued trust preferred securities in the
amount of $19.33 million to eight qualified institutional buyers, and $619,000
in trust common securities to the Corporation (collectively, the "Trust
Securities"), both sales occurring on June 3, 1997. The Trust Securities have a
maturity of 30 years, pay dividends at the rate of 9.375% and are treated as
tier 1 capital by the Corporation. To fund the trust, the Corporation sold to
the trust $19.95 million of junior subordinated notes with a yield and maturity
identical to the Trust Securities. Holders of the Trust Securities are entitled
to receive preferential cumulative cash distributions accumulating from the date
of original issuance and payable semi-annually in arrears on the first day of
June and December of each year, commencing December 1, 1997, at an annual rate
equal to 9.375%. The distribution rate and distribution payment dates of the
Trust Securities correspond to the interest rate and interest payment dates of
the junior subordinated debentures, which are the sole assets of the trust. The
Corporation, through various agreements, has irrevocably and unconditionally
guaranteed all of the trust's obligations under the Trust Securities regarding
the payment of distributions and payment on liquidation or redemption of the
Trust Securities, but only to the extent of funds held by the trust. The Trust
Securities are subject to mandatory redemption in whole, but not in part, upon
repayment of the junior subordinated debentures at their stated maturity or upon
their early redemption. The junior subordinated debentures may be redeemed prior
to their stated maturity upon the occurrence of certain events or at the option
of the Corporation on or after June 1, 2007. The Corporation caused the Trust
Securities to be issued because they are a relatively inexpensive form of
regulatory capital for the Corporation. The sale of the Trust Securities was
effected in a transaction exempt from the registration requirements of the
Securities Act of 1933. In November 1997, the trust preferred securities sold to
institutional buyers were registered under the Securities Act of 1933 and an
exchange offer conducted whereby all but $1.0 million of such trust preferred
securities were exchanged for registered securities.
BUSINESS OF THE CORPORATION
BANKING. The Corporation's largest subsidiary is Triangle Bank.
Triangle Bank, headquartered in Raleigh, North Carolina, and Mecklenburg,
headquartered in Charlotte, North Carolina, are both chartered as state banks
under the laws of the State of North Carolina and are members of the Federal
Reserve System (the "Federal Reserve"). Deposit insurance is provided by the
Bank Insurance Fund ("BIF") and the Savings Association Insurance Fund ("SAIF")
of the FDIC. The sole business of the Banks is to provide banking services to
businesses and individuals in the communities they serve through 69 branches of
Triangle Bank in eastern and south-central North Carolina and three branches of
Mecklenburg in Charlotte, North Carolina. The Banks primarily serve small and
medium-sized businesses as well as consumers within their markets.
Triangle Bank began business on January 4, 1988. On June 30,
1991, Enterprise Bancorp, Inc., a North Carolina bank holding company, and its
wholly-owned subsidiary, Enterprise Bank, National Association, merged into
Triangle Bank, adding approximately $34 million in assets to Triangle Bank. On
December 28, 1993, New East Bancorp, a North Carolina holding company, and its
wholly-owned subsidiaries, New East Bank of the Albemarle, New East Bank of the
Cape Fear, New East Bank of Goldsboro, New East Bank of Greenville and New East
Bank of New Bern, merged into Triangle Bank, adding approximately $131 million
in assets to the Bank. Triangle Bank merged with Columbus National Bank,
Standard Bank and Trust, Unity Bank and Trust Co. and The Village Bank as well
as acquiring three branch offices from NationsBank during 1995, adding
approximately $409 million in assets. Triangle Bank's wholly-owned subsidiary,
Unity Financial Services (acquired through Unity Bank and Trust Co. merger),
changed its name to Triangle Investment Services in October 1995. This
subsidiary provides brokerage services. Triangle Bank merged with Granville
United Bank in October 1996, acquired four branches from First Union in January
1996 and completed a branch swap transaction in June 1996. In June 1997,
Triangle Bank sold two branches in Sanford, North Carolina and in August 1997
acquired 10 branches as a result of the UCB/BB&T merger adding a net of
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$174 million in deposits and $52 million in loans. In 1998, Triangle Bank merged
with Guaranty Sate Bank and United Federal. Through the acquisition of United
Federal, Triangle Bank began a sizeable mortgage loan operation, which services
are offered through Triangle Bank branches as well as mortgage loan production
offices in Charlotte and Wilmington, North Carolina.
Mecklenburg began business on July 12, 1989 with one office in
Charlotte. Mecklenburg opened a second office in Charlotte in 1991, and
purchased a third office, with $28 million in deposits, in March 1996 from Essex
Savings Bank.
BANKING SERVICES. The Banks offer a wide range of banking
services, including acceptance of deposits, checking services, debit cards,
24-hour phone access to account information, commercial and consumer loans,
mortgages, real estate development and construction loans, safe deposit boxes,
and credit cards. The Banks offer their customers fully-automated, 24-hour
teller machines ("ATMs"). This service is provided by ATM machines at selected
branch locations and by giving the Banks' customers access to the ATM network of
the Cirrus system and the HONOR system, which operate ATMs in many states.
DEPOSITS. The Banks offer a variety of deposit accounts,
including savings, checking and time deposits of various types ranging from
daily "money market" accounts to longer-term certificates of deposit. Retirement
accounts, such as Individual Retirement Accounts, are also offered. At December
31, 1998, Triangle Bank and Mecklenburg had deposits of approximately $1.5
billion and $181 million, respectively. The Banks seek to maintain stability in
their deposits by establishing direct relationships with their depositors. In
addition, in the fourth quarter of 1998, the Banks, in compliance with FDIC
regulations, began accepting a limited amount of brokered deposits pursuant to
agreements with regional brokerage firms. These brokered deposits are part of
the Banks' asset-liability management plan and provide a source of deposits
without creating disintermediation in the Banks' deposit accounts.
LENDING ACTIVITIES. The Banks offer a wide range of consumer,
commercial, real estate development, construction, and mortgage loans to small
to medium-sized businesses and to individuals. Loans are generally secured by
real property, equipment, inventory, accounts receivable, or other assets. In
addition, the Banks often obtain personal guarantees from the owners of the
businesses to which loans are extended. The Banks' lending policies are
established and periodically reviewed by their Boards of Directors. Loan
policies are also subject to the regulations of federal and state bank
regulators.
Real estate loans constituted the largest portion of the Banks'
loans. Real estate loans include both loans to businesses to finance or
refinance real estate used for the business and loans to individuals for
residential real estate. Commercial loans include credit lines for working
capital, short-term seasonal, or inventory financing as well as longer term
loans. The Banks also offer residential real estate, construction, and land
development loans to developers and builders. Finally, the Banks offer consumer
loans to individuals. Consumer loans constitute the least significant portion of
the Banks' loan portfolios.
Real estate development and construction loans accounted for
approximately 13% of the Banks' loans at December 31, 1998. In addition, when
loans that are substantially secured by real estate are taken into account,
loans secured in full or in part by real estate constituted approximately 73% of
the outstanding loans at December 31, 1998. The Banks closely monitor their loan
portfolios and believe their current loan loss reserves adequately reflect
problem loans that have been identified to date.
LEASING. The Corporation conducts leasing activities through its
wholly-owned subsidiary, Coastal Leasing. Coastal Leasing is headquartered in
Greenville, North Carolina and operates four offices in addition to its
Greenville office. At December 31, 1998, Coastal Leasing had approximately $28
million in total assets, $28 million in leases, and $3.8 million in
shareholders' equity. Coastal Leasing began business in 1971
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in Greenville, North Carolina, opening its other offices in eastern North
Carolina and tidewater Virginia over the years as its business grew. Coastal
engages in business equipment leasing. Coastal's leasing activities complement
the financing activities of the Banks and provide alternatives to small business
customers of the Banks.
INVESTMENTS. The Corporation and its subsidiaries seek to
maintain liquidity by maintaining investments in liquid securities. Currently,
investments include primarily collateralized mortgage obligations, United States
Treasury obligations and federal agency and municipal securities. At December
31, 1998, the average maturity, based on contractual maturities, of the
Corporation's available for sale and held to maturity investment portfolios were
approximately 9.9 and 5.1 years, respectively.
COMPETITION. Commercial banking in North Carolina is extremely
competitive, due in large part to statewide and interstate branching and
banking. Currently, many of the Corporation's banking competitors are
significantly larger and have greater resources than the Corporation. The
Corporation continues to encounter significant competition from a number of
sources, including bank holding companies, commercial banks, thrift and savings
and loan institutions, credit unions, and other financial institutions and
financial intermediaries. Among commercial banks, Triangle Bank and Mecklenburg
compete in their market areas with some of the largest banking organizations in
the state, several of which have as many as 200 to 300 branches in North
Carolina and many billions in assets. The Banks also compete for
interest-bearing funds with a number of investment alternatives, including
brokerage firms, "money-market" mutual funds, insurance companies, government
and corporate bonds, and other securities. Competition with the Banks is not
limited to financial institutions based in North Carolina. The enactment of
federal legislation authorizing nationwide interstate banking has greatly
increased the size and financial resources of some of the Banks' competitors.
Consequently, many of the Banks' competitors have substantially higher lending
limits due to their greater total capitalization, and many perform functions for
their customers, such as trust services that the Banks do not offer. As a result
of the interstate banking legislation, the Banks' markets are open to future
penetration by banks located in other states thereby increasing competition.
The management of the Corporation believes banks compete in the
following areas: convenience of location, interest rates for deposits and loans,
types of accounts and services offered, and quality of the personnel providing
services. The Banks endeavor to provide quality service by operating
centrally-located branches, staffed with experienced bank personnel. The Banks
offer a variety of accounts and loans comparable to those offered by other
banks. The Banks also rely on the personal contacts of its officers and
directors to attract depositors and borrowers in its target market of small to
medium-sized businesses.
EMPLOYEES. At December 31, 1998, the Corporation's subsidiaries
employed 590 full-time employees and 185 part-time employees. None of its
employees are covered by a collective bargaining agreement. The Corporation
believes its subsidiaries' relationships with their employees to be good.
The Corporation has a 401(k) plan for substantially all of its
and its subsidiaries' employees. The Corporation has an Omnibus Stock Plan which
provides qualified incentive stock options for key officers and employees of the
Corporation and its subsidiaries, and non-qualified stock options for directors
and certain officers of the Corporation and its subsidiaries. The Omnibus Stock
Plan also enables the Corporation to offer restricted stock awards and other
forms of stock compensation, if desired by the Corporation. The Corporation also
has an employee stock purchase plan which allows employees to purchase the
Corporation's stock at a 15% discount from the stock's fair market value through
payroll deductions. The Corporation also has change of control agreements and
employment agreements that contain "change of control" provisions with certain
officers that would benefit such officers in the event of a change of control of
the Corporation and its subsidiaries.
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PROPERTIES
The Corporation's executive offices are located at 4300 Glenwood
Avenue, Raleigh, North Carolina. The Corporation owns the four-story, 27,000
square foot building which was purchased and renovated by the Corporation in
1996. The executive office building also serves as the headquarters of Triangle
Bank and houses a branch of Triangle Bank. Triangle Bank operates 69 branch
locations of which 27 are either leased buildings or property on which Triangle
Bank has branch offices. Mecklenburg's headquarters office is located at 2000
Randolph Road, Charlotte, North Carolina, which building is a two-story, 10,000
square foot building owned by Mecklenburg. Mecklenburg operates two other
branches in Charlotte, both of which are owned by Mecklenburg. Coastal is
headquartered at 2820 East Tenth Street, Greenville, North Carolina, in a
one-story, 5,000 square foot building. Coastal leases all of its offices. In
addition, the Corporation owns two buildings, with an aggregate of approximately
28,000 square feet, which house its operations center in Selma, North Carolina.
The Corporation believes its facilities and those of its subsidiaries are
adequate for their business needs.
GOVERNMENTAL REGULATION
GENERAL. Holding companies, banks and many of their nonbank
affiliates are extensively regulated under both federal and state law. The
following is a brief summary of certain statutes, rules and regulations
affecting the Corporation and the Banks. This summary is qualified in its
entirety by reference to the particular statutory and regulatory provisions
referred to below and is not intended to be an exhaustive description of the
statutes or regulations applicable to the Corporation's business. Supervision,
regulation and examination of the Corporation and the Banks by the bank
regulatory agencies are intended primarily for the protection of the Banks'
depositors rather than holders of the common stock of the Corporation.
In 1994, Congress adopted legislation which permits adequately
capitalized and managed bank holding companies to acquire control of a bank in
any state (the "Interstate Banking Law"). Existing state laws setting minimum
age restrictions on target banks can be retained, so long as the age requirement
does not exceed five years. Acquisitions will be subject to anti-trust
provisions that cap at 10% the portion of the United States' bank deposits a
single bank holding company may control, and cap at 30% the portion of a state's
deposits a single bank holding company may control. States have the authority to
waive the 30% cap.
Under the Interstate Banking Law, beginning on June 1, 1997,
banks have been permitted to merge with one another across state lines, subject
to concentration, capital and Community Reinvestment Act requirements and
regulatory approval. Only Texas and Montana have opted out of interstate
branching through legislation. A state can also choose to permit out-of-state
banks to open new branches within its borders. In addition, if a state chooses
to allow interstate acquisition of branches, then an out-of-state bank also may
acquire branches by merger.
Interstate branches that primarily siphon off deposits without
servicing a community's credit needs will be prohibited. If loans are less than
50% of the average of all institutions in the state, the branch will be reviewed
to see if it is meeting community credit needs. If it is not, the branch may be
closed and the bank may be restricted from opening a new branch in the state.
HOLDING COMPANY REGULATION
GENERAL. The Corporation is a holding company registered with the
Federal Reserve under the Bank Holding Company Act (the "BHC Act"). As such, the
Corporation and its subsidiaries are subject to the supervision, examination and
reporting requirements contained in the BHC Act and the regulation of the
Federal Reserve. The BHC Act requires that a bank holding company obtain the
prior approval of the Federal Reserve before (i) acquiring direct or indirect
ownership or control of more than 5% of the voting shares of any bank, (ii)
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taking any action that causes a bank to become a subsidiary of the bank holding
company, (iii) acquiring all or substantially all of the assets of any bank, or
(iv) merging or consolidating with any other bank holding company.
The BHC Act generally prohibits a bank holding company, with
certain exceptions, from engaging in activities other than banking, or managing
or controlling banks or other permissible subsidiaries, and from acquiring or
retaining direct or indirect control of any company engaged in any activities
other than those activities determined by the Federal Reserve to be closely
related to banking, or managing or controlling banks, as to be a proper incident
thereto. In determining whether a particular activity is permissible, the
Federal Reserve must consider whether the performance of such an activity can
reasonably be expected to produce benefits to the public, such as greater
convenience, increased competition or gains in efficiency, that outweigh
possible adverse effects, such as undue concentration of resources, decreased or
unfair competition, conflicts of interest or unsound banking practices. For
example, factoring accounts receivable, acquiring or servicing loans, leasing
personal property, conducting discount securities brokerage activities,
performing certain data processing services, acting as agent or broker in
selling credit life insurance and certain other types of insurance underwriting
activities have all been determined by regulations of the Federal Reserve to be
permissible activities of bank holding companies. Pursuant to delegated
authority, the Federal Reserve Bank of Richmond has authority to approve certain
activities of holding companies within its district, including the Corporation,
provided the nature of the activity has been approved by the Federal Reserve.
Despite prior approval, the Federal Reserve has the power to order a holding
company or its subsidiaries to terminate any activity or to terminate its
ownership or control of any subsidiary when it has reasonable cause to believe
that continuation of such activity or such ownership or control constitutes a
serious risk to the financial safety, soundness or stability of any bank
subsidiary of that bank holding company.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve on any extensions of credit to the
bank holding company or any of its subsidiaries, investments in the stock or
securities thereof and the acceptance of such stock or securities as collateral
for loans to any borrower. A bank holding company and its subsidiaries are also
prevented from engaging in certain tie-in arrangements in connection with any
extension of credit, lease or sale of property or furnishing of services.
The Federal Reserve may issue cease and desist orders against
bank holding companies and non-bank subsidiaries to stop actions believed to
present a serious threat to a subsidiary bank. The Federal Reserve also
regulates certain debt obligations, changes in control of bank holding companies
and capital requirements.
Under the provisions of the North Carolina law, the Holding
Company is registered with and subject to supervision by the North Carolina
Commissioner of Banks (the "Commissioner").
CAPITAL REQUIREMENTS. The Federal Reserve has established
risk-based capital guidelines for bank holding companies and state member banks
based on the capital framework for international banking organizations developed
by the Basle Committee on Banking Regulations and Supervisory Practices. The
minimum standard for the ratio of capital to risk-weighted assets (including
certain off balance sheet obligations, such as standby letters of credit) is 8%.
At least half of this capital must consist of common equity, retained earnings
and a limited amount of perpetual preferred stock, less certain goodwill items
("Tier I capital"). The remainder ("Tier 2 capital") may consist of a limited
amount of other preferred stock, subordinated debt and a limited amount of loan
loss reserves.
The Federal Reserve also has adopted a minimum (leverage) ratio
of Tier 1 capital to total assets of 4%. The 4% Tier 1 capital to total assets
ratio constitutes the leverage standard for bank holding companies and state
member banks, and will be used in conjunction with the risk-based ratio in
determining the overall capital adequacy of banking organizations. In proposing
such standards, the Federal Reserve emphasized that in
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all cases the suggested standards are supervisory minimums and that an
institution would be permitted to maintain such minimum levels of capital only
if it were a strong banking organization, rated composite one under the CAMEL
rating system for banks or the BOPEC rating system for bank holding companies.
The Federal Reserve noted that most expansion-oriented banking organizations
have maintained leverage capital ratios of between 4% and 5% of total assets,
and it is likely that these ratios will be applied to the Corporation. At
December 31, 1998, the Corporation had not been advised by the Federal Reserve
of a minimum leverage capital ratio requirement specifically applicable to it.
As of December 31, 1998 the Corporation had Tier I risk-adjusted,
total regulatory capital and leverage capital of approximately 10.2%, 11.4% and
7.9%, respectively, all in excess of the minimum requirements.
BANK REGULATION
The Banks are subject to numerous state and federal statutes and
regulations that affect their business, activities, and operations, and are
supervised and examined by the Commissioner and the Federal Reserve. The Federal
Reserve and the Commissioner regularly examine the operations of banks over
which they exercise jurisdiction. They have the authority to approve or
disapprove the establishment of branches, mergers, consolidations, and other
similar corporate actions, and to prevent the continuance or development of
unsafe or unsound banking practices and other violations of law. The Federal
Reserve and the Commissioner regulate and monitor all areas of the operations of
banks and their subsidiaries, including loans, mortgages, issuances of
securities, capital adequacy, loss reserves, and compliance with the CRA and
other laws and regulations. Interest and certain other charges collected and
contracted for by the Banks are also subject to state usury laws and certain
federal laws concerning interest rates.
The great majority of the deposit accounts of the Banks are
insured by the BIF of the FDIC up to a maximum of $100,000 per insured
depositor. At December 31, 1998, approximately $32 million of Mecklenburg's
deposits were insured by the SAIF as those deposits were acquired by Mecklenburg
from a SAIF-insured savings bank and approximately $266 million of Triangle
Bank's deposits were insured by the SAIF due to Triangle Bank's acquisition of
United Federal in September 1998. The FDIC issues regulations and conducts
periodic examinations, requires the filing of reports, and generally supervises
the operations of its insured banks. This supervision and regulation is intended
primarily for the protection of depositors. Any insured bank that is not
operated in accordance with or does not conform to FDIC regulations, policies,
and directives may be sanctioned for noncompliance. Civil and criminal
proceedings may be instituted against any insured bank or any director, officer,
or employee of such bank for the violation of applicable laws and regulations,
breaches of fiduciary duties, or engaging in any unsafe or unsound practice. The
FDIC has the authority to terminate insurance of accounts pursuant to procedures
established for that purpose.
Although the Corporation is not subject to any direct legal or
regulatory restrictions on dividends (other than the requirements under the
North Carolina corporation laws that a distribution may not be made if, after
giving effect to it, the corporation would not be able to pay its debts as they
become due in the usual course of business or the corporation's total assets
would be less than its liabilities), the Corporation's ability to pay cash
dividends is dependent upon the amount of dividends paid by its subsidiaries.
The ability of the Banks to pay dividends to the Corporation is subject to
statutory and regulatory restrictions on the payment of cash dividends,
including the requirement under the North Carolina banking laws that cash
dividends be paid only out of undivided profits and only if the bank has surplus
of a specified level. Federal bank regulatory agencies also have the general
authority to limit the dividends paid by insured banks and bank holding
companies if such payment is deemed to constitute an unsafe and unsound
practice.
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Like the Corporation, the Banks are required by federal
regulations to maintain certain minimum capital levels. The levels required of
the Banks are the same as required for the Corporation. At December 31, 1998,
Triangle Bank had Tier I risk-adjusted, total regulatory capital and leverage
capital of approximately 9.4%, 10.6% and 7.3%, respectively, all in excess of
the minimum requirements. Similarly, Mecklenburg had Tier I risk-adjusted, total
regulatory capital and leverage capital of approximately 12.1%, 13.1% and 9.5%,
respectively, all in excess of the minimum requirements.
The Banks are subject to insurance assessments imposed by the
FDIC. Effective January 1, 1997, the FDIC adopted a risk-based assessment
schedule providing for annual assessment rates ranging from 0% to .27% of an
institution's average assessment base, applicable to institutions insured by
both the BIF and the SAIF. The actual assessment to be paid by each insured
institution is based on the institution's assessment risk classification, which
is based on whether the institution is considered "well capitalized",
"adequately capitalized" or "under capitalized", as such terms are defined in
the applicable federal regulations, and whether the institution is considered by
its supervisory agency to be financially sound or to have supervisory concerns.
The FDIC also is authorized to impose one or more special assessments in any
amount deemed necessary to enable repayment of amounts borrowed by the FDIC from
the United States Treasury Department and, beginning in 1997, all banks pay
additional annual assessments at the rate of .013% of their average assessment
base. In recent years, there have been various proposals to merge the SAIF and
the BIF insurance funds of the FDIC. One of the principal issues is the amount
of additional funds needed to recapitalize the SAIF prior to the merger. In
September 1996, a one-time special assessment was levied on SAIF-insured
deposits (including such deposits held by commercial banks) at the rate of .657%
on all SAIF-insured deposits held as of March 31, 1995; however, Mecklenburg was
not assessed the special assessment on its SAIF-insured deposits due to a
regulatory exemption obtained by Essex Savings Bank, FSB from whom Mecklenburg
obtained the deposits. It cannot be predicted as to whether any further
assessments will be made on BIF-insured and SAIF-insured deposits. At December
31, 1998, premium rates remained at their 1997 level. There can be no assurance
as to whether insurance premiums will remain at their current levels in the
foreseeable future or whether the BIF and the SAIF insurance funds will merge or
remain separate.
Banks are subject to the Community Reinvestment Act of 1977
("CRA"). Under the CRA, the appropriate federal bank regulatory agency is
required, in connection with its examination of a bank, to assess such bank's
record in meeting the credit needs of the community served by that bank,
including low and moderate-income neighborhoods. The regulatory agency's
assessment of the bank's record is made available to the public. Further, such
assessment is required of any bank which has applied to (i) charter a national
bank, (ii) obtain deposit insurance coverage for a newly chartered institution,
(iii) establish a new branch office that will accept deposits, (iv) relocate an
office, or (v) merge or consolidate with, or acquire the assets or assume the
liabilities of, a federally regulated financial institution. In the case of a
bank holding company applying for approval to acquire a bank or other bank
holding company, the Federal Reserve will assess the record of each subsidiary
bank of the applicant bank holding company, and such records may be the basis
for denying the application.
MONETARY POLICY AND ECONOMIC CONTROLS
The Corporation and the Banks are directly affected by government
policy and by regulatory measures affecting the banking industry in general. Of
primary importance is the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"), whose actions directly affect the money supply and, in
general, affect banks' lending abilities by increasing or decreasing the cost
and availability of funds to banks. The Federal Reserve Board regulates the
availability of bank credit in order to combat recession and curb inflationary
pressures in the economy by open market operations in United States government
securities, changes in the discount rate on member bank borrowings, changes in
reserve requirements against bank deposits, and limitations on interest rates
that banks may pay on time and savings deposits.
9
<PAGE>
Deregulation of interest rates paid by banks on deposits and the
types of deposits that may be offered by banks have eliminated minimum balance
requirements and rate ceilings on various types of time deposit accounts. The
effect of these specific actions and, in general, the deregulation of deposit
interest rates have generally increased banks' cost of funds and made them more
sensitive to fluctuations in money market rates. In view of the changing
conditions in the national economy and money markets, as well as the effect of
actions by monetary and fiscal authorities, no prediction can be made as to
possible future changes in interest rates, deposit levels, loan demand, or the
business and earnings of the Banks or the Corporation. As a result, banks,
including the Banks, are facing a significant challenge to maintain acceptable
net interest margins.
GUIDE 3 DISCLOSURES
The following schedule is provided as an index to the disclosure
requirements under Guide 3 of the Guides for the Preparation and Filing of
Reports and Registration Statements under the Securities Exchange Act of 1934.
<TABLE>
<CAPTION>
INDEX TO REFERENCE TO
GUIDE 3 FORM 10-K PAGE
DISCLOSURES TABLE NUMBER
<S> <C> <C>
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
(A) Average Balance Sheets 1 12
(B) Net Income Analysis 1 12
(C) Net Interest Income and Volume/Rate Variance 2 13
II. SECURITIES PORTFOLIO
(A) Book Value of Securities 4 19
(B) Securities by Maturities 4 20, 21
(C) This item is not applicable since no items exist that related to this
disclosure
III. LOAN AND LEASE PORTFOLIO
(A) Types of Loans and Leases 3 14
(B) Maturities and Sensitivity of Loans to Changes in Interest Rates 3 15
Risk Elements
(C) Management's policy is to discontinue the accrual of interest and reverse
unpaid interest when management deems that collection of additional interest
is doubtful.
(D) This item is not applicable since no items existed from inception through
December 31, 1998 that related to the disclosure of this item.
IV. SUMMARY OF LOAN LOSS EXPERIENCE
(A) Analysis of Allowance for Loan Losses 3 16
(B) Allocation of the Allowance for Loan Losses 3 17
V. DEPOSITS
(A) Average Deposits and Rates paid 1 12
10
<PAGE>
(B) Items B, C and E are not applicable
(C) Outstanding balances and maturities of certificates of 5 22
deposits in amounts of $100,00 or more as of December 31, 1998
VI. RETURN ON EQUITY AND ASSETS 7 24
VII. SHORT-TERM BORROWINGS 6 23
VIII. INTEREST SENSITIVITY TABLE 8 25
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
TRIANGLE BANCORP INC. Table 1
INTEREST INCOME AND AVERAGE BALANCES
(IN THOUSANDS)
1998 1997
--------------------------------- -----------------------------------
Interest Interest
Average Income/ Average Average Income/ Average
Balance Expense Yield/Rate Balance Expense Yield/Rate
--------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Taxable investment securities and
interest bearing due from banks $ 58,636 $ 2,804 4.78% $ 167,463 $ 9,004 5.38%
Non-taxable investment securities
and interest bearing due from banks* 488,675 32,766 6.71% 305,976 22,293 7.29%
Federal funds sold and securities purchased
with agreements to resell 1,180 62 5.25% 3,032 165 5.44%
Gross loans and leases** 1,321,526 121,640 9.20% 1,171,539 109,432 9.34%
Allowance for loan and lease losses (18,526) - 0.00% (15,977) - 0.00%
--------------------------------- -----------------------------------
Total Interest Earning Assets 1,851,491 157,272 8.49% 1,632,033 140,894 8.63%
--------------------------------- -----------------------------------
NONINTEREST EARNING ASSETS
Cash and due from banks 49,951 43,489
Premises and equipment, Net 41,206 36,321
Interest receivable and other assets 69,491 46,130
Unrealized gain (loss) on
securities available for sale (2,385) 175
--------------
-------------
Total Noninterest Earning Assets 158,263 126,115
------------- --------------
TOTAL AVERAGE ASSETS $2,009,754 $ 1,758,148
============= ==============
INTEREST BEARING LIABILITIES:
Demand deposits $ 186,970 4,151 2.22% $ 187,496 4,230 2.26%
Money market and savings deposits 289,249 9,844 3.40% 240,885 9,270 3.85%
Time deposits 906,763 50,756 5.60% 842,312 47,858 5.68%
Borrowed funds 235,937 13,947 5.91% 141,787 8,355 5.89%
--------------------------------- -----------------------------------
Total Interest Bearing Liabilities 1,618,919 78,698 4.86% 1,412,480 69,713 4.94%
--------------------------------- -----------------------------------
NONINTEREST BEARING LIABILITIES:
Demand deposits 200,135 169,220
Custodial deposits 8,886 9,060
Interest payable and other 22,193 21,438
------------- --------------
Total Noninterest Bearing Liabilities 231,214 199,718
------------- --------------
Total Liabilities 1,850,133 1,612,198
Shareholders' Equity 159,621 145,950
------------- --------------
Total Liabilities and
Shareholders' Equity $2,009,754 $ 1,758,148
============= ==============
Interest Rate Spread 3.63% 3.69%
========== ===========
Taxable Equivalent Net Interest Income and
Net Yield on Interest Earning Assets $ 78,574 4.24% $ 71,181 4.36%
==================== =====================
<CAPTION>
1996
----------------------------------
Interest
Average Income/ Average
Balance Expense Yield/Rate
----------------------------------
<S> <C> <C> <C>
INTEREST EARNING ASSETS:
Taxable investment securities and
interest bearing due from banks $ 259,680 $ 14,833 5.71%
Non-taxable investment securities
and interest bearing due from banks* 213,129 15,772 7.40%
Federal funds sold and securities purchased
with agreements to resell 5,606 306 5.46%
Gross loans and leases** 952,620 88,734 9.31%
Allowance for loan and lease losses (14,396) - 0.00%
----------------------------------
----------------------------------
Total Interest Earning Assets 1,416,639 119,645 8.45%
----------------------------------
NONINTEREST EARNING ASSETS
Cash and due from banks 41,119
Premises and equipment, Net 29,908
Interest receivable and other assets 40,544
Unrealized gain (loss) on
securities available for sale 518
--------------
Total Noninterest Earning Assets 112,089
--------------
TOTAL AVERAGE ASSETS $1,528,728
==============
INTEREST BEARING LIABILITIES:
Demand deposits $ 152,957 3,575 2.34%
Money market and savings deposits 209,336 7,246 3.46%
Time deposits 758,558 43,343 5.71%
Borrowed funds 103,093 5,621 5.45%
----------------------------------
Total Interest Bearing Liabilities 1,223,944 59,785 4.88%
----------------------------------
NONINTEREST BEARING LIABILITIES:
Demand deposits 149,022
Custodial deposits 4,636
Interest payable and other 20,187
--------------
Total Noninterest Bearing Liabilities 173,845
--------------
Total Liabilities 1,397,789
Shareholders' Equity 130,939
--------------
Total Liabilities and
Shareholders' Equity $1,528,728
==============
Interest Rate Spread 3.57%
==========
Taxable Equivalent Net Interest Income and
Net Yield on Interest Earning Assets $ 59,860 4.23%
====================
*Tax equivalent adjustment of $3,944, $2,791, and $1,802 made in 1998, 1997
and 1996, respectively. The effective tax rates used were 36% for federally
tax exempt amounts and 7.75% for state tax exempt amounts.
**Includes nonaccrual loans and loans held for sale.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
TRIANGLE BANCORP INC. Table 2
RATE/VOLUME VARIANCE ANALYSIS
(IN THOUSANDS)
1998 compared to 1997 1997 compared to 1996
Interest Interest
Income Income
Expense Volume Rate Expense Volume Rate
Variance Variance Variance Variance Variance Variance
------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Taxable investment securities and
interest bearing due from banks $(6,200) $(5,298) $ (902) $(5,829) $(5,002) $ (827)
Non-taxable investment securities
and interest bearing due from banks 10,473 12,391 (1,918) 6,521 6,768 (247)
Federal funds sold and securities purchased
with agreements to resell (103) (97) (6) (141) (140) (1)
Gross loans and leases 12,208 13,827 (1,619) 20,698 20,448 250
------------------------------- ------------------------------
Total Interest Earning Assets $ 16,378 $ 20,823 $(4,445) $ 21,249 $ 22,074 $ (825)
=============================== ==============================
INTEREST BEARING LIABILITIES:
Demand deposits $ (79) $ (12) $ (67) $ 655 $ 783 $ (128)
Money market and savings deposits 574 1,725 (1,151) 2,024 1,162 862
Time deposits 2,898 3,616 (718) 4,515 4,760 (245)
Borrowed funds 5,592 5,565 27 2,734 2,396 338
------------------------------- ------------------------------
Total Interest Bearing Liabilities $ 8,985 $ 10,894 $(1,909) $ 9,928 $ 9,101 $ 827
=============================== ==============================
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
TRIANGLE BANCORP, INC. Table 3
LOANS AND LEASES
(IN THOUSANDS)
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Analysis of loans and leases:
Commercial, financial and agricultural $218,737 $ 233,034 $ 209,798 $185,406 $171,575
Real estate, construction and land development 180,243 159,815 119,927 123,898 113,858
Real estate, mortgage 732,120 672,634 525,377 397,351 301,446
Real estate, equity lines of credit 95,539 82,320 57,111 44,244 36,198
Consumer loans and leases 152,792 140,754 105,214 95,449 75,999
Other 3,706 2,379 3,672 7,050 6,542
--------------------------------------------------------------
TOTAL $1,383,137 $1,290,936 $ 1,021,099 $853,398 $705,618
==============================================================
--------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
TRIANGLE BANCORP, INC. Table 3
ANALYSIS OF CERTAIN LOAN MATURITIES AT DECEMBER 31, 1998
(IN THOUSANDS)
Real Estate
Commercial Construction
Financial and Land
& Agricultural Development Total
<S> <C> <C> <C>
Due within one year $ 102,057 $ 133,153 $235,210
Due after one year - five years
Fixed Rate 56,687 20,548 77,235
Variable Rate 46,870 16,938 63,808
------------ ------------- -----------
Total 103,557 37,486 141,043
------------ ------------- -----------
Due after five - ten years
Fixed Rate 4,923 4,887 9,810
Variable Rate 8,200 4,717 12,917
------------ ------------- -----------
Total 13,123 9,604 22,727
------------ ------------- -----------
Total $ 218,737 $ 180,243 $398,980
============ ============= ===========
------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
TRIANGLE BANCORP, INC. Table 3
RESERVE FOR LOAN AND LEASE LOSSES AND NONPERFORMING ASSETS
(IN THOUSANDS)
For the year ended December 31,
1998 1997 1996 1995 1994
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Beginning balance $ 17,797 $ 14,812 $ 13,738 $ 14,871 $ 17,033
Deduct charge-offs:
Commercial, financial and agricultural 2,056 1,665 1,040 1,295 1,659
Real estate, construction and land development - - - - 1,151
Real estate, mortgage - 43 249 383 193
Consumer loans and leases 1,700 2,144 695 633 782
Other 149 802 218 3 10
---------------------------------------------------
TOTAL 3,905 4,654 2,202 2,314 3,795
Add recoveries:
Commercial, financial and agricultural 269 995 594 789 211
Real estate, construction and land development - - - 7 12
Real estate, mortgage 31 52 68 136 195
Consumer loans and leases 237 199 152 218 109
Other 40 67 45 - -
---------------------------------------------------
TOTAL 577 1,313 859 1,150 527
---------------------------------------------------
Net charge-offs 3,328 3,341 1,343 1,164 3,268
Additions charged to operations 5,115 5,121 2,515 31 1,008
Provision for acquired loans and leases - 1,205 (98) - 98
Allowance acquired in mergers - - - - -
---------------------------------------------------
Ending balance $ 19,584 $ 17,797 $ 14,812 $ 13,738 $ 14,871
===================================================
Ratio of net charge-offs during the period to
average loans and leases outstanding
during the period 0.25% 0.29% 0.14% 0.15% 0.50%
------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Table 3
TRIANGLE BANCORP, INC.
ALLOCATION OF THE RESERVE FOR LOAN AND LEASE LOSSES
AT DECEMBER 31,
(DOLLARS IN THOUSANDS)
----------------------------------------------------------------------------------------------------
1998 1997 1996
----------------------------------------------------------------------------------------------------
% of loans in % of loans in % of loans in
each category each category each category
Amount to Total Loans Amount to Total Loans Amount to Total Loans
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial, Financial and
Agricultural $ 5,659 15.81% $ 6,004 18.05% $ 4,746 20.55%
Real Estate, Construction
and Land Development 808 13.03% 823 12.38% 376 11.74%
Real Estate, Mortgage 4,200 52.93% 3,245 52.10% 2,456 51.45%
Real Estate, Equity Lines
of Credit 1,085 6.91% 650 6.38% 402 5.59%
Consumer Loans and Leases 2,613 11.05% 2,620 10.91% 3,439 10.30%
Other 63 0.27% 829 0.18% 530 0.37%
Unallocated 5,156 0.00% 3,626 0.00% 2,863 0.00%
----------------------------------------------------------------------------------------------------
TOTAL $ 19,584 100.00% $ 17,797 100.00% $ 14,812 100.00%
====================================================================================================
<CAPTION>
--------------------------------------------------------------------
1995 1994
--------------------------------------------------------------------
% of loans in % of loans in
each category each category
Amount to Total Loans Amount to Total Loans
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, Financial and
Agricultural $ 4,382 21.73% $ 3,924 24.31%
Real Estate, Construction
and Land Development 495 14.52% 852 16.14%
Real Estate, Mortgage 2,779 46.56% 4,447 42.72%
Real Estate, Equity Lines
of Credit 340 5.18% 274 5.12%
Consumer Loans and Leases 3,491 11.18% 3,643 10.77%
Other 78 0.83% 25 0.94%
Unallocated 2,173 0.00% 1,706 0.00%
------------------------------------------------------------------
TOTAL $ 13,738 100.00% $ 14,871 100.00%
==================================================================
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
TRIANGLE BANCORP, INC. Table 3
ANALYSIS OF NONPERFORMING ASSETS
(IN THOUSANDS)
As of December 31,
1998 1997 1996 1995 1994
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $4,945 $2,497 $3,655 $3,015 $3,044
Loans contractually past due 90 or
or more days as to principal or interest 5,682 6,078 3,591 2,865 2,729
Foreclosed assets 2,101 594 587 707 1,065
============================================================
Total $ 12,728 $9,169 $7,833 $6,587 $6,838
============================================================
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
TRIANGLE BANCORP, INC. Table 4
SECURITIES
(IN THOUSANDS)
December 31,
-------------------------------------------------------------------------
1998 1998 1997 1997
AVAILABLE FOR SALE Book Value Market Value Book Value Market Value
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 55,276 $ 55,839 $ 113,277 $ 114,072
U.S. Agency obligations 92,598 92,682 22,263 22,364
Obligations of state and political subdivisions 69,434 71,077 35,824 36,762
Collateralized mortgage obligations and
mortgage-backed securities 237,029 228,384 251,799 250,522
FHLB, Federal Reserve and Federal
Home Loan Mortgage Corporation Stock 17,222 17,153 22,249 22,269
Corporate securities 16,196 15,956 - -
Other investments 1,065 1,064 374 374
=========================================================================
Total $ 488,820 $ 482,155 $ 445,786 $ 446,363
=========================================================================
HELD TO MATURITY
U.S. Agency obligations $ 62,232 $ 63,307 $ 72,128 $ 72,881
Obligations of state and political subdivisions 12,043 12,594 12,998 13,405
Collateralized mortgage obligations and
mortgage-backed securities 6,416 6,423 15,287 15,420
Other investments 447 466 253 273
=========================================================================
Total $ 81,138 $ 82,790 $ 100,666 $ 101,979
=========================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
TRIANGLE BANCORP, INC. Table 4
SECURITIES
(IN THOUSANDS)
WEIGHTED AVERAGE YIELDS AT DECEMBER 31, 1998
Due in One After
AVAILABLE FOR SALE Year or less 1 - 5 years 5 - 10 years 10 years Total
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities 6.12% 6.14% 6.12%
U.S. Agency oligations 5.12% 5.42% 6.81% 5.26%
Obligations of state and political subdivisions 5.12% 4.76% 4.77%
Mortgage-backed securities* 5.72% 5.53% 5.56%
Collateralized mortgage obligations* 6.40% 6.09% 4.61% 4.83%
Other investments 5.12% 5.50% 5.35%
----------------------------------------------------------------
Total 5.54% 5.69% 6.02% 4.77% 5.12%
----------------------------------------------------------------
HELD TO MATURITY
U.S. Agency oligations 6.06% 6.25% 6.19%
Obligations of state and political subdivisions 5.15% 5.09% 5.37% 5.66% 5.35%
Mortgage-backed securities* 5.97% 5.00% 5.88% 6.93% 5.75%
Collateralized mortgage obligations* 5.99% 5.58% 5.85%
Other investments 8.81% 8.81%
----------------------------------------------------------------
Total 6.04% 6.31% 5.60% 5.78% 6.05%
----------------------------------------------------------------
* Analysis performed using contractual maturities.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
TRIANGLE BANCORP, INC. Table 4
SECURITIES
(IN THOUSANDS)
Book Value as of December 31, 1998
-------------------------------------------------------------------------
Due in One After No stated
AVAILABLE FOR SALE Year or less 1 - 5 years 5 - 10 years 10 years maturity
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 44,131 $11,145 $ - $ -
U.S. Agency obligations 55,951 35,647 1,000 -
Obligations of state and political subdivisions - - 1,698 67,736
Mortgage-backed securities* - - 3,084 23,368
Collateralized mortgage obligations* - 6,062 25,171 179,344
FHLB, Federal Reserve and Federal
Home Loan Mortgage Corporation Stock - - - - 17,222
Corporate securities 6,201 - - 9,995 -
Other investments - - - - 1,065
=========================================================================
Total $ 106,283 $52,854 $ 30,953 $ 280,443 $ 18,287
=========================================================================
HELD TO MATURITY
U.S. Agency obligations $ 19,402 $42,830 $ - $ - $ -
Obligations of state and political subdivisions 460 3,392 5,371 2,820 -
Mortgage-backed securities* 237 1,085 1,596 471 -
Collateralized mortgage obligations* - - 2,021 1,006 -
Other investments - 447 - - -
=========================================================================
Total $ 20,099 $47,754 $ 8,988 $ 4,297 $ -
=========================================================================
<CAPTION>
Book Value
as of
December 31, 1998
-----------
Average
Market Maturity
AVAILABLE FOR SALE Total Value in Years
--------------------------------------
<S> <C> <C> <C>
U.S. Treasury securities $ 55,276 $ 55,839 1.07
U.S. Agency obligations 92,598 92,682 2.76
Obligations of state and political subdivisions 69,434 71,077 11.08
Mortgage-backed securities* 26,452 26,413 14.05
Collateralized mortgage obligations* 210,577 201,971 11.62
FHLB, Federal Reserve and Federal
Home Loan Mortgage Corporation Stock 17,222 17,153 -
Corporate securities 16,196 15,956 18.68
Other investments 1,065 1,064 -
======================================
Total $ 488,820 $ 482,155 9.88
======================================
HELD TO MATURITY
U.S. Agency obligations $ 62,232 $ 63,307 1.03
Obligations of state and political subdivisions 12,043 12,594 5.33
Mortgage-backed securities* 3,389 3,393 6.20
Collateralized mortgage obligations* 3,027 3,030 13.67
Other investments 447 466 2.26
======================================
Total $ 81,138 $ 82,790 5.13
======================================
* Analysis performed using contractual maturities.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
TRIANGLE BANCORP, INC. Table 5
LARGE TIME DEPOSIT MATURITIES
(IN THOUSANDS)
Analysis of Time Deposits of $100,000 or more at December 31, 1998:
<S> <C>
Remaining maturity of three months or less $ 95,503
Remaining maturity of over three months through twelve months 103,568
Remaining maturity of over twelve months 18,527
---------------
Total time deposits of $100,000 or more $217,598
===============
- --------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
TRIANGLE BANCORP, INC. Table 6
SHORT-TERM DEBT
(DOLLARS IN THOUSANDS)
1998
-------------------------------------------------------------------------------
Securities
Federal Sold Under Reverse TT & L
Funds Agreement to Repurchase Master Note
Purchased Repurchase Agreement Note Option Combined
<S> <C> <C> <C> <C> <C> <C>
End of year:
Amount outstanding $67,000 $ 18,583 $ 44,667 $28,386 $ 344 $ 158,980
Weighted average interest rate 5.73% 4.05% 4.87% 4.26% 1.28% 5.02%
Maximum amount outstanding $67,000 $ 22,028 $ 44,667 $28,386 $ 400 $ 162,481
at any month end
Averages:
Average outstanding during year $21,874 $ 17,980 $ 7,517 $18,308 $ 365 $ 66,044
Weighted average interest rate 5.47% 4.48% 4.92% 4.44% 1.20% 4.83%
during the year
<CAPTION>
1997
----------------------------------------------------------------
Securities
Federal Sold Under TT & L
Funds Agreement to Master Note
Purchased Repurchase Note Option Combined
<S> <C> <C> <C> <C> <C>
End of year:
Amount outstanding $24,800 $ 20,602 $15,704 $ 400 $61,506
Weighted average interest rate 5.85% 4.56% 4.80% 5.27% 5.15%
Maximum amount outstanding $30,800 $ 25,360 $15,704 $ 400 $72,264
at any month end
Averages:
Average outstanding during year $ 3,503 $ 19,971 $ 6,884 $ 288 $30,646
Weighted average interest rate 5.76% 4.61% 4.70% 4.24% 4.76%
during the year
<CAPTION>
1996
-----------------------------------------------------
Securities
Federal Sold Under TT & L
Funds Agreement to Note
Purchased Repurchase Option Combined
<S> <C> <C> <C> <C>
End of year:
Amount outstanding $ 3,900 $ 34,738 $ 342 $38,980
Weighted average interest rate 7.00% 4.90% 5.15% 5.11%
Maximum amount outstanding $ 35,745 $ 39,466 $ 400 $75,611
at any month end
Averages:
Average outstanding during year $ 10,876 $ 31,502 $ 395 $42,773
Weighted average interest rate 5.74% 5.17% 3.15% 5.30%
during the year
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
TRIANGLE BANCORP, INC. Table 7
SELECTED KEY FINANCIAL RATIOS
For the year ended December 31,
1998 1997 1996
---------------------------------------------
<S> <C> <C> <C>
Return on Average Assets 1.09% 1.11% 0.97%
Return on Average Equity 13.69% 13.38% 11.30%
Dividends Paid ratio 38.10% 32.00% 30.00%
Average Equity to Average Assets 7.94% 8.30% 8.57%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
TRIANGLE BANCORP Table 8
INTEREST SENSITIVITY
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
0 - 3 4 to 12 1 to 5 Over 5
Balance Months Months Years Years
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Federal funds sold $ 911 $ 911 $ - $ - $ -
Securities 563,293 53,046 73,713 100,837 335,697
Loans and leases, net 1,363,553 577,823 92,634 474,600 218,496
-----------------------------------------------------------------------
Earning assets 1,927,757 631,780 166,347 575,437 554,193
-----------------------------------------------------------------------
Total assets $ 2,123,084
================
Interest bearing demand deposits $ 201,042 80,417 - 80,417 40,208
Savings deposits 74,778 - - 59,822 14,956
Money market account deposits 218,874 - 109,437 109,437 -
Time deposits 906,472 295,798 471,888 138,786 -
Short-term debt 158,980 158,980 - - -
FHLB advances 130,300 5,000 1,800 123,500 -
Corporation obligated
manditorily redeemable securities 19,952 - - - 19,952
-----------------------------------------------------------------------
Costing liabilities $ 1,710,398 $540,195 $ 583,125 $ 511,962 $75,116
-----------------------------------------------------------------------
GAP $ 91,585 $(416,778) $63,475 $ 479,077
-------------------------------------------------------
% of total assets 4.31% -19.63% 2.99% 22.57%
-------------------------------------------------------
Cumulative GAP $ 91,585 $(325,193) $(261,718) $ 217,359
-------------------------------------------------------
% of total assets 4.31% -15.32% -12.33% 10.24%
-------------------------------------------------------
Assumptions regarding non-maturing deposits follow the FDICIA section 305
maximums.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
MARKET RISK
As discussed in the Asset and Liability Management and Market Risk section of
the Management Discussion and Analysis, the Company's market risk relates to the
interest rate risk in herent in its lending and deposit taking activities. The
Banks use a model to simulate interest movements and the effect such movements
would have on the market value of portfolio equity. The market value of
portfolio equity is the present value of expected cash flows from assets,
liabilities and off balance sheet contracts using current market discount rates.
In executing the model, assumptions, which may or may not actually occur in
rapid interest rate changes, are used. The assumptions related to non-maturing
deposits are based on the FDICIA 305 maximum maturities. Assumptions regarding
expected cash flows are based on the individual maturities of the Banks'
securities, loans, deposits and other borrowings.
The table below illustrates the effect of interest rate movements, both up and
down, of 100 and 200 basis points for each of the Banks.
- --------------------------------------------------------------------------------
December 31, 1998
Market Value
of Portfolio
Equity
(In thousands)
Change from
Base
$ $ %
--------------------------------------------
TRIANGLE BANK
Up 200 163,479 14,592 9.80%
Up 100 156,211 7,324 4.92%
Base 148,887 - 0.00%
Down 100 141,542 (7,345) -4.93%
Down 200 134,219 (14,668) -9.85%
BANK OF MECKLENBURG
Up 200 13,089 2,228 1.50%
Up 100 11,932 1,071 0.72%
Base 10,861 - 0.00%
Down 100 9,913 (948) -0.64%
Down 200 9,139 (1,722) -1.16%
- --------------------------------------------------------------------------------
26
<PAGE>
ITEM 2. PROPERTIES
See Item 1. Description of Business-Properties.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending to which the
Corporation or its direct or indirect subsidiaries is a party or of which any of
their property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the Corporation's shareholders in
the fourth quarter of 1998.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The stock price and shareholder data appear on page 29 of the
Annual Report to Shareholders. Restrictions on paying dividends
are described in Item 1 on Form 10-K under the heading "Bank
Regulation".
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data appears on page 1 of the
Annual Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and
results of operations for the years ended December 31, 1998 and
December 31, 1997 appears on pages 16 through 23 of the Annual
Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements, together with the report
thereon of PricewaterhouseCoopers LLP dated January 19, 1999,
appears on pages FS-1 through FS-32 of this Annual Report on Form
10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
No changes in accountants or disagreements on accounting or
financial disclosure occurred in the period from January 1, 1997
through the date hereof.
27
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained under the captions "Section 16(a)
Beneficial Ownership Reporting Compliance", "Proposal 1. Election
of Directors", "Incumbent Directors", "Director Relationships",
and "Executive Officers" in the Proxy Statement is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the captions "Director
Compensation", "Compensation Committee Report", "Compensation
Committee Interlocks and Insider Participation", "Executive
Compensation" and "Performance Graph" in the Proxy Statement is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the caption "Beneficial Ownership
of Voting Securities" in the Proxy Statement is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the captions "Indebtedness of
Management" and "Transactions with Management" in the Proxy
Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
<TABLE>
<CAPTION>
<S> <C>
Financial Statements:
Report of Independent Accounts......................................FS-1
Consolidated Balance Sheets as of
December 31, 1998 and 1997..........................................FS-2
Consolidated Statements of Income
for the years ended December 31, 1998, 1997 and 1996................FS-3
Consolidated Statements of Changes in
Shareholders' Equity for the years ended
December 31, 1998, 1997 and 1996....................................FS-4
Consolidated Statements of Cash
Flows for the years ended December 31,
1998, 1997 and 1996.........................................FS-5 to FS-6
Notes to Consolidated Financial Statements.................FS-7 to FS-32
</TABLE>
28
<PAGE>
The following exhibits listed in accordance with the number assigned to
each in the Exhibit Table of Item 601 of Regulation S-K under the Securities Act
of 1933, as amended, are included in this Form 10-K.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
<S> <C>
3(a) Articles of Incorporation of Triangle Bancorp, Inc. as amended at the
meeting of shareholders on April 28, 1998
3(b) Bylaws of Triangle Bancorp, Inc. as amended at the special meeting
of shareholders on April 28, 1997 and by the Board of Directors on
January 27, 1998 (incorporated by reference to Exhibit 3(b) to the
Registrant's Form 10-K for the fiscal year ended December 31, 1997
as filed with the Commission on March 27, 1998)
4 Specimen of Common Stock Certificate of Triangle Bancorp, Inc.
(incorporated by reference to Exhibit (4) to the Registrant's Form 10-K
for the fiscal year ended December 31, 1997 as filed with the Commission
on March 27, 1998)
10(a) Triangle Bancorp, Inc. 1988 Incentive Stock Option Plan, as amended
on August 19, 1997 and on November 18, 1997 (incorporated by
reference to Exhibit 10(a) to the Registrant's Form 10-K for the
fiscal year ended December 31, 1997 as filed with the Commission on
March 27, 1998)
10(b) Triangle Bancorp, Inc. 1988 Non-Qualified Stock Option Plan, as
amended on August 19, 1997 and on November 18, 1997 (incorporated
by reference to Exhibit 10(b) to the Registrant's Form 10-K for the
fiscal year ended December 31, 1997 as filed with the Commission on
March 27, 1998)
10(c) Triangle Bancorp, Inc. 1998 Omnibus Stock Plan
10(d) Triangle Bancorp, Inc. Deferred Compensation Plan for Outside
Directors (incorporated by reference to Exhibit 10(c) to the
Registrant's Form 10-K for the fiscal year ended December 31, 1993
as filed with the Commission on March 31, 1994)
10(e) Triangle Bancorp, Inc. 1997 Deferred Compensation Plan for Outside
Directors (incorporated by reference to Exhibit 10(e) to the
Registrant's Form 10-K for the fiscal year ended December 31, 1997
as filed with the Commission on March 27, 1998)
10(f) Employment Agreement between Triangle Bancorp, Inc. and Michael S.
Patterson (incorporated by reference to Exhibit 10(a) to the
Registrant's Form 10-K for the fiscal year ended December 31, 1993 as
filed with the Commission on March 31, 1994)
29
<PAGE>
10(g) Deferred Compensation Agreement between Triangle Bancorp, Inc. and
Michael S. Patterson (incorporated by reference to Exhibit 10(g) to the
Registrant's Form S-4 (Registration No.33-86226) as declared effective
by the Commission on January 20, 1995)
10(h) Deferred Compensation Agreement between Triangle Bancorp, Inc. and
Debra L. Lee (incorporated by reference to Exhibit 10(h) to the
Registrant's Form S-4 (Registration No. 33-86226) as declared effective
by the Commission on January 20, 1995)
10(i) Split Dollar Insurance Agreement and Deferred Compensation Agreement
between Triangle Bancorp, Inc. and Michael S. Patterson (incorporated by
reference to Exhibit 10(n) to the Registrant's Form 10-K filed on March
31, 1996)
10(j) Change of Control Agreement among Triangle Bancorp, Inc., Triangle
Bank and Steven R. Ogburn (incorporated by reference to Exhibit
10(l) to the Registrant's Form 10-K for the fiscal year ended
December 31, 1997 as filed with the Commission on March 27, 1998)
10(k) Change of Control Agreement among Triangle Bancorp, Inc., Triangle
Bank and Debra L. Lee (incorporated by reference to Exhibit 10(m)
to the Registrant's Form 10-K for the fiscal year ended December
31, 1997 as filed with the Commission on March 27, 1998)
10(l) Employment Agreement between Triangle Bancorp, Inc. and Billy N. Quick,
Sr. (incorporated by reference to Exhibit 10(n) to the Registrant's Form
10-K for the fiscal year ended December 31, 1997 as filed with the
Commission on March 27, 1998)
10(m) Change of Control Agreement among Triangle Bancorp, Inc., Triangle
Bank and Edward O. Wessell (incorporated by reference to Exhibit
10(o) to the Registrant's Form 10-K for the fiscal year ended
December 31, 1997 as filed with the Commission on March 27, 1998)
10(n) Change of Control Agreement among Triangle Bancorp, Inc., Triangle Bank
and Robert E. Branch
10(o) Supplemental Employee Retirement Plan dated January 1, 1998 between
Triangle Bank and Michael S. Patterson (incorporated by reference
to Exhibit 10(p) to the Registrant's Form 10-K for the fiscal year
ended December 31, 1997 as filed with the Commission on March 27,
1998)
10(p) Form of Supplemental Employee Retirement Plan between Triangle Bank
and each of Debra L. Lee, Steven R. Ogburn and Edward O. Wessell
and Robert E. Branch (incorporated by reference to Exhibit 10(q) to
the Registrant's Form 10-K for the fiscal year ended December 31,
1997 as filed with the Commission on March 27, 1998)
30
<PAGE>
13 1998 Annual Report to Shareholders
21 Subsidiaries of Registrant
23 Consent of PricewaterhouseCoopers LLP
27 Financial Data Schedule for the year and quarter ended December 31, 1998
(b) Reports on Form -8K
</TABLE>
On March 11, 1998, a Form 8-K was filed to report the execution
of an Agreement and Plan of Reorganization and Merger with United Federal.
On March 20, 1998, a Form 8-K was filed to report the
authorization of the repurchase of up to 100,000 shares of Registrant's common
stock.
On June 17, 1998, a Form 8-K was filed to restate historical
financial information due to the acquisition of Guaranty State.
On August 10, 1998, a Form 8-K was filed to report an Amendment
to the Agreement and Plan of Reorganization and Merger with United Federal.
On September 2, 1998, a Form 8-K was filed to report an Amendment
to the Agreement and Plan of Reorganization and Merger with United Federal.
On September 30, 1998, a Form 8-K was filed to report the
completion of the acquisition of United Federal.
31
<PAGE>
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TRIANGLE BANCORP, INC.
By /s/ Michael S. Patterson
-----------------------------
Michael S. Patterson
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Michael S. Patterson President, Chief Executive Officer, March 16, 1999
--------------------------- Chairman and Director (Principal
Michael S. Patterson Executive Officer
/s/ Debra L. Lee Executive Vice President and March 16, 1999
--------------------------- Chief Financial Officer
Debra L. Lee (Principal Financial Officer)
/s/ Lisa F. Campbell Senior Vice President March 16, 1999
---------------------------- (Principal Accounting Officer)
Lisa F. Campbell
/s/ Carole S. Anders Director March 16, 1999
-----------------------------
Carole S. Anders
/s/ Charles H. Ashford, Jr. Director March 16, 1999
-----------------------------
Charles H. Ashford, Jr.
/s/ John A. Barker Director March 16, 1999
------------------------------
John A. Barker
/s/ Edwin B. Borden Director March 16, 1999
-------------------------------
Edwin B. Borden
32
<PAGE>
/s/ Robert E. Bryan, Jr. Director March 16, 1999
--------------------------------
Robert E. Bryan, Jr.
/s/ David T. Clancy Director March 16, 1999
---------------------------------
David T. Clancy
Director March 16, 1999
---------------------------------
N. Leo Daughtry
/s/ Willie S. Edwards Director March 16, 1999
---------------------------------
Willie S. Edwards
Director March 16, 1999
---------------------------------
James P. Godwin, Sr.
/s/ Robert L. Guthrie Director March 16, 1999
---------------------------------
Robert L. Guthrie
/s/ B. W. Harris, III Director March 16, 1999
---------------------------------
B. W. Harris, III
/s/ John B. Harris, Jr. Director March 16, 1999
---------------------------------
John B. Harris, Jr.
/s/ George W. Holt Director March 16, 1999
---------------------------------
George W. Holt
/s/ Earl Johnson, Jr. Director March 16, 1999
---------------------------------
Earl Johnson, Jr.
/s/ Michael A. Maxwell Director March 16, 1999
---------------------------------
Michael A. Maxwell
/s/ Wendell H. Murphy Director March 16, 1999
---------------------------------
Wendell H. Murphy
/s/ Patrick H. Pope Director March 16, 1999
---------------------------------
Patrick H. Pope
33
<PAGE>
/s/ William R. Pope Director March 16, 1999
---------------------------------
William R. Pope
/s/ Beverly B. Poston Director March 16, 1999
---------------------------------
Beverly B. Poston
/s/ Edythe M. Poyner Director March 16, 1999
---------------------------------
Edythe M. Poyner
/s/ Billy N. Quick, Sr. Director March 16, 1999
---------------------------------
Billy N. Quick, Sr.
/s/ J. Dal Snipes Director March 16, 1999
---------------------------------
J. Dal Snipes
/s/ Charles J. Stewart Director March 16, 1999
---------------------------------
Charles J. Stewart
/s/ N. Johnson Tilghman Director March 16, 1999
----------------------------------
N. Johnson Tilghman
/s/ Sydnor M. White, Jr. Director March 16, 1999
----------------------------------
Sydnor M. White, Jr.
/s/ J. Blount Williams Director March 16, 1999
----------------------------------
J. Blount Williams
</TABLE>
34
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
January 19, 1999
The Board of Directors and Shareholders
Triangle Bancorp, Inc. and Subsidiaries
Raleigh, North Carolina
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows present fairly, in all material respects, the financial position of
Triangle Bancorp, Inc. and subsidiaries at December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
FS-1
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1998 1997
----------- -----------
(in thousands, except share data)
<S> <C> <C>
ASSETS
Cash and due from banks $ 76,624 $ 59,938
Federal funds sold - 4,219
Interest-bearing deposits in banks 911 34,195
Securities available for sale 482,155 446,363
Securities held to maturity, estimated market value $82,790
in 1998 and $101,979 in 1997 81,138 100,666
Loans and leases, net 1,363,553 1,273,139
Premises and equipment, net 40,492 40,281
Interest receivable 16,468 15,687
Deferred income taxes 10,597 7,695
Intangible assets, net 24,207 27,688
Other assets 26,939 5,766
----------- -----------
Total assets $ 2,123,084 $ 2,015,637
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 224,732 $ 199,746
Interest-bearing demand 201,042 192,577
Savings and money market accounts 293,652 288,977
Large denomination certificates of deposit 217,598 156,536
Other time 688,874 712,404
----------- -----------
Total deposits 1,625,898 1,550,240
----------- -----------
Short-term debt 158,980 61,506
Federal Home Loan Bank of Atlanta advances 130,300 205,300
Corporation obligated mandatorily redeemable capital securities 19,952 19,951
Custodial accounts for loans serviced 7,243 5,197
Interest payable 8,292 9,380
Other liabilities 9,392 11,592
----------- -----------
Total liabilities 1,960,057 1,863,166
----------- -----------
Commitments and contingencies (Notes 15 and 17)
Shareholders' equity:
Common stock; no par value; 50,000,000 shares authorized;
25,183,597 shares and 24,839,775 shares issued and
outstanding in 1998 and 1997, respectively 86,549 84,886
Retained earnings 80,753 67,217
Accumulated other comprehensive income (loss) (4,275) 368
----------- -----------
Total shareholders' equity 163,027 152,471
----------- -----------
$ 2,123,084 $ 2,015,637
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
FS-2
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1998 1997 1996
---------- ---------- ----------
(in thousands, except per share data)
<S> <C> <C> <C>
Interest income:
Loans and fees on loans $ 121,640 $ 109,432 $ 88,734
Federal funds sold and securities purchased under
resale agreements 62 165 306
Securities 30,148 25,751 27,485
Deposits with other financial institutions 1,478 2,755 1,318
---------- ---------- ----------
Total interest income 153,328 138,103 117,843
---------- ---------- ----------
Interest expense:
Large denomination certificates of deposit 11,503 8,670 7,894
Other deposits 53,248 52,688 46,270
Borrowed funds 13,947 8,355 5,621
---------- ---------- ----------
Total interest expense 78,698 69,713 59,785
---------- ---------- ----------
Net interest income 74,630 68,390 58,058
Provision for loan and lease losses 5,115 5,121 2,515
---------- ---------- ----------
Net interest income after provision for loan and lease losses 69,515 63,269 55,543
---------- ---------- ----------
Noninterest income:
Service charges on deposit accounts 8,306 7,131 6,551
Other service charges, commissions and fees 3,669 2,559 2,500
Mortgage servicing fees, net of amortization 738 1,101 1,266
Net gain on sales of securities 1,671 1,389 1,142
Net gain on trading account securities - 681 -
Gain on sale of deposits - 2,000 558
Gain on sale of government loans 1,028 338 -
Gain on sale of mortgage loans 613 400 312
Investment commissions and fees 783 471 370
Other operating income 1,648 852 270
---------- ---------- ----------
Total noninterest income 18,456 16,922 12,969
---------- ---------- ----------
Noninterest expense:
Salaries and employee benefits 21,750 22,051 20,623
Occupancy expense 5,006 4,421 3,875
Equipment expense 4,700 3,540 3,140
Amortization of intangible assets 3,175 2,180 1,528
SAIF assessment - - 1,316
Merger expenses 4,373 2,651 494
Legal and professional fees 2,707 3,109 2,320
Other operating expense 13,185 12,173 11,580
---------- ---------- ----------
Total noninterest expense 54,896 50,125 44,876
---------- ---------- ----------
Income before income taxes 33,075 30,066 23,636
Income tax expense 11,217 10,540 8,840
Net income $ 21,858 $ 19,526 $ 14,796
========== ========== ==========
Basic earnings per share $ .87 $ .79 $ .62
========== ========== ==========
Diluted earnings per share $ .84 $ .76 $ .60
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
FS-3
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
ACCUMULATED
OTHER TOTAL
Common Stock RETAINED COMPREHENSIVE SHAREHOLDERS'
Shares Amount Earnings Income (Loss) Equity
---------- -------- -------- ---------- -----------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995, as previously
reported 20,644,336 $ 81,956 $ 23,354 $ 1,235 $ 106,545
Adjustment for pooling of interests 3,365,440 2,689 17,338 688 20,715
Balance, December 31, 1995 24,009,776 84,645 40,692 1,923 127,260
Net income - - 14,796 - 14,796
Other comprehensive loss - - - (1,526) (1,526)
-----------
Comprehensive income 13,270
Shares issued under stock plans 125,196 596 - - 596
Repurchased shares (28,350) (277) - - (277)
Cash payments for fractional shares (316) (3) - - (3)
Cash dividends paid ($.18 per share) - - (4,442) - (4,442)
---------- -------- -------- ---------- -----------
Balance, December 31, 1996 24,106,306 84,961 51,046 397 136,404
Adjustment for pooling of interests 487,500 40 2,894 - 2,934
Net income - - 19,526 - 19,526
Other comprehensive loss - - - (29) (29)
-----------
Comprehensive income 19,497
Shares issued under stock plans 426,569 2,332 - - 2,332
Repurchased shares (180,600) (2,732) - - (2,732)
Tax effect of nonqualified stock options - 285 - - 285
Cash dividends paid ($.25 per share) - - (6,249) - (6,249)
---------- -------- -------- ---------- -----------
Balance, December 31, 1997 24,839,775 84,886 67,217 368 152,471
Net income - - 21,858 - 21,858
Other comprehensive loss - - - (4,643) (4,643)
-----------
Comprehensive income 17,215
Shares issued under stock plans 462,190 3,084 - - 3,084
Repurchased shares (117,362) (2,217) - - (2,217)
Cash payments for fractional shares (1,006) (18) - - (18)
Tax effect of nonqualified stock options - 814 - - 814
Cash dividends paid ($.32 per share) - - (8,322) - (8,322)
---------- -------- -------- ---------- -----------
Balance, December 31, 1998 25,183,597 $ 86,549 $ 80,753 $ (4,275) $ 163,027
========== ======== ======== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
FS-4
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1998 1997 1996
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $21,858 $19,526 $14,796
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,975 5,966 4,615
Net accretion of discount on securities 2,933 1,344 704
Provision for loan and lease losses 5,115 5,121 2,515
Gain on sales of securities (1,671) (2,070) (1,142)
Gain on market valuation of loans held for sale - - (25)
(Gain) loss on sale of premises and equipment (202) (114) 239
Gain on sale of loans held for sale (1,641) (400) (312)
Gain on sale of deposits - (2,000) (558)
Net change in trading securities - 42,548 -
Loans held for sale:
Originations (49,155) (42,956) (60,606)
Sales 49,976 45,650 64,856
(Benefit) provision for deferred taxes (304) (871) 23
Gain on sales of foreclosed assets (30) (7) (14)
Changes in assets and liabilities:
Interest receivable (781) (2,159) (1,454)
Other assets (2,416) 377 146
Interest payable (1,088) (363) 277
Other liabilities (1,386) (37) (156)
-------- -------- --------
Net cash provided by operating activities 29,183 69,555 23,904
-------- -------- --------
Cash flows from investing activities:
Proceeds from maturity and principal paydowns of
securities available for sale 102,830 41,390 47,104
Proceeds from maturity and principal paydowns of
securities held to maturity 37,990 44,894 24,918
Proceeds from sales of securities available for sale 81,200 337,109 341,247
Proceeds from sales of securities held to maturity - - 10,645
Purchase of securities available for sale (224,659) (519,431) (435,224)
Purchase of securities held to maturity (22,128) (37,509) (43,796)
Purchase of bank owned life insurance (20,089) - -
Net increase in loans (94,709) (209,221) (166,474)
Net capital expenditures, premises and equipment (4,437) (6,998) (9,710)
Proceeds from sales of foreclosed assets 1,226 350 592
Proceeds from sale of premises and equipment 752 266 575
Cost of loan servicing rights (681) (924) (269)
Net cash acquired in acquisitions and divestitures - 102,613 74,281
-------- -------- --------
Net cash used in investing activities (142,705) (247,461) (156,111)
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
FS-5
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1998 1997 1996
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase in deposit accounts $ 75,658 $ 34,119 $ 127,533
Net increase (decrease) in short-term debt 97,474 22,525 (20,732)
Net increase (decrease) in custodial deposit accounts 2,046 1,056 (1,077)
(Repayments) proceeds from FHLB advances, net (75,000) 145,500 19,800
Proceeds from issuance of corporation obligated
mandatorily redeemable capital securities - 19,951 -
Debt issuance costs - (627) -
Repurchase of stock (2,217) (2,732) (277)
Cash payments for fractional shares (18) - (3)
Shares issued under stock plans 3,084 2,332 596
Cash dividends paid (8,322) (6,249) (4,442)
-------- -------- --------
Net cash provided by financing activities 92,705 215,875 121,398
-------- -------- --------
Net (decrease) increase in cash and cash
equivalents (20,817) 37,969 (10,809)
Cash and cash equivalents at beginning of year 98,352 60,383 71,192
-------- -------- --------
Cash and cash equivalents at end of year $ 77,535 $ 98,352 $ 60,383
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 79,786 $ 69,589 $ 59,239
======== ======== ========
Income taxes $ 11,151 $ 10,903 $ 8,687
======== ======== ========
Non cash financing activity:
Tax benefit from disqualification of incentive stock options $ 814 $ 285 $ -
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
FS-6
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF OPERATIONS
Triangle Bancorp, Inc. (the "Company") is a bank holding company
incorporated in November 1991 under the laws of the State of North
Carolina, with four wholly-owned subsidiaries, Triangle Bank
("Triangle") and Bank of Mecklenburg ("Mecklenburg"), (collectively,
the "Banks"), Coastal Leasing LLC ("Coastal"), and Triangle Capital
Trust (the "Trust").
The accounting and reporting policies of the Company and its
subsidiaries follow generally accepted accounting principles and
general practices within the financial services industry. All amounts
in tabular format are in thousands of dollars unless otherwise noted.
Following is a summary of the more significant policies.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
SECURITIES
The Company classifies its securities into three types as follows:
a. Securities Held to Maturity - Debt securities that the Company has
the positive intent and ability to hold to maturity which are
reported at amortized cost,
b. Trading Securities - Debt and equity securities that are bought
and held principally for the purpose of selling in the near term
which are reported at fair value, with unrealized gains and losses
included in earnings, or
c. Securities Available for Sale - Debt and equity securities not
classified as either Securities Held to Maturity or Trading
Securities which are reported at fair value, with unrealized gains
and losses reported as other comprehensive income, a separate
component of shareholders' equity.
The classification of securities is generally determined at the date of
purchase. Gains and losses on sales of securities, computed based on
specific identification of the adjusted cost of each security, are
included in other income at the time of the sales. Premiums and
discounts on debt securities are recognized in interest income on the
interest method over the period to maturity.
FS-7
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
LOANS AND LEASES AND ALLOWANCE FOR LOAN AND LEASE LOSSES
Loans and leases are stated at the amount of unpaid principal, reduced
by an allowance for loan and lease losses, unearned discounts and net
deferred loan origination fees and costs. Interest on loans is
calculated by using the simple interest method on daily balances of the
principal amount outstanding. Deferred loan fees and costs are
amortized to interest income over the contractual life of the loan
using a method that approximates the level yield method.
A loan is considered impaired if, based on current information and
events, it is probable that the Company will be unable to collect the
scheduled payments of principal and interest when due according to the
contractual terms of the loan agreement. Uncollateralized loans are
measured for impairment based on the present value of expected future
cash flows discounted at the original contractual interest rate, while
all collateral-dependent loans are measured for impairment based on the
fair value of the collateral. During 1998 and 1997 there were no loans
material to the consolidated financial statements that were impaired as
defined.
The Company uses several factors in determining if a loan is impaired.
The internal asset classification procedures include a thorough review
of significant loans and lending relationships and include the
accumulation of related data. This data includes loan payment status,
borrowers' financial data and borrowers' operating factors such as cash
flows, operating income or loss, etc.
The allowance for loan losses is established through a provision for
loan losses charged to expense. Loans are charged against the allowance
for loan losses when management believes that collection of the
principal is unlikely. The allowance is an amount that management
believes will be adequate to absorb possible losses on existing loans
that may become uncollectible, based on evaluations of the
collectibility of loans and prior loan loss experience. The evaluations
take into consideration such factors as changes in the nature and
volume of the loan portfolio, overall portfolio quality, review of
specific problem loans, and current economic conditions and trends that
may affect the borrowers' ability to pay. It is possible that
management's evaluation will change due to changes in these factors or
unforseen events.
INCOME RECOGNITION ON IMPAIRED AND NONACCRUAL LOANS
Loans, including impaired loans, are generally classified as nonaccrual
if they are past due as to maturity or payment of principal or interest
for a period of more than 90 days, unless such loans are well-secured
and in the process of collection. Loans that are on a current payment
status or past due less than 90 days may also be classified as
nonaccrual if repayment in full of principal and/or interest is in
doubt.
Loans may be returned to accrual status when all principal and interest
amounts contractually due (including arrearages) are reasonably assured
of repayment within an acceptable period of time, and there is a
sustained period of repayment performance (generally a minimum of six
months) by the borrower, in accordance with the contractual terms of
interest and principal.
FS-8
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
While a loan is classified as nonaccrual and the future collection of
the recorded loan balance is doubtful, collections of interest and
principal are generally applied as a reduction to the principal
outstanding, except in the case of loans with scheduled amortizations
where the payment is generally applied to the oldest payment due. When
the future collection of the recorded loan balance is expected,
interest income may be recognized on a cash basis. In the case where a
nonaccrual loan had been partially charged-off, recognition of interest
on a cash basis is limited to that which would have been recognized on
the recorded loan balance at the contractual interest rate. Receipts in
excess of that amount are recorded as recoveries to the allowance for
loan losses until prior charge-offs have been fully recovered.
MORTGAGE SERVICING RIGHTS
On January 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 122, "Accounting for Mortgage
Servicing Rights". The Statement required that the total cost of
purchasing or originating mortgage loans which are subsequently sold or
securitized with servicing rights retained be allocated between the
mortgage servings rights and the loans based on the relative fair
values of the loans and the mortgage servicing rights. On January 1,
1997, the Company adopted SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities". The
Statement superseded SFAS No. 122 and requires that mortgage servicing
assets be amortized in proportion to and over the period of estimated
net servicing income, and the assessment for asset impairment be based
upon the servicing rights' fair value. The adoption of the two
statements had an immaterial effect on the financial statements of the
Company.
FORECLOSED ASSETS
Assets acquired as a result of foreclosure are valued at the lower of
the recorded investment in the loan or fair value less estimated costs
to sell. The recorded investment is the sum of the outstanding
principal loan balance and foreclosure costs associated with the loan.
Any excess of the recorded investment over the fair value of the
property received is charged to the allowance for loan losses.
Any subsequent write-downs are charged against other expenses.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation and amortization are computed by the
straight-line method based on estimated service lives of assets, or,
for leasehold improvements, over the terms of the related leases, if
shorter.
INTANGIBLE ASSETS
Intangible assets are composed primarily of core deposit premiums and
goodwill. Amortization of core deposit premiums and goodwill is
computed using the straight-line method based on the estimated useful
lives of assets. Useful lives range from 7 to 10 years for the core
deposit premiums and from 3 to 15 years for goodwill.
The Company evaluates intangible assets for potential impairment by
analyzing the operating results, trends and prospects of the Company.
The Company also takes into consideration recent acquisition patterns
within the banking industry and any other events or circumstances which
might indicate potential impairment.
FS-9
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
On June 15, 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging
Activities". SFAS No. 133 requires that all derivative instruments be
recorded on the balance sheet at fair value. Changes in the fair value
of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated
as part of a hedge transaction and, if it is, the type of hedge
transactions. SFAS No. 133 is effective for all fiscal quarters of all
fiscal years beginning after June 15, 1999 with earlier adoption
allowed. The Company elected to defer adoption of SFAS No. 133 until
January 1, 1999. Due to its limited use of derivative instruments, the
adoption of SFAS No. 133 is not expected to have a significant effect
on the Company's results of operations or its financial position.
INTEREST RATE SWAPS, FLOORS AND CAPS
Prior to being acquired by the Company, Mecklenburg used interest rate
swaps, floors and caps for interest rate risk management. These
instruments were designated as hedges of specific assets and
liabilities when purchased. The net interest payable or receivable on
swaps, caps, and floors is accrued and recognized as an adjustment to
interest income or interest expense of the related asset or liability.
Premiums paid for purchased caps and floors were amortized over the
term of the related asset or liability. Upon the early termination of
swaps, floors and caps, the net proceeds received or paid, including
premiums, were deferred and included in other assets or liabilities and
amortized over the shorter of the remaining contract life or the
maturity of the related asset or liability. Upon disposition or
settlement of the asset or liability being hedged, deferral accounting
was discontinued and any related premium or change in fair value of the
hedge instrument was recognized in earnings. If the hedge instrument
was retained subsequent to the disposition or settlement of the
underlying asset or liability, it would be reassigned to specific
assets or liabilities and any change in fair value of the instrument
recognized in earnings in connection with the previous disposition of
the underlying asset or liability would be recorded as a purchase
premium and amortized into interest income over the contract term as a
yield adjustment of the related asset or liability.
INCOME TAXES
The Company files a consolidated Federal income tax return. State
income tax returns are filed for each entity.
Deferred tax asset and liability balances are determined by application
to temporary differences of the tax rate expected to be in effect when
taxes will become payable or receivable. Temporary differences are
differences between the tax basis of assets and liabilities and their
reported amounts in the financial statements that will result in
taxable or deductible amounts in future years. The effect on deferred
taxes of a change in tax rates is recognized in income in the period
that includes the enactment date.
FS-10
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
CASH FLOW
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks and Federal funds sold. Generally,
Federal funds are purchased and sold for one-day periods.
COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income" on January 1, 1998.
SFAS No. 130 establishes standards for reporting and displaying
comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general-purpose financial statements.
As required by SFAS No. 130, prior year information has been modified
to conform with the new presentation. The Company's only component of
other comprehensive income relates to unrealized losses on available
for sale securities. Information concerning the Company's other
comprehensive income (loss) for the years ended December 31, 1998, 1997
and 1996 follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- ---------------- ----------------
<S> <C> <C> <C>
Holding (losses) gains on available for sale securities,
net of taxes of $(1,816), $471 and $(485) in 1998,
1997, and 1996, respectively $ (3,539) $ 873 $ (811)
Reclassification of gains recognized in net income,
net of taxes of $567, $487 and $427 in 1998,
1997 and 1996, respectively (1,104) (902) (715)
=============== ================ ================
Other comprehensive loss $ (4,643) $ (29) $ (1,526)
=============== ================ ================
</TABLE>
SEGMENT INFORMATION
During the year ended December 31, 1998, the Company adopted the
provisions of SFAS No. 131 "Disclosures about Segments of an Enterprise
and Related Information." The Statement requires that public business
enterprises report certain information about operating segments in
their annual financial statements and in condensed financial statements
of interim periods issued to shareholders. It also requires that the
public business enterprises report related disclosures and descriptive
information about products and services provided by significant
segments, geographic areas, and major customers, differences between
the measurements used in reporting segment information and those used
in the enterprise's general-purpose financial statements, and changes
in the measurement of segment amounts from period to period.
Operating segments are components of an enterprise about which separate
financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources,
and in assessing performance. The Company has determined that it has
one significant operating segment, the providing of general financial
services to customers located in the single geographic area of North
Carolina. The various products are those generally offered by financial
institutions, and the allocation of resources is based on the overall
performance of the institution, versus the individual branches or
products.
FS-11
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
There are no differences between the measurements used in reporting
segment information and those used in the enterprise's general-purpose
financial statements, and the measurement of segment amounts has not
changed for 1998 from prior years.
USE OF ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
2. MERGERS AND ACQUISITIONS
On September 17, 1998 the Company completed the acquisition of United
Federal Savings Bank ("United Federal") through the issuance of 1.098
shares of the Company's common stock for each share of United Federal's
outstanding common stock, or 3,612,338 shares. On April 16, 1998 the
Company completed the acquisition of Guaranty State Bancorp
("Guaranty") through the issuance of 2.12 shares of the Company's
common stock for each share of Guaranty's outstanding common stock, or
1,888,481 shares. On October 2, 1997 the Company completed the
acquisition of Mecklenburg through the issuance of 1.5 shares of the
Company's common stock for each share of the outstanding common stock
of Mecklenburg, or 3,277,602 shares. On October 31, 1997 the Company
acquired Coastal through the issuance of 487,500 shares of the
Company's stock. These mergers were accounted for as poolings of
interests, however, due to materiality, Coastal was pooled for 1997
only.
Separate results of the pooled entities for the years ended December
31, 1997 and 1996 are as follows:
1997: Company(1) United Federal Guaranty Combined
---------- -------------- -------- --------
Total income $ 119,761 $ 26,627 $ 8,637 $ 155,025
Net interest income 53,586 10,428 4,376 68,390
Net income 16,584 1,802 1,140 19,526
1996:
Total income $ 99,907 $ 23,022 $ 7,883 $ 130,812
Net interest income 45,632 8,429 3,997 58,058
Net income 13,220 496 1,080 14,796
(1) Prior to United Federal and Guaranty mergers
United Federal, prior to the merger with the Company, reported total
income of $12.9 million, net interest income of $4.8 million and net
income of $953,000 for the six months ended June 30, 1998.
Guaranty, prior to the merger with the Company, reported total income
of $2.2 million, net interest income of $1.2 million and net income of
$334,000 for the three months ended March 31, 1998.
FS-12
<PAGE>
3. SECURITIES
The amortized cost and estimated market value of securities at December
31, 1998 and 1997 are as follows:
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
1998:
Available for sale:
U.S. Treasury securities $ 55,276 $ 563 $ - $ 55,839
U.S. Agency obligations 92,598 173 89 92,682
Mortgage-backed securities and
collateralized mortgage obligations 237,029 309 8,954 228,384
Obligations of states and political
subdivisions 69,434 1,915 272 71,077
FHLB, Federal Reserve Bank and
Federal Home Loan Mortgage Corporation
Stock 17,222 - 69 17,153
Corporate securities 16,196 1 241 15,956
Other investments 1,065 - 1 1,064
---------------- ---------------- --------------- ----------------
$ 488,820 $ 2,961 $ 9,626 $482,155
---------------- ---------------- --------------- ----------------
Held to maturity:
U.S. Agency obligations $ 62,232 $ 1,078 $ 3 $ 63,307
Mortgage-backed securities and
collateralized mortgage obligations 6,416 15 8 6,423
Obligations of states and political
subdivisions 12,043 553 2 12,594
Other investments 447 19 - 466
---------------- ---------------- --------------- ----------------
$ 81,138 $ 1,665 $ 13 $ 82,790
---------------- ---------------- --------------- ----------------
1997:
Available for sale:
U.S. Treasury securities $113,277 $ 836 $ 41 $114,072
U.S. Agency obligations 22,263 107 6 22,364
Mortgage-backed securities and
collateralized mortgage obligations 251,799 - 1,277 250,522
Obligations of states and political
subdivisions 35,824 941 3 36,762
FHLB, Federal Reserve Bank and
Federal Home Loan Mortgage Corporation
Stock 22,249 20 - 22,269
Other investments 374 - - 374
---------------- ---------------- --------------- ----------------
$445,786 $1,904 $ 1,327 $446,363
---------------- ---------------- --------------- ----------------
Held to maturity:
U.S. Agency obligations $ 72,128 $ 835 $ 82 $ 72,881
Mortgage-backed securities and
collateralized mortgage obligations 15,287 184 51 15,420
Obligations of states and political
subdivisions 12,998 409 2 13,405
Other investments 253 20 - 273
---------------- ---------------- --------------- ----------------
$100,666 $ 1,448 $ 135 $101,979
---------------- ---------------- --------------- ----------------
</TABLE>
FS-13
<PAGE>
The amortized cost and estimated market value of securities at December
31, 1998 by contractual maturities are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
---------------- ----------------
<S> <C> <C>
Available for sale:
Due in one year or less $ 106,283 $ 106,660
Due after one year through five years 52,854 53,083
Due after five years through ten years 30,953 31,335
Due after ten years 280,443 272,860
Other equity securities 18,287 18,217
---------------- ----------------
$ 488,820 $ 482,155
---------------- ----------------
Held to maturity:
Due in one year or less $ 20,099 $ 20,196
Due after one year through five years 47,754 48,852
Due after five years through ten years 8,988 9,237
Due after ten years 4,297 4,505
---------------- ----------------
$ 81,138 $ 82,790
---------------- ----------------
</TABLE>
Gross realized gains and losses on sales of available for sale
securities for the years ended December 31, 1998, 1997 and 1996 are
summarized below:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- ---------------- ----------------
<S> <C> <C> <C>
Gross realized gains $ 1,745 $ 2,575 $ 3,831
--------------- ---------------- ----------------
Gross realized losses $ 74 $ 1,186 $ 2,689
--------------- ---------------- ----------------
</TABLE>
Included in the 1996 gross realized gains and losses are gross gains of
$1,889,051 and gross losses of $682,049 on terminations or marks to
market of end-user derivatives.
During 1996, the Company, upon evaluation of the acquired investment
portfolio of Granville United Bank, transferred securities with an
amortized cost of $4,557,000 and an estimated market value of
$4,400,000 from the available for sale category to the held to maturity
category.
Mecklenburg liquidated its Held to Maturity portfolio during 1996. The
carrying value of the liquidated securities was approximately
$14,715,000 and a loss of approximately $70,000 was recognized on the
related sales.
FS-14
<PAGE>
Securities with an amortized cost of approximately $152 million and
$147 million as of December 31, 1998 and 1997, respectively, were
pledged to secure public deposits, certain short term debt, Federal
Home Loan Bank ("FHLB") advances and for other banking purposes.
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. LOANS AND LEASES AND ALLOWANCE FOR LOAN AND LEASE LOSSES
Major classifications of loans as of December 31, 1998 and 1997, are
summarized as follows:
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C> <C>
Commercial $ 204,395 $ 216,370
Real estate:
Construction and land development 180,243 159,815
Residential, 1-4 families 432,214 442,434
Residential, 5 or more families 13,653 23,296
Farmland 26,672 13,595
Nonfarm, nonresidential 355,120 275,629
Agricultural production 14,342 16,664
Consumer 125,194 127,367
Leases 27,598 13,387
Other 617 2,005
Net deferred loan costs 3,089 374
---------------- ----------------
1,383,137 1,290,936
Less allowance for loan and lease losses 19,584 17,797
---------------- ----------------
Net loans $1,363,553 $1,273,139
================ ================
</TABLE>
A summary of the allowance for loan and lease losses for the years
ended December 31, 1998, 1997 and 1996, is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- ---------------- ----------------
<S> <C> <C> <C>
Balance, beginning of year $ 17,797 $ 14,812 $ 13,738
Provision charged against income 5,115 5,121 2,515
Loans and leases charged off, net of recoveries (3,328) (3,341) (1,343)
Allowance on purchased (sold) loans and leases - 1,205 (98)
--------------- ---------------- ----------------
Balance, end of year $ 19,584 $ 17,797 $ 14,812
=============== ================ ================
</TABLE>
FS-15
<PAGE>
Nonperforming assets at December 31, 1998 and 1997, consist of the
following:
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
---------------- ---------------
<S> <C> <C>
Loan past due ninety days or more $ 5,682 $ 6,078
Nonaccrual loans 4,945 2,497
Foreclosed assets (included in other assets) 2,101 594
---------------- ---------------
$ 12,728 $ 9,169
================ ===============
</TABLE>
5. MORTGAGE LOAN SERVICING
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The unpaid principal balances of these
loans at December 31, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C> <C>
Mortgage loans and mortgage loans underlying pass-through securities:
GNMA $ 122,665 $ 160,138
FHLMC 113,025 127,726
FNMA 64,091 87,781
NCHFA 103,796 81,761
Other investors 2,678 2,482
---------------- ----------------
$ 406,255 $ 459,888
================ ================
</TABLE>
Custodial balances maintained in connection with the foregoing loan
servicing arrangements were $7,216,334 and $4,484,743 at December 31,
1998 and 1997, respectively.
FS-16
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following is an analysis of the changes in mortgage servicing
rights and excess servicing fees receivable balances for the years
1998, 1997 and 1996. Upon adoption of SFAS No. 125 in 1997, the balance
of excess servicing fees was combined with and incorporated as a part
of mortgage servicing rights. Mortgage servicing rights are included in
other assets.
<TABLE>
<CAPTION>
Mortgage Excess
Servicing Servicing
Rights Fees
---------------- ----------------
<S> <C> <C>
Balance, December 31, 1995 $ 2,628 $ 212
Additions 270 -
Amortization (372) (105)
---------------- ----------------
Balance, December 31, 1996 2,526 107
Additions 924 -
Amortization (551) -
Transfer of excess servicing fees 107 (107)
---------------- ----------------
Balance, December 31, 1997 3,006 -
Additions 681 -
Amortization (817) -
---------------- ----------------
Balance, December 31, 1998 $ 2,870 $ -
================ ================
</TABLE>
Additions to mortgage servicing rights in 1998 and 1997 include
approximately $343,000 and $520,000, respectively, paid to purchase the
rights to service FHLMC and FNMA loans with unpaid principal balances
of approximately $28 million and $54 million, respectively.
6. PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1998 and 1997, are as follows:
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C> <C>
Premises $ 26,742 $ 25,653
Equipment and fixtures 23,393 19,818
Leasehold improvements 1,145 1,003
---------------- ----------------
51,280 46,474
Less accumulated depreciation and amortization 19,427 16,170
---------------- ----------------
31,853 30,304
Construction in process 387 1,606
Land 8,252 8,371
---------------- ----------------
$ 40,492 $ 40,281
================ ================
</TABLE>
FS-17
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. INTANGIBLE ASSETS
Intangible assets at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C> <C>
Core deposit premiums $ 30,470 $ 30,470
Goodwill 2,083 2,083
Other intangibles 1,002 1,002
---------------- ----------------
33,555 33,555
Less accumulated amortization 9,348 5,867
---------------- ----------------
$ 24,207 $ 27,688
================ ================
</TABLE>
Amortization expense, principally related to the core deposit premiums,
amounted to approximately $3,481,000, $2,294,000, and $1,528,000 for
the years ended December 31, 1998, 1997 and 1996, respectively.
8. SHORT-TERM DEBT
Short-term debt consisted of the following as of December 31, 1998 and
1997:
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C> <C>
Securities sold under repurchase agreements $ 18,583 $ 20,602
Reverse repurchase agreements 44,667 -
Federal funds purchased 67,000 24,800
Masternotes 28,386 15,704
Other 344 400
---------------- ----------------
$ 158,980 $ 61,506
================ ================
</TABLE>
The weighted average rate on short-term debt was 5.02% and 5.15% at
December 31, 1998 and 1997, respectively.
The Company has pledged certain securities to collateralize the
repurchase agreements. These agreements generally mature and are
renewed daily.
FS-18
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. FEDERAL HOME LOAN BANK OF ATLANTA ADVANCES
FHLB advances with maturity dates and weighted average rates (WAR) as
of December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
Amount WAR Amount WAR
--------- ----- --------- -----
<S> <C> <C> <C> <C>
Due in one year $ 6,800 6.18% $ 135,000 5.79%
Due after one year within two years - - 6,800 6.18%
Due after two years within three
years 60,000 4.68% - -
Due after three years within
four years 63,500 6.19% - -
Due after four years within five years - - 63,500 6.19%
--------- ----- --------- -----
$ 130,300 5.49% $ 205,300 5.92%
========= ==== ========= ====
</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.
10. CORPORATION OBLIGATED MANDATORILY REDEEMABLE CAPITAL SECURITIES
Corporation obligated mandatorily redeemable capital securities ("Trust
Securities") aggregating $20 million were issued in June 1997 through
the Trust, a statutory business trust registered in the State of
Delaware. These Trust Securities bear interest at the rate of 9.375%
and have a maturity of thirty years.
The proceeds from the Trust Securities were used by the Trust to
purchase junior subordinated debentures of the Company with a yield and
maturity identical to the Trust Securities. The distribution rate and
payment dates of the Trust Securities correspond to the distribution
rate and interest payment dates of the junior subordinated debentures,
which are the sole assets of the Trust. The Company has irrevocably and
unconditionally guaranteed all of the Trust's obligations under the
Trust Securities, but only to the extent of funds held by the Trust.
The Trust Securities are subject to mandatory redemption in whole, but
not in part, upon repayment of the junior subordinated debentures at
their stated maturity or upon their early redemption. The junior
subordinated debentures may be redeemed prior to their stated maturity
upon the occurrence of certain events or at the option of the Company
on or after June 1, 2007.
FS-19
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
11. INCOME TAXES
The components of income tax expense for the years ended December 31,
1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- ---------------- ----------------
<S> <C> <C> <C>
Current expense $ 11,521 $ 11,411 $ 8,817
Deferred expense (benefit) (304) (871) 23
--------------- ---------------- ----------------
$ 11,217 $ 10,540 $ 8,840
=============== ================ ================
</TABLE>
The reconciliation of expected income tax at the statutory Federal rate
(35%) with income tax expense for the years ended December 31, 1998,
1997 and 1996, is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- ---------------- ----------------
<S> <C> <C> <C>
Expected income tax expense at statutory rate $ 11,576 $ 10,497 $ 8,256
Increase (decrease) in income tax expense
resulting from:
State taxes, net of federal tax benefit 240 765 606
Benefit of net operating loss carryforward - - (229)
Tax exempt interest (1,265) (682) (446)
Non-deductible interest 180 63 13
Other, net 486 (103) 640
--------------- ---------------- ----------------
Income tax expense $ 11,217 $ 10,540 $ 8,840
=============== ================ ================
</TABLE>
The components of net deferred tax assets at December 31, 1998 and 1997
are as follows:
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C> <C>
Allowance for loan and lease losses $ 6,999 $ 4,927
Accumulated depreciation 2,900 2,920
Deferred compensation 601 528
Net operating loss carryforwards 1,841 1,858
Depreciable basis of fixed assets (2,299) (1,981)
Net investment in direct financing leases and related equipment (1,000) (827)
Other (827) 486
Unrealized securities losses (gains) 2,382 (216)
---------------- ----------------
$ 10,597 $ 7,695
================ ================
</TABLE>
FS-20
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company has federal net operating loss carryforwards of
approximately $4,655,000, which expire in years 2003 through 2008. Use
of the net operating loss carryforwards is limited to approximately
$654,000 each year.
12. EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) plan for its subsidiaries' employees 21
years of age or over with at least one year of service, which covers
substantially all employees. Under the plan, employees may contribute
from 2% to 15% of compensation, subject to an annual maximum as
determined under the Internal Revenue Code. Employees may elect for up
to 25% of their contributions to be invested in the Company's common
stock. The Company matches, in contributions of the Company's common
stock, 100% of the employee's first 2% of contributions and 50% of the
next 4% of contributions. The Company contributed approximately
$792,000, $890,000 and $601,000 to the plans in 1998, 1997 and 1996,
respectively.
The Company maintains an Employee Stock Purchase Plan (the "ESPP") that
allows employees to purchase stock of up to 10% of their compensation
through payroll deduction. In May 1997 this plan was amended to allow
the purchase of the stock at a 15% discount. The discount is taken on
the lower of the market price at the beginning or end of each six month
period, with shares being issued out of authorized but unissued shares.
A total of 375,000 shares have been authorized for the plan with 43,070
issued as of December 31, 1998.
13. EARNINGS PER SHARE
The Company adopted SFAS No. 128 "Earnings Per Share" on December 31,
1997. As required, all prior period earnings per share have been
restated to conform with the provisions of the statement.
The following table provides a reconciliation of the numerator (income
available to shareholders) and denominator (average number of shares
outstanding) for the purpose of the basic and diluted EPS calculations
for the years ended December 31, 1998, 1997, and 1996.
<TABLE>
<CAPTION>
1998 1997 1996
--------------- ---------------- ----------------
<S> <C> <C> <C>
Net income $ 21,858 $ 19,526 $ 14,796
=============== ================ ================
Average outstanding shares for basic EPS 25,112 24,657 24,056
Dilutive effect of stock options and warrants 791 904 729
--------------- ---------------- ----------------
Total shares for diluted EPS 25,903 25,561 24,785
=============== ================ ================
</TABLE>
14. COMMON STOCK
On April 28, 1998 the Company's shareholders approved increasing the
number of shares authorized to 50,000,000. On May 12, 1998 the
Company's Board of Directors approved a three for two stock split
effected in the form of a 50% stock dividend. The date of record was
June 15, 1998 and the dividend was paid on June 30, 1998. All share and
per share information has been adjusted to reflect the stock split.
The Company has a Long-Term Incentive Plan which allows the Board of
Directors to award any combination of stock options, restricted stock
and cash.
FS-21
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company has a qualified incentive stock option plan for the benefit
of certain of the Company's key officers and employees and a
non-qualified stock option plan for directors and certain officers (the
"1988 Stock Option Plans"). The 1988 Stock Option Plans expired on
January 4, 1998, and as such, no new awards were made after that date.
Options under these plans are exercisable at no less than fair market
value at the date of grant and are subject to a prorated five-year, and
in some instances three-year, vesting requirement. The options are
exercisable as they vest and expire no later than ten years after that
date.
The 1998 Omnibus Stock Plan ("1998 Omnibus Plan") reserves 1,500,000
shares for future grants in the form of stock options, restricted stock
awards and stock appreciation rights, the terms and conditions of which
are to be determined at the date of grant. Incentive options under this
plan are granted at fair market value and have ten year lives.
On January 1, 1996 the Company adopted SFAS No. 123, "Accounting for
Stock Based Compensation". As permitted by SFAS No. 123, the Company
has chosen to continue to apply APB Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25) and related Interpretations.
Accordingly, no compensation cost has been recognized for options
granted under the 1988 Stock Option Plans, the 1998 Omnibus Plan or the
ESPP. The disclosure below of the pro forma net income and earnings per
share, had the fair value based method of accounting been used, applies
only to options granted after December 31, 1994. Therefore, the effects
of applying SFAS No. 123 during the initial phase in period may not be
representative of future years.
The pro forma effect on net income and earnings per share of recording
compensation expense in accordance with SFAS No. 123 is presented in
the table below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net income:
As reported $ 21,858 $ 19,526 $ 14,796
Pro Forma 21,304 18,989 14,525
Basic earnings per share:
As reported $ .87 $ .79 $ .62
Pro Forma .85 .77 .60
Diluted earnings per share:
As reported $ .84 $ .76 $ .60
Pro Forma .82 .74 .59
</TABLE>
FS-22
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The fair value of options granted during 1998, 1997 and 1996 was
estimated using the Black-Scholes option pricing model with the
following weighted average assumptions.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Employee Stock Purchase Plan:
Weighted average grant date fair value $ .91 $ 3.53 $ -
Dividend yield 2.02% 2.10% -
Risk free interest rates 4.54% 6.00% -
Expected lives (years) .50 .50 -
Volatility 33.71% 32.00% -
1988 STOCK OPTION PLANS:
Weighted average grant date fair value $ - $ 4.28 $ 2.32
Dividend yield - 3.30% 3.90%
Risk free interest rates - 6.00% 6.00%
Expected lives (years) - 6.96 7.0
Volatility - 32.00% 21.00%
1998 OMNIBUS PLAN:
Weighted average grant date fair value $ 5.79 $ - $ -
Dividend yield 2.26% - -
Risk free interest rates 4.54% - -
Expected lives (years) 5.0 - -
Volatility 33.71% - -
</TABLE>
A summary of the status of the 1988 Stock Option Plans and the 1998
Omnibus Plan as of December 31, 1998, 1997 and 1996, and changes during
the years ending on those dates, including weighted average exercise
price (Price), is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------- ----------------------- -----------------------
Shares Price Shares Price Shares Price
--------- -------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 1,737,039 $ 6.82 1,989,842 $ 6.10 1,458,791 $ 5.43
Pooling adjustment 268,558
Granted 252,749 19.45 194,393 13.71 429,720 9.97
Exercised (479,186) 5.56 (396,071) 5.37 (101,309) 4.12
Forfeited (48,804) 9.88 (51,125) 8.00 (65,918) 7.39
--------- -------- --------- ------- --------- -------
Outstanding at end
of year 1,461,798 $ 9.31 1,737,039 $ 6.82 1,989,842 $ 6.10
========= ======== ========= ======= ========= =======
</TABLE>
FS-23
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following table summarizes information about the Stock Option Plans
and the 1998 Omnibus Stock Plan at December 31, 1998 including weighted
average remaining contractual term in years (Term) and weighted average
exercise price (Price).
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
RANGE OF EXERCISE --------------------------------------------- -------------------------
PRICE NUMBER TERM PRICE NUMBER PRICE
- -------------------------- --------- ---- -------- ------- --------
<S> <C> <C> <C> <C> <C>
$ 2.44 - 4.00 222,286 1.73 $ 3.68 191,318 $ 3.63
4.17 - 4.81 160,053 4.34 4.43 160,053 4.43
4.93 - 5.97 145,077 4.40 5.31 131,929 5.31
6.00 - 7.33 141,120 6.23 6.59 87,660 6.59
7.67 235,000 7.43 7.67 235,000 7.67
8.25 - 12.12 159,938 5.80 10.43 89,058 10.92
12.25 - 18.75 148,290 8.33 13.73 29,253 13.76
19.42 224,619 9.07 19.42 - -
19.46 - 23.33 25,415 9.30 20.19 367 23.33
--------- ---- -------- ------- --------
1,461,798 6.01 $ 9.31 924,638 $ 6.34
========= ==== ======== ======= ========
</TABLE>
During 1998, 990 of the Company's warrants were exercised leaving 5,310
remaining. All the warrants have an exercise price of $6.11 and expire
on December 31, 2000.
15. REGULATORY RESTRICTIONS
The Banks, as North Carolina banking corporations, may pay dividends
only out of undivided profits as determined pursuant to North Carolina
General Statutes Section 53-87. However, regulatory authorities may
limit payment of dividends by any bank when it is determined that such
a limitation is in the public interest and is necessary to ensure the
financial soundness of the bank.
Under regulations of the Federal Reserve, banking affiliates are
required to maintain certain minimum average reserve balances which
include both cash on hand and deposits with the Federal Reserve. These
deposits are included in cash and cash equivalents in the accompanying
balance sheets. At December 31, 1998 and 1997, the Banks were required
to maintain such balances aggregating approximately $12,957,000 and
$11,336,000, respectively.
The Company and the Banks are subject to various regulatory capital
requirements administered by the federal and state banking agencies.
Failure to meet minimum capital requirements can initiate certain
mandatory, and possibly additional discretionary, actions by regulators
that, if undertaken, could have a direct material effect on the
consolidated financial statements. Management believes, as of December
31, 1998, that the Company and the Banks meet all capital adequacy
requirements to which they are subject.
As of June 30, 1998, the most recent notification from regulators, the
Company and the Banks were categorized as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as
well capitalized the Company and the Banks must maintain minimum
amounts and ratios, as set forth in the tables below. There are no
conditions or events since that notification that management believes
have changed the Company's or the Banks' category.
FS-24
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
A summary of the Company's, Triangle's, and Mecklenburg's required and
actual capital components in the categories of total capital to risk
weighted assets (Total/RWA); tier 1 capital to risk weighted assets
(Tier 1/RWA); and tier 1 capital to average assets (Tier 1/AA) for
capital adequacy purposes (Capital Adequacy) and to be well capitalized
under the prompt corrective action provisions (Well Capitalized) is as
follows:
<TABLE>
Actual Capital Adequacy Well Capitalized
-------------------- --------------------- -----------------------
As of December 31, 1998: Amount Ratio Amount Ratio Amount Ratio
- ------------------------ --------- --------- ---------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total/RWA $ 182,343 11.4% $ 128,035 8.0% $ 160,044 10.0%
Tier 1/RWA 162,759 10.2% 64,017 4.0% 96,026 6.0%
Tier 1/AA 162,759 7.9% 80,413 4.0% 100,516 5.0%
As of December 31, 1997:
- ------------------------
Total/RWA $ 160,370 12.1% $ 106,229 8.0% $ 132,786 10.0%
Tier 1/RWA 144,372 10.9% 53,114 4.0% 79,672 6.0%
Tier 1/AA 144,372 7.7% 75,022 4.0% 93,777 5.0%
Triangle:
As of December 31, 1998:
- ------------------------
Total/RWA $ 148,461 10.6% $ 111,593 8.0% $ 139,492 10.0%
Tier 1/RWA 131,258 9.4% 55,797 4.0% 83,695 6.0%
Tier 1/AA 131,258 7.3% 71,442 4.0% 89,303 5.0%
As of December 31, 1997:
- ------------------------
Total/RWA $ 128,896 11.0% $ 93,900 8.0% $ 117,375 10.0%
Tier 1/RWA 114,821 9.8% 46,950 4.0% 70,425 6.0%
Tier 1/AA 114,821 7.1% 64,913 4.0% 81,141 5.0%
Mecklenburg:
As of December 31, 1998:
- ------------------------
Total/RWA $ 23,363 13.1% $ 14,217 8.0% $ 17,771 10.0%
Tier 1/RWA 21,416 12.1% 7,108 4.0% 10,663 6.0%
Tier 1/AA 21,416 9.5% 8,978 4.0% 11,223 5.0%
As of December 31, 1997:
- ------------------------
Total/RWA $ 21,359 15.1% $ 11,352 8.0% $ 14,190 10.0%
Tier 1/RWA 19,772 13.9% 5,676 4.0% 8,514 6.0%
Tier 1/AA 19,772 7.3% 10,805 4.0% 13,507 5.0%
</TABLE>
FS-25
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
15. LEASE OBLIGATIONS
The Company leases a portion of its facilities under various operating
leases. Rental expense related to such leases amounted to approximately
$1,339,000, $1,240,000 and $1,170,000 in 1998, 1997 and 1996,
respectively.
Noncancelable, long-term lease commitments at December 31, 1998 range
from $1,360,000 in 1999 to $1,048,000 in 2003.
16. SPECIAL SAIF ASSESSMENT
On September 30, 1996, the "Deposit Insurance Funds Act of 1996" was
enacted. The legislation included a special assessment to recapitalize
the SAIF insurance fund up to its statutory goal of 1.25% of insured
deposits. The assessment required United Federal to pay an amount equal
to approximately 65.7 basis points of its SAIF assessable deposit base
as of March 31, 1995, which resulted in a charge to income during the
year ended December 31, 1996 of $1,316,280.
17. COMMITMENTS AND CONTINGENCIES
The Company is party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of
its customers. These financial instruments include commitments to
extend credit, lines of credit and standby letters of credit. These
instruments involve elements of credit risk in excess of amounts
recognized in the accompanying financial statements.
The Company's risk of loss in the event of nonperformance by the other
party to the commitment to extend credit, line of credit and standby
letter of credit is represented by the contractual amount of these
instruments. The Company uses the same credit policies in making
commitments under such instruments as it does for on-balance sheet
instruments. The amount of collateral obtained, if any, is based on
management's credit evaluation of the counterparty. Collateral held
varies, but may include accounts receivable, inventory, real estate and
time deposits with financial institutions. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements.
As of December 31, 1998 and 1997, outstanding financial instruments
whose contract amounts represent credit risk were as follows:
1998 1997
--------- ---------
Unfunded loans and lines of credit $ 311.317 $ 263.890
========= =========
Standby letters of credit $ 4,047 $ 3,852
========= =========
Mecklenburg used off-balance sheet financial contracts to assist in
managing interest rate risk. Instruments used for this purpose include
interest rate swaps, interest rate caps and interest rate floors.
Mecklenburg managed the counterparty credit risk associated with these
instruments through credit approvals, limits and monitoring procedures.
FS-26
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
For interest rate swaps, interest rate caps and interest rate floors,
notional principal amounts often are used to express the volume of
transactions however, the amount potentially subject to credit risk is
much smaller.
All these instruments involve, to varying degrees, elements of credit
and interest rate risk in excess of the amounts recognized in the
consolidated financial statements. At December 31, 1998, off-balance
sheet financial instruments and their related fair values are as
follows:
<TABLE>
Estimated Contract or
Fair Notional
Amount Value Amount
------ ----- ------
<S> <C> <C> <C>
Purchased interest rate floors:
Unassigned (Strike price 5%, 3 month LIBOR
index, March 1996-March 2000) $ 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.
18. RELATED PARTY TRANSACTIONS
In the normal course of business, certain directors and executive
officers of the Company, including their immediate families and
companies in which they have an interest, were loan customers.
Activity in these loans for the year ended December 31, 1998 is
summarized as follows :
Balance, beginning of year $ 5,076
Loans made 8,936
Payment received (5,984)
Changes in composition (1,407)
--------------
Balance, end of year $ 6,621
==============
FS-27
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
19. PARENT COMPANY FINANCIAL DATA
The Company's principal asset is its investment in its subsidiaries.
Condensed financial statements for the parent company as of December
31, 1998 and 1997 and for the years ended December 31, 1998, 1997 and
1996 are as follows:
<TABLE>
1998 1997
---------- -----------
<S> <C> <C>
CONDENSED BALANCE SHEETS
Cash $ 8,320 $ 16,161
Securities available for sale 5,001 -
Investments in wholly-owned subsidiaries 176,485 165,241
Loan to subsidiary 20,400 6,200
Other assets 1,777 1,468
---------- -----------
Total Assets $ 211,983 $ 189,070
========== ===========
Short-term debt 28,386 15,705
Other liabilities - 326
Junior subordinated deferred interest debentures 20,570 20,568
---------- -----------
Total liabilities $ 48,956 $ 36,599
Shareholders equity 163,027 152,471
---------- -----------
Total liabilities and shareholders' equity $ 211,983 $ 189,070
========== ===========
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
---------- ----------- -----------
<S> <C> <C> <C>
CONDENSED STATEMENTS OF INCOME
Dividends from wholly-owned subsidiaries $ 8,029 $ 6,580 $ 3,778
Interest income 1,383 773 8
---------- ----------- -----------
Total income 9,412 7,353 3,786
---------- ----------- -----------
Interest expense 2,748 1,441 -
Other expenses 282 217 151
---------- ----------- -----------
Total expenses 3,030 1,658 151
---------- ----------- -----------
Income before tax benefit and equity in earnings of
wholly-owned subsidiaries 6,382 5,695 3,635
Income tax benefit 643 - -
---------- ----------- -----------
Income before equity in undistributed earnings
of wholly-owned subsidiaries 7,025 5,695 3,635
Equity in undistributed earnings of wholly-owned
subsidiaries 14,833 13,831 11,161
---------- ----------- -----------
Net income $ 21,858 $ 19,526 $ 14,796
========== =========== ===========
</TABLE>
FS-28
<PAGE>
<TABLE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------------------------------------------
1998 1997 1996
---------- ----------- -----------
<S> <C> <C> <C>
CONDENSED STATEMENT OF CASH FLOWS
Cash flows from operating activities:
Net income $ 21,858 $ 19,526 $ 14,796
Equity in undistributed earnings of wholly-owned
subsidiaries (14,833) (13,831) (11,161)
Amortization 22 19 10
Decrease (increase) in other assets (328) 223 (309)
Increase (decrease) in other liabilities (326) 98 41
---------- ------------ ------------
Net cash provided by operating activities 6,393 6,035 3,377
---------- ------------ ------------
Cash flows from investing activities
Investment in subsidiary (242) (12,447) 798
Net increase in loan to subsidiary (14,200) (6,200) -
Purchase of securities available for sale (5,000) - -
Purchase of common securities - (617) -
---------- ------------ ------------
Net cash provided by (used in) investing
activities (19,442) (19,264) 798
---------- ------------ ------------
Cash flows from financing activities:
Net increase in masternotes 12,681 15,705 -
Proceeds fro junior subordinated debentures - 20,568 -
Shares issued under stock plans 3,084 2,332 596
Dividends paid (8,322) (6,249) (4,442)
Cash issued for fractional shares (18) - (3)
Debt issuance cost - (627) -
Repurchased shares (2,217) (2,732) (277)
---------- ------------ -------------
Net cash provided by (used in) financing activities 5,208 28,997 (4,126)
---------- ------------ -------------
Net increase (decrease) in cash (7,841) 15,768 49
Cash at beginning of year 16,161 393 344
---------- ------------ -------------
Cash at end of year $ 8,320 $ 16,161 $ 393
========== ============ =============
</TABLE>
20. FAIR VALUE OF FINANCIAL STATEMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments",
requires the disclosure of estimated fair values for financial
instruments. Quoted market prices, if available, are utilized as an
estimate of the fair value of financial instruments. Because no quoted
market prices exist for a significant part of the Company's financial
instruments, the fair value of such instruments has been derived based
on management's assumptions with respect to future economic conditions,
the amount and timing of future cash flows and estimated discount
rates. Different assumptions could significantly affect these
estimates. Accordingly, the net realizable value could be materially
different from the estimates presented below. In addition, these
estimates are only indicative of individual financial instruments'
values and should not be considered an indication of the fair value of
the Company taken as a whole.
FS-29
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The carrying values of cash and due from banks, Federal funds sold and
interest-bearing deposits in banks are equal to the fair value due to
the nature of the financial instruments. The fair value of securities
is estimated based upon bid quotations received from various securities
dealers. The fair value of the Company's loans is determined by
discounting the scheduled cash flows through the loan's estimated
maturity using estimated market discount rates that most reflect the
credit and interest rate risk inherent in the loan. The estimate of
maturity is based upon the stated average maturity of management's
estimates of prepayments considering current economic conditions and
prevailing interest rates.
The fair value of deposits with no stated maturities, such as
noninterest-bearing deposits, interest checking, money market and
savings accounts, are equal to the amount payable as required by SFAS
No. 107. The fair value of time deposits, such as certificates of
deposit and Individual Retirement Accounts, are based on the discounted
contractual cash flows. The discount rate is estimated using rates
currently offered for deposits of similar maturities.
Short-term debt includes repurchase agreements and Federal funds
purchased, which reprice daily or monthly to allow for their market
value to equal their carrying value. The fair value of FHLB advances
and the corporation obligated mandatorily redeemable capital securities
are determined by discounting contractual cash flows using current
rates for similar borrowings.
The carrying value of accrued interest approximates the fair value.
The fair value of unfunded loans and lines of credit and standby
letters of credit approximates the stated value since they are either
short term in nature or subject to immediate repricing.
The following table presents information for financial assets and
liabilities as of December 31, 1998 and 1997:
<TABLE>
1998 1997
----------------------- -----------------------
Carrying Fair Carrying Fair
Value Value Value Value
----------- ----------- ------------- --------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 76,624 $ 76,624 $ 59,938 $ 59,938
Federal funds sold - - 4,219 4,219
Interest-bearing deposits in banks 911 911 34,195 34,195
Securities 563,293 564,945 547,029 548,341
Loans, net 1,363,553 1,374,490 1,273,139 1,281,100
Mortgage servicing rights 2,870 3,545 3,006 4,543
Interest receivable 16,468 16,468 15,687 15,687
----------- ------------ ------------- --------------
Total financial assets $2,023,719 $ 2,036,983 $ 1,937,213 $ 1,948,023
=========== ============ ============= ==============
Financial liabilities:
Deposits $1,625,898 $ 1,633,867 $ 1,550,240 $ 1,558,872
Short-term debt 158,980 158,902 61,506 61,502
Federal Home Loan Bank of Atlanta
advances 130,300 129,770 205,300 206,545
Corporation obligated mandatorily
redeemable capital securities 19,952 17,919 19,951 18,093
Interest payable 8,292 8,292 9,380 9,380
---------- ----------- ------------- -------------
Total financial liabilities $1,943,422 $ 1,948,750 $ 1,846,377 $ 1,854,392
========== =========== ============= =============
</TABLE>
FS-30
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
The Company's remaining assets and liabilities are not considered
financial instruments.
21. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized unaudited quarterly financial data for the years ended
December 31, 1998 and 1997 is as follows:
Fourth Third Second First
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
1998:
Inerest income $ 37,909 $ 38,717 $ 38,305 $ 38,397
Interest expense 19,264 19,699 19,622 20,113
Provision for loan losses 1,286 1,223 1,155 1,451
Noninterest income 5,499 4,451 4,659 3,847
Noninterest expense 12,556 15,666 14,130 12,544
Income tax expense 3,549 2,141 2,773 2,754
------------ ------------- ------------- ------------
Net income $ 6,753 $ 4,439 $ 5,284 $ 5,382
============ ============= ============= =============
Basic earnings per share $ .27 $ .18 $ .21 $ .21
============ ============= ============= =============
Diluted earnings per share $ .26 $ .17 $ .20 $ .21
============ ============= ============= =============
1997:
Interest income $ 37,573 $ 35,830 $ 33,357 $ 31,343
Interest expense 18,889 18,469 16,705 15,650
Provision for loan losses 1,631 1,291 1,572 627
Noninterest income 3,809 3,691 6,060 3,362
Noninterest expense 15,028 12,246 11,499 11,352
Income tax expense 1,803 2,557 3,552 2,628
------------ ------------ ------------- -------------
Net income $ 4,031 4,958 6,089 4,448
============ ============= ============= =============
Basic earnings per share $ .16 $ .20 $ .25 $ .18
============ ============= ============= =============
Diluted earnings per share $ .16 $ .19 $ .24 .17
============ ============= ============= =============
</TABLE>
22. OTHER INVESTING AND FINANCING ACTIVITIES
Excluded from the consolidated statements of cash flows was the effect
of transfers to trading securities of $41,867,000 during 1997 and
transfers to securities held to maturity of $4,577,000 in 1996.
FS-31
<PAGE>
TRIANGLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
The Company acquired ten branches and divested of two branches in 1997
and acquired five branches and divested of one branch in 1996. In
conjunction with these transactions, net assets acquired and net
liabilities assumed were as follows:
1997 1996
------------ --------------
<S> <C> <C>
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
============ ==============
</TABLE>
FS-32
ARTICLES OF AMENDMENT
TO THE
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
TRIANGLE BANCORP, INC.
The undersigned corporation hereby executes these Articles of Amendment
for the purpose of amending its Amended and Restated Articles of Incorporation:
1. The name of the corporation is Triangle Bancorp, Inc.
2. The text of the amendment to the Amended and Restated Articles of
Incorporation was adopted on the 28th day of April, 1998 and approved by
the shareholders of the corporation, in the manner prescribed by law.
3. The Amended and Restated Articles of Incorporation of the corporation
are amended by deleting the text of Article II and inserting in lieu
thereof the following new Article II:
"The aggregate number of shares which the Corporation is
authorized to issue is 50,000,000 shares. The shares shall be
all of one class, designated as common stock."
IN WITNESS THEREOF, these Articles of Amendment are signed by
the President of the corporation this the 28th day of April, 1998.
Triangle Bancorp, Inc.
By: /s/ Michael S. Patterson
Michael S. Patterson
President
Prepared by and return to:
Alexander M. Donaldson, Esq.
Triangle Bancorp, Inc.
4300 Glenwood Avenue
Raleigh, NC 27612
TRIANGLE BANCORP, INC.
1998 OMNIBUS STOCK PLAN
<PAGE>
TRIANGLE BANCORP, INC.
1998 OMNIBUS STOCK PLAN
TABLE OF CONTENTS
Section Page
ARTICLE I - NAME, PURPOSE AND DEFINITIONS 1
1.1 Name 1
1.2 Purpose 1
1.3 Definitions 1
ARTICLE II - ELIGIBILITY 4
ARTICLE III - AWARDS 4
3.1 General 4
3.2 Stock Options 4
3.3 Stock Appreciation Rights 5
3.4 Restricted Stock 6
3.5 Performance Awards 6
3.6 Other Awards 7
ARTICLE IV - AWARD DOCUMENTS 7
4.1 General 7
4.2 Required Terms 7
4.3 Optional Terms 7
ARTICLE V - SHARES OF STOCK SUBJECT TO THE PLAN 9
5.1 General 9
5.2 Additional Shares 9
5.3 Computation Rules 9
5.4 Shares to be Used 9
ARTICLE VI - ADMINISTRATION 10
6.1 General 10
6.2 Duties 10
6.3 Powers 10
6.4 Intent to Avoid Insider Trading 10
ARTICLE VII - ADJUSTMENTS UPON CHANGES IN CAPITALIZATION 11
<PAGE>
ARTICLE VIII - CHANGES OF CONTROL 11
8.1 General 11
8.2 "Change of Control 11
8.3 Definition of "Person" Applicable to Change of Control 12
ARTICLE IX - AMENDMENT AND TERMINATION 12
9.1 Amendment of Plan 12
9.2 Termination of Plan 12
9.3 Procedure for Amendment of Termination 13
ARTICLE X - MISCELLANEOUS
10.1 Rights of Employees 13
10.2 Compliance with Law 13
10.3 Unfunded Status 13
10.4 Limits on Liability 13
10.5 Section References 14
ARTICLE XI - EFFECTIVE DATE OF PLAN 14
<PAGE>
TRIANGLE BANCORP, INC.
1998 OMNIBUS STOCK PLAN
ARTICLE I
NAME, PURPOSE, AND DEFINITIONS
SECTION 1.1. NAME. The Plan shall be known as the "Triangle
Bancorp, Inc. 1998 Omnibus Stock Plan" (the "Plan").
SECTION 1.2. PURPOSE. The purpose of the Plan is to benefit the Company,
Subsidiaries, and their shareholders by encouraging and enabling key Employees
and such other persons as are eligible to participate herein to acquire a
financial interest in the Company. The Plan is intended to aid the Company and
Subsidiaries in attracting and retaining directors, local directors, officers
and key employees and in attracting and retaining persons in key relationships
with the Company and Subsidiaries, to stimulate the efforts of those
individuals, and to strengthen their desire to remain in the office or in the
employ of, or in a beneficial relationship with, the Company and Subsidiaries.
SECTION 1.3. DEFINITIONS. Whenever used in the Plan, unless the
context clearly indicates otherwise, the following terms shall have the
following meanings:
(A) "AWARD" or "AWARDS" means an award granted pursuant to Article III.
(B) "AWARD DOCUMENT" means a document described in Article IV hereof
setting forth the terms, conditions, and limitations applicable to the
Award granted to the Participant.
(C) "BENEFICIARY," with respect to a Participant, means (i) one or more
persons as the Participant may designate as primary or contingent
beneficiary in a writing delivered to the Company or Committee or, (ii)
if there is no such valid designation in effect at the Participant's
death, either (A) the Participant's spouse or (B) if the Participant is
not married at the date of the Participant's death, the Participant's
estate. This definition shall not, however, supersede or adversely
affect any definition or designation of beneficiary which may be
included in any Award.
(D) "BOARD" means the Board of Directors of the Company as it may be
comprised from time to time.
(E) "CODE" means the Intemal Revenue Code of 1986, as amended from time to
time, or any successor statute, and applicable regulations.
<PAGE>
(F) "COMMITTEE" means the committee appointed by the Board from among its
members and shall be comprised of not less than two (2) persons. Unless
and until otherwise appointed, the Committee shall be the Compensation
Committee of the Board or any successor committee with substantially
the same responsibilities if the members of that committee satisfy the
requirements of the following sentence. A member of the Committee must
not be an Employee and must otherwise satisfy Rule 16b-3 with respect
to grants to executive officers and directors. If at any time there
shall be no Compensation Committee of the Board or any successor
committee with substantially the same responsibilities whose members
satisfy the requirements of the foregoing sentence or if the Board
shall not have otherwise appointed a committee to administer the Plan,
the Board shall have the responsibilities assigned to the Committee
herein and references to the Committee herein shall refer to the Board.
In addition, the Board shall have the right to exercise, in whole or in
part, authority of the Committee hereunder with respect to certain
persons or classes of persons as Participants, in which case as to
those persons and as to such authority taken or retained by the Board,
references to the Committee herein shall refer to the Board.
(G) "COMPANY" means Triangle Bancorp, Inc., a North Carolina corporation,
and any successor corporation.
(H) "DIRECTOR" means any individual who is a member of the Board.
(I) "DISABILITY" shall mean the inability, in the opinion of the Company's
group health insurance carrier (or claims processor, if applicable), of
a Participant, because of injury or sickness, to work at a reasonable
occupation which is available with the Participant's employer (the
Company or a Subsidiary) or at any gainful occupation for which the
Participant is or may become fitted.
(J) "EMPLOYEE" means any individual who is an employee of the Company or
any Subsidiary, whether or not he or she is a Director.
(K) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
and in effect from time to time, or any successor statute.
(L) "FAIR MARKET VALUE" in reference to the Stock of the Company means as
of a given date either:
(i) The closing price of a share of Stock on the National Market
System or national securities exchange on which ' the Stock is
then trading as of the day immediately prior to such date, or if
Stock was not traded on that day, then on the next preceding
trading day during which a sale occurred; or
(ii) if the Stock is not traded on the National Market System or
listed on a national securities exchange, the mean between the
bid and asked prices per share last reported by the National
Association of Securities Dealers, Inc., for the over-the-counter
market on the day immediately prior to such date, or in the
absence of any bid and asked prices on that day, the mean of the
bid and asked prices per share of such Stock quoted on the next
preceding day for which there were such quotations; or
<PAGE>
(iii) if the Stock is not traded on the National Market System or
listed on a national securities exchange, and quotations for the
Stock are not reported by the National Association of Securities
Dealers, Inc., the fair market value determined by the Committee
on the day immediately preceding such date on the basis of
available prices for the Stock or in such manner as the Committee
shall agree.
The Committee shall determine the Fair Market Value of any security that is
not publicly traded, using such criteria as it shall determine, in its sole
discretion, to be appropriate for such valuation.
(M) "INSIDER" means any person who is subject to Section 16.
(N) "PARTICIPANT" means an Employee, Director, or other person designated by
the Committee to be eligible for an Award pursuant to this Plan.
(O) "RESTRICTED STOCK" means shares of Stock which have certain restrictions
attached to the ownership thereof, which may be issued under Section 3.4.
(P) "RETIREMENT" means termination of employment with the Company or a
Subsidiary for any reason other than death or Disability on or after age
65.
(Q) "RULE 16B-3" means Rule 16b-3 as promulgated by the Securities and
Exchange Commission on May 31, 1996, effective August 15, 1996, as such
regulation or successor regulation shall be hereafter amended.
(R) "SECTION 16" means Section 16 of the Exchange Act or any successor
regulation and the rules promulgated thereunder as they may be amended
from time to time.
(S) "SPOUSE" means the person of the opposite sex to whom the Participant is
married, as determined by the law of the Participant's legal domicile, on
the date of the Participant's death.
(T) "STOCK" means shares of the no par value Common Stock of the Company.
(U) "STOCK APPRECIATION RIGHT" means a right,-the value of which is
determined relative to the appreciation in value of shares of Stock,
which may be issued under Section 3.3.
(V) "STOCK OPTION" means a right to purchase shares of Stock granted pursuant
to Section 3.2 and includes Incentive Stock Options and Non-Qualified
Stock Options as defined in Section 3.2(a).
<PAGE>
(W) "SUBSIDIARY" means any corporation (other than the Company), limited
liability company, or other business organization in an unbroken chain of
entities beginning with the Company in which each of such entities other
than the last one in the unbroken chain owns stock, units or other
interests possessing 50 percent or more of the total combined voting
power of all classes of stock, units or other interests in one of the
other entities in that chain.
(X) "SUBSTANTIAL SHAREHOLDER" means an Employee who is, at the time of the
grant to the Employee of an Award, an "owner" (as defined in Section
422(b)(6) of the Code, modified as provided in Section 424 of the Code)
of more than ten percent (I 0%) of the total combined voting power of all
classes of stock of the Company or any - Subsidiary.
ARTICILE II
ELIGIBILITY
Awards may be granted to any Employee who is or class of Employees who
are designated as Participants from time to time by the Committee and to such
other person, such as a non-Employee Director, local director, or consultant,
whose relationship with the Company or a Subsidiary is deemed by the Committee
to be sufficiently important to the Company or Subsidiary as to warrant receipt
by such person of an Award or such person that the Company or a Subsidiary or
the Committee wishes to secure as a key employee or director of the Company or a
Subsidiary for whom the grant of an Award will, in the Committee's judgment, act
as an inducement to such person to accept such position. The Committee shall
determine which Employees, Directors, or other eligible persons shall be
Participants, the types of Awards to be made to Participants, and the terms,
conditions, and limitations applicable to the Awards.
ARTICLE III
AWARDS
SECTION 3.1. GENERAL. Awards may include, but are not limited to, those
described in this Article III, including its sections. The Committee may grant
Awards singly, in tandem, or in combination with other Awards, as the Committee
may in its sole discretion determine. Subject to the other provisions of this
Plan, Awards also may be granted in combination or in tandem with, in
replacement of, or as altematives to, grants or rights under this Plan and any
other employee plan of the Company.
SECTION 3.2. STOCK OPTIONS. A Stock Option is a right to-purchase a
specified number of shares of Stock at a specified price during such specified
time as the Committee shall determine, subject to the following:
(a) An option granted may be either of a type that complies with the
requirements of incentive stock options as defined in Section 422
of the Code ("Incentive Stock Option") or of a type that does not
comply with such requirements ("Non-Qualified Option").
<PAGE>
(b) The exercise price per share of any Incentive Stock Option shall
be no less than the Fair Market Value per share of the Stock
subject to the option on the date such Stock Option is granted,
except that, if an Incentive Stock Option is granted to a
Substantial Shareholder, the exercise price per share shall be no
less than one hundred ten percent (110%) of the Fair Market Value
per share of Stock subject to the option on the date such Stock
Option is granted.
(c) The exercise price per share of any Non-Qualified Option may be
less than the Fair Market Value per share of Stock subject to the
option on the date such Stock Option is granted. -
(d) No Incentive Stock Option shall be exercisable after the
expiration of ten (I 0) years from the date on which the
Incentive Stock Option is granted, except that, if an Incentive
Stock Option is granted to a Substantial Shareholder, such Stock
Option shall not be exercisable after the expiration of five (5)
years from the date on which the Incentive Stock Option is
granted.
(e) A Stock Option may be exercised, in whole or in part, by giving
written notice of exercise to the Company specifying the number
of shares of Stock to be purchased and complying with such other
terms and conditions as the Committee may specify.
(f) The exercise price of the Stock subject to the Stock Option may
be paid in cash or, at the discretion of the Committee, may also
be paid by the tender of shares of Stock already owned by the
Participant, or through a combination of cash and shares of
Stock, or through such other means that the Committee determines
are consistent with the Plan's purpose and applicable law. No
fractional shares of Stock will be issued or accepted.
(g) The exercise price of the Stock subject to the Stock Option may
be paid, at the discretion of the Committee, by delivery to the
Company or its designated agent of an irrevocable written notice
of exercise form together with irrevocable instructions to a
broker-dealer to sell or margin a sufficient portion of the
shares as to which the Stock Option is to be exercised and to
deliver the sale or margin loan proceeds directly to the Company
to pay the exercise price.
<PAGE>
SECTION 3.3. STOCK APPRECIATION RIGHTS. A Stock Appreciation Right is a
right to receive, upon surrender of the right, but without payment of an
exercise price, an amount payable in cash and/or shares of Stock under such
terms and conditions as the Committee shall determine, subject to the following:
(a) A Stock Appreciation Right may be granted in tandem with all or part of a
Stock Option, in addition to a Stock Option, or completely independent of
a Stock Option or any other Award under this Plan. A Stock Appreciation
Right issued in tandem with a Stock Option may be granted at the time of
grant of the related Stock Option or at any time thereafter during the
term of the Stock Option.
(b) The amount payable by the Company or Subsidiary in cash and/or shares of
Stock with respect to each right shall be equal in value to a percent of
the amount by which the Fair Market Value per share of Stock on the
exercise date exceeds the base value per share established for the Stock
Appreciation Right. The applicable percent shall be established by the
Committee. The amount payable in shares of Stock, if any, is determined
with reference to the Fair Market Value on the date of exercise.
(c) Stock Appreciation Rights issued in tandem with Stock Options shall be
exercisable only to the extent that the Stock Options to which they
relate are exercisable. Upon the exercise of the Stock Appreciation
Right, the Participant shall surrender to the Company the underlying
Stock Option. Stock Appreciation Rights issued in tandem with Stock
Options shall automatically terminate upon the exercise of such Stock
Options.
(d) A Stock Appreciation Right may be a "limited" Stock Appreciation Right,
such as, for example, a Stock Appreciation Right exercisable upon the
occurrence of a certain event or certain events.
SECTION 3.4. RESTRICTED STOCK. Restricted Stock is shares of Stock that
are issued to a Participant or awarded to a Participant as "phantom stock" and
are subject to such terms, conditions, and restrictions as the Committee deems
appropriate, which may include, but are not limited to, restrictions upon the
sale, assignment, transfer, or other disposition of the Restricted Stock and the
requirement of forfeiture of the Restricted Stock upon termination of employment
or membership on the Board under certain specified conditions. The Committee may
provide for the lapse of any such term or condition based on such factors or
criteria as the Committee may determine. If the shares subject to a Restricted
Stock Award are issued to a Participant, the Participant shall have, with
respect to the Restricted Stock, all of the rights of a shareholder of the
Company, including, but not limited to, the right to vote the Restricted Stock
and the right to receive any cash or stock dividends on such Stock.
SECTION 3.5. PERFORMANCE AWARDS. Performance Awards may be granted under
this Plan from time to time based on such terms and conditions as the Committee
deems appropriate provided that such Awards shall not be inconsistent with the
terms and purposes of this Plan. Performance Awards are Awards which are
contingent upon the performance of all or a portion of the Company and/or
subsidiaries or which are contingent upon the individual performance of the
Participant. Performance Awards may be in the form of performance units,
performance shares, and such other forms of performance Awards which the
Committee shall determine. The Committee shall determine the performance
measurements and criteria for such performance Awards.
SECTION 3.6. OTHER AWARDS. The Committee may from time to time grant
other Stock and Stock-based Awards under the Plan, including, but not limited
to, those Awards pursuant to which shares of Stock are or may in the future be
acquired, Awards denominated in Stock units, securities convertible into shares
of Stock, and dividend equivalents. The Committee shall determine the terms and
conditions of such other Stock and Stock-based Awards provided that such Awards
shall not be inconsistent with the terms and purpose of this Plan.
<PAGE>
ARTICLE IV
AWARD DOCUMENTS
SECTION 4.1. GENERAL. Each Award under this Plan shall be evidenced by
an Award Document issued by the Company or the Committee setting forth the
number of shares of Stock or other security, Stock Appreciation Rights, or units
subject to the Award and such other terms and conditions applicable to the Award
as are determined by the Committee. When deemed required or desirable by the
Committee, the Award Document shall be signed by the Participant.
SECTION 4.2. REQUIRED TERMS. In any event, Award Documents shall
include, at a minimum, explicitly or by reference, the following terms:
(a) Assignability. Provisions defining the conditions under which and
transferees to whom an Award may be assigned, pledged, or otherwise
transferred. In the absence of any such provision, an Award may not be
assigned, pledged, or otherwise transferred except by will or by the laws
of descent and distribution and, during the lifetime of a Participant,
the Award may be exercised only by such Participant or by the
Participant's guardian or legal representative.
(b) Termination of Employment. A provision describing the treatment of an
Award in the event of the Retirement, Disability, death, or other
termination of an Employee Participant's employment with the Company,
including but not limited to terms relating to the vesting, time for
exercise, forfeiture, or cancellation of an Award in such circumstances.
(c) Rights of Shareholder. A provision that a Participant shall have no
rights as a shareholder with respect to any securities covered by an
Award until the date the Participant becomes the holder of record. Except
as provided in Article VII hereof, no adjustment shall be made for
dividends or other rights, unless the Award Document specifically
requires such adjustment, in which case grants of dividend equivalents or
similar rights shall not be considered to be a grant of any other
shareholder right.
(d) Withholding. A provision requiring the withholding of applicable taxes
required by law from all amounts paid in satisfaction of an Award. In the
case of an Award paid in cash, the withholding obligation shall be
satisfied by withholding the applicable amount and paying the net amount
in cash to the Participant. In the case of Awards paid in shares of Stock
or other securities of the Company, a Participant may satisfy the
withholding obligation by paying the amount of any taxes in cash or, with
the approval of the Committee, shares of Stock or other securities may be
deducted from the payment to satisfy the obligation in full or in part as
long as such withholding of shares does not violate any applicable laws,
rules or regulations of federal, state, or local authorities. The number
of shares to be deducted shall be determined by reference to the Fair
Market Value of such shares of Stock on the applicable date (the "given"
date of Section 1.3(1)).
<PAGE>
SECTION 4.3. OPTIONAL TERMS. Award Documents may include the following
terms:
(a) Replacement, Substitution, and Reloading. Any provisions:
(i) permitting the surrender of outstanding Awards or securities
held by the Participant in order to exercise or realize
rights under other Awards, under similar or different terms
(including the grant of reload options); or
(ii) requiring holders of Awards to surrender outstanding Awards
as a condition precedent to the grant of new Awards under the
Plan.
(b) Holding Period. In the case of an Award to an Insider:
(i) of an quity security, a provision stating (or the effect of
which is to require) that such security must be held for at
least six months (or such longer period as the Committee in
its discretion specifies) from the date of acquisition;
(ii) of a derivative security with a fixed exercise price within
the meaning of Section 16, a provision stating (or the effect
of which is to require) that at least six months (or such
longer period as the Committee in its discretion specifies)
must elapse from the date of acquisition of the derivative
security to the date of disposition of the derivative
security (other than upon exercise or conversion) or its
underlying equity security; or
(iii) of a derivative security without a fixed exercise price
within the meaning of Section 16, a provision stating (or the
effect of which is to require) that at least six months (or
such longer period as the Committee in its discretion
specifies) must elapse from the date upon which such price is
fixed to the date of disposition of the derivative security
(other than by exercise or conversion) or its underlying
equity security.
(c) Other Terms. Such other terms as are necessary and appropriate to
effect an Award to the Participant including, but not limited to,
the term of the Award, vesting provisions, deferrals, any
requirements for continued employment with the Company or a
Subsidiary, any other restrictions or conditions (including
performance requirements) on the Award and the method by which
restrictions or conditions lapse, the effect on the Award of a
Change of Control as defined in Section 8.2, or the price, amount,
or value of Awards.
<PAGE>
ARTICLE V
SHARES OF STOCK
SUBJECT TO THE PLAN
SECTION 5.1. GENERAL. Subject to the adjustment provisions of Article
VII hereof, the number of shares of Stock for which Awards may be granted under
the Plan shall not exceed One Million Five Hundred Thousand (1,500,000) shares.
SECTION 5.2. ADDITIONAL SHARES. Any unexercised or undistributed
portion of the terminated, expired, exchanged, or forfeited Award or Awards
settled in cash in lieu of shares of Stock shall be available for further Awards
in addition to those available under Section 5. 1.
SECTION 5.3. COMPUTATION RULES. For the purpose of computing the total
number of shares of Stock granted under the Plan, the following rules shall
apply to Awards payable in shares of Stock or other securities, where
appropriate:
(a) Except as provided in subsection (e) of this Section, each Stock
Option shall be deemed to be the equivalent of the maximum number
of shares that may be issued upon exercise of the particular
Stock Option;
(b) except as provided in subsection (e) of this Section, each other
Stockbased Award payable in some other security shall be deemed
to be equal to the number of shares to which it relates;
(c) except as provided in subsection (e) of this Section, where the
number of shares available under the Award is variable on the
date it is granted, the number of shares shall be deemed to be
the maximum number of shares that could be received under that
particular Award;
(d) where one or more types of Awards (both of which are payable in
shares of Stock or another security) are granted in tandem with
each other, such that the exercise of one type of Award with
respect to a number of shares cancels an equal number of shares
of the other, the number of shares under each type of Award shall
be deemed to be equivalent to the number of shares under the
other type of Award; and
(e) each share awarded or deemed to be awarded under the preceding
subsections shall be treated as share(s) of Stock, even if the
Award is for a security other than Stock.
Additional rules for determining the number of shares of Stock granted under the
Plan may be made by the Committee, as it deems necessary or appropriate. -
SECTION 5.4. SHARES TO BE USED. The shares of Stock which may be issued
pursuant to an Award under the Plan may be authorized but unissued Stock or
Stock that is or has been acquired by the Company.
<PAGE>
ARTICLE VI
ADMINISTRATION
SECTION 6.1. GENERAL. The Plan and all Awards pursuant thereto shall be
administered by the Committee so as to permit the Plan and any Award to comply
with Rule 16b-3. A majority of the members of the Committee shall constitute a
quorum. The vote of a majority of a quorum shall constitute action by the
Committee.
SECTION 6.2. DUTIES. The Committee shall have the duty to administer
the Plan, and to determine periodically the Participants in the Plan and the
nature, amount, pricing, timing, and other terms of Awards to be made to such
individuals.
SECTION 6.3. POWERS. The Committee shall have all powers necessary to
enable, it to carry out its duties under the Plan properly, including, but not
limited to, the power to interpret and administer the Plan. All questions of
interpretation with respect to the Plan, the number of shares of Stock or other
security, Stock Appreciation Rights, or units granted, the terms of any Award
Documents, and other matters arising hereunder shall be determined by the
Committee, and its determination shall be final and conclusive upon all parties
in interest. In the event of any conflict between an Award Document and the
Plan, the terms of the Plan shall govern.. In addition, the Committee may
delegate to the officers or employees of the Company the authority to execute
and deliver such instruments and documents, to do all such acts and things, and
to take all such other steps deemed necessary, advisable or convenient for the
effective administration of the Plan in accordance with its terms and purpose,
except that the Committee may not delegate any discretionary authority with
respect to substantive decisions or functions regarding the Plan or Awards
thereunder as those relate to Insiders including, but not limited to, decisions
regarding the timing, eligibility, pricing, amount or other material ten-n of
such Awards. The Committee may, in its discretion and consistent with the terms
of the Plan, the requirements of Section 16 and Rule 16b-3 with respect to
Insiders, the requirements of other applicable law, and the terms of an Award
Document, amend, modify, or waive the provisions of an Award Document or grant a
new Award with respect to or in replacement of an existing Award; provided,
however, that no such amendment, modification, or waiver shall, without the
Participant's consent, alter or impair any rights or obligations under an Award
Document unless that is specifically permitted by the Award Document.
SECTION 6.4. INTENT TO AVOID INSIDER TRADING. It is the intent of the
Company that the Plan and Awards hereunder satisfy and be interpreted in a
manner, that, in the case of Participants who are or may be Insiders, satisfies
the applicable requirements of Rule 16b-3, so that such persons will be entitled
to the benefits of Rule 16b-3 or other exemptive rules under Section 16 and will
not be subjected to avoidable liability thereunder. If any provision of the Plan
or of any Award would otherwise frustrate or conflict with the- intent expressed
in this Section 6.4, that provision to the extent possible shall be interpreted
and deemed amended so as to avoid such conflict. To the extent of any remaining
irreconcilable conflict with such intent, the provision shall be deemed void as
applicable to Insiders.
<PAGE>
ARTICLE VII
ADJUSTMENTS UPON CHANGES
IN CAPITALIZATION
In the event of a reorganization, recapitalization, Stock split, Stock
dividend, exchange of Stock, combination of Stock, merger, consolidation or any
other change in corporate structure of the Company affecting the Stock, or in
the event of a sale by the Company of all or a significant part of its assets,
or any distribution to its shareholders other than a normal cash dividend, the
Committee shall make appropriate adjustment in the number, kind, price and value
of shares of Stock authorized by this Plan and any adjustments to outstanding
Awards as it determines appropriate so as to prevent dilution or enlargement of
rights, unless the Award or Award Document provides otherwise.
ARTICLE VIII
CHANGES OF CONTROL
SECTION 8.1. GENERAL. In the event of a Change of Control of the
Company, in addition to any action or consequences required or authorized by the
terms of an Award Document, a Participant's interest in any outstanding Award
shall become fully vested and exercisable. In addition, the Committee may, in
its discretion, recommend that the Board of Directors take any of the following
actions, as a result of, or in anticipation of, any such event to assure fair
and equitable treatment of Plan Participants:
(a) offer to purchase any outstanding Award made pursuant to this Plan
from the holder for its equivalent cash value, as determined by the
Committee, as of the date of the Change of Control; or
(b) make adjustments or modifications to outstanding Awards as the
Committee deems appropriate to maintain and protect the rights and
interests of Plan Participants following such Change of Control.
Any such action approved by the Board of Directors shall be conclusive and
binding on the Company, a Subsidiary, and all Participants.
SECTION 8.2. "CHANGE OF CONTROL". For the purposes of this Section, a
"Change of Control" shall mean the earliest date on which one of the following
events shall occur:
(a) Any Person (as defined hereafter) or Persons as a group
beneficially own more than 20% of the combined voting power of all
classes of the Company's outstanding capital stock or acquire control
in any manner of the election of a majority of the directors of the
Company;
(b) The Company consolidates or merges with or into another
corporation, association, or entity, or is otherwise reorganized,
where the Company is not the surviving corporation in such
transaction and the holders of the voting securities of the Company
immediately prior to such acquisition own less than a majority of the
voting securities of the surviving entity immediately after the
transaction;
(c) The Company shall sell substantially all of its assets to another
entity which is not a wholly-owned Subsidiary; or
(d) There is, during any period of two (2) consecutive years, a change
in the majority of the Board unless the election of each new Director
was approved by at least two-thirds of the directors then still in
office who are Directors at the beginning of such two (2) year
period.
SECTION 8.3. DEFINITION OF "PERSON" APPLICABLE TO CHANGE OF CONTROL.
"PERSON" means any individual, inn, corporation, partnership, limited liability
company, trust, or other entity; PROVIDED, HOWEVER, that "Person" does not
include:
(a) the Company or any Subsidiary; or
(b) any employee benefit plan of the Company or any Subsidiary or any
entity appointed or established by the Company or Subsidiary as a
fiduciary for or pursuant to the terms of any such employee benefit
plan.
<PAGE>
ARTICLE IX
AMENDMENT AND TERMINATION
SECTION 9.1. AMENDMENT OF PLAN. The Company expressly reserves the
right, at any time and from time to time, to amend in whole or in part any of
the terms and provisions of the Plan and any or all Award Documents under the
Plan to the extent permitted by law for whatever reason(s) the Company may deem
appropriate; provided, however, no amendment may be effective, without the
approval of the shareholders of the Company, if approval of such amendment is
required in order that transactions in Company securities under the Plan be
exempt from the operation of Section 16(b) of the Securities Exchange Act of
1934 or if such amendment, with respect to the issuance of Incentive Stock
Options, either:
(a) materially increases the number of shares of Stock which may be
issued under the Plan, except as provided for in Article VII; or
(b) materially modifies the requirements as to eligibility for
participation in the Plan (unless designed to comport with the
Code, the Employee Retirement Security Act of 1974, or other laws).
SECTION 9.2. TERMINATION OF PLAN. Except as may otherwise be provided in
any Award Document, the Company expressly reserves the right, at any time, to
suspend or terminate the Plan and any or all Award Documents under the Plan to
the extent permitted by law for whatever reason(s) the Company may deem
appropriate, including, but not limited to, suspension or termination as to the
Company, any participating Subsidiary, any Participant, or any class of
Participants.
SECTION 9.3. PROCEDURE FOR AMENDMENT OR TERMINATION. Any amendment to
the Plan or termination of the Plan shall be made by the Company by resolution
of the Board and shall not require the approval or consent of any Subsidiary,
Participant, or Beneficiary in order to be effective, to the extent permitted by
law. Any amendment to the Plan or termination of the Plan may be retroactive to
the extent not prohibited by applicable law.
<PAGE>
ARTICLE X
MISCELLANEOUS
SECTION 10.1. RIGHTS OF EMPLOYEES. Status as an eligible Employee shall
not be construed as a commitment that any Award will be made under the Plan to
such eligible Employee or to eligible Employees generally. Nothing contained in
the Plan (or in any other documents related to this Plan or to any Award) shall
confer upon any Employee or Participant any right to continue in the employ or
other service of or relationship with the Company or constitute any contract or
limit in any way the right of the Company to change such person's compensation
or other benefits or to terminate the employment or relationship of such person
with or without cause.
SECTION 10.2. COMPLIANCE WITH LAW. No certificate for Stock
distributable pursuant to this Plan shall be issued and delivered unless the
issuance of such certificate complies with all applicable legal requirements
including, without limitation, compliance with the provisions of applicable
state securities laws, the Securities Act of 1933, as amended from time to time
or any successor statute, the Exchange Act and the requirements of the market
systems or exchanges on which the Stock may, at the time, be traded or listed.
SECTION 10.3. DEFERRAL PROGRAMS. The Board of Directors may, at its
discretion, adopt a program or programs of deferred receipt whereby a
Participant or Participants may defer receipt of Stock or cash otherwise
issuable or payable to the Participant pursuant to an Award, which program(s)
shall contain such rules concerning eligibility to participate, timing of
elections to defer, forms of distribution of the Stock or cash and the like as
the Board o. Directors shall determine.
SECTION 10.4. UNFUNDED STATUS. The Plan shall be unfunded. Neither the
Company nor the Board of Directors shall be required to segregate any assets
that may at any time be represented by Awards made pursuant to the Plan. Neither
the Company, the Committee, nor the Board of Directors shall be deemed to be a
trustee of any amounts to be paid under the Plan.
SECTION 10.5. LIMITS ON LIABILITY. Any liability of the Company to any
Participant with respect to an Award shall be based solely upon contractual
obligations created by the Plan and the Award Document. Neither the Company nor
any member of the Board of Directors or the Committee, nor any other person
participating in any determination of any question under the Plan, or in the
interpretation, administration or application of the Plan, shall have any
liability to any party for any action taken or not taken, in good faith under
the Plan and that do not constitute willful misconduct. To the extent permitted
by applicable law, the Company shall indemnity and hold harmless each member of
the Board of Directors and the Committee from and against any and all liability,
claims, demands, costs, and expenses (including, but not limited to, the costs
and expenses of attomeys incurred in connection with the investigation or
defense of claims) in any manner connected with or arising out of any actions or
inactions in connection with the administration of the Plan except for such
actions or inactions which are not in good faith or which constitute willful
misconduct.
SECTION 10.6. SECTION REFERENCES. All references in this Plan to
sections or articles shall refer to sections and articles of this Plan unless
specifically noted otherwise.
ARTICLE XI
EFFECTIVE DATE OF PLAN
This Plan shall become effective on the date of its adoption by the
Board; provided, however, the effectiveness of this Plan is subject to its
approval and ratification by the shareholders of the Company within one year
from the date of adoption hereof by the Board. The Committee shall have
authority to grant Awards hereunder until one day before the ten year
anniversary of the date of adoption of the Plan by the Board, subject to the
ability of the Company to terminate the Plan as provided in Article IX.
<PAGE>
TRIANGLE BANCORP, INC.
1998 OMNIBUS STOCK PLAN
EXERCISE OF INCENTIVE STOCK OPTION
From: (Optionee)
To: Triangle Bancorp, Inc.
I hereby exercise the incentive stock option granted to me in the Option
Agreement dated the - day of ,as follows:
(a) Number of whole shares with respect to which the option is being
exercised:
(b) Method of exercise (cash, for example)
(C) The person in whose name the stock certificate or certificates
should be registered:
Name:
Address:
Social Security No.:
(d) Date of this Notice:
(e) Date of exercise (date of exercise must be at least five (5) days
after delivery of this Notice):
Optionee
This form should be delivered by hand or by registered or certified mail,
postage prepaid, return receipt requested, to the headquarters of Triangle
Bancorp, Inc., at 4300 Glenwood Avenue, Raleigh, N.C. 27612, Attention:
Joe Meierer.
<PAGE>
TRIANGLE BANCORP, INC.
1998 OMNIBUS STOCK PLAN
Exercise of Non-Qualified Stock Option
From: (Optionee)
To: Triangle Bancorp, Inc.
I hereby exercise the non-qualified stock option granted to me in the Option
Agreement dated the ____ day of ________ as follows:
(a) Number of whole shares with respect to which the option is being
exercised:
(b) Method of exercise (cash, for example)
(c) The person in whose name the stock certificate or certificates
should be registered:
Name:
Address:
Social Security No.:
(d) Date of this Notice:
(e) Date of exercise (date of exercise must be at least five (5) days
after delivery of this Notice):
Optionee
This form should be delivered by hand or by registered or certified mail,
postage pre-paid, return receipt requested, to the headquarters of Triangle
Bancorp, Inc., at 4300 Glenwood Avenue, Raleigh, N.C. 27612, Attention: Joe
Meierer.
STATE OF NORTH CAROLINA
COUNTY OF WAKE
CHANGE OF CONTROL AGREEMENT
THIS CHANGE OF CONTROL AGREEMENT (hereinafter referred to as this
"Agreement") is entered into as of April 1, 1998, by and among TRIANGLE BANCORP,
INC., a North Carolina corporation "Triangle"), TRIANGLE BANK, a banking
corporation organized under the laws of North Carolina (the "Bank"), and Robert
E. Branch (the "Officer").
WHEREAS, the Officer is employed by Triangle and the Bank as an
Executive Vice President; and
WHEREAS, the services of the Officer, the Officer's experience and
knowledge of the affairs of Triangle and the Bank and reputation and contacts in
the industry are extremely valuable to Triangle and the Bank; and
WHEREAS, Triangle and the Bank wish to attract and retain such
well-qualified executives and it is in the best interest of Triangle and the
Bank and of the Officer to secure the continued services of the Officer
notwithstanding any change of control of Triangle or the Bank; and
WHEREAS, Triangle and the Bank consider the establishment and
maintenance of a sound and vital management team to be part of their overall
corporate strategy and to be essential to protecting and enhancing the best
interest of Triangle, the Bank and Triangle's shareholders; and
WHEREAS, the parties desire to enter into this Agreement to provide the
Officer with security in the event of a change of control of Triangle or the
Bank to ensure the continued loyalty of the Officer during any change of control
in order to maximize shareholder value as well as the continued safe and sound
operation of Triangle and the Bank; and
WHEREAS, the Officer, Triangle and the Bank acknowledge and agree that
this Agreement is not an employment agreement but is limited to circumstances
giving rise to a change of control of Triangle or the Bank as set forth herein.
NOW, THEREFORE, for and in consideration of the premises and mutual
promises, covenants, and conditions hereinafter set forth, and other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, the parties hereby do agree as follows:
<PAGE>
1. Term. The initial term of this Agreement shall be for the period
commencing upon the effective date of this Agreement and ending
two (2) calendar years from the effective date of this
Agreement. At each anniversary date of this Agreement (i.e.,
April 1, 2000), the term automatically shall be extended for an
additional two (2) years on the same terms and conditions set
forth herein, unless Triangle and the Bank shall give written
notice to the Officer of their intention not to extend this
Agreement for an additional two (2) years, which notice shall be
given at least thirteen (13) months prior to the next
anniversary date.
2. Change of Control. (a) In the event of a termination of the
Officer's employment in connection with, or within twenty-four
(24) months after, a "Change of Control" (as defined in
Subparagraph (e) below) of Triangle or the Bank, for reasons
other than for "cause" (as defined in Subparagraph (b) below),
the Officer shall be entitled to receive the sum set forth in
Subparagraph (d) below. Said sum shall be payable as provided in
Subparagraph (f) below, provided, however, that the Officer is
employed on a full-time basis by the Bank at the effective time
of the "Change of Control", except as provided in Subparagraph
(i) below.
(b) For purposes of this Agreement, termination for "cause"
shall include termination because of the Officer's personal
dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to
perform stated duties, willful violation of any law, rule, or
regulation other than traffic violations or similar offenses, or
final cease-and-desist order.
(c) The Officer shall have the right to terminate this Agreement
upon the occurrence of any of the following events (the
"Termination Events") within twenty-four (24) months following a
Change of Control of Triangle or the Bank:
(i) Officer is assigned any duties and/or responsibilities that
are inconsistent with his duties or responsibilities at the time
of the Change of Control;
(ii) Officer's annual base salary is reduced below the amount in
effect as of the effective date of a Change of Control;
(iii) Officer's life insurance, medical or hospitalization
insurance, disability insurance, stock option plans, stock
purchase plans, deferred compensation plans, management
retention plans, retirement plans, or similar plans or benefits
being provided by the Bank to the Officer as of the effective
date of the Change of Control are reduced in their level, scope,
or coverage, or any such insurance, plans, or benefits are
eliminated, unless such reduction or elimination applies
proportionately to all salaried employees of the Bank who
participated in such benefits prior to such Change of Control;
or
(iv) Officer is transferred to a location which is more than
fifty (50) miles from his current principal work location,
without the Officer's express written consent.
<PAGE>
A Termination Event shall be deemed to have occurred on the date
such action or event is implemented or takes effect.
(d) In the event that the Officer terminates this Agreement
pursuant to this Paragraph 2, the Bank will be obligated (1) to
pay or cause to be paid to the Officer an amount equal to two
(2) times (i) the Officer's then current salary plus (ii) the
average of the cash bonus paid to the Officer by the Bank under
the Bank's Cash Bonus Plan during the immediately preceding two
(2) years, and (2) to continue for a period of two (2) years
after such termination all benefits the Officer was receiving
and entitled to at such termination date under Triangle's and
the Bank's benefit programs and plans, including, but not
limited to, medical, disability, life and accident insurance
coverage, automobile allowance, professional qualification
allowance, and club dues (or, at the Officer's election, the
Bank will pay the dollar equivalent of such benefits).
(e) For the purposes of this Agreement, the term Change of
Control shall mean any of the following events:
(i) After the effective date of this Agreement, any
"person" (as such term is defined in Section 7(j)(8)(A) of
the Change in Bank Control Act of 1978), directly or
indirectly, acquires beneficial ownership of voting stock,
or acquires irrevocable proxies or any combination of voting
stock and irrevocable proxies, representing fifty percent
(50%) or more of any class of voting securities of Triangle
or the Bank, or acquires control of in any manner the
election of a majority of the directors of Triangle or the
Bank;
(ii) Triangle or the Bank consolidates or merges with
or into another corporation, association, or entity, or is
otherwise reorganized, where Triangle or the Bank is not the
surviving corporation in such transaction and the holders of
the voting securities of Triangle or the Bank immediately
prior to such acquisition own less than a majority of the
voting securities of the surviving entity immediately after
the transaction; or
(iii) All or substantially all of the assets of
Triangle or the Bank are sold or otherwise transferred to or
are acquired by any other corporation, association, or other
person, entity, or group.
Notwithstanding the other provisions of this Paragraph 2, a
transaction or event shall not be considered a Change of Control
if, prior to the consummation or occurrence of such transaction
or event, the Officer, Triangle and the Bank agree in writing
that the same shall not be treated as a Change of Control for
purposes of this Agreement.
(f) Amounts payable pursuant to this Paragraph 2 shall be paid,
at the option of the Officer, either in one lump sum or in
twenty-four (24) equal monthly payments.
(g) Following a Termination Event which gives rise to the
Officer's rights hereunder, the Officer shall have two (2) years
from the date of occurrence of the Termination Event to
terminate this Agreement pursuant to this Paragraph 2. Any such
termination shall be deemed to have occurred only upon delivery
to the Bank or any successor thereto, of written notice of
termination which describes the Change of Control and
Termination Event. If the Officer does not so terminate this
Agreement within such two-year period, the Officer shall
thereafter have no further rights hereunder with respect to that
Termination Event, but shall retain rights, if any, hereunder
with respect to any other Termination Event as to which such
period has not expired.
<PAGE>
(h) In the event any dispute shall arise between the Officer and
the Bank as to the terms or interpretation of this Agreement,
including this Paragraph 2, whether instituted by formal legal
proceedings or otherwise, including any action taken by the
Officer to enforce the terms of this Paragraph 2 or in defending
against any action taken by Triangle or the Bank, the Bank shall
reimburse the Officer for all costs and expenses, proceedings or
actions, in the event the Officer prevails in any such action.
(i) It is further agreed that the payment agreed in this
Paragraph 2 to be paid by the Bank to the Officer shall be due
and paid to the Officer should a Change of Control (as defined
above) be agreed to by Triangle and/or the Bank or be
consummated within six (6) months of the Officer's involuntary
termination of employment with the Bank for reasons other than
for "cause" as such term is defined in Subparagraph 2(b) hereof.
3. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon any corporate or other successor
of Triangle or the Bank which shall acquire, directly or
indirectly, by conversion, merger, consolidation, purchase, or
otherwise, all or substantially all of the assets of Triangle or
the Bank.
4. Modification; Waiver; Amendments. No provision of this Agreement
may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing and signed by
the Officer, Triangle and the Bank, except as herein otherwise
provided. No waiver by any party hereto, at any time, of any
breach by any party hereto, or compliance with, any condition or
provision of this Agreement to be performed by such party shall
be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No
amendments or additions to this Agreement shall be binding
unless in writing and signed by the parties, except as herein
otherwise provided.
5. Applicable Law. This Agreement shall be governed in all respects
whether as to validity, construction, capacity, performance, or
otherwise, by the laws of North Carolina, except to the extent
that federal law shall be deemed to apply.
6. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any
provisions shall not affect the validity or enforceability of
the other provisions hereof.
IN TESTIMONY WHEREOF, Triangle and the Bank have caused this Agreement
to be executed under seal and in such form as to be binding, all by authority of
their Board of Directors first duly given, and the individual party hereto has
set said party's hand hereto and has adopted as said party's seal the
typewritten word "SEAL" appearing beside said party's name, this the day and
year first above written.
TRIANGLE BANCORP, INC.
BY: __________________________
Michael S. Patterson
President
ATTEST:
- ----------------------------
Susan C. Gilbert, Secretary
(CORPORATE SEAL)
TRIANGLE BANK
BY: ___________________________
Michael S. Patterson
President
ATTEST:
- ---------------------------
Susan C. Gilbert, Secretary
(CORPORATE SEAL)
______________________(SEAL)
Robert E. Branch
5
[PHOTO OF TRIANGLE BANK LOGO APPEARS HERE]
PERFORMANCE, LOCATION, SERVICE
Triangle Bancorp, Inc.
1998 Annual Report
<PAGE>
[BAR CHART APPEARS BELOW WITH THE FOLLOWING PLOT POINTS:]
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
$1.2 $1.4 $1.6 $2.0 $2.1
TOTAL ASSETS
(in billions)
COMPOUNDED ANNUAL GROWTH RATE:
15.47%
Triangle Bancorp, Inc.
Performance, location, and service. These are critical elements of success as
the nation's financial services companies confront challenges presented by one
of the most profound periods of change in the history of the industry. The
winners will be those that perform superbly, are strategically located, and have
the mix of products and services businesses and consumers require.
[BAR CHART APPEARS BELOW WITH THE FOLLOWING PLOT POINTS:]
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
Actual $7.2 $12.5 $14.8 $19.5 $21.9
Without nonrecurring $7.8 $14.2 $15.6 $19.9 $24.5
NET INCOME
(in millions)
COMPOUNDED ANNUAL GROWTH RATE:
32.08% (actual)
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
(IN THOUSANDS)
Net interest income $ 74,630 $ 68,390 $ 58,058 $ 50,423 $ 43,619
Provision for loan losses 5,115 5,121 2,515 31 1,008
Noninterest income 18,456 16,922 12,969 11,656 9,383
Noninterest expense 54,896 50,125 44,876 43,072 41,071
Provision for income taxes 11,217 10,540 8,840 6,460 3,740
Net income $ 21,858 $ 19,526 $ 14,796 $ 12,516 $ 7,183
PER SHARE DATA (1)
Basic earnings per share $ 0.87 $ 0.79 $ 0.62 $ 0.52 $ 0.31
Diluted earnings per share 0.84 0.76 0.60 0.51 0.30
Closing share price 15.81 23.59 10.92 9.50 6.67
Book value 6.47 6.14 5.66 5.30 4.61
Cash dividends 0.32 0.25 0.18 0.11 0.05
SELECTED RATIOS
Return on average assets 1.09% 1.11% 0.97% 0.99% 0.63%
Return on average equity 13.69% 13.38% 11.30% 10.58% 6.64%
Shareholders' equity to total assets 7.68% 7.56% 8.53% 9.19% 9.12%
AT PERIOD END (IN THOUSANDS)
Loans, net $1,363,553 $1,273,139 $1,006,287 $ 839,660 $ 690,747
Securities available for sale 482,155 446,363 328,008 280,835 190,036
Securities held to maturity 81,138 100,666 104,873 97,409 183,792
Total assets 2,123,084 2,015,637 1,598,753 1,384,135 1,194,286
Total deposits 1,625,898 1,550,240 1,344,803 1,137,847 1,000,472
Advances from the FHLB 130,300 205,300 59,800 59,500 40,500
Corporation-obligated mandatorily
redeemable capital securities 19,952 19,951 -- -- --
Shareholders' equity 163,027 152,471 136,403 127,259 108,874
AVERAGE BALANCES (IN THOUSANDS)
Loans, net $1,303,000 $1,155,562 $ 938,224 $ 768,638 $ 654,670
Total assets 2,009,754 1,758,148 1,528,728 1,263,337 1,136,049
Total demand deposits 200,135 169,220 149,022 132,235 108,546
Total interest bearing deposits 1,382,982 1,270,693 1,120,851 937,471 853,042
Other borrowings 215,985 130,199 103,093 73,512 45,549
Corporation-obligated mandatorily
redeemable capital securities 19,952 11,588 -- -- --
Shareholders' equity 159,621 145,950 130,939 118,272 108,226
</TABLE>
(1) The per share information presented has been adjusted to give effect to a
three-for-two stock split effected in the form of a 50% stock dividend which was
paid on June 30, 1998 to shareholders of record on June 15, 1998.
1
Triangle Bancorp, Inc. and Subsidiaries
<PAGE>
[PHOTO OF MICHAEL S. PATTERSON APPEARS HERE]
"AS WE LOOK TO THE FUTURE, WE ARE EXCITED ABOUT THE PROSPECTS FOR
CONTINUED SUPERIOR PERFORMANCE."
MICHAEL S. PATTERSON CHAIRMAN, PRESIDENT AND CEO TRIANGLE BANCORP, INC.
[BAR CHART APPEARS BELOW WITH THE FOLLOWING PLOT POINTS:]
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
Actual $0.30 $0.51 $0.60 $0.76 $0.84
Without nonrecurring $0.33 $0.58 $0.63 $0.78 $0.95
DILUTED EARNINGS PER SHARE
Compounded Annual Growth Rate:
29.30% (actual)
2
<PAGE>
TO OUR SHAREHOLDERS
It is a pleasure to present the 1998 operating results for Triangle Bancorp
("Triangle"). It was a year in which we continued to produce excellent financial
results, while successfully integrating two strategic acquisitions that
solidified our position as the eighth largest bank holding company in North
Carolina. Triangle now serves forty-six North Carolina communities with
seventy-two banking offices from Charlotte in the west to Morehead City in the
east.
For the year ended 1998, we reported record recurring earnings of $24.5
million compared to $19.9 million in 1997, an increase of 23%. Diluted recurring
earnings per share for the year were $.95 compared to $.78 for the same period
in 1997, an increase of 22%. Return on average assets and return on average
shareholders' equity for the year, without nonrecurring items, were 1.22% and
15.36% respectively, compared to 1.13% and 13.66% for 1997. Nonrecurring items
in 1998 included merger expenses related to the acquisitions of Guaranty State
Bank and United Federal Savings Bank ("United Federal"). For 1997, nonrecurring
items represented merger-related expenses and a one-time gain on the sale of
branch offices.
Including nonrecurring items, we reported net income of $21.9 million in
1998 compared to $19.5 million for 1997, an increase of 12%. Diluted earnings
per share increased by 11% to $.84 from $.76. Return on average assets and
return on average shareholders' equity for 1998 were 1.09% and 13.69%
respectively, compared to 1.11% and 13.38% for 1997.
Following a year of dramatic growth in 1997, Triangle's stock price
experienced a decline in 1998. However, for the 24 months ended December 31,
1998, the price of our stock increased 45%. The compounded growth rate for a
share of Triangle Bancorp stock over the five years ended December 31, 1998 was
26%, resulting in a total return during this period of 222%. During 1998, the
board of directors increased the annual cash dividend declared to $.35 per share
from $.30 per share in 1997, an increase of 17%. We paid out $8.3 million in
cash dividends or 34% of recurring net income to our shareholders in 1998,
compared to $6.2 million or 31% of recurring net income in 1997. On June 30,
1998, we issued a 50% stock dividend to share holders of record as of June 15,
1998, resulting in approximately 7.2 million additional shares being issued. At
year end December 31, 1998, the Company had approximately 25.2 million shares
outstanding.
During 1998, we completed two strategic acquisitions which added
approximately $400 million in assets to our Company. As a result of these
acquisitions and internal growth, we reported total assets of $2.1 billion at
year-end, compared to $1.6 billion at year-end 1997 on an "as reported" basis.
In April, the acquisition of Guaranty State Bank in Durham added approximately
$100 million in assets and $89 million in deposits. In Durham County, it
elevated Triangle Bank from 18th to 6th in deposit market share and increased
our number of banking
3
Triangle Bancorp, Inc. and Subsidiaries
<PAGE>
offices from one to five. In September, we acquired Rocky Mount-based United
Federal with thirteen offices, approximately $300 million in assets, and a total
of $226 million in deposits. From this transaction, in the Rocky
Mount/Nash/Edgecombe County Metropolitan Statistical Area (MSA), we added $113
million in deposits and improved our market share to 16.4% from 8.6%. Overall,
these two transactions allowed us to increase our percentage of total deposits
in MSAs from 69% to 72% based on June 30, 1997 data.
Other initiatives undertaken in 1998 to position Triangle for continued
growth included a new 20,000 square foot operations and data processing center,
allowing us to more effectively serve our rapidly expanding customer base.
During the second quarter, we completed the installation of a new mainframe
computer system that will enable us to double our size without incurring a major
expenditure for the expansion of computing capacity.
Our customers have a broad range of choices with regards to where they
go for financial services, and we must continue to earn their business every
day. To do this, we must have well-trained and motivated associates who deliver
quality products and services. In 1998, we expanded training programs as part of
our efforts to continually improve our associates' ability to deliver the
highest possible level of service. Over 260 associates were trained in the
consultative sales process to ensure our customers are offered the opportunity
to take advantage of all the products and services we offer. An internal
commercial loan officer development program was implemented, ensuring "added
value" is something our commercial customers will always receive.
As we look to the future, we are fully aware of the vast changes taking
place in the financial services industry. We are confident a solid platform has
been established on which to build our future. Business customers have access to
PC banking, and we will introduce a new online banking product that will be
accessed through our site on the World Wide Web for both retail and commercial
customers in 1999. Through our subsidiary, Triangle Investment Services, our
customers have the ability to purchase stocks, mutual funds, bonds and
annuities. Our government lending division, which specializes in assisting small
business customers with government guaranteed loan programs, continues to
experience exceptional growth. We were the number one originator of Small
Business Administration (SBA) loans among all North Carolina banks in terms of
dollars loaned, and number two in total loans made for the SBA fiscal year ended
June 30, 1998. Our goal is to be number one in both categories. Coastal Leasing,
our wholly-owned subsidiary, which was acquired in October 1997, performed well
in 1998. The integration of its services into our company and the synergy this
line of business has for small business customers has proven to be successful.
During 1998, we increased recurring noninterest income by 24% to $18.5
million from $14.9 million. This income component, which represented 20% of our
total revenue in 1998 compared to 18% just two years ago, is a major area of
focus. Our goal is to increase noninterest income to 25% of total revenue over
the next two years. In addition to areas already mentioned, a major component of
noninterest income growth is projected to come from
4
Triangle Bancorp, Inc. and Subsidiaries
<PAGE>
[PHOTO APPEARS ON TOP RIGHT SIDE OF PAGE:]
EXECUTIVE MANAGEMENT
Left to right: Steven R. Ogburn,
Edward O. Wessell, Debra L. Lee
and Robert E. Branch
residential mortgage lending, as a result of the expertise we acquired in the
United Federal acquisition. This line of business has excellent noninterest
income growth potential for a Company our size, and we believe it will be a
significant contributor to our revenue growth in the future.
We have reached a critical mass, giving us the ability to achieve
substantive asset growth internally without being as dependent on bank
acquisitions for asset growth or financial performance. However, this does not
mean we will not seek new opportunities to grow and diversify the Company. We
will examine the potential for adding synergistic lines of business during 1999,
which will allow us to increase noninterest income while providing new financial
services for customers. We will continue to look for strategic community bank
acquisitions in markets which offer superior growth opportunities. However, our
primary focus in 1999 will be to grow internally. We believe there is a great
opportunity to improve our earnings by increasing the number of products and
services our current customers utilize. Our associates are better trained than
ever and will be focused on providing the highest quality service and products
to our customers. This is still a "people business." We are confident this
approach of becoming better at what we do and how we do it will translate into
more growth, more profit and therefore enhanced shareholder value.
We are gratified by the results we have achieved for our shareholders,
our customers, and our associates as we begin our second decade of service. It
is with deep appreciation that I thank our associates for their outstanding
contributions which have allowed us to position ourselves so well for the
future. I would like to thank our directors for their diligent work and offer a
special word of gratitude to three members who retired in 1998. Syd W. Dunn of
Greenville and J.L. Maxwell Jr. of Goldsboro served our company with distinction
since December 1993, when they joined our board as part of the New East Bancorp
acquisition. Cy N. Bahakel of Charlotte joined Triangle's board in October 1997
as a result of the acquisition of Bank of Mecklenburg, where he served as
chairman of the board. Their advice and counsel will be missed. We hope you will
join us for our annual shareholders meeting to be held at the North Raleigh
Hilton on Tuesday, April 27, 1999. And, as always, we welcome any comments you
may have concerning the performance of the Company.
Sincerely,
/s/ Michael S. Patterson
Michael S. Patterson
Chairman, President and CEO
5
Triangle Bancorp, Inc. and Subsidiaries
<PAGE>
[BAR CHART APPEARS BELOW WITH THE FOLLOWING PLOT POINTS:]
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
Actual $0.63 $0.99 $0.97 $1.11 $1.09
Without nonrecurring $0.68 $1.12 $1.02 $1.13 $1.22
RETURN ON AVERAGE ASSETS
"TRIANGLE BANK HAS POSITIONED ITSELF THROUGH INTERNAL AND EXTERNAL GROWTH
TO BE THE PREMIER COMMUNITY BANK IN CENTRAL NORTH CAROLINA."
CARY A. MORRIS; VERNON C. PLACK, CFA; HOLLY M. CLARK
SCOTT & STRINGFELLOW, INC. OCTOBER, 1998
[BAR CHART APPEARS BELOW WITH THE FOLLOWING PLOT POINTS:]
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
Actual $6.6 $10.6 $11.3 $13.4 $13.7
Without nonrecurring $7.2 $12.0 $11.9 $13.7 $15.4
RETURN ON AVERAGE EQUITY
<PAGE>
A FRANCHISE THAT KEEPS DELIVERING
Performance, location, and service. These are critical elements of success as
the nation's financial services companies confront challenges presented by one
of the most profound periods of change in the history of the industry. The
winners will be those that perform superbly, are strategically located, and have
the mix of products and services that businesses and consumers require.
Just over a decade ago, Triangle Bank was little more than an idea in
the minds of a group of forward-thinking business people. Today, Triangle
Bancorp and its Triangle Bank, Bank of Mecklenburg, and Coastal Leasing
subsidiaries constitute a highly valued and respected financial services
franchise. The company's success in fostering healthy internal growth while
simultaneously implementing an aggressive strategy of acquisitions and product
diversification places the franchise on solid footing to continue delivering
superb rewards for customers, shareholders, and employees.
Challenges confront Triangle and the entire industry. But for those
companies that are ready, these challenges represent opportunities: Customers,
whether commercial or retail, are looking for a single stop for all of their
financial needs. Market forces are putting pressure on areas of profitability
that once were a given in banking, and management must find new ways to maintain
revenue growth. Stern competition requires that all employees adapt to a new
culture in which they better understand their customers' financial needs and
fulfill them. Technology is advancing rapidly, and companies must fulfill
ever-changing customer demands for new products, as well as for new service
delivery channels. Analysts and investors, in the wake of a period of intense
merger activity throughout the financial services industry, are looking
increasingly at a company's ability to grow its existing franchise while at the
same time achieving superior earnings per share growth.
Triangle Bancorp ("Triangle") is ready to embrace these challenges and
turn them into opportunities. The company is competing successfully against
financial institutions of all sizes. And people are noticing. The financial
community judges Triangle Bancorp a superb performer in one of the nation's most
vibrant growth markets at a time of great opportunity.
In other words: Performance, location, and service.
The Triangle franchise is solid, and it's ready for new
opportunities.
7
Triangle Bancorp, Inc. and Subsidiaries
<PAGE>
[BAR CHART APPEARS BELOW WITH THE FOLLOWING PLOT POINTS:]
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
Noninterest Income $44 $50 $58 $68 $75
Net Interest Income $ 9 $12 $12 $15 $18
REVENUE GROWTH
(in millions, without nonrecurring items)
COMPOUNDED ANNUAL GROWTH RATES:
NONINTEREST: 18%; NET INTEREST: 14%
COMBINED: 15%
"TRIANGLE IS MORE THAN JUST A CONSOLIDATOR - THEY HAVEN'T LET DEALS DISTRACT
THEM FROM FUNDAMENTAL PERFORMANCE."
R. HAROLD SCHROEDER, PETER KUPER KEEFE, BRUYETTE & WOODS, INC. OCTOBER, 1998
[BAR CHART APPEARS BELOW WITH THE FOLLOWING PLOT POINTS:]
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
Actual $77.5 $69.4 $63.2 $58.8 $59.0
Without nonrecurring $75.8 $65.2 $61.1 $57.0 $54.3
EFFICIENCY RATIO
<PAGE>
PERFORMANCE
Proving That Performance Counts
Triangle's growth has been dramatic. The company was launched as a
state-chartered community bank in 1988 and grew to $129 million in assets at the
end of 1991. Beginning with the 1991 merger of Enterprise Bank, Triangle has
acquired 10 banks, 17 branches of competing companies, and a full-service
leasing concern, and expanded its asset base to $2.1 billion. Now the eighth
largest banking firm in one of the nation's most competitive banking states,
Triangle has become, in the words of one financial analyst, "big enough to
appear on the radar screen." More to the point, Triangle is achieving its
mission of building a superior super-community bank that delivers excellent
customer service while optimizing shareholder value.
The proof is in the performance, as measured by key financial
indicators. From 1994 through the end of 1998, Triangle's earnings per share
have grown at a compounded annual rate of 29%; net income has grown by 32%; and
dividends paid to Triangle Bancorp shareholders have grown at a compounded
annual rate of 63%. Indicators of quality performance have attracted the
attention of the analyst community: Net charge-offs to loans improved to 0.25%
in 1998 compared to 0.29% in 1997, while the ratio of loan loss reserves to
total loans increased to 1.42% compared to 1.38% at the same time one year ago.
This illustrates that Triangle's managers and associates have not taken
their eyes off the importance of fundamentally sound performance -- in other
words, keen attention to growing revenues through quality lending and fee
generation while holding expenses in check. As one analyst put it, "Triangle has
maintained its focus on successfully integrating ... companies without losing
sight of earnings or asset quality." In fact, 21% of the company's growth over
the past four years has been internal -- an important factor to keep in mind
when judging future performance. For the year 1998, Triangle grew interest
income by 11% and noninterest income by 24% while delivering an efficiency ratio
of 54%, based on recurring earnings, compared to 60.4% on average recorded by
peer banks.
The company's lending portfolio has grown at a 19% compounded annual
rate between 1994 and 1998. Again, the proof is in the performance: Noninterest
income for the Government Guaranteed Lending Department more than doubled in
1998. Triangle expanded this service in 1998 by opening an office in South
Carolina, and a new office will open in Virginia this year. Since its
acquisition in late 1997, the company's Coastal Leasing subsidiary has doubled
its assets from $14 million to $28 million at the end of 1998.
Growth of such internal capabilities begets other positive indicators of
performance: The company's noninterest income has grown at a rate of 18%
annually from 1994 through 1998 and now represents 20% of Triangle's total
revenues.
9
Triangle Bancorp, Inc. and Subsidiaries
<PAGE>
[PIE CHART APPEARS BELOW WITH THE FOLLOWING PLOT POINTS:]
MSAs - 72%
TOTAL DEPOSITS
Of the Total Deposits held by Triangle Bank and Bank of Mecklenburg, 72% are in
metropolitan statistical areas (MSAs). MSAs are urbanized areas, cities with
50,000 people or more or a total metropolitan population of 100,000 or more, as
identified by the U.S. Office of Management and Budget.
"THIS IS A CONSERVATIVE MANAGEMENT TEAM THAT IS OPERATING
IN VIBRANT MARKETS IN NORTH CAROLINA."
EDWARD R. NAJARIAN, KENNETH B. LEVY WHEAT FIRST UNION OCTOBER, 1998
[MAP OF NORTH CAROLINA APPEARS HERE DEPICTING BANKING CENTER LOCATIONS.]
Triangle Bank: 69 offices Bank of Mecklenburg: 3 offices
BANKING CENTER LOCATIONS
<PAGE>
LOCATION
THE RIGHT PLACE AT THE RIGHT TIME
Triangle has focused on building its franchise in local areas that have growth
opportunities and strong economies, and the company's footprint is now firmly
planted in one of the most vibrant states in the nation for economic
development. North Carolina grew at a rate of 12% from 1990 to 1997, and current
estimates project an 8% rate of population growth and continued economic
expansion through 2002. Already the South's third-most populous state, North
Carolina is a superb location to be doing business -- and Triangle Bancorp has
established its strength in some of the state's most appealing regions.
The company has a strong presence throughout eastern North Carolina with
impressive market shares of 12% in Rocky Mount, 7.1% in Goldsboro, and 6.1% in
Greenville. Triangle's footprint in Rocky Mount is particularly significant. A
total of 2% of the state's population resides in the Rocky Mount market.
Triangle is second in market share in Rocky Mount, and the next closest banking
competitor has less than half of Triangle's share.
The company's 72 banking offices and three leasing offices are
distributed throughout metropolitan and rural areas. But 72% of deposits are
concentrated in metropolitan statistical areas (MSAs), including the
strategically important Bank of Mecklenburg presence in the dynamic Charlotte
market. This is significant for future growth since commercial activity tends to
be greater in MSAs. The rural operations are strategically important in that
they produce a higher percentage of noninterest-bearing deposits that help the
company reduce its funding cost.
11
Triangle Bancorp, Inc. and Subsidiaries
<PAGE>
[PHOTOGRAPH OF TRIANGLE BANK'S WEBSITE APPEARS HERE]
"WE BELIEVE THAT THE ACQUISITION STRATEGY FOLLOWED BY TRIANGLE IS BENEFICIAL TO
SHAREHOLDERS AND PROVIDES THE LOCAL COMMUNITIES THE BEST OF BOTH WORLDS:
PERSONAL SERVICE TYPICAL OF COMMUNITY BANKS AND PRODUCTS AND SERVICES COMPARABLE
TO LARGER REGIONAL BANKS."
CARY A. MORRIS; VERNON C. PLACK, CFA; HOLLY M. CLARK
SCOTT & STRINGFELLOW, INC. OCTOBER, 1998
[PHOTOGRAPH OF INKPEN WITH TRIANGLE BANK'S LOGO APPEARS HERE]
<PAGE>
SERVICE
FULFILLING THE NEEDS OF CUSTOMERS
Businesses and retail consumers in all of the communities served by Triangle
are, in growing numbers, learning the company can deliver on its mission of
providing personalized service typical of community banks and products and
services comparable to larger banks.
Throughout Triangle's service area, from Raleigh to Rocky Mount... from
Wilson to Wilmington... from Durham to Dunn... and beyond, business and retail
customers are increasingly choosing Triangle for all of their financial needs.
Small businesses of all descriptions, from retail stores to motels to
restaurants to industrial plants, are coming to Triangle for their banking
needs. The Small Business Administration (SBA) has recognized Triangle as a
Preferred Lender, which allows the company to approve transactions without
sending loan packages to the SBA for approval. Triangle delivered by approving
$12 million worth of SBA-backed loans during 1998. Triangle helps in rural areas
with the U.S. Department of Agriculture's Business and Industry (B&I) lending
program. Triangle approved $6 million worth of B&I loans during 1998. The $18
million in total loan production was triple the $5 million loaned in 1997, and
the goal for 1999 is $30 million.
Some business owners may prefer the option of leasing, and Triangle is
ready to deliver through its Coastal Leasing subsidiary. Business customers
often find that leasing is an attractive alternative to purchasing such items as
computer or telephone equipment, new machinery, and even furniture because of
tax advantages and the fact that a down payment is not required. Coastal Leasing
is headquartered in Greenville, NC and has offices in Wilmington, Charlotte,
Raleigh, Greenville, and Tidewater Virginia.
Business customers can go to any Triangle branch to access the company's
small business lending programs and the leasing services offered by Coastal.
And, they can always choose from a wide array of checking and investment
accounts, in addition to cash management services.
Retail customers almost can design their checking and savings plans.
Options vary from high balance/high interest rate relationship accounts to low
service charge selections. Whether they're looking for safety, liquidity, a
long-term investment, or a good return on their funds, customers can be served
at Triangle. And, with the expertise brought on board in the United Federal
acquisition in 1998, Triangle has strengthened its capabilities in mortgage loan
origination and servicing. In 1999, among other plans in the works, Triangle
will begin offering online banking services to retail customers.
Finally, investors need look no further than the brokers and financial
advisors at Triangle Investment Services, which offers full securities services
including stocks, bonds, mutual funds, and annuities.
WITH A SALES FORCE "READY TO DELIVER," CUSTOMERS' FINANCIAL NEEDS ARE MET AT
TRIANGLE.
13
Triangle Bancorp, Inc. and Subsidiaries
<PAGE>
[BAR CHART APPEARS BELOW WITH THE FOLLOWING PLOT POINTS:]
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
$0.3 $1.8 $3.3 $5.0 $7.6
Per Share: $.05 .13 .22 .30 .35
DIVIDENDS PAID TO
TRIANGLE SHAREHOLDERS
(in millions, declared by Triangle without affect to acquired entities)
"WE BELIEVE TRIANGLE'S STOCK HAS UPSIDE POTENTIAL.
WE REITERATE OUR LONG-TERM BUY RATING."
JOHN B. MOORE, JR., MARGUERITE S. BAUDOIN
INTERSTATE/JOHNSON LANE JANUARY, 1999
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
$6.67 $9.50 $10.92 $23.59 $15.81
YEAR END STOCK PRICE
COMPOUNDED ANNUAL GROWTH RATE:
24.10%
<PAGE>
READY FOR NEW OPPORTUNITIES
Triangle Bancorp enters this period of enormous change in banking fully equipped
to meet the challenges brought on by the company's competitors. Transforming the
challenges into opportunities will separate the winners from the losers, and
Triangle is ready.
The company has a solid customer base in attractive growth regions of
the state, and Triangle's full complement of employees will be key in assuring
that the company succeeds in diversifying earnings through ongoing cross-selling
efforts. Triangle has the capability to track sales performance by individual
and by product so this data can be mined effectively for cross-selling
opportunities. And an ongoing sales training program is being supervised by a
consulting firm to assure that the company's efforts in this area continue to
expand.
Given the growth of the areas served by the company during a time of
economic confidence, Triangle Bancorp has succeeded in the mission of building a
superior banking company with the primary focus of delivering excellent customer
service, optimizing shareholder value, and providing career opportunities for
employees.
The company's acquisition strategy has served Triangle well in
establishing a solid base of customers and impressive market shares -- a solid
franchise on which the company will build for the future. This foundation will
be leveraged as the company remains focused on its goal of delivering 8-12%
annual asset growth and a return on equity of 15-18%.
THE TRIANGLE FRANCHISE IS SOLID, AND IT'S READY FOR NEW
OPPORTUNITIES.
"We believe the Triangle franchise has value for three simple reasons:
o The company is efficiently managed, enabling consistent and strong
EPS growth.
o Above-average growth prospects are realistic, given expanded
product offerings and 15% historic internal loan growth.
o The company is geographically well positioned in desirable markets."
R. Harold Schroeder, Peter Kuper Keefe, Bruyette & Woods, Inc. October, 1998
15
Triangle Bancorp, Inc. and Subsidiaries
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The purpose of the following 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. A more detailed analysis is contained in the Company's
1998 Annual Report on Form 10-K filed with the Securities and Exchange
Commission.
[LINE CHART APPEARS BELOW WITH THE FOLLOWING PLOT POINTS:]
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
Assets $323 $795 $971 $1,605 $2,123
Deposits 280 662 848 1,192 1,626
Loans 221 538 640 943 1,364
GROWTH TRENDS
(in millions, on an as reported basis)
HIGHLIGHTS
During 1998, the Company continued to grow both internally and through
acquisitions. In the second quarter, the Company acquired Guaranty State Bancorp
("Guaranty"). Guaranty had $103 million in assets and four branch locations in
Durham, North Carolina. During the third quarter, the Company acquired United
Federal Savings Bank ("United Federal"). United Federal, headquartered in Rocky
Mount, North Carolina, had $302 million in total assets and added eight branches
to the Company.
These two acquisitions expanded the Company's presence in two metropolitan
statistical areas and the Company entered four new communities. United Federal
brought an established mortgage origination business as well as a mortgage
servicing portfolio to the Company.
Both 1998 mergers were accounted for as a pooling-of-interests and therefore
all prior period financial information has been restated to include Guaranty and
United Federal.
Recurring net income for the year ended December 31, 1998 was $24.5 million,
an increase of $4.6 million, or 23%, over the prior year. Recurring diluted
earnings per share grew 22% to $.95 for the year ended December 31, 1998 from
$.78 for the year ended December 31, 1997. The return on average assets was
1.22% versus 1.13% and the return on average equity was 15.36% versus 13.66% for
the years ended December 31, 1998 and 1997, respectively.
Including nonrecurring merger expenses and the 1997 gain on sold branches,
net income for the year ended December 31, 1998 was $21.9 million, an increase
of 12% over the $19.5 million earned in the prior year. Diluted earnings per
share grew 11% to $.84 for the year ended December 31, 1998 from $.76 for the
year ended December 31, 1997. The return on average assets was 1.09% versus
1.11% and the return on average equity was 13.69% versus 13.38% for the years
ended December 31, 1998 and 1997, respectively.
16
Triangle Bancorp, Inc. and Subsidiaries
<PAGE>
EARNINGS ANALYSIS
Net Interest Income
Net interest income, the principal source of the Company's earnings, is the
amount of income generated by earning assets (primarily loans and investment
securities) less the total interest cost of the funds obtained to carry them
(primarily deposits and other borrowings). The volume, rate and mix of both
earning assets and related funding sources determine net interest income.
1998 VERSUS 1997 Net interest income, stated on a taxable equivalent basis,
increased to $78.6 million for 1998 from $71.2 million for 1997. The net
interest margin declined to 4.24% for the year ended December 31, 1998 versus
4.36% for 1997.
The yield on earning assets was 8.49% for the year ended December 31, 1998
versus 8.63% for the prior year. An increase in the volume of earning assets of
$219 million more than offset this decrease in yield resulting in a net increase
of $16.4 million in interest income. The cost of interest bearing liabilities
decreased as well to 4.86% from 4.94%, however, as with the earning assets, the
volume increases resulted in more expense for 1998 when compared with 1997.
1997 VERSUS 1996 For 1997, the Company's taxable equivalent net interest
income was $71.2 million compared to $59.9 million in 1996. The net interest
margin increased to 4.36% in 1997 from 4.23% in 1996.
The yield on earning assets increased to 8.63% in 1997 over 8.45% in 1996
due primarily to a shift in the mix of earning assets with the loan portfolio,
the highest yielding asset, comprising 70.81% of earning assets in 1997 VERSUS
66.23% in 1996. Costing liabilities increased to 4.94% in 1997 from 4.88% in
1996 primarily due to the increased cost of other borrowings during 1997,
including the trust preferred securities issued in June 1997.
Provision for Loan and Lease Losses
1998 VERSUS 1997 The provision for loan and lease losses was $5.1 million for
both 1998 and 1997. Net charge-offs in both 1998 and 1997 were $3.3 million or
.25% and .29%, respectively, of average loans. The Company continued to maintain
adequate levels of coverage for nonperforming assets as well as general reserves
for the portfolio as described further in the "Loans and Leases" section below.
1997 VERSUS 1996 The 1997 provision for loan losses of $5.1 million was
significantly higher than the 1996 provision of $2.5 million due to loan growth
and increased charge-offs in 1997. Net charge-offs were $3.3 million or .29% of
average loans in 1997 versus $1.3 million or .14% of average loans in 1996. The
Company's loan loss reserve calculation continued to show adequate reserve
levels in 1997.
Noninterest Income
1998 VERSUS 1997 Noninterest income for 1998 was $18.5 million versus $14.9
million in recurring noninterest income for 1997, a 24% increase. In 1997, the
Company realized a nonrecurring $2 million gain on the sale of approximately $25
million in deposits. Including this 1997 gain, noninterest income was up 9.5 %
in 1998.
Service charges on deposit accounts increased 16% in 1998 compared to 1997.
This is due both to increases in fees charged and numbers of accounts. The
number of accounts increased due to internal growth as well as the acquisition
of ten branch offices, and their related deposit and loan accounts, from BB&T in
August 1997 ("1997 Branch Acquisition"). Other commissions and fees increased
significantly to $3.7 million versus $2.6 million in 1997. A significant portion
of this increase, $526,000, relates to the mortgage refinancing that occurred in
1998 due to the low interest rate environment. Other increases in 1998 over 1997
were seen in upcharges, ATM and debit card usage fees, credit card merchant
income and insurance commissions.
In 1998, the Company experienced substantial growth in its government
lending unit with gains on sales of government loans increasing to $1,028,000
from $338,000 in 1997. The Company also experienced an increase of $213,000 in
gains on the sale of mortgage loans in 1998 over the 1997 levels. Mortgage
servicing income decreased in 1998 compared to 1997 because of increased
amortization relating to accelerated mortgage prepayments in 1998.
Net gains on securities sales increased 20% over 1997 amounts to $1.7
million. However, this increase was offset somewhat by Mecklenburg discontinuing
its trading account in late 1997 that realized $681,000 in gains during 1997
compared to no trading gains in 1998.
Other operating income increased in 1998 due to increases in rental income
on subleased facilities as well as a gain on sale of fixed assets of $200,000 in
1998 versus a loss of $90,000 in 1997. An additional increase in other
17
Triangle Bancorp, Inc. and Subsidiaries
<PAGE>
operating income was $374,000 from an investment of approximately $20 million in
bank owned life insurance purchased by Triangle in the third quarter of 1998.
1997 VERSUS 1996 Recurring noninterest income increased to $14.9 million in
1997 from $12.4 million in 1996, an increase of 20%. Nonrecurring gains of $2
million on sales of deposits were realized in 1997 compared to $558,000 in 1996.
Including these items, noninterest income increased 30% in 1997 over 1996.
The primary source of increased revenues in 1997 was service charges on
deposit accounts. Net gains on sales of securities were higher in 1997 compared
to 1996 by $247,000. As discussed above, the trading account had $681,000 in
gains in 1997 but this was not applicable to 1996 as Mecklenburg held no trading
assets in 1996.
Other operating income also increased in 1997 over 1996 amounts by $582,000.
This increase was primarily in rental income received from subleasing facilities
during 1997, as well as losses on fixed assets disposals in 1996 of $223,000
compared to losses of $90,000 in 1997.
Noninterest Expense
1998 VERSUS 1997 Recurring noninterest expenses were $50.5 million for 1998, an
increase of 6% from $47.5 million for 1997. Amortization of intangibles during
1998 was higher than 1997 because the deposit premium related to the 1997 Branch
Acquisition had only 5 months of amortization in 1997 and a full year in 1998.
Also related to the 1997 Branch Acquisition, as well as the completion of a new
Operations Center in February 1998, was an increase in occupancy, furniture and
equipment, and telephone expenses for the year ended December 31, 1998 compared
to 1997. Decreases were seen in professional fees, advertising and office
expenses in 1998 when compared to 1997 due to efficiencies achieved from the
acquisitions in late 1997 of Bank of Mecklenburg and Coastal Leasing and the
1998 acquisitions of Guaranty and United Federal. Salaries and benefits remained
flat in 1998 compared to 1997 due to the mergers described above.
Nonrecurring 1998 expenses were $4.4 million compared to $2.7 million in
1997. The 1998 items relate to the acquisitions of Guaranty and United Federal.
In 1997, the amounts relate to the acquisitions of Bank of Mecklenburg, Coastal
Leasing and the 1997 Branch Acquisition. These expenses included severance,
various professional fees, data conversion fees and other merger related
expenses.
1997 VERSUS 1996 Recurring noninterest expenses of $47.5 million for 1997
increased 10% from $43.1 million for 1996. There was a 6.9% increase in salaries
and benefits due to normal merit increases as well as growth of the Company,
including the 1997 Branch Acquisition. Amortization expense increased due to the
five months of amortization of the deposit premium from the 1997 Branch
Acquisition. Legal and professional fees were up, due to general corporate
litigation as well as an increase in outside consulting services.
Nonrecurring expenses in 1997 were $2.7 million compared to $1.8 million in
1996. The 1997 amounts were related to the acquisitions of Bank of Mecklenburg,
Coastal Leasing and the 1997 Branch Acquisition. In 1996, the expenses related
to the one time special assessment of $1.3 million levied by the Savings
Association Insurance Fund ("SAIF") on SAIF assessable deposits held by United
Federal. The Company also had 1996 merger expenses associated with the
acquisition of Granville United Bank and an acquisition of four branches.
Expenses incurred relating to acquisitions included severance, various
professional fees, data con-version fees and other merger related expenses.
Income Taxes
The Company's income tax expense for 1998 was approximately 33.9% of income
compared to the 1997 rate of approximately 35.0% and the 1996 rate of 37.4%.
These levels are less than the expected combined state and federal statutory
rates due to tax exempt securities held, which have increased during the last
three years, as well as the adjustment of the deferred tax asset to reflect
current tax rates.
BALANCE SHEET ANALYSIS
The Company's average assets increased to $2.0 billion for the year ended
December 31, 1998 compared to $1.758 billion for the year ended December 31,
1997 an increase of 14%. This growth, reflected primarily in the investment and
loan portfolios, was funded by deposit growth, borrowings from the Federal Home
Loan Bank ("FHLB") and short term borrowings. The growth in investments and FHLB
advances reflects Triangle's fourth quarter 1997 implementation of a leveraged
investment program which employed a mix of fixed and variable
18
Triangle Bancorp, Inc. and Subsidiaries
<PAGE>
FHLB borrowings to purchase 3-5 year average life collateralized mortgage-backed
securities. The Company continued to have a strong ratio of average earning
assets to total average assets of 92.13% for the year ended December 31, 1998
and 92.83% for the year ended December 31, 1997.
At year end December 31, 1998, the Company's total assets were $2.1 billion
compared to $2 billion for the year ended December 31, 1997. Total equity was
$163 million at year end 1998 compared to $152 million at year end 1997.
Loans and Leases
The loan and lease portfolio constitutes the Company's largest earning asset.
During 1998, average net loans and leases increased by $148 million to $1.3
billion over the 1997 level of $1.155 billion, an increase of 13%. This increase
was due to loan demand throughout the year in many of the Company's service
areas.
The components of nonperforming assets are nonaccrual loans, loans 90 days
or more past due and other real estate owned ("OREO"). Nonperforming assets at
December 31, 1998 were $12.7 million or .92% of gross loans and OREO, an
increase over the $9.2 million or .71% of gross loans and OREO at December 31,
1997. The 1998 increase is primarily in other real estate owned and nonaccrual
loans while nonperforming loans decreased $300,000. Much of the increase in OREO
relates to one property from a former United Federal loan and two properties at
Mecklenburg. United Federal also had a $1.9 million loan classified as
nonaccrual during 1998 causing much of the increase in nonaccrual loans. Net
charge-offs for 1998 were .25% of average loans versus .29% for 1997.
The classification "nonaccrual" identifies those loans which management
recognizes as collection problems, but which have not been identified as losses.
Loans are placed on nonaccrual status when payments of interest and/or principal
have remained delinquent for a period of 90 days or more or when management's
evaluation indicates probable default prior to the 90 day delinquency period,
unless the loan is both well secured and in the process of collection. The
Company's credit policy does not allow new funds to be committed to borrowers
who have loans in nonaccrual status.
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 or interest when due according to the contractual terms of the loan
agreement. The measurement of impaired loans is generally based on the present
value of expected future cash flows discounted at the historical effective
interest rate, except that collateral-dependent loans are measured for
impairment based on the fair value of the collateral. During 1998 and 1997, the
Company did not have a significant investment in loans determined to be
impaired.
There are no loans, other than those included in nonperforming assets, that
(i) represent or result from trends or uncertainties which management reasonably
expects will materially impact future operating results, liquidity, or capital
resources, or (ii) represent material credits about which management is aware of
any information which causes management to have serious doubts as to the ability
of such borrowers to comply with the loan repayment terms.
The adequacy of the allowance for loan and lease losses is monitored by
management through an internal loan review process. Among the factors
determining the level of the allowance are loan growth, projected net
charge-offs, the amount of nonperforming and past due loans and current and
anticipated economic conditions.
[BAR CHART APPEARS BELOW WITH THE FOLLOWING PLOT POINTS:]
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
.50% .15% .14% .29% .25%
NET CHARGE-OFFS AS A %
OF AVERAGE LOANS
19
Triangle Bancorp, Inc. and Subsidiaries
<PAGE>
The allowance for loan and lease losses at December 31, 1998 was 1.42% of
gross loans an increase over the 1.38% in 1997. Given the increase in
nonaccruals and OREO discussed above, the allowance for loan and lease losses
has decreased to 154% of nonperform ing assets in 1998 compared to 194% in 1997.
While nonperforming assets have increased during 1998, based on information
currently available to management as described in the previous paragraph, the
allowance for loan losses is believed to be adequate. However, future additions
to the allowance may be necessary based on changes in economic conditions or the
circumstances of individual borrowers which may impact borrowers' ability to
repay their loans. The most recent regulatory agency examinations have not noted
any material problem loans that had not been previously identified by
management; however, examinations in the future may result in regulatory
agencies requiring additions to the provision for loan losses based on
information available at the time of the examination.
Securities, Federal Funds Sold and
Interest Bearing Deposits
Average securities, at cost, increased 24% when comparing the average for the
year ended December 31, 1998 to the year ended December 31, 1997. This increase
reflects the leveraged investment strategy employed during the fourth quarter of
1997.
At December 31, 1998, the Company had no federal funds sold compared to $4.2
million at December 31, 1997. Interest bearing deposits in banks decreased $33
million to $911,000. In 1997, Mecklenburg had interest bearing deposits at the
FHLB as collateral for an advance that has since been repaid resulting in the
decrease.
At December 31, 1998, securities available for sale increased $36 million
and securities held to maturity decreased $19.5 million for a net increase of
$16.5 million. Collateralized mortgage-backed securities represent approximately
37% of the total securities portfolio, US Treasury and Agency obligations
represent approximately 37% of the portfolio and municipal obligations represent
approximately 14% of the portfolio. The remaining portfolio is in
mortgage-backed securities, FHLB, Federal Home Loan Mortgage Company and Federal
Reserve Bank stock.
Deposits
Average deposits grew 10% to $1.583 billion for the year ended December 31, 1998
compared to $1.440 billion for the year ended December 31, 1997. This growth was
found in all categories of deposits, with noninterest bearing and time deposits
greater than $100,000 showing the most growth.
Other Borrowings
At December 31, 1998 the Company had short term debt of $159 million. Short term
debt was comprised of $67 million in federal funds purchased, $18.5 in
repurchase agreements, $44.7 in reverse repurchase agreements and $28 million in
masternotes. At year end December 31, 1997, the Company had $61.5 million in
short term debt consisting of $24.8 in federal funds purchased, $20.6 in
repurchase agreements and $15.7 million in masternotes.
Average FHLB advances increased to $150 million for the year ended December
31, 1998 compared to an average of $80 million for the year ended December 31,
1997. The 1998 advances were higher due to the Company's leveraged investment
strategy employed in the fourth quarter of 1997.
Capital
The Company's primary source of new capital is retained earnings. Management
feels the Company has other funding sources if needed, including the ability to
issue additional common stock or debt. In addition, in 1997 the Company issued
$20 million in Trust Securities which are classified as Tier 1 regulatory
capital by the Company. The adequacy of capital is reviewed regularly, 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.
Current Federal regulations require that the Banks maintain a minimum ratio
of total capital to risk weighted assets of 8%, with at least 4% being in the
form of Tier I capital, as defined in the regulations. In addition, the Banks
must maintain a leverage ratio of 4%. As of December 31, 1998, the Banks'
capital exceeded the current capital requirements. The Banks currently expect to
continue to exceed these minimums without altering current operations or
strategy.
The Company recognizes the need to balance the retention of sufficient
capital to support future growth, meet regulatory requirements and provide
shareholders with a current cash return on their investment. As a
20
Triangle Bancorp, Inc. and Subsidiaries
<PAGE>
result, for the years ended December 31, 1998 and 1997, cash dividends paid were
38% and 32% of earnings, respectively. Excluding nonrecurring income and
expenses, cash dividends of 34% and 31% of earnings were paid for the years
ended December 31, 1998 and 1997, respectively.
Asset and Liability Management and Market Risk
The largest component of the Company's earnings is net interest income,
which can fluctuate widely when significant interest rate movements occur.
Interest rate sensitivity inherent in its lending and deposit taking activities
is the Company's market risk. Management has formed an Asset Liability Committee
("ALCO") which is responsible for minimizing the Company's exposure to interest
rate risk and assuring an adequate level of liquidity.
To mitigate the impact of interest rate movements, the balance sheet must be
structured so that repricing opportunities exist for both assets and liabilities
in generally equivalent amounts at approximately the same time intervals.
Imbalances in these repricing opportunities at any point in time constitute
interest rate sensitivity. Interest rate sensitivity management measures the
potential exposure to fluctuating interest rates. The Company's objective in
managing interest rate sensitivity is to achieve reasonable stability in the net
interest margin and the market value of portfolio equity throughout economic and
interest rate cycles by maintaining the proper balance of rate sensitive assets
and liabilities. The market value of portfolio equity is the present value of
expected cash flows from assets, liabilities and off balance sheet contracts
using current market discount rates. The major factors that are used to manage
interest rate risk include the mix of fixed and floating interest rates,
pricing, and maturity patterns of all asset and liability accounts. ALCO
regularly reviews the Company's sensitivity position and evaluates alternative
sources and uses of funds.
The Company's interest sensitivity is monitored using computer simulation
programs which analyze the effect of various rate environments on the Company's
net interest margin as well as the market value of portfolio equity.
In modeling the interest sensitivity of the Company's balance sheet,
assumptions must be made concerning the repricing of nonmaturing liabilities
such as deposit transaction accounts. Management has concluded that the
historical experience of the Company and the industry in general provide the
best basis for determining the repricing characteristics of these accounts.
Accordingly, management places a portion of transaction account balances as
repricing immediately and the remainder in the one to five year time period.
Assumptions regarding expected cash flows are based on the individual maturities
of the Company's securities, loans, deposits and other borrowings.
The Company has historically monitored its interest sensitivity within an
acceptable range in both rising and falling interest rate environments and keeps
its exposure to changing rates to a manageable level. In determining if interest
rate risk is within an acceptable range, the Company simulates both increases
and decreases in rates of 200 basis points over a twelve month period. The
Company's policy in measuring interest rate risk on net interest margin is to
limit the risk to 5% of net interest margin. With regards to market value of
portfolio equity, the Company's policy is not to have volatility of more than 1%
of the book value of total assets. As of December 31, 1998, the Company was
within both of these policies.
Periodically, the Company uses off-balance sheet derivative instruments to
provide a cost-effective way to manage interest rate sensitivity. At December
31, 1998, Mecklenburg had a $15 million notional amount interest rate floor used
to hedge the balance sheet. It is marked to market each month, had a $17,000
value at December 31, 1998 and expires in March, 2000.
To ensure that sufficient funds are available for loan growth and deposit
withdrawals, as well as to provide for general needs, the Company must maintain
an adequate level of liquidity. Both assets and liabilities provide sources of
liquidity. Asset liquidity comes from the Company's ability to convert
short-term investments into cash and from the maturity and repayment of loans
and investment securities. Liability liquidity is provided by the Company's
ability to attract deposits and borrow against unencumbered assets. The primary
source of liability liquidity is the Company's customer base which provides core
deposit growth. The overall liquidity position of the Company is closely
monitored and evaluated regularly by ALCO. Management believes the Company's
liquidity sources at December 31, 1998 are adequate to meet its operating needs.
21
Triangle Bancorp, Inc. and Subsidiaries
<PAGE>
EFFECT OF CHANGING PRICES
The results of operations and financial condition presented in this report are
based on historical cost information and are unadjusted for the effects of
inflation. Since the assets and liabilities of banks are primarily monetary in
nature (payable in fixed, determinable amounts) the performance of the Company
is affected more by changes in interest rates than by inflation. Interest rates
generally increase as the rate of inflation increases, but the magnitude of the
change in rates may be inconsistent. While the effect of inflation on banks is
normally not as significant as is its influence on those businesses which have
large investments in plant and inventories, it does have an effect during
periods of high inflation. There are normally corresponding increases in the
money supply, and banks will normally experience above-average growth in assets,
loans and deposits. Also, increases in the price of goods and services generally
will result in increased operating expenses. Inflation has not been a
significant factor in the Company's operations to date as the inflation rate has
been moderate since its inception.
IMPACT OF THE 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 in all
phases of its Year 2000 Plan.
The Company has completed its assessment of its existing computer systems
and applications (including systems and applications acquired in mergers) and
has identified 30 mission critical applications. The Company has begun
renovation, validation and implementation of all of its mission critical
applications. Renovation for all mission critical applications was substantially
completed by December 31, 1998, and renovation for all non-mission critical
functions is expected to be completed by March 31, 1999. Validation and
implementation of all functions, both mission critical and non-mission critical,
is to be completed by April 30, 1999. As validation of a function occurs, the
Company develops a contingency plan for each function. As of December 31, 1998,
the Company has begun contingency planning for all identified mission critical
and non-mission critical functions. The Company also has identified mission
critical branches which it is committed to having operational in the event of
utility failure. The Company's internal audit department has been auditing and
will continue to audit the Company's progress under its Year 2000 plan, and also
will conduct independent verification of the Company's Year 2000 contingency
planning.
The Company has budgeted $1,000,000 for the Year 2000 plan, with consultant
fees of approximately $50,000 for 1997, $750,000 for 1998 and $200,000 for 1999.
Costs budgeted for hardware, software and customer communications related
specifically to the Year 2000 are not significant in 1997, 1998 and 1999 and are
anticipated to be less than $100,000 in the aggregate. All of these costs are
directly related to the assessment, renovation and validation of the Company's
computer applications. All Year 2000 expenses are paid from the Company's
operating income. As of December 31, 1998, the Company had spent approximately
$40,000 and $614,000 in 1997 and 1998, respectively, on Year 2000 issues. 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. The Year 2000 issue has not
delayed any of the Company's information technology projects.
FORWARD-LOOKING STATEMENTS
The foregoing discussion contains forward-looking statements about the Company's
financial condition and results of operations, which are subject to certain
risks and uncertainties, that could cause actual results to differ materially
from those reflected in the forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements, which reflect
management's judgment only as of the date
22
Triangle Bancorp, Inc. and Subsidiaries
<PAGE>
hereof. The Company undertakes no obligation to publicly revise these
forward-looking statements to reflect events and circumstances that arise after
the date hereof.
Some factors that may cause actual results to differ materially from these
forward-looking statements are the passage of unforeseen legislation or
regulation; interest rate changes that reduce margins; the Year 2000 issue not
being effectively corrected; and the Company's ability to accurately predict
loan loss provision needs using its present loan review process.
REPORT OF INDEPENDENT ACCOUNTANTS
THE BOARD OF DIRECTORS AND SHAREHOLDERS
Triangle Bancorp, Inc.
We have audited, in accordance with generally accepted auditing standards, the
consolidated balance sheets of Triangle Bancorp, Inc. and subsidiaries as of
December 31, 1998 and 1997, and the related consolidated statements of income,
changes in shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1998 (not presented herein); and in our report
dated January 19, 1999, we expressed an unqualified opinion on those
consolidated financial statements.
In our opinion, the information set forth in the accompanying condensed
consolidated financial statements, when read in conjunction with the
consolidated financial statements from which it has been derived, is fairly
stated in all material respects in relation thereto.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Raleigh, North Carolina
January 19, 1999
23
Triangle Bancorp, Inc. and Subsidiaries
<PAGE>
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(in thousands, except share data)
<TABLE>
<CAPTION>
1998 1997
-----------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 76,624 $ 59,938
Federal funds sold -- 4,219
Interest-bearing deposits in banks 911 34,195
Securities available for sale 482,155 446,363
Securities held to maturity, estimated market
value $82,790 in 1998 and $101,979 in 1997 81,138 100,666
Loans, less allowance for loan losses of $19,584 in 1998 and
$17,797 in 1997 1,363,553 1,273,139
Premises and equipment, net 40,492 40,281
Interest receivable 16,468 15,687
Deferred income taxes 10,597 7,695
Intangible assets, net 24,207 27,688
Other assets 26,939 5,766
-----------------------
$2,123,084 $2,015,637
========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 224,732 $ 199,746
Interest-bearing demand 201,042 192,577
Savings and money market accounts 293,652 288,977
Large denomination certificates of deposit 217,598 156,536
Other time 688,874 712,404
-----------------------
Total deposits 1,625,898 1,550,240
Short-term debt 158,980 61,506
Federal Home Loan Bank of Atlanta advances 130,300 205,300
Corporation-obligated mandatorily redeemable capital
securities 19,952 19,951
Custodial accounts for serviced loans 7,243 5,197
Interest payable 8,292 9,380
Other liabilities 9,392 11,592
-----------------------
Total liabilities 1,960,057 1,863,166
-----------------------
Shareholders' equity:
Common stock; no par value; 50,000,000 shares authorized;
25,183,597 and 24,839,775 shares issued and
outstanding in 1998 and 1997, respectively 86,549 84,886
Retained earnings 80,753 67,217
Accumulated other comprehensive income (loss) (4,275) 368
-----------------------
Total shareholders' equity 163,027 152,471
-----------------------
$2,123,084 $2,015,637
========================
</TABLE>
24
Triangle Bancorp, Inc. and Subsidiaries
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(in thousands, except share data)
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------
<S> <C> <C> <C>
Interest income:
Loans and fees on loans $121,640 $109,432 $ 88,734
Federal funds sold and securities purchased under resale
agreements 62 165 306
Securities 30,148 25,751 27,485
Deposits with other financial institutions 1,478 2,755 1,318
------------------------------
Total interest income 153,328 138,103 117,843
------------------------------
Interest expense:
Large denomination certificates of deposit 11,503 8,670 7,894
Other deposits 53,248 52,688 46,270
Borrowed funds 13,947 8,355 5,621
------------------------------
Total interest expense 78,698 69,713 59,785
------------------------------
Net interest income 74,630 68,390 58,058
Provision for loan losses 5,115 5,121 2,515
------------------------------
Net interest income after provision for loan losses 69,515 63,269 55,543
------------------------------
Noninterest income:
Service charges on deposit accounts 8,306 7,131 6,551
Other service charges, commissions and fees 3,669 2,559 2,500
Mortgage servicing fees net of amortization 738 1,101 1,266
Net gain on sales of securities 1,671 1,389 1,142
Net gain on trading account securities -- 681 --
Gain on sale of government loans 1,028 338 --
Gain on sale of mortgage loans 613 400 312
Investment commissions and fees 783 471 370
Gain on sale of deposits -- 2,000 558
Other operating income 1,648 852 270
------------------------------
Total noninterest income 18,456 16,922 12,969
------------------------------
Noninterest expense:
Salaries and employee benefits 21,750 22,051 20,623
Occupancy expense 5,006 4,421 3,875
Equipment expense 4,700 3,540 3,140
Amortization of intangible assets 3,175 2,180 1,528
Savings association insurance fund assessment -- -- 1,316
Merger expenses 4,373 2,651 494
Legal and professional fees 2,707 3,109 2,320
Stationery, printing and supplies 1,576 1,814 1,386
Other operating expense 11,609 10,359 10,194
------------------------------
Total noninterest expense 54,896 50,125 44,876
------------------------------
Income before income taxes 33,075 30,066 23,636
Income tax expense 11,217 10,540 8,840
------------------------------
Net income $21,858 $ 19,526 $ 14,796
==============================
Basic earnings per share $ .87 $ .79 $ .62
==============================
Diluted earnings per share $ .84 $ .76 $ .60
==============================
</TABLE>
25
Triangle Bancorp, Inc. and Subsidiaries
<PAGE>
BOARD OF DIRECTORS
TRIANGLE BANCORP AND TRIANGLE BANK
[TWO PHOTOGRAPHS APPEAR HERE]
<TABLE>
<CAPTION>
<S> <C>
STANDING, LEFT TO RIGHT: STANDING, LEFT TO RIGHT:
Willie S. Edwards Charles H. Ashford Jr., M.D.
Real Estate Developer Physician
Washington New Bern
J. Dal Snipes Boyd W. Harris, III
President Principal
Snipes Insurance Service, Inc. Harris, Harris & Company
Dunn Durham
N. Leo Daughtry Michael A. Maxwell
Attorney Senior Scientist
Daughtry, Woodard, Lawrence, and Starling Environmental Protection Agency
Smithfield Chapel Hill
N. Johnson Tilghman George W. Holt
Partner Executive Vice President, Retired
Tilghman & Butler Triangle Bank
Garner Whiteville
SEATED, LEFT TO RIGHT: SEATED, LEFT TO RIGHT:
Beverly B. Poston Carole S. Anders
Executive Vice President Community Volunteer
Bahakel Communications, Inc. Raleigh
Charlotte
Patrick H. Pope
Wendell H. Murphy Partner
Chairman and CEO Pope & Tart
Murphy Family Farms Dunn
Rose Hill
</TABLE>
26
Triangle Bancorp, Inc. and Subsidiaries
<PAGE>
[TWO PHOTOGRAPHS APPEAR HERE]
<TABLE>
<CAPTION>
<S> <C> <C>
STANDING, LEFT TO RIGHT: STANDING, LEFT TO RIGHT: Edwin B. Borden (not pictured)
President
Michael S. Patterson* John A. Barker Borden Manufacturing Co.
Chairman, President and CEO Consultant Goldsboro
Triangle Bank Rocky Mount
Triangle Bancorp, Inc. Robert E. Bryan, Jr.* (not pictured)
Raleigh Robert L. Guthrie* Chairman
President and CEO Prime Express
William R. Pope Asura Corporation Fayetteville
President and CEO Research Triangle Park
Pope's Distributing Company David T. Clancy* (not pictured)
Coats Billy N. Quick, Sr. President
Executive Vice President Clancy & Theys Construction Co.
Sydnor M. White, Jr.* Triangle Bank Raleigh
President Oxford
Graham Realty, Inc.
Raleigh Charles J. Stewart
Executive Vice President
Earl Johnson, Jr.* Triangle Bank
Chairman Durham
Carolina Crane Corporation
Raleigh Seated, Left to Right:
J. Blount Williams*
Seated, Left to Right: President
James P. Godwin, Sr. Alfred Williams & Company
President Raleigh
Godwin Manufacturing Co., Inc.
Dunn Edythe M. Poyner*
President
John B. Harris, Jr. Capital Land Investment Company
Retired Raleigh
Raleigh
</TABLE>
27
Triangle Bancorp, Inc. and Subsidiaries
<PAGE>
EXECUTIVE OFFICERS
TRIANGLE BANCORP AND TRIANGLE BANK
<TABLE>
<CAPTION>
<S> <C> <C>
Michael S. Patterson Debra L. Lee Edward O. Wessell
Chairman, Executive Vice President Executive Vice President
President and CEO Chief Financial Officer Branch Administration
Robert E. Branch Steven R. Ogburn
Executive Vice President Executive Vice President
Support Services Credit Administration
BOARD OF DIRECTORS
BANK OF MECKLENBURG
Helen C. Adams W. E. Bryant, Jr. Michael S. Patterson
President President Chairman, President
Helen Adams Realty Bryant & Clark Communications, Inc. and CEO
Triangle Bank
H. Perrin Anderson Aubrey J. Elam Triangle Bancorp, Inc.
Retired Managing General Partner
Anderson & Anderson, Inc. Airport Park 160 John T. Roper, M.D.
Retired
R. Scott Anderson Dee-Dee W. Harris Orthopaedic Surgeon
President President
Bank of Mecklenburg Harris Land Company Paul J. Simon
President
Stephen Bahakel Debra L. Lee Paul Simon Company
Vice President/Radio Division Executive Vice President
Bahakel Communications, Inc. Chief Financial Officer Allan W. Singer
Triangle Bank Attorney At Law
Carl. G. Belk Triangle Bancorp, Inc. Mitchell, Rallings, Singer,
President McGirt, Tissue, PLLC
Monroe Hardware
</TABLE>
28
Triangle Bancorp, Inc. and Subsidiaries
<PAGE>
SHAREHOLDER INFORMATION
Annual Meeting
The Annual Meeting of the shareholders of Triangle Bancorp, Inc. will be held on
Tuesday, April 27, 1999, at the North Raleigh Hilton, Raleigh, NC at 10:00 AM.
Common Stock
At December 31, 1998, the Company had 25,183,597 shares of common stock
outstanding which was held by approximately 8,000 shareholders of record.
Beginning December 30, 1997, the Company's stock was listed on the New York
Stock exchange under the ticker symbol TGL. Prior to December 30, 1997 the
Company's stock was traded Over-the-Counter on the NASDAQ National Market under
the ticker symbol TRBC.
Quarterly Common
Stock Prices and Dividends
The table below sets forth the range of high and low per share sales prices as
reported by the NYSE from December 30, 1997 forward and by NASDAQ for prior
periods. The table also sets forth per share dividend information for the period
indicated.
Independent Accountants
PricewaterhouseCoopers LLP
Certified Public Accountants
150 Fayetteville Street Mall
Suite 2300
Raleigh, North Carolina 27601
Dividend Reinvestment
and Stock Purchase Plan
Triangle Bancorp, Inc. has a Dividend Reinvestment and Stock Purchase Plan which
allows shareholders to reinvest dividends and buy additional stock in any amount
up to $2,000 per quarter after they have made their initial purchase of stock.
For further information and an application, contact our Stock Transfer Agent.
About This Report
The 1998 Annual Report is presented using a summary format intended to provide
information regarding Triangle Bancorp, Inc.'s financial position and results of
operations in a concise manner that will be meaningful and useful to our
shareholders. The audited financial statements and detailed analytical schedules
are contained in the Triangle Bancorp, Inc. Annual Report on Form 10-K for the
year ended December 31, 1998.
Form 10-K
A copy of Triangle Bancorp, Inc.'s Form 10-K Annual Report to the Securities and
Exchange Commission for 1998 will be furnished, without charge, upon written
request to:
Investor Relations
Triangle Bancorp, Inc.
P.O. Box 31828
Raleigh, North Carolina 27622
Equal Opportunity Employer
As an equal opportunity employer, Triangle Bancorp, Inc. pledges to recruit,
hire, train and promote persons in all job classifications, without regard to
race, color, religion, sex, national origin, age, disability or veteran status.
Triangle Bancorp, Inc.
Corporate Headquarters
4300 Glenwood Avenue
Raleigh, NC 27612
(919) 881-0455
Stock Transfer Agent and Registrar
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016-3572
800-368-5948
1998 1997
High Low Dividend High Low Dividend
---- --- -------- ---- --- --------
Fourth Quarter 19.75 14.88 0.09 23.92 16.33 0.07
Third Quarter 21.06 14.94 0.08 20.00 14.50 0.06
Second Quarter 20.92 18.75 0.08 15.00 12.33 0.06
First Quarter 23.58 19.38 0.07 13.67 10.67 0.06
<PAGE>
[TRIANGLE BANCORP'S LOGO APPEARS HERE]
POST OFFICE BOX 31828, RALEIGH, NC 27622, WWW.TRIANGLEBANK.COM
EXHIBIT 21
SUBSIDIARIES OF TRIANGLE BANCORP, INC.
1. Triangle Bank
(owned 100% by Triangle Bancorp, Inc.)
A. Triangle Investment Services, Inc.
(owned 100% by Triangle Bank)
B. TriCorp, Inc.
(owned 100% by Triangle Bank)
C. TriReal, Inc.
(owned 100% by Triangle Bank)
D. First Service Corporation of NC
(owned 100% by Triangle Bank)
2. Bank of Mecklenburg
(owned 100% by Triangle Bancorp, Inc.)
A. BomCorp., Inc.
(owned 100% by Bank of Mecklenburg)
3. Coastal Leasing LLC (owned 100% by Triangle Bancorp, Inc.)
A. East Coast Financial, Inc.
(owned 100% by Coastal Leasing LLC)
B. Coastal Funding Services, Inc.
(owned 100% by East Coast Financial, Inc.)
4. Triangle Capital Trust
(owed 100% by Triangle Bancorp, Inc.)
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, 333-60397, 333-67653 and 333-53521)
of our report dated January 19, 1999, on our audits of the consolidated
financial statements of Triangle Bancorp, Inc. as of December 31, 1998 and 1997,
and for each of the three years in the period ended December 31, 1998, which
report has been included in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Raleigh, North Carolina
March 24, 1999
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