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
September 30, 2005000-21329

TIB FINANCIAL CORP.


(Exact name of registrant as specified in its charter)
TIB FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
FLORIDA 65-0655973

(State or other jurisdiction of(I.R.S. Employer
incorporation or organization) (I.R.S. Employer Identification No.)

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




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,
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.
x Yes [X] oro No [   ]


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


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

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

Common Stock, $0.10 Par Value 5,672,302


5,762,262
Class Outstanding as of November 5, 2004October 31, 2005



TABLE OF CONTENTS
1


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
  (Unaudited)    
ASSETS
        
Cash and due from banks $17,363  $17,197 
Federal funds sold     16,484 
   
 
   
 
 
Cash and cash equivalents  17,363   33,681 
Investment securities available for sale  78,697   52,557 
Loans, net of deferred loan costs and fees  620,333   540,413 
Less: allowance for loan losses  6,089   5,216 
   
 
   
 
 
Loans, net  614,244   535,197 
Premises and equipment, net  26,898   21,073 
Goodwill  155   155 
Intangible assets, net  1,465   1,687 
Accrued interest receivable and other assets  26,864   24,948 
   
 
   
 
 
TOTAL ASSETS
 $765,686  $669,298 
   
 
   
 
 
LIABILITIES
        
Deposits:        
Noninterest-bearing demand $133,888  $121,728 
Interest-bearing  504,411   432,085 
   
 
   
 
 
Total Deposits  638,299   553,813 
Federal Home Loan Bank (FHLB) advances  25,000   45,000 
Short-term borrowings  9,353   4,041 
Long-term borrowings  18,250   18,250 
Accrued interest payable and other liabilities  7,257   6,948 
   
 
   
 
 
TOTAL LIABILITIES
  698,159   628,052 
   
 
   
 
 
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 
Additional paid in capital  38,237   14,255 
Retained earnings  28,291   26,203 
Accumulated other comprehensive income  432   345 
   
 
   
 
 
TOTAL SHAREHOLDERS’ EQUITY
  67,527   41,246 
   
 
   
 
 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 $765,686  $669,298 
   
 
   
 
 

  
September 30, 2005
 
December 31, 2004
 
ASSETS
 
(Unaudited)
   
Cash and due from banks $17,981 $27,410 
Federal funds sold  61,164  15,528 
Cash and cash equivalents  79,145  42,938 
        
Investment securities available for sale  94,548  77,807 
        
Loans, net of deferred loan costs and fees  828,081  655,678 
Less: allowance for loan losses  7,153  6,243 
Loans, net  820,928  649,435 
        
Premises and equipment, net  26,718  27,559 
Goodwill  155  155 
Intangible assets, net  1,172  1,392 
Accrued interest receivable and other assets  31,228  30,039 
TOTAL ASSETS
 $1,053,894 $829,325 
        
        
LIABILITIES
       
Deposits:       
Noninterest-bearing demand $166,821 $152,035 
Interest-bearing  746,524  535,824 
Total deposits  913,345  687,859 
Federal Home Loan Bank (FHLB) advances  25,000  35,000 
Short-term borrowings  13,827  12,157 
Long-term borrowings  17,000  18,250 
Accrued interest payable and other liabilities  12,711  7,945 
TOTAL LIABILITIES
  981,883  761,211 
        
SHAREHOLDERS’ EQUITY
       
Preferred stock - no par value: 5,000,000 shares authorized, no shares issued  -  
-
 
Common stock - $.10 par value: 20,000,000 shares authorized, 5,761,746 and 5,679,239 shares issued  576  
568
 
Additional paid in capital  40,096  38,284 
Deferred compensation - restricted stock grants  (1,051) - 
Retained earnings  32,778  28,968 
Accumulated other comprehensive income (loss)  (388) 294 
TOTAL SHAREHOLDERS’ EQUITY
  72,011  68,114 
        
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 $1,053,894 $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 Nine months ended
  September 30,
 September 30,
  2004
 2003
 2004
 2003
INTEREST AND DIVIDEND INCOME
                
Loans, including fees $9,648  $7,974  $27,208  $23,250 
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    
Interest bearing deposits in other bank  4   1   9   2 
Federal Home Loan Bank Stock  16   10   40   40 
Federal funds sold  23   34   102   227 
   
 
   
 
   
 
   
 
 
TOTAL INTEREST AND DIVIDEND INCOME
  10,528   8,750   29,565   25,491 
INTEREST EXPENSE
                
Deposits  2,231   1,952   6,103   6,056 
Federal Home Loan Bank advances  95   44   259   146 
Short-term borrowings  19   9   40   30 
Long term borrowings  402   398   1,193   1,193 
   
 
   
 
   
 
   
 
 
TOTAL INTEREST EXPENSE
  2,747   2,403   7,595   7,425 
   
 
   
 
   
 
   
 
 
NET INTEREST INCOME
  7,781   6,347   21,970   18,066 
PROVISION FOR LOAN LOSSES
  471   447   1,489   1,035 
   
 
   
 
   
 
   
 
 
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
  7,310   5,900   20,481   17,031 
NON-INTEREST INCOME
                
Service charges on deposit accounts  619   632   1,900   1,790 
Investment securities gains, net  7   3   103   8 
Merchant bankcard processing income  1,221   1,213   4,515   3,812 
Gain on sale of government guaranteed loans           87 
Fees on mortgage loans sold  363   589   1,406   1,800 
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 
   
 
   
 
   
 
   
 
 
TOTAL NON-INTEREST INCOME
  2,643   2,896   9,247   9,063 
NON-INTEREST EXPENSE
                
Salaries and employee benefits  3,699   3,271   10,755   9,512 
Net occupancy expense  1,212   1,088   3,525   3,197 
Other expense  3,013   2,681   9,591   7,983 
   
 
   
 
   
 
   
 
 
TOTAL NON-INTEREST EXPENSE
  7,924   7,040   23,871   20,692 
   
 
   
 
   
 
   
 
 
INCOME BEFORE INCOME TAX EXPENSE
  2,029   1,756   5,857   5,402 
INCOME TAX EXPENSE
  692   615   1,990   1,890 
   
 
   
 
   
 
   
 
 
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 
   
 
   
 
   
 
   
 
 
BASIC EARNINGS PER SHARE:
                
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:
                
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 
   
 
   
 
   
 
   
 
 

  
Three months ended
September 30,
 
Nine months ended
September 30,
 
INTEREST AND DIVIDEND INCOME
 
2005
 
2004
 
2005
 
2004
 
Loans, including fees $14,221 $9,648 $38,465 $27,208 
Investment securities:             
Taxable  767  664  2,111  1,708 
Tax exempt  160  173  481  498 
Interest bearing deposits in other bank  2  4  8  9 
Federal Home Loan Bank Stock  23  16  81  40 
Federal funds sold  330  23  928  102 
TOTAL INTEREST AND DIVIDEND INCOME
  15,503  10,528  42,074  29,565 
              
INTEREST EXPENSE
             
Deposits  4,674  2,231  11,670  6,103 
Federal Home Loan Bank advances  227  95  595  259 
Short-term borrowings  109  19  292  40 
Long-term borrowings  399  402  1,173  1,193 
TOTAL INTEREST EXPENSE
  5,409  2,747  13,730  7,595 
              
NET INTEREST INCOME 
  10,094  7,781  28,344  21,970 
              
PROVISION FOR LOAN LOSSES
  448  471  1,764  1,489 
              
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
  9,646  7,310  26,580  20,481 
              
NON-INTEREST INCOME
             
Service charges on deposit accounts  601  619  1,776  1,900 
Investment securities gains, net  1  7  1  103 
Merchant bankcard processing income  1,261  1,221  4,919  4,515 
Fees on mortgage loans sold  461  363  1,535  1,406 
Other income  491  433  1,557  1,323 
TOTAL NON-INTEREST INCOME
  2,815  2,643  9,788  9,247 
              
NON-INTEREST EXPENSE
             
Salaries and employee benefits  4,608  3,699  13,230  10,755 
Net occupancy expense  1,386  1,212  4,011  3,525 
Other expense  3,289  3,013  10,165  9,591 
TOTAL NON-INTEREST EXPENSE
  9,283  7,924  27,406  23,871 
              
INCOME BEFORE INCOME TAX EXPENSE
  3,178  2,029  8,962  5,857 
              
INCOME TAX EXPENSE
  1,124  692  3,177  1,990 
              
NET INCOME
 $2,054 $1,337 $5,785 $3,867 
              
BASIC EARNINGS PER SHARE:
 $0.36 $0.24 $1.01 $0.75 
DILUTED EARNINGS PER SHARE:
 $0.35 $0.23 $0.98 $0.72 
(See notes to consolidated financial statements)

3



TIB FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
(dollars in thousands, except per share amounts)
                         
          Additional     Accumulated Other Total
      Common Paid in Retained Comprehensive Shareholders’
  Shares
 Stock
 Capital
 Earnings
 Income (Loss)
 Equity
Balance,July 1, 2004
  5,657,957  $566  $38,090  $27,591  ($1,081) $65,166 
Comprehensive income:                        
Net income            1,337      1,337 
Other comprehensive income, net of tax expense of $913:                        
Net market valuation adjustment on securities available for sale               1,517     
Less: reclassification adjustment for gains included in net income               (4)    
Other comprehensive income, net of tax                      1,513 
                       
 
 
Comprehensive income                      2,850 
                       
 
 
Exercise of stock options  14,245   1   98         99 
Income tax benefit from stock options exercised         49         49 
Cash dividends declared, $.1125 per share            (637)     (637)
   
 
   
 
   
 
   
 
   
 
   
 
 
Balance,September 30, 2004
  5,672,202  $567  $38,237  $28,291  $432  $67,527 
   
 
   
 
   
 
   
 
   
 
   
 
 

                  Shares Common Stock Additional Paid in Capital Deferred Compensation Restricted Stock Grants Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity 
 Additional Accumulated Other Total
 Common Paid in Retained Comprehensive Shareholders’
 Shares
 Stock
 Capital
 Earnings
 Income (Loss)
 Equity
Balance,July 1, 2003
 4,407,578 $441 $13,843 $24,559 $1,511 $40,354 
Balance, July 1, 2005
  5,712,264  $571  $38,715  $-  $31,386  $68  $70,740 
Comprehensive income:                       
Net income   1,163  1,163               2,054     2,054 
Other comprehensive income, net of tax benefit of $647: 
Other comprehensive income, net of tax benefit of $273:                      
Net market valuation adjustment on securities available for sale     (1,072)                  (456)   
Less: reclassification adjustment for gains included in net income     (2) 
Other comprehensive income, net of tax  (1,074)                    (456)
 
 
 
Comprehensive income 89                     1,598 
 
 
 
Restricted stock grants  35,000  3  1,087  (1,090)       - 
Amortization of deferred compensation - restricted stock grants           
39
        39 
Exercise of stock options 500  7   7   14,482  2  197           199 
Private Placement of 280,653 common shares   (1)    (1)
Cash dividends declared, $.11 per share    (485)   (485)
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance,September 30, 2003
 4,408,078 $441 $13,849 $25,237 $437 $39,964 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income tax benefit from stock options exercised        97           97 
Cash dividends declared, $.115 per share              (662)    (662)
Balance, September 30, 2005
  5,761,746 $576 $40,096 $(1,051)$32,778 $(388)$72,011 


  Shares Common Stock Additional Paid in Capital Deferred Compensation Restricted Stock Grants Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity 
Balance, July 1, 2004
  5,657,957  $566  $38,090  $-  $27,591  $(1,081$65,166 
Comprehensive income:                      
Net income              1,337     1,337 
Other comprehensive income, net of tax expense of $913:                      
Net market valuation adjustment on securities available for sale                 1,517    
Less: reclassification adjustment for gains included in net income                 (4)   
Other comprehensive income, net of tax                    1,513 
Comprehensive income                    2,850 
Exercise of stock options  14,245  1  98           99 
Income tax benefit from stock options exercised        49           49 
Cash dividends declared, $.1125 per share              (637)    (637)
Balance, September 30, 2004
  5,672,202 $567 $38,237 $- $28,291 $432 $67,527 

(continued)

4



                         
          Additional     Accumulated Other Total
      Common Paid in Retained Comprehensive Shareholders’
  Shares
 Stock
 Capital
 Earnings
 Income (Loss)
 Equity
Balance,January 1, 2004
  4,431,328  $443  $14,255  $26,203  $345  $41,246 
Comprehensive income:                        
Net income            3,867      3,867 
Other comprehensive income, net of tax expense of $54:                        
Net market valuation adjustment on securities available for sale               151     
Less: reclassification adjustment for gains included in net income               (64)    
Other comprehensive income, net of tax                   87 
                       
 
 
Comprehensive income                      3,954 
                       
 
 
Public offering of 1,150,000 shares  1,150,000   115   23,115           23,230 
Exercise of stock options  90,874   9   624         633 
Income tax benefit from stock options exercised        243           243 
Cash dividends declared, $.3375 per share            (1,779)     (1,779)
   
 
   
 
   
 
   
 
   
 
   
 
 
Balance,September 30, 2004
  5,672,202  $567  $38,237  $28,291  $432  $67,527 
   
 
   
 
   
 
   
 
   
 
   
 
 
                         
          Additional     Accumulated Other Total
      Common Paid in Retained Comprehensive Shareholders’
  Shares
 Stock
 Capital
 Earnings
 Income (Loss)
 Equity
Balance,January 1, 2003
  4,035,625  $403  $8,966  $23,022  $1,115  $33,506 
Comprehensive income:                        
Net income            3,638      3,638 
Other comprehensive income, net of tax benefit of $408:                        
Net market valuation adjustment on securities available for sale               (673)    
Less: reclassification adjustment for gains included in net income               (5)    
Other comprehensive income, net of tax                   (678)
                       
 
 
Comprehensive income                      2,960 
                       
 
 
Exercise of stock options  91,800   10   568         578 
Private Placement of 280,653 common shares  280,653   28   4,315           4,343 
Cash dividends declared, $.33 per share            (1,423)     (1,423)
   
 
   
 
   
 
   
 
   
 
   
 
 
Balance,September 30, 2003
  4,408,078  $441  $13,849  $25,237  $437  $39,964 
   
 
   
 
   
 
   
 
   
 
   
 
 
4



  Shares Common Stock Additional Paid in Capital Deferred Compensation Restricted Stock Grants Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity 
Balance, January 1, 2005
  5,679,239   $568   $38,284   $-   $28,968   $294   $68,114 
Comprehensive income:                      
Net income              5,785     5,785 
Other comprehensive income, net of tax benefit of $409:                      
Net market valuation adjustment on securities available for sale                 (682)   
Other comprehensive income, net of tax                    (682)
Comprehensive income                    5,103 
Restricted stock grants  35,000  3  1,087  (1,090)       - 
Amortization of deferred compensation - restricted stock grants           
39
        39 
Exercise of stock options  47,507  5  535           540 
Income tax benefit from stock options exercised        190           190 
Cash dividends declared, $.345 per share              (1,975)    (1,975)
Balance, September 30, 2005
  5,761,746 $576 $40,096 $(1,051)$32,778 $(388)$72,011 


  Shares Common Stock Additional Paid in Capital Deferred Compensation Restricted Stock Grants Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity 
Balance, January 1, 2004
  4,431,328   $443   $14,255   $-   $26,203   $345   $41,246 
Comprehensive income:                      
Net income              3,867     3,867 
Other comprehensive income, net of tax expense of $54:                      
Net market valuation adjustment on securities available for sale                 151    
Less: reclassification adjustment for gains included in net income                 (64)   
Other comprehensive income, net of tax                    87 
Comprehensive income                    3,954 
Public offering of 1,150,000 shares  1,150,000  115  23,115           23,230 
Exercise of stock options  90,874  9  624           633 
Income tax benefit from stock options exercised        243           243 
Cash dividends declared, $.3375 per share              (1,779)    (1,779)
Balance, September 30, 2004
  5,672,202 $567 $38,237 $- $28,291 $432 $67,527 
(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
  September 30,
  2004
 2003
CASH FLOWS FROM OPERATING ACTIVITIES
        
Net Income $3,867  $3,638 
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 
Provision for loan losses  1,489   1,035 
Provision for losses on unfunded loan commitments  18    
Deferred income tax benefit  (98)  (571)
Deferred net loan costs and fees  (224)  (840)
Investment securities net gains  (103)  (8)
Net (gain) loss on sale/disposal of premises and equipment     (2)
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)
Proceeds from sale of mortgage loans  83,117   92,136 
Fees on mortgage loans sold  (1,406)  (1,800)
(Increase) decrease in accrued interest receivable and other assets  (349)  3,774 
Increase (decrease) in accrued interest payable and other liabilities  346   (1,390)
   
 
   
 
 
NET CASH PROVIDED BY OPERATING ACTIVITIES
  4,780   6,933 
   
 
   
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
        
Purchases of investment securities available for sale  (38,368)  (24,846)
Repayments of principal and maturities of investment securities available for sale  3,149   13,101 
Sales of investment securities available for sale  9,281    
Net sale (purchase) of FHLB stock  1,000   (390)
Purchase of life insurance policies  (700)  (250)
Proceeds from sales of government guaranteed loans  569   2,241 
Proceeds from sales assets of Keys Insurance Agency, Inc.     184 
Loans originated or acquired, net of principal repayments  (79,872)  (69,294)
Proceeds from the sale of investment in ERAS JV     327 
Purchases of premises and equipment  (8,276)  (2,944)
Sales of premises and equipment  98   4 
   
 
   
 
 
NET CASH USED BY INVESTING ACTIVITIES
  (113,119)  (81,867)
   
 
   
 
 
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 
Repayments of FHLB long-term advances  (30,000)   
Net increase in demand, money market and savings accounts  43,562   17,265 
Net increase in time deposits  40,924   42,934 
Proceeds from exercise of stock options  633   578 
Proceeds from private placement of common stock     4,343 
Proceeds from public offering of common stock  23,230    
Cash dividends paid  (1,640)  (1,381)
   
 
   
 
 
NET CASH PROVIDED BY FINANCING ACTIVITIES
  92,021   77,232 
   
 
   
 
 
NET INCREASE IN CASH AND CASH EQUIVALENTS
  (16,318)  2,298 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
  33,681   24,070 
   
 
   
 
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD
 $17,363  $26,368 
   
 
   
 
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS:
        

6

  
For the nine month period ended September 30,
 
  
2005
 
2004
 
CASH FLOWS FROM OPERATING ACTIVITIES
     
Net Income $5,785 $3,867 
Adjustments to reconcile net income to net cash provided by operating activities:       
Depreciation and amortization  1,864  1,615 
Provision for loan losses  1,764  1,489 
Deferred income tax benefit  (561) (98)
Investment securities net gains  (1) (103)
Other  (392) - 
Mortgage loans originated for sale  (93,875) (83,534)
Proceeds from sale of mortgage loans  96,495  83,117 
Fees on mortgage loans sold  (1,535) (1,406)
Increase in accrued interest receivable and other assets  (1,005) (531)
Increase in accrued interest payable and other liabilities  4,986  364 
NET CASH PROVIDED BY OPERATING ACTIVITIES
  13,525  4,780 
        
CASH FLOWS FROM INVESTING ACTIVITIES
       
Purchases of investment securities available for sale  (10,000) (38,368)
Repayments of principal and maturities of investment securities available for sale  614  3,149 
Sales of investment securities available for sale  -  9,281 
Net sale of FHLB stock  129  1,000 
Purchase of life insurance policies  -  (700)
Proceeds from sales of loans  60  569 
Loans originated or acquired, net of principal repayments  (181,024) (79,872)
Purchases of premises and equipment  (2,208) (8,276)
Sales of premises and equipment  630  98 
NET CASH USED BY INVESTING ACTIVITIES
  (191,799) (113,119)
        
CASH FLOWS FROM FINANCING ACTIVITIES
       
Net increase in federal funds purchased and securities sold under agreements to repurchase  1,670  5,312 
Net increase (repayment) of FHLB short-term advances  (10,000) 10,000 
Repayments of FHLB long-term advances  -  (30,000)
Repayments of notes payable  (1,250) - 
Net increase in demand, money market and savings accounts  30,359  43,562 
Net increase in time deposits  195,127  40,924 
Proceeds from exercise of stock options  540  633 
Proceeds from public offering of common stock  -  23,230 
Cash dividends paid  (1,965) (1,640)
NET CASH PROVIDED BY FINANCING ACTIVITIES
  214,481  92,021 
        
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
  36,207  (16,318)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
  42,938  33,681 
CASH AND CASH EQUIVALENTS AT END OF PERIOD
 $79,145 $17,363 
        
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS:
       
Cash paid for:       
Interest $12,466 $8,276 
Income taxes  3,530  2,265 



         
  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

6


TIB FINANCIAL CORP.
UNAUDITED CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 20042005
(In thousands except for share and per share amounts)

(Unaudited)

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.

Allowance for Loan Losses
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.


Earnings Per Common Share
Basic earnings per share is net income divided by the weighted average number of common shares and vested restricted shares outstanding during the period. Diluted earnings per share includes the dilutive effect of additional potential common shares issuable under stock options and the dilutive effect of restricted shares computed using the treasury stock method.
Additional information with regard to the Company’s methodology and reporting of the allowance for loan losses and earnings per common share 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.

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.

8

significant event.


7

NOTE 3 - INVESTMENT SECURITIES


The amortized cost and estimated fair value of investment securities available for sale at September 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
 September 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  $5,181 $2 $116 $5,067 
U.S. Government agencies and corporations 31,357 425 663 31,119   64,166  20  1,373  62,813 
States and political subdivisions-tax-exempt 8,838 378 59 9,157   9,594  129  45  9,678 
States and political subdivisions-taxable 3,559 42 101 3,500   2,655  21  -  2,676 
Marketable equity securities 3,000 395  3,395   3,000  419  -  3,419 
Mortgage-backed securities 5,041 128 1 5,168   10,573  322  -  10,895 
 
 
 
 
 
 
 
 
  $95,169 $913 $1,534 $94,548 
 $52,004 $1,377 $824 $52,557 
 
 
 
 
 
 
 
 
 


  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
Real estate mortgage loans:        
Commercial $338,198  $297,221 
Residential  64,624   60,104 
Farmland  4,924   2,317 
Construction and vacant land  41,510   32,089 
Commercial and agricultural loans  62,851   63,624 
Indirect auto dealer loans  83,680   59,437 
Home equity loans  12,259   12,574 
Other consumer loans  10,248   11,232 
   
 
   
 
 
Total loans  618,294   538,598 
Net deferred loan costs  2,039   1,815 
   
 
   
 
 
Loans, net of deferred loan costs $620,333  $540,413 
   
 
   
 
 

(dollars in thousands) September 30, 2005 December 31, 2004 
      
Real estate mortgage loans:     
Commercial $428,314 $351,346 
Residential  73,474  67,204 
Farmland  3,991  4,971 
Construction and vacant land  106,015  49,815 
Commercial and agricultural loans  74,202  64,622 
Indirect auto dealer loans  113,639  91,890 
Home equity loans  17,220  13,856 
Other consumer loans  9,428  9,817 
Total loans  826,283  653,521 
Net deferred loan costs  1,798  2,157 
Loans, net of deferred loan costs and fees $828,081 $655,678 
8


NOTE 5 - ALLOWANCE FOR LOAN LOSSES


Activity in the allowance for loan losses for the nine months ended September 30, 20042005 and September 30, 20032004 follows:
         
(dollars in thousands)
 2004
 2003
Balance, January 1 $5,216  $4,272 
Provision for loan losses charged to expense  1,489   1,035 
Loans charged off  (654)  (470)
Recoveries of loans previously charged off  38   17 
   
 
   
 
 
Balance, September 30 $6,089  $4,854 
   
 
   
 
 

9

(dollars in thousands) 2005 2004 
Balance, January 1 $6,243 $5,216 
Provision for loan losses charged to expense  1,764  1,489 
Loans charged off  (923) (654)
Recoveries of loans previously charged off  69  38 
Balance, September 30 $7,153 $6,089 



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 nine months ended September 30:
         
  2004
 2003
For the three months ended September 30:        
Basic  5,660,075   4,407,920 
Dilutive effect of options outstanding  146,658   173,639 
   
 
   
 
 
Diluted  5,806,733   4,581,559 
   
 
   
 
 
For the nine months ended September 30:        
Basic  5,187,456   4,204,840 
Dilutive effect of options outstanding  168,830   171,573 
   
 
   
 
 
Diluted  5,356,286   4,376,413 
   
 
   
 
 

  2005 2004 
For the three months ended September 30:     
Basic  5,714,717  5,660,075 
Dilutive effect of options outstanding  199,823  146,658 
Diluted  5,914,540  5,806,733 
        
For the nine months ended September 30:       
Basic  5,703,907  5,187,456 
Dilutive effect of options outstanding  186,715  168,830 
Diluted  5,890,622  5,356,286 

Stock options for 32,500 and 5,00028,786 shares of common stock were not considered in computing diluted earnings per common share for the three and nine months ended September 30, 2004, and 2003respectively, because they were anti-dilutive. StockThere were no anti-dilutive stock options outstanding for 28,786the three and 2,326nine months ended September 30, 2005. For the three and nine months ended September 30, 2005, 35,000 unvested restricted shares of common stock were not considered in computing diluted earnings per common share for the nine months ended September 30, 2004 and 2003 because they were anti-dilutive. The dilutive effect of stock options isand the soledilutive effect of unvested restricted shares are the only common stock equivalentequivalents for purposes of calculating diluted earnings per common share.


NOTE 7 - STOCK-BASED COMPENSATION


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 (the “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 35,000 restricted shares, $1,090, will be recognized as an expense on a straight-line basis over the vesting period. During the three and nine months ended September 30, 2005, the Company recognized $39 as expense related to these restricted shares.

Total stock options granted, exercised, and expired/forfeited during the nine months ended September 30, 2004,2005, were 37,500, 90,874,69,500, 47,507, and 7,900,26,000, respectively. As of September 30, 2004,2005, there were 416,231405,187 options for shares outstanding.


Employee compensation expense under stock options is reported using the intrinsic value method. No stock-based compensation cost resulting from stock options 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,    
(dollars in thousands, except per share amounts)
 2004
 2003
Net income, as reported $3,867  $3,638 
Stock-based compensation expense determined under fair value based method, net of tax  166   134 
   
 
   
 
 
Pro forma net income $3,701  $3,504 
   
 
   
 
 
9

10



         
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,


For the three months ended September 30,     
(dollars in thousands, except per share amounts) 2005 2004 
      
Net income, as reported $2,054 $1,337 
Stock-based compensation expense determined under fair value based method, net of tax  
57
  
48
 
Pro forma net income $1,997 $1,289 
        
Basic earnings per share as reported $0.36 $0.24 
Pro forma basic earnings per share  0.35  0.23 
Diluted earnings per share as reported  0.35  0.23 
Pro forma diluted earnings per share  0.34  0.22 
For the nine months ended September 30,     
(dollars in thousands, except per share amounts) 2005 2004 
      
Net income, as reported $5,785 $3,867 
Stock-based compensation expense determined under fair value based method, net of tax  
184
  
166
 
Pro forma net income $5,601 $3,701 
        
Basic earnings per share as reported $1.01 $0.75 
Pro forma basic earnings per share  0.98  0.71 
Diluted earnings per share as reported  0.98  0.72 
Pro forma diluted earnings per share  0.95  0.69 

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 is 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 September 30, 20042005 and December 31, 2003:2004:
                 
  Well Adequately    
  Capitalized Capitalized September 30, 2004 December 31, 2003
  Requirement
 Requirement
 Actual
 Actual
Tier 1 Capital (to Average Assets)                
Consolidated  ³5%  ³4%  10.4%  7.8%
Bank  ³5%  ³4%  11.0%  8.5%
Tier 1 Capital (to Risk Weighted Assets)                
Consolidated  ³6%  ³4%  11.5%  8.8%
Bank  ³6%  ³4%  12.2%  9.6%
Total Capital (to Risk Weighted Assets)                
Consolidated  ³10%  ³8%  13.2%  10.6%
Bank  ³10%  ³8%  13.2%  10.5%

 
Well Capitalized
Requirement
Adequately Capitalized Requirement
September 30, 2005
Actual
December 31, 2004
Actual
Tier 1 Capital (to Average Assets)    
Consolidated
>5%
>4%
8.3%10.0%
Bank
>5%
>4%
8.7%10.5%
     
Tier 1 Capital (to Risk Weighted Assets)    
Consolidated
>6%
>4%
9.5%10.9%
Bank
>6%
>4%
9.9%11.4%
     
Total Capital (to Risk Weighted Assets)    
Consolidated
>10%
>8%
10.8%12.6%
Bank
>10%
>8%
10.7%12.4%
10


Management believes, as of September 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):

11



 
Nine months ended September 30, 2005
 Community Banking Merchant Bankcard Processing Parent And Other Totals 
          
Interest and dividend income $42,074 $- $- $42,074 
Interest expense  12,557  -  1,173  13,730 
Net interest and dividend income  29,517  -  (1,173) 28,344 
Other income  4,841  4,919  28  9,788 
Depreciation and amortization  1,858  6  -  1,864 
Other expense  22,850  4,125  331  27,306 
Pretax segment profit (loss) $9,650 $788 $(1,476)$8,962 
              
Segment Assets $1,052,947 $548 $399 $1,053,894 

 
Nine months ended September 30, 2004
 
 
Community Banking
 Merchant Bankcard Processing Parent and Other Totals 
          
Interest and dividend income $29,565 $- $- $29,565 
Interest expense  6,402  -  1,193  7,595 
Net interest and dividend income  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 

Three months ended September 30, 2005 Community Banking Merchant Bankcard Processing Parent And Other Totals 
          
Interest and dividend income $15,503 $- $- $15,503 
Interest expense  5,010  -  399  5,409 
Net interest and dividend income  10,493  -  (399) 10,094 
Other income  1,546  1,261  8  2,815 
Depreciation and amortization  627  2  -  629 
Other expense  7,906  1,090  106  9,102 
Pretax segment profit (loss) $3,506 $169 $(497)$3,178 
                 
      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 
11
                 
      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 
   
 
   
 
 

 
Three months ended September 30, 2004
 
 
Community Banking
 Merchant Bankcard Processing Parent and Other Totals 
          
Interest and dividend income $10,528 $- $- $10,528 
Interest expense  2,345  -  402  2,747 
Net interest and dividend income  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 
              
12


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


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 September 30, 2004,2005, and statement of income for the three months and nine months ended September 30, 2004.2005. Operating results for the three months and nine months ended September 30, 20042005 are not necessarily indicative of trends or results to be expected for the year ended December 31, 2005.

QUARTERLY SUMMARY

For the third consecutive quarter, results demonstrate the continuing successful implementation of our strategic plan. Net income of $2.05 million represents an increase of 54% over $1.34 million reported for the quarter ended September 30, 2004.

On a per diluted share basis, earnings were $0.35 for the third quarter of 2005 as compared to $0.23 for the third quarter of 2004. Credit quality remains solid and we continue to see growth opportunities in our newer southwest Florida markets. We believe merger-related market disruption continues to provide opportunities in gathering commercial, household and municipal relationships. We also believe TIB continues to gain name recognition and momentum in our new markets.


The increase in net income for the third quarter of 2005 over the respective prior-year period resulted primarily from a 30% increase in net interest income from $7.78 million a year ago to $10.09 million in the current quarter. The net interest margin on a tax equivalent basis for the three months ended September 30, 2005 was 4.37% which was a slight contraction from the 4.51% reported for the three months ended September 30, 2004.

Non-interest expense for the third quarter of 2005 was $9.28 million, compared with $7.92 million for the third quarter of 2004. The increase in non-interest expense is primarily attributable to expenses associated with the Company’s ongoing growth and expansion activities in the southwest Florida market. Considering the percentage growth in net income and net interest income, net occupancy and other expenses for the third quarter of 2005 increased less than 11% over the third quarter of 2004, reflecting the Company’s continued focus on cost containment.

Credit quality remained solid during the third quarter of 2005 which ended with non-performing loans representing only 0.06% of gross loans. As of September 30, 2005, the allowance for loan losses totaled $7.15 million, or 0.87% of total loans and 1,345% of non-performing loans. These figures compare with 0.98% and 519%, respectively, as of September 30, 2004.

Total assets reached $1.05 billion compared with $829.3 million as of December 31, 2004 and $765.7 million as of September 30, 2004. Total loans increased 34% to $826.3 million as of September 30, 2005, versus $618.3 million the prior year. Total deposits increased 43% to $913.3 million as of September 30, 2005, compared with $638.3 million a year ago.
13


THREE MONTHS ENDED SEPTEMBER 30, 20042005 AND 2003

2004


RESULTS OF OPERATIONS


Our net income of $1,337,000$2.05 million for the third quarter of 20042005 increased $174,000, or 15.0%,54% compared to $1,163,000$1.34 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 third quarter of 20042005 were $0.24$0.36 and $0.23,$0.35, respectively, as compared to $0.26$0.24 and $0.25$0.23 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%0.82% and 0.74%0.70% for the third quarter of 2005 and 2004, and 2003,respectively, while the annualized return on average shareholders’ equity was 8.06%11.45% and 11.64%8.06% 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%, to $7,781,000$10.09 million in the three months ended September 30, 20042005 as compared to $7.78 million in the same period last year. The prime rate as published in the Wall Street Journal began 2003started the third quarter of 2004 at 4.25% and in June 2003 it declined to 4.00% and remained at that rate until July of 2004 when it increased to 4.25%. In August4.75% by the rate increasedend of the quarter. At the beginning of the third quarter 2005 it had risen to 4.50%6.25% and increased again in Septembertwice to 4.75%end the quarter at 6.75%. 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 third quarter of 20042005 compared to the comparative period in 2003 has not yet significantly impactedthird quarter of 2004 had a positive 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 September 30, 2005 we had $113.6 million of indirect auto dealer loans outstanding, compared to $83.7 million at September 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 third quarter of 2005 was 6.69% which was an increase of 61 basis points compared to the 6.08% yield earned during the third quarter of 2004. The average cost of interest-bearing deposits increased 92 basis points from 1.81% during the third quarter of 2004 to 2.73% for the comparable period in 2005, and the rate of all interest-bearing liabilities increased 89 basis points, from 2.03% in 2004 to 2.92% in 2005. The Company’s net interest incomemargin decreased slightly to 4.37% in the third quarter of 2005 compared to 4.51% in the third 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 decrease slightly due principally to a CD promotion we held late in the third quarter to lock in our cost of funds coupled with the effects of competitive pressure on 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%decreased 5%, to $471,000$448,000 in the third quarter of 20042005 compared to $447,000$471,000 in the comparable prior year quarter. The higherlower provision for loan losses in 20042005 was primarily attributable to the continued growth and change in composition of the loan portfolio coupled with slightly higher charge offs.improvement in commercial real estate loan historical loss ratios and stabilization of indirect loans as a proportion of the total loan portfolio. As runoff continues to close in on new loan production, the growth rate of the indirect loan portfolio slowed to 5% during the third quarter of 2005 as compared with 9% during the third quarter of 2004. Total loans outstanding grew $52.4 million, or 7%, to $826.3 million, during the third quarter of 2005, as compared to growth of only $27.9 million, or 4.7%5%, during the third quarter of 2004, as compared to $37.3 million, or 7.9%, during the third quarter of 2003. The largest dollar increase during the third 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. At September 30, 2004, indirect auto dealer loans accounted for $83.7 million, or 13.5%, of our loan portfolio. This compares to an indirect lending portfolio of $50.9 million at September 30, 2003 which represented 10.0% of our total loan portfolio.

Total loans outstanding were $618.3 million at September 30, 2004, compared to $510.5 million at September 30, 2003.2004. Net charge-offs were $188,000$308,000 during the three months ended September 30, 20042005 compared to $147,000$188,000 for the same period in 2003.

2004.


14


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 third quarter of 20042005 was $2,643,000.$2.82 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% increase over the prior year quarter which totaled $7,040,000.$2.64 million. The increase in non-interest income is primarily attributable to increased fees on residential mortgage loans sold during the quarter.


NON-INTEREST EXPENSE

Non-interest expense for the third quarter of 2005 was $9.28 million. This represents a 17% increase over the prior year quarter which totaled $7.92 million. The increase in non-interest expense is primarily attributable to salaries and employee benefits increasing $428,000, net occupancy expense increasing $124,000,$909,000. At September 30, 2005 the Bank had 323 full-time employees and other expense increasing $332,000.10 part-time employees, compared to 303 full-time employees at September 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. Considering the percentage growth in net income and expansion in the Southwest Florida market.

14


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 general, as we continue to renovate facilities and add branches, thenet interest income, net occupancy expense category will grow overall. In December 2003, we leased a new operations facility in Homestead, Florida. Building rent expenseand other expenses for the third quarter of 2005 increased less than 11% over the third quarter of 2004, reflecting the Company’s continued focus on this propertycost containment.


INCOME TAXES

The provision for income taxes includes federal and state income taxes. The effective tax rates were 35.4% and 34.1% for the three months ended September 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.

respectively.



NINE MONTHS ENDED SEPTEMBER 30, 20042005 AND 2003

2004


RESULTS OF OPERATIONS


Our net income of $3,867,000$5.79 million for the first nine months of 2004 increased $229,000, or 6.3%,2005 represents a 50% increase compared to $3,638,000$3.87 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 nine months of 20042005 were $0.75$1.01 and $0.72$0.98, respectively, as compared to $0.87$0.75 and $0.83$0.72 per share in the previous year’s period. Basic weighted average common equivalent shares outstanding for the nine months ended September 30, 20042005 were 5,187,4565,703,907 compared to 4,204,8405,187,456 for the nine months ended September 30, 2003.same period in 2004. This 23.4%10% 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%0.71% for the first nine months of 20042005 and 2003,2004, while the annualized return on average shareholders’ equity was 9.15%11.11% and 13.21%9.15% 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%30%, to $21,970,000$26.58 million in the nine months ended September 30, 20042005 as compared to $20.48 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 remainedincreased three times to end the third quarter at that rate until July4.75%. At the beginning of 2004 when it increased to 4.25%. In August2005 the rate increasedhad risen to 4.50%5.25% and increased again in Septembersix times to 4.75%end the third quarter of 2005 at 6.75%. 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 three quarters of 2005 compared to the comparable 2004 period had a 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 atto date has 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 as 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 liabilities were priced as low as economically possible while attracting the volume of required funding, the net effect of this rising rate environment has been a larger increase in liability costs, generally, than the corresponding increase in asset yields during the current period. Due to the current level of prime rates and deposit costs as more adjustable loans move through their floor levels andthe impact of competitive pressures result in deposit rates increasing more rapidly. We believe he predominant driverpressure on new loan production, we expect this slight margin contraction to continue in the increase in net interest income is and will continue to be the growth of our balance sheet. Although the timing and possible effects of future changes in interest rates could be significant, we expect any such impact to be considerably less in extent than the relative impact of asset growth.

near term.


15


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 September 30, 2004 we had $83.7 million of indirect auto dealer loans outstanding, compared to $50.9 million at September 30, 2003. Coupled with the appropriate safeguards, we believe this product continues to offer us an opportunity to increase asset yields while not sacrificing our primary objective of maintaining strong asset quality.

The average yield on interest-earning assets for the first nine months of 20042005 was 6.04% which was a decrease6.49%, an increase of 1645 basis points compared to the 6.20%6.04% yield earned during the first nine months of 2003.2004. The average cost of interest-bearing deposits declined 20increased 72 basis points from 1.94%1.74% during the first nine months of 20032004 to 1.74%2.46% for the comparable period in 2004,2005, and the rate of all interest-bearing liabilities decreased 23increased 70 basis points, from 2.19% in 2003 to 1.96% in 2004.2004 to 2.66% in 2005. The Company’s net interest margin increaseddecreased to 4.39% in the first nine months of 2005 compared to 4.50% in the first nine 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 asdecrease slightly due principally to a CD promotion we held late in the third quarter to lock in our mixcost of assets and liabilities should grow in roughlyfunds coupled with the same proportions that exist currentlyeffects of competitive pressure on our balance sheet.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.


16



The following table presents average balances of the Company, the taxable-equivalent interest earned, and the rate paid thereon during the nine months ended September 30, 20042005 and September 30, 2003.2004.
                         
      2004
         2003
  
  Average Income/ Yields/ Average Income/ Yields/
(dollars in thousands) Balances
 Expense
 Rates
 Balances
 Expense
 Rates
Interest-earning assets:                        
Loans (1)(2) $574,003  $27,212   6.33% $469,225  $23,254   6.63%
Investment securities (2)  66,172   2,180   4.40%  55,080   2,094   5.08%
Marketable equity securities – 90% tax exempt (2)  3,395   272   10.70%         
Interest-bearing deposits in other banks  970   9   1.18%  327   2   0.71%
Federal Home Loan Bank stock  1,445   40   3.70%  1,476   40   3.62%
Federal funds sold  13,635   102   1.00%  26,132   227   1.16%
   
 
   
 
   
 
   
 
   
 
   
 
 
Total interest-earning assets  659,620   29,815   6.04%  552,240   25,617   6.20%
   
 
   
 
   
 
   
 
   
 
   
 
 
Non-interest-earning assets:                        
Cash and due from banks  18,803           15,463         
Investment in ERAS             69         
Premises and equipment, net  21,209           19,247         
Allowances for loan losses  (5,564)          (4,561)        
Other assets  28,622           28,786         
   
 
           
 
         
Total non-interest-earning assets  63,070           59,004         
   
 
           
 
         
Total assets $722,690          $611,244         
   
 
           
 
         
Interest-bearing liabilities:                        
Interest-bearing deposits:                        
NOW accounts $75,193   214   0.38% $57,636   170   0.39%
Money market  128,056   793   0.83%  127,772   891   0.93%
Savings deposits  43,738   127   0.39%  34,677   133   0.51%
Time deposits  221,498   4,969   3.00%  196,239   4,862   3.31%
   
 
   
 
   
 
   
 
   
 
   
 
 
Total interest-bearing deposits  468,485   6,103   1.74%  416,324   6,056   1.94%
Other interest-bearing liabilities:                        
Short-term borrowings and FHLB advances  31,258   299   1.28%  18,319   176   1.28%
Long-term borrowings  18,250   1,193   8.73%  18,250   1,193   8.74%
   
 
   
 
   
 
   
 
   
 
   
 
 
Total interest-bearing liabilities  517,993   7,595   1.96%  452,893   7,425   2.19%
   
 
   
 
   
 
   
 
   
 
   
 
 
Non-interest-bearing liabilities and shareholders’ equity:                        
Demand deposits  139,733           114,214         
Other liabilities  8,586           7,420         
Shareholders’ equity  56,378           36,717         
   
 
           
 
         
Total non-interest-bearing liabilities and shareholders’ equity  204,697           158,351         
   
 
           
 
         
Total liabilities and shareholders’ equity $722,690          $611,244         
   
 
           
 
         
Interest rate spread (tax equivalent basis)          4.08%          4.01%
           
 
           
 
 
Net interest income (tax equivalent basis)     $22,220          $18,192     
       
 
           
 
     
Net interest margin (3) (tax equivalent basis)          4.50%          4.40%
           
 
           
 
 

    2005     2004   
  Average Income/ Yields/ Average Income/ Yields/ 
(dollars in thousands) Balances Expense Rates Balances Expense Rates 
Interest-earning assets:             
Loans (1)(2) $743,018    $38,468     6.92%   $574,003    $27,212     6.33%
Investment securities (2)  79,461  2,540  4.27% 66,172  2,180  4.40%
Marketable equity securities - 90% tax exempt (2)  
3,560
  
289
  
10.85
%
 
3,395
  
272
  
10.70
%
Interest-bearing deposits in other banks  390  8  2.68% 970  9  1.18%
Federal Home Loan Bank stock  2,706  81  4.00% 1,445  40  3.70%
Federal funds sold  41,906  928  2.96% 13,635  102  1.00%
Total interest-earning assets  871,041  42,314  6.49% 659,620  29,815  6.04%
                    
Non-interest-earning assets:                   
Cash and due from banks  21,863        18,803       
Premises and equipment, net  26,925        21,209       
Allowances for loan losses  (6,744)       (5,564)      
Other assets  30,782        28,622       
Total non-interest-earning assets  72,826        63,070       
Total assets $943,867       $722,690       
                    
Interest-bearing liabilities:                   
Interest-bearing deposits:                   
NOW accounts $90,598  561  0.83%$75,193  214  0.38%
Money market  167,428  2,597  2.07% 128,056  793  0.83%
Savings deposits  48,175  178  0.49% 43,738  127  0.39%
Time deposits  328,179  8,334  3.39% 221,498  4,969  3.00%
Total interest-bearing deposits  634,380  11,670  2.46% 468,485  6,103  1.74%
                    
Other interest-bearing liabilities:                   
Short-term borrowings & FHLB advances  39,688  887  2.98% 31,258  299  1.28%
Long-term borrowings  17,069  1,173  9.19% 18,250  1,193  8.73%
Total interest-bearing liabilities  691,137  13,730  2.66% 517,993  7,595  1.96%
                    
Non-interest-bearing liabilities and shareholders’ equity:                   
Demand deposits  171,108        139,733       
Other liabilities  12,019        8,586       
Shareholders’ equity  69,603        56,378       
Total non-interest-bearing liabilities and shareholders’ equity  
252,730
        
204,697
       
                    
Total liabilities and shareholders’ equity 
$
943,867
       
$
722,690
       
                    
Interest rate spread (tax equivalent basis)        3.83%       4.08%
Net interest income (tax equivalent basis)    $28,584       $22,220    
Net interest margin (3) (tax equivalent basis)        4.39%       4.50%
                    

(1)(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.


17



The table below details the components of the changes in net interest income for the nine months ended September 30, 20042005 and September 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
          Net
  Average Average Increase
(dollars in thousands)
 Volume
 Rate
 (Decrease)
Interest income            
Loans (2) $5,004  $(1,046) $3,958 
Investment securities (2)  387   (301)  86 
Marketable equity securities (2)  272      272 
Interest-bearing deposits in other banks  5   2   7 
Federal Home Loan Bank Stock  (1)  1    
Federal funds sold  (97)  (28)  (125)
   
 
   
 
   
 
 
Total interest income  5,570   (1,372)  4,198 
   
 
   
 
   
 
 
Interest expense            
NOW accounts  50   (6)  44 
Money market  2   (100)  (98)
Savings deposits  31   (37)  (6)
Time deposits  592   (485)  107 
Short-term borrowings and FHLB advances  123      123 
Long-term borrowings         
   
 
   
 
   
 
 
Total interest expense  798   (628)  170 
   
 
   
 
   
 
 
Change in net interest income $4,772  $(744) $4,028 
   
 
   
 
   
 
 

  
2005 compared to 2004 (1)
Due to changes in
 
(dollars in thousands) 
Average Volume
 
Average Rate
 
Net Increase (Decrease)
 
Interest income          
Loans (2) $8,575 $2,681 $11,256 
Investment securities (2)  426  (66) 360 
Marketable equity securities (2)  13  4  17 
Interest-bearing deposits in other banks  (8) 7  (1)
Federal Home Loan Bank Stock  38  3  41 
Federal funds sold  425  401  826 
Total interest income  9,469  3,030  12,499 
           
Interest expense          
NOW accounts  51  296  347 
Money market  306  1,498  1,804 
Savings deposits  14  37  51 
Time deposits  2,641  724  3,365 
Short-term borrowings and FHLB advances  99  489  588 
Long-term borrowings  (86) 66  (20)
Total interest expense  3,025  3,110  6,135 
           
Change in net interest income $6,444 $(80)$6,364 

(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%18% to $1,489,000$1.8 million in the first nine months of 20042005 compared to $1,035,000$1.5 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$172.8 million, or 14.8%26%, during the first nine months of 2004,2005, as compared to $68.7only $79.7 million, or 15.6%15%, during the first nine months of 2003.2004. The largest dollar increase during the first nine months of 20042005 occurred in commercial real estate loans which increased $41.0$77.0 million, or 13.8%22%. This compares to a $26.2$41.0 million, or 9.9%14%, increase in commercial real estate loans during the first nine months of 2003. We have also continued to expand our indirect lending portfolio. At September 30, 2004, indirect auto dealer loans accounted for $83.7 million, or 13.5%, of our loan portfolio. This compares to an indirect lending portfolio of $50.9 million at September 30, 2003 which represented only 10.0% of our total loan portfolio. These increases2004. The disproportionate increase in volume and concentration of commercial real estate and indirect auto dealer loans relative to the compositiongrowth rate of the loan portfolio translateas compared to a greater than average increase in the provision for loan losses results from improvement in commercial real estate loan historical loss ratios and stabilization of indirect loans as our risk management policies dictate generally higher allocationsa proportion of such provisions for these categoriesthe total loan portfolio. As runoff continues to close in on new loan production, the growth rate of loans.

the indirect loan portfolio slowed to 24% during the first nine months of 2005 as compared with 41% during the corresponding 2004 period.


Total loans outstanding were $826.3 million at September 30, 2005, compared to $618.3 million at September 30, 2004, compared to $510.5 million at September 30, 2003.2004. Net charge-offs were $616,000$854,000 during the nine months ended September 30, 20042005 compared to $453,000$616,000 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.

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NON-INTEREST INCOME


Non-interest income for the first nine months of 20042005 was $9,247,000.$9.8 million. This represents an $184,000 or 2.0%a 6% increase over the prior year period which totaled $9,063,000.$9.2 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 to the gain on sale of investment in ERAS JV recognized in the prior year period.

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.

income.

18


NON-INTEREST EXPENSE


Non-interest expense for the first nine months of 20042005 was $23,871,000.$27.4 million. This represents a $3,179,000, or 15.4%,15% increase over the prior year period which totaled $20,692,000.$23.9 million. The increase in non-interest expense is primarily attributable to salaries and employee benefits increasing $1,243,000, net occupancy$2.5 million. At September 30, 2005 the Bank had 323 full-time employees and 10 part-time employees, compared to 303 full-time employees at September 30, 2004. The increased staffing was attributable to the opening of one branch in southwest Florida during the fourth quarter 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 ofwas 35.4%, for the nine months ended September 30, 2005, and 34.0%, for the nine months ended September 30, 2004, and $1,890,000, for an effective tax rate of 35.0%, for the nine months ended September 30, 2003.

2004.


BALANCE SHEET


Total assets at September 30, 20042005 were $765,686,000,$1.05 billion, up 14.4%27% 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,$225.5 million, or 15.3%33%. Loans net of deferred loan costs and fees increased $79.9$172.4 million, or 14.8%26%, to $620.3$828.1 million for the first nine months of 20042005 from year end 2003.2004. The largest dollar increase came in the commercial real estate loan category which increased $41.0$77.0 million, or 13.8%22%. 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 September 30, 2004,2005, indirect auto loans accounted for $83.7$113.6 million, or 13.5%14%, of our loan portfolio as compared to $59.4$91.9 million, or 11.0%14%, 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.

$16.7 million.


During the first nine 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 September 30, 20042005 as compared to $45.0$35.0 million at December 31, 2003.

2004.


Shareholders’ equity totaled $67.5$72.0 million at September 30, 2004,2005, increasing $26.3$3.9 million from December 31, 2003.2004. Book value per share increased to $11.90$12.50 at September 30, 20042005 from $9.31$11.99 at December 31, 2003.2004. The Company declared a quarterly dividend of $0.115 per share in the first, second and third quarters of 2005 and $0.1125 per share in each of the first three quarters of 2004 and $0.11 per share in each of the first three quarters of 2003.

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

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2004.



NON-PERFORMING ASSETS


Non-performing assets include nonaccrual loans, accruing loans contractually past due 90 days or more, repossessed personal property, and other real estate. Loans are placed on nonaccrual status when management has concerns relating to the ability to 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
Total nonaccrual loans $1,174  $390 
Accruing loans delinquent 90 days or more (a)      
   
 
   
 
 
Total non-performing loans $1,174  $390 
Repossessed personal property (indirect auto dealer loans)  720   598 
Other real estate owned (b)  190   193 
Other assets (b)  2,528   2,472 
   
 
   
 
 
Total non-performing assets $4,612  $3,653 
   
 
   
 
 
Allowance for loan losses $6,089  $5,216 
Non-performing assets as a percent of total assets  0.60%  0.55%
Non-performing loans as a percent of gross loans  0.19%  0.07%
Allowance for loan losses as a percent of non-performing loans  518.65%  1,336.33%

(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.

(dollars in thousands) September 30, 2005 December 31, 2004 
Total nonaccrual loans $532 $704 
Accruing loans delinquent 90 days or more (a)  -  - 
Total non-performing loans $532 $704 
        
Repossessed personal property (indirect auto dealer loans)  858  688 
Other real estate owned (b)  190  882 
Other assets (b)  2,705  2,665 
Total non-performing assets $4,285 $4,939 
        
Allowance for loan losses $7,153 $6,243 
        
Non-performing assets as a percent of total assets  0.41% 0.60%
Non-performing loans as a percent of gross loans  0.06% 0.11%
Allowance for loan losses as a percent of non-performing loans  1,344.5% 886.8%
        
19


(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 $1,886,000)$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 September 30, 20042005 and December 31, 2003,2004, and is accruing interest. Accrued interest on this loan totals approximately $654,000$761,000 and $590,000$677,000 at September 30, 20042005 and December 31, 2003,2004, 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 and $193,000 at September 30, 20042005 and December 31, 2003, respectively.2004. The non-guaranteed principal and interest ($1,961,0002.0 million at September 30, 20042005 and December 31, 2003)2004) and the reimbursable capitalized liquidation costs and protective advance costs totaling approximately $567,000$744,000 and $511,000$704,000 at September 30, 20042005 and December 31, 2003,2004, 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

20


charged-off the non guaranteed principal and interest totaling $1,961,000$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$7.2 million and $5,216,000$6.2 million at September 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.


Based on an analysis performed by management at September 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.


20

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 September 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$170.0 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.

21



Our interest rate sensitivity position at September 30, 20042005 is presented in the table below:
                         
  3 months 4 to 6 7 to 12 1 to 5 Over 5  
(dollars in thousands)
 or less
 Months
 Months
 years
 Years
 Total
Interest-earning assets:                        
Loans $245,829  $42,286  $36,794  $226,579  $66,806  $618,294 
Investment securities-taxable  1,311         38,265   25,419   64,995 
Investment securities-tax exempt  232         2,875   7,062   10,169 
Marketable equity securities  3,533               3,533 
Federal Home Loan Bank stock  1,250               1,250 
Interest bearing deposit in other bank  519               519 
   
 
   
 
   
 
   
 
   
 
   
 
 
Total interest-bearing assets  252,674   42,286   36,794   267,719   99,287   698,760 
   
 
   
 
   
 
   
 
   
 
   
 
 
Interest-bearing liabilities:                        
NOW accounts  83,835               83,835 
Money Market  127,376               127,376 
Savings Deposits  47,247               47,247 
Time deposits  29,160   38,999   48,875   128,915   5   245,954 
Notes payable              5,250   5,250 
Subordinated debentures  5,000            8,000   13,000 
Other borrowings  34,353               34,353 
   
 
   
 
   
 
   
 
   
 
   
 
 
Total interest-bearing liabilities  326,971   38,999   48,875   128,915   13,255   557,015 
   
 
   
 
   
 
   
 
   
 
   
 
 
Interest sensitivity gap $(74,297) $3,287  $(12,081) $138,804  $86,032  $141,745 
   
 
   
 
   
 
   
 
   
 
   
 
 
Cumulative interest sensitivity gap $(74,297) $(71,010) $(83,091) $55,713  $141,745  $141,745 
   
 
   
 
   
 
   
 
   
 
   
 
 
Cumulative sensitivity ratio  (10.6)%  (10.2)%  (11.9)%  8.0%  20.3%  20.3%
   
 
   
 
   
 
   
 
   
 
   
 
 

  3 Months 4 to 6 7 to 12 1 to 5 Over 5   
(dollars in thousands) or Less Months Months Years Years Total 
Interest-earning assets:             
Loans $368,616 $31,913 $50,706 $300,830 $74,218 $826,283 
Investment securities-taxable  907  -  5,239  49,908  25,397  81,451 
Investment securities-tax exempt  -  -  -  3,115  6,563  9,678 
Marketable equity securities  3,419  -  -  -  -  3,419 
Federal Home Loan Bank stock  2,781  -  -  -  -  2,781 
Federal funds sold  61,164  -  -  -  -  61,164 
Interest bearing deposit in other bank  218  -  -  -  -  218 
Total interest-bearing assets  437,105  31,913  55,945  353,853  106,178  984,994 
                    
Interest-bearing liabilities:                   
NOW accounts  88,570  -  -  -  -  88,570 
Money market  164,007  -  -  -  -  164,007 
Savings deposits  47,638  -  -  -  -  47,638 
Time deposits  104,785  160,614  86,786  94,119  5  446,309 
Notes payable  -  -  -  -  4,000  4,000 
Subordinated debentures  5,000  -  -  -  8,000  13,000 
Other borrowings  38,827  -  -  -  -  38,827 
Total interest-bearing liabilities  448,827  160,614  86,786  94,119  12,005  802,351 
                    
Interest sensitivity gap $(11,722)$(128,701)$(30,841)$259,734 $94,173 $182,643 
                    
Cumulative interest sensitivity gap $(11,722)$(140,423)$(171,264)$88,470 $182,643 $182,643 
                    
Cumulative sensitivity ratio  (1.2)% (14.3)% (17.4)% 9.0% 18.5% 18.5%
21


We are cumulatively liability sensitive through the one year time period, and asset sensitive in the over one year timeframes above. Certain liabilities such as non-indexed NOW and passbook savings accounts, while technically subject to immediate repricing in response to changing market rates, historically do not reprice as quickly nor to the extent as other interest sensitive accounts. Accordingly, if market interest rates should decrease, it is anticipated that the net interest margin would decrease. Because of non-interest bearing liabilities, total interest-earning assets are substantially greater than the total interest-bearing liabilities and therefore it is anticipated that over time the effects on net interest income from changes in asset yield will be greater than the change in expense from liability cost. Therefore,In the next three months, we anticipate interest rates increasing slowly and our net interest margin should decrease slightly due primarily to a CD promotion locking in our cost of funds late in the third quarter coupled with the effects of competitive pressure on new loan production at higher interest rates. Thereafter, if rates continue to 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$171 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%-20% to +10% range. At September 30, 2004,2005, we were within this range with a one year cumulative sensitivity ratio of - -11.9%-17.4%.


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

22


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 September 30, 2004,2005, total unfunded loan commitments were approximately $87.7$179.3 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 September 30, 2004,2005, commitments under standby letters of credit aggregated approximately $2.4$2.6 million.


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

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK


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

The following interest


Interest rate sensitivity analysis information as of September 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 andre-pricing intervals. 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

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. 
TIB FINANCIAL CORP.
Date: November 10, 2004 /s/  Edward V. Lett
Edward V. Lett 
President and Chief Executive Officer 
     
   
 /s/ Edward V. Lett
Date:November 9, 2005Edward V. Lett
President and Chief Executive Officer
/s/ David P. Johnson
David P. Johnson 
 David P. Johnson 
 Executive Vice President and Chief Financial Officer 

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