VAIL Vail Banks (MM)

AVON, Colo., Oct. 18 /PRNewswire-FirstCall/ -- Vail Banks, Inc. (NASDAQ:VAIL) today reported diluted net income per share of $0.25 for the third quarter 2005 compared to $0.18 for the second quarter 2005 and $0.10 for third quarter 2004. Net income for the quarter was $1,343,000 versus $971,000 in the second quarter 2005 and $559,000 in the third quarter 2004. "This quarter's success was driven by continued high credit quality, new loan originations, and an increase in core deposits," stated Gary Judd, CEO of Vail Banks, Inc. "We have been able to maintain excellent credit quality with no non-accrual loans for the second straight quarter. Average loans have increased $10.2 million, or 10 percent annualized, from the second quarter 2005, and $59.1 million since the third quarter 2004, or 16 percent. We continue to take advantage of the strong real-estate markets in which we have branches, as evidenced by our $36.2 million increase in real estate construction lending year to date. The allowance for loan losses as a percentage of loans was 0.95 percent at September 30, 2005, which is unchanged from the second quarter." "Average core deposit balances improved $24.8 million, or 6 percent, since the last quarter. Specifically, non-interest bearing checking has increased $8.0 million, or 7 percent, since the last quarter. Overnight sweep deposits (repurchase agreements or "repos") have increased $12.8 million year to date and average money market balances have increased $48.2 million, or 48 percent annualized. These two trends are the result of our continued focus on building long-term customer relationships. This core growth has significantly contributed to keeping our cost of funds to a reasonable 1.90 percent during the third quarter 2005. In addition, this contributed to the improved net interest margin of 5.07 percent for the quarter compared to 5.00 percent in the second quarter 2005 and 4.68 percent in the third quarter 2004," commented Mr. Judd. "We continue to show balance sheet growth with average earning assets increasing $18.4 million, or 13 percent annualized, since the second quarter 2005 and $69.0 million, or 13 percent, since the third quarter 2004. Concurrent with our earning asset growth, we have paid down higher rate Federal Home Loan Bank advances by $15.4 million or 36 percent this year," stated Mr. Judd. "Interest income and fees on loans are up $673,000 since the second quarter 2005 and $2.2 million, or 33 percent, since the third quarter 2004. This increase, combined with the continued core deposit growth, increased net interest income $375,000 from the second quarter 2005 and 24 percent, or $1.4 million, from the third quarter 2004. This reflects our ability to continue to take advantage of the short-term rate increases by the Federal Reserve Bank while maintaining our lower rate core deposits," commented Mr. Judd. The increase in deposits during the quarter contributed to improved liquidity. Fed funds sold balances have increased by $9.9 million from the second quarter, or $31.5 million year to date. The yield on investment securities increased to 3.87 percent (tax equivalent yield) during the quarter compared to 3.75 percent in the second quarter, due to an increase in the ratio of tax-exempt municipal bonds to total securities. Total non-interest income increased $582,000, or 35 percent, during the third quarter compared to the second quarter. This increase was driven primarily by a one-time brokerage fee of $435,000 received for placing a significant loan with third parties. In addition, $129,000 of the increase in non-interest income represents an increase in mortgage fees from increased origination volumes in the quarter as a result of a fully staffed and trained mortgage department. Non-interest expenses increased $299,000 during the past quarter. Salaries and employee benefits increased $487,000 from the previous quarter due to an increase of $168,000 in health insurance accruals, an increase in incentive expenses of $140,000, an increase in salaries of $84,000 as a result of filling open positions, and an increase of $68,000 in mortgage incentive compensation as a result of higher mortgage originations. At its meeting on October 17, the Board of Directors of Vail Banks declared a regular quarterly dividend of $0.07 per share payable November 11 to shareholders of record on October 28. Vail Banks, Inc., through its subsidiary WestStar Bank, has 24 banking offices in 19 communities in Colorado, including Aspen, Avon, Breckenridge, Cedaredge, Delta, Denver, Dillon, Edwards, Estes Park, Frisco, Fruita, Glenwood Springs, Granby, Grand Junction, Gypsum, Montrose, Norwood, Telluride and Vail. This news release contains forward-looking statements, as defined by federal securities laws, including statements about financial outlook and business environment. These statements are provided to assist in the understanding of future financial performances and such performance involves risks and uncertainties that may cause actual results to differ materially from those in such statements. Any such statements are based on current expectations and involve a number of risks and uncertainties. For a discussion of factors that may cause such forward-looking statements to differ materially from actual results, please refer to the section entitled "Certain Factors Affecting Forward-Looking Statements" in Vail Banks, Inc.'s annual report filed on Form 10-K with the Securities and Exchange Commission. Vail Banks, Inc. Financial Highlights (in thousands, except share data) (unaudited) Three Months Ended Sept. 30, June 30, Mar. 31, Dec 31, Sept. 30, 2005 2005 2005 2004 2004 Earnings and Performance Net income $1,343 $971 $885 $643 $559 Diluted net income per share 0.25 0.18 0.16 0.12 0.10 Return on assets 0.79% 0.60% 0.55% 0.41% 0.37% Return on equity 8.59 6.39 5.95 4.30 3.79 Net interest margin (FTE) 5.07 5.00 5.11 4.95 4.68 Efficiency ratio 79 84 84 89 87 Return on tangible equity 20.57 15.69 14.86 10.96 9.89 Asset Quality Ratios Net charge-offs (recoveries) to average loans 0.00% (0.05)% (0.03)% 0.03% (0.05)% Allowance for loan losses to loans 0.95 0.95 0.99 0.96 0.97 Allowance for loan losses to non-performing loans (1) NA NA 287 1,657 460 Non-performing assets to loan-related assets 0.14 0.14 0.54 0.25 0.37 Risk assets to loan-related assets (2) 0.47 0.18 0.80 0.25 0.37 Capital Ratios Equity to assets at period end 9.33% 9.44% 8.81% 9.44% 9.50% Tangible equity to assets at period end 3.96 3.93 3.55 3.75 3.72 Leverage ratio 8.13 8.12 8.01 8.06 8.28 Tier 1 capital ratio 10.61 10.70 10.14 10.52 10.88 Total capital ratio 11.84 12.05 11.62 12.02 12.47 Other Information at Period End Book value per share $11.19 $11.05 $10.84 $11.25 $11.19 Tangible book value per share 4.75 4.61 4.37 4.46 4.38 Closing market price 14.00 14.64 13.13 13.18 13.08 Shares outstanding 5,604,235 5,604,235 5,578,824 5,326,504 5,310,754 Full time equivalent associates 256 254 243 249 252 Banking offices 24 23 23 23 23 (1) Calculation is not applicable (NA) when non-performing loans equal zero. (2) Risk assets are non-performing assets plus loans 90 days or more past due and accruing. Vail Banks, Inc. Balance Sheet (in thousands, except share data) September 30, December 31, Percent Assets 2005 2004 Change (unaudited) Cash and due from banks $21,228 $18,360 16% Federal funds sold 48,810 17,295 182 Investment securities Available for sale 91,761 103,779 (12) Held to maturity 180 246 (27) Investments in Trust I and Trust II 743 743 0 Loans held for sale 1,006 7,110 (86) Gross loans 428,426 407,629 5 Allowance for loan losses (4,050) (3,895) 4 Net deferred loan fee income (1,034) (1,276) (19) Investment in bank stocks 4,532 4,457 2 Premises and equipment, net 38,889 38,721 0 Goodwill, net 35,970 35,970 0 Other intangible assets, net 129 159 (19) Other assets 5,320 5,297 0 $671,910 $634,595 6% Liabilities and Shareholders' Equity Liabilities Deposits $537,831 $500,444 7% Securities sold under agreements to repurchase 13,738 894 1,437 Federal Home Loan Bank advances 27,084 42,444 (36) Subordinated notes to Trust I and Trust II 24,743 24,743 0 Other liabilities 3,342 3,605 (7) Total liabilities 606,738 572,130 6 Minority interest 2,468 2,563 (4) Shareholders' equity Common equity 63,690 60,520 5 Accumulated other comprehensive loss (986) (618) 60 Total shareholders' equity 62,704 59,902 5 $671,910 $634,595 6% Loan Mix at Period End Commercial, industrial, and land $220,246 $239,946 (8)% Real estate -- construction 128,909 92,705 39 Real estate -- mortgage 72,885 69,164 5 Consumer 6,386 5,814 10 Total gross loans $428,426 $407,629 5% Deposit Mix at Period End Interest bearing checking $89,350 $92,279 (3)% Savings 32,901 31,261 5 Money market 189,064 132,388 43 CDs under $100,000 44,165 51,541 (14) CDs $100,000 and over 50,920 72,848 (30) Interest bearing deposits 406,400 380,317 7 Non-interest bearing checking 131,431 120,127 9 Total deposits $537,831 $500,444 7% Shares Outstanding at Period End 5,604,235 5,326,504 5% Vail Banks, Inc. Statement of Income by Quarter (in thousands, except share data) (unaudited) Three Months Ended Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, 2005 2005 2005 2004 2004 Interest income Interest on loans $8,042 $7,410 $6,705 $6,623 $5,829 Fees on loans 874 833 909 1,028 875 Interest on investment securities 852 1,028 1,371 1,056 1,134 Interest on federal funds sold and short-term investments 499 219 192 21 25 Investments in Trust I and Trust II 19 19 19 19 19 Total interest income 10,286 9,509 9,196 8,747 7,882 Interest expense Deposits 1,962 1,623 1,329 1,200 1,028 Borrowings 279 241 364 379 340 Federal funds purchased and securities sold under agreements to repurchase 122 98 25 19 3 Subordinated notes to Trust I and Trust II 631 630 631 631 631 Total interest expense 2,994 2,592 2,349 2,229 2,002 Net interest income 7,292 6,917 6,847 6,518 5,880 Provision for loan losses 50 (36) 65 180 323 Net interest income after provision 7,242 6,953 6,782 6,338 5,557 Non-interest income Deposit related 648 645 620 689 717 Mortgage broker fees 588 459 394 812 756 Gain (loss) on sale of fixed assets -- 11 (8) (1) (11) Other 1,022 561 564 524 781 Total non-interest income 2,258 1,676 1,570 2,024 2,243 Non-interest expense Salaries and employee benefits 4,596 4,109 4,195 4,375 4,096 Occupancy 972 1,044 999 1,050 1,000 Furniture and equipment 646 650 683 658 608 Amortization of intangible assets 10 10 10 10 10 Other 1,285 1,397 1,214 1,521 1,338 Total non-interest expense 7,509 7,210 7,101 7,614 7,052 Income before taxes 1,991 1,419 1,251 748 748 Income tax expense 648 448 366 105 189 Net Income $1,343 $971 $885 $643 $559 Diluted net income per share $0.25 $0.18 $0.16 $0.12 $0.10 Vail Banks, Inc. Statement of Income (in thousands, except share data) Three months Nine Months ended ended September 30, Percent September 30, Percent 2005 2004 Change 2005 2004 Change Interest income Interest on loans $8,042 $5,829 38% $22,157 $16,342 36% Fees on loans 874 875 0 2,616 2,592 1 Interest on investment securities 852 1,134 (25) 3,251 2,952 10 Interest on federal funds sold and short-term investments 499 25 1,896 910 314 190 Investments in Trust I and Trust II 19 19 0 57 57 0 Total interest income 10,286 7,882 30 28,991 22,257 30 Interest expense Deposits 1,962 1,028 91 4,914 3,052 61 Borrowings 279 340 (18) 884 1,057 (16) Federal funds purchased and securities sold under agreements to repurchase 122 3 3,967 245 5 4,800 Subordinated notes to Trust I and Trust II 631 631 0 1,892 1,892 0 Total interest expense 2,994 2,002 50 7,935 6,006 32 Net interest income 7,292 5,880 24 21,056 16,251 30 Provision for loan losses 50 323 (85) 79 524 (85) Net interest income after provision 7,242 5,557 30 20,977 15,727 33 Non-interest income 2,258 2,243 1 5,504 8,179 (33) Non-interest expense 7,509 7,052 6 21,820 20,187 8 Income before taxes 1,991 748 166 4,661 3,719 25 Income taxes 648 189 243 1,462 1,406 4 Net Income $1,343 $559 140% $3,199 $2,313 38% Diluted net income per share $0.25 $0.10 150% $0.59 $0.43 37% Weighted average shares outstanding -- diluted 5,380,120 5,426,283 (1) 5,395,579 5,415,405 0 Profitability Ratios Return on assets 0.79% 0.37% 0.65% 0.52% Return on equity 8.59 3.79 7.00 5.28 Net interest margin (FTE) 5.07 4.68 5.05 4.41 Net chargeoffs/ (recoveries) 0.00 (0.05) (0.03) 0.11 Efficiency ratio 79 87 82 83 Average Balances Assets $673,080 $604,689 11% $659,633 $596,429 11% Earning assets 580,370 511,363 13 565,597 504,023 12 Loans 421,678 362,585 16 411,909 335,685 23 Deposits 536,756 480,902 12 525,851 471,912 11 Shareholders' equity 62,001 58,621 6 61,080 58,487 4 Vail Banks, Inc. Supplemental Information (in thousands) (unaudited) Three Months Ended Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, 2005 2005 2005 2004 2004 Average Balances Assets $673,080 $654,444 $651,133 $630,212 $604,689 Earning assets 580,370 561,978 554,155 534,933 511,363 Loans 421,678 411,495 402,340 394,763 362,585 Deposits 536,756 523,298 517,286 498,080 480,902 Interest bearing liabilities 477,432 468,261 465,834 455,340 436,601 Shareholders' equity 62,001 60,937 60,282 59,477 58,621 Average Deposit Mix Interest bearing checking 91,277 93,380 93,637 97,081 99,279 Savings 31,778 31,787 31,560 33,013 31,893 Money market 181,233 162,355 147,308 133,006 124,130 CDs under $100,000 45,736 48,993 50,663 52,144 51,943 CDs $100,000 and over 59,049 67,114 74,850 74,070 69,965 Interest bearing deposits 409,073 403,629 398,018 389,314 377,210 Non-interest bearing checking 127,683 119,669 119,268 108,766 103,692 Total deposits $536,756 $523,298 $517,286 $498,080 $480,902 Net Interest Margin Analysis Net interest income $7,292 $6,917 $6,847 $6,518 $5,880 Fully taxable equivalent adjustment 111 76 140 133 132 Net interest income (FTE) 7,403 6,993 6,987 6,651 6,012 Yields (FTE) Loans 8.39% 8.04% 7.67% 7.71% 7.36% Investment securities 3.87 3.75 5.15 3.63 3.59 Other earning assets 3.59 3.09 2.77 3.26 2.39 Total earning assets 7.11 6.84 6.83 6.60 6.23 Cost of funds Interest bearing deposits 1.90 1.61 1.35 1.23 1.08 Other interest bearing liabilities 5.99 6.01 6.10 6.20 6.52 Total interest bearing liabilities 2.49 2.22 2.05 1.95 1.82 Total interest expense to earning assets 2.04 1.84 1.72 1.65 1.55 Net interest margin (FTE) 5.07% 5.00% 5.11% 4.95% 4.68% Vail Banks, Inc. Asset Quality (in thousands) (unaudited) Three Months Ended Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, 2005 2005 2005 2004 2004 Asset Quality Nonaccrual loans $0 $0 $1,391 $235 $814 Restructured loans 0 0 0 0 0 Total non-performing loans 0 0 1,391 235 814 Foreclosed properties 617 589 802 785 606 Total non-performing assets 617 589 2,193 1,020 1,420 90+ days past due and accruing 1,399 181 1,053 17 3 Total risk assets $2,016 $770 $3,246 $1,037 $1,423 Allowance for Loan Losses Beginning Balance $4,003 $3,989 $3,895 $3,742 $3,369 Provision (credit) for loan losses 50 (36) 65 180 323 Loan charge-offs 7 1 24 63 149 Loan recoveries 4 51 53 36 199 Net charge-offs (recoveries) 3 (50) (29) 27 (50) Ending Balance $4,050 $4,003 $3,989 $3,895 $3,742 Net Charge-Offs (Recoveries) to Average Loans 0.00% (0.05)% (0.03)% 0.03% (0.05)% Loans Past Due 30 Days or More and Accruing 0.43 0.07 0.31 0.32 0.15 DATASOURCE: Vail Banks, Inc. CONTACT: Raymond E. Verlinde, Sr. EVP/Chief Administrative Officer, +1-970-328-9710, , or Brady T. Burt, EVP/Chief Financial Officer, +1-970-328-9711, , both of Vail Banks, Inc.

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