UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

   
For the Quarterly Period Ended
MARCH 31, 2005
 Commission File Number
JUNE 30, 2004
000-21329

TIB FINANCIAL CORP.


(Exact name of registrant as specified in its charter)
   
FLORIDA 65-0655973

(State or other jurisdiction of(I.R.S. Employer

incorporation or organization)
 (I.R.S. Employer
Identification No.)

599 9th STREET NORTH, SUITE 101, NAPLES, FLORIDA  34102-5624


(Address of principal executive offices)  (Zip Code)

Registrant’s telephone number, including area code: (239) 263-3344

Not Applicable


(Former name, former address and former fiscal year,
if changed since last report)

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. Yes [X]þ or No [   ]o

Indicate by check mark whether the issuer is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [   ]þ or No [X]o

Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:

   
Common Stock, $0.10 Par Value 5,658,0575,710,564

 
 
 
Class Outstanding as of July 31, 2004April 30, 2005

1




TABLE OF CONTENTS

Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF INCOME
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
CONSOLIDATED STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Item 4. CONTROLS AND PROCEDURES
Part II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Item 5. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
Ex-31.1 Section 302 CEO Certification
Ex-31.2 Section 302 CFO Certification
Ex-32.1 Section 906 CEO Certification
Ex-32.2 Section 906 CFO Certification


Part I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

TIB FINANCIAL CORP.


CONSOLIDATED BALANCE SHEETS
(Unaudited)
(dollars in thousands, except per share amounts)
                
 June 30, 2004
 December 31, 2003
 March 31, 2005 December 31, 2004 
 (Unaudited)  (Unaudited)   
ASSETS
  
Cash and due from banks $25,607 $17,197  $20,216 $27,410 
Federal funds sold 10,889 16,484  62,391 15,528 
 
 
 
 
      
Cash and cash equivalents 36,496 33,681  82,607 42,938 
 
Investment securities available for sale 81,652 52,557  80,735 77,807 
Loans, net of deferred loan costs and fees 592,459 540,413  719,285 655,678 
Less: allowance for loan losses 5,806 5,216  6,541 6,243 
 
 
 
 
      
Loans, net 586,653 535,197  712,744 649,435 
 
Premises and equipment, net 24,455 21,073  27,141 27,559 
Goodwill 155 155  155 155 
Intangible assets, net 1,541 1,687  1,320 1,392 
Accrued interest receivable and other assets 29,568 24,948  34,624 30,039 
 
 
 
 
      
TOTAL ASSETS
 $760,520 $669,298  $939,326 $829,325 
     
 
 
 
 
  
LIABILITIES
  
Deposits:  
Noninterest-bearing demand $145,393 $121,728  $185,012 $152,035 
Interest-bearing 479,001 432,085  614,269 535,824 
 
 
 
 
      
Total Deposits 624,394 553,813  799,281 687,859 
Federal Home Loan Bank (FHLB) advances 38,500 45,000  25,000 35,000 
Short-term borrowings 6,874 4,041  19,922 12,157 
Long-term borrowings 18,250 18,250  17,000 18,250 
Accrued interest payable and other liabilities 7,336 6,948  9,844 7,945 
 
 
 
 
      
TOTAL LIABILITIES
 695,354 628,052  871,047 761,211 
 
 
 
 
      
 
SHAREHOLDERS’ EQUITY
  
Preferred stock — no par value: 5,000,000 and 0 shares authorized, 0 and 0 shares issued   
Common stock — $.10 par value: 20,000,000 and 7,500,000 shares authorized, 5,657,957 and 4,431,328 shares issued 566 443 
Preferred stock — no par value: 5,000,000 
and 0 shares authorized, 0 and 0 shares issued   
Common stock — $.10 par value: 20,000,000 
and 7,500,000 shares authorized, 5,706,939 
and 5,679,239 shares issued 571 568 
Additional paid in capital 38,090 14,255  38,629 38,284 
Retained earnings 27,591 26,203  29,859 28,968 
Accumulated other comprehensive income  (1,081) 345   (780) 294 
 
 
 
 
      
TOTAL SHAREHOLDERS’ EQUITY
 65,166 41,246  68,279 68,114 
 
 
 
 
      
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 $760,520 $669,298  $939,326 $829,325 
 
 
 
 
      

(See notes to consolidated financial statements)

2


TIB FINANCIAL CORP.


CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(dollars in thousands, except earnings per share amounts)
                     
 Three months ended Six months ended Three months ended 
 June 30,
 June 30,
 March 31, 
 2004
 2003
 2004
 2003
 2005 2004 
INTEREST AND DIVIDEND INCOME
  
Loans, including fees $8,960 $7,698 $17,560 $15,277  $11,310 $8,601 
Investment securities:  
U.S. Treasury securities 36 2 38 4 
U.S. Government agencies and corporations 546 442 902 969 
States and political subdivisions, tax-exempt 111 83 205 144 
States and political subdivisions, taxable 51 62 104 125 
Marketable equity securities 61  120  
Taxable 636 410 
Tax-exempt 160 153 
Interest bearing deposits in other bank 4  5 1  4 1 
Federal Home Loan Bank Stock 9 14 24 30  27 15 
Federal funds sold 41 151 79 193  209 38 
 
 
 
 
 
 
 
 
      
TOTAL INTEREST AND DIVIDEND INCOME
 9,819 8,452 19,037 16,743  12,346 9,218 
 
 
 
 
 
 
 
 
  
INTEREST EXPENSE
  
Deposits 1,980 2,124 3,872 4,104  3,101 1,892 
Federal Home Loan Bank advances 70 33 164 102  175 94 
Short-term borrowings 12 10 21 21  73 9 
Long term borrowings 396 397 791 795  383 395 
 
 
 
 
 
 
 
 
      
TOTAL INTEREST EXPENSE
 2,458 2,564 4,848 5,022  3,732 2,390 
 
 
 
 
 
 
 
 
      
 
NET INTEREST INCOME
 7,361 5,888 14,189 11,721  8,614 6,828 
 
PROVISION FOR LOAN LOSSES
 649 258 1,018 588  586 369 
 
 
 
 
 
 
 
 
      
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
 6,712 5,630 13,171 11,133  8,028 6,459 
 
NON-INTEREST INCOME
  
Service charges on deposit accounts 637 586 1,281 1,158  608 644 
Investment securities gains, net 52  96 5   44 
Merchant bankcard processing income 1,534 1,221 3,294 2,599  1,896 1,760 
Gain on sale of government guaranteed loans    88 
Fees on mortgage loans sold 645 609 1,043 1,211  492 398 
Retail investment services 107 99 201 186 
Gain on sale of investment in ERAS Joint Venture  202  202 
Other income 356 371 689 717  398 427 
 
 
 
 
 
 
 
 
      
TOTAL NON-INTEREST INCOME
 3,331 3,088 6,604 6,166  3,394 3,273 
 
NON-INTEREST EXPENSE
  
Salaries and employee benefits 3,614 3,074 7,056 6,241  4,212 3,442 
Net occupancy expense 1,191 1,082 2,313 2,109  1,276 1,122 
Other expense 3,348 2,713 6,578 5,302  3,565 3,230 
 
 
 
 
 
 
 
 
      
TOTAL NON-INTEREST EXPENSE
 8,153 6,869 15,947 13,652  9,053 7,794 
 
 
 
 
 
 
 
 
      
 
INCOME BEFORE INCOME TAX EXPENSE
 1,890 1,849 3,828 3,647  2,369 1,938 
 
INCOME TAX EXPENSE
 633 638 1,298 1,275  822 665 
 
 
 
 
 
 
 
 
      
INCOME FROM CONTINUING OPERATIONS
 $1,257 $1,211 $2,530 $2,372 
DISCONTINUED OPERATIONS
 
Income from Keys Insurance Agency, Inc. operations  121  165 
Income tax expense  46  62 
 
 
 
 
 
 
 
 
 
INCOME FROM DISCONTINUED OPERATIONS
  75  103 
 
 
 
 
 
 
 
 
  
NET INCOME
 $1,257 $1,286 $2,530 $2,475  $1,547 $1,273 
 
 
 
 
 
 
 
 
      
 
BASIC EARNINGS PER SHARE:
  $0.27 $0.29 
Continuing operations $0.23 $0.29 $0.51 $0.57 
Discontinued operations  0.02  0.03 
 
 
 
 
 
 
 
 
 
Basic earnings per share $0.23 $0.31 $0.51 $0.60 
 
 
 
 
 
 
 
 
 
DILUTED EARNINGS PER SHARE:
  $0.26 $0.27 
Continuing operations $0.22 $0.28 $0.49 $0.56 
Discontinued operations  0.02  0.02 
 
 
 
 
 
 
 
 
 
Diluted earnings per share $0.22 $0.30 $0.49 $0.58 
 
 
 
 
 
 
 
 
 

(See notes to consolidated financial statements)

3


TIB FINANCIAL CORP.


CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
(dollars in thousands, except per share amounts)
                         
          Additional      Accumulated Other  Total 
      Common  Paid in  Retained  Comprehensive  Shareholders’ 
  Shares  Stock  Capital  Earnings  Income (Loss)  Equity 
Balance,January 1, 2005
  5,679,239  $568  $38,284  $28,968  $294  $68,114 
Comprehensive income:                        
Net income              1,547       1,547 
Other comprehensive income, net of tax                        
benefit of $645:                        
Net market valuation adjustment on                        
securities available for sale                  (1,074)    
Other comprehensive income, net of tax                      (1,074)
                        
Comprehensive income                      473 
                        
Exercise of stock options  27,700   3   280           283 
Income tax benefit from stock options exercised          65           65 
Cash dividends declared, $.115 per share             (656)      (656)
                   
Balance,March 31, 2005
  5,706,939  $571  $38,629  $29,859  $(780) $68,279 
                   
                         
          Additional     Accumulated Other Total
      Common Paid in Retained Comprehensive Shareholders’
  Shares
 Stock
 Capital
 Earnings
 Income (Loss)
 Equity
Balance,April 1, 2004
  4,489,064  $449  $14,797  $26,971  $1,058  $43,275 
Comprehensive income:                        
Net income            1,257      1,257 
Other comprehensive income, net of tax benefit of $1,290:                        
Net market valuation adjustment on securities available for sale               (2,106)    
Less: reclassification adjustment for gains included in net income               (33)    
Other comprehensive income, net of tax                   (2,139)
                       
 
 
Comprehensive income                      (882)
                       
 
 
Public offering of 1,150,000 shares  1,150,000   115   23,115           23,230 
Exercise of stock options  18,893   2   105         107 
Income tax benefit from stock options exercised          73           73 
Cash dividends declared, $.1125 per share            (637)     (637)
   
 
   
 
   
 
   
 
   
 
   
 
 
Balance,June 30, 2004
  5,657,957  $566  $38,090  $27,591  $(1,081) $65,166 
   
 
   
 
   
 
   
 
   
 
   
 
 
                         
          Additional     Accumulated Other Total
      Common Paid in Retained Comprehensive Shareholders’
  Shares
 Stock
 Capital
 Earnings
 Income (Loss)
 Equity
Balance,April 1, 2003
  4,114,425  $412  $9,414  $23,758  $1,172  $34,756 
Comprehensive income:                        
Net income            1,286      1,286 
Other comprehensive income, net of tax expense of $204:                        
Net market valuation adjustment on securities available for sale               339     
Less: reclassification adjustment for gains included in net income                   
Other comprehensive income, net of tax                   339 
                       
 
 
Comprehensive income                      1,625 
                       
 
 
Exercise of stock options  12,500   1   113         114 
Private Placement of 280,653 common shares  280,653   28   4,316           4,344 
Cash dividends declared, $.11 per share            (485)     (485)
   
 
   
 
   
 
   
 
   
 
   
 
 
Balance,June 30, 2003
  4,407,578  $441  $13,843  $24,559  $1,511  $40,354 
   
 
   
 
   
 
   
 
   
 
   
 
 
                         
          Additional      Accumulated Other  Total 
      Common  Paid in  Retained  Comprehensive  Shareholders’ 
  Shares  Stock  Capital  Earnings  Income (Loss)  Equity 
Balance,January 1, 2004
  4,431,328  $443  $14,255  $26,203  $345  $41,246 
Comprehensive income:                        
Net income              1,273       1,273 
Other comprehensive income, net of tax                        
expense of $431:                        
Net market valuation adjustment on                        
securities available for sale                  740     
Less: reclassification adjustment for gains                        
included in net income                  (27)    
Other comprehensive income, net of tax                      713 
                        
Comprehensive income                      1,986 
                        
Exercise of stock options  57,736   6   420           426 
Income tax benefit from stock options exercised          122           122 
Cash dividends declared, $.1125 per share             (505)      (505)
                   
Balance,March 31, 2004
  4,489,064  $449  $14,797  $26,971  $1,058  $43,275 
                   

(continued)(See notes to consolidated financial statements)

4


TIB FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE IN CASH AND CASH EQUIVALENTS
(Unaudited)
(dollars in thousands)

                         
          Additional     Accumulated Other Total
      Common Paid in Retained Comprehensive Shareholders’
  Shares
 Stock
 Capital
 Earnings
 Income (Loss)
 Equity
Balance,January 1, 2004
  4,431,328  $443  $14,255  $26,203  $345  $41,246 
Comprehensive income:                        
Net income            2,530      2,530 
Other comprehensive income, net of tax benefit of $859:                        
Net market valuation adjustment on securities available for sale               (1,366)    
Less: reclassification adjustment for gains included in net income               (60)   
Other comprehensive income, net of tax                   (1,426)
                       
 
 
Comprehensive income                      1,104 
                       
 
 
Public offering of 1,150,000 shares  1,150,000   115   23,115           23,230 
Exercise of stock options  76,629   8   526         534 
Income tax benefit from stock options exercised        194           194 
Cash dividends declared, $.225 per share            (1,142)     (1,142)
   
 
   
 
   
 
   
 
   
 
   
 
 
Balance,June 30, 2004
  5,657,957  $566  $38,090  $27,591  $(1,081) $65,166 
   
 
   
 
   
 
   
 
   
 
   
 
 
         
  For the three month period ended 
  March 31, 
  2005  2004 
CASH FLOWS FROM OPERATING ACTIVITIES
        
Net Income $1,547  $1,273 
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization  617   527 
Provision for loan losses  586   369 
Deferred income tax benefit  (120)  (115)
Investment securities net gains     (44)
Net gain on sale/disposal of premises, equipment and intangibles  (32)  (1)
Mortgage loans originated for sale  (45,679)  (27,195)
Proceeds from sale of mortgage loans  43,153   24,901 
Fees on mortgage loans sold  (492)  (398)
Increase in accrued interest receivable and other assets  (818)  (109)
Increase (decrease) in accrued interest payable and other liabilities  1,960   (581)
       
NET CASH PROVIDED BY (USED BY) OPERATING ACTIVITIES
  722   (1,373)
       
         
CASH FLOWS FROM INVESTING ACTIVITIES
        
Purchases of investment securities available for sale  (5,000)   
Repayments of principal and maturities of investment securities available for sale  332   1,199 
Sales of investment securities available for sale     2,046 
Net sale of FHLB stock  129   1,250 
Proceeds from sales of government guaranteed loans     569 
Loans originated or acquired, net of principal repayments  (63,988)  (11,854)
Purchases of premises and equipment  (186)  (1,525)
Sales of premises, equipment and intangibles  93   2 
       
NET CASH USED BY INVESTING ACTIVITIES
  (68,620)  (8,313)
       
         
CASH FLOWS FROM FINANCING ACTIVITIES
        
Net increase in federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings  7,765   1,306 
Net decrease in FHLB short-term advances  (10,000)  (15,000)
Repayments of FHLB long-term advances     (10,000)
Repayments of notes payable  (1,250)   
Net increase in demand, money market and savings accounts  55,564   54,250 
Net increase in time deposits  55,858   9,370 
Proceeds from exercises of stock options  283   426 
Cash dividends paid  (653)  (499)
       
NET CASH PROVIDED BY FINANCING ACTIVITIES
  107,567   39,853 
       
         
NET INCREASE IN CASH AND CASH EQUIVALENTS
  39,669   30,167 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
  42,938   33,681 
       
CASH AND CASH EQUIVALENTS AT END OF PERIOD
 $82,607  $63,848 
       
         
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS:
        
Cash paid for:        
Interest $3,655  $3,621 
       
Income taxes $  $ 
       
                         
          Additional     Accumulated Other Total
      Common Paid in Retained Comprehensive Shareholders’
  Shares
 Stock
 Capital
 Earnings
 Income (Loss)
 Equity
Balance,January 1, 2003
  4,035,625  $403  $8,966  $23,022  $1,115  $33,506 
Comprehensive income:                        
Net income            2,475      2,475 
Other comprehensive income, net of tax expense of $239:                        
Net market valuation adjustment on securities available for sale               399     
Less: reclassification adjustment for gains included in net income               (3)   
Other comprehensive income, net of tax                   396 
                       
 
 
Comprehensive income                      2,871 
                       
 
 
Exercise of stock options  91,300   10   561         571 
Private Placement of 280,653 common shares  280,653   28   4,316           4,344 
Cash dividends declared, $.22 per share            (938)     (938)
   
 
   
 
   
 
   
 
   
 
   
 
 
Balance,June 30, 2003
  4,407,578  $441  $13,843  $24,559  $1,511  $40,354 
   
 
   
 
   
 
   
 
   
 
   
 
 

(See notes to consolidated financial statements)

5


TIB FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(Unaudited)
(dollars in thousands)
         
  For the six month period ended
  June 30,
  2004
 2003
CASH FLOWS FROM OPERATING ACTIVITIES
        
Net Income $2,530  $2,475 
Adjustments to reconcile net income to net cash provided by operating activities:        
Net amortization of investments  24   32 
Amortization of intangible assets  146   146 
Depreciation of premises and equipment  926   862 
Provision for loan losses  1,018   588 
Provision for losses on unfunded loan commitments  (11)   
Deferred income tax benefit  (360)  (213)
Deferred net loan costs and fees  (291)  (502)
Investment securities net gains  (96)  (5)
Net (gain) loss on sale/disposal of premises and equipment  6   (1)
Gain on sale of investment in ERAS JV     (202)
Gain on sales of government guaranteed loans, net     (88)
Mortgage loans originated for sale  (62,472)  (59,192)
Proceeds from sale of mortgage loans  60,150   62,985 
Fees on mortgage loans sold  (1,043)  (1,211)
Increase in accrued interest receivable and other assets  (361)  (443)
Increase (decrease) in accrued interest payable and other liabilities  455   (1,677)
   
 
   
 
 
NET CASH PROVIDED BY OPERATING ACTIVITIES
  621   3,554 
   
 
   
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
        
Purchases of investment securities available for sale  (38,368)  (4,592)
Repayments of principal and maturities of investment securities available for sale  1,960   12,073 
Sales of investment securities available for sale  5,099    
Net sale of FHLB stock  325   201 
Proceeds from sales of government guaranteed loans  569   2,241 
Loans originated or acquired, net of principal repayments  (52,751)  (33,835)
Proceeds from the sale of investment in ERAS JV      327 
Purchases of premises and equipment  (4,317)  (2,438)
Sales of premises and equipment  4   2 
   
 
   
 
 
NET CASH USED BY INVESTING ACTIVITIES
  (87,479)  (26,021)
   
 
   
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
        
Net increase in federal funds purchased and securities sold under agreements to repurchase  2,832   676 
Net increase in FHLB short-term advances  3,500    
Proceeds from FHLB long-term advances     10,000 
Repayments of FHLB long-term advances  (10,000)  (20,000)
Net increase in demand, money market and savings accounts  49,120   19,561 
Net increase in time deposits  21,461   50,605 
Proceeds from exercise of stock options  534   571 
Proceeds from private placement of common stock     4,344 
Proceeds from public offering of common stock  23,230    
Cash dividends paid  (1,004)  (897)
   
 
   
 
 
NET CASH PROVIDED BY FINANCING ACTIVITIES
  89,673   64,860 
   
 
   
 
 
NET INCREASE IN CASH AND CASH EQUIVALENTS
  2,815   42,393 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
  33,681   24,070 
   
 
   
 
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD
 $36,496  $66,463 
   
 
   
 
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS:
        
Cash paid for:        
Interest $5,993  $5,662 
Income taxes  1,135   1,775 

(See notes to consolidated financial statements)

6


TIB FINANCIAL CORP.

UNAUDITED CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004March 31, 2005
(Unaudited)(In thousands except for share and per share amounts)

NOTE 1 BASIS OF PRESENTATION & ACCOUNTING POLICIES

TIB Financial Corp. is a financial holding company headquartered in Naples, Florida. TIB Financial Corp. owns and operates TIB Bank, of the Keys, which has a total of fourteensixteen branches in Florida that are located in Monroe, Miami-Dade, Collier and Lee counties.

The accompanying unaudited consolidated financial statements for TIB Financial Corp. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statement presentation. For further information and an additional description of the Company’s accounting policies, refer to the Company’s annual report for the year ended December 31, 2003.2004.

The consolidated statements include the accounts of TIB Financial Corp. and its wholly-owned subsidiaries,subsidiary, TIB Bank, ofand the Keys,Bank’s subsidiary, TIB Software and Services,Investment Center Inc. (this corporation was dissolved in March 2004 –January 2005 — see Note 2), and Keys Insurance Agency, Inc. (whose assets were sold in August 2003 — see Note 10) and the Bank’s two subsidiaries, TIB Government Loan Specialists, Inc. (this corporation was dissolved in March 2004 – see Note 2) and TIB Investment Center Inc., collectively known as the Company. All significant intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain amounts previously reported on have been reclassified to conform to the current period presentation.

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 term “Bank” means TIB Bank of the Keys and its subsidiaries (unless the context indicates another meaning).

CRITICAL ACCOUNTING POLICIES

The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted within the United States of America and conform to general practices within the banking industry. Accounting and reporting policies for the allowance for loan losses are deemed critical since they involve the use of estimates and require significant management judgments. 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. 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.

Additional information with regard to the Company’s methodology and reporting of the allowance for loan losses is included in the 20032004 Annual Report and 10-K.

NOTE 2 ACQUISITIONS AND DIVESTITURES

On May 29, 2003, TIB Software and Services, Inc. sold its remaining interestDecember 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 ERAS Joint Venture for $326,667.cash at the closing. The Company recognized a pretax gain of approximately $202,000$50 on the transaction. In March 2004,Under the purchase agreement, additional cash payments totaling up to $60 may be paid to the Company subject to the achievement of certain production and customer and asset retention thresholds. Additionally, the Company will receive monthly cash payments of 10% of production related to new referrals made through December 31, 2005. On January 7, 2005, the Company filed Articles of Dissolution dissolving TIB Software and Services,Investment Center, Inc.

On August 15, 2003, the Company closed the sale of the assets of Keys Insurance Agency, Inc., a wholly owned subsidiary of the Company. See Note 10 – “Discontinued Operations” for details on the transaction. In March 2004, the Company filed Articles of Dissolution dissolving Keys Insurance Agency, Inc.

In March 2004, the Company filed Articles of Dissolution dissolving TIB Government Loan Specialists, Inc. Activities performed through this corporation are now performed through TIB Bank.

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NOTE 3 INVESTMENT SECURITIES

The amortized cost and estimated fair value of investment securities available for sale at June 30, 2004March 31, 2005 and December 31, 20032004 are presented below:

          
 June 30, 2004
                
 Amortized Unrealized Unrealized Estimated March 31, 2005 
(dollars in thousands)
 Cost
 Gains
 Losses
 Fair Value
 Amortized Unrealized Unrealized Estimated 
 Cost Gains Losses Fair Value 
U.S. Treasury securities $5,176 $5 $75 $5,106  $5,179 $2 $142 $5,039 
U.S. Government agencies and corporations 57,274 156 1,862 55,568  59,208 47 1,814 57,441 
States and political subdivisions-tax-exempt 11,299 235 239 11,295  9,595 156 76 9,675 
States and political subdivisions-taxable 3,213 17 189 3,041  2,691 10 13 2,688 
Marketable equity securities 3,000 159  3,159  3,000 521  3,521 
Mortgage-backed securities 3,422 61  3,483  2,311 60  2,371 
 
 
 
 
 
 
 
 
          
 $83,384 $633 $2,365 $81,652  $81,984 $796 $2,045 $80,735 
 
 
 
 
 
 
 
 
          
          
 December 31, 2003
                
 Amortized Unrealized Unrealized Estimated December 31, 2004 
(dollars in thousands)
 Cost
 Gains
 Losses
 Fair Value
 Amortized Unrealized Unrealized Estimated 
 Cost Gains Losses Fair Value 
U.S. Treasury securities $209 $9 $ $218  $5,178 $5 $29 $5,154 
U.S. Government agencies and corporations 31,357 425 663 31,119  54,228 104 869 53,463 
States and political subdivisions-tax-exempt 8,838 378 59 9,157  9,596 246 26 9,816 
States and political subdivisions-taxable 3,559 42 101 3,500  2,862 17 23 2,856 
Marketable equity securities 3,000 395  3,395  3,000 987  3,987 
Mortgage-backed securities 5,041 128 1 5,168  2,473 58  2,531 
 
 
 
 
 
 
 
 
          
 $52,004 $1,377 $824 $52,557  $77,337 $1,417 $947 $77,807 
 
 
 
 
 
 
 
 
          

NOTE 4 LOANS

Major classifications of loans are as follows:

              
(dollars in thousands)
 June 30, 2004
 December 31, 2003
 March 31, 2005 December 31, 2004 
Real estate mortgage loans:  
Commercial $329,542 $297,221  $393,362 $351,346 
Residential 61,461 60,104  70,490 67,204 
Farmland 3,347 2,317  4,825 4,971 
Construction and vacant land 36,972 32,089  67,552 49,815 
Commercial and agricultural loans 57,934 63,624  57,647 64,622 
Indirect auto dealer loans 76,821 59,437  98,633 91,890 
Home equity loans 13,822 12,574  14,637 13,856 
Other consumer loans 10,454 11,232  10,075 9,817 
 
 
 
 
      
Total loans 590,353 538,598  717,221 653,521 
Net deferred loan costs 2,106 1,815  2,064 2,157 
 
 
 
 
      
Loans, net of deferred loan costs $592,459 $540,413  $719,285 $655,678 
 
 
 
 
      

NOTE 5 ALLOWANCE FOR LOAN LOSSES

Activity in the allowance for loan losses for the sixthree months ended June 30,March 31, 2005 and 2004 and June 30, 2003 follows:

                
(dollars in thousands)
 2004
 2003
 2005 2004 
Balance, January 1 $5,216 $4,272  $6,243 $5,216 
Provision for loan losses charged to expense 1,018 588  586 369 
Loans charged off  (436)  (320)  (307)  (243)
Recoveries of loans previously charged off 8 14  19 5 
 
 
 
 
      
Balance, June 30 $5,806 $4,554 
Balance, March 31 $6,541 $5,347 
 
 
 
 
      

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NOTE 6 EARNINGS PER SHARE AND COMMON STOCK

Earnings per share have been computed based on the following weighted average number of common shares outstanding for the three months and six months ended June 30:March 31:

              
 2004
 2003
 2005 2004 
For the three months ended June 30: 
For the three months ended March 31: 
Basic 5,434,532 4,152,481  5,686,233 4,462,493 
Dilutive effect of options outstanding 163,310 159,875  179,866 196,901 
 
 
 
 
      
Diluted 5,597,842 4,312,356  5,866,099 4,659,394 
 
 
 
 
      
For the six months ended June 30: 
Basic 4,948,550 4,101,616 
Dilutive effect of options outstanding 180,072 169,084 
 
 
 
 
 
Diluted 5,128,622 4,270,700 
 
 
 
 
 

Stock options for 33,736 and 1,92320,082 shares of common stock were not considered in computing diluted earnings per common share for the three months ended June 30,March 31, 2004 and 2003 because they were anti-dilutive. StockThere were no anti-dilutive stock options for 26,909 and 967 shares of common stock were not considered in computing diluted earnings per common shareoutstanding for the sixthree months ended June 30, 2004 and 2003 because they were anti-dilutive.March 31, 2005. The effect of stock options is the sole common stock equivalent for purposes of calculating diluted earnings per common share.

NOTE 7 STOCK-BASED COMPENSATION

Total stock options granted, exercised, and expired/forfeited during the sixthree months ended June 30, 2004,March 31, 2005, were 37,500, 76,629,69,500, 27,700 and 7,400,8,000, respectively. As of June 30, 2004,March 31, 2005, there were 430,976442,994 options for shares outstanding.

Employee compensation expense under stock options is reported using the intrinsic value method. No stock-based compensation cost is reflected in net income, 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. 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, “Accounting for Stock-Based Compensation.”

         
For the three months ended June 30,    
(dollars in thousands, except per share amounts)
 2004
 2003
Net income, as reported $1,257  $1,286 
Stock-based compensation expense determined under fair value based method, net of tax  47   60 
   
 
   
 
 
Pro forma net income $1,210  $1,226 
   
 
   
 
 
Basic earnings per share as reported $0.23  $0.31 
Pro forma basic earnings per share  0.22   0.30 
Diluted earnings per share as reported  0.22   0.30 
Pro forma diluted earnings per share  0.22   0.28 
                
For the six months ended June 30,    
For the three months ended March 31,     
(dollars in thousands, except per share amounts)
 2004
 2003
 2005 2004 
 
Net income, as reported $2,530 $2,475  $1,547 $1,273 
Stock-based compensation expense determined under fair value based method, net of tax 119 97  63 72 
 
 
 
 
      
Pro forma net income $2,411 $2,378  $1,484 $1,201 
 
 
 
 
      
 
Basic earnings per share as reported $0.27 $0.29 
Pro forma basic earnings per share 0.26 0.27 
Diluted earnings per share as reported 0.26 0.27 
Pro forma diluted earnings per share 0.25 0.26 

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For the six months ended June 30,    
(dollars in thousands, except per share amounts)
 2004
 2003
Basic earnings per share as reported $0.51  $0.60 
Pro forma basic earnings per share  0.49   0.58 
Diluted earnings per share as reported  0.49   0.58 
Pro forma diluted earnings per share  0.47   0.56 

On February 24, 2004, the Board of Directors approved the 2004 Equity Incentive Plan for directors and employees, which was also approved by the shareholders at their annual meeting held on May 25, 2004. The Plan allows the Company to continue to provide equity compensation to employees and directors in order to enable the Company to attract and retain qualified persons to serve as directors and employees, to enhance their equity interest in the Company, and thereby to solidify their common interest with shareholders in enhancing the value and growth of the Company. Refer to the Company’s 2004 Proxy statement for additional information regarding the 2004 Equity Incentive Plan.

NOTE 8 — CAPITAL ADEQUACY

Federal banking regulators have established certain capital adequacy standards required to be maintained by banks and bank holding companies. The minimum requirements established in the regulations are set forth in the table below, along with the actual ratios at June 30, 2004March 31, 2005 and December 31, 2003:2004:

                      
 Well Adequately     Well Adequately     
 Capitalized Capitalized June 30, 2004 December 31, 2003 Capitalized Capitalized March 31, 2005 December 31, 2004 
 Requirement
 Requirement
 Actual
 Actual
 Requirement Requirement Actual Actual 
Tier 1 Capital (to Average Assets)        
Consolidated  ³5%  ³4%  10.4%  7.8% ³5% ³4% 9.1%  10.0%
Bank  ³5%  ³4%  11.1%  8.5% ³5% ³4% 9.5%  10.5%
       
Tier 1 Capital (to Risk Weighted Assets)        
Consolidated  ³6%  ³4%  11.8%  8.8% ³6% ³4% 9.9%  10.9%
Bank  ³6%  ³4%  12.6%  9.6% ³6% ³4% 10.3%  11.4%
       
Total Capital (to Risk Weighted Assets)        
Consolidated  ³10%  ³8%  13.6%  10.6% ³10% ³8% 11.2%  12.6%
Bank  ³10%  ³8%  13.5%  10.5% ³10% ³8% 11.1%  12.4%

Management believes, as of June 30, 2004,March 31, 2005, that the Company and the Bank met all capital requirements to which they are subject. The Company has included the trust preferred securities that were issued in September 2000 and July 2001 in Tier 1 and Total capital.

We completed an offering of 1,150,000 shares of our common stock during the second quarter of 2004.

NOTE 9 — SEGMENT REPORTING

TIB Financial Corp. has two reportable segments in their continuing operations:segments: community banking and merchant bankcard processing. The community banking segment’s business is to attract deposits from the public and to use such deposits to make real estate, business and consumer loans in its primary service area. The merchant bankcard processing segment processes credit card transactions for local merchants. Parent and other includes the operations of the holding company and retail investment service operations of the Bank.

The results of Keys Insurance Agency, Inc. are not included in the segment reporting as they are classified separately as discontinued operations in our consolidated financial statements (see Note 10). Total assets of Keys Insurance Agency, Inc. at June 30, 2004 and June 30, 2003 were $0 and $2.3 million respectively.

The Company’s reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different marketing strategies.

Intercompany transactions have been ignoredeliminated in preparing the segment reporting amounts below.

The results of the Company’s segments are as follows (dollars in thousands):

                 
      Merchant  Parent    
Three months ended Community  Bankcard  And    
March 31, 2005 Banking  Processing  Other  Totals 
                 
Interest and dividend income $12,346  $  $  $12,346 
Interest expense  3,349      383   3,732 
             
Net interest and dividend income (expense)  8,997      (383)  8,614 
Other income  1,488   1,896   10   3,394 
Depreciation and amortization  615   2      617 
Other expense  7,295   1,575   152   9,022 
             
Pretax segment profit (loss) $2,575  $319  $(525) $2,369 
             
                 
Segment Assets $938,876  $34  $416  $939,326 

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      Merchant  Parent    
Three months ended Community  Bankcard  and    
March 31, 2004 Banking  Processing  Other  Totals 
                 
Interest and dividend income $9,218  $  $  $9,218 
Interest expense  1,995      395   2,390 
             
Net interest and dividend income (expense)  7,223      (395)  6,828 
Other income  1,414   1,760   99   3,273 
Depreciation and amortization  515   11   1   527 
Other expense  6,009   1,433   194   7,636 
             
Pretax segment profit (loss) $2,113  $316  $(491) $1,938 
             
                 
Segment Assets $710,065  $37  $455  $710,557 

10


                 
      Merchant Parent  
Six months ended Community Bankcard And  
June 30, 2004
 Banking
 Processing
 Other
 Totals
Interest and dividend income $19,037  $  $  $19,037 
Interest expense  4,057      791   4,848 
   
 
   
 
   
 
   
 
 
Net interest and dividend income  14,980      (791)  14,189 
Other income  3,104   3,294   206   6,604 
Depreciation and amortization  1,049   21   2   1,072 
Other expense  12,595   2,745   553   15,893 
   
 
   
 
   
 
   
 
 
Pretax segment profit (loss) $4,440  $528  $(1,140) $3,828 
   
 
   
 
   
 
   
 
 
Segment Assets $760,068  $30  $422  $760,520 
                 
      Merchant Parent  
Six months ended Community Bankcard and  
June 30, 2003
 Banking
 Processing
 Other
 Totals
Interest and dividend income $16,743  $  $  $16,743 
Interest expense  4,227      795   5,022 
   
 
   
 
   
 
   
 
 
Net interest and dividend income  12,516      (795)  11,721 
Other income  3,179   2,599   388   6,166 
Depreciation and amortization  955   23   2   980 
Other expense  10,784   2,104   372   13,260 
   
 
   
 
   
 
   
 
 
Pretax segment profit (loss) $3,956  $472  $(781) $3,647 
   
 
   
 
   
 
   
 
 
Segment Assets $630,440  $55  $450  $630,945 
                 
      Merchant Parent  
Three months ended Community Bankcard And  
June 30, 2004
 Banking
 Processing
 Other
 Totals
Interest and dividend income $9,819  $  $  $9,819 
Interest expense  2,062      396   2,458 
   
 
   
 
   
 
   
 
 
Net interest and dividend income  7,757      (396)  7,361 
Other income  1,690   1,534   107   3,331 
Depreciation and amortization  534   10   1   545 
Other expense  6,586   1,312   359   8,257 
   
 
   
 
   
 
   
 
 
Pretax segment profit (loss) $2,327  $212  $(649) $1,890 
   
 
   
 
   
 
   
 
 
                 
      Merchant Parent  
Three months ended Community Bankcard and  
June 30, 2003
 Banking
 Processing
 Other
 Totals
Interest and dividend income $8,452  $  $  $8,452 
Interest expense  2,167      397   2,564 
   
 
   
 
   
 
   
 
 
Net interest and dividend income  6,285      (397)  5,888 
Other income  1,566   1,221   301   3,088 
Depreciation and amortization  485   12   1   498 
Other expense  5,425   976   228   6,629 
   
 
   
 
   
 
   
 
 
Pretax segment profit (loss) $1,941  $233  $(325) $1,849 
   
 
   
 
   
 
   
 
 

The Company discontinued separate reporting of its “government guaranteed loan sales and servicing” segment in 2003. This segment is now included as part of the “Community Banking” segment above.

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NOTE 10 – DISCONTINUED OPERATIONS

On August 15, 2003, we closed the sale of Keys Insurance Agency, Inc., a wholly owned subsidiary of the Company, to a former director of the Company and TIB Bank, and his partner. The transaction was structured as a sale of the agency assets. The buyer paid $2.2 million in cash at the closing. Of the cash payment at closing, proceeds of $2.0 million were pursuant to a loan from TIB Bank to the buyer. We recognized a loss of $15,000 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:

         
(dollars in thousands)
 2004
 2003
For the three months ended June 30:        
Other income $  $542 
Depreciation and amortization     14 
Other expense     407 
   
 
   
 
 
Pretax income from discontinued operations $  $121 
   
 
   
 
 
For the six months ended June 30:        
Other income $  $978 
Depreciation and amortization     27 
Other expense     786 
   
 
   
 
 
Pretax income from discontinued operations $  $165 
   
 
   
 
 

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS


Certain of the matters discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Form 10-Q may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act and as such may involve known and unknown risk, uncertainties and other factors which may cause the actual results, performance or achievements of TIB Financial Corp. to be materially different from future results described in such forward-looking statements. Actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without limitation: the effects of future economic conditions; governmental monetary and fiscal policies, as well as legislative and regulatory changes; the risks of changes in interest rates on the level and composition of deposits, loan demand, and the values of loan collateral, and interest rate risks; the effects of competition from other commercial banks, thrifts, consumer finance companies, and other financial institutions operating in the Company’s market area and elsewhere. All forward-looking statements attributable to the Company are expressly qualified in their entirety by these cautionary statements. The Company disclaims any intent or obligation to update these forward-looking statements, whether as a result of new information, future events or otherwise.

The following discussion addresses the factors that have affected the financial condition and results of operations of TIB Financial Corp. (the “Company”) as reflected in the unaudited consolidated statement of condition as of June 30, 2004,March 31, 2005, and statement of income for the three months and six months ended June 30, 2004.March 31, 2005. Operating results for the three months and six months ended June 30, 2004March 31, 2005 are not necessarily indicative of trends or results to be expected for the year ended December 31, 2005.

QUARTERLY SUMMARY

Our first quarter 2005 net income of $1.5 million represents an increase of 22% over $1.3 million reported for the quarter ended March 31, 2004. On a per diluted share basis, earnings were $0.26 for the first quarter of 2005 as compared to $0.27 for the first quarter of 2004 due to dilution caused by a successful public offering in April 2004 of 1.15 million new common shares which provided the capital necessary to fuel our expansion strategy in southwest Florida. Credit quality remains excellent and we continue to see growth opportunities in our newer southwest Florida markets as well as our traditional base in the Florida Keys.

The high-growth Naples-Fort Myers area continues to reaffirm the exportability of our island banking culture as our new customers are rapidly discovering what our customers in the Florida Keys have known for years. Our continued focus on providing superior customer service is filling a much needed void in our local markets, which are realizing the effects of big bank mergers and acquisitions.

The increase in net income for the first quarter of 2005 over the respective prior-year period resulted primarily from a 26% increase in net interest income from $6.8 million a year ago to $8.6 million in the current quarter. The net interest margin on a tax equivalent basis for the three months ended March 31, 2005 was 4.40%, compared with 4.50% for the three months ended March 31, 2004.

Non-interest expense for the first quarter of 2005 was $9.1 million, compared with $7.8 million for the first quarter of 2004. The increase in non-interest expense is primarily attributable to expenses associated with increased regulatory compliance and the Company’s ongoing expansion activities in the southwest Florida market, which included the addition of two new branch offices and several key senior staff personnel.

Credit quality remained solid during the first quarter of 2005 which ended with non-performing loans representing only 0.05% of gross loans. As of March 31, 2005, the allowance for loan losses totaled $6.5 million, or 0.91% of total loans and 1,673% of non-performing loans. These figures compare with 0.97% and 1,107%, respectively, as of March 31, 2004.

Total assets increased more than 32% to $939.3 million as of March 31, 2005, compared with $710.6 million a year ago. On a quarter over quarter basis, total assets increased more than 13%, which is reflective of the company’s solid organic growth since December 31, 2004. Total loans grew more than 30% to $717.2 million as of March 31, 2005, versus $549.6 million a year ago. Total deposits increased more than 29% to $799.3 million as of March 31, 2005, compared with $617.4 million a year ago.

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THREE MONTHS ENDED JUNE 30,MARCH 31, 2005 AND 2004 AND 2003

RESULTS OF OPERATIONS


Our net income of $1,257,000$1.5 million for the secondfirst quarter of 2004 was a $29,000 or 2.3% decrease2005 increased 21.5%, compared to $1,286,000$1.3 million for the same period last year. Net income from continuing operations was $1,257,000 for the second quarter of 2004, compared to $1,211,000 for the second quarter of 2003, an increase of $46,000 or 3.8%. As discussed in Note 10, the Company closed the sale of the assets of its wholly owned subsidiary, Keys Insurance Agency, Inc., in the third quarter of 2003.

Basic and diluted earnings per share for continuing operations for the secondfirst quarter of 20042005 were $0.23$0.27 and $0.22$0.26, respectively, as compared to $0.29 and $0.28$0.27 per share in the previous year’s quarter. Basic weighted average common equivalent shares outstanding for the three months ended June 30, 2004 were 5,434,532 compared to 4,152,481 for the three

12


months ended June 30, 2003. This 30.9% increase in shares outstanding resulted from the exercise of stock options and the issuance of 1,150,000 shares in the second quarter of 2004 in connection with a public stock offering of our shares.

Annualized return on average assets was 0.69%0.72% and 0.83%0.76% for the secondfirst quarter of 2005 and 2004, and 2003,respectively, while the annualized return on average shareholders’ equity was 8.31%9.20% and 14.29%12.04% for the same period. The decline in the return on average shareholders’ equity in the current year is primarily attributable to the 57.8% increase in shareholders’ equity from March 31, 2004 to March 31, 2005 due to the stock offering in the second quarter of 2004.2004 and exercises of stock options.

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, advances from the Federal Home Loan Bank, and other short term borrowings.

Net interest income increased $1,473,000, or 25.0%26.2%, to $7,361,000$8.6 million in the three months ended June 30, 2004March 31, 2005 as compared to $6.8 million in the same period last year. TheWhile the prime rate as published in the Wall Street Journal began 2003 at 4.25% and in June 2003 it declined to 4.00% and remained at that rate until July4.00% for the first quarter of 2004.2004 it increased from 5.25% at the beginning of 2005 to 5.75% by the end of the first quarter 2005. Many of the Bank’s loans are indexed to this floating rate, although they may also include floors. The lowerhigher level of prime rate in the secondfirst quarter of 20042005 compared to the comparative period in 2003 did result2004 is apparent in a lower average yieldthe positive impact on yields in the loan portfolio however,as the effects of the higher rates are reflected in variable loan re-pricings and new loan production. Increased loan volume is the primary driver affecting the increased loannet interest income in the current period.

In April 2002, the Bank began a program to acquire indirect automobile loans. We predominantly buy loans from auto dealers in Southwest Florida which 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. As of March 31, 2005 we had $98.6 million of indirect auto dealer loans outstanding, compared to $66.8 million at March 31, 2004. Coupled with the appropriate safeguards, we believe this product continues to offer us an opportunity to increase asset yields while not sacrificing our primary objective of maintaining strong asset quality.

The average yield on interest-earning assets for the first three months of 2005 was 6.29% which was an increase of 23 basis points compared to the 6.06% yield earned during the first three months of 2004. The average cost of interest-bearing deposits increased 44 basis points from 1.72% during the first three months of 2004 to 2.16% for the comparable period in 2005, and the rate of all interest-bearing liabilities increased 44 basis points, from 1.93% in 2004 to 2.37% in 2005. The Company’s net interest margin decreased to 4.40% in the first three months of 2005 compared to 4.50% in the first three months of 2004. We anticipate interest rates to continue slowly trending up over the next six months. If this occurs or if rates remain stable, net interest margin should be fairly consistent as our mix of assets and liabilities should grow in roughly the same proportions that exist currently on our balance sheet. Our margin is derived from the rate difference between our average yields on our current mix of assets in excess of our average cost of liabilities.

12


The following table presents average balances of the Company, the taxable-equivalent interest earned, and the rate paid thereon during the three months ended March 31, 2005 and March 31, 2004.

                         
      2005          2004    
  Average  Income/  Yields/  Average  Income/  Yields/ 
(dollars in thousands) Balances  Expense  Rates  Balances  Expense  Rates 
Interest-earning assets:                        
Loans (1)(2) $686,418  $11,312   6.68% $546,516  $8,602   6.33%
Investment securities (2)  74,022   779   4.27%  49,093   553   4.53%
Marketable equity securities — 90% tax                        
exempt (2)  3,680   96   10.58%  3,000   87   11.74%
Interest-bearing deposits in other banks  633   4   2.56%  589   1   0.51%
Federal Home Loan Bank stock  2,555   27   4.29%  1,879   16   3.34%
Federal funds sold  34,348   209   2.47%  16,225   38   0.94%
                     
Total interest-earning assets  801,656   12,427   6.29%  617,302   9,297   6.06%
                     
                         
Non-interest-earning assets:                        
Cash and due from banks  22,560           18,568         
Premises and equipment, net  27,414           20,433         
Allowances for loan losses  (6,358)          (5,292)        
Other assets  30,159           26,076         
                       
Total non-interest-earning assets  73,775           59,785         
                       
Total assets $875,431          $677,087         
                       
                         
Interest-bearing liabilities:                        
Interest-bearing deposits:                        
NOW accounts $91,727   178   0.79% $70,636   56   0.32%
Money market  158,655   633   1.62%  122,444   226   0.74%
Savings deposits  46,537   52   0.45%  41,277   40   0.39%
Time deposits  284,232   2,238   3.19%  209,305   1,570   3.02%
                     
Total interest-bearing deposits  581,151   3,101   2.16%  443,662   1,892   1.72%
                         
Other interest-bearing liabilities:                        
Short-term borrowings and FHLB advances  39,814   248   2.53%  35,109   103   1.18%
Long-term borrowings  17,208   383   9.03%  18,250   395   8.71%
                     
Total interest-bearing liabilities  638,173   3,732   2.37%  497,021   2,390   1.93%
                     
                         
Non-interest-bearing liabilities and                        
shareholders’ equity:                        
Demand deposits  158,525           129,855         
Other liabilities  10,555           7,922         
Shareholders’ equity  68,178           42,289         
                       
Total non-interest-bearing liabilities and shareholders’ equity  237,258           180,066         
                       
Total liabilities and shareholders’ equity $875,431          $677,087         
                       
 
Interest rate spread (tax equivalent basis)          3.92%          4.13%
                       
Net interest income (tax equivalent basis)     $8,695          $6,907     
                       
Net interest margin (3) (tax equivalent basis)          4.40%          4.50%
                       

(1)  Average loans include non-performing loans.
(2)  Interest income and rates include the effects of a tax equivalent adjustment using a Federal tax rate of 34% in adjusting tax exempt interest on tax exempt investment securities and loans to a fully taxable basis.
(3)  Net interest margin is net interest income divided by average total interest-earning assets.

13


The table below details the components of the changes in net interest income for the three months ended March 31, 2005 and March 31, 2004. For each major category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes due to average volumes and decreased depositchanges due to rates, more than compensated for this allowing forwith the reported increasechanges in interest income.both volumes and rates allocated to these two categories based on the proportionate absolute changes in each category.

  2005 compared to 2004(1) 
  Due to changes in 
(dollars in thousands) Net 
  AverageAverage Increase 
  VolumeRate(Decrease) 
  
Interest income            
Loans (2) $2,289  $421  $2,710 
Investment securities (2)  264   (38)  226 
Marketable equity securities (2)  18   (9)  9 
Interest-bearing deposits in other banks     3   3 
Federal Home Loan Bank Stock  7   4   11 
Federal funds sold  70   101   171 
    
Total interest income  2,648   482   3,130 
    
             
Interest expense            
NOW accounts  21   101   122 
Money market  83   324   407 
Savings deposits  5   7   12 
Time deposits  587   81   668 
Short-term borrowings and FHLB advances  15   130   145 
Long-term borrowings  (29)  17   (12)
    
Total interest expense  682   660   1,342 
    
             
Change in net interest income $1,966  $(178) $1,788 
      

(1)  The change in interest due to both rate and volume has been allocated to the volume and rate components in proportion to the relationship of the dollar amounts of the absolute change in each.
(2)  Interest income includes the effects of a tax equivalent adjustment using a federal tax rate of 34% in adjusting tax exempt interest on tax exempt investment securities and loans to a fully taxable basis.

PROVISION FOR LOAN LOSSES


The provision for loan losses represents the charge to income necessary to adjust the allowance for loan losses to an amount that represents management’s assessment of the estimated probable credit losses inherent in our loan portfolio which have been incurred at each balance sheet date.

The provision for loan losses increased $391,000, or 151.6%58.8%, to $649,000$0.6 million in the secondfirst quarter of 20042005 compared to $258,000$0.4 million in the comparable prior year quarter. The higher provision for loan losses in 20042005 was primarily attributable to the continued growth in the loan portfolio and change in composition of the loan portfolio.portfolio coupled with slightly higher charge offs. Total loans outstanding grew $40.7$63.7 million, or 7.4%9.7%, during the secondfirst quarter of 2004,2005, as compared to only $14.8$11.0 million, or 3.2%2.1%, during the secondfirst quarter of 2003.2004. The largest dollar increase during the secondfirst quarter of 20042005 occurred in commercial real estate loans which increased $35.8$42.0 million, or 12.2%12.0%. This compares to a $10.4$3.5 million, or 3.8% increase1.2% decrease in commercial real estate loans during the secondfirst quarter of 2003. We have also continued to expand our indirect lending portfolio. At June 30, 2004, indirect auto dealer loans accounted for $76.8 million, or 13.0%, of our loan portfolio. This compares to an indirect lending portfolio of $39.2 million at June 30, 2003 which represented 8.3% of our total loan portfolio.2004.

Total loans outstanding were $590.4$717.2 million at June 30, 2004,March 31, 2005, compared to $473.1$549.6 million at June 30, 2003.March 31, 2004. Net charge-offs were $190,000$0.3 million during the three months ended June 30, 2004March 31, 2005 compared to $73,000$0.2 million for the same period in 2003.2004.

Management will continue to monitor the credit quality of the lending portfolio and will recognize additional provisions in the future as necessary, in the opinion of management, to maintain the allowance for loan losses at an appropriate level.

NON-INTEREST INCOME


Non-interest income for the secondfirst quarter of 20042005 was $3,331,000.$3.4 million. This represents a $243,000 or 7.9%3.7% increase over the prior year quarter which totaled $3,088,000.$3.3 million. The increase in non-interest income is primarily attributable to an increase of $313,000 in merchantMerchant bankcard processing income partially offset by a $202,000 decrease from the gainand in fees on sale of investment in ERAS JV.

mortgage loans sold. The $313,000 increase in merchant bankcard processing income is primarily a

14


result of volume increases. On May 29, 2003, weThe increase in fees on mortgage loans sold our remaining interest in ERAS Joint Venture and recognizedis primarily a pretax gainresult of $202,000 on this transaction.increased pass through loan volume during the 2005 quarter.

NON-INTEREST EXPENSE


Non-interest expense for the secondfirst quarter of 20042005 was $8,153,000.$9.1 million. This represents a $1,284,000 or 18.7%16.2%, increase over the prior year quarter which totaled $6,869,000.$7.8 million. The increase in non-interest expense is primarily attributable to salaries and employee benefits increasing $540,000, net occupancy$0.8 million. At March 31, 2005 the Bank had 308 full-time employees and 15 part-time employees, compared to 267 full-time employees and 17 part-time employees at March 31, 2004. The increased staffing was attributable to the opening of two branches in Southwest Florida in the second half of 2004, additions to manage growth throughout the Company and additions to assist in security and regulatory compliance. Likewise, the majority of the other increases in the non-interest expense increasing $109,000, and other expense increasing $635,000. The increasescategory are primarily the result of costs associated with the growth of our business and continued expansion into the Southwest Florida market.business.

13


At June 30, 2004 the Bank had 275 full-time employees and 16 part-time employees, compared to 262 full-time employees and 14 part time employees at June 30, 2003. The increase in staff was required to manage the growth of the organization.

In general, as we continue to renovate facilities and add branches, the net occupancy expense category will grow overall. In December 2003, we leased a new operations facility in Homestead, Florida. Building rent expense on this property for the three months ended June 30, 2004 totaled $35,000.

In the category of other expense, interchange and other bankcard expense increased approximately $323,000 over the prior year amount. These expenses are primarily tied to volume, and are consistent with the increase in merchant bankcard processing income we experienced. We did, however, experience an increase in the rates charged by our card associations in April 2004 that also contributed to this increase. Also, in the second quarter of 2004, we incurred $191,000 in employee relocation costs. These costs were incurred to relocate various employees, including the Company’s Chief Executive Officer, in connection with the relocation of our corporate headquarters from the Florida Keys to the Southwest Florida area.

INCOME TAXES


The provision for income taxes related to continuing operations totaled $633,000, for anincludes federal and state income taxes. The effective tax rate of 33.5%rates were 34.7% and 34.3%, for the three months ended June 30,March 31, 2005 and 2004, and $638,000, for an effective tax rate of 34.5%, for the three months ended June 30, 2003.respectively.

SIX MONTHS ENDED JUNE 30, 2004 AND 2003

RESULTS OF OPERATIONS

Our net income of $2,530,000 for the first six months of 2004 was a $55,000 or 2.2% increase compared to $2,475,000 for the same period last year. Net income from continuing operations was $2,530,000 for the first six months of 2004, compared to $2,372,000 for the first six months of 2003, an increase of $158,000 or 6.7%. As discussed in Note 10, the Company closed the sale of the assets of its wholly owned subsidiary, Keys Insurance Agency, Inc. in the third quarter of 2003.

Basic and diluted earnings per share for the first six months of 2004 were $0.51 and $0.49 respectively as compared to $0.60 and $0.58 per share in the previous year’s period. Basic weighted average common equivalent shares outstanding for the six months ended June 30, 2004 were 4,948,550 compared to 4,101,616. This 20.6% increase in shares outstanding resulted from the issuance of an additional 1,150,000 shares in the second quarter of 2004 in connection with a public offering of our common stock that raised $23.2 million in new capital, the issuance of 280,653 shares in June 2003 in connection with a private placement of our stock that raised $4.3 million in new capital, and the exercise of stock options.

Annualized return on average assets was 0.72% and 0.82% for the first six months of 2004 and 2003, while the annualized return on average shareholders’ equity was 9.84% and 14.10% for the same period. The decline in the return on average shareholders’ equity in the current year is primarily attributable to the stock offering in the second quarter of 2004.

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, advances from the Federal Home Loan Bank, and other short term borrowings.

Net interest income increased $2,468,000, or 21.1%, to $14,189,000 in the six months ended June 30, 2004 as compared to the same period last year. The prime rate as published in the Wall Street Journal began 2003 at 4.25% and in June 2003 it declined to 4.00% and remained at that rate until July of 2004. Many of the Bank’s loans are indexed to this floating rate, although they also include floors. The lower level of prime rate in the first six months of 2004 compared to the comparative period in 2003 did result in a lower average yield in the loan portfolio, however, increased loan volumes and decreased deposit rates more than compensated for this allowing for the reported increase in interest income.

The effect of the low interest rates is to contract our net interest margin in two ways. First, a low prime rate directly affects yields on loans tied to that index and even loans not indexed to prime are priced reflective of overall low asset yields. Second, deposit liabilities can only be priced down so far before the interest rate is too low to attract the volume of required funding. The net effect of this rate environment is a larger reduction in asset yields, generally, than the corresponding reduction in liability costs.

14


We were able to mitigate the effects of the interest rate environment for the following reasons. First, even though we are at low relative levels of interest rates, net interest margins have stabilized and we were able to decrease liability costs to a similar extent that asset yields contracted. Second, we have expanded a practice of requiring an interest rate floor on many new commercial loans. This proved effective in slowing the average decline in loan yields. Finally, we continue to change our mix of assets to slightly increase the percentage of higher yielding loans.

In April 2002, the Bank began a program to acquire indirect automobile loans. We predominantly buy loans from auto dealers in southwest Florida which 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. As of June 30, 2004 we had $76.8 million of indirect auto dealer loans outstanding, compared to $39.2 million at June 30, 2003. Coupled with the appropriate safeguards, we believe this product continues to offer us an opportunity to increase asset yields while not sacrificing our primary objective of maintaining strong asset quality.

The average yield on interest-earning assets for the first six months of 2004 was 6.01% which was a decrease of 24 basis points compared to the 6.25% yield earned during the first six months of 2003. The average cost of interest-bearing deposits declined 32 basis points from 2.02% during the first six months of 2003 to 1.70% for the comparable period in 2004, and the rate of all interest-bearing liabilities decreased 35 basis points, from 2.27% in 2003 to 1.92% in 2004. The Company’s net interest margin increased to 4.50% in the first six months of 2004 compared to 4.39% in the first six months of 2003. We anticipate interest rates slowly trending up over the next twelve months. If this occurs or if rates remain stable, net interest margin should expand only slightly due principally to strong new loan production. However, due to the cash generated from our recent stock offering in April 2004, there will be some near term compression in net interest margin until these funds are invested. Our margin is derived from the rate difference between our average yields on our current mix of assets in excess of our average cost of liabilities. By the end of 2004, we anticipate the funds raised in our recent stock offering will be invested in a similar mix of assets as currently exists on our balance sheet.

15


The following table presents average balances of the Company, the taxable-equivalent interest earned, and the rate paid thereon during the six months ended June 30, 2004 and June 30, 2003.

                         
      2004
         2003
  
  Average Income/ Yields/ Average Income/ Yields/
(dollars in thousands)
 Balances
 Expense
 Rates
 Balances
 Expense
 Rates
Interest-earning assets:                        
Loans (1)(2) $558,197  $17,562   6.33% $457,724  $15,279   6.73%
Investment securities (2)  60,830   1,355   4.48%  50,644   1,317   5.24%
Marketable equity securities – 90% tax exempt (2)  3,448   175   10.23%         
Interest-bearing deposits in other banks  948   5   0.98%  199   1   0.96%
Federal Home Loan Bank stock  1,518   24   3.21%  1,424   30   4.26%
Federal funds sold  17,038   79   0.94%  32,413   193   1.20%
   
 
   
 
   
 
   
 
   
 
   
 
 
Total interest-earning assets  641,979   19,200   6.01%  542,404   16,820   6.25%
   
 
   
 
   
 
   
 
   
 
   
 
 
Non-interest-earning assets:                        
Cash and due from banks  19,781           15,600         
Investment in ERAS             104         
Premises and equipment, net  20,776           18,850         
Allowances for loan losses  (5,405)          (4,503)        
Other assets  28,504           29,399         
   
 
           
 
         
Total non-interest-earning assets  63,656           59,450         
   
 
           
 
         
Total assets $705,635          $601,854         
   
 
           
 
         
Interest-bearing liabilities:                        
Interest-bearing deposits:                        
NOW accounts $74,269   120   0.32% $56,269   124   0.45%
Money market  126,115   494   0.79%  130,053   662   1.03%
Savings deposits  42,860   82   0.39%  33,472   98   0.59%
Time deposits  213,760   3,176   2.99%  190,863   3,220   3.40%
   
 
   
 
   
 
   
 
   
 
   
 
 
Total interest-bearing deposits  457,004   3,872   1.70%  410,657   4,104   2.02%
Other interest-bearing liabilities:                        
Short-term borrowings and FHLB advances  32,052   185   1.16%  18,091   123   1.37%
Long-term borrowings  18,250   791   8.71%  18,250   795   8.79%
   
 
   
 
   
 
   
 
   
 
   
 
 
Total interest-bearing liabilities  507,306   4,848   1.92%  446,998   5,022   2.27%
   
 
   
 
   
 
   
 
   
 
   
 
 
Non-interest-bearing liabilities and shareholders’ equity:                        
Demand deposits  138,656           112,560         
Other liabilities  8,265           7,201         
Shareholders’ equity  51,408           35,095         
   
 
           
 
         
Total non-interest-bearing liabilities and shareholders’ equity  198,329           154,856         
   
 
           
 
         
Total liabilities and shareholders’ equity $705,635          $601,854         
   
 
           
 
         
Interest rate spread (tax equivalent basis)          4.09%          3.98%
           
 
           
 
 
Net interest income (tax equivalent basis)     $14,352          $11,798     
       
 
           
 
     
Net interest margin (3) (tax equivalent basis)          4.50%          4.39%
           
 
           
 
 

(1)Average loans include non-performing loans.
(2)Interest income and rates include the effects of a tax equivalent adjustment using a Federal tax rate of 34% in adjusting tax exempt interest on tax exempt investment securities and loans to a fully taxable basis.
(3)Net interest margin is net interest income divided by average total interest-earning assets.

16


The table below details the components of the changes in net interest income for the six months ended June 30, 2004 and June 30, 2003. For each major category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes due to average volumes, changes due to rates, with the changes in both volumes and rates allocated to these two categories based on the proportionate absolute changes in each category.

             
  2004 compared to 2003 (1)
  Due to changes in
          Net
  Average Average Increase
(dollars in thousands)
 Volume
 Rate
 (Decrease)
Interest income            
Loans (2) $3,201  $(918) $2,283 
Investment securities (2)  242   (204)  38 
Marketable equity securities (2)  175      175 
Interest-bearing deposits in other banks  4      4 
Federal Home Loan Bank Stock  2   (8)  (6)
Federal funds sold  (78)  (36)  (114)
   
 
   
 
   
 
 
Total interest income  3,546   (1,166)  2,380 
   
 
   
 
   
 
 
Interest expense            
NOW accounts  34   (38)  (4)
Money market  (19)  (149)  (168)
Savings deposits  23   (39)  (16)
Time deposits  363   (407)  (44)
Short-term borrowings and FHLB advances  83   (21)  62 
Long-term borrowings     (4)  (4)
   
 
   
 
   
 
 
Total interest expense  484   (658)  (174)
   
 
   
 
   
 
 
Change in net interest income $3,062  $(508) $2,554 
   
 
   
 
   
 
 

(1)The change in interest due to both rate and volume has been allocated to the volume and rate components in proportion to the relationship of the dollar amounts of the absolute change in each.
(2)Interest income includes the effects of a tax equivalent adjustment using a federal tax rate of 34% in adjusting tax exempt interest on tax exempt investment securities and loans to a fully taxable basis.

PROVISION FOR LOAN LOSSES

The provision for loan losses represents the charge to income necessary to adjust the allowance for loan losses to an amount that represents management’s assessment of the estimated probable credit losses inherent in our loan portfolio which have been incurred at each balance sheet date.

The provision for loan losses increased $430,000 or 73.1% to $1,018,000 in the first six months of 2004 compared to $588,000 in the comparable prior year period. The higher provision for loan losses in 2004 was primarily attributable to the growth in the loan portfolio and change in composition of the loan portfolio. Total loans outstanding grew $51.8 million, or 9.6%, during the first six months of 2004, as compared to only $31.4 million, or 7.1%, during the first six months of 2003. The largest dollar increase during the first six months of 2004 occurred in commercial real estate loans which increased $32.3 million, or 10.9%. This compares to a $18.2 million, or 6.9%, increase in commercial real estate loans during the first six months of 2003. We have also continued to expand our indirect lending portfolio. At June 30, 2004, indirect auto dealer loans accounted for $76.8 million, or 13.0%, of our loan portfolio. This compares to an indirect lending portfolio of $39.2 million at June 30, 2003 which represented 8.3% of our total loan portfolio.

Total loans outstanding were $590.4 million at June 30, 2004, compared to $473.1 million at June 30, 2003. Net charge-offs were $428,000 during the six months ended June 30, 2004 compared to $306,000 for the same period in 2003. Management will continue to monitor the credit quality of the lending portfolio and will recognize additional provisions in the future as necessary, in the opinion of management, to maintain the allowance for loan losses at an appropriate level.

NON-INTEREST INCOME

Non-interest income for the first six months of 2004 was $6,604,000. This represents a $438,000 or 7.1% increase over the prior year period which totaled $6,166,000. The increase in non-interest income is primarily attributable to an increase of

17


$695,000 in merchant bankcard processing income, partially offset by a decrease of $168,000 in fees on mortgage loans sold, and a $202,000 decrease from the gain on sale of investment in ERAS JV.

The increase in merchant bankcard processing income is primarily a result of volume increases. Fees on mortgage loans sold result from the immediate sale of various residential mortgages (primarily fixed rate loans) in the secondary market. The lower fees earned in the first six months of 2004 compared to the year ago period are attributable to reduced refinancing activity, lower new sales activity, and thinner margins. On May 29, 2003, we sold our remaining interest in ERAS Joint Venture and recognized a pretax gain of $202,000 on this transaction.

NON-INTEREST EXPENSE

Non-interest expense for the first six months of 2004 was $15,947,000. This represents a $2,295,000 or 16.8% increase over the prior year period which totaled $13,652,000. The increase in non-interest expense is attributable to salaries and employee benefits increasing $815,000, net occupancy expense increasing $204,000, and other expense increasing $1,276,000. The increases are primarily the result of costs associated with the growth of our business and continued expansion into the Southwest Florida market.

At June 30, 2004 the Bank had 275 full-time employees and 16 part-time employees, compared to 262 full-time employees and 14 part time employees at June 30, 2003. The increase in staff was required to manage growth of the organization.

In the category of other expense, interchange and other bankcard expensed increased approximately $613,000 over the prior year amount. These expenses are primarily tied to volume, and are consistent with the increase in merchant bankcard processing income we experienced. We did, however, experience an increase in the rates charged by our card associations in April 2004 that also contributed to this increase. Also, in the first six months of 2004, we incurred $196,000 in employee relocation costs. These costs were incurred to relocate various employees, including the Company’s Chief Executive Officer, in connection with the relocation of our corporate headquarters from the Florida Keys to the Southwest Florida area.

INCOME TAXES

The change in income tax expense is primarily attributable to the growth in income before income taxes. The provision for income taxes related to continuing operations totaled $1,298,000, for an effective tax rate of 33.9%, for the six months ended June 30, 2004, and $1,275,000, for an effective tax rate of 35.0%, for the six months ended June 30, 2003.

BALANCE SHEET


Total assets at June 30, 2004March 31, 2005 were $760,520,000,$939.3 million, up 13.6%13.3% from total assets of $669,298,000$829.3 million at December 31, 2003.2004. Asset growth was primarily funded by an increase in deposits of $70,581,000,$111.4 million, or 12.7%16.2%. Loans net of deferred loan costs increased $52.0$63.6 million, or 9.6%9.7%, to $592.5$719.3 million for the first sixthree months of 20042005 from year end 2003.2004. The largest dollar increase came in the commercial real estate loan category which increased $32.3$42.0 million, or 10.9%12.0%. WeAlthough we have also continued to expand our indirect dealer auto loan program.program, it has begun to decrease in percentage in proportion to the loan portfolio as a whole. At June 30, 2004,March 31, 2005, indirect auto loans accounted for $76.8$98.6 million, or 13.0%13.8%, of our loan portfolio as compared to $59.4$91.9 million, or 11.0%14.1%, at December 31, 2003. Also, in the same period, investment securities increased $29.1 million as a result of purchases of securities from funds generated from the stock offering in the second quarter of 2004.

During the first sixthree months of 2004,2005, we reduced our advances from the Federal Home Loan Bank by $6.5$10.0 million. Total advances outstanding were $38.5$25.0 million at June 30, 2004March 31, 2005 as compared to $45.0$35.0 million at December 31, 2003.2004.

Shareholders’ equity totaled $65.2$68.3 million at June 30, 2004,March 31, 2005, increasing $23.9from $68.1 million fromat December 31, 2003.2004. Book value per share increaseddecreased to $11.52$11.96 at June 30, 2004March 31, 2005 from $9.31$11.99 at December 31, 2003.2004 due primarily to the decrease in accumulated other comprehensive income related to unrealized losses on investments available-for-sale. Such unrealized losses arose primarily from increases in market interest rates. The Company declared a quarterly dividend of $0.115 per share in the first quarter of 2005 and $0.1125 per share in both the first and second quarter of 2004 and $0.11 per share in both the first quarter and second quarter of 2003.

On April 15, 2004, we closed the sale of 1,000,000 shares of our common stock at a price of $22.00 per share before commissions and expenses. The shares were sold on a firm commitment basis through Advest, Inc. Advest, Inc. also purchased an additional 150,000 shares from the Company on May 6, 2004, at $22.00 per share before commissions and expenses. The net proceeds of the offering totaling $23.2 million provides capital to support continued loan and deposit growth throughout our South Florida markets.2004.

NON-PERFORMING ASSETS

Non-performing assets include nonaccrual loans, accruing loans contractually past due 90 days or more, repossessed personal property, and other real estate. Loans are placed on nonaccrual status when management has concerns relating to the ability to

18


collect the loan principal and interest and generally when such loans 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:

               
(dollars in thousands)
 June 30, 2004
 December 31, 2003
 March 31, 2005 December 31, 2004 
Total nonaccrual loans $1,250 $390  $391 $704 
Accruing loans delinquent 90 days or more (a)      
 
 
 
 
      
Total non-performing loans (b) $1,250 $390  $391 $704 
 
Repossessed personal property (indirect auto dealer loans) 535 598  814 688 
Other real estate owned (c) 192 193 
Other assets (c) 2,531 2,472 
Other real estate owned (b) 190 882 
Other assets (b) 2,688 2,665 
 
 
 
 
      
Total non-performing assets $4,508 $3,653  $4,083 $4,939 
 
 
 
 
      
 
Allowance for loan losses $5,806 $5,216  $6,541 $6,243 
 
Non-performing assets as a percent of total assets  0.59%  0.55%  0.43%  0.60%
Non-performing loans as a percent of gross loans  0.21%  0.07%  0.05%  0.11%
Allowance for loan losses as a percent of non-performing loans  464.5%  1,336.33%  1,672.9%  886.8%

(a) Non-performing loans exclude the $1.6 million loan discussed below that is guaranteed for both principal and interest by the U.S. Department of Agriculture (USDA).

(b) Nonaccrual loans increased $860,000 from December 31, 2003 to June 30, 2004. Of the increase, $591,000 is attributable to the addition of one loan to nonaccrual status during the second quarter of 2004. In July 2004, this loan was satisfactorily paid off.

(c) The Bank made a $10,000,000 loan to construct a lumber mill in northern Florida. Of this amount, $6,400,000 had been sold by the Bank to other lenders. The loan was partially guaranteed as to principal and interest by the 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 $1,886,000) based on the fair value of the underlying-collateral. The portion of this loan guaranteed by the USDA was approximately $1.6 million at June 30, 2004 and December 31, 2003, and is accruing interest. Accrued interest on this loan totals approximately $632,000 and $590,000 at June 30, 2004 and December 31, 2003, respectively.

The Bank is pursuing a sale of the property and equipment and has incurred various expenditures. The Bank capitalized the liquidation costs and a 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 $192,000 and $193,000 at June 30, 2004 and December 31, 2003, respectively. The non-guaranteed principal and interest ($1,961,000 at June 30, 2004 and December 31, 2003) and the reimbursable capitalized liquidation costs and protective advance costs totaling approximately $570,000 and $511,000 at June 30, 2004 and December 31, 2003, 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.

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 such date, the Bank charged-off the non guaranteed principal and interest totaling $1,961,000 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.

1915


(a)  Excludes the $1.6 million loan discussed below that is guaranteed for both principal and interest by the U.S. Department of Agriculture (USDA).
(b)  The 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 partially guaranteed as to principal and interest by the 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 was approximately $1.6 million at March 31, 2005 and December 31, 2004, and is accruing interest. Accrued interest on this loan totals approximately $703,000 and $677,000 at March 31, 2005 and December 31, 2004, respectively.
The Bank is pursuing a sale of the property and equipment and has incurred various expenditures. The Bank capitalized the liquidation costs and a portion of the protective advances which it expects will be fully reimbursed by the USDA. Other real estate recorded on the Bank’s books related to this property totaled $190,000 at March 31, 2005 and December 31, 2004. The non-guaranteed principal and interest ($2.0 million at March 31, 2005 and December 31, 2004) and the reimbursable capitalized liquidation costs and protective advance costs totaling approximately $784,000 and $704,000 at March 31, 2005 and December 31, 2004, 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.
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 such date, 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.

The allowance for loan losses amounted to $5,806,000$6.5 million and $5,216,000$6.2 million at June 30, 2004March 31, 2005 and December 31, 2003,2004, respectively.

The allowance for loan losses is a valuation allowance for probable incurred credit losses in the loan portfolio. Our 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, and Substandard or worse. 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.

Based on an analysis performed by management at June 30, 2004,March 31, 2005, 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

16


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.

During 2004, as the indirect auto dealer loan portfolio began to mature, the loss history approached expected levels and the management processes, controls and monitoring and risk management tools implemented throughout recent years indicated 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 resulted in these same tools indicating that lower multipliers were necessary for commercial loans collateralized by real estate. Looking forward, although the concentration of indirect auto dealer loan category has increased rapidly since the inception of this program, management believes that this growth has peaked slightly below 15% of the total loan portfolio composition. This category should continue to decrease as a percentage of the loan portfolio as we expect overall asset and loan growth to continue. 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.

LIQUIDITY

The goal of liquidity management is to ensure the availability of an adequate level of funds to meet the loan demand and deposit withdrawal needs of the Company’s customers. We manage the levels, types and maturities of earning assets in relation to the sources available to fund current and future needs to ensure that adequate funding will be available at all times.

In addition to maintaining a stable core deposit base, we maintain adequate liquidity primarily through the use of investment securities and unused borrowing capacity. The Bank has invested in Federal Home Loan Bank stock for the purpose of establishing credit lines with the Federal Home Loan Bank. The credit availability to the Bank is equal to 20 percent of the Bank’s total assets as reported on the most recent quarterly financial information submitted to the regulators subject to the pledging of sufficient collateral. At June 30, 2004,March 31, 2005, there were $38.5$25.0 million in advances outstanding in addition to a $15 million letter of credit used in lieu of pledging securities to the State of Florida. In July 2004, new agreements were executed with the FHLB and a blanket floating lien pledge of the Bank’s residential 1-4 family mortgage and commercial real estate secured loans was done to bring the collateral availability up to approximately $138.8$159.7 million.

The Bank has an unsecured overnight federal funds purchased accommodation up to a maximum of $12.0 million from its principal correspondent bank.

In the second quarter of 2004, we completed the sale of 1,150,000 shares of our common stock at a price of $22.00 per share before commissions and expenses. The net proceeds provided additional liquidity along with additional capital to the Company. The net proceeds of the offering will be used to provide capital to support continued loan and deposit growth throughout our South Florida markets.

ASSET AND LIABILITY MANAGEMENT

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.

2017


Our interest rate sensitivity position at June 30, 2004March 31, 2005 is presented in the table below:

                                            
 3 months 4 to 6 7 to 12 1 to 5 Over 5   3 months 4 to 6 7 to 12 1 to 5 Over 5   
(dollars in thousands)
 or less
 Months
 Months
 years
 Years
 Total
 or less Months Months years Years Total 
Interest-earning assets:  
Loans $244,921 $29,509 $42,205 $199,300 $74,418 $590,353  $309,484 $36,094 $44,479 $260,282 $66,882 $717,221 
Investment securities-taxable 1,418   33,113 32,667 67,198  1,013   42,184 24,342 67,539 
Investment securities-tax exempt 308 234  3,069 7,684 11,295     3,139 6,536 9,675 
Marketable equity securities 3,159     3,159  3,521     3,521 
Federal Home Loan Bank stock 1,925 ��    1,925  2,781     2,781 
Federal funds sold 10,889     10,889 
Fed funds sold 62,391     62,391 
Interest bearing deposit in other bank 930     930  367     367 
 
 
 
 
 
 
 
 
 
 
 
 
              
Total interest-bearing assets 263,550 29,743 42,205 235,482 114,769 685,749  379,557 36,094 44,479 305,605 97,760 863,495 
             
 
 
 
 
 
 
 
 
 
 
 
 
  
Interest-bearing liabilities:  
NOW accounts 75,071     75,071  89,055     89,055 
Money Market 134,216     134,216  169,391     169,391 
Savings Deposits 43,223     43,223  48,783     48,783 
Time deposits 54,726 29,257 71,609 70,888 11 226,491  46,509 22,471 151,002 87,053 5 307,040 
Notes payable     5,250 5,250      4,000 4,000 
Subordinated debentures 5,000    8,000 13,000  5,000    8,000 13,000 
Other borrowings 45,374     45,374  44,922     44,922 
 
 
 
 
 
 
 
 
 
 
 
 
              
Total interest-bearing liabilities 357,610 29,257 71,609 70,888 13,261 542,625  403,660 22,471 151,002 87,053 12,005 676,191 
 
 
 
 
 
 
 
 
 
 
 
 
              
 
Interest sensitivity gap $(94,060) $486 $(29,404) $164,594 $101,508 $143,124  $(24,103) $13,623 $(106,523) $218,552 $85,755 $187,304 
             
 
 
 
 
 
 
 
 
 
 
 
 
  
Cumulative interest sensitivity gap $(94,060) $(93,574) $(122,978) $41,616 $143,124 $143,124  $(24,103) $(10,480) $(117,003) $101,549 $187,304 $187,304 
 
 
 
 
 
 
 
 
 
 
 
 
              
 
Cumulative sensitivity ratio  (13.7)%  (13.6)%  (17.9)%  6.1%  20.9%  20.9%  (2.8)%  (1.2)%  (13.5)%  11.8%  21.7%  21.7%
 
 
 
 
 
 
 
 
 
 
 
 
              

We are cumulatively liability sensitive through the one year time period, and asset sensitive in the over one year timeframes above. Certain liabilities such as non-indexed NOW and passbook savings accounts, while technically subject to immediate repricing in response to changing market rates, historically do not reprice as quickly nor to the extent as other interest sensitive accounts. Accordingly, if market interest rates should decrease, it is anticipated that the net interest margin would decrease. Because 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. Therefore, if rates increase, it is anticipated that the net interest margin would, over time, increase, and this is particularly true over longer time horizons since the Company has more total assets subject to rate changes than total liabilities that are rate sensitive. However, over the next several months, the liquidity generated from our recent stock offering will cause some compression in net interest margin until these funds are fully invested, irrespective of changes in market interest rates.

Even in the near term, we believe the $123$117 million one year cumulative negative sensitivity gap may exaggerate the probable effects on earnings in a risingchanging rate environment for two reasons. First, the liabilities subject to repricing are predominately not indexed to any specific market rate and therefore, offer the Company the opportunity to delay or diminish any rate repricings. Further, in this current rate environment, 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.

Interest-earning assets and other time deposits are presented based on their contractual terms. It is anticipated that run off in any deposit category will be approximately offset by new deposit generation. Since 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%-20% to +10% range. At June 30, 2004,March 31, 2005 we were within this range with a one year cumulative sensitivity ratio of -17.9%-13.5%.

See also Item 3, “Quantitative and Qualitative Disclosures About Market Risk.”

COMMITMENTS

The Bank is a party to financial instruments with off-balance sheet risk, entered into in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of

18


credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets.

21


The Bank’s 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 uses the same credit policies in making commitments to extend credit and generally uses the same credit policies for letters of credit as it does 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. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. At June 30, 2004,March 31, 2005, total unfunded loan commitments were approximately $74.7$133.2 million.

Standby letters of credit are conditional commitments issued by the Bank 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 Bank generally holds collateral and/or obtains personal guarantees supporting these commitments. Since most of the letters of credit are expected to expire without being drawn upon, they do not necessarily represent future cash requirements. At June 30, 2004,March 31, 2005, commitments under standby letters of credit aggregated approximately $2.2$2.4 million.

The Company believes the likelihood of the unfunded loan commitments and unfunded letters of credit either needing to be totally funded or funded at the same time is low. However, should significant funding requirements occur, we have sufficient available borrowing capacity from various sources as discussed in the “Liquidity” section above.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE 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 following interest rate sensitivity analysis information as of June 30, 2004March 31, 2005 was developed using simulation analysis of the Company’s sensitivity to changes in net interest income under varying assumptions for changes in market interest rates. Specifically, the model derives expected interest income and interest expense resulting from an immediate and parallel shift in the yield curve in the amounts shown.

These rate changes are matched with known repricing intervals and assumptions for new growth net of expected prepayments. The assumptions are based primarily on experience in the Company’s market under varying rate environments. The imbedded options that the Company’s loan customers possess to refinance are considered for purposes of this analysis along with scheduled and cause the larger decreases in income in a declining rate scenario versus the income increases in the same size rising rate scenario.unscheduled principal reductions offset by anticipated loan originations.

This analysis intentionally exaggerates interest sensitivity. For the sake of simplicity and comparability, an immediate change in rates is assumed. However, any significant change in actual market rates would probably be phased in over an extended period of time. This phase in would reduce the net interest income effects for any absolute change in rates. Also, the Company has been originating adjustable rate commercial loans with interest rate floors that are currently at rates higher than the index and margin on the loans would indicate. An example would be a loan at Prime plus 1% but with a 7.0% floor. The Company currently has in excess of $224$188 million of these types of loans where the loan rates are at the floors. The effects of this are twofold. First, this has benefited our margins currently since we have assets earning yields higher than would be the case absent the floor rates. Second, in a declining rate environment and in a limited rising rate environment those “adjustable” rate loans act like fixed rate loans. This limits the Company’s loss of interest income when rates decline but does constrain income gains in a rising rate market. As rates increase beyond 200 basis points from their current level the effect on net interest income turns around and begins to expand positively due to an increasing percentage of loans going past their floors. Also, the passage of time moderates the negative near term impact of rising rates as new loans are by definition originated at the current, now higher, rate levels. In general, having this significant amount of loans at their floors reduces the Company’s overall rate sensitivity.

The Company attempts to retain interest rate neutrality by generating mostly adjustable rate loans and managing the securities, wholesale funding, and Fed Funds positions to offset the repricing characteristics of the deposit liabilities.

2219


Projections for the next twelve months are as follows:

                     
  Interest Rates Decrease
 Interest Rates Interest Rates Increase
(dollars in thousands)
 200 BP
 100 BP
 Remain Constant
 100 BP
 200BP
Interest Income $40,244  $42,519  $44,883  $47,067  $49,686 
Interest Expense  8,021   9,402   11,763   14,783   17,803 
   
 
   
 
   
 
   
 
   
 
 
Net Interest Income $32,223  $33,117  $33,120  $32,284  $31,883 
   
 
   
 
   
 
   
 
   
 
 
Change in net income after tax vs. constant rates $(560) $(2)     $(522) $(772)

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Item 4.  CONTROLS AND PROCEDURES

(a)  Evaluation of Disclosure Controls and Procedures

     The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the Corporation’s disclosure controls and procedures

The Company maintains controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon their evaluation of those controls and procedures performed as of the end of the period covered by this report, the Chief Executive Officer and Chief Financial Officer of the Companyreport. Based upon that evaluation, they have concluded that the Company’sCorporation’s disclosure controls and procedures were adequate. No significant deficiencies orare effective in ensuring that material weaknesses in the design or operation of internal controls which could adversely affect the Company’s ability to record, process, summarize, and report financial data have been identified.

No fraud that involves management or other employees who have a significant role in the Company’s internal controls has been discovered.

Changes in internal controls

The Company made no significant changes in its internal controls or in other factors that could significantly affect these controls subsequentinformation related to the date of the evaluation of those controlsCorporation is made known to them by the Chief Executive Officer and Chief Financial Officer; including any corrective actions with regard to significant deficiencies and material weaknesses.

Limitations on the Effectiveness of Controls

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures and internal controls over financial reporting will prevent all errors and all improper conduct. A control system, no matter how well conceived and operated can provide only reasonable, not absolute, assurance that the objectives of the controls system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of improper conduct, if any,others within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.Corporation.

24


Part II.     OTHER INFORMATION

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At the Annual Meeting of Shareholders of TIB Financial Corp. held May 25, 2004, ballot totals for the reelection of Directors standing for reelection were as follows:

             
DIRECTORS
 FOR
 AGAINST
 ABSTAIN
Armando J. Henriquez, PhD  3,804,524   20,093    
James R. Lawson III  3,798,368   26,249    
Richard C. Bricker, Jr.  3,798,368   26,249    
Paul O. Jones, Jr. M.D.  3,804,524   20,093    
Thomas J. Longe  3,798,368   26,249    
     Not applicable

The directors continuing in office following the meeting were: Richard C. Bricker, Jr., Armando J. Henriquez, PhD, Gretchen K. Holland, Paul O. Jones, Jr. M.D., James R. Lawson, III, Edward V. Lett, Thomas J. Longe, John G. Parks, Jr., Marvin F. Schindler, Otis T. Wallace, Millard J. Younkers, Jr., and Robert A. Zolten, M.D.

Ballot totals for the approval of the Restated Articles of Incorporation were as follows:

         
FOR
 AGAINST
 ABSTAIN
3,728,374  95,821   422 

Ballot totals for the approval of the Company 2004 Equity Incentive Plan were as follows:

         
FOR
 AGAINST
 ABSTAIN
3,708,600  111,220   4,797 

Total shares voted were 3,824,617 which represent 85.2% of the outstanding shares.

Item 5.  OTHER INFORMATION

     Not applicable

25


Item 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

Exhibit 31.1 – Chief Executive Officer’s certification required under Section 302 of Sarbanes-Oxley Act of 2002

Exhibit 31.2 – Chief Financial Officer’s certification required under Section 302 of Sarbanes-Oxley Act of 2002

Exhibit 32.1 – Chief Executive Officer’s certification required under Section 906 of Sarbanes-Oxley Act of 2002

Exhibit 32.2 – Chief Financial Officer’s certification required under Section 906 of Sarbanes-Oxley Act of 2002

(b) Reports on Form 8-K
(a)  Exhibits
3.1Amendment to Restated Articles of Incorporation of TIB Financial Corp.
3.2Amendment to Bylaws
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

On April 20, 2004, the Company reported on Form 8-K that on April 15, 2004, it closed the sale of 1,000,000 shares of common stock at a price of $22.00 per share before commissions and expenses in a firm commitment underwriting.

On April 29, 2004, the Company issued a press release announcing certain financial results and additional information related to its first quarter 2004 earnings.

On May 6, 2004, the Company reported on Form 8-K that on May 6, 2004, it closed the sale of an additional 150,000 shares of common stock at a price of $22.00 per share before commissions and expenses, pursuant to its previously filed registration statement.

On August 3, 2004, the Company issued a press release announcing certain financial results and additional information related to its second quarter 2004 earnings.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

   
 TIB FINANCIAL CORP.
   
 /s/ /s/ Edward V. Lett
Date:     August 12, 2004May 10, 2005 Edward V. Lett
 President and Chief Executive Officer
   
 /s/ /s/ David P. Johnson
 David P. Johnson
 Executive Vice President and Chief Financial Officer

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