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U.S. SECURITIES AND EXCHANGE COMMISSION  FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 For the fiscal year
    
    Commission file numberended December 31, 2003
    
    000-21329
 TIB FINANCIAL CORP.  Florida
    
    
    65-0655973(State of Incorporation)
    
    (I.R.S. EmployerIdentification No.)599 9th Street NorthNaples, Florida
    
    
    34102(Address of Principal Executive Offices)
    
    (Zip Code)
 (239) 263-3344
(Registrants telephone number) Securities Registered pursuant to Section 12(b) of the Act: None
Securities Registered pursuant to Section 12(g) of the Act: Common stock, par value $0.10 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 [  ] Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K contained in this form, and will not be contained, to the best
of issuers knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [  ] Indicate by check mark whether the issuer is an accelerated filer (as defined
in Rule 12b-2 of the Act). Yes [  ] or No [X] The aggregate market value of the voting stock held by non-affiliates of the
registrant at March 19, 2004 was $82,045,601 based on $22.97 per share as of March
19, 2004. The number of shares outstanding of issuers class of common stock at March 19,
2004 was 4,489,064 shares of common stock. Documents Incorporated By Reference: Portions of the Proxy Statement for the
2004 Annual Meeting of Shareholders to be filed with the Securities and
Exchange Commission within 120 days of the Registrants 2003 fiscal year end
are incorporated by reference into Part III of this report.




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TABLE OF CONTENTS PagePART IITEM 1.
    
    BUSINESS
    
    
    1ITEM 2.
    
    PROPERTIES
    
    
    11ITEM 3.
    
    LEGAL PROCEEDINGS
    
    
    12ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    12PART IIITEM 5.
    
    MARKET FOR
REGISTRANTS COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    12ITEM 6.
    
    SELECTED FINANCIAL DATA
    
    
    13ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    15ITEM 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    36ITEM 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    38ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    76ITEM 9A.
    
    CONTROLS AND PROCEDURES
    
    
    76PART IIIITEM 10.
    
    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
    
    
    77ITEM 11.
    
    EXECUTIVE COMPENSATION
    
    
    77ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
    
    
    77ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    
    77ITEM 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    78




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PagePART IVITEM 15.
    
    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
    
    
    78SIGNATURES
    
    
    
    80Ex-10.1: Employment Contract Edward V. LettEx-10.4: Employment Contract Millard J. YounkersEx-10.5: Employment Contract David P. JohnsonEx-10.10: Form of Director Deferred Fee AgreementEx-10.11: Form of Executive Officer Split AgrmntEx-10.12: Form of Director Split Dollar AgreementEx-21.1: Subsidiaries of the CompanyEx-23.1: Consent of Crowe Chizek and Company, LLCEx-31.1: 302 Certification of CEOEx-31.2: 302 Certification of CFOEx-32.1: 906 Certification of CEOEx-32.2: 906 Certification of CFO




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CAUTIONARY NOTICE REGARDING 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 Annual Report on Form 10-K may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
and as such may involve known and unknown risk, uncertainties and other factors
which may cause the actual results, performance or achievements of TIB
Financial Corp. (the Company) to be materially different from future results
described in such forward-looking statements. Actual results may differ
materially from the results anticipated in these forward looking statements due
to a variety of factors, including, without limitation: the effects of future
economic conditions; governmental monetary and fiscal policies, as well as
legislative and regulatory changes; the risks of changes in interest rates on
the level and composition of deposits, loan demand, and the values of loan
collateral, and interest rate risks; the effects of competition from other
commercial banks, thrifts, consumer finance companies, and other financial
institutions operating in the Companys market area and elsewhere. All forward
looking statements attributable to the Company are expressly qualified in their
entirety by these cautionary statements. The Company disclaims any intent or
obligation to update these forward-looking statements, whether as a result of
new information, future events or otherwise. 
 PART I 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 and "TIB
Bank" means TIB Bank of the Keys and
its subsidiaries (unless the context indicates another meaning). 
 ITEM 1.      BUSINESS General We are a financial holding company whose business is conducted primarily
through our wholly-owned subsidiary, TIB Bank. TIB Bank, which was formed in
1974, serves the Southern Florida market, principally Monroe, Collier, Lee, and
South Miami-Dade Counties, Florida. TIB Bank is headquartered in Key Largo,
Florida. We operate 14 banking offices and 17 ATMs throughout this area. At
December 31, 2003, we had approximately $669.3 million in total assets, $553.8
million in total deposits, $538.6 million in total loans and shareholders
equity of $41.2 million. TIB Banks deposits are insured by the Federal Deposit
Insurance Corporation, up to applicable limits. Through our subsidiaries, we offer a wide range of commercial and retail
banking and financial services to businesses and individuals. Our account
services include checking, interest-bearing checking, money market, savings,
certificates of deposit and individual retirement accounts. We offer all types
of commercial loans to include: owner-occupied commercial real estate;
acquisition, development and construction; income-producing properties;
short-term working capital; inventory and receivable facilities; and equipment
loans. We also offer a full complement of consumer loan products to include
residential real estate, installment loans, home equity, home equity lines, and
indirect auto dealer loans. Our lending focus is predominantly on small to
medium-sized business and consumer borrowers. Most importantly, we provide our
customers with access to local TIB Bank officers who are empowered to act with
flexibility to meet customers needs in an effort to foster and develop
long-term loan and deposit relationships. TIB Bank also engages in the origination and sale of the government
guaranteed portion of loans, such as those offered by the Small Business
Administration and the U.S. Department of Agricultures Rural Development
Business and Industry Program. TIB Bank also engages through a wholly owned
subsidiary, TIB Investment Center, Inc., in the retail sale of non-deposit
investment products, such as variable and fixed rate annuities, mutual funds,
equities, and other products. We are subject to examination and regulation by the Board of Governors of
the Federal Reserve System, the Florida Office of Financial Regulation, and the
Federal Deposit Insurance Corporation (FDIC). This regulation is intended for
the protection of our depositors, not our shareholders. 1




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In October 2000, we purchased Keys Insurance Agency of Monroe County, Inc.
Keys Insurance Agency, Inc. (the new name subsequent to the purchase) had three
offices in the Florida Keys and one office in Naples and brokered a full line
of commercial and residential hazard insurance coverage as well as life and
health insurance and annuities. In August 2003, we sold the assets of Keys
Insurance Agency, Inc., and exited this line of business. In 2004, we also
eliminated TIB Government Loan Specialists, Inc. as a subsidiary, but continue
to conduct its government-guaranteed loan program through TIB Bank. Business Strategy Our business strategy is to operate as a profitable, diversified financial
services company providing a variety of banking and other financial services,
with an emphasis on consumer and residential mortgage lending and commercial
business loans to small and medium sized businesses. As a result of the
consolidation of small and medium sized financial institutions, we believe
there is a significant opportunity for a community-focused bank to provide a
full range of financial services to small and middle-market commercial and
retail customers. We emphasize comprehensive retail and small business products
and responsive, decentralized decision-making which reflects our knowledge of
our local markets and customers. To continue asset growth and
profitability, our marketing strategy is targeted to:  
    
    Provide customers with access to our local executives who
make key credit and account decisions;
    
    Pursue commercial lending opportunities with small to
mid-sized businesses which we believe are underserved by our larger
competitors;
    
    Continue originating indirect auto dealer loans to enhance
margins, effectively utilizing our funding sources;
    
    Cross-sell our products and services to our existing
customers to leverage our relationships and enhance profitability;
and
    
    Adhere to safe and sound credit standards to maintain the
continued quality of assets as we implement our growth strategy. Banking services Commercial Banking.TIB Bank focuses its commercial loan originations on
small and midsized business (generally up to $5 million in annual sales) and
such loans are usually accompanied by significant related deposits. Commercial
underwriting is driven by cash flow analysis supported by collateral analysis
and review. Commercial loan products include commercial real estate
construction and term loans; working capital loans and lines of credit; demand,
term and time loans; and equipment, inventory and accounts receivable
financing. TIB Bank offers a range of cash management services and deposit
products to its commercial customers. Computerized banking is currently
available to TIB Banks commercial customers. Retail Banking.TIB Banks retail banking activities emphasize consumer
deposit and checking accounts. An extensive range of these services is offered
by TIB Bank to meet the varied needs of its customers from young persons to
senior citizens. In addition to traditional products and services, TIB Bank
offers contemporary products and services, such as debit cards, mutual funds
and annuities, Internet banking and electronic bill payment services. Consumer
loan products offered by TIB Bank include home equity lines of credit, second
mortgages, new and used auto loans, including indirect loans through auto
dealers, new and used boat loans, overdraft protection, and unsecured personal
credit lines. Mortgage Banking.TIB Banks mortgage banking business is structured to
provide a source of fee income largely from the process of originating product
for sale on the secondary market (primarily fixed rate loans), as well as the
origination of primarily adjustable rate loans to be held in TIB Banks loan
portfolio. Mortgage banking capabilities include conventional and nonconforming
mortgage underwriting; and construction and permanent financing. 2




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Lending activities Loan Portfolio Composition.At December 31, 2003, TIB Banks loan
portfolio totaled $538.6 million, representing approximately 80% of our total
assets of $669.3 million. For a discussion of our loan portfolio, see
Managements Discussion of Financial Condition and Results
of Operation - Loan
Portfolio. The composition of TIB Banks loan portfolio at December 31, 2003 and 2002
is indicated below, along with the growth from the prior year. % of
    
    
    
    
    
    % of
    
    % increaseTotal loans
    
    Loans to
    
    Total loans
    
    Loans
    
    (decrease) fromDecember 31,
    
    Total
    
    December 31,
    
    to Total
    
    December 31,(dollars in thousands)
    
    2003
    
    Loans
    
    2002
    
    Loans
    
    2002 to 2003Real estate mortgage loans:Commercial
    
    $
    297,221
    
    
    
    55.2
    
    
    $
    265,113
    
    
    
    60.0
    
    
    
    12.1Residential
    
    
    60,104
    
    
    
    11.2
    
    
    
    68,389
    
    
    
    15.5
    
    
    
    (12.1
    )Farmland
    
    
    2,317
    
    
    
    0.4
    
    
    
    443
    
    
    
    0.1
    
    
    
    423.0Construction
    
    
    32,089
    
    
    
    6.0
    
    
    
    14,893
    
    
    
    3.4
    
    
    
    115.5Commercial and
agricultural loans
    
    
    63,624
    
    
    
    11.8
    
    
    
    49,212
    
    
    
    11.1
    
    
    
    29.3Indirect auto dealer loans
    
    
    59,437
    
    
    
    11.0
    
    
    
    16,855
    
    
    
    3.8
    
    
    
    252.6Other consumer loans
    
    
    11,232
    
    
    
    2.1
    
    
    
    9,364
    
    
    
    2.1
    
    
    
    19.9Home equity loans
    
    
    12,574
    
    
    
    2.3
    
    
    
    17,475
    
    
    
    4.0
    
    
    
    (28.0
    )TOTAL
    
    $
    538,598
    
    
    
    100
    
    
    $
    441,744
    
    
    
    100
    
    
    
    21.9
    %
 Our non-performing loans as a percentage of gross loans decreased from 0.
12% at December 31, 2002 to 0.07% at December 31, 2003. Commercial Real Estate Mortgage Loans.At December 31, 2003, TIB Banks
commercial real estate loan portfolio totaled $297.2 million. The Bank also has
$2.3 million in loans outstanding that are secured by farmland. TIB Bank
originates mortgage loans secured by commercial real estate. Such loans are
primarily secured by hotels, guesthouses, restaurants, retail buildings, and
general purpose business space. Although terms may vary, TIB Banks commercial
mortgages generally are long term in nature, owner-occupied, and variable-rate
loans. TIB Bank seeks to reduce the risks associated with commercial mortgage
lending by generally lending in its market area and obtaining periodic
financial statements and tax returns from borrowers. It is also TIB Banks
general policy to obtain personal guarantees from the principals of the
borrowers and assignments of all leases related to the collateral. In
conjunction with above, TIB Bank also engages in the origination and sale of
the government guaranteed portions of loans such as those offered by the Small
Business Administration and the U.S. Department of Agriculture Rural
Development Business and Industry Program. TIB Bank is designated as a
preferred lender by the SBA. Commercial Loans.At December 31, 2003, TIB Banks commercial loan
portfolio totaled $63.6 million. TIB Bank originates secured and unsecured
loans for business purposes. Loans are made for acquisition, expansion, and
working capital purposes and may be secured by real estate, accounts
receivable, inventory, equipment or other assets. The financial condition and
cash flow of commercial borrowers are closely monitored by the submission of
corporate financial statements, personal financial statements and income tax
returns. The frequency of submissions of required financial information depends
on the size and complexity of the credit and the collateral that secures the
loan. It is TIB Banks general policy to obtain personal guarantees from the
principals of the commercial loan borrowers. Construction Loans. At December 31, 2003, TIB Banks construction loan
portfolio totaled $32.1 million. TIB Bank provides interim real estate
acquisition development and construction loans to builders, developers, and
persons who will ultimately occupy the building. Real estate development and
construction loans to provide interim financing on 3




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the property are based on acceptable percentages of the appraised value of the
property securing the loan in each case. Real estate development and
construction loan funds are disbursed periodically at pre-specified stages of
completion. Interest rates on these loans are generally adjustable. TIB Bank
carefully monitors these loans with on-site inspections and control of
disbursements. Development and construction loans are secured by the properties under
development or construction and personal guarantees are typically obtained.
Further, to assure that reliance is not placed solely in the value of the
underlying property, TIB Bank considers the financial condition and reputation
of the borrower and any guarantors, the amount of the borrowers equity in the
project, independent appraisals, costs estimates and pre-construction sale
information. Loans to individuals for the construction of their primary or secondary
residences are secured by the property under construction. The loan to value
ratio of construction loans is based on the lesser of the cost to construct or
the appraised value of the completed home. Construction loans have a maturity
of 12 months. These construction loans to individuals may be converted to
permanent loans upon completion of construction. Residential Real Estate Mortgage Loans.At December 31, 2003, TIB Banks
residential loan portfolio totaled $60.1 million. TIB Bank originates
adjustable and fixed-rate residential mortgage loans. Such mortgage loans are
generally originated under terms, conditions and documentation acceptable to
the secondary mortgage market. TIB Bank will place some of these, primarily
adjustable rate, loans into its portfolio, although the substantial majority
are sold to investors. Indirect Auto Dealer Loans.At December 31, 2003, TIB Banks indirect auto
dealer loans portfolio totaled $59.4 million. The Bank buys loans that
have been originated by automobile dealerships, This is commonly referred to as
indirect lending, We predominately buy loans from auto dealers in southwest
Florida and they 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. The balance of outstanding indirect loans grew quickly in 2003 since it
was still a relatively new product for us and, therefore, the payoffs and
paydowns were not significant. This allowed the majority of the new production
to remain as outstanding balances. Since the expected life of these loans is
approximately two years, the level of outstanding indirect loans is expected to
level off as this program matures. We therefore expect that indirect loans will
not exceed 25% of total loans outstanding. We anticipate being able to deliver strong results while maintaining
credit quality in our indirect lending operations due to a combination of
factors including:  
    
    Business with a limited number of dealers - The dealerships we do
business with are characterized by being very sound financially and
trade predominately in vehicles which retain market value reasonably
well over time. We continually monitor dealers for compliance with our
lending guidelines. We endeavor to be one of the main buyers of loans
from every dealer we do business with which allows us to have a
cooperative relationship with that dealer.
    
    Thorough underwriting of applicants - We evaluate credit scores and
other pertinent information such as the stability of the applicants
job, home ownership, and the nature of any credit issues which may
give us a better indication of creditworthiness than just the credit
score.
    
    Effective collections - We get to customers quickly and more often as
payment issues arise. We begin contacting the customer once their
payment is 10 days past due. After an account is 15 days past due, it
is referred to a collection company for resolution including field
contacts as necessary.
    
    Sale of repossessed automobiles at retail price - We sell most of the
repossessed automobiles we acquire on a retail less commission basis
instead of wholesale through auctions. We are able to do this because
we have an established relationship with a dealer who sells the
automobiles for us. This has 4




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helped reduce our loss per vehicle. Other Consumer Loans and Home Equity Loans. At December 31, 2003, TIB
Banks consumer loan portfolio totaled $11.2 million, and its home equity
portfolio totaled $12.6 million. TIB Bank offers a variety of consumer loans.
These loans are typically secured by residential real estate or personal
property, including automobiles and boats. Home equity loans (closed-end and
lines of credit) are typically made up to 85% of the appraised value of the
property securing the loan, in each case, less the amount of any existing liens
on the property. Closed-end loans have terms of up to 15 years. Lines of credit
have an original maturity of 10 years. The interest rates on closed-end home
equity loans are fixed, while interest rates on home equity lines of credit are
variable. Credit administration TIB Banks lending activities are subject to written policies approved by
the board of directors to ensure proper management of credit risk. Loans are
subject to a defined credit process that includes credit evaluation of
borrowers, risk-rating of credits, establishment of lending limits and
application of lending procedures, including the holding of adequate collateral
and the maintenance of compensating balances, as well as procedures for
on-going identification and management of credit deterioration. Regular
portfolio reviews are performed to identify potential underperforming credits,
estimate loss exposure, and to ascertain compliance with TIB Banks policies.
Management review consists of evaluation of the financial strengths of the
borrower and the guarantor, the related collateral and the effects of economic
conditions. TIB Bank generally does not make commercial or consumer loans outside its
market area unless the borrower has an established relationship with TIB Bank
and conducts its principal business operations within TIB Banks market area.
Consequently, TIB Bank and its borrowers are affected by the economic
conditions prevailing in its market area. Merchant Bankcard Processing The
Bank processes credit card transactions for merchants primarily in the Florida
Keys. As a vacation destination, merchants in the Florida Keys typically
generate a high volume of credit card transactions. The Bank competes for
merchant bankcard processing business primarily on the basis of customer
service. In the typical merchant bankcard transaction, the Bank pays the
merchant the amount of the charge less a negotiated fee which is reflected as
merchant bankcard processing income in our financial statements. In order to
obtain payment of the charge from the issuing bank or its processor, the Bank
must pay interchange fees, which are deducted from the payment and reflected as
a part of merchant bankcard processing expenses. As a merchant bankcard
processor, the Bank bears the risk of loss if a credit card customer disputes a
charge and the Bank cannot recover from the merchant. Investment and insurance activities TIB Bank engages through a wholly owned subsidiary, TIB Investment Center,
Inc., in the retail sale of nondeposit investment products such as variable and
fixed rate annuities, mutual funds and other products. TIB Bank has entered
into an agreement with Raymond James Financial Services, Inc., a thirdparty
provider which audits and provides support services to make sure we comply with
all NASD regulations as they pertain to Bank investment programs. Employees As of December 31, 2003, the Bank employed 261 full-time employees and 15
part-time employees. Except for certain officers of the Bank who presently
serve as officers of the Company, the Company does not have any employees. The
Company and its subsidiaries are not a party to any collective bargaining
agreement, and management believes the Company and its subsidiaries enjoy
satisfactory relations with its employees. Related Party Transactions At December 31, 2003, we had $538.6 million in total loans outstanding, of
which $2.0 million was 5




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outstanding to certain of our executive officers, directors, and security
holders who own more than 10% of our voting securities, and their related
business interests. In the ordinary course of business, TIB Bank makes loans to
our directors and their affiliates and to policy-making officers, all of which
are made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions and do
not involve more than the normal risk of collectibility. SUPERVISION AND REGULATION General We are extensively regulated under federal and state law. Generally, these
laws and regulations are intended to protect depositors, not shareholders. The
following is a summary description of certain provisions of certain laws that
affect the regulation of bank holding companies and banks. The discussion is
qualified in its entirety by reference to applicable laws and regulations.
Changes in such laws and regulations may have a material effect on our business
and prospects, as well as those of TIB Bank. Federal Bank Holding Company Regulation and Structure We are a bank holding company within the meaning of the Bank Holding
Company Act of 1956, as amended, and, as such, we are subject to regulation,
supervision, and examination by the Federal Reserve. We are required to file
annual and quarterly reports with the Federal Reserve and to provide the
Federal Reserve with such additional information as it may require. The Federal
Reserve may examine us and our subsidiaries. With certain limited exceptions, we are required to obtain prior approval
from the Federal Reserve before acquiring direct or indirect ownership or
control of more than 5% of any voting securities or substantially all of the
assets of a bank or bank holding company, or before merging or consolidating
with another bank holding company. In acting on applications for such approval,
the Federal Reserve must consider various statutory factors, including among
others, the effect of the proposed transaction on competition in the relevant
geographical and product markets, each partys financial condition and
management resources and record of performance under the CRA. Additionally,
with certain exceptions any person proposing to acquire control through direct
or indirect ownership of 25% or more of any of our voting securities is
required to give 60 days written notice of the acquisition to the Federal
Reserve, which may prohibit the transaction, and to publish notice to the
public. Generally, a bank holding company may not engage in any activities other
than banking, managing or controlling its bank and other authorized
subsidiaries, and providing services to these subsidiaries. With prior approval
of the Federal Reserve, we may acquire more than 5% of the assets or
outstanding shares of a company engaging in nonbank activities determined by
the Federal Reserve to be closely related to the business of banking or of
managing or controlling banks. Recent changes in law have significantly
increased the right of an eligible bank holding company, called a financial
holding company, to engage in a full range of financial activities, including
insurance and securities activities, as well as merchant banking and other
financial services. We are a financial holding company and thus have expanded
financial affiliation opportunities as long as TIB Bank remains a
well-capitalized bank under the standards discussed below, and also meets
certain other requirements. As of December 31, 2003, TIB Bank met these
requirements for our continued qualification as a financial holding company. Subsidiary banks of a bank holding company are subject to certain
quantitative and qualitative restrictions on extensions of credit to the bank
holding company or its subsidiaries, investments in their securities, and the
use of their securities as collateral for loans to any borrower. These
regulations and restrictions may limit our ability to obtain funds from TIB
Bank for our cash needs, including funds for the payment of dividends, interest
and operating expenses. Further, a bank holding company and its subsidiaries
are prohibited from engaging in certain tie-in arrangements in connection with
any extension of credit, lease or sale of property or furnishing of services.
For example, TIB Bank may not generally require a customer to obtain other
services from itself or us, and may not require that a customer promise not to
obtain other services from a competitor as a condition to and extension of
credit to the customer. The Federal 6




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Reserve has ended the anti-tying rules for bank holding companies and
their non-banking subsidiaries. Such rules were retained for banks. Under Federal Reserve policy, a bank holding company is expected to act as
a source of financial strength to its subsidiary banks and to make capital
injections into a troubled subsidiary bank, and the Federal Reserve may charge
the bank holding company with engaging in unsafe and unsound practices for
failure to commit resources to a subsidiary bank when required. A required
capital injection may be called for at a time when the holding company does not
have the resources to provide it. In addition, depository institutions insured
by the FDIC can be held liable for any losses incurred by, or reasonably
anticipated to be incurred by, the FDIC in connection with the default of, or
assistance provided to, a commonly controlled FDIC-insured depository
institution. Federal and State Bank Regulation TIB Bank is a Florida state-chartered bank, with all the powers of a
commercial bank regulated and examined by the Florida Office of Financial
Regulation and the FDIC. The FDIC has extensive enforcement authority over the
institutions it regulates to prohibit or correct activities that violate law,
regulation or written agreement with the FDIC. Enforcement powers also regulate
activities that are deemed to constitute unsafe or unsound practices.
Enforcement actions may include the appointment of a conservator or receiver,
the issuance of a cease and desist order, the termination of deposit insurance,
the imposition of civil money penalties on the institution, its directors,
officers, employees and institution-affiliated parties, the issuance of
directives to increase capital, the issuance of formal and informal agreements,
the removal of or restrictions on directors, officers, employees and
institution-affiliated parties, and the enforcement of any such mechanisms
through restraining orders or other court actions. In its lending activities, the maximum legal rate of interest, fees and
charges that a financial institution may charge on a particular loan depends on
a variety of factors such as the type of borrower, the purpose of the loan, the
amount of the loan and the date the loan is made. Other laws tie the maximum
amount that may be loaned to any one customer and its related interest to
capital levels. TIB Bank is also subject to certain restrictions on extensions
of credit to executive officers, directors, principal shareholders or any
related interest of such persons which generally require that such credit
extensions be made on substantially the same terms as are available to third
persons dealing with TIB Bank and not involve more than the normal risk of
repayment. TIB Bank is also subject to federal laws establishing certain
record keeping, customer identification and reporting requirements with respect
to certain large cash transactions, sales and travelers checks or other
monetary instruments, and international transportation of cash or monetary
instruments. Further, under the USA Patriot Act of 2001, financial
institutions, including TIB Bank, are required to implement additional policies
and procedures with respect to, or additional measures designed to address, any
or all of the following matters, among others: money laundering, suspicious
activities and currency transaction reporting, and currency crimes. The Community Reinvestment Act requires that, in connection with the
examination of financial institutions within their jurisdictions, the FDIC
evaluates the record of the financial institution in meeting the credit needs
in its communities including low and moderate income neighborhoods, consistent
with the safe and sound operation of those banks. These factors are also
considered by all regulatory agencies in evaluating mergers, acquisitions and
applications to open a branch or facility. As of the date of its most recent
examination report, TIB Bank has a Community Reinvestment Act rating of
Satisfactory. Under the Federal Deposit Insurance Corporation Improvement Act of 1991,
each federal banking agency is required to prescribe, by regulation, noncapital
safety and soundness standards for institutions under its authority. The
federal banking agencies, including the FDIC, have adopted standards covering
internal controls, information systems and internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth, and
compensation, fees and benefits. An institution that fails to meet those
standards may subject the institution to regulatory sanctions if required by
the agency to develop a plan acceptable to the agency, specifying the steps
that the institution will take to meet the standards. We, on behalf of TIB
Bank, believe that we meet substantially all standards that have been adopted.
This law also imposes capital standards on insured depository institutions.
See Capital Requirements below. 7




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##### Table of Contents



The Federal Deposit Insurance Corporation Improvement Act of 1991 also
provides for, among other things, (i) publicly available annual financial
condition and management reports for financial institutions, including audits
by independent accountants, (ii) the establishment of uniform accounting
standards by federal banking agencies, (iii) the establishment of a prompt
corrective action system of regulatory supervision and intervention, based on
capitalization levels with more scrutiny and restrictions placed on depository
institutions with lower levels of capital, (iv) additional grounds for the
appointment of a conservator or receiver, and (v) restrictions or prohibitions
on accepting brokered deposits, except for institutions which significantly
exceed minimum capital requirements. FDICIA also provides for increased funding
of the FDIC insurance funds and the implementation of risked-based premiums. Deposit Insurance As a FDIC member institution, deposits of TIB Bank are currently insured
to a maximum of $100,000 per category of ownership of depositor through the
Bank Insurance Fund, which is administered by the FDIC. Limits on Dividends and Other Payments Our current ability to pay dividends is largely dependent upon the receipt
of dividends from TIB Bank. Both federal and state laws impose restrictions on
the ability of TIB Bank to pay dividends. Federal law prohibits the payment of
a dividend by an insured depository institution like TIB Bank if the depository
institution is considered undercapitalized or if the payment of the dividend
would make the institution undercapitalized. See Capital Requirements
below. The Federal Reserve has issued a policy statement that provides that
bank holding companies should pay dividends only out of the prior years net
income, and then only if their prospective rate of earnings retention appears
consistent with their capital needs, asset quality, and overall financial
condition. For a Florida state-chartered bank, dividends may be paid out of so
much of the banks aggregate net profits for the current year combined with its
retained earnings for the preceding two years as the board deems appropriate.
No dividends may be paid at a time when a banks net income from the preceding
two years is a loss or which would cause the capital accounts of TIB Bank to
fall below the minimum amount required by law. In addition to these specific
restrictions, bank regulatory agencies also have the ability to prohibit
proposed dividends by a financial institution that would otherwise be permitted
under applicable regulations if the regulatory body determines that such
distribution would constitute an unsafe or unsound practice. Capital Requirements The Federal Reserve and FDIC have adopted certain risk-based capital
guidelines to assist in the assessment of the capital adequacy of a banking
organizations operations for both transactions reported on the balance sheet
as assets and transactions, such as letters of credit and recourse arrangement
which are recorded as off balance sheet items. Under these guidelines, nominal
dollar amounts of assets and credit equivalent amounts of off balance sheet
items are multiplied by one of several risk adjustment percentages, which range
from 0% for assets with low credit risk, such as certain U.S. Treasury
securities to 100% for assets with relatively high credit risk, such as
business loans. A banking organizations risk-based capital ratio is obtained by dividing
its qualifying capital by its total risk adjusted assets. The regulators
measure risk-adjusted assets, which include off balance sheet items, against
both total qualifying capital (the sum of Tier 1 capital and limited amounts of
Tier 2 capital) and Tier 1 capital. Tier 1, or core capital includes common
equity, perpetual preferred stock (excluding auction rate issues), trust
preferred securities (subject to certain limitations), and minority interest in
equity accounts of consolidated subsidiaries (less goodwill and other
intangibles), subject to certain exceptions. Tier 2, or supplementary
capital, includes, among other things limited-life preferred stock, hybrid
capital instruments, mandatory convertible securities and trust preferred
securities, qualifying and subordinated debt, and the allowance for loan and
lease losses, subject to certain limitations and less required deductions. The
inclusion of elements of Tier 2 capital is subject to certain other
requirements and limitations of the federal banking agencies. The federal banking agencies are required to take prompt corrective
action with respect to depository institutions that do not meet minimum
capital requirements. As a result, the federal bank regulatory authorities
have adopted regulations setting forth a five tiered system for measuring the
capital adequacy of the depository institutions 8




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##### Table of Contents



that they supervise. Under these regulations, a depository institution is
classified in one of the following capital categories: well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized,
and critically undercapitalized. An institution may be deemed by the
regulators to be in a capitalization category that is lower than is indicated
by its actual capital position if, among other things, it receives an
unsatisfactory examination rating with respect to asset quality, management,
earnings or liquidity. As of December 31, 2003, both the Company and TIB Bank
met the definition of a well-capitalized institution. A depository institution generally is prohibited from making any capital
distribution (including payment of a cash dividend) or paying any management
fees to its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to
growth limitations and are required to submit capital restoration plans. If a
depository institution fails to submit an acceptable plan, it is treated as if
it is significantly undercapitalized. Significantly undercapitalized depository
institutions may be subject to a number of other requirements and restrictions
including orders to sell sufficient voting stock to become adequately
capitalized, requirements to reduce total assets and stop accepting deposits
from correspondent banks. Critically undercapitalized institutions are subject
to the appointment of a receiver or conservator, generally within 90 days of
the date such institution is determined to be critically undercapitalized. The federal banking agencies also have significantly expanded powers to
take enforcement action against institutions that fail to comply with capital
or other standards. Such action may include limitations on the right to pay
dividends, the issuance by the applicable regulatory authority of a capital
directive to increase capital and, in the case of depository institutions, the
termination of deposit insurance by the FDIC. The circumstances under which
the FDIC is permitted to provide financial assistance to an insured institution
before appointment of a conservator or receiver also is limited under law. In
addition, future changes in regulations or practices could further reduce the
amount of capital recognized for purposes of capital adequacy. Such a change
could affect the ability of TIB Bank to grow and could restrict the amount of
profits, if any, available for the payment of dividends to us. Interstate Banking Legislation The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(Riegle-Neal), subject to certain restrictions, allows adequately capitalized
and managed bank holding companies to acquire existing banks across state
lines, regardless of state statutes that would prohibit acquisitions by
out-of-state institutions. Further, a bank holding company may consolidate
interstate bank subsidiaries into branches and a bank may merge with an
unaffiliated bank across state lines to the extent that the applicable states
authorize such transactions. Florida has enacted a law which permits
interstate branching through merger transactions under the federal interstate
laws. Under the Florida law, with the prior approval of the Florida Office of
Financial Regulation, a Florida bank may establish, maintain and operate one or
more branches in a state other than the State of Florida pursuant to a merger
transaction in which the Florida bank is the resulting bank. In addition,
Florida law provides that one or more Florida banks may enter into a merger
transaction with one or more out-of-state banks, and an out-of-state bank
resulting from such transaction may maintain and operate branches of a Florida
bank that participated in such merger. Financial Services Modernization Enacted in 1999, the Graham-Leach-Bliley Act reforms and modernizes
certain areas of financial services regulations and repeals the affiliation
provisions of the federal Glass-Steagall Act of 1933, which, taken together,
limited the securities, insurance and other non-banking activities of any
company that controls a FDIC insured financial institution. The Act provides
that a financial holding company may engage in a full range of financial
activities, including insurance and securities sales and underwriting
activities, real estate development, and, with certain exceptions, merchant
banking activities, with new expedited notice procedures. The Act also permits
certain qualified national banks to form financial subsidiaries, which have
broad authority to engage in all financial activities except insurance
underwriting, insurance investments, real estate investment or development, and
merchant banking, and expands the potential financial activities of
subsidiaries of state banks, subject to applicable state law. The range of
activities in which bank holding companies and their subsidiaries may engage is
not as broad, and the Act may increase the competition that we face. The law
also includes substantive requirements for maintenance of customer financial
privacy. 9




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##### Table of Contents



Sarbanes-Oxley Act In 2002, the Sarbanes-Oxley Act was enacted which imposes a myriad of
corporate governance and accounting measures designed so that
shareholders have full and accurate information about the public companies in
which they invest. All public companies are affected by the Act. Some of the
principal provisions of the Act include:  
    
    the creation of an independent accounting oversight
board to oversee the audit of public companies and auditors who
perform such audits;
    
    auditor independence provisions which restrict
non-audit services that independent accountants may provide to
their audit clients;
    
    additional corporate governance and responsibility
measures which (a) require the chief executive officer and chief
financial officer to certify financial statements and to forfeit
salary and bonuses in certain situations, and (b) protect
whistleblowers and informants;
    
    expansion of the authority and responsibilities of the
companys audit, nominating and compensation committees;
    
    mandatory disclosure by analysts of potential conflicts of interest; and
    
    enhanced penalties for fraud and other violations. Other Legislative Considerations The United States Congress and the Florida Legislature periodically
consider and may adopt legislation that results in additional deregulation,
among other matters, of banks and other financial institutions. Such
legislation could modify or eliminate current prohibitions with other financial
institutions, including mutual funds, securities, brokerage firms, insurance
companies, banks from other states, and investment banking firms. The effect
of any such legislation on our business or that of TIB Bank cannot be
accurately predicted. We cannot predict what legislation might be enacted or
what other implementing regulations might be adopted, and if enacted or
adopted, the effect on us. Competition The banking business is highly competitive. Banks generally compete with
other financial institutions through the banking products and services offered,
the pricing of services, the level of service provided, the convenience and
availability of services, and the degree of expertise and the personal manner
in which services are offered. The Bank encounters strong competition from
most of the financial institutions in the Banks primary service area. In the
conduct of certain areas of its banking business, the Bank also competes with
credit unions, consumer finance companies, insurance companies, money market
mutual funds and other financial institutions, some of which are not subject to
the same degree of regulation and restrictions imposed upon the Bank. Many of
these competitors have substantially greater resources and lending limits than
the Bank has and offer certain services, such as trust services, that the Bank
does not provide presently. Management believes that personalized service and
competitive pricing is a sustainable competitive advantage that will provide it
with a method to compete effectively in our primary service area. Monetary Policy Our earnings are affected by domestic and foreign economic conditions,
particularly by the monetary and fiscal policies of the United States
government and its agencies. The Federal Reserve has an important impact on
the operating results of banks and other financial institutions through its
power to implement national monetary policy. The methods used by the Federal
Reserve include setting the reserve requirements of banks, establishing the
discount rate on bank borrowings and conducting open market transactions in
United States Government securities. 10




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##### Table of Contents



FDIC Insurance Assessments The FDIC insures the deposits of the Bank up to prescribed limits for each
depositor. The amount of FDIC assessments paid by each Bank Insurance Fund
(BIF) member institution is based on its relative risks of default as measured
by regulatory capital ratios and other factors. Specifically, the assessment
rate is based on the institutions capitalization risk category and supervisory
subgroup category. An institutions capitalization risk category is based on
the FDICs determination of whether the institution is well capitalized,
adequately capitalized or less than adequately capitalized. An institutions
supervisory subgroup category is based on the FDICs assessment of the
financial condition of the institution and the probability that FDIC
intervention or other corrective action will be required. The FDIC may
terminate insurance of deposits upon a finding that the institution has engaged
in unsafe and unsound practices, is in an unsafe or unsound condition to
continue operations, or has violated any applicable law, regulation, rule,
order, or condition imposed by the FDIC. Statistical Information Certain statistical information is found in Item 7, Managements
Discussion and Analysis of Financial Condition and Results of Operations of
this Annual Report on Form 10-K. 
 ITEM 2.      PROPERTIES The Company and the Banks executive offices are located at 99451 Overseas
Highway, Key Largo, Monroe County, Florida. This is a two-story building owned
by the Bank that contains approximately 13,275 square feet of finished space.
The building is used for office space and the operation of a branch facility.
In March 2004, we relocated the Companys executive offices
to 599 9th Street
North, Naples, Florida. The Banks other thirteen branches are located at 600 North Homestead
Boulevard in Homestead, 777 North Krome Avenue in Homestead, 103330 Overseas
Highway in Key Largo, 91980 Overseas Highway in Tavernier, 80900 Overseas
Highway in Islamorada, 11401 Overseas Highway in Marathon Shores, 2348 Overseas
Highway in Marathon, 30400 Overseas Highway in Big Pine Key, 330 Whitehead
Street in Key West, 3618 N. Roosevelt Drive in Key West, 8100 Health Center
Boulevard in Bonita Springs, 599 9th Street North in Naples, and 1720 J & C
Boulevard  Suite 1 in Naples, Florida. The main office and branch properties
are owned by the Bank, with the exception of the 8100 Health Center Boulevard
and 1720 J & C Boulevard locations which are leased. The Bank owns the first
floor of the building located at 599 9th Street North, but does not own the
land. The Bank also owns four other properties. The Bank owns a one-story
building containing approximately 5,000 square feet on a one-half acre lot
located at 100210 Overseas Highway, Key Largo. This building is partly leased
to an insurance agency (owned by the Company until August 2003) and the
remainder of the building is used by the Bank as a training center and office
space. The Bank owns a three-story building at 228 Atlantic Boulevard, Key
Largo, Florida that is utilized by the Bank primarily for its loan operations
and human resources departments. The Bank owns a building located at 28 N.E.
18th Street in Homestead that is used for office space. In 2003, the Bank
purchased a parcel of land located at 12195 Metro Parkway in Ft. Meyers,
Florida, where it plans to construct a branch in 2004. The Bank leases office space at 9915 Tamiami Trail North  Suite 2 in
Naples, and at 1119 US Highway 27 South in Sebring, Florida for the Banks
residential lending operations. Office space is also leased at 5800 Overseas
Highway Suite 41 in Marathon, Florida for its commercial lending department and
at 630 Washington Avenue in Homestead, Florida for office space, including its
customer service operations department. The Bank has entered into a lease for office and parking space at 3940
Prospect Avenue, in Naples, Florida. A branch will be constructed on this site
and will open in 2004. 11




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##### Table of Contents



ITEM 3.      LEGAL PROCEEDINGS While the Company and the Bank are from time to time parties to various
legal proceedings arising in the ordinary course of their business, management
believes after consultation with legal counsel that there are no proceedings
threatened or pending against the Company or the Bank that will, individually
or in the aggregate, have a material adverse effect on the consolidated results
of operations or financial condition of the Company. 
 ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the Companys
fourth quarter of the fiscal year ended December 31, 2003. 
 PART II 
 ITEM 5.      MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES Our common stock trades on the NASDAQ National Market under the symbol
TIBB. As of December 31, 2003, there were 400 registered shareholders of
record and 4,431,328 shares of our common stock outstanding. The following
table sets forth, for the periods indicated, the high and low sale prices per
share for our common stock on the NASDAQ National Market: 2003
    
    2002Quarter Ended
    
    High
    
    Low
    
    High
    
    LowMarch 31
    
    $
    17.17
    
    
    $
    14.91
    
    
    $
    12.95
    
    
    $
    11.16June 30
    
    
    18.50
    
    
    
    15.50
    
    
    
    15.00
    
    
    
    12.15September 30
    
    
    18.60
    
    
    
    16.75
    
    
    
    15.00
    
    
    
    13.00December 31
    
    
    24.99
    
    
    
    18.32
    
    
    
    16.25
    
    
    
    12.38
 For the year ended December 31, 2003, we paid cash dividends to our
shareholders in the amount of $.11 per share for the first three quarters and
$.1125 per share for the last quarter ($.4425 in the aggregate). For the year
ended December 31, 2002, we paid cash dividends to our shareholders in the
amount of $.1075 per share for the first three quarters and $.11 per share for
the last quarter ($.4325 in the aggregate). Our ability to continue to pay
cash dividends to our shareholders is primarily dependent on the earnings of
the Bank. Payment of dividends by the Bank to us is limited by dividend
restrictions in capital requirements imposed by Bank regulators. Information
regarding restrictions on the ability of the Bank to pay dividends to us is
contained in Note 14 of the Notes to Consolidated Financial Statements
contained in Item 8 hereof. In general, future dividend policy is subject to
the discretion of the board of directors and will depend upon a number of
factors, including the future earnings, capital requirements, regulatory
constraints, and our financial condition as well as that of the Bank. 12




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ITEM 6.      SELECTED FINANCIAL DATA The selected consolidated financial data presented below as of and for the
years ended December 31, 2003, 2002, 2001, 2000, and 1999 is unaudited and has
been derived from our Consolidated Financial Statements and from our records.
The information presented below should be read in conjunction with the
Consolidated Financial Statements and related notes, and Managements
Discussion and Analysis of Financial Condition and Results of Operations. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA Balance Sheet Data:As of December 31,
    
    2003
    
    2002
    
    2001
    
    2000
    
    1999Total Assets
    
    $
    669,298
    
    
    $
    567,149
    
    
    $
    494,111
    
    
    $
    439,320
    
    
    $
    392,129Investment Securities
    
    
    52,557
    
    
    
    54,268
    
    
    
    52,354
    
    
    
    68,019
    
    
    
    60,362Gross Loans
    
    
    538,598
    
    
    
    441,744
    
    
    
    379,104
    
    
    
    315,574
    
    
    
    290,614Allowance for loan losses
    
    
    5,216
    
    
    
    4,272
    
    
    
    3,675
    
    
    
    3,268
    
    
    
    2,997Deposits
    
    
    553,813
    
    
    
    482,683
    
    
    
    415,736
    
    
    
    392,427
    
    
    
    346,904Shareholders Equity
    
    
    41,246
    
    
    
    33,506
    
    
    
    28,672
    
    
    
    26,237
    
    
    
    28,302
 Statement of Income Data:Year ended December 31,
    
    2003
    
    2002
    
    2001
    
    2000
    
    1999Interest and dividend income
    
    $
    34,606
    
    
    $
    31,316
    
    
    $
    33,717
    
    
    $
    32,189
    
    
    $
    27,906Interest expense
    
    
    9,839
    
    
    
    10,329
    
    
    
    15,797
    
    
    
    14,775
    
    
    
    11,299Net interest income
    
    
    24,767
    
    
    
    20,987
    
    
    
    17,920
    
    
    
    17,414
    
    
    
    16,607Provision for loan losses
    
    
    1,586
    
    
    
    791
    
    
    
    1,005
    
    
    
    332
    
    
    
    540Net interest income after
provision for loan losses
    
    
    23,181
    
    
    
    20,196
    
    
    
    16,915
    
    
    
    17,082
    
    
    
    16,067Non-interest income
    
    
    12,037
    
    
    
    10,428
    
    
    
    9,998
    
    
    
    7,484
    
    
    
    7,167Non-interest expense
    
    
    27,569
    
    
    
    23,632
    
    
    
    20,916
    
    
    
    17,830
    
    
    
    16,741Income tax expense
    
    
    2,672
    
    
    
    2,386
    
    
    
    2,058
    
    
    
    2,482
    
    
    
    2,327Cumulative effect of change in
accounting principle, net of tax
benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (47
    )Income from continuing operations
    
    
    4,977
    
    
    
    4,606
    
    
    
    3,939
    
    
    
    4,254
    
    
    
    4,119Income (loss), net of taxes,
from discontinued operations
    
    
    125
    
    
    
    129
    
    
    
    (45
    )
    
    
    (32
    )
    
    
    Net income
    
    
    5,102
    
    
    
    4,735
    
    
    
    3,894
    
    
    
    4,222
    
    
    
    4,119
 Per Share Data:Year ended December 31,
    
    2003
    
    2002
    
    2001
    
    2000
    
    1999Book value per share at year end
    
    $
    9.31
    
    
    $
    8.30
    
    
    $
    7.27
    
    
    $
    6.72
    
    
    $
    6.44Basic earnings per share from continuing operations
    
    $
    1.17
    
    
    $
    1.15
    
    
    $
    1.00
    
    
    $
    1.03
    
    
    $
    0.94Basic earnings per share from discontinued operations
    
    
    0.03
    
    
    
    0.04
    
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    Basic earnings per share
    
    $
    1.20
    
    
    $
    1.19
    
    
    $
    0.99
    
    
    $
    1.02
    
    
    $
    0.94Diluted earnings per share from continuing operations
    
    $
    1.12
    
    
    $
    1.11
    
    
    $
    0.96
    
    
    $
    1.00
    
    
    $
    0.91Diluted earnings per share from discontinued operations
    
    
    0.03
    
    
    
    0.03
    
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    Diluted earnings per share
    
    $
    1.15
    
    
    $
    1.14
    
    
    $
    0.95
    
    
    $
    0.99
    
    
    $
    0.91Basic weighted average common equivalent shares outstanding
    
    
    4,257,224
    
    
    
    3,992,775
    
    
    
    3,923,763
    
    
    
    4,140,234
    
    
    
    4,388,336Diluted weighted average common equivalent shares outstanding
    
    
    4,435,861
    
    
    
    4,144,855
    
    
    
    4,096,767
    
    
    
    4,274,155
    
    
    
    4,543,784Dividends declared
    
    $
    0.4425
    
    
    $
    0.4325
    
    
    $
    0.43
    
    
    $
    0.4225
    
    
    $
    0.4125
 13




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##### Table of Contents



Ratios
    
    2003
    
    2002
    
    2001
    
    2000
    
    1999Return on average assets
    
    
    0.82
    %
    
    
    0.89
    %
    
    
    0.82
    %
    
    
    1.05
    %
    
    
    1.07
    %Return on average equity
    
    
    13.56
    %
    
    
    15.21
    %
    
    
    14.15
    %
    
    
    15.54
    %
    
    
    15.05
    %Average equity/average assets
    
    
    6.05
    %
    
    
    5.82
    %
    
    
    5.79
    %
    
    
    6.74
    %
    
    
    7.11
    %Net interest margin
    
    
    4.43
    %
    
    
    4.39
    %
    
    
    4.22
    %
    
    
    4.74
    %
    
    
    4.78
    %Dividend payout ratio
    
    
    36.92
    %
    
    
    36.47
    %
    
    
    43.32
    %
    
    
    41.43
    %
    
    
    43.95
    %Allowance for loan losses/total loans
    
    
    0.97
    %
    
    
    0.97
    %
    
    
    0.97
    %
    
    
    1.04
    %
    
    
    1.03
    %Non-performing assets/total assets
    
    
    0.55
    %
    
    
    0.65
    %
    
    
    0.90
    %
    
    
    0.57
    %
    
    
    0.53
    %Non-performing loans/gross loans
    
    
    0.07
    %
    
    
    0.12
    %
    
    
    0.42
    %
    
    
    0.80
    %
    
    
    0.71
    %Allowance for loan losses/non-performing loans
    
    
    1,336.33
    %
    
    
    783.19
    %
    
    
    231.07
    %
    
    
    129.84
    %
    
    
    145.25
    %Non-interest expense/net interest income and
non-interest income from continuing
operations
    
    
    74.91
    %
    
    
    75.22
    %
    
    
    74.92
    %
    
    
    71.61
    %
    
    
    70.42
    %
 14




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ITEM 7.     MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS Overview TIB Bank operates primarily as a real estate secured commercial lender,
focusing on middle-market businesses in our Southern Florida markets. TIB
Bank was formed in and has a substantial market presence in the Florida Keys.
In recent years, the Bank has expanded into the adjacent Florida counties of
Miami-Dade, Collier and Lee. The Bank funds its commercial lending activity by
gathering retail and commercial deposits from our service area. Significant
economic growth in the southern portion of Miami-Dade County and along the
southwest coast of Florida (Naples, Bonita Springs, and Ft. Myers area) offers
an opportunity for us to grow our core banking franchise in these contiguous
markets. We are utilizing a de novo branching strategy of evaluating and selecting
sites and building new bank branch locations to enter and grow in these new
markets. We believe that due to the cost of acquiring existing facilities, de
novo expansion is the most economical method for us to build market share in
many of the areas where we seek to have a presence. While we expect to
experience short-term earnings dilution as a result of the increased costs of
developing and expanding our branch system, we believe the resulting growth
will add significant value to our franchise. Although organic growth has been
the method of choice to date, growth through acquisition would be considered if
pricing, market and culture fit were advantageous to our growth and expansion
plans. Performance Overview We earned net income of $5,102,118 in 2003, representing a $366,846, or a
7.7% increase from the prior year. Net income for 2002 was $4,735,272, which
was a 21.6% increase over 2001. Basic earnings per share for 2003 were $1.20 compared to $1.19 in 2002.
Basic weighted-average common equivalent shares outstanding in 2003 were
4,257,224 compared to 3,992,775 in 2002. This increase in shares outstanding
of 6.6% resulted from the exercise of stock options and the issuance of 280,653
shares in June 2003 in connection with a private placement that raised $4.3
million in new capital. Diluted earnings per share for 2003 were $1.15 compared to $1.14 in 2002.
Diluted weighted-average common equivalent shares outstanding in 2003 were
4,435,861 compared to 4,144,855 in 2002. Net interest income in 2003 increased 18.0%, or $3.8 million, to $24.8
million from $21.0 million reported in 2002. Our interest margin increased
from 4.39% in 2002 to 4.43% in 2003. Margins have been stable to slightly
higher over the recent years due to a number of factors. First, a substantial
portion of our commercial loans are at their interest rate floors. Second, we
have increased the relative portion of loans to the total earning assets of the
Bank. Finally, indirect auto lending has somewhat better yields than other
loans generally. Going forward, our margins should remain fairly stable as an
increasing percentage of indirect loans should offset slightly lower yields on
other loans from competitive pressures. Non-interest income increased 15.4%, or $1.6 million, to $12.0 million in
2003 primarily due to continued strong growth in our fee income from the sale
of residential loan originations and merchant bankcard processing income. The
continuing favorable rate environment for residential mortgage lending
contributed to another record year of residential loan production. Fees on
sales of residential mortgage loans sold increased 39.0% to $2.2 million.
This fee income should moderate in 2004 because of a slowdown in the refinance
portion of residential lending due to an expected stable to slightly higher
interest rate environment. Merchant bankcard processing income increased
12.9%, from $4.4 million in 2002 to $5.0 million in 2003. This was
attributable to increased processing volumes over the prior year which was
partially offset by a slight decline in the average discount rate. Merchant
bankcard processing income should also moderate in 2004 due to it being a
mature product for us, which is expected to grow at a growth rate similar to
that of the organization. 15




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Non-interest expenses increased 16.7%, or $3.9 million, to $27.6 million
in 2003 primarily from the increased personnel and overhead expense required to
support growth and increased regulatory requirements. This growth in
non-interest expenses should moderate as a relatively constant level of growth
in dollar terms will be a proportionately smaller percentage of the total
business in the future. Total assets at December 31, 2003 were $669.3 million compared to $567.1
million at the previous year end, an increase of 18.0%. Asset growth was
funded by an increase in deposits of 14.7%, or $71.1 million in 2003. Our
total loans increased 21.9%, or $96.9 million, to $538.6 million at year end
2003 compared to $441.7 million at December 31, 2002. The largest dollar
increase in loan type from year end 2002 to year end 2003 was in indirect auto
dealer loans, which accounted for $42.6 million of the increase in total loans
in 2003. During 2003, business activity in our primary markets reflected the
national trends of economic expansion with limited increases in overall
employment due to productivity gains and the desire to reduce excess capacity.
In turn, the Federal Reserve elected to keep short-term interest rates at low
levels throughout the year. Specifically, the target Federal Funds Rate began
2003 at 1.25% and remained there until June when it was decreased to 1.00%.
The Prime lending rate continued its recent pattern of staying 300 basis
points, 3%, above the Federal Funds Rate. The effect of the low interest rates is to contract our net interest
margin in two ways. First, a low Prime rate directly affects yields on loans
tied to that index and even loans not indexed to Prime are priced reflective of
overall low asset yields. Second, deposit liabilities can only be priced down
so far before the interest rate is too low to attract the volume of required
funding. The net effect of this rate environment is a larger reduction in
asset yields, generally, than the corresponding reduction in liability costs. We were able to mitigate the effect of the interest rate environment in
2003 for the following reasons. First, even though we are at low relative
levels of interest rates, net interest margins have stabilized this year and we
were able to decrease liability costs to a similar extent that asset yields
contracted. Second, we have expanded a practice of requiring an interest rate
floor on many new commercial loans. This tactic proved effective in slowing
the average decline in loan yields. Finally, we continue to change our mix of
assets to slightly increase the percentage of higher yielding loans. During 2003, the Bank significantly expanded its indirect automobile
lending program, in an effort to generate higher relative yielding assets. As
of December 31, 2003, we had approximately $59.4 million of indirect auto loans
outstanding. Coupled with the appropriate safeguards, we believe this product
continues to offer the Bank an opportunity to increase asset yields while not
sacrificing our primary objective of maintaining strong asset quality. On November 25, 2002, we opened our Southwest Florida regional
headquarters at 599 9th Street North in Naples, Florida. The cost of
operating this facility for a full year is reflected in our 2003 results. The
headquarters office is located in a new three-story office building near the
central business area, in which we own the first floor. This investment was
made as part of our de novo branching strategy targeting selected growth
markets of Southern Florida. Our plan assumes that new branches will take
about three years to break even, and that when the facility becomes profitable
accumulated losses that were incurred from the opening will be less than the
premium required to purchase a similar branch. In 2003, we sold the assets of Keys Insurance Agency and our remaining
interest in ERAS JV, a software development and item processing company, in
order to focus our attention and capital on growing our core banking franchise.
As a result of the sale of the assets of Keys Insurance Agency, recorded
goodwill was reduced by $2.0 million, resulting in a direct increase in
regulatory capital. Analysis of Financial Condition Our assets totaled $669.3 million at year end 2003 compared to $567.1
million at year end 2002, an increase of $102.1 million or 18.0%. The growth
in assets was primarily a result of increased lending activity as the Bank
invested funds provided by significant deposit growth. 16




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##### Table of Contents



Total loans increased $96.9 million or 21.9%, to $538.6 million at year
end 2003. The growth in the loan portfolio was attributed to increases in
indirect auto dealer loans of $42.6 million, commercial real estate and
farmland loans of $34.0 million, construction loans of $17.2 million,
commercial and agricultural loans of $14.4 million, and consumer loans of $1.9
million. These increases were offset by declines in home equity loans of $4.9
million and residential loans of $8.3 million. Total deposits increased $71.1 million or 14.7%, from $482.7 million at
year end 2002 to $553.8 million at year end 2003. Non-interest-bearing
deposits increased $16.5 million or 15.7%, while interest-bearing deposits
increased $54.6 million or 14.5%. Borrowed funds, consisting of Federal Home Loan (FHLB) advances,
short-term borrowings, notes payable, and subordinated debentures, totaled
$67.3 million at year end 2003 compared to $42.8 million at year end 2002. The
increase mainly consisted of FHLB advances that were used to fund loan growth. Shareholders equity increased $7.7 million or 23.1%, from $33.5 million
at year end 2002 to $41.2 million at year end 2003. In June 2003, the Company
completed a private placement offering of 280,653 shares of its common stock to
individuals who qualified as accredited investors under the federal and state
securities laws. Residents of Monroe County, Southwest Florida and
Homestead/Florida City purchased shares, along with three members of the
Companys Board of Directors and one executive officer. The private offering
raised approximately $4.3 million in capital at a purchase price of $15.64 per
share which was priced at 95% of the average closing bid price for the shares
during the five consecutive trading days ending on the fifth business day prior
to the commencement of the offering. The shares of common stock in this
offering were not registered under the Securities Act of 1933 (1933 Act), or
any state securities laws pursuant to the private offering exemptions under
Section 4(2) of the 1933 Act and other state securities laws. Certain
restrictions exist on the common stock which may prohibit the resale or other
transfer of the stock unless subsequently registered under the 1933 Act and
other applicable state securities law, or pursuant to an exemption from
applicable state and federal registration requirements. Book value per share increased to $9.31 at December 31, 2003 from $8.30 at
December 31, 2002. Results of Operations NET INCOME 2003 compared with 2002: The Companys net income of $5.1 million for year end 2003 was a $0.4
million or 7.7% increase compared to $4.7 million for year end 2002. Basic and
diluted earnings per share for 2003 were $1.20 and $1.15, respectively, as
compared to $1.19 and $1.14 per share in 2002. Net income from continuing operations was $5.0 million for year end 2003,
compared to $4.6 million for year end 2002, an increase of $0.4 million or
8.0%. As discussed in Note 20 of the accompanying Notes to Consolidated
Financial Statements, the Company closed the sale of the assets of its wholly
owned subsidiary, Keys Insurance Agency, Inc., in the third quarter of 2003. Return on average assets was 0.82% and 0.89% for 2003 and 2002, while
return on average shareholders equity was 13.56% and 15.21% over the same two
years. 2002 compared with 2001: The Companys net income of $4.7 million for year end 2002 was a $0.8
million or 21.6% increase compared to $3.9 million for year end 2001. Basic
and diluted earnings per share for 2002 were $1.19 and $1.14, respectively, as
compared to $0.99 and $0.95 per share in 2001. Net income from continuing operations was $4.6 million for year end 2002,
compared to $3.9 million for year end 2001, an increase of $0.7 million or
16.9%. 17




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##### Table of Contents



Return on average assets was 0.89% and 0.82% for 2002 and 2001, while
return on average shareholders equity was 15.21% and 14.15% over the same two
years. 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, FHLB advances, and other
short-term borrowings. 2003 compared with 2002: Net interest income was $24.8 million for the year ended December 31,
2003, compared to $21.0 million for the same period in 2002. The 18.0%
increase was mainly attributable to increased lending volume. Partially
offsetting this increase was an increase in interest expense on time deposits,
our highest cost deposit category as a percentage share of total deposits. The
decrease in the average cost of interest-bearing liabilities from 2.57% in 2002
to 2.13% in 2003 overcame the larger volumes to produce a decrease in interest
expense from $10.3 million in 2002 to $9.8 million in 2003. Finally, our
ability to lower our funding cost in proportion to our lowered yields resulted
in essentially stable margins. Our tax equivalent net interest margin
increased to 4.43% in 2003 from 4.39% in 2002. 2002 compared with 2001: Net interest income was $21.0 million for the year ended December 31,
2002, compared to $17.9 million for the same period in 2001. The 17.1%
increase was mainly attributable to increased volumes in the loan portfolio
funded primarily from the deposit growth of the Bank. In 2002, the combination
of increased loan volumes and lower costs for liabilities more than offset the
decrease in asset yields producing a rise in tax equivalent interest margin
from 4.22% in 2001 to 4.39% in 2002. The following table sets forth information with respect to the average
balances, interest income and average yield by major categories of
interest-earning assets; the average balances, interest expense and average
rate by major categories of interest-bearing liabilities; the average balances
of noninterest-earning assets, noninterest-bearing liabilities and
shareholders equity; and net interest income, interest rate spread, and net
interest margin for the years ended December 31, 2003, 2002 and 2001. 18




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##### Table of Contents



AVERAGE BALANCE SHEETS 2003
    
    
    
    
    
    
    
    
    
    2002
    
    
    
    
    
    
    
    
    
    2001AVERAGE
    
    INCOME/
    
    YIELDS/
    
    AVERAGE
    
    INCOME/
    
    YIELDS/
    
    AVERAGE
    
    INCOME/
    
    YIELDS/(Dollars in thousands)
    
    BALANCES
    
    EXPENSE
    
    RATES
    
    BALANCES
    
    EXPENSE
    
    RATES
    
    BALANCES
    
    EXPENSE
    
    RATESASSETSInterest-earning assets:Loans (a)(b)
    
    $
    484,147
    
    
    $
    31,669
    
    
    
    6.54
    %
    
    $
    402,575
    
    
    $
    27,803
    
    
    
    6.91
    %
    
    $
    348,128
    
    
    $
    29,112
    
    
    
    8.36
    %Investment securities-taxable
    
    
    47,729
    
    
    
    2,250
    
    
    
    4.71
    %
    
    
    51,165
    
    
    
    2,861
    
    
    
    5.59
    %
    
    
    53,819
    
    
    
    3,382
    
    
    
    6.28
    %Investment securities 
tax exempt (b)
    
    
    7,608
    
    
    
    499
    
    
    
    6.56
    %
    
    
    5,458
    
    
    
    393
    
    
    
    7.21
    %
    
    
    5,739
    
    
    
    421
    
    
    
    7.34
    %Investment securities 
96% tax exempt (b)
    
    
    748
    
    
    
    89
    
    
    
    11.88
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest bearing deposits in
other banks
    
    
    309
    
    
    
    3
    
    
    
    0.85
    %
    
    
    302
    
    
    
    5
    
    
    
    1.69
    %
    
    
    112
    
    
    
    3
    
    
    
    2.72
    %FHLB stock
    
    
    1,667
    
    
    
    59
    
    
    
    3.53
    %
    
    
    1,465
    
    
    
    78
    
    
    
    5.32
    %
    
    
    1,202
    
    
    
    81
    
    
    
    6.71
    %Federal funds sold
    
    
    21,106
    
    
    
    242
    
    
    
    1.14
    %
    
    
    20,180
    
    
    
    330
    
    
    
    1.64
    %
    
    
    19,630
    
    
    
    895
    
    
    
    4.56
    %Total interest-earning assets
    
    
    563,314
    
    
    
    34,811
    
    
    
    6.18
    %
    
    
    481,145
    
    
    
    31,470
    
    
    
    6.54
    %
    
    
    428,630
    
    
    
    33,894
    
    
    
    7.91
    %Non-interest-earning assets:Cash and due from banks
    
    
    15,562
    
    
    
    
    
    
    
    
    
    
    
    13,297
    
    
    
    
    
    
    
    
    
    
    
    12,284Investment in ERAS
    
    
    52
    
    
    
    
    
    
    
    
    
    
    
    227
    
    
    
    
    
    
    
    
    
    
    
    885Premises and equipment, net
    
    
    19,576
    
    
    
    
    
    
    
    
    
    
    
    17,429
    
    
    
    
    
    
    
    
    
    
    
    16,533Allowances for loan losses
    
    
    (4,642
    )
    
    
    
    
    
    
    
    
    
    
    (3,932
    )
    
    
    
    
    
    
    
    
    
    
    (3,274
    )Other assets
    
    
    27,749
    
    
    
    
    
    
    
    
    
    
    
    26,330
    
    
    
    
    
    
    
    
    
    
    
    20,602Total non-interest-earning assets
    
    
    58,297
    
    
    
    
    
    
    
    
    
    
    
    53,351
    
    
    
    
    
    
    
    
    
    
    
    47,030Total assets
    
    $
    621,611
    
    
    
    
    
    
    
    
    
    
    $
    534,496
    
    
    
    
    
    
    
    
    
    
    $
    475,660LIABILITIES & SHAREHOLDERS EQUITYInterest-bearing liabilities:Interest bearing deposits:NOW accounts
    
    $
    59,389
    
    
    
    218
    
    
    
    0.37
    %
    
    $
    50,481
    
    
    
    266
    
    
    
    0.53
    %
    
    $
    42,461
    
    
    
    505
    
    
    
    1.19
    %Money market
    
    
    125,410
    
    
    
    1,103
    
    
    
    0.88
    %
    
    
    131,384
    
    
    
    1,791
    
    
    
    1.36
    %
    
    
    128,056
    
    
    
    4,679
    
    
    
    3.65
    %Savings deposits
    
    
    35,475
    
    
    
    170
    
    
    
    0.48
    %
    
    
    29,891
    
    
    
    223
    
    
    
    0.75
    %
    
    
    24,619
    
    
    
    443
    
    
    
    1.80
    %Time deposits
    
    
    198,162
    
    
    
    6,444
    
    
    
    3.25
    %
    
    
    149,061
    
    
    
    6,003
    
    
    
    4.03
    %
    
    
    143,230
    
    
    
    8,298
    
    
    
    5.79
    %Total interest-bearing deposits
    
    
    418,436
    
    
    
    7,935
    
    
    
    1.90
    %
    
    
    360,817
    
    
    
    8,283
    
    
    
    2.30
    %
    
    
    338,366
    
    
    
    13,925
    
    
    
    4.12
    %Notes payable
    
    
    5,250
    
    
    
    481
    
    
    
    9.16
    %
    
    
    5,250
    
    
    
    481
    
    
    
    9.16
    %
    
    
    5,250
    
    
    
    694
    
    
    
    13.22
    %Short-term borrowings and FHLB
advances
    
    
    25,455
    
    
    
    314
    
    
    
    1.23
    %
    
    
    22,855
    
    
    
    425
    
    
    
    1.86
    %
    
    
    6,565
    
    
    
    175
    
    
    
    2.67
    %Subordinated debentures
    
    
    13,000
    
    
    
    1,109
    
    
    
    8.53
    %
    
    
    13,000
    
    
    
    1,140
    
    
    
    8.77
    %
    
    
    10,109
    
    
    
    1,003
    
    
    
    9.92
    %Total interest-bearing liabilities
    
    
    462,141
    
    
    
    9,839
    
    
    
    2.13
    %
    
    
    401,922
    
    
    
    10,329
    
    
    
    2.57
    %
    
    
    360,290
    
    
    
    15,797
    
    
    
    4.38
    %Non-interest-bearing liabilities
and shareholders equity:Demand deposits
    
    
    114,344
    
    
    
    
    
    
    
    
    
    
    
    95,324
    
    
    
    
    
    
    
    
    
    
    
    81,093Other liabilities
    
    
    7,493
    
    
    
    
    
    
    
    
    
    
    
    6,121
    
    
    
    
    
    
    
    
    
    
    
    6,748Shareholders equity
    
    
    37,633
    
    
    
    
    
    
    
    
    
    
    
    31,129
    
    
    
    
    
    
    
    
    
    
    
    27,529Total non-interest-bearing
liabilities and shareholders
equity
    
    
    159,470
    
    
    
    
    
    
    
    
    
    
    
    132,574
    
    
    
    
    
    
    
    
    
    
    
    115,370Total liabilities and
shareholders equity
    
    $
    621,611
    
    
    
    
    
    
    
    
    
    
    $
    534,496
    
    
    
    
    
    
    
    
    
    
    $
    475,660Interest rate spread
    
    
    
    
    
    
    
    
    
    
    4.05
    %
    
    
    
    
    
    
    
    
    
    
    3.97
    %
    
    
    
    
    
    
    
    
    
    
    3.53
    %Net interest income
    
    
    
    
    
    $
    24,972
    
    
    
    
    
    
    
    
    
    
    $
    21,141
    
    
    
    
    
    
    
    
    
    
    $
    18,097Net interest margin (c)
    
    
    
    
    
    
    
    
    
    
    4.43
    %
    
    
    
    
    
    
    
    
    
    
    4.39
    %
    
    
    
    
    
    
    
    
    
    
    4.22
    %
  (a)
    
    Average loans include non-performing loans. Interest on loans includes
loan fees of $265,792 in 2003, $116,187 in 2002, and $56,343 in 2001. 19




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##### Table of Contents



(b)
    
    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.(c)
    
    Net interest margin is net interest income divided by average total
interest-earning assets. CHANGES IN NET INTEREST INCOME The table below details the components of the changes in net interest
income for the last two years. For each major category of interest-earning
assets and interest-bearing liabilities, information is provided with respect
to changes due to average volumes, changes due to rates, with the changes in
both volumes and rates allocated to these two categories based on the
proportionate absolute changes in each category. 2003 compared to 2002 (a)
    
    2002 compared to 2001 (a)Due to changes in
    
    Due to changes inNet
    
    
    
    
    
    
    
    
    
    Net(In thousands)
    
    Average
    
    Average
    
    Increase
    
    Average
    
    Average
    
    IncreaseVolume
    
    Rate
    
    (Decrease)
    
    Volume
    
    Rate
    
    (Decrease)INTEREST
INCOMELoans (b)
    
    $
    5,415
    
    
    $
    (1,549
    )
    
    $
    3,866
    
    
    $
    4,167
    
    
    $
    (5,476
    )
    
    $
    (1,309
    )Investment Securities (b)
    
    
    50
    
    
    
    (466
    )
    
    
    (416
    )
    
    
    (182
    )
    
    
    (367
    )
    
    
    (549
    )Interest-bearing deposits in other
banks
    
    
    
    
    
    
    (2
    )
    
    
    (2
    )
    
    
    3
    
    
    
    (1
    )
    
    
    2Federal Funds sold
    
    
    15
    
    
    
    (103
    )
    
    
    (88
    )
    
    
    24
    
    
    
    (589
    )
    
    
    (565
    )FHLB stock
    
    
    10
    
    
    
    (29
    )
    
    
    (19
    )
    
    
    16
    
    
    
    (19
    )
    
    
    (3
    )Total interest income
    
    
    5,490
    
    
    
    (2,149
    )
    
    
    3,341
    
    
    
    4,028
    
    
    
    (6,452
    )
    
    
    (2,424
    )INTEREST EXPENSENOW Accounts
    
    
    42
    
    
    
    (90
    )
    
    
    (48
    )
    
    
    81
    
    
    
    (320
    )
    
    
    (239
    )Money Market
    
    
    (78
    )
    
    
    (610
    )
    
    
    (688
    )
    
    
    118
    
    
    
    (3,006
    )
    
    
    (2,888
    )Savings deposits
    
    
    37
    
    
    
    (90
    )
    
    
    (53
    )
    
    
    80
    
    
    
    (300
    )
    
    
    (220
    )Time deposits
    
    
    1,743
    
    
    
    (1,302
    )
    
    
    441
    
    
    
    325
    
    
    
    (2,620
    )
    
    
    (2,295
    )Notes payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (213
    )
    
    
    (213
    )Subordinated debentures
    
    
    
    
    
    
    (31
    )
    
    
    (31
    )
    
    
    263
    
    
    
    (126
    )
    
    
    137Short-term borrowings and FHLB
advances
    
    
    44
    
    
    
    (155
    )
    
    
    (111
    )
    
    
    317
    
    
    
    (67
    )
    
    
    250Total interest expense
    
    
    1,788
    
    
    
    (2,278
    )
    
    
    (490
    )
    
    
    1,184
    
    
    
    (6,652
    )
    
    
    (5,468
    )Change in net interest income
    
    $
    3,702
    
    
    $
    129
    
    
    $
    3,831
    
    
    $
    2,844
    
    
    $
    200
    
    
    $
    3,044
  (a)
    
    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.(b)
    
    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. 20




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##### Table of Contents



NON-INTEREST INCOME The following table presents the principal components of non-interest income
for the years ended December 31: (In thousands)
    
    2003
    
    2002
    
    2001Merchant bankcard processing income
    
    $
    4,953
    
    
    $
    4,387
    
    
    $
    4,010Gain on sale of government guaranteed loans
    
    
    117
    
    
    
    28
    
    
    
    97Fees on mortgage loans sold
    
    
    2,201
    
    
    
    1,583
    
    
    
    1,075Equity in loss, net of goodwill amortization,
from investment in ERAS Joint Venture
    
    
    
    
    
    
    
    
    
    
    (235
    )Dividend income from ERAS Joint Venture
    
    
    
    
    
    
    33
    
    
    
    Servicing income
    
    
    119
    
    
    
    126
    
    
    
    179Service charges on deposit accounts
    
    
    2,452
    
    
    
    2,240
    
    
    
    2,225Gain on sale of investment in ERAS Joint Venture
    
    
    202
    
    
    
    211
    
    
    
    820Gain on sale of servicing rights
    
    
    
    
    
    
    
    
    
    
    255Investment securities gains, net
    
    
    289
    
    
    
    218
    
    
    
    284Retail investment services
    
    
    420
    
    
    
    206
    
    
    
    177Debit card income
    
    
    388
    
    
    
    350
    
    
    
    278Earnings on bank owned life insurance policies
    
    
    433
    
    
    
    350
    
    
    
    312Other
    
    
    463
    
    
    
    697
    
    
    
    521Total non-interest income
    
    $
    12,037
    
    
    $
    10,429
    
    
    $
    9,998
 Over the past three years, we have increased non-interest income from
$10.0 million to $12.0 million. Fees on residential loans sold at origination
has been growing due to a favorable interest rate environment and increasing
staff in new markets. The component of growth due to favorable rates will most
likely be eliminated in 2004 as we expect somewhat higher interest rates.
However, we intend to increase staffing in the residential mortgage origination
process to offset the expected decrease in volume of refinance activity.
Merchant bankcard growth should moderate a little in the future since it is a
mature product and large percentage growth from this base will be challenging,
and is expected to grow at a growth rate similar to that of the organization. 2003 compared to 2002: Non-interest income increased $1.6 million in 2003. The increase in
merchant bankcard processing income came primarily from additional penetration
of our traditional market of the Florida Keys. Fees on mortgage loans sold
result from the sale of residential loans (primarily fixed rate loans) to the
secondary market. In 2003, we continued to experience increased volumes of
residential loans as a result of the low rate environment, and our expansion
into Southwest Florida. Retail investment services income also increased in
2003. Debit card income rose despite a reduction in the interchange rate paid
to us because of increasing usage of this product. We recognized a gain of
$202,000 from the sale of our remaining interest in ERAS Joint Venture. 2002 compared to 2001: Non-interest income increased $0.4 million in 2002. The increase in
merchant bankcard processing income and retail investment services income is
primarily a result of volume increases, and also additional activity as a
result of our expansion into Southwest Florida. Fees on mortgage loans sold
also increased due to increased volumes. The increase in production can be
attributed to historically low interest rates that generated a dramatic surge
in refinancings as well as stimulating the purchase market, and the expansion
of our sales staff in Southwest Florida. The net gain from the sale of
securities will vary based upon the sales and calls of the individual
securities in the investment portfolio. In 2002, we recognized a gain of $211,000 from the sale of 5.1% of our 10%
interest in ERAS Joint Venture. We had recognized a gain of $820,000 from the
sale of two thirds of our 30% interest in ERAS Joint Venture in 2001. The sale
in 2001 was completed as there was an opportunity to realize some of the
appreciation of the value of our investment in ERAS and also decrease the
future volatility of earnings. Prior to the sale in December 2001, the 30%
interest required us to recognize that percentage of ERASs income or loss on
our income statement. A net loss of $235,000 from ERASs operations was
recorded in 2001. At the resulting 10% ownership, 21




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##### Table of Contents



the remaining investment in ERAS was accounted for under the cost method
in 2002 and thereafter. In 2001, we recognized a $255,000 gain on the sale of servicing rights.
We securitized some residential loans in the Banks portfolio and the servicing
rights for this group were sold resulting in the gain. This represents the
only time the Bank has sold servicing rights. NON-INTEREST EXPENSES The following table represents the principal components of non-interest
expenses for the years ended December 31: (In thousands)
    
    2003
    
    2002
    
    2001Salary and employee benefits
    
    $
    12,878
    
    
    $
    10,602
    
    
    $
    8,874Net occupancy expense
    
    
    4,325
    
    
    
    3,680
    
    
    
    3,256Merchant bankcard processing expenses
and other merchant charges
    
    
    3,656
    
    
    
    3,242
    
    
    
    3,043Accounting, legal, and other professional
    
    
    845
    
    
    
    749
    
    
    
    725Computer services
    
    
    1,533
    
    
    
    1,627
    
    
    
    1,517Postage, courier and armored car
    
    
    700
    
    
    
    590
    
    
    
    501Marketing and community relations
    
    
    851
    
    
    
    865
    
    
    
    697Operating supplies
    
    
    495
    
    
    
    428
    
    
    
    495Directors fees
    
    
    233
    
    
    
    199
    
    
    
    167FDIC and state assessments
    
    
    189
    
    
    
    170
    
    
    
    161Amortization of intangibles
    
    
    292
    
    
    
    297
    
    
    
    417Repossessed asset expenses
    
    
    390
    
    
    
    177
    
    
    
    57Operational charge-offs
    
    
    82
    
    
    
    153
    
    
    
    136Other operating expenses
    
    
    1,100
    
    
    
    853
    
    
    
    870Total non-interest expenses
    
    $
    27,569
    
    
    $
    23,632
    
    
    $
    20,916
 Over the past three years, non-interest expenses have increased from $20.9
million to $27.6 million. The increases in this category are due primarily to
the increases in employees and facilities to support growth in the
organization. It is anticipated that this will moderate as a constant level of
growth should translate to a smaller percentage of our cost increases in future
years. 2003 compared to 2002: Non-interest expenses increased $3.9 million in 2003. Approximately $2.3
million of the increase was related to salary and employee benefits. At
December 31, 2003, the Bank had 261 full-time employees and 15 part-time
employees, compared to 230 full-time employees and 15 part-time employees at
December 31, 2002. The increased staffing was attributable to a full year of
operations at the City Center branch opened late in 2002 in Southwest Florida,
additions to the indirect lending department, additions to manage growth
throughout the Company, and additions to assist in security and regulatory
compliance. The majority of the increases in the non-interest expense category
are the result of costs associated with the growth of our business. 2002 compared to 2001: Non-interest expenses increased $2.7 million in 2002. Approximately $1.7
million of the increase was related to salary and employee benefits. Officer
and employee salaries and payroll taxes at the Bank increased approximately
$840,000 over the prior year due to additional employees and annual merit
increases in salaries. At December 31, 2002, the Bank had 230 full-time
employees and 15 part-time employees, compared to 220 full time-employees and
15 part-time employees at December 31, 2001. Commission expense at the Bank
level also increased approximately $193,000 over the prior year. The amount of
commission expense in the residential and investment center departments is
related to the income from these activities. Bonuses at the Bank level also
increased $432,000 from the prior year. Bonuses in 2001 had been reduced to
only $203,000, whereas in 2002 they were $635,000. Net occupancy expense
increased $424,000 over the prior year. The majority of the increase is
directly attributable to the expansion into the Southwest Florida market in
2001 and 2002. A full year of expenses was included in 2002 for the two
branches and residential lending office that opened in 2001. The new Naples
branch headquarters facility 22




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##### Table of Contents



also opened in the fourth quarter of 2002. Amortization of intangibles
decreased $120,000 in 2002, due to the discontinuance of goodwill amortization
in 2002. PROVISION FOR INCOME TAXES The provision for income taxes includes federal and state income taxes.
The effective income tax rates for the years ended December 31, 2003, 2002, and
2001 were 35.0%, 34.2%, and 34.3%, respectively. The fluctuations in effective
tax rates reflect the effect of the differences in deductibility of certain
income and expenses. Loan Portfolio Prior to our entrance into the Southwest Florida market in 2001, our
primary locations were in the Florida Keys (Monroe County) and south Miami-Dade
County. As this regions primary industry is tourism, commercial loan demand
is primarily for resort, hotel, restaurant, marina and related real estate
secured property loans. We serve this market by offering long-term,
adjustable rate financing to the owners of these types of properties for
acquisition and improvements. These loans are often $1 million or larger and
may be eligible for government guarantee programs or traditional participation
agreements. The government-funded programs such as the Small Business
Administration are generally geared toward long-term, adjustable rate
financing. As our business expands in Southwest Florida, we believe the loan
portfolio will benefit from the resulting geographic diversification which is
expected to provide more industry-based diversity to our loan portfolio. As of
December 31, 2003, we had approximately $62 million of loans outstanding
(excluding indirect auto loans) in Southwest Florida, where we had also
generated approximately $55 million in total deposits. The cost of living in Monroe County is higher in comparison to other
counties in Florida due in large part to the scarce and expensive real estate
with various construction restrictions and environmental considerations.
Accordingly, collateral values on loans secured by property in this market are
greater. We have grown our commercial loan portfolio by aggressively serving
this market. The quality of our credit administration along with the stable
real estate values has kept loan losses at low levels. Loans are expected to produce higher yields than investment securities and
other interest-earning assets (assuming that credit losses are not excessive).
The absolute volume of loans and the volume as a percentage of total earning
assets are important determinants of the net interest margin. Gross loans
outstanding increased to $538.6 million at year end 2003 as compared to $441.7
million at year end 2002, an increase of 21.9%. Of this amount, real estate
mortgage loans increased 12.3% from $348.8 million to $391.7 million.
Commercial real estate mortgage loans accounted for much of this increase,
growing from $265.1 million to $297.2 million at the respective year ends.
Another loan type that increased significantly in 2003 was indirect auto dealer
loans. This portfolio increased from $16.9 million at December 31, 2002 to
$59.4 million at December 31, 2003. We originate commercial loans with rates
that fluctuate with the prime lending rate and residential loans with rates
that fluctuate with the one year treasury index. At December 31, 2003, 73.9%
of the total loan portfolio had floating or adjustable rates. 23




---



##### Table of Contents



The following table presents the composition our loan portfolio at December 31: (Dollars in thousands)
    
    2003
    
    2002
    
    2001
    
    2000
    
    1999Real estate mortgage loans:Commercial
    
    $
    297,221
    
    
    $
    265,113
    
    
    $
    232,759
    
    
    $
    170,285
    
    
    $
    150,371Residential
    
    
    60,104
    
    
    
    68,389
    
    
    
    68,373
    
    
    
    76,980
    
    
    
    82,786Farmland
    
    
    2,317
    
    
    
    443
    
    
    
    267
    
    
    
    
    
    
    
    Construction
    
    
    32,089
    
    
    
    14,893
    
    
    
    6,434
    
    
    
    7,619
    
    
    
    9,182Commercial and agricultural loans
    
    
    63,624
    
    
    
    49,212
    
    
    
    46,927
    
    
    
    38,762
    
    
    
    32,359Home equity loans
    
    
    12,574
    
    
    
    17,475
    
    
    
    14,707
    
    
    
    12,813
    
    
    
    9,347Indirect auto dealer loans
    
    
    59,437
    
    
    
    16,854
    
    
    
    
    
    
    
    
    
    
    
    Other consumer loans
    
    
    11,232
    
    
    
    9,364
    
    
    
    9,637
    
    
    
    9,115
    
    
    
    6,569Subtotal
    
    
    538,598
    
    
    
    441,743
    
    
    
    379,104
    
    
    
    315,574
    
    
    
    290,614Less: deferred loan costs (fees)
    
    
    1,815
    
    
    
    784
    
    
    
    (157
    )
    
    
    (488
    )
    
    
    (733
    )Less: allowance for loan losses
    
    
    (5,216
    )
    
    
    (4,272
    )
    
    
    (3,675
    )
    
    
    (3,268
    )
    
    
    (2,997
    )Net loans
    
    $
    535,197
    
    
    $
    438,255
    
    
    $
    375,272
    
    
    $
    311,818
    
    
    $
    286,884
 The contractual maturity distribution of our loan portfolio at December
31, 2003 is indicated in the table below. The vast majority of these are
amortizing loans. Loans maturingWithin
    
    1 to 5
    
    After 5(Dollars in thousands)
    
    1 Year
    
    Years
    
    Years
    
    TotalReal estate mortgage loans:Commercial
    
    $
    17,364
    
    
    $
    28,391
    
    
    $
    251,466
    
    
    $
    297,221Residential
    
    
    10
    
    
    
    131
    
    
    
    59,963
    
    
    
    60,104Farmland
    
    
    
    
    
    
    19
    
    
    
    2,298
    
    
    
    2,317Construction (a)
    
    
    13,308
    
    
    
    5,009
    
    
    
    13,772
    
    
    
    32,089Commercial and
agricultural loans
    
    
    23,542
    
    
    
    23,457
    
    
    
    16,625
    
    
    
    63,624Home equity loans
    
    
    926
    
    
    
    909
    
    
    
    10,739
    
    
    
    12,574Indirect auto dealer loans
    
    
    58
    
    
    
    43,375
    
    
    
    16,004
    
    
    
    59,437Other consumer loans
    
    
    1,180
    
    
    
    5,509
    
    
    
    4,543
    
    
    
    11,232Total Loans
    
    $
    56,388
    
    
    $
    106,800
    
    
    $
    375,410
    
    
    $
    538,598
  (a)
    
    $9,510 of this amount relates to residential real estate construction
loans that have been approved for permanent financing but are still under
construction. The remaining amount relates to commercial real estate
construction loans, some of which have been approved for permanent
financing but are still under construction. Loans maturingWithin
    
    1 to 5
    
    After 5(Dollars in thousands)
    
    1 Year
    
    Years
    
    Years
    
    TotalLoans with:Predetermined interest rates
    
    $
    22,841
    
    
    $
    67,863
    
    
    $
    49,823
    
    
    $
    140,527Floating or adjustable rates
    
    
    33,547
    
    
    
    38,937
    
    
    
    325,587
    
    
    
    398,071Total Loans
    
    $
    56,388
    
    
    $
    106,800
    
    
    $
    375,410
    
    
    $
    538,598
 24




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##### Table of Contents



Allowance and Provision for Loan Losses The allowance for loan losses is a valuation allowance for probable
incurred credit losses in the loan portfolio. Our formalized 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. Since most of the factors that we use in constructing our estimate for the
allowance have been relatively stable in recent years, the provisions we have
used to fund this allowance have been necessitated primarily by the overall
level of loan growth and to replenish the allowance for specific charge-offs.
Because we are principally a commercial bank and have a loan to deposit ratio
greater than 90%, any estimate that is used as a multiplier on loan balances
reflecting our best perception of a particular type of risk has the potential
to have significant income effects if these multipliers change. Further, since the net result of our calculation for the allowance results
in this amount being 0.97% of outstanding loans, the risks associated with
changes in the underlying factors of this calculation have an asymmetrical risk
to the extent of possible negative as opposed to positive consequences. In
other words, the current allowance reflects factors whose history has indicated
and justified a relatively low allowance in percentage terms. These factors
have limited capacity for improvement since associated risks cannot go to zero.
However, for example, factors such as economic conditions and loan loss
history could conceivably deteriorate dramatically. If that were to happen,
the effect on the allowance calculation would be significant and, therefore,
require a large provision to absorb higher potential losses. Senior management and the Board of Directors review this calculation and
the underlying assumptions on a routine basis not less frequently than
quarterly. The allowance for loan losses amounted to $5,215,901 and $4,272,499 at
December 31, 2003 and December 31, 2002, respectively. Based on an analysis
performed by management at December 31, 2003, 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. The provision for loan losses is a charge to income in the current period
to replenish the allowance and maintain it at a level that management has
determined to be adequate to absorb estimated losses in the loan portfolio.
Our provision for loan losses was $1,586,000, $791,000, and $1,005,000 for the
years ended December 31, 2003, 2002, and 2001, respectively 25




---



##### Table of Contents



Transactions in the allowance for loan losses are summarized for the years
ended December 31, (In thousands)
    
    2003
    
    2002
    
    2001
    
    2000
    
    1999Analysis of allowance for loan losses:Balance at beginning of year
    
    $
    4,272
    
    
    $
    3,675
    
    
    $
    3,268
    
    
    $
    2,997
    
    
    $
    2,517Charge-offs:Real estate mortgage loans:Commercial
    
    
    
    
    
    
    211
    
    
    
    372
    
    
    
    
    
    
    
    30Residential
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    Farmland
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Construction
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial and agricultural loans
    
    
    183
    
    
    
    14
    
    
    
    200
    
    
    
    27
    
    
    
    5Home equity loans
    
    
    53
    
    
    
    15
    
    
    
    
    
    
    
    7
    
    
    
    32Indirect auto dealer loans
    
    
    371
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    Other consumer loans
    
    
    61
    
    
    
    46
    
    
    
    30
    
    
    
    27
    
    
    
    41Total charge-offs
    
    
    668
    
    
    
    302
    
    
    
    623
    
    
    
    61
    
    
    
    108Recoveries:Real estate mortgage loans:Commercial
    
    
    6
    
    
    
    84
    
    
    
    
    
    
    
    
    
    
    
    Residential
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    Farmland
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Construction
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial and agricultural loans
    
    
    1
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    Home equity loans
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Indirect auto dealer loans
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other consumer loans
    
    
    9
    
    
    
    24
    
    
    
    11
    
    
    
    
    
    
    
    48Total recoveries
    
    
    26
    
    
    
    108
    
    
    
    25
    
    
    
    0
    
    
    
    48Net charge-offs
    
    
    642
    
    
    
    194
    
    
    
    598
    
    
    
    61
    
    
    
    60Provision for loan losses
    
    
    1,586
    
    
    
    791
    
    
    
    1,005
    
    
    
    332
    
    
    
    540Allowance for loan losses at end of year
    
    $
    5,216
    
    
    $
    4,272
    
    
    $
    3,675
    
    
    $
    3,268
    
    
    $
    2,997Ratio of net charge-offs to average
net loans outstanding
    
    
    0.13
    %
    
    
    0.05
    %
    
    
    0.17
    %
    
    
    0.02
    %
    
    
    0.02
    %
 26




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##### Table of Contents



The following table represents managements best estimate of the
allocation of the allowance for loan losses to the various segments of the loan
portfolio based on information available as of December 31. Due to the ongoing
evaluation and changes in the basis for the allowance for loan losses, actual
future charge offs will not necessarily follow the allocations described below. (In thousands)
    
    2003
    
    2002
    
    2001
    
    2000
    
    1999% of
    
    
    
    
    
    % of
    
    
    
    
    
    % of
    
    
    
    
    
    % of
    
    
    
    
    
    % ofLoans
    
    
    
    
    
    Loans
    
    
    
    
    
    Loans
    
    
    
    
    
    Loans
    
    
    
    
    
    Loansto
    
    
    
    
    
    to
    
    
    
    
    
    to
    
    
    
    
    
    to
    
    
    
    
    
    toAllowance
    
    total
    
    Allowance
    
    total
    
    Allowance
    
    total
    
    Allowance
    
    total
    
    Allowance
    
    total$
    
    Loans
    
    $
    
    Loans
    
    $
    
    Loans
    
    $
    
    Loans
    
    $
    
    LoansReal estate mortgage
loans:Commercial
    
    
    2,608
    
    
    
    55.2
    
    
    
    2,656
    
    
    
    60.0
    
    
    
    2,120
    
    
    
    61.4
    
    
    
    1,778
    
    
    
    54.0
    
    
    
    1,700
    
    
    
    51.7Residential
    
    
    151
    
    
    
    11.2
    
    
    
    178
    
    
    
    15.5
    
    
    
    183
    
    
    
    18.0
    
    
    
    706
    
    
    
    24.4
    
    
    
    685
    
    
    
    28.5Farmland
    
    
    20
    
    
    
    0.4
    
    
    
    4
    
    
    
    0.1
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Construction
    
    
    217
    
    
    
    6.0
    
    
    
    87
    
    
    
    3.4
    
    
    
    26
    
    
    
    1.7
    
    
    
    43
    
    
    
    2.4
    
    
    
    
    
    
    
    3.2Commercial and
agricultural loans
    
    
    901
    
    
    
    11.8
    
    
    
    740
    
    
    
    11.1
    
    
    
    917
    
    
    
    12.4
    
    
    
    414
    
    
    
    12.3
    
    
    
    366
    
    
    
    11.1Home equity loans
    
    
    78
    
    
    
    2.3
    
    
    
    216
    
    
    
    4.0
    
    
    
    259
    
    
    
    3.9
    
    
    
    190
    
    
    
    4.0
    
    
    
    143
    
    
    
    3.2Indirect auto dealer loans
    
    
    1,095
    
    
    
    11.0
    
    
    
    169
    
    
    
    3.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other consumer loans
    
    
    146
    
    
    
    2.1
    
    
    
    222
    
    
    
    2.1
    
    
    
    170
    
    
    
    2.5
    
    
    
    137
    
    
    
    2.9
    
    
    
    103
    
    
    
    2.35,216
    
    
    
    100
    %
    
    
    4,272
    
    
    
    100
    %
    
    
    3,675
    
    
    
    100
    %
    
    
    3,268
    
    
    
    100
    %
    
    
    2,997
    
    
    
    100
    %
 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 for the periods ending December 31: (In thousands)
    
    2003
    
    2002
    
    2001
    
    2000
    
    1999Total nonaccrual loans
    
    $
    390
    
    
    $
    546
    
    
    $
    1,590
    
    
    $
    503
    
    
    $
    70Accruing loans delinquent 90 days or more (a)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,014
    
    
    
    1,993Total non-performing loans
    
    $
    390
    
    
    $
    546
    
    
    $
    1,590
    
    
    $
    2,517
    
    
    $
    2,063Repossessed personal property (indirect auto
dealer loans)
    
    
    598
    
    
    
    70
    
    
    
    
    
    
    
    
    
    
    
    Other real estate owned (b)
    
    
    193
    
    
    
    550
    
    
    
    550
    
    
    
    
    
    
    
    Other assets (b)
    
    
    2,472
    
    
    
    2,519
    
    
    
    2,290
    
    
    
    
    
    
    
    Total non-performing assets
    
    $
    3,653
    
    
    $
    3,685
    
    
    $
    4,430
    
    
    $
    2,517
    
    
    $
    2,063Allowance for loan losses
    
    $
    5,216
    
    
    $
    4,272
    
    
    $
    3,675
    
    
    $
    3,268
    
    
    $
    2,997Non-performing assets as a percent of total assets
    
    
    0.55
    %
    
    
    0.65
    %
    
    
    0.90
    %
    
    
    0.57
    %
    
    
    0.53
    %Non-performing loans as a percent of gross loans
    
    
    0.07
    %
    
    
    0.12
    %
    
    
    0.42
    %
    
    
    0.80
    %
    
    
    0.71
    %Allowance for loan losses as a percent of
non-performing loans
    
    
    1,336.33
    %
    
    
    783.19
    %
    
    
    231.07
    %
    
    
    129.84
    %
    
    
    145.25
    %
 (a) Non-performing
loans excludes the $1.6 million loan discussed below
that is guaranteed for both principal and interest by the USDA. 27




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##### Table of Contents



(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 U.S.
Department of Agriculture (USDA). In addition to business real estate and
equipment, the loan was collateralized by the business owners interest in a
trust. Under provisions of the trust agreement, beneficiaries cannot receive
trust assets until November 2010. 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 December 31, 2003 and December 31, 2002, and is
accruing interest. Accrued interest on this loan totals approximately $590,000
and $505,000 at December 31, 2003 and December 31, 2002, respectively. The Bank is pursuing a sale of the property and equipment and has incurred
various expenditures. The Bank capitalized the liquidation costs and portion
of the protective advances which it expects will be fully reimbursed by the
USDA. Other real estate recorded on the Banks books totaled $192,464 and
$550,000 at December 31, 2003 and December 31, 2002, respectively. The
non-guaranteed principal and interest ($1,961,000 at December 31, 2003 and
December 31, 2002) and the reimbursable capitalized liquidation costs and
protective advance costs totaling approximately $511,000 and $558,000 at
December 31, 2003 and December 31, 2002, 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 June 11th, the Bank
charged-off the non guaranteed principal and interest totaling $1,961,000 at
June 30, 2003, for regulatory purposes. Since we believe this amount is
ultimately realizable, we did not write off this amount for financial statement
purposes under generally accepted accounting principles. Liquidity and Rate Sensitivity Liquidity represents the ability to provide steady sources of funds for
loan commitments and investment activities, as well as to provide sufficient
funds to cover deposit withdrawals and payments of debt, off-balance sheet
obligations and operating obligations. Funds can be obtained from operations
by converting assets to cash, by attracting new deposits, by borrowing, by
raising capital and other ways. Major sources of increases in cash and cash equivalents are as follows for the
three years ending December 31: 2003
    
    2002
    
    2001Provided (used) by operating activities
    
    $
    9,573,878
    
    
    $
    5,326,190
    
    
    $
    (1,610,754
    )Used by investing activities
    
    
    (98,766,711
    )
    
    
    (67,199,321
    )
    
    
    (52,050,807
    )Provided by financing activities
    
    
    98,803,680
    
    
    
    64,672,881
    
    
    
    51,365,976Net increase (decrease) in cash and
cash equivalents
    
    $
    9,610,847
    
    
    $
    2,799,750
    
    
    $
    (2,295,585
    )
 28




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##### Table of Contents



As discussed in Note 16 of the Consolidated Financial Statements, the
Company had unfunded loan commitments and unfunded letters of credit totaling
$74.1 million at December 31, 2003. The Company believes the likelihood of
these commitments either needing to be totally funded or funded at the same
time is low. However, should significant funding requirements occur, the
Company has available borrowing capacity from various sources as discussed
below. The Bank has an unsecured overnight federal funds purchased accommodation
up to a maximum of $7.5 million from its principal correspondent bank.
Further, the Bank has invested in FHLB stock for the purpose of establishing
credit lines with the FHLB. The credit availability to the Bank is equal to 14%
of the Banks total assets as reported on the December 31, 2003, financial
information submitted to the Banks regulators (increased to 20% effective
January 2004). The credit availability from the FHLB approximated $93.4
million at December 31, 2003 under which $45 million was outstanding.
Borrowings against this line of credit are collateralized by the Banks
one-to-four family residential mortgage loans. Scheduled maturities and paydowns of loans and investment securities are a
continued source of liquidity. Also, many adjustable rate residential real
estate loans originated are salable in the secondary mortgage market at par or
better and therefore provide a secondary source for liquidity. At December 31, 2003, our gross loan to deposit ratio was 97.3% compared
to a ratio of 91.5% at December 31, 2002. Management monitors and assesses the
adequacy of our liquidity position on a monthly basis to ensure that sufficient
sources of liquidity are maintained and available. Under state banking law, regulatory approval will be required if the total
of all dividends declared in any calendar year by the Bank exceeds the Banks
net profits to date for that year combined with its retained net profits for
the preceding two years. Retained earnings of the Bank available for payment
of dividends to us without prior regulatory approval at December 31, 2003 is
approximately $13.8 million. These dividends represent the Companys primary
source of liquidity on a stand alone basis. 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. 29




---



##### Table of Contents



Our interest rate sensitivity position at December 31, 2003 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
    
    $
    228,100
    
    
    $
    33,168
    
    
    $
    37,074
    
    
    $
    168,670
    
    
    $
    71,586
    
    
    $
    538,598Investment securities-taxable
    
    
    5,330
    
    
    
    
    
    
    
    
    
    
    
    20,499
    
    
    
    17,571
    
    
    
    43,400Investment securities-tax exempt
    
    
    
    
    
    
    236
    
    
    
    314
    
    
    
    3,141
    
    
    
    5,466
    
    
    
    9,157Federal funds sold
    
    
    16,484
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,484FHLB stock
    
    
    2,250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,250Interest-bearing deposit in other
banks
    
    
    170
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    170Total interest-bearing assets
    
    
    252,334
    
    
    
    33,404
    
    
    
    37,388
    
    
    
    192,310
    
    
    
    94,623
    
    
    
    610,059Interest-bearing liabilities:NOW accounts
    
    
    68,004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68,004Money Market
    
    
    120,735
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    120,735Savings Deposits
    
    
    38,316
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,316Time deposits
    
    
    25,606
    
    
    
    32,754
    
    
    
    69,139
    
    
    
    77,525
    
    
    
    6
    
    
    
    205,030Notes payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,250
    
    
    
    5,250Subordinated debentures
    
    
    5,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,000
    
    
    
    13,000Other borrowings
    
    
    49,041
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49,041Total interest-bearing liabilities
    
    
    306,702
    
    
    
    32,754
    
    
    
    69,139
    
    
    
    77,525
    
    
    
    13,256
    
    
    
    499,376Interest sensitivity gap
    
    $
    (54,368
    )
    
    $
    650
    
    
    $
    (31,751
    )
    
    $
    114,785
    
    
    $
    81,367
    
    
    $
    110,683Cumulative interest sensitivity gap
    
    
    (54,368
    )
    
    
    (53,718
    )
    
    
    (85,469
    )
    
    
    29,316
    
    
    
    110,683
    
    
    
    110,683Cumulative sensitivity ratio
    
    
    (8.9
    %)
    
    
    (8.8
    %)
    
    
    (14.0
    %)
    
    
    4.8
    %
    
    
    18.1
    %
    
    
    18.1
    %
 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.
Nevertheless, if market interest rates should decrease, it is anticipated that
our net interest margin would decrease due to many interest-bearing liabilities
with current rates so low that further reductions could not be significant.
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 we have more total assets subject to rate changes
than total liabilities that are rate sensitive. Even in the near term, we believe the $85 million one year cumulative
negative sensitivity gap may exaggerate the probable effects on earnings in a
rising rate environment for two reasons. First, the liabilities subject to
repricing are predominately not indexed to any specific market rate and
therefore offer us 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 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 30




---



##### Table of Contents



sensitivity table. It is our policy to maintain our cumulative one year
gap ratio in the (20)% to +10% range. At December 31, 2003, the Company was
within this range with a one year cumulative sensitivity ratio of (14.0)%. Investment Portfolio Contractual maturities of investment securities at December 31, 2003 are
shown below. Expected maturities differ from contractual maturities because
borrowers may have the right to call or repay obligations without call or
prepayment penalties. MortgageBackedSecurities &MarketableAfter 1 Year
    
    After 5 Years
    
    
    
    
    
    
    
    
    
    EquityWithin 1 Year
    
    Within 5 Years
    
    Within 10 Years
    
    After 10 Years
    
    Securities(Dollars in thousands)
    
    Amount
    
    Yield
    
    Amount
    
    Yield
    
    Amount
    
    Yield
    
    Amount
    
    Yield
    
    AmountSecurities Available for Sale:U.S. Treasury Securities
    
    $
    
    
    
    
    
    
    
    $
    218
    
    
    
    3.60
    %
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    U.S. Govt agencies and
corporations
    
    
    
    
    
    
    
    
    
    
    20,281
    
    
    
    3.53
    %
    
    
    9,755
    
    
    
    4.53
    %
    
    
    1,083
    
    
    
    3.30
    %
    
    
    States and political
subdivisions  tax exempt (a)
    
    
    
    
    
    
    
    
    
    
    3,691
    
    
    
    6.37
    %
    
    
    2,411
    
    
    
    7.39
    %
    
    
    3,055
    
    
    
    5.72
    %
    
    
    States and political
subdivisions  taxable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    500
    
    
    
    7.29
    %
    
    
    3,000
    
    
    
    6.09
    %
    
    
    Marketable equity securities (a)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,395Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,168Total
    
    $
    
    
    
    
    
    
    
    $
    24,190
    
    
    
    3.95
    %
    
    $
    12,666
    
    
    
    5.13
    %
    
    $
    7,138
    
    
    
    5.50
    %
    
    $
    8,563
 Yield by classification of investment securities at December 31, 2003 was as
follows: (Dollars in thousands)
    
    Yield
    
    TotalsSecurities Available for Sale:U.S. Treasury Securities
    
    
    3.60
    %
    
    $
    218U.S. Govt agencies and corporations
    
    
    3.84
    %
    
    
    31,119States and political subdivisions  tax exempt (a)
    
    
    6.40
    %
    
    
    9,157States and political subdivisions  taxable
    
    
    6.24
    %
    
    
    3,500Marketable equity securities (a)
    
    
    10.60
    %
    
    
    3,395Mortgage-backed securities
    
    
    5.09
    %
    
    
    5,168Total
    
    
    4.95
    %
    
    $
    52,557
  (a)
    
    Weighted average yields on tax exempt obligations and marketable
equity securities have been computed by grossing up actual tax exempt
income (96% for marketable equity securities) to a fully taxable
equivalent basis using a federal tax rate of 34%. 31




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##### Table of Contents



The following table presents the amortized cost, market value, unrealized
gains, and unrealized losses for the major categories of our investment
portfolio for each reported period: (Dollars in thousands) Available for Sale  December 31, 2003 Amortized
    
    Unrealized
    
    Unrealized
    
    FairCost
    
    Gains
    
    Losses
    
    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
 Available for Sale  December 31, 2002 Amortized
    
    Unrealized
    
    Unrealized
    
    FairCost
    
    Gains
    
    Losses
    
    ValueU.S. Treasury Securities
    
    $
    213
    
    
    $
    11
    
    
    $
    
    
    
    $
    224U.S. Government agencies and corporations
    
    
    28,333
    
    
    
    884
    
    
    
    
    
    
    
    29,217States and political subdivisions-tax
exempt
    
    
    5,172
    
    
    
    382
    
    
    
    
    
    
    
    5,554States and political subdivisions-taxable
    
    
    4,380
    
    
    
    89
    
    
    
    9
    
    
    
    4,460Mortgage-backed securities
    
    
    14,383
    
    
    
    430
    
    
    
    
    
    
    
    14,813$
    52,481
    
    
    $
    1,796
    
    
    $
    9
    
    
    $
    54,268
 Held to Maturity  December 31, 2001 Amortized
    
    Unrealized
    
    Unrealized
    
    FairCost
    
    Gains
    
    Losses
    
    ValueU.S. Treasury Securities
    
    $
    206
    
    
    $
    4
    
    
    $
    
    
    
    $
    210U.S. Government
agencies and
corporations
    
    
    16,674
    
    
    
    298
    
    
    
    
    
    
    
    16,972$
    16,880
    
    
    $
    302
    
    
    $
    
    
    
    $
    17,182
 Available for Sale  December 31, 2001 Amortized
    
    Unrealized
    
    Unrealized
    
    FairCost
    
    Gains
    
    Losses
    
    ValueU.S. Treasury Securities
    
    $
    3,017
    
    
    $
    72
    
    
    $
    
    
    
    $
    3,089U.S. Government agencies and corporations
    
    
    106
    
    
    
    1
    
    
    
    
    
    
    
    107States and political subdivisions-tax
exempt
    
    
    5,743
    
    
    
    90
    
    
    
    1
    
    
    
    5,832States and political subdivisions-taxable
    
    
    5,017
    
    
    
    49
    
    
    
    269
    
    
    
    4,797Corporate bonds
    
    
    3,173
    
    
    
    37
    
    
    
    
    
    
    
    3,210Mortgage-backed securities
    
    
    18,360
    
    
    
    84
    
    
    
    5
    
    
    
    18,439$
    35,416
    
    
    $
    333
    
    
    $
    275
    
    
    $
    35,474
 In June of 2002, the Company transferred investment securities in the held
to maturity category to the available for sale category. The book value at the
time of transfer was $18,507,916 and the market value was $18,941,377.
Securities in the available for sale category allow for more flexibility in
managing the investments for the Bank. Since changes in market value do not
affect the regulatory capital ratios of the Bank there is no compelling reason
to not have the ability to sell securities when appropriate. Securities
maintained in the held to maturity portfolio do limit the volatility of GAAP
capital. However, as the Bank has trended toward higher loan-to-deposit ratios
(therefore low investments-to-asset ratios) the probable amount of this
volatility has become much less 32




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##### Table of Contents



significant relative to the size of the Bank. Deposits The following table presents the average amount outstanding and the
average rate paid on deposits by us for the years ended December 31, 2003,
2002, and 2001. 2003
    
    2002
    
    2001Average
    
    Average
    
    Average
    
    Average
    
    Average
    
    Average(Dollars in thousands)
    
    Amount
    
    Rate
    
    Amount
    
    Rate
    
    Amount
    
    RateNoninterest-bearing deposits
    
    $
    114,344
    
    
    
    
    
    
    $
    95,324
    
    
    
    
    
    
    $
    81,093
    
    
    
    Interest-bearing depositsNOW Accounts
    
    
    59,389
    
    
    
    0.37
    %
    
    
    50,481
    
    
    
    0.53
    %
    
    
    42,461
    
    
    
    1.19
    %Money market
    
    
    125,410
    
    
    
    0.88
    %
    
    
    131,384
    
    
    
    1.36
    %
    
    
    128,056
    
    
    
    3.65
    %Savings deposit
    
    
    35,475
    
    
    
    0.48
    %
    
    
    29,891
    
    
    
    0.75
    %
    
    
    24,619
    
    
    
    1.80
    %Time deposits
    
    
    198,162
    
    
    
    3.25
    %
    
    
    149,061
    
    
    
    4.03
    %
    
    
    143,230
    
    
    
    5.79
    %Total
    
    $
    532,780
    
    
    
    1.49
    %
    
    $
    456,141
    
    
    
    1.82
    %
    
    $
    419,459
    
    
    
    3.32
    %
 The following table presents the maturity of our time deposits at December 31,
2003: Deposits
    
    Deposits$100,000
    
    Less than(Dollars in thousands)
    
    and Greater
    
    $100,000
    
    TotalMonths to maturity:3 or less
    
    $
    11,978
    
    
    $
    12,423
    
    
    $
    24,4014 to 6
    
    
    14,988
    
    
    
    17,936
    
    
    
    32,9247 through 12
    
    
    32,232
    
    
    
    37,388
    
    
    
    69,620Over 12
    
    
    38,675
    
    
    
    39,410
    
    
    
    78,085Total
    
    $
    97,873
    
    
    $
    107,157
    
    
    $
    205,030
 Off-Balance Sheet Arrangements and Contractual Obligations Our off-balance sheet arrangements and contractual obligations at December
31, 2003 are summarized in the table that follows. The amounts shown for
commitments to extend credit and letters of credit are contingent obligations,
some of which are expected to expire without being drawn upon. As a result,
the amounts shown for these items do not necessarily represent future cash
requirements. We believe that our current sources of liquidity are more than
sufficient to fulfill the obligations we have as of December 31, 2003 pursuant
to off-balance sheet arrangements and contractual obligations. 33




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##### Table of Contents



Amount of Commitment Expiration Per PeriodOver One
    
    Over ThreeTotal Amounts
    
    One Year or
    
    Year Through
    
    Years Through
    
    Over Five(in thousands)
    
    Committed
    
    Less
    
    Three Years
    
    Five Years
    
    YearsCommitments to extend
credit
    
    $
    72,602
    
    
    $
    38,367
    
    
    $
    5,504
    
    
    $
    4,978
    
    
    $
    23,753Standby letters of credit
    
    
    1,543
    
    
    
    1,543
    
    
    
    
    
    
    
    
    
    
    
    Capital lease obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating lease obligations
    
    
    3,338
    
    
    
    503
    
    
    
    976
    
    
    
    899
    
    
    
    960Purchase obligations
    
    
    9,464
    
    
    
    2,338
    
    
    
    3,343
    
    
    
    3,783
    
    
    
    Long-term debt
    
    
    18,250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,250Other long-term
liabilities reflected on
the balance sheet under
GAAP
    
    
    1,523
    
    
    
    
    
    
    
    9
    
    
    
    20
    
    
    
    1,494Total
    
    $
    106,720
    
    
    $
    42,751
    
    
    $
    9,832
    
    
    $
    9,680
    
    
    $
    44,457
 The Bank is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. These instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the consolidated balance
sheets. The Banks exposure to credit loss in the event of nonperformance by the
other party to financial instruments for commitments to extend credit and
standby letters of credit is represented by the contractual notional amount of
these instruments. The Bank uses the same credit policies in making
commitments to extend credit and generally uses the same credit policies for
letters of credit as it does for on-balance sheet instruments. Commitments to extend credit are legally binding agreements to lend to a
customer as long as there is no violation of any condition established in the
contract. Since some of these commitments are expected to expire without being
drawn upon, the total commitment amount does not necessarily represent future
cash requirements. Unused home equity lines which comprise a substantial
portion of these commitments, generally expire five years from their date of
origination. Other loan commitments generally expire in 30 days. The amount
of collateral obtained, if any, by the Bank upon extension of credit is based
on managements credit evaluation of the borrower. Collateral held varies but
may include security interests in business assets, mortgages on commercial and
residential real estate, deposit accounts with the Bank or other financial
institutions, and securities. 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. The Bank is obligated under operating leases for office and banking
premises which expire in periods varying from one to fourteen years. Future
minimum lease payments, before considering renewal options that generally are
present, total $3.3 million. Purchase obligations consist of computer and item processing services, and
debit and ATM card processing and support services contracted by the Company
under long term contractual relationships. Long term debt consists of subordinated debentures totaling $13 million
and notes payable totaling $5.25 million. These are further described in Note
10 of the Consolidated Financial Statements. Other long-term liabilities represent obligations under the non-qualified
retirement plan for Bank directors. 34




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##### Table of Contents



Under the plan, the Company pays each participant, or their beneficiary,
the amount of board compensation fees that the director has elected to defer
and interest in 120 equal monthly installments, beginning the month following
the directors normal retirement date. The amount presented above reflects the
future obligation to be paid, assuming no future fee deferrals. The Bank also
has a non-qualified deferred compensation arrangement with certain of its
executive officers that is designed to provide supplemental retirement benefits
to participants. None of the executive officers are vested in this plan as of
December 31, 2003. Therefore, no amount has been included under long-term
liabilities above for this plan. Capital Adequacy There are various primary measures of capital adequacy for banks and
financial holding companies such as risk based capital guidelines and the
leverage capital ratio. See Note 14 to the Consolidated Financial Statements. As of December 31, 2003, the Bank exceeded its required levels of capital
for a bank categorized by the FDIC as well capitalized under the regulatory
framework for prompt corrective action. The Banks risk-based capital ratio of
Tier 1 capital to risk-weighted assets was 9.6%, its risk-based ratio of total
capital to risk-weighted assets was 10.5%, and its leverage ratio was 8.5%. As of December 31, 2003, the Company exceeded its required levels of
capital for a Company categorized as well capitalized under the regulatory
framework for prompt corrective action. The Companys risk-based capital ratio
of Tier 1 capital to risk-weighted assets was 8.8%, its risk-based ratio of
total capital to risk-weighted assets was 10.6%, and its leverage ratio was
7.8%. On March 10, 2004, the Company filed a registration statement for the sale
of approximately 1,000,000 shares of common stock. The net proceeds of the
offering will be used to provide capital to support continued loan and deposit
growth, and for general corporate purposes. The shares will be offered on a
firm commitment basis by Advest, Inc. Inflation Inflation has an important impact on the growth of total assets in the
banking industry and causes a need to increase equity capital higher than
normal levels in order to maintain an appropriate equity to assets ratio. We
have been able to maintain an adequate level of equity, as previously mentioned
and cope with the effects of inflation by managing our interest rate
sensitivity gap position through our asset/liability management program, and by
periodically adjusting our pricing of services and banking products to take
into consideration current costs. Recent Accounting Policies During 2003, the Company adopted FASB Statement 149, Amendment of
Statement 133 on Derivative Instruments and Hedging Activities, FASB Statement
150, Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equities, FASB Statement 132 (revised 2003), Employers
Disclosures about Pensions and Other Postretirement Benefits, FASB
Interpretation 45, Guarantors Accounting and Disclosure Requirements for
Guarantees, and FASB Interpretation 46, Consolidation of Variable Interest
Entities. Adoption of these new standards did not materially affect the
Companys operating results or financial condition. Statement 149 indicates that commitments to make mortgage loans should be
accounted for as derivatives if the loans are to be held for sale, because the
commitment represents a written option and accordingly is recorded at the fair
value of the option liability. Statement 150 requires reporting mandatorily redeemable shares as
liabilities, as well as obligations, not in the form of shares, to repurchase
shares that may require cash payment and some obligations that may be settled
by issuing a variable number of equity shares. Statement 132 (revised 2003) requires additional disclosures about the
assets, obligations, cash flows of 35




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##### Table of Contents



defined benefit pension and postretirement plans, as well as the expense
recorded for such plans. Interpretation 45 requires recognizing the fair value of guarantees made
and information about the maximum potential payments that might be required, as
well as the collateral or other recourse obtainable. Interpretation 45 covers
guarantees such as standby letters of credit, performance guarantees, and
direct or indirect guarantees of the indebtedness of others, but not guarantees
of funding. Interpretation 46, as revised in December 2003, changes the accounting
model for consolidation from one based on consideration of control through
voting interests. Whether to consolidate an entity will now also consider
whether that entity has sufficient equity at risk to enable it to operate
without additional financial support, whether the equity owners in that entity
lack the obligation to absorb expected losses or the right to receive residual
returns of the entity, or whether voting rights in the entity are not
proportional to the equity interest and substantially all the entitys
activities are conducted for an investor with few voting rights. Critical Accounting Policies In reviewing and understanding financial information for the Company, you
are encouraged to read and understand the significant accounting policies which
are used in preparing the consolidated financial statements of the Company.
These policies are described in Note 1 to the Consolidated Financial
Statements. Of these policies, management believes that the accounting for the
allowance for loan losses is the most critical. 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. As
described above under the Allowance and Provision for Loan Losses heading,
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. 
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK Market risk is the risk that a financial institutions earnings and
capital, or its ability to meet its business objectives, will be adversely
affected by movements in market rates or prices such as interest rates, foreign
exchange rates, equity rates, equity prices, credit spreads and/or commodity
prices. The Company has assessed its market risk as predominately interest
rate risk. The following interest rate sensitivity analysis information as of
December 31, 2003 was developed using simulation analysis of the Companys
sensitivity to changes in net interest income under varying assumptions for
changes in market interest rates. Specifically, the model derives expected
interest income and interest expense resulting from an immediate and parallel
shift in the yield curve in the amounts shown. These rate changes are matched with known repricing intervals and
assumptions for new growth net of expected prepayments. The assumptions are
based primarily on experience in the Companys market under varying rate
environments. The imbedded options that the Companys loan customers possess
to refinance are considered for purposes of this analysis and cause the larger
decreases in income in a declining rate scenario versus the income increases in
the same size rising rate scenario. This analysis intentionally exaggerates interest sensitivity. For the
sake of simplicity and comparability, an immediate change in rates is assumed.
However, any significant change in actual market rates would probably be phased
in over an extended period of time. This phase in would reduce the net
interest income effects for any absolute change in rates. Also, the Company
has been originating adjustable rate commercial loans with interest rate floors
that are currently at rates higher than the index and margin on the loans would
indicate. An example would be 36




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##### Table of Contents



a loan at Prime plus 1% but with a 7.0% floor. The Company currently has
in excess of $187 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. In general,
having this significant amount of loans at their floors reduces the Companys
overall rate sensitivity. We attempt 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. Interest Rates Decrease
    
    Interest Rates
    
    Interest Rates Increase(Dollars in thousands)
    
    200 BP
    
    100 BP
    
    Remain Constant
    
    100 BP
    
    200BP2004 Interest Income
    
    $
    36,082
    
    
    $
    38,321
    
    
    $
    40,670
    
    
    $
    42,836
    
    
    $
    45,4032004 Interest Expense
    
    
    7,055
    
    
    
    8,403
    
    
    
    10,576
    
    
    
    13,492
    
    
    
    16,408Net Interest Income
    
    
    29,027
    
    
    
    29,918
    
    
    
    30,094
    
    
    
    29,344
    
    
    
    28,995Change in net income after tax vs. budget
    
    $
    (666
    )
    
    $
    (110
    )
    
    
    
    
    
    $
    (468
    )
    
    $
    (686
    )
 37




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##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements, notes thereto and report of
independent certified public accountants thereon included on the following
pages are incorporated herein by reference. Index to Consolidated Financial Statements PageReport of Independent Certified Public Accountants
    
    
    39Consolidated Balance Sheets for the Years
Ended December 31, 2003 and 2002
    
    
    40Consolidated Statements of Income for the
Years Ended December 31, 2003, 2002 and 2001
    
    
    41Consolidated Statements of Changes in Shareholders Equity for the
Years Ended December 31, 2003, 2002 and 2001
    
    
    43Consolidated Statements of Cash Flows for the Years
Ended December 31, 2003, 2002 and 2001
    
    
    45Notes to Consolidated Financial Statements for
the Years Ended December 31, 2003, 2002 and 2001
    
    
    47
 38




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##### Table of Contents



REPORT OF INDEPENDENT AUDITORS Board of Directors and Shareholders
TIB Financial Corp.
Key Largo, Florida We have audited the accompanying balance sheets of TIB Financial Corp. as of
December 31, 2003 and 2002, and the related statements of income, changes in
shareholders equity and cash flows for each of the three years in the period
ended December 31, 2003. These financial statements are the responsibility of
the Companys management. Our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TIB Financial Corp. as of
December 31, 2003 and 2002, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2003, in
conformity with accounting principles generally accepted in the United States
of America. Crowe Chizek and Company LLC Fort Lauderdale, Florida
February 13, 2004 39




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##### Table of Contents



TIB Financial Corp. and Subsidiaries 
 Consolidated Balance Sheets December 31,
    
    2003
    
    2002AssetsCash and due from banks
    
    $
    17,196,506
    
    
    $
    18,397,659Federal funds sold
    
    
    16,484,000
    
    
    
    5,672,000Cash and cash equivalents
    
    
    33,680,506
    
    
    
    24,069,659Investment securities available for sale
    
    
    52,556,567
    
    
    
    54,267,830Loans, net of deferred loan costs and fees
    
    
    540,412,620
    
    
    
    442,527,934Less: Allowance for loan losses
    
    
    5,215,901
    
    
    
    4,272,499Loans, net
    
    
    535,196,719
    
    
    
    438,255,435Premises and equipment, net
    
    
    21,073,176
    
    
    
    19,457,150Goodwill
    
    
    155,232
    
    
    
    2,234,024Intangible assets, net
    
    
    1,687,062
    
    
    
    1,978,918Accrued interest receivable and other assets
    
    
    24,948,486
    
    
    
    26,885,630Total Assets
    
    $
    669,297,748
    
    
    $
    567,148,646Liabilities and Shareholders EquityLiabilitiesDeposits:Noninterest-bearing demand
    
    $
    121,727,734
    
    
    $
    105,199,483Interest-bearing demand and money market
    
    
    188,739,113
    
    
    
    186,426,703Savings
    
    
    38,315,995
    
    
    
    31,440,801Time deposits of $100,000 or more
    
    
    97,873,410
    
    
    
    73,509,232Other time deposits
    
    
    107,156,681
    
    
    
    86,107,232Total deposits
    
    
    553,812,933
    
    
    
    482,683,451Federal Home Loan Bank (FHLB) advances
    
    
    45,000,000
    
    
    
    20,000,000Short-term borrowings
    
    
    4,041,399
    
    
    
    4,578,959Notes payable
    
    
    5,250,000
    
    
    
    5,250,000Subordinated debentures
    
    
    13,000,000
    
    
    
    13,000,000Accrued interest payable and other liabilities
    
    
    6,947,570
    
    
    
    8,130,159Total liabilities
    
    
    628,051,902
    
    
    
    533,642,569Shareholders equityCommon stock - $.10 par value: 7,500,000 shares authorized,
4,431,328 and 4,035,625 shares issued
    
    
    443,133
    
    
    
    403,563Additional paid in capital
    
    
    14,254,731
    
    
    
    8,965,816Retained earnings
    
    
    26,202,982
    
    
    
    23,021,698Accumulated other comprehensive income
    
    
    345,000
    
    
    
    1,115,000Total shareholders equity
    
    
    41,245,846
    
    
    
    33,506,077Total Liabilities and Shareholders Equity
    
    $
    669,297,748
    
    
    $
    567,148,646
 See accompanying notes to consolidated financial statements. 40




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##### Table of Contents



TIB Financial Corp. and Subsidiaries 
 Consolidated Statements of Income Years ended December 31,
    
    2003
    
    2002
    
    2001Interest and dividend incomeLoans, including fees
    
    $
    31,664,039
    
    
    $
    27,782,738
    
    
    $
    29,078,461Investment securities:U.S. Treasury securities
    
    
    7,603
    
    
    
    124,202
    
    
    
    161,750U.S. Government agencies and corporations
    
    
    2,002,665
    
    
    
    2,309,096
    
    
    
    2,735,142States and political subdivisions, tax-exempt
    
    
    329,522
    
    
    
    259,648
    
    
    
    277,875States and political subdivisions, taxable
    
    
    239,972
    
    
    
    380,798
    
    
    
    292,392Other investments
    
    
    59,454
    
    
    
    46,447
    
    
    
    192,992Interest-bearing deposits in other banks
    
    
    2,628
    
    
    
    5,102
    
    
    
    3,044Federal Home Loan Bank stock
    
    
    58,899
    
    
    
    77,894
    
    
    
    80,682Federal funds sold
    
    
    241,641
    
    
    
    330,385
    
    
    
    895,140Total interest and dividend income
    
    
    34,606,423
    
    
    
    31,316,310
    
    
    
    33,717,478Interest expenseInterest-bearing demand and money market
    
    
    1,320,936
    
    
    
    2,057,569
    
    
    
    5,183,783Savings
    
    
    170,009
    
    
    
    222,812
    
    
    
    443,125Time deposits of $100,000 or more
    
    
    3,164,625
    
    
    
    2,721,166
    
    
    
    3,635,259Other time deposits
    
    
    3,279,337
    
    
    
    3,282,065
    
    
    
    4,663,051Long-term debt-subordinated debentures
    
    
    1,109,053
    
    
    
    1,139,795
    
    
    
    1,003,120Federal Home Loan Bank advances
    
    
    276,196
    
    
    
    382,692
    
    
    
    115,457Short-term borrowings
    
    
    37,972
    
    
    
    42,121
    
    
    
    59,656Notes payable
    
    
    481,035
    
    
    
    481,036
    
    
    
    693,952Total interest expense
    
    
    9,839,163
    
    
    
    10,329,256
    
    
    
    15,797,403Net interest income
    
    
    24,767,260
    
    
    
    20,987,054
    
    
    
    17,920,075Provision for loan losses
    
    
    1,586,000
    
    
    
    791,000
    
    
    
    1,005,000Net interest income after provision for loan losses
    
    
    23,181,260
    
    
    
    20,196,054
    
    
    
    16,915,075Non-interest incomeService charges on deposit accounts
    
    
    2,451,916
    
    
    
    2,239,821
    
    
    
    2,225,127Investment securities gains, net
    
    
    288,661
    
    
    
    217,975
    
    
    
    283,690Merchant bankcard processing income
    
    
    4,953,348
    
    
    
    4,387,095
    
    
    
    4,009,664Equity in loss, net of goodwill amortization,
from investment in ERAS Joint Venture
    
    
    
    
    
    
    
    
    
    
    (235,490
    )Dividend income from ERAS Joint Venture
    
    
    
    
    
    
    32,616
    
    
    
    Gain on sale of investment in ERAS Joint Venture
    
    
    202,393
    
    
    
    210,654
    
    
    
    820,126Gain on sale of government guaranteed loans
    
    
    117,490
    
    
    
    28,406
    
    
    
    96,571Fees on mortgage loans sold
    
    
    2,200,521
    
    
    
    1,583,419
    
    
    
    1,074,585Retail investment services
    
    
    420,416
    
    
    
    205,829
    
    
    
    177,467Gain on sale of servicing rights
    
    
    
    
    
    
    
    
    
    
    255,281Other income
    
    
    1,402,054
    
    
    
    1,522,888
    
    
    
    1,291,412Total non-interest income
    
    
    12,036,799
    
    
    
    10,428,703
    
    
    
    9,998,433Non-interest expenseSalaries and employee benefits
    
    
    12,878,204
    
    
    
    10,602,363
    
    
    
    8,874,020Net occupancy and equipment expense
    
    
    4,325,416
    
    
    
    3,680,015
    
    
    
    3,255,842Other expense
    
    
    10,364,993
    
    
    
    9,349,537
    
    
    
    8,786,326Total non-interest expense
    
    
    27,568,613
    
    
    
    23,631,915
    
    
    
    20,916,188Income before income tax expense
    
    
    7,649,446
    
    
    
    6,992,842
    
    
    
    5,997,320Income tax expense
    
    
    2,672,500
    
    
    
    2,386,300
    
    
    
    2,057,600Income from continuing operations
    
    
    4,976,946
    
    
    
    4,606,542
    
    
    
    3,939,720
 41




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##### Table of Contents



TIB Financial Corp. and Subsidiaries Consolidated Statements of Income Years ended December 31,
    
    2003
    
    2002
    
    2001Discontinued operationsIncome (loss) from Keys Insurance Agency, Inc. operations
    
    
    200,572
    
    
    
    206,230
    
    
    
    (72,780
    )Income tax expense (benefit)
    
    
    75,400
    
    
    
    77,500
    
    
    
    (27,400
    )Income (loss) from discontinued operations
    
    
    125,172
    
    
    
    128,730
    
    
    
    (45,380
    )Net income
    
    $
    5,102,118
    
    
    $
    4,735,272
    
    
    $
    3,894,340Basic earnings per common shareContinuing operations
    
    $
    1.17
    
    
    $
    1.15
    
    
    $
    1.00Discontinued operations
    
    
    .03
    
    
    
    .04
    
    
    
    (.01
    )Basic earnings per share
    
    $
    1.20
    
    
    $
    1.19
    
    
    $
    .99Diluted earnings per common shareContinuing operations
    
    $
    1.12
    
    
    $
    1.11
    
    
    $
    .96Discontinued operations
    
    
    .03
    
    
    
    .03
    
    
    
    (.01
    )Diluted earnings per share
    
    $
    1.15
    
    
    $
    1.14
    
    
    $
    .95
 See accompanying notes to consolidated financial statements. 42




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##### Table of Contents



TIB Financial Corp. and Subsidiaries 
 Consolidated Statements of Changes in Shareholders Equity AccumulatedAdditional
    
    
    
    
    
    Other
    
    
    
    
    
    TotalCommon
    
    Paid in
    
    Retained
    
    Comprehensive
    
    Comprehensive
    
    ShareholdersShares
    
    Stock
    
    Capital
    
    Earnings
    
    Income (Loss)
    
    Income
    
    EquityBalance,January 1, 2001
    
    
    3,902,410
    
    
    $
    390,241
    
    
    $
    7,886,047
    
    
    $
    17,815,366
    
    
    $
    145,000
    
    
    
    
    
    
    $
    26,236,654Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,894,340
    
    
    
    
    
    
    $
    3,894,340
    
    
    
    3,894,340Other comprehensive income, net of tax
benefit of $66,100:Net market valuation adjustment on
securities available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68,423
    
    
    
    68,423Less: reclassification adjustment for gains
included in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (177,023
    )
    
    
    (177,023
    )Other comprehensive income, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (108,600
    )
    
    
    (108,600
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,785,740Exercise of stock options
    
    
    38,050
    
    
    
    3,805
    
    
    
    217,818
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    221,623Income tax benefit from stock options exercised
    
    
    
    
    
    
    
    
    
    
    50,392
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,392Issuance of stock for BonData Group Limited,
Inc. acquisition
    
    
    5,640
    
    
    
    564
    
    
    
    67,680
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68,244Cash dividends declared, $.43 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,690,561
    )
    
    
    
    
    
    
    
    
    
    
    (1,690,561
    )Balance,December 31, 2001
    
    
    3,946,100
    
    
    $
    394,610
    
    
    $
    8,221,937
    
    
    $
    20,019,145
    
    
    $
    36,400
    
    
    
    
    
    
    $
    28,672,092Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,735,272
    
    
    
    
    
    
    $
    4,735,272
    
    
    
    4,735,272Other comprehensive income, net of tax expense
of $650,100:Unrealized holding gain on securities
transferred into the available for sale
category from the held to maturity
category
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    270,480
    
    
    
    270,480Net market valuation adjustment on
securities available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    944,136
    
    
    
    944,136Less: reclassification adjustment for gains
included in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (136,016
    )
    
    
    (136,016
    )Other comprehensive income, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,078,600
    
    
    
    1,078,600Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5,813,872Exercise of stock options
    
    
    89,525
    
    
    
    8,953
    
    
    
    584,144
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    593,097Income tax benefit from stock options exercised
    
    
    
    
    
    
    
    
    
    
    159,735
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    159,735Cash dividends declared, $.4325 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,732,719
    )
    
    
    
    
    
    
    
    
    
    
    (1,732,719
    )Balance,December 31, 2002
    
    
    4,035,625
    
    
    $
    403,563
    
    
    $
    8,965,816
    
    
    $
    23,021,698
    
    
    $
    1,115,000
    
    
    
    
    
    
    $
    33,506,077
 43




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##### Table of Contents



TIB Financial Corp. and Subsidiaries Consolidated Statements of Changes in Shareholders Equity AccumulatedAdditional
    
    
    
    
    
    Other
    
    
    
    
    
    TotalCommon
    
    Paid in
    
    Retained
    
    Comprehensive
    
    Comprehensive
    
    ShareholdersShares
    
    Stock
    
    Capital
    
    Earnings
    
    Income (Loss)
    
    Income
    
    EquityBalance,December 31, 2002
    
    
    4,035,625
    
    
    $
    403,563
    
    
    $
    8,965,816
    
    
    $
    23,021,698
    
    
    $
    1,115,000
    
    
    
    
    
    
    $
    33,506,077Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,102,118
    
    
    
    
    
    
    $
    5,102,118
    
    
    
    5,102,118Other comprehensive income, net of tax
benefit of $464,000:Net market valuation adjustment on
securities available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (589,876
    )
    
    
    (589,876
    )Less: reclassification adjustment for gains
included in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (180,124
    )
    
    
    (180,124
    )Other comprehensive income, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (770,000
    )
    
    
    (770,000
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4,332,118Exercise of stock options
    
    
    115,050
    
    
    
    11,505
    
    
    
    723,077
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    734,582Income tax benefit from stock options exercised
    
    
    
    
    
    
    
    
    
    
    250,499
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250,499Private Placement of 280,653 common shares
    
    
    280,653
    
    
    
    28,065
    
    
    
    4,315,339
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,343,404Cash dividends declared, $.4425 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,920,834
    )
    
    
    
    
    
    
    
    
    
    
    (1,920,834
    )Balance,December 31, 2003
    
    
    4,431,328
    
    
    $
    443,133
    
    
    $
    14,254,731
    
    
    $
    26,202,982
    
    
    $
    345,000
    
    
    
    
    
    
    $
    41,245,846
 See accompanying notes to consolidated financial statements. 44




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##### Table of Contents



TIB Financial Corp. and Subsidiaries 
 Consolidated Statements of Cash Flows Years ended December
31,
    

2003
    

2002
    

2001Cash flows from operating activitiesNet income
    
    $
    5,102,118
    
    
    $
    4,735,272
    
    
    $
    3,894,340Adjustments to reconcile net income to net cash provided
(used) by operating activities:Net amortization of investments
    
    
    58,777
    
    
    
    100,101
    
    
    
    52,793Amortization of intangible assets
    
    
    291,856
    
    
    
    297,088
    
    
    
    538,576Depreciation of premises and equipment
    
    
    1,755,578
    
    
    
    1,527,761
    
    
    
    1,381,947Loss (gain) on sale of servicing rights
    
    
    
    
    
    
    2,532
    
    
    
    (255,281
    )Loss on sale of assets of Keys Insurance Agency, Inc.
    
    
    14,676
    
    
    
    
    
    
    
    Gain on sale of investment in ERAS Joint Venture
    
    
    (202,393
    )
    
    
    (210,654
    )
    
    
    (820,126
    )Write-off of unamortized leasehold improvements
    
    
    
    
    
    
    
    
    
    
    57,990Provision for loan losses
    
    
    1,586,000
    
    
    
    791,000
    
    
    
    1,005,000Provision for losses on unfunded loan commitments
    
    
    39,000
    
    
    
    25,000
    
    
    
    119,000Deferred income tax benefit
    
    
    (851,889
    )
    
    
    (248,557
    )
    
    
    (323,399
    )Deferred net loan costs and fees
    
    
    (1,031,220
    )
    
    
    (940,612
    )
    
    
    (332,144
    )Investment securities net gains
    
    
    (288,661
    )
    
    
    (217,975
    )
    
    
    (283,690
    )Equity in loss, net of goodwill amortization from
investment in ERAS Joint Venture
    
    
    
    
    
    
    
    
    
    
    235,490Gain on sales/disposition of premises and equipment,net
    
    
    (2,188
    )
    
    
    (7,519
    )
    
    
    (56,347
    )Gains on sales of government guaranteed loans, net
    
    
    (117,490
    )
    
    
    (28,406
    )
    
    
    (96,571
    )Mortgage loans originated for sale
    
    
    (111,011,065
    )
    
    
    (83,233,219
    )
    
    
    (62,595,351
    )Proceeds from sales of mortgage loans
    
    
    113,211,586
    
    
    
    84,816,638
    
    
    
    63,669,936Fees on mortgage loans sold
    
    
    (2,200,521
    )
    
    
    (1,583,419
    )
    
    
    (1,074,585
    )(Increase) decrease in accrued interest receivable
and other assets
    
    
    4,443,539
    
    
    
    (3,031,129
    )
    
    
    (6,290,419
    )Increase (decrease) in accrued interest payable and
other liabilities
    
    
    (1,223,825
    )
    
    
    2,532,288
    
    
    
    (437,913
    )Net cash provided (used) by operating activities
    
    
    9,573,878
    
    
    
    5,326,190
    
    
    
    (1,610,754
    )Cash flows from investing activitiesPurchases of investment securities held to maturity
    
    
    
    
    
    
    
    
    
    
    (106,109
    )Purchases of investment securities available for sale
    
    
    (27,846,152
    )
    
    
    (24,403,715
    )
    
    
    (21,757,766
    )Sales of investment securities available for sale
    
    
    3,999,968
    
    
    
    14,342,792
    
    
    
    17,382,719Repayments of principal and maturities of investment
securities available for sale
    
    
    24,553,331
    
    
    
    9,993,567
    
    
    
    17,015,332Maturities of investment securities held to maturity
    
    
    
    
    
    
    
    
    
    
    16,500,000Net (purchase) sale of FHLB stock
    
    
    (889,700
    )
    
    
    139,700
    
    
    
    (436,500
    )Proceeds from sales of government guaranteed loans
    
    
    2,241,119
    
    
    
    541,980
    
    
    
    2,070,369Proceeds from sale of assets of Keys Insurance Agency, Inc.
    
    
    183,992
    
    
    
    
    
    
    
    Purchase of BonData Group Limited, Inc.
    
    
    
    
    
    
    
    
    
    
    (204,750
    )Payment on note receivable from sale of option
    
    
    
    
    
    
    300,000
    
    
    
    300,000Net proceeds received from servicing rights sales
    
    
    
    
    
    
    33,079
    
    
    
    219,670Proceeds from sale of investment in ERAS JV
    
    
    326,667
    
    
    
    340,000
    
    
    
    1,333,333Loans originated or acquired, net of principal repayments
    
    
    (97,598,755
    )
    
    
    (63,347,486
    )
    
    
    (78,784,302
    )Purchase of life insurance policies
    
    
    (250,000
    )
    
    
    (1,795,000
    )
    
    
    (820,000
    )Purchases of premises and equipment
    
    
    (3,492,444
    )
    
    
    (3,374,823
    )
    
    
    (4,780,136
    )Sales of premises and equipment
    
    
    5,263
    
    
    
    30,585
    
    
    
    17,333Net cash used by investing activities
    
    
    (98,766,711
    )
    
    
    (67,199,321
    )
    
    
    (52,050,807
    )
 -Continued- 45




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##### Table of Contents



TIB Financial Corp. and Subsidiaries Consolidated Statements of Cash Flows Years ended December 31,
    
    2003
    
    2002
    
    2001Cash flows from financing activitiesNet increase (decrease) in federal funds purchased
and securities sold under agreements to repurchase
    
    
    (537,560
    )
    
    
    3,845,199
    
    
    
    (308,039
    )Net increase (decrease) in FHLB short-term advances
    
    
    15,000,000
    
    
    
    (5,000,000
    )
    
    
    5,000,000Proceeds from FHLB long-term advances
    
    
    30,000,000
    
    
    
    
    
    
    
    20,000,000Repayments of FHLB long-term advances
    
    
    (20,000,000
    )
    
    
    
    
    
    
    Net increase in demand, money market and savings
accounts
    
    
    25,715,855
    
    
    
    39,081,797
    
    
    
    38,098,142Net increase (decrease) in time deposits
    
    
    45,413,627
    
    
    
    27,865,795
    
    
    
    (14,789,070
    )Proceeds from issuance of subordinated debentures,
net of investment in trust
    
    
    
    
    
    
    
    
    
    
    5,000,000Debt issuance costs paid
    
    
    
    
    
    
    
    
    
    
    (170,816
    )Proceeds from exercise of stock options
    
    
    734,582
    
    
    
    593,097
    
    
    
    221,623Proceeds from private placement of common stock
    
    
    4,343,404
    
    
    
    
    
    
    
    Cash dividends paid
    
    
    (1,866,228
    )
    
    
    (1,713,007
    )
    
    
    (1,685,864
    )Net cash provided by financing activities
    
    
    98,803,680
    
    
    
    64,672,881
    
    
    
    51,365,976Net increase (decrease) in cash and cash equivalents
    
    
    9,610,847
    
    
    
    2,799,750
    
    
    
    (2,295,585
    )Cash and cash equivalents at beginning of year
    
    
    24,069,659
    
    
    
    21,269,909
    
    
    
    23,565,494Cash and cash equivalents at end of year
    
    $
    33,680,506
    
    
    $
    24,069,659
    
    
    $
    21,269,909Supplemental disclosures of cash paid:Interest
    
    $
    9,211,211
    
    
    $
    10,789,755
    
    
    $
    16,267,159Income taxes
    
    
    3,775,000
    
    
    
    2,741,000
    
    
    
    2,241,000
 See accompanying notes to consolidated financial statements. 46




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##### Table of Contents



TIB Financial Corp. and Subsidiaries 
 Notes to Consolidated Financial Statements Note 1 - Summary of Significant Accounting Policies Principles of Consolidation and Nature of Operations TIB Financial Corp. is a financial holding company headquartered in Key Largo, Florida. The consolidated financial statements include the accounts of TIB Financial Corp. (Parent Company) and its wholly-owned
subsidiaries, TIB Bank of the Keys (Bank), Keys Insurance Agency,
Inc. (assets sold in August 2003  see Note 20), and TIB
Software and Services, Inc. (assets sold in 2003 - see Note 2), collectively known as the
Company. All significant intercompany accounts and transactions have been eliminated in consolidation. TIBFL Statutory Trust I and TIBFL Statutory Trust II were formed in conjunction with the issuance of trust
preferred securities as further discussed in Note 10.

TIB Bank of the Keys is the Companys primary operating subsidiary. The Bank provides banking services from its fourteen branch locations in Monroe, Miami-Dade, Collier and Lee counties, Florida.

The accounting and reporting policies of TIB Financial Corp. and subsidiaries conform to generally accepted accounting principles and to general practices within the banking industry. The following is a summary of the
more significant of these policies. Use of Estimates and Assumptions To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and
assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ. A material estimate that is particularly susceptible to significant change in the near
term is the allowance for loan losses. Another material estimate is the fair value of financial instruments. Changes in assumptions or in market conditions could significantly affect the fair value estimates. Cash and Cash Equivalents For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash on hand, amounts due from banks, federal funds sold, and interest-bearing deposits at the Federal Home Loan Bank of
Atlanta. Net cash flows are reported for loan and deposit transactions. Investment Securities Investment securities which management has the ability and intent to hold to maturity are reported at amortized cost. Securities available for sale are carried at fair value, with unrealized holding gains and losses
reported in other comprehensive income.
Interest income includes amortization of purchase premium or discount. Gains and losses on sales are recorded on the trade date and are based on the amortized cost of the security sold. Securities are written down to
fair value when a decline in fair value is not temporary. Loans Loans are reported at the principal balance outstanding, net of deferred loan fees and costs, and an allowance for loan losses. Interest income is reported on the interest method and includes amortization of net
deferred loan fees and costs over the loan term. If the collectibility of interest appears doubtful, the accrual of interest is discontinued and all unpaid interest is reversed. Loans are returned to accrual status
when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. 47




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##### Table of Contents



TIB Financial Corp. and Subsidiaries Notes to Consolidated Financial Statements Gains on sales of government guaranteed loans are recognized as income when the sales occur. The majority of fixed rate mortgage loans are originated by the Bank and sold to a third party immediately without
recourse. All fees are recognized as income at the time of the sale. Allowance for Loan Losses The allowance for loan losses is a valuation allowance for probable incurred credit losses, which is increased by the provision for loan losses and decreased by charge-offs less recoveries. Loan losses are charged
against the allowance when management believes the uncollectiblity of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required based
on factors including past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations
of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in managements judgment, should be charged off. The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired or loans otherwise classified as substandard or doubtful. The general
component covers non-classified loans and is based on historical loss experience adjusted for current factors. A loan is considered impaired when it is probable that not all principal and interest amounts will be collected according to the loan contract. Individual commercial and commercial real estate loans exceeding certain
size thresholds established by management are individually evaluated for impairment. If a loan is considered to be impaired, a portion of the allowance is allocated so that the loan is reported net, at the present value
of estimated future cash flows using the loans existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Large groups of smaller balance homogeneous loans, such as consumer,
indirect, and residential real estate loans, are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures. Premises and Equipment Land is carried at cost. Premises and equipment are reported at cost less accumulated depreciation. For financial reporting purposes, depreciation is computed using the straight-line method over the estimated useful
lives of the assets. Expenditures for maintenance and repairs are charged to operations as incurred, while major renewals and betterments are capitalized. For Federal income tax reporting purposes, depreciation is
computed using primarily accelerated methods. Foreclosed Assets Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value when acquired, establishing a new cost basis. If fair value declines subsequent to foreclosure, a
valuation allowance is recorded through expense. Costs after acquisition are expensed. Goodwill and Other
Intangible Assets
Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets. Upon adopting new
accounting guidance in 2002, the Company ceased amortizing goodwill. Goodwill is assessed at least annually for impairment and any such impairment will be recognized in the period identified. Other intangible assets include amounts for servicing rights on government guaranteed loans and core deposit base premiums arising from branch acquisitions. Servicing rights are being amortized over the expected life of
the related loan. The deposit base premiums are being amortized using the straight-line method over an estimated life of 10 years. 48




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TIB Financial Corp. and Subsidiaries Notes to Consolidated Financial Statements Long-term Assets Long-lived assets, including premises and equipment, core deposit and other intangible assets, are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash
flows. If impaired, the assets are recorded at fair value. Loan Commitments and Related Financial Instruments Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and letters of credit, issued to meet customer financing needs. The face amount for these items represents the
exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded. Instruments, such as standby letters of credit, that are considered financial
guarantees in accordance with FASB Interpretation No. 45 are recorded at fair value. Company Owned Life Insurance The Company has purchased life insurance polices on certain key executives. Company owned life insurance is recorded at its cash surrender value, or the amount that can be realized. Income Taxes Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary
differences between the book and tax basis of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws. Earnings Per Common Share Basic earnings per share is net income divided by the weighted average number of common shares outstanding during the period. Diluted earnings per share includes the dilutive effect of additional potential common shares
issuable under stock options.
Earnings per share have been computed based on the following for the years ended December 31: 2003
    
    2002
    
    2001Weighted average number of common shares outstanding:Basic
    
    
    4,257,224
    
    
    
    3,992,775
    
    
    
    3,923,763Dilutive effect of options outstanding
    
    
    178,637
    
    
    
    152,080
    
    
    
    173,004Diluted
    
    
    4,435,861
    
    
    
    4,144,855
    
    
    
    4,096,767
 Stock options for 5,027, 152,955, and 166,933 shares of common stock were not considered in computing diluted earnings per common share for 2003, 2002, and 2001 because they were anti-dilutive. The effect of stock
options, as described in Note 15, is the sole common stock equivalent for purposes of calculating diluted earnings per common share. Stock-Based Compensation 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 49




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TIB Financial Corp. and Subsidiaries Notes to Consolidated Financial Statements and earnings per share if
expense was measured using the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation. 2003
    
    2002
    
    2001Net income, as reported
    
    $
    5,102,118
    
    
    $
    4,735,272
    
    
    $
    3,894,340Stock-based compensation expense determined under
fair value based method, net of tax
    
    
    173,399
    
    
    
    156,788
    
    
    
    274,187Pro forma net income
    
    $
    4,928,719
    
    
    $
    4,578,484
    
    
    $
    3,620,153Basic earnings per share as reported
    
    $
    1.20
    
    
    $
    1.19
    
    
    $
    0.99Pro forma basic earnings per share
    
    
    1.16
    
    
    
    1.15
    
    
    
    0.92Diluted earnings per share as reported
    
    
    1.15
    
    
    
    1.14
    
    
    
    0.95Pro forma diluted earnings per share
    
    
    1.11
    
    
    
    1.10
    
    
    
    0.88
 The fair value of each option is estimated as of the date of grant using the Black-Scholes Option Pricing Model and the following weighted average assumptions for options granted in the years ended
December 31, : 2003
    
    2002
    
    2001Dividend yield
    
    
    2.7
    %
    
    
    3.2
    %
    
    
    3.5
    %Risk-free interest rate
    
    4.0% to 4.2%
    
    4.4% to 5.4%
    
    4.9% to 5.4%Expected option life
    
    9 years
    
    9.2 years
    
    10 yearsVolatility
    
    
    .31
    
    
    
    .29
    
    
    
    .44Weighted average fair value of options granted during year
    
    $
    5.83
    
    
    $
    3.69
    
    
    $
    5.19
 Comprehensive Income Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on securities available for sale which are also recognized as separate
components of equity. Loss Contingencies Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably
estimated. Management does not believe there are now such matters that will have a material effect on the financial statements. Operating Segments Internal financial information is primarily reported and aggregated in three lines of business: community banking, merchant bankcard, and parent and other. Fair Value of Financial Instruments Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 18. Fair value estimates include uncertainties and matters of significant
judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Recent Accounting Pronouncements During 2003, the Company adopted FASB Statement 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, FASB Statement 150, Accounting for Certain Financial Instruments with Characteristics
of both 50




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TIB Financial Corp. and Subsidiaries Notes to Consolidated Financial Statements Liabilities and Equities, FASB Statement 132 (revised 2003), Employers Disclosures about Pensions and Other Postretirement Benefits, FASB Interpretation 45, Guarantors Accounting and Disclosure Requirements
for Guarantees, and FASB Interpretation 46, Consolidation of Variable Interest Entities. Adoption of these new standards did not materially affect the Companys operating results or financial condition. Statement 149 indicates that commitments to make mortgage loans should be accounted for as derivatives if the loans are to be held for sale, because the commitment represents a written option and accordingly is recorded
at the fair value of the option liability. Statement 150 requires reporting mandatorily redeemable shares as liabilities, as well as obligations, not in the form of shares, to repurchase shares that may require cash payment and some obligations that may be
settled by issuing a variable number of equity shares. Statement 132 (revised 2003) requires additional disclosures about the assets, obligations, cash flows of defined benefit pension and postretirement plans, as well as the expense recorded for such plans.
Interpretation 45 requires recognizing the fair value of guarantees made and information about the maximum potential payments that might be required, as well as the collateral or other recourse obtainable.
Interpretation 45 covers guarantees such as standby letters of credit, performance guarantees, and direct or indirect guarantees of the indebtedness of others, but not guarantees of funding. Interpretation 46, as revised in December 2003, changes the accounting model for consolidation from one based on consideration of control through voting interests. Whether to consolidate an entity will now also consider
whether that entity has sufficient equity at risk to enable it to operate without additional financial support, whether the equity owners in that entity lack the obligation to absorb expected losses or the right to
receive residual returns of the entity, or whether voting rights in the entity are not proportional to the equity interest and substantially all the entitys activities are conducted for an investor with few voting
rights. Reclassifications Some items in the prior year financial statements were reclassified to conform to the current presentation. Note 2 - Acquisitions and Divestitures In 1998, the Parent Companys subsidiary, TIB Software and Services, Inc., acquired a 30 percent interest in ERAS Joint Venture (the Venture), a general partnership, in exchange for consideration of $791,216. The
Ventures primary business is item processing and the design, development, installation and maintenance of accounting software for financial institutions. Goodwill associated with the transaction totaled $637,614 and
was being amortized over a period of ten years through December 31, 2001, at which time the amortization was discontinued. Through December 31, 2001, the investment in the Venture was accounted for using the equity
method. On December 31, 2001, the Company sold two thirds of its ownership interest in the Venture for $1,333,333. The Company recognized a gain of $820,126 on the transaction. This sale reduced the Companys ownership
in the Venture to 10%. Beginning January 1, 2002, the investment in the Venture was accounted for using the cost method. On October 4, 2002, the Company sold 5.1% of the Companys 10% interest in the Venture for
$340,000. The Company recognized a gain of $210,654 on the transaction. This sale, accompanied by the additional transfer of assets by other owners into the Venture, reduced the Companys ownership in the Venture to
4.53%. The Venture also made a dividend distribution to the Company in 2002 in the amount of $32,616. On May 29, 2003, TIB Software and Services, Inc. sold its remaining interest in the Venture for $326,667. The
Company recognized a pretax gain of $202,393 on the transaction. ERAS Joint Venture is the Banks item processor. Payments of approximately $579,000, $483,000, and $621,000 were made by the Bank to the Venture in 2003, 2002, and 2001, respectively. Of the amount paid in 2003,
approximately 51




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TIB Financial Corp. and Subsidiaries Notes to Consolidated Financial Statements $249,000 was paid to the Venture through the sale date of May 29, 2003. On October 31, 2000, the Company purchased Keys Insurance Agency of Monroe County, Inc. which was 100% owned by a company director. Keys Insurance Agency, Inc. (the new name subsequent to the purchase) had three offices
in the Florida Keys and brokered a full line of commercial and residential hazard insurance coverages as well as life and health insurance and annuities. The purchase price for the net assets of the agency was
$1,870,000 which consisted primarily of intangible assets. The consideration consisted of $220,000 of Company common stock (21,463 shares) and $1,650,000 in cash (paid at closing). Under the purchase agreement, annual
cash payments of $110,000 were to be made following each of the first three anniversaries of the closing date, subject to the agency achieving certain earnings thresholds. Any of this additional consideration that was
paid at the end of each contingency period would at that time be recorded as goodwill and increase the total recorded purchase price of the agency. No amount was required to be paid in 2001, 2002, or 2003. This
acquisition was recorded using the purchase method of accounting. On September 25, 2001, Keys Insurance Agency, Inc. purchased BonData Group Limited, Inc. a Ft Myers, Florida based insurance agency specializing in surety bond underwriting and placement. Total consideration paid at
closing for the agency was $273,000. This was comprised of approximately $68,000 in the Companys common stock (5,640 shares) and approximately $205,000 in cash. Under the purchase agreement, annual cash payments of
$24,000 were to be made following each of the first two anniversaries of the closing date, subject to the agency achieving certain earnings thresholds. Any of this additional consideration that was paid at the end of
each contingency period, would at that time be recorded as goodwill and increase the total recorded purchase price of the agency. No amount was required to be paid in 2002 or 2003. This acquisition was recorded using
the purchase method of accounting. On August 15, 2003, the Company closed the sale of Keys Insurance Agency, Inc., a wholly owned subsidiary of the Company, to Derek Martin-Vegue and his partner. Mr. Martin-Vegue is a former director of the Company and
TIB Bank of the Keys. The transaction was structured as a sale of the agency assets. The buyer paid $2,204,930 in cash at the closing. Of the cash payment at closing, proceeds of $2,020,938 were pursuant to a loan
from TIB Bank of the Keys (a subsidiary of the Company) to the buyer. The Company recognized a loss of $14,676 on the transaction. Therefore, the results of operations of Keys Insurance Agency, Inc. are included in
the Consolidated Statements of Income as discontinued operations (Note 20). Note 3 - Cash and Due From Banks Cash on hand or on deposit with the Federal Reserve Bank of $3,769,000 and $2,205,000 was required to meet regulatory reserve and clearing requirements at December 31, 2003, and December 31, 2002, respectively. These
balances do not earn interest. The Bank maintains an interest bearing account at the Federal Home Loan Bank of Atlanta. The total on deposit was approximately $170,000 and $263,000 at December 31, 2003 and December 31, 2002, respectively. 52




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TIB Financial Corp. and Subsidiaries Notes to Consolidated Financial Statements Note 4 - Investment
Securities The amortized cost, estimated fair value, and the related gross unrealized
gains and losses recognized in accumulated other comprehensive income (loss),
are as follows for investment securities available for sale: Amortized
    
    Unrealized
    
    Unrealized
    
    EstimatedDecember 31, 2003
    
    Cost
    
    Gains
    
    Losses
    
    Fair ValueU.S. Treasury securities
    
    $
    209,269
    
    
    $
    8,965
    
    
    $
    
    
    
    $
    218,234U.S. Government agencies and
corporations
    
    
    31,356,782
    
    
    
    424,790
    
    
    
    662,621
    
    
    
    31,118,951States and political subdivisions-
tax exempt
    
    
    8,837,687
    
    
    
    378,482
    
    
    
    59,225
    
    
    
    9,156,944States and political subdivision -
taxable
    
    
    3,559,202
    
    
    
    41,614
    
    
    
    100,648
    
    
    
    3,500,168Marketable equity securities
    
    
    2,999,989
    
    
    
    395,000
    
    
    
    
    
    
    
    3,394,989Mortgage-backed securities
    
    
    5,040,638
    
    
    
    127,799
    
    
    
    1,156
    
    
    
    5,167,281$
    52,003,567
    
    
    $
    1,376,650
    
    
    $
    823,650
    
    
    $
    52,556,567
 Amortized
    
    Unrealized
    
    Unrealized
    
    EstimatedDecember 31, 2002
    
    Cost
    
    Gains
    
    Losses
    
    Fair ValueU.S. Treasury securities
    
    $
    212,412
    
    
    $
    10,978
    
    
    $
    
    
    
    $
    223,390U.S. Government agencies and
corporations
    
    
    28,333,379
    
    
    
    883,621
    
    
    
    
    
    
    
    29,217,000States and political subdivisions-
tax exempt
    
    
    5,171,944
    
    
    
    382,444
    
    
    
    
    
    
    
    5,554,388States and political subdivision -
taxable
    
    
    4,380,149
    
    
    
    88,347
    
    
    
    8,521
    
    
    
    4,459,975Mortgage-backed securities
    
    
    14,382,946
    
    
    
    430,131
    
    
    
    
    
    
    
    14,813,077$
    52,480,830
    
    
    $
    1,795,521
    
    
    $
    8,521
    
    
    $
    54,267,830
 In June 2002, the Company transferred all investment securities in the held to maturity category with a book value
totaling $18,507,916 to the available for sale category. The difference between amortized historical cost and fair value
for this portfolio of $433,461 was recorded net of tax in other comprehensive income. Securities in the available for
sale category allow for more flexibility in managing the investments for the Bank. Since changes in market value do not
affect the regulatory capital ratios of the Bank there is no compelling reason to not have the ability to sell securities
when appropriate. Securities maintained in the held to maturity portfolio do limit the volatility of GAAP capital.
However, as the Bank has trended toward higher loan to deposit ratios (therefore low investments to asset ratios) the
probable amount of this volatility has become much less significant relative to the size of the Bank. 53




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TIB Financial Corp. and Subsidiaries Notes to Consolidated Financial Statements Securities with unrealized losses at December 31, 2003 not recognized in income are as follows: Less than 12 months
    
    12 months or longer
    
    TotalEstimated
    
    Unrealized
    
    Estimated
    
    Unrealized
    
    Estimated
    
    UnrealizedFair Value
    
    Losses
    
    Fair Value
    
    Losses
    
    Fair Value
    
    LossesU.S. Government agencies
and corporations
    
    $
    20,396,570
    
    
    $
    662,621
    
    
    
    

    
    
    
    
    
    $
    20,396,570
    
    
    $
    662,621States and political
subdivisions - tax exempt
    
    
    3,055,109
    
    
    
    59,225
    
    
    
    

    
    
    
    
    
    
    
    3,055,109
    
    
    
    59,225States and political
subdivision - taxable
    
    
    2,999,730
    
    
    
    100,648
    
    
    
    
    
    
    
    
    
    
    
    2,999,730
    
    
    
    100,648Mortgage-backed securities
    
    
    131,857
    
    
    
    1,156
    
    
    
    
    
    
    
    
    
    
    
    131,857
    
    
    
    1,156Total temporarily impaired
    
    $
    26,583,266
    
    
    $
    823,650
    
    
    $
    
    
    
    $
    
    
    
    $
    26,583,266
    
    
    $
    823,650
 All of the unrealized losses in the portfolio are short-term in nature (ie. less than 12 months). The Company views the unrealized losses in the above table to be temporary in nature for the following reasons. First,
the decline in market values are mostly due to an increase in market rates and are not credit related. These securities are mostly AAA rated securities and have experienced no significant deterioration in value due to
credit quality concerns. Second, the magnitude of the unrealized losses at about 3% of the fair value of those securities with losses is consistent with normal fluctuations of value due to the volatility of market
interest rates. Finally, the nature of what makes up the security portfolio is determined by the overall balance sheet of the Company and currently it is suitable for the Companys security portfolio to be primarily
comprised of fixed rate securities. Fixed rate securities will by their nature react in price inversely to changes in market rates and that is liable to occur in both directions. The amortized cost and estimated fair value of investment securities available for sale at December 31, 2003, by contractual maturity, are shown as follows. Expected maturities may differ from contractual maturities
because borrowers may have the right to call or repay obligations without call or prepayment penalties. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately. Investment SecuritiesAvailable for SaleAmortized
    
    EstimatedDecember 31, 2003
    
    Cost
    
    Fair ValueDue in one year or less
    
    $
    
    
    
    $
    Due after one year through five years
    
    
    23,822,914
    
    
    
    24,190,435Due after five years through ten years
    
    
    12,793,911
    
    
    
    12,665,586Due after ten years
    
    
    7,346,115
    
    
    
    7,138,276Marketable equity securities
    
    
    2,999,989
    
    
    
    3,394,989Mortgage-backed securities
    
    
    5,040,638
    
    
    
    5,167,281$
    52,003,567
    
    
    $
    52,556,567
 At December 31, 2003, securities with a fair value of approximately $19,863,000 are subject to call during 2004. 54




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TIB Financial Corp. and Subsidiaries Notes to Consolidated Financial Statements Sales of available for sale securities were as follows: 2003
    
    2002
    
    2001Proceeds
    
    $
    3,999,968
    
    
    $
    14,342,792
    
    
    $
    17,382,719Gross gains
    
    
    279,540
    
    
    
    199,587
    
    
    
    312,147Gross losses
    
    
    
    
    
    
    
    
    
    
    
 Calls of investment securities held to maturity during 2001 were $16,500,000. Maturities, principal repayments, and calls of investment securities available for sale
during 2003, 2002 and 2001 were $24,553,331, $9,993,567 and $17,015,332, respectively. Net gains (losses) realized from calls and mandatory redemptions of securities
during 2003, 2002 and 2001 were $9,121, $18,388 and ($28,457), respectively. Investment securities having carrying values of approximately $16,284,000 and $18,517,000 at December 31, 2003 and 2002, respectively, were pledged to secure public funds
on deposit, securities sold under agreements to repurchase, and other purposes as required by law. Note 5 - Loans Major classifications of loans are as follows: December 31,
    
    2003
    
    2002Real estate mortgage loans:Commercial
    
    $
    297,221,372
    
    
    $
    265,112,947Residential
    
    
    60,104,032
    
    
    
    68,389,247Farmland
    
    
    2,316,833
    
    
    
    442,707Construction and vacant land
    
    
    32,088,657
    
    
    
    14,892,626Commercial and agricultural loans
    
    
    63,623,676
    
    
    
    49,212,393Home equity loans
    
    
    12,573,991
    
    
    
    17,475,539Indirect auto dealer loans
    
    
    59,437,058
    
    
    
    16,854,612Other consumer loans
    
    
    11,232,062
    
    
    
    9,364,144Total loans
    
    
    538,597,681
    
    
    
    441,744,215Net deferred loan costs
    
    
    1,814,939
    
    
    
    783,719Loans, net of deferred loan costs
    
    $
    540,412,620
    
    
    $
    442,527,934
 Substantially all loans are made to borrowers in the Banks primary market area of Monroe, South Miami-Dade, Collier and Lee counties. 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 U.S. Department of Agriculture (USDA). In addition to business real estate and equipment, the loan was
collateralized by the business owners interest in a trust. Under provisions of the trust agreement, beneficiaries cannot receive trust assets until November 2010. 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 December 31, 2003 and December 31, 2002, and is accruing interest. Accrued interest on this loan totals
approximately $590,000 and $505,000 at December 31, 2003 and December 31, 55




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TIB Financial Corp. and Subsidiaries Notes to Consolidated Financial Statements 2002, respectively. The Bank is pursuing a sale of the property and equipment and has incurred various expenditures. The Bank capitalized the liquidation costs and the portion of the
protective advances which it expects will be fully reimbursed by the USDA. Other real estate recorded on the Banks books totaled $192,464 and $550,000 at December 31,
2003 and December 31, 2002, respectively. The non-guaranteed principal and interest ($1,961,000 at December 31, 2003 and December 31, 2002) and the reimbursable
capitalized liquidation costs and protective advance costs totaling approximately $511,000 and $558,000 at December 31, 2003 and December 31, 2002, 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 June 11th,
the Bank charged-off the non guaranteed principal and interest totaling $1,961,000 at June 30, 2003, for regulatory purposes. Since the Company believes this amount is
ultimately realizable, it did not write off this amount for financial statement purposes under generally accepted accounting principles. Activity in the allowance for loan losses is as follows: Years ended December 31,
    
    2003
    
    2002
    
    2001Balance, beginning of year
    
    $
    4,272,499
    
    
    $
    3,674,842
    
    
    $
    3,267,873Provision for loan losses charged to expense
    
    
    1,586,000
    
    
    
    791,000
    
    
    
    1,005,000Loans charged off
    
    
    (667,750
    )
    
    
    (301,561
    )
    
    
    (622,697
    )Recoveries of loans previously charged off
    
    
    25,152
    
    
    
    108,218
    
    
    
    24,666Balance, end of year
    
    $
    5,215,901
    
    
    $
    4,272,499
    
    
    $
    3,674,842
 Impaired loans are as follows: Years ended December 31,
    
    2003
    
    2002Year end loans with no allocated allowance for loan losses
    
    $
    2,737,439
    
    
    $
    56,292Year end loans with allocated allowance for loan losses
    
    
    
    
    
    
    25,624Total
    
    $
    2,737,439
    
    
    $
    81,916Amount of the allowance for loan losses allocated
    
    $
    
    
    
    $
    12,812
 56




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TIB Financial Corp. and Subsidiaries Notes to Consolidated Financial Statements 2003
    
    2002
    
    2001Average of impaired loans during the year
    
    $
    1,088,280
    
    
    $
    416,463
    
    
    $
    1,106,900Interest income recognized during impairment
    
    
    72,126
    
    
    
    5,644
    
    
    
    81,871Cash basis interest income recognized
    
    
    
    
    
    
    3,249
    
    
    
    
 Non-performing loans include nonaccrual loans and accruing loans contractually
past due 90 days or more. Nonaccrual loans are comprised principally of loans
90 days past due as well as certain loans, which are current but where serious
doubt exists as to the ability of the borrower to comply with the repayment
terms. Interest previously accrued and not yet paid on nonaccrual loans is
reversed during the period in which the loan is placed in a nonaccrual status. Non-performing loans are as follows: Years ended December 31,
    
    2003
    
    2002Nonaccrual loans
    
    $
    390,316
    
    
    $
    545,523Loans past due over 90 days still on accrual (a)
    
    
    
    
    
    
    
 Non-performing loans and impaired loans are defined differently. Some loans
may be included in both categories, whereas other loans may only be included in
one category. (a) Non-performing loans at December 31, 2003 and 2002, excludes the $1.6
million loan discussed above that is guaranteed for both principal and interest
by the USDA.Note 6 - Premises and Equipment A summary of the cost and accumulated depreciation of premises and equipment follows: December 31,
    
    2003
    
    2002Land
    
    $
    5,999,136
    
    
    $
    4,924,198Buildings and leasehold improvements
    
    
    15,216,464
    
    
    
    13,400,848Furniture, fixtures and equipment
    
    
    11,126,651
    
    
    
    10,356,536Construction in progress
    
    
    690,656
    
    
    
    1,206,90933,032,907
    
    
    
    29,888,491Less accumulated depreciation
    
    
    (11,959,731
    )
    
    
    (10,431,341
    )Premises and equipment, net
    
    $
    21,073,176
    
    
    $
    19,457,150
 In 2002, the Bank converted its ownership interest in land located in Naples, Florida with a net book value of
$2,366,999, for an ownership interest in the first floor of the office building that was constructed on this site. The Bank is obligated under operating leases for office and banking premises which expire in periods varying from one
to fourteen years. Future minimum lease payments, before considering renewal options that generally are present, are
as follows at December 31, 2003: 57




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##### Table of Contents



TIB Financial Corp. and Subsidiaries Notes to Consolidated Financial Statements Years ending December 31,2004
    
    $
    502,8312005
    
    
    511,5632006
    
    
    464,0442007
    
    
    452,1222008
    
    
    447,245Thereafter
    
    
    960,156$
    3,337,961
 Rental expense for the years ended December 31, 2003, 2002 and 2001, was approximately $443,000, $430,000 and $239,000, respectively (see Note 13). Note 7 - Goodwill and Intangible Assets The changes in the carrying amount of goodwill for the years ended December 31, 2003 and 2002, are as follows: GovernmentGuaranteedLoan Sales and
    
    Insurance
    
    Investment inServicing
    
    Agency Sales
    
    ERAS JV (a)
    
    TotalsBalance at January 1, 2002
    
    $
    155,232
    
    
    $
    2,010,211
    
    
    $
    139,962
    
    
    $
    2,305,405Goodwill associated with sale of partial interest of
Investment in ERAS JV
    
    
    
    
    
    
    
    
    
    
    (71,381
    )
    
    
    (71,381
    )Balance at December 31, 2002
    
    
    155,232
    
    
    
    2,010,211
    
    
    
    68,581
    
    
    
    2,234,024Goodwill associated with sale of remaining interest of
Investment in ERAS JV
    
    
    
    
    
    
    
    
    
    
    (68,581
    )
    
    
    (68,581
    )Goodwill associated with sale of Keys Insurance Agency, Inc.
    
    
    
    
    
    
    (2,010,211
    )
    
    
    
    
    
    
    (2,010,211
    )Balance at December 31, 2003
    
    $
    155,232
    
    
    $
    
    
    
    $
    
    
    
    $
    155,232
  (a)
    
    Investment in ERAS JV is reported as Parent and Other in the segment reporting table in Note 19. Goodwill is no longer amortized starting in 2002. The effect of not amortizing goodwill is summarized as follows: For the year ended December 31,2003
    
    2002
    
    2001Reported net income
    
    $
    5,102,118
    
    
    $
    4,735,272
    
    
    $
    3,894,340Add back goodwill amortization, net of tax effect
    
    
    
    
    
    
    
    
    
    
    125,370Adjusted net income
    
    $
    5,102,118
    
    
    $
    4,735,272
    
    
    $
    4,019,710Basic earnings per share:Reported net income
    
    $
    1.20
    
    
    $
    1.19
    
    
    $
    0.99Goodwill amortization
    
    
    
    
    
    
    
    
    
    
    0.03Adjusted net income
    
    $
    1.20
    
    
    $
    1.19
    
    
    $
    1.02
 58




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##### Table of Contents



TIB Financial Corp. and Subsidiaries Notes to Consolidated Financial Statements For the year ended December 31,2003
    
    2002
    
    2001Diluted earnings per share:Reported net income
    
    $
    1.15
    
    
    $
    1.14
    
    
    $
    0.95Goodwill amortization
    
    
    
    
    
    
    
    
    
    
    0.03Adjusted net income
    
    $
    1.15
    
    
    $
    1.14
    
    
    $
    0.98
 Amortized intangible assets at December 31, consist of the following: 2003
    
    2002Gross
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    Accumulated
    
    Net Book
    
    Carrying
    
    Accumulated
    
    Net BookAmount
    
    Amortization
    
    Value
    
    Amount
    
    Amortization
    
    ValueCore deposit intangible
    
    $
    2,941,234
    
    
    $
    1,284,558
    
    
    $
    1,656,676
    
    
    $
    2,941,234
    
    
    $
    1,000,593
    
    
    $
    1,940,641Excess servicing fees
    
    
    88,917
    
    
    
    58,531
    
    
    
    30,386
    
    
    
    88,917
    
    
    
    50,640
    
    
    
    38,277Total
    
    $
    3,030,151
    
    
    $
    1,343,089
    
    
    $
    1,687,062
    
    
    $
    3,030,151
    
    
    $
    1,051,233
    
    
    $
    1,978,918
 Aggregate intangible asset amortization expense was $291,856, $297,088 and $538,576 for 2003, 2002, and 2001. Estimated amortization expense for each of the next five years is as follows: Years ending December 31,2004
    
    $
    298,4572005
    
    
    293,0832006
    
    
    287,7052007
    
    
    285,2162008
    
    
    285,216
 Note 8 - Time Deposits At December 31, 2003, the scheduled maturities of time deposits are as follows: Years ending December 31,2004
    
    $
    126,945,5242005
    
    
    47,628,0062006
    
    
    6,552,4052007
    
    
    6,804,0822008
    
    
    17,094,326Thereafter
    
    
    5,748$
    205,030,091
 59




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##### Table of Contents



TIB Financial Corp. and Subsidiaries Notes to Consolidated Financial Statements Note 9 - Short-Term Borrowings and Federal Home Loan Bank Advances Short-term borrowings include federal funds purchased, securities sold under
agreements to repurchase, advances from the Federal Home Loan Bank, and a
Treasury, tax and loan note option. The Bank has an unsecured overnight federal funds purchased accommodation up to
a maximum of $7.5 million from its principal correspondent bank. The Bank also
has securities sold under agreements to repurchase with commercial account
holders whereby the Bank sweeps the customers accounts on a daily basis and
pays interest on these amounts. These agreements are collateralized by
investment securities chosen by the Bank. The Bank accepts Treasury, tax and loan deposits from certain commercial
depositors and remits these deposits to the appropriate government authorities.
The Bank can hold up to $1,700,000 of these deposits more than a day under a
note option agreement with its regional Federal Reserve bank and pay interest
on those funds held. The Bank pledges certain investment securities against
this account. The Bank 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 14% of the Banks total assets as reported
on the most recent quarterly financial information submitted to the regulators
(increased to 20% effective January 2004). The credit availability approximated
$93.4 million at December 31, 2003. There is $45 million outstanding at
December 31, 2003 and $20 million outstanding at December 31, 2002. The
outstanding amount at December 31, 2003 consists of three $5 million daily
advances, $10 million maturing in January 2004 and two $10 million advances
maturing in September 2004. On December 31, 2003 the rate on the daily
advances is 1.15% and the rates on the long term advances are from 1.18% to
1.22%, repricing quarterly. Any advances are secured by the Banks
one-to-four-family residential mortgage loans. The following table reflects the average daily outstanding, year-end
outstanding, maximum month-end outstanding and the weighted average rates paid
for each of the four categories of short-term borrowings: 60




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##### Table of Contents



TIB Financial Corp. and Subsidiaries Notes to Consolidated Financial Statements Years ended December 31,
    
    2003
    
    2002Federal funds purchased:Balance:Average daily outstanding
    
    $
    141,814
    
    
    $
    178Year-end outstanding
    
    
    
    
    
    
    Maximum month-end outstanding
    
    
    
    
    
    
    Rate:Weighted average for year
    
    
    1.7
    %
    
    
    1.9
    %Weighted average interest rate at December 31
    
    
    n/a
    
    
    
    n/aSecurities sold under agreements to repurchase:Balance:Average daily outstanding
    
    $
    3,063,563
    
    
    $
    1,975,932Year-end outstanding
    
    
    2,942,962
    
    
    
    3,003,839Maximum month-end outstanding
    
    
    4,579,346
    
    
    
    3,923,438Rate:Weighted average for year
    
    
    1.0
    %
    
    
    1.5
    %Weighted average interest rate at December 31
    
    
    0.8
    %
    
    
    1.1
    %Treasury, tax and loan note option:Balance:Average daily outstanding
    
    $
    632,712
    
    
    $
    775,868Year-end outstanding
    
    
    1,098,437
    
    
    
    1,575,120Maximum month-end outstanding
    
    
    1,700,000
    
    
    
    1,700,000Rate:Weighted average for year
    
    
    0.9
    %
    
    
    1.3
    %Weighted average interest rate at December 31
    
    
    0.7
    %
    
    
    1.0
    %Advances from the Federal Home Loan Bank-Short Term:Balance:Average daily outstanding
    
    $
    4,646,575
    
    
    $
    82,192Year-end outstanding
    
    
    15,000,000
    
    
    
    Maximum month-end outstanding
    
    
    15,000,000
    
    
    
    Rate:Weighted average for year
    
    
    1.3
    %
    
    
    1.9
    %Weighted average interest rate at December 31
    
    
    1.2
    %
    
    
    n/aAdvances from the Federal Home Loan Bank-Long Term:Balance:Average daily outstanding
    
    $
    16,958,904
    
    
    $
    20,000,000Year-end outstanding
    
    
    30,000,000
    
    
    
    20,000,000Maximum month-end outstanding
    
    
    30,000,000
    
    
    
    20,000,000Rate:Weighted average for year
    
    
    1.3
    %
    
    
    1.9
    %Weighted average interest rate at December 31
    
    
    1.2
    %
    
    
    1.7
    %
 61




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TIB Financial Corp. and Subsidiaries Notes to Consolidated Financial Statements Note 10 - Other Borrowings Line of Credit The Company has a $3,000,000 revolving line of credit with Independent Bankers Bank of Florida. Amounts outstanding under the line bear interest equal to the prime rate published in
The Wall Street Journal minus one half percent, which is subject to change daily, and is subject to a 4.25% floor. Interest is payable monthly, and any principal is due on demand, or
if no demand is made, at maturity on April 30, 2005. This credit facility is secured by 100 percent of the outstanding shares of TIB Bank of the Keys and requires, among other
things, that the Bank maintain a minimum Tier 1 capital ratio of 6 percent. There were no amounts outstanding under this line at December 31, 2003 or 2002. Notes Payable The Company entered into an agreement with the Companys largest shareholder effective July 1, 2000, to purchase 525,000 shares of the Companys common stock in exchange for four
subordinated notes payable of the Company totaling $5,250,000. The interest rate on these notes was 13% per annum, with interest payments required quarterly. The principal balance
was payable in full on October 1, 2010, the maturity date of the notes, and the notes could be prepaid by the Company at par any time after July 1, 2003. Effective January 1, 2002,
the interest rate was reduced to 9%, the option to prepay was extended to January 1, 2007, and the maturity date was extended to January 1, 2012. Subordinated Debentures On September 7, 2000, the Company participated in a pooled offering of trust preferred securities. The Company formed TIBFL Statutory Trust I (the Trust) a wholly-owned statutory
trust subsidiary for the purpose of issuing the trust preferred securities. The Trust used the proceeds from the issuance of $8,000,000 in trust preferred securities to acquire
junior subordinated debentures of the Company. The trust preferred securities essentially mirror the debt securities, carrying a cumulative preferred dividend at a fixed rate equal
to the 10.6% interest rate on the debt securities. The debt securities and the trust preferred securities each have 30-year lives. The trust preferred securities and the debt
securities are callable by the Company or the Trust, at their respective option after ten years, and at varying premiums and sooner in specific events, subject to prior approval by
the Federal Reserve Board, if then required. The Company has treated the trust preferred securities as Tier 1 capital up to the maximum amount allowed, and the remainder as Tier 2
capital for federal regulatory purposes (see Note 14). On July 31, 2001, the Company participated in a pooled offering of trust preferred securities. The Company formed TIBFL Statutory Trust II (the Trust II) a wholly-owned statutory
trust subsidiary for the purpose of issuing the trust preferred securities. The Trust II used the proceeds from the issuance of $5,000,000 in trust preferred securities to acquire
junior subordinated debentures of the Company. The trust preferred securities essentially mirror the debt securities, carrying a cumulative preferred dividend at a variable rate
equal to the interest rate on the debt securities (three month LIBOR plus 358 basis points). The initial rate in effect at the time of issuance was 7.29% and is subject to change
quarterly. The rate in effect at December 31, 2003 was 4.74%. The debt securities and the trust preferred securities each have 30-year lives. The trust preferred securities and the
debt securities are callable by the Company or the Trust, at their respective option after five years, and at varying premiums and sooner in specific events, subject to prior approval
by the Federal Reserve Board, if then required. The Company has treated the trust preferred securities as Tier 1 capital up to the maximum amount allowed, and the remainder as Tier 2
capital for federal regulatory purposes (see Note 14). Prior to 2003, the trusts were consolidated in the Companys financial statements, with the trust preferred securities issued by the trusts reported in liabilities as trust
preferred securities and the subordinated debentures eliminated in consolidation. Under new accounting guidance, FASB Interpretation No. 46, as revised in December 2003, the trusts
are no longer consolidated with the Company. Accordingly, the Company does not report the securities issued by the trusts as liabilities, and instead reports as liabilities the
subordinated debentures issued by the Company and held by the trusts, as these are no longer eliminated in consolidation. Since the amount of the subordinated debentures and the 62




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TIB Financial Corp. and Subsidiaries Notes to Consolidated Financial Statements trust preferred securities was the same, the effect of no longer consolidating the trusts does not change the amounts reported as the Companys assets, liabilities, equity, or
interest expense. Accordingly, the amounts previously reported as trust preferred securities in liabilities have been recaptioned subordinated debentures and continue to be
presented in liabilities on the balance sheet. Contractual Maturities The contractual maturities of long-term debt are as follows at December 31, 2003: Fixed Rate
    
    Floating Rate
    
    TotalDue in 2004
    
    $
    
    
    
    $
    
    
    
    $
    Due in 2005
    
    
    
    
    
    
    
    
    
    
    Due in 2006
    
    
    
    
    
    
    
    
    
    
    Due in 2007
    
    
    
    
    
    
    
    
    
    
    Due in 2008
    
    
    
    
    
    
    
    
    
    
    Thereafter
    
    
    13,250,000
    
    
    
    5,000,000
    
    
    
    18,250,000Total long-term debt
    
    $
    13,250,000
    
    
    $
    5,000,000
    
    
    $
    18,250,000
 Note 11- Income Taxes Income tax expense (benefit) was as follows: Years ended December 31,
    
    2003
    
    2002
    
    2001Current income tax provision
    
    $
    3,599,789
    
    
    $
    2,712,357
    
    
    $
    2,353,599Deferred tax benefit
    
    
    (851,889
    )
    
    
    (248,557
    )
    
    
    (323,399
    )Total
    
    $
    2,747,900
    
    
    $
    2,463,800
    
    
    $
    2,030,200
 A reconciliation of income tax computed at the 34% Federal statutory income tax rate to total income taxes reported is as follows: Years ended December 31,
    
    2003
    
    2002
    
    2001Pretax income
    
    $
    7,850,018
    
    
    $
    7,199,072
    
    
    $
    5,924,540Income taxes computed at Federal statutory tax rate
    
    
    2,669,000
    
    
    $
    2,447,700
    
    
    $
    2,014,300Effect of:Tax-exempt income
    
    
    (275,100
    )
    
    
    (213,400
    )
    
    
    (208,700
    )State income taxes
    
    
    276,900
    
    
    
    253,500
    
    
    
    150,700Other, net
    
    
    77,100
    
    
    
    (24,000
    )
    
    
    73,900Total
    
    $
    2,747,900
    
    
    $
    2,463,800
    
    
    $
    2,030,200
 63




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TIB Financial Corp. and Subsidiaries Notes to Consolidated Financial Statements Year end deferred tax assets and liabilities were due to the following: December 31,
    
    2003
    
    2002Allowance for loan losses
    
    $
    1,959,057
    
    
    $
    1,553,102Core deposit intangible
    
    
    178,708
    
    
    
    139,971Deferred compensation
    
    
    339,538
    
    
    
    182,419Other
    
    
    108,809
    
    
    
    6,515Total gross deferred tax assets
    
    
    2,586,112
    
    
    
    1,882,007Accumulated depreciation
    
    
    (593,635
    )
    
    
    (690,833
    )Goodwill
    
    
    (11,126
    )
    
    
    (59,512
    )Gain on building swap
    
    
    (70,413
    )
    
    
    (72,613
    )Net unrealized gains on securities available for sale
    
    
    (208,000
    )
    
    
    (672,000
    )Total gross deferred tax liabilities
    
    
    (883,174
    )
    
    
    (1,494,958
    )Net deferred tax asset
    
    $
    1,702,938
    
    
    $
    387,049
 Note 12 - Employee Benefit Plans The Bank maintains an Employee Stock Ownership Plan with 401(k) provisions that covers all employees who are qualified as to age and
length of service. Three types of contributions can be made to the Plan by the Bank and participants: basic voluntary contributions which
are discretionary contributions made by all participants; a matching contribution, whereby the Bank will match 50 percent of salary
reduction contributions up to 4 percent of compensation, not to exceed a maximum contribution of $1,000 per employee; and an additional
discretionary contribution which may be made by the Bank and allocated to the accounts of participants on the basis of total relative
compensation. The Bank contributed $69,000, $202,000 and $39,000 to the plan in 2003, 2002 and 2001, respectively. As of December 31,
2003, the Plan contained approximately 162,000 shares of the Companys common stock. In 2001, the Bank entered into salary continuation agreements with three of its executive officers. Two additional executive officers
entered into salary continuation agreements in 2003. The plan is a nonqualified deferred compensation arrangement that is designed to
provide supplemental retirement income benefits to participants. The Bank expensed $253,732 and $173,390 for the accrual of future
salary continuation benefits in 2003 and 2002, respectively. The Bank has purchased single premium life insurance policies on these
individuals. Cash value income (net of related insurance premium expense) totaled $224,828 and $160,681 in 2003 and 2002, respectively.
The accompanying balance sheet included $4,826,609 and $3,181,781 in surrender value and other liabilities included salary continuation
benefits payable of $550,829 and $297,097 at December 31, 2003 and 2002, respectively. In 2001, the Bank established a non qualified retirement benefit plan for eligible Bank directors. Under the plan, the Company pays each
participant, or their beneficiary, the amount of fees deferred and interest in 120 equal monthly installments, beginning the month
following the directors normal retirement date. The Bank expensed $165,134 and $119,413 for the accrual of current and future
retirement benefits in 2003 and 2002, respectively, which included $145,600 and $102,367 in 2003 and 2002 related to the annual director
retainer fees and monthly meeting fees that certain directors elected to defer. The Bank has purchased single premium split dollar life
insurance policies on these individuals. Cash value income (net of related insurance premium expense) totaled $151,568 and $147,334 in
2003 and 2002. The accompanying balance sheet included $3,715,817 and $2,939,249 in surrender value and other liabilities included
retirement benefits payable of $351,479 and $187,671 at December 31, 2003 and 2002, respectively. 64




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##### Table of Contents



TIB Financial Corp. and Subsidiaries Notes to Consolidated Financial Statements Note 13 - Related Party Transactions The Bank had loans outstanding to certain of its executive officers, directors, security holders
who beneficially own more than ten percent of the Companys voting securities, and their related
business interests as follows: Beginning balance, January 1, 2003
    
    $
    8,706,936New loans
    
    
    621,097Effect of changes in related parties
    
    
    (6,951,179
    )Repayments
    
    
    (356,364
    )Ending balance, December 31, 2003
    
    $
    2,020,490
  Unfunded loan commitments to these individuals and their
related business interests totaled $140,051 at December 31, 2003. These individuals and their
related interests also maintain customary demand and time deposit accounts with
the Bank.On August 15, 2003, the Company closed the sale of Keys Insurance Agency, Inc.,
a wholly owned subsidiary of the Company, to Derek Martin-Vegue and his
partner. Mr. Martin-Vegue is a former director of the Company and TIB Bank of
the Keys (see Note 20). The purchase price was arrived at through negotiations
between the Company and the buyer, and approximates the appraised value of the
agency in a December 2002 appraisal received by the Company, less the present
value of the tax-effect of the goodwill deductions the Company would have
otherwise received without a sale of the agency.
From October 2000 to August 2003, the Company leased office space in a building
owned by a company director. Annual rental expense under the lease agreement
was $37,410 (see Note 6).As part of its indirect lending operations, the Bank purchases indirect loans
from a dealership owned by an officer of the Bank. Loans purchased from that
dealership totaled approximately $2,028,000 and $1,639,000 in 2003 and 2002,
respectively. These loans are on a full recourse basis. Additionally, the
Bank utilizes a company owned by this officer to provide collection services,
which includes repossession services. The total amount paid to that company
for these services totaled approximately $154,000 and $0 in 2003 and 2002.
Repossessed vehicles are offered for sale on consignment on one of the
officers retail car lots.Note 14 - Shareholders Equity and Minimum Regulatory Capital RequirementsThe Company (on a consolidated basis) and the Bank are subject to various
regulatory capital requirements administered by federal and state banking
agencies. Failure to meet minimum capital requirements result in certain
discretionary actions by regulators that could have an effect on the Companys
operations. The regulations require the Company and the Bank to meet specific
capital adequacy guidelines that involve quantitative measures of assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Companys capital amounts and classifications are
also subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.To be considered well capitalized and adequately capitalized (as defined) under
the regulatory framework for prompt corrective action, the Company and Bank
must maintain minimum Tier 1 leverage, Tier 1 risk-based, and total risk-based
ratios as set forth in the following tables. The actual capital amounts and
ratios are also presented in the following tables. 65




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TIB Financial Corp. and Subsidiaries Notes to Consolidated Financial Statements (in thousands, except percentages) Well Capitalized
    
    Adequately CapitalizedRequirement
    
    Requirement
    
    ActualDecember 31, 2003
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioTier 1 Capital (to Average Assets)Consolidated
    
    
    3$32,507
    
    
    
    3 5.0
    %
    
    
    3$26,006
    
    
    
    3 4.0
    %
    
    $
    50,807
    
    
    
    7.8
    %Bank
    
    
    32,483
    
    
    
    3 5.0
    %
    
    
    25,986
    
    
    
    3 4.0
    %
    
    
    55,472
    
    
    
    8.5
    %Tier 1 Capital (to Risk Weighted Assets)Consolidated
    
    
    3$34,722
    
    
    
    3 6.0
    %
    
    
    3$23,148
    
    
    
    3 4.0
    %
    
    $
    50,807
    
    
    
    8.8
    %Bank
    
    
    34,676
    
    
    
    3 6.0
    %
    
    
    23,117
    
    
    
    3 4.0
    %
    
    
    55,472
    
    
    
    9.6
    %Total Capital (to Risk Weighted Assets)Consolidated
    
    
    3$57,870
    
    
    
    310.0
    %
    
    
    3$46,296
    
    
    
    3 8.0
    %
    
    $
    61,456
    
    
    
    10.6
    %Bank
    
    
    57,793
    
    
    
    310.0
    %
    
    
    46,235
    
    
    
    3 8.0
    %
    
    
    60,871
    
    
    
    10.5
    %
 Well Capitalized
    
    Adequately CapitalizedRequirement
    
    Requirement
    
    ActualDecember 31, 2002
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioTier 1 Capital (to Average Assets)Consolidated
    
    
    3$27,520
    
    
    
    3 5.0
    %
    
    
    3$22,016
    
    
    
    3 4.0
    %
    
    $
    39,009
    
    
    
    7.1
    %Bank
    
    
    27,474
    
    
    
    3 5.0
    %
    
    
    21,979
    
    
    
    3 4.0
    %
    
    
    45,739
    
    
    
    8.3
    %Tier 1 Capital (to Risk Weighted Assets)Consolidated
    
    
    3$28,035
    
    
    
    3 6.0
    %
    
    
    3$18,690
    
    
    
    3 4.0
    %
    
    $
    39,009
    
    
    
    8.3
    %Bank
    
    
    27,989
    
    
    
    3 6.0
    %
    
    
    18,659
    
    
    
    3 4.0
    %
    
    
    45,739
    
    
    
    9.8
    %Total Capital (to Risk Weighted Assets)Consolidated
    
    
    3$46,725
    
    
    
    310.0
    %
    
    
    3$37,380
    
    
    
    3 8.0
    %
    
    $
    50,879
    
    
    
    10.9
    %Bank
    
    
    46,648
    
    
    
    310.0
    %
    
    
    37,318
    
    
    
    3 8.0
    %
    
    
    50,156
    
    
    
    10.8
    %
 At year end 2003 and 2002, the most recent regulatory notification categorized the Company and Bank as well capitalized under the regulatory framework for prompt corrective action. Management believes, as of December 31, 2003, that the Company and the Bank meet all capital requirements to which it is subject. The Company has included in Tier I Capital a portion of the trust preferred
securities that were issued in September 2000 and July 2001. Under state banking law, regulatory approval will be required if the total of all dividends declared in any calendar year by the Bank exceeds the Banks net profits to date for that year combined with its
retained net profits for the preceding two years. Retained earnings of the Bank available for payment of dividends to the Company without prior regulatory approval at December 31, 2003, is approximately
$13,772,000. Note 15 - Stock Options Under the Banks 1994 Incentive Stock Option and Nonstatutory Stock Option Plan (the Plan) as amended and restated as of August 31, 1996, the Board of Directors of the Company may grant nonqualified stock
options to any 66




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TIB Financial Corp. and Subsidiaries Notes to Consolidated Financial Statements director, and incentive stock options or nonqualified stock options to any officer, key executive, administrative, or other employee including an employee who is a director of the Company.
Subject to the provisions of the Plan, the maximum number of shares of common stock of the Company that may be optioned or sold is 978,000 shares. Such shares may be treasury, or authorized but unissued,
shares of common stock of the Company. If options granted under the Plan expire or terminate for any reason without having been exercised in full, the shares not purchased shall again be available for
option for the purposes of the Plan. The exercise price for common stock must equal 100 percent of the fair market value of the stock at the time the option is granted, unless the Board determines otherwise. The exercise price under an
incentive stock option granted to a person owning stock representing more than 10 percent of the common stock must equal at least 110 percent of the fair market value at the date of grant, and such option
is not exercisable until five years from the date the incentive stock option was granted. The Board of Directors may, at its discretion, provide that an option not be exercised in whole or in part for any
period or periods of time as specified in the option agreements. No option may be exercised after the expiration of ten years from the date it is granted. A summary of the activity in the plan is as follows: WeightedExercise Price
    
    AverageShares
    
    Range
    
    Exercise PriceBalance,December 31, 2000
    
    
    604,550
    
    
    $
    5.49
    
    
    
    
    
    
    $
    14.50
    
    
    $
    8.48Granted
    
    
    59,002
    
    
    
    10.13
    
    
    
    
    
    
    
    13.55
    
    
    
    13.29Exercised
    
    
    (38,050
    )
    
    
    5.49
    
    
    
    
    
    
    
    11.25
    
    
    
    5.83Expired or Forfeited
    
    
    (40,100
    )
    
    
    8.33
    
    
    
    
    
    
    
    13.55
    
    
    
    11.14Balance,December 31, 2001
    
    
    585,402
    
    
    
    5.49
    
    
    
    
    
    
    
    14.50
    
    
    
    8.96Granted
    
    
    164,000
    
    
    
    11.21
    
    
    
    
    
    
    
    14.12
    
    
    
    12.54Exercised
    
    
    (89,525
    )
    
    
    5.49
    
    
    
    
    
    
    
    13.50
    
    
    
    6.63Expired or Forfeited
    
    
    (92,672
    )
    
    
    5.49
    
    
    
    
    
    
    
    13.55
    
    
    
    10.62Balance,December 31, 2002
    
    
    567,205
    
    
    
    5.49
    
    
    
    
    
    
    
    14.50
    
    
    
    10.09Granted
    
    
    44,500
    
    
    
    16.35
    
    
    
    
    
    
    
    19.40
    
    
    
    17.93Exercised
    
    
    (115,050
    )
    
    
    5.49
    
    
    
    
    
    
    
    14.12
    
    
    
    6.39Expired or Forfeited
    
    
    (19,150
    )
    
    
    5.49
    
    
    
    
    
    
    
    16.35
    
    
    
    11.46Balance,December 31, 2003
    
    
    477,505
    
    
    $
    5.49
    
    
    
    
    
    
    $
    19.40
    
    
    $
    11.66
 Options exercisable at December 31, 2003
    
    
    236,405Options exercisable at December 31, 2002
    
    
    282,305Options exercisable at December 31, 2001
    
    
    345,802
 67




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TIB Financial Corp. and Subsidiaries Notes to Consolidated Financial Statements Options outstanding at December 31, 2003 were as follows: Outstanding Options
    
    Options ExercisableWeightedAverage
    
    Weighted
    
    
    
    
    
    WeightedRange of
    
    
    
    
    
    Remaining
    
    Average
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    Contractual
    
    Exercise
    
    
    
    
    
    ExercisePrice
    
    Number
    
    Life
    
    Price
    
    Number
    
    Price$
    5.49
    
    -
    
    $
    5.50
    
    
    
    56,175
    
    
    
    0.99
    
    
    $
    5.49
    
    
    
    55,575
    
    
    $
    5.496.23
    
    -
    
    
    6.23
    
    
    
    15,000
    
    
    
    1.58
    
    
    
    6.23
    
    
    
    15,000
    
    
    
    6.238.33
    
    -
    
    
    9.00
    
    
    
    49,100
    
    
    
    2.61
    
    
    
    8.73
    
    
    
    33,500
    
    
    
    8.7310.13
    
    -
    
    
    10.50
    
    
    
    34,600
    
    
    
    6.88
    
    
    
    10.47
    
    
    
    9,850
    
    
    
    10.4811.00
    
    -
    
    
    11.75
    
    
    
    31,700
    
    
    
    5.02
    
    
    
    11.34
    
    
    
    8,850
    
    
    
    11.4112.40
    
    -
    
    
    12.65
    
    
    
    109,500
    
    
    
    7.42
    
    
    
    12.41
    
    
    
    12,500
    
    
    
    12.4113.00
    
    -
    
    
    13.55
    
    
    
    119,730
    
    
    
    4.95
    
    
    
    13.49
    
    
    
    84,430
    
    
    
    13.5014.00
    
    -
    
    
    14.50
    
    
    
    18,200
    
    
    
    6.02
    
    
    
    14.19
    
    
    
    11,700
    
    
    
    14.1716.35
    
    -
    
    
    16.35
    
    
    
    18,500
    
    
    
    9.23
    
    
    
    16.35
    
    
    
    
    
    
    
    18.20
    
    -
    
    
    19.40
    
    
    
    25,000
    
    
    
    9.80
    
    
    
    19.16
    
    
    
    5,000
    
    
    
    18.20$
    5.49
    
    -
    
    $
    19.40
    
    
    
    477,505
    
    
    
    5.31
    
    
    $
    11.66
    
    
    
    236,405
    
    
    $
    10.35
 Note 16 - Loan Commitments and Other Related Activities Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are issued to meet customer financing needs. These are agreements
to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire without
being used. Off-balance-sheet risk of credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are
used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment.
The contractual amount of financial instruments with off-balance-sheet risk was as follows at December 31: 2003
    
    2002Fixed
    
    Variable
    
    Fixed
    
    VariableRate
    
    Rate
    
    Rate
    
    RateCommitments to make loans
    
    $
    15,189,845
    
    
    $
    4,593,000
    
    
    $
    2,367,184
    
    
    $
    8,541,750Unfunded commitments under lines of credit
    
    
    1,250,145
    
    
    
    51,568,960
    
    
    
    2,187,476
    
    
    
    43,371,554
 At December 31, 2003 and 2002, commitments under standby letters of credit aggregated approximately $1,543,000 and $2,728,000, respectively. 68




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TIB Financial Corp. and Subsidiaries Notes to Consolidated Financial Statements Note 17 - Supplemental Financial Data Components of other expense in excess of 1 percent of total interest and other income are as follows: Years ended December 31,
    
    2003
    
    2002
    
    2001Merchant bankcard processing expenses
    
    $
    3,152,831
    
    
    $
    2,780,454
    
    
    $
    2,519,241Other merchant charges
    
    
    502,834
    
    
    
    461,343
    
    
    
    523,705Operating supplies
    
    
    495,029
    
    
    
    428,451
    
    
    
    495,317Computer services
    
    
    1,532,740
    
    
    
    1,626,608
    
    
    
    1,516,946Legal and professional fees
    
    
    845,316
    
    
    
    748,893
    
    
    
    724,968Marketing and community relations
    
    
    851,460
    
    
    
    864,613
    
    
    
    696,566Postage, courier, and armored car
    
    
    700,079
    
    
    
    590,223
    
    
    
    500,498
 Note 18 - Fair Values of Financial Instruments Carrying amount and estimated fair values of financial instruments were as follows at December 31: (amounts in thousands)
    
    2003
    
    2002Carrying
    
    Estimated
    
    Carrying
    EstimatedDecember 31,
    
    Value
    
    Fair Value
    
    Value
    Fair ValueFinancial assets:Cash and cash equivalents
    
    $
    33,681
    
    
    $
    33,681
    
    
    $
    24,070
    
    
    $
    24,070Investment securities available for sale
    
    
    52,557
    
    
    
    52,557
    
    
    
    54,268
    
    
    
    54,268Loans, net
    
    
    535,197
    
    
    
    537,099
    
    
    
    438,255
    
    
    
    445,955Federal Home Loan Bank and Independent Bankers Bank
stock
    
    
    2,376
    
    
    
    2,376
    
    
    
    1,486
    
    
    
    1,486Accrued interest receivable
    
    
    3,373
    
    
    
    3,373
    
    
    
    2,949
    
    
    
    2,949Financial liabilities:Noncontractual deposits
    
    
    348,783
    
    
    
    348,783
    
    
    
    323,067
    
    
    
    323,067Contractual deposits
    
    
    205,030
    
    
    
    209,085
    
    

    
    159,616
    
    
    
    162,377Federal Home Loan Bank Advances
    
    
    45,000
    
    
    
    45,000
    
    
    
    20,000
    
    
    
    20,000Short-term borrowings
    
    
    4,041
    
    
    
    4,041
    
    
    
    4,579
    
    
    
    4,579Notes payable
    
    
    5,250
    
    
    
    5,546
    
    
    
    5,250
    
    
    
    4,945Subordinated debentures
    
    
    13,000
    
    
    
    13,296
    
    
    
    13,000
    
    
    
    13,472Accrued interest payable
    
    
    3,504
    
    
    
    3,504
    
    
    
    2,876
    
    
    
    2,876
 The methods and assumptions used to estimate fair value are described as follows. Carrying amount is the estimated fair value for cash and cash equivalents, short-term borrowings, Federal Home Loan Bank stock and other bankers bank stock, accrued interest receivable and payable, demand deposits, short-term debt,
and variable rate loans or deposits that reprice frequently and fully. Security fair values are based on market prices or dealer quotes, and if no such information is available, on the rate and term of the security and information
about the issuer. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the
estimated life and credit risk. Fair values for impaired loans are estimated using discounted cash flow analysis or underlying collateral values. Fair value of debt is based on current rates for similar financing. The fair value
of off-balance sheet items that includes commitments to extend credit to fund commercial, consumer, real estate construction and real estate-mortgage loans and to fund standby letters of credit is considered nominal. 69




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TIB Financial Corp. and Subsidiaries Notes to Consolidated Financial Statements Note 19  Segment Reporting TIB Financial Corp. has three reportable segments: community banking, merchant bankcard processing, and parent and other. 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. The parent and other segment includes the operations of the
holding company, retail investment service operations of the Bank, and the Companys investment in ERAS Joint Venture. The results of Keys Insurance Agency, Inc. are not included in the segment reporting as they are classified separately as discontinued operations in the consolidated financial statements (see Note 20). Total assets of Keys Insurance
Agency, Inc. at December 31, 2003, December 31, 2002 and December 31, 2001 were $0, $2,278,870 and $2,285,331 respectively. The accounting policies of the segments are the same as those described in the Summary of Significant Accounting Policies. The Company evaluates performance based on profit or loss from operations before income taxes. The Companys reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different marketing strategies.
Intercompany transactions have been ignored in preparing the segment reporting amounts below. Year ended
    
    Community
    
    Merchant
    
    Parent andDecember 31, 2003
    
    Banking
    
    Bankcard
    
    Other
    
    TotalInterest and dividend income
    
    $
    34,606,423
    
    
    $
    
    
    
    $
    
    
    
    $
    34,606,423Interest expense
    
    
    (8,249,075
    )
    
    
    
    
    
    
    (1,590,088
    )
    
    
    (9,839,163
    )Net interest and dividend income
    
    
    26,357,348
    
    
    
    
    
    
    
    (1,590,088
    )
    
    
    24,767,260Other income
    
    
    6,460,642
    
    
    
    4,953,348
    
    
    
    622,809
    
    
    
    12,036,799Depreciation and amortization
    
    
    (1,963,081
    )
    
    
    (45,523
    )
    
    
    (4,398
    )
    
    
    (2,013,002
    )Other expense
    
    
    (22,427,866
    )
    
    
    (3,982,361
    )
    
    
    (731,384
    )
    
    
    (27,141,611
    )Pretax segment profit
    
    $
    8,427,043
    
    
    $
    925,464
    
    
    $
    (1,703,061
    )
    
    $
    7,649,446Segment assets
    
    $
    668,495,500
    
    
    $
    36,717
    
    
    $
    765,531
    
    
    $
    669,297,748
 Year ended
    
    Community
    
    Merchant
    
    Parent andDecember 31, 2002
    
    Banking
    
    Bankcard
    
    Other
    
    TotalInterest and dividend income
    
    $
    31,287,177
    
    
    $
    
    
    
    $
    29,133
    
    
    $
    31,316,310Interest expense
    
    
    (8,705,737
    )
    
    
    
    
    
    
    (1,623,519
    )
    
    
    (10,329,256
    )Net interest and dividend income
    
    
    22,581,440
    
    
    
    
    
    
    
    (1,594,386
    )
    
    
    20,987,054Other income
    
    
    5,594,079
    
    
    
    4,387,095
    
    
    
    447,529
    
    
    
    10,428,703Depreciation and amortization
    
    
    (1,718,122
    )
    
    
    (44,202
    )
    
    
    (5,044
    )
    
    
    (1,767,368
    )Other expense
    
    
    (18,485,929
    )
    
    
    (3,576,610
    )
    
    
    (593,008
    )
    
    
    (22,655,547
    )Pretax segment profit
    
    $
    7,971,468
    
    
    $
    766,283
    
    
    $
    (1,744,909
    )
    
    $
    6,992,842Segment assets
    
    $
    564,220,977
    
    
    $
    65,923
    
    
    $
    582,876
    
    
    $
    564,869,776
 70




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TIB Financial Corp. and Subsidiaries Notes to Consolidated Financial Statements Year ended
    
    Community
    
    Merchant
    
    Parent andDecember 31, 2001
    
    Banking
    
    Bankcard
    
    Other
    
    TotalInterest and dividend income
    
    $
    33,655,796
    
    
    $
    
    
    
    $
    61,682
    
    
    $
    33,717,478Interest expense
    
    
    (14,096,439
    )
    
    
    
    
    
    
    (1,700,964
    )
    
    
    (15,797,403
    )Net interest and dividend income
    
    
    19,559,357
    
    
    
    
    
    
    
    (1,639,282
    )
    
    
    17,920,075Other income
    
    
    5,226,666
    
    
    
    4,009,664
    
    
    
    997,593
    
    
    
    10,233,923Equity in loss, net of goodwill
amortization, from investment
in ERAS Joint Venture
    
    
    
    
    
    
    
    
    
    
    (235,490
    )
    
    
    (235,490
    )Depreciation and amortization
    
    
    (1,707,315
    )
    
    
    (42,158
    )
    
    
    (4,989
    )
    
    
    (1,754,462
    )Other expense
    
    
    (16,298,339
    )
    
    
    (3,405,858
    )
    
    
    (462,529
    )
    
    
    (20,166,726
    )Pretax segment profit
    
    $
    6,780,369
    
    
    $
    561,648
    
    
    $
    (1,344,697
    )
    
    $
    5,997,320Segment assets
    
    $
    490,929,421
    
    
    $
    85,231
    
    
    $
    811,262
    
    
    $
    491,825,914
 The Company discontinued separate reporting of its Government Guaranteed Loan
Sales and Servicing segment in 2003. This segment is now included as part of
the Community Banking segment above. Note 20  Discontinued Operations On August 15, 2003, the Company closed the sale of Keys Insurance Agency, Inc., a wholly owned
subsidiary of the Company, to Derek Martin-Vegue and his partner. Mr. Martin-Vegue is a former
director of the Company and TIB Bank of the Keys. The transaction was structured as a sale of the
agency assets. The buyer paid $2,204,930 in cash at the closing. Of the cash payment at closing,
proceeds of $2,020,938 were pursuant to a loan from TIB Bank of the Keys (a subsidiary of the Company)
to the buyer. The Company recognized a loss of $14,676 on the
transaction.
The results of Keys Insurance Agency, Inc. operations, which have been classified as discontinued
operations in the accompanying consolidated financial statements, are summarized as follows: Years ended December 31:
    
    2003
    
    2002
    
    2001Other income
    
    $
    1,254,816
    
    
    $
    1,801,297
    
    
    $
    1,458,299Depreciation and amortization
    
    
    34,432
    
    
    
    57,481
    
    
    
    166,061Other expense
    
    
    1,019,812
    
    
    
    1,537,586
    
    
    
    1,365,018Pretax income from discontinued operations
    
    $
    200,572
    
    
    $
    206,230
    
    
    $
    (72,780
    )
 71




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TIB Financial Corp. and Subsidiaries Notes to Consolidated Financial Statements Note 21  Condensed Financial Information of TIB Financial Corp. Condensed Balance Sheets
(Parent Only) December 31,
    
    2003
    
    2002AssetsCash on deposit with subsidiary
    
    $
    758,052
    
    
    $
    734,863Dividends and other receivables from subsidiaries
    
    
    9,590
    
    
    
    9,750Investment in bank subsidiary
    
    
    58,910,047
    
    
    
    48,954,471Investment in TIB Software & Services, Inc.
    
    
    
    
    
    
    129,370Investment in TIBFL Statutory Trust I
    
    
    248,000
    
    
    
    248,000Investment in TIBFL Statutory Trust II
    
    
    155,000
    
    
    
    155,000Investment in Keys Insurance Agency, Inc.
    
    
    
    
    
    
    2,301,298Income tax receivable
    
    
    338,505
    
    
    
    84,763Other assets
    
    
    423,866
    
    
    
    436,700Total Assets
    
    $
    60,843,060
    
    
    $
    53,054,215Liabilities and Shareholders EquityLiabilitiesDividends payable
    
    $
    498,524
    
    
    $
    443,919Interest payable
    
    
    439,690
    
    
    
    445,017Due to subsidiaries
    
    
    
    
    
    
    3,252Notes payable
    
    
    18,653,000
    
    
    
    18,653,000Other liabilities
    
    
    6,000
    
    
    
    2,950Total liabilities
    
    
    19,597,214
    
    
    
    19,548,138Shareholders equityCommon stock
    
    
    443,133
    
    
    
    403,563Surplus
    
    
    14,254,731
    
    
    
    8,965,816Retained earnings
    
    
    26,202,982
    
    
    
    23,021,698Accumulated other comprehensive income
    
    
    345,000
    
    
    
    1,115,000Total shareholders equity
    
    
    41,245,846
    
    
    
    33,506,077Total Liabilities and Shareholders Equity
    
    $
    60,843,060
    
    
    $
    53,054,215
 72




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TIB Financial Corp. and Subsidiaries Notes to Consolidated Financial Statements 21. Condensed Financial Information of TIB Financial Corp. (continued) Condensed Statements of Income
(Parent Only) Years ended December 31,
    
    2003
    
    2002
    
    2001Operating incomeDividend from bank subsidiary
    
    $
    832,000
    
    
    $
    781,604
    
    
    $
    1,924,122Dividend from TIBFL Statutory Trust I
    
    
    26,288
    
    
    
    26,288
    
    
    
    26,288Dividend from TIBFL Statutory Trust II
    
    
    7,631
    
    
    
    8,584
    
    
    
    4,449Dividend from TIB Software & Services, Inc.
    
    
    126,193
    
    
    
    156,810
    
    
    
    511,526Interest income on note receivable
    
    
    
    
    
    
    29,133
    
    
    
    61,682Total operating income
    
    
    992,112
    
    
    
    1,002,419
    
    
    
    2,528,067Operating expenseInterest expense
    
    
    1,624,007
    
    
    
    1,658,391
    
    
    
    1,731,701Other expense
    
    
    344,834
    
    
    
    305,166
    
    
    
    259,617Total operating expense
    
    
    1,968,841
    
    
    
    1,963,557
    
    
    
    1,991,318(Loss) income before income tax benefit and
equity in undistributed earnings (losses) of
subsidiaries
    
    
    (976,729
    )
    
    
    (961,138
    )
    
    
    536,749Income tax benefit
    
    
    728,100
    
    
    
    708,200
    
    
    
    701,300(Loss) income before equity in undistributed earnings
(losses) of subsidiaries
    
    
    (248,629
    )
    
    
    (252,938
    )
    
    
    1,238,049Equity in undistributed earnings of bank subsidiary
    
    
    5,225,575
    
    
    
    4,865,590
    
    
    
    2,848,561Equity in undistributed losses of TIB Software &
Services, Inc.
    
    
    
    
    
    
    (6,110
    )
    
    
    (146,890
    )Income from continuing operations
    
    
    4,976,946
    
    
    
    4,606,542
    
    
    
    3,939,720Discontinued operations:Dividend from Keys Insurance Agency, Inc.
    
    
    125,172
    
    
    
    
    
    
    
    Equity in undistributed earnings (losses) of Keys
Insurance Agency, Inc.
    
    
    
    
    
    
    128,730
    
    
    
    (45,380
    )Income (loss) from discontinued operations
    
    
    125,172
    
    
    
    128,730
    
    
    
    (45,380
    )Net income
    
    $
    5,102,118
    
    
    $
    4,735,272
    
    
    $
    3,894,340
 73




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TIB Financial Corp. and Subsidiaries Notes to Consolidated Financial Statements 21. Condensed Financial Information of TIB Financial Corp. (continued) Condensed Statements of Cash Flows
(Parent Only) Years ended December 31,
    
    2003
    
    2002
    
    2001Cash flows from operating activitiesNet income
    
    $
    5,102,118
    
    
    $
    4,735,272
    
    
    $
    3,894,340Equity in undistributed earnings of bank subsidiary
    
    
    (5,225,575
    )
    
    
    (4,865,590
    )
    
    
    (2,848,561
    )Equity in undistributed losses of TIB Software &
Services, Inc.
    
    
    
    
    
    
    6,110
    
    
    
    146,890Equity in undistributed (earnings) loss of Keys
Insurance Agency, Inc.
    
    
    
    
    
    
    (128,730
    )
    
    
    45,380Amortization of intangibles and other assets
    
    
    16,875
    
    
    
    37,161
    
    
    
    52,652Increase in other assets
    
    
    (4,041
    )
    
    
    (29,133
    )
    
    
    (63,101
    )Decrease in due to subsidiaries
    
    
    (3,252
    )
    
    
    (147,117
    )
    
    
    (143,631
    )Increase (decrease) in interest payable
    
    
    (5,327
    )
    
    
    (58,194
    )
    
    
    51,937Increase in other liabilities
    
    
    3,050
    
    
    
    2,529
    
    
    
    421Deferred income taxes
    
    
    
    
    
    
    (89,236
    )
    
    
    (4,402
    )Increase (decrease) in net income tax obligation
    
    
    (3,245
    )
    
    
    (65,213
    )
    
    
    218,662Net cash provided (used) by operating activities
    
    
    (119,397
    )
    
    
    (602,141
    )
    
    
    1,350,587Cash flows from investing activitiesNet decrease in receivables from subsidiaries
    
    
    160
    
    
    
    136
    
    
    
    516,190Investment in bank subsidiary
    
    
    (5,500,000
    )
    
    
    
    
    
    
    (4,000,000
    )Payment on note receivable from sale of option
    
    
    
    
    
    
    300,000
    
    
    
    300,000Investment in Keys Insurance Agency, Inc. to
purchase BonData Group Limited, Inc.
    
    
    
    
    
    
    
    
    
    
    (204,750
    )Investment in TIBFL Statutory Trust II
    
    
    
    
    
    
    
    
    
    
    (155,000
    )Return of capital from Keys Insurance Agency, Inc.
    
    
    2,301,298
    
    
    
    
    
    
    
    Return of capital from TIB Software & Services, Inc.
    
    
    129,370
    
    
    
    129,346
    
    
    
    510,380Net cash provided (used) in investing activities
    
    
    (3,069,172
    )
    
    
    429,482
    
    
    
    (3,033,180
    )Cash flows from financing activitiesProceeds from exercise of stock options
    
    
    734,582
    
    
    
    593,097
    
    
    
    221,623Proceeds from stock issuance
    
    
    4,343,404
    
    
    
    
    
    
    
    Cash dividends paid
    
    
    (1,866,228
    )
    
    
    (1,713,007
    )
    
    
    (1,685,864
    )Proceeds from issuance of long-term debt
    
    
    
    
    
    
    
    
    
    
    5,155,000Debt issuance costs
    
    
    
    
    
    
    
    
    
    
    (170,816
    )Net cash provided (used) by financing activities
    
    
    3,211,758
    
    
    
    (1,119,910
    )
    
    
    3,519,943Net increase (decrease) in cash
    
    
    23,189
    
    
    
    (1,292,569
    )
    
    
    1,837,350Cash, beginning of year
    
    
    734,863
    
    
    

    2,027,432
    
    
    
    190,082Cash, end of year
    
    $
    758,052
    
    
    $
    734,863
    
    
    $
    2,027,432
 74




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TIB Financial Corp. and Subsidiaries Notes to Consolidated Financial Statements Note 22  Quarterly Financial Data (Unaudited) The following is a summary of unaudited quarterly results for 2003 and 2002: 2003
    
    2002Fourth
    
    Third
    
    Second
    
    First
    
    Fourth
    
    Third
    
    Second
    
    FirstCondensed income statements
(dollars in thousands):Interest income
    
    $
    9,116
    
    
    $
    8,748
    
    
    $
    8,452
    
    
    $
    8,290
    
    
    $
    8,152
    
    
    $
    7,896
    
    
    $
    7,727
    
    
    $
    7,541Net interest income
    
    
    6,701
    
    
    
    6,345
    
    
    
    5,888
    
    
    
    5,833
    
    
    
    5,588
    
    
    
    5,239
    
    
    
    5,198
    
    
    
    4,962Income from
continuing
operations
    
    
    1,464
    
    
    
    1,141
    
    
    
    1,210
    
    
    
    1,162
    
    
    
    1,233
    
    
    
    1,168
    
    
    
    1,038
    
    
    
    1,167Net income
    
    $
    1,464
    
    
    $
    1,163
    
    
    $
    1,286
    
    
    $
    1,189
    
    
    $
    1,222
    
    
    $
    1,221
    
    
    $
    1,101
    
    
    $
    1,191Earnings per share:Income from
continuing
operations - Basic
    
    $
    0.33
    
    
    $
    0.26
    
    
    $
    0.29
    
    
    $
    0.29
    
    
    $
    0.31
    
    
    $
    0.29
    
    
    $
    0.26
    
    
    $
    0.30Income from
continuing
operations -
Diluted
    
    $
    0.32
    
    
    $
    0.25
    
    
    $
    0.28
    
    
    $
    0.27
    
    
    $
    0.30
    
    
    $
    0.28
    
    
    $
    0.25
    
    
    $
    0.28
 Due to the disposal of the assets of Keys Insurance Agency, Inc. in the third
quarter of 2003, all previous reported quarterly financial data has been
adjusted above to reflect the results of Keys Insurance Agency, Inc. as
discontinued operations. 75




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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On June 10, 2003, the Company dismissed BDO Seidman, LLP as its
accountants and retained the accounting firm of Crowe Chizek and Company LLC.
BDO Seidman, LLPs report on the financial statements for the Company for 2002
and 2001 did not contain an adverse opinion or disclaimer of opinion nor was
such report qualified or modified as to audit scope or accounting principle.
During such calendar years and the subsequent interim period preceding the
change in its accountants, there were no disagreements with the former
accountants on any matter of accounting principle or practices, financial
statement disclosure or auditing scope or procedure, which disagreement or
disagreements, if not resolved to the satisfaction of the former accountants,
would have caused them to make a reference to the subject matter of the
disagreement in conjunction with their report. The decision to dismiss BDO
Seidman, LLP was recommended and approved by the Board of Directors of the
Company 
 ITEM 9A. 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 within 90 days of the filing date of
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 have 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. As we continue to expand our
indirect lending program, management has continued to improve and strengthen
its controls surrounding this area.  By year end, controls had been
implemented that the Company believes addressed all the significant
issues. 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. 76




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PART III 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The
information set forth under the captions "Information About the
Board of Directors and Their Committees" and "Executive Officers"
under the caption "Election of Directors",
and Filings Under Section 16(A) Beneficial Ownership Reporting
Compliance in the Proxy Statement to be utilized in connection with the
Companys 2004 Annual Shareholders Meeting is incorporated herein by reference. In 2003, we adopted a code of ethics that applies to our principal
executive officer, principal financial officer, principal accounting officer,
controller, and persons performing similar functions. We have posted the text
of our code of ethics on our website at www.tibbank.com in the section titled
Investor Relations. In addition, we intend to promptly disclose (i) the
nature of any amendment to our code of ethics that applies to our principal
executive officer, principal financial officer, principal accounting officer,
controller, or persons performing similar functions and (ii) the nature of any
waiver, including an implicit waiver, from a provision of our code of ethics
that is granted to one of these specified individuals, the name of such person
who is granted the waiver, and the date of the waiver on our website in the
future. 
 ITEM 11. EXECUTIVE COMPENSATION The information contained under the caption Compensation of Executive
Officers and Directors in the Proxy Statement to be utilized in connection
with the Companys 2004 Annual Shareholders Meeting is incorporated herein by
reference. 
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS The
information contained under the caption "Management and Principal
Shareholders" in
the Proxy Statement to be utilized in connection with the Companys 2004 Annual
Shareholders Meeting is incorporated herein by reference. 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information contained under the caption Certain Relationships and
Related Transactions in the Proxy Statement to be utilized in connection with
the Companys 2004 Annual Shareholders Meeting is incorporated herein by
reference. 77




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##### Table of Contents



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information contained under the caption Principal Accountant Fees and
Services in the Proxy Statement to be utilized in connection with the
Companys 2004 Annual Shareholders Meeting is incorporated herein by reference. 
 PART IV 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K  (a)
    
    1. Financial StatementsThe consolidated financial statements, notes thereto and independent
auditors report thereon, filed as part hereof, are listed in Item 8.2. Financial Statement SchedulesFinancial Statement schedules have been omitted as the required
information is not applicable or the required information has been
incorporated in the consolidated financial statements and related notes
incorporated by reference herein.3. Exhibits Exhibit Numbers3.1*
    
    Articles of Incorporation3.2*
    
    Bylaws4.1*
    
    Specimen Stock Certificate10.1
    
    Employment Agreement between Edward V. Lett, TIB Financial
Corp. and TIB Bank of the Keys effective March 1, 2004 **10.2*
    
    401(K) Savings and Employee Stock Ownership Plan **10.3*
    
    Employee Incentive Stock Option Plan **10.4
    
    Employment Agreement between Millard J. Younkers, Jr., TIB
Financial Corp. and TIB Bank of the Keys effective March 1, 2004 **10.5
    
    Employment Agreement between David P. Johnson, TIB Financial
Corp. and TIB Bank of the Keys effective March 1, 2004 **10.6
    
    Form of Director Deferred Fee Agreement**/***10.7
    
    Form of Director Split Dollar Agreement**/***10.8
    
    Form of Salary Continuation Agreement**/***10.9
    
    Form of Executive Officer Split Dollar Agreement**/***10.10
    
    Form of Director Deferred Fee Agreement  First Amendment**10.11
    
    Form of Executive Officer Split Dollar Agreement  First Amendment**10.12
    
    Form of Director Split Dollar Agreement  First Amendment**10.13
    
    Employment Agreement between Michael D. Carrigan, TIB Financial Corp. and TIB Bank of the Keys effective March 1, 2004.**21.1
    
    Subsidiaries of the Company23.1
    
    Consent of Crowe Chizek and Company, LLC31.1
    
    Chief Executive Officers certification required under
Section 302 of Sarbanes-Oxley Act of 200231.2
    
    Chief Financial Officers certification required under
Section 302 of Sarbanes-Oxley Act of 200232.1
    
    Chief Executive Officers certification required under
Section 906 of Sarbanes-Oxley Act of 200232.2
    
    Chief Financial Officers certification required under
Section 906 of Sarbanes-Oxley Act of 2002*
    
    Items 3.1 through 4.1, and 10.2 and
10.3, as listed
above, were previously filed by the Company
 78




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##### Table of Contents



as Exhibits (with the same respective Exhibit Number as indicated
herein) to the Companys Registration Statement (Registration No.
333-03499) and such documents are incorporated herein
by reference.**
    
    Represents a management contract or a compensation plan or
arrangement required to be filed as an exhibit.***
    
    Items 10.6 through 10.9 were previously filed by the Company
as Exhibits to the Companys December 31, 2001 10-K and such
documents are incorporated herein by reference.
  (b)
    
    Reports on Form 8-KReports on 8-K filed during the fourth quarter and through the date of
this Form 10-K filing are as follows:  On November 4, 2003, the Company issued a press release announcing
certain financial results and additional information related to its
third quarter earnings.On March 1, 2004, the Company issued a press release announcing
certain financial results and additional information related to its
fourth quarter and annual earnings. 79




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##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 on March 23, 2004. TIB FINANCIAL CORP.By:
    
    /s/ Edward V. Lett

Edward V. LettPresident, Chief Executive Officer and Director
 Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 23, 2004. Signature
    
    Title/s/ Edward V. Lett

Edward V. Lett
    
    President (Principal Executive Officer), Chief Executive Officer
and Director/s/ Richard C. Bricker, Jr.

Richard C. Bricker, Jr.
    
    Director/s/ Armando J. Henriquez

Dr. Armando J. Henriquez
    
    Director/s/ Gretchen K. Holland

Gretchen K. Holland
    
    Director/s/ Paul O. Jones, Jr., M.D.

Paul O. Jones, Jr., M.D.
    
    Director/s/ James R. Lawson

James R. Lawson
    
    Director/s/ Thomas J. Longe

Thomas J. Longe
    
    Director/s/ John G. Parks, Jr.

John G. Parks, Jr.
    
    Director
 80




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##### Table of Contents



Signature
    
    Title/s/ Marvin F. Schindler

Marvin F. Schindler
    
    Director/s/ Otis T. Wallace

Otis T. Wallace
    
    Director/s/ Millard J. Younkers, Jr.

Millard J. Younkers, Jr.
    
    Director/s/ Robert A. Zolten, M.D.

Robert A. Zolten, M.D.
    
    Director/s/ David P. Johnson

David P. Johnson
    
    Chief Financial and Accounting Officer
 81