VAIL Vail Banks (MM)

AVON, Colo., Jan. 19 /PRNewswire-FirstCall/ -- Vail Banks, Inc. (NASDAQ:VAIL) today reported diluted net income per share of $0.24 for the fourth quarter 2005 compared to $0.25 for the third quarter 2005 and $0.12 for the fourth quarter 2004. Net income for the quarter was $1.29 million versus $1.34 million in the third quarter 2005 and $643 thousand in the fourth quarter 2004. "The Company achieved excellent loan growth this quarter while maintaining high credit quality," stated Gary Judd, CEO of Vail Banks, Inc. "Average loans increased $36.5 million, or 35 percent annualized, from the third quarter 2005, and $63.4 million, or 16 percent, for the year. The growth continues to come from the Company's strength in real estate lending for construction, which increased $51.9 million, or 56 percent for the year, and real estate mortgages, which increased $19.5 million, or 28 percent. We have maintained outstanding credit quality during this period of high loan growth. Non-accrual loans were $41 thousand at year-end, compared to $235 thousand a year ago, and total risk assets were $696 thousand, compared to $1.0 million at the end of 2004. The Company increased its provision for loan loss expense to $450 thousand during the fourth quarter from $50 thousand in the third quarter 2005 reflecting the growth in loan outstandings." "The bank's deposit mix continued to improve with average core deposit balances increasing $20.3 million, or 19 percent annualized, from the third quarter 2005 and $80.4 million, or 22 percent, for the year. Average non-interest bearing checking balances increased $20.2 million, or 19 percent, for the year. Average money market balances increased $64.5 million, or 49 percent, for the year. This growth results from our continued focus on key customer segments and our commitment to service excellence under our new brand platform WestStar Bank.Expect Action. The Bank continues to strengthen its culture of client service." This strong core deposit growth contributed to keeping the cost of funds on interest bearing deposits at 2.23 percent during the fourth quarter 2005. Deposit balances tied to repurchase agreements increased to $12.5 million at year-end 2005 from $900 thousand at the end of 2004. "Average earning assets increased $53.1 million, or 10 percent for the year. The yield on average earning assets increased to 7.81 percent from 7.11 percent in the third quarter 2005 and from 6.60 percent for the fourth quarter of 2004 reflecting increases in the Federal Reserve's targeted over-night borrowing rate during the year and quarter and a $275 thousand increase in loan fees from the third quarter of 2005. The Company's net interest margin increased to 5.53 percent for the quarter, compared to 5.07 percent in the third quarter 2005, and 4.95 percent in the fourth quarter 2004," commented Mr. Judd. Interest income and loan fees increased $1.4 million over third quarter 2005 and $2.7 million, or 35 percent, over the fourth quarter 2004. Net interest income increased $793 thousand, or 11 percent, from the third quarter 2005 and $1.6 million, or 24 percent, from the fourth quarter 2004. Excluding the one-time brokerage fee of $435 thousand recognized during the third quarter 2005, total non-interest income and non-interest expenses remained fairly constant in the fourth quarter 2005 as compared to the third quarter 2005. Excluding the one-time brokerage fee, non-interest income increased $52 thousand, or 3 percent, from the third quarter 2005. Non-interest expense increased $106 thousand, or 1 percent, from the third quarter 2005. At its meeting on January 16, the Board of Directors of Vail Banks declared a regular quarterly dividend of $0.07 per share payable February 10, to shareholders of record on January 27. Also at its meeting on January 16, 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 2007, aggregate approximately $29 million. During 2005, the Company did not repurchase any common shares. Since the inception of the stock repurchase program on February 12, 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. Vail Banks, Inc., through its subsidiary, WestStar Bank, has 24 banking offices serving 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, including, without limitation, statements regarding certain of the Company's goals and expectations with respect to net income, net income per share, revenue, expenses and the growth rate in such items, as well as other measures of economic performance, including statements relating to estimates of credit quality trends, and statements preceded by, followed by or that include the words "may", "could", "should", "would", "believe", "anticipate", "estimate", "expect", "intend", "plan", "projects", "outlook" or similar expressions. Actual results may differ from those set forth in the forward-looking statements. Factors that may cause actual results or earnings to differ materially from such forward-looking statements include, among others, the following: (1) the projected growth and profitability of the Company following the new branding and other business initiatives are lower than expected; (2) the strength of the United States economy in general and the strength of the local economies in which the Company conducts operations may be different than expected resulting in, among other things, a deterioration in credit quality or a reduced demand for credit, including the resultant effect on the Company's loan portfolio and allowance for loan losses; (3) the effects of, and changes in, inflation, interest rate, market and monetary fluctuations; (4) the development of competitive new products and services by the Company and its competitors; (5) the impact of changes in financial services' laws and regulations or other unanticipated regulatory or judicial proceedings or ruling; (6) changes in consumer spending and saving habits; (7) adverse changes in financial performance and/or condition of the Company's borrowers which could impact repayment of such borrowers' outstanding loans; (8) the impact of changes in accounting principles; and (9) decision to downsize, sell or close branches or otherwise change the business mix of the Company. The foregoing list of factors is not exclusive and you should refer to the section entitled "Certain Factors Affecting Forward-Looking Statement in the Company's annual report filed in Form 10-K with the Securities and Exchange Commission. The Company does not undertake any obligation to update any forward-looking statement, whether written or oral, relating to the matters discussed in this news release. Vail Banks, Inc. Financial Highlights (in thousands, except share data) (unaudited) Three Months Ended Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, 2005 2005 2005 2005 2004 Earnings and Performance Net income $1,290 $1,343 $971 $885 $643 Diluted net income per share 0.24 0.25 0.18 0.16 0.12 Return on assets 0.75% 0.79% 0.60% 0.55% 0.41% Return on equity 8.03 8.59 6.39 5.95 4.30 Net interest margin (FTE) 5.53 5.07 5.00 5.11 4.95 Efficiency ratio 76 79 84 84 89 Return on tangible equity 18.51 20.57 15.69 14.86 10.96 Asset Quality Ratios Net recoveries (charge-offs) to average loans (0.02)% 0.00% 0.05% 0.03% (0.03)% Allowance for loan losses to loans 0.92 0.95 0.95 0.99 0.96 Allowance for loan losses to non-performing loans (1) 10,910 NA NA 287 1,657 Non-performing assets to loan-related assets 0.13 0.14 0.14 0.54 0.25 Risk assets to loan-related assets(2) 0.14 0.47 0.18 0.80 0.25 Capital Ratios Equity to assets at period end 9.29% 9.33% 9.44% 8.81% 9.44% Tangible equity to assets at period end 4.03 3.96 3.93 3.55 3.75 Leverage ratio 8.24 8.13 8.12 8.01 8.06 Tier 1 capital ratio 10.00 10.61 10.70 10.14 10.52 Total capital ratio 11.13 11.84 12.05 11.62 12.02 Other Information at Period End Book value per share $11.37 $11.19 $11.05 $10.84 $11.25 Tangible book value per share 4.93 4.75 4.61 4.37 4.46 Closing market price 15.00 14.00 14.64 13.13 13.18 Shares outstanding 5,606,235 5,604,235 5,604,235 5,578,824 5,326,504 Full time equivalent associates 256 256 254 243 249 Banking offices 24 24 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) December 31, December 31, Percent Assets 2005 2004 Change (unaudited) Cash and due from banks $20,728 $18,360 13% Federal funds sold 10,630 17,295 (39) Investment securities Available for sale 87,265 103,779 (16) Held to maturity 175 246 (29) Investments in Trust I and Trust II 743 743 0 Loans held for sale -- 7,110 (100) Gross loans 487,101 407,629 19 Allowance for loan losses (4,473) (3,895) 15 Net deferred loan fee income (1,117) (1,276) (12) Investment in bank stocks 4,558 4,457 2 Premises and equipment, net 38,686 38,721 0 Goodwill, net 35,970 35,970 0 Other intangible assets, net 119 159 (25) Other assets 5,934 5,297 12 $686,319 $634,595 8% Liabilities and Shareholders' Equity Liabilities Deposits $552,508 $500,444 10% Securities sold under agreements to repurchase 12,470 894 1,295 Federal Home Loan Bank advances 25,759 42,444 (39) Subordinated notes to Trust I and Trust II 24,743 24,743 0 Other liabilities 4,606 3,605 28 Total liabilities 620,086 572,130 8 Minority interest 2,500 2,563 (2) Shareholders' equity Common equity 64,770 60,520 7 Accumulated other comprehensive loss (1,037) (618) 68 Total shareholders' equity 63,733 59,902 6 $686,319 $634,595 8% Loan Mix at Period End Commercial, industrial, and land $246,371 $239,946 3% Real estate--construction 144,596 92,705 56 Real estate--mortgage 88,679 69,164 28 Consumer 7,455 5,814 28 Total gross loans $487,101 $407,629 19% Deposit Mix at Period End Interest bearing checking $97,058 $92,279 5% Savings 30,860 31,261 (1) Money market 201,329 132,388 52 CDs under $100,000 42,516 51,541 (18) CDs $100,000 and over 47,495 72,848 (35) Interest bearing deposits 419,258 380,317 10 Non-interest bearing checking 133,250 120,127 11 Total deposits $552,508 $500,444 10% Shares Outstanding at Period End 5,606,235 5,326,504 5% Vail Banks, Inc. Statement of Income by Quarter (in thousands, except share data) (unaudited) Three Months Ended Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, 2005 2005 2005 2005 2004 Interest income Interest on loans $9,179 $8,042 $7,410 $6,705 $6,623 Fees on loans 1,149 874 833 909 1,028 Interest on investment securities 846 852 1,028 1,371 1,056 Interest on federal funds sold and short- term investments 273 499 219 192 21 Investments in Trust I and Trust II 19 19 19 19 19 Total interest income 11,466 10,286 9,509 9,196 8,747 Interest expense Deposits 2,342 1,962 1,623 1,329 1,200 Borrowings 275 279 241 364 379 Federal funds purchased and securities sold under agreements to repurchase 133 122 98 25 19 Subordinated notes to Trust I and Trust II 631 631 630 631 631 Total interest expense 3,381 2,994 2,592 2,349 2,229 Net interest income 8,085 7,292 6,917 6,847 6,518 Provision for loan losses 450 50 (36) 65 180 Net interest income after provision 7,635 7,242 6,953 6,782 6,338 Non-interest income Deposit related 689 648 645 620 689 Mortgage broker fees 585 588 459 394 812 Gain (loss) on sale of fixed assets (28) -- 11 (8) (1) Other 629 1,022 561 564 524 Total non- interest income 1,875 2,258 1,676 1,570 2,024 Non-interest expense Salaries and employee benefits 4,368 4,596 4,109 4,195 4,375 Occupancy 1,016 972 1,044 999 1,050 Furniture and equipment 639 646 650 683 658 Amortization of intangible assets 10 10 10 10 10 Other 1,582 1,285 1,397 1,214 1,521 Total non- interest expense 7,615 7,509 7,210 7,101 7,614 Income before taxes 1,895 1,991 1,419 1,251 748 Income tax expense 605 648 448 366 105 Net Income $1,290 $1,343 $971 $885 $643 Diluted net income per share $0.24 $0.25 $0.18 $0.16 $0.12 Vail Banks, Inc. Statement of Income (in thousands, except share data) (unaudited) Three months ended December 31, Percent 2005 2004 Change Interest income Interest on loans $9,179 $6,623 39% Fees on loans 1,149 1,028 (12) Interest on investment securities 846 1,056 (20) Interest on federal funds sold and short-term investments 273 21 1,200 Investments in Trust I and Trust II 19 19 0 Total interest income 11,466 8,747 31 Interest expense Deposits 2,342 1,200 95 Borrowings 275 379 (27) Federal funds purchased and securities sold under agreements to repurchase 133 19 600 Subordinated notes to Trust I and Trust II 631 631 0 Total interest expense 3,381 2,229 52 Net interest income 8,085 6,518 24 Provision for loan losses 450 180 150 Net interest income after provision 7,635 6,338 20 Non-interest income 1,875 2,024 (7) Non-interest expense 7,615 7,614 0 Income before taxes 1,895 748 153 Income taxes 605 105 476 Net Income $1,290 $643 101% Diluted net income per share $0.24 $0.12 100% Weighted average shares outstanding - diluted 5,396,904 5,423,984 0 Profitability Ratios Return on assets 0.75% 0.41% Return on equity 8.03 4.30 Net interest margin (FTE) 5.53 4.95 Net (chargeoffs) / recoveries (0.02) (0.03) Efficiency ratio 76 89 Average Balances Assets $682,827 $630,212 8% Earning assets 588,081 534,933 10 Loans 458,128 394,763 16 Deposits 545,361 498,080 9 Shareholders' equity 63,748 59,477 7 Vail Banks, Inc. Statement of Income (in thousands, except share data) (unaudited) Year ended December 31, Percent 2005 2004 Change Interest income Interest on loans $31,336 $22,965 36% Fees on loans 3,765 3,620 4 Interest on investment securities 4,097 4,008 2 Interest on federal funds sold and short-term investments 1,183 335 253 Investments in Trust I and Trust II 76 76 0 Total interest income 40,457 31,004 30 Interest expense Deposits 7,256 4,252 71 Borrowings 1,159 1,436 (19) Federal funds purchased and securities sold under agreements to repurchase 378 24 1,475 Subordinated notes to Trust I and Trust II 2,523 2,523 0 Total interest expense 11,316 8,235 37 Net interest income 29,141 22,769 28 Provision for loan losses 529 704 (25) Net interest income after provision 28,612 22,065 30 Non-interest income 7,379 10,203 (28) Non-interest expense 29,435 27,801 6 Income before taxes 6,556 4,467 47 Income taxes 2,067 1,511 37 Net Income $4,489 $2,956 52% Diluted net income per share $0.83 $0.55 51% Weighted average shares outstanding - diluted 5,395,914 5,417,562 0 Profitability Ratios Return on assets 0.67% 0.49% Return on equity 7.27 5.03 Net interest margin (FTE) 5.18 4.55 Net (chargeoffs) / recoveries 0.01 (0.09) Efficiency ratio 81 84 Average Balances Assets $665,479 $604,921 10% Earning assets 571,264 511,793 12 Loans 423,558 350,535 21 Deposits 530,769 478,490 11 Shareholders' equity 61,752 58,736 5 Vail Banks, Inc. Supplemental Information (in thousands) (unaudited) Three Months Ended Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, 2005 2005 2005 2005 2004 Average Balances Assets $682,827 $673,080 $654,444 $651,133 $630,212 Earning assets 588,081 580,370 561,978 554,155 534,933 Loans 458,128 421,678 411,495 402,340 394,763 Deposits 545,361 536,756 523,298 517,286 498,080 Interest bearing liabilities 483,324 477,432 468,261 465,834 455,340 Shareholders' equity 63,748 62,001 60,937 60,282 59,477 Average Deposit Mix Interest bearing checking 94,426 91,277 93,380 93,637 97,081 Savings 31,336 31,778 31,787 31,560 33,013 Money market 197,545 181,233 162,355 147,308 133,006 CDs under $100,000 43,205 45,736 48,993 50,663 52,144 CDs $100,000 and over 49,919 59,049 67,114 74,850 74,070 Interest bearing deposits 416,431 409,073 403,629 398,018 389,314 Non-interest bearing checking 128,930 127,683 119,669 119,268 108,766 Total deposits $545,361 $536,756 $523,298 $517,286 $498,080 Net Interest Margin Analysis Net interest income $8,085 $7,292 $6,917 $6,847 $6,518 Fully taxable equivalent adjustment 116 111 76 140 133 Net interest income (FTE) 8,201 7,403 6,993 6,987 6,651 Yields (FTE) Loans 8.94% 8.39% 8.04% 7.67% 7.71% Investment securities 4.05 3.87 3.75 5.15 3.63 Other earning assets 3.98 3.59 3.09 2.77 3.26 Total earning assets 7.81 7.11 6.84 6.83 6.60 Cost of funds Interest bearing deposits 2.23 1.90 1.61 1.35 1.23 Other interest bearing liabilities 6.16 5.99 6.01 6.10 6.20 Total interest bearing liabilities 2.78 2.49 2.22 2.05 1.95 Total interest expense to earning assets 2.28 2.04 1.84 1.72 1.65 Net interest margin (FTE) 5.53% 5.07% 5.00% 5.11% 4.95% Vail Banks, Inc. Asset Quality (in thousands) (unaudited) Three Months Ended Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, 2005 2005 2005 2005 2004 Asset Quality Nonaccrual loans $41 $0 $0 $1,391 $235 Restructured loans 0 0 0 0 0 Total non-performing loans 41 0 0 1,391 235 Foreclosed properties 572 617 589 802 785 Total non-performing assets 613 617 589 2,193 1,020 90+ days past due and accruing 83 1,399 181 1,053 17 Total risk assets $696 $2,016 $770 $3,246 $1,037 Allowance for Loan Losses Beginning Balance $4,050 $4,003 $3,989 $3,895 $3,742 Provision (credit) for loan losses 450 50 (36) 65 180 Loan charge-offs (28) (7) (1) (24) (63) Loan recoveries 1 4 51 53 36 Net (charge-offs) recoveries (27) (3) 50 29 (27) Ending Balance $4,473 $4,050 $4,003 $3,989 $3,895 Net Recoveries (Charge- Offs) to Average Loans (0.02)% 0.00 % 0.05 % 0.03 % (0.03)% Loans Past Due 30 Days or More and Accruing to Total Loans 0.43 0.43 0.07 0.31 0.32 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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