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
SEPTEMBER 30, 2004
 Commission File Number
June 30, 2005
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) 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] orþ No [   ]

o

Indicate by check mark whether the issuer is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [   ] orþ 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 5,672,3025,747,540

 
 
 
Class Outstanding as of November 5, 2004July 31, 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
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:Ex-31.1 Section 302 CEO Certification of President and CEO
Ex-31.2:Ex-31.2 Section 302 CFO Certification of Executive Vice President and CFO
Ex-32.1:Ex-32.1 Section 906 CEO Certification of President and CEO
Ex-32.2:Ex-32.2 Section 906 CFO Certification of Executive Vice President and CFO


Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

TIB FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share amounts)
                
 September 30, 2004
 December 31, 2003
 June 30, 2005 December 31, 2004
 (Unaudited)  (Unaudited) 
ASSETS
  
Cash and due from banks $17,363 $17,197  $20,488 $27,410 
Federal funds sold  16,484  77,550 15,528 
 
 
 
 
      
Cash and cash equivalents 17,363 33,681  98,038 42,938 
 
Investment securities available for sale 78,697 52,557  86,992 77,807 
 
Loans, net of deferred loan costs and fees 620,333 540,413  775,759 655,678 
Less: allowance for loan losses 6,089 5,216  7,013 6,243 
 
 
 
 
      
Loans, net 614,244 535,197  768,746 649,435 
 
Premises and equipment, net 26,898 21,073  25,810 27,559 
Goodwill 155 155  155 155 
Intangible assets, net 1,465 1,687  1,247 1,392 
Accrued interest receivable and other assets 26,864 24,948  31,897 30,039 
 
 
 
 
      
TOTAL ASSETS
 $765,686 $669,298  $1,012,885 $829,325 
     
 
 
 
 
  
LIABILITIES
  
Deposits:  
Noninterest-bearing demand $133,888 $121,728  $213,328 $152,035 
Interest-bearing 504,411 432,085  656,881 535,824 
 
 
 
 
      
Total Deposits 638,299 553,813  870,209 687,859 
Federal Home Loan Bank (FHLB) advances 25,000 45,000  25,000 35,000 
Short-term borrowings 9,353 4,041  17,593 12,157 
Long-term borrowings 18,250 18,250  17,000 18,250 
Accrued interest payable and other liabilities 7,257 6,948  12,343 7,945 
 
 
 
 
      
TOTAL LIABILITIES
 698,159 628,052  942,145 761,211 
 
 
 
 
      
 
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, 5,672,202 and 4,431,328 shares issued 567 443 
Preferred stock — no par value: 5,000,000 shares authorized, 0 and 0 shares issued   
Common stock — $.10 par value: 20,000,000 and 7,500,000 shares authorized, 5,712,264 and 5,679,239 shares issued 571 568 
Additional paid in capital 38,237 14,255  38,715 38,284 
Retained earnings 28,291 26,203  31,386 28,968 
Accumulated other comprehensive income 432 345  68 294 
 
 
 
 
      
TOTAL SHAREHOLDERS’ EQUITY
 67,527 41,246  70,740 68,114 
 
 
 
 
      
 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 $765,686 $669,298  $1,012,885 $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 Nine months ended June 30, June 30,
 September 30,
 September 30,
 2005 2004 2005 2004
 2004
 2003
 2004
 2003
  
INTEREST AND DIVIDEND INCOME
  
Loans, including fees $9,648 $7,974 $27,208 $23,250  $12,934 $8,960 $24,244 $17,560 
Investment securities:  
U.S. Treasury securities 43 2 81 6 
U.S. Government agencies and corporations 573 577 1,475 1,546 
States and political subdivisions, tax-exempt 107 92 312 236 
States and political subdivisions, taxable 48 60 152 184 
Marketable equity securities 66  186  
Taxable 708 633 1,344 1,044 
Tax exempt 161 172 321 325 
Interest bearing deposits in other bank 4 1 9 2  2 4 6 5 
Federal Home Loan Bank Stock 16 10 40 40  31 9 58 24 
Federal funds sold 23 34 102 227  389 41 598 79 
 
 
 
 
 
 
 
 
   
TOTAL INTEREST AND DIVIDEND INCOME
 10,528 8,750 29,565 25,491  14,225 9,819 26,571 19,037 
  
 
INTEREST EXPENSE
  
Deposits 2,231 1,952 6,103 6,056  3,895 1,980 6,996 3,872 
Federal Home Loan Bank advances 95 44 259 146  193 70 368 164 
Short-term borrowings 19 9 40 30  110 12 183 21 
Long term borrowings 402 398 1,193 1,193  391 396 774 791 
 
 
 
 
 
 
 
 
   
TOTAL INTEREST EXPENSE
 2,747 2,403 7,595 7,425  4,589 2,458 8,321 4,848 
 
 
 
 
 
 
 
 
   
 
NET INTEREST INCOME
 7,781 6,347 21,970 18,066  9,636 7,361 18,250 14,189 
 
PROVISION FOR LOAN LOSSES
 471 447 1,489 1,035  730 649 1,316 1,018 
 
 
 
 
 
 
 
 
   
 
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
 7,310 5,900 20,481 17,031  8,906 6,712 16,934 13,171 
 
NON-INTEREST INCOME
  
Service charges on deposit accounts 619 632 1,900 1,790  567 637 1,175 1,281 
Investment securities gains, net 7 3 103 8   52  96 
Merchant bankcard processing income 1,221 1,213 4,515 3,812  1,762 1,534 3,658 3,294 
Gain on sale of government guaranteed loans    87 
Fees on mortgage loans sold 363 589 1,406 1,800  582 645 1,074 1,043 
Retail investment services 89 112 290 299 
Gain on sale of investment in ERAS Joint Venture    202 
Other income 344 347 1,033 1,065  668 463 1,066 890 
 
 
 
 
 
 
 
 
   
TOTAL NON-INTEREST INCOME
 2,643 2,896 9,247 9,063  3,579 3,331 6,973 6,604 
 
NON-INTEREST EXPENSE
  
Salaries and employee benefits 3,699 3,271 10,755 9,512  4,410 3,614 8,622 7,056 
Net occupancy expense 1,212 1,088 3,525 3,197  1,349 1,191 2,625 2,313 
Other expense 3,013 2,681 9,591 7,983  3,311 3,348 6,876 6,578 
 
 
 
 
 
 
 
 
   
TOTAL NON-INTEREST EXPENSE
 7,924 7,040 23,871 20,692  9,070 8,153 18,123 15,947 
 
 
 
 
 
 
 
 
   
 
INCOME BEFORE INCOME TAX EXPENSE
 2,029 1,756 5,857 5,402  3,415 1,890 5,784 3,828 
 
INCOME TAX EXPENSE
 692 615 1,990 1,890  1,231 633 2,053 1,298 
 
 
 
 
 
 
 
 
   
INCOME FROM CONTINUING OPERATIONS
 $1,337 $1,141 $3,867 $3,512 
DISCONTINUED OPERATIONS
 
Income from Keys Insurance Agency, Inc. operations  36  201 
Income tax expense  14  75 
 
 
 
 
 
 
 
 
 
INCOME FROM DISCONTINUED OPERATIONS
  22  126 
 
 
 
 
 
 
 
 
 
NET INCOME
 $1,337 $1,163 $3,867 $3,638  $2,184 $1,257 $3,731 $2,530 
 
 
 
 
 
 
 
 
   
 
BASIC EARNINGS PER SHARE:
  $0.38 $0.23 $0.66 $0.51 
Continuing operations $0.24 $0.26 $0.75 $0.84 
Discontinued operations    0.03 
 
 
 
 
 
 
 
 
 
Basic earnings per share $0.24 $0.26 $0.75 $0.87 
 
 
 
 
 
 
 
 
 
DILUTED EARNINGS PER SHARE:
  $0.37 $0.22 $0.64 $0.49 
Continuing operations $0.23 $0.25 $0.72 $0.80 
Discontinued operations    0.03 
 
 
 
 
 
 
 
 
 
Diluted earnings per share $0.23 $0.25 $0.72 $0.83 
 
 
 
 
 
 
 
 
 

(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 Accumulated  
 Common Paid in Retained Comprehensive Shareholders’ Additional Other Total
 Shares
 Stock
 Capital
 Earnings
 Income (Loss)
 Equity
 Common Paid in Retained Comprehensive Shareholders’
Balance,July 1, 2004
 5,657,957 $566 $38,090 $27,591 ($1,081) $65,166 
 Shares Stock Capital Earnings Income (Loss) Equity
Balance,April 1, 2005
 5,706,939 $571 $38,629 $29,859 $(780) $68,279 
Comprehensive income:  
Net income   1,337  1,337  2,184 2,184 
Other comprehensive income, net of tax expense of $913: 
Other comprehensive income, net of tax expense of $509: 
Net market valuation adjustment on securities available for sale    1,517  848 
Less: reclassification adjustment for gains included in net income     (4) 
Other comprehensive income, net of tax 1,513  848 
 
 
    
Comprehensive income 2,850  3,032 
 
 
    
Exercise of stock options 14,245 1 98   99  5,325  58 58 
Income tax benefit from stock options exercised  49   49  28 28 
Cash dividends declared, $.1125 per share    (637)   (637)
Cash dividends declared, $.115 per share  (657)  (657)
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance,September 30, 2004
 5,672,202 $567 $38,237 $28,291 $432 $67,527 
Balance,June 30, 2005
 5,712,264 $571 $38,715 $31,386 $68 $70,740 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                         
 Additional Accumulated Other Total Accumulated  
 Common Paid in Retained Comprehensive Shareholders’ Additional Other Total
 Shares
 Stock
 Capital
 Earnings
 Income (Loss)
 Equity
 Common Paid in Retained Comprehensive Shareholders’
Balance,July 1, 2003
 4,407,578 $441 $13,843 $24,559 $1,511 $40,354 
 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   1,163  1,163  1,257 1,257 
Other comprehensive income, net of tax benefit of $647: 
Other comprehensive income, net of tax benefit of $1,290: 
Net market valuation adjustment on securities available for sale     (1,072)   (2,106) 
Less: reclassification adjustment for gains included in net income     (2) 
Less: reclassification adjustment for gains   
included in net income  (33) 
Other comprehensive income, net of tax  (1,074)  (2,139)
 
 
    
Comprehensive income 89   (882)
 
 
    
Public offering of 1,150,000 shares 1,150,000 115 23,115 23,230 
Exercise of stock options 500  7   7  18,893 2 105 107 
Private Placement of 280,653 common shares   (1)    (1)
Cash dividends declared, $.11 per share    (485)   (485)
Income tax benefit from stock options exercised 73 73 
Cash dividends declared, $.1125 per share  (637)  (637)
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance,September 30, 2003
 4,408,078 $441 $13,849 $25,237 $437 $39,964 
Balance,June 30, 2004
 5,657,957 $566 $38,090 $27,591 $(1,081) $65,166 
 
 
 
 
 
 
 
 
 
 
 
 
 

(continued)

4


                                       
 Additional Accumulated Other Total Accumulated  
 Common Paid in Retained Comprehensive Shareholders’ Additional Other Total
 Shares
 Stock
 Capital
 Earnings
 Income (Loss)
 Equity
 Common Paid in Retained Comprehensive Shareholders’
Balance,January 1, 2004
 4,431,328 $443 $14,255 $26,203 $345 $41,246 
 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   3,867  3,867  3,731 3,731 
Other comprehensive income, net of tax expense of $54: 
Other comprehensive income, net of tax benefit of $136: 
Net market valuation adjustment on securities available for sale    151   (226) 
Less: reclassification adjustment for gains included in net income     (64) 
Other comprehensive income, net of tax    87   (226)
 
 
    
Comprehensive income 3,954  3,505 
 
 
    
Public offering of 1,150,000 shares 1,150,000 115 23,115 23,230 
Exercise of stock options 90,874 9 624   633  33,025 3 338 341 
Income tax benefit from stock options exercised   243 243  93 93 
Cash dividends declared, $.3375 per share    (1,779)   (1,779)
Cash dividends declared, $.23 per share  (1,313)  (1,313)
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance,September 30, 2004
 5,672,202 $567 $38,237 $28,291 $432 $67,527 
Balance,June 30, 2005
 5,712,264 $571 $38,715 $31,386 $68 $70,740 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                          
 Additional Accumulated Other Total Accumulated  
 Common Paid in Retained Comprehensive Shareholders’ Additional Other Total
 Shares
 Stock
 Capital
 Earnings
 Income (Loss)
 Equity
 Common Paid in Retained Comprehensive Shareholders’
Balance,January 1, 2003
 4,035,625 $403 $8,966 $23,022 $1,115 $33,506 
 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   3,638  3,638  2,530 2,530 
Other comprehensive income, net of tax benefit of $408: 
Other comprehensive income, net of tax benefit of $859: 
Net market valuation adjustment on securities available for sale     (673)   (1,366) 
Less: reclassification adjustment for gains included in net income     (5) 
Less: reclassification adjustment for gains   
included in net income  (60) 
Other comprehensive income, net of tax     (678)  (1,426)
 
 
    
Comprehensive income 2,960  1,104 
 
 
    
Public offering of 1,150,000 shares 1,150,000 115 23,115 23,230 
Exercise of stock options 91,800 10 568   578  76,629 8 526 534 
Private Placement of 280,653 common shares 280,653 28 4,315 4,343 
Cash dividends declared, $.33 per share    (1,423)   (1,423)
Income tax benefit from stock options exercised 194 194 
Cash dividends declared, $.225 per share  (1,142)  (1,142)
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance,September 30, 2003
 4,408,078 $441 $13,849 $25,237 $437 $39,964 
Balance,June 30, 2004
 5,657,957 $566 $38,090 $27,591 $(1,081) $65,166 
 
 
 
 
 
 
 
 
 
 
 
 
 

(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 nine month period ended For the six month period ended
 September 30,
 June 30,
 2004
 2003
 2005 2004
CASH FLOWS FROM OPERATING ACTIVITIES
  
Net Income $3,867 $3,638  $3,731 $2,530 
Adjustments to reconcile net income to net cash provided by operating activities:  
Net amortization of investments 42 45 
Amortization of intangible assets 222 219 
Depreciation of premises and equipment 1,393 1,307 
Depreciation and amortization 1,235 1,072 
Provision for loan losses 1,489 1,035  1,316 1,018 
Provision for losses on unfunded loan commitments 18  
Deferred income tax benefit  (98)  (571)  (402)  (360)
Deferred net loan costs and fees  (224)  (840)
Investment securities net gains  (103)  (8)   (96)
Net (gain) loss on sale/disposal of premises and equipment   (2)  (312) 6 
Loss on sale of assets of Keys Insurance Agency, Inc.  15 
Gain on sale of investment in ERAS JV   (202)
Gain on sales of government guaranteed loans, net   (87)
Mortgage loans originated for sale  (83,534)  (90,336)  (66,210)  (62,472)
Proceeds from sale of mortgage loans 83,117 92,136  66,645 60,150 
Fees on mortgage loans sold  (1,406)  (1,800)  (1,074)  (1,043)
(Increase) decrease in accrued interest receivable and other assets  (349) 3,774 
Increase (decrease) in accrued interest payable and other liabilities 346  (1,390)
Increase in accrued interest receivable and other assets  (522)  (628)
Increase in accrued interest payable and other liabilities 4,488 444 
 
 
 
 
      
NET CASH PROVIDED BY OPERATING ACTIVITIES
 4,780 6,933  8,895 621 
     
 
 
 
 
  
CASH FLOWS FROM INVESTING ACTIVITIES
  
Purchases of investment securities available for sale  (38,368)  (24,846)  (10,000)  (38,368)
Repayments of principal and maturities of investment securities available for sale 3,149 13,101  411 1,960 
Sales of investment securities available for sale 9,281    5,099 
Net sale (purchase) of FHLB stock 1,000  (390)
Purchase of life insurance policies  (700)  (250)
Net sale of FHLB stock 129 325 
Proceeds from sales of government guaranteed loans 569 2,241   569 
Proceeds from sales assets of Keys Insurance Agency, Inc.  184 
Loans originated or acquired, net of principal repayments  (79,872)  (69,294)  (119,774)  (52,751)
Proceeds from the sale of investment in ERAS JV  327 
Purchases of premises and equipment  (8,276)  (2,944)  (738)  (4,317)
Sales of premises and equipment 98 4  609 4 
 
 
 
 
      
NET CASH USED BY INVESTING ACTIVITIES
  (113,119)  (81,867)  (129,363)  (87,479)
 
 
 
 
      
 
CASH FLOWS FROM FINANCING ACTIVITIES
  
Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase 5,312  (1,507)
Net increase in FHLB short-term advances 10,000 15,000 
Net increase in federal funds purchased and securities sold under agreements to repurchase 5,436 2,832 
Net increase (repayment) of FHLB short-term advances  (10,000) 3,500 
Repayments of FHLB long-term advances  (30,000)     (10,000)
Repayments of notes payable  (1,250)  
Net increase in demand, money market and savings accounts 43,562 17,265  91,829 49,120 
Net increase in time deposits 40,924 42,934  90,521 21,461 
Proceeds from exercise of stock options 633 578  341 534 
Proceeds from private placement of common stock  4,343 
Proceeds from public offering of common stock 23,230    23,230 
Cash dividends paid  (1,640)  (1,381)  (1,309)  (1,004)
 
 
 
 
      
NET CASH PROVIDED BY FINANCING ACTIVITIES
 92,021 77,232  175,568 89,673 
     
 
 
 
 
  
NET INCREASE IN CASH AND CASH EQUIVALENTS
  (16,318) 2,298  55,100 2,815 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
 33,681 24,070  42,938 33,681 
 
 
 
 
      
CASH AND CASH EQUIVALENTS AT END OF PERIOD
 $17,363 $26,368  $98,038 $36,496 
 
 
 
 
      
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS:
  
Cash paid for: 
Interest $7,259 $5,993 
Income taxes 1,737 1,135 

(See notes to consolidated financial statements)

6


         
  For the nine month period ended
  September 30,
  2004
 2003
Cash paid for:        
Interest $8,276  $7,357 
Income taxes  2,265   2,900 

(See notes to consolidated financial statements)

7


TIB FINANCIAL CORP.

UNAUDITED CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20042005
(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 sixteen 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, Consistent with prior period disclosures regarding segments, the Company closeddoes not consider the saledivestiture of the assets of Keys Insurance Agency, Inc.,investment center operations 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.

significant event.

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.

87


NOTE 3 INVESTMENT SECURITIES

The amortized cost and estimated fair value of investment securities available for sale at SeptemberJune 30, 20042005 and December 31, 20032004 are presented below:
                 
  September 30, 2004
  Amortized Unrealized Unrealized Estimated
(dollars in thousands)
 Cost
 Gains
 Losses
 Fair Value
U.S. Treasury securities $5,177  $33  $  $5,210 
U.S. Government agencies and corporations  54,248   264   556   53,956 
States and political subdivisions-tax-exempt  9,826   347   4   10,169 
States and political subdivisions-taxable  2,862   23   11   2,874 
Marketable equity securities  3,000   533      3,533 
Mortgage-backed securities  2,889   66      2,955 
   
 
   
 
   
 
   
 
 
  $78,002  $1,266  $571  $78,697 
   
 
   
 
   
 
   
 
 
                          
 December 31, 2003
 June 30, 2005
 Amortized Unrealized Unrealized Estimated Amortized Unrealized Unrealized Estimated
(dollars in thousands)
 Cost
 Gains
 Losses
 Fair Value
 Cost Gains Losses Fair Value
U.S. Treasury securities $209 $9 $ $218  $5,180 $3 $55 $5,128 
U.S. Government agencies and corporations 31,357 425 663 31,119  64,187 80 768 63,499 
States and political subdivisions-tax-exempt 8,838 378 59 9,157  9,595 216 3 9,808 
States and political subdivisions-taxable 3,559 42 101 3,500  2,690 78  2,768 
Marketable equity securities 3,000 395  3,395  3,000 490  3,490 
Mortgage-backed securities 5,041 128 1 5,168  2,232 67  2,299 
 
 
 
 
 
 
 
 
   
 $52,004 $1,377 $824 $52,557  $86,884 $934 $826 $86,992 
 
 
 
 
 
 
 
 
   

                 
  December 31, 2004
  Amortized Unrealized Unrealized Estimated
(dollars in thousands) Cost Gains Losses Fair Value
 
U.S. Treasury securities $5,178  $5  $29  $5,154 
U.S. Government agencies and corporations  54,228   104   869   53,463 
States and political subdivisions-tax-exempt  9,596   246   26   9,816 
States and political subdivisions-taxable  2,862   17   23   2,856 
Marketable equity securities  3,000   987      3,987 
Mortgage-backed securities  2,473   58      2,531 
   
  $77,337  $1,417  $947  $77,807 
   
NOTE 4 LOANS

Major classifications of loans are as follows:
              
(dollars in thousands)
 September 30, 2004
 December 31, 2003
 June 30, 2005 December 31, 2004
Real estate mortgage loans:  
Commercial $338,198 $297,221  $411,504 $351,346 
Residential 64,624 60,104  75,540 67,204 
Farmland 4,924 2,317  4,550 4,971 
Construction and vacant land 41,510 32,089  85,134 49,815 
Commercial and agricultural loans 62,851 63,624  62,864 64,622 
Indirect auto dealer loans 83,680 59,437  108,178 91,890 
Home equity loans 12,259 12,574  16,056 13,856 
Other consumer loans 10,248 11,232  10,022 9,817 
 
 
 
 
   
Total loans 618,294 538,598  773,848 653,521 
Net deferred loan costs 2,039 1,815  1,911 2,157 
 
 
 
 
   
Loans, net of deferred loan costs $620,333 $540,413  $775,759 $655,678 
 
 
 
 
   

NOTE 5 ALLOWANCE FOR LOAN LOSSES

Activity in the allowance for loan losses for the ninesix months ended SeptemberJune 30, 2005 and June 30, 2004 and September 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 1,489 1,035  1,316 1,018 
Loans charged off  (654)  (470)  (604)  (436)
Recoveries of loans previously charged off 38 17  58 8 
 
 
 
 
   
Balance, September 30 $6,089 $4,854 
Balance, June 30 $7,013 $5,806 
 
 
 
 
   

98


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 ninesix months ended SeptemberJune 30:
              
 2004
 2003
 2005 2004
For the three months ended September 30: 
  
For the three months ended June 30: 
Basic 5,660,075 4,407,920  5,708,745 5,434,532 
Dilutive effect of options outstanding 146,658 173,639  176,850 163,310 
 
 
 
 
   
Diluted 5,806,733 4,581,559  5,885,595 5,597,842 
 
 
 
 
   
For the nine months ended September 30: 
 
For the six months ended June 30: 
Basic 5,187,456 4,204,840  5,693,090 4,948,550 
Dilutive effect of options outstanding 168,830 171,573  178,405 180,072 
 
 
 
 
   
Diluted 5,356,286 4,376,413  5,871,495 5,128,622 
 
 
 
 
   

Stock options for 32,50033,736 and 5,00026,909 shares of common stock were not considered in computing diluted earnings per common share for the three and six months ended SeptemberJune 30, 2004 and 2003 because they were anti-dilutive. StockThere were no anti-dilutive stock options for 28,786 and 2,326 shares of common stock were not considered in computing diluted earnings per common shareoutstanding for the ninethree and six months ended SeptemberJune 30, 2004 and 2003 because they were anti-dilutive.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 ninesix months ended SeptemberJune 30, 2004,2005, were 37,500, 90,874,69,500, 33,025, and 7,900,13,800, respectively. As of SeptemberJune 30, 2004,2005, there were 416,231431,869 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 September 30,    
(dollars in thousands, except per share amounts)
 2004
 2003
Net income, as reported $1,337  $1,163 
Stock-based compensation expense determined under fair value based method, net of tax  48   37 
   
 
   
 
 
Pro forma net income $1,289  $1,126 
   
 
   
 
 
Basic earnings per share as reported $0.24  $0.26 
Pro forma basic earnings per share  0.23   0.26 
Diluted earnings per share as reported  0.23   0.25 
Pro forma diluted earnings per share  0.22   0.25 
                
For the nine months ended September 30,    
For the three months ended June 30,    
(dollars in thousands, except per share amounts)
 2004
 2003
 2005 2004
Net income, as reported $3,867 $3,638  $2,184 $1,257 
Stock-based compensation expense determined under fair value based method, net of tax 166 134  64 47 
 
 
 
 
 
Pro forma net income $3,701 $3,504  $2,120 $1,210 
 
 
 
 
 
 
Basic earnings per share as reported $0.38 $0.23 
Pro forma basic earnings per share 0.37 0.22 
Diluted earnings per share as reported 0.37 0.22 
Pro forma diluted earnings per share 0.36 0.22 

         
For the six months ended June 30,    
(dollars in thousands, except per share amounts) 2005 2004
 
 
Net income, as reported $3,731  $2,530 
Stock-based compensation expense determined under fair value based method, net of tax  126   119 
 
Pro forma net income $3,605  $2,411 
 
         
Basic earnings per share as reported $0.66  $0.51 
Pro forma basic earnings per share  0.63   0.49 
Diluted earnings per share as reported  0.64   0.49 
Pro forma diluted earnings per share  0.61   0.47 

109


         
For the nine months ended September 30,    
(dollars in thousands, except per share amounts)
 2004
 2003
Basic earnings per share as reported $0.75  $0.87 
Pro forma basic earnings per share  0.71   0.83 
Diluted earnings per share as reported  0.72   0.83 
Pro forma diluted earnings per share  0.69   0.80 

On February 24,In December 2004, the BoardFASB issued FAS 123 (revised 2004), Share-Based Payment. Under this promulgation, companies are required to reflect costs associated with employee stock options in their income statements at fair value. In April 2005, the SEC amended the date for compliance with FAS 123 (revised 2004) so that each registrant that is not a small business issuer will be required to prepare financial statements in accordance with statement 123 (revised 2004) beginning with the first interim or annual reporting period of Directors approved the 2004 Equity Incentive Plan for directors and employees, which was also approved by the shareholders at their annual meeting heldregistrant’s first fiscal year beginning on May 25, 2004. The Plan allowsor after June 15, 2005. Accordingly, the Company to continue to provide equity compensation to employees and directors in order to enablewill begin reflecting stock option costs under the Company to attract and retain qualified persons to serve as directors and employees, to enhance their equity interestfair value method commencing 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.

quarter beginning January 1, 2006 as required.

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 for well and adequately capitalized banks are set forth in the table below, along with the actual ratios at SeptemberJune 30, 20042005 and December 31, 2003:2004:
                
             Well Adequately    
 Well Adequately     Capitalized Capitalized June 30, 2005 December 31, 2004
 Capitalized Capitalized September 30, 2004 December 31, 2003 Requirement Requirement Actual Actual
 Requirement
 Requirement
 Actual
 Actual
Tier 1 Capital (to Average Assets)  
Consolidated  ³5%  ³4%  10.4%  7.8%  ³5%  ³4%  8.5%  10.0%
Bank  ³5%  ³4%  11.0%  8.5%  ³5%  ³4%  8.9%  10.5%
 
Tier 1 Capital (to Risk Weighted Assets)  
Consolidated  ³6%  ³4%  11.5%  8.8%  ³6%  ³4%  9.8%  10.9%
Bank  ³6%  ³4%  12.2%  9.6%  ³6%  ³4%  10.3%  11.4%
 
Total Capital (to Risk Weighted Assets)  
Consolidated  ³10%  ³8%  13.2%  10.6%  ³10%  ³8%  11.2%  12.6%
Bank  ³10%  ³8%  13.2%  10.5%  ³10%  ³8%  11.2%  12.4%

Management believes, as of SeptemberJune 30, 2004,2005, 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).

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 eliminated in preparing the segment reporting amounts below.

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

                 
      Merchant Parent  
Six months ended Community Bankcard And  
June 30, 2005 Banking Processing Other Totals
 
 
Interest and dividend income $26,571  $  $  $26,571 
Interest expense  7,547      774   8,321 
   
Net interest and dividend income  19,024      (774)  18,250 
Other income  3,295   3,658   20   6,973 
Depreciation and amortization  1,231   4      1,235 
Other expense  14,944   3,035   225   18,204 
   
Pretax segment profit (loss) $6,144  $619  $(979) $5,784 
   
                 
Segment Assets $1,012,233  $242  $410  $1,012,885 
                 

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  
Three months ended Community Bankcard And  
June 30, 2005 Banking Processing Other Totals
 
 
Interest and dividend income $14,225  $  $  $14,225 
Interest expense  4,198      391   4,589 
   
Net interest and dividend income  10,027      (391)  9,636 
Other income  1,807   1,762   10   3,579 
Depreciation and amortization  616   2      618 
Other expense  7,649   1,460   73   9,182 
   
Pretax segment profit (loss) $3,569  $300  $(454) $3,415 
   
                 
      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 
   
NOTE 10 — SUBSEQUENT EVENT
On July 25, 2005, the Company approved the issuance of shares of its common stock as restricted stock grants to each of the seven non-employee members of the Company’s Board of Directors. Each of these directors received an award of 5,000 restricted shares under the Company’s 2004 Equity Incentive Plan previously approved by Company shareholders in 2004. The grants to the directors were effective on July 28, 2005 and will vest 1,000 shares each year over the next five years, subject to accelerated vesting upon a change in control of the Company (as defined in the Plan) or the death of the director. The grant date market value of the restricted stock grants will be recognized as an expense on a straight-line basis over the vesting period. In addition, the split-dollar life insurance benefits maintained by the Company for the same directors were terminated by the Company on July 25, 2005, and the Company has become the sole beneficiary of the related life insurance policies.

11


                 
      Merchant Parent  
Nine months ended Community Bankcard And  
September 30, 2004
 Banking
 Processing
 Other
 Totals
Interest and dividend income $29,565  $  $  $29,565 
Interest expense  6,402      1,193   7,595 
   
 
   
 
   
 
   
 
 
Net interest and dividend income (expense)  23,163      (1,193)  21,970 
Other income  4,435   4,515   297   9,247 
Depreciation and amortization  1,580   32   3   1,615 
Other expense  19,235   3,766   744   23,745 
   
 
   
 
   
 
   
 
 
Pretax segment profit (loss) $6,783  $717  $(1,643) $5,857 
   
 
   
 
   
 
   
 
 
Segment Assets $765,241  $20  $425  $765,686 
                 
      Merchant Parent  
Nine months ended Community Bankcard and  
September 30, 2003
 Banking
 Processing
 Other
 Totals
Interest and dividend income $25,491  $  $  $25,491 
Interest expense  6,232      1,193   7,425 
   
 
   
 
   
 
   
 
 
Net interest and dividend income (expense)  19,259      (1,193)  18,066 
Other income  4,750   3,812   501   9,063 
Depreciation and amortization  1,454   35   3   1,492 
Other expense  16,591   3,076   568   20,235 
   
 
   
 
   
 
   
 
 
Pretax segment profit (loss) $5,964  $701  $(1,263) $5,402 
   
 
   
 
   
 
   
 
 
Segment Assets $645,231  $46  $440  $645,717 
                 
      Merchant Parent  
Three months ended Community Bankcard And  
September 30, 2004
 Banking
 Processing
 Other
 Totals
Interest and dividend income $10,528  $  $  $10,528 
Interest expense  2,345      402   2,747 
   
 
   
 
   
 
   
 
 
Net interest and dividend income (expense)  8,183      (402)  7,781 
Other income  1,331   1,221   91   2,643 
Depreciation and amortization  531   11   1   543 
Other expense  6,640   1,021   191   7,852 
   
 
   
 
   
 
   
 
 
Pretax segment profit (loss) $2,343  $189  $(503) $2,029 
   
 
   
 
   
 
   
 
 
                 
      Merchant Parent  
Three months ended Community Bankcard and  
September 30, 2003
 Banking
 Processing
 Other
 Totals
Interest and dividend income $8,750  $  $  $8,750 
Interest expense  2,005      398   2,403 
   
 
   
 
   
 
   
 
 
Net interest and dividend income (expense)  6,745      (398)  6,347 
Other income  1,571   1,213   112   2,896 
Depreciation and amortization  499   12   1   512 
Other expense  5,808   972   195   6,975 
   
 
   
 
   
 
   
 
 
Pretax segment profit (loss) $2,009  $229  $(482) $1,756 
   
 
   
 
   
 
   
 
 

12


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 September 30:        
Other income $  $277 
Depreciation and amortization     7 
Other expense     234 
   
 
   
 
 
Pretax income from discontinued operations $  $36 
   
 
   
 
 
For the nine months ended September 30:        
Other income $  $1,255 
Depreciation and amortization     34 
Other expense     1,020 
   
 
   
 
 
Pretax income from discontinued operations $  $201 
   
 
   
 
 

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 SeptemberJune 30, 2004,2005, and statement of income for the three months and ninesix months ended SeptemberJune 30, 2004.2005. Operating results for the three months and ninesix months ended SeptemberJune 30, 20042005 are not necessarily indicative of trends or results to be expected for the year ended December 31, 2005.
QUARTERLY SUMMARY
Our record second quarter 2005 exemplifies the continuing successful execution of our strategic plan. Net income of $2.18 million represents an increase of 74% over $1.26 million reported for the quarter ended June 30, 2004. On a per diluted share basis, earnings were $0.37 for the second quarter of 2005 as compared to $0.22 for the second quarter of 2004. Credit quality remains excellent and we continue to see growth opportunities in our newer southwest Florida markets. We believe our island banking culture focusing on providing superior customer service is filling a significant void in our local markets and has resulted in consistent growth in earnings and assets.
The increase in net income for the second quarter of 2005 over the respective prior-year period resulted primarily from a 31% increase in net interest income from $7.36 million a year ago to $9.64 million in the current quarter. The net interest margin on a tax equivalent basis for the three months ended June 30, 2005 was 4.40% which was a slight contraction from the 4.49% reported for the three months ended June 30, 2004.
Non-interest expense for the second quarter of 2005 was $9.07 million, compared with $8.15 million for the second 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. Net occupancy and other expenses for the second quarter of 2005 increased less than 3% over the second quarter of 2004, reflecting the Company’s continued focus on cost containment.
Credit quality remained solid during the second quarter of 2005 which ended with non-performing loans representing only 0.06% of gross loans. As of June 30, 2005, the allowance for loan losses totaled $7.01 million, or 0.91% of total loans and 1,455% of non-performing loans. These figures compare with 0.98% and 464%, respectively, as of June 30, 2004.
Total assets surpassed the $1 billion milestone for the first time on June 30, 2005 as total assets reached $1.01 billion compared with $939.3 million as of March 31, 2005, and $829.3 million as of December 31, 2004. Total loan growth exceeded 31% to $773.8 million as of June 30, 2005, versus $590.4 million the prior year. Total deposits increased approximately 39% to $870.2 million as of June 30, 2005, compared with $624.4 million a year ago.

12


THREE MONTHS ENDED SEPTEMBERJUNE 30, 20042005 AND 2003

2004

RESULTS OF OPERATIONS

Our net income of $1,337,000$2.18 million for the thirdsecond quarter of 20042005 increased $174,000, or 15.0%,73.7% compared to $1,163,000$1.26 million for the same period last year. Net income from continuing operations was $1,337,000 for the third quarter of 2004, compared to $1,141,000 for the third quarter of 2003, an increase of $196,000 or 17.2%. 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 thirdsecond quarter of 20042005 were $0.24$0.38 and $0.23,$0.37, respectively, as compared to $0.26$0.23 and $0.25$0.22 per share in the previous year’s quarter. Basic weighted average common equivalent shares outstanding for the three months ended September 30, 2004 were 5,660,075 compared to 4,407,920 for the three months ended

13


September 30, 2003. This 28.4% 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 offering of our shares.

Annualized return on average assets was 0.72%0.91% and 0.74%0.69% for the thirdsecond quarter of 2005 and 2004, and 2003,respectively, while the annualized return on average shareholders’ equity was 8.06%12.62% and 11.64%8.31% for the same period. The decline in the return on average shareholders’ equity in the current year is primarily attributable to the 69.0% increase in shareholders’ equity from September 30, 2003 to September 30, 2004 due to the stock offering in the second quarter of 2004 and exercises of stock options.

periods.

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 $1,434,000, or 22.6%30.9%, to $7,781,000$9.64 million in the three months ended SeptemberJune 30, 20042005 as compared to $7.36 million in the same period last year. The prime rate as published in the Wall Street Journal began 2003 at 4.25% and in June 2003was 4.00% for the second quarter of 2004. At the beginning of the second quarter 2005 it declinedhad risen to 4.00% and remained at that rate until July of 2004 when it increased to 4.25%. In August the rate increased to 4.50%5.75% and increased again in Septembertwice to 4.75%end the quarter at 6.25%. Many of the Bank’s loans are indexed to this floating rate, although they may also include floors. The higher level of prime rate in the thirdsecond quarter of 2005 compared to the second quarter of 2004 compared tois apparent in the comparative period in 2003 has not yet significantly impactedpositive impact on yields in the loan portfolio as the effects of the higher rates are just beginning to be reflected in variable loan re-pricings and new loan production. Increased loan volume is
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, 2005 we had $108.2 million of indirect auto dealer loans outstanding, compared to $76.8 million at June 30, 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 driver affectingobjective of maintaining strong asset quality.
The average yield on interest-earning assets for the second quarter of 2005 was 6.48% which was an increase of 51 basis points compared to the 5.97% yield earned during the second quarter of 2004. The average cost of interest-bearing deposits increased 75 basis points from 1.69% during the second quarter of 2004 to 2.44% for the comparable period in 2005, and the rate of all interest-bearing liabilities increased 72 basis points, from 1.91% in 2004 to 2.63% in 2005. The Company’s net interest incomemargin decreased slightly to 4.40% in the second quarter of 2005 compared to 4.49% in the second quarter of 2004. We anticipate interest rates to continue slowly trending up over the next three months. If this occurs or if rates remain stable, net interest margin should stabilize and increase slightly due principally to strong new loan production at higher interest rates. Our margin is derived from the rate difference between our average yields on our current period.

mix of assets in excess of our average cost of liabilities.

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 $24,000, or 5.4%12.5%, to $471,000$0.7 million in the thirdsecond quarter of 20042005 compared to $447,000$0.6 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 coupled with slightly higher charge offs.portfolio. Total loans outstanding grew $27.9 million, or 4.7%, during the third quarter of 2004, as compared to $37.3$56.6 million, or 7.9%, during the thirdsecond quarter of 2003. The largest dollar increase2005, as compared to only $40.7 million, or 7.4%, during the thirdsecond quarter of 2004 occurred in commercial real estate loans which increased $8.7 million, or 2.6%. This compares to an $8.0 million, or 2.8% increase in commercial real estate loans during the third quarter of 2003. We have also continued to expand our indirect lending portfolio.2004. At SeptemberJune 30, 2004,2005, indirect auto dealer loans accounted for $83.7$108.2 million, or 13.5%14.0%, of our loan portfolio. This compares to an indirect lending portfolio of $50.9$76.8 million at SeptemberJune 30, 20032004 which represented 10.0%13.0% of our total loan portfolio.

Total loans outstanding were $618.3$773.8 million at SeptemberJune 30, 2004,2005, compared to $510.5$590.4 million at SeptemberJune 30, 2003.2004. Net charge-offs were $188,000$258,000 during the three months ended SeptemberJune 30, 20042005 compared to $147,000$190,000 for the same period in 2003.2004.

13


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 thirdsecond quarter of 20042005 was $2,643,000.$3.58 million. This represents a $253,000 or 8.7% decrease over the prior year quarter which totaled $2,896,000. The decrease in non-interest income is primarily attributable to a decrease of $226,000 in fees on mortgage loans sold. This decrease in fees on mortgage loans sold is primarily a result of delayed closings due to an abnormally active hurricane season in South Florida combined with a decline in South Florida market refinancing and mortgage loan application activity.

NON-INTEREST EXPENSE

Non-interest expense for the third quarter of 2004 was $7,924,000. This represents an $884,000, or 12.6%,7.4% increase over the prior year quarter which totaled $7,040,000.$3.33 million. The increase in non-interest income is primarily attributable to an increase in merchant bankcard processing income and a gain of $267,000 on the sale of vacant land in Homestead, Florida.

NON-INTEREST EXPENSE
Non-interest expense for the second quarter of 2005 was $9.07 million. This represents an 11.2% increase over the prior year quarter which totaled $8.15 million. The increase in non-interest expense is primarily attributable to salaries and employee benefits increasing $428,000, net occupancy expense increasing $124,000,$796,000. At June 30, 2005 the Bank had 311 full-time employees and other expense increasing $332,000.14 part-time employees, compared to 275 full-time employees and 16 part time employees at June 30, 2004. The increases are primarily the result of costs associated with the growth of our business and continued investmentexpansion into the southwest Florida market. Net occupancy and expansion inother expenses for the Southwest Florida market.

14


At September 30, 2004second quarter of 2005 increased less than 3% over the Bank had 303 full-time employees, compared to 253 at September 30, 2003. second quarter of 2004.

INCOME TAXES
The increase in staff was required to manage the growth of the organization.

In general, as we continue to renovate facilitiesprovision for income taxes includes federal 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 propertystate income taxes. The effective tax rates were 36.0% and 33.5% for the three months ended SeptemberJune 30, 2005 and 2004, totaled $35,000. Pursuant to the opening of the Metro Parkway and Prospect Ave locations in Southwest Florida, the third quarter of 2004 included approximately $70,000 in occupancy expenses associated with the operations of these newly opened branches.

In the category of other expense, professional fees increased approximately $112,000 due primarily to increased internal control documentation and testing costs related to the implementation of the Sarbanes Oxley Act of 2002.

INCOME TAXES

The provision for income taxes related to continuing operations totaled $692,000, for an effective tax rate of 34.1%, for the three months ended September 30, 2004, and $615,000, for an effective tax rate of 35.0%, for the three months ended September 30, 2003.

NINErespectively.

SIX MONTHS ENDED SEPTEMBERJUNE 30, 20042005 AND 2003

2004

RESULTS OF OPERATIONS

Our net income of $3,867,000$3.73 million for the first ninesix months of 2004 increased $229,000, or 6.3%,2005 was a 47.5% increase compared to $3,638,000$2.53 million for the same period last year. Net income from continuing operations was $3,867,000 for the first nine months of 2004, compared to $3,512,000 for the first nine months of 2003, an increase of $355,000 or 10.1%. 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 ninesix months of 20042005 were $0.75$0.66 and $0.72$0.64, respectively, as compared to $0.87$0.51 and $0.83$0.49 per share in the previous year’s period. Basic weighted average common equivalent shares outstanding for the ninesix months ended SeptemberJune 30, 20042005 were 5,187,4565,693,090 compared to 4,204,8404,948,550 for the nine months ended September 30, 2003.same period in 2004. This 23.4%15.0% 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 0.71%0.82% and 0.79%0.72% for the first ninesix months of 20042005 and 2003,2004, while the annualized return on average shareholders’ equity was 9.15%10.93% and 13.21%9.84% 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.

periods.

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 $3,904,000, or 21.6%28.6%, to $21,970,000$18.25 million in the ninesix months ended SeptemberJune 30, 20042005 as compared to $14.19 million in the same period last year. The prime rate as published in the Wall Street Journal began 20032004 at 4.25% and in June 2003 it declined to 4.00% and remained at that rate until Julythrough the end of 2004 when it increased to 4.25%. In Augustthe second quarter of the year. At the beginning of 2005 the rate increasedhad risen to 4.50%5.25% and increased again in Septemberfour times to 4.75%end the first half of 2005 at 6.25%. Many of the Bank’s loans are indexed to this floating rate, although they also include floors.

With short-term The higher level of prime rate in the first half of 2005 compared to the comparable 2004 period is apparent in the positive impact on yields in the loan portfolio as the higher rates are reflected in variable loan re-pricings and new loan production.

The effect of rising interest rates increasing slowly, or as the Federal Reserve would say, stimulus being removed athas been to contract our net interest margin slightly in two ways. First, a measured pace, ourrelatively low prime rate directly affected yields on assetsloans tied to that index and costeven loans not indexed to prime were priced reflective of liabilities are increasing in roughly equal percentages. Bothoverall low asset yields. Due to our practice of requiring an interest rate floor on many new commercial loans, many of these haveloans had been modest in degree as many loans are still belowperforming at their floors and many deposits with administeredwhile interest rates have increased only slightly. Going forward, we would expect further market rate increases to more directly affectwere reaching historically low levels. This proved effective in slowing the average decline in loan yields andas rates declined, however, it has had the opposite effect as rates increased, as these assets remained at their interest rate floors until just recently. Secondly, as deposit costsliabilities were priced as more adjustable loans move through their floor levels and competitive pressures result in deposit rates increasing more rapidly. We believe he predominant driver inlow as economically possible while attracting the volume of required funding, the net effect of this rising rate environment has been a larger increase in net interest income is and will continueliability costs, generally, than the corresponding increase in asset yields during the current period. Due to be the growthcurrent level of our balance sheet. Although the timing and possible effects of future changes in interestprime rates, could be significant, we expect any such impactthis margin contraction to be considerably less instabilize as we expect asset yields to expand to a similar extent than the relative impact of asset growth.

that liability costs increase.

1514


In April 2002, the Bank began a program to acquire indirect automobile loans. We predominantly buy loans from auto dealers in Southwestsouthwest 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 SeptemberJune 30, 20042005 we had $83.7$108.2 million of indirect auto dealer loans outstanding, compared to $50.9$76.8 million at SeptemberJune 30, 2003.2004. 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 ninesix months of 20042005 was 6.04% which was a decrease6.39%, an increase of 1638 basis points compared to the 6.20%6.01% yield earned during the first ninesix months of 2003.2004. The average cost of interest-bearing deposits declined 20increased 61 basis points from 1.94%1.70% during the first ninesix months of 20032004 to 1.74%2.31% for the comparable period in 2004,2005, and the rate of all interest-bearing liabilities decreased 23increased 59 basis points, from 2.19%1.92% in 20032004 to 1.96%2.51% in 2004.2005. The Company’s net interest margin increaseddecreased to 4.40% in the first six months of 2005 compared to 4.50% in the first ninesix months of 2004 compared to 4.40% in the first nine months of 2003.2004. We anticipate interest rates to continue slowly trending up over the next twelvethree months. If this occurs or if rates remain stable, net interest margin should be fairly consistent as our mix of assetsstabilize and liabilities should grow in roughly the same proportions that exist currently on our balance sheet.increase slightly due principally to strong new loan production at higher interest rates. 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.

1615


The following table presents average balances of the Company, the taxable-equivalent interest earned, and the rate paid thereon during the ninesix months ended SeptemberJune 30, 20042005 and SeptemberJune 30, 2003.2004.
                                       
 2004
 2003
   2005 2004
 Average Income/ Yields/ Average Income/ Yields/ Average Income/ Yields/ Average Income/ Yields/
(dollars in thousands) Balances
 Expense
 Rates
 Balances
 Expense
 Rates
 Balances Expense Rates Balances Expense Rates
Interest-earning assets:  
Loans (1)(2) $574,003 $27,212  6.33% $469,225 $23,254  6.63% $716,103 $24,246  6.83% $558,197 $17,562  6.33%
Investment securities (2) 66,172 2,180  4.40% 55,080 2,094  5.08% 77,381 1,630  4.25% 60,830 1,355  4.48%
Marketable equity securities – 90% tax exempt (2) 3,395 272  10.70%     3,562 193  10.93% 3,448 175  10.23%
Interest-bearing deposits in other banks 970 9  1.18% 327 2  0.71% 463 6  2.53% 948 5  0.98%
Federal Home Loan Bank stock 1,445 40  3.70% 1,476 40  3.62% 2,669 58  4.38% 1,518 24  3.21%
Federal funds sold 13,635 102  1.00% 26,132 227  1.16% 43,732 598  2.76% 17,038 79  0.94%
 
 
 
 
 
 
 
 
 
 
 
 
      
Total interest-earning assets 659,620 29,815  6.04% 552,240 25,617  6.20% 843,910 26,731  6.39% 641,979 19,200  6.01%
 
 
 
 
 
 
 
 
 
 
 
 
      
 
Non-interest-earning assets:  
Cash and due from banks 18,803 15,463  22,263 19,781 
Investment in ERAS  69 
Premises and equipment, net 21,209 19,247  27,272 20,776 
Allowances for loan losses  (5,564)  (4,561)   (6,531)  (5,405) 
Other assets 28,622 28,786  30,879 28,504 
 
 
 
 
      
Total non-interest-earning assets 63,070 59,004  73,883 63,656 
 
 
 
 
      
Total assets $722,690 $611,244  $917,793 $705,635 
     
 
 
 
 
  
Interest-bearing liabilities:  
Interest-bearing deposits:  
NOW accounts $75,193 214  0.38% $57,636 170  0.39% $92,846 385  0.84% $74,269 120  0.32%
Money market 128,056 793  0.83% 127,772 891  0.93% 167,087 1,560  1.88% 126,115 494  0.79%
Savings deposits 43,738 127  0.39% 34,677 133  0.51% 48,079 115  0.48% 42,860 82  0.39%
Time deposits 221,498 4,969  3.00% 196,239 4,862  3.31% 303,483 4,937  3.28% 213,760 3,176  2.99%
 
 
 
 
 
 
 
 
 
 
 
 
      
Total interest-bearing deposits 468,485 6,103  1.74% 416,324 6,056  1.94% 611,495 6,997  2.31% 457,004 3,872  1.70%
 
Other interest-bearing liabilities:  
Short-term borrowings and FHLB advances 31,258 299  1.28% 18,319 176  1.28%
Short-term borrowings & FHLB advances 40,431 551  2.75% 32,052 185  1.16%
Long-term borrowings 18,250 1,193  8.73% 18,250 1,193  8.74% 17,104 774  9.13% 18,250 791  8.71%
 
 
 
 
 
 
 
 
 
 
 
 
      
Total interest-bearing liabilities 517,993 7,595  1.96% 452,893 7,425  2.19% 669,030 8,322  2.51% 507,306 4,848  1.92%
     
 
 
 
 
 
 
 
 
 
 
 
 
  
Non-interest-bearing liabilities and shareholders’ equity:  �� 
Demand deposits 139,733 114,214  168,787 138,656 
Other liabilities 8,586 7,420  11,166 8,265 
Shareholders’ equity 56,378 36,717  68,810 51,408 
 
 
 
 
      
Total non-interest-bearing liabilities and shareholders’ equity 204,697 158,351  248,763 198,329 
 
 
 
 
      
 
Total liabilities and shareholders’ equity $722,690 $611,244  $917,793 $705,635 
     
 
 
 
 
  
Interest rate spread (tax equivalent basis)  4.08%  4.01%  3.88%  4.09%
 
 
 
 
      
Net interest income (tax equivalent basis) $22,220 $18,192  $18,409 $14,352 
 
 
 
 
      
Net interest margin (3) (tax equivalent basis)  4.50%  4.40%  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.

1716


The table below details the components of the changes in net interest income for the ninesix months ended SeptemberJune 30, 20042005 and SeptemberJune 30, 2003.2004. For each major category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes due to average volumes, and 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
 2005 compared to 2004 (1)
 Net Due to changes in
 Average Average Increase Net
(dollars in thousands)
 Volume
 Rate
 (Decrease)
 Average Average Increase
 Volume Rate (Decrease)
Interest income  
Loans (2) $5,004 $(1,046) $3,958  $5,266 $1,418 $6,684 
Investment securities (2) 387  (301) 86  352  (77) 275 
Marketable equity securities (2) 272  272  6 12 18 
Interest-bearing deposits in other banks 5 2 7   (4) 5 1 
Federal Home Loan Bank Stock  (1) 1   23 11 34 
Federal funds sold  (97)  (28)  (125) 231 288 519 
 
 
 
 
 
 
   
Total interest income 5,570  (1,372) 4,198  5,874 1,657 7,531 
  
 
 
 
 
 
 
  
Interest expense  
NOW accounts 50  (6) 44  36 229 265 
Money market 2  (100)  (98) 203 863 1,066 
Savings deposits 31  (37)  (6) 11 22 33 
Time deposits 592  (485) 107  1,436 325 1,761 
Short-term borrowings and FHLB advances 123  123  60 306 366 
Long-term borrowings      (59) 42  (17)
 
 
 
 
 
 
   
Total interest expense 798  (628) 170  1,687 1,787 3,474 
 
 
 
 
 
 
   
 
Change in net interest income $4,772 $(744) $4,028  $4,187 $(130) $4,057 
 
 
 
 
 
 
   

(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 $454,000 or 43.9%29.3% to $1,489,000$1.3 million in the first ninesix months of 20042005 compared to $1,035,000$1.0 million in the comparable prior year period. The higher provision for loan losses in 20042005 was primarily attributable to the growth in the loan portfolio and change in composition of the loan portfolio. Total loans outstanding grew $79.7$120.3 million, or 14.8%18.4%, during the first ninesix months of 2004,2005, as compared to $68.7only $51.8 million, or 15.6%9.6%, during the first ninesix months of 2003.2004. The largest dollar increase during the first ninesix months of 20042005 occurred in commercial real estate loans which increased $41.0$60.2 million, or 13.8%17.1%. This compares to a $26.2$32.3 million, or 9.9%10.9%, increase in commercial real estate loans during the first ninesix months of 2003.2004. We have also continued to expand our indirect lending portfolio. At SeptemberJune 30, 2004,2005, indirect auto dealer loans accounted for $83.7$108.2 million, or 13.5%14.0%, of our loan portfolio. This compares to an indirect lending portfolio of $50.9$76.8 million at SeptemberJune 30, 20032004 which represented only 10.0%13.0% of our total loan portfolio. These increases in volume and concentration of commercial real estate and indirect auto dealer loans relative to the composition of the loan portfolio translate to a greater than average increase in the provision for loan losses as our risk management policies dictate generally higher allocations of such provisions for these categories of loans.

Total loans outstanding were $618.3$773.8 million at SeptemberJune 30, 2004,2005, compared to $510.5$590.4 million at SeptemberJune 30, 2003.2004. Net charge-offs were $616,000$546,000 during the ninesix months ended SeptemberJune 30, 20042005 compared to $453,000$428,000 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.

18


NON-INTEREST INCOME

Non-interest income for the first ninesix months of 20042005 was $9,247,000.$7.0 million. This represents an $184,000 or 2.0%a 5.6% increase over the prior year period which totaled $9,063,000.$6.6 million. The increase in non-interest income is primarily attributable to an increase of $703,000 in merchant bankcard processing income partially offset by a decrease of $394,000 in fees on mortgage loans sold, and a $202,000 decrease related togain of $267,000 on the gain on sale of investmentvacant land in ERAS JV recognized in the prior year period.Homestead, Florida.

17

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 nine months of 2004 compared to the prior year 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 ninesix months of 20042005 was $23,871,000.$18.1 million. This represents a $3,179,000, or 15.4%,13.6% increase over the prior year period which totaled $20,692,000.$15.9 million. The increase in non-interest expense is primarily attributable to salaries and employee benefits increasing $1,243,000, net occupancy$1.6 million. At June 30, 2005 the Bank had 311 full-time employees and 14 part-time employees, compared to 275 full-time employees and 16 part time employees at June 30, 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. The majority of the other increases in the non-interest expense increasing $328,000, and other expense increasing $1,608,000. The increasescategory are primarily the result of costs associated with the growth of our business and continued expansion into the Southwest Florida market.

At September 30, 2004, the Bank had 303 full-time employees, compared to 253 at September 30, 2003. The increase in staff was required to manage the growth of the organization.

In the category of other expense, interchange and other bankcard expense increased approximately $648,000 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 nine 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. Another factor contributing to the increase in other expense was the increase in professional fees of approximately $184,000 over the prior year period due primarily to increased internal control documentation and testing costs related to the implementation of the Sarbanes Oxley Act of 2002.

business.

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 $1,990,000, for anincludes federal and state income taxes. The effective tax rate of 34.0%was 35.5%, for the ninesix months ended SeptemberJune 30, 2004,2005, and $1,890,000, for an effective tax rate of 35.0%33.9%, for the ninesix months ended SeptemberJune 30, 2003.

2004.

BALANCE SHEET

Total assets at SeptemberJune 30, 20042005 were $765,686,000,$1.01 billion, up 14.4%22.1% 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 $84,486,000,$182.4 million, or 15.3%26.5%. Loans net of deferred loan costs increased $79.9$120.1 million, or 14.8%18.3%, to $620.3$775.8 million for the first ninesix months of 20042005 from year end 2003.2004. The largest dollar increase came in the commercial real estate loan category which increased $41.0$60.2 million, or 13.8%17.1%. WeAlthough we have also continued to expand our indirect dealer auto loan program.program, it has begun to stabilize in percentage in proportion to the loan portfolio as a whole. At SeptemberJune 30, 2004,2005, indirect auto loans accounted for $83.7$108.2 million, or 13.5%14.0%, of our loan portfolio as compared to $59.4$91.9 million, or 11.0%14.1%, at December 31, 2003.2004. Also, in the same period, investment securities increased $26.1 million as a result of purchases of securities from funds generated from the stock offering in the second quarter of 2004.

$9.2 million.

During the first ninesix months of 2004,2005, we reduced our advances from the Federal Home Loan Bank by $20.0$10.0 million. Total advances outstanding were $25.0 million at SeptemberJune 30, 20042005 as compared to $45.0$35.0 million at December 31, 2003.

2004.

Shareholders’ equity totaled $67.5$70.7 million at SeptemberJune 30, 2004,2005, increasing $26.3$2.6 million from December 31, 2003.2004. Book value per share increased to $11.90$12.38 at SeptemberJune 30, 20042005 from $9.31$11.99 at December 31, 2003.2004. The Company declared a quarterly dividend of $0.115 per share in both the first and second quarters of 2005 and $0.1125 per share in each ofboth the first threequarter and second quarters of 2004 and $0.11 per share in each2004.
During the second quarter of the first three quarters of 2003.

On April 15, 2004, we closed the sale of 1,000,000sold 1,150,000 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. Theresulting in net proceeds of the offering, totaling $23.2 million which provided capital necessary to support continued loan and deposit growth throughout our South Florida markets.

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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 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)
 September 30, 2004
 December 31, 2003
 June 30, 2005 December 31, 2004
Total nonaccrual loans $1,174 $390  $482 $704 
Accruing loans delinquent 90 days or more (a)      
 
 
 
 
   
Total non-performing loans $1,174 $390  $482 $704 
Repossessed personal property (indirect auto dealer loans) 720 598  673 688 
Other real estate owned (b) 190 193  190 882 
Other assets (b) 2,528 2,472  2,705 2,665 
 
 
 
 
   
Total non-performing assets $4,612 $3,653  $4,050 $4,939 
 
 
 
 
   
 
Allowance for loan losses $6,089 $5,216  $7,013 $6,243 
 
Non-performing assets as a percent of total assets  0.60%  0.55%  0.40%  0.60%
Non-performing loans as a percent of gross loans  0.19%  0.07%  0.06%  0.11%
Allowance for loan losses as a percent of non-performing loans  518.65%  1,336.33%  1,455.0%  886.8%
 

(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 $10,000,000 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 September 30, 2004 and December 31, 2003, and is accruing interest. Accrued interest on this loan totals approximately $654,000 and $590,000 at September 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 $190,000 and $193,000 at September 30, 2004 and December 31, 2003, respectively. The non-guaranteed principal and interest ($1,961,000 at September 30, 2004 and December 31, 2003) and the reimbursable capitalized liquidation costs and protective advance costs totaling approximately $567,000 and $511,000 at September 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

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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.

(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)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 June 30, 2005 and December 31, 2004, and is accruing interest. Accrued interest on this loan totals approximately $731,000 and $677,000 at June 30, 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 June 30, 2005 and December 31, 2004. The non-guaranteed principal and interest ($2.0 million at June 30, 2005 and December 31, 2004) and the reimbursable capitalized liquidation costs and protective advance costs totaling approximately $744,000 and $704,000 at June 30, 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 $6,089,000$7.0 million and $5,216,000$6.2 million at SeptemberJune 30, 20042005 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.

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Based on an analysis performed by management at SeptemberJune 30, 2004,2005, 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 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.

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 SeptemberJune 30, 2004,2005, there were $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 $158.0$175.6 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.

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Our interest rate sensitivity position at SeptemberJune 30, 20042005 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 $245,829 $42,286 $36,794 $226,579 $66,806 $618,294  $350,509 $27,327 $43,434 $284,072 $68,507 $773,849 
Investment securities-taxable 1,311   38,265 25,419 64,995  1,072  10,180 38,578 23,864 73,694 
Investment securities-tax exempt 232   2,875 7,062 10,169     4,617 5,191 9,808 
Marketable equity securities 3,533     3,533  3,490     3,490 
Federal Home Loan Bank stock 1,250     1,250  2,781     2,781 
Federal funds sold 77,550     77,550 
Interest bearing deposit in other bank 519     519  201     201 
 
 
 
 
 
 
 
 
 
 
 
 
   
Total interest-bearing assets 252,674 42,286 36,794 267,719 99,287 698,760  435,603 27,327 53,614 327,267 97,562 941,373 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
Interest-bearing liabilities:  
NOW accounts 83,835     83,835  85,479     85,479 
Money Market 127,376     127,376  179,815     179,815 
Savings Deposits 47,247     47,247  49,884     49,884 
Time deposits 29,160 38,999 48,875 128,915 5 245,954  35,143 92,673 114,991 98,891 5 341,703 
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 34,353     34,353  42,593     42,593 
 
 
 
 
 
 
 
 
 
 
 
 
   
Total interest-bearing liabilities 326,971 38,999 48,875 128,915 13,255 557,015  397,914 92,673 114,991 98,891 12,005 716,474 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
Interest sensitivity gap $(74,297) $3,287 $(12,081) $138,804 $86,032 $141,745  $37,689 $(65,346) $(61,377) $228,376 $85,557 $224,899 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
Cumulative interest sensitivity gap $(74,297) $(71,010) $(83,091) $55,713 $141,745 $141,745  $37,689 $(27,657) $(89,034) $139,342 $224,899 $224,899 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
Cumulative sensitivity ratio  (10.6)%  (10.2)%  (11.9)%  8.0%  20.3%  20.3%  4.0%  (2.9)%  (9.5)%  14.8%  23.9%  23.9%
 
 
 
 
 
 
 
 
 
 
 
 
   

We are cumulatively liability sensitive throughin the one year4 to 6 months and 7 to 12 months time period,periods, and asset sensitive in the 3 months or less and 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.

Even in the near term, we believe the $83$89 million one year cumulative negative sensitivity gap may exaggerate the probable effects on earnings in a changingrising 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% to +10% range. At SeptemberJune 30, 2004,2005, we were within this range with a one year cumulative sensitivity ratio of - -11.9%-9.5%.

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

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

The Bank’s exposure to credit loss in the event of nonperformance by the 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 SeptemberJune 30, 2004,2005, total unfunded loan commitments were approximately $87.7$172.7 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 SeptemberJune 30, 2004,2005, commitments under standby letters of credit aggregated approximately $2.4$2.3 million.

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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 DISCLOSUREDISCLOSURES 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

Interest rate sensitivity analysis information as of SeptemberJune 30, 20042005 was developedanalyzed using a 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 immediategradual and parallel shift in the yield curve in the amounts shown.

These ratecurve. Rate changes are matched with known repricing intervals andintervals. The bank uses standardized assumptions for new growth netrun against bank data by an outsourced provider of expected prepayments.Asset Liability reporting. The assumptions are based primarily on experience in the Company’s market under varying rate environments. The imbedded optionsanalysis indicates that the Company’s loan customers possessbank is benefited in an increasing rate environment more than it is harmed by a decreasing rate environment. This is primarily due to refinance are considered for purposes of this analysis along with scheduled and unscheduled principal reductions offset by anticipated loan orginations.

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,fact that 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 $214 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 in the recent past and currently since we have had assets earning yields higher than would behave been 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 not constrain income gains in a rising rate market. As rates increase beyond approximately 150 basis points from their current level the effect on net interest income turns around and begins to expand positively due to an increasing percentage ofmarket once these loans goinghave moved 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 repricingre-pricing characteristics of the deposit liabilities.

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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 $40,739  $43,284  $45,882  $48,254  $51,077 
Interest Expense  8,604   10,423   13,023   15,993   18,962 
   
 
   
 
   
 
   
 
   
 
 
Net Interest Income $32,135  $32,861  $32,859  $32,261  $32,115 
   
 
   
 
   
 
   
 
   
 
 
Change in net income after tax vs. constant rates $(452) $1      $(373) $(464)

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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 controlsCompany 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.

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Corporation.


Part II. OTHER INFORMATION

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

     Not applicable

At the Annual Meeting of Shareholders of TIB Financial Corp. held April 26, 2005, ballot totals for the reelection of Directors standing for reelection were as follows:
             
DIRECTORS FOR AGAINST ABSTAIN
 
Edward V. Lett  4,955,687   21,130    
The directors continuing in office following the meeting were: Richard C. Bricker, Jr., Gretchen K. Holland, Paul O. Jones, Jr. M.D., Edward V. Lett, Thomas J. Longe, John G. Parks, Jr., Marvin F. Schindler, and Otis T. Wallace.
Ballot totals for the approval of the Amendment to Restated Articles of Incorporation were as follows:
             
  FOR AGAINST ABSTAIN
 
   4,925,154  38,307 13,356
Total shares voted were 4,976,817 which represented 87.6% of the outstanding shares.

Item 5. OTHER INFORMATION

Not applicable

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Item 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

(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

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

On November 4, 2004, the Company issued a press release announcing certain financial results and additional information related to its third 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.
 
 
Date: November 10, 2004 /s/  /s/ Edward V. Lett 
Date: August 9, 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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