U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 2008 | | Commission file number 000-21329 |
(Exact Name of Registrant as Specified in Its Charter)
Florida (State of Incorporation) | | 65-0655973 (I.R.S. Employer Identification No.) |
599 9th Street North Suite 101 Naples, Florida (Address of Principal Executive Offices) | | 34102 (Zip Code) |
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(239) 263-3344 (Registrant’s telephone number) |
Securities Registered pursuant to Section 12(b) of the Act: Common stock, par value $0.10 |
Securities Registered pursuant to Section 12(g) of the Act: None |
Indicate by check mark if the issuer is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨ Yes or þ No |
Indicate by check mark if the issuer is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨ Yes or þ No |
Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes or ¨ No |
Check if there is no disclosure of delinquent filers pursuant to Item 405 of Regulation S-K contained in this form, and will not be contained, to the best of issuer’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. þ |
| Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. |
Large accelerated filer ¨ Non-accelerated filer ¨ (Do not check if a smaller reporting company) | Accelerated filer þ Smaller reporting company ¨ | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes or þ No |
The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2008 was approximately $81,565,000 based on the $5.88 per share closing price on June 30, 2008. |
The number of shares outstanding of issuer’s class of common stock at February 28, 2009 was 14,457,708 shares of common stock. |
| Documents Incorporated By Reference: Portions of the Proxy Statement for the 2009 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within 120 days of the Registrant’s 2008 fiscal year end are incorporated by reference into Parts II and III of this report. |
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| | PART I | PAGE |
| ITEM 1 | | 1 |
| ITEM 1A | | 12 |
| ITEM 1B | | 20 |
| ITEM 2 | | 20 |
| ITEM 3 | | 21 |
| ITEM 4 | | 21 |
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| | PART II | |
| ITEM 5 | | 21 |
| ITEM 6 | | 23 |
| ITEM 7 | | 25 |
| ITEM 7A | | 52 |
| ITEM 8 | | 53 |
| ITEM 9 | | 101 |
| ITEM 9A | | 101 |
| ITEM 9B | | 102 |
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| | PART III | |
| ITEM 10 | | 103 |
| ITEM 11 | | 103 |
| ITEM 12 | | 103 |
| ITEM 13 | | 103 |
| ITEM 14 | | 103 |
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| | PART IV | |
| ITEM 15 | | 104 |
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CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS
Certain of the matters discussed under the caption “Management's Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Annual Report on Form 10-K may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act and as such may involve known and unknown risk, uncertainties and other factors which may cause the actual results, performance or achievements of TIB Financial Corp. (the “Company”) to be materially different from future results described in such forward-looking statements. Actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without limitation: the effects of future economic conditions; governmental monetary and fiscal policies, as well as legislative and regulatory changes; the risks of changes in interest rates on the level and composition of deposits, loan demand, and the values of loan collateral, and interest rate risks; the effects of competition from other commercial banks, thrifts, consumer finance companies, and other financial institutions operating in the Company’s market area and elsewhere. All forward-looking statements attributable to the Company are expressly qualified in their entirety by these cautionary statements. The Company disclaims any intent or obligation to update these forward-looking statements, whether as a result of new information, future events or otherwise.
PART I
As used in this document, the terms “we,” “us,” “our,” “TIB Financial,” and “Company” mean TIB Financial Corp. and its subsidiaries (unless the context indicates another meaning); the term “Banks” mean TIB Bank (and its subsidiaries) and The Bank of Venice (unless the context indicates another meaning).
General
We are a financial holding company headquartered in Naples, Florida, whose business is conducted primarily through our wholly-owned subsidiaries, TIB Bank, The Bank of Venice and Naples Capital Advisors, Inc. Together we have twenty-eight full-service banking offices in Florida that are located in Monroe, Miami-Dade, Collier, Lee, and Sarasota counties. TIB Bank, which was formed in 1974, serves the Southern Florida market while The Bank of Venice serves the Sarasota County market. On December 8, 2008 TIB Bank received authority to exercise trust powers from the FDIC and the State of Florida. At December 31, 2008, we had approximately $1.61 billion in total assets, $1.14 billion in total deposits, $1.22 billion in total loans, and $121.1 million in shareholders’ equity. The Banks’ deposits are insured by the Federal Deposit Insurance Corporation (FDIC), up to applicable limits.
Through the Banks, we offer a wide range of commercial and retail banking and financial services to businesses and individuals. Our account services include checking, interest-bearing checking, money market, savings, certificates of deposit and individual retirement accounts. We offer all types of commercial loans, including: owner-operated commercial real estate; acquisition, development and construction; income-producing properties; working capital; inventory and receivable facilities; and equipment loans. We also offer a full complement of consumer loan products including residential real estate, installment loans, home equity, home equity lines, and auto loans. Our lending focus is predominantly on small to medium-sized business and consumer borrowers. Most importantly, we provide our customers with access to local officers who are empowered to act with flexibility to meet customers' needs in an effort to foster and develop long-term loan and deposit relationships. Through Naples Capital Advisors, Inc., and TIB Bank we offer wealth management, advisory and trust services.
We are subject to examination and regulation by the Board of Governors of the Federal Reserve System, the Florida Office of Financial Regulation, and the FDIC. This regulation is intended for the protection of our depositors, not our shareholders.
Recent Developments
On February 13, 2009, TIB Bank assumed all the deposits (excluding brokered deposits) of Riverside Bank of the Gulf Coast from the FDIC. Riverside Bank’s nine offices reopened on February 17, 2009 as branches of TIB Bank. The assumption of the deposits increases our market presence in Ft. Myers and Venice, and expands our banking operations into the contiguous market of Cape Coral. This transaction also provides the Company with additional funding for loan growth, the potential for new customer relationships and will improve and increase our brand awareness throughout all of the markets we serve.
Business Strategy
Our business strategy is to operate as a profitable, diversified financial services company providing a variety of banking and other financial services, with an emphasis on consumer and residential mortgage lending, commercial business loans to small and medium-sized businesses and private banking and wealth management. As a result of the consolidation of locally based small and medium-sized financial institutions and the emergence of large, nationally focused financial institutions, we believe there is a significant opportunity for community based and focused banks to provide a full range of financial services to small and middle-market commercial and retail customers. We emphasize comprehensive retail and small business products and responsive, decentralized decision-making which reflects our knowledge of our local markets and customers.
To continue asset growth and improve profitability, our marketing strategy is targeted to:
| · | Provide customers with access to our local executives who make key credit and account decisions; |
| · | Pursue commercial lending opportunities with small to mid-sized businesses which we believe are underserved by our larger competitors; |
| · | Provide residential mortgage financing on both a mortgage banking basis with conforming loans sold through the secondary market and on a portfolio basis with jumbo and other nonconforming loans originated for customers with an existing relationship and an opportunity for us to provide private banking and wealth management services; |
| · | Originate consumer loans principally on a direct basis to diversify our sources of loans and revenue and enhance our interest margin. We are deemphasizing the origination of auto loans on an indirect basis through auto dealers, but will continue to originate loans to consumers with prime credit; |
| · | Cross-sell our products and services to our existing customers to leverage our relationships and enhance profitability; and |
| · | Adhere to safe and sound credit standards to maintain the continued quality of assets as we implement our growth strategy. |
Banking services
Commercial Banking. The Banks focus their commercial loan originations on established small and mid-sized businesses, professionals and professional organizations in their market areas. These loans are usually accompanied by cash management services and deposit relationships. The Banks provide commercial real estate loans to finance the acquisition and development of owner operated properties; acquisition, development and construction of investment properties; builder construction lines of credit; and the purchase of income-producing properties, including office buildings, industrial buildings, self-storage, hotel/motel, medical centers, marinas, retail and shopping centers. The Banks offer a complete range of commercial loan products, including revolving lines of credit for working capital and term loans for the acquisition of equipment, funding property improvements or other business related expenses. Commercial underwriting is driven by cash flow repayment analysis along with the additional support provided by collateral and the principals involved with the loan.
Retail Banking. Retail banking activities emphasize consumer deposit and checking accounts. An extensive range of these services is offered by the Banks to meet the varied needs of their customers from young persons to senior citizens. In addition to traditional products and services, the Banks offer remotely delivered electronically based products and services, such as debit cards, Internet banking and electronic bill payment services. Consumer loan products offered by the Banks include home equity lines of credit, second mortgages, new and used auto loans, including indirect auto loans through dealers for customers with prime credit, new and used boat loans, overdraft protection, and unsecured personal credit lines.
Mortgage Banking. The Banks’ mortgage banking business is structured to provide a source of fee income largely from the process of originating mortgages for sale in the secondary market (primarily fixed rate loans), as well as the origination of primarily adjustable rate loans to be held in the Banks’ loan portfolios. Mortgage banking capabilities include conventional and nonconforming mortgage underwriting; and construction and permanent financing for owner occupied single family residences.
Lending activities
Loan Portfolio Composition. At December 31, 2008, the Banks' loan portfolios totaled $1.22 billion, representing approximately 76% of our total assets of $1.61 billion. For a discussion of our loan portfolio, see “Management's Discussion and Analysis of Financial Condition and Results of Operations - Loan Portfolio.”
The composition of the Banks’ loan portfolios at December 31, 2008 and 2007 is indicated below, along with the change from the prior year
| (Dollars in thousands) | | Total Loans December 31, 2008 | | | % of Total Loans | | | Total Loans December 31, 2007 | | | % of Total Loans | | | % Increase (Decrease) from December 31, 2007 to 2008 | |
| Real estate mortgage loans: | | | | | | | | | | | | | | | |
| Commercial | | $ | 658,516 | | | | 54 | % | | $ | 612,084 | | | | 54 | % | | | 8 | % |
| Residential | | | 205,062 | | | | 17 | % | | | 112,138 | | | | 10 | % | | | 83 | % |
| Farmland | | | 13,441 | | | | 1 | % | | | 11,361 | | | | 1 | % | | | 18 | % |
| Construction and vacant land | | | 147,309 | | | | 12 | % | | | 168,595 | | | | 15 | % | | | (13 | %) |
| Commercial and agricultural loans | | | 71,352 | | | | 6 | % | | | 72,076 | | | | 6 | % | | | (1 | %) |
| Indirect auto loans | | | 82,028 | | | | 6 | % | | | 117,439 | | | | 11 | % | | | (30 | %) |
| Home equity loans | | | 34,062 | | | | 3 | % | | | 21,820 | | | | 2 | % | | | 56 | % |
| Other consumer loans | | | 11,549 | | | | 1 | % | | | 12,154 | | | | 1 | % | | | ( 5 | %) |
| Total | | $ | 1,223,319 | | | | 100 | % | | $ | 1,127,667 | | | | 100 | % | | | 8 | % |
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Commercial Real Estate Mortgage Loans. At December 31, 2008, the Banks’ commercial real estate loan portfolio totaled $658.5 million. The Banks also have $13.4 million in loans outstanding that are secured by farmland. The Banks originate commercial mortgages secured by office and retail buildings, hotels, bed and breakfast inns, and multi-purpose warehouse buildings. Although terms may vary, the Banks’ commercial mortgages generally are long term in nature, a significant portion are collaterized by owner-occupied or owner operated properties and with interest rates fixed generally for three to five years. The Banks seek to reduce the risks associated with commercial mortgage lending by generally lending in their market area and obtaining periodic financial statements and tax returns from borrowers. Commercial real estate loans are generally underwritten with future cash flows as the primary source of repayment and the pledged collateral as a secondary source of repayment. It is also the Banks’ general policy to obtain personal guarantees from the principals of the borrowers and assignments of all leases related to the collateral.
Commercial Loans. At December 31, 2008, the Banks’ commercial loan portfolio totaled $71.4 million. The Banks originate secured and unsecured loans for business purposes. Loans are made for acquisition, expansion, and working capital purposes and may be collaterized by real estate, accounts receivable, inventory, equipment or other assets. The financial condition and cash flow of commercial borrowers are closely monitored through the periodic submission of corporate financial statements, personal financial statements and income tax returns.
Construction Loans. At December 31, 2008, the Banks’ construction loan portfolio totaled $147.3 million. The Banks provide interim real estate acquisition development and construction loans to builders, developers, and the owner-occupants of the building. Real estate development and construction loans to provide interim financing on the property are based on acceptable percentages of the lower of the cost to complete or appraised value of the property securing the loan in each case. Real estate development and construction loan funds are disbursed periodically at pre-specified stages of completion. Interest rates on these loans are generally adjustable. The Banks carefully monitor these loans with on-site inspections and control of disbursements.
Development and construction loans are secured by the properties under development or construction and personal guarantees are typically obtained. Further, to assure that reliance is not placed solely in the value of the underlying property, the Banks consider the market conditions and feasibility of the proposed project, the financial condition and reputation of the borrower and any guarantors, the amount of the borrower’s equity in the project, independent appraisals, costs estimates and pre-construction sale information.
Loans to individuals for the construction of their primary or secondary residences are collaterized by the property under construction. The loan to value ratio of construction loans is based on the lesser of the cost to construct or the appraised value of the completed home. Construction loans generally have a maturity of 12 months. These construction loans to individuals may be converted to permanent loans upon completion of construction.
Residential Real Estate Mortgage Loans. At December 31, 2008, the Banks’ residential loan portfolio totaled $205.1 million. The Banks originate adjustable and fixed-rate residential mortgage loans. These mortgage loans are generally originated under terms, conditions and documentation acceptable to the secondary mortgage market. The Banks retain jumbo loans, which generally are adjustable rate loans that do not qualify for sale in the conforming secondary market, in our portfolio. During 2008, the majority of the amount of residential loans originated were retained in our portfolio.
Indirect Auto Loans. At December 31, 2008, TIB Bank's indirect auto loan portfolio totaled $82.0 million. TIB Bank buys loans that have been originated by automobile dealerships—this is commonly referred to as indirect lending. We are deemphasing the origination of auto loans though auto dealers and have significantly reduced the volume of new auto loans originated in 2008. We predominately buy loans from auto dealers in Southwest Florida and they are for the purchase of new or late model used cars. In prior years, we served customers over a broad range of creditworthiness and the required terms and rates reflected of those risk profiles.
The balance of outstanding indirect loans declined in 2008 as we reacted to local economic conditions by implementing more stringent underwriting criteria and reducing the volume of our originations. As a result of these adjustments, our originations during 2008 were principally to prime credit quality borrowers and totaled $21.5 million.
We strive to deliver attractive risk adjusted returns while maintaining credit quality in our indirect lending operations due to a combination of factors including:
| · | Business with a limited number of dealers - The dealerships we do business with are characterized by being very sound financially and trade predominately in vehicles which retain market value reasonably well over time. We continually monitor dealers for compliance with our lending guidelines. |
| · | Thorough underwriting of applicants - We evaluate credit scores and other pertinent information such as the stability of the applicant's job, home ownership, and the nature of any credit issues which may give us a better indication of creditworthiness than just the credit score. |
| · | Effective collections - We get to customers quickly and more often as payment issues arise. We begin contacting the customer once their payment is 10 days past due. After an account is 15 days past due, it is referred to our collections department for resolution including field contacts as necessary. |
Other Consumer Loans and Home Equity Loans. At December 31, 2008, the Banks’ consumer loan portfolios totaled $11.5 million, and their home equity portfolios totaled $34.1 million. The Banks offer a variety of consumer loans. These loans are typically collaterized by residential real estate or personal property, including automobiles and boats. Currently, equity loans (closed-end and lines of credit) are typically made up to 70% of the appraised value of the property securing the loan, in each case, less the amount of any existing liens on the property. Closed-end loans have terms of up to 15 years. Lines of credit have an original maturity of 10 years. The interest rates on closed-end home equity loans are fixed, while interest rates on home equity lines of credit are variable. In prior years, a significant portion of the home equity lines of credit loans originated were sold on the secondary market. In 2008 there was a limited market for the sale of home equity line of credit loans and our origination of such loans were principally to customers with existing relationships with the Banks.
Credit administration
The Banks’ lending activities are governed by written policies approved by their boards of directors to ensure proper management of credit risk. Loans are subject to a defined credit process that includes repayment analysis of the borrower, risk-rating of credits, establishment of lending limits and application of lending procedures, including the holding of adequate collateral and the maintenance of compensating balances, as well as procedures for on-going identification and management of credit deterioration. Periodic portfolio reviews are performed to identify potential underperforming credits, estimate loss exposure, and to ascertain compliance with the Banks’ policies. Additionally, management reviews watch loans, construction loans, and loans upon which repayment is dependant upon the sale of real estate on a monthly basis. Management review consists of evaluation of the financial strengths of the borrower and the guarantor, the related collateral and the effects of economic conditions.
The Banks generally do not make commercial or consumer loans outside their market areas unless the borrower has an established relationship with one of the Banks and conducts its principal business operations within the Banks’ market areas. Consequently, the Banks and their borrowers are affected by the economic conditions prevailing in their market areas.
Private Banking, Wealth Management and Trust Services
The Company completed the acquisition of Naples Capital Advisors, Inc., a registered investment advisor, on January 2, 2008. This acquisition of Naples Capital Advisors, Inc. was the beginning of the Company’s entry into the new business lines of private banking, trust services and wealth management. On December 8, 2008, TIB Bank received authority to exercise trust powers from the FDIC and the State of Florida. Naples Capital Advisors, Inc. had $95 million in assets under advisement as of December 31, 2008. Staffing, operations, market presence and existing revenues will support the expansion of these integrated and complementary services going forward.
Employees
As of December 31, 2008, the Banks employed 340 full-time employees and 17 part-time employees. The Company has three employees, one of whom serves as an officer of TIB Bank. The Company and its subsidiaries are not a party to any collective bargaining agreement, and management believes the Company and its subsidiaries enjoy satisfactory relations with their employees.
Related Party Transactions
At December 31, 2008, we had $1.22 billion in total loans outstanding, of which $270,000 was outstanding to certain of our executive officers and directors and their related business interests. In the ordinary course of business, the Banks make loans to our directors and their affiliates and to policy-making officers.
SUPERVISION AND REGULATION
General
We are extensively regulated under federal and state law. Generally, these laws and regulations are intended to protect depositors, not shareholders. The following is a summary description of certain provisions of certain laws that affect the regulation of bank holding companies and banks. The discussion is qualified in its entirety by reference to applicable laws and regulations. Changes in such laws and regulations may have a material effect on our business and prospects, as well as those of the Banks. Additionally, the Banks file quarterly reports of condition and income, commonly referred to as Call Reports, with the FDIC. These reports are made available shortly after being filed at the FDIC’s website, www.fdic.gov .. The Company files quarterly reports with the Board of Governors of the Federal Reserve System.
Federal Bank Holding Company Regulation and Structure
We are a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended, and, as such, we are subject to regulation, supervision, and examination by the Federal Reserve. We are required to file annual and quarterly reports with the Federal Reserve and to provide the Federal Reserve with such additional information as it may require. The Federal Reserve may examine us and our subsidiaries.
With certain limited exceptions, we are required to obtain prior approval from the Federal Reserve before acquiring direct or indirect ownership or control of more than 5% of any voting securities or substantially all of the assets of a bank or bank holding company, or before merging or consolidating with another bank holding company. In acting on applications for such approval, the Federal Reserve must consider various statutory factors, including among others, the effect of the proposed transaction on competition in the relevant geographical and product markets, each party’s financial condition and management resources and record of performance under the Community Reinvestment Act. Additionally, with certain exceptions, any person proposing to acquire control through direct or indirect ownership of our voting securities is required to give 60 days’ written notice of the acquisition to the Federal Reserve, which may prohibit the transaction, and to publish notice to the public.
Generally, a bank holding company may not engage in any activities other than banking, managing or controlling its bank and other authorized subsidiaries, and providing services to these subsidiaries. With prior approval of the Federal Reserve, we may acquire more than 5% of the assets or outstanding shares of a company engaging in non-bank activities determined by the Federal Reserve to be closely related to the business of banking or of managing or controlling banks. In recent years, changes in law have significantly increased the right of an eligible bank holding company, called a “financial holding company,” to engage in a full range of financial activities, including insurance and securities activities, as well as merchant banking and other financial services. We are a financial holding company and thus have expanded financial affiliation opportunities as long as the Banks remain well-capitalized under the standards discussed below, and also meet certain other requirements.
Subsidiary banks of a bank holding company are subject to certain quantitative and qualitative restrictions on extensions of credit to the bank holding company or its subsidiaries, investments in their securities, and the use of their securities as collateral for loans to any borrower. These regulations and restrictions may limit our ability to obtain funds from the Banks for our cash needs, including funds for the payment of dividends, interest and operating expenses. Further, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, lease or sale of property or furnishing of services. For example, the Banks may not generally require a customer to obtain other services from themselves or us, and may not require that a customer promise not to obtain other services from a competitor as a condition to and extension of credit to the customer. The Federal Reserve has ended the anti-tying rules for bank holding companies and their non-banking subsidiaries. Such rules were retained for banks.
Under Federal Reserve policy, a bank holding company is expected to act as a source of financial strength to its subsidiary banks and to make capital injections into a troubled subsidiary bank, and the Federal Reserve may charge the bank holding company with engaging in unsafe and unsound practices for failure to commit resources to a subsidiary bank when required. A required capital injection may be called for at a time when the holding company does not have the resources to provide it. In addition, depository institutions insured by the FDIC can be held liable for any losses incurred by, or reasonably anticipated to be incurred by, the FDIC in connection with the default of, or assistance provided to, a commonly controlled FDIC-insured depository institution.
Enacted in 1999, the Graham-Leach-Bliley Act reformed and modernized certain areas of financial services regulations and repealed the affiliation provisions of the federal Glass-Steagall Act of 1933, which, taken together, limited the securities, insurance and other non-banking activities of any company that controls a FDIC insured financial institution. The Act provides that a financial holding company may engage in a full range of financial activities, including insurance and securities sales and underwriting activities, real estate development, and, with certain exceptions, merchant banking activities, with expedited notice procedures. The Act also permits certain qualified national banks to form “financial subsidiaries,” which have broad authority to engage in all financial activities except insurance underwriting, insurance investments, real estate investment or development, and merchant banking, and expands the potential financial activities of subsidiaries of state banks, subject to applicable state law. The range of activities in which bank holding companies and their subsidiaries may engage is not as broad. The law also includes substantive requirements for maintenance of customer financial privacy.
Troubled Asset Relief Program
On December 5, 2008, as part of the Troubled Asset Relief Program (“TARP”) Capital Purchase Program, we sold to the U.S. Department of the Treasury, $37 million of Series A preferred stock of TIB Financial Corp., with a 5% cumulative annual dividend yield for the first five years, and 9% thereafter, and a ten year warrant to purchase up to 1,073,850 shares of the Company’s voting common stock, at an exercise price of $5.17 per share, for an aggregate purchase price of $5.5 million in cash.
We may not declare or pay dividends on our common stock or, with certain exceptions, repurchase common stock without first having paid all accrued cumulative preferred dividends that are due. For three years from the issue date, we also may not increase our common stock dividend rate above a quarterly rate of $.0606 per share or repurchase our common shares without Treasury’s consent, unless Treasury has transferred all the preferred shares to third parties or the preferred stock has been redeemed.
To be eligible for the CPP, we have also agreed to comply with certain executive compensation and corporate governance requirements of the EESA, including a limit on the tax deductibility of executive compensation above $500,000. The specific rules covering these requirements are being developed by Treasury and other government agencies. Additionally, under the EESA, Congress has the ability to impose “after-the-fact” terms and conditions on participants in the CPP. As a participant in the CPP, we may be subject to any such retroactive terms and conditions. We cannot predict whether, or in what form, additional terms or conditions may be imposed.
The American Recovery and Reinvestment Act (the “ARRA”) became law on February 17, 2009. Among its many provisions, the ARRA imposes certain new executive compensation and corporate expenditure limits on all current and future TARP recipients, including the Company, that are in addition to those previously announced by the Treasury. These limits are effective until the institution has repaid the Treasury, which is now permitted under the ARRA without penalty and without the need to raise new capital, subject to the Treasury’s consultation with the recipient’s appropriate regulatory agency.
Federal and State Bank Regulation
The Banks are Florida state-chartered banks, with all the powers of a commercial bank regulated and examined by the Florida Office of Financial Regulation and the FDIC. The FDIC and the Florida Office of Financial Regulation have extensive enforcement authority over the institutions they regulate to prohibit or correct activities that violate law, regulation or written agreement with the FDIC and the Office of Financial Regulation. Enforcement powers also regulate activities that are deemed to constitute unsafe or unsound practices. Enforcement actions may include the appointment of a conservator or receiver, the issuance of a cease and desist order, the termination of deposit insurance, the imposition of civil money penalties on the institution, its directors, officers, employees and institution-affiliated parties, the issuance of directives to increase capital, the issuance of formal and informal agreements, the removal of or restrictions on directors, officers, employees and institution-affiliated parties, and the enforcement of any such mechanisms through restraining orders or other court actions.
In its lending activities, the maximum legal rate of interest, fees and charges that a financial institution may charge on a particular loan depends on a variety of factors such as the type of borrower, the purpose of the loan, the amount of the loan and the date the loan is made. Other laws tie the maximum amount that may be loaned to any one customer and its related interest to capital levels. The Banks are also subject to certain restrictions on extensions of credit to executive officers, directors, principal shareholders or any related interest of such persons which generally require that such credit extensions be made on substantially the same terms as are available to third persons dealing with the Banks and not involve more than the normal risk of repayment. The Banks are also subject to federal laws establishing certain record keeping, customer identification and reporting requirements with respect to certain large cash transactions, sales of travelers’ checks or other monetary instruments, and international transportation of cash or monetary instruments. Further, under the USA Patriot Act of 2001, financial institutions, including the Banks, are required to implement additional policies and procedures with respect to, or additional measures designed to address, any or all of the following matters, among others: money laundering, suspicious activities and currency transaction reporting, and currency crimes.
The Community Reinvestment Act requires that, in connection with the examination of financial institutions within their jurisdictions, the FDIC evaluates the record of the financial institution in meeting the credit needs in its communities including low and moderate income neighborhoods, consistent with the safe and sound operation of those banks. These factors are also considered by all regulatory agencies in evaluating mergers, acquisitions and applications to open a branch or facility. As of the date of their most recent examination reports, the Banks have a Community Reinvestment Act rating of “Satisfactory.”
Under the Federal Deposit Insurance Corporation Improvement Act of 1991, each federal banking agency is required to prescribe, by regulation, noncapital safety and soundness standards for institutions under its authority. The federal banking agencies, including the FDIC, have adopted standards covering internal controls, information systems and internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, and compensation, fees and benefits. An institution that fails to meet those standards may be subject to regulatory sanctions and/or be required by the agency to develop a plan acceptable to the agency, specifying the steps that the institution will take to meet the standards. We believe that we substantially meet all standards that have been adopted. This law also imposes capital standards on insured depository institutions. See “Capital Requirements” below.
The Federal Deposit Insurance Corporation Improvement Act of 1991 also provides for, among other things, (i) publicly available annual financial condition and management reports for financial institutions, including audits by independent accountants, (ii) the establishment of uniform accounting standards by federal banking agencies, (iii) the establishment of a “prompt corrective action” system of regulatory supervision and intervention, based on capitalization levels with more scrutiny and restrictions placed on depository institutions with lower levels of capital, (iv) additional grounds for the appointment of a conservator or receiver, and (v) restrictions or prohibitions on accepting brokered deposits, except for institutions which significantly exceed minimum capital requirements. FDICIA also provides for increased funding of the FDIC insurance funds and the implementation of risked-based premiums.
Deposit Insurance
As FDIC member institutions, deposits of the Banks are currently insured to the current maximum allowed by law through the Bank Insurance Fund, which is administered by the FDIC.
Limits on Dividends and Other Payments
Our ability to pay dividends is largely dependent upon the receipt of dividends from the Banks. Both federal and state laws impose restrictions on the ability of the Banks to pay dividends. Federal law prohibits the payment of a dividend by an insured depository institution if the depository institution is considered “undercapitalized” or if the payment of the dividend would make the institution “undercapitalized.” See “Capital Requirements" below. The Federal Reserve has issued a policy statement that provides that bank holding companies should pay dividends only out of the prior year’s net income, and then only if their prospective rate of earnings retention appears consistent with their capital needs, asset quality, and overall financial condition. For a Florida state-chartered bank, dividends may be paid out of the bank’s aggregate net profits for the current year combined with its retained earnings for the preceding two years as the board deems appropriate. No dividends may be paid at a time when a bank’s net income from the preceding two years is a loss or which would cause the capital accounts of the bank to fall below the minimum amount required by law. In addition to these specific restrictions, bank regulatory agencies also have the ability to prohibit proposed dividends by a financial institution that would otherwise be permitted under applicable regulations if the regulatory body determines that such distribution would constitute an unsafe or unsound practice.
Our ability to pay dividends is also limited by the terms of our Series A preferred stock. As long as any shares of Series A preferred stock are outstanding, unless all accrued and unpaid dividends, for all prior dividend periods, have been paid or are contemporaneously paid, no cash dividends may be paid on our common stock. Additionally, we have issued junior subordinated debentures to special purpose trusts which are senior to our shares of Series A preferred stock and our common stock. As a result, we must make payments on the junior subordinated debentures before any dividends can be paid on our preferred or common stock. Based on the level of undistributed earnings of TIB Bank for the prior two years, declaration of dividends by TIB Bank during 2009, would likely require regulatory approval. The Bank of Venice has no retained earnings available for dividends.
Capital Requirements
The Federal Reserve and FDIC have adopted certain risk-based capital guidelines to assist in the assessment of the capital adequacy of a banking organization’s operations for both transactions reported on the balance sheet as assets and transactions, such as letters of credit and recourse arrangements which are recorded as off balance sheet items. Under these guidelines, nominal dollar amounts of assets and credit equivalent amounts of off balance sheet items are multiplied by one of several risk adjustment percentages, which range from 0% for assets with low credit risk, such as certain U.S. Treasury securities, to 200% for assets with relatively high credit risk, such as asset-backed and mortgage-backed securities that are rated below investment grade.
A banking organization’s risk-based capital ratio is obtained by dividing its qualifying capital by its total risk adjusted assets. The regulators measure risk-adjusted assets, which include off balance sheet items, against both total qualifying capital (the sum of Tier 1 capital and limited amounts of Tier 2 capital) and Tier 1 capital. “Tier 1,” or core capital includes common equity, perpetual preferred stock (excluding auction rate issues), trust preferred securities (subject to certain limitations), and minority interest in equity accounts of consolidated subsidiaries (less goodwill and other intangibles), subject to certain exceptions. “Tier 2,” or supplementary capital, includes, among other things limited-life preferred stock, hybrid capital instruments, mandatory convertible securities and trust preferred securities, qualifying and subordinated debt, and the allowance for loan and lease losses, subject to certain limitations and less required deductions. The inclusion of elements of Tier 2 capital is subject to certain other requirements and limitations of the federal banking agencies.
The federal banking agencies are required to take “prompt corrective action” with respect to depository institutions that do not meet minimum capital requirements. As a result, the federal bank regulatory authorities have adopted regulations setting forth a five tiered system for measuring the capital adequacy of the depository institutions that they supervise. Under these regulations, a depository institution is classified in one of the following capital categories: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized.” An institution may be deemed by the regulators to be in a capitalization category that is lower than is indicated by its actual capital position if, among other things, it receives an unsatisfactory examination rating with respect to asset quality, management, earnings or liquidity. As of December 31, 2008, the Banks met the definition of a “well-capitalized” institution.
A depository institution generally is prohibited from making any capital distribution (including payment of a cash dividend) or paying any management fees to its holding company if the depository institution would thereafter be undercapitalized. Undercapitalized depository institutions are subject to growth limitations and are required to submit capital restoration plans. If a depository institution fails to submit an acceptable plan, it is treated as if it is significantly undercapitalized. Significantly undercapitalized depository institutions may be subject to a number of other requirements and restrictions including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets and stop accepting deposits from correspondent banks. Critically undercapitalized institutions are subject to the appointment of a receiver or conservator; generally within 90 days of the date such institution is determined to be critically undercapitalized.
The federal banking agencies also have significantly expanded powers to take enforcement action against institutions that fail to comply with capital or other standards. Such action may include limitations on the right to pay dividends, the issuance by the applicable regulatory authority of a capital directive to increase capital and, in the case of depository institutions, the termination of deposit insurance by the FDIC. The circumstances under which the FDIC is permitted to provide financial assistance to an insured institution before appointment of a conservator or receiver also is limited under law. In addition, future changes in regulations or practices could further reduce the amount of capital recognized for purposes of capital adequacy. Such a change could affect the ability of the Banks to grow and could restrict the amount of profits, if any, available for the payment of dividends to us.
Interstate Banking Legislation
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (“Riegle-Neal”), subject to certain restrictions, allows adequately capitalized and managed bank holding companies to acquire existing banks across state lines, regardless of state statutes that would prohibit acquisitions by out-of-state institutions. Further, a bank holding company may consolidate interstate bank subsidiaries into branches and a bank may merge with an unaffiliated bank across state lines to the extent that the applicable states authorize such transactions. Florida has a law which permits interstate branching through merger transactions under the federal interstate laws. Under the Florida law, with the prior approval of the Florida Office of Financial Regulation, a Florida bank may establish, maintain and operate one or more branches in a state other than the State of Florida pursuant to a merger transaction in which the Florida bank is the resulting bank. In addition, Florida law provides that one or more Florida banks may enter into a merger transaction with one or more out-of-state banks, and an out-of-state bank resulting from such transaction may maintain and operate branches of a Florida bank that participated in such merger.
Sarbanes-Oxley Act
In 2002, the Sarbanes-Oxley Act was enacted which imposes a myriad of corporate governance and accounting measures designed so that shareholders have full and accurate information about the public companies in which they invest. All public companies are affected by the Act. Some of the principal provisions of the Act include:
| · | The creation of an independent accounting oversight board to oversee the audit of public companies and auditors who perform such audits; |
| · | Auditor independence provisions which restrict non-audit services that independent accountants may provide to their audit clients; |
| · | Additional corporate governance and responsibility measures which (a) require the chief executive officer and chief financial officer to certify financial statements and to forfeit salary and bonuses in certain situations, and (b) protect whistleblowers and informants; |
| · | Expansion of the authority and responsibilities of the company’s audit, nominating and compensation committees; |
| · | Mandatory disclosure by analysts of potential conflicts of interest; and |
| · | Enhanced penalties for fraud and other violations. |
Other Legislative Considerations
The United States Congress and the Florida Legislature periodically consider and may adopt legislation that results in additional deregulation, among other matters, of banks and other financial institutions. Such legislation could modify or eliminate current prohibitions with other financial institutions, including mutual funds, securities, brokerage firms, insurance companies, banks from other states, and investment banking firms. The effect of any such legislation on our business or that of the Banks cannot be accurately predicted. We cannot predict what legislation might be enacted or what other implementing regulations might be adopted, and if enacted or adopted, the effect on us.
Competition
The banking business is highly competitive. Banks generally compete with other financial institutions through the banking products and services offered, the pricing of services, the level of service provided, the convenience and availability of services, and the degree of expertise and the personal manner in which services are offered. The Banks encounter strong competition from most of the financial institutions in the Banks' primary service areas. In the conduct of certain areas of their banking business, the Banks also compete with credit unions, consumer finance companies, insurance companies, money market mutual funds and other financial institutions, some of which are not subject to the same degree of regulation and restrictions imposed upon the Banks. Many of these competitors have substantially greater resources and lending limits than the Banks currently have. Management believes that personalized service and competitive pricing is a sustainable competitive advantage that will provide us with a method to compete effectively in our primary service areas.
Monetary Policy
Our earnings are affected by domestic and foreign economic conditions, particularly by the monetary and fiscal policies of the United States government and its agencies. The Federal Reserve has an important impact on the operating results of banks and other financial institutions through its power to implement national monetary policy. The methods used by the Federal Reserve include setting the reserve requirements of banks, establishing the discount rate on bank borrowings and conducting open market transactions in United States Government securities.
FDIC Insurance Assessments
The FDIC insures the deposits of the Banks up to prescribed limits for each depositor. The amount of FDIC assessments paid by each Bank Insurance Fund (BIF) member institution is based on its relative risks of default as measured by regulatory capital ratios and other factors. Specifically, the assessment rate is based on the institution’s capitalization risk category and supervisory subgroup category. An institution’s capitalization risk category is based on the FDIC’s determination of whether the institution is well capitalized, adequately capitalized or less than adequately capitalized. An institution’s supervisory subgroup category is based on the FDIC’s assessment of the financial condition of the institution and the probability that FDIC intervention or other corrective action will be required. The FDIC may terminate insurance of deposits upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order, or condition imposed by the FDIC. As a result of the Federal Deposit Insurance Reform Act of 2005, the Banks were assessed deposit insurance on a quarterly basis beginning January 1, 2007. As a part of an amended restoration plan recently announced by the FDIC to raise the Deposit Insurance Fund to 1.15% of industry insurable deposits, effective April 1, 2009, banks in the best risk category will pay base assessment rates to the FDIC ranging from 12¢ to 16¢ per $100.00 of insurable deposits on an annual basis. This compares to approximately 7¢ per $100.00 of deposits that we paid in 2008. Banks rated in a higher risk category will be subject to higher assessment rates. In addition, on February 27, 2009, the FDIC adopted an interim rule imposing a special assessment on insured institutions of 20 basis points for deposits on June 30, 2009. However, the FDIC has indicated that it may reduce this special assessment if Congress approves legislation increasing the FDIC’s existing line of credit with the U.S. Treasury. The assessment is to be collected on September 30, 2009. The FDIC’s interim rule would also permit the FDIC to impose an emergency special assessment after June 30, 2009, of up to ten basis points if necessary “to maintain public confidence in federal deposit insurance.”
Statistical Information
Certain statistical information is found in Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report on Form 10-K.
RISK FACTORS
Our business is subject to a variety of risks, including the risks described below as well as adverse business conditions and changes in regulations and the local, regional and national economic environment. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties not known to us or not described below which we have not determined to be material may also impair our business operations. You should carefully consider the risks described below, together with all other information in this report, including information contained in the “Business,” “Management’s Discussion and Analysis of Results of Operations and Financial Condition,” and “Quantitative and Qualitative Disclosures about Market Risk” sections. This report contains forward-looking statements that involve risks and uncertainties, including statements about our future plans, objectives, intentions and expectations. Many factors, including those described below, could cause actual results to differ materially from those discussed in forward-looking statements. If any of the following risks actually occur, our business, financial condition and results of operations could be adversely affected, and we may not be able to achieve our goals. Such events may cause actual results to differ materially from expected and historical results, and the trading price of our common stock could decline.
Risks Related to Our Business
Recent negative developments in the financial services industry and the U.S. and global credit markets may adversely impact our operations and results
Negative developments in the latter portion of 2007 and during 2008 in the national economy and capital markets have resulted in uncertainty in the financial markets in general with the expectation of the general economic downturn continuing in 2009 and beyond. Loan portfolio performances have deteriorated at many institutions resulting from, among other factors, a weak economy and a decline in the value of the collateral supporting their loans. The competition for our deposits has increased significantly due to liquidity concerns at many of these same institutions. Stock prices of bank holding companies, like ours, have been negatively affected by the current condition of the financial markets, as has our ability, if needed, to raise capital or borrow in the debt markets, compared to prior years. As a result, there is a potential for new federal or state laws and regulations regarding lending and funding practices and capital and liquidity standards, and financial institution regulatory agencies are expected to be very aggressive in responding to concerns and trends identified in examinations, including the expected issuance of many formal enforcement actions. Negative developments in the financial services industry and the impact of any new legislation in response to those developments could negatively impact our operations by restricting our business operations, including our ability to originate or sell loans, and adversely impact our financial performance.
Our business is subject to the success of the local economies where we operate
Our success significantly depends upon the growth in population, income levels, deposits and housing starts and sales in our primary and secondary markets. If the communities in which we operate do not grow or if prevailing economic conditions locally or nationally continue to remain challenged, our business may be adversely affected. Prolonged adverse economic conditions in our specific market area could reduce our growth rate, affect the ability of our customers to repay their loans to us and generally affect our financial condition and results of operations. We are less able than a larger institution to spread the risks of unfavorable local economic conditions across a large number of diversified economies. Moreover, we cannot give any assurance that we will benefit from any market growth or favorable economic conditions in our primary market areas if they do occur.
Any adverse market or economic conditions in the State of Florida may disproportionately increase the risk that our borrowers will be unable to make their loan payments. In addition, the market value of the real estate securing loans as collateral could be adversely affected by unfavorable changes in market and economic conditions. As of December 31, 2008, approximately 84% of our loans held for investment were secured by real estate. Of this amount, approximately 66% were commercial real estate loans, 20% were residential real estate loans and 14% were construction and development loans. Any sustained period of increased payment delinquencies, foreclosures or losses caused by adverse market or economic conditions in the State of Florida could adversely affect the value of our assets, revenues, results of operations and financial condition.
We make and hold in our portfolio a significant number of land acquisition and development and construction loans, which pose more credit risk than other types of loans typically made by financial institutions.
We offer land acquisition and development and construction loans for builders, developers and individuals. As of December 31, 2008, approximately $147.3 million of our loan portfolio represents loans for construction and vacant land. Land acquisition and development and construction loans are considered more risky than other types of loans. The primary credit risks associated with land acquisition and development and construction lending are underwriting, project risks and market risks. Project risks include cost overruns, borrower credit risk, project completion risk, general contractor credit risk, and environmental and other hazard risks. Market risks are risks associated with the sale of the completed residential or commercial units. They include affordability risk, which means the risk of affordability of financing by borrowers, product design risk, and risks posed by competing projects. While we believe we have established adequate reserves on our financial statements to cover the credit risk of our land acquisition and development and construction loan portfolio, there can be no assurance that losses will not exceed our reserves, which could adversely impact our earnings. Non-performing loans in our land acquisition and development and construction portfolio may increase further and these non-performing loans may result in a material level of charge-offs, which may negatively impact our capital and earnings.
An inadequate allowance for loan losses would reduce our earnings.
The risk of credit losses on loans varies with, among other things, general economic conditions, the type of loan being made, the creditworthiness of the borrower over the term of the loan and, in the case of a collateralized loan, the value and marketability of the collateral for the loan. Management maintains an allowance for loan losses based upon, among other things, historical experience, an evaluation of economic conditions and regular reviews of delinquencies and loan portfolio quality. Based upon such factors, management makes various assumptions and judgments about the ultimate collectability of the loan portfolio and provides an allowance for loan losses based upon a percentage of the outstanding balances and for specific loans when their ultimate collectability is considered questionable. If management’s assumptions and judgments prove to be incorrect and the allowance for loan losses is inadequate to absorb losses, or if the bank regulatory authorities require the Banks to increase the allowance for loan losses as a part of their examination process, the Banks’ earnings and capital could be significantly and adversely affected.
If the value of real estate in our core Florida market were to decline materially, a significant portion of our loan portfolio could become under-collateralized, which could have a material adverse effect on us.
With most of our loans concentrated in Southern Florida, a decline in local economic conditions could adversely affect the values of our real estate collateral. Additionally, the availability of property insurance, including windstorm and flood insurance, and the significant increases in the cost thereof in the Florida market may negatively affect borrowers’ abilities to repay existing loans and the abilities of potential borrowers to qualify for new loans. Consequently, a decline in local economic conditions may have a greater effect on our earnings and capital than on the earnings and capital of larger financial institutions whose real estate loan portfolios are geographically diverse.
In addition to the financial strength and cash flow characteristics of the borrower in each case, the Banks often secure their loans with real estate collateral. At December 31, 2008, approximately 87% of the Banks’ loans have real estate as a primary or secondary component of collateral. The real estate collateral in each case provides an alternate source of repayment in the event of default by the borrower and may deteriorate in value during the time the credit is extended. If we are required to liquidate the collateral securing a loan to satisfy the debt during a period of reduced real estate values, our earnings and capital could be adversely affected.
Current and anticipated deterioration in the housing market and the homebuilding industry may lead to increased loss severities and further worsening of delinquencies and non-performing assets in our loan portfolios. Consequently, our results of operations may be adversely impacted.
There has been substantial industry concern and publicity over asset quality among financial institutions due in large part to issues related to residential mortgage lending, declining real estate values and general economic concerns. As of December 31, 2008, our non-performing loans have increased significantly to $39.8 million, or 3.3% of our loan portfolio. Furthermore, the housing and residential mortgage markets continue to experience a variety of difficulties and changed economic conditions. If market conditions continue to deteriorate, they may lead to additional valuation adjustments on our loan portfolios and real estate owned as we continue to reassess the market value of the real estate collateralizing our loan portfolio, the losses associated with the loans in default and the net realizable value of real estate owned.
The homebuilding industry has experienced a significant and sustained decline in demand for new homes and an oversupply of new and existing homes available for sale in various markets, including the markets in which we lend. Our customers who are builders and developers face greater difficulty in selling their homes in markets where these trends are more pronounced. Consequently, we may face increased delinquencies and non-performing assets if builders and developers are forced to default on their loans with us. We do not anticipate that the housing market will improve in the near-term, and accordingly, additional downgrades, provisions for loan losses and charge-offs related to our loan portfolio may occur.
Our indirect lending program has experienced significant charge-offs and losses in this portfolio beginning in 2007 and continuing in 2008. We may continue to experience significant losses in this portfolio.
A portion of our current lending involves the purchase of consumer automobile installment sales contracts from automobile dealers primarily located in Southwest Florida. We began this program in 2002 and as of December 31, 2008, we had approximately $82 million of indirect loans outstanding. These loans are for the purchase of new or late model used cars. We serve customers over a broad range of creditworthiness and the required terms and rates are reflective of those risk profiles. While these loans have higher yields than many of our other loans, they involve significant risks in addition to normal credit risk. Potential risk elements associated with indirect lending include the limited personal contact with the borrower as a result of indirect lending through dealers, the absence of assured continued employment of the borrower, the varying general creditworthiness of the borrower, and changes in the local economy and difficulty in monitoring collateral. While indirect automobile loans are collateralized, they are collateralized by depreciating assets and characterized by loan to value ratios that could result in the Bank not recovering the full value of an outstanding loan upon default by the borrower. Due to the economic slowdown in Southwest Florida, we are currently experiencing significantly higher delinquencies, charge-offs and repossessions of vehicles in this portfolio. If the economy continues to contract, we may continue to experience higher levels of delinquencies, repossessions and charge-offs.
Loan Portfolio includes commercial real estate loans that have higher risks
The Banks’ commercial real estate loan portfolio was $658.5 million at December 31, 2008, comprising 54% of total loans. Commercial real estate loans generally carry larger loan balances and can involve a greater degree of financial and credit risk than other loans. Any significant failure to pay on time by the Banks’ customers would hurt our earnings. The increased financial and credit risk associated with these types of loans are a result of several factors, including the concentration of principal in a limited number of loans and borrowers, the size of loan balances, the effects of general economic conditions on income-producing properties and the increased difficulty of evaluating and monitoring these types of loans. In addition, when underwriting a commercial real estate loan, the Banks may take a security interest in commercial real estate, and, in some instances upon a default by the borrower, we may foreclose on and take title to the property, which may lead to potential financial risks for us under applicable environmental laws. If hazardous substances were discovered on any of these properties, we may be liable to governmental agencies or third parties for the costs of remediation of the hazard, as well as for personal injury and property damage. Many environmental laws can impose liability regardless of whether the Banks knew of, or were responsible for, the contamination.
Furthermore, the repayment of loans collaterized by commercial real estate is typically dependent upon the successful operation of the related real estate or commercial project. If the cash flow from the project are reduced, a borrower’s ability to repay the loan may be impaired. This cash flow shortage may result in the failure to make loan payments. In such cases, the Banks may be compelled to modify the terms of the loan. In addition, the nature of these loans are such that they are generally less predictable and more difficult to evaluate and monitor. As a result, repayment of these loans may be subject to adverse conditions in the real estate market or economy.
Possible use of more costly brokered deposits
We can offer no assurance that the Banks will be able to maintain or increase their market share of deposits in their highly competitive service areas. If they are unable to do so, they may be forced to accept increased amounts of out-of-market or brokered deposits. As of December 31, 2008, the Banks had $154.8 million of brokered deposits. At times, the cost of out-of-market and brokered deposits may exceed the cost of deposits in the local market. In addition, the cost of out-of-market and brokered deposits can be volatile, and if the Banks are unable to access these markets or if costs related to out-of-market and brokered deposits increases, the Banks’ liquidity and ability to support demand for loans could be adversely affected. If the Banks become less than well capitalized for regulatory purposes, their continued access to brokered deposits may be limited by the FDIC.
Our business may face risks with respect to future expansion
On February 13, 2009, the Company’s lead bank, TIB Bank, assumed all the non-brokered deposits of Riverside Bank of the Gulf Coast from the FDIC. In addition, we may acquire other financial institutions or parts of financial institutions in the future and we may engage in additional de novo branch expansion. We may also consider and enter into new lines of business or offer new products or services. Acquisitions and mergers involve a number of risks, including:
| • | the time and costs associated with identifying and evaluating potential acquisitions and merger partners; |
| • | the estimates and judgments used to evaluate credit, operations, management and market risks with respect to the target institution may not be accurate; |
| • | the time and costs of evaluating new markets, hiring experienced local management and opening new offices, and the time lags between these activities and the generation of sufficient assets and deposits to support the costs of the expansion; |
| • | our ability to finance an acquisition and possible dilution to our existing shareholders; |
| • | the diversion of our management’s attention to the negotiation of a transaction, and the integration of the operations and personnel of the combining businesses; |
| • | entry into new markets where we lack experience; |
| • | the introduction of new products and services into our business; |
| • | the incurrence and possible impairment of goodwill associated with an acquisition and possible adverse short-term effects on our results of operations; and |
| • | the risk of loss of key employees and customers. |
We may incur substantial costs to expand, and can give no assurance such expansion will result in the levels of profits we seek. There can be no assurance integration efforts for any future mergers or acquisitions will be successful. Also, we may issue equity securities, including common stock and securities convertible into shares of our common stock in connection with future acquisitions, which could cause ownership and economic dilution to our shareholders. There is no assurance that, following any future mergers or acquisitions, our integration efforts will be successful or, after giving effect to the acquisition, that we will achieve profits comparable to, or better than, our historical experience.
The fair value of our debt securities may be impacted by the level of interest rates and the credit quality and strength of the underlying issuers.
If a decline in fair value is determined to be other than temporary, under generally accepted accounting principles we are required to write these securities down to their estimated fair value. As of December 31, 2008, we owned three collateralized debt obligations backed primarily by corporate obligations of homebuilders, REITS, real estate companies and commercial mortgage backed securities with an original principal balance of $10.0 million. During 2007 and 2008, these securities were determined to be other than temporarily impaired. During 2007, they were written down to an aggregate carrying value of $6.1 million at December 31, 2007. In 2008, there were additional defaults by the underlying issuers and the estimated decline in value was determined to be other than temporary. Accordingly, we wrote these securities down to their aggregate fair value of $763,000 at December 31, 2008. Two of these securities with an original principal value of $4 million are now carried at no value. Future changes in interest rates or the credit quality and strength of the underlying issuers may reduce the fair value of these and other securities. If such decline is determined to be other than temporary, we will write them down through a charge to earnings to their then current fair value.
Our de novo branching strategy could cause our expenses to increase faster than revenues.
Our primary strategy for building market share in Southwest Florida is based on establishing new branches. We currently plan to open one additional branch in each of 2009 and 2010. There are considerable costs involved in opening branches and new branches generally do not generate sufficient revenues to offset their costs until they have been in operation for at least a year or more. Accordingly, our new branches can be expected to negatively impact earnings for some period of time until the branches reach certain economies of scale. Our expenses could be further increased if we encounter delays in the opening of any of our new branches. Finally, we have no assurance that our new branches will be successful even after they have been established.
Our continued growth and our recent operating results may require us to raise additional capital in the future, but that capital may not be available when it is needed.
We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations. We anticipate our capital resources as a result of the recent sale of the Series A Preferred Stock to the Treasury will satisfy our capital requirements for the foreseeable future. We may at some point, however, need to raise additional capital to support our continued growth or to offset possible future operating loses, if our operating results do not improve.
Our ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside of our control, and on our financial performance. Accordingly, we cannot give any assurance that we will be able to raise additional capital if needed on terms acceptable to us. If we cannot raise additional capital when needed, our ability to further expand our operations through internal growth and acquisitions could be materially impaired.
Changes in interest rates may negatively affect our earnings and the value of our assets.
Our earnings and cash flows are largely dependent upon our net interest income. Net interest income is the difference between interest income earned on interest-earnings assets, such as loans and investment securities, and interest expense paid on interest-bearing liabilities, such as deposits and borrowed funds. Interest rates are sensitive to many factors that are beyond our control, including general economic conditions, competition and policies of various governmental and regulatory agencies and, in particular, the policies of the Board of Governors of the Federal Reserve. Changes in monetary policy, including changes in interest rates, could influence not only the interest our Banks receive on loans and investment securities and the amount of interest they pay on deposits and borrowings, but such changes could also affect (i) the Banks’ ability to originate loans and obtain deposits, (ii) the fair value of our financial assets and liabilities, including the available for sale securities portfolio, and (iii) the average duration of our interest-earning assets. This also includes the risk that interest-earning assets may be more responsive to changes in interest rates than interest-bearing liabilities, or vice versa (repricing risk), the risk that the individual interest rates or rates indices underlying various interest-earning assets and interest-bearing liabilities may not change in the same degree over a given time period (basis risk), and the risk of changing interest rate relationships across the spectrum of interest-earning asset and interest-bearing liability maturities (yield curve risk), including a prolonged flat or inverted yield curve environment. Any substantial, unexpected, prolonged change in market interest rates could have a material adverse affect on our financial condition and results of operations.
Competition from financial institutions and other financial service providers may adversely affect our profitability.
The banking business is highly competitive and we experience competition in each of our markets from many other financial institutions. We compete with commercial banks, credit unions, savings and loan associations, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market funds, and other mutual funds, as well as other super-regional, national and international financial institutions that operate offices in our primary market areas and elsewhere.
We compete with these institutions both in attracting deposits and in making loans. In addition, we have to attract our customer base from other existing financial institutions and from new residents. Many of our competitors are well-established, larger financial institutions. While we believe we can and do successfully compete with these other financial institutions in our primary markets, we may face a competitive disadvantage as a result of our smaller size, lack of geographic diversification and inability to spread our marketing costs across a broader market. Although we compete by concentrating our marketing efforts in our primary markets with local advertisements, personal contacts, and greater flexibility and responsiveness in working with local customers, we can give no assurance this strategy will be successful.
We are subject to extensive regulation that could limit or restrict our activities.
We operate in a highly regulated industry and are subject to examination, supervision, and comprehensive regulation by various federal and state agencies. Our compliance with these regulations is costly and restricts certain of our activities, including payment of dividends, mergers and acquisitions, investments, loans and interest rates charged, interest rates paid on deposits and locations of offices. We are also subject to capitalization guidelines established by our regulators, which require us to maintain adequate capital to support our growth.
The laws and regulations applicable to the banking industry could change at any time, and we cannot predict the effects of these changes on our business and profitability. Because government regulation greatly affects the business and financial results of all commercial banks and bank holding companies, our cost of compliance could adversely affect our ability to operate profitably.
We face regulatory risks related to our commercial real estate loan concentrations.
Commercial real estate, or CRE, is cyclical and poses risks of possible loss due to concentration levels and similar risks of the asset class. As of December 31, 2008, approximately 54% of our loan portfolio consisted of CRE loans. The banking regulators are more closely scrutinizing CRE lending and may require banks with higher levels of CRE loans to implement more rigorous underwriting, internal controls, risk management policies and portfolio stress testing, as well as possibly requiring higher levels of allowances for possible loan losses and capital levels as a result of CRE lending growth and exposures.
We are dependent upon the services of our management team.
Our future success and profitability is substantially dependent upon the management and banking abilities of our senior executives. We believe that our future results will also depend in part upon our attracting and retaining highly skilled and qualified management and other personnel. Competition for such personnel is intense, and we cannot assure you that the Company will be successful in retaining such personnel. In addition, under legislation enacted in 2009, recipients of investment under the U.S. Treasury’s Capital Purchase Program are subject to restrictions on the payment of incentive compensation, severance compensation, stock based compensation and change-in-control compensation to certain senior officers, which also may have an effect on our ability to retain key personnel. We also cannot guarantee that members of our executive management team will remain with us. Changes in key personnel and their responsibilities may be disruptive to the Company’s business and could have a material adverse effect on our business, financial condition and results of operations.
Our operating results could be adversely affected if we are unable to promptly deploy the capital raised in our recent sale of preferred stock.
We may not be able to immediately deploy all of the capital raised in the recent sale of the Series A preferred stock to the Treasury. Investing the offering proceeds in securities until we are able to deploy the proceeds will provide lower margins than we generally earn on loans, potentially adversely affecting shareholder returns, including earnings per share, return on assets and return on equity.
Risk Related to an Investment in Our Common Stock
Future capital needs could result in dilution of shareholders’ investments.
Our board of directors may determine from time to time that there is a need to obtain additional capital through the issuance of additional shares of our common stock or other securities. These issuances would dilute the ownership interests of our shareholders and may dilute the per share book value of our common stock. New investors may also have rights, preferences and privileges senior to our shareholders which may adversely impact our shareholders. Furthermore, future additional dilution may result from exercises of outstanding stock options and warrants.
Although publicly traded, the trading market in our common stock is less liquid and the price of our common stock due to this limited trading market may be more volatile in the future.
Our common stock is thinly traded. The average daily trading volume of our shares on The NASDAQ National Market during 2008 was approximately 17,611 shares. Thinly traded stock can be more volatile than stock trading in an active public market. We cannot predict the extent to which an active public market for our common stock will develop or be sustained. In recent years, the stock market has experienced a high level of price and volume volatility, and market prices for the stock of many companies have experienced wide price fluctuations that have not necessarily been related to their operating performance. Therefore, our shareholders may not be able to sell their shares at the volumes, prices, or times that they desire.
Our ability to pay dividends is limited and we may be unable to pay future dividends.
Our ability to pay dividends is limited by regulatory restrictions and the need to maintain sufficient consolidated capital and is dependent upon the receipt of dividends from the Banks and cash available at the holding company. The ability of the Banks to pay dividends to us is limited by their obligations to maintain sufficient capital and by other general restrictions on their dividends that are applicable to state banks that are regulated by the FDIC. While we have suspended the payment of cash dividends on our common stock commencing in July, 2008, if we do not satisfy these regulatory requirements, we will be unable to recommence payment of cash dividends on our common stock if we desire to do so. Our ability to pay dividends is also limited by the terms of our Series A preferred stock. As long as any shares of Series A preferred stock are outstanding, unless all accrued and unpaid dividends, for all prior dividend periods, have been paid or are contemporaneously paid, no cash dividends may be paid on our common stock. Based on the level of undistributed earnings of TIB Bank for the prior two years, declaration of dividends by TIB Bank during 2009, would likely require regulatory approval. The Bank of Venice has no retained earnings available for dividends.
Holders of our junior subordinated debentures have rights that are senior to those of our preferred and common stockholders.
We have supported our continued growth through the issuance of trust preferred securities from special purpose trusts and accompanying junior subordinated debentures. At December 31, 2008, we had outstanding trust preferred securities and accompanying junior subordinated debentures totaling $33 million. Payments of the principal and interest on the trust preferred securities of these special purpose trusts are conditionally guaranteed by us. Further, the accompanying junior subordinated debentures we issued to the special purpose trusts are senior to our shares of Series A preferred stock and common stock. As a result, we must make payments on the junior subordinated debentures before any dividends can be paid on our preferred stock and common stock and, in the event of our bankruptcy, dissolution or liquidation, the holders of the junior subordinated debentures must be satisfied before any distributions can be made on our Series A preferred stock and common stock. We have the right to defer distributions on our junior subordinated debentures (and the related trust preferred securities) for up to five years, during which time no dividends may be paid on our preferred and common stock.
Our preferred shares impact net income available to our common shareholders and our earnings per share
As long as there are Series A preferred shares outstanding, no dividends may be paid on our common stock unless all dividends on the preferred shares have been paid in full. The dividends accrued or declared on our Series A preferred shares will reduce the net income available to common shareholders and our earnings per common share. Additionally, warrants to purchase our common stock issued to the Treasury in conjunction with the Series A preferred shares, may be dilutive to our earnings per share. The Series A preferred shares will also receive preferential treatment in the event of liquidation, dissolution or winding up of our business.
We have issued warrants to purchase our common stock which may be dilutive to ownership, earnings per share and book value per share when exercised.
In connection with the issuance of 1.2 million shares of our common stock on March 7, 2008, we issued warrants to purchase an additional 1.2 million shares of common stock at an exercise price of $8.15 per share at any time prior to March 11, 2011.
In connection with the issuance of $37 million of our Series A preferred stock to the U.S. Treasury under the U.S. Treasury’s Capital Purchase Program, we issued warrants to purchase 1.1 million shares of common stock at $5.17 per share at any time prior to December 5, 2018.
We may issue debt and equity securities or securities convertible into equity securities, which are senior to our common stock as to distributions and in liquidation, which could negatively affect the value of our common stock.
In the future, we may attempt to increase our capital resources by entering into debt or debt-like financing that is unsecured or secured by all or up to all of our assets, or by issuing debt or equity securities, which could include issuances of secured or unsecured commercial paper, medium-term notes, senior notes, subordinated notes, common stock, warrants, or other securities convertible into common stock. In the event of our liquidation, our lenders and holders of our debt securities would receive a distribution of our available assets before distributions to the holders of our common stock. Because our decision to incur debt and issue securities in our future offerings will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings and debt financings. Further, market conditions could require us to accept less favorable terms for the issuance of our securities in the future.
We did not receive any written comments during 2008 from the Commission staff regarding our periodic and current reports under the Act. There are no comments that remain unresolved from any prior period.
The Company‘s executive offices are located at 599 9th Street North, Naples, Florida. TIB Bank‘s main office is located at 6435 Naples Boulevard, Naples, Florida. The Bank of Venice’s executive offices are located at 240 Nokomis Avenue South, Venice, Florida. All Company operated properties are as follows:
| Address | Location | Purpose | Owned/ Leased |
| 30400 Overseas Highway | Big Pine Key | Branch | Owned |
| 8100 Health Center Boulevard | Bonita Springs | Branch and Office Space | Leased |
| 12205 Metro Parkway | Fort Myers | Branch | Owned |
| 12195 Metro Parkway | Fort Myers | Indirect lending | Leased |
| 17000 Alico Commercial Court | Fort Myers | Branch | Owned |
| 600 North Homestead Boulevard | Homestead | Branch | Owned |
| 777 North Krome Avenue | Homestead | Branch | Owned |
| 704 Washington Avenue | Homestead | Office Space | Leased |
| 28 N.E. 18 Street | Homestead | Office Space | Owned |
| 80900 Overseas Highway | Islamorada | Branch and Office Space | Owned |
| 99451 Overseas Highway | Key Largo | Branch and Office Space | Owned |
| 103330 Overseas Highway | Key Largo | Branch | Owned |
| 330 Whitehead Street | Key West | Branch | Owned |
| 3618 North Roosevelt Boulevard | Key West | Branch | Owned |
| 2348 Overseas Highway | Marathon | Branch | Owned |
| 11401 Overseas Highway | Marathon Shores | Branch | Owned |
| 6435 Naples Boulevard | Naples | TIB Bank HQ, Branch & Office Space | Owned |
| 3940 Prospect Avenue – Suite 104 & 105 | Naples | Branch and Office Space | Leased |
| 1720 J & C Boulevard – Suite 1 & 2 | Naples | Office Space | Leased |
599 9th Street North – Suite 100 & 101 | Naples | Corporate HQ & Branch | Owned |
599 9th Street North – Suite 201 | Naples | Office space | Owned |
| 1125 US Highway 27 South | Sebring | Branch | Leased |
| 91980 Overseas Highway | Tavernier | Branch | Owned |
| 240 Nokomis Avenue South | Venice | Bank of Venice HQ & Branch | Owned |
| 1790 East Venice Avenue, Suite 101 | Venice | Branch | Leased |
| 3479 Precision Drive, Suite 118 | Venice | Branch | Leased |
| | | | |
In 2006, TIB Bank purchased parcels of land located at the Lehigh Acres Subdivision in Lehigh, Florida and at the City Gate Subdivision in Naples, Florida, where it plans to construct new branches. In addition, TIB Bank entered into a sale-leaseback transaction on a building and related land located at 12195 Metro Parkway in Fort Myers, Florida.
In 2007, TIB Bank sold vacant land adjacent to the branch located at 3618 North Roosevelt Boulevard in Key West, Florida and a building located at 228 Atlantic Boulevard in Key Largo, Florida which had previously been used for office space. TIB Bank also entered into a lease agreement for a building located at 704 Washington Street in Homestead, Florida. This building is used as office space and was occupied in early 2008.
In 2008, TIB Bank completed the lease and vacated the office space located at 632 Washington Ave in Homestead, Florida 33030 and occupied the office space located at 704 Washington Street in Homestead, Florida. TIB Bank terminated an option to acquire land located at 10815 Bonita Beach Road in Bonita Springs, Florida. TIB Bank also sold a vacant commercial lot located at 5 Homestead Avenue in Key Largo, Florida. TIB Bank repossessed property located at 9483 Tamiami Trail North in Naples, Florida which was transferred to fixed assets and will be used for office space by TIB Bank beginning in 2009. TIB Bank also purchased a building located at 17000 Alico Commerce Court in Ft. Myers, Florida. The building will be used as a branch and will be occupied in 2009.
While the Company and the Banks are from time to time parties to various legal proceedings arising in the ordinary course of their business, management believes after consultation with legal counsel that at December 31, 2008 there were no proceedings threatened or pending against the Company or the Banks that will, individually or in the aggregate, have a material adverse effect on the consolidated results of operations or financial condition of the Company.
We did not submit any matters to a vote of our security holders during the Company's fourth quarter of the fiscal year ended December 31, 2008.
PART II
Our common stock trades on the NASDAQ National Market under the symbol “TIBB.” As of December 31, 2008, there were 617 registered shareholders of record and 14,457,708 shares of our common stock outstanding. The share and per share amounts discussed throughout this document have been adjusted to account for the effects of 3 (three) 1% (one percent) stock dividends issued on July 7, 2008, September 30, 2008 and December 31, 2008 and distributed July 17, 2008, October 10, 2008 and January 10, 2009, respectively. The following table sets forth, for the periods indicated, the high and low sale prices per share for our common stock on the NASDAQ National Market:
| | | 2008 | | | 2007 | |
| (Quarter Ended) | | High | | | Low | | | High | | | Low | |
| March 31 | | $ | 9.38 | | | $ | 5.62 | | | $ | 17.67 | | | $ | 14.24 | |
| June 30 | | | 8.20 | | | | 5.67 | | | | 14.56 | | | | 12.39 | |
| September 30 | | | 7.17 | | | | 3.79 | | | | 12.95 | | | | 10.07 | |
| December 31 | | | 7.23 | | | | 4.05 | | | | 10.84 | | | | 6.53 | |
| | | | | | | | | | | | | | | | | |
For the year ended December 31, 2008, we paid cash dividends to our shareholders in the amount of $.0607 per share for the first quarter and issued stock dividends in lieu of cash dividends for the last three quarters. For the year ended December 31, 2007, we paid cash dividends to our shareholders in the amount of $.0582 per share for the first three quarters and $.0607 per share for the last quarter ($.2354 in the aggregate). Our ability to pay cash dividends to our shareholders is primarily dependent on the earnings of the Banks, as well as the dividend restrictions under the terms of our shares of Series A Preferred stock and our outstanding junior subordinated debentures. Payment of dividends by the Banks to us is also limited by dividend restrictions in capital requirements imposed by bank regulators. Information regarding restrictions on the ability of the Banks to pay dividends to us is contained in Note 14 of the "Notes to Consolidated Financial Statements" contained in Item 8 hereof. In general, future dividend policy is subject to the discretion of the board of directors and will depend upon a number of factors, including the future earnings, capital requirements, regulatory constraints, and our financial condition as well as that of the Banks.
With respect to information regarding our securities authorized for issuance under equity incentive plans, the information contained in the section entitled “Executive Compensation – Equity Compensation Plan Information” of our definitive Proxy Statement for the 2009 Annual Meeting of Shareholders is incorporated herein by reference.
Issuer Purchases of Equity Securities
For the year ended December 31, 2008, we did not repurchase any shares of our common stock.
STOCK PRICE PERFORMANCE GRAPH
The stock price performance graph below shall not be deemed incorporated by reference by any general statement incorporating by reference this Form 10-K into any filing under the Securities Act of 1933 or under the Securities Exchange Act of 1934, except to the extent TIB Financial Corp. specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts.
The graph below compares the cumulative total return of TIB Financial Corp., the Nasdaq Composite Index and a peer group index.
[Missing Graphic Reference]
| | | Period Ending | |
| Index | | 12/31/03 | | | 12/31/04 | | | 12/31/05 | | | 12/31/06 | | | 12/31/07 | | | 12/31/08 | |
| TIB Financial Corp. | | | 100.00 | | | | 109.76 | | | | 140.60 | | | | 156.02 | | | | 77.63 | | | | 42.00 | |
| NASDAQ Composite | | | 100.00 | | | | 108.59 | | | | 110.08 | | | | 120.56 | | | | 132.39 | | | | 78.72 | |
| SNL Southeast Bank Index | | | 100.00 | | | | 118.59 | | | | 121.39 | | | | 142.34 | | | | 107.23 | | | | 43.41 | |
Source: SNL Financial LC, Charlottesville, VA
The selected consolidated financial data presented below as of and for the years ended December 31, 2008, 2007, 2006, 2005 and 2004 is unaudited and has been derived from our Consolidated Financial Statements and from our records. The information presented below should be read in conjunction with the Consolidated Financial Statements and related notes, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Balance Sheet Data
As of December 31,
| (Dollars in thousands) | | 2008 | | | 2007 | | | 2006 | | | 2005 | | | 2004 | |
| Total assets | | $ | 1,610,114 | | | $ | 1,444,739 | | | $ | 1,319,093 | | | $ | 1,076,070 | | | $ | 829,325 | |
| Investment securities | | | 225,770 | | | | 160,357 | | | | 131,199 | | | | 97,464 | | | | 77,807 | |
| Total loans | | | 1,223,319 | | | | 1,127,667 | | | | 1,063,852 | | | | 882,372 | | | | 653,521 | |
| Allowance for loan losses | | | 23,783 | | | | 14,973 | | | | 9,581 | | | | 7,546 | | | | 6,243 | |
| Deposits | | | 1,135,668 | | | | 1,049,958 | | | | 1,029,457 | | | | 920,424 | | | | 687,859 | |
| Shareholders’ equity | | | 121,114 | | | | 96,240 | | | | 85,862 | | | | 77,524 | | | | 68,114 | |
| | | | | | | | | | | | | | | | | | | | | |
Income Statement Data
Year ended December 31,
| (Dollars in thousands) | | 2008 | | | 2007 | | | 2006 | | | 2005 | | | 2004 | |
| Interest and dividend income | | $ | 88,164 | | | $ | 94,741 | | | $ | 85,234 | | | $ | 59,434 | | | $ | 40,916 | |
| Interest expense | | | 43,504 | | | | 48,721 | | | | 38,171 | | | | 20,304 | | | | 10,730 | |
| Net interest income | | | 44,660 | | | | 46,020 | | | | 47,063 | | | | 39,130 | | | | 30,186 | |
| Provision for loan losses | | | 28,239 | | | | 9,657 | | | | 3,491 | | | | 2,413 | | | | 2,455 | |
| Net interest income after provision for loan losses | | | 16,421 | | | | 36,363 | | | | 43,572 | | | | 36,717 | | | | 27,731 | |
| Non-interest income * | | | 784 | | | | 1,362 | | | | 6,275 | | | | 6,258 | | | | 6,306 | |
| Non-interest expense | | | 50,988 | | | | 41,921 | | | | 35,833 | | | | 31,856 | | | | 27,057 | |
| Income tax expense (benefit) | | | (12,853 | ) | | | (1,775 | ) | | | 5,021 | | | | 3,927 | | | | 2,337 | |
| Income (loss) before preferred allocation | | | (20,930 | ) | | | (2,421 | ) | | | 8,993 | | | | 7,192 | | | | 4,643 | |
| Income from discontinued operations, net of taxes | | | - | | | | - | | | | 254 | | | | 4,632 | | | | 555 | |
| Income earned by preferred shareholders | | | 165 | | | | - | | | | - | | | | - | | | | - | |
| Net income (loss) allocated to common shareholders | | $ | (21,095 | ) | | $ | (2,421 | ) | | $ | 9,247 | | | $ | 11,824 | | | $ | 5,198 | |
| | | | | | | | | | | | | | | | | | | | | |
* Non-interest income for 2008 includes a charge of $6.4 million versus $5.7 million in 2007 related to the other than temporary impairment of investment securities as discussed in more detail in the “Investment Portfolio” section of management’s discussion and analysis. Partially offsetting the $6.4 million charge in 2008 are $1.1 million in net gains on securities sold.
Per Share Data
Year ended December 31,
| | | 2008 | | | 2007 | | | 2006 | | | 2005 | | | 2004 | |
| Book value per common share at year end * | | $ | 6.10 | | | $ | 7.31 | | | $ | 7.11 | | | $ | 6.50 | | | $ | 5.82 | |
| | | | | | | | | | | | | | | | | | | | | |
| Basic earnings (loss) per common share from continuing operations | | $ | (1.49 | ) | | $ | (0.19 | ) | | $ | 0.75 | | | $ | 0.61 | | | $ | 0.43 | |
| Basic earnings per common share from discontinued operations | | | - | | | | - | | | | 0.02 | | | | 0.39 | | | | 0.05 | |
| Basic earnings (loss) per common share | | $ | (1.49 | ) | | $ | (0.19 | ) | | $ | 0.77 | | | $ | 1.00 | | | $ | 0.48 | |
| | | | | | | | | | | | | | | | | | | | | |
| Diluted earnings (loss) per common share from continuing operations | | $ | (1.49 | ) | | $ | (0.19 | ) | | $ | 0.73 | | | $ | 0.59 | | | $ | 0.41 | |
| Diluted earnings per common share from discontinued operations | | | - | | | | - | | | | 0.02 | | | | 0.38 | | | | 0.05 | |
| Diluted earnings (loss) per common share | | $ | (1.49 | ) | | $ | (0.19 | ) | | $ | 0.75 | | | $ | .97 | | | $ | 0.46 | |
| | | | | | | | | | | | | | | | | | | | | |
| Basic weighted average common equivalent shares outstanding | | | 14,118,036 | | | | 12,671,768 | | | | 11,961,170 | | | | 11,770,105 | | | | 10,941,508 | |
| Diluted weighted average common equivalent shares outstanding | | | 14,118,036 | | | | 12,671,768 | | | | 12,249,873 | | | | 12,158,471 | | | | 11,291,473 | |
| Dividends declared per common share | | $ | 0.0607 | | | $ | 0.2354 | | | $ | 0.2294 | | | $ | 0.2245 | | | $ | 0.2196 | |
| | | | | | | | | | | | | | | | | | | | | |
| * Calculation includes unvested shares of restricted stock. | |
Performance Ratios
| | | 2008 | | | 2007 | | | 2006 | | | 2005 | | | 2004 | |
| Return (loss) on average assets** | | | (1.36 | )% | | | (0.18 | )% | | | 0.74 | % | | | 0.74 | % | | | 0.63 | % |
| Return (loss) on average equity** | | | (20.41 | )% | | | (2.52 | )% | | | 11.05 | % | | | 10.19 | % | | | 7.83 | % |
| Average equity/average assets | | | 6.65 | % | | | 6.99 | % | | | 6.72 | % | | | 7.26 | % | | | 8.01 | % |
| Net interest margin | | | 3.10 | % | | | 3.60 | % | | | 4.18 | % | | | 4.38 | % | | | 4.51 | % |
| Dividend payout ratio *** | | | NM | | | | NM | | | | 30.50 | % | | | 36.74 | % | | | 51.76 | % |
| Allowance for loan losses/total loans | | | 1.94 | % | | | 1.33 | % | | | 0.90 | % | | | 0.86 | % | | | 0.96 | % |
| Non-performing assets/total assets | | | 2.95 | % | | | 1.88 | % | | | 0.69 | % | | | 0.46 | % | | | 0.60 | % |
| Non-performing loans/total loans | | | 3.25 | % | | | 1.43 | % | | | 0.40 | % | | | 0.11 | % | | | 0.11 | % |
| Allowance for loan losses/non-performing loans | | | 59.79 | % | | | 93.08 | % | | | 226.88 | % | | | 789.33 | % | | | 886.79 | % |
| Non-interest expense/tax equivalent net interest income and non-interest income from continuing operations | | | 111.78 | % | | | 87.86 | % | | | 66.75 | % | | | 69.69 | % | | | 73.48 | % |
| | | | | | | | | | | | | | | | | | | | | |
**The computation of return on average assets and return on average equity is based on net income from continuing operations. ***The computation of the dividend payout ratio is based on net income (loss) from continuing operations. | |
Overview
The Banks operate primarily as real estate secured commercial lenders, focusing on middle-market businesses in our Southern Florida markets. The Banks fund their lending activity primarily by gathering retail and commercial deposits from our service area. TIB Bank was formed in 1974 and has a substantial market presence in the Florida Keys. In recent years, TIB Bank has expanded into the adjacent Florida counties of Miami-Dade, Collier, and Lee. The acquisition of The Bank of Venice in April 2007 expanded our presence into Sarasota County, Florida. Despite slowing economic growth in Florida, we anticipate increased opportunities in these contiguous markets for our well-positioned financial institution.
Historically we have been utilizing a de novo branching strategy of evaluating and selecting sites and building new bank branch locations to enter and grow in these new markets. While de novo expansion has a dilutive effect on short-term earnings, the resulting growth will continue to add significant value to our franchise. By timing our expansion, we plan to balance earnings, growth and expense.
On January 2, 2008 we completed our acquisition of Naples Capital Advisors, Inc. a registered investment advisor. This acquisition was the beginning of the Company’s initiative into the new business lines of private banking, trust services and wealth management. On December 8, 2008, TIB Bank received authority to exercise trust powers from the FDIC and the State of Florida. Staffing, operations, market presence and existing revenues will support the expansion of these integrated and complementary services going forward.
On March 7, 2008, the Company consummated a transaction whereby two of Southwest Florida’s prominent families, their representatives and their related business interests purchased 1.2 million shares of the Company’s common stock and warrants to purchase an additional 1.2 million shares of common stock at an exercise price of $8.15 per share at any time prior to March 7, 2011. Gross proceeds from the investment provided additional capital of $10.1 million.
On December 5, 2008, the Company issued $37 million of preferred stock and a related warrant to the U.S. Treasury under the U.S. Treasury’s Capital Purchase Program. This increase in capital allows the Company to remain highly competitive, enhance our well capitalized status for regulatory purposes, and provide the added capital strength to support our continued growth through increased capacity to provide new loans to creditworthy individual and commercial customers.
On February 13, 2009, TIB Bank assumed all the deposits (excluding brokered deposits) of Riverside Bank of the Gulf Coast from the FDIC. Riverside Bank’s nine offices reopened on February 17, 2009 as branches of TIB Bank. The assumption of the deposits increases our market presence in Ft. Myers and Venice, and expands our banking operations into the contiguous market of Cape Coral. This transaction also provides the Company with additional funding for loan growth, the potential for new customer relationships and will improve and increase our brand awareness throughout all of the markets we serve.
Performance Overview
TIB Financial Corp. is a financial services holding company focused on growth and expansion in the Florida marketplace and the parent company of TIB Bank, The Bank of Venice and Naples Capital Advisors, Inc. For the year ended December 31, 2008, our operations resulted in a net loss of $20.9 million, or $1.49 per basic and diluted share. These results compared with a net loss of $2.4 million, or $0.19 per basic and diluted share for the prior year. The most significant factors contributing to the 2008 loss were the $28.2 million provision for loan losses and write-downs of investment securities totaling $6.4 million, partially offset by $1.1 million net gains from the sale of investment securities.
Our operating environment remains challenging and our loan growth is muted due to loan payoffs and a lower level of loan origination. During this period of slower economic activity, our loans increased 8% from last year. Our strategy of building relationships with small and middle-market business customers coupled with our new initiative in private banking and wealth management continues to drive our growth and expansion.
Deteriorating credit quality and the interest rate environment continue to be the dominant forces affecting our industry and our main challenges are managing asset quality and efficiently funding the growth of our loan portfolios. We are leveraging our current product and delivery advantages along with our sustainable customer service quality advantages in our efforts to increase market share and plan to continue to capitalize on the opportunities in our markets.
Net interest income on a tax-equivalent basis was $44.8 million for 2008, a decrease of 3% from $46.4 million a year ago. Changes in monetary policy by the Federal Reserve affect the prime rate, our loan yields, our deposit and borrowing costs and our net interest margin. The principal reason for the decrease was the significant increase in non-performing loans during the year which reduced our net interest income by $2.7 million.
Non-interest income, which includes service charges on deposit accounts, investment securities gains and losses, real estate fees and other operating income, decreased approximately $578,000 to $784,000 in 2008 from $1.4 million in 2007. The decrease was attributable to a $765,000 increase in securities write-downs year over year and a $671,000 decline in fees on mortgage loans originated and sold due to lower sales of residential loans in the secondary market as a result of a greater proportion of our residential loan production being held in our portfolio. Also, contributing to the decrease was a gain of approximately $254,000 from the disposition of land and a gain of approximately $702,000 from the disposition of an office building included in other income in 2007. Offsetting the decrease was $1.1 million in net gains realized in 2008 from the sale of investment securities. Investment advisory fees from Naples Capital Advisors, Inc. contributed $555,000 to the current year.
Non-interest expense for 2008 was $51.0 million, compared with $41.9 million a year ago. The increase in non-interest expense for 2008 is partially attributable to a 9% increase in salaries and employee benefits expenses including severance costs for certain employees. The Bank of Venice represents approximately $646,000 of the increase and Naples Capital Advisors, Inc. represents approximately $668,000 of the increase. Net occupancy and other expenses increased 37% compared to 2007. The increase in net occupancy includes approximately $423,000 related to the operations of The Bank of Venice. The increase in other expenses was primarily attributable to increases in repossession expenses, write-downs of repossessed vehicles, OREO expenses and write-downs, consulting and collection fees and costs, FDIC insurance, operational losses, and $496,000 related to the operations of The Bank of Venice and $269,000 related to Naples Capital Advisors, Inc.
Total assets increased 11% during 2008 to $1.61 billion as of December 31, 2008, compared with $1.44 billion a year ago. Total loans grew 8% to $1.22 billion as of December 31, 2008, compared with $1.13 billion a year ago. Residential real estate mortgage loans accounted for the largest segment increase during 2008, representing $92.9 million of the total increase. Asset growth was funded by a $56.4 million increase in FHLB advances and other borrowings and an increase in total deposits to $1.14 billion as of December 31, 2008, representing deposit growth of 8% from $1.05 billion in the prior year. In 2008, the acquisition of The Bank of Venice in 2007 contributed $18.2 million, $9.2 million and $12.3 million to the 2008 growth in assets, loans and deposits, respectively. The Private Banking group contributed $36.4 million in net new relationship-based deposits.
In response to slowing economic activity, continued softness in residential real estate in our markets and the increase in non-performing loans, we increased our reserve for loan losses. As of December 31, 2008 the allowance for loan losses totaled $23.8 million, or 1.94% of total loans. The allowance represents 60% of non-performing loans at December 31, 2008. Annual net charge-offs represented 1.64% of average loans as of December 31, 2008, compared with 0.45% as of December 31, 2007.
Economic and Operating Environment Overview
During 2008, it became more apparent that the national economy had entered into a recession with increasing unemployment and declining levels of economic activity. In our local markets the economic contraction that began in late 2006 and early 2007 accelerated with sharp increases in unemployment in Collier and Lee Counties in Southwest Florida to over 9% by the end of 2008. Declining retail sales and lower personal income also reflect the contracting economic environment in our local markets.
Global and national financial markets experienced significant volatility and liquidity concerns and the banking system was under significant pressure due to concerns about the declining economic fundamentals and the increasing level of non-performing loans and investment securities in banks. Liquidity concerns in the national banking system were heightened during the third quarter and early fourth quarter of the year.
In response to the continuing economic contraction, the Federal Reserve maintained an accommodating monetary policy through open market transactions and reduced the targeted fed funds rate from 4.25% at the beginning of the year to 0.25% by the end of the year with a 200 basis point decline in the rate from September. In response the prime rate declined from 7.25% to 3.25% during the year. The Federal Reserve also implemented several liquidity facilities to provide added liquidity to financial institutions and other financial intermediaries.
The Emergency Economic Stabilization Act (“EESA”) authorized the FDIC to increase the amount of insured deposit accounts to $250,000 and provide unlimited deposit insurance on non-interest bearing deposits through 2009. The EESA also authorized the U.S. Treasury to provide up to $700 billion of financial support to the U.S. banking industry. The Capital Purchase Program, as part of the Troubled Asset Relief Program, was one of the initiatives that provided additional capital to banks.
The deepening economic downturn on a national and local basis has continued to adversely impact our individual and business customers. The markets we serve continue to be among the most severely impacted in the country. The spreading economic stress to consumers and local businesses was apparent in the fourth quarter as we experienced a pronounced increase in non-performing loans, which resulted in a significant level of loan charge-offs and a significant increase of our reserve for loan losses.
The increasing economic stress also adversely impacted the estimated fair value of our CDO investment securities as increased defaults by the underlying corporate issuers resulted in a significant reduction in the future estimated cash flows, which caused a significant decline and impairment in the estimated fair value of certain of these securities.
Analysis of Financial Condition
Our assets totaled $1.61 billion at December 31, 2008 compared to $1.44 billion at the end of 2007, an increase of $165.4 million, or 11%. The growth in assets was primarily a result of increased investing and lending activity as the Banks invested funds provided by deposit growth and borrowings.
Total loans increased $95.8 million or 8%, to $1.22 billion at December 31, 2008. The growth in the loan portfolio was primarily attributed to increases in commercial real estate loans of $46.4 million and residential real estate loans of $92.9 million, partially offset by decreases in indirect auto loans of $35.4 million.
Total deposits increased $85.7 million or 8%, from $1.05 billion at the end of 2007 to $1.14 billion at December 31, 2008. Non-interest-bearing deposits decreased $15.0 million or 10%, while interest-bearing deposits increased $100.7 million or 11%.
Borrowed funds, consisting of Federal Home Loan Bank (FHLB) advances, short-term borrowings, notes payable and subordinated debentures, totaled $337.3 million at year end 2008 compared to $280.9 million at the end of 2007. During 2008, we increased our FHLB advances by $62.9 million.
Shareholders’ equity increased $24.9 million or 26%, from $96.2 million on December 31, 2007 to $121.1 million at the end of 2008. The increase is primarily a result of the private placement of $10.1 million of common stock and warrants to two prominent Southwest Florida families and their business interests and the issuance of $37 million in preferred stock and a warrant under the Treasury’s Capital Purchase Program on December 5, 2008, partially offset by our net loss for the year.
Book value per common share decreased to $6.10 at December 31, 2008, from $7.31 at December 31, 2007.
Results of Operations
Net income
2008 compared with 2007:
The net loss was $20.9 million for 2008, compared to a net loss of $2.4 million for 2007. Basic and diluted loss per common share for 2008 were $1.49, as compared to basic and diluted loss per common share of $0.19 in 2007.
The loss on average assets for 2008 was 1.36% compared to a loss on average assets of 0.18% for 2007. On the same basis, loss on average shareholders’ equity was 20.4% for 2008 compared to a loss of 2.5% for 2007.
Contributing significantly to the loss during 2008 were the $28.2 million provision for loan losses and the write-down of $6.4 million of investment securities, offset by a $1.1 million net gain on securities sold. In response to continued slowing economic activity and softening real estate values in our markets, our allowance for loan losses increased to $23.8 million or 1.94% of total loans, resulting from our provision for loan losses of $28.2 million exceeding net charge-offs for the period by 45%. For additional information on these items, see the sections that follow entitled “Allowance and Provision for Loan Losses” and “Investment Portfolio”, respectively.
2007 compared with 2006:
The net loss was $2.4 million for 2007, compared to net income of $9.0 million for 2006. Basic and diluted loss per common share for 2007 were $0.19, as compared to basic and diluted earnings per common share of $0.75 and $0.73, respectively, in 2006.
Based on continuing operations, the loss on average assets for 2007 was 0.18% compared to a return on average assets of 0.74% for 2006. On the same basis, loss on average shareholders’ equity was 2.5% for 2007 while the return on average shareholders’ equity was 11.05% for 2006.
As discussed in Note 2 of the accompanying "Notes to Consolidated Financial Statements", the Company closed the sale of the merchant bankcard processing segment in the fourth quarter of 2005. Accordingly, the results of the merchant bankcard operations were classified as discontinued operations during 2006. The Company’s net loss for 2007 was $2.4 million compared to net income of $9.2 million for 2006. Basic and diluted loss per common share for 2007 was $0.19 as compared to basic and diluted earnings per common share of $0.77 and $0.75, respectively, in 2006.
Contributing significantly to the loss during 2007 were the $9.7 million provision for loan losses and the write-down of $5.7 million of investment securities. In response to continued slowing economic activity and softening real estate values in our markets, our provision for loan losses in excess of net charge offs resulted in an increase of the allowance for loan losses to $15.0 million or 1.33% of total loans at December 31, 2007. For additional information on these items, see the sections that follow entitled “Allowance and Provision for Loan Losses” and “Investment Portfolio”, respectively.
Net interest income
Net interest income represents the amount by which interest income on interest-earning assets exceeds interest expense incurred on interest-bearing liabilities. Net interest income is the largest component of our income, and is affected by the interest rate environment, and the volume and the composition of interest-earning assets and interest-bearing liabilities. Our interest-earning assets include loans, federal funds sold, interest-bearing deposits in other banks, and investment securities. Our interest-bearing liabilities include deposits, federal funds purchased, subordinated debentures, FHLB advances, and other short-term borrowings.
2008 compared with 2007:
Net interest income was $44.7 million for the year ended December 31, 2008, compared to $46.0 million for the same period in 2007. The $1.4 million or 3% decrease in net interest income was due principally to the increase in non-accrual loans and investment securities during the year which reduced interest income and net interest income by $3.2 million and reduced the net interest margin by 0.21%.
The $6.6 million decrease in interest and dividend income compared to 2007 is due principally to a lower interest rate environment in 2008 and the higher level of non-accrual loans and investment securities. As discussed previously, the Federal Reserve, in response to increasing economic weakness and contraction, reduced the targeted fed funds rate by 400 basis points during the year.
The prime rate declined by a similar amount to 3.25% as well. Interest rates throughout the interest rate yield curve declined in response to the Federal Reserve’s monetary policy and the flight to lower risk fixed income securities (principally U.S. Treasuries and U.S. Agency securities) due to the volatility and uncertainty in the financial markets that persisted during the year.
As a consequence, the yield on loans with rates tied to the prime rate declined, new loans were originated at rates lower than those that prevailed during 2007 and reinvestment of the proceeds of maturing investment securities and purchases of new investment securities were also at lower rates.
The positive effect on net interest income of the $162 million increase of average earning assets was more than offset by the effect of the 129 basis point reduction in the yield of average earning assets.
The lower interest rate environment also resulted in a significant decline in the interest cost of interest bearing liabilities. The average interest cost of interest bearing deposits declined by 93 basis points and the overall cost of interest bearing liabilities declined by 103 basis points. Due to the rapidly declining interest rate environment and highly competitive deposit pricing on a local and national basis, we were not able to reduce the cost of our deposits as quickly and to the same extent as the decline in our earning asset yield. As a consequence, the net interest margin declined.
As an additional consequence of the contracting economic conditions, our customers are maintaining lower levels of transaction account and short-term investment account balances which has resulted in a reduction of non-interest bearing demand deposits and money market accounts. In this lower interest rate environment, customers have also shifted deposits to higher rate certificates of deposit.
We have also maintained a higher level of investment securities and cash and equivalents due to the volatile and uncertain financial market conditions. All of these factors adversely impacted the net interest margin which declined 50 basis points to 3.10% from 3.60% in 2007.
On the basis of economic and financial market conditions that we observed during the second quarter of 2008, we began to shorten the maturity structure of our interest bearing liabilities by increasing the amount of FHLB borrowings with maturities of one month and by originating wholesale CD deposits with terms of 3 months to 6 months. This funding tactic was initiated to generate lower cost and shorter-term liabilities to improve our net interest margin and position our balance sheet for stable or declining short-term interest rates. This position was maintained through the fourth quarter and at December 31, 2008, we have $70 million of FHLB borrowings that mature in the first quarter and over $96 million of wholesale CD’s that have original maturities of 3 months to 6 months. See Asset and Liability Management for a more in depth discussion of our management of changes in interest rates and interest rate risk.
Going forward, we expect market short-term interest rates to remain low for an extended period of time. We expect deposit costs to continue to decline but they may decrease more slowly or to a lesser extent than loan yields, or they could increase due to strong demand in the financial markets and banking system for liquidity which is reflected in elevated pricing competition for deposits. In the current interest rate environment, we believe that our interest margin will continue to be under pressure. The predominant driver to increase net interest income is and will continue to be the growth of our balance sheet. Although the timing and possible effects of future changes in interest rates could be significant, we expect any such impact to continue to be less in extent than the relative impact of earning asset growth.
2007 compared with 2006:
Net interest income was $46.0 million for the year ended December 31, 2007, compared to $47.1 million for the same period in 2006. The 2% decrease was mainly attributable to deposit accounts re-pricing higher during 2007 lagging prime based asset re-pricings which occurred more timely during 2006 and remained stable throughout the first three quarters of the year. The impact of this lag effect was exacerbated during the fourth quarter as it combined with intense local market competition for deposits as well as the evaporation of wholesale market liquidity resulting in funding rates remaining at higher levels even as the Federal Reserve began swiftly lowering rates in September. Partially offsetting this decrease were increases in loan and securities volume. Additional factors impacting net interest income included a significant increase in the level of nonaccrual loans, increases in interest rates paid on transaction accounts and more significantly time deposits, our highest cost deposit category as a percentage share of total deposits, along with additional funding from short-term borrowings and FHLB advances.
Many of the Banks’ loans are indexed to the prime rate. The comparability of the level of the prime rate in 2007 and 2006 combined with the impact of a higher level of non-accrual loans and the acquisition of The Bank of Venice is reflected in a slightly lower average yield for the loan portfolio. The acquisition of The Bank of Venice on April 30, 2007 reduced the average loan yield slightly as it generally has a lower yielding loan mix than TIB Bank. The average yield on interest-earning assets for the 2007 was 7.39% which was a decrease of 16 basis points compared to the 7.55% yield earned during 2006. The average cost of interest-bearing liabilities increased 38 basis points from 4.07% during 2006 to 4.45% in 2007. The average cost of interest bearing deposits and all interest bearing liabilities reflect in part the increase in local deposit competition as well as a general liquidity premium resulting from worldwide financial market turmoil during the second half of 2007. As a result, our tax equivalent net interest margin contracted 58 basis points to 3.60% from 4.18% in 2006.
The following table sets forth information with respect to the average balances, interest income and average yield by major categories of interest-earning assets; the average balances, interest expense and average rate by major categories of interest-bearing liabilities; the average balances of noninterest-earning assets, noninterest-bearing liabilities and shareholders’ equity; and net interest income, interest rate spread, and net interest margin for the years ended December 31, 2008, 2007 and 2006.
Average Balance Sheets
| | | 2008 | | | 2007 | | | 2006 | |
(Dollars in thousands) | | Average Balances | | | Income/ Expense | | | Yields/ Rates | | | Average Balances | | | Income/ Expense | | | Yields/ Rates | | | Average Balances | | | Income/ Expense | | | Yields/ Rates | |
| ASSETS | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest-earning assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Loans (a)(b) | | $ | 1,186,839 | | | $ | 77,877 | | | | 6.56 | % | | $ | 1,088,751 | | | $ | 84,775 | | | | 7.79 | % | | $ | 989,617 | | | $ | 78,382 | | | | 7.92 | % |
| Investment securities (b) | | | 183,649 | | | | 8,629 | | | | 4.70 | % | | | 146,376 | | | | 7,633 | | | | 5.21 | % | | | 123,651 | | | | 6,149 | | | | 4.97 | % |
| Interest bearing deposits in other banks | | | 12,131 | | | | 104 | | | | .85 | % | | | 383 | | | | 19 | | | | 4.96 | % | | | 448 | | | | 22 | | | | 4.94 | % |
| FHLB stock | | | 10,012 | | | | 350 | | | | 3.50 | % | | | 8,408 | | | | 503 | | | | 5.98 | % | | | 4,935 | | | | 285 | | | | 5.78 | % |
| Federal funds sold/Repo | | | 55,525 | | | | 1,374 | | | | 2.47 | % | | | 42,187 | | | | 2,144 | | | | 5.08 | % | | | 15,465 | | | | 739 | | | | 4.78 | % |
| Total interest-earning assets | | | 1,448,156 | | | | 88,334 | | | | 6.10 | % | | | 1,286,105 | | | | 95,074 | | | | 7.39 | % | | | 1,134,116 | | | | 85,577 | | | | 7.55 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Non-interest earning assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash and due from banks | | | 17,507 | | | | | | | | | | | | 20,394 | | | | | | | | | | | | 22,402 | | | | | | | | | |
| Premises and equipment, net | | | 37,596 | | | | | | | | | | | | 36,609 | | | | | | | | | | | | 32,205 | | | | | | | | | |
| Allowances for loan losses | | | (16,111 | ) | | | | | | | | | | | (10,174 | ) | | | | | | | | | | | (8,325 | ) | | | | | | | | |
| Other assets | | | 54,395 | | | | | | | | | | | | 41,167 | | | | | | | | | | | | 32,037 | | | | | | | | | |
| Total non-interest earning assets | | | 93,387 | | | | | | | | | | | | 87,996 | | | | | | | | | | | | 78,319 | | | | | | | | | |
| Total Assets | | $ | 1,541,543 | | | | | | | | | | | $ | 1,374,101 | | | | | | | | | | | $ | 1,212,435 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| LIABILITIES & SHAREHOLDERS’ EQUITY | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest bearing deposits: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| NOW accounts | | $ | 172,520 | | | | 2,932 | | | | 1.70 | % | | $ | 151,745 | | | | 4,967 | | | | 3.27 | % | | $ | 131,386 | | | | 3,500 | | | | 2.66 | % |
| Money market | | | 151,273 | | | | 3,649 | | | | 2.41 | % | | | 186,996 | | | | 7,753 | | | | 4.15 | % | | | 166,501 | | | | 5,959 | | | | 3.58 | % |
| Savings deposits | | | 52,896 | | | | 669 | | | | 1.26 | % | | | 55,360 | | | | 968 | | | | 1.75 | % | | | 48,897 | | | | 346 | | | | 0.71 | % |
| Time deposits | | | 591,723 | | | | 25,346 | | | | 4.28 | % | | | 486,658 | | | | 24,172 | | | | 4.97 | % | | | 477,204 | | | | 21,852 | | | | 4.58 | % |
| Total interest-bearing deposits | | | 968,412 | | | | 32,596 | | | | 3.37 | % | | | 880,759 | | | | 37,860 | | | | 4.30 | % | | | 823,988 | | | | 31,657 | | | | 3.84 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Short-term borrowings and FHLB advances | | | 242,210 | | | | 7,450 | | | | 3.08 | % | | | 174,583 | | | | 7,861 | | | | 4.50 | % | | | 86,883 | | | | 4,102 | | | | 4.72 | % |
| Long-term borrowings | | | 63,000 | | | | 3,458 | | | | 5.49 | % | | | 39,860 | | | | 3,000 | | | | 7.53 | % | | | 27,442 | | | | 2,412 | | | | 8.79 | % |
| Total interest bearing liabilities | | | 1,273,622 | | | | 43,504 | | | | 3.42 | % | | | 1,095,202 | | | | 48,721 | | | | 4.45 | % | | | 938,313 | | | | 38,171 | | | | 4.07 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Non-interest bearing liabilities and shareholders’ equity: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Demand deposits | | | 146,158 | | | | | | | | | | | | 163,478 | | | | | | | | | | | | 174,798 | | | | | | | | | |
| Other liabilities | | | 19,196 | | | | | | | | | | | | 19,338 | | | | | | | | | | | | 17,903 | | | | | | | | | |
| Shareholders’ equity | | | 102,567 | | | | | | | | | | | | 96,083 | | | | | | | | | | | | 81,421 | | | | | | | | | |
| Total non-interest bearing liabilities and shareholders’ equity | | | 267,921 | | | | | | | | | | | | 278,899 | | | | | | | | | | | | 274,122 | | | | | | | | | |
| Total liabilities and shareholders’ equity | | $ | 1,541,543 | | | | | | | | | | | $ | 1,374,101 | | | | | | | | | | | $ | 1,212,435 | | | | | | | | | |
| Interest rate spread | | | | | | | | | | | 2.68 | % | | | | | | | | | | | 2.94 | % | | | | | | | | | | | 3.48 | % |
| Net interest income | | | | | | $ | 44,830 | | | | | | | | | | | $ | 46,353 | | | | | | | | | | | $ | 47,406 | | | | | |
| Net interest margin (c) | | | | | | | | | | | 3.10 | % | | | | | | | | | | | 3.60 | % | | | | | | | | | | | 4.18 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
__________
| (a) | Average loans include non-performing loans. Interest on loans includes loan fees of $420 in 2008, $706 in 2007, and $632 in 2006. |
| (b) | Interest income and rates include the effects of a tax equivalent adjustment using applicable Federal tax rates in adjusting tax exempt interest on tax exempt investment securities and loans to a fully taxable basis. |
| (c) | Net interest margin is net interest income divided by average total interest-earning assets. |
Changes in net interest income
The table below details the components of the changes in net interest income for the last two years. For each major category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes due to average volumes and changes due to rates, with the changes in both volumes and rates allocated to these two categories based on the proportionate absolute changes in each category.
| | | 2008 compared to 2007 Due to changes in | | | 2007 compared to 2006 Due to changes in | |
| (Dollars in thousands) | | Average Volume | | | Average Rate | | | Net Increase (Decrease) | | | Average Volume | | | Average Rate | | | Net Increase (Decrease) | |
| Interest income | | | | | | | | | | | | | | | | | | |
| Loans (a)(b) | | $ | 7,200 | | | $ | (14,098 | ) | | $ | (6,898 | ) | | $ | 7,738 | | | $ | (1,345 | ) | | $ | 6,393 | |
| Investment securities (a) | | | 1,805 | | | | (809 | ) | | | 996 | | | | 1,174 | | | | 310 | | | | 1,484 | |
| Interest-bearing deposits in other banks | | | 113 | | | | (28 | ) | | | 85 | | | | (3 | ) | | | - | | | | (3 | ) |
| FHLB stock | | | 83 | | | | (236 | ) | | | (153 | ) | | | 207 | | | | 11 | | | | 218 | |
| Federal funds sold | | | 545 | | | | (1,315 | ) | | | (770 | ) | | | 1,355 | | | | 50 | | | | 1,405 | |
| Total interest income | | | 9,746 | | | | (16,486 | ) | | | (6,740 | ) | | | 10,471 | | | | (974 | ) | | | 9,497 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest expense | | | | | | | | | | | | | | | | | | | | | | | | |
| NOW accounts | | | 608 | | | | (2,643 | ) | | | (2,035 | ) | | | 592 | | | | 875 | | | | 1,467 | |
| Money market | | | (1,287 | ) | | | (2,817 | ) | | | (4,104 | ) | | | 784 | | | | 1,010 | | | | 1,794 | |
| Savings deposits | | | (41 | ) | | | (258 | ) | | | (299 | ) | | | 51 | | | | 571 | | | | 622 | |
| Time deposits | | | 4,780 | | | | (3,606 | ) | | | 1,174 | | | | 440 | | | | 1,880 | | | | 2,320 | |
| Short-term borrowings and FHLB advances | | | 2,514 | | | | (2,925 | ) | | | (411 | ) | | | 3,957 | | | | (198 | ) | | | 3,759 | |
| Long-term borrowings | | | 1,420 | | | | (962 | ) | | | 458 | | | | 972 | | | | (384 | ) | | | 588 | |
| Total interest expense | | | 7,994 | | | | (13,211 | ) | | | (5,217 | ) | | | 6,796 | | | | 3,754 | | | | 10,550 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Change in net interest income | | $ | 1,752 | | | $ | ( 3,275 | ) | | $ | (1,523 | ) | | $ | 3,675 | | | $ | (4,728 | ) | | $ | (1,053 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
__________ (a) Interest income includes the effects of a tax equivalent adjustment using applicable federal tax rates in adjusting tax exempt interest on tax exempt investment securities and loans to a fully taxable basis. (b) Average loan volumes include non-performing loans which results in the impact of the nonaccrual of interest being reflected in the change in average rate on loans. | |
Non-interest income
The following table presents the principal components of non-interest income for the years ended December 31:
| (Dollars in thousands) | | 2008 | | | 2007 | | | 2006 | |
| Service charges on deposit accounts | | $ | 2,938 | | | $ | 2,692 | | | $ | 2,457 | |
| Investment securities gains (losses), net | | | (5,349 | ) | | | (5,660 | ) | | | - | |
| Fees on mortgage loans sold | | | 775 | | | | 1,446 | | | | 1,599 | |
| Investment advisory fees | | | 555 | | | | - | | | | - | |
| Debit card income | | | 747 | | | | 733 | | | | 711 | |
| Earnings on bank owned life insurance policies | | | 463 | | | | 445 | | | | 400 | |
| Gain on sale of assets | | | 30 | | | | 957 | | | | 138 | |
| Other | | | 625 | | | | 749 | | | | 970 | |
| Total non-interest income | | $ | 784 | | | $ | 1,362 | | | $ | 6,275 | |
| | | | | | | | | | | | | |
2008 compared to 2007:
Excluding the effect of investment security losses, non-interest income was $6.1 million in 2008 compared to $7.0 million 2007. Due to the other than temporary impairment of three collateralized debt obligation investment securities and an equity investment security, we wrote down these securities by $6.4 million in 2008 and $5.7 million in 2007. Partially offsetting the loss in 2008 were net gains from the sale of investment securities of $1.1 million. See the section of management’s discussion and analysis entitled “Other than Temporary Impairment of Available for Sale Securities” for additional information.
Residential mortgage originations were $154 million in 2008 compared to $124 million in 2007. However, as a result of the lack of a secondary market for jumbo mortgages in 2008 we originated and retained jumbo mortgages in our loan portfolio as part of a strategy of generating loans on a relationship basis for customers with whom we can provide private banking and wealth management services. As a consequence, residential loans originated and sold declined from $91.2 million in 2007 to $46.8 million in 2008 and fees on mortgage loans sold declined from $1.4 million to $775,000 for the respective periods.
Naples Capital Advisors generated $555,000 of investment advisory fees since its acquisition in January 2008.
In 2007 as part of our operating cost reduction and containment, we sold an office building and land no longer necessary for our operations and recognized a gain of $957,000.
2007 compared to 2006:
Non-interest income remained relatively constant during 2007 as compared to 2006 excluding the losses on investment securities and increased gains on sale of assets. While service charges on deposit accounts increased approximately 10% to $2.7 million during 2007, this increase was offset by the 10% decline in fees on mortgage loans sold. The increase in service charges is primarily due to an increase in overdraft related charges. The decrease in fees on mortgage loans sold is primarily due to lower volumes resulting from the continuing softening of the local real estate markets.
Non-interest expenses
The following table represents the principal components of non-interest expenses for the years ended December 31:
| (Dollars in thousands) | | 2008 | | | 2007 | | | 2006 | |
| Salary and employee benefits | | $ | 24,534 | | | $ | 22,550 | | | $ | 20,205 | |
| Net occupancy expense | | | 8,539 | | | | 7,979 | | | | 6,120 | |
| Accounting, legal, and other professional | | | 2,558 | | | | 1,372 | | | | 1,246 | |
| Computer services | | | 2,093 | | | | 2,172 | | | | 1,955 | |
| Collection costs | | | 1,341 | | | | 772 | | | | 464 | |
| Postage, courier and armored car | | | 887 | | | | 837 | | | | 845 | |
| Marketing and community relations | | | 1,246 | | | | 1,151 | | | | 983 | |
| Operating supplies | | | 548 | | | | 581 | | | | 581 | |
| Directors’ fees | | | 825 | | | | 568 | | | | 518 | |
| Travel expenses | | | 345 | | | | 396 | | | | 387 | |
| FDIC and state assessments | | | 1,153 | | | | 629 | | | | 298 | |
| Amortization of intangibles | | | 648 | | | | 440 | | | | 288 | |
| Repossessed asset expenses | | | 1,387 | | | | 986 | | | | 312 | |
| Operational charge-offs | | | 1,528 | | | | 74 | | | | 124 | |
| OREO write downs and expenses | | | 1,694 | | | | 14 | | | | - | |
| Other operating expenses | | | 1,662 | | | | 1,400 | | | | 1,507 | |
| Total non-interest expenses | | $ | 50,988 | | | $ | 41,921 | | | $ | 35,833 | |
| | | | | | | | | | | | | |
2008 compared to 2007:
Non-interest expenses were $51.0 million in 2008 compared to $41.9 million in 2007. A significant portion of the increase relates to additional costs that were incurred in 2008 due to the contracting economic environment in our markets and the increase in nonperforming loans and assets that we experienced during the year. The restructuring of our indirect auto financing business line also had a significant impact on expenses in the current year.
Salaries and employee benefits increased $2.0 million, reflecting the increase in staffing for our new initiative in private banking, wealth management and trust services ($1.4 million) and annual raises and increase in personnel to support the growth and expansion of our operations. Severance costs of approximately $455,000 were included in salaries and employee benefits expenses during 2008.
Occupancy costs includes the added facilities cost of a new branch opened by The Bank of Venice, and our new IT facility that became operational in 2008 ($448,000). Unamortized leasehold improvements of $224,000 were written-off due to the non-renewal of an office building lease and the closing of our Sebring branch in January 2009.
Accounting, legal and professional fees in 2008 include $387,000 of consulting fees related to the restructuring of our indirect auto finance business line and higher legal fees related to the restructuring and collection of nonperforming loans.
The increase in collection expenses reflects principally the increased collection costs related to the significantly higher delinquent and nonperforming loans in our indirect auto loan portfolio in 2008.
The FDIC assessed higher deposit insurance premiums on all banks in 2008 and the $524,000 increase over the 2007 expense is due to this higher deposit insurance premium and the growth of our deposits. We anticipate that the rate and total amount of these premiums will increase further during 2009and will likely include a special assessment for all institutions of up to 0.20% of insurable deposits.
As previously discussed in our Form 10Q for the first quarter of 2008, the restructuring of our indirect auto finance operations resulted in the acceleration of the disposition of repossessed vehicles from a retail sales strategy to a wholesale auction strategy. As a consequence, we wrote down the value of repossessed vehicles and related assets by $1.2 million to the lower wholesale values at March 31, 2008. This write-down is the principal component of repossessed asset expenses in 2008. Subsequently, repossessed vehicles were valued at the estimated wholesale auction values and were sold through the wholesale auction process.
Operational charge-offs increased significantly in 2008 due to the write-off of a non-loan account receivable, which is the subject of litigation.
OREO expenses and write-downs include $1.3 million of write downs due to the decline in estimated market value of the foreclosed properties since they were acquired and $359,000 of ownership related expenses such as insurance, real estate taxes and maintenance on these properties.
2007 compared to 2006:
Non-interest expense for 2007 was $41.9 million, an increase of approximately $6.1 million or 17% over $35.8 million for 2006. The increase reflects $1.8 million of non-interest expenses of The Bank of Venice which were not present in 2006; increases in employees’ salaries and benefits including severance for certain employees and signing bonuses for newly hired professionals related to the launch of our private banking and the acquisition of Naples Capital Advisors, Inc.; expenses related to consulting engagements; expenses related to the early termination of various contracts; increased repossession related expenses; and an increase in the FDIC insurance assessment.
Provision for income taxes
The provision for income taxes includes federal and state income taxes. The effective income tax rates for the years ended December 31, 2008, 2007, and 2006 were 38%, 42% and 36%, respectively. The fluctuations in effective tax rates reflect the effect of the differences in deductibility of certain income and expenses. The higher benefit during 2008 and the lower effective income tax rate during 2006 were partly due to the recognition of a state income tax credit related to the Company’s funding of affordable housing construction costs for local charitable organizations. The primary factor resulting in the higher effective tax benefit rate during 2007 was the greater relative impact of the effect of tax exempt interest income on the pretax loss. Additionally, during 2006, the Company’s taxable income exceeded the 34% federal statutory income tax bracket and a portion of our taxable income was taxable at a rate of 35%. Our future effective income tax rate will fluctuate based on the mix of taxable and tax free investments we make and, to a greater extent, our overall level of taxable income. See Notes 1 and 11 of our consolidated financial statements for additional information about the calculation of income tax expense and the various components thereof.
A valuation allowance related to deferred tax assets is required when it is considered more likely than not that all or part of the benefit related to such assets will not be realized. Based on our earnings history, we have determined that no valuation allowance was required at December 31, 2008 or 2007. Additionally, there were no unrecognized tax benefits at December 31, 2008, and we do not expect the total of unrecognized tax benefits to significantly increase in the next twelve months.
Loan Portfolio
Prior to our entrance into the Southwest Florida market in 2001, our primary locations were in the Florida Keys (Monroe County) and south Miami-Dade County. As this region’s primary industry is tourism, commercial loan demand is primarily for resort, hotel, restaurant, marina, and related real estate secured property loans. We serve this market by offering long-term, adjustable rate financing to the owners of these types of properties for acquisition and improvements. As our business has expanded in Southwest Florida, our loan portfolio has benefited from the resulting geographic diversification which is expected to provide more industry-based diversity to our loan portfolio. As of December 31, 2008, we had approximately $674.1 million of loans outstanding (including indirect auto loans) in Southwest Florida.
The cost of living in Monroe County is higher in comparison to other counties in Florida due in large part to the limited and expensive real estate with various construction restrictions and environmental considerations. Accordingly, collateral values on loans secured by property in this market are greater. Collier and Lee counties in Southwest Florida are higher growth communities and the majority of the growth of our commercial loan portfolio has been generated by serving this market.
Loans are expected to produce higher yields than investment securities and other interest-earning assets. The absolute volume of loans and the volume as a percentage of total earning assets are important determinants of the net interest margin. Total loans outstanding increased to $1.22 billion at the end of 2008 as compared to $1.13 billion at year end 2007, an increase of 8%. Of this amount, real estate mortgage loans increased 13% from $904.2 million to $1.02 billion. Commercial real estate mortgage loans accounted for some of this increase, growing from $612.1 million to $658.5 million at the respective year ends. Residential loans also increased significantly growing from $112.1 million at December 31, 2007 to $205.1 million at December 31, 2008. Offsetting these increases in 2008 were declines in indirect auto loans. This portfolio decreased from $117.4 million at December 31, 2007 to $82.0 million at December 31, 2008. We generally originate commercial loans with rates that fluctuate with the prime lending rate or may be fixed for initial periods of 3 to 5 years and residential loans held in the portfolio with rates that adjust periodically and are tied to an index such as the one year treasury or one year LIBOR rate. At December 31, 2008, 80% of the total loan portfolio had floating or adjustable rates.
The following table presents the composition our loan portfolio at December 31:
| (Dollars in thousands) | | 2008 | | | 2007 | | | 2006 | | | 2005 | | | 2004 | |
| Real estate mortgage loans: | | | | | | | | | | | | | | | |
| Commercial | | $ | 658,516 | | | $ | 612,084 | | | $ | 546,276 | | | $ | 451,969 | | | $ | 351,346 | |
| Residential | | | 205,062 | | | | 112,138 | | | | 82,243 | | | | 76,003 | | | | 67,204 | |
| Farmland | | | 13,441 | | | | 11,361 | | | | 24,210 | | | | 4,660 | | | | 4,971 | |
| Construction and vacant land | | | 147,309 | | | | 168,595 | | | | 157,672 | | | | 125,207 | | | | 49,815 | |
| Commercial and agricultural loans | | | 71,352 | | | | 72,076 | | | | 84,905 | | | | 80,055 | | | | 64,622 | |
| Indirect auto loans | | | 82,028 | | | | 117,439 | | | | 141,552 | | | | 118,018 | | | | 91,890 | |
| Home equity loans | | | 34,062 | | | | 21,820 | | | | 17,199 | | | | 17,232 | | | | 13,856 | |
| Other consumer loans | | | 11,549 | | | | 12,154 | | | | 9,795 | | | | 9,228 | | | | 9,817 | |
| Subtotal | | | 1,223,319 | | | | 1,127,667 | | | | 1,063,852 | | | | 882,372 | | | | 653,521 | |
| Less: deferred loan costs (fees) | | | 1,656 | | | | 1,489 | | | | 1,616 | | | | 1,652 | | | | 2,157 | |
| Less: allowance for loan losses | | | (23,783 | ) | | | (14,973 | ) | | | (9,581 | ) | | | (7,546 | ) | | | (6,243 | ) |
| Net loans | | $ | 1,201,192 | | | $ | 1,114,183 | | | $ | 1,055,887 | | | $ | 876,478 | | | $ | 649,435 | |
| | | | | | | | | | | | | | | | | | | | | |
The two most significant components of our loan portfolio are commercial real estate and construction and vacant land. Our goal of maintaining high standards of credit quality include a strategy of diversification of loan type and purpose within these categories. The following charts illustrate the composition of these portfolios as of December 31.
| | | 2008 | | | 2007 | |
| (Dollars in thousands) | | Commercial Real Estate | | | Percentage Composition | | | Commercial Real Estate | | | Percentage Composition | |
| Mixed Use Commercial/Residential | | $ | 108,165 | | | | 16 | % | | $ | 103,937 | | | | 17 | % |
| Office Buildings | | | 105,159 | | | | 16 | % | | | 97,633 | | | | 16 | % |
| Hotels/Motels | | | 90,091 | | | | 14 | % | | | 86,909 | | | | 14 | % |
| 1-4 Family and Multi Family | | | 88,512 | | | | 14 | % | | | 76,339 | | | | 13 | % |
| Guesthouses | | | 84,993 | | | | 13 | % | | | 81,817 | | | | 13 | % |
| Retail Buildings | | | 71,184 | | | | 11 | % | | | 64,819 | | | | 11 | % |
| Restaurants | | | 47,680 | | | | 7 | % | | | 37,186 | | | | 6 | % |
| Marinas/Docks | | | 20,130 | | | | 3 | % | | | 20,364 | | | | 3 | % |
| Warehouse and Industrial | | | 29,031 | | | | 4 | % | | | 29,958 | | | | 5 | % |
| Other | | | 13,571 | | | | 2 | % | | | 13,122 | | | | 2 | % |
| Total | | $ | 658,516 | | | | 100 | % | | $ | 612,084 | | | | 100 | % |
| | | | | | | | | | | | | | | | | |
| | | 2008 | | | 2007 | |
| (Dollars in thousands) | | Construction and Vacant Land | | | Percentage Composition | | | Construction and Vacant Land | | | Percentage Composition | |
| Construction: | | | | | | | | | | | | |
Residential – owner occupied | | $ | 23,444 | | | | 16 | % | | $ | 20,620 | | | | 12 | % |
Residential – commercial developer | | | 9,474 | | | | 6 | % | | | 36,107 | | | | 21 | % |
Commercial structure | | | 18,629 | | | | 13 | % | | | 14,367 | | | | 9 | % |
| Total construction | | | 51,547 | | | | 35 | % | | | 71,094 | | | | 42 | % |
| | | | | | | | | | | | | | | | | |
| Land: | | | | | | | | | | | | | | | | |
Raw land | | | 25,890 | | | | 18 | % | | | 25,890 | | | | 9 | % |
Residential lots | | | 13,041 | | | | 9 | % | | | 16,775 | | | | 10 | % |
Land development | | | 19,975 | | | | 13 | % | | | 19,818 | | | | 18 | % |
Commercial lots | | | 36,856 | | | | 25 | % | | | 35,018 | | | | 21 | % |
| Total land | | | 95,762 | | | | 65 | % | | | 97,501 | | | | 58 | % |
| | | | | | | | | | | | | | | | | |
| Total | | $ | 147,309 | | | | 100 | % | | $ | 168,595 | | | | 100 | % |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
The reduction of construction loans during 2008 reflects our decision to curtail the financing of new development projects in late 2005 and early 2006. As construction projects have been completed, the balance of construction loans has declined.
The contractual maturity distribution of our loan portfolio at December 31, 2008 is indicated in the table below. The majority of these are amortizing loans.
| | | Loans maturing | |
| (Dollars in thousands) | | Within 1 Year | | | 1 to 5 Years | | | After 5 Years | | | Total | |
| Real estate mortgage loans: | | | | | | | | | | | | |
| Commercial | | $ | 74,037 | | | $ | 139,332 | | | $ | 445,147 | | | $ | 658,516 | |
| Residential | | | 2,330 | | | | 2,304 | | | | 200,428 | | | | 205,062 | |
| Farmland | | | 29 | | | | 1,985 | | | | 11,427 | | | | 13,441 | |
| Construction and vacant land (a) | | | 73,613 | | | | 47,394 | | | | 26,302 | | | | 147,309 | |
| Commercial and agricultural loans | | | 29,163 | | | | 25,333 | | | | 16,856 | | | | 71,352 | |
| Indirect auto loans | | | 4,384 | | | | 67,476 | | | | 10,168 | | | | 82,028 | |
| Home equity loans | | | 1,071 | | | | 5,124 | | | | 27,867 | | | | 34,062 | |
| Other consumer loans | | | 2,332 | | | | 8,169 | | | | 1,048 | | | | 11,549 | |
| Total loans | | $ | 186,959 | | | $ | 297,117 | | | $ | 739,243 | | | $ | 1,223,319 | |
| | | | | | | | | | | | | | | | | |
__________ (a) $23,444 of this amount relates to residential real estate construction loans that have been approved for permanent financing but are still under construction. The remaining amount relates to vacant land and commercial real estate construction loans, some of which have been approved for permanent financing but are still under construction. | |
| | | Loans maturing | |
| (Dollars in thousands) | | Within 1 Year | | | 1 to 5 Years | | | After 5 Years | | | Total | |
| Loans with: | | | | | | | | | | | | |
| Predetermined interest rates | | $ | 42,650 | | | $ | 163,486 | | | $ | 41,084 | | | $ | 247,220 | |
| Floating or adjustable rates | | | 144,309 | | | | 133,631 | | | | 698,159 | | | | 976,099 | |
| Total loans | | $ | 186,959 | | | $ | 297,117 | | | $ | 739,243 | | | $ | 1,223,319 | |
| | | | | | | | | | | | | | | | | |
Allowance and Provision for Loan Losses
The allowance for loan losses is a valuation allowance for probable incurred credit losses in the loan portfolio. Our formalized process for assessing the adequacy of the allowance for loan losses and the resultant need, if any, for periodic provisions to the allowance charged to income, includes both individual loan analyses and loan pool analyses. Individual loan analyses are periodically performed on loan relationships of a significant size, or when otherwise deemed necessary, and primarily encompass commercial real estate and other commercial loans. The result is that commercial real estate loans and commercial loans are divided into the following risk categories: Pass, Special Mention, Substandard and Loss. When appropriate, a specific reserve will be established for individual loans. Otherwise, we allocate an allowance for each risk category. The allocations are based on factors including historical loss rate, perceived economic conditions (local, national and global), perceived strength of our management, recent trends in loan loss history, and concentrations of credit.
Home equity loans, indirect auto loans, residential loans and consumer loans generally are not analyzed individually. These loans are grouped into pools and assigned risk categories based on their current payment status and management’s assessment of risk inherent in the various types of loans. As above, when appropriate, a specific reserve will be established for individual loans. Otherwise, we allocate an allowance for each loan classification. The allocations are based on the same factors mentioned above.
Senior management and the Board of Directors review this calculation and the underlying assumptions on a routine basis not less frequently than quarterly.
The allowance for loan losses amounted to $23.8 million and $15.0 million at December 31, 2008 and December 31, 2007, respectively. Based on an analysis performed by management at December 31, 2008, the allowance for loan losses is considered to be adequate to cover probable incurred credit losses in the portfolio as of that date. However, management’s judgment is based upon a number of assumptions about future events, which are believed to be reasonable, but which may or may not prove valid. Thus, there can be no assurance that charge-offs in future periods will not exceed the allowance for loan losses or that significant additional increases in the allowance for loan losses will not be required. In addition, various regulatory agencies, as an integral part of their examination process, periodically review our allowance for loan losses. Such agencies may require us to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.
The provision for loan losses is a charge to income in the current period to replenish the allowance and maintain it at a level that management has determined to be adequate to absorb estimated losses in the loan portfolio. Our provision for loan losses was $28.2 million, $9.7 million and $3.5 million for the years ended December 31, 2008, 2007 and 2006, respectively. While partly related to loan growth of $95.7 million and $63.8 million, respectively, the higher provision for loan losses in 2008 and 2007 was primarily attributable to the continued contraction of residential real estate activity and the ripple effect on our local economies as well as the increase in our nonperforming loans, delinquencies and charge-offs. The continued local economic contraction is evidenced by increased unemployment levels, especially in the greater Fort Myers, Florida area where we have a concentration of indirect auto loan exposure. While there recently has been an increase in the number of real estate unit sales as compared to the prior year period, the impact of foreclosures and distressed sales is impacting the value of real estate and the economy broadly.
Loan growth of $181.5 million was the primary driver of the provision for loan losses during 2006. Additionally, due to the weakening economic environment, we increased economic risk factors employed in estimating the allowance during the second quarter of 2006 and we further elevated certain quantitative and qualitative factors used in estimating our allowance for loan losses during each quarter of 2007 and 2008.
Management continuously monitors and actively manages the credit quality of the loan portfolio and will continue to recognize the provision required to maintain the allowance for loan losses at an appropriate level. Due to the economic slowdown discussed above, our customers are exhibiting increasing difficulty in timely payment of their loan obligations. We believe that this trend will continue in the near term. Consequently, we may experience higher levels of delinquent and nonperforming loans, which may require higher provisions for loan losses, higher charge-offs and higher collection related expenses in future periods.
Changes affecting the allowance for loan losses are summarized for the years ended December 31,
| (Dollars in thousands) | | 2008 | | | 2007 | | | 2006 | | | 2005 | | | 2004 | |
| Balance at beginning of year | | $ | 14,973 | | | $ | 9,581 | | | $ | 7,546 | | | $ | 6,243 | | | $ | 5,216 | |
| | | | | | | | | | | | | | | | | | | | | |
| Charge-offs: | | | | | | | | | | | | | | | | | | | | |
| Real estate mortgage loans: | | | | | | | | | | | | | | | | | | | | |
| Commercial | | | 1,577 | | | | 118 | | | | - | | | | - | | | | - | |
| Residential | | | 1,897 | | | | 63 | | | | - | | | | - | | | | - | |
| Farmland | | | - | | | | - | | | | - | | | | - | | | | - | |
| Construction and vacant land | | | 4,324 | | | | 1,251 | | | | - | | | | - | | | | - | |
| Commercial and agricultural loans | | | 587 | | | | 278 | | | | 12 | | | | 107 | | | | 92 | |
| Indirect auto loans | | | 10,674 | | | | 3,110 | | | | 1,557 | | | | 1,045 | | | | 1,313 | |
| Home equity loans | | | 270 | | | | 331 | | | | - | | | | - | | | | - | |
| Other consumer loans | | | 180 | | | | 51 | | | | 4 | | | | 67 | | | | 82 | |
| Total charge-offs | | | 19,509 | | | | 5,202 | | | | 1,573 | | | | 1,219 | | | | 1,487 | |
| | | | | | | | | | | | | | | | | | | | | |
| Recoveries: | | | | | | | | | | | | | | | | | | | | |
| Real estate mortgage loans: | | | | | | | | | | | | | | | | | | | | |
| Commercial | | | - | | | | - | | | | - | | | | - | | | | - | |
| Residential | | | 10 | | | | - | | | | - | | | | - | | | | - | |
| Farmland | | | - | | | | - | | | | - | | | | - | | | | - | |
| Construction and vacant land | | | 2 | | | | - | | | | - | | | | - | | | | - | |
| Commercial and agricultural loans | | | - | | | | - | | | | 20 | | | | 6 | | | | 38 | |
| Indirect auto loans | | | 54 | | | | 262 | | | | 55 | | | | 65 | | | | 3 | |
| Home equity loans | | | - | | | | 2 | | | | 2 | | | | 8 | | | | 2 | |
| Other consumer loans | | | 14 | | | | 6 | | | | 40 | | | | 30 | | | | 16 | |
| Total recoveries | | | 80 | | | | 270 | | | | 117 | | | | 109 | | | | 59 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net charged off | | | 19,429 | | | | 4,932 | | | | 1,456 | | | | 1,110 | | | | 1,428 | |
| | | | | | | | | | | | | | | | | | | | | |
| Provision for loan losses | | | 28,239 | | | | 9,657 | | | | 3,491 | | | | 2,413 | | | | 2,455 | |
| | | | | | | | | | | | | | | | | | | | | |
| Acquisition of The Bank of Venice | | | - | | | | 667 | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Allowance for loan losses at end of year | | $ | 23,783 | | | $ | 14,973 | | | $ | 9,581 | | | $ | 7,546 | | | $ | 6,243 | |
| | | | | | | | | | | | | | | | | | | | | |
| Ratio of net charge-offs to average net loans outstanding | | | 1.64 | % | | | 0.45 | % | | | 0.15 | % | | | 0.14 | % | | | 0.24 | % |
| | | | | | | | | | | | | | | | | | | | | |
While no portion of the allowance is in any way restricted to any individual loan or group of loans and the entire allowance is available to absorb probable incurred credit losses from any and all loans, the following table represents management’s best estimate of the allocation of the allowance for loan losses to the various segments of the loan portfolio based on information available as of December 31. Qualitative factors used in determining the allowance for loan losses resulted in the establishment of an unallocated reserve totaling approximately $1.1 million as of December 31, 2007. Due to the ongoing evaluation and changes in the basis for the allowance for loan losses, actual future charge offs will not necessarily follow the allocations described below.
| | | 2008 | | | 2007 | | | 2006 | | | 2005 | | | 2004 | |
| (Dollars in thousands) | | Allowance | | | % of Total Loans | | | Allowance | | | % of Total Loans | | | Allowance | | | % of Total Loans | | | Allowance | | | % of Total Loans | | | Allowance | | | % of Total Loans | |
| Real estate mortgage loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial | | $ | 11,143 | | | | 54 | % | | $ | 5,250 | | | | 54 | % | | $ | 3,764 | | | | 51 | % | | $ | 2,971 | | | | 51 | % | | $ | 2,513 | | | | 54 | % |
| Residential | | | 2,393 | | | | 17 | % | | | 381 | | | | 10 | % | | | 191 | | | | 8 | % | | | 168 | | | | 9 | % | | | 144 | | | | 10 | % |
| Farmland | | | 134 | | | | 1 | % | | | 84 | | | | 1 | % | | | 161 | | | | 2 | % | | | 30 | | | | 1 | % | | | 34 | | | | 1 | % |
| Construction and vacant land | | | 1,313 | | | | 12 | % | | | 1,218 | | | | 15 | % | | | 922 | | | | 15 | % | | | 743 | | | | 14 | % | | | 312 | | | | 8 | % |
| Commercial and agricultural loans | | | 2,256 | | | | 6 | % | | | 1,547 | | | | 6 | % | | | 1,002 | | | | 8 | % | | | 912 | | | | 9 | % | | | 737 | | | | 10 | % |
| Indirect auto loans | | | 5,708 | | | | 6 | % | | | 5,072 | | | | 11 | % | | | 3,352 | | | | 13 | % | | | 2,523 | | | | 13 | % | | | 2,312 | | | | 14 | % |
| Home equity loans | | | 694 | | | | 3 | % | | | 213 | | | | 2 | % | | | 87 | | | | 2 | % | | | 85 | | | | 2 | % | | | 67 | | | | 2 | % |
| Other consumer loans | | | 142 | | | | 1 | % | | | 113 | | | | 1 | % | | | 102 | | | | 1 | % | | | 114 | | | | 1 | % | | | 124 | | | | 1 | % |
| Unallocated | | | - | | | | | | | | 1,095 | | | | | | | | - | | | | | | | | - | | | | | | | | - | | | | | |
| | | $ | 23,783 | | | | 100 | % | | $ | 14,973 | | | | 100 | % | | $ | 9,581 | | | | 100 | % | | $ | 7,546 | | | | 100 | % | | $ | 6,243 | | | | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Impaired Loans
A loan is considered impaired when it is probable that not all principal and interest amounts will be collected according to the loan contract. Generally, individual commercial, commercial real estate and residential loans exceeding certain size thresholds established by management are individually evaluated for impairment. If a loan is considered to be impaired, a portion of the allowance is allocated so that the carrying value of the loan is reported at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Impaired loans are as follows:
| (Dollars in thousands) | | 2008 | | | 2007 | |
| Year end loans with no specifically allocated allowance for loan losses | | $ | 8,344 | | | $ | 4,448 | |
| Year end loans with allocated allowance for loan losses | | | 53,765 | | | | 3,748 | |
| Total | | $ | 62,109 | | | $ | 8,196 | |
| Amount of the allowance for loan losses allocated to impaired loans | | $ | 6,116 | | | $ | 1,401 | |
| | | | | | | | | |
Non-performing loans and impaired loans are defined differently. Some loans may be included in both categories, whereas other loans may only be included in one category.
Non-Performing Assets
Non-performing assets include non-accrual loans and investments securities, accruing loans contractually past due 90 days or more, repossessed personal property, and other real estate. Loans and investments are placed on non-accrual status when management has concerns relating to the ability to collect the principal and interest and generally when such assets are 90 days or more past due. A loan is considered impaired when it is probable that not all principal and interest amounts will be collected according to the loan contract. Non-performing assets were as follows for the periods ending December 31:
| (Dollars in thousands) | | 2008 | | | 2007 | | | 2006 | | | 2005 | | | 2004 | |
| Total non-accrual loans (a) | | $ | 39,776 | | | $ | 16,086 | | | $ | 4,223 | | | $ | 956 | | | $ | 704 | |
| Accruing loans delinquent 90 days or more (a) | | | - | | | | - | | | | - | | | | - | | | | - | |
| Total non-performing loans | | | 39,776 | | | | 16,086 | | | | 4,223 | | | | 956 | | | | 704 | |
| | | | | | | | | | | | | | | | | | | | | |
| Non-accrual investment securities(b) | | | 763 | | | | 3,154 | | | | - | | | | - | | | | - | |
| Repossessed personal property (primarily indirect auto loans) | | | 601 | | | | 3,136 | | | | 1,958 | | | | 962 | | | | 688 | |
| Other real estate owned | | | 4,323 | | | | 1,846 | | | | - | | | | 190 | | | | 882 | |
| Other assets (c) | | | 2,076 | | | | 2,915 | | | | 2,861 | | | | 2,815 | | | | 2,665 | |
| Total non-performing assets | | $ | 47,539 | | | $ | 27,137 | | | $ | 9,042 | | | $ | 4,923 | | | $ | 4,939 | |
| | | | | | | | | | | | | | | | | | | | | |
| Allowance for loan losses | | $ | 23,783 | | | $ | 14,973 | | | $ | 9,581 | | | $ | 7,546 | | | $ | 6,243 | |
| | | | | | | | | | | | | | | | | | | | | |
| Non-performing assets as a percent of total assets | | | 2.95 | % | | | 1.88 | % | | | 0.69 | % | | | 0.46 | % | | | 0.60 | % |
| Non-performing loans as a percent of total loans | | | 3.25 | % | | | 1.43 | % | | | 0.40 | % | | | 0.11 | % | | | 0.11 | % |
| Allowance for loan losses as a percent of non-performing loans (a) | | | 59.79 | % | | | 93.08 | % | | | 226.88 | % | | | 789.33 | % | | | 886.79 | % |
| | | | | | | | | | | | | | | | | | | | | |
__________
| (a) | Non-performing loans during 2004 and 2005 excluded the $1.6 million loan discussed below that was guaranteed for both principal and interest by the USDA. In December 2006, the Bank stopped accruing interest on this loan pursuant to a ruling made by the USDA. Accordingly, the loan was included in total non-accrual loans as of December 31, 2006 and 2007. During 2008, the USDA repaid the guaranteed portion of the loan in accordance with the provisions of the guarantee agreement. Other non-accrual loans at December 31, 2004 through December 31, 2006 are primarily indirect auto loans. Non-accrual loans as of December 31, 2008 and 2007 are as follows: |
(Dollars in thousands) | | December 31, 2008 | | | December 31, 2007 | |
| Collateral Description | | Number of Loans | | | Outstanding Balance | | | Number of Loans | | | Outstanding Balance | |
| Residential 1-4 family * | | | 18 | | | $ | 4,014 | | | | 10 | | | $ | 3,320 | |
| Commercial 1-4 family investment | | | 9 | | | | 7,943 | | | | 3 | | | | 1,122 | |
| Commercial and agricultural | | | 2 | | | | 64 | | | | 4 | | | | 293 | |
| Commercial real estate | | | 18 | | | | 13,133 | | | | 4 | | | | 2,619 | |
| Residential land development | | | 4 | | | | 12,584 | | | | 1 | | | | 2,686 | |
| Participations in residential loan pools * | | | - | | | | - | | | | 9 | | | | 1,246 | |
| Government guaranteed loans | | | 3 | | | | 143 | | | | 1 | | | | 1,641 | |
| Indirect auto, auto and consumer loans | | | 155 | | | | 1,895 | | | | 238 | | | | 3,159 | |
| | | | | | | $ | 39,776 | | | | | | | $ | 16,086 | |
| | | | | | | | | | | | | | | | | |
| | * Our ownership in the nine loan pools was exchanged for an equivalent value of 10 specific loans from the loan pools during the first quarter of 2008. |
| (b) | In December 2007, we placed a collateralized debt security collateralized primarily by homebuilders, REITs, real estate companies and commercial mortgage backed securities on non-accrual. This security had an original cost of $6.0 million. During 2008, two additional similarly secured collateralized debt obligations with original costs of $2.0 million each were also placed on nonaccrual. As of December 31, 2007 and throughout 2008, the estimated fair value of these securities declined further and management has periodically deemed such declines other than temporary. Accordingly, we have recorded cumulative realized losses totaling $9.2 million relating to these securities through December 31, 2008. For additional details on these and other investment securities, see the section of management’s discussion and analysis that follows entitled “Investment Portfolio”. |
| (c) | In 1998, TIB Bank made a $10.0 million loan to construct a lumber mill in northern Florida. Of this amount, $6.4 million had been sold by the Bank to other lenders. The loan was 80% guaranteed as to principal and interest by the U.S. Department of Agriculture (USDA). In addition to business real estate and equipment, the loan was collateralized by the business owner’s interest in a trust. Under provisions of the trust agreement, beneficiaries cannot receive trust assets until November 2010. |
The portion of this loan guaranteed by the USDA and held by us was approximately $1.6 million at December 31, 2007. The loan was accruing interest until December 2006 when the Bank ceased the accrual of interest pursuant to a ruling made by the USDA. Accrued interest on this loan totaled approximately $941,000 at December 31, 2007. During the second quarter of 2008, the USDA paid the Company the principal and accrued interest and allowed the Company to apply other proceeds previously received to reduce capitalized liquidation costs and protective advances.
The non-guaranteed principal and interest ($2.0 million at December 31, 2008 and December 31, 2007) and the reimbursable capitalized liquidation costs and protective advance costs totaling approximately $112,000 and $954,000 at December 31, 2008 and 2007, respectively, are included as “other assets” in the financial statements.
Florida law requires a bank to liquidate or charge off repossessed real property within five years, and repossessed personal property within six months. Since the property had not been liquidated during this period, the Bank charged-off the non guaranteed principal and interest totaling $2.0 million at June 30, 2003, for regulatory purposes. Since we believe this amount is ultimately realizable, we did not write off this amount for financial statement purposes under generally accepted accounting principles.
Liquidity and Rate Sensitivity
Liquidity represents the ability to provide steady sources of funds for loan commitments and investment activities, as well as to provide sufficient funds to cover deposit withdrawals and payments of debt, off-balance sheet obligations and operating obligations. Funds can be obtained from operations by converting assets to cash, by attracting new deposits, by borrowing, by raising capital and other ways.
Major sources of increases and decreases in cash and cash equivalents are as follows for the three years ending December 31:
| (Dollars in thousands) | | 2008 | | | 2007 | | | 2006 | |
| Provided by operating activities | | $ | 10,044 | | | $ | 3,770 | | | $ | 11,607 | |
| Used by investing activities | | | (194,746 | ) | | | (40,328 | ) | | | (229,815 | ) |
| Provided by financing activities | | | 187,377 | | | | 52,065 | | | | 232,250 | |
| Net increase in cash and cash equivalents | | $ | 2,675 | | | $ | 15,507 | | | $ | 14,042 | |
| | | | | | | | | | | | | |
As discussed in Note 16 of the Consolidated Financial Statements, the Company had unfunded loan commitments and unfunded letters of credit totaling $103.5 million at December 31, 2008. The Company believes the likelihood of these commitments either needing to be totally funded or funded at the same time is low. However, should significant funding requirements occur, the Company has available borrowing capacity from various sources as discussed below.
The Banks have unsecured overnight federal funds purchased accommodation up to a maximum of $28.0 million from their principal correspondent banks. Additionally, the Banks have agreements with various financial institutions under which securities can be sold under agreements to repurchase. Further, the Banks have invested in FHLB stock for the purpose of establishing credit lines with the FHLB. The credit availability to the Banks is based on the amount of collateral pledged and limited by a percentage of the Banks’ total assets as reported on the most recent quarterly financial information submitted to the regulators. At December 31, 2008, in addition to $25.0 million in letters of credit used in lieu of pledging securities to the State of Florida and $150,000 in letters of credit on behalf of customers, there was $202.9 million in advances outstanding. Borrowings are collateralized by the Banks’ qualifying one-to-four family residential mortgage loans and certain commercial real estate loans. The amount of unused borrowing capacity at December 31, 2008 was $40.1 million.
Scheduled maturities and paydowns of loans and investment securities are also a source of liquidity.
At December 31, 2008, our gross loan to deposit ratio was 107.9% compared to a ratio of 107.5% at December 31, 2007. Management monitors and assesses the adequacy of our liquidity position on a daily and monthly basis to ensure that sufficient sources of liquidity are maintained and available.
Under state banking law, regulatory approval will be required if the total of all dividends declared in any calendar year by a bank exceeds the bank’s net profits to date for that year combined with its retained net profits for the preceding two years. Based on the level of undistributed earnings for the prior two years, declaration of dividends by TIB Bank, during 2008, would have required regulatory approval. The Bank of Venice has no retained earnings available for dividends. Therefore, the Company does not expect to receive dividends from the Banks in the foreseeable future. The holding company had $23.6 million of cash at December 31, 2008. In connection with the assumption of the Riverside deposits and branch operations, the holding company invested approximately $12 million of additional capital in TIB Bank during the first quarter of 2009 to support its growth in deposits and assets.
Closely related to liquidity management is the management of interest-earning assets and interest-bearing liabilities. The Company manages its rate sensitivity position to avoid wide swings in net interest margins and to minimize risk due to changes in interest rates.
Our interest rate sensitivity position at December 31, 2008 is presented in the table below.
| (Dollars in thousands) | | 3 Months or Less | | | 4 to 6 Months | | | 7 to 12 Months | | | 1 to 5 Years | | | Over 5 Years | | | Total | |
| Interest-earning assets: | | | | | | | | | | | | | | | | | | |
| Loans | | $ | 361,861 | | | $ | 69,659 | | | $ | 89,152 | | | $ | 578,598 | | | $ | 124,049 | | | $ | 1,223,319 | |
| Investment securities-taxable | | | 63,486 | | | | 292 | | | | 2,281 | | | | 40,158 | | | | 111,752 | | | | 217,969 | |
| Investment securities-tax exempt | | | - | | | | - | | | | - | | | | 3,594 | | | | 4,195 | | | | 7,789 | |
| Marketable equity securities | | | 12 | | | | - | | | | - | | | | - | | | | - | | | | 12 | |
| FHLB stock | | | 11,724 | | | | - | | | | - | | | | - | | | | - | | | | 11,724 | |
| Federal funds sold and securities purchased under agreements to resell | | | 4,127 | | | | - | | | | - | | | | - | | | | - | | | | 4,127 | |
| Interest-bearing deposit in other banks | | | 47,969 | | | | - | | | | - | | | | - | | | | - | | | | 47,969 | |
| Total interest-bearing assets | | | 489,179 | | | | 69,951 | | | | 91,433 | | | | 622,350 | | | | 239,996 | | | | 1,512,909 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
| NOW accounts | | | 142,291 | | | | - | | | | - | | | | - | | | | - | | | | 142,291 | |
| Money market | | | 102,486 | | | | - | | | | - | | | | - | | | | - | | | | 102,486 | |
| Savings deposits | | | 73,832 | | | | - | | | | - | | | | - | | | | - | | | | 73,832 | |
| Time deposits | | | 262,861 | | | | 94,285 | | | | 217,074 | | | | 114,455 | | | | - | | | | 688,675 | |
| Subordinated debentures | | | 25,000 | | | | - | | | | - | | | | - | | | | 8,000 | | | | 33,000 | |
| Other borrowings | | | 171,422 | | | | 1,250 | | | | 2,900 | | | | 128,750 | | | | - | | | | 304,322 | |
| Total interest-bearing liabilities | | | 777,892 | | | | 95,535 | | | | 219,974 | | | | 243,205 | | | | 8,000 | | | | 1,344,606 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest sensitivity gap | | $ | (288,713 | ) | | $ | (25,584 | ) | | $ | (128,541 | ) | | $ | 379,145 | | | $ | 231,996 | | | $ | 168,303 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Cumulative interest sensitivity gap | | $ | (288,713 | ) | | $ | (314,297 | ) | | $ | (442,838 | ) | | $ | (63,693 | ) | | $ | 168,303 | | | $ | 168,303 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Cumulative sensitivity ratio | | | (19.1 | %) | | | (20.8 | %) | | | (29.3 | %) | | | (4.2 | %) | | | 11.1 | % | | | 11.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
We are cumulatively liability sensitive through the five-year time period, and asset sensitive in the over five year timeframe above. Certain liabilities such as non-indexed NOW and passbook savings accounts, while technically subject to immediate re-pricing in response to changing market rates, historically do not re-price as quickly or to the extent as other interest-sensitive accounts. Approximately 11% of our deposit funding is comprised of non-interest-bearing liabilities and total interest-earning assets are substantially greater than the total interest-bearing liabilities. Therefore it is anticipated that, over time, the effects on net interest income from changes in asset yield will be greater than the change in expense from liability cost. Increases in the level of nonperforming assets would have a negative impact on our net interest margin. Due to the Federal Reserve’s recent monetary policy actions we anticipate that our net interest margin may decline and then stabilize because we have positioned the Company for declining short-term interest rates by increasing our liability sensitivity through increased short term borrowings and shorter term certificates of deposit.
Even in the near term, we believe the $442.8 million one year cumulative negative sensitivity gap may exaggerate the probable effects on earnings for two reasons. First, the liabilities subject to re-pricing are predominately not indexed to any specific market rate and therefore they may not fully reflect the changes in market rates in any rate re-pricings. Further, the assets subject to re-pricing are expected to reflect fully any changes in market rates, primarily the prime rate. Interest-earning assets and time deposits are presented based on their contractual terms. It is anticipated that run off in any deposit category will be approximately offset by new deposit generation.
We employ a financial model derived from our assets and liabilities which simulates the effect of various changes in interest rates on our projected net interest income. This financial model is our principal tool for measuring and managing interest rate risk. Many assumptions regarding the timing and sensitivity of our assets and liabilities to a change in interest rates are made. We continually review and update these assumptions. This model is updated monthly for changes in our assets and liabilities and we model different interest rate scenarios based upon current and projected economic and interest rate conditions. We analyze the results of these simulations and develop tactics and strategies to attempt to mitigate, where possible, the projected unfavorable impact of various interest rate scenarios on our projected net interest income. We also develop tactics and strategies to increase our net interest margin and net interest income that are consistent with our operating policies.
Investment Portfolio
Contractual maturities of investment securities at December 31, 2008 are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or repay obligations without call or prepayment penalties. Other securities include mortgage-backed securities and marketable equity securities which are not due at a single maturity date.
| (Dollars in thousands) | | Within 1 Year | | | After 1 Year Within 5 Years | | | After 5 Years Within 10 Years | | | After 10 Years | | | | |
| | | Amount | | | Yield | | | Amount | | | Yield | | | Amount | | | Yield | | | Amount | | | Yield | | | Amount | |
| Securities Available for Sale: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. Gov’t agencies and corporations | | $ | 10,110 | | | | 3.77 | % | | $ | 34,965 | | | | 4.13 | % | | $ | 1,085 | | | | 5.89 | % | | $ | 5,508 | | | | 5.33 | % | | $ | - | |
| States and political subdivisions – tax exempt (a) | | | - | | | | - | | | | 3,595 | | | | 5.80 | % | | | 2,672 | | | | 5.26 | % | | | 1,522 | | | | 5.78 | % | | | - | |
| States and political subdivisions – taxable | | | 90 | | | | 7.29 | % | | | - | | | | - | | | | - | | | | - | | | | 2,247 | | | | 6.10 | % | | | - | |
| Marketable equity securities (a) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 12 | |
| Mortgage-backed securities | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 157,977 | |
| Corporate bonds | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,712 | | | | 3.09 | % | | | - | |
| Collateralized debt obligations | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 4,275 | | | | 1.89 | % | | | - | |
| Total | | $ | 10,200 | | | | 3.80 | % | | $ | 38,560 | | | | 4.29 | % | | $ | 3,757 | | | | 5.43 | % | | $ | 15,264 | | | | 3.97 | % | | $ | 157,989 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Yield by classification of investment securities at December 31, 2008 was as follows:
| (Dollars in thousands) | | Yield | | | Totals | |
| Securities Available for Sale: | | | | | | |
| U.S. Government agencies and corporations | | | 4.21 | % | | | 51,668 | |
| States and political subdivisions – tax exempt (a) | | | 5.61 | % | | | 7,789 | |
| States and political subdivisions – taxable | | | 6.14 | % | | | 2,337 | |
| Marketable equity securities (a) (b) | | | 8.73 | % | | | 12 | |
| Mortgage-backed securities | | | 4.54 | % | | | 157,977 | |
| Corporate bonds | | | 3.09 | % | | | 1,712 | |
| Collateralized debt obligations (c) | | | 1.89 | % | | | 4,275 | |
| Total (c) | | | 4.43 | % | | $ | 225,770 | |
| | | | | | | | | |
| (a) | Weighted average yields on tax exempt obligations and marketable equity securities have been computed by grossing up actual tax exempt income. |
| (b) | Weighted average yield on marketable equity securities was computed using the actual 2008 income grossed up by 35% to a taxable equivalent basis. |
| (c) | Excluding the impact of the non-accrual investments, the total investment portfolio yield was 4.45% and the Collateralized debt obligation yield was 2.15%. |
The following table presents the amortized cost, unrealized gains, unrealized losses, and fair value for the major categories of our investment portfolio for each reported period:
Available for Sale—December 31, 2008
| (Dollars in thousands) | | Amortized Cost | | | Unrealized Gains | | | Unrealized Losses | | | Fair Value | |
| U.S. Government agencies and corporations | | $ | 50,892 | | | $ | 776 | | | $ | - | | | $ | 51,668 | |
| States and political subdivisions-tax exempt | | | 7,751 | | | | 59 | | | | 21 | | | | 7,789 | |
| States and political subdivisions-taxable | | | 2,407 | | | | - | | | | 70 | | | | 2,337 | |
| Marketable equity securities | | | 12 | | | | - | | | | - | | | | 12 | |
| Mortgage-backed securities | | | 157,066 | | | | 1,332 | | | | 421 | | | | 157,977 | |
| Corporate bonds | | | 2,870 | | | | - | | | | 1,158 | | | | 1,712 | |
| Collateralized debt obligations | | | 5,763 | | | | - | | | | 1,488 | | | | 4,275 | |
| | | $ | 226,761 | | | $ | 2,167 | | | $ | 3,158 | | | $ | 225,770 | |
| | | | | | | | | | | | | | | | | |
Available for Sale—December 31, 2007
| (Dollars in thousands) | | Amortized Cost | | | Unrealized Gains | | | Unrealized Losses | | | Fair Value | |
| U.S. Government agencies and corporations | | $ | 72,482 | | | $ | 1,245 | | | $ | 66 | | | $ | 73,661 | |
| States and political subdivisions-tax exempt | | | 9,629 | | | | 6 | | | | 51 | | | | 9,584 | |
| States and political subdivisions-taxable | | | 2,495 | | | | 1 | | | | 21 | | | | 2,475 | |
| Marketable equity securities | | | 1,224 | | | | - | | | | - | | | | 1,224 | |
| Mortgage-backed securities | | | 60,161 | | | | 295 | | | | 296 | | | | 60,160 | |
| Corporate bonds | | | 2,865 | | | | - | | | | 100 | | | | 2,765 | |
| Collateralized debt obligations | | | 11,110 | | | | - | | | | 622 | | | | 10,488 | |
| | | $ | 159,966 | | | $ | 1,547 | | | $ | 1,156 | | | $ | 160,357 | |
| | | | | | | | | | | | | | | | | |
Available for Sale—December 31, 2006
| (Dollars in thousands) | | Amortized Cost | | | Unrealized Gains | | | Unrealized Losses | | | Fair Value | |
| U.S. Treasury Securities | | $ | 5,087 | | | $ | - | | | $ | 125 | | | $ | 4,962 | |
| U.S. Government agencies and corporations | | | 84,014 | | | | 278 | | | | 1,294 | | | | 82,998 | |
| States and political subdivisions-tax exempt | | | 10,818 | | | | 22 | | | | 98 | | | | 10,742 | |
| States and political subdivisions-taxable | | | 2,578 | | | | 12 | | | | - | | | | 2,590 | |
| Marketable equity securities | | | 3,000 | | | | 484 | | | | - | | | | 3,484 | |
| Mortgage-backed securities | | | 16,428 | | | | 94 | | | | 8 | | | | 16,514 | |
| Collateralized debt obligations | | | 9,996 | | | | - | | | | 87 | | | | 9,909 | |
| | | $ | 131,921 | | | $ | 890 | | | $ | 1,612 | | | $ | 131,199 | |
| | | | | | | | | | | | | | | | | |
Other than temporary impairment of available for sale securities
As of December 31, 2008, we owned three collateralized debt obligation investment securities collateralized by debt obligations of homebuilders, REITs, real estate companies and commercial mortgage backed securities with an aggregate original cost of $10.0 million. In determining the estimated fair value of these securities, we utilize a discounted cash flow modeling valuation approach which is discussed in greater detail in the section of management’s discussion and analysis that follows entitled “FASB Statement 157”. These securities are floating rate securities which were rated “A” or better by an independent and nationally recognized rating agency at the time of our purchase. In late December 2007, these securities were downgraded below investment grade by a nationally recognized rating agency. Due to the ratings downgrade, and the amount of unrealized loss, management concluded that the loss of value was other than temporary under generally accepted accounting principles and the Company wrote these investment securities down to their estimated fair value. This resulted in the recognition of other than temporary impairment loss of $3.9 million in 2007. During 2008, the estimated fair value of these securities declined further due to the occurrence of additional defaults by certain underlying issuers and changes in the cash flow and discount rate assumptions used to estimate the value of these securities. During 2008, we concluded that the further declines in values were other than temporary under generally accepted accounting principles. Accordingly, we wrote-down these investment securities by an additional $5.3 million. These additional write downs include the complete write off of two of the three securities, with an original cost of $2.0 million each. The third security, with an original cost of $6.0 million is valued at an estimated fair value of $763,000 as of December 31, 2008.
Additionally, during 2007, the market value of an investment in equity securities, which the Company originally acquired in 2003 for $3.0 million to obtain community reinvestment credit, of a publicly owned company declined significantly. During 2007, management determined that the decline was other than temporary; accordingly, we wrote this investment down by $1.8 million. Due to significant further declines in market value during 2008, we wrote this investment down further by $1.1 million in 2008 and decided to sell a portion of this investment in December 2008 to ensure we would fully realize the associated capital loss carryback potential for Federal income tax purposes. In doing so, we recognized an additional realized loss of approximately $124,000 upon the partial disposition of this investment.
The write downs described above resulted in total recognized other than temporary impairment losses of $6.4 million during 2008 and $5.7 million during 2007. During 2006 no other than temporary impairment losses were recorded.
We regularly review each investment security for impairment based on criteria that include the extent to which cost exceeds the estimated fair value, the duration of that market decline, the financial health of and specific prospects for the issuer(s) and our ability and intention with regard to holding the security to maturity. Future declines in the fair value of these or other securities may result in additional impairment charges which may be material to the financial condition and results of operations of the Company.
Deposits
The following table presents the average amount outstanding and the average rate paid on deposits by us for the years ended December 31, 2008, 2007, and 2006.
| | | 2008 | | | 2007 | | | 2006 | |
| (Dollars in thousands) | | Average Amount | | | Average Rate | | | Average Amount | | | Average Rate | | | Average Amount | | | Average Rate | |
| Non-interest bearing deposits | | $ | 146,158 | | | | | | $ | 163,478 | | | | | | $ | 174,798 | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Interest-bearing deposits | | | | | | | | | | | | | | | | | | | | | |
| NOW Accounts | | | 172,520 | | | | 1.70 | % | | | 151,745 | | | | 3.27 | % | | | 131,386 | | | | 2.66 | % |
| Money market | | | 151,273 | | | | 2.41 | % | | | 186,996 | | | | 4.15 | % | | | 166,501 | | | | 3.58 | % |
| Savings deposit | | | 52,896 | | | | 1.26 | % | | | 55,360 | | | | 1.75 | % | | | 48,897 | | | | 0.71 | % |
| Time deposits | | | 591,723 | | | | 4.28 | % | | | 486,658 | | | | 4.97 | % | | | 477,204 | | | | 4.58 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 1,114,570 | | | | 2.92 | % | | $ | 1,044,237 | | | | 3.63 | % | | $ | 998,786 | | | | 3.17 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
The following table presents the maturity of our time deposits at December 31, 2008:
| (Dollars in thousands) | | Deposits $100 and Greater | | | Deposits Less than $100 | | | Total | |
| Months to maturity: | | | | | | | | | |
| 3 or less | | $ | 64,424 | | | $ | 198,437 | | | $ | 262,861 | |
| 4 to 6 | | | 37,213 | | | | 57,072 | | | | 94,285 | |
| 7 through 12 | | | 85,013 | | | | 132,061 | | | | 217,074 | |
| Over 12 | | | 54,361 | | | | 60,094 | | | | 114,455 | |
| Total | | $ | 241,011 | | | $ | 447,664 | | | $ | 688,675 | |
| | | | | | | | | | | | | |
Off-Balance Sheet Arrangements and Contractual Obligations
Our off-balance sheet arrangements and contractual obligations at December 31, 2008 are summarized in the table that follows. The amounts shown for commitments to extend credit and letters of credit are contingent obligations, some of which are expected to expire without being drawn upon. As a result, the amounts shown for these items do not necessarily represent future cash requirements. We believe that our current sources of liquidity are more than sufficient to fulfill the obligations we have as of December 31, 2008 pursuant to off-balance sheet arrangements and contractual obligations.
| | | Amount of Commitment Expiration Per Period | |
| (Dollars in thousands) | | Total Amounts Committed | | | One Year or Less | | | Over One Year Through Three Years | | | Over Three Years Through Five Years | | | Over Five Years | |
| Off-balance sheet arrangements | | | | | | | | | | | | | | | |
Commitments to extend credit | | $ | 103,463 | | | $ | 56,955 | | | $ | 10,433 | | | $ | 4,699 | | | $ | 31,376 | |
Standby letters of credit | | | 2,542 | | | | 2,388 | | | | 154 | | | | - | | | | - | |
| Total | | $ | 106,005 | | | $ | 59,343 | | | $ | 10,587 | | | $ | 4,699 | | | $ | 31,376 | |
| | | | | | | | | | | | | | | | | | | | | |
| Contractual obligations | | | | | | | | | | | | | | | | | | | | |
Time deposits | | $ | 688,675 | | | $ | 574,220 | | | $ | 110,403 | | | $ | 4,052 | | | $ | - | |
Operating lease obligations | | | 5,208 | | | | 915 | | | | 1,576 | | | | 678 | | | | 2,039 | |
Purchase obligations | | | 12,530 | | | | 2,183 | | | | 4,828 | | | | 5,519 | | | | - | |
| FHLB Advances | | | 202,900 | | | | 74,150 | | | | 62,500 | | | | 66,250 | | | | - | |
Long-term debt | | | 63,000 | | | | - | | | | 30,000 | | | | - | | | | 33,000 | |
Other long-term liabilities reflected on the balance sheet under GAAP | | | 4,927 | | | | 3,245 | | | | 63 | | | | 143 | | | | 1,476 | |
| Total | | $ | 977,240 | | | $ | 654,713 | | | $ | 209,370 | | | $ | 76,642 | | | $ | 36,515 | |
| | | | | | | | | | | | | | | | | | | | | |
The Banks are party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of their customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets.
The Banks’ exposure to credit loss in the event of nonperformance by the other party to financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of these instruments. The Banks use the same credit policies in making commitments to extend credit and generally use the same credit policies for letters of credit as they do for on-balance sheet instruments.
Commitments to extend credit are legally binding agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since some of these commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. Unused commercial lines of credit, which comprise a substantial portion of these commitments, generally expire within a year from their date of origination. Other loan commitments generally expire in 30 days. The amount of collateral obtained, if any, by the Banks upon extension of credit is based on management’s credit evaluation of the borrower. Collateral held varies but may include security interests in business assets, mortgages on commercial and residential real estate, deposit accounts with the Banks or other financial institutions, and securities.
Standby letters of credit are conditional commitments issued by the Banks to assure the performance or financial obligations of a customer to a third party. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loans to customers. The Banks generally hold collateral and/or obtain personal guarantees supporting these commitments.
The Banks are obligated under operating leases for office and banking premises which expire in periods varying from one to nineteen years. Future minimum lease payments, before considering renewal options that generally are present, total $5.2 million at December 31, 2008.
Purchase obligations consist of computer and item processing services, and debit and ATM card processing and support services contracted by the Company under long term contractual relationships and based upon estimated utilization.
Long term debt, at December 31, 2008, consists of subordinated debentures totaling $33.0 million and securities sold under repurchase agreement totaling $30.0 million. These borrowings are further described in Note 10 of the Consolidated Financial Statements.
The Banks have invested in FHLB stock for the purpose of establishing credit lines with the FHLB. The credit availability to the Banks is based on the amount of collateral pledged. FHLB advances total $202.9 million at December 31, 2008. These borrowings are further described in Note 9 of the Consolidated Financial Statements.
Other long-term liabilities represent obligations under the non-qualified retirement plan for the Company’s directors and the non-qualified deferred compensation arrangement with certain of the Company’s executive officers. Under the director retirement plan, the Company pays each participant, or their beneficiary, the amount of board compensation fees that the director has elected to defer and interest in 120 equal monthly installments, beginning the month following the director’s normal retirement date. The amount presented above reflects the future obligation to be paid, assuming no future fee deferrals. Under the executive deferred compensation plan, the Company pays each participant, or their beneficiary, up to 43% of the executive’s highest compensation level in the three years immediately preceding the date of termination of employment for periods of 10 to 15 years. The amount presented reflects the amount vested in this plan as of December 31, 2008.
In December 2008, the Company entered into amended and restated deferred fee agreements with certain members of the Company’s Board of Directors (the “Directors”) and approved amendments to certain employment agreements and approved revised executive salary continuation and deferred compensation agreements (collectively, the “Agreements”). The Agreements were primarily amended in order to bring each agreement into compliance with the provisions of section 409A of the Internal Revenue Code. Section 409A of the Internal Revenue Code provides a one-time election for participants in deferred compensation agreements to receive a lump sum payment provided the payment is made in 2009 and no later than March 14, 2009. The Directors’ agreements and the agreement of one employee contained such an election provision and, in connection therewith, the Directors and employee elected to receive lump sum distributions in 2009 of the amount vested, accrued and earned through December 31, 2008. A total of $3.2 million was paid during the first quarter of 2009 to these individuals. These elections were made in connection with each individual’s personal tax planning strategy and will result in an elimination of the future expenses that would have been incurred by the Company in connection with the Agreements, had the elections not been made.
Capital Adequacy
There are various primary measures of capital adequacy for banks and financial holding companies such as risk based capital guidelines and the leverage capital ratio. See Note 14 to the Consolidated Financial Statements.
As of December 31, 2008, the Banks exceeded the levels of capital required in order to be categorized by the FDIC as well capitalized under the regulatory framework for prompt corrective action. The risk-based capital ratios of Tier 1 capital to risk-weighted assets were 9.3% and 11.2%, the risk-based ratios of total capital to risk-weighted assets were 10.5% and 12.4%, and the leverage ratios were 7.3% and 8.1% for TIB Bank and The Bank of Venice, respectively.
On December 5, 2008, the Company issued $37 million of preferred stock and related a warrant to the U.S. Treasury under the U.S. Treasury’s Capital Purchase Program. As a result of this action, the Company strengthened its levels of capital under capital adequacy guidelines. As of December 31, 2008, the Company’s risk-based capital ratio of Tier 1 capital to risk-weighted assets was 11.3%, its risk-based ratio of total capital to risk-weighted assets was 12.6%, and its leverage ratio was 8.9%.
As previously discussed, in March 2008, we sold 1.2 million shares of our common stock and warrants to purchase an additional 1.2 million shares resulting in gross proceeds of $10.1 million. This strengthens our capital to support future growth and expansion.
We believe that our capital is adequate in the near term. However, if we incur significant operating losses or we grow our assets faster than our current plans, then we may need to obtain additional capital to support our business plans and operations.
Inflation
Inflation has an important impact on the growth of total assets in the banking industry and causes a need to increase equity capital higher than normal levels in order to maintain an appropriate equity to assets ratio. We have been able to maintain an adequate level of equity, as previously mentioned and cope with the effects of inflation by managing our interest rate sensitivity position through our asset/liability management program, and by periodically adjusting our pricing of services and banking products to take into consideration current costs.
Critical Accounting Policies
In reviewing and understanding financial information for the Company, you are encouraged to read and understand the significant accounting policies which are used in preparing the consolidated financial statements of the Company. These policies are described in Note 1 to the Consolidated Financial Statements. Of these policies, management believes that the accounting for the allowance for loan losses and the impairment of investment securities are the most critical.
Losses on loans result from a broad range of causes from borrower specific problems, to industry issues, to the impact of the economic environment. The identification of these factors that lead to default or non-performance under a borrower loan agreement and the estimation of loss in these situations are very subjective. In addition, a dramatic change in the performance of one or a small number of borrowers can have a significant impact on the estimate of losses. As described above under the “Allowance and Provision for Loan Losses” heading, management has implemented a process that has been applied consistently to systematically consider the many variables that impact the estimation of the allowance for loan losses.
Impairment of investment securities results in a write-down that must be included in net income when a market decline below cost is other-than-temporary. We regularly review each investment security for impairment based on criteria that include the extent to which cost exceeds market price, the duration of that market decline, the financial health of and specific prospects for the issuer(s) and our ability and intention with regard to holding the security to maturity.
Market risk is the risk that a financial institution’s earnings and capital, or its ability to meet its business objectives, will be adversely affected by movements in market rates or prices such as interest rates, foreign exchange rates, equity rates, equity prices, credit spreads and/or commodity prices. The Company has assessed its market risk as predominately interest rate risk.
The interest rate risk as of December 31, 2008 was analyzed using simulation analysis of the Company’s sensitivity to changes in net interest income under varying assumptions for changes in market interest rates. The Banks use standardized assumptions run against Bank data by an outsourced provider of Asset Liability modeling. The model derives expected interest income and interest expense resulting from an immediate +/- 2% parallel shift in the yield curve. The +/- steepening/twist of the yield curve is “ramped” over a twelve month period. The standard parallel yield curve shift is used to estimate risk related to the level of interest rates, while the non-parallel yield curve twist is used to estimate risk related to the level of interest rates and changes in the slope of the yield curve.
Yield curve twists change both the level and slope of the yield curve and are more realistic than parallel yield curve shifts and are more useful for planning purposes. As an example, a 50 basis point yield twist decrease would result in short term rates remaining flat and long tern rates decreasing approximately 50 basis points over a 12 month period. Given the current interest rate environment, a 50 basis point yield curve twist decrease is considered reasonable.
The analysis indicates a 200 basis point parallel interest rate increase would result in a decrease in net interest income of approximately $3,226,000 or 7% over a twelve month period. While a 200 basis point parallel interest rate decrease would result in an increase in net interest income of approximately $2,801,000 or 6% over a twelve month period. Additionally, a 50 basis point yield curve twist decrease would result in a decrease in net interest income of approximately $166,000 or less than 1% over a twelve month period.
The projected impact on our net interest income of a 200 basis point parallel increase and decrease, respectively, of the yield curve and a 50 basis point yield curve twist decrease of short-term rates are summarized below. A comparison of the effect on net interest income of these interest rate scenarios based on our assets and liability positions at September 30, 2008 and December 31, 2008 is presented.
| | | December 31, 2008 | | | September 20,2008 | |
| | | Parallel Shift | | | Twist | | | Parallel Shift | | | Twist | |
| Twelve Month Period | | | -2% | | +2% | | | | -.5% | | | | -2% | | +2% | | | | -.5% | |
| | | | | | | | | | | | | | | | | | | |
| Percentage change in net interest income | | | +6% | | -7% | | | | +1% | | | | Nominal | | -3% | | | | +1% | |
We attempt to manage and moderate the variability of our net interest income due to changes in the level of interest rates and the slope of the yield curve by generating adjustable rate loans and managing the interest rate sensitivity of our investment securities, wholesale funding, and Fed Funds positions consistent with the re-pricing characteristics of our deposits and other interest bearing liabilities
The consolidated financial statements, notes thereto and report of independent registered public accounting firm thereon included on the following pages are incorporated herein by reference.
Index to Consolidated Financial Statements
Board of Directors and Shareholders
TIB Financial Corp.
Naples, Florida
We have audited the accompanying consolidated balance sheets of TIB Financial Corp. as of December 31, 2008 and 2007, and the related consolidated statements of operations, changes in shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2008. We also have audited the Company's internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Annual Report on Internal Control Over Financial Reporting contained in Item 9A.(b) of the accompanying Form 10-K. Management’s assessment excluded internal control over financial reporting for Naples Capital Advisors, Inc., which was acquired on January 2, 2008, as allowed by the SEC for current year acquisitions. Our responsibility is to express an opinion on these financial statements and an opinion on the Company's internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included 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. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of TIB Financial Corp. as of December 31, 2008 and 2007, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
/s/ Crowe Horwath LLP
Crowe Horwath LLP
Fort Lauderdale, Florida
March 16, 2009
TIB Financial Corp. and Subsidiaries
As of December 31,
| (Dollars in thousands, except per share data) | | 2008 | | | 2007 | |
Assets | | | | | | |
| Cash and due from banks | | $ | 69,607 | | | $ | 22,315 | |
| Federal funds sold and securities purchased under agreements to resell | | | 4,127 | | | | 48,744 | |
| Cash and cash equivalents | | | 73,734 | | | | 71,059 | |
| | | | | | | | | |
| Investment securities available for sale | | | 225,770 | | | | 160,357 | |
| | | | | | | | | |
| Loans, net of deferred loan costs and fees | | | 1,224,975 | | | | 1,129,156 | |
| Less: Allowance for loan losses | | | 23,783 | | | | 14,973 | |
| Loans, net | | | 1,201,192 | | | | 1,114,183 | |
| | | | | | | | | |
| Premises and equipment, net | | | 38,326 | | | | 38,284 | |
| Goodwill | | | 5,160 | | | | 4,686 | |
| Intangible assets, net | | | 3,010 | | | | 2,772 | |
| Accrued interest receivable and other assets | | | 62,922 | | | | 53,398 | |
| Total assets | | $ | 1,610,114 | | | $ | 1,444,739 | |
| | | | | | | | | |
| Liabilities and Shareholders’ Equity | | | | | | | | |
| Liabilities | | | | | | | | |
| Deposits: | | | | | | | | |
| Noninterest-bearing demand | | $ | 128,384 | | | $ | 143,381 | |
| Interest-bearing | | | 1,007,284 | | | | 906,577 | |
| Total deposits | | | 1,135,668 | | | | 1,049,958 | |
| | | | | | | | | |
| Federal Home Loan Bank (FHLB) advances | | | 202,900 | | | | 140,000 | |
| Short-term borrowings | | | 71,423 | | | | 77,922 | |
| Long-term borrowings | | | 63,000 | | | | 63,000 | |
| Accrued interest payable and other liabilities | | | 16,009 | | | | 17,619 | |
| Total liabilities | | | 1,489,000 | | | | 1,348,499 | |
| | | | | | | | | |
| Commitments and Contingencies (Notes 1, 6 and 16) | | | | | | | | |
| | | | | | | | | |
| Shareholders’ Equity | | | | | | | | |
| Preferred stock – $.10 par value: 5,000,000 shares authorized, 37,000 and 0 shares issued and outstanding | | | 32,920 | | | | - | |
| Common stock - $.10 par value: 40,000,000 shares authorized, 14,529,003 and 13,241,256 shares issued, 14,457,708 and 13,169,961 outstanding | | | 1,453 | | | | 1,324 | |
| Additional paid in capital | | | 73,192 | | | | 56,094 | |
| Retained earnings | | | 14,737 | | | | 39,151 | |
| Accumulated other comprehensive income (loss) | | | (619 | ) | | | 240 | |
| Treasury stock, at cost, 71,295 shares | | | (569 | ) | | | (569 | ) |
| Total shareholders’ equity | | | 121,114 | | | | 96,240 | |
| | | | | | | | | |
| Total Liabilities and Shareholders’ Equity | | $ | 1,610,114 | | | $ | 1,444,739 | |
| | | | | | | | | |
| See accompanying notes to consolidated financial statements | |
TIB Financial Corp. and Subsidiaries
Years Ended December 31,
| (Dollars in thousands, except per share data) | | 2008 | | | 2007 | | | 2006 | |
| Interest and dividend income | | | | | | | | | |
| Loans, including fees | | $ | 77,875 | | | $ | 84,773 | | | $ | 78,379 | |
| Investment securities: | | | | | | | | | | | | |
| U.S. Treasury securities | | | - | | | | 152 | | | | 170 | |
| U.S. Government agencies and corporations | | | 7,610 | | | | 5,404 | | | | 4,207 | |
| States and political subdivisions, tax-exempt | | | 316 | | | | 396 | | | | 422 | |
| States and political subdivisions, taxable | | | 150 | | | | 157 | | | | 163 | |
| Other investments | | | 385 | | | | 1,193 | | | | 847 | |
| Interest-bearing deposits in other banks | | | 104 | | | | 19 | | | | 22 | |
| Federal Home Loan Bank stock | | | 350 | | | | 503 | | | | 285 | |
| Federal funds sold and securities purchased under agreements to resell | | | 1,374 | | | | 2,144 | | | | 739 | |
| Total interest and dividend income | | | 88,164 | | | | 94,741 | | | | 85,234 | |
| | | | | | | | | | | | | |
| Interest expense | | | | | | | | | | | | |
| Interest-bearing demand and money market | | | 6,581 | | | | 12,721 | | | | 9,459 | |
| Savings | | | 669 | | | | 968 | | | | 346 | |
| Time deposits of $100 or more | | | 10,296 | | | | 12,622 | | | | 11,713 | |
| Other time deposits | | | 15,050 | | | | 11,549 | | | | 10,139 | |
| Long-term debt - subordinated debentures | | | 2,267 | | | | 2,708 | | | | 2,045 | |
| Federal Home Loan Bank advances | | | 6,058 | | | | 6,197 | | | | 3,415 | |
| Short-term borrowings | | | 1,392 | | | | 1,664 | | | | 687 | |
| Long-term borrowings | | | 1,191 | | | | 292 | | | | 367 | |
| Total interest expense | | | 43,504 | | | | 48,721 | | | | 38,171 | |
| | | | | | | | | | | | | |
| Net interest income | | | 44,660 | | | | 46,020 | | | | 47,063 | |
| Provision for loan losses | | | 28,239 | | | | 9,657 | | | | 3,491 | |
| Net interest income after provision for loan losses | | | 16,421 | | | | 36,363 | | | | 43,572 | |
| | | | | | | | | | | | | |
| Non-interest income | | | | | | | | | | | | |
| Service charges on deposit accounts | | | 2,938 | | | | 2,692 | | | | 2,457 | |
| Investment securities losses, net | | | (5,349 | ) | | | (5,660 | ) | | | - | |
| Fees on mortgage loans sold | | | 775 | | | | 1,446 | | | | 1,599 | |
| Investment advisory fees | | | 555 | | | | - | | | | - | |
| Other income | | | 1,865 | | | | 2,884 | | | | 2,219 | |
| Total non-interest income | | | 784 | | | | 1,362 | | | | 6,275 | |
| | | | | | | | | | | | | |
| Non-interest expense | | | | | | | | | | | | |
| Salaries and employee benefits | | | 24,534 | | | | 22,550 | | | | 20,205 | |
| Net occupancy and equipment expense | | | 8,539 | | | | 7,979 | | | | 6,120 | |
| Other expense | | | 17,915 | | | | 11,392 | | | | 9,508 | |
| Total non-interest expense | | | 50,988 | | | | 41,921 | | | | 35,833 | |
| | | | | | | | | | | | | |
| Income (loss) from continuing operations before income taxes | | | (33,783 | ) | | | (4,196 | ) | | | 14,014 | |
| | | | | | | | | | | | | |
| Income tax expense (benefit) | | | (12,853 | ) | | | (1,775 | ) | | | 5,021 | |
| | | | | | | | | | | | | |
| Income (loss) from continuing operations | | | (20,930 | ) | | | (2,421 | ) | | | 8,993 | |
| | | | | | | | | | | | | |
TIB Financial Corp. and Subsidiaries
Consolidated Statements of Operations
Years Ended December 31,
(Continued)
| (Dollars in thousands, except per share data) | | 2008 | | | 2007 | | | 2006 | |
| Discontinued operations | | | | | | | | | |
| Income from merchant bankcard operations | | | - | | | | - | | | | 414 | |
| Income tax expense | | | - | | | | - | | | | 160 | |
| | | | | | | | | | | | | |
| Income from discontinued operations | | | - | | | | - | | | | 254 | |
| | | | | | | | | | | | | |
| Net income (loss) | | $ | (20,930 | ) | | $ | (2,421 | ) | | $ | 9,247 | |
| | | | | | | | | | | | | |
| Income earned by preferred shareholders | | | 165 | | | | - | | | | - | |
| | | | | | | | | | | | | |
| Net income (loss) allocated to common shareholders | | $ | (21,095 | ) | | $ | (2,421 | ) | | $ | 9,247 | |
| | | | | | | | | | | | | |
| Basic earnings (loss) per common share | | | | | | | | | | | | |
| Continuing operations | | $ | (1.49 | ) | | $ | (0.19 | ) | | $ | 0.75 | |
| Discontinued operations | | | - | | | | - | | | | 0.02 | |
| Basic earnings (loss) per share | | $ | (1.49 | ) | | $ | (0.19 | ) | | $ | 0.77 | |
| | | | | | | | | | | | | |
| Diluted earnings (loss) per common share | | | | | | | | | | | | |
| Continuing operations | | $ | (1.49 | ) | | $ | (0.19 | ) | | $ | 0.73 | |
| Discontinued operations | | | - | | | | - | | | | 0.02 | |
| Diluted earnings (loss) per share | | $ | (1.49 | ) | | $ | (0.19 | ) | | $ | 0.75 | |
| | | | | | | | | | | | | |
| See accompanying notes to consolidated financial statements | |
TIB Financial Corp. and Subsidiaries
(Dollars in thousands, except per share data)
| | | Preferred Stock | | | Common Shares | | | Common Stock | | | Additional Paid in Capital | | | Retained Earnings | | | Accumulated Other Comprehensive Income (Loss) | | | Treasury Stock | | | Total Shareholders’ Equity | |
| Balance, January 1, 2006 | | $ | - | | | | 11,935,700 | | | $ | 1,194 | | | $ | 38,937 | | | $ | 38,136 | | | $ | (743 | ) | | $ | - | | | $ | 77,524 | |
| Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | | | | | | | | | | | | | | | | | 9,247 | | | | | | | | | | | | 9,247 | |
| Other comprehensive income, net of tax expense of $170: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net market valuation adjustment on securities available for sale | | | | | | | | | | | | | | | | | | | | | | | 299 | | | | | | | | | |
| Other comprehensive income, net of tax | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 299 | |
| Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 9,546 | |
Restricted stock grants, net of 10,303 restricted stock cancellations | | | | | | | 355 | | | | - | | | | | | | | | | | | | | | | | | | | - | |
| Registration statement costs | | | | | | | | | | | | | | | (5 | ) | | | | | | | | | | | | | | | (5 | ) |
| Exercise of stock options | | | | | | | 139,076 | | | | 14 | | | | 832 | | | | | | | | | | | | | | | | 846 | |
| Stock-based compensation and related tax effect | | | | | | | | | | | | | | | 714 | | | | | | | | | | | | | | | | 714 | |
| Cash dividends declared, $.2293 per share | | | | | | | | | | | | | | | | | | | (2,763 | ) | | | | | | | | | | | (2,763 | ) |
| Balance, December 31, 2006 | | $ | - | | | | 12,075,131 | | | $ | 1,208 | | | $ | 40,478 | | | $ | 44,620 | | | $ | (444 | ) | | $ | - | | | $ | 85,862 | |
| Comprehensive loss: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net loss | | | | | | | | | | | | | | | | | | | (2,421 | ) | | | | | | | | | | | (2,421 | ) |
| Other comprehensive income, net of tax expense of $429: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net market valuation adjustment on securities available for sale | | | | | | | | | | | | | | | | | | | | | | | (2,846 | ) | | | | | | | | |
| Add: reclassification adjustment for losses net of tax benefit of 2,130 | | | | | | | | | | | | | | | | | | | | | | | 3,530 | | | | | | | | | |
| Other comprehensive income, net of tax | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 684 | |
| Comprehensive loss | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | (1,737 | ) |
| Restricted stock grants | | | | | | | 37,768 | | | | 4 | | | | (4 | ) | | | | | | | | | | | | | | | - | |
| The Bank of Venice acquisition | | | | | | | 973,015 | | | | 97 | | | | 13,858 | | | | | | | | | | | | | | | | 13,955 | |
| Exercise of stock options | | | | | | | 155,342 | | | | 15 | | | | 1,093 | | | | | | | | | | | | | | | | 1,108 | |
| Purchase of treasury stock | | | | | | | (71,295 | ) | | | | | | | | | | | | | | | | | | | (569 | ) | | | (569 | ) |
| Stock-based compensation and related tax effect | | | | | | | | | | | | | | | 669 | | | | | | | | | | | | | | | | 669 | |
| Cash dividends declared, $.2353 per common share | | | | | | | | | | | | | | | | | | | (3,048 | ) | | | | | | | | | | | (3,048 | ) |
| Balance, December 31, 2007 | | $ | - | | | | 13,169,961 | | | $ | 1,324 | | | $ | 56,094 | | | $ | 39,151 | | | | 240 | | | $ | (569 | ) | | $ | 96,240 | |
Continued
TIB Financial Corp. and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity
(Dollars in thousands, except per share data)
(Continued)
| | | Preferred Shares | | | Preferred Stock | | | Common Shares | | | Common Stock | | | Additional Paid in Capital | | | Retained Earnings | | | Accumulated Other Comprehensive Income (Loss) | | | Treasury Stock | | | Total Shareholders’ Equity | |
| Balance, December 31, 2007 | | | | | $ | - | | | | 13,169,961 | | | $ | 1,324 | | | $ | 56,094 | | | $ | 39,151 | | | $ | 240 | | | $ | (569 | ) | | $ | 96,240 | |
| Cumulative-effect adjustment for split-dollar life insurance postretirement benefit | | | | | | | | | | | | | | | | | | | | | | (141 | ) | | | | | | | | | | | (141 | ) |
| Comprehensive loss: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net loss | | | | | | | | | | | | | | | | | | | | | | (20,930 | ) | | | | | | | | | | | (20,930 | ) |
| Other comprehensive income, net of tax benefit of $523: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net market valuation adjustment on securities available for sale | | | | | | | | | | | | | | | | | | | | | | | | | | (4,195 | ) | | | | | | | | |
| Add: reclassification adjustment for losses, net of tax benefit of $2,013 | | | | | | | | | | | | | | | | | | | | | | | | | | 3,336 | | | | | | | | | |
| Other comprehensive loss, net of tax | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (859 | ) |
| Comprehensive loss | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | (21,789 | ) |
| Restricted stock grants, net of 1,432 cancellations | | | | | | | | | | 36,138 | | | | 4 | | | | (4 | ) | | | | | | | | | | | | | | | - | |
| Private placement of common shares | | | | | | | | | | 1,236,361 | | | | 123 | | | | 9,813 | | | | | | | | | | | | | | | | 9,936 | |
| Exercise of stock options | | | | | | | | | | 15,248 | | | | 2 | | | | 96 | | | | | | | | | | | | | | | | 98 | |
| Preferred stock issued with common stock warrants | | 37,000 | | | $ | 32,889 | | | | | | | | | | | | 4,103 | | | | | | | | | | | | | | | | 36,992 | |
| Preferred stock discount accretion | | | | | | 31 | | | | | | | | | | | | | | | | (31 | ) | | | | | | | | | | | - | |
| Stock-based compensation and related tax effect | | | | | | | | | | | | | | | | | | 655 | | | | | | | | | | | | | | | | 655 | |
| Common stock dividends declared, 1% | | | | | | | | | | | | | | | | | | 2,435 | | | | (2,437 | ) | | | | | | | | | | | (2 | ) |
| Cash dividends declared, $.0607 per common share | | | | | | | | | | | | | | | | | | | | | | (875 | ) | | | | | | | | | | | (875 | ) |
| Balance, December 31, 2008 | | 37,000 | | | $ | 32,920 | | | | 14,457,708 | | | $ | 1,453 | | | $ | 73,192 | | | $ | 14,737 | | | $ | (619 | ) | | $ | (569 | ) | | $ | 121,114 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| See accompanying notes to consolidated financial statements |
TIB Financial Corp. and Subsidiaries
(Dollars in thousands)
| | | Years Ended December 31, | |
| | | 2008 | | | 2007 | | | 2006 | |
| Cash flows from operating activities: | | | | | | | | | |
| Net (loss) income | | $ | (20,930 | ) | | $ | (2,421 | ) | | $ | 9,247 | |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | | | | | | |
| Depreciation and amortization | | | 4,008 | | | | 3,328 | | | | 2,642 | |
| Provision for loan losses | | | 28,239 | | | | 9,657 | | | | 3,491 | |
| Deferred income tax benefit | | | (4,848 | ) | | | (4,472 | ) | | | (1,168 | ) |
| Investment securities net realized losses | | | 5,349 | | | | 5,660 | | | | - | |
| Gain on sale of merchant bankcard processing segment | | | - | | | | - | | | | (414 | ) |
| Stock based compensation | | | 737 | | | | 646 | | | | 564 | |
| Other | | | (280 | ) | | | (834 | ) | | | 162 | |
| Mortgage loans originated for sale | | | (42,518 | ) | | | (90,818 | ) | | | (105,248 | ) |
| Proceeds from sales of mortgage loans | | | 46,836 | | | | 91,218 | | | | 105,412 | |
| Fees on mortgage loans sold | | | (767 | ) | | | (1,434 | ) | | | (1,599 | ) |
| Increase in accrued interest receivable and other assets | | | (4,913 | ) | | | (5,022 | ) | | | (2,491 | ) |
| (Increase) decrease in accrued interest payable and other liabilities | | | (869 | ) | | | (1,738 | ) | | | 1,009 | |
| Net cash provided by operating activities | | | 10,044 | | | | 3,770 | | | | 11,607 | |
| | | | | | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | | | | | |
| Purchases of investment securities available for sale | | | (160,943 | ) | | | (71,669 | ) | | | (42,532 | ) |
| Sales of investment securities available for sale | | | 51,135 | | | | 5,491 | | | | - | |
| Repayments of principal and maturities of investment securities available for sale | | | 37,696 | | | | 34,863 | | | | 9,296 | |
| Acquisition of Naples Capital Advisors business | | | (1,378 | ) | | | - | | | | - | |
| Cash equivalents acquired from The Bank of Venice acquisition | | | - | | | | 10,176 | | | | - | |
| Cash paid for The Bank of Venice | | | - | | | | (888 | ) | | | - | |
| Net purchases of FHLB stock | | | (2,843 | ) | | | (673 | ) | | | (4,993 | ) |
| Loans originated or acquired, net of principal repayments | | | (117,411 | ) | | | (14,809 | ) | | | (188,238 | ) |
| Purchases of premises and equipment | | | (1,041 | ) | | | (5,265 | ) | | | (12,425 | ) |
| Proceeds from sales of loans | | | - | | | | 624 | | | | 7,439 | |
| Proceeds from disposal of premises, equipment and intangible assets | | | 39 | | | | 1,822 | | | | 1,638 | |
| Net cash used by investing activities | | | (194,746 | ) | | | (40,328 | ) | | | (229,815 | ) |
| | | | | | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | | | | | |
| Net increase (decrease) in demand, money market and savings accounts | | | (90,211 | ) | | | 9,614 | | | | 12,838 | |
| Net increase (decrease) in time deposits | | | 175,921 | | | | (46,828 | ) | | | 96,195 | |
| Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase | | | (6,499 | ) | | | 55,672 | | | | 4,966 | |
| Increase in short term FHLB advances | | | 70,000 | | | | - | | | | 50,000 | |
| Increase in long term FHLB advances | | | 92,900 | | | | 60,000 | | | | 75,000 | |
| Repayment of long term FHLB advances | | | (100,000 | ) | | | (50,000 | ) | | | (25,000 | ) |
| Proceeds from long term repurchase agreements | | | - | | | | 30,000 | | | | - | |
| Repayment of notes payable | | | - | | | | (4,000 | ) | | | - | |
| Income tax effect of stock-based compensation | | | (82 | ) | | | 21 | | | | 150 | |
| Net proceeds from issuance of common shares | | | 10,033 | | | | 1,108 | | | | 846 | |
| Proceeds from issuance of trust preferred securities | | | - | | | | - | | | | 19,995 | |
| Repurchase of company common stock | | | - | | | | (569 | ) | | | - | |
| Net proceeds from issuance of preferred stock and common warrants | | | 36,992 | | | | - | | | | - | |
| Cash dividends paid | | | (1,677 | ) | | | (2,953 | ) | | | (2,740 | ) |
| Net cash provided by financing activities | | | 187,377 | | | | 52,065 | | | | 232,250 | |
| | | | | | | | | | | | | |
| Net increase in cash and cash equivalents | | | 2,675 | | | | 15,507 | | | | 14,042 | |
| Cash and cash equivalents at beginning of year | | | 71,059 | | | | 55,552 | | | | 41,510 | |
| Cash and cash equivalents at end of year | | $ | 73,734 | | | $ | 71,059 | | | $ | 55,552 | |
(Continued)
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Continued)
| | | Years Ended December 31, | |
| | | 2008 | | | 2007 | | | 2006 | |
| Supplemental disclosures of cash paid: | | | | | | | | | |
| Interest | | $ | 44,504 | | | $ | 50,678 | | | $ | 33,983 | |
| Income taxes | | | 125 | | | | 4,193 | | | | 10,330 | |
| | | | | | | | | | | | | |
| Supplemental disclosures of non-cash transactions: | | | | | | | | | | | | |
| Financing of sale of premises and equipment to third parties | | $ | 60 | | | $ | - | | | $ | 2,136 | |
| Fair value of noncash assets acquired | | | 1,416 | | | | 68,458 | | | | - | |
| Fair value of liabilities assumed | | | 40 | | | | 63,882 | | | | - | |
| Fair value of common stock and stock options issued | | | - | | | | 13,992 | | | | - | |
| | | | | | | | | | | | | |
| See accompanying notes to consolidated financial statements | |
TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except per share data)
Principles of Consolidation and Nature of Operations
TIB Financial Corp. is a financial holding company headquartered in Naples, Florida. TIB Financial Corp. (the “Company”) is a multi-bank holding company which owns and operates TIB Bank and The Bank of Venice, with a total of twenty eight banking offices. On January 2, 2008, the Company acquired Naples Capital Advisors, Inc., a registered investment advisor. The consolidated financial statements include the accounts of TIB Financial Corp. (Parent Company) and its wholly-owned subsidiaries, TIB Bank and subsidiaries and The Bank of Venice (collectively the “Banks”) and Naples Capital Advisors, Inc. All significant inter-company accounts and transactions have been eliminated in consolidation. Additionally, TIBFL Statutory Trust I, TIBFL Statutory Trust II and TIBFL Statutory Trust III were formed in conjunction with the issuance of trust preferred securities as further discussed in Note 10.
The Banks are the Company’s primary operating subsidiaries. The Banks provide banking services from their twenty eight branch locations in Monroe, Miami-Dade, Collier, Lee, Highlands and Sarasota counties, Florida. The Banks offer a wide range of commercial and retail banking and financial services to businesses and individuals. Account services include checking, interest-bearing checking, money market, savings, certificates of deposit and individual retirement accounts. The Banks offer all types of commercial loans, including: owner-operated commercial real estate; acquisition, development and construction; income-producing properties; working capital; inventory and receivable facilities; and equipment loans. Consumer loan products include residential real estate, installment loans, home equity, home equity lines, and indirect auto loans.
The share and per share amounts discussed throughout this document have been adjusted to account for the effects of the three 1% stock dividends declared by the Board of Directors during 2008 which were distributed on July 17, 2008, October 10, 2008 and January 10, 2009, to all TIB Financial Corp. common shareholders of record as of July 7, 2008, September 30, 2008, and December 31, 2008, respectively. The Board of Directors will continue to evaluate our dividend policy in light of current and expected trends in our financial performance and financial condition.
The accounting and reporting policies of TIB Financial Corp. and subsidiaries conform to generally accepted accounting principles and to general practices within the banking industry. The following is a summary of the more significant of these policies.
Use of Estimates and Assumptions
To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ. A material estimate that is particularly susceptible to significant change in the near term is the allowance for loan losses. Another material estimate is the fair value and impairment of financial instruments. Changes in assumptions or in market conditions could significantly affect the fair value estimates.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash on hand, amounts due from banks, federal funds sold, and interest-bearing deposits at the Federal Home Loan Bank of Atlanta and the Federal Reserve Bank of Atlanta. Net cash flows are reported for customer loan and deposit transactions and short term borrowings.
Investment Securities and Other than Temporary Impairment
Investment securities which management has the ability and intent to hold to maturity are reported at amortized cost. Debt securities which may be sold prior to maturity are classified as available for sale and are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income. Other securities such as Federal Home Loan Bank stock are carried at cost and are included in other assets on the balance sheets.
Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments, except for mortgage backed securities where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method based on the amortized cost of the security sold.
Declines in the fair value of securities below their cost that are other than temporary are reflected as realized losses. In estimating other-than temporary losses, management considers: (1) the length of time and extent that fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, and (3) the Company’s ability and intent to hold the security for a period sufficient to allow for any anticipated recovery in fair value.
Occasionally, the Banks securitize residential real estate secured mortgages through the Federal Home Loan Mortgage Corporation (Freddie Mac). The Banks have, from time to time, retained the resulting securities. Prior to a securitization transaction, these loans are recorded as residential real estate loans and interest income is reported as interest income from loans. Subsequent to the transaction, if the securities are retained by the Banks, they are reported as mortgage-backed securities and interest income is reported as interest income from securities issued by U.S. Government agencies and corporations.
Loans
Loans are reported at the principal balance outstanding, net of deferred loan fees and costs, and an allowance for loan losses. Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan term. If the collectibility of interest appears doubtful, the accrual of interest is discontinued and all unpaid interest is reversed. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Loans Held for Sale
The majority of residential fixed rate mortgage loans originated by TIB Bank are sold servicing released to third parties immediately with temporary recourse provisions. The recourse provisions may require the repurchase of the outstanding balance of loans which default within a limited period of time subsequent to the sale of the loan. The recourse periods vary by investor and extend up to seven months subsequent to the sale of the loan. All fees are recognized as income at the time of the sale. Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or market, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings. TIB Bank has not historically experienced significant losses resulting from the recourse provisions described above. Accordingly, management believes that no such provision or allowance is necessary as of December 31, 2008 or 2007.
Allowance for Loan Losses
The allowance for loan losses is a valuation allowance for probable incurred credit losses, which is increased by the provision for loan losses and decreased by charge-offs less recoveries. Loan losses are charged against the allowance when management believes the uncollectiblity of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required based on factors including past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off.
The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired or loans otherwise classified as substandard or doubtful. The general component covers non-classified loans and is based on historical loss experience adjusted for current factors.
A loan is considered impaired when it is probable that not all principal and interest amounts will be collected according to the loan contract. Individual commercial and commercial real estate loans exceeding certain size thresholds established by management are individually evaluated for impairment. If a loan is considered to be impaired, a portion of the allowance is allocated so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Generally, large groups of smaller balance homogeneous loans, such as consumer, indirect, and residential real estate loans, are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures.
Premises and Equipment
Land is carried at cost. Premises and equipment are reported at cost less accumulated depreciation. For financial reporting purposes, depreciation is computed using the straight-line method over the estimated useful lives of the assets. Expenditures for maintenance and repairs are charged to operations as incurred, while major renewals and betterments are capitalized. For Federal income tax reporting purposes, depreciation is computed using primarily accelerated methods.
Foreclosed Assets
Assets acquired through, or in lieu of, loan foreclosure or repossession are held for sale and are initially recorded at fair value less cost to sell when acquired, establishing a new cost basis. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Costs incurred after acquisition are generally expensed.
Intangible Assets
Intangible assets include core deposit base premiums and customer relationship intangibles arising from acquisitions and are initially measured at fair value. The intangibles are being amortized using the straight-line method over estimated lives ranging from 3 to 15 years.
Long-lived Assets
Long-lived assets, including premises and equipment, core deposit and other intangible assets, are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.
Loan Commitments and Related Financial Instruments
Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.
Company Owned Life Insurance
The Company has purchased life insurance polices on certain key executives. These policies are recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement, if applicable.
Income Taxes
Income tax expense (or benefit) is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax basis of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws.
The Company adopted FASB Interpretation 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), as of January 1, 2007. A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The adoption had no affect on the Company’s financial statements.
Stock Splits and Stock Dividends
Stock splits and stock dividends in excess of 20% are reported by transferring the par value of the stock issued from retained earnings to common stock. Stock dividends for 20% or less are reported by transferring the fair value, as of the ex-dividend date, of the stock issued from retained earnings to common stock and additional paid-in capital. Fractional share amounts are paid in cash with a reduction in retained earnings.
Earnings (Loss) Per Common Share
Basic earnings (loss) per share is net income allocated to common shareholders divided by the weighted average number of common shares and vested restricted shares outstanding during the period. Diluted earnings per share includes the dilutive effect of additional potential common shares issuable under stock options, warrants and restricted shares computed using the treasury stock method.
Earnings (loss) per share have been computed based on the following for the years ended December 31:
| | | 2008 | | | 2007 | | | 2006 | |
| Weighted average number of common shares outstanding: | | | | | | | | | |
| Basic | | | 14,118,036 | | | | 12,671,768 | | | | 11,961,170 | |
| Dilutive effect of options outstanding | | | - | | | | - | | | | 274,071 | |
| Dilutive effect of restricted shares | | | - | | | | - | | | | 14,632 | |
| Dilutive effect of warrants outstanding | | | - | | | | - | | | | - | |
| Diluted | | | 14,118,036 | | | | 12,671,768 | | | | 12,249,873 | |
| | | | | | | | | | | | | |
The dilutive effect of stock options and warrants and the dilutive effect of unvested restricted shares are the only common stock equivalents for purposes of calculating diluted earnings per common share.
Weighted average anti-dilutive stock options and warrants and unvested restricted shares excluded from the computation of diluted earnings per share are as follows:
| | | 2008 | | | 2007 | | | 2006 | |
| Anti-dilutive stock options | | | 714,994 | | | | 661,875 | | | | 80,645 | |
| Anti-dilutive restricted stock awards | | | 97,816 | | | | 80,509 | | | | 314 | |
| Anti-dilutive warrants | | | 1,086,317 | | | | n/a | | | | n/a | |
Stock-Based Compensation
Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123(R), Share-based Payment, using the modified prospective transition method. Accordingly, the Company has recorded stock-based employee compensation cost using the fair value method starting in 2006.
Comprehensive Income
Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on securities available for sale which are also recognized as separate components of equity.
Securities Purchased Under Agreements to Resell and Securities Sold Under Agreements to Repurchase
Securities purchased under agreements to resell and securities sold under agreements to repurchase are generally accounted for as collateralized financing transactions and are recorded at the amounts at which the securities were acquired or sold plus accrued interest. The fair value of collateral either received from or provided to a third party is regularly monitored, and additional collateral is obtained, provided or requested to be returned as appropriate.
Loss Contingencies
Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there are currently any such matters that will have a material effect on the financial statements.
Operating Segments
While the chief decision-makers monitor the revenue streams of the various products and services, subsequent to the sale of the merchant bankcard processing segment during 2005 (see Note 2), operations are managed and financial performance is evaluated on a Company wide basis. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.
Fair Value of Financial Instruments
Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 18. Fair value estimates include uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect these estimates.
Recent Accounting Pronouncements
In September 2006, FASB issued Statement No. 157, “Fair Value Measurements” (“FAS 157”). This statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This statement establishes a fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset. The standard is effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued Staff Position (“FSP”) 157-2, Effective Date of FASB Statement No. 157. This FSP delays the effective date of FAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The impact of adoption was not material to the Company’s financial condition, results of operations or liquidity. In October 2008, the FASB issued Staff Position (FSP) 157-3, Determining the Fair Value of a Financial Asset when the Market for That Asset Is Not Active. This FSP clarifies the application of FAS 157 in a market that is not active. The impact of adoption was not material.
In September 2006, the FASB Emerging Issues Task Force (“EITF”) finalized Issue No. 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements”. This issue requires that a liability be recorded during the service period when a split-dollar life insurance agreement continues after participants’ employment or retirement. The required accrued liability will be based on either the post-employment benefit cost for the continuing life insurance or based on the future death benefit depending on the contractual terms of the underlying agreement. This issue is effective for fiscal years beginning after December 15, 2007. Upon adoption on January 1, 2008, the company recorded a charge to beginning retained earnings of $141.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”. This Statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value measurement, which is consistent with the Board’s long-term measurement objectives for accounting for financial instruments. This Statement is effective for fiscal years beginning after November 15, 2007. Adoption on January 1, 2008, as required, did not have a material effect on the Company’s financial condition, results of operations or liquidity.
In June 2007, the FASB finalized Issue No. 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards”. This issue requires that a realized income tax benefit from dividends or dividend equivalents that are charged to retained earnings and are paid to employees for equity classified nonvested equity shares, nonvested equity share units, and outstanding equity share options should be recognized as an increase to additional paid-in capital. The amount recognized in additional paid-in capital for the realized income tax benefit from dividends on those awards should be included in the pool of excess tax benefits available to absorb tax deficiencies on share-based payment awards (as described in paragraphs 62 and 63 of Statement 123(R)). This issue is effective for fiscal years beginning after December 15, 2007. Adoption on January 1, 2008, as required, did not have a material effect on the Company’s financial condition, results of operations or liquidity.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), “Business Combinations” (“FAS 141(R)”), which revises Statement 141. FAS 141(R) requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information needed to evaluate and understand the nature and financial effect of the business combination. FAS 141(R) is effective for fiscal years beginning after December 15, 2008. Adoption on January 1, 2009, as required, did not have a material effect on the Company’s financial condition, results of operations or liquidity, but will impact future acquisitions.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“FAS 160”), which requires all entities to report noncontrolling (minority) interests in subsidiaries as equity in the consolidated financial statements. Additionally, FAS 160 requires that transactions between an entity and noncontrolling interests be treated as equity transactions. FAS 160 is effective for fiscal years beginning after December 15, 2008. Adoption on January 1, 2009, as required, did not have a material effect on the Company’s financial condition, results of operations or liquidity.
In March 2008, the FASB issued Statement No. 161 “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133”. SFAS No. 161 requires enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related items are accounted for under Statement 133 and how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. The new standard is effective for the Company on January 1, 2009 and adoption, as required, did not have a material effect on the Company’s financial condition, results of operations or liquidity.
In May 2008, the FASB issued Statement No. 162 “The Hierarchy of Generally Accepted Accounting Principles”. The standard identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. The new standard became effective November 15, 2008 and adoption, as required, did not have a material impact on the Company’s consolidated financial position or results of operations.
In January 2009, the FASB issued FASB Staff Position (FSP) EITF 99-20-1 which amends the impairment guidance in EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets,” to achieve more consistent determination of whether an other-than-temporary impairment has occurred. The FSP also retains and emphasizes the objective of an other-than-temporary impairment assessment and the related disclosure requirements in FASB Statement No. 115, “Accounting for Certain Investments in Debt and Equity Securities”, and other related guidance. The FSP is effective for interim and annual reporting periods ending after December 15, 2008, and was required to be applied prospectively. Adoption, as required, did not have a material impact on the Company’s consolidated financial position or results of operations.
Reclassifications
Some items in the prior year financial statements were reclassified to conform to the current presentation.
Note 2—Acquisitions, Divestitures and Discontinued Operations
On December 30, 2005, the Company closed the sale of its merchant bankcard processing business segment to NOVA Information Systems, Inc. (“NOVA”). NOVA paid $7,250 in cash at the closing resulting in the Company recognizing a gain of $6,697 on the transaction. The transaction was structured as a sale of the segment assets. Accordingly, the results of operations of the Company’s merchant bankcard processing business segment are included in the Consolidated Statements of Income as “discontinued operations”. In connection with the sale, the Company entered into a Marketing and Sales Alliance Agreement and a Non-Competition Agreement. The Marketing and Sales Alliance Agreement provides for the exclusive referral by the Bank to NOVA of Bank customers seeking merchant card processing services, and on-going, active promotion of NOVA’s services to Bank customers. The Marketing and Sales Alliance Agreement has an initial term of ten years, and may be extended by the parties. The Non-Competition Agreement prohibits the Company from competing with NOVA to provide merchant card processing services, and prohibits the Bank from soliciting for such services (other than to be provided by NOVA) any merchants that had a merchant services relationship with the Bank at the time of the sale, and any merchants subsequently referred to NOVA. The Non-Competition Agreement is effective for so long as the Marketing and Sales Alliance Agreement is in effect. The non-solicitation covenant extends for two years following termination of the Marketing and Sales Alliance Agreement.
During 2006, the Company recorded additional gains totaling $414 relating primarily to the settlement of certain contractual early termination provisions on a basis that was more favorable than originally estimated.
The operating results of the merchant bankcard processing segment, which have been classified as discontinued operations in the accompanying consolidated financial statements, are summarized as follows:
| Year ended December 31, | | 2006 | |
| Other income | | $ | 414 | |
| Pretax income from discontinued operations | | $ | 414 | |
| | | | | |
On April 30, 2007, the Company completed the acquisition of The Bank of Venice, a Florida chartered commercial bank in exchange for consideration consisting of 973,016 shares of the Company’s common stock valued at approximately $13,628, cash of $568 and stock options valued at $364. The total purchase price, which includes certain direct acquisition costs of $194, totaled $14,754. Under the purchase method of accounting, the assets and liabilities of The Bank of Venice were recorded at their respective estimated fair values as of April 30, 2007 and are included in the accompanying balance sheets as of December 31, 2008 and 2007. Purchase accounting adjustments will be amortized or accreted into income over the estimated lives of the related assets and liabilities. Goodwill and other intangible assets identified were approximately $6,980 and are not deductible for income tax purposes.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the date of acquisition:
| Cash and cash equivalents | | $ | 10,176 | |
| Securities available for sale | | | 2,292 | |
| Federal Home Loan Bank Stock and other equity securities | | | 496 | |
| Loans, net | | | 55,373 | |
| Fixed assets | | | 2,714 | |
| Goodwill | | | 4,580 | |
| Core deposit intangible | | | 2,150 | |
| Customer relationship intangible | | | 250 | |
| Other | | | 605 | |
| Total assets acquired | | | 78,636 | |
| | | | | |
| Deposits | | | 57,715 | |
| FHLB advances | | | 5,000 | |
| Other liabilities | | | 1,167 | |
| Total liabilities assumed | | | 63,882 | |
| | | | | |
| Total consideration paid for The Bank of Venice | | $ | 14,754 | |
| | | | | |
The acquisition of The Bank of Venice provided an established entry point into the Sarasota County market and allows us to significantly accelerate the rate of franchise growth of the combined entity which is expected to be greater than the Company could achieve on a de novo basis.
On January 2, 2008, the Company completed the acquisition of Naples Capital Advisors, Inc., a registered investment advisor in exchange for consideration consisting of $1,333 in cash. In addition, the sellers are entitled to receive additional cash consideration up to $148 on each of the first three anniversaries of TIB Bank receiving a trust department license under the Florida Financial Institutions Codes subject to the achievement of certain total revenue milestones. On December 8, 2008, TIB Bank received authority to exercise trust powers from the FDIC and the State of Florida. The total purchase price, which includes certain direct acquisition costs of $45, totaled $1,378.
Under the purchase method of accounting, the assets and liabilities of Naples Capital Advisors, Inc. were recorded at their respective estimated fair value as of January 2, 2008 and are included in the accompanying balance sheet as of December 31, 2008. Purchase accounting adjustments will be amortized or accreted into income over the estimated lives of the related assets and liabilities. Goodwill and other intangible assets identified were approximately $1,365 and are deductible for income tax purposes.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the date of acquisition:
| Cash and cash equivalents | | $ | 2 | |
| Fixed assets | | | 10 | |
| Goodwill | | | 474 | |
| Trade name | | | 46 | |
| Customer relationship intangible | | | 845 | |
| Other | | | 41 | |
| Total assets acquired | | | 1,418 | |
| | | | | |
| Other liabilities | | | 40 | |
| Total liabilities assumed | | | 40 | |
| | | | | |
| Total consideration paid for Naples Capital Advisors Inc. | | $ | 1,378 | |
| | | | | |
This acquisition of Naples Capital Advisors, Inc. was the beginning of the Company’s entry into the new business lines of private banking, trust services and wealth management. Naples Capital Advisors, Inc. had $95 million in assets under advisements as of December 31, 2008.
Note 3—Cash and Due From Banks
Cash on hand or on deposit with the Federal Reserve Bank of $2,539 and $3,204 was required to meet regulatory reserve and clearing requirements at December 31, 2008, and December 31, 2007, respectively. Balances on deposit at the Federal Reserve Bank did not earn interest prior to October 19, 2008; subsequently they became interest bearing. The total on deposit was approximately $47,613 at December 31, 2008.
The Bank maintains an interest bearing account at the Federal Home Loan Bank of Atlanta. The total on deposit was approximately $356 and $146 at December 31, 2008 and December 31, 2007, respectively.
Note 4 - - Investment Securities
The amortized cost, estimated fair value, and the related gross unrealized gains and losses recognized in accumulated other comprehensive income, are as follows for investment securities available for sale:
| December 31, 2008 | | Amortized Cost | | | Unrealized Gains | | | Unrealized Losses | | | Estimated Fair Value | |
| U.S. Government agencies and corporations | | $ | 50,892 | | | $ | 776 | | | $ | - | | | $ | 51,668 | |
| States and political subdivisions—tax exempt | | | 7,751 | | | | 59 | | | | 21 | | | | 7,789 | |
| States and political subdivision—taxable | | | 2,407 | | | | - | | | | 70 | | | | 2,337 | |
| Marketable equity securities | | | 12 | | | | - | | | | - | | | | 12 | |
| Mortgage-backed securities | | | 157,066 | | | | 1,332 | | | | 421 | | | | 157,977 | |
| Corporate bonds | | | 2,870 | | | | - | | | | 1,158 | | | | 1,712 | |
| Collateralized debt obligations | | | 5,763 | | | | - | | | | 1,488 | | | | 4,275 | |
| | | $ | 226,761 | | | $ | 2,167 | | | $ | 3,158 | | | $ | 225,770 | |
| | | | | | | | | | | | | | | | | |
| December 31, 2007 | | Amortized Cost | | | Unrealized Gains | | | Unrealized Losses | | | Estimated Fair Value | |
| U.S. Government agencies and corporations | | $ | 72,482 | | | $ | 1,245 | | | $ | 66 | | | $ | 73,661 | |
| States and political subdivisions—tax exempt | | | 9,629 | | | | 6 | | | | 51 | | | | 9,584 | |
| States and political subdivision—taxable | | | 2,495 | | | | 1 | | | | 21 | | | | 2,475 | |
| Marketable equity securities | | | 1,224 | | | | - | | | | - | | | | 1,224 | |
| Mortgage-backed securities | | | 60,161 | | | | 295 | | | | 296 | | | | 60,160 | |
| Corporate bonds | | | 2,865 | | | | - | | | | 100 | | | | 2,765 | |
| Collateralized debt obligations | | | 11,110 | | | | - | | | | 622 | | | | 10,488 | |
| | | $ | 159,966 | | | $ | 1,547 | | | $ | 1,156 | | | $ | 160,357 | |
| | | | | | | | | | | | | | | | | |
Securities with unrealized losses not recognized in income are as follows:
| | | Less than 12 Months | | | 12 Months or Longer | | | Total | |
| December 31, 2008 | | Estimated Fair Value | | | Unrealized Losses | | | Estimated Fair Value | | | Unrealized Losses | | | Estimated Fair Value | | | Unrealized Losses | |
| U.S. Government agencies and corporations | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| States and political subdivisions—tax exempt | | | 2,413 | | | | 20 | | | | 274 | | | | 1 | | | | 2,687 | | | | 21 | |
| States and political subdivisions—taxable | | | 2,247 | | | | 70 | | | | - | | | | - | | | | 2,247 | | | | 70 | |
| Mortgage-backed securities | | | 14,045 | | | | 83 | | | | 17,015 | | | | 338 | | | | 31,060 | | | | 421 | |
| Corporate bonds | | | - | | | | - | | | | 1,712 | | | | 1,158 | | | | 1,712 | | | | 1,158 | |
| Collateralized debt obligations | | | - | | | | - | | | | 3,512 | | | | 1,488 | | | | 3,512 | | | | 1,488 | |
| Total temporarily impaired | | $ | 18,705 | | | $ | 173 | | | $ | 22,513 | | | $ | 2,985 | | | $ | 41,218 | | | $ | 3,158 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Less than 12 Months | | | 12 Months or Longer | | | Total | |
| December 31, 2007 | | Estimated Fair Value | | | Unrealized Losses | | | Estimated Fair Value | | | Unrealized Losses | | | Estimated Fair Value | | | Unrealized Losses | |
| U.S. Government agencies and corporations | | $ | - | | | $ | - | | | $ | 13,577 | | | $ | 66 | | | $ | 13,577 | | | $ | 66 | |
| States and political subdivisions—tax exempt | | | 2,814 | | | | 9 | | | | 5,753 | | | | 42 | | | | 8,567 | | | | 51 | |
| States and political subdivisions-taxable | | | 2,299 | | | | 21 | | | | - | | | | - | | | | 2,299 | | | | 21 | |
| Mortgage-backed securities | | | 30,254 | | | | 295 | | | | 1,072 | | | | 1 | | | | 31,326 | | | | 296 | |
| Corporate bonds | | | 2,765 | | | | 100 | | | | - | | | | - | | | | 2,765 | | | | 100 | |
| Collateralized debt obligations | | | 4,378 | | | | 622 | | | | - | | | | - | | | | 4,378 | | | | 622 | |
| Total temporarily impaired | | $ | 42,510 | | | $ | 1,047 | | | $ | 20,402 | | | $ | 109 | | | $ | 62,912 | | | $ | 1,156 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
The Company views the unrealized losses in the above table to be temporary in nature for the following reasons. First, the declines in fair values are mostly due to an increase in market interest rates and spreads and are not credit related. These securities are mostly AAA rated securities and have experienced no significant deterioration in value due to credit quality concerns. Second, other than for the collateralized debt obligations, and a municipal security and corporate bond, the magnitude of the unrealized losses of approximately 1% or less of the historical cost of those securities with losses is consistent with normal fluctuations of value due to the volatility of market interest rates. Additionally, we own a housing related municipal revenue bond, a corporate bond of a large financial institution and a collateralized debt obligation secured by debt obligations of banks and insurance companies which are currently rated “AAA”, “A+”, and “AA”, respectively, whose fair values have declined more than 10% below their original cost. We believe these declines in fair value relate to a significant widening of interest rate spreads associated with these types of securities and we have determined that these securities are not other than temporarily impaired as of December 31, 2008. Finally, the nature of what makes up the security portfolio is determined by the overall balance sheet of the Company and currently it is suitable for the Company’s security portfolio to be primarily comprised of fixed rate securities. Fixed rate securities will by their nature react in price inversely to changes in market rates and that is liable to occur in both directions.
As of December 31, 2008, the Company owned three collateralized debt obligation investment securities (backed primarily by corporate debt obligations of homebuilders, REITs, real estate companies and commercial mortgage backed securities) with an aggregate original cost of $9,996. In determining the estimated fair value of these securities, management utilizes a discounted cash flow modeling valuation approach which is discussed in greater detail in Note 18 - Fair Value. These securities are floating rate securities which were rated "A" or better by an independent and nationally recognized rating agency at the time of purchase. In late December 2007, these securities were downgraded below investment grade by a nationally recognized rating agency. Due to the ratings downgrade, and the amount of unrealized loss, management concluded that the loss of value was other than temporary under generally accepted accounting principles and the Company wrote these investment securities down to their estimated fair value. This resulted in the recognition of other than temporary impairment loss of $3,885 in 2007. During 2008, the estimated fair value of these securities declined further due to the occurrence of additional defaults by certain underlying issuers and changes in the cash flow and discount rate assumptions used to estimate the value of these securities. During 2008, management concluded that the further declines in values were other than temporary under generally accepted accounting principles. Accordingly, the Company wrote-down these investment securities by an additional $5,348 to their estimated fair value of $763 as of December 31, 2008.
Additionally, during 2007, the market value of an investment in equity securities, which the Company originally acquired in 2003 for $3,000 to obtain community reinvestment credit, of a publicly owned company declined significantly. During 2007, management determined that the decline was other than temporary; accordingly, we wrote this investment down by $1,776. Due to significant further declines in market value during 2008, the Company wrote this investment down further by $1,078 in 2008 and decided to sell a portion of this investment in December 2008 to ensure the full realization of the associated capital loss carryback potential for Federal income tax purposes. In doing so, the Company recognized an additional realized loss of approximately $124 upon the partial disposition of this investment.
The write downs described above resulted in total recognized other than temporary impairment losses of $6,426 during 2008 and $5,661 during 2007. During 2006 no other than temporary impairment losses were necessary.
We regularly review each investment security for impairment based on criteria that include the extent to which cost exceeds market price, the duration of that market decline, the financial health of and specific prospects for the issuer(s) and our ability and intention with regard to holding the security to maturity. Future declines in the fair value of these or other securities may result in additional impairment charges which may be material to the financial condition and results of operations of the Company.
The estimated fair value of investment securities available for sale at December 31, 2008, by contractual maturity, are shown as follows. Expected maturities may differ from contractual maturities because borrowers may have the right to call or repay obligations without call or prepayment penalties. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.
| December 31, 2008 | |
| Due in one year or less | | $ | 10,200 | |
| Due after one year through five years | | | 38,560 | |
| Due after five years through ten years | | | 3,757 | |
| Due after ten years | | | 15,264 | |
| Marketable equity securities | | | 12 | |
| Mortgage-backed securities | | | 157,977 | |
| | | $ | 225,770 | |
| | | | | |
At December 31, 2008, securities with a fair value of approximately $42,213 are subject to call during 2009.
Sales of available for sale securities were as follows:
| | | 2008 | | | 2007 | | | 2006 | |
| Proceeds | | $ | 51,135 | | | $ | 5,491 | | | $ | - | |
| Gross gains | | | 1,217 | | | | 1 | | | | - | |
| Gross losses | | | 140 | | | | - | | | | - | |
| | | | | | | | | | | | | |
The tax benefit related to net realized gains was $405 during 2008.
Maturities, principal repayments, and calls of investment securities available for sale during 2008, 2007 and 2006 were $37,696, $34,863, and $9,296, respectively. Net gains realized from calls and mandatory redemptions of securities during 2008, 2007 and 2006 were $72, $0, and $0, respectively.
Investment securities having carrying values of approximately $156,773 and $129,970 at December 31, 2008 and 2007, respectively, were pledged to secure public funds on deposit, securities sold under agreements to repurchase, and for other purposes as required by law.
Note 5—Loans
Major classifications of loans are as follows:
| December 31, | | 2008 | | | 2007 | |
| Real estate mortgage loans: | | | | | | |
| Commercial | | $ | 658,516 | | | $ | 612,084 | |
| Residential | | | 205,062 | | | | 112,138 | |
| Farmland | | | 13,441 | | | | 11,361 | |
| Construction and vacant land | | | 147,309 | | | | 168,595 | |
| Commercial and agricultural loans | | | 71,352 | | | | 72,076 | |
| Indirect auto loans | | | 82,028 | | | | 117,439 | |
| Home equity loans | | | 34,062 | | | | 21,820 | |
| Other consumer loans | | | 11,549 | | | | 12,154 | |
| Total loans | | | 1,223,319 | | | | 1,127,667 | |
| | | | | | | | | |
| Net deferred loan costs | | | 1,656 | | | | 1,489 | |
| Loans, net of deferred loan costs | | $ | 1,224,975 | | | $ | 1,129,156 | |
| | | | | | | | | |
In 1998, TIB Bank made a $10,000 loan to construct a lumber mill in northern Florida. Of this amount, $6,400 had been sold by TIB Bank to other lenders. The loan was 80% guaranteed as to principal and interest by the U.S. Department of Agriculture (USDA). In addition to business real estate and equipment, the loan was collateralized by the business owner’s interest in a trust. Under provisions of the trust agreement, beneficiaries cannot receive trust assets until November 2010.
The portion of this loan guaranteed by the USDA and held by us was approximately $1,600 at December 31, 2007. The loan was accruing interest until December 2006 when TIB Bank ceased the accrual of interest pursuant to a ruling made by the USDA. Accrued interest on this loan totaled approximately $941 at December 31, 2007. During the second quarter of 2008, the USDA paid the Company the principal and accrued interest and allowed the Company to apply other proceeds previously received to capitalized liquidation costs and protective advances.
The non-guaranteed principal and interest (approximately $2,000 at December 31, 2008 and December 31, 2007) and the reimbursable capitalized liquidation costs and protective advance costs totaling approximately $112 and $954 at December 31, 2008 and 2007, respectively, are included as “other assets” in the financial statements.
Florida law requires a bank to liquidate or charge off repossessed real property within five years, and repossessed personal property within six months. Since the property had not been liquidated during this period, TIB Bank charged-off the non guaranteed principal and interest totaling approximately $2,000 at June 30, 2003, for regulatory purposes. Since the Company believes this amount is ultimately realizable, it did not write off this amount for financial statement purposes under generally accepted accounting principles.
Activity in the allowance for loan losses is as follows:
| Years ended December 31, | | 2008 | | | 2007 | | | 2006 | |
| Balance, beginning of year | | $ | 14,973 | | | $ | 9,581 | | | $ | 7,546 | |
| Acquisition of The Bank of Venice | | | - | | | | 667 | | | | - | |
| Provision for loan losses charged to expense | | | 28,239 | | | | 9,657 | | | | 3,491 | |
| Loans charged off | | | (19,509 | ) | | | (5,202 | ) | | | (1,573 | ) |
| Recoveries of loans previously charged off | | | 80 | | | | 270 | | | | 117 | |
| Balance, end of year | | $ | 23,783 | | | $ | 14,973 | | | $ | 9,581 | |
| | | | | | | | | | | | | |
Impaired loans are as follows:
| Years ended December 31, | | 2008 | | | 2007 | |
| Year end loans with no specifically allocated allowance for loan losses | | $ | 8,344 | | | $ | 4,448 | |
| Year end loans with allocated allowance for loan losses | | | 53,765 | | | | 3,748 | |
| Total | | $ | 62,109 | | | $ | 8,196 | |
| Amount of the allowance for loan losses allocated to impaired loans | | $ | 6,116 | | | $ | 1,401 | |
| | | | | | | | | |
The average balance of impaired loans during 2008, 2007 and 2006 was $35,928, $4,464 and $363, respectively. The amounts of interest income recognized during impairment and cash basis interest income recognized was not meaningful during 2008, 2007 and 2006.
Non-performing loans include nonaccrual loans and accruing loans contractually past due 90 days or more. Nonaccrual loans are comprised principally of loans 90 days past due as well as certain loans, which are current but where serious doubt exists as to the ability of the borrower to comply with the repayment terms. Generally, interest previously accrued and not yet paid on nonaccrual loans is reversed during the period in which the loan is placed in a nonaccrual status. Non-performing loans are as follows:
| Years ended December 31, | | 2008 | | | 2007 | |
| Nonaccrual loans | | $ | 39,776 | | | $ | 16,086 | |
| Loans past due over 90 days still on accrual | | | - | | | | - | |
| | | | | | | | | |
Non-performing loans and impaired loans are defined differently. Some loans may be included in both categories, whereas other loans may only be included in one category.
Note 6—Premises and Equipment
A summary of the cost and accumulated depreciation of premises and equipment follows:
| December 31, | | 2008 | | | 2007 | | Estimated Useful Life |
| Land | | $ | 12,171 | | | $ | 11,197 | | |
| Buildings and leasehold improvements | | | 26,272 | | | | 23,962 | | 1 to 40 years |
| Furniture, fixtures and equipment | | | 15,426 | | | | 14,050 | | 1 to 40 years |
| Construction in progress | | | 1,590 | | | | 3,498 | | |
| | | | 55,459 | | | | 52,707 | | |
| Less accumulated depreciation | | | (17,133 | ) | | | (14,423 | ) | |
| Premises and equipment, net | | $ | 38,326 | | | $ | 38,284 | | |
| | | | | | | | | | |
Depreciation expense for the years ended December 31, 2008, 2007, and 2006, was approximately $3,355, $2,887, and $2,354, respectively.
The Banks are obligated under operating leases for office and banking premises which expire in periods varying from one to nineteen years. Future minimum lease payments, before considering renewal options that generally are present, are as follows at December 31, 2008:
| Years Ending December 31, | | | |
| 2009 | | $ | 915 | |
| 2010 | | | 810 | |
| 2011 | | | 766 | |
| 2012 | | | 425 | |
| 2013 | | | 253 | |
| Thereafter | | | 2,039 | |
| | | $ | 5,208 | |
| | | | | |
Rental expense for the years ended December 31, 2008, 2007, and 2006, was approximately $1,422, $1,128, and $794, respectively.
Note 7—Goodwill and Intangible Assets
The changes in the carrying amount of goodwill for the years ended December 31, are as follows:
| | | 2008 | | | 2007 | |
| Beginning of the year | | $ | 4,686 | | | $ | 106 | |
| Goodwill associated with the acquisition of Naples Capital Advisors, Inc. | | | 474 | | | | - | |
| Goodwill associated with the acquisition of The Bank of Venice | | | - | | | | 4,580 | |
| Balance at end of year | | $ | 5,160 | | | $ | 4,686 | |
| | | | | | | | | |
The Company performed a review of goodwill for potential impairment as of December 31, 2008. Based on this review, which included valuing the Company using a combination of the Company’s stock price as of year end 2008, deal values of recent comparable transactions and the expected present value of future cash flows, it was determined that no impairment existed as of December 31, 2008.
Intangible assets at December 31, consist of the following:
| | | 2008 | | | 2007 | |
| December 31, | | Gross Carrying Amount | | | Accumulated Amortization | | | Net Book Value | | | Gross Carrying Amount | | | Accumulated Amortization | | | Net Book Value | |
| Core deposit intangible | | $ | 5,091 | | | $ | 3,027 | | | $ | 2,064 | | | $ | 5,091 | | | $ | 2,564 | | | $ | 2,527 | |
| Customer relationship intangible | | | 1,095 | | | | 197 | | | | 898 | | | | 250 | | | | 11 | | | | 239 | |
| Trade Name and Other | | | 57 | | | | 9 | | | | 48 | | | | 26 | | | | 20 | | | | 6 | |
| Total | | $ | 6,243 | | | $ | 3,233 | | | $ | 3,010 | | | $ | 5,367 | | | $ | 2,595 | | | $ | 2,772 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Aggregate intangible asset amortization expense was $653, $440, and $288 for 2008, 2007, and 2006, respectively.
Estimated amortization expense for each of the next five years is as follows:
| Years Ending December 31, | | | |
| 2009 | | $ | 540 | |
| 2010 | | | 535 | |
| 2011 | | | 401 | |
| 2012 | | | 401 | |
| 2013 | | | 232 | |
| | | | | |
Note 8—Time Deposits
Time deposits of $100 or more were $241,011 and $240,853 at December 31, 2008 and 2007, respectively.
At December 31, 2008, the scheduled maturities of time deposits are as follows:
| Years Ending December 31, | | | |
| 2009 | | $ | 574,220 | |
| 2010 | | | 96,724 | |
| 2011 | | | 13,679 | |
| 2012 | | | 2,071 | |
| 2013 | | | 1,981 | |
| | | $ | 688,675 | |
| | | | | |
Note 9—Short-Term Borrowings and Federal Home Loan Bank Advances
Short-term borrowings include federal funds purchased, securities sold under agreements to repurchase, advances from the Federal Home Loan Bank, and a Treasury, tax and loan note option.
The Banks have unsecured overnight federal funds purchased accommodation up to a maximum of $28,000 from their correspondent banks. Additionally, the Banks have agreements with various financial institutions under which securities can be sold under agreements to repurchase. TIB Bank also has securities sold under agreements to repurchase with commercial account holders whereby TIB Bank sweeps the customer’s accounts on a daily basis and pays interest on these amounts. These agreements are collateralized by investment securities chosen by TIB Bank.
The Banks accept Treasury, tax and loan deposits from certain commercial depositors and remit these deposits to the appropriate government authorities. TIB Bank can hold up to $1,700 of these deposits more than a day under a note option agreement with its regional Federal Reserve Bank and pays interest on those funds held. TIB Bank pledges certain investment securities against this account.
The Banks invest in Federal Home Loan Bank stock for the purpose of establishing credit lines with the Federal Home Loan Bank. The credit availability to the Banks is based on a percentage of the Banks’ total assets as reported on the most recent quarterly financial information submitted to the regulators subject to the pledging of sufficient collateral. At December 31, 2008, in addition to $25,000 in letters of credit used in lieu of pledging securities to the State of Florida and $150 in letters of credit on behalf of customers, there was $202,900 in advances outstanding. At December 31, 2007, the amount of outstanding advances was $140,000. The outstanding amount at December 31, 2008 consists of:
Amount | | Issuance Date | Maturity Date | Repricing Frequency | | Rate at December 31, 2008 | |
| $ | 50,000 | | April 2008 | April 2013 (a) | Fixed | | | 3.80 | % |
| | 50,000 | | December 2006 | December 2011 (a) | Fixed | | | 4.18 | % |
| | 10,000 | | September 2007 | September 2012 (a) | Fixed | | | 4.05 | % |
| | 10,000 | | September 2008 | March 2010 | Fixed | | | 3.12 | % |
| | 35,000 | | December 2008 | February 2009 | Fixed | | | 1.38 | % |
| | 35,000 | | December 2008 | March 2009 | Fixed | | | 0.98 | % |
| | 2,900 | | January 2008 | July 2009 | Fixed | | | 3.17 | % |
| | 1,250 | | April 2008 | April 2009 | Fixed | | | 2.48 | % |
| | 1,250 | | April 2008 | April 2011 | Fixed | | | 3.06 | % |
| | 1,250 | | April 2008 | April 2010 | Fixed | | | 2.73 | % |
| | 5,000 | | March 2007 | September 2012 (a) | Fixed | | | 4.29 | % |
| | 1,250 | | April 2008 | April 2012 (a) | Fixed | | | 2.08 | % |
| | | | | | | | | | |
(a) These advances have quarterly conversion dates beginning six months to one year from date of issuance. If the FHLB chooses to convert the advance, the Banks have the option of prepaying the entire balance without penalty. Otherwise, the advance will convert to an adjustable rate, repricing on a quarterly basis. If the FHLB does not convert the advance, it will remain at the contracted fixed rate until the maturity date.
The Bank’s collateral with the FHLB consists of a blanket floating lien pledge of the Bank’s residential 1-4 family mortgage and commercial real estate secured loans. The amount of eligible collateral at December 31, 2008 was $268,113.
The following table reflects the average daily outstanding, year-end outstanding, maximum month-end outstanding and the weighted average rates paid for each of the categories of short-term borrowings and FHLB advances:
| Year Ended December 31, | | 2008 | | | 2007 | |
| Federal funds purchased: | | | | | | |
| Balance: | | | | | | |
| Average daily outstanding | | $ | 600 | | | $ | 190 | |
| Year-end outstanding | | | 0 | | | | 157 | |
| Maximum month-end outstanding | | | 6 | | | | 11,024 | |
| Rate: | | | | | | | | |
| Weighted average for year | | | 2.4 | % | | | 5.7 | % |
| Weighted average interest rate at December 31 | | | n/a | | | | 5.3 | % |
| | | | | | | | | |
| Securities sold under agreements to repurchase: | | | | | | | | |
| Balance: | | | | | | | | |
| Average daily outstanding | | $ | 75,271 | | | $ | 41,074 | |
| Year-end outstanding | | | 69,593 | | | | 75,861 | |
| Maximum month-end outstanding | | | 85,654 | | | | 75,861 | |
| Rate: | | | | | | | | |
| Weighted average for year | | | 1.8 | % | | | 4.2 | % |
| Weighted average interest rate at December 31 | | | 0.1 | % | | | 3.9 | % |
| | | | | | | | | |
| Treasury, tax and loan note option: | | | | | | | | |
| Balance: | | | | | | | | |
| Average daily outstanding | | $ | 1,111 | | | $ | 1,127 | |
| Year-end outstanding | | | 1,830 | | | | 1,904 | |
| Maximum month-end outstanding | | | 1,830 | | | | 1,904 | |
| Rate: | | | | | | | | |
| Weighted average for year | | | 1.5 | % | | | 4.6 | % |
| Weighted average interest rate at December 31 | | | 0.0 | % | | | 3.6 | % |
| | | | | | | | | |
| Advances from the Federal Home Loan Bank-Short Term: | | | | | | | | |
| Balance: | | | | | | | | |
| Average daily outstanding | | $ | 32,111 | | | $ | 1,068 | |
| Year-end outstanding | | | 70,000 | | | | - | |
| Maximum month-end outstanding | | | 85,000 | | | | 10,000 | |
| Rate: | | | | | | | | |
| Weighted average for year | | | 1.9 | % | | | 5.2 | % |
| Weighted average interest rate at December 31 | | | 1.2 | % | | | n/a | |
| | | | | | | | | |
| Advances from the Federal Home Loan Bank-Long Term: | | | | | | | | |
| Balance: | | | | | | | | |
| Average daily outstanding | | $ | 133,118 | | | $ | 131,123 | |
| Year-end outstanding | | | 132,900 | | | | 140,000 | |
| Maximum month-end outstanding | | | 157,900 | | | | 140,000 | |
| Rate: | | | | | | | | |
| Weighted average for year | | | 4.1 | % | | | 4.7 | % |
| Weighted average interest rate at December 31 | | | 3.9 | % | | | 4.5 | % |
| | | | | | | | | |
TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except per share data)
Note 10—Long-Term Borrowings
Securities Sold Under Agreements to Repurchase
During 2007, the Company entered into agreements with another financial institution for the sale of certain securities to be repurchased at a future date. The interest rates on these repurchase agreements are fixed for the remaining term of the agreement. The financial institution has the ability to terminate these agreements on a quarterly basis. The outstanding amount at December 31, 2008 was $30,000 and consists of:
| Amount | | Maturity Date | | Rate at December 31, 2008 | |
| $ | 20,000 | | September 2010 | | | 4.18 | % |
| | 10,000 | | December 2010 | | | 3.46 | % |
| | | | | | | | |
Notes Payable
The Company entered into an agreement with the Company’s largest shareholder effective July 1, 2000, to purchase 1,050,000 shares of the Company’s common stock in exchange for four subordinated notes payable of the Company totaling $5,250. The interest rate on these notes was 13% per annum, with interest payments required quarterly. The principal balance was payable in full on October 1, 2010, the maturity date of the notes, and the notes could be prepaid by the Company at par any time after July 1, 2003. Effective January 1, 2002, the interest rate was reduced to 9%, the option to prepay was extended to January 1, 2007, and the maturity date was extended to January 1, 2012. On January 3, 2005 the Company repaid $1,250 of these notes at a 3% premium. On January 1, 2007, the remaining $4,000 was repaid at par.
Subordinated Debentures
On September 7, 2000, the Company participated in a pooled offering of trust preferred securities. The Company formed TIBFL Statutory Trust I (the “Trust”) a wholly-owned statutory trust subsidiary for the purpose of issuing the trust preferred securities. The Trust used the proceeds from the issuance of $8,000 in trust preferred securities to acquire junior subordinated deferrable interest debentures of the Company. The trust preferred securities essentially mirror the debt securities, carrying a cumulative preferred dividend at a fixed rate equal to the 10.6% interest rate on the debt securities. The debt securities and the trust preferred securities each have 30-year lives. The trust preferred securities and the debt securities are callable by the Company or the Trust, at their respective option after ten years, and at varying premiums and sooner in specific events, subject to prior approval by the Federal Reserve Board, if then required.
On July 31, 2001, the Company participated in a pooled offering of trust preferred securities. The Company formed TIBFL Statutory Trust II (the “Trust II”) a wholly-owned statutory trust subsidiary for the purpose of issuing the trust preferred securities. The Trust II used the proceeds from the issuance of $5,000 in trust preferred securities to acquire junior subordinated deferrable interest debentures of the Company. The trust preferred securities essentially mirror the debt securities, carrying a cumulative preferred dividend at a variable rate equal to the interest rate on the debt securities (three month LIBOR plus 358 basis points). The initial rate in effect at the time of issuance was 7.29% and is subject to change quarterly. The rate in effect at December 31, 2008 was 7.00%. The debt securities and the trust preferred securities each have 30-year lives. The trust preferred securities and the debt securities are callable by the Company or the Trust, at their respective option after five years, and at varying premiums and sooner in specific events, subject to prior approval by the Federal Reserve Board, if then required.
On June 23, 2006, the Company issued $20,000 of additional trust preferred securities through a private placement. The Company formed TIBFL Statutory Trust III (the “Trust III”), a wholly-owned statutory trust subsidiary for the purpose of issuing the trust preferred securities. The Trust III used the proceeds from the issuance of $20,000 in trust preferred securities to acquire junior subordinated deferrable interest debentures of the Company. The trust preferred securities essentially mirror the debt securities, carrying a cumulative preferred dividend at a variable rate equal to the interest rate on the debt securities (three month LIBOR plus 155 basis points). The rate in effect at December 31, 2008 was 6.37%. The debt securities and the trust preferred securities each have 30-year lives. The trust preferred securities and the debt securities are callable by the Company or the Trust, at their respective option at par after five years, and sooner, at a 5% premium, if specific events occur, subject to prior approval by the Federal Reserve Board, if then required.
Under the provisions of the related indenture agreements, the interest payable on the trust preferred securities is deferrable for up to five years and any such deferral is not considered a default. During any period of deferral, the Company would be precluded from declaring or paying dividends to shareholders or repurchasing any of the Company’s common stock.
The Company has treated the trust preferred securities as Tier 1 capital up to the maximum amount allowed, and the remainder as Tier 2 capital for federal regulatory purposes (see Note 14).
Contractual Maturities
At December 31, 2008, the contractual maturities of long-term borrowings were as follows:
| | | Fixed Rate | | | Floating Rate | | | Total | |
| Due in 2009 | | $ | - | | | $ | - | | | $ | - | |
| Due in 2010 | | | 30,000 | | | | - | | | | 30,000 | |
| Due in 2011 | | | - | | | | - | | | | - | |
| Due in 2012 | | | - | | | | - | | | | - | |
| Thereafter | | | 8,000 | | | | 25,000 | | | | 33,000 | |
| Total long-term debt | | $ | 38,000 | | | $ | 25,000 | | | $ | 63,000 | |
| | | | | | | | | | | | | |
Note 11—Income Taxes
Income tax expense (benefit) from continuing operations was as follows:
| Years ended December 31, | | 2008 | | | 2007 | | | 2006 | |
| Current income tax provision: | | | | | | | | | |
| Federal | | $ | (7,515 | ) | | $ | 2,798 | | | $ | 5,386 | |
| State | | | (572 | ) | | | 436 | | | | 803 | |
| | | | (8,087 | ) | | | 3,234 | | | | 6,189 | |
| Deferred tax benefit: | | | | | | | | | | | | |
| Federal | | | (3,395 | ) | | | (4,334 | ) | | | (1,018 | ) |
| State | | | (1,371 | ) | | | (675 | ) | | | (150 | ) |
| | | | (4,766 | ) | | | (5,009 | ) | | | (1,168 | ) |
| | | | | | | | | | | | | |
| Total | | $ | (12,853 | ) | | $ | (1,775 | ) | | $ | 5,021 | |
| | | | | | | | | | | | | |
A reconciliation of income tax computed at applicable Federal statutory income tax rates to total income taxes reported is as follows:
| Years ended December 31, | | 2008 | | | 2007 | | | 2006 | |
| Pretax income from continuing operations | | $ | (33,783 | ) | | $ | (4,196 | ) | | $ | 14,014 | |
| Income taxes computed at Federal statutory tax rate | | $ | (11,486 | ) | | $ | (1,427 | ) | | $ | 4,815 | |
| Effect of: | | | | | | | | | | | | |
| Tax-exempt income, net | | | (253 | ) | | | (322 | ) | | | (330 | ) |
| State income taxes, net | | | (1,282 | ) | | | (156 | ) | | | 423 | |
| Stock based compensation expense, net | | | 90 | | | | 92 | | | | 80 | |
| Other, net | | | 78 | | | | 38 | | | | 33 | |
| Total | | $ | (12,853 | ) | | $ | (1,775 | ) | | $ | 5,021 | |
| | | | | | | | | | | | | |
A valuation allowance related to deferred tax assets is required when it is considered more likely than not that all or part of the benefit related to such assets will not be realized. Based on the Company’s earnings history, management has determined that no valuation allowance was required at December 31, 2008 or 2007. The details of the net deferred tax asset as of December 31, 2008 and 2007 are as follows:
| Years ended December 31, | | 2008 | | | 2007 | |
| Allowance for loan losses | | $ | 9,053 | | | $ | 5,910 | |
| Recognized impairment losses on available for sale securities | | | 2,529 | | | | 2,184 | |
| Net operating loss and AMT carryforward | | | 1,165 | | | | - | |
| Recognized impairment of other real estate owned | | | 474 | | | | - | |
| Acquisition related intangibles | | | 330 | | | | 318 | |
| Deferred compensation | | | 2,051 | | | | 1,836 | |
| Non-accrual interest income | | | 57 | | | | 386 | |
| Net unrealized losses on securities available for sale | | | 373 | | | | - | |
| Other | | | 393 | | | | 468 | |
| Total gross deferred tax assets | | | 16,425 | | | | 11,102 | |
| | | | | | | | | |
| Accumulated depreciation | | | (1,013 | ) | | | (934 | ) |
| Deferred loan costs | | | (833 | ) | | | (746 | ) |
| Acquisition related intangibles | | | (758 | ) | | | (822 | ) |
| Net unrealized gains on securities available for sale | | | - | | | | (151 | ) |
| Other | | | (151 | ) | | | (69 | ) |
| Total gross deferred tax liabilities | | | (2,755 | ) | | | (2,722 | ) |
| | | | | | | | | |
| Net deferred tax asset | | $ | 13,670 | | | $ | 8,380 | |
| | | | | | | | | |
At December 31, 2008, the Company had a State net operating loss carryforward of approximately $23,282 which expires in 2028 if unused. It is anticipated that the carryforward will be utilized prior to their expiration based on the Company’s current five-year projections.
The Company and its subsidiaries are subject to U.S. federal income tax, as well as income tax of the State of Florida. The Company is no longer subject to examination by taxing authorities for years before 2005.
There were no unrecognized tax benefits at December 31, 2008, and the Company does not expect the total of unrecognized tax benefits to significantly increase in the next twelve months.
Note 12—Employee Benefit Plans
The Company maintains an Employee Stock Ownership Plan with 401(k) provisions that covers all employees who are qualified as to age and length of service. Three types of contributions can be made to the Plan by the Company and participants: basic voluntary contributions which are discretionary contributions made by all participants; a matching contribution, whereby the Company will match 50 percent of salary reduction contributions up to 5 percent of compensation; and an additional discretionary contribution which may be made by the Company and allocated to the accounts of participants on the basis of total relative compensation. During 2006, the Company match was capped at the lower of 4 percent of compensation or $1 per employee. The Company contributed $327, $307, and $152, to the plan in 2008, 2007 and 2006, respectively. As of December 31, 2008, the Plan contained approximately 249,000 shares of the Company’s common stock.
In 2001, TIB Bank entered into salary continuation agreements with three of its executive officers. Two additional TIB Bank executive officers entered into salary continuation agreements in 2003, another in 2004 and two additional TIB Bank executives entered into salary continuation agreements in 2008. In 2007, an additional two pre-existing salary continuation agreements with The Bank of Venice’s executive officers were assumed as part of the acquisition. The plans are nonqualified deferred compensation arrangements that are designed to provide supplemental retirement income benefits to participants. The Company expensed $351, $811, and $617 for the accrual of future salary continuation benefits in 2008, 2007 and 2006, respectively. The Banks have purchased single premium life insurance policies on several of these individuals. Cash value income (net of related insurance premium expense) totaled $236, $266, and $234 in 2008, 2007 and 2006, respectively. Other assets included $7,652 and $7,374 in surrender value and other liabilities included salary continuation benefits payable of $3,071 and $2,726 at December 31, 2008 and 2007, respectively. Three of these executive officers terminated employment in 2008 and one terminated employment in 2009.
In 2001, TIB Bank established a non qualified retirement benefit plan for eligible Bank directors. Under the plan, the Bank pays each participant, or their beneficiary, the amount of fees deferred and interest in 120 equal monthly installments, beginning the month following the director’s normal retirement date. TIB Bank expensed $214, $239, and $231 for the accrual of current and future retirement benefits in 2008, 2007 and 2006, respectively, which included $112, $160, and $170 in 2008, 2007 and 2006 related to the annual director retainer fees and monthly meeting fees that certain directors elected to defer. TIB Bank has purchased single premium split dollar life insurance policies on these individuals. Cash value income (net of related insurance premium expense) totaled $162, $152, and $141 in 2008, 2007 and 2006, respectively. Other assets included $4,451 and $4,286 in surrender value in other assets and other liabilities included retirement benefits payable of $1,627 and $1,294 at December 31, 2008 and 2007, respectively.
Note 13—Related Party Transactions
The Banks had loans outstanding to certain of the Company’s executive officers, directors, and their related business interests as follows:
| Beginning balance, January 1, 2008 | | $ | 679 | |
| New loans | | | 701 | |
| Repayments | | | (614 | ) |
| Change in Parties | | | (496 | ) |
| Ending balance, December 31, 2008 | | $ | 270 | |
| | | | | |
Unfunded loan commitments to these individuals and their related business interests totaled $161 at December 31, 2008. Deposits from these individuals and their related interests were $2,081 and $2,451 at December 31, 2008 and 2007, respectively.
Note 14—Shareholders’ Equity and Minimum Regulatory Capital Requirements
The Company (on a consolidated basis) and the Banks are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements results in certain discretionary actions by regulators that could have an effect on the Company’s operations. The regulations require the Company and the Banks to meet specific capital adequacy guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
To be considered well capitalized and adequately capitalized (as defined) under the regulatory framework for prompt corrective action, the Banks must maintain minimum Tier 1 leverage, Tier 1 risk-based, and total risk-based ratios. These minimum amounts and ratios along with the actual amounts and ratios for the Company, TIB Bank, and The Bank of Venice as of December 31, 2008 and 2007 are presented in the following tables.
| December 31, 2008 | | Well Capitalized Requirement | | | Adequately Capitalized Requirement | | | Actual | |
| | | Amount | | | Ratio | | | Amount | | | Ratio | | | Amount | | | Ratio | |
| Tier 1 Capital (to Average Assets) | | | | | | | | | | | | | | | | | | |
| Consolidated | | | N/A | | | | N/A | | | $ | ≥ 63,303 | | | | ≥ 4.0 | % | | $ | 140,396 | | | | 8.9 | % |
| TIB Bank | | $ | ≥ 75,032 | | | | ≥ 5.0 | % | | | ≥ 60,026 | | | | ≥ 4.0 | % | | | 109,254 | | | | 7.3 | % |
| The Bank of Venice | | | ≥ 4,072 | | | | ≥ 5.0 | % | | | ≥ 3,258 | | | | ≥ 4.0 | % | | | 6,555 | | | | 8.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Tier 1 Capital ( to Risk Weighted Assets) | | | | | | | | | | | | | | | | | | | | | | | | |
| Consolidated | | | N/A | | | | N/A | | | $ | ≥ 49,521 | | | | ≥ 4.0 | % | | $ | 140,396 | | | | 11.3 | % |
| TIB Bank | | $ | ≥ 70,676 | | | | ≥ 6.0 | % | | | ≥ 47,117 | | | | ≥ 4.0 | % | | | 109,254 | | | | 9.3 | % |
| The Bank of Venice | | | ≥ 3,528 | | | | ≥ 6.0 | % | | | ≥ 2,351 | | | | ≥ 4.0 | % | | | 6,555 | | | | 11.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Capital (to Risk Weighted Assets) | | | | | | | | | | | | | | | | | | | | | | | | |
| Consolidated | | | N/A | | | | N/A | | | $ | ≥ 99,042 | | | | ≥ 8.0 | % | | $ | 155,977 | | | | 12.6 | % |
| TIB Bank | | $ | ≥ 117,793 | | | | ≥ 10.0 | % | | | ≥ 94,234 | | | | ≥ 8.0 | % | | | 124,070 | | | | 10.5 | % |
| The Bank of Venice | | | ≥ 5,880 | | | | ≥ 10.0 | % | | | ≥ 4,704 | | | | ≥ 8.0 | % | | | 7,301 | | | | 12.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2007 | | Well Capitalized Requirement | | | Adequately Capitalized Requirement | | | Actual | |
| | | Amount | | | Ratio | | | Amount | | | Ratio | | | Amount | | | Ratio | |
| Tier 1 Capital (to Average Assets) | | | | | | | | | | | | | | | | | | |
| Consolidated | | | N/A | | | | N/A | | | $ | ≥ 56,173 | | | | ≥ 4.0 | % | | $ | 118,303 | | | | 8.4 | % |
| TIB Bank | | $ | ≥ 66,804 | | | | ≥ 5.0 | % | | | ≥ 53,443 | | | | ≥ 4.0 | % | | | 104,258 | | | | 7.8 | % |
| The Bank of Venice | | | ≥ 3,330 | | | | ≥ 5.0 | % | | | ≥ 2,664 | | | | ≥ 4.0 | % | | | 7,906 | | | | 11.9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Tier 1 Capital ( to Risk Weighted Assets) | | | | | | | | | | | | | | | | | | | | | | | | |
| Consolidated | | | N/A | | | | N/A | | | $ | ≥ 47,482 | | | | ≥ 4.0 | % | | $ | 118,303 | | | | 10.0 | % |
| TIB Bank | | $ | ≥ 68,180 | | | | ≥ 6.0 | % | | | ≥ 45,453 | | | | ≥ 4.0 | % | | | 104,258 | | | | 9.2 | % |
| The Bank of Venice | | | ≥ 3,069 | | | | ≥ 6.0 | % | | | ≥ 2,046 | | | | ≥ 4.0 | % | | | 7,906 | | | | 15.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Capital (to Risk Weighted Assets) | | | | | | | | | | | | | | | | | | | | | | | | |
| Consolidated | | | N/A | | | | N/A | | | $ | ≥ 94,965 | | | | ≥ 8.0 | % | | $ | 134,565 | | | | 11.3 | % |
| TIB Bank | | $ | ≥ 113,633 | | | | ≥ 10.0 | % | | | ≥ 90,906 | | | | ≥ 8.0 | % | | | 118,468 | | | | 10.4 | % |
| The Bank of Venice | | | ≥ 5,116 | | | | ≥ 10.0 | % | | | ≥ 4,092 | | | | ≥ 8.0 | % | | | 8,546 | | | | 16.7 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
At year end 2008 and 2007, the most recent regulatory notification categorized the Banks as well capitalized under the regulatory framework for prompt corrective action.
Management believes, as of December 31, 2008, that the Company and the Banks meet all capital requirements to which they are subject. Tier 1 Capital for the Company includes the trust preferred securities that were issued in September 2000, July 2001 and June 2006 to the extent allowable.
Under state banking law, regulatory approval will be required if the total of all dividends declared in any calendar year by a bank exceeds the bank’s net profits to date for that year combined with its retained net profits for the preceding two years. Based on the level of undistributed earnings for the prior two years, declaration of dividends by TIB Bank to the Company, during 2008, would have required regulatory approval. As of December 31, 2008, The Bank of Venice has no retained earnings available for dividends to the Company.
On March 7, 2008, we consummated a private placement transaction whereby two of Southwest Florida’s prominent families, their representatives and their related business interests purchased 1.2 million shares of common stock and warrants to purchase an additional 1.2 million shares of common stock. The warrants have an exercise price of $8.15 per share and may be exercised at any time prior to March 7, 2011. This private placement resulted in gross proceeds of $10,080. The terms of the transaction limits the ownership of each of the two groups to 9.9% of outstanding shares.
On December 5, 2008, under the U.S. Department of Treasury’s (the “Treasury”) Capital Purchase Program (the “CPP”) established under the Troubled Asset Relief Program (the “TARP”) that was created as part of the Emergency Economic Stabilization Act of 2008 (the “EESA”), the Company issued to Treasury 37,000 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, $0.10 par value, having a liquidation amount of $1,000 per share, and a ten-year warrant to purchase 1,073,850 shares of common stock at an exercise price of $5.17 per share, for aggregate proceeds of $37,000. Approximately $32,889 was allocated to the initial carrying value of the preferred stock and $4,111 to the warrant based on their relative estimated fair values on the issue date. The difference between the initial carrying value of the preferred stock and the $37,000 full redemption value will be accreted over five years and reported as preferred stock discount accretion. The total capital raised through this issue qualifies as Tier 1 regulatory capital and can be used in calculating all regulatory capital ratios.
Cumulative preferred stock dividends are payable quarterly at a 5% annual rate on the per share liquidation amount for the first five years and 9% thereafter. Under the original terms of the CPP, the Company may not redeem the preferred stock for three years unless it finances the redemption with the net cash proceeds from sales of common or preferred stock that qualify as Tier 1 regulatory capital (qualified equity offering), and only once such proceeds total at least $9,250. All redemptions, whether before of after the first three years, would be at the liquidation amount per share plus accrued and unpaid dividends and are subject to prior regulatory approval.
The Company may not declare or pay dividends on its common stock or, with certain exceptions, repurchase common stock without first having paid all accrued cumulative preferred dividends that are due. For three years from the issue date, the Company also may not increase its common stock dividend rate above a quarterly rate of $.0606 per share or repurchase its common shares without Treasury’s consent, unless Treasury has transferred all the preferred shares to third parties or the preferred stock has been redeemed.
Treasury may only transfer or exercise an aggregate of one-half of the original number of shares underlying the warrant before December 31, 2009. If, before that date, the Company receives aggregate gross cash proceeds of not less than $37,000 from a qualified equity offering, then the remaining number of shares issuable to Treasury upon exercise of the warrant will be reduced by one-half of the original number of shares under warrant. Both the number of shares of common stock underlying the warrant and the exercise price are subject to adjustment in accordance with customary anti-dilution provisions and upon certain issuances of the Company’s common stock or stock rights at less than 90% of market value.
To be eligible for the CPP, the Company has also agreed to comply with certain executive compensation and corporate governance requirements of the EESA, including a limit on the tax deductibility of executive compensation above $500. The specific rules covering these requirements are being developed by Treasury and other government agencies. Additionally, under the EESA, Congress has the ability to impose “after-the-fact” terms and conditions on participants in the CPP. As a participant in the CPP, the Company may be subject to any such retroactive terms and conditions. The Company cannot predict whether, or in what form, additional terms or conditions may be imposed.
The American Recovery and Reinvestment Act (the “ARRA”) became law on February 17, 2009. Among its many provisions, the ARRA imposes certain new executive compensation and corporate expenditure limits on all current and future TARP recipients, including the Company, that are in addition to those previously announced by the Treasury. These limits are effective until the institution has repaid the Treasury, which is now permitted under the ARRA without penalty and without the need to raise new capital, subject to the Treasury’s consultation with the recipient’s appropriate regulatory agency.
Note 15 – Stock-Based Compensation
As of December 31, 2008, the Company has one compensation plan under which shares of its common stock are issuable in the form of stock options, restricted shares, stock appreciation rights, performance shares or performance units. This is its 2004 Equity Incentive Plan (the “2004 Plan”), which was approved by the Company’s shareholders at the May 25, 2004 annual meeting. Pursuant to the merger agreement, upon the April 30, 2007 closing of its acquisition of The Bank of Venice, the Company granted 85,257 stock options in exchange for the options outstanding for the purchase of shares of common stock of The Bank of Venice at such date. The options were fully vested at the grant date and ranged in price from $8.90 to $10.23 per share as determined by the conversion ratio specified in the merger agreement. Previously, the Company had granted stock options under the 1994 Incentive Stock Option and Nonstatutory Stock Option Plan (the “1994 Plan”) as amended and restated as of August 31, 1996. Under the 2004 Plan, the Board of Directors of the Company may grant nonqualified stock–based awards to any director, and incentive or nonqualified stock-based awards to any officer, key executive, administrative, or other employee including an employee who is a director of the Company. Subject to the provisions of the 2004 Plan, the maximum number of shares of common stock of the Company that may be optioned or awarded through the 2014 expiration of the plan is 824,240 shares, no more than 274,060 of which may be issued pursuant to awards granted in the form of restricted shares. Such shares may be treasury, or authorized but unissued, shares of common stock of the Company. If options or awards granted under the Plan expire or terminate for any reason without having been exercised in full or released from restriction, the corresponding shares shall again be available for option or award for the purposes of the Plan as long as no dividends have been paid to the holder in accordance with the provisions of the grant agreement.
The following table summarizes the components and classification of stock-based compensation expense for the years ended December 31,
| | | 2008 | | | 2007 | | | 2006 | |
| Stock Options | | $ | 280 | | | $ | 284 | | | $ | 305 | |
| Restricted Stock | | | 457 | | | | 364 | | | | 259 | |
| Total stock-based compensation expense | | $ | 737 | | | $ | 648 | | | $ | 564 | |
| | | | | | | | | | | | | |
| Salaries and employee benefits | | $ | 436 | | | $ | 417 | | | $ | 390 | |
| Other expense | | | 301 | | | | 231 | | | | 174 | |
| Total stock-based compensation expense | | $ | 737 | | | $ | 648 | | | $ | 564 | |
| | | | | | | | | | | | | |
The tax benefit related to stock-based compensation expense arising from restricted stock awards and non-qualified stock options was approximately $177, $142 and $101 for the years ended December 31, 2008, 2007 and 2006, respectively.
The fair value of each option is estimated as of the date of grant using the Black-Scholes Option Pricing Model. This model requires the input of subjective assumptions that will usually have a significant impact on the fair value estimate. The assumptions for the current period grants were developed based on SFAS 123R and SEC guidance contained in Staff Accounting Bulletin (SAB) No. 107, “Share-Based Payment.” The following table summarizes the weighted average assumptions used to compute the grant-date fair value of options granted for the years ended December 31,
| | | 2008 | | | 2007 | | | 2006 | |
| Dividend yield | | | 2.31 | % | | | 1.63 | % | | | 1.55 | % |
| Risk-free interest rate | | | 2.99 | % | | | 4.18 | % | | | 4.89 | % |
| Expected option life | | 6.4 years | | | 4.6 years | | | 6.5 years | |
| Volatility | | | 26 | % | | | 21 | % | | | 31 | % |
| Weighted average grant-date fair value of options granted | | $ | 1.77 | | | $ | 3.93 | | | $ | 5.08 | |
| | | | | | | | | | | | | |
| · | The dividend yield was estimated using historical dividends paid and market value information for the Company’s stock. An increase in dividend yield will decrease stock compensation expense. |
| · | The risk-free interest rate was developed using the U.S. Treasury yield curve for periods equal to the expected life of the options on the grant date. An increase in the risk-free interest rate will increase stock compensation expense. |
| · | The expected option life for the current period grants was estimated using the vesting period, the term of the option and estimates of future exercise behavior patterns. An increase in the option life will increase stock compensation expense. |
| · | The volatility was estimated using historical volatility for periods approximating the expected option life. An increase in the volatility will increase stock compensation expense. |
SFAS 123R requires the recognition of stock-based compensation for the number of awards that are ultimately expected to vest. During 2006, 2007 and 2008, stock based compensation expense was recorded based upon estimates that we would experience no forfeitures. Our estimate of forfeitures will be reassessed in subsequent periods based on historical forfeiture rates and may change based on new facts and circumstances. Any changes in our estimates will be accounted for prospectively in the period of change.
As of December 31, 2008, unrecognized compensation expense associated with stock options and restricted stock was $710 and $826 which is expected to be recognized over weighted average periods of approximately 2 years.
Stock Options
Under the 2004 Plan, the exercise price for common stock must equal at least 100 percent of the fair market value of the stock on the day an option is granted. The exercise price under an incentive stock option granted to a person owning stock representing more than 10 percent of the common stock must equal at least 110 percent of the fair market value at the date of grant, and such option is not exercisable after five years from the date the incentive stock option was granted. The Board of Directors may, at its discretion, provide that an option not be exercised in whole or in part for any period or periods of time as specified in the option agreements. No option may be exercised after the expiration of ten years from the date it is granted. Stock options vest over varying service periods which range from vesting immediately to up to nine years.
A summary of the stock option activity in the plans is as follows:
| | | Shares | | | Weighted Average Exercise Price | |
| Balance, January 1, 2006 | | | 801,538 | | | $ | 7.83 | |
Granted | | | 88,218 | | | | 14.68 | |
Exercised | | | (139,076 | ) | | | 6.08 | |
Expired or forfeited | | | (21,737 | ) | | | 10.40 | |
| Balance, December 31, 2006 | | | 728,943 | | | $ | 8.91 | |
Granted | | | 154,710 | | | | 9.06 | |
Exercised | | | (155,342 | ) | | | 7.14 | |
Expired or forfeited | | | (31,382 | ) | | | 11.55 | |
| Balance, December 31, 2007 | | | 696,929 | | | $ | 9.22 | |
Granted | | | 100,855 | | | | 7.66 | |
Exercised | | | (15,248 | ) | | | 6.45 | |
Expired or forfeited | | | (102,982 | ) | | | 8.10 | |
| Balance, December 31, 2008 | | | 679,554 | | | $ | 9.22 | |
| | | | | | | | | |
| Options exercisable at December 31, | | 2008 | | | 2007 | |
| | | Shares | | | Weighted Average Exercise Price | | | Shares | | | Weighted Average Exercise Price | |
| | | | 320,668 | | | $ | 9.21 | | | | 303,656 | | | $ | 8.52 | |
| | | | | | | | | | | | | | | | | |
The weighted average remaining terms for outstanding stock options and for exercisable stock options were 5.9 years and 4.9 years at December 31, 2008, respectively. The aggregate intrinsic value at December 31, 2008 was $0 for stock options outstanding and $0 for stock options exercisable. The intrinsic value for stock options is calculated based on the exercise price of the underlying awards and the market price of the Company’s common stock as of the reporting date.
Options outstanding at December 31, 2008 were as follows:
| | | | Outstanding Options | | | Options Exercisable | |
| Range of Exercise Prices | | | Number | | | Weighted Average Remaining Contractual Life | | | Weighted Average Exercise Price | | | Number | | | Weighted Average Exercise Price | |
| $ | 4.91 – $8.13 | | | | 269,692 | | | | 5.29 | | | $ | 6.67 | | | | 93,952 | | | $ | 6.02 | |
| | 8.27 – 11.05 | | | | 239,484 | | | | 6.02 | | | | 9.28 | | | | 146,971 | | | | 9.23 | |
| | 11.06 – 15.35 | | | | 170,378 | | | | 6.55 | | | | 13.18 | | | | 79,745 | | | | 12.95 | |
| $ | 4.91 – $15.35 | | | | 679,554 | | | | 5.86 | | | $ | 9.22 | | | | 320,668 | | | $ | 9.21 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Proceeds received from the exercise of stock options were $98, $1,108 and $846 during the years ended December 31, 2008, 2007 and 2006, respectively. The intrinsic value related to the exercise of stock options was $13, $1,194 and $1,297, during the years ended December 31, 2008, 2007 and 2006, respectively. The intrinsic value related to exercises of non-qualified stock options and disqualifying dispositions of incentive stock options resulted in the realization of tax benefits of $3, $51 and $147, during the years ended December 31, 2008, 2007 and 2006, respectively.
Restricted Stock
Restricted stock provides the grantee with voting, dividend and anti-dilution rights equivalent to common shareholders, but is restricted from transfer until vested, at which time all restrictions are removed. Vesting for restricted shares is generally on a straight-line basis and ranges from one to five years. The value of the restricted stock, estimated to be equal to the closing market price on the date of grant, is being amortized on a straight-line basis over the respective service periods. The fair market value of restricted stock awards that vested was $185, $202 and $251 during the years ended December 31, 2008, 2007 and 2006, respectively. Tax benefits related to the vesting of restricted shares of $33, $10 and $3 were realized during the years ended December 31, 2008, 2007 and 2006, respectively.
A summary of the restricted stock activity in the plan is as follows:
| | | 2008 | | | 2007 | | | 2006 | |
| | | Shares | | | Weighted Average Grant-Date Fair Value | | | Shares | | | Weighted Average Grant-Date Fair Value | | | Shares | | | Weighted Average Grant-Date Fair Value | |
| Balance, January 1, | | | 88,055 | | | $ | 13.99 | | | | 68,896 | | | $ | 15.21 | | | | 84,485 | | | $ | 15.18 | |
Granted | | | 37,570 | | | | 7.12 | | | | 37,970 | | | | 12.37 | | | | 10,658 | | | | 15.37 | |
Vested | | | (30,299 | ) | | | 14.09 | | | | (18,609 | ) | | | 15.22 | | | | (15,944 | ) | | | 15.21 | |
Expired or forfeited | | | (1,432 | ) | | | 14.37 | | | | (202 | ) | | | 13.79 | | | | (10,303 | ) | | | 15.12 | |
| Balance, December 31, | | | 93,894 | | | $ | 11.20 | | | | 88,055 | | | $ | 13.99 | | | | 68,896 | | | $ | 15.21 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Note 16—Loan Commitments and Other Related Activities
Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance-sheet risk of credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment.
The contractual amount of financial instruments with off-balance-sheet risk was as follows at December 31:
| | | 2008 | | | 2007 | |
| | | Fixed Rate | | | Variable Rate | | | Fixed Rate | | | Variable Rate | |
| Commitments to make loans | | $ | 10,786 | | | $ | 4,919 | | | $ | 6,384 | | | $ | 4,180 | |
| Unfunded commitments under lines of credit | | | 8,181 | | | | 79,577 | | | | 9,446 | | | | 116,068 | |
| | | | | | | | | | | | | | | | | |
Commitments to make loans are generally made for periods of 30 days. As of December 31, 2008, the fixed rate loan commitments have interest rates ranging from 5.39% to 18.00% and maturities ranging from 60 days to 15 years.
As of December 31, 2008 and 2007, the Company was subject to letters of credit totaling $2,542 and $2,947, respectively.
Note 17—Supplemental Financial Data
Components of other expense in excess of 1 percent of total interest and non-interest income are as follows:
| Years Ended December 31, | | 2008 | | | 2007 | | | 2006 | |
| Computer services | | $ | 2,093 | | | $ | 2,172 | | | $ | 1,955 | |
| Legal and professional fees | | | 2,558 | | | | 1,372 | | | | 1,246 | |
| Collection Expense | | | 1,341 | | | | 772 | | | | 464 | |
| Marketing and community relations | | | 1,246 | | | | 1,151 | | | | 983 | |
| FDIC & State assessments | | | 1,153 | | | | 629 | | | | 298 | |
| Operational Charge-offs | | | 1,528 | | | | 74 | | | | 124 | |
| OREO Expenses | | | 1,694 | | | | 14 | | | | - | |
| Repossessed asset expenses | | | 1,387 | | | | 986 | | | | 312 | |
| | | | | | | | | | | | | |
Note 18—Fair Values of Financial Instruments
FASB Statement 157 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
The fair values of securities available for sale are determined by 1) obtaining quoted prices on nationally recognized securities exchanges when available (Level 1 inputs), 2) matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs) and 3) for collateralized debt obligations, custom discounted cash flow modeling (Level 3 inputs).
Valuation of collateralized debt securities
As of December 31, 2008, the Company owned three collateralized debt obligations where the underlying collateral is comprised primarily of corporate debt obligations of homebuilders, REITs, real estate companies and commercial mortgage backed securities. The company also owned a collateralized debt security where the underlying collateral is comprised primarily of trust preferred securities of banks and insurance companies. The inputs used in determining the estimated fair value of these securities are Level 3 inputs. In determining their estimated fair value, management utilizes a discounted cash flow modeling valuation approach. Discount rates utilized in the modeling of these securities are estimated based upon a variety of factors including the yield at issuance of similarly rated classes of comparably structured collateralized debt obligations. Cash flows utilized in the modeling of these securities were based upon actual default history of the underlying issuers and varying assumptions of estimated future defaults of issuers. The valuation approach for the real estate industry collateralized securities did not change during 2008. Management changed the valuation approach during the second quarter of 2008 of the collateralized debt obligation collateralized by trust preferred securities of banks and insurance companies because there were no longer observable level 2 inputs available. Therefore, custom discounted cash flow modeling was also employed beginning in the second quarter of 2008 to estimate the fair value of this security (Level 3 inputs).
Valuation of Impaired loans
The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.
Assets and Liabilities Measured on a Recurring Basis
Assets and liabilities measured at fair value on a recurring basis are summarized below:
| | | | | | Fair Value Measurements at December 31, 2008 Using | |
| | | December 31, 2008 | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | |
| Assets: | | | | | | | | | | | | |
| Available for sale securities | | $ | 225,770 | | | $ | - | | | $ | 221,495 | | | $ | 4,275 | |
| | | | | | | | | | | | | | | | | |
The table below presents a reconciliation and income statement classification of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended December 31, 2008 and still held at December 31, 2008.
| | | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | |
| | | Collateralized Debt Obligations | |
| Beginning balance, January 1, 2008 | | $ | 6,111 | |
| Included in earnings – other than temporary impairment | | | (5,348 | ) |
| Included in other comprehensive income | | | (1,206 | ) |
| Transfer in to Level 3 | | | 4,718 | |
| Ending balance, December 31, 2008 | | $ | 4,275 | |
| | | | | |
Assets and Liabilities Measured on a Non-Recurring Basis
Assets and liabilities measured at fair value on a non-recurring basis are summarized below:
| | | | | | Fair Value Measurements at December 31, 2008 Using | |
| | | December 31, 2008 | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | |
| Assets: | | | | | | | | | | | | |
| Impaired loans with specific allocations of the allowance for loan losses | | $ | 47,649 | | | $ | - | | | $ | - | | | $ | 47,649 | |
| | | | | | | | | | | | | | | | | |
Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $53,765, with a valuation allowance of $6,116, resulting in specific allocations of the allowance for loan losses of $11,716 for 2008. The amounts of the specific allocations for impairment are considered in the overall determination of the reserve and provision for loan losses.
Carrying amount and estimated fair values of financial instruments were as follows at December 31:
| | | 2008 | | | 2007 | |
| | | Carrying Value | | | Estimated Fair Value | | | Carrying Value | | | Estimated Fair Value | |
| Financial assets: | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 73,734 | | | $ | 73,734 | | | $ | 71,059 | | | $ | 71,059 | |
| Investment securities available for sale | | | 225,770 | | | | 225,770 | | | | 160,357 | | | | 160,357 | |
| Loans, net | | | 1,201,192 | | | | 1,164,238 | | | | 1,114,183 | | | | 1,126,691 | |
| Federal Home Loan Bank and Independent Bankers’ Bank stock | | | 12,012 | | | NM | | | | 9,068 | | | NM | |
| Accrued interest receivable | | | 6,839 | | | | 6,839 | | | | 7,761 | | | | 7,761 | |
| | | | | | | | | | | | | | | | | |
| Financial liabilities: | | | | | | | | | | | | | | | | |
| Non-contractual deposits | | | 446,993 | | | | 446,993 | | | | 537,204 | | | | 537,204 | |
| Contractual deposits | | | 688,675 | | | | 697,676 | | | | 512,754 | | | | 515,715 | |
| Federal Home Loan Bank Advances | | | 202,900 | | | | 211,827 | | | | 140,000 | | | | 142,438 | |
| Short-term borrowings | | | 71,423 | | | | 71,412 | | | | 77,922 | | | | 77,900 | |
| Long-term repurchase agreements | | | 30,000 | | | | 31,248 | | | | 30,000 | | | | 30,401 | |
| Subordinated debentures | | | 33,000 | | | | 15,588 | | | | 33,000 | | | | 33,646 | |
| Accrued interest payable | | | 8,012 | | | | 8,012 | | | | 9,012 | | | | 9,012 | |
| | | | | | | | | | | | | | | | | |
The methods and assumptions used to estimate fair value are described as follows:
Carrying amount is the estimated fair value for cash and cash equivalents, accrued interest receivable and payable, non-contractual demand deposits, certain short-term borrowings, and variable rate loans that reprice frequently and fully. As it is not practicable to determine the fair value of Federal Home Loan Bank stock and other bankers’ bank stock due to restrictions placed on its transferability. Security fair values are based on market prices or dealer quotes, and if no such information is available, on the rate and term of the security and information about the issuer including estimates of discounted cash flows when necessary. For fixed rate loans or contractual deposits and for variable rate loans or deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life, adjusted for the allowance for loan losses. Fair values for impaired loans are estimated using discounted cash flow analysis or underlying collateral values. Fair value of long-term debt is based on current rates for similar financing. The fair value of off-balance sheet items that includes commitments to extend credit to fund commercial, consumer, real estate construction and real estate-mortgage loans and to fund standby letters of credit is considered nominal.
TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except per share data)
Note 19—Condensed Financial Information of TIB Financial Corp.
Condensed Balance Sheets
(Parent Only)
| December 31, | | 2008 | | | 2007 | |
| Assets: | | | | | | |
| Cash on deposit with subsidiary | | $ | 23,559 | | | $ | 1,092 | |
| Dividends receivable from subsidiaries | | | 20 | | | | 7,595 | |
| Investment in bank subsidiaries | | | 128,351 | | | | 121,684 | |
| Investment in other subsidiaries | | | 2,107 | | | | 1,022 | |
| Other assets | | | 1,791 | | | | 576 | |
| Total Assets | | $ | 155,828 | | | $ | 131,969 | |
| | | | | | | | | |
| Liabilities and Shareholders’ Equity: | | | | | | | | |
| Dividends payable | | $ | - | | | $ | 799 | |
| Interest payable | | | 653 | | | | 679 | |
| Notes payable | | | 34,022 | | | | 34,022 | |
| Other liabilities | | | 39 | | | | 229 | |
| Shareholders’ equity | | | 121,114 | | | | 96,240 | |
| Total Liabilities and Shareholders’ Equity | | $ | 155,828 | | | $ | 131,969 | |
| | | | | | | | | |
Condensed Statements of Income
(Parent Only)
| Year Ended December 31, | | 2008 | | | 2007 | | | 2006 | |
| Operating income: | | | | | | | | | |
| Interest Income | | $ | 83 | | | $ | - | | | $ | - | |
| Dividends from bank subsidiaries | | | - | | | | 11,340 | | | | 7,630 | |
| Dividends from other subsidiaries | | | 70 | | | | 83 | | | | 63 | |
| Total operating income | | | 153 | | | | 11,423 | | | | 7,693 | |
| | | | | | | | | | | | | |
| Operating expense: | | | | | | | | | | | | |
| Interest expense | | | 2,336 | | | | 2,798 | | | | 2,475 | |
| Other expense | | | 1,908 | | | | 1,298 | | | | 975 | |
| Total operating expense | | | 4,244 | | | | 4,096 | | | | 3,450 | |
| | | | | | | | | | | | | |
| Income (loss) before income tax benefit and equity in undistributed earnings of subsidiaries | | | (4,091 | ) | | | 7,327 | | | | 4,243 | |
| Income tax benefit | | | 1,537 | | | | 1,509 | | | | 1,281 | |
| Income (loss) before equity in undistributed earnings of subsidiaries | | | (2,554 | ) | | | 8,836 | | | | 5,524 | |
| Equity in undistributed earnings (losses) of subsidiaries | | | (18,376 | ) | | | (11,257 | ) | | | 3,723 | |
| | | | | | | | | | | | | |
| Net income (loss) | | $ | (20,930 | ) | | $ | (2,421 | ) | | $ | 9,247 | |
| | | | | | | | | | | | | |
Note 19—Condensed Financial Information of TIB Financial Corp. (Continued)
Condensed Statements of Cash Flows
(Parent Only)
| Year Ended December 31, | | 2008 | | | 2007 | | | 2006 | |
| Cash flows from operating activities: | | | | | | | | | |
| Net income (loss) | | $ | (20,930 | ) | | $ | (2,421 | ) | | $ | 9,247 | |
| Equity in undistributed (earnings) losses of bank subsidiaries | | | 18,376 | | | | 11,257 | | | | (3,723 | ) |
| Stock-based compensation expense | | | 274 | | | | 231 | | | | 174 | |
| Increase (decrease) in net income tax obligation | | | (1,047 | ) | | | 157 | | | | 377 | |
| (Increase) decrease in other assets | | | 7,190 | | | | (7,416 | ) | | | (238 | ) |
| Increase (decrease) in other liabilities | | | 2 | | | | (175 | ) | | | 419 | |
| Net cash provided by operating activities | | | 3,865 | | | | 1,633 | | | | 6,256 | |
| | | | | | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | | | | | |
| Investment in bank subsidiaries | | | (25,750 | ) | | | (888 | ) | | | (19,500 | ) |
| Investment in other subsidiaries | | | (1,378 | ) | | | - | | | | (619 | ) |
| Net cash used in investing activities | | | (27,128 | ) | | | (888 | ) | | | (20,119 | ) |
| | | | | | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | | | | | |
| Repayment of note payable | | | - | | | | (4,000 | ) | | | - | |
| Net proceeds from issuance of common shares | | | 10,033 | | | | 1,108 | | | | 846 | |
| Income tax effect of stock based compensation | | | (82 | ) | | | 21 | | | | 150 | |
| Proceeds from issuance of preferred stock and common warrants | | | 36,992 | | | | - | | | | - | |
| Proceeds from subsidiaries for equity awards | | | 464 | | | | 417 | | | | 390 | |
| Payment to repurchase stock | | | - | | | | (569 | ) | | | - | |
| Proceeds from issuance of long-term debt | | | - | | | | - | | | | 20,619 | |
| Cash dividends paid | | | (1,677 | ) | | | (2,953 | ) | | | (2,741 | ) |
| Net cash provided by (used in) financing activities | | | 45,730 | | | | (5,976 | ) | | | 19,264 | |
| | | | | | | | | | | | | |
| Net increase (decrease) in cash | | | 22,467 | | | | (5,231 | ) | | | 5,401 | |
| Cash, beginning of year | | | 1,092 | | | | 6,323 | | | | 922 | |
| Cash, end of year | | $ | 23,559 | | | $ | 1,092 | | | $ | 6,323 | |
| | | | | | | | | | | | | |
Note 20—Quarterly Financial Data (Unaudited)
The following is a summary of unaudited quarterly results for 2008 and 2007:
| | | 2008 | | | 2007 | |
| | | Fourth | | | Third | | | Second | | | First | | | Fourth | | | Third | | | Second | | | First | |
| Condensed income statements: | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest income | | $ | 21,223 | | | $ | 22,242 | | | $ | 21,777 | | | $ | 22,922 | | | $ | 23,863 | | | $ | 23,549 | | | $ | 23,950 | | | $ | 23,379 | |
| Net interest income | | | 10,719 | | | | 11,676 | | | | 11,409 | | | | 10,856 | | | | 11,350 | | | | 11,286 | | | | 11,882 | | | | 11,502 | |
| Provision for loan losses | | | 15,101 | | | | 4,768 | | | | 5,716 | | | | 2,654 | | | | 6,168 | | | | 2,385 | | | | 632 | | | | 472 | |
| Investment securities gain (loss), net | | | (4,221 | ) | | | (126 | ) | | | (1,912 | ) | | | 910 | | | | (5,660 | ) | | | - | | | | - | | | | - | |
| Income (loss) from continuing operations | | | (13,255 | ) | | | (2,196 | ) | | | (4,034 | ) | | | (1,445 | ) | | | (6,498 | ) | | | 494 | | | | 1,712 | | | | 1,871 | |
| Income earned by preferred shareholders | | | 165 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| Net income (loss) allocated to common shareholders | | | (13,420 | ) | | | (2,196 | ) | | | (4,034 | ) | | | (1,445 | ) | | | (6,498 | ) | | | 494 | | | | 1,712 | | | | 1,871 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Earnings (loss) per share: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Income (loss) from continuing operations – Basic | | $ | (0.93 | ) | | $ | (0.15 | ) | | $ | (0.28 | ) | | $ | (0.11 | ) | | $ | (0.49 | ) | | $ | 0.04 | | | $ | 0.14 | | | $ | 0.16 | |
| Income (loss) from continuing operations – Diluted | | $ | (0.93 | ) | | $ | 0.15 | ) | | $ | (0.28 | ) | | $ | (0.11 | ) | | $ | (0.49 | ) | | $ | 0.04 | | | $ | 0.14 | | | $ | 0.16 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The net loss for the fourth quarter of 2008 was primarily due to the provision for loan losses of $15,101 and $4,221 in non-cash charges relating to the other than temporary impairment of investment securities brought about by a deepening of the economic downturn on a national and local basis during the quarter. The net loss during the fourth quarter of 2007 was primarily due to the provision for loan losses of $6,168 and $5,660 of non-cash charges relating to the other than temporary impairment of investment securities. The fourth quarter of 2007 was marked by deterioration in the real estate market which had a significant impact on the local economy in our southwest Florida market and the issuers of securities written down by the Company.
Note 21—Subsequent Event
On February 13, 2009, the Company purchased the deposits of Riverside Bank of the Gulf Coast (“Riverside”), a failed bank based in Cape Coral, Florida, from the Federal Deposit Insurance Corporation for approximately $4,000, representing a premium of approximately 1.3%. Total deposits purchased approximated $317,000. Additionally, the Company purchased approximately $125,000 in cash and investment securities and $1,100 in loans. Riverside operated from nine branch banking offices of which eight were owned and one was leased. The Company has an option to purchase the eight owned offices for fair value which is to be determined by appraisal and assume the leases on the remaining one. As a result of this transaction, the Company expects to expand its customer base in Southwest Florida.
Not applicable.
(a) Evaluation of Disclosure Controls and Procedures
The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, they have concluded that the Corporation’s disclosure controls and procedures are effective in ensuring that material information related to the Corporation is made known to them by others within the Corporation.
(b) Management’s Annual Report on Internal Control Over Financial Reporting
During the fourth quarter of 2008 and subsequent thereto, the Company has made no significant changes in its internal controls or in other factors which may significantly affect these controls subsequent to the evaluation of these controls by the Chief Executive Officer and Chief Financial Officer.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of TIB Financial Corp. is responsible for establishing and maintaining adequate internal control over financial reporting, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). TIB Financial Corp.’s system of internal control over financial reporting was designed under the supervision of the company’s chief executive officer and chief financial officer to provide reasonable assurance regarding the reliability of the preparation of the company’s financial statements for external reporting purposes, in accordance with U.S. generally accepted accounting principles.
TIB Financial Corp.’s management assessed the effectiveness of the company’s internal control over financial reporting as of December 31, 2008, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the assessment, management determined that, as of December 31, 2008, the company’s internal control over financial reporting is effective. The effectiveness of the Company’s internal control over financial reporting as of December 31, 2008 has been audited by Crowe Horwath LLP, an independent registered public accounting firm, as stated in their report appearing in Item 8, page 54 of this Form 10-K. Management’s assessment excluded internal control over financial reporting for Naples Capital Advisors, Inc. as allowed by the SEC for current year acquisitions with an immaterial impact on the financial statements as a whole. Naples Capital Advisors, Inc. was acquired on January 2, 2008.
Date: March 16, 2009 | | |
| /s/Thomas J. Longe | | |
Thomas J. Longe President, Chief Executive Officer and Chairman of Board | | |
| | | |
/s/Stephen J. Gilhooly | | |
Stephen J. Gilhooly Executive Vice President, Chief Financial Officer and Treasurer | | |
Not applicable.
PART III
The information set forth under the captions “Information About the Board of Directors and Their Committees” and “Executive Officers” under the caption "Election of Directors", “Audit Committee Report” and “Filings Under Section 16(A) Beneficial Ownership Reporting Compliance” in the Proxy Statement to be utilized in connection with the Company's 2009 Annual Shareholders Meeting is incorporated herein by reference.
We have adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer, controller, and persons performing similar functions. We have posted the text of our code of ethics on our website at www.tibfinancialcorp.com in the section titled “Investor Relations.” In addition, we intend to promptly disclose (i) the nature of any amendment to our code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer, controller, or persons performing similar functions and (ii) the nature of any waiver, including an implicit waiver, from a provision of our code of ethics that is granted to one of these specified individuals, the name of such person who is granted the waiver, and the date of the waiver on our website in the future.
The information contained under the captions “Compensation Discussion and Analysis,” “Compensation Committee Report”, “Compensation Committee Interlocks and Insider Participation”, "Executive Compensation” and “Compensation of Directors" in the Proxy Statement to be utilized in connection with the Company's 2009 Annual Shareholders Meeting is incorporated herein by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
The information contained under the captions "Management and Principal Shareholders" and “Equity Compensation Plan Information” under “Executive Compensation” in the Proxy Statement to be utilized in connection with the Company's 2009 Annual Shareholders Meeting is incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information contained under the captions “Director Independence” under “Election of Directors” and "Certain Relationships and Related Transactions" in the Proxy Statement to be utilized in connection with the Company's 2009 Annual Shareholders Meeting is incorporated herein by reference.
ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information contained under the caption "Independent Public Accountants" in the Proxy Statement to be utilized in connection with the Company's 2008 Annual Shareholders Meeting is incorporated herein by reference.
PART IV
ITEM 15: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
1. Financial Statements
The consolidated financial statements, notes thereto and independent auditors' report thereon, filed as part hereof, are listed in Item 8.
2. Financial Statement Schedules
Financial Statement schedules have been omitted as the required information is not applicable or the required information has been incorporated in the consolidated financial statements and related notes incorporated by reference herein.
3. Exhibits
| | Exhibit Numbers |
| | 3.1 | Restated Articles of Incorporation (a) |
| | 3.2 | Amendment to Articles of Incorporation (b) |
| | 3.3 | Bylaws (c) |
| | 3.4 | Amendment to TIB Financial Corp. Bylaws (x) |
| | 3.5 | Articles of Amendment to the Restated Articles of Incorporation authorizing the Preferred Shares. (v) |
| | 3.6 | Warrant to Purchase up to 1,063,218 shares of Common Stock. |
| | 4.1 | Specimen Stock Certificate (d) |
| | 10.1 | Employment Agreement between Edward V. Lett, TIB Financial Corp. and TIB Bank effective March 1, 2004 (e), (f) |
| | 10.2 | 401(K) Savings and Employee Stock Ownership Plan (d), (e) |
| | 10.3 | Employee Incentive Stock Option Plan (d), (e) |
| | 10.4 | Employment Agreement between Millard J. Younkers, Jr., TIB Financial Corp. and TIB Bank effective March 1, 2004 (e), (f) |
| | 10.5 | Employment Agreement between David P. Johnson, TIB Financial Corp. and TIB Bank effective March 1, 2004 (e), (f) |
| | 10.6 | Employment Agreement between Michael D. Carrigan, TIB Financial Corp. and TIB Bank effective March 1, 2004 (e), (g) |
| | 10.7 | Employment Agreement between Alma Shuckhart, TIB Financial Corp., and TIB Bank effective March 1, 2004. (e), (g) |
| | 10.8 | Employment Agreement between Stephen J. Gilhooly, TIB Financial Corp., and TIB Bank effective September 27, 2006 (e), (h) |
| | 10.9 | Form of Director Deferred Fee Agreement (e), (i) |
| | 10.10 | Form of Salary Continuation Agreement (e), (i) |
| | 10.11 | Form of Executive Officer Split Dollar Agreement (e), (i) |
| | 10.12 | Form of Director Deferred Fee Agreement – First Amendment (e), (f) |
| | 10.13 | Form of Executive Officer Split Dollar Agreement – First Amendment (e), (f) |
| | 10.14 | Form of Salary Continuation Agreement – First Amendment (e), (j) |
| | 10.15 | Form of Restricted Stock Agreement (k) |
| | 10.16 | Form of Restricted Stock Agreement Addendum (k) |
| | 10.17 | Form of Salary Continuation Agreement – Second Amendment (e), (m) |
| | 10.18 | Marketing and Sales Alliance Agreement (k) |
| | 10.19 | Non-Competition Agreement (k) |
| | 10.20 | Form of Salary Continuation Agreement - Michael Carrigan and Steve Gilhooly (e), (n) |
| | 10.21 | Stock Purchase Agreement between Naples Capital Advisors, Inc., John M. Suddeth, Jr. and Michael H. Morris, and TIB Financial Corp. (o) |
| | 10.22 | Amendment to the Employment Agreement for Alma Shuckhart (e), (t) |
| | 10.23 | Employment Agreement between David F. Voigt, TIB Financial Corp., and The Bank of Venice (e), (q) |
| | 10.24 | Revised Audit Committee Charter dated April 24, 2007 (u) |
| | 10.25 | Revised Corporate Governance and Nomination Committee Charter dated January 23, 2007 (r) |
| | 10.26 | Revised Corporate Governance Guidelines dated January 23, 2007 (r) |
| | 10.27 | Second Amendment to the Employment Agreement for Alma Shuckhart (e), (p) |
| | 10.28 | Form of Stock Purchase Agreement (s) |
| | 10.29 | Form of Registration Rights Agreement (s) |
| | 10.30 | Form of Relationship Agreement (s) |
| | 10.31 | Form of Common Stock Warrant (s) |
| | 10.32 | Letter Agreement, dated December 5, 2008 between the Company and the United States Department of Treasury (v) |
| | 10.33 | Form of Waiver, executed by each Messrs. Thomas J. Longe, Edward V. Lett, Stephen J. Gilhooly, Michael D. Carrigan and Michael H. Morris (v) |
| | 10.34 | Form of Letter Agreement, executed by each Messrs. Thomas J. Longe, Edward V. Lett, Stephen J. Gilhooly, Michael D. Carrigan and Michael H. Morris (v) |
| | 10.35 | Securities Purchase Agreement – Standard Terms between the Company and the United States Department of Treasury (v) |
| | 14.1 | Board of Directors Ethics Code (k) |
| | 14.2 | Senior Financial Officer Ethics Code (k) |
| | 21.1 | Subsidiaries of the Registrant |
| | 23.1 | Consent of Independent Registered Public Accounting Firm |
| | 31.1 | Chief Executive Officer’s certification required under Section 302 of Sarbanes-Oxley Act of 2002 |
| | 31.2 | Chief Financial Officer’s certification required under Section 302 of Sarbanes-Oxley Act of 2002 |
| | 32.1 | Chief Executive Officer’s certification required under Section 906 of Sarbanes-Oxley Act of 2002 |
| | 32.2 | Chief Financial Officer’s certification required under Section 906 of Sarbanes-Oxley Act of 2002 |
| | 99.1 | Statement of Policy with respect to Related Person Transactions (m) |
| | | |
| | (a) | Incorporated by reference to Appendix A in the Company’s Definitive Proxy Statement filed on April 8, 2004. |
| | (b) | Item 3.2 was previously filed by the Company as an Exhibit to the Form 8-K filed by the Company on September 28, 2006 and is incorporated herein by reference. |
| | (c) | Previously filed by the Company as an Exhibit to the Company's Registration Statement (Registration No. 333-113489) and such document is incorporated herein by reference. |
| | (d) | Previously filed by the Company as an Exhibit (with the same respective Exhibit Number as indicated herein) to the Company's Registration Statement (Registration No. 333-03499) and such document is incorporated herein by reference. |
| | (e) | Represents a management contract or a compensation plan or arrangement required to be filed as an exhibit. |
| | (f) | Items 10.1, 10.4, 10.5, 10.12 and 10.13 were previously filed by the Company as Exhibits to the Company’s December 31, 2003 10-K and such documents are incorporated herein by reference. |
| | (g) | Items 10.6 and 10.7 were previously filed by the Company as an Exhibit to the Form 10-Q filed by the Company on November 8, 2006 and are incorporated herein by reference. |
| | (h) | Item 10.8 was previously filed by the Company as an Exhibit to the Form 8-K filed by the Company on September 27, 2006 and is incorporated herein by reference. |
| | (i) | Items 10.9 through 10.11 were previously filed by the Company as Exhibits to the Company’s December 31, 2001 10-K and such documents are incorporated herein by reference. |
| | (j) | Item 10.14 was previously filed by the Company as an Exhibit to the Company’s December 31, 2004 10-K and is incorporated herein by reference. |
| | (k) | Items 10.15, 10.16, 10.18, 10.19, 14.1 and 14.2 were previously filed by the Company as Exhibits to the Company’s December 31, 2005 10-K and such documents are incorporated herein by reference. |
| | (l) | Item 10.20 was previously filed by the Company as an Exhibit to the Form 8-K filed by the Company on November 14, 2006 and is incorporated herein by reference. |
| | (m) | Items 10.17 and 99.1 were previously filed by the Company as Exhibits (with the same respective exhibit number as indicated herein) to the Company's December 31, 2006 Form 10-K and such documents are incorporated herein by reference. |
| | (n) | Item 10.20 was previously filed by the Company as an Exhibit to the Form 8-K filed by the Company on February 7, 2008 and is incorporated herein by reference. |
| | (o) | Item 10.21 was previously filed by the Company as an Exhibit to the Form 8-K filed by the Company on December 13, 2007 and is incorporated herein by reference. |
| | (p) | Item 10.27 was previously filed by the Company as an Exhibit to the Form 10-Q filed by the Company on November 9, 2007 and is incorporated herein by reference. |
| | (q) | Item 10.23 was previously filed by the Company as an Exhibit to the Form 8-K filed by the Company on May 2, 2007 and is incorporated herein by reference. |
| | (r) | Items 10.25 and 10.26 were previously filed by the Company as Exhibits to the Form 8-K filed by the Company on January 25, 2007 and such documents are incorporated herein by reference. |
| | (s) | Items 10.28 through 10.31 were previously filed by the Company as Exhibits to the Form 8-K filed by the Company on March 11, 2008 and such documents are hereby incorporated by reference. |
| | (t) | Item 10.22 was previously filed by the Company as an Exhibit to the Form 8-K filed by the Company on October 1, 2007 and is incorporated herein by reference. |
| | (u) | Item 10.24 was previously filed by the Company as an Exhibit to the Form 8-K filed by the Company on April 26, 2007 and is incorporated herein by reference. |
| | (v) | Items 3.5 through 3.6 and 10.32 through 10.35 were previously filed by the Company as Exhibits to the Form 8-K filed by the Company on December 5, 2008 and such documents are incorporated herein by reference. |
| | (x) | Item 3.4 was previously filed by the Company as an Exhibit to the Form 10-K filed by the Company on March 17, 2008 and is incorporated herein by reference. |
Pursuant to the requirements 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 on March 16, 2009.
| | | | TIB FINANCIAL CORP. |
| | | By: | |
| | | | Thomas J. Longe Chairman, Chief Executive Officer and Director |
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 indicated on March 16, 2009.
| Signature | | Title |
| | Chairman, Chief Executive Officer and Director |
| Thomas J. Longe | | |
/s/Bradley A Boaz | | Director |
| Bradley A Boaz | | |
/s/Richard C. Bricker, Jr. | | Director |
| Richard C. Bricker, Jr. | | |
/s/Howard B. Gutman | | Director |
| Howard B. Gutman | | |
/s/Paul O. Jones, Jr., M.D. | | Director |
| Paul O. Jones, Jr., M.D. | | |
/s/Edward V. Lett | | Director |
| Edward V. Lett | | |
/s/John G. Parks, Jr. | | Director |
| John G. Parks, Jr. | | |
/s/Marvin F. Schindler | | Director |
| Marvin F. Schindler | | |
/s/Otis T. Wallace | | Director |
| Otis T. Wallace | | |
/s/Stephen J. Gilhooly | | Chief Financial Officer and Treasurer |
| Stephen J. Gilhooly | | |
| | | |
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
The Subsidiaries of the Registrant are: (a) TIB Bank and The Bank of Venice which are organized under the laws of the State of Florida; (b) Naples Capital Advisors Inc., a registered investment advisor; (c) TIBFL Statutory Trust I and TIBFL Statutory Trust II which are Connecticut statutory trusts; and (d) TIBFL Statutory Trust III, which is a Delaware statutory trust.
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-143391, 333-30515, 333-106092, 333-117773, 333-138208, and 333-138212 on Forms S-8 and Registration Statement Nos. 333-156542 on Form S-3 of our report dated March 16, 2009 with respect to the consolidated financial statements of TIB Financial Corp., and the effectiveness of internal control over financial reporting, which report appears in this Annual Report on Form 10-K of TIB Financial Corp. for the year ended December 31, 2008.
/s/ Crowe Horwath LLP
Crowe Horwath LLP
Fort Lauderdale, Florida
March 16, 2009
Exhibit 31.1
I, Thomas J.Longe, President and CEO, certify that:
| 1. | I have reviewed this annual report on Form 10-K of TIB Financial Corp.; |
| 2. | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; |
| 4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-(e)), and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and |
| d. | Disclosed in this annual report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: March 16, 2009 | | |
/s/Thomas J. Longe | | |
Thomas J. Longe, Chairman and Chief Executive Officer | | |
Exhibit 31.2
I, Stephen J. Gilhooly, Executive Vice President and CFO, certify that:
| 1. | I have reviewed this annual report on Form 10-K of TIB Financial Corp.; |
| 2. | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; |
| 4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-(e)), and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and |
| d. | d) Disclosed in this annual report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: March 16, 2009 | | |
/s/Stephen J. Gilhooly | | |
Stephen J. Gilhooly, Executive Vice President, Chief Financial Officer and Treasurer | | |
Exhibit 32.1
Chief Executive Officer’s Certification required under Section 906 of Sarbanes-Oxley Act of 2002
In connection with the annual report of TIB Financial Corp. (the “Company”) on Form 10-K for the period ended December 31, 2007, as filed with the Securities and Exchange Commission (the “Report”), I, Thomas J. Longe, President and Chief Executive Officer of the Company, certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that this Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that, to my knowledge, the information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
| | /s/Thomas J. Longe | |
| Date: March 16, 2009 | Thomas J. Longe Chairman and Chief Executive Officer | |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to TIB Financial Corp. and will be retained by TIB Financial Corp. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
Chief Financial Officer’s Certification required under Section 906 of Sarbanes-Oxley Act of 2002
In connection with the annual report of TIB Financial Corp. (the “Company”) on Form 10-K for the period ended December 31, 2007, as filed with the Securities and Exchange Commission (the “Report”), I, Stephen J. Gilhooly, Executive Vice President and Chief Financial Officer of the Company, certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that this Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that, to my knowledge, the information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
| | /s/Stephen J. Gilhooly | |
| Date: March 16, 2009 | Stephen J. Gilhooly Executive Vice President, Chief Financial Officer and Treasurer | |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to TIB Financial Corp. and will be retained by TIB Financial Corp. and furnished to the Securities and Exchange Commission or its staff upon request.
