EXHIBIT 13

                       2005 ANNUAL REPORT TO SHAREHOLDERS

<PAGE>



MESSAGE TO SHAREHOLDERS

Dear Shareholder,

When  landmark  national  legislation  permitting  nationwide  banking went into
effect  almost a decade  ago,  few  could  have  imagined  how  competitive  the
commercial  banking  industry would really become.  In a few years,  the banking
sector has embraced the characteristics of other industries in which a few large
entities  compete among thousands of dynamic smaller  players.  While noticeable
consolidation has occurred and resulted in huge banking companies,  de novo bank
formations continue at a brisk pace and independent community banks have stepped
up their  branching  activities.  In light of the  continued,  even  heightened,
interest in  community  banking  today,  what are the value  perceptions  of our
shareholders  in owning  Britton & Koontz  Capital  Corporation  stock?  Are the
interests  of  most of our  shareholders  long-term  or  short-term?  These  are
questions that your  representatives on the board always consider in formulating
the strategy for the company.

The board believes that most of our  shareholders  are keenly  interested in the
creation of long-term  value.  The value  perceptions of our  shareholders  most
likely  arise  from the  fact  that so many of you  have a  personal  tie to the
markets we serve and to the bank itself.  Your ownership is quite different from
owning a large bank stock in, let's say, an index mutual fund.  Your  connection
is  created  by many  things:  residence,  family,  school,  business,  personal
networks,  even current and former  employment  with the bank.  Many of you, for
example,  not only have stock in the bank,  but also have your  deposits  in the
bank.  You may have  financed  your home  through the bank,  you may manage your
investment  portfolio  through the bank,  or you may have built your  successful
business with credit  obtained from the bank. You probably live or have lived in
one of the  three  markets  of the  bank.  In short,  you see very  clearly  the
connection between the bank's success and that of the local area.

The  recent  history of Britton & Koontz is right in step with the trends in the
financial  fabric  of our  country.  An  established  franchise  in a  very  old
community, B&K has used its resources to expand into two new markets, Vicksburg,
Mississippi  and Baton  Rouge,  Louisiana.  This  expansion,  still in its early
stages, has added 3 branches with a total of approximately $110 million in loans
and $55 million in deposits.  Expansion has dampened earnings as we acquired new
locations and made strategic hires. I, however,  believe that expansion has also
improved the  footprint of the company and expect it to open the way for greater
growth and profitability.

It would be a mistake not to mention the impact of Hurricanes  Katrina and Rita.
The three  markets of the company  were  exceedingly  fortunate  in being on the
perimeter of the  disastrous  hurricanes.  During the fall of last year the bank
and its employees  participated heavily in the relief efforts for evacuees,  who
swelled the three cities in which we have locations.  Without a doubt,  however,
kthe  favorable  geography of the bank's  markets has  presented an  unexpected,
local economic surge and afforded  opportunities to grow loans and deposits at a
much faster pace than previously expected.  As a shareholder,  you can certainly
expect your bank to exert  significant  on-going effort to meet the needs of our
communities as we adjust to the post-storm environments.

In the  following  pages of our  annual  report,  you will see  major,  positive
changes in the company's  financials.  I look forward to discussing these in the
coming weeks,  particularly  at our annual meeting on April 25. As always,  your
feedback and continued support are appreciated.

Yours truly,


/s/ W. Page Ogden
------------------
W. Page Ogden
Chairman & CEO




<PAGE>

<TABLE>
<CAPTION>



BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES


Financial Highlights

($ IN THOUSANDS, EXCEPT PER SHARE DATA)

                                                      2005          2004            2003            2002            2001
                                                   ---------     ---------       ---------       ---------       ---------
<S>                                                <C>           <C>             <C>             <C>             <C>
YEAR END ACTUAL BALANCES
 Total Assets                                      $ 389,260     $ 377,351       $ 373,032       $ 308,879       $ 298,856
 Investment Securities                               121,783       137,303         141,135          97,059          86,356
 Gross Loans (net of unearned income)                244,912       219,311         206,591         180,398         179,711
 Loans held for sale                                     171         1,688           3,102           4,393           5,416
 Allowance for Loan Losses                             2,378         2,237           2,070           2,129           2,108
 Total Deposits                                      257,377       226,288         232,934         233,012         217,680
 Total Long-Term Debt                                 53,041        60,078          65,711          30,315          43,000
 Stockholders' Equity                                 31,260        31,152          30,197          29,329          28,291

YEAR END AVERAGE BALANCES
 Total Assets                                      $ 390,317     $ 375,496       $ 340,566       $ 299,600       $ 273,021
 Investment Securities                               132,843       134,993         116,520          92,502          67,148
 Gross Loans (net of unearned income) *              236,796       218,301         201,595         182,744         185,012
 Allowance for Loan Losses                             2,379         2,224           2,209           2,008           2,037
 Total Deposits                                      236,440       230,437         237,019         220,095         210,025
 Total Long-Term Debt                                 70,760        67,665          44,359          34,088          16,468
 Stockholders' Equity                                 31,347        30,853          30,181          29,323          25,446

* Includes loans held for sale

SUMMARY OF EARNINGS
 Total Interest Income                             $  22,000     $  19,774       $  19,565       $  19,854       $  21,313
 Total Interest Expense                                8,445         6,465           6,329           7,205           9,233
 Provision for loan losses                               300           390             670           1,025             525
 Non-interest income                                   2,415         2,678           2,767             870           2,069
 Non-interest expense                                 11,627        11,973          11,844          10,266           8,923
 Income tax expense                                      815           780             750             988           1,453
 Net Income                                            3,228         2,844           2,739           1,240           3,248

PER SHARE DATA
 Earnings Per Share-Basic                             $ 1.53        $ 1.35          $ 1.30          $ 0.59          $ 1.54
 Earnings Per Share-Diluted                             1.52          1.34            1.29            0.59            1.54
 Cash Dividends                                         0.69          0.64            0.64            0.62            0.61
 Book Value                                            14.77         14.72           14.29           13.88           13.41
 Year End Stock Price                                  21.10         18.25           17.27           14.60           15.00

OTHER KEY INFORMATION
 Return on Average Assets (%)                           0.83          0.76            0.80            0.41            1.19
 Return on Average Equity (%)                          10.30          9.22            9.08            4.23           12.76
 Dividend Payout (%)                                   45.24         47.58           49.38          105.67           39.61
 Efficiency Ratio (%)                                  68.52         70.51           69.80           70.79           60.69
 Net Interest Income/Average Earning Assets (%)         3.66          3.76            4.13            4.51            4.73
 Allowance for Loan Losses/Loans (%)                    0.97          1.02            1.00            1.18            1.17
 Non Performing Loans/Loans (%)                         0.51          0.41            0.74            1.29            1.56
 Loans/Deposits (%)                                    95.16         96.92           88.69           77.42           82.56
 Total Stockholders' Equity/Assets (%)                  8.03          8.26            8.09            9.50            9.47
 Total  Risk-Based Ratio (%)                           14.44         15.43           15.39           14.71           14.81
 Tier 1 Risk-Based Ratio (%)                           13.55         14.49           14.48           13.61           13.71
 Tier 1 Leverage Ratio (%)                              9.31          9.23            9.23            8.71            9.52
  Weighted Average Shares Outstanding:
   Basic                                           2,116,316     2,114,649       2,113,087       2,109,809       2,108,973
   Diluted                                         2,120,951     2,118,181       2,116,163       2,112,405       2,111,383

</TABLE>
<PAGE>


                      BRITTON & KOONTZ CAPITAL CORPORATION
                                AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2005, 2004 AND 2003







<PAGE>









             Report of Independent Registered Public Accounting Firm


To the Board of Directors and Stockholders
Britton & Koontz Capital Corporation and Subsidiaries

We have audited the accompanying Consolidated Balance Sheets of Britton & Koontz
Capital  Corporation and  Subsidiaries as of December 31, 2005 and 2004, and the
related Consolidated  Statements of Income, Changes in Stockholders' Equity, and
Cash Flows for each of the three years in the period  ended  December  31, 2005.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the consolidated  financial position of Britton & Koontz
Capital  Corporation and  Subsidiaries as of December 31, 2005 and 2004, and the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period  ended  December 31, 2005,  in  conformity  with U. S.
generally accepted accounting principles.


/s/ Hannis T. Bourgeois, LLP
------------------------------
Baton Rouge, Louisiana
January 24, 2006


<PAGE>







              BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2005 AND 2004



<TABLE>
<CAPTION>


                                     ASSETS

                                                                                       2005                 2004
                                                                                 ----------------    -----------------

ASSETS:
    Cash and Due from Banks:
<S>                                                                                 <C>                  <C>
       Non-interest bearing                                                         $   8,553,139        $   5,739,604
       Interest bearing                                                                 1,272,320              837,221
                                                                                  ---------------     ----------------

              Total Cash and Due from Banks                                             9,825,459            6,576,825

    Federal funds sold                                                                    401,138              109,031
    Investment Securities:
       Held-to-maturity (market value of $39,015,853
          and $41,337,742, respectively)                                               37,994,043           39,803,853
       Available-for-sale (amortized cost of $79,902,610
          and $91,068,652, respectively)                                               78,287,012           91,947,189
       Other equity securities                                                          5,501,700            5,551,600
    Loans, less unearned income of $794 in 2005 and
       $1,996 in 2004, and allowance for loan losses of
       $2,377,840 in 2005 and $2,236,778 in 2004                                      242,534,011          217,073,919
    Loans held-for-sale                                                                   171,200            1,688,338
    Bank premises and equipment, net                                                    8,046,668            8,265,756
    Other real estate, net                                                              1,470,584            1,320,337
    Accrued interest receivable                                                         2,258,225            2,127,079
    Cash surrender value of life insurance                                                936,378              943,481
    Core deposits, net of accumulated amortization
       of $733,320 in 2005 and $625,704 in 2004                                           880,890              988,506
    Other assets                                                                          952,721              954,720
                                                                                   --------------       --------------

TOTAL ASSETS                                                                        $ 389,260,029        $ 377,350,634
                                                                                   ==============       ==============

</TABLE>


The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>










                      LIABILITIES AND STOCKHOLDERS' EQUITY

                                                                                       2005                 2004
                                                                                 ----------------    -----------------

LIABILITIES:
    Deposits:
<S>                                                                                 <C>                 <C>
       Non-interest bearing                                                         $  51,466,230       $   39,868,482
       Interest bearing                                                               205,910,680          186,419,447
                                                                                  ---------------     ----------------
              Total Deposits                                                          257,376,910          226,287,929

    Federal funds purchased                                                                     -            6,435,000
    Securities sold under repurchase agreements                                         8,032,721            8,103,381
    Federal Home Loan Bank advances                                                    84,196,067           96,922,871
    Junior subordinated debentures                                                      5,155,000            5,155,000
    Accrued interest payable                                                            1,438,836              984,859
    Advances from borrowers for taxes and insurance                                       437,222              399,443
    Accrued taxes and other liabilities                                                 1,363,115            1,910,383
                                                                                  ---------------     ----------------
              Total Liabilities                                                       357,999,871          346,198,866


STOCKHOLDERS' EQUITY:
    Common stock, $2.50 par value per share;
       12,000,000 shares authorized; 2,130,816 and 2,116,316
        issued and outstanding, respectively, for December 31,
        2005 and December 31, 2004                                                      5,327,040            5,327,040
    Additional paid-in capital                                                          7,254,113            7,254,113
    Retained earnings                                                                  19,949,100           18,181,718
    Accumulated other comprehensive income                                             (1,012,720)             646,272
                                                                                  ----------------    ----------------
                                                                                       31,517,533           31,409,143
    Less:  Treasury stock, 14,500 shares, at cost                                        (257,375)            (257,375)
                                                                                  ----------------    ----------------
              Total Stockholders' Equity                                               31,260,158           31,151,768
                                                                                  ---------------     ----------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                          $ 389,260,029        $ 377,350,634
                                                                                 ================    =================

</TABLE>
<PAGE>

<TABLE>
<CAPTION>




              BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
              FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003


                                                                    2005                  2004               2003
                                                              ----------------     ---------------     ----------------
INTEREST INCOME:
<S>                                                           <C>                  <C>                 <C>
    Interest and fees on loans                                $    16,101,335      $   14,030,704      $    14,518,794
    Interest on investment securities:
       Taxable interest income                                      4,256,926           4,107,372            3,459,158
       Exempt from federal income taxes                             1,634,084           1,633,638            1,576,326
    Other interest income                                               7,876               2,598               10,590
                                                              ---------------      --------------      ---------------
          Total Interest Income                                    22,000,221          19,774,312           19,564,868
INTEREST EXPENSE:
    Interest on deposits                                            4,285,526           3,337,903            3,953,939
    Interest on Federal Home Loan Bank advances                     3,422,399           2,667,895            2,130,880
    Interest on federal funds purchased                               190,594              77,662               16,292
    Interest on trust preferred securities                            327,120             235,195              167,430
     Interest on securities sold under repurchase agreements          219,422             146,633               60,177
                                                              ---------------      --------------      ---------------
          Total Interest Expense                                    8,445,061           6,465,288            6,328,718
                                                              ---------------      --------------      ---------------
NET INTEREST INCOME                                                13,555,160          13,309,024           13,236,150
PROVISION FOR LOAN LOSSES                                             300,000             390,000              670,000
                                                              ---------------      --------------      ---------------
NET INTEREST INCOME AFTER PROVISION
    FOR LOAN LOSSES                                                13,255,160          12,919,024           12,566,150

OTHER INCOME:
    Service charges on deposit accounts                             1,388,327           1,350,548            1,355,639
    Income from fiduciary activities                                   41,038              43,547               41,972
     Income from investment activities                                201,890             210,523              144,244
    Net gain on sales of loans                                        359,821             331,593              628,705
    Net gain (loss) on sales of premises and equipment                (36,612)            175,091              (45,612)
    Other                                                             459,990             566,484              641,789
                                                              ---------------      --------------      ---------------
          Total Other Income                                        2,414,454           2,677,786            2,766,737
                                                              ---------------      --------------      ---------------
          Income before Other Expenses                             15,669,614          15,596,810           15,332,887



</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                                                                    2005                 2004                 2003
                                                              ---------------      --------------       --------------

OTHER EXPENSES:
<S>                                                           <C>                  <C>                  <C>
    Salaries                                                        5,863,029           6,060,543            5,790,994
    Employee benefits                                                 872,998             870,638            1,130,880
    Director fees                                                     208,087             203,348              172,057
    Net occupancy expense                                             912,357             927,430              854,710
    Equipment expense                                               1,109,984             979,139              957,554
    Other real estate, net                                             68,734             218,510              130,648
    FDIC assessment                                                    31,160              34,358               35,279
    Advertising                                                       198,233             259,284              261,770
    Stationery and supplies                                           182,497             233,379              268,519
    Amortization                                                      107,616             107,616              107,616
    Audit expense                                                     192,996             165,074              157,457
    Other                                                           1,879,189           1,913,037            1,976,924
                                                              ---------------      --------------       --------------
          Total Other Expenses                                     11,626,880          11,972,356           11,844,408
                                                              ---------------      --------------       --------------

INCOME BEFORE INCOME TAX EXPENSE                                    4,042,734           3,624,454            3,488,479

INCOME TAX EXPENSE                                                    815,094             780,245              749,725
                                                              ---------------      ---------------      --------------
NET INCOME                                                    $     3,227,640      $    2,844,209       $    2,738,754
                                                              ===============      ==============       ==============


PER SHARE DATA:
       Basic earnings per share                               $          1.53      $         1.35       $         1.30
                                                              ===============      ==============       ==============

       Basic weighted shares outstanding                            2,116,316           2,114,649            2,113,087
                                                              ===============      ==============       ==============


       Diluted earnings per share                             $          1.52      $         1.34       $         1.29
                                                              ===============      ==============       ==============


       Diluted weighted shares outstanding                          2,120,951           2,118,181            2,116,163
                                                              ===============      ==============       ==============


       Cash dividends per share                               $         0.69       $         0.64       $         0.64
                                                              ===============      ==============       ==============

</TABLE>


The accompanying notes are an integral part of these financial statements.


<PAGE>
<TABLE>
<CAPTION>




              BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003



                                                                                          Accumulated
                                       Common Stock          Aditional                       Other
                                  ------------------------    Paid-In       Retained     Comprehensive    Treasury
                                    Shares      Amount        Capital       Earnings          Income       Stock          Total
                                  -------------------------------------------------------------------------------------------------
<S>                               <C>          <C>           <C>           <C>           <C>             <C>          <C>
BALANCE, December 31,2002          2,113,087    $5,318,968    $7,225,408    $15,304,539     $1,737,934    $(257,375)   $29,329,474
Comprehensive Income:
 Net Income                                -             -             -      2,738,754              -            -      2,738,754

  Other Comprehensive Income:
   Change in fair value of
    available for sale securities,
    net of taxes of $278,307               -             -             -              -       (467,852)           -       (467,852)

   Change in fair value of
    derivatives, net of taxes of
    $30,578                                -             -             -              -        (51,402)           -        (51,402)
                                                                                                                      -------------
Total Comprehensive Income                 -             -             -              -              -            -      2,219,500

Cash dividends declared
   ($.64 per share)                        -             -             -     (1,352,375)             -            -     (1,352,375)
                                  -------------------------------------------------------------------------------------------------
BALANCE, December 31, 2003         2,113,087     5,318,968     7,225,408     16,690,918      1,218,680     (257,375)    30,196,599
Comprehensive Income:
 Net Income                                -             -             -      2,844,209              -            -      2,844,209

  Other Comprehensive Income
   Change in fair value of
    available for sale securities,
    net of taxes of $ 128,353              -             -             -              -       (469,749)           -       (469,749)

   Change in fair value of
    derivatives, net of taxes of
    $61,073                                -             -             -              -       (102,659)           -       (102,659)
                                                                                                                      -------------
Total Comprehensive Income                 -             -             -              -              -            -      2,271,801

Stock Options Exercised                3,229         8,072        28,705              -              -            -         36,777

Cash dividends declared
 ($0.64 per share)                         -             -             -     (1,353,409)             -            -     (1,353,409)
                                  -----------  ------------  ------------ -------------- --------------  -----------  -------------
BALANCE, December 31, 2004         2,116,316     5,327,040     7,254,113     18,181,718        646,272     (257,375)    31,151,768
Comprehensive Income:
 Net Income                                -             -             -      3,227,640              -            -      3,227,640
  Other Comprehensive Income
   Change in fair value of
    available for sale securities,
    net of taxes of $930,312               -             -             -              -     (1,563,823)           -     (1,563,823)
   Change in fair value of
    derivatives, net of taxes of
    $56,615                                -             -             -              -        (95,169)           -        (95,169)
                                                                                                                      --------------
Total Comprehensive Income                 -             -             -              -              -            -      1,568,648

Cash dividends declared
 ($0.69 per share)                         -             -             -     (1,460,258)             -            -     (1,460,258)
                                  -----------  ------------  ------------  ------------- --------------  -----------  -------------
BALANCE, December 31, 2005         2,116,316    $5,327,040    $7,254,113    $19,949,100    $(1,012,720)   $(257,375)   $31,260,158
                                  ===========  ============  ============  ============= ==============  ===========  =============


The accompanying notes are an integral part of these financial statements.

</TABLE>



<PAGE>
<TABLE>
<CAPTION>



              BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003



                                                                      2005                 2004                2003
                                                                --------------       --------------      --------------


CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                             <C>                  <C>                 <C>
    Net income                                                  $   3,227,640        $   2,844,209       $   2,738,754
    Adjustments to reconcile net income to
       net cash provided by operating activities:
          Deferred taxes                                             (264,520)             104,018             231,819
          Provision for loan losses                                   300,000              390,000             670,000
          Provision for depreciation                                  824,447              727,564             724,609
          Provision (credit) for other real estate losses                                        -            (150,000)
          Writedown of other real estate                               34,255              126,000             102,752
          (Gain) on sale of loans                                    (359,821)            (331,593)           (628,705)
          (Gain) Loss on sale of other repossessed assets               1,500                 (193)              6,971
          (Gain) Loss on sale of premises and equipment                36,612             (175,091)             45,612
          Loss on sale of other real estate                            (3,161)              42,970              97,119
          Stock dividends received                                   (181,600)             (85,100)            (73,500)
          Net amortization (accretion) of securities                  307,126              590,506             768,417
          Amortization of acquisition premium                         107,616              107,616             107,616
    Net change in:
       Loans held for sale                                          1,517,138            1,413,668           1,291,391
       Accrued interest receivable                                   (131,146)             (31,417)             27,452
       Cash surrender value of life insurance                           7,103              (38,391)             (4,540)
       Other assets                                                      (168)             320,689            (178,021)
       Accrued interest payable                                       453,977              154,361            (125,939)
       Accrued taxes and other liabilities                            559,561              352,977             (77,929)
                                                                  ------------       --------------       --------------
              Net Cash Provided by Operating Activities             6,436,559            6,512,793           5,573,878
                                                                  ------------       --------------       --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
    (Increase) decrease in federal funds sold                        (292,107)             (67,670)          3,518,639
    Proceeds from principal paydowns and maturities
       of investment securities held-to-maturity                    1,759,528            2,813,609           2,778,056
    Proceeds from principal paydowns and maturities of
       investment securities available-for-sale                    24,938,759           25,139,010          34,471,030
    Proceeds from redemption of Federal Home Loan
       Bank stock                                                     603,000                    -                   -
    Purchases of investment securities held-to-maturity                     -             (473,892)        (12,103,638)
    Purchases of investment securities available-for-sale         (14,029,560)         (24,465,532)        (68,899,060)
    Purchase of other equity securities                              (371,500)            (129,700)         (1,763,100)
    Net increase in loans                                         (26,509,385)         (13,171,667)        (27,081,044)
    Proceeds from sales of other repossessed assets                    30,565                    -                   -
    Proceeds from sale of other real estate                           890,709            1,260,075             517,331
    Purchases of premises and equipment                              (641,972)          (1,444,730)         (2,343,500)
    Proceeds from sales of premises and equipment                           -              775,000                   -
                                                                -------------      ---------------     ---------------
              Net Cash Used in Investing Activities               (13,621,963)          (9,765,497)        (70,905,286)
                                                                --------------     ----------------    ----------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>


              BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
              FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003



                                                                    2005                2004                2003
                                                                -------------      ---------------     ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
<S>                                                             <C>                <C>                 <C>
    Net increase (decrease) in customer deposits                   33,069,981           (9,220,853)            (78,256)
    Net increase (decrease) in brokered deposits                   (1,981,000)           2,575,000                   -
    Net increase (decrease) in federal funds purchased             (6,435,000)           1,885,000           4,550,000
    Net increase (decrease) in Federal Home Loan Bank
       advances                                                   (12,726,804)           9,347,110          46,260,277
    Net increase (decrease) in securities sold under
       repurchase agreements                                          (70,660)          (1,831,919)          7,793,510
    Proceeds from issuance of junior subordinated
       debentures                                                           -                    -           5,000,000
    Increase (decrease) in advances from borrowers
       for taxes and insurance                                         37,779               32,068              41,133
    Cash dividends paid                                            (1,460,258)          (1,353,409)         (1,352,375)
    Cash received from stock options exercised                              -               36,777                   -
                                                                -------------      ---------------     ---------------
              Net Cash Provided by Financing Activities            10,434,038            1,469,774          62,214,289
                                                                -------------      ---------------     ---------------

NET DECREASE/(INCREASE) IN CASH AND DUE
 FROM BANKS                                                         3,248,634           (1,782,930)         (3,117,119)

CASH AND DUE FROM BANKS AT BEGINNING OF YEAR                        6,576,825            8,359,755          11,476,874
                                                                -------------      ---------------     ---------------

CASH AND DUE FROM BANKS AT END OF YEAR                          $   9,825,459      $     6,576,825     $     8,359,755
                                                                ==============     ===============     ===============



</TABLE>
<TABLE>
<CAPTION>


SUPPLEMENTAL DISCLOSURES OF CASH FLOW
    INFORMATION:
       Cash payments for:
<S>                                                                 <C>                <C>                 <C>
          Income taxes                                              $      579,504     $        644,624    $       474,931
                                                                     =============      ================    ==============

          Interest on deposits and borrowings                       $    7,991,084     $      6,310,927    $     6,454,657
                                                                     =============      ===============     ==============

SCHEDULE OF NONCASH INVESTING AND
    FINANCING ACTIVITIES:
       Transfers to other real estate                               $    1,072,050     $      1,008,255    $       787,559
                                                                     =============      ===============     ==============

       Change in unrealized (gains) losses on
          securities available-for-sale                             $   (2,494,135)    $       (598,102)   $      (746,159)
                                                                     ==============     =================   ===============

       Change in the deferred tax effect in unrealized
          gains (losses) on securities available-for-sale           $     (930,312)    $       (128,353)   $      (278,307)
                                                                     ==============     ================    ===============

       Change in unrealized gains on derivatives                    $     (151,784)    $       (163,732)   $       (81,980)
                                                                     ==============     ================    ===============

       Change in the deferred tax effect in
          unrealized gains on derivatives                           $      (56,615)    $        (61,073)   $       (30,578)
                                                                     ==============     ================    ===============



The accompanying notes are an integral part of these financial statements.
</TABLE>


<PAGE>


              BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2005, 2004 AND 2003



NOTE A.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

               Principles of Consolidation

               The  consolidated  financial  statements  include the accounts of
               Britton & Koontz Capital Corporation (the Company) and its wholly
               owned subsidiaries,  Britton & Koontz Bank, National  Association
               (the Bank) and B & K Title Insurance  Agency,  Inc. (the Agency).
               All material intercompany profits, balances and transactions have
               been eliminated.

               Nature of Operations

               The Bank operates under a national bank charter and provides full
               banking  services,  including  trust  services.  The primary area
               served by the Bank is the  southwest  region of  Mississippi  and
               East Baton Rouge  Parish in  Louisiana.  Services are provided at
               three  locations  in  Natchez,   Mississippi,  two  locations  in
               Vicksburg,   Mississippi,   and  one  location  in  Baton  Rouge,
               Louisiana.

               The Agency issues  policies of title  insurance for and on behalf
               of the Company  upon  properties  in all counties in the state of
               Mississippi.

               Use of Estimates

               The   preparation  of   consolidated   financial   statements  in
               conformity with generally accepted accounting principles requires
               management  to make  estimates  and  assumptions  that affect the
               reported  amounts of assets and liabilities and the disclosure of
               contingent  assets and  liabilities  at the date of the financial
               statements  as well  as the  reported  amounts  of  revenues  and
               expenses during the reporting period. Actual results could differ
               from those estimates.

               Material   estimates   that  are   particularly   susceptible  to
               significant  change relate to the  determination of the allowance
               for loan losses.  In  connection  with the  determination  of the
               allowance  for  loan  losses,   management  obtains   independent
               appraisals for significant properties.

               While  management uses available  information to recognize losses
               on loans,  future  additions  to the  allowance  may be necessary
               based on  changes  in local  economic  conditions.  In  addition,
               regulatory  agencies,  as an integral  part of their  examination
               process,  periodically  review  the  Bank's  allowance  for  loan
               losses. Such agencies may require the Bank to recognize additions
               to the  allowance  based on  their  judgments  about  information
               available  to them at the time of their  examination.  Because of
               these factors,  it is reasonably  possible that the allowance for
               loan losses may change materially in the near term. However,  the
               amount  of the  change  that is  reasonably  possible  cannot  be
               estimated.




<PAGE>


NOTE A.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

               Investment Securities

               Management   determines   the   appropriate   classification   of
               securities  at the  time  of  purchase.  If  management  has  the
               positive  intent  and the  Bank  has the  ability  at the time of
               purchase  to  hold  debt  securities  until  maturity,  they  are
               classified as held-to-maturity  and carried at cost, adjusted for
               amortization of premiums and accretion of discounts using methods
               approximating the interest method.  Available-for-sale securities
               include  securities that management intends to use as part of its
               asset and liability  management  strategy and that may be sold in
               response to changes in interest rates,  resultant prepayment risk
               and  other  factors  related  to  interest  rates  and  resultant
               prepayment  risk changes.  These  securities  are carried at fair
               value.  Equity securities  primarily include stock in the Federal
               Reserve Bank and the Federal Home Loan Bank, which are restricted
               and are carried at cost.

               Realized  gains and losses on  dispositions  are based on the net
               proceeds  and the  adjusted  book value of the  securities  sold,
               using the specific  identification  method.  Unrealized gains and
               losses on investment securities  available-for-sale  are based on
               the  difference  between  book  value  and  fair  value  of  each
               security.  These  unrealized  gains and losses are  reported as a
               component of comprehensive income in stockholders' equity, net of
               the  related  deferred  tax  effect.  The Bank does not engage in
               trading account activities.

               Loans

               Loans are stated at the amount of principal outstanding,  reduced
               by unearned  income and an allowance  for loan  losses.  Unearned
               income on certain  installment loans is recognized as income over
               the  terms  of the  loans  by a  method  which  approximates  the
               interest  method.  Interest on other loans is calculated by using
               the simple  interest  method on daily  balances of the  principal
               amount  outstanding.  Loans are  ordinarily  placed on nonaccrual
               when a loan is  specifically  determined  to be  impaired or when
               principal or interest is delinquent for 90 days or more; however,
               management  may elect to continue the accrual when the  estimated
               net  realizable  value of  collateral  is sufficient to cover the
               principal balance and the accrued  interest.  Any unpaid interest
               previously  accrued on nonaccrual  loans is reversed from income.
               Interest  income,   generally,  is  not  recognized  on  specific
               impaired  loans unless the  likelihood of further loss is remote.
               Interest  payments  received  on  such  loans  are  applied  as a
               reduction of the loan principal balance. Interest income on other
               nonaccrual  loans is  recognized  only to the extent of  interest
               payments received.



<PAGE>





NOTE A.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

               Loans - continued

               Securitized  loans  are  transferred  to a  long-term  investment
               category  at the  lower of cost or market  value on the  transfer
               date. Any material  difference between the carrying amount of the
               loans and their outstanding principal balance is recognized as an
               adjustment to the yield by the interest method.

               Loans Held-for-Sale

               Loans  held-for-sale   primarily  range  from  ten,  fifteen  and
               thirty-year  fixed-rate,  one-to-four  family real  estate  loans
               which are valued at the lower of cost or market, as determined by
               outstanding  commitments from investors or current investor yield
               requirements,  calculated on an individual basis. These loans are
               originated  with the  intent  of  selling  them on the  secondary
               market.

               Unrealized  losses on loans  held-for-sale  are  charged  against
               income in the period of decline.  Such declines are recorded in a
               valuation  allowance  account and deducted from the cost basis of
               the  loans.  Gains on loans  held-for-sale  are  recognized  when
               realized.

               Allowance for Loan Losses

               The  allowance  is an amount  that  management  believes  will be
               adequate to absorb probable losses inherent in the loan portfolio
               as of  the  balance  sheet  date  based  on  evaluations  of  the
               collectibility  of loans and  prior  loan  loss  experience.  The
               evaluations  take into  consideration  such factors as changes in
               the nature and volume of the loan  portfolio,  overall  portfolio
               quality,  review of specific  problem loans, and current economic
               conditions that may affect the borrower's  ability to pay. A loan
               is considered  impaired when,  based on current  information  and
               events,  it is  probable  that the Bank will be unable to collect
               the  scheduled   payments  of  principal  or  interest  when  due
               according  to  the  contractual  terms  of  the  loan  agreement.
               Allowances for impaired loans are generally  determined  based on
               collateral  values or the present value of estimated  cash flows.
               Credits  deemed  uncollectible  are  charged  to  the  allowance.
               Provisions  for loan losses and  recoveries  on loans  previously
               charged  off are adjusted to the allowance.  Past due  status  is
               determined based on contractual terms.

               Bank Premises and Equipment

               Bank premises and equipment are stated at cost, less  accumulated
               depreciation.   Depreciation   expense   is   computed   by   the
               straight-line method and is charged to expense over the estimated
               useful lives of the assets, which range from 3 to 40 years.

<PAGE>


NOTE A.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

               Other Real Estate

               Properties acquired through foreclosure or in settlement of loans
               and in lieu of loan  foreclosures  are  classified  as foreclosed
               properties  and are  valued  at the  lower of the  loan  value or
               estimated  fair value of the  property  acquired  less  estimated
               selling costs. At the time of foreclosure, the
                excess,  if any, of the loan value over the estimated fair value
               of the property acquired less estimated selling costs, is charged
               to the  allowance  for loan losses.  Additional  decreases in the
               carrying values of foreclosed  properties or changes in estimated
               selling  costs,  subsequent  to  the  time  of  foreclosure,  are
               recognized through provisions charged to operations. Revenues and
               expenses from  operations and gains and losses on dispositions of
               such assets are recorded in earnings in the period incurred.

               The fair value of foreclosed  properties is determined based upon
               appraised value, utilizing either the estimated replacement cost,
               the selling price of properties utilized for similar purposes, or
               discounted cash flow analyses of the properties' operations.

               Compensated Absences

               Employees  of the Bank are entitled to paid  vacation,  emergency
               and sick days off,  depending on length of service in the banking
               industry.  Vacation,  emergency  and sick days are  granted on an
               annual basis to eligible employees. Unused vacation and emergency
               days expire on December 31 of each year.  Unused sick days expire
               on each employee's employment anniversary date each year.

               The  estimated  amount of  compensation  for future  absences  is
               deemed  immaterial  to  the  consolidated  financial  statements;
               accordingly,  no liability has been recorded in the  accompanying
               financial statements.  The Bank's policy is to recognize the cost
               of compensated absences when actually paid to employees.

               Income Taxes

               The  provision  for income taxes is based on amounts  reported in
               the  statements of income after  exclusion of  nontaxable  income
               such as interest on state and municipal securities. Also, certain
               items of income and expenses  are  recognized  in different  time
               periods  for  financial  statement  purposes  than for income tax
               purposes.  Thus,  provisions  for deferred  taxes are recorded in
               recognition of such temporary differences.



<PAGE>





NOTE A.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

               Income Taxes - continued

               Deferred  taxes  are  determined  utilizing  a  liability  method
               whereby   deferred  tax  assets  are  recognized  for  deductible
               temporary differences and deferred tax liabilities are recognized
               for taxable temporary differences.  Temporary differences are the
               differences   between   the   reported   amounts  of  assets  and
               liabilities and their tax bases.  Deferred tax assets are reduced
               by a valuation  allowance when, in the opinion of management,  it
               is more likely than not that some  portion or all of the deferred
               tax  assets  will  not  be  realized.  Deferred  tax  assets  and
               liabilities  are  adjusted for the effects of changes in tax laws
               and rates on the date of enactment.

               The  Company and its  subsidiaries  file a  consolidated  federal
               income tax return.  Consolidated  income tax expense is allocated
               on the basis of each  company's  income  adjusted  for  permanent
               differences.

               Earnings Per Share

               Basic earnings per share  represents  income  available to common
               stockholders divided by the weighted-average  number of shares of
               common stock outstanding during the period.  Diluted earnings per
               share  reflects  additional  common  shares  that would have been
               outstanding if dilutive  potential common shares had been issued,
               as well as any  adjustment  to income that would  result from the
               assumed issuance. All shares held by the Employee Stock Ownership
               Plan (ESOP) are treated as  outstanding in computing the earnings
               per share.  Stock options are used in the  calculation of diluted
               earnings  per share if they are  dilutive.  Earnings  per  common
               share have been computed as follows:
<TABLE>
<CAPTION>

                                                                       Income           Shares         Per Share
                                                                     (Numerator)     (Denominator)      Amount
                                                                  --------------     -------------     ---------
<S>                                                               <C>                <C>               <C>
               Year Ended December 31, 2005:
                  Basic Earnings Per Share:
                     Income Available to Common
                         Shareholders                             $    3,227,640       2,116,316        $  1.53
                                                                                                        ========

                  Diluted Earnings Per Share:
                     Options                                                   -           4,635
                                                                  --------------     ------------

                  Income Available to Common
                     Shareholders Assuming Conversion             $    3,227,640       2,120,951        $  1.52
                                                                  ===============    ============       ========

</TABLE>

<PAGE>

<TABLE>
<CAPTION>




NOTE A.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

               Earnings Per Share -continued
                                                                      Income            Shares         Per Share
                                                                     (Numerator)     (Denominator)      Amount
                                                                  --------------     -------------     ---------
               Year Ended December 31, 2004:
                  Basic Earnings Per Share:
                     Income Available to Common
<S>                                                               <C>                   <C>             <C>
                         Shareholders                             $    2,844,209        2,114,649       $  1.35
                                                                                                        ========
                  Diluted Earnings Per Share:
                     Options                                                   -            3.532
                                                                  --------------       -----------

                  Income Available to Common
                     Shareholders Assuming Conversion             $    2,844,209        2,118,181       $  1.34
                                                                  ==============       ===========      ========


               Year Ended December 31, 2003:
                  Basic Earnings Per Share:
                     Income Available to Common
                         Shareholders                             $    2,738,754        2,113,087       $  1.30
                                                                                                        ========
                  Diluted Earnings Per Share:
                     Options                                                   -            3,076
                                                                    -------------      -----------

                  Income Available to Common
                     Shareholders Assuming Conversion             $    2,738,754        2,116,163       $  1.29
                                                                   ==============      ===========      ========
</TABLE>

               The Company has granted  options to purchase  various  amounts of
               the Company's  common stock at various prices ranging from $14.50
               to $19.94 per share.  Those options whose exercise price exceeded
               the average market price of the common shares are not included in
               the options adjustment for diluted earnings per share.

               Off-Balance-Sheet Financial Instruments

               In the  ordinary  course of  business,  the Bank has entered into
               off-balance-sheet    financial    instruments    consisting    of
               interest-rate  swap and cap  agreements,  commitments  to  extend
               credit  and  standby  letters of  credit.  Financial  instruments
               related to loans are recorded in the  financial  statements  when
               they become payable.



<PAGE>




NOTE A.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

               Statement of Cash Flows

               For  purposes  of the  statements  of  cash  flows,  the  Company
               considers only cash and due from banks to be cash equivalents.

               Advertising Costs

               Advertising  and marketing  costs are recorded as expenses in the
               year in which they are incurred.  Advertising and marketing costs
               charged to operations  during 2005,  2004 and 2003 were $198,233,
               $259,284 and $261,770, respectively.

               Interest-Rate Cap Agreements

               The cost of interest-rate cap agreements is amortized to interest
               expense  over the  terms of the  caps.  The  unamortized  cost is
               included  in other  assets  in the  consolidated  balance  sheet.
               Amounts   receivable  under  cap  agreements  are  accrued  as  a
               reduction  of  interest  expense.  The Bank  does not  engage  in
               trading of derivatives.  All such financial  instruments are used
               to manage interest rate risk.

               Interest-Rate Swap Agreements

               The Bank enters into  interest-rate swap agreements to modify the
               interest  rate  characteristics  of its assets  and  liabilities.
               These agreements may involve the receipt or payment of fixed rate
               amounts in  exchange  for  floating  rate  interest  receipts  or
               payments  over the life of the  agreement  without an exchange of
               the underlying  principal amount.  The differential to be paid or
               received is accrued as interest rates change and recognized as an
               adjustment  to  interest  income or expense.  The related  amount
               payable to or  receivable  from  counter-parties  is  included in
               other liabilities or assets.

               Core Deposits

               During 1999, the Company  acquired certain assets and liabilities
               of three Union Planters,  N.A. branches in Natchez and Vicksburg,
               Mississippi,  which were  accounted  for as a purchase.  The Bank
               paid a premium for the depositor relationship of $1,614,210. This
               premium is included in other assets and is being  amortized  over
               15 years, which is the estimated life of the customer base.

               Stock Compensation Plans

                FASB   Statement   No.   123,    "Accounting   for   Stock-Based
                Compensation",  encourages  all  entities  to adopt a fair value
                based  method of  accounting  for  employee  stock  compensation
                plans,  whereby  compensation cost is measured at the grant date
                based  on the  value of the  award  and is  recognized  over the
                service period, which is usually the vesting period. However,

<PAGE>

NOTE A.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

               it also allows an entity to continue to measure compensation cost
               for  those  plans  using  the  intrinsic  value  based  method of
               accounting  prescribed by Accounting Principles Board Opinion No.
               25,   "Accounting   for  Stock  Issued  to  Employees,"   whereby
               compensation  cost is the excess,  if any,  of the quoted  market
               price of the stock at the grant date (or other  measurement date)
               over the amount an employee must pay to acquire the stock.  Stock
               options  issued  under the  Company's  stock  option plan have no
               intrinsic  value at the grant date,  and under  Opinion No. 25 no
               compensation cost is recognized for them. The Company has elected
               to continue  with the  accounting  methodology  in Opinion No. 25
               and,  as  a  result,  has  provided,  under  Note  J,  pro  forma
               disclosures  of net  income  and  earnings  per  share  and other
               disclosures,  as if the fair value based method of accounting had
               been applied.

               Comprehensive Income

               Accounting  principles generally require that recognized revenue,
               expenses,  gains and losses be included  in net income.  Although
               certain  changes in assets and  liabilities,  such as  unrealized
               gains and losses on available-for-sale  securities,  are reported
               as a  separate  component  of the equity  section of the  balance
               sheet,  such items,  along with net  income,  are  components  of
               comprehensive income.

               Recent Accounting Pronouncements

               In November of 2003, the Financial  Accounting  Standards Board's
               (FASB's) Emerging Issues Task Force released Issue No. 03-1, "The
               Meaning of Other-Than-Temporary Impairment and its Application to
               Certain Investments." The issue addressed disclosure requirements
               of securities in unrealized loss positions. In November 2005, the
               FASB issued combined FASB Staff Position (FSP) Nos. FAS 115-1 and
               FAS 124-1,  "Recognition of Other than Temporary  Impairment upon
               the Planned  Sale of a Security  Whose Cost  Exceeds Fair Value".
               This  combined FSP  nullifies  certain  provisions  of EITF Issue
               03-1.  The disclosure  requirements  of EITF Issue 03-1 are still
               effective  and are included in these  financial  statements.  The
               combined FSP covers debt and equity  securities  within the scope
               of SFAS No. 115 and SFAS No. 124, and addresses the determination
               of  when an  investment  is  considered  impaired,  whether  such
               impairment  is  other-than-temporary  and the  measurement  of an
               impairment  loss.  The  combined FSP  clarifies  that an impaired
               available-for-sale  security  whose fair value  deficiency is not
               expected  to  recover  fully  before  the  expected  time  of the
               security's sale should be deemed other than temporarily impairand
               an impairment loss recorded.  This pronouncement is effective for
               reporting periods beginning after December 15, 2005. The Bank has
               considered  the  effects  of  this  pronouncement  and  does  not
               consider  its  effect  on  future  results  of  operations  to be
               significant.

               In December  2004,  the FASB issued SFAS No. 123 (revised  2004),
               "Share-Based  Payment"  (SFAS No.  123(R)).  This  statement is a
               revision  to  SFAS  No.  123,   "Accounting   for  Stock-   Based
               Compensation," and supersedes APB Opinion No. 25, "Accounting for
               Shares Issued




<PAGE>

NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

               to Employees."  This statement  eliminates the alternative to use
               APB Opinion No. 25's  intrinsic  value method of accounting  that
               was provided in SFAS No. 123 as originally  issued.  As a result,
               this  statement  requires a public  entity to measure the cost of
               employee  services  received in  exchange  for an award of equity
               based  instruments  based on the  grant-  date fair  value of the
               award and to recognize  the cost over the period  during which an
               employee  is  required  to provide  service in  exchange  for the
               award.  In March 2005,  the  Securities  and Exchange  Commission
               (SEC) issued Staff  Accounting  Bulletin No. 107 which  expresses
               the view of the staff  regarding  the  interaction  between  SFAS
               123(R) and certain SEC rules and  regulations  and  valuation  of
               share based payment  arrangements for public  companies.  The SEC
               issued  an  amendment  providing  that  the  effective  date  for
               implementation  of SFAS  123(R)  is for  the  first  fiscal  year
               beginning on or after June 15, 2005. The Company anticipates that
               the  application of this statement will not be significant to the
               financial statements.

               Reclassifications

               Certain  reclassifications  have  been  made to the 2004 and 2003
               consolidated  financial  statements  in order to  conform  to the
               classifications adopted for reporting in 2005.


NOTE B.        INVESTMENT SECURITIES
               The  amortized  cost and  approximate  market value of investment
               securities  classified as  held-to-maturity at December 31, 2005,
               are summarized as follows:
<TABLE>
<CAPTION>


                                                                           Gross           Gross
                                                       Amortized        Unrealized      Unrealized          Fair
                                                         Cost              Gains          Losses            Value
                                                   ----------------    ------------   -------------    ---------------
<S>                                                   <C>              <C>             <C>               <C>
               Obligations of State and
                  Political Subdivisions              $34,904,765      $ 1,125,045     $  (81,676)       $35,948,134

               Mortgage-Backed
                  Securities                            3,089,278            8,139        (29,698)         3,067,719
                                                      -----------      -----------     -----------       -----------
                                                      $37,994,043      $ 1,133,184     $ (111,374)       $39,015,853
                                                      ===========      ===========     ===========       ===========



</TABLE>




<PAGE>
<TABLE>
<CAPTION>




NOTE B.        INVESTMENT SECURITIES  (Continued)

               The  amortized  cost and  approximate  market value of investment
               securities classified as available-for-sale at December 31, 2005,
               are summarized as follows:

                                                                           Gross           Gross
                                                       Amortized        Unrealized      Unrealized          Fair
                                                         Cost              Gains          Losses            Value
                                                     --------------    ------------   -------------    -------------
<S>                                                   <C>               <C>            <C>              <C>
               Mortgage-Backed
                  Securities                          $ 73,407,065      $  170,203     $ (1,692,906)    $ 71,884,362

               Agency Obligations                        6,495,545               -          (92,895)       6,402,650
                                                       -----------      -----------    -------------    ------------
                                                      $ 79,902,610      $  170,203     $ (1,785,801)    $ 78,287,012
                                                      =============     ===========    =============    ============
</TABLE>

               The  amortized  cost and  approximate  market value of investment
               securities  classified as  held-to-maturity at December 31, 2004,
               are summarized as follows:

<TABLE>
<CAPTION>
                                                                            Gross           Gross
                                                       Amortized         Unrealized      Unrealized          Fair
                                                         Cost               Gains          Losses            Value
                                                   ----------------     ------------   -------------    ---------------
<S>                                                   <C>               <C>            <C>              <C>
               Obligations of State and
                  Political Subdivisions              $ 35,321,402      $  1,511,364     $   (19,152)   $ 36,813,614

               Mortgage-Backed
                  Securities                             4,482,451            41,677               -       4,524,128
                                                        -----------     ------------     ------------   ------------
                                                      $ 39,803,853      $  1,553,041     $   (19,152)   $ 41,337,742
                                                      =============     ============     ============   ============
</TABLE>

               The  amortized  cost and  approximate  market value of investment
               securities classified as available-for-sale at December 31, 2004,
               are summarized as follows:
<TABLE>
<CAPTION>

                                                                            Gross           Gross
                                                       Amortized         Unrealized      Unrealized          Fair
                                                         Cost               Gains          Losses            Value
                                                   ----------------     ------------   -------------    -------------
<S>                                                  <C>               <C>             <C>              <C>
               Mortgage-Backed
                  Securities                          $ 86,063,356      $  1,009,628     $  (144,495)   $ 86,928,489

               Agency Obligations                        3,997,544               576            (620)      3,997,500

               Other Debt Securities                     1,007,752            13,448               -       1,021,200
                                                      ------------      ------------     ------------   -------------
                                                      $ 91,068,652      $  1,023,652     $  (145,115)   $ 91,947,189
                                                      =============     ============     ============   =============
</TABLE>


               The  aggregate  fair values and  aggregate  unrealized  losses on
               securities whose fair values are below book values as of December
               31,  2005,  are  summarized  below.  Due  to  the  nature  of the
               investment and current market prices, these unrealized losses are
               considered a temporary impairment of the securities.



<PAGE>
<TABLE>
<CAPTION>

NOTE B.        INVESTMENT SECURITIES  (Continued)



                                       Less than 12 Months              12 Months or More                        Total
                                  -----------------------------   ------------------------------    -------------------------------
                                       Fair          Unrealized       Fair            Unrealized         Fair          Unrealized
                                       Value            Loss          Value               Loss           Value            Loss
                                  --------------   ------------   --------------   -------------    --------------   --------------
<S>                               <C>              <C>             <C>              <C>              <C>              <C>
  Held-to-Maturity:
    Obligations of
      State and Political
      Subdivisions
       (seven securities)         $     802,424    $   (15,240)    $    935,988     $   (66,435)     $   1,738,412    $    (81,675)

    Mortgaged-backed
      Securities
       (one security)                 2,180,195        (29,698)               -               -          2,180,195         (29,698)
                                  --------------   -------------   -------------    -------------    --------------   -------------
                                  $   2,982,619    $   (44,938)    $    935,988     $   (66,435)     $   3,918,607    $   (111,373)
                                  ==============   =============   =============    =============    ==============  ==============


  Available for Sale:
    Agency Obligations
       (three securities)         $   6,402,650    $   (92,895)    $          -     $         -      $   6,402,650    $    (92,895)

    Mortgaged-backed
     Securities
       (thirty-three securities)     46,386,361       (982,002)      18,643,555        (710,904)        65,029,916      (1,692,906)
                                  --------------   -------------   -------------    -------------     -------------   -------------
                                  $  52,789,011    $(1,074,897)    $ 18,643,555     $  (710,904)     $  71,432,566    $ (1,785,801)
                                  ==============   =============   =============    =============    ==============   =============



</TABLE>


<PAGE>




NOTE B.        INVESTMENT SECURITIES  (Continued)

               The  aggregate  fair values and  aggregate  unrealized  losses on
               securities whose fair values are below book values as of December
               31,  2004,  are  summarized  below.  Due  to  the  nature  of the
               investment and current market prices, these unrealized losses are
               considered a temporary impairment of the securities.
<TABLE>
<CAPTION>


                                       Less than 12 Months              12 Months or More                        Total
                                  -----------------------------   ------------------------------    -------------------------------
                                       Fair          Unrealized       Fair            Unrealized         Fair          Unrealized
                                       Value            Loss          Value             Loss            Value            Loss
                                  --------------   ------------   --------------   -------------    --------------   --------------
<S>                               <C>              <C>             <C>              <C>             <C>               <C>
  Held-to-Maturity:
    Obligations of
      State and Political
      Subdivisions
       (seven securities)         $   1,863,665    $   (19,152)    $          -     $         -     $   1,863,665     $   (19,152)
                                  ==============   ============   ==============   =============    ==============    =============



   Available-for-Sale:
    Mortgage-Backed
      Securities (seven
        securities)               $  21,279,225    $  (112,812)    $  3,286,964     $   (31,683)    $  24,566,189     $  (144,495)

    Agency Obligations
       (one security)                 1,999,380           (620)               -               -         1,999,380            (620)
                                  --------------   -------------  --------------   -------------    --------------    -------------

                                  $  23,278,605    $  (113,432)    $  3,286,964     $   (31,683)    $  26,565,569     $  (145,115)
                                  ==============   =============  ==============   =============    ==============    =============

</TABLE>

               The  unrealized  losses in the  Company's  investment  portfolio,
               caused by interest rate increases,  are not credit issues and are
               deemed to be  temporary.  Cash  flows  from the  mortgage  backed
               securities  are  guaranteed  by the full  faith and credit of the
               United  States or by an agency of the United  States  Government.
               The  Company  also  has the  ability  and  intent  to hold  these
               securities  until maturity and thus is not required to record any
               loss on the securities.

               Equity  securities  at  December  31,  2005 and 2004, include the
               following:  Federal  Home  Loan  Bank  stock  of  $4,677,200  and
               $4,727,100 for 2005 and 2004, respectively;  Federal Reserve Bank
               stock of $521,700 for 2005 and 2004;  First National Bankers Bank
               stock in the  amount of  $47,800  for 2005 and 2004;  a  $100,000
               investment in ECD Investments,  LLC for both years and a $155,000
               investment in B&K Statutory Trust for both years.  Redemptions of
               stock in the  Federal  Home  Loan Bank  during  2005 or 2004 were
               $603,000  and  -0-,  respectively.   The  stocks  are  considered
               restricted  stock  as only  banks,  which  are  members  of these
               organizations, may acquire or redeem them. The stock is



<PAGE>

NOTE B.        INVESTMENT SECURITIES  (Continued)

               redeemable  at its  face  value;  therefore,  there  are no gross
               unrealized gains or losses associated with these investments.

               The Company  invested $1 million during 1998 and $250,000  during
               2001 in Sumx Inc ("Sumx"), a Mississippi  corporation established
               to  provide   electronic  banking  solutions  for  the  financial
               industry.  During  the  second  quarter  of 2002,  the  Company's
               $1,250,000  investment  in and  advances to Sumx in the amount of
               approximately  $711  thousand  were written off and  reflected in
               other  expense  due to the  uncertainty  regarding  Sumx'  future
               prospects  and  valuation.  On  December  31,  2004,  the Company
               divested  itself of its equity  interest  in Sumx by selling  its
               shares in Sumx to Sumx for $20,000. In connection with this sale,
               the Company and Sumx entered into a 5 year non-exclusive  license
               to use the Sumx  Internet  banking  software  at no  charge.  The
               Company   agreed  to  cancel  and   forgive   all   indebtedness,
               obligations and encumbrances of any kind to Sumx.

               Investment   securities  carried  at  approximately   $52,781,000
               (approximate  market value $53,404,000) at December 31, 2005, and
               approximately  $48,927,000 (approximate market value $50,674,000)
               at  December  31,  2004,  were  pledged to  collateralize  public
               deposits  and for other  purposes as required or permitted by law
               or agreement.

               The  amortized  cost and  approximate  market value of investment
               debt  securities at  December 31, 2005, by  contractual  maturity
               (including mortgage-backed  securities),  are shown below. Actual
               maturities  will  differ  from  contractual   maturities  because
               borrowers may have the right to call or prepay  obligations  with
               or without call or prepayment penalties.
<TABLE>
<CAPTION>

                                                                             Securities held-to-maturity
                                                                ------------------------------------------------------
                                                                        Weighted
                                                                      Average         Amortized            Market
                                                                       Yield            Cost                Value
                                                                ----------------   ---------------     ---------------

<S>                                                                <C>             <C>                 <C>
               Due in One Year or Less                               6.869%        $       220,450     $       221,096
               Due After One Year through Five Years                 6.411%              2,858,061           2,925,649
               Due After Five Years through Ten Years                6.747%             14,156,010          14,550,644
               Due After Ten Years                                   6.792%             20,759,522          21,318,464
                                                                                   ---------------     ---------------

                                                                     6.752%        $    37,994,043     $    39,015,853
                                                                                   ===============     ===============

</TABLE>


<PAGE>

<TABLE>
<CAPTION>



NOTE B.        INVESTMENT SECURITIES  (Continued)

                                                                           Securities available-for-sale
                                                                -------------------------------------------------
                                                                     Weighted
                                                                      Average       Amortized         Market
                                                                      Yield           Cost             Value
                                                                ---------------- --------------     -------------

<S>                                                               <C>             <C>               <C>
               Due After One Year through Five Years                4.063%        $ 10,098,989      $  9,959,434
               Due After Five Years through Ten Years               4.277%          46,112,260        44,832,611
               Due After Ten Years                                  4.968%          23,691,361        23,494,967
                                                                                  -------------     -------------

                                                                    4.456%        $ 79,902,610      $ 78,287,012
                                                                                  =============     =============
</TABLE>
<TABLE>
<CAPTION>

NOTE C.        LOANS

               The Bank's loan  portfolio  (rounded to the nearest  thousand) at
               December 31, 2005 and 2004, consists of the following:
                                                                                       2005                 2004
                                                                                    -------------     ---------------

<S>                                                                                 <C>               <C>
               Commercial, Financial and Agricultural                               $  32,868,000     $  31,589,000
               Real Estate-Construction                                                30,069,000        18,360,000
               Real Estate-Mortgage                                                   169,363,000       156,574,000
               Installment                                                             12,478,000        14,229,000
               Overdrafts                                                                 306,000           249,000
                                                                                    -------------     --------------

                  Total loans                                                       $ 245,084,000     $ 221,001,000
                                                                                    =============     ==============
</TABLE>


               Loans on which  accrual  of  interest  has been  discontinued  or
               reduced were  approximately  $1,059,000  and $772,000 at December
               31, 2005,  and 2004  respectively.  If interest on such loans had
               been accrued, the income would have approximated $24,000 in 2005,
               $38,000 in 2004,  and $28,000 in 2003.  At December  31, 2005 and
               2004,  respectively,  the recorded  investment in loans that were
               considered  to  be  impaired  was  approximately  $1,058,750  and
               $634,000,  primarily all of which were on a nonaccrual basis. The
               related  allowance  amount on impaired loans was not significant.
               Loans  which  are  contractually  90 days or more  past due as of
               December  31,  2005 and 2004,  were  approximately  $201,301  and
               $129,000, respectively.

               In the ordinary  course of business,  the Bank makes loans to its
               executive  officers,  principal  stockholders,  directors  and to
               companies in which these  borrowers are principal  owners.  Loans
               outstanding to such borrowers  (including companies in which they
               are principal  owners)  amounted to $2,807,745  and $2,391,668 at
               December 31, 2005 and 2004,  respectively.  These loans were made
               on  substantially  the same terms,  including  interest  rate and
               collateral,  as  those  prevailing  at the  time  for  comparable
               transactions with other persons



<PAGE>



NOTE C.        LOANS        (Continued)


               and did not involve  more than normal risk of  collectibility  or
               present other unfavorable features.

               The  aggregate  amount of loans to such related  parties for 2005
               and 2004 is as follows:

                                                   2005               2004
                                              --------------     --------------

               Balance at January 1           $    2,391,668     $    2,947,193
               New Loans                           1,812,367          1,124,203
               Repayments                         (1,396,290)        (1,679,728)
                                              --------------     --------------
               Balance at December 31         $    2,807,745     $    2,391,668
                                              ==============     ==============

<TABLE>
<CAPTION>

NOTE D.        ALLOWANCE FOR LOAN LOSSES

               An analysis of the allowance for loan losses is as follows:

                                                                          2005             2004              2003
                                                                    ------------     --------------     -------------
<S>                                                                 <C>              <C>                <C>
               Balance at January 1                                 $  2,236,778     $  2,070,162       $  2,129,328
                  Credits Charged Off:
                     Real Estate - Mortgage                             (149,502)        (113,888)          (456,085)
                     Commercial, Financial and Agricultural              (53,960)        (107,208)          (285,131)
                     Installment Loans                                   (47,187)         (46,738)           (91,068)
                                                                    ------------        ----------      -------------
                         Total Charge-Offs                              (250,649)        (267,834)          (832,284)
                  Recoveries:
                     Real Estate - Mortgage                               35,225            4,256             24,635
                     Commercial, Financial and Agricultural               22,520           23,032             59,832
                     Installment Loans                                    33,966           17,162             18,651
                                                                    ------------     -------------      -------------
                         Total Recoveries                                 91,711           44,450            103,118
                                                                    ------------     -------------      -------------
                  Net Credits Charged Off                               (158,938)        (223,384)          (729,166)
                                                                    ------------     -------------      -------------
                  Provision for Loan Losses                              300,000          390,000            670,000
                                                                    ------------     -------------      -------------
               Balance at December 31                               $  2,377,840     $  2,236,778       $  2,070,162
                                                                    ============     =============      =============
</TABLE>

NOTE E.        LOAN SERVICING

               Loans  serviced for others are not  included in the  accompanying
               consolidated  balance sheets.  The unpaid  principal  balances of
               these loans were approximately $11,274,712 and $9,740,772 in 2005
               and 2004, respectively.



<PAGE>
<TABLE>
<CAPTION>



NOTE F.        BANK PREMISES AND EQUIPMENT

               A summary of Bank premises and equipment is as follows:

                                                                                           2005            2004
                                                                                     -------------     -------------
<S>                                                                                  <C>               <C>
                 Buildings and Improvements                                          $  7,292,935      $  7,238,369
                 Furniture and Equipment                                                4,783,170         4,735,015
                                                                                     --------------     -----------
                                                                                       12,076,105        11,973,384
                    Less: Accumulated Depreciation                                     (5,152,431)       (4,830,622)
                 Land                                                                   1,122,994         1,122,994
                                                                                     --------------    -------------
                 Bank Premises and Equipment, Net                                    $  8,046,668      $  8,265,756
                                                                                     ==============    =============
</TABLE>

               The provision for depreciation  charged to operating expenses was
               $824,447,  $727,564 and $724,609 for the years ended December 31,
               2005, 2004 and 2003, respectively.

NOTE G.        TRUST DEPARTMENT ASSETS

               Property (other than cash deposits) held by the Bank in fiduciary
               or agency  capacities  for its  customers  is not included in the
               accompanying  consolidated  balance  sheets as such items are not
               assets of the Bank.  Trust fees are  reported  on the cash basis.
               The  difference  between  cash  basis  and the  accrual  basis is
               immaterial.

NOTE H.        DEPOSITS

<TABLE>
<CAPTION>

               Deposits  at  December  31,  2005  and  2004,  consisted  of  the
following:
                                                                                       2005                 2004
                                                                                 ----------------    -----------------

<S>                                                                              <C>                 <C>
               Non-Interest Bearing Demand Deposits                              $    51,466,230     $    39,868,482
               NOW Accounts                                                           23,016,487          28,103,197
               Money Market Deposit Accounts                                          36,516,395          24,974,678
               Savings Accounts                                                       23,032,910          16,490,444
               Certificates of Deposit                                               123,344,888         116,851,128
                                                                                 ----------------    -----------------
                                                                                 $   257,376,910     $   226,287,929
                                                                                 ================    =================

</TABLE>
<TABLE>
<CAPTION>


               Maturities  of  certificates  of  deposit  of  $100,000  or  more
               outstanding  at December  31, 2005 and 2004,  are  summarized  as
               follows:
                                                                                        2005                 2004
                                                                                 ----------------    -----------------
               Time Remaining Until Maturity:
<S>                                                                              <C>                 <C>
                  Three Months or Less                                           $     10,061,668    $     14,385,622
                  Over Three Through Six Months                                        11,198,948          13,257,922
                  Over Six Through Twelve Months                                       21,735,701          11,775,185
                  Over Twelve Months                                                   15,523,648          11,874,328
                                                                                 ----------------    -----------------
                                                                                 $     58,519,965    $     51,293,057
                                                                                 ================    =================

</TABLE>
<PAGE>

NOTE H.        DEPOSITS (Continued)

               The approximate  scheduled maturities of certificates of deposits
               for each of the next five years are:

                                    2006                       $     93,557,514
                                    2007                             18,748,119
                                    2008                              5,664,803
                                    2009                              4,537,127
                                    2010                                837,325
                                                               ----------------
                                                               $    123,344,888

               Interest expense on certificates of deposit greater than $100,000
               was approximately  $1,647,000,  $1,211,000 and $1,208,000 for the
               years ended December 31, 2005, 2004 and 2003, respectively.

               The public fund  deposits were  $29,041,518  and  $30,814,111  at
               December 31, 2005 and 2004, respectively.

NOTE I.        BORROWINGS

               Federal Home Loan Bank Advances:

               During  2005  and  2004,  the  Bank  received  advances  from and
               remitted  payments to the Federal Home Loan Bank.  These advances
               are  collateralized by a portion of the Bank's one-to-four family
               residential  mortgage  portfolio and certain  secured  commercial
               loans in  accordance  with the Advance  Security  and  Collateral
               Agreement with the Federal Home Loan Bank.  Advances  outstanding
               at December 31, 2005, consist of:

                  Ten   fixed-rate   term  loans  ranging  from   $2,000,000  to
                  $6,000,000,  totaling  $31,000,000 with interest rates ranging
                  from  2.060% to 5.157%.  The  maturities  on these loans range
                  from May 12, 2006 to November 30, 2007.

                  Five amortizable  fixed-rate  loans totaling  $16,886,067 with
                  interest  rates ranging from 2.377% to 4.177%.  The maturities
                  on these loans range from January 2, 2007, to June 1, 2009.

                  Two  variable-rate  loans,  tied  to 3 month  Libor,  totaling
                  $25,000,000 with interest rates, adjusting quarterly,  ranging
                  from 4.37% to 4.524% and caps  established at the strike price
                  of 4.00 and 4.50%.  The  maturities  on these loans range from
                  October 18, 2007, to February 4, 2008.

                  One  overnight  advance in the amount of  $11,310,000  with an
                  interest rate of 4.35%.
<PAGE>




NOTE I.        BORROWINGS (Continued)

               The 2004 advances consist of:

                  Seventeen  fixed-rate  term loans  ranging from  $2,000,000 to
                  $6,000,000,  totaling  $60,000,000 with interest rates ranging
                  from  1.765% to 5.348%.  The  maturities  on these loans range
                  from May 10, 2005, to November 30, 2007.

                  Five amortizable  fixed-rate  loans totaling  $23,922,871 with
                  interest  rates ranging from 2.377% to 4.177%.  The maturities
                  on these loans are from January 2, 2007, to June 1, 2009.

                  One  overnight  advance in the amount of  $13,000,000  with an
                  interest rate of 2.410%.

                Annual  maturities  for the next four years as of  December  31,
                2005 are as follows:

                                    2006                      $ 36,310,000
                                    2007                        13,342,360
                                    2008                        29,138,783
                                    2009                         5,404,924
                                                              ------------
                                                              $ 84,196,067

               Junior Subordinated Debentures:

               In 2003,  the Company  issued  $5,000,000 of junior  subordinated
               debentures.   The  $5,000,000  of  trust   preferred   securities
               qualifies as Tier 1 capital for regulatory  capital  purposes but
               is  classified  as  a  liability  under   accounting   principles
               generally  accepted  in  the  United  States  of  America.  These
               securities  carry an  interest  rate of  LIBOR + 3.15%,  adjusted
               quarterly,  with interest paid quarterly in arrears and mature in
               March,  2033. Under certain  circumstances,  these securities are
               subject to repayment on March 26, 2008, or thereafter.


NOTE J.        EMPLOYEE BENEFIT PLANS

               The Bank has an employee  stock  ownership plan which is designed
               to invest primarily in employer stock. Essentially, all employees
               of the Bank with one year of service  and of age  twenty-one  are
               covered under this plan,  and are fully vested in their  benefits
               after  seven  years  of  service.   Employer   contributions  are
               determined by the Board of Directors  each year and are allocated
               among   participants   on  the  basis  of  their   total   annual
               compensation.  Dividends  on the Company  stock owned by the plan
               are  recorded as a  reduction  of  retained  earnings.  Operating
               expenses  include  contributions  to the plan of $0,  $96,960 and
               $108,533 in 2005,  2004 and 2003,  respectively.  This plan owned
               158,630 and 210,407  allocated shares of Britton & Koontz Capital
               Corporation stock, as of December 31, 2005 and 2004.
<PAGE>

NOTE J.        EMPLOYEE BENEFIT PLANS (Continued)

               The overall cost to the plan for the periods  ended  December 31,
               2005,  2004 and 2003,  was  $7.73,  $6.58  and  $6.33 per  share,
               respectively.

               Employees  with  one  year  of  service  and age  twenty-one  are
               eligible to participate in a 401(k) plan established by the Bank.
               Under this plan,  employees may  contribute a percentage of their
               salaries  subject to certain  limits  based on federal  tax laws.
               These  contributions  are immediately  vested.  Employer matching
               contributions  are 100% vested after six years.  Employer  profit
               sharing contributions are 100% vested after seven years.

               Employer  contributions to the plan are made at the discretion of
               the Board of  Directors  and  aggregated  $114,077,  $73,040  and
               $143,700 for the years ended  December  31, 2005,  2004 and 2003,
               respectively.

               The Company has a long-term incentive plan in which all employees
               of the Company and its  subsidiaries are eligible to participate.
               The plan provides for discretionary  grants of various incentives
               including  stock  options;  shares of  common  stock  subject  to
               restrictions  on  transfer,  forfeitability  provisions  or other
               limitations;  and  shares  of  common  stock,  the  issuance  and
               delivery of which may be subject to the  attainment  of specified
               performance  objectives.  A maximum of  160,000  shares of common
               stock  is  available  for  grant  under  the  plan,   subject  to
               adjustment  on  account  of  stock  dividends  or  stock  splits,
               recapitalizations,  mergers,  consolidations  or other  corporate
               reorganizations.  The plan is  administered  by a Committee of at
               least two non-employee  directors  appointed by the full Board of
               Directors.  Since  adoption,  the Company has granted  options to
               purchase a total of  102,124  shares.  Options  expire at various
               years from the date of grant.  Options to acquire  20,460  shares
               were  exercisable  as of December 31, 2005.  The summary of stock
               option activity is shown below:
                                                                        Weighted
                                              Options               Average
                                            Outstanding          Exercise Price

               December 31, 2003               53,229            $    17.38
               Options granted                      -                     -
               Options exercised               (3,229)                11.39
               Options forfeited              (15,000)                19.94
                                           -----------

               December 31, 2004               35,000            $    16.83
               Options granted                  5,000                 18.00
               Options exercised                    -                     -
               Options forfeited               (4,480)                14.50
                                           -----------
               December 31, 2005               35,520            $    17.29
                                           ===========           ===========

<PAGE>



NOTE J.        EMPLOYEE BENEFIT PLANS (Continued)

                The following table summarizes  information  about stock options
                outstanding at December 31, 2005:


                Exercise Price   Options Outstanding  Remaining Contractual Life
                --------------   -------------------  --------------------------
                   $  19.94            15,000                 1.9 years
                   $  14.50            15,520                 5.9 years
                   $  18.00             5,000                 5.0 years

               The Company applies APB Opinion 25 and related Interpretations in
               accounting for the stock options.  Accordingly,  no  compensation
               cost has been recognized. Had compensation cost for the Company's
               stock  options  been  determined  based on the fair  value at the
               grant  dates  consistent  with  the  method  prescribed  by  FASB
               Statement  No. 123,  the  Company's  net income and  earnings per
               share would have been adjusted to the pro forma amounts indicated
               below:
<TABLE>
<CAPTION>

                                                                 2005                  2004                  2003
                                                          -------------            -------------        --------------

<S>                                                       <C>                      <C>                  <C>
               Net Income, as Reported                    $   3,227,640            $   2,844,209        $     2,738,754
               Pro Forma Net Income                       $   3,215,915            $   2,837,413        $     2,718,254
               Basic Earnings Per Share, as Reported      $        1.53            $        1.35        $          1.30
               Pro Forma Basic Earnings Per Share         $        1.52            $        1.34        $          1.29
               Diluted Earnings Per Share, as Reported    $        1.52            $        1.34        $          1.29
               Pro Forma Diluted Earnings Per Share       $        1.52            $        1.34        $          1.28
</TABLE>


               The fair  value of each  option is  estimated  on the grant  date
               using the  Black-Scholes  option  pricing  model.  The  following
               assumptions  were made in  estimating  fair  values  in 2005.  No
               options were granted in either 2004 or 2003.

               Assumption                                         2005
               -----------------                                 -------
               Dividend yield                                     3.59%
               Risk free rate                                     4.42%
               Expected life                                     5 years
               Expected volatility                               27.59%

               SFAS 123R requires  measurement for  share-based  transactions at
               the fair value of the equity instrument  issued. The Company will
               adopt this pronouncement effective as of the first interim period
               in 2006.  The Company has addressed  the future  adoption of this
               pronouncement  and does not consider its  potential  impact to be
               significant.
<PAGE>


NOTE J.        EMPLOYEE BENEFIT PLANS (Continued)

               The  Bank has a  nonqualified  salary  continuation  plan for its
               executive   officers.   These   officers   will  be  entitled  to
               agreed-upon   benefits   which  will  begin   vesting  when  each
               participant reaches the age of fifty-five.  The vested percentage
               will increase  annually  through the age of  sixty-five  when the
               officers will be fully vested. Payment of any benefits

               is contingent  upon the officers'  continued  employment with the
               Bank through the age of fifty-five. The projected benefit to each
               officer at age  sixty-five  is allocated  through a present value
               calculation  to each year from  inception of the plan through age
               sixty-five.  The Plan also  includes a change of control  benefit
               for these officers.  If any or all of the covered  executives are
               terminated  from  employment  within  36  months  of  a  sale  or
               acquisition  of the Bank, the  executive(s)  may elect to receive
               from the acquirer  fully vested income  benefits as stated above,
               or to receive an agreed-upon lump-sum  distribution,  which would
               total  $340,000 if all covered  executives  selected this option.
               The financial  statements  for the years ended December 31, 2005,
               2004 and 2003,  respectively,  include  $42,982  and  $24,883 and
               $45,552 of expense related to this plan.

NOTE K.        LEASES

               The Bank leases  one branch office as well as parking space under
               operating  leases  which  expire in various years  through  2014.
               Rent  expense was  $124,577,  $148,402 and $107,948 in 2005, 2004
               and 2003, respectively.

               The  future  minimum  rental  commitments  for  these  leases  at
               December 31, 2005, are as follows:

                                    2006                $   106,992
                                    2007                    106,992
                                    2008                    106,992
                                    2009                    106,992
                                    2010                    106,992
                                    Thereafter              314,028
                                                           --------
                                                        $   848,988

<TABLE>
<CAPTION>

NOTE L.        INCOME TAXES

               The   provision/(benefit)   for  income  taxes  included  in  the
               consolidated  statements  of income is as  follows  for the years
               ended December 31, 2005, 2004 and 2003:

                                                                        2005               2004              2003
                                                                  --------------      -------------       -------------

<S>                                                               <C>                 <C>                 <C>
               Current                                            $    1,079,614      $     676,227       $     517,906
               Deferred                                                 (264,520)           104,018             231,819
                                                                  --------------      -------------       -------------

                                                                  $      815,094      $     780,245       $     749,725
                                                                  ==============      =============       =============
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

NOTE L.  INCOME TAXES (Continued)

               The provision for federal income taxes differs from that computed
               by applying the federal  statutory rate of 34% in 2005,  2004 and
               2003 as indicated in the following analysis:

                                                                        2005               2004              2003
                                                                  --------------      ---------------     --------------

<S>                                                               <C>                 <C>                 <C>
               Tax Based on Statutory Rate                        $    1,374,530      $   1,232,314       $   1,186,083
               State Taxes                                                98,051            108,211              79,712
               Effect of Tax-Exempt Income                              (565,456)          (569,345)           (555,675)
               Other                                                     (92,031)             9,065              39,605
                                                                  --------------      ---------------     --------------

                                                                  $      815,094      $     780,245       $     749,725
                                                                  ==============      ===============     ==============
</TABLE>

               The net  deferred  tax asset of $35,974 in 2005 and net  deferred
               tax  liabilities  of $1,024,406  and $1,204,554 in 2004 and 2003,
               respectively,  are included in other assets and accrued taxes and
               other liabilities,  respectively.  The net deferred tax asset and
               liabilities  consist of the following  components at December 31,
               2005, 2004 and 2003:
<TABLE>
<CAPTION>

                                                                        2005                2004             2003
                                                                  --------------      ---------------     --------------
               Deferred Tax Liabilities:
<S>                                                               <C>                 <C>                 <C>
                Unrealized gain on available-for-sale securities  $            -      $    (327,694)      $    (550,786)
                Unrealized gain on derivatives                              (155)           (56,770)           (117,843)
                Depreciation                                            (992,514)        (1,019,448)           (892,632)
                Federal Home Loan Bank dividends                        (335,975)          (309,575)           (277,833)
                Other                                                   (191,067)          (122,031)           (110,790)
                                                                  --------------      --------------      --------------
                                                                      (1,519,711)        (1,835,518)         (1,949,884)
               Deferred Tax Assets:
                Unrealized Loss on available-for-sale securities         602,618                  -                   -
                  Provision for loan losses                              597,133            544,517             482,370
                  Other real estate                                       11,190             44,760              38,327
                  Voluntary severence                                    171,770                  -                   -
                  Other                                                  172,974            221,835             224,633
                                                                  --------------      --------------      --------------
                                                                       1,555,685            811,112             745,330
                                                                  --------------      --------------      --------------
               Net Deferred Tax Asset/(Liability)                 $       35,974      $  (1,024,406)      $  (1,204,554)
                                                                  ==============      ==============      ==============

</TABLE>
<TABLE>
<CAPTION>

               A  summary  of  the  changes  in  the  net   deferred  tax  asset
               (liability) for the years ended December 31, 2005 and 2004, is as
               follows:

<S>                                                               <C>                 <C>                 <C>
               Balance at beginning of year                       $   (1,024,406)     $ (1,204,554)       $  (1,281,633)
                  Deferred tax expense, charged to operations            264,520          (104,018)            (231,819)
                  Other comprehensive income, charged to
                     equity                                              795,860           284,166              308,898
                                                                  --------------      ------------        --------------
               Balance at end of year                             $       35,974      $ (1,024,406)       $  (1,204,554)
                                                                  ==============      =============       ==============
</TABLE>
<PAGE>


NOTE M.        SECURITIES SOLD UNDER REPURCHASE AGREEMENTS

               At  December  31,  2005 and  2004,  the  Bank  had  sold  various
               investment  securities  with an  agreement  to  repurchase  these
               securities  at  various  times  within one year.  The  underlying
               securities are U.S.  Government  obligations  and  obligations of
               other U.S. Government agencies and corporations. These securities
               generally  remain  under the Bank's  control and are  included in
               investment securities. These securities have coupon rates ranging
               from  3.219% to 7.00% and  maturity  dates  ranging  from 2013 to
               2029.  The related  liability  to  repurchase  these  securities,
               included in  securities  sold under  repurchase  agreements,  was
               $8,032,721   and  $8,103,381  at  December  31,  2005  and  2004,
               respectively. The maximum amount of outstanding agreements at any
               month-end was $ 8,932,200 and  $11,080,516  during 2005 and 2004,
               respectively.  The monthly average amount outstanding  agreements
               was   $7,527,541   and   $10,022,995   during   2005  and   2004,
               respectively. At December 31, 2005, the securities underlying the
               repurchase  agreements  had  an  approximate  amortized  cost  of
               $9,392,755 and an approximate market value of $ 9,170,640.


NOTE N.        REGULATORY MATTERS

               The  primary  source  of  revenue  of  Britton  & Koontz  Capital
               Corporation  is dividends from its  subsidiary,  Britton & Koontz
               Bank, N.A. Federal banking regulations place certain restrictions
               on dividends  paid and loans or advances  made by the Bank to the
               Company.  Any such  distribution  is subject to the  requirements
               described in the following paragraphs.

               In accordance with Office of Thrift  Supervision  regulations,  a
               special  "Liquidation  Account"  has  been  established  for  the
               benefit of certain Qualifying Depositors of Natchez First Federal
               Savings Bank  (acquired by the Bank in 1993) in an initial amount
               of approximately $2.8 million.  The Liquidation Account serves as
               a restriction on the distribution of stockholders'  equity in the
               Bank and no cash dividend may be paid on its capital stock if the
               effect  thereof would be to cause the  regulatory  capital of the
               Bank  to be  reduced  below  an  amount  equal  to  the  adjusted
               Liquidation Account balance.

               In  the  event  of a  complete  liquidation  of  the  Bank,  each
               Qualifying  Depositor  would be  entitled  to his or her pro rata
               interest in the  Liquidation  Account.  Such claims would be paid
               before  payment to Britton & Koontz  Capital  Corporation  as the
               Bank's sole  shareholder.  A merger,  consolidation,  purchase of
               assets and  assumption of deposits  and/or other  liabilities  or
               similar transaction, with an FDIC-insured institution,  would not
               be  a  complete   liquidation  for  the  purpose  of  paying  the
               Liquidation  Account.  In  such a  transaction,  the  Liquidation
               Account  would  be  required  to  be  assumed  by  the  surviving
               institution.

               The  Company  and the  Bank are  subject  to  various  regulatory
               capital  requirements  administered by federal banking  agencies.
               Failure to meet minimum capital requirements
<PAGE>


NOTE N.        REGULATORY MATTERS (Continued)

               can  initiate   certain   mandatory   and   possibly   additional
               discretionary  actions by regulators  that, if undertaken,  could
               have a  direct  material  effect  on  the  Company's  and  Bank's
               financial  statements.  Under capital adequacy guidelines and the
               regulatory  framework for prompt corrective  action,  the Company
               and the Bank must meet specific  capital  guidelines that involve
               quantitative measures of their assets,  liabilities,  and certain
               off-balance-sheet items as calculated under regulatory accounting
               practices.  The  capital  amounts  and  classification  are  also
               subject  to  qualitative   judgments  by  the  regulators   about
               components, risk weightings, and other factors. Prompt corrective
               action provisions are not applicable to bank holding companies.

               Quantitative measures established by regulation to ensure capital
               adequacy  require the  Company  and the Bank to maintain  minimum
               amounts  and  ratios  (set  forth in the  table  below)  of total
               capital and Tier I capital to risk-weighted  assets and of Tier I
               capital to average assets.  Management  believes,  as of December
               31, 2005 and 2004, that the Company and the Bank meet all capital
               adequacy requirements to which they are subject.

               The most recent regulatory  notification  categorized the Bank as
               well  capitalized  under the  regulatory  capital  framework  for
               prompt corrective action. There are no conditions or events since
               that  notification  that  management  believes  have  changed the
               Bank's category.

               The  Company's  (consolidated)  and  the  Bank's  actual  capital
               amounts  and  ratios  as of  December  31,  2005  and  2004,  are
               presented in the table.
<TABLE>
<CAPTION>

                                                                                                Minimum
                                                                                               To be Well
                                                                     Minimum                Capitalized Under
                                                                     Capital                Prompt Corrective
                                         Actual                    Requirement              Action Provisions
                                 -----------------------   -------------------------    ------------------------
                                   Amount        Ratio        Amount         Ratio        Amount         Ratio
                                 -----------    --------   -----------      --------    -----------    ---------
                                                                 (dollars in thousands)
As of December 31, 2005
-----------------------
<S>                              <C>             <C>        <C>              <C>        <C>            <C>
Total Capital (to Risk-
    Weighted Assets)
       Consolidated              $   38,770      14.44%     $  21,476         8.00%          N/A          N/A
       The Bank                  $   36,423      13.58%     $  21,457         8.00%      $  26,821       10.00%
Tier I Capital (to Risk-
    Weighted Assets)
       Consolidated              $   36,392      13.55%     $  10,741         4.00%          N/A           N/A
       The Bank                  $   34,045      12.70%     $  10,723         4.00%      $  16,084        6.00%
Tier I Capital (to Average
    Assets)
       Consolidated              $   36,392       9.31%     $  15,635         4.00%          N/A           N/A
       The Bank                  $   34,045       8.63%     $  15,780         4.00%      $  19,725        5.00%


</TABLE>
<PAGE>
<TABLE>
<CAPTION>

NOTE N.        REGULATORY MATTERS (Continued)
                                                                                                Minimum
                                                                                               To be Well
                                                                     Minimum                Capitalized Under
                                                                     Capital                Prompt Corrective
                                         Actual                    Requirement              Action Provisions
                                 -----------------------   -------------------------    ------------------------
                                   Amount        Ratio        Amount         Ratio        Amount         Ratio
                                 -----------    --------   -----------      --------    -----------    ---------
                                                                 (dollars in thousands)
As of December 31, 2004
-----------------------
<S>                              <C>             <C>        <C>               <C>       <C>            <C>
Total Capital (to Risk-
    Weighted Assets)
       Consolidated              $   36,754      15.43%     $  19,061         8.00%          N/A           N/A
       The Bank                  $   34,836      14.64%     $  19,036         8.00%      $  23,796       10.00%
Tier I Capital (to Risk-
    Weighted Assets)
       Consolidated              $   34,517      14.49%     $   9,530         4.00%          N/A           N/A
       The Bank                  $   32,599      13.70%     $   9,518         4.00%      $  14,277        6.00%
Tier I Capital (to Average
    Assets)
       Consolidated              $   34,517       9.23%     $  14,954         4.00%          N/A           N/A
       The Bank                  $   32,599       8.69%     $  14,999         4.00%      $  18,749        5.00%


</TABLE>

NOTE O.        COMMITMENTS AND CONTINGENCIES

               The   Bank   is   a   party   to   financial   instruments   with
               off-balance-sheet  risk  entered  into in the  normal  course  of
               business  to meet the  financing  needs of its  customers.  These
               financial  instruments  include  commitments to extend credit and
               standby  letters  of  credit,  which  are  not  included  in  the
               accompanying consolidated financial statements.

               Commitments  to extend  credit are  agreements to lend money with
               fixed expiration dates or termination  clauses.  The Bank applies
               the  same  credit  standards  used in the  lending  process  when
               extending  these  commitments,  and  periodically  reassesses the
               customer's creditworthiness through ongoing credit reviews. Since
               many of the  commitments  are  expected to expire  without  being
               drawn  upon,  the total  commitment  amounts  do not  necessarily
               represent future cash requirements.  Collateral is obtained based
               on the Bank's assessment of the transaction. At December 31, 2005
               and  2004,  the  Bank's  commitments  to  extend  credit  totaled
               $82,642,254 and $40,701,179, respectively.

               Standby letters of credit are conditional  commitments  issued by
               the Bank to guarantee  the  performance  of a customer to a third
               party. The credit risk and collateralization policy

<PAGE>

NOTE O.        COMMITMENTS AND CONTINGENCIES (Continued)

               involved in issuing  letters of credit is essentially the same as
               that involved in extending loans to customers. The Bank had total
               unfunded  letters of credit of  $2,389,797  and  $2,128,583 as of
               December 31, 2005 and 2004, respectively.

               The Bank is required to maintain  average reserves at the Federal
               Reserve Bank. This requirement  approximated $275,000 at December
               31, 2005. The Bank is in compliance with this requirement.

               At  December   31,   2005,   the  Bank  had   committed  to  sell
               approximately  $171,000 of loans originated near year-end.  These
               loans are  classified as loans  held-for-sale  and are carried at
               the  lower  of cost  or  market.  Due to the  short  period  from
               origination,  the  cost and  market  value  of  these  loans  are
               approximately the same.

               The Bank has  outstanding  lines of credit  with  several  of its
               correspondent  banks  available  to assist in the  management  of
               short-term  liquidity.  At December 31, 2005, the total available
               lines of credit were $39,500,000 with an outstanding balance of $
               -0- as reflected on the consolidated balance sheet.

               Britton  &  Koontz  Capital  Corporation  and  its  wholly  owned
               subsidiaries,  the Bank and B&K Title Insurance Agency, Inc., are
               involved in certain  litigation  incurred in the normal course of
               business.  In  the  opinion  of  management  and  legal  counsel,
               liabilities  arising from such claims,  if any,  would not have a
               material  effect  upon  the  Company's   consolidated   financial
               statements.

NOTE P.        CONCENTRATIONS OF CREDIT

               Substantially all of the Bank's loans,  commitments,  and standby
               letters of credit have been  granted to  customers  in the Bank's
               market area.  The majority of  investments in state and municipal
               securities involve governmental entities in and around the Bank's
               market area. The concentrations of credit by type of loan are set
               forth in Note C. The distribution of commitments to extend credit
               approximates  the  distribution  of  loans  outstanding.  Standby
               letters of credit are granted primarily to commercial borrowers.

               The Bank maintains  deposit  accounts and federal funds sold with
               correspondent banks which may, periodically, exceed the federally
               insured amount.

NOTE Q.        DIVIDENDS

               The Bank paid  dividends to the Company  amounting to  $2,100,000
               and $1,700,000 for the years 2005 and 2004, respectively.


<PAGE>


NOTE R.        INTEREST RATE RISK MANAGEMENT

               During 2002, the Bank entered into an off-balance  sheet interest
               rate swap  agreement  to  reduce  its  interest-rate  risk and to
               decrease its costs of funds for special deposit promotions. Under
               the terms of this  agreement,  the Bank receives a fixed rate and
               is obligated to pay a

               floating rate based on Prime calculated on a contractual notional
               amount of $5,000,000  at December 31, 2005.  The original term is
               for five years  expiring in May 2007.  The fixed payment rate was
               7.635% during 2005. The average  variable-payment  rate was 6.27%
               at December 31, 2005.  The  collateral at December 31, 2005, is a
               Federal Home Loan Mortgage investment. The carrying amount of the
               swap  has  been   adjusted   to  its  fair   value  at   year-end
               approximating  $415 and is included in other assets.  The swap is
               assumed to be completely effective, and accordingly,  is reported
               as other comprehensive income.

NOTE S.        FAIR VALUE OF FINANCIAL INSTRUMENTS

               The fair value of a financial  instrument  is the current  amount
               that would be exchanged between willing parties,  other than in a
               forced  liquidation.  Fair  value is best  determined  based upon
               quoted market prices.  However,  in many instances,  there are no
               quoted  market  prices  for  the  Company's   various   financial
               instruments.   In  cases  where  quoted  market  prices  are  not
               available, fair values are based on estimates using present value
               or other valuation techniques. Those techniques are significantly
               affected by the assumptions used, including the discount rate and
               estimates  of future  cash  flows.  Accordingly,  the fair  value
               estimates  may not be realized in an immediate  settlement of the
               instrument.  FASB  Statement No. 107 excludes  certain  financial
               instruments and all nonfinancial  instruments from its disclosure
               requirements.  Accordingly,  the  aggregate  fair  value  amounts
               presented may not necessarily represent the underlying fair value
               of the Company.

               The following methods and assumptions were used by the Company in
               estimating fair value disclosures for financial instruments:

               Cash and Due From Banks - Fair value equals the carrying value of
               such assets.

               Federal Funds Sold - Due to the short-term  nature of this asset,
               the carrying value of this item approximates its fair value.

               Investment Securities - Fair values for investment securities are
               based on quoted market prices, where available.  If quoted market
               prices are not available,  fair values are based on quoted market
               prices of comparable instruments.

               Cash  Surrender  Value of Life Insurance - The fair value of this
               item approximates its carrying value.

               Loans,  Net  -  For  variable-rate   loans  which  are  repricing
               immediately,  fair  values are based on  carrying  values.  Other
               variable-rate  loans,  fixed-rate  commercial loans,  installment
               loans, and mortgage loans are valued using discounted cash flows.
               The discount rates used

<PAGE>

NOTE S.    FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

               to  determine  the  present  value of these  loans  are  based on
               interest rates  currently being charged by the Bank on loans with
               comparable credit risk and terms.

               Deposits - The fair  values of demand  deposits  are equal to the
               carrying  value  of  such  deposits.   Demand  deposits   include
               non-interest  bearing  demand  deposits,  savings  accounts,  NOW
               accounts, and money market demand accounts. Discounted cash flows
               have been used to value fixed rate term  deposits.  The  discount
               rate used is based on interest rates  currently  being offered by
               the Bank on deposits with comparable amounts and terms.

               Long-Term Borrowings - The fair values of the Company's long-term
               borrowings  are  estimated  using  discounted  cash flow analysis
               based on the Company's  current  incremental  borrowing ratio for
               similar types of borrowing arrangements.

               Federal Funds  Purchased  and  Securities  Sold Under  Repurchase
               Agreements  - The fair value of these  items  approximates  their
               carrying values.

               Off-Balance  Sheet  Instruments - Loan commitments are negotiated
               at current market rates and are relatively  short-term in nature.
               Therefore,  the estimated value of loan commitments  approximates
               the face amount. Fair values for interest rate swaps and caps are
               based on quoted market prices where  available.  If quoted market
               prices are not available,  fair values are based on quoted market
               prices of comparable instruments.

               The estimated fair values of the Company's financial instruments,
               rounded to the nearest thousand, are as follows:
<TABLE>
<CAPTION>


                                                            2005                               2004
                                                   ---------------------              ----------------------
                                                   Carrying       Fair                Carrying        Fair
                                                    Amount        Value                Amount         Value
                                                   --------     --------              --------      --------
                                                   (Dollars in Thousands)             (Dollars in Thousands)
     Financial Assets:
<S>                                                <C>           <C>                   <C>           <C>
       Cash and due from banks                     $  9,825      $  9,825              $  6,577      $  6,577
       Federal funds sold                          $    401      $    401              $    109      $    109
       Investment securities:
          Held-to-maturity                         $ 37,994      $ 39,016              $ 39,804      $ 41,338
          Available-for-sale                       $ 78,287      $ 78,287              $ 91,947      $ 91,947
          Equity securities                        $  5,502      $  5,502              $  5,552      $  5,552
       Cash surrender value of
          life insurance                           $    936      $    936              $    943      $    943
       Loans, net                                  $242,705      $240,119              $218,762      $218,612

     Financial Liabilities:
       Deposits                                    $257,377      $256,493              $226,288      $226,118
       Short-term borrowings                       $ 36,310      $ 35,955              $ 42,000      $ 42,010

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NOTE S.    FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

                                                            2005                               2004
                                                   ---------------------              ----------------------
                                                   Carrying       Fair                Carrying        Fair
                                                    Amount        Value                Amount         Value
                                                   --------     --------              --------      --------
                                                   (Dollars in Thousands)             (Dollars in Thousands)

<S>                                                <C>           <C>                   <C>           <C>
       Long-term borrowings                        $ 47,886      $ 47,263              $  54,923     $ 54,737
       Federal funds purchased                            -             -              $   6,435     $  6,435
       Securities sold under
          repurchase agreements                    $  8,033      $  8,033              $   8,103     $  8,103
       Junior subordinated debentures              $  5,155      $  5,155              $   5,155     $  5,155


                                                     Face          Fair                  Face           Fair
                                                    Amount         Value                Amount          Value
                                                   --------      --------               -------      --------
     Other:
       Commitments to extend credit                $ 82,642      $ 82,642              $  40,701     $ 40,701
       Standby letters of credit                   $  2,390      $  2,390              $   2,129     $  2,129
       Interest rate swap                          $      -      $      -              $     152     $    152


</TABLE>

<PAGE>
<TABLE>
<CAPTION>


NOTE T.        CONDENSED FINANCIAL INFORMATION OF
                 BRITTON & KOONTZ CAPITAL CORPORATION

               The   financial   information   of   Britton  &  Koontz   Capital
               Corporation, parent company only, is as follows:

                                 BALANCE SHEETS
                                                                                             December 31,
                                                                                       2005                 2004
                                                                                  ---------------    ---------------
               ASSETS:
<S>                                                                               <C>                <C>
                  Cash                                                            $     1,942,459    $     1,508,691
                  Investment in subsidiaries                                           34,199,317         34,496,996
                  Premises and equipment, net                                                   -                  -
                  Other assets                                                            279,971            305,977
                                                                                  ---------------    ---------------
               TOTAL ASSETS                                                       $    36,421,747    $    36,311,664
                                                                                  ===============    ===============

               LIABILITIES:

                  Junior subordinated debentures                                  $     5,155,000    $     5,155,000
                  Other liabilities                                                         6,589              4,896
                                                                                  ---------------    ---------------
               TOTAL LIABILITIES                                                        5,161,589          5,159,896

               STOCKHOLDERS' EQUITY                                                    31,260,158         31,151,768
                                                                                  ---------------    ---------------
               TOTAL LIABILITIES AND STOCKHOLDERS'
                  EQUITY                                                          $    36,421,747    $    36,311,664
                                                                                  ===============    ===============
</TABLE>

<TABLE>
<CAPTION>

                              STATEMENTS OF INCOME

                                                                                 Years Ended December 31,
                                                                        2005               2004              2003
                                                                  ---------------    --------------     ---------------
<S>                                                               <C>                <C>                <C>
               REVENUE:
                  Dividends Received:
                     Britton & Koontz Bank, N.A.                  $     2,100,000    $    1,700,000     $    2,000,000
                  Other income                                             18,592             4,671             13,005
                                                                  ---------------    --------------     ---------------
                                                                        2,118,592         1,704,671          2,013,005
               EXPENSES                                                   414,355           310,563            353,056
                                                                  ---------------    --------------     ---------------
                                                                        1,704,237         1,394,108          1,659,949
               INCOME TAX EXPENSE (BENEFIT)                              (162,090)         (123,354)          (142,553)
                                                                  ----------------   ---------------    ---------------
                                                                        1,866,327         1,517,462          1,802,502
               EQUITY IN UNDISTRIBUTED
                  EARNINGS:
                     Britton & Koontz Bank, N.A.                        1,337,909         1,308,982            890,028
                     B & K Title Insurance Agency, Inc.                    23,404            17,765             46,224
                                                                  ---------------    --------------     --------------
                            NET INCOME                            $     3,227,640    $    2,844,209     $    2,738,754
                                                                  ===============    ==============     ==============

</TABLE>
<PAGE>
<TABLE>
<CAPTION>


NOTE T.        CONDENSED FINANCIAL INFORMATION OF
                  BRITTON & KOONTZ CAPITAL CORPORATION (Continued)


                            STATEMENTS OF CASH FLOWS

                                                                                       Years Ended December 31,
                                                                              2005               2004              2003
                                                                       ----------------      -------------   ------------

               CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                    <C>                   <C>             <C>
                  Net Income                                           $     3,227,640       $  2,844,209    $   2,738,754
                  Adjustments to reconcile net income to net
                     cash provided by operating activities:
                         Provision for depreciation                                  -                  -            1,565
                        Equity on undistributed earnings
                            and losses of affiliates                        (1,361,313)        (1,326,747)        (936,252)
                  (Increase) decrease in other assets                           26,006            (53,741)         (73,399)
                  Increase in other liabilities                                  1,693              1,184            3,712
                                                                       ----------------      -------------   --------------
                            Net Cash Provided by Operating Activities        1,894,026          1,464,905        1,734,380
                                                                       ----------------      -------------   --------------
               CASH FLOWS FROM INVESTING ACTIVITIES:
                  Advances to subsidiaries                                           -                  -       (5,000,000)
                  Transfer of bank premises to subsidiary                            -            188,038                -
                                                                       ----------------      -------------   --------------
                            Net Cash Provided by (Used in) Investing
                              Activities                                             -            188,038       (5,000,000)
                                                                       ----------------      -------------   --------------

               CASH FLOWS FROM FINANCING ACTIVITIES:
                  Proceeds from issuance of junior subordinated
                     debentures                                                      -                  -        5,155,000
                  Cash dividends paid                                       (1,460,258)        (1,353,409)      (1,352,375)
                  Cash received from stock options exercised                         -             36,778                -
                                                                       ----------------      -------------   --------------
                            Net Cash Provided by (Used in)
                               Financing Activities                         (1,460,258)        (1,316,631)       3,802,625
                                                                       ----------------      -------------   --------------

               NET INCREASE (DECREASE) IN CASH                                 433,768            336,312          537,005
               CASH AT BEGINNING OF YEAR                                     1,508,691          1,172,379          635,374
                                                                       ---------------       ------------    --------------
               CASH AT END OF YEAR                                     $     1,942,459       $  1,508,691    $   1,172,379
                                                                       ===============       ============    ==============


</TABLE>

<PAGE>

   Management's Discussion  and Analysis of Financial  Condition  and Results of
               Operations As of December 31, 2005, 2004 and 2003

             This  discussion  presents a review of the major  factors that have
affected the financial condition,  changes in financial condition and results of
operations  of Britton & Koontz  Capital  Corporation  (the  "Company")  and its
subsidiaries,  principally  Britton & Koontz Bank,  N.A. (the  "Bank"),  for the
three years ended December 31, 2005.

Summary

             During the past three years,  the Company has  emphasized  loan and
deposit growth and control and reduction of personnel expenses;  and the Company
has devoted  considerable  efforts to consolidate and realign  branches and Bank
premises.  The Company ended 2003 with ten locations and 149 employees and ended
2004 with six locations and 131 full-time  equivalents.  During 2005, management
continued its efforts to streamline  operations  and strengthen its share in all
markets.   The  Company   ended  2005  with  six  locations  and  107  full-time
equivalents.  While all of the Company's  markets have shown growth in loans and
deposits  since 2003,  the Baton  Rouge,  Louisiana  market has had  significant
growth during this period in both areas showing approximately 37% and 11% growth
in loans and deposits, respectively.

             In 2005, the Company reported net income of $3.2 million,  or $1.52
per diluted share,  representing a 13% increase over the $2.8 million,  or $1.34
per diluted share, reported at December 31, 2004 and 18% growth compared to $2.7
million,  or $1.29 per diluted share,  reported at December 31, 2003. The annual
increase from 2004 occurred even as 2005 fourth  quarter net income  declined to
$660 thousand or, $0.31 per diluted share,  compared to $820 thousand,  or $0.39
per diluted share,  during the fourth quarter of 2004.  Return on average equity
for the years 2005, 2004 and 2003 was 10.30%, 9.22% and 9.08%, respectively.

             Decreased  earnings  in the final  quarter of 2005  compared to the
same  period in 2004 were  primarily  attributable  to  expenses  related to the
Company's  offer of a voluntary  separation  package to employees with specified
years of service.  If these additional  costs were excluded,  net income for the
fourth  quarter of 2005  would  have been  approximately  $926  thousand,  a 13%
increase  over the fourth  quarter of 2004.  Comparing  the full year of 2005 to
2004,  net  income  increased  $383  thousand  due in part to lower  salary  and
benefits  of  $172  thousand.   Other  factors   contributing  to  the  improved
performance  included  higher  net  interest  income and lower  overall  general
operating expenses.

             In 2005,  the  Company  experienced  growth  in its loan  portfolio
primarily  from areas  pertaining  to business and  industrial  commercial  real
estate,  including  residential land development and construction  loans and 1-4
family residential  mortgage loans.  Throughout 2005, the Company operated in an
environment  where  short-term  rates  continued to move upward while  long-term
rates stayed the same or fell,  thus creating a flat yield curve.  This scenario
contributed to the decline in net interest margin to 3.66% at December 31, 2005,
from 3.76% at December 31, 2004, and 4.13% at December 31, 2003. While declining
margins were  prevalent  throughout the industry,  management  believes that the
growth in loans during 2005 helped offset the negative effects associated with a
flat yield curve and actually  slowed margin  compression.  Another major factor
that  aided  in  preventing  additional  declines  in net  interest  margin  and
stabilizing   net  interest  margin  was  the  29%  increase  in  the  Company's
non-interest bearing deposits since December 31, 2004.

             During the year,  the  Company  moved from a  semi-annual  dividend
payment to a  quarterly  payment to put the Company  more in line with  dividend
payment practices of other public companies. Dividends paid out in 2005 amounted
to $0.69 per share,  which  represents a 7.8%  increase over  dividends  paid in
2004. The total payout ratio in 2005 was 45.3% of earnings  compared to 47.6% in
2004 and 49.4% in 2003.

             Since 2004,  the Company has emphasized  strategic  hiring of front
line  personnel,  closed and sold poorly located  facilities  acquired in recent
acquisitions,  and upgraded  operations  and existing  branches.  As the Company
moves into 2006, it is confident that benefits from these efforts will continue.
Having reduced the level of operating  expenses  during the past two years,  the
Company believes that it is ready to take advantage of the growth  opportunities
in its existing markets.
<PAGE>

Financial Condition

   Assets

             Total assets increased 3%, or $11.9 million,  during 2005 to $389.3
million from $377.4 million at December 31, 2004. Growth in assets was primarily
due to  increases  in loans held for  investment,  net of unearned  interest and
allowance  for loan  losses  of $25.5  million,  offset by  reductions  of $15.5
million in  investment  securities.  Asset  growth was  hindered due to the flat
yield curve as investment cash flows were re-directed into loans and paydowns of
Federal Home Loan Bank ("FHLB") advances.

             Average  Earning  Assets.   Interest  income  from  earning  assets
represents the Company's main source of revenue.  Average earning assets for the
period ended December 31, 2005,  totaled  $370.6  million,  a $16.6 million,  or
4.7%,  increase  compared to December 31,  2004.  The increase was made up of an
$18.5  million,  or 8.5%,  increase in average loans offset by reductions in the
average  investment  portfolio.  Growth in  average  earning  assets  was funded
primarily with increases in customer and brokered deposits.

             Investment  Securities.  Investment securities primarily consist of
mortgage-backed, municipal, corporate and agency securities. Securities that are
deemed to be  held-to-maturity  ("HTM") are accounted for by the amortized  cost
method and represent approximately 31% of total securities at December 31, 2005.
Those securities designated available-for-sale ("AFS") are accounted for at fair
value and represent  approximately 64% of the total at December 31, 2005. Equity
securities   account  for  the   remaining   5%.   Management   determines   the
classification  of its  securities  at  acquisition.  While  average  securities
decreased  from  2004 to  2005  only  slightly,  total  HTM  and AFS  investment
securities  fell by $15.5  million,  or 12%, to $116.3  million at December  31,
2005,  from $131.8  million at December 31, 2004.  The flat yield curve hindered
re-investment in the market; also, cash flows from investments were used to fund
new loan growth.  Equity  securities are comprised  primarily of Federal Reserve
Bank stock of $522  thousand,  FHLB stock of $4.7 million,  the  Company's  $155
thousand  interest  in its B&K Bank  Statutory  Trust and ECD  Investments,  LLC
("ECD")  membership  interests  of $100  thousand.  These  securities  fell  $50
thousand to $5.5 million in 2005 from $5.6 million in 2004,  due to purchases of
FHLB stock early in the year and a mandatory redemption of $603 thousand of FHLB
stock in the third quarter of 2005, after stock requirements were recalculated.

             The amortized cost of the Bank's investment  securities at December
31, 2005, 2004 and 2003, are summarized as follows:
<TABLE>
<CAPTION>

                                                                   Amortized Cost
                                                  -------------------------------------------------
                                                     12/31/05          12/31/04          12/31/03
                                                  -------------------------------------------------
<S>                                               <C>                <C>               <C>
    Obligations of other U.S. Government
       Agencies and Corporations                   $ 82,864,118      $ 94,369,933      $ 95,312,108
    Obligations of State and
       Political Subdivisions                        34,904,765        35,321,401        34,834,072
    Privately Issued Collateralized
       Mortgage Obligations                             127,770           173,419           296,220
    Corporate Securities                                      -         1,007,752         4,033,806
                                                  =============     =============     =============
                                                  $ 117,896,653     $ 130,872,505     $ 134,476,206
                                                  =============     =============     =============
</TABLE>

             The amortized  cost of investment  securities at December 31, 2005,
by contractual  maturity  (including mortgage backed securities) is shown below.
Expected maturities may differ from contractual maturities because borrowers may
have the right to call or prepay  obligations with or without call or prepayment
penalties.  Yields on tax-exempt  municipal  securities  have been computed on a
book  equivalent  basis  which  takes into  account  the coupon rate paid by the
issuer  adjusted  by any  premium  paid or  discount received on the security at
settlement date.


                                                 Amortized         Weighted
                                                    Cost        Average Yield
                                              --------------   ---------------
 Due in one year or less                      $     220,450         6.869%
 Due after one year through five years           12,957,050         4.580%
 Due after five years through ten years          60,268,270         4.857%
 Due after ten years                             44,450,883         5.820%
                                              -------------
                                              $ 117,896,653         5.196%
                                              =============    ==============

             Loans.  Loans  represent the Company's  largest  source of revenue.
Total  loans for the year ended  December  31,  2005,  were $245.1  million,  an
increase of $24.1 million compared to the year ended December 31, 2004.  Average
loans increased $18.5 million, or 8.5%, to $236.8 million at December 31, 2005

<PAGE>


compared to $218.3  million at December 31, 2004. The Company  experienced  loan
growth mostly in its Natchez,  Mississippi  and Baton Rouge,  Louisiana  markets
where loan demand in the small business  sector has been brisk and the Company's
lending staff has been  especially  successful in attracting  new business.  The
Vicksburg   market  ended  December  31,  2005,   with  $51  million  in  loans,
representing  21% of the  portfolio.  The Baton Rouge market ended the year with
$59 million in loans,  representing  24% of the  portfolio,  while the  majority
(55%) of the remaining  portfolio  was in the Natchez area.  Growth in loans was
funded by operating activities,  excess cash flows as investment securities paid
down and a portion of the Company's  increase in deposits.  Table 1 presents the
Bank's  loan  portfolio  at the end of the last five  years.  The Company has no
foreign loan activities.
<TABLE>
<CAPTION>


     TABLE 1: COMPOSITION OF LOAN PORTFOLIO

                                  12/31/05         12/31/04        12/31/03          12/31/02        12/31/01
                               ---------------------------------------------------------------------------------
<S>                            <C>              <C>             <C>               <C>              <C>
   Commercial, financial and
       agricultural            $ 32,868,000     $  31,589,000   $  31,853,000     $  34,264,000    $  38,101,000
   Real estate-construction       30,069,000       18,360,000      14,690,000         7,207,000        6,066,000
   Real estate-residential        76,818,000       73,277,000      78,128,000        65,624,000       63,379,000
   Real Estate-other              92,545,000       83,297,000      70,729,000        61,660,000       59,729,000
   Installment                    12,478,000       14,229,000      14,195,000        15,881,000       17,759,000
   Other                             306,000          249,000         102,000           170,000          117,000
                               -------------    -------------   -------------     -------------    -------------
       Total loans             $ 245,084,000    $ 221,001,000   $ 209,697,000     $ 184,806,000    $ 185,151,000
                               =============    =============   =============     =============    =============
</TABLE>

             The following table sets forth as of December 31, 2005, the periods
in which the Bank's  commercial,  financial and agricultural  loans and its real
estate-construction  loans  mature or reprice  and the total  amount of all such
loans  due  after  one year  having  (a)  predetermined  interest  rates and (b)
floating or adjustable  rates. Loan maturities are based upon contract terms and
specific  maturity dates.  Loans with balloon payments and longer  amortizations
are often  repriced  and  extended  beyond  the  initial  maturity  when  credit
conditions remain satisfactory.
<TABLE>
<CAPTION>
                                                                   Due after
                                                   Due in          one year
                                                   one year        through          Due after
                                                  or less          five years       five years         Total
                                               ---------------  --------------    --------------   --------------
<S>                                            <C>              <C>               <C>              <C>
Commercial, financial and agricultural         $   30,802,000   $    2,066,000    $            -   $   32,868,000
  Real estate-construction                         12,394,000       12,892,000         4,783,000       30,069,000
                                               ---------------  --------------    --------------   --------------
        Total                                  $   43,196,000   $   14,958,000    $    4,783,000   $   62,937,000
                                               ===============  ==============    ==============   ==============

Predetermined interest rates                                    $    7,853,000    $    2,569,000
                                                                ==============    ==============
Floating or adjustable interest rates                           $    7,105,000    $    2,214,000
                                                                ==============    ==============
</TABLE>


Asset Quality

             Management  periodically  analyzes the  diversification of the loan
portfolio and the repayment ability of borrowers.  When it appears to management
that the Company will have trouble recapturing all outstanding  principal and/or
interest on a loan or loan relationship,  the debt is placed on non-accrual.  By
placing loans on non-accrual the Company  recognizes a problem credit,  foregoes
interest that is likely  uncollectible,  and adjusts the carried loan balance to
reflect the collection amount expected.  When problem credits are transferred to
non-accrual  status,  the accrual of  interest  income is  discontinued  and all
previously  accrued and  uncollected  interest for the year is reversed  against
interest income. A non-accrual loan may be restored to accrual status when it is
no longer  delinquent  and  management  no longer doubts the  collectibility  of
interest and principal.

             Several key measures are used to evaluate and monitor the Company's
asset  quality.  These  measures  include  the levels and  percentages  of total
nonperforming assets, loan delinquencies,  non-accrual loans,  foreclosed assets
and charge-offs. Nonperforming assets, consisting of non-accrual loans, loans

<PAGE>


past due 90 days or more and other real estate owned,  increased to $2.7 million
at December  31, 2005,  from $2.2  million at December 31, 2004.  Non-performing
assets  as a  percent  of  average  assets  increased  slightly  to .70% in 2005
compared to .59% in 2004.  Nonperforming  loans as a percent of total loans, net
of unearned  income and loans held for sale,  increased  to .51% at December 31,
2005,  from .41% the year before.  Net charge-offs for the year declined for the
3rd straight year. Net  charge-offs as a percent of average loans decreased from
..10% at December 31, 2004, to .07% at December 31, 2005.

             At December 31, 2005,  overall credit quality has remained  stable.
The  increase  in total  non-performing  assets  is due  primarily  to one large
commercial credit in the amount of $524 thousand.  In the opinion of management,
the overall size of this credit is immaterial,  and specific  reserves have been
set aside for the  unsecured  portion  of the  credit as well as any  unforeseen
shortfalls.  A breakdown of  nonperforming  loans at the end of each of the last
five years is shown in Table 2.
<TABLE>
<CAPTION>

     TABLE 2: BREAKDOWN OF NONPERFORMING LOANS

                                           12/31/05      12/31/04       12/31/03      12/31/02      12/31/01
                                         ----------    ----------     ----------    ----------    ----------
                                                        (dollars in thousands)
    Non-accrual loans by type
<S>                                       <C>           <C>            <C>           <C>            <C>
      Real estate                         $     413     $     532      $     584     $   1,513      $    750
      Installment                                72            26             20            16            86
      Commercial and all other loans            574           214            580           537           449
                                         ----------    ----------     ----------    ----------     ----------
          Total non-accrual loans             1,059           772          1,184         2,066         1,285
      Loans past due 90 days or more            201           129            337           253         1,510
                                         ----------    ----------     ----------    ----------     ----------
          Total nonperforming loans           1,260           901          1,521         2,319         2,795
          Other real estate owned (net)       1,471         1,320          1,741         1,554         1,526
                                         ----------    ----------     ----------    ----------     ----------
          Total nonperforming assets      $   2,731     $   2,221      $   3,262     $   3,873      $  4,321
                                         ==========    ==========     ==========    ==========     ==========
    Nonperforming loans as a percent
      of loans, net of unearned interest
      and loans held for sale                  .51%          .41%           .74%         1.29%         1.56%
                                         ==========    ==========     ==========    ==========     ==========
    Additional interest income foregone
       on non-accrual loans               $      24     $      38      $      28     $     141      $    167
                                         ==========    ==========     ==========    ==========     ==========
</TABLE>

             There were no loans in any of the reported periods above classified
as  "troubled  debt   restructurings"  as  defined  in  Statement  of  Financial
Accounting  Standards No. 15,  "Accounting by Debtors and Creditors for Troubled
Debt  Restructuring."  Management  was not  aware of other  loans,  or any other
interest-bearing  asset, not already specifically reserved for, that the Company
had serious  doubts as to the ability of the borrower to comply with the present
repayment terms.

             No other interest-bearing assets held by the Company are classified
as  non-accrual  or past due 90 days or more.  The Company  continues to monitor
securities  issued by  municipalities on the Mississippi Gulf Coast, as reported
in the Company's 10-Q dated  September 30, 2005 under Item 3,  Quantitative  and
Qualitative Disclosures About Market Risk.

Allowance for Loan Losses

             The  allowance  for  loan  losses  is  established  as  losses  are
estimated through a provision for loan losses charged against  operations and is
maintained at a level that management considers adequate to absorb losses in the
loan  portfolio.  The allowance is subject to change as management  re-evaluates
the adequacy of the  allowance on a quarterly  basis.  Management's  judgment in
determining the adequacy of the allowance is inherently  subjective and is based
on  the   evaluation   of  individual   loans,   the  known  and  inherent  risk
characteristics  and size of the loan  portfolios,  the  assessment  of  current
economic and real estate  market  conditions,  estimates of the current value of
underlying collateral, past loan loss experience, review of regulatory authority
examination  reports  and  evaluations  of  specific  loans and  other  relevant
factors.  The Bank risk rates each loan at the initiation of the transaction and
risk ratings are reviewed and changed,  when  necessary,  during the life of the
loan.

<PAGE>

         The allowance consists of specific, general and unallocated components.
The specific component relates to loans that are considered impaired.  Loan loss
reserve factors are multiplied against the balances in each risk rating category
to arrive at the  appropriate  level for the  allowance  for loan losses.  Loans
assigned  higher risk  ratings are  monitored  more closely by  management.  The
general  component of the  allowance  for loan losses  groups loans with similar
characteristics  and allocates a percentage based upon historical losses and the
inherent risks within each category.  The  unallocated  portion of the allowance
reflects management's estimate of probable but undetected losses inherent in the
portfolio;   such  estimates  are  influenced  by   uncertainties   in  economic
conditions,  delays in obtaining information,  including unfavorable information
about a borrower's  financial  condition,  difficulty in identifying  triggering
events that correlate to subsequent  loss rates,  and risk factors that have not
yet  manifested  themselves in loss  allocation  factors.  The  methodology  for
determining  the  adequacy  of the  allowance  for loan  losses is  consistently
applied; however, revisions may be made to the methodology and assumptions based
on historical  information  related to charge-off  and recovery  experience  and
management's evaluation of the current loan portfolio.

             Based upon this evaluation,  management  believes the allowance for
loan losses of $2.4 million at December 31, 2005, which represents .97% of gross
loans  held to  maturity,  is more  than  adequate,  under  prevailing  economic
conditions,  to absorb  probable losses on existing loans. At December 31, 2005,
total reserves included specific reserves of $825 thousand,  general reserves of
$1.1 million and  unallocated  reserves of $494 thousand.  At December 31, 2004,
the allowance for loan losses was $2.2 million, or 1.02%, of gross loans held to
maturity,  which was  composed of specific  reserves of $913  thousand,  general
reserves of $836 thousand and unallocated reserves of $451 thousand.

             Table 3 presents the activity in the  allowance for loan losses for
the last five years.  In  establishing  the amounts of  provision  for each year
charged to operating expense,  management uses the basic methodologies described
above.  Table 4  presents  the  allocation  of the  allowance  for  loan  losses
applicable to each loan category for the periods ended December 31, 2005,  2004,
2003 and 2002.  Information  for 2001 is not  included  in Table 4 because  such
information is not available to the Company.
<TABLE>
<CAPTION>

     TABLE 3: ACTIVITY OF ALLOWANCE FOR LOAN LOSSES

                                              12/31/05    12/31/04    12/31/03      12/31/02     12/31/01
                                             ----------  ----------  ----------    ----------   ----------
                                                               (dollars in thousands)

<S>                                          <C>         <C>         <C>           <C>          <C>
Balance at beginning of year                 $   2,237   $   2,070   $   2,129     $   2,108    $   1,884

    Charge-offs:
      Commercial, financial & agricultural         (54)       (108)       (285)         (434)         (97)
      Real Estate-construction                      (0)        (22)         (0)          (11)         (29)
      Real Estate-residential                      (40)        (29)        (37)         (150)         (22)
      Real Estate-other                           (109)        (62)       (419)         (266)          (0)
      Installment and other                        (48)        (47)        (91)         (282)        (249)
    Recoveries:
      Commercial, financial & agricultural          22          23          60            64            7
      Real Estate-residential                       22           0           0            36           12
      Real Estate-other                             14           5          25             0            0
      Installment and other                         34          17          18            39           77
                                             ----------  ----------  ----------    ----------   ----------
    Net (charge-offs) / recoveries                (159)       (223)       (729)       (1,004)        (301)
    Provision charged to operations                300         390         670         1,025          525
                                             ----------  ----------  ----------    ----------   ----------
Balance at end of year                       $   2,378   $   2,237   $   2,070     $   2,129    $   2,108
                                             ==========  ==========  ==========    ==========   ==========
Allowance for loan losses as a percent
    of loans, net of unearned interest
    and loans held for sale                        .97%       1.02%       1.00%         1.18%        1.17%
                                             ==========  ==========  ==========    ==========   ==========
Net charge-offs as a percent of
    average loans                                  .07%        .10%        .36%          .55%         .16%
                                             ==========  ==========  ==========    ==========   ==========

</TABLE>
<PAGE>
<TABLE>
<CAPTION>


     TABLE 4: ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
     (dollars in thousands)

                                                                              Amount as
                                                                           of December 31,
                                                      --------------------------------------------------------
                                                            2005          2004             2003           2002
                                                      ----------    ----------       ----------     ----------
<S>                                                   <C>           <C>              <C>            <C>
  Commercial, financial and
       agricultural                                   $      502    $      452       $      350     $      568
  Real estate-construction                                    77            60               36            140
  Real estate-residential                                    162           149              136            112
  Real Estate-other                                          787           764              811            673
  Installment                                                354           361              151             95
  Other                                                      496           451              586            541
                                                      -----------   ----------       -----------    -----------
       Total loans                                    $    2,378    $    2,237       $    2,070     $    2,129
                                                      ===========   ==========       ===========    ===========

</TABLE>
<TABLE>
<CAPTION>


                                                        Percentage of loans in each category to total loans*
                                                      --------------------------------------------------------
                                                          2005          2004             2003           2002
                                                      ----------    ----------       ----------     ----------
<S>                                                   <C>           <C>              <C>            <C>
  Commercial, financial and
       agricultural                                      13.41%        14.29%           15.19%         18.54%
  Real estate-construction                               12.27          8.31             7.01           3.90
  Real estate-residential                                31.34         33.16            37.26          35.51
  Real Estate-other                                      37.76         37.69            33.73          33.36
  Installment                                             5.09          6.44             6.77           8.59

  Other                                                    .13           .11              .04            .10
                                                      -----------   ----------       -----------    ----------
       Total loans                                      100.00%       100.00%          100.00%        100.00%
                                                      ===========   ==========       ===========    ==========
     *  Includes loans held for sale
</TABLE>


Other Real Estate

             The balance of other real estate (ORE)  increased  $151 thousand to
$1.5 million in 2005 from $1.3 million in 2004.  Activity  during 2005  included
foreclosures  of $624  thousand and  transfers of a closed branch office of $448
thousand, largely offset by proceeds from sales of $887 thousand and write-downs
of $34  thousand.  After closing the  Company's  branch on Florida  Boulevard in
Baton Rouge,  Louisiana,  it was  transferred  to ORE and listed for sale with a
local realtor. The property sold in December 2005.

     TABLE 5: OTHER REAL ESTATE ACTIVITY

        Balance at December 31, 2004                                  $ 1,320
                     Write-downs                            (34)
                     Proceeds from sales                   (887)
                     Foreclosures                         1,072           151
                                                         --------     --------
        Balance at December 31, 2005                                  $ 1,471
                                                                      ========

<PAGE>

Funding

             Deposits.  Deposits are the Company's primary source of funding for
earning assets.  Total deposits ended 2005 at $257.4 million  compared to $226.3
million at December 31, 2004.  Average deposits increased 2.6% from $230 million
at December 31, 2004, to $236 million at December 31, 2005. Non-interest bearing
deposits ended the year at $51.5 million,  a 29% increase over the $39.9 million
at December  31,  2004.  Management  has seen a steady  growth in these low cost
deposits  throughout  the  year;  however,  a  portion  of the  growth in demand
deposits and other core deposits  reflects,  in part,  the effects of Hurricanes
Katrina and Rita. The Company's three markets in Baton Rouge, Louisiana, Natchez
and Vicksburg,  Mississippi  largely  escaped the physical damage of the storms,
but all three  were  centers  of  evacuation  and  relocation.  Interest-bearing
deposits, including time deposits, increased as well in 2005.

             In an effort to keep  interest  costs as low as possible  and still
provide  market  rates to our  customers,  management  utilized  certificate  of
deposit  specials  throughout 2005. These accounts have been successful and have
contributed  toward the growth in  interest-bearing  deposits.  Included in this
category is an increase in brokered  deposits.  Management  uses these  deposits
from time to time as a part of its  liquidity  and funding  plan.  As rates were
rising, the opportunity arose to secure  approximately $10 million in fixed rate
brokered funds.  The terms and rates of these deposits range from 1 year to four
years and 4.25% to 4.60%.  Fees  associated with the deposits are amortized over
the life of the deposits

             During 2004, the Company joined the  Certificate of Deposit Account
Registry Service  ("CDARS"),  an innovative new deposit  placement  service that
helps banks  attract and retain  larger  local  deposits.  Deposits in the CDARS
program  are  federally  insured.  Deposits  at December  31,  2005,  from CDARS
increased to $6.6 million compared to $2.1 million at December 31, 2004.

             Maturities  of  certificates  of  deposits  of  $100,000 or more at
December 31, 2005, and 2004, are summarized below.

                                                12/31/05           12/31/04
                                              -------------     -------------
    Time remaining until maturity:
        Three months or less                   $ 10,061,668      $ 14,385,622
        Over three through six months            11,198,948        13,257,922
        Over six through twelve months           21,735,701        11,775,185
        Over twelve months                       15,523,648        11,874,328
                                               ------------      ------------
                                               $ 58,519,965      $ 51,293,057
                                               ============      ============

             Deposits at December  31, 2005,  and December 31, 2004,  consist of
the following:

                                                 12/31/05           12/31/04
                                              --------------    --------------
Non-interest bearing demand deposits          $  51,466,230     $  39,868,482
Now accounts                                     23,016,487        28,103,197
Money market deposit accounts                    36,516,395        24,974,678
Savings accounts                                 23,032,910        16,490,444
Certificates of deposit                         123,344,888       116,851,128
                                              --------------    --------------
                                              $ 257,376,910     $ 226,287,929
                                              ==============    ==============

                  Borrowings.  Aside from the deposit base described  above, the
Company  utilizes  short and  long-term  borrowings as another  funding  source.
Short-term  borrowings  include overnight  funding through  established lines of
credit  with  correspondent  banks and the FHLB of  Dallas.  Also  included  are
short-term  advances  maturing  in one year or less  from the FHLB,  along  with
customer repurchase agreements.  The Company's short-term funding base decreased
$12.2  million to $44.3  million at December  31,  2005,  from $56.5  million at
December 31, 2004, due primarily to increases in deposits.  Long-term borrowings
are advances  from the FHLB with a maturity  date greater than one year from the
reporting period and junior subordinated debentures (See Note I, "Borrowings" in
the  Notes to the  Consolidated  Financial  Statements  of the  Company.)  These
longer-term funding sources also declined during 2005 to $53.0 million at

<PAGE>



December  31,  2005,  from  $60.1  million  at  December  31,  2004.  Short-term
borrowings  at the FHLB of Dallas for  December  31, 2005 and 2004 are  outlined
below.  Information  for 2003 is not included  because such  information  is not
available to the Company.


      Federal Home Loan Bank Short-term               As of December 31,
      Borrowings: (Less than one year)       -----------------------------------
                                                    2005              2004
                                             ----------------  -----------------
             Year-end balance                  $ 36,000,000     $   42,000,000
             Weighted average rate                     3.22%              2.84%
             Maximum month-end balance         $ 45,000,000     $   42,000,000

             Year to date average balance      $ 35,000,000     $   29,000,000
             Weighted average rate                     3.25%              2.34%


              The Company collateralizes short-term funding from the FHLB with a
portion of the Bank's  one-to-four  family  residential  mortgage  portfolio and
certain secured commercial loans. The Company expects that short-term borrowings
from the FHLB to continue to be a source of liquidity to fund short-term needs.

Average Balances and Yield Analysis

             The following  table  presents the Bank's  average  balance  sheets
during 2005, 2004 and 2003. Dividing income or expense by the average balance of
assets and  liabilities,  respectively,  derives  yields and costs.  Non-accrual
loans are included in loans for yield  computations.  Loan fees and late charges
in the amount of $1.1 million are included in both income and yield computations
in loans. Income and expense resulting from interest rate caps and swaps used to
manage interest rate risk are included  appropriately  in loans and certificates
of deposit.  No  tax-equivalent  adjustments  have been made.  All  averages are
derived from monthly average balances.


<PAGE>
<TABLE>
<CAPTION>



                                                                   Average Balances and Yield Analysis
                                                                        (dollars in thousands)
                                                                     Twelve Months Ended December 31,

                                                        2005                         2004                        2003
                                              --------------------------  --------------------------   ----------------------------
                                                      Interest  Average            Interest  Average            Interest  Average
                                              Average Income/     %       Average  Income/     %       Average  Income/     %
                                              Balance Expense  Yield/Rate Balance  Expense  Yield/Rate Balance  Expense  Yield/Rate
                                              --------------------------- ---------------------------- ----------------------------
ASSETS

<S>                                           <C>      <C>        <C>     <C>      <C>        <C>      <C>      <C>         <C>
Loans                                         $236,796 $ 16,101   6.80%   $218,301 $ 14,031   6.43%    $201,595 $ 14,519    7.20%
Investment securities:
U.S. Government                                      -        -   0.00%        339       12   3.63%           -        -       -
Mortgage Backed Securities                      86,062    3,776   4.39%     91,870    3,820   4.16%      74,252    3,068    4.13%
State & municipal                               34,914    1,634   4.68%     35,036    1,634   4.66%      33,424    1,576    4.72%
Other                                           11,867      459   3.86%      7,748      267   3.44%       8,844      376    4.25%
                                              -------- ---------          ------------------           -----------------
Total investment securities                    132,843    5,869   4.42%    134,993    5,733   4.25%     116,520    5,020    4.31%

Interest bearing bank balances                     735       22   2.95%        543        8   1.50%       1,447       15    1.03%
Federal funds sold                                 235        8   3.35%        167        2   1.56%         775       11    1.37%
                                              -------- ---------          ------------------           -----------------
Total earning assets                           370,609   22,000   5.94%    354,004   19,774   5.59%     320,337   19,565    6.11%

Allowance for loan losses                       (2,379)                     (2,224)                      (2,209)
Cash & due from banks, non-interest bearing      7,548                       8,610                        8,434
Bank premises & equipment                        8,221                       8,547                        7,374
Cash Value Life Insurance and other                929                         929                          922
Other assets                                     5,389                       5,630                        5,708

                                              --------                    ---------                    ---------
TOTAL ASSETS                                  $390,317                    $375,496                     $340,566
                                              ========                    =========                    =========

LIABILITIES AND SHAREHOLDERS' EQUITY

Interest bearing deposits:
Savings                                       $ 20,289 $    215   1.06%   $ 16,859 $    122   0.72%    $ 16,910 $    133    0.79%
Interest bearing checking                       27,961      216   0.77%     34,150      186   0.54%      35,511      216    0.61%
Money rate savings                              27,318      392   1.44%     25,631      250   0.97%      29,183      413    1.41%
Certificates of deposit and other
 time deposits                                 118,297    3,463   2.93%    117,039    2,780   2.38%     121,597    3,193    2.63%
                                              -------- ---------          ------------------           ------------------
Total interest bearing deposits                193,865    4,286   2.21%    193,679    3,338   1.72%     203,201    3,955    1.95%

Short term borrowed funds                       47,696    1,546   3.24%     42,371      893   2.11%      25,147      451    1.79%
Long term debt                                  70,760    2,613   3.69%     67,665    2,234   3.30%      44,359    1,923    4.34%
                                              -------- ---------          ------------------           ------------------
Total interest bearing liabilities             312,321    8,445   2.70%    303,715    6,465   2.13%     272,707    6,329    2.32%

Non-interest bearing deposits                   42,575                      36,759                       33,818
Other liabilities                                4,074                       4,169                        3,860
Shareholders' equity                            31,347                      30,853                       30,181

                                              -------- ---------          ------------------           -----------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY      $390,317 $  8,445           $375,496 $  6,465            $340,566 $  6,329
                                              ======== =========          ==================           =================


Interest income and rate earned                        $ 22,000   5.94%            $ 19,774   5.59%             $ 19,565    6.11%
Interest expense and rate paid                            8,445   2.70%               6,465   2.13%                6,329    2.32%
                                                      ------------------           -----------------            -----------------
Interest rate spread                                              3.23%                       3.46%                         3.79%
NET INTEREST INCOME & NET YIELD ON
AVERAGE EARNING ASSETS                                 $ 13,555   3.66%            $ 13,309   3.76%             $ 13,236    4.13%
                                                      ==================           =================            =================

</TABLE>



Capital

             Stockholders'  equity ended 2005 at $31.3 million compared to $31.2
million at December 31, 2004.  The change in  stockholders  equity is due to net
income of $3.2 million offset by dividend  payments  totaling $1.5 million and a
$1.6  million  decrease  in  accumulated  other  comprehensive   income.   Other
comprehensive   income  is  the  result  of   unrealized   gains  or  losses  on
available-for-sale  securities and the  recognition of the fair value of certain
derivative instruments. The Company's AFS portfolio,  representing approximately
64% of total  investment  securities,  is marked to market each  month,  and the
result of these unrealized  gains or losses,  net of deferred taxes, is reported
as a component of comprehensive  income in stockholders'  equity.  Additionally,
the decline in market value of the AFS  portfolio,  due to  increasing  interest
rates,  contributed to the lower stockholders'  equity to assets ratio from 2004
to 2005,  which fell to 8.0% at December  31,  2005,  from 8.3% at December  31,
2004.  While the  Company has no  immediate  plans for new  facilities,  capital
expenditures for equipment and software in 2006 is projected to be approximately
$295  thousand.  Offsetting  new  purchases  in 2006 will be an  estimated  $750
thousand  in  depreciation  expense  allowing  for a  potential  decrease in the
Company's fixed assets by December 31, 2006, of approximately $455 thousand.

             Capital  levels for the Company and the Bank  substantially  exceed
the  minimum  requirements  of  the  regulatory  agencies  for  well-capitalized
institutions in all three categories in both 2005 and 2004. Both the Company and
the Bank  maintain  levels in total  capital  to  risk-weighted  assets,  Tier 1
capital to risk-weighted  assets and a leverage ratio (Tier 1 capital to average
assets)  in excess of the  minimum  requirements  of  10.00%,  6.00% and  5.00%,
respectively.
<TABLE>
<CAPTION>

                                                   December 31, 2005               December 31, 2004
                                            -----------------------------     ---------------------------
                                              Company            Bank            Company         Bank
                                            ------------     ------------     ------------- -------------
                                                                 (dollars in thousands)
             Risk-based capital:
<S>                                           <C>             <C>                <C>           <C>
               Total                          $ 38,770        $ 36,423           $ 36,754      $ 34,836
               Tier 1                           36,392          34,045             34,517        32,599
               Leverage                         36,392          34,045             34,517        32,599
             Assets:
               Quarterly average assets (1)    390,734         394,351            373,843       374,974
               Risk-weighted assets            268,481         268,118            238,261       237,955
             Ratios:
               Total risk-based capital         14.44%          13.58%             15.43%        14.64%
               Tier 1 risk-based capital        13.55%          12.70%             14.49%        13.70%
               Leverage                          9.31%           8.63%              9.23%         8.69%

(1)      Excludes disallowed assets
</TABLE>

Results of Operations

             The  following  are  measurements  of  the  Company's  earnings  in
relation to assets, equity and earnings per share for the past three years.

                                            2005          2004         2003
                                        ----------    ----------    ---------
  Return on average assets                  .83%          .76%         .80%
  Return on average equity                10.30%         9.22%        9.08%
  Dividend payout ratio                   45.24%        47.58%       49.38%
  Average equity to average assets         8.03%         8.22%        8.86%
  Net interest margin                      3.66%         3.76%        4.13%
  Basic income per share                 $ 1.53        $ 1.35       $ 1.30
  Diluted income per share               $ 1.52        $ 1.34       $ 1.29

Net Income

             Net income for the twelve months ended  December 31, 2005, was $3.2
million,  or $1.52 per diluted  share,  compared to $2.8  million,  or $1.34 per
diluted  share,  for the same  period in 2004.  The  increase  in net income was
primarily  the result of  increases  in net interest  income and  reductions  in
<PAGE>



personnel  expense,  offset by a gain on the sale of a branch office during 2004
in the amount of $173 thousand.

              Net  income  for  the  twelve  months  ended  December  31,  2004,
increased slightly compared to $2.7 million, or $1.29 per diluted share, for the
same period in 2003.  Although net income was  relatively  unchanged for the two
years,  management believes the foundation for future efficiency was established
in these  two years as  reductions  in bank  premises  and  bank-wide  personnel
enhanced the position of the Company.

Non-Interest Income

             Non-interest  income  decreased  $264 thousand from $2.7 million in
2004 to $2.4 million in 2005.  The majority of the decrease  came as a result of
the sale of a Bank branch office in 2004.  Excluding this sale, the non-interest
income in 2004  would have been $2.5  million,  resulting  in a decrease  of $90
thousand  from 2004 to 2005.  This  decrease is due primarily to the sale of the
Company's  internet  service  provider  business  in 2004,  which  resulted in a
reduction  of  income of  approximately  $75  thousand  in 2005.  The  Company's
mortgage banking department  income,  which includes loans sold in the secondary
market and held in the  portfolio,  increased  its revenues by $28 thousand from
2004 to 2005. Loan  originations  sold in the secondary market in 2005 were down
by $12.1  million to $27.3  million at  December  31,  2005,  compared  to $39.4
million at December 31, 2004.

             Non-interest  income  decreased  $89 thousand  from $2.8 million in
2003 to $2.7  million in 2004.  Revenues  from the  Company's  mortgage  banking
department were substantially reduced in 2004 due to a sharp decline in mortgage
production  after a rise in mortgage rates from the  historically  low levels of
2003.  Loans originated for sale in the secondary market decreased $35.1 million
from $74.5  million in 2003 to $39.4 million in 2004.  Due to this  reduction in
new  originations,  gains on sale of mortgage  loans  decreased  $297  thousand.
Additional revenue of $66 thousand from the Company's investment  department and
a gain of approximately  $175 thousand on the sale of the Shields Lane branch in
Natchez helped offset the loss of revenue from mortgage loans.


Non-Interest Expense

             Non-interest  expense  decreased  $345  thousand,  or 3%,  to $11.6
million for the year ended December 31, 2005,  compared to $12.0 million for the
same period in 2004. Reductions in employee salary and benefits of $197 thousand
from 2004 to 2005  accounted  for more than 50% of the decrease in  non-interest
expense. At December 31, 2004, full time equivalent  personnel was 131, while at
December  31,  2005,  that  number  was down to 109.  For the past two years the
Company has focused on reducing  staffing  primarily in operational  areas while
simultaneously  emphasizing strategic hiring of front-line personnel.  The lower
levels of full time  equivalents  and savings  realized are expected to continue
into 2006 with no additional  staff  reductions.  The costs  associated with the
Company's  offer of a voluntary  separation  package to employees with specified
years of service  in 2005  offset a portion of the  reductions  in  non-interest
expense from 2004 to 2005. Of the 22 full-time  equivalent  reductions,  13 were
from employees  participating  in this offer. The reduction in force resulted in
an additional $550 thousand of personnel expense in 2005.

             Non-interest expense increased $128 thousand from December 31, 2003
to December 31, 2004,  primarily from  increases in salary expense  amounting to
$270 thousand.  The increase  includes  approximately  $160 thousand  related to
deferred  compensation  associated  with the  resignation and retirement of four
employees.  The increase in salary  expense was offset by a decrease in employee
benefits of $260 thousand.

Net Interest Income

             Net interest income,  the amount by which interest income on loans,
investments  and other  interest  earning  assets  exceed  interest  expense  on
deposits and other borrowed funds,  increased $246 thousand to $13.6 million for
the twelve  months of 2005  compared  to the same period in 2004.  Net  interest
income is affected by several  factors,  including the volume of earning  assets
and costing  liabilities,  the mix of these assets and  liabilities and interest
rates. While net increases in volumes of earning assets and costing  liabilities
created a  positive  effect of $863  thousand  on net  interest  income in 2005,
rising interest rates had the opposite  effect.  As more liabilities than assets
repriced in the higher rate  environment,  net interest income decreased by $617
thousand from 2004 to 2005.  While net interest  margin  decreased from 3.76% to
3.66% from 2004 to 2005,  the  percentage  decrease in net interest  margin from
2004 to 2005 was smaller than the percentage  decrease from 2003 to 2004. Growth
in loans throughout 2005 and increases in lower costing deposits  contributed to
the smaller declines in margins and allowed for higher net interest income.
<PAGE>

             Net interest income increased $73 thousand to $13.3 million for the
twelve  months of 2004,  compared to the same period in 2003.  The impact on net
interest income from net increases in earning assets and costing liabilities was
positive,  adding to net interest income by $869 thousand. This positive effect,
however,  was offset by $796 thousand  generated by falling  interest  rates. As
rates fell, the decrease in income  associated  with asset repricing was greater
than the decrease in liability  costs.  The volume and rate analysis table below
indicates that earning assets  repriced  downward faster and to a greater degree
than costing liabilities. Net interest margin decreased from 4.13% to 3.76% from
2003 to 2004.

             The  following  table  presents  the  dollar  amount of  changes in
interest income and interest  expense for the major  components of the Company's
interest  earning  assets and interest  bearing  liabilities.  It  distinguishes
between the changes related to outstanding  balances and those due to changes in
interest  rates.  For each  category of  interest  earning  assets and  interest
bearing  liabilities,  information  is provided on changes  attributable  to (a)
changes in volume (i.e.,  changes in volume  multiplied by the old rate) and (b)
changes in rates  (i.e.,  changes in rates  multiplied  by the old  volume.) For
purposes of this table,  changes  attributable to both rate and volume have been
allocated proportionately to the change due to volume and rates.
<TABLE>
<CAPTION>




                                                                            Volume/Rate Analysis

                                                           2005 change from 2004                     2004 change from 2003
                                                     Total        Volume         Rate           Total        Volume        Rate
                                              ----------------------------------------  -----------------------------------------
Interest earning assets:                                                    (dollars in thousands)
<S>                                               <C>           <C>          <C>              <C>         <C>           <C>
Loans                                              $ 2,070       $ 1,230      $   840          $ (488)     $ 1,147       $(1,635)
Investment securities:
U.S. Government                                        (12)           (6)          (6)             12           12             -
Mortgage Backed Securities                             (44)         (250)         206             752          732            20
State & municipal                                        -            (6)           6              57           75           (18)
Other                                                  192           156           36            (109)         (43)          (66)
                                              ----------------------------------------  -----------------------------------------
Total investment securities                            136          (106)         242             712          776           (64)

Interest bearing bank balances                          14             4           10              (7)         (12)            5
Federal funds sold                                       6             2            4              (8)          (9)            1
                                              ----------------------------------------  -----------------------------------------
Total earning assets                               $ 2,226       $ 1,130      $ 1,096          $  209      $ 1,902       $(1,693)

Interest bearing deposits:
Savings                                                 93            28           65             (11)           -           (11)
Interest bearing checking                               30           (38)          68             (30)          (8)          (22)
Money rate savings                                     142            17          125            (163)         (46)         (117)
Certificates of deposit and other time deposits        683            30          653            (413)        (117)         (296)
                                              ----------------------------------------  -----------------------------------------
Total interest bearing deposits                        948            37          911            (617)        (171)         (446)

Short term borrowed funds                              653           124          529             566          378           188
Long term debt                                         379           106          273             187          826          (639)
                                              ----------------------------------------  -----------------------------------------
Total interest bearing liabilities                 $ 1,980       $   267      $ 1,713          $  136      $ 1,033       $  (897)
                                              ----------------------------------------  -----------------------------------------
Change in Interest Earning Assets                    2,226         1,130        1,096             209        1,902        (1,693)
Change in Interest Bearing Liabilities               1,980           267        1,713             136        1,033          (897)
                                              ----------------------------------------  -----------------------------------------
Change in Net Interest Income                      $   246       $   863      $  (617)         $   73      $   869       $  (796)
                                              ========================================  =========================================

</TABLE>


Provision for Loan Losses

             The  provision  for loan losses is a charge to earnings to maintain
the reserve for loan losses at a level consistent with  management's  assessment
of the risk of loss in the loan  portfolio in light of current  risk  management
strategies, economic conditions and market trends. A decline in net charge-offs

<PAGE>

since 2002 has allowed management to lower the provision during these years. The
Company  recorded a provision for the twelve months ended  December 31, 2005, of
$300 thousand, compared to $390 thousand in 2004 and $670 thousand in 2003.

Liquidity

             Liquidity is a measure of the ability to fund loan  commitments and
meet deposit maturities and withdrawals in a timely and  cost-effective  manner.
These  needs  can  be  met  by  generating  profits,  attracting  new  deposits,
converting assets  (including  short-term  investments,  mortgage loans held for
sale  and   securities   available   for   sale)  to  cash   through   sales  or
securitizations,   and  increasing   borrowings.   To  minimize  funding  risks,
management  monitors  liquidity  monthly  through reviews of basic surplus which
includes  investment  securities  available for pledging or borrowing  offset by
short-term liabilities, along with projections of loan and deposits for the next
90 days.

             Principal sources of liquidity,  both short and long-term,  for the
Company  are asset  cash  flows,  customer  deposits  and the  ability to borrow
against investment securities and loans. The Company's cash and cash equivalents
increased  from $6.6 million at December  31, 2004,  to $9.8 million at December
31, 2005.  Cash provided by operating and financing  activities  during 2005 was
$6.4 and $10.4  million,  respectively,  while  $13.6  million  was  devoted  to
investing activities in 2005.

             In 2005, the Company experienced a 13.7% growth in deposits and was
able to reduce the amount of short and  long-term  borrowings  from the FHLB and
other short-term  federal funds lines with  correspondent  banks. In addition to
the  Company's  deposit  base,  management  believes  that the current  level of
short-term  investments  and the  projected  cash flows from earning  assets and
securities  available  for sale are more  than  adequate  to meet the  Company's
current  liquidity  needs.  Additional  sources of  liquidity  available  to the
Company include the ability to issue additional retail brokered  certificates of
deposit  and the  ability  to sell or  securitize  a  portion  of the  Company's
residential  first mortgage  portfolio.  The Company also has available  federal
funds  lines and its  membership  in the FHLB to further  augment  liquidity  by
providing a readily accessible source of funds at competitive rates.

             The   Company's   accepts   funds  from  various  local  and  state
governments.  Total public  deposits at December 31,  2005,  were $19.0  million
compared to $28.8  million at December 31, 2004,  and $44.5  million at December
31, 2003. These deposits,  considered non-core,  generally are accepted on a bid
basis and tend to fluctuate from year to year.  Management  does not believe the
reductions in public  deposits since December 31, 2003 will affect the Company's
ability to fund loans, engage in investment  activities or handle normal deposit
fluctuations.

             In the  ordinary  course  of  business,  the  Company  enters  into
commitments  to extend credit to its  customers.  See Note O,  "Commitments  and
Contingencies," to the Consolidated Financial Statements for a discussion of the
Company's commitments to extend credit as of December 31, 2005.

         The  Company's   liquidity  and  capital  resources  are  substantially
dependent  on the  ability of the Bank to  transfer  funds to the Company in the
form of  dividends,  loans and  advances.  Under federal law, the directors of a
national  bank,  after  making  proper  deduction  for all  expenses  and  other
deductions  required by the Comptroller of the Currency,  may credit net profits
to the bank's undivided  profits  account,  and may declare a dividend from that
account of so much of the net profits as they judge  expedient.  The Comptroller
and the Federal  Reserve Board have each  indicated  that banking  organizations
should  generally  pay dividends  only out of current  operating  earnings.  The
Bank's  ability to pay  dividends  is also limited by  prudence,  statutory  and
regulatory guidelines, and a variety of other factors.

         Further, in connection with the acquisition of Natchez First Federal in
1993, the Bank assumed a liquidation account of approximately $2.8 million which
has the effect of  prohibiting  the payment of dividends if the Bank's net worth
would thereby be reduced below the amount required for the liquidation  account.
Management  does not  anticipate  that this  restriction  will  have a  material
adverse effect on the Bank's ability to pay dividends to the Company.

             Certain  restrictions  exist on the ability of the Bank to transfer
such funds to the  Company  in the form of loans.  Federal  Reserve  regulations
limit  the  amount  the Bank may  loan to the  Company  unless  such  loans  are
collateralized by specific obligations. At December 31, 2005, the maximum amount
available  for  transfer  from the Bank to the Company in the form of loans on a
secured basis was $1.9 million. There were no loans outstanding from the Bank to
the Company at December 31, 2005.
<PAGE>

             The  Company's  asset/liability  committee  ("ALCO")  determines an
appropriate  level of capital and liquidity  adequate to respond to the needs of
depositors and  borrowers.  At December 31, 2005, the ALCO, in its report to the
Board of Directors,  indicated that it believes that the Company's current level
of liquidity is adequate.

Off-Balance-Sheet Arrangements

             The Bank enters into  off-balance-sheet  arrangements in the normal
course of its  business.  For a  discussion  of such  arrangements,  see Note A,
"Summary  of  Significant  Accounting  Policies  -  Off-Balance-Sheet  Financial
Instruments,"  "-  Interest-Rate  Cap  Agreements,"  and "-  Interest-Rate  Swap
Agreements," Note O, "Commitments and Contingencies," and Note R, "Interest Rate
Risk Management," in the Notes to the Consolidated  Financial  Statements of the
Company. Such discussion is incorporated by reference into this item.

Contractual Obligations

             The  Company's  long-term  contractual  obligations,  comprised  of
operating  lease   agreements  and  long-term   borrowings,   including   junior
subordinated  debt, can be found in Note I,  "Borrowings," and Note K, "Leases,"
in the Notes to the Consolidated Financial Statements of the Company.

Information Regarding our Common Stock

             The Company's  common stock is listed on the NASDAQ Capital Market,
and trades  under the symbol  "BKBK." The table below sets forth  dividends  per
share and the high and low sales prices ranges for the common stock, as reported
by NASDAQ,  for the last two fiscal years. The sales price information  reflects
inter-dealer prices,  without retail mark-up,  mark-down or commission,  and may
not represent actual transactions.

                                Dividends
                                Per Share               High              Low
Year 2005
         4th Quarter             $ 0.18                $21.48            $20.07
         3rd Quarter             $ 0.18                $21.68            $19.56
         2nd Quarter             $ 0.33                $22.80            $17.01
         1st Quarter                                   $19.50            $17.70

Year 2004
         4th Quarter             $ 0.32                $18.75            $16.75
         3rd Quarter                                   $18.46            $16.82
         2nd Quarter             $ 0.32                $20.00            $16.55
         1st Quarter                                   $19.80            $16.64

         On  March 1,  2005,  there  were  524  shareholders  of  record of  the
Company's common stock.

         Pursuant to  Mississippi  law, the  Company's  Board of  Directors  may
authorize  the  Company  to pay cash  dividends  to its  shareholders.  The only
limitation  on such a dividend  is that no  distribution  may be made if,  after
giving effect to the  distribution  (a) the Company would not be able to pay its
debts as they come due in the usual  course of  business,  or (b) the  Company's
total assets would be less than the sum of its total liabilities plus the amount
that would be needed,  if the Company  were to be  dissolved  at the time of the
distribution,  to  satisfy  the  preferential  rights  upon  dissolution  of any
shareholders  whose  preferential  rights are  superior to those  receiving  the
distribution.

         The principal  source of the Company's cash revenues are dividends from
the Bank.  There are certain  limitations on the Bank's ability to pay dividends
to  the  Company.   See  the  disclosures  under  the  heading   "Liquidity"  in
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations.

         The Company has declared  semiannual  cash  dividends in 2003 and 2004.
Beginning in the second quarter of 2005, the Company began paying dividends on a
quarterly basis. Dividends,  for the last three fiscal years total, on an annual
basis, $.64 per share for 2003 and $.64 per share for 2004 and $.69 in 2005.

<PAGE>

Historical dividend payout ratios,  expressed as a percentage of net income, for
2003, 2004 and 2005, were 49.38%, 47.58% and 45.24%, respectively.

         The declaration of future dividends is at the discretion of the Company
and generally will be dependent upon the earnings of the Bank, the assessment of
capital requirements, considerations of safety and soundness, applicable law and
regulation and other factors. Subject to the limitations referenced above, it is
the present  policy of the Board of  Directors  of the  Company to continue  the
declaration  of cash  dividends  on the  Company's  common  stock on a quarterly
basis, to the extent practicable.

         Retained  earnings of the Bank  available for payment of cash dividends
under applicable  dividend  regulations was $4.6 million,  $2.8 million and $3.3
million as of December  31,  2005,  December  31,  2004,  and December 31, 2003,
respectively. The Bank intends to retain most of these funds for capital and not
pay them out as dividends.
<PAGE>

<TABLE>
<CAPTION>



Quarterly Financial Trends
                                                                              2005
                                     --------------------------------------------------------------------------------------------
                                               First             Second             Third              Fourth              Year
                                              Quarter           Quarter            Quarter            Quarter            to Date
                                     ----------------- -----------------  -----------------  -----------------  -----------------
<S>                                       <C>               <C>                <C>                <C>               <C>
Interest Income                               $ 5,153           $ 5,413            $ 5,659            $ 5,775           $ 22,000
Interest Expense                                1,835             2,003              2,270              2,337              8,445
                                     ----------------- -----------------  -----------------  -----------------  -----------------
Net Interest Income                             3,318             3,410              3,389              3,438             13,555
Provision for Loan Losses                          90                90                 60                 60                300
Non-interest Income                               606               589                642                578              2,415
Non-interest Expense                            2,843             2,781              2,876              3,127             11,627
Income Taxes                                      100               279                267                169                815
                                     ----------------- -----------------  -----------------  -----------------  -----------------
Net Income                                      $ 891             $ 849              $ 828              $ 660            $ 3,228
                                     ================= =================  =================  =================  =================
Per common share:
    Basic                                      $ 0.42            $ 0.40             $ 0.39             $ 0.32             $ 1.53
    Diluted                                      0.42              0.40               0.39               0.31               1.52
    Cash Dividends                                  -              0.33               0.18               0.18               0.69

</TABLE>
<TABLE>
<CAPTION>

                                                                              2004
                                     --------------------------------------------------------------------------------------------
                                               First             Second             Third              Fourth              Year
                                              Quarter           Quarter            Quarter            Quarter            to Date
                                     ----------------- -----------------  -----------------  -----------------  -----------------
<S>                                         <C>               <C>                <C>                <C>               <C>
Interest Income                               $ 4,835           $ 4,956            $ 4,984            $ 4,999           $ 19,774
Interest Expense                                1,578             1,542              1,648              1,697              6,465
                                     ----------------- -----------------  -----------------  -----------------  -----------------
Net Interest Income                             3,257             3,414              3,336              3,302             13,309
Provision for Loan Losses                         120               120                120                 30                390
Non-interest Income                               571               764                627                716              2,678
Non-interest Expense                            2,945             3,191              2,924              2,913             11,973
Income Taxes                                      139               186                200                255                780
                                     ----------------- -----------------  -----------------  -----------------  -----------------
Net Income                                      $ 624             $ 681              $ 719              $ 820            $ 2,844
                                     ================= =================  =================  =================  =================
Per common share:
    Basic                                      $ 0.30            $ 0.32             $ 0.34             $ 0.39             $ 1.35
    Diluted                                      0.29              0.32               0.34               0.39               1.34
    Cash Dividends                                  -              0.32                  -               0.32               0.64

</TABLE>


Quantitative and Qualitative Disclosures about Market Risk

             Market risk reflects the potential risk of economic loss that would
result from adverse  changes in interest  rates and market  prices.  The risk is
usually seen in either reduced  market value of financial  assets or reduced net
interest income in future periods.

             The  Company  utilizes  an   asset/liability   committee   ("ALCO")
comprised of four outside directors,  the Bank's Chief Executive Officer and its
Chief Financial  Officer,  who acts as chairman of the committee.  The committee
meets  monthly or more often as needed,  and its primary  responsibility  is the
management  of the  assets and  liabilities  of the Bank to produce a stable and
evenly rising flow of net interest income, an appropriate level of capital and a

<PAGE>

level of liquidity  adequate to respond to the needs of depositors and borrowers
and to take  advantage of earnings'  enhancement  opportunities.  The  committee
manages the interest  rate risk  inherent in the loan,  investment,  deposit and
borrowed funds  portfolios.  Further,  the committee manages the risk profile of
the Company and determines strategies to maintain interest rate sensitivity at a
low level.

             The Company  utilizes an  electronically-based  financial  modeling
system  that  measures  earnings  at risk.  After  supplying  the system with an
interest rate scenario and a set of projections, the ALCO and Board of Directors
receive a standard  reporting  package  showing the current and future impact of
changes in interest  rates,  strategies  and tactics  and  tracking  information
against budgets, other forecasts and actual performance.  The latest analysis at
December  31,  2005,  showed the impact on earnings in both a falling and rising
rate scenario compared to current earnings. A falling rate scenario of 200 basis
points was  determined  to be the worst case scenario as Bank earnings fell .55%
in the  first  year  and  2.61% in the  second  year of the  analysis.  As rates
increase 200 basis points,  Bank earnings decline in the first year by 1.29% and
improve in the second  year by .33%  compared to current  levels of income.  The
impact on earnings in both  scenarios is within the  Company's  internal  policy
limit of 10%,  which,  in  management's  opinion,  places the Bank in a low risk
category.

             The  Company  also  models  Economic  Value of  Equity  (EVE) as an
asset/liability  management tool to measure market risk. At least  annually,  an
EVE analysis is performed to determine the effect of the Bank's  franchise value
under different rate scenarios.  This value is calculated by subtracting the net
present  value  of the  bank's  liabilities  from the net  present  value of its
assets.  The difference is referred to as "net portfolio  value," with the value
calculated under each rate scenario  measured as a percentage change to the base
portfolio  value.  The latest  analysis at December 31,  2005,  showed that in a
rising  rate  scenario  as rates  moved up by 300 basis  points,  the Bank's net
portfolio  value would decline by less than 8%. The committee as reported to the
Board of Directors agreed that this was well within acceptable limits.

                 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Report includes "forward-looking  statements" within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange  Act of 1934,  as  amended.  Although  the  Company  believes  that the
expectations reflected in such forward-looking  statements are reasonable,  such
forward-looking  statements are based on numerous assumptions (some of which may
prove to be incorrect) and are subject to risks and  uncertainties,  which could
cause the actual results to differ  materially from the Company's  expectations.
Forward-looking  statements have been and will be made in written  documents and
oral  presentations  of the Company.  Such  statements are based on management's
beliefs as well as assumptions  made by and information  currently  available to
management. When used in the Company's documents (including this Report) or oral
presentations,  the  words  "anticipate,"   "estimate,"  "expect,"  "objective,"
"projection,"  "forecast,"  "goal"  and  similar  expressions  are  intended  to
identify  forward-looking  statements.  In addition to any assumptions and other
factors  referred  to  specifically  in  connection  with  such  forward-looking
statements,  factors  that could cause the  Company's  actual  results to differ
materially from those contemplated in any  forward-looking  statements  include,
among others,  increased competition,  regulatory factors,  economic conditions,
changing market conditions,  availability or cost of capital, employee workforce
factors,  costs and other effects of legal and administrative  proceedings,  and
changes  in  federal,  state  or local  legislative  requirements.  The  Company
undertakes  no obligation  to update or revise any  forward-looking  statements,
whether as a result of  changes in actual  results,  changes in  assumptions  or
other factors affecting such statements.

This  statement  has not been reviewed or confirmed for accuracy or relevance by
the Office of the Comptroller of the Currency.
<PAGE>


CORPORATE INFORMATION


Annual Meeting/ Principal Office:
         3:30 P.M., Tuesday, April 25, 2006
         Britton & Koontz Bank, National Association
         500 Main Street
         Natchez, Mississippi 39120

Transfer Agent and Registrar:
         American Stock Transfer & Trust
         59 Maiden Lane
         New York, New York 10038
         718-921-8200

Independent Auditors:
         Hannis T. Bourgeois, LLP
         2322 Tremont Drive, Suite 200
         Baton Rouge, Louisiana 70809

For Additional Information Contact:
         William M. Salters
         Chief Financial Officer
         601-445-5576
         e-mail: corporate@bkbank.com

For copies of the Annual  Report on Form 10-K or Quarterly  Reports on Form 10-Q
filed with the  Securities  and  Exchange  Commission  visit  www.bkbank.com  or
contact:
         Cliffie Anderson
         Investor Relations
         500 Main Street
         P.O. Box 1407
         Natchez, Mississippi 39121
         601-445-5576
         e-mail: corporate@bkbank.com

Questions regarding stock holdings,  certificates,  replacement,  dividends, and
address changes should be addressed to:
         American Stock Transfer & Trust
         59 Maiden Lane
         New York, New York 10038
         718-921-8200


<PAGE>



DIRECTORS


W. Page Ogden
Chairman,
President & Chief Executive Officer
Britton & Koontz Capital Corporation
Britton & Koontz Bank, National Association

Robert R. Punches
Partner
Gwin, Lewis & Punches, LLP, Attorneys
Vice Chairman
Britton & Koontz Capital Corporation
Britton & Koontz Bank, National Association

W. W. Allen, Jr.
President
Allen Petroleum Services, Inc.

Craig A. Bradford, D.M.D.
Pediatric Dentist

A. J. Ferguson
Petroleum Geologist

George R. Kurz
Principal
Kurz & Hebert
Commercial Real Estate, Inc.

Bethany L. Overton
President
Lambdin-Bisland Realty Co.

R. Andrew Patty II
Member
Sieberth and Patty, LLC, Attorneys

Vinod K. Thukral, Ph.D.
Professor
Tulane University



EXECUTIVE OFFICERS

W. Page Ogden
Chairman,
President & Chief Executive Officer
Britton & Koontz Capital Corporation
Britton & Koontz Bank, National Association

William M. Salters
Treasurer
Chief Financial Officer
Britton & Koontz Capital Corporation
Britton & Koontz Bank, National Association

<PAGE>


DIRECTORS EMERITI:


W. J. Feltus III
President Feltus Brothers, Ltd

C.H. Kaiser, Jr.
Partner Jordan, Kaiser and Sessions, Engineering

Albert W. Metcalfe
President
Jordan Auto Company, Inc.



<PAGE>


BRITTON & KOONTZ BANK, N.A. Locations:

Natchez, Mississippi
   Main Office
   500 Main Street, 39120

   Tracetown Shopping Center
   55 Seargent S. Prentiss Drive, 39120

   St. Catherine
   411 Highway 61 North, 39120


Vicksburg, Mississippi
   South Frontage Road
   2150 S. Frontage Road, 39180

   Medical Center
   2059 Highway 61 North, 39180


Baton Rouge, Louisiana
   Bluebonnet
   8810 Bluebonnet, 70810