VAIL Vail Banks (MM)

Vail Banks Reports Second Quarter Earnings of $0.11 AVON, Colo., July 19 /PRNewswire-FirstCall/ -- Vail Banks, Inc. (NASDAQ:VAIL) today reported diluted net income per share of $0.11 for the second quarter 2004 compared to $0.27 in the first quarter 2004 and $0.20 for second quarter 2003. Net income for the quarter was $574,000 versus $1.473 million in first quarter 2004 and $1.137 million in second quarter 2003. First quarter 2004 results included a gain on the sale of the Company's Vail bank building of $1.678 million ($1.061 million, or $0.20 per diluted share, after tax). "Our loan and deposit volumes continued to increase during the quarter," commented E. B. Chester, Chairman of Vail Banks. "Our offices are experiencing improved activity, and we are beginning to see the bottom-line results of this growth. The focus on credit quality over the past two and a half years has also paid off as our non-performing assets have declined to their lowest level in ten quarters." Gary Judd, President and CEO of Vail Banks, commented, "Net charge-offs of 0.04% and coverage of non-performing loans of 217% are evidence of a very strong balance sheet. Loans past due 30 days or more and accruing dropped to 0.24% of total loans. This benchmark, often a harbinger for problem loans, is at its lowest level since December 2000. This credit quality gives us a platform to grow the Company and our associates have definitely accepted the challenge. We are very encouraged by the 12% increase in loan outstandings since the end of 2003, and we are pleased with the level of sales activity our credit officers are producing." Financial Highlights * Earnings per share Diluted net income per share was $0.11 for second quarter Compared to $0.20 for second quarter 2003, a 45% decrease Compared to $0.27 for first quarter 2004, a 59% decrease including the building sale gain, and $0.07, a 57% increase excluding the gain * Net Income Net income was $574,000 for second quarter Compared to $1,137,000 for second quarter 2003, a 50% decrease Compared to $1,473,000 for first quarter 2004, a 61% decrease including the gain and $412,000, a 39% increase excluding the gain * Return on assets Return on assets was 0.39% for second quarter Compared to 0.76% for second quarter 2003 Compared to 1.00% for first quarter 2004 * Return on equity Return on equity was 3.93% for second quarter Compared to 7.08% for second quarter 2003 Compared to 10.13% for first quarter 2004 * Net Interest Margin Net interest margin (fully tax equivalent) was 4.38% for second quarter Compared to 4.77% for second quarter 2003 Compared to 4.17% for first quarter 2004 * Efficiency Ratio Efficiency ratio was 89% for second quarter Compared to 80% for second quarter 2003 Compared to 73% for first quarter 2004 Top Line Revenue Total revenue (net interest income and non-interest income), decreased $1.230 million, or 14%, from the second quarter of 2003, due primarily to lower interest income on loans and lower fee income from mortgage brokerage activities. Revenues increased $223,000, or 3%, from the first quarter 2004, excluding the building sale gain, due primarily to higher interest income on securities. Net interest income was $5.334 million for the quarter compared to $5.811 million in the second quarter 2003, and to $5.037 million in the first quarter 2004. Average loans for the quarter increased $15 million, or 19% annualized, compared to the first quarter 2004. Average deposits increased $3 million, or 2% annualized, during the quarter compared to the first quarter 2004. Average core deposits (total deposits less CDs) grew $6 million, or 7% annualized, compared to the first quarter 2004, and have increased $35 million, or 44% annualized, from the second quarter 2003. Non-interest income, decreased 26%, or $753,000, as compared to the second quarter of 2003, and decreased 3%, or $74,000, excluding the building sale gain, as compared to the first quarter 2004. Mortgage broker fees were $775,000 as the Company's mortgage subsidiary experienced soft activity after the refinancing boom of 2002 and 2003. This represents a decrease of 42%, or $559,000, from the second quarter of 2003, and a decrease of 3%, or $28,000, from the first quarter 2004. Interest Rate Risk Management The net interest margin, on a fully tax-equivalent basis, was 4.38% for the quarter compared to 4.17% in the first quarter 2004 and 4.77% in the second quarter 2003. Earning assets yielded 5.97% for the second quarter, a 61 basis point decrease from the second quarter 2003 yield of 6.58%, and a 17 basis point increase from the first quarter 2004 yield of 5.80%. Interest expense as a percentage of earning assets decreased to 1.59% in the first quarter from 1.81% in the second quarter 2003, a decrease of 22 basis points, and decreased 4 basis points from 1.63% in the first quarter 2004. "The growth in loans and securities has improved our net interest margin from the fourth quarter of 2003," said Dan Godec, President of WestStar Bank. "We have a strong loan pipeline and our credit officers continue to find new opportunities for growing our business. Further, our unfunded loan commitments have increased 43% since December 31, as our construction loan business increases. We also are beginning to see growth in the number of relationships we service." Credit Risk Management Net charge-offs, on an annualized basis, were 0.04% of average loans for the quarter, compared to net charge-offs of 0.44% in the second quarter 2003 and 0.38% in the first quarter 2004. At June 30, the allowance for loan losses was 0.97% of total loans and 217% of non-performing loans. Overall, non-performing assets comprised 0.67% of loan-related assets at the end of the quarter compared to 0.72% at the end of the first quarter 2004. "Our credit quality is excellent," said Lisa Dillon, Vice Chairman of Vail Banks. "Non-accrual loan levels continue to decline and charge-offs are extremely low. Our detailed analysis of impaired loans and the improvement in the economic environment indicate that our reserve is adequate." Control of Non-interest Expenses Non-interest expense was $6.619 million for the quarter versus $6.895 million in second quarter 2003, and $6.516 million in first quarter 2004. Lower expenses in the second quarter 2004 primarily reflect the lower mortgage origination costs due to reduced loan origination volumes as compared to 2003. Dividend Payment At its meeting on July 19, the Board of Directors of Vail Banks declared a regular quarterly dividend of $0.07 per share payable August 13 to shareholders of record on July 30. Franchise Vail Banks, through its subsidiary WestStar Bank, has 22 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 June 30, Mar. 31, Dec. 31, Sept. 30, June 30, 2004 (2) 2004 (2) 2003 2003 2003 Earnings and Performance Net income (loss) $574 1,473 (1,761) 363 1,137 Diluted net income (loss) per share 0.11 0.27 (0.35) 0.07 0.20 Return on assets 0.39 % 1.00 (1.18) 0.24 0.76 Return on equity 3.93 10.13 (11.77) 2.39 7.08 Net interest margin (FTE) 4.38 4.17 4.05 4.15 4.77 Efficiency ratio 89 73 130 93 80 Asset Quality Ratios Net charge-offs (recoveries) to average loans 0.04 % 0.38 (0.05) 0.00 0.44 Allowance for loan losses to loans 0.97 1.05 1.12 1.06 0.98 Allowance for loan losses to non-performing loans 217 205 201 157 182 Non-performing assets to loan-related assets 0.67 0.72 0.68 1.46 0.71 Risk assets to loan-related assets (1) 0.67 0.73 0.73 1.52 1.43 Capital Ratios Equity to assets at period end 9.87 % 9.81 10.05 10.04 10.59 Tangible equity to assets at period end 3.75 3.86 3.63 3.88 4.41 Leverage ratio 8.00 7.88 7.45 7.86 8.47 Tier 1 capital ratio 11.45 12.02 11.50 12.17 12.95 Total capital ratio 13.30 14.04 13.72 14.09 14.60 Other Information at Period End Book value per share $ 10.95 11.25 10.95 11.26 11.57 Tangible book value per share 4.16 4.43 3.96 4.35 4.81 Closing market price 12.44 12.32 11.94 14.72 13.55 Shares outstanding 5,326,330 5,298,093 5,283,264 5,311,512 5,441,639 Full time equivalent associates 238 238 244 241 248 Banking offices 22 22 22 23 22 (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) June 30, December 31, Percent Assets 2004 2003 Change Cash and due from banks $18,871 21,628 (13)% Federal funds sold 0 79,280 (100) Interest-bearing deposits in banks 2,000 2,000 0 Investment securities Available for sale 137,877 76,554 80 Held to maturity 323 370 (13) Bank stocks 4,372 4,371 0 Investments in Trust I and Trust II(1) 743 0 0 Loans held for sale 2,028 2,515 (19) Gross loans 349,872 312,544 12 Allowance for loan losses (3,369) (3,503) (4) Net deferred loan fee income (991) (770) 29 Premises and equipment, net 34,901 38,147 (9) Goodwill, net 35,969 36,758 (2) Other intangible assets, net 179 199 (10) Other assets 7,652 5,517 39 $590,427 575,610 3% Liabilities and Shareholders' Equity Liabilities Deposits $466,935 448,515 4% Federal funds purchased and securities sold under agreements to repurchase 2,816 907 0 Federal Home Loan Bank advances 33,615 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 3,331 4,165 (20) Total liabilities 531,440 517,048 3 Minority interest 689 703 (2) Shareholders' equity Common equity 59,896 57,979 3 Accumulated other comprehensive loss (1,598) (120) 1,232 Total shareholders' equity 58,298 57,859 1 $590,427 575,610 3% Loan Mix at Period End Commercial, industrial, and land $215,361 185,158 16% Real estate -- construction 58,855 63,844 (8) Real estate -- mortgage 69,704 57,602 21 Consumer 5,952 5,940 0 Total gross loans $349,872 312,544 12% Deposit Mix at Period End Interest bearing checking $97,287 88,191 10% Savings 30,586 29,873 2 Money market 120,292 103,969 16 CDs under $100,000 51,915 55,978 (7) CDs $100,000 and over 60,972 69,199 (12) Interest bearing deposits 361,052 347,210 4 Non-interest bearing checking 105,883 101,305 5 Total deposits $466,935 448,515 4% Shares Outstanding at Period End 5,326,330 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 June 30, Percent 2004 2003 Change Interest income Interest on loans $5,223 6,154 (15)% Fees on loans 943 639 48 Interest on investment securities 1,045 1,128 (7) Interest on federal funds sold and short-term investments 85 157 (46) Investments in Trust I and Trust II (1) 19 0 0 Total interest income 7,315 8,078 (9) Interest expense Deposits 1,005 1,232 (18) Borrowings 345 424 (19) Federal funds purchased and securities sold under agreements to repurchase 1 0 0 Trust preferred 0 611 (100) Subordinated notes to Trust I and Trust II(1) 630 0 0 Total interest expense 1,981 2,267 (13) Net interest income 5,334 5,811 (8) Provision for loan losses 43 125 (66) Net interest income after provision 5,291 5,686 (7) Non-interest income 2,092 2,845 (26) Non-interest expense 6,619 6,895 (4) Income before taxes 764 1,636 (53) Income taxes 190 499 (62) Net Income $574 1,137 (50)% Diluted net income per share $0.11 0.20 (45)% Weighted average shares outstanding - diluted 5,417,827 5,706,629 (5) Profitability Ratios Return on assets 0.39% 0.76 Return on equity 3.93 7.08 Net interest margin (FTE) 4.38 4.77 Net chargeoffs 0.04 0.44 Efficiency ratio 89 80 Average Balances Assets $592,343 597,540 (1)% Earning assets 501,982 502,526 (0) Loans 329,508 331,727 (1) Deposits 468,618 460,655 2 Shareholders' equity 58,746 64,374 (9) (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 (in thousands, except share data) Six Months ended June 30, Percent 2004 2003 Change Interest income Interest on loans 10,513 12,356 (15) Fees on loans 1,717 1,186 45 Interest on investment securities 1,818 1,997 (9) Interest on federal funds sold and short-term investments 289 289 0 Investments in Trust I and Trust II (1) 38 0 0 Total interest income 14,375 15,828 (9) Interest expense Deposits 2,024 2,404 (16) Borrowings 717 733 (2) Federal funds purchased and securities sold under agreements to repurchase 2 0 0 Trust preferred 0 1,223 (100) Subordinated notes to Trust I and Trust II(1) 1,261 0 0 Total interest expense 4,004 4,360 (8) Net interest income 10,371 11,468 (10) Provision for loan losses 201 250 (20) Net interest income after provision 10,170 11,218 (9) Non-interest income 5,936 5,728 4 Non-interest expense 13,135 13,919 (6) Income before taxes 2,971 3,027 (2) Income taxes 924 915 1 Net Income 2,047 2,112 (3) Diluted net income per share 0.38 0.37 3 Weighted average shares outstanding - diluted 5,409,908 5,769,878 (6) Profitability Ratios Return on assets 0.70 0.73 Return on equity 7.02 6.54 Net interest margin (FTE) 4.28 4.83 Net chargeoffs 0.21 0.52 Efficiency ratio 81 81 Average Balances Assets 592,254 584,235 1 Earning assets 500,313 489,668 2 Loans 322,088 335,051 (4) Deposits 467,368 451,806 3 Shareholders' equity 58,609 65,167 (10) (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 June 30, Mar. 31, Dec. 31, Sept. 30, June 30, 2004 2004 2003 2003 2003 Interest income Interest on loans $5,223 5,290 5,437 5,702 6,154 Fees on loans 943 774 801 616 639 Interest on investment securities 1,045 773 557 850 1,128 Interest on federal funds sold and short-term investments 85 204 210 191 157 Investments in Trust I and Trust II(1) 19 19 0 0 0 Total interest income 7,315 7,060 7,005 7,359 8,078 Interest expense Deposits 1,005 1,019 1,068 1,172 1,232 Borrowings 345 372 430 439 424 Federal funds purchased and securities sold under agreements to repurchase 1 1 1 0 0 Trust preferred(1) 0 0 612 612 611 Subordinated notes to Trust I and Trust II(1) 630 631 0 0 0 Total interest expense 1,981 2,023 2,111 2,223 2,267 Net interest income 5,334 5,037 4,894 5,136 5,811 Provision for loan losses 43 158 164 164 125 Net interest income after provision 5,291 4,879 4,730 4,972 5,686 Non-interest income Deposit related 692 685 757 747 824 Mortgage broker fees 775 803 853 1,299 1,334 Gain on sale of fixed assets 103 1,678 0 0 0 Other 522 678 1,056 702 687 2,092 3,844 2,666 2,748 2,845 Non-interest expense Salaries and employee benefits 3,994 4,019 4,578 4,403 4,287 Occupancy 846 845 1,259 850 808 Furniture and equipment 611 562 673 696 691 Amortization of intangible assets 10 10 561 19 18 Other 1,158 1,080 2,754 1,326 1,091 6,619 6,516 9,825 7,294 6,895 Income (loss) before taxes 764 2,207 (2,429) 426 1,636 Income tax expense (benefit) 190 734 (668) 63 499 Net Income (Loss) $574 1,473 (1,761) 363 1,137 Diluted net income (loss) per share $0.11 0.27 (0.35) 0.07 0.20 (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 June 30, Mar. 31, Dec. 31, Sept. 30, June 30, 2004(1) 2004(1) 2003 2003 2003 Average Balances Assets $592,343 592,350 589,586 600,424 597,540 Earning assets 501,982 498,642 492,696 504,361 502,526 Loans 329,508 314,667 311,001 315,602 331,727 Deposits 468,618 466,117 457,108 466,356 460,655 Interest bearing liabilities 430,525 428,143 427,518 439,842 439,295 Shareholders' equity 58,746 58,472 59,340 60,244 64,374 Average Deposit Mix Interest bearing checking 95,259 92,413 89,817 88,494 86,478 Savings 30,300 30,708 30,019 30,125 30,053 Money market 126,845 119,881 108,637 109,159 109,791 CDs under $100,000 53,141 55,109 58,357 60,940 59,942 CDs $100,000 and over 64,829 66,746 71,979 81,565 84,742 Interest bearing deposits 370,374 364,857 358,809 370,283 371,006 Non-interest bearing checking 98,244 101,260 98,299 96,073 89,649 Total deposits 468,618 466,117 457,108 466,356 460,655 Net Interest Margin Analysis Net interest income $5,334 5,037 4,894 5,136 5,811 Fully taxable equivalent adjustment 134 132 133 146 167 Net interest income (FTE) 5,468 5,169 5,027 5,282 5,978 Yields (FTE) Loans 7.53% 7.75 7.96 7.94 8.21 Investment securities 3.53 4.05 3.28 4.01 4.63 Other earning assets 1.16 0.99 0.90 0.94 1.16 Total earning assets 5.97 5.80 5.75 5.90 6.58 Cost of funds Interest bearing deposits 1.09 1.12 1.18 1.26 1.33 Other interest bearing liabilities 6.53 6.38 6.02 5.99 6.08 Total interest bearing liabilities 1.85 1.90 1.96 2.01 2.07 Total interest expense to earning assets 1.59 1.63 1.70 1.75 1.81 Net interest margin (FTE) 4.38 4.17 4.05 4.15 4.77 (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 June 30, Mar. 31, Dec. 31, Sept. 30, June 30, 2004 2004 2003 2003 2003 Asset Quality Nonaccrual loans $1,555 1,636 1,747 2,105 1,722 Restructured loans 0 0 0 0 0 Total non-performing loans 1,555 1,636 1,747 2,105 1,722 Foreclosed properties 788 674 362 2,496 542 Total non-performing assets 2,343 2,310 2,109 4,601 2,264 90+ days past due and accruing 8 15 164 163 2,323 Total risk assets $2,351 2,325 2,273 4,764 4,587 Allowance for Loan Losses Beginning Balance $3,361 3,503 3,299 3,138 3,381 Provision for loan losses 43 158 164 164 125 Loan charge-offs 120 338 78 73 416 Loan recoveries 85 38 118 70 48 Net charge-offs (recoveries) 35 300 (40) 3 368 Ending Balance $3,369 3,361 3,503 3,299 3,138 Net Charge-Offs (Recoveries) to Average Loans 0.04% 0.38 (0.05) 0.00 0.44 Loans Past Due 30 Days or More and Accruing 0.24 2.46 0.47 2.18 2.47 DATASOURCE: Vail Banks, Inc. CONTACT: Lisa M. Dillon, Vice Chairman, +1-970-476-2002, , or Peter G. Williston, Sr. Executive Vice President/CFO, +1-970-328-9711, , both of Vail Banks, Inc.

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