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 ended
December 31, 20052007
 
Commission file number
000-21329
TIB FINANCIAL CORP.

TIB FINANCIAL CORP.
(Exact Name of Registrant as Specified in Its Charter)

(Exact Name of Registrant as Specified in Its Charter )
Florida
(State of Incorporation)
 
65-0655973
(I.R.S. Employer
Identification No.)
599 9th Street North
Suite 101
Naples, Florida
(Address of Principal Executive Offices)
 
34102
(Zip Code)
   
(239) 263-3344
(Registrant’s telephone number)

Securities Registered pursuant to Section 12(b) of the Act: Common stock, par value $0.10
Securities Registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨ Yes or þ No
Check if the issuer is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨
Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes or ¨ No
Check if there is no disclosure of delinquent filers pursuant to Item 405 of Regulation S-K contained in this form, and will not be contained, to the best of issuer’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨
Accelerated filer þ
Non-accelerated filer ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes or þ No
The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2007 was approximately $164,753,000 based on the $12.85 per share closing price on June 29, 2007.
The number of shares outstanding of issuer’s class of common stock at February 29, 2008 was 12,787,649 shares of common stock.
Documents Incorporated By Reference: Portions of the Proxy Statement for the 2008 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within 120 days of the Registrant’s 2007 fiscal year end are incorporated by reference into Parts II and III of this report.
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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨ Yes or þ No

Check if the issuer is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨

Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes or ¨ No

Check if there is no disclosure of delinquent filers pursuant to Item 405 of Regulation S-K contained in this form, and will not be contained, to the best of issuer’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. Large accelerated filer ¨ Accelerated filer þ Non-accelerated filer ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes or þ No

The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2005 was approximately $153,946,000 based on the $26.95 per share closing price on June 30, 2005.

The number of shares outstanding of issuer’s class of common stock at February 28, 2006 was 5,825,548 shares of common stock.

Documents Incorporated By Reference: Portions of the Proxy Statement for the 2006 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within 120 days of the Registrant’s 2005 fiscal year end are incorporated by reference into Parts II and III of this report.






TABLE OF CONTENTS

 
PART I
Page
1
10
12
ITEM 1B19
ITEM 220
ITEM 31321
1321
   
 
PART II
 
1421
1523
1725
3750
3851
7493
7493
7594
   
 
PART III
 
76
7695
ITEM 1195
ITEM 127695
7695
7695
   
 
PART IV
 
7796
   
   





CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS

Certain of the matters discussed under the caption "Management's“Management's Discussion and Analysis of Financial Condition and Results of Operations"Operations” and elsewhere in this Annual Report on Form 10-K may constitute "forward-looking statements"“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"“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'sCompany’s market area and elsewhere.  All forward-looking statements attributable to the Company are expressly qualified in their entirety by these cautionary statements.  The Company disclaims any intent or obligation to update these forward-looking statements, whether as a result of new information, future events or otherwise.


PART I


As used in this document, the terms “we,” “us,” “our,” “TIB Financial,” and “Company” mean TIB Financial Corp. and its subsidiaries (unless the context indicates another meaning), and; the terms “Bank” and “TIB Bank”term “Banks” mean TIB Bank (and its subsidiaries) and its subsidiariesThe Bank of Venice (unless the context indicates another meaning).


ITEM 1:  BUSINESS

General
General

We are a financial holding company headquartered in Naples, Florida, whose business is conducted primarily through our wholly-owned subsidiary,subsidiaries, TIB Bank.Bank, The Bank of Venice and Naples Capital Advisors, Inc.  Together we have twenty full-service banking offices in Florida that are located in Monroe, Miami-Dade, Collier, Lee, Highlands, and Sarasota counties.  TIB Bank, which was formed in 1974, serves the Southern Florida market principally Monroe, Collier, Lee and South Miami-Dade Counties, Florida. TIBwhile The Bank is headquartered in Key Largo, Florida. We operate 16 banking offices and 20 ATMs throughout South Florida.of Venice serves the Sarasota County market.  At December 31, 2005,2007, we had approximately $1.08$1.44 billion in total assets, $920.4 million$1.05 billion in total deposits, $882.4 million$1.11 billion in total loans, and shareholders' equity of $77.5 million. TIB Bank's$96.2 million in shareholder’s equity.  The Banks’ deposits are insured by the Federal Deposit Insurance Corporation (FDIC), up to applicable limits.

Through TIB Bank,the Banks, we offer a wide range of commercial and retail banking and financial services to businesses and individuals. Our account services include checking, interest-bearing checking, money market, savings, certificates of deposit and individual retirement accounts. We offer all types of commercial loans, including: owner-operated commercial real estate; acquisition, development and construction; income-producing properties; working capital; inventory and receivable facilities; and equipment loans. We also offer a full complement of consumer loan products including residential real estate, installment loans, home equity, home equity lines, and indirect auto dealer loans. Our lending focus is predominantly on small to medium-sized business and consumer borrowers. Most importantly, we provide our customers with access to local TIB Bank officers who are empowered to act with flexibility to meet customers' needs in an effort to foster and develop long-term loan and deposit relationships.  Through Naples Capital Advisors, Inc., we offer wealth management and advisory services.

We are subject to examination and regulation by the Board of Governors of the Federal Reserve System, the Florida Office of Financial Regulation, and the FDIC. This regulation is intended for the protection of our depositors, not our shareholders.

In October 2000, we purchased Keys Insurance Agency of Monroe County, Inc. Keys Insurance Agency, Inc. (the new name subsequent to the purchase) had three offices in the Florida Keys and one office in Naples and brokered a full line of commercial and residential hazard insurance coverage as well as life and health insurance and annuities. In August 2003, we sold the assets of Keys Insurance Agency, Inc., and exited this line of business. In 2004, we eliminated TIB Government Loan Specialists, Inc. as a subsidiary, but continue to conduct its government-guaranteed loan program through TIB Bank. In December 2004, we sold internally developed intangible assets, primarily comprised of the book of business of our investment center. In December 2005, we sold our merchant bankcard processing segment.



Business Strategy

Our business strategy is to operate as a profitable, diversified financial services company providing a variety of banking and other financial services, with an emphasis on consumer and residential mortgage lending, and commercial business loans to small and medium-sized businesses.businesses and private banking and wealth management. As a result of the consolidation of small and medium-sized financial institutions, we believe there is a significant opportunity for a community-focused bank to provide a full range of financial services to small and middle-market commercial and retail customers. We emphasize comprehensive retail and small business products and responsive, decentralized decision-making which reflects our knowledge of our local markets and customers.

To continue asset growth and profitability, our marketing strategy is targeted to:

·  Provide customers with access to our local executives who make key credit and account decisions;

·  Pursue commercial lending opportunities with small to mid-sized businesses which we believe are underserved by our larger competitors;

·  Continue originating indirect auto dealer loans to diversify our sources of loans and revenue and enhance margins, effectively utilizing our funding sources;net interest margin and generate attractive risk adjusted returns;

·  Cross-sell our products and services to our existing customers to leverage our relationships and enhance profitability; and

·  Adhere to safe and sound credit standards to maintain the continued quality of assets as we implement our growth strategy.


Banking services

Commercial BankingBanking.. TIB Bank focuses its The Banks focus their commercial loan originations on established small and mid-sized businesses, , professionals and professional organizations in itstheir market areas. These loans are usually accompanied by cash management services and deposit relationships. TIB Bank providesThe Banks provide commercial real estate loans to finance the acquisition and development of owner operated properties; acquisition, development and construction of investment properties; builder construction lines of credit; and the purchase of income-producing properties, including office buildings, industrial buildings, self-storage, hotel/motel, medical centers, marinas, retail and shopping centers. TIB Bank offersThe Banks offer a complete range of commercial loan products, including revolving lines of credit for working capital and term loans for the acquisition of equipment, funding property improvements or other business related expenses. Commercial underwriting is driven by cash flow repayment analysis along with the additional support provided by collateral and the principals involved with the loan.

Retail Banking. TIB Bank's retail Retail banking activities emphasize consumer deposit and checking accounts. An extensive range of these services is offered by TIB Bankthe Banks to meet the varied needs of its customers from young persons to senior citizens. In addition to traditional products and services, TIB Bank offersthe Banks offer contemporary products and services, such as debit cards, Internet banking and electronic bill payment services. Consumer loan products offered by TIB Bankthe Banks include home equity lines of credit, second mortgages, new and used auto loans, including indirect loans through auto dealers, new and used boat loans, overdraft protection, and unsecured personal credit lines.

Mortgage BankingBanking.. TIB Bank's The Banks’ mortgage banking business is structured to provide a source of fee income largely from the process of originating productmortgages for sale onin the secondary market (primarily fixed rate loans), as well as the origination of primarily adjustable rate loans to be held in TIB Bank'sthe Banks’ loan portfolio. Mortgage banking capabilities include conventional and nonconforming mortgage underwriting; and construction and permanent financing.


2

Lending activities

Lending activities

Loan Portfolio CompositionComposition.. At December 31, 2005, TIB Bank's2007, the Banks' loan portfolioportfolios totaled $882.4 million,$1.13 billion, representing approximately 82.0%78% of our total assets of $1.08$1.44 billion. For a discussion of our loan portfolio, see "Management's“Management's Discussion of Financial Condition and Results of Operation - Loan Portfolio."

The composition of TIB Bank'sthe Banks’ loan portfolio at December 31, 20052007 and 20042006 is indicated below, along with the growth from the prior year

(Dollars in thousands)  
Total Loans
December 31, 2005
 
 
% of Total Loans
 
 
Total Loans
December 31, 2004
 
 
% of Total Loans
 
 
% Increase (Decrease) from December 31, 2004 to 2005 
Real estate mortgage loans:                
Commercial $451,969  51.2 $351,346  53.7  28.6 
Residential  76,003  8.6  67,204  10.3  13.1 
Farmland  4,660  0.5  4,971  0.8  (6.3)
Construction  125,207  14.2  49,815  7.6  151.3 
Commercial and agricultural loans  80,055  9.1  64,622  9.9  23.9 
Indirect auto dealer loans  118,018  13.4  91,890  14.1  28.4 
Home equity loans  17,232  2.0  13,856  2.1  24.4 
Other consumer loans  9,228  1.0  9,817  1.5  (6.0)
Total $882,372  100 $653,521  100  35.0 
                 

Our non-performing loans as a percentage of gross loans remained consistent at 0.11% at December 31, 2005 and 2004.
(Dollars in thousands) 
Total Loans
December 31, 2007
  % of Total Loans  
Total Loans
December 31, 2006
  % of Total Loans  
% Increase (Decrease) from December 31,
2006 to 2007
 
Real estate mortgage loans:               
Commercial $612,084   54% $546,276   51%  12%
Residential  112,138   10%  82,243   8%  36%
Farmland  11,361   1%  24,210   2%  (53%)
Construction and vacant land  168,595   15%  157,672   15%  7%
Commercial and agricultural loans  72,076   6%  84,905   8%  (15%)
Indirect auto dealer loans  117,439   11%  141,552   13%  (17%)
Home equity loans  21,820   2%  17,199   2%  27%
Other consumer loans  12,154   1%  9,795   1%  24%
Total $1,127,667   100.0% $1,063,852   100.0%  6%
                     

Commercial Real Estate Mortgage LoansLoans.. At December 31, 2005, TIB Bank's2007, the Banks’ commercial real estate loan portfolio totaled $452.0$612.1 million. The BankBanks also has $4.7have $11.4 million in loans outstanding that are secured by farmland. TIB Bank originatesThe Banks originate commercial mortgages secured by office and retail buildings, hotels, bed and breakfast inns, and multi-purpose warehouse buildings. Although terms may vary, TIB Bank'sthe Banks’ commercial mortgages generally are long term in nature, owner-occupied or owner operated, and variable-rate loans. TIB Bank seeksThe Banks seek to reduce the risks associated with commercial mortgage lending by generally lending in itstheir market area and obtaining periodic financial statements and tax returns from borrowers. Commercial real estate loans are underwritten with future cash flows as the primary source of repayment. It is also TIB Bank'sthe Banks’ general policy to obtain personal guarantees from the principals of the borrowers and assignments of all leases related to the collateral.

Commercial LoansLoans.. At December 31, 2005, TIB Bank's2007, the Banks’ commercial loan portfolio totaled $80.1$72.1 million. TIB Bank originatesThe Banks originate secured and unsecured loans for business purposes. Loans are made for acquisition, expansion, and working capital purposes and may be secured by real estate, accounts receivable, inventory, equipment or other assets. The financial condition and cash flow of commercial borrowers are closely monitored by the submission of corporate financial statements, personal financial statements and income tax returns.

Construction LoansLoans.. At December 31, 2005, TIB Bank's2007, the Banks’ construction loan portfolio totaled $125.2$168.6 million. TIB Bank providesThe Banks provide interim real estate acquisition development and construction loans to builders, developers, and persons who will ultimately occupythe owner-occupants of the building. Real estate development and construction loans to provide interim financing on the property are based on acceptable percentages of the appraised value of the property securing the loan in each case. Real estate development and construction loan funds are disbursed periodically at pre-specified stages of completion. Interest rates on these loans are generally adjustable. TIB BankThe Banks carefully monitorsmonitor these loans with on-site inspections and control of disbursements.

Development and construction loans are secured by the properties under development or construction and personal guarantees are typically obtained. Further, to assure that reliance is not placed solely in the value of the underlying property, TIB Bank considersthe Banks consider the market conditions and feasibility of the proposed project, the financial condition and reputation of the borrower and any guarantors, the amount of the borrower’s equity in the project, independent appraisals, costs estimates and pre-construction sale information.

Loans to individuals for the construction of their primary or secondary residences are secured by the property under construction. The loan to value ratio of construction loans is based on the lesser of the cost to construct or the appraised value of the completed home. Construction loans generally have a maturity of 12 months. These construction loans to individuals may be converted to permanent loans upon completion of construction.



Residential Real Estate Mortgage Loans. At December 31, 2005, TIB Bank's2007, the Banks’ residential loan portfolio totaled $76.0$112.1 million. TIB Bank originatesThe Banks originate adjustable and fixed-rate residential mortgage loans. Such mortgage loans are generally originated under terms, conditions and documentation acceptable to the secondary mortgage market. TIB BankThe Banks will place some of these, primarily adjustable rate, loans into itsour portfolio, although the substantial majority of loans originated are sold to investors.

Indirect Auto Dealer Loans. At December 31, 2005,2007, TIB Bank's indirect auto dealer loans portfolio totaled $118.0$117.4 million. TheTIB Bank buys loans that have been originated by automobile dealerships - dealerships—this is commonly referred to as indirect lending.  We predominately buy loans from auto dealers in Southwest Florida and they are for the purchase of new or late model used cars. We serve customers over a broad range of creditworthiness and the required terms and rates are reflective of those risk profiles.

The balance of outstanding indirect loans continueddeclined in 2007 as we reacted to grow quicklylocal economic conditions by implementing more stringent underwriting criteria and reducing the volume of our originations. We expect new production in 2005. However,2008 to be less than loan principal repayments causing the pacetotal amount of growth began to normalize asindirect loans held in the portfolio began to mature and payoffs and paydowns have become more significant. Sincedecline during the expected life of these loans is approximately two years, we believe the level of outstanding indirect loans has leveled off and we therefore expect that indirect loans will remain below 15% of total loans outstanding.year.

We anticipate being ablestrive to deliver strong resultsattractive risk adjusted returns while maintaining credit quality in our indirect lending operations due to a combination of factors including:

·  Business with a limited number of dealers - The dealerships we do business with are characterized by being very sound financially and trade predominately in vehicles which retain market value reasonably well over time. We continually monitor dealers for compliance with our lending guidelines. We endeavor to be one of the main buyers of loans from every dealer we do business with which allows us to have a cooperative relationship with that dealer.

·  Thorough underwriting of applicants - We evaluate credit scores and other pertinent information such as the stability of the applicant's job, home ownership, and the nature of any credit issues which may give us a better indication of creditworthiness than just the credit score.

·  Effective collections - We get to customers quickly and more often as payment issues arise. We begin contacting the customer once their payment is 10 days past due. After an account is 15 days past due, it is referred to a collection company for resolution including field contacts as necessary.

·  Sale of repossessed automobiles at retail prices - We sell most of the repossessed automobiles we acquire on a retail less commission basis instead of wholesale through auctions. We are able to do this because we have an established relationship with a dealer who sells the automobiles for us. This has helped reduce our loss per vehicle.

Other Consumer Loans and Home Equity Loans. At December 31, 2005, TIB Bank's2007, the Banks’ consumer loan portfolioportfolios totaled $9.2$12.2 million, and itstheir home equity portfolioportfolios totaled $17.2$21.8 million. TlB Bank offersThe Banks offer a variety of consumer loans. These loans are typically secured by residential real estate or personal property, including automobiles and boats. Home equity loans (closed-end and lines of credit) are typically made up to 85% of the appraised value of the property securing the loan, in each case, less the amount of any existing liens on the property. Closed-end loans have terms of up to 15 years. Lines of credit have an original maturity of 10 years. The interest rates on closed-end home equity loans are fixed, while interest rates on home equity lines of credit are variable.
Credit administration

Credit administration

TIB Bank'sThe Banks’ lending activities are governed by written policies approved by the boardtheir boards of directors to ensure proper management of credit risk. Loans are subject to a defined credit process that includes repayment analysis of the borrower, risk-rating of credits, establishment of lending limits and application of lending procedures, including the holding of adequate collateral and the maintenance of compensating balances, as well as procedures for on-going identification and management of credit deterioration. Regular portfolio reviews are performed to identify potential underperforming credits, estimate loss exposure, and to ascertain compliance with TIB Bank'sthe Banks’ policies. Management review consists of evaluation of the financial strengths of the borrower and the guarantor, the related collateral and the effects of economic conditions.

TIB BankThe Banks generally doesdo not make commercial or consumer loans outside itstheir market areaareas unless the borrower has an established relationship with TIB Bankone of the Banks and conducts its principal business operations within TIB Bank'sthe Banks’ market area.areas. Consequently, TIB Bankthe Banks and itstheir borrowers are affected by the economic conditions prevailing in itstheir market area.areas.

Private Banking and Wealth Management

On January 2, 2008, the Company acquired Naples Capital Advisors, Inc. of Naples, Florida. The investment management company, which has $80 million in assets under advisement from area families and high net worth individuals, became a wholly-owned subsidiary. This acquisition spearheads our entry into a new business line offering private banking, wealth management and trust services throughout our market areas. The Company has applied for trust powers which are expected to be granted by the State of Florida Office of Financial Regulation by mid-summer, 2008.



Merchant Bankcard Processing

Through December 30, 2005, theTIB Bank processed credit card transactions for merchants primarily in the Florida Keys. As a vacation destination, merchants in the Florida Keys typically generate a high volume of credit card transactions. The Bank competed for merchant bankcard processing business primarily on the basis of customer service. In the typical merchant bankcard transaction, the Bank would pay the merchant the amount of the charge less a negotiated fee. In order to obtain payment of the charge from the issuing bank or its processor, the Bank had to pay interchange fees, which were deducted from the payment and reflected as a part of merchant bankcard processing expenses. As a merchant bankcard processor, the Bank bore the risk of loss if a credit card customer disputed a charge and the Bank could not recover from the merchant. TheTIB Bank sold the merchant bankcard processing segment to NOVA Information Systems on December 30, 2005. Subsequent to the sale, all historical operating results are reflected as discontinued operations in the accompanying financial statements.


Investment and insurance activities

Through December 15, 2004, TIB Bank engaged through a wholly-owned subsidiary, TIB Investment Center, Inc., in the retail sale of non-deposit investment products such as variable and fixed rate annuities, mutual funds and other products. On December 15, 2004, the Company closed the sale of certain intangible assets which primarily comprised the book of business which served as the foundation of the investment center operations.


Employees

As of December 31, 2005,2007, the BankBanks employed 332337 full-time employees and 1213 part-time employees. Except for certain officers of the BankBanks 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 itstheir employees.


Related Party Transactions

At December 31, 2005,2007, we had $882.4 million$1.13 billion in total loans outstanding, of which $862,000$679,000 was outstanding to certain of our executive officers directors, and security holders who own more than 10% of our voting securities,directors and their related business interests. In the ordinary course of business, TIB Bank makesthe Banks make loans to our directors and their affiliates and to policy-making officers, all of which are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions and do not involve more than the normal risk of collectibility.


5

SUPERVISION AND REGULATION

General

We are extensively regulated under federal and state law. Generally, these laws and regulations are intended to protect depositors, not shareholders. The following is a summary description of certain provisions of certain laws that affect the regulation of bank holding companies and banks. The discussion is qualified in its entirety by reference to applicable laws and regulations. Changes in such laws and regulations may have a material effect on our business and prospects, as well as those of TIB Bank.the Banks.


Federal Bank Holding Company Regulation and Structure

We are a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended, and, as such, we are subject to regulation, supervision, and examination by the Federal Reserve. We are required to file annual and quarterly reports with the Federal Reserve and to provide the Federal Reserve with such additional information as it may require. The Federal Reserve may examine us and our subsidiaries.


With certain limited exceptions, we are required to obtain prior approval from the Federal Reserve before acquiring direct or indirect ownership or control of more than 5% of any voting securities or substantially all of the assets of a bank or bank holding company, or before merging or consolidating with another bank holding company. In acting on applications for such approval, the Federal Reserve must consider various statutory factors, including among others, the effect of the proposed transaction on competition in the relevant geographical and product markets, each party’s financial condition and management resources and record of performance under the Community Reinvestment Act.  Additionally, with certain exceptions, any person proposing to acquire control through direct or indirect ownership of 25% or more of any of our voting securities is required to give 60 days’ written notice of the acquisition to the Federal Reserve, which may prohibit the transaction, and to publish notice to the public.

Generally, a bank holding company may not engage in any activities other than banking, managing or controlling its bank and other authorized subsidiaries, and providing services to these subsidiaries. With prior approval of the Federal Reserve, we may acquire more than 5% of the assets or outstanding shares of a company engaging in nonbanknon-bank activities determined by the Federal Reserve to be closely related to the business of banking or of managing or controlling banks. In recent years, changes in law have significantly increased the right of an eligible bank holding company, called a “financial holding company,” to engage in a full range of financial activities, including insurance and securities activities, as well as merchant banking and other financial services.  We are a financial holding company and thus have expanded financial affiliation opportunities as long as TIB Bank remains athe Banks remain well-capitalized bank under the standards discussed below, and also meetsmeet certain other requirements.  As of December 31, 2005, TIB Bank2007, the Banks met these requirements for our continued qualification as a financial holding company.

Subsidiary banks of a bank holding company are subject to certain quantitative and qualitative restrictions on extensions of credit to the bank holding company or its subsidiaries, investments in their securities, and the use of their securities as collateral for loans to any borrower. These regulations and restrictions may limit our ability to obtain funds from TIB Bankthe Banks for our cash needs, including funds for the payment of dividends, interest and operating expenses. Further, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, lease or sale of property or furnishing of services. For example, TIB Bankthe Banks may not generally require a customer to obtain other services from itselfthemselves or us, and may not require that a customer promise not to obtain other services from a competitor as a condition to and extension of credit to the customer. The Federal Reserve has ended the anti-tying rules for bank holding companies and their non-banking subsidiaries. Such rules were retained for banks.

Under Federal Reserve policy, a bank holding company is expected to act as a source of financial strength to its subsidiary banks and to make capital injections into a troubled subsidiary bank, and the Federal Reserve may charge the bank holding company with engaging in unsafe and unsound practices for failure to commit resources to a subsidiary bank when required. A required capital injection may be called for at a time when the holding company does not have the resources to provide it. In addition, depository institutions insured by the FDIC can be held liable for any losses incurred by, or reasonably anticipated to be incurred by, the FDIC in connection with the default of, or assistance provided to, a commonly controlled FDIC-insured depository institution.


6

Federal and State Bank Regulation

TIB Bank is aThe Banks are Florida state-chartered bank,banks, with all the powers of a commercial bank regulated and examined by the Florida Office of Financial Regulation and the FDIC. The FDIC has extensive enforcement authority over the institutions it regulates to prohibit or correct activities that violate law, regulation or written agreement with the FDIC. Enforcement powers also regulate activities that are deemed to constitute unsafe or unsound practices. Enforcement actions may include the appointment of a conservator or receiver, the issuance of a cease and desist order, the termination of deposit insurance, the imposition of civil money penalties on the institution, its directors, officers, employees and institution-affiliated parties, the issuance of directives to increase capital, the issuance of formal and informal agreements, the removal of or restrictions on directors, officers, employees and institution-affiliated parties, and the enforcement of any such mechanisms through restraining orders or other court actions.

In its lending activities, the maximum legal rate of interest, fees and charges that a financial institution may charge on a particular loan depends on a variety of factors such as the type of borrower, the purpose of the loan, the amount of the loan and the date the loan is made. Other laws tie the maximum amount that may be loaned to any one customer and its related interest to capital levels. TIB Bank isThe Banks are also subject to certain restrictions on extensions of credit to executive officers, directors, principal shareholders or any related interest of such persons which generally require that such credit extensions be made on substantially the same terms as are available to third persons dealing with TIB Bankthe Banks and not involve more than the normal risk of repayment.  TIB Bank isThe Banks are also subject to federal laws establishing certain record keeping, customer identification and reporting requirements with respect to certain large cash transactions, sales andof travelers’ checks or other monetary instruments, and international transportation of cash or monetary instruments.  Further, under the USA Patriot Act of 2001, financial institutions, including TIB Bank,the Banks, are required to implement additional policies and procedures with respect to, or additional measures designed to address, any or all of the following matters, among others:  money laundering, suspicious activities and currency transaction reporting, and currency crimes.


The Community Reinvestment Act requires that, in connection with the examination of financial institutions within their jurisdictions, the FDIC evaluates the record of the financial institution in meeting the credit needs in its communities including low and moderate income neighborhoods, consistent with the safe and sound operation of those banks. These factors are also considered by all regulatory agencies in evaluating mergers, acquisitions and applications to open a branch or facility. As of the date of itstheir most recent examination report, TIB Bank hasreports, the Banks have a Community Reinvestment Act rating of “Satisfactory.”

Under the Federal Deposit Insurance Corporation Improvement Act of 1991, each federal banking agency is required to prescribe, by regulation, noncapital safety and soundness standards for institutions under its authority.  The federal banking agencies, including the FDIC, have adopted standards covering internal controls, information systems and internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, and compensation, fees and benefits.  An institution that fails to meet those standards maybe subject the institution to regulatory sanctions ifand/or be required by the agency to develop a plan acceptable to the agency, specifying the steps that the institution will take to meet the standards.  We believe that we substantially meet substantially all standards that have been adopted.  This law also imposes capital standards on insured depository institutions.  See “Capital Requirements” below.

The Federal Deposit Insurance Corporation Improvement Act of 1991 also provides for, among other things, (i) publicly available annual financial condition and management reports for financial institutions, including audits by independent accountants, (ii) the establishment of uniform accounting standards by federal banking agencies, (iii) the establishment of a “prompt corrective action” system of regulatory supervision and intervention, based on capitalization levels with more scrutiny and restrictions placed on depository institutions with lower levels of capital, (iv) additional grounds for the appointment of a conservator or receiver, and (v) restrictions or prohibitions on accepting brokered deposits, except for institutions which significantly exceed minimum capital requirements. FDICIA also provides for increased funding of the FDIC insurance funds and the implementation of risked-based premiums.


Deposit Insurance

As an FDIC member institution,institutions, deposits of TIB Bankthe Banks are currently insured to athe current maximum of $100,000 per category of ownership of depositorallowed by law through the Bank Insurance Fund, which is administered by the FDIC.


Limits on Dividends and Other Payments

Our current ability to pay dividends is largely dependent upon the receipt of dividends from TIB Bank.the Banks. Both federal and state laws impose restrictions on the ability of TIB Bankthe Banks to pay dividends. Federal law prohibits the payment of a dividend by an insured depository institution like TIB Bank if the depository institution is considered “undercapitalized” or if the payment of the dividend would make the institution “undercapitalized.”  See “Capital Requirements" below. The Federal Reserve has issued a policy statement that provides that bank holding companies should pay dividends only out of the prior year’s net income, and then only if their prospective rate of earnings retention appears consistent with their capital needs, asset quality, and overall financial condition. For a Florida state-chartered bank, dividends may be paid out of the bank’s aggregate net profits for the current year combined with its retained earnings for the preceding two years as the board deems appropriate.  No dividends may be paid at a time when a bank’s net income from the preceding two years is a loss or which would cause the capital accounts of the bank to fall below the minimum amount required by law.  In addition to these specific restrictions, bank regulatory agencies also have the ability to prohibit proposed dividends by a financial institution that would otherwise be permitted under applicable regulations if the regulatory body determines that such distribution would constitute an unsafe or unsound practice.


Capital Requirements

The Federal Reserve and FDIC have adopted certain risk-based capital guidelines to assist in the assessment of the capital adequacy of a banking organization’s operations for both transactions reported on the balance sheet as assets and transactions, such as letters of credit and recourse arrangementarrangements which are recorded as off balance sheet items. Under these guidelines, nominal dollar amounts of assets and credit equivalent amounts of off balance sheet items are multiplied by one of several risk adjustment percentages, which range from 0% for assets with low credit risk, such as certain U.S. Treasury securities, to 100%200% for assets with relatively high credit risk, such as business loans.


asset-backed and mortgage-backed securities that are rated below investment grade.
A banking organization’s risk-based capital ratio is obtained by dividing its qualifying capital by its total risk adjusted assets. The regulators measure risk-adjusted assets, which include off balance sheet items, against both total qualifying capital (the sum of Tier 1 capital and limited amounts of Tier 2 capital) and Tier 1 capital. “Tier 1,” or core capital includes common equity, perpetual preferred stock (excluding auction rate issues), trust preferred securities (subject to certain limitations), and minority interest in equity accounts of consolidated subsidiaries (less goodwill and other intangibles), subject to certain exceptions. “Tier 2,” or supplementary capital, includes, among other things limited-life preferred stock, hybrid capital instruments, mandatory convertible securities and trust preferred securities, qualifying and subordinated debt, and the allowance for loan and lease losses, subject to certain limitations and less required deductions. The inclusion of elements of Tier 2 capital is subject to certain other requirements and limitations of the federal banking agencies.

The federal banking agencies are required to take “prompt corrective action” with respect to depository institutions that do not meet minimum capital requirements.  As a result, the federal bank regulatory authorities have adopted regulations setting forth a five tiered system for measuring the capital adequacy of the depository institutions that they supervise. Under these regulations, a depository institution is classified in one of the following capital categories: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized.” An institution may be deemed by the regulators to be in a capitalization category that is lower than is indicated by its actual capital position if, among other things, it receives an unsatisfactory examination rating with respect to asset quality, management, earnings or liquidity.  As of December 31, 2005, TIB Bank2007, the Banks met the definition of a “well-capitalized” institution.

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A depository institution generally is prohibited from making any capital distribution (including payment of a cash dividend) or paying any management fees to its holding company if the depository institution would thereafter be undercapitalized. Undercapitalized depository institutions are subject to growth limitations and are required to submit capital restoration plans. If a depository institution fails to submit an acceptable plan, it is treated as if it is significantly undercapitalized. Significantly undercapitalized depository institutions may be subject to a number of other requirements and restrictions including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets and stop accepting deposits from correspondent banks. Critically undercapitalized institutions are subject to the appointment of a receiver or conservator,conservator; generally within 90 days of the date such institution is determined to be critically undercapitalized.

The federal banking agencies also have significantly expanded powers to take enforcement action against institutions that fail to comply with capital or other standards. Such action may include limitations on the right to pay dividends, the issuance by the applicable regulatory authority of a capital directive to increase capital and, in the case of depository institutions, the termination of deposit insurance by the FDIC.  The circumstances under which the FDIC is permitted to provide financial assistance to an insured institution before appointment of a conservator or receiver also is limited under law.  In addition, future changes in regulations or practices could further reduce the amount of capital recognized for purposes of capital adequacy.  Such a change could affect the ability of TIB Bankthe Banks to grow and could restrict the amount of profits, if any, available for the payment of dividends to us.


Interstate Banking Legislation

The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (“Riegle-Neal”), subject to certain restrictions, allows adequately capitalized and managed bank holding companies to acquire existing banks across state lines, regardless of state statutes that would prohibit acquisitions by out-of-state institutions.  Further, a bank holding company may consolidate interstate bank subsidiaries into branches and a bank may merge with an unaffiliated bank across state lines to the extent that the applicable states authorize such transactions.  Florida has enacted a law which permits interstate branching through merger transactions under the federal interstate laws.  Under the Florida law, with the prior approval of the Florida Office of Financial Regulation, a Florida bank may establish, maintain and operate one or more branches in a state other than the State of Florida pursuant to a merger transaction in which the Florida bank is the resulting bank.  In addition, Florida law provides that one or more Florida banks may enter into a merger transaction with one or more out-of-state banks, and an out-of-state bank resulting from such transaction may maintain and operate branches of a Florida bank that participated in such merger.

Financial Services Modernization

Financial Services Modernization

Enacted in 1999, the Graham-Leach-Bliley Act reformsreformed and modernizesmodernized certain areas of financial services regulations and repealsrepealed the affiliation provisions of the federal Glass-Steagall Act of 1933, which, taken together, limited the securities, insurance and other non-banking activities of any company that controls a FDIC insured financial institution.  The Act provides that a financial holding company may engage in a full range of financial activities, including insurance and securities sales and underwriting activities, real estate development, and, with certain exceptions, merchant banking activities, with new expedited notice procedures.  The Act also permits certain qualified national banks to form “financial subsidiaries,” which have broad authority to engage in all financial activities except insurance underwriting, insurance investments, real estate investment or development, and merchant banking, and expands the potential financial activities of subsidiaries of state banks, subject to applicable state law. The range of activities in which bank holding companies and their subsidiaries may engage is not as broad, and the Act may increase the competition that we face.broad.  The law also includes substantive requirements for maintenance of customer financial privacy.


Sarbanes-Oxley Act

In 2002, the Sarbanes-Oxley Act was enacted which imposes a myriad of corporate governance and accounting measures designed so that shareholders have full and accurate information about the public companies in which they invest.  All public companies are affected by the Act.  Some of the principal provisions of the Act include:

·  The creation of an independent accounting oversight board to oversee the audit of public companies and auditors who perform such audits;

·  Auditor independence provisions which restrict non-audit services that independent accountants may provide to their audit clients;

·  Additional corporate governance and responsibility measures which (a) require the chief executive officer and chief financial officer to certify financial statements and to forfeit salary and bonuses in certain situations, and (b) protect whistleblowers and informants;

·  Expansion of the authority and responsibilities of the company’s audit, nominating and compensation committees;

·  Mandatory disclosure by analysts of potential conflicts of interest; and

·  Enhanced penalties for fraud and other violations.


Other Legislative Considerations

The United States Congress and the Florida Legislature periodically consider and may adopt legislation that results in additional deregulation, among other matters, of banks and other financial institutions.  Such legislation could modify or eliminate current prohibitions with other financial institutions, including mutual funds, securities, brokerage firms, insurance companies, banks from other states, and investment banking firms.  The effect of any such legislation on our business or that of TIB Bankthe Banks cannot be accurately predicted.  We cannot predict what legislation might be enacted or what other implementing regulations might be adopted, and if enacted or adopted, the effect on us.


Competition

The banking business is highly competitive.  Banks generally compete with other financial institutions through the banking products and services offered, the pricing of services, the level of service provided, the convenience and availability of services, and the degree of expertise and the personal manner in which services are offered.  The Bank encountersBanks encounter strong competition from most of the financial institutions in the Bank'sBanks' primary service area.areas.  In the conduct of certain areas of itstheir banking business, the BankBanks also competescompete 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.Banks.  Many of these competitors have substantially greater resources and lending limits than the Bank hasBanks have and offer certain services, such as trust services, that the Bank doesBanks do not provide presently.  Management believes that personalized service and competitive pricing is a sustainable competitive advantage that will provide itus with a method to compete effectively in our primary service area.areas.


Monetary Policy

Our earnings are affected by domestic and foreign economic conditions, particularly by the monetary and fiscal policies of the United States government and its agencies.  The Federal Reserve has an important impact on the operating results of banks and other financial institutions through its power to implement national monetary policy.  The methods used by the Federal Reserve include setting the reserve requirements of banks, establishing the discount rate on bank borrowings and conducting open market transactions in United States Government securities.


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FDIC Insurance Assessments

The FDIC insures the deposits of the BankBanks up to prescribed limits for each depositor.  The amount of FDIC assessments paid by each Bank Insurance Fund (BIF) member institution is based on its relative risks of default as measured by regulatory capital ratios and other factors.  Specifically, the assessment rate is based on the institution’s capitalization risk category and supervisory subgroup category.  An institution’s capitalization risk category is based on the FDIC’s determination of whether the institution is well capitalized, adequately capitalized or less than adequately capitalized.  An institution’s supervisory subgroup category is based on the FDIC’s assessment of the financial condition of the institution and the probability that FDIC intervention or other corrective action will be required.  The FDIC may terminate insurance of deposits upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order, or condition imposed by the FDIC. As a result of the Federal Deposit Insurance Reform Act of 2005, the Banks were assessed deposit insurance on a quarterly basis beginning January 1, 2007.  The Banks’ latest assessment rate is approximately 0.06% of total deposits.


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.


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ITEM 1A: RISK FACTORS

RISK FACTORS

Our business is subject to a variety of risks, including the risks described below as well as adverse business conditions and changes in regulations and the local, regional and national economic environment. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties not known to us or not described below which we have not determined to be material may also impair our business operations. You should carefully consider the risks described below, together with all other information in this report, including information contained in the “Business,” “Management’s Discussion and Analysis of Results of Operations and Financial Condition,” and “Quantitative and Qualitative Disclosures about Market Risk” sections. This report contains forward-looking statements that involve risks and uncertainties, including statements about our future plans, objectives, intentions and expectations. Many factors, including those described below, could cause actual results to differ materially from those discussed in forward-looking statements. If any of the following risks actually occur, our business, financial condition and results of operations could be adversely affected, and we may not be able to achieve our goals. Such events may cause actual results to differ materially from expected and historical results, and the trading price of our common stock could decline.

Risks Related to Our Business

Our business strategy includes the continuation of significant growth plans, and if we fail to grow or fail to manage our growth effectively as we pursue our strategy, it could negatively affect our results of operations

We intend to continue pursuing a significant growth strategy for our business. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in significant growth stages of development. We cannot assure you that we will be able to expand our market presence in our existing markets or successfully enter new markets or that any such expansion will not adversely affect our results of operations. Failure to manage our growth effectively could have a material adverse effect on our business, future prospects, financial condition or results of operations, and could adversely affect our ability to successfully implement our business strategy. Also, if our growth occurs more slowly than anticipated or declines, our operating results could be materially adversely affected.

Our ability to successfully grow will depend on a variety of factors including the continued availability of desirable business opportunities, the competitive responses from other financial institutions in our market areas and our ability to manage our growth. While we believe that we have the management resources and internal systems in place to successfully manage our future growth, there can be no assurance that growth opportunities will be available or that growth will be successfully managed.

Our business may face risks with respect to future expansion

We may acquire other financial institutions or parts of financial institutions in the future and we may engage in additional de novo branch expansion. We may also consider and enter into new lines of business or offer new products or services. Acquisitions and mergers involve a number of risks, including:

·  
the time and costs associated with identifying and evaluating potential acquisitions and merger partners;

·  
the estimates and judgments used to evaluate credit, operations, management and market risks with respect to the target institution may not be accurate;

·  
the time and costs of evaluating new markets, hiring experienced local management and opening new offices, and the time lags between these activities and the generation of sufficient assets and deposits to support the costs of the expansion;

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·  
our ability to finance an acquisition and possible dilution to our existing shareholders;

·  
the diversion of our management’s attention to the negotiation of a transaction, and the integration of the operations and personnel of the combining businesses;

·  
entry into new markets where we lack experience;

·  
the introduction of new products and services into our business;
·  
the incurrence and possible impairment of goodwill associated with an acquisition and possible adverse short-term effects on our results of operations; and

·  
the risk of loss of key employees and customers.

We may incur substantial costs to expand, and can give no assurance such expansion will result in the levels of profits we seek. There can be no assurance integration efforts for any future mergers or acquisitions will be successful. Also, we may issue equity securities, including common stock and securities convertible into shares of our common stock in connection with future acquisitions, which could cause ownership and economic dilution to our shareholders. There is no assurance that, following any future mergers or acquisitions, our integration efforts will be successful or, after giving effect to the acquisition, that we will achieve profits comparable to, or better than, our historical experience.

Our business is subject to the success of the local economies where it operates

Our success significantly depends upon the growth in population, income levels, deposits and housing starts in our primary and secondary markets. If the communities in which we operate do not grow or if prevailing economic conditions locally or nationally are unfavorable, our business may not succeed. Adverse economic conditions in our specific market area could reduce our growth rate, affect the ability of our customers to repay their loans to us and generally affect our financial condition and results of operations. We are less able than a larger institution to spread the risks of unfavorable local economic conditions across a large number of diversified economies. Moreover, we cannot give any assurance that we will benefit from any market growth or favorable economic conditions in our primary market areas if they do occur.

Any adverse market or economic conditions in the State of Florida may disproportionately increase the risk that our borrowers will be unable to make their loan payments. In addition, the market value of the real estate securing loans as collateral could be adversely affected by unfavorable changes in market and economic conditions. As of December 31, 2007, approximately 82% of our loans held for investment were secured by real estate. Of this amount, approximately 67% were commercial real estate loans, 12% were residential real estate loans and 18% were construction and development loans. Any sustained period of increased payment delinquencies, foreclosures or losses caused by adverse market or economic conditions in the State of Florida could adversely affect the value of our assets, revenues, results of operations and financial condition.

We make and hold in our portfolio a significant number of land acquisition and development and construction loans, which pose more credit risk than other types of loans typically made by financial institutions.
We offer land acquisition and development and construction loans for builders, developers and individuals. As of December 31, 2007, approximately $168.6 million of our loan portfolio represents loans for construction and vacant land. Land acquisition and development and construction loans are considered more risky than other types of loans. The primary credit risks associated with land acquisition and development and construction lending are underwriting, project risks and market risks. Project risks include cost overruns, borrower credit risk, project completion risk, general contractor credit risk, and environmental and other hazard risks. Market risks are risks associated with the sale of the completed residential or commercial units. They include affordability risk, which means the risk of affordability of financing by borrowers, product design risk, and risks posed by competing projects. While we believe we have established adequate reserves on our financial statements to cover the credit risk of our land acquisition and development and construction loan portfolio, there can be no assurance that losses will not exceed our reserves, which could adversely impact our earnings. In February 2008, a $13.5 million commercial land development loan matured and was placed on nonaccrual because the borrowers were unable to service the debt. Non-performing loans in our land acquisition and development and construction portfolio may increase further and these non-performing loans may result in a material level of charge-offs, which may negatively impact our capital and earnings.

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If the value of real estate in our core Florida market were to decline materially, a significant portion of our loan portfolio could become under-collateralized, which could have a material adverse effect on usus.

With most of our loans concentrated in Southern Florida, a decline in local economic conditions could adversely affect the values of our real estate collateral. Additionally, the availability of property insurance, including windstorm and flood insurance, and the significant increases in the cost thereof in the Florida market may negatively affect borrowers’ abilities to repay existing loans and the abilities of potential borrowers to qualify for new loans. Consequently, a decline in local economic conditions may have a greater effect on our earnings and capital than on the earnings and capital of larger financial institutions whose real estate loan portfolios are geographically diverse.

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In addition to the financial strength and cash flow characteristics of the borrower in each case, TIB Bankthe Banks often secures itssecure their loans with real estate collateral. At December 31, 2005,2007, approximately 77%82% of TIB Bank’sthe Banks’ loans have real estate as a primary or secondary component of collateral. The real estate collateral in each case provides an alternate source of repayment in the event of default by the borrower and may deteriorate in value during the time the credit is extended. If we are required to liquidate the collateral securing a loan to satisfy the debt during a period of reduced real estate values, our earnings and capital could be adversely affected.
Current and anticipated deterioration in the housing market and the homebuilding industry may lead to increased loss severities and further worsening of delinquencies and non-performing assets in our loan portfolios. Consequently, our results of operations may be adversely impacted.

There has been substantial industry concern and publicity over asset quality among financial institutions due in large part to issues related to residential mortgage lending, declining real estate values and general economic concerns. As of December 31, 2007, our non performing loans have increased significantly to $16.1 million, or 1.4% of our loan portfolio. Furthermore, the housing and residential mortgage markets recently have experienced a variety of difficulties and changed economic conditions. If market conditions continue to deteriorate, they may lead to additional valuation adjustments on our loan portfolios and real estate owned as we continue to reassess the market value of our loan portfolio, the losses associated with the loans in default and the net realizable value of real estate owned.

The homebuilding industry has experienced a significant and sustained decline in demand for new homes and an oversupply of new and existing homes available for sale in various markets, including the markets in which we lend. Our customers who are builders and developers face greater difficulty in selling their homes in markets where these trends are more pronounced. Consequently, we may face increased delinquencies and non-performing assets if builders and developers are forced to default on their loans with us. We do not anticipate that the housing market will improve in the near-term, and accordingly, additional downgrades, provisions for loan losses and charge-offs related to our loan portfolio may occur.

An inadequate allowance for loan losses would reduce our earningsearnings.

The risk of credit losses on loans varies with, among other things, general economic conditions, the type of loan being made, the creditworthiness of the borrower over the term of the loan and, in the case of a collateralized loan, the value and marketability of the collateral for the loan. Management maintains an allowance for loan losses based upon, among other things, historical experience, an evaluation of economic conditions and regular reviews of delinquencies and loan portfolio quality. Based upon such factors, management makes various assumptions and judgments about the ultimate collectibility of the loan portfolio and provides an allowance for loan losses based upon a percentage of the outstanding balances and for specific loans when their ultimate collectibility is considered questionable. If management’s assumptions and judgments prove to be incorrect and the allowance for loan losses is inadequate to absorb losses, or if the bank regulatory authorities require TIB Bankthe Banks to increase the allowance for loan losses as a part of their examination process, TIB Bank’sthe Banks’ earnings and capital could be significantly and adversely affected.
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Our indirect lending program has a limited operating history and, as a result, the financial performance to date of this program may not be a reliable indicator of whether this business will continue to be successfulsuccessful.

A significant portion of our current lending involves the purchase of consumer automobile installment sales contracts from automobile dealers primarily located in Southwest Florida. We began this program in 2002 and as of December 31, 2005,2007, we had approximately $118$117 million of indirect loans outstanding. We plan to grow this portfolio further. These loans are for the purchase of new or late model used cars. We serve customers over a broad range of creditworthiness and the required terms and rates are reflective of those risk profiles. While these loans have higher yields than many of our other loans, they involve significant risks in addition to normal credit risk. Potential risk elements associated with indirect lending include the limited personal contact with the borrower as a result of indirect lending through dealers, the absence of assured continued employment of the borrower, the varying general creditworthiness of the borrower, changes in the local economy and difficulty in monitoring collateral. While indirect automobile loans are secured, they are secured by depreciating assets and characterized by loan to value ratios that could result in the Bank not recovering the full value of an outstanding loan upon default by the borrower. In addition, givenDue to the relatively unseasoned natureeconomic slowdown in Southwest Florida, we are currently experiencing significantly higher delinquencies, charge-offs and repossessions of vehicles in this portfolio,portfolio. If the economy continues to contract, we may continue to experience higher levels of delinquencies, repossessions and charge-offs.
The market value of our debt securities may be impacted by the level of interest rates and the credit problems may not have surfaced or become apparent yet, but may arise inquality and strength of the future.underlying issuers.

If a decline in market value is determined to be other than temporary, under generally accepted accounting principals, we are required to write these securities down to their estimated fair value. As of December 31, 2007, we owned collateralized debt obligations with a historical cost of $10.0 million which were determined to be other than temporarily impaired. Accordingly, we wrote these securities down to their estimated fair value of $6.1 million. Future changes in interest rates or the credit quality and strength of the underlying issuers may reduce the market value of these and other securities. If such decline is determined to be other than temporary, we will write them down through a charge to earnings to their then current fair value.
Our de novo branching strategy could cause our expenses to increase faster than revenuesrevenues.

Our primary strategy for building market share in Southwest Florida is based on establishing new branches. We currently plan to open one new branch and relocate an existing branch in the coming year. We also plan to open at least one additional branch each year in 2007.2008 and 2009. There are considerable costs involved in opening branches and new branches generally do not generate sufficient revenues to offset their costs until they have been in operation for several years.at least a year or more. Accordingly, our new branches can be expected to be a drag on ournegatively impact earnings for some period of time.time until the branches reach certain economies of scale. Our expenses could be further increased if we encounter delays in the opening of any of our new branches. Finally, we have no assurance that our new branches will be successful even after they have been established.

If we are unable to increase our share of deposits in our markets, we may accept out of market and brokered deposits, the costs of which may be higher than expected.

We can offer no assurance that we will be able to maintain or increase our market share of deposits in our highly competitive service areas. If we are unable to do so, we may be forced to accept increased amounts of out of market or brokered deposits. At times, the cost of out of market and brokered deposits exceeds the cost of deposits in our local market. In addition, the cost of out of market and brokered deposits can be volatile, and if we are unable to access these markets or if our costs related to out of market and brokered deposits increases, our liquidity and ability to support demand for loans could be adversely affected.

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Our recent results may not be indicative of our future results.

We may not be able to sustain our historical rate of growth or may not even be able to grow our business at all. In addition, the rapid growth of recent years may distort some of our historical financial ratios and statistics. In the future, we may not have the benefit of several recently favorable factors, such as a generally stable interest rate environment or the ability to find suitable expansion opportunities. Various factors, such as economic conditions, regulatory and legislative considerations and competition, may also impede or prohibit our ability to expand our market presence. If we experience a significant decrease in our historical rate of growth, our results of operations and financial condition may be adversely affected due to a high percentage of our operating costs being fixed expenses.

Our continued growth and current level of earnings may require us to raise additional capital in the future, but that capital may not be available when it is needed.

We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations. We anticipate our capital resources will satisfy our capital requirements for the foreseeable future. We may at some point, however, need to raise additional capital to support our continued growth.

Our ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside of our control, and on our financial performance. Accordingly, we cannot give any assurance that we will be able to raise additional capital if needed on terms acceptable to us. If we cannot raise additional capital when needed, our ability to further expand our operations through internal growth and acquisitions could be materially impaired.
Our net interest income could be negatively affected by the Federal Reserve’s recent interest rate adjustments.

As a financial institution, our earnings are significantly dependent upon our net interest income, which is the difference between the interest income that we earn on interest-earning assets, such as investment securities and loans, and the interest expense that we pay on interest-bearing liabilities, such as deposits and borrowings. Therefore, any change in general market interest rates, including changes resulting from changes in the Federal Reserve’s fiscal and monetary policies, affect us more than non-financial institutions and can have a significant effect on our net interest income and total income. Our assets and liabilities may react differently to changes in overall market rates or conditions because there may be mismatches between the repricing or maturity characteristics of the assets and liabilities. As a result, an increase or decrease in market interest rates could have material adverse effects on our net interest margin and results of operations.
In response to the dramatic deterioration of the sub-prime, mortgage, credit and liquidity in financial markets and increasing concerns about recessionary trends, the Federal Reserve recently has taken action on five occasions to reduce interest rates by a total of 225 basis points since September 2007, which likely will reduce our net interest income during the first quarter of 2008 and the foreseeable future. This reduction in net interest income likely will be exacerbated by the high level of competition that we face in our markets, which requires us to offer more attractive interest rates to borrowers on loans and to our other customers on deposits, and to rely upon out-of-market funding sources. Any reduction in our net interest income will negatively affect our business, financial condition, liquidity, operating results and cash flows. Additionally, in 2008, we expect to have continued margin pressure given these interest rate reductions, along with elevated levels of non-performing assets.
Increases in interest rates may negatively affect our earnings and the value of our assets.

Changes in interest rates may affect our level of interest income, the primary component of our gross revenue, as well as the level of our interest expense, our largest recurring expenditure. In a period of rising interest rates, our interest expense could increase in different amounts and at different rates while the interest that we earn on our assets may not change in the same amounts or at the same rates. Accordingly, increases in interest rates could decrease our net interest income.

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Changes in the level of interest rates also may negatively affect our ability to originate real estate loans, the value of our assets and our ability to realize gains from the sale of our assets, all of which ultimately affect our earnings. A decline in the market value of our assets may limit our ability to borrow additional funds or result in our lenders requiring additional collateral from us under our borrowing agreements. As a result, we could be required to sell some of our loans and investments under adverse market conditions, upon terms that are not favorable to us, in order to maintain our liquidity. If those sales are made at prices lower than the amortized costs of the investments, we will incur losses.

Competition from financial institutions and other financial service providers may adversely affect our profitability.

The banking business is highly competitive and we experience competition in each of our markets from many other financial institutions. We compete with commercial banks, credit unions, savings and loan associations, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market funds, and other mutual funds, as well as other super-regional, national and international financial institutions that operate offices in our primary market areas and elsewhere.

We compete with these institutions both in attracting deposits and in making loans. In addition, we have to attract our customer base from other existing financial institutions and from new residents. Many of our competitors are well-established, larger financial institutions. While we believe we can and do successfully compete with these other financial institutions in our primary markets, we may face a competitive disadvantage as a result of our smaller size, lack of geographic diversification and inability to spread our marketing costs across a broader market. Although we compete by concentrating our marketing efforts in our primary markets with local advertisements, personal contacts, and greater flexibility and responsiveness in working with local customers, we can give no assurance this strategy will be successful.
We are subject to extensive regulation that could limit or restrict our activities.

We operate in a highly regulated industry and are subject to examination, supervision, and comprehensive regulation by various federal and state agencies. Our compliance with these regulations is costly and restricts certain of our activities, including payment of dividends, mergers and acquisitions, investments, loans and interest rates charged, interest rates paid on deposits and locations of offices. We are also subject to capitalization guidelines established by our regulators, which require us to maintain adequate capital to support our growth.

The laws and regulations applicable to the banking industry could change at any time, and we cannot predict the effects of these changes on our business and profitability. Because government regulation greatly affects the business and financial results of all commercial banks and bank holding companies, our cost of compliance could adversely affect our ability to operate profitably.

The various federal and state regulatory agencies have advised that they may require enhanced credit monitoring and at times set limits or restrictions on certain lending activities based upon concentrations of risk identified (for example, concentrations of commercial real estate loans exceeding 300% of capital). We cannot assure compliance with any possible future requirements will not adversely affect our ability to operate profitably or grow at the rates we desire.

The Sarbanes-Oxley Act of 2002, and the related rules and regulations promulgated by the Securities and Exchange Commission and Nasdaq that are applicable to us, have increased the scope, complexity and cost of corporate governance, reporting and disclosure practices. As a result, we may experience greater compliance costs.

We face regulatory risks related to our commercial real estate loan concentrations.

Commercial real estate, or CRE, is cyclical and poses risks of possible loss due to concentration levels and similar risks of the asset class. As of December 31, 2007, approximately 55% of our loan portfolio consisted of CRE loans. The banking regulators are more closely scrutinizing CRE lending and may require banks with higher levels of CRE loans to implement more rigorous underwriting, internal controls, risk management policies and portfolio stress testing, as well as possibly requiring higher levels of allowances for possible loan losses and capital levels as a result of CRE lending growth and exposures.
We are dependent upon the services of our management teamteam.

Our future success and profitability is substantially dependent upon the management and banking abilities of our senior executives. We believe that our future results will also depend in part upon our attracting and retaining highly skilled and qualified management and other personnel. Competition for such personnel is intense, and we cannot assure you that the Company will be successful in retaining such personnel. We also cannot guarantee that members of our executive management team will remain with us. Changes in key personnel and their responsibilities may be disruptive to the Company’s business and could have a material adverse effect on our business, financial condition and results of operations.


Risk Related to an Investment in Our Common Stock

Future capital needs could result in dilution of shareholders’ investmentsinvestments.

Our board of directors may determine from time to time that there is a need to obtain additional capital through the issuance of additional shares of our common stock or other securities. These issuances would dilute the ownership interests of current shareholders in the Company and may dilute the per share book value of our common stock. New investors may also have rights, preferences and privileges senior to our current shareholders which may adversely impact our current shareholders.

Although publicly traded, the trading market in our common stock has substantiallyis less liquidity than the average trading market for stock quoted on The NASDAQ National Market,liquid and the price of our common stock due to this limited trading market may be more volatile in the futurefuture.

Our common stock is thinly traded. The average daily trading volume of our shares on The NASDAQ National Market during 20052007 was approximately 4,64120,444 shares. Thinly traded stock can be more volatile than stock trading in an active public market. We cannot predict the extent to which an active public market for our common stock will develop or be sustained. In recent years, the stock market has experienced a high level of price and volume volatility, and market prices for the stock of many companies have experienced wide price fluctuations that have not necessarily been related to their operating performance. Therefore, our shareholders may not be able to sell their shares at the volumes, prices, or times that they desire.

Our ability to pay dividends is limited and we may be unable to pay future dividends.

Our ability to pay dividends is limited by regulatory restrictions and the need to maintain sufficient consolidated capital and is dependent upon the receipt of dividends from the Banks and cash available at the holding company. The ability of the Banks to pay dividends to us is limited by their obligations to maintain sufficient capital and by other general restrictions on their dividends that are applicable to state banks that are regulated by the FDIC. If we do not satisfy these regulatory requirements, we will be unable to pay dividends on our common stock. Based on the level of undistributed earnings of TIB Bank for the prior two years, declaration of dividends by TIB Bank, during 2008, would likely require regulatory approval. The Bank of Venice has no retained earnings available for dividends.

Holders of our junior subordinated debentures have rights that are senior to those of our common stockholders.

We have supported our continued growth through the issuance of trust preferred securities from special purpose trusts and accompanying junior subordinated debentures. At December 31, 2007, we had outstanding trust preferred securities and accompanying junior subordinated debentures totaling $33 million. Payments of the principal and interest on the trust preferred securities of these special purpose trusts are conditionally guaranteed by us. Further, the accompanying junior subordinated debentures we issued to the special purpose trusts are senior to our shares of common stock. As a result, we must make payments on the junior subordinated debentures before any dividends can be paid on our common stock and, in the event of our bankruptcy, dissolution or liquidation, the holders of the junior subordinated debentures must be satisfied before any distributions can be made on our common stock. We have the right to defer distributions on our junior subordinated debentures (and the related trust preferred securities) for up to five years, during which time no dividends may be paid on our common stock.
18

We may issue debt and equity securities or securities convertible into equity securities, which are senior to our common stock as to distributions and in liquidation, which could negatively affect the value of our common stock.

In the future, we may attempt to increase our capital resources by entering into debt or debt-like financing that is unsecured or secured by all or up to all of our assets, or by issuing debt or equity securities, which could include issuances of secured or unsecured commercial paper, medium-term notes, senior notes, subordinated notes, common stock, warrants, or other securities convertible into common stock. In the event of our liquidation, our lenders and holders of our debt securities would receive a distribution of our available assets before distributions to the holders of our common stock. Because our decision to incur debt and issue securities in our future offerings will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings and debt financings. Further, market conditions could require us to accept less favorable terms for the issuance of our securities in the future.
ITEM 1B: UNRESOLVED STAFF COMMENTS

We did not receive any written comments during 2007 from the Commission staff regarding our periodic and current reports under the Act. There are no comments that remain unresolved from any prior period.

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ITEM 2:  PROPERTIES

The Company’sCompany‘s executive offices are now located at 599 9th Street North, Naples, Florida.  The Bank’sTIB Bank‘s executive offices are located at 99451 Overseas Highway, Key Largo,6435 Naples Boulevard, Naples, Florida.  This is a two-story building owned by theThe Bank that contains approximately 13,275 square feet of finished space. The building is used for office space and the operation of a branch facility. OtherVenice’s executive offices are located at 240 Nokomis Avenue South, Venice, Florida.  All Company operated properties are as follows:


Address
LocationPurpose
Location
Purpose
Owned/
Leased
30400 Overseas HighwayBig Pine KeyBranchOwned
8100 Health Center BoulevardBonita SpringsBranch and officeOffice SpaceLeased
12205 Metro ParkwayFort MyersBranchOwned
12195 Metro ParkwayFort MyersIndirect lendingOwnedLeased
600 North Homestead BoulevardHomesteadBranchOwned
777 North Krome AvenueHomesteadBranchOwned
630632 Washington AvenueHomesteadOffice spaceSpaceLeased
28 N.E. 18 StreetHomesteadOffice spaceSpaceOwned
80900 Overseas HighwayIslamorada Branch and Office SpaceOwned
99451 Overseas HighwayKey LargoBranch and officeOffice SpaceOwned
103330 Overseas HighwayKey LargoBranchOwned
228 Atlantic BoulevardKey LargoLoans and HROwned
330 Whitehead StreetKey WestBranchOwned
3618 North Roosevelt BoulevardKey WestBranchOwned
2348 Overseas HighwayMarathonBranchOwned
5800 Overseas Highway - Suite 41MarathonCommercial lendingLeased
11401 Overseas HighwayMarathon ShoresBranchOwned
6435 Naples BoulevardNaplesTIB Bank HQ, Branch & Office SpaceOwned
3940 Prospect Avenue - Suite 104 & 105NaplesBranch and Office SpaceLeased
1720 J & C Boulevard - Suite 1NaplesBranchLeased
9915 Tamiami Trail North - Suite 1 & 2NaplesLoan centerOffice SpaceLeased
599 9thth Street North - Suite 100 & 101
NaplesCorporate HQ & BranchOwned
599 9thth Street North - Suite 201
NaplesOffice spaceLeasedOwned
11191125 US Highway 27 SouthSebringResidential lendingBranchLeased
91980 Overseas HighwayTavernierBranchOwned
240 Nokomis Avenue SouthVeniceBank of Venice HQ & BranchOwned
1790 East Venice Avenue, Suite 101VeniceBranchLeased
3479 Precision Drive, Suite 118VeniceBranchLeased
    

In 2004, the Bank purchased a parcel of land located at the Pine Air Lakes Subdivision in Naples, Florida, where it plans to construct a new branch.


In 2005, theTIB Bank sold land that it bought in 2004 located at the Miami Land & Development Subdivision in Homestead, Florida andFlorida.  TIB Bank also purchased a property at 17000 Cam Circle in Ft. Myers, Florida which was later sold in 2006.

In 2006, TIB Bank purchased parcels of land located at the Lehigh Acres Subdivision in Lehigh, FL and at the City Gate Subdivision in Naples, Florida, where it plans to construct new branches.  In addition, TIB Bank entered into a new branch.sale-leaseback transaction on a building and related land located at 12195 Metro Parkway in Fort Myers, Florida.

In 2007, TIB Bank sold vacant land adjacent to the branch located at 3618 North Roosevelt Boulevard in Key West, Florida and a building located at 228 Atlantic Boulevard in Key Largo, FL which had previously been used for office space.   TIB Bank also entered into a lease agreement for a building located at 704 Washington Street in Homestead, FL.  This building will be used as office space and will be occupied in early 2008.

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ITEM 3:  LEGAL PROCEEDINGS

While the Company and the BankBanks 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 BankBanks 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 submittedWe did not submit any matters to a vote of our security holders during the Company's fourth quarter of the fiscal year ended December 31, 2005.2007.



PART II


ITEM 5:  MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock trades on the NASDAQ National Market under the symbol “TIBB.”  As of December 31, 2005,2007, there were 459595 registered shareholders of record and 5,792,59812,783,161 shares of our common stock outstanding. The share and per share amounts discussed throughout this document have been adjusted to account for the effects of the two-for-one stock split distributed October 23, 2006. The following table sets forth, for the periods indicated, the high and low sale prices per share for our common stock on the NASDAQ National Market:

 
2005
 
2004
  2007  2006 
(Quarter Ended) High Low High Low  High  Low  High  Low 
March 31 $29.02 $24.65 $25.00 $20.15  $18.21  $14.67  $16.18  $14.75 
June 30  29.30  26.10  22.85  20.20   15.00   12.77   16.25   14.44 
September 30  32.50  25.85  22.25  19.62   13.34   10.38   16.20   15.64 
December 31  33.71  29.00  25.67  21.90   11.17   6.73   18.44   15.84 
                             

For the year ended December 31, 2005,2007, we paid cash dividends to our shareholders in the amount of $.115$.06 per share for the first three quarters and $.1175$.0625 per share for the last quarter ($.4625.2425 in the aggregate).  For the year ended December 31, 2004,2006, we paid cash dividends to our shareholders in the amount of $.1125$.05875 per share for the first three quarters and $.115$.06 per share for the last quarter ($.4525.23625 in the aggregate).  Our ability to continue to pay cash dividends to our shareholders is primarily dependent on the earnings of the Bank.Banks.  Payment of dividends by the BankBanks to us is limited by dividend restrictions in capital requirements imposed by Bankbank regulators.  Information regarding restrictions on the ability of the BankBanks to pay dividends to us is contained in Note 14 of the "Notes to Consolidated Financial Statements" contained in Item 8 hereof.  In general, future dividend policy is subject to the discretion of the board of directors and will depend upon a number of factors, including the future earnings, capital requirements, regulatory constraints, and our financial condition as well as that of the Bank.Banks.

With respect to information regarding our securities authorized for issuance under equity incentive plans, the information contained in the section entitled “Compensation of Executive Officers and Directors -“Executive Compensation – Equity Compensation Plan Information” of our definitive Proxy Statement for the 20062008 Annual Meeting of Shareholders is incorporated herein by reference.

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Issuer Purchases of Equity Securities

We did not repurchase anyAs of December 31, 2007, we repurchased a total of 69,200 shares of our common stock in 2005.through the repurchase program announced August 6, 2007. The following table presents information relating to the purchases of the Company’s common stock by the Company during the fourth quarter of 2007:

Issuer Purchases of Equity Securities 
Period 
Total Number
of Shares Purchased
  Average Price Paid Per Share  Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs  Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs 
            400,000 
November 1 – 30, 2007  50,700  $8.06   50,700   349,300 
December 1 – 31, 2007  18,500   8.68   18,500   330,800 
Total  69,200  $8.23   69,200   330,800 
                 

STOCK PRICE PERFORMANCE GRAPH

The stock price performance graph below shall not be deemed incorporated by reference by any general statement incorporating by reference this Form 10-K into any filing under the Securities Act of 1933 or under the Securities Exchange Act of 1934, except to the extent TIB Financial Corp. specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts.

The graph below compares the cumulative total return of TIB Financial Corp., the Nasdaq Composite Index and a peer group index.
Graph
1422


   Period Ending 
Index 12/31/02  12/31/03  12/31/04  12/31/05  12/31/06  12/31/07 
TIB Financial Corp.  100.00   153.23   168.19   215.44   239.08   118.95 
NASDAQ Composite  100.00   150.01   162.89   165.13   180.85   198.60 
SNL Southeast Bank Index  100.00   125.58   148.92   152.44   178.75   134.65 
Source : SNL Financial LC, Charlottesville, VA
ITEM 6:  SELECTED FINANCIAL DATA

The selected consolidated financial data presented below as of and for the years ended December 31, 2007, 2006, 2005, 2004 2003, 2002 and 20012003 is unaudited and has been derived from our Consolidated Financial Statements and from our records.  The information presented below should be read in conjunction with the Consolidated Financial Statements and related notes, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”


Balance Sheet Data
As of December 31,
(Dollars in thousands) 2007  2006  2005  2004  2003 
Total assets $1,444,739  $1,319,093  $1,076,070  $829,325  $669,298 
Investment securities  160,357   131,199   97,464   77,807   52,557 
Total loans  1,127,667   1,063,852   882,372   653,521   538,598 
Allowance for loan losses  14,973   9,581   7,546   6,243   5,216 
Deposits  1,049,958   1,029,457   920,424   687,859   553,813 
Shareholders’ equity  96,240   85,862   77,524   68,114   41,246 
                     
 
(Dollars in thousands)
 
2005
 
2004
 
2003
 
2002
 
2001
 
Total assets $1,076,070 $829,325 $669,298 $567,149 $494,111 
Investment securities  97,464  77,807  52,557  54,268  52,354 
Gross loans  882,372  653,521  538,598  441,743  379,104 
Allowance for loan losses  7,546  6,243  5,216  4,272  3,675 
Deposits  920,424  687,859  553,813  482,683  415,736 
Shareholders’ equity  77,524  68,114  41,246  33,506  28,672 
                 


Income Statement Data
Year ended December 31,
(Dollars in thousands)
 
2005
 
2004
 
2003
 
2002
 
2001
  2007  2006  2005  2004  2003 
Interest and dividend income $59,434 $40,916 $34,606 $31,316 $33,717  $94,741  $85,234  $59,434  $40,916  $34,606 
Interest expense  20,304  10,730  9,839  10,329  15,797   48,721   38,171   20,304   10,730   9,839 
Net interest income  39,130 30,186 24,767 20,987 17,920   46,020   47,063   39,130   30,186   24,767 
Provision for loan losses  2,413  2,455  1,586  791  1,005   9,657   3,491   2,413   2,455   1,586 
Net interest income after provision for loan losses  36,717 27,731 23,181 20,196 16,915   36,363   43,572   36,717   27,731   23,181 
Non-interest income  6,258 6,306 7,084 6,041 5,988 
Non-interest income *  1,362   6,275   6,258   6,306   7,084 
Non-interest expense  (31,856) (27,057) (23,541) (20,011) (17,468)  (41,921)  (35,833)  (31,856)  (27,057)  (23,541)
Income tax expense  (3,927) (2,337) (2,324) (2,098) (1,847)
Income from continuing operations  7,192 4,643 4,400 4,128 3,588 
Income tax (expense) benefit  1,775   (5,021)  (3,927)  (2,337)  (2,324)
Income (loss) from continuing operations  (2,421)  8,993   7,192   4,643   4,400 
Income from discontinued operations, net of taxes  4,632  555  702  607  306   -   254   4,632   555   702 
Net income $11,824 $5,198 $5,102 $4,735 $3,894 
Net income (loss) $(2,421) $9,247  $11,824  $5,198  $5,102 
                                

*Non-interest income during 2007 includes a charge of $5.7 million related to the other than temporary impairment of investment securities as discussed in more detail in the "Investment Portfolio” section of management’s discussion and analysis.

Per Share Data
Year ended December 31,
  
2005
 
2004
 
2003
 
2002
 
2001
 
            
Book value per share at year end * $13.38   $11.99   $9.31  $8.30   $7.27  
                 
Basic earnings per share from continuing operations $1.26 $0.87 $1.03 $1.03 $0.91 
Basic earnings per share from discontinued operations  0.81  0.11  0.17  0.16  0.08 
Basic earnings per share $2.07 $0.98 $1.20 $1.19 $0.99 
                 
Diluted earnings per share from continuing operations $1.22 $0.85 $0.99 $1.00 $0.88 
Diluted earnings per share from discontinued operations  0.78  0.10  0.16  0.14  0.07 
Diluted earnings per share $2.00 $0.95 $1.15 $1.14 $0.95 
                 
Basic weighted average common equivalent shares outstanding  5,711,974  5,309,860  4,257,224  3,992,775  3,923,763 
Diluted weighted average common equivalent shares outstanding  5,900,446  5,479,696  4,435,861  4,144,855  4,096,767 
Dividends declared per share $0.4625 $0.4525 $0.4425 $0.4325 $0.43 
                 
 * Calculation includes unvested shares of restricted stock issued during 2005.       




Per Share Data
Year ended December 31,
  2007  2006  2005  2004  2003 
Book value per share at year end * $7.53  $7.33  $6.69  $6.00  $4.65 
                     
Basic earnings (loss) per share from continuing operations $(0.20) $0.78  $0.63  $0.44  $0.52 
Basic earnings per share from discontinued operations  -   0.02   0.41   0.05   0.08 
Basic earnings (loss) per share $(0.20) $0.80  $1.04  $0.49  $0.60 
                     
Diluted earnings (loss) per share from continuing operations $(0.20) $0.76  $0.61  $0.42  $0.50 
Diluted earnings per share from discontinued operations  -   0.02   0.39   0.05   0.08 
Diluted earnings (loss) per share $(0.20) $0.78  $1.00  $0.47  $0.58 
                     
Basic weighted average common equivalent shares outstanding  12,299,093   11,609,394   11,423,948   10,619,720   8,514,448 
Diluted weighted average common equivalent shares outstanding  12,299,093   11,889,606   11,800,892   10,959,392   8,871,722 
Dividends declared per share $0.2425  $0.2363  $0.2313  $0.2263  $0.2213 
                     
 *Calculation includes unvested shares of restricted stock.
Performance Ratios
20052004200320022001 2007  2006  2005  2004  2003 
Return on average assets**0.74%0.63%0.71%0.77%0.75%
Return on average equity**10.19%7.83%11.69%13.26%13.03%
Return (loss) on average assets**  (0.18)%  0.74%  0.74%  0.63%  0.71%
Return (loss) on average equity**  (2.52)%  11.05%  10.19%  7.83%  11.69%
Average equity/average assets7.26%8.01%6.05%5.82%5.79%  6.99%  6.72%  7.26%  8.01%  6.05%
Net interest margin4.38%4.51%4.43%4.39%4.22%  3.60%  4.18%  4.38%  4.51%  4.43%
Dividend payout ratio ***22.34%46.22%36.92%36.47%43.32%  (123.19)%  30.50%  36.74%  51.76%  42.82%
Allowance for loan losses/total loans0.86%0.96%0.97%  1.33%  0.90%  0.86%  0.96%  0.97%
Non-performing assets/total assets0.46%0.60%0.55%0.65%0.90%  1.88%  0.69%  0.46%  0.60%  0.55%
Non-performing loans/gross loans0.11%0.07%0.12%0.42%
Non-performing loans/total loans  1.43%  0.40%  0.11%  0.11%  0.07%
Allowance for loan losses/non-performing loans789.33%886.79%1,336.33%783.19%231.07%  93.08%  226.88%  789.33%  886.79%  1,336.33%
Non-interest expense/tax equivalent net interest income and non-interest income from continuing operations
 
69.69%
 
73.48%
 
73.44%
 
73.62%
 
72.53%
  87.86%  66.75%  69.69%  73.48%  73.44%
                     
** The computation of return on average assets and return on average equity is based on net income from continuing operations.
*** The computation of the dividend payout ratio is based on net income including discontinued operations.

 **The computation of return on average assets and return on average equity is based on net income from continuing operations.
 ***The computation of the dividend payout ratio is based on net income (loss) from continuing operations.


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ITEM 7:  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

TIB Bank operates
The Banks operate primarily as an owner-operated real estate secured commercial lender,lenders, focusing on middle-market businesses in our Southern Florida markets.  The Banks fund their lending activity primarily by gathering retail and commercial deposits from our service area.  TIB Bank was formed in and has a substantial market presence in the Florida Keys.  In recent years, theTIB Bank has expanded into the adjacent Florida counties of Miami-Dade, Collier, Lee and Lee.Highlands.  On April 30, 2007, we completed the acquisition of The Bank funds its lending activity by gathering retail and commercial deposits from our service area. Significantof Venice located in Sarasota County, Florida.  Despite slowing economic growth in the southern portion of Miami-Dade County and along the southwest coast of Florida, (Naples, Bonita Springs, and Ft. Myers area) offers tremendouswe anticipate increased opportunities for us to continue to grow our core banking franchise in these contiguous markets.markets for our well-positioned financial institution.

We areHistorically we have been utilizing a de novo branching strategy of evaluating and selecting sites and building new bank branch locations to enter and grow in these new markets. Due to the cost premiums associated with community banks and branches in Florida in recent years, we believe that de novo expansion has been and continues to be the most economical method for us to build market share in many of the areas where we seek to have a presence. While de novo expansion has a dilutive effect on short-term earnings, the resulting growth will continue to add significant value to our franchise.  By timing our expansion, we plan to balance earnings, growth and expense. Although organic

The acquisition of The Bank of Venice expanded our presence into Sarasota County.  We believe this strategic merger will provide new growth has been the methodopportunities through our operation of choice to date, growth through acquisition would be considered ifa local community bank in an attractive new market.  The pricing, market and culture fit wereindicate the acquisition will be advantageous to our growth and expansion plans.


Performance OverviewWe believe the completion of our strategic merger with The Bank of Venice on April 30, 2007 and the January 2, 2008 closing of our acquisition of Naples Capital Advisors, a wealth management and investment advisory firm with approximately $80 million of assets under advisement are exemplary accomplishments which will further enhance our franchise value and current position in the marketplace.

On March 7, 2008, the Company consummated a transaction whereby two of Southwest Florida’s prominent families, their representatives and their related business interests purchased 1.2 million shares of the Company’s common stock and warrants to purchase an additional 1.2 million shares of common stock at an exercise price of $8.40 per share at any time prior to March 7, 2011. Gross proceeds from the investment provided additional capital of $10.1 million.
Performance Overview
TIB Financial Corp. is a financial services holding company focused on growth and expansion in the Florida marketplace and the parent company of TIB Bank.Bank and The Bank of Venice.  For the year ended December 31, 2005,2007, our operations resulted in a net income from continuing operations was $7.2loss of $2.4 million, or $1.26$0.20 per basic share and $1.22 per diluted share. These results compared with $4.6net income of $9.0 million from continuing operations, or $0.87$0.78 per basic share and $0.85$0.76 per diluted share, for the prior year, represent increasesyear.  The most significant factors contributing to the 2007 loss were the $9.7 million provision for loan losses and write-downs of approximately 55%, 45% and 44%, respectively.investment securities totaling $5.7 million.

We see 2005 asOur operating environment remains challenging and our loan growth is muted due to loan payoffs and a yearlower level of delivering onloan origination. During this period of slower economic activity, our stated execution commitments. Quarter after quarter, the team’s successful implementationloans increased 6% from last year.  Our strategy of our strategic market expansion has resulted in consistent, predictable assetbuilding relationships with small businesses and earnings growth. We’ve experienced the momentum of the increasing market share shift in our direction and recognize and are realizing the significant ongoing opportunities presented by some of the nation’s most dynamic population growth patterns. Our markets display diversity, economic strength and are among the nation’s fastest growing. Additionally, merger-related market disruptionmiddle-market customers continues to provide opportunities in gathering commercial, householddrive our growth and municipal relationships. As weexpansion.

Deteriorating credit quality and the interest rate environment continue to grow, we havebe the dominant forces affecting our industry and will continue to maintain our high credit underwriting standards,main challenges are managing asset quality and efficiently funding the overall credit qualitygrowth of our loan portfolio,portfolios. We are leveraging our current product and thedelivery advantages along with our sustainable customer service quality advantages in our efforts to increase market pricing of our deposit base. The core competency of the Bank has beenshare and remains focusedplan to continue to capitalize on the middle market commercial business segment that has been so successful for us.

An example of this strategic positioning was the careful consideration ofopportunities in our strategic options for merchant payment processing, resulting in the decision to align ourselves with NOVA Information Systems (“NOVA”) as provider of payment processing for our commercial customers. This alliance allows us to maintain our extraordinary customer service standards while introducing state-of-the-art new products. NOVA was selected by TIB based on its recognized excellence in customer service and its commitment to maintaining superior technology. Under our agreement with NOVA, we sold our existing payment processing portfolio for $7.25 million in cash (approximately a $6.7 million gain, net of transaction costs). This gain provided an infusion of new non-dilutive equity capital which will be used to augment the Bank’s core capital position as the accelerating organic asset growth continues into 2006. The historical operations of the merchant bankcard payment processing segment is reported as discontinued operations in the accompanying consolidated financial statements.

Despite the most active hurricane season in history, including two direct impacts from Hurricanes Katrina and Wilma, several close calls and numerous hurricane threats resulting in evacuations and the myriad of related business disruptions in South Florida during 2005, we suffered no significant physical damage from the storms. In fact, our management truly weathered the storms and our team exemplified our commitment to excellence in customer service as our branch infrastructure was first or among the first to reopen and respond to customer needs in each of our affected markets.region.

Net interest income on a tax-equivalent basis was $39.5$46.4 million for 2005, an increase2007, a decrease of 29% over $30.52% from $47.4 million a year ago. Changes in monetary policy by the Federal Reserve affect the prime rate, our loan yields, our deposit and borrowing costs and our net interest margin. During a period of increasing short-term interest rates through mid-year 2006 followed by decreasing rates starting in September 2007, our interest margin contracted 58 basis points from 4.18% in 2006 to 3.60% in 2007.
25

Non-interest income, which includes service charges on deposit accounts, investment securities gains and losses, real estate fees and other operating income, totaleddecreased approximately $4.9 million to $1.4 million in 2007 from $6.3 million consistent within 2006.  Excluding the prior year.


      Our interest margin contracted slightly from 4.51% in 2004 to 4.38% in 2005. This slight contraction is due to several opposing factors. First, although interest rates increased continuously throughout the year, a significant portion of our commercial loans remained at their interest rate floors for some parteffect of the year. Second, we$5.7 million write-down of investment securities and the increased the relative proportiongains on sales of CDsassets, non-interest income was comparable during 2006 to the total liabilities of the Bank as we decided to use CD promotions to fill our funding needs and lock in the funding costs early as interest rates increased rather than leveraging our balance sheet. Finally, our indirect auto lending portfolio has begun to mature. We expect it will continue to grow, but at a slower pace than in recent years and slower than the comparable pace of loan portfolio and balance sheet growth as a whole. As the indirect loans become a smaller component of our portfolio, we expect the impact of its somewhat higher yields, on the overall loan portfolio yield, will be of decreasing significance. Looking at the year ahead, we expect our margins to remain fairly stable as we expect commercial loan growth to continue in Southwest Florida and to a lesser extent, in the Florida Keys. Our challenge will be to continue to manage and balance this growth coupled with continued near term increases in interest rates with the increasing competition for high yield, high quality commercial credits and market pricing for liabilities.

Non-interest income includes a slight decrease in service2007.  Service charges on deposit accounts to $2.4increased from $2.5 million in 2005;2006 to $2.7 million in 2007, but were offset by a decline in fees on mortgage loans sold. The decrease is primarily attributable to a substantial increase in the usage of electronic and online banking products which result in lower fees per account. We have been encouraging the usage of these products to lower delivery costs throughout our branch distribution system. Fees on mortgage loans sold increased nominally due to increased competition in the local market place combined with lower volume due to a low level of refinancing volume coupled with multiple interruptions of transaction closings caused by the frequency of local severe weather threats along with an overall softening of the residential real estate market.closings in the Monroe and Collier counties markets resulting in lower residential mortgage originations and lower fees from the sale of mortgage loans.

Non-interest expense for 20052007 was $31.9$41.9 million, compared with $27.1$35.8 million a year ago. The increase in non-interest expense for 20052007 is primarily attributable to a 23%12% increase in salaries and employee benefits expenses associated with the Company’s ongoing expansion activities in the Southwest Florida market. Our continued focus on cost containment resulted in netincluding severance costs for certain employees. Salaries and employee benefits for The Bank of Venice, during 2007, were approximately $900,000.  Net occupancy and other expenses increasing less than 12%increased 30% compared to 2004. We expect2006.  The increase in this category includes approximately $371,000 related to The Bank of Venice.  The increase in other expenses was primarily attributable to increases in repossession expenses, consulting engagements, FDIC insurance assessments and $507,000 related to the growth in non-interest expenses to continue at a relatively constant level in dollar terms and become a proportionately smaller percentageoperations of the total business in the future.The Bank of Venice.

Total assets increased 30%10% during 20052007 to $1.08$1.44 billion as of December 31, 2007, compared with $829.3 million$1.32 billion a year ago. Total loans grew 35%6% to $882.4 million$1.13 billion as of December 31, 2005,2007, compared with $653.5 million$1.06 billion a year ago. Commercial real estate mortgage loans accounted for the largest categorical dollar increase during 2005,2007, representing $100.6$65.8 million of the total increase. Asset growth was funded by a $96.7 million increase in FHLB advances and other borrowings and an increase in total deposits to $920.4 million$1.05 billion as of December 31, 2005,2007, representing organic deposit growth of 34%2% from $687.9 million$1.03 billion in the prior year.

Credit quality remained strong as As of December 31, 2005 with2007, the acquisition of The Bank of Venice resulted in $72.9 million, $58.7 million and $51.9 million of the 2007 growth in assets, loans and deposits, respectively.

In response to slowing economic activity and continued softness in residential real estate in our markets, we strengthened our reserve for loan losses.  As of December 31, 2007 the allowance for loan losses totaling $7.5totaled $15.0 million, or 0.86%1.33% of total loans and 789%loans. This level of allowance represents 93% of non-performing loans. These figures compareloans at December 31, 2007. This compares with 0.96%0.90% and 887%227%, respectively, as of December 31, 2004.2006. Annual net charge-offs represented 0.14%0.45% of average loans as of December 31, 2005,2007, compared with 0.24%0.15% as of December 31, 2004.2006.

The considerable growth in ourOur balance sheet and operations reflects the continued success of our strategic expansion into more dynamic growth markets in South Florida. By the end of 2005, more than 44%2007, approximately 51% of the Company’s customer deposit base was located outside the matureour historical core business market of the Florida Keys, compared with just 33% at the beginning of the year. We have been able to continue to generate significant internal organic growth of new deposits and loans in our markets outside of the Keys, while maintaining high quality assets and our stellar compliance record. During 2005, continued disruption in the market from big bank mergers and acquisitions created unprecedented opportunities for TIB to continue to attract customers who prefer to conduct business with a locally managed company. To capitalize on the current environment, the Company continues to add senior lenders and de novo branches in the growth markets in Southwest Florida.Keys.

Economic and Operating Environment Overview

During 2005,2007, business activity in our primary markets reflectedexperienced an economic contraction as the ripple effect of the residential real estate crisis significantly impacted certain of our local markets. The national trends of increasedslowing economic expansion with continued increases inincreased overall employment due toand productivity gains andwere significantly more favorable than the desire to reduce excess capacity.trends in southern Florida.  In an effort to returnrespond to monetary neutrality,the credit and liquidity crisis which arose during the third quarter of 2007 and thereafter, the Federal Reserve electedacted to raiseease monetary policy and promote growth by lowering short-term interest rates 25by 225 basis points eight times during the year. Specifically,between September 2007 and January 2008 including once between regularly scheduled interest rate meetings. Accordingly, the target Federal Funds Rate began 20052007 at 2.25%5.25% and ended the year at 4.25%.  The Prime lending rate continued its recent patterndecreased from 8.25% to 7.25% during the year.

26


The effect of the increasing interest rate environment during 20052007 was a slightcontinued contraction of our net interest margin. The increasingdecreasing Prime rate directly affects yields on loans tied to that index and even loans not indexed to Prime are priced reflective of overall higherlower asset yields. However, throughout the year, many loans remained at floors for some part of the year resulting in a delay of the repricing characteristics of the portfolio. In contrast, our impressive organic growth rate and the related funding needs resulted in our decision to be more competitive on deposit pricing. Our funding mix decisions led to several CD promotions during 2005 allowing us to lock in funding costs in the rising rate environment well in advance of our funding needs while maintaining our borrowing availabilitypricing and liquidity. This strategy resulted in deposit liabilities price increases to attract the required volume of funding. Excess funds were reinvested in lower yielding liquid assets until necessary to fund loan growth and resulted in an overall higher average level of Fed funds sold throughout 2005 as compared to 2004.seek additional wholesale funding. We believe that the net effect of the current interest rate environment will translate into margin stabilitycontraction as we continue to manage these opposing factors with our increased funding needs and our desire to obtain such funding through our branch distribution system rather than increasing the leverage of our balance sheet in the near term.

18


system.

During 2005, the2007, TIB Bank continued to expandstrengthened its underwriting criteria resulting in a contraction of its indirect automobile lending program, in an effort to generate higher relative yielding assets.enhance overall loan quality in this portfolio.  As of December 31, 2005,2007, we had approximately $118$117.4 million of indirect auto loans outstanding.  Coupled with the appropriate safeguards,The balance of outstanding indirect loans declined in 2007 as we believe this product continuesreacted to offer the Bank an opportunity to increase asset yields while not sacrificing our primary objectivelocal economic conditions and a higher level of maintaining strong asset quality. We believe that during 2005,delinquencies and charge-offs resulting from this portfolio began to mature and peaked below 15%which is highly concentrated in southwest Florida, an area significantly impacted by the downturn of the residential housing market. We expect new production in 2008 to be less than loan principal repayments causing the total loan portfolio composition. In maturing,amount of indirect loans began to decrease as a percentage ofheld in the loan portfolio. Looking ahead, management believes the balance of indirect auto loans outstanding will continue to increase, however, we expect the growth rate to decrease steadily as we experience increasing levels of runoff. Additionally, we expect the indirect portfolio to have a reduced effect on portfolio yield as it continues to become an increasingly smaller relative component ofdecline during the loan portfolio as a whole.year.

We also recently announced the completionIn January 2007, we completed construction of our distribution strategy for Collier and Lee counties in Southwest Florida with the identification of and acquisition or contract execution of all related properties. During 2005, we began construction of a 16,000-square-foot banking office in Naples, Florida and subsequently relocated the TIB Bank headquarters to this facility. On April 30, 2007, we completed the acquisition of The Bank of Venice which subsequently opened its second and third branches in Venice, Florida. Construction is expectedWe expect to beginopen one to two additional branches in 2006 on two other Southwest Florida locations.during 2008 and 2009.  Additional branch sites will continue to be explored in other high-growth markets throughout Florida.

Additionally, on December 12, 2007, we entered into an agreement to purchase Naples Capital Advisors, a wealth management and investment advisory firm with approximately $80 million of assets under advisement. Under the terms of the agreement, Naples Capital Advisors will become a wholly-owned subsidiary of the Company. Shareholders of Naples Capital Advisors will be entitled to receive $1.33 million in cash. The closing of the merger occurred on January 2, 2008. During the first quarter of 2008, we began offering private banking services and filed an application to seek approval to capitalize and operate a trust company.

Subsequently, on March 7, 2008, the Company consummated a transaction whereby two of Southwest Florida’s prominent families, their representatives and their related business interests purchased 1.2 million shares of the Company’s common stock and warrants to purchase an additional 1.2 million shares of common stock at an exercise price of $8.40 per share at any time prior to March 7, 2011. Gross proceeds from the investment provided additional capital of $10.1 million.

Analysis of Financial Condition

Our assets totaled $1.08$1.44 billion at December 31, 20052007 compared to $829.3 million$1.32 billion at the end of 2004,2006, an increase of $246.7$125.6 million, or 30%10%.  The effect of the acquisition of The Bank of Venice accounts for $72.9 million of the increase.  The growth in assets was primarily a result of increased investing and lending activity as the BankBanks invested funds provided by significant deposit growth.growth and borrowings.

Total loans increased $228.9$63.8 million or 35%6%, to $882.4 million$1.13 billion at December 31, 2005.2007.  The growth in the loan portfolio was primarily attributed to increases in commercial real estate loans of $100.6$65.8 million and residential real estate loans of $29.9 million, partially offset by a $24.1 million decrease in indirect auto dealer loans of $26.1 million, construction loans of $75.4 million, commercial and agricultural loans of $15.4 million and residential loans of $8.8 million.loans.

Total deposits increased $232.6$20.5 million or 34%2%, from $687.9 million$1.03 billion at the end of 20042006 to $920.4 million$1.05 billion on December 31, 2005.2007.  Non-interest-bearing deposits increased $17.8decreased $16.0 million or 12%10%, while interest-bearing deposits increased $214.8$36.5 million or 40%4%.

27

Borrowed funds, consisting of Federal Home Loan Bank (FHLB) advances, short-term borrowings, notes payable, and subordinated debentures, totaled $59.3$280.9 million at year end 20052007 compared to $65.4$184.3 million at the end of 2004.2006.  During 2005,2007, we reducedincreased our FHLB advances by $10.0$15.0 million.  On January 3, 20051, 2007 we repaid $1.25$4.0 million of the notes payable bearing interest at a 3% premium.9% at par.

Shareholders’ equity increased $9.4$10.4 million or 14%12%, from $68.1$85.9 million on December 31, 20042006 to $77.5$96.2 million at the end of 2005.2007.

Book value per share increased to $13.38$7.53 at December 31, 2005,2007, from $11.99$7.33 at December 31, 2004.2006.
Results of Operations


Results of OperationsNet income

Net income2007 compared with 2006:

2005Net loss from continuing operations was $2.4 million for 2007, compared with 2004:

The Company’s 2005to net income of $11.8$9.0 million increased 127%for 2006.  Basic and diluted loss per share from continuing operations for 2007 were $0.20, as compared to $5.2 million in 2004. Basicbasic and diluted earnings per share of $0.78 and $0.76, respectively, in 2006.

Based on continuing operations, the loss on average assets for 2005 were $2.07 and $2.00, respectively, as2007 was 0.18% compared to $0.98 and $0.95 per share in 2004.a return on average assets of 0.74% for 2006. On the same basis, loss on average shareholders’ equity was 2.5% for 2007 while the return on average shareholders’ equity was 11.05% for 2006.

Net income from continuing operations was $7.2 million for 2005, compared to $4.6 million for 2004, an increase of 55%. As discussed in Note 192 of the accompanying "Notes to Consolidated Financial Statements", the Company closed the sale of the merchant bankcard processing segment in the fourth quarter of 2005. Accordingly, the results of the merchant bankcard operations were classified as discontinued operations during 2006. The Company’s net loss for 2007 was $2.4 million compared to net income of $9.2 million for 2006. Basic and diluted loss per share for 2007 were $0.20 as compared to basic and diluted earnings per share of $0.80 and $0.78, respectively, in 2006.

Contributing significantly to the loss during 2007 were the $9.7 million provision for loan losses and the write-down of $5.7 million of investment securities. In response to continued slowing economic activity and softening real estate values in our markets, our provision for loan losses in excess of net charge offs resulted in an increase of the allowance for loan losses to $15.0 million or 1.33% of total loans at December 31, 2007. For additional information on these items, see the sections that follow entitled “Allowance and Provision for Loan Losses” and “Investment Portfolio”, respectively.
19

2006 compared with 2005:

25%.  Basic and diluted earnings per share from continuing operations for 2006 were $0.78 and $0.76, respectively, as compared to $0.63 and $0.61 per share in 2005.

Return on average assets based on net income from continuing operations was 0.74% for 2006 and 0.63% for 2005, and 2004, while return on average shareholders’ equity based on net income from continuing operations was 10.19%11.05% and 7.83% over the same two years,10.19%, respectively.

2004 compared with 2003:

The Company’s 2004 net income
28


Net income from continuing operations was $4.6 million for 2004, compared to $4.4 million for 2003, an increase of 6%. As discussed in Note 192 of the accompanying "Notes to Consolidated Financial Statements", the Company closed the sale of the merchant bankcard processing segment in the fourth quarter of 2005 and closed2005. Accordingly, the saleresults of the assetsmerchant bankcard operations were classified as discontinued operations during 2006 and 2005. The Company’s 2006 net income of its wholly-owned subsidiary, Keys Insurance Agency, Inc.,$9.2 million decreased 22% compared to $11.8 million in the third quarter2005 due to $4.6 million of 2003.

Return on average assets based on net income from continuingdiscontinued operations was 0.63%in 2005. Basic and 0.71%diluted earnings per share for 20042006 were $0.80 and 2003, while return on average shareholders’ equity based on net income from continuing operations was 7.83%$0.78, respectively, as compared to $1.04 and 11.69% over the same two years, respectively.$1.00 per share in 2005.


Net interest income

Net interest income represents the amount by which interest income on interest-earning assets exceeds interest expense incurred on interest-bearing liabilities.  Net interest income is the largest component of our income, and is affected by the interest rate environment, and the volume and the composition of interest-earning assets and interest-bearing liabilities.  Our interest-earning assets include loans, federal funds sold, interest-bearing deposits in other banks, and investment securities.  Our interest-bearing liabilities include deposits, federal funds purchased, notes payable related to Company shares repurchased, subordinated debentures, FHLB advances, and other short-term borrowings.

20052007 compared with 2004:2006:

Net interest income was $39.1$46.0 million for the year ended December 31, 2005,2007, compared to $30.2$47.1 million for the same period in 2004.2006.  The 30% increase2% decrease was mainly attributable to increased lending volume.deposit accounts re-pricing higher during 2007 lagging prime based asset re-pricings which occurred more timely during 2006 and remained stable throughout the first three quarters of the year. The impact of this lag effect was exacerbated during the fourth quarter as it combined with intense local market competition for deposits as well as the evaporation of wholesale market liquidity resulting in funding rates remaining at higher levels even as the Federal Reserve began swiftly lowering rates in September. Partially offsetting this increase was andecrease were increases in loan and securities volume. Additional factors impacting net interest income included a significant increase in the level of nonaccrual loans, increases in interest expenserates paid on transaction accounts and more significantly time deposits, our highest cost deposit category as a percentage share of total deposits.deposits, along with additional funding from short-term borrowings and FHLB advances.

Many of the Banks’ loans are indexed to the prime rate. The increasecomparability of the level of the prime rate in 2007 and 2006 combined with the impact of a higher level of non-accrual loans and the acquisition of The Bank of Venice is reflected in a slightly lower average yield for the loan portfolio. The acquisition of The Bank of Venice on April 30, 2007 reduced the average loan yield slightly as it generally has a lower yielding loan mix than TIB Bank. The average yield on interest-earning assets for the 2007 was 7.39% which was a decrease of 16 basis points compared to the 7.55% yield earned during 2006.  The average cost of interest-bearing liabilities increased 38 basis points from 2.02%4.07% during 2006 to 4.45% in 2004 to 2.82%2007. The average cost of interest bearing deposits and all interest bearing liabilities reflect in 2005 coupled with higher volumes resulted in anpart the increase in interest expenselocal deposit competition as well as a general liquidity premium resulting from $10.7 million in 2004 to $20.3 million in 2005. Ourworldwide financial market turmoil during the second half of 2007. As a result, our tax equivalent net interest margin contracted slightly58 basis points to 4.38%3.60% from 4.51%4.18% in 2004.2006. Going forward, we expect further market rate increasesinterest rates to more directly affectdecline in the immediate term and then remain relatively stable resulting in a short-term decline in loan yields andfollowed by a period of stability. At the same time, while we expect deposit costs as more adjustable loans move throughwill follow in their floor levels anddecline, they will continue to be subject to the forces of competitive pressurespressure which may result in deposit rates increasingdecreasing more rapidly. Weslowly. In the current interest rate environment, we believe thethat our interest margin will contract further. The predominant driver in the increase in net interest income is and will continue to be the growth of our balance sheet. Although the timing and possible effects of future changes in interest rates could be significant, we expect any such impact to continue to be considerably less in extent than the relative impact of asset growth.

20042006 compared with 2003:2005:

Net interest income was $30.2$47.1 million for the year ended December 31, 2004,2006, compared to $24.8$39.1 million for the same period in 2003.2005.  The 22%20% increase was mainly attributable to increased lending volume.  Partially offsetting this increase was an increasewere increases in interest expense on transaction accounts and more significantly time deposits, our highest cost deposit category as a percentage sharedeposits. Additional funding from short-term borrowings and FHLB advances also increased interest expense. The average yield on interest-earning assets for 2006 was 7.55% which was an increase of total deposits.91 basis points compared to the 6.64% yield earned during 2005. The decrease in the average cost of interest-bearing liabilities increased 125 basis points from 2.13%2.82% during 2005 to 4.07% in 2003 to 2.02%2006. The average cost of interest bearing deposits and all interest bearing liabilities reflect in 2004 partially offset higher volumes resulting in anpart the increase in short-term interest expense from $9.8 millionrates and the change in 2003the funding mix for 2006 as compared to $10.7 million in 2004. The increased loan volumes and lower costs for liabilities more than offset the decrease in asset yields. Our success in managing asset yields through interest rate floors became evident during 2004 as2005. As a result of these changes, our tax equivalent net interest margin increasedcontracted 20 basis points to 4.51%4.18% from 4.43%4.38% in 2003.2005.

The following table sets forth information with respect to the average balances, interest income and average yield by major categories of interest-earning assets; the average balances, interest expense and average rate by major categories of interest-bearing liabilities; the average balances of noninterest-earning assets, noninterest-bearing liabilities and shareholders’ equity; and net interest income, interest rate spread, and net interest margin for the years ended December 31, 2005, 20042007, 2006 and 2003.2005.



Average Balance Sheets

  
2005
 
2004
 
2003
 
(Dollars in thousands)
  Average Balances  
Income/
Expense
 
Yields/
Rates
   Average Balances  
Income/
Expense
 
Yields/
Rates
   Average Balances  
Income/
Expense
 
Yields/
Rates
 
ASSETS                           
Interest-earning assets:                           
Loans (a)(b) $772,363 $54,492 7.06% $590,167 $37,724 6.39% $484,147 $31,669 6.54%
Investment securities—taxable  73,213  2,978 4.07%  58,308  2,344 4.02%  47,729  2,250 4.71%
Investment securities—tax exempt (b)  
9,595
  
572
 
5.96
%
  
9,990
  
615
 
6.16
%
  
7,608
  
499
 
6.56
%
Investment securities—tax exempt (b)(d)  
3,517
  
388
 
11.03
%
  
3,497
  
368
 
10.52
%
  
748
  
89
 
11.88
%
Interest bearing deposits in other banks  
359
  
10
 
2.90
%
  
852
  
11
 
1.29
%
  
309
  
3
 
0.85
%
FHLB stock  2,725  113 4.15%  1,635  57 3.49%  1,667  59 3.53%
Federal funds sold  38,374  1,202 3.13%  11,438  127 1.11%  21,106  242 1.14%
Total interest-earning assets  900,146  59,755 6.64%  675,887  41,246 6.10%  563,314  34,811 6.18%
                            
Non-interest earning assets:                           
Cash and due from banks  21,680        18,866        15,562      
Investment in ERAS  -        -        52      
Premises and equipment, net  27,007        24,295        19,576      
Allowances for loan losses  (6,887)       (5,735)       (4,642)     
Other assets  30,626        26,452        27,749      
Total non-interest earning assets  72,426        63,878        58,297      
Total Assets $972,572       $739,765       $621,611      
                            
LIABILITIES & SHAREHOLDERS’ EQUITY                           
Interest bearing liabilities:                           
Interest bearing deposits:                           
NOW accounts $92,754  919 0.99% $76,068  330 0.43% $59,389  218 0.37%
Money market  165,266  3,686 2.23%  130,172  1,189 0.91%  125,410  1,103 0.88%
Savings deposits  47,774  243 0.51%  44,380  174 0.39%  35,475  170 0.48%
Time deposits  357,824  12,595 3.52%  227,834  6,878 3.02%  198,162  6,444 3.25%
Total interest-bearing deposits  663,618  17,443 2.63%  478,454  8,571 1.79%  418,436  7,935 1.90%
                            
Notes payable  4,052  367 9.06%  5,250  482 9.18%  5,250  481 9.16%
Short-term borrowings and FHLB advances  
39,465
  
1,282
 
3.25
%
  
35,585
  
558
 
1.57
%
  
25,455
  
314
 
1.23
%
Subordinated debentures  13,000  1,212 9.32%  13,000  1,119 8.61%  13,000  1,109 8.53%
Total interest bearing liabilities  720,135  20,304 2.82%  532,289  10,730 2.02%  462,141  9,839 2.13%
                            
Non-interest bearing liabilities and shareholders’ equity:                           
Demand deposits  169,426        139,939        114,344      
Other liabilities  12,443        8,266        7,493      
Shareholders’ equity  70,568        59,271        37,633      
Total non-interest bearing liabilities and shareholders’ equity  
252,437
        
207,476
        
159,470
      
Total liabilities and shareholders’ equity 
$
972,572
       
$
739,765
       
$
621,611
      
Interest rate spread       3.82%       4.08%       4.05%
Net interest income    $39,451       $30,516       $24,972   
Net interest margin (c)       4.38%       4.51%       4.43%
                            
   
  2007  2006  2005 
 
(Dollars in thousands)
 Average Balances  
Income/
Expense
  
Yields/
Rates
  Average Balances  
Income/
Expense
  
Yields/
Rates
  Average Balances  
Income/
Expense
  
Yields/
Rates
 
ASSETS                           
Interest-earning assets:                           
Loans (a)(b) $1,088,751  $84,775   7.79% $989,617  $78,382   7.92% $772,363  $54,492   7.06%
Investment securities (b)  146,376   7,633   5.21%  123,651   6,149   4.97%  86,325   3,938   4.56%
Interest bearing deposits in other banks  383   19   4.96%  448   22   4.94%  359   10   2.90%
FHLB stock  8,408   503   5.98%  4,935   285   5.78%  2,725   113   4.15%
Federal funds sold  42,187   2,144   5.08%  15,465   739   4.78%  38,374   1,202   3.13%
Total interest-earning assets  1,286,105   95,074   7.39%  1,134,116   85,577   7.55%  900,146   59,755   6.64%
                                     
Non-interest earning assets:                                    
Cash and due from banks  20,394           22,402           21,680         
Premises and equipment, net  36,609           32,205           27,007         
Allowances for loan losses  (10,174)          (8,325)          (6,887)        
Other assets  41,167           32,037           30,626         
Total non-interest earning assets  87,996           78,319           72,426         
Total Assets $1,374,101          $1,212,435          $972,572         
                                     
LIABILITIES & SHAREHOLDERS’ EQUITY                                    
Interest bearing liabilities:                                    
Interest bearing deposits:                                    
NOW accounts $151,745   4,967   3.27% $131,386   3,500   2.66% $92,754   919   0.99%
Money market  186,996   7,753   4.15%  166,501   5,959   3.58%  165,266   3,686   2.23%
Savings deposits  55,360   968   1.75%  48,897   346   0.71%  47,774   243   0.51%
Time deposits  486,658   24,172   4.97%  477,204   21,852   4.58%  357,824   12,595   3.52%
Total interest-bearing deposits  880,759   37,860   4.30%  823,988   31,657   3.84%  663,618   17,443   2.63%
                                     
Short-term borrowings and FHLB advances  174,583   7,861   4.50%  86,883   4,102   4.72%  39,465   1,282   3.25%
Long-term borrowings  39,860   3,000   7.53%  27,442   2,412   8.79%  17,052   1,579   9.26%
Total interest bearing liabilities  1,095,202   48,721   4.45%  938,313   38,171   4.07%  720,135   20,304   2.82%
                                     
Non-interest bearing liabilities and shareholders’ equity:                                    
Demand deposits  163,478           174,798           169,426         
Other liabilities  19,338           17,903           12,443         
Shareholders’ equity  96,083           81,421           70,568         
Total non-interest bearing liabilities and shareholders’ equity    278,899             274,122             252,437         
Total liabilities and shareholders’ equity $1,374,101          $1,212,435          $972,572         
Interest rate spread          2.94%          3.48%          3.82%
Net interest income     $46,353          $47,406          $39,451     
Net interest margin (c)          3.60%          4.18%          4.38%
                                     
__________
(a)  Average loans include non-performing loans.  Interest on loans includes loan fees of $706 in 2007, $632 in 2006, and $468 in 2005, $394 in 2004 and $265 in 2003.2005.
(b)  Interest income and rates include the effects of a tax equivalent adjustment using aapplicable Federal tax rate of 34%rates in adjusting tax exempt interest on tax exempt investment securities and loans to a fully taxable basis.
(c)  Net interest margin is net interest income divided by average total interest-earning assets.
(d)  Investment securities indicated hereon were 90% tax deductible during 2005 and 2004, respectively.


Changes in net interest income

The table below details the components of the changes in net interest income for the last two years.  For each major category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes due to average volumes and changes due to rates, with the changes in both volumes and rates allocated to these two categories based on the proportionate absolute changes in each category.

 
2005 compared to 2004
Due to changes in 
2004 compared to 2003
Due to changes in
 
2007 compared to 2006
Due to changes in
  
2006 compared to 2005
Due to changes in
 
(Dollars in thousands)
  Average Volume
 
 
Average Rate
 
 
Net Increase (Decrease) 
 
Average Volume
 
 
Average Rate
 
 
Net Increase (Decrease)  Average Volume  Average Rate  Net Increase (Decrease)  Average Volume  Average Rate  Net Increase (Decrease) 
Interest income
                                
Loans (a) $12,550 $4,218 $16,768 $6,793 $(737)$6,056  $7,738  $(1,345) $6,393  $16,637  $7,253  $23,890 
Investment securities (a)  664 (53) 611 881 (392) 489   1,174   310   1,484   1,830   381   2,211 
Interest-bearing deposits in other banks  (9) 8 (1) 7 1 8   (3)  -   (3)  3   9   12 
FHLB stock  207   11   218   116   56   172 
Federal funds sold  606 469 1,075 (108) (7) (115)  1,355   50   1,405   (918)  455   (463)
FHLB stock  44  12  56  (1) (1) (2)
Total interest income  13,855 4,654 18,509 7,572 (1,136) 6,436   10,471   (974)  9,497   17,668   8,154   25,822 
                                      
Interest expense
                                      
NOW accounts  86 503 589 68 44 112   592   875   1,467   511   2,070   2,581 
Money market  393 2,104 2,497 43 43 86   784   1,010   1,794   28   2,245   2,273 
Savings deposits  14 55 69 38 (34) 4   51   571   622   6   97   103 
Time deposits  4,429 1,288 5,717 918 (484) 434   440   1,880   2,320   4,867   4,390   9,257 
Notes payable  (109) (6) (115) - 1 1 
Subordinated debentures  - 93 93 - 10 10 
Short-term borrowings and FHLB advances  67  657  724  99  145  244   3,957   (198)  3,759   2,047   773   2,820 
Long-term borrowings  972   (384)  588   917   (84)  833 
Total interest expense  4,880 4,694 9,574 1,166 (275) 891   6,796   3,754   10,550   8,376   9,491   17,867 
                                           
Change in net interest income $8,975 $(40)$8,935 $6,406 $(861)$5,545  $3,675  $(4,728) $(1,053) $9,292  $(1,337) $7,955 
                                      
__________
(a)  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.
(a)       Interest income includes the effects of a tax equivalent adjustment using applicable federal tax rates in adjusting tax exempt interest on tax exempt investment securities and loans to a fully taxable basis.


Non-interest income

The following table presents the principal components of non-interest income for the years ended December 31:

(Dollars in thousands)
  
2005
 
 
2004
 
 
2003
  2007  2006  2005 
Fees on mortgage loans sold $1,880 $1,852 $2,201  $1,446  $1,599  $1,880 
Service charges on deposit accounts  2,360  2,547  2,452   2,692   2,457   2,360 
Investment securities gains, net  1  106  289 
Investment securities gains (losses), net  (5,660)  -   1 
Debit card income  572  422  388   733   711   572 
Earnings on bank owned life insurance policies  416  404  433   445   400   416 
Gain on sale of land  267  -  - 
Retail investment services  -  333  420 
Gain on sale of ERAS Joint Venture  -  -  202 
Gain on sale of assets  957   138   267 
Other  762  642  699   749   970   762 
Total non-interest income $6,258 $6,306 $7,084  $1,362  $6,275  $6,258 
                      


Non-interest income decreased by $4.9 million, or 78 %, in 2007 when compared to 2006 and 2005.  The decrease is primarily due to losses on investment securities write-downs of $5.7 million.
Over the past three years, non-interest income has declined from $7.1 million to $6.3 million resulting from our increased focus on our core competencies, middle market commercial lending and community banking. The leading cause of the decline is the sale of our retail investment services in 2004 coupled with the sale of our investment in the ERAS joint venture in 2003.


During 2005, we recognized a gain related to the sale of a parcel of land in Homestead, Florida as a result of a decision to concentrate our branch expansion investments in Southwest Florida.

A significant additional component of this trend is the decline in fees on residential loans sold at origination. This decline is partly due to the overall higher interest rate environment which has resulted in a decline in refinancing volume coupled more recently with an increase in the popularity of variable and adjustable rate mortgages. The change in volume mix resulted in the retention in our portfolio of a greater proportion of the residential loans we originate vs. sell; we generally sell fixed rate residential loans to third parties. Additionally, our pass through volume was affected by the unusually active tropical weather season during 2005 which significantly impacted residential housing sales in our core markets. We intend to maintain current staffing levels with respect to the residential mortgage origination process and expect organic growth from our expanding core customer base and the residential real estate market and population growth trends in the Southwest Florida market to complement increases driven by new saleable mortgage products we plan to offer.

During the three year period, service charge income has declined, driven predominantly by a substantial increase in the utilization of electronic and online banking tools and resulting in lower fees per account. We have been encouraging the sale and usage of these products which lower our service delivery costs throughout our branch distribution system.

20052007 compared to 2004:2006:

Non-interest income decreased slightlyremained relatively constant during 2007 as compared to 2006 excluding the losses on investment securities and increased gains on sale of assets. While service charges on deposit accounts increased approximately 10% to $2.7 million during 2007, this increase was offset by the 10% decline in 2005. In 2005 thefees on mortgage loans sold.  The increase in service charges is primarily due to an increase in overdraft related charges. The decrease in fees on mortgage loans sold which resultis primarily due to lower volumes resulting from the salecontinuing softening of residential loans (primarily fixed rate loans)the local real estate markets.

2006 compared to the secondary market,2005:

Service charges on deposit accounts increased only slightly in 2006.  This increase is primarily due to increased competitiongrowth in the market place combined with lowernumber of deposit accounts and to increases in the volume due to a low level of refinancing and frequent local severe weather threats. TheATM usage.  Debit card income also increased 24.3% over 2005 which resulted from the increase in customer usage of debit card income partially offset the decline in service charge income which was driven primarily by increased utilization of electronic and online banking tools. The sale of internally developed intangible assets comprising the retail investment services book of business in 2004 also contributed to the decline in non-interest income.

2004 compared to 2003:cards.

Non-interest income decreased from $7.1 million in 2003 to $6.3 million in 2004. Fees on mortgage loans sold result from the sale of residential loans (primarily fixed rate loans) to the secondary market. In 2004, our volumes of residential loans decreased as a result of the increasing interest rates and local economic and real estate environment conditions. Retail investment services income decreased during 2004. The December 15, 2004 sale of internally developed intangibles, primarily the investment center’s book of business resulted in a gain of $50,000 which is included in other income. Debit card income rose slightly due primarily to increasing volume despite a reduction in the interchange rate paid to us.

Non-interest expenses

The following table represents the principal components of non-interest expenses for the years ended December 31:

(Dollars in thousands)
  
2005
 
 
2004
 
 
2003
  2007  2006  2005 
Salary and employee benefits $17,724 $14,385 $12,644  $22,550  $20,205  $17,724 
Net occupancy expense  5,502  4,911  4,268   7,979   6,120   5,502 
Accounting, legal, and other professional  1,444  1,223  842   2,144   1,710   1,444 
Computer services  1,650  1,773  1,533   2,172   1,955   1,650 
Postage, courier and armored car  719  617  697   837   845   719 
Marketing and community relations  731  866  851   1,151   983   731 
Operating supplies  589  542  484   581   581   589 
Directors’ fees  468  438  233   568   518   468 
Indirect loan production expense  379  231  -   12   276   379 
Provision for unfunded commitments  316  47  32   (98)  (101)  316 
Travel expenses  299  387  153   396   387   299 
FDIC and state assessments  253  213  189   629   298   253 
Amortization of intangibles  291  295  292   440   288   291 
Repossessed asset expenses  128  64  390   986   312   128 
Operational charge-offs  69  69  82   74   124   69 
Other operating expenses  1,294  996  851   1,500   1,332   1,294 
Total non-interest expenses $31,856 $27,057 $23,541  $41,921  $35,833  $31,856 
                      



Over the past three years, non-interest expenses have increased from $23.5$31.9 million to $31.9 million. The$41.9 million or 32%.  While primarily due to increases in employee salaries and benefits, facilities and infrastructure costs necessary to manage and facilitate our organizational growth, the increase in this category are due primarilyincludes the operating costs of The Bank of Venice subsequent to the increases in employees, facilities and infrastructure necessary to enable and facilitate the expected future growthits acquisition on April 30, 2007.

32



20052007 compared to 2004:2006:

Non-interest expenses increased $4.8expense for 2007 was $41.9 million, in 2005. Approximately $3.3an increase of approximately $6.1 million or 17% over $35.8 million for 2006.  The increase reflects $1.8 million of the increase wasnon-interest expenses of The Bank of Venice which were not present in 2006; increases in employees’ salaries and benefits including severance for certain employees and signing bonuses for newly hired professionals related to salarythe launch of our private banking and the acquisition of Naples Capital Advisors, Inc.; expenses related to consulting engagements; expenses related to the early termination of various contracts; increased repossession related expenses; and an increase in the FDIC insurance assessment.
2006 compared to 2005:

Non-interest expense for 2006 was $35.8 million, an increase of approximately $4.0 million or 12% over $31.9 million for 2005.  The increase in non-interest expense is primarily attributable to salaries and employee benefits.benefits increasing $2.5 million.  At December 31, 2005,2006 the BankCompany had 337 full-time employees and 11 part-time employees, compared to 332 full-time employees and 12 part-time employees compared to 309 full-time employees and 13 part-time employees at December 31, 2004.2005. The increased staffing was attributablehigher personnel costs include approximately $305,000 of stock-based compensation expense.  The Company began recording compensation expense related to stock options on January 1, 2006 pursuant to the ongoing expansion activity in Southwest Floridaadoption of SFAS 123R.  Other expense includes a charitable contribution of approximately $135,000 expressing our commitment to and additions to manage growth throughout the Company. Net occupancy and other expense increased less than 12%. The majority of the increasesreinvestment in the non-interest expense category arecommunity by funding the resultconstruction of costs associated with the growth of our business.affordable local housing.

2004 compared to 2003:

Non-interest expenses increased $3.5 million in 2004. Approximately $1.7 million of the increase was related to salary and employee benefits. At December 31, 2004, the Bank had 309 full-time employees and 13 part-time employees, compared to 261 full-time employees and 15 part-time employees at December 31, 2003. The increased staffing was attributable to the opening of two branches in Southwest Florida in the second half of 2004, additions to the indirect lending department, additions to manage growth throughout the Company, and additions to assist in security and regulatory compliance. The majority of the increases in the non-interest expense category are the result of costs associated with the growth of our business.


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, 2007, 2006, and 2005 2004,were 42%, 36% and 2003 were 36.9%, 34.0%, and 35.0%37%, respectively.  The fluctuations in effective tax rates reflect the effect of the differences in deductibility of certain income and expenses.   In general, as a larger proportionThe primary factor resulting in the higher tax benefit rate during 2007 is the greater relative impact of ourthe effect of tax exempt interest income is generated from fully taxable investments, we expect ouron the pretax loss. During 2006, the lower effective income tax rate was largely due to gradually increase towardsthe recognition of a state income tax credit related to the Company’s funding of affordable housing construction costs for a local charitable organization. During 2006, the Company’s taxable income exceeded the 34% federal statutory levels.income tax bracket and a portion of our taxable income was taxable at a rate of 35%. Additionally, during 2005, due primarily to the gain recognized on the sale of our merchant bankcard processing segment during that year, the Company’s taxable income exceeded the 34% Federal statutory tax bracket. This resultedbracket resulting in a portion of our taxable income being taxed at 35% and 38% statutory Federal income tax rates. Prior to 2005, the Company’s income tax expense had been based on a 34% statutory Federal tax rate. Our future effective income tax rate will fluctuate based on the mix of taxable and tax free investments we make and, to a greater extent, our overall level of taxable income. See Notes 1 and 11 of our consolidated financial statements for additional information about the calculation of income tax expense and the various components thereof.


Loan Portfolio

Prior to our entrance into the Southwest Florida market in 2001, our primary locations were in the Florida Keys (Monroe County) and south Miami-Dade County.  As this region’s primary industry is tourism, commercial loan demand is primarily for resort, hotel, restaurant, marina, and related real estate secured property loans.   We serve this market by offering long-term, adjustable rate financing to the owners of these types of properties for acquisition and improvements.  These loans are often $1 million or larger and may be eligible for government-guarantee programs or traditional participation agreements. The government-funded programs such as the Small Business Administration are generally geared toward long-term, adjustable rate financing. As our business expandshas expanded in Southwest Florida, we believe theour loan portfolio will benefithas benefited from the resulting geographic diversification which is expected to provide more industry-based diversity to our loan portfolio.  As of December 31, 2005,2007, we had approximately $240.1$573.4 million of loans outstanding (excluding(including indirect auto dealer loans) in Southwest Florida, where we had also generated approximately $269.3 million in total deposits.Florida.

The cost of living in Monroe County is higher in comparison to other counties in Florida due in large part to the scarcelimited and expensive real estate with various construction restrictions and environmental considerations.  Accordingly, collateral values on loans secured by property in this market are greater. We have grownCollier and Lee counties in Southwest Florida are significantly higher growth communities and the majority of the growth of our commercial loan portfolio has been generated by aggressively serving this market.  The quality of our credit administration along with historically stable real estate values has kept real estate secured loan losses for recent years 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).assets.  The absolute volume of loans and the volume as a percentage of total earning assets are important determinants of the net interest margin.  GrossTotal loans outstanding increased to $882.4 million$1.13 billion at the end of 20052007 as compared to $653.5 million$1.06 billion at year end 2004,2006, an increase of 35%6%.  Of this amount, real estate mortgage loans increased 39%12% from $473.3$810.4 million to $657.8$904.2 million.  Commercial real estate mortgage loans accounted for much of this increase, growing from $351.3$546.3 million to $452.0$612.1 million at the respective year ends.  Another loan type thatResidential loans also increased significantly growing from $82.2 million at December 31, 2006 to $112.1 million at December 31, 2007. Offsetting these increases in 2005 was2007 were declines in indirect auto dealer loans.  This portfolio increaseddecreased from $91.9$141.6 million at December 31, 20042006 to $118.0$117.4 million at December 31, 2005. Construction loans also increased significantly growing from $49.82007.  The acquisition of The Bank of Venice during 2007 resulted in $58.7 million at December 31, 2004 to $125.2 million at December 31, 2005.of the total loan growth during 2007. We generally originate commercial loans with rates that fluctuate with the prime lending rate or may be fixed for initial periods of 3 to 5 years and residential loans held in the portfolio with rates that fluctuate withadjust periodically and are tied to the one year treasury index.  At December 31, 2005, 76%2007, 74% of the total loan portfolio had floating or adjustable rates.

The following table presents the composition our loan portfolio at December 31:

(Dollars in thousands)
  
2005
 
 
2004
 
 
2003
 
 
2002
 
 
2001
  2007  2006  2005  2004  2003 
Real estate mortgage loans:                               
Commercial $451,969 $351,346 $297,221 $265,113 $232,759  $612,084  $546,276  $451,969  $351,346  $297,221 
Residential  76,003  67,204  60,104  68,389  68,373   112,138   82,243   76,003   67,204   60,104 
Farmland  4,660  4,971  2,317  443  267   11,361   24,210   4,660   4,971   2,317 
Construction  125,207  49,815  32,089  14,893  6,434 
Construction and vacant land  168,595   157,672   125,207   49,815   32,089 
Commercial and agricultural loans  80,055  64,622  63,624  49,212  46,927   72,076   84,905   80,055   64,622   63,624 
Indirect auto dealer loans  118,018  91,890  59,437  16,854  -   117,439   141,552   118,018   91,890   59,437 
Home equity loans  17,232  13,856  12,574  17,475  14,707   21,820   17,199   17,232   13,856   12,574 
Other consumer loans  9,228  9,817  11,232  9,364  9,637   12,154   9,795   9,228   9,817   11,232 
Subtotal  882,372  653,521  538,598  441,743  379,104   1,127,667   1,063,852   882,372   653,521   538,598 
Less: deferred loan costs (fees)  1,652  2,157  1,815  784  (157)  1,489   1,616   1,652   2,157   1,815 
Less: allowance for loan losses  (7,546) (6,243) (5,216) (4,272) (3,675)  (14,973)  (9,581)  (7,546)  (6,243)  (5,216)
Net loans $876,478 $649,435 $535,197 $438,255 $375,272  $1,114,183  $1,055,887  $876,478  $649,435  $535,197 
                                    
The two most significant components of our loan portfolio are commercial real estate and construction and vacant land. Our goal of maintaining high standards of credit quality include a strategy of diversification of loan type and purpose within these categories. The following charts illustrate the composition of these portfolios as of December 31.

  2007  2006 
(Dollars in thousands) 
Commercial
Real Estate
  
Percentage
Composition
  
Commercial
Real Estate
  
Percentage
Composition
 
Mixed Use Commercial/Residential $103,937   17% $92,220   17%
1-4 Family and Multi Family  76,339   13%  75,154   14%
Hotels/Motels  86,909   14%  77,055   14%
Guesthouses  81,817   13%  76,990   14%
Office Buildings  97,633   16%  74,380   14%
Retail Buildings  64,819   11%  57,930   10%
Restaurants  37,186   6%  31,802   6%
Marinas/Docks  20,364   3%  26,312   5%
Warehouse and Industrial  29,958   5%  21,206   4%
Other  13,122   2%  13,227   2%
Total $612,084   100% $546,276   100%
                 

34

  2007  2006 
(Dollars in thousands) 
Construction and
 Vacant Land
  
Percentage
Composition
  
Construction and
 Vacant Land
  
Percentage
Composition
 
Construction:            
Residential – owner occupied
 $20,620   12% $23,892   15%
Residential – commercial developer
  36,107   21%  42,664   27%
Commercial structure
  14,367   9%  24,035   15%
Total construction  71,094   42%  90,591   57%
                 
Land:                
Raw land
  15,890   9%  6,580   4%
Residential lots
  16,775   10%  19,759   13%
Land development
  29,818   18%  9,578   6%
Commercial lots
  35,018   21%  31,164   20%
Total land  97,501   58%  67,081   43%
                 
Total $168,595   100% $157,672   100%
                 
The contractual maturity distribution of our loan portfolio at December 31, 20052007 is indicated in the table below.  The vast majority of these are amortizing loans.


  Loans maturing 
(Dollars in thousands) 
Within
1 Year
  
1 to 5
Years
  
After
5 Years
  Total 
Real estate mortgage loans:            
Commercial $72,530  $95,315  $444,239  $612,084 
Residential  3,221   1,761   107,156   112,138 
Farmland  1,021   1,831   8,509   11,361 
Construction and vacant land (a)  79,180   60,431   28,984   168,595 
Commercial and agricultural loans  33,840   24,579   13,657   72,076 
Indirect auto dealer loans  3,557   97,109   16,773   117,439 
Home equity loans  1,851   6,610   13,359   21,820 
Other consumer loans  2,428   7,117   2,609   12,154 
Total loans $197,628  $294,753  $635,286  $1,127,667 
                 
  
Loans maturing 
(Dollars in thousands)
  
Within
1 Year
 
 
1 to 5
Years
 
 
After
5 Years
 
 
Total 
Real estate mortgage loans:             
Commercial $51,939 $90,681 $309,349 $451,969 
Residential  12  3,393  72,598  76,003 
Farmland  -  1,563  3,097  4,660 
Construction (a)  39,500  51,004  34,703  125,207 
Commercial and agricultural loans  38,067  31,438  10,550  80,055 
Indirect auto dealer loans  609  94,021  23,388  118,018 
Home equity loans  3,143  2,338  11,751  17,232 
Other consumer loans  543  5,206  3,479  9,228 
Total loans $133,813 $279,644 $468,915 $882,372 
              

__________
(a)  $17,480 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, some of which have been approved for permanent financing but are still under construction.
(a)$22,364 of this amount relates to residential real estate construction loans that have been approved for permanent financing but are still under construction. The remaining amount relates to vacant land and commercial real estate construction loans, some of which have been approved for permanent financing but are still under construction.






 
Loans maturing
 Loans maturing 
(Dollars in thousands)
  
Within
1 Year
 
 
1 to 5
Years
 
 
After
5 Years
 
 
Total  
Within
1 Year
  
1 to 5
Years
  
After
5 Years
  Total 
Loans with:                         
Predetermined interest rates $14,388 $145,895 $52,178 $212,461  $44,706  $191,381  $55,886  $291,973 
Floating or adjustable rates  119,425  133,749  416,737  669,911   152,922   103,372   579,400   835,694 
Total loans $133,813 $279,644 $468,915 $882,372  $197,628  $294,753  $635,286  $1,127,667 
                             


Allowance and Provision for Loan Losses

The allowance for loan losses is a valuation allowance for probable incurred credit losses in the loan portfolio.  Our formalized process for assessing the adequacy of the allowance for loan losses and the resultant need, if any, for periodic provisions to the allowance charged to income, includes both individual loan analyses and loan pool analyses.  Individual loan analyses are periodically performed on loan relationships of a significant size, or when otherwise deemed necessary, and primarily encompass commercial real estate and other commercial loans.  The result is that commercial real estate loans and commercial loans are divided into the following risk categories: Pass, Special Mention, Substandard and Substandard or worse.Loss.  When appropriate, a specific reserve will be established for individual loans.  Otherwise, we allocate an allowance for each risk category.  The allocations are based on factors including historical loss rate, perceived economic conditions (local, national and global), perceived strength of our management, recent trends in loan loss history, and concentrations of credit.

Home equity loans, indirect auto dealer loans, residential loans and consumer loans generally are not analyzed individually.   These loans are grouped into pools and assigned risk categories based on their current payment status and management’s assessment of risk inherent in the various types of loans.  As above, when appropriate, a specific reserve will be established for individual loans.  Otherwise, we allocate an allowance for each loan classification.  The allocations are based on the same factors mentioned above.

Since most of the factors that we use in constructing our estimate for the allowance have been relatively stable in recent years, the provisions we have used to fund this allowance have been necessitated primarily by the overall level of loan growth and to replenish the allowance for specific charge-offs. Because we are principally a commercial bank and have a loan to deposit ratio greater than 90%, any estimate that is used as a multiplier on loan balances reflecting our best perception of a particular type of risk has the potential to have significant income effects if these multipliers change. Increases in volume and concentration of commercial real estate and indirect auto dealer loans relative to the overall composition of the loan portfolio translate to a greater than average increase in the provision for loan losses as our risk management policies dictate generally higher allocations of such provisions for these categories of loans.

During 2005, as the indirect auto dealer loan portfolio began to mature, the loss history has approached expected levels and the management processes, controls and monitoring and risk management tools implemented throughout recent years indicate that higher multipliers were necessary for the indirect loan portfolio. Contemporaneously, as the Florida economy has grown at an accelerated pace compared to other markets, real estate prices have escalated and local economies have benefited resulting in diminishing historical and expected loss factors. Analysis of these events results in these same tools indicating that lower multipliers were necessary for commercial loans collateralized by real estate. Looking forward, the concentration of indirect auto dealer loan category began to decrease during 2005 and management expects this trend to continue as the growth rate of the indirect loan portfolio declines along with its proportion of the loan portfolio as a whole. As this occurs, if we make the assumption, however unlikely, that all other factors were to remain constant, we would expect that the allowance for loan losses would continue to decrease as a percentage of gross loans in the near term. There is no assurance that this will occur.

Further, since the net result of our calculation for the allowance results in this amount being 0.86% of outstanding loans, the risks associated with changes in the underlying factors of this calculation have an asymmetrical risk to the extent of possible negative as opposed to positive consequences. In other words, the current allowance reflects factors whose history has indicated and justified a relatively low allowance in percentage terms. These factors have limited capacity for improvement since associated risks cannot go to zero. However, for example, factors such as economic conditions and loan loss history could conceivably deteriorate dramatically. If that were to happen, the effect on the allowance calculation would be significant and, therefore, require a large provision to absorb higher potential losses.


Senior management and the Board of Directors review this calculation and the underlying assumptions on a routine basis not less frequently than quarterly.

The allowance for loan losses amounted to $7.5$15.0 million and $6.2$9.6 million at December 31, 20052007 and December 31, 2004,2006, respectively.  Based on an analysis performed by management at December 31, 2005,2007, the allowance for loan losses is considered to be adequate to cover estimated loan losses in the portfolio as of that date.   However, management’s judgment is based upon a number of assumptions about future events, which are believed to be reasonable, but which may or may not prove valid.  Thus, there can be no assurance that charge-offs in future periods will not exceed the allowance for loan losses or that significant additional increases in the allowance for loan losses will not be required.  In addition, various regulatory agencies, as an integral part of their examination process, periodically review our allowance for loan losses.  Such agencies may require us to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.

The provision for loan losses is a charge to income in the current period to replenish the allowance and maintain it at a level that management has determined to be adequate to absorb estimated losses in the loan portfolio.  Our provision for loan losses was $2.4$9.7 million, $2.5$3.5 million and $1.6$2.4 million for the years ended December 31, 2007, 2006 and 2005, 2004respectively. Loan growth of $181.5 million and 2003,$228.9 million was the primary driver of the provision for loan losses during 2006 and 2005, respectively. The higher provision for loan losses in 2007 was primarily attributable to the continued contraction of residential real estate activity and the ripple effect on our local economies as well as the increase in our nonperforming loans, delinquencies and charge-offs. Additionally, due to the weakening economic environment, we increased economic risk factors employed in estimating the allowance during the second quarter of 2006 and have maintained these higher factors since that period. We again elevated certain quantitative and qualitative factors used in estimating our allowance for loan losses during each quarter of 2007.

Management continuously monitors and actively manages the credit quality of the loan portfolio and will continue to recognize the provision required to maintain the allowance for loan losses at an appropriate level. Due to the economic slowdown discussed above our customers are exhibiting increasing difficulty in timely payment of their loan obligations. We believe that this trend will continue in the near term. Consequently, we may experience higher levels of delinquent and nonperforming loans, which may require higher provisions for loan losses, higher charge-offs and higher collection related expenses in future periods.

36

Changes affecting the allowance for loan losses are summarized for the years ended December 31,


(Dollars in thousands)
  
2005
 
 
2004
 
 
2003
 
 
2002
 
 
2001
 
 2007  2006  2005  2004  2003 
Balance at beginning of year
 $6,243 $5,216 $4,272 $3,675 $3,268  $9,581  $7,546  $6,243  $5,216  $4,272 
                                    
Charge-offs:
                                    
Real estate mortgage loans:                                    
Commercial  -  -  -  211  372   118   -   -   -   - 
Residential  -  -  -     21   63   -   -   -   - 
Farmland  -  -  -  -  -   -   -   -   -   - 
Construction  -  -  -  -  - 
Construction and vacant land  1,251   -   -   -   - 
Commercial and agricultural loans  107  92  183  14  200   278   12   107   92   183 
Indirect auto dealer loans  1,045  1,313  370  16  -   3,110   1,557   1,045   1,313   370 
Home equity loans  -  -  53  15  -   331   -   -   -   53 
Other consumer loans  67  82  61  46  30   51   4   67   82   61 
Total charge-offs  1,219  1,487  667  302  623   5,202   1,573   1,219   1,487   667 
                                    
Recoveries:
                                    
Real estate mortgage loans:                                    
Commercial  -  -  6  84  -   -   -   -   -   6 
Residential  -  -  -  -  10   -   -   -   -   - 
Farmland  -  -  -  -  -   -   -   -   -   - 
Construction  -  -  -  -  - 
Construction and vacant land  -   -   -   -   - 
Commercial and agricultural loans  6  38  1     4   -   20   6   38   1 
Indirect auto dealer loans  65  3  8  -  -   262   55   65   3   8 
Home equity loans  8  2  1  -  -   2   2   8   2   1 
Other consumer loans  30  16  9  24  11   6   40   30   16   9 
Total recoveries  109  59  25  108  25   270   117   109   59   25 
                                    
Net charged off  1,110  1,428  642  194  598   4,932   1,456   1,110   1,428   642 
                                    
Provision for loans losses  2,413  2,455  1,586  791  1,005 
Provision for loan losses  9,657   3,491   2,413   2,455   1,586 
                    
Acquisition of The Bank of Venice  667   -   -   -   - 
                                    
Allowance for loan losses at end of year $7,546 $6,243 $5,216 $4,272 $3,675  $14,973  $9,581  $7,546  $6,243  $5,216 
                                    
Ratio of net charge-offs to average net loans outstanding  
0.14
%
 
0.24
%
 
0.13
%
 
0.05
%
 
0.17
%
  0.45%  0.15%  0.14%  0.24%  0.13%
                                    


2737


While no portion of the allowance is in any way restricted to any individual loan or group of loans and the entire allowance is available to absorb losses from any and all loans, the following table represents management’s best estimate of the allocation of the allowance for loan losses to the various segments of the loan portfolio based on information available as of December 31. Qualitative factors used in determining the allowance for loan losses resulted in the establishment of an unallocated reserve totaling approximately $1.1 million as of December 31, 2007.  Due to the ongoing evaluation and changes in the basis for the allowance for loan losses, actual future charge offs will not necessarily follow the allocations described below.


2005
2004
2003
2002
2001
 2007  2006  2005  2004  2003 
(Dollars in thousands)
 Allowance
 
% of Total Loans
 
 
Allowance
 
 
% of Total Loans
 
 
Allowance
 
 
% of Total Loans
 
 
Allowance
 
% of Total Loans
 
 
Allowance
 
% of Total Loans  Allowance  % of Total Loans  Allowance  % of Total Loans  Allowance  % of Total Loans  Allowance  % of Total Loans  Allowance  % of Total Loans 
Real estate mortgage loans:                                                         
Commercial$2,971 51.2 $2,513  53.7 $2,608  55.2 $2,656 60.0 $2,120 61.4  $5,250   54% $3,764   51% $2,971   51% $2,513   54% $2,608   55%
Residential 168 8.6  144  10.3  151  11.2  178 15.5  183 18.0   381   10%  191   8%  168   9%  144   10%  151   11%
Farmland 30 0.5  34  0.8  20  0.4  4 0.1  - 0.1   84   1%  161   2%  30   1%  34   1%  20   1%
Construction 743 14.2  312  7.6  217  6.0  87 3.4  26 1.7 
Construction and vacant land  1,218   15%  922   15%  743   14%  312   8%  217   6%
Commercial and agricultural loans 912 9.1  737  9.9  901  11.8  740 11.1  917 12.4   1,547   6%  1,002   8%  912   9%  737   10%  901   12%
Indirect auto dealer loans 2,523 13.4  2,312  14.1  1,095  11.0  169 3.8  - -   5,072   11%  3,352   13%  2,523   13%  2,312   14%  1,095   11%
Home equity loans 85 2.0  67  2.1  78  2.3  216 4.0  259 3.9   213   2%  87   2%  85   2%  67   2%  78   2%
Other consumer loans 114  1.0  124  1.5  146  2.1  222  2.1  170  2.5   113   1%  102   1%  114   1%  124   1%  146   2%
Unallocated  1,095       -       -       -       -     
$7,546  100%$6,243  100%$5,216  100%$4,272  100%$3,675  100% $14,973   100% $9,581   100% $7,546   100% $6,243   100% $5,216   100%
                                                                   


Non-Performing Assets

Non-performing assets include non-accrual loans and investments securities, accruing loans contractually past due 90 days or more, repossessed personal property, and other real estate.  Loans and investments are placed on non-accrual status when management has concerns relating to the ability to collect the loan principal and interest and generally when such loansassets are 90 days or more past due.  A loan is considered impaired when it is probable that not all principal and interest amounts will be collected according to the loan contract.  Non-performing assets were as follows for the periods ending December 31:


(Dollars in thousands)
  
2005
 
2004
 
2003
 
2002
 
2001
 
 2007  2006  2005  2004  2003 
Total non-accrual loans(a) $956 $704 $390 $546 $1,590  $16,086  $4,223  $956  $704  $390 
Accruing loans delinquent 90 days or more (a)  -  -  -  -  -   -   -   -   -   - 
Total non-performing loans  956 704 390 546 1,590   16,086   4,223   956   704   390 
                                
Repossessed personal property (indirect auto dealer loans)  962 688 598 70 - 
Other real estate owned (b)  190 882 193 550 550 
Other assets (b)  2,815  2,665  2,472  2,519  2,290 
Non-accrual investment security(b)  3,154   -   -   -   - 
Repossessed personal property (primarily indirect auto dealer loans)  3,136   1,958   962   688   598 
Other real estate owned  1,846   -   190   882   193 
Other assets (c)  2,915   2,861   2,815   2,665   2,472 
Total non-performing assets $4,923 $4,939 $3,653 $3,685 $4,430  $27,137  $9,042  $4,923  $4,939  $3,653 
                                
Allowance for loan losses $7,546 $6,243 $5,216 $4,272 $3,675  $14,973  $9,581  $7,546  $6,243  $5,216 
                                
Non-performing assets as a percent of total assets  0.46% 0.60% 0.55% 0.65% 0.90%  1.88%  0.69%  0.46%  0.60%  0.55%
Non-performing loans as a percent of gross loans  0.11% 0.11% 0.07% 0.12% 0.42%
Allowance for loan losses as a percent of non-performing loans  789.33% 886.79% 1,336.33% 783.19% 231.07%
Non-performing loans as a percent of total loans  1.43%  0.40%  0.11%  0.11%  0.07%
Allowance for loan losses as a percent of non-performing loans (a)  93.08%  226.88%  789.33%  886.79%  1,336.33%
                                
__________
38

_________
(a)  Non-performing loans from 2003 through 2005 exclude the $1.6 million loan discussed below that is guaranteed for both principal and interest by the USDA. In December 2006, the Bank stopped accruing interest on this loan pursuant to a ruling made by the USDA. Accordingly, the loan is included in total non-accrual loans as of December 31, 2006 and 2007. Other non-accrual loans at December 31, 2003 through December 31, 2006 are primarily indirect auto dealer loans. Non-accrual loans as of December 31, 2007 and 2006 are as follows:
  December 31, 2007  December 31, 2006 
Collateral Description 
Number of
Loans
  Outstanding Balance  
Number of
Loans
  Outstanding Balance 
Residential 1-4 family  13  $4,442   2  $150 
Commercial and agricultural  4   293   1   142 
Commercial real estate  4   2,619   1   396 
Residential land development  1   2,686   -   - 
Participations in residential loan pools  9   1,246   -   - 
Government guaranteed loan  1   1,641   1   1,641 
Indirect auto-dealer loans  238   3,159   156   1,894 
      $16,086      $4,223 
                 
(b)  TheIn December 2007, the Company placed a collateralized debt security secured primarily by homebuilders, REITs, real estate companies and commercial mortgage backed securities on non-accrual. This security had an original cost of $6.0 million and was rated A at purchase. Additionally, management deemed the decline in market value of this security other than temporary and recorded a realized loss of $2.8 million in writing the security down to its December 31, 2007 fair value of $3.2 million. For additional details on this and other investment securities, see the section of management’s discussion and analysis that follows entitled “Investment Portfolio”.

(c)  In 1998, TIB Bank made a $10.0 million loan to construct a lumber mill in northern Florida. Of this amount, $6.4 million had been sold by the Bank to other lenders. The loan was partially80% guaranteed as to principal and interest by the U.S. Department of Agriculture (USDA). In addition to business real estate and equipment, the loan was collateralized by the business owner’s interest in a trust. Under provisions of the trust agreement, beneficiaries cannot receive trust assets until November 2010.

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 $1.9 million) based on the fair value of the underlying-collateral. The portion of this loan guaranteed by the USDA and held by us was approximately $1.6 million at December 31, 20052007 and December 31, 2004, and is2006. The loan was accruing interest.interest until December 2006 when the Bank ceased the accrual of interest pursuant to a ruling made by the USDA.  Accrued interest on this loan totals approximately $794,000 and $677,000$941,000 at December 31, 20052007 and December 31, 2004,2006, respectively.

In pursuing a sale of the property and equipment, the Bank has incurred various expenditures.  The Bank capitalized the liquidation costs and portion of the protective advances which it expects will be fully reimbursed by the USDA. Other real estate recorded on the Bank’s books totaled approximately $190,000 at December 31, 2005 and December 31, 2004, respectively. The non-guaranteed principal and interest ($2.0 million at December 31, 20052007 and December 31, 2004)2006) and the reimbursable capitalized liquidation costs and protective advance costs totaling approximately $854,000$954,000 and $704,000$899,000 at December 31, 20052007 and December 31, 2004,2006, respectively, are included as “other assets” in the financial statements.

The Bank sold certain pieces of equipment associated with the lumber mill property. Proceeds from the sales were used to reduce the other real estate amount and liquidation cost amounts recorded on the Bank’s books. In 2003, the Bank wrote down the carrying amount of the other real estate by $262,000 based upon anticipated proceeds from the sale of the property and remaining equipment. In January 2006, the Bank sold the remaining other real estate for $1.25 million and recognized a gain of $33,000 on the Bank’s interest therein, net of transaction costs.

Florida law requires a bank to liquidate or charge off repossessed real property within five years, and repossessed personal property within six months. The Bank was awarded title to the real property on June 12, 2001, and an adjudicated interest in the owner’s trust proceeds. The time constraints imposed by Florida law required that the personal property be disposed of or charged off by December 2001. The Bank applied to the State of Florida for an extension to carry the personal property on the Bank’s books and was granted an extension to carry the personal property on its books until June 11, 2003. Since the property had not been liquidated as of June 11th,during this period, the Bank charged-off the non guaranteed principal and interest totaling $2.0 million at June 30, 2003, for regulatory purposes.  Since we believe this amount is ultimately realizable, we did not write off this amount for financial statement purposes under generally accepted accounting principles.
  In February 2008, a $13.5 million commercial land development loan matured and was placed on non-accrual because the borrowers were unable to service the debt.

39

Liquidity and Rate Sensitivity

Liquidity represents the ability to provide steady sources of funds for loan commitments and investment activities, as well as to provide sufficient funds to cover deposit withdrawals and payments of debt, off-balance sheet obligations and operating obligations.  Funds can be obtained from operations by converting assets to cash, by attracting new deposits, by borrowing, by raising capital and other ways.

Major sources of increases and decreases in cash and cash equivalents are as follows for the three years ending December 31:


(Dollars in thousands) 2007  2006  2005 
Provided by operating activities $3,770  $11,607  $19,998 
Used by investing activities  (40,328)  (229,815)  (246,077)
Provided by financing activities  52,065   232,250   224,651 
Net increase (decrease) in cash and cash equivalents $15,507  $14,042  $(1,428)
             
(Dollars in thousands)
  
2005
 
 
2004
 
 
2003
 
Provided by operating activities $19,998 $6,801 $9,574 
Used by investing activities  (246,077) (151,336) (98,767)
Provided by financing activities  224,651  153,792  98,804 
Net (decrease) increase in cash and cash equivalents $(1,428)$9,257 $9,611 
           

As discussed in Note 16 of the Consolidated Financial Statements, the Company had unfunded loan commitments and unfunded letters of credit totaling $231.0$136.1 million at December 31, 2005.2007.  The Company believes the likelihood of these commitments either needing to be totally funded or funded at the same time is low.  However, should significant funding requirements occur, the Company has available borrowing capacity from various sources as discussed below.

The Bank has anBanks have unsecured overnight federal funds purchased accommodation up to a maximum of $12.0$30.0 million from itstheir principal correspondent bank.banks.  Additionally, the Banks have agreements with various financial institutions under which securities can be sold under agreements to repurchase. Further, the Bank hasBanks have invested in FHLB stock for the purpose of establishing credit lines with the FHLB. The credit availability to the BankBanks is equal to up to 20%based on a percentage of the Bank’sBanks’ total assets as reported on the December 31, 2005most recent quarterly financial information submitted to the Bank’s regulators. The credit availability fromregulators subject to the FHLB approximated $176.3 million atpledging of sufficient collateral.  At December 31, 2005 under which $252007, in addition to $25.0 million in letters of credit used in lieu of pledging securities to the State of Florida there was $140.0 million in advances outstanding.  Borrowings against this line of credit are collateralized by the Bank’sBanks’ qualifying one-to-four family residential mortgage loans and commercial real estate loans. The amount eligible for collateral approximated $200.9 million at December 31, 2007.

Scheduled maturities and paydowns of loans and investment securities are a continued 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.

29


At December 31, 2005,2007, our gross loan to deposit ratio was 95.9%107.5% compared to a ratio of 95.0%103.3% at December 31, 2004.2006.  Management monitors and assesses the adequacy of our 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 Banka bank exceeds the Bank’sbank’s net profits to date for that year combined with its retained net profits for the preceding two years.  Retained earnings of theSubsequent to year end, TIB Bank available for paymentpaid $7.6 million of dividends to us withoutthe holding company that had been declared during 2007. Based on the level of undistributed earnings for the prior two years, declaration of dividends by TIB Bank, during 2008, would likely require regulatory approval at December 31, 2005 is approximately $21.2 million.approval. The Bank of Venice has no retained earnings available for dividends.  These dividends represent the Company’s primary source of liquidity on a stand alone basis.

Closely related to liquidity management is the management of interest-earning assets and interest-bearing liabilities.  The Company manages its rate sensitivity position to avoid wide swings in net interest margins and to minimize risk due to changes in interest rates.

40

Our interest rate sensitivity position at December 31, 20052007 is presented in the table below.


(Dollars in thousands)
  
3 Months or Less
 
4 to 6 Months
 
7 to 12 Months
 
1 to 5 Years
 
Over 5 Years
 
Total
  
3 Months
or Less
  
4 to 6
Months
  
7 to 12
Months
  
1 to 5
Years
  
Over 5
Years
  Total 
Interest-earning assets:
                                
Loans $406,710 $31,313 $49,652 $320,189 $74,508 $882,372  $337,276  $44,677  $81,806  $540,507  $123,401  $1,127,667 
Investment securities-taxable  981 5,116 99 51,375 26,870 84,441   35,969   9,997   7,284   18,383   77,916   149,549 
Investment securities-tax exempt  - - 310 2,778 6,496 9,584   1,486   683   201   968   6,246   9,584 
Marketable equity securities  3,439 - - - - 3,439   1,224   -   -   -   -   1,224 
FHLB stock  2,781 - - - - 2,781   8,881   -   -   -   -   8,881 
Federal funds sold  17,163 - - - - 17,163 
Federal funds sold and securities purchased under agreements to resell  48,744   -   -   -   -   48,744 
Interest-bearing deposit in other banks  292  -  -  -  -  292   146   -   -   -   -   146 
Total interest-bearing assets  431,366  36,429  50,061  374,342  107,874  1,000,072   433,726   55,357   89,291   559,858   207,563   1,345,795 
                                      
Interest-bearing liabilities:
                                      
NOW accounts  104,641 - - - - 104,641   161,878   -   -   -   -   161,878 
Money market  167,072 - - - - 167,072   176,900   -   -   -   -   176,900 
Savings deposits  47,091 - - - - 47,091   55,045   -   -   -   -   55,045 
Time deposits  159,760 71,412 78,732 121,894 6 431,804   138,116   131,831   152,922   89,885   -   512,754 
Notes payable  - - - - 4,000 4,000 
Subordinated debentures  5,000 - - - 8,000 13,000   25,000   -   -   -   8,000   33,000 
Other borrowings  42,284  -  -  -  -  42,284   102,922   -   30,000   115,000   -   247,922 
Total interest-bearing liabilities  525,848  71,412  78,732  121,894  12,006  809,892   659,861   131,831   182,922   204,885   8,000   1,187,499 
                                      
Interest sensitivity gap $(94,482)$(34,983)$(28,671)$252,448 $95,868 $190,180  $(226,135) $(76,474) $(93,631) $354,973  $199,563  $158,296 
                                      
Cumulative interest sensitivity gap $(94,482)$(129,465)$(158,136)$94,312 $190,180 $190,180  $(226,135) $(302,609) $(396,240) $(41,267) $158,296  $158,296 
                                      
Cumulative sensitivity ratio  (9.4%) (12.9%) (15.8%) 9.4% 19.0% 19.0%  (16.8%)  (22.5%)  (29.4%)  (3.1%)  11.8%  11.8%
                                      


We are cumulatively liability sensitive through the one-yearfive-year time period, and asset sensitive in the over onefive year timeframestimeframe above.  Certain liabilities such as non-indexed NOW and passbook savings accounts, while technically subject to immediate repricingre-pricing in response to changing market rates, historically do not repricere-price as quickly or to the extent as other interest-sensitive accounts.  Nevertheless, ifIf market interest rates should decrease, it is anticipated that our net interest margin would decrease.  BecauseAlso, as approximately 14% of our deposit funding is comprised of non-interest-bearing liabilities, total interest-earning assets are substantially greater than the total interest-bearing liabilities and therefore it is anticipated that, over time, the effects on net interest income from changes in asset yield will be greater than the change in expense from liability cost.  In the next three months, we anticipate short-term interest rates increasing slowlymay decline and we expect that our net interest margin should remain fairly stablemay decline. This expectation is due to the effects of competitive pressure on loan production at higher interest rates. Thereafter, ifcombined with increased depositor rate sensitivity. Due to the Federal Reserve’s recent monetary policy where short-term interest rates continue to increase, it is anticipatedare decreasing, we anticipate that theour net interest margin contraction would expand slightly over longer time horizons sincebe slower because we have positioned the Company hasby increasing our liability sensitivity through variable borrowings and shorter term certificates of deposit. We expect this will be largely offset by the effect of having more total assets subject to rate changes than total liabilities that are rate sensitive.

3041


Even in the near term, we believe the $158.1$396.2 million one year cumulative negative sensitivity gap may exaggerate the probable effects on earnings in a rising rate environment for two reasons.  First, the liabilities subject to repricingre-pricing are predominately not indexed to any specific market rate and therefore offer usthey may not fully reflect the opportunity to delay or diminishchanges in market rates in any rate repricings.re-pricings.  Further, the assets subject to re-pricing are expected to reflect fully any changes in this current rate environment,market rates, primarily the Bank has been originating loans with interest rate floors. The effect of this has been to decrease the volatility of net interest margin and decrease asset sensitivity due to the fact that these loans behave similar to fixed rate loans in periods over a significant range of interest rate changes.prime rate.

Interest-earning assets and time deposits are presented based on their contractual terms.  It is anticipated that run off in any deposit category will be approximately offset by new deposit generation. Since we have experienced steady growth in deposits, no net run off in any deposit category is assumed in the interest rate sensitivity table. It is our policy to maintain our cumulative one year gap ratio in the -20%-30% to +10%0% range.  At December 31, 2005,2007, the Company was within this range with a one year cumulative sensitivity ratio of -15.8%-29.4%. Anticipating the end of the cycle of Federal Reserve interest rate hikes, we had intentionally increased the liability sensitivity of the balance sheet through variable rate funding decisions when possible.  The effectiveness of this tactic will depend on the timing and extent of the current round of interest rate decreases.

Investment Portfolio

Contractual maturities of investment securities at December 31, 20052007 are shown below.  Expected maturities may differ from contractual maturities because borrowers may have the right to call or repay obligations without call or prepayment penalties. Other securities include mortgage-backed securities and marketable equity securities and collateralized mortgage obligations which are not due at a single maturity date.


(Dollars in thousands)
Within 1 Year
 
After 1 Year
Within 5 Years
 
After 5 Years
Within 10 Years
 
After 10 Years
 
 
Other Securities
  Within 1 Year  
After 1 Year
Within 5 Years
  
After 5 Years
Within 10 Years
  After 10 Years  Other Securities 
Amount   Yield   Amount Yield   Amount Yield   Amount Yield   Amount 
 Amount  Yield  Amount  Yield  Amount  Yield  Amount  Yield  Amount 
Securities Available for Sale:                                                      
U.S. Treasury Securities$100 2.27% $4,938 3.32% $- -  $- -  $- 
U.S. Gov’t agencies and corporations 5,115 4.55%  39,485 3.45%  17,812 4.45%  - -   -  $8,525   3.09% $25,236   4.73% $27,958   5.12% $11,942   5.57% $- 
States and political subdivisions - tax exempt (a) 
-
 
-
   
3,088
 
6.15
%
  
4,348
 
6.04
%
  
2,148
 
5.53
%
  
-
 
States and political subdivisions - taxable 
-
 
-
   
333
 
7.29
%
  
-
 
-
   
2,330
 
6.10
%
  
-
 
States and political subdivisions – tax exempt (a)    1,548   5.31%    1,461   6.68%    4,708   5.25%    1,867   5.66%    - 
States and political subdivisions – taxable  -   -   176   7.29%  -   -   2,299   6.10%  - 
Marketable equity securities (a) - -   - -   - -   - -   3,439   -   -   -   -   -   -   -   -   1,224 
Mortgage-backed securities - -   - -   - -   - -   10,252   -   -   -   -   -   -   -   -   60,160 
Collateralized mortgage obligations - -   - -   - -   - -   4,076 
                               
Corporate bonds  -   -   -   -   -   -   2,765   6.13%  - 
Collateralized debt obligations  -   -   -   -   -   -   10,488   5.06%  - 
Total$5,215  4.50% $47,844  3.63% $22,160  4.76% $4,478  5.82% $17,767  $10,073   3.43% $26,873   4.86% $32,666   5.14% $29,361   5.48% $61,384 
                                                               


Yield by classification of investment securities at December 31, 20052007 was as follows:


(Dollars in thousands) Yield  Totals 
Securities Available for Sale:      
U.S. Government agencies and corporations  4.82%  73,661 
States and political subdivisions – tax exempt (a)  5.56%  9,584 
States and political subdivisions – taxable  6.18%  2,475 
Marketable equity securities (a) (b)  14.34%  1,224 
Mortgage-backed securities  5.39%  60,160 
Corporate bonds  6.13%  2,765 
Collateralized debt obligations  5.06%  10,488 
Total  5.21% $160,357 
         
(Dollars in thousands)
  
Yield
 
 
Totals
 
Securities Available for Sale:       
U.S. Treasury Securities  3.30%$5,038 
U.S. Government agencies and corporations  3.83% 62,412 
States and political subdivisions - tax exempt (a)  5.96% 9,584 
States and political subdivisions - taxable  6.25% 2,663 
Marketable equity securities (a)  11.50% 3,439 
Mortgage-backed securities  5.34% 10,252 
Collateralized mortgage obligations  5.82% 4,076 
Total  4.53%$97,464 
        
__________
42

_____
(a)  
Weighted average yields on tax exempt obligations and marketable equity securities have been computed by grossing up actual tax exempt income (90% for
(b)  Weighted average yield on marketable equity securities)securities was computed using the actual 2007 income grossed up to a fullyan 85% taxable equivalent basis using a federalbasis. We expect the future yield and relative proportion of tax rate of 34%.exempt income to be significantly lower during 2008 and beyond.


31


The following table presents the amortized cost, market value, unrealized gains, and unrealized losses, and market value for the major categories of our investment portfolio for each reported period:


Available for Sale—December 31, 2007

(Dollars in thousands) 
Amortized
Cost
  
Unrealized
Gains
  
Unrealized
Losses
  
Fair
Value
 
U.S. Government agencies and corporations $72,482  $1,245  $66  $73,661 
States and political subdivisions-tax exempt  9,629   6   51   9,584 
States and political subdivisions-taxable  2,495   1   21   2,475 
Marketable equity securities  1,224   -   -   1,224 
Mortgage-backed securities  60,161   295   296   60,160 
Corporate bonds  2,865   -   100   2,765 
Collateralized debt obligations  11,110   -   622   10,488 
  $159,966  $1,547  $1,156  $160,357 
                 
Available for Sale—December 31, 2006

(Dollars in thousands) 
Amortized
Cost
  
Unrealized
Gains
  
Unrealized
Losses
  
Fair
Value
 
U.S. Treasury Securities $5,087  $-  $125  $4,962 
U.S. Government agencies and corporations  84,014   278   1,294   82,998 
States and political subdivisions-tax exempt  10,818   22   98   10,742 
States and political subdivisions-taxable  2,578   12   -   2,590 
Marketable equity securities  3,000   484   -   3,484 
Mortgage-backed securities  16,428   94   8   16,514 
Collateralized debt obligations  9,996   -   87   9,909 
  $131,921  $890  $1,612  $131,199 
                 

43

Available for Sale—December 31, 2005

(Dollars in thousands)
  
Amortized Cost
 
 
Unrealized Gains
 
 
Unrealized Losses
 
 
Fair
Value
  
Amortized
Cost
  
Unrealized
Gains
  
Unrealized
Losses
  
Fair
Value
 
U.S. Treasury Securities 
$
5,182
 $1 $145 $5,038  $5,182  $1  $145  $5,038 
U.S. Government agencies and corporations  64,145  5  1,738  62,412   64,145   5   1,738   62,412 
States and political subdivisions-tax exempt  9,594  91  101  9,584   9,594   91   101   9,584 
States and political subdivisions-taxable  2,655  8  -  2,663   2,655   8   -   2,663 
Marketable equity securities  3,000  439  -  3,439   3,000   439   -   3,439 
Mortgage-backed securities  10,083  193  24  10,252   10,083   193   24   10,252 
Collateralized mortgage obligations  3,996  80  -  4,076 
Collateralized debt obligations  3,996   80   -   4,076 
 $98,655 $817 $2,008 $97,464  $98,655  $817  $2,008  $97,464 
                             
Other than temporary impairment of available for sale securities


Available for Sale—As of December 31, 20042007, we owned three collateralized debt obligation investment securities with an aggregate original cost of $10.0 million that had an estimated fair value of $6.1 million at that time. The underlying assets in the three collateralized debt obligations are comprised primarily of corporate debt obligations of homebuilders, REITs, real estate companies and commercial mortgage backed securities. These securities are floating rate securities which were rated “A” or better by an independent and nationally recognized rating agency at the time of our purchase. In late December 2007, these securities were downgraded below investment grade by a nationally recognized rating agency. Due to the ratings downgrade, and the amount of unrealized loss, management concluded that the loss of value was other than temporary under generally accepted accounting principles and the Company wrote these investment securities down to their estimated fair value. This resulted in the recognition of an other than temporary impairment loss of $3.9 million. In determining their estimated fair value, management utilized a discounted cash flow modeling valuation approach. Additionally, during 2007, the market value of an investment in equity securities, which the Company originally acquired in 2003 for $3.0 million to obtain community reinvestment credit, of a publicly owned company declined significantly. As of December 31, 2007, management determined that this decline was other than temporary and wrote this investment down by $1.8 million to its fair value at that time. These write downs resulted in a total recognized other than temporary impairment loss of $5.7 million during 2007. During 2006 and 2005, no other than temporary impairment losses were necessary.

(Dollars in thousands)
  
Amortized Cost
 
 
Unrealized Gains
 
 
Unrealized Losses
 
 
Fair
Value
 
U.S. Treasury Securities $5,178 $5 $29 $5,154 
U.S. Government agencies and corporations  54,228  104  869  53,463 
States and political subdivisions-tax exempt  9,596  246  26  9,816 
States and political subdivisions-taxable  2,862  17  23  2,856 
Marketable equity securities  3,000  987  -  3,987 
Mortgage-backed securities  2,473  58  -  2,531 
  $77,337 $1,417 $947 $77,807 
              
We regularly review each investment security for impairment based on criteria that include the extent to which cost exceeds market price, the duration of that market decline, the financial health of and specific prospects for the issuer(s) and our ability and intention with regard to holding the security to maturity. Future declines in the market value of these or other securities may result in additional impairment charges which may be material to the financial condition and results of operations of the Company.


Available for Sale—December 31, 2003

(Dollars in thousands)
  
Amortized Cost
 
 
Unrealized Gains
 
 
Unrealized Losses
 
 
Fair
Value
 
U.S. Treasury Securities $209 $9 $- $218 
U.S. Government agencies and corporations  31,357  425  663  31,119 
States and political subdivisions-tax exempt  8,838  378  59  9,157 
States and political subdivisions-taxable  3,559  42  101  3,500 
Marketable equity securities  3,000  395  -  3,395 
Mortgage-backed securities  5,041  128  1  5,168 
  $52,004 $1,377 $824 $52,557 
              



32


Deposits

The following table presents the average amount outstanding and the average rate paid on deposits by us for the years ended December 31, 2005, 2004,2007, 2006, and 2003.2005.

2005
2004
2003
 2007  2006  2005 
(Dollars in thousands)
 Average Amount
 
Average Rate
 
 
Average Amount
 
Average Rate
 
 
Average Amount
 
Average Rate
 
 Average Amount  Average Rate  Average Amount  Average Rate  Average Amount  Average Rate 
Non-interest bearing deposits
$169,426   $139,939   $114,344    $163,478     $174,798     $169,426    
                                    
Interest-bearing deposits
                                    
NOW Accounts 92,754 0.99% 76,068 0.43% 59,389 0.37%  151,745   3.27%  131,386   2.66%  92,754   0.99%
Money market 165,266 2.23% 130,172 0.91% 125,410 0.88%  186,996   4.15%  166,501   3.58%  165,266   2.23%
Savings deposit 47,774 0.51% 44,380 0.39% 35,475 0.48%  55,360   1.75%  48,897   0.71%  47,774   0.51%
Time deposits 357,824 3.52% 227,834 3.02% 198,162 3.25%  486,658   4.97%  477,204   4.58%  357,824   3.52%
                                          
Total$833,044  2.09%$618,393  1.39%$532,780  1.49% $1,044,237   3.63% $998,786   3.17% $833,044   2.09%
                                       


44

The following table presents the maturity of our time deposits at December 31, 2005:2007:


(Dollars in thousands) Deposits $100 and Greater  Deposits Less than $100  Total 
Months to maturity:         
3 or less $61,678  $62,306  $123,984 
4 to 6  60,479   71,475   131,954 
7 through 12  60,911   92,754   153,665 
Over 12  57,785   45,366   103,151 
Total $240,853  $271,901  $512,754 
             
(Dollars in thousands)
  
Deposits $100,000 and Greater
 
 
Deposits Less than $100,000
 
 
Total
 
Months to maturity:
          
3 or less $83,015 $75,372 $158,387 
4 to 6  36,608  35,005  71,613 
7 through 12  36,268  42,837  79,105 
Over 12  66,167  56,532  122,699 
Total $222,058 $209,746 $431,804 
           


33



Off-Balance Sheet Arrangements and Contractual Obligations

Our off-balance sheet arrangements and contractual obligations at December 31, 20052007 are summarized in the table that follows.  The amounts shown for commitments to extend credit and letters of credit are contingent obligations, some of which are expected to expire without being drawn upon.  As a result, the amounts shown for these items do not necessarily represent future cash requirements.  We believe that our current sources of liquidity are more than sufficient to fulfill the obligations we have as of December 31, 20052007 pursuant to off-balance sheet arrangements and contractual obligations.


 
Amount of Commitment Expiration Per Period
 Amount of Commitment Expiration Per Period 
(Dollars in thousands)
   Total Amounts Committed One Year or Less
 
Over One Year Through Three Years
 
Over Three Years Through Five Years
 
Over Five Years 
(Dollars in thousands) 
Total Amounts
Committed
  
One Year
or Less
  
Over One Year
Through Three
Years
  
Over Three Years
Through Five
Years
  
Over Five
Years
 
Off-balance sheet arrangements                           
Commitments to extend credit
 $230,993 $115,163 $64,300 $15,763 $35,767  $259,413  $111,513  $59,488  $20,857  $67,555 
Standby letters of credit
  2,374  2,059  315  -  -   2,948   2,745   203   -   - 
Total $233,367 $117,222 $64,615 $15,763 $35,767  $262,361  $114,258  $59,691  $20,857  $67,555 
                                
Contractual Obligations            
Contractual obligations                    
Time deposits  $431,804 $309,105 107,125 $15,569 $  $512,754  $409,603  $92,091  $11,060  $- 
Capital lease obligations
  - - - - - 
Operating lease obligations
  2,594 587 1,031 632 344   6,397   1,273   1,661   1,180   2,283 
Purchase obligations
  11,685 2,001 4,477 5,207 -   12,693   2,271   4,903   5,519   - 
Long-term debt
  17,000 - - - 17,000   63,000   -   30,000   -   33,000 
Other long-term liabilities reflected on the balance sheet under GAAP
  4,319  15  46  116  4,142   6,676   40   161   323   6,152 
Total $467,402 $311,708 $112,679 $21,524 $21,491  $601,520  $413,187  $128,816  $18,082  $41,435 
                                


The Bank is aBanks are party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of itstheir customers.  These financial instruments include commitments to extend credit and standby letters of credit.  These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets.

45

The Bank’sBanks’ exposure to credit loss in the event of nonperformance by the other party to financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of these instruments.  The Bank usesBanks use the same credit policies in making commitments to extend credit and generally usesuse the same credit policies for letters of credit as it doesthey do for on-balance sheet instruments.

Commitments to extend credit are legally binding agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Since some of these commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements.  Unused commercial lines of credit, which comprise a substantial portion of these commitments, generally expire within a year from their date of origination.  Other loan commitments generally expire in 30 days.  The amount of collateral obtained, if any, by the BankBanks upon extension of credit is based on management’s credit evaluation of the borrower.  Collateral held varies but may include security interests in business assets, mortgages on commercial and residential real estate, deposit accounts with the BankBanks or other financial institutions, and securities.

Standby letters of credit are conditional commitments issued by the BankBanks to assure the performance or financial obligations of a customer to a third party.  The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loans to customers.  The BankBanks generally holdshold collateral and/or obtainsobtain personal guarantees supporting these commitments.

The Bank isBanks are obligated under operating leases for office and banking premises which expire in periods varying from one to twelvenineteen years.  Future minimum lease payments, before considering renewal options that generally are present, total $2.6$6.4 million at December 31, 2005.2007.

Purchase obligations consist of computer and item processing services, and debit and ATM card processing and support services contracted by the Company under long term contractual relationships.

34


Long term debt, at December 31, 2005,2007, consists of subordinated debentures totaling $12$33.0 million and notes payablesecurities sold under repurchase agreement totaling $5$30.0 million. These borrowings are further described in Note 10 of the Consolidated Financial Statements.

Other long-term liabilities represent obligations under the non-qualified retirement plan for Bankthe Company’s directors and the non-qualified deferred compensation arrangement with certain of the Company’s executive officers.  Under the director retirement plan, the Company pays each participant, or their beneficiary, the amount of board compensation fees that the director has elected to defer and interest in 120 equal monthly installments, beginning the month following the director’s normal retirement date.  The amount presented above reflects the future obligation to be paid, assuming no future fee deferrals.  Under the executive deferred compensation plan, the Company pays each participant, or their beneficiary, 43% of the executive’s highest compensation level in the three years immediately preceding the date of termination of employment in 180 equal monthly installments, beginning the month following the executive’s normal retirement date. The amount presented reflects the amount vested in this plan asfor a period of December 31, 2005.up to 15 years.

Capital Adequacy

There are various primary measures of capital adequacy for banks and financial holding companies such as risk based capital guidelines and the leverage capital ratio.  See Note 14 to the Consolidated Financial Statements.

As of December 31, 2005,2007, the BankBanks exceeded its requiredthe levels of capital for a bankrequired in order to be categorized by the FDIC as well capitalized under the regulatory framework for prompt corrective action.  The Bank’s risk-based capital ratioratios of Tier 1 capital to risk-weighted assets was 9.9%were 9.2% and 15.5%, itsthe risk-based ratioratios of total capital to risk-weighted assets was 10.8%were 10.4% and 16.7%, and itsthe leverage ratio was 8.7%.ratios were 7.8% and 11.9% for TIB Bank and The Bank of Venice, respectively.

As of December 31, 2005,2007, the Company exceeded its required levels of capital under capital adequacy guidelines.  The Company’s risk-based capital ratio of Tier 1 capital to risk-weighted assets was 9.6%10.0%, its risk-based ratio of total capital to risk-weighted assets was 10.9%11.3%, and its leverage ratio was 8.4%.

As previously discussed, in March 2008, we sold 1.2 million shares of our common stock and warrants to purchase an additional 1.2 million shares resulting in gross proceeds of $10.1 million. This strengthens our capital to support future growth and expansion.

46


Inflation

Inflation has an important impact on the growth of total assets in the banking industry and causes a need to increase equity capital higher than normal levels in order to maintain an appropriate equity to assets ratio.  We have been able to maintain an adequate level of equity, as previously mentioned and cope with the effects of inflation by managing our interest rate sensitivity gap position through our asset/liability management program, and by periodically adjusting our pricing of services and banking products to take into consideration current costs.

Recent Accounting Policies

During 2004, the FASB revised Statement No. 123, “Accounting for Stock-Based Compensation” ("SFAS  123R") which established accounting requirements for share-based compensation to employees and carries forward prior guidance on accounting for awards to non-employees. The provisions of this statement became effective for fiscal years beginning after June 15, 2005 for all equity awards granted or modified after the effective date and for the subsequent vesting of previously granted awards. SFAS 123R requires an entity to recognize compensation expense based on an estimate of the fair value and number of awards expected to actually vest, exclusive of awards expected to be forfeited. Currently,Previously, the Company accountsaccounted for stock options granted to employees according to the provisions of APB Opinion No. 25, whereby compensation expense iswas recorded based upon the intrinsic value method. The stock-based compensation table included in Note 1 of the accompanying financial statements illustrates the effect on net income and earnings per share if we had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation. Subsequent to adoption, anythe income tax benefitbenefits for the exercise of stock options in excess of income tax expense for financial reporting purposes will beare classified as a cash inflowinflows from financing activities and a cash outflowoutflows from operating activities in the statement of cash flows. The Company adopted SFAS 123R on January 1, 2006, as required.

In December 2004,required, using the FASB issued Statement No. 153, “Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accountingmodified prospective transition method.  Accordingly, the Company has recorded stock-based employee compensation cost for Nonmonetary Transactions.” This statement amends the principle of APB No. 29 that exchanges of nonmonetary assets should be measured based onstock options using the fair value method starting in 2006.

During 2007 and 2006, employee compensation expense includes $284,000 and $305,000, respectively, for stock options pursuant to the provisions of the assets exchanged and more broadly provides for exceptions regarding exchanges of nonmonetary assets that do not have commercial substance. This Statement is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of this standard onSFAS 123R. Prior to January 1, 2006, stock options were accounted for using the intrinsic value method; therefore, no stock based compensation cost is reflected in net income for the years ending December 31, 2005 and 2004, as required, did not have a material impact onall options granted had an exercise price equal to or greater than the financial condition, the results of operations, or liquiditymarket price of the Company.
underlying common stock at the date of grant.
35

    In May 2005, the FASB issued Statement No. 154, “Accounting Changes and Error Corrections—a replacement of APB opinion No. 20 and FASB Statement No. 3” (“SFAS 154”). SFAS 154 changes the requirements for the accounting and reporting of a change in an accounting principle. The statement requires retrospective application of changes in an accounting principle to prior periods’ financial statements unless it is impracticable to determine the period-specific effects or cumulative effect of the change. The correction of an error will continue to require financial statement restatement. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005 (the Company’s fiscal year beginning January 1, 2006). The adoption of this standard on January 1, 2006, as required, did not have a material impact on the Company’s financial statements.

In February 2006, the FASBFinancial Accounting Standards Board (“FASB”) issued Statement No. 155, “Accounting for Certain Hybrid Financial Instruments - an amendment of FASB Statements No. 133 and 140,” (“SFAS 155”). SFAS 155 simplifies and conforms the accounting for certain financial instruments permitting fair value remeasurement for any hybrid financial instrument with an embedded derivative that otherwise would require bifurcation, provided that the whole instrument is accounted for on a fair value basis. The amendments to SFAS No. 133 also clarify that interest-only and principal-only strips are not embedded derivatives. The amendments to SFAS No. 140 allow a qualifying special purpose entity to hold a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This statement is effective for all financial instruments and acquired or issued after the beginning of the first fiscal year after September 15, 2006. Management hasAdoption on January 1, 2007, as required, did not yet determinedhave a material effect on the impact,Company’s financial condition, results of operations or liquidity.

In March 2006, the FASB issued Statement No. 156, “Accounting for Servicing of Financial Assets-an amendment of FASB Statement No. 140”.  This Statement provides the following: 1) revised guidance on when a servicing asset and servicing liability should be recognized; 2) requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if any,practicable; 3) permits an entity to elect to measure servicing assets and servicing liabilities at fair value each reporting date and report changes in fair value in earnings in the period in which the changes occur; 4) upon initial adoption, permits a onetime reclassification of available-for-sale securities to trading securities for securities which are identified as offsetting the entity's exposure to changes in the fair value of servicing assets or liabilities that a servicer elects to subsequently measure at fair value; and 5) requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional footnote disclosures.  This Standard is effective as of the beginning of an entity's first fiscal year that begins after September 15, 2006 with the effects of initial adoption being reported as a cumulative-effect adjustment to retained earnings.  Adoption on January 1, 2007, as required, did not have a material effect on the Company’s financial condition, results of SFAS 155.operations or liquidity.
 

47

The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), on January 1, 2007.  The adoption of FIN 48 had no affect on the Company’s financial statements. The Company has no material unrecognized tax benefits and does not anticipate any increase in unrecognized benefits during 2008 relative to any tax positions taken prior to January 1, 2007 or December 31, 2007.  Should the accrual of any interest or penalties relative to unrecognized tax benefits be necessary, it is the Company’s policy to record such accruals in its income taxes accounts; no such accruals exist as of January 1, 2007.  The Company and its subsidiaries file a consolidated U.S. federal income tax return and a consolidated income tax return in the state of Florida.  These returns are subject to examination by taxing authorities for all years after 2003.

In March 2004,September 2006, FASB issued Statement No. 157, “Fair Value Measurements” (“FAS 157”). This statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This statement establishes a fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset. The standard is effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued Staff Position (“FSP”) 157-2, Effective Date of FASB Statement No. 157. This FSP delays the effective date of FAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The impact of adoption was not material to the Company’s financial condition, results of operations or liquidity.

In September 2006, the FASB Emerging Issues Task Force (EITF) released(“EITF”) finalized Issue 03-1, “MeaningNo. 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Other Than Temporary Impairment and Its Application to Certain Investments,” which addressed other-than-temporary impairmentEndorsement Split-Dollar Life Insurance Arrangements”.  This issue requires that a liability be recorded during the service period when a split-dollar life insurance agreement continues after participants’ employment or retirement.  The required accrued liability will be based on either the post-employment benefit cost for certain debt and equity investments. The recognition and measurement requirementsthe continuing life insurance or based on the future death benefit depending on the contractual terms of Issue 03-1, and other disclosure requirements not already implemented, werethe underlying agreement.  This issue is effective for periodsfiscal years beginning after JuneDecember 15, 2004. 2007.  Adoption on January 1, 2008, as required, did not have a material effect on the Company’s financial condition, results of operations or liquidity.

In September 2004,2006, the FASB staff issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Staff Position (FSP) EITF 03-1-1,Statements No. 87, 88, 106 and 132(R).  This Statement requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its balance sheet, beginning with year end 2006, and to recognize changes in the funded status in the year in which delayed the effective date for certain measurementchanges occur through comprehensive income beginning in 2007.  Additionally, defined benefit plan assets and recognition guidance contained in Issue 03-1. The FSP requires the application of pre-existing other-than-temporary guidance during the period of delay until a final consensus was reached. Issuanceobligations are to be measured as of the final consensusdate of the employer’s fiscal year-end, starting in 2008.  Adoption had no effect on the Company’s financial condition, results of operations or liquidity as the Company does not have any defined benefit plans falling within the scope of SFAS No. 158.
In September 2006, the Securities and Exchange Commission (SEC) released Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (SAB 108), which is effective for fiscal years ending on or after November 15, 2006.  SAB 108 provides guidance on how the effects of prior-year uncorrected financial statement misstatements should be considered in quantifying a current year misstatement.  SAB 108 requires public companies to quantify misstatements using both an income statement (rollover) and balance sheet (iron curtain) approach and evaluate whether either approach results in a misstatement that, when all relevant quantitative and qualitative factors are considered, is material.  If prior year errors that had been previously considered immaterial now are considered material based on either approach, no restatement is required so long as management properly applied its previous approach and all relevant facts and circumstances were considered.  The adoption of SAB 108 had no effect on the Company’s financial statements.

In September 2006, the FASB Emerging Issues Task Force finalized Issue No. 06-5, “Accounting for Purchases of Life Insurance - Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4 (Accounting for Purchases of Life Insurance)”. This issue requires that a policyholder consider contractual terms of a life insurance policy in determining the amount that could be realized under the insurance contract.  It also requires that if the contract provides for a greater surrender value if all individual policies in a group are surrendered at the same time, that the surrender value be determined based on the assumption that policies will be surrendered on an individual basis.  Lastly, the issue discusses whether the cash surrender value should be discounted when the policyholder is contractually limited in its ability to surrender a policy.  This issue is effective for fiscal years beginning after December 15, 2006.  The adoption of this issue on January 1, 2007, as required, did not have a material impact on the financial condition, the results of operations, or liquidity of the Company.

48

  In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”. This Statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value measurement, which is consistent with the Board’s long-term measurement objectives for accounting for financial instruments. This Statement is effective for fiscal years beginning after November 15, 2007. Adoption on January 1, 2008, as required, did not have a material effect on the Company’s financial condition, results of operations or liquidity.

In June 2007, the FASB finalized Issue No. 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards”.  This issue requires that a realized income tax benefit from dividends or dividend equivalents that are charged to retained earnings and are paid to employees for equity classified nonvested equity shares, nonvested equity share units, and outstanding equity share options should be recognized as an increase to additional paid-in capital. The amount recognized in additional paid-in capital for the realized income tax benefit from dividends on those awards should be included in the pool of excess tax benefits available to absorb tax deficiencies on share-based payment awards (as described in paragraphs 62 and 63  of Statement 123(R)).  This issue is effective for fiscal years beginning after December 15, 2007.  Adoption on January 1, 2008, as required, did not have a material effect on the Company’s financial condition, results of operations or liquidity.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), “Business Combinations” (“FAS 141(R)”), which revises Statement 141. FAS 141(R) requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information needed to evaluate and understand the nature and financial effect of the business combination. FAS 141(R) is effective for fiscal years beginning after December 15, 2008. Management has not yet completed its analysis of the potential impact of FAS 141(R).

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“FAS 160”), which requires all entities to report noncontrolling (minority) interests in subsidiaries as equity in the consolidated financial statements. Additionally, FAS 160 requires that transactions between an entity and noncontrolling interests be treated as equity transactions. FAS 160 is effective for fiscal years beginning after December 15, 2008. Management has not yet completed its analysis of the potential impact of FAS 160, but does not expect it to have a material effect on the Company’s financial condition, results of operations or liquidity.
Critical Accounting Policies

In reviewing and understanding financial information for the Company, you are encouraged to read and understand the significant accounting policies which are used in preparing the consolidated financial statements of the Company. These policies are described in Note 1 to the Consolidated Financial Statements.  Of these policies, management believes that the accounting for the allowance for loan losses isand the impairment of investment securities are the most critical.

Losses on loans result from a broad range of causes from borrower specific problems, to industry issues, to the impact of the economic environment.  The identification of these factors that lead to default or non-performance under a borrower loan agreement and the estimation of loss in these situations are very subjective. In addition, a dramatic change in the performance of one or a small number of borrowers can have a significant impact on the estimate of losses. As described above under the “Allowance and Provision for Loan Losses” heading, management has implemented a process that has been applied consistently to systematically consider the many variables that impact the estimation of the allowance for loan losses.

Impairment of investment securities results in a write-down that must be included in net income when a market decline below cost is other-than-temporary. We regularly review each investment security for impairment based on criteria that include the extent to which cost exceeds market price, the duration of that market decline, the financial health of and specific prospects for the issuer(s) and our ability and intention with regard to holding the security to maturity.

3649


ITEM 7A:  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Market risk is the risk that a financial institution’s earnings and capital, or its ability to meet its business objectives, will be adversely affected by movements in market rates or prices such as interest rates, foreign exchange rates, equity rates, equity prices, credit spreads and/or commodity prices.  The Company has assessed its market risk as predominately interest rate risk.

The interest rate sensitivity as of December 31, 20052007 was analyzed using simulation analysis of the Company’s sensitivity to changes in net interest income under varying assumptions for changes in market interest rates.  Specifically, theTIB Bank uses standardized assumptions run against their data by an outsourced provider of Asset Liability reporting.  The model derives expected interest income and interest expense resulting from both a gradual and+/- 2% parallel shift in the yield curve and a +/- steepening/twist of the yield curve.  RateThe standard parallel yield curve shift is used to estimate risk related to the level of interest rates, while the non-parallel yield curve twist is used to estimate risk related to the level of interest rates and changes in the slope of the yield curve.   All rate change scenarios are matched with known re-pricing intervals. The Bank uses standardized assumptions run against Bank data by an outsourced provider“ramped” over a three-month period.

Yield curve twists change both the level and slope of Asset Liability reporting. As of December 31, 2005, thisthe yield curve and are more realistic than parallel yield curve shifts and are more useful for planning purposes.  A 200 basis point yield curve twist decrease would result in short term rates decreasing approximately 200 basis points and long term rates decreasing approximately 100 basis points.  A 200 basis point yield curve twist increase would result in a short term rates increasing approximately 200 basis points and long term rates increasing approximately 100 basis points.

The analysis indicates that the Banka 200 basis point parallel interest rate increase would be expectedhave relatively no impact to benefit in an increasing rate environment slightly more than it would be expected to be harmed by a decreasing rate environment. The results of the analysis indicate thatTIB Bank’s net interest income could be expected to increase by approximately $2.5 million inover a gradual 12-month period.  A 200 basis point parallel interest rate increase. The analysis also indicates thatdecrease would result in a decrease in net interest income of approximately $2.4$1.2 million could be expected fromover a gradual 12-month period.  Additionally, a 200 basis point yield curve twist increase would have relatively no impact to net interest rate decrease.income over a 12-month period.  A 200 basis point yield curve twist decrease would result in a decrease in net interest income of approximately $830,000 over a 12-month period.

We attempt to retain interest rate neutrality by generating mostly adjustable rate loans and managing the securities, wholesale funding, and Fed Funds positions to offset the re-pricing characteristics of the deposit liabilities.

 


3750


ITEM 8:  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


The consolidated financial statements, notes thereto and report of independent registered public accounting firm thereon included on the following pages are incorporated herein by reference.


Index to Consolidated Financial Statements

 Page
3952
4153
4254
4456
4658
4860
  



3851
















REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




Board of Directors and Shareholders
TIB Financial Corp.
Naples, Florida

We have audited the accompanying consolidated balance sheets of TIB Financial Corp. as of December 31, 20052007 and 2004,2006, and the related consolidated statements of income,operations, changes in shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2005.2007.  We also have audited management's assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that TIB Financial Corp. maintained effectiveCompany's internal control over financial reporting as of December 31, 2005,2007, based on the criteria established in Internal Control—Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  TIB Financial Corp.'sThe Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting.reporting, included in Management's Annual Report on Internal Control Over Financial Reporting contained in Item 9A.(b) of the accompanying Form 10-K.  Our responsibility is to express an opinion on these consolidated financial statements an opinion on management's assessment, and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects.  Our auditaudits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, evaluating management's assessment,assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control andbased on the assessed risk.  Our audits also included performing such other procedures as we considered necessary in the circumstances.  We believe that our audits provide a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

39




In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of TIB Financial Corp. as of December 31, 20052007 and 2004,2006, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2005,2007, in conformity with accounting principles generally accepted in the United States of America.  Also in our opinion, management's assessment that TIB Financial Corp. maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Furthermore, in our opinion, TIB Financial Corp.Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005,2007, based on the criteria established in Internal Control—Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

/s/ Crowe Chizek and Company LLC
Crowe Chizek and Company LLC
Fort Lauderdale, Florida
March 17, 2008



/s/Crowe Chizek and Company LLC

Fort Lauderdale, Florida
February 23, 2006



4052

TIB Financial Corp. and Subsidiaries
Consolidated Balance Sheets
As of December 31,

(Dollars in thousands, except per share amounts)
  
2005
 
 
2004
  2007  2006 
Assets
             
Cash and due from banks $24,347 $27,410  $22,315  $25,223 
Federal funds sold  17,163  15,528 
Federal funds sold and securities purchased under agreements to resell  48,744   30,329 
Cash and cash equivalents  41,510  42,938   71,059   55,552 
               
Investment securities available for sale  97,464  77,807   160,357   131,199 
               
Loans, net of deferred loan costs and fees  884,024  655,678   1,129,156   1,065,468 
Less: Allowance for loan losses  7,546  6,243   14,973   9,581 
Loans, net  876,478  649,435   1,114,183   1,055,887 
               
Premises and equipment, net  27,800  27,559   38,284   34,102 
Goodwill  4,686   106 
Intangible assets, net  1,100  1,392   2,772   813 
Accrued interest receivable and other assets  31,718  30,194   53,398   41,434 
Total Assets $1,076,070 $829,325 
Total assets $1,444,739  $1,319,093 
               
Liabilities and Shareholders’ Equity
               
Liabilities
               
Deposits:               
Noninterest-bearing demand $169,816 $152,035  $143,381  $159,380 
Interest-bearing  750,608  535,824   906,577   870,077 
Total deposits  920,424  687,859   1,049,958   1,029,457 
               
Federal Home Loan Bank (FHLB) advances  25,000  35,000   140,000   125,000 
Short-term borrowings  17,284  12,157   77,922   22,250 
Long-term borrowings  17,000  18,250   63,000   37,000 
Accrued interest payable and other liabilities  18,838  7,945   17,619   19,524 
Total liabilities  998,546  761,211   1,348,499   1,233,231 
               
Shareholders’ equity
       
Preferred stock - no par value: 5,000,000 shares authorized, 0 shares issued  -  - 
Common stock - $.10 par value: 20,000,000 shares authorized, 5,792,598 and 5,679,239 shares issued  579  568 
Commitments and Contingencies (Notes 1, 6 and 16)        
        
Shareholders’ Equity        
Preferred stock – no par value: 5,000,000 shares authorized, 0 shares issued  -   - 
Common stock - $.10 par value: 40,000,000 shares authorized, 12,852,361 and 11,720,527 shares issued, 12,783,161 and 11,720,527 outstanding  1,285   1,172 
Additional paid in capital  40,736  38,284   56,133   40,514 
Deferred compensation - restricted stock grants  (1,184) - 
Retained earnings  38,136  28,968   39,151   44,620 
Accumulated other comprehensive income (loss)  (743) 294   240   (444)
Treasury stock, at cost, 69,200 and 0 shares  (569)  - 
Total shareholders’ equity  77,524  68,114   96,240   85,862 
               
Total Liabilities and Shareholders’ Equity $1,076,070 $829,325  $1,444,739  $1,319,093 
               
See accompanying notes to consolidated financial statements
See accompanying notes to consolidated financial statements
See accompanying notes to consolidated financial statements 


4153

TIB Financial Corp. and Subsidiaries

Consolidated Statements of IncomeOperations
Years Ended December 31,

(Dollars in thousands, except per share amounts)
  
2005
  
2004
  
2003
  2007  2006  2005 
Interest and dividend income
                   
Loans, including fees $54,488 $37,720 $31,664  $84,773  $78,379  $54,488 
Investment securities:                      
U.S. Treasury securities  171  124  7   152   170   171 
U.S. Government agencies and corporations  2,607  2,023  2,003   5,404   4,207   2,607 
States and political subdivisions, tax-exempt  377  406  329   396   422   377 
States and political subdivisions, taxable  169  197  240   157   163   169 
Other investments  297  251  59   1,193   847   297 
Interest-bearing deposits in other banks  10  11  3   19   22   10 
Federal Home Loan Bank stock  113  57  59   503   285   113 
Federal funds sold  1,202  127  242   2,144   739   1,202 
Total interest and dividend income  59,434  40,916  34,606   94,741   85,234   59,434 
                      
Interest expense
                      
Interest-bearing demand and money market  4,605  1,519  1,321   12,721   9,459   4,605 
Savings  243  174  170   968   346   243 
Time deposits of $100,000 or more  6,505  3,507  3,165 
Time deposits of $100 or more  12,622   11,713   6,505 
Other time deposits  6,090  3,371  3,279   11,549   10,139   6,090 
Long-term debt-subordinated debentures  1,212  1,119  1,109 
Long-term debt - subordinated debentures  2,708   2,045   1,212 
Federal Home Loan Bank advances  857  475  276   6,197   3,415   857 
Short-term borrowings  425  83  38   1,664   687   425 
Notes payable  367  482  481 
Long-term borrowings  292   367   367 
Total interest expense  20,304  10,730  9,839   48,721   38,171   20,304 
                      
Net interest income  39,130  30,186  24,767   46,020   47,063   39,130 
Provision for loan losses  2,413  2,455  1,586   9,657   3,491   2,413 
Net interest income after provision for loan losses  36,717  27,731  23,181   36,363   43,572   36,717 
                      
Non-interest income
                      
Service charges on deposit accounts  2,360  2,547  2,452   2,692   2,457   2,360 
Investment securities gains, net  1  106  289 
Gain on sale of investment in ERAS Joint Venture  -  -  202 
Gain on sale of government-guaranteed loans  -  -  117 
Investment securities gains (losses), net  (5,660)  -   1 
Fees on mortgage loans sold  1,880  1,852  2,201   1,446   1,599   1,880 
Retail investment services  -  333  420 
Other income  2,017  1,468  1,403   2,884   2,219   2,017 
Total non-interest income  6,258  6,306  7,084   1,362   6,275   6,258 
                      
Non-interest expense
                      
Salaries and employee benefits  17,724  14,385  12,644   22,550   20,205   17,724 
Net occupancy and equipment expense  5,502  4,911  4,268   7,979   6,120   5,502 
Other expense  8,630  7,761  6,629   11,392   9,508   8,630 
Total non-interest expense  31,856  27,057  23,541   41,921   35,833   31,856 
                      
Income before income tax expense  11,119  6,980  6,724 
Income (loss) from continuing operations before income taxes  (4,196)  14,014   11,119 
                      
Income tax expense  3,927  2,337  2,324 
Income tax expense (benefit)  (1,775)  5,021   3,927 
                      
Income from continuing operations  7,192  4,643  4,400 
Income (loss) from continuing operations  (2,421)  8,993   7,192 
                      
          
(Continued)


4254

TIB Financial Corp. and Subsidiaries

Consolidated Statements of IncomeOperations
Years Ended December 31,
(Continued)

(Dollars in thousands, except per share amounts)
  
2005
 
 
2004
 
 
2003
  2007  2006  2005 
Discontinued operations
                   
Income from Keys Insurance Agency, Inc. operations  -  -  200 
Income from merchant bankcard operations  7,630  890  925   -   414   7,630 
          
Income from discontinued operations before income tax expense  7,630  890  1,125 
          
Income tax expense  2,998  335  423   -   160   2,998 
                      
Income from discontinued operations  4,632  555  702   -   254   4,632 
                      
Net income
 $11,824 $5,198 $5,102 
Net income (loss) $(2,421) $9,247  $11,824 
                      
Basic earnings per common share
          
Basic earnings (loss) per common share            
Continuing operations $1.26 $0.87 $1.03  $(0.20) $0.78  $0.63 
Discontinued operations  0.81  0.11  0.17   -   0.02   0.41 
Basic earnings per share $2.07 $0.98 $1.20 
Basic earnings (loss) per share $(0.20) $0.80  $1.04 
                      
Diluted earnings per common share
          
Diluted earnings (loss) per common share            
Continuing operations $1.22 $0.85 $0.99  $(0.20) $0.76  $0.61 
Discontinued operations  0.78  0.10  0.16   -   0.02   0.39 
Diluted earnings per share $2.00 $0.95 $1.15 
Diluted earnings (loss) per share $(0.20) $0.78  $1.00 
                      
See accompanying notes to consolidated financial statements
See accompanying notes to consolidated financial statements
See accompanying notes to consolidated financial statements 




4355

TIB Financial Corp. and Subsidiaries


Consolidated Statements of Changes in Shareholders’ Equity
(Dollars in thousands, except per share amounts)

 
 
Shares
 
 
Common Stock
  
Additional Paid in Capital
  
Deferred Compensation Restricted Stock Grants
  
Retained Earnings
  
Accumulated Other Comprehensive Income (Loss)
  
Total Shareholders’ Equity
  Shares  Common Stock  
Additional
Paid in
Capital
  Retained Earnings  Accumulated Other Comprehensive Income (Loss)  
Treasury
Stock
  Total Shareholders’ Equity 
Balance, January 1, 2003
  4,035,625 $403 $8,966 $- $23,022 $1,115 $33,506 
Balance, January 1, 2005  11,358,478  $1,136  $37,716  $28,968  $294  $-  $68,114 
Comprehensive income:                                            
Net income          5,102   5,102               11,824           11,824 
Other comprehensive income, net of tax benefit of $464:                
Other comprehensive income, net of tax benefit of $624:                            
Net market valuation adjustment on securities available for sale            (590)                     (1,037)        
Less: reclassification adjustment for gains included in net income            (180)   
Other comprehensive loss, net of tax                          (1,037)
Comprehensive income                         $10,787 
Restricted stock grants  82,000   8   (8)              - 
Stock-based compensation          98               98 
Exercise of stock options  144,718   14   824               838 
Income tax benefit from stock options exercised          343               343 
Cash dividends declared, $.23125 per share              (2,656)          (2,656)
Balance, December 31, 2005  11,585,196  $1,158  $38,973  $38,136  $(743) $-  $77,524 
Comprehensive income:                            
Net income              9,247           9,247 
Other comprehensive income, net of tax expense of $170:                            
Net market valuation adjustment on securities available for sale                  299         
Other comprehensive income, net of tax                    (770)                          299 
Comprehensive income                   $4,332                          $9,546 
Restricted stock grants, net of 10,000 restricted stock cancellations  345                         
Stock-based compensation          564               564 
Registration statement costs          (5)              (5)
Exercise of stock options  115,050 12 723       735   134,986   14   832               846 
Income tax benefit from stock options exercised      251       251 
Private placement of common shares  280,653 28 4,315       4,343 
Cash dividends declared, $.4425 per share              (1,921)    (1,921)
Balance, December 31, 2003
  4,431,328 $443 $14,255 $- $26,203 $345 $41,246 
Comprehensive income:                
Net income          5,198   5,198 
Other comprehensive income, net of tax benefit of $32:                
Net market valuation adjustment on securities available for sale            15   
Less: reclassification adjustment for gains included in net income            (66)   
Other comprehensive income, net of tax                    (51)
Comprehensive income                   $5,147 
Public offering of common shares  1,150,000 115 23,115       23,230 
Exercise of stock options  97,911 10 668       678 
Income tax benefit from stock options exercised      246       246 
Cash dividends declared, $.4525 per share              (2,433)    (2,433)
Balance, December 31, 2004
  5,679,239 $568 $38,284 $- $28,968 $294 $68,114 
                
Income tax benefit related to stock-based compensation          150               150 
Cash dividends declared, $.23625 per share              (2,763)          (2,763)
Balance, December 31, 2006  11,720,527  $1,172  $40,514  $44,620  $(444) $-  $85,862 

Continued

4456

TIB Financial Corp. and Subsidiaries


Consolidated Statements of Changes in Shareholders’ Equity
(Dollars in thousands, except per share amounts)
(Continued)

  Shares   
Common Stock
  
Additional Paid in Capital
  
Deferred
Compensation
Restricted
Stock Grants
  
Retained Earnings
  
Accumulated Other Comprehensive Income (Loss)
  
Total Shareholders’ Equity
 
Balance, December 31, 2004
  5,679,239 $568 $38,284 $- $28,968 $294 $68,114 
Comprehensive income:                      
Net income              11,824     11,824 
Other comprehensive income, net of tax benefit of $624:                      
Net market valuation adjustment on securities available for sale                 (1,037)   
Other comprehensive income, net of tax                    (1,037)
Comprehensive income                   $10,787 
Restricted stock grants  41,000  4  1,278  (1,282)       - 
Amortization of deferred compensation - restricted stock grants           98        98 
Exercise of stock options  72,359  7  831           838 
Income tax benefit from stock options exercised        343           343 
Cash dividends declared, $.4625 per share              (2,656)    (2,656)
Balance, December 31, 2005
  5,792,598 $579 $40,736 $(1,184)$38,136 $(743)$77,524 
                       
See accompanying notes to consolidated financial statements
  Shares  Common Stock  Additional Paid in Capital  Retained Earnings  Accumulated Other Comprehensive Income (Loss)  
Treasury
Stock
  Total Shareholders’ Equity 
Balance, December 31, 2006  11,720,527  $1,172  $40,514  $44,620  $(444) $-  $85,862 
Comprehensive loss:                            
Net loss              (2,421)          (2,421)
Other comprehensive income, net of tax expense of $429:                            
Net market valuation adjustment on securities available for sale                  (2,846)        
Add: reclassification adjustment for losses included in net loss net of tax of $2,130                  3,530         
Other comprehensive income, net of tax                          684 
Comprehensive loss                         $(1,737)
Restricted stock grants  36,659   4   (4)              - 
Stock-based compensation          648               648 
The Bank of Venice acquisition  944,400   94   13,861               13,955 
Exercise of stock options  150,775   15   1,093               1,108 
Income tax benefit related to stock-based compensation          21               21 
Purchase of treasury stock  (69,200)                  (569)  (569)
Cash dividends declared, $.2425 per share              (3,048)          (3,048)
Balance, December 31, 2007  12,783,161  $1,285  $56,133  $39,151  $240  $(569) $96,240 
                             
See accompanying notes to consolidated financial statements 




4557

TIB Financial Corp. and Subsidiaries


Consolidated Statements of Cash Flows
(Dollars in thousands)
  Years Ended December 31, 
  2007  2006  2005 
Cash flows from operating activities:         
Net (loss) income $(2,421) $9,247  $11,824 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:            
Depreciation and amortization  3,328   2,642   2,511 
Provision for loan losses  9,657   3,491   2,413 
Deferred income tax benefit  (4,472)  (1,168)  (944)
Investment securities net realized (gains) losses  5,660   -   (1)
Gain on sale of merchant bankcard processing segment  -   (414)  (6,697)
Stock based compensation  646   564   98 
Other  (834)  162   (496)
Mortgage loans originated for sale  (90,818)  (105,248)  (114,257)
Proceeds from sales of mortgage loans  91,218   105,412   119,321 
Fees on mortgage loans sold  (1,434)  (1,599)  (1,880)
Increase in accrued interest receivable and other assets  (5,022)  (2,491)  (2,672)
(Increase) decrease in accrued interest payable and other liabilities  (1,738)  1,009   10,778 
Net cash provided by operating activities  3,770   11,607   19,998 
             
Cash flows from investing activities:            
Purchases of investment securities available for sale  (71,669)  (42,532)  (13,995)
Sales of investment securities available for sale  5,491   -   - 
Repayments of principal and maturities of investment securities available for sale  34,863   9,296   1,103 
Cash equivalents acquired from The Bank of Venice acquisition  10,176   -   - 
Cash paid for The Bank of Venice  (888)  -   - 
Net (purchase) sale of FHLB stock  (673)  (4,993)  129 
Proceeds from sales of loans  624   7,439   - 
Proceeds from sale of merchant bankcard processing segment  -   -   7,250 
Loans originated or acquired, net of principal repayments  (14,809)  (188,238)  (237,371)
Purchases of premises and equipment  (5,265)  (12,425)  (3,928)
Proceeds from disposal of premises, equipment and intangible assets  1,822   1,638   735 
Net cash used by investing activities  (40,328)  (229,815)  (246,077)
             
Cash flows from financing activities:            
Net increase in federal funds purchased and securities sold under agreements to repurchase  55,672   4,966   5,127 
Net increase (decrease) in FHLB advances  10,000   100,000   (10,000)
Proceeds from long term repurchase agreements  30,000   -   - 
Repayment of notes payable  (4,000)  -   (1,250)
Net increase in demand, money market and savings accounts  9,614   12,838   51,943 
Net (decrease) increase in time deposits  (46,828)  96,195   180,622 
Proceeds from exercise of stock options  1,108   846   838 
Proceeds from issuance of trust preferred securities  -   19,995   - 
Income tax benefits related to stock-based compensation  21   150   - 
Repurchase of company common stock  (569)  -   - 
Cash dividends paid  (2,953)  (2,740)  (2,629)
Net cash provided by financing activities  52,065   232,250   224,651 
             
Net increase (decrease)  in cash and cash equivalents  15,507   14,042   (1,428)
Cash and cash equivalents at beginning of year  55,552   41,510   42,938 
Cash and cash equivalents at end of year $71,059  $55,552  $41,510 
(Continued)


  
Years Ended December 31,
 
   
2005
 
 
2004
 
 
2003
 
Cash flows from operating activities:
          
Net income $11,824 $5,198 $5,102 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization  2,511  2,245  2,048 
Provision for loan losses  2,413  2,455  1,586 
Deferred income tax benefit  (944) (90) (852)
Investment securities net gains  (1) (106) (289)
Gain on sale of merchant bankcard processing segment  (6,697) -  - 
Other  (398) (52) (306)
Mortgage loans originated for sale  (114,257) (108,543) (111,011)
Proceeds from sales of mortgage loans  119,321  108,543  119,345 
Fees on mortgage loans sold  (1,880) (1,852) (2,201)
Increase in accrued interest receivable and other assets  (2,672) (2,036) (2,662)
Increase (decrease) in accrued interest payable and other liabilities  10,778  1,039  (1,186)
Net cash provided by operating activities  19,998  6,801  9,574 
           
Cash flows from investing activities:
          
Purchases of investment securities available for sale  (13,995) (38,368) (27,846)
Sales of investment securities available for sale  -  9,281  4,000 
Repayments of principal and maturities of investment securities available for sale  1,103  3,797  24,553 
Net (purchase) sale of FHLB stock  129  (660) (890)
Proceeds from sales of loans  -  569  2,241 
Proceeds from sale of merchant bankcard processing segment  7,250  -  - 
Loans originated or acquired, net of principal repayments  (237,371) (115,910) (97,599)
Purchase of life insurance policies  -  (700) (250)
Purchases of premises and equipment  (3,928) (9,495) (3,492)
Proceeds from sale of premises, equipment and intangible assets  735  150  516 
Net cash used by investing activities  (246,077) (151,336) (98,767)
           
Cash flows from financing activities:
          
Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase  5,127  8,116  (538)
Net increase (decrease) in FHLB short-term advances  (10,000) (5,000) 15,000 
Repayment of notes payable  (1,250) -  - 
Proceeds from FHLB long-term advances  -  25,000  30,000 
Repayments of FHLB long-term advances  -  (30,000) (20,000)
Net increase in demand, money market and savings accounts  51,943  87,894  25,716 
Net increase in time deposits  180,622  46,152  45,414 
Proceeds from exercise of stock options  838  678  735 
Proceeds from public offering of common stock  -  23,230  - 
Proceeds from private placement of common stock  -  -  4,343 
Cash dividends paid  (2,629) (2,278) (1,866)
Net cash provided by financing activities  224,651  153,792  98,804 
           
Net (decrease) increase in cash and cash equivalents
  (1,428) 9,257  9,611 
Cash and cash equivalents at beginning of year  42,938  33,681  24,070 
Cash and cash equivalents at end of year
 $41,510 $42,938 $33,681 
           
Supplemental disclosures of cash paid:
          
Interest $17,387 $10,542 $9,211 
Income taxes  3,530  1,945  3,775 

4658

TIB Financial Corp. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Continued)


 Years Ended December 31, 
 2007  2006  2005 
Supplemental disclosures of cash paid:         
Interest $50,678  $33,983  $17,387 
Income taxes  4,193   10,330   3,530 
                      
Supplemental disclosures of non-cash transactions:
                      
Mortgage backed securities issued and retained subsequent to securitization of residential mortgages $8,509 $- $-  $-  $-  $8,509 
Financing of sale of premises and equipment to third parties  1,100  1,010  -   -   2,136   1,100 
          
Fair value of noncash assets acquired  68,458   -   - 
Fair value of liabilities assumed  63,882   -   - 
Fair value of common stock and stock options issued  13,992   -   - 
                      
See accompanying notes to consolidated financial statements
See accompanying notes to consolidated financial statements
See accompanying notes to consolidated financial statements 





4759

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)


Note 1—Summary of Significant Accounting Policies

Principles of Consolidation and Nature of Operations

TIB Financial Corp. is a financial holding company headquartered in Naples, Florida.  The consolidated financial statements include the accounts of TIB Financial Corp. (Parent Company) and its wholly-owned subsidiaries, TIB Bank (Bank), Keys Insurance Agency, Inc. (assets sold in August 2003 - see Note 19), and TIB Software and Services, Inc. (assets sold in 2003 - see Note 2)The Bank of Venice (the “Banks”), collectively known as the “Company.”  All significant inter-company accounts and transactions have been eliminated in consolidation.   TIBFL Statutory Trust I, TIBFL Statutory Trust II and TIBFL Statutory Trust IIIII were formed in conjunction with the issuance of trust preferred securities as further discussed in Note 10.

TIB Bank isThe Banks are the Company’s primary operating subsidiary.subsidiaries.  The Bank providesBanks provide banking services from its sixteentheir twenty branch locations in Monroe, Miami-Dade, Collier, Lee, Highlands and LeeSarasota counties, Florida.  TIB Bank offersThe Banks offer a wide range of commercial and retail banking and financial services to businesses and individuals. Account services include checking, interest-bearing checking, money market, savings, certificates of deposit and individual retirement accounts. The Bank offersBanks offer all types of commercial loans, including: owner-operated commercial real estate; acquisition, development and construction; income-producing properties; working capital; inventory and receivable facilities; and equipment loans. Consumer loan products include residential real estate, installment loans, home equity, home equity lines, and indirect auto dealer loans.

The share and per share amounts discussed throughout this document have been adjusted to account for the effects of the two-for-one stock split distributed October 23, 2006.

The accounting and reporting policies of TIB Financial Corp. and subsidiaries conform to generally accepted accounting principles and to general practices within the banking industry. The following is a summary of the more significant of these policies.

Use of Estimates and Assumptions

To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information.  These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ.  A material estimate that is particularly susceptible to significant change in the near term is the allowance for loan losses.  Another material estimate is the fair value and impairment of financial instruments.  Changes in assumptions or in market conditions could significantly affect the fair value estimates.

Cash and Cash Equivalents

For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash on hand, amounts due from banks, federal funds sold, and interest-bearing deposits at the Federal Home Loan Bank of Atlanta.  Net cash flows are reported for customer loan and deposit transactions and short term borrowings.

Investment Securities

Investment securities which management has the ability and intent to hold to maturity are reported at amortized cost.  Debt securities which may be sold prior to maturity are classified as available for sale and are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income. Other securities such as Federal Home Loan Bank stock are carried at cost and are included in other assets on the balance sheets.

60

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)
Interest income includes amortization of purchase premium or discount.  Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments, except for mortgage backed securities where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method based on the amortized cost of the security sold.

Declines in the fair value of securities below their cost that are other than temporary are reflected as realized losses. In estimating other-than temporary losses, management considers: (1) the length of time and extent that fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, and (3) the Company’s ability and intent to hold the security for a period sufficient to allow for any anticipated recovery in fair value.

Occasionally, the Bank securitizesBanks securitize residential real estate secured mortgages through the Federal Home Loan Mortgage Corporation (Freddie Mac). The Bank has,Banks have, from time to time, retained the resulting securities. Prior to a securitization transaction, these loans are recorded as residential real estate loans and interest income is reported as interest income from loans. Subsequent to the transaction, if the securities are retained by the Bank,Banks, they are reported as mortgage-backed securities and interest income is reported as interest income from securities issued by US governmentU.S. Government agencies and corporations.

48

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)
Loans

Loans are reported at the principal balance outstanding, net of deferred loan fees and costs, and an allowance for loan losses.  Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan term.  If the collectibility of interest appears doubtful, the accrual of interest is discontinued and all unpaid interest is reversed.  Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Gains on sales of government-guaranteed loans are recognized as income when the sales occur.

Loans Held for Sale

The majority of residential fixed rate mortgage loans are originated by theTIB Bank and sold servicing released to third parties immediately with temporary recourse provisions. The recourse provisions may require the repurchase of the outstanding balance of loans which default within a limited period of time subsequent to the sale of the loan. The recourse periods vary by investor and extend up to one yearsix months subsequent to the sale of the loan.  All fees are recognized as income at the time of the sale. Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or market, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings. TheTIB Bank has not historically experienced losses resulting from the recourse provisions described above. Accordingly, management believes that no such provision or allowance is necessary as of December 31, 2005.2007 or 2006.

Allowance for Loan Losses

The allowance for loan losses is a valuation allowance for probable incurred credit losses, which is increased by the provision for loan losses and decreased by charge-offs less recoveries.  Loan losses are charged against the allowance when management believes the uncollectiblity of a loan balance is confirmed.  Subsequent recoveries, if any, are credited to the allowance.  Management estimates the allowance balance required based on factors including past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors.  Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off.

The allowance consists of specific and general components.  The specific component relates to loans that are individually classified as impaired or loans otherwise classified as substandard or doubtful.  The general component covers non-classified loans and is based on historical loss experience adjusted for current factors.

61

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)
A loan is considered impaired when it is probable that not all principal and interest amounts will be collected according to the loan contract.  Individual commercial and commercial real estate loans exceeding certain size thresholds established by management are individually evaluated for impairment.  If a loan is considered to be impaired, a portion of the allowance is allocated so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral.  Large groups of smaller balance homogeneous loans, such as consumer, indirect, and residential real estate loans, are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures.

Premises and Equipment

Land is carried at cost.  Premises and equipment are reported at cost less accumulated depreciation. For financial reporting purposes, depreciation is computed using the straight-line method over the estimated useful lives of the assets. Expenditures for maintenance and repairs are charged to operations as incurred, while major renewals and betterments are capitalized. For Federal income tax reporting purposes, depreciation is computed using primarily accelerated methods.

49

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)


Foreclosed Assets

Assets acquired through, or in lieu of, loan foreclosure or repossession are held for sale and are initially recorded at fair value less cost to sell when acquired, establishing a new cost basis.  If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense.  Costs incurred after acquisition are generally expensed.

Intangible Assets

Intangible assets include core deposit base premiums and customer relationship intangibles arising from branch aquisitionsacquisitions and are initially measured at fair value.  The deposit base premiumsintangibles are being amortized using the straight-line method over an estimated life oflives ranging from 10 to 15 years.

Long-termLong-lived Assets

Long-lived assets, including premises and equipment, core deposit and other intangible assets, are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows.  If impaired, the assets are recorded at fair value.

Loan Commitments and Related Financial Instruments

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and letters of credit, issued to meet customer financing needs.  The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay.  Such financial instruments are recorded when they are funded.

Company Owned Life Insurance

The Company has purchased life insurance polices on certain key executives.  Upon adoption of EITF 06-5, which is discussed further below, Company owned life insurance is recorded at its cash surrender value, or the amount that can be realized and included in other assets onunder the insurance contract at the balance sheet.sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement, if applicable. Prior to the adoption of EITF 06-5, the Company recorded owned life insurance at its cash surrender value.


62

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)
Income Taxes

Income tax expense (or benefit) is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method.  Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax basis of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws.

Earnings (Loss) Per Common Share

Basic earnings (loss) per share is net income divided by the weighted average number of common shares and vested restricted shares outstanding during the period. Diluted earnings per share includes the dilutive effect of additional potential common shares issuable under stock options and the dilutive effect of restricted shares computed using the treasury stock method.

Earnings (loss) per share have been computed based on the following for the years ended December 31:

  
2005
  
2004
  
2003
  2007  2006  2005 
Weighted average number of common shares outstanding:                   
Basic  5,711,974  5,309,860  4,257,224   12,299,093   11,609,394   11,423,948 
Dilutive effect of options outstanding  188,472  169,836  178,637   -   266,010   376,944 
Dilutive effect of restricted shares  -   14,202   - 
Diluted  5,900,446  5,479,696  4,435,861   12,299,093   11,889,606   11,800,892 
                      

Stock options for 10,000, 29,720642,409, 78,273 and 5,02720,000 shares of common stock were not considered in computing diluted earnings per common share for 2005, 2004,2007, 2006, and 20032005 because they were anti-dilutive.  For 2007, 2006 and 2005, 41,000the anti-dilutive unvested restricted shares of common stock were not consideredexcluded in computing diluted earnings per common share because they were anti-dilutive.78,141, 305 and 82,000, respectively. The dilutive effect of stock options and the dilutive effect of unvested restricted shares arewere the only common stock equivalents for purposes of calculating diluted earnings per common share.
 
Stock-Based Compensation

50

TIB Financial Corp.Accounting Standards (“SFAS”) No. 123(R), Share-based Payment, using the modified prospective transition method.  Accordingly, the Company has recorded stock-based employee compensation cost using the fair value method starting in 2006.  For 2007 and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars2006, adopting this standard resulted in thousands except sharestock based compensation expense from stock options of $284 and per share amounts)$305.


Stock-Based Compensation

EmployeePrior to January 1, 2006, employee compensation expense under stock options iswas reported using the intrinsic value method. No stock-basedmethod; therefore, no stock based compensation cost from stock options is reflected in net income for the year ending December 31, 2005, as all options granted had an exercise price equal to or greater than the market price of the underlying common stock at date of grant.

63

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)
The following table illustrates the effect on net income and earnings per share if expense was measured using the fair value recognition provisions of FASB Statement No. 123, “AccountingAccounting for Stock-Based Compensation.”Stock Based Compensation, for the year ending December 31, 2005.

 
2005
 
2004
 
2003
  2005 
Net income, as reported $11,824 $5,198 $5,102  $11,824 
Stock-based compensation expense determined under fair value based method, net of tax  268  215  173   268 
Pro forma net income $11,556 $4,983 $4,929  $11,556 
              
Basic earnings per share as reported $2.07 $0.98 $1.20  $1.04 
Pro forma basic earnings per share  2.04  0.95  1.17   1.02 
Diluted earnings per share as reported  2.00  0.95  1.15   1.00 
Pro forma diluted earnings per share  1.97  0.92  1.12   0.99 
              

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,:

  
2005
  
2004
  
2003
 
Dividend yield 1.93% 2.3% 2.7%
Risk-free interest rate 4.0% to 4.4% 4.0 % to 4.1% 4.0% to 4.2%
Expected option life 9 years  9 years  9 years 
Volatility .23  .33  .31 
Weighted average fair value of options granted during year$7.51 $8.16 $5.83 
          

Comprehensive Income

Comprehensive income consists of net income and other comprehensive income.  Other comprehensive income includes unrealized gains and losses on securities available for sale which are also recognized as separate components of equity.

Securities Purchased Under Agreements to Resell and Securities Sold Under Agreements to Repurchase

Securities purchased under agreements to resell and securities sold under agreements to repurchase are generally accounted for as collateralized financing transactions and are recorded at the amounts at which the securities were acquired or sold plus accrued interest. The fair value of collateral either received from or provided to a third party is regularly monitored, and additional collateral is obtained, provided or requested to be returned as appropriate.

Loss Contingencies

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated.  Management does not believe there are now such matters that will have a material effect on the financial statements.

Operating Segments

While the chief decision-makers monitor the revenue streams of the various products and services, subsequent to the sale of the merchant bankcard processing segment during 2005 (see Note 19)2), operations are managed and financial performance is evaluated on a Company wide basis.  Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.


5164

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)



Fair Value of Financial Instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 18. Fair value estimates include uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect these estimates.

Recent Accounting Pronouncements

During 2004, the FASB revised Statement No. 123, “Accounting for Stock-Based Compensation” ("SFAS 123R") which established accounting requirements for share-based compensation to employees and carries forward prior guidance on accounting for awards to non-employees. The provisions of this statement became effective for fiscal years beginning after June 15, 2005 for all equity awards granted or modified after the effective date and for the subsequent vesting of previously granted awards. SFAS 123R requires an entity to recognize compensation expense based on an estimate of the fair value and number of awards expected to actually vest, exclusive of awards expected to be forfeited. Currently, the Company accounts for stock options granted to employees according to the provisions of APB Opinion No. 25, whereby compensation expense is recorded based upon the intrinsic value method. The stock-based compensation table on the previous page illustrates the effect on net income and earnings per share if we had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation. Subsequent to adoption, any income tax benefit for the exercise of stock options in excess of income tax expense for financial reporting purposes will be classified as a cash inflow from financing activities and a cash outflow from operating activities in the statement of cash flows. The Company adopted SFAS 123R on January 1, 2006, as required.

Options outstanding as of December 31, 2005 that are anticipated to vest subsequent to the adoption of SFAS 123R are expected to result in additional compensation expense as follows:

2006 $256 
2007  215 
2008  201 
2009  189 
2010  96 
Thereafter  117 
  $1,074 

In December 2004, the FASB issued Statement No. 153, “Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions.” This statement amends the principle of APB No. 29 that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged and more broadly provides for exceptions regarding exchanges of nonmonetary assets that do not have commercial substance. This Statement is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of this standard on January 1, 2006, as required, did not have a material impact on the financial condition, the results of operations, or liquidity of the Company.

In May 2005, the FASB issued Statement No. 154, “Accounting Changes and Error Corrections—a replacement of APB opinion No. 20 and FASB Statement No. 3” (“SFAS 154”). SFAS 154 changes the requirements for the accounting and reporting of a change in an accounting principle. The statement requires retrospective application of changes in an accounting principle to prior periods’ financial statements unless it is impracticable to determine the period-specific effects or cumulative effect of the change. The correction of an error will continue to require financial statement restatement. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005 (the Company’s fiscal year beginning January 1, 2006). The adoption of this standard on January 1, 2006, as required, did not have a material impact on the Company’s financial statements.

In February 2006, the FASBFinancial Accounting Standards Board (“FASB”) issued Statement No. 155, “Accounting for Certain Hybrid Financial Instruments - an amendment of FASB Statements No. 133 and 140,” (“SFAS 155”). SFAS 155 simplifies and conforms the accounting for certain financial instruments permitting fair value remeasurement for any hybrid financial instrument with an embedded derivative that otherwise would require bifurcation, provided that the whole instrument is accounted for on a fair value basis. The amendments to SFAS No. 133 also clarify that interest-only and principal-only strips are not embedded derivatives. The amendments to SFAS No. 140 allow a qualifying special purpose entity to hold a derivative financial instrument that pertains to a beneficial interest other

52

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)


than another derivative financial instrument. This statement is effective for all financial instruments and acquired or issued after the beginning of the first fiscal year after September 15, 2006. Management hasAdoption on January 1, 2007, as required, did not yet determinedhave a material effect on the impact, if any,Company’s financial condition, results of the adoption of SFAS 155.operations or liquidity.

In March 2004,2006, the FASB issued Statement No. 156, “Accounting for Servicing of Financial Assets-an amendment of FASB Statement No. 140”.  This Statement provides the following: 1) revised guidance on when a servicing asset and servicing liability should be recognized; 2) requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable; 3) permits an entity to elect to measure servicing assets and servicing liabilities at fair value each reporting date and report changes in fair value in earnings in the period in which the changes occur; 4) upon initial adoption, permits a onetime reclassification of available-for-sale securities to trading securities for securities which are identified as offsetting the entity's exposure to changes in the fair value of servicing assets or liabilities that a servicer elects to subsequently measure at fair value; and 5) requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional footnote disclosures.  This Standard is effective as of the beginning of an entity's first fiscal year that begins after September 15, 2006 with the effects of initial adoption being reported as a cumulative-effect adjustment to retained earnings.  Adoption on January 1, 2007, as required, did not have a material effect on the Company’s financial condition, results of operations or liquidity.

The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), on January 1, 2007.  The adoption of FIN 48 had no affect on the Company’s financial statements. The Company has no material unrecognized tax benefits and does not anticipate any increase in unrecognized benefits during 2008 relative to any tax positions taken prior to January 1, 2007.  Should the accrual of any interest or penalties relative to unrecognized tax benefits be necessary, it is the Company’s policy to record such accruals in its income taxes accounts; no such accruals exist as of January 1, 2007 or December 31, 2007.  The Company and its subsidiaries file a consolidated U.S. federal income tax return and a consolidated income tax return in the state of Florida.  These returns are subject to examination by taxing authorities for all years after 2003.

In September 2006, FASB issued Statement No. 157, “Fair Value Measurements” (“FAS 157”). FAS 157 provides guidance for using fair value to measure assets and liabilities. FAS 157 will apply whenever another standard requires (or permits) assets or liabilities to be measured at fair value. FAS 157 provides guidance about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value and the effect that fair value measurements have on earnings. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. Adoption on January 1, 2008, as required, did not have a material effect on the Company’s financial condition, results of operations or liquidity.

65

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)
In September 2006, the FASB Emerging Issues Task Force (EITF) released(“EITF”) finalized Issue 03-1, “MeaningNo. 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Other Than Temporary Impairment and Its Application to Certain Investments,” which addressed other-than-temporary impairmentEndorsement Split-Dollar Life Insurance Arrangements”.  This issue requires that a liability be recorded during the service period when a split-dollar life insurance agreement continues after participants’ employment or retirement.  The required accrued liability will be based on either the post-employment benefit cost for certain debt and equity investments. The recognition and measurement requirementsthe continuing life insurance or based on the future death benefit depending on the contractual terms of Issue 03-1, and other disclosure requirements not already implemented, werethe underlying agreement.  This issue is effective for periodsfiscal years beginning after JuneDecember 15, 2004. In September 2004, the FASB staff issued FASB Staff Position (FSP) EITF 03-1-1, which delayed the effective date for certain measurement and recognition guidance contained in Issue 03-1. The FSP requires the application of pre-existing other-than-temporary guidance during the period of delay until a final consensus is reached. Management does2007.  Adoption on January 1, 2008, as required, did not anticipate the issuance of the final consensus will have a material effect on the Company’s financial condition, results of operations or liquidity.
In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106 and 132(R).  This Statement requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its balance sheet, beginning with year end 2006, and to recognize changes in the funded status in the year in which the changes occur through comprehensive income beginning in 2007.  Additionally, defined benefit plan assets and obligations are to be measured as of the date of the employer’s fiscal year-end, starting in 2008.  Adoption had no effect on the Company’s financial condition, results of operations or liquidity as the Company does not have any defined benefit plans falling within the scope of SFAS No. 158.

In September 2006, the Securities and Exchange Commission (SEC) released Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (SAB 108), which is effective for fiscal years ending on or after November 15, 2006.  SAB 108 provides guidance on how the effects of prior-year uncorrected financial statement misstatements should be considered in quantifying a current year misstatement.  SAB 108 requires public companies to quantify misstatements using both an income statement (rollover) and balance sheet (iron curtain) approach and evaluate whether either approach results in a misstatement that, when all relevant quantitative and qualitative factors are considered, is material.  If prior year errors that had been previously considered immaterial now are considered material based on either approach, no restatement is required so long as management properly applied its previous approach and all relevant facts and circumstances were considered.  The adoption of SAB 108 had no effect on the Company’s financial statements.

In September 2006, the FASB Emerging Issues Task Force finalized Issue No. 06-5, “Accounting for Purchases of Life Insurance - Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4 (Accounting for Purchases of Life Insurance)”. This issue requires that a policyholder consider contractual terms of a life insurance policy in determining the amount that could be realized under the insurance contract.  It also requires that if the contract provides for a greater surrender value if all individual policies in a group are surrendered at the same time, that the surrender value be determined based on the assumption that policies will be surrendered on an individual basis.  Lastly, the issue requires disclosure when there are contractual restrictions on the Company’s ability to surrender a policy.  The adoption of this issue on January 1, 2007, as required, had no impact on the financial condition, the results of operations, or liquidity of the Company.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”. This Statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value measurement, which is consistent with the Board’s long-term measurement objectives for accounting for financial instruments. This Statement is effective for fiscal years beginning after November 15, 2007. Adoption on January 1, 2008, as required, did not have a material effect on the Company’s financial condition, results of operations or liquidity.

In June 2007, the FASB finalized Issue No. 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards”.  This issue requires that a realized income tax benefit from dividends or dividend equivalents that are charged to retained earnings and are paid to employees for equity classified nonvested equity shares, nonvested equity share units, and outstanding equity share options should be recognized as an increase to additional paid-in capital. The amount recognized in additional paid-in capital for the realized income tax benefit from dividends on those awards should be included in the pool of excess tax benefits available to absorb tax deficiencies on share-based payment awards (as described in paragraphs 62 and 63  of Statement 123(R)).  This issue is effective for fiscal years beginning after December 15, 2007.  Adoption on January 1, 2008, as required, did not have a material effect on the Company’s financial condition, results of operations or liquidity.

66

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), “Business Combinations” (“FAS 141(R)”), which revises Statement 141. FAS 141(R) requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information needed to evaluate and understand the nature and financial effect of the business combination. FAS 141(R) is effective for fiscal years beginning after December 15, 2008. Management has not yet completed its analysis of the potential impact of FAS 141(R).

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“FAS 160”), which requires all entities to report noncontrolling (minority) interests in subsidiaries as equity in the consolidated financial statements. Additionally, FAS 160 requires that transactions between an entity and noncontrolling interests be treated as equity transactions. FAS 160 is effective for fiscal years beginning after December 15, 2008. Management has not yet completed its analysis of the potential impact of FAS 160, but does not expect it to have a material effect on the Company’s financial condition, results of operations or liquidity.
Reclassifications

Some items in the prior year financial statements were reclassified to conform to the current presentation.


Note 2—Acquisitions, Divestitures and Divestitures

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. The Venture’s primary business is item processing and the design, development, installation and maintenance of accounting software for financial institutions. Goodwill associated with the transaction totaled $638 and was being amortized over a period of ten years through December 31, 2001, at which time the amortization was discontinued. Through December 31, 2001, the investment in the Venture was accounted for using the equity method. On December 31, 2001, the Company sold two thirds of its ownership interest in the Venture for $1,333. The Company recognized a gain of $820 on the transaction. This sale reduced the Company’s ownership in the Venture to 10%. Beginning January 1, 2002, the investment in the Venture was accounted for using the cost method. On October 4, 2002, the Company sold 5.1% of the Company’s 10% interest in the Venture for $340. The Company recognized a gain of $211 on the transaction. This sale, accompanied by the additional transfer of assets by other owners into the Venture, reduced the Company’s ownership in the Venture to 4.53%. The Venture also made a dividend distribution to the Company in 2002 in the amount of $33. On May 29, 2003, TIB Software and Services, Inc. sold its remaining interest in the Venture for $327. The Company recognized a pretax gain of $202 on the transaction. In March 2004, the Company filed Articles of Dissolution dissolving TIB Software and Services, Inc.

ERAS Joint Venture is the Bank’s item processor. Payments of approximately $642, $577 and $579 were made by the Bank to the Venture in 2005, 2004, and 2003, respectively. Of the amount paid in 2003, approximately $249 was paid to the Venture through the sale date of May 29, 2003.

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) had three offices in the Florida Keys and brokered 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 which consisted primarily of intangible assets. The consideration consisted of $220 of Company common stock (21,463 shares) and $1,650 in cash (paid at closing). Under the purchase agreement, annual cash payments of $110 were to be made following each of the first three anniversaries of the closing date, subject to the agency achieving certain earnings thresholds. Any of this additional consideration that was paid at the end of each contingency period would 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 2002 or 2003. This acquisition was recorded using the purchase method of accounting.

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. This was comprised of approximately $68 in the Company’s common stock (5,640 shares) and approximately $205 in cash. Under the purchase agreement, annual cash payments of $24 were to be made following each of the first two anniversaries of the closing date, subject to the agency achieving certain earnings thresholds. Any of this additional consideration that was paid at the end of each contingency period, would 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 2002 or 2003. This acquisition was recorded using the purchase method of accounting.

53

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)



On August 15, 2003, the Company closed the sale of Keys Insurance Agency, Inc., a wholly-owned subsidiary of the Company, to Derek Martin-Vegue and his partner. Mr. Martin-Vegue is a former director of the Company and TIB Bank. The transaction was structured as a sale of the agency assets. The buyer paid $2,205 in cash at the closing. Of the cash payment at closing, proceeds of $2,021 were pursuant to a loan from TIB Bank (a subsidiary of the Company) to the buyer. The Company recognized a loss of $15 on the transaction. Therefore, the results of operations of Keys Insurance Agency, Inc. are included in the Consolidated Statements of Income as “discontinued operations” (Note 19). In March 2004, the Company filed Articles of Dissolution dissolving Keys Insurance Agency, Inc.

On December 15, 2004, the Company closed the sale of certain intangible assets which primarily comprised a book of business which served as the foundation of the Company’s investment center operations. The buyer paid $50 in cash at the closing at which time the Company recognized a gain of $50. Additional cash payments totaling $37 were paid to the Company during 2005 related to the achievement of certain customer and asset retention thresholds and production referrals made through December 31, 2005.Discontinued Operations

On December 30, 2005, the Company closed the sale of its merchant bankcard processing business segment to NOVA Information Systems, Inc. (“NOVA”). NOVA paid $7,250 in cash at the closing resulting in the Company recognizing a gain of $6,697 on the transaction. The transaction was structured as a sale of the segment assets. Accordingly, the results of operations of the Company’s merchant bankcard processing business segment are included in the Consolidated Statements of Income as “discontinued operations” (Note 19). In connection with the sale, the Company entered into a Marketing and Sales Alliance Agreement and a Non-Competition Agreement. The Marketing and Sales Alliance Agreement provides for the exclusive referral by the Bank to NOVA of Bank customers seeking merchant card processing services, and on-going, active promotion of NOVA’s services to Bank customers. The Marketing and Sales Alliance Agreement has an initial term of ten years, and may be extended by the parties. The Non-Competition Agreement prohibits the Company from competing with NOVA to provide merchant card processing services, and prohibits the Bank from soliciting for such services (other than to be provided by NOVA) any merchants that had a merchant services relationship with the Bank at the time of the sale, and any merchants subsequently referred to NOVA. The Non-Competition Agreement is effective for so long as the Marketing and Sales Alliance Agreement is in effect. The non-solicitation covenant extends for two years following termination of the Marketing and Sales Alliance Agreement.

During 2006, the Company recorded additional gains totaling $414 relating primarily to the settlement of certain contractual early termination provisions on a basis that was more favorable than originally estimated.

The operating results of the merchant bankcard processing segment, which have been classified as discontinued operations in the accompanying consolidated financial statements, are summarized as follows:

Years ended December 31, 2007  2006  2005 
Other income $-  $414  $12,865 
Depreciation and amortization  -   -   (8)
Other expense  -   -   (5,227)
Pretax income from discontinued operations $-  $414  $7,630 
             


67

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)
On April 30, 2007, the Company completed the acquisition of The Bank of Venice, a Florida chartered commercial bank in exchange for consideration consisting of 944,400 shares of the Company’s common stock valued at approximately $13,628, cash of $568 and stock options valued at $364. The total purchase price, which includes certain direct acquisition costs of $194, totaled $14,754. Under the purchase method of accounting, the assets and liabilities of The Bank of Venice were recorded at their respective estimated fair values as of April 30, 2007 and are included in the accompanying balance sheet as of December 31, 2007. Purchase accounting adjustments will be amortized or accreted into income over the estimated lives of the related assets and liabilities. Goodwill and other intangible assets identified were approximately $6,980 and are not deductible for income tax purposes.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the date of acquisition:

Cash and cash equivalents $10,176 
Securities available for sale  2,292 
Federal Home Loan Bank Stock and other equity securities  496 
Loans, net  55,373 
Fixed assets  2,714 
Goodwill  4,580 
Core deposit intangible  2,150 
Customer relationship intangible  250 
Other  605 
Total assets acquired  78,636 
     
Deposits  57,715 
FHLB advances  5,000 
Other liabilities  1,167 
Total liabilities assumed  63,882 
     
Total consideration paid for The Bank of Venice $14,754 
     

The acquisition of The Bank of Venice provided an established entry point into the Sarasota County market and allows us to significantly accelerate the rate of franchise growth of the combined entity which is expected to be greater than the Company could achieve on a de novo basis.
On December 12, 2007, the Company entered into a definitive Stock Purchase Agreement (the “Agreement”) with Naples Capital Advisors, Inc. (“NCA”), a registered investment advisor with approximately $80,000 of assets under advisement. Under the terms of the Agreement, NCA will become a wholly-owned subsidiary of the Company. Shareholders of NCA will receive $1,333 in cash at closing.  In addition, the Sellers shall be entitled to receive additional cash consideration up to $148 on each of the first three annual anniversaries of NCA or a subsidiary of the Company receiving a trust department license under the Florida Financial Institutions Codes subject to NCA achieving certain total revenue milestones outlined in the Agreement. The closing of the sale was finalized on January 2, 2008.

68

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)
Note 3—Cash and Due From Banks

Cash on hand or on deposit with the Federal Reserve Bank of $4,925$3,204 and $3,979$4,885 was required to meet regulatory reserve and clearing requirements at December 31, 2005,2007, and December 31, 2004,2006, respectively.  These balances do not earn interest.

The Bank maintains an interest bearing account at the Federal Home Loan Bank of Atlanta.  The total on deposit was approximately $292$146 and $203$386 at December 31, 20052007 and December 31, 2004,2006, respectively.


Note 4 -4—Investment Securities
The amortized cost, estimated fair value, and the related gross unrealized gains and losses recognized in accumulated other comprehensive income, are as follows for investment securities available for sale:

December 31, 2005
  
Amortized Cost
  
Unrealized Gains
  
Unrealized Losses
  
Estimated Fair Value
 
U.S. Treasury securities $5,182 $1 $145 $5,038 
December 31, 2007 
Amortized
Cost
  
Unrealized
Gains
  
Unrealized
Losses
  
Estimated
Fair Value
 
U.S. Government agencies and corporations  64,145  5  1,738  62,412  $72,482  $1,245  $66  $73,661 
States and political subdivisions—tax exempt  9,594  91  101  9,584   9,629   6   51   9,584 
States and political subdivision—taxable  2,655  8  -  2,663   2,495   1   21   2,475 
Marketable equity securities  3,000  439  -  3,439   1,224   -   -   1,224 
Mortgage-backed securities  10,083  193  24  10,252   60,161   295   296   60,160 
Collateralized mortgage obligations  3,996  80  -  4,076 
Corporate bonds  2,865   -   100   2,765 
Collateralized debt obligations  11,110   -   622   10,488 
 $98,655 $817 $2,008 $97,464  $159,966  $1,547  $1,156  $160,357 
                             



December 31, 2006 
Amortized
Cost
  
Unrealized
Gains
  Unrealized Losses  Estimated Fair Value 
U.S. Treasury securities $5,087  $-  $125  $4,962 
U.S. Government agencies and corporations  84,014   278   1,294   82,998 
States and political subdivisions—tax exempt  10,818   22   98   10,742 
States and political subdivision—taxable  2,578   12   -   2,590 
Marketable equity securities  3,000   484   -   3,484 
Mortgage-backed securities  16,428   94   8   16,514 
Collateralized debt obligations  9,996   -   87   9,909 
  $131,921  $890  $1,612  $131,199 
                 

5469

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)






December 31, 2004
  
Amortized Cost
  
Unrealized Gains
  
Unrealized Losses
  
Estimated Fair Value
 
U.S. Treasury securities $5,178 $5 $29 $5,154 
U.S. Government agencies and corporations  54,228  104  869  53,463 
States and political subdivisions—tax exempt  9,596  246  26  9,816 
States and political subdivision—taxable  2,862  17  23  2,856 
Marketable equity securities  3,000  987  -  3,987 
Mortgage-backed securities  2,473  58  -  2,531 
  $77,337 $1,417 $947 $77,807 
              


55

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)



Securities with unrealized losses not recognized in income are as follows:

 
Less than 12 Months
 
12 Months or Longer
 
Total
  Less than 12 Months  12 Months or Longer  Total 
December 31, 2005
  
Estimated Fair Value
  
Unrealized Losses
  
Estimated Fair Value
  
Unrealized Losses
  
Estimated Fair Value
  
Unrealized Losses
 
U.S. Treasury securities 
$
-
 
$
-
 $4,935 $145 $4,935 $145 
December 31, 2007 Estimated Fair Value  
Unrealized Losses
  Estimated Fair Value  
Unrealized Losses
  Estimated Fair Value  
Unrealized Losses
 
U.S. Government agencies and corporations  20,074 353 37,215 1,385 57,289 1,738  $-  $-  $13,577  $66  $13,577  $66 
States and political subdivisions—tax exempt  5,470 95 228 6 5,698 101   2,814   9   5,753   42   8,567   51 
States and political subdivisions—taxable  2,299   21   -   -   2,299   21 
Mortgage-backed securities  1,537  24  -  -  1,537  24   30,254   295   1,072   1   31,326   296 
Corporate bonds  2,765   100   -   -   2,765   100 
Collateralized debt obligations  4,378   622   -   -   4,378   622 
Total temporarily impaired $27,081 $472 $42,378 $1,536 $69,459 $2,008  $42,510  $1,047  $20,402  $109  $62,912  $1,156 
                                      

 
Less than 12 Months 
12 Months or Longer
Total
 Less than 12 Months  12 Months or Longer  Total 
December 31, 2004
  
Estimated Fair Value
  
Unrealized Losses
  
Estimated Fair Value
  
Unrealized Losses
  
Estimated Fair Value
  
Unrealized Losses
 
December 31, 2006 Estimated Fair Value  
Unrealized Losses
  Estimated Fair Value  
Unrealized Losses
  Estimated Fair Value  
Unrealized Losses
 
U.S. Treasury securities $5,046 $29 $- $- $5,046 $29  $101  $-  $4,861  $125  $4,962  $125 
U.S. Government agencies and corporations  24,858 201 20,379 668 45,237 869   -   -   60,539   1,294   60,539   1,294 
States and political subdivisions—tax exempt  2,421 22 230 4 2,651 26   3,996   25   3,823   73   7,819   98 
States and political subdivision—taxable  2,312  19  131  4  2,443  23 
Mortgage-backed securities  -   -   1,084   8   1,084   8 
Collateralized debt obligations  9,909   87   -   -   9,909   87 
Total temporarily impaired $34,637 $271 $20,740 $676 $55,377 $947  $14,006  $112  $70,307  $1,500  $84,313  $1,612 
                                      

The Company views the unrealized losses in the above table to be temporary in nature for the following reasons.  First, the decline in market values are mostly due to an increase in market interest rates and are not credit related.  These securities are mostly AAA rated securities and have experienced no significant deterioration in value due to credit quality concerns.  Second, other than for the collateralized debt obligations, the magnitude of the unrealized losses at aboutof approximately 3% or less of the fair valuehistorical cost of those securities with losses is consistent with normal fluctuations of value due to the volatility of market interest rates.  Finally, the nature of what makes up the security portfolio is determined by the overall balance sheet of the Company and currently it is suitable for the Company’s security portfolio to be primarily comprised of fixed rate securities.  Fixed rate securities will by their nature react in price inversely to changes in market rates and that is liable to occur in both directions.

70

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)
As of December 31, 2007, the Company owned three collateralized debt obligation investment securities with an aggregate original cost of $9,996 that had an estimated fair value of $6,111 at that time. The underlying assets in the three collateralized debt obligations are comprised primarily of corporate debt obligations of homebuilders, REITs, real estate companies and commercial mortgage backed securities. The Company’s securities are floating rate securities which were rated A or better by an independent and nationally recognized rating agency at the time of our purchase. In late December 2007, these securities were downgraded below investment grade by a nationally recognized rating agency. Due to the ratings downgrade, and the amount of unrealized loss, management concluded that the loss of value was other than temporary under generally accepted accounting principles and the Company wrote these investment securities down to their estimated fair value. This resulted in the recognition of an other than temporary impairment loss of $3,885. In determining their estimated fair value, management utilized a discounted cash flow modeling valuation approach. Discount rates utilized in the modeling of these securities were estimated based upon a variety of factors including the yield at issuance of similarly rated classes of comparably structured collateralized debt obligations. Cash flows utilized in the modeling of these securities were based upon actual default history of the underlying issuers and varying assumptions of estimated future defaults of these issuers. Additionally, during 2007, the market value of an investment in equity securities, which the Company originally acquired in 2003 for $3,000 to obtain community reinvestment credit, of a publicly owned company declined significantly. As of December 31, 2007, management determined that this decline was other than temporary and wrote this investment down by $1,776 to its fair value at that time. These write downs resulted in a total recognized other than temporary impairment loss of $5,661 during 2007. During 2006 and 2005, no other than temporary impairment losses were necessary.

The estimated fair value of investment securities available for sale at December 31, 2005,2007, by contractual maturity, are shown as follows. Expected maturities may differ from contractual maturities because borrowers may have the right to call or repay obligations without call or prepayment penalties.  Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

December 31, 2005
    
December 31, 2007 
Due in one year or less $5,215  $10,073 
Due after one year through five years  47,843   26,873 
Due after five years through ten years  22,161   32,666 
Due after ten years  4,478   29,361 
Marketable equity securities  3,439   1,224 
Mortgage-backed securities  10,252   60,160 
Collateralized mortgage obligations  4,076 
 $97,464  $160,357 
        

At December 31, 2005,2007, securities with a fair value of approximately $28,913$51,096 are subject to call during 2006.2008.

56

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)



Sales of available for sale securities were as follows:

  
2005
  
2004
  
2003
  2007  2006  2005 
Proceeds $- $9,281 $4,000  $5,491  $-  $- 
Gross gains  -  146  280   1   -   - 
Gross losses  -  (43) -   -   -   - 
                      

The tax provision related to net realized gains was $0 $39,during 2007, 2006, and $105 during 2005, 2004,2005.

71

TIB Financial Corp. and 2003, respectively.Subsidiaries

Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)
Maturities, principal repayments, and calls of investment securities available for sale during 2007, 2006 and 2005 2004were $34,863, $9,296, and 2003 were $1,103, $3,797 and $24,553, respectively.  Net gains (losses) realized from calls and mandatory redemptions of securities during 2007, 2006 and 2005 2004were $0, $0, and 2003 were $1, $3 and $9, respectively.

Investment securities having carrying values of approximately $23,539$129,970 and $11,924$47,473 at December 31, 20052007 and 2004,2006, respectively, were pledged to secure public funds on deposit, securities sold under agreements to repurchase, and for other purposes as required by law.


Note 5—Loans

Major classifications of loans are as follows:

December 31,
  
2005
  
2004
  2007  2006 
Real estate mortgage loans:             
Commercial $451,969 $351,346  $612,084  $546,276 
Residential  76,003  67,204   112,138   82,243 
Farmland  4,660  4,971   11,361   24,210 
Construction and vacant land  125,207  49,815   168,595   157,672 
Commercial and agricultural loans  80,055  64,622   72,076   84,905 
Indirect auto dealer loans  118,018  91,890   117,439   141,552 
Home equity loans  17,232  13,856   21,820   17,199 
Other consumer loans  9,228  9,817   12,154   9,795 
Total loans  882,372  653,521   1,127,667   1,063,852 
               
Net deferred loan costs  1,652  2,157   1,489   1,616 
Loans, net of deferred loan costs $884,024 $655,678  $1,129,156  $1,065,468 
               

Substantially all loans are made to borrowers in the Bank’sBanks’ primary market area of Monroe, South Miami-Dade, Collier, Lee, Sarasota and Lee counties.Highlands counties of Florida.

In 1998, theTIB Bank made a $10,000 loan to construct a lumber mill in northern Florida. Of this amount, $6,400 had been sold by theTIB Bank to other lenders. The loan was partially80% guaranteed as to principal and interest by the U.S. Department of Agriculture (USDA). In addition to business real estate and equipment, the loan was collateralized by the business owner’s interest in a trust. Under provisions of the trust agreement, beneficiaries cannot receive trust assets until November 2010.

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) and other assets (approximately $1,886) based on the fair value of the underlying-collateral. The portion of this loan guaranteed by the USDA and held by us was approximately $1,600 at December 31, 20052007 and December 31, 2004, and is2006. The loan was accruing interest.interest until December 2006 when TIB Bank ceased the accrual of interest pursuant to a ruling made by the USDA. Accrued interest on this loan totals approximately $794 and $677$941 at December 31, 20052007 and December 31, 2004,2006, respectively.


5772

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)



In pursuing a sale of the property and equipment, theTIB Bank has incurred various expenditures.  TheTIB Bank capitalized the liquidation costs and the portion of the protective advances which it expects will be fully reimbursed by the USDA. Other real estate recorded on the Bank’s books totaled $190 at December 31, 2005 and December 31, 2004. The non-guaranteed principal and interest ($1,961 at December 31, 20052007 and December 31, 2004)2006) and the reimbursable capitalized liquidation costs and protective advance costs totaling approximately $854$954 and $704$899 at December 31, 20052007 and December 31, 2004,2006, respectively, are included as “other assets” in the financial statements.

The Bank sold certain pieces of equipment associated with the lumber mill property. Proceeds from the sales were used to reduce the other real estate amount and liquidation cost amounts recorded on the Bank’s books. In 2003, the Bank wrote down the carrying amount of the other real estate by $262 based upon anticipated proceeds from the sale of the property and remaining equipment. In January 2006, the Bank sold the remaining other real estate for $1,250 and recognized of a gain of $33 on the Bank’s interest therein, net of transaction costs.

Florida law requires a bank to liquidate or charge off repossessed real property within five years, and repossessed personal property within six months.  The Bank was awarded title to the real property on June 12, 2001, and an adjudicated interest in the owner’s trust proceeds. The time constraints imposed by Florida law required that the personal property be disposed of or charged off by December 2001. The Bank applied to the State of Florida for an extension to carry the personal property on the Bank’s books and was granted an extension to carry the personal property on its books until June 11, 2003. Since the property had not been liquidated as of June 11th, theduring this period, TIB Bank charged-off the non guaranteed principal and interest totaling $1,961 at June 30, 2003, for regulatory purposes.  Since the Company believes this amount is ultimately realizable, it did not write off this amount for financial statement purposes under generally accepted accounting principles.

Activity in the allowance for loan losses is as follows:

Years ended December 31,
  
2005
  
2004
  
2003
  2007  2006  2005 
Balance, beginning of year $6,243 $5,216 $4,272  $9,581  $7,546  $6,243 
Acquisition of The Bank of Venice  667   -   - 
Provision for loan losses charged to expense  2,413  2,455  1,586   9,657   3,491   2,413 
Loans charged off  (1,219) (1,487) (667)  (5,202)  (1,573)  (1,219)
Recoveries of loans previously charged off  109  59  25   270   117   109 
Balance, end of year $7,546 $6,243 $5,216  $14,973  $9,581  $7,546 
                      


Impaired loans are as follows:

Years ended December 31,
  
2005
  
2004
  2007  2006 
Year end loans with no allocated allowance for loan losses $324 $2,018 
Year end loans with no specifically allocated allowance for loan losses $4,448  $519 
Year end loans with allocated allowance for loan losses  -  -   3,748   142 
Total $324 $2,018  $8,196  $661 
Amount of the allowance for loan losses allocated $- $-  $1,401  $45 
               


 
2005
 
2004
 
2003
  2007  2006  2005 
Average of impaired loans during the year $599 $1,005 $1,088  $4,464  $363  $599 
Interest income recognized during impairment  41  64  72   40   21   41 
Cash basis interest income recognized  -  -  -   27   6   - 
                      



5873

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)



Non-performing loans include nonaccrual loans and accruing loans contractually past due 90 days or more.  Nonaccrual loans are comprised principally of loans 90 days past due as well as certain loans, which are current but where serious doubt exists as to the ability of the borrower to comply with the repayment terms.  InterestGenerally, interest previously accrued and not yet paid on nonaccrual loans is reversed during the period in which the loan is placed in a nonaccrual status.  Non-performing loans are as follows:

Years ended December 31,
  
2005
  
2004
  2007  2006 
Nonaccrual loans(a) $956 $704  $16,086  $4,223 
Loans past due over 90 days still on accrual (a)  -  -   -   - 
               

Non-performing loans and impaired loans are defined differently.  Some loans may be included in both categories, whereas other loans may only be included in one category.  In February 2008, a $13.5 million commercial land and development loan matured and was placed on nonaccrual because the borrowers were unable to service the debt.
(a)  Non-performing loans includes the $1,600 loan discussed previously which is guaranteed for both principal and interest by a U.S. government agency.  We discontinued accruing interest on this loan during December 2006 pursuant to a ruling made by the agency.

(a) Non-performing loans at December 31, 2005 and 2004 excludes the $1,600 loan discussed previously that is guaranteed for both principal and interest by the USDA.


Note 6—Premises and Equipment

A summary of the cost and accumulated depreciation of premises and equipment follows:

December 31,
  
2005
  
2004
  
Estimated Useful Life
  2007  2006 Estimated Useful Life
Land $9,038 $9,668     $11,197  $10,712  
Buildings and leasehold improvements  17,372  17,227  5 to 40 years   23,962   16,591 1 to 40 years
Furniture, fixtures and equipment  13,833  13,354  1 to 40 years   14,050   14,261 1 to 40 years
Construction in progress  1,868  151      3,498   7,723  
  42,111  40,400      52,707   49,287  
Less accumulated depreciation  (14,311) (12,841)     (14,423)  (15,185) 
Premises and equipment, net $27,800 $27,559     $38,284  $34,102  
                   

Depreciation expense for the years ended December 31, 2005, 20042007, 2006, and 2003,2005, was approximately $2,219, $1,950$2,887, $2,354, and $1,756,$2,219, respectively.

The Bank isBanks are obligated under operating leases for office and banking premises which expire in periods varying from one to twelvenineteen years.  Future minimum lease payments, before considering renewal options that generally are present, are as follows at December 31, 2005:2007:

Years Ending December 31,       
2006 $587 
2007  546 
2008  485  $1,273 
2009  312   862 
2010  320   799 
2011  755 
2012  425 
Thereafter  344   2,283 
 $2,594  $6,397 
        

Rental expense for the years ended December 31, 2005, 20042007, 2006, and 2003,2005, was approximately $674, $561,$1,128, $794, and $443,$674, respectively.



5974

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)

Note 7—Goodwill and Intangible Assets

Note 7—Intangible AssetsThe changes in the carrying amount of goodwill for the years ended December 31, are as follows:

  2007  2006 
Beginning of the year $106  $106 
Goodwill associated with the acquisition of The Bank of Venice  4,580   - 
Balance at end of year $4,686  $106 
         
Intangible assets at December 31, consist of the following:

2005
2004
 2007  2006 
December 31,
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Book Value
   
Gross Carrying Amount
 
Accumulated Amortization
 
Net Book Value
  
Gross Carrying
Amount
  
Accumulated
Amortization
  
Net Book
Value
  
Gross Carrying
Amount
  
Accumulated
Amortization
  
Net Book
Value
 
Core deposit intangible$2,941 $1,852 $1,089  $2,941 $1,569 $1,372  $5,091  $2,564  $2,527  $2,941  $2,136  $805 
Customer relationship intangible  250   11   239   -   -   - 
Other 51  40  11   89  69  20   26   20   6   36   28   8 
Total$2,992 $1,892 1,100  $3,030 $1,638 $1,392  $5,367  $2,595  $2,772  $2,977  $2,164  $813 
                                      

Aggregate intangible asset amortization expense was $440, $288, and $291 $295for 2007, 2006, and $292 for 2005, 2004, and 2003, respectively.

Estimated amortization expense for each of the next five years is as follows:

Years Ending December 31,       
2006 $288 
2007  286 
2008  249   481 
2009  141   372 
2010  134   366 
2011  233 
2012  233 
        


75

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)
Note 8—Time Deposits

Time deposits of $100 or more were $222,058$240,853 and $126,207$286,591 at December 31, 20052007 and 2004,2006, respectively.

At December 31, 2005,2007, the scheduled maturities of time deposits are as follows:

Years Ending December 31,       
2006 $309,105 
2007  79,968 
2008  27,157  $409,603 
2009  12,721   81,602 
2010  2,848   10,489 
Thereafter  5 
2011  8,898 
2012  2,162 
 $431,804  $512,754 
        

Note 9—Short-Term Borrowings and Federal Home Loan Bank Advances

Short-term borrowings include federal funds purchased, securities sold under agreements to repurchase, advances from the Federal Home Loan Bank, and a Treasury, tax and loan note option.

The Bank has anBanks have unsecured overnight federal funds purchased accommodation up to a maximum of $12,000$30,000 from its principaltheir correspondent bank. Thebanks.  Additionally, the Banks have agreements with various financial institutions under which securities can be sold under agreements to repurchase.  TIB Bank also has securities sold under agreements to repurchase with commercial account holders whereby theTIB Bank sweeps the customer’s accounts on a daily basis and pays interest on these amounts. These agreements are collateralized by investment securities chosen by theTIB Bank.

The Bank acceptsBanks accept Treasury, tax and loan deposits from certain commercial depositors and remitsremit these deposits to the appropriate government authorities. TheTIB Bank can hold up to $1,700 of these deposits more than a day under a note option agreement with its regional Federal Reserve bank and pays interest on those funds held. TheTIB Bank pledges certain investment securities against this account.

60

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)


The Bank investedBanks invest in Federal Home Loan Bank stock for the purpose of establishing credit lines with the Federal Home Loan Bank. The credit availability to the BankBanks is equal to 20%based on a percentage of the Bank’sBanks’ total assets as reported on the most recent quarterly financial information submitted to the regulators subject to the pledging of sufficient collateral.  At December 31, 2005,2007, in addition to a $15,000 letter$25,000 in letters of credit used in lieu of pledging securities to the State of Florida, there was $25,000$140,000 in advances outstanding. At December 31, 2004,2006, the amount of outstanding advances was $35,000.$125,000.  The outstanding amount at December 31, 20052007 consists of:

Amount
 
 
Issuance Date
 
 
Maturity Date
 Repricing Frequency 
Rate at
December 31, 2007
 
$50,000 February 2007 February 2010 (a) Fixed  4.65%
 50,000 December 2006 December 2011 (a) Fixed  4.18%
 25,000 August 2006 February 2008 Quarterly  5.01%
 10,000 September 2007 September 2012 (a) Fixed  4.05%
 5,000 March 2007 March 2012 (a) Fixed  4.29%
            
(a)   These advances have quarterly conversion dates beginning six months to one year from date of one $25,000issuance.  If the FHLB chooses to convert the advance, maturingthe Banks have the option of prepaying the entire balance without penalty.  Otherwise, the advance will convert to an adjustable rate, repricing on a quarterly basis.  If the FHLB does not convert the advance, it will remain at the contracted fixed rate until the maturity date.

76

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in March 2006. On December 31, 2005 the rate on the long term advance was 4.37%, repricing monthly. In July 2004, new agreements were executedthousands except share and per share amounts)

    The Bank’s collateral with the FHLB andconsists of a blanket floating lien pledge of the Bank’s residential 1-4 family mortgage and commercial real estate secured loansloans.  The amount of eligible collateral at December 31, 2007 was executed to bring collateral availability up to approximately $176,262.$200,857.

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:borrowings and FHLB advances:

Year Ended December 31, 2007  2006 
Federal funds purchased:      
Balance:      
Average daily outstanding $190  $915 
Year-end outstanding  157   - 
Maximum month-end outstanding  11,024   13,042 
Rate:        
Weighted average for year  5.7%  5.9%
Weighted average interest rate at December 31  5.3%  n/a 
         
Securities sold under agreements to repurchase:        
Balance:        
Average daily outstanding $41,074  $20,506 
Year-end outstanding  75,861   20,352 
Maximum month-end outstanding  75,861   31,451 
Rate:        
Weighted average for year  4.2%  4.7%
Weighted average interest rate at December 31  3.9%  4.4%
         
Treasury, tax and loan note option:        
Balance:        
Average daily outstanding $1,127  $1,051 
Year-end outstanding  1,904   1,898 
Maximum month-end outstanding  1,904   1,898 
Rate:        
Weighted average for year  4.6%  4.4%
Weighted average interest rate at December 31  3.6%  5.0%
         
Advances from the Federal Home Loan Bank-Short Term:        
Balance:        
Average daily outstanding $1,068  $19,274 
Year-end outstanding  -   - 
Maximum month-end outstanding $10,000  $50,000 
Rate:        
Weighted average for year  5.2%  5.5%
Weighted average interest rate at December 31  n/a   n/a 
         
Advances from the Federal Home Loan Bank-Long Term:        
Balance:        
Average daily outstanding $131,123  $45,137 
Year-end outstanding  140,000   125,000 
Maximum month-end outstanding  140,000   125,000 
Rate:        
Weighted average for year  4.7%  5.2%
Weighted average interest rate at December 31  4.5%  4.9%
         
Year Ended December 31,
  
2005
  
2004
 
Federal funds purchased:
       
Balance:       
Average daily outstanding $38 $460 
Year-end outstanding  -  - 
Maximum month-end outstanding  -  4,519 
Rate:       
Weighted average for year  2.9% 2.2%
Weighted average interest rate at December 31  n/a  n/a 
        
Securities sold under agreements to repurchase:
       
Balance:       
Average daily outstanding $13,186 $5,142 
Year-end outstanding  15,300  9,947 
Maximum month-end outstanding  19,473  9,947 
Rate:       
Weighted average for year  3.0% 1.3%
Weighted average interest rate at December 31  4.1% 2.1%
        
Treasury, tax and loan note option:
       
Balance:       
Average daily outstanding $776 $647 
Year-end outstanding  1,984  2,210 
Maximum month-end outstanding  1,984  2,210 
Rate:       
Weighted average for year  2.8% 1.1%
Weighted average interest rate at December 31  4.0% 1.9%
        
Advances from the Federal Home Loan Bank-Short Term:
       
Balance:       
Average daily outstanding $466 $9,090 
Year-end outstanding  -  10,000 
Maximum month-end outstanding  -  25,000 
Rate:       
Weighted average for year  2.6% 1.8%
Weighted average interest rate at December 31  n/a  2.4%

6177

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)


Note 10—Long-Term Borrowings

      
Advances from the Federal Home Loan Bank-Long Term:
       
Balance:       
Average daily outstanding $25,000 $20,246 
Year-end outstanding  25,000  25,000 
Maximum month-end outstanding  25,000  25,000 
Rate:       
Weighted average for year  3.4% 1.6%
Weighted average interest rate at December 31  4.4% 2.4%
        
Note 10—Other Borrowings

Line of Credit

Until its maturity on April 30, 2005, the Company had a $3,000 revolving line of credit with Independent Bankers’ Bank of Florida. Amounts outstanding under the line bore interest equal to the prime rate published in The Wall Street Journal minus one half percent, which was subject to change daily, and was subject to a 4.25% floor.  Interest was payable monthly, and principal was due on demand, or if no demand was made, at maturity.  This credit facility was secured by 100 percent of the outstanding shares of the Bank and required, among other things, that the Bank maintain a minimum Tier 1 capital ratio of 6 percent.  There were no amounts outstanding under this line at December 31, 2004 and2007, 2006 or 2005 as the Company elected not to renew the line upon maturity.

Securities Sold Under Agreements to Repurchase
During 2007, the Company entered into agreements with another financial institution for the sale of certain securities to be repurchased at a future date.  The interest rates on these repurchase agreements are fixed for the term of the agreement.  The financial institution has the ability to terminate these agreements on a quarterly basis beginning on the terminable date.  The outstanding amount at December 31, 2007 was $30,000 and consists of:
Amount Terminable Date Maturity Date 
Rate at
December 31, 2007
 
$20,000 September 2008 September 2010  4.18%
 10,000 December 2008 December 2010  3.46%
          
Notes Payable

The Company entered into an agreement with the Company’s largest shareholder effective July 1, 2000, to purchase 525,0001,050,000 shares of the Company’s common stock in exchange for four subordinated notes payable of the Company totaling $5,250.  The interest rate on these notes was 13% per annum, with interest payments required quarterly.  The principal balance was payable in full on October 1, 2010, the maturity date of the notes, and the notes could be prepaid by the Company at par any time after July 1, 2003.  Effective January 1, 2002, the interest rate was reduced to 9%, the option to prepay was extended to January 1, 2007, and the maturity date was extended to January 1, 2012.  On January 3, 2005 the Company repaid $1,250 of these notes at a 3% premium.  On January 1, 2007, the remaining $4,000 was repaid at par.

Subordinated Debentures

On September 7, 2000, the Company participated in a pooled offering of trust preferred securities.  The Company formed TIBFL Statutory Trust I (the “Trust”) a wholly-owned statutory trust subsidiary for the purpose of issuing the trust preferred securities.  The Trust used the proceeds from the issuance of $8,000 in trust preferred securities to acquire junior subordinated deferrable interest debentures of the Company.  The trust preferred securities essentially mirror the debt securities, carrying a cumulative preferred dividend at a fixed rate equal to the 10.6% interest rate on the debt securities. The debt securities and the trust preferred securities each have 30-year lives. The trust preferred securities and the debt securities are callable by the Company or the Trust, at their respective option after ten years, and at varying premiums and sooner in specific events, subject to prior approval by the Federal Reserve Board, if then required.


78

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)
On July 31, 2001, the Company participated in a pooled offering of trust preferred securities.  The Company formed TIBFL Statutory Trust II (the “Trust II”) a wholly-owned statutory trust subsidiary for the purpose of issuing the trust preferred securities.  The Trust II used the proceeds from the issuance of $5,000 in trust preferred securities to acquire junior subordinated deferrable interest debentures of the Company.  The trust preferred securities essentially mirror the debt securities, carrying a cumulative preferred dividend at a variable rate equal to the interest rate on the debt securities (three month LIBOR plus 358 basis points).  The initial rate in effect at the time of issuance was 7.29% and is subject to change quarterly.  The rate in effect at December 31, 20052007 was 7.82%8.54%. The debt securities and the trust preferred securities each have 30-year lives.  The trust preferred securities and the debt securities are callable by the Company or the Trust, at their respective option after five years, and at varying premiums and sooner in specific events, subject to prior approval by the Federal Reserve Board, if then required.
On June 23, 2006, the Company issued $20,000 of additional trust preferred securities through a private placement. The Company formed TIBFL Statutory Trust III (the “Trust III”), a wholly-owned statutory trust subsidiary for the purpose of issuing the trust preferred securities. The Trust III used the proceeds from the issuance of $20,000 in trust preferred securities to acquire junior subordinated deferrable interest debentures of the Company. The trust preferred securities essentially mirror the debt securities, carrying a cumulative preferred dividend at a variable rate equal to the interest rate on the debt securities (three month LIBOR plus 155 basis points). The rate in effect at December 31, 2007 was 6.79%.  The debt securities and the trust preferred securities each have 30-year lives. The trust preferred securities and the debt securities are callable by the Company or the Trust, at their respective option at par after five years, and sooner, at a 5% premium, if specific events occur, subject to prior approval by the Federal Reserve Board, if then required.

Under the provisions of the related indenture agreements, the interest payable on the trust preferred securities is deferrable for up to five years and any such deferral is not considered a default. During any period of deferral, the Company would be precluded from declaring or paying dividends to shareholders or repurchasing any of the Company’s common stock.

The Company has treated the trust preferred securities as Tier 1 capital up to the maximum amount allowed, and the remainder as Tier 2 capital for federal regulatory purposes (see Note 14).


62

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)


Contractual Maturities

At December 31, 2005,2007, the contractual maturities of long-term borrowings were as follows:

  
Fixed Rate 
  
Floating Rate
  
Total
  Fixed Rate  Floating Rate  Total 
Due in 2006 $- $- $- 
Due in 2007  -  -  - 
Due in 2008  -  -  -  $-  $-  $- 
Due in 2009  -  -  -   -   -   - 
Due in 2010  -  -  -   30,000   -   30,000 
Due in 2011  -   -   - 
Thereafter  12,000  5,000  17,000   8,000   25,000   33,000 
Total long-term debt $12,000 $5,000 $17,000  $38,000  $25,000  $63,000 
                      

79

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)
Note 11—Income Taxes

Income tax expense (benefit) from continuing operations was as follows:

Years ended December 31,
  
2005
  
2004
  
2003
  2007  2006  2005 
Current income tax provision:                   
Federal $6,711 $2,331 $3,049  $2,798  $5,386  $3,985 
State  1,158  431  550   436   803   886 
  7,869  2,762  3,599   3,234   6,189   4,871 
Deferred tax benefit:                      
Federal  (805) (76) (722) (4,334) (1,018)  (805)
State  (139) (14) (130)  (675)  (150)  (139)
  (944) (90) (852)  (5,009)  (1,168)  (944)
                      
Total $6,925 $2,672 $2,747  $(1,775) $5,021  $3,927 
                      

A reconciliation of income tax computed at theapplicable Federal statutory income tax rate (35% for 2005 and 34% for 2004 and 2003)rates to total income taxes reported is as follows:

Years ended December 31,
  
2005
  
2004
  
2003
  2007  2006  2005 
Pretax income $18,749 $7,870 $7,849 
Pretax income from continuing operations $(4,196) $14,014  $11,119 
Income taxes computed at Federal statutory tax rate $6,562 $2,676 $2,669  $(1,427) $4,815  $3,780 
Effect of:                      
Tax-exempt income, net  (324) (340) (275)  (322)  (330)  (324)
State income taxes, net  662  275  277   (156)  423   390 
Stock based compensation expense, net  92   80   - 
Other, net  25  61  76   38   33   81 
Total $6,925 $2,672 $2,747  $(1,775) $5,021  $3,927 
                      



6380

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)



Year end deferred tax assets and liabilities were due to the following:

Years ended December 31,
  
2005
  
2004
  2007  2006 
Allowance for loan losses $3,045 $2,475  $5,910  $3,848 
Core deposit intangible  245  212 
Recognized impairment losses on available for sale securities  2,184   - 
Core deposit intangibles  318   285 
Deferred compensation  788  555   1,836   1,126 
Non-accrual interest income  386   63 
Net unrealized losses on securities available for sale  448  -   -   278 
Other  182  116   468   49 
Total gross deferred tax assets  4,708  3,358   11,102   5,649 
               
Accumulated depreciation  (765) (871)  (934)  (637)
Deferred loan costs  (555) (401)  (746)  (621)
Core deposit and other non-deductible acquisition related intangibles  (822)  (10)
Net unrealized gains on securities available for sale  -  (177)  (151)  - 
Other  (70) (85)  (69)  (65)
Total gross deferred tax liabilities  (1,390) (1,534)  (2,722)  (1,333)
               
Net deferred tax asset $3,318 $1,824  $8,380  $4,316 
               

Note 12—Employee Benefit Plans

The BankCompany maintains an Employee Stock Ownership Plan with 401(k) provisions that covers all employees who are qualified as to age and length of service. Three types of contributions can be made to the Plan by the BankCompany and participants: basic voluntary contributions which are discretionary contributions made by all participants; a matching contribution, whereby the BankCompany will match 50 percent of salary reduction contributions up to 45 percent of compensation, not to exceed a maximum contribution of $1 per employee;compensation; and an additional discretionary contribution which may be made by the BankCompany and allocated to the accounts of participants on the basis of total relative compensation.  During 2005 and 2006, the Company match was capped at the lower of 4 percent of compensation or $1 per employee.  The BankCompany contributed $132, $94$307, $152, and $69$132, to the plan in 2005, 20042007, 2006 and 2003,2005, respectively. As of December 31, 2005,2007, the Plan contained approximately 152,000265,000 shares of the Company’s common stock.

In 2001, theTIB Bank entered into salary continuation agreements with three of its executive officers.  Two additional TIB Bank executive officers entered into salary continuation agreements in 2003 and another in 2004. In 2007, an additional two pre-existing salary continuation agreements with The plan is aBank of Venice’s executive officers were assumed as part of the acquisition.  The plans are nonqualified deferred compensation arrangementarrangements that isare designed to provide supplemental retirement income benefits to participants.  The BankCompany expensed $386, $309$811, $617, and $254$386 for the accrual of future salary continuation benefits in 2005, 20042007, 2006 and 2003,2005, respectively.  The Bank hasBanks have purchased single premium life insurance policies on these individuals.  Cash value income (net of related insurance premium expense) totaled $266, $234, and $208 $202in 2007, 2006 and $225 in 2005, 2004 and 2003, respectively.  Other assets included $5,937$7,374 and $5,729$6,171 in surrender value and other liabilities included salary continuation benefits payable of $1,246$2,726 and $860$1,863 at December 31, 20052007 and 2004,2006, respectively.

81

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)
In 2001, theTIB Bank established a non qualified retirement benefit plan for eligible Bank directors.  Under the plan, the CompanyBank pays each participant, or their beneficiary, the amount of fees deferred and interest in 120 equal monthly installments, beginning the month following the director’s normal retirement date.  TheTIB Bank expensed $233, $273$239, $231, and $165$233 for the accrual of current and future retirement benefits in 2005, 20042007, 2006 and 2003,2005, respectively, which included $160, $170, and $184 $236in 2007, 2006 and $146 in 2005 2004 and 2003 related to the annual director retainer fees and monthly meeting fees that certain directors elected to defer.  TheTIB Bank has purchased single premium split dollar life insurance policies on these individuals.  Cash value income (net of related insurance premium expense) totaled $152, $141, and $138 $138in 2007, 2006 and $152 in 2005, 2004 and 2003.respectively.  Other assets included $3,992$4,286 and $3,854$4,134 in surrender value in other assets and other liabilities included retirement benefits payable of $855$1,294 and $623$1,071 at December 31, 20052007 and 2004,2006, respectively.

64

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)


Note 13—Related Party Transactions

The BankBanks had loans outstanding to certain of itsthe Company’s executive officers, directors, and their related business interests as follows:

     
Beginning balance, January 1, 2005 $1,905 
New loans  606 
Effect of changes in related parties  (188)
Repayments  (1,461)
Ending balance, December 31, 2005 $862 
     
Beginning balance, January 1, 2007 $760 
New loans  701 
Repayments  (782)
Ending balance, December 31, 2007 $679 
     

Unfunded loan commitments to these individuals and their related business interests totaled $31$198 at December 31, 2005.2007.  Deposits from these individuals and their related interests were $4,237$2,451 and $3,008$2,206 at December 31, 20052007 and 2004,2006, respectively.

Note 14—Shareholders’ Equity and Minimum Regulatory Capital Requirements

The Company (on a consolidated basis) and the BankBanks are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements resultresults in certain discretionary actions by regulators that could have an effect on the Company’s operations. The regulations require the Company and the BankBanks to meet specific capital adequacy guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

To be considered well capitalized and adequately capitalized (as defined) under the regulatory framework for prompt corrective action, the BankBanks must maintain minimum Tier 1 leverage, Tier 1 risk-based, and total risk-based ratios. These minimum amounts and ratios along with the actual amounts and ratios for the Company and theTIB Bank as of December 31, 20052007 and 20042006 and for The Bank of Venice as of December 31, 2007 are presented in the following tables.

December 31, 2005
Well Capitalized Requirement
Adequately Capitalized Requirement
Actual
 
Amount
Ratio
Amount
Ratio
Amount
Ratio
Tier 1 Capital (to Average Assets)      
ConsolidatedN/AN/A
³ $42,255
³ 4.0%
$88,8398.4%
Bank
³ $ 52,775
³ 5.0%
42,220
³ 4.0%
92,2978.7%
       
Tier 1 Capital ( to Risk Weighted Assets)      
ConsolidatedN/AN/A
³ $37,173
³ 4.0%
$88,8399.6%
Bank
³ $ 55,744
³ 6.0%
37,162
³ 4.0%
92,2979.9%
       
Total Capital (to Risk Weighted Assets)      
ConsolidatedN/AN/A
³ $74,346
³ 8.0%
$100,93110.9%
Bank
 ³ $ 92,906
³ 10.0%
74,325
³ 8.0%
100,38910.8%
       


6582

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)



December 31, 2004
Well Capitalized Requirement
Adequately Capitalized Requirement
Actual
December 31, 2007 Well Capitalized Requirement  Adequately Capitalized Requirement  Actual 
Amount
Ratio
Amount
Ratio
Amount
Ratio
 Amount  Ratio  Amount  Ratio  Amount  Ratio 
Tier 1 Capital (to Average Assets)                   
ConsolidatedN/A
³ $31,270
³ 4.0%
$78,04810.0%  N/A   N/A  $≥ 56,173   ≥ 4.0% $118,303   8.4%
Bank
³ $ 39,069
³ 5.0%
31,255
³ 4.0%
81,78010.5%
TIB Bank $≥ 66,804    5.0%  ≥ 53,443   ≥ 4.0%  104,258   7.8%
The Bank of Venice   3,330   ≥ 5.0%  ≥ 2,664   ≥ 4.0%  7,906   11.9%
                         
Tier 1 Capital ( to Risk Weighted Assets)                         
ConsolidatedN/A
³ $28,583
³ 4.0%
$78,04810.9%  N/A   N/A  $≥ 47,482   ≥ 4.0% $118,303   10.0%
Bank
³ $ 42,857
³ 6.0%
28,571
³ 4.0%
81,78011.4%
TIB Bank $ 68,180   ≥ 6.0%  ≥ 45,453   ≥ 4.0%  104,258   9.2%
The Bank of Venice   3,069   ≥ 6.0%  ≥ 2,046   ≥ 4.0%  7,906   15.5%
                         
Total Capital (to Risk Weighted Assets)                         
ConsolidatedN/A
³ $57,166
³ 8.0%
$89,77212.6%  N/A   N/A  $≥ 94,965   ≥ 8.0% $134,565   11.3%
Bank
 ³ $71,428
³ 10.0%
57,143
³ 8.0%
88,25412.4%
TIB Bank $ 113,633   ≥ 10.0%  ≥ 90,906   ≥ 8.0%  118,468   10.4%
The Bank of Venice   5,116   ≥ 10.0%  ≥ 4,092   ≥ 8.0%  8,546   16.7%
                         

December 31, 2006 Well Capitalized Requirement  Adequately Capitalized Requirement  Actual 
  Amount  Ratio  Amount  Ratio  Amount  Ratio 
Tier 1 Capital (to Average Assets)                  
Consolidated  N/A   N/A  $≥ 51,336   ≥ 4.0% $112,368   8.8%
TIB Bank $≥ 64,078   ≥ 5.0%  ≥ 51,262   ≥ 4.0%  115,689   9.0%
                         
Tier 1 Capital ( to Risk Weighted Assets)                        
Consolidated  N/A   N/A  $≥ 44,366   ≥ 4.0% $112,368   10.1%
TIB Bank $ ≥ 66,519    ≥ 6.0%  ≥ 44,346   ≥ 4.0%  115,689   10.4%
                         
Total Capital (to Risk Weighted Assets)                        
Consolidated  N/A   N/A  $≥ 88,733   ≥ 8.0% $131,074   11.8%
TIB Bank $≥ 110,864   ≥ 10.0%  ≥ 88,692   ≥ 8.0%  125,715   11.3%
                         
At year end 20052007 and 2004,2006, the most recent regulatory notification categorized the BankBanks as well capitalized under the regulatory framework for prompt corrective action.

83

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)
Management believes, as of December 31, 2005,2007, that the Company and the BankBanks meet all capital requirements to which it isthey are subject.  Tier 1 Capital for the Company and TIB Bank includes the trust preferred securities that were issued in September 2000, July 2001 and July 2001.June 2006 to the extent allowable.

Under state banking law, regulatory approval will be required if the total of all dividends declared in any calendar year by the Banka bank exceeds the Bank’sbank’s net profits to date for that year combined with its retained net profits for the preceding two years. RetainedBased on the level of undistributed earnings for the prior two years, declaration of dividends by TIB Bank to the Company, during 2008, will likely require regulatory approval.  As of December 31, 2007, The Bank of Venice has no retained earnings available for payment of dividends to the Company without prior regulatory approval at December 31, 2005, is approximately $21,176.Company.

Note 15—Stock Options and Restricted Stock15 – Stock-Based Compensation

As of December 31, 2005,2007, the Company has one compensation plan under which shares of its common stock are issuable in the form of stock options, restricted shares, stock appreciation rights, performance shares or performance units. This is its 2004 Equity Incentive Plan (the “2004 Plan”), which was approved by the Company’s shareholders at the May 25, 2004 annual meeting. Pursuant to the merger agreement, upon the April 30, 2007 closing of its acquisition of The Bank of Venice, the Company granted 82,750 stock options in exchange for the options outstanding for the purchase of shares of common stock of The Bank of Venice at such date. The options were fully vested at the grant date and ranged in price from $9.17 to $10.54 per share as determined by the conversion ratio specified in the merger agreement. Previously, the Company had granted stock options under the 1994 Incentive Stock Option and Nonstatutory Stock Option Plan (the “1994 Plan”) as amended and restated as of August 31, 1996. Under the 2004 Plan, the Board of Directors of the Company may grant nonqualified stock optionsstock–based awards to any director, and incentive stock options or nonqualified stock optionsstock-based awards to any officer, key executive, administrative, or other employee including an employee who is a director of the Company. Subject to the provisions of the 2004 Plan, the maximum number of shares of common stock of the Company that may be optioned or soldawarded through the 2014 expiration of the plan is 400,000800,000 shares, no more than 133,000266,000 of which may be issued pursuant to awards granted in the form of restricted shares.  Such shares may be treasury, or authorized but unissued, shares of common stock of the Company.  If options or awards granted under the Plan expire or terminate for any reason without having been exercised in full or released from restriction, the corresponding shares not purchased shall again be available for option or award for the purposes of the Plan.Plan as long as no dividends have been paid to the holder in accordance with the provisions of the grant agreement.
The following table summarizes the components and classification of stock-based compensation expense for the years ended December 31.

  2007  2006  2005 
Stock Options $284  $305  $- 
Restricted Stock  364   259   98 
Total stock-based compensation expense $648  $564  $98 
             
Salaries and employee benefits $417  $390  $5 
Other expense  231   174   93 
Total stock-based compensation expense $648  $564  $98 
             

The tax benefit related to stock-based compensation expense arising from restricted stock awards and non-qualified stock options was approximately $142, $101 and $38 for the years ended December 31, 2007, 2006 and 2005, respectively.

84

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)

The fair value of each option is estimated as of the date of grant using the Black-Scholes Option Pricing Model. This model requires the input of subjective assumptions that will usually have a significant impact on the fair value estimate. The assumptions for the current period grants were developed based on SFAS 123R and SEC guidance contained in Staff Accounting Bulletin (SAB) No. 107, “Share-Based Payment.” The following table summarizes the weighted average assumptions used to compute the grant-date fair value of options granted for the years ended December 31.

  2007  2006  2005 
Dividend yield  1.63%  1.55%  1.93%
Risk-free interest rate  4.18%  4.89%  4.13%
Expected option life 4.6 years  6.5 years  9 years 
Volatility  21%  31%  23%
Weighted average grant-date fair value of options granted $4.05  $5.23  $3.75 
             
·  The dividend yield was estimated using historical dividends paid and market value information for the Company’s stock. An increase in dividend yield will decrease stock compensation expense.

·  The risk-free interest rate was developed using the U.S. Treasury yield curve for periods equal to the expected life of the options on the grant date. An increase in the risk-free interest rate will increase stock compensation expense.

·  The expected option life for the current period grants was estimated using the vesting period, the term of the option and estimates of future exercise behavior patterns. Prior to 2006, this assumption was based on the typical vesting schedule and estimates of future exercise behavior patterns. An increase in the option life will increase stock compensation expense.

·  The volatility was estimated using historical volatility for periods approximating the expected option life. An increase in the volatility will increase stock compensation expense.

SFAS 123R requires the recognition of stock-based compensation for the number of awards that are ultimately expected to vest. As a result, an estimate of the expected forfeiture rate based on historical forfeiture rates is considered when estimating the amount of current period stock based-compensation expense. Our estimate of forfeitures will be reassessed in subsequent periods and may change based on new facts and circumstances. Any changes in our estimates will be accounted for prospectively in the period of change. Prior to January 1, 2006, actual forfeitures were accounted for as they occurred for purposes of required pro forma stock compensation disclosures.

As of December 31, 2007, unrecognized compensation expense associated with stock options and restricted stock was $937 and $1,036 which is expected to be recognized over weighted average periods of approximately 2 years.

85

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)
Stock Options

Under the 2004 Plan, the exercise price for common stock must equal at least 100 percent of the fair market value of the stock aton the time theday an option is granted.  The exercise price under an incentive stock option granted to a person owning stock representing more than 10 percent of the common stock must equal at least 110 percent of the fair market value at the date of grant, and such option is not exercisable after five years from the date the incentive stock option was granted.  The Board of Directors may, at its discretion, provide that an option not be exercised in whole or in part for any period or periods of time as specified in the option agreements. No option may be exercised after the expiration of ten years from the date it is granted. Stock options vest over varying service periods which range from vesting immediately in the case of members of the Board of Directors to up to nine years for certain officers and employees.years.




66

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)


A summary of the stock option activity in the plans is as follows:
  Shares  
Weighted Average
Exercise Price
 
Balance, January 1, 2005  803,188  $6.81 
Granted
  159,000   12.97 
Exercised
  (144,718)  5.79 
Expired or forfeited
  (39,500)  10.66 
Balance, December 31, 2005  777,970  $8.06 
Granted
  85,624   15.13 
Exercised
  (134,986)  6.27 
Expired or forfeited
  (21,100)  10.72 
Balance, December 31, 2006  707,508  $9.18 
Granted
  150,163   9.33 
Exercised
  (150,775)  7.35 
Expired or forfeited
  (30,455)  11.90 
Balance, December 31, 2007  676,441   9.50 
         

 
Shares
Exercise Price Range
Weighted Average Exercise Price
Balance, January 1, 2003
567,205$ 5.49 - $14.50$ 10.09
Granted44,50016.35 - 19.4017.93
Exercised(115,050)5.49 - 14.126.39
Expired or forfeited(19,150)5.49 - 16.3511.46
Balance, December 31, 2003
477,5055.49 - 19.4011.66
Granted37,50022.74 - 22.7922.76
Exercised(97,911)5.49 - 14.126.92
Expired or forfeited(7,900)11.25 - 22.7419.47
Balance, December 31, 2004
409,1948.33 - 22.7913.66
Granted79,50025.24 - 32.4025.94
Exercised(72,359)8.33 - 22.7411.58
Expired or forfeited(27,350)9.00 - 25.2419.73
Balance, December 31, 2005
388,985$8.33 - $32.40$16.13
    
Options exercisable at December 31, 2007  2006 
  Shares  
Weighted Average
Exercise Price
  Shares  
Weighted Average
Exercise Price
 
   294,694  $8.78   271,384  $7.62 
                 
The weighted average remaining terms for outstanding stock options and for exercisable stock options were 5.6 years and 4.6 years at December 31, 2007, respectively. The aggregate intrinsic value at December 31, 2007 was $570 for stock options outstanding and $283 for stock options exercisable. The intrinsic value for stock options is calculated based on the exercise price of the underlying awards and the market price of the Company’s common stock as of the reporting date.
 

  
 
 
Shares
 
Weighted Average Exercise Price
 
Options exercisable at December 31, 2005  152,535 $13.52 
Options exercisable at December 31, 2004  181,944  12.96 
Options exercisable at December 31, 2003  236,405  10.35 
        
86


TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)
 
Options outstanding at December 31, 20052007 were as follows:

      
  
Outstanding Options 
Options Exercisable
Range of Exercise Price
  
Number
  
Weighted Average Remaining Contractual Life
  
Weighted Average Exercise Price
  
Number
  
Weighted Average Exercise Price
 
$8.33 - $11.00  40,900  3.54 $10.04  22,050 $9.67 
11.21 - 11.75  14,250  3.26  11.35  2,300  11.26 
12.40 - 12.40  98,700  5.43  12.40  29,100  12.40 
12.65 - 13.45  12,300  3.50  13.15  9,800  13.21 
13.50 - 13.50  68,300  1.69  13.50  53,100  13.50 
13.55 - 19.40  58,135  6.33  16.76  28,935  15.60 
22.74 - 22.79  28,400  8.11  22.76  7,250  22.78 
25.24 - 25.24  58,000  9.07  25.24  -  - 
29.20 - 29.20  5,000  9.81  29.20  -  - 
32.40 - 32.40  5,000  9.67  32.40  -  - 
$8.33 - $32.40  388,985  5.42 $16.13  152,535 $13.52 
                 
   Outstanding Options  Options Exercisable 
Range of Exercise Prices  Number  
Weighted Average
Remaining
Contractual Life
  Weighted Average Exercise Price  Number  Weighted Average Exercise Price 
$5.06 – $6.75   228,475   2.83  $6.08   115,775  $6.13 
 6.78 – 11.38   256,948   6.84   9.44   128,648   9.42 
 11.40 – 15.82   191,018   7.09   13.68   50,271   13.24 
$5.06 – $15.82   676,441   5.55  $9.50   294,694  $8.78 
                       

Proceeds received from the exercise of stock options were $1,108, $846 and $838 during the years ended December 31, 2007, 2006 and 2005, respectively. The intrinsic value related to the exercise of stock options was $1,194, $1,297 and $1,281, during the years ended December 31, 2007, 2006 and 2005, respectively. The intrinsic value related to exercises of non-qualified stock options and disqualifying dispositions of incentive stock options resulted in the realization of tax benefits of $11, $147 and $343, during the years ended December 31, 2007, 2006 and 2005, respectively.

In 2005, the Company granted a total of 41,000 shares of restricted stock with a value of $1,283 to members of the board of directors and certain executive officers. The restrictedRestricted Stock

Restricted stock provides the grantee with voting, dividend and anti-dilution rights equivalent to common shareholders, howeverbut is restricted from transfer until vested, at which time all restrictions are removed. Vesting for restricted shares is generally on a straight-line basis and ranges from threeone to five years. The value of the restricted stock, estimated to be equal to the closing market price on the date of grant, is being amortized on a straight-line basis over the respective service periodsperiods.  The fair market value of restricted stock awards that vested was $202, $251 and $0 during the years ended December 31, 2007, 2006 and 2005, $98respectively. Tax benefits related to the vesting of related amortization is included in non-interest expense. Future amortizationrestricted shares of $10, $3 and $0 were realized during the years ended December 31, 2007, 2006 and 2005, respectively.
A summary of the expense associated with restricted shares outstanding as of December 31, 2005stock activity in the plan is as follows:

  2007  2006  2005 
  Shares  
Weighted Average
Grant-Date
Fair Value
  Shares  
Weighted Average
Grant-Date
Fair Value
  Shares  
Weighted Average
Grant-Date
Fair Value
 
Balance, January 1,  66,877  $15.68   82,000  $15.64   -  $- 
Granted
  36,855   12.74   10,345   15.83   82,000   15.64 
Vested
  (18,061)  15.68   (15,468)  15.67   -   - 
Expired or forfeited
  (196)  14.21   (10,000)  15.58   -   - 
Balance, December 31,  85,475  $14.41   66,877  $15.68   82,000  $15.64 
                         

6787

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)



     
2006 $273 
2007  273 
2008  270 
2009  231 
2010  137 
  $1,184 
     

Note 16—Loan Commitments and Other Related Activities

Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are issued to meet customer financing needs.  These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates.  Commitments may expire without being used.  Off-balance-sheet risk of credit loss exists up to the face amount of these instruments, although material losses are not anticipated.  The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment.

The contractual amount of financial instruments with off-balance-sheet risk was as follows at December 31:

 
2005
2004
 2007  2006 
  
Fixed Rate 
  
Variable Rate
  
Fixed Rate
  
Variable Rate
  Fixed Rate  Variable Rate  Fixed Rate  Variable Rate 
Commitments to make loans $6,320 $78,194 $7,866 $26,567  $6,384  $4,180  $7,906  $15,032 
Unfunded commitments under lines of credit  742  145,737  700  71,800   9,446   116,068   896   151,398 
                             

Commitments to make loans are generally made for periods of 30 days.  TheAs of December 31, 2007, the fixed rate loan commitments have interest rates ranging from 4.25%6.40% to 18.00% and maturities ranging from 612 months to 1520 years.

As of December 31, 2007 and 2006, the Company was subject to letters of credit totaling $2,947 and $3,190, respectively.
Note 17—Supplemental Financial Data

Components of other expense in excess of 1 percent of total interest and non-interest income are as follows:

Years Ended December 31,
  
2005
  
2004
  
2003
  2007  2006  2005 
Operating supplies $589 $542 $484 
Computer services  1,650  1,773  1,533  $2,172  $1,955  $1,650 
Legal and professional fees  1,444  1,223  842   2,145   1,710   1,444 
Marketing and community relations  731  866  851   1,151   983   731 
Postage, courier, and armored car  719  617  697   837   845   722 
Repossessed asset expenses  986   312   128 
                      


6888

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)


Note 18—Fair Values of Financial Instruments

Carrying amount and estimated fair values of financial instruments were as follows at December 31:

 
2005
2004
 2007  2006 
  
Carrying Value
  
Estimated Fair Value
  
Carrying Value
  
Estimated Fair Value
  Carrying Value  
Estimated
Fair Value
  Carrying Value  
Estimated
Fair Value
 
Financial assets:
                         
Cash and cash equivalents $41,510 $41,510 $42,938  $42,938  $71,059  $71,059  $55,552  $55,552 
Investment securities available for sale  97,464  97,464  77,807  77,807   160,357   160,357   131,199   131,199 
Loans, net  876,478  872,983  649,435  650,119   1,114,183   1,126,691   1,055,887   1,060,474 
Federal Home Loan Bank and Independent Bankers’ Bank stock  2,906  2,906  3,035  3,035   9,068   9,068   7,899   7,899 
Accrued interest receivable  6,404  6,404  4,086  4,086   7,761   7,761   8,319   8,319 
                             
Financial liabilities:
                             
Non-contractual deposits  488,620  488,620  436,677  436,677   537,204   537,204   501,458   501,458 
Contractual deposits  431,804  429,059  251,182  251,159   512,754   515,715   527,999   525,905 
Federal Home Loan Bank Advances  25,000  25,000  35,000  35,000   140,000   142,438   125,000   124,730 
Short-term borrowings  17,284  17,284  12,157  12,157   77,922   77,900   22,250   22,250 
Long-term repurchase agreements  30,000   30,401   -   - 
Notes payable  4,000  4,004  5,250  5,388   -   -   4,000   4,000 
Subordinated debentures  13,000  13,630  13,000  13,489   33,000   33,646   33,000   33,449 
Accrued interest payable  6,609  6,609  3,692  3,692   9,012   9,012   10,798   10,798 
                             

The methods and assumptions used to estimate fair value are described as follows:

Carrying amount is the estimated fair value for cash and cash equivalents, Federal Home Loan Bank stock and other bankers’ bank stock, accrued interest receivable and payable, demand deposits, certain short-term debt, and variable rate loans or deposits that reprice frequently and fully.  As it is not practicable to determine the fair value of Federal Home Loan Bank stock and other bankers’ bank stock due to restrictions placed on its transferability, the estimated fair value of these items is equal to their historical cost. Security fair values are based on market prices or dealer quotes, and if no such information is available, on the rate and term of the security and information about the issuer.issuer including estimates of discounted cash flows when necessary. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk.  Fair values for impaired loans are estimated using discounted cash flow analysis or underlying collateral values.  Fair value of debt is based on current rates for similar financing.  The fair value of off-balance sheet items that includes commitments to extend credit to fund commercial, consumer, real estate construction and real estate-mortgage loans and to fund standby letters of credit is considered nominal.

Note 19—Discontinued Operations

On December 30, 2005, the Company closed the sale of the merchant bankcard processing segment, a business line of the Company, to NOVA Information Systems. The transaction was structured as a sale of the agency assets. The buyer paid $7,250 in cash at the closing. The Company recognized a gain of $6,697 on the transaction.

The operating results of the merchant bankcard processing segment, which have been classified as discontinued operations in the accompanying consolidated financial statements, are summarized as follows:

Years ended December 31,
  
2005
  
2004
  
2003
 
Other income $12,865 $5,758 $4,953 
Depreciation and amortization  (8) (40) (46)
Other expense  (5,227) (4,828) (3,982)
Pretax income from discontinued operations $7,630 $890 $925 
           


6989

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)



On August 15, 2003, the Company closed the sale of Keys Insurance Agency, Inc., a wholly-owned subsidiary of the Company, to Derek Martin-Vegue and his partner. Mr. Martin-Vegue is a former director of the Company and TIB Bank. The transaction was structured as a sale of the agency assets. The buyer paid $2,205 in cash at the closing. Of the cash payment at closing, proceeds of $2,021 were pursuant to a loan from TIB Bank (a subsidiary of the Company) to the buyer. The Company recognized a loss of $15 on the transaction.

The results of Keys Insurance Agency, Inc. operations, which have been classified as discontinued operations in the accompanying consolidated financial statements, are summarized as follows:

  
 Year ended December 31, 2003 
 
Other income $1,255 
Depreciation and amortization  (35)
Other expense  (1,020)
Pretax income from discontinued operations $200 
     

Note 20—19—Condensed Financial Information of TIB Financial Corp.

Condensed Balance Sheets
(Parent Only)

December 31,
  
2005
  
2004
 
Assets:
       
Cash on deposit with subsidiary $922 $2,341 
Dividends and other receivables from subsidiaries  10  10 
Investment in bank subsidiary  93,982  84,845 
Investment in TIBFL Statutory Trust I  248  248 
Investment in TIBFL Statutory Trust II  155  155 
Income tax receivable  300  - 
Other assets  442  407 
Total Assets $96,059 $88,006 
        
Liabilities and Shareholders’ Equity:
       
Liabilities:
       
Dividends payable $681 $653 
Interest payable  438  449 
Notes payable  17,403  18,653 
Other liabilities  13  137 
Total liabilities  18,535  19,892 
        
Shareholders’ equity:
       
Common stock  579  568 
Surplus  40,736  38,284 
Deferred compensation - restricted stock grants  (1,184) - 
Retained earnings  38,136  28,968 
Accumulated other comprehensive income (loss)  (743) 294 
Total shareholders’ equity  77,524  68,114 
        
Total Liabilities and Shareholders’ Equity $96,059 $88,006 
        
December 31, 2007  2006 
Assets:      
Cash on deposit with subsidiary $1,092  $6,323 
Dividends receivable from subsidiaries  7,595   21 
Investment in bank subsidiaries  121,684   117,504 
Investment in other subsidiaries  1,022   1,022 
Other assets  576   664 
Total Assets $131,969  $125,534 
         
Liabilities and Shareholders’ Equity:        
Dividends payable $799  $703 
Interest payable  679   778 
Notes payable  34,022   38,022 
Other liabilities  229   169 
Shareholders’ equity  96,240   85,862 
Total Liabilities and Shareholders’ Equity $131,969  $125,534 
         


Condensed Statements of Income
(Parent Only)

Year Ended December 31, 2007  2006  2005 
Operating income:         
Dividends from bank subsidiaries $11,340  $7,630  $2,946 
Dividends from other subsidiaries  83   63   37 
Total operating income  11,423   7,693   2,983 
             
Operating expense:            
Interest expense  2,798   2,475   1,616 
Other expense  1,298   975   600 
Total operating expense  4,096   3,450   2,216 
             
Income before income tax benefit and equity in undistributed earnings of subsidiaries  7,327   4,243   767 
Income tax benefit  1,509   1,281   884 
Income before equity in undistributed earnings of subsidiaries  8,836   5,524   1,651 
Equity in undistributed earnings (losses) of bank subsidiaries  (11,257)  3,723   10,173 
             
Net income (loss) $(2,421) $9,247  $11,824 
             

7090

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)



Note 20—19—Condensed Financial Information of TIB Financial Corp. (Continued)(Continued)

Condensed Statements of IncomeCash Flows
(Parent Only)

Year Ended December 31,
  
2005
  
2004
  
2003
 
Operating income:
          
Dividend from bank subsidiary $2,946 $3,708 $832 
Dividend from TIBFL Statutory Trust I  26  26  26 
Dividend from TIBFL Statutory Trust II  11  8  8 
Dividend from TIB Software & Services, Inc.  -  -  126 
Other income  -  6  - 
Total operating income  2,983  3,748  992 
           
Operating expense:
          
Interest expense  1,616  1,636  1,624 
Other expense  600  553  345 
Total operating expense  2,216  2,189  1,969 
           
Income (loss) before income tax benefit and equity in undistributed earnings of subsidiary  767  1,559  (977)
Income tax benefit  884  808  728 
Income (loss) before equity in undistributed earnings of subsidiary  1,651  2,367  (249)
Equity in undistributed earnings of bank subsidiary  10,173  2,831  5,226 
Income from continuing operations  11,824  5,198  4,977 
           
Discontinued operations:
          
Dividend from Keys Insurance Agency, Inc.  -  -  125 
Income from discontinued operations  -  -  125 
           
Net income $11,824 $5,198 $5,102 
           
Year Ended December 31, 2007  2006  2005 
Cash flows from operating activities:         
Net income (loss) $(2,421) $9,247  $11,824 
Equity in undistributed (earnings) losses of bank subsidiaries  11,257   (3,723)  (10,173)
Stock-based compensation expense  231   174   98 
Increase (decrease) in net income tax obligation  157   377   (81)
Increase in other assets  (7,416)  (238)  (36)
Increase (decrease) in other liabilities  (175)  419   (10)
Net cash provided by operating activities  1,633   6,256   1,622 
             
Cash flows from investing activities:            
Investment in bank subsidiaries  (888)  (19,500)  - 
Investment in other subsidiaries  -   (619)  - 
Net cash used in investing activities  (888)  (20,119)  - 
             
Cash flows from financing activities:            
Repayment of note payable  (4,000)  -   (1,250)
Proceeds from exercise of stock options  1,108   846   838 
Income tax benefits related to stock based compensation  21   150   - 
Proceeds from bank subsidiary for equity awards  417   390   - 
Payment to repurchase stock  (569)  -   - 
Proceeds from issuance of long-term debt  -   20,619   - 
Cash dividends paid  (2,953)  (2,741)  (2,629)
Net cash provided (used) by financing activities  (5,976)  19,264   (3,041)
             
Net increase (decrease) in cash  (5,231)  5,401   (1,419)
Cash, beginning of year  6,323   922   2,341 
Cash, end of year $1,092  $6,323  $922 
             



7191

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)


Note 20—Condensed Financial Information of TIB Financial Corp. (Continued)

Condensed Statements of Cash Flows
(Parent Only)

Year Ended December 31,
  
2005
  
2004
  
2003
 
Cash flows from operating activities:
          
Net income $11,824 $5,198 $5,102 
Equity in undistributed earnings of bank subsidiary  (10,173) (2,831) (5,226)
Amortization of intangibles and other assets  19  17  17 
Amortization of deferred compensation - restricted stock grants  98  -  - 
Increase in other assets  (12) -  (4)
Decrease in due to subsidiaries  (6) -  (3)
Increase (decrease) in interest payable  (10) 9  (5)
Increase in other liabilities  -  6  3 
Deferred income taxes  (37) -  - 
Increase (decrease) in net income tax obligation  (81) 709  (3)
Net cash provided (used) by operating activities  1,622  3,108  (119)
           
Cash flows from investing activities:
          
Investment in bank subsidiary  -  (23,155) (5,500)
Return of capital from Keys Insurance Agency, Inc.  -  -  2,301 
Return of capital from TIB Software & Services, Inc.  -  -  129 
Net cash provided (used) in investing activities  -  (23,155) (3,070)
           
Cash flows from financing activities:
          
Repayment of note payable  (1,250) -  - 
Proceeds from exercise of stock options  838  678  735 
Proceeds from stock issuance  -  23,230  4,343 
Cash dividends paid  (2,629) (2,278) (1,866)
Net cash provided (used) by financing activities  (3,041) 21,630  3,212 
           
Net increase (decrease) in cash  (1,419) 1,583  23 
Cash, beginning of year  2,341  758  735 
Cash, end of year $922 $2,341 $758 
           


Note 21—Quarterly Financial Data (Unaudited)

The following is a summary of unaudited quarterly results for 20052007 and 2004:2006:

 
2005
 
2004
  
Fourth 
  
Third
  
Second
  
First
   
Fourth
  
Third
  
Second
  
First
 
Condensed income statements:
                         
Interest income$17,360 $15,503 $14,225 $12,346  $11,351 $10,528 $9,819 $9,218 
Net interest income 10,786  10,094  9,636  8,614   8,216  7,781  7,361  6,828 
Income from continuing operations 1,898  1,949  1,997  1,348   1,223  1,219  1,125  1,076 
Net income 6,039  2,054  2,184  1,547   1,331  1,337  1,257  1,273 
                          
Earnings per share:
                         
Income from continuing operations - Basic$0.33 $0.34 $0.35 $0.24  $0.21 $0.22 $0.21 $0.24 
Income from continuing operations - Diluted 0.32  0.33  0.34  0.23   0.21  0.21  0.20  0.23 
                          
  2007  2006 
  Fourth  Third  Second  First  Fourth  Third  Second  First 
Condensed income statements:                        
Interest income $23,863  $23,549  $23,950  $23,379  $23,240  $22,293  $20,822  $18,879 
Net interest income  11,350   11,286   11,882   11,502   11,772   11,860   11,949   11,482 
Income (loss) from continuing operations  (6,498)  494   1,712   1,871   1,864   2,437   2,329   2,363 
Net income (loss)  (6,498)  494   1,712   1,871   1,936   2,452   2,496   2,363 
                                 
Earnings (loss) per share:                                
Income (loss) from continuing operations – Basic $(0.51) $0.04  $0.14  $0.16  $0.16  $0.21  $0.20  $0.20 
Income (loss) from continuing operations – Diluted $(0.51) $0.04  $0.14  $0.16   0.16   0.21   0.20   0.20 
                                 
Note 21—Subsequent  Event

DueOn March 7, 2008, the Company consummated a transaction whereby two of Southwest Florida’s prominent families, their representatives and their related business interests purchased 1.2 million shares of the Company’s common stock and warrants to purchase an additional 1.2 million shares of common stock at an exercise price of $8.40 per share at any time prior to March 7, 2011. Gross proceeds from the investment were $10,080. Aggregate ownership of the Company by each family group is limited to 9.9% of outstanding shares. The shares were issued pursuant to an exemption under Section 4(2) of the Securities Act of 1933 for the sale of shares in a private placement transaction. Additionally, in connection with this transaction, two representatives will be appointed to the disposalCompany’s Board of the merchant bankcard operations in the fourth quarter of 2005, all previous reported quarterly financial data has been adjusted above to reflect the results of merchant bankcard operations as discontinued operations.Directors.




7392

TIB Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)




ITEM 9:  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.


(a)     Evaluation of Disclosure Controls and Procedures

The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, they have concluded that the Corporation’s disclosure controls and procedures are effective in ensuring that material information related to the Corporation is made known to them by others within the Corporation.

(b)     Management’s Annual Report on Internal Control Over Financial Reporting

During the fourth quarter of 20052007 and subsequent thereto, the Company has made no significant changes in its internal controls or in other factors which may significantly affect these controls subsequent to the evaluation of these controls by the Chief Executive Officer and Chief Financial Officer.




MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of TIB Financial Corp. is responsible for establishing and maintaining adequate internal control over financial reporting, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). TIB Financial Corp.’s system of internal control over financial reporting was designed under the supervision of the company’s chief executive officer and chief financial officer to provide reasonable assurance regarding the reliability of the preparation of the company’s financial statements for external reporting purposes, in accordance with U.S. generally accepted accounting principles.

TIB Financial Corp.’s management assessed the effectiveness of the company’s internal control over financial reporting as of December 31, 2005,2007, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the assessment, management determined that, as of December 31, 2005,2007, the company’s internal control over financial reporting is effective. Management’s assessment of theThe effectiveness of the company’sCompany’s internal control over financial reporting as of December 31, 20052007 has been audited by Crowe Chizek and Company LLC, an independent registered public accounting firm, as stated in their report appearing in Item 8, page 3952 of this Form 10-K.

Date: February 23, 2006

Date: March 17, 2008
/s/ Edward V. Lett
Edward V. Lett
President and Chief Executive Officer

/s/ David P. JohnsonStephen J. Gilhooly
David P. JohnsonStephen J. Gilhooly
Executive Vice President and Chief Financial Officer




(c) Audit Report of the Registered Public Accounting Firm
    The audit report related to the audit of internal controls and management’s report on internal controls over financial reporting is included in Item 8, page 39 of this Form 10-K.


Not applicable.



PART III

Not applicable.



PART III



The information set forth under the captions “Information About the Board of Directors and Their Committees” and “Executive Officers” under the caption "Election of Directors", “Audit Committee Report” and “Filings Under Section 16(A) Beneficial Ownership Reporting Compliance” in the Proxy Statement to be utilized in connection with the Company's 2008 Annual Shareholders Meeting is incorporated herein by reference.

We have adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer, controller, and persons performing similar functions.  We have posted the text of our code of ethics on our website at www.tibfinancialcorp.com in the section titled “Investor Relations.”  In addition, we intend to promptly disclose (i) the nature of any amendment to our code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer, controller, or persons performing similar functions and (ii) the nature of any waiver, including an implicit waiver, from a provision of our code of ethics that is granted to one of these specified individuals, the name of such person who is granted the waiver, and the date of the waiver on our website in the future.



The information contained under the captions “Compensation Discussion and Analysis,” “Compensation Committee Report”, “Compensation Committee Interlocks and Insider Participation”, "Executive Compensation” and “Compensation of Directors" in the Proxy Statement to be utilized in connection with the Company's 2008 Annual Shareholders Meeting is incorporated herein by reference.


ITEM 12:  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

The information contained under the captions "Management and Principal Shareholders" and “Equity Compensation Plan Information” under “Executive Compensation” in the Proxy Statement to be utilized in connection with the Company's 2008 Annual Shareholders Meeting is incorporated herein by reference.



The information contained under the captions “Director Independence” under “Election of Directors” and "Certain Relationships and Related Transactions" in the Proxy Statement to be utilized in connection with the Company's 2008 Annual Shareholders Meeting is incorporated herein by reference.



The information contained under the caption "Independent Public Accountants" in the Proxy Statement to be utilized in connection with the Company's 2008 Annual Shareholders Meeting is incorporated herein by reference.




PART IV



The information set forth under the captions “Information About the Board of Directors and Their Committees” and “Executive Officers” under the caption "Election of Directors", “Audit Committee Report” and “Filings Under Section 16(A) Beneficial Ownership Reporting Compliance” in the Proxy Statement to be utilized in connection with the Company's 2006 Annual Shareholders Meeting is incorporated herein by reference.

In 2005, we adopted amendments to the code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer, controller, and persons performing similar functions. We have posted the text of our code of ethics on our website at www.tibbank.com in the section titled “Investor Relations.” In addition, we intend to promptly disclose (i) the nature of any amendment to our code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer, controller, or persons performing similar functions and (ii) the nature of any waiver, including an implicit waiver, from a provision of our code of ethics that is granted to one of these specified individuals, the name of such person who is granted the waiver, and the date of the waiver on our website in the future.



The information contained under the captions "Compensation of Executive Officers and Directors" and “Performance Graph” in the Proxy Statement to be utilized in connection with the Company's 2006 Annual Shareholders Meeting is incorporated herein by reference.


ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

The information contained under the caption "Management and Principal Shareholders" in the Proxy Statement to be utilized in connection with the Company's 2006 Annual Shareholders Meeting is incorporated herein by reference.



The information contained under the caption "Certain Relationships and Related Transactions" in the Proxy Statement to be utilized in connection with the Company's 2006 Annual Shareholders Meeting is incorporated herein by reference.



The information contained under the caption "Independent Public Accountants" in the Proxy Statement to be utilized in connection with the Company's 2006 Annual Shareholders Meeting is incorporated herein by reference.




PART IV



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
 3.1Restated Articles of Incorporation (a)
 3.2Amendment to Articles of Incorporation (b)
 3.3Bylaws (c)
 3.4Amendment to TIB Financial Corp. Bylaws
 4.1Specimen Stock Certificate (d)
 10.1Employment Agreement between Edward V. Lett, TIB Financial Corp. and TIB Bank effective March 1, 2004 (e), (f)
 10.2401(K) Savings and Employee Stock Ownership Plan (d), (e)
 10.3Employee Incentive Stock Option Plan (d), (e)
 10.4Employment Agreement between Millard J. Younkers, Jr., TIB Financial Corp. and TIB Bank effective March 1, 2004 (e), (f)
 10.5Employment Agreement between David P. Johnson, TIB Financial Corp. and TIB Bank effective March 1, 2004 (e), (f)
 10.6Employment Agreement between Michael D. Carrigan, TIB Financial Corp. and TIB Bank effective March 1, 2004 (e), (g)
 10.7Employment Agreement between Alma Shuckhart, TIB Financial Corp., and TIB Bank effective March 1, 2004. (e), (g)
 10.8Employment Agreement between Stephen J. Gilhooly, TIB Financial Corp., and TIB Bank effective September 27, 2006 (e), (h)
 10.9Form of Director Deferred Fee Agreement (e), (i)
 10.10Form of Salary Continuation Agreement (e), (i)
 10.11Form of Executive Officer Split Dollar Agreement (e), (i)
 10.12Form of Director Deferred Fee Agreement – First Amendment (e), (f)
 10.13Form of Executive Officer Split Dollar Agreement – First Amendment (e), (f)
 10.14Form of Salary Continuation Agreement – First Amendment (e), (j)
 10.15Form of Restricted Stock Agreement (k)
 10.16Form of Restricted Stock Agreement Addendum (k)
 10.17Form of Salary Continuation Agreement – Second Amendment (e), (m)
 10.18Marketing and Sales Alliance Agreement (k)
 10.19Non-Competition Agreement (k)
(Continued)

Exhibit Numbers
3.1Restated Articles of Incorporation*****
3.2Bylaws **
4.1Specimen Stock Certificate *
10.1Employment Agreement between Edward V. Lett, TIB Financial Corp. and TIB Bank effective March 1, 2004 ***/******
10.2401(K) Savings and Employee Stock Ownership Plan */***
10.3Employee Incentive Stock Option Plan */***
10.4Employment Agreement between Millard J. Younkers, Jr., TIB Financial Corp. and TIB Bank effective March 1, 2004 ***/******
10.5Employment Agreement between David P. Johnson, TIB Financial Corp. and TIB Bank effective March 1, 2004 ***/******
10.6Form of Director Deferred Fee Agreement***/****
10.7Form of Salary Continuation Agreement***/****
10.8Form of Executive Officer Split Dollar Agreement***/****
10.9Form of Director Deferred Fee Agreement - First Amendment***
10.10Form of Executive Officer Split Dollar Agreement - First Amendment***
10.11Employment Agreement between Michael D. Carrigan, TIB Financial Corp. and TIB Bank effective March 1, 2004 ***/******
10.12Form of Salary Continuation Agreement - First Amendment***
10.13Form of Restricted Stock Agreement
10.14Form of Restricted Stock Agreement Addendum
10.15Merchant Asset Purchase Agreement
10.16Marketing and Sales Alliance Agreement
10.17Non-Competition Agreement
10.18Assignment and Assumption Agreement
14.1Board of Directors Ethics Code
14.2Senior Financial Officer Ethics Code
96

Exhibit Numbers (continued)
 10.20 Form of Salary Continuation Agreement - Michael Carrigan and Steve Gilhooly (e), (n)
 10.21 Stock Purchase Agreement between Naples Capital Advisors, Inc., John M. Suddeth, Jr. and Michael H. Morris, and TIB Financial Corp. (o)
 10.22Amendment to the Employment Agreement for Alma Shuckhart (e), (t)
 10.23Employment Agreement between David F. Voigt, TIB Financial Corp., and The Bank of Venice (e), (q)
 10.24Revised Audit Committee Charter dated April 24, 2007 (t)
 10.25Revised Corporate Governance and Nomination Committee Charter dated January 23, 2007 (r)
 10.26Revised Corporate Governance Guidelines dated January 23, 2007 (r)
 10.27Second Amendment to the Employment Agreement for Alma Shuckhart (e), (p)
 10.28Form of Stock Purchase Agreement (s)
 10.29Form of Registration Rights Agreement (s)
 10.30Form of Relationship Agreement (s)
 10.31Form of Common Stock Warrant (s)
 14.1Board of Directors Ethics Code (k)
 14.2Senior Financial Officer Ethics Code (k)
21.1Subsidiaries of the Registrant
23.1Consent of Independent Registered Public Accounting Firm
31.1Chief Executive Officer’s certification required under Section 302 of Sarbanes-Oxley Act of 2002
31.2Chief Financial Officer’s certification required under Section 302 of Sarbanes-Oxley Act of 2002
32.1Chief Executive Officer’s certification required under Section 906 of Sarbanes-Oxley Act of 2002
32.2Chief Financial Officer’s certification required under Section 906 of Sarbanes-Oxley Act of 2002
 99.1
Statement of Policy with respect to Related Person Transactions (m)
  
(a)
Incorporated by reference to Appendix A in the Company’s Definitive Proxy Statement filed on April 8, 2004.
(b)
Item 3.2 was previously filed by the Company as an Exhibit to the Form 8-K filed by the Company on September 28, 2006 and is incorporated herein by reference.
(c)
77Previously filed by the Company as an Exhibit to the Company's Registration Statement (Registration No. 333-113489) and such document is incorporated herein by reference.



 
*(d)
Previously filed by the Company as an Exhibit (with the same respective Exhibit Number as indicated herein) to the Company's Registration Statement (Registration No. 333-03499) and such document is incorporated herein by reference.
(e)
Represents a management contract or a compensation plan or arrangement required to be filed as an exhibit.
(f)
Items 10.1, 10.4, 10.5, 10.12 and 10.13 were previously filed by the Company as Exhibits to the Company’s December 31, 2003 10-K and such documents are incorporated herein by reference.
(g)
Items 10.6 and 10.7 were previously filed by the Company as an Exhibit to the Form 10-Q filed by the Company on November 8, 2006 and are incorporated herein by reference.
(h)
Item 10.8 was previously filed by the Company as an Exhibit to the Form 8-K filed by the Company on September 27, 2006 and is incorporated herein by reference.
(i)
Items 10.9 through 10.11 were previously filed by the Company as Exhibits to the Company’s December 31, 2001 10-K and such documents are incorporated herein by reference.
(j)
Item 10.14 was previously filed by the Company as an Exhibit to the Company’s December 31, 2004 10-K and is incorporated herein by reference.
(k)
Items 10.15, 10.16, 10.18, 10.19, 14.1 and 14.2 were previously filed by the Company as Exhibits to the Company’s December 31, 2005 10-K and such documents are incorporated herein by reference.
(l)
Item 10.20 was previously filed by the Company as an Exhibit to the Form 8-K filed by the Company on November 14, 2006 and is incorporated herein by reference.
(m) 
Items 10.17 and 99.1 were previously filed by the Company as Exhibits (with the same respective exhibit number as indicated herein) to the Company's December 31, 2006 Form 10-K and such documents are incorporated herein by reference.
(n)
Item 10.20 was previously filed by the Company as an Exhibit to the Form 8-K filed by the Company on February 7, 2008 and is incorporated herein by reference.
(o) 
Item 10.21 was previously filed by the Company as an Exhibit to the Form 8-K filed by the Company on December 13, 2007 and is incorporated herein by reference.
(p)
Item 10.27 was previously filed by the Company as an Exhibit to the Form 10-Q filed by the Company on November 9, 2007 and is incorporated herein by reference.
(q)
Item 10.23 was previously filed by the Company as an Exhibit to the Form 8-K filed by the Company on May 2, 2007 and is incorporated herein by reference.
(r) 
Items 10.25 and 10.26 were previously filed by the Company as Exhibits to the Form 8-K filed by the Company on January 25, 2007 and such documents are incorporated herein by reference.
(s)
Items 10.28 through 10.31 were previously filed by the Company as Exhibits to the Form 8-K filed by the Company on March 11, 2008 and such documents are hereby incorporated by reference.
(t)
Item 10.22 was previously filed by the Company as an Exhibit to the Form 8-K filed by the Company on October 1, 2007 and is incorporated herein by reference.
(u)
Item 10.24 was previously filed by the Company as an Exhibit to the Form 8-K filed by the Company on April 26, 2007 and is incorporated herein by reference.
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 17, 2008.

TIB FINANCIAL CORP.
 
**Previously filed by the Company as Exhibit (with the same respective Exhibit Number as indicated herein) to the Company's Registration Statement (Registration No. 333-113484) and such document is incorporated herein by reference.
***Represents a management contract or a compensation plan or arrangement required to be filed as an exhibit.
****Items 10.6 through 10.9 were previously filed by the Company as Exhibits to the Company’s December 31, 2001 10-K and such documents are incorporated herein by reference.
*****Incorporated by reference to Appendix A in the Company’s Definitive Proxy Statement filed on April 8, 2004.
******Items 10.1, 10.4, 10.5 and 10.10 through 10.13 were previously filed by the Company as Exhibits to the Company’s December 31, 2003 10-K and such documents are incorporated herein by reference.



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 13, 2006.


TIB FINANCIAL CORP.

By:/s/ Edward V. Lett
Edward V. Lett
President, Chief Executive Officer and Director
  
Edward V. Lett
President, Chief Executive Officer and Director



Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 17, 2008.

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 13, 2006.

Signature
Title
/s/ Edward V. Lett Title
/s/ Edward V. Lett
President (Principle Executive Officer), Chief Executive Officer and Director
Edward V. Lett
/s/ Richard C. Bricker, Jr.
Director
Richard C. Bricker, Jr.
/s/ Paul O. Jones, Jr. M.D.
Director
Paul O. Jones, Jr., M.D.
/s/ Thomas J. Longe
Director
Thomas J. Longe
/s/ John G. Parks, Jr.
Director
John G. Parks, Jr.
/s/ Marvin F. Schindler
Director
Marvin F. Schindler
/s/ Otis T. Wallace
Director
Otis T. Wallace
/s/ David F. Voigt
Director
David F. Voigt
/s/ Stephen J. Gilhooly
Chief Financial and Accounting Officer
Stephen J. Gilhooly  
   
/s/ Richard C. Bricker, Jr.Director
Richard C. Bricker, Jr.
/s/ Gretchen K. HollandDirector
Gretchen K. Holland
/s/ Paul O. Jones, Jr., M.D.Director
Paul O. Jones, Jr., M.D.
/s/ Thomas J. LongeDirector
Thomas J. Longe
/s/ John G. Parks, Jr.Director
John G. Parks, Jr.
/s/ Marvin F. SchindlerDirector
Marvin F. Schindler
/s/ Otis T. WallaceDirector
Otis T. Wallace
/s/ David P. JohnsonChief Financial and Accounting Officer
David P. Johnson


100





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