UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)



OF THE SECURITIES EXCHANGE ACT OF 1934

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

TIB FINANCIAL CORP.

(Exact name of registrant as specified in its charter)
   
FLORIDA 65-0655973
 
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization) (I.R.S. Employer
Identification No.)

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

(Address of principal executive offices) (Zip Code)

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

Not Applicable

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

Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ or Noo

Indicate by check mark whether the issuer is an accelerated filer (as defined in Rule 12b-2 of the Act). Yesþ or Noo

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 5,710,5645,747,540
   
Class Outstanding as of April 30,July 31, 2005



1


TABLE OF CONTENTS

Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Item 4. CONTROLS AND PROCEDURES
Part II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Item 5. OTHER INFORMATION
Item 6. EXHIBITS
SIGNATURES
Ex-31.1 Section 302 CEO Certification
Ex-31.2 Section 302 CFO Certification
Ex-32.1 Section 906 CEO Certification
Ex-32.2 Section 906 CFO Certification


Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

TIB FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share amounts)
                
 March 31, 2005 December 31, 2004  June 30, 2005 December 31, 2004
 (Unaudited)    (Unaudited) 
ASSETS
  
Cash and due from banks $20,216 $27,410  $20,488 $27,410 
Federal funds sold 62,391 15,528  77,550 15,528 
          
Cash and cash equivalents 82,607 42,938  98,038 42,938 
  
Investment securities available for sale 80,735 77,807  86,992 77,807 
 
Loans, net of deferred loan costs and fees 719,285 655,678  775,759 655,678 
Less: allowance for loan losses 6,541 6,243  7,013 6,243 
          
Loans, net 712,744 649,435  768,746 649,435 
  
Premises and equipment, net 27,141 27,559  25,810 27,559 
Goodwill 155 155  155 155 
Intangible assets, net 1,320 1,392  1,247 1,392 
Accrued interest receivable and other assets 34,624 30,039  31,897 30,039 
          
TOTAL ASSETS
 $939,326 $829,325  $1,012,885 $829,325 
          
  
LIABILITIES
  
Deposits:  
Noninterest-bearing demand $185,012 $152,035  $213,328 $152,035 
Interest-bearing 614,269 535,824  656,881 535,824 
          
Total Deposits 799,281 687,859  870,209 687,859 
Federal Home Loan Bank (FHLB) advances 25,000 35,000  25,000 35,000 
Short-term borrowings 19,922 12,157  17,593 12,157 
Long-term borrowings 17,000 18,250  17,000 18,250 
Accrued interest payable and other liabilities 9,844 7,945  12,343 7,945 
          
TOTAL LIABILITIES
 871,047 761,211  942,145 761,211 
          
  
SHAREHOLDERS’ EQUITY
  
Preferred stock — no par value: 5,000,000 
and 0 shares authorized, 0 and 0 shares issued   
Common stock — $.10 par value: 20,000,000 
and 7,500,000 shares authorized, 5,706,939 
and 5,679,239 shares issued 571 568 
Preferred stock — no par value: 5,000,000 shares authorized, 0 and 0 shares issued   
Common stock — $.10 par value: 20,000,000 and 7,500,000 shares authorized, 5,712,264 and 5,679,239 shares issued 571 568 
Additional paid in capital 38,629 38,284  38,715 38,284 
Retained earnings 29,859 28,968  31,386 28,968 
Accumulated other comprehensive income  (780) 294  68 294 
          
TOTAL SHAREHOLDERS’ EQUITY
 68,279 68,114  70,740 68,114 
          
 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 $939,326 $829,325  $1,012,885 $829,325 
          

(See notes to consolidated financial statements)

2


TIB FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(dollars in thousands, except earnings per share amounts)
                
         Three months ended Six months ended
 Three months ended  June 30, June 30,
 March 31,  2005 2004 2005 2004
 2005 2004   
INTEREST AND DIVIDEND INCOME
  
Loans, including fees $11,310 $8,601  $12,934 $8,960 $24,244 $17,560 
Investment securities:  
Taxable 636 410  708 633 1,344 1,044 
Tax-exempt 160 153 
Tax exempt 161 172 321 325 
Interest bearing deposits in other bank 4 1  2 4 6 5 
Federal Home Loan Bank Stock 27 15  31 9 58 24 
Federal funds sold 209 38  389 41 598 79 
       
TOTAL INTEREST AND DIVIDEND INCOME
 12,346 9,218  14,225 9,819 26,571 19,037 
  
  
INTEREST EXPENSE
  
Deposits 3,101 1,892  3,895 1,980 6,996 3,872 
Federal Home Loan Bank advances 175 94  193 70 368 164 
Short-term borrowings 73 9  110 12 183 21 
Long term borrowings 383 395  391 396 774 791 
       
TOTAL INTEREST EXPENSE
 3,732 2,390  4,589 2,458 8,321 4,848 
       
  
NET INTEREST INCOME
 8,614 6,828  9,636 7,361 18,250 14,189 
  
PROVISION FOR LOAN LOSSES
 586 369  730 649 1,316 1,018 
  
      
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
 8,028 6,459  8,906 6,712 16,934 13,171 
  
NON-INTEREST INCOME
  
Service charges on deposit accounts 608 644  567 637 1,175 1,281 
Investment securities gains, net  44   52  96 
Merchant bankcard processing income 1,896 1,760  1,762 1,534 3,658 3,294 
Fees on mortgage loans sold 492 398  582 645 1,074 1,043 
Other income 398 427  668 463 1,066 890 
       
TOTAL NON-INTEREST INCOME
 3,394 3,273  3,579 3,331 6,973 6,604 
  
NON-INTEREST EXPENSE
  
Salaries and employee benefits 4,212 3,442  4,410 3,614 8,622 7,056 
Net occupancy expense 1,276 1,122  1,349 1,191 2,625 2,313 
Other expense 3,565 3,230  3,311 3,348 6,876 6,578 
       
TOTAL NON-INTEREST EXPENSE
 9,053 7,794  9,070 8,153 18,123 15,947 
       
  
INCOME BEFORE INCOME TAX EXPENSE
 2,369 1,938  3,415 1,890 5,784 3,828 
  
INCOME TAX EXPENSE
 822 665  1,231 633 2,053 1,298 
       
 
NET INCOME
 $1,547 $1,273  $2,184 $1,257 $3,731 $2,530 
       
  
BASIC EARNINGS PER SHARE:
 $0.27 $0.29  $0.38 $0.23 $0.66 $0.51 
DILUTED EARNINGS PER SHARE:
 $0.26 $0.27  $0.37 $0.22 $0.64 $0.49 

(See notes to consolidated financial statements)

3


TIB FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
(dollars in thousands, except per share amounts)
                         
          Additional      Accumulated Other  Total 
      Common  Paid in  Retained  Comprehensive  Shareholders’ 
  Shares  Stock  Capital  Earnings  Income (Loss)  Equity 
Balance,January 1, 2005
  5,679,239  $568  $38,284  $28,968  $294  $68,114 
Comprehensive income:                        
Net income              1,547       1,547 
Other comprehensive income, net of tax                        
benefit of $645:                        
Net market valuation adjustment on                        
securities available for sale                  (1,074)    
Other comprehensive income, net of tax                      (1,074)
                        
Comprehensive income                      473 
                        
Exercise of stock options  27,700   3   280           283 
Income tax benefit from stock options exercised          65           65 
Cash dividends declared, $.115 per share             (656)      (656)
                   
Balance,March 31, 2005
  5,706,939  $571  $38,629  $29,859  $(780) $68,279 
                   
                         
          Additional      Accumulated Other  Total 
      Common  Paid in  Retained  Comprehensive  Shareholders’ 
  Shares  Stock  Capital  Earnings  Income (Loss)  Equity 
Balance,January 1, 2004
  4,431,328  $443  $14,255  $26,203  $345  $41,246 
Comprehensive income:                        
Net income              1,273       1,273 
Other comprehensive income, net of tax                        
expense of $431:                        
Net market valuation adjustment on                        
securities available for sale                  740     
Less: reclassification adjustment for gains                        
included in net income                  (27)    
Other comprehensive income, net of tax                      713 
                        
Comprehensive income                      1,986 
                        
Exercise of stock options  57,736   6   420           426 
Income tax benefit from stock options exercised          122           122 
Cash dividends declared, $.1125 per share             (505)      (505)
                   
Balance,March 31, 2004
  4,489,064  $449  $14,797  $26,971  $1,058  $43,275 
                   
                         
                  Accumulated  
          Additional     Other Total
      Common Paid in Retained Comprehensive Shareholders’
  Shares Stock Capital Earnings Income (Loss) Equity
 
Balance,April 1, 2005
  5,706,939  $571  $38,629  $29,859  $(780) $68,279 
Comprehensive income:                        
Net income              2,184       2,184 
Other comprehensive income, net of tax expense of $509:                        
Net market valuation adjustment on securities available for sale                  848     
Other comprehensive income, net of tax                      848 
                         
Comprehensive income                      3,032 
                         
Exercise of stock options  5,325      58           58 
Income tax benefit from stock options exercised          28           28 
Cash dividends declared, $.115 per share              (657)      (657)
 
Balance,June 30, 2005
  5,712,264  $571  $38,715  $31,386  $68  $70,740 
 
                         
                  Accumulated  
          Additional     Other Total
      Common Paid in Retained Comprehensive Shareholders’
  Shares Stock Capital Earnings Income (Loss) Equity
 
Balance,April 1, 2004
  4,489,064  $449  $14,797  $26,971  $1,058  $43,275 
Comprehensive income:                        
Net income              1,257       1,257 
Other comprehensive income, net of tax benefit of $1,290:                        
Net market valuation adjustment on securities available for sale                  (2,106)    
Less: reclassification adjustment for gains                        
included in net income                  (33)    
Other comprehensive income, net of tax                      (2,139)
                         
Comprehensive income                      (882)
                         
Public offering of 1,150,000 shares  1,150,000   115   23,115           23,230 
Exercise of stock options  18,893   2   105           107 
Income tax benefit from stock options exercised          73           73 
Cash dividends declared, $.1125 per share              (637)      (637)
 
Balance,June 30, 2004
  5,657,957  $566  $38,090  $27,591  $(1,081) $65,166 
 
(continued)

4


                         
                  Accumulated  
          Additional     Other Total
      Common Paid in Retained Comprehensive Shareholders’
  Shares Stock Capital Earnings Income (Loss) Equity
 
Balance,January 1, 2005
  5,679,239  $568  $38,284  $28,968  $294  $68,114 
Comprehensive income:                        
Net income              3,731       3,731 
Other comprehensive income, net of tax benefit of $136:                        
Net market valuation adjustment on securities available for sale                  (226)    
Other comprehensive income, net of tax                      (226)
                         
Comprehensive income                      3,505 
                         
Exercise of stock options  33,025   3   338           341 
Income tax benefit from stock options exercised          93           93 
Cash dividends declared, $.23 per share              (1,313)      (1,313)
 
Balance,June 30, 2005
  5,712,264  $571  $38,715  $31,386  $68  $70,740 
 
                         
                  Accumulated  
          Additional     Other Total
      Common Paid in Retained Comprehensive Shareholders’
  Shares Stock Capital Earnings Income (Loss) Equity
 
Balance,January 1, 2004
  4,431,328  $443  $14,255  $26,203  $345  $41,246 
Comprehensive income:                        
Net income              2,530       2,530 
Other comprehensive income, net of tax benefit of $859:                        
Net market valuation adjustment on securities available for sale                  (1,366)    
Less: reclassification adjustment for gains                        
included in net income                  (60)    
Other comprehensive income, net of tax                      (1,426)
                         
Comprehensive income                      1,104 
                         
Public offering of 1,150,000 shares  1,150,000   115   23,115           23,230 
Exercise of stock options  76,629   8   526           534 
Income tax benefit from stock options exercised          194           194 
Cash dividends declared, $.225 per share              (1,142)      (1,142)
 
Balance,June 30, 2004
  5,657,957  $566  $38,090  $27,591  $(1,081) $65,166 
 
(See notes to consolidated financial statements)

45


TIB FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE IN CASH AND CASH EQUIVALENTS
(Unaudited)
(dollars in thousands)
                
 For the three month period ended  For the six month period ended
 March 31,  June 30,
 2005 2004  2005 2004
CASH FLOWS FROM OPERATING ACTIVITIES
  
Net Income $1,547 $1,273  $3,731 $2,530 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization 617 527  1,235 1,072 
Provision for loan losses 586 369  1,316 1,018 
Deferred income tax benefit  (120)  (115)  (402)  (360)
Investment securities net gains   (44)   (96)
Net gain on sale/disposal of premises, equipment and intangibles  (32)  (1)
Net (gain) loss on sale/disposal of premises and equipment  (312) 6 
Mortgage loans originated for sale  (45,679)  (27,195)  (66,210)  (62,472)
Proceeds from sale of mortgage loans 43,153 24,901  66,645 60,150 
Fees on mortgage loans sold  (492)  (398)  (1,074)  (1,043)
Increase in accrued interest receivable and other assets  (818)  (109)  (522)  (628)
Increase (decrease) in accrued interest payable and other liabilities 1,960  (581)
Increase in accrued interest payable and other liabilities 4,488 444 
          
NET CASH PROVIDED BY (USED BY) OPERATING ACTIVITIES
 722  (1,373)
NET CASH PROVIDED BY OPERATING ACTIVITIES
 8,895 621 
          
  
CASH FLOWS FROM INVESTING ACTIVITIES
  
Purchases of investment securities available for sale  (5,000)    (10,000)  (38,368)
Repayments of principal and maturities of investment securities available for sale 332 1,199  411 1,960 
Sales of investment securities available for sale  2,046   5,099 
Net sale of FHLB stock 129 1,250  129 325 
Proceeds from sales of government guaranteed loans  569   569 
Loans originated or acquired, net of principal repayments  (63,988)  (11,854)  (119,774)  (52,751)
Purchases of premises and equipment  (186)  (1,525)  (738)  (4,317)
Sales of premises, equipment and intangibles 93 2 
Sales of premises and equipment 609 4 
          
NET CASH USED BY INVESTING ACTIVITIES
  (68,620)  (8,313)  (129,363)  (87,479)
          
  
CASH FLOWS FROM FINANCING ACTIVITIES
  
Net increase in federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings 7,765 1,306 
Net decrease in FHLB short-term advances  (10,000)  (15,000)
Net increase in federal funds purchased and securities sold under agreements to repurchase 5,436 2,832 
Net increase (repayment) of FHLB short-term advances  (10,000) 3,500 
Repayments of FHLB long-term advances   (10,000)   (10,000)
Repayments of notes payable  (1,250)    (1,250)  
Net increase in demand, money market and savings accounts 55,564 54,250  91,829 49,120 
Net increase in time deposits 55,858 9,370  90,521 21,461 
Proceeds from exercises of stock options 283 426 
Proceeds from exercise of stock options 341 534 
Proceeds from public offering of common stock  23,230 
Cash dividends paid  (653)  (499)  (1,309)  (1,004)
          
NET CASH PROVIDED BY FINANCING ACTIVITIES
 107,567 39,853  175,568 89,673 
          
  
NET INCREASE IN CASH AND CASH EQUIVALENTS
 39,669 30,167  55,100 2,815 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
 42,938 33,681  42,938 33,681 
          
CASH AND CASH EQUIVALENTS AT END OF PERIOD
 $82,607 $63,848  $98,038 $36,496 
          
  
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS:
  
Cash paid for:  
Interest $3,655 $3,621  $7,259 $5,993 
     
Income taxes $ $  1,737 1,135 
     

(See notes to consolidated financial statements)

56


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

NOTE 1 — BASIS OF PRESENTATION & ACCOUNTING POLICIES

TIB Financial Corp. is a financial holding company headquartered in Naples, Florida. TIB Financial Corp. owns and operates TIB Bank, 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, 2004.

The consolidated statements include the accounts of TIB Financial Corp. and its wholly-owned subsidiary, TIB Bank, and the Bank’s subsidiary, TIB Investment Center Inc. (this corporation was dissolved in January 2005 — see Note 2), 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 and its subsidiaries (unless the context indicates another meaning).

CRITICAL ACCOUNTING POLICIES

The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted within the United States of America and conform to general practices within the banking industry. Accounting and reporting policies for the allowance for loan losses are deemed critical since they involve the use of estimates and require significant management judgments. Losses on loans result from a broad range of causes from borrower specific problems, to industry issues, to the impact of the economic environment. The identification of these factors that lead to default or non-performance under a borrower loan agreement and the estimation of loss in these situations are very subjective. In addition, a dramatic change in the performance of one or a small number of borrowers can have a significant impact on the estimate of losses. Management has implemented a process that has been applied consistently to systematically consider the many variables that impact the estimation of the allowance for loan losses.

Additional information with regard to the Company’s methodology and reporting of the allowance for loan losses is included in the 2004 Annual Report and 10-K.

NOTE 2 — ACQUISITIONS AND DIVESTITURES

On December 15, 2004, the Company closed the sale of certain intangible assets which primarily comprised a book of business which served as the foundation of the Company’s investment center operations. The buyer paid $50 in cash at the closing. The Company recognized a gain of $50 on the transaction. 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 Investment Center, Inc.

Consistent with prior period disclosures regarding segments, the Company does not consider the divestiture of the investment center operations a significant event.

67


NOTE 3 — INVESTMENT SECURITIES

The amortized cost and estimated fair value of investment securities available for sale at March 31,June 30, 2005 and December 31, 2004 are presented below:
                 
  March 31, 2005 
(dollars in thousands) Amortized  Unrealized  Unrealized  Estimated 
  Cost  Gains  Losses  Fair Value 
U.S. Treasury securities $5,179  $2  $142  $5,039 
U.S. Government agencies and corporations  59,208   47   1,814   57,441 
States and political subdivisions-tax-exempt  9,595   156   76   9,675 
States and political subdivisions-taxable  2,691   10   13   2,688 
Marketable equity securities  3,000   521      3,521 
Mortgage-backed securities  2,311   60      2,371 
             
  $81,984  $796  $2,045  $80,735 
             
                
                 June 30, 2005
 December 31, 2004  Amortized Unrealized Unrealized Estimated
(dollars in thousands) Amortized Unrealized Unrealized Estimated  Cost Gains Losses Fair Value
 Cost Gains Losses Fair Value 
U.S. Treasury securities $5,178 $5 $29 $5,154  $5,180 $3 $55 $5,128 
U.S. Government agencies and corporations 54,228 104 869 53,463  64,187 80 768 63,499 
States and political subdivisions-tax-exempt 9,596 246 26 9,816  9,595 216 3 9,808 
States and political subdivisions-taxable 2,862 17 23 2,856  2,690 78  2,768 
Marketable equity securities 3,000 987  3,987  3,000 490  3,490 
Mortgage-backed securities 2,473 58  2,531  2,232 67  2,299 
           
 $77,337 $1,417 $947 $77,807  $86,884 $934 $826 $86,992 
           

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

Major classifications of loans are as follows:
                
(dollars in thousands) March 31, 2005 December 31, 2004  June 30, 2005 December 31, 2004
Real estate mortgage loans:  
Commercial $393,362 $351,346  $411,504 $351,346 
Residential 70,490 67,204  75,540 67,204 
Farmland 4,825 4,971  4,550 4,971 
Construction and vacant land 67,552 49,815  85,134 49,815 
Commercial and agricultural loans 57,647 64,622  62,864 64,622 
Indirect auto dealer loans 98,633 91,890  108,178 91,890 
Home equity loans 14,637 13,856  16,056 13,856 
Other consumer loans 10,075 9,817  10,022 9,817 
       
Total loans 717,221 653,521  773,848 653,521 
Net deferred loan costs 2,064 2,157  1,911 2,157 
       
Loans, net of deferred loan costs $719,285 $655,678  $775,759 $655,678 
       

NOTE 5 — ALLOWANCE FOR LOAN LOSSES

Activity in the allowance for loan losses for the threesix months ended March 31,June 30, 2005 and June 30, 2004 follows:
                
(dollars in thousands) 2005 2004  2005 2004
Balance, January 1 $6,243 $5,216  $6,243 $5,216 
Provision for loan losses charged to expense 586 369  1,316 1,018 
Loans charged off  (307)  (243)  (604)  (436)
Recoveries of loans previously charged off 19 5  58 8 
       
Balance, March 31 $6,541 $5,347 
Balance, June 30 $7,013 $5,806 
       

78


NOTE 6 — EARNINGS PER SHARE AND COMMON STOCK

Earnings per share have been computed based on the following weighted average number of common shares outstanding for the three months and six months ended March 31:June 30:
                
 2005 2004  2005 2004
For the three months ended March 31: 
  
For the three months ended June 30: 
Basic 5,686,233 4,462,493  5,708,745 5,434,532 
Dilutive effect of options outstanding 179,866 196,901  176,850 163,310 
       
Diluted 5,866,099 4,659,394  5,885,595 5,597,842 
       
 
For the six months ended June 30: 
Basic 5,693,090 4,948,550 
Dilutive effect of options outstanding 178,405 180,072 
  
Diluted 5,871,495 5,128,622 
  

Stock options for 20,08233,736 and 26,909 shares of common stock were not considered in computing diluted earnings per common share for the three and six months ended March 31,June 30, 2004 because they were anti-dilutive. There were no anti-dilutive stock options outstanding for the three and six months ended March 31,June 30, 2005. The effect of stock options is the sole common stock equivalent for purposes of calculating diluted earnings per common share.

NOTE 7 — STOCK-BASED COMPENSATION

Total stock options granted, exercised, and expired/forfeited during the threesix months ended March 31,June 30, 2005, were 69,500, 27,70033,025, and 8,000,13,800, respectively. As of March 31,June 30, 2005, there were 442,994431,869 options for shares outstanding.

Employee compensation expense under stock options is reported using the intrinsic value method. No stock-based compensation cost is reflected in net income, as all options granted had an exercise price equal to or greater than the market price of the underlying common stock at date of grant. The following table illustrates the effect on net income and earnings per share if expense was measured using the fair value recognition provisions of FASB Statement No. 123, “Accounting for Stock-Based Compensation.”
                
For the three months ended March 31,     
For the three months ended June 30,    
(dollars in thousands, except per share amounts) 2005 2004  2005 2004
 
Net income, as reported $1,547 $1,273  $2,184 $1,257 
Stock-based compensation expense determined under fair value based method, net of tax 63 72  64 47 
     
Pro forma net income $1,484 $1,201  $2,120 $1,210 
     
  
Basic earnings per share as reported $0.27 $0.29  $0.38 $0.23 
Pro forma basic earnings per share 0.26 0.27  0.37 0.22 
Diluted earnings per share as reported 0.26 0.27  0.37 0.22 
Pro forma diluted earnings per share 0.25 0.26  0.36 0.22 

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

89


In December 2004, the FASB issued FAS 123 (revised 2004), Share-Based Payment. Under this promulgation, companies are required to reflect costs associated with employee stock options in their income statements at fair value. In April 2005, the SEC amended the date for compliance with FAS 123 (revised 2004) so that each registrant that is not a small business issuer will be required to prepare financial statements in accordance with statement 123 (revised 2004) beginning with the first interim or annual reporting period of the registrant’s first fiscal year beginning on or after June 15, 2005. Accordingly, the Company will begin reflecting stock option costs under the fair value method commencing in the 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 March 31,June 30, 2005 and December 31, 2004:
                
           Well Adequately    
 Well Adequately      Capitalized Capitalized June 30, 2005 December 31, 2004
 Capitalized Capitalized March 31, 2005 December 31, 2004  Requirement Requirement Actual Actual
 Requirement Requirement Actual Actual 
Tier 1 Capital (to Average Assets)        
Consolidated ³5% ³4% 9.1%  10.0%  ³5%  ³4%  8.5%  10.0%
Bank ³5% ³4% 9.5%  10.5%  ³5%  ³4%  8.9%  10.5%
        
Tier 1 Capital (to Risk Weighted Assets)        
Consolidated ³6% ³4% 9.9%  10.9%  ³6%  ³4%  9.8%  10.9%
Bank ³6% ³4% 10.3%  11.4%  ³6%  ³4%  10.3%  11.4%
        
Total Capital (to Risk Weighted Assets)        
Consolidated ³10% ³8% 11.2%  12.6%  ³10%  ³8%  11.2%  12.6%
Bank ³10% ³8% 11.1%  12.4%  ³10%  ³8%  11.2%  12.4%

Management believes, as of March 31,June 30, 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.

NOTE 9 — SEGMENT REPORTING

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

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

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

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

9


                                
 Merchant Parent    Merchant Parent  
Three months ended Community Bankcard and   
March 31, 2004 Banking Processing Other Totals 
Six months ended Community Bankcard And  
June 30, 2005 Banking Processing Other Totals
 
Interest and dividend income $9,218 $ $ $9,218  $26,571 $ $ $26,571 
Interest expense 1,995  395 2,390  7,547  774 8,321 
           
Net interest and dividend income (expense) 7,223   (395) 6,828 
Net interest and dividend income 19,024   (774) 18,250 
Other income 1,414 1,760 99 3,273  3,295 3,658 20 6,973 
Depreciation and amortization 515 11 1 527  1,231 4  1,235 
Other expense 6,009 1,433 194 7,636  14,944 3,035 225 18,204 
           
Pretax segment profit (loss) $2,113 $316 $(491) $1,938  $6,144 $619 $(979) $5,784 
           
  
Segment Assets $710,065 $37 $455 $710,557  $1,012,233 $242 $410 $1,012,885 
 

10


                 
      Merchant Parent  
Six months ended Community Bankcard and  
June 30, 2004 Banking Processing Other Totals
 
 
Interest and dividend income $19,037  $  $  $19,037 
Interest expense  4,057      791   4,848 
   
Net interest and dividend income  14,980      (791)  14,189 
Other income  3,104   3,294   206   6,604 
Depreciation and amortization  1,049   21   2   1,072 
Other expense  12,595   2,745   553   15,893 
   
Pretax segment profit (loss) $4,440  $528  $(1,140) $3,828 
   
                 
Segment Assets $760,068  $30  $422  $760,520 
                 
                 
      Merchant Parent  
Three months ended Community Bankcard And  
June 30, 2005 Banking Processing Other Totals
 
 
Interest and dividend income $14,225  $  $  $14,225 
Interest expense  4,198      391   4,589 
   
Net interest and dividend income  10,027      (391)  9,636 
Other income  1,807   1,762   10   3,579 
Depreciation and amortization  616   2      618 
Other expense  7,649   1,460   73   9,182 
   
Pretax segment profit (loss) $3,569  $300  $(454) $3,415 
   
                 
      Merchant Parent  
Three months ended Community Bankcard and  
June 30, 2004 Banking Processing Other Totals
 
 
Interest and dividend income $9,819  $  $  $9,819 
Interest expense  2,062      396   2,458 
   
Net interest and dividend income  7,757      (396)  7,361 
Other income  1,690   1,534   107   3,331 
Depreciation and amortization  534   10   1   545 
Other expense  6,586   1,312   359   8,257 
   
Pretax segment profit (loss) $2,327  $212  $(649) $1,890 
   
NOTE 10 — SUBSEQUENT EVENT
On July 25, 2005, the Company approved the issuance of shares of its common stock as restricted stock grants to each of the seven non-employee members of the Company’s Board of Directors. Each of these directors received an award of 5,000 restricted shares under the Company’s 2004 Equity Incentive Plan previously approved by Company shareholders in 2004. The grants to the directors were effective on July 28, 2005 and will vest 1,000 shares each year over the next five years, subject to accelerated vesting upon a change in control of the Company (as defined in the Plan) or the death of the director. The grant date market value of the restricted stock grants will be recognized as an expense on a straight-line basis over the vesting period. In addition, the split-dollar life insurance benefits maintained by the Company for the same directors were terminated by the Company on July 25, 2005, and the Company has become the sole beneficiary of the related life insurance policies.

11


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

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

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

QUARTERLY SUMMARY

Our firstrecord second quarter 2005 netexemplifies the continuing successful execution of our strategic plan. Net income of $1.5$2.18 million represents an increase of 22%74% over $1.3$1.26 million reported for the quarter ended March 31,June 30, 2004. On a per diluted share basis, earnings were $0.26$0.37 for the firstsecond quarter of 2005 as compared to $0.27$0.22 for the firstsecond quarter of 2004 due to dilution caused by a successful public offering in April 2004 of 1.15 million new common shares which provided the capital necessary to fuel our expansion strategy in southwest Florida.2004. Credit quality remains excellent and we continue to see growth opportunities in our newer southwest Florida markets as well as our traditional base in the Florida Keys.

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

has resulted in consistent growth in earnings and assets.

The increase in net income for the firstsecond quarter of 2005 over the respective prior-year period resulted primarily from a 26%31% increase in net interest income from $6.8$7.36 million a year ago to $8.6$9.64 million in the current quarter. The net interest margin on a tax equivalent basis for the three months ended March 31,June 30, 2005 was 4.40%, compared with 4.50% which was a slight contraction from the 4.49% reported for the three months ended March 31,June 30, 2004.

Non-interest expense for the firstsecond quarter of 2005 was $9.1$9.07 million, compared with $7.8$8.15 million for the firstsecond quarter of 2004. The increase in non-interest expense is primarily attributable to expenses associated with increased regulatory compliance and the Company’s ongoing expansion activities in the southwest Florida market, which included the addition of two new branch offices and several key senior staff personnel.

Net occupancy and other expenses for the second quarter of 2005 increased less than 3% over the second quarter of 2004, reflecting the Company’s continued focus on cost containment.

Credit quality remained solid during the firstsecond quarter of 2005 which ended with non-performing loans representing only 0.05%0.06% of gross loans. As of March 31,June 30, 2005, the allowance for loan losses totaled $6.5$7.01 million, or 0.91% of total loans and 1,673%1,455% of non-performing loans. These figures compare with 0.97%0.98% and 1,107%464%, respectively, as of March 31,June 30, 2004.

Total assets increased more than 32% tosurpassed the $1 billion milestone for the first time on June 30, 2005 as total assets reached $1.01 billion compared with $939.3 million as of March 31, 2005, and $829.3 million as of December 31, 2004. Total loan growth exceeded 31% to $773.8 million as of June 30, 2005, versus $590.4 million the prior year. Total deposits increased approximately 39% to $870.2 million as of June 30, 2005, compared with $710.6$624.4 million a year ago. On a quarter over quarter basis, total assets increased more than 13%, which is reflective of the company’s solid organic growth since December 31, 2004. Total loans grew more than 30% to $717.2 million as of March 31, 2005, versus $549.6 million a year ago. Total deposits increased more than 29% to $799.3 million as of March 31, 2005, compared with $617.4 million a year ago.

1112


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

RESULTS OF OPERATIONS
Our net income of $1.5$2.18 million for the firstsecond quarter of 2005 increased 21.5%,73.7% compared to $1.3$1.26 million for the same period last year. Basic and diluted earnings per share for the firstsecond quarter of 2005 were $0.27$0.38 and $0.26,$0.37, respectively, as compared to $0.29$0.23 and $0.27$0.22 per share in the previous year’s quarter.

Annualized return on average assets was 0.72%0.91% and 0.76%0.69% for the firstsecond quarter of 2005 and 2004, respectively, while the annualized return on average shareholders’ equity was 9.20%12.62% and 12.04%8.31% for the same period. The decline in the return on average shareholders’ equity in the current year is primarily attributable to the 57.8% increase in shareholders’ equity from March 31, 2004 to March 31, 2005 due to the stock offering in the second quarter of 2004 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 26.2%30.9%, to $8.6$9.64 million in the three months ended March 31,June 30, 2005 as compared to $6.8$7.36 million in the same period last year. While theThe prime rate as published in the Wall Street Journal remained atwas 4.00% for the firstsecond quarter of 2004 it increased from 5.25% at2004. At the beginning of the second quarter 2005 it had risen to 5.75% byand increased twice to end the end of the first quarter 2005.at 6.25%. Many of the Bank’s loans are indexed to this floating rate, although they may also include floors. The higher level of prime rate in the firstsecond quarter of 2005 compared to the comparative period insecond quarter of 2004 is apparent in the positive impact on yields in the loan portfolio as the effects of the higher rates are reflected in variable loan re-pricings and new loan production. Increased loan volume is the primary driver affecting the increased net interest income in the current period.

In April 2002, the Bank began a program to acquire indirect automobile loans. We predominantly buy loans from auto dealers in Southwestsouthwest Florida which are for the purchase of new or late model used cars. We serve customers over a broad range of creditworthiness and the required terms and rates are reflective of those risk profiles. As of March 31,June 30, 2005 we had $98.6$108.2 million of indirect auto dealer loans outstanding, compared to $66.8$76.8 million at March 31,June 30, 2004. Coupled with the appropriate safeguards, we believe this product continues to offer us an opportunity to increase asset yields while not sacrificing our primary objective of maintaining strong asset quality.

The average yield on interest-earning assets for the first three monthssecond quarter of 2005 was 6.29%6.48% which was an increase of 2351 basis points compared to the 6.06%5.97% yield earned during the first three monthssecond quarter of 2004. The average cost of interest-bearing deposits increased 4475 basis points from 1.72%1.69% during the first three monthssecond quarter of 2004 to 2.16%2.44% for the comparable period in 2005, and the rate of all interest-bearing liabilities increased 4472 basis points, from 1.93%1.91% in 2004 to 2.37%2.63% in 2005. The Company’s net interest margin decreased slightly to 4.40% in the first three monthssecond quarter of 2005 compared to 4.50%4.49% in the first three monthssecond quarter of 2004. We anticipate interest rates to continue slowly trending up over the next sixthree months. If this occurs or if rates remain stable, net interest margin should be fairly consistent as our mix of assetsstabilize and liabilities should grow in roughly the same proportions that exist currently on our balance sheet.increase slightly due principally to strong new loan production at higher interest rates. Our margin is derived from the rate difference between our average yields on our current mix of assets in excess of our average cost of liabilities.

12


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

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

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

13


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

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

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

PROVISION FOR LOAN LOSSES

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

The provision for loan losses increased 58.8%12.5%, to $0.6$0.7 million in the firstsecond quarter of 2005 compared to $0.4$0.6 million in the comparable prior year quarter. The higher provision for loan losses in 2005 was primarily attributable to the continued growth in the loan portfolio and change in composition of the loan portfolio coupled with slightly higher charge offs.portfolio. Total loans outstanding grew $63.7$56.6 million, or 9.7%7.9%, during the firstsecond quarter of 2005, as compared to $11.0only $40.7 million, or 2.1%7.4%, during the firstsecond quarter of 2004. The largest dollar increase during the first quarter ofAt June 30, 2005, occurred in commercial real estateindirect auto dealer loans which increased $42.0accounted for $108.2 million, or 12.0%.14.0%, of our loan portfolio. This compares to a $3.5an indirect lending portfolio of $76.8 million or 1.2% decrease in commercial real estate loans during the first quarterat June 30, 2004 which represented 13.0% of 2004.

our total loan portfolio.

Total loans outstanding were $717.2$773.8 million at March 31,June 30, 2005, compared to $549.6$590.4 million at March 31,June 30, 2004. Net charge-offs were $0.3 million$258,000 during the three months ended March 31,June 30, 2005 compared to $0.2 million$190,000 for the same period in 2004.

13


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

NON-INTEREST INCOME
Non-interest income for the firstsecond quarter of 2005 was $3.4$3.58 million. This represents a 3.7%7.4% increase over the prior year quarter which totaled $3.3$3.33 million. The increase in non-interest income is primarily attributable to an increase in Merchantmerchant bankcard processing income and a gain of $267,000 on the sale of vacant land in fees on mortgage loans sold. The increase in merchant bankcard processing income is primarily a

14

Homestead, Florida.


result of volume increases. The increase in fees on mortgage loans sold is primarily a result of increased pass through loan volume during the 2005 quarter.

NON-INTEREST EXPENSE

Non-interest expense for the firstsecond quarter of 2005 was $9.1$9.07 million. This represents a 16.2%,an 11.2% increase over the prior year quarter which totaled $7.8$8.15 million. The increase in non-interest expense is primarily attributable to salaries and employee benefits increasing $0.8 million.$796,000. At March 31,June 30, 2005 the Bank had 308311 full-time employees and 1514 part-time employees, compared to 267275 full-time employees and 16 part time employees at June 30, 2004. The increases are primarily the result of costs associated with the growth of our business and continued expansion into the southwest Florida market. Net occupancy and other expenses for the second quarter of 2005 increased less than 3% over the second quarter of 2004.
INCOME TAXES
The provision for income taxes includes federal and state income taxes. The effective tax rates were 36.0% and 33.5% for the three months ended June 30, 2005 and 2004, respectively.
SIX MONTHS ENDED JUNE 30, 2005 AND 2004
RESULTS OF OPERATIONS
Our net income of $3.73 million for the first six months of 2005 was a 47.5% increase compared to $2.53 million for the same period last year. Basic and diluted earnings per share for the first six months of 2005 were $0.66 and $0.64, respectively, as compared to $0.51 and $0.49 per share in the previous year’s period. Basic weighted average common equivalent shares outstanding for the six months ended June 30, 2005 were 5,693,090 compared to 4,948,550 for the same period in 2004. This 15.0% increase in shares outstanding resulted from the issuance of an additional 1,150,000 shares in the second quarter of 2004 in connection with a public offering of our common stock that raised $23.2 million in new capital, and the exercise of stock options.
Annualized return on average assets was 0.82% and 0.72% for the first six months of 2005 and 2004, while the annualized return on average shareholders’ equity was 10.93% and 9.84% for the same periods.
NET INTEREST INCOME
Net interest income increased 28.6%, to $18.25 million in the six months ended June 30, 2005 as compared to $14.19 million in the same period last year. The prime rate as published in the Wall Street Journal began 2004 at 4.00% and remained at that rate through the end of the second quarter of the year. At the beginning of 2005 the rate had risen to 5.25% and increased four times to end the first half of 2005 at 6.25%. Many of the Bank’s loans are indexed to this floating rate, although they also include floors. The higher level of prime rate in the first half of 2005 compared to the comparable 2004 period is apparent in the positive impact on yields in the loan portfolio as the higher rates are reflected in variable loan re-pricings and new loan production.
The effect of rising interest rates has been to contract our net interest margin slightly in two ways. First, a relatively low prime rate directly affected yields on loans tied to that index and even loans not indexed to prime were priced reflective of overall low asset yields. Due to our practice of requiring an interest rate floor on many new commercial loans, many of these loans had been performing at their floors while interest rates were 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, we expect this margin contraction to stabilize as we expect asset yields to expand to a similar extent that liability costs increase.

14


In April 2002, the Bank began a program to acquire indirect automobile loans. We predominantly buy loans from auto dealers in southwest Florida which are for the purchase of new or late model used cars. We serve customers over a broad range of creditworthiness and the required terms and rates are reflective of those risk profiles. As of June 30, 2005 we had $108.2 million of indirect auto dealer loans outstanding, compared to $76.8 million at June 30, 2004. Coupled with the appropriate safeguards, we believe this product continues to offer us an opportunity to increase asset yields while not sacrificing our primary objective of maintaining strong asset quality.
The average yield on interest-earning assets for the first six months of 2005 was 6.39%, an increase of 38 basis points compared to the 6.01% yield earned during the first six months of 2004. The average cost of interest-bearing deposits increased 61 basis points from 1.70% during the first six months of 2004 to 2.31% for the comparable period in 2005, and the rate of all interest-bearing liabilities increased 59 basis points, from 1.92% in 2004 to 2.51% in 2005. The Company’s net interest margin decreased to 4.40% in the first six months of 2005 compared to 4.50% in the first six months of 2004. We anticipate interest rates slowly trending up over the next three months. If this occurs or if rates remain stable, net interest margin should stabilize and increase slightly due principally to strong new loan production at higher interest rates. Our margin is derived from the rate difference between our average yields on our current mix of assets in excess of our average cost of liabilities.

15


The following table presents average balances of the Company, the taxable-equivalent interest earned, and the rate paid thereon during the six months ended June 30, 2005 and June 30, 2004.
                         
  2005 2004
  Average Income/ Yields/ Average Income/ Yields/
(dollars in thousands) Balances Expense Rates Balances Expense Rates
 
Interest-earning assets:                        
Loans (1)(2) $716,103  $24,246   6.83% $558,197  $17,562   6.33%
Investment securities (2)  77,381   1,630   4.25%  60,830   1,355   4.48%
Marketable equity securities – 90% tax exempt (2)  3,562   193   10.93%  3,448   175   10.23%
Interest-bearing deposits in other banks  463   6   2.53%  948   5   0.98%
Federal Home Loan Bank stock  2,669   58   4.38%  1,518   24   3.21%
Federal funds sold  43,732   598   2.76%  17,038   79   0.94%
             
Total interest-earning assets  843,910   26,731   6.39%  641,979   19,200   6.01%
             
                         
Non-interest-earning assets:                        
Cash and due from banks  22,263           19,781         
Premises and equipment, net  27,272           20,776         
Allowances for loan losses  (6,531)          (5,405)        
Other assets  30,879           28,504         
                         
Total non-interest-earning assets  73,883           63,656         
                         
Total assets $917,793          $705,635         
                         
                         
Interest-bearing liabilities:                        
Interest-bearing deposits:                        
NOW accounts $92,846   385   0.84% $74,269   120   0.32%
Money market  167,087   1,560   1.88%  126,115   494   0.79%
Savings deposits  48,079   115   0.48%  42,860   82   0.39%
Time deposits  303,483   4,937   3.28%  213,760   3,176   2.99%
             
Total interest-bearing deposits  611,495   6,997   2.31%  457,004   3,872   1.70%
                         
Other interest-bearing liabilities:                        
Short-term borrowings & FHLB advances  40,431   551   2.75%  32,052   185   1.16%
Long-term borrowings  17,104   774   9.13%  18,250   791   8.71%
             
Total interest-bearing liabilities  669,030   8,322   2.51%  507,306   4,848   1.92%
             
                         
Non-interest-bearing liabilities and shareholders’ equity:                   ��    
Demand deposits  168,787           138,656         
Other liabilities  11,166           8,265         
Shareholders’ equity  68,810           51,408         
                         
Total non-interest-bearing liabilities and shareholders’ equity  248,763           198,329         
                         
                         
Total liabilities and shareholders’ equity $917,793          $705,635         
                         
                         
Interest rate spread (tax equivalent basis)          3.88%          4.09%
                         
Net interest income (tax equivalent basis)     $18,409          $14,352     
                         
Net interest margin (3) (tax equivalent basis)          4.40%          4.50%
                         
(1)Average loans include non-performing loans.
(2)Interest income and rates include the effects of a tax equivalent adjustment using a Federal tax rate of 34% in adjusting tax exempt interest on tax exempt investment securities and loans to a fully taxable basis.
(3)Net interest margin is net interest income divided by average total interest-earning assets.

16


The table below details the components of the changes in net interest income for the six months ended June 30, 2005 and June 30, 2004. For each major category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes due to average volumes, changes due to rates, with the changes in both volumes and rates allocated to these two categories based on the proportionate absolute changes in each category.
             
  2005 compared to 2004 (1)
  Due to changes in
          Net
(dollars in thousands) Average Average Increase
  Volume Rate (Decrease)
 
Interest income            
Loans (2) $5,266  $1,418  $6,684 
Investment securities (2)  352   (77)  275 
Marketable equity securities (2)  6   12   18 
Interest-bearing deposits in other banks  (4)  5   1 
Federal Home Loan Bank Stock  23   11   34 
Federal funds sold  231   288   519 
   
Total interest income  5,874   1,657   7,531 
   
             
Interest expense            
NOW accounts  36   229   265 
Money market  203   863   1,066 
Savings deposits  11   22   33 
Time deposits  1,436   325   1,761 
Short-term borrowings and FHLB advances  60   306   366 
Long-term borrowings  (59)  42   (17)
   
Total interest expense  1,687   1,787   3,474 
   
             
Change in net interest income $4,187  $(130) $4,057 
   
(1)The change in interest due to both rate and volume has been allocated to the volume and rate components in proportion to the relationship of the dollar amounts of the absolute change in each.
(2)Interest income includes the effects of a tax equivalent adjustment using a federal tax rate of 34% in adjusting tax exempt interest on tax exempt investment securities and loans to a fully taxable basis.
PROVISION FOR LOAN LOSSES
The provision for loan losses increased 29.3% to $1.3 million in the first six months of 2005 compared to $1.0 million in the comparable prior year period. The higher provision for loan losses in 2005 was primarily attributable to the growth in the loan portfolio and change in composition of the loan portfolio. Total loans outstanding grew $120.3 million, or 18.4%, during the first six months of 2005, as compared to only $51.8 million, or 9.6%, during the first six months of 2004. The largest dollar increase during the first six months of 2005 occurred in commercial real estate loans which increased $60.2 million, or 17.1%. This compares to a $32.3 million, or 10.9%, increase in commercial real estate loans during the first six months of 2004. We have also continued to expand our indirect lending portfolio. At June 30, 2005, indirect auto dealer loans accounted for $108.2 million, or 14.0%, of our loan portfolio. This compares to an indirect lending portfolio of $76.8 million at June 30, 2004 which represented 13.0% of our total loan portfolio.
Total loans outstanding were $773.8 million at June 30, 2005, compared to $590.4 million at June 30, 2004. Net charge-offs were $546,000 during the six months ended June 30, 2005 compared to $428,000 for the same period in 2004. Management will continue to monitor the credit quality of the lending portfolio and will recognize additional provisions in the future as necessary, in the opinion of management, to maintain the allowance for loan losses at an appropriate level.
NON-INTEREST INCOME
Non-interest income for the first six months of 2005 was $7.0 million. This represents a 5.6% increase over the prior year period which totaled $6.6 million. The increase in non-interest income is primarily attributable to an increase in merchant bankcard processing income and a gain of $267,000 on the sale of vacant land in Homestead, Florida.

17


NON-INTEREST EXPENSE
Non-interest expense for the first six months of 2005 was $18.1 million. This represents a 13.6% increase over the prior year period which totaled $15.9 million. The increase in non-interest expense is primarily attributable to salaries and employee benefits increasing $1.6 million. At June 30, 2005 the Bank had 311 full-time employees and 14 part-time employees, compared to 275 full-time employees and 16 part time employees at March 31,June 30, 2004. The increased staffing was attributable to the opening of two branches in Southwestsouthwest Florida in the second half of 2004, additions to manage growth throughout the Company and additions to assist in security and regulatory compliance. Likewise, theThe majority of the other increases in the non-interest expense category are the result of costs associated with the growth of our business.

INCOME TAXES
The provision for income taxes includes federal and state income taxes. The effective tax rates were 34.7% and 34.3%rate was 35.5%, for the threesix months ended March 31,June 30, 2005, and 2004, respectively.

33.9%, for the six months ended June 30, 2004.

BALANCE SHEET
Total assets at March 31,June 30, 2005 were $939.3 million,$1.01 billion, up 13.3%22.1% from total assets of $829.3 million at December 31, 2004. Asset growth was primarily funded by an increase in deposits of $111.4$182.4 million, or 16.2%26.5%. Loans net of deferred loan costs increased $63.6$120.1 million, or 9.7%18.3%, to $719.3$775.8 million for the first threesix months of 2005 from year end 2004. The largest dollar increase came in the commercial real estate loan category which increased $42.0$60.2 million, or 12.0%17.1%. Although we have continued to expand our indirect dealer auto loan program, it has begun to decreasestabilize in percentage in proportion to the loan portfolio as a whole. At March 31,June 30, 2005, indirect auto loans accounted for $98.6$108.2 million, or 13.8%14.0%, of our loan portfolio as compared to $91.9 million, or 14.1%, at December 31, 2004.

Also, in the same period, investment securities increased $9.2 million.

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

Shareholders’ equity totaled $68.3$70.7 million at March 31,June 30, 2005, increasing from $68.1$2.6 million atfrom December 31, 2004. Book value per share decreasedincreased to $11.96$12.38 at March 31,June 30, 2005 from $11.99 at December 31, 2004 due primarily to the decrease in accumulated other comprehensive income related to unrealized losses on investments available-for-sale. Such unrealized losses arose primarily from increases in market interest rates.2004. The Company declared a quarterly dividend of $0.115 per share in both the first quarterand second quarters of 2005 and $0.1125 per share in both the first quarter and second quarters of 2004.

During the second quarter of 2004, we sold 1,150,000 shares of our common stock resulting in net proceeds totaling $23.2 million which provided capital necessary to support continued loan and deposit growth throughout our South Florida markets.
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) March 31, 2005 December 31, 2004  June 30, 2005 December 31, 2004
Total nonaccrual loans $391 $704  $482 $704 
Accruing loans delinquent 90 days or more (a)      
       
Total non-performing loans $391 $704  $482 $704 
 
Repossessed personal property (indirect auto dealer loans) 814 688  673 688 
Other real estate owned (b) 190 882  190 882 
Other assets (b) 2,688 2,665  2,705 2,665 
       
Total non-performing assets $4,083 $4,939  $4,050 $4,939 
       
  
Allowance for loan losses $6,541 $6,243  $7,013 $6,243 
  
Non-performing assets as a percent of total assets  0.43%  0.60%  0.40%  0.60%
Non-performing loans as a percent of gross loans  0.05%  0.11%  0.06%  0.11%
Allowance for loan losses as a percent of non-performing loans  1,672.9%  886.8%  1,455.0%  886.8%
 

1518


(a) (a)  ExcludesNon-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)(b)  The Bank made a $10.0 million loan to construct a lumber mill in northern Florida. Of this amount, $6.4 million had been sold by the Bank to other lenders. The loan was partially guaranteed as to principal and interest by the USDA. In addition to business real estate and equipment, the loan was collateralized by the business owner’s interest in a trust. Under provisions of the trust agreement, beneficiaries cannot receive trust assets until November 2010.
 
 During 2001, upon completion of foreclosure on the underlying collateral, the non-guaranteed portion of this loan and interest accrued through the foreclosure date was reclassified into other real estate ($550,000) and other assets (approximately $1.9 million) based on the fair value of the underlying-collateral. The portion of this loan guaranteed by the USDA was approximately $1.6 million at March 31,June 30, 2005 and December 31, 2004, and is accruing interest. Accrued interest on this loan totals approximately $703,000$731,000 and $677,000 at March 31,June 30, 2005 and December 31, 2004, respectively.
 
 The Bank is pursuing a sale of the property and equipment and has incurred various expenditures. The Bank capitalized the liquidation costs and a portion of the protective advances which it expects will be fully reimbursed by the USDA. Other real estate recorded on the Bank’s books related to this property totaled $190,000 at March 31,June 30, 2005 and December 31, 2004. The non-guaranteed principal and interest ($2.0 million at March 31,June 30, 2005 and December 31, 2004) and the reimbursable capitalized liquidation costs and protective advance costs totaling approximately $784,000$744,000 and $704,000 at March 31,June 30, 2005 and December 31, 2004, respectively, are included as “other assets” in the financial statements.
 
 The Bank sold certain pieces of equipment associated with the lumber mill property. Proceeds from the sales were used to reduce the other real estate amount and liquidation cost amounts recorded on the Bank’s books. In 2003, the Bank wrote down the carrying amount of the other real estate by $262,000 based upon anticipated proceeds from the sale of the property and remaining equipment.
 
 Florida law requires a bank to liquidate or charge off repossessed real property within five years, and repossessed personal property within six months. The Bank was awarded title to the real property on June 12, 2001, and an adjudicated interest in the owner’s trust proceeds. The time constraints imposed by Florida law required that the personal property be disposed of or charged off by December 2001. The Bank applied to the State of Florida for an extension to carry the personal property on the Bank’s books and was granted an extension to carry the personal property on its books until June 11, 2003. Since the property had not been liquidated as of such date, the Bank charged-off the non guaranteed principal and interest totaling $2.0 million at June 30, 2003, for regulatory purposes. Since we believe this amount is ultimately realizable, we did not write off this amount for financial statement purposes under generally accepted accounting principles.

The allowance for loan losses amounted to $6.5$7.0 million and $6.2 million at March 31,June 30, 2005 and December 31, 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.

19


Based on an analysis performed by management at March 31,June 30, 2005, the allowance for loan losses is considered to be adequate to cover estimated loan losses in the portfolio as of that date. However, management’s judgment is based upon a number of assumptions about future events, which are believed to be reasonable, but which may or may not prove valid. Thus, there can

16


be no assurance that charge-offs in future periods will not exceed the allowance for loan losses or that significant additional increases in the allowance for loan losses will not be required. In addition, various regulatory agencies, as an integral part of their examination process, periodically review our allowance for loan losses. Such agencies may require us to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.

During 2004, as the indirect auto dealer loan portfolio began to mature, the loss history approached expected levels and the management processes, controls and monitoring and risk management tools implemented throughout recent years indicated that higher multipliers were necessary for the indirect loan portfolio. Contemporaneously, as the Florida economy has grown at an accelerated pace compared to other markets, real estate prices have escalated and local economies have benefited resulting in diminishing historical and expected loss factors. Analysis of these events resulted in these same tools indicating that lower multipliers were necessary for commercial loans collateralized by real estate. Looking forward, although the concentration of indirect auto dealer loan category has increased rapidly since the inception of this program, management believes that this growth has peaked slightly below 15% of the total loan portfolio composition. This category should continue to decrease as a percentage of the loan portfolio as we expect overall asset and loan growth to continue. As this occurs, if we make the assumption, however unlikely, that all other factors were to remain constant, we would expect that the allowance for loan losses would continue to decrease as a percentage of gross loans in the near term.

LIQUIDITY

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

In addition to maintaining a stable core deposit base, we maintain adequate liquidity primarily through the use of investment securities and unused borrowing capacity. The Bank has invested in Federal Home Loan Bank stock for the purpose of establishing credit lines with the Federal Home Loan Bank. The credit availability to the Bank is equal to 20 percent of the Bank’s total assets as reported on the most recent quarterly financial information submitted to the regulators subject to the pledging of sufficient collateral. At March 31,June 30, 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 $159.7$175.6 million.

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

In the second quarter of 2004, we completed the sale of 1,150,000 shares of our common stock at a price of $22.00 per share before commissions and expenses. The net proceeds provided additional liquidity along with additional capital to the Company.

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.

1720


Our interest rate sensitivity position at March 31,June 30, 2005 is presented in the table below:
                                                
 3 months 4 to 6 7 to 12 1 to 5 Over 5    3 Months 4 to 6 7 to 12 1 to 5 Over 5  
(dollars in thousands) or less Months Months years Years Total  or Less Months Months Years Years Total
Interest-earning assets:  
Loans $309,484 $36,094 $44,479 $260,282 $66,882 $717,221  $350,509 $27,327 $43,434 $284,072 $68,507 $773,849 
Investment securities-taxable 1,013   42,184 24,342 67,539  1,072  10,180 38,578 23,864 73,694 
Investment securities-tax exempt    3,139 6,536 9,675     4,617 5,191 9,808 
Marketable equity securities 3,521     3,521  3,490     3,490 
Federal Home Loan Bank stock 2,781     2,781  2,781     2,781 
Fed funds sold 62,391     62,391 
Federal funds sold 77,550     77,550 
Interest bearing deposit in other bank 367     367  201     201 
               
Total interest-bearing assets 379,557 36,094 44,479 305,605 97,760 863,495  435,603 27,327 53,614 327,267 97,562 941,373 
               
  
Interest-bearing liabilities:  
NOW accounts 89,055     89,055  85,479     85,479 
Money Market 169,391     169,391  179,815     179,815 
Savings Deposits 48,783     48,783  49,884     49,884 
Time deposits 46,509 22,471 151,002 87,053 5 307,040  35,143 92,673 114,991 98,891 5 341,703 
Notes payable     4,000 4,000      4,000 4,000 
Subordinated debentures 5,000    8,000 13,000  5,000    8,000 13,000 
Other borrowings 44,922     44,922  42,593     42,593 
               
Total interest-bearing liabilities 403,660 22,471 151,002 87,053 12,005 676,191  397,914 92,673 114,991 98,891 12,005 716,474 
               
  
Interest sensitivity gap $(24,103) $13,623 $(106,523) $218,552 $85,755 $187,304  $37,689 $(65,346) $(61,377) $228,376 $85,557 $224,899 
               
  
Cumulative interest sensitivity gap $(24,103) $(10,480) $(117,003) $101,549 $187,304 $187,304  $37,689 $(27,657) $(89,034) $139,342 $224,899 $224,899 
               
  
Cumulative sensitivity ratio  (2.8)%  (1.2)%  (13.5)%  11.8%  21.7%  21.7%  4.0%  (2.9)%  (9.5)%  14.8%  23.9%  23.9%
               

We are cumulatively liability sensitive throughin the one year4 to 6 months and 7 to 12 months time period,periods, and asset sensitive in the 3 months or less and the over one year timeframes above. Certain liabilities such as non-indexed NOW and passbook savings accounts, while technically subject to immediate repricing in response to changing market rates, historically do not reprice as quickly nor to the extent as other interest sensitive accounts. Accordingly, if market interest rates should decrease, it is anticipated that the net interest margin would decrease. Because of non-interest bearing liabilities, total interest-earning assets are substantially greater than the total interest-bearing liabilities and therefore it is anticipated that over time the effects on net interest income from changes in asset yield will be greater than the change in expense from liability cost. Therefore, if rates increase it is anticipated that the net interest margin would over time increase and this is particularly true over longer time horizons since the Company has more total assets subject to rate changes than total liabilities that are rate sensitive.

Even in the near term, we believe the $117$89 million one year cumulative negative sensitivity gap may exaggerate the probable effects on earnings in a changingrising rate environment for two reasons. First, the liabilities subject to repricing are predominately not indexed to any specific market rate and therefore offer the Company the opportunity to delay or diminish any rate repricings. Further, in this current rate environment, the Bank has been originating loans with interest rate floors. The effect of this has been to decrease the volatility of net interest margin and decrease asset sensitivity due to the fact that these loans behave similar to fixed rate loans in periods over a significant range of interest rate changes.

Interest-earning assets and other time deposits are presented based on their contractual terms. It is anticipated that run off in any deposit category will be approximately offset by new deposit generation. Since we have experienced steady growth in deposits, no net run off in any deposit category is assumed in the interest rate sensitivity table. It is our policy to maintain our cumulative one year gap ratio in the -20%–20% to +10% range. At March 31,June 30, 2005, we were within this range with a one year cumulative sensitivity ratio of -13.5%-9.5%.

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

COMMITMENTS

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

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

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

Commitments to extend credit are legally binding agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since some of these commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. At March 31,June 30, 2005, total unfunded loan commitments were approximately $133.2$172.7 million.

Standby letters of credit are conditional commitments issued by the Bank to assure the performance or financial obligations of a customer to a third party. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loans to customers. The Bank generally holds collateral and/or obtains personal guarantees supporting these commitments. Since most of the letters of credit are expected to expire without being drawn upon, they do not necessarily represent future cash requirements. At March 31,June 30, 2005, commitments under standby letters of credit aggregated approximately $2.4$2.3 million.

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

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSUREDISCLOSURES ABOUT MARKET RISK

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

The following interest

Interest rate sensitivity analysis information as of March 31,June 30, 2005 was developedanalyzed using a simulation analysis of the Company’s sensitivity to changes in net interest income under varying assumptions for changes in market interest rates. Specifically, the model derives expected interest income and interest expense resulting from an immediategradual and parallel shift in the yield curve in the amounts shown.

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

This analysis intentionally exaggerates interest sensitivity. For the sake of simplicity and comparability, an immediate change in rates is assumed. However, any significant change in actual market rates would probably be phased in over an extended period of time. This phase in would reduce the net interest income effects for any absolute change in rates. Also,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 $188 million of these types of loans where the loan rates are at the floors. The effects of this are twofold. First, this has benefited our margins 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. In general, having this significant amount ofmarket once these loans athave moved past their floors reduces the Company’s overall rate sensitivity.

floors.

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

Part II. OTHER INFORMATION

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

     Not applicable

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

Item 5. OTHER INFORMATION

Not applicable

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Item 6. EXHIBITS
 (a) 
(a)  Exhibits
3.1Amendment to Restated Articles of Incorporation of TIB Financial Corp.
3.2Amendment to Bylaws
31.1Chief Executive Officer’s certification required under Section 302 of Sarbanes-Oxley Act of 2002
31.2Chief Financial Officer’s certification required under Section 302 of Sarbanes-Oxley Act of 2002
32.1Chief Executive Officer’s certification required under Section 906 of Sarbanes-Oxley Act of 2002
32.2Chief Financial Officer’s certification required under Section 906 of Sarbanes-Oxley Act of 2002

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
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
     
 TIB FINANCIAL CORP.
  /s/ Edward V. Lett  
Date: August 9, 2005 Edward V. Lett 
President and Chief Executive Officer 
     
 /s/ Edward V. Lett          
Date:     May 10, 2005Edward V. Lett
President and Chief Executive Officer
  /s/ David P. Johnson  
 
 David P. Johnson
 
 Executive Vice President and Chief Financial Officer

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