##### 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
SEPTEMBER 30, 2004
    
    Commission File Number
000-21329
 TIB FINANCIAL CORP. 
  FLORIDA
    
    65-0655973(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    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 No [X] Indicate the number of shares outstanding of each of the issuers classes of
common equity, as of the latest practicable date: Common Stock, $0.10 Par Value
    
    5,672,302Class
    
    Outstanding as of November 5, 2004




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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-KSIGNATURESEx-31.1: Section 302 Certification of President and CEOEx-31.2: Section 302 Certification of Executive Vice President and CFOEx-32.1: Section 906 Certification of President and CEOEx-32.2: Section 906 Certification of Executive Vice President and CFO    Table of Contents  
 Part I. FINANCIAL INFORMATION 
 Item 1. Financial Statements TIB FINANCIAL CORP. 
 CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share amounts)
 September 30, 2004
    
    December 31, 2003(Unaudited)ASSETSCash and due from banks
    
    $
    17,363
    
    
    $
    17,197Federal funds sold
    
    
    
    
    
    
    16,484Cash and cash equivalents
    
    
    17,363
    
    
    
    33,681Investment securities available for sale
    
    
    78,697
    
    
    
    52,557Loans, net of deferred loan costs and fees
    
    
    620,333
    
    
    
    540,413Less: allowance for loan losses
    
    
    6,089
    
    
    
    5,216Loans, net
    
    
    614,244
    
    
    
    535,197Premises and equipment, net
    
    
    26,898
    
    
    
    21,073Goodwill
    
    
    155
    
    
    
    155Intangible assets, net
    
    
    1,465
    
    
    
    1,687Accrued interest receivable and other assets
    
    
    26,864
    
    
    
    24,948TOTAL ASSETS
    
    $
    765,686
    
    
    $
    669,298LIABILITIESDeposits:Noninterest-bearing demand
    
    $
    133,888
    
    
    $
    121,728Interest-bearing
    
    
    504,411
    
    
    
    432,085Total Deposits
    
    
    638,299
    
    
    
    553,813Federal Home Loan Bank (FHLB) advances
    
    
    25,000
    
    
    
    45,000Short-term borrowings
    
    
    9,353
    
    
    
    4,041Long-term borrowings
    
    
    18,250
    
    
    
    18,250Accrued interest payable and other liabilities
    
    
    7,257
    
    
    
    6,948TOTAL LIABILITIES
    
    
    698,159
    
    
    
    628,052SHAREHOLDERS EQUITYPreferred
stock - no par value: 5,000,000
and 0 shares authorized, 0 and 0 shares
issued
    
    
    
    
    
    
    Common stock
- $.10 par value: 20,000,000
and 7,500,000 shares authorized, 5,672,202
and 4,431,328 shares issued
    
    
    567
    
    
    
    443Additional paid in capital
    
    
    38,237
    
    
    
    14,255Retained earnings
    
    
    28,291
    
    
    
    26,203Accumulated other comprehensive income
    
    
    432
    
    
    
    345TOTAL SHAREHOLDERS EQUITY
    
    
    67,527
    
    
    
    41,246TOTAL LIABILITIES AND SHAREHOLDERS
EQUITY
    
    $
    765,686
    
    
    $
    669,298
 (See notes to consolidated financial statements) 2




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##### Table of Contents



TIB FINANCIAL CORP. 
 CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(dollars in thousands, except earnings per share amounts)
 Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003INTEREST AND DIVIDEND INCOMELoans, including fees
    
    $
    9,648
    
    
    $
    7,974
    
    
    $
    27,208
    
    
    $
    23,250Investment securities:U.S. Treasury securities
    
    
    43
    
    
    
    2
    
    
    
    81
    
    
    
    6U.S. Government agencies and corporations
    
    
    573
    
    
    
    577
    
    
    
    1,475
    
    
    
    1,546States and political subdivisions, tax-exempt
    
    
    107
    
    
    
    92
    
    
    
    312
    
    
    
    236States and political subdivisions, taxable
    
    
    48
    
    
    
    60
    
    
    
    152
    
    
    
    184Marketable equity securities
    
    
    66
    
    
    
    
    
    
    
    186
    
    
    
    Interest bearing deposits in other bank
    
    
    4
    
    
    
    1
    
    
    
    9
    
    
    
    2Federal Home Loan Bank Stock
    
    
    16
    
    
    
    10
    
    
    
    40
    
    
    
    40Federal funds sold
    
    
    23
    
    
    
    34
    
    
    
    102
    
    
    
    227TOTAL INTEREST AND DIVIDEND INCOME
    
    
    10,528
    
    
    
    8,750
    
    
    
    29,565
    
    
    
    25,491INTEREST EXPENSEDeposits
    
    
    2,231
    
    
    
    1,952
    
    
    
    6,103
    
    
    
    6,056Federal Home Loan Bank advances
    
    
    95
    
    
    
    44
    
    
    
    259
    
    
    
    146Short-term borrowings
    
    
    19
    
    
    
    9
    
    
    
    40
    
    
    
    30Long term borrowings
    
    
    402
    
    
    
    398
    
    
    
    1,193
    
    
    
    1,193TOTAL INTEREST EXPENSE
    
    
    2,747
    
    
    
    2,403
    
    
    
    7,595
    
    
    
    7,425NET INTEREST INCOME
    
    
    7,781
    
    
    
    6,347
    
    
    
    21,970
    
    
    
    18,066PROVISION FOR LOAN LOSSES
    
    
    471
    
    
    
    447
    
    
    
    1,489
    
    
    
    1,035NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
    
    
    7,310
    
    
    
    5,900
    
    
    
    20,481
    
    
    
    17,031NON-INTEREST INCOMEService charges on deposit accounts
    
    
    619
    
    
    
    632
    
    
    
    1,900
    
    
    
    1,790Investment securities gains, net
    
    
    7
    
    
    
    3
    
    
    
    103
    
    
    
    8Merchant bankcard processing income
    
    
    1,221
    
    
    
    1,213
    
    
    
    4,515
    
    
    
    3,812Gain on sale of government guaranteed loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    87Fees on mortgage loans sold
    
    
    363
    
    
    
    589
    
    
    
    1,406
    
    
    
    1,800Retail investment services
    
    
    89
    
    
    
    112
    
    
    
    290
    
    
    
    299Gain on sale of investment in ERAS Joint Venture
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    202Other income
    
    
    344
    
    
    
    347
    
    
    
    1,033
    
    
    
    1,065TOTAL NON-INTEREST INCOME
    
    
    2,643
    
    
    
    2,896
    
    
    
    9,247
    
    
    
    9,063NON-INTEREST EXPENSESalaries and employee benefits
    
    
    3,699
    
    
    
    3,271
    
    
    
    10,755
    
    
    
    9,512Net occupancy expense
    
    
    1,212
    
    
    
    1,088
    
    
    
    3,525
    
    
    
    3,197Other expense
    
    
    3,013
    
    
    
    2,681
    
    
    
    9,591
    
    
    
    7,983TOTAL NON-INTEREST EXPENSE
    
    
    7,924
    
    
    
    7,040
    
    
    
    23,871
    
    
    
    20,692INCOME BEFORE INCOME TAX EXPENSE
    
    
    2,029
    
    
    
    1,756
    
    
    
    5,857
    
    
    
    5,402INCOME TAX EXPENSE
    
    
    692
    
    
    
    615
    
    
    
    1,990
    
    
    
    1,890INCOME FROM CONTINUING OPERATIONS
    
    $
    1,337
    
    
    $
    1,141
    
    
    $
    3,867
    
    
    $
    3,512DISCONTINUED OPERATIONSIncome from Keys Insurance Agency, Inc. operations
    
    
    
    
    
    
    36
    
    
    
    
    
    
    
    201Income tax expense
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    75INCOME FROM DISCONTINUED OPERATIONS
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    126NET INCOME
    
    $
    1,337
    
    
    $
    1,163
    
    
    $
    3,867
    
    
    $
    3,638BASIC EARNINGS PER SHARE:Continuing operations
    
    $
    0.24
    
    
    $
    0.26
    
    
    $
    0.75
    
    
    $
    0.84Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.03Basic earnings per share
    
    $
    0.24
    
    
    $
    0.26
    
    
    $
    0.75
    
    
    $
    0.87DILUTED EARNINGS PER SHARE:Continuing operations
    
    $
    0.23
    
    
    $
    0.25
    
    
    $
    0.72
    
    
    $
    0.80Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.03Diluted earnings per share
    
    $
    0.23
    
    
    $
    0.25
    
    
    $
    0.72
    
    
    $
    0.83
 (See notes to consolidated financial statements) 3




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##### Table of Contents



TIB FINANCIAL CORP. 
 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
(Unaudited)
(dollars in thousands, except per share amounts)
 Additional
    
    
    
    
    
    Accumulated Other
    
    TotalCommon
    
    Paid in
    
    Retained
    
    Comprehensive
    
    ShareholdersShares
    
    Stock
    
    Capital
    
    Earnings
    
    Income (Loss)
    
    EquityBalance,July 1, 2004
    
    
    5,657,957
    
    
    $
    566
    
    
    $
    38,090
    
    
    $
    27,591
    
    
    ($
    1,081
    )
    
    $
    65,166Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,337
    
    
    
    
    
    
    
    1,337Other comprehensive income, net of tax
expense of $913:Net market valuation adjustment on
securities available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,517Less: reclassification adjustment for gains
included in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )Other comprehensive income, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,513Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,850Exercise of stock options
    
    
    14,245
    
    
    
    1
    
    
    
    98
    
    
    
    
    
    
    
    
    
    
    
    99Income tax benefit from stock options exercised
    
    
    
    
    
    
    
    
    
    
    49
    
    
    
    
    
    
    
    
    
    
    
    49Cash dividends declared, $.1125 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (637
    )
    
    
    
    
    
    
    (637
    )Balance,September 30, 2004
    
    
    5,672,202
    
    
    $
    567
    
    
    $
    38,237
    
    
    $
    28,291
    
    
    $
    432
    
    
    $
    67,527
 Additional
    
    
    
    
    
    Accumulated Other
    
    TotalCommon
    
    Paid in
    
    Retained
    
    Comprehensive
    
    ShareholdersShares
    
    Stock
    
    Capital
    
    Earnings
    
    Income (Loss)
    
    EquityBalance,July 1, 2003
    
    
    4,407,578
    
    
    $
    441
    
    
    $
    13,843
    
    
    $
    24,559
    
    
    $
    1,511
    
    
    $
    40,354Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,163
    
    
    
    
    
    
    
    1,163Other comprehensive income, net of tax
benefit of $647:Net market valuation adjustment on
securities available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,072
    )Less: reclassification adjustment for gains
included in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )Other comprehensive income, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,074
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    89Exercise of stock options
    
    
    500
    
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    7Private Placement of 280,653 common shares
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (1
    )Cash dividends declared, $.11 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (485
    )
    
    
    
    
    
    
    (485
    )Balance,September 30, 2003
    
    
    4,408,078
    
    
    $
    441
    
    
    $
    13,849
    
    
    $
    25,237
    
    
    $
    437
    
    
    $
    39,964
 (continued) 4




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##### Table of Contents



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




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##### Table of Contents



TIB FINANCIAL CORP. 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(Unaudited)
(dollars in thousands)
 For the nine month period endedSeptember 30,2004
    
    2003CASH FLOWS FROM OPERATING ACTIVITIESNet Income
    
    $
    3,867
    
    
    $
    3,638Adjustments to reconcile net income to net cash provided by operating activities:Net amortization of investments
    
    
    42
    
    
    
    45Amortization of intangible assets
    
    
    222
    
    
    
    219Depreciation of premises and equipment
    
    
    1,393
    
    
    
    1,307Provision for loan losses
    
    
    1,489
    
    
    
    1,035Provision for losses on unfunded loan commitments
    
    
    18
    
    
    
    Deferred income tax benefit
    
    
    (98
    )
    
    
    (571
    )Deferred net loan costs and fees
    
    
    (224
    )
    
    
    (840
    )Investment securities net gains
    
    
    (103
    )
    
    
    (8
    )Net (gain) loss on sale/disposal of premises and equipment
    
    
    
    
    
    
    (2
    )Loss on sale of assets of Keys Insurance Agency, Inc.
    
    
    
    
    
    
    15Gain on sale of investment in ERAS JV
    
    
    
    
    
    
    (202
    )Gain on sales of government guaranteed loans, net
    
    
    
    
    
    
    (87
    )Mortgage loans originated for sale
    
    
    (83,534
    )
    
    
    (90,336
    )Proceeds from sale of mortgage loans
    
    
    83,117
    
    
    
    92,136Fees on mortgage loans sold
    
    
    (1,406
    )
    
    
    (1,800
    )(Increase) decrease in accrued interest receivable and other assets
    
    
    (349
    )
    
    
    3,774Increase (decrease) in accrued interest payable and other liabilities
    
    
    346
    
    
    
    (1,390
    )NET CASH PROVIDED BY OPERATING ACTIVITIES
    
    
    4,780
    
    
    
    6,933CASH FLOWS FROM INVESTING ACTIVITIESPurchases of investment securities available for sale
    
    
    (38,368
    )
    
    
    (24,846
    )Repayments of principal and maturities of investment securities available for sale
    
    
    3,149
    
    
    
    13,101Sales of investment securities available for sale
    
    
    9,281
    
    
    
    Net sale (purchase) of FHLB stock
    
    
    1,000
    
    
    
    (390
    )Purchase of life insurance policies
    
    
    (700
    )
    
    
    (250
    )Proceeds from sales of government guaranteed loans
    
    
    569
    
    
    
    2,241Proceeds from sales assets of Keys Insurance Agency, Inc.
    
    
    
    
    
    
    184Loans originated or acquired, net of principal repayments
    
    
    (79,872
    )
    
    
    (69,294
    )Proceeds from the sale of investment in ERAS JV
    
    
    
    
    
    
    327Purchases of premises and equipment
    
    
    (8,276
    )
    
    
    (2,944
    )Sales of premises and equipment
    
    
    98
    
    
    
    4NET CASH USED BY INVESTING ACTIVITIES
    
    
    (113,119
    )
    
    
    (81,867
    )CASH FLOWS FROM FINANCING ACTIVITIESNet increase (decrease) in federal funds purchased and securities sold under
agreements to repurchase
    
    
    5,312
    
    
    
    (1,507
    )Net increase in FHLB short-term advances
    
    
    10,000
    
    
    
    15,000Repayments of FHLB long-term advances
    
    
    (30,000
    )
    
    
    Net increase in demand, money market and savings accounts
    
    
    43,562
    
    
    
    17,265Net increase in time deposits
    
    
    40,924
    
    
    
    42,934Proceeds from exercise of stock options
    
    
    633
    
    
    
    578Proceeds from private placement of common stock
    
    
    
    
    
    
    4,343Proceeds from public offering of common stock
    
    
    23,230
    
    
    
    Cash dividends paid
    
    
    (1,640
    )
    
    
    (1,381
    )NET CASH PROVIDED BY FINANCING ACTIVITIES
    
    
    92,021
    
    
    
    77,232NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    (16,318
    )
    
    
    2,298CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    33,681
    
    
    
    24,070CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    17,363
    
    
    $
    26,368SUPPLEMENTAL DISCLOSURES OF CASH FLOWS:
 6




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##### Table of Contents



For the nine month period endedSeptember 30,2004
    
    2003Cash paid for:Interest
    
    $
    8,276
    
    
    $
    7,357Income taxes
    
    
    2,265
    
    
    
    2,900
 (See notes to consolidated financial statements) 7




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##### Table of Contents



TIB FINANCIAL CORP. 
 CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 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 sixteen branches in Florida that are located in Monroe, Miami-Dade,
Collier and Lee counties. The accompanying unaudited consolidated financial statements for TIB Financial
Corp. (the Company) have been prepared in accordance with accounting
principles generally accepted in the United States of America for interim
financial information and Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statement
presentation. For further information and an additional description of the
Companys accounting policies, refer to the Companys annual report for the
year ended December 31, 2003. 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. (this corporation was dissolved in March 2004  see Note 2), and Keys
Insurance Agency, Inc. (whose assets were sold in August 2003
 see Note 10)
and the Banks two subsidiaries, TIB Government Loan Specialists, Inc. (this
corporation was dissolved in March 2004  see Note 2) and TIB Investment Center
Inc., collectively known as the Company. All significant intercompany accounts
and transactions have been eliminated in consolidation. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Certain
amounts previously reported on have been reclassified to conform to the current
period presentation. As used in this document, the terms we, us, our, TIB Financial, and
Company mean TIB Financial Corp. and its subsidiaries (unless the context
indicates another meaning), and the term Bank means TIB Bank of the Keys and
its subsidiaries (unless the context indicates another meaning). CRITICAL ACCOUNTING POLICIES The accounting and reporting policies of the Company are in accordance with
accounting principles generally accepted within the United States of America
and conform to general practices within the banking industry. Accounting and
reporting policies for the allowance for loan losses are deemed critical since
they involve the use of estimates and require significant management judgments.
Losses on loans result from a broad range of causes from borrower specific
problems, to industry issues, to the impact of the economic environment. The
identification of these factors that lead to default or non-performance under a
borrower loan agreement and the estimation of loss in these situations are very
subjective. In addition, a dramatic change in the performance of one or a small
number of borrowers can have a significant impact on the estimate of losses.
Management has implemented a process that has been applied consistently to
systematically consider the many variables that impact the estimation of the
allowance for loan losses. Additional information with regard to the Companys methodology and reporting
of the allowance for loan losses is included in the 2003 Annual Report and
10-K. NOTE 2  ACQUISITIONS AND DIVESTITURES On May 29, 2003, TIB Software and Services, Inc. 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 TIB Software and 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 10 
Discontinued Operations for details on the transaction. In March 2004, the
Company filed Articles of Dissolution dissolving Keys Insurance Agency, Inc. In March 2004, the Company filed Articles of Dissolution dissolving TIB
Government Loan Specialists, Inc. Activities performed through this
corporation are now performed through TIB Bank. 8




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##### Table of Contents



NOTE 3  INVESTMENT SECURITIES The amortized cost and estimated fair value of investment securities available
for sale at September 30, 2004 and December 31, 2003 are presented below: September 30, 2004Amortized
    
    Unrealized
    
    Unrealized
    
    Estimated(dollars in thousands)
    
    Cost
    
    Gains
    
    Losses
    
    Fair ValueU.S. Treasury securities
    
    $
    5,177
    
    
    $
    33
    
    
    $
    
    
    
    $
    5,210U.S. Government agencies and corporations
    
    
    54,248
    
    
    
    264
    
    
    
    556
    
    
    
    53,956States and political
subdivisions-tax-exempt
    
    
    9,826
    
    
    
    347
    
    
    
    4
    
    
    
    10,169States and political subdivisions-taxable
    
    
    2,862
    
    
    
    23
    
    
    
    11
    
    
    
    2,874Marketable equity securities
    
    
    3,000
    
    
    
    533
    
    
    
    
    
    
    
    3,533Mortgage-backed securities
    
    
    2,889
    
    
    
    66
    
    
    
    
    
    
    
    2,955$
    78,002
    
    
    $
    1,266
    
    
    $
    571
    
    
    $
    78,697
 December 31, 2003Amortized
    
    Unrealized
    
    Unrealized
    
    Estimated(dollars in thousands)
    
    Cost
    
    Gains
    
    Losses
    
    Fair ValueU.S. Treasury securities
    
    $
    209
    
    
    $
    9
    
    
    $
    
    
    
    $
    218U.S. Government agencies and corporations
    
    
    31,357
    
    
    
    425
    
    
    
    663
    
    
    
    31,119States and political
subdivisions-tax-exempt
    
    
    8,838
    
    
    
    378
    
    
    
    59
    
    
    
    9,157States and political subdivisions-taxable
    
    
    3,559
    
    
    
    42
    
    
    
    101
    
    
    
    3,500Marketable equity securities
    
    

    3,000
    
    
    
    395
    
    
    
    
    
    
    
    3,395Mortgage-backed securities
    
    
    5,041
    
    
    
    128
    
    
    
    1
    
    
    
    5,168$
    52,004
    
    
    $
    1,377
    
    
    $
    824
    
    
    $
    52,557
 NOTE 4  LOANS Major classifications of loans are as follows: (dollars in thousands)
    
    September 30, 2004
    
    December 31, 2003Real estate mortgage loans:Commercial
    
    $
    338,198
    
    
    $
    297,221Residential
    
    
    64,624
    
    
    
    60,104Farmland
    
    
    4,924
    
    
    
    2,317Construction and vacant land
    
    
    41,510
    
    
    
    32,089Commercial and agricultural loans
    
    
    62,851
    
    
    
    63,624Indirect auto dealer loans
    
    
    83,680
    
    
    
    59,437Home equity loans
    
    
    12,259
    
    
    
    12,574Other consumer loans
    
    
    10,248
    
    
    
    11,232Total loans
    
    
    618,294
    
    
    
    538,598Net deferred loan costs
    
    
    2,039
    
    
    
    1,815Loans, net of deferred loan costs
    
    $
    620,333
    
    
    $
    540,413
 NOTE 5  ALLOWANCE FOR LOAN LOSSES Activity in the allowance for loan losses for the nine months ended September
30, 2004 and September 30, 2003 follows: (dollars in thousands)
    
    2004
    
    2003Balance, January 1
    
    $
    5,216
    
    
    $
    4,272Provision for loan losses charged to expense
    
    
    1,489
    
    
    
    1,035Loans charged off
    
    
    (654
    )
    
    
    (470
    )Recoveries of loans previously charged off
    
    
    38
    
    
    
    17Balance, September 30
    
    $
    6,089
    
    
    $
    4,854
 9




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##### Table of Contents



NOTE 6  EARNINGS PER SHARE AND COMMON STOCK Earnings per share have been computed based on the following weighted average
number of common shares outstanding for the three months and nine months ended
September 30: 2004
    
    2003For the three months ended September 30:Basic
    
    
    5,660,075
    
    
    
    4,407,920Dilutive effect of options outstanding
    
    
    146,658
    
    
    
    173,639Diluted
    
    
    5,806,733
    
    
    
    4,581,559For the nine months ended September 30:Basic
    
    
    5,187,456
    
    
    
    4,204,840Dilutive effect of options outstanding
    
    
    168,830
    
    
    
    171,573Diluted
    
    
    5,356,286
    
    
    
    4,376,413
 Stock options for 32,500 and 5,000 shares of common stock were not considered
in computing diluted earnings per common share for the three months ended
September 30, 2004 and 2003 because they were anti-dilutive. Stock options for
28,786 and 2,326 shares of common stock were not considered in computing
diluted earnings per common share for the nine months ended September 30, 2004
and 2003 because they were anti-dilutive. The effect of stock options is the
sole common stock equivalent for purposes of calculating diluted earnings per
common share. NOTE 7  STOCK-BASED COMPENSATION Total stock options granted, exercised, and expired/forfeited during the nine
months ended September 30, 2004, were 37,500, 90,874, and 7,900, respectively.
As of September 30, 2004, there were 416,231 options for shares outstanding. Employee compensation expense under stock options is reported using the
intrinsic value method. No stock-based compensation cost is reflected in net
income, as all options granted had an exercise price equal to or greater than
the market price of the underlying common stock at date of grant. The
following table illustrates the effect on net income and earnings per share if
expense was measured using the fair value recognition provisions of FASB
Statement No. 123, Accounting for Stock-Based Compensation. For the three months ended September 30,(dollars in thousands, except per share amounts)
    
    2004
    
    2003Net income, as reported
    
    $
    1,337
    
    
    $
    1,163Stock-based compensation expense determined under fair
value based method, net of tax
    
    
    48
    
    
    
    37Pro forma net income
    
    $
    1,289
    
    
    $
    1,126Basic earnings per share as reported
    
    $
    0.24
    
    
    $
    0.26Pro forma basic earnings per share
    
    
    0.23
    
    
    
    0.26Diluted earnings per share as reported
    
    
    0.23
    
    
    
    0.25Pro forma diluted earnings per share
    
    
    0.22
    
    
    
    0.25
 For the nine months ended September 30,(dollars in thousands, except per share amounts)
    
    2004
    
    2003Net income, as reported
    
    $
    3,867
    
    
    $
    3,638Stock-based compensation expense determined under fair
value based method, net of tax
    
    
    166
    
    
    
    134Pro forma net income
    
    $
    3,701
    
    
    $
    3,504
 10




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##### Table of Contents



For the nine months ended September 30,(dollars in thousands, except per share amounts)
    
    2004
    
    2003Basic earnings per share as reported
    
    $
    0.75
    
    
    $
    0.87Pro forma basic earnings per share
    
    
    0.71
    
    
    
    0.83Diluted earnings per share as reported
    
    
    0.72
    
    
    
    0.83Pro forma diluted earnings per share
    
    
    0.69
    
    
    
    0.80
 On February 24, 2004, the Board of Directors approved the 2004 Equity Incentive
Plan for directors and employees, which was also approved by the shareholders
at their annual meeting held on May 25, 2004. The Plan allows the Company to
continue to provide equity compensation to employees and directors in order to
enable the Company to attract and retain qualified persons to serve as
directors and employees, to enhance their equity interest in the Company, and
thereby to solidify their common interest with shareholders in enhancing the
value and growth of the Company. Refer to the Companys 2004 Proxy statement
for additional information regarding the 2004 Equity Incentive Plan. NOTE
8  CAPITAL ADEQUACY Federal banking regulators have established certain capital adequacy standards
required to be maintained by banks and bank holding companies. The minimum
requirements established in the regulations are set forth in the table below,
along with the actual ratios at September 30, 2004 and December 31, 2003: Well
    
    AdequatelyCapitalized
    
    Capitalized
    
    September 30, 2004
    
    December 31, 2003Requirement
    
    Requirement
    
    Actual
    
    ActualTier 1 Capital (to Average Assets)Consolidated
    
    
    35
    %
    
    
    34
    %
    
    
    10.4
    %
    
    
    7.8
    %Bank
    
    
    35
    %
    
    
    34
    %
    
    
    11.0
    %
    
    
    8.5
    %Tier 1 Capital (to Risk Weighted Assets)Consolidated
    
    
    36
    %
    
    
    34
    %
    
    
    11.5
    %
    
    
    8.8
    %Bank
    
    
    36
    %
    
    
    34
    %
    
    
    12.2
    %
    
    
    9.6
    %Total Capital (to Risk Weighted Assets)Consolidated
    
    
    310
    %
    
    
    38
    %
    
    
    13.2
    %
    
    
    10.6
    %Bank
    
    
    310
    %
    
    
    38
    %
    
    
    13.2
    %
    
    
    10.5
    %
 Management believes, as of September 30, 2004, that the Company and the Bank
met all capital requirements to which they are subject. The Company has
included the trust preferred securities that were issued in September 2000 and
July 2001 in Tier 1 capital. We completed an offering of 1,150,000 shares of our common stock during the
second quarter of 2004. NOTE
9  SEGMENT REPORTING TIB Financial Corp. has two reportable segments in their continuing operations:
community banking and merchant bankcard processing. The community banking
segments business is to attract deposits from the public and to use such
deposits to make real estate, business and consumer loans in its primary
service area. The merchant bankcard processing segment processes credit card
transactions for local merchants. Parent and other includes the operations of
the holding company and retail investment service operations of the Bank. The results of Keys Insurance Agency, Inc. are not included in the segment
reporting as they are classified separately as discontinued operations in our
consolidated financial statements (see Note 10). The Companys reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different marketing strategies. Intercompany transactions have been eliminated in preparing the segment
reporting amounts below. The results of the Companys segments are as follows (dollars in thousands): 11




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##### Table of Contents



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




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##### Table of Contents



NOTE 10  DISCONTINUED OPERATIONS On August 15, 2003, we closed the sale of Keys Insurance Agency, Inc., a wholly
owned subsidiary of the Company, to a former director of the Company and TIB
Bank, and his partner. The transaction was structured as a sale of the agency
assets. The buyer paid $2.2 million in cash at the closing. Of the cash
payment at closing, proceeds of $2.0 million were pursuant to a loan from TIB
Bank to the buyer. We recognized a loss of $15,000 on the transaction. The results of Keys Insurance Agency, Inc. operations, which have been
classified as discontinued operations in the accompanying consolidated
financial statements, are summarized as follows: (dollars in thousands)
    
    2004
    
    2003For the three months ended September 30:Other income
    
    $
    
    
    
    $
    277Depreciation and amortization
    
    
    
    
    
    
    7Other expense
    
    
    
    
    
    
    234Pretax income from discontinued operations
    
    $
    
    
    
    $
    36For the nine months ended September 30:Other income
    
    $
    
    
    
    $
    1,255Depreciation and amortization
    
    
    
    
    
    
    34Other expense
    
    
    
    
    
    
    1,020Pretax income from discontinued operations
    
    $
    
    
    
    $
    201
 
 Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS Certain of the matters discussed under the caption Managements Discussion and
Analysis of Financial Condition and Results of Operations and elsewhere in
this Form 10-Q may constitute forward-looking statements within the meaning
of the Private Securities Litigation Reform Act and as such may involve known
and unknown risk, uncertainties and other factors which may cause the actual
results, performance or achievements of TIB Financial Corp. to be materially
different from future results described in such forward-looking statements.
Actual results may differ materially from the results anticipated in these
forward-looking statements due to a variety of factors, including, without
limitation: the effects of future economic conditions; governmental monetary
and fiscal policies, as well as legislative and regulatory changes; the risks
of changes in interest rates on the level and composition of deposits, loan
demand, and the values of loan collateral, and interest rate risks; the effects
of competition from other commercial banks, thrifts, consumer finance
companies, and other financial institutions operating in the Companys market
area and elsewhere. All forward-looking statements attributable to the Company
are expressly qualified in their entirety by these cautionary statements. The
Company disclaims any intent or obligation to update these forward-looking
statements, whether as a result of new information, future events or otherwise. The following discussion addresses the factors that have affected the financial
condition and results of operations of TIB Financial Corp. (the Company) as
reflected in the unaudited consolidated statement of condition as of September
30, 2004, and statement of income for the three months and nine months ended
September 30, 2004. Operating results for the three months and nine months
ended September 30, 2004 are not necessarily indicative of trends or results to
be expected for the year ended December 31, 2004. THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 RESULTS OF OPERATIONS Our net income of $1,337,000 for the third quarter of 2004 increased $174,000,
or 15.0%, compared to $1,163,000 for the same period last year. Net income
from continuing operations was $1,337,000 for the third quarter of 2004,
compared to $1,141,000 for the third quarter of 2003, an increase of $196,000
or 17.2%. As discussed in Note 10, the Company closed the sale of the assets
of its wholly owned subsidiary, Keys Insurance Agency, Inc., in the third
quarter of 2003. Basic and diluted earnings per share for continuing operations for the third
quarter of 2004 were $0.24 and $0.23, respectively, as compared to $0.26 and
$0.25 per share in the previous years quarter. Basic weighted average common
equivalent shares outstanding for the three months ended September 30, 2004
were 5,660,075 compared to 4,407,920 for the three months ended 13




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##### Table of Contents



September 30, 2003. This 28.4% increase in shares outstanding resulted from
the exercise of stock options and the issuance of 1,150,000 shares in the
second quarter of 2004 in connection with a public offering of our shares. Annualized return on average assets was 0.72% and 0.74% for the third quarter
of 2004 and 2003, while the annualized return on average shareholders equity
was 8.06% and 11.64% for the same period. The decline in the return on average
shareholders equity in the current year is primarily attributable to the 69.0%
increase in shareholders equity from September 30, 2003 to September 30, 2004
due to the stock offering in the second quarter of 2004 and exercises of stock
options. NET INTEREST INCOME Net interest income represents the amount by which interest income on
interest-earning assets exceeds interest expense incurred on interest-bearing
liabilities. Net interest income is the largest component of our income, and
is affected by the interest rate environment, and the volume and the
composition of interest-earning assets and interest-bearing liabilities. Our
interest earning assets include loans, federal funds sold, interest bearing
deposits in other banks, and investment securities. Our interest-bearing
liabilities include deposits, federal funds purchased, notes payable related to
Company shares repurchased, subordinated debentures, advances from the Federal
Home Loan Bank, and other short term borrowings. Net interest income increased $1,434,000, or 22.6%, to $7,781,000 in the three
months ended September 30, 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% and remained at that rate until July of 2004
when it increased to 4.25%. In August the rate increased to 4.50% and
increased again in September to 4.75%. Many of the Banks loans are indexed to
this floating rate, although they may also include floors. The higher level of
prime rate in the third quarter of 2004 compared to the comparative period in
2003 has not yet significantly impacted yields in the loan portfolio as the
effects of the higher rates are just beginning to be reflected in variable loan
re-pricings and new loan production. Increased loan volume is the primary
driver affecting the increased net interest income in the current period. PROVISION FOR LOAN LOSSES The provision for loan losses represents the charge to income necessary to
adjust the allowance for loan losses to an amount that represents managements
assessment of the estimated probable credit losses inherent in our loan
portfolio which have been incurred at each balance sheet date. The provision for loan losses increased $24,000, or 5.4%, to $471,000 in the
third quarter of 2004 compared to $447,000 in the comparable prior year
quarter. The higher provision for loan losses in 2004 was primarily
attributable to the continued growth and change in composition of the loan
portfolio coupled with slightly higher charge offs. Total loans outstanding
grew $27.9 million, or 4.7%, during the third quarter of 2004, as compared to
$37.3 million, or 7.9%, during the third quarter of 2003. The largest dollar
increase during the third quarter of 2004 occurred in commercial real estate
loans which increased $8.7 million, or 2.6%. This compares to an $8.0 million,
or 2.8% increase in commercial real estate loans during the third quarter of
2003. We have also continued to expand our indirect lending portfolio. At
September 30, 2004, indirect auto dealer loans accounted for $83.7 million, or
13.5%, of our loan portfolio. This compares to an indirect lending portfolio
of $50.9 million at September 30, 2003 which represented 10.0% of our total
loan portfolio. Total loans outstanding were $618.3 million at September 30, 2004, compared to
$510.5 million at September 30, 2003. Net charge-offs were $188,000 during the
three months ended September 30, 2004 compared to $147,000 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 Non-interest income for the third quarter of 2004 was $2,643,000. This
represents a $253,000 or 8.7% decrease over the prior year quarter which
totaled $2,896,000. The decrease in non-interest income is primarily
attributable to a decrease of $226,000 in fees on mortgage loans sold. This
decrease in fees on mortgage loans sold is primarily a result of delayed
closings due to an abnormally active hurricane season in South Florida combined
with a decline in South Florida market refinancing and mortgage loan
application activity. NON-INTEREST EXPENSE Non-interest expense for the third quarter of 2004 was $7,924,000. This
represents an $884,000, or 12.6%, increase over the prior year quarter which
totaled $7,040,000. The increase in non-interest expense is attributable to
salaries and employee benefits increasing $428,000, net occupancy expense
increasing $124,000, and other expense increasing $332,000. The increases are
primarily the result of costs associated with the growth of our business and
continued investment and expansion in the Southwest Florida market. 14




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##### Table of Contents



At September 30, 2004 the Bank had 303 full-time employees, compared to 253 at
September 30, 2003. The increase in staff was required to manage the growth of
the organization. In general, as we continue to renovate facilities and add branches, the net
occupancy expense category will grow overall. In December 2003, we leased a
new operations facility in Homestead, Florida. Building rent expense on this
property for the three months ended September 30, 2004 totaled $35,000.
Pursuant to the opening of the Metro Parkway and Prospect Ave locations in
Southwest Florida, the third quarter of 2004 included approximately $70,000 in
occupancy expenses associated with the operations of these newly opened
branches. In the category of other expense, professional fees increased approximately
$112,000 due primarily to increased internal control documentation and testing
costs related to the implementation of the Sarbanes Oxley Act of 2002. INCOME TAXES The provision for income taxes related to continuing operations totaled
$692,000, for an effective tax rate of 34.1%, for the three months ended
September 30, 2004, and $615,000, for an effective tax rate of 35.0%, for the
three months ended September 30, 2003. NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 RESULTS OF OPERATIONS Our net income of $3,867,000 for the first nine months of 2004 increased
$229,000, or 6.3%, compared to $3,638,000 for the same period last year. Net
income from continuing operations was $3,867,000 for the first nine months of
2004, compared to $3,512,000 for the first nine months of 2003, an increase of
$355,000 or 10.1%. As discussed in Note 10, the Company closed the sale of the

assets of its wholly owned subsidiary, Keys Insurance Agency, Inc. in the third
quarter of 2003. Basic and diluted earnings per share for the first nine months of 2004 were
$0.75 and $0.72 respectively as compared to $0.87 and $0.83 per share in the
previous years period. Basic weighted average common equivalent shares
outstanding for the nine months ended September 30, 2004 were 5,187,456
compared to 4,204,840 for the nine months ended September 30, 2003. This 23.4%
increase in shares outstanding resulted from the issuance of an additional
1,150,000 shares in the second quarter of 2004 in connection with a public
offering of our common stock that raised $23.2 million in new capital, the
issuance of 280,653 shares in June 2003 in connection with a private placement
of our stock that raised $4.3 million in new capital, and the exercise of stock
options. Annualized return on average assets was 0.71% and 0.79% for the first nine
months of 2004 and 2003, while the annualized return on average shareholders
equity was 9.15% and 13.21% for the same period. The decline in the return on
average shareholders equity in the current year is primarily attributable to
the stock offering in the second quarter of 2004. NET INTEREST INCOME Net interest income represents the amount by which interest income on
interest-earning assets exceeds interest expense incurred on interest-bearing
liabilities. Net interest income is the largest component of our income, and
is affected by the interest rate environment, and the volume and the
composition of interest-earning assets and interest-bearing liabilities. Our
interest earning assets include loans, federal funds sold, interest bearing
deposits in other banks, and investment securities. Our interest-bearing
liabilities include deposits, federal funds purchased, notes payable related to
Company shares repurchased, subordinated debentures, advances from the Federal
Home Loan Bank, and other short term borrowings. Net interest income increased $3,904,000, or 21.6%, to $21,970,000 in the nine
months ended September 30, 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% and remained at that rate until July of 2004
when it increased to 4.25%. In August the rate increased to 4.50% and
increased again in September to 4.75%. Many of the Banks loans are indexed to
this floating rate, although they also include floors. With short-term interest rates increasing slowly, or as the Federal Reserve
would say, stimulus being removed at a measured pace, our yields on assets and
cost of liabilities are increasing in roughly equal percentages. Both of these
have been modest in degree as many loans are still below their floors and many
deposits with administered rates have increased only slightly. Going forward,
we would expect further market rate increases to more directly affect loan
yields and deposit costs as more adjustable loans move through their floor
levels and competitive pressures result in deposit rates increasing more
rapidly. We believe he predominant driver in the increase in net interest
income is and will continue to be the growth of our balance sheet. Although the
timing and possible effects of future changes in interest rates could be
significant, we expect any such impact to be considerably less in extent than
the relative impact of asset growth. 15




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##### Table of Contents



In April 2002, the Bank began a program to acquire indirect automobile loans.
We predominantly buy loans from auto dealers in Southwest Florida which are for
the purchase of new or late model used cars. We serve customers over a broad
range of creditworthiness and the required terms and rates are reflective of
those risk profiles. As of September 30, 2004 we had $83.7 million of indirect
auto dealer loans outstanding, compared to $50.9 million at September 30, 2003.
Coupled with the appropriate safeguards, we believe this product continues to
offer us an opportunity to increase asset yields while not sacrificing our
primary objective of maintaining strong asset quality. The average yield on interest-earning assets for the first nine months of 2004
was 6.04% which was a decrease of 16 basis points compared to the 6.20% yield
earned during the first nine months of 2003. The average cost of
interest-bearing deposits declined 20 basis points from 1.94% during the first
nine months of 2003 to 1.74% for the comparable period in 2004, and the rate of
all interest-bearing liabilities decreased 23 basis points, from 2.19% in 2003
to 1.96% in 2004. The Companys net interest margin increased to 4.50% in the
first nine months of 2004 compared to 4.40% in the first nine months of 2003.
We anticipate interest rates to continue slowly trending up over the next
twelve months. If this occurs or if rates remain stable, net interest margin
should be fairly consistent as our mix of assets and liabilities should grow in
roughly the same proportions that exist currently on our balance sheet. Our
margin is derived from the rate difference between our average yields on our
current mix of assets in excess of our average cost of liabilities. 16




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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 nine
months ended September 30, 2004 and September 30, 2003. 2004
    
    
    
    
    
    
    
    
    
    2003Average
    
    Income/
    
    Yields/
    
    Average
    
    Income/
    
    Yields/(dollars in thousands)
    
    Balances
    
    Expense
    
    Rates
    
    Balances
    
    Expense
    
    RatesInterest-earning assets:Loans (1)(2)
    
    $
    574,003
    
    
    $
    27,212
    
    
    
    6.33
    %
    
    $
    469,225
    
    
    $
    23,254
    
    
    
    6.63
    %Investment securities (2)
    
    
    66,172
    
    
    
    2,180
    
    
    
    4.40
    %
    
    
    55,080
    
    
    
    2,094
    
    
    
    5.08
    %Marketable equity securities  90% tax
exempt (2)
    
    
    3,395
    
    
    
    272
    
    
    
    10.70
    %
    
    
    
    
    
    
    
    
    
    
    Interest-bearing deposits in other banks
    
    
    970
    
    
    
    9
    
    
    
    1.18
    %
    
    
    327
    
    
    
    2
    
    
    
    0.71
    %Federal Home Loan Bank stock
    
    
    1,445
    
    
    
    40
    
    
    
    3.70
    %
    
    
    1,476
    
    
    
    40
    
    
    
    3.62
    %Federal funds sold
    
    
    13,635
    
    
    
    102
    
    
    
    1.00
    %
    
    
    26,132
    
    
    
    227
    
    
    
    1.16
    %Total interest-earning assets
    
    
    659,620
    
    
    
    29,815
    
    
    
    6.04
    %
    
    
    552,240
    
    
    
    25,617
    
    
    
    6.20
    %Non-interest-earning assets:Cash and due from banks
    
    
    18,803
    
    
    
    
    
    
    
    
    
    
    
    15,463Investment in ERAS
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    69Premises and equipment, net
    
    
    21,209
    
    
    
    
    
    
    
    
    
    
    
    19,247Allowances for loan losses
    
    
    (5,564
    )
    
    
    
    
    
    
    
    
    
    
    (4,561
    )Other assets
    
    
    28,622
    
    
    
    
    
    
    
    
    
    
    
    28,786Total non-interest-earning assets
    
    
    63,070
    
    
    
    
    
    
    
    
    
    
    
    59,004Total assets
    
    $
    722,690
    
    
    
    
    
    
    
    
    
    
    $
    611,244Interest-bearing liabilities:Interest-bearing deposits:NOW accounts
    
    $
    75,193
    
    
    
    214
    
    
    
    0.38
    %
    
    $
    57,636
    
    
    
    170
    
    
    
    0.39
    %Money market
    
    
    128,056
    
    
    
    793
    
    
    
    0.83
    %
    
    
    127,772
    
    
    
    891
    
    
    
    0.93
    %Savings deposits
    
    
    43,738
    
    
    
    127
    
    
    
    0.39
    %
    
    
    34,677
    
    
    
    133
    
    
    
    0.51
    %Time deposits
    
    
    221,498
    
    
    
    4,969
    
    
    
    3.00
    %
    
    
    196,239
    
    
    
    4,862
    
    
    
    3.31
    %Total interest-bearing deposits
    
    
    468,485
    
    
    
    6,103
    
    
    
    1.74
    %
    
    
    416,324
    
    
    
    6,056
    
    
    
    1.94
    %Other interest-bearing liabilities:Short-term borrowings and FHLB advances
    
    
    31,258
    
    
    
    299
    
    
    
    1.28
    %
    
    
    18,319
    
    
    
    176
    
    
    
    1.28
    %Long-term borrowings
    
    
    18,250
    
    
    
    1,193
    
    
    
    8.73
    %
    
    
    18,250
    
    
    
    1,193
    
    
    
    8.74
    %Total interest-bearing liabilities
    
    
    517,993
    
    
    
    7,595
    
    
    
    1.96
    %
    
    
    452,893
    
    
    
    7,425
    
    
    
    2.19
    %Non-interest-bearing liabilities and
shareholders equity:Demand deposits
    
    
    139,733
    
    
    
    
    
    
    
    
    
    
    
    114,214Other liabilities
    
    
    8,586
    
    
    
    
    
    
    
    
    
    
    
    7,420Shareholders equity
    
    
    56,378
    
    
    
    
    
    
    
    
    
    
    
    36,717Total non-interest-bearing liabilities and
shareholders equity
    
    
    204,697
    
    
    
    
    
    
    
    
    
    
    
    158,351Total liabilities and shareholders equity
    
    $
    722,690
    
    
    
    
    
    
    
    
    
    
    $
    611,244Interest rate spread (tax equivalent basis)
    
    
    
    
    
    
    
    
    
    
    4.08
    %
    
    
    
    
    
    
    
    
    
    
    4.01
    %Net interest income (tax equivalent basis)
    
    
    
    
    
    $
    22,220
    
    
    
    
    
    
    
    
    
    
    $
    18,192Net interest margin (3) (tax equivalent basis)
    
    
    
    
    
    
    
    
    
    
    4.50
    %
    
    
    
    
    
    
    
    
    
    
    4.40
    %
  (1)
    
    Average loans include non-performing loans.(2)
    
    Interest income and rates include the effects of a tax equivalent
adjustment using a Federal tax rate of 34% in adjusting tax exempt
interest on tax exempt investment securities and loans to a fully taxable
basis.(3)
    
    Net interest margin is net interest income divided by average total
interest-earning assets. 17




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##### Table of Contents



The table below details the components of the changes in net interest income
for the nine months ended September 30, 2004 and September 30, 2003. For each
major category of interest-earning assets and interest-bearing liabilities,
information is provided with respect to changes due to average volumes and
changes due to rates, with the changes in both volumes and rates allocated to
these two categories based on the proportionate absolute changes in each
category. 2004 compared to 2003 (1)Due to changes inNetAverage
    
    Average
    
    Increase(dollars in thousands)
    
    Volume
    
    Rate
    
    (Decrease)Interest incomeLoans (2)
    
    $
    5,004
    
    
    $
    (1,046
    )
    
    $
    3,958Investment securities (2)
    
    
    387
    
    
    
    (301
    )
    
    
    86Marketable equity securities (2)
    
    
    272
    
    
    
    
    
    
    
    272Interest-bearing deposits in other banks
    
    
    5
    
    
    
    2
    
    
    
    7Federal Home Loan Bank Stock
    
    
    (1
    )
    
    
    1
    
    
    
    Federal funds sold
    
    
    (97
    )
    
    
    (28
    )
    
    
    (125
    )Total interest income
    
    
    5,570
    
    
    
    (1,372
    )
    
    
    4,198Interest expenseNOW accounts
    
    
    50
    
    
    
    (6
    )
    
    
    44Money market
    
    
    2
    
    
    
    (100
    )
    
    
    (98
    )Savings deposits
    
    
    31
    
    
    
    (37
    )
    
    
    (6
    )Time deposits
    
    
    592
    
    
    
    (485
    )
    
    
    107Short-term borrowings and FHLB advances
    
    
    123
    
    
    
    
    
    
    
    123Long-term borrowings
    
    
    
    
    
    
    
    
    
    
    Total interest expense
    
    
    798
    
    
    
    (628
    )
    
    
    170Change in net interest income
    
    $
    4,772
    
    
    $
    (744
    )
    
    $
    4,028
  (1)
    
    The change in interest due to both rate and volume has been allocated to
the volume and rate components in proportion to the relationship of the
dollar amounts of the absolute change in each.(2)
    
    Interest income includes the effects of a tax equivalent adjustment using
a federal tax rate of 34% in adjusting tax exempt interest on tax exempt
investment securities and loans to a fully taxable basis. PROVISION FOR LOAN LOSSES The provision for loan losses represents the charge to income necessary to
adjust the allowance for loan losses to an amount that represents managements
assessment of the estimated probable credit losses inherent in our loan
portfolio which have been incurred at each balance sheet date. The provision for loan losses increased $454,000 or 43.9% to $1,489,000 in the
first nine months of 2004 compared to $1,035,000 in the comparable prior year
period. The higher provision for loan losses in 2004 was primarily
attributable to the growth and change in composition of the loan portfolio.
Total loans outstanding grew $79.7 million, or 14.8%, during the first nine
months of 2004, as compared to $68.7 million, or 15.6%, during the first nine
months of 2003. The largest dollar increase during the first nine months of
2004 occurred in commercial real estate loans which increased $41.0 million, or
13.8%. This compares to a $26.2 million, or 9.9%, increase in commercial real
estate loans during the first nine months of 2003. We have also continued to
expand our indirect lending portfolio. At September 30, 2004, indirect auto
dealer loans accounted for $83.7 million, or 13.5%, of our loan portfolio.
This compares to an indirect lending portfolio of $50.9 million at September
30, 2003 which represented only 10.0% of our total loan portfolio. These
increases in volume and concentration of commercial real estate and indirect
auto dealer loans relative to the composition of the loan portfolio translate
to a greater than average increase in the provision for loan losses as our risk
management policies dictate generally higher allocations of such provisions for
these categories of loans. Total loans outstanding were $618.3 million at September 30, 2004, compared to
$510.5 million at September 30, 2003. Net charge-offs were $616,000 during the
nine months ended September 30, 2004 compared to $453,000 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. 18




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##### Table of Contents



NON-INTEREST INCOME Non-interest income for the first nine months of 2004 was $9,247,000. This
represents an $184,000 or 2.0% increase over the prior year period which
totaled $9,063,000. The increase in non-interest income is primarily
attributable to an increase of $703,000 in merchant bankcard processing income,
partially offset by a decrease of $394,000 in fees on mortgage loans sold, and
a $202,000 decrease related to the gain on sale of investment in ERAS JV
recognized in the prior year period. The increase in merchant bankcard processing income is primarily a result of
volume increases. Fees on mortgage loans sold result from the immediate sale
of various residential mortgages (primarily fixed rate loans) in the secondary
market. The lower fees earned in the first nine months of 2004 compared to the
prior year period are attributable to reduced refinancing activity, lower new
sales activity, and thinner margins. On May 29, 2003, we sold our remaining
interest in ERAS Joint Venture and recognized a pretax gain of $202,000 on this
transaction. NON-INTEREST EXPENSE Non-interest expense for the first nine months of 2004 was $23,871,000. This
represents a $3,179,000, or 15.4%, increase over the prior year period which
totaled $20,692,000. The increase in non-interest expense is attributable to
salaries and employee benefits increasing $1,243,000, net occupancy expense
increasing $328,000, and other expense increasing $1,608,000. The increases
are primarily the result of costs associated with the growth of our business
and continued expansion into the Southwest Florida market. At September 30, 2004, the Bank had 303 full-time employees, compared to 253 at
September 30, 2003. The increase in staff was required to manage the growth of
the organization. In the category of other expense, interchange and other bankcard expense
increased approximately $648,000 over the prior year amount. These expenses
are primarily tied to volume, and are consistent with the increase in merchant
bankcard processing income we experienced. We did, however, experience an
increase in the rates charged by our card associations in April 2004 that also
contributed to this increase. Also, in the first nine months of 2004, we
incurred $196,000 in employee relocation costs. These costs were incurred to
relocate various employees, including the Companys Chief Executive Officer, in
connection with the relocation of our corporate headquarters from the Florida
Keys to the Southwest Florida area. Another factor contributing to the
increase in other expense was the increase in professional fees of
approximately $184,000 over the prior year period due primarily to increased
internal control documentation and testing costs related to the implementation
of the Sarbanes Oxley Act of 2002. INCOME TAXES The change in income tax expense is primarily attributable to the growth in
income before income taxes. The provision for income taxes related to
continuing operations totaled $1,990,000, for an effective tax rate of 34.0%,
for the nine months ended September 30, 2004, and $1,890,000, for an effective
tax rate of 35.0%, for the nine months ended September 30, 2003. BALANCE SHEET Total assets at September 30, 2004 were $765,686,000, up 14.4% from total
assets of $669,298,000 at December 31, 2003. Asset growth was primarily funded
by an increase in deposits of $84,486,000, or 15.3%. Loans net of deferred
loan costs increased $79.9 million, or 14.8%, to $620.3 million for the first
nine months of 2004 from year end 2003. The largest dollar increase came in
the commercial real estate loan category which increased $41.0 million, or
13.8%. We have also continued to expand our indirect dealer auto loan program.
At September 30, 2004, indirect auto loans accounted for $83.7 million, or
13.5%, of our loan portfolio as compared to $59.4 million, or 11.0%, at
December 31, 2003. Also, in the same period, investment securities increased
$26.1 million as a result of purchases of securities from funds generated from
the stock offering in the second quarter of 2004. During the first nine months of 2004, we reduced our advances from the Federal
Home Loan Bank by $20.0 million. Total advances outstanding were $25.0 million
at September 30, 2004 as compared to $45.0 million at December 31, 2003. Shareholders equity totaled $67.5 million at September 30, 2004, increasing
$26.3 million from December 31, 2003. Book value per share increased to $11.90
at September 30, 2004 from $9.31 at December 31, 2003. The Company declared a
quarterly dividend of $0.1125 per share in each of the first three quarters of
2004 and $0.11 per share in each of the first three quarters of 2003. On April 15, 2004, we closed the sale of 1,000,000 shares of our common stock
at a price of $22.00 per share before commissions and expenses. The shares
were sold on a firm commitment basis through Advest, Inc. Advest, Inc. also
purchased an additional 150,000 shares from the Company on May 6, 2004, at
$22.00 per share before commissions and expenses. The net proceeds of the
offering, totaling $23.2 million, provided capital to support continued loan
and deposit growth throughout our South Florida markets. 19




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##### Table of Contents



NON-PERFORMING ASSETS Non-performing assets include nonaccrual loans, accruing loans contractually
past due 90 days or more, repossessed personal property, and other real estate.
Loans are placed on nonaccrual status when management has concerns relating to
the ability to collect the loan principal and interest and generally when such
loans are 90 days or more past due. A loan is considered impaired when it is
probable that not all principal and interest amounts will be collected
according to the loan contract. Non-performing assets were as follows: (dollars in thousands)
    
    September 30, 2004
    
    December 31, 2003Total nonaccrual loans
    
    $
    1,174
    
    
    $
    390Accruing loans delinquent 90 days or more (a)
    
    
    
    
    
    
    Total non-performing loans
    
    $
    1,174
    
    
    $
    390Repossessed personal property (indirect auto dealer loans)
    
    
    720
    
    
    
    598Other real estate owned (b)
    
    
    190
    
    
    
    193Other assets (b)
    
    
    2,528
    
    
    
    2,472Total non-performing assets
    
    $
    4,612
    
    
    $
    3,653Allowance for loan losses
    
    $
    6,089
    
    
    $
    5,216Non-performing assets as a percent of total assets
    
    
    0.60
    %
    
    
    0.55
    %Non-performing loans as a percent of gross loans
    
    
    0.19
    %
    
    
    0.07
    %Allowance for loan losses as a percent of non-performing loans
    
    
    518.65
    %
    
    
    1,336.33
    %
 (a) Excludes the $1.6 million loan discussed below that is guaranteed for
both principal and interest by the U.S. Department of Agriculture (USDA). (b) The Bank made a $10,000,000 loan to construct a lumber mill in
northern Florida. Of this amount, $6,400,000 had been sold by the Bank to
other lenders. The loan was partially guaranteed as to principal and
interest by the USDA. In addition to business real estate and equipment,
the loan was collateralized by the business owners interest in a trust.
Under provisions of the trust agreement, beneficiaries cannot receive
trust assets until November 2010. During 2001, upon completion of foreclosure on the underlying collateral,
the non-guaranteed portion of this loan and interest accrued through the
foreclosure date was reclassified into other real estate ($550,000) and
other assets (approximately $1,886,000) based on the fair value of the
underlying-collateral. The portion of this loan guaranteed by the USDA
was approximately $1.6 million at September 30, 2004 and December 31,
2003, and is accruing interest. Accrued interest on this loan totals
approximately $654,000 and $590,000 at September 30, 2004 and December 31,
2003, respectively. The Bank is pursuing a sale of the property and equipment and has incurred
various expenditures. The Bank capitalized the liquidation costs and a
portion of the protective advances which it expects will be fully
reimbursed by the USDA. Other real estate recorded on the Banks books
totaled $190,000 and $193,000 at September 30, 2004 and December 31, 2003,
respectively. The non-guaranteed principal and interest ($1,961,000 at
September 30, 2004 and December 31, 2003) and the reimbursable capitalized
liquidation costs and protective advance costs totaling approximately
$567,000 and $511,000 at September 30, 2004 and December 31, 2003,
respectively, are included as other assets in the financial statements. The Bank sold certain pieces of equipment associated with the lumber mill
property. Proceeds from the sales were used to reduce the other real
estate amount and liquidation cost amounts recorded on the Banks books.
In 2003, the Bank wrote down the carrying amount of the other real estate
by $262,000 based upon anticipated proceeds from the sale of the property
and remaining equipment. Florida law requires a bank to liquidate or charge off repossessed real
property within five years, and repossessed personal property within six
months. The Bank was awarded title to the real property on June 12, 2001,
and an adjudicated interest in the owners trust proceeds. The time
constraints imposed by Florida law required that the personal property be
disposed of or charged off by December 2001. The Bank applied to the
State of Florida for an extension to carry the personal property on the
Banks books and was granted an extension to carry the personal property
on its books until June 11, 2003. Since the property had not been
liquidated as of such date, the Bank 20




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##### Table of Contents



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 $6,089,000 and $5,216,000 at
September 30, 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 September 30, 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 subject to the pledging of sufficient collateral. At
September 30, 2004, there were $25.0 million in advances outstanding in
addition to a $15 million letter of credit used in lieu of pledging securities
to the State of Florida. In July 2004, new agreements were executed with the
FHLB and a blanket floating lien pledge of the Banks residential 1-4 family
mortgage and commercial real estate secured loans was done to bring the
collateral availability up to approximately $158.0 million. The Bank has an unsecured overnight federal funds purchased accommodation up to
a maximum of $12.0 million from its principal correspondent bank. In the second quarter of 2004, we completed the sale of 1,150,000 shares of our
common stock at a price of $22.00 per share before commissions and expenses.
The net proceeds provided additional liquidity along with additional capital to
the Company. The net proceeds of the offering will be used to provide capital
to support continued loan and deposit growth throughout our South Florida
markets. ASSET AND LIABILITY MANAGEMENT Closely related to liquidity management is the management of interest-earning
assets and interest-bearing liabilities. The Company manages its rate
sensitivity position to avoid wide swings in net interest margins and to
minimize risk due to changes in interest rates. 21




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##### Table of Contents



Our interest rate sensitivity position at September 30, 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
    
    $
    245,829
    
    
    $
    42,286
    
    
    $
    36,794
    
    
    $
    226,579
    
    
    $
    66,806
    
    
    $
    618,294Investment securities-taxable
    
    
    1,311
    
    
    
    
    
    
    
    
    
    
    
    38,265
    
    
    
    25,419
    
    
    
    64,995Investment securities-tax exempt
    
    
    232
    
    
    
    
    
    
    
    
    
    
    
    2,875
    
    
    
    7,062
    
    
    
    10,169Marketable equity securities
    
    
    3,533
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,533Federal Home Loan Bank stock
    
    
    1,250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,250Interest bearing deposit in other
bank
    
    
    519
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    519Total interest-bearing assets
    
    
    252,674
    
    
    
    42,286
    
    
    
    36,794
    
    
    
    267,719
    
    
    
    99,287
    
    
    
    698,760Interest-bearing liabilities:NOW accounts
    
    
    83,835
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    83,835Money Market
    
    
    127,376
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    127,376Savings Deposits
    
    
    47,247
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,247Time deposits
    
    
    29,160
    
    
    
    38,999
    
    
    
    48,875
    
    
    
    128,915
    
    
    
    5
    
    
    
    245,954Notes payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,250
    
    
    
    5,250Subordinated debentures
    
    
    5,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,000
    
    
    
    13,000Other borrowings
    
    
    34,353
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,353Total interest-bearing liabilities
    
    
    326,971
    
    
    
    38,999
    
    
    
    48,875
    
    
    
    128,915
    
    
    
    13,255
    
    
    
    557,015Interest sensitivity gap
    
    $
    (74,297
    )
    
    $
    3,287
    
    
    $
    (12,081
    )
    
    $
    138,804
    
    
    $
    86,032
    
    
    $
    141,745Cumulative interest sensitivity gap
    
    $
    (74,297
    )
    
    $
    (71,010
    )
    
    $
    (83,091
    )
    
    $
    55,713
    
    
    $
    141,745
    
    
    $
    141,745Cumulative sensitivity ratio
    
    
    (10.6
    )%
    
    
    (10.2
    )%
    
    
    (11.9
    )%
    
    
    8.0
    %
    
    
    20.3
    %
    
    
    20.3
    %
 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. Even in the near term, we believe the $83 million one year cumulative negative
sensitivity gap may exaggerate the probable effects on earnings in a changing
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 September 30,
2004, we were within this range with a one year cumulative sensitivity ratio of
-11.9%. See also Item 3, Quantitative and Qualitative Disclosures About Market Risk. COMMITMENTS The Bank is a party to financial instruments with off-balance sheet risk,
entered into in the normal course of business to meet the financing needs of
its customers. These financial instruments include commitments to extend
credit and standby letters of 22




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##### Table of Contents



credit. These instruments involve, to varying degrees, elements of credit risk
in excess of the amount recognized in the consolidated balance sheets. The Banks exposure to credit loss in the event of nonperformance by the other
party to financial instruments for commitments to extend credit and standby
letters of credit is represented by the contractual notional amount of these
instruments. The Bank uses the same credit policies in making commitments to
extend credit and generally uses the same credit policies for letters of credit
as it does for on-balance sheet instruments. Commitments to extend credit are legally binding agreements to lend to a
customer as long as there is no violation of any condition established in the
contract. Since some of these commitments are expected to expire without being
drawn upon, the total commitment amount does not necessarily represent future
cash requirements. Commitments generally have fixed expiration dates or other
termination clauses and may require the payment of a fee. At September 30,
2004, total unfunded loan commitments were approximately $87.7 million. Standby letters of credit are conditional commitments issued by the Bank to
assure the performance or financial obligations of a customer to a third party.
The credit risk involved in issuing standby letters of credit is essentially
the same as that involved in extending loans to customers. The Bank generally
holds collateral and/or obtains personal guarantees supporting these
commitments. Since most of the letters of credit are expected to expire
without being drawn upon, they do not necessarily represent future cash
requirements. At September 30, 2004, commitments under standby letters of
credit aggregated approximately $2.4 million. The Company believes the likelihood of the unfunded loan commitments and
unfunded letters of credit either needing to be totally funded or funded at the
same time is low. However, should significant funding requirements occur, we
have sufficient available borrowing capacity from various sources as discussed
in the Liquidity section above. 
 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 September
30, 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 along with scheduled
and unscheduled principal reductions offset by anticipated loan orginations. This analysis intentionally exaggerates interest sensitivity. For the sake of
simplicity and comparability, an immediate change in rates is assumed.
However, any significant change in actual market rates would probably be phased
in over an extended period of time. This phase in would reduce the net
interest income effects for any absolute change in rates. Also, the Company
has been originating adjustable rate commercial loans with interest rate floors
that are currently at rates higher than the index and margin on the loans would
indicate. An example would be a loan at Prime plus 1% but with a 7.0% floor.
The Company currently has in excess of $214 million of these types of loans
where the loan rates are at the floors. The effects of this are twofold.
First, this has benefited our margins 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 approximately 150 basis points from their
current level the effect on net interest income turns around and begins to
expand positively due to an increasing percentage 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. 23




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##### Table of Contents



Projections for the next twelve months are as follows: Interest Rates Decrease
    
    Interest Rates
    
    Interest Rates Increase(dollars in thousands)
    
    200 BP
    
    100 BP
    
    Remain Constant
    
    100 BP
    
    200BPInterest Income
    
    $
    40,739
    
    
    $
    43,284
    
    
    $
    45,882
    
    
    $
    48,254
    
    
    $
    51,077Interest Expense
    
    
    8,604
    
    
    
    10,423
    
    
    
    13,023
    
    
    
    15,993
    
    
    
    18,962Net Interest Income
    
    $
    32,135
    
    
    $
    32,861
    
    
    $
    32,859
    
    
    $
    32,261
    
    
    $
    32,115Change in net income
after tax vs.
constant rates
    
    $
    (452
    )
    
    $
    1
    
    
    
    
    
    
    $
    (373
    )
    
    $
    (464
    )
 24




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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. 25




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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 26




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##### Table of Contents



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 Exhibit 31.2  Chief Financial Officers certification required under Section 302 of Sarbanes-Oxley Act of 2002 Exhibit 32.1  Chief Executive Officers certification required under Section 906 of Sarbanes-Oxley Act of 2002 Exhibit 32.2  Chief Financial Officers certification required under Section 906 of Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K On August 3, 2004, the Company issued a press release announcing
certain financial results and additional information related to its
second quarter 2004 earnings. On November 4, 2004, the Company issued a press release announcing
certain financial results and additional information related to its
third quarter 2004 earnings. 27




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##### Table of Contents



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. TIB FINANCIAL CORP.Date: November 10, 2004
    /s/  Edward V. LettEdward V. LettPresident and Chief Executive Officer /s/  David P. JohnsonDavid P. JohnsonExecutive Vice President and Chief Financial Officer 28