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
            
            Commission
      File NumberSeptember
      30, 2008
            
            000-21329











TIB
FINANCIAL CORP.


(Exact
name of registrant as specified in its charter)








FLORIDA
            
            65-0655973(State
      or other jurisdiction of 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)(239)
      263-3344(Registrant’s
      telephone number, including area code)Not
      Applicable(Former
      name, former address and former fiscal year, if changed since last
      report)Indicate
      by check mark whether the registrant (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
      registrant was required to file such reports), and (2) has been subject to
      such filing requirements for the past 90 days.  TYes   £NoIndicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting
      company. See definitions of “accelerated filer”, “ large accelerated
      filer” and  “smaller reporting company” in Rule 12b-2 of the
      Exchange Act (Check one):£ Large
      accelerated filer
            T
      Accelerated filer
            £
      Non-accelerated filer£ Smaller
      reporting companyIndicate
      by check mark whether the registrant is a shell company (as defined in
      Rule 12b-2 of the Exchange Act).  £Yes    TNoIndicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practicable date:Common
      Stock, $0.10 Par Value
            
            14,313,506Class
            
            Outstanding
      as of  October 31, 2008








TIB
FINANCIAL CORP.


FORM
10-Q


For the
Quarter Ended September 30, 2008








INDEX





PART I.  FINANCIAL INFORMATION
              3Item
      1
              Financial
      Statements
              3Item
      2
              Management’s
      Discussion and Analysis of Financial Condition and Results
      of  Operations
              16Item
      3
              Quantitative
      and Qualitative Disclosures About Market
Risk
              29Item
      4
              Controls and
      Procedures
              29PART
      II.  OTHER INFORMATION
              30Item
      1a
              Risk
      Factors
              30Item
      4
              Submission of
      Matters to a Vote of Security Holders
              30Item
      5
              Other
      Information
              30Item
    6
              Exhibits
              30







PART
I.  FINANCIALINFORMATION






Item
1.  Financial Statements







TIB
      FINANCIAL CORP.
              CONSOLIDATED
      BALANCE SHEETS
              (Dollars
      in thousands, except per share amounts)September
      30, 2008
            
            
            December
      31, 2007(Unaudited)AssetsCash
      and due from banks
            
            $
            20,108
            
            
            $
            22,315Federal
      funds sold and securities purchased under agreements to
    resell
            
            
            32,347
            
            
            
            48,744Cash
      and cash equivalents
            
            
            52,455
            
            
            
            71,059Investment
      securities available for sale
            
            
            197,396
            
            
            
            160,357Loans,
      net of deferred loan costs and fees
            
            
            1,227,181
            
            
            
            1,129,156Less:
      Allowance for loan losses
            
            
            18,035
            
            
            
            14,973Loans,
      net
            
            
            1,209,146
            
            
            
            1,114,183Premises
      and equipment, net
            
            
            36,326
            
            
            
            38,284Goodwill
            
            
            5,160
            
            
            
            4,686Intangible
      assets, net
            
            
            3,145
            
            
            
            2,772Accrued
      interest receivable and other assets
            
            
            59,838
            
            
            
            53,398Total
      Assets
            
            $
            1,563,466
            
            
            $
            1,444,739Liabilities
      and Shareholders’ EquityLiabilitiesDeposits:Noninterest-bearing
      demand
            
            $
            135,518
            
            
            $
            143,381Interest-bearing
            
            
            977,679
            
            
            
            906,577Total
      deposits
            
            
            1,113,197
            
            
            
            1,049,958Federal
      Home Loan Bank (FHLB) advances
            
            
            182,900
            
            
            
            140,000Short-term
      borrowings
            
            
            76,351
            
            
            
            77,922Long-term
      borrowings
            
            
            63,000
            
            
            
            63,000Accrued
      interest payable and other liabilities
            
            
            30,338
            
            
            
            17,619Total
      liabilities
            
            
            1,465,786
            
            
            
            1,348,499Shareholders’
      equityPreferred
      stock – no par value: 5,000,000 shares authorized, 0 shares
      issued
            
            
            -
            
            
            
            -Common
      stock - $.10 par value: 40,000,000 shares authorized, 14,381,096 and
      13,110,349 shares issued, 14,310,506 and 13,039,759 shares
      outstanding
            
            
            1,438
            
            
            
            1,311Additional
      paid in capital
            
            
            68,307
            
            
            
            56,107Retained
      earnings
            
            
            28,637
            
            
            
            39,151Accumulated
      other comprehensive income (loss)
            
            
            (133
            )
            
            
            240Treasury
      stock, at cost, 70,590 shares
            
            
            (569
            )
            
            
            (569
            )Total
      shareholders’ equity
            
            
            97,680
            
            
            
            96,240Total
      Liabilities and Shareholders’ Equity
            
            $
            1,563,466
            
            
            $
            1,444,739See
      accompanying notes to consolidated financial statements





3


TIB
FINANCIAL CORP.


CONSOLIDATED
STATEMENTS OF OPERATIONS


(Unaudited)





Three
      months ended
              September
      30,
            
            
            Nine
      months ended
              September
      30,(Dollars
      in thousands, except per share amounts)
            
            2008
            
            
            2007
            
            
            2008
            
            
            2007Interest
      and dividend incomeLoans,
      including fees
            
            $
            19,719
            
            
            $
            21,175
            
            
            $
            59,147
            
            
            $
            63,531Investment
      securities:Taxable
            
            
            2,081
            
            
            
            1,754
            
            
            
            5,787
            
            
            
            4,735Tax-exempt
            
            
            76
            
            
            
            167
            
            
            
            289
            
            
            
            506Interest-bearing
      deposits in other banks
            
            
            6
            
            
            
            3
            
            
            
            50
            
            
            
            15Federal
      Home Loan Bank stock
            
            
            78
            
            
            
            131
            
            
            
            330
            
            
            
            367Federal
      funds sold and securities purchased under agreements to
    resell
            
            
            282
            
            
            
            319
            
            
            
            1,338
            
            
            
            1,724Total
      interest and dividend income
            
            
            22,242
            
            
            
            23,549
            
            
            
            66,941
            
            
            
            70,878Interest
      expenseDeposits
            
            
            7,786
            
            
            
            9,401
            
            
            
            24,794
            
            
            
            28,544Federal
      Home Loan Bank advances
            
            
            1,622
            
            
            
            1,586
            
            
            
            4,420
            
            
            
            4,547Short-term
      borrowings
            
            
            337
            
            
            
            549
            
            
            
            1,241
            
            
            
            1,032Long-term
      borrowings
            
            
            821
            
            
            
            727
            
            
            
            2,545
            
            
            
            2,085Total
      interest expense
            
            
            10,566
            
            
            
            12,263
            
            
            
            33,000
            
            
            
            36,208Net
      interest income
            
            
            11,676
            
            
            
            11,286
            
            
            
            33,941
            
            
            
            34,670Provision
      for loan losses
            
            
            4,768
            
            
            
            2,385
            
            
            
            13,138
            
            
            
            3,489Net
      interest income after provision for loan losses
            
            
            6,908
            
            
            
            8,901
            
            
            
            20,803
            
            
            
            31,181Non-interest
      incomeService
      charges on deposit accounts
            
            
            747
            
            
            
            661
            
            
            
            2,188
            
            
            
            1,960Investment
      securities losses, net
            
            
            (126
            )
            
            
            -
            
            
            
            (1,128
            )
            
            
            -Fees
      on mortgage loans originated and sold
            
            
            176
            
            
            
            287
            
            
            
            621
            
            
            
            1,226Investment
      advisory fees
            
            
            153
            
            
            
            -
            
            
            
            413
            
            
            
            -Other
      income
            
            
            497
            
            
            
            1,195
            
            
            
            1,445
            
            
            
            2,441Total
      non-interest income
            
            
            1,447
            
            
            
            2,143
            
            
            
            3,539
            
            
            
            5,627Non-interest
      expenseSalaries
      and employee benefits
            
            
            6,045
            
            
            
            5,619
            
            
            
            18,456
            
            
            
            16,820Net
      occupancy and equipment expense
            
            
            2,171
            
            
            
            2,041
            
            
            
            6,371
            
            
            
            5,930Other
      expense
            
            
            3,770
            
            
            
            2,702
            
            
            
            12,049
            
            
            
            7,771Total
      non-interest expense
            
            
            11,986
            
            
            
            10,362
            
            
            
            36,876
            
            
            
            30,521Income
      (loss) before income taxes
            
            
            (3,631
            )
            
            
            682
            
            
            
            (12,534
            )
            
            
            6,287Income
      tax expense (benefit)
            
            
            (1,435
            )
            
            
            188
            
            
            
            (4,859
            )
            
            
            2,210Net
      Income (Loss)
            
            $
            (2,196
            )
            
            $
            494
            
            
            $
            (7,675
            )
            
            $
            4,077Basic
      earnings (loss) per common share
            
            $
            (0.15
            )
            
            $
            0.04
            
            
            $
            (0.55
            )
            
            $
            0.33Diluted
      earnings (loss) per common share
            
            $
            (0.15
            )
            
            $
            0.04
            
            
            $
            (0.55
            )
            
            $
            0.32


See
accompanying notes to consolidated financial statements


4


TIB
FINANCIAL CORP.


Consolidated
Statements of Changes in Shareholders’ Equity


(Unaudited)


(Dollars
in thousands, except per share amounts)





Shares
            
            
            Common
      Stock
            
            
            Additional
      Paid in Capital
            
            
            Retained
      Earnings
            
            
            Accumulated
      Other Comprehensive Income (Loss)
            
            
            Treasury
              Stock
            
            
            Total
      Shareholders’ EquityBalance,
      July 1, 2008
            
            
            14,310,506
            
            
            $
            1,438
            
            
            $
            67,171
            
            
            $
            31,822
            
            
            $
            (713
            )
            
            $
            (569
            )
            
            $
            99,149Comprehensive
      loss:Net
      loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (2,196
            )
            
            
            
            
            
            
            
            
            
            
            (2,196
            )Other
      comprehensive income, net of tax expense of $366:Net
      market valuation adjustment on securities available for
    sale
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            501Add:
      reclassification adjustment for net losses, net of tax benefit of
      $47
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            79Other
      comprehensive income, net of tax
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            580Comprehensive
      loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (1,616
            )Stock-based
      compensation, related tax
              effect
      and other
            
            
            
            
            
            
            
            
            
            
            147
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            147Stock
      dividend declared, 1%
            
            
            
            
            
            
            
            
            
            
            989
            
            
            
            (989
            )
            
            
            
            
            
            
            
            
            
            
            -Balance,
      September 30, 2008
            
            
            14,310,506
            
            
            $
            1,438
            
            
            $
            68,307
            
            
            $
            28,637
            
            
            $
            (133
            )
            
            $
            (569
            )
            
            $
            97,680







Shares
            
            
            Common
      Stock
            
            
            Additional
      Paid in Capital
            
            
            Retained
      Earnings
            
            
            Accumulated
      Other Comprehensive Income (Loss)
            
            
            Treasury
              Stock
            
            
            Total
      Shareholders’ EquityBalance,
      July 1, 2007
            
            
            13,078,578
            
            
            $
            1,308
            
            
            $
            55,635
            
            
            $
            46,724
            
            
            $
            (1,397
            )
            
            $
            -
            
            
            $
            102,270Comprehensive
      income:Net
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            494
            
            
            
            
            
            
            
            
            
            
            
            494Other
      comprehensive loss, net of tax benefit of $1,001:Net
      market valuation adjustment on securities available for
    sale
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,586
            )Other
      comprehensive loss, net of tax
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,586
            )Comprehensive
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (1,092
            )Stock-based
      compensation, related tax
              effect
      and other
            
            
            
            
            
            
            
            
            
            
            174
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            174The
      Bank of Venice acquisition
            
            
            
            
            
            
            
            
            
            
            (1
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1
            )Exercise
      of stock options
            
            
            11,833
            
            
            
            1
            
            
            
            69
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            70Cash
      dividends declared, $.0588 per share
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (770
            )
            
            
            
            
            
            
            
            
            
            
            (770
            )Balance,
      September 30, 2007
            
            
            13,090,411
            
            
            $
            1,309
            
            
            $
            55,877
            
            
            $
            46,448
            
            
            $
            (2,983
            )
            
            $
            -
            
            
            $
            100,651





Continued










5








Shares
            
            
            Common
      Stock
            
            
            Additional
      Paid in Capital
            
            
            Retained
      Earnings
            
            
            Accumulated
      Other Comprehensive Income (Loss)
            
            
            Treasury
              Stock
            
            
            Total
      Shareholders’ EquityBalance,
      January 1, 2008
            
            
            13,039,759
            
            
            $
            1,311
            
            
            $
            56,107
            
            
            $
            39,151
            
            
            $
            240
            
            
            $
            (569
            )
            
            $
            96,240Cumulative-effect
      adjustment for split-dollar life insurance postretirement
      benefit
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (141
            )
            
            
            
            
            
            
            
            
            
            
            (141
            )Comprehensive
      loss:Net
      loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (7,675
            )
            
            
            
            
            
            
            
            
            
            
            (7,675
            )Other
      comprehensive loss, net of tax benefit of $231:Net
      market valuation adjustment on securities available for
    sale
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,077
            )Add:
      reclassification adjustment for net losses, net of tax benefit of
      $424
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            704Other
      comprehensive loss, net of tax
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (373
            )Comprehensive
      loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (8,189
            )Restricted
      stock grants, net of 1,418
              cancellations
            
            
            31,530
            
            
            
            3
            
            
            
            (3
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            -Stock-based
      compensation, related tax
              effect and other
            
            
            
            
            
            
            
            
            
            
            470
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            470Private
      placement of common shares
            
            
            1,224,120
            
            
            
            122
            
            
            
            9,814
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            9,936Exercise
      of stock options
            
            
            15,097
            
            
            
            2
            
            
            
            96
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            98Stock
      dividends declared, 1%
            
            
            
            
            
            
            
            
            
            
            1,823
            
            
            
            (1,823
            )
            
            
            
            
            
            
            
            
            
            
            -Cash
      dividends declared, $.0613 per share
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (875
            )
            
            
            
            
            
            
            
            
            
            
            (875
            )Balance,
      September 30, 2008
            
            
            14,310,506
            
            
            $
            1,438
            
            
            $
            68,307
            
            
            $
            28,637
            
            
            $
            (133
            )
            
            $
            (569
            )
            
            $
            97,680





Shares
            
            
            Common
      Stock
            
            
            Additional
      Paid in Capital
            
            
            Retained
      Earnings
            
            
            Accumulated
      Other Comprehensive Income (Loss)
            
            
            Treasury
              Stock
            
            
            Total
      Shareholders’ EquityBalance,
      January 1, 2007
            
            
            11,955,766
            
            
            $
            1,196
            
            
            $
            40,490
            
            
            $
            44,620
            
            
            $
            (
      444
            )
            
            $
            -
            
            
            $
            85,862Comprehensive
      income:Net
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            4,077
            
            
            
            
            
            
            
            
            
            
            
            4,077Other
      comprehensive loss, net of tax benefit of $1,596:Net
      market valuation adjustment on securities available for
    sale
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (2,539
            )Other
      comprehensive loss, net of tax
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (2,539
            )Comprehensive
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            1,538Restricted
      stock grants
            
            
            25,695
            
            
            
            3
            
            
            
            (3
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            -Stock-based
      compensation, related tax effect
              and
      other
            
            
            
            
            
            
            
            
            
            
            492
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            492The
      Bank of Venice acquisition
            
            
            963,382
            
            
            
            96
            
            
            
            13,859
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            13,955Exercise
      of stock options
            
            
            145,568
            
            
            
            14
            
            
            
            1,039
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,053Cash
      dividends declared, $.1764 per share
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (2,249
            )
            
            
            
            
            
            
            
            
            
            
            (2,249
            )Balance,
      September 30, 2007
            
            
            13,090,411
            
            
            $
            1,309
            
            
            $
            55,877
            
            
            $
            46,448
            
            
            $
            (2,983
            )
            
            $
            -
            
            
            $
            100,651


6


TIB
      FINANCIAL CORP.
                CONSOLIDATED
      STATEMENTS OF CASH FLOWS
                INCREASE
      (DECREASE) IN CASH AND CASH EQUIVALENTS
                (Unaudited)
                (Dollars in
      thousands)Nine
      Months Ended
                September
      30,2008
              
              
              2007Cash
      flows from operating activities:Net
      income (loss)
              
              $
              (7,675
              )
              
              $
              4,077Adjustments
      to reconcile net income (loss) to net cash provided by operating
      activities:Depreciation
      and amortization
              
              
              3,045
              
              
              
              2,455Provision
      for loan losses
              
              
              13,138
              
              
              
              3,489Deferred
      income tax benefit
              
              
              (2,785
              )
              
              
              (731
              )Investment
      securities net realized gains
              
              
              (1,055
              )
              
              
              -Write-down
      of investment securities
              
              
              2,183
              
              
              
              -Stock-based
      compensation
              
              
              542
              
              
              
              478Other
              
              
              (297
              )
              
              
              (963
              )Mortgage
      loans originated for sale
              
              
              (38,541
              )
              
              
              (77,772
              )Proceeds
      from sales of mortgage loans
              
              
              41,152
              
              
              
              80,353Fees
      on mortgage loans sold
              
              
              (616
              )
              
              
              (1,217
              )Increase
      in accrued interest receivable and other assets
              
              
              (3,504
              )
              
              
              (2,347
              )Increase
      (decrease) in accrued interest payable and other
    liabilities
              
              
              2,693
              
              
              
              (2,042
              )Net
      cash provided by operating activities
              
              
              8,280
              
              
              
              5,780Cash
      flows from investing activities:Purchases
      of investment securities available for sale
              
              
              (93,426
              )
              
              
              (48,789
              )Sales
      of investment securities available for sale
              
              
              34,989
              
              
              
              -Repayments
      of principal and maturities of investment securities available for
      sale
              
              
              30,461
              
              
              
              15,359Acquisition
      of Naples Capital Advisors business
              
              
              (1,378
              )
              
              
              -Cash
      equivalents acquired from The Bank of Venice
              
              
              -
              
              
              
              10,176Cash
      paid for The Bank of Venice
              
              
              -
              
              
              
              (866
              )Net
      purchase of FHLB stock
              
              
              (1,943
              )
              
              
              (1,123
              )Loans
      originated or acquired, net of principal repayments
              
              
              (107,808
              )
              
              
              11,701Purchases
      of premises and equipment
              
              
              (665
              )
              
              
              (3,561
              )Proceeds
      from sale of loans
              
              
              -
              
              
              
              624Proceeds
      from sale of premises, equipment and intangible assets
              
              
              29
              
              
              
              1,822Net
      cash used in investing activities
              
              
              (139,741
              )
              
              
              (14,657
              )Cash
      flows from financing activities:Net
      increase (decrease) in demand, money market and savings
      accounts
              
              
              (73,909
              )
              
              
              7,227Net
      increase (decrease) in time deposits
              
              
              137,148
              
              
              
              (74,982
              )Net
      increase (decrease) in federal funds purchased and securities sold under
      agreements to repurchase
              
              
              (1,570
              )
              
              
              52,878Increase
      in short term FHLB advances
              
              
              25,000
              
              
              
              10,000Increase
      in long term FHLB advances
              
              
              92,900
              
              
              
              60,000Repayment
      of long term FHLB advances
              
              
              (75,000
              )
              
              
              (50,000
              )Repayment
      of notes payable
              
              
              -
              
              
              
              (4,000
              )Income
      tax effect related to stock-based compensation
              
              
              (61
              )
              
              
              11Net
      proceeds from issuance of common shares
              
              
              10,023
              
              
              
              1,053Cash
      dividends paid
              
              
              (1,674
              )
              
              
              (2,183
              )Net
      cash provided by financing activities
              
              
              112,857
              
              
              
              4Net
      decrease in cash and cash equivalents
              
              
              (18,604
              )
              
              
              (8,873
              )Cash
      and cash equivalents at beginning of period
              
              
              71,059
              
              
              
              55,552Cash
      and cash equivalents at end of period
              
              $
              52,455
              
              
              $
              46,679Supplemental
      disclosures of cash flow:Interest
              
              $
              34,411
              
              
              $
              39,177Income
      taxes
              
              
              125
              
              
              
              3,143Fair
      value of noncash assets acquired
              
              
              -
              
              
              
              68,458Fair
      value of liabilities assumed
              
              
              -
              
              
              
              63,882Fair
      value of common stock and stock options issued
              
              
              -
              
              
              
              13,992Supplemental
      disclosure of non cash transaction:Financing
      of sale of premises to third party
              
              $
              60
              
              
              $
              -See
      accompanying notes to consolidated financial statements


7
  TIB
FINANCIAL CORP.
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 INCREASE
(DECREASE) IN CASH AND CASH EQUIVALENTS
 (Unaudited)
 (Dollars in
thousands)
 Note 1
– Basis of Presentation & Accounting Policies


TIB
Financial Corp. is a financial holding company headquartered in Naples,
Florida.  TIB Financial Corp. (the “Company”) is a multi-bank holding
company which owns and operates TIB Bank and The Bank of Venice, with a total of
twenty banking offices in Florida that are located in Monroe, Miami-Dade,
Collier, Lee, Highlands and Sarasota counties. On January 2, 2008, the Company
acquired Naples Capital Advisors, Inc., a registered investment
advisor.





The
accompanying unaudited consolidated financial statements for 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 on Form 10-K for the year ended
December 31, 2007.





The
consolidated statements include the accounts of TIB Financial Corp. and its
wholly-owned subsidiaries, TIB Bank, The Bank of Venice (subsequent to its
acquisition on April 30, 2007), and Naples Capital Advisors, Inc. (“NCA”;
subsequent to its acquisition on January 2, 2008) collectively known as the
Company.  All significant inter-company 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. The share and per share amounts discussed throughout this document
have been adjusted to account for the effects of the two one percent stock
dividends distributed July 17, 2008 and October 10, 2008 to shareholders of
record on July 7, 2008 and September 30, 2008, respectively.





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 “Banks” means TIB Bank and The Bank of
Venice.





Critical
Accounting Policies





The
accounting and reporting policies of the Company are in accordance with
accounting principles generally accepted within the United States of America and
conform to general practices within the banking industry.





Allowance
for Loan Losses





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





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





A loan is
considered impaired when it is probable that not all principal and interest
amounts will be collected according to the loan contract.  In general,
commercial, commercial real estate and residential real estate loans are
individually evaluated for impairment.  If a loan is considered to be
impaired, a portion of the allowance is allocated so that the carrying value of
the loan is reported at the present value of estimated future cash flows using
the loan’s existing rate or at the fair value of collateral if repayment is
expected solely from the collateral.  Large groups of smaller balance
homogeneous loans, such as consumer and indirect auto loans are collectively
evaluated for impairment, and accordingly, they are not separately identified
for impairment disclosures.





Investment
Securities and Other Than Temporary Impairment





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






8
 TIB
FINANCIAL CORP.
 Unaudited
Notes to Consolidated Financial Statements
 (Dollars
in thousands except for share and per share amounts)


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


Earnings
Per Common Share





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




Additional
information with regard to the Company’s methodology and reporting of the
allowance for loan losses and earnings per common share is included in the 2007
Annual Report on Form 10-K.





Acquisitions




The
Company accounts for its business combinations based on the purchase method of
accounting. The purchase method of accounting requires the Company to determine
the fair value of the tangible net assets and identifiable intangible assets
acquired. The fair values are based on available information and current
economic conditions at the date of acquisition. The fair values may be obtained
from independent appraisers, discounted cash flow present value techniques,
management valuation models, quoted prices on national markets or quoted market
prices from brokers. These fair value estimates will affect future earnings
through the disposition or amortization of the underlying assets and
liabilities. While management believes the sources utilized to arrive at the
fair value estimates are reliable, different sources or methods could have
yielded different fair value estimates. Such different fair value estimates
could affect future earnings through different values being utilized for the
disposition or amortization of the underlying assets and liabilities
acquired.





Recent
Accounting Pronouncements




In
September 2006, the FASB issued Statement No. 157, “Fair Value
Measurements”.  This Statement defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements.  This Statement establishes a fair value hierarchy about
the assumptions used to measure fair value and clarifies assumptions about risk
and the effect of a restriction on the sale or use of an asset.  The
standard is effective for fiscal years beginning after November 15,
2007.  In February 2008, the FASB issued Staff Position (FSP) 157-2,
“Effective Date of FASB Statement No. 157”.  This FSP delays the
effective date of FAS 157 for all nonfinancial assets and nonfinancial
liabilities, except those that are recognized or disclosed at fair value on a
recurring basis (at least annually) to fiscal years beginning after November 15,
2008, and interim periods within those fiscal years.  The impact of
adoption, on January 1, 2008 as required, was not material.





In
September 2006, the FASB Emerging Issues Task Force finalized Issue No. 06-4,
“Accounting for Deferred Compensation and Postretirement Benefit Aspects of
Endorsement Split-Dollar Life Insurance Arrangements”.  This issue
requires that a liability be recorded during the service period when a
split-dollar life insurance agreement continues after participants’ employment
or retirement.  The required accrued liability will be based on either
the post-employment benefit cost for the continuing life insurance or based on
the future death benefit depending on the contractual terms of the underlying
agreement.  As a result of adopting EITF 06-4 on January 1, 2008, the
Company recognized an increase of $141 to the balance of other liabilities and a
corresponding decrease to beginning retained earnings.





In
February 2007, the FASB issued Statement No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities.”  The standard provides
companies with an option to report selected financial assets and liabilities at
fair value and establishes presentation and disclosure requirements designed to
facilitate comparisons between companies that choose different measurement
attributes for similar types of assets and liabilities.  The Company
did not elect the fair value option for any financial assets or financial
liabilities as of January 1, 2008, the effective date of the
standard.





In
December 2007, the FASB issued SFAS 141(R), “Business Combinations”, which is a
revision of SFAS 141, “Business Combinations”. SFAS 141(R) establishes
principles and requirements for how an acquirer in a business combination:
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed and any noncontrolling interest in the
acquiree; recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase; and discloses information to
enable users of the financial statements to evaluate the nature and financial
effects of the business combination. This Statement is effective for fiscal
years beginning after December 15, 2008, and is to be applied prospectively. The
Company is currently assessing the potential impact SFAS 141(R) will have on the
financial statements.





In March
2008, the FASB issued Statement No. 161 “Disclosures about Derivative
Instruments and Hedging Activities — an amendment of FASB Statement No. 133”.
SFAS No. 161 requires enhanced disclosures about how and why an entity uses
derivative instruments, how derivative instruments and related items are
accounted for under Statement 133 and how derivative instruments and related
hedged items affect an entity’s financial position, financial performance and
cash flows.


9
 TIB
FINANCIAL CORP.
 Unaudited
Notes to Consolidated Financial Statements
 (Dollars
in thousands except for share and per share amounts)


The new standard is
effective for the Company on January 1, 2009. The Company is currently assessing
the potential impact SFAS No. 161 will have on the consolidated financial
statements.





In May 2008, the FASB issued Statement No. 162 “The Hierarchy of
Generally Accepted Accounting Principles”. The standard identifies the sources
of accounting principles and the framework for selecting the principles used in
the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles in the
United States. The new standard becomes effective 60 days following the Security
and Exchange Commission’s approval of the Public Company Accounting Oversight
Board amendments to AU Section 411. SFAS No. 162 is not expected to have a
material impact on the Company’s consolidated financial position or results of
operations.


In October 2008, the
FASB issued Staff Position (FSP) 157-3 “Determining the Fair Value of a
Financial Asset when the Market for that Asset is Not Active.” This FSP
clarifies the application of FASB Statement No. 157, Fair Value Measurements and
provides key considerations in determining the fair value of a financial asset
when the market for that financial asset is not active. The impact of adoption
was not material.
  Note 2
– Investment Securities


The
amortized cost and estimated fair value of investment securities available for
sale at September 30, 2008 and December 31, 2007 are presented
below:


September
      30, 2008Amortized
      Cost
            
            
            Unrealized
      Gains
            
            
            Unrealized
      Losses
            
            
            Estimated
      Fair ValueU.S.
      Government agencies and corporations
            
            $
            39,761
            
            
            $
            318
            
            
            $
            6
            
            
            $
            40,073States
      and political subdivisions—tax exempt
            
            
            7,751
            
            
            
            3
            
            
            
            62
            
            
            
            7,692States
      and political subdivisions—taxable
            
            
            2,408
            
            
            
            2
            
            
            
            48
            
            
            
            2,362Marketable
      equity securities
            
            
            269
            
            
            
            51
            
            
            
            -
            
            
            
            320Mortgage-backed
      securities
            
            
            134,668
            
            
            
            841
            
            
            
            1,065
            
            
            
            134,444Corporate
      bonds
            
            
            2,869
            
            
            
            -
            
            
            
            499
            
            
            
            2,370Collateralized
      debt obligations
            
            
            9,883
            
            
            
            528
            
            
            
            276
            
            
            
            10,135$
            197,609
            
            
            $
            1,743
            
            
            $
            1,956
            
            
            $
            197,396




December
      31, 2007Amortized
      Cost
            
            
            Unrealized
      Gains
            
            
            Unrealized
      Losses
            
            
            Estimated
      Fair ValueU.S.
      Government agencies and corporations
            
            $
            72,482
            
            
            $
            1,245
            
            
            $
            66
            
            
            $
            73,661States
      and political subdivisions—tax exempt
            
            
            9,629
            
            
            
            6
            
            
            
            51
            
            
            
            9,584States
      and political subdivisions—taxable
            
            
            2,495
            
            
            
            1
            
            
            
            21
            
            
            
            2,475Marketable
      equity securities
            
            
            1,224
            
            
            
            -
            
            
            
            -
            
            
            
            1,224Mortgage-backed
      securities
            
            
            60,161
            
            
            
            295
            
            
            
            296
            
            
            
            60,160Corporate
      bonds
            
            
            2,865
            
            
            
            -
            
            
            
            100
            
            
            
            2,765Collateralized
      debt obligations
            
            
            11,110
            
            
            
            -
            
            
            
            622
            
            
            
            10,488$
            159,966
            
            
            $
            1,547
            
            
            $
            1,156
            
            
            $
            160,357




Note
3 – Loans


Major
classifications of loans are as follows:


September
      30,
              2008
            
            
            December
      31,
              2007Real
      estate mortgage loans:Commercial
            
            $
            666,263
            
            
            $
            612,084Residential
            
            
            191,132
            
            
            
            112,138Farmland
            
            
            13,541
            
            
            
            11,361Construction
      and vacant land
            
            
            155,465
            
            
            
            168,595Commercial
      and agricultural loans
            
            
            65,987
            
            
            
            72,076Indirect
      auto dealer loans
            
            
            91,639
            
            
            
            117,439Home
      equity loans
            
            
            30,141
            
            
            
            21,820Other
      consumer loans
            
            
            11,291
            
            
            
            12,154Total
      loans
            
            
            1,225,459
            
            
            
            1,127,667Net
      deferred loan costs
            
            
            1,722
            
            
            
            1,489Loans,
      net of deferred loan costs
            
            $
            1,227,181
            
            
            $
            1,129,156


10
 TIB
FINANCIAL CORP.
 Unaudited
Notes to Consolidated Financial Statements
 (Dollars
in thousands except for share and per share amounts)


Note
4 – Allowance for Loan Losses





Activity
in the allowance for loan losses for the nine months ended September 30, 2008
and 2007 follows:





Nine
      Months Ended
              September
      30,2008
            
            
            2007Balance,
      January 1
            
            $
            14,973
            
            
            $
            9,581Acquisition
      of The Bank of Venice
            
            
            -
            
            
            
            667Provision
      for loan losses charged to expense
            
            
            13,138
            
            
            
            3,489Loans
      charged off
            
            
            (10,136
            )
            
            
            (2,388
            )Recoveries
      of loans previously charged off
            
            
            60
            
            
            
            264Balance,
      September 30
            
            $
            18,035
            
            
            $
            11,613







Nonacccrual loans were as
follows:


As
      of September 30, 2008
              
              
              As
      of June 30, 2008
              
              
              As
      of December 31, 2007Loan
      Type
              
              Number
      of
                Loans
              
              
              Outstanding
      Balance
              
              
              Number
      of
                Loans
              
              
              Outstanding
      Balance
              
              
              Number
      of
                Loans
              
              
              Outstanding
      BalanceResidential
      *
              
              
              24
              
              
              $
              4,639
              
              
              
              27
              
              
              $
              5,207
              
              
              
              13
              
              
              $
              4,442Commercial
      and agricultural
              
              
              1
              
              
              
              236
              
              
              
              3
              
              
              
              331
              
              
              
              4
              
              
              
              293Commercial
      real estate
              
              
              11
              
              
              
              6,822
              
              
              
              5
              
              
              
              1,532
              
              
              
              4
              
              
              
              2,619Commercial
      land development
              
              
              3
              
              
              
              13,616
              
              
              
              4
              
              
              
              13,954
              
              
              
              -
              
              
              
              -Residential
      land development
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1
              
              
              
              2,686Participations
      in residential loan pools *
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              9
              
              
              
              1,246Government
      guaranteed loan
              
              
              2
              
              
              
              349
              
              
              
              1
              
              
              
              343
              
              
              
              1
              
              
              
              1,641Indirect
      auto, direct auto and consumer loans
              
              
              108
              
              
              
              1,323
              
              
              
              95
              
              
              
              1,234
              
              
              
              238
              
              
              
              3,159$
              26,985
              
              
              
              
              
              
              $
              22,601
              
              
              
              
              
              
              $
              16,086
 ________
 *
              Our
      ownership in the nine loan pools was exchanged for an equivalent value of
      10 specific loans from the loan pools during the first
      quarter.


Impaired
loans were as follows:





September
      30, 2008
            
            
            June
      30, 2008
            
            
            December
      31, 2007Loans
      with no allocated allowance for loan losses
            
            $
            7,889
            
            
            $
            5,958
            
            
            $
            4,448Loans
      with allocated allowance for loan losses
            
            
            27,416
            
            
            
            18,107
            
            
            
            3,748Total
            
            $
            35,305
            
            
            $
            24,065
            
            
            $
            8,196Amount
      of the allowance for loan losses allocated
            
            $
            3,820
            
            
            $
            2,258
            
            
            $
            1,401





11
 TIB
FINANCIAL CORP.
 Unaudited
Notes to Consolidated Financial Statements
 (Dollars
in thousands except for share and per share amounts)


Note
5 – 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 and nine months ended September 30, 2008
and 2007:


Three
      Months Ended
              September
      30,
            
            
            Nine
      Months Ended
              September
      30,2008
            
            
            2007
            
            
            2008
            
            
            2007Basic
            
            
            14,210,210
            
            
            
            13,024,620
            
            
            
            13,898,424
            
            
            
            12,540,195Dilutive
      effect of options outstanding
            
            
            -
            
            
            
            129,551
            
            
            
            -
            
            
            
            177,349Dilutive
      effect of restricted stock awards
            
            
            -
            
            
            
            7,031
            
            
            
            -
            
            
            
            10,199Dilutive
      effect of warrants
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Diluted
            
            
            14,210,210
            
            
            
            13,161,202
            
            
            
            13,898,424
            
            
            
            12,727,743





The
dilutive effect of stock options and warrants and the dilutive effect of
unvested restricted shares are the only common stock equivalents for purposes of
calculating diluted earnings per common share.





Weighted
average anti-dilutive stock options and warrants and unvested restricted shares
excluded from the computation of diluted earnings per share are as
follows:





Three
      Months Ended
              September
      30,
            
            
            Nine
      Months Ended
              September
      30,2008
            
            
            2007
            
            
            2008
            
            
            2007Anti-dilutive
      stock options
            
            
            636,876
            
            
            
            280,171
            
            
            
            574,182
            
            
            
            245,917Anti-dilutive
      restricted stock awards
            
            
            57,997
            
            
            
            35,803
            
            
            
            55,757
            
            
            
            1,698Anti-dilutive
      warrants
            
            
            1,224,120
            
            
            
            -
            
            
            
            924,791
            
            
            
            -





Note
6 – Capital Adequacy





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





To be
considered well capitalized and adequately capitalized (as defined) under the
regulatory framework for prompt corrective action, the Banks must maintain
minimum Tier 1 leverage, Tier 1 risk-based, and total risk-based capital ratios.
These minimum ratios along with the actual ratios for the Company and the Banks
as of September 30, 2008 and December 31, 2007, are presented in the following
table.




Well
      Capitalized Requirement
            
            
            Adequately
      Capitalized Requirement
            
            
            September
      30,
              2008
              Actual
            
            
            December
      31, 2007
              ActualTier
      1 Capital (to Average Assets)Consolidated
            
            
            N/A
            
            
            
            ≥4.0
            %
            
            
            7.6
            %
            
            
            8.4
            %TIB
      Bank
            
            
            ≥5.0
            %
            
            
            ≥4.0
            %
            
            
            7.3
            %
            
            
            7.8
            %The
      Bank of Venice
            
            
            ≥5.0
            %
            
            
            ≥4.0
            %
            
            
            9.9
            %
            
            
            11.9
            %Tier
      1 Capital (to Risk Weighted Assets)Consolidated
            
            
            N/A
            
            
            
            ≥4.0
            %
            
            
            9.4
            %
            
            
            10.0
            %TIB
      Bank
            
            
            ≥6.0
            %
            
            
            ≥4.0
            %
            
            
            9.0
            %
            
            
            9.2
            %The
      Bank of Venice
            
            
            ≥6.0
            %
            
            
            ≥4.0
            %
            
            
            13.4
            %
            
            
            15.5
            %Total
      Capital (to Risk Weighted Assets)Consolidated
            
            
            N/A
            
            
            
            ≥
      8.0
            %
            
            
            10.7
            %
            
            
            11.3
            %TIB
      Bank
            
            
            ≥10.0
            %
            
            
            ≥
      8.0
            %
            
            
            10.2
            %
            
            
            10.4
            %The
      Bank of Venice
            
            
            ≥10.0
            %
            
            
            ≥
      8.0
            %
            
            
            14.6
            %
            
            
            16.7
            %


12
 TIB
FINANCIAL CORP.
 Unaudited
Notes to Consolidated Financial Statements
 (Dollars
in thousands except for share and per share amounts)


Note
7. – Acquisition





The
Company completed the acquisition of Naples Capital Advisors, Inc., a registered
investment advisor, on January 2, 2008 in exchange for consideration consisting
of $1,333 in cash upon consummation and up to $148 in cash on each of the first
three annual anniversaries of NCA or a subsidiary of the Company receiving a
trust department license under the Florida Financial Institutions Codes subject
to NCA achieving certain total revenue milestones. Under the purchase method of
accounting, the assets and liabilities of NCA were recorded at their respective
estimated fair values as of January 2, 2008 and are included in the accompanying
balance sheet as of September 30, 2008. Purchase accounting adjustments will be
amortized or accreted into income over the estimated lives of the related assets
and liabilities. Goodwill and other intangible assets identified were
approximately $1,238 as of September 30, 2008.














Note
8. – Fair Value





FASB
Statement 157 establishes a fair value hierarchy which requires an entity to
maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. The standard describes three levels of inputs
that may be used to measure fair value:





Level 1:
Quoted prices (unadjusted) for identical assets or liabilities in active markets
that the entity has the ability to access as of the measurement
date.





Level 2:
Significant other observable inputs other than Level 1 prices such as quoted
prices for similar assets or liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated by observable
market data.





Level 3:
Significant unobservable inputs that reflect a reporting entity’s own
assumptions about the assumptions that market participants would use in pricing
an asset or liability.





The fair values of securities available
for sale are determined by 1) obtaining quoted prices on nationally recognized
securities exchanges when available (Level 1 inputs), 2) matrix pricing, which
is a mathematical technique widely used in the industry to value debt securities
without relying exclusively on quoted prices for the specific securities but
rather by relying on the securities’ relationship to other benchmark quoted
securities (Level 2 inputs) and 3) for collateralized debt obligations, custom
discounted cash flow modeling (Level 3 inputs).





Valuation
of collateralized debt securities





As of
September 30, 2008, the Company owned three collateralized debt obligations
where the underlying collateral is comprised primarily of corporate debt
obligations of homebuilders, REITs, real estate companies and commercial
mortgage backed securities. The company also owned a collateralized debt
security where the underlying collateral is comprised primarily of trust
preferred securities of banks and insurance companies. The inputs used in
determining the estimated fair value of these securities are Level 3 inputs. In
determining their estimated fair value, management utilizes a discounted cash
flow modeling valuation approach. Discount rates utilized in the modeling of
these securities are estimated based upon a variety of factors including the
yield at issuance of similarly rated classes of comparably structured
collateralized debt obligations. Cash flows utilized in the modeling of these
securities were based upon actual default history of the underlying issuers and
varying assumptions of estimated future defaults of issuers. The valuation
approach for the real estate industry collateralized securities did not change
during the third quarter of 2008. Management changed the valuation approach
during the second quarter of 2008 of the collateralized debt obligation
collateralized by trust preferred securities of banks and insurance companies
because there were no longer observable level 2 inputs available. Therefore,
custom discounted cash flow modeling was also employed during the third quarter
to estimate the fair value of this security (Level 3 inputs).





Valuation
of Impaired loans





The fair
value of impaired loans with specific allocations of the allowance for loan
losses is generally based on recent real estate appraisals. These appraisals may
utilize a single valuation approach or a combination of approaches including
comparable sales and the income approach. Adjustments are routinely made in the
appraisal process by the appraisers to adjust for differences between the
comparable sales and income data available. Such adjustments are typically
significant and result in a Level 3 classification of the inputs for determining
fair value.


13
 TIB
FINANCIAL CORP.
 Unaudited
Notes to Consolidated Financial Statements
 (Dollars
in thousands except for share and per share amounts)


Assets
and Liabilities Measured on a Recurring Basis




Assets
and liabilities measured at fair value on a recurring basis are summarized
below:




Fair
      Value
              Measurements
      at September 30, 2008 UsingSeptember
      30, 2008
            
            
            Quoted
      Prices in Active Markets for Identical Assets
              (Level
      1)
            
            
            Significant
      Other Observable Inputs
              (Level
      2)
            
            
            Significant
      Unobservable Inputs
              (Level
      3)Assets:Available
      for sale securities
            
            $
            197,396
            
            
            $
            -
            
            
            $
            187,261
            
            
            $
            10,135






The table
below presents a reconciliation and income statement classification of gains and
losses for all assets measured at fair value on a recurring basis using
significant unobservable inputs (Level 3) for the quarter ended September 30,
2008 and still held at September 30, 2008.




Fair
      Value Measurements Using
              Significant
      Unobservable Inputs
              (Level
      3)Collateralized
      Debt ObligationsBeginning
      balance, June 30, 2008
            
            $
            9,873Included
      in earnings – other than temporary impairment
            
            
            (271
            )Included
      in other comprehensive income
            
            
            533Ending
      balance September 30, 2008
            
            $
            10,135








14






The table
below presents a reconciliation and income statement classification of gains and
losses for all assets measured at fair value on a recurring basis using
significant unobservable inputs (Level 3) for the nine months ended September
30, 2008 and still held at September 30, 2008.




Fair
      Value Measurements Using
              Significant
      Unobservable Inputs
              (Level
      3)Collateralized
      Debt ObligationsBeginning
      balance, January 1, 2008
            
            $
            6,111Included
      in earnings – other than temporary impairment
            
            
            (1,227
            )Included
      in other comprehensive income
            
            
            533Transfer
      in to Level 3
            
            
            4,718Ending
      balance, September 30, 2008
            
            $
            10,135






Assets
and Liabilities Measured on a Non-Recurring Basis




Assets
and liabilities measured at fair value on a non-recurring basis are summarized
below:




Fair
      Value Measurements at September 30, 2008 UsingSeptember
      30, 2008
            
            
            Quoted
      Prices in Active Markets for Identical Assets
              (Level
      1)
            
            
            Significant
      Other Observable Inputs
              (Level
      2)
            
            
            Significant
      Unobservable Inputs
              (Level
      3)Assets:Impaired
      loans with specific allocations of the allowance for loan
      losses
            
            $
            23,596
            
            
            $
            -
            
            
            $
            -
            
            
            $
            23,596







Impaired
loans, which are measured for impairment using the fair value of the collateral
for collateral dependent loans, had a carrying amount of $27,416, with a
valuation allowance of $3,820, resulting in specific allocations of the
allowance for loan losses of $1,876 for the third quarter of 2008 and $3,798 for
the nine months ended September 30, 2008. The amounts of the specific
allocations for impairment are considered in the overall determination of the
reserve and provision for loan losses.


15


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. (the "Company") to
be materially different from future results described in such forward-looking
statements. Actual results may differ materially from the results anticipated in
these forward-looking statements due to a variety of factors, including, without
limitation:  the effects of future economic conditions; governmental
monetary and fiscal policies, as well as legislative and regulatory changes; the
risks of changes in interest rates on the level and composition of deposits,
loan demand, and the values of loan collateral, and interest rate risks; the
effects of competition from other commercial banks, thrifts, consumer finance
companies, and other financial institutions operating in the Company'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 the Company as reflected in the unaudited
consolidated statement of condition as of September 30, 2008, and statements of
operations for the three months and nine months ended September 30,
2008.  Operating results for the three months and nine months ended
September 30, 2008 are not necessarily indicative of trends or results to be
expected for the year ended December 31, 2008. TIB Financial’s results of
operations during 2008 include the operations of The Bank of Venice and Naples
Capital Advisors subsequent to their acquisitions on April 30, 2007 and January
2, 2008, respectively.




Quarterly
Summary


For the
third quarter of 2008, the Company reported a net loss of $2.2 million compared
to net income of $494,000 for the third quarter of 2007. On a per share basis,
the net loss was $0.15 for the 2008 quarter, compared to diluted net income of
$0.04 for the comparable 2007 quarter.





The net
loss for the third quarter of 2008, compared to net income during the third
quarter of 2007, was due to the increased provision for loan losses, higher
non-interest expenses, a lower net interest margin and lower non-interest
income.





In
response to a variety of factors including the overall growth of the loan
portfolios, continued contraction of economic activity in local markets and net
charge–offs resulting primarily from the indirect loan portfolio, the third
quarter results include a provision for loan losses of $4.8 million. The
provision reflects net charge-offs of $3.4 million and an increase in the
reserve for loan losses of $1.4 million, to $18.0 million, or 1.47% of loans at
September 30, 2008.





TIB Financial also reported total
assets of $1.56 billion as of September 30, 2008, representing 8% asset growth
from December 31, 2007. Total loans increased $97.8 million, or 9%, compared to
$1.13 billion at December 31, 2007. Total deposits of $1.11 billion as of
September 30, 2008 increased $63.2 million, or 6%, from December 31,
2007.





As we
aggressively address the challenges presented by the current economic and
operating environment we continue to focus on new business initiatives,
improvement of operating performance and resolution of nonperforming assets.
Significant developments are outlined below.





·
            Our
      expanded complement of commercial and residential mortgage loan officers
      increased loan production with commercial real estate loans increasing
      $20.0 million and  residential mortgages increasing $17.4 million
      during the quarter.


·
            Under
      challenging and declining investment markets, Naples Capital Advisors
      established new investment management accounts with an aggregate value of
      $7 million. However, due to the drop in the U.S. and global stock markets,
      the market value of assets under management by the firm dropped to $91
      million as of quarter end.


·
            The
      private banking group contributed $6.7 million in net new
      relationship-based deposits and a $1.1 million net increase in loans
      during the quarter.


·
            Our
      indirect auto loan portfolio declined $7.6 million during the quarter to
      $91.6 million, or 7% of total loans. Non-performing loans in this business
      segment remained relatively flat at $1.3 million in comparison to $1.2
      million at June 30, 2008 and were significantly lower than the $3.7
      million at March 31, 2008. The ongoing restructuring of the auto finance
      operations has resulted in significant resolution of non-performing loans
      and disposition of repossessed vehicles. As part of our restructuring, we
      established internal collections and disposition functions during the
      quarter and we no longer utilize an outside third party for these
      functions. We believe this change will improve our management and control
      of collections and vehicle dispositions in the future. Charge-offs during
      the quarter declined 31% to $2.7 million, compared to $4.0 million in the
      second quarter, and repossessed vehicles declined to $635,000 from $2.7
      million at the beginning of the
quarter.


·
            Nonaccrual
      loans increased during the quarter by $4.4 million, comprised principally
      of two separate commercial real estate loan relationships of $2.3 million
      each. Non-performing loans of $27.0 million have remained relatively flat
      since the first quarter of the year. We continue to aggressively pursue
      resolution of these loans.


·
            The
      net interest margin declined to 3.18% during the quarter, in comparison to
      the 3.25% in the second quarter, due to the higher level of nonaccrual
      loans which reduced the  margin by 4 basis points, the seasonal
      outflow of lower cost transaction accounts and significantly elevated
      deposit pricing competition. The intense demand for liquidity and the high
      level of uncertainty in the global financial system continued to adversely
      impact our cost of funding.


16
 The
increase in nonperforming loans during the quarter was due principally to two
commercial real estate mortgage loans. The first loan, for $2.3 million,
represents a mortgage on a mixed use office-retail building for which we
negotiated with the borrower to receive a deed-in-lieu of foreclosure. In
October, we received the deed and plan to employ the building in our banking
operations. We have two leased facilities in the area with leases expiring early
next year and we plan to move our personnel and some back office operations to
this new building, thereby reducing operating and occupancy costs in 2009. The
second loan, to a different borrower, financed the acquisition and improvement
of existing condominium units. Due to delays in completion of improvements and
changed market conditions, the loan has matured. We are currently in
negotiations with the borrower to restructure the loan. The negotiations may not
be successful and we may have to proceed to foreclosure.


Three
Months Ended September 30, 2008 and 2007:





Results
of Operations





For the
third quarter of 2008, our operations resulted in a net loss of $2.2 million
compared to net income of $494,000 in the previous year’s quarter.  On
a per share basis, the net loss was $0.15 for the 2008 quarter as compared to
basic and diluted earnings per share of $0.04 for the comparable 2007
quarter.





Annualized
loss on average assets for the third quarter of 2008 was 0.56% compared to a
return on average assets of 0.14% for the third quarter of 2007.  Loss
on average shareholders’ equity was 8.77% for the third quarter of 2008 while
the return on average shareholders’ equity was 1.93% for the same quarter of
2007.





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 and securities purchased under agreements to resell, interest-bearing
deposits in other banks and investment securities.  Our
interest-bearing liabilities include deposits, federal funds purchased,
subordinated debentures, advances from the FHLB and other short term
borrowings.





Net
interest income was approximately $11.7 million for the three months ended
September 30, 2008, an increase from the $11.3 million reported for the same
period last year, due principally to balance sheet growth, partially offset by
the decline in the net interest margin to 3.18% from 3.52%. The $1.3 million
decrease in interest and dividend income for the third quarter of 2008 over the
third quarter of 2007 was mainly attributable to decreased average rates on loan
balances due primarily to the 325 basis point decrease in the prime and fed
funds sold rates combined with a higher level of non-performing
loans.  Offsetting this decline were decreases in the interest cost of
transaction accounts and short-term borrowings due to commensurate decreases in
interest rates.  Increases in balances led to an increase in interest
expense on time deposits and long-term borrowings. Interest expense on short
term borrowings decreased due to decreases in interest rates, partially offset
by increased balances.





Interest
rates during the third quarter of 2008 were significantly lower than the prior
year period due to highly stimulative monetary policies undertaken by the
Federal Reserve beginning in the third quarter of 2007. As a result of the
actions taken by the Federal Reserve, the prime rate declined from 8.25% in the
third quarter of 2007 to 5.00% in April 2008.





Due to
the rapid and significant decline in the prime rate and the overall interest
rate environment, the yield on our loans declined 119 basis points and the yield
of our interest earning assets declined 129 basis points in the third quarter of
2008 compared to the third quarter of 2007. Similarly, our deposit liability and
total interest bearing liability costs declined 113 and 124 basis points for the
same periods, respectively.





We were
unable to reduce the cost of our CDs and other interest rate sensitive deposits
and funding sources as quickly and to the same magnitude as the reductions in
our interest earning assets due to the different term structure and interest
rate sensitivity of our liabilities. As a consequence, our net interest margin
declined 34 basis points compared to the third quarter of 2007.





Due to
the turmoil in financial markets that persisted since the third quarter of 2007,
we maintained a significantly higher level of liquidity as reflected in our
higher average balance of investment securities and federal funds sold. This
higher level of lower yielding assets also reduced the net interest margin
during the period.





Going
forward, we expect short term market interest rates to continue to decrease (the
Federal Reserve decreased the target federal funds rate by 100 basis points in
October) resulting in an additional decline in loan yields followed by a period
of stability. We expect deposit costs to continue to decline but they may
decrease more slowly or to a lesser extent than loan yields, or they could
increase due to strong demand in the financial markets and banking system for
liquidity which is reflected in elevated pricing competition for deposits. In
the current interest rate environment, we believe that our interest margin will
continue to be under pressure. The predominant driver to increase net interest
income is and will continue to be the growth of our balance sheet. Although the
timing and possible effects of future changes in interest rates could be
significant, we expect any such impact to continue to be less in extent than the
relative impact of earning asset growth.


17
 On the
basis of economic and financial market conditions that we observed during the
second quarter of 2008, we began to shorten the maturity structure of our
interest bearing liabilities by increasing the amount of FHLB borrowings with
maturities of one month and by originating wholesale CD deposits with terms
of  3 months to 6 months. This tactic was initiated to generate lower
cost and shorter-term liabilities to improve our net interest margin and
position our balance sheet for stable or declining short-term interest rates.
This position was maintained through the third quarter and at September 30,
2008, we have $75 million of FHLB borrowings that mature monthly and over $80
million of wholesale CDs that have original maturities of 3 months to 6 months.
This increased level of shorter-term liabilities should partially offset the
further decline in short-term interest rates in October. See Asset and Liability
Management for a more in depth discussion of our management of changes in
interest rates and interest rate risk.


Provision
for Loan Losses


The
provision for loan losses increased to $4.8 million in the third quarter of 2008
compared to $2.4 million in the comparable prior year period. Due to the
weakening economic environment, we began increasing certain quantitative and
qualitative economic risk factors employed in estimating the allowance for loan
losses during the second quarter of 2006. We further increased these factors
during each quarter of 2007 and 2008. The higher provision for loan losses in
2008 reflects continued local economic contraction. While there has been an
increase in the number of real estate unit sales as compared to the prior year
period, the impact of foreclosures and distressed sales is impacting the value
of real estate and the economy broadly. Additionally, we experienced higher
levels of nonperforming loans and delinquencies and higher levels of net
charge-offs. An additional component of the increased provision was the increase
in total loans outstanding of $28.6 million, or 2%, during the third quarter of
2008. Net Charge-offs were $3.4 million, or 1.10% of average loans on an
annualized basis, during the three months ended September 30, 2008, compared to
$721,000, or 0.26% of average loans on an annualized basis, for the same period
in 2007. The charge-offs resulting from the indirect loan portfolio were $2.7
million and $615,000 in the third quarter of 2008 and 2007, respectively. Our
provision for loan losses in future periods will be influenced by the loss
potential of nonperforming loans and net charge offs, which cannot be reasonably
predicted.





The indirect loan portfolio experienced
uncharacteristically sharp increases, beyond our historical experience, in
delinquencies beginning in the second half of 2007. This increase in delinquency
reflects, in part, the significant increase in unemployment in the Fort Myers,
Lee County area where our indirect auto loans are concentrated. In response, our
collection and liquidation operations accelerated dramatically, resulting in
substantially all of our vehicles being disposed of through wholesale rather
than retail channels. Contemporaneously, the market for used vehicles became
increasingly saturated and a surge in fuel prices reduced demand for used
vehicles, and especially so for the less fuel efficient vehicles like light
trucks and sport utility vehicles. These factors combined to lower our
realization upon disposition on a per vehicle basis and increase the volume and
severity of the losses incurred during the first nine months of
2008.





Indirect
Loan Portfolio Statistics


As
      of or For the Quarter Ended(Dollars
      in thousands)
            
            Sept
      2008
            
            
            June
      2008
            
            
            Mar
      2008
            
            
            Dec
      2007
            
            
            Sept
      200730-89
      days delinquent
            
            $
            3,782
            
            
            $
            2,193
            
            
            $
            2,682
            
            
            $
            3,702
            
            
            $
            3,647Non
      Accrual
            
            $
            1,317
            
            
            $
            1,220
            
            
            $
            3,543
            
            
            $
            3,135
            
            
            $
            1,708Total
      delinquencies
            
            
            5.56
            %
            
            
            3.44
            %
            
            
            5.55
            %
            
            
            5.82
            %
            
            
            4.20
            %Net
      charge offs for the quarter
            
            $
            2,707
            
            
            $
            3,951
            
            
            $
            1,662
            
            
            $
            1,199
            
            
            $
            615Net
      (gain)/loss on disposition of vehicles
            
            $
            149
            
            
            $
            (55
            )
            
            $
            1,208
            
            
            $
            650
            
            
            $
            134Number
      of vehicles sold during the quarter
            
            
            314
            
            
            
            271
            
            
            
            245
            
            
            
            137
            
            
            
            110Collection
      costs incurred during the quarter
            
            $
            331
            
            
            $
            306
            
            
            $
            240
            
            
            $
            265
            
            
            $
            155





Recent increases in 30-89 days
delinquency in the third quarter of 2008 and continuing into October may result
in higher levels of nonperforming loans and repossessed vehicles, which may
cause an increase in charge-offs and collection costs in future periods. We
continuously monitor and actively manage the credit quality of the loan
portfolio and will continue to recognize the provision required to maintain the
allowance for loan losses at an appropriate level. Due to the economic slowdown
discussed above, both individual and business customers are exhibiting
increasing difficulty in timely payment of their loan obligations. We believe
that this trend may continue in the near term. Consequently, we may experience
higher levels of delinquent and nonperforming loans, which may require higher
provisions for loan losses, higher charge-offs and higher collection related
expenses in future periods.


Non-interest
Income


Non-interest income was $1.4 million for the third quarter compared to $2.1
million reported in the third quarter of last year.  The decline is
primarily due to a $702,000 gain from the sale of a bank building recorded
during the third quarter of 2007.  Higher deposit service charges
offset lower fees due to lower origination and sales of residential loans in the
secondary market.  Naples Capital Advisors generated $153,000 of
investment advisory fees during the period, up 13% over the prior
quarter.





Non-interest
Expense


Non-interest expense for the third quarter of 2008 was $12.0
million.  This represented a 16% increase over the prior year period
which totaled $10.4 million. This increase includes approximately $250,000
attributable to the operations of Naples Capital Advisors, Inc.





Salary
and employee benefits increased $426,000 in the third quarter of 2008 relative
to the third quarter of 2007. Naples Capital Advisors, Inc. represents
approximately $168,000 of the increase.  Severance costs associated
with the elimination of certain employee positions accounted for approximately
$149,000 of the third quarter 2008 increase.  The balance of the
increase reflects cost of living adjustments and merit increases for our
employees.


18
 For the
third quarter of 2008 there was a $130,000 increase in occupancy expense as
compared to the third quarter of 2007.  The third quarter of 2008
includes approximately $139,000 of increased occupancy costs due to vacating a
leased facility. Excluding this one-time cost, occupancy expense would have been
lower than the third quarter of 2007. We continue to focus on consolidating our
facilities and containing operating costs.
  The $1.07 million increase in other
expense resulted in part from our indirect lending operations and its
restructuring including approximately $176,000 of increased collection
costs.  The increase also reflects $390,000 in expenses and
write-downs related to other real estate owned and $367,000 in increased legal
and professional fees related to collections of other loans. Other expense
includes a charitable contribution of approximately $85,000 expressing our
commitment to and reinvestment in the community by funding the construction of
affordable local housing.





Nine
Months Ended September 30, 2008 and 2007:




Results
of Operations





For the
first nine months of 2008, our operations resulted in a net loss of $7.68
million compared to net income of $4.08 million in the comparable prior year
period.  On a per share basis, the net loss was $0.55 for the 2008
period as compared to diluted earnings per share of $0.32 for the comparable
2007 period.





Annualized
loss on average assets for the first nine months of 2008 was 0.67% compared to a
return on average assets of 0.40% for the first nine months of
2007.  Loss on average shareholders’ equity was 10.18% for the first
nine months of 2008 while the return on average shareholders’ equity was 5.72%
for the same period of 2007.




Net
Interest Income


Net
interest income was approximately $33.9 million for the nine months ended
September 30, 2008, a decline from the $34.7 million reported for the prior year
period. The decline in net interest income in the first nine months of 2008
compared to the first nine months of 2007 is due principally to a decline in the
net interest margin to 3.19% from 3.66%, respectively. A $3.9 million decrease
in interest and dividend income for the first nine months of 2008 over the first
nine months of 2007 was mainly attributable to decreased average rates on loans
due principally to the 325 basis point decrease in the prime and fed funds sold
rates combined with a higher level of non-performing loans.  Partially
offsetting this decline were decreases in the interest cost of transaction
accounts due to decreases in rates and balances.  Increases in
balances led to an increase in interest expense on time deposits, short-term
borrowings and FHLB advances and long-term borrowings, which more than offset
the effect of lower interest rates paid.





The
interest rate environment during the first nine months of 2008 was significantly
lower than the prior year period due to highly stimulative monetary policies
undertaken by the Federal Reserve beginning in the third quarter of 2007. As a
result of the actions taken by the Federal Reserve, the prime rate declined from
8.25% to 5.00% by April 2008.





Due to
the rapid and significant decline in the prime rate and the overall interest
rate environment, the yield on our loans declined 112 basis points and the yield
of our interest earning assets declined 119 basis points in the nine months of
2008 compared to the same period in 2007. Similarly our deposit liability and
total interest bearing liability costs declined 88 and 97 basis points for the
same periods, respectively.





Due to a
high level of demand for liquidity in the global financial system and
competitive pressures in our local markets, we were unable to reduce the cost of
our CDs and other interest rate sensitive deposits and funding sources as
quickly and to the same magnitude as the reductions in our interest earning
assets. As a consequence, our net interest margin declined 47 basis
points.





Due to
the turmoil in financial markets that persisted since the third quarter of 2007,
we maintained a significantly higher level of liquidity as reflected in our
higher average balance of investment securities and federal funds sold. This
higher level of lower yielding assets also reduced the net interest margin
during the period.





Going
forward, we expect market short-term interest rates to continue to decline in
the near term (the Federal Reserve decreased the target federal funds rate by
100 basis points in October), resulting in an additional decline in loan yields
followed by a period of stability. We expect deposit costs to continue to
decline but they may decrease more slowly or to a lesser extent than loan
yields, or they could increase due to strong demand in the financial markets and
banking system for liquidity which is reflected in elevated pricing competition
for deposits. In the current interest rate environment, we believe that our
interest margin will continue to be under pressure. The predominant driver to
increase net interest income is and will continue to be the growth of our
balance sheet. Although the timing and possible effects of future changes in
interest rates could be significant, we expect any such impact to continue to be
less in extent than the relative impact of earning asset growth.





On the
basis of economic and financial market conditions that we observed during the
second quarter of 2008, we began to shorten the maturity structure of our
interest bearing liabilities by increasing the amount of FHLB borrowings with
maturities of one month and by originating wholesale CD deposits with terms of 3
months to 6 months. This tactic was initiated to generate lower cost and
shorter-term liabilities to improve our net interest margin and position our
balance sheet for stable or declining short-term interest rates. This position
was maintained through the third quarter and at September 30, 2008, we have $75
million of FHLB borrowings that mature monthly and over $80 million of wholesale
CDs that have original maturities of 3 months to 6 months. This increased level
of shorter-term liabilities should partially offset the further decline in
short-term interest rates in October. See Asset and Liability Management for a
more in depth discussion of our management of changes in interest rates and
interest rate risk.


19


The
following table presents average balances of the Company, the taxable-equivalent
interest earned, and the rate paid thereon during the nine months ended
September 30, 2008 and September 30, 2007.





2008
            
            
            2007(Dollars
      in thousands)
            
            Average
              Balances
            
            
            Income/
              Expense
            
            
            Yields/
              Rates
            
            
            Average
              Balances
            
            
            Income/
              Expense
            
            
            Yields/
              RatesInterest-earning
      assets:Loans
      (1)(2)
            
            $
            1,172,173
            
            
            $
            59,148
            
            
            
            6.74
            %
            
            $
            1,080,188
            
            
            $
            63,532
            
            
            
            7.86
            %Investment
      securities (2)
            
            
            174,337
            
            
            
            6,209
            
            
            
            4.76
            %
            
            
            141,958
            
            
            
            5,489
            
            
            
            5.17
            %Interest-bearing
      deposits in other banks
            
            
            2,478
            
            
            
            50
            
            
            
            2.71
            %
            
            
            393
            
            
            
            15
            
            
            
            5.10
            %Federal
      Home Loan Bank stock
            
            
            9,370
            
            
            
            330
            
            
            
            4.71
            %
            
            
            8,220
            
            
            
            367
            
            
            
            5.97
            %Federal
      funds sold and securities sold under agreements to resell
            
            
            69,795
            
            
            
            1,338
            
            
            
            2.56
            %
            
            
            43,892
            
            
            
            1,724
            
            
            
            5.25
            %Total
      interest-earning assets
            
            
            1,428,153
            
            
            
            67,075
            
            
            
            6.27
            %
            
            
            1,274,651
            
            
            
            71,127
            
            
            
            7.46
            %Non-interest-earning
      assets:Cash
      and due from banks
            
            
            19,165
            
            
            
            
            
            
            
            
            
            
            
            20,711Premises
      and equipment, net
            
            
            37,650
            
            
            
            
            
            
            
            
            
            
            
            36,132Allowance
      for loan losses
            
            
            (15,623
            )
            
            
            
            
            
            
            
            
            
            
            (9,675
            )Other
      assets
            
            
            53,939
            
            
            
            
            
            
            
            
            
            
            
            39,793Total
      non-interest-earning assets
            
            
            95,131
            
            
            
            
            
            
            
            
            
            
            
            86,961Total
      assets
            
            $
            1,523,284
            
            
            
            
            
            
            
            
            
            
            $
            1,361,612Interest-bearing
      liabilities:Interest-bearing
      deposits:NOW
      accounts
            
            $
            183,947
            
            
            $
            2,601
            
            
            
            1.89
            %
            
            $
            153,503
            
            
            $
            3,870
            
            
            
            3.37
            %Money
      market
            
            
            164,444
            
            
            
            3,128
            
            
            
            2.54
            %
            
            
            190,660
            
            
            
            6,018
            
            
            
            4.22
            %Savings
      deposits
            
            
            50,232
            
            
            
            436
            
            
            
            1.16
            %
            
            
            55,145
            
            
            
            688
            
            
            
            1.67
            %Time
      deposits
            
            
            559,959
            
            
            
            18,629
            
            
            
            4.44
            %
            
            
            481,933
            
            
            
            17,968
            
            
            
            4.98
            %Total
      interest-bearing deposits
            
            
            958,582
            
            
            
            24,794
            
            
            
            3.45
            %
            
            
            881,241
            
            
            
            28,544
            
            
            
            4.33
            %Other
      interest-bearing liabilities:Short-term
      borrowings and FHLB advances
            
            
            229,503
            
            
            
            5,661
            
            
            
            3.29
            %
            
            
            163,582
            
            
            
            5,579
            
            
            
            4.56
            %Long-term
      borrowings
            
            
            63,000
            
            
            
            2,545
            
            
            
            5.40
            %
            
            
            34,406
            
            
            
            2,085
            
            
            
            8.10
            %Total
      interest-bearing liabilities
            
            
            1,251,085
            
            
            
            33,000
            
            
            
            3.52
            %
            
            
            1,079,229
            
            
            
            36,208
            
            
            
            4.49
            %Non-interest-bearing
      liabilities and shareholders’ equity:Demand
      deposits
            
            
            151,566
            
            
            
            
            
            
            
            
            
            
            
            167,642Other
      liabilities
            
            
            19,930
            
            
            
            
            
            
            
            
            
            
            
            19,472Shareholders’
      equity
            
            
            100,703
            
            
            
            
            
            
            
            
            
            
            
            95,269Total
      non-interest-bearing liabilities and shareholders’ equity
            
            
            272,199
            
            
            
            
            
            
            
            
            
            
            
            282,383Total
      liabilities and shareholders’ equity
            
            $
            1,523,284
            
            
            
            
            
            
            
            
            
            
            $
            1,361,612Interest
      rate spread  (tax equivalent basis)
            
            
            
            
            
            
            
            
            
            
            2.75
            %
            
            
            
            
            
            
            
            
            
            
            2.97
            %Net
      interest income  (tax equivalent basis)
            
            
            
            
            
            $
            34,075
            
            
            
            
            
            
            
            
            
            
            $
            34,919Net
      interest margin (3) (tax equivalent basis)
            
            
            
            
            
            
            
            
            
            
            3.19
            %
            
            
            
            
            
            
            
            
            
            
            3.66
            %_______
              (1)Average
      loans include non-performing loans.
              (2)Interest
      income and rates include the effects of a tax equivalent adjustment using
      applicable statutory tax rates 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.


20


Changes
in Net Interest Income


The table
below details the components of the changes in net interest income for the nine
months ended September 30, 2008 and September 30, 2007.  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.


2008
      Compared to 2007 (1)
              Due
      to Changes in(Dollars
      in thousands)
            
            Average
              Volume
            
            
            Average
              Rate
            
            
            Net
      Increase
              (Decrease)Interest
      incomeLoans
      (2)
            
            $
            5,122
            
            
            $
            (9,506
            )
            
            $
            (4,384
            )Investment
      securities (2)
            
            
            1,179
            
            
            
            (459
            )
            
            
            720Interest-bearing
      deposits in other banks
            
            
            45
            
            
            
            (10
            )
            
            
            35Federal
      Home Loan Bank stock
            
            
            47
            
            
            
            (84
            )
            
            
            (37
            )Federal
      funds sold and securities purchased under agreements to
    resell
            
            
            739
            
            
            
            (1,125
            )
            
            
            (386
            )Total
      interest income
            
            
            7,132
            
            
            
            (11,184
            )
            
            
            (4,052
            )Interest
      expenseNOW
      accounts
            
            
            663
            
            
            
            (1,932
            )
            
            
            (1,269
            )Money
      market
            
            
            (743
            )
            
            
            (2,147
            )
            
            
            (2,890
            )Savings
      deposits
            
            
            (57
            )
            
            
            (195
            )
            
            
            (252
            )Time
      deposits
            
            
            2,721
            
            
            
            (2,060
            )
            
            
            661Short-term
      borrowings and FHLB advances
            
            
            1,879
            
            
            
            (1,797
            )
            
            
            82Long-term
      borrowings
            
            
            1,320
            
            
            
            (860
            )
            
            
            460Total
      interest expense
            
            
            5,783
            
            
            
            (8,991
            )
            
            
            (3,208
            )Change
      in net interest income
            
            $
            1,349
            
            
            $
            (2,193
            )
            
            $
            (844
            )________
              (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
      applicable statutory tax rates 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 to $13.1 million in the first nine
months of 2008 compared to $3.5 million in the comparable prior year period. Due
to the weakening economic environment, we began increasing certain quantitative
and qualitative economic risk factors employed in estimating the allowance for
loan losses during the second quarter of 2006. We further increased these
factors during each quarter of 2007 and 2008. The higher provision for loan
losses in 2008 reflects continued local economic contraction, evidenced by
increased unemployment levels, especially in the greater Fort Myers, Florida
area where we have a concentration of indirect auto loan exposure. While there
has been an increase in the number of real estate unit sales as compared to the
prior year period, the impact of foreclosures and distressed sales is impacting
the value of real estate and economy broadly. Additionally, we experienced
increased levels of nonperforming loans and delinquencies and higher levels of
net charge-offs.  An additional component of the increased provision
was the increase in total loans outstanding of $97.8 million, or 9%, during the
first nine months of 2008. Net Charge-offs were $10.1 million, or 1.15% of
average loans on an annualized basis, during the nine months ended September 30,
2008, compared to $2.1 million, or 0.26% of average loans on an annualized
basis, for the same period in 2007. The net charge-offs resulting from the
indirect loan portfolio were $8.3 million and $1.6 million in the first nine
months of 2008 and 2007, respectively. Recent increases in 30-89 days
delinquency of indirect loans in the third quarter and continuing into October
may result in higher levels of nonperforming loans and repossessed vehicles,
which may cause an increase in charge-offs and collection costs in future
periods.





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




Non-interest
Income


Non-interest
income for the first nine months of 2008 was $3.5 million.  This
represented a $2.1 million, or 37%, decrease over the comparable prior year
period which totaled $5.6 million.  The decrease was primarily
attributable to the $2.2 million write-down of investment securities partially
offset by gains of $1.1 million realized from the sale of investment securities.
In addition a gain of approximately $254,000 from the disposition of land and a
gain of approximately $702,000 from the disposition of an office building were
included in other income reported in the first nine months of 2007. Also
contributing to the decline were lower fees on mortgage loans originated and
sold due to lower sales of residential loans in the secondary market and a
greater proportion of our residential loan production being held in our
portfolio.  Investment advisory fees from Naples Capital Advisors,
Inc. contributed approximately $413,000 to the current year total.


21


Non-interest
Expense


Non-interest
expense for the first nine months of 2008 was $36.9 million.  This
represented a 21% increase over the prior year period which totaled $30.5
million. This increase included a $1.4 million increase resulting from the
operations of The Bank of Venice and $788,000 resulting from the operations of
Naples Capital Advisors, Inc. The overall increase also reflected increased
costs and losses of approximately $2.0 million attributable to our indirect
lending operations.





Salary
and employee benefits increased $1.6 million in the first nine months of 2008
relative to the first nine months of 2007. The Bank of Venice represents
approximately $565,000 of the increase in this caption and Naples Capital
Advisors, Inc. represents approximately $525,000 of the
increase.  Additionally, approximately $378,000 of severance costs
associated with the elimination of certain employee positions were incurred in
the first nine months of 2008.





For the
first nine months of 2008 there was a $441,000 increase in occupancy expense as
compared to the first nine months of 2007. This increase is primarily due to a
$402,000 increase of occupancy related costs from the operations of The Bank of
Venice. Costs increased approximately $202,000 due to vacating a leased facility
partially offset by approximately a $70,000 decrease in communications expenses
as we continue to focus on consolidating our facilities and containing operating
costs





The $4.3
million increase in other expense resulted primarily from our indirect lending
operations and its restructuring including $1.0 million in write-downs of
repossessed vehicles and related assets and approximately $1.0 million of
consulting and collections fees and costs. The increase also includes $442,000
increase of operating costs for The Bank of Venice which was acquired April 30,
2007, $740,000 of expenses relating to and valuation allowances recorded against
other real estate owned and a $492,000 increase in FDIC deposit
insurance.  Other expense includes a charitable contribution of
approximately $85,000 expressing our commitment to and reinvestment in the
community by funding the construction of affordable local housing.





Balance
Sheet


Total
assets at September 30, 2008 were $1.56 billion, an increase of $118.7 million
or 8%, from total assets of $1.44 billion at December 31, 2007.  Total
loans outstanding increased $98.0 million, or 9%, to $1.23 billion during the
first nine months of 2008 from year end 2007.  Also, in the same
period, investment securities increased $37.0 million. As the overall Company
continues to experience growth, securities are purchased to maintain appropriate
levels of liquid assets on the balance sheet.





At
September 30, 2008, advances from the Federal Home Loan Bank were $182.9
million, a $42.9 million increase from $140.0 million at December 31,
2007.  Total deposits of $1.11 billion as of September 30, 2008
increased $63.2 million, or 6%, from December 31, 2007.





Shareholders’
equity totaled $97.7 million at September 30, 2008, increasing $1.4 million from
December 31, 2007. This increase is primarily due to the private placement of
1.2 million shares of common stock on March 7, 2008 resulting in gross proceeds
of approximately $10.1 million. Book value per share decreased to $6.83 at
September 30, 2008 from $7.38 at December 31, 2007.  The Company
declared a 1% stock dividend in the second and third quarters of 2008 and a
quarterly cash dividend of $0.0613 per share in the first quarter of 2008 and
$0.0588 per share in each of the first three quarters of 2007.





Investment
Securities


During
the first quarter of 2008, we realized net gains of $910,000 relating to sales
of approximately $25.0 million of available for sale securities. During the
third quarter, we realized net gains of $146,000 relating to sales of $20.7
million of additional securities.  The reinvestment of the proceeds
and additional investment resulted in a $37.0 million increase in investment
securities to $197.4 million. The sales of securities reflect a restructuring of
a portion of the portfolio to reduce interest rate risk by reducing duration
while reinvesting in a comparably yielding mix of investment securities with a
shorter duration. During the first nine months of 2008, non-cash impairment
charges of $2.2 million were recognized relating to an equity security and three
collateralized debt obligation securities. No gains or losses were recognized
during the first nine months of 2007.





As
previously described in the Annual Report on Form 10-K for 2007, the company
owns three collateralized debt obligation investment securities aggregating
$10.0 million in par value that were written down to $6.1 million as of December
31, 2007. The underlying assets in the three collateralized debt obligations are
comprised primarily of corporate debt obligations of homebuilders, REITs and
real estate companies and commercial mortgage backed securities. These
securities are floating rate securities which were rated “A” or better by an
independent and nationally recognized rating agency at the time of our purchase.
In late December 2007, these securities were downgraded below investment grade
by a nationally recognized rating agency. Due to the ratings downgrade, and the
amount of unrealized loss, we concluded that the loss of value was other than
temporary under generally accepted accounting principles and the Company wrote
these investment securities down to their estimated fair value. During the first
quarter of 2008, these securities were placed on nonaccrual and as of September
30, 2008, these securities remain on nonaccrual.





As of
June 30, 2008, the estimated fair value of these securities declined to $5.2
million due to the occurrence of additional defaults by certain underlying
issuers and lower projected cash flows. During July 2008, these securities were
further downgraded by a nationally recognized rating agency. Due to the ratings
downgrade and the amount of unrealized loss resulting from a projection of lower
expected cash flows, the company concluded that the additional loss of value was
other than temporary under generally accepted accounting principles and
wrote-down these investment securities by $1.0 million to their estimated fair
value in the second quarter. As additional defaults by certain underlying
issuers occurred in two of these securities during the third quarter, additional
non-cash write downs of $271,000 were recognized.


22
 
 Conversely,
the third security did not experience additional defaults during the third
quarter that impacted its estimated fair value. Accordingly, the estimates of
cash flows for this security improved and resulted in the recognition of
unrealized gains of approximately $528,000. As these securities are not readily
marketable and there have been no observable transactions involving
substantially similar securities, estimates of future cash flows, levels and
timing of future default and assumptions of applicable discount rates are highly
subjective and have a material impact on the estimated fair value of these
securities. These estimates may fluctuate significantly from period to period
based upon actual occurrence of future events of default, recovery, and changes
in expectations of assumed future levels of default and discount rates
applied.




The
Company also owns equity securities of a publicly owned company which we
originally acquired in 2003 for $3.0 million to obtain community reinvestment
credit. As described in the Annual Report, these securities were written down to
$1.2 million as of December 31, 2007. During the second quarter of 2008, these
securities suffered a significant further decline in fair value. We determined
that this unrealized loss was other than temporary and wrote this investment
down by $1.0 million.




Combined,
the impairment and write-down of these securities resulted in the recognition of
a non-cash charge of $2.2 million during the nine months ended September 30,
2008. We regularly review each investment security for impairment based on
criteria that include the extent to which cost exceeds market price, the
duration of that market decline, the financial health of and specific prospects
for the issuer(s) and our ability and intention with regard to holding the
security to maturity. Future declines in the market value of these or other
securities may result in additional impairment charges which may be material to
the financial condition and results of operations of the Company.




Loan
Portfolio Composition





Two of the most significant components
of our loan portfolio are classified in the notes to the accompanying unaudited
financial statements as commercial real estate and construction and vacant land.
Our goal of maintaining high standards of credit quality include a strategy of
diversification of loan type and purpose within these categories. The following
charts illustrate the composition of these portfolios as of September 30, 2008
and December 31, 2007.




September
      30, 2008
            
            
            December
      31, 2007(Dollars
      in thousands)
            
            Commercial
      Real Estate
            
            
            Percentage
      Composition
            
            
            Commercial
      Real Estate
            
            
            Percentage
      CompositionMixed
      Use Commercial/Residential
            
            $
            111,062
            
            
            
            17
            %
            
            $
            103,937
            
            
            
            17
            %1-4
      Family and Multi Family
            
            
            96,812
            
            
            
            14
            %
            
            
            76,339
            
            
            
            13
            %Hotels/Motels
            
            
            91,362
            
            
            
            14
            %
            
            
            86,909
            
            
            
            14
            %Guesthouses
            
            
            85,185
            
            
            
            13
            %
            
            
            81,817
            
            
            
            13
            %Office
      Buildings
            
            
            98,432
            
            
            
            15
            %
            
            
            97,633
            
            
            
            16
            %Retail
      Buildings
            
            
            72,181
            
            
            
            11
            %
            
            
            64,819
            
            
            
            11
            %Restaurants
            
            
            48,744
            
            
            
            7
            %
            
            
            37,186
            
            
            
            6
            %Marinas/Docks
            
            
            20,112
            
            
            
            3
            %
            
            
            20,364
            
            
            
            3
            %Warehouse
      and Industrial
            
            
            28,860
            
            
            
            4
            %
            
            
            29,958
            
            
            
            5
            %Other
            
            
            13,513
            
            
            
            2
            %
            
            
            13,122
            
            
            
            2
            %Total
            
            $
            666,263
            
            
            
            100
            %
            
            $
            612,084
            
            
            
            100
            %




September
      30, 2008
            
            
            December
      31, 2007Construction
      and Vacant Land
            
            
            Percentage
      Composition
            
            
            Construction
      and Vacant Land
            
            
            Percentage
      CompositionConstruction:Residential – owner
      occupied
            
            $
            20,579
            
            
            
            13
            %
            
            $
            20,620
            
            
            
            12
            %Residential – commercial
      developer
            
            
            14,017
            
            
            
            9
            %
            
            
            36,107
            
            
            
            21
            %Commercial
    structure
            
            
            23,153
            
            
            
            15
            %
            
            
            14,367
            
            
            
            9
            %57,749
            
            
            
            37
            %
            
            
            71,094
            
            
            
            42
            %Land:Raw land
            
            
            25,909
            
            
            
            17
            %
            
            
            25,890
            
            
            
            15
            %Residential
    lots
            
            
            13,577
            
            
            
            9
            %
            
            
            16,775
            
            
            
            10
            %Land
    development
            
            
            19,360
            
            
            
            12
            %
            
            
            19,818
            
            
            
            12
            %Commercial
lots
            
            
            38,870
            
            
            
            25
            %
            
            
            35,018
            
            
            
            21
            %Total
      land
            
            
            97,716
            
            
            
            63
            %
            
            
            97,501
            
            
            
            58
            %Total
            
            $
            155,465
            
            
            
            100
            %
            
            $
            168,595
            
            
            
            100
            %




23


Non-performing
Assets





Non-performing
assets include non-accrual loans and investment securities, accruing loans
contractually past due 90 days or more, repossessed personal property, and other
real estate.  Loans and investments in debt securities are placed on
non-accrual status when management has concerns relating to the ability to
collect the principal and interest and generally when loans are 90 days 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 are as follows:





(Dollars
      in thousands)
            
            September
      30, 2008
            
            
            December
      31, 2007Total
      non-accrual loans (a)
            
            $
            26,985
            
            
            $
            16,086Accruing
      loans delinquent 90 days or more
            
            
            -
            
            
            
            -Total
      non-performing loans
            
            
            26,985
            
            
            
            16,086Non-accrual
      investment securities (b)
            
            
            5,411
            
            
            
            3,154Repossessed
      personal property (primarily indirect auto loans)
            
            
            635
            
            
            
            3,136Other
      real estate owned
            
            
            4,648
            
            
            
            1,846Other
      assets (c)
            
            
            2,073
            
            
            
            2,915Total  non-performing
      assets
            
            $
            39,752
            
            
            $
            27,137Allowance
      for loan losses
            
            $
            18,035
            
            
            $
            14,973Non-performing
      assets as a percent of total assets
            
            
            2.54
            %
            
            
            1.88
            %Non-performing
      loans as a percent of total loans
            
            
            2.20
            %
            
            
            1.43
            %Allowance
      for loan losses as a percent of non-performing loans
            
            
            66.83
            %
            
            
            93.08
            %Annualized
      net charge-offs as a percent of average loans
            
            
            1.15
            %
            
            
            0.45
            %





(a)
            Non-accrual
      loans as of September 30, 2008 and December 31, 2007 are as
      follows:





(Dollars
      in thousands)
            
            September
      30, 2008
            
            
            December
      31, 2007Collateral
      Description
            
            Number
      of Loans
            
            
            Outstanding
      Balance
            
            
            Number
      of Loans
            
            
            Outstanding
      BalanceResidential
      **
            
            
            24
            
            
            $
            4,639
            
            
            
            13
            
            
            $
            4,442Commercial
      and agricultural
            
            
            1
            
            
            
            236
            
            
            
            4
            
            
            
            293Commercial
      real estate
            
            
            11
            
            
            
            6,822
            
            
            
            4
            
            
            
            2,619Residential
      land development
            
            
            -
            
            
            
            -
            
            
            
            1
            
            
            
            2,686Commercial
      land development
            
            
            3
            
            
            
            13,616
            
            
            
            -
            
            
            
            -Participations
      in residential loan pools **
            
            
            -
            
            
            
            -
            
            
            
            9
            
            
            
            1,246Government
      guaranteed loans
            
            
            2
            
            
            
            349
            
            
            
            1
            
            
            
            1,641Indirect
      auto, auto and consumer loans
            
            
            108
            
            
            
            1,323
            
            
            
            238
            
            
            
            3,159$
            26,985
            
            
            
            
            
            
            $
            16,086


**
            Our
      ownership in the nine loan pools was exchanged for an equivalent value of
      10 specific loans from the loan pools during the first
      quarter.





(b)
            In
      December 2007, the Company placed a collateralized debt security secured
      primarily by homebuilders, REITs, real estate companies and commercial
      mortgage backed securities on non-accrual. In March 2008, two additional,
      similarly secured, collateralized debt securities were placed on
      non-accrual. These three securities had a total original cost of $10.0
      million and were rated A at purchase. These securities have a current
      estimated value of $5.4 million. For additional details on this and other
      investment securities, see the section of management’s discussion and
      analysis that follows entitled “Investment
  Portfolio”.





(c)
            In
      1998, TIB Bank made a $10.0 million loan to construct a lumber mill in
      northern Florida. Of this amount, $6.4 million had been sold by the Bank
      to other lenders. The loan was 80% guaranteed as to principal and interest
      by the U.S. Department of Agriculture (USDA). In addition to business real
      estate and equipment, the loan was collateralized by the business owner’s
      interest in a trust. Under provisions of the trust agreement,
      beneficiaries cannot receive trust assets until November
    2010.







24


The portion of this loan guaranteed by
the USDA and held by us was approximately $1.6 million at December 31, 2007. The
loan was accruing interest until December 2006 when the Bank ceased the accrual
of interest pursuant to a ruling made by the USDA.  Accrued interest
on this loan totaled approximately $941,000 at December 31, 2007. During the
second quarter of 2008, the USDA paid the Company the principal and accrued
interest and allowed the Company to apply other proceeds previously received to
capitalized liquidation costs and protective advances.





The non-guaranteed principal and
interest ($2.0 million at September 30, 2008 and December 31, 2007) and the
reimbursable capitalized liquidation costs and protective advance costs totaling
approximately $109,000 and $954,000 at September 30, 2008 and December 31, 2007,
respectively, are included as “other assets” in the financial
statements.





Florida law requires a bank to
liquidate or charge off repossessed real property within five years, and
repossessed personal property within six months. Since the property had not been
liquidated during this period, the Bank charged-off the non guaranteed principal
and interest totaling $2.0 million at June 30, 2003, for regulatory
purposes.  Since we believe this amount is ultimately realizable, we
did not write off this amount for financial statement purposes under generally
accepted accounting principles.








Net activity relating to nonaccrual
loans during the third quarter of 2008 is as follows:





Nonaccrual
      Loan Activity (Other Than Indirect Auto and Consumer)
              (Dollars
      in thousands)Nonaccrual
      loans at June 30, 2008
            
            $
            21,367Loans
      returned to accrual
            
            
            (201
            )Net
      principal paid down on nonaccrual loans
            
            
            (490
            )Charge-offs
            
            
            (629
            )Loans
      in-substance foreclosed
            
            
            (377
            )Loans
      placed on nonaccrual
            
            
            5,992Nonaccrual
      loans at September 30, 2008
            
            $
            25,662





We have a $7.7 million commercial real
estate construction loan for the development and sale of seven luxury
condominiums in Key West which matured in September 2008 and is not included in
non-performing or impaired loans as of September 30, 2008. The project is
complete and has received a certificate of occupancy. We were in the process of
negotiating a renewal of this loan when the borrower suffered a medical
emergency resulting in a delay of the negotiations of the renewal. At this time,
we are unable to determine whether we will be able to successfully negotiate the
renewal of the loan.





Net
activity relating to other real estate owned loans during the third quarter of
2008 is as follows:





OREO
      Activity
              (Dollars
      in thousands)OREO
      as of June 30, 2008
            
            $
            5,037Real
      estate foreclosed
            
            
            377Other
      increases
            
            
            -Write-down
      of value
            
            
            (326
            )Property
      sold
            
            
            (440
            )OREO
      as of September 30, 2008
            
            $
            4,648




The
allowance for loan losses is a valuation allowance for probable incurred credit
losses in the loan portfolio and amounted to approximately $18.0 million and
$15.0 million at September 30, 2008 and December 31, 2007,
respectively.  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 classified into the following risk categories: Pass, Special Mention,
Substandard or Loss.  The allowance consists of specific and general
components. When appropriate, a specific reserve will be established for
individual loans.  The specific component relates to loans that are
individually classified as impaired or loans otherwise classified as substandard
or worse. 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.





25


A loan is
considered impaired when it is probable that not all principal and interest
amounts will be collected according to the loan contract. Generally, individual
commercial and commercial real estate loans exceeding certain size thresholds
established by management are individually evaluated for impairment. If a loan
is considered to be impaired, a portion of the allowance is allocated so that
the carrying value of the loan is reported at the present value of estimated
future cash flows using the loan’s existing rate or at the fair value of
collateral if repayment is expected solely from the collateral. Impaired loans
are as follows:


(Dollars in
      thousands)
            
            September
      30, 2008
            
            
            December
      31, 2007Loans
      with no allocated allowance for loan losses
            
            $
            7,889
            
            
            $
            4,448Loans
      with allocated allowance for loan losses
            
            
            27,416
            
            
            
            3,748Total
            
            $
            35,305
            
            
            $
            8,196Amount
      of the allowance for loan losses allocated
            
            $
            3,820
            
            
            $
            1,401




Indirect
auto loans and consumer loans generally are not analyzed individually and or
separately identified for impairment disclosures.  These loans are
grouped into pools and assigned risk categories based on their current payment
status and management’s assessment of risk inherent in the various types of
loans.  As above, when appropriate, a specific reserve will be
established for individual loans.  Otherwise, we allocate an allowance
for each loan classification.  The allocations are based on the same
factors mentioned above. Based on
an analysis performed by management at September 30, 2008, 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 our
recent historical loss experience, the level of nonperforming and delinquent
loans, information known today and a number of assumptions about future events,
which are believed to be reasonable, but which may or may not prove
valid.  Thus, there can be no assurance that charge-offs in future
periods will not exceed the allowance for loan losses or that significant
additional increases in the allowance for loan losses will not be required. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review our allowance for loan losses. Such agencies may
require us to recognize additions to the allowance based on their judgments
about information available to them at the time of their
examination.




Capital
and Liquidity


The
Company's policy is to maintain capital in excess of the levels required to be
Well Capitalized for regulatory purposes.  As of September 30, 2008,
the ratio of Total Capital to Risk Weighted Assets was 10.7%.  The
decrease from the 11.3% reported as of December 31, 2007 is related to the
increase in risk weighted assets due to the growth of our assets and current
year net loss offset by the increase in capital from the private placement of
common stock. On March 7, 2008, we consummated a private placement transaction
whereby two of Southwest Florida’s prominent families, their representatives and
their related business interests purchased 1.2 million shares of the common
stock and warrants to purchase an additional 1.2 million shares of common stock.
The warrants have an exercise price of $8.23 per share and may be exercised at
any time prior to March 7, 2011. This private placement resulted in gross
proceeds of $10.1 million. The terms of the transaction limits the ownership of
each of the two groups to 9.9% of outstanding shares.





In August 2007, the Board authorized
the repurchase of up to 400,000 shares of the Company's outstanding common
stock, however, no shares were purchased during the first three quarters of
2008.  Consistent with our focus on maintaining our strong capital
position, on October 28, 2008, the Board terminated its authorization for the
repurchase of common stock.




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, short term
investments such as federal funds sold and unused borrowing
capacity.  The Banks have 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 Banks is based on a percentage
of the Banks’ total assets as reported in their most recent quarterly financial
information submitted to the Federal Home Loan Bank and subject to the pledging
of sufficient collateral.  At September 30, 2008, there were $182.9
million in advances outstanding in addition to $25.3 million in letters of
credit including $25.0 million used in lieu of pledging securities to the State
of Florida to collateralize governmental deposits.  As of September
30, 2008, collateral availability under our agreements with the Federal Home
Loan Bank provides for total borrowings of up to approximately $271.0 million of
which $62.8 million is available.




The Banks
have unsecured overnight federal funds purchased accommodations up to a maximum
of $30.0 million from their correspondent banks. We continue to monitor our
liquidity position as part of our asset-liability management. We believe that we
have adequate funding sources through brokered deposits, unused borrowing
capacity from the FHLB, loan principal repayment and potential asset maturities
and sales to meet our foreseeable liquidity requirements.





During
the second and third quarters of 2008, the Company’s Board of Directors declared
a 1% (one percent) stock dividend to holders of record as of July 7, 2008 and
September 30, 2008, respectively. The stock dividends were distributed on July
17, 2008 and October 10, 2008 and were comparable in value to our most recent
quarterly cash dividend paid April 10, 2008. The decision to replace our
quarterly cash dividend with a stock dividend was made after consideration of
the current economic and operating environment and our desire to maintain the
well capitalized position of the Company, TIB Bank and The Bank of Venice. Both
banks and the holding company currently exceed all regulatory requirements to
meet the definition of well-capitalized. We understand that cash dividends are
an important component of investment return to our shareholders, but believe
this is a prudent measure to help sustain our strong capital position and
improve future shareholder value. The Board of Directors will continue to
evaluate the amount of our quarterly dividend and our dividend policy in light
of current and expected trends in our financial performance and financial
condition.


26


As of September 30,
2008, our financial holding company had cash of approximately $2.2 million. This
cash is available for providing capital support to the subsidiary banks, the
payment of interest on our trust preferred debt securities and for other general
corporate purposes. During the first three quarters of 2008, the holding company
invested $10.75 million of capital in TIB Bank.




Asset
and Liability Management





Closely
related to liquidity management is the management of interest-earning assets and
interest-bearing liabilities.  The Company manages its interest rate
sensitivity position to manage net interest margins and to minimize risk due to
changes in interest rates. We review and evaluate our gap position as presented
below as part of our asset and liability management process.





(Dollars
      in thousands)
            
            3
      Months
              or
      Less
            
            
            4
      to 6
              Months
            
            
            7
      to 12
              Months
            
            
            1
      to 5
              Years
            
            
            Over
      5
              Years
            
            
            TotalInterest-earning
      assets:Loans
            
            $
            338,540
            
            
            $
            51,327
            
            
            $
            134,200
            
            
            $
            592,563
            
            
            $
            108,829
            
            
            $
            1,225,459Investment
      securities-taxable
            
            
            28,095
            
            
            
            726
            
            
            
            2,629
            
            
            
            67,589
            
            
            
            90,345
            
            
            
            189,384Investment
      securities-tax exempt
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            5,632
            
            
            
            2,060
            
            
            
            7,692Marketable
      equity securities
            
            
            320
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            320FHLB
      stock
            
            
            10,824
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            10,824Federal
      funds sold and securities purchased under agreements to
    resell
            
            
            32,347
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            32,347Interest-bearing
      deposit in other banks
            
            
            428
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            428Total
      interest-earning assets
            
            
            410,554
            
            
            
            52,053
            
            
            
            136,829
            
            
            
            665,784
            
            
            
            201,234
            
            
            
            1,466,454Interest-bearing
      liabilities:NOW
      accounts
            
            
            148,362
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            148,362Money
      market
            
            
            130,910
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            130,910Savings
      deposits
            
            
            48,505
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            48,505Time
      deposits
            
            
            198,547
            
            
            
            179,494
            
            
            
            142,841
            
            
            
            129,020
            
            
            
            -
            
            
            
            649,902Subordinated
      debentures
            
            
            25,000
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            8,000
            
            
            
            33,000Other
      borrowings
            
            
            156,351
            
            
            
            -
            
            
            
            4,150
            
            
            
            128,750
            
            
            
            -
            
            
            
            289,251Total
      interest-bearing liabilities
            
            
            707,675
            
            
            
            179,494
            
            
            
            146,991
            
            
            
            257,770
            
            
            
            8,000
            
            
            
            1,299,930Interest
      sensitivity gap
            
            $
            (297,121
            )
            
            $
            (127,441
            )
            
            $
            (10,162
            )
            
            $
            408,014
            
            
            $
            193,234
            
            
            $
            166,524Cumulative
      interest sensitivity gap
            
            $
            (297,121
            )
            
            $
            (424,562
            )
            
            $
            (434,724
            )
            
            $
            (26,710
            )
            
            $
            166,524
            
            
            $
            166,524Cumulative
      sensitivity ratio
            
            
            (20.3%)
            
            
            
            (29.0%)
            
            
            
            (29.6%)
            
            
            
            (1.8%)
            
            
            
            11.4%
            
            
            
            11.4%




We are
cumulatively liability sensitive through the five-year time period, and asset
sensitive in the over five year timeframe above.  Certain liabilities
such as non-indexed NOW and savings accounts, while technically subject to
immediate re-pricing in response to changing market rates, historically do not
re-price as quickly or to the extent as other interest-sensitive
accounts.  Approximately 12% of our deposit funding is comprised of
non-interest-bearing liabilities and total interest-earning assets are
substantially greater than the total interest-bearing liabilities. Therefore it
is anticipated that, over time, the effects on net interest income from changes
in asset yield will be greater than the change in expense from liability
cost.  In the next three months, short-term interest rates will
decline due to the Federal Reserve’s actions to lower the target fed funds rate
by 100 basis points to 1% in October. Increases in the level of nonperforming
assets would have a negative impact on our net interest margin. Due to the
Federal Reserve’s recent monetary policy actions, we anticipate that our net
interest margin may decline initially and then stabilize because we have
positioned the Company for declining short-term interest rates by increasing our
liability sensitivity through increased short term borrowings and shorter term
certificates of deposit.




Even in
the near term, we believe the $434.7 million one year cumulative negative
sensitivity gap may exaggerate the probable effects on net interest income for
two primary reasons. First, the liabilities subject to re-pricing are
predominately not indexed to any specific market rate and therefore may not
fully reflect the changes in market rates in any rate re-pricings. Further, the
assets subject to re-pricing are expected to reflect fully any changes in market
rates, primarily the prime rate. Interest-earning
assets and time deposits are presented based on their contractual
terms.  It is anticipated that run off in any deposit category will be
approximately offset by new deposit generation.





We employ a financial model derived
from our assets and liabilities which simulates the effect of various changes in
interest rates on our projected net interest income. This financial model is our
principal tool for measuring and managing interest rate risk. Many assumptions
regarding the timing and sensitivity of our assets and liabilities to a change
in interest rates are made. We continually review and update these assumptions.
This model is updated monthly for changes in our assets and liabilities and we
model different interest rate scenarios based upon current and projected
economic and interest rate conditions. We analyze the results of these
simulations and develop tactics and strategies to attempt to mitigate, where
possible, the projected unfavorable impact of various interest rate scenarios on
our projected net interest income. We also develop tactics and strategies to
increase our net interest margin and net interest income that are consistent
with our operating policies.


27


Commitments


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





The
Banks’ 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 Banks use the same credit policies in making
commitments to extend credit and generally use the same credit policies for
letters of credit as they do for on-balance sheet instruments.





Commitments
to extend credit are legally binding agreements to lend to a customer as long as
there is no violation of any condition established in the
contract.  Since some of these commitments are expected to expire
without being drawn upon, the total commitment amount does not necessarily
represent future cash requirements.  Commitments generally have fixed
expiration dates or other termination clauses and may require the payment of a
fee. At September 30, 2008, total unfunded loan commitments were approximately
$113.5 million.





Standby
letters of credit are conditional commitments issued by the Banks 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 Banks generally hold collateral and/or obtain personal
guarantees supporting these commitments.  Since most of the letters of
credit are expected to expire without being drawn upon, they do not necessarily
represent future cash requirements. At September 30, 2008, commitments under
standby letters of credit aggregated approximately $2.5 million.





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





FASB
Statement 157


On
January 1, 2008, the Company adopted FASB Statement No. 157, Fair Value
Measurements.  As discussed in more detail in Note 8 of the
unaudited notes to consolidated financial statements, this statement defines
fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements.  This Statement establishes
a fair value hierarchy about the assumptions used to measure fair value and
clarifies assumptions about risk and the effect of a restriction on the sale or
use of an asset.  Upon adoption, we classified the three
collateralized debt obligations, discussed in the investment portfolio section
of management’s discussion and analysis above, along with certain impaired
loans, with specific allocations of the allowance for loan losses, as assets
reported at fair value using Level 3 inputs as defined in Statement No. 157.
During the second quarter of 2008, we changed the valuation approach used to
value the collateralized debt obligation collateralized by banks and insurance
companies because there were no longer observable level 2 inputs available.
Therefore, custom discounted cash flow modeling was employed to estimate the
fair value of this security (Level 3 inputs).





Collateralized
Debt Obligations


The collateralized debt obligations
classified as Level 3 represent $10.1 million, or 5%, of the $197.4 million of
investment securities measured at fair value and 0.6% of our total assets of
$1.56 billion. As of September 30, 2008, gross unrealized gains of $528,000 and
gross unrealized losses of $276,000 and were recorded in accumulated other
comprehensive income in shareholders’ equity, net of income taxes. These
securities are illiquid and are not considered by management as a liquidity
source; accordingly, unrealized gains and/or losses have no impact on our
liquidity. Additionally, unrealized gains and losses have no impact on our
regulatory capital ratios.





The
increase in estimated value during the third quarter of 2008 was primarily due
to the occurrence of fewer actual events of default, by the individual issuers
of securities comprising the underlying collateral for one of the securities
collateralized by debt obligations of homebuilders, REITs, real estate companies
and commercial mortgage backed securities, than projected at the end of the
previous quarter. The lower level of defaults resulted in improved estimated
cash flows in the majority of the scenarios evaluated for this security,
resulting in a higher discounted value of expected cash flows than was reported
at June 30, 2008. This increase was partially offset by the decline in value of
the other two collateralized debt obligations. Conversely, these other
securities experienced higher levels of default by underlying individual
issuers. Accordingly, the value of the estimated discounted cash flows of these
securities declined and we recognized non-cash charges totaling approximately
$271,000 due to our determination that such declines met the criteria for
recognition as other than temporary impairments under accounting principles
generally accepted in the United States. The most significant assumptions
utilized in our valuations continue to be the rates at which estimated cash
flows are discounted and our assumptions of future default and recovery rates.
As these securities are not readily marketable and there have been no observable
transactions involving identical or substantially similar securities, our
estimates of future cash flows, levels and timing of future default and
assumptions of applicable discount rates are highly subjective and have a
material impact on the estimated fair value of these securities. These estimates
may fluctuate significantly from period to period based upon actual occurrence
of events of default, recovery, and changes in expectations of assumed future
levels of default.





Impaired
Loans


Impaired loans with specific
allocations of the allowance for loan losses classified as Level 3 represented
$23.6 million, or 1.5% of total assets. During 2008, $3.8 million of our
allowance for loan losses was specifically allocated to impaired loans. This
allocation was considered in our evaluation of the reasonableness and
sufficiency of our allowance for loan losses and provision for loan losses
which, in turn, impact our regulatory capital ratios. As loans, in general, are
illiquid and are not considered by management as a source of liquidity, changes
in their fair value have no impact on our liquidity.


28


Item
3.  Quantitative and Qualitative Disclosures About Market
Risk




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





The
interest rate sensitivity as of September 30, 2008 was analyzed using simulation
analysis of the Company’s sensitivity to changes in net interest income under
varying assumptions for changes in market interest rates.  The Banks
use standardized assumptions run against Bank specific data by an outsourced
provider of Asset Liability modeling.  The model derives expected
interest income and interest expense resulting from interest rate scenarios
which include a 2% increase and a 2% decrease parallel shift in the yield curve
and nonparallel changes in short-term and longer-term interest rates along the
yield curve which are described as a steepening or twist of the yield
curve.  The standard parallel yield curve shift is used to estimate
risk related to the level of interest rates.  While the non-parallel
yield curve twist is used to estimate risk related to the level of interest
rates and changes in the slope of the yield curve.   All rate
change scenarios are “ramped” over a three-month period in our
modeling.





Yield
curve twists change both the level and slope of the yield curve and are more
realistic than parallel yield curve shifts and are more useful for planning
purposes.  As an example, a 100 basis point yield curve twist decrease
would result in short-term rates decreasing approximately 100 basis points and
longer-term rates remaining flat. Such a change in the yield curve is similar to
the effect of the Federal Reserve’s monetary policy actions in
October.





Our model
simulation, of a 200 basis point parallel interest rate increase, projects a
decrease in net interest income of approximately $1,630,000, or 3% over a
12-month period.  A 200 basis point parallel interest rate decrease is
projected to have a nominal impact on net interest income over a 12-month
period. Additionally, a 100 basis point yield curve twist with short-term
interest rates declining 100 basis points and longer-term interest rates
remaining relatively unchanged is projected to result in an increase in net
interest income of approximately $500,000, or 1%, over a 12-month
period.





The
projected impact on our net interest income of a 200 basis point parallel
increase and decrease, respectively, of the yield curve and a 100 basis point
yield curve twist decrease of short-term interest rates are summarized below. A
comparison of the effect on net interest income of these interest rate scenarios
based on our assets and liabilities positions at June 30, 2008 and September 30,
2008 is presented.




September
      30, 2008
              
              
              June
      30, 2008Parallel
      Shift
              
              
              Twist
              
              
              Parallel
      Shift
              
              
              TwistTwelve Month
      Period
              
              
              -2
      %
              
              
              
              +2%
              
              
              
              -1%
              
              
              
              -2%
              
              
              
              +2%
              
              
              
              -1%Percentage
      change in net interest income
              
              
              Nominal
              
              
              
              -3%
              
              
              
              +1%
              
              
              
              -2%
              
              
              
              -3%
              
              
              
              Nominal


We
attempt to manage and moderate the variability of our net interest income due to
changes in the level of interest rates and the slope of the yield curve by
generating adjustable rate loans and managing the interest rate sensitivity of
our investment securities, wholesale funding, and Fed Funds positions consistent
with the re-pricing characteristics of our deposits and other interest bearing
liabilities.




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 Company is made known to them by others
within the Corporation.





(b)
Changes in Internal Control Over Financial Reporting





There
have been no significant changes in the Company's internal control over
financial reporting during the three month period ended September 30, 2008 that
have materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.


29




PART
II.  OTHER INFORMATION






Item
1a. Risk Factors







There has not been any material change
in the risk factor disclosure from that contained in the Company's 2007 Annual
Report on Form 10-K for the year ended December
31, 2007.










Item
5.  Other Information







Not
applicable







Item
6.  Exhibits







(a) Exhibits





Exhibit
      31.1
            -
            Chief
      Executive Officer’s certification required under Section 302 of
      Sarbanes-Oxley Act of 2002Exhibit
      31.2
            -
            Chief
      Financial Officer’s certification required under Section 302 of
      Sarbanes-Oxley Act of 2002Exhibit
      32.1
            -
            Chief
      Executive Officer’s certification required under Section 906 of
      Sarbanes-Oxley Act of 2002Exhibit
      32.2
            -
            Chief
      Financial Officer’s certification required under Section 906 of
      Sarbanes-Oxley Act of 2002


30