VAIL Vail Banks (MM)

Vail Banks Announces Third Quarter Results AVON, Colo., Oct. 25 /PRNewswire-FirstCall/ -- Vail Banks, Inc. (NASDAQ:VAIL) today reported diluted net income per share of $0.10 for the third quarter 2004 compared to $0.07 for third quarter 2003. Net income for the quarter was $559,000 versus $363,000 in third quarter 2003. "Loan and deposit volumes continued to show healthy gains during the quarter," commented Gary Judd, CEO of Vail Banks, Inc. "Loans are up $73 million or 31 percent annualized while deposits have increased $52 million or 15 percent annualized since year end. The hard work of improving our credit processes has also paid off with our loan loss reserve to non-performing assets ratio improving 193 percent from the third quarter 2003 to 460 percent. Total risk assets (non-performing assets plus loans 90 days or more past due and accruing) are down $3.3 million to $1.4 million since the same time last year." Mr. Judd further commented, "Our balance sheet continues to show improved strength. We have an improved mix of deposits that has helped our net interest margin to increase to 4.68 percent. This is a 16 percent improvement over the margin at December 31, 2003 and the highest level since the second quarter 2003. Our core deposits have grown at a 21 percent annualized rate. Core deposit growth has lowered our cost of funds to its lowest level in the Company's history." The asset quality of the Bank is at an all-time high. Non-accrual loans stood at $814,000 at September 30, 2004 compared with $2.1 million on the same date a year earlier, down 61 percent. Foreclosed properties were at $606,000 at the end of the third quarter compared to $2.5 million at the same time the previous year, a 76 percent reduction. Loans 90+ days past due and accruing were only $3,000 at September 30, 2004 compared to $163,000 on the same date in the prior year, a 98 percent reduction. Finally, total risk assets compared to loan-related assets has declined 76 percent since the prior year quarter end to 0.37 percent. Mr. Judd stated, "The significant improvement in asset quality is the result of relentless work in improving our credit processes and standards and in performing a thorough review of our problem credits over the past few years. With the addition of several experienced credit officers in the past year, the strength of our lending team has increased significantly." Throughout this significant loan growth, the Bank has maintained a strong loan loss reserve of 0.97 percent of total loans. The Bank has added $524,000 to the reserve for the nine months ended September 30, 2004 compared to $414,000 for the same period last year. The Bank had its second net recovery quarter during the past year with annualized net recoveries at 0.05 percent of average loans for the third quarter. For the nine months ended September 30, 2004, net charge-offs were 0.11 percent versus 0.35 percent of average loans for the same time period the prior year, a 69 percent reduction. Total revenue (net interest income and non-interest income) increased $239,000, or 3 percent, from the third quarter of 2003. This increase came even though there was a $543,000 decrease in mortgage brokerage fees compared to the same period the previous year. There was a 6 percent increase in interest and fees on loans from the third quarter 2003. This increase was the result of improved loan volumes, partially offset by a 7 percent reduction in loan yields. During the quarter, the Bank merged its wholly owned subsidiary, First Western Mortgage Services, into the Bank and changed its name to WestStar Mortgage to capitalize on our brand name. The Bank also opened an additional office in the Front Range to further its development in the growing Denver marketplace and moved its Glenwood Springs main office into a premier new building and location. "We continue to invest significantly in our associates' development in order to better service our customers' needs," stated Mr. Judd. "We believe that this investment will provide us with the tools and skills needed to achieve the Company's profitability goals. Our overall salary and benefits have been managed conservatively showing a 7 percent reduction year-to-date as compared to the same period a year ago." At its meeting on October 18, the Board of Directors of Vail Banks declared a regular quarterly dividend of $0.07 per share payable November 12 to shareholders of record on October 29. The Company has restated first quarter 2004 earnings to reflect a tax accounting reconciliation in calculating the tax on the gain on sale of the Vail Bank building. Vail Banks has increased its tax liability and tax expense associated with this complex financial transaction by $293,000. The Company's outside accounting firm recently identified this adjustment. This adjustment does not impact the core earnings or operations of our business. In addition, it has not impacted our customers or the future growth of the Bank. The Company has restated its quarterly filings with the Securities and Exchange Commission for both the first and second quarters to reflect this revised tax calculation. Vail Banks, Inc., through its subsidiary WestStar Bank, has 23 banking offices in 18 communities in Colorado, including Aspen, Avon, Breckenridge, Cedaredge, Delta, Denver, Dillon, Edwards, Estes Park, Frisco, Glenwood Springs, Granby, Grand Junction, Gypsum, Montrose, Norwood, Telluride and Vail. Vail Banks warns caution should be taken in relying upon any forward-looking statements in this release, as they involve a number of risks and uncertainties that could cause actual results to differ materially from any such statements, including the risks and uncertainties discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2003, under the caption "Certain Factors Affecting Forward Looking Statements," which discussion is incorporated herein by reference. Vail Banks, Inc. Financial Highlights (in thousands, except share data) Three Months Ended Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, 2004 (2) 2004 (2) 2004 (2) 2003 2003 Earnings and Performance Net income (loss) $559 574 1,180 (1,761) 363 Diluted net income (loss) per share 0.10 0.11 0.22 (0.35) 0.07 Return on assets 0.37% 0.39 0.80 (1.18) 0.24 Return on equity 3.79 3.95 8.13 (11.77) 2.39 Net interest margin (FTE) 4.68 4.38 4.17 4.05 4.15 Efficiency ratio 87 89 73 130 93 Asset Quality Ratios Net charge-offs (recoveries) to average loans (0.05)% 0.04 0.38 (0.05) 0.00 Allowance for loan losses to loans 0.97 0.97 1.05 1.12 1.06 Allowance for loan losses to non-performing loans 460 217 205 201 157 Non-performing assets to loan-related assets 0.37 0.67 0.72 0.68 1.46 Risk assets to loan-related assets (1) 0.37 0.67 0.73 0.73 1.52 Capital Ratios Equity to assets at period end 9.50% 9.82 9.77 10.05 10.04 Tangible equity to assets at period end 3.72 3.70 3.81 3.63 3.88 Leverage ratio 8.41 7.93 7.80 7.45 7.86 Tier 1 capital ratio 10.97 11.35 11.91 11.50 12.17 Total capital ratio 12.58 13.22 13.96 13.72 14.09 Other Information at Period End Book value per share $11.19 10.89 11.20 10.95 11.26 Tangible book value per share 4.38 4.10 4.37 3.96 4.35 Closing market price 13.08 12.44 12.32 11.94 14.72 Shares outstanding 5,310,754 5,326,330 5,298,093 5,283,264 5,311,512 Full time equivalent associates 252 238 238 244 241 Banking offices 23 22 22 22 23 (1) Risk assets are non-performing assets plus loans 90 days or more past due and accruing. (2) Reflects the adoption of Financial Interpretation Number 46 on January 1, 2004. Prior quarter information has not been restated. Vail Banks, Inc. Balance Sheet (in thousands, except share data) September 30, December 31, Percent Assets 2004 2003 Change Cash and due from banks $15,082 21,628 (30)% Federal funds sold 6,230 79,280 (92) Interest-bearing deposits in banks 2,000 2,000 0 Investment securities Available for sale 132,615 76,554 73 Held to maturity 283 370 (24) Bank stocks 4,411 4,371 1 Investments in Trust I and Trust II (1) 743 0 0 Loans held for sale 2,295 2,515 (9) Gross loans 385,470 312,544 23 Allowance for loan losses (3,742) (3,503) 7 Net deferred loan fee income (1,198) (770) 56 Premises and equipment, net 38,367 38,147 1 Goodwill, net 35,969 36,758 (2) Other intangible assets, net 169 199 (15) Other assets 6,288 5,517 14 $624,982 575,610 9% Liabilities and Shareholders' Equity Liabilities Deposits $500,297 448,515 12% Federal funds purchased and securities sold under agreements to repurchase 751 907 0 Federal Home Loan Bank advances 33,603 39,461 (15) Trust preferred (1) 0 24,000 (100) Subordinated notes to Trust I and Trust II (1) 24,743 0 0 Other liabilities 3,641 4,165 (13) Total liabilities 563,035 517,048 9 Minority interest 2,546 703 262 Shareholders' equity Common equity 60,012 57,979 4 Accumulated other comprehensive loss (611) (120) 409 Total shareholders' equity 59,401 57,859 3 $624,982 575,610 9% Loan Mix at Period End Commercial, industrial, and land $227,337 185,158 23% Real estate -- construction 82,436 63,844 29 Real estate -- mortgage 69,935 57,602 21 Consumer 5,762 5,940 (3) Total gross loans $385,470 312,544 23% Deposit Mix at Period End Interest bearing checking $97,692 88,191 11% Savings 33,218 29,873 11 Money market 134,139 103,969 29 CDs under $100,000 51,857 55,978 (7) CDs $100,000 and over 75,159 69,199 9 Interest bearing deposits 392,065 347,210 13 Non-interest bearing checking 108,232 101,305 7 Total deposits $500,297 448,515 12% Shares Outstanding at Period End 5,310,754 5,283,264 1% (1) Reflects the adoption of Financial Interpretation Number 46 on January 1, 2004. Prior year information has not been restated. Vail Banks, Inc. Statement of Income (in thousands, except share data) Three months ended Nine Months ended September 30, September 30, Percent Percent 2004 2003 Change 2004 2003 Change Interest income Interest on loans $5,829 5,702 2% 16,342 18,058 (10) Fees on loans 875 616 42 2,592 1,802 44 Interest on investment securities 1,134 850 33 2,952 2,847 4 Interest on federal funds sold and short-term investments 25 191 (87) 314 480 (35) Investments in Trust I and Trust II (1) 19 0 0 57 0 0 Total interest income 7,882 7,359 7 22,257 23,187 (4) Interest expense Deposits 1,028 1,172 (12) 3,052 3,576 (15) Borrowings 340 439 (23) 1,057 1,172 (10) Federal funds purchased and securities sold under agreements to repurchase 3 0 0 5 0 0 Trust preferred 0 612 (100) 0 1,835 (100) Subordinated notes to Trust I and Trust II (1) 631 0 0 1,892 0 0 Total interest expense 2,002 2,223 (10) 6,006 6,583 (9) Net interest income 5,880 5,136 14 16,251 16,604 (2) Provision for loan losses 323 164 97 524 414 27 Net interest income after provision 5,557 4,972 12 15,727 16,190 (3) Non-interest income 2,243 2,748 (18) 8,179 8,476 (4) Non-interest expense 7,052 7,294 (3) 20,187 21,213 (5) Income before taxes 748 426 76 3,719 3,453 8 Income taxes 189 63 200 1,406 978 44 Net Income $559 363 54% 2,313 2,475 (7) Diluted net income per share $0.10 0.07 43% 0.43 0.44 (2) Weighted average shares outstanding - diluted 5,426,283 5,498,653 (1) 5,415,405 5,689,159 (5) Profitability Ratios Return on assets 0.37% 0.24 0.52 0.56 Return on equity 3.79 2.39 5.28 5.21 Net interest margin (FTE) 4.68 4.15 4.41 4.60 Net (recoveries) chargeoffs (0.05) 0.00 0.11 0.35 Efficiency ratio 87 93 83 85 Average Balances Assets $604,689 600,424 1% 596,429 589,691 1 Earning assets 511,363 504,361 1 504,023 494,619 2 Loans 362,585 315,602 15 335,685 328,497 2 Deposits 480,902 466,356 3 471,912 456,709 3 Shareholders' equity 58,621 60,244 (3) 58,487 63,508 (8) (1) Reflects the adoption of Financial Interpretation Number 46 on January 1, 2004. Prior quarter information has not been restated. Vail Banks, Inc. Statement of Income by Quarter (in thousands, except share data) Three Months Ended Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, 2004 2004 2004 2003 2003 Interest income Interest on loans $5,829 5,223 5,290 5,437 5,702 Fees on loans 875 943 774 801 616 Interest on investment securities 1,134 1,045 773 557 850 Interest on federal funds sold and short-term investments 25 85 204 210 191 Investments in Trust I and Trust II (1) 19 19 19 0 0 Total interest income 7,882 7,315 7,060 7,005 7,359 Interest expense Deposits 1,028 1,005 1,019 1,068 1,172 Borrowings 340 345 372 430 439 Federal funds purchased and securities sold under agreements to repurchase 3 1 1 1 0 Trust preferred (1) 0 0 0 612 612 Subordinated notes to Trust I and Trust II (1) 631 630 631 0 0 Total interest expense 2,002 1,981 2,023 2,111 2,223 Net interest income 5,880 5,334 5,037 4,894 5,136 Provision for loan losses 323 43 158 164 164 Net interest income after provision 5,557 5,291 4,879 4,730 4,972 Non-interest income Deposit related 717 692 685 757 747 Mortgage broker fees 756 775 803 853 1,299 Gain (loss) on sale of fixed assets (11) 103 1,678 0 0 Other 781 522 678 1,056 702 2,243 2,092 3,844 2,666 2,748 Non-interest expense Salaries and employee benefits 4,096 3,994 4,019 4,578 4,403 Occupancy 1,000 846 845 1,259 850 Furniture and equipment 608 611 562 673 696 Amortization of intangible assets 10 10 10 561 19 Other 1,338 1,158 1,080 2,754 1,326 7,052 6,619 6,516 9,825 7,294 Income (loss) before taxes 748 764 2,207 (2,429) 426 Income tax expense (benefit) 189 190 1,027 (668) 63 Net Income (Loss) $559 574 1,180 (1,761) 363 Diluted net income (loss) per share $0.10 0.11 0.22 (0.35) 0.07 (1) Reflects the adoption of Financial Interpretation Number 46 on January 1, 2004. Prior year information has not been restated. Vail Banks, Inc. Supplemental Information (in thousands) Three Months Ended Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, 2004 (1) 2004 (1) 2004 (1) 2003 2003 Average Balances Assets $604,689 592,343 592,263 589,586 600,424 Earning assets 511,363 501,982 498,642 492,696 504,361 Loans 362,585 329,508 314,667 311,001 315,602 Deposits 480,902 468,618 466,117 457,108 466,356 Interest bearing liabilities 436,601 430,525 428,143 427,518 439,842 Shareholders' equity 58,621 58,453 58,385 59,340 60,244 Average Deposit Mix Interest bearing checking 99,279 95,259 92,413 89,817 88,494 Savings 31,893 30,300 30,708 30,019 30,125 Money market 124,130 126,845 119,881 108,637 109,159 CDs under $100,000 51,943 53,141 55,109 58,357 60,940 CDs $100,000 and over 69,965 64,829 66,746 71,979 81,565 Interest bearing deposits 377,210 370,374 364,857 358,809 370,283 Non-interest bearing checking 103,692 98,244 101,260 98,299 96,073 Total deposits 480,902 468,618 466,117 457,108 466,356 Net Interest Margin Analysis Net interest income $5,880 5,334 5,037 4,894 5,136 Fully taxable equivalent adjustment 132 134 132 133 146 Net interest income (FTE) 6,012 5,468 5,169 5,027 5,282 Yields (FTE) Loans 7.36% 7.53 7.75 7.96 7.94 Investment securities 3.59 3.53 4.05 3.28 4.01 Other earning assets 2.39 1.16 0.99 0.90 0.94 Total earning assets 6.23 5.97 5.80 5.75 5.90 Cost of funds Interest bearing deposits 1.08 1.09 1.12 1.18 1.26 Other interest bearing liabilities 6.52 6.53 6.38 6.02 5.99 Total interest bearing liabilities 1.82 1.85 1.90 1.96 2.01 Total interest expense to earning assets 1.55 1.59 1.63 1.70 1.75 Net interest margin (FTE) 4.68 4.38 4.17 4.05 4.15 (1) Reflects the adoption of Financial Interpretation Number 46 on January 1, 2004. Prior year information has not been restated. Vail Banks, Inc. Asset Quality (in thousands) Three Months Ended Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, 2004 2004 2004 2003 2003 Asset Quality Nonaccrual loans $814 1,555 1,636 1,747 2,105 Restructured loans 0 0 0 0 0 Total non-performing loans 814 1,555 1,636 1,747 2,105 Foreclosed properties 606 788 674 362 2,496 Total non-performing assets 1,420 2,343 2,310 2,109 4,601 90+ days past due and accruing 3 8 15 164 163 Total risk assets $1,423 2,351 2,325 2,273 4,764 Allowance for Loan Losses Beginning Balance $3,369 3,361 3,503 3,299 3,138 Provision for loan losses 323 43 158 164 164 Loan charge-offs 149 120 338 78 73 Loan recoveries 199 85 38 118 70 Net charge-offs (recoveries) (50) 35 300 (40) 3 Ending Balance $3,742 3,369 3,361 3,503 3,299 Net Charge-Offs (Recoveries) to Average Loans (0.05)% 0.04 0.38 (0.05) 0.00 Loans Past Due 30 Days or More and Accruing 0.15 0.24 2.46 0.47 2.18 DATASOURCE: Vail Banks, Inc. CONTACT: Lisa M. Dillon, Vice Chairman, +1-970-476-2002, , or Raymond E. Verlinde, Sr. EVP/Chief Administrative Officer, +1-970-328-9710, , both of Vail Banks, Inc.

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