##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended
MARCH 31, 2004
    
    Commission File Number
000-21329
 TIB FINANCIAL CORP.   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   Registrants telephone number, including area code:           (239) 263-3344 Not Applicable 
  Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X or No Indicate by check mark whether the issuer is an accelerated filer (as defined
in Rule 12b-2 of the Act). Yes  or NoX Indicate the number of shares outstanding of each of the issuers classes of
common equity, as of the latest practicable date: Common Stock, $0.10 Par Value
    
    5,644,264Class
    
    Outstanding as of May 6, 2004
 1




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TABLE OF CONTENTS  Part I. FINANCIAL INFORMATIONItem 1. Financial StatementsCONSOLIDATED BALANCE SHEETSCONSOLIDATED STATEMENTS OF INCOMECONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITYCONSOLIDATED STATEMENTS OF CASH FLOWSCONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTSItem 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSItem 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKItem 4. CONTROLS AND PROCEDURESPart II. OTHER INFORMATIONItem 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSItem 5. OTHER INFORMATIONItem 6. EXHIBITS AND REPORTS ON FORM 8-KSIGNATURESCertificationCertificationCertificationCertification    Table of Contents  
 Part I. FINANCIAL INFORMATION 
 Item 1. Financial Statements 
 TIB FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS March 31, 2004
    
    December 31, 2003ASSETS
    
    (Unaudited)Cash and due from banks
    
    $
    21,825,893
    
    
    $
    17,196,506Federal funds sold
    
    
    42,022,000
    
    
    
    16,484,000Cash and cash equivalents
    
    
    63,847,893
    
    
    
    33,680,506Investment securities available for sale
    
    
    50,488,199
    
    
    
    52,556,567Loans, net of deferred loan costs and fees
    
    
    551,568,116
    
    
    
    540,412,620Less: allowance for loan losses
    
    
    5,346,576
    
    
    
    5,215,901Loans, net
    
    
    546,221,540
    
    
    
    535,196,719Premises and equipment, net
    
    
    22,143,207
    
    
    
    21,073,176Goodwill
    
    
    155,232
    
    
    
    155,232Intangible assets, net
    
    
    1,614,084
    
    
    
    1,687,062Accrued interest receivable and other assets
    
    
    26,086,405
    
    
    
    24,948,486TOTAL ASSETS
    
    $
    710,556,560
    
    
    $
    669,297,748LIABILITIESDeposits:Noninterest-bearing demand
    
    $
    150,887,956
    
    
    $
    121,727,734Interest-bearing
    
    
    466,545,061
    
    
    
    432,085,199Total Deposits
    
    
    617,433,017
    
    
    
    553,812,933Federal Home Loan Bank (FHLB) advances
    
    
    20,000,000
    
    
    
    45,000,000Short-term borrowings
    
    
    5,347,202
    
    
    
    4,041,399Long-term borrowings
    
    
    18,250,000
    
    
    
    18,250,000Accrued interest payable and other liabilities
    
    
    6,251,266
    
    
    
    6,947,570TOTAL LIABILITIES
    
    
    667,281,485
    
    
    
    628,051,902SHAREHOLDERS EQUITYCommon stock  $.10 par value: 7,500,000
shares authorized, 4,489,064 and 4,431,328
shares issued
    
    
    448,906
    
    
    
    443,133Additional paid in capital
    
    
    14,797,389
    
    
    
    14,254,731Retained earnings
    
    
    26,970,780
    
    
    
    26,202,982Accumulated other comprehensive income
    
    
    1,058,000
    
    
    
    345,000TOTAL SHAREHOLDERS EQUITY
    
    
    43,275,075
    
    
    
    41,245,846TOTAL LIABILITIES AND SHAREHOLDERS
EQUITY
    
    $
    710,556,560
    
    
    $
    669,297,748
 (See notes to consolidated financial statements) 2




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TIB FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) Three months ended March 31,INTEREST AND DIVIDEND INCOME
    
    2004
    
    2003Loans, including fees
    
    $
    8,600,646
    
    
    $
    7,578,275Investment securities:U.S. Treasury securities
    
    
    1,879
    
    
    
    1,889U.S. Government agencies and corporations
    
    
    355,621
    
    
    
    526,960States and political subdivisions, tax-exempt
    
    
    93,680
    
    
    
    61,326States and political subdivisions, taxable
    
    
    53,611
    
    
    
    62,977Marketable equity securities
    
    
    58,793
    
    
    
    Interest bearing deposits in other bank
    
    
    752
    
    
    
    576Federal Home Loan Bank Stock
    
    
    15,583
    
    
    
    16,282Federal funds sold
    
    
    38,076
    
    
    
    41,798TOTAL INTEREST AND DIVIDEND INCOME
    
    
    9,218,641
    
    
    
    8,290,083INTEREST EXPENSEDeposits
    
    
    1,892,269
    
    
    
    1,979,560Federal Home Loan Bank advances
    
    
    93,921
    
    
    
    68,947Short-term borrowings
    
    
    8,825
    
    
    
    10,762Long term borrowings
    
    
    395,321
    
    
    
    397,594TOTAL INTEREST EXPENSE
    
    
    2,390,336
    
    
    
    2,456,863NET INTEREST INCOME
    
    
    6,828,305
    
    
    
    5,833,220PROVISION FOR LOAN LOSSES
    
    
    369,000
    
    
    
    330,000NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES
    
    
    6,459,305
    
    
    
    5,503,220NON-INTEREST INCOMEService charges on deposit accounts
    
    
    644,052
    
    
    
    572,615Investment securities gains, net
    
    
    44,023
    
    
    
    5,337Merchant bankcard processing income
    
    
    1,759,806
    
    
    
    1,378,073Gain on sale of government guaranteed loans
    
    
    
    
    
    
    87,470Fees on mortgage loans sold
    
    
    398,323
    
    
    
    601,752Retail investment services
    
    
    93,732
    
    
    
    86,958Other income
    
    
    333,109
    
    
    
    345,796TOTAL NON-INTEREST INCOME
    
    
    3,273,045
    
    
    
    3,078,001NON-INTEREST EXPENSESalaries and employee benefits
    
    
    3,441,925
    
    
    
    3,166,777Net occupancy expense
    
    
    1,122,310
    
    
    
    1,026,516Other expense
    
    
    3,229,997
    
    
    
    2,589,224TOTAL NON-INTEREST EXPENSE
    
    
    7,794,232
    
    
    
    6,782,517INCOME BEFORE INCOME TAX EXPENSE
    
    
    1,938,118
    
    
    
    1,798,704INCOME TAX EXPENSE
    
    
    665,300
    
    
    
    636,820INCOME FROM CONTINUING OPERATIONS
    
    $
    1,272,818
    
    
    $
    1,161,884DISCONTINUED OPERATIONSIncome from Keys Insurance Agency, Inc. operations
    
    
    
    
    
    
    43,865Income tax expense
    
    
    
    
    
    
    16,480INCOME FROM DISCONTINUED OPERATIONS
    
    
    
    
    
    
    27,385NET INCOME
    
    $
    1,272,818
    
    
    $
    1,189,269BASIC EARNINGS PER SHARE:Continuing operations
    
    $
    0.29
    
    
    $
    0.28Discontinued operations
    
    
    
    
    
    
    0.01Basic earnings per share
    
    $
    0.29
    
    
    $
    0.29DILUTED EARNINGS PER SHARE:Continuing operations
    
    $
    0.27
    
    
    $
    0.27Discontinued operations
    
    
    
    
    
    
    0.01Diluted earnings per share
    
    $
    0.27
    
    
    $
    0.28
 (See notes to consolidated financial statements) 3




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TIB FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
(Unaudited) Additional
    
    
    
    
    
    Accumulated Other
    
    
    
    
    
    TotalCommon
    
    Paid in
    
    Retained
    
    Comprehensive
    
    Comprehensive
    
    Shareholders'Shares
    
    Stock
    
    Capital
    
    Earnings
    
    Income (Loss)
    
    Income
    
    EquityBalance,December 31, 2003
    
    
    4,431,328
    
    
    $
    443,133
    
    
    $
    14,254,731
    
    
    $
    26,202,982
    
    
    $
    345,000
    
    
    
    
    
    
    $
    41,245,846Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,272,818
    
    
    
    
    
    
    $
    1,272,818
    
    
    
    1,272,818Other comprehensive income, net of tax
expense of $431,000:Net market valuation adjustment on
securities available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    740,470
    
    
    
    740,470Less: reclassification adjustment for gains
included in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,470
    )
    
    
    (27,470
    )Other comprehensive income, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    713,000
    
    
    
    713,000Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,985,818Exercise of stock options
    
    
    57,736
    
    
    
    5,773
    
    
    
    420,778
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    426,551Income tax benefit from stock options exercised
    
    
    
    
    
    
    
    
    
    
    121,880
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    121,880Cash dividends declared, $.1125 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (505,020
    )
    
    
    
    
    
    
    
    
    
    
    (505,020
    )Balance,March 31, 2004
    
    
    4,489,064
    
    
    $
    448,906
    
    
    $
    14,797,389
    
    
    $
    26,970,780
    
    
    $
    1,058,000
    
    
    
    
    
    
    $
    43,275,075
 Additional
    
    
    
    
    
    Accumulated Other
    
    
    
    
    
    TotalCommon
    
    Paid in
    
    Retained
    
    Comprehensive
    
    Comprehensive
    
    Shareholders'Shares
    
    Stock
    
    Capital
    
    Earnings
    
    Income (Loss)
    
    Income
    
    EquityBalance,December 31, 2002
    
    
    4,035,625
    
    
    $
    403,563
    
    
    $
    8,965,816
    
    
    $
    23,021,698
    
    
    $
    1,115,000
    
    
    
    
    
    
    $
    33,506,077Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,189,269
    
    
    
    
    
    
    $
    1,189,269
    
    
    
    1,189,269Other comprehensive income, net of tax
expense of $35,000:Net market valuation adjustment on
securities available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60,331
    
    
    
    60,331Less: reclassification adjustment for gains
included in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,331
    )
    
    
    (3,331
    )Other comprehensive income, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57,000
    
    
    
    57,000Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,246,269Exercise of stock options
    
    
    78,800
    
    
    
    7,880
    
    
    
    448,165
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    456,045Cash dividends declared, $.11 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (452,587
    )
    
    
    
    
    
    
    
    
    
    
    (452,587
    )Balance,March 31, 2003
    
    
    4,114,425
    
    
    $
    411,443
    
    
    $
    9,413,981
    
    
    $
    23,758,380
    
    
    $
    1,172,000
    
    
    
    
    
    
    $
    34,755,804
 (See notes to consolidated financial statements) 4




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TIB FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(Unaudited) For the three month period endedMarch 31,2004
    
    2003CASH FLOWS FROM OPERATING ACTIVITIESNet Income
    
    $
    1,272,818
    
    
    $
    1,189,269Adjustments to reconcile net income to net cash provided by operating activities:Net amortization of investments
    
    
    11,456
    
    
    
    14,959Amortization of intangible assets
    
    
    72,978
    
    
    
    73,017Depreciation of premises and equipment
    
    
    453,759
    
    
    
    422,842Provision for loan losses
    
    
    369,000
    
    
    
    330,000Provision for losses on unfunded loan commitments
    
    
    (2,000
    )
    
    
    Deferred income tax benefit
    
    
    (114,522
    )
    
    
    (11,717
    )Deferred net loan costs and fees
    
    
    (108,335
    )
    
    
    (35,434
    )Investment securities net gains
    
    
    (44,023
    )
    
    
    (5,337
    )Net gain on sale/disposal of premises and equipment
    
    
    (1,141
    )
    
    
    (726
    )Gain on sales of government guaranteed loans, net
    
    
    
    
    
    
    (87,470
    )Mortgage loans originated for sale
    
    
    (27,194,867
    )
    
    
    (28,174,270
    )Proceeds from sale of mortgage loans
    
    
    24,901,284
    
    
    
    31,619,652Fees on mortgage loans sold
    
    
    (398,323
    )
    
    
    (601,752
    )Increase in accrued interest receivable and other assets
    
    
    (12,491
    )
    
    
    (673,817
    )Decrease in accrued interest payable and other liabilities
    
    
    (578,920
    )
    
    
    (491,943
    )NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES
    
    
    (1,373,327
    )
    
    
    3,567,273CASH FLOWS FROM INVESTING ACTIVITIESPurchases of investment securities available for sale
    
    
    
    
    
    
    (1,661,382
    )Repayments of principal and maturities of investment securities available for sale
    
    
    1,199,315
    
    
    
    5,123,064Sales of investment securities available for sale
    
    
    2,045,620
    
    
    
    Net (purchase) sale of FHLB stock
    
    
    1,250,000
    
    
    
    (139,700
    )Proceeds from sales of government guaranteed loans
    
    
    568,719
    
    
    
    2,241,119Loans originated or acquired, net of principal repayments
    
    
    (11,854,205
    )
    
    
    (19,000,358
    )Purchases of premises and equipment
    
    
    (1,525,018
    )
    
    
    (876,653
    )Sales of premises and equipment
    
    
    2,369
    
    
    
    1,287NET CASH USED BY INVESTING ACTIVITIES
    
    
    (8,313,200
    )
    
    
    (14,312,623
    )CASH FLOWS FROM FINANCING ACTIVITIESNet increase in federal funds purchased and securities sold under agreements to
repurchase
    
    
    1,305,803
    
    
    
    425,242Net decrease in FHLB short-term advances
    
    
    (15,000,000
    )
    
    
    Proceeds from FHLB long-term advances
    
    
    
    
    
    
    10,000,000Repayments of FHLB long-term advances
    
    
    (10,000,000
    )
    
    
    (20,000,000
    )Net increase in demand, money market and savings accounts
    
    
    54,250,246
    
    
    
    22,588,350Net increase in time deposits
    
    
    9,369,838
    
    
    
    40,737,479Proceeds from exercise of stock options
    
    
    426,551
    
    
    
    456,045Cash dividends paid
    
    
    (498,524
    )
    
    
    (443,918
    )NET CASH PROVIDED BY FINANCING ACTIVITIES
    
    
    39,853,914
    
    
    
    53,763,198NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    30,167,387
    
    
    
    43,017,848CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    33,680,506
    
    
    
    24,069,659CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    63,847,893
    
    
    $
    67,087,507SUPPLEMENTAL DISCLOSURES OF CASH FLOWS:Cash paid for:Interest
    
    $
    3,621,186
    
    
    $
    3,357,811Income taxes
    
    
    
    
    
    
    
 (See notes to consolidated financial statements) 5




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TIB FINANCIAL CORP.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
(Unaudited) NOTE 1  BASIS OF PRESENTATION & ACCOUNTING POLICIES TIB Financial Corp. is a financial holding company headquartered in Naples,
Florida. TIB Financial Corp. owns and operates TIB Bank of the Keys, which has
a total of fourteen branches in Florida that are located in Monroe, Miami-Dade,
Collier and Lee counties. The accompanying unaudited consolidated financial statements for TIB Financial
Corp. (the Company) have been prepared in accordance with accounting
principles generally accepted in the United States of America for interim
financial information and Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statement
presentation. For further information and an additional description of the
Companys accounting policies, refer to the Companys annual report for the
year ended December 31, 2003. The consolidated statements include the accounts of TIB Financial Corp. and its
wholly-owned subsidiaries, TIB Bank of the Keys, TIB Software and Services,
Inc. (corporation dissolved in March 2004  see Note 2), and Keys Insurance
Agency, Inc. (assets sold in August 2003  see Note 11) and the Banks two
subsidiaries, TIB Government Loan Specialists, Inc. (corporation dissolved in
March 2004  see Note 2) and TIB Investment Center Inc., collectively known as
the Company. All significant intercompany accounts and transactions have been
eliminated in consolidation. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Certain amounts previously reported on have
been reclassified to conform to the current period presentation. As used in this document, the terms we, us, our, TIB Financial, and
Company mean TIB Financial Corp. and its subsidiaries (unless the context
indicates another meaning), and the term Bank means TIB Bank of the Keys and
its subsidiaries (unless the context indicates another meaning). RECENT DEVELOPMENTS On April 15, 2004, we closed the sale of 1,000,000 shares of our common stock
at a price of $22.00 per share before commissions and expenses which are
estimated to be approximately $1,855,000. The shares were sold on a firm
commitment basis through Advest, Inc. Advest, Inc. also purchased an
additional 150,000 shares from the Company on May 6, 2004, at $22.00 per share
before commissions and expenses. The net proceeds of the offering will be used
to provide capital to support continued loan and deposit growth throughout our
South Florida markets. CRITICAL ACCOUNTING POLICIES The accounting and reporting policies of the Company are in accordance with
accounting principles generally accepted within the United States of America
and conform to general practices within the banking industry. Accounting and
reporting policies for the allowance for loan losses are deemed critical since
they involve the use of estimates and require significant management judgments.
Losses on loans result from a broad range of causes from borrower specific
problems, to industry issues, to the impact of the economic environment. The
identification of these factors that lead to default or non-performance under a
borrower loan agreement and the estimation of loss in these situations are very
subjective. In addition, a dramatic change in the performance of one or a small
number of borrowers can have a significant impact on the estimate of losses.
Management has implemented a process that has been applied consistently to
systematically consider the many variables that impact the estimation of the
allowance for loan losses. Additional information with regard to the Companys methodology and reporting
of the allowance for loan losses is included in the 2003 Annual Report and
10-K. 6




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##### Table of Contents



NOTE 2  ACQUISITIONS AND DIVESTITURES On May 29, 2003, TIB Software & Services sold its remaining interest in ERAS
Joint Venture for $326,667. The Company recognized a pretax gain of
approximately $202,000 on the transaction. In March 2004, the Company filed
Articles of Dissolution dissolving the Florida corporation, TIB Software &
Services, Inc. On August 15, 2003, the Company closed the sale of the assets of Keys Insurance
Agency, Inc., a wholly owned subsidiary of the Company. See Note 11 
Discontinued Operations for details on the transaction. In March 2004, the
Company filed Articles of Dissolution dissolving the Florida corporation, Keys
Insurance Agency, Inc. In March 2004, the Company filed Articles of Dissolution dissolving the Florida
corporation, TIB Government Loan Specialists, Inc. Activities performed
through this corporation are now performed through TIB Bank of the Keys. NOTE 3  INVESTMENT SECURITIES The amortized cost and estimated fair value of investment securities available
for sale at March 31, 2004 and December 31, 2003 are presented below: March 31, 2004Amortized
    
    Unrealized
    
    Unrealized
    
    EstimatedCost
    
    Gains
    
    Losses
    
    Fair ValueU.S. Treasury securities
    
    $
    208,469
    
    
    $
    10,719
    
    
    $
    
    
    
    $
    219,188U.S. Government agencies and corporations
    
    
    29,342,914
    
    
    
    379,995
    
    
    
    230,984
    
    
    
    29,491,925States and political
subdivisions-tax-exempt
    
    
    8,842,702
    
    
    
    433,125
    
    
    
    24,169
    
    
    
    9,251,658States and political subdivisions-taxable
    
    
    3,213,420
    
    
    
    42,865
    
    
    
    12,940
    
    
    
    3,243,345Marketable equity securities
    
    
    2,999,989
    
    
    
    972,000
    
    
    
    
    
    
    
    3,971,989Mortgage-backed securities
    
    
    4,183,705
    
    
    
    126,389
    
    
    
    
    
    
    
    4,310,094$
    48,791,199
    
    
    $
    1,965,093
    
    
    $
    268,093
    
    
    $
    50,488,199
 December 31, 2003Amortized
    
    Unrealized
    
    Unrealized
    
    EstimatedCost
    
    Gains
    
    Losses
    
    Fair ValueU.S. Treasury securities
    
    $
    209,269
    
    
    $
    8,965
    
    
    $
    
    
    
    $
    218,234U.S. Government agencies and corporations
    
    
    31,356,782
    
    
    
    424,790
    
    
    
    662,621
    
    
    
    31,118,951States and political
subdivisions-tax-exempt
    
    
    8,837,687
    
    
    
    378,482
    
    
    
    59,225
    
    
    
    9,156,944States and political subdivisions-taxable
    
    
    3,559,202
    
    
    
    41,614
    
    
    
    100,648
    
    
    
    3,500,168Marketable equity securities
    
    
    2,999,989
    
    
    
    395,000
    
    
    
    
    
    
    
    3,394,989Mortgage-backed securities
    
    
    5,040,638
    
    
    
    127,799
    
    
    
    1,156
    
    
    
    5,167,281$
    52,003,567
    
    
    $
    1,376,650
    
    
    $
    823,650
    
    
    $
    52,556,567
 NOTE 4  LOANS Major classifications of loans are as follows: March 31, 2004
    
    December 31, 2003Real estate mortgage loans:Commercial
    
    $
    293,732,644
    
    
    $
    297,221,372Residential
    
    
    58,338,838
    
    
    
    60,104,032Farmland
    
    
    3,386,365
    
    
    
    2,316,833Construction and vacant land
    
    
    40,551,662
    
    
    
    32,088,657Commercial and agricultural loans
    
    
    62,128,782
    
    
    
    63,623,676Indirect auto dealer loans
    
    
    66,800,359
    
    
    
    59,437,058Home equity loans
    
    
    13,672,388
    
    
    
    12,573,991Other consumer loans
    
    
    11,033,804
    
    
    
    11,232,062Total loans
    
    
    549,644,842
    
    
    
    538,597,681Net deferred loan costs
    
    
    1,923,274
    
    
    
    1,814,939Loans, net of deferred loan costs
    
    $
    551,568,116
    
    
    $
    540,412,620
 7




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##### Table of Contents



NOTE 5  ALLOWANCE FOR LOAN LOSSES Activity in the allowance for loan losses for the three months ended March 31,
2004 and March 31, 2003 follows: 2004
    
    2003Balance, January 1
    
    $
    5,215,901
    
    
    $
    4,272,499Provision for loan losses charged to expense
    
    
    369,000
    
    
    
    330,000Loans charged off
    
    
    (243,582
    )
    
    
    (235,171
    )Recoveries of loans previously charged off
    
    
    5,257
    
    
    
    2,069Balance, March 31
    
    $
    5,346,576
    
    
    $
    4,369,397
 NOTE 6  GOODWILL AND INTANGIBLE ASSETS Amortized intangible assets consist of the following at March 31, 2004: Gross Carrying
    
    AccumulatedAmount
    
    Amortization
    
    Net Book ValueCore Deposit Intangible
    
    $
    2,941,234
    
    
    $
    1,355,549
    
    
    $
    1,585,685Servicing Rights
    
    
    88,917
    
    
    
    60,518
    
    
    
    28,399Total
    
    $
    3,030,151
    
    
    $
    1,416,067
    
    
    $
    1,614,084
 Intangible amortization expense totaled $72,978 for the three months ended
March 31, 2004. Goodwill recorded at March 31, 2004 totals $155,232, and relates to our prior
acquisition of a firm specializing in government guaranteed loans. There was
no change in the carrying amount of goodwill from December 31, 2003. NOTE 7  EARNINGS PER SHARE AND COMMON STOCK Earnings per share have been computed based on the following weighted average
number of common shares outstanding for the three months ended March 31: 2004
    
    2003Basic
    
    
    4,462,493
    
    
    
    4,050,186Dilutive effect of options outstanding
    
    
    196,901
    
    
    
    177,043Diluted
    
    
    4,659,394
    
    
    
    4,227,229
 Stock options for 20,082 and 1,517 shares of common stock were not considered
in computing diluted earnings per common share for 2004 and 2003 because they
were anti-dilutive. The effect of stock options is the sole common stock
equivalent for purposes of calculating diluted earnings per common share. NOTE 8  STOCK-BASED COMPENSATION Total stock options granted, exercised, and expired/forfeited during the three
months ended March 31, 2004, were 37,500, 57,736, and 200, respectively. As of
March 31, 2004, 457,069 options for shares were outstanding. Employee compensation expense under stock options is reported using the
intrinsic value method. No stock-based compensation cost is reflected in net
income, as all options granted had an exercise price equal to or greater than
the market price of the underlying common stock at date of grant. The
following table illustrates the effect on net income and earnings per share if
expense was measured using the fair value recognition provisions of FASB
Statement No. 123, Accounting for Stock-Based Compensation. 8




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##### Table of Contents



2004
    
    2003Net income, as reported
    
    $
    1,272,818
    
    
    $
    1,189,269Stock-based compensation expense determined
under fair value based method, net of tax
    
    
    71,324
    
    
    
    37,669Pro forma net income
    
    $
    1,201,494
    
    
    $
    1,151,600Basic earnings per share as reported
    
    $
    0.29
    
    
    $
    0.29Pro forma basic earnings per share
    
    
    0.27
    
    
    
    0.28Diluted earnings per share as reported
    
    
    0.27
    
    
    
    0.28Pro forma diluted earnings per share
    
    
    0.26
    
    
    
    0.27
 NOTE 9  CAPITAL ADEQUACY Federal banking regulators have established certain capital adequacy standards
required to be maintained by banks and bank holding companies. The minimum
requirements established in the regulations are set forth in the table below,
along with the actual ratios at March 31, 2004 and December 31, 2003: Well
    
    AdequatelyCapitalized
    
    Capitalized
    
    March 31, 2004
    
    December 31, 2003Requirement
    
    Requirement
    
    Actual
    
    ActualTier 1 Capital (to Average Assets)Consolidated
    
    
    35
    %
    
    
    34
    %
    
    
    7.8
    %
    
    
    7.8
    %Bank
    
    
    35
    %
    
    
    34
    %
    
    
    8.4
    %
    
    
    8.5
    %Tier 1 Capital (to Risk Weighted Assets)Consolidated
    
    
    36
    %
    
    
    34
    %
    
    
    8.7
    %
    
    
    8.8
    %Bank
    
    
    36
    %
    
    
    34
    %
    
    
    9.5
    %
    
    
    9.6
    %Total Capital (to Risk Weighted Assets)Consolidated
    
    
    310
    %
    
    
    38
    %
    
    
    10.5
    %
    
    
    10.6
    %Bank
    
    
    310
    %
    
    
    38
    %
    
    
    10.4
    %
    
    
    10.5
    %
 Management believes, as of March 31, 2004, that the Company and the Bank met
all capital requirements to which they are subject. The Company has included
in Tier 1 Capital a portion of the trust preferred securities that were issued
in September 2000 and July 2001. As indicated in Note 1, we completed an offering of 1,150,000 shares of our
common stock during the second quarter of 2004. NOTE 10  SEGMENT REPORTING TIB Financial Corp. has two reportable segments in their continuing operations:
community banking and merchant bankcard processing. The community banking
segments business is to attract deposits from the public and to use such
deposits to make real estate, business and consumer loans in its primary
service area. The merchant bankcard processing segment processes credit card
transactions for local merchants. Parent and other includes the operations of
the holding company and retail investment service operations of the Bank. The results of Keys Insurance Agency, Inc. are not included in the segment
reporting as they are classified separately as discontinued operations in our
consolidated financial statements (see Note 11). Total assets of Keys
Insurance Agency, Inc. at March 31, 2004 and March 31, 2003 were $0 and
$2,207,871 respectively. The Companys reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different marketing strategies. Intercompany transactions have been ignored in preparing the segment reporting
amounts below. The results of the Companys segments are as follows: 9




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##### Table of Contents



Merchant
    
    ParentThree months ended
    
    Community
    
    Bankcard
    
    AndMarch 31, 2004
    
    Banking
    
    Processing
    
    Other
    
    TotalsInterest and dividend income
    
    $
    9,218,641
    
    
    $
    
    
    
    $
    
    
    
    $
    9,218,641Interest expense
    
    
    1,995,015
    
    
    
    
    
    
    
    395,321
    
    
    
    2,390,336Net interest and dividend
income
    
    
    7,223,626
    
    
    
    
    
    
    
    (395,321
    )
    
    
    6,828,305Other income
    
    
    1,414,363
    
    
    
    1,759,806
    
    
    
    98,876
    
    
    
    3,273,045Depreciation and amortization
    
    
    515,200
    
    
    
    10,653
    
    
    
    884
    
    
    
    526,737Other expense
    
    
    6,009,659
    
    
    
    1,432,689
    
    
    
    194,147
    
    
    
    7,636,495Pretax segment profit (loss)
    
    $
    2,113,130
    
    
    $
    316,464
    
    
    $
    (491,476
    )
    
    $
    1,938,118Segment Assets
    
    $
    710,065,233
    
    
    $
    37,014
    
    
    $
    454,313
    
    
    $
    710,556,560
 Merchant
    
    ParentThree months ended
    
    Community
    
    Bankcard
    
    andMarch 31, 2003
    
    Banking
    
    Processing
    
    Other
    
    TotalsInterest and dividend income
    
    $
    8,290,083
    
    
    $
    
    
    
    $
    
    
    
    $
    8,290,083Interest expense
    
    
    2,059,269
    
    
    
    
    
    
    
    397,594
    
    
    
    2,456,863Net interest and dividend
income
    
    
    6,230,814
    
    
    
    
    
    
    
    (397,594
    )
    
    
    5,833,220Other income
    
    
    1,612,970
    
    
    
    1,378,073
    
    
    
    86,958
    
    
    
    3,078,001Depreciation and amortization
    
    
    469,832
    
    
    
    11,246
    
    
    
    1,220
    
    
    
    482,298Other expense
    
    
    5,357,916
    
    
    
    1,128,237
    
    
    
    144,066
    
    
    
    6,630,219Pretax segment profit (loss)
    
    $
    2,016,036
    
    
    $
    238,590
    
    
    $
    (455,922
    )
    
    $
    1,798,704Segment Assets
    
    $
    618,663,944
    
    
    $
    61,652
    
    
    $
    588,703
    
    
    $
    619,314,299
 The Company discontinued separate reporting of its government guaranteed loan
sales and servicing segment in 2003. This segment is now included as part of
the Community Banking segment above. NOTE 11  DISCONTINUED OPERATIONS On August 15, 2003, the Company closed the sale of Keys Insurance Agency, Inc.,
a wholly owned subsidiary of the Company, to a former director of the Company
and TIB Bank of the Keys, and his partner. The transaction was structured as a
sale of the agency assets. The buyer paid $2,204,930 in cash at the closing.
Of the cash payment at closing, proceeds of $2,020,938 were pursuant to a loan
from TIB Bank of the Keys (a subsidiary of the Company) to the buyer. The
Company recognized a loss of $14,676 on the transaction. The results of Keys Insurance Agency, Inc. operations, which have been
classified as discontinued operations in the accompanying consolidated
financial statements, are summarized as follows: 2004
    
    2003FOR THE THREE MONTHS ENDED MARCH 31:Other income
    
    $
    
    
    
    $
    436,420Depreciation and amortization
    
    
    
    
    
    
    13,561Other expense
    
    
    
    
    
    
    378,994Pretax income from discontinued operations
    
    $
    
    
    
    $
    43,865
 
 Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS Certain of the matters discussed under the caption Managements Discussion and
Analysis of Financial Condition and Results of Operations and elsewhere in
this Form 10-Q may constitute forward-looking statements within the meaning
of the Private Securities Litigation Reform Act and as such may involve known
and unknown risk, uncertainties and other factors which may cause the actual
results, performance or achievements of TIB Financial Corp. to be materially
different from future results described in such forward-looking statements.
Actual results may differ materially from the results anticipated in these
forward-looking statements due to a variety of factors, including, without
limitation: the effects of future economic conditions; governmental monetary
and fiscal policies, as well as legislative and regulatory changes; the risks
of changes in interest rates on the level and composition of deposits, loan
demand, and the values of loan collateral, and interest rate risks; the effects
of 10




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##### Table of Contents



competition from other commercial banks, thrifts, consumer finance companies,
and other financial institutions operating in the Companys market area and
elsewhere. All forward-looking statements attributable to the Company are
expressly qualified in their entirety by these cautionary statements. The
Company disclaims any intent or obligation to update these forward-looking
statements, whether as a result of new information, future events or otherwise. The following discussion addresses the factors that have affected the financial
condition and results of operations of TIB Financial Corp. (the Company) as
reflected in the unaudited consolidated statement of condition as of March 31,
2004, and statement of income for the three months ended March 31, 2004.
Operating results for the three months ended March 31, 2004 are not necessarily
indicative of trends or results to be expected for the year ended December 31,
2004. THREE MONTHS ENDED MARCH 31, 2004 AND 2003 RESULTS OF OPERATIONS  Basic and diluted earnings per share for the first quarter of 2004 were $0.29
and $0.27 respectively as compared to $0.29 and $0.28 per share in the previous
years quarter. Basic weighted average common equivalent shares outstanding
for the three months ended March 31, 2004 were 4,462,493 compared to 4,050,186.
This 10.2% increase in shares outstanding resulted from the exercise of stock
options and the issuance of 280,653 shares in June 2003 in connection with a
private placement that raised $4.3 million in new capital. Annualized return on average assets was 0.75% and 0.82% for the first quarter
of 2004 and 2003, while return on average shareholders equity was 12.04% and
13.91% for the same period. NET INTEREST INCOME  Net interest income increased $995,085, or 17.1%, to $6,828,305 in the three
months ended March 31, 2004 as compared to the same period last year. The
prime rate as published in the Wall Street Journal began 2003 at 4.25% and in
June 2003 it declined to 4.00%. Many of the Banks loans are indexed to this
floating rate, although they also include floors. The lower level of prime rate
in the first three months of 2004 compared to the comparative period in 2003
did result in a lower average yield in the loan portfolio, however, increased
volumes more than compensated for this allowing for the reported increase in
interest income. The effect of the low interest rates is to contract our net interest margin in
two ways. First, a low Prime rate directly affects yields on loans tied to
that index and even loans not indexed to Prime are priced reflective of overall
low asset yields. Second, deposit liabilities can only be priced down so far
before the interest rate is too low to attract the volume of required funding.
The net effect of this rate environment is a larger reduction in asset yields,
generally, than the corresponding reduction in liability costs. We were able to mitigate the effects of the interest rate environment for the
following reasons. First, even though we are at low relative levels of
interest rates, net interest margins have stabilized and we were able to
decrease liability costs to a similar extent that asset yields contracted.
Second, we have expanded a practice of requiring an interest rate floor on many
new commercial loans. This proved effective in slowing the average decline in
loan yields. Finally, we continue to change our mix of assets to slightly
increase the percentage of higher yielding loans. In April 2002, the Bank began a program to acquire indirect automobile loans.
We predominately buy loans from auto dealers in southwest Florida which are for
the purchase of new or late model used cars. We serve customers over a broad
range of creditworthiness and the required terms and rates are reflective of
those risk profiles. As of March 31, 2004 we had $66.8 million of indirect
auto dealer loans outstanding, compared to $24.9 million at March 31, 2003.
Coupled with the appropriate safeguards, we believe this product continues to
offer us an opportunity to increase asset yields while not sacrificing our
primary objective of maintaining strong asset quality. 11




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##### Table of Contents



The average yield on interest-earning assets for the first three months of 2004
was 6.06% which was a decrease of 41 basis points compared to the 6.47% yield
earned during the first three months of 2003. The average cost of
interest-bearing deposits declined 32 basis points from 2.04% during the first
three months of 2003 to 1.72% for the comparable period in 2004, and the rate
of all interest-bearing liabilities decreased 37 basis points, from 2.30% in
2003 to 1.93% in 2004. The Companys net interest margin decreased to 4.50% in
the first three months of 2004 compared to 4.56% in the first three months of
2003. We anticipate interest rates slowly trending up over the next twelve
months. If this occurs or if rates remain stable, net interest margin should
expand only slightly due principally to strong new loan production. However,
due to the cash generated from our recent stock offering in April 2004, there
will be some near term compression in net interest margin until these funds are
invested. Our margin is derived from the rate difference between our average
yields on our current mix of assets in excess of our average cost of
liabilities. It will take a little time to invest all of the funds raised in
our recent stock offering in a similar mix of assets as currently exists on our
balance sheet. 12




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##### Table of Contents



The following table presents average balances of the Company, the
taxable-equivalent interest earned, and the rate paid thereon during the three
months ended March 31, 2004 and March 31, 2003. 2004
    
    2003AVERAGE
    
    INCOME/
    
    YIELDS/
    
    AVERAGE
    
    INCOME/
    
    YIELDS/(Dollars in thousands)
    
    BALANCES
    
    EXPENSE
    
    RATES
    
    BALANCES
    
    EXPENSE
    
    RATESInterest-earning assets:Loans (1)(2)
    
    $
    546,516
    
    
    $
    8,602
    
    
    
    6.33
    %
    
    $
    452,579
    
    
    $
    7,579
    
    
    
    6.79
    %Investment securities  taxable
    
    
    40,253
    
    
    
    411
    
    
    
    4.11
    %
    
    
    47,464
    
    
    
    592
    
    
    
    5.06
    %Investment securities  tax exempt (2)
    
    
    8,840
    
    
    
    142
    
    
    
    6.46
    %
    
    
    5,382
    
    
    
    93
    
    
    
    7.00
    %Marketable equity securities  partially
tax exempt (2)
    
    
    3,000
    
    
    
    87
    
    
    
    11.74
    %
    
    
    
    
    
    
    
    
    
    
    Interest-bearing deposits in other banks
    
    
    589
    
    
    
    1
    
    
    
    0.51
    %
    
    
    154
    
    
    
    1
    
    
    
    1.51
    %Federal Home Loan Bank stock
    
    
    1,879
    
    
    
    16
    
    
    
    3.34
    %
    
    
    1,467
    
    
    
    16
    
    
    
    4.50
    %Federal funds sold
    
    
    16,225
    
    
    
    38
    
    
    
    0.94
    %
    
    
    14,644
    
    
    
    42
    
    
    
    1.16
    %Total interest-earning assets
    
    
    617,302
    
    
    
    9,297
    
    
    
    6.06
    %
    
    
    521,690
    
    
    
    8,323
    
    
    
    6.47
    %Non-interest-earning assets:Cash and due from banks
    
    
    18,568
    
    
    
    
    
    
    
    
    
    
    
    16,120Investment in ERAS
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    124Premises and equipment, net
    
    
    20,433
    
    
    
    
    
    
    
    
    
    
    
    18,340Allowances for loan losses
    
    
    (5,292
    )
    
    
    
    
    
    
    
    
    
    
    (4,447
    )Other assets
    
    
    26,076
    
    
    
    
    
    
    
    
    
    
    
    30,701Total non-interest-earning assets
    
    
    59,785
    
    
    
    
    
    
    
    
    
    
    
    60,838Total assets
    
    $
    677,087
    
    
    
    
    
    
    
    
    
    
    $
    582,528Interest-bearing liabilities:Interest-bearing deposits:NOW accounts
    
    $
    70,636
    
    
    
    56
    
    
    
    0.32
    %
    
    $
    53,796
    
    
    
    58
    
    
    
    0.44
    %Money market
    
    
    122,444
    
    
    
    226
    
    
    
    0.74
    %
    
    
    130,597
    
    
    
    345
    
    
    
    1.07
    %Savings deposits
    
    
    41,277
    
    
    
    40
    
    
    
    0.39
    %
    
    
    32,198
    
    
    
    47
    
    
    
    0.60
    %Time deposits
    
    
    209,305
    
    
    
    1,570
    
    
    
    3.02
    %
    
    
    176,583
    
    
    
    1,529
    
    
    
    3.51
    %Total interest-bearing deposits
    
    
    443,662
    
    
    
    1,892
    
    
    
    1.72
    %
    
    
    393,174
    
    
    
    1,979
    
    
    
    2.04
    %Other interest-bearing liabilities:Short-term borrowings and FHLB advances
    
    
    35,109
    
    
    
    103
    
    
    
    1.18
    %
    
    
    22,419
    
    
    
    80
    
    
    
    1.44
    %Long-term borrowings
    
    
    18,250
    
    
    
    395
    
    
    
    8.71
    %
    
    
    18,250
    
    
    
    398
    
    
    
    8.84
    %Total interest-bearing liabilities
    
    
    497,021
    
    
    
    2,390
    
    
    
    1.93
    %
    
    
    433,843
    
    
    
    2,457
    
    
    
    2.30
    %Non-interest-bearing liabilities and
shareholders equity:Demand deposits
    
    
    129,855
    
    
    
    
    
    
    
    
    
    
    
    107,180Other liabilities
    
    
    7,922
    
    
    
    
    
    
    
    
    
    
    
    7,306Shareholders equity
    
    
    42,289
    
    
    
    
    
    
    
    
    
    
    
    34,199Total non-interest-bearing liabilities and
shareholders equity
    
    
    180,066
    
    
    
    
    
    
    
    
    
    
    
    148,685Total liabilities and shareholders equity
    
    $
    677,087
    
    
    
    
    
    
    
    
    
    
    $
    582,528Interest rate spread (tax equivalent basis)
    
    
    
    
    
    
    
    
    
    
    4.13
    %
    
    
    
    
    
    
    
    
    
    
    4.17
    %Net interest income (tax equivalent basis)
    
    
    
    
    
    $
    6,907
    
    
    
    
    
    
    
    
    
    
    $
    5,866Net interest margin (3) (tax equivalent basis)
    
    
    
    
    
    
    
    
    
    
    4.50
    %
    
    
    
    
    
    
    
    
    
    
    4.56
    %
   (1)
    
    Average loans include non-performing loans.(2)
    
    Interest income and rates include the effects of a tax equivalent
adjustment using a Federal tax rate of 34% in adjusting tax exempt
interest on tax exempt investment securities and loans to a fully taxable
basis.(3)
    
    Net interest margin is net interest income divided by average total
interest-earning assets. 13




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##### Table of Contents



The table below details the components of the changes in net interest income
for the three months ended March 31, 2004 and March 31, 2003. For each major
category of interest-earning assets and interest-bearing liabilities,
information is provided with respect to changes due to average volumes, changes
due to rates, with the changes in both volumes and rates allocated to these two
categories based on the proportionate absolute changes in each category. 2004 compared to 2003 (1)(In thousands)
    
    Due to changes inNetAverage
    
    Average
    
    IncreaseVolume
    
    Rate
    
    (Decrease)INTEREST INCOMELoans (2)
    
    $
    1,500
    
    
    $
    (477
    )
    
    $
    1,023Investment Securities (2)
    
    
    (26
    )
    
    
    (106
    )
    
    
    (132
    )Marketable equity securities (2)
    
    
    87
    
    
    
    
    
    
    
    87Interest-bearing deposits in other banks
    
    
    1
    
    
    
    (1
    )
    
    
    Federal Home Loan Bank Stock
    
    
    4
    
    
    
    (4
    )
    
    
    Federal Funds sold
    
    
    4
    
    
    
    (8
    )
    
    
    (4
    )Total interest income
    
    
    1,570
    
    
    
    (596
    )
    
    
    974INTEREST EXPENSENOW Accounts
    
    
    16
    
    
    
    (18
    )
    
    
    (2
    )Money Market
    
    
    (20
    )
    
    
    (99
    )
    
    
    (119
    )Savings deposits
    
    
    11
    
    
    
    (18
    )
    
    
    (7
    )Time deposits
    
    
    261
    
    
    
    (220
    )
    
    
    41Short-term borrowings and FHLB advances
    
    
    39
    
    
    
    (16
    )
    
    
    23Long-term borrowings
    
    
    
    
    
    
    (3
    )
    
    
    (3
    )Total interest expense
    
    
    307
    
    
    
    (374
    )
    
    
    (67
    )Change in net interest income
    
    $
    1,263
    
    
    $
    (222
    )
    
    $
    1,041
   (1)
    
    The change in interest due to both rate and volume has been allocated to
the volume and rate components in proportion to the relationship of the
dollar amounts of the absolute change in each.(2)
    
    Interest income includes the effects of a tax equivalent adjustment using
a federal tax rate of 34% in adjusting tax exempt interest on tax exempt
investment securities and loans to a fully taxable basis. 14




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##### Table of Contents



PROVISION FOR LOAN LOSSES  The provision for loan losses increased $39,000 or 11.8% to $369,000 in the
first quarter of 2004 compared to $330,000 in the comparable prior year
quarter. The higher provision for loan losses in 2004 was primarily
attributable to the growth in the loan portfolio. Total loans outstanding were
$549.6 million at March 31, 2004, compared to $458.4 million at March 31, 2003.
Net charge-offs were $238,325 during the three months ended March 31, 2004
compared to $233,102 for the same period in 2003. Management will continue to
monitor the credit quality of the lending portfolio and will recognize
additional provisions in the future as necessary, in the opinion of management,
to maintain the allowance for loan losses at an appropriate level. NON-INTEREST INCOME  The increase in merchant bankcard processing income is primarily a result of
volume increases. Gain on sale of government guaranteed loans result from a
relatively small number of transactions and, therefore, the revenue recognition
from these transactions can vary considerably depending on the number of loans
sold and the dollar amount of the transactions. There was one loan sold in the
first three months of 2003, and none sold in the first three months of 2004.
Fees on mortgage loans sold result from the immediate sale of fixed rate
residential mortgages in the secondary market. The lower fees earned in the
first quarter of 2004 compared to the year ago period are attributable to
reduced refinancing activity, temporarily lower new sales activity,
and thinner margins. NON-INTEREST EXPENSE  At March 31, 2004 the Bank had 267 full-time employees and 17 part-time
employees, compared to 252 full-time employee and 14 part time employees at
March 31, 2003. The increase in staff was required to manage growth of the
organization, and to assist in security and regulatory compliance. In the category of other expense, interchange and other bankcard expensed
increased approximately $290,000 over the prior year amount. This is primarily
tied to volume, and is consistent with the increase in merchant bankcard
processing income experienced. Our computer services expense increased
approximately $79,000, primarily as a result of an increase in the number of
loan and deposit accounts. Repossession and recovery costs associated with our
indirect lending program increased $82,000 as a result of additional activity
and volume in this portfolio. Director fees increased $55,000 due to a change
in the fee structure and amount of fees paid compared to the prior year period. INCOME TAXES  BALANCE SHEET  During the first quarter of 2004, we were able to repay $25 million of our
advances from the Federal Home Loan Bank. Total advances outstanding were $20
million at March 31, 2004 as compared to $45 million at December 31, 2003. 15




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##### Table of Contents



Shareholders equity totaled $43,275,075 at March 31, 2004, increasing
$2,029,229 from December 31, 2003. Book value per share increased to $9.64 at
March 31, 2004 from $9.31 at December 31, 2003. The Company declared a
quarterly dividend of $0.1125 per share in the first quarter of 2004 and $0.11
per share in the first quarter of 2003. On April 15, 2004, we closed the sale of 1,000,000 shares of our common stock
at a price of $22.00 per share before commissions and expenses. The shares
were sold on a firm commitment basis through Advest, Inc. Advest, Inc. also
purchased an additional 150,000 shares from the Company on May 6, 2004, at
$22.00 per share before commissions and expenses. The net proceeds of the
offering will be used to provide capital to support continued loan and deposit
growth throughout our South Florida markets. NON-PERFORMING ASSETS Non-performing assets include nonaccrual loans, accruing loans contractually
past due 90 days or more, repossessed personal property, and other real estate.
Loans are placed on nonaccrual status when management has concerns relating to
the ability to collect the loan principal and interest and generally when such
loans are 90 days or more past due. A loan is considered impaired when it is
probable that not all principal and interest amounts will be collected
according to the loan contract. Non-performing assets were as follows: March 31,
    
    December 31,2004
    
    2003Total nonaccrual loans
    
    $
    483,317
    
    
    $
    390,316Accruing loans delinquent 90 days or more (a)
    
    
    
    
    
    
    Total non-performing loans
    
    $
    483,317
    
    
    $
    390,316Repossessed personal property (indirect auto dealer loans)
    
    
    560,646
    
    
    
    597,790Other real estate owned (b)
    
    
    192,464
    
    
    
    192,464Other assets (b)
    
    
    2,507,316
    
    
    
    2,472,332Total non-performing assets
    
    $
    3,743,743
    
    
    $
    3,652,902Allowance for loan losses
    
    $
    5,346,576
    
    
    $
    5,215,901Non-performing assets as a percent of total assets
    
    
    0.53%
    
    
    
    0.55%Non-performing loans as a percent of gross loans
    
    
    0.09%
    
    
    
    0.07%Allowance for loan losses as a percent of non-performing loans
    
    
    1,106.23%
    
    
    
    1,336.33%
   (a)
    
    Non-performing loans exclude the $1.6 million loan discussed below that is
guaranteed for both principal and interest by the USDA.(b)
    
    The Bank made a $10,000,000 loan to construct a lumber mill in northern
Florida. Of this amount, $6,400,000 had been sold by the  During 2001, upon completion of foreclosure on the underlying collateral, the
non-guaranteed portion of this loan and interest accrued through the
foreclosure date was reclassified into other real estate ($550,000) and other
assets (approximately $1,886,000) based on the fair value of the
underlying-collateral. The portion of this loan guaranteed by the USDA was
approximately $1.6 million at March 31, 2004 and December 31, 2003, and is
accruing interest. Accrued interest on this loan totals approximately $611,000
and $590,000 at March 31, 2004 and December 31, 2003, respectively. The Bank is pursuing a sale of the property and equipment and has incurred
various expenditures. The Bank capitalized the liquidation costs and portion
of the protective advances which it expects will be fully reimbursed by the
USDA. Other real estate recorded on the Banks books totaled $192,464 at March
31, 2004 and December 31, 2003. The non-guaranteed principal and interest
($1,961,000 at March 31, 2004 and December 31, 2003) and the reimbursable
capitalized liquidation costs and protective advance costs totaling
approximately $546,000 and $511,000 at March 31, 2004 and December 31, 2003,
respectively are included as other assets in the financial statements. The Bank sold certain pieces of equipment associated with the lumber mill
property. Proceeds from the sales were used to reduce the other real estate
amount and liquidation cost amounts recorded on the Banks books. In 2003, the
Bank wrote down the carrying amount of the other real estate by $262,000 based
upon anticipated proceeds from the sale of the property and remaining
equipment. 16




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##### Table of Contents



Florida law requires a bank to liquidate or charge off repossessed real
property within five years, and repossessed personal property within six
months. The Bank was awarded title to the real property on June 12, 2001, and
an adjudicated interest in the owners trust proceeds. The time constraints
imposed by Florida law required that the personal property be disposed of or
charged off by December 2001. The Bank applied to the State of Florida for an
extension to carry the personal property on the Banks books and was granted an
extension to carry the personal property on its books until June 11, 2003.
Since the property had not been liquidated as of June 11th, the Bank
charged-off the non guaranteed principal and interest totaling $1,961,000 at
June 30, 2003, for regulatory purposes. Since we believe this amount is
ultimately realizable, we did not write off this amount for financial statement
purposes under generally accepted accounting principles. The allowance for loan losses amounted to $5,346,576 and $5,215,901 at March
31, 2004 and December 31, 2003, respectively. The allowance for loan losses is a valuation allowance for probable incurred
credit losses in the loan portfolio. Our process for assessing the adequacy of
the allowance for loan losses and the resultant need, if any, for periodic
provisions to the allowance charged to income, includes both individual loan
analyses and loan pool analyses. Individual loan analyses are periodically
performed on loan relationships of a significant size, or when otherwise deemed
necessary, and primarily encompass commercial real estate and other commercial
loans. The result is that commercial real estate loans and commercial loans
are divided into the following risk categories: Pass, Special Mention and
Substandard or worse. When appropriate a specific reserve will be established
for individual loans. Otherwise, we allocate an allowance for each risk
category. The allocations are based on factors including historical loss rate,
perceived economic conditions (local, national and global), perceived strength
of our management, recent trends in loan loss history, and concentrations of
credit. Home equity loans, indirect auto dealer loans, residential loans and consumer
loans generally are not analyzed individually. These loans are grouped into
pools and assigned risk categories based on their current payment status and
managements assessment of risk inherent in the various types of loans. As
above, when appropriate, a specific reserve will be established for individual
loans. Otherwise, we allocate an allowance for each loan classification. The
allocations are based on the same factors mentioned above. Based on an analysis performed by management at March 31, 2004, the allowance
for loan losses is considered to be adequate to cover estimated loan losses in
the portfolio as of that date. However, managements judgment is based upon a
number of assumptions about future events, which are believed to be reasonable,
but which may or may not prove valid. Thus, there can be no assurance that
charge-offs in future periods will not exceed the allowance for loan losses or
that significant additional increases in the allowance for loan losses will not
be required. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review our allowance for loan losses.
Such agencies may require us to recognize additions to the allowance based on
their judgments about information available to them at the time of their
examination. LIQUIDITY The goal of liquidity management is to ensure the availability of an adequate
level of funds to meet the loan demand and deposit withdrawal needs of the
Companys customers. We manage the levels, types and maturities of earning
assets in relation to the sources available to fund current and future needs to
ensure that adequate funding will be available at all times. In addition to maintaining a stable core deposit base, we maintain adequate
liquidity primarily through the use of investment securities and unused
borrowing capacity. The Bank has invested in Federal Home Loan Bank stock for
the purpose of establishing credit lines with the Federal Home Loan Bank. The
credit availability to the Bank is equal to 20 percent of the Banks total
assets as reported on the most recent quarterly financial information submitted
to the regulators. The credit availability approximated $142 million at March
31, 2004, under which $20 million was outstanding. Borrowings against this
line of credit are collateralized by the Banks one-to-four family residential
mortgage loans. The Bank has an unsecured overnight federal funds purchased accommodation up to
a maximum of $7.5 million from its principal correspondent bank. In the second quarter of 2004, we completed the sale of 1,150,000 shares of our
common stock at a price of $22.00 per share before commissions and expenses.
The net proceeds provided additional liquidity along with additional capital to
the Company. The net proceeds of the offering will be used to provide capital
to support continued loan and deposit growth throughout our South Florida
markets. ASSET AND LIABILITY MANAGEMENT 17




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##### Table of Contents



Closely related to liquidity management is the management of interest-earning
assets and interest-bearing liabilities. The Company manages its rate
sensitivity position to avoid wide swings in net interest margins and to
minimize risk due to changes in interest rates. Our interest rate sensitivity position at March 31, 2004 is presented in the
table below: 3 months
    
    4 to 6
    
    7 to 12
    
    1 to 5
    
    Over 5(Dollars in thousands)
    
    or less
    
    Months
    
    Months
    
    years
    
    Years
    
    TotalInterest-earning assets:Loans
    
    $
    232,681
    
    
    $
    34,129
    
    
    $
    46,006
    
    
    $
    167,391
    
    
    $
    69,438
    
    
    $
    549,645Investment securities-taxable
    
    
    1,813
    
    
    
    
    
    
    
    3,075
    
    
    
    15,542
    
    
    
    16,834
    
    
    
    37,264Investment securities-tax exempt
    
    
    235
    
    
    
    311
    
    
    
    
    
    
    
    3,160
    
    
    
    5,546
    
    
    
    9,252Marketable equity securities
    
    
    3,972
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,972Federal Home Loan Bank stock
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000Federal funds sold
    
    
    42,022
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42,022Interest bearing deposit in other
bank
    
    
    1,402
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,402Total interest-bearing assets
    
    
    283,125
    
    
    
    34,440
    
    
    
    49,081
    
    
    
    186,093
    
    
    
    91,818
    
    
    
    644,557Interest-bearing liabilities:NOW accounts
    
    
    75,807
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75,807Money Market
    
    
    132,622
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    132,622Savings Deposits
    
    
    43,716
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,716Time deposits
    
    
    35,573
    
    
    
    52,828
    
    
    
    55,527
    
    
    
    70,458
    
    
    
    14
    
    
    
    214,400Notes payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,250
    
    
    
    5,250Subordinated debentures
    
    
    5,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,000
    
    
    
    13,000Other borrowings
    
    
    25,347
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,347Total interest-bearing liabilities
    
    
    318,065
    
    
    
    52,828
    
    
    
    55,527
    
    
    
    70,458
    
    
    
    13,264
    
    
    
    510,142Interest sensitivity gap
    
    $
    (34,940
    )
    
    $
    (18,388
    )
    
    $
    (6,446
    )
    
    $
    115,635
    
    
    $
    78,554
    
    
    $
    134,415Cumulative interest sensitivity gap
    
    $
    (34,940
    )
    
    $
    (53,328
    )
    
    $
    (59,774
    )
    
    $
    55,861
    
    
    $
    134,415
    
    
    $
    134,415Cumulative sensitivity ratio
    
    
    (5.4
    )%
    
    
    (8.3
    )%
    
    
    (9.3
    )%
    
    
    8.7
    %
    
    
    20.9
    %
    
    
    20.9
    %
 We are cumulatively liability sensitive through the one year time period, and
asset sensitive in the over one year timeframes above. Certain liabilities
such as NOW and passbook savings accounts, while technically subject to
immediate repricing in response to changing market rates, historically do not
reprice as quickly nor to the extent as other interest sensitive accounts.
Accordingly, if market interest rates should decrease, it is anticipated that
the net interest margin would decrease. Because of non-interest bearing
liabilities, total interest-earning assets are substantially greater than the
total interest-bearing liabilities and therefore it is anticipated that over
time the effects on net interest income from changes in asset yield will be
greater than the change in expense from liability cost. Therefore, if rates
increase it is anticipated that the net interest margin would over time
increase and this is particularly true over longer time horizons since the
Company has more total assets subject to rate changes than total liabilities
that are rate sensitive. However, over the next several months, the liquidity
generated from our recent stock offering will cause some compression in net
interest margin until these funds are fully invested, irrespective of changes
in market interest rates. Even in the near term, we believe the $60 million one year cumulative negative
sensitivity gap may exaggerate the probable effects on earnings in a rising
rate environment for two reasons. First, the liabilities subject to repricing
are predominately not indexed to any specific market rate and therefore offer
the Company the opportunity to delay or diminish any rate repricings. Further,
in this current rate environment, the Bank has been originating loans with
interest rate floors. The effect of this has been to decrease the volatility
of net interest margin and decrease asset sensitivity due to the fact that
these loans behave similar to fixed rate loans in periods over a significant
range of interest rate changes. Interest-earning assets and other time deposits are presented based on their
contractual terms. It is anticipated that run off in any deposit category will
be approximately offset by new deposit generation. Since we have experienced
steady growth in deposits, no net run off in any deposit category is assumed in
the interest rate sensitivity table. It is our policy to maintain our
cumulative one year gap ratio in the 20% to +10% range. At March 31, 2004, we
were within this range with a one year cumulative sensitivity ratio of (9.3)%. 18




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##### Table of Contents



See also Item 3, Quantitative and Qualitative Disclosures About Market Risk. COMMITMENTS The Bank is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and standby letters
of credit. These instruments involve, to varying degrees, elements of credit
risk in excess of the amount recognized in the consolidated balance sheets. The Banks exposure to credit loss in the event of nonperformance by the other
party to financial instruments for commitments to extend credit and standby
letters of credit is represented by the contractual notional amount of these
instruments. The Bank uses the same credit policies in making commitments to
extend credit and generally uses the same credit policies for letters of credit
as it does for on-balance sheet instruments. Commitments to extend credit are legally binding agreements to lend to a
customer as long as there is no violation of any condition established in the
contract. Since some of these commitments are expected to expire without being
drawn upon, the total commitment amount does not necessarily represent future
cash requirements. Commitments generally have fixed expiration dates or other
termination clauses and may require the payment of a fee. At March 31, 2004,
total unfunded loan commitments were approximately $79.3 million. Standby letters of credit are conditional commitments issued by the Bank to
assure the performance or financial obligations of a customer to a third party.
The credit risk involved in issuing standby letters of credit is essentially
the same as that involved in extending loans to customers. The Bank generally
holds collateral and/or obtains personal guarantees supporting these
commitments. Since most of the letters of credit are expected to expire
without being drawn upon, they do not necessarily represent future cash
requirements. At March 31, 2004, commitments under standby letters of credit
aggregated approximately $1.7 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
Liquidity section above. 19




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##### Table of Contents



Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Market risk is the risk that a financial institutions earnings and capital,
or its ability to meet its business objectives, will be adversely affected by
movements in market rates or prices such as interest rates, foreign exchange
rates, equity rates, equity prices, credit spreads and/or commodity prices.
The Company has assessed its market risk as predominately interest rate risk. The following interest rate sensitivity analysis information as of March 31,
2004 was developed using simulation analysis of the Companys sensitivity to
changes in net interest income under varying assumptions for changes in market
interest rates. Specifically, the model derives expected interest income and
interest expense resulting from an immediate and parallel shift in the yield
curve in the amounts shown. These rate changes are matched with known repricing intervals and assumptions
for new growth net of expected prepayments. The assumptions are based
primarily on experience in the Companys market under varying rate
environments. The imbedded options that the Companys loan customers possess
to refinance are considered for purposes of this analysis and cause the larger
decreases in income in a declining rate scenario versus the income increases in
the same size rising rate scenario. This analysis intentionally exaggerates interest sensitivity. For the sake of
simplicity and comparability, an immediate change in rates is assumed.
However, any significant change in actual market rates would probably be phased
in over an extended period of time. This phase in would reduce the net
interest income effects for any absolute change in rates. Also, the Company
has been originating adjustable rate commercial loans with interest rate floors
that are currently at rates higher than the index and margin on the loans would
indicate. An example would be a loan at Prime plus 1% but with a 7.0% floor.
The Company currently has in excess of $199 million of these types of loans
where the loan rates are at the floors. The effects of this are twofold.
First, this has benefited our margins currently since we have assets earning
yields higher than would be the case absent the floor rates. Second, in a
declining rate environment and in a limited rising rate environment those
adjustable rate loans act like fixed rate loans. This limits the Companys
loss of interest income when rates decline but does constrain income gains in a
rising rate market. As rates increase beyond 200 basis points from their
current level the effect on net interest income turns around and begins to
expand positively due to an increasing percentage of loans going past their
floors. Also, the passage of time moderates the negative near term impact of
rising rates as new loans are by definition originated at the current, now
higher, rate levels. In general, having this significant amount of loans at
their floors reduces the Companys overall rate sensitivity. The Company attempts to retain interest rate neutrality by generating mostly
adjustable rate loans and managing the securities, wholesale funding, and Fed
Funds positions to offset the repricing characteristics of the deposit
liabilities. Projections for the next twelve months are as follows: (Dollars in thousands)
    Interest Rates Decrease
    
    Interest Rates
    
    Interest Rates Increase200 BP
    
    100 BP
    
    Remain Constant
    
    100 BP
    
    200BPInterest Income
    
    $
    37,236
    
    
    $
    39,378
    
    
    $
    41,610
    
    
    $
    43,673
    
    
    $
    46,142Interest Expense
    
    
    7,206
    
    
    
    8,319
    
    
    
    10,387
    
    
    
    13,178
    
    
    
    15,970Net Interest Income
    
    $
    30,030
    
    
    $
    31,059
    
    
    $
    31,223
    
    
    $
    30,495
    
    
    $
    30,172Change in net income
after tax vs.
constant rates
    
    $
    (744
    )
    
    $
    (102
    )
    
    
    
    
    
    $
    (454
    )
    
    $
    (656
    )
 20




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##### Table of Contents



Item 4. CONTROLS AND PROCEDURES Evaluation of disclosure controls and procedures The Company maintains controls and procedures designed to ensure that
information required to be disclosed in the reports that the Company files or
submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the rules and
forms of the Securities and Exchange Commission. Based upon their evaluation
of those controls and procedures performed as of the end of the period covered
by this report, the Chief Executive Officer and Chief Financial Officer of the
Company concluded that the Companys disclosure controls and procedures were
adequate. No significant deficiencies or material weaknesses in the design or
operation of internal controls which could adversely affect the Companys
ability to record, process, summarize, and report financial data have been
identified. No fraud that involves management or other employees who have a significant
role in the Companys internal controls has been discovered. Changes in internal controls The Company made no significant changes in its internal controls or in other
factors that could significantly affect these controls subsequent to the date
of the evaluation of those controls by the Chief Executive Officer and Chief
Financial Officer; including any corrective actions with regard to significant
deficiencies and material weaknesses. Limitations on the Effectiveness of Controls Our management, including our principal executive officer and principal
financial officer, does not expect that our disclosure controls and procedures
and internal controls over financial reporting will prevent all errors and all
improper conduct. A control system, no matter how well conceived and operated
can provide only reasonable, not absolute, assurance that the objectives of the
controls system are met. Further, the design of a control system must reflect
the fact that there are resource constraints, and the benefits of controls must
be considered relative to their costs. Because of the inherent limitations in
all control systems, no evaluation of controls can provide absolute assurance
that all control issues and instances of improper conduct, if any, within the
Company have been detected. These inherent limitations include the realities
that judgments in decision-making can be faulty, and that breakdowns can occur
because of simple error or mistake. 21




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##### Table of Contents



Part II. OTHER INFORMATION 
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 
 Item 5. OTHER INFORMATION Not applicable 
 Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 31.1  Chief Executive Officers certification required under
Section 302 of Sarbanes-Oxley Act of 2002    (b) Reports on Form 8-K On March 1, 2004, the Company issued a press release announcing
certain financial results and additional information related to its
fourth quarter and annual earnings. On April 20, 2004, the Company reported on Form 8-K that on April
15, 2004, it closed the sale of 1,000,000 shares of common stock at
a price of $22.00 per share before commissions and expenses in a
firm commitment underwriting. On April 29, 2004, the Company issued a press release announcing
certain financial results and additional information related to its
first quarter 2004 earnings. On May 6,
2004, the Company reported on Form 8-K that on May 6, 2004, it closed
the sale of an additional 150,000 shares of common stock at a price
of $22.00 per share before commissions and expenses, pursuant to its
previously filed registration statement. 22




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. Date: May 13, 2004
    TIB FINANCIAL CORP.
/s/ Edward V. LettEdward V. Lett
President and Chief Executive Officer/s/ David P. Johnson
David P. Johnson
Executive Vice President and Chief Financial Officer 23