**U.S.
      SECURITIES AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-K**





Annual
      Report Pursuant to Section 13 or 15(d) of the


Securities
      Exchange Act of 1934


For
                the fiscal year ended
              December
                31, 2006
            
            Commission
                file number
              000-21329





**TIB
      FINANCIAL CORP.**


(Exact
      Name of Registrant as Specified in Its Charter)





Florida
              (State
                of Incorporation)
            
            65-0655973
              (I.R.S.
                Employer
              Identification
                No.)599
                9th Street North
              Suite
                101
              Naples,
                Florida
              (Address
                of Principal Executive Offices)
            
            34102
              (Zip
                Code)(239)
                263-3344
              (Registrant’s
                telephone number)





Securities
                Registered pursuant to Section 12(b) of the Act: Common stock, par
                value
                $0.10Securities
                Registered pursuant to Section 12(g) of the Act: NoneIndicate
                by check mark if the registrant is a well-known seasoned issuer,
                as
                defined in Rule 405 of the Securities Act. ̈Yes orþNoCheck
                if the issuer is not required to file reports pursuant to Section
                13 or
                Section 15(d) of the Act. ̈Check
                whether the issuer (1) has filed all reports required to be filed
                by
                Section 13 or 15(d) of the Securities Exchange Act of 1934 during
                the
                preceding 12 months (or for such shorter period that the issuer was
                required to file such reports), and (2) has been subject to such
                filing
                requirements for the past 90 days.þYes or ̈NoCheck
                if there is no disclosure of delinquent filers pursuant to Item 405
                of
                Regulation S-K contained in this form, and will not be contained,
                to the
                best of issuer’s knowledge, in definitive proxy or information statements
                incorporated by reference in Part III of this Form 10-K or any amendment
                to this Form 10-K.þIndicate
                by check mark whether the registrant is a large accelerated filer,
                an
                accelerated filer, or a non-accelerated filer. See definition of
                “accelerated filer and large accelerated filer” in Rule 12b-2 of the
                Exchange Act.Large
                accelerated filer ̈
            Accelerated
                filerþ
            Non-accelerated
                filer ̈Indicate
                by check mark whether the registrant is a shell company (as defined
                in
                Rule 12b-2 of the Exchange Act). ̈Yes orþNoThe
                aggregate market value of the voting stock held by non-affiliates
                of the
                registrant as of June 30, 2006 was approximately $186,925,000 based
                on the
                $16.00 per share closing price on June 30, 2006.The
                number of shares outstanding of issuer’s class of common stock at February
                28, 2007 was 11,796,627 shares of common stock.Documents
                Incorporated By Reference: Portions of the Proxy Statement for the
                2007
                Annual Meeting of Shareholders to be filed with the Securities and
                Exchange Commission within 120 days of the Registrant’s 2006 fiscal year
                end are incorporated by reference into Parts II and III of this report.



















**TABLE
      OF CONTENTS**





**PART
                I**
            PageITEM
                1
            BUSINESS
            1ITEM
                1A
            RISK
                FACTORS
            12ITEM
                1B
            UNRESOLVED
                STAFF COMMENTS
            17ITEM
                2
            PROPERTIES
            18ITEM
                3
            LEGAL
                PROCEEDINGS
            19ITEM
                4
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS
            19**PART
                II**ITEM
                5
            MARKET
                FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER
                PURCHASES OF EQUITY SECURITES
            20ITEM
                6
            SELECTED
                FINANCIAL DATA
            22ITEM
                7
            MANAGEMENT’S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                OPERATIONS
            24ITEM
                7A
            QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
            51ITEM
                8
            FINANCIAL
                STATEMENTS AND SUPPLEMENTARY DATA
            52ITEM
                9
            CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                DISCLOSURE
            91ITEM
                9A
            CONTROLS
                AND PROCEDURES
            91ITEM
                9B
            OTHER
                INFORMATION
            92**PART
                III**ITEM
                10
            DIRECTORS,
                EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
            93ITEM
                11
            EXECUTIVE
                COMPENSATION
            93ITEM
                12
            SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                SHAREHOLDER MATTERS
            93ITEM
                13
            CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
                INDEPENDENCE
            93ITEM
                14
            PRINCIPAL
                ACCOUNTANT FEES AND SERVICES
            93**PART
                IV**ITEM
                15
            EXHIBITS
                AND FINANCIAL STATEMENT SCHEDULES
            94















**CAUTIONARY
      NOTICE REGARDING FORWARD LOOKING STATEMENTS**





Certain
      of the matters discussed under the caption “Management's Discussion and Analysis
      of Financial Condition and Results of Operations” and elsewhere in this Annual
      Report on Form 10-K may constitute “forward-looking statements” within the
      meaning of the Private Securities Litigation Reform Act and as such may involve
      known and unknown risk, uncertainties and other factors which may cause the
      actual results, performance or achievements of TIB Financial Corp. (the
“Company”) to be materially different from future results described in such
      forward-looking statements. Actual results may differ materially from the
      results anticipated in these forward-looking statements due to a variety of
      factors, including, without limitation: the effects of future economic
      conditions; governmental monetary and fiscal policies, as well as legislative
      and regulatory changes; the risks of changes in interest rates on the level
      and
      composition of deposits, loan demand, and the values of loan collateral, and
      interest rate risks; the effects of competition from other commercial banks,
      thrifts, consumer finance companies, and other financial institutions operating
      in the Company’s market area and elsewhere. All forward-looking statements
      attributable to the Company are expressly qualified in their entirety by these
      cautionary statements. The Company disclaims any intent or obligation to update
      these forward-looking statements, whether as a result of new information, future
      events or otherwise.








**PART
      I**








As
      used
      in this document, the terms “we,” “us,” “our,” “TIB Financial,” and “Company”
mean TIB Financial Corp. and its subsidiaries (unless the context indicates
      another meaning), and the terms “Bank” and “TIB Bank” mean TIB Bank and its
      subsidiaries (unless the context indicates another meaning).





**ITEM
      1** **:
      BUSINESS**





**General**





We
      are a
      financial holding company headquartered in Naples, Florida, whose business
      is
      conducted primarily through our wholly-owned subsidiary, TIB Bank. TIB Bank,
      which was formed in 1974, serves the Southern Florida market, principally
      Monroe, Collier, Lee, Highlands, and South Miami-Dade Counties, Florida. TIB
      Bank is headquartered in Key Largo, Florida. We operate 17 banking offices
      and
      23 ATMs throughout Southern Florida. At December 31, 2006, we had approximately
      $1.32 billion in total assets, $1.03 billion in total deposits, $1.06 billion
      in
      total loans and shareholders' equity of $85.9 million. TIB Bank's deposits
      are
      insured by the Federal Deposit Insurance Corporation (FDIC), up to applicable
      limits.





Through
      TIB Bank, we offer a wide range of commercial and retail banking and financial
      services to businesses and individuals. Our account services include checking,
      interest-bearing checking, money market, savings, certificates of deposit and
      individual retirement accounts. We offer all types of commercial loans,
      including: owner-operated commercial real estate; acquisition, development
      and
      construction; income-producing properties; working capital; inventory and
      receivable facilities; and equipment loans. We also offer a full complement
      of
      consumer loan products including residential real estate, installment loans,
      home equity, home equity lines, and indirect auto dealer loans. Our lending
      focus is predominantly on small to medium-sized business and consumer borrowers.
      Most importantly, we provide our customers with access to local TIB Bank
      officers who are empowered to act with flexibility to meet customers' needs
      in
      an effort to foster and develop long-term loan and deposit
      relationships.





We
      are
      subject to examination and regulation by the Board of Governors of the Federal
      Reserve System, the Florida Office of Financial Regulation, and the FDIC. This
      regulation is intended for the protection of our depositors, not our
      shareholders.





1


In
      2004,
      we eliminated TIB Government Loan Specialists, Inc. as a subsidiary, but
      continue to conduct its government-guaranteed loan program through TIB Bank.
      In
      December 2004, we sold internally developed intangible assets, primarily
      comprised of the book of business of our investment center. In December 2005,
      we
      sold our merchant bankcard processing segment. In November 2006, we announced
      a
      planned strategic merger with The Bank of Venice, a community bank located
      and
      chartered in Venice, Florida.





**Business
      Strategy**





Our
      business strategy is to operate as a profitable, diversified financial services
      company providing a variety of banking and other financial services, with an
      emphasis on consumer and residential mortgage lending and commercial business
      loans to small and medium-sized businesses. As a result of the consolidation
      of
      small and medium-sized financial institutions, we believe there is a significant
      opportunity for a community-focused bank to provide a full range of financial
      services to small and middle-market commercial and retail customers. We
      emphasize comprehensive retail and small business products and responsive,
      decentralized decision-making which reflects our knowledge of our local markets
      and customers.





To
      continue asset growth and profitability, our marketing strategy is targeted
      to:


Provide
            customers with access to our local executives who make key credit and
            account
            decisions;
        Pursue
            commercial lending opportunities with small to mid-sized businesses which
            we
            believe are underserved by our larger competitors;
        Continue
            originating indirect auto dealer loans to diversify our sources of loans
            and
            revenue and enhance our net interest margin and generate attractive risk
            adjusted returns;
        Cross-sell
            our products and services to our existing customers to leverage our
            relationships and enhance profitability; and
        Adhere
            to safe and sound credit standards to maintain the continued quality
            of assets
            as we implement our growth strategy.


**Banking
      services**





*Commercial
      Banking.* TIB Bank
      focuses its commercial loan originations on established small and mid-sized
      businesses, professionals and professional organizations in its market areas.
      These loans are usually accompanied by cash management services and deposit
      relationships. TIB Bank provides commercial real estate loans to finance the
      acquisition and development of owner operated properties; acquisition,
      development and construction of investment properties; builder construction
      lines of credit; and the purchase of income-producing properties, including
      office buildings, industrial buildings, self-storage, hotel/motel, medical
      centers, marinas, retail and shopping centers. TIB Bank offers a complete range
      of commercial loan products, including revolving lines of credit for working
      capital and term loans for the acquisition of equipment, funding property
      improvements or other business related expenses. Commercial underwriting is
      driven by cash flow repayment analysis along with the additional support
      provided by collateral and the principals involved with the loan.





*Retail
      Banking.* TIB
      Bank's retail banking activities emphasize consumer deposit and checking
      accounts. An extensive range of these services is offered by TIB Bank to meet
      the varied needs of its customers from young persons to senior citizens. In
      addition to traditional products and services, TIB Bank offers contemporary
      products and services, such as debit cards, Internet banking and electronic
      bill
      payment services. Consumer loan products offered by TIB Bank include home equity
      lines of credit, second mortgages, new and used auto loans, including indirect
      loans through auto dealers, new and used boat loans, overdraft protection,
      and
      unsecured personal credit lines.





*Mortgage
      Banking.* TIB
      Bank's mortgage banking business is structured to provide a source of fee income
      largely from the process of originating mortgages for sale in the secondary
      market (primarily fixed rate loans), as well as the origination of primarily
      adjustable rate loans to be held in TIB Bank's loan portfolio. Mortgage banking
      capabilities include conventional and nonconforming mortgage underwriting;
      and
      construction and permanent financing.


2


**Lending
      activities**





*Loan
      Portfolio Composition.* At
      December 31, 2006, TIB Bank's loan portfolio totaled $1.06 billion, representing
      approximately 80.7% of our total assets of $1.32 billion. For a discussion
      of
      our loan portfolio, see “Management's Discussion of Financial Condition and
      Results of Operation - Loan Portfolio.”





The
      composition of TIB Bank's loan portfolio at December 31, 2006 and 2005 is
      indicated below, along with the growth from the prior year





(Dollars
                in thousands)
            
            
            Total
                Loans
              December
                31, 2006
            
            
            %
                of Total Loans
            
            
            Total
                Loans
              December
                31, 2005
            
            
            %
                of Total Loans
            
            
            %
                Increase (Decrease) from December 31, 2005 to 2006Real
                estate mortgage loans:Commercial
            
            $
            546,276
            
            
            51.4
            
            $
            451,969
            
            
            51.2
            
            
            20.9Residential
            
            
            82,243
            
            
            7.7
            
            
            76,003
            
            
            8.6
            
            
            8.2Farmland
            
            
            24,210
            
            
            2.3
            
            
            4,660
            
            
            0.5
            
            
            419.5Construction
                and vacant land
            
            
            157,672
            
            
            14.8
            
            
            125,207
            
            
            14.2
            
            
            25.9Commercial
                and agricultural loans
            
            
            84,905
            
            
            8.0
            
            
            80,055
            
            
            9.1
            
            
            6.1Indirect
                auto dealer loans
            
            
            141,552
            
            
            13.3
            
            
            118,018
            
            
            13.4
            
            
            19.9Home
                equity loans
            
            
            17,199
            
            
            1.6
            
            
            17,232
            
            
            2.0
            
            
            (0.2
            )Other
                consumer loans
            
            
            9,795
            
            
            0.9
            
            
            9,228
            
            
            1.0
            
            
            6.1Total
            
            $
            1,063,852
            
            
            100.0
            
            $
            882,372
            
            
            100.0
            
            
            20.6





*Commercial
      Real Estate Mortgage Loans.* At
      December 31, 2006, TIB Bank's commercial real estate loan portfolio totaled
      $546.3 million. The Bank also has $24.2 million in loans outstanding that are
      secured by farmland. TIB Bank originates commercial mortgages secured by office
      and retail buildings, hotels, bed and breakfast inns, and multi-purpose
      warehouse buildings. Although terms may vary, TIB Bank's commercial mortgages
      generally are long term in nature, owner-occupied, and variable-rate loans.
      TIB
      Bank seeks to reduce the risks associated with commercial mortgage lending
      by
      generally lending in its market area and obtaining periodic financial statements
      and tax returns from borrowers. Commercial real estate loans are underwritten
      with future cash flows as the primary source of repayment. It is also TIB Bank's
      general policy to obtain personal guarantees from the principals of the
      borrowers and assignments of all leases related to the collateral.





*Commercial
      Loans.* At
      December 31, 2006, TIB Bank's commercial loan portfolio totaled $84.9 million.
      TIB Bank originates secured and unsecured loans for business purposes. Loans
      are
      made for acquisition, expansion, and working capital purposes and may be secured
      by real estate, accounts receivable, inventory, equipment or other assets.
      The
      financial condition and cash flow of commercial borrowers are closely monitored
      by the submission of corporate financial statements, personal financial
      statements and income tax returns.





*Construction
      Loans.* At
      December 31, 2006, TIB Bank's construction loan portfolio totaled $157.7
      million. TIB Bank provides interim real estate acquisition development and
      construction loans to builders, developers, and owner-occupants of the building.
      Real estate development and construction loans to provide interim financing
      on
      the property are based on acceptable percentages of the appraised value of
      the
      property securing the loan in each case. Real estate development and
      construction loan funds are disbursed periodically at pre-specified stages
      of
      completion. Interest rates on these loans are generally adjustable. TIB Bank
      carefully monitors these loans with on-site inspections and control of
      disbursements.


3


Development
      and construction loans are secured by the properties under development or
      construction and personal guarantees are typically obtained. Further, to assure
      that reliance is not placed solely in the value of the underlying property,
      TIB
      Bank considers the market conditions and feasibility of the proposed project,
      the financial condition and reputation of the borrower and any guarantors,
      the
      amount of the borrower’s equity in the project, independent appraisals, costs
      estimates and pre-construction sale information.





Loans
      to
      individuals for the construction of their primary or secondary residences are
      secured by the property under construction. The loan to value ratio of
      construction loans is based on the lesser of the cost to construct or the
      appraised value of the completed home. Construction loans generally have a
      maturity of 12 months. These construction loans to individuals may be converted
      to permanent loans upon completion of construction.





*Residential
      Real Estate Mortgage Loans* .
      At
      December 31, 2006, TIB Bank's residential loan portfolio totaled $82.2 million.
      TIB Bank originates adjustable and fixed-rate residential mortgage loans. Such
      mortgage loans are generally originated under terms, conditions and
      documentation acceptable to the secondary mortgage market. TIB Bank will place
      some of these, primarily adjustable rate, loans into its portfolio, although
      the
      majority of loans originated are sold to investors.





*Indirect
      Auto Dealer Loans* .
      At
      December 31, 2006, TIB Bank's indirect auto dealer loans portfolio totaled
      $141.6 million. The Bank buys loans that have been originated by automobile
      dealerships—this is commonly referred to as indirect lending. We predominately
      buy loans from auto dealers in Southwest Florida and they are for the purchase
      of new or late model used cars. We serve customers over a broad range of
      creditworthiness and the required terms and rates are reflective of those risk
      profiles.





The
      balance of outstanding indirect loans continued to grow in 2006 as we increased
      production by leveraging the infrastructure we have established. We expect
      continued increases in production which we plan to fund through securitization
      of production in excess of runoff causing the total amount of indirect loans
      held in the portfolio to remain stable.





We
      deliver attractive risk adjusted returns while maintaining credit quality in
      our
      indirect lending operations due to a combination of factors
      including:


Business
            with a limited number of dealers - The dealerships we do business with
            are
            characterized by being very sound financially and trade predominately
            in
            vehicles which retain market value reasonably well over time. We continually
            monitor dealers for compliance with our lending guidelines. We endeavor
            to be
            one of the main buyers of loans from every dealer we do business with
            which
            allows us to have a cooperative relationship with that
            dealer.
        Thorough
            underwriting of applicants - We evaluate credit scores and other pertinent
            information such as the stability of the applicant's job, home ownership,
            and
            the nature of any credit issues which may give us a better indication
            of
            creditworthiness than just the credit score.
        Effective
            collections - We get to customers quickly and more often as payment issues
            arise. We begin contacting the customer once their payment is 10 days
            past
            due. After an account is 15 days past due, it is referred to a collection
            company for resolution including field contacts as necessary.
        Sale
            of
            repossessed automobiles at retail prices - We sell the repossessed automobiles
            we acquire on a retail less commission basis and wholesale through auctions.
            We are able to control our loss per vehicle because we have an established
            relationship with a dealer who sells a significant portion of the automobiles
            for us.


4


*Other
      Consumer Loans and Home Equity Loans* .
      At
      December 31, 2006, TIB Bank's consumer loan portfolio totaled $9.8 million,
      and
      its home equity portfolio totaled $17.2 million. TIB Bank offers a variety
      of
      consumer loans. These loans are typically secured by residential real estate
      or
      personal property, including automobiles and boats. Home equity loans
      (closed-end and lines of credit) are typically made up to 85% of the appraised
      value of the property securing the loan, in each case, less the amount of any
      existing liens on the property. Closed-end loans have terms of up to 15 years.
      Lines of credit have an original maturity of 10 years. The interest rates on
      closed-end home equity loans are fixed, while interest rates on home equity
      lines of credit are variable.





**Credit
      administration**





TIB
      Bank's lending activities are governed by written policies approved by the
      board
      of directors to ensure proper management of credit risk. Loans are subject
      to a
      defined credit process that includes repayment analysis of the borrower,
      risk-rating of credits, establishment of lending limits and application of
      lending procedures, including the holding of adequate collateral and the
      maintenance of compensating balances, as well as procedures for on-going
      identification and management of credit deterioration. Regular portfolio reviews
      are performed to identify potential underperforming credits, estimate loss
      exposure, and to ascertain compliance with TIB Bank's policies. Management
      review consists of evaluation of the financial strengths of the borrower and
      the
      guarantor, the related collateral and the effects of economic
      conditions.





TIB
      Bank
      generally does not make commercial or consumer loans outside its market area
      unless the borrower has an established relationship with TIB Bank and conducts
      its principal business operations within TIB Bank's market area. Consequently,
      TIB Bank and its borrowers are affected by the economic conditions prevailing
      in
      its market area.





**Merchant
      Bankcard Processing**





Through
      December 30, 2005, the Bank processed credit card transactions for merchants
      primarily in the Florida Keys. The Bank sold the merchant bankcard processing
      segment to NOVA Information Systems on December 30, 2005. Subsequent to the
      sale, all historical operating results are reflected as discontinued operations
      in the accompanying financial statements.





**Investment
      activities**





Through
      December 15, 2004, TIB Bank engaged through a wholly-owned subsidiary, TIB
      Investment Center, Inc., in the retail sale of non-deposit investment products
      such as variable and fixed rate annuities, mutual funds and other products.
      On
      December 15, 2004, the Company sold certain intangible assets which primarily
      comprised the book of business which served as the foundation of the investment
      center operations.





**Employees**





As
      of
      December 31, 2006, the Bank employed 337 full-time employees and 11 part-time
      employees. Except for certain officers of the Bank who presently serve as
      officers of the Company, the Company does not have any employees. The Company
      and its subsidiaries are not a party to any collective bargaining agreement,
      and
      management believes the Company and its subsidiaries enjoy satisfactory
      relations with their employees.





5


**Related
      Party Transactions**





At
      December 31, 2006, we had $1.06 billion in total loans outstanding, of which
      $760,000 was outstanding to certain of our executive officers and directors
      and
      their related business interests. In the ordinary course of business, TIB Bank
      makes loans to our directors and their affiliates and to policy-making officers,
      all of which are made on substantially the same terms, including interest rates
      and collateral, as those prevailing at the time for comparable transactions
      and
      do not involve more than the normal risk of collectibility.





**SUPERVISION
      AND REGULATION**





**General**





We
      are
      extensively regulated under federal and state law. Generally, these laws and
      regulations are intended to protect depositors, not shareholders. The following
      is a summary description of certain provisions of certain laws that affect
      the
      regulation of bank holding companies and banks. The discussion is qualified
      in
      its entirety by reference to applicable laws and regulations. Changes in such
      laws and regulations may have a material effect on our business and prospects,
      as well as those of TIB Bank.





**Federal
      Bank Holding Company Regulation and Structure**





We
      are a
      bank holding company within the meaning of the Bank Holding Company Act of
      1956,
      as amended, and, as such, we are subject to regulation, supervision, and
      examination by the Federal Reserve. We are required to file annual and quarterly
      reports with the Federal Reserve and to provide the Federal Reserve with such
      additional information as it may require. The Federal Reserve may examine us
      and
      our subsidiaries.





With
      certain limited exceptions, we are required to obtain prior approval from the
      Federal Reserve before acquiring direct or indirect ownership or control of
      more
      than 5% of any voting securities or substantially all of the assets of a bank
      or
      bank holding company, or before merging or consolidating with another bank
      holding company. In acting on applications for such approval, the Federal
      Reserve must consider various statutory factors, including among others, the
      effect of the proposed transaction on competition in the relevant geographical
      and product markets, each party’s financial condition and management resources
      and record of performance under the Community Reinvestment Act. Additionally,
      with certain exceptions any person proposing to acquire control through direct
      or indirect ownership of 25% or more of any of our voting securities is required
      to give 60 days’ written notice of the acquisition to the Federal Reserve, which
      may prohibit the transaction, and to publish notice to the public.





Generally,
      a bank holding company may not engage in any activities other than banking,
      managing or controlling its bank and other authorized subsidiaries, and
      providing services to these subsidiaries. With prior approval of the Federal
      Reserve, we may acquire more than 5% of the assets or outstanding shares of
      a
      company engaging in non-bank activities determined by the Federal Reserve to
      be
      closely related to the business of banking or of managing or controlling banks.
      In recent years, changes in law have significantly increased the right of an
      eligible bank holding company, called a “financial holding company,” to engage
      in a full range of financial activities, including insurance and securities
      activities, as well as merchant banking and other financial services. We are
      a
      financial holding company and thus have expanded financial affiliation
      opportunities as long as TIB Bank remains a well-capitalized bank under the
      standards discussed below, and also meets certain other requirements. As of
      December 31, 2006, TIB Bank met these requirements for our continued
      qualification as a financial holding company.





6


Subsidiary
      banks of a bank holding company are subject to certain quantitative and
      qualitative restrictions on extensions of credit to the bank holding company
      or
      its subsidiaries, investments in their securities, and the use of their
      securities as collateral for loans to any borrower. These regulations and
      restrictions may limit our ability to obtain funds from TIB Bank for our cash
      needs, including funds for the payment of dividends, interest and operating
      expenses. Further, a bank holding company and its subsidiaries are prohibited
      from engaging in certain tie-in arrangements in connection with any extension
      of
      credit, lease or sale of property or furnishing of services. For example, TIB
      Bank may not generally require a customer to obtain other services from itself
      or us, and may not require that a customer promise not to obtain other services
      from a competitor as a condition to and extension of credit to the customer.
      The
      Federal Reserve has ended the anti-tying rules for bank holding companies and
      their non-banking subsidiaries. Such rules were retained for banks.





Under
      Federal Reserve policy, a bank holding company is expected to act as a source
      of
      financial strength to its subsidiary banks and to make capital injections into
      a
      troubled subsidiary bank, and the Federal Reserve may charge the bank holding
      company with engaging in unsafe and unsound practices for failure to commit
      resources to a subsidiary bank when required. A required capital injection
      may
      be called for at a time when the holding company does not have the resources
      to
      provide it. In addition, depository institutions insured by the FDIC can be
      held
      liable for any losses incurred by, or reasonably anticipated to be incurred
      by,
      the FDIC in connection with the default of, or assistance provided to, a
      commonly controlled FDIC-insured depository institution.





**Federal
      and State Bank Regulation**





TIB
      Bank
      is a Florida state-chartered bank, with all the powers of a commercial bank
      regulated and examined by the Florida Office of Financial Regulation and the
      FDIC. The FDIC has extensive enforcement authority over the institutions it
      regulates to prohibit or correct activities that violate law, regulation or
      written agreement with the FDIC. Enforcement powers also regulate activities
      that are deemed to constitute unsafe or unsound practices. Enforcement actions
      may include the appointment of a conservator or receiver, the issuance of a
      cease and desist order, the termination of deposit insurance, the imposition
      of
      civil money penalties on the institution, its directors, officers, employees
      and
      institution-affiliated parties, the issuance of directives to increase capital,
      the issuance of formal and informal agreements, the removal of or restrictions
      on directors, officers, employees and institution-affiliated parties, and the
      enforcement of any such mechanisms through restraining orders or other court
      actions.





In
      its
      lending activities, the maximum legal rate of interest, fees and charges that
      a
      financial institution may charge on a particular loan depends on a variety
      of
      factors such as the type of borrower, the purpose of the loan, the amount of
      the
      loan and the date the loan is made. Other laws tie the maximum amount that
      may
      be loaned to any one customer and its related interest to capital levels. TIB
      Bank is also subject to certain restrictions on extensions of credit to
      executive officers, directors, principal shareholders or any related interest
      of
      such persons which generally require that such credit extensions be made on
      substantially the same terms as are available to third persons dealing with
      TIB
      Bank and not involve more than the normal risk of repayment. TIB Bank is also
      subject to federal laws establishing certain record keeping, customer
      identification and reporting requirements with respect to certain large cash
      transactions, sales and travelers’ checks or other monetary instruments, and
      international transportation of cash or monetary instruments. Further, under
      the
      USA Patriot Act of 2001, financial institutions, including TIB Bank, are
      required to implement additional policies and procedures with respect to, or
      additional measures designed to address, any or all of the following matters,
      among others: money laundering, suspicious activities and currency transaction
      reporting, and currency crimes.





The
      Community Reinvestment Act requires that, in connection with the examination
      of
      financial institutions within their jurisdictions, the FDIC evaluates the record
      of the financial institution in meeting the credit needs in its communities
      including low and moderate income neighborhoods, consistent with the safe and
      sound operation of those banks. These factors are also considered by all
      regulatory agencies in evaluating mergers, acquisitions and applications to
      open
      a branch or facility. As of the date of its most recent examination report,
      TIB
      Bank has a Community Reinvestment Act rating of “Satisfactory.”





7


Under
      the
      Federal Deposit Insurance Corporation Improvement Act of 1991, each federal
      banking agency is required to prescribe, by regulation, noncapital safety and
      soundness standards for institutions under its authority. The federal banking
      agencies, including the FDIC, have adopted standards covering internal controls,
      information systems and internal audit systems, loan documentation, credit
      underwriting, interest rate exposure, asset growth, and compensation, fees
      and
      benefits. An institution that fails to meet those standards may subject the
      institution to regulatory sanctions if required by the agency to develop a
      plan
      acceptable to the agency, specifying the steps that the institution will take
      to
      meet the standards. We believe that we substantially meet all standards that
      have been adopted. This law also imposes capital standards on insured depository
      institutions. See “Capital Requirements” below.





The
      Federal Deposit Insurance Corporation Improvement Act of 1991 also provides
      for,
      among other things, (i) publicly available annual financial condition and
      management reports for financial institutions, including audits by independent
      accountants, (ii) the establishment of uniform accounting standards by federal
      banking agencies, (iii) the establishment of a “prompt corrective action” system
      of regulatory supervision and intervention, based on capitalization levels
      with
      more scrutiny and restrictions placed on depository institutions with lower
      levels of capital, (iv) additional grounds for the appointment of a conservator
      or receiver, and (v) restrictions or prohibitions on accepting brokered
      deposits, except for institutions which significantly exceed minimum capital
      requirements. FDICIA also provides for increased funding of the FDIC insurance
      funds and the implementation of risked-based premiums.





**Deposit
      Insurance**





As
      an
      FDIC member institution, deposits of TIB Bank are currently insured to the
      current maximum allowed by law through the Bank Insurance Fund, which is
      administered by the FDIC.








**Limits
      on Dividends and Other Payments**





Our
      current ability to pay dividends is largely dependent upon the receipt of
      dividends from TIB Bank. Both federal and state laws impose restrictions on
      the
      ability of TIB Bank to pay dividends. Federal law prohibits the payment of
      a
      dividend by an insured depository institution like TIB Bank if the depository
      institution is considered “undercapitalized” or if the payment of the dividend
      would make the institution “undercapitalized.” See “Capital Requirements" below.
      The Federal Reserve has issued a policy statement that provides that bank
      holding companies should pay dividends only out of the prior year’s net income,
      and then only if their prospective rate of earnings retention appears consistent
      with their capital needs, asset quality, and overall financial condition. For
      a
      Florida state-chartered bank, dividends may be paid out of the bank’s aggregate
      net profits for the current year combined with its retained earnings for the
      preceding two years as the board deems appropriate. No dividends may be paid
      at
      a time when a bank’s net income from the preceding two years is a loss or which
      would cause the capital accounts of the bank to fall below the minimum amount
      required by law. In addition to these specific restrictions, bank regulatory
      agencies also have the ability to prohibit proposed dividends by a financial
      institution that would otherwise be permitted under applicable regulations
      if
      the regulatory body determines that such distribution would constitute an unsafe
      or unsound practice.








8


**Capital
      Requirements**





The
      Federal Reserve and FDIC have adopted certain risk-based capital guidelines
      to
      assist in the assessment of the capital adequacy of a banking organization’s
      operations for both transactions reported on the balance sheet as assets and
      transactions, such as letters of credit and recourse arrangements which are
      recorded as off balance sheet items. Under these guidelines, nominal dollar
      amounts of assets and credit equivalent amounts of off balance sheet items
      are
      multiplied by one of several risk adjustment percentages, which range from
      0%
      for assets with low credit risk, such as certain U.S. Treasury securities,
      to
      100% for assets with relatively high credit risk, such as business
      loans.





A
      banking
      organization’s risk-based capital ratio is obtained by dividing its qualifying
      capital by its total risk adjusted assets. The regulators measure risk-adjusted
      assets, which include off balance sheet items, against both total qualifying
      capital (the sum of Tier 1 capital and limited amounts of Tier 2 capital) and
      Tier 1 capital. “Tier 1,” or core capital includes common equity, perpetual
      preferred stock (excluding auction rate issues), trust preferred securities
      (subject to certain limitations), and minority interest in equity accounts
      of
      consolidated subsidiaries (less goodwill and other intangibles), subject to
      certain exceptions. “Tier 2,” or supplementary capital, includes, among other
      things limited-life preferred stock, hybrid capital instruments, mandatory
      convertible securities and trust preferred securities, qualifying and
      subordinated debt, and the allowance for loan and lease losses, subject to
      certain limitations and less required deductions. The inclusion of elements
      of
      Tier 2 capital is subject to certain other requirements and limitations of
      the
      federal banking agencies.





The
      federal banking agencies are required to take “prompt corrective action” with
      respect to depository institutions that do not meet minimum capital
      requirements. As a result, the federal bank regulatory authorities have adopted
      regulations setting forth a five tiered system for measuring the capital
      adequacy of the depository institutions that they supervise. Under these
      regulations, a depository institution is classified in one of the following
      capital categories: “well capitalized,” “adequately capitalized,”
“undercapitalized,” “significantly undercapitalized,” and “critically
      undercapitalized.” An institution may be deemed by the regulators to be in a
      capitalization category that is lower than is indicated by its actual capital
      position if, among other things, it receives an unsatisfactory examination
      rating with respect to asset quality, management, earnings or liquidity. As
      of
      December 31, 2006, TIB Bank met the definition of a “well-capitalized”
institution.





A
      depository institution generally is prohibited from making any capital
      distribution (including payment of a cash dividend) or paying any management
      fees to its holding company if the depository institution would thereafter
      be
      undercapitalized. Undercapitalized depository institutions are subject to growth
      limitations and are required to submit capital restoration plans. If a
      depository institution fails to submit an acceptable plan, it is treated as
      if
      it is significantly undercapitalized. Significantly undercapitalized depository
      institutions may be subject to a number of other requirements and restrictions
      including orders to sell sufficient voting stock to become adequately
      capitalized, requirements to reduce total assets and stop accepting deposits
      from correspondent banks. Critically undercapitalized institutions are subject
      to the appointment of a receiver or conservator, generally within 90 days of
      the
      date such institution is determined to be critically undercapitalized.





The
      federal banking agencies also have significantly expanded powers to take
      enforcement action against institutions that fail to comply with capital or
      other standards. Such action may include limitations on the right to pay
      dividends, the issuance by the applicable regulatory authority of a capital
      directive to increase capital and, in the case of depository institutions,
      the
      termination of deposit insurance by the FDIC. The circumstances under which
      the
      FDIC is permitted to provide financial assistance to an insured institution
      before appointment of a conservator or receiver also is limited under law.
      In
      addition, future changes in regulations or practices could further reduce the
      amount of capital recognized for purposes of capital adequacy. Such a change
      could affect the ability of TIB Bank to grow and could restrict the amount
      of
      profits, if any, available for the payment of dividends to us.






9


**Interstate
      Banking Legislation**





The
      Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
      (“Riegle-Neal”), subject to certain restrictions, allows adequately capitalized
      and managed bank holding companies to acquire existing banks across state lines,
      regardless of state statutes that would prohibit acquisitions by out-of-state
      institutions. Further, a bank holding company may consolidate interstate bank
      subsidiaries into branches and a bank may merge with an unaffiliated bank across
      state lines to the extent that the applicable states authorize such
      transactions. Florida has a law which permits interstate branching through
      merger transactions under the federal interstate laws. Under the Florida law,
      with the prior approval of the Florida Office of Financial Regulation, a Florida
      bank may establish, maintain and operate one or more branches in a state other
      than the State of Florida pursuant to a merger transaction in which the Florida
      bank is the resulting bank. In addition, Florida law provides that one or more
      Florida banks may enter into a merger transaction with one or more out-of-state
      banks, and an out-of-state bank resulting from such transaction may maintain
      and
      operate branches of a Florida bank that participated in such
      merger.





**Financial
      Services Modernization**





Enacted
      in 1999, the Graham-Leach-Bliley Act reformed and modernized certain areas
      of
      financial services regulations and repealed the affiliation provisions of the
      federal Glass-Steagall Act of 1933, which, taken together, limited the
      securities, insurance and other non-banking activities of any company that
      controls a FDIC insured financial institution. The Act provides that a financial
      holding company may engage in a full range of financial activities, including
      insurance and securities sales and underwriting activities, real estate
      development, and, with certain exceptions, merchant banking activities, with
      expedited notice procedures. The Act also permits certain qualified national
      banks to form “financial subsidiaries,” which have broad authority to engage in
      all financial activities except insurance underwriting, insurance investments,
      real estate investment or development, and merchant banking, and expands the
      potential financial activities of subsidiaries of state banks, subject to
      applicable state law. The range of activities in which bank holding companies
      and their subsidiaries may engage is not as broad. The law also includes
      substantive requirements for maintenance of customer financial
      privacy.





**Sarbanes-Oxley
      Act**





In
      2002,
      the Sarbanes-Oxley Act was enacted which imposes a myriad of corporate
      governance and accounting measures designed so that shareholders have full
      and
      accurate information about the public companies in which they invest. All public
      companies are affected by the Act. Some of the principal provisions of the
      Act
      include:





The
            creation of an independent accounting oversight board to oversee the
            audit of
            public companies and auditors who perform such audits;
        Auditor
            independence provisions which restrict non-audit services that independent
            accountants may provide to their audit clients;
        Additional
            corporate governance and responsibility measures which (a) require the
            chief
            executive officer and chief financial officer to certify financial statements
            and to forfeit salary and bonuses in certain situations, and (b) protect
            whistleblowers and informants;
        Expansion
            of the authority and responsibilities of the company’s audit, nominating and
            compensation committees;
        Mandatory
            disclosure by analysts of potential conflicts of interest;
            and
        Enhanced
            penalties for fraud and other violations.




10


**Other
      Legislative Considerations**





The
      United States Congress and the Florida Legislature periodically consider and
      may
      adopt legislation that results in additional deregulation, among other matters,
      of banks and other financial institutions. Such legislation could modify or
      eliminate current prohibitions with other financial institutions, including
      mutual funds, securities, brokerage firms, insurance companies, banks from
      other
      states, and investment banking firms. The effect of any such legislation on
      our
      business or that of TIB Bank cannot be accurately predicted. We cannot predict
      what legislation might be enacted or what other implementing regulations might
      be adopted, and if enacted or adopted, the effect on us.





**Competition**





The
      banking business is highly competitive. Banks generally compete with other
      financial institutions through the banking products and services offered, the
      pricing of services, the level of service provided, the convenience and
      availability of services, and the degree of expertise and the personal manner
      in
      which services are offered. The Bank encounters strong competition from most
      of
      the financial institutions in the Bank's primary service area. In the conduct
      of
      certain areas of its banking business, the Bank also competes with credit
      unions, consumer finance companies, insurance companies, money market mutual
      funds and other financial institutions, some of which are not subject to the
      same degree of regulation and restrictions imposed upon the Bank. Many of these
      competitors have substantially greater resources and lending limits than the
      Bank has and offer certain services, such as trust services, that the Bank
      does
      not provide presently. Management believes that personalized service and
      competitive pricing is a sustainable competitive advantage that will provide
      it
      with a method to compete effectively in our primary service area.





**Monetary
      Policy**





Our
      earnings are affected by domestic and foreign economic conditions, particularly
      by the monetary and fiscal policies of the United States government and its
      agencies. The Federal Reserve has an important impact on the operating results
      of banks and other financial institutions through its power to implement
      national monetary policy. The methods used by the Federal Reserve include
      setting the reserve requirements of banks, establishing the discount rate on
      bank borrowings and conducting open market transactions in United States
      Government securities.





**FDIC
      Insurance Assessments**





The
      FDIC
      insures the deposits of the Bank up to prescribed limits for each depositor.
      The
      amount of FDIC assessments paid by each Bank Insurance Fund (BIF) member
      institution is based on its relative risks of default as measured by regulatory
      capital ratios and other factors. Specifically, the assessment rate is based
      on
      the institution’s capitalization risk category and supervisory subgroup
      category. An institution’s capitalization risk category is based on the FDIC’s
      determination of whether the institution is well capitalized, adequately
      capitalized or less than adequately capitalized. An institution’s supervisory
      subgroup category is based on the FDIC’s assessment of the financial condition
      of the institution and the probability that FDIC intervention or other
      corrective action will be required. The FDIC may terminate insurance of deposits
      upon a finding that the institution has engaged in unsafe and unsound practices,
      is in an unsafe or unsound condition to continue operations, or has violated
      any
      applicable law, regulation, rule, order, or condition imposed by the FDIC.
      As a
      result of the Federal Deposit Insurance Reform Act of 2005, the Bank is
      expecting to be assessed deposit insurance on a quarterly basis beginning
      January 1, 2007. We believe the assessment rate will be approximately 0.05%
      of
      total deposits. As of December 31, 2006, the Bank had a credit of approximately
      $280,000, resulting from its share of the total assessment credit pool as an
      eligible insured depository institution, which can be applied to offset deposit
      insurance assessments. Accordingly, we believe the credit will be fully utilized
      by or around the end of the second quarter of 2007 and subsequent assessments
      will be recorded as expense when incurred.





11


**Statistical
      Information**





Certain
      statistical information is found in Item 7, “Management's Discussion and
      Analysis of Financial Condition and Results of Operations” of this Annual Report
      on Form 10-K.





**ITEM
      1A: RISK FACTORS**





**RISK
      FACTORS**





Our
      business is subject to a variety of risks, including the risks described below
      as well as adverse business conditions and changes in regulations and the local,
      regional and national economic environment. The risks and uncertainties
      described below are not the only ones facing us. Additional risks and
      uncertainties not known to us or not described below which we have not
      determined to be material may also impair our business operations. You should
      carefully consider the risks described below, together with all other
      information in this report, including information contained in the “Business,”
“Management’s Discussion and Analysis of Results of Operations and Financial
      Condition,” and “Quantitative and Qualitative Disclosures about Market Risk”
sections. This report contains forward-looking statements that involve risks
      and
      uncertainties, including statements about our future plans, objectives,
      intentions and expectations. Many factors, including those described below,
      could cause actual results to differ materially from those discussed in
      forward-looking statements. If any of the following risks actually occur, our
      business, financial condition and results of operations could be adversely
      affected, and we may not be able to achieve our goals. Such events may cause
      actual results to differ materially from expected and historical results, and
      the trading price of our common stock could decline.





**Risks
      Related to Our Business**





*Our
      business strategy includes the continuation of significant growth plans, and
      if
      we fail to grow or fail to manage our growth effectively as we pursue our
      strategy, it could negatively affect our results of operations*





We
      intend
      to continue pursuing a significant growth strategy for our business. Our
      prospects must be considered in light of the risks, expenses and difficulties
      frequently encountered by companies in significant growth stages of development.
      We cannot assure you that we will be able to expand our market presence in
      our
      existing markets or successfully enter new markets or that any such expansion
      will not adversely affect our results of operations. Failure to manage our
      growth effectively could have a material adverse effect on our business, future
      prospects, financial condition or results of operations, and could adversely
      affect our ability to successfully implement our business strategy. Also, if
      our
      growth occurs more slowly than anticipated or declines, our operating results
      could be materially adversely affected.





Our
      ability to successfully grow will depend on a variety of factors including
      the
      continued availability of desirable business opportunities, the competitive
      responses from other financial institutions in our market areas and our ability
      to manage our growth. While we believe that we have the management resources
      and
      internal systems in place to successfully manage our future growth, there can
      be
      no assurance that growth opportunities will be available or that growth will
      be
      successfully managed.





12


*Our
      business is subject to the success of the local economies where it operates*





Our
      success significantly depends upon the growth in population, income levels,
      deposits and housing starts in our primary and secondary markets. If the
      communities in which we operate do not grow or if prevailing economic conditions
      locally or nationally are unfavorable, our business may not succeed. Adverse
      economic conditions in our specific market area could reduce our growth rate,
      affect the ability of our customers to repay their loans to us and generally
      affect our financial condition and results of operations. We are less able
      than
      a larger institution to spread the risks of unfavorable local economic
      conditions across a large number of diversified economies. Moreover, we cannot
      give any assurance that we will benefit from any market growth or favorable
      economic conditions in our primary market areas if they do occur.




Any
      adverse market or economic conditions in the State of Florida may
      disproportionately increase the risk that our borrowers will be unable to make
      their loan payments. In addition, the market value of the real estate securing
      loans as collateral could be adversely affected by unfavorable changes in market
      and economic conditions. As of December 31, 2006, approximately 78% of our
      loans
      held for investment were secured by real estate. Of this amount, approximately
      69% were commercial real estate loans, 10% were residential real estate loans
      and 19% were construction and development loans. Any sustained period of
      increased payment delinquencies, foreclosures or losses caused by adverse market
      or economic conditions in the State of Florida could adversely affect the value
      of our assets, revenues, results of operations and financial
      condition.





*Our
      business may face risks with respect to future expansion*




In
      addition to our pending merger transaction with The Bank of Venice, we may
      acquire other financial institutions or parts of financial institutions in
      the
      future and we may engage in additional de novo branch expansion. We may also
      consider and enter into new lines of business or offer new products or services.
      We also may receive future inquiries and have discussions with potential
      acquirors. Acquisitions and mergers involve a number of risks, including:


the
            time and costs associated with identifying and evaluating potential
            acquisitions and merger partners;
        the
            estimates and judgments used to evaluate credit, operations, management
            and
            market risks with respect to the target institution may not be accurate;
        the
            time and costs of evaluating new markets, hiring experienced local management
            and opening new offices, and the time lags between these activities and
            the
            generation of sufficient assets and deposits to support the costs of
            the
            expansion;
        our
            ability to finance an acquisition and possible dilution to our existing
            shareholders;
        the
            diversion of our management’s attention to the negotiation of a transaction,
            and the integration of the operations and personnel of the combining
            businesses;
        entry
            into new markets where we lack experience;
        the
            introduction of new products and services into our business;
        the
            incurrence and possible impairment of goodwill associated with an acquisition
            and possible adverse short-term effects on our results of operations;
            and
        the
            risk of loss of key employees and customers.  13


We
      may
      incur substantial costs to expand, and can give no assurance such expansion
      will
      result in the levels of profits we seek. There can be no assurance integration
      efforts for The Bank of Venice or any future mergers or acquisitions will be
      successful. Also, we may issue equity securities, including common stock and
      securities convertible into shares of our common stock in connection with future
      acquisitions, which could cause ownership and economic dilution to our
      shareholders. There is no assurance that, following any future mergers or
      acquisitions, our integration efforts will be successful or, after giving effect
      to the acquisition, that we will achieve profits comparable to, or better than,
      our historical experience.





*If
      the value of real estate in our core Florida market were to decline materially,
      a significant portion of our loan portfolio could become under-collateralized,
      which could have a material adverse effect on us*





With
      most
      of our loans concentrated in Southern Florida, a decline in local economic
      conditions could adversely affect the values of our real estate collateral.
      Additionally, the availability of property insurance, including windstorm and
      flood insurance, and the significant increases in the cost thereof in the
      Florida market may negatively affect borrowers’ abilities to repay existing
      loans and the abilities of potential borrowers to qualify for new loans.
      Consequently, a decline in local economic conditions may have a greater effect
      on our earnings and capital than on the earnings and capital of larger financial
      institutions whose real estate loan portfolios are geographically diverse.





In
      addition to the financial strength and cash flow characteristics of the borrower
      in each case, TIB Bank often secures its loans with real estate collateral.
      At
      December 31, 2006, approximately 78% of TIB Bank’s loans have real estate as a
      primary or secondary component of collateral. The real estate collateral in
      each
      case provides an alternate source of repayment in the event of default by the
      borrower and may deteriorate in value during the time the credit is extended.
      If
      we are required to liquidate the collateral securing a loan to satisfy the
      debt
      during a period of reduced real estate values, our earnings and capital could
      be
      adversely affected.





*An
      inadequate allowance for loan losses would reduce our earnings*





The
      risk
      of credit losses on loans varies with, among other things, general economic
      conditions, the type of loan being made, the creditworthiness of the borrower
      over the term of the loan and, in the case of a collateralized loan, the value
      and marketability of the collateral for the loan. Management maintains an
      allowance for loan losses based upon, among other things, historical experience,
      an evaluation of economic conditions and regular reviews of delinquencies and
      loan portfolio quality. Based upon such factors, management makes various
      assumptions and judgments about the ultimate collectibility of the loan
      portfolio and provides an allowance for loan losses based upon a percentage
      of
      the outstanding balances and for specific loans when their ultimate
      collectibility is considered questionable. If management’s assumptions and
      judgments prove to be incorrect and the allowance for loan losses is inadequate
      to absorb losses, or if the bank regulatory authorities require TIB Bank to
      increase the allowance for loan losses as a part of their examination process,
      TIB Bank’s earnings and capital could be significantly and adversely affected.





*Our
      indirect lending program has a limited operating history and, as a result,
      the
      financial performance to date of this program may not be a reliable indicator
      of
      whether this business will continue to be successful*





A
      significant portion of our current lending involves the purchase of consumer
      automobile installment sales contracts from automobile dealers primarily located
      in Southwest Florida. We began this program in 2002 and as of December 31,
      2006,
      we had approximately $142 million of indirect loans outstanding. These loans
      are
      for the purchase of new or late model used cars. We serve customers over a
      broad
      range of creditworthiness and the required terms and rates are reflective of
      those risk profiles. While these loans have higher yields than many of our
      other
      loans, they involve significant risks in addition to normal credit risk.
      Potential risk elements associated with indirect lending include the limited
      personal contact with the borrower as a result of indirect lending through
      dealers, the absence of assured continued employment of the borrower, the
      varying general creditworthiness of the borrower, changes in the local economy
      and difficulty in monitoring collateral. While indirect automobile loans are
      secured, they are secured by depreciating assets and characterized by loan
      to
      value ratios that could result in the Bank not recovering the full value of
      an
      outstanding loan upon default by the borrower. In addition, given the relatively
      unseasoned nature of this portfolio, credit problems may not have surfaced
      or
      become apparent yet, but may arise in the future.





14


*Our
      de novo branching strategy could cause our expenses to increase faster than
      revenues*





Our
      primary strategy for building market share in Southwest Florida is based on
      establishing new branches. We currently plan to open one to two additional
      branches each year in 2007 and 2008. There are considerable costs involved
      in
      opening branches and new branches generally do not generate sufficient revenues
      to offset their costs until they have been in operation for at least a year
      or
      more. Accordingly, our new branches can be expected to negatively impact
      earnings for some period of time until the branches reach certain economies
      of
      scale. Our expenses could be further increased if we encounter delays in the
      opening of any of our new branches. Finally, we have no assurance that our
      new
      branches will be successful even after they have been established.





*Our
      recent results may not be indicative of our future results*





We
      may
      not be able to sustain our historical rate of growth or may not even be able
      to
      grow our business at all. In addition, our recent and rapid growth may distort
      some of our historical financial ratios and statistics. In the future, we may
      not have the benefit of several recently favorable factors, such as a generally
      stable interest rate environment or the ability to find suitable expansion
      opportunities. Various factors, such as economic conditions, regulatory and
      legislative considerations and competition, may also impede or prohibit our
      ability to expand our market presence. If we experience a significant decrease
      in our historical rate of growth, our results of operations and financial
      condition may be adversely affected due to a high percentage of our operating
      costs being fixed expenses.





*Our
      continued pace of growth may require us to raise additional capital in the
      future, but that capital may not be available when it is
      needed*





We
      are
      required by federal and state regulatory authorities to maintain adequate levels
      of capital to support our operations. We anticipate our capital resources will
      satisfy our capital requirements for the foreseeable future. We may at some
      point, however, need to raise additional capital to support our continued
      growth.





Our
      ability to raise additional capital, if needed, will depend on conditions in
      the
      capital markets at that time, which are outside of our control, and on our
      financial performance. Accordingly, we cannot give any assurance that we will
      be
      able to raise additional capital if needed on terms acceptable to us. If we
      cannot raise additional capital when needed, our ability to further expand
      our
      operations through internal growth and acquisitions could be materially
      impaired.





*Increases
      in interest rates may negatively affect our earnings and the value of our
      assets*




Changes
      in interest rates may affect our level of interest income, the primary component
      of our gross revenue, as well as the level of our interest expense, our largest
      recurring expenditure. In a period of rising interest rates, our interest
      expense could increase in different amounts and at different rates while the
      interest that we earn on our assets may not change in the same amounts or at
      the
      same rates. Accordingly, increases in interest rates could decrease our net
      interest income.





Changes
      in the level of interest rates also may negatively affect our ability to
      originate real estate loans, the value of our assets and our ability to realize
      gains from the sale of our assets, all of which ultimately affect our earnings.
      A decline in the market value of our assets may limit our ability to borrow
      additional funds or result in our lenders requiring additional collateral from
      us under our borrowing agreements. As a result, we could be required to sell
      some of our loans and investments under adverse market conditions, upon terms
      that are not favorable to us, in order to maintain our liquidity. If those
      sales
      are made at prices lower than the amortized costs of the investments, we will
      incur losses.





*Competition
      from financial institutions and other financial service providers may adversely
      affect our profitability*





The
      banking business is highly competitive and we experience competition in each
      of
      our markets from many other financial institutions. We compete with commercial
      banks, credit unions, savings and loan associations, mortgage banking firms,
      consumer finance companies, securities brokerage firms, insurance companies,
      money market funds, and other mutual funds, as well as other super-regional,
      national and international financial institutions that operate offices in our
      primary market areas and elsewhere.





15


We
      compete with these institutions both in attracting deposits and in making loans.
      In addition, we have to attract our customer base from other existing financial
      institutions and from new residents. Many of our competitors are
      well-established, larger financial institutions. While we believe we can and
      do
      successfully compete with these other financial institutions in our primary
      markets, we may face a competitive disadvantage as a result of our smaller
      size,
      lack of geographic diversification and inability to spread our marketing costs
      across a broader market. Although we compete by concentrating our marketing
      efforts in our primary markets with local advertisements, personal contacts,
      and
      greater flexibility and responsiveness in working with local customers, we
      can
      give no assurance this strategy will be successful.





*We
      are subject to extensive regulation that could limit or restrict our
      activities*





We
      operate in a highly regulated industry and are subject to examination,
      supervision, and comprehensive regulation by various federal and state agencies.
      Our compliance with these regulations is costly and restricts certain of our
      activities, including payment of dividends, mergers and acquisitions,
      investments, loans and interest rates charged, interest rates paid on deposits
      and locations of offices. We are also subject to capitalization guidelines
      established by our regulators, which require us to maintain adequate capital
      to
      support our growth.





The
      laws
      and regulations applicable to the banking industry could change at any time,
      and
      we cannot predict the effects of these changes on our business and
      profitability. Because government regulation greatly affects the business and
      financial results of all commercial banks and bank holding companies, our cost
      of compliance could adversely affect our ability to operate
      profitably.





The
      various federal and state regulatory agencies have advised that they may require
      enhanced credit monitoring and at times set limits or restrictions on certain
      lending activities based upon concentrations of risk identified (for example,
      concentrations of commercial real estate loans exceeding 300% of capital).
      We
      cannot assure compliance with any possible future requirements will not
      adversely affect our ability to operate profitably or grow at the rates we
      desire.





The
      Sarbanes-Oxley Act of 2002, and the related rules and regulations promulgated
      by
      the Securities and Exchange Commission and Nasdaq that are applicable to us,
      have increased the scope, complexity and cost of corporate governance, reporting
      and disclosure practices. As a result, we may experience greater compliance
      costs.





*Our
      directors and executive officers own a portion of our common stock*





Our
      directors and executive officers, as a group, beneficially owned approximately
      5% of our outstanding common stock as of December 31, 2006. As a result of
      their
      ownership, the directors and executive officers will have the ability, by voting
      their shares in concert, to influence the outcome of all matters submitted
      to
      our shareholders for approval, including the election of directors.





*We
      are dependent upon the services of our management team*





Our
      future success and profitability is substantially dependent upon the management
      and banking abilities of our senior executives. We believe that our future
      results will also depend in part upon our attracting and retaining highly
      skilled and qualified management and other personnel. Competition for such
      personnel is intense, and we cannot assure you that the Company will be
      successful in retaining such personnel. We also cannot guarantee that members
      of
      our executive management team will remain with us. Changes in key personnel
      and
      their responsibilities may be disruptive to the Company’s business and could
      have a material adverse effect on our business, financial condition and results
      of operations.





16


**Risk
      Related to an Investment in Our Common Stock**





*Future
      capital needs could result in dilution of shareholders’
investments*





Our
      board
      of directors may determine from time to time that there is a need to obtain
      additional capital through the issuance of additional shares of our common
      stock
      or other securities. These issuances would dilute the ownership interests of
      current shareholders in the Company and may dilute the per share book value
      of
      our common stock. New investors may also have rights, preferences and privileges
      senior to our current shareholders which may adversely impact our current
      shareholders.





*Although
      publicly traded, the trading market in our common stock has substantially less
      liquidity than the average trading market for stock quoted on The NASDAQ
      National Market, and the price of our common stock due to this limited trading
      market may be more volatile in the future*





Our
      common stock is thinly traded. The average daily trading volume of our shares
      on
      The NASDAQ National Market during 2006 was approximately 9,583 shares. Thinly
      traded stock can be more volatile than stock trading in an active public market.
      We cannot predict the extent to which an active public market for our common
      stock will develop or be sustained. In recent years, the stock market has
      experienced a high level of price and volume volatility, and market prices
      for
      the stock of many companies have experienced wide price fluctuations that have
      not necessarily been related to their operating performance. Therefore, our
      shareholders may not be able to sell their shares at the volumes, prices, or
      times that they desire.





*Our
      ability to pay dividends is limited and we may be unable to pay future
      dividends*





Our
      ability to pay dividends is limited by regulatory restrictions and the need
      to
      maintain sufficient consolidated capital. The ability of TIB Bank to pay
      dividends to us is limited by its obligations to maintain sufficient capital
      and
      by other general restrictions on its dividends that are applicable to state
      banks that are regulated by the FDIC. If we do not satisfy these regulatory
      requirements, we will be unable to pay dividends on our common stock.





*Holders
      of our junior subordinated debentures have rights that are senior to those
      of
      our common stockholders*





We
      have
      supported our continued growth through the issuance of trust preferred
      securities from special purpose trusts and accompanying junior subordinated
      debentures. At December 31, 2006, we had outstanding trust preferred securities
      and accompanying junior subordinated debentures totaling $33 million. Payments
      of the principal and interest on the trust preferred securities of these special
      purpose trusts are conditionally guaranteed by us. Further, the accompanying
      junior subordinated debentures we issued to the special purpose trusts are
      senior to our shares of common stock. As a result, we must make payments on
      the
      junior subordinated debentures before any dividends can be paid on our common
      stock and, in the event of our bankruptcy, dissolution or liquidation, the
      holders of the junior subordinated debentures must be satisfied before any
      distributions can be made on our common stock. We have the right to defer
      distributions on our junior subordinated debentures (and the related trust
      preferred securities) for up to five years, during which time no dividends
      may
      be paid on our common stock.




**I****TEM
      1B: UNRESOLVED STAFF COMMENTS**





We
      did
      not receive any written comments during 2006 from the Commission staff regarding
      our periodic and current reports under the Act. There are no comments that
      remain unresolved from any prior period.





17


**ITEM
      2:** **PROPERTIES**





The
      Company’s executive offices are located at 599 9th Street North, Naples,
      Florida. The Bank’s executive offices are located at 99451 Overseas Highway, Key
      Largo, Florida. This is a two-story building owned by the Bank that contains
      approximately 13,275 square feet of finished space. The building is used for
      office space and the operation of a branch facility. Other Company operated
      properties are as follows:





**Address**
            **Location**
            **Purpose**
            **Owned/**
              **Leased**30400
                Overseas Highway
            Big
                Pine Key
            Branch
            Owned8100
                Health Center Boulevard
            Bonita
                Springs
            Branch
                and office
            Leased12205
                Metro Parkway
            Fort
                Myers
            Branch
            Owned12195
                Metro Parkway
            Fort
                Myers
            Indirect
                lending
            Leased600
                North Homestead Boulevard
            Homestead
            Branch
            Owned777
                North Krome Avenue
            Homestead
            Branch
            Owned632
                Washington Avenue
            Homestead
            Office
                space
            Leased28
                N.E. 18 Street
            Homestead
            Office
                space
            Owned80900
                Overseas Highway
            Islamorada
            Branch
                and office
            Owned103330
                Overseas Highway
            Key
                Largo
            Branch
            Owned228
                Atlantic Boulevard
            Key
                Largo
            Loans
                and HR
            Owned330
                Whitehead Street
            Key
                West
            Branch
            Owned3618
                North Roosevelt Boulevard
            Key
                West
            Branch
            Owned2348
                Overseas Highway
            Marathon
            Branch
            Owned11401
                Overseas Highway
            Marathon
                Shores
            Branch
            Owned6435
                Naples Boulevard
            Naples
            Branch
                and Office
            Owned3940
                Prospect Avenue - Suite 104 & 105
            Naples
            Branch
                and Office
            Leased1720
                J & C Boulevard - Suite 1
            Naples
            Office
            Leased9915
                Tamiami Trail North - Suite 1 & 2
            Naples
            Loan
                center
            Leased599
                9thStreet North - Suite 100 & 101
            Naples
            Corporate
                HQ & Branch
            Owned599
                9thStreet North - Suite 201
            Naples
            Office
                space
            Owned1125
                US Highway 27 South
            Sebring
            Branch
            Leased91980
                Overseas Highway
            Tavernier
            Branch
            Owned





In
      2004,
      the Bank purchased a parcel of land located at the Pine Air Lakes Subdivision
      in
      Naples, Florida, where it constructed a new branch which opened in January
      2007.





In
      2005,
      the Bank sold land that it bought in 2004 located at the Miami Land &
Development Subdivision in Homestead, Florida. The Bank also purchased a
      property at 17000 Cam Circle in Ft. Myers, Florida which was later sold in
      2006.





In
      2006,
      the Bank purchased parcels of land located at the Lehigh Acres Subdivision
      in
      Lehigh, FL and at the City Gate Subdivision in Naples, Florida, where it plans
      to construct new branches. In addition, the Bank entered into a sale-leaseback
      transaction on a building and related land located at 12195 Metro Parkway in
      Fort Myers, Florida.




18


**ITEM
      3: LEGAL PROCEE** **DINGS**





While
      the
      Company and the Bank are from time to time parties to various legal proceedings
      arising in the ordinary course of their business, management believes after
      consultation with legal counsel that there are no proceedings threatened or
      pending against the Company or the Bank that will, individually or in the
      aggregate, have a material adverse effect on the consolidated results of
      operations or financial condition of the Company.





**ITEM
      4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**





We
      did
      not submit any matters to a vote of our security holders during the Company's
      fourth quarter of the fiscal year ended December 31, 2006.








19


**PART
      II**








**ITEM
      5: MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES**





Our
      common stock trades on the NASDAQ National Market under the symbol “TIBB.” As of
      December 31, 2006, there were 459 registered shareholders of record and
      11,720,527 shares of our common stock outstanding. The following table sets
      forth, for the periods indicated, the high and low sale prices per share for
      our
      common stock on the NASDAQ National Market:





**2006**
            
            **2005**(Quarter
                Ended)
            
            
            High
            
            
            Low
            
            
            High
            
            
            LowMarch
                31
            
            $
            16.18
            
            $
            14.75
            
            $
            14.51
            
            $
            12.33June
                30
            
            
            16.25
            
            
            14.44
            
            
            14.65
            
            
            13.05September
                30
            
            
            16.20
            
            
            15.64
            
            
            16.25
            
            
            12.93December
                31
            
            
            18.44
            
            
            15.84
            
            
            16.86
            
            
            14.50





For
      the
      year ended December 31, 2006, we paid cash dividends to our shareholders in
      the
      amount of $.05875 per share for the first three quarters and $.06 per share
      for
      the last quarter ($.23625 in the aggregate). For the year ended December 31,
      2005, we paid cash dividends to our shareholders in the amount of $.0575 per
      share for the first three quarters and $.05875 per share for the last quarter
      ($.23125 in the aggregate). Our ability to continue to pay cash dividends to
      our
      shareholders is primarily dependent on the earnings of the Bank. Payment of
      dividends by the Bank to us is limited by dividend restrictions in capital
      requirements imposed by Bank regulators. Information regarding restrictions
      on
      the ability of the Bank to pay dividends to us is contained in Note 14 of the
      "Notes to Consolidated Financial Statements" contained in Item 8 hereof. In
      general, future dividend policy is subject to the discretion of the board of
      directors and will depend upon a number of factors, including the future
      earnings, capital requirements, regulatory constraints, and our financial
      condition as well as that of the Bank.





With
      respect to information regarding our securities authorized for issuance under
      equity incentive plans, the information contained in the section entitled
“Executive Compensation - Equity Compensation Plan Information” of our
      definitive Proxy Statement for the 2007 Annual Meeting of Shareholders is
      incorporated herein by reference.





We
      did
      not repurchase any shares of our common stock in 2006.








20


**STOCK
      PRICE PERFORMANCE GRAPH**





The
      stock
      price performance graph below shall not be deemed incorporated by reference
      by
      any general statement incorporating by reference this Form 10-K into any filing
      under the Securities Act of 1933 or under the Securities Exchange Act of 1934,
      except to the extent TIB Financial Corp. specifically incorporates this
      information by reference, and shall not otherwise be deemed filed under such
      Acts.





The
      graph
      below compares the cumulative total return of TIB Financial Corp., the Nasdaq
      Composite Index and a peer group index.













***Period
                Ending******Index***
            
            
            **12/31/01**
            
            
            **12/31/02**
            
            
            **12/31/03**
            
            
            **12/31/04**
            
            
            **12/31/05**
            
            
            **12/31/06**TIB
                Financial Corp.
            
            
            100.00
            
            
            136.70
            
            
            209.47
            
            
            229.93
            
            
            294.51
            
            
            326.83NASDAQ
                Composite
            
            
            100.00
            
            
            68.76
            
            
            103.67
            
            
            113.16
            
            
            115.57
            
            
            127.58SNL
                Southeast Bank Index
            
            
            100.00
            
            
            110.46
            
            
            138.72
            
            
            164.50
            
            
            168.39
            
            
            197.45





**Source
      : SNL Financial LC, Charlottesville, VA**





21


**ITEM
      6: SELECTED FINANCIAL DATA**





The
      selected consolidated financial data presented below as of and for the years
      ended December 31, 2006, 2005, 2004, 2003 and 2002 is unaudited and has been
      derived from our Consolidated Financial Statements and from our records. The
      information presented below should be read in conjunction with the Consolidated
      Financial Statements and related notes, and “Management’s Discussion and
      Analysis of Financial Condition and Results of Operations.”





**Balance
      Sheet Data**


**As
      of December 31,**




**(Dollars
                in thousands)**
            
            
            **2006**
            
            
            **2005**
            
            
            **2004**
            
            
            **2003**
            
            
            **2002**Total
                assets
            
            $
            1,319,093
            
            $
            1,076,070
            
            $
            829,325
            
            $
            669,298
            
            $
            567,149Investment
                securities
            
            
            131,199
            
            
            97,464
            
            
            77,807
            
            
            52,557
            
            
            54,268Total
                loans
            
            
            1,063,852
            
            
            882,372
            
            
            653,521
            
            
            538,598
            
            
            441,743Allowance
                for loan losses
            
            
            9,581
            
            
            7,546
            
            
            6,243
            
            
            5,216
            
            
            4,272Deposits
            
            
            1,029,457
            
            
            920,424
            
            
            687,859
            
            
            553,813
            
            
            482,683Shareholders’
                equity
            
            
            85,862
            
            
            77,524
            
            
            68,114
            
            
            41,246
            
            
            33,506






**Income
      Statement Data**


**Year
      ended December 31,**




**(Dollars
                in thousands)**
            
            
            **2006**
            
            
            **2005**
            
            
            **2004**
            
            
            **2003**
            
            
            **2002**Interest
                and dividend income
            
            $
            85,234
            
            $
            59,434
            
            $
            40,916
            
            $
            34,606
            
            $
            31,316Interest
                expense
            
            
            38,171
            
            
            20,304
            
            
            10,730
            
            
            9,839
            
            
            10,329Net
                interest income
            
            
            47,063
            
            
            39,130
            
            
            30,186
            
            
            24,767
            
            
            20,987Provision
                for loan losses
            
            
            3,491
            
            
            2,413
            
            
            2,455
            
            
            1,586
            
            
            791Net
                interest income after provision for loan losses
            
            
            43,572
            
            
            36,717
            
            
            27,731
            
            
            23,181
            
            
            20,196Non-interest
                income
            
            
            6,275
            
            
            6,258
            
            
            6,306
            
            
            7,084
            
            
            6,041Non-interest
                expense
            
            
            (35,833
            )
            
            (31,856
            )
            
            (27,057
            )
            
            (23,541
            )
            
            (20,011
            )Income
                tax expense
            
            
            (5,021
            )
            
            (3,927
            )
            
            (2,337
            )
            
            (2,324
            )
            
            (2,098
            )Income
                from continuing operations
            
            
            8,993
            
            
            7,192
            
            
            4,643
            
            
            4,400
            
            
            4,128Income
                from discontinued operations, net of taxes
            
            
            254
            
            
            4,632
            
            
            555
            
            
            702
            
            
            607Net
                income
            
            $
            9,247
            
            $
            11,824
            
            $
            5,198
            
            $
            5,102
            
            $
            4,735










22


**Per
      Share Data**


**Year
      ended December 31,**




**2006**
            
            
            **2005**
            
            
            **2004**
            
            
            **2003**
            
            
            **2002**Book
                value per share at year end *
            
            $
            7.33
            
            $
            6.69
            
            $
            6.00
            
            $
            4.65
            
            $
            4.15Basic
                earnings per share from continuing operations
            
            $
            0.78
            
            $
            0.63
            
            $
            0.44
            
            $
            0.52
            
            $
            0.52Basic
                earnings per share from discontinued operations
            
            
            0.02
            
            
            0.41
            
            
            0.05
            
            
            0.08
            
            
            0.07Basic
                earnings per share
            
            $
            0.80
            
            $
            1.04
            
            $
            0.49
            
            $
            0.60
            
            $
            0.59Diluted
                earnings per share from continuing operations
            
            $
            0.76
            
            $
            0.61
            
            $
            0.42
            
            $
            0.50
            
            $
            0.50Diluted
                earnings per share from discontinued operations
            
            
            0.02
            
            
            0.39
            
            
            0.05
            
            
            0.08
            
            
            0.07Diluted
                earnings per share
            
            $
            0.78
            
            $
            1.00
            
            $
            0.47
            
            $
            0.58
            
            $
            0.57Basic
                weighted average common equivalent shares outstanding
            
            
            11,609,394
            
            
            11,423,948
            
            
            10,619,720
            
            
            8,514,448
            
            
            7,985,550Diluted
                weighted average common equivalent shares outstanding
            
            
            11,889,606
            
            
            11,800,892
            
            
            10,959,392
            
            
            8,871,722
            
            
            8,289,710Dividends
                declared per share
            
            $
            0.2363
            
            $
            0.2313
            
            $
            0.2263
            
            $
            0.2213
            
            $
            0.2163__________*
                Calculation includes unvested shares of restricted stock.








**Performance
      Ratios**




**2006**
            
            
            **2005**
            
            
            **2004**
            
            
            **2003**
            
            
            **2002**Return
                on average assets**
            
            
            0.74
            %
            
            0.74
            %
            
            0.63
            %
            
            0.71
            %
            
            0.77
            %Return
                on average equity**
            
            
            11.05
            %
            
            10.19
            %
            
            7.83
            %
            
            11.69
            %
            
            13.26
            %Average
                equity/average assets
            
            
            6.72
            %
            
            7.26
            %
            
            8.01
            %
            
            6.05
            %
            
            5.82
            %Net
                interest margin
            
            
            4.18
            %
            
            4.38
            %
            
            4.51
            %
            
            4.43
            %
            
            4.39
            %Dividend
                payout ratio ***
            
            
            30.50
            %
            
            36.74
            %
            
            51.76
            %
            
            42.82
            %
            
            41.84
            %Allowance
                for loan losses/total loans
            
            
            0.90
            %
            
            0.86
            %
            
            0.96
            %
            
            0.97
            %
            
            0.97
            %Non-performing
                assets/total assets
            
            
            0.69
            %
            
            0.46
            %
            
            0.60
            %
            
            0.55
            %
            
            0.65
            %Non-performing
                loans/gross loans
            
            
            0.40
            %
            
            0.11
            %
            
            0.11
            %
            
            0.07
            %
            
            0.12
            %Allowance
                for loan losses/non-performing loans
            
            
            226.88
            %
            
            789.33
            %
            
            886.79
            %
            
            1,336.33
            %
            
            783.19
            %Non-interest
                expense/tax equivalent net interest income and non-interest income
                from
                continuing operations
            
            
            66.75
            %
            
            69.69
            %
            
            73.48
            %
            
            73.44
            %
            
            73.62
            %__________**The
                computation of return on average assets and return on average equity
                is
                based on net income from continuing operations.***The
                computation of the dividend payout ratio is based on net income from
                continuing operations.






23


**ITEM
      7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS**





**Overview**





TIB
      Bank
      operates primarily as a real estate secured commercial lender, focusing on
      middle-market businesses in our Southern Florida markets. TIB Bank was formed
      in
      and has a substantial market presence in the Florida Keys. In recent years,
      the
      Bank has expanded into the adjacent Florida counties of Miami-Dade, Collier
      and
      Lee. In 2006 a new branch was opened in Highlands County located in
      south-central Florida. The Bank funds its lending activity primarily by
      gathering retail and commercial deposits from our service area. Significant
      economic growth in the southern portion of Miami-Dade County and along the
      southwest coast of Florida (Naples, Bonita Springs, and Ft. Myers area) offers
      opportunities for us to continue to grow our core banking franchise in these
      contiguous markets.





To
      date
      we have been utilizing a de novo branching strategy of evaluating and selecting
      sites and building new bank branch locations to enter and grow in these new
      markets. While de novo expansion has a dilutive effect on short-term earnings,
      the resulting growth will continue to add significant value to our franchise.
      By
      timing our expansion, we plan to balance earnings, growth and expense.





On
      November 13, 2006 we entered into a Plan of Merger and Merger Agreement with
      The
      Bank of Venice located in Sarasota County Florida. We believe this strategic
      merger will provide new growth opportunities through our operation of a local
      community bank in an attractive new market. The pricing, market and culture
      fit
      indicate the acquisition will be advantageous to our growth and expansion
      plans.





**Performance
      Overview**





TIB
      Financial Corp. is a financial services holding company focused on growth and
      expansion in the Florida marketplace and the parent company of TIB Bank. For
      the
      year ended December 31, 2006, net income from continuing operations was $8.99
      million, or $0.78 per basic share and $0.76 per diluted share. These results
      compared with $7.19 million, or $0.63 per basic share and $0.61 per diluted
      share, for the prior year, and represent increases of approximately 25%, 24%
      and
      25%, respectively.





Overall,
      2006 marks the most profitable year of community banking in our 33 year
      franchise history. With a 25% increase in net income from continuing operations,
      our strategy of building relationships with small businesses and middle-market
      customers continues to drive our growth and expansion. Executing this strategy
      continued our steady course of strong loan growth and led to an increase of
      21%
      from last year.





We
      believe the announcement of our strategic merger with The Bank of Venice and
      our
      de novo entrance into Highlands County are exemplary accomplishments which
      will
      further enhance our franchise value and current position in the
      marketplace.





The
      interest rate environment continues to be the dominant force affecting our
      industry and our main challenge is efficiently funding the growth of our loan
      portfolios. We are leveraging our current product and delivery advantages along
      with our sustainable customer service quality advantages in our efforts to
      increase market share and plan to continue to capitalize on the opportunities
      in
      our region.





Net
      interest income on a tax-equivalent basis was $47.4 million for 2006, an
      increase of 20% over $39.5 million a year ago. Non-interest income, which
      includes service charges on deposit accounts, real estate fees, and other
      operating income, totaled $6.28 million, increasing slightly from $6.26 million
      reported in the prior year.





24


Changes
      in monetary policy by the Federal Reserve affect the prime rate, our loan
      yields, our deposit and borrowing costs and our net interest margin. During
      a
      period of continuously increasing short-term interest rates through mid-year
      2006, our interest margin contracted 20 basis points from 4.38% in 2005 to
      4.18%
      in 2006.





Non-interest
      income includes a slight increase in service charges on deposit accounts, from
      $2.36 million in 2005 to $2.46 million in 2006 primarily due to an increase
      in
      volume of ATM usage. Fees on mortgage loans sold decreased. The decrease is
      primarily attributable to a lower volume of residential real estate closings
      in
      the Monroe and Collier counties markets resulting in lower residential mortgage
      originations and lower fees from the sale of mortgage loans.





Non-interest
      expense for 2006 was $35.8 million, compared with $31.9 million a year ago.
      The
      increase in non-interest expense for 2006 is primarily attributable to a 14%
      increase in salaries and employee benefits expenses associated with the
      Company’s ongoing expansion activities in the Southwest Florida market. Net
      occupancy and other expenses increased 11% compared to 2005.





Total
      assets increased 23% during 2006 to $1.32 billion as of December 31, 2006,
      compared with $1.08 billion a year ago. Total loans grew 21% to $1.06 billion
      as
      of December 31, 2006, compared with $882.3 million a year ago. Commercial real
      estate mortgage loans accounted for the largest categorical dollar increase
      during 2006, representing $94.3 million of the total increase. Asset growth
      was
      funded by a $125.0 million increase in FHLB advances and borrowings and an
      increase in total deposits to $1.03 billion as of December 31, 2006,
      representing deposit growth of 12% from $920.4 million in the prior
      year.





Credit
      quality remained strong as of December 31, 2006 with the allowance for loan
      losses totaling $9.58 million, or 0.90% of total loans and 227% of
      non-performing loans. Non performing loans at December 31, 2006 include a $1.6
      million loan which is guaranteed for both principal and interest by a U.S.
      government agency. We discontinued accruing interest on this loan during
      December 2006 pursuant to a ruling made by the agency. These figures compare
      with 0.86% and 789%, respectively, as of December 31, 2005. Annual net
      charge-offs represented 0.15% of average loans as of December 31, 2006, compared
      with 0.14% as of December 31, 2005.





The
      considerable growth in our balance sheet and operations reflects the continued
      success of our strategic expansion into more dynamic growth markets in South
      Florida. By the end of 2006, approximately 43% of the Company’s customer deposit
      base was located outside our historical core business market of the Florida
      Keys. We have been able to continue to generate significant internal organic
      growth of new deposits and loans in our markets outside of the Keys, while
      maintaining high quality assets.





**Economic
      and Operating Environment Overview**





During
      2006, business activity in our primary markets reflected the national trends
      of
      increased economic expansion with continued increases in overall employment
      due
      to productivity gains. In an effort to maintain restrictive monetary policy,
      the
      Federal Reserve elected to raise short-term interest rates 25 basis points
      four
      times during the year. Specifically, the target Federal Funds Rate began 2006
      at
      4.25% and ended the year at 5.25%. The Prime lending rate increased to 8.25%
      from 7.25% during the year.





The
      effect of the interest rate environment during 2006 was a contraction of our
      net
      interest margin. The increasing Prime rate directly affects yields on loans
      tied
      to that index and even loans not indexed to Prime are priced reflective of
      overall higher asset yields. In contrast, our growth rate and the related
      funding needs resulted in our decision to be more competitive on deposit pricing
      and seek additional wholesale funding. We believe that the net effect of the
      current interest rate environment will translate into margin contraction as
      we
      continue to manage these opposing factors with our increased funding needs
      and
      our desire to obtain such funding through our branch distribution
      system.





During
      2006, the Bank continued to expand its indirect automobile lending program,
      in
      an effort to generate higher relative yielding assets. As of December 31, 2006,
      we had approximately $141.6 million of indirect auto loans outstanding. During
      the year, we increased production by leveraging the infrastructure we have
      established. Looking ahead, we expect continued increases in production which
      we
      plan to fund through securitization of production in excess of runoff causing
      the amount of indirect loans held in the portfolio to remain relatively stable.
      We believe this product continues to offer the Bank an attractive risk adjusted
      return.





25




Construction
      began in 2005 on our 16,000-square-foot banking office in Naples, Florida with
      the ribbon cutting ceremony celebrated on January 23, 2007. In December 2006
      we
      opened our new Sebring branch in Highlands County. We expect to open one to
      two
      additional branches in Southwest Florida during 2007 and 2008. Additional branch
      sites will continue to be explored in other high-growth markets throughout
      Florida.





Additionally,
      on November 13, 2006, we entered into a Plan of Merger and Merger Agreement
      (the
“Agreement”) with The Bank of Venice. Under the terms of the Agreement, The Bank
      of Venice, a Florida state chartered bank will become a wholly-owned subsidiary
      of the Company. Shareholders of The Bank of Venice will be entitled to receive
      $18.00 per share in TIB Financial common stock, and may elect to receive 10%
      of
      the consideration in cash. The closing of the merger is subject to the
      satisfaction of certain conditions, including regulatory approval and the
      approval by The Bank of Venice shareholders. We anticipate closing during the
      second quarter of 2007. As of December 31, 2006, The Bank of Venice had two
      locations in Venice, Florida, total assets of $66.4 million, total loans of
      $58.5 million, total deposits of $52.6 million and 885,414 shares
      outstanding.




**Analysis
      of Financial Condition**





Our
      assets totaled $1.32 billion at December 31, 2006 compared to $1.08 billion
      at
      the end of 2005, an increase of $243.0 million, or 23%. The growth in assets
      was
      primarily a result of increased lending activity as the Bank invested funds
      provided by deposit growth and borrowings.





Total
      loans increased $181.5 million or 21%, to $1.06 billion at December 31, 2006.
      The growth in the loan portfolio was primarily attributed to increases in
      commercial real estate loans of $94.3 million, indirect auto dealer loans of
      $23.5 million, construction loans of $32.5 million and farmland loans of $19.6
      million.





Total
      deposits increased $109.0 million or 12%, from $920.4 million at the end of
      2005
      to $1.03 billion on December 31, 2006. Non-interest-bearing deposits decreased
      $10.4 million or 6%, while interest-bearing deposits increased $119.5 million
      or
      16%.





Borrowed
      funds, consisting of Federal Home Loan Bank (FHLB) advances, short-term
      borrowings, notes payable, and subordinated debentures, totaled $184.3 million
      at year end 2006 compared to $59.3 million at the end of 2005. During 2006,
      we
      increased our FHLB advances by $100.0 million and our subordinated debentures
      by
      $20.0 million. On January 3, 2005 we repaid $1.25 million of the notes payable
      at a 3% premium and on January 1, 2007 we repaid the remaining $4.0 million
      at
      par.





Shareholders’
      equity increased $8.3 million or 11%, from $77.5 million on December 31, 2005
      to
      $85.9 million at the end of 2006.





Book
      value per share increased to $7.33 at December 31, 2006, from $6.69 at December
      31, 2005.





26


**Results
      of Operations**





**Net
      income**





*2006
      compared with 2005:*





Net
      income from continuing operations was $8.99 million for 2006, compared to $7.19
      million for 2005, an increase of 25%. Basic and diluted earnings per share
      from
      continuing operations for 2006 were $0.78 and $0.76, respectively, as compared
      to $0.63 and $0.61 per share in 2005.





Return
      on
      average assets based on net income from continuing operations was 0.74% for
      2006
      and 2005, while return on average shareholders’ equity based on net income from
      continuing operations was 11.05% and 10.19%, respectively.





As
      discussed in Note 2 of the accompanying "Notes to Consolidated Financial
      Statements", the Company closed the sale of the merchant bankcard processing
      segment in the fourth quarter of 2005. Accordingly, the Company’s 2006 net
      income of $9.25 million decreased 22% compared to $11.8 million in 2005 due
      to
      $4.6 million of net income from discontinued operations in 2005. Basic
      and
      diluted earnings per share for 2006 were $0.80 and $0.78, respectively, as
      compared to $1.04 and $1.00 per share in 2005.





*2005
      compared with 2004:*





Net
      income from continuing operations was $7.19 million for 2005, compared to $4.64
      million for 2004, an increase of 55%. As discussed in Note 2 of the accompanying
      "Notes to Consolidated Financial Statements", the Company closed the sale of
      the
      merchant bankcard processing segment in the fourth quarter of 2005.





The
      Company’s 2005 net income of $11.8 million increased 127% compared to $5.20
      million in 2004. Basic and diluted earnings per share for 2005 were $1.04 and
      $1.00, respectively, as compared to $0.49 and $0.47 per share in 2004.





Return
      on
      average assets based on net income from continuing operations was 0.74% and
      0.63% for 2005 and 2004, while return on average shareholders’ equity based on
      net income from continuing operations was 10.19% and 7.83% over the same two
      years, respectively.





**Net
      interest income**





Net
      interest income represents the amount by which interest income on
      interest-earning assets exceeds interest expense incurred on interest-bearing
      liabilities. Net interest income is the largest component of our income, and
      is
      affected by the interest rate environment, and the volume and the composition
      of
      interest-earning assets and interest-bearing liabilities. Our interest-earning
      assets include loans, federal funds sold, interest-bearing deposits in other
      banks, and investment securities. Our interest-bearing liabilities include
      deposits, federal funds purchased, notes payable related to Company shares
      repurchased, subordinated debentures, FHLB advances, and other short-term
      borrowings.





27


*2006
      compared with 2005:*





Net
      interest income was $47.1 million for the year ended December 31, 2006, compared
      to $39.1 million for the same period in 2005. The 20% increase was mainly
      attributable to increased lending volume. Partially offsetting this increase
      were increases in interest expense on transaction accounts and more
      significantly time deposits, our highest cost deposit category as a percentage
      share of total deposits. Additional funding from short-term borrowings and
      FHLB
      advances also increased interest expense.





Many
      of
      the Bank’s loans are indexed to the prime rate. The higher level of the prime
      rate in 2006 compared to 2005 is reflected in the higher average yield of the
      loan portfolio due to higher rates earned on variable rate loans and new loan
      production. The average yield on interest-earning assets for the 2006 was 7.55%
      which was an increase of 91 basis points compared to the 6.64% yield earned
      during 2005. The average cost of interest-bearing liabilities increased 125
      basis points from 2.82% during 2005 to 4.07% in 2006. The average cost of
      interest bearing deposits and all interest bearing liabilities reflect in part
      the increase in short-term interest rates and the change in the funding mix
      for
      2006 as compared to 2005. As a result of these changes, our tax equivalent
      net
      interest margin contracted 20 basis points to 4.18% from 4.38% in 2005. Going
      forward, we expect market interest rates to remain stable resulting in
      relatively consistent loan yields while we expect deposit costs will continue
      to
      be subject to the forces of competitive pressure which may result in deposit
      rates increasing. In the current interest rate environment, we believe that
      our
      interest margin will contract further. The predominant driver in the increase
      in
      net interest income is and will continue to be the growth of our balance sheet.
      Although the timing and possible effects of future changes in interest rates
      could be significant, we expect any such impact to continue to be considerably
      less in extent than the relative impact of asset growth.





*2005
      compared with 2004:*





Net
      interest income was $39.1 million for the year ended December 31, 2005, compared
      to $30.2 million for the same period in 2004. The 30% increase was mainly
      attributable to increased lending volume. Partially offsetting this increase
      was
      an increase in interest expense on time deposits, our highest cost deposit
      category as a percentage share of total deposits. The increase in the average
      cost of interest-bearing liabilities from 2.02% in 2004 to 2.82% in 2005 coupled
      with higher volumes resulted in an increase in interest expense from $10.7
      million in 2004 to $20.3 million in 2005. Our tax equivalent net interest margin
      contracted slightly to 4.38% from 4.51% in 2004.





The
      following table sets forth information with respect to the average balances,
      interest income and average yield by major categories of interest-earning
      assets; the average balances, interest expense and average rate by major
      categories of interest-bearing liabilities; the average balances of
      noninterest-earning assets, noninterest-bearing liabilities and shareholders’
equity; and net interest income, interest rate spread, and net interest margin
      for the years ended December 31, 2006, 2005 and 2004.







28


**Average
      Balance Sheets**





**2006**
            
            **2005**
            
            **2004****(Dollars
                in thousands)**
            
            
            **Average
                Balances**
            
            
            **Income/**
              **Expense**
            
            
            **Yields/**
              **Rates**
            
            
            **Average
                Balances**
            
            
            **Income/**
              **Expense**
            
            
            **Yields/**
              **Rates**
            
            
            **Average
                Balances**
            
            
            **Income/**
              **Expense**
            
            
            **Yields/**
              **Rates**ASSETSInterest-earning
                assets:Loans
                (a)(b)
            
            $
            989,617
            
            $
            78,382
            
            
            7.92
            %
            $
            772,363
            
            $
            54,492
            
            
            7.06
            %
            $
            590,167
            
            $
            37,724
            
            
            6.39
            %Investment
                securities—taxable
            
            
            109,723
            
            
            5,117
            
            
            4.66
            %
            
            73,213
            
            
            2,978
            
            
            4.07
            %
            
            58,308
            
            
            2,344
            
            
            4.02
            %Investment
                securities—tax exempt (b)
            
            
            10,677
            
            
            642
            
            
            6.01
            %
            
            9,595
            
            
            572
            
            
            5.96
            %
            
            9,990
            
            
            615
            
            
            6.16
            %Investment
                securities—tax exempt (b)(d)
            
            
            3,251
            
            
            390
            
            
            12.00
            %
            
            3,517
            
            
            388
            
            
            11.03
            %
            
            3,497
            
            
            368
            
            
            10.52
            %Interest
                bearing deposits in other banks
            
            
            448
            
            
            22
            
            
            4.94
            %
            
            359
            
            
            10
            
            
            2.90
            %
            
            852
            
            
            11
            
            
            1.29
            %FHLB
                stock
            
            
            4,935
            
            
            285
            
            
            5.78
            %
            
            2,725
            
            
            113
            
            
            4.15
            %
            
            1,635
            
            
            57
            
            
            3.49
            %Federal
                funds sold
            
            
            15,465
            
            
            739
            
            
            4.78
            %
            
            38,374
            
            
            1,202
            
            
            3.13
            %
            
            11,438
            
            
            127
            
            
            1.11
            %Total
                interest-earning assets
            
            
            1,134,116
            
            
            85,577
            
            
            7.55
            %
            
            900,146
            
            
            59,755
            
            
            6.64
            %
            
            675,887
            
            
            41,246
            
            
            6.10
            %Non-interest
                earning assets:Cash
                and due from banks
            
            
            22,402
            
            
            
            
            
            
            
            
            21,680
            
            
            
            
            
            
            
            
            18,866Premises
                and equipment, net
            
            
            32,205
            
            
            
            
            
            
            
            
            27,007
            
            
            
            
            
            
            
            
            24,295Allowances
                for loan losses
            
            
            (8,325
            )
            
            
            
            
            
            
            
            (6,887
            )
            
            
            
            
            
            
            
            (5,735
            )Other
                assets
            
            
            32,037
            
            
            
            
            
            
            
            
            30,626
            
            
            
            
            
            
            
            
            26,452Total
                non-interest earning assets
            
            
            78,319
            
            
            
            
            
            
            
            
            72,426
            
            
            
            
            
            
            
            
            63,878Total
                Assets
            
            $
            1,212,435
            
            
            
            
            
            
            
            $
            972,572
            
            
            
            
            
            
            
            $
            739,765LIABILITIES
                & SHAREHOLDERS’ EQUITYInterest
                bearing liabilities:Interest
                bearing deposits:NOW
                accounts
            
            $
            131,386
            
            
            3,500
            
            
            2.66
            %
            $
            92,754
            
            
            919
            
            
            0.99
            %
            $
            76,068
            
            
            330
            
            
            0.43
            %Money
                market
            
            
            166,501
            
            
            5,959
            
            
            3.58
            %
            
            165,266
            
            
            3,686
            
            
            2.23
            %
            
            130,172
            
            
            1,189
            
            
            0.91
            %Savings
                deposits
            
            
            48,897
            
            
            346
            
            
            0.71
            %
            
            47,774
            
            
            243
            
            
            0.51
            %
            
            44,380
            
            
            174
            
            
            0.39
            %Time
                deposits
            
            
            477,204
            
            
            21,852
            
            
            4.58
            %
            
            357,824
            
            
            12,595
            
            
            3.52
            %
            
            227,834
            
            
            6,878
            
            
            3.02
            %Total
                interest-bearing deposits
            
            
            823,988
            
            
            31,657
            
            
            3.84
            %
            
            663,618
            
            
            17,443
            
            
            2.63
            %
            
            478,454
            
            
            8,571
            
            
            1.79
            %Notes
                payable
            
            
            4,000
            
            
            367
            
            
            9.18
            %
            
            4,052
            
            
            367
            
            
            9.06
            %
            
            5,250
            
            
            482
            
            
            9.18
            %Short-term
                borrowings and FHLB advances
            
            
            86,883
            
            
            4,102
            
            
            4.72
            %
            
            39,465
            
            
            1,282
            
            
            3.25
            %
            
            35,585
            
            
            558
            
            
            1.57
            %Subordinated
                debentures
            
            
            23,442
            
            
            2,045
            
            
            8.72
            %
            
            13,000
            
            
            1,212
            
            
            9.32
            %
            
            13,000
            
            
            1,119
            
            
            8.61
            %Total
                interest bearing liabilities
            
            
            938,313
            
            
            38,171
            
            
            4.07
            %
            
            720,135
            
            
            20,304
            
            
            2.82
            %
            
            532,289
            
            
            10,730
            
            
            2.02
            %Non-interest
                bearing liabilities and shareholders’ equity:Demand
                deposits
            
            
            174,798
            
            
            
            
            
            
            
            
            169,426
            
            
            
            
            
            
            
            
            139,939Other
                liabilities
            
            
            17,903
            
            
            
            
            
            
            
            
            12,443
            
            
            
            
            
            
            
            
            8,266Shareholders’
                equity
            
            
            81,421
            
            
            
            
            
            
            
            
            70,568
            
            
            
            
            
            
            
            
            59,271Total
                non-interest bearing liabilities and shareholders’ equity
            
            
            274,122
            
            
            
            
            
            
            
            
            252,437
            
            
            
            
            
            
            
            
            207,476Total
                liabilities and shareholders’ equity
            
            $
            1,212,435
            
            
            
            
            
            
            
            $
            972,572
            
            
            
            
            
            
            
            $
            739,765Interest
                rate spread
            
            
            
            
            
            
            
            
            3.48
            %
            
            
            
            
            
            
            
            3.82
            %
            
            
            
            
            
            
            
            4.08
            %Net
                interest income
            
            
            
            
            $
            47,406
            
            
            
            
            
            
            
            $
            39,451
            
            
            
            
            
            
            
            $
            30,516Net
                interest margin (c)
            
            
            
            
            
            
            
            
            4.18
            %
            
            
            
            
            
            
            
            4.38
            %
            
            
            
            
            
            
            
            4.51
            %




29


__________


(a)
            Average
                loans include non-performing loans. Interest on loans includes loan
                fees
                of $632 in 2006, $468 in 2005 and $394 in
                2004.


(b)
            Interest
                income and rates include the effects of a tax equivalent adjustment
                using
                applicable Federal tax rates in adjusting tax exempt interest on
                tax
                exempt investment securities and loans to a fully taxable
                basis.


(c)
            Net
                interest margin is net interest income divided by average total
                interest-earning assets.


(d)
            Income
                from investment securities indicated hereon was 85% excluded from
                taxable
                income during 2006 and 90% excluded from taxable income during 2005
                and
                2004.




**Changes
      in net interest income**





The
      table
      below details the components of the changes in net interest income for the
      last
      two years. For each major category of interest-earning assets and
      interest-bearing liabilities, information is provided with respect to changes
      due to average volumes and changes due to rates, with the changes in both
      volumes and rates allocated to these two categories based on the proportionate
      absolute changes in each category.





**2006
                compared to 2005**
              **Due
                to changes in**
            ****
            **2005
                compared to 2004**
              **Due
                to changes in**
            ******(Dollars
                in thousands)**
            ****
            ****
            **Average
                Volume**
            
            
            **Average
                Rate**
            
            
            **Net
                Increase (Decrease)**
            
            
            **Average
                Volume**
            
            
            **Average
                Rate**
            
            
            **Net
                Increase (Decrease)****Interest
                income**Loans
                (a)
            
            $
            16,637
            
            $
            7,253
            
            $
            23,890
            
            $
            12,550
            
            $
            4,218
            
            $
            16,768Investment
                securities (a)
            
            
            1,830
            
            
            381
            
            
            2,211
            
            
            664
            
            
            (53
            )
            
            611Interest-bearing
                deposits in other banks
            
            
            3
            
            
            9
            
            
            12
            
            
            (9
            )
            
            8
            
            
            (1
            )FHLB
                stock
            
            
            116
            
            
            56
            
            
            172
            
            
            44
            
            
            12
            
            
            56Federal
                funds sold
            
            
            (918
            )
            
            455
            
            
            (463
            )
            
            606
            
            
            469
            
            
            1,075Total
                interest income
            
            
            17,668
            
            
            8,154
            
            
            25,822
            
            
            13,855
            
            
            4,654
            
            
            18,509**Interest
                expense**NOW
                accounts
            
            
            511
            
            
            2,070
            
            
            2,581
            
            
            86
            
            
            503
            
            
            589Money
                market
            
            
            28
            
            
            2,245
            
            
            2,273
            
            
            393
            
            
            2,104
            
            
            2,497Savings
                deposits
            
            
            6
            
            
            97
            
            
            103
            
            
            14
            
            
            55
            
            
            69Time
                deposits
            
            
            4,867
            
            
            4,390
            
            
            9,257
            
            
            4,429
            
            
            1,288
            
            
            5,717Notes
                payable
            
            
            (5
            )
            
            5
            
            
            -
            
            
            (109
            )
            
            (6
            )
            
            (115
            )Short-term
                borrowings and FHLB advances
            
            
            2,047
            
            
            773
            
            
            2,820
            
            
            67
            
            
            657
            
            
            724Subordinated
                debentures
            
            
            916
            
            
            (83
            )
            
            833
            
            
            -
            
            
            93
            
            
            93Total
                interest expense
            
            
            8,370
            
            
            9,497
            
            
            17,867
            
            
            4,880
            
            
            4,694
            
            
            9,574Change
                in net interest income
            
            $
            9,298
            
            $
            (1,343
            )
            $
            7,955
            
            $
            8,975
            
            $
            (40
            )
            $
            8,935_______(a)Interest
                income includes the effects of a tax equivalent adjustment using
                applicable federal tax rates in adjusting tax exempt interest on
                tax
                exempt investment securities and loans to a fully taxable
                basis.







30


**Non-interest
      income**





The
      following table presents the principal components of non-interest income for
      the
      years ended December 31:





**(Dollars
                in thousands)**
            
            
            **2006**
            
            
            **2005**
            
            
            **2004**Fees
                on mortgage loans sold
            
            $
            1,599
            
            $
            1,880
            
            $
            1,852Service
                charges on deposit accounts
            
            
            2,457
            
            
            2,360
            
            
            2,547Investment
                securities gains, net
            
            
            -
            
            
            1
            
            
            106Debit
                card income
            
            
            711
            
            
            572
            
            
            422Earnings
                on bank owned life insurance policies
            
            
            400
            
            
            416
            
            
            404Gain
                on sale of land
            
            
            138
            
            
            267
            
            
            -Retail
                investment services
            
            
            -
            
            
            -
            
            
            333Other
            
            
            970
            
            
            762
            
            
            642Total
                non-interest income
            
            $
            6,275
            
            $
            6,258
            
            $
            6,306





Over
      the past three
      years, non-interest income has remained relatively stable at approximately
      $6.3
      million resulting from increases in service charges on deposit accounts and
      debit card income offset by declines in fees on residential loans sold at
      origination. The decrease in origination fees is primarily attributable to
      a
      lower volume of residential real estate closings in the Monroe and Collier
      counties markets during 2006 resulting in lower residential mortgage
      originations and lower fees from the sale of mortgage loans.





*2006
      compared to 2005:*





Service
      charges on deposit accounts increased slightly in 2006. This increase is
      primarily due to growth in the number of deposit accounts and to increases
      in
      the volume of ATM usage. Debit card income also increased 24.3% over 2005
      which resulted from the increase in customer usage of debit
      cards.





*2005
      compared to 2004:*





Non-interest
      income decreased slightly in 2005. In 2005 the fees on mortgage loans sold,
      which result from the sale of residential loans (primarily fixed rate loans)
      to
      the secondary market, increased only slightly due to increased competition
      in
      the market place combined with lower volume due to a low level of refinancing
      and frequent local severe weather threats. The increase in debit card income
      partially offset the decline in service charge income which was driven primarily
      by increased utilization of electronic and online banking tools. The sale of
      internally developed intangible assets comprising the retail investment services
      book of business in 2004 also contributed to the decline in non-interest
      income.






31




**Non-interest
      expenses**





The
      following table represents the principal components of non-interest expenses
      for
      the years ended December 31:





**(Dollars
                in thousands)**
            
            
            **2006**
            
            
            **2005**
            
            
            **2004**Salary
                and employee benefits
            
            $
            20,205
            
            $
            17,724
            
            $
            14,385Net
                occupancy expense
            
            
            6,120
            
            
            5,502
            
            
            4,911Accounting,
                legal, and other professional
            
            
            1,710
            
            
            1,444
            
            
            1,223Computer
                services
            
            
            1,955
            
            
            1,650
            
            
            1,773Postage,
                courier and armored car
            
            
            845
            
            
            719
            
            
            617Marketing
                and community relations
            
            
            983
            
            
            731
            
            
            866Operating
                supplies
            
            
            581
            
            
            589
            
            
            542Directors’
                fees
            
            
            518
            
            
            468
            
            
            438Indirect
                loan production expense
            
            
            276
            
            
            379
            
            
            231Provision
                for unfunded commitments
            
            
            (101
            )
            
            316
            
            
            47Travel
                expenses
            
            
            387
            
            
            299
            
            
            387FDIC
                and state assessments
            
            
            298
            
            
            253
            
            
            213Amortization
                of intangibles
            
            
            288
            
            
            291
            
            
            295Repossessed
                asset expenses
            
            
            312
            
            
            128
            
            
            64Operational
                charge-offs
            
            
            124
            
            
            69
            
            
            69Other
                operating expenses
            
            
            1,332
            
            
            1,294
            
            
            996Total
                non-interest expenses
            
            $
            35,833
            
            $
            31,856
            
            $
            27,057




Over
      the
      past three years, non-interest expenses have increased from $27.0 million to
      $35.8 million. The increases in this category are due primarily to the increases
      in employees, facilities and infrastructure necessary to manage and facilitate
      the expected future growth of the organization.








*2006
      compared to 2005:*





Non-interest
      expense for 2006 was $35.8 million, an increase of approximately $4.0 million
      or
      12.5% over $31.9 million for 2005. The increase in non-interest expense is
      primarily attributable to salaries and employee benefits increasing $2.5
      million. At December 31, 2006 the Bank had 337 full-time employees and 11
      part-time employees, compared to 332 full-time employees and 12 part-time
      employees at December 31, 2005. The higher personnel costs include approximately
      $305,000 of stock-based compensation expense. The Company began recording
      compensation expense related to stock options on January 1, 2006 pursuant to
      the
      adoption of SFAS 123R. Other expense includes a charitable contribution of
      approximately $135,000 expressing our commitment to and reinvestment in the
      community by funding the construction of affordable local housing.




32




*2005
      compared to 2004:*





Non-interest
      expenses increased $4.8 million in 2005. Approximately $3.3 million of the
      increase was related to salary and employee benefits. At December 31, 2005,
      the
      Bank had 332 full-time employees and 12 part-time employees, compared to 309
      full-time employees and 13 part-time employees at December 31, 2004. The
      increased staffing was attributable to the ongoing expansion activity in
      Southwest Florida and additions to manage growth throughout the Company. Net
      occupancy and other expense increased 12%. The majority of the increases in
      the
      non-interest expense category are the result of costs associated with the growth
      of our business.





**Provision
      for income taxes**





The
      provision for income taxes includes federal and state income taxes. The
      effective income tax rates for the years ended December 31, 2006, 2005, and
      2004
      were 36%, 37%, and 34%, respectively. The fluctuations in effective tax rates
      reflect the effect of the differences in deductibility of certain income and
      expenses. The primary factor is the higher overall level of pre-tax income
      from
      continuing operations resulting in a higher statutory tax rate. In addition,
      the
      lower proportion of tax free interest income to pre-tax income results in the
      provision for income taxes approaching statutory rates. Offsetting these
      factors, in 2006, was the recognition of a state income tax credit related
      to
      the Company’s funding of affordable housing construction costs for a local
      charitable organization. During 2006, the Company’s taxable income exceeded the
      34% federal statutory income tax bracket and a portion of our taxable income
      was
      taxable at a rate of 35%. Additionally, during 2005, due primarily to the gain
      recognized on the sale of our merchant bankcard processing segment during that
      year, the Company’s taxable income exceeded the 34% Federal statutory tax
      bracket resulting in a portion of our taxable income being taxed at 35% and
      38%
      statutory Federal income tax rates. Prior to 2005, the Company’s income tax
      expense had been based on a 34% statutory Federal income tax rate. Our future
      effective income tax rate will fluctuate based on the mix of taxable and tax
      free investments we make and, to a greater extent, our overall level of taxable
      income. See Notes 1 and 11 of our consolidated financial statements for
      additional information about the calculation of income tax expense and the
      various components thereof.





**Loan
      Portfolio**





Prior
      to
      our entrance into the Southwest Florida market in 2001, our primary locations
      were in the Florida Keys (Monroe County) and south Miami-Dade County. As this
      region’s primary industry is tourism, commercial loan demand is primarily for
      resort, hotel, restaurant, marina, and related real estate secured property
      loans. We serve this market by offering long-term, adjustable rate financing
      to
      the owners of these types of properties for acquisition and improvements. As
      our
      business has expanded in Southwest Florida, our loan portfolio has benefited
      from the resulting geographic diversification which is expected to provide
      more
      industry-based diversity to our loan portfolio. As of December 31, 2006, we
      had
      approximately $501.8 million of loans outstanding (including indirect auto
      dealer loans) in Southwest Florida, where we had also generated approximately
      $302.0 million in total deposits.





The
      cost
      of living in Monroe County is higher in comparison to other counties in Florida
      due in large part to the limited and expensive real estate with various
      construction restrictions and environmental considerations. Accordingly,
      collateral values on loans secured by property in this market are greater.
      Collier and Lee counties in Southwest Florida are significantly higher growth
      communities and the majority of the growth of our commercial loan portfolio
      has
      been generated by serving this market. The quality of our credit administration
      along with historically stable real estate values has kept loan losses for
      recent years at low levels.





Loans
      are
      expected to produce higher yields than investment securities and other
      interest-earning assets. The absolute volume of loans and the volume as a
      percentage of total earning assets are important determinants of the net
      interest margin. Total loans outstanding increased to $1.06 billion at the
      end
      of 2006 as compared to $882.4 million at year end 2005, an increase of 21%.
      Of
      this amount, real estate mortgage loans increased 23% from $657.8 million to
      $810.4 million. Commercial real estate mortgage loans accounted for much of
      this
      increase, growing from $452.0 million to $546.3 million at the respective year
      ends. Construction loans also increased significantly growing from $125.2
      million at December 31, 2005 to $157.7 million at December 31, 2006. Another
      loan type that increased significantly in 2006 was indirect auto dealer loans.
      This portfolio increased from $118.0 million at December 31, 2005 to $141.6
      million at December 31, 2006. We generally originate commercial loans with
      rates
      that fluctuate with the prime lending rate or may be fixed for initial periods
      of 3 to 5 years and residential loans held in the portfolio with rates that
      adjust periodically and are tied to the one year treasury index. At December
      31,
      2006, 74% of the total loan portfolio had floating or adjustable
      rates.






33




The
      following table presents the composition our loan portfolio at December
      31:





**(Dollars
                in thousands)**
            
            
            **2006**
            
            
            **2005**
            
            
            **2004**
            
            
            **2003**
            
            
            **2002**Real
                estate mortgage loans:Commercial
            
            $
            546,276
            
            $
            451,969
            
            $
            351,346
            
            $
            297,221
            
            $
            265,113Residential
            
            
            82,243
            
            
            76,003
            
            
            67,204
            
            
            60,104
            
            
            68,389Farmland
            
            
            24,210
            
            
            4,660
            
            
            4,971
            
            
            2,317
            
            
            443Construction
                and vacant land
            
            
            157,672
            
            
            125,207
            
            
            49,815
            
            
            32,089
            
            
            14,893Commercial
                and agricultural loans
            
            
            84,905
            
            
            80,055
            
            
            64,622
            
            
            63,624
            
            
            49,212Indirect
                auto dealer loans
            
            
            141,552
            
            
            118,018
            
            
            91,890
            
            
            59,437
            
            
            16,854Home
                equity loans
            
            
            17,199
            
            
            17,232
            
            
            13,856
            
            
            12,574
            
            
            17,475Other
                consumer loans
            
            
            9,795
            
            
            9,228
            
            
            9,817
            
            
            11,232
            
            
            9,364Subtotal
            
            
            1,063,852
            
            
            882,372
            
            
            653,521
            
            
            538,598
            
            
            441,743Less:
                deferred loan costs (fees)
            
            
            1,616
            
            
            1,652
            
            
            2,157
            
            
            1,815
            
            
            784Less:
                allowance for loan losses
            
            
            (9,581
            )
            
            (7,546
            )
            
            (6,243
            )
            
            (5,216
            )
            
            (4,272
            )Net
                loans
            
            $
            1,055,887
            
            $
            876,478
            
            $
            649,435
            
            $
            535,197
            
            $
            438,255





The
      two
      most significant components of our loan portfolio are commercial real estate
      and
      construction and vacant land. Our goal of maintaining high standards of credit
      quality include a strategy of diversification of loan type and purpose within
      these categories. The following charts illustrate the composition of these
      portfolios as of December 31, 2006.








**(Dollars
                in thousands)**
            
            
            **Commercial**
              **Real
                Estate**
            
            
            **Percentage
                Composition**Mixed
                Use Commercial/Residential
            
            $
            92,220
            
            
            17
            %1-4
                Family and Multi Family
            
            
            75,154
            
            
            14
            %Hotels/Motels
            
            
            77,055
            
            
            14
            %Guesthouses
            
            
            76,990
            
            
            14
            %Office
                Buildings
            
            
            74,380
            
            
            14
            %Retail
                Buildings
            
            
            57,930
            
            
            10
            %Restaurants
            
            
            31,802
            
            
            6
            %Marinas/Docks
            
            
            26,312
            
            
            5
            %Warehouse
                and Industrial
            
            
            21,206
            
            
            4
            %Other
            
            
            13,227
            
            
            2
            %Total
            
            $
            546,276
            
            
            100
            %






34




**(Dollars
                in thousands)**
            
            
            **Construction
                and Vacant Land**
            
            
            **Percentage
                Composition**Construction:Residential
                - owner occupied
            
            $
            23,892
            
            
            15
            %Residential
                - commercial developer
            
            
            42,664
            
            
            27
            %Commercial
                structure
            
            
            24,035
            
            
            15
            %Total
              construction
            
            
            90,591
            
            
            57
            %Land:Raw
                land
            
            
            6,580
            
            
            4
            %Residential
                lots
            
            
            19,759
            
            
            13
            %Land
                development
            
            
            9,578
            
            
            6
            %Commercial
                lots
            
            
            31,164
            
            
            20
            %Total
                land
            
            
            67,081
            
            
            43
            %Total
                construction and vacant land
            
            $
            157,672
            
            
            100
            %





The
      contractual maturity distribution of our loan portfolio at December 31, 2006
      is
      indicated in the table below. The majority of these are amortizing
      loans.





**Loans
                maturing****(Dollars
                in thousands)**
            
            
            **Within**
              **1
                Year**
            
            
            **1
                to 5**
              **Years**
            
            
            **After**
              **5
                Years**
            
            
            **Total**Real
                estate mortgage loans:Commercial
            
            $
            67,436
            
            $
            92,572
            
            $
            386,268
            
            $
            546,276Residential
            
            
            47
            
            
            2,782
            
            
            79,414
            
            
            82,243Farmland
            
            
            15,000
            
            
            1,720
            
            
            7,490
            
            
            24,210Construction
                and vacant land (a)
            
            
            72,507
            
            
            50,484
            
            
            34,681
            
            
            157,672Commercial
                and agricultural loans
            
            
            30,895
            
            
            43,390
            
            
            10,620
            
            
            84,905Indirect
                auto dealer loans
            
            
            1,848
            
            
            106,740
            
            
            32,964
            
            
            141,552Home
                equity loans
            
            
            1,747
            
            
            6,281
            
            
            9,171
            
            
            17,199Other
                consumer loans
            
            
            735
            
            
            6,048
            
            
            3,012
            
            
            9,795Total
                loans
            
            $
            190,215
            
            $
            310,017
            
            $
            563,620
            
            $
            1,063,852__________(a)  
                $23,892 of this amount relates to residential real estate construction
                loans that have been approved for permanent financing but are still
                under
                construction. The remaining amount relates to commercial real estate
                construction loans, some of which have been approved for permanent
                financing but are still under
                construction.






35


**Loans
                maturing****(Dollars
                in thousands)**
            
            
            **Within**
              **1
                Year**
            
            
            **1
                to 5**
              **Years**
            
            
            **After**
              **5
                Years**
            
            
            **Total**Loans
                with:Predetermined
                interest rates
            
            $
            25,983
            
            $
            176,707
            
            $
            73,433
            
            $
            276,123Floating
                or adjustable rates
            
            
            164,232
            
            
            133,310
            
            
            490,187
            
            
            787,729Total
                loans
            
            $
            190,215
            
            $
            310,017
            
            $
            563,620
            
            $
            1,063,852




**Allowance
      and Provision for Loan Losses**





The
      allowance for loan losses is a valuation allowance for probable incurred credit
      losses in the loan portfolio. Our formalized process for assessing the adequacy
      of the allowance for loan losses and the resultant need, if any, for periodic
      provisions to the allowance charged to income, includes both individual loan
      analyses and loan pool analyses. Individual loan analyses are periodically
      performed on loan relationships of a significant size, or when otherwise deemed
      necessary, and primarily encompass commercial real estate and other commercial
      loans. The result is that commercial real estate loans and commercial loans
      are
      divided into the following risk categories: Pass, Special Mention, Substandard
      and Loss. When appropriate, a specific reserve will be established for
      individual loans. Otherwise, we allocate an allowance for each risk category.
      The allocations are based on factors including historical loss rate, perceived
      economic conditions (local, national and global), perceived strength of our
      management, recent trends in loan loss history, and concentrations of
      credit.





Home
      equity loans, indirect auto dealer loans, residential loans and consumer loans
      generally are not analyzed individually. These loans are grouped into pools
      and
      assigned risk categories based on their current payment status and management’s
      assessment of risk inherent in the various types of loans. As above, when
      appropriate, a specific reserve will be established for individual loans.
      Otherwise, we allocate an allowance for each loan classification. The
      allocations are based on the same factors mentioned above.





Since
      most of the factors that we use in constructing our estimate for the allowance
      have been relatively stable in recent years, the provisions we have used to
      estimate this allowance have been necessitated primarily by the overall level
      of
      loan growth and to replenish the allowance for specific charge-offs. Because
      we
      are principally a commercial bank and have a loan to deposit ratio greater
      than
      90%, any estimate that is used as a multiplier on loan balances reflecting
      our
      best perception of a particular type of risk has the potential to have
      significant income effects if these multipliers change.





Further,
      since the net result of our calculation for the allowance results in this amount
      being 0.90% of outstanding loans, the risks associated with changes in the
      underlying factors of this calculation have an asymmetrical risk to the extent
      of possible negative as opposed to positive consequences. In other words, the
      current allowance reflects factors whose history has indicated and justified
      a
      relatively low allowance in percentage terms. These factors have limited
      capacity for improvement since associated risks cannot go to zero. However,
      for
      example, factors such as economic conditions and loan loss history could
      conceivably deteriorate dramatically. If that were to happen, the effect on
      the
      allowance calculation would be significant and, therefore, require a large
      provision to absorb higher potential losses.





Senior
      management and the Board of Directors review this calculation and the underlying
      assumptions on a routine basis not less frequently than quarterly.




The
      allowance for loan losses amounted to $9.6 million and $7.5 million at December
      31, 2006 and December 31, 2005, respectively. Based on an analysis performed
      by
      management at December 31, 2006, the allowance for loan losses is considered
      to
      be adequate to cover estimated loan losses in the portfolio as of that date.
      However, management’s judgment is based upon a number of assumptions about
      future events, which are believed to be reasonable, but which may or may not
      prove valid. Thus, there can be no assurance that charge-offs in future periods
      will not exceed the allowance for loan losses or that significant additional
      increases in the allowance for loan losses will not be required. In addition,
      various regulatory agencies, as an integral part of their examination process,
      periodically review our allowance for loan losses. Such agencies may require
      us
      to recognize additions to the allowance based on their judgments about
      information available to them at the time of their examination.





The
      provision for loan losses is a charge to income in the current period to
      replenish the allowance and maintain it at a level that management has
      determined to be adequate to absorb estimated losses in the loan portfolio.
      Our
      provision for loan losses was $3.5 million, $2.4 million and $2.5 million for
      the years ended December 31, 2006, 2005 and 2004, respectively.





36


Changes
      affecting the allowance for loan losses are summarized for the years ended
      December 31,




**(Dollars
                in thousands)**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002****Balance
                at beginning of year**
            
            $
            7,546
            
            $
            6,243
            
            $
            5,216
            
            $
            4,272
            
            $
            3,675**Charge-offs:**Real
                estate mortgage loans:Commercial
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            211Residential
            
            
            -
            
            
            -
            
            
            -
            
            
            -Farmland
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Construction
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Commercial
                and agricultural loans
            
            
            12
            
            
            107
            
            
            92
            
            
            183
            
            
            14Indirect
                auto dealer loans
            
            
            1,557
            
            
            1,045
            
            
            1,313
            
            
            370
            
            
            16Home
                equity loans
            
            
            -
            
            
            -
            
            
            -
            
            
            53
            
            
            15Other
                consumer loans
            
            
            4
            
            
            67
            
            
            82
            
            
            61
            
            
            46Total
                charge-offs
            
            
            1,573
            
            
            1,219
            
            
            1,487
            
            
            667
            
            
            302**Recoveries:**Real
                estate mortgage loans:Commercial
            
            
            -
            
            
            -
            
            
            -
            
            
            6
            
            
            84Residential
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Farmland
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Construction
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Commercial
                and agricultural loans
            
            
            20
            
            
            6
            
            
            38
            
            
            1
            
            
            -Indirect
                auto dealer loans
            
            
            55
            
            
            65
            
            
            3
            
            
            8
            
            
            -Home
                equity loans
            
            
            2
            
            
            8
            
            
            2
            
            
            1
            
            
            -Other
                consumer loans
            
            
            40
            
            
            30
            
            
            16
            
            
            9
            
            
            24Total
                recoveries
            
            
            117
            
            
            109
            
            
            59
            
            
            25
            
            
            108Net
                charged off
            
            
            1,456
            
            
            1,110
            
            
            1,428
            
            
            642
            
            
            194Provision
                for loan losses
            
            
            3,491
            
            
            2,413
            
            
            2,455
            
            
            1,586
            
            
            791Allowance
                for loan losses at end of year
            
            $
            9,581
            
            $
            7,546
            
            $
            6,243
            
            $
            5,216
            
            $
            4,272Ratio
                of net charge-offs to average net loans outstanding
            
            
            0.15
            %
            
            0.14
            %
            
            0.24
            %
            
            0.13
            %
            
            0.05
            %





37


While
      no
      portion of the allowance is in any way restricted to any individual loan or
      group of loans and the entire allowance is available to absorb losses from
      any
      and all loans, the following table represents management’s best estimate of the
      allocation of the allowance for loan losses to the various segments of the
      loan
      portfolio based on information available as of December 31. Due to the ongoing
      evaluation and changes in the basis for the allowance for loan losses, actual
      future charge offs will not necessarily follow the allocations described
      below.




**2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002****(Dollars
                in thousands)**
            
            
            **Allowance**
            
            
            **%
                of Total Loans**
            
            
            **Allowance**
            
            
            **%
                of Total Loans**
            
            
            **Allowance**
            
            
            **%
                of Total Loans**
            
            
            **Allowance**
            
            
            **%
                of Total Loans**
            
            
            **Allowance**
            
            
            **%
                of Total Loans**Real
                estate mortgage loans:Commercial
            
            $
            3,764
            
            
            51.4
            
            $
            2,971
            
            
            51.2
            
            $
            2,513
            
            
            53.7
            
            $
            2,608
            
            
            55.2
            
            $
            2,656
            
            
            60.0Residential
            
            
            191
            
            
            7.7
            
            
            168
            
            
            8.6
            
            
            144
            
            
            10.3
            
            
            151
            
            
            11.2
            
            
            178
            
            
            15.5Farmland
            
            
            161
            
            
            2.3
            
            
            30
            
            
            0.5
            
            
            34
            
            
            0.8
            
            
            20
            
            
            0.4
            
            
            4
            
            
            0.1Construction
            
            
            922
            
            
            14.8
            
            
            743
            
            
            14.2
            
            
            312
            
            
            7.6
            
            
            217
            
            
            6.0
            
            
            87
            
            
            3.4Commercial
                and agricultural loans
            
            
            1,002
            
            
            8.0
            
            
            912
            
            
            9.1
            
            
            737
            
            
            9.9
            
            
            901
            
            
            11.8
            
            
            740
            
            
            11.1Indirect
                auto dealer loans
            
            
            3,352
            
            
            13.3
            
            
            2,523
            
            
            13.4
            
            
            2,312
            
            
            14.1
            
            
            1,095
            
            
            11.0
            
            
            169
            
            
            3.8Home
                equity loans
            
            
            87
            
            
            1.6
            
            
            85
            
            
            2.0
            
            
            67
            
            
            2.1
            
            
            78
            
            
            2.3
            
            
            216
            
            
            4.0Other
                consumer loans
            
            
            102
            
            
            0.9
            
            
            114
            
            
            1.0
            
            
            124
            
            
            1.5
            
            
            146
            
            
            2.1
            
            
            222
            
            
            2.1$
            9,581
            
            
            100
            %
            $
            7,546
            
            
            100
            %
            $
            6,243
            
            
            100
            %
            $
            5,216
            
            
            100
            %
            $
            4,272
            
            
            100
            %








**Non-Performing
      Assets**





Non-performing
      assets include non-accrual loans, accruing loans contractually past due 90
      days
      or more, repossessed personal property, and other real estate. Loans are placed
      on non-accrual status when management has concerns relating to the ability
      to
      collect the loan principal and interest and generally when such loans are 90
      days or more past due. A loan is considered impaired when it is probable that
      not all principal and interest amounts will be collected according to the loan
      contract. Non-performing assets were as follows for the periods ending December
      31:








**(Dollars
                in thousands)**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002**Total
                non-accrual loans (a)
            
            $
            4,223
            
            $
            956
            
            $
            704
            
            $
            390
            
            $
            546Accruing
                loans delinquent 90 days or more (a)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Total
                non-performing loans
            
            
            4,223
            
            
            956
            
            
            704
            
            
            390
            
            
            546Repossessed
                personal property (indirect auto dealer loans)
            
            
            1,958
            
            
            962
            
            
            688
            
            
            598
            
            
            70Other
                real estate owned (b)
            
            
            -
            
            
            190
            
            
            882
            
            
            193
            
            
            550Other
                assets (b)
            
            
            2,861
            
            
            2,815
            
            
            2,665
            
            
            2,472
            
            
            2,519Total
                non-performing assets
            
            $
            9,042
            
            $
            4,923
            
            $
            4,939
            
            $
            3,653
            
            $
            3,685Allowance
                for loan losses
            
            $
            9,581
            
            $
            7,546
            
            $
            6,243
            
            $
            5,216
            
            $
            4,272Non-performing
                assets as a percent of total assets
            
            
            0.69
            %
            
            0.46
            %
            
            0.60
            %
            
            0.55
            %
            
            0.65
            %Non-performing
                loans as a percent of gross loans
            
            
            0.40
            %
            
            0.11
            %
            
            0.11
            %
            
            0.07
            %
            
            0.12
            %Allowance
                for loan losses as a percent of non-performing loans (a)
            
            
            226.88
            %
            
            789.33
            %
            
            886.79
            %
            
            1,336.33
            %
            
            783.19
            %




38


________


(a)
            Non-performing
                loans from 2002 through 2005 exclude the $1.6 million loan discussed
                below
                that is guaranteed for both principal and interest by the USDA. In
                December 2006, the Bank stopped accruing interest on this loan pursuant
                to
                a ruling made by the USDA. Accordingly, the loan is included in total
                non-accrual loans as of December 31, 2006. Other non-accrual loans
                at
                December 31, 2003 through December 31, 2006 are primarily indirect
                auto
                dealer loans. At December 31, 2002, non-accrual loans were primarily
                residential real estate loans.





(b)
            In
                1998, the Bank made a $10.0 million loan to construct a lumber mill
                in
                northern Florida. Of this amount, $6.4 million had been sold by the
                Bank
                to other lenders. The loan was 80% guaranteed as to principal and
                interest
                by the U.S. Department of Agriculture (USDA). In addition to business
                real
                estate and equipment, the loan was collateralized by the business
                owner’s
                interest in a trust. Under provisions of the trust agreement,
                beneficiaries cannot receive trust assets until November
                2010.





The
      portion of this loan guaranteed by the USDA and held by us was approximately
      $1.6 million at December 31, 2006 and December 31, 2005. The loan was accruing
      interest until December 2006 when the Bank ceased the accrual of interest
      pursuant to a ruling made by the USDA. Accrued interest on this loan totals
      approximately $941,000 and $794,000 at December 31, 2006 and December 31, 2005,
      respectively.





In
      pursuing a sale of the property and equipment, the Bank has incurred various
      expenditures. The Bank capitalized the liquidation costs and portion of the
      protective advances which it expects will be fully reimbursed by the USDA.
      The
      non-guaranteed principal and interest ($2.0 million at December 31, 2006 and
      December 31, 2005) and the reimbursable capitalized liquidation costs and
      protective advance costs totaling approximately $899,000 and $854,000 at
      December 31, 2006 and December 31, 2005, respectively, are included as “other
      assets” in the financial statements.





Florida
      law requires a bank to liquidate or charge off repossessed real property within
      five years, and repossessed personal property within six months. Since the
      property had not been liquidated during this period, the Bank charged-off the
      non guaranteed principal and interest totaling $2.0 million at June 30, 2003,
      for regulatory purposes. Since we believe this amount is ultimately realizable,
      we did not write off this amount for financial statement purposes under
      generally accepted accounting principles.








**Liquidity
      and Rate Sensitivity**





Liquidity
      represents the ability to provide steady sources of funds for loan commitments
      and investment activities, as well as to provide sufficient funds to cover
      deposit withdrawals and payments of debt, off-balance sheet obligations and
      operating obligations. Funds can be obtained from operations by converting
      assets to cash, by attracting new deposits, by borrowing, by raising capital
      and
      other ways.





Major
      sources of increases and decreases in cash and cash equivalents are as follows
      for the three years ending December 31:




**(Dollars
                in thousands)**
            
            
            **2006**
            
            
            **2005**
            
            
            **2004**Provided
                by operating activities
            
            $
            11,607
            
            $
            19,998
            
            $
            6,801Used
                by investing activities
            
            
            (229,815
            )
            
            (246,077
            )
            
            (151,336
            )Provided
                by financing activities
            
            
            232,250
            
            
            224,651
            
            
            153,792Net
                increase (decrease) in cash and cash equivalents
            
            $
            14,042
            
            $
            (1,428
            )
            $
            9,257





39


As
      discussed in Note 16 of the Consolidated Financial Statements, the Company
      had
      unfunded loan commitments and unfunded letters of credit totaling $178.4 million
      at December 31, 2006. The Company believes the likelihood of these commitments
      either needing to be totally funded or funded at the same time is low. However,
      should significant funding requirements occur, the Company has available
      borrowing capacity from various sources as discussed below.





The
      Bank
      has an unsecured overnight federal funds purchased accommodation up to a maximum
      of $25.0 million from its principal correspondent bank. Further, the Bank has
      invested in FHLB stock for the purpose of establishing credit lines with the
      FHLB. The credit availability to the Bank is equal to up to 20% of the Bank’s
      total assets as reported on the most recent quarterly financial information
      submitted to the regulators subject to the pledging of sufficient collateral.
      At
      December 31, 2006, in addition to $25.0 million in letters of credit used in
      lieu of pledging securities to the State of Florida there was $125.0 million
      in
      advances outstanding. Borrowings are collateralized by the Bank’s qualifying
      one-to-four family residential mortgage loans and commercial real estate loans.
      The amount eligible for collateral approximated $192.1 million at December
      31,
      2006.





Scheduled
      maturities and paydowns of loans and investment securities are a continued
      source of liquidity. Also, many adjustable rate residential real estate loans
      originated are salable in the secondary mortgage market at par or better and
      therefore provide a secondary source for liquidity.





At
      December 31, 2006, our gross loan to deposit ratio was 103.3% compared to a
      ratio of 95.9% at December 31, 2005. Management monitors and assesses the
      adequacy of our liquidity position on a monthly basis to ensure that sufficient
      sources of liquidity are maintained and available.





Under
      state banking law, regulatory approval will be required if the total of all
      dividends declared in any calendar year by the Bank exceeds the Bank’s net
      profits to date for that year combined with its retained net profits for the
      preceding two years. Retained earnings of the Bank available for payment of
      dividends to us without prior regulatory approval at December 31, 2006 is
      approximately $24.4 million. These dividends represent the Company’s primary
      source of liquidity on a stand alone basis.





Closely
      related to liquidity management is the management of interest-earning assets
      and
      interest-bearing liabilities. The Company manages its rate sensitivity position
      to avoid wide swings in net interest margins and to minimize risk due to changes
      in interest rates.





40


Our
      interest rate sensitivity position at December 31, 2006 is presented in the
      table below.








**(Dollars
                in thousands)**
            
            
            **3
                Months**
              **or
                Less**
            
            
            **4
                to 6**
              **Months**
            
            
            **7
                to 12**
              **Months**
            
            
            **1
                to 5**
              **Years**
            
            
            **Over
                5**
              **Years**
            
            
            **Total****Interest-earning
                assets:**Loans
            
            $
            389,395
            
            $
            44,108
            
            $
            59,696
            
            $
            449,207
            
            $
            121,446
            
            $
            1,063,852Investment
                securities-taxable
            
            
            11,110
            
            
            6,722
            
            
            21,612
            
            
            29,015
            
            
            48,514
            
            
            116,973Investment
                securities-tax exempt
            
            
            334
            
            
            638
            
            
            1,038
            
            
            2,157
            
            
            6,575
            
            
            10,742Marketable
                equity securities
            
            
            3,484
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            3,484FHLB
                stock
            
            
            7,773
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            7,773Federal
                funds sold
            
            
            30,329
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            30,329Interest-bearing
                deposit in other banks
            
            
            386
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            386Total
                interest-bearing assets
            
            
            442,811
            
            
            51,468
            
            
            82,346
            
            
            480,379
            
            
            176,535
            
            
            1,233,539**Interest-bearing
                liabilities:**NOW
                accounts
            
            
            132,395
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            132,395Money
                market
            
            
            164,607
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            164,607Savings
                deposits
            
            
            45,076
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            45,076Time
                deposits
            
            
            165,880
            
            
            152,061
            
            
            131,980
            
            
            78,072
            
            
            6
            
            
            527,999Notes
                payable
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            4,000
            
            
            4,000Subordinated
                debentures
            
            
            25,000
            
            
            -
            
            
            -
            
            
            -
            
            
            8,000
            
            
            33,000Other
                borrowings
            
            
            97,250
            
            
            -
            
            
            50,000
            
            
            -
            
            
            -
            
            
            147,250Total
                interest-bearing liabilities
            
            
            630,208
            
            
            152,061
            
            
            181,980
            
            
            78,072
            
            
            12,006
            
            
            1,054,327Interest
                sensitivity gap
            
            $
            (187,397
            )
            $
            (100,593
            )
            $
            (99,634
            )
            $
            402,307
            
            $
            164,529
            
            $
            179,212Cumulative
                interest sensitivity gap
            
            $
            (187,397
            )
            $
            (287,990
            )
            $
            (387,624
            )
            $
            14,683
            
            $
            179,212
            
            $
            179,212Cumulative
                sensitivity ratio
            
            
            (15.2
            %)
            
            (23.3
            %)
            
            (31.4
            %)
            
            1.2
            %
            
            14.5
            %
            
            14.5
            %








41


We
      are
      cumulatively liability sensitive through the one-year time period, and asset
      sensitive in the over one year timeframes above. Certain liabilities such as
      non-indexed NOW and passbook savings accounts, while technically subject to
      immediate re-pricing in response to changing market rates, historically do
      not
      re-price as quickly or to the extent as other interest-sensitive accounts.
      If
      market interest rates should decrease it is anticipated that our net interest
      margin would decrease. Also, as approximately 15% of our deposit funding is
      comprised of non-interest-bearing liabilities, total interest-earning assets
      are
      substantially greater than the total interest-bearing liabilities and therefore
      it is anticipated that, over time, the effects on net interest income from
      changes in asset yield will be greater than the change in expense from liability
      cost. In the next three months, we anticipate short-term interest rates will
      remain stable and we expect that our net interest margin should decline. This
      expectation is due to the effects of competitive pressure on loan production
      at
      higher interest rates combined with increased depositor rate sensitivity driven
      largely by the higher interest rate environment. Thereafter, if the Federal
      Reserve’s monetary policy should result in a reversal of course where short-term
      interest rates begin to decrease as has historically occurred in the six to
      twelve months following a pause in increases, we anticipate that our net
      interest margin contraction would be slower because we have positioned the
      Company by increasing our liability sensitivity through variable borrowings
      and
      shorter term certificates of deposit. We expect this will be largely offset
      by
      the effect of having more total assets subject to rate changes than total
      liabilities that are rate sensitive.





Even
      in
      the near term, we believe the $387.6 million one year cumulative negative
      sensitivity gap may exaggerate the probable effects on earnings in a rising
      rate
      environment for two reasons. First, the liabilities subject to re-pricing are
      predominately not indexed to any specific market rate and therefore offer us
      the
      opportunity to delay or diminish any rate re-pricings. Further, the assets
      subject to re-pricing are expected to reflect fully any changes in market rates,
      primarily the prime rate.





Interest-earning
      assets and time deposits are presented based on their contractual terms. It
      is
      anticipated that run off in any deposit category will be approximately offset
      by
      new deposit generation. Since we have experienced continued growth in deposits,
      no net run off in any deposit category is assumed in the interest rate
      sensitivity table. It is our policy to maintain our cumulative one year gap
      ratio in the -30% to 0% range. At December 31, 2006, the Company was outside
      this range with a one year cumulative sensitivity ratio of -31.4%. As we believe
      we are near the end of the cycle of Federal Reserve interest rate hikes, we
      have
      intentionally increased the liability sensitivity of the balance sheet through
      variable rate funding decisions when possible. The effectiveness of this tactic
      will depend on the timing and extent of the interest rate decreases we believe
      are likely to occur in the more distant future.





**Investment
      Portfolio**





Contractual
      maturities of investment securities at December 31, 2006 are shown below.
      Expected maturities may differ from contractual maturities because borrowers
      may
      have the right to call or repay obligations without call or prepayment
      penalties. Other securities include mortgage-backed securities and marketable
      equity securities which are not due at a single maturity date.




**Within
                1 Year**
            
            **After
                1 Year**
              **Within
                5 Years**
            
            **After
                5 Years**
              **Within
                10 Years**
            
            **After
                10 Years**
            
            **Other
                Securities****(Dollars
                in
                thousands)**
            
            
            **Amount**
            
            
            **Yield**
            
            
            **Amount**
            
            
            **Yield**
            
            
            **Amount**
            
            
            **Yield**
            
            
            **Amount**
            
            
            **Yield**
            
            
            **Amount**Securities
                Available for Sale:U.S.
                Treasury Securities
            
            $
            101
            
            
            5.23
            %
            $
            4,861
            
            
            3.47
            %
            $
            -
            
            
            -
            
            $
            -
            
            
            -
            
            $
            -U.S.
                Gov’t agencies and corporations
            
            
            24,431
            
            
            3.58
            %
            
            23,080
            
            
            4.09
            %
            
            20,470
            
            
            4.80
            %
            
            15,017
            
            
            5.77
            %
            
            -States
                and political subdivisions - tax exempt (a)
            
            
            855
            
            
            6.60
            %
            
            2,159
            
            
            5.86
            %
            
            5,859
            
            
            5.59
            %
            
            1,869
            
            
            5.74
            %
            
            -States
                and political subdivisions - taxable
            
            
            -
            
            
            -
            
            
            259
            
            
            7.73
            %
            
            -
            
            
            -
            
            
            2,331
            
            
            6.45
            %
            
            -Marketable
                equity securities (a)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            3,484Mortgage-backed
                securities
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            16,514Collateralized
                debt obligations
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            9,909
            
            
            6.85
            %
            
            -Total
            
            $
            25,387
            
            
            3.69
            %
            $
            30,359
            
            
            4.14
            %
            $
            26,329
            
            
            4.98
            %
            $
            29,126
            
            
            6.19
            %
            $
            19,998






42


Yield
      by
      classification of investment securities at December 31, 2006 was as
      follows:




**(Dollars
                in thousands)**
            
            
            **Yield**
            
            
            **Totals**Securities
                Available for Sale:U.S.
                Treasury Securities
            
            
            3.50
            %
            $
            4,962U.S.
                Government agencies and corporations
            
            
            4.41
            %
            
            82,998States
                and political subdivisions - tax exempt (a)
            
            
            5.75
            %
            
            10,741States
                and political subdivisions - taxable
            
            
            6.58
            %
            
            2,590Marketable
                equity securities (a)
            
            
            11.99
            %
            
            3,484Mortgage-backed
                securities
            
            
            5.60
            %
            
            16,515Collateralized
                debt obligations
            
            
            6.85
            %
            
            9,909Total
            
            
            5.03
            %
            $
            131,199__________(a)  
                Weighted average yields on tax exempt obligations and marketable
                equity
                securities have been computed by grossing up actual tax exempt income
                (85%
                for marketable equity securities) to a fully taxable equivalent basis
                using applicable statutory federal tax
                rates.





The
      following table presents the amortized cost, market value, unrealized gains,
      and
      unrealized losses for the major categories of our investment portfolio for
      each
      reported period:




**Available
      for Sale—December 31, 2006**





**(Dollars
                in thousands)**
            
            
            **Amortized**
              **Cost**
            
            
            **Unrealized**
              **Gains**
            
            
            **Unrealized**
              **Losses**
            
            
            **Fair**
              **Value**U.S.
                Treasury Securities
            
            $
            5,087
            
            $
            -
            
            $
            125
            
            $
            4,962U.S.
                Government agencies and corporations
            
            
            84,014
            
            
            278
            
            
            1,294
            
            
            82,998States
                and political subdivisions-tax exempt
            
            
            10,818
            
            
            22
            
            
            98
            
            
            10,742States
                and political subdivisions-taxable
            
            
            2,578
            
            
            12
            
            
            -
            
            
            2,590Marketable
                equity securities
            
            
            3,000
            
            
            484
            
            
            -
            
            
            3,484Mortgage-backed
                securities
            
            
            16,428
            
            
            94
            
            
            8
            
            
            16,514Collateralized
                debt obligations
            
            
            9,996
            
            
            -
            
            
            87
            
            
            9,909$
            131,921
            
            $
            890
            
            $
            1,612
            
            $
            131,199








43




**Available
      for Sale—December 31, 2005**





**(Dollars
                in thousands)**
            
            
            **Amortized**
              **Cost**
            
            
            **Unrealized**
              **Gains**
            
            
            **Unrealized**
              **Losses**
            
            
            **Fair**
              **Value**U.S.
                Treasury Securities
            
            $
            5,182
            
            $
            1
            
            $
            145
            
            $
            5,038U.S.
                Government agencies and corporations
            
            
            64,145
            
            
            5
            
            
            1,738
            
            
            62,412States
                and political subdivisions-tax exempt
            
            
            9,594
            
            
            91
            
            
            101
            
            
            9,584States
                and political subdivisions-taxable
            
            
            2,655
            
            
            8
            
            
            -
            
            
            2,663Marketable
                equity securities
            
            
            3,000
            
            
            439
            
            
            -
            
            
            3,439Mortgage-backed
                securities
            
            
            10,083
            
            
            193
            
            
            24
            
            
            10,252Collateralized
                debt obligations
            
            
            3,996
            
            
            80
            
            
            -
            
            
            4,076$
            98,655
            
            $
            817
            
            $
            2,008
            
            $
            97,464








**Available
      for Sale—December 31, 2004**





**(Dollars
                in thousands)**
            
            
            **Amortized**
              **Cost**
            
            
            **Unrealized**
              **Gains**
            
            
            **Unrealized**
              **Losses**
            
            
            **Fair**
              **Value**U.S.
                Treasury Securities
            
            $
            5,178
            
            $
            5
            
            $
            29
            
            $
            5,154U.S.
                Government agencies and corporations
            
            
            54,228
            
            
            104
            
            
            869
            
            
            53,463States
                and political subdivisions-tax exempt
            
            
            9,596
            
            
            246
            
            
            26
            
            
            9,816States
                and political subdivisions-taxable
            
            
            2,862
            
            
            17
            
            
            23
            
            
            2,856Marketable
                equity securities
            
            
            3,000
            
            
            987
            
            
            -
            
            
            3,987Mortgage-backed
                securities
            
            
            2,473
            
            
            58
            
            
            -
            
            
            2,531$
            77,337
            
            $
            1,417
            
            $
            947
            
            $
            77,807











44





**Deposits**





The
      following table presents the average amount outstanding and the average rate
      paid on deposits by us for the years ended December 31, 2006, 2005, and
      2004.





**2006**
            
            **2005**
            
            **2004****(Dollars
                in thousands)**
            
            
            **Average**
              **Amount**
            
            
            **Average**
              **Rate**
            
            
            **Average**
              **Amount**
            
            
            **Average**
              **Rate**
            
            
            **Average**
              **Amount**
            
            
            **Average**
              **Rate****Non-interest
                bearing deposits**
            
            $
            174,798
            
            
            
            
            $
            169,426
            
            
            
            
            $
            139,939**Interest-bearing
                deposits**NOW
                Accounts
            
            
            131,386
            
            
            2.66
            %
            
            92,754
            
            
            0.99
            %
            
            76,068
            
            
            0.43
            %Money
                market
            
            
            166,501
            
            
            3.58
            %
            
            165,266
            
            
            2.23
            %
            
            130,172
            
            
            0.91
            %Savings
                deposit
            
            
            48,897
            
            
            0.71
            %
            
            47,774
            
            
            0.51
            %
            
            44,380
            
            
            0.39
            %Time
                deposits
            
            
            477,204
            
            
            4.58
            %
            
            357,824
            
            
            3.52
            %
            
            227,834
            
            
            3.02
            %Total
            
            $
            998,786
            
            
            3.17
            %
            $
            833,044
            
            
            2.09
            %
            $
            618,393
            
            
            1.39
            %








The
      following table presents the maturity of our time deposits at December 31,
      2006:








**(Dollars
                in thousands)**
            
            
            **Deposits
                $100 and Greater**
            
            
            **Deposits
                Less than $100**
            
            
            **Total****Months
                to maturity:**3
                or less
            
            $
            103,016
            
            $
            62,278
            
            $
            165,2944
                to 6
            
            
            72,872
            
            
            79,448
            
            
            152,3207
                through 12
            
            
            70,704
            
            
            61,307
            
            
            132,011Over
                12
            
            
            39,999
            
            
            38,375
            
            
            78,374Total
            
            $
            286,591
            
            $
            241,408
            
            $
            527,999





**Off-Balance
      Sheet Arrangements and Contractual Obligations**





Our
      off-balance sheet arrangements and contractual obligations at December 31,
      2006
      are summarized in the table that follows. The amounts shown for commitments
      to
      extend credit and letters of credit are contingent obligations, some of which
      are expected to expire without being drawn upon. As a result, the amounts shown
      for these items do not necessarily represent future cash requirements. We
      believe that our current sources of liquidity are more than sufficient to
      fulfill the obligations we have as of December 31, 2006 pursuant to off-balance
      sheet arrangements and contractual obligations.





45





**Amount
                of Commitment Expiration Per Period****(Dollars
                  in thousands)**
            
            
            Total
                Amounts Committed
            
            
            **One
                Year or Less**
            
            
            **Over
                One Year Through Three Years**
            
            
            **Over
                Three Years Through Five Years**
            
            
            **Over
                Five Yea**rsOff-balance
                sheet arrangementsCommitments
                to extend credit
            
            $
            175,232
            
            $
            91,189
            
            $
            30,317
            
            $
            8,699
            
            $
            45,027Standby
                letters of credit
            
            
            3,190
            
            
            2,874
            
            
            316
            
            
            -
            
            
            -Total
            
            $
            178,422
            
            $
            94,063
            
            $
            30,633
            
            $
            8,699
            
            $
            45,027Contractual
                obligationsTime
                deposits
            
            $
            527,999
            
            $
            449,625
            
            $
            67,762
            
            $
            10,606
            
            $
            6Capital
                lease
                obligations
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Operating
                lease
                obligations
            
            
            2,504
            
            
            777
            
            
            1,045
            
            
            607
            
            
            75Purchase
                obligations
            
            
            13,426
            
            
            2,290
            
            
            5,139
            
            
            5,997
            
            
            -Long-term
                debt
            
            
            37,000
            
            
            -
            
            
            -
            
            
            -
            
            
            37,000Other
                long-term
                liabilities reflected on thebalance
                sheet under GAAP
            
            
            5,756
            
            
            15
            
            
            105
            
            
            201
            
            
            5,435Total
            
            $
            586,685
            
            $
            452,707
            
            $
            74,051
            
            $
            17,411
            
            $
            42,516




The
      Bank
      is a party to financial instruments with off-balance sheet risk 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.
      These instruments involve, to varying degrees, elements of credit risk in excess
      of the amount recognized in the consolidated balance sheets.





The
      Bank’s exposure to credit loss in the event of nonperformance by the other party
      to financial instruments for commitments to extend credit and standby letters
      of
      credit is represented by the contractual notional amount of these instruments.
      The Bank uses the same credit policies in making commitments to extend credit
      and generally uses the same credit policies for letters of credit as it does
      for
      on-balance sheet instruments.





Commitments
      to extend credit are legally binding agreements to lend to a customer as long
      as
      there is no violation of any condition established in the contract. Since some
      of these commitments are expected to expire without being drawn upon, the total
      commitment amount does not necessarily represent future cash requirements.
      Unused commercial lines of credit, which comprise a substantial portion of
      these
      commitments, generally expire within a year from their date of origination.
      Other loan commitments generally expire in 30 days. The amount of collateral
      obtained, if any, by the Bank upon extension of credit is based on management’s
      credit evaluation of the borrower. Collateral held varies but may include
      security interests in business assets, mortgages on commercial and residential
      real estate, deposit accounts with the Bank or other financial institutions,
      and
      securities.





46


Standby
      letters of credit are conditional commitments issued by the Bank to assure the
      performance or financial obligations of a customer to a third party. The credit
      risk involved in issuing standby letters of credit is essentially the same
      as
      that involved in extending loans to customers. The Bank generally holds
      collateral and/or obtains personal guarantees supporting these
      commitments.





The
      Bank
      is obligated under operating leases for office and banking premises which expire
      in periods varying from one to eleven years. Future minimum lease payments,
      before considering renewal options that generally are present, total $2.5
      million at December 31, 2006.





Purchase
      obligations consist of computer and item processing services, and debit and
      ATM
      card processing and support services contracted by the Company under long term
      contractual relationships.





Long
      term
      debt, at December 31, 2006, consists of subordinated debentures totaling $33
      million and notes payable totaling $4 million. On January 1, 2007 we repaid
      the
      $4.0 million of notes at par. These borrowings are further described in Note
      10
      of the Consolidated Financial Statements.





Other
      long-term liabilities represent obligations under the non-qualified retirement
      plan for Bank directors and the non-qualified deferred compensation arrangement
      with certain of the Company’s executive officers. Under the director retirement
      plan, the Company pays each participant, or their beneficiary, the amount of
      board compensation fees that the director has elected to defer and interest
      in
      120 equal monthly installments, beginning the month following the director’s
      normal retirement date. The amount presented above reflects the future
      obligation to be paid, assuming no future fee deferrals. Under the executive
      deferred compensation plan, the Company pays each participant, or their
      beneficiary, 43% of the executive’s highest compensation level in the three
      years immediately preceding the date of termination of employment in 180 equal
      monthly installments, beginning the month following the executive’s normal
      retirement date. The amount presented reflects the amount vested in this plan
      as
      of December 31, 2006.





**Capital
      Adequacy**





There
      are
      various primary measures of capital adequacy for banks and financial holding
      companies such as risk based capital guidelines and the leverage capital ratio.
      See Note 14 to the Consolidated Financial Statements.





As
      of
      December 31, 2006, the Bank exceeded its required levels of capital for a bank
      categorized by the FDIC as well capitalized under the regulatory framework
      for
      prompt corrective action. The Bank’s risk-based capital ratio of Tier 1 capital
      to risk-weighted assets was 10.4%, its risk-based ratio of total capital to
      risk-weighted assets was 11.3%, and its leverage ratio was 9.0%.





As
      of
      December 31, 2006, the Company exceeded its required levels of capital under
      capital adequacy guidelines. The Company’s risk-based capital ratio of Tier 1
      capital to risk-weighted assets was 10.1%, its risk-based ratio of total capital
      to risk-weighted assets was 11.8%, and its leverage ratio was 8.8%.





**Inflation**





Inflation
      has an important impact on the growth of total assets in the banking industry
      and causes a need to increase equity capital higher than normal levels in order
      to maintain an appropriate equity to assets ratio. We have been able to maintain
      an adequate level of equity, as previously mentioned and cope with the effects
      of inflation by managing our interest rate sensitivity gap position through
      our
      asset/liability management program, and by periodically adjusting our pricing
      of
      services and banking products to take into consideration current
      costs.





47


**Recent
      Accounting Policies**





During
      2004, the FASB revised Statement No. 123, “Accounting for Stock-Based
      Compensation” ("SFAS 123R") which established accounting requirements for
      share-based compensation to employees and carries forward prior guidance on
      accounting for awards to non-employees. The provisions of this statement became
      effective for fiscal years beginning after June 15, 2005 for all equity awards
      granted or modified after the effective date and for the subsequent vesting
      of
      previously granted awards. SFAS 123R requires an entity to recognize
      compensation expense based on an estimate of the fair value and number of awards
      expected to actually vest, exclusive of awards expected to be forfeited.
      Previously, the Company accounted for stock options granted to employees
      according to the provisions of APB Opinion No. 25, whereby compensation expense
      was recorded based upon the intrinsic value method. The stock-based compensation
      table included in Note 1 of the accompanying financial statements illustrates
      the effect on net income and earnings per share if we had applied the fair
      value
      recognition provisions of SFAS 123 to stock-based employee compensation.
      Subsequent to adoption, the income tax benefits for the exercise of stock
      options in excess of income tax expense for financial reporting purposes are
      classified as cash inflows from financing activities and cash outflows from
      operating activities in the statement of cash flows. The Company adopted SFAS
      123R on January 1, 2006, as required, using the modified prospective transition
      method. Accordingly, the Company has recorded stock-based employee compensation
      cost for stock options using the fair value method starting in
      2006.





During
      2006, employee compensation expense includes $305,000 for stock options pursuant
      to the provisions of SFAS 123R. Prior to January 1, 2006, stock options were
      accounted for using the intrinsic value method; therefore, no stock based
      compensation cost is reflected in net income for the years ending December
      31,
      2005 and 2004, as all options granted had an exercise price equal to or greater
      than the market price of the underlying common stock at date of grant.





In
      February 2006, the FASB issued Statement No. 155, “Accounting for Certain Hybrid
      Financial Instruments - an amendment of FASB Statements No. 133 and 140,” (“SFAS
      155”). SFAS 155 simplifies and conforms the accounting for certain financial
      instruments permitting fair value remeasurement for any hybrid financial
      instrument with an embedded derivative that otherwise would require bifurcation,
      provided that the whole instrument is accounted for on a fair value basis.
      The
      amendments to SFAS No. 133 also clarify that interest-only and principal-only
      strips are not embedded derivatives. The amendments to SFAS No. 140 allow a
      qualifying special purpose entity to hold a derivative financial instrument
      that
      pertains to a beneficial interest other than another derivative financial
      instrument. This statement is effective for all financial instruments acquired
      or issued after the beginning of the first fiscal year after September 15,
      2006.
      Management believes that adoption will have no effect on the Company’s financial
      condition, results of operations or liquidity.





In
      March
      2006, the FASB issued Statement No. 156, “Accounting for Servicing of Financial
      Assets-an amendment of FASB Statement No. 140”. This Statement provides the
      following: 1) revised guidance on when a servicing asset and servicing liability
      should be recognized; 2) requires all separately recognized servicing assets
      and
      servicing liabilities to be initially measured at fair value, if practicable;
      3)
      permits an entity to elect to measure servicing assets and servicing liabilities
      at fair value each reporting date and report changes in fair value in earnings
      in the period in which the changes occur; 4) upon initial adoption, permits
      a
      onetime reclassification of available-for-sale securities to trading securities
      for securities which are identified as offsetting the entity's exposure to
      changes in the fair value of servicing assets or liabilities that a servicer
      elects to subsequently measure at fair value; and 5) requires separate
      presentation of servicing assets and servicing liabilities subsequently measured
      at fair value in the statement of financial position and additional footnote
      disclosures. This Standard is effective as of the beginning of an entity's
      first
      fiscal year that begins after September 15, 2006 with the effects of initial
      adoption being reported as a cumulative-effect adjustment to retained earnings.
      Management does not expect the adoption of this Statement will have a material
      impact on its consolidated financial position or results of
      operations.





In
      July
      2006, the FASB issued Interpretation No. 48 (FIN 48), “Accounting for
      Uncertainty in Income Taxes, an interpretation of SFAS 109, Accounting for
      Income Taxes”. FIN 48 prescribes a comprehensive model for how companies should
      recognize, measure, present, and disclose in their financial statements
      uncertain tax positions taken or expected to be taken on a tax return. Under
      FIN
      48, tax positions shall initially be recognized in the financial statements
      when
      it is more likely than not the position will be sustained upon examination
      by
      the tax authorities. Such tax positions shall initially and subsequently be
      measured as the largest amount of tax benefit that is greater than 50% likely
      of
      being realized upon ultimate settlement with the tax authority assuming full
      knowledge of the position and all relevant facts. FIN 48 also revises disclosure
      requirements to include an annual tabular rollforward of unrecognized tax
      benefits. The provisions of this interpretation are required to be adopted
      for
      fiscal periods beginning after December 15, 2006. The Company will be required
      to apply the provisions of FIN 48 to all tax positions upon initial adoption
      with any cumulative effect adjustment to be recognized as an adjustment to
      retained earnings. Upon adoption, management believes that no cumulative effect
      adjustment will be charged to retained earnings to increase reserves for
      uncertain tax positions.





48


In
      September 2006, the FASB issued SFAS 157, “Fair Value Measurements”, which upon
      adoption will replace various definitions of fair value in existing accounting
      literature with a single definition, will establish a framework for measuring
      fair value, and will require additional disclosures about fair value
      measurements. The statement clarifies that fair value is the price that would
      be
      received to sell an asset or the price paid to transfer a liability in the
      most
      advantageous market available to the entity and emphasizes that fair value
      is a
      market-based measurement and should be based on the assumptions market
      participants would use. The statement also creates a three-level hierarchy
      under
      which individual fair value estimates are to be ranked based on the relative
      reliability of the inputs used in the valuation. This hierarchy is the basis
      for
      the disclosure requirements, with fair value estimates based on the least
      reliable inputs requiring more extensive disclosures about the valuation method
      used and the gains and losses associated with those estimates. SFAS 157 is
      required to be applied whenever another financial accounting standard requires
      or permits an asset or liability to be measured at fair value. The statement
      does not expand the use of fair value to any new circumstances. The Company
      will
      be required to apply the new guidance beginning January 1, 2008, and management
      does not expect it to have a material impact on financial condition, results
      of
      operations, or liquidity.





In
      September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined
      Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements
      No. 87, 88, 106 and 132(R)”. This Statement requires an employer to recognize
      the overfunded or underfunded status of a defined benefit postretirement plan
      (other than a multiemployer plan) as an asset or liability in its balance sheet,
      beginning with year end 2006, and to recognize changes in the funded status
      in
      the year in which the changes occur through comprehensive income beginning
      in
      2007. Additionally, defined benefit plan assets and obligations are to be
      measured as of the date of the employer’s fiscal year-end, starting in 2008.
      Adoption had no effect on the Company’s financial condition, results of
      operations or liquidity as the Company does not have any defined benefit plans
      falling within the scope of SFAS No. 158.





In
      September 2006, the Securities and Exchange Commission (SEC) released Staff
      Accounting Bulletin No. 108, “Considering the Effects of Prior Year
      Misstatements when Quantifying Misstatements in Current Year Financial
      Statements” (SAB 108), which is effective for fiscal years ending on or after
      November 15, 2006. SAB 108 provides guidance on how the effects of prior-year
      uncorrected financial statement misstatements should be considered in
      quantifying a current year misstatement. SAB 108 requires public companies
      to
      quantify misstatements using both an income statement (rollover) and balance
      sheet (iron curtain) approach and evaluate whether either approach results
      in a
      misstatement that, when all relevant quantitative and qualitative factors are
      considered, is material. If prior year errors that had been previously
      considered immaterial now are considered material based on either approach,
      no
      restatement is required so long as management properly applied its previous
      approach and all relevant facts and circumstances were considered. The adoption
      of SAB 108 had no effect on the Company’s financial statements for the year
      ending December 31, 2006.





In
      September 2006, the FASB Emerging Issues Task Force finalized Issue No. 06-4,
      “Accounting for Deferred Compensation and Postretirement Benefit Aspects of
      Endorsement Split-Dollar Life Insurance Arrangements”. This issue requires that
      a liability be recorded during the service period when a split-dollar life
      insurance agreement continues after participants’ employment or retirement. The
      required accrued liability will be based on either the post-employment benefit
      cost for the continuing life insurance or based on the future death benefit
      depending on the contractual terms of the underlying agreement. This issue
      is
      effective for fiscal years beginning after December 15, 2007. Management has
      not
      yet completed its evaluation of the impact of adoption of EITF 06-4 but does
      not
      expect it to have a material impact on the financial condition, results of
      operations, or liquidity of the Company.





49


In
      September 2006, the FASB Emerging Issues Task Force finalized Issue No. 06-5,
      “Accounting for Purchases of Life Insurance - Determining the Amount That Could
      Be Realized in Accordance with FASB Technical Bulletin No. 85-4 (Accounting
      for
      Purchases of Life Insurance)”. This issue requires that a policyholder consider
      contractual terms of a life insurance policy in determining the amount that
      could be realized under the insurance contract. It also requires that if the
      contract provides for a greater surrender value if all individual policies
      in a
      group are surrendered at the same time, that the surrender value be determined
      based on the assumption that policies will be surrendered on an individual
      basis. Lastly, the issue discusses whether the cash surrender value should
      be
      discounted when the policyholder is contractually limited in its ability to
      surrender a policy. This issue is effective for fiscal years beginning after
      December 15, 2006. Management does not believe the adoption of this issue will
      have a material impact on the financial condition, results of operations, or
      liquidity of the Company.




**Critical
      Accounting Policies**





In
      reviewing and understanding financial information for the Company, you are
      encouraged to read and understand the significant accounting policies which
      are
      used in preparing the consolidated financial statements of the Company. These
      policies are described in Note 1 to the Consolidated Financial Statements.
      Of
      these policies, management believes that the accounting for the allowance for
      loan losses is the most critical.





Losses
      on
      loans result from a broad range of causes from borrower specific problems,
      to
      industry issues, to the impact of the economic environment. The identification
      of these factors that lead to default or non-performance under a borrower loan
      agreement and the estimation of loss in these situations are very subjective.
      In
      addition, a dramatic change in the performance of one or a small number of
      borrowers can have a significant impact on the estimate of losses. As described
      above under the “Allowance and Provision for Loan Losses” heading, management
      has implemented a process that has been applied consistently to systematically
      consider the many variables that impact the estimation of the allowance for
      loan
      losses.








50





**ITEM
      7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**








Market
      risk is the risk that a financial institution’s earnings and capital, or its
      ability to meet its business objectives, will be adversely affected by movements
      in market rates or prices such as interest rates, foreign exchange rates, equity
      rates, equity prices, credit spreads and/or commodity prices. The Company has
      assessed its market risk as predominately interest rate risk.





The
      interest rate sensitivity as of December 31, 2006 was analyzed using simulation
      analysis of the Company’s sensitivity to changes in net interest income under
      varying assumptions for changes in market interest rates. Specifically, the
      model derives expected interest income and interest expense resulting from
      a
      gradual and parallel shift in the yield curve. Rate changes are matched with
      known re-pricing intervals. The Bank uses standardized assumptions run against
      Bank data by an outsourced provider of Asset Liability reporting. The results
      of
      the analysis indicate that net interest income could be expected to increase
      by
      approximately $704,000 in a gradual 12-month, 200 basis point interest rate
      increase. The analysis also indicates that a decrease in net interest income
      of
      approximately $1.4 million could be expected from a gradual 12-month, 200 basis
      point interest rate decrease.





We
      attempt to retain interest rate neutrality by generating mostly adjustable
      rate
      loans and managing the securities, wholesale funding, and Fed Funds positions
      to
      offset the re-pricing characteristics of the deposit liabilities.











51





**ITEM
      8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**








The
      consolidated financial statements, notes thereto and report of independent
      registered public accounting firm thereon included on the following pages are
      incorporated herein by reference.








**Index
      to Consolidated Financial Statements**





PageReport
                of Independent Registered Public Accounting Firm
            53Consolidated
                Balance Sheets for the Years Ended December 31, 2006 and
                2005
            55Consolidated
                Statements of Income for the Years Ended December 31, 2006, 2005
                and
                2004
            56Consolidated
                Statements of Changes in Shareholders' Equity for the Years Ended
                December
                31, 2006, 2005 and 2004
            58Consolidated
                Statements of Cash Flows for the Years Ended December 31, 2006, 2005
                and
                2004
            60Notes
                to Consolidated Financial Statements for the Years Ended December
                31,
                2006, 2005 and 2004
            62










52






REPORT
      OF
      INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








Board
      of
      Directors and Shareholders


TIB
      Financial Corp.


Naples,
      Florida





We
      have
      audited the accompanying consolidated balance sheets of TIB Financial Corp.
      as
      of December 31, 2006 and 2005, and the related consolidated statements of
      income, changes in shareholders' equity, and cash flows for each of the years
      in
      the three-year period ended December 31, 2006. We also have audited management's
      assessment, included in Management’s Report on Internal Control Over Financial
      Reporting in Item 9A of the accompanying Form 10-K, that TIB Financial Corp.
      maintained effective internal control over financial reporting as of December
      31, 2006, based on the criteria established in Internal Control—Integrated
      Framework issued by the Committee of Sponsoring Organizations of the Treadway
      Commission (COSO). TIB Financial Corp.'s management is responsible for these
      consolidated financial statements, for maintaining effective internal control
      over financial reporting, and for its assessment of the effectiveness of
      internal control over financial reporting. Our responsibility is to express
      an
      opinion on these consolidated financial statements, an opinion on management's
      assessment, and an opinion on the effectiveness of the Company's internal
      control over financial reporting 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 audits to obtain reasonable assurance about whether the
      consolidated financial statements are free of material misstatement and whether
      effective internal control over financial reporting was maintained in all
      material respects. Our audit of the consolidated financial statements included
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the consolidated financial statements, assessing the accounting principles
      used
      and significant estimates made by management, and evaluating the overall
      financial statement presentation. Our audit of internal control over financial
      reporting included obtaining an understanding of internal control over financial
      reporting, evaluating management's assessment, testing and evaluating the design
      and operating effectiveness of internal control, and performing such other
      procedures as we considered necessary in the circumstances. We believe that
      our
      audits provide a reasonable basis for our opinions.





A
      company's internal control over financial reporting is a process designed to
      provide reasonable assurance regarding the reliability of financial reporting
      and the preparation of financial statements for external purposes in accordance
      with generally accepted accounting principles. A company's internal control
      over
      financial reporting includes those policies and procedures that (1) pertain
      to
      the maintenance of records that, in reasonable detail, accurately and fairly
      reflect the transactions and dispositions of the assets of the company; (2)
      provide reasonable assurance that transactions are recorded as necessary to
      permit preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the company are
      being made only in accordance with authorizations of management and directors
      of
      the company; and (3) provide reasonable assurance regarding prevention or timely
      detection of unauthorized acquisition, use, or disposition of the company's
      assets that could have a material effect on the financial statements.





Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.





53




In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of TIB Financial Corp. as
      of
      December 31, 2006 and 2005, and the results of its operations and its cash
      flows
      for each of the years in the three-year period ended December 31, 2006, in
      conformity with accounting principles generally accepted in the United States
      of
      America. Also in our opinion, management's assessment that TIB Financial Corp.
      maintained effective internal control over financial reporting as of December
      31, 2006, is fairly stated, in all material respects, based on the criteria
      established in Internal Control—Integrated Framework issued by the Committee of
      Sponsoring Organizations of the Treadway Commission (COSO). Furthermore, in
      our
      opinion, TIB Financial Corp. maintained, in all material respects, effective
      internal control over financial reporting as of December 31, 2006, based on
      the
      criteria established in Internal Control—Integrated Framework issued by the
      Committee of Sponsoring Organizations of the Treadway Commission
      (COSO).





Date:
            By:
            /s/ Crowe
              Chizek and Company LLCCrowe
              Chizek and Company LLCFort
                Lauderdale, Florida
              March
                8, 2007








54
 **TIB
          Financial Corp. and Subsidiaries**




**Consolidated
      Balance Sheets**


**As
      of December 31,**





**(Dollars
                in thousands, except per share amounts)**
            
            
            **2006**
            
            
            **2005****Asset**sCash
                and due from banks
            
            $
            25,223
            
            $
            24,347Federal
                funds sold
            
            
            30,329
            
            
            17,163Cash
                and cash equivalents
            
            
            55,552
            
            
            41,510Investment
                securities available for sale
            
            
            131,199
            
            
            97,464Loans,
                net of deferred loan costs and fees
            
            
            1,065,468
            
            
            884,024Less:
                Allowance for loan losses
            
            
            9,581
            
            
            7,546Loans,
                net
            
            
            1,055,887
            
            
            876,478Premises
                and equipment, net
            
            
            34,102
            
            
            27,800Intangible
                assets, net
            
            
            813
            
            
            1,100Accrued
                interest receivable and other assets
            
            
            41,540
            
            
            31,718Total
                Assets
            
            $
            1,319,093
            
            $
            1,076,070**Liabilities
                and Shareholders’ Equity****Liabilities**Deposits:Noninterest-bearing
                demand
            
            $
            159,380
            
            $
            169,816Interest-bearing
            
            
            870,077
            
            
            750,608Total
                deposits
            
            
            1,029,457
            
            
            920,424Federal
                Home Loan Bank (FHLB) advances
            
            
            125,000
            
            
            25,000Short-term
                borrowings
            
            
            22,250
            
            
            17,284Long-term
                borrowings
            
            
            37,000
            
            
            17,000Accrued
                interest payable and other liabilities
            
            
            19,524
            
            
            18,838Total
                liabilities
            
            
            1,233,231
            
            
            998,546**Shareholders’
                equity**Preferred
                stock - no par value: 5,000,000 shares authorized, 0 shares
                issued
            
            
            -
            
            
            -Common
                stock - $.10 par value: 40,000,000 shares authorized, 11,720,527
                and
                11,585,196 shares issued
            
            
            1,172
            
            
            1,158Additional
                paid in capital
            
            
            40,514
            
            
            38,973Retained
                earnings
            
            
            44,620
            
            
            38,136Accumulated
                other comprehensive loss
            
            
            (444
            )
            
            (743
            )Total
                shareholders’ equity
            
            
            85,862
            
            
            77,524Total
                Liabilities and Shareholders’ Equity
            
            $
            1,319,093
            
            $
            1,076,070*See
                accompanying notes to consolidated financial
                statements*








55
 **TIB
            Financial Corp. and Subsidiaries**


**Consolidated
      Statements of Income**


**Years
      Ended December 31,**





**(Dollars
                in thousands, except per share amounts)**
            
            
            **2006**
            
            
            **2005**
            
            
            **2004****Interest
                and dividend income**Loans,
                including fees
            
            $
            78,379
            
            $
            54,488
            
            $
            37,720Investment
                securities:U.S.
                Treasury securities
            
            
            170
            
            
            171
            
            
            124U.S.
                Government agencies and corporations
            
            
            4,207
            
            
            2,607
            
            
            2,023States
                and political subdivisions, tax-exempt
            
            
            422
            
            
            377
            
            
            406States
                and political subdivisions, taxable
            
            
            163
            
            
            169
            
            
            197Other
                investments
            
            
            847
            
            
            297
            
            
            251Interest-bearing
                deposits in other banks
            
            
            22
            
            
            10
            
            
            11Federal
                Home Loan Bank stock
            
            
            285
            
            
            113
            
            
            57Federal
                funds sold
            
            
            739
            
            
            1,202
            
            
            127Total
                interest and dividend income
            
            
            85,234
            
            
            59,434
            
            
            40,916**Interest
                expense**Interest-bearing
                demand and money market
            
            
            9,459
            
            
            4,605
            
            
            1,519Savings
            
            
            346
            
            
            243
            
            
            174Time
                deposits of $100 or more
            
            
            11,713
            
            
            6,505
            
            
            3,507Other
                time deposits
            
            
            10,139
            
            
            6,090
            
            
            3,371Long-term
                debt-subordinated debentures
            
            
            2,045
            
            
            1,212
            
            
            1,119Federal
                Home Loan Bank advances
            
            
            3,415
            
            
            857
            
            
            475Short-term
                borrowings
            
            
            687
            
            
            425
            
            
            83Notes
                payable
            
            
            367
            
            
            367
            
            
            482Total
                interest expense
            
            
            38,171
            
            
            20,304
            
            
            10,730Net
                interest income
            
            
            47,063
            
            
            39,130
            
            
            30,186Provision
                for loan losses
            
            
            3,491
            
            
            2,413
            
            
            2,455Net
                interest income after provision for loan losses
            
            
            43,572
            
            
            36,717
            
            
            27,731**Non-interest
                income**Service
                charges on deposit accounts
            
            
            2,457
            
            
            2,360
            
            
            2,547Investment
                securities gains, net
            
            
            -
            
            
            1
            
            
            106Fees
                on mortgage loans sold
            
            
            1,599
            
            
            1,880
            
            
            1,852Retail
                investment services
            
            
            -
            
            
            -
            
            
            333Other
                income
            
            
            2,219
            
            
            2,017
            
            
            1,468Total
                non-interest income
            
            
            6,275
            
            
            6,258
            
            
            6,306**Non-interest
                expense**Salaries
                and employee benefits
            
            
            20,205
            
            
            17,724
            
            
            14,385Net
                occupancy and equipment expense
            
            
            6,120
            
            
            5,502
            
            
            4,911Other
                expense
            
            
            9,508
            
            
            8,630
            
            
            7,761Total
                non-interest expense
            
            
            35,833
            
            
            31,856
            
            
            27,057Income
                from continuing operations before income tax expense
            
            
            14,014
            
            
            11,119
            
            
            6,980Income
                tax expense
            
            
            5,021
            
            
            3,927
            
            
            2,337Income
                from continuing operations
            
            
            8,993
            
            
            7,192
            
            
            4,643*Continued*




56
 **TIB
            Financial Corp. and Subsidiaries**


**Consolidated
      Statements of Income**


**Years
      Ended December 31,**


*(Continued)*





**(Dollars
                in thousands, except per share amounts)**
            
            
            **2006**
            
            
            **2005**
            
            
            **2004****Discontinued
                operations**Income
                from merchant bankcard operations
            
            
            414
            
            
            7,630
            
            
            890Income
                tax expense
            
            
            160
            
            
            2,998
            
            
            335Income
                from discontinued operations
            
            
            254
            
            
            4,632
            
            
            555**Net
                income**
            
            $
            9,247
            
            $
            11,824
            
            $
            5,198**Basic
                earnings per common share**Continuing
                operations
            
            $
            0.78
            
            $
            0.63
            
            $
            0.44Discontinued
                operations
            
            
            0.02
            
            
            0.41
            
            
            0.05Basic
                earnings per share
            
            $
            0.80
            
            $
            1.04
            
            $
            0.49**Diluted
                earnings per common share**Continuing
                operations
            
            $
            0.76
            
            $
            0.61
            
            $
            0.42Discontinued
                operations
            
            
            0.02
            
            
            0.39
            
            
            0.05Diluted
                earnings per share
            
            $
            0.78
            
            $
            1.00
            
            $
            0.47*See
                accompanying notes to consolidated financial
                statements*










57
 **TIB
          Financial Corp. and Subsidiaries**





**Consolidated
      Statements of Changes in Shareholders’ Equity**


**(Dollars
      in thousands, except per share amounts)**





**Shares**
            
            **Common
                Stock**
            
            **Additional
                Paid in Capital**
            
            **Retained
                Earnings**
            
            **Accumulated
                Other Comprehensive Income (Loss)**
            
            **Total
                Shareholders’ Equity****Balance,
                January 1, 2004**
            
            
            8,862,656
            
            $
            886
            
            $
            13,812
            
            $
            26,203
            
            $
            345
            
            $
            41,246Comprehensive
                income:Net
                income
            
            
            
            
            
            
            
            
            
            
            
            5,198
            
            
            
            
            
            5,198Other
                comprehensive income, net of tax benefit of $32:Net
                market valuation adjustment on securities available for
                sale
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            15Less:
                reclassification adjustment for gains included in net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (66
            )Other
                comprehensive loss, net of tax
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (51
            )Comprehensive
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            5,147Public
                offering of common shares
            
            
            2,300,000
            
            
            230
            
            
            23,000
            
            
            
            
            
            
            
            
            23,230Exercise
                of stock options
            
            
            195,822
            
            
            20
            
            
            658
            
            
            
            
            
            
            
            
            678Income
                tax benefit from stock options exercised
            
            
            
            
            
            
            
            
            246
            
            
            
            
            
            
            
            
            246Cash
                dividends declared, $.22625 per share
            
            
            
            
            
            
            
            
            
            
            
            (2,433
            )
            
            
            
            
            (2,433
            )**Balance,
                December 31, 2004**
            
            
            11,358,478
            
            $
            1,136
            
            $
            37,716
            
            $
            28,968
            
            $
            294
            
            $
            68,114Comprehensive
                income:Net
                income
            
            
            
            
            
            
            
            
            
            
            
            11,824
            
            
            
            
            
            11,824Other
                comprehensive income, net of tax benefit of $624:Net
                market valuation adjustment on securities available for
                sale
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,037
            )Other
                comprehensive loss, net of tax
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,037
            )Comprehensive
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            10,787Restricted
                stock grants
            
            
            82,000
            
            
            8
            
            
            (8
            )
            
            
            
            
            
            
            
            -Stock-based
                compensation
            
            
            
            
            
            
            
            
            98
            
            
            
            
            
            
            
            
            98Exercise
                of stock options
            
            
            144,718
            
            
            14
            
            
            824
            
            
            
            
            
            
            
            
            838Income
                tax benefit from stock options exercised
            
            
            
            
            
            
            
            
            343
            
            
            
            
            
            
            
            
            343Cash
                dividends declared, $.23125 per share
            
            
            
            
            
            
            
            
            
            
            
            (2,656
            )
            
            
            
            
            (2,656
            )**Balance,
                December 31, 2005**
            
            
            11,585,196
            
            $
            1,158
            
            $
            38,973
            
            $
            38,136
            
            $
            (743
            )
            $
            77,524





*Continued*





58
 **TIB
            Financial Corp. and Subsidiaries**


**Consolidated
      Statements of Changes in Shareholders’ Equity**


**(Dollars
      in thousands, except per share amounts)**


*(Continued)*





**Shares**
            
            
            **Common
                Stock**
            
            
            **Additional
                Paid in Capital**
            
            
            **Retained
                Earnings**
            
            
            **Accumulated
                Other Comprehensive Income (Loss)**
            
            
            **Total
                Shareholders’ Equity****Balance,
                December 31, 2005**
            
            
            11,585,196
            
            $
            1,158
            
            $
            38,973
            
            $
            38,136
            
            $
            (743
            )
            $
            77,524Comprehensive
                income:Net
                income
            
            
            
            
            
            
            
            
            
            
            
            9,247
            
            
            
            
            
            9,247Other
                comprehensive income, net of tax expense of $170:Net
                market valuation adjustment on securities available for
                sale
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            299Other
                comprehensive income, net of tax
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            299Comprehensive
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            9,546Restricted
                stock grants, net of 10,000 restricted stock cancellations
            
            
            345Stock-based
                compensation
            
            
            
            
            
            
            
            
            564
            
            
            
            
            
            
            
            
            564Registration
                statement costs
            
            
            
            
            
            
            
            
            (5
            )
            
            
            
            
            
            
            
            (5
            )Exercise
                of stock options
            
            
            134,986
            
            
            14
            
            
            832
            
            
            
            
            
            
            
            
            846Income
                tax benefit related to stock-based compensation
            
            
            
            
            
            
            
            
            150
            
            
            
            
            
            
            
            
            150Cash
                dividends declared, $.23625 per share
            
            
            
            
            
            
            
            
            
            
            
            (2,763
            )
            
            
            
            
            (2,763
            )**Balance,
                December 31, 2006**
            
            
            11,720,527
            
            $
            1,172
            
            $
            40,514
            
            $
            44,620
            
            $
            (444
            )
            $
            85,862*See
                accompanying notes to consolidated financial
                statements*








59
 **TIB
          Financial Corp. and Subsidiaries**




**Consolidated
      Statements of Cash Flows**


**(Dollars
      in thousands)**





**Years
                Ended December 31,****2006**
            
            
            **2005**
            
            
            **2004****Cash
                flows from operating activities:**Net
                income
            
            $
            9,247
            
            $
            11,824
            
            $
            5,198Adjustments
                to reconcile net income to net cash provided by operating
                activities:Depreciation
                and amortization
            
            
            2,642
            
            
            2,511
            
            
            2,245Provision
                for loan losses
            
            
            3,491
            
            
            2,413
            
            
            2,455Deferred
                income tax benefit
            
            
            (1,168
            )
            
            (944
            )
            
            (90
            )Investment
                securities net gains
            
            
            -
            
            
            (1
            )
            
            (106
            )Gain
                on sale of merchant bankcard processing segment
            
            
            (414
            )
            
            (6,697
            )
            
            -Stock
                based compensation
            
            
            564
            
            
            98
            
            
            -Other
            
            
            162
            
            
            (496
            )
            
            (52
            )Mortgage
                loans originated for sale
            
            
            (105,248
            )
            
            (114,257
            )
            
            (108,543
            )Proceeds
                from sales of mortgage loans
            
            
            105,412
            
            
            119,321
            
            
            108,543Fees
                on mortgage loans sold
            
            
            (1,599
            )
            
            (1,880
            )
            
            (1,852
            )Increase
                in accrued interest receivable and other assets
            
            
            (2,491
            )
            
            (2,672
            )
            
            (2,036
            )Increase
                in accrued interest payable and other liabilities
            
            
            1,009
            
            
            10,778
            
            
            1,039Net
                cash provided by operating activities
            
            
            11,607
            
            
            19,998
            
            
            6,801**Cash
                flows from investing activities:**Purchases
                of investment securities available for sale
            
            
            (42,532
            )
            
            (13,995
            )
            
            (38,368
            )Sales
                of investment securities available for sale
            
            
            -
            
            
            -
            
            
            9,281Repayments
                of principal and maturities of investment securities available for
                sale
            
            
            9,296
            
            
            1,103
            
            
            3,797Net
                (purchase) sale of FHLB stock
            
            
            (4,993
            )
            
            129
            
            
            (660
            )Proceeds
                from sales of loans
            
            
            7,439
            
            
            -
            
            
            569Proceeds
                from sale of merchant bankcard processing segment
            
            
            -
            
            
            7,250
            
            
            -Loans
                originated or acquired, net of principal repayments
            
            
            (188,238
            )
            
            (237,371
            )
            
            (115,910
            )Purchase
                of life insurance policies
            
            
            -
            
            
            -
            
            
            (700
            )Purchases
                of premises and equipment
            
            
            (12,425
            )
            
            (3,928
            )
            
            (9,495
            )Proceeds
                from disposal of premises, equipment and intangible assets
            
            
            1,638
            
            
            735
            
            
            150Net
                cash used by investing activities
            
            
            (229,815
            )
            
            (246,077
            )
            
            (151,336
            )**Cash
                flows from financing activities:**Net
                increase in federal funds purchased and securities sold under agreements
                to repurchase
            
            
            4,966
            
            
            5,127
            
            
            8,116Net
                increase (decrease) in FHLB advances
            
            
            100,000
            
            
            (10,000
            )
            
            (10,000
            )Repayment
                of notes payable
            
            
            -
            
            
            (1,250
            )
            
            -Net
                increase in demand, money market and savings accounts
            
            
            12,838
            
            
            51,943
            
            
            87,894Net
                increase in time deposits
            
            
            96,195
            
            
            180,622
            
            
            46,152Proceeds
                from exercise of stock options
            
            
            846
            
            
            838
            
            
            678Proceeds
                from public offering of common stock
            
            
            -
            
            
            -
            
            
            23,230Proceeds
                from issuance of trust preferred securities
            
            
            19,995
            
            
            -
            
            
            -Income
                tax benefits related to stock based compensation in 2006
            
            
            150
            
            
            -
            
            
            -Cash
                dividends paid
            
            
            (2,740
            )
            
            (2,629
            )
            
            (2,278
            )Net
                cash provided by financing activities
            
            
            232,250
            
            
            224,651
            
            
            153,792**Net
                (decrease) increase in cash and cash equivalents**
            
            
            14,042
            
            
            (1,428
            )
            
            9,257Cash
                and cash equivalents at beginning of year
            
            
            41,510
            
            
            42,938
            
            
            33,681


**Cash
                and cash equivalents at end of year**
            
            $
            55,552
            
            $
            41,510
            
            $
            42,938




(Continued)


60
 **TIB
            Financial Corp. and Subsidiaries**
  **Consolidated
        Statements of Cash Flows**
 **(Dollars
        in thousands)**
 *(Continued)*


**Years
                Ended December 31,**2006
            
            
            2005
            
            
            2004**Supplemental
                disclosures of cash paid:**Interest
            
            $
            33,983
            
            $
            17,387
            
            $
            10,542Income
                taxes
            
            
            10,330
            
            
            3,530
            
            
            1,945**Supplemental
                disclosures of non-cash transactions:**Mortgage
                backed securities issued and retained subsequent to securitization
                of
                residential mortgages
            
            $
            -
            
            $
            8,509
            
            $
            -Financing
                of sale of premises and equipment to third parties
            
            
            2,136
            
            
            1,100
            
            
            1,010*See
                accompanying notes to consolidated financial
                statements*















61
 **TIB
            Financial Corp. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 (Dollars in thousands except share and per
            share
            amounts)





**Note
      1—Summary of Significant Accounting Policies**





**Principles
      of Consolidation and Nature of Operations**





TIB
      Financial Corp. is a financial holding company headquartered in Naples, Florida.
      The consolidated financial statements include the accounts of TIB Financial
      Corp. (Parent Company) and its wholly-owned subsidiary, TIB Bank (Bank),
      collectively known as the “Company.” All significant inter-company accounts and
      transactions have been eliminated in consolidation. TIBFL Statutory Trust I,
      TIBFL Statutory Trust II and TIBFL Statutory Trust III were formed in
      conjunction with the issuance of trust preferred securities as further discussed
      in Note 10.





TIB
      Bank
      is the Company’s primary operating subsidiary. The Bank provides banking
      services from its seventeen branch locations in Monroe, Miami-Dade, Collier,
      Lee
      and Highlands counties, Florida. TIB Bank offers a wide range of commercial
      and
      retail banking and financial services to businesses and individuals. Account
      services include checking, interest-bearing checking, money market, savings,
      certificates of deposit and individual retirement accounts. The Bank offers
      all
      types of commercial loans, including: owner-operated commercial real estate;
      acquisition, development and construction; income-producing properties; working
      capital; inventory and receivable facilities; and equipment loans. Consumer
      loan
      products include residential real estate, installment loans, home equity, home
      equity lines, and indirect auto dealer loans.





The
      share
      and per share amounts discussed throughout this document have been adjusted
      to
      account for the effects of the two-for-one stock split distributed October
      23,
      2006.





The
      accounting and reporting policies of TIB Financial Corp. and subsidiaries
      conform to generally accepted accounting principles and to general practices
      within the banking industry. The following is a summary of the more significant
      of these policies.





**Use
      of Estimates and Assumptions**





To
      prepare financial statements in conformity with accounting principles generally
      accepted in the United States of America, management makes estimates and
      assumptions based on available information. These estimates and assumptions
      affect the amounts reported in the financial statements and the disclosures
      provided, and actual results could differ. A material estimate that is
      particularly susceptible to significant change in the near term is the allowance
      for loan losses. Another material estimate is the fair value of financial
      instruments. Changes in assumptions or in market conditions could significantly
      affect the fair value estimates.





**Cash
      and Cash Equivalents**





For
      purposes of the consolidated statements of cash flows, cash and cash equivalents
      include cash on hand, amounts due from banks, federal funds sold, and
      interest-bearing deposits at the Federal Home Loan Bank of Atlanta. Net cash
      flows are reported for customer loan and deposit transactions and short term
      borrowings.





**Investment
      Securities**





Investment
      securities which management has the ability and intent to hold to maturity
      are
      reported at amortized cost. Debt securities which may be sold prior to maturity
      are classified as available for sale and are carried at fair value, with
      unrealized holding gains and losses reported in other comprehensive income.
      Other securities such as Federal Home Loan Bank stock are carried at cost and
      are included in other assets on the balance sheets.





62
 **TIB
            Financial Corp. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 (Dollars in thousands except share and per
            share
            amounts)




Interest
      income includes amortization of purchase premium or discount. Premiums and
      discounts on securities are amortized on the level-yield method without
      anticipating prepayments, except for mortgage backed securities where
      prepayments are anticipated. Gains and losses on sales are recorded on the
      trade
      date and determined using the specific identification method based on the
      amortized cost of the security sold.





Declines
      in the fair value of securities below their cost that are other than temporary
      are reflected as realized losses. In estimating other-than temporary losses,
      management considers: (1) the length of time and extent that fair value has
      been
      less than cost, (2) the financial condition and near term prospects of the
      issuer, and (3) the Company’s ability and intent to hold the security for a
      period sufficient to allow for any anticipated recovery in fair value.





Occasionally,
      the Bank securitizes residential real estate secured mortgages through the
      Federal Home Loan Mortgage Corporation (Freddie Mac). The Bank has, from time
      to
      time, retained the resulting securities. Prior to a securitization transaction,
      these loans are recorded as residential real estate loans and interest income
      is
      reported as interest income from loans. Subsequent to the transaction, if the
      securities are retained by the Bank, they are reported as mortgage-backed
      securities and interest income is reported as interest income from securities
      issued by U.S. Government agencies and corporations.





**Loans**





Loans
      are
      reported at the principal balance outstanding, net of deferred loan fees and
      costs, and an allowance for loan losses. Interest income is reported on the
      interest method and includes amortization of net deferred loan fees and costs
      over the loan term. If the collectibility of interest appears doubtful, the
      accrual of interest is discontinued and all unpaid interest is reversed. Loans
      are returned to accrual status when all the principal and interest amounts
      contractually due are brought current and future payments are reasonably
      assured.





**Loans
      Held for Sale**





The
      majority of residential fixed rate mortgage loans are originated by the Bank
      and
      sold servicing released to third parties immediately with temporary recourse
      provisions. The recourse provisions may require the repurchase of the
      outstanding balance of loans which default within a limited period of time
      subsequent to the sale of the loan. The recourse periods vary by investor and
      extend up to one year subsequent to the sale of the loan. All fees are
      recognized as income at the time of the sale. Mortgage loans originated and
      intended for sale in the secondary market are carried at the lower of aggregate
      cost or market, as determined by outstanding commitments from investors. Net
      unrealized losses, if any, are recorded as a valuation allowance and charged
      to
      earnings. The Bank has not historically experienced losses resulting from the
      recourse provisions described above. Accordingly, management believes that
      no
      such provision or allowance is necessary as of December 31, 2006 or
      2005.





**Allowance
      for Loan Losses**





The
      allowance for loan losses is a valuation allowance for probable incurred credit
      losses, which is increased by the provision for loan losses and decreased by
      charge-offs less recoveries. Loan losses are charged against the allowance
      when
      management believes the uncollectiblity of a loan balance is confirmed.
      Subsequent recoveries, if any, are credited to the allowance. Management
      estimates the allowance balance required based on factors including past loan
      loss experience, the nature and volume of the portfolio, information about
      specific borrower situations and estimated collateral values, economic
      conditions, and other factors. Allocations of the allowance may be made for
      specific loans, but the entire allowance is available for any loan that, in
      management’s judgment, should be charged off.





The
      allowance consists of specific and general components. The specific component
      relates to loans that are individually classified as impaired or loans otherwise
      classified as substandard or doubtful. The general component covers
      non-classified loans and is based on historical loss experience adjusted for
      current factors.





63
 **TIB
            Financial Corp. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 (Dollars in thousands except share and per
            share
            amounts)




A
      loan is
      considered impaired when it is probable that not all principal and interest
      amounts will be collected according to the loan contract. Individual commercial
      and commercial real estate loans exceeding certain size thresholds established
      by management are individually evaluated for impairment. If a loan is considered
      to be impaired, a portion of the allowance is allocated so that the loan is
      reported net, at the present value of estimated future cash flows using the
      loan’s existing rate or at the fair value of collateral if repayment is expected
      solely from the collateral. Large groups of smaller balance homogeneous loans,
      such as consumer, indirect, and residential real estate loans, are collectively
      evaluated for impairment, and accordingly, they are not separately identified
      for impairment disclosures.





**Premises
      and Equipment**





Land
      is
      carried at cost. Premises and equipment are reported at cost less accumulated
      depreciation. For financial reporting purposes, depreciation is computed using
      the straight-line method over the estimated useful lives of the assets.
      Expenditures for maintenance and repairs are charged to operations as incurred,
      while major renewals and betterments are capitalized. For Federal income tax
      reporting purposes, depreciation is computed using primarily accelerated
      methods.





**Foreclosed
      Assets**





Assets
      acquired through, or in lieu of, loan foreclosure are held for sale and are
      initially recorded at fair value when acquired, establishing a new cost basis.
      If fair value declines subsequent to foreclosure, a valuation allowance is
      recorded through expense. Costs after acquisition are expensed.





**Intangible
      Assets**





Intangible
      assets include core deposit base premiums arising from branch acquisitions
      and
      are initially measured at fair value. The deposit base premiums are being
      amortized using the straight-line method over an estimated life of 10
      years.





**Long-term
      Assets**





Long-lived
      assets, including premises and equipment, core deposit and other intangible
      assets, are reviewed for impairment when events indicate their carrying amount
      may not be recoverable from future undiscounted cash flows. If impaired, the
      assets are recorded at fair value.





**Loan
      Commitments and Related Financial Instruments**





Financial
      instruments include off-balance sheet credit instruments, such as commitments
      to
      make loans and letters of credit, issued to meet customer financing needs.
      The
      face amount for these items represents the exposure to loss, before considering
      customer collateral or ability to repay. Such financial instruments are recorded
      when they are funded.





**Company
      Owned Life Insurance**





The
      Company has purchased life insurance polices on certain key executives. Company
      owned life insurance is recorded at its cash surrender value, or the amount
      that
      can be realized, and included in other assets on the balance sheet.





**Income
      Taxes**





Income
      tax expense is the total of the current year income tax due or refundable and
      the change in deferred tax assets and liabilities. Deferred income tax assets
      and liabilities are determined using the liability (or balance sheet) method.
      Under this method, the net deferred tax asset or liability is determined based
      on the tax effects of the temporary differences between the book and tax basis
      of the various balance sheet assets and liabilities and gives current
      recognition to changes in tax rates and laws.





64
 **TIB
            Financial Corp. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 (Dollars in thousands except share and per
            share
            amounts)




**Earnings
      Per Common Share**





Basic
      earnings per share is net income divided by the weighted average number of
      common shares and vested restricted shares outstanding during the period.
      Diluted earnings per share includes the dilutive effect of additional potential
      common shares issuable under stock options and restricted shares computed using
      the treasury stock method.





Earnings
      per share have been computed based on the following for the years ended December
      31:





**2006**
            
            
            **2005**
            
            
            **2004**Weighted
                average number of common shares outstanding:Basic
            
            
            11,609,394
            
            
            11,423,948
            
            
            10,619,720Dilutive
                effect of options outstanding
            
            
            266,010
            
            
            376,944
            
            
            339,672Dilutive
                effect of restricted shares
            
            
            14,202
            
            
            -
            
            
            -Diluted
            
            
            11,889,606
            
            
            11,800,892
            
            
            10,959,392





Stock
      options for 78,273, 20,000 and 59,440 shares of common stock were not considered
      in computing diluted earnings per common share for 2006, 2005, and 2004 because
      they were anti-dilutive. For 2006 and 2005, the anti-dilutive unvested
      restricted shares of common stock excluded in computing diluted earnings per
      common share were 305 and 82,000, respectively. The dilutive effect of stock
      options and the dilutive effect of unvested restricted shares are the only
      common stock equivalents for purposes of calculating diluted earnings per common
      share.





**Stock-Based
      Compensation**





Effective
      January 1, 2006, the Company adopted Statement of Financial Accounting Standards
      (“SFAS”) No. 123(R), Share-based Payment, using the modified prospective
      transition method. Accordingly, the Company has recorded stock-based employee
      compensation cost using the fair value method starting in 2006. For 2006,
      adopting this standard resulted in stock based compensation expense from stock
      options of $305.





Prior
      to
      January 1, 2006, employee compensation expense under stock options was reported
      using the intrinsic value method; therefore, no stock based compensation cost
      from stock options is reflected in net income for the years ending December
      31,
      2005 and 2004, as all options granted had an exercise price equal to or greater
      than the market price of the underlying common stock at date of grant.





The
      following table illustrates the effect on net income and earnings per share
      if
      expense was measured using the fair value recognition provisions of FASB
      Statement No. 123, Accounting for Stock Based Compensation, for the years ending
      December 31.





**2005**
            
            **2004**Net
                income, as reported
            
            $
            11,824
            
            $
            5,198Stock-based
                compensation expense determined under fair value based method, net
                of
                tax
            
            
            268
            
            
            215Pro
                forma net income
            
            $
            11,556
            
            $
            4,983Basic
                earnings per share as reported
            
            $
            1.04
            
            $
            0.49Pro
                forma basic earnings per share
            
            
            1.02
            
            
            0.47Diluted
                earnings per share as reported
            
            
            1.00
            
            
            0.47Pro
                forma diluted earnings per share
            
            
            0.99
            
            
            0.46





65
 **TIB
            Financial Corp. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 (Dollars in thousands except share and per
            share
            amounts)





**Comprehensive
      Income**





Comprehensive
      income consists of net income and other comprehensive income. Other
      comprehensive income includes unrealized gains and losses on securities
      available for sale which are also recognized as separate components of
      equity.





**Loss
      Contingencies**





Loss
      contingencies, including claims and legal actions arising in the ordinary course
      of business, are recorded as liabilities when the likelihood of loss is probable
      and an amount or range of loss can be reasonably estimated. Management does
      not
      believe there are now such matters that will have a material effect on the
      financial statements.





**Operating
      Segments**





While
      the
      chief decision-makers monitor the revenue streams of the various products and
      services, subsequent to the sale of the merchant bankcard processing segment
      (see Note 2), operations are managed and financial performance is evaluated
      on a
      Company wide basis. Accordingly, all of the financial service operations are
      considered by management to be aggregated in one reportable operating
      segment.





**Fair
      Value of Financial Instruments**





Fair
      values of financial instruments are estimated using relevant market information
      and other assumptions, as more fully disclosed in Note 18. Fair value estimates
      include uncertainties and matters of significant judgment regarding interest
      rates, credit risk, prepayments, and other factors, especially in the absence
      of
      broad markets for particular items. Changes in assumptions or in market
      conditions could significantly affect these estimates.





**Recent
      Accounting Pronouncements**





In
      February 2006, the FASB issued Statement No. 155, “Accounting for Certain Hybrid
      Financial Instruments - an amendment of FASB Statements No. 133 and 140,” (“SFAS
      155”). SFAS 155 simplifies and conforms the accounting for certain financial
      instruments permitting fair value remeasurement for any hybrid financial
      instrument with an embedded derivative that otherwise would require bifurcation,
      provided that the whole instrument is accounted for on a fair value basis.
      The
      amendments to SFAS No. 133 also clarify that interest-only and principal-only
      strips are not embedded derivatives. The amendments to SFAS No. 140 allow a
      qualifying special purpose entity to hold a derivative financial instrument
      that
      pertains to a beneficial interest other than another derivative financial
      instrument. This statement is effective for all financial instruments acquired
      or issued after the beginning of the first fiscal year after September 15,
      2006.
      Management believes that adoption will have no effect on the Company’s financial
      condition, results of operations or liquidity.





In
      March
      2006, the FASB issued Statement No. 156, “Accounting for Servicing of Financial
      Assets-an amendment of FASB Statement No. 140”. This Statement provides the
      following: 1) revised guidance on when a servicing asset and servicing liability
      should be recognized; 2) requires all separately recognized servicing assets
      and
      servicing liabilities to be initially measured at fair value, if practicable;
      3)
      permits an entity to elect to measure servicing assets and servicing liabilities
      at fair value each reporting date and report changes in fair value in earnings
      in the period in which the changes occur; 4) upon initial adoption, permits
      a
      onetime reclassification of available-for-sale securities to trading securities
      for securities which are identified as offsetting the entity's exposure to
      changes in the fair value of servicing assets or liabilities that a servicer
      elects to subsequently measure at fair value; and 5) requires separate
      presentation of servicing assets and servicing liabilities subsequently measured
      at fair value in the statement of financial position and additional footnote
      disclosures. This Standard is effective as of the beginning of an entity's
      first
      fiscal year that begins after September 15, 2006 with the effects of initial
      adoption being reported as a cumulative-effect adjustment to retained earnings.
      Management does not expect the adoption of this Statement will have a material
      impact on its consolidated financial position or results of
      operations.





66
 **TIB
            Financial Corp. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 (Dollars in thousands except share and per
            share
            amounts)




In
      July
      2006, the FASB issued Interpretation No. 48 (FIN 48), “Accounting for
      Uncertainty in Income Taxes, an interpretation of SFAS 109, Accounting for
      Income Taxes”. FIN 48 prescribes a comprehensive model for how companies should
      recognize, measure, present, and disclose in their financial statements
      uncertain tax positions taken or expected to be taken on a tax return. Under
      FIN
      48, tax positions shall initially be recognized in the financial statements
      when
      it is more likely than not the position will be sustained upon examination
      by
      the tax authorities. Such tax positions shall initially and subsequently be
      measured as the largest amount of tax benefit that is greater than 50% likely
      of
      being realized upon ultimate settlement with the tax authority assuming full
      knowledge of the position and all relevant facts. FIN 48 also revises disclosure
      requirements to include an annual tabular rollforward of unrecognized tax
      benefits. The provisions of this interpretation are required to be adopted
      for
      fiscal periods beginning after December 15, 2006. The Company will be required
      to apply the provisions of FIN 48 to all tax positions upon initial adoption
      with any cumulative effect adjustment to be recognized as an adjustment to
      retained earnings. Upon adoption, management believes that no cumulative effect
      adjustment will be charged to retained earnings to increase reserves for
      uncertain tax positions.





In
      September 2006, the FASB issued SFAS 157, Fair Value Measurements, which upon
      adoption will replace various definitions of fair value in existing accounting
      literature with a single definition, will establish a framework for measuring
      fair value, and will require additional disclosures about fair value
      measurements. The statement clarifies that fair value is the price that would
      be
      received to sell an asset or the price paid to transfer a liability in the
      most
      advantageous market available to the entity and emphasizes that fair value
      is a
      market-based measurement and should be based on the assumptions market
      participants would use. The statement also creates a three-level hierarchy
      under
      which individual fair value estimates are to be ranked based on the relative
      reliability of the inputs used in the valuation. This hierarchy is the basis
      for
      the disclosure requirements, with fair value estimates based on the least
      reliable inputs requiring more extensive disclosures about the valuation method
      used and the gains and losses associated with those estimates. SFAS 157 is
      required to be applied whenever another financial accounting standard requires
      or permits an asset or liability to be measured at fair value. The statement
      does not expand the use of fair value to any new circumstances. The Company
      will
      be required to apply the new guidance beginning January 1, 2008, and does not
      expect it to have a material impact on financial condition, results of
      operations, or liquidity.





In
      September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined
      Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements
      No. 87, 88, 106 and 132(R). This Statement requires an employer to recognize
      the
      overfunded or underfunded status of a defined benefit postretirement plan (other
      than a multiemployer plan) as an asset or liability in its balance sheet,
      beginning with year end 2006, and to recognize changes in the funded status
      in
      the year in which the changes occur through comprehensive income beginning
      in
      2007. Additionally, defined benefit plan assets and obligations are to be
      measured as of the date of the employer’s fiscal year-end, starting in 2008.
      Adoption had no effect on the Company’s financial condition, results of
      operations or liquidity as the Company does not have any defined benefit plans
      falling within the scope of SFAS No. 158.





In
      September 2006, the Securities and Exchange Commission (SEC) released Staff
      Accounting Bulletin No. 108, “Considering the Effects of Prior Year
      Misstatements when Quantifying Misstatements in Current Year Financial
      Statements” (SAB 108), which is effective for fiscal years ending on or after
      November 15, 2006. SAB 108 provides guidance on how the effects of prior-year
      uncorrected financial statement misstatements should be considered in
      quantifying a current year misstatement. SAB 108 requires public companies
      to
      quantify misstatements using both an income statement (rollover) and balance
      sheet (iron curtain) approach and evaluate whether either approach results
      in a
      misstatement that, when all relevant quantitative and qualitative factors are
      considered, is material. If prior year errors that had been previously
      considered immaterial now are considered material based on either approach,
      no
      restatement is required so long as management properly applied its previous
      approach and all relevant facts and circumstances were considered. The adoption
      of SAB 108 had no effect on the Company’s financial statements.





In
      September 2006, the FASB Emerging Issues Task Force finalized Issue No. 06-4,
      “Accounting for Deferred Compensation and Postretirement Benefit Aspects of
      Endorsement Split-Dollar Life Insurance Arrangements”. This issue requires that
      a liability be recorded during the service period when a split-dollar life
      insurance agreement continues after participants’ employment or retirement. The
      required accrued liability will be based on either the post-employment benefit
      cost for the continuing life insurance or based on the future death benefit
      depending on the contractual terms of the underlying agreement. This issue
      is
      effective for fiscal years beginning after December 15, 2007. Management has
      not
      yet completed its evaluation of the impact of adoption of EITF 06-4 but does
      not
      expect it to have a material impact on the financial condition, results of
      operations, or liquidity of the Company.





67
 **TIB
            Financial Corp. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 (Dollars in thousands except share and per
            share
            amounts)




In
      September 2006, the FASB Emerging Issues Task Force finalized Issue No. 06-5,
      “Accounting for Purchases of Life Insurance - Determining the Amount That Could
      Be Realized in Accordance with FASB Technical Bulletin No. 85-4 (Accounting
      for
      Purchases of Life Insurance)”. This issue requires that a policyholder consider
      contractual terms of a life insurance policy in determining the amount that
      could be realized under the insurance contract. It also requires that if the
      contract provides for a greater surrender value if all individual policies
      in a
      group are surrendered at the same time, that the surrender value be determined
      based on the assumption that policies will be surrendered on an individual
      basis. Lastly, the issue discusses whether the cash surrender value should
      be
      discounted when the policyholder is contractually limited in its ability to
      surrender a policy. This issue is effective for fiscal years beginning after
      December 15, 2006. Management does not believe the adoption of this issue will
      have a material impact on the financial condition, results of operations, or
      liquidity of the Company.





**Reclassifications**





Some
      items in the prior year financial statements were reclassified to conform to
      the
      current presentation.








**Note
      2—Acquisitions, Divestitures and Discontinued Operations**





On
      December 15, 2004, the Company closed the sale of certain intangible assets
      which primarily comprised a book of business which served as the foundation
      of
      the Company’s investment center operations. The buyer paid $50 in cash at the
      closing at which time the Company recognized a gain of $50. Additional cash
      payments totaling $37 were paid to the Company during 2005 related to the
      achievement of certain customer and asset retention thresholds and production
      referrals made through December 31, 2005.





On
      December 30, 2005, the Company closed the sale of its merchant bankcard
      processing business segment to NOVA Information Systems, Inc. (“NOVA”). NOVA
      paid $7,250 in cash at the closing resulting in the Company recognizing a gain
      of $6,697 on the transaction. The transaction was structured as a sale of the
      segment assets. Accordingly, the results of operations of the Company’s merchant
      bankcard processing business segment are included in the Consolidated Statements
      of Income as “discontinued operations”. In connection with the sale, the Company
      entered into a Marketing and Sales Alliance Agreement and a Non-Competition
      Agreement. The Marketing and Sales Alliance Agreement provides for the exclusive
      referral by the Bank to NOVA of Bank customers seeking merchant card processing
      services, and on-going, active promotion of NOVA’s services to Bank customers.
      The Marketing and Sales Alliance Agreement has an initial term of ten years,
      and
      may be extended by the parties. The Non-Competition Agreement prohibits the
      Company from competing with NOVA to provide merchant card processing services,
      and prohibits the Bank from soliciting for such services (other than to be
      provided by NOVA) any merchants that had a merchant services relationship with
      the Bank at the time of the sale, and any merchants subsequently referred to
      NOVA. The Non-Competition Agreement is effective for so long as the Marketing
      and Sales Alliance Agreement is in effect. The non-solicitation covenant extends
      for two years following termination of the Marketing and Sales Alliance
      Agreement.





During
      2006, the Company recorded additional gains totaling $414 relating primarily
      to
      the settlement of certain contractual early termination provisions on a basis
      that was more favorable than originally estimated.





The
      operating results of the merchant bankcard processing segment, which have been
      classified as discontinued operations in the accompanying consolidated financial
      statements, are summarized as follows:





**Years
                ended December 31,**
            
            **2006**
            
            **2005**
            
            **2004**Other
                income
            
            $
            414
            
            $
            12,865
            
            $
            5,758Depreciation
                and amortization
            
            
            -
            
            
            (8
            )
            
            (40
            )Other
                expense
            
            
            -
            
            
            (5,227
            )
            
            (4,828
            )Pretax
                income from discontinued operations
            
            $
            414
            
            $
            7,630
            
            $
            890








68
 **TIB
            Financial Corp. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 (Dollars in thousands except share and per
            share
            amounts)




**Pending
      Acquisition**





On
      November 13, 2006, the Company entered into a Plan of Merger and Merger
      Agreement (the “Agreement”) with The Bank of Venice. Under the terms of the
      Agreement, The Bank of Venice, a Florida state chartered bank will become a
      wholly-owned subsidiary of the Company. Shareholders of The Bank of Venice
      will
      be entitled to receive $18.00 per share in TIB Financial common stock, and
      may
      elect to receive 10% of the consideration in cash. The closing of the merger
      is
      subject to the satisfaction of certain conditions, including regulatory approval
      and the approval by The Bank of Venice shareholders. The parties contemplate
      closing during the second quarter of 2007. As of December 31, 2006, The Bank
      of
      Venice had two locations in Venice, Florida, total assets of $66.4 million,
      total loans of $58.5 million, total deposits of $52.6 million and 885,414 shares
      outstanding.





**Note
      3—Cash and Due From Banks**





Cash
      on
      hand or on deposit with the Federal Reserve Bank of $4,885 and $4,925 was
      required to meet regulatory reserve and clearing requirements at December 31,
      2006, and December 31, 2005, respectively. These balances do not earn
      interest.





The
      Bank
      maintains an interest bearing account at the Federal Home Loan Bank of Atlanta.
      The total on deposit was approximately $386 and $292 at December 31, 2006 and
      December 31, 2005, respectively.








**Note
      4 -**  **Investment
      Securities**


The
      amortized cost, estimated fair value, and the related gross unrealized gains
      and
      losses recognized in accumulated other comprehensive income, are as follows
      for
      investment securities available for sale:








**December
                31, 2006**
            
            **Amortized**
              **Cost**
            
            **Unrealized**
              **Gains**
            
            **Unrealized**
              **Losses**
            
            **Estimated**
              **Fair
                Value**U.S.
                Treasury securities
            
            $
            5,087
            
            $
            -
            
            $
            125
            
            $
            4,962U.S.
                Government agencies and corporations
            
            
            84,014
            
            
            278
            
            
            1,294
            
            
            82,998States
                and political subdivisions—tax exempt
            
            
            10,818
            
            
            22
            
            
            98
            
            
            10,742States
                and political subdivision—taxable
            
            
            2,578
            
            
            12
            
            
            -
            
            
            2,590Marketable
                equity securities
            
            
            3,000
            
            
            484
            
            
            -
            
            
            3,484Mortgage-backed
                securities
            
            
            16,428
            
            
            94
            
            
            8
            
            
            16,514Collateralized
                debt obligations
            
            
            9,996
            
            
            -
            
            
            87
            
            
            9,909$
            131,921
            
            $
            890
            
            $
            1,612
            
            $
            131,199








69
 **TIB
            Financial Corp. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 (Dollars in thousands except share and per
            share
            amounts)





**December
                31, 2005**
            
            
            **Amortized**
              **Cost**
            
            
            **Unrealized**
              **Gains**
            
            
            **Unrealized**
              **Losses**
            
            
            **Estimated**
              **Fair
                Value**U.S.
                Treasury securities
            
            $
            5,182
            
            $
            1
            
            $
            145
            
            $
            5,038U.S.
                Government agencies and corporations
            
            
            64,145
            
            
            5
            
            
            1,738
            
            
            62,412States
                and political subdivisions—tax exempt
            
            
            9,594
            
            
            91
            
            
            101
            
            
            9,584States
                and political subdivision—taxable
            
            
            2,655
            
            
            8
            
            
            -
            
            
            2,663Marketable
                equity securities
            
            
            3,000
            
            
            439
            
            
            -
            
            
            3,439Mortgage-backed
                securities
            
            
            10,083
            
            
            193
            
            
            24
            
            
            10,252Collateralized
                debt obligations
            
            
            3,996
            
            
            80
            
            
            -
            
            
            4,076$
            98,655
            
            $
            817
            
            $
            2,008
            
            $
            97,464











Securities
      with unrealized losses not recognized in income are as follows:





**Less
                than 12 Months**
            
            **12
                Months or Longer**
            
            **Total****December
                31, 2006**
            
            
            **Estimated**
              **Fair
                Value**
            
            
            **Unrealized**
              **Losses**
            
            
            **Estimated**
              **Fair
                Value**
            
            
            **Unrealized**
              **Losses**
            
            
            **Estimated**
              **Fair
                Value**
            
            
            **Unrealized**
              **Losses**U.S.
                Treasury securities
            
            $
            101
            
            $
            -
            
            $
            4,861
            
            $
            125
            
            $
            4,962
            
            $
            125U.S.
                Government agencies and corporations
            
            
            -
            
            
            -
            
            
            60,539
            
            
            1,294
            
            
            60,539
            
            
            1,294States
                and political subdivisions—tax exempt
            
            
            3,996
            
            
            25
            
            
            3,823
            
            
            73
            
            
            7,819
            
            
            98Mortgage-backed
                securities
            
            
            -
            
            
            -
            
            
            1,084
            
            
            8
            
            
            1,084
            
            
            8Collateralized
                debt obligations
            
            
            9,909
            
            
            87
            
            
            -
            
            
            -
            
            
            9,909
            
            
            87Total
                temporarily impaired
            
            $
            14,006
            
            $
            112
            
            $
            70,307
            
            $
            1,500
            
            $
            84,313
            
            $
            1,612








**Less
                than 12 Months**
            
            **12
                Months or Longer**
            
            **Total****December
                31, 2005**
            
            
            **Estimated**
              **Fair
                Value**
            
            
            **Unrealized**
              **Losses**
            
            
            **Estimated**
              **Fair
                Value**
            
            
            **Unrealized**
              **Losses**
            
            
            **Estimated**
              **Fair
                Value**
            
            
            **Unrealized**
              **Losses**U.S.
                Treasury securities
            
            $
            -
            
            $
            -
            
            $
            4,935
            
            $
            145
            
            $
            4,935
            
            $
            145U.S.
                Government agencies and corporations
            
            
            20,074
            
            
            353
            
            
            37,215
            
            
            1,385
            
            
            57,289
            
            
            1,738States
                and political subdivisions—tax exempt
            
            
            5,470
            
            
            95
            
            
            228
            
            
            6
            
            
            5,698
            
            
            101Mortgage-backed
                securities
            
            
            1,537
            
            
            24
            
            
            -
            
            
            -
            
            
            1,537
            
            
            24Total
                temporarily impaired
            
            $
            27,081
            
            $
            472
            
            $
            42,378
            
            $
            1,536
            
            $
            69,459
            
            $
            2,008








70
 **TIB
            Financial Corp. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 (Dollars in thousands except share and per
            share
            amounts)




The
      Company views the unrealized losses in the above table to be temporary in nature
      for the following reasons. First, the decline in market values are mostly due
      to
      an increase in market interest rates and are not credit related. These
      securities are mostly AAA rated securities and have experienced no significant
      deterioration in value due to credit quality concerns. Second, the magnitude
      of
      the unrealized losses of less than 3% of the fair value of those securities
      with
      losses is consistent with normal fluctuations of value due to the volatility
      of
      market interest rates. Finally, the nature of what makes up the security
      portfolio is determined by the overall balance sheet of the Company and
      currently it is suitable for the Company’s security portfolio to be primarily
      comprised of fixed rate securities. Fixed rate securities will by their nature
      react in price inversely to changes in market rates and that is liable to occur
      in both directions.





The
      estimated fair value of investment securities available for sale at December
      31,
      2006, by contractual maturity, are shown as follows. Expected maturities may
      differ from contractual maturities because borrowers may have the right to
      call
      or repay obligations without call or prepayment penalties. Securities not due
      at
      a single maturity date, primarily mortgage-backed securities, are shown
      separately.





**December
                31, 2006**Due
                in one year or less
            
            $
            25,387Due
                after one year through five years
            
            
            30,358Due
                after five years through ten years
            
            
            26,329Due
                after ten years
            
            
            29,127Marketable
                equity securities
            
            
            3,484Mortgage-backed
                securities
            
            
            16,514$
            131,199





At
      December 31, 2006, securities with a fair value of approximately $40,273 are
      subject to call during 2007.





Sales
      of
      available for sale securities were as follows:





**2006**
            
            
            **2005**
            
            
            **2004**Proceeds
            
            $
            -
            
            $
            -
            
            $
            9,281Gross
                gains
            
            
            -
            
            
            -
            
            
            146Gross
                losses
            
            
            -
            
            
            -
            
            
            (43
            )





The
      tax
      provision related to net realized gains was $0, $0, and $39 during 2006, 2005,
      and 2004, respectively.





Maturities,
      principal repayments, and calls of investment securities available for sale
      during 2006, 2005 and 2004 were $9,296, $1,103, and $3,797, respectively. Net
      gains (losses) realized from calls and mandatory redemptions of securities
      during 2006, 2005 and 2004 were $0, $1, and $3, respectively.





Investment
      securities having carrying values of approximately $47,473 and $23,539 at
      December 31, 2006 and 2005, respectively, were pledged to secure public funds
      on
      deposit, securities sold under agreements to repurchase, and other purposes
      as
      required by law.





71
 **TIB
            Financial Corp. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 (Dollars in thousands except share and per
            share
            amounts)




**Note
      5—Loans**





Major
      classifications of loans are as follows:





**December
                31,**
            
            
            **2006**
            
            
            **2005**Real
                estate mortgage loans:Commercial
            
            $
            546,276
            
            $
            451,969Residential
            
            
            82,243
            
            
            76,003Farmland
            
            
            24,210
            
            
            4,660Construction
                and vacant land
            
            
            157,672
            
            
            125,207Commercial
                and agricultural loans
            
            
            84,905
            
            
            80,055Indirect
                auto dealer loans
            
            
            141,552
            
            
            118,018Home
                equity loans
            
            
            17,199
            
            
            17,232Other
                consumer loans
            
            
            9,795
            
            
            9,228Total
                loans
            
            
            1,063,852
            
            
            882,372Net
                deferred loan costs
            
            
            1,616
            
            
            1,652Loans,
                net of deferred loan costs
            
            $
            1,065,468
            
            $
            884,024





Substantially
      all loans are made to borrowers in the Bank’s primary market area of Monroe,
      South Miami-Dade, Collier, Lee and Highlands counties of Florida.





In
      1998,
      the Bank made a $10,000 loan to construct a lumber mill in northern Florida.
      Of
      this amount, $6,400 had been sold by the Bank to other lenders. The loan was
      80%
      guaranteed as to principal and interest by the U.S. Department of Agriculture
      (USDA). In addition to business real estate and equipment, the loan was
      collateralized by the business owner’s interest in a trust. Under provisions of
      the trust agreement, beneficiaries cannot receive trust assets until November
      2010.





The
      portion of this loan guaranteed by the USDA and held by us was approximately
      $1,600 at December 31, 2006 and December 31, 2005. The loan was accruing
      interest until December 2006 when the Bank ceased the accrual of interest
      pursuant to a ruling made by the USDA. Accrued interest on this loan totals
      approximately $941 and $794 at December 31, 2006 and December 31, 2005,
      respectively.





In
      pursuing a sale of the property and equipment, the Bank has incurred various
      expenditures. The Bank capitalized the liquidation costs and the portion of
      the
      protective advances which it expects will be fully reimbursed by the USDA.
      The
      non-guaranteed principal and interest ($1,961 at December 31, 2006 and December
      31, 2005) and the reimbursable capitalized liquidation costs and protective
      advance costs totaling approximately $899 and $854 at December 31, 2006 and
      December 31, 2005, respectively are included as “other assets” in the financial
      statements.





Florida
      law requires a bank to liquidate or charge off repossessed real property within
      five years, and repossessed personal property within six months. Since the
      property had not been liquidated during this period, the Bank charged-off the
      non guaranteed principal and interest totaling $1,961 at June 30, 2003, for
      regulatory purposes. Since the Company believes this amount is ultimately
      realizable, it did not write off this amount for financial statement purposes
      under generally accepted accounting principles.





72
 **TIB
            Financial Corp. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 (Dollars in thousands except share and per
            share
            amounts)




Activity
      in the allowance for loan losses is as follows:





**Years
                ended December 31,**
            
            
            **2006**
            
            
            **2005**
            
            
            **2004**Balance,
                beginning of year
            
            $
            7,546
            
            $
            6,243
            
            $
            5,216Provision
                for loan losses charged to expense
            
            
            3,491
            
            
            2,413
            
            
            2,455Loans
                charged off
            
            
            (1,573
            )
            
            (1,219
            )
            
            (1,487
            )Recoveries
                of loans previously charged off
            
            
            117
            
            
            109
            
            
            59Balance,
                end of year
            
            $
            9,581
            
            $
            7,546
            
            $
            6,243








Impaired
      loans are as follows:





**Years
                ended December 31,**
            
            
            **2006**
            
            
            **2005**Year
                end loans with no allocated allowance for loan losses
            
            $
            519
            
            $
            324Year
                end loans with allocated allowance for loan losses
            
            
            142
            
            
            -Total
            
            $
            661
            
            $
            324Amount
                of the allowance for loan losses allocated
            
            $
            45
            
            $
            -








**2006**
            
            
            **2005**
            
            
            **2004**Average
                of impaired loans during the year
            
            $
            363
            
            $
            599
            
            $
            1,005Interest
                income recognized during impairment
            
            
            15
            
            
            41
            
            
            64Cash
                basis interest income recognized
            
            
            6
            
            
            -
            
            
            -








Non-performing
      loans include nonaccrual loans and accruing loans contractually past due 90
      days
      or more. Nonaccrual loans are comprised principally of loans 90 days past due
      as
      well as certain loans, which are current but where serious doubt exists as
      to
      the ability of the borrower to comply with the repayment terms. Generally,
      interest previously accrued and not yet paid on nonaccrual loans is reversed
      during the period in which the loan is placed in a nonaccrual status.
      Non-performing loans are as follows:





**Years
                ended December 31,**
            
            
            **2006**
            
            
            **2005**Nonaccrual
                loans (a)
            
            $
            4,223
            
            $
            956Loans
                past due over 90 days still on accrual (a)
            
            
            -
            
            
            -





Non-performing
      loans and impaired loans are defined differently. Some loans may be included
      in
      both categories, whereas other loans may only be included in one category.





(a)
      Non-performing loans at December 31, 2006 includes the $1,600 loan discussed
      previously which is guaranteed for both principal and interest by a U.S.
      government agency. We discontinued accruing interest on this loan during
      December 2006 pursuant to a ruling made by the agency. Previously, this loan
      was
      excluded from non-performing loans.





73
 **TIB
            Financial Corp. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 (Dollars in thousands except share and per
            share
            amounts)





**Note
      6—Premises and Equipment**





A
      summary
      of the cost and accumulated depreciation of premises and equipment
      follows:





**December
                31,**
            
            
            **2006**
            
            
            **2005**
            
            
            **Estimated**
              **Useful
                Life**Land
            
            $
            10,712
            
            $
            9,038Buildings
                and leasehold improvements
            
            
            16,591
            
            
            17,372
            
            
            1
                to 40 yearsFurniture,
                fixtures and equipment
            
            
            14,261
            
            
            13,833
            
            
            1
                to 40 yearsConstruction
                in progress
            
            
            7,723
            
            
            1,86849,287
            
            
            42,111Less
                accumulated depreciation
            
            
            (15,185
            )
            
            (14,311
            )Premises
                and equipment, net
            
            $
            34,102
            
            $
            27,800





Depreciation
      expense for the years ended December 31, 2006, 2005, and 2004, was approximately
      $2,354, $2,219, and $1,950, respectively.





The
      Bank
      is obligated under operating leases for office and banking premises which expire
      in periods varying from one to eleven years. Future minimum lease payments,
      before considering renewal options that generally are present, are as follows
      at
      December 31, 2006:





Years
                Ending December 31,2007
            
            $
            7772008
            
            
            6982009
            
            
            3472010
            
            
            3282011
            
            
            279Thereafter
            
            
            75$
            2,504





Rental
      expense for the years ended December 31, 2006, 2005, and 2004, was approximately
      $794, $674, and $561, respectively.





74
 **TIB
            Financial Corp. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 (Dollars in thousands except share and per
            share
            amounts)




**Note
      7—Intangible Assets**





Intangible
      assets at December 31, consist of the following:





**December
              31,**
            
            **2006**
            
            **2005****Gross
                Carrying Amount**
            
            
            **Accumulated
                Amortization**
            
            
            **Net
                Book Value**
            
            
            **Gross
                Carrying Amount**
            
            
            **Accumulated
                Amortization**
            
            
            **Net
                Book Value**Core
                deposit intangible
            
            $
            2,941
            
            $
            2,136
            
            $
            805
            
            $
            2,941
            
            $
            1,852
            
            $
            1,089Other
            
            
            36
            
            
            28
            
            
            8
            
            
            51
            
            
            40
            
            
            11Total
            
            $
            2,977
            
            $
            2,164
            
            $
            813
            
            $
            2,992
            
            $
            1,892
            
            $
            1,100





Aggregate
      intangible asset amortization expense was $288, $291, and $295 for 2006, 2005,
      and 2004, respectively.





Estimated
      amortization expense for each of the next five years is as follows:





Years
                Ending December 31,2007
            
            $
            2862008
            
            
            2492009
            
            
            1412010
            
            
            1352011
            
            
            1










**Note
      8—Time Deposits**





Time
      deposits of $100 or more were $286,591 and $222,058 at December 31, 2006 and
      2005, respectively.





At
      December 31, 2006, the scheduled maturities of time deposits are as
      follows:





Years
                Ending December 31,2007
            
            $
            449,6252008
            
            
            46,5132009
            
            
            21,2492010
            
            
            2,7762011
            
            
            7,830Thereafter
            
            
            6$
            527,999







75
 **TIB
            Financial Corp. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 (Dollars in thousands except share and per
            share
            amounts)




**Note
      9—Short-Term Borrowings and Federal Home Loan Bank
      Advances**





Short-term
      borrowings include federal funds purchased, securities sold under agreements
      to
      repurchase, advances from the Federal Home Loan Bank, and a Treasury, tax and
      loan note option.





The
      Bank
      has an unsecured overnight federal funds purchased accommodation up to a maximum
      of $25,000 from its principal correspondent bank. Additionally, the Bank has
      agreements with various financial institutions under which securities can be
      sold under agreements to repurchase. The Bank also has securities sold under
      agreements to repurchase with commercial account holders whereby the Bank sweeps
      the customer’s accounts on a daily basis and pays interest on these amounts.
      These agreements are collateralized by investment securities chosen by the
      Bank.





The
      Bank
      accepts Treasury, tax and loan deposits from certain commercial depositors
      and
      remits these deposits to the appropriate government authorities. The Bank can
      hold up to $1,700 of these deposits more than a day under a note option
      agreement with its regional Federal Reserve bank and pays interest on those
      funds held. The Bank pledges certain investment securities against this
      account.





The
      Bank
      invested in Federal Home Loan Bank stock for the purpose of establishing credit
      lines with the Federal Home Loan Bank. The credit availability to the Bank
      is
      equal to 20% of the Bank’s total assets as reported on the most recent quarterly
      financial information submitted to the regulators subject to the pledging of
      sufficient collateral. At December 31, 2006, in addition to a $25,000 letter
      of
      credit used in lieu of pledging securities to the State of Florida, there was
      $125,000 in advances outstanding. At December 31, 2005, the amount of
      outstanding advances was $25,000. The outstanding amount at December 31, 2006
      consists of:





**Amount**
            
            
            **Maturity
                Date**
            
            
            **Repricing
                Frequency**
            
            
            **Rate
                at**
              **December
                31, 2006**$25,000
            
            
            February
                2007
            
            
            Monthly
            
            
            5.39%$25,000
            
            
            March
                2007
            
            
            Monthly
            
            
            5.34%$25,000
            
            
            February
                2008
            
            
            Quarterly
            
            
            5.35%$50,000
            
            
            December
                2011 (a)
            
            
            Fixed
            
            
            4.18%__________(a)
                The $50,000 advance has quarterly
                conversion dates beginning December 2007. If the FHLB chooses to
                convert
                the advance, the Bank has the option of prepaying the entire balance
                without penalty. Otherwise, the advance will convert to an adjustable
                rate, repricing on a quarterly basis. If the FHLB does not convert
                the
                advance, it will remain at the contracted fixed rate until the maturity
                date of December 2011.




The
      Bank’s collateral with the FHLB consists of a blanket floating lien pledge of
      the Bank’s residential 1-4 family mortgage and commercial real estate secured
      loans. The amount of eligible collateral at December 31, 2006 was
      $192,116.




The
      following table reflects the average daily outstanding, year-end outstanding,
      maximum month-end outstanding and the weighted average rates paid for each
      of
      the categories of short-term borrowings and FHLB advances:





76
 **TIB
            Financial Corp. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 (Dollars in thousands except share and per
            share
            amounts)




**Year
                Ended December 31,**
            
            
            **2006**
            
            
            **2005****Federal
                funds purchased:**Balance:Average
                daily outstanding
            
            $
            915
            
            $
            38Year-end
                outstanding
            
            
            -
            
            
            -Maximum
                month-end outstanding
            
            
            13,042
            
            
            -Rate:Weighted
                average for year
            
            
            5.9
            %
            
            2.9
            %Weighted
                average interest rate at December 31
            
            
            n/a
            
            
            n/a**Securities
                sold under agreements to repurchase:**Balance:Average
                daily outstanding
            
            $
            20,506
            
            $
            13,186Year-end
                outstanding
            
            
            20,352
            
            
            15,300Maximum
                month-end outstanding
            
            
            31,451
            
            
            19,473Rate:Weighted
                average for year
            
            
            4.7
            %
            
            3.0
            %Weighted
                average interest rate at December 31
            
            
            4.4
            %
            
            4.1
            %**Treasury,
                tax and loan note option:**Balance:Average
                daily outstanding
            
            $
            1,051
            
            $
            776Year-end
                outstanding
            
            
            1,898
            
            
            1,984Maximum
                month-end outstanding
            
            
            1,898
            
            
            1,984Rate:Weighted
                average for year
            
            
            4.4
            %
            
            2.8
            %Weighted
                average interest rate at December 31
            
            
            5.0
            %
            
            4.0
            %**Advances
                from the Federal Home Loan Bank-Short Term:**Balance:Average
                daily outstanding
            
            $
            19,274
            
            $
            466Year-end
                outstanding
            
            
            -
            
            
            -Maximum
                month-end outstanding
            
            
            50,000
            
            
            -Rate:Weighted
                average for year
            
            
            5.5
            %
            
            2.6
            %Weighted
                average interest rate at December 31
            
            
            n/a
            
            
            n/a**Advances
                from the Federal Home Loan Bank-Long Term:**Balance:Average
                daily outstanding
            
            $
            45,137
            
            $
            25,000Year-end
                outstanding
            
            
            125,000
            
            
            25,000Maximum
                month-end outstanding
            
            
            125,000
            
            
            25,000Rate:Weighted
                average for year
            
            
            5.2
            %
            
            3.4
            %Weighted
                average interest rate at December 31
            
            
            4.9
            %
            
            4.4
            %






77
 **TIB
            Financial Corp. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 (Dollars in thousands except share and per
            share
            amounts)




**Note
      10—Other Borrowings**





**Line
      of Credit**





Until
      its
      maturity on April 30, 2005, the Company had a $3,000 revolving line of credit
      with Independent Bankers’ Bank of Florida. Amounts outstanding under the line
      bore interest equal to the prime rate published in The Wall Street Journal
      minus
      one half percent, which was subject to change daily, and was subject to a 4.25%
      floor. Interest was payable monthly, and principal was due on demand, or if
      no
      demand was made, at maturity. This credit facility was secured by 100 percent
      of
      the outstanding shares of the Bank and required, among other things, that the
      Bank maintain a minimum Tier 1 capital ratio of 6 percent. There were no amounts
      outstanding under this line at December 31, 2006 or 2005 as the Company elected
      not to renew the line upon maturity.





**Notes
      Payable**





The
      Company entered into an agreement with the Company’s largest shareholder
      effective July 1, 2000, to purchase 1,050,000 shares of the Company’s common
      stock in exchange for four subordinated notes payable of the Company totaling
      $5,250. The interest rate on these notes was 13% per annum, with interest
      payments required quarterly. The principal balance was payable in full on
      October 1, 2010, the maturity date of the notes, and the notes could be prepaid
      by the Company at par any time after July 1, 2003. Effective January 1, 2002,
      the interest rate was reduced to 9%, the option to prepay was extended to
      January 1, 2007, and the maturity date was extended to January 1, 2012. On
      January 3, 2005 the Company repaid $1,250 of these notes at a 3% premium. On
      January 1, 2007, the remaining $4,000 was repaid at par.





**Subordinated
      Debentures**





On
      September 7, 2000, the Company participated in a pooled offering of trust
      preferred securities. The Company formed TIBFL Statutory Trust I (the “Trust”) a
      wholly-owned statutory trust subsidiary for the purpose of issuing the trust
      preferred securities. The Trust used the proceeds from the issuance of $8,000
      in
      trust preferred securities to acquire junior subordinated debentures of the
      Company. The trust preferred securities essentially mirror the debt securities,
      carrying a cumulative preferred dividend at a fixed rate equal to the 10.6%
      interest rate on the debt securities. The debt securities and the trust
      preferred securities each have 30-year lives. The trust preferred securities
      and
      the debt securities are callable by the Company or the Trust, at their
      respective option after ten years, and at varying premiums and sooner in
      specific events, subject to prior approval by the Federal Reserve Board, if
      then
      required.





On
      July
      31, 2001, the Company participated in a pooled offering of trust preferred
      securities. The Company formed TIBFL Statutory Trust II (the “Trust II”) a
      wholly-owned statutory trust subsidiary for the purpose of issuing the trust
      preferred securities. The Trust II used the proceeds from the issuance of $5,000
      in trust preferred securities to acquire junior subordinated debentures of
      the
      Company. The trust preferred securities essentially mirror the debt securities,
      carrying a cumulative preferred dividend at a variable rate equal to the
      interest rate on the debt securities (three month LIBOR plus 358 basis points).
      The initial rate in effect at the time of issuance was 7.29% and is subject
      to
      change quarterly. The rate in effect at December 31, 2006 was 8.96%. The debt
      securities and the trust preferred securities each have 30-year lives. The
      trust
      preferred securities and the debt securities are callable by the Company or
      the
      Trust, at their respective option after five years, and at varying premiums
      and
      sooner in specific events, subject to prior approval by the Federal Reserve
      Board, if then required.





On
      June
      23, 2006, the Company issued $20,000 of additional trust preferred securities
      through a private placement. The Company formed TIBFL Statutory Trust III (the
      “Trust III”), a wholly-owned statutory trust subsidiary for the purpose of
      issuing the trust preferred securities. The Trust III used the proceeds from
      the
      issuance of $20,000 in trust preferred securities to acquire junior subordinated
      debentures of the Company. The trust preferred securities essentially mirror
      the
      debt securities, carrying a cumulative preferred dividend at a variable rate
      equal to the interest rate on the debt securities (three month LIBOR plus 155
      basis points). The rate in effect at December 31, 2006 was 6.92%. The debt
      securities and the trust preferred securities each have 30-year lives. The
      trust
      preferred securities and the debt securities are callable by the Company or
      the
      Trust, at their respective option at par after five years, and sooner, at a
      5%
      premium, if specific events occur, subject to prior approval by the Federal
      Reserve Board, if then required.





The
      Company has treated the trust preferred securities as Tier 1 capital up to
      the
      maximum amount allowed, and the remainder as Tier 2 capital for federal
      regulatory purposes (see Note 14).





78
 **TIB
            Financial Corp. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 (Dollars in thousands except share and per
            share
            amounts)




**Contractual
      Maturities**





At
      December 31, 2006, the contractual maturities of long-term borrowings were
      as
      follows:





**Fixed
                Rate**
            
            
            **Floating
                Rate**
            
            
            **Total**Due
                in 2007
            
            $
            -
            
            $
            -
            
            $
            -Due
                in 2008
            
            
            -
            
            
            -
            
            
            -Due
                in 2009
            
            
            -
            
            
            -
            
            
            -Due
                in 2010
            
            
            -
            
            
            -
            
            
            -Due
                in 2011
            
            
            -
            
            
            -
            
            
            -Thereafter
            
            
            12,000
            
            
            25,000
            
            
            37,000Total
                long-term debt
            
            $
            12,000
            
            $
            25,000
            
            $
            37,000





**Note
      11—Income Taxes**





Income
      tax expense (benefit) from continuing operations was as follows:





**Years
                ended December 31,**
            
            
            **2006**
            
            
            **2005**
            
            
            **2004**Current
                income tax provision:Federal
            
            $
            5,386
            
            $
            3,985
            
            $
            2,028State
            
            
            803
            
            
            886
            
            
            3996,189
            
            
            4,871
            
            
            2,427Deferred
                tax benefit:Federal
            
            
            (1,018
            )
            
            (805
            )
            
            (76
            )State
            
            
            (150
            )
            
            (139
            )
            
            (14
            )(1,168
            )
            
            (944
            )
            
            (90
            )Total
            
            $
            5,021
            
            $
            3,927
            
            $
            2,337





A
      reconciliation of income tax computed at applicable Federal statutory income
      tax
      rates to total income taxes reported is as follows:





**Years
                ended December 31,**
            
            
            **2006**
            
            
            **2005**
            
            
            **2004**Pretax
                income from continuing operations
            
            $
            14,014
            
            $
            11,119
            
            $
            6,980Income
                taxes computed at Federal statutory tax rate
            
            $
            4,815
            
            $
            3,780
            
            $
            2,373Effect
                of:Tax-exempt
                income, net
            
            
            (330
            )
            
            (324
            )
            
            (340
            )State
                income taxes, net
            
            
            423
            
            
            390
            
            
            243Stock
                based compensation expense, net
            
            
            80
            
            
            -
            
            
            -Other,
                net
            
            
            33
            
            
            81
            
            
            61Total
            
            $
            5,021
            
            $
            3,927
            
            $
            2,337





79
 **TIB
            Financial Corp. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 (Dollars in thousands except share and per
            share
            amounts)





Year
      end
      deferred tax assets and liabilities were due to the following:





**Years
                ended December 31,**
            
            **2006**
            
            **2005**Allowance
                for loan losses
            
            $
            3,848
            
            $
            3,045Core
                deposit intangible
            
            
            285
            
            
            245Deferred
                compensation
            
            
            1,126
            
            
            788Net
                unrealized losses on securities available for sale
            
            
            278
            
            
            448Other
            
            
            112
            
            
            182Total
                gross deferred tax assets
            
            
            5,649
            
            
            4,708Accumulated
                depreciation
            
            
            (637
            )
            
            (765
            )Deferred
                loan costs
            
            
            (621
            )
            
            (555
            )Other
            
            
            (75
            )
            
            (70
            )Total
                gross deferred tax liabilities
            
            
            (1,333
            )
            
            (1,390
            )Net
                deferred tax asset
            
            $
            4,316
            
            $
            3,318





**Note
      12—Employee Benefit Plans**





The
      Bank
      maintains an Employee Stock Ownership Plan with 401(k) provisions that covers
      all employees who are qualified as to age and length of service. Three types
      of
      contributions can be made to the Plan by the Bank and participants: basic
      voluntary contributions which are discretionary contributions made by all
      participants; a matching contribution, whereby the Bank will match 50 percent
      of
      salary reduction contributions up to 4 percent of compensation, not to exceed
      a
      maximum contribution of $1 per employee; and an additional discretionary
      contribution which may be made by the Bank and allocated to the accounts of
      participants on the basis of total relative compensation. Effective January
      1,
      2007, the Bank will match 50 percent of employee contributions up to 5 percent
      of compensation, and the maximum contribution cap of $1 per employee has been
      removed. The Bank contributed $152, $132, and $94 to the plan in 2006, 2005
      and
      2004, respectively. As of December 31, 2006, the Plan contained approximately
      295,000 shares of the Company’s common stock.





In
      2001,
      the Bank entered into salary continuation agreements with three of its executive
      officers. Two additional executive officers entered into salary continuation
      agreements in 2003 and another in 2004. The plan is a nonqualified deferred
      compensation arrangement that is designed to provide supplemental retirement
      income benefits to participants. The Bank expensed $617, $386, and $309 for
      the
      accrual of future salary continuation benefits in 2006, 2005 and 2004,
      respectively. The Bank has purchased single premium life insurance policies
      on
      these individuals. Cash value income (net of related insurance premium expense)
      totaled $234, $208, and $202 in 2006, 2005 and 2004, respectively. Other assets
      included $6,171 and $5,937 in surrender value and other liabilities included
      salary continuation benefits payable of $1,863 and $1,246 at December 31, 2006
      and 2005, respectively.





In
      2001,
      the Bank established a non qualified retirement benefit plan for eligible Bank
      directors. Under the plan, the Company pays each participant, or their
      beneficiary, the amount of fees deferred and interest in 120 equal monthly
      installments, beginning the month following the director’s normal retirement
      date. The Bank expensed $231, $233, and $273 for the accrual of current and
      future retirement benefits in 2006, 2005 and 2004, respectively, which included
      $170, $184, and $236 in 2006, 2005 and 2004 related to the annual director
      retainer fees and monthly meeting fees that certain directors elected to defer.
      The Bank has purchased single premium split dollar life insurance policies
      on
      these individuals. Cash value income (net of related insurance premium expense)
      totaled $141, $138, and $138 in 2006, 2005 and 2004. Other assets included
      $4,134 and $3,992 in surrender value in other assets and other liabilities
      included retirement benefits payable of $1,071 and $855 at December 31, 2006
      and
      2005, respectively.





80
 **TIB
            Financial Corp. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 (Dollars in thousands except share and per
            share
            amounts)




**Note
      13—Related Party Transactions**





The
      Bank
      had loans outstanding to certain of its executive officers, directors, and
      their
      related business interests as follows:





Beginning
                balance, January 1, 2006
            
            $
            862New
                loans
            
            
            668Effect
                of changes in related parties
            
            
            16Repayments
            
            
            (786
            )Ending
                balance, December 31, 2006
            
            $
            760





Unfunded
      loan commitments to these individuals and their related business interests
      totaled $138 at December 31, 2006. Deposits from these individuals and their
      related interests were $2,206 and $4,237 at December 31, 2006 and 2005,
      respectively.





**Note
      14—Shareholders’ Equity and Minimum Regulatory Capital
      Requirements**





The
      Company (on a consolidated basis) and the Bank are subject to various regulatory
      capital requirements administered by federal and state banking agencies. Failure
      to meet minimum capital requirements results in certain discretionary actions
      by
      regulators that could have an effect on the Company’s operations. The
      regulations require the Company and the Bank to meet specific capital adequacy
      guidelines that involve quantitative measures of assets, liabilities, and
      certain off-balance-sheet items as calculated under regulatory accounting
      practices. The Company’s capital amounts and classifications are also subject to
      qualitative judgments by the regulators about components, risk weightings,
      and
      other factors.





To
      be
      considered well capitalized and adequately capitalized (as defined) under the
      regulatory framework for prompt corrective action, the Bank must maintain
      minimum Tier 1 leverage, Tier 1 risk-based, and total risk-based ratios. These
      minimum amounts and ratios along with the actual amounts and ratios for the
      Company and the Bank as of December 31, 2006 and 2005 are presented in the
      following tables.





**December
                31, 2006**
            
            **Well
                Capitalized**
              **Requirement**
            
            **Adequately
                Capitalized**
              **Requirement**
            
            **Actual****Amount**
            
            
            **Ratio**
            
            
            **Amount**
            
            
            **Ratio**
            
            
            **Amount**
            
            
            **Ratio**Tier
                1 Capital (to Average Assets)Consolidated
            
            
            N/A
            
            
            N/A
            
            $
            351,336
            
            
            34.0
            %
            $
            112,368
            
            
            8.8
            %Bank
            
            $
            364,078
            
            
            35.0
            %
            
            51,262
            
            
            34.0
            %
            
            115,689
            
            
            9.0
            %Tier
                1 Capital ( to Risk Weighted Assets)Consolidated
            
            
            N/A
            
            
            N/A
            
            $
            344,366
            
            
            34.0
            %
            $
            112,368
            
            
            10.1
            %Bank
            
            $
            366,519
            
            
            36.0
            %
            
            44,346
            
            
            34.0
            %
            
            115,689
            
            
            10.4
            %Total
                Capital (to Risk Weighted Assets)Consolidated
            
            
            N/A
            
            
            N/A
            
            $
            388,733
            
            
            38.0
            %
            $
            131,074
            
            
            11.8
            %Bank
            
            $
            3110,864
            
            
            310.0
            %
            
            88,692
            
            
            38.0
            %
            
            125,715
            
            
            11.3
            %








81
 **TIB
              Financial Corp. and Subsidiaries**
 **Notes
              to Consolidated Financial Statements**
 (Dollars in thousands except share and
              per share
              amounts)




**December
                31, 2005**
            
            **Well
                Capitalized**
              **Requirement**
            
            **Adequately
                Capitalized**
              **Requirement**
            
            **Actual****Amount**
            
            
            **Ratio**
            
            
            **Amount**
            
            
            **Ratio**
            
            
            **Amount**
            
            
            **Ratio**Tier
                1 Capital (to Average Assets)Consolidated
            
            
            N/A
            
            
            N/A
            
            $
            342,255
            
            
            34.0
            %
            $
            88,839
            
            
            8.4
            %Bank
            
            $
            352,775
            
            
            35.0
            %
            
            42,220
            
            
            34.0
            %
            
            92,297
            
            
            8.7
            %Tier
                1 Capital ( to Risk Weighted Assets)Consolidated
            
            
            N/A
            
            
            N/A
            
            $
            337,173
            
            
            34.0
            %
            $
            88,839
            
            
            9.6
            %Bank
            
            $
            355,744
            
            
            36.0
            %
            
            37,162
            
            
            34.0
            %
            
            92,297
            
            
            9.9
            %Total
                Capital (to Risk Weighted Assets)Consolidated
            
            
            N/A
            
            
            N/A
            
            $
            374,346
            
            
            38.0
            %
            $
            100,931
            
            
            10.9
            %Bank
            
            $
            392,906
            
            
            310.0
            %
            
            74,325
            
            
            38.0
            %
            
            100,389
            
            
            10.8
            %





At
      year
      end 2006 and 2005, the most recent regulatory notification categorized the
      Bank
      as well capitalized under the regulatory framework for prompt corrective
      action.





Management
      believes, as of December 31, 2006, that the Company and the Bank meet all
      capital requirements to which they are subject. Tier 1 Capital includes the
      trust preferred securities that were issued in September 2000, July 2001 and
      June 2006 to the extent allowable.





Under
      state banking law, regulatory approval will be required if the total of all
      dividends declared in any calendar year by the Bank exceeds the Bank’s net
      profits to date for that year combined with its retained net profits for the
      preceding two years. Retained earnings of the Bank available for payment of
      dividends to the Company without prior regulatory approval at December 31,
      2006,
      is approximately $24,357.





**Note
      15 - Stock-Based Compensation**





As
      of
      December 31, 2006, the Company has one compensation plan under which shares
      of
      its common stock are issuable in the form of stock options, restricted shares,
      stock appreciation rights, performance shares or performance units. This is
      its
      2004 Equity Incentive Plan (the “2004 Plan”), which was approved by the
      Company’s shareholders at the May 25, 2004 annual meeting. Previously, the
      Company had granted stock options under the 1994 Incentive Stock Option and
      Nonstatutory Stock Option Plan (the “1994 Plan”) as amended and restated as of
      August 31, 1996. Under the 2004 Plan, the Board of Directors of the Company
      may
      grant nonqualified stock-based awards to any director, and incentive or
      nonqualified stock-based awards to any officer, key executive, administrative,
      or other employee including an employee who is a director of the Company.
      Subject to the provisions of the 2004 Plan, the maximum number of shares of
      common stock of the Company that may be optioned or awarded through the 2014
      expiration of the plan is 800,000 shares, no more than 266,000 of which may
      be
      issued pursuant to awards granted in the form of restricted shares. Such shares
      may be treasury, or authorized but unissued, shares of common stock of the
      Company. If options or awards granted under the Plan expire or terminate for
      any
      reason without having been exercised in full or released from restriction,
      the
      corresponding shares shall again be available for option or award for the
      purposes of the Plan.





82
 **TIB
            Financial Corp. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 (Dollars in thousands except share and per
            share
            amounts)




The
      following table summarizes the components and classification of stock-based
      compensation expense for the years ended December 31.





**2006**
            
            
            **2005**
            
            
            **2004**Stock
                Options
            
            $
            305
            
            $
            -
            
            $
            -Restricted
                Stock
            
            
            259
            
            
            98
            
            
            -Total
                stock-based compensation expense
            
            $
            564
            
            $
            98
            
            $
            -Salaries
                and employee benefits
            
            $
            390
            
            $
            5
            
            $
            -Other
                expense
            
            
            174
            
            
            93
            
            
            -Total
                stock-based compensation expense
            
            $
            564
            
            $
            98
            
            $
            -





The
      tax
      benefit related to stock-based compensation expense arising from restricted
      stock awards and non-qualified stock options was approximately $101 and $38
      for
      the years ended December 31, 2006 and 2005, respectively.





The
      fair
      value of each option is estimated as of the date of grant using the
      Black-Scholes Option Pricing Model. This model requires the input of subjective
      assumptions that will usually have a significant impact on the fair value
      estimate. The assumptions for the current period grants were developed based
      on
      SFAS 123R and SEC guidance contained in Staff Accounting Bulletin (SAB) No.
      107,
“Share-Based Payment.” The following table summarizes the weighted average
      assumptions used to compute the grant-date fair value of options granted for
      the
      years ended December 31.





**2006**
            
            
            **2005**
            
            
            **2004**Dividend
                yield
            
            
            1.55
            %
            
            1.93
            %
            
            2.30
            %Risk-free
                interest rate
            
            
            4.89
            %
            
            4.13
            %
            
            4.08
            %Expected
                option life
            
            
            6.5
                years
            
            
            9
                years
            
            
            9
                yearsVolatility
            
            
            31
            %
            
            23
            %
            
            33
            %Weighted
                average grant-date fair value of options granted
            
            $
            5.23
            
            $
            3.75
            
            $
            4.08





·
            The
                dividend yield was estimated using historical dividends paid and
                market
                value information for the Company’s stock. An increase in dividend yield
                will decrease stock compensation
                expense.





·
            The
                risk-free interest rate was developed using the U.S. Treasury yield
                curve
                for periods equal to the expected life of the options on the grant
                date.
                An increase in the risk-free interest rate will increase stock
                compensation expense.





·
            The
                expected option life for the current period grants was estimated
                using the
                average vesting period and the term of the option based on guidance
                contained in SAB 107. Prior to 2006, this assumption was based on
                the
                typical vesting schedule and estimates of future exercise behavior
                patterns. An increase in the option life will increase stock compensation
                expense.





·
            The
                volatility was estimated using historical volatility for periods
                approximating the expected option life. An increase in the volatility
                will
                increase stock compensation
                expense.





83
 **TIB
            Financial Corp. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 (Dollars in thousands except share and per
            share
            amounts)




SFAS
      123R
      requires the recognition of stock-based compensation for the number of awards
      that are ultimately expected to vest. As a result, an estimate of the expected
      forfeiture rate based on historical forfeiture rates is considered when
      estimating the amount of current period stock based-compensation expense. Our
      estimate of forfeitures will be reassessed in subsequent periods and may change
      based on new facts and circumstances. Any changes in our estimates will be
      accounted for prospectively in the period of change. Prior to January 1, 2006,
      actual forfeitures were accounted for as they occurred for purposes of required
      pro forma stock compensation disclosures.





As
      of
      December 31, 2006, unrecognized compensation expense associated with stock
      options and restricted stock was $1,154 and $933 which is expected to be
      recognized over weighted average periods of approximately 3 years.





*Stock
      Options*





Under
      the
      2004 Plan, the exercise price for common stock must equal at least 100 percent
      of the fair market value of the stock on the day an option is granted. The
      exercise price under an incentive stock option granted to a person owning stock
      representing more than 10 percent of the common stock must equal at least 110
      percent of the fair market value at the date of grant, and such option is not
      exercisable after five years from the date the incentive stock option was
      granted. The Board of Directors may, at its discretion, provide that an option
      not be exercised in whole or in part for any period or periods of time as
      specified in the option agreements. No option may be exercised after the
      expiration of ten years from the date it is granted. Stock options vest over
      varying service periods which range from vesting immediately to up to nine
      years.





A
      summary
      of the stock option activity in the plans is as follows:








**Shares**
            
            
            **Weighted
                Average**
              **Exercise
                Price**Balance,
                January 1, 2004
            
            
            955,010
            
            $
            5.83Granted
            
            
            75,000
            
            
            11.38Exercised
            
            
            (195,822
            )
            
            3.46Expired
                or forfeited
            
            
            (31,000
            )
            
            8.79Balance,
                December 31, 2004
            
            
            803,188
            
            $
            6.81Granted
            
            
            159,000
            
            
            12.97Exercised
            
            
            (144,718
            )
            
            5.79Expired
                or forfeited
            
            
            (39,500
            )
            
            10.66Balance,
                December 31, 2005
            
            
            777,970
            
            $
            8.06Granted
            
            
            85,624
            
            
            15.13Exercised
            
            
            (134,986
            )
            
            6.27Expired
                or forfeited
            
            
            (21,100
            )
            
            10.72Balance,
                December 31, 2006
            
            
            707,508
            
            $
            9.18








84
 **TIB
            Financial Corp. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 (Dollars in thousands except share and per
            share
            amounts)




**Options
                exercisable at December 31,****2006**
            
            **2005****Shares**
            
            
            **Weighted
                Average**
              **Exercise
                Price**
            
            
            **Shares**
            
            
            **Weighted
                Average**
              **Exercise
                Price**271,384
            
            $
            7.62
            
            
            305,070
            
            $
            6.76




The
      weighted average remaining terms for outstanding stock options and for
      exercisable stock options were 5.5 years and 3.9 years at December 31, 2006,
      respectively. The aggregate intrinsic value at December 31, 2006 was $5,879
      for
      stock options outstanding and $2,679 for stock options exercisable. The
      intrinsic value for stock options is calculated based on the exercise price
      of
      the underlying awards and the market price of the Company’s common stock as of
      the reporting date.





Options
      outstanding at December 31, 2006 were as follows:





**Outstanding
                Options**
            
            **Options
                Exercisable****Range
                of Exercise Prices**
            
            
            **Number**
            
            
            **Weighted
                Average Remaining Contractual Life**
            
            
            **Weighted
                Average Exercise Price**
            
            
            **Number**
            
            
            **Weighted
                Average Exercise Price**$4.50
                - $6.20
            
            
            246,275
            
            
            4.15
            
            $
            5.95
            
            
            87,375
            
            $
            5.926.33
                - 11.38
            
            
            239,409
            
            
            4.03
            
            
            8.37
            
            
            149,609
            
            
            7.4811.40
                - 16.20
            
            
            221,824
            
            
            8.53
            
            
            13.64
            
            
            34,400
            
            
            12.59$4.50
                - $16.20
            
            
            707,508
            
            
            5.48
            
            $
            9.18
            
            
            271,384
            
            $
            7.62





Proceeds
      received from the exercise of stock options were $846, $838 and $678 during
      the
      years ended December 31, 2006, 2005 and 2004, respectively. The intrinsic value
      related to the exercise of stock options was $1,297, $1,281 and $1,466, during
      the years ended December 31, 2006, 2005 and 2004, respectively. The intrinsic
      value related to exercises of non-qualified stock options and disqualifying
      dispositions of incentive stock options resulted in the realization of tax
      benefits of $147, $343 and $246, during the years ended December 31, 2006,
      2005
      and 2004, respectively.





*Restricted
      Stock*





Restricted
      stock provides the grantee with voting, dividend and anti-dilution rights
      equivalent to common shareholders, but is restricted from transfer until vested,
      at which time all restrictions are removed. Vesting for restricted shares is
      generally on a straight-line basis and ranges from two to five years. The value
      of the restricted stock, estimated to be equal to the closing market price
      on
      the date of grant, is being amortized on a straight-line basis over the
      respective service periods.





A
      summary
      of the restricted stock activity in the plan is as follows:





**2006**
            
            **2005****Shares**
            
            
            **Weighted
                Average**
              **Grant-Date**
              **Fair
                Value**
            
            
            **Shares**
            
            
            **Weighted
                Average**
              **Grant-Date**
              **Fair
                Value**Balance,
                January 1,
            
            
            82,000
            
            $
            15.64
            
            
            -
            
            $
            -Granted
            
            
            10,345
            
            
            15.83
            
            
            82,000
            
            
            15.64Vested
            
            
            (15,468
            )
            
            16.20
            
            
            -
            
            
            -Expired
                or forfeited
            
            
            (10,000
            )
            
            15.58
            
            
            -
            
            
            -Balance,
                December 31,
            
            
            66,877
            
            $
            15.55
            
            
            82,000
            
            $
            15.64





85
 **TIB
            Financial Corp. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 (Dollars in thousands except share and per
            share
            amounts)





**Note
      16—Loan Commitments and Other Related Activities**





Some
      financial instruments, such as loan commitments, credit lines, letters of
      credit, and overdraft protection, are issued to meet customer financing needs.
      These are agreements to provide credit or to support the credit of others,
      as
      long as conditions established in the contract are met, and usually have
      expiration dates. Commitments may expire without being used. Off-balance-sheet
      risk of credit loss exists up to the face amount of these instruments, although
      material losses are not anticipated. The same credit policies are used to make
      such commitments as are used for loans, including obtaining collateral at
      exercise of the commitment.





The
      contractual amount of financial instruments with off-balance-sheet risk was
      as
      follows at December 31:





**2006**
            
            **2005****Fixed
                Rate**
            
            
            **Variable
                Rate**
            
            
            **Fixed
                Rate**
            
            
            **Variable
                Rate**Commitments
                to make loans
            
            $
            7,906
            
            $
            15,032
            
            $
            6,320
            
            $
            78,194Unfunded
                commitments under lines of credit
            
            
            896
            
            
            151,398
            
            
            742
            
            
            145,737





Commitments
      to make loans are generally made for periods of 30 days. As of December 31,
      2006, the fixed rate loan commitments have interest rates ranging from 5.75%
      to
      18.00% and maturities ranging from 45 days to 20 years.





As
      of
      December 31, 2006 and 2005, the Company was subject to letters of credit
      totaling $3,190 and $2,374, respectively.




**Note
      17—Supplemental Financial Data**





Components
      of other expense in excess of 1 percent of total interest and non-interest
      income are as follows:





**Years
                Ended December 31,**
            
            
            **2006**
            
            
            **2005**
            
            
            **2004**Operating
                supplies
            
            $
            581
            
            $
            589
            
            $
            542Computer
                services
            
            
            1,955
            
            
            1,650
            
            
            1,773Legal
                and professional fees
            
            
            1,710
            
            
            1,444
            
            
            1,223Marketing
                and community relations
            
            
            983
            
            
            731
            
            
            866Postage,
                courier, and armored car
            
            
            845
            
            
            719
            
            
            617







86
 **TIB
            Financial Corp. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 (Dollars in thousands except share and per
            share
            amounts)




**Note
      18—Fair Values of Financial Instruments**





Carrying
      amount and estimated fair values of financial instruments were as follows at
      December 31:





**2006**
            
            **2005****Carrying**
              **Value**
            
            
            **Estimated**
              **Fair
                Value**
            
            
            **Carrying**
              **Value**
            
            
            **Estimated**
              **Fair
                Value****Financial
                assets:**Cash
                and cash equivalents
            
            $
            55,552
            
            $
            55,552
            
            $
            41,510
            
            $
            41,510Investment
                securities available for sale
            
            
            131,199
            
            
            131,199
            
            
            97,464
            
            
            97,464Loans,
                net
            
            
            1,055,887
            
            
            1,060,474
            
            
            876,478
            
            
            872,983Federal
                Home Loan Bank and Independent Bankers’ Bank stock
            
            
            7,899
            
            
            7,899
            
            
            2,906
            
            
            2,906Accrued
                interest receivable
            
            
            8,319
            
            
            8,319
            
            
            6,404
            
            
            6,404**Financial
                liabilities:**Non-contractual
                deposits
            
            
            501,458
            
            
            501,458
            
            
            488,620
            
            
            488,620Contractual
                deposits
            
            
            527,999
            
            
            525,905
            
            
            431,804
            
            
            429,059Federal
                Home Loan Bank Advances
            
            
            125,000
            
            
            124,730
            
            
            25,000
            
            
            25,000Short-term
                borrowings
            
            
            22,250
            
            
            22,250
            
            
            17,284
            
            
            17,284Notes
                payable
            
            
            4,000
            
            
            4,000
            
            
            4,000
            
            
            4,004Subordinated
                debentures
            
            
            33,000
            
            
            33,449
            
            
            13,000
            
            
            13,630Accrued
                interest payable
            
            
            10,798
            
            
            10,798
            
            
            6,609
            
            
            6,609





The
      methods and assumptions used to estimate fair value are described as
      follows:





Carrying
      amount is the estimated fair value for cash and cash equivalents, Federal Home
      Loan Bank stock and other bankers’ bank stock, accrued interest receivable and
      payable, demand deposits, short-term debt, and variable rate loans or deposits
      that reprice frequently and fully. Security fair values are based on market
      prices or dealer quotes, and if no such information is available, on the rate
      and term of the security and information about the issuer. For fixed rate loans
      or deposits and for variable rate loans or deposits with infrequent repricing
      or
      repricing limits, fair value is based on discounted cash flows using current
      market rates applied to the estimated life and credit risk. Fair values for
      impaired loans are estimated using discounted cash flow analysis or underlying
      collateral values. Fair value of debt is based on current rates for similar
      financing. The fair value of off-balance sheet items that includes commitments
      to extend credit to fund commercial, consumer, real estate construction and
      real
      estate-mortgage loans and to fund standby letters of credit is considered
      nominal.







87
 **TIB
            Financial Corp. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 (Dollars in thousands except share and per
            share
            amounts)




**Note
      19—Condensed Financial Information of TIB Financial Corp.**





**Condensed
      Balance Sheets**


***(Parent
      Only)***





**December
                31,**
            
            
            **2006**
            
            
            **2005****Assets:**Cash
                on deposit with subsidiary
            
            $
            6,323
            
            $
            922Dividends
                receivable from subsidiaries
            
            
            21
            
            
            10Investment
                in bank subsidiary
            
            
            117,504
            
            
            93,982Investment
                in other subsidiaries
            
            
            1,022
            
            
            403Income
                tax receivable
            
            
            -
            
            
            300Other
                assets
            
            
            664
            
            
            442Total
                Assets
            
            $
            125,534
            
            $
            96,059**Liabilities
                and Shareholders’ Equity:**Dividends
                payable
            
            $
            703
            
            $
            681Interest
                payable
            
            
            778
            
            
            438Notes
                payable
            
            
            38,022
            
            
            17,403Other
                liabilities
            
            
            169
            
            
            13Shareholders’
                equity
            
            
            85,862
            
            
            77,524Total
                Liabilities and Shareholders’ Equity
            
            $
            125,534
            
            $
            96,059










**Condensed
      Statements of Income**


***(Parent
      Only)***





**Year
                Ended December 31,**
            
            
            **2006**
            
            
            **2005**
            
            
            **2004****Operating
                income:**Dividend
                from bank subsidiary
            
            $
            7,630
            
            $
            2,946
            
            $
            3,708Dividends
                from other subsidiaries
            
            
            63
            
            
            37
            
            
            34Other
                income
            
            
            -
            
            
            -
            
            
            6Total
                operating income
            
            
            7,693
            
            
            2,983
            
            
            3,748**Operating
                expense:**Interest
                expense
            
            
            2,475
            
            
            1,616
            
            
            1,636Other
                expense
            
            
            975
            
            
            600
            
            
            553Total
                operating expense
            
            
            3,450
            
            
            2,216
            
            
            2,189Income
                before income tax benefit and equity in undistributed earnings of
                subsidiary
            
            
            4,243
            
            
            767
            
            
            1,559Income
                tax benefit
            
            
            1,281
            
            
            884
            
            
            808Income
                before equity in undistributed earnings of subsidiary
            
            
            5,524
            
            
            1,651
            
            
            2,367Equity
                in undistributed earnings of bank subsidiary
            
            
            3,723
            
            
            10,173
            
            
            2,831Net
                income
            
            $
            9,247
            
            $
            11,824
            
            $
            5,198





88
 **TIB
            Financial Corp. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 (Dollars in thousands except share and per
            share
            amounts)





**Note
      19—Condensed Financial Information of TIB Financial Corp.** ***(Continued)***





**Condensed
      Statements of Cash Flows**


***(Parent
      Only)***





**Year
                Ended December 31,**
            
            
            **2006**
            
            
            **2005**
            
            
            **2004****Cash
                flows from operating activities:**Net
                income
            
            $
            9,247
            
            $
            11,824
            
            $
            5,198Equity
                in undistributed earnings of bank subsidiary
            
            
            (3,723
            )
            
            (10,173
            )
            
            (2,831
            )Stock-based
                compensation expense
            
            
            174
            
            
            98
            
            
            -Increase
                (decrease) in net income tax obligation
            
            
            377
            
            
            (81
            )
            
            709(Increase)
                decrease in other assets
            
            
            (238
            )
            
            (36
            )
            
            17Increase
                (decrease) in other liabilities
            
            
            419
            
            
            (10
            )
            
            15Net
                cash provided by operating activities
            
            
            6,256
            
            
            1,622
            
            
            3,108**Cash
                flows from investing activities:**Investment
                in bank subsidiary
            
            
            (19,500
            )
            
            -
            
            
            (23,155
            )Investment
                in other subsidiaries
            
            
            (619
            )
            
            -
            
            
            -Net
                cash used in investing activities
            
            
            (20,119
            )
            
            -
            
            
            (23,155
            )**Cash
                flows from financing activities:**Repayment
                of note payable
            
            
            -
            
            
            (1,250
            )
            
            -Proceeds
                from exercise of stock options
            
            
            846
            
            
            838
            
            
            678Income
                tax benefits related to stock based compensation in 2006
            
            
            150
            
            
            -
            
            
            -Proceeds
                from bank subsidiary for equity awards
            
            
            390
            
            
            -
            
            
            -Proceeds
                from stock issuance
            
            
            -
            
            
            -
            
            
            23,230Proceeds
                from issuance of long-term debt
            
            
            20,619
            
            
            -
            
            
            -Cash
                dividends paid
            
            
            (2,741
            )
            
            (2,629
            )
            
            (2,278
            )Net
                cash provided (used) by financing activities
            
            
            19,264
            
            
            (3,041
            )
            
            21,630Net
                increase (decrease) in cash
            
            
            5,401
            
            
            (1,419
            )
            
            1,583Cash,
                beginning of year
            
            
            922
            
            
            2,341
            
            
            758Cash,
                end of year
            
            $
            6,323
            
            $
            922
            
            $
            2,341








89
 **TIB
              Financial Corp. and Subsidiaries**
 **Notes
              to Consolidated Financial Statements**
 (Dollars in thousands except share and
              per share
              amounts)




**Note
      20—Quarterly Financial Data (Unaudited)**





The
      following is a summary of unaudited quarterly results for 2006 and
      2005:





**2006**
            
            **2005****Fourth**
            
            
            **Third**
            
            
            **Second**
            
            
            **First**
            
            
            **Fourth**
            
            
            **Third**
            
            
            **Second**
            
            
            **First****Condensed
                income statements:**Interest
                income
            
            $
            23,240
            
            $
            22,293
            
            $
            20,822
            
            $
            18,879
            
            $
            17,360
            
            $
            15,503
            
            $
            14,225
            
            $
            12,346Net
                interest income
            
            
            11,772
            
            
            11,860
            
            
            11,949
            
            
            11,482
            
            
            10,786
            
            
            10,094
            
            
            9,636
            
            
            8,614Income
                from continuing operations
            
            
            1,864
            
            
            2,437
            
            
            2,329
            
            
            2,363
            
            
            1,898
            
            
            1,949
            
            
            1,997
            
            
            1,348Net
                income (a)
            
            
            1,936
            
            
            2,452
            
            
            2,496
            
            
            2,363
            
            
            6,039
            
            
            2,054
            
            
            2,184
            
            
            1,547**Earnings
                per share:**Income
                from continuing operations - Basic
            
            $
            0.16
            
            $
            0.21
            
            $
            0.20
            
            $
            0.20
            
            $
            0.17
            
            $
            0.17
            
            $
            0.17
            
            $
            0.12Income
                from continuing operations - Diluted
            
            
            0.16
            
            
            0.21
            
            
            0.20
            
            
            0.20
            
            
            0.16
            
            
            0.16
            
            
            0.17
            
            
            0.11




(a)  Net
      income for the fourth quarter of 2005 includes the gain recognized upon the
      sale
      of the Company’s merchant bankcard processing segment (see Note 2).










90




**ITEM
      9:** **CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE**





Not
      applicable.





**ITEM
      9A: CONTROLS AND PROCEDURES**





(a)
      Evaluation of Disclosure Controls and Procedures





The
      Company’s Chief Executive Officer and Chief Financial Officer have evaluated the
      Company’s disclosure controls and procedures as of the end of the period covered
      by this report. Based upon that evaluation, they have concluded that the
      Corporation’s disclosure controls and procedures are effective in ensuring that
      material information related to the Corporation is made known to them by others
      within the Corporation.





(b)
      Management’s Annual Report on Internal Control Over Financial Reporting





During
      the fourth quarter of 2006 and subsequent thereto, the Company has made no
      significant changes in its internal controls or in other factors which may
      significantly affect these controls subsequent to the evaluation of these
      controls by the Chief Executive Officer and Chief Financial Officer.




MANAGEMENT’S
      REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING





The
      management of TIB Financial Corp. is responsible for establishing and
      maintaining adequate internal control over financial reporting, based on the
      criteria established in Internal Control—Integrated Framework issued by the
      Committee of Sponsoring Organizations of the Treadway Commission (COSO). TIB
      Financial Corp.’s system of internal control over financial reporting was
      designed under the supervision of the company’s chief executive officer and
      chief financial officer to provide reasonable assurance regarding the
      reliability of the preparation of the company’s financial statements for
      external reporting purposes, in accordance with U.S. generally accepted
      accounting principles.





TIB
      Financial Corp.’s management assessed the effectiveness of the company’s
      internal control over financial reporting as of December 31, 2006, based on
      the
      criteria established in Internal Control—Integrated Framework issued by the
      Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based
      on the assessment, management determined that, as of December 31, 2006, the
      company’s internal control over financial reporting is effective. Management’s
      assessment of the effectiveness of the company’s internal control over financial
      reporting as of December 31, 2006 has been audited by Crowe Chizek and Company
      LLC, an independent registered public accounting firm, as stated in their report
      appearing in Item 8, page 53 of this Form 10-K.





Date:
      March 8, 2007





/s/
      Edward V. Lett


Edward
      V.
      Lett


President
      and Chief Executive Officer





/s/
      Stephen J. Gilhooly


Stephen
      J. Gilhooly


Executive
      Vice President and Chief Financial Officer




91





(c)
      Audit
      Report of the Registered Public Accounting Firm





The
      audit
      report related to the audit of internal controls and management’s report on
      internal controls over financial reporting is included in Item 8, page 53 of
      this Form 10-K.





**ITEM
      9B: OTHER INFORMATION**





Not
      applicable.








92





**PART
      III**








**ITEM
      10: DIRECTORS** **,
      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**





The
      information set forth under the captions “Information About the Board of
      Directors and Their Committees” and “Executive Officers” under the caption
      "Election of Directors", “Audit Committee Report” and “Filings Under Section
      16(A) Beneficial Ownership Reporting Compliance” in the Proxy Statement to be
      utilized in connection with the Company's 2007 Annual Shareholders Meeting
      is
      incorporated herein by reference.





We
      have
      adopted a code of ethics that applies to our principal executive officer,
      principal financial officer, principal accounting officer, controller, and
      persons performing similar functions. We have posted the text of our code of
      ethics on our website at www.tibbank.com in the section titled “Investor
      Relations.” In addition, we intend to promptly disclose (i) the nature of any
      amendment to our code of ethics that applies to our principal executive officer,
      principal financial officer, principal accounting officer, controller, or
      persons performing similar functions and (ii) the nature of any waiver,
      including an implicit waiver, from a provision of our code of ethics that is
      granted to one of these specified individuals, the name of such person who
      is
      granted the waiver, and the date of the waiver on our website in the future.








**ITEM
      11** **:
      EXECUTIVE COMPENSATION**





The
      information contained under the captions "Compensation of Executive Officers”
and “Compensation of Directors" in the Proxy Statement to be utilized in
      connection with the Company's 2007 Annual Shareholders Meeting is incorporated
      herein by reference.








**ITEM
      12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      SHAREHOLDER MATTERS**





The
      information contained under the captions "Management and Principal Shareholders"
      and “Equity Compensation Plan Information” under “Compensation of Executive
      Officers” in the Proxy Statement to be utilized in connection with the Company's
      2007 Annual Shareholders Meeting is incorporated herein by
      reference.








**ITEM** **13:
      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE**





The
      information contained under the captions “Director Independence” under “Election
      of Directors” and "Certain Relationships and Related Transactions" in the Proxy
      Statement to be utilized in connection with the Company's 2007 Annual
      Shareholders Meeting is incorporated herein by reference.








**ITEM
      14: PRINCIPAL ACCOUNTANT FEES AND SERVICES**





The
      information contained under the caption "Independent Public Accountants" in
      the
      Proxy Statement to be utilized in connection with the Company's 2007 Annual
      Shareholders Meeting is incorporated herein by reference.




93




**PART
        IV**
 
 
 **ITEM
        15: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES**
 
 1.
        Financial Statements
 
 The
        consolidated financial statements, notes thereto and independent auditors'
        report thereon, filed as part hereof, are listed in Item 8.
 
 2.
        Financial Statement Schedules
 
 Financial
        Statement schedules have been omitted as the required information is not
        applicable or the required information has been incorporated in the consolidated
        financial statements and related notes incorporated by reference herein.
 
 94
 3.
        Exhibits
 
 Exhibit
        Numbers
 
 3.1
              Restated
                  Articles of Incorporation (a)3.2
              Amendment
                  to Articles of Incorporation (b)3.3
              Bylaws
                  (c)4.1
              Specimen
                  Stock Certificate (d)10.1
              Employment
                  Agreement between Edward V. Lett, TIB Financial Corp. and TIB Bank
                  effective March 1, 2004 (e), (f)10.2
              401(K)
                  Savings and Employee Stock Ownership Plan (d), (e)10.3
              Employee
                  Incentive Stock Option Plan (d), (e)10.4
              Employment
                  Agreement between Millard J. Younkers, Jr., TIB Financial Corp.
                  and TIB
                  Bank effective March 1, 2004 (e), (f)10.5
              Employment
                  Agreement between David P. Johnson, TIB Financial Corp. and TIB
                  Bank
                  effective March 1, 2004 (e), (f)10.6
              Employment
                  Agreement between Michael D. Carrigan, TIB Financial Corp. and
                  TIB Bank
                  effective March 1, 2004 (e), (g)10.7
              Employment
                  Agreement between Alma Shuckhart, TIB Financial Corp., and TIB
                  Bank
                  effective March 1, 2004. (e), (g)10.8
              Employment
                  Agreement between Stephen J. Gilhooly, TIB Financial Corp., and
                  TIB Bank
                  effective September 27, 2006 (e), (h)10.9
              Form
                  of Director Deferred Fee Agreement (e), (i)10.10
              Form
                  of Salary Continuation Agreement (e), (i)10.11
              Form
                  of Executive Officer Split Dollar Agreement (e), (i)10.12
              Form
                  of Director Deferred Fee Agreement - First Amendment (e),
                  (f)10.13
              Form
                  of Executive Officer Split Dollar Agreement - First Amendment (e),
                  (f)10.14
              Form
                  of Salary Continuation Agreement - First Amendment (e),
                  (j)10.15
              Form
                  of Restricted Stock Agreement (k)10.16
              Form
                  of Restricted Stock Agreement Addendum (k)10.17
              Form
                  of Salary Continuation Agreement - Second Amendment (e)10.18
              Marketing
                  and Sales Alliance Agreement (k)10.19
              Non-Competition
                  Agreement (k)10.20
              Plan
                  of Merger and Merger Agreement Between The Bank of Venice and TIB
                  Financial Corp. dated November 13, 2006 (l)14.1
              Board
                  of Directors Ethics Code (k)14.2
              Senior
                  Financial Officer Ethics Code (k)21.1
              Subsidiaries
                  of the Registrant23.1
              Consent
                  of Independent Registered Public Accounting Firm31.1
              Chief
                  Executive Officer’s certification required under Section 302 of
                  Sarbanes-Oxley Act of 200231.2
              Chief
                  Financial Officer’s certification required under Section 302 of
                  Sarbanes-Oxley Act of 200232.1
              Chief
                  Executive Officer’s certification required under Section 906 of
                  Sarbanes-Oxley Act of 200232.2
              Chief
                  Financial Officer’s certification required under Section 906 of
                  Sarbanes-Oxley Act of 200299.1
              Statement
                  of Policy with respect to Related Person
                  Transactions
   95
  (a)
              Incorporated
                  by reference to Appendix A in the Company’s Definitive Proxy Statement
                  filed on April 8, 2004.(b)
              Item
                  3.2 was previously filed by the Company as an Exhibit to the Form
                  8-K
                  filed by the Company on September 28, 2006 and is incorporated
                  herein by
                  reference.(c)
              Previously
                  filed by the Company as an Exhibit to the Company's Registration
                  Statement
                  (Registration No. 333-113489) and such document is incorporated
                  herein by
                  reference.(d)
              Previously
                  filed by the Company as an Exhibit (with the same respective Exhibit
                  Number as indicated herein) to the Company's Registration Statement
                  (Registration No. 333-03499) and such document is incorporated
                  herein by
                  reference.(e)
              Represents
                  a management contract or a compensation plan or arrangement required
                  to be
                  filed as an exhibit.(f)
              Items
                  10.1, 10.4, 10.5, 10.12 and 10.13 were previously filed by the
                  Company as
                  Exhibits to the Company’s December 31, 2003 10-K and such documents are
                  incorporated herein by reference.(g)
              Items
                  10.6 and 10.7 were previously filed by the Company as an Exhibit
                  to the
                  Form 10-Q filed by the Company on November 8, 2006 and are incorporated
                  herein by reference.(h)
              Item
                  10.8 was previously filed by the Company as an Exhibit to the Form
                  8-K
                  filed by the Company on September 27, 2006 and is incorporated
                  herein by
                  reference.(i)
              Items
                  10.9 through 10.11 were previously filed by the Company as Exhibits
                  to the
                  Company’s December 31, 2001 10-K and such documents are incorporated
                  herein by reference.(j)
              Item
                  10.14 was previously filed by the Company as an Exhibit to the
                  Company’s
                  December 31, 2004 10-K and is incorporated herein by
                  reference.(k)
              Items
                  10.15, 10.16, 10.18, 10.19, 14.1 and 14.2 were previously filed
                  by the
                  Company as Exhibits to the Company’s December 31, 2005 10-K and such
                  documents are incorporated herein by reference.(l)
              Item
                  10.20 was previously filed by the Company as an Exhibit to the
                  Form 8-K
                  filed by the Company on November 14, 2006 and is incorporated herein
                  by
                  reference.






96





**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the Registrant has duly caused this Report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized on March 8, 2007.








TIB
      FINANCIAL CORP.





By:
            /s/
                Edward V. LettEdward
                V. Lett
              President,
                Chief Executive Officer and Director





Pursuant
      to the requirements of the Securities Exchange Act of 1934, this Report has
      been
      signed below by the following persons on behalf of the Registrant and in the
      capacities indicated on March 8, 2007.





**Signature**
            
            **Title**/s/
                Edward V. Lett
            
            President
                (Principle Executive Officer), Chief Executive Officer and
                DirectorEdward
                V. Lett/s/
                Richard C. Bricker, Jr.
            
            DirectorRichard
                C. Bricker, Jr./s/
                Paul O. Jones
            
            DirectorPaul
                O. Jones, Jr., M.D./s/
                Thomas J. Longe
            
            DirectorThomas
                J. Longe/s/
                John G. Parks, Jr.
            
            DirectorJohn
                G. Parks, Jr./s/
                Marvin F. Schindler
            
            DirectorMarvin
                F. Schindler/s/
                Otis T. Wallace
            
            DirectorOtis
                T. Wallace/s/
                Stephen J. Gilhooly
            
            Chief
                Financial and Accounting OfficerStephen
                J. Gilhooly








97