VAIL Vail Banks (MM)

Vail Banks Announces Fourth Quarter and Year End Results AVON, Colo., Jan. 18 /PRNewswire-FirstCall/ -- Vail Banks, Inc. (NASDAQ:VAIL) today reported diluted net income per share of $0.12 for the fourth quarter 2004 compared to a loss of ($0.35) for fourth quarter 2003. Net income for the quarter was $643,000 versus a loss of $1.8 million in fourth quarter 2003. For 2004 the Company reported earnings of $3 million or $0.55 per share compared with $714,000 or $0.13 per share for 2003. In looking at core earnings, the Company would have earned $842,000 or $0.16 per share for the fourth quarter 2004 compared with $326,000 or $0.06 per share for the fourth quarter of 2003. Core earnings for the fourth quarter of 2004 would exclude the $311,000 pretax loss on the sale of securities. For the fourth quarter of 2003, $1.8 million in fixed asset write-offs, $543,000 write-down on core deposit intangibles, $317,000 in severance and stock compensation, and $173,000 in lease expenses related to closed branches would be eliminated. "Loans have continued to show healthy growth during the fourth quarter increasing $22 million or 23 percent annualized and over $95 million or 30 percent for the year," commented Gary Judd, CEO of Vail Banks, Inc. "The growth in loans has been across our real estate construction, real estate mortgage and commercial loan portfolios. We have good momentum going into 2005. Asset quality, which has been strong throughout the year, improved again this quarter. The allowance for loan losses to non-performing loans was at 1,657 percent at year end, up 260 percent from the previous quarter. The non-performing assets to loan-related assets were at 0.25 percent at December 31, 2004, a 32 percent reduction from the third quarter. Our improved credit processes created over the past 18 months have clearly contributed to these outstanding ratios," stated Mr. Judd. Mr. Judd further commented, "Core deposit balances have improved throughout the year increasing $53 million or 16 percent since last year end. For the fourth quarter, average core deposits increased $13 million or 14 percent annualized since the end of the third quarter. This growth has kept our cost of deposits at a low 1.23 percent as of December 31, 2004, and importantly, indicates a strengthening of our relationship with our customers. These core balances, coupled with our slightly asset sensitive balance sheet, have improved our net interest margin 22 percent since year end 2003 to 4.95 percent in this rising interest rate environment." The asset quality of WestStar Bank is at an all-time high. Non-accrual loans stood at $235,000 at December 31, 2004 compared with $1.7 million at year end 2003, down 87 percent. Loans 90 days or more past due and accruing were only $17,000 at December 31, 2004 compared to $164,000 on the same date in the prior year, a 90 percent reduction. Loans past due 30 days or more and accruing have improved 32 percent to 0.32 percent at year end compared to 0.47 percent at year end 2003. Finally, total risk assets compared to loan-related assets has declined 66 percent since the prior year end to 0.25 percent. Mr. Judd stated, "Given the significant loan growth experienced during the past three quarters, we have taken the opportunity to increase our funding to support this growth by selling $19.6 million of investment securities taking a pretax loss of $311,000. These investment sales not only improve our balance sheet, but will also enhance our net interest margin in the future." Throughout this significant loan growth, the Bank has maintained strong loan loss reserve coverage. The Bank has added $704,000 to the reserve for the year ended December 31, 2004 compared to $578,000 for the same period last year, a 22 percent increase. The Bank had net charge-offs of 0.09 percent for the year ended December 31, 2004 compared to 0.25 percent for 2003, a 64 percent improvement. Total revenue (net interest income and non-interest income) increased $982,000, or 13 percent in the fourth quarter 2004 compared to the same quarter for 2003. Loan interest and fees have increased 23 percent or $1.4 million between the fourth quarter of 2004 and 2003. This increase was the result of improved loan volumes, partially offset by a 3 percent reduction in loan yields. Total interest and fees on loans increased $947,000 or 56 percent on an annualized basis between the fourth and third quarter 2004 as a result of improved volumes and yields. During the quarter, the Bank developed a marketing strategy and plan for each region that it will implement throughout 2005 to further its growth in market share in the communities it serves. "We believe that we are positively positioned moving into 2005 to capitalize on the opportunities that are presented in our markets," stated Mr. Judd. The Company has made a conscious effort to reduce its non-interest expenses throughout the year. Not considering $2.8 million in one-time adjustments made in the fourth quarter 2003, non-interest expenses have been reduced $452,000 or 2 percent for the year even with the substantial loan and deposit growth and the opening of a new branch during 2004. Additionally, the Company remodeled existing facilities and constructed a new, larger branch to replace an older location. "We are very pleased with the direction non-interest expenses are heading and we will continue to review opportunities in the coming year to increase our operating efficiencies," said Mr. Judd. At its meeting on January 17, the Board of Directors of Vail Banks declared a regular quarterly dividend of $0.07 per share payable February 11 to shareholders of record on January 28. Also at its meeting on January 17, the Company's Board of Directors reauthorized the Company's stock repurchase program. The total amount of repurchases under the program, both previously completed and allowable up to January 2006, aggregate approximately $29 million. During 2004, the Company did not repurchase any common shares. Since inception of the stock repurchase program in March 2001, the Company has repurchased 1,535,380 shares at an average price of $12.10 per share for an aggregate purchase price of approximately $19 million. Shares outstanding at March 2001 were 6,202,758. Shares outstanding at December 31, 2004 were 5,326,504. This represents a decrease of 14 percent in shares outstanding. 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 Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, 2004 (2) 2004 (2) 2004 (2) 2004 (2) 2003 Earnings and Performance Net income (loss) $643 559 574 1,180 (1,761) Diluted net income (loss) per share 0.12 0.10 0.11 0.22 (0.35) Return on assets 0.41% 0.37 0.39 0.80 (1.18) Return on equity 4.30 3.79 3.95 8.13 (11.77) Net interest margin (FTE) 4.95 4.68 4.38 4.17 4.05 Efficiency ratio 89 87 89 73 130 Asset Quality Ratios Net charge-offs (recoveries) to average loans 0.03% (0.05) 0.04 0.38 (0.05) Allowance for loan losses to loans 0.96 0.97 0.97 1.05 1.12 Allowance for loan losses to non-performing loans 1,657 460 217 205 201 Non-performing assets to loan-related assets 0.25 0.37 0.67 0.72 0.68 Risk assets to loan- related assets (1) 0.25 0.37 0.67 0.73 0.73 Capital Ratios Equity to assets at period end 9.45% 9.50 9.82 9.77 10.05 Tangible equity to assets at period end 3.75 3.72 3.70 3.81 3.63 Leverage ratio 8.06 8.28 7.93 7.80 7.45 Tier 1 capital ratio 10.54 10.88 11.58 11.91 11.50 Total capital ratio 12.05 12.47 13.49 13.96 13.72 Other Information at Period End Book value per share $11.25 11.19 10.89 11.20 10.95 Tangible book value per share 4.46 4.38 4.10 4.37 3.96 Closing market price 13.18 13.08 12.44 12.32 11.94 Shares outstanding 5,326,504 5,310,754 5,326,330 5,298,093 5,283,264 Full time equivalent associates 249 252 238 238 244 Banking offices 23 23 22 22 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 period information has not been restated. Vail Banks, Inc. Balance Sheet (in thousands, except share data) December 31, December 31, Percent Assets 2004 2003 Change Cash and due from banks $18,360 21,628 (15)% Federal funds sold 17,295 79,280 (78) Interest-bearing deposits in banks --- 2,000 (100) Investment securities Available for sale 103,779 76,554 36 Held to maturity 246 370 (34) Bank stocks 4,457 4,371 2 Investments in Trust I and Trust II (1) 743 0 0 Loans held for sale 7,110 2,515 183 Gross loans 407,629 312,544 30 Allowance for loan losses (3,895) (3,503) 11 Net deferred loan fee income (1,276) (770) 66 Premises and equipment, net 38,721 38,147 2 Goodwill, net 35,970 36,758 (2) Other intangible assets, net 159 199 (20) Other assets 4,276 5,517 (22) $633,574 575,610 10% Liabilities and Shareholders' Equity Liabilities Deposits $500,444 448,515 12% Federal funds purchased and securities sold under agreements to repurchase 894 907 0 Federal Home Loan Bank advances 42,444 39,461 8 Trust preferred (1) 0 24,000 (100) Subordinated notes to Trust I and Trust II (1) 24,743 0 0 Other liabilities 2,584 4,165 (38) Total liabilities 571,109 517,048 10 Minority interest 2,563 703 265 Shareholders' equity Common equity 60,520 57,979 4 Accumulated other comprehensive loss (618) (120) 415 Total shareholders' equity 59,902 57,859 4 $633,574 575,610 10% Loan Mix at Period End Commercial, industrial, and land $239,946 185,158 30% Real estate--construction 92,705 63,844 45 Real estate--mortgage 69,164 57,602 20 Consumer 5,814 5,940 (2) Total gross loans $407,629 312,544 30% Deposit Mix at Period End Interest bearing checking $92,279 88,191 5% Savings 31,261 29,873 5 Money market 132,388 103,969 27 CDs under $100,000 51,541 55,978 (8) CDs $100,000 and over 72,848 69,199 5 Interest bearing deposits 380,317 347,210 10 Non-interest bearing checking 120,127 101,305 19 Total deposits $500,444 448,515 12% Shares Outstanding at Period End 5,326,504 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 Year ended December 31, Percent December 31, Percent 2004 2003 Change 2004 2003 Change Interest income Interest on loans $6,623 5,437 22% 22,965 23,495 (2) Fees on loans 1,028 801 28 3,620 2,603 39 Interest on investment securities 1,056 557 90 4,008 3,404 18 Interest on federal funds sold and short-term investments 21 210 (90) 335 690 (51) Investments in Trust I and Trust II (1) 19 0 0 76 0 0 Total interest income 8,747 7,005 25 31,004 30,192 3 Interest expense Deposits 1,200 1,068 12 4,252 4,644 (8) Borrowings 379 430 (12) 1,436 1,602 (10) Federal funds purchased and securities sold under agreements to repurchase 19 1 1,800 24 1 2,300 Trust preferred 0 612 (100) 0 2,447 (100) Subordinated notes to Trust I and Trust II (1) 631 0 0 2,523 0 0 Total interest expense 2,229 2,111 6 8,235 8,694 (5) Net interest income 6,518 4,894 33 22,769 21,498 6 Provision for loan losses 180 164 10 704 578 22 Net interest income after provision 6,338 4,730 34 22,065 20,920 5 Non-interest income 2,024 2,666 (24) 10,203 11,142 (8) Non-interest expense 7,614 9,825 (23) 27,801 31,038 (10) Income before taxes 748 (2,429) (131) 4,467 1,024 336 Income taxes 105 (668) (116) 1,511 310 387 Net Income $643 (1,761) (137)% 2,956 714 314 Diluted net income per share $0.12 (0.35) (134)% 0.55 0.13 323 Weighted average shares outstanding - diluted 5,423,984 5,405,729 0 5,417,562 5,617,720 (4) Profitability Ratios Return on assets 0.41% (1.18) 0.49 0.12 Return on equity 4.30 (11.77) 5.03 1.14 Net interest margin (FTE) 4.95 4.05 4.55 4.46 Net (recoveries) chargeoffs 0.03 (0.05) 0.09 0.25 Efficiency ratio 89 130 84 95 Average Balances Assets $630,212 589,586 7% 604,920 589,664 3 Earning assets 534,933 492,696 9 511,792 494,134 4 Loans 394,763 311,001 27 350,535 324,086 8 Deposits 498,080 457,108 9 478,490 456,810 5 Shareholders' equity 59,477 59,340 0 58,736 62,457 (6) (1) Reflects the adoption of Financial Interpretation Number 46 on January 1, 2004. Prior period information has not been restated. Vail Banks, Inc. Statement of Income by Quarter (in thousands, except share data) Three Months Ended Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, 2004 2004 2004 2004 2003 Interest income Interest on loans $6,623 5,829 5,223 5,290 5,437 Fees on loans 1,028 875 943 774 801 Interest on investment securities 1,056 1,134 1,045 773 557 Interest on federal funds sold and short-term investments 21 25 85 204 210 Investments in Trust I and Trust II (1) 19 19 19 19 0 Total interest income 8,747 7,882 7,315 7,060 7,005 Interest expense Deposits 1,200 1,028 1,005 1,019 1,068 Borrowings 379 340 345 372 430 Federal funds purchased and securities sold under agreements to repurchase 19 3 1 1 1 Trust preferred (1) 0 0 0 612 Subordinated notes to Trust I and Trust II (1) 631 631 630 631 0 Total interest expense 2,229 2,002 1,981 2,023 2,111 Net interest income 6,518 5,880 5,334 5,037 4,894 Provision for loan losses 180 323 43 158 164 Net interest income after provision 6,338 5,557 5,291 4,879 4,730 Non-interest income Deposit related 689 717 692 685 757 Mortgage broker fees 812 756 775 803 853 Gain (loss) on sale of fixed assets (1) (11) 103 1,678 0 Other 524 781 522 678 1,056 2,024 2,243 2,092 3,844 2,666 Non-interest expense Salaries and employee benefits 4,375 4,096 3,994 4,019 4,578 Occupancy 1,050 1,000 846 845 1,259 Furniture and equipment 658 608 611 562 673 Amortization of intangible assets 10 10 10 10 561 Other 1,521 1,338 1,158 1,080 2,754 7,614 7,052 6,619 6,516 9,825 Income (loss) before taxes 748 748 764 2,207 (2,429) Income tax expense (benefit) 105 189 190 1,027 (668) Net Income (Loss) $643 559 574 1,180 (1,761) Diluted net income (loss) per share $0.12 0.10 0.11 0.22 (0.35) (1) Reflects the adoption of Financial Interpretation Number 46 on January 1, 2004. Prior period information has not been restated. Vail Banks, Inc. Supplemental Information (in thousands) Three Months Ended Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, 2004 (1) 2004 (1) 2004 (1) 2004 (1) 2003 Average Balances Assets $630,212 604,689 592,343 592,263 589,586 Earning assets 534,933 511,363 501,982 498,642 492,696 Loans 394,763 362,585 329,508 314,667 311,001 Deposits 498,080 480,902 468,618 466,117 457,108 Interest bearing liabilities 455,340 436,601 430,525 428,143 427,518 Shareholders' equity 59,477 58,621 58,453 58,385 59,340 Average Deposit Mix Interest bearing checking 97,081 99,279 95,259 92,413 89,817 Savings 33,013 31,893 30,300 30,708 30,019 Money market 133,006 124,130 126,845 119,881 108,637 CDs under $100,000 52,144 51,943 53,141 55,109 58,357 CDs $100,000 and over 74,070 69,965 64,829 66,746 71,979 Interest bearing deposits 389,314 377,210 370,374 364,857 358,809 Non-interest bearing checking 108,766 103,692 98,244 101,260 98,299 Total deposits 498,080 480,902 468,618 466,117 457,108 Net Interest Margin Analysis Net interest income $6,518 5,880 5,334 5,037 4,894 Fully taxable equivalent adjustment 133 132 134 132 133 Net interest income (FTE) 6,651 6,012 5,468 5,169 5,027 Yields (FTE) Loans 7.71 7.36% 7.53 7.75 7.96 Investment securities 3.63 3.59 3.53 4.05 3.28 Other earning assets 3.26 2.39 1.16 0.99 0.90 Total earning assets 6.60 6.23 5.97 5.80 5.75 Cost of funds Interest bearing deposits 1.23 1.08 1.09 1.12 1.18 Other interest bearing liabilities 6.20 6.52 6.53 6.38 6.02 Total interest bearing liabilities 1.95 1.82 1.85 1.90 1.96 Total interest expense to earning assets 1.65 1.55 1.59 1.63 1.70 Net interest margin (FTE) 4.95 4.68 4.38 4.17 4.05 (1) Reflects the adoption of Financial Interpretation Number 46 on January 1, 2004. Prior period information has not been restated. Vail Banks, Inc. Asset Quality (in thousands) Three Months Ended Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, 2004 2004 2004 2004 2003 Asset Quality Nonaccrual loans $235 814 1,555 1,636 1,747 Restructured loans 0 0 0 0 0 Total non-performing loans 235 814 1,555 1,636 1,747 Foreclosed properties 785 606 788 674 362 Total non-performing assets 1,020 1,420 2,343 2,310 2,109 90+ days past due and accruing 17 3 8 15 164 Total risk assets $1,037 1,423 2,351 2,325 2,273 Allowance for Loan Losses Beginning Balance $3,742 3,369 3,361 3,503 3,299 Provision for loan losses 180 323 43 158 164 Loan charge-offs 63 149 120 338 78 Loan recoveries 36 199 85 38 118 Net charge-offs (recoveries) 27 (50) 35 300 (40) Ending Balance $3,895 3,742 3,369 3,361 3,503 Net Charge-Offs (Recoveries) to Average Loans 0.03 (0.05)% 0.04 0.38 (0.05) Loans Past Due 30 Days or More and Accruing 0.32 0.15 0.24 2.46 0.47 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

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