10-K405 1 g74724e10-k405.txt TIB FINANCIAL CORPORATION U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year Commission file number ended December 31, 2001 000-21329 TIB FINANCIAL CORP. (Exact Name of Registrant as Specified in Its Charter) Florida 65-0655973 (State of Incorporation) (I.R.S. Employer Identification No.) 99451 Overseas Highway Key Largo, Florida 33037-7808 (Address of Principal Executive Offices) (Zip Code) (305) 451-4660 (Registrant's telephone number) Securities Registered pursuant to Section 12(b) of the Act: None Securities Registered pursuant to Section 12(g) of the Act: Common stock, par value $0.10 Indicate by check 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant at March 1, 2002 was $36,928,538 based on $12.35 per share as of March 1, 2002. The number of shares outstanding of issuer's class of common stock at March 1, 2002 was 3,947,000 shares of common stock. Documents Incorporated By Reference: Portions of the Proxy Statement for the 2002 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within 120 days of the Registrant's 2001 fiscal year end are incorporated by reference into Part III of this report. TABLE OF CONTENTS Page PART I ITEM 1. BUSINESS...........................................................1 ITEM 2. PROPERTIES.........................................................8 ITEM 3. LEGAL PROCEEDINGS..................................................9 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................................................9 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS........................................9 ITEM 6. SELECTED FINANCIAL DATA...........................................10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION......................11 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK........ 31 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................32 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..............................................67 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.................................................67 ITEM 11. EXECUTIVE COMPENSATION............................................67 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..................................67 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............................................67 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.......................................... 68 SIGNATURES ..................................................................69 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 ITEM 1. BUSINESS TIB Financial Corp. (the "Company"), Key Largo, Florida, was incorporated as a Florida business corporation in February 1996, for the purpose of becoming a bank holding company by acquiring all of the common stock of TIB Bank of the Keys (the "Bank"), Key Largo, Florida. Following the receipt of approval from the Board of Governors of the Federal Reserve System (the "Federal Reserve"), the Company became a bank holding company within the meaning of the Bank Holding Company Act of 1956 (the "Act") upon the acquisition of all of the Common Stock of the Bank on August 31, 1996. Effective August 31, 2000, the Company became a financial holding company. The Company is authorized to engage in any activity permitted by law to a Florida corporation, subject to applicable Federal regulatory restrictions on the activities of financial holding companies. The Bank was incorporated under the laws of the State of Florida on December 28, 1973, for the purpose of conducting the business of commercial banking. The Bank commenced commercial banking operations on February 1, 1974. The deposits at the Bank are insured up to applicable limits by the Federal Deposit Insurance Corporation (the "FDIC"). The Bank conducts a general commercial banking business in its primary service area of Monroe, Dade, Collier and Lee Counties, Florida, emphasizing the banking needs of individuals, professionals and business customers. The main office of the Company and the Bank is located at 99451 Overseas Highway, Key Largo, Florida 33037. The Bank has a total of thirteen branch locations. There are nine branch locations throughout the Florida Keys from Key Largo to Key West. There are also two branch locations in Homestead, one branch in Naples, and one branch in Bonita Springs, Florida. The principal business of the Bank 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. As of December 31, 2001, the Bank had total assets of approximately $491.0 million, total deposits of approximately $417.8 million and total shareholders' equity of approximately $43.0 million. The Bank offers a full range of deposit services that are typically available from financial institutions, including NOW accounts, money market checking accounts, demand accounts, savings accounts, certificates of deposit and other time deposits. In addition, retirement accounts such as Individual Retirement Accounts are available from the Bank. The Bank pays interest on its deposit accounts and certificates competitive with other financial institutions in its primary service area. The Bank seeks to concentrate its deposits and loan efforts within Monroe, Collier, Southern Lee, and South Miami-Dade 1 Counties, Florida, its primary service area. The primary factors in competing for deposits are interest rates, the range of financial services offered, service, convenience of office locations and flexible office hours. Direct competition for such deposits comes from other commercial banks, savings institutions, credit unions, brokerage firms and money market funds. The Bank's lending philosophy is to make loans, taking into consideration the safety of the Bank's depositors' funds, the preservation of the Bank's liquidity, the interest of the Company's shareholders, the welfare of the community, and other factors. Interest income from the Bank's lending operations is a principal component of the Bank's income, so therefore prudent lending is essential for the prosperity of the Bank. The primary factors in competing for loans are interest rates, loan origination fees and the range of lending services offered. Competition for origination of loans normally comes from other commercial banks, savings institutions, credit unions and mortgage banking firms. Such entities may have competitive advantages as a result of greater resources and higher lending limits (by virtue of their greater capitalization). There are also smaller financial institutions that compete for the same market. The Bank seeks to attract customers with its products and services which are tailored to the needs of the customers. Management seeks to emphasize a high degree of personalized client service in order to be able to better meet the banking needs of its customers. The Bank's loan portfolio at December 31, 2001 contained approximately 81% real estate mortgage loans, 12% commercial loans, 3% consumer loans, and 4% home equity loans. The Bank's gross loan to deposit ratio at December 31, 2001 was approximately 91%. In addition to interest income from the Bank's lending operations, the other major sources of income for the Bank are fees on mortgage loans sold at origination, interest on investment securities, service charges on deposit accounts, gains on sales of government guaranteed loans, and merchant bankcard processing income. The principal expenses of the Bank are interest paid on deposits, employee compensation, office expenses, and other overhead expenses. The Bank engages through a wholly-owned subsidiary, TIB Investment & Insurance Center, Inc. ("TIB Investment"), in the retail sale of nondeposit investment products such as variable and fixed rate annuities, mutual funds and other products. The Bank has entered into an agreement with Raymond James Financial Services, Inc., a third-party provider which trains and supervises employees of the Bank or TIB Investment in the sale of these products from various offices of the Bank. Effective January 14, 2002, the name of this subsidiary was changed to TIB Investment Center, Inc. The Bank also engages through a wholly-owned subsidiary, TIB Government Loan Specialists, Inc., in the origination and sale of 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 Agriculture Rural Development Business and Industry Program. Prior to December 31, 2001, the Company had a 30% interest in ERAS JV, a company that specializes in cash item processing for depository institutions and customized software for the financial services industry. On December 31, 2001, the Company sold a portion of its investment in this company, which reduced its ownership percentage in ERAS JV to 10%. In October 2000, the Company purchased Keys Insurance Agency of Monroe County, Inc. Keys Insurance Agency, Inc. (the new name subsequent to the purchase) has three offices in the Florida Keys and one office in Naples and brokers a full line of commercial and residential hazard insurance coverages as well as life and health insurance and annuities. The Bank's business plan relies principally upon local advertising and promotional activity and upon personal contacts by its directors, officers and shareholders to attract business and to acquaint potential customers with the Bank's personalized services. The Bank emphasizes a high degree of personalized client service in order to be able to provide for each customer's banking needs. The Bank's marketing approach emphasizes the advantages of dealing with an independent, locally-managed and managed state chartered bank to meet the particular needs of consumers, professionals and business customers in the community. All banking services are continually evaluated with regard to their profitability and efforts are made to modify the Bank's business plan if deemed appropriate. 2 EMPLOYEES As of December 31, 2001, the Bank employed 220 full-time employees and 15 part-time employees, and the insurance agency employed 22 full-time employees and one part-time employee. Except for the officers of the Bank who presently serve as officers of the Company, the Company does not have any employees. 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 its employees. SUPERVISION AND REGULATION REGULATION OF THE BANK. The operations of the Bank are subject to state and federal statutes applicable to state chartered banks whose deposits are insured by the FDIC, and also to the regulations of the Florida Department of Banking and Finance (the "DBF") and the FDIC. Such statutes and regulations relate to, among other things, reserves, investments, loans, mergers and consolidations, branching, issuances of securities, payment of dividends, payment of interest rates, establishment of branches and other aspects of the Bank's operations. Under the provisions of the Federal Reserve Act, the Bank is subject to certain restrictions on any extensions of credit to the Company or, with certain exceptions, other affiliates, and on the taking of such stock or securities as collateral on loans to any borrower. In addition, the Bank is prohibited from engaging in certain tie-in arrangements in connection with any extension of credit or the providing of any property or service. Florida law permits banks to branch on a statewide basis. Therefore, the Bank has the ability to expand from its market presence in Monroe, Miami-Dade, Collier and Lee counties into other markets in Florida. The FDIC has adopted risk-based capital guidelines for all FDIC insured state chartered banks that are not members of the Federal Reserve System. These guidelines require all banks to maintain a minimum ratio of total capital to risk weighted assets of 8 percent (of which at least 4 percent must consist of Tier 1 capital). Tier 1 capital of state chartered banks (as defined in regulations) generally consists of (i) common stockholders equity; (ii) noncumulative perpetual preferred stock and related surplus; and (iii) minority interests in the equity accounts of consolidated subsidiaries. In addition, the FDIC adopted a minimum ratio of Tier 1 capital to total assets of banks. This capital measure is generally referred to as the leverage capital ratio. The FDIC has established a minimum leverage capital ratio of 4 percent if the FDIC determines that the institution is not anticipating or experiencing significant growth and has well-diversified risk, including no undue interest rate exposure, excellent asset quality, high liquidity, good earnings and, in general, is considered a strong banking organization, rated Composite 1 under the Uniform Financial Institutions Rating System. Other financial institutions are expected to maintain leverage capital at least 100 to 200 basis points above the minimum level. At December 31, 2001, the Bank exceeded these minimum Tier 1, risk-based and leverage capital ratios. The table that follows sets forth certain capital information for the Bank as of December 31, 2001. 3 CAPITAL ADEQUACY (Dollars in thousands) December 31, 2001
Amount Percent ------ ------- Leverage Ratio: Actual $40,589 8.5% Minimum Required (1) $18,999 4.0% Risk-Based Capital: Tier 1 Capital Actual $40,589 10.2% Minimum Required $15,974 4.0% Total Capital Actual $44,383 11.1% Minimum Required $31,949 8.0%
(1) Represents the highest regular minimum requirement calculated by multiplying the minimum required percentage by the actual average total assets for leverage capital purposes. Institutions that are contemplating acquisitions or anticipating or experiencing significant growth may be required to maintain a substantially higher leverage ratio. See below regarding the consequences of failing to meet specified capital standards. The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") contains "prompt corrective action" provisions which established among other things, the following five capital standard categories for depository institutions: (i) well capitalized, (ii) adequately capitalized, (iii) undercapitalized, (iv) significantly undercapitalized and (v) critically undercapitalized. FDICIA imposes progressively more restrictive constraints on operations, management and capital distributions depending on the category in which an institution is classified. Each of the federal banking agencies has issued uniform regulations, which, among other things, define the capital levels described above. Under the regulations, a bank is considered "well capitalized" if it (i) has a total risk-based capital ratio of 10% or greater, (ii) has a Tier 1 risk-based capital ratio of 6% or greater, (iii) has a leverage ratio of 5% or greater, and (iv) is not subject to any order or written directive to meet and maintain a specific capital level for any capital measure. An "adequately capitalized" bank is defined as one that has (i) a total risk-based capital ratio of 8% or greater, (ii) a Tier 1 risk-based capital ratio of 4% or greater and (iii) a leverage ratio of 4% or greater. An "undercapitalized" bank is defined as one that has a total risk-based capital ratio of less than 8%, (ii) a Tier I risk-based capital ratio of less than 4% or (iii) a leverage ratio of less than 3%. A "significantly undercapitalized" bank is defined as one that has a total risk-based capital ratio of less than 6%, a Tier 1 risk-based capital ratio of less than 3% or a leverage ratio of less than 3% and a bank is "critically undercapitalized" if the bank has a leverage ratio equal to or less than 2%. The applicable federal regulatory agency for a bank that is "well capitalized" may reclassify it as "adequately capitalized" or "undercapitalized" and subject the institution to the supervisory actions applicable to the next lower capital category, if it determines that the Bank is in an unsafe or unsound condition or deems the bank to be engaged in an unsafe or unsound practice and not to have corrected the deficiency. As of December 31, 2001, the Bank met the definition of a "well capitalized" institution. "Undercapitalized" depository institutions, among other things, are subject to growth limitations, are prohibited, with certain exceptions, from making capital distributions, are limited in their ability to obtain funding from a Federal Reserve Bank and are required to submit a capital restoration plan. The federal banking agencies may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution's capital. In addition, for a capital restoration plan to be acceptable, the depository institution's parent holding company must guarantee that the institution will comply with such capital restoration plan and provide appropriate assurances of performance. If a depository institution fails to submit an acceptable plan, including if 4 the holding company refuses or is unable to make the guarantee described in the previous sentence, it is treated as if it is "significantly undercapitalized". Failure to submit or implement an acceptable capital plan also is grounds for the appointment of a conservator or a receiver. "Significantly undercapitalized" depository institutions may be subject to a number of additional requirements and restrictions such as orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, and cessation of receipt of deposits from correspondent banks. "Critically undercapitalized" institutions, among other things, are prohibited from making any payments of principal and interest on subordinated debt, and are subject to the appointment of a receiver or conservator. The Bank is also subject to, among other things, the provisions of the Equal Credit Opportunity Act (the "ECOA") and the Fair Housing Act (the "FHA"), both of which prohibit discrimination based on race or color, religion, national origin, sex, and familial status in any aspect of a consumer or commercial credit or residential real estate transaction. The Department of Housing and Urban Development, the Department of Justice (the "DOJ"), and all of the federal banking agencies have issued an Interagency Policy Statement on discrimination in Lending which provides guidance to financial institutions as to what the agencies consider in determining whether discrimination exists, how the agencies will respond to lending discrimination, and what steps lenders might take to prevent discriminatory lending practices. REGULATION OF THE COMPANY. The Company is a bank holding company within the meaning of the Act. As a bank holding company, the Company is required to file with the Federal Reserve an annual report and such additional information as the Board may require pursuant to the Act. The Federal Reserve may also make examinations of the Company and each of its subsidiaries. Bank holding companies are required by the Act to obtain approval from the Federal Reserve prior to acquiring, directly or indirectly, ownership or control of more than 5% of the voting shares of a bank or merging with another bank holding company. Recent legislation has 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. On August 31, 2000, the Federal Reserve Bank approved the Company's election to become a financial holding company. The Company thus has expanded financial affiliation opportunities as long as the Bank remains a "well-capitalized" and "well-managed" depository institution and has at least a "satisfactory" rating under the Community Reinvestment Act of 1997 (the "CRA"). As of December 31, 2001, the Bank met all three criteria for the Company's continued qualification as a financial holding company. As a bank holding company, the Company is subject to capital adequacy guidelines established for bank holding companies by the Federal Reserve. The minimum required ratio for total capital to risk weighted assets is 8 percent (of which at least 4 percent must consist of Tier 1 capital). Tier 1 capital (as defined in regulations of the Federal Reserve) consists of common and qualifying preferred stock and minority interests in equity accounts of consolidated subsidiaries, less goodwill and other intangible assets required to be deducted under the Federal Reserve's guidelines. The Federal Reserve's guidelines apply on a consolidated basis to bank holding companies, like the Company, with total consolidated assets of $150 million or more. For bank holding companies with less than $150 million in total consolidated assets, the guidelines apply on a bank only basis, unless the bank holding company is engaged in nonbanking activity involving significant leverage or has significant amount of debt outstanding that is held by the general public. The Federal Reserve has stated that risk based capital guidelines establish minimum standards and that bank holding companies generally are expected to operate well above the minimum standards. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Banking Act"), 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. The Interstate Banking Act generally prohibits an interstate acquisition (other than the initial entry into a state by a bank holding company) that would result in either the control of more than (i) 10% of the total amount of insured deposits in the United States, or (ii) 30% of the total insured deposits in the home state of the target bank, unless such 30% limitation is waived by the home state on a basis which does not discriminate against out-of-state institutions. As a result of this legislation, the Company may become a candidate for acquisition by, or may itself seek to acquire, banking organizations located in other states. 5 Florida has enacted the Florida Interstate Branching Act (the "Florida Branching Act"), which permits interstate branching through merger transactions under the Interstate Banking Act. Under the Florida Branching Act, with the prior approval of the DBF, 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, the Florida Branching Act 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 the branches of the Florida bank that participated in such merger. An out-of-state bank, however, is not permitted to acquire a Florida bank in a merger transaction unless the Florida bank has been in existence and continuously operated for more than three years. Federal Reserve policy requires a bank holding company to act as a source of financial strength and to take measures to preserve and protect bank subsidiaries in situations where additional investments in a troubled bank may not otherwise be warranted. In addition, under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), where a bank holding company has more than one bank or thrift subsidiary, each of the bank holding company's subsidiary depository institutions is responsible for any losses to the FDIC as a result of an affiliated depository institution's failure. As a result, a bank holding company may be required to loan money to its subsidiaries in the form of capital notes or other instruments which qualify as capital under regulatory rules. However, any loans from the holding company to such subsidiary banks likely will be unsecured and subordinated to such bank's depositors and perhaps to other creditors of the bank. In addition, a bank holding company may be required to provide additional capital to any additional banks it acquires as a condition to obtaining the approvals and consents of regulatory authorities in connection with such acquisitions. The Company and the Bank are subject to Section 23A of the Federal Reserve Act, which limits a bank's "covered transactions" (generally, any extension of credit or purchase of assets) with any single affiliate to no more than 10% of a bank's capital and surplus. Covered transactions with all affiliates combined are limited to no more than 20% of a bank's capital and surplus. All covered and exempt transactions between a bank and its affiliates must be on terms and conditions consistent with safe and sound banking practices, and a bank and its subsidiaries are prohibited from purchasing low quality assets from the bank's affiliates. Finally, Section 23A requires that all of a bank's extensions of credit to an affiliate be appropriately secured by collateral. The Company and the Bank are also subject to Section 23B of the Federal Reserve Act, which further limits transactions among affiliates. Sections 22(g) and 22(h) of the Federal Reserve Act and implementing regulations also prohibit extensions of credit by a state non-member bank (such as the Bank) to its directors, executive officers and controlling shareholders on terms which are more favorable than those afforded other borrowers, and impose limits on the amounts of loans to individual affiliates and all affiliates as a group. The Company and the Bank are subject to the provisions of the CRA and the federal banking agencies' regulations issued thereunder. Under the CRA, all banks and thrifts have a continuing and affirmative obligation, consistent with its safe and sound operation to help meet the credit needs for their entire communities, including low- and moderate-income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions, nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA requires a depository institution's primary federal regulator, in connection with its examination of the institution, to assess the institution's record of assessing and meeting the credit needs of the community served by that institution, including low- and moderate-income neighborhoods. The regulatory agency's assessment of the institution's record is made available to the public. In the case of a bank holding company applying for approval to acquire a bank or other bank holding company, or a bank applying for a merger or a branch office, the regulatory agencies will take into account the CRA rating of each subsidiary depository institution of the applicant bank holding company, and such records may be the basis for denying the application. Generally, holding companies and banks are required to have CRA ratings of satisfactory or better for purposes of approval of such applications. As a result of the Bank's most recent CRA examination in May 2001, the Bank received a "satisfactory" CRA rating. Enacted in 1999, the Gramm-Leach-Bliley Act reforms and modernizes certain areas of financial services regulation. As discussed above, the law permits the creation of new financial services holding companies that can offer a full range of financial products under a regulatory structure based on the principle of functional regulation. The legislation eliminates the legal barriers to affiliations among banks and securities firms, insurance companies, and other financial services 6 companies. The law also provides financial organizations with the opportunity to structure these new financial affiliations through a holding company structure or a financial subsidiary. The law reserves the role of the Federal Reserve Board as the supervisor for bank holding companies. At the same time, the law also provides a system of functional regulation which is designed to utilize the various existing federal and state regulatory bodies. The law also sets up a process for coordination between the Federal Reserve Board and the Secretary of the Treasury regarding the approval of new financial activities for both bank holding companies and national bank financial subsidiaries. The law also includes a minimum federal standard of financial privacy. Financial institutions are required to have written privacy policies that must be disclosed to customers. The disclosure of a financial institution's privacy policy must take place at the time a customer relationship is established and not less than annually during the continuation of the relationship. The act also provides for the functional regulation of bank securities activities. The law repeals the exemption that banks were afforded from the definition of "broker," and replaces it with a set of limited exemptions that allow the continuation of some historical activities performed by banks. In addition, the act amends the securities laws to include banks within the general definition of dealer. Regarding new bank products, the law provides a procedure for handling products sold by banks that have securities elements. In the area of CRA activities, the law generally requires that financial institutions address the credit needs of low-to-moderate income individuals and neighborhoods in the communities in which they operate. Bank regulators are required to take the CRA ratings of a bank or of the bank subsidiaries of a holding company into account when acting upon certain branch and bank merger and acquisition applications filed by the institution. Under the law, financial holding companies and banks that desire to engage in new financial activities are required to have satisfactory or better CRA ratings when they commence the new activity. Once a bank holding company has filed a declaration of its intent to be a financial holding company, as long as there is no action by the Federal Reserve Board giving notice that it is not eligible, the company may proceed to engage in the activities and enter into the affiliations under an expanded authority conferred by the law. The holding company does not need prior approval from the Federal Reserve Board to engage in activities that the law identifies as financial in nature or that the Federal Reserve Board has determined to be financial in nature or incidental thereto by order or regulation. The law retains the basic structure of the Bank Holding Company Act. Thus, a bank holding company that is not eligible for the expanded powers of a financial holding company, is subject to the provisions of the Bank Holding Company Act which limits the activities that are authorized and defined as closely related to banking activities. The law also addresses the consequences of when a financial holding company that has exercised the expanded authority fails to maintain its eligibility to be a financial holding company. The Federal Reserve Board may impose such limitations on the conduct or activities of a noncompliant financial holding company or any affiliate of that company as the Board determines to be appropriate under the circumstances and consistent with the purposes of the law. The United States Congress and the Florida Legislature periodically consider and adopt legislation that results in, and could further result in, 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 the business of the Company or the Bank cannot be accurately predicted. The Company cannot predict what legislation might be enacted or what other implementing regulations might be adopted, and if enacted or adopted, the effect thereof. COMPETITION The banking business is highly competitive. The Bank competes with other commercial banks that conduct operations in its primary service area. 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 Bank encounters strong competition from most of the financial institutions in the Bank's primary service area. In the conduct of certain areas of its banking business, the Bank also competes 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 Bank. Many of these competitors have substantially greater resources and lending limits than the Bank has and offer certain services, such as trust services, that the Bank does not provide presently. Management believes that personalized service and competitive pricing will provide it with a method to compete effectively in the primary service area. 7 MONETARY POLICY Earnings of the Company 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 has adopted a risk-based assessment system for insured depository institutions that takes into account the risks attributable to different categories and concentrations of assets and liabilities. The system assigns an institution to one of three capital categories: (a) well capitalized (b) adequately capitalized and (c) undercapitalized. These three categories are substantially similar to the prompt corrective action categories described above, with the "undercapitalized" category including institutions that are undercapitalized, significantly undercapitalized, and critically undercapitalized for prompt corrective action purposes. An institution is also assigned by the FDIC to one of three supervisory subgroups within each capital group. The supervisory subgroup to which an institution is assigned is based on a supervisory evaluation provided to the FDIC by the institution's primary federal regulator and information which the FDIC determines to be relevant to the institution's financial condition and the risk posed to the deposit insurance funds (which may include, if applicable, information provided by the institution's state supervisor). An institution's insurance assessment rate is then determined based on the capital category and supervisory category to which it is assigned. 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. Based on the Bank's risk classification, the Bank was not required to pay an assessment for deposit insurance in 2001, nor will it be required to pay a deposit insurance assessment in 2002. The Bank was required to pay the special interim Bank Insurance Fund Financing Corporation ("FICO") assessments in 2001 and will also be required to pay this assessment in 2002. 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. ITEM 2. PROPERTIES The Company conducts its business operations through the principal executive and operations office of the Company and the Bank located on an approximately 1.3 acre site at 99451 Overseas Highway, Key Largo, Monroe County, Florida. The main offices of the Bank at 99451 Overseas Highway are housed in a two-story building, owned by the Bank and containing approximately 13,275 square feet of finished space used for offices and operations and seven teller windows in the Bank lobby. The building also has two drive-up teller windows and an automated teller machine with 24-hour a day access. The Bank's other twelve branches are located at 600 North Homestead Boulevard in Homestead; 777 North Krome Avenue in Homestead; 103330 Overseas Highway in Key Largo; 91980 Overseas Highway in Tavernier; 80900 Overseas Highway in Islamorada; 11401 Overseas Highway in Marathon Shores; 2348 Overseas Highway in Marathon; 30400 Overseas Highway in Big Pine Key; 330 Whitehead Street in Key West; 3618 N. Roosevelt Drive in Key West; 8100 8 Health Center Boulevard in Bonita Springs, and 1720 J & C Boulevard in Naples, Florida. The main office and branch properties are owned by the Bank, with the exception of the 8100 Health Center Boulevard and 1720 J & C Boulevard locations which are leased. The Bank also owns four other properties. The Bank owns a one-story building containing approximately 5,000 square feet on a one-half acre lot located at 100210 Overseas Highway, Key Largo. This building is partly leased to Keys Insurance Agency and the remainder of the building is used by the Bank as a training center and office space. The Bank owns a three-story building at 228 Atlantic Boulevard, Key Largo, Florida that is utilized by the Bank primarily for the loan operations, human resources and marketing departments. The Bank owns a building located at 28 N.E. 18th Street in Homestead that is used for office space. The Bank owns a parcel of land at 599 Tamiami Trail North in Naples, Florida. A building is currently being constructed by a developer on this site, and it is intended that the bank's ownership in the land will be converted to an ownership interest in the first floor of an office building located on this site. This facility will be operated as a bank branch and is expected to open in 2002. The Bank leases office space at 9915 Tamiami Trail North in Naples, and at 1119 US 27 South in Sebring, Florida for the Bank's residential lending operations. Office space is also leased at 5198 Overseas Highway in Marathon, Florida for its commercial lending department. The insurance agency leases its four locations located at 100210 Overseas Highway in Key Largo; 5800 Overseas Highway in Marathon; 805 Peacock Plaza in Key West, and 8100 Health Center Boulevard in Bonita Springs. The Key Largo and Bonita Springs locations are leased from the Bank. ITEM 3. LEGAL PROCEEDINGS While the Company and the Bank 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 there are no proceedings threatened or pending against the Company or the Bank that will, individually or in the aggregate, have a material adverse effect on the consolidated results of operations or financial condition of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the Company's fourth quarter of the fiscal year ended December 31, 2001. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS As of December 31, 2001, there were 374 registered shareholders of record and 3,946,100 shares of the Company's common stock outstanding. On June 18, 1997, the Company's $0.10 par value common Stock became listed on the Nasdaq National Market System under the symbol "TIBB." Prior thereto, the Company's common stock had not been traded on an established trading market, so there had been limited trading. The following table sets forth, for the periods indicated, the high and low sale prices per share for the Company's common stock on the Nasdaq National Market:
Quarter Ended 2001 2000 ---------------------- ---------------------- High Low High Low ------------- ------ ------ ------ ------ March 31 $13.25 $ 9.56 $11.00 $ 9.50 June 30 15.20 12.81 10.31 8.63 September 30 15.00 9.00 11.50 9.88 December 31 12.10 9.80 11.00 9.13
9 For the year ended December 31, 2001, the Company paid cash dividends to shareholders in the amount of $.1075 per share for each of the four quarters ($.43 in the aggregate). For the year ended December 31, 2000, the Company paid cash dividends to shareholders in the amount of $.105 per share for the first three quarters and $.1075 per share for the last quarter ($.4225 in the aggregate). The primary source of funds presently available to the Company for the payment of cash dividends is dividends from the Bank. Certain regulatory requirements restrict the amount of dividends that can be paid to the Company by the Bank without obtaining the prior approval of the appropriate regulatory authorities. Information regarding restrictions on the ability of the Bank to pay dividends to the Company is contained in Note 12 of the "Notes to Consolidated Financial Statements" contained in Item 8 hereof. The Company expects that comparable cash dividends will continue to be paid in the future, although no assurance can be given that further dividends will be declared by the Company, or if declared, what the amount of the dividends will be. In the fourth quarter of 1998 the Company purchased 50,000 shares of common stock through one of its market makers at an average price of $11.16 per share. Also, the Company authorized the purchase of an additional 50,000 shares beginning in the first quarter of 1999. In 1999, 45,000 of these shares were repurchased at an average price of $10.97 per share. The remaining 5,000 shares were repurchased in the first quarter of 2000 at an average cost of $10.32. In July 2000, the Company repurchased 525,000 shares of common stock from the Company's largest shareholder at a cost of $10 per share. ITEM 6. SELECTED FINANCIAL DATA The selected consolidated financial data presented below as of and for the years ended December 31, 2001, 2000, 1999, 1998, and 1997 is unaudited and has been derived from the Consolidated Financial Statements of the Company and its subsidiaries, and from records of the Company. 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."
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA AS OF DECEMBER 31, ------------------------------------------------------------------------------------------------------------------- Balance Sheet Data 2001 2000 1999 1998 1997 -------------------------- -------- -------- -------- -------- -------- Total Assets $493,992 $439,320 $392,129 $355,476 $277,959 Investment Securities 53,980 69,208 60,362 66,001 54,690 Gross Loans 379,104 315,574 290,614 246,668 186,279 Allowance for loan losses 3,794 3,268 2,997 2,517 2,202 Deposits 415,736 392,427 346,904 325,057 248,822 Stockholders' Equity 28,672 26,237 28,302 26,568 24,564 YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------------------------------------------------------------------ Statement of Income Data 2001 2000 1999 1998 1997 ---------------------------------------------------- ------ ------ ------ ------ ------ Interest income 33,717 32,189 27,906 23,706 20,558 Interest expense 15,797 14,775 11,299 9,915 7,876 Net interest income 17,920 17,414 16,607 13,791 12,682 Provision for loan losses 1,124 332 540 360 300 Net interest income after provision for loan losses 16,796 17,082 16,067 13,431 12,382 Non-interest income 11,289 7,638 7,167 6,376 5,319 Non-interest expense 22,161 18,035 16,741 14,480 12,776 Income tax expense 2,030 2,463 2,327 1,886 1,719 Cumulative effect of change in accounting principle, net of tax benefit -- -- 47 -- -- Net Income 3,894 4,222 4,119 3,441 3,206
10
Per Share Data (1) ---------------------------------------------------- Book value per share at year end $7.27 $6.72 $6.44 $6.04 $5.62 Basic earnings per share 0.99 1.02 0.94 0.78 0.74 Diluted earnings per share 0.95 0.99 0.91 0.74 0.70 Basic weighted average common equivalent shares outstanding 3,923,763 4,140,234 4,388,336 4,415,949 4,354,547 Diluted weighted average common equivalent shares outstanding 4,096,767 4,274,155 4,543,784 4,624,380 4,602,375 Dividends declared $0.43 $0.4225 $0.4125 $0.4025 $0.40 Ratios 2001 2000 1999 1998 1997 ------------------------------------------------------ ----- ------ ------ ------ ------ Return on average assets 0.82% 1.05% 1.07% 1.10% 1.25% Return on average equity 14.15% 15.54% 15.05% 13.31% 13.52% Average equity/average assets 5.79% 6.74% 7.11% 8.23% 9.22% Net interest margin 4.22% 4.74% 4.78% 4.88% 5.42% Dividend payout ratio 43.32% 41.43% 43.95% 51.65% 54.33% Non-performing assets/total loans and other real estate 1.16% 0.80% 0.71% 0.21% 0.15% Allowance for loan losses/total loans 1.00% 1.04% 1.03% 1.02% 1.18% Allowance for loan losses/nonperforming assets 85.62% 129.85% 145.25% 483.28% 806.73% Non-interest expense/net interest income and non-interest income 75.87% 71.99% 70.42% 71.80% 70.98%
(1) The stock split in 1997 has been retroactively reflected in the per share data and weighted-average common equivalent and diluted shares outstanding as if they occurred January 1, 1997. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION During 1996, TIB Financial Corp. ("Company") was formed providing for a reorganization whereby TIB Bank of the Keys ("Bank") became a wholly-owned subsidiary of the Company. In 1997, the Bank formed two subsidiaries, the first on June 13, 1997, when the Bank acquired the assets of Small Business Consultants, Inc., a Florida corporation specializing in the government guaranteed loan consulting business. On July 31, 1997, the Bank formed TIB Investment & Insurance Center, Inc. for the purpose of selling investment products to the public. Effective January 14, 2002, the name of this subsidiary was changed to TIB Investment Center, Inc. Prior to December 31, 2001, the Company had a 30% interest in ERAS JV, a joint venture computer software, item processing, and network management company. The Company reduced its ownership percentage to 10% on December 31, 2001, though a partial sale of their ownership interest. ERAS JV currently processes the cash items and provides computer software services for the bank. On February 25, 1997, TIB Financial Corp. declared a three-for-one stock split which was distributed on March 18, 1997, to shareholders of record on February 25, 1997. In the Selected Financial Data, Management's Discussion and Analysis of Financial Condition and Results of Operations, and the Consolidated Financial Statements, all per share amounts, number of shares outstanding and market prices have been restated to reflect these stock splits as if they occurred at the beginning of the first period presented. During 2001, the Company's performance was reflective of the difficult economic and interest rate environment. With the primary industry in the Company's market area being tourism, the economic slowdown, exacerbated by the events of Sept. 11th, and its negative affects on business activity had an impact on financial results. Further, the response to these national economic conditions by the U.S. monetary authorities in cutting the target Federal 11 Funds rate 11 times in the year drastically reduced short-term interest rates. This caused some compression in net interest margin as liabilities could not continue to be reduced to match the reductions in asset yields. The low interest rates did contribute to a record year in residential loan production. Fees on residential loans sold at origination more than doubled in 2001 to approximately $1,075,000. Also, $13.3 million of residential loans in the bank's portfolio were securitized and the servicing rights for this group and the $23.2 million that were securitized in December of 2000 were sold resulting in a combined gain of $255,281. The securitization by Freddie Mac adds their guarantee to the underlying assets and therefore increases the liquidity of those assets. Once securitized, the ongoing servicing of these loans are more efficiently done by firms that specialize in this function. On December 31, 2001, the Company sold two thirds of its 30% interest in ERAS JV, an item processing and software development company based in Miami, Florida. This was an opportunity to realize some of the appreciation of the value of the Company's investment in ERAS and also decrease the future volatility of earnings. Prior to the sale, the 30% interest required the Company to recognize that percentage of ERAS's income or loss on the Company's income statement. At the resulting 10% ownership, the remaining investment in ERAS will be accounted for under the cost method. The Company's expansion into Southwest Florida began in 2001 with the opening of two new branch facilities. On July 16, 2001, its office on J & C Boulevard in Naples opened and is located in an industrial park and trade center. This facility is targeted to serve the small to midsize commercial customer and houses the commercial lending offices for the area. On December 3rd, a full service retail branch opened in Bonita Springs and is situated in the fast growing area north of Naples in southern Lee County. Currently under construction is the Company's third branch which is located in downtown Naples and is expected to be open in about the third quarter of 2002. Opening new branch facilities is dilutive to earnings in the near term but is important to having the opportunity to achieve sustainable long-term growth. In July of 2001, the Company participated in its second pooled offering of trust preferred securities in the amount of $5 million. The Company formed TIBFL Statutory Trust II, a wholly-owned statutory trust subsidiary for the purpose of issuing the trust preferred securities. The trust used the proceeds from the issuance of the trust preferred securities to acquire junior subordinated notes of the Company. The trust preferred securities essentially mirror the debt securities, carry a cumulative preferred dividend at a variable rate of 3-month LIBOR plus 358 basis points, equal to the debt securities. The debt securities and the 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. The Company has treated the trust preferred securities as Tier 1 capital to the extent allowed for regulatory purposes, and the remainder as Tier 2 capital. This transaction allows the Company to continue to grow without the dilutive effects of other capital sources. The additional interest expense incurred is offset by the return generated by the assets this cash is invested in and the leveraging made possible by the additional capital. PERFORMANCE OVERVIEW The Company achieved net income of $3.9 million in 2001 representing a $327,956 or a 7.8% decrease from the prior year. Management attributes the results primarily to a lower net interest margin caused by the very low rate environment along with the competitive market in which the Company operates. Also, the required provision for loan losses and net costs of expansion into the Southwest Florida area could not be completely overcome by loan originations and gains recognized on various sales in comparison to the prior years. Basic earnings per share for 2001 was $0.99 compared to $1.02 in 2000. Basic weighted-average common equivalent shares outstanding in 2001 were 3,923,763 compared to 4,140,234 in 2000. This decrease resulted from the Company stock repurchases in July 2000, which were partially offset by the exercise of stock options. Diluted earnings per share for 2001 was $0.95 compared to $0.99 in 2000. Diluted weighted-average common equivalent shares outstanding in 2001 were 4,096,767 compared to 4,274,155 in 2000. 12 Total assets of the Company at December 31, 2001 were $494.0 million compared to $439.3 million at the previous year end, reflecting an increase of 12.4%. Asset growth was funded by an increase in deposits of 5.9%, or $23.3 million in 2001. The Company's total loan volume increased 20.1%, or $63.5 million, to $379.1 million at year end 2001 compared to $315.6 million at December 31, 2000. In 2001, $13.3 million in first mortgage adjustable rate residential loans were securitized by the Bank. The effect of this transaction was to remove this amount from the loan section of the balance sheet and increase the amount in investment securities available for sale. Net interest income in 2001 increased 2.9%, or $505,896, to $17.9 million from $17.4 million reported in 2000. The Company's interest margin declined from 4.74% to 4.22%. Non-performing assets increased to 1.16% of total loans at December 31, 2001 from 0.80% at year end 2000. Non-interest income increased $3.7 million to $11.3 million in 2001. The increase in other income is attributed to an increase of $319,000 in merchant bankcard processing income; an increase of $172,000 in service charges on deposit accounts; a $359,000 increase in other income; a $674,000 increase in fees on mortgage loans sold at origination; a $95,000 decrease in commissions on retail investment services; a $1,305,000 increase in commissions on sales by Keys Insurance Agency, Inc. (2001 includes 12 months of operations versus two months in 2000); a $268,000 decrease from equity in income, net of goodwill amortization, from the Company's investment in ERAS Joint Venture; a $173,000 decrease in gain on sale of government guaranteed loans; a $284,000 increase in net security gains; a $255,000 increase in gain on sale of servicing rights, and a $820,000 increase in gain on sale of investment in ERAS Joint Venture. The Company experienced an increase in non-interest expenses of $4.1 million in 2001, or 22.9 % over 2000. The increased expenses primarily related to the expansions costs associated with the entrance into the Southwest Florida market, a full year of operations in 2001 of Keys Insurance Agency and of the branches acquired from Republic Security in the year 2000. RESULTS OF OPERATIONS The following table summarizes the balance sheet and results of operations including selected financial performance ratios of the Company for the three years ended December 31:
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA AS OF DECEMBER 31, ------------------------------------------- -------------------------------------------- Balance Sheet Data 2001 2000 1999 ------------------------------------------- -------- -------- -------- Total Assets $493,992 $439,320 $392,129 Investment Securities 53,980 69,208 60,362 Gross Loans 379,104 315,574 290,614 Allowance for loan losses 3,794 3,268 2,997 Deposits 415,736 392,427 346,904 Stockholders' Equity 28,672 26,237 28,302 YEAR ENDED DECEMBER 31, --------------------------- ----------- -------------------------------- Statement of Income Data 2001 2000 1999 --------------------------- -------- -------- -------- Interest income $ 33,717 $ 32,189 $ 27,906 Interest expense 15,797 14,775 11,299 Net interest income 17,920 17,414 16,607 Provision for loan losses 1,124 332 540 Net interest income after provision for loan losses 16,796 17,082 16,067 Non-interest income 11,289 7,638 7,167 Non-interest expense 22,161 18,035 16,741 Income tax expense 2,030 2,463 2,327 Cumulative effect of change in accounting principle, net of tax benefit -- -- 47 Net Income 3,894 4,222 4,119
Per Share Data (1) ------------------------------------------------ Book value per share at year end $ 7.27 $ 6.72 $ 6.44 Basic earnings per share 0.99 1.02 0.94 Diluted earnings per share 0.95 0.99 0.91 Basic weighted average common equivalent shares outstanding 3,923,763 4,140,234 4,388,336 Diluted weighted average common equivalent shares outstanding 4,096,767 4,274,155 4,543,784 Dividends declared $ 0.43 $ 0.4225 $ 0.4125
13
YEAR ENDED DECEMBER 31, ----------------------------------------------- ------------------------------------------------- Ratios (1) 2001 2000 1999 ----------------------------------------------- ----- ----- ------ Return on average assets 0.82% 1.05% 1.07% Return on average equity 14.15% 15.54% 15.05% Average equity/average assets 5.79% 6.74% 7.11% Net interest margin 4.22% 4.74% 4.78% Dividend payout ratio 43.32% 41.43% 43.95% Non-performing assets/total loans and other real estate 1.16% 0.80% 0.71% Allowance for loan losses/total loans 1.00% 1.04% 1.03% Non-interest expense/net interest income and non-interest income 75.87% 71.99% 70.42%
(1) Averages are derived from daily balances. NET INTEREST INCOME Net interest income, the primary source of revenue for the Company, is a function of the yield earned on average interest-earning assets and the rate paid on average interest-bearing liabilities. Changes in net interest income from period to period reflect the increases or decreases in average interest-earning assets, interest-bearing liabilities and the interest rate spread which is affected by the degree of mismatch in maturity and repricing characteristics of the Company's interest-earning assets and interest-bearing liabilities. 2001 compared with 2000 The prime rate as published in the Wall Street Journal began 2001 at 9.5% and by December it had declined to 4.75% due to declines in the Federal Funds Rate which were matched by all the major banks in this key lending rate. The majority of the Bank's loans are indexed to the Prime Rate and most of those reset within every six months. Therefore 2001 resulted in decreasing yields in the loan portfolio which were not entirely matched by decreased funding costs. The average yield on interest earning assets declined 82 basis points in 2001 to 7.91% from 8.73% in 2000. The average cost of interest bearing deposits declined from 4.87% in 2000 to 4.12% in 2001 or 75 basis points and the rate of all interest-bearing liabilities decreased 63 basis points, from 5.01% in 2000 to 4.38% in 2001. Net interest margin decreased from 4.74% in 2000 to 4.22% in 2001. 2000 compared with 1999 The prime rate began 2000 at 8.5% and by June it had risen to 9.5% due to changes in the Federal Funds Rate which were matched by all the major banks. Therefore, 2000 resulted in increasing yields in the loan portfolio which were offset by increased funding costs. The average yield on interest earning assets rose 73 basis points in 14 2000 to 8.73% from 8.00% in 1999. The average cost of interest bearing deposits rose from 4.05% in 1999 to 4.87% in 2000 or 82 basis points. However, the interest cost resulting from the note given in exchange for the stock repurchase and the interest cost from the issuance of trust preferred securities increased the rate of all interest-bearing liabilities so that the interest rate spread decreased 22 basis points, from 3.94% in 1999 to 3.72% in 2000. A small decrease in nonearning assets and a small increase in non-interest bearing liabilities helped to keep the decrease in net interest margin to only 4 basis points, from 4.78% in 1999 to 4.74% in 2000. The following table sets forth information with respect to the average balances, interest income and average yield by major categories of assets; the average balances, interest expense and average rate by major categories of liabilities; the average balances of noninterest-earning assets, noninterest-bearing liabilities and stockholders' equity; and net interest income, interest rate spread, and net interest margin for the years ended December 31, 2001, 2000 and 1999. 15
AVERAGE BALANCE SHEETS 2001 2000 1999 ------------------------------- -------------------------- ------------------------- AVERAGE INCOME/ YIELDS AVERAGE INCOME/ YIELDS AVERAGE INCOME/ YIELDS (Dollars in thousands) BALANCES EXPENSE RATES BALANCES EXPENSE RATES BALANCES EXPENSE RATES -------- ------- ------ -------- ------- ------ -------- ------- ------ ASSETS Interest-earning assets: Loans(1)(2) $348,128 29,112 8.36% $307,511 28,394 9.23% $264,124 22,926 8.68% Investment securities - taxable 55,021 3,463 6.29% 49,494 3,015 6.09% 62,321 3,741 6.00% Investment securities - tax exempt(2) 5,739 421 7.34% 6,380 486 7.61% 7,044 562 7.98% Interest bearing deposits in other banks 112 3 2.72% 63 4 6.26% 6,494 316 4.86% Federal funds sold 19,630 895 4.56% 7,275 456 6.27% 11,420 552 4.84% -------- ------- -------- ------ -------- ------ Total interest-earning assets 428,630 33,894 7.91% 370,723 32,355 8.73% 351,403 28,097 8.00% -------- ------- -------- ------ -------- ------ Non-interest-earning assets: Cash and due from banks 12,284 12,948 14,925 Investment in ERAS 885 995 809 Premises and equipment, net 16,533 14,176 13,105 Allowances for loan losses (3,274) (3,243) (2,751) Other assets 20,602 7,705 7,321 -------- -------- -------- Total non-interest earning assets 47,030 32,581 33,409 -------- -------- -------- Total assets $475,660 $403,304 $384,812 ======== ======== ======== LIABILITIES & STOCKHOLDERS' EQUITY Interest-bearing liabilities: Interest bearing deposits: NOW accounts 42,461 505 1.19% $ 34,814 508 1.46% $ 35,247 436 1.24% Money market 128,056 4,679 3.65% 112,519 5,957 5.29% 123,506 5,149 4.17% Savings deposits 24,619 443 1.80% 22,719 524 2.31% 25,893 610 2.36% Other time deposits 143,230 8,298 5.79% 116,107 6,938 5.98% 91,666 4,983 5.44% -------- ------- -------- ------ -------- ------ Total interest-bearing deposits 338,366 13,925 4.12% 286,159 13,927 4.87% 276,312 11,178 4.05% Other interest-bearing liabilities: Other borrowings -- -- -- 114 14 12.25% 422 37 8.68% Notes payable 5,250 694 13.22% 2,639 350 13.25% -- -- -- Short-term borrowings and 6,565 175 2.67% 3,306 213 6.45% 1,685 84 4.99% FHLB advances Trust preferred securities 10,820 1,003 9.27% 2,536 272 10.71% -------- ------- -------- ------ -------- ------ Total interest-bearing 361,001 15,797 4.38% 294,754 14,776 5.01% 278,419 11,299 4.06% liabilities -------- ------- -------- ------ -------- ------ Non-interest bearing liabilities and stockholders' equity: Demand deposits 80,382 76,089 74,806 Other liabilities 6,748 5,298 4,223 Stockholders' equity 27,529 27,163 27,364 -------- ------- --------- Total non-interest bearing liabilities and stockholders' equity 114,659 108,550 106,393 -------- -------- -------- Total liabilities and stockholders' equity $475,660 $403,304 $384,812 ======== ======== ======== Interest rate spread 3.53% 3.72% 3.94% ===== ===== ==== Net interest income $18,097 $17,579 $16,798 ======= ======= ======= Net interest margin(3) 4.22% 4.74% 4.78% ===== ===== ====
16 (1) Average loans include non-performing loans. Interest on loans includes loan fees of $56,343 in 2001, $58,494 in 2000, and $140,590 in 1999. (2) Interest income and rates include the effects of a tax equivalent adjustment using a Federal tax rate of 34% in adjusting tax exempt interest on tax exempt investment securities and loans to a fully taxable basis. (3) 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, 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.
2001 compared to 2000(1) 2000 compared to 1999(1) Due to changes in Due to changes in ------------------------------------ ------------------------------------ (In thousands) Net Net Average Average Increase Average Average Increase INTEREST INCOME Volume Rate (Decrease) Volume Rate (Decrease) --------- --------- ---------- --------- --------- ---------- Loans(2) $ 3,541 $ (2,823) $ 718 $ 3,946 $ 1,522 $ 5,468 Investment Securities(2) 314 69 383 (844) 42 (802) Interest bearing deposits in other banks 2 (3) (1) (383) 71 (312) Federal Funds sold 592 (153) 439 (233) 137 (96) --------- --------- --------- --------- --------- --------- Total interest income 4,449 (2,910) 1,539 2,486 1,772 4,258 --------- --------- --------- --------- --------- --------- INTEREST EXPENSE NOW Accounts 101 (104) (3) (5) 77 72 Money Market 743 (2,021) (1,278) (487) 1,295 808 Savings deposits 42 (123) (81) (73) (13) (86) Other time deposits 1,586 (226) 1,360 1,425 530 1,955 Other borrowings (7) (7) (14) (34) 11 (23) Notes payable 345 (1) 344 350 -- 350 Trust preferred securities 773 (42) 731 272 -- 272 Short-term borrowings 133 (171) (38) 99 30 129 --------- --------- --------- --------- --------- --------- Total interest expense 3,716 (2,695) 1,021 1,547 1,930 3,477 --------- --------- --------- --------- --------- --------- Change in net interest income $ 733 $ (215) $ 518 $ 939 $ (158) $ 781 ========= ========= ========= ========= ========= =========
(1) The change in interest due to both rate and volume has been allocated to the volume and rate components in proportion to the relationship of the dollar amounts of the absolute change in each. (2) Interest income includes the effects of a tax equivalent adjustment using a federal tax rate of 34% in adjusting tax exempt interest on tax exempt investment securities and loans to a fully taxable basis. 17 NON-INTEREST INCOME The following table presents the principal components of non-interest income for the years ended December 31:
(In thousands) 2001 2000 1999 ------------------------------------------------------ -------- ------ ------ Credit card processing income $ 4,010 $3,691 $2,828 Insurance agency sales commissions 1,458 154 -- Gross gains on sales of government guaranteed loans 97 270 704 Fees on mortgage loans sold at origination 1,075 400 339 Equity in income (loss), net of goodwill amortization, from investment in ERAS Joint Venture (235) 32 179 Servicing income 179 116 106 Service charge income 2,225 2,054 1,951 Gain on sale of insurance company option -- -- 312 Gain on sale of investment in ERAS Joint Venture 820 -- -- Gain on sale of mortgage servicing rights 255 -- -- Net gains on sales of investment securities 284 -- 1 Retail investment services income 177 272 230 Debit card income 278 222 172 Net earnings on bank owned life insurance policies 144 -- -- Other 522 427 345 -------- ------ ------ Total non-interest income $ 11,289 $7,638 $7,167 ======== ====== ======
Over the past three years, the Company has increased non-interest income from $7.2 million to $11.3 million. The 2001 growth in non-interest income of $3.6 million over 2000 was generated from various sources. On December 31, 2001 the Company sold two thirds of its 30% interest in ERAS JV, an item processing and software development company based in Miami, Florida. This was an opportunity to realize some of the appreciation of the value of the Company's investment in ERAS and also decrease the future volatility of earnings. The sale resulted in a pretax gain of approximately $820,000 that was recorded in 2001. Prior to the sale, the 30% interest required the Company to recognize that percentage of ERAS's income or loss on the Company's income statement. A net loss of $235,000 from ERAS's operations was recorded in 2001, as compared to $32,000 in net income in 2000. At the resulting 10% ownership, the remaining investment in ERAS will be accounted for under the cost method in 2002. Low interest rates contributed to a record year in residential loan production. The bank generates both fixed and variable rate residential loans. Most of the adjustable rate loans are placed in the bank's portfolio, and the majority of the fixed rate residential loans are sold immediately to the secondary market. Fees on residential loans sold at origination increased $675,000 from $400,000 in 2000 to $1,075,000 in 2001. In addition, $13.3 million of residential loans in the bank's portfolio were securitized and the servicing rights for this group and the $23.2 million that were securitized in December of 2000 were sold resulting in a combined gain of approximately $255,000 in 2001. This represents the first year that the bank has sold servicing rights. The continuing expansion of the merchant credit card processing business also contributed to the overall increase in non interest income. Credit card processing income rose $319,000 in 2001 to approximately $4.0 million. There was also a $284,000 net gain on sales and calls of investment securities recorded in 2001 as compared to $0 in 2000. Insurance agency sales commissions increased $1.3 million over the prior year due to the fact that the agency had a full year of operations in the year 2001, as compared to only two months in the year 2000. Non interest income increased $471,000 from 1999 to 2000. As to this increase, $863,000 was generated from the continuing expansion of the merchant credit card processing business and $154,000 was from the commission income generated during the last two months in 2000 in which the Company owned Keys Insurance Agency. These increases were offset in part by a decrease in gains on sales of government guaranteed loans totaling $434,000. This decrease was due to several factors including low premiums being offered for certain types of loans due to high historical prepayment rates. Also, the insurance company option sold in 1999 generated a gain of $312,000. This was a one time event and therefore was not repeated in 2000. 18 NON-INTEREST EXPENSES The following table represents the principal components of non-interest expenses for the years ended December 31:
(In thousands) 2001 2000 1999 ----------------------------------------- -------- -------- -------- Salary and employee benefits $ 9,718 $ 7,854 $ 7,592 Net occupancy expense 3,489 2,718 2,634 Merchant bank card expenses 3,043 2,746 2,085 Accounting, legal, and other professional 735 587 483 Computer services 1,537 1,422 1,395 Postage, courier and armored car 516 456 421 Marketing and community relations 780 565 458 Operating supplies 518 390 426 Directors' fees 167 169 160 FDIC and state assessments 161 147 109 Charge-off of unamortized leasehold improvements 58 -- 134 Amortization of intangibles 539 207 177 Other operating expenses 899 774 667 -------- -------- -------- Total non-interest expenses $ 22,160 $ 18,035 $ 16,741 ======== ======== ========
The Company experienced an increase in non-interest expenses of $4.1 million in 2001, or 22.9% over 2000. Approximately $1.3 million of this increase is directly attributable to the operations of Keys Insurance Agency (KIA). KIA had a full year of operations in 2001, compared to only two months of operations in 2000. Salaries and benefits of the bank increased approximately $1.0 million from 2000 to 2001. Over the past three years, the Bank has opened additional locations and hired appropriate additional personnel to build an infrastructure which will enhance the Bank's customer service and facilitate growth. At December 31, 2001, the bank had 220 full time employees and 15 part time employees, compared to 193 full time employees and 13 part time employees at December 31, 2000. Net occupancy expense increased approximately $771,000 from 2000 to 2001. Approximately $207,000 of this amount is attributable to the operations of KIA as discussed above. The remaining increase is at the bank level and is caused by the increase in the number of facilities. Two branches were opened in the Southwest Florida market in 2001 which added to the overall occupancy costs. The year 2001 also had a full year of occupancy costs relating to the two bank branches acquired from Republic Security Bank in mid December 2000. One branch was a stand alone facility and the other was an in store branch in an Albertson's market. Albertson's subsequently closed its store during the fourth quarter of 2001, and the branch was closed. This resulted in the write off of approximately $58,000 in unamortized leasehold improvements. Merchant bank card expenses increased approximately $297,000 over the prior year, and was more than offset by income derived from this activity. Amortization of intangibles increased $332,000 over the prior year. This is a result of $233,000 in core deposit intangible amortization recorded in 2001 associated with the Republic Security Bank branches acquired, and a full year of KIA goodwill amortization recorded in 2001 that accounted for $98,000 of the increase. Non interest expenses increased $1.3 million from 1999 to 2000. Of this increase, $661,000 of this increase related to the cost involved to process merchant credit cards and was more than offset by the income derived from this activity. Some of the salary and benefit increase, $134,000, was due to the two months which the Company owned Keys Insurance Agency at the end of 2000. 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, 2001, 2000, and 1999 were 34.3%, 36.8%, and 35.8%, respectively. The fluctuations in effective tax rates reflect the effect of the differences in deductibility of certain income and expenses. The decrease in the effective tax rate from 2000 to 2001 is due in part to an $87,500 state tax credit resulting from a charitable contribution in 2001. In addition, bank owned life insurance policies purchased in 2001 and December 2000 generate income not subject to federal and state income taxes. 19 LOAN PORTFOLIO Prior to the Company's entrance into the Southwest Florida market in 2001, the Company's primary locations were in the Florida Keys (Monroe County) and south Miami-Dade County. This region's primary industry is tourism. Commercial loan demand therefore is primarily for resort, hotel, restaurant, marina and related real estate secured property loans. The Company serves this market by offering long-term adjustable rate financing to the owners of these types of properties for acquisition and improvements thereon. These loans are often $1 million or larger and are prospects for government guarantee programs or traditional participation agreements. The nature of government programs such as the Small Business Administration is generally geared toward long term adjustable rate financing. As the Company's business expands in Southwest Florida, the Company believes the loan portfolio will benefit from this geographic diversification which will provide and also broaden the types of lending the Company has typically originated previously. Monroe County has the highest cost of living of any county in Florida and this is driven in large part by the scarce and expensive real estate whose value is supported by various construction restrictions and environmental considerations. This also serves to maintain and enhance collateral values on loans secured by property in this market. The Company has grown in commercial loans by aggressively serving its market. The quality of the Company's credit administration along with the stable real estate values have kept loan losses at low levels. Loans are expected to produce higher yields than investment securities and other interest earning assets (assuming that credit losses are not excessive). Thus the absolute volume of loans and the volume as a percentage of total earning assets are important determinants of the net interest margin. Net loans outstanding increased to $375.2 million at year end 2001 as compared to $311.8 million at year end 2000, an increase of 20.3%. Of this amount, real estate mortgage loans increased 20.8% from $254.9 million to $307.8 million. Commercial real estate mortgage loans accounted for much of this increase, growing from $170.3 million to $233.0 million at the respective year ends. The Company maintains a posture of originating commercial loans with rates that fluctuate with the prime lending rate and residential loans with rates that fluctuate with the one year treasury index. At December 31, 2000, 82.0% of the total loan portfolio had floating or adjustable rates. The following table presents the composition of the Company's loan portfolio at December 31:
(Dollars in thousands) 2001 2000 1999 1998 1997 -------- -------- -------- -------- -------- Real estate mortgage loans: Commercial $233,026 $170,285 $150,371 $139,000 $109,096 Residential 68,373 76,980 82,786 62,544 42,599 Construction 6,434 7,619 9,182 5,960 10,011 Commercial loans 46,927 38,762 32,359 25,354 14,878 Consumer loans 9,637 9,115 6,569 5,560 3,985 Home equity loans 14,707 12,813 9,347 8,250 5,710 Less: unearned income (157) (488) (733) (370) (533) Less: allowance for loan losses (3,794) (3,268) (2,997) (2,517) (2,202) -------- -------- -------- -------- -------- Net loans $375,153 $311,818 $286,884 $243,781 $183,544 ======== ======== ======== ======== ========
20 The maturity distribution of the Company's loan portfolio at December 31, 2001 was as follows:
Loans maturing ------------------------------------------------------------- Within 1 to 5 After 5 (Dollars in thousands) 1 Year Years Years Total ------- ------- -------- -------- Real estate mortgage loans: Commercial 16,614 16,503 199,909 $233,026 Residential 1,000 731 66,642 68,373 Construction (a) 595 667 5,172 6,434 Commercial loans 21,320 17,835 7,772 46,927 Consumer loans 714 5,479 3,444 9,637 Home equity loans 1,363 1,219 12,125 14,707 ------- ------- -------- -------- Total Loans $41,606 $42,434 $295,064 $379,104 ======= ======= ======== ========
(a) $5,114 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 commercial real estate construction loans.
Loans maturing ------------------------------------------------------------ Within 1 to 5 After 5 (Dollars in thousands) 1 Year Years Years Total ------- ------- -------- -------- Loans with: Predetermined interest rates $12,842 $21,010 $ 34,393 $ 68,245 Floating or adjustable rates 28,764 21,424 260,671 310,859 ------- ------- -------- -------- Total Loans $41,606 $42,434 $295,064 $379,104 ======= ======= ======== ========
ALLOWANCE AND PROVISION FOR LOAN LOSSES The allowance for loan losses represents a reserve for potential losses in the loan portfolio. At December 31, 2001 and 2000, the allowance for loan losses amounted to $3,793,842 and $3,267,873, respectively. The Company's 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 loans of a significant size, or when otherwise deemed necessary, and primarily encompass commercial real estate and other commercial loans. The result of these analyses is the allocation of specific allowances for individual loans considered impaired as well as certain non-impaired loans. The loan pool analyses are performed on the balance of the Company's loan portfolio, primarily consisting of one- to four-family residential and consumer loans. The pools consist of aggregations of homogeneous loans having similar credit risk characteristics. Examples of pools defined by the Company for this purpose are Company-originated, residential loans; purchased fixed-rate residential loans; residential second mortgage loans; residential construction loans; and others. For each pool, the Company has developed a range of allowances necessary to adequately provide for probable losses inherent in that pool of loans. These ranges are based upon a number of factors, including the risk characteristics of the pool, actual loss experience, probable loss considering current economic conditions, industry norms and the relative seasoning of the pool. The ranges of allowance developed by the Company are applied to the outstanding principal balance of the loans in each pool. Management evaluates the allowance for loan losses on a quarterly basis. 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. The Company's provision for loan losses was $1,124,000, $332,000, and $540,000 for the years ended December 31, 2001, 2000, and 1999, respectively. The increase in the provision for loan losses in 2001 was a result of providing for potential losses inherent in the portfolio based on the current environment and certain amounts needed to replenish the allowance as a result of significant charge offs. In particular, there was approximately $493,000 21 charged off in 2001 that was attributable to the nonguaranteed portion of two loans made to one particular out of market customer. The allowance for loan losses represented 1.00% of total loans at December 31, 2001 compared to 1.04% and 1.03% at year end 2000 and 1999, respectively. Management considers the year end allowance adequate to cover possible losses in the loan portfolio; 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 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 the Company's allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination. Transactions in the allowance for loan losses are summarized for the years ended December 31,
(In thousands) 2001 2000 1999 1998 1997 ------ ------ ------ ------ ------ Analysis of allowance for loan losses: Balance at beginning of year $3,268 $2,997 $2,517 $2,202 $1,930 Charge-offs: Real estate mortgage loans: Commercial 372 -- 30 -- -- Residential 21 -- -- 14 -- Construction -- -- -- -- -- Commercial loans 200 27 5 14 -- Consumer loans 30 27 41 54 40 Home equity loans -- 7 32 -- -- ------ ------ ------ ------ ------ Total charge-offs 623 61 108 82 40 ------ ------ ------ ------ ------ Recoveries: Real estate mortgage loans: Commercial -- -- -- -- -- Residential 10 -- -- -- -- Construction -- -- -- -- -- Commercial loans 4 -- -- 3 -- Consumer loans 11 -- 48 34 12 Home equity loans -- -- -- -- -- ------ ------ ------ ------ ------ Total recoveries 25 0 48 37 12 ------ ------ ------ ------ ------ Net charge-offs 598 61 60 45 28 ------ ------ ------ ------ ------ Provision for loan losses 1,124 332 540 360 300 ------ ------ ------ ------ ------ Allowance for loan losses at end of year $3,794 $3,268 $2,997 $2,517 $2,202 ====== ====== ====== ====== ====== Ratio of net charge-offs to average net loans outstanding 0.17% 0.02% 0.02% 0.02% 0.02% ====== ====== ====== ====== ======
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. 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. 22
(In thousands) 2001 2000 1999 1998 1997 -------------- ------------------ ------------------ ------------------ ------------------ ------------------ Allowance % of Allowance % of Allowance % of Allowance % of Allowance % of $ Loans $ Loans $ Loans $ Loans $ Loans --------- ------- --------- ------- --------- ------- --------- ------- --------- ------- Real estate mortgage loans: Commercial 2,120 55.9 1,778 54.0 1,700 51.7 1,567 56.3 1,435 58.5 Residential 183 4.8 706 24.4 685 28.5 463 25.4 400 22.9 Construction 26 .7 43 2.4 -- 3.2 -- 2.4 -- 5.4 Commercial loans 917 24.2 414 12.3 366 11.1 286 10.3 196 8.0 Consumer loans 170 4.5 137 2.9 103 2.3 83 2.3 69 2.1 Home equity loans 259 6.8 190 4.0 143 3.2 118 3.3 102 3.1 Unfunded commitments 119 3.1 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- 3,794 100% 3,268 100% 2,997 100% 2,517 100% 2,202 100% ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
NON-PERFORMING ASSETS Non-performing assets include non-accrual loans, accruing loans contractually past due 90 days or more, restructured loans, and other real estate. Loans are placed on non-accrual status when management has concerns relating to the ability to collect the loan principal and interest and generally when such loans are 90 days or more past due. Non-performing assets for the five years ended December 31, were:
(Dollars in thousands) 2001 2000 1999 1998 1997 ---------------------- -------- -------- -------- ------ ------ Loans 90 days past due (a) $ -- $ 2,014 $ 1,993 $ -- $ -- Loans on nonaccrual 1,590 503 70 521 273 Other real estate owned 550 -- -- -- -- Other assets (b) 2,290 -- -- -- -- -------- -------- -------- ------ ------ Total non-performing assets $ 4,430 $ 2,517 $ 2,063 $ 521 $ 273 ======== ======== ======== ====== ====== Percentage of nonperforming assets to total loans * 1.16% 0.80% 0.71% 0.21% 0.15%
* Total loans for 2001 includes other real estate owned and other assets. For the year 2001, interest income that would have been recorded on non-performing assets if the loans had been current in accordance with their original terms and had been outstanding throughout the period or since origination, if held for part of the period, was approximately $270,000. The amount of interest income on these loans that was included in net income for the period was approximately $124,000. (a) Loans 90 days past due exclude loans on nonaccrual that are reported separately. The amounts reported 90 days past due in 2000 and 1999 relate to one specific loan that is discussed in (b) below. (b) The Bank has made a loan originally totaling $10,000,000 to construct a lumber mill in northern Florida. Of this amount, $6,400,000 had been sold by the Bank to other lenders. The loan was partially guaranteed as to principal and interest by the U.S. Department of Agriculture (USDA). In addition to business real estate and equipment, the loan is collateralized by the business owner's interest in a trust. Under provisions of the trust agreement, beneficiaries cannot receive trust assets until November 2010. At December 31, 2000, the loan was past due greater than 90 days but was still maintained as an accruing loan because of the USDA guarantee and collateral value. During 2001, upon completion of foreclosure on the underlying collateral, the non-guaranteed portion of this loan and interest accrued through the foreclosure date was reclassified into other real estate ($550,000) and other assets (approximately $1,886,000) based on the fair value of the underlying-collateral. In addition, the Bank has capitalized approximately $404,000 for liquidation costs and protective advances, which the 23 Bank expects to be fully reimbursed for by the USDA. The non guaranteed principal and interest ($1,886,000) and the capitalized costs totaling $404,000 are included as "other assets" in the table above. The portion of this loan guaranteed by the USDA was approximately $1,641,000 at December 31, 2001 and is accruing interest. Management believes the value of all assets pledged as collateral for this loan exceeds the unpaid amount. 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 in cash and cash equivalents are as follows for the three years ending December 31:
2001 2000 1999 -------------- -------------- -------------- (Used) provided by operating activities $ (1,091,084) $ 3,856,606 $ 7,444,510 Used by investing activities (52,570,477) (20,232,203) (41,369,121) Provided by financing activities 51,365,976 17,776,719 31,387,248 -------------- -------------- -------------- Net increase (decrease) in cash and cash equivalents $ (2,295,585) $ 1,401,122 $ (2,537,363) ============== ============== ==============
The Bank has a $7.5 million line of credit from its principal correspondent and a repurchase agreement with another financial institution which allows borrowing up to 95% of the market valuation of securities pledged for this purpose. The majority of the Company's unpledged securities that have a book value of approximately $37.0 million at December 31, 2001, could be used as collateral for this agreement. Further, the Bank has 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 equal to 14% of the Bank's total assets as reported on the most recent quarterly financial information submitted to the Bank's regulators. The credit availability from the Federal Home Loan Bank approximated $68.8 million at December 31, 2001 under which $25 million was outstanding. Borrowings against this line of credit are collateralized by the Bank's one-to-four family residential mortgage loans. Scheduled maturities and paydowns of loans and investment securities are a continual source of liquidity. Also, many adjustable rate residential real estate loans originated are salable in the secondary mortgage market at par or better and therefore provide a secondary source for liquidity. At December 31, 2001, the Bank's gross loan to deposit ratio was 91.2% compared to a ratio of 80.4% at December 31, 2000. Management monitors and assesses the adequacy of the Company's liquidity position on a 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 the Bank exceeds the Bank's net profits to date for that year combined with its retained net profits for the preceding two years. Retained earnings of the Bank available for payment of dividends to the Company without prior regulatory approval at December 31, 2001 is approximately $7,143,000. These dividends represent the Company's primary source of liquidity. 24 The Company's interest rate sensitivity position at December 31, 2001 is presented in the table below.
3 months 4 to 6 7 to 12 1 to 5 Over 5 (Dollars in thousands) or less Months Months years Years Total ---------------------- ----------- ---------- ---------- --------- --------- ---------- Interest-earning assets: Loans $ 178,667 $ 31,858 $ 31,465 $ 81,088 $ 56,026 $ 379,104 Investment securities-taxable 254 -- 7,271 5,374 35,249 48,148 Investment securities-tax exempt 230 -- -- 799 4,803 5,832 Federal funds sold -- -- -- -- -- -- Interest bearing deposit in other bank 445 -- -- -- -- 445 Note receivable -- -- 264 -- -- 264 ----------- ---------- ---------- --------- --------- ---------- Total interest-bearing assets 179,596 31,858 39,000 87,261 96,078 433,793 ----------- ---------- ---------- --------- --------- ---------- Interest-bearing liabilities: NOW accounts (A) 18,780 -- -- -- 28,171 46,951 Money Market 128,791 -- -- -- -- 128,791 Savings Deposits (B) -- -- 26,132 -- -- 26,132 Other time deposits 43,024 25,804 34,821 28,092 10 131,751 Notes payable -- -- -- -- 5,250 5,250 Trust preferred securities 5,000 -- -- -- 8,000 13,000 Other borrowings 25,734 -- -- -- -- 25,734 ----------- ---------- ---------- --------- --------- ---------- Total interest-bearing liabilities 221,329 25,804 60,953 28,092 41,431 377,609 ----------- ---------- ---------- --------- --------- ---------- Interest sensitivity gap $ (41,733) $ 6,054 $ (21,953) $ 59,169 $ 54,647 $ 56,184 =========== ========== ========== ========= ========= ========== Cumulative interest sensitivity gap $ (41,733) $ (35,679) $ (57,632) $ 1,537 $ 56,184 $ 56,184 =========== ========== ========== ========= ========= ========== Cumulative sensitivity ratio (9.6)% (8.2)% (13.3)% 0.4% 13.0% 13.0% =========== ========== ========== ========= ========= ==========
(A) 40% of outstanding balance considered repriceable immediately and 60% repriceable in the furthest time period. (B) Savings Deposits considered repriceable in the one year time horizon. The Company is cumulatively asset sensitive in the over 5 years time frame and cumulatively liability sensitive in each of the 3 month or less, 4 to 6 months, and 7 to 12 month timeframes. In the 1 to 5 year range, the Company is very close to neutral in cumulative rate sensitivity. Certain liabilities such as NOW and passbook savings accounts, while technically subject to immediate repricing in response to changing market rates, historically do not reprice as quickly nor to the extent as other interest sensitive accounts. Therefore, the Company believes to include the entire balance of these liability accounts in the earliest repricing period would be unrealistic. To compensate for changes in general market interest rates that will not be fully reflected in changes in NOW rates, only 40% of NOW balances is included as immediately rate sensitive based on the Company's own and industry repricing experience. Also, passbook savings will not reprice as quickly as market rates and therefore the repricing of savings deposits is included in the 7 to 12 month repricing period, based on the Company's repricing experience. Because of non-interest bearing liabilities, total interest-earning assets are substantially greater than the total interest-bearing liabilities and therefore over time the effects on net interest income from changes in asset yield will be greater than the change in expense from liability cost. Accordingly, if market interest rates should eventually decrease, the net interest margin should decrease. Conversely, if rates increase the net interest margin would over time increase. Even in the near term, the $57,632 one year cumulative negative sensitivity gap exaggerates the probable effects on earnings in a rising rate environment for two reasons. First, the liabilities subject to repricing are predominately not indexed to any specific market rate and therefore offer the Company the opportunity to delay or diminish any rate repricings. Second, a static gap model does not factor the effects of growing volumes which would likely include greater additional rate sensitive assets than rate sensitive liabilities. Interest-earning assets and other 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. Since the Company has experienced steady growth in deposits, no net run off in any deposit category is assumed in the interest rate sensitivity table. It is the Company's policy to maintain its cumulative one year gap ratio in the -20% to +10% range. At December 31, 2001, the Company was within this range with a one year cumulative sensitivity ratio of -13.3%. 25 INVESTMENT PORTFOLIO Contractual maturities of investment securities (amortized cost) at December 31, 2001 are shown below. Expected maturities differ from contractual maturities because borrowers may have the right to call or repay obligations without call or prepayment penalties.
After 1 Year After 5 Years Mortgage Within 1 Year Within 5 Years Within 10 Years After 10 Years Backed ---------------- ---------------- ----------------- ----------------- --------- (Dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount ---------------------- -------- ----- -------- ----- --------- ----- --------- ----- --------- Securities Held to Maturity: U.S. Treasury Securities $ 100 5.50% -- -- $ 106 4.95% -- -- -- U.S. Gov't Sponsored Agencies -- -- -- -- 16,674 6.00% -- -- -- Other -- -- -- -- -- -- $ 1,626 5.77% -- -------- ----- -------- ----- --------- ----- --------- ----- --------- Total held to maturity $ 100 5.50% -- -- $ 16,780 5.99% $ 1,626 5.77% -- -------- ----- -------- ----- --------- ----- --------- ----- --------- Securities Available for sale: U.S. Treasury Securities 3,017 5.07% -- -- -- -- -- -- -- U.S. Gov't Sponsored Agencies -- -- -- -- 106 5.69% -- -- -- States and municipals - tax exempt(A) -- -- 1,000 8.17% 3,111 6.88% 1,632 7.45% -- States and municipals - taxable -- -- -- -- 575 7.30% 4,442 6.15% -- Corporate bonds -- -- -- -- -- -- 3,173 8.26% -- Mortgage Backed Securities -- -- -- -- -- -- -- -- 18,360 -------- ----- -------- ----- --------- ----- --------- ----- --------- Total available for sale $ 3,017 5.07% $ 1,000 8.17% $ 3,792 6.91% $ 9,247 7.10% $ 18,360 -------- ----- -------- ----- --------- ----- --------- ----- --------- Total $ 3,117 5.08% $ 1,000 8.17% $ 20,572 6.16% $ 10,873 6.90% $ 18,360 ======== ===== ======== ===== ========= ===== ========= ===== =========
Yield by classification of investment securities at December 31, 2001 (amortized cost) was as follows:
(Dollars in thousands) Yield Totals ---------------------- ------- --------- Securities Held to Maturity: U.S. Treasury Securities 5.22% $ 206 U.S. Gov't Sponsored Agencies 6.00% 16,674 Other (B) 5.77% 1,626 ------ --------- Total held to maturity 5.97% 18,506 ------ --------- Securities Available for Sale: U.S. Treasury Securities 5.07% 3,017 U.S. Gov't Sponsored Agencies 5.69% 106 States and municipals - tax exempt (A) 7.27% 5,743 States and municipals - taxable 6.29% 5,017 Corporate bonds 8.26% 3,173 Mortgaged Backed Securities 6.78% 18,360 ------ --------- Total available for sale 6.77% 35,416 ------ --------- Total 6.50% $ 53,922 ====== =========
(A) Weighted average yields on tax-exempt obligations have been computed by grossing up actual tax-exempt income to a fully taxable equivalent basis using a federal tax rate of 34%. 26 (B) Represents investment in common stock of Independent Bankers' Bank of Florida stock which pays no dividends and an investment in the Federal Home Loan Bank of Atlanta. The following table presents the amortized cost, market value, unrealized gains, and unrealized losses for the major categories of the Company's investment portfolio for each reported period:
(Dollars in thousands) Held to Maturity - December 31, 2001 Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- --------- U.S. Treasury Securities $ 206 $ 4 $ -- $ 210 U.S. Government agencies and corporations 16,674 298 -- 16,972 Other investments 1,626 -- -- 1,626 --------- ------ --------- --------- $ 18,506 $ 302 $ -- $ 18,808 ========= ====== ========= ========= Available for Sale - December 31, 2001 Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- --------- U.S. Treasury Securities $ 3,017 $ 72 $ -- $ 3,089 U.S. Government agencies and corporations 106 1 -- 107 States and political subdivisions-tax exempt 5,743 90 1 5,832 States and political subdivisions-taxable 5,017 49 269 4,797 Corporate bonds 3,173 37 -- 3,210 Mortgage-backed securities 18,360 84 5 18,439 --------- ------ --------- --------- $ 35,416 $ 333 $ 275 $ 35,474 ========= ====== ========= ========= Held to Maturity - December 31, 2000 Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- --------- U.S. Treasury Securities $ 101 $ -- $ -- $ 101 U.S. Government agencies and corporations 33,164 -- 661 32,503 Other investments 1,189 -- -- 1,189 --------- ------ --------- --------- $ 34,454 $ -- $ 661 $ 33,793 ========= ====== ========= ========= Available for Sale - December 31, 2000 Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- --------- U.S. Treasury Securities $ 3,039 $ -- $ 5 $ 3,034 States and political subdivisions-tax exempt 5,738 90 -- 5,828 States and political subdivisions-taxable 1,564 26 63 1,527 Mortgage-backed securities 24,180 186 1 24,365 --------- ------ --------- --------- $ 34,521 $ 302 $ 69 $ 34,754 ========= ====== ========= ========= Held to Maturity - December 31, 1999 Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- --------- U.S. Treasury Securities $ 10,089 $ 18 $ 3 $ 10,104 U.S. Government agencies and corporations 33,163 -- 2,164 30,999 Other investments 1,189 -- -- 1,189 --------- ------ --------- --------- $ 44,441 $ 18 $ 2,167 $ 42,292 ========= ====== ========= =========
27
Available for Sale - December 31, 1999 Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- --------- U.S. Treasury Securities $ 7,806 $ -- $ 248 $ 7,558 States and political subdivisions 6,929 40 227 6,742 Mortgage-backed securities 1,644 1 23 1,622 --------- ------ --------- --------- $ 16,379 $ 41 $ 498 $ 15,922 ========= ====== ========= =========
DEPOSITS The following table presents the average amount outstanding and the average rate paid on deposits by the Company for the years ended December 31, 2001, 2000, and 1999.
2001 2000 1999 -------------------- -------------------- -------------------- Average Average Average Average Average Average (Dollars in thousands) Amount Rate Amount Rate Amount Rate ---------------------- ---------- ------- ---------- ------- ---------- ------- Noninterest-bearing deposits $ 80,382 $ 76,089 $ 74,806 Interest-bearing deposits NOW Accounts 42,461 1.19% 34,814 1.46% 35,247 1.24% Money market 128,056 3.65% 112,519 5.29% 123,506 4.17% Savings deposit 24,619 1.80% 22,719 2.31% 25,893 2.36% Other time deposits 143,230 5.79% 116,107 5.98% 91,666 5.44% ---------- ------- ---------- ------- ---------- ------- Total $ 418,748 3.32% $ 362,248 3.85% $ 351,118 3.19% ========== ======= ========== ======= ========== =======
The following table presents the maturity of the Company's time deposits at December 31, 2001:
Deposits Deposits $100,000 Less than (Dollars in thousands) and Greater $100,000 Total ---------------------- ----------- --------- ---------- Months to maturity: 3 or less $ 21,632 $ 20,529 $ 42,161 4 to 6 8,875 17,142 26,017 7 through 12 13,905 21,317 35,222 Over 12 11,934 16,417 28,351 --------- --------- ---------- Total $ 56,346 $ 75,405 $ 131,751 ========= ========= ==========
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 "Business-Supervision and Regulation." As of December 31, 2001, the Bank exceeded its required levels of capital for a bank categorized by the FDIC as well capitalized under the regulatory framework for prompt corrective action. The Bank's risk-based capital ratio of Tier 1 capital to risk-weighted assets was 10.2%, its risk-based ratio of total capital to risk-weighted assets was 11.1%, and its leverage ratio was 8.5%. See Note 12 to the Consolidated Financial Statements. 28 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. The Company has been able to maintain an adequate level of equity, as previously mentioned and copes with the effects of inflation by managing its interest rate sensitivity gap position through its asset/liability management program, and by periodically adjusting its pricing of services and banking products to take into consideration current costs. ACCOUNTING PRONOUNCEMENTS In October 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," a replacement of SFAS No. 125. The new statement revises accounting criteria for securitizations, other financial asset transfers, and collateral and introduces new disclosures, but otherwise carries forward most of SFAS No. 125's provisions without amendment. The statement is effective for reporting periods beginning after March 31, 2001, and the disclosure provisions are effective for fiscal years ending after December 15, 2000. The adoption of SFAS 140 has not had a significant impact on the Company's consolidated financial statements. In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard (SFAS) No. 141, "Business Combinations" and SFAS No.142, "Goodwill and Other Intangible Assets". SFAS No. 141 addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination and SFAS No. 142 addresses the initial recognition and measurement of intangible assets acquired outside of a business combination whether acquired individually or with a group of other assets. These standards require all future business combinations to be accounted for using the purchase method of accounting. Goodwill will no longer be amortized but instead will be subject to impairment tests at least annually. The Company adopted SFAS No. 141 on July 1, 2001, and is required to adopt SFAS 142 on a prospective basis as of January 1, 2002. Goodwill currently carried on the balance sheet will be subject to an initial assessment for impairment to be completed by the second quarter of 2002. Any impairment loss as a result of the initial assessment will be recognized as a cumulative effect of a change in accounting principal. For the year ended December 31, 2001 earnings included approximately $125,000 net of tax amortization of goodwill. The Company has not yet evaluated the impact that the adoption of this statement will have on its financial position or results of operations, including whether or not the Company will be required to recognize any transitional impairment losses. SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, addresses accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. SFAS No. 144 establishes a single accounting model for long-lived assets to be disposed of by sale and expands on the guidance provided by SFAS No. 121 with respect to cash flow estimations. SFAS No. 144 becomes effective for the Company's fiscal year beginning January 1, 2002. There will be no current impact of adoption on its financial position or results of operations. 29 SELECTED QUARTERLY DATA The following is a summary of unaudited quarterly results for 2001 and 2000:
2001 2000 ----------------------------------------- ------------------------------------------- FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST -------- -------- -------- -------- --------- -------- -------- -------- CONDENSED INCOME STATEMENTS (000'S): Net interest income $ 4,626 $ 4,628 $ 4,449 $ 4,217 $ 4,193 $ 4,277 $ 4,551 $ 4,393 Provision for loan losses 519 335 135 135 (73) 135 135 135 -------- -------- -------- -------- --------- -------- -------- -------- Net interest income after provision for loan losses 4,107 4,293 4,314 4,082 4,266 4,142 4,416 4,258 Other income 3,154 2,862 2,648 2,625 1,897 1,786 2,024 1,931 Other expense 5,598 5,564 5,560 5,439 4,562 4,370 4,588 4,515 -------- -------- -------- -------- --------- -------- -------- -------- Income before tax expense 1,663 1,591 1,402 1,268 1,601 1,558 1,852 1,674 Income tax expense 541 558 490 441 588 573 678 624 -------- -------- -------- -------- --------- -------- -------- -------- Net income $ 1,122 $ 1,033 $ 912 $ 827 $ 1,013 $ 985 $ 1,174 $ 1,050 ======== ======== ======== ======== ========= ======== ======== ======== PER SHARE: Net income - basic $ 0.28 $ 0.26 $ 0.23 $ 0.21 $ 0.26 $ 0.25 $ 0.27 $ 0.24 Net income - diluted $ 0.27 $ 0.25 $ 0.22 $ 0.20 $ 0.25 $ 0.24 $ 0.26 $ 0.23 Dividends $ 0.1075 $ 0.1075 $ 0.1075 $ 0.1075 $ 0.1075 $ 0.105 $ 0.105 $ 0.105 AVERAGE SHARES OUTSTANDING (000'S): Basic 3,943 3,930 3,916 3,906 3,895 3,881 4,398 4,392 Diluted 4,091 4,114 4,122 4,056 4,033 4,020 4,522 4,526
30 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK All financial institutions have financial instruments which are subject to market risk comprised of interest rate risk, foreign currency exchange rate risk, commodity price risk and other relevant market risks, such as equity price risks. The Company has assessed its market risk as predominately interest rate risk. The following interest rate sensitivity analysis information as of December 31, 2001 was developed using simulation analysis of the Bank's sensitivity to changes in net interest income under varying assumptions for changes in market interest rates. Specifically, the model derives expected interest income and interest expense resulting from an immediate and parallel shift in the yield curve in the amounts shown. These rate changes are matched with known repricing intervals and assumptions for new growth net of expected prepayments. The assumptions are based primarily on experience in the Bank's market under varying rate environments. The imbedded options that the Bank's loan customers possess to refinance are considered for purposes of this analysis and cause the larger decreases in income in a declining rate scenario versus the income increases in the same size rising rate scenario. This analysis intentionally exaggerates interest sensitivity. For the sake of simplicity and comparability, an immediate change in rates is assumed. However, any significant change in actual market rates would probably be phased in over an extended period of time. This phase in would reduce the net interest income effects for any absolute change in rates. The Bank attempts to retain interest rate neutrality by generating mostly adjustable rate loans and managing the securities and Fed Funds positions to offset the repricing characteristics of the deposit liabilities.
(Dollars in thousands) Interest Rates Decrease Interest Rates Interest Rates Increase 200 BP 100 BP Remain Constant 100 BP 200BP --------- --------- --------------- -------- -------- 2002 Interest Income 25,831 28,150 30,550 32,745 34,941 2002 Interest Expense 6,335 7,105 8,602 10,558 12,515 --------- --------- -------- -------- -------- Net Interest Income 19,496 21,045 21,948 22,187 22,426 --------- --------- -------- -------- -------- Change in net income after tax vs. budget (1,530) (563) 149 298
31 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements, notes thereto and report of independent certified public accountants thereon included on the following pages are incorporated herein by reference. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ---- Report of Independent Certified Public Accountants ........................ 33 Consolidated Balance Sheets for the Years Ended December 31, 2001 and 2000 .......................................... 34 Consolidated Statements of Income for the Years Ended December 31, 2001, 2000 and 1999 .............................. 35-36 Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 2001, 2000 and 1999 .............................. 37-38 Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999 .................................... 39-41 Notes to Consolidated Financial Statements for the Years Ended December 31, 2001, 2000 and 1999 .......................... 42-66
32 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors and Stockholders TIB Financial Corp. Key Largo, Florida We have audited the accompanying consolidated balance sheets of TIB Financial Corp. and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the three years ended December 31, 2001. These consolidated financial statements are the responsibility of TIB Financial Corp.'s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of TIB Financial Corp. and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. February 22, 2002 Atlanta, Georgia 33 TIB FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, 2001 2000 ------------ -------------- -------------- ASSETS Cash and due from banks (Note 2) $ 21,269,909 $ 13,856,494 Federal funds sold -- 9,709,000 Investment securities held to maturity (Note 3) 18,505,912 34,454,133 Investment securities available for sale (Note 3) 35,473,748 34,753,767 Investment in ERAS Joint Venture 255,190 1,001,060 Loans, net of deferred loan fees (Notes 4, 11 and 13) 378,946,753 315,085,375 Less: Allowance for loan losses (Note 4) 3,793,842 3,267,873 -------------- -------------- Loans, net 375,152,911 311,817,502 Premises and equipment, net (Note 5) 17,633,154 14,884,968 Intangible assets, net 4,441,449 5,043,031 Other assets (Note 9 and 10) 21,259,972 13,800,190 -------------- -------------- TOTAL ASSETS $ 493,992,245 $ 439,320,145 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits (Note 6): Noninterest-bearing demand $ 82,110,626 $ 76,159,071 Interest-bearing demand and money market 175,742,070 146,486,257 Savings 26,132,494 23,241,720 Time deposits of $100,000 or more 56,345,992 58,934,127 Other time deposits 75,404,677 87,605,612 -------------- -------------- Total deposits 415,735,859 392,426,787 Federal Home Loan Bank advances (Note 7) 25,000,000 -- Short-term borrowings (Note 7) 733,760 1,041,799 Notes payable (Note 8) 5,250,000 5,250,000 Trust preferred securities (Note 8) 13,000,000 8,000,000 Other liabilities (Note 9 and 10) 5,600,534 6,364,905 -------------- -------------- Total liabilities 465,320,153 413,083,491 -------------- -------------- COMMITMENTS AND CONTINGENT LIABILITIES (Notes 5 and 13) STOCKHOLDERS' EQUITY (Note 12) Common stock - $.10 par value: 7,500,000 shares authorized, 3,946,100 and 3,902,410 shares issued 394,610 390,241 Surplus 8,221,937 7,886,047 Retained earnings 20,019,145 17,815,366 Accumulated other comprehensive income (loss) 36,400 145,000 -------------- -------------- Total stockholders' equity 28,672,092 26,236,654 -------------- -------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 493,992,245 $ 439,320,145 ============== ==============
See accompanying notes to consolidated financial statements. 34 TIB FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2001 2000 1999 ------------------------ -------------- ------------- ------------- INTEREST INCOME Loans, including fees $ 29,078,461 $ 28,393,976 $ 22,926,064 Investment securities: U.S. Treasury securities 161,750 795,385 1,383,929 U.S. Government agencies and corporations 2,735,142 2,128,114 2,262,314 States and political subdivisions, tax-exempt 277,875 320,500 370,885 States and political subdivisions, taxable 292,392 9,046 -- Other investments 273,674 82,421 94,633 Interest-bearing deposits in other banks 3,044 3,958 315,380 Federal funds sold 895,140 456,123 552,254 -------------- ------------- ------------- Total interest income 33,717,478 32,189,523 27,905,459 -------------- ------------- ------------- INTEREST EXPENSE Interest-bearing demand and money market 5,183,783 6,464,913 5,585,313 Savings 443,125 523,876 609,892 Time deposits of $100,000 or more 3,635,259 2,959,409 1,895,312 Other time deposits 4,663,051 3,978,781 3,087,796 Long-term debt-trust preferred securities 1,003,120 271,450 -- Federal Home Loan Bank Advances 115,457 126,097 16,917 Short-term borrowings 59,656 100,998 103,658 Notes payable 693,952 349,820 -- -------------- ------------- ------------- Total interest expense 15,797,403 14,775,344 11,298,888 -------------- ------------- ------------- NET INTEREST INCOME 17,920,075 17,414,179 16,606,571 PROVISION FOR LOAN LOSSES (Note 4) 1,124,000 332,000 540,000 -------------- ------------- ------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 16,796,075 17,082,179 16,066,571 -------------- ------------- ------------- OTHER INCOME Service charges on deposit accounts 2,225,127 2,053,608 1,951,185 Investment securities gains, net (Note 3) 283,690 -- 643 Merchant bank card processing income 4,009,664 3,690,789 2,827,876 Equity in income (loss), net of goodwill amortization, from investment in ERAS Joint Venture (235,490) 32,300 179,008 Commissions on sales by Keys Insurance Agency, Inc. 1,458,299 153,639 -- Gain on sale of government guaranteed loans 96,571 269,727 704,398 Fees on mortgage loans sold at origination 1,074,585 400,389 338,796 Retail investment services 177,467 272,358 230,492 Gain on sale of investment in ERAS Joint Venture (Note 1) 820,126 -- -- Gain on sale of insurance company option (Note 13) -- -- 312,375 Gain on sale of servicing rights 255,281 -- -- Other income 1,123,584 764,764 622,501 -------------- ------------- ------------- Total other income 11,288,904 7,637,574 7,167,274 -------------- ------------- ------------- OTHER EXPENSE Salaries and employee benefits (Note 10) 9,717,629 7,854,114 7,592,034 Net occupancy expense 3,489,306 2,718,412 2,634,230 Other expense (Note 15) 8,953,504 7,462,231 6,514,673 -------------- ------------- ------------- Total other expense 22,160,439 18,034,757 16,740,937 -------------- ------------- ------------- INCOME BEFORE INCOME TAX EXPENSE 5,924,540 6,684,996 6,492,908 INCOME TAX EXPENSE (Note 9) 2,030,200 2,462,700 2,327,100 -------------- ------------- ------------- NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $ 3,894,340 $ 4,222,296 $ 4,165,808 ============== ============= =============
See accompanying notes to consolidated financial statements. 35 TIB FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Continued)
Years ended December 31, 2001 2000 1999 ------------------------ ------------- ------------- ------------- NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $ 3,894,340 $ 4,222,296 $ 4,165,808 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE FOR DEFERRED ORGANIZATION COSTS, NET OF TAX BENEFIT OF $28,300 (Note 1) -- -- (47,047) ------------- ------------- ------------- NET INCOME $ 3,894,340 $ 4,222,296 $ 4,118,761 ============= ============= ============= BASIC EARNINGS PER COMMON SHARE (Note 1) INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $ .99 $ 1.02 $ .95 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE FOR DEFERRED ORGANIZATION COSTS, NET OF TAX -- -- (.01) ------------- ------------- ------------- BASIC EARNINGS PER COMMON SHARE $ .99 $ 1.02 $ .94 ============= ============= ============= DILUTED EARNINGS PER COMMON SHARE (Note 1) INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $ 95 $ .99 $ .92 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE FOR DEFERRED ORGANIZATION COSTS, NET OF TAX -- -- (.01) ------------- ------------- ------------- DILUTED EARNINGS PER COMMON SHARE $ .95 $ .99 $ .91 ============= ============= =============
See accompanying notes to consolidated financial statements. 36 TIB FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Continued)
Accumulated Other Comprehensive Income (Loss) Comprehensive Retained Treasury Market Valuation Common Total Income Earnings Stock Reserve Stock Surplus ------------ ------------- ------------ ----------- ----------------- --------- ---------- BALANCE, December 31, 1998 $ 26,567,534 $ 19,328,022 $ (557,788) $ 150,000 $ 444,979 $7,202,321 Comprehensive income: Net income 4,118,761 $ 4,118,761 4,118,761 Other comprehensive income, net of tax benefit of $262,000: Net market valuation adjustment on securities available-for-sale (434,599) (434,599) -- -- -- -- -- Less: reclassification adjustment for gains included in net income (401) (401) -- -- -- -- -- ------------- Other comprehensive income, net of tax -- (435,000) -- -- (435,000) -- -- ------------- Comprehensive income -- $ 3,683,761 -- -- -- -- -- ============= Exercise of stock options 143,279 -- -- -- 2,368 140,911 Income tax benefit from stock options exercised 30,065 -- -- -- -- 30,065 Compensation paid through issuance of common stock 183,337 -- -- -- 1,667 181,670 Purchase of treasury stock (Note 14) (493,684) -- (493,684) -- -- -- Cash dividends declared, $.4125 per share (1,812,134) (1,812,134) -- -- -- -- ------------ ------------ ----------- --------- --------- ---------- BALANCE, December 31, 1999 28,302,158 21,634,649 (1,051,472) (285,000) 449,014 7,554,967 Comprehensive income: Net income 4,222,296 $ 4,222,296 4,222,296 Other comprehensive income, net of tax expense of $260,000: Net market valuation adjustment on securities available- for-sale 430,000 430,000 -- -- 430,000 -- -- ------------- Comprehensive income -- $ 4,652,296 -- -- -- -- -- ============= Exercise of stock options 93,138 -- -- -- 1,581 91,557 Income tax benefit from stock options exercised 21,669 -- -- -- -- 21,669 Issuance of stock for Keys Insurance Agency acquisition 220,000 -- -- -- 2,146 217,854 Purchase of treasury stock(Note 14) (5,301,590) -- (5,301,590) -- -- -- Retirement of treasury stock -- (6,290,562) 6,353,062 -- (62,500) -- Cash dividends declared, $.4225 per share (1,751,017) (1,751,017) -- -- -- -- ------------ ------------ ----------- --------- --------- ---------- BALANCE, December 31, 2000 $ 26,236,654 $ 17,815,366 $ -- $ 145,000 $ 390,241 $7,886,047 ============ ============ =========== ========= ========= ==========
See accompanying notes to consolidated financial statements. 37 TIB FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Continued)
Accumulated Other Comprehensive Income (Loss) Comprehensive Retained Treasury Market Valuation Common Total Income Earnings Stock Reserve Stock Surplus ------------ ------------- ------------ ----------- ----------------- --------- ---------- BALANCE, December 31, 2000 $ 26,236,654 $17,815,366 $ -- $145,000 $ 390,241 $7,886,047 Comprehensive income: Net income 3,894,340 3,894,340 3,894,340 Other comprehensive income, net of tax benefit of $66,100: Net market valuation adjustment on securities available- for-sale 68,423 68,423 -- -- -- -- Less: reclassification adjustment for gains included in net income (177,023) (177,023) ------------ Other comprehensive income, net of tax (108,600) (108,600) -- -- ------------ Comprehensive income $ 3,785,740 -- -- -- -- -- ============ Exercise of stock options 221,623 -- -- -- 3,805 217,818 Income tax benefit from stock options exercised 50,392 -- -- -- -- 50,392 Issuance of stock for BonData Group Limited, Inc. acquisition 68,244 -- -- -- 564 67,680 Cash dividends declared, $.43 per share (1,690,561) (1,690,561) -- -- -- -- ------------ ----------- ------ -------- ---------- ---------- BALANCE, December 31, 2001 $ 28,672,092 $ 20,019,145 $ -- $36,400 $394,610 $8,221,937 ============ ============ ====== ======= ======== ==========
See accompanying notes to consolidated financial statements. 38 TIB FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2001 2000 1999 ------------------------ -------------- -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 3,894,340 $ 4,222,296 $ 4,118,761 Adjustments to reconcile net income to net cash provided by operating activities: Net amortization of investments 52,793 191,621 208,576 Amortization of intangible assets 538,576 207,302 176,957 Depreciation of premises and equipment 1,381,947 1,215,870 1,213,707 Gain on sale of servicing rights (255,281) -- -- Net proceeds received from servicing rights sales 219,670 -- -- Gain on sale of investment in ERAS JV (820,126) -- -- Gain on sale of insurance company option -- -- (312,375) Payment on note receivable from sale of option 300,000 300,000 100,000 Cumulative effect of change in accounting principle -- -- 75,347 Write-off of unamortized leasehold improvements 57,990 -- 133,546 Provision for loan losses 1,124,000 332,000 540,000 Deferred income tax (benefit) (323,399) (109,173) (65,268) Deferred net loan fees (332,144) (244,141) (127,054) Investment securities (gains), net (283,690) -- (643) Compensation paid through issuance of common stock -- -- 183,337 Equity in (income) loss, net of goodwill amortization from investment in ERAS Joint Venture 235,490 (32,300) (179,008) (Gain) loss on sales/disposition of premises and equipment (56,347) 16,678 (6,930) Gains on sales of government guaranteed loans, net (96,571) (269,727) (704,398) Decrease in intangible assets -- -- 4,967 (Increase) decrease in other assets (6,290,419) (3,203,221) 695,478 Increase (decrease) in other liabilities (437,913) 1,229,401 1,389,510 -------------- -------------- -------------- Net cash (used) provided by operating activities (1,091,084) 3,856,606 7,444,510 -------------- -------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of investment securities held to maturity (542,609) -- (281,160) Purchases of investment securities available for sale (21,757,766) (1,563,600) (16,033,126) Sales of investment securities available for sale 17,382,719 4,562,500 13,033,497 Repayments of principal and maturities of investment securities available for sale 17,015,332 1,853,574 4,013,932 Maturities of investment securities held to maturity 16,500,000 10,000,000 4,000,000 Proceeds from sales of government guaranteed loans 2,070,369 11,056,930 7,000,644 Purchase of Keys Insurance Agency of Monroe County, Inc. (see below) -- (1,706,705) -- Purchase of BonData Group Limited, Inc. (see below) (204,750) -- -- Proceeds from sale of investment in ERAS JV 1,333,333 -- -- Net cash received in purchase of branches (see below) -- 12,089,842 -- Loans originated or acquired, net of principal repayments (78,784,302) (50,976,108) (50,302,436) Surrender value of purchased insurance policies (820,000) (4,715,000) -- Purchases of premises and equipment (see below) (4,780,136) (863,080) (2,818,385) Sales of premises and equipment 17,333 29,444 17,913 -------------- -------------- -------------- Net cash used by investing activities $ (52,570,477) $ (20,232,203) $ (41,369,121) ============== ============== ==============
39 TIB FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2001 2000 1999 ------------------------ -------------- -------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase $ (308,039) $ (670,257) $ 1,042,487 Net increase (decrease) in FHLB advances 25,000,000 (10,000,000) 10,000,000 Net increase (decrease) in demand, money market and savings accounts and acquired deposits (see below) 38,098,142 (2,397,746) (8,827,142) Net (repayment) advances of short-term borrowings -- (659,625) 659,625 Proceeds from issuance of trust preferred securities 5,000,000 8,000,000 -- Debt issuance costs paid (170,816) (301,858) (9,625) Time deposits accepted, net of repayments and acquired deposits (see below) (14,789,070) 25,557,655 30,673,931 Proceeds from exercise of stock options 221,623 93,138 143,279 Treasury stock repurchased -- (51,590) (493,684) Cash dividends paid (1,685,864) (1,792,998) (1,801,623) -------------- -------------- -------------- Net cash provided by financing activities 51,365,976 17,776,719 31,387,248 -------------- -------------- -------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,295,585) 1,401,122 (2,537,363) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 23,565,494 22,164,372 24,701,735 -------------- -------------- -------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 21,269,909 $ 23,565,494 $ 22,164,372 ============== ============== ============== SUPPLEMENTAL DISCLOSURES OF CASH PAID: Interest $ 16,267,159 $ 13,446,046 $ 10,806,350 Income taxes 2,241,000 2,360,000 2,591,041
40 TIB Financial Corp. and Subsidiaries Consolidated Statements of Cash Flows In 2001, the Company purchased BonData Group Limited, Inc. The purchase price for the agency was $273,000 which consisted primarily of intangible assets. The consideration consisted of $68,244 of Company common stock (5,640 shares) and $204,750 in cash (paid at closing). Under the purchase agreement, annual cash payments of $24,000 are to be made following each of the first two anniversaries of the closing date, subject to the agency's ability to achieve certain earning thresholds. Any of this additional consideration that is paid at the end of each contingency period, will at that time be recorded as goodwill and increase the total recorded purchase price of the agency. In 2000, the Company purchased the banking facilities and assumed the deposits at two branches of another bank in Homestead, Florida. In addition, loans, primarily residential real estate, were purchased from the seller. The acquisition was recorded using the purchase method of accounting. Net cash received in connection with the acquisition is calculated as follows: Deposit and other liabilities assumed $ 22,544,857 Less price of assets acquired: Premises and equipment (894,234) Core deposit premium (1,495,589) Loans, accrued interest and other assets (8,065,192) -------------- Cash received $ 12,089,842 ==============
In 2000, the Company purchased 525,000 shares of the Company's common stock in exchange for four subordinated notes payable of the Company totaling $5,250,000 (see Note 8). In 2000, the Company purchased Keys Insurance Agency of Monroe County, Inc. The purchase price for the net assets of the agency was $1,870,000 which consisted primarily of intangible assets. The consideration consisted of $220,000 of Company common stock (21,643 shares) and $1,650,000 in cash (paid at closing). Under the purchase agreement, annual cash payments of $110,000 are to be made following each of the first three anniversaries of the closing date, subject to the agency's ability to achieve certain earning thresholds. Any of this additional consideration that is paid at the end of each contingency period, will at that time be recorded as goodwill and increase the total recorded purchase price of the agency. Net cash paid in connection with the acquisition is calculated as follows: Contract purchase price $ 1,650,000 Receivables and fixed assets acquired 126,103 Liabilities assumed (135,679) Capitalized acquisition costs 66,281 -------------- Cash paid $ 1,706,705 ==============
Single family residential mortgage loans securitized and retained in the Company's available for sale portfolio amounted to $13,313,239 and $23,199,518 in 2001 and 2000, respectively (see Note 3). 41 TIB FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES TIB Financial Corp. and subsidiaries provide full-service commercial banking and insurance agency services in Monroe, South Dade, Collier and Lee counties, Florida. The Corporation is a Florida Corporation, a bank holding company and effective August 31, 2000, a financial holding company. 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 The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses. Management believes that the allowance for loan losses is adequate. While management uses available information to provide for losses on loans, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses. Such agencies may require additions to the allowance for loan losses based on their judgments about information available to them at the time of their examination. BASIS OF PRESENTATION The consolidated financial statements include the accounts of TIB Financial Corp. (Parent Company) and its wholly-owned subsidiaries, TIB Bank of the Keys (Bank), Keys Insurance Agency, Inc., TIB Software and Services, Inc., TIBFL Statutory Trust I (see note 8), and TIBFL Statutory Trust II (see Note 8) collectively known as the "Company". All significant intercompany accounts and transactions have been eliminated in consolidation. In 1998, the Parent Company's subsidiary, TIB Software and Services, Inc., acquired a 30 percent interest in ERAS Joint Venture (the "Venture"), a general partnership, in exchange for consideration of $791,216. Goodwill associated with the transaction totaled $637,614 and is being amortized over a period of ten years. The investment in the Venture is being accounted for using the equity method. The Venture's primary business is item processing and the design, development, installation and maintenance of accounting software for financial institutions. ERAS Joint Venture is the Bank's item processor. Payments of approximately $621,000 and $868,000 were made to the Venture in 2001 and 2000, respectively. On December 31, 2001, the Company sold two thirds of their ownership interest in the Venture for $1,333,333. The Company recognized a gain of $820,126 on the transaction. This sale reduced the Company's ownership in the Venture to 10%. In 2002, the investment in the Venture will be accounted for using the cost method. On October 31, 2000, the Company purchased Keys Insurance Agency of Monroe County, Inc. which was 100% owned by a company director. Keys Insurance Agency, Inc. (the new name subsequent to the purchase) has three offices in the Florida Keys and brokers a full line of commercial and residential hazard insurance coverages as well as life and health insurance and annuities. The purchase price for the net assets of the agency was $1,870,000 which consisted primarily of intangible assets. The consideration consisted of $220,000 of Company common stock (21,463 shares) and $1,650,000 in cash (paid at closing). Under the purchase agreement, annual cash payments of $110,000 are to be made following each of the first three anniversaries of the closing date, subject to the agency's ability to achieve certain earning thresholds. Any of this additional consideration that is paid at the end of each contingency period will at that time be recorded as goodwill and increase the total recorded purchase price of the agency. No amount was required to be paid in 2001. This acquisition was recorded using the purchase method of accounting. 42 On September 25, 2001, Keys Insurance Agency, Inc. purchased BonData Group Limited, Inc. a Ft Myers, Florida based insurance agency specializing in surety bond underwriting and placement. Total consideration paid at closing for the agency was $273,000. This was comprised of approximately $68,000 in the Company's common stock (5,640 shares) and approximately $205,000 in cash. Under the purchase agreement, annual cash payments of $24,000 are to be made following each of the first two anniversaries of the closing date, subject to the agency's ability to achieve certain earning thresholds. Any of this additional consideration that is paid at the end of each contingency period, will at that time be recorded as goodwill and increase the total recorded purchase price of the agency. This acquisition was recorded using the purchase method of accounting. INVESTMENT SECURITIES Investment securities which management has the ability and intent to hold to maturity are reported at cost, adjusted for amortization of premium and accretion of discount. Investment securities available for sale are reported at fair value, with unrealized gains and losses reported as a separate component of stockholders' equity, net of the related tax effect. Other investments are reported at cost, and accordingly, earnings are reported when interest is accrued or when dividends are received. Premium and discount on all investment securities are amortized (deducted) and accreted (added), respectively, to interest income on the effective-yield method over the period to the earlier of a call date or the maturity of the related securities. Premium and discount on mortgage-backed securities are amortized (deducted) and accreted (added), respectively, to interest income on the effective interest method over the period to maturity of the related securities, taking into consideration assumed prepayment patterns. Gains or losses on disposition are computed by the specific identification method for all securities. 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, accrual thereof is discontinued and all unpaid interest is reversed. 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 sales occur. The majority of fixed rate mortgage loans are originated by the Bank and sold to a third party immediately without recourse. All fees are recognized as income at the time of the sale. 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 known. Recognized losses are charged to the allowance for loan losses, while subsequent recoveries are added to the allowance. The Bank accounts for impaired loans in accordance with Statement of Financial Accounting Standards No. 114 (SFAS 114), "Accounting by Creditors for Impairment of a Loan," as amended by Statement of Financial Accounting Standards No. 118 (SFAS 118), "Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosure." Management, considering current information and events regarding the borrowers' ability to repay their obligations, generally considers a loan to be impaired when it is probable that the Bank will be unable to collect all 43 amounts due according to the contractual terms of the loan. When a loan is considered to be impaired, the amount of the impairment is measured based on the present value of expected future cash flows discounted at the note's effective interest rate, observable market prices, or for loans that are solely dependent on the collateral for repayment, the estimated fair value of the collateral. Impairment losses are included in the allowance for loan losses through a charge to the provision. Cash receipts on impaired loans are applied to reduce the principal amount of such loans until the principal has been recovered and are recognized as interest income, thereafter. A loan is also considered impaired if it is in a nonaccruing status. PREMISES AND EQUIPMENT Premises and equipment are reported at cost less accumulated depreciation. For financial reporting purposes, depreciation is computed using primarily 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. OTHER REAL ESTATE Other real estate, acquired through partial or total satisfaction of loans, is reported at the lower of cost or fair value less estimated selling expenses. Losses incurred in the acquisition of foreclosed properties are charged against the allowance for loan losses at the time of foreclosure. Subsequent write-downs of other real estate are charged against the current period's operations. Net costs of maintaining and operating foreclosed properties are generally expensed as incurred. INTANGIBLE ASSETS Intangible assets include amounts for excess servicing fees on government guaranteed loans, deposit base premiums and goodwill. Excess servicing rights are being amortized over the expected life of the related loan. Effective January 1, 1999, the Company changed its method of accounting for organization costs 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 to comply with AICPA Statement of Position 98-5 (SOP 98-5). The Company recorded a charge net of tax of $47,047 in 1999 as the cumulative effect of this accounting change. The deposit base premiums are being amortized using the straight-line method over an estimated life of 10 years. Goodwill is amortized over varying periods, from 10 to 15 years, using the straight-line method. IMPAIRMENT OF LONG-LIVED ASSETS Long-lived assets, including certain fixed assets and intangibles, are evaluated at each balance sheet date or whenever events or changes in circumstances indicate that the carrying amount should be assessed. Impairment, if any, is recognized through a valuation allowance with a corresponding charge recorded in expense regularly for other-than-temporary impairment. INCOME TAXES The tax effects of transactions is recorded at current tax rates in the periods the transactions are reported for financial statement purposes. Deferred income taxes are established for the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. The Company files its tax returns on a consolidated basis. EARNINGS PER COMMON SHARE Basic earnings per common share has been computed based on the weighted average number of common shares outstanding of 3,923,763, 4,140,234 and 4,388,336 in 2001, 2000 and 1999. Diluted earnings per share has been computed based upon the weighted average number of equivalent common shares of 4,096,767, 4,274,155 and 44 4,543,784 in 2001, 2000 and 1999. The effect of stock options, as described in Note 12, is the sole common stock equivalent for purposes of calculating diluted earnings per common share. STOCK-BASED COMPENSATION As provided by SFAS 123, the Company has elected to continue applying the provisions of APB 25 in determining its accounting relative to stock-based compensation. Accordingly, when the price of an option granted is equal to its fair market value on the date of grant, no compensation expense is recorded. The Company has adopted the SFAS 123 requirement that a company disclose the pro forma net income and pro forma earnings per share for the years ending December 31, 2001, 2000 and 1999, as if the alternative fair-value-based accounting method in SFAS 123 had been used in determining net income. FAIR VALUES OF FINANCIAL INSTRUMENTS The Company uses the following methods and assumptions in estimating fair values of financial instruments (see Note 16): Cash and cash equivalents - The carrying amount of cash and cash equivalents approximates fair value. Investment securities - The fair value of investment securities held to maturity and available for sale is estimated based on bid quotations received from independent pricing services. The carrying amount of other investments, which consists of stock in the Independent Bankers' Bank of Florida and the Federal Home Loan Bank, approximates fair value. Loans - The fair value of fixed rate loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. The fair value of variable rate loans with frequent repricing and negligible credit risk approximates book value. Deposits - For deposits with no stated maturity, such as demand, NOW, money market, and savings accounts, the carrying amount is considered to approximate fair value and does not take into account the significant value of the cost advantage and stability of the Corporation's long-term relationships with depositors. The fair value of certificates of deposit is based on the discounted value of contractual cash flows using the rates currently offered for deposits of similar remaining maturities. Short-term borrowings - The carrying amount of federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings maturing within 30 days approximates fair value. Subordinated notes payable and trust preferred securities - The fair values of subordinated notes payable and fixed rate trust preferred securities are calculated by discounting the future payments (considering call and prepayment options) using a spread to the 10 year and 30 year treasury note rates, respectively, in effect at December 31, 2001. The fair value of variable rate trust preferred securities with frequent repricing approximates book value. Off-balance-sheet instruments - The fair value of commitments to extend credit to fund commercial, consumer, real estate-construction and real estate-mortgage loans and to fund standby letters of credit is equal to the amount of commitments outstanding at December 31, 2001. This is based on the fact that the Company generally does not offer lending commitments or standby letters of credit to its customers for long periods, and therefore, the underlying rates of the commitments approximate market rates. CASH AND CASH EQUIVALENTS For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks and federal funds sold. 45 RECLASSIFICATIONS Certain reclassifications have been made in the 2000 and 1999 financial statements to conform with the 2001 presentation. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 requires companies to recognize all derivative contracts as either assets or liabilities in the balance sheet and to measure them at fair value. Historically, the Company has not entered into derivative 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 consolidated financial statements at July 1, 1998, which resulted from the transfer of 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 the other comprehensive income market valuation reserve of approximately $176,000. RECENT ACCOUNTING PRONOUNCEMENTS In October 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," a replacement of SFAS No. 125. The new statement revises accounting criteria for securitizations, other financial asset transfers, and collateral and introduces new disclosures, but otherwise carries forward most of SFAS No. 125's provisions without amendment. The statement is effective for reporting periods beginning after March 31, 2001, and the disclosure provisions are effective for fiscal years ending after December 15, 2000. The adoption of SFAS 140 has not had a significant impact on the Company's consolidated financial statements. In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard (SFAS) No. 141, "Business Combinations" and SFAS No.142, "Goodwill and Other Intangible Assets". SFAS No. 141 addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination and SFAS No. 142 addresses the initial recognition and measurement of intangible assets acquired outside of a business combination whether acquired individually or with a group of other assets. These standards require all future business combinations to be accounted for using the purchase method of accounting. Goodwill will no longer be amortized but instead will be subject to impairment tests at least annually. The Company adopted SFAS No. 141 on July 1, 2001, and is required to adopt SFAS 142 on a prospective basis as of January 1, 2002. Goodwill currently carried on the balance sheet will be subject to an initial assessment for impairment to be completed by the second quarter of 2002. Any impairment loss as a result of the initial assessment will be recognized as a cumulative effect of a change in accounting principal. For the year ended December 31, 2001 earnings included approximately $125,000 net of tax amortization of goodwill. The Company has not yet evaluated the impact that the adoption of this statement will have on its financial position or results of operations, including whether or not the Company will be required to recognize any transitional impairment losses. SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, addresses accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. SFAS No. 144 establishes a single accounting model for long-lived assets to be disposed of by sale and expands on the guidance provided by SFAS No. 121 with respect to cash flow estimations. SFAS No. 144 becomes effective for the Company's fiscal year beginning January 1, 2002. There will be no current impact of adoption on its financial position or results of operations. 2. CASH AND DUE FROM BANKS A bank is required to maintain average reserve balances with the Federal Reserve Bank, on deposit with national banks or in cash. The Bank's average reserve requirement as of December 31, 2001, was approximately $638,000. The Bank maintained cash balances, which were adequate to meet this requirement. 46 3. INVESTMENT SECURITIES The amortized cost and estimated market value of investment securities held to maturity are as follows:
Amortized Unrealized Unrealized Fair December 31, 2001 Cost Gains Losses Value ----------------- ------------- ---------- ------------- ------------- U.S. Treasury securities $ 205,897 $ 4,572 $ -- $ 210,469 U.S. Government agencies and corporations 16,674,255 297,653 -- 16,971,908 Other investments 1,625,760 -- -- 1,625,760 ------------- ---------- ------------- ------------- $ 18,505,912 $ 302,225 $ -- $ 18,808,137 ============= ========== ============= ============= Amortized Unrealized Unrealized Fair December 31, 2000 Cost Gains Losses Value ----------------- ------------- ---------- ------------- ------------- U.S. Treasury securities $ 100,422 $ 562 $ -- $ 100,984 U.S. Government agencies and corporations 33,164,451 -- 661,317 32,503,134 Other investments 1,189,260 -- -- 1,189,260 ------------- ---------- ------------- ------------- $ 34,454,133 $ 562 $ 661,317 $ 33,793,378 ============= ========== ============= =============
The amortized cost and estimated market value of investment securities available for sale are as follows:
Amortized Unrealized Unrealized Fair December 31, 2001 Cost Gains Losses Value ----------------- ------------- ---------- ------------- ------------- U.S. Treasury securities $ 3,017,174 $ 71,896 $ -- $ 3,089,070 U.S. Government agencies and corporations 105,757 712 -- 106,469 States and political subdivisions- tax exempt 5,742,409 90,163 693 5,831,879 States and political subdivision - taxable 5,016,978 49,216 269,075 4,797,119 Mortgage-backed securities 18,359,772 84,675 5,236 18,439,211 Corporate bonds 3,173,358 36,642 -- 3,210,000 ------------- ---------- ------------- ------------- $ 35,415,448 $ 333,304 $ 275,004 $ 35,473,748 ============= ========== ============= ============= Amortized Unrealized Unrealized Fair December 31, 2000 Cost Gains Losses Value ----------------- ------------- ---------- ------------- ------------- U.S. Treasury securities $ 3,039,611 $ -- $ 5,381 $ 3,034,230 States and political subdivisions- tax-exempt 5,737,356 90,369 -- 5,827,725 States and political subdivisions- taxable 1,563,790 26,441 62,935 1,527,296 Mortgage-backed securities 24,180,010 185,553 1,047 24,364,516 ------------- ---------- ------------- ------------- $ 34,520,767 $ 302,363 $ 69,363 $ 34,753,767 ============= ========== ============= =============
47 Other investments consist of stock in the Independent Bankers' Bank of Florida and the Federal Home Loan Bank of Atlanta. The amortized cost and estimated market value of investment securities held to maturity and available for sale at December 31, 2001, by contractual maturity, are shown as follows. Expected maturities differ from contractual maturities because borrowers may have the right to call or repay obligations without call or prepayment penalties.
INVESTMENT SECURITIES INVESTMENT SECURITIES HELD TO MATURITY AVAILABLE FOR SALE -------------------------------- ------------------------------- AMORTIZED FAIR AMORTIZED FAIR DECEMBER 31, 2000 COST VALUE COST VALUE ----------------- ------------- ------------- ------------- ------------- Due in one year or less $ 100,192 $ 103,156 $ 3,017,174 $ 3,089,070 Due after one year through five years -- -- 999,882 1,028,286 Due after five years through ten years 16,779,960 17,079,221 3,791,399 3,870,994 Due after ten years -- -- 9,247,221 9,046,187 Other investments 1,625,760 1,625,760 -- -- Mortgage-backed securities -- -- 18,359,772 18,439,211 ------------- ------------- ------------- ------------- $ 18,505,912 $ 18,808,137 $ 35,415,448 $ 35,473,748 ============= ============= ============= =============
Proceeds from sales of investment securities available for sale during 2001, 2000 and 1999, respectively, were $17,382,719, $4,562,500 and $13,033,497 with net gains of $275,090, $0 and $643. Maturities and principal repayments of investment securities available for sale during 2001, 2000 and 1999 were $17,015,332, $1,853,574 and $4,013,932, respectively. Net gains realized from calls and mandatory redemptions of held-to-maturity securities during 2001, 2000 and 1999 were $8,600, $0 and $0, respectively. Investment securities having carrying values of approximately $15,077,000 and $18,810,000 at December 31, 2001 and 2000, respectively, were pledged to secure public funds on deposit, securities sold under agreements to repurchase, and other purposes as required by law. Single family residential mortgage loans securitized and retained in the Company's available for sale portfolio amounted to $13,313,239 and $23,199,518 in 2001 and 2000, respectively. The investments were recorded at the unpaid principal balance of the loans, an amount less than fair market value. Accordingly, no gain or loss was recognized. 4. LOANS Major classifications of loans are as follows:
December 31, 2001 2000 ------------ -------------- -------------- Real estate mortgage loans: Commercial $ 233,025,987 $ 170,284,808 Residential 68,372,957 76,980,301 Construction 6,433,674 7,618,849 Commercial loans 46,927,000 38,762,547 Consumer loans 9,636,806 9,114,774 Home equity loans 14,707,222 12,813,132 -------------- -------------- Total loans 379,103,646 315,574,411 Net deferred loan fees 156,893 489,036 -------------- -------------- Loans, net of deferred loan fees $ 378,946,753 $ 315,085,375 ============== ==============
48 Substantially all loans are made to borrowers in the Bank's primary market area of Monroe, South Dade, Collier and Lee counties. Nonaccrual loans and loans defined as impaired under SFAS 114 at December 31, 2001 and 2000 totalled $1,590,391 and $502,774, respectively. The Bank has made a loan originally totaling $10,000,000 to construct a lumber mill in north Florida. $6,400,000 had been sold by the Bank to other lenders. The loan was partially guaranteed as to principal and interest by the U.S. Department of Agriculture (USDA). In addition to business real estate and equipment, the loan is collateralized by the business owner's interest in a trust. Under provisions of the trust agreement, beneficiaries cannot receive trust assets until November 2010. At December 31, 2000, the loan was past due greater than 90 days but was still maintained as an accruing loan because of the USDA guarantee and collateral value. During 2001, upon completion of foreclosure on the underlying collateral, the non-guaranteed portion of this loan and interest accrued through the foreclosure date was reclassified into other real estate ($550,000) and other assets (approximately $1,886,000) based on the fair value of the underlying-collateral. The portion of this loan guaranteed by the USDA was approximately $1,641,000 at December 31, 2001, and is accruing interest. Accrued interest on the guaranteed portion totaled approximately $409,000 at December 31, 2001. In addition, the bank has capitalized approximately $404,000 for liquidation costs and protective advances, which the Bank expects to be fully reimbursed for by the USDA. Management believes the value of all assets pledged as collateral for this loan exceeds the unpaid amount. The following is an analysis of the allowance for loan losses:
Years ended December 31, 2001 2000 1999 ------------------------ ------------- ------------- ------------- Balance, beginning of year $ 3,267,873 $ 2,996,532 $ 2,517,234 Provision charged to expense 1,124,000 332,000 540,000 Loans charged off (622,697) (61,063) (108,413) Recoveries of loans previously charged off 24,666 404 47,711 ------------- ------------- ------------- Balance, end of year $ 3,793,842 $ 3,267,873 $ 2,996,532 ============= ============= =============
5. PREMISES AND EQUIPMENT Premises and equipment consisted of the following:
December 31, 2001 2001 2000 ----------------- -------------- -------------- Land $ 7,243,480 $ 5,476,600 Buildings and leasehold improvements 10,090,406 9,354,468 Furniture, fixtures and equipment 9,131,588 7,663,455 Construction in progress 149,200 108,023 -------------- -------------- 26,614,674 22,602,546 Less accumulated depreciation (8,981,520) (7,717,578) -------------- -------------- Premises and equipment, net $ 17,633,154 $ 14,884,968 ============== ==============
The Company is obligated under operating leases for office and ATM location space. The leases expire in periods varying from one to sixteen years, and some have renewal options for subsequent periods. Future minimum lease 49 payments are as follows at December 31, 2001:
Years ending December 31, ------------------------- 2002 $ 397,212 2003 358,574 2004 337,819 2005 319,669 2006 264,170 Thereafter 1,142,764 ----------- $ 2,820,208 ===========
Rental expense for the years ended December 31, 2001, 2000 and 1999, was approximately $239,000, $54,000 and $66,000, respectively (see Note 11). 6. TIME DEPOSITS At December 31, 2001, the scheduled maturities of time deposits are as follows:
Years ending December 31, 2001 ------------------------------ 2002 $103,400,330 2003 17,866,702 2004 4,463,216 2005 3,913,210 2006 2,097,211 Thereafter 10,000 ------------ $131,750,669 ============
7. 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 Bank has unsecured lines of credit for federal funds purchased from other banks totaling $7,500,000 at December 31, 2001. Securities sold under agreements to repurchase include a wholesale agreement with a correspondent bank which is collateralized by a U.S. Treasury note and agreements with commercial account holders whereby the Bank sweeps the customer's accounts on a daily basis and pays interest on these amounts. Borrowings under these agreements are collateralized by investment securities. The Bank accepts Treasury, tax and loan deposits from certain commercial depositors and remits these deposits to the appropriate government authorities. The Bank can hold up to $1,700,000 of these deposits more than a day under a note option agreement with its regional Federal Reserve bank and pay interest on those funds held. The Bank pledges certain investment securities against this account. The Bank invested in Federal Home Loan Bank stock for the purpose of establishing credit lines with the Federal 50 TIB FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Home Loan Bank. The credit availability to the Bank is equal to 14 percent of the Bank's total assets as reported on the most recent quarterly financial information submitted to the regulators. The credit availability approximated $68.8 million at December 31, 2001 under which $25 million was outstanding. Any advances are secured by the Bank's one-to-four-family residential mortgage loans. The outstanding amounts consist of $20 million maturing in 2003, and a $5 million daily advance. 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 four categories of short-term borrowings:
Years ended December 31, 2001 2000 ---------- ---------- FEDERAL FUNDS PURCHASED: Balance: Average daily outstanding $ 457,066 $ 186,265 Year-end outstanding 65,000 -- Maximum month-end outstanding 3,160,000 3,189,000 Rate: Weighted average for year 2.8% 7.0% SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE (WHOLESALE AND RETAIL): Balance: Average daily outstanding $ 416,724 $ 454,088 Year-end outstanding 418,993 234,943 Maximum month-end outstanding 571,474 615,065 Rate: Weighted average for year 3.4% 5.6% TREASURY, TAX AND LOAN NOTE OPTION: Balance: Average daily outstanding $ 789,959 $ 741,683 Year-end outstanding 249,767 806,856 Maximum month-end outstanding 1,700,000 1,700,000 Rate: Weighted average for year 3.6% 6.6% ADVANCES FROM THE FEDERAL HOME LOAN BANK-SHORT TERM: Balance: Average daily outstanding $ 986,301 $1,923,497 Year-end outstanding 5,000,000 -- Maximum month-end outstanding 10,000,000 8,000,000 Rate: Weighted average for year 2.4% 6.6% ADVANCES FROM THE FEDERAL HOME LOAN BANK-LONG TERM: Balance: Average daily outstanding $ 3,917,808 -- Year-end outstanding 20,000,000 -- Maximum month-end outstanding 20,000,000 -- Rate: Weighted average for year 2.3% --
51 TIB FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. OTHER BORROWINGS LINE OF CREDIT At December 31, 1999 the Company had $2,000,000 available under a revolving line of credit with Independent Bankers' Bank of Florida. At December 31, 1999, the Company had $659,625 outstanding under this line of credit. Amounts outstanding under the line of credit bear interest equal to the prime rate published in The Wall Street Journal minus .5 percent, which is subject to change daily. The interest rate in effect at December 31, 1999, was 8.0 percent. Interest is payable quarterly, and the principal is due April 2001. The revolving line of credit was renewed and extended in 2000. The credit availability was increased to $3,000,000. No amount was outstanding under this line at December 31, 2001. Amounts outstanding under the line bear interest equal to the prime rate published in The Wall Street Journal minus one percent, which is subject to change daily. Interest is payable quarterly, and any principal is due on demand or on December 21, 2002. This credit facility is secured by 100 percent of the outstanding shares of TIB Bank of the Keys and requires, among other things, that the Bank maintain a minimum Tier 1 capital ratio of 6 percent. SUBORDINATED NOTES PAYABLE The Company entered into an agreement with the Company's largest shareholder effective July 1, 2000, to purchase 525,000 shares of the Company's common stock in exchange for four subordinated notes payable of the Company totalling $5,250,000. The interest rate on the notes payable is 13% per annum, with interest payments required quarterly. The principal balance is payable in full on October 1, 2010, the maturity date of the notes payable. The notes payable can be prepaid by the Company at par any time after July 1, 2003. Subsequent to December 31, 2001, the Company renegotiated the notes payable. The interest rate was reduced to 9%, the option to repay was extended to July 1, 2007, and the maturity date was extended to January 1, 2012. TRUST PREFERRED SECURITIES On September 7, 2000, the Company participated, at an amount of $8,000,000, 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 the trust preferred securities to acquire junior subordinated notes 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. 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 12). On July 31, 2001, the Company participated, at an amount of $5,000,000, 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 the trust preferred securities to acquire junior subordinated notes 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, 2001 is 5.85%. 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. 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 12). 52 TIB FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. INCOME TAXES The following are the components of income tax expense as provided:
Years ended December 31, 2001 2000 1999 ----------- ----------- ----------- Current income tax provision Federal $ 2,125,299 $ 2,199,293 $ 2,075,781 State 228,300 372,580 288,287 ----------- ----------- ----------- 2,353,599 2,571,873 2,364,068 Deferred federal and state income tax benefit (323,399) (109,173) (65,268) ----------- ----------- ----------- $ 2,030,200 $ 2,462,700 $ 2,298,800 =========== =========== ===========
A reconciliation of income tax computed at the Federal statutory income tax rate to total income taxes is as follows:
Years ended December 31, 2001 2000 1999 ----------- ----------- ----------- Pretax income $ 5,924,540 $ 6,684,996 $ 6,417,561 =========== =========== =========== Income taxes computed at Federal statutory tax rate $ 2,014,300 $ 2,272,900 $ 2,182,000 Increase (decrease) resulting from: Tax-exempt income (208,700) (113,500) (117,600) State income taxes 150,700 245,900 199,900 Other, net 73,900 57,400 34,500 ----------- ----------- ----------- $ 2,030,200 $ 2,462,700 $ 2,298,800 =========== =========== ===========
The following summarizes the tax effects of temporary differences which comprise the net deferred tax asset:
December 31, 2001 2000 ----------- ----------- Allowance for loan losses $ 1,282,521 $ 1,084,598 Organization costs -- 7,088 Core deposit intangible 101,234 24,657 Goodwill 9,095 19,278 Deferred compensation 72,666 -- Other 28,129 -- ----------- ----------- Total gross deferred tax assets 1,493,645 1,135,621 ----------- ----------- Sale of option to acquire equity interest in an insurance company (89,236) (100,726) Accumulated depreciation (519,104) (470,789) Gain on building swap (74,813) (77,013) Unrealized gains on securities available for sale (21,900) (88,000) ----------- ----------- Total gross deferred tax liabilities (705,053) (736,528) ----------- ----------- Net deferred tax asset $ 788,592 $ 399,093 =========== ============
53 TIB FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. EMPLOYEE BENEFIT PLANS The Bank maintains an Employee Stock Ownership Plan 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 Bank and participants: basic voluntary contributions which are discretionary contributions made by all participants; a matching contribution, whereby the Bank will match 25 percent of salary reduction contributions up to 4 percent of compensation, not to exceed a maximum contribution of $1,000 per employee; and an additional discretionary contribution made by the Bank allocated to the accounts of participants on the basis of total relative compensation. The Bank contributed $39,000, $213,000 and $181,000 to the plan in 2001, 2000 and 1999, respectively. As of December 31, 2001, the Plan contained approximately 176,000 shares of the Company's common stock. In 2001, the Bank entered into salary continuation agreements with its three executive officers. In 2001, the Bank expensed $123,707 for the accrual of future salary continuation benefits. The Bank has elected to fund the salary continuation liability with single premium life insurance policies. In 2001, cash value income (net of related insurance premium expense) totaled $156,100. As of December 31, 2001, the accompanying balance sheet included $3,021,100 in surrender value and other liabilities included salary continuation benefits payable of $123,707. In 2001, the Bank established a non qualified retirement benefit plan for eligible Bank directors. In 2001, the Bank expensed $70,275 for the accrual of current and future retirement benefits, which included $60,000 related to the annual director retainer fees that certain directors elected to defer. The Bank has elected to fund the nonqualified plan with single premium split dollar life insurance polices. In 2001, cash value income (net of related insurance premium expense) totaled $121,915. As of December 31, 2001, the accompanying balance sheet included $2,791,915 in surrender value and other liabilities included retirement benefits payable of $69,400. 11. RELATED PARTY TRANSACTIONS As of December 31, 2001 and 2000, the Bank had loans outstanding to certain of its executive officers, directors and their related business interests which aggregated $8,488,876 and $10,143,826, respectively. During 2001, additions to such loans totaled $2,429,563. Loan repayments totaled $4,084,513. Unfunded loan commitments to these individuals and their related business interests totaled $2,752,084 at December 31, 2001. These loans were made in the ordinary course of business with normal credit terms, including interest rates and collateral requirements prevailing at the time for comparable transactions with other borrowers. These individuals and their related interests also maintain customary demand and time deposit accounts with the Bank. In July 2000, the Company purchased 525,000 shares of common stock from the Company's largest shareholder (see Notes 8 and 14). In October 2000, the Company purchased Keys Insurance Agency of Monroe County, Inc. from a Company director (see Note 1). The Company leases office space in a building owned by a company director. Annual rental expense is $37,410 under the lease (see Note 5). 12. STOCKHOLDERS' EQUITY The Company and the Bank are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements result in certain discretionary actions by regulators that could have an effect on the Company's operations. The regulations require the Company and the Bank 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. 54 TIB FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2001, the most recent notification from the Federal Deposit Insurance Corporation and the Federal Reserve Board categorized the Bank and the Company, respectively, as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since those notifications that management believes has changed the Company's or the Bank's category. To be considered well capitalized and adequately capitalized (as defined) under the regulatory framework for prompt corrective action, the Company and Bank must maintain minimum Tier 1 leverage, Tier 1 risk-based, and total risk-based ratios as set forth in the following tables. The actual capital amounts and ratios are also presented in the following tables. (in thousands, except percentages)
ADEQUATELY WELL CAPITALIZED CAPITALIZED DECEMBER 31, 2001 REQUIREMENT REQUIREMENT ACTUAL ------------------------- -------------------- --------------------- AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO ----------------- ------ ------------ ------ ------- --------- TIER 1 CAPITAL (TO AVERAGE ASSETS) CONSOLIDATED =>$23,838 =>5.0% $19,070 4.0% $33,786 7.1% BANK 23,749 =>5.0% 18,999 4.0% 40,589 8.5% TIER 1 CAPITAL (TO RISK WEIGHTED ASSETS) CONSOLIDATED =>$24,019 =>6.0% $16,013 4.0% $33,786 8.4% BANK 23,962 =>6.0% 15,974 4.0% 40,589 10.2% TOTAL CAPITAL (TO RISK WEIGHTED ASSETS) CONSOLIDATED =>$40,032 =>10.0% $32,026 8.0% $46,285 11.6% BANK 39,936 =>10.0% 31,949 8.0% 44,383 11.1% Adequately Well Capitalized Capitalized December 31, 2000 Requirement Requirement Actual ---------------------------- ---------------------- --------------------- Amount Ratio Amount Ratio Amount Ratio ---------------- ----- ------------- ----- --------- ------ Tier 1 Capital (to Average Assets) Consolidated =>$20,472 => 5.0% $16,378 4.0% $29,110 7.1% Bank => 20,406 => 5.0% 16,324 4.0% 33,339 8.2% Tier 1 Capital (to Risk Weighted Assets) Consolidated =>$19,318 => 6.0% $12,878 4.0% $29,110 9.0% Bank => 19,215 => 6.0% 12,810 4.0% 33,339 10.4% Total Capital (to Risk Weighted Assets) Consolidated =>$32,196 =>10.0% $25,757 8.0% $37,628 11.7% Bank => 32,025 =>10.0% 25,620 8.0% 36,607 11.4%
Management believes, as of December 31, 2001, that the Company and the Bank meet all capital requirements to which it is subject. Under state banking law, regulatory approval will be required if the total of all dividends declared in any calendar year by the Bank exceeds the Bank's net profits to date for that year combined with its retained net profits for the preceding two years. Retained earnings of the Bank available for payment of dividends to the Company without prior regulatory approval at December 31, 2001, is approximately $7,143,000. 55 TIB FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS STOCK OPTION PLAN Under the Bank's 1994 Incentive Stock Option and Nonstatutory Stock Option Plan ("the Plan") as amended and restated as of August 31, 1996, 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 Board of Directors of the Company 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 common stock of the Company that may be optioned or sold is 978,000 shares. Such shares may be treasury, or authorized but unissued, shares of common stock of the Company. If options granted under the Plan expire or terminate for any reason without having been exercised in full, the shares not purchased shall again be available for option for the purposes of the Plan. The exercise price for common stock under each nonqualified stock option must equal 100 percent of the fair market value of the stock at the time the option is granted. The exercise price for stock under each incentive stock option shall not be less than 100 percent of the fair market value of the stock at the time the 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 until 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. The Company applies APB 25 and related Interpretations in accounting for its stock-based compensation plan. Accordingly, no compensation cost has been recognized. Had compensation cost for the Company's stock-based compensation plan been determined based on the fair value at the grant dates for awards under the plan consistent with the method of SFAS 123, the Company's net income and earnings per share would have been the pro forma amounts indicated as follows:
Years ended December 31, 2001 2000 1999 ---------------------------- ------------- ------------- ------------- Net income As reported $ 3,894,340 $ 4,222,296 $ 4,118,761 Pro forma 3,660,525 4,155,918 4,046,650 Basic earnings per common share As reported $ .99 $ 1.02 $ .94 Pro forma .93 1.00 .92 Diluted earnings per common share As reported $ .95 $ .99 $ .91 Pro forma .89 .97 .89
56 TIB FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The fair value of each option is estimated as of the date of grant using the Black-Scholes Option Pricing Model and the following weighted average assumptions for options granted in the years ended December 31,:
2001 2000 1999 ------------- ------------ ------------- Dividend yield 3.5% 4.2% 3.9% Risk-free interest rate 4.9% TO 5.4% 5.6% to 5.8% 4.7% to 6.0% Expected lives 9 YEARS 9 years 9 years Volatility .44 .40 .38
A summary of the status of the Company's fixed stock option plan as of and for the three years ended December 31, 2001, is presented below:
Weighted Exercise Price Average Shares Range Exercise Price --------- ------------------- ----------------- BALANCE, December 31, 1998 611,085 $ 5.49 - $14.50 $ 8.15 Granted 23,000 10.75 - 11.25 11.03 Exercised (23,675) 5.49 - 9.00 5.67 Expired (18,000) 5.49 - 13.63 9.90 -------- ------------------- ------- BALANCE, December 31, 1999 592,410 5.49 - 14.50 8.31 Granted 46,500 10.50 - 10.50 10.50 Exercised (15,810) 5.49 - 9.00 5.89 Expired (18,550) 9.00 - 13.50 10.31 -------- ------------------- ------- BALANCE, December 31, 2000 604,550 5.49 - 14.50 8.48 Granted 59,002 10.13 - 13.55 13.29 Exercised (38,050) 5.49 - 11.25 5.83 Expired (40,100) 8.33 - 13.55 11.14 -------- ------------------- ------- BALANCE, December 31, 2001 585,402 $ 5.49 - $14.50 $ 8.96 ======== =================== ======= Options exercisable at December 31, 2001 345,802 Options exercisable at December 31, 2000 280,550 Options exercisable at December 31, 1999 247,760 Weighted average fair value of options granted during 2001 $ 5.19 Weighted average fair value of options granted during 2000 $ 3.51 Weighted average fair value of options granted during 1999 $ 3.66
57 TIB FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes information about fixed stock options outstanding:
DECEMBER 31, 2001 ------------------------------------------------------------------------------------------------------------------------------- Outstanding Options Options Exercisable ----------------------------------------------------------- ------------------------------------- Weighted Average Weighted Weighted Range of Number Remaining Average Number Average Exercise Outstanding at Contractual Exercise Exercisable at Exercise Price December 31, 2001 Life Price December 31, 2001 Price ----------------- ----------------- ------------ --------- ------------------ ---------- $ 5.49 - $5.50 227,600 3.0 $ 5.49 153,800 $ 5.49 - 6.23 30,000 3.6 6.23 30,000 6.23 8.33 - 9.00 84,800 4.5 8.58 50,300 8.56 10.13 - 10.50 48,000 8.9 10.48 4,550 10.50 10.75 - 13.45 48,500 7.5 12.11 18,950 12.71 13.50 - 14.50 146,502 6.8 13.57 88,202 13.57 --------- -------- ------- ----------- ------- 585,402 5.1 $ 8.96 345,802 $ 8.53 ========= ======== ======= =========== =======
DECEMBER 31, 2000 ------------------------------------------------------------------------------------------------------------------------------ Outstanding Options Options Exercisable --------------------------------------------------- ---------------------------------- Weighted Average Weighted Range of Number Remaining Average Average Exercise Outstanding at Contractual Exercise Exercisable at Exercise Price December 31, 2000 Life Price December 31, 2000 Price ------------------ ----------------- ----------- ---------- ----------------- ---------- $5.49 - $ 5.50 262,700 4.0 $ 5.49 165,200 $ 5.49 6.23 30,000 4.6 6.23 30,000 6.23 8.33 - 9.00 102,650 5.5 8.56 42,350 8.58 10.50 46,500 9.9 10.50 -- -- 10.75 - 13.25 41,500 7.8 11.72 6,100 11.97 13.50 - 14.50 121,200 6.8 13.56 36,900 13.61 --------- ----- ------- -------- ------- 604,550 5.6 $ 8.48 280,550 $ 7.25 ========= ==== ======= ======== =======
58 TIB FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 ------------------------------------------------------------------------------------------------------------------------ Outstanding Options Options Exercisable --------------------------------------------------- ------------------------------- Weighted Average Weighted Weighted Range of Number Remaining Average Number Average Exercise Outstanding at Contractual Exercise Exercisable at Exercise Price December 31, 1999 Life Price December 31, 1999 Price -------------------- ------------------ ------------ --------- ----------------- --------- $ 5.49 - $ 5.50 276,710 5.0 $ 5.49 155,510 $ 5.49 6.23 30,000 5.6 6.23 30,000 6.23 8.33 - 9.00 114,200 6.5 8.60 34,400 8.62 10.75 - 13.25 47,500 8.8 11.62 2,450 12.17 13.50 - 14.50 124,000 7.8 13.56 25,400 13.64 -------------- -------- -------- ---------- ------- 592,410 6.2 $ 8.31 247,760 $ 6.92 -------------- -------- -------- ---------- -------
13. COMMITMENTS AND CONTINGENCIES The Bank is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The Bank's exposure to credit loss in the event of nonperformance by the customer on the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amounts of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. At December 31, 2001 and 2000, total commitments to extend credit were approximately $49,349,000 and $30,630,000, respectively, in unfunded loan commitments. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Since most of the letters of credit are expected to expire without being drawn upon, they do not necessarily represent future cash requirements. At December 31, 2001 and 2000, commitments under standby letters of credit aggregated approximately $1,263,000 and $935,000, respectively. In 2001 and 2000, the Bank was not required to perform on a standby letter of credit. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation of the borrower. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, residential real estate and income-producing commercial properties on those commitments for which collateral is deemed necessary. 59 TIB FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 1998, the Parent Company had directly guaranteed to the Bank $3,000,000 of a $6,000,000 loan to Winter Park Insurance Investments, Inc.. In connection with this guarantee, the Parent Company had the option to purchase $3,000,000 of the debt from the Bank and convert such debt to a 50 percent ownership in Winter Park Insurance Investments, Inc. during a 36-month period beginning in October 1998. The loan originally matured in 2001, but has since been modified and extended to July 2006. In November 1999, the Parent Company sold this option to Winter Park Insurance Investments, Inc. and the parent company was released from its guaranty of the loan. The terms of the sale included a $100,000 payment at closing and $300,000 annually at the anniversary date of the sale for each of the subsequent three years, for a total of $1,000,000. For accounting purposes, $312,375 was recognized as income on the sale. 14. STOCK REPURCHASES On December 15, 1998, the Company's Board of Directors voted to repurchase up to 50,000 shares of the Company's stock in 1999. 45,000 of these shares were purchased in 1999 at a cost of $493,684. The remaining 5,000 shares were repurchased in 2000 at a cost of $51,590. In July 2000, the Company purchased 525,000 shares of common stock from the Company's largest shareholder at a cost of $10 per share (see Note 8). 15. SUPPLEMENTAL FINANCIAL DATA Components of other expense in excess of 1 percent of total interest and other income are as follows:
Years ended December 31, 2001 2000 1999 ------------------------- ---------- ---------- ---------- Merchant bank card processing expenses $2,519,241 $2,291,886 $1,691,774 Other merchant charges 523,705 453,929 393,144 Operating supplies 518,128 389,901 425,902 Computer services 1,537,222 1,421,542 1,395,051 Legal and professional fees 734,851 587,267 482,802 Marketing and community relations 779,572 564,520 458,026 Postage, courier, and armored car 515,920 456,426 420,963
60 TIB FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 16. FAIR VALUES OF FINANCIAL INSTRUMENTS The estimated fair values of the Company's financial instruments are as follows:
2001 2000 ---------------------------------- --------------------------------- December 31, CARRYING ESTIMATED Carrying Estimated VALUE FAIR VALUE Value Fair Value ------------ ------------ ------------ ------------ Financial assets: Cash and cash equivalents $ 21,270,000 $ 21,270,000 $ 23,565,000 $ 23,565,000 Investment securities held to maturity 18,506,000 18,808,000 34,454,000 33,793,000 Investment securities available for sale 35,474,000 35,474,000 34,754,000 34,754,000 Loans 375,153,000 378,420,000 311,818,000 311,342,000 Financial liabilities: Noncontractual deposits $283,985,000 $283,985,000 $245,887,000 $245,887,000 Contractual deposits 131,751,000 134,128,000 146,540,000 147,434,000 Federal Home Loan Bank Advances 25,000,000 25,000,000 -- -- Short-term borrowings 734,000 734,000 1,042,000 1,042,000 Notes payable 5,250,000 5,315,000 5,250,000 5,349,000 Trust preferred securities 13,000,000 13,100,000 8,000,000 8,134,000 Off-balance-sheet instruments: Undisbursed credit lines N/A $ 49,349,000 n/a $ 30,630,000 Standby letters of credit N/A 1,263,000 n/a 935,000
17. SEGMENT REPORTING TIB Financial Corp. has four reportable segments: community banking, merchant bank card processing, insurance sales 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 bank card processing segment processes credit card transactions for local merchants. The insurance agency offers a full line of commercial and residential coverage as well as life, health and annuities. The government guaranteed loan segment originates and sells the guaranteed portion of loans that qualify for such guarantees, such as those offered by the Small Business Administration and the U.S. Department of Agricultural Rural Development Business and Industry Program. The accounting policies of the segments are the same as those described in the Summary of Significant Accounting Policies. The Company evaluates performance based on profit or loss from operations before income taxes. The Company's reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different marketing strategies. 61 TIB FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Government Guaranteed Year ended Community Merchant Loan Sales Insurance All December 31, 2001 Banking Bankcard and Servicing Agency Sales Other Total ----------------- ------------- ----------- ------------- ------------ ----------- ------------- Interest income $ 33,655,796 $ -- $ -- $ -- $ 61,682 $ 33,717,478 Interest expense (14,096,439) -- -- -- (1,700,964) (15,797,403) ------------- ----------- --------- ----------- ----------- ------------- Net interest income 19,559,357 -- -- -- (1,639,282) 17,920,075 Other income 4,852,406 4,009,664 206,432 1,458,299 997,593 11,524,394 Equity in income (loss), net of goodwill amortization, from investment in ERAS Joint Venture -- -- -- -- (235,490) (235,490) Depreciation and amortization (1,676,525) (42,158) (30,790) (166,061) (4,989) (1,920,523) Other expense (15,847,881) (3,405,858) (282,630) (1,365,018) (462,529) (21,363,916) ------------- ----------- --------- ----------- ----------- ------------- Pretax segment profit $ 6,887,357 $ 561,648 $(106,988) $ (72,780) $(1,344,697) $ 5,924,540 ============= =========== ========= =========== =========== ============= Segment assets $ 490,644,124 $ 85,231 $ 166,297 $ 2,285,331 $ 811,262 $ 493,992,245 ============= =========== ========= =========== =========== ============= Government Guaranteed Year ended Community Merchant Loan Sales Insurance All December 31, 2000 Banking Bankcard and Servicing Agency Sales Other Total ------------------ ------------- ----------- ------------- ------------ ----------- ------------- Interest income $ 32,099,739 $ -- $ -- $ -- $ 89,784 $ 32,189,523 Interest expense (14,140,169) -- -- -- (635,175) (14,775,344) ------------- ----------- --------- ----------- ----------- ------------- Net interest income 17,959,570 -- -- -- (545,391) 17,414,179 Other income 3,102,276 3,690,789 386,212 153,639 272,358 7,605,274 Equity in income, net of goodwill amortization, from investment in ERAS Joint Venture -- -- -- -- 32,300 32,300 Depreciation and amortization (1,305,042) (53,982) (30,441) (29,655) (4,052) (1,423,172) Other expense (12,826,376) (3,128,707) (262,482) (174,890) (551,130) (16,943,585) ------------- ----------- --------- ----------- ----------- ------------- Pretax segment profit $ 6,930,428 $ 508,100 $ 93,289 $ (50,906) $ (795,915) $ 6,684,996 ============= =========== ========= =========== =========== ============= Segment assets $ 434,790,214 $ 96,527 $ 193,032 $ 2,387,937 $ 1,852,435 $ 439,320,145 ============= =========== ========= =========== =========== =============
62 TIB FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Government Guaranteed Year ended Community Merchant Loan Sales All December 31, 1999 Banking Bankcard and Servicing Other Total ------------- ----------- ------------- ---------- ------------- Interest income $ 27,888,101 -- $ -- $ 17,358 $ 27,905,459 Interest expense (11,262,333) -- -- (36,555) (11,298,888) ------------- ----------- --------- ----------- ------------- Net interest income 16,625,768 -- -- (19,197) 16,606,571 Other income 2,807,535 2,827,876 809,988 542,867 6,988,266 Equity in income, net of goodwill amortization, from Investment in ERAS Joint Venture -- -- -- 179,008 179,008 Depreciation and amortization (1,319,400) (53,467) (15,056) (2,741) (1,390,664) Other expense (12,715,652) (2,366,535) (398,299) (409,787) (15,890,273) ------------- ----------- --------- ----------- ------------- Pretax segment profit excluding effect of change in accounting principle) $ 5,398,251 $ 407,874 $ 396,633 $ 290,150 $ 6,492,908 ============= =========== ========= ============ ------------- Segment assets $ 389,967,920 $ 129,416 $ 223,472 $ 1,808,523 $ 392,129,331 ============= =========== ========= ============ -------------
63 TIB FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 18. CONDENSED FINANCIAL INFORMATION OF TIB FINANCIAL CORP. CONDENSED BALANCE SHEETS (Parent Only)
December 31, 2001 2000 --------------- ----------- ----------- ASSETS Cash on deposit with subsidiary $ 2,027,432 $ 190,082 Dividends and other receivables from subsidiaries 9,886 526,076 Investment in bank subsidiary 43,010,282 36,270,320 Investment in TIB Software & Services, Inc. 264,826 922,096 Investment in TIBFL Statutory Trust I 248,000 248,000 Investment in TIBFL Statutory Trust II 155,000 -- Investment in Keys Insurance Agency, Inc. 2,172,568 2,274,954 Note receivable 264,317 497,196 Interest receivable 6,550 12,321 Income tax receivable -- 28,083 Other assets 473,861 353,947 ----------- ----------- TOTAL ASSETS $48,632,722 $41,323,075 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Dividends payable $ 424,206 $ 419,509 Interest payable 503,211 451,274 Due to subsidiaries 150,369 294,000 Notes payable 18,653,000 13,498,000 Deferred tax liability 89,236 93,638 Income tax payable 140,187 -- Other liabilities 421 330,000 ----------- ----------- Total liabilities 19,960,630 15,086,421 ----------- ----------- STOCKHOLDERS' EQUITY Common stock 394,610 390,241 Surplus 8,221,937 7,886,047 Retained earnings 20,019,145 17,815,366 Market valuation reserve on investment securities available for sale 36,400 145,000 ----------- ----------- Total stockholders' equity 28,672,092 26,236,654 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $48,632,722 $41,323,075 =========== ===========
TIB FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 18. CONDENSED FINANCIAL INFORMATION OF TIB FINANCIAL CORP. (CONTINUED) CONDENSED STATEMENTS OF INCOME (Parent Only)
Years ended December 31, 2001 2000 1999 ------------------------ ---------- ---------- ---------- OPERATING INCOME Dividend from bank subsidiary $1,924,122 $4,505,740 $1,464,606 Dividend from TIBFL Statutory Trust I 26,288 8,325 -- Dividend from TIBFL Statutory Trust II 4,449 -- -- Dividend from TIB Software & Services, Inc. 511,526 -- -- Gain on sale of insurance company option - -- 312,375 Interest income on note receivable 61,682 89,784 17,358 ---------- ---------- ---------- Total operating income 2,528,067 4,603,849 1,794,339 ---------- ---------- ---------- OPERATING EXPENSE Interest expense 1,731,701 643,500 36,555 Other expense 259,617 274,641 251,763 ---------- ---------- ---------- Total operating expense 1,991,318 918,141 288,318 Income before income tax benefit (expense) and equity in undistributed earnings (loss) of subsidiaries 536,749 3,685,708 1,506,021 Income tax benefit (expense) 701,300 295,300 (28,740) ---------- ---------- ---------- Income before equity in undistributed earnings (losses) of subsidiaries 1,238,049 3,981,008 1,477,281 Equity in undistributed earnings of bank subsidiary 2,848,561 252,893 2,576,879 Equity in undistributed loss of Keys Insurance Agency, Inc. (45,380) (31,750) -- Equity in undistributed earnings (loss) of TIB Software & Services, Inc. (146,890) 20,145 111,648 ---------- ---------- ---------- NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 3,894,340 4,222,296 4,165,808 Cumulative effect of change in accounting principle for deferred organization costs, net of tax benefit of $28,300 - -- (47,047) ---------- ---------- ---------- NET INCOME $3,894,340 $4,222,296 $4,118,761 ========== ========== ==========
TIB FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 18. CONDENSED FINANCIAL INFORMATION OF TIB FINANCIAL CORP. (CONTINUED) CONDENSED STATEMENTS OF CASH FLOWS (Parent Only)
Years ended December 31 2001 2000 1999 ------------ ----------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 3,894,340 $ 4,222,296 $ 4,118,761 Cumulative effect of change in accounting principle -- -- 75,347 Equity in undistributed earnings of bank subsidiary (2,848,561) (252,893) (2,576,879) Equity in undistributed (earnings) loss of TIB Software & Services, Inc. 146,890 (20,145) (111,648) Equity in loss of Keys Insurance Agency, Inc. 45,380 31,750 -- Payment on note receivable from sale of option 300,000 300,000 100,000 Gain on sale of insurance company option -- -- (312,375) Amortization of intangibles and other assets 52,652 43,908 38,803 Increase in other assets (63,101) (91,769) (17,372) Decrease in due to subsidiaries (143,631) (147,000) (49,000) Increase in interest payable 51,937 451,274 -- Increase in other liabilities 421 -- -- Deferred income taxes (4,402) 11,696 81,942 Increase (decrease) in net income tax obligation 218,662 89,539 (42,442) ------------ ----------- -------------- Net cash provided by operating activities 1,650,587 4,638,656 1,305,137 ------------ ----------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES Net (increase) decrease in receivables from subsidiaries 516,190 27,734 (103,382) Investment in bank subsidiary (4,000,000) (8,008,000) -- Investment in insurance subsidiary -- (50,000) -- Purchase of Keys Insurance Agency of Monroe County, Inc. (see below) -- (1,706,705) -- Investment in Keys Insurance Agency, Inc. to purchase BonData Group Limited, Inc. (204,750) -- -- Investment in TIBFL Statutory Trust I -- (248,000) -- Investment in TIBFL Statutory Trust II (155,000) -- -- Return of capital from TIB Software & Services, Inc. 510,380 -- -- ------------ ----------- -------------- Net cash used in investing activities (3,333,180) (9,984,971) (103,382) ------------ ----------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from exercise of stock options 221,623 93,138 143,279 Cash dividends paid (1,685,864) (1,792,998) (1,801,623) Treasury stock repurchased -- (51,590) (493,684) Compensation paid through issuance of common stock -- -- 183,337 Advances on line of credit -- -- 659,625 Repayment of line of credit -- (659,625) -- Proceeds from issuance of long-term debt 5,155,000 8,248,000 -- Debt issuance costs (170,816) (301,858) (9,625) ------------ ----------- -------------- Net cash provided (used) by financing activities 3,519,943 5,535,067 (1,318,691) ------------ ----------- -------------- NET (DECREASE) INCREASE IN CASH 1,837,350 188,752 (116,936) CASH, BEGINNING OF YEAR 190,082 1,330 118,266 ------------ ----------- -------------- CASH, END OF YEAR $ 2,027,432 $ 190,082 $ 1,330 ============ =========== ==============
66 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information set forth under the caption "Election of Directors", "Management", and "Filings Under Section 16(A) Beneficial Ownership Reporting Compliance" in the Proxy Statement to be utilized in connection with the Company's 2002 Annual Shareholders Meeting is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information contained under the caption "Compensation of Executive Officers and Directors" in the Proxy Statement to be utilized in connection with the Company's 2002 Annual Shareholders Meeting is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information contained under the caption "Principal Shareholders" in the Proxy Statement to be utilized in connection with the Company's 2002 Annual Shareholders Meeting is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information contained under the caption "Certain Relationships and Related Transactions" in the Proxy Statement to be utilized in connection with the Company's 2002 Annual Shareholders Meeting is incorporated herein by reference. 67 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A) 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* Articles of Incorporation 3.2* Bylaws 4.1* Specimen Stock Certificate 10.1* Employment Contract between Edward V. Lett and TIB Bank of the Keys ** 10.2* 401(K) Savings and Employee Stock Ownership Plan ** 10.3* Employee Incentive Stock Option Plan ** 10.4* Employment Contract between Millard J. Younkers, Jr. and TIB Bank of the Keys ** 10.5* Employment Contract between Edward V. Lett and TIB Bank of the Keys (as amended September 24, 1996) ** 10.6 Form of Director Deferred Fee Agreement** 10.7 Form of Director Split Dollar Agreement** 10.8 Form of Salary Continuation Agreement** 10.9 Form of Executive Officer Split Dollar Agreement** 21.1 Subsidiaries of the Company 23.1 Consent of BDO Seidman, LLP * Items 3.1 through 4.1, and 10.1 through 10.5, as listed above, were previously filed by the Company as Exhibits (with the same respective Exhibit Number as indicated herein) to the Company's Registration Statements (Registration Nos. 333-03499 and 333-24101) and such documents are incorporated herein by reference. ** Represents a management contract or a compensation plan or arrangement required to be filed as an exhibit. (B) REPORTS ON FORM 8-K The Company did not file any current reports on Form 8-K during the fourth quarter of 2001. 68 SIGNATURES 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 26, 2002. TIB FINANCIAL CORP. By: /s/ Edward V. Lett ---------------------------------- Edward V. Lett President, CEO, & 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 26, 2002.
SIGNATURE TITLE --------- ----- /s/ Edward V. Lett President (Principal Executive ------------------------------ Officer), CEO and Director Edward V. Lett /s/ Armando J. Henriquez Director ----------------------------- Dr. Armando J. Henriquez /s/ Gretchen K. Holland Director ----------------------------- Gretchen K. Holland /s/ James R. Lawson Director ----------------------------- James R. Lawson /s/ Thomas J. Longe Director ----------------------------- Thomas J. Longe /s/ Scott A. Marr Director ----------------------------- Scott A. Marr /s/ Derek D. Martin-Vegue Director ----------------------------- Derek D. Martin-Vegue /s/ Joseph H. Roth, Jr. Director ----------------------------- Joseph H. Roth, Jr.
69 /s/ Marvin F. Schindler Director ----------------------------- Marvin F. Schindler /s/ Millard J. Younkers, Jr. Director ----------------------------- Millard J. Younkers, Jr. /s/ Robert A. Zolten Director ----------------------------- Robert A. Zolten /s/ David P. Johnson Chief Financial and Accounting Officer ----------------------------- David P. Johnson
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