**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, 2005
            
            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: None





Securities
      Registered pursuant to Section 12(g) of the Act: Common stock, par value $0.10





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.  ̈ Yes or þ No





Check
      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. þ Yes or  ̈ No





Check
      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. þ





Indicate
      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 filer þ 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 or þ No





The
      aggregate market value of the voting stock held by non-affiliates of the
      registrant as of June 30, 2005 was approximately $153,946,000 based on the
      $26.95 per share closing price on June 30, 2005.





The
      number of shares outstanding of issuer’s class of common stock at February 28,
      2006 was 5,825,548 shares of common stock.





Documents
      Incorporated By Reference: Portions of the Proxy Statement for the 2006 Annual
      Meeting of Shareholders to be filed with the Securities and Exchange Commission
      within 120 days of the Registrant’s 2005 fiscal year end are incorporated by
      reference into Parts II and III of this report.





**Table
            of
            Contents**





**TABLE
      OF CONTENTS**





**PART
                I**
            PageITEM
                1
            BUSINESS
            1ITEM
                1A
            RISK
                FACTORS
            10ITEM
                2
            PROPERTIES
            12ITEM
                3
            LEGAL
                PROCEEDINGS
            13ITEM
                4
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY
                HOLDERS
            13**PART
                II**ITEM
                5
            MARKET
                FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER
                MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
            14ITEM
                6
            SELECTED
                FINANCIAL DATA
            15ITEM
                7
            MANAGEMENT’S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                AND RESULTS OF OPERATIONS
            17ITEM
                7A
            QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK
            37ITEM
                8
            FINANCIAL
                STATEMENTS AND SUPPLEMENTARY
                DATA
            38ITEM
                9
            CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                AND FINANCIAL DISCLOSURE
            74ITEM
                9A
            CONTROLS
                AND PROCEDURES
            74ITEM
                9B
            OTHER
                INFORMATION
            75**PART
                III**ITEM
                10
            DIRECTORS
                AND EXECUTIVE OFFICERS OF THE
                REGISTRANT
            76ITEM
                11
            COMPENSATION
                OF EXECUTIVE OFFICERS AND
                DIRECTORS
            76ITEM
                12
            SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                MANAGEMENT AND RELATED SHAREHOLDER MATTERS
            76ITEM
                13
            CERTAIN
                RELATIONSHIPS AND RELATED
                TRANSACTIONS
            76ITEM
                14
            PRINCIPAL
                ACCOUNTANT FEES AND SERVICES
            76**PART
                IV**ITEM
                15
            EXHIBITS,
                FINANCIAL STATEMENT SCHEDULES
            77








**Table
          of Contents**





**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 and South Miami-Dade Counties, Florida. TIB Bank is
      headquartered in Key Largo, Florida. We operate 16 banking offices and 20 ATMs
      throughout South Florida. At December 31, 2005, we had approximately $1.08
      billion in total assets, $920.4 million in total deposits, $882.4 million in
      total loans and shareholders' equity of $77.5 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.





In
      October 2000, we purchased Keys Insurance Agency of Monroe County, Inc. Keys
      Insurance Agency, Inc. (the new name subsequent to the purchase) had three
      offices in the Florida Keys and one office in Naples and brokered a full line
      of
      commercial and residential hazard insurance coverage as well as life and health
      insurance and annuities. In August 2003, we sold the assets of Keys Insurance
      Agency, Inc., and exited this line of business. 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.





1
 **Table
            of
            Contents**








**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 enhance margins, effectively
                utilizing our funding sources;





·
            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 product for sale on 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
 **Table
            of
            Contents**





**Lending
      activities**





*Loan
      Portfolio Composition* .
      At
      December 31, 2005, TIB Bank's loan portfolio totaled $882.4 million,
      representing approximately 82.0% of our total assets of $1.08 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, 2005 and 2004 is
      indicated below, along with the growth from the prior year





(Dollars
                in thousands)
            
            
            Total
                Loans
              December
                31, 2005
            
            
            %
                of Total Loans
            
            
            Total
                Loans
              December
                31, 2004
            
            
            %
                of Total Loans
            
            
            %
                Increase (Decrease) from December 31, 2004 to 2005Real
                estate mortgage loans:Commercial
            
            $
            451,969
            
            
            51.2
            
            $
            351,346
            
            
            53.7
            
            
            28.6Residential
            
            
            76,003
            
            
            8.6
            
            
            67,204
            
            
            10.3
            
            
            13.1Farmland
            
            
            4,660
            
            
            0.5
            
            
            4,971
            
            
            0.8
            
            
            (6.3
            )Construction
            
            
            125,207
            
            
            14.2
            
            
            49,815
            
            
            7.6
            
            
            151.3Commercial
                and agricultural loans
            
            
            80,055
            
            
            9.1
            
            
            64,622
            
            
            9.9
            
            
            23.9Indirect
                auto dealer loans
            
            
            118,018
            
            
            13.4
            
            
            91,890
            
            
            14.1
            
            
            28.4Home
                equity loans
            
            
            17,232
            
            
            2.0
            
            
            13,856
            
            
            2.1
            
            
            24.4Other
                consumer loans
            
            
            9,228
            
            
            1.0
            
            
            9,817
            
            
            1.5
            
            
            (6.0
            )Total
            
            $
            882,372
            
            
            100
            
            $
            653,521
            
            
            100
            
            
            35.0





Our
      non-performing loans as a percentage of gross loans remained consistent at
      0.11%
      at December 31, 2005 and 2004.





*Commercial
      Real Estate Mortgage Loans* .
      At
      December 31, 2005, TIB Bank's commercial real estate loan portfolio totaled
      $452.0 million. The Bank also has $4.7 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. 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, 2005, TIB Bank's commercial loan portfolio totaled $80.1 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, 2005, TIB Bank's construction loan portfolio totaled $125.2
      million. TIB Bank provides interim real estate acquisition development and
      construction loans to builders, developers, and persons who will ultimately
      occupy 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.





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 have a maturity of
      12
      months. These construction loans to individuals may be converted to permanent
      loans upon completion of construction.





3
 **Table
            of
            Contents**








*Residential
      Real Estate Mortgage Loans* .
      At
      December 31, 2005, TIB Bank's residential loan portfolio totaled $76.0 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
      substantial majority are sold to investors.





*Indirect
      Auto Dealer Loans* .
      At
      December 31, 2005, TIB Bank's indirect auto dealer loans portfolio totaled
      $118.0 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 quickly in 2005.
      However, the pace of growth began to normalize as the portfolio began to mature
      and payoffs and paydowns have become more significant. Since the expected life
      of these loans is approximately two years, we believe the level of outstanding
      indirect loans has leveled off and we therefore expect that indirect loans
      will
      remain below 15% of total loans outstanding.





We
      anticipate being able to deliver strong results 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 most of the
                repossessed automobiles we acquire on a retail less commission basis
                instead of wholesale through auctions. We are able to do this because
                we
                have an established relationship with a dealer who sells the automobiles
                for us. This has helped reduce our loss per
                vehicle.





*Other
      Consumer Loans and Home Equity Loans* .
      At
      December 31, 2005, TIB Bank's consumer loan portfolio totaled $9.2 million,
      and
      its home equity portfolio totaled $17.2 million. TlB 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.





4
 **Table
            of
            Contents**











**Merchant
      Bankcard Processing**





Through
      December 30, 2005, the Bank processed credit card transactions for merchants
      primarily in the Florida Keys. As a vacation destination, merchants in the
      Florida Keys typically generate a high volume of credit card transactions.
      The
      Bank competed for merchant bankcard processing business primarily on the basis
      of customer service. In the typical merchant bankcard transaction, the Bank
      would pay the merchant the amount of the charge less a negotiated fee. In order
      to obtain payment of the charge from the issuing bank or its processor, the
      Bank
      had to pay interchange fees, which were deducted from the payment and reflected
      as a part of merchant bankcard processing expenses. As a merchant bankcard
      processor, the Bank bore the risk of loss if a credit card customer disputed
      a
      charge and the Bank could not recover from the merchant. 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
      and insurance 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 closed the sale of 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, 2005, the Bank employed 332 full-time employees and 12 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 its employees.








**Related
      Party Transactions**





At
      December 31, 2005, we had $882.4 million in total loans outstanding, of which
      $862,000 was outstanding to certain of our executive officers, directors, and
      security holders who own more than 10% of our voting securities, 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.










5
 **Table
            of
            Contents**


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 nonbank 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, 2005, TIB Bank met these requirements for our continued
      qualification as a financial holding company.





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.





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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.”





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 meet substantially 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 a maximum
      of $100,000 per category of ownership of depositor 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.








**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 arrangement 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.








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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, 2005, 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.








**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 enacted 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 reforms and modernizes certain areas of
      financial services regulations and repeals 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
      new
      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, and
      the
      Act may increase the competition that we face. The law also includes substantive
      requirements for maintenance of customer financial privacy.





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**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.








**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.





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**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.








**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.





*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. 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.





10
 **Table
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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,
      2005, approximately 77% 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, 2005,
      we
      had approximately $118 million of indirect loans outstanding. We plan to grow
      this portfolio further. 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.





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





Our
      strategy
      for building market share in Southwest Florida is based on establishing new
      branches. We currently plan to open one new branch and relocate an existing
      branch in the coming year. We also plan to open at least one additional branch
      in 2007. 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 several years. Accordingly, our new
      branches can be expected to be a drag on our earnings for some period of time.
      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.





*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.





11
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**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 2005 was approximately 4,641 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.








**ITEM
      2: PROPERTIES**





The
      Company’s executive offices are now 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
            Owned600
                North Homestead Boulevard
            Homestead
            Branch
            Owned777
                North Krome Avenue
            Homestead
            Branch
            Owned630
                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
            Owned5800
                Overseas Highway - Suite 41
            Marathon
            Commercial
                lending
            Leased11401
                Overseas Highway
            Marathon
                Shores
            Branch
            Owned3940
                Prospect Avenue - Suite 104 & 105
            Naples
            Branch
            Leased1720
                J & C Boulevard - Suite 1
            Naples
            Branch
            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
            Leased1119
                US Highway 27 South
            Sebring
            Residential
                lending
            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 plans to construct a new branch.





12
 **Table
            of
            Contents**





In
      2005,
      the Bank sold land that it bought in 2004 located at the Miami Land &
Development Subdivision in Homestead, Florida and purchased a property at 17000
      Cam Circle in Ft. Myers, Florida where it plans to construct a new
      branch.











**ITEM
      3: LEGAL PROCEEDINGS**





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**





No
      matter
      was submitted to a vote of security holders during the Company's fourth quarter
      of the fiscal year ended December 31, 2005.








13
 **Table
            of
            Contents**





**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, 2005, there were 459 registered shareholders of record and
      5,792,598 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:





**2005**
            
            **2004**(Quarter
                Ended)
            
            High
            
            Low
            
            High
            
            LowMarch
                31
            
            $
            29.02
            
            $
            24.65
            
            $
            25.00
            
            $
            20.15June
                30
            
            
            29.30
            
            
            26.10
            
            
            22.85
            
            
            20.20September
                30
            
            
            32.50
            
            
            25.85
            
            
            22.25
            
            
            19.62December
                31
            
            
            33.71
            
            
            29.00
            
            
            25.67
            
            
            21.90





For
      the
      year ended December 31, 2005, we paid cash dividends to our shareholders in
      the
      amount of $.115 per share for the first three quarters and $.1175 per share
      for
      the last quarter ($.4625 in the aggregate). For the year ended December 31,
      2004, we paid cash dividends to our shareholders in the amount of $.1125 per
      share for the first three quarters and $.115 per share for the last quarter
      ($.4525 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
“Compensation of Executive Officers and Directors - Equity Compensation Plan
      Information” of our definitive Proxy Statement for the 2006 Annual Meeting of
      Shareholders is incorporated herein by reference.





We
      did
      not repurchase any shares of our common stock in 2005.





14
 **Table
            of
            Contents**





**ITEM
      6: SELECTED FINANCIAL DATA**





The
      selected consolidated financial data presented below as of and for the years
      ended December 31, 2005, 2004, 2003, 2002 and 2001 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)**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002**
            
            **2001**Total
                assets
            
            $
            1,076,070
            
            $
            829,325
            
            $
            669,298
            
            $
            567,149
            
            $
            494,111Investment
                securities
            
            
            97,464
            
            
            77,807
            
            
            52,557
            
            
            54,268
            
            
            52,354Gross
                loans
            
            
            882,372
            
            
            653,521
            
            
            538,598
            
            
            441,743
            
            
            379,104Allowance
                for loan losses
            
            
            7,546
            
            
            6,243
            
            
            5,216
            
            
            4,272
            
            
            3,675Deposits
            
            
            920,424
            
            
            687,859
            
            
            553,813
            
            
            482,683
            
            
            415,736Shareholders’
                equity
            
            
            77,524
            
            
            68,114
            
            
            41,246
            
            
            33,506
            
            
            28,672








**Income
      Statement Data**


**Year
      ended December 31,**


**(Dollars
                in thousands)**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002**
            
            **2001**Interest
                and dividend income
            
            $
            59,434
            
            $
            40,916
            
            $
            34,606
            
            $
            31,316
            
            $
            33,717Interest
                expense
            
            
            20,304
            
            
            10,730
            
            
            9,839
            
            
            10,329
            
            
            15,797Net
                interest income
            
            
            39,130
            
            
            30,186
            
            
            24,767
            
            
            20,987
            
            
            17,920Provision
                for loan losses
            
            
            2,413
            
            
            2,455
            
            
            1,586
            
            
            791
            
            
            1,005Net
                interest income after provision for loan losses
            
            
            36,717
            
            
            27,731
            
            
            23,181
            
            
            20,196
            
            
            16,915Non-interest
                income
            
            
            6,258
            
            
            6,306
            
            
            7,084
            
            
            6,041
            
            
            5,988Non-interest
                expense
            
            
            (31,856
            )
            
            (27,057
            )
            
            (23,541
            )
            
            (20,011
            )
            
            (17,468
            )Income
                tax expense
            
            
            (3,927
            )
            
            (2,337
            )
            
            (2,324
            )
            
            (2,098
            )
            
            (1,847
            )Income
                from continuing operations
            
            
            7,192
            
            
            4,643
            
            
            4,400
            
            
            4,128
            
            
            3,588Income
                from discontinued operations, net of taxes
            
            
            4,632
            
            
            555
            
            
            702
            
            
            607
            
            
            306Net
                income
            
            $
            11,824
            
            $
            5,198
            
            $
            5,102
            
            $
            4,735
            
            $
            3,894








**Per
      Share Data**


**Year
      ended December 31,**


**2005**
            
            **2004**
            
            **2003**
            
            **2002**
            
            **2001**Book
              value per share at year end *
            
            $
            13.38
            
            $
            11.99
            
            $
            9.31
            
            $
            8.30
            
            $
            7.27Basic
                earnings per share from continuing operations
            
            $
            1.26
            
            $
            0.87
            
            $
            1.03
            
            $
            1.03
            
            $
            0.91Basic
                earnings per share from discontinued operations
            
            
            0.81
            
            
            0.11
            
            
            0.17
            
            
            0.16
            
            
            0.08Basic
                earnings per share
            
            $
            2.07
            
            $
            0.98
            
            $
            1.20
            
            $
            1.19
            
            $
            0.99Diluted
                earnings per share from continuing operations
            
            $
            1.22
            
            $
            0.85
            
            $
            0.99
            
            $
            1.00
            
            $
            0.88Diluted
                earnings per share from discontinued operations
            
            
            0.78
            
            
            0.10
            
            
            0.16
            
            
            0.14
            
            
            0.07Diluted
                earnings per share
            
            $
            2.00
            
            $
            0.95
            
            $
            1.15
            
            $
            1.14
            
            $
            0.95Basic
                weighted average common equivalent shares outstanding
            
            
            5,711,974
            
            
            5,309,860
            
            
            4,257,224
            
            
            3,992,775
            
            
            3,923,763Diluted
                weighted average common equivalent shares outstanding
            
            
            5,900,446
            
            
            5,479,696
            
            
            4,435,861
            
            
            4,144,855
            
            
            4,096,767Dividends
                declared per share
            
            $
            0.4625
            
            $
            0.4525
            
            $
            0.4425
            
            $
            0.4325
            
            $
            0.43*Calculation
              includes unvested shares of restricted stock issued during 2005.








15
 **Table
            of
            Contents**








**Performance
      Ratios**


2005
            2004
            2003
            2002
            2001Return
                on average assets**
            0.74%
            0.63%
            0.71%
            0.77%
            0.75%Return
                on average equity**
            10.19%
            7.83%
            11.69%
            13.26%
            13.03%Average
                equity/average assets
            7.26%
            8.01%
            6.05%
            5.82%
            5.79%Net
                interest margin
            4.38%
            4.51%
            4.43%
            4.39%
            4.22%Dividend
                payout ratio ***
            22.34%
            46.22%
            36.92%
            36.47%
            43.32%Allowance
                for loan losses/total loans
            0.86%
            0.96%
            0.97%
            0.97%
            0.97%Non-performing
                assets/total assets
            0.46%
            0.60%
            0.55%
            0.65%
            0.90%Non-performing
                loans/gross loans
            0.11%
            0.11%
            0.07%
            0.12%
            0.42%Allowance
                for loan losses/non-performing loans
            789.33%
            886.79%
            1,336.33%
            783.19%
            231.07%Non-interest
                expense/tax equivalent net interest income and non-interest income
                from
                continuing operations
            69.69%
            73.48%
            73.44%
            73.62%
            72.53%**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 including
              discontinued operations.











16
 **Table
            of
            Contents**





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





**Overview**





TIB
      Bank
      operates primarily as an owner-operated 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. The Bank funds its lending activity 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 tremendous
      opportunities for us to continue to grow our core banking franchise in these
      contiguous markets.





We
      are
      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.
      Due
      to the cost premiums associated with community banks and branches in Florida
      in
      recent years, we believe that de novo expansion has been and continues to be
      the
      most economical method for us to build market share in many of the areas where
      we seek to have a presence. 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. Although organic growth has been the method of choice to date,
      growth through acquisition would be considered if pricing, market and culture
      fit were 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, 2005, net income from continuing operations was $7.2
      million, or $1.26 per basic share and $1.22 per diluted share. These results
      compared with $4.6 million, or $0.87 per basic share and $0.85 per diluted
      share, for the prior year, represent increases of approximately 55%, 45% and
      44%, respectively.





We
      see
      2005 as a year of delivering on our stated execution commitments. Quarter after
      quarter, the team’s successful implementation of our strategic market expansion
      has resulted in consistent, predictable asset and earnings growth. We’ve
      experienced the momentum of the increasing market share shift in our direction
      and recognize and are realizing the significant ongoing opportunities presented
      by some of the nation’s most dynamic population growth patterns. Our markets
      display diversity, economic strength and are among the nation’s fastest growing.
      Additionally, merger-related market disruption continues to provide
      opportunities in gathering commercial, household and municipal relationships.
      As
      we continue to grow, we have and will continue to maintain our high credit
      underwriting standards, the overall credit quality of our loan portfolio, and
      the market pricing of our deposit base. The core competency of the Bank has
      been
      and remains focused on the middle market commercial business segment that has
      been so successful for us.





An
      example of this strategic positioning was the careful consideration of our
      strategic options for merchant payment processing, resulting in the decision
      to
      align ourselves with NOVA Information Systems (“NOVA”) as provider of payment
      processing for our commercial customers. This alliance allows us to maintain
      our
      extraordinary customer service standards while introducing state-of-the-art
      new
      products. NOVA was selected by TIB based on its recognized excellence in
      customer service and its commitment to maintaining superior technology. Under
      our agreement with NOVA, we sold our existing payment processing portfolio
      for
      $7.25 million in cash (approximately a $6.7 million gain, net of transaction
      costs). This gain provided an infusion of new non-dilutive equity capital which
      will be used to augment the Bank’s core capital position as the accelerating
      organic asset growth continues into 2006. The historical operations of the
      merchant bankcard payment processing segment is reported as discontinued
      operations in the accompanying consolidated financial statements.





Despite
      the most active hurricane season in history, including two direct impacts from
      Hurricanes Katrina and Wilma, several close calls and numerous hurricane threats
      resulting in evacuations and the myriad of related business disruptions in
      South
      Florida during 2005, we suffered no significant physical damage from the storms.
      In fact, our management truly weathered the storms and our team exemplified
      our
      commitment to excellence in customer service as our branch infrastructure was
      first or among the first to reopen and respond to customer needs in each of
      our
      affected markets.





Net
      interest income on a tax-equivalent basis was $39.5 million for 2005, an
      increase of 29% over $30.5 million a year ago. Non-interest income, which
      includes service charges on deposit accounts, real estate fees, and other
      operating income, totaled $6.3 million, consistent with the prior
      year.










17
 **Table
            of
            Contents**


Our
      interest margin contracted
      slightly from 4.51% in 2004 to 4.38% in 2005. This slight contraction is due
      to
      several opposing factors. First, although interest rates increased continuously
      throughout the year, a significant portion of our commercial loans
      remained at their interest rate floors for some part of the year. Second, we
      increased the relative proportion of CDs to the total liabilities of the Bank
      as
      we decided to use CD promotions to fill our funding needs and lock in the
      funding costs early as interest rates increased rather than leveraging our
      balance sheet. Finally, our indirect auto lending portfolio has begun to mature.
      We expect it will continue to grow, but at a slower pace than in recent years
      and slower than the comparable pace of loan portfolio and balance sheet growth
      as a whole. As the indirect loans become a smaller component of our portfolio,
      we expect the impact of its somewhat higher yields, on the overall loan
      portfolio yield, will be of decreasing significance. Looking at the year ahead,
      we expect our margins to remain fairly stable as we expect commercial loan
      growth to continue in Southwest Florida and to a lesser extent, in the Florida
      Keys. Our challenge will be to continue to manage and balance this growth
      coupled with continued near term increases in interest rates with the increasing
      competition for high yield, high quality commercial credits and market pricing
      for liabilities.





Non-interest
      income includes a slight decrease in service charges on deposit accounts, to
      $2.4 million in 2005; primarily attributable to a substantial increase in the
      usage of electronic and online banking products which result in lower fees
      per
      account. We have been encouraging the usage of these products to lower delivery
      costs throughout our branch distribution system. Fees on mortgage loans sold
      increased nominally due to increased competition in the local market place
      combined with lower volume due to a low level of refinancing volume coupled
      with
      multiple interruptions of transaction closings caused by the frequency of local
      severe weather threats along with an overall softening of the residential real
      estate market.





Non-interest
      expense for 2005 was $31.9 million, compared with $27.1 million a year ago.
      The
      increase in non-interest expense for 2005 is primarily attributable to a 23%
      increase in salaries and employee benefits expenses associated with the
      Company’s ongoing expansion activities in the Southwest Florida market. Our
      continued focus on cost containment resulted in net occupancy and other expenses
      increasing less than 12% compared to 2004. We expect the growth in non-interest
      expenses to continue at a relatively constant level in dollar terms and become
      a
      proportionately smaller percentage of the total business in the future.





Total
      assets increased 30% during 2005 to $1.08 billion as of December 31, compared
      with $829.3 million a year ago. Total loans grew 35% to $882.4 million as of
      December 31, 2005, compared with $653.5 million a year ago. Commercial real
      estate mortgage loans accounted for the largest categorical dollar increase
      during 2005, representing $100.6 million of the total increase. Asset growth
      was
      funded by an increase in total deposits to $920.4 million as of December 31,
      2005, representing organic deposit growth of 34% from $687.9 million the prior
      year.





Credit
      quality remained strong as of December 31, 2005 with the allowance for loan
      losses totaling $7.5 million, or 0.86% of total loans and 789% of non-performing
      loans. These figures compare with 0.96% and 887%, respectively, as of December
      31, 2004. Annual net charge-offs represented 0.14% of average loans as of
      December 31, 2005, compared with 0.24% as of December 31, 2004.





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 2005, more than 44% of the Company’s customer deposit
      base was located outside the mature core business market of the Florida Keys,
      compared with just 33% at the beginning of the year. 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
      and our stellar compliance record. During 2005, continued disruption in the
      market from big bank mergers and acquisitions created unprecedented
      opportunities for TIB to continue to attract customers who prefer to conduct
      business with a locally managed company. To capitalize on the current
      environment, the Company continues to add senior lenders and de novo branches
      in
      the growth markets in Southwest Florida.





**Economic
      and Operating Environment Overview**





During
      2005, business activity in our primary markets reflected the national trends
      of
      increased economic expansion with continued increases in overall employment
      due
      to productivity gains and the desire to reduce excess capacity. In an effort
      to
      return to monetary neutrality, the Federal Reserve elected to raise short-term
      interest rates 25 basis points eight times during the year. Specifically, the
      target Federal Funds Rate began 2005 at 2.25% and ended the year at 4.25%.
      The
      Prime lending rate continued its recent pattern of staying 300 basis points,
      3%,
      above the Federal Funds Rate.





The
      effect of the increasing interest rate environment during 2005 was a slight
      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. However, throughout the
      year, many loans remained at floors for some part of the year resulting in
      a
      delay of the repricing characteristics of the portfolio. In contrast, our
      impressive organic growth rate and the related funding needs resulted in our
      decision to be more competitive on deposit pricing. Our funding mix decisions
      led to several CD promotions during 2005 allowing us to lock in funding costs
      in
      the rising rate environment well in advance of our funding needs while
      maintaining our borrowing availability and liquidity. This strategy resulted
      in
      deposit liabilities price increases to attract the required volume of funding.
      Excess funds were reinvested in lower yielding liquid assets until necessary
      to
      fund loan growth and resulted in an overall higher average level of Fed funds
      sold throughout 2005 as compared to 2004. We believe that the net effect of
      the
      current interest rate environment will translate into margin stability 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 rather
      than increasing the leverage of our balance sheet in the near
      term.





18
 **Table
            of
            Contents**








During
      2005, the Bank continued to expand its indirect automobile lending program,
      in
      an effort to generate higher relative yielding assets. As of December 31, 2005,
      we had approximately $118 million of indirect auto loans outstanding. Coupled
      with the appropriate safeguards, we believe this product continues to offer
      the
      Bank an opportunity to increase asset yields while not sacrificing our primary
      objective of maintaining strong asset quality. We believe that during 2005,
      this
      portfolio began to mature and peaked below 15% of the total loan portfolio
      composition. In maturing, indirect loans began to decrease as a percentage
      of
      the loan portfolio. Looking ahead, management believes the balance of indirect
      auto loans outstanding will continue to increase, however, we expect the growth
      rate to decrease steadily as we experience increasing levels of runoff.
      Additionally, we expect the indirect portfolio to have a reduced effect on
      portfolio yield as it continues to become an increasingly smaller relative
      component of the loan portfolio as a whole.





We
      also
      recently announced the completion of our distribution strategy for Collier
      and
      Lee counties in Southwest Florida with the identification of and acquisition
      or
      contract execution of all related properties. During 2005, we began construction
      of a 16,000-square-foot banking office in Naples, Florida. Construction is
      expected to begin in 2006 on two other Southwest Florida locations. Additional
      branch sites will continue to be explored in other high-growth markets
      throughout Florida.








**Analysis
      of Financial Condition**





Our
      assets totaled $1.08 billion at December 31, 2005 compared to $829.3 million
      at
      the end of 2004, an increase of $246.7 million or 30%. The growth in assets
      was
      primarily a result of increased lending activity as the Bank invested funds
      provided by significant deposit growth.





Total
      loans increased $228.9 million or 35%, to $882.4 million at December 31, 2005.
      The growth in the loan portfolio was primarily attributed to increases in
      commercial real estate loans of $100.6 million, indirect auto dealer loans
      of
      $26.1 million, construction loans of $75.4 million, commercial and agricultural
      loans of $15.4 million and residential loans of $8.8 million.





Total
      deposits increased $232.6 million or 34%, from $687.9 million at the end of
      2004
      to $920.4 million on December 31, 2005. Non-interest-bearing deposits increased
      $17.8 million or 12%, while interest-bearing deposits increased $214.8 million
      or 40%.





Borrowed
      funds, consisting of Federal Home Loan Bank (FHLB) advances, short-term
      borrowings, notes payable, and subordinated debentures, totaled $59.3 million
      at
      year end 2005 compared to $65.4 million at the end of 2004. During 2005, we
      reduced our FHLB advances by $10.0 million. On January 3, 2005 we repaid $1.25
      million of the notes payable at a 3% premium.





Shareholders’
      equity increased $9.4 million or 14%, from $68.1 million on December 31, 2004
      to
      $77.5 million at the end of 2005.





Book
      value per share increased to $13.38 at December 31, 2005, from $11.99 at
      December 31, 2004.








**Results
      of Operations**





**Net
      income**





*2005
      compared with 2004:*





The
      Company’s 2005 net income of $11.8 million increased 127% compared to $5.2
      million in 2004. Basic and diluted earnings per share for 2005 were $2.07 and
      $2.00, respectively, as compared to $0.98 and $0.95 per share in 2004.





Net
      income from continuing operations was $7.2 million for 2005, compared to $4.6
      million for 2004, an increase of 55%. As discussed in Note 19 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.





19
 **Table
            of
            Contents**





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.





*2004
      compared with 2003:*





The
      Company’s 2004 net income of $5.2 million increased 2% compared to $5.1 million
      in 2003. Basic and diluted earnings per share for 2004 were $0.98 and $0.95,
      respectively, as compared to $1.20 and $1.15 per share in 2003.





Net
      income from continuing operations was $4.6 million for 2004, compared to $4.4
      million for 2003, an increase of 6%. As discussed in Note 19 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 and closed
      the sale of the assets of its wholly-owned subsidiary, Keys Insurance Agency,
      Inc., in the third quarter of 2003.





Return
      on
      average assets based on net income from continuing operations was 0.63% and
      0.71% for 2004 and 2003, while return on average shareholders’ equity based on
      net income from continuing operations was 7.83% and 11.69% 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.





*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. Going forward, we expect
      further market rate increases to more directly affect loan yields and deposit
      costs as more adjustable loans move through their floor levels and competitive
      pressures result in deposit rates increasing more rapidly. We believe 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 be considerably less in extent than the relative impact of asset
      growth.





*2004
      compared with 2003:*





Net
      interest income was $30.2 million for the year ended December 31, 2004, compared
      to $24.8 million for the same period in 2003. The 22% 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 decrease in the average
      cost of interest-bearing liabilities from 2.13% in 2003 to 2.02% in 2004
      partially offset higher volumes resulting in an increase in interest expense
      from $9.8 million in 2003 to $10.7 million in 2004. The increased loan volumes
      and lower costs for liabilities more than offset the decrease in asset yields.
      Our success in managing asset yields through interest rate floors became evident
      during 2004 as our tax equivalent net interest margin increased to 4.51% from
      4.43% in 2003.





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, 2005, 2004 and 2003.








20
 **Table
            of
            Contents**





**Average
      Balance Sheets**





**2005**
            
            **2004**
            
            **2003****(Dollars
                in thousands)**
            
            
            Average
                Balances
            
            
            Income/
              Expense
            
            Yields/
              Rates
            
            
            
            Average
                Balances
            
            
            Income/
              Expense
            
            Yields/
              Rates
            
            
            
            Average
                Balances
            
            
            Income/
              Expense
            
            Yields/
              RatesASSETSInterest-earning
                assets:Loans
                (a)(b)
            
            $
            772,363
            
            $
            54,492
            
            7.06
            %
            
            $
            590,167
            
            $
            37,724
            
            6.39
            %
            
            $
            484,147
            
            $
            31,669
            
            6.54
            %Investment
                securities—taxable
            
            
            73,213
            
            
            2,978
            
            4.07
            %
            
            
            58,308
            
            
            2,344
            
            4.02
            %
            
            
            47,729
            
            
            2,250
            
            4.71
            %Investment
                securities—tax exempt (b)
            
            
            9,595
            
            
            572
            
            5.96
            %
            
            
            9,990
            
            
            615
            
            6.16
            %
            
            
            7,608
            
            
            499
            
            6.56
            %Investment
                securities—tax exempt (b)(d)
            
            
            3,517
            
            
            388
            
            11.03
            %
            
            
            3,497
            
            
            368
            
            10.52
            %
            
            
            748
            
            
            89
            
            11.88
            %Interest
                bearing deposits in other banks
            
            
            359
            
            
            10
            
            2.90
            %
            
            
            852
            
            
            11
            
            1.29
            %
            
            
            309
            
            
            3
            
            0.85
            %FHLB
                stock
            
            
            2,725
            
            
            113
            
            4.15
            %
            
            
            1,635
            
            
            57
            
            3.49
            %
            
            
            1,667
            
            
            59
            
            3.53
            %Federal
                funds sold
            
            
            38,374
            
            
            1,202
            
            3.13
            %
            
            
            11,438
            
            
            127
            
            1.11
            %
            
            
            21,106
            
            
            242
            
            1.14
            %Total
                interest-earning assets
            
            
            900,146
            
            
            59,755
            
            6.64
            %
            
            
            675,887
            
            
            41,246
            
            6.10
            %
            
            
            563,314
            
            
            34,811
            
            6.18
            %Non-interest
                earning assets:Cash
                and due from banks
            
            
            21,680
            
            
            
            
            
            
            
            
            18,866
            
            
            
            
            
            
            
            
            15,562Investment
                in ERAS
            
            
            -
            
            
            
            
            
            
            
            
            -
            
            
            
            
            
            
            
            
            52Premises
                and equipment, net
            
            
            27,007
            
            
            
            
            
            
            
            
            24,295
            
            
            
            
            
            
            
            
            19,576Allowances
                for loan losses
            
            
            (6,887
            )
            
            
            
            
            
            
            
            (5,735
            )
            
            
            
            
            
            
            
            (4,642
            )Other
                assets
            
            
            30,626
            
            
            
            
            
            
            
            
            26,452
            
            
            
            
            
            
            
            
            27,749Total
                non-interest earning assets
            
            
            72,426
            
            
            
            
            
            
            
            
            63,878
            
            
            
            
            
            
            
            
            58,297Total
                Assets
            
            $
            972,572
            
            
            
            
            
            
            
            $
            739,765
            
            
            
            
            
            
            
            $
            621,611LIABILITIES
                & SHAREHOLDERS’ EQUITYInterest
                bearing liabilities:Interest
                bearing deposits:NOW
                accounts
            
            $
            92,754
            
            
            919
            
            0.99
            %
            
            $
            76,068
            
            
            330
            
            0.43
            %
            
            $
            59,389
            
            
            218
            
            0.37
            %Money
                market
            
            
            165,266
            
            
            3,686
            
            2.23
            %
            
            
            130,172
            
            
            1,189
            
            0.91
            %
            
            
            125,410
            
            
            1,103
            
            0.88
            %Savings
                deposits
            
            
            47,774
            
            
            243
            
            0.51
            %
            
            
            44,380
            
            
            174
            
            0.39
            %
            
            
            35,475
            
            
            170
            
            0.48
            %Time
                deposits
            
            
            357,824
            
            
            12,595
            
            3.52
            %
            
            
            227,834
            
            
            6,878
            
            3.02
            %
            
            
            198,162
            
            
            6,444
            
            3.25
            %Total
                interest-bearing deposits
            
            
            663,618
            
            
            17,443
            
            2.63
            %
            
            
            478,454
            
            
            8,571
            
            1.79
            %
            
            
            418,436
            
            
            7,935
            
            1.90
            %Notes
                payable
            
            
            4,052
            
            
            367
            
            9.06
            %
            
            
            5,250
            
            
            482
            
            9.18
            %
            
            
            5,250
            
            
            481
            
            9.16
            %Short-term
                borrowings and FHLB advances
            
            
            39,465
            
            
            1,282
            
            3.25
            %
            
            
            35,585
            
            
            558
            
            1.57
            %
            
            
            25,455
            
            
            314
            
            1.23
            %Subordinated
                debentures
            
            
            13,000
            
            
            1,212
            
            9.32
            %
            
            
            13,000
            
            
            1,119
            
            8.61
            %
            
            
            13,000
            
            
            1,109
            
            8.53
            %Total
                interest bearing liabilities
            
            
            720,135
            
            
            20,304
            
            2.82
            %
            
            
            532,289
            
            
            10,730
            
            2.02
            %
            
            
            462,141
            
            
            9,839
            
            2.13
            %Non-interest
                bearing liabilities and shareholders’ equity:Demand
                deposits
            
            
            169,426
            
            
            
            
            
            
            
            
            139,939
            
            
            
            
            
            
            
            
            114,344Other
                liabilities
            
            
            12,443
            
            
            
            
            
            
            
            
            8,266
            
            
            
            
            
            
            
            
            7,493Shareholders’
                equity
            
            
            70,568
            
            
            
            
            
            
            
            
            59,271
            
            
            
            
            
            
            
            
            37,633Total
                non-interest bearing liabilities and shareholders’ equity
            
            
            252,437
            
            
            
            
            
            
            
            
            207,476
            
            
            
            
            
            
            
            
            159,470Total
                liabilities and shareholders’ equity
            
            $
            972,572
            
            
            
            
            
            
            
            $
            739,765
            
            
            
            
            
            
            
            $
            621,611Interest
                rate spread
            
            
            
            
            
            
            
            3.82
            %
            
            
            
            
            
            
            
            4.08
            %
            
            
            
            
            
            
            
            4.05
            %Net
                interest income
            
            
            
            
            $
            39,451
            
            
            
            
            
            
            
            $
            30,516
            
            
            
            
            
            
            
            $
            24,972Net
                interest margin (c)
            
            
            
            
            
            
            
            4.38
            %
            
            
            
            
            
            
            
            4.51
            %
            
            
            
            
            
            
            
            4.43
            %


__________


(a)
            Average
                loans include non-performing loans. Interest on loans includes loan
                fees
                of $468 in 2005, $394 in 2004 and $265 in
                2003.


(b)
            Interest
                income and rates include the effects of a tax equivalent adjustment
                using
                a Federal tax rate of 34% 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)
            Investment
                securities indicated hereon were 90% tax deductible during 2005 and
                2004,
                respectively.





21
 **Table
            of
            Contents**





**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.





2005
                compared to 2004
              Due
                to changes in
            2004
                compared to 2003
              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)
            
            $
            12,550
            
            $
            4,218
            
            $
            16,768
            
            $
            6,793
            
            $
            (737
            )
            $
            6,056Investment
                securities (a)
            
            
            664
            
            
            (53
            )
            
            611
            
            
            881
            
            
            (392
            )
            
            489Interest-bearing
                deposits in other banks
            
            
            (9
            )
            
            8
            
            
            (1
            )
            
            7
            
            
            1
            
            
            8Federal
                funds sold
            
            
            606
            
            
            469
            
            
            1,075
            
            
            (108
            )
            
            (7
            )
            
            (115
            )FHLB
                stock
            
            
            44
            
            
            12
            
            
            56
            
            
            (1
            )
            
            (1
            )
            
            (2
            )Total
                interest income
            
            
            13,855
            
            
            4,654
            
            
            18,509
            
            
            7,572
            
            
            (1,136
            )
            
            6,436**Interest
                expense**NOW
                accounts
            
            
            86
            
            
            503
            
            
            589
            
            
            68
            
            
            44
            
            
            112Money
                market
            
            
            393
            
            
            2,104
            
            
            2,497
            
            
            43
            
            
            43
            
            
            86Savings
                deposits
            
            
            14
            
            
            55
            
            
            69
            
            
            38
            
            
            (34
            )
            
            4Time
                deposits
            
            
            4,429
            
            
            1,288
            
            
            5,717
            
            
            918
            
            
            (484
            )
            
            434Notes
                payable
            
            
            (109
            )
            
            (6
            )
            
            (115
            )
            
            -
            
            
            1
            
            
            1Subordinated
                debentures
            
            
            -
            
            
            93
            
            
            93
            
            
            -
            
            
            10
            
            
            10Short-term
                borrowings and FHLB advances
            
            
            67
            
            
            657
            
            
            724
            
            
            99
            
            
            145
            
            
            244Total
                interest expense
            
            
            4,880
            
            
            4,694
            
            
            9,574
            
            
            1,166
            
            
            (275
            )
            
            891Change
                in net interest income
            
            $
            8,975
            
            $
            (40
            )
            $
            8,935
            
            $
            6,406
            
            $
            (861
            )
            $
            5,545


__________


(a)
            Interest
                income includes the effects of a tax equivalent adjustment using
                a federal
                tax rate of 34% in adjusting tax exempt interest on tax exempt investment
                securities and loans to a fully taxable
                basis.








**Non-interest
      income**





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





**(Dollars
                in thousands)**
            
            
            **2005**
            
            
            **2004**
            
            
            **2003**Fees
                on mortgage loans sold
            
            $
            1,880
            
            $
            1,852
            
            $
            2,201Service
                charges on deposit accounts
            
            
            2,360
            
            
            2,547
            
            
            2,452Investment
                securities gains, net
            
            
            1
            
            
            106
            
            
            289Debit
                card income
            
            
            572
            
            
            422
            
            
            388Earnings
                on bank owned life insurance policies
            
            
            416
            
            
            404
            
            
            433Gain
                on sale of land
            
            
            267
            
            
            -
            
            
            -Retail
                investment services
            
            
            -
            
            
            333
            
            
            420Gain
                on sale of ERAS Joint Venture
            
            
            -
            
            
            -
            
            
            202Other
            
            
            762
            
            
            642
            
            
            699Total
                non-interest income
            
            $
            6,258
            
            $
            6,306
            
            $
            7,084








Over
      the
      past three years, non-interest income has declined from $7.1 million to $6.3
      million resulting from our increased focus on our core competencies, middle
      market commercial lending and community banking. The leading cause of the
      decline is the sale of our retail investment services in 2004 coupled with
      the
      sale of our investment in the ERAS joint venture in 2003.





22
 **Table
            of
            Contents**





During
      2005, we recognized a gain related to the sale of a parcel of land in Homestead,
      Florida as a result of a decision to concentrate our branch expansion
      investments in Southwest Florida.





A
      significant additional component of this trend is the decline in fees on
      residential loans sold at origination. This decline is partly due to the overall
      higher interest rate environment which has resulted in a decline in refinancing
      volume coupled more recently with an increase in the popularity of variable
      and
      adjustable rate mortgages. The change in volume mix resulted in the retention
      in
      our portfolio of a greater proportion of the residential loans we originate
      vs.
      sell; we generally sell fixed rate residential loans to third parties.
      Additionally, our pass through volume was affected by the unusually active
      tropical weather season during 2005 which significantly impacted residential
      housing sales in our core markets. We intend to maintain current staffing levels
      with respect to the residential mortgage origination process and expect organic
      growth from our expanding core customer base and the residential real estate
      market and population growth trends in the Southwest Florida market to
      complement increases driven by new saleable mortgage products we plan to offer.





During
      the three year period, service charge income has declined, driven predominantly
      by a substantial increase in the utilization of electronic and online banking
      tools and resulting in lower fees per account. We have been encouraging the
      sale
      and usage of these products which lower our service delivery costs throughout
      our branch distribution system.





*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.





*2004
      compared to 2003:*





Non-interest
      income decreased from $7.1 million in 2003 to $6.3 million in 2004. Fees on
      mortgage loans sold result from the sale of residential loans (primarily fixed
      rate loans) to the secondary market. In 2004, our volumes of residential loans
      decreased as a result of the increasing interest rates and local economic and
      real estate environment conditions. Retail investment services income decreased
      during 2004. The December 15, 2004 sale of internally developed intangibles,
      primarily the investment center’s book of business resulted in a gain of $50,000
      which is included in other income. Debit card income rose slightly due primarily
      to increasing volume despite a reduction in the interchange rate paid to us.





**Non-interest
      expenses**





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





**(Dollars
                in thousands)**
            
            
            **2005**
            
            
            **2004**
            
            
            **2003**Salary
                and employee benefits
            
            $
            17,724
            
            $
            14,385
            
            $
            12,644Net
                occupancy expense
            
            
            5,502
            
            
            4,911
            
            
            4,268Accounting,
                legal, and other professional
            
            
            1,444
            
            
            1,223
            
            
            842Computer
                services
            
            
            1,650
            
            
            1,773
            
            
            1,533Postage,
                courier and armored car
            
            
            719
            
            
            617
            
            
            697Marketing
                and community relations
            
            
            731
            
            
            866
            
            
            851Operating
                supplies
            
            
            589
            
            
            542
            
            
            484Directors’
                fees
            
            
            468
            
            
            438
            
            
            233Indirect
                loan production expense
            
            
            379
            
            
            231
            
            
            -Provision
                for unfunded commitments
            
            
            316
            
            
            47
            
            
            32Travel
                expenses
            
            
            299
            
            
            387
            
            
            153FDIC
                and state assessments
            
            
            253
            
            
            213
            
            
            189Amortization
                of intangibles
            
            
            291
            
            
            295
            
            
            292Repossessed
                asset expenses
            
            
            128
            
            
            64
            
            
            390Operational
                charge-offs
            
            
            69
            
            
            69
            
            
            82Other
                operating expenses
            
            
            1,294
            
            
            996
            
            
            851Total
                non-interest expenses
            
            $
            31,856
            
            $
            27,057
            
            $
            23,541








23
 **Table
            of
            Contents**





Over
      the
      past three years, non-interest expenses have increased from $23.5 million to
      $31.9 million. The increases in this category are due primarily to the increases
      in employees, facilities and infrastructure necessary to enable and facilitate
      the expected future growth of the organization. It is anticipated that this
      may
      moderate as a constant level of growth should translate to a smaller percentage
      of our cost increases in future years.








*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 less than 12%. The majority of the
      increases in the non-interest expense category are the result of costs
      associated with the growth of our business.





*2004
      compared to 2003:*





Non-interest
      expenses increased $3.5 million in 2004. Approximately $1.7 million of the
      increase was related to salary and employee benefits. At December 31, 2004,
      the
      Bank had 309 full-time employees and 13 part-time employees, compared to 261
      full-time employees and 15 part-time employees at December 31, 2003. The
      increased staffing was attributable to the opening of two branches in Southwest
      Florida in the second half of 2004, additions to the indirect lending
      department, additions to manage growth throughout the Company, and additions
      to
      assist in security and regulatory compliance. 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, 2005, 2004, and
      2003
      were 36.9%, 34.0%, and 35.0%, respectively. The fluctuations in effective tax
      rates reflect the effect of the differences in deductibility of certain income
      and expenses. In general, as a larger proportion of our income is generated
      from
      fully taxable investments, we expect our effective income tax rate to gradually
      increase towards statutory levels. Additionally, due primarily to the gain
      recognized on the sale of our merchant bankcard processing segment, the
      Company’s taxable income exceeded the 34% Federal statutory tax bracket. This
      resulted in a portion of our taxable income being taxed at 35% and 38% Federal
      tax rates. Prior to 2005, the Company’s income tax expense had been based on a
      34% statutory Federal 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. These
      loans are often $1 million or larger and may be eligible for
      government-guarantee programs or traditional participation agreements. The
      government-funded programs such as the Small Business Administration are
      generally geared toward long-term, adjustable rate financing. As our business
      expands in Southwest Florida, we believe the loan portfolio will benefit from
      the resulting geographic diversification which is expected to provide more
      industry-based diversity to our loan portfolio. As of December 31, 2005, we
      had
      approximately $240.1 million of loans outstanding (excluding indirect auto
      loans) in Southwest Florida, where we had also generated approximately $269.3
      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 scarce and expensive real estate with various
      construction restrictions and environmental considerations. Accordingly,
      collateral values on loans secured by property in this market are greater.
      We
      have grown our commercial loan portfolio by aggressively serving this market.
      The quality of our credit administration along with stable real estate values
      has kept loan losses at low levels.










24
 **Table
            of
            Contents**




Loans are expected to produce higher yields than investment
      securities and other interest-earning assets (assuming that credit losses are
      not excessive). The absolute volume of loans and the volume as a percentage
      of
      total earning assets are important determinants of the net interest margin.
      Gross loans outstanding increased to $882.4 million at the end of 2005 as
      compared to $653.5
      million at year end 2004, an increase of 35%. Of this amount, real estate
      mortgage loans increased 39% from $473.3 million to $657.8 million. Commercial
      real estate mortgage loans accounted for much of this increase, growing from
      $351.3 million to $452.0 million at the respective year ends. Another loan
      type
      that increased significantly in 2005 was indirect auto dealer loans. This
      portfolio increased from $91.9 million at December 31, 2004 to $118.0 million
      at
      December 31, 2005. Construction loans also increased significantly growing
      from
      $49.8 million at December 31, 2004 to $125.2 million at December 31, 2005.
      We
      originate commercial loans with rates that fluctuate with the prime lending
      rate
      and residential loans with rates that fluctuate with the one year treasury
      index. At December 31, 2005, 76% of the total loan portfolio had floating or
      adjustable rates.





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





**(Dollars
                in thousands)**
            
            
            **2005**
            
            
            **2004**
            
            
            **2003**
            
            
            **2002**
            
            
            **2001**Real
                estate mortgage loans:Commercial
            
            $
            451,969
            
            $
            351,346
            
            $
            297,221
            
            $
            265,113
            
            $
            232,759Residential
            
            
            76,003
            
            
            67,204
            
            
            60,104
            
            
            68,389
            
            
            68,373Farmland
            
            
            4,660
            
            
            4,971
            
            
            2,317
            
            
            443
            
            
            267Construction
            
            
            125,207
            
            
            49,815
            
            
            32,089
            
            
            14,893
            
            
            6,434Commercial
                and agricultural loans
            
            
            80,055
            
            
            64,622
            
            
            63,624
            
            
            49,212
            
            
            46,927Indirect
                auto dealer loans
            
            
            118,018
            
            
            91,890
            
            
            59,437
            
            
            16,854
            
            
            -Home
                equity loans
            
            
            17,232
            
            
            13,856
            
            
            12,574
            
            
            17,475
            
            
            14,707Other
                consumer loans
            
            
            9,228
            
            
            9,817
            
            
            11,232
            
            
            9,364
            
            
            9,637Subtotal
            
            
            882,372
            
            
            653,521
            
            
            538,598
            
            
            441,743
            
            
            379,104Less:
                deferred loan costs (fees)
            
            
            1,652
            
            
            2,157
            
            
            1,815
            
            
            784
            
            
            (157
            )Less:
                allowance for loan losses
            
            
            (7,546
            )
            
            (6,243
            )
            
            (5,216
            )
            
            (4,272
            )
            
            (3,675
            )Net
                loans
            
            $
            876,478
            
            $
            649,435
            
            $
            535,197
            
            $
            438,255
            
            $
            375,272








The
      contractual maturity distribution of our loan portfolio at December 31, 2005
      is
      indicated in the table below. The vast majority of these are amortizing
      loans.








**Loans
                maturing****(Dollars
                in thousands)**
            
            
            Within
              1
                Year
            
            
            1
                to 5
              Years
            
            
            After
              5
                Years
            
            
            TotalReal
                estate mortgage loans:Commercial
            
            $
            51,939
            
            $
            90,681
            
            $
            309,349
            
            $
            451,969Residential
            
            
            12
            
            
            3,393
            
            
            72,598
            
            
            76,003Farmland
            
            
            -
            
            
            1,563
            
            
            3,097
            
            
            4,660Construction
                (a)
            
            
            39,500
            
            
            51,004
            
            
            34,703
            
            
            125,207Commercial
                and agricultural loans
            
            
            38,067
            
            
            31,438
            
            
            10,550
            
            
            80,055Indirect
                auto dealer loans
            
            
            609
            
            
            94,021
            
            
            23,388
            
            
            118,018Home
                equity loans
            
            
            3,143
            
            
            2,338
            
            
            11,751
            
            
            17,232Other
                consumer loans
            
            
            543
            
            
            5,206
            
            
            3,479
            
            
            9,228Total
                loans
            
            $
            133,813
            
            $
            279,644
            
            $
            468,915
            
            $
            882,372





__________


(a)
            $17,480
                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.














25
 **Table
            of
            Contents**








**Loans
                maturing****(Dollars
                in thousands)**
            
            
            Within
              1
                Year
            
            
            1
                to 5
              Years
            
            
            After
              5
                Years
            
            
            TotalLoans
                with:Predetermined
                interest rates
            
            $
            14,388
            
            $
            145,895
            
            $
            52,178
            
            $
            212,461Floating
                or adjustable rates
            
            
            119,425
            
            
            133,749
            
            
            416,737
            
            
            669,911Total
                loans
            
            $
            133,813
            
            $
            279,644
            
            $
            468,915
            
            $
            882,372








**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 and
      Substandard or worse. 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
      fund
      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. Increases in volume and
      concentration of commercial real estate and indirect auto dealer loans relative
      to the overall composition of the loan portfolio translate to a greater than
      average increase in the provision for loan losses as our risk management
      policies dictate generally higher allocations of such provisions for these
      categories of loans.





During
      2005, as the indirect auto dealer loan portfolio began to mature, the loss
      history has approached expected levels and the management processes, controls
      and monitoring and risk management tools implemented throughout recent years
      indicate that higher multipliers were necessary for the indirect loan portfolio.
      Contemporaneously, as the Florida economy has grown at an accelerated pace
      compared to other markets, real estate prices have escalated and local economies
      have benefited resulting in diminishing historical and expected loss factors.
      Analysis of these events results in these same tools indicating that lower
      multipliers were necessary for commercial loans collateralized by real estate.
      Looking forward, the concentration of indirect auto dealer loan category began
      to decrease during 2005 and management expects this trend to continue as the
      growth rate of the indirect loan portfolio declines along with its proportion
      of
      the loan portfolio as a whole. As this occurs, if we make the assumption,
      however unlikely, that all other factors were to remain constant, we would
      expect that the allowance for loan losses would continue to decrease as a
      percentage of gross loans in the near term. There is no assurance that this
      will
      occur.





Further,
      since the net result of our calculation for the allowance results in this amount
      being 0.86% 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.





26
 **Table
            of
            Contents**





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 $7.5 million and $6.2 million at December
      31, 2005 and December 31, 2004, respectively. Based on an analysis performed
      by
      management at December 31, 2005, 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 $2.4 million, $2.5 million and $1.6 million for
      the years ended December 31, 2005, 2004 and 2003, respectively.





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








**(Dollars
                in thousands)**
            
            
            **2005**
            
            
            **2004**
            
            
            **2003**
            
            
            **2002**
            
            
            **2001****Balance
                at beginning of year**
            
            $
            6,243
            
            $
            5,216
            
            $
            4,272
            
            $
            3,675
            
            $
            3,268**Charge-offs:**Real
                estate mortgage loans:Commercial
            
            
            -
            
            
            -
            
            
            -
            
            
            211
            
            
            372Residential
            
            
            -
            
            
            -
            
            
            -
            
            
            
            
            
            21Farmland
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Construction
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Commercial
                and agricultural loans
            
            
            107
            
            
            92
            
            
            183
            
            
            14
            
            
            200Indirect
                auto dealer loans
            
            
            1,045
            
            
            1,313
            
            
            370
            
            
            16
            
            
            -Home
                equity loans
            
            
            -
            
            
            -
            
            
            53
            
            
            15
            
            
            -Other
                consumer loans
            
            
            67
            
            
            82
            
            
            61
            
            
            46
            
            
            30Total
                charge-offs
            
            
            1,219
            
            
            1,487
            
            
            667
            
            
            302
            
            
            623**Recoveries:**Real
                estate mortgage loans:Commercial
            
            
            -
            
            
            -
            
            
            6
            
            
            84
            
            
            -Residential
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            10Farmland
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Construction
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Commercial
                and agricultural loans
            
            
            6
            
            
            38
            
            
            1
            
            
            
            
            
            4Indirect
                auto dealer loans
            
            
            65
            
            
            3
            
            
            8
            
            
            -
            
            
            -Home
                equity loans
            
            
            8
            
            
            2
            
            
            1
            
            
            -
            
            
            -Other
                consumer loans
            
            
            30
            
            
            16
            
            
            9
            
            
            24
            
            
            11Total
                recoveries
            
            
            109
            
            
            59
            
            
            25
            
            
            108
            
            
            25Net
                charged off
            
            
            1,110
            
            
            1,428
            
            
            642
            
            
            194
            
            
            598Provision
                for loans losses
            
            
            2,413
            
            
            2,455
            
            
            1,586
            
            
            791
            
            
            1,005Allowance
                for loan losses at end of year
            
            $
            7,546
            
            $
            6,243
            
            $
            5,216
            
            $
            4,272
            
            $
            3,675Ratio
                of net charge-offs to average net loans outstanding
            
            
            0.14
            %
            
            0.24
            %
            
            0.13
            %
            
            0.05
            %
            
            0.17
            %








27
 **Table
            of
            Contents**





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.








**2005**
            **2004**
            **2003**
            **2002**
            **2001****(Dollars
                in thousands)**
            
            Allowance
            
            
            %
                of Total Loans
            
            
            Allowance
            
            
            %
                of Total Loans
            
            
            Allowance
            
            
            %
                of Total Loans
            
            
            Allowance
            
            
            %
                of Total Loans
            
            
            Allowance
            
            
            %
                of Total LoansReal
                estate mortgage loans:Commercial
            $
            2,971
            
            
            51.2
            
            $
            2,513
            
            
            53.7
            
            $
            2,608
            
            
            55.2
            
            $
            2,656
            
            
            60.0
            
            $
            2,120
            
            
            61.4Residential
            
            168
            
            
            8.6
            
            
            144
            
            
            10.3
            
            
            151
            
            
            11.2
            
            
            178
            
            
            15.5
            
            
            183
            
            
            18.0Farmland
            
            30
            
            
            0.5
            
            
            34
            
            
            0.8
            
            
            20
            
            
            0.4
            
            
            4
            
            
            0.1
            
            
            -
            
            
            0.1Construction
            
            743
            
            
            14.2
            
            
            312
            
            
            7.6
            
            
            217
            
            
            6.0
            
            
            87
            
            
            3.4
            
            
            26
            
            
            1.7Commercial
                and agricultural loans
            
            912
            
            
            9.1
            
            
            737
            
            
            9.9
            
            
            901
            
            
            11.8
            
            
            740
            
            
            11.1
            
            
            917
            
            
            12.4Indirect
                auto dealer loans
            
            2,523
            
            
            13.4
            
            
            2,312
            
            
            14.1
            
            
            1,095
            
            
            11.0
            
            
            169
            
            
            3.8
            
            
            -
            
            
            -Home
                equity loans
            
            85
            
            
            2.0
            
            
            67
            
            
            2.1
            
            
            78
            
            
            2.3
            
            
            216
            
            
            4.0
            
            
            259
            
            
            3.9Other
                consumer loans
            
            114
            
            
            1.0
            
            
            124
            
            
            1.5
            
            
            146
            
            
            2.1
            
            
            222
            
            
            2.1
            
            
            170
            
            
            2.5$
            7,546
            
            
            100
            %
            $
            6,243
            
            
            100
            %
            $
            5,216
            
            
            100
            %
            $
            4,272
            
            
            100
            %
            $
            3,675
            
            
            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)**
            
            
            **2005**
            
            
            **2004**
            
            
            **2003**
            
            
            **2002**
            
            
            **2001**Total
                non-accrual loans
            
            $
            956
            
            $
            704
            
            $
            390
            
            $
            546
            
            $
            1,590Accruing
                loans delinquent 90 days or more (a)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Total
                non-performing loans
            
            
            956
            
            
            704
            
            
            390
            
            
            546
            
            
            1,590Repossessed
                personal property (indirect auto dealer loans)
            
            
            962
            
            
            688
            
            
            598
            
            
            70
            
            
            -Other
                real estate owned (b)
            
            
            190
            
            
            882
            
            
            193
            
            
            550
            
            
            550Other
                assets (b)
            
            
            2,815
            
            
            2,665
            
            
            2,472
            
            
            2,519
            
            
            2,290Total
                non-performing assets
            
            $
            4,923
            
            $
            4,939
            
            $
            3,653
            
            $
            3,685
            
            $
            4,430Allowance
                for loan losses
            
            $
            7,546
            
            $
            6,243
            
            $
            5,216
            
            $
            4,272
            
            $
            3,675Non-performing
                assets as a percent of total assets
            
            
            0.46
            %
            
            0.60
            %
            
            0.55
            %
            
            0.65
            %
            
            0.90
            %Non-performing
                loans as a percent of gross loans
            
            
            0.11
            %
            
            0.11
            %
            
            0.07
            %
            
            0.12
            %
            
            0.42
            %Allowance
                for loan losses as a percent of non-performing loans
            
            
            789.33
            %
            
            886.79
            %
            
            1,336.33
            %
            
            783.19
            %
            
            231.07
            %


__________


(a)
            Non-performing
                loans exclude the $1.6 million loan discussed below that is guaranteed
                for
                both principal and interest by the
                USDA.


(b)
            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 partially 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.





During
      2001, upon completion of foreclosure on the underlying collateral, the
      non-guaranteed portion of this loan and interest accrued through the foreclosure
      date was reclassified into other real estate ($550,000) and other assets
      (approximately $1.9 million) based on the fair value of the
      underlying-collateral. The portion of this loan guaranteed by the USDA was
approximately
      $1.6 million at December 31, 2005 and December 31, 2004, and is accruing
      interest. Accrued interest on this loan totals approximately $794,000 and
      $677,000 at December 31, 2005 and December 31, 2004,
      respectively.





28
 **Table
            of
            Contents**




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.
      Other
      real estate recorded on the Bank’s books totaled approximately $190,000 at
      December 31, 2005 and December 31, 2004, respectively. The non-guaranteed
      principal and interest ($2.0 million at December 31, 2005 and December 31,
      2004)
      and the reimbursable capitalized liquidation costs and protective advance costs
      totaling approximately $854,000 and $704,000 at December 31, 2005 and December
      31, 2004, respectively, are included as “other assets” in the financial
      statements.





The
      Bank
      sold certain pieces of equipment associated with the lumber mill property.
      Proceeds from the sales were used to reduce the other real estate amount and
      liquidation cost amounts recorded on the Bank’s books. In 2003, the Bank wrote
      down the carrying amount of the other real estate by $262,000 based upon
      anticipated proceeds from the sale of the property and remaining equipment.
      In
      January 2006, the Bank sold the remaining other real estate for $1.25 million
      and recognized a gain of $33,000 on the Bank’s interest therein, net of
      transaction costs.





Florida
      law requires a bank to liquidate or charge off repossessed real property within
      five years, and repossessed personal property within six months. The Bank was
      awarded title to the real property on June 12, 2001, and an adjudicated interest
      in the owner’s trust proceeds. The time constraints imposed by Florida law
      required that the personal property be disposed of or charged off by December
      2001. The Bank applied to the State of Florida for an extension to carry the
      personal property on the Bank’s books and was granted an extension to carry the
      personal property on its books until June 11, 2003. Since the property had
      not
      been liquidated as of June 11th, 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)**
            
            
            **2005**
            
            
            **2004**
            
            
            **2003**Provided
                by operating activities
            
            $
            19,998
            
            $
            6,801
            
            $
            9,574Used
                by investing activities
            
            
            (246,077
            )
            
            (151,336
            )
            
            (98,767
            )Provided
                by financing activities
            
            
            224,651
            
            
            153,792
            
            
            98,804Net
                (decrease) increase in cash and cash equivalents
            
            $
            (1,428
            )
            $
            9,257
            
            $
            9,611





As
      discussed in Note 16 of the Consolidated Financial Statements, the Company
      had
      unfunded loan commitments and unfunded letters of credit totaling $231.0 million
      at December 31, 2005. 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 $12.0 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 December 31, 2005 financial information
      submitted to the Bank’s regulators. The credit availability from the FHLB
      approximated $176.3 million at December 31, 2005 under which $25 million was
      outstanding. Borrowings against this line of credit are collateralized by the
      Bank’s qualifying one-to-four family residential mortgage loans and commercial
      real estate loans.





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.





29
 **Table
            of
            Contents**





At
      December 31, 2005, our gross loan to deposit ratio was 95.9% compared to a
      ratio
      of 95.0% at December 31, 2004. 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, 2005 is
      approximately $21.2 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.





Our
      interest rate sensitivity position at December 31, 2005 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
            
            $
            406,710
            
            $
            31,313
            
            $
            49,652
            
            $
            320,189
            
            $
            74,508
            
            $
            882,372Investment
                securities-taxable
            
            
            981
            
            
            5,116
            
            
            99
            
            
            51,375
            
            
            26,870
            
            
            84,441Investment
                securities-tax exempt
            
            
            -
            
            
            -
            
            
            310
            
            
            2,778
            
            
            6,496
            
            
            9,584Marketable
                equity securities
            
            
            3,439
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            3,439FHLB
                stock
            
            
            2,781
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            2,781Federal
                funds sold
            
            
            17,163
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            17,163Interest-bearing
                deposit in other banks
            
            
            292
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            292Total
                interest-bearing assets
            
            
            431,366
            
            
            36,429
            
            
            50,061
            
            
            374,342
            
            
            107,874
            
            
            1,000,072**Interest-bearing
                liabilities:**NOW
                accounts
            
            
            104,641
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            104,641Money
                market
            
            
            167,072
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            167,072Savings
                deposits
            
            
            47,091
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            47,091Time
                deposits
            
            
            159,760
            
            
            71,412
            
            
            78,732
            
            
            121,894
            
            
            6
            
            
            431,804Notes
                payable
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            4,000
            
            
            4,000Subordinated
                debentures
            
            
            5,000
            
            
            -
            
            
            -
            
            
            -
            
            
            8,000
            
            
            13,000Other
                borrowings
            
            
            42,284
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            42,284Total
                interest-bearing liabilities
            
            
            525,848
            
            
            71,412
            
            
            78,732
            
            
            121,894
            
            
            12,006
            
            
            809,892Interest
                sensitivity gap
            
            $
            (94,482
            )
            $
            (34,983
            )
            $
            (28,671
            )
            $
            252,448
            
            $
            95,868
            
            $
            190,180Cumulative
                interest sensitivity gap
            
            $
            (94,482
            )
            $
            (129,465
            )
            $
            (158,136
            )
            $
            94,312
            
            $
            190,180
            
            $
            190,180Cumulative
                sensitivity ratio
            
            
            (9.4
            %)
            
            (12.9
            %)
            
            (15.8
            %)
            
            9.4
            %
            
            19.0
            %
            
            19.0
            %








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 repricing in response to changing market rates, historically do not
      reprice as quickly or to the extent as other interest-sensitive accounts.
      Nevertheless, if market interest rates should decrease, it is anticipated that
      our net interest margin would decrease. Because 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 interest rates increasing slowly and we expect that our
      net interest margin should remain fairly stable due to the effects of
      competitive pressure on loan production at higher interest rates. Thereafter,
      if
      interest rates continue to increase, it is anticipated that the net interest
      margin would expand slightly over longer time horizons since the Company has
      more total assets subject to rate changes than total liabilities that are rate
      sensitive.





30
 **Table
            of
            Contents**





Even
      in
      the near term, we believe the $158.1 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 repricing are
      predominately not indexed to any specific market rate and therefore offer us
      the
      opportunity to delay or diminish any rate repricings. Further, in this current
      rate environment, the Bank has been originating loans with interest rate floors.
      The effect of this has been to decrease the volatility of net interest margin
      and decrease asset sensitivity due to the fact that these loans behave similar
      to fixed rate loans in periods over a significant range of interest rate
      changes.





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 steady 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
      -20% to +10% range. At December 31, 2005, the Company was within this range
      with
      a one year cumulative sensitivity ratio of -15.8%.





**Investment
      Portfolio**





Contractual
      maturities of investment securities at December 31, 2005 are shown below.
      Expected maturities 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, marketable
      equity securities and collateralized mortgage obligations which are not due
      at a
      single maturity date.








**(Dollars
                in thousands)**
            **Within
                1 Year**
            
            **After
                1 Year**
              **Within
                5 Years**
            
            **After
                5 Years**
              **Within
                10 Years**
            
            **After
                10 Years**
            
            
            **Other
                Securities**Amount
            
            
            
            
            Yield
            
            
            
            Amount
            
            
            Yield
            
            
            
            Amount
            
            
            Yield
            
            
            
            Amount
            
            
            Yield
            
            
            
            AmountSecurities
                Available for Sale:U.S.
                Treasury Securities
            $
            100
            
            
            2.27
            %
            
            $
            4,938
            
            
            3.32
            %
            
            $
            -
            
            
            -
            
            
            $
            -
            
            
            -
            
            
            $
            -U.S.
                Gov’t agencies and corporations
            
            5,115
            
            
            4.55
            %
            
            
            39,485
            
            
            3.45
            %
            
            
            17,812
            
            
            4.45
            %
            
            
            -
            
            
            -
            
            
            
            -States
                and political subdivisions - tax exempt (a)
            
            -
            
            
            -
            
            
            
            3,088
            
            
            6.15
            %
            
            
            4,348
            
            
            6.04
            %
            
            
            2,148
            
            
            5.53
            %
            
            
            -States
                and political subdivisions - taxable
            
            -
            
            
            -
            
            
            
            333
            
            
            7.29
            %
            
            
            -
            
            
            -
            
            
            
            2,330
            
            
            6.10
            %
            
            
            -Marketable
                equity securities (a)
            
            -
            
            
            -
            
            
            
            -
            
            
            -
            
            
            
            -
            
            
            -
            
            
            
            -
            
            
            -
            
            
            
            3,439Mortgage-backed
                securities
            
            -
            
            
            -
            
            
            
            -
            
            
            -
            
            
            
            -
            
            
            -
            
            
            
            -
            
            
            -
            
            
            
            10,252Collateralized
                mortgage obligations
            
            -
            
            
            -
            
            
            
            -
            
            
            -
            
            
            
            -
            
            
            -
            
            
            
            -
            
            
            -
            
            
            
            4,076Total
            $
            5,215
            
            
            4.50
            %
            
            $
            47,844
            
            
            3.63
            %
            
            $
            22,160
            
            
            4.76
            %
            
            $
            4,478
            
            
            5.82
            %
            
            $
            17,767








Yield
      by
      classification of investment securities at December 31, 2005 was as
      follows:








**(Dollars
                in thousands)**
            
            
            **Yield**
            
            
            **Totals**Securities
                Available for Sale:U.S.
                Treasury Securities
            
            
            3.30
            %
            $
            5,038U.S.
                Government agencies and corporations
            
            
            3.83
            %
            
            62,412States
                and political subdivisions - tax exempt (a)
            
            
            5.96
            %
            
            9,584States
                and political subdivisions - taxable
            
            
            6.25
            %
            
            2,663Marketable
                equity securities (a)
            
            
            11.50
            %
            
            3,439Mortgage-backed
                securities
            
            
            5.34
            %
            
            10,252Collateralized
                mortgage obligations
            
            
            5.82
            %
            
            4,076Total
            
            
            4.53
            %
            $
            97,464


__________


(a)
            Weighted
                average yields on tax exempt obligations and marketable equity securities
                have been computed by grossing up actual tax exempt income (90% for
                marketable equity securities) to a fully taxable equivalent basis
                using a
                federal tax rate of 34%.








31
 **Table
            of
            Contents**





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, 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
                mortgage 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








**Available
      for Sale—December 31, 2003**





**(Dollars
                in thousands)**
            
            
            **Amortized
                Cost**
            
            
            **Unrealized
                Gains**
            
            
            **Unrealized
                Losses**
            
            
            **Fair**
              **Value**U.S.
                Treasury Securities
            
            $
            209
            
            $
            9
            
            $
            -
            
            $
            218U.S.
                Government agencies and corporations
            
            
            31,357
            
            
            425
            
            
            663
            
            
            31,119States
                and political subdivisions-tax exempt
            
            
            8,838
            
            
            378
            
            
            59
            
            
            9,157States
                and political subdivisions-taxable
            
            
            3,559
            
            
            42
            
            
            101
            
            
            3,500Marketable
                equity securities
            
            
            3,000
            
            
            395
            
            
            -
            
            
            3,395Mortgage-backed
                securities
            
            
            5,041
            
            
            128
            
            
            1
            
            
            5,168$
            52,004
            
            $
            1,377
            
            $
            824
            
            $
            52,557











32
 **Table
            of
            Contents**





**Deposits**





The
      following table presents the average amount outstanding and the average rate
      paid on deposits by us for the years ended December 31, 2005, 2004, and
      2003.





**2005**
            **2004**
            **2003****(Dollars
                in thousands)**
            
            Average
                Amount
            
            
            Average
                Rate
            
            
            Average
                Amount
            
            
            Average
                Rate
            
            
            Average
                Amount
            
            
            Average
                Rate**Non-interest
                bearing deposits**
            $
            169,426
            
            
            
            
            $
            139,939
            
            
            
            
            $
            114,344**Interest-bearing
                deposits**NOW
                Accounts
            
            92,754
            
            
            0.99
            %
            
            76,068
            
            
            0.43
            %
            
            59,389
            
            
            0.37
            %Money
                market
            
            165,266
            
            
            2.23
            %
            
            130,172
            
            
            0.91
            %
            
            125,410
            
            
            0.88
            %Savings
                deposit
            
            47,774
            
            
            0.51
            %
            
            44,380
            
            
            0.39
            %
            
            35,475
            
            
            0.48
            %Time
                deposits
            
            357,824
            
            
            3.52
            %
            
            227,834
            
            
            3.02
            %
            
            198,162
            
            
            3.25
            %Total
            $
            833,044
            
            
            2.09
            %
            $
            618,393
            
            
            1.39
            %
            $
            532,780
            
            
            1.49
            %








The
      following table presents the maturity of our time deposits at December 31,
      2005:








**(Dollars
                in thousands)**
            
            
            **Deposits
                $100,000 and Greater**
            
            
            **Deposits
                Less than $100,000**
            
            
            **Total****Months
                to maturity:**3
                or less
            
            $
            83,015
            
            $
            75,372
            
            $
            158,3874
                to 6
            
            
            36,608
            
            
            35,005
            
            
            71,6137
                through 12
            
            
            36,268
            
            
            42,837
            
            
            79,105Over
                12
            
            
            66,167
            
            
            56,532
            
            
            122,699Total
            
            $
            222,058
            
            $
            209,746
            
            $
            431,804








33
 **Table
            of
            Contents**








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





Our
      off-balance sheet arrangements and contractual obligations at December 31,
      2005
      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, 2005 pursuant to off-balance
      sheet arrangements and contractual obligations.








**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 YearsOff-balance
              sheet arrangementsCommitments
                to
                extend credit
            
            $
            230,993
            
            $
            115,163
            
            $
            64,300
            
            $
            15,763
            
            $
            35,767Standby
                letters of credit
            
            
            2,374
            
            
            2,059
            
            
            315
            
            
            -
            
            
            -Total
            
            $
            233,367
            
            $
            117,222
            
            $
            64,615
            
            $
            15,763
            
            $
            35,767Contractual
              ObligationsTime
              deposits
            
            $
            431,804
            
            $
            309,105
            
            $
            107,125
            
            $
            15,569
            
            $
            5Capital
                lease obligations
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Operating
                lease
                obligations
            
            
            2,594
            
            
            587
            
            
            1,031
            
            
            632
            
            
            344Purchase
                obligations
            
            
            11,685
            
            
            2,001
            
            
            4,477
            
            
            5,207
            
            
            -Long-term
                debt
            
            
            17,000
            
            
            -
            
            
            -
            
            
            -
            
            
            17,000Other
                long-term liabilities reflected on the balance sheet
                under GAAP
            
            
            4,319
            
            
            15
            
            
            46
            
            
            116
            
            
            4,142Total
            
            $
            467,402
            
            $
            311,708
            
            $
            112,679
            
            $
            21,524
            
            $
            21,491








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.





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 twelve years. Future minimum lease payments,
      before considering renewal options that generally are present, total $2.6
      million at December 31, 2005.





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.





34
 **Table
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Long
      term
      debt, at December 31, 2005, consists of subordinated debentures totaling $12
      million and notes payable totaling $5 million. These 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, 2005.





**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, 2005, 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 9.9%, its risk-based ratio of total capital to
      risk-weighted assets was 10.8%, and its leverage ratio was 8.7%.





As
      of
      December 31, 2005, 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 9.6%, its risk-based ratio of total capital
      to risk-weighted assets was 10.9%, and its leverage ratio was 8.4%.





**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.





**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.
      Currently, the Company accounts for stock options granted to employees according
      to the provisions of APB Opinion No. 25, whereby compensation expense is
      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, any income tax benefit for the exercise of stock options
      in excess of income tax expense for financial reporting purposes will be
      classified as a cash inflow from financing activities and a cash outflow from
      operating activities in the statement of cash flows. The Company adopted SFAS
      123R on January 1, 2006, as required.





In
      December 2004, the FASB issued Statement No. 153, “Exchanges of Nonmonetary
      Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary
      Transactions.” This statement amends the principle of APB No. 29 that exchanges
      of nonmonetary assets should be measured based on the fair value of the assets
      exchanged and more broadly provides for exceptions regarding exchanges of
      nonmonetary assets that do not have commercial substance. This Statement is
      effective for nonmonetary asset exchanges occurring in fiscal periods beginning
      after June 15, 2005. The adoption of this standard on January 1, 2006, as
      required, did not have a material impact on the financial condition, the results
      of operations, or liquidity of the Company.





35
 **Table
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In
      May 2005,
      the FASB issued Statement No. 154, “Accounting Changes and Error Corrections—a
      replacement of APB opinion No. 20 and FASB Statement No. 3” (“SFAS 154”). SFAS
      154 changes the requirements for the accounting and reporting of a change in
      an
      accounting principle. The statement requires retrospective application of
      changes in an accounting principle to prior periods’ financial statements unless
      it is impracticable to determine the period-specific effects or cumulative
      effect of the change. The correction of an error will continue to require
      financial statement restatement. SFAS No. 154 is effective for accounting
      changes and corrections of errors made in fiscal years beginning after December
      15, 2005 (the Company’s fiscal year beginning January 1, 2006). The adoption of
      this standard on January 1, 2006, as required, did not have a material impact
      on
      the Company’s financial statements.


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 and acquired or issued after the
      beginning of the first fiscal year after September 15, 2006. Management has
      not
      yet determined the impact, if any, of the adoption of SFAS 155.




In
      March
      2004, the FASB Emerging Issues Task Force (EITF) released Issue 03-1, “Meaning
      of Other Than Temporary Impairment and Its Application to Certain Investments,”
which addressed other-than-temporary impairment for certain debt and equity
      investments. The recognition and measurement requirements of Issue 03-1, and
      other disclosure requirements not already implemented, were effective for
      periods beginning after June 15, 2004. In September 2004, the FASB staff issued
      FASB Staff Position (FSP) EITF 03-1-1, which delayed the effective date for
      certain measurement and recognition guidance contained in Issue 03-1. The FSP
      requires the application of pre-existing other-than-temporary guidance during
      the period of delay until a final consensus was reached. Issuance of the final
      consensus did not have a material impact on the financial condition, the 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.








36
 **Table
            of
            Contents**





**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, 2005 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. As of December
      31, 2005, this analysis indicates that the Bank would be expected to benefit
      in
      an increasing rate environment slightly more than it would be expected to be
      harmed by a decreasing rate environment. The results of the analysis indicate
      that net interest income could be expected to increase by approximately $2.5
      million in a gradual 12-month, 200 basis point interest rate increase. The
      analysis also indicates that a decrease in net interest income of approximately
      $2.4 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.













37
 **Table
            of
            Contents**





**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
            39Consolidated
                Balance Sheets for the Years Ended December 31, 2005 and
                2004
            41Consolidated
                Statements of Income for the Years Ended December 31, 2005, 2004
                and
                2003
            42Consolidated
                Statements of Changes in Shareholders' Equity for the Years Ended
                December
                31, 2005, 2004 and 2003
            44Consolidated
                Statements of Cash Flows for the Years Ended December 31, 2005, 2004
                and
                2003
            46Notes
                to Consolidated Financial Statements for the Years Ended December
                31,
                2005, 2004 and 2003
            48








38
 **Table
            of
            Contents**












































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, 2005 and 2004, 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, 2005. We also have audited management's
      assessment, included in the accompanying Management’s Report on Internal Control
      Over Financial Reporting, that TIB Financial Corp. maintained effective internal
      control over financial reporting as of December 31, 2005, 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.





39
 **Table
            of
            Contents**











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, 2005 and 2004, and the results of its operations and its cash
      flows
      for each of the years in the three-year period ended December 31, 2005, 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, 2005, 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, 2005, based on
      the
      criteria established in Internal Control—Integrated Framework issued by the
      Committee of Sponsoring Organizations of the Treadway Commission
      (COSO).














/s/Crowe
      Chizek and Company LLC





Fort
      Lauderdale, Florida


February
      23, 2006








40
 **Table
            of Contents**
 **TIB
          Financial Corp. and Subsidiaries**




**Consolidated
      Balance Sheets**


**As
      of December 31,**





**(Dollars
                in thousands, except per share amounts)**
            
            
            **2005**
            
            
            **2004****Asset**sCash
                and due from banks
            
            $
            24,347
            
            $
            27,410Federal
                funds sold
            
            
            17,163
            
            
            15,528Cash
                and cash equivalents
            
            
            41,510
            
            
            42,938Investment
                securities available for sale
            
            
            97,464
            
            
            77,807Loans,
                net of deferred loan costs and fees
            
            
            884,024
            
            
            655,678Less:
                Allowance for loan losses
            
            
            7,546
            
            
            6,243Loans,
                net
            
            
            876,478
            
            
            649,435Premises
                and equipment, net
            
            
            27,800
            
            
            27,559Intangible
                assets, net
            
            
            1,100
            
            
            1,392Accrued
                interest receivable and other assets
            
            
            31,718
            
            
            30,194Total
                Assets
            
            $
            1,076,070
            
            $
            829,325**Liabilities
                and Shareholders’ Equity****Liabilities**Deposits:Noninterest-bearing
                demand
            
            $
            169,816
            
            $
            152,035Interest-bearing
            
            
            750,608
            
            
            535,824Total
                deposits
            
            
            920,424
            
            
            687,859Federal
                Home Loan Bank (FHLB) advances
            
            
            25,000
            
            
            35,000Short-term
                borrowings
            
            
            17,284
            
            
            12,157Long-term
                borrowings
            
            
            17,000
            
            
            18,250Accrued
                interest payable and other liabilities
            
            
            18,838
            
            
            7,945Total
                liabilities
            
            
            998,546
            
            
            761,211**Shareholders’
                equity**Preferred
                stock - no par value: 5,000,000 shares authorized, 0 shares
                issued
            
            
            -
            
            
            -Common
                stock - $.10 par value: 20,000,000 shares authorized, 5,792,598 and
                5,679,239 shares issued
            
            
            579
            
            
            568Additional
                paid in capital
            
            
            40,736
            
            
            38,284Deferred
                compensation - restricted stock grants
            
            
            (1,184
            )
            
            -Retained
                earnings
            
            
            38,136
            
            
            28,968Accumulated
                other comprehensive income (loss)
            
            
            (743
            )
            
            294Total
                shareholders’ equity
            
            
            77,524
            
            
            68,114Total
                Liabilities and Shareholders’ Equity
            
            $
            1,076,070
            
            $
            829,325*See
                accompanying notes to consolidated financial
                statements*








41
 **Table
            of Contents**
 **TIB
            Financial Corp. and Subsidiaries**





**Consolidated
      Statements of Income**


**Years
      Ended December 31,**





**(Dollars
                in thousands, except per share amounts)**
            
            
            **2005**
            
            
            **2004**
            
            
            **2003****Interest
                and dividend income**Loans,
                including fees
            
            $
            54,488
            
            $
            37,720
            
            $
            31,664Investment
                securities:U.S.
                Treasury securities
            
            
            171
            
            
            124
            
            
            7U.S.
                Government agencies and corporations
            
            
            2,607
            
            
            2,023
            
            
            2,003States
                and political subdivisions, tax-exempt
            
            
            377
            
            
            406
            
            
            329States
                and political subdivisions, taxable
            
            
            169
            
            
            197
            
            
            240Other
                investments
            
            
            297
            
            
            251
            
            
            59Interest-bearing
                deposits in other banks
            
            
            10
            
            
            11
            
            
            3Federal
                Home Loan Bank stock
            
            
            113
            
            
            57
            
            
            59Federal
                funds sold
            
            
            1,202
            
            
            127
            
            
            242Total
                interest and dividend income
            
            
            59,434
            
            
            40,916
            
            
            34,606**Interest
                expense**Interest-bearing
                demand and money market
            
            
            4,605
            
            
            1,519
            
            
            1,321Savings
            
            
            243
            
            
            174
            
            
            170Time
                deposits of $100,000 or more
            
            
            6,505
            
            
            3,507
            
            
            3,165Other
                time deposits
            
            
            6,090
            
            
            3,371
            
            
            3,279Long-term
                debt-subordinated debentures
            
            
            1,212
            
            
            1,119
            
            
            1,109Federal
                Home Loan Bank advances
            
            
            857
            
            
            475
            
            
            276Short-term
                borrowings
            
            
            425
            
            
            83
            
            
            38Notes
                payable
            
            
            367
            
            
            482
            
            
            481Total
                interest expense
            
            
            20,304
            
            
            10,730
            
            
            9,839Net
                interest income
            
            
            39,130
            
            
            30,186
            
            
            24,767Provision
                for loan losses
            
            
            2,413
            
            
            2,455
            
            
            1,586Net
                interest income after provision for loan losses
            
            
            36,717
            
            
            27,731
            
            
            23,181**Non-interest
                income**Service
                charges on deposit accounts
            
            
            2,360
            
            
            2,547
            
            
            2,452Investment
                securities gains, net
            
            
            1
            
            
            106
            
            
            289Gain
                on sale of investment in ERAS Joint Venture
            
            
            -
            
            
            -
            
            
            202Gain
                on sale of government-guaranteed loans
            
            
            -
            
            
            -
            
            
            117Fees
                on mortgage loans sold
            
            
            1,880
            
            
            1,852
            
            
            2,201Retail
                investment services
            
            
            -
            
            
            333
            
            
            420Other
                income
            
            
            2,017
            
            
            1,468
            
            
            1,403Total
                non-interest income
            
            
            6,258
            
            
            6,306
            
            
            7,084**Non-interest
                expense**Salaries
                and employee benefits
            
            
            17,724
            
            
            14,385
            
            
            12,644Net
                occupancy and equipment expense
            
            
            5,502
            
            
            4,911
            
            
            4,268Other
                expense
            
            
            8,630
            
            
            7,761
            
            
            6,629Total
                non-interest expense
            
            
            31,856
            
            
            27,057
            
            
            23,541Income
                before income tax expense
            
            
            11,119
            
            
            6,980
            
            
            6,724Income
                tax expense
            
            
            3,927
            
            
            2,337
            
            
            2,324Income
                from continuing operations
            
            
            7,192
            
            
            4,643
            
            
            4,400








42
 **Table
            of Contents**
 **TIB
            Financial Corp. and Subsidiaries**





**Consolidated
      Statements of Income**


**Years
      Ended December 31,**


*(Continued)*





**(Dollars
                in thousands, except per share amounts)**
            
            
            **2005**
            
            
            **2004**
            
            
            **2003****Discontinued
                operations**Income
                from Keys Insurance Agency, Inc. operations
            
            
            -
            
            
            -
            
            
            200Income
                from merchant bankcard operations
            
            
            7,630
            
            
            890
            
            
            925Income
                from discontinued operations before income tax expense
            
            
            7,630
            
            
            890
            
            
            1,125Income
                tax expense
            
            
            2,998
            
            
            335
            
            
            423Income
                from discontinued operations
            
            
            4,632
            
            
            555
            
            
            702**Net
                income**
            
            $
            11,824
            
            $
            5,198
            
            $
            5,102**Basic
                earnings per common share**Continuing
                operations
            
            $
            1.26
            
            $
            0.87
            
            $
            1.03Discontinued
                operations
            
            
            0.81
            
            
            0.11
            
            
            0.17Basic
                earnings per share
            
            $
            2.07
            
            $
            0.98
            
            $
            1.20**Diluted
                earnings per common share**Continuing
                operations
            
            $
            1.22
            
            $
            0.85
            
            $
            0.99Discontinued
                operations
            
            
            0.78
            
            
            0.10
            
            
            0.16Diluted
                earnings per share
            
            $
            2.00
            
            $
            0.95
            
            $
            1.15*See
                accompanying notes to consolidated financial
                statements*











43
 **Table
            of Contents**
 **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**
            
            
            **Deferred
                Compensation Restricted Stock Grants**
            
            
            **Retained
                Earnings**
            
            
            **Accumulated
                Other Comprehensive Income (Loss)**
            
            
            **Total
                Shareholders’ Equity****Balance,
                January 1, 2003**
            
            
            4,035,625
            
            $
            403
            
            $
            8,966
            
            $
            -
            
            $
            23,022
            
            $
            1,115
            
            $
            33,506Comprehensive
                income:Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            5,102
            
            
            
            
            
            5,102Other
                comprehensive income, net of tax benefit of $464:Net
                market valuation adjustment on securities available for
                sale
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (590
            )Less:
                reclassification adjustment for gains included in net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (180
            )Other
                comprehensive income, net of tax
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (770
            )Comprehensive
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            4,332Exercise
                of stock options
            
            
            115,050
            
            
            12
            
            
            723
            
            
            
            
            
            
            
            
            
            
            
            735Income
                tax benefit from stock options exercised
            
            
            
            
            
            
            
            
            251
            
            
            
            
            
            
            
            
            
            
            
            251Private
                placement of common shares
            
            
            280,653
            
            
            28
            
            
            4,315
            
            
            
            
            
            
            
            
            
            
            
            4,343Cash
                dividends declared, $.4425 per share
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,921
            )
            
            
            
            
            (1,921
            )**Balance,
                December 31, 2003**
            
            
            4,431,328
            
            $
            443
            
            $
            14,255
            
            $
            -
            
            $
            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 income, net of tax
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (51
            )Comprehensive
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            5,147Public
                offering of common shares
            
            
            1,150,000
            
            
            115
            
            
            23,115
            
            
            
            
            
            
            
            
            
            
            
            23,230Exercise
                of stock options
            
            
            97,911
            
            
            10
            
            
            668
            
            
            
            
            
            
            
            
            
            
            
            678Income
                tax benefit from stock options exercised
            
            
            
            
            
            
            
            
            246
            
            
            
            
            
            
            
            
            
            
            
            246Cash
                dividends declared, $.4525 per share
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (2,433
            )
            
            
            
            
            (2,433
            )**Balance,
                December 31, 2004**
            
            
            5,679,239
            
            $
            568
            
            $
            38,284
            
            $
            -
            
            $
            28,968
            
            $
            294
            
            $
            68,114





*Continued*





44
 **Table
            of Contents**
 **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**
            
            
            **Deferred**
              **Compensation**
              **Restricted**
              **Stock
                Grants**
            
            
            **Retained
                Earnings**
            
            
            **Accumulated
                Other Comprehensive Income (Loss)**
            
            
            **Total
                Shareholders’ Equity****Balance,
                December 31, 2004**
            
            
            5,679,239
            
            $
            568
            
            $
            38,284
            
            $
            -
            
            $
            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 income, net of tax
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,037
            )Comprehensive
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            10,787Restricted
                stock grants
            
            
            41,000
            
            
            4
            
            
            1,278
            
            
            (1,282
            )
            
            
            
            
            
            
            
            -Amortization
                of deferred compensation - restricted stock grants
            
            
            
            
            
            
            
            
            
            
            
            98
            
            
            
            
            
            
            
            
            98Exercise
                of stock options
            
            
            72,359
            
            
            7
            
            
            831
            
            
            
            
            
            
            
            
            
            
            
            838Income
                tax benefit from stock options exercised
            
            
            
            
            
            
            
            
            343
            
            
            
            
            
            
            
            
            
            
            
            343Cash
                dividends declared, $.4625 per share
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (2,656
            )
            
            
            
            
            (2,656
            )**Balance,
                December 31, 2005**
            
            
            5,792,598
            
            $
            579
            
            $
            40,736
            
            $
            (1,184
            )
            $
            38,136
            
            $
            (743
            )
            $
            77,524*See
                accompanying notes to consolidated financial
                statements*








45
 **Table
            of Contents**
 **TIB
              Financial Corp. and Subsidiaries**





**Consolidated
      Statements of Cash Flows**


**(Dollars
      in thousands)**








**Years
                Ended December 31,****2005**
            
            
            **2004**
            
            
            **2003****Cash
                flows from operating activities:**Net
                income
            
            $
            11,824
            
            $
            5,198
            
            $
            5,102Adjustments
                to reconcile net income to net cash provided by operating
                activities:Depreciation
                and amortization
            
            
            2,511
            
            
            2,245
            
            
            2,048Provision
                for loan losses
            
            
            2,413
            
            
            2,455
            
            
            1,586Deferred
                income tax benefit
            
            
            (944
            )
            
            (90
            )
            
            (852
            )Investment
                securities net gains
            
            
            (1
            )
            
            (106
            )
            
            (289
            )Gain
                on sale of merchant bankcard processing segment
            
            
            (6,697
            )
            
            -
            
            
            -Other
            
            
            (398
            )
            
            (52
            )
            
            (306
            )Mortgage
                loans originated for sale
            
            
            (114,257
            )
            
            (108,543
            )
            
            (111,011
            )Proceeds
                from sales of mortgage loans
            
            
            119,321
            
            
            108,543
            
            
            119,345Fees
                on mortgage loans sold
            
            
            (1,880
            )
            
            (1,852
            )
            
            (2,201
            )Increase
                in accrued interest receivable and other assets
            
            
            (2,672
            )
            
            (2,036
            )
            
            (2,662
            )Increase
                (decrease) in accrued interest payable and other
                liabilities
            
            
            10,778
            
            
            1,039
            
            
            (1,186
            )Net
                cash provided by operating activities
            
            
            19,998
            
            
            6,801
            
            
            9,574**Cash
                flows from investing activities:**Purchases
                of investment securities available for sale
            
            
            (13,995
            )
            
            (38,368
            )
            
            (27,846
            )Sales
                of investment securities available for sale
            
            
            -
            
            
            9,281
            
            
            4,000Repayments
                of principal and maturities of investment securities available for
                sale
            
            
            1,103
            
            
            3,797
            
            
            24,553Net
                (purchase) sale of FHLB stock
            
            
            129
            
            
            (660
            )
            
            (890
            )Proceeds
                from sales of loans
            
            
            -
            
            
            569
            
            
            2,241Proceeds
                from sale of merchant bankcard processing segment
            
            
            7,250
            
            
            -
            
            
            -Loans
                originated or acquired, net of principal repayments
            
            
            (237,371
            )
            
            (115,910
            )
            
            (97,599
            )Purchase
                of life insurance policies
            
            
            -
            
            
            (700
            )
            
            (250
            )Purchases
                of premises and equipment
            
            
            (3,928
            )
            
            (9,495
            )
            
            (3,492
            )Proceeds
                from sale of premises, equipment and intangible assets
            
            
            735
            
            
            150
            
            
            516Net
                cash used by investing activities
            
            
            (246,077
            )
            
            (151,336
            )
            
            (98,767
            )**Cash
                flows from financing activities:**Net
                increase (decrease) in federal funds purchased and securities sold
                under
                agreements to repurchase
            
            
            5,127
            
            
            8,116
            
            
            (538
            )Net
                increase (decrease) in FHLB short-term advances
            
            
            (10,000
            )
            
            (5,000
            )
            
            15,000Repayment
                of notes payable
            
            
            (1,250
            )
            
            -
            
            
            -Proceeds
                from FHLB long-term advances
            
            
            -
            
            
            25,000
            
            
            30,000Repayments
                of FHLB long-term advances
            
            
            -
            
            
            (30,000
            )
            
            (20,000
            )Net
                increase in demand, money market and savings accounts
            
            
            51,943
            
            
            87,894
            
            
            25,716Net
                increase in time deposits
            
            
            180,622
            
            
            46,152
            
            
            45,414Proceeds
                from exercise of stock options
            
            
            838
            
            
            678
            
            
            735Proceeds
                from public offering of common stock
            
            
            -
            
            
            23,230
            
            
            -Proceeds
                from private placement of common stock
            
            
            -
            
            
            -
            
            
            4,343Cash
                dividends paid
            
            
            (2,629
            )
            
            (2,278
            )
            
            (1,866
            )Net
                cash provided by financing activities
            
            
            224,651
            
            
            153,792
            
            
            98,804**Net
                (decrease) increase in cash and cash equivalents**
            
            
            (1,428
            )
            
            9,257
            
            
            9,611Cash
                and cash equivalents at beginning of year
            
            
            42,938
            
            
            33,681
            
            
            24,070**Cash
                and cash equivalents at end of year**
            
            $
            41,510
            
            $
            42,938
            
            $
            33,681**Supplemental
                disclosures of cash paid:**Interest
            
            $
            17,387
            
            $
            10,542
            
            $
            9,211Income
                taxes
            
            
            3,530
            
            
            1,945
            
            
            3,775





46
 **Table
            of Contents**
 **TIB
            Financial Corp. and Subsidiaries**








**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
            
            
            1,100
            
            
            1,010
            
            
            -*See
                accompanying notes to consolidated financial
                statements*








47
 **Table
            of Contents**
 **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 subsidiaries, TIB Bank (Bank),
      Keys
      Insurance Agency, Inc. (assets sold in August 2003 - see Note 19), and TIB
      Software and Services, Inc. (assets sold in 2003 - see Note 2), collectively
      known as the “Company.” All significant inter-company accounts and transactions
      have been eliminated in consolidation. TIBFL Statutory Trust I and TIBFL
      Statutory Trust II 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 sixteen branch locations in Monroe, Miami-Dade, Collier and
      Lee 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
      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.





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 US government agencies and corporations.





48
 **Table
            of Contents**
 **TIB
            Financial Corp. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 **(Dollars
            in thousands except share and per share amounts)**




**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.





Gains
      on
      sales of government-guaranteed loans are recognized as income when the sales
      occur.





**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, 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.





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.





49
 **Table
            of Contents**
 **TIB
            Financial Corp. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 **(Dollars
            in thousands except share and per share amounts)**





**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 aquisitions 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.





**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 the dilutive effect of restricted
      shares computed using the treasury stock method.





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





**2005**
            
            
            **2004**
            
            
            **2003**Weighted
                average number of common shares outstanding:Basic
            
            
            5,711,974
            
            
            5,309,860
            
            
            4,257,224Dilutive
                effect of options outstanding
            
            
            188,472
            
            
            169,836
            
            
            178,637Diluted
            
            
            5,900,446
            
            
            5,479,696
            
            
            4,435,861





Stock
      options for 10,000, 29,720 and 5,027 shares of common stock were not considered
      in computing diluted earnings per common share for 2005, 2004, and 2003 because
      they were anti-dilutive. For 2005, 41,000 unvested restricted shares of common
      stock were not considered in computing diluted earnings per share because they
      were anti-dilutive. 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.




50
 **Table
              of Contents**
 **TIB
              Financial Corp. and Subsidiaries**
 **Notes
              to Consolidated Financial Statements**
 **(Dollars
              in thousands except share and per share amounts)**
 Stock-Based Compensation





Employee
      compensation expense under stock options is reported using the intrinsic value
      method. No stock-based compensation cost is reflected in net income, 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.”





**2005**
            
            **2004**
            
            **2003**Net
                income, as reported
            
            $
            11,824
            
            $
            5,198
            
            $
            5,102Stock-based
                compensation expense determined under fair value based method, net
                of
                tax
            
            
            268
            
            
            215
            
            
            173Pro
                forma net income
            
            $
            11,556
            
            $
            4,983
            
            $
            4,929Basic
                earnings per share as reported
            
            $
            2.07
            
            $
            0.98
            
            $
            1.20Pro
                forma basic earnings per share
            
            
            2.04
            
            
            0.95
            
            
            1.17Diluted
                earnings per share as reported
            
            
            2.00
            
            
            0.95
            
            
            1.15Pro
                forma diluted earnings per share
            
            
            1.97
            
            
            0.92
            
            
            1.12





The
      fair
      value of each option is estimated as of the date of grant using the
      Black-Scholes Option Pricing Model and the following weighted average
      assumptions for options granted in the years ended December 31,:





**2005**
            
            
            **2004**
            
            
            **2003**Dividend
                yield
            
            1.93
            %
            
            2.3
            %
            
            2.7
            %Risk-free
                interest rate
            
            4.0%
                to 4.4
            %
            
            4.0
                % to 4.1
            %
            
            4.0%
                to 4.2
            %Expected
                option life
            
            9
                years
            
            
            9
                years
            
            
            9
                yearsVolatility
            
            .23
            
            
            .33
            
            
            .31Weighted
                average fair value of options granted during year
            $
            7.51
            
            $
            8.16
            
            $
            5.83





**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 19), 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.





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








**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**





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.
      Currently, the Company accounts for stock options granted to employees according
      to the provisions of APB Opinion No. 25, whereby compensation expense is
      recorded based upon the intrinsic value method. The stock-based compensation
      table on the previous page 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, any income tax
      benefit for the exercise of stock options in excess of income tax expense for
      financial reporting purposes will be classified as a cash inflow from financing
      activities and a cash outflow from operating activities in the statement of
      cash
      flows. The Company adopted SFAS 123R on January 1, 2006, as required.





Options
      outstanding as of December 31, 2005 that are anticipated to vest subsequent
      to
      the adoption of SFAS 123R are expected to result in additional compensation
      expense as follows:





2006
            
            $
            2562007
            
            
            2152008
            
            
            2012009
            
            
            1892010
            
            
            96Thereafter
            
            
            117$
            1,074





In
      December 2004, the FASB issued Statement No. 153, “Exchanges of Nonmonetary
      Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary
      Transactions.” This statement amends the principle of APB No. 29 that exchanges
      of nonmonetary assets should be measured based on the fair value of the assets
      exchanged and more broadly provides for exceptions regarding exchanges of
      nonmonetary assets that do not have commercial substance. This Statement is
      effective for nonmonetary asset exchanges occurring in fiscal periods beginning
      after June 15, 2005. The adoption of this standard on January 1, 2006, as
      required, did not have a material impact on the financial condition, the results
      of operations, or liquidity of the Company.





In
      May
      2005, the FASB issued Statement No. 154, “Accounting Changes and Error
      Corrections—a replacement of APB opinion No. 20 and FASB Statement No. 3” (“SFAS
      154”). SFAS 154 changes the requirements for the accounting and reporting of a
      change in an accounting principle. The statement requires retrospective
      application of changes in an accounting principle to prior periods’ financial
      statements unless it is impracticable to determine the period-specific effects
      or cumulative effect of the change. The correction of an error will continue
      to
      require financial statement restatement. SFAS No. 154 is effective for
      accounting changes and corrections of errors made in fiscal years beginning
      after December 15, 2005 (the Company’s fiscal year beginning January 1, 2006).
      The adoption of this standard on January 1, 2006, as required, did not have
      a
      material impact on the Company’s financial statements.





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





52
 **Table
            of Contents**
 **TIB
            Financial Corp. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 **(Dollars
            in thousands except share and per share amounts)**





than
      another derivative financial instrument. This statement is effective for all
      financial instruments and acquired or issued after the beginning of the first
      fiscal year after September 15, 2006. Management has not yet determined the
      impact, if any, of the adoption of SFAS 155.





In
      March
      2004, the FASB Emerging Issues Task Force (EITF) released Issue 03-1, “Meaning
      of Other Than Temporary Impairment and Its Application to Certain Investments,”
which addressed other-than-temporary impairment for certain debt and equity
      investments. The recognition and measurement requirements of Issue 03-1, and
      other disclosure requirements not already implemented, were effective for
      periods beginning after June 15, 2004. In September 2004, the FASB staff issued
      FASB Staff Position (FSP) EITF 03-1-1, which delayed the effective date for
      certain measurement and recognition guidance contained in Issue 03-1. The FSP
      requires the application of pre-existing other-than-temporary guidance during
      the period of delay until a final consensus is reached. Management does not
      anticipate the issuance of the final consensus will have a material impact
      on
      the financial condition, the 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 and Divestitures**





In
      1998,
      the Parent Company’s subsidiary, TIB Software and Services, Inc., acquired a 30
      percent interest in ERAS Joint Venture (the “Venture”), a general partnership,
      in exchange for consideration of $791. The Venture’s primary business is item
      processing and the design, development, installation and maintenance of
      accounting software for financial institutions. Goodwill associated with the
      transaction totaled $638 and was being amortized over a period of ten years
      through December 31, 2001, at which time the amortization was discontinued.
      Through December 31, 2001, the investment in the Venture was accounted for
      using
      the equity method. On December 31, 2001, the Company sold two thirds of its
      ownership interest in the Venture for $1,333. The Company recognized a gain
      of
      $820 on the transaction. This sale reduced the Company’s ownership in the
      Venture to 10%. Beginning January 1, 2002, the investment in the Venture was
      accounted for using the cost method. On October 4, 2002, the Company sold 5.1%
      of the Company’s 10% interest in the Venture for $340. The Company recognized a
      gain of $211 on the transaction. This sale, accompanied by the additional
      transfer of assets by other owners into the Venture, reduced the Company’s
      ownership in the Venture to 4.53%. The Venture also made a dividend distribution
      to the Company in 2002 in the amount of $33. On May 29, 2003, TIB Software
      and
      Services, Inc. sold its remaining interest in the Venture for $327. The Company
      recognized a pretax gain of $202 on the transaction. In March 2004, the Company
      filed Articles of Dissolution dissolving TIB Software and Services,
      Inc.





ERAS
      Joint Venture is the Bank’s item processor. Payments of approximately $642, $577
      and $579 were made by the Bank to the Venture in 2005, 2004, and 2003,
      respectively. Of the amount paid in 2003, approximately $249 was paid to the
      Venture through the sale date of May 29, 2003.





On
      October 31, 2000, the Company purchased Keys Insurance Agency of Monroe County,
      Inc. which was 100% owned by a company director. Keys Insurance Agency, Inc.
      (the new name subsequent to the purchase) had three offices in the Florida
      Keys
      and brokered a full line of commercial and residential hazard insurance
      coverages as well as life and health insurance and annuities. The purchase
      price
      for the net assets of the agency was $1,870 which consisted primarily of
      intangible assets. The consideration consisted of $220 of Company common stock
      (21,463 shares) and $1,650 in cash (paid at closing). Under the purchase
      agreement, annual cash payments of $110 were to be made following each of the
      first three anniversaries of the closing date, subject to the agency achieving
      certain earnings thresholds. Any of this additional consideration that was
      paid
      at the end of each contingency period would at that time be recorded as goodwill
      and increase the total recorded purchase price of the agency. No amount was
      required to be paid in 2002 or 2003. This acquisition was recorded using the
      purchase method of accounting.





On
      September 25, 2001, Keys Insurance Agency, Inc. purchased BonData Group Limited,
      Inc. a Ft Myers, Florida based insurance agency specializing in surety bond
      underwriting and placement. Total consideration paid at closing for the agency
      was $273. This was comprised of approximately $68 in the Company’s common stock
      (5,640 shares) and approximately $205 in cash. Under the purchase agreement,
      annual cash payments of $24 were to be made following each of the first two
      anniversaries of the closing date, subject to the agency achieving certain
      earnings thresholds. Any of this additional consideration that was paid at
      the
      end of each contingency period, would at that time be recorded as goodwill
      and
      increase the total recorded purchase price of the agency. No amount was required
      to be paid in 2002 or 2003. This acquisition was recorded using the purchase
      method of accounting.





53
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            of Contents**
 **TIB
            Financial Corp. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 **(Dollars
            in thousands except share and per share amounts)**








On
      August
      15, 2003, the Company closed the sale of Keys Insurance Agency, Inc., a
      wholly-owned subsidiary of the Company, to Derek Martin-Vegue and his partner.
      Mr. Martin-Vegue is a former director of the Company and TIB Bank. The
      transaction was structured as a sale of the agency assets. The buyer paid $2,205
      in cash at the closing. Of the cash payment at closing, proceeds of $2,021
      were
      pursuant to a loan from TIB Bank (a subsidiary of the Company) to the buyer.
      The
      Company recognized a loss of $15 on the transaction. Therefore, the results
      of
      operations of Keys Insurance Agency, Inc. are included in the Consolidated
      Statements of Income as “discontinued operations” (Note 19). In March 2004, the
      Company filed Articles of Dissolution dissolving Keys Insurance Agency,
      Inc.





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. 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” (Note 19). 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.








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





Cash
      on
      hand or on deposit with the Federal Reserve Bank of $4,925 and $3,979 was
      required to meet regulatory reserve and clearing requirements at December 31,
      2005, and December 31, 2004, 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 $292 and $203 at December 31, 2005 and
      December 31, 2004, 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, 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
                mortgage obligations
            
            
            3,996
            
            
            80
            
            
            -
            
            
            4,076$
            98,655
            
            $
            817
            
            $
            2,008
            
            $
            97,464








54
 **Table
            of Contents**
 **TIB
            Financial Corp. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 **(Dollars
            in thousands except share and per share amounts)**

















**December
                31, 2004**
            
            
            **Amortized
                Cost**
            
            
            **Unrealized
                Gains**
            
            
            **Unrealized
                Losses**
            
            
            **Estimated
                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 subdivision—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








55
 **Table
            of Contents**
 **TIB
            Financial Corp. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 **(Dollars
            in thousands except share and per share amounts)**








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





**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





**Less
                than 12 Months**
            **12
                Months or Longer**
            **Total****December
                31, 2004**
            
            
            **Estimated
                Fair Value**
            
            
            **Unrealized
                Losses**
            
            
            **Estimated
                Fair Value**
            
            
            **Unrealized
                Losses**
            
            
            **Estimated
                Fair Value**
            
            
            **Unrealized
                Losses**U.S.
                Treasury securities
            
            $
            5,046
            
            $
            29
            
            $
            -
            
            $
            -
            
            $
            5,046
            
            $
            29U.S.
                Government agencies and corporations
            
            
            24,858
            
            
            201
            
            
            20,379
            
            
            668
            
            
            45,237
            
            
            869States
                and political subdivisions—tax exempt
            
            
            2,421
            
            
            22
            
            
            230
            
            
            4
            
            
            2,651
            
            
            26States
                and political subdivision—taxable
            
            
            2,312
            
            
            19
            
            
            131
            
            
            4
            
            
            2,443
            
            
            23Total
                temporarily impaired
            
            $
            34,637
            
            $
            271
            
            $
            20,740
            
            $
            676
            
            $
            55,377
            
            $
            947





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 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 at about 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,
      2005, 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, 2005**Due
                in one year or less
            
            $
            5,215Due
                after one year through five years
            
            
            47,843Due
                after five years through ten years
            
            
            22,161Due
                after ten years
            
            
            4,478Marketable
                equity securities
            
            
            3,439Mortgage-backed
                securities
            
            
            10,252Collateralized
                mortgage obligations
            
            
            4,076$
            97,464








At
      December 31, 2005, securities with a fair value of approximately $28,913 are
      subject to call during 2006.





56
 **Table
            of Contents**
 **TIB
            Financial Corp. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 **(Dollars
            in thousands except share and per share amounts)**








Sales
      of
      available for sale securities were as follows:





**2005**
            
            
            **2004**
            
            
            **2003**Proceeds
            
            $
            -
            
            $
            9,281
            
            $
            4,000Gross
                gains
            
            
            -
            
            
            146
            
            
            280Gross
                losses
            
            
            -
            
            
            (43
            )
            
            -





The
      tax
      provision related to net realized gains was $0, $39, and $105 during 2005,
      2004,
      and 2003, respectively.





Maturities,
      principal repayments, and calls of investment securities available for sale
      during 2005, 2004 and 2003 were $1,103, $3,797 and $24,553, respectively. Net
      gains (losses) realized from calls and mandatory redemptions of securities
      during 2005, 2004 and 2003 were $1, $3 and $9, respectively.





Investment
      securities having carrying values of approximately $23,539 and $11,924 at
      December 31, 2005 and 2004, respectively, were pledged to secure public funds
      on
      deposit, securities sold under agreements to repurchase, and other purposes
      as
      required by law.








**Note
      5—Loans**





Major
      classifications of loans are as follows:





**December
                31,**
            
            
            **2005**
            
            
            **2004**Real
                estate mortgage loans:Commercial
            
            $
            451,969
            
            $
            351,346Residential
            
            
            76,003
            
            
            67,204Farmland
            
            
            4,660
            
            
            4,971Construction
                and vacant land
            
            
            125,207
            
            
            49,815Commercial
                and agricultural loans
            
            
            80,055
            
            
            64,622Indirect
                auto dealer loans
            
            
            118,018
            
            
            91,890Home
                equity loans
            
            
            17,232
            
            
            13,856Other
                consumer loans
            
            
            9,228
            
            
            9,817Total
                loans
            
            
            882,372
            
            
            653,521Net
                deferred loan costs
            
            
            1,652
            
            
            2,157Loans,
                net of deferred loan costs
            
            $
            884,024
            
            $
            655,678





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





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
      partially 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.





During
      2001, upon completion of foreclosure on the underlying collateral, the
      non-guaranteed portion of this loan and interest accrued through the foreclosure
      date was reclassified into other real estate ($550) and other assets
      (approximately $1,886) based on the fair value of the underlying-collateral.
      The
      portion of this loan guaranteed by the USDA was approximately $1,600 at December
      31, 2005 and December 31, 2004, and is accruing interest. Accrued interest
      on
      this loan totals approximately $794 and $677 at December 31, 2005 and December
      31, 2004, respectively.





57
 **Table
            of Contents**
 **TIB
            Financial Corp. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 **(Dollars
            in thousands except share and per share amounts)**








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.
      Other
      real estate recorded on the Bank’s books totaled $190 at December 31, 2005 and
      December 31, 2004. The non-guaranteed principal and interest ($1,961 at December
      31, 2005 and December 31, 2004) and the reimbursable capitalized liquidation
      costs and protective advance costs totaling approximately $854 and $704 at
      December 31, 2005 and December 31, 2004, respectively are included as “other
      assets” in the financial statements.





The
      Bank
      sold certain pieces of equipment associated with the lumber mill property.
      Proceeds from the sales were used to reduce the other real estate amount and
      liquidation cost amounts recorded on the Bank’s books. In 2003, the Bank wrote
      down the carrying amount of the other real estate by $262 based upon anticipated
      proceeds from the sale of the property and remaining equipment. In January
      2006,
      the Bank sold the remaining other real estate for $1,250 and recognized of
      a
      gain of $33 on the Bank’s interest therein, net of transaction
      costs.





Florida
      law requires a bank to liquidate or charge off repossessed real property within
      five years, and repossessed personal property within six months. The Bank was
      awarded title to the real property on June 12, 2001, and an adjudicated interest
      in the owner’s trust proceeds. The time constraints imposed by Florida law
      required that the personal property be disposed of or charged off by December
      2001. The Bank applied to the State of Florida for an extension to carry the
      personal property on the Bank’s books and was granted an extension to carry the
      personal property on its books until June 11, 2003. Since the property had
      not
      been liquidated as of June 11th, 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.





Activity
      in the allowance for loan losses is as follows:





**Years
                ended December 31,**
            
            
            **2005**
            
            
            **2004**
            
            
            **2003**Balance,
                beginning of year
            
            $
            6,243
            
            $
            5,216
            
            $
            4,272Provision
                for loan losses charged to expense
            
            
            2,413
            
            
            2,455
            
            
            1,586Loans
                charged off
            
            
            (1,219
            )
            
            (1,487
            )
            
            (667
            )Recoveries
                of loans previously charged off
            
            
            109
            
            
            59
            
            
            25Balance,
                end of year
            
            $
            7,546
            
            $
            6,243
            
            $
            5,216








Impaired
      loans are as follows:





**Years
                ended December 31,**
            
            
            **2005**
            
            
            **2004**Year
                end loans with no allocated allowance for loan losses
            
            $
            324
            
            $
            2,018Year
                end loans with allocated allowance for loan losses
            
            
            -
            
            
            -Total
            
            $
            324
            
            $
            2,018Amount
                of the allowance for loan losses allocated
            
            $
            -
            
            $
            -








**2005**
            
            **2004**
            
            **2003**Average
                of impaired loans during the year
            
            $
            599
            
            $
            1,005
            
            $
            1,088Interest
                income recognized during impairment
            
            
            41
            
            
            64
            
            
            72Cash
                basis interest income recognized
            
            
            -
            
            
            -
            
            
            -











58
 **Table
            of Contents**
 **TIB
            Financial Corp. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 **(Dollars
            in thousands except share and per share amounts)**








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. 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,**
            
            
            **2005**
            
            
            **2004**Nonaccrual
                loans
            
            $
            956
            
            $
            704Loans
                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, 2005 and 2004 excludes the $1,600 loan
      discussed previously that is guaranteed for both principal and interest by
      the
      USDA.








**Note
      6—Premises and Equipment**





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





**December
                31,**
            
            
            **2005**
            
            
            **2004**
            
            
            **Estimated
                Useful Life**Land
            
            $
            9,038
            
            $
            9,668Buildings
                and leasehold improvements
            
            
            17,372
            
            
            17,227
            
            
            5
                to 40 yearsFurniture,
                fixtures and equipment
            
            
            13,833
            
            
            13,354
            
            
            1
                to 40 yearsConstruction
                in progress
            
            
            1,868
            
            
            15142,111
            
            
            40,400Less
                accumulated depreciation
            
            
            (14,311
            )
            
            (12,841
            )Premises
                and equipment, net
            
            $
            27,800
            
            $
            27,559





Depreciation
      expense for the years ended December 31, 2005, 2004 and 2003, was approximately
      $2,219, $1,950 and $1,756, respectively.





The
      Bank
      is obligated under operating leases for office and banking premises which expire
      in periods varying from one to twelve years. Future minimum lease payments,
      before considering renewal options that generally are present, are as follows
      at
      December 31, 2005:





Years
                Ending December 31,2006
            
            $
            5872007
            
            
            5462008
            
            
            4852009
            
            
            3122010
            
            
            320Thereafter
            
            
            344$
            2,594





Rental
      expense for the years ended December 31, 2005, 2004 and 2003, was approximately
      $674, $561, and $443, respectively.











59
 **Table
            of Contents**
 **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:





**2005**
            
            
            **2004****December
                31,**
            
            **Gross
                Carrying Amount**
            
            
            **Accumulated
                Amortization**
            
            
            **Net
                Book Value**
            
            
            
            **Gross
                Carrying Amount**
            
            
            **Accumulated
                Amortization**
            
            
            **Net
                Book Value**Core
                deposit intangible
            $
            2,941
            
            $
            1,852
            
            $
            1,089
            
            
            $
            2,941
            
            $
            1,569
            
            $
            1,372Other
            
            51
            
            
            40
            
            
            11
            
            
            
            89
            
            
            69
            
            
            20Total
            $
            2,992
            
            $
            1,892
            
            
            1,100
            
            
            $
            3,030
            
            $
            1,638
            
            $
            1,392





Aggregate
      intangible asset amortization expense was $291, $295 and $292 for 2005, 2004,
      and 2003, respectively.





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





Years
                Ending December 31,2006
            
            $
            2882007
            
            
            2862008
            
            
            2492009
            
            
            1412010
            
            
            134





**Note
      8—Time Deposits**





Time
      deposits of $100 or more were $222,058 and $126,207 at December 31, 2005 and
      2004, respectively.





At
      December 31, 2005, the scheduled maturities of time deposits are as
      follows:





Years
                Ending December 31,2006
            
            $
            309,1052007
            
            
            79,9682008
            
            
            27,1572009
            
            
            12,7212010
            
            
            2,848Thereafter
            
            
            5$
            431,804





**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 $12,000 from its principal correspondent bank. 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.





60
 **Table
            of Contents**
 **TIB
            Financial Corp. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 **(Dollars
            in thousands except share and per share amounts)**





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, 2005, in addition to a $15,000 letter
      of
      credit used in lieu of pledging securities to the State of Florida, there was
      $25,000 in advances outstanding. At December 31, 2004, the amount of outstanding
      advances was $35,000. The outstanding amount at December 31, 2005 consists
      of
      one $25,000 advance maturing in March 2006. On December 31, 2005 the rate on
      the
      long term advance was 4.37%, repricing monthly. In July 2004, new agreements
      were executed with the FHLB and a blanket floating lien pledge of the Bank’s
      residential 1-4 family mortgage and commercial real estate secured loans was
      executed to bring collateral availability up to approximately
      $176,262.





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 four categories of short-term borrowings:





**Year
                Ended December 31,**
            
            
            **2005**
            
            
            **2004****Federal
                funds purchased:**Balance:Average
                daily outstanding
            
            $
            38
            
            $
            460Year-end
                outstanding
            
            
            -
            
            
            -Maximum
                month-end outstanding
            
            
            -
            
            
            4,519Rate:Weighted
                average for year
            
            
            2.9
            %
            
            2.2
            %Weighted
                average interest rate at December 31
            
            
            n/a
            
            
            n/a**Securities
                sold under agreements to repurchase:**Balance:Average
                daily outstanding
            
            $
            13,186
            
            $
            5,142Year-end
                outstanding
            
            
            15,300
            
            
            9,947Maximum
                month-end outstanding
            
            
            19,473
            
            
            9,947Rate:Weighted
                average for year
            
            
            3.0
            %
            
            1.3
            %Weighted
                average interest rate at December 31
            
            
            4.1
            %
            
            2.1
            %**Treasury,
                tax and loan note option:**Balance:Average
                daily outstanding
            
            $
            776
            
            $
            647Year-end
                outstanding
            
            
            1,984
            
            
            2,210Maximum
                month-end outstanding
            
            
            1,984
            
            
            2,210Rate:Weighted
                average for year
            
            
            2.8
            %
            
            1.1
            %Weighted
                average interest rate at December 31
            
            
            4.0
            %
            
            1.9
            %**Advances
                from the Federal Home Loan Bank-Short Term:**Balance:Average
                daily outstanding
            
            $
            466
            
            $
            9,090Year-end
                outstanding
            
            
            -
            
            
            10,000Maximum
                month-end outstanding
            
            
            -
            
            
            25,000Rate:Weighted
                average for year
            
            
            2.6
            %
            
            1.8
            %Weighted
                average interest rate at December 31
            
            
            n/a
            
            
            2.4
            %





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








**Advances
                from the Federal Home Loan Bank-Long Term:**Balance:Average
                daily outstanding
            
            $
            25,000
            
            $
            20,246Year-end
                outstanding
            
            
            25,000
            
            
            25,000Maximum
                month-end outstanding
            
            
            25,000
            
            
            25,000Rate:Weighted
                average for year
            
            
            3.4
            %
            
            1.6
            %Weighted
                average interest rate at December 31
            
            
            4.4
            %
            
            2.4
            %






**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, 2004 and 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 525,000 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.





**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, 2005 was 7.82%. 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.





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).








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





**Contractual
      Maturities**





At
      December 31, 2005, the contractual maturities of long-term borrowings were
      as
      follows:





**Fixed
                Rate**
            
            
            **Floating
                Rate**
            
            
            **Total**Due
                in 2006
            
            $
            -
            
            $
            -
            
            $
            -Due
                in 2007
            
            
            -
            
            
            -
            
            
            -Due
                in 2008
            
            
            -
            
            
            -
            
            
            -Due
                in 2009
            
            
            -
            
            
            -
            
            
            -Due
                in 2010
            
            
            -
            
            
            -
            
            
            -Thereafter
            
            
            12,000
            
            
            5,000
            
            
            17,000Total
                long-term debt
            
            $
            12,000
            
            $
            5,000
            
            $
            17,000





**Note
      11—Income Taxes**





Income
      tax expense (benefit) was as follows:





**Years
                ended December 31,**
            
            
            **2005**
            
            
            **2004**
            
            
            **2003**Current
                income tax provision:Federal
            
            $
            6,711
            
            $
            2,331
            
            $
            3,049State
            
            
            1,158
            
            
            431
            
            
            5507,869
            
            
            2,762
            
            
            3,599Deferred
                tax benefit:Federal
            
            
            (805
            )
            
            (76
            )
            
            (722
            )State
            
            
            (139
            )
            
            (14
            )
            
            (130
            )(944
            )
            
            (90
            )
            
            (852
            )Total
            
            $
            6,925
            
            $
            2,672
            
            $
            2,747





A
      reconciliation of income tax computed at the Federal statutory income tax rate
      (35% for 2005 and 34% for 2004 and 2003) to total income taxes reported is
      as
      follows:





**Years
                ended December 31,**
            
            
            **2005**
            
            
            **2004**
            
            
            **2003**Pretax
                income
            
            $
            18,749
            
            $
            7,870
            
            $
            7,849Income
                taxes computed at Federal statutory tax rate
            
            $
            6,562
            
            $
            2,676
            
            $
            2,669Effect
                of:Tax-exempt
                income, net
            
            
            (324
            )
            
            (340
            )
            
            (275
            )State
                income taxes, net
            
            
            662
            
            
            275
            
            
            277Other,
                net
            
            
            25
            
            
            61
            
            
            76Total
            
            $
            6,925
            
            $
            2,672
            
            $
            2,747








63
 **Table
            of Contents**
 **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,**
            
            
            **2005**
            
            
            **2004**Allowance
                for loan losses
            
            $
            3,045
            
            $
            2,475Core
                deposit intangible
            
            
            245
            
            
            212Deferred
                compensation
            
            
            788
            
            
            555Net
                unrealized losses on securities available for sale
            
            
            448
            
            
            -Other
            
            
            182
            
            
            116Total
                gross deferred tax assets
            
            
            4,708
            
            
            3,358Accumulated
                depreciation
            
            
            (765
            )
            
            (871
            )Deferred
                loan costs
            
            
            (555
            )
            
            (401
            )Net
                unrealized gains on securities available for sale
            
            
            -
            
            
            (177
            )Other
            
            
            (70
            )
            
            (85
            )Total
                gross deferred tax liabilities
            
            
            (1,390
            )
            
            (1,534
            )Net
                deferred tax asset
            
            $
            3,318
            
            $
            1,824





**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. The Bank contributed
      $132, $94 and $69 to the plan in 2005, 2004 and 2003, respectively. As of
      December 31, 2005, the Plan contained approximately 152,000 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 $386, $309 and $254 for
      the
      accrual of future salary continuation benefits in 2005, 2004 and 2003,
      respectively. The Bank has purchased single premium life insurance policies
      on
      these individuals. Cash value income (net of related insurance premium expense)
      totaled $208, $202 and $225 in 2005, 2004 and 2003, respectively. Other assets
      included $5,937 and $5,729 in surrender value and other liabilities included
      salary continuation benefits payable of $1,246 and $860 at December 31, 2005
      and
      2004, 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 $233, $273 and $165 for the accrual of current and
      future retirement benefits in 2005, 2004 and 2003, respectively, which included
      $184, $236 and $146 in 2005, 2004 and 2003 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 $138, $138 and $152 in 2005, 2004 and 2003. Other assets included $3,992
      and $3,854 in surrender value in other assets and other liabilities included
      retirement benefits payable of $855 and $623 at December 31, 2005 and 2004,
      respectively.





64
 **Table
            of Contents**
 **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, 2005
            
            $
            1,905New
                loans
            
            
            606Effect
                of changes in related parties
            
            
            (188
            )Repayments
            
            
            (1,461
            )Ending
                balance, December 31, 2005
            
            $
            862





Unfunded
      loan commitments to these individuals and their related business interests
      totaled $31 at December 31, 2005. Deposits from these individuals and their
      related interests were $4,237 and $3,008 at December 31, 2005 and 2004,
      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 result 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, 2005 and 2004 are presented in the
      following tables.





**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
            3$42,255
            34.0%
            $88,839
            8.4%Bank
            3
                $ 52,775
            35.0%
            42,220
            34.0%
            92,297
            8.7%Tier
                1 Capital ( to Risk Weighted Assets)Consolidated
            N/A
            N/A
            3$37,173
            34.0%
            $88,839
            9.6%Bank
            3$55,744
            36.0%
            37,162
            34.0%
            92,297
            9.9%Total
                Capital (to Risk Weighted Assets)Consolidated
            N/A
            N/A
            3$74,346
            38.0%
            $100,931
            10.9%Bank
            3$92,906
            310.0%
            74,325
            38.0%
            100,389
            10.8%








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








**December
                31, 2004**
            **Well
                Capitalized Requirement**
            **Adequately
                Capitalized Requirement**
            **Actual****Amount**
            **Ratio**
            **Amount**
            **Ratio**
            **Amount**
            **Ratio**Tier
                1 Capital (to Average Assets)Consolidated
            N/A
            N/A
            3$31,270
            34.0%
            $78,048
            10.0%Bank
            3$39,069
            35.0%
            31,255
            34.0%
            81,780
            10.5%Tier
                1 Capital ( to Risk Weighted Assets)Consolidated
            N/A
            N/A
            3$28,583
            34.0%
            $78,048
            10.9%Bank
            3$42,857
            36.0%
            28,571
            34.0%
            81,780
            11.4%Total
                Capital (to Risk Weighted Assets)Consolidated
            N/A
            N/A
            3$57,166
            38.0%
            $89,772
            12.6%Bank
            3$71,428
            310.0%
            57,143
            38.0%
            88,254
            12.4%





At
      year
      end 2005 and 2004, 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, 2005, that the Company and the Bank meet all
      capital requirements to which it is subject. Tier 1 Capital includes the trust
      preferred securities that were issued in September 2000 and July
      2001.





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,
      2005,
      is approximately $21,176.





**Note
      15—Stock Options and Restricted Stock**





As
      of
      December 31, 2005, 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 options to any director, and incentive stock options
      or
      nonqualified stock options 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 sold through the 2014 expiration of
      the
      plan is 400,000 shares, no more than 133,000 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
      granted under the Plan expire or terminate for any reason without having been
      exercised in full, the shares not purchased shall again be available for option
      for the purposes of the Plan.





The
      exercise price for common stock must equal at least 100 percent of the fair
      market value of the stock at the time the 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 in the case of members of the Board of Directors
      to up to nine years for certain officers and employees.














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





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





**Shares**
            **Exercise
                Price Range**
            **Weighted
                Average Exercise Price****Balance**,
                January 1, 2003
            567,205
            $
                5.49 - $14.50
            $
                10.09Granted
            44,500
            16.35
                - 19.40
            17.93Exercised
            (115,050)
            5.49
                - 14.12
            6.39Expired
                or forfeited
            (19,150)
            5.49
                - 16.35
            11.46**Balance**,
                December 31, 2003
            477,505
            5.49
                - 19.40
            11.66Granted
            37,500
            22.74
                - 22.79
            22.76Exercised
            (97,911)
            5.49
                - 14.12
            6.92Expired
                or forfeited
            (7,900)
            11.25
                - 22.74
            19.47**Balance**,
                December 31, 2004
            409,194
            8.33
                - 22.79
            13.66Granted
            79,500
            25.24
                - 32.40
            25.94Exercised
            (72,359)
            8.33
                - 22.74
            11.58Expired
                or forfeited
            (27,350)
            9.00
                - 25.24
            19.73**Balance**,
                December 31, 2005
            388,985
            $8.33
                - $32.40
            $16.13







**Shares**
            
            **Weighted
                Average Exercise Price**Options
                exercisable at December 31, 2005
            
            
            152,535
            
            $
            13.52Options
                exercisable at December 31, 2004
            
            
            181,944
            
            
            12.96Options
                exercisable at December 31, 2003
            
            
            236,405
            
            
            10.35







Options
      outstanding at December 31, 2005 were as follows:





**Outstanding
                Options**
            **Options
                Exercisable****Range
                of Exercise Price**
            
            
            **Number**
            
            
            **Weighted
                Average Remaining Contractual Life**
            
            
            **Weighted
                Average Exercise Price**
            
            
            **Number**
            
            
            **Weighted
                Average Exercise Price**$8.33
                - $11.00
            
            
            40,900
            
            
            3.54
            
            $
            10.04
            
            
            22,050
            
            $
            9.6711.21
                - 11.75
            
            
            14,250
            
            
            3.26
            
            
            11.35
            
            
            2,300
            
            
            11.2612.40
                - 12.40
            
            
            98,700
            
            
            5.43
            
            
            12.40
            
            
            29,100
            
            
            12.4012.65
                - 13.45
            
            
            12,300
            
            
            3.50
            
            
            13.15
            
            
            9,800
            
            
            13.2113.50
                - 13.50
            
            
            68,300
            
            
            1.69
            
            
            13.50
            
            
            53,100
            
            
            13.5013.55
                - 19.40
            
            
            58,135
            
            
            6.33
            
            
            16.76
            
            
            28,935
            
            
            15.6022.74
                - 22.79
            
            
            28,400
            
            
            8.11
            
            
            22.76
            
            
            7,250
            
            
            22.7825.24
                - 25.24
            
            
            58,000
            
            
            9.07
            
            
            25.24
            
            
            -
            
            
            -29.20
                - 29.20
            
            
            5,000
            
            
            9.81
            
            
            29.20
            
            
            -
            
            
            -32.40
                - 32.40
            
            
            5,000
            
            
            9.67
            
            
            32.40
            
            
            -
            
            
            -$8.33
                - $32.40
            
            
            388,985
            
            
            5.42
            
            $
            16.13
            
            
            152,535
            
            $
            13.52








In
      2005,
      the Company granted a total of 41,000 shares of restricted stock with a value
      of
      $1,283 to members of the board of directors and certain executive officers.
      The
      restricted stock provides the grantee with voting, dividend and anti-dilution
      rights equivalent to common shareholders, however 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 three 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 and during 2005, $98 of related amortization is included in
      non-interest expense. Future amortization of the expense associated with
      restricted shares outstanding as of December 31, 2005 is as
      follows:





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








2006
            
            $
            2732007
            
            
            2732008
            
            
            2702009
            
            
            2312010
            
            
            137$
            1,184





**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:





**2005**
            **2004****Fixed
                Rate**
            
            
            **Variable
                Rate**
            
            
            **Fixed
                Rate**
            
            
            **Variable
                Rate**Commitments
                to make loans
            
            $
            6,320
            
            $
            78,194
            
            $
            7,866
            
            $
            26,567Unfunded
                commitments under lines of credit
            
            
            742
            
            
            145,737
            
            
            700
            
            
            71,800





Commitments
      to make loans are generally made for periods of 30 days. The fixed rate loan
      commitments have interest rates ranging from 4.25% to 18.00% and maturities
      ranging from 6 months to 15 years.





**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,**
            
            
            **2005**
            
            
            **2004**
            
            
            **2003**Operating
                supplies
            
            $
            589
            
            $
            542
            
            $
            484Computer
                services
            
            
            1,650
            
            
            1,773
            
            
            1,533Legal
                and professional fees
            
            
            1,444
            
            
            1,223
            
            
            842Marketing
                and community relations
            
            
            731
            
            
            866
            
            
            851Postage,
                courier, and armored car
            
            
            719
            
            
            617
            
            
            697








68
 **Table
            of Contents**
 **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:





**2005**
            **2004****Carrying
                Value**
            
            
            **Estimated
                Fair Value**
            
            
            **Carrying
                Value**
            
            
            **Estimated
                Fair Value****Financial
                assets:**Cash
                and cash equivalents
            
            $
            41,510
            
            $
            41,510
            
            $
            42,938
            
            $
            42,938Investment
                securities available for sale
            
            
            97,464
            
            
            97,464
            
            
            77,807
            
            
            77,807Loans,
                net
            
            
            876,478
            
            
            872,983
            
            
            649,435
            
            
            650,119Federal
                Home Loan Bank and Independent Bankers’ Bank stock
            
            
            2,906
            
            
            2,906
            
            
            3,035
            
            
            3,035Accrued
                interest receivable
            
            
            6,404
            
            
            6,404
            
            
            4,086
            
            
            4,086**Financial
                liabilities:**Non-contractual
                deposits
            
            
            488,620
            
            
            488,620
            
            
            436,677
            
            
            436,677Contractual
                deposits
            
            
            431,804
            
            
            429,059
            
            
            251,182
            
            
            251,159Federal
                Home Loan Bank Advances
            
            
            25,000
            
            
            25,000
            
            
            35,000
            
            
            35,000Short-term
                borrowings
            
            
            17,284
            
            
            17,284
            
            
            12,157
            
            
            12,157Notes
                payable
            
            
            4,000
            
            
            4,004
            
            
            5,250
            
            
            5,388Subordinated
                debentures
            
            
            13,000
            
            
            13,630
            
            
            13,000
            
            
            13,489Accrued
                interest payable
            
            
            6,609
            
            
            6,609
            
            
            3,692
            
            
            3,692





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.





**Note
      19—Discontinued Operations**





On
      December 30, 2005, the Company closed the sale of the merchant bankcard
      processing segment, a business line of the Company, to NOVA Information Systems.
      The transaction was structured as a sale of the agency assets. The buyer paid
      $7,250 in cash at the closing. The Company recognized a gain of $6,697 on the
      transaction.





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,**
            
            
            **2005**
            
            
            **2004**
            
            
            **2003**Other
                income
            
            $
            12,865
            
            $
            5,758
            
            $
            4,953Depreciation
                and amortization
            
            
            (8
            )
            
            (40
            )
            
            (46
            )Other
                expense
            
            
            (5,227
            )
            
            (4,828
            )
            
            (3,982
            )Pretax
                income from discontinued operations
            
            $
            7,630
            
            $
            890
            
            $
            925








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








On
      August
      15, 2003, the Company closed the sale of Keys Insurance Agency, Inc., a
      wholly-owned subsidiary of the Company, to Derek Martin-Vegue and his partner.
      Mr. Martin-Vegue is a former director of the Company and TIB Bank. The
      transaction was structured as a sale of the agency assets. The buyer paid $2,205
      in cash at the closing. Of the cash payment at closing, proceeds of $2,021
      were
      pursuant to a loan from TIB Bank (a subsidiary of the Company) to the buyer.
      The
      Company recognized a loss of $15 on the transaction.





The
      results of Keys Insurance Agency, Inc. operations, which have been classified
      as
      discontinued operations in the accompanying consolidated financial statements,
      are summarized as follows:





**Year
                ended December 31, 2003**Other
                income
            
            $
            1,255Depreciation
                and amortization
            
            
            (35
            )Other
                expense
            
            
            (1,020
            )Pretax
                income from discontinued operations
            
            $
            200





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





**Condensed
      Balance Sheets**


***(Parent
      Only)***





**December
                31,**
            
            
            **2005**
            
            
            **2004****Assets:**Cash
                on deposit with subsidiary
            
            $
            922
            
            $
            2,341Dividends
                and other receivables from subsidiaries
            
            
            10
            
            
            10Investment
                in bank subsidiary
            
            
            93,982
            
            
            84,845Investment
                in TIBFL Statutory Trust I
            
            
            248
            
            
            248Investment
                in TIBFL Statutory Trust II
            
            
            155
            
            
            155Income
                tax receivable
            
            
            300
            
            
            -Other
                assets
            
            
            442
            
            
            407Total
                Assets
            
            $
            96,059
            
            $
            88,006**Liabilities
                and Shareholders’ Equity:****Liabilities:**Dividends
                payable
            
            $
            681
            
            $
            653Interest
                payable
            
            
            438
            
            
            449Notes
                payable
            
            
            17,403
            
            
            18,653Other
                liabilities
            
            
            13
            
            
            137Total
                liabilities
            
            
            18,535
            
            
            19,892**Shareholders’
                equity:**Common
                stock
            
            
            579
            
            
            568Surplus
            
            
            40,736
            
            
            38,284Deferred
                compensation - restricted stock grants
            
            
            (1,184
            )
            
            -Retained
                earnings
            
            
            38,136
            
            
            28,968Accumulated
                other comprehensive income (loss)
            
            
            (743
            )
            
            294Total
                shareholders’ equity
            
            
            77,524
            
            
            68,114Total
                Liabilities and Shareholders’ Equity
            
            $
            96,059
            
            $
            88,006








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








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





**Condensed
      Statements of Income**


***(Parent
      Only)***





**Year
                Ended December 31,**
            
            
            **2005**
            
            
            **2004**
            
            
            **2003****Operating
                income:**Dividend
                from bank subsidiary
            
            $
            2,946
            
            $
            3,708
            
            $
            832Dividend
                from TIBFL Statutory Trust I
            
            
            26
            
            
            26
            
            
            26Dividend
                from TIBFL Statutory Trust II
            
            
            11
            
            
            8
            
            
            8Dividend
                from TIB Software & Services, Inc.
            
            
            -
            
            
            -
            
            
            126Other
                income
            
            
            -
            
            
            6
            
            
            -Total
                operating income
            
            
            2,983
            
            
            3,748
            
            
            992**Operating
                expense:**Interest
                expense
            
            
            1,616
            
            
            1,636
            
            
            1,624Other
                expense
            
            
            600
            
            
            553
            
            
            345Total
                operating expense
            
            
            2,216
            
            
            2,189
            
            
            1,969Income
                (loss) before income tax benefit and equity in undistributed earnings
                of
                subsidiary
            
            
            767
            
            
            1,559
            
            
            (977
            )Income
                tax benefit
            
            
            884
            
            
            808
            
            
            728Income
                (loss) before equity in undistributed earnings of
                subsidiary
            
            
            1,651
            
            
            2,367
            
            
            (249
            )Equity
                in undistributed earnings of bank subsidiary
            
            
            10,173
            
            
            2,831
            
            
            5,226Income
                from continuing operations
            
            
            11,824
            
            
            5,198
            
            
            4,977**Discontinued
                operations:**Dividend
                from Keys Insurance Agency, Inc.
            
            
            -
            
            
            -
            
            
            125Income
                from discontinued operations
            
            
            -
            
            
            -
            
            
            125Net
                income
            
            $
            11,824
            
            $
            5,198
            
            $
            5,102








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





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





**Condensed
      Statements of Cash Flows**


***(Parent
      Only)***





**Year
                Ended December 31,**
            
            
            **2005**
            
            
            **2004**
            
            
            **2003****Cash
                flows from operating activities:**Net
                income
            
            $
            11,824
            
            $
            5,198
            
            $
            5,102Equity
                in undistributed earnings of bank subsidiary
            
            
            (10,173
            )
            
            (2,831
            )
            
            (5,226
            )Amortization
                of intangibles and other assets
            
            
            19
            
            
            17
            
            
            17Amortization
                of deferred compensation - restricted stock grants
            
            
            98
            
            
            -
            
            
            -Increase
                in other assets
            
            
            (12
            )
            
            -
            
            
            (4
            )Decrease
                in due to subsidiaries
            
            
            (6
            )
            
            -
            
            
            (3
            )Increase
                (decrease) in interest payable
            
            
            (10
            )
            
            9
            
            
            (5
            )Increase
                in other liabilities
            
            
            -
            
            
            6
            
            
            3Deferred
                income taxes
            
            
            (37
            )
            
            -
            
            
            -Increase
                (decrease) in net income tax obligation
            
            
            (81
            )
            
            709
            
            
            (3
            )Net
                cash provided (used) by operating activities
            
            
            1,622
            
            
            3,108
            
            
            (119
            )**Cash
                flows from investing activities:**Investment
                in bank subsidiary
            
            
            -
            
            
            (23,155
            )
            
            (5,500
            )Return
                of capital from Keys Insurance Agency, Inc.
            
            
            -
            
            
            -
            
            
            2,301Return
                of capital from TIB Software & Services, Inc.
            
            
            -
            
            
            -
            
            
            129Net
                cash provided (used) in investing activities
            
            
            -
            
            
            (23,155
            )
            
            (3,070
            )**Cash
                flows from financing activities:**Repayment
                of note payable
            
            
            (1,250
            )
            
            -
            
            
            -Proceeds
                from exercise of stock options
            
            
            838
            
            
            678
            
            
            735Proceeds
                from stock issuance
            
            
            -
            
            
            23,230
            
            
            4,343Cash
                dividends paid
            
            
            (2,629
            )
            
            (2,278
            )
            
            (1,866
            )Net
                cash provided (used) by financing activities
            
            
            (3,041
            )
            
            21,630
            
            
            3,212Net
                increase (decrease) in cash
            
            
            (1,419
            )
            
            1,583
            
            
            23Cash,
                beginning of year
            
            
            2,341
            
            
            758
            
            
            735Cash,
                end of year
            
            $
            922
            
            $
            2,341
            
            $
            758








72
 **Table
          of Contents**


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





The
      following is a summary of unaudited quarterly results for 2005 and
      2004:





**2005**
            
            **2004****Fourth**
            
            
            **Third**
            
            
            **Second**
            
            
            **First**
            
            
            
            **Fourth**
            
            
            **Third**
            
            
            **Second**
            
            
            **First****Condensed
                income statements:**Interest
                income
            $
            17,360
            
            $
            15,503
            
            $
            14,225
            
            $
            12,346
            
            
            $
            11,351
            
            $
            10,528
            
            $
            9,819
            
            $
            9,218Net
                interest income
            
            10,786
            
            
            10,094
            
            
            9,636
            
            
            8,614
            
            
            
            8,216
            
            
            7,781
            
            
            7,361
            
            
            6,828Income
                from continuing operations
            
            1,898
            
            
            1,949
            
            
            1,997
            
            
            1,348
            
            
            
            1,223
            
            
            1,219
            
            
            1,125
            
            
            1,076Net
                income
            
            6,039
            
            
            2,054
            
            
            2,184
            
            
            1,547
            
            
            
            1,331
            
            
            1,337
            
            
            1,257
            
            
            1,273**Earnings
                per share:**Income
                from continuing operations - Basic
            $
            0.33
            
            $
            0.34
            
            $
            0.35
            
            $
            0.24
            
            
            $
            0.21
            
            $
            0.22
            
            $
            0.21
            
            $
            0.24Income
                from continuing operations - Diluted
            
            0.32
            
            
            0.33
            
            
            0.34
            
            
            0.23
            
            
            
            0.21
            
            
            0.21
            
            
            0.20
            
            
            0.23





Due
      to
      the disposal of the merchant bankcard operations in the fourth quarter of 2005,
      all previous reported quarterly financial data has been adjusted above to
      reflect the results of merchant bankcard operations as discontinued
      operations.











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








**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 2005 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, 2005, 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, 2005, 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, 2005 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 39 of this Form 10-K.





Date:
      February 23, 2006





/s/
      Edward V. Lett


Edward
      V.
      Lett


President
      and Chief Executive Officer





/s/
      David
      P. Johnson


David
      P.
      Johnson


Executive
      Vice President and Chief Financial Officer











74
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            of
            Contents**





(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 39 of
      this Form 10-K.





**ITEM
      9B: OTHER INFORMATION**





Not
      applicable.








75
 **Table
            of
            Contents**





**PART
      III**








**ITEM
      10: DIRECTORS AND EXECUTIVE OFFICERS OF THE
      REGISTRANT**





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 2006 Annual Shareholders Meeting
      is
      incorporated herein by reference.





In
      2005,
      we adopted amendments to the 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: COMPENSATION OF EXECUTIVE OFFICERS AND
      DIRECTORS**





The
      information contained under the captions "Compensation of Executive Officers
      and
      Directors" and “Performance Graph” in the Proxy Statement to be utilized in
      connection with the Company's 2006 Annual Shareholders Meeting is incorporated
      herein by reference.








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





The
      information contained under the caption "Management and Principal Shareholders"
      in the Proxy Statement to be utilized in connection with the Company's 2006
      Annual Shareholders Meeting is incorporated herein by reference.








**ITEM
      13: CERTAIN RELATIONSHIPS AND RELATED
      TRANSACTIONS**





The
      information contained under the caption "Certain Relationships and Related
      Transactions" in the Proxy Statement to be utilized in connection with the
      Company's 2006 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 2006 Annual
      Shareholders Meeting is incorporated herein by reference.








76
 **Table
            of
            Contents**








**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.





3.
      Exhibits





Exhibit
                  Numbers3.1
              Restated
                  Articles of Incorporation*****3.2
              Bylaws
                  **4.1
              Specimen
                  Stock Certificate *10.1
              Employment
                  Agreement between Edward V. Lett, TIB Financial Corp. and TIB Bank
                  effective March 1, 2004 ***/******10.2
              401(K)
                  Savings and Employee Stock Ownership Plan */***10.3
              Employee
                  Incentive Stock Option Plan */***10.4
              Employment
                  Agreement between Millard J. Younkers, Jr., TIB Financial Corp.
                  and TIB
                  Bank effective March 1, 2004 ***/******10.5
              Employment
                  Agreement between David P. Johnson, TIB Financial Corp. and TIB
                  Bank
                  effective March 1, 2004 ***/******10.6
              Form
                  of Director Deferred Fee Agreement***/****10.7
              Form
                  of Salary Continuation Agreement***/****10.8
              Form
                  of Executive Officer Split Dollar Agreement***/****10.9
              Form
                  of Director Deferred Fee Agreement - First Amendment***10.10
              Form
                  of Executive Officer Split Dollar Agreement - First
                  Amendment***10.11
              Employment
                  Agreement between Michael D. Carrigan, TIB Financial Corp. and
                  TIB Bank
                  effective March 1, 2004 ***/******10.12
              Form
                  of Salary Continuation Agreement - First Amendment***10.13
              Form
                  of Restricted Stock Agreement10.14
              Form
                  of Restricted Stock Agreement Addendum10.15
              Merchant
                  Asset Purchase Agreement10.16
              Marketing
                  and Sales Alliance Agreement10.17
              Non-Competition
                  Agreement10.18
              Assignment
                  and Assumption Agreement14.1
              Board
                of Directors Ethics Code14.2
              Senior
                Financial Officer Ethics Code21.1
              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 2002


77
 **Table
            of
            Contents**





*
              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.**
              Previously
                  filed by the Company as Exhibit (with the same respective Exhibit
                  Number
                  as indicated herein) to the Company's Registration Statement (Registration
                  No. 333-113484) and such document is incorporated herein by
                  reference.***
              Represents
                  a management contract or a compensation plan or arrangement required
                  to be
                  filed as an exhibit.****
              Items
                  10.6 through 10.9 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.*****
              Incorporated
                  by reference to Appendix A in the Company’s Definitive Proxy Statement
                  filed on April 8, 2004.******
              Items
                  10.1, 10.4, 10.5 and 10.10 through 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.








78
 **Table
            of
            Contents**





**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 13, 2006.








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 13, 2006.





**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/
                Gretchen K. Holland
            
            DirectorGretchen
                K. Holland/s/
                Paul O. Jones, Jr., M.D.
            
            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/
                David P. Johnson
            
            Chief
                Financial and Accounting OfficerDavid
                P. Johnson











79