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
MARCH 31, 1999 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 4,376,695
- -------------------------------- --------------------------------------
Class Outstanding as of April 30, 1999
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TIB FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
ASSETS (UNAUDITED)
Cash and due from banks $ 19,875,437 $ 18,089,325
Federal funds sold 10,098,000 6,565,000
Interest bearing deposits in other bank 14,867,053 47,410
Investment securities held to maturity (market value of $46,358,076
and $48,467,772, respectively) 46,384,030 48,152,543
Investment securities available for sale 27,473,408 17,848,010
Investment in ERAS Joint Venture 787,355 789,752
Loans, net of deferred loan fees 257,531,407 246,298,179
Less: Allowance for loan losses 2,665,301 2,517,234
------------- -------------
Loans, net 254,866,106 243,780,945
Premises and equipment, net 13,317,477 12,880,360
Accrued interest receivable 2,374,398 2,614,662
Intangible assets 1,679,820 1,791,780
Other assets 2,577,506 2,916,063
------------- -------------
TOTAL ASSETS $ 394,300,590 $ 355,475,850
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing demand 81,453,946 68,370,649
Interest-bearing demand and money market 176,932,703 166,837,456
Savings 17,171,910 14,685,319
Time deposits of $100,000 or more 31,443,218 24,693,379
Other time deposits 55,124,391 50,469,928
------------- -------------
Total Deposits 362,126,168 325,056,731
Short-term borrowings 1,020,730 669,569
Accrued interest payable 2,077,127 1,984,516
Other liabilities 2,349,094 1,197,500
------------- -------------
TOTAL LIABILITIES 367,573,119 328,908,316
------------- -------------
STOCKHOLDERS' EQUITY
Common stock - $.10 par value: 7,500,000 shares authorized,
4,461,695 and 4,449,795 shares issued and outstanding 446,169 444,979
Surplus 7,287,433 7,202,321
Retained earnings 19,811,250 19,328,022
Accumulated other comprehensive income - market valuation reserve
on investment securities 128,000 150,000
Treasury stock, 85,000 and 50,000 shares at cost (945,381) (557,788)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 26,727,471 26,567,534
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 394,300,590 $ 355,475,850
============= =============
(See notes to consolidated financial statements)
1
3
TIB FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
--------------------------
INTEREST INCOME 1999 1998
---------- ----------
Loans, including fees $5,415,629 $4,325,786
Investment securities:
U.S. Treasury securities 344,538 358,093
U.S. Government agencies and corporations 567,050 361,693
States and political subdivisions 99,473 117,697
Other investments 26,817 25,343
Interest bearing deposits in other bank 83,726 172
Federal funds sold 216,913 345,672
---------- ----------
TOTAL INTEREST INCOME 6,754,146 5,534,456
---------- ----------
INTEREST EXPENSE
Interest-bearing demand and money market 1,431,037 1,148,406
Savings 149,941 144,812
Time deposits of $100,000 or more 390,248 312,010
Other time deposits 703,413 616,878
Short-term borrowings 11,882 13,336
---------- ----------
TOTAL INTEREST EXPENSE 2,686,521 2,235,442
---------- ----------
NET INTEREST INCOME 4,067,625 3,299,014
---------- ----------
PROVISION FOR LOAN LOSSES 180,000 90,000
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
3,887,625 3,209,014
OTHER INCOME
Service charges on deposit accounts 481,707 429,843
Merchant bankcard processing income 829,841 654,862
Gain on sale of government guaranteed loans 109,530 349,289
Fees on mortgage loans sold at origination 112,060 94,456
Retail investment services 60,912 80,889
Equity in undistributed earnings of ERAS Joint Venture 13,182 --
Other income 150,826 105,057
---------- ----------
TOTAL OTHER INCOME 1,758,058 1,714,396
---------- ----------
OTHER EXPENSE
Salaries and employee benefits 1,845,250 1,900,606
Net occupancy expense 614,204 515,974
Other expense 1,651,043 1,227,174
---------- ----------
TOTAL OTHER EXPENSE 4,110,497 3,643,754
---------- ----------
INCOME BEFORE INCOME TAX EXPENSE 1,535,186 1,279,656
INCOME TAX EXPENSE 556,300 454,600
---------- ----------
NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE 978,886 825,056
(Continued)
2
4
TIB FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-----------------------------
1999 1998
----------- -----------
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE FOR DEFERRED ORGANIZATION COSTS, NET
OF TAX BENEFIT OF $28,300 47,047 --
----------- -----------
NET INCOME $ 931,839 $ 825,056
=========== ===========
BASIC EARNINGS PER SHARE:
Income before cumulative effect of change in accounting principle $ 0.22 $ 0.19
Cumulative effect of change in accounting principle for deferred
organization costs, net of tax (0.01) --
----------- -----------
BASIC EARNINGS PER SHARE $ 0.21 $ 0.19
=========== ===========
DILUTED EARNINGS PER SHARE:
Income before cumulative effect of change in accounting principle $ 0.22 $ 0.18
Cumulative effect of change in accounting principle for deferred
organization costs, net of tax (0.01) --
----------- -----------
DILUTED EARNINGS PER SHARE $ 0.21 $ 0.18
=========== ===========
(See notes to consolidated financial statements)
3
5
TIB FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(UNAUDITED)
Accumulated
Other
Comprehensive
Income -
Market
Comprehensive Retained Treasury Valuation Common
Total Income Earnings Stock Reserve Stock Surplus
------------- ------------- ------------- ------------ --------------- -------- ----------
Balance at December 31, 1998 $26,567,534 $19,328,022 $(557,788) $150,000 $444,979 $7,202,321
Comprehensive Income
Net Income 931,839 $ 931,839 931,839
Other comprehensive income, net
of tax benefit of $13,000:
Net market valuation
adjustment on securities (22,000) (22,000) (22,000)
available for sale
-------------
Comprehensive income $ 909,839
=============
Exercise of stock options 74,374 1,190 73,184
Income tax benefit from stock options
exercised 11,928 11,928
Purchase of treasury stock (387,593) (387,593)
Cash dividends declared, $.1025 per
share (448,611) (448,611)
----------- ----------- --------- -------- -------- ----------
Balance at March 31, 1999 $26,727,471 $19,811,250 $(945,381) $128,000 $446,169 $7,287,433
=========== =========== ========= ======== ======== ==========
Accumulated
Other
Comprehensive
Income -
Market
Comprehensive Retained Treasury Valuation Common
Total Income Earnings Stock Reserve Stock Surplus
------------- ------------- ------------- ------------ --------------- -------- ----------
Balance at December 31, 1997 $24,563,557 $17,668,290 $ -- $(49,000) $437,195 $6,507,072
Comprehensive Income
Net Income 825,056 $ 825,056 825,056
Other comprehensive income, net
of tax expense of $23,700:
Net market valuation
adjustment on securities
available for sale 38,300 38,300 38,300
-------------
Comprehensive income $ 863,356
=============
Exercise of stock options 257,617 4,660 252,957
Income tax benefit from stock options
exercised 109,088 109,088
Cash dividends declared, $.10 per share (438,405) (438,405)
----------- ----------- --------- -------- -------- ----------
Balance at March 31, 1998 $25,355,213 $18,054,941 $ -- $(10,700) $441,855 $6,869,117
=========== =========== ========= ======== ======== ==========
4
6
TIB FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
FOR THE THREE MONTH PERIOD ENDED MARCH 31,
1999 1998
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 931,839 $ 825,056
Adjustments to reconcile net income to net cash provided by operating
activities:
Net amortization of investments 26,713 2,216
Amortization of intangible assets 43,409 14,930
Depreciation of premises and equipment 283,870 240,941
Provision for loan losses 180,000 90,000
Cumulative effect of change in accounting principle for
organization costs 75,347 --
Deferred income tax provision (benefit) (25,000) 12,987
Deferred net loan fees (6,824) (14,719)
Gain on sales of premises and equipment (1,598) (617)
Gain on sales of government guaranteed loans, net (109,530) (349,289)
(Increase) decrease in interest receivable 240,264 (359,944)
Increase in interest payable 92,611 88,799
Increase in intangible assets (6,796) (27,536)
(Increase) decrease in other assets 376,557 (1,486,087)
Increase in other liabilities 1,165,890 979,030
Other 2,397 --
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES
3,269,149 15,767
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities held to maturity (230,400) (13,603,832)
Purchases of investment securities available for sale (11,092,104) --
Repayments of principal and maturities of investment securities
available for sale 1,403,906 598,799
Maturities of investment securities held to maturity 2,000,000 2,000,000
Proceeds from sales of government guaranteed loans 2,380,922 1,361,197
Loans originated or acquired, net of principal repayments (13,529,729) (2,586,730)
Purchases of premises and equipment (722,854) (270,719)
Sales of premises and equipment 3,465 905
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (19,786,794) (12,500,380)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in federal funds purchased and securities sold
under agreements to repurchase 351,161 (1,259,162)
Net increase in demand, money market and savings accounts 25,665,135 34,743,756
Time deposits accepted, net of repayments 11,404,302 (1,937,053)
Proceeds from exercise of stock options 74,374 257,617
Treasury stock repurchased (387,593) --
Cash dividends paid (450,979) (437,195)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES
36,656,400 31,367,963
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 20,138,755 18,883,350
(Continued)
5
7
TIB FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
FOR THE THREE MONTH PERIOD ENDED MARCH 31,
1999 1998
----------- -----------
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 24,701,735 24,829,285
----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $44,840,490 $43,712,635
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS:
Cash paid for:
Interest $ 2,593,910 $ 2,146,643
Income taxes 66,927 --
(See notes to consolidated financial statements)
6
8
TIB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(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 three months ended
March 31, 1999 are not necessarily indicative of trends or results to be
expected for the year ended December 31, 1999. For further information, refer to
the Company's consolidated financial statements and footnotes thereto for the
year ended December 31, 1998.
The consolidated statements include the accounts of TIB Financial Corporation
and its wholly-owned subsidiaries, TIB Bank of the Keys and TIB Software and
Services, Inc., 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:
March 31, 1999 December 31, 1998
-------------- -----------------
Commercial, financial and agricultural $ 168,845,640 $ 163,798,992
Real estate - construction 5,544,057 5,960,092
Real estate - individual 69,786,116 62,544,350
Installment and simple interest dividend 13,367,051 13,810,146
Other 351,950 554,830
-------------- -----------------
Total loans 257,894,814 246,668,410
Net deferred loan fees 363,407 370,231
-------------- -----------------
Loans, net of deferred loan fees $ 257,531,407 $ 246,298,179
============== =================
NOTE 3 - ALLOWANCE FOR LOAN LOSSES
The financial statements include an allowance for estimated losses on loans
based upon management's evaluation of potential losses in the loan portfolio.
The allowance for loan losses is established through a provision for loan losses
charged to expense. 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 known. Recognized losses are charged to the allowance for loan
losses, while subsequent recoveries are added to the allowance.
7
9
Activity in the allowance for loan losses for the three months ended March 31,
1999 and March 31, 1998 follows:
March 31, 1999 March 31, 1998
-------------- --------------
Balance, January 1 $ 2,517,234 $ 2,201,974
Provision charged to expense 180,000 90,000
Loans charged off (33,558) (21,210)
Recoveries of loans previously charged off 1,625 2,493
-------------- --------------
Balance, March 31 $ 2,665,301 $ 2,273,257
============== ==============
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 March 31, 1999 and December 31, 1998 are presented below:
March 31, 1999
------------------------------------------------------------
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------------------------------------------------------
U.S. Treasury Securities $12,083,841 $ 178,923 $ -- $12,262,764
U.S. Government agencies and corporations 33,161,689 56,128 261,005 32,956,812
Other investments 1,138,500 -- -- 1,138,500
------------------------------------------------------------
$46,384,030 $ 235,051 $ 261,005 $46,358,076
============================================================
December 31, 1998
------------------------------------------------------------
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------------------------------------------------------
U.S. Treasury Securities $14,083,195 $ 247,542 $ -- $14,330,737
U.S. Government agencies and corporations 33,161,248 177,062 109,375 33,228,935
Other investments 908,100 -- -- 908,100
------------------------------------------------------------
$48,152,543 $ 424,604 $ 109,375 $48,467,772
============================================================
The amortized cost and estimated market value of investment securities available
for sale at March 31, 1999 and December 31, 1998 are presented below:
March 31, 1999
-----------------------------------------------------------
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-----------------------------------------------------------
U.S. Treasury Securities $16,085,269 $ 39,246 $ 30,945 $16,093,570
States and political subdivisions 7,181,808 191,133 -- 7,372,941
Mortgage-backed securities 3,551,460 5,933 3,854 3,553,539
Other debt securities 449,871 3,487 -- 453,358
-----------------------------------------------------------
$27,268,408 $239,799 $ 34,799 $27,473,408
===========================================================
8
10
December 31, 1998
----------------------------------------------------------
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------------------------------------------------
U.S. Treasury Securities $ 5,021,513 $ 21,437 $ -- $ 5,042,950
States and political subdivisions 8,114,069 219,112 8,333,181
Mortgage-backed securities 4,022,557 4,020 12,379 4,014,198
Other debt securities 449,871 7,810 -- 457,681
----------------------------------------------------------
$17,608,010 $252,379 $ 12,379 $17,848,010
==========================================================
Other investments at March 31, 1999 and December 31, 1998 consist of stock in
the Independent Bankers Bank of Florida and the Federal Home Loan Bank of
Atlanta. Other debt securities at March 31, 1999 and December 31, 1998 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.
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 March 31, 1999:
Basic earnings per common share $931,839 4,374,062 $.21
Effect of dilutive stock options -- 170,220 (.00)
---------------------------------------------
Diluted earnings per common share $931,839 4,544,282 $.21
=============================================
For the three months ended March 31, 1998:
Basic earnings per common share $825,056 4,384,946 $.19
Effect of dilutive stock options -- 239,855 (.01)
---------------------------------------------
Diluted earnings per common share $825,056 4,624,801 $.18
=============================================
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 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 three months ended
March 31, 1999 were 8,000, 11,900, and 11,000, respectively. As of March 31,
1999, 596,185 options for shares were outstanding.
NOTE 7 - NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 (SFAS 130), "Reporting Comprehensive Income." Under SFAS 130,
a company is required to show changes in assets and liabilities in a new
comprehensive income statement or alternative presentation, as opposed to
showing some of the items as transactions in
9
11
shareholders' equity accounts. Since SFAS 130 solely relates to display and
disclosure requirements, it had no effect on the Company's financial results.
Effective December 31, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131 (SFAS 131), "Disclosures About Segments of an
Enterprise and Related Information." The provisions of this statement require
disclosure of financial and descriptive information about an enterprise's
operating segments in annual and interim financial reports issued to
stockholders. SFAS 131 defines an operating segment as a component of an
enterprise that engages in business activities that generate revenue and incur
expense, whose operating results are reviewed by the chief operating decision
maker in the determination of resource allocation and performance, and for which
discrete financial information is available. The disclosure requirements of SFAS
131 had no impact on the Company's financial condition or results of operations.
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, with an
amortized cost of $11,898,815, 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.
Effective January 1, 1999, the Company adopted American Institute of Certified
Public Accountants Statement of Position 98-5 (SOP 98-5), "Reporting the Costs
of Start-Up Activities." SOP 98-5 applies to all nongovernmental entities and
requires that costs of start-up activities and organization costs be expensed as
incurred. The adoption of SOP 98-5 is described in Management's Discussion and
Analysis of Financial Condition and Results of Operations below.
In October 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 134 (SFAS 134), "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise." SFAS 134 is effective for the
first fiscal quarter after December 15, 1998. This statement amends SFAS 65 by
revising the accounting for retained securities and beneficial interests.
Management of the Company does not believe that the adoption of SFAS 134 will
have a material impact on the consolidated financial condition or results of
operations of the Company.
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 March
31, 1999, and statement of income for the three months ended March 31, 1999.
The Company's net income of $931,839 for the first quarter of 1999 was a 12.9%
increase compared to $825,056 for the same period last year. The increase in net
income is attributed to an increase of $768,611, or 23.3%, in net interest
income; an increase of $43,662, or 2.5%, in other income; offset by an increase
of $90,000 in the provision for loan losses; an increase in other expense of
$466,743, or 12.8%; an increase in income tax expense of $101,700 or 22.4%; and
an increase in 1999 expense of $47,047 for the cumulative effect of the change
in accounting principle related to deferred organization costs. Basic and
diluted earnings per share for the first quarter of 1999 were $0.21 and $0.21
respectively as compared to $0.19 and $0.18 per share in the previous year's
quarter. Book value per share increased to $6.11 at March 31, 1999 from $6.04 at
December 31, 1998. The Company paid a quarterly dividend of $0.1025 per share in
the first quarter of 1999 and $0.10 in the first quarter of 1998.
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 three months ended March 31, 1999
was
10
12
14.0% on average equity of $26,690,000, compared to 13.3% on average equity
of $24,877,000 for the same period in 1998. Annualized return on average assets
of $380,775,000 for the three months ended March 31, 1999 was 0.98%, compared to
1.14% on average assets of $289,930,000 for the same period in 1998. This
decrease is attributed to the accelerated increase in assets over a twelve month
period. This asset growth was the result of the funds generated from the deposit
increases which were primarily caused by the following factors: the purchase of
the deposits of another bank's branch in Homestead, Florida; the continuing
effects of the consolidation of financial institutions in the South Florida
market area; and the Company's ongoing effort to offer competitive products and
gain market share.
Net interest income is one measurement of how 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 23.3%
to $4.1 million, in the three months ended March 31, 1999 as compared to the
same period last year primarily as a result of a higher level of earning assets.
The first quarter growth reflects both the normal seasonal inflow of deposits
combined with the effects of the Company's continuing policy of competitive
pricing of loans and deposits. Net interest margins on a percentage basis
decreased primarily because the seasonal deposits must be invested in short-term
and therefore lower yielding assets. Interest from loans increased to $5.4
million for the first three months of 1999 compared to $4.3 million for the
comparable period last year. The Company's net interest margin declined to 4.71%
in the first three months of 1999 compared to 4.96% in the first three months of
1998. Margins are under pressure from both the asset yield and deposit cost
sides. High quality assets, primarily loans, require offering very competitive
rates to acquire and retain. Average deposit cost increases reflect changes in
the mix of deposit liabilities. Customers are less likely to leave their funds
in the lower yielding deposit accounts. These are general industry conditions
which the Bank is subject to.
Provision for loan losses increased to $180,000 from $90,000 for the respective
first three months of 1999 and 1998 due to increased loan growth. Gross charged
off loans for the first three months were $33,558 offset by recoveries of
$1,625, resulting in an annualized net charge-off rate of 0.05% of total loans.
This compares to net charge offs during the same period last year of $18,717. At
March 31, 1999, the Company had aggregate non-accrual loans of $374,689 compared
to $520,866 at December 31, 1998. The ratio of non-performing loans (including
loans 90 days or more past due and still accruing) to total outstanding loans
was 0.15% at March 31, 1999 compared to 0.21% at December 31, 1998.
Other income increased $43,662 to $1,758,058 for the three month period ended
March 31, 1999 from $1,714,396 in the comparable period last year. Retail sales
of investment products brought in commissions to the Company of $60,912 during
the first three months of 1999 as compared to $80,889 for the first three months
of 1998. Gains on sales of government guaranteed loans were $109,530 for the
first three months of 1999 compared to $349,289 for the first three months of
1998. Government loan fees result from a relatively small number of significant
transactions. The timing of the closing of these transactions will not generally
be evenly distributed during the year and, therefore, the revenue recognition
from these transactions can vary considerably from quarter to quarter. Mortgage
loan origination fees increased $17,604 in the first quarter of 1999, as
compared to the first quarter of 1998.
Other expense increased to $4,110,497, or 12.8%, in the first three months of
1999 as compared to the prior year period. The major areas of increased expenses
relate to interchange fees and other expenses for processing merchant bankcard
transactions, computer services, supplies, and the amortization of purchased
deposits. Bankcard costs are volume driven and are more than offset by higher
revenues reported in Other Income. Computer services and supplies reflect the
costs associated with the larger number and activity in account relationships.
Finally, the premium paid in the acquisition of the branch deposits in Homestead
required $36,382 in current charges to amortization expense for the three months
ended March 31, 1999.
Effective January 1, 1999, the Company changed its method of accounting for
organization costs in order to expense these costs in the period incurred. Prior
to 1999, the Company capitalized organization costs and amortized them to
expense over a five-year period. This change in accounting method was made in
order for the Company to be in compliance with AICPA Statement of Position 98-5
(SOP 98-5), which states that the costs of start-up activities, which include
organization costs, be expensed as incurred. SOP 98-5 is effective for fiscal
years beginning after December 15, 1998. The Company recorded a charge net of
tax of $47,047, or $0.01 per share, in the first quarter of 1999 as the
cumulative effect of this accounting change.
Total assets at March 31, 1999 were $394,300,590, up from total assets of
$355,475,850 at December 31, 1998. Loans net of deferred loan fees increased
$11,233,228 for the first three months of 1999 from year end 1998. Also, in the
same period, investment securities increased $7,856,885, federal funds sold
increased $3,533,000, and interest bearing deposits in other bank
11
13
increased $14,819,643. The interest bearing deposits are at the Federal Home
Loan Bank of Atlanta and is a slight yield enhancement to average Federal Funds
rates and this also helps diversify the placement of the Company's excess funds.
The increase in fixed assets of $437,117 in the first quarter of 1999, is
primarily due to the construction of a branch facility in Key West, Florida to
replace an existing leased facility. This branch opened in April and allows for
easier access for the Bank's customers.
At March 31, 1999, the Company had $1,020,730 in short-term borrowings compared
to $669,569 at December 31, 1998. Short-term borrowings include $583,892 in
securities sold under agreements to repurchase and $436,838 in Treasury tax
deposits. This increase in short-term borrowings reflects the government and
some individual entities keeping more funds with the Bank at quarter end.
YEAR 2000
The Company and its subsidiaries are currently addressing a universal situation
commonly referred to as the "Year 2000 Problem" or "Y2K." The Bank subsidiary
has the most significant exposure to 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-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. 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.
To determine the readiness of its vendors, the Bank has sent out a letter to
each vendor inquiring about their compliance with Year 2000. For those vendors
that have responded that they are Year 2000 compliant and that the Bank has
determined to not have a material impact on the Bank's operations, no further
work is performed. For those vendors that have responded they are working
towards Year 2000 compliance and that the Bank has determined to be significant,
including mission critical vendors, the Bank will follow up on a regular basis
through 1999. These vendors have advised the Bank that they expect to be Year
2000 compliant prior to December 31, 1999. If those vendors do not demonstrate
compliance by a certain date, the Bank will seek other alternatives in
accordance with the Bank's contingency plan, which may include seeking
replacement vendors.
The most significant expenditures related to the Year 2000 issue have involved
system upgrades, both hardware and software, which would have been implemented
at some point even without the Y2K issue. However, because of Y2K, some of these
expenditures have been accelerated. These expenditures are capital in nature and
the cost will be amortized over their useful lives. The amount of these items
totaled approximately $300,000 in 1998 and are budgeted to be about $100,000 in
1999. The amount spent on testing and compliance issues of existing systems was
about $2,000 in 1998 and will be approximately $50,000 in 1999 and is recorded
in other expense. None of these costs are expected to materially impact the
Company's results of operations in any one reporting period.
Ultimately, the potential impact of the Year 2000 issue will depend not only on
the corrective measures the Bank undertakes, but also on the way in which the
Year 2000 issue is addressed by governmental agencies, businesses, and other
entities who provide data to the Bank, receive data from the Bank, or whose
financial condition or operational capability is important to the Bank, such as
suppliers or customers. At worst, the Bank customers and vendors will face
severe Year 2000 issues, which may cause borrowers to become unable to service
their loans. The Bank may also be required to replace non-compliant vendors with
more expensive Year 2000-compliant vendors. At this time the Bank cannot
determine the financial effect on it if significant customer and/or vendor
remediation efforts are not resolved in a timely manner.
12
14
CAPITAL ADEQUACY
Federal banking regulators have established certain capital adequacy standards
required to be maintained by banks and bank holding companies. The minimum
requirements established in the regulations are set forth in the table below,
along with the actual ratios at March 31, 1999 and December 31, 1998:
Well Adequately
Capitalized Capitalized March 31, 1999 December 31, 1998
Requirement Requirement Actual Actual
- ---------------------------------------------------------------------------------------------------------------
Tier 1 Capital (to Average Assets)
Consolidated >=5% 3% 6.6% 7.9%
Bank >=5% 3% 6.4% 7.6%
Tier 1 Capital (to Risk Weighted Assets)
Consolidated >=6% 4% 9.5% 9.8%
Bank >=6% 4% 9.2% 9.4%
Total Capital (to Risk Weighted Assets)
Consolidated >=10% 8% 10.5% 10.7%
Bank >=10% 8% 10.2% 10.4%
Management believes, as of March 31, 1999, that the Company and the Bank met all
capital requirements to which they are subject.
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 $47 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 1998 or thus far in 1999.
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.
SEGMENT REPORTING
TIB Financial Corp. has three reportable segments: community banking, merchant
bankcard processing, and government guaranteed loan sales and servicing. The
community banking segment's business is to attract deposits from the public and
to use such deposits to make real estate, business and consumer loans in its
primary service area. The merchant bankcard processing segment processes credit
card transactions for local merchants. The government guaranteed loan segment
13
15
originates and sells the government guaranteed portion of loans that qualify for
government guaranteed loan programs, such as those offered by the Small Business
Administration and the U.S. Department of Agricultural Rural Development
Business and Industry Program. The results of the Company's segments are as
follows:
Government
Merchant Guaranteed
Community Bankcard Loans Sales and All
Three months ended March 31, 1999 Banking Processing Servicing Other Totals
- ----------------------------------------------------------------------------------------------------------------------
Interest income $ 6,754,146 $ -- $ -- $ -- $ 6,754,146
Interest expense 2,686,521 -- -- -- 2,686,521
--------------------------------------------------------------------------
Net interest income 4,067,625 -- -- -- 4,067,625
Other income 717,782 829,841 136,341 60,912 1,744,876
Equity in income of ERAS Joint Venture -- -- -- 13,182 13,182
Depreciation and amortization 278,397 1,356 3,554 563 283,870
Other expense 3,235,884 673,492 95,287 77,311 4,081,974
--------------------------------------------------------------------------
Pretax segment profit $ 1,271,126 $ 154,993 $ 37,500 $ (3,780) $ 1,459,839
==========================================================================
Segment assets $393,153,214 $ 112,169 $ 240,608 $ 794,599 $394,300,590
==========================================================================
Government
Merchant Guaranteed
Community Bankcard Loans Sales and All
Three months ended March 31, 1998 Banking Processing Servicing Other Totals
- --------------------------------------------------------------------------------------------------------------
Interest income $ 5,534,456 $ -- $ -- $ -- $ 5,534,456
Interest expense 2,235,442 -- -- -- 2,235,442
-----------------------------------------------------------------------
Net interest income 3,299,014 -- -- -- 3,299,014
Other income 608,283 654,862 370,362 80,889 1,714,396
Depreciation and amortization 236,834 244 3,400 463 240,941
Other expense 2,705,314 485,872 236,193 65,434 3,492,813
-----------------------------------------------------------------------
Pretax segment profit $ 965,149 $ 168,746 $ 130,769 $14,992 $ 1,279,656
=======================================================================
Segment assets $313,238,044 $ 40,443 $ 267,559 $ 7,358 $313,553,404
=======================================================================
Revenues are almost exclusively derived from customers within the United States.
The Company does not have a single customer that accounts for ten percent or
more of the Company's revenue.
14
16
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule (SEC use only)
(b) No reports on Form 8-K were filed during the quarter ended
March 31, 1999.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TIB FINANCIAL CORP.
/s/ Edward V. Lett
---------------------
Date: May 13, 1999 Edward V. Lett
------------ President and Chief Executive Officer
15