1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended Commission File Number
SEPTEMBER 30, 1998 0-29132
TIB FINANCIAL CORP.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 65-0655973
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
99451 OVERSEAS HIGHWAY, KEY LARGO, FLORIDA 33037-7808
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 305-451-4660
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
----------- ---------
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Common Stock, $0.10 Par Value 4,418,258
- -------------------------------- ----------------------------------
Class Outstanding as of October 31, 1998
2
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
TIB FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
(Unaudited)
September 30, 1998 December 31, 1997
---------------------- --------------------
ASSETS
Cash and due from banks $ 14,934,578 $ 12,554,285
Federal funds sold - 12,275,000
Investment securities held to maturity (market value of $49,237,944 and
$36,674,391, respectively) 48,155,573 36,218,073
Investment securities available for sale 22,426,308 18,471,445
Loans, net of deferred loan fees 217,285,440 185,746,103
Less: Allowance for loan losses 2,410,835 2,201,974
------------ ------------
Loans, net 214,874,605 183,544,129
Premises and equipment, net 12,613,077 10,034,088
Accrued interest receivable 2,465,832 1,750,703
Intangible assets 1,842,828 425,497
Other assets 2,170,965 2,685,600
============ ============
TOTAL ASSETS $319,483,766 $277,958,820
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing demand $ 49,081,217 $ 52,060,404
Interest-bearing demand and money market 145,507,263 116,679,922
Savings 14,090,769 13,092,101
Time deposits of $100,000 or more 22,725,621 22,358,564
Other time deposits 52,090,287 44,630,828
------------ ------------
Total Deposits 283,495,157 248,821,819
Short-term borrowings 5,104,869 2,007,178
Accrued interest payable 2,033,734 1,747,904
Other liabilities 2,054,864 818,362
------------ ------------
TOTAL LIABILITIES 292,688,624 253,395,263
------------ ------------
STOCKHOLDERS' EQUITY
Common stock - $.10 par value: 7,500,000 shares authorized, 4,442,145
and 4,371,954 shares issued and outstanding 444,215 437,195
Surplus 7,138,153 6,507,072
Retained earnings 18,902,774 17,668,290
Accumulated other comprehensive income - market valuation reserve on
investment securities 310,000 (49,000)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 26,795,142 24,563,557
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $319,483,766 $277,958,820
============ ============
(See notes to consolidated financial statements)
3
TIB FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
INTEREST INCOME 1998 1997 1998 1997
---------- ---------- ----------- -----------
Loans, including fees $4,807,326 $4,372,025 $13,629,511 $12,548,274
Investment securities:
U.S. Treasury securities 300,866 393,514 994,020 1,313,025
U.S. Government agencies and corporations 687,692 259,636 1,678,397 710,413
States and political subdivisions 163,368 115,016 441,598 292,376
Other investments 26,603 16,032 77,946 38,094
Federal funds sold 38,702 43,092 658,413 345,297
---------- ---------- ----------- -----------
TOTAL INTEREST INCOME 6,024,557 5,199,315 17,479,885 15,247,479
---------- ---------- ----------- -----------
INTEREST EXPENSE
Interest-bearing demand and money market 1,403,126 881,657 3,857,124 2,118,942
Savings 138,768 171,558 422,567 621,024
Time deposits of $100,000 or more 368,423 320,491 1,092,516 1,048,267
Other time deposits 620,817 641,033 1,853,793 1,945,162
Short-term borrowings 42,942 18,723 66,019 52,557
---------- ---------- ----------- -----------
TOTAL INTEREST EXPENSE 2,574,076 2,033,462 7,292,019 5,785,952
---------- ---------- ----------- -----------
NET INTEREST INCOME 3,450,481 3,165,853 10,187,866 9,461,527
---------- ---------- ----------- -----------
PROVISION FOR LOAN LOSSES 90,000 75,000 270,000 225,000
---------- ---------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 3,360,481 3,090,853 9,917,866 9,236,527
OTHER INCOME
Service charges on deposit accounts 444,394 417,074 1,272,044 1,176,921
Investment securities gains, net 3,870 10,664 3,870 10,664
Merchant bank card processing income 507,636 459,730 1,734,076 1,553,187
Gain on sale of government guaranteed loans 424,806 135,242 880,793 260,148
Fees on mortgage loans sold at origination 103,410 108,867 366,142 260,324
Retail investment services 70,303 123,258 347,704 225,886
Other income 122,417 83,005 344,317 222,508
---------- ---------- ----------- -----------
TOTAL OTHER INCOME 1,676,836 1,337,840 4,948,946 3,709,638
---------- ---------- ----------- -----------
OTHER EXPENSE
Salaries and employee benefits 1,878,334 1,698,133 5,482,745 4,769,119
Net occupancy expense 584,188 484,929 1,630,048 1,369,405
Other expense 1,231,447 1,068,095 3,784,751 3,213,012
---------- ---------- ----------- -----------
TOTAL OTHER EXPENSE 3,693,969 3,251,157 10,897,544 9,351,536
---------- ---------- ----------- -----------
INCOME BEFORE INCOME TAX EXPENSE 1,343,348 1,177,536 3,969,268 3,594,629
INCOME TAX EXPENSE 474,900 370,700 1,404,500 1,156,100
---------- ---------- ----------- -----------
NET INCOME $ 868,448 $ 806,836 $ 2,564,768 $ 2,438,529
========== ========== =========== ===========
BASIC EARNINGS PER SHARE $ 0.20 $ 0.19 $ 0.58 $ 0.56
DILUTED EARNINGS PER SHARE $ 0.19 $ 0.17 $ 0.55 $ 0.53
(See notes to consolidated financial statements)
4
TIB FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(Unaudited)
Accumulated
Other
Comprehensive
Income -
Market
Comprehensive Retained Valuation Common
Total Income Earnings Reserve Stock
-------------- ------------------ -------------- ------------------- -------------
Balance at December 31, 1997 $24,563,557 $17,668,290 $(49,000) $437,195
Comprehensive Income
Net Income 2,564,768 2,564,768 2,564,768
Other comprehensive income, net of tax:
Unrealized gains on securities,
net of tax expense of $216,000 359,000 359,000 359,000
-----------------
Comprehensive income 2,923,768
-----------------
Common stock issued 638,101 7,020
Dividends declared on common stock, $.30 per
share (1,330,284) (1,330,284)
-------------- ------------- ------------------ ------------
Balance at September 30, 1998 $26,795,142 $18,902,774 $310,000 $444,215
============== ============= ================== ============
-------------- ----------------- ------------- ------------------ ------------
Balance at December 31, 1996 $22,620,917 $16,207,233 $(158,751) $432,236
Comprehensive Income
Net Income 2,438,529 2,438,529 2,438,529
Other comprehensive income, net of tax:
Unrealized gains on securities,
net of tax expense of $65,658 109,751 109,751 109,751
-----------------
Comprehensive income 2,548,280
-----------------
Common stock issued 256,766 4,659
Dividends declared on common stock, $.30 per
share (1,307,606) (1,307,606)
-------------- ------------- ------------------ ------------
Balance at September 30, 1997 $24,118,357 $17,338,156 $ (49,000) $436,895
============== ============= ================== ============
Surplus
------------
Balance at December 31, 1997 $6,507,072
Comprehensive Income
Net Income
Other comprehensive income, net of tax:
Unrealized gains on securities,
net of tax expense of $216,00
Comprehensive income
Common stock issued 631,081
Dividends declared on common stock, $.30 per
share
------------
Balance at September 30, 1998 $7,138,153
============
------------
Balance at December 31, 1996 $6,140,199
Comprehensive Income
Net Income
Other comprehensive income, net of tax:
Unrealized gains on securities,
net of tax expense of $65,658
Comprehensive income
Common stock issued 252,107
Dividends declared on common stock, $.30 per
share
------------
Balance at September 30, 1997 $6,392,306
=============
5
TIB FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(Unaudited)
For the nine month period ended September 30,
1998 1997
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 2,564,768 $ 2,438,529
Adjustments to reconcile net income to net cash provided by operating
activities:
Net amortization of investments 2,982 80,691
Amortization of intangible assets 45,762 60,816
Depreciation of premises and equipment 746,748 611,325
Compensation paid thru issuance of common stock 214,575 -
Provision for loan losses 270,000 225,000
Deferred income tax provision (benefit) (51,832) (66,606)
Deferred net loan fees (108,646) (17,087)
Investment securities (gains), net (3,870) (10,664)
Gain on sales of premises and equipment (1,082) (2,559)
Gain on sales of government guaranteed loans, net (880,793) (211,103)
Increase in interest receivable (715,129) (185,595)
Increase (decrease) in interest payable 245,631 (4,167)
Increase in intangible assets (34,299) (24,959)
Decrease in other assets 350,467 672,181
Increase in other liabilities 1,337,618 868,997
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES
3,982,900 4,434,799
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities held to maturity (34,817,053) (17,870,735)
Sales of investment securities available for sale 6,217,110 5,083,985
Repayments of principal and maturities of investment securities
available for sale 2,283,468 10,501,448
Maturities of investment securities held to maturity 11,000,000 5,750,000
Proceeds from sales of government guaranteed loans 9,674,797 5,545,164
Loans originated or acquired, net of principal repayments (40,285,834) (27,048,748)
Purchase of Small Business Consultants Inc. - (275,000)
Net cash received in purchase of branch from Coconut Grove Bank 9,672,205 -
Purchases of premises and equipment (2,509,655) (1,697,917)
Sales/conversion of premises and equipment 3,140 33,025
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (38,761,822) (19,978,778)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in federal funds purchased and securities sold
under agreements to repurchase 3,097,691 (9,218,219)
Net increase in demand, money market and savings accounts 20,180,522 37,497,189
Time deposits accepted, net of repayments 2,626,399 (10,739,669)
Proceeds from exercise of stock options 302,867 256,766
Cash dividends paid (1,323,264) (1,302,947)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES
24,884,215 16,493,120
------------ ------------
NET INCREASE (DECREASE)
IN CASH AND CASH EQUIVALENTS (9,894,707) 949,141
6
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 24,829,285 13,919,935
------------ -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 14,934,578 $14,869,076
============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS:
Cash paid for:
Interest $ 7,006,189 $ 5,790,119
Income taxes paid $ 1,420,000 $ 1,220,000
In July 1998, $11,898,815 of investment securities held to maturity were
transferred to investment securities available for sale (see note 7).
The Company purchased the banking facilities and assumed the Homestead deposit
base of the Coconut Grove Bank. In connection with the acquisition, cash
received from the seller is calculated as follows:
Deposit liabilities assumed $11,919,139
Less cash paid
for:
Premises and equipment 818,140
Core deposit premium 1,428,794
-----------
Net cash received from seller $ 9,672,205
===========
(See notes to consolidated financial statements)
7
TIB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements for TIB Financial
Corporation (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statement presentation. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine months ended
September 30, 1998 are not necessarily indicative of trends or results to be
expected for the year ended December 31, 1998. For further information, refer to
the Company's consolidated financial statements and footnotes thereto for the
year ended December 31, 1997.
The consolidated statements include the accounts of TIB Financial Corporation
and its wholly-owned subsidiary, TIB Bank of the Keys, and the Bank's two
subsidiaries, TIB Government Loan Specialists, Inc. and TIB Investment &
Insurance Center Inc., collectively known as the Company. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Certain amounts previously reported on have been reclassified to conform with
current period presentation.
NOTE 2 - LOANS
Loans are reported at the gross amount outstanding, reduced by net deferred loan
fees and a valuation allowance for loan losses. Interest income on loans is
recognized over the terms of the loans based on the unpaid daily principal
amount outstanding. If the collectibility of interest appears doubtful, the
accrual thereof is discontinued. Loan origination fees, net of direct loan
origination costs, are deferred and recognized as income over the life of the
related loan on a level-yield basis. Gains on sales of government guaranteed
loans are recognized as income when the sale occurs.
Major classifications of loans are as follows:
September 30, 1998 December 31, 1997
------------------ -----------------
Commercial, financial and agricultural $138,129,087 $123,787,065
Real estate - construction 7,272,577 10,010,565
Real estate - individual 59,165,701 42,598,799
Installment and simple interest dividend 12,243,395 9,695,260
Other 898,525 186,905
------------ ------------
Total loans 217,709,285 186,278,594
Net deferred loan fees 423,845 532,491
------------ ------------
Loans, net of deferred loan fees $217,285,440 $185,746,103
============ ============
NOTE 3 - ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for loan losses
charged to expense. The allowance represents an amount which, in management's
judgment, will be adequate to absorb probable losses on existing loans that may
become uncollectible. Management's judgment in determining the adequacy of the
allowance is based on evaluations of the collectibility of loans and takes into
consideration such factors as changes in the nature and volume of the loan
portfolio, current economic conditions that may affect the borrower's ability to
pay, overall portfolio quality and review of specific problem loans. Periodic
revisions are made to the allowance when circumstances which necessitate such
revisions become
8
known. Recognized losses are charged to the allowance for loan losses, while
subsequent recoveries are added to the allowance.
Activity in the allowance for loan losses for the nine months ended September
30, 1998 and September 30, 1997 follows:
September 30, September 30,
1998 1997
--------------- --------------
Balance, January 1 $ 2,201,974 $ 1,929,719
Provision charged to expense 270,000 225,000
Loans charged off (66,650) (32,902)
Recoveries of loans previously charged off 5,511 11,225
=========== ===========
Balance, September 30 $ 2,410,835 $ 2,133,042
=========== ===========
NOTE 4 - INVESTMENT SECURITIES
Securities available-for-sale are securities which management believes may be
sold prior to maturity for liquidity or other reasons and are reported at fair
value, with unrealized gains and losses, net of related income taxes, reported
as a separate component of stockholders' equity. Securities held-to-maturity are
those securities for which management has both the ability and intent to hold to
maturity and are carried at amortized cost.
The amortized cost and estimated market value of investment securities
held-to-maturity at September 30, 1998 and December 31, 1997 are presented
below:
September 30, 1998
---------------- ----------------- ---------------- ----------------
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------------- ----------------- ---------------- ----------------
U.S. Treasury Securities $14,083,288 $ 349,348 $ - $14,432,636
U.S. Government agencies and corporations 33,164,185 733,023 - 33,897,208
Other investments 908,100 - - 908,100
=========== ========== ====== ===========
$48,155,573 $1,082,371 $ - $49,237,944
=========== ========== ====== ===========
December 31, 1997
-------------- ----------------- ----------------------------------
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------- ----------------- ----------------------------------
U.S. Treasury Securities $15,978,285 $157,355 $ - $16,135,640
States and political subdivisions 7,373,701 293,750 - 7,667,451
U.S. Government agencies and corporations 12,001,487 20,693 15,480 12,006,700
Other investments 864,600 - - 864,600
=========== ======== ========= ===========
$36,218,073 $471,798 $ 15,480 $36,674,391
=========== ======== ========= ===========
The amortized cost and estimated market value of investment securities available
for sale at September 30, 1998 and December 31, 1997 are presented below:
September 30, 1998
---------------------------------------------------------------------
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------------- ---------------- ---------------- ----------------
U.S. Treasury Securities $ 5,028,704 $ 39,246 $ - $ 5,067,950
States and political subdivisions 11,907,072 440,523 - 12,347,595
Mortgage-backed securities 4,544,724 14,935 11,732 4,547,927
Other debt securities 449,808 13,028 - 462,836
=========== ======== =========== ===========
$21,930,308 $507,732 $ 11,732 $22,426,308
=========== ======== =========== ===========
9
December 31, 1997
-------------------------------------------------------------
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------------- -------------- -------------- ---------------
U.S. Treasury Securities $ 9,044,333 $ - $ 33,753 $ 9,010,580
Mortgage-backed securities 9,056,448 20,064 88,253 8,988,259
Other debt securities 449,664 22,942 - 472,606
============ ========= ========= ============
$ 18,550,445 $ 43,006 $ 122,006 $ 18,471,445
============ ======== ========== ============
Other investments at September 30, 1998 and December 31, 1997 consist of stock
in the Independent Bankers Bank of Florida and the Federal Home Loan Bank of
Atlanta. Other debt securities at September 30, 1998 and December 31, 1997
consist of corporate debt securities.
NOTE 5 - EARNINGS PER SHARE AND COMMON STOCK
Basic earnings per share has been computed based on the weighted average number
of common equivalent shares outstanding during the period. Stock options are
considered to be common stock equivalents for purposes of calculating diluted
earnings per share. A 3 for 1 stock split was declared on February 25, 1997 and
has been treated retroactively as occurring on January 1, 1997, for earnings per
share computation purposes.
The reconciliation of basic earnings per share to diluted earnings per share is
as follows:
Net Earnings Common Shares Per Share Amount
------------ ------------- ----------------
For the three months ended September 30, 1998:
Basic earnings per common share $ 868,448 4,442,145 $ .20
Effect of dilutive stock options - 188,376 (.01)
---------- --------- -------
Diluted earnings per common share $ 868,448 4,630,521 $ .19
========== ========= =======
For the three months ended September 30, 1997:
Basic earnings per common share $ 806,836 4,360,066 $ .19
Effect of dilutive stock options - 326,415 (.02)
---------- --------- -------
Diluted earnings per common share $ 806,836 4,686,481 $ .17
========== ========= =======
For the nine months ended September 30, 1998:
Basic earnings per common share $2,564,768 4,417,394 $ .58
Effect of dilutive stock options - 218,456 (.03)
---------- --------- -------
Diluted earnings per common share $2,564,768 4,635,850 $ .55
========== ========= =======
For the nine months ended September 30, 1997:
Basic earnings per common share $2,438,529 4,348,999 $ .56
Effect of dilutive stock options - 261,333 (.03)
---------- --------- -------
Diluted earnings per common share $2,438,529 4,610,332 $ .53
========== ========= =======
NOTE 6 - STOCK BASED COMPENSATION
Under the Bank's 1994 Incentive Stock Option and Nonstatutory Stock Option Plan
("the Plan"), the Company may grant stock options to persons who are now or who
during the term of the Plan become directors, officers, or key executives as
defined by the Plan. Stock options granted under the Plan may either be
incentive stock options or nonqualified stock options for federal income tax
purposes. The Company's Board of Directors may grant nonqualified stock options
to any director, and incentive stock options or nonqualified stock options 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
Plan, the maximum number of shares of
10
Company common stock that may be optioned or sold is 978,000 shares. Such shares
may either be treasury or authorized, but unissued shares of common stock of the
Company.
Total options granted, exercised, and expired during the nine months ended
September 30, 1998 were 70,500, 53,525, and 25,150, respectively.
NOTE 7 - NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 (SFAS 130), "Reporting Comprehensive Income." This statement
is effective for financial statements issued for periods ending after December
15, 1997. Under SFAS 130, a company is required to show changes in assets and
liabilities as comprehensive income in the statement of stockholders equity or
in alternative comprehensive income statement presentations. The adoption of
SFAS 130 did not have a significant impact on the financial condition or results
of operations of the Company.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 131 (SFAS 131), "Disclosures About Segments of an
Enterprise and Related Information." SFAS 131 is effective January 1, 1998 and
requires disclosures of certain financial information by segments of a company's
business. The adoption of SFAS 131 is not expected to have a significant impact
on the financial condition or results of operations of the Company.
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133
requires companies to recognize all derivatives contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedge, the
objective of which is to match the timing of gain or loss recognition on the
hedging derivative with the recognition of (i) the changes in the fair value of
the hedged asset or liability that are attributable to the hedged risk or (ii)
the earnings effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized in income in
the period of change. SFAS 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999, however, early adoption is allowed.
Historically, the Company has not entered into derivatives contracts either to
hedge existing risks or for speculative purposes. The Company adopted the new
standard as of July 1, 1998. The effect on the financial statements at July 1,
1998 which resulted from the transfer of certain investment securities from the
held to maturity category to the available for sale category was an increase in
other comprehensive income market valuation reserve of approximately $176,000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion addresses the factors that have affected the financial
condition and results of operations of TIB Financial Corporation (the "Company")
as reflected in the unaudited consolidated statement of condition as of
September 30, 1998, and statements of income for the three months and nine
months ended September 30, 1998.
The Company's net income of $868,448 for the third quarter of 1998 was a 7.6%
increase compared to $806,836 for the same period last year. The increase in net
income is attributed to an increase of $284,628, or 9.0%, in net interest
income; an increase of $338,996, or 25.3%, in other income; offset by an
increase of $15,000 in the provision for loan losses; an increase in other
expense of $442,812, or 13.6%; and an increase in income tax expense of $104,200
or 28.1%. Net income for the nine months ended September 30, 1998 was $2,564,768
up 5.2% from $2,438,529 for the comparable period in 1997. Basic and diluted
earnings per share for the third quarter of 1998 were $0.20 and $0.19
respectively as compared to $0.19 and $0.17 per share in the previous year's
quarter. Basic and diluted earnings per share for the nine months ended
September 30, 1998 were $0.58 and $0.55 respectively compared to $0.56 and $0.53
for the corresponding period ended September 30, 1997. Book value per share
increased to $6.03 at September 30, 1998 from $5.62 at December 31, 1997. The
Company paid a quarterly dividend of $0.10 per share in the first, second, and
third quarters of 1998 and 1997.
Performance of banks is often measured by various ratio analyses. Two widely
recognized indicators are return on average equity and return on average assets.
Annualized return on average equity for the nine months ended September 30, 1998
was 13.4% on average equity of $25,594,208, compared to 13.8% on average equity
of $23,539,863 for the same period in 1997. Annualized return on average assets
of $307,970,160 for the nine months ended September 30, 1998 was 1.11%, compared
to 1.28% on average assets of $254,654,858 for the same period in 1997.
11
Net interest income is an effective measurement of how well management has
balanced the Company's interest rate sensitive assets and liabilities. The
Company's net interest income is its principal source of income. Interest
earning assets for the Company include loans, federal funds sold, and investment
securities. The Company's interest-bearing liabilities include its deposits,
federal funds purchased, and other short-term borrowings. Net interest income
increased 7.7% to $10.2 million, in the nine months ended September 30, 1998 as
compared to the same period last year primarily as a result of a higher level of
earning assets. A decrease in net interest margins on a percentage basis is
currently being more than compensated for by volume increases. This decrease in
margins is partly due to a general trend in the banking industry but also is a
reflection of management's decision to be very competitive in both loan and
deposit pricing. The Company's ability to sell multiple products and services to
individuals and businesses allows the growth of overall profits in spite of
lower net interest margins. This is consistent with management's goal to
diversify and enhance non-interest bearing sources of income. Interest from
loans increased to $13.6 million for the first nine months of 1998 compared to
$12.5 million for the comparable period last year. The establishment of a very
competitive money market account at the end of 1996 has continued to attract
substantial deposits and has increased interest expense. The Company's net
interest margin declined to 4.91% in the first nine months of 1998 compared to
5.42% in the first nine months of 1997.
Provision for loan losses increased slightly to $270,000 from $225,000 for the
respective first nine months of 1998 and 1997 due to increased loan growth.
Gross charged off loans for the first nine months were $66,650 offset by
recoveries of $5,511, resulting in an annualized net charge-off rate of 0.04% of
total loans. This compares to net charge offs during the same period last year
of $21,677. At September 30, 1998, the Company had aggregate non-accrual loans
of $381,548 compared to $272,949 at December 31, 1997. The ratio of
non-performing loans (including loans 90 days or more past due and still
accruing) to total outstanding loans was 0.18% at September 30, 1998 compared to
0.15% at December 31, 1997.
Other income increased $1,239,308 to $4,948,946 for the nine month period ended
September 30, 1998 from $3,709,638 in the comparable period last year. The
substantial improvement in this category is primarily attributable to the
establishment of two new subsidiaries of TIB Bank of the Keys in 1997 which are
now fully functioning: TIB Investment & Insurance Center, Inc. and TIB
Government Loan Specialists, Inc. Retail sales of investment products brought in
commissions to the Company of $347,704 during the first nine months of 1998 as
compared to $225,886 for the first nine months of 1997. Gains on sales of
government guaranteed loans went from $260,148 during the first nine months of
1997 to $880,793 during the first nine months of 1998. Mortgage loan origination
fees also increased $105,818. Other expense increased 16.5% in the first nine
months of 1998 as compared to the prior year period, partly as a result of the
personnel and other costs associated with the two new subsidiaries of the Bank.
Also, other expense reflects increases in computer services, interchange fees,
commissions on mortgage loan originations and other general salary expense
increases in the first nine months of 1998 as compared to the same period in
1997.
Total assets at September 30, 1998 were $319,483,766, up from total assets of
$277,958,820 at December 31, 1997. Loans net of deferred loan fees increased
$31,539,337 for the first nine months of 1998 from year end 1997. Also, in the
same period, investment securities increased $15,892,363, while federal funds
sold decreased $12,275,000. Intangible assets increased $1,417,331 from year end
1997 primarily as the result of the purchase on September 25th of the Homestead
banking facilities and Homestead deposit base of Coconut Grove Bank. This
purchase resulted in the creation of $1,428,794 in core deposit intangible
representing the 12% premium paid for this deposit base.
At September 30, 1998, the Company had $5,104,869 in short-term borrowings
compared to $2,007,178 at December 31, 1997. Short-term borrowings include
$2,978,000 in federal funds purchased, $178,360 in securities sold under
agreements to repurchase and $1,948,509 in Treasury tax deposits. This increase
in short-term borrowings reflects the effects of seasonal outflows of deposits.
Also, hurricane Georges resulted in a temporary decrease in liquidity at the end
of September.
The Company's subsidiary TIB Software and Services, Inc. entered into purchase
agreements with two unrelated parties to acquire an aggregate 30% interest in
ERAS Joint Venture (the "Venture") in exchange for a total cash consideration of
$757,605. These purchases were approved by the Board of Governors of the Federal
Reserve System and were consummated on October 20, 1998. The Venture's primary
business is item processing and the design, development, installation and
maintenance of accounting software for financial institutions.
YEAR 2000
The Company is currently addressing a universal situation commonly referred to
as the "Year 2000 Problem." The Year 2000 Problem relates to the inability of
certain computer software programs and equipment to properly recognize and
process date-
12
sensitive information relative to the year 2000 and beyond. During 1997, the
Company developed a plan to devote the necessary resources to identify and
modify systems impacted by the year 2000 problem and if necessary, implement new
systems to become year 2000 compliant in a timely manner. The cost of executing
this plan is not expected to have a material impact on the Company's results of
operations or financial condition. Year 2000 efforts are progressing as
scheduled. All mission critical vendors and servicers have been identified.
Certifications/assurances have been received from major data processing and item
processing vendors. Independent testing of all mission critical systems
commenced in June 1998 and will be completed as scheduled no later than June
1999.
The Bank has evaluated most of its significant borrowers and does not believe
the year 2000 problems should, on an aggregate basis, impact their ability to
make payments to the Bank. The Bank is monitoring its service bureau to evaluate
whether the bureau's data processing system will fail and is being provided with
periodic updates on the status of testing and upgrades being made by the service
bureau. If the Bank's service bureau fails, the Bank will calculate loan and
deposit balances and interest using manual ledgers. If this labor intensive
approach is necessary, management and employees will become much less efficient.
However, the Bank believes that it would be able to operate in this manner
indefinitely, until its existing service bureau is able to again provide data
processing services.
CAPITAL ADEQUACY
Federal banking regulators have established certain capital adequacy standards
required to be maintained by banks and bank holding companies. These regulations
establish minimum requirements for risk-based capital of 4% for core capital
(tier I), 8% for total risk-based capital and 3% for the leverage ratio. At
September 30, 1998, the Company's tier I risk-based capital was 11.1% and total
risk-based capital was 12.1%, compared to 12.7% and 13.8% at year-ended December
31, 1997, respectively. At September 30, 1998, the Company's leverage ratio was
8.1% compared to 9.5% at December 31, 1997. This change is due to strong asset
growth exceeding a smaller increase in retained earnings.
The Company does not have any commitments which it believes would reduce its
capital to levels below the regulatory definition of a `well capitalized'
financial institution.
LIQUIDITY
The goal of liquidity management is to ensure the availability of an adequate
level of funds to meet the loan demand and deposit withdrawal needs of the
Company's customers. The Company does not anticipate any events which would
require liquidity beyond that which is available through deposit growth, federal
funds balances, or investment portfolio maturities. The Company actively manages
the levels, types and maturities of earning assets in relation to the sources
available to fund current and future needs to ensure that adequate funding will
be available at all times.
In 1997, the Bank invested in Federal Home Loan Bank stock for the purpose of
establishing credit lines with the Federal Home Loan Bank. The credit
availability to the Bank is $27 million, and any advances are secured by the
Bank's one-to-four family residential mortgage loans. No advances were made on
the credit line in 1997 or 1998.
The Bank has unsecured lines of credit for federal funds purchased from other
banks totaling $5,000,000. Securities sold under agreements to repurchase
(wholesale) represent a wholesale agreement with a correspondent bank which is
collateralized by a U.S. Treasury note. The Bank also has several securities
sold under repurchase agreements (retail) with commercial account holders
whereby the 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 the Bank.
13
Part II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule (SEC use only)
(b) There were no reports filed on Form 8-K for the quarter ended
September 30, 1998
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TIB FINANCIAL CORP.
Date: November 13, 1998 /s/ EDWARD V. LETT
---------------------
Edward V. Lett
President and Chief Executive Officer