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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549



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FORM 10-Q



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(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended June 30, 2006

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

Commission File Number: 1-15773



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CADENCE FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                       
|-------------------------------------------------------------- |  | --------------------------------------
|Mississippi                                                    |  | 64-0694775                            
|(State or other jurisdiction of incorporation or organization) |  | (I. R. S. Employer Identification No.)



|                                                              |  |           
|------------------------------------------------------------- |  | ----------
|301 East Main Street, P. O. Box 1187, Starkville, Mississippi |  | 39760     
|(Address of principal executive offices)                      |  | (Zip Code)

Registrants telephone number, including area code: (662) 323-1341



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Indicate by check mark whether the registrant
(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 registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈

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. (Check one):

Large accelerated filer ̈Accelerated filer  x    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 ̈No  x

Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date: Common Stock, $1 Par Value  10,946,724 shares as of June 30, 2006.



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PART I - FINANCIAL INFORMATION

CADENCE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME FOR

SIX MONTHS ENDED JUNE 30, 2006 AND 2005

(Unaudited)



|                                                    |  |      |        |      |   |       
|--------------------------------------------------- |  | ---- | ------ | ---- | - | ------
|(Amounts in thousands, except per share data)       |  | 2006 |        | 2005
|INTEREST INCOME                                     |  |      |        |      |   |       
|Interest and fees on loans                          |  | $    | 32,003 |      | $ | 25,053
|Interest and dividends on securities                |  |      | 10,443 |      |   | 9,776 
|Other interest income                               |  |      | 553    |      |   | 251   
|                                                    |  |      |        |      |   |       
|Total interest income                               |  |      | 42,999 |      |   | 35,080
|                                                    |  |      |        |      |   |       
|INTEREST EXPENSE                                    |  |      |        |      |   |       
|Interest on deposits                                |  |      | 14,438 |      |   | 8,950 
|Interest on borrowed funds                          |  |      | 4,733  |      |   | 3,705 
|                                                    |  |      |        |      |   |       
|Total interest expense                              |  |      | 19,171 |      |   | 12,655
|                                                    |  |      |        |      |   |       
|Net interest income                                 |  |      | 23,828 |      |   | 22,425
|Provision for loan losses                           |  |      | 1,228  |      |   | 993   
|                                                    |  |      |        |      |   |       
|Net interest income after provision for loan losses |  |      | 22,600 |      |   | 21,432
|                                                    |  |      |        |      |   |       
|OTHER INCOME                                        |  |      |        |      |   |       
|Service charges on deposit accounts                 |  |      | 4,228  |      |   | 3,905 
|Insurance commissions, fees and premiums            |  |      | 2,224  |      |   | 2,356 
|Trust Department income                             |  |      | 1,111  |      |   | 1,099 
|Mortgage loan fees                                  |  |      | 323    |      |   | 393   
|Other income                                        |  |      | 2,234  |      |   | 2,337 
|Securities gains, net                               |  |      | 19     |      |   | 94    
|                                                    |  |      |        |      |   |       
|Total other income                                  |  |      | 10,139 |      |   | 10,184
|                                                    |  |      |        |      |   |       
|OTHER EXPENSE                                       |  |      |        |      |   |       
|Salaries and employee benefits                      |  |      | 13,589 |      |   | 12,387
|Premises and fixed asset expense                    |  |      | 3,194  |      |   | 3,108 
|Other expense                                       |  |      | 6,685  |      |   | 6,379 
|                                                    |  |      |        |      |   |       
|Total other expense                                 |  |      | 23,468 |      |   | 21,874
|                                                    |  |      |        |      |   |       
|Income before income taxes                          |  |      | 9,271  |      |   | 9,742 
|Income taxes                                        |  |      | 2,527  |      |   | 2,661 
|                                                    |  |      |        |      |   |       
|Net income                                          |  | $    | 6,744  |      | $ | 7,081 
|                                                    |  |      |        |      |   |       
|Net income per share:                               |  |      |        |      |   |       
|Basic                                               |  | $    | 0.75   |      | $ | 0.87  
|                                                    |  |      |        |      |   |       
|Diluted                                             |  | $    | 0.75   |      | $ | 0.87  
|                                                    |  |      |        |      |   |       
|Dividends per common share                          |  | $    | 0.50   |      | $ | 0.48  
|                                                    |  |      |        |      |   |       



2



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CADENCE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME FOR

QUARTER ENDED JUNE 30, 2006 AND 2005

(Unaudited)



|                                                    |  |      |        |      |   |       
|--------------------------------------------------- |  | ---- | ------ | ---- | - | ------
|(Amounts in thousands, except per share data)       |  | 2006 |        | 2005
|INTEREST INCOME                                     |  |      |        |      |   |       
|Interest and fees on loans                          |  | $    | 16,580 |      | $ | 12,772
|Interest and dividends on securities                |  |      | 5,424  |      |   | 4,887 
|Other interest income                               |  |      | 384    |      |   | 111   
|                                                    |  |      |        |      |   |       
|Total interest income                               |  |      | 22,388 |      |   | 17,770
|                                                    |  |      |        |      |   |       
|INTEREST EXPENSE                                    |  |      |        |      |   |       
|Interest on deposits                                |  |      | 7,825  |      |   | 4,643 
|Interest on borrowed funds                          |  |      | 2,477  |      |   | 1,887 
|                                                    |  |      |        |      |   |       
|Total interest expense                              |  |      | 10,302 |      |   | 6,530 
|                                                    |  |      |        |      |   |       
|Net interest income                                 |  |      | 12,086 |      |   | 11,240
|Provision for loan losses                           |  |      | 827    |      |   | 358   
|                                                    |  |      |        |      |   |       
|Net interest income after provision for loan losses |  |      | 11,259 |      |   | 10,882
|                                                    |  |      |        |      |   |       
|OTHER INCOME                                        |  |      |        |      |   |       
|Service charges on deposit accounts                 |  |      | 2,243  |      |   | 2,035 
|Insurance commissions, fees and premiums            |  |      | 1,099  |      |   | 1,222 
|Trust Department income                             |  |      | 585    |      |   | 593   
|Mortgage loan fees                                  |  |      | 183    |      |   | 216   
|Other income                                        |  |      | 1,267  |      |   | 791   
|Securities gains, net                               |  |      | 17     |      |   | 97    
|                                                    |  |      |        |      |   |       
|Total other income                                  |  |      | 5,394  |      |   | 4,954 
|                                                    |  |      |        |      |   |       
|OTHER EXPENSE                                       |  |      |        |      |   |       
|Salaries and employee benefits                      |  |      | 6,797  |      |   | 6,494 
|Premises and fixed asset expense                    |  |      | 1,618  |      |   | 1,495 
|Other expense                                       |  |      | 3,419  |      |   | 3,377 
|                                                    |  |      |        |      |   |       
|Total other expense                                 |  |      | 11,834 |      |   | 11,366
|                                                    |  |      |        |      |   |       
|Income before income taxes                          |  |      | 4,819  |      |   | 4,470 
|Income taxes                                        |  |      | 1,325  |      |   | 1,131 
|                                                    |  |      |        |      |   |       
|Net income                                          |  | $    | 3,494  |      | $ | 3,339 
|                                                    |  |      |        |      |   |       
|Net income per share:                               |  |      |        |      |   |       
|Basic                                               |  | $    | 0.36   |      | $ | 0.41  
|                                                    |  |      |        |      |   |       
|Diluted                                             |  | $    | 0.36   |      | $ | 0.41  
|                                                    |  |      |        |      |   |       
|Dividends per common share                          |  | $    | 0.25   |      | $ | 0.24  
|                                                    |  |      |        |      |   |       



3



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CADENCE FINANCIAL CORPORATION

CONSOLIDATED BALANCE SHEETS



|                                                                                                                                          |  |               |           |   |               |   |           |  
|----------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | - | ------------- | - | --------- | -
|(Amounts in thousands)                                                                                                                    |  | June 30, 2006 |           |   | Dec. 31, 2005 |  
|                                                                                                                                          |  | (Unaudited)   |           |   |               |  
|ASSETS                                                                                                                                    |  |               |           |   |               |   |           |  
|                                                                                                                                          |  |              
|Cash and due from banks                                                                                                                   |  | $             | 47,613    |   |               | $ | 37,053    |  
|Interest-bearing deposits with banks                                                                                                      |  |               | 19,098    |   |               |   | 4,745     |  
|Federal funds sold and securities purchased under agreements to resell                                                                    |  |               | 1,366     |   |               |   | 1,324     |  
|                                                                                                                                          |  |               |           |   |               |   |           |  
|Total cash and cash equivalents                                                                                                           |  |               | 68,077    |   |               |   | 43,122    |  
|Securities available-for-sale                                                                                                             |  |               | 448,004   |   |               |   | 407,532   |  
|Securities held-to-maturity (estimated fair value of $25,213 at June 30, 2006 and $25,681 at December 31, 2005)                           |  |               | 23,670    |   |               |   | 23,755    |  
|Other securities                                                                                                                          |  |               | 9,328     |   |               |   | 11,153    |  
|                                                                                                                                          |  |               |           |   |               |   |           |  
|Total securities                                                                                                                          |  |               | 481,002   |   |               |   | 442,440   |  
|Loans                                                                                                                                     |  |               | 917,732   |   |               |   | 860,644   |  
|Less: allowance for loan losses                                                                                                           |  |               | (10,134   | ) |               |   | (9,312    | )
|                                                                                                                                          |  |               |           |   |               |   |           |  
|Net loans                                                                                                                                 |  |               | 907,598   |   |               |   | 851,332   |  
|Interest receivable                                                                                                                       |  |               | 9,717     |   |               |   | 8,765     |  
|Premises and equipment, net                                                                                                               |  |               | 22,471    |   |               |   | 19,243    |  
|Goodwill and other intangible assets                                                                                                      |  |               | 39,141    |   |               |   | 39,654    |  
|Other assets                                                                                                                              |  |               | 45,806    |   |               |   | 41,561    |  
|                                                                                                                                          |  |               |           |   |               |   |           |  
|Total Assets                                                                                                                              |  | $             | 1,573,812 |   |               | $ | 1,446,117 |  
|                                                                                                                                          |  |               |           |   |               |   |           |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                      |  |               |           |   |               |   |           |  
|                                                                                                                                          |  |              
|Liabilities:                                                                                                                              |  |               |           |   |               |   |           |  
|Noninterest-bearing deposits                                                                                                              |  | $             | 164,543   |   |               | $ | 167,023   |  
|Interest-bearing deposits                                                                                                                 |  |               | 1,030,891 |   |               |   | 954,661   |  
|                                                                                                                                          |  |               |           |   |               |   |           |  
|Total deposits                                                                                                                            |  |               | 1,195,434 |   |               |   | 1,121,684 |  
|Interest payable                                                                                                                          |  |               | 3,271     |   |               |   | 2,438     |  
|Federal funds purchased and securities sold under agreements to repurchase                                                                |  |               | 59,380    |   |               |   | 58,571    |  
|Subordinated debentures                                                                                                                   |  |               | 37,114    |   |               |   | 37,114    |  
|Other borrowed funds                                                                                                                      |  |               | 98,704    |   |               |   | 97,822    |  
|Other liabilities                                                                                                                         |  |               | 14,121    |   |               |   | 11,504    |  
|                                                                                                                                          |  |               |           |   |               |   |           |  
|Total liabilities                                                                                                                         |  |               | 1,408,024 |   |               |   | 1,329,133 |  
|                                                                                                                                          |  |               |           |   |               |   |           |  
|Shareholders Equity:                                                                                                                     |  |               |           |   |               |   |           |  
|Common stock - $1 par value, authorized 50,000,000 shares in 2006 and 2005; issued 10,946,724 shares in 2006 and 9,615,806 shares in
2005 |  |               | 10,947    |   |               |   | 9,616     |  
|Surplus                                                                                                                                   |  |               | 75,189    |   |               |   | 53,749    |  
|Retained earnings                                                                                                                         |  |               | 91,477    |   |               |   | 89,516    |  
|Accumulated other comprehensive income (loss)                                                                                             |  |               | (11,825   | ) |               |   | (8,160    | )
|Treasury stock, at cost                                                                                                                   |  |               |          |   |               |   | (27,737   | )
|                                                                                                                                          |  |               |           |   |               |   |           |  
|Total shareholders equity                                                                                                                |  |               | 165,788   |   |               |   | 116,984   |  
|                                                                                                                                          |  |               |           |   |               |   |           |  
|Total Liabilities and Shareholders Equity                                                                                                |  | $             | 1,573,812 |   |               | $ | 1,446,117 |  
|                                                                                                                                          |  |               |           |   |               |   |           |  



4



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CADENCE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE PERIODS ENDED JUNE 30, 2006 AND
2005

(Unaudited)



|                                                                                  |  |      |          |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | ------- | -
|(Amounts in thousands)                                                            |  | 2006 |          |   | 2005 |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                              |  |      |          |   |      |   |         |  
|Net income                                                                        |  | $    | 6,744    |   |      | $ | 7,081   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |      |          |   |      |   |         |  
|Depreciation and amortization                                                     |  |      | 1,647    |   |      |   | 2,137   |  
|Deferred income taxes                                                             |  |      | (84      | ) |      |   | 137     |  
|Provision for loan losses                                                         |  |      | 1,228    |   |      |   | 993     |  
|Loss (gain) on sale of securities, net                                            |  |      | (19      | ) |      |   | (94     | )
|(Increase) decrease in interest receivable                                        |  |      | (952     | ) |      |   | (19     | )
|(Increase) decrease in other assets                                               |  |      | (2,292   | ) |      |   | (643    | )
|Increase (decrease) in interest payable                                           |  |      | 833      |   |      |   | 284     |  
|Increase (decrease) in other liabilities                                          |  |      | 2,617    |   |      |   | 1,821   |  
|                                                                                  |  |      |          |   |      |   |         |  
|Net cash provided by operating activities                                         |  |      | 9,722    |   |      |   | 11,697  |  
|                                                                                  |  |     
|CASH FLOWS FROM INVESTING ACTIVITIES                                              |  |      |          |   |      |   |         |  
|Proceeds from maturities and calls of securities                                  |  |      | 17,322   |   |      |   | 31,776  |  
|Proceeds from sale of securities                                                  |  |      | 1,916    |   |      |   | 13,585  |  
|Purchase of securities                                                            |  |      | (63,334  | ) |      |   | (20,756 | )
|(Increase) decrease in loans                                                      |  |      | (57,494  | ) |      |   | 16,911  |  
|(Additions) disposal of premises and equipment                                    |  |      | (4,344   | ) |      |   | (550    | )
|                                                                                  |  |      |          |   |      |   |         |  
|Net cash provided by (used in) investing activities                               |  |      | (105,934 | ) |      |   | 40,966  |  
|                                                                                  |  |     
|CASH FLOWS FROM FINANCING ACTIVITIES                                              |  |      |          |   |      |   |         |  
|Increase (decrease) in deposits                                                   |  |      | 73,750   |   |      |   | (4,530  | )
|Dividend on common stock                                                          |  |      | (4,783   | ) |      |   | (3,918  | )
|Increase (decrease) in borrowed funds                                             |  |      | 1,691    |   |      |   | (24,272 | )
|Proceeds from equity offering                                                     |  |      | 50,591   |   |      |   |        |  
|Charges related to equity offering                                                |  |      | (300     | ) |      |   |        |  
|Other financing activities                                                        |  |      | 218      |   |      |   | 42      |  
|                                                                                  |  |      |          |   |      |   |         |  
|Net cash provided by (used in) financing activities                               |  |      | 121,167  |   |      |   | (32,678 | )
|                                                                                  |  |     
|Net increase (decrease) in cash and cash equivalents                              |  |      | 24,955   |   |      |   | 19,985  |  
|Cash and cash equivalents at beginning of year                                    |  |      | 43,122   |   |      |   | 49,427  |  
|                                                                                  |  |      |          |   |      |   |         |  
|Cash and cash equivalents at end of period                                        |  | $    | 68,077   |   |      | $ | 69,412  |  
|                                                                                  |  |      |          |   |      |   |         |  
|Cash paid during the period for:                                                  |  |      |          |   |      |   |         |  
|Interest                                                                          |  | $    | 17,931   |   |      | $ | 12,371  |  
|                                                                                  |  |      |          |   |      |   |         |  
|Income taxes                                                                      |  | $    | 2,568    |   |      | $ | 135     |  
|                                                                                  |  |      |          |   |      |   |         |  



5



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CADENCE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The accompanying unaudited consolidated financial statements include the
accounts of Cadence Financial Corporation (the Corporation), formerly NBC Capital Corporation, Cadence Bank, N.A. (Cadence or the Bank), a wholly owned subsidiary of the Corporation, Enterprise Bancshares, Inc.
(Enterprise), a wholly owned subsidiary of the Corporation, Galloway-Chandler-McKinney Insurance Agency, Inc. (GCM), a wholly owned subsidiary of Cadence, NBC Insurance Services of Alabama, Inc. (Insurance), a
wholly owned subsidiary of Cadence, NBC Service Corporation (Service), a wholly owned subsidiary of Cadence, and Commerce National Insurance Company (CNIC), a wholly owned subsidiary of Service. All significant intercompany
accounts and transactions have been eliminated.

In the normal decision making process, management makes certain estimates and assumptions that affect the
reported amounts that appear in these statements. Although management believes that the estimates and assumptions are reasonable and are based on the best information available, actual results could differ.

In the opinion of management, all adjustments necessary for the fair presentation of the financial statements presented in this report have been made. Such adjustments
were of a normal recurring nature.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the
Corporations latest annual report on Form 10-K.

Note 1. Accounting Pronouncements

In February 2006, the Financial Accounting Standards Board (FASB) issued Statement No. 155, Accounting for Certain Hybrid Financial Instruments. This Statement amends Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities, to clarify the treatment of interest-only and principal-only strips on debt instruments under the Statement. Statement No. 155 also amends Statement
No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, to allow a qualifying special-purpose entity to hold additional types of derivative instruments. Statement No. 155 is
effective for all financial instruments acquired or issued after the beginning of the first fiscal year beginning after September 15, 2006. As the Corporation holds no interest-only or principal-only strips on debt instruments and does not
utilize special-purpose entities to hold derivative instruments, Statement No. 155 will not impact the Corporations consolidated financial statements.

In March 2006, the FASB issued Statement No. 156, Accounting for Servicing of Financial Assets. This Statement simplifies the accounting for servicing assets and liabilities, such as those associated with mortgage
securitization activities. The Statement is effective for all separately recognized servicing assets and liabilities acquired or issued after the beginning of a companys fiscal year beginning after September 15, 2006. As the Corporation
does not conduct any servicing activities associated with mortgage securitization, Statement No. 156 will not impact the Corporations consolidated financial statements.

Note 2. Goodwill and Other Intangible Assets

Goodwill represents the cost of acquired institutions in excess of the fair
value of the net assets acquired. In accordance with FASB Statement No. 142, Goodwill and Other Intangible Assets, the Corporation does not amortize goodwill but performs periodic testing of goodwill for impairment. At June 30,
2006, the Corporation had approximately $36.3 million of goodwill on its consolidated balance sheet, which will remain at that level unless it becomes impaired under the definition of impairment in Statement No. 142.

Other identifiable intangible assets consist primarily of the core deposit premium arising from acquisitions. The core deposit premium was established using the
discounted cash flow approach and is being amortized using an accelerated method over the estimated remaining life of the acquired core deposits.



6



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Note 3. Stock Options

Prior
to January 1, 2006, the Corporations stock option plans were accounted for under the recognition and measurement provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, as permitted by FASB Statement No. 123, Accounting for Stock-Based Compensation. As such, the Corporation did not recognize any compensation expense for stock options granted, since all stock options were priced at
the fair market value of the Corporations common stock on the date of grant.

The following table illustrates the effect on net earnings and earnings
per share if the Corporation had applied the fair value recognition provisions of Statement No. 123 to options granted under the Corporations stock option plans for the three and six months ended June 30, 2005:



|                                                                                                                                            |  |                                 |       |   |                               |   |       |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ----- | - | ----------------------------- | - | ----- | -
|(Amounts in thousands except per share data)                                                                                                |  | Three Months EndedJune 30, 2005 |       |   | Six Months EndedJune 30, 2005 |  
|Net income, as reported                                                                                                                     |  | $                               | 3,339 |   |                               | $ | 7,081 |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                                 | (49   | ) |                               |   | (114  | )
|                                                                                                                                            |  |                                 |       |   |                               |   |       |  
|Pro forma net income                                                                                                                        |  | $                               | 3,290 |   |                               | $ | 6,967 |  
|                                                                                                                                            |  |                                 |       |   |                               |   |       |  
|Basic net earnings per share:                                                                                                               |  |                                 |       |   |                               |   |       |  
|As reported                                                                                                                                 |  | $                               | 0.41  |   |                               | $ | 0.87  |  
|                                                                                                                                            |  |                                 |       |   |                               |   |       |  
|Pro forma                                                                                                                                   |  |                                 | 0.40  |   |                               |   | 0.85  |  
|                                                                                                                                            |  |                                 |       |   |                               |   |       |  
|Diluted net earnings per share:                                                                                                             |  |                                 |       |   |                               |   |       |  
|As reported                                                                                                                                 |  | $                               | 0.41  |   |                               | $ | 0.87  |  
|                                                                                                                                            |  |                                 |       |   |                               |   |       |  
|Pro forma                                                                                                                                   |  |                                 | 0.40  |   |                               |   | 0.85  |  
|                                                                                                                                            |  |                                 |       |   |                               |   |       |  

In the third quarter of 2005, the Compensation Committee of the Corporations Board of Directors reviewed the
Corporations stock option plans and the outstanding options. All outstanding options that were not vested were out-of-the-money and had been in that position for much of the year. In the Committees opinion, the options were not achieving
their intended purposes of incentive compensation and employee retention; thus, the Committee recommended to the Board of Directors that all outstanding options be vested. The Board of Directors voted to vest all outstanding options, effective
August 31, 2005. In accordance with the disclosure requirements of Statement No. 123, the expense reflected in the Corporations September 30, 2005 and December 31, 2005 statements of income includes all of the remaining
expense associated with the Corporations outstanding options.

Effective January 1, 2006, the Corporation adopted FASB Statement
No. 123(R), Share-Based Payment. This Statement requires that the fair value of equity instruments exchanged for employee services, as determined on the grant date of the award, be recognized as compensation cost over the period
during which an employee is required to provide service in exchange for the award  the requisite service period (usually the vesting period). Changes in fair value during the requisite service period will be recognized as compensation cost
over that period. The Statements provisions are to be applied to new awards and to awards modified, repurchased, or cancelled after the required effective date. Additionally, compensation cost for the portion of awards for which the requisite
service has not been rendered that are outstanding as of the required effective date shall be recognized as the requisite service is rendered on or after the required effective date.

As all of the Corporations outstanding options are fully vested, the adoption of Statement No. 123(R) will not impact the Corporations future results of operations unless the Board of Directors makes
additional grants under the new stock-based compensation plan adopted by shareholders at their annual meeting in June 2006. The 2006 long-term



7



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incentive compensation plan permits the Board of Directors to award eligible employees, consultants, and directors with
incentive-based and non-incentive-based compensation. The plan provides for up to 750,000 shares of the Corporations stock to be reserved for issuance under the plan. As of June 30, 2006, no shares had been issued under this plan.

Note 4. Variable Interest Entity

On December 30, 2003,
the Corporation issued $30,928,000 of floating rate junior subordinated deferrable interest debentures to NBC Capital Corporation (MS) Statutory Trust I (the Trust), a Connecticut business trust, in which the Corporation owns all of the
common equity. The debentures are the sole asset of the Trust. The net proceeds received by the Corporation from the issuance of the debentures were used for the Enterprise acquisition. The Trust issued $30 million of Trust Preferred Securities
(TPSs) to investors. The Corporations obligation under the debentures and related documents, taken together, constitute a full and unconditional guarantee by the Corporation of the Trusts obligation under the TPSs. The TPSs
are redeemable at the Corporations option on December 30, 2008, or earlier in the event the deduction of related interest for federal income taxes is prohibited, treatment as Tier 1 capital is no longer permitted, or certain other
contingencies arise. Thereafter, the TPSs may be redeemed in whole or in part on any interest payment date. The TPSs must be redeemed upon maturity of the debentures in 2033. The interest rate on the debentures and the TPSs is the three-month London
Interbank Offer Rate (LIBOR) plus 2.85%, and adjusts quarterly. Interest is payable on a quarterly basis.

With the acquisition of Enterprise,
the Corporation assumed the liability for an additional $6.2 million in subordinated debentures issued to support TPSs. As a result, the Corporation became the sole shareholder of Enterprise (TN) Statutory Trust I, a Connecticut business trust. The
original issue date on these TPSs and subordinated debentures was December 19, 2002 and the maturity date is December 19, 2032. These securities can also be redeemed in whole or in part at any interest payment date after December 19,
2007. The interest rate on these debentures and TPSs is three-month LIBOR plus 3.25%, and adjusts quarterly. Interest is payable on a quarterly basis.

In
accordance with FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities, neither of the above-referenced trusts is consolidated into the financial statements of the Corporation.

Note 5. Comprehensive Income

The following
tables disclose comprehensive income for the periods reported in the Consolidated Statements of Income:



|                                                                   |  |                       |         |   |      |   |        |  
|------------------------------------------------------------------ |  | --------------------- | ------- | - | ---- | - | ------ | -
|                                                                   |  | Quarter EndedJune 30, |        
|(In thousands)                                                     |  | 2006                  |         |   | 2005 |  
|Net income                                                         |  | $                     | 3,494   |   |      | $ | 3,339  |  
|Other comprehensive income (loss), net of tax:                     |  |                       |         |   |      |   |        |  
|Reclassification adjustment for (gain) loss included in net income |  |                       | (11     | ) |      |   | (60    | )
|Unrealized gains (losses) on securities                            |  |                       | (3,481  | ) |      |   | 2,432  |  
|                                                                   |  |                       |         |   |      |   |        |  
|                                                                   |  |                       | (3,492  | ) |      |   | 2,372  |  
|                                                                   |  |                       |         |   |      |   |        |  
|Comprehensive income (loss)                                        |  | $                     | 2       |   |      | $ | 5,711  |  
|                                                                   |  |                       |         |   |      |   |        |  
|Accumulated comprehensive income (loss)                            |  | $                     | (11,825 | ) |      | $ | (4,316 | )
|                                                                   |  |                       |         |   |      |   |        |  



8



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|                                                                   |  |                           |         |   |      |   |        |  
|------------------------------------------------------------------ |  | ------------------------- | ------- | - | ---- | - | ------ | -
|                                                                   |  | Six Months Ended June 30, |        
|(In thousands)                                                     |  | 2006                      |         |   | 2005 |  
|Net income                                                         |  | $                         | 6,744   |   |      | $ | 7,081  |  
|Other comprehensive income (loss), net of tax:                     |  |                           |         |   |      |   |        |  
|Reclassification adjustment for (gain) loss included in net income |  |                           | (12     | ) |      |   | (58    | )
|Unrealized gains (losses) on securities                            |  |                           | (3,646  | ) |      |   | 116    |  
|                                                                   |  |                           |         |   |      |   |        |  
|                                                                   |  |                           | (3,658  | ) |      |   | 58     |  
|                                                                   |  |                           |         |   |      |   |        |  
|Comprehensive income (loss)                                        |  | $                         | 3,086   |   |      | $ | 7,139  |  
|                                                                   |  |                           |         |   |      |   |        |  
|Accumulated comprehensive income (loss)                            |  | $                         | (11,825 | ) |      | $ | (4,316 | )
|                                                                   |  |                           |         |   |      |   |        |  

Note 6. Defined Benefit Pension Plan

The following tables contain the components of the net periodic benefit cost of the Corporations defined benefit pension plan for the periods indicated:



|                                               |  |                           |      |   |      |   |      |  
|---------------------------------------------- |  | ------------------------- | ---- | - | ---- | - | ---- | -
|                                               |  | Quarter Ended June 30,    |     
|(In thousands)                                 |  | 2006                      |      |   | 2005 |  
|Service cost                                   |  | $                         | 145  |   |      | $ | 157  |  
|Interest cost                                  |  |                           | 176  |   |      |   | 179  |  
|Expected return on assets                      |  |                           | (209 | ) |      |   | (204 | )
|Net (gain)/loss recognition                    |  |                           | 95   |   |      |   | 100  |  
|Prior service cost amortization                |  |                           | (31  | ) |      |   | (31  | )
|                                               |  |                           |      |   |      |   |      |  
|Preliminary net periodic benefit cost/(income) |  |                           | 176  |   |      |   | 201  |  
|Immediate recognition due to settlement        |  |                           | 318  |   |      |   |     |  
|                                               |  |                           |      |   |      |   |      |  
|Net periodic benefit cost/(income)             |  | $                         | 494  |   |      | $ | 201  |  
|                                               |  |                           |      |   |      |   |      |  
|                                               | 
|                                               |  | Six Months Ended June 30, |     
|(In thousands)                                 |  | 2006                      |      |   | 2005 |  
|Service cost                                   |  | $                         | 291  |   |      | $ | 314  |  
|Interest cost                                  |  |                           | 352  |   |      |   | 359  |  
|Expected return on assets                      |  |                           | (418 | ) |      |   | (408 | )
|Net (gain)/loss recognition                    |  |                           | 189  |   |      |   | 201  |  
|Prior service cost amortization                |  |                           | (63  | ) |      |   | (63  | )
|                                               |  |                           |      |   |      |   |      |  
|Preliminary net periodic benefit cost/(income) |  |                           | 351  |   |      |   | 403  |  
|Immediate recognition due to settlement        |  |                           | 637  |   |      |   |     |  
|                                               |  |                           |      |   |      |   |      |  
|Net periodic benefit cost/(income)             |  | $                         | 988  |   |      | $ | 403  |  
|                                               |  |                           |      |   |      |   |      |  



9



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The expected rate of return for 2006 and 2005 was 7.5%.

The Corporation has until September 15, 2007 to make any necessary cash contributions to the plan for 2006. However, to maximize funding levels and to take advantage of certain tax benefits, the Corporation
expects to deposit to the plan an amount ranging from the calculated minimum required contribution to the maximum deductible contribution by December 31, 2006. This amount is estimated to be approximately $1.1 million.

Note 7. Investment Securities

In accordance with FASB Staff Position Nos.
FAS 115-1 and FAS 124-1, The Meaning of Other-than-Temporary Impairment and Its Application to Certain Investments, for the quarter and six-month period ended June 30, 2006, management reviewed the securities portfolio for
securities that had unrealized losses for more than twelve months and that could be considered other-than-temporary. As of June 30, 2006, approximately 77% of the number of securities in the portfolio reflected an unrealized loss. Included in
this percentage are three government-sponsored agency equities with combined par values of $15.0 million. These securities reflected a combined unrealized loss of $1.3 million (net of tax) as of June 30, 2006.

In conducting its review for other-than-temporary impairment, management evaluated a number of factors including, but not limited to the following: the amount of the
unrealized loss; the length of time in which the unrealized loss has existed; the financial condition of the issuer; rating agency changes on the issuer; and managements intent and ability to hold the security for a period of time sufficient
to allow for any anticipated recovery in fair value.

The agency equities price from indices that have steadily increased over the past twelve months, and
the prices of the combined securities have improved by $1.2 million over the past twelve months. The agencies have continued to pay dividends on their preferred and common stock issues, and the ratings of the securities have not declined. Management
believes that other unrealized losses in its securities portfolio are related to changes in interest rates and not to the credit quality of the issuers. It is also managements opinion that the Corporation has the intent and ability to hold
these securities until such time as the value recovers or the securities mature. Thus, the Corporation has not recognized any other-than-temporary impairment in connection with these securities.

Note 8. Acquisitions

On March 16, 2006, the Corporation signed a
definitive agreement to acquire SunCoast Bancorp, Inc. (SunCoast), the holding company for SunCoast Bank, located in Sarasota and Manatee Counties, Florida. The acquisition is valued at approximately $34.8 million, of which 45% will be
paid in cash and 55% will be paid in shares of the Corporations common stock. Option holders will receive the difference between the cash election price and the option price of their options, or an aggregate of approximately $1.0 million. The
acquisition has been approved by regulators and SunCoast shareholders and is expected to close in August 2006.

On March 21, 2006, the Corporation
signed a definitive agreement to acquire Seasons Bancshares, Inc. (Seasons), the holding company for Seasons Bank, headquartered in Blairsville, Georgia. The acquisition is valued at approximately $22.0 million, of which 45% will be paid
in cash and 55% will be paid in shares of the Corporations common stock. The acquisition is subject to regulatory and Seasons shareholder approval and is expected to close in the fourth quarter of 2006.

Note 9. Derivative Instruments

During the first six months of 2006, the
Corporation hedged a portion of its floating rate prime based lending portfolio using five floating to fixed interest rate swaps with a total notional amount of $50 million. Original maturities on these swaps range from twelve to twenty-four months,
and rates range from 7.68% to 8.02%. These transactions were initiated to protect the Corporation from future downward fluctuations in the prime rate and to help ensure a more constant cash flow from interest earned by its prime based lending
portfolio. The transactions are cash flow hedges as defined by FASB Statement No. 133.



10



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In accordance with Statement No. 133, a cash flow hedge must be assessed at inception and on an ongoing basis as to
the effectiveness of the derivative instrument in offsetting changes in cash flow of the hedged item. For a cash flow hedge, changes in the fair value of the derivative instrument, to the extent that it is effective, is recorded in accumulated other
comprehensive income and subsequently reclassified to earnings as the hedged transaction impacts net income. Any ineffective portion of a cash flow hedge is recognized currently in earnings.

The effectiveness of the transactions described above was tested as of June 30, 2006, in accordance with Statement No. 133, and management determined that as
of that date, the transactions remained highly effective, as defined by the Statement. For the quarter and six-month period ended June 30, 2006, $113,000 and $166,000, respectively, were recorded as adjustments to other
comprehensive income for the decline in fair value of these transactions.

Note 10. Equity Offering

On May 12, 2006, the Corporation closed on a public offering of its common stock. 2.76 million shares were sold at a price of $19.50 per share, with net
proceeds of approximately $50.6 million. These proceeds will be used to fund the acquisitions of SunCoast and Seasons and for other general corporate purposes.

ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking
Information

The following provides a narrative discussion and analysis of significant changes in our results of operations and financial condition for
the quarter and six months ended June 30, 2006. Certain information included in this discussion contains forward-looking statements and information that are based on managements conclusions, drawn from certain assumptions and information
currently available. The Private Securities Litigation Act of 1995 encourages the disclosure of forward-looking information by management by providing a safe harbor for such information. This discussion includes forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Although we believe that the expectations reflected in such forward-looking
statements are reasonable, such forward-looking statements are based on numerous assumptions (some of which may prove to be incorrect) and are subject to risks and uncertainties, which could cause the actual results to differ materially from our
expectations. The forward-looking statements made in this document are based on managements beliefs, as well as assumptions made by and information currently available to management. When used in our documents, the words
anticipate, estimate, expect, objective, projection, forecast, goal and similar expressions are intended to identify forward-looking statements. In addition to any
assumptions and other factors referred to specifically in connection with forward-looking statements, factors that could cause our actual results to differ materially from those contemplated in any forward-looking statements include, among others,
increased competition, regulatory factors, economic conditions, changing interest rates, changing market conditions, availability or cost of capital, employee workforce factors, cost and other effects of legal and administrative proceedings, changes
in federal, state or local laws and regulations and other factors identified in Item 1A, Risk Factors, and Item 7A, Quantitative and Qualitative Disclosures about Market Risk, of our Annual Report on Form 10-K for
the year ended December 31, 2005 and that may be discussed from time to time in our reports filed with the Securities and Exchange Commission subsequent to this report. We undertake no obligation to update or revise any forward-looking
statements, whether as a result of changes in actual results, changes in assumptions or other factors affecting such statements.

Introduction and
Management Overview

Cadence Financial Corporation (formerly NBC Capital Corporation) is a financial holding company that owns Cadence Bank, N.A.
(Cadence or the Bank), which operates in eastern Mississippi, Tuscaloosa and Hoover, Alabama, and Memphis and Williamson County, Tennessee. We provide full financial services, including banking, trust services, mortgage
services, insurance and investment products. Our stock is listed on the American Stock Exchange (AMEX) under the ticker symbol of NBY.

For
purposes of the following discussion, the words the Corporation, we, us and our refer to the combined entities of Cadence Financial Corporation and Cadence, unless the context suggests otherwise.



11



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For the first half of 2006, our net interest margin was 3.57%, compared to 3.54% for the same period of 2005. Increasing
interest rates during the first half of 2006 continued to improve our yields on loans, as the loan portfolio, which is composed of approximately 60% variable rate loans and 40% fixed rate loans, repriced upward. Our loan yields increased by 115
basis points as compared to the first half of 2005. In addition, our average loan balances increased by approximately $63.5 million. The improved rate environment also positively impacted the yields on our investment portfolio, as they increased by
26 basis points as compared to the first half of 2005. However, our net interest margin was negatively impacted by the increase in our overall cost of funds (104 basis points as compared to the first half of 2005), as the rising rate environment
continued to put pressure on deposit and other borrowing rates.

We have maintained our underwriting standards, even during the recent periods of low rates
and, as a result, we believe that the overall credit quality of the loan portfolio was very good at the end of the second quarter.

Noninterest income,
exclusive of gains on securities, was $10.1 million for the first half of 2005 and the first half of 2006. Both periods contained large unusual items, described in more detail under the Results of Operations section of this discussion.
During the first half of 2006, noninterest income accounted for 19.0% of total income. The growth of noninterest income continues to be one of our major strategic goals.

Another goal of management in 2006 is to continue to control the level of noninterest expenses. During the first half of 2006, total noninterest expenses increased by $1.6 million, or 7.3%, from the same period of
2005, primarily resulting from increased salaries and employee benefits costs.

During the first half of 2006, we recognized $19,000 in securities gains,
compared to $94,000 in gains in the first half of 2005. This, along with all of the factors discussed in the preceding paragraphs, resulted in our reporting net income of $6.7 million, or $.75 per share, for the first half of 2006, compared to $7.1
million, or $.87 per share, for the first half of 2005.

Currently, management expects, based on available information, that interest rates will increase
slightly, then level out during the second half of 2006 and begin to move downward in 2007. Management also anticipates overall economic improvement in our Mississippi markets, as several companies have recently announced their intentions to expand
their operations and/or begin production in the near future. Also, some of our markets qualify for significant tax credits for facilities and equipment constructed or purchased in 2006 as a result of the Hurricane Katrina Relief Act. We expect
strong growth to continue in both the Memphis and Tuscaloosa markets and believe that our recent entries into the Birmingham and Nashville MSAs will provide us with two additional strong growth markets. We based our 2006 projections, budgets and
goals on these expectations. If these trends move differently than expected in either direction or speed, they could have a material impact on our financial condition and results of operations. The areas of our operations most directly impacted
would be the net interest margin, loan and deposit growth and the provision for loan losses.

Midway through 2006, we have made progress toward achieving
our strategic objectives established for the year. At the annual shareholders meeting held in June, our shareholders voted to change our corporate name to Cadence Financial Corporation. The change aligns our corporate name with that of the Bank and
further leverages the brand being created in our markets. The new Cadence brand is part of an overall marketing and business strategy that we expect to create both operational efficiencies through the reorganization and consolidation of financial
and reporting functions of Enterprise National Bank and Cadence, and marketing efficiencies through the name change by having one uniform marketing effort and brand. In the first quarter, we opened a Cadence branch in Williamson County, Tennessee
(Nashville MSA). We plan to open two new branches in the Memphis market during the second half of 2006. We also plan to open one new branch in the Birmingham market in the fourth quarter of 2006 or the first quarter of 2007.

On March 16, 2006, we signed a definitive agreement to acquire SunCoast Bancorp, Inc. (SunCoast), the holding company for SunCoast Bank, a commercial
bank operating in Sarasota and Manatee Counties, Florida. The acquisition has been approved by SunCoast shareholders and appropriate regulatory authorities and is expected to close in August 2006. This acquisition will allow us to expand into the
fast growing markets of Tampa, Sarasota, and Naples.



12



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On March 21, 2006, we signed a definitive agreement to acquire Seasons Bancshares, Inc. (Seasons), the
holding company for Seasons Bank, a commercial bank headquartered in Blairsville, Georgia. Subject to regulatory and Seasons shareholder approval, the acquisition is expected to close in the fourth quarter of 2006 and will allow us to expand into
other markets in Georgia.

On May 12, 2006, we closed on a public offering of our common stock. 2.76 million shares were sold at a price of
$19.50 per share, with net proceeds of approximately $50.6 million. We will use these proceeds to fund the acquisitions of SunCoast and Seasons and for other general corporate purposes.

The stock offering significantly impacted our earnings per share for the second quarter and year to date period. The average shares outstanding increased from 8,164,511 for the second quarter of 2005 to 9,782,328 for
the second quarter of 2006. On a year to date basis, average shares outstanding increased from 8,163,782 in 2005 to 8,988,646 in 2006.

We are continuing
current efforts to grow loans and increase our margin. With the potential improvement in the Mississippi market and the continued strong growth in Tennessee and Alabama, management believes that we will achieve solid loan growth for the year. The
expansion of the margin, however, will be a more difficult objective to attain. The flat yield curve presents a significant obstacle. Also, as is normal in a rising rate environment, the cost of deposits lagged behind the increase in yield on the
asset side of the balance sheet. However, management believes that we can show some improvement in our margin for the year.

We continue to look for ways
to grow noninterest income. The planned growth in the Memphis market, the expansion into the Birmingham and Nashville MSAs and the planned acquisitions of SunCoast and Seasons should provide new customer bases for our other banking products and
services. We also continue our efforts to control noninterest expenses and look for ways to improve our efficiency ratio. At December 31, 2005, management estimated that strategic growth plans would cost approximately nineteen cents per fully
diluted share in 2006. Subsequent to that estimate, we announced the pending acquisitions of SunCoast and Seasons, as well as the common stock offering discussed earlier. These events are expected to cost another eighteen cents per fully diluted
share in 2006.

Critical Accounting Policies

Our
accounting and financial reporting policies conform to United States generally accepted accounting principles and to general practices within the banking industry. Note A of the Notes to Consolidated Financial Statements included in our annual
report on Form 10-K for the year ended December 31, 2005 contains a summary of our accounting policies. Management is of the opinion that Note A, read in conjunction with all other information in the annual report, including managements
letter to shareholders and managements discussion and analysis, is sufficient to provide the reader with the information needed to understand our financial condition and results of operations.

It is managements opinion that the areas of the financial statements that require the most difficult, subjective and complex judgments, and therefore contain the
most critical accounting estimates, are the provision for loan losses and the resulting allowance for loan losses; the liability and expense relating to our pension and other postretirement benefit plans; issues relating to other-than-temporary
impairment losses in the securities portfolio; and goodwill and other intangible assets.

Provision for Loan Losses/Allowance for Loan Losses

Our provision for loan losses is utilized to replenish the allowance for loan losses on the balance sheet. The allowance is maintained at a level
deemed adequate by the Board of Directors after its evaluation of the risk exposure contained in our loan portfolio. The senior credit officers and the loan review staff perform the methodology used to make this determination on a quarterly basis.
As a part of this evaluation, certain loans are individually reviewed to determine if there is an impairment of our ability to collect the loans and the related interest.



13



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This determination is generally made based on collateral value. If the senior credit officers and loan review staff
determine that impairments exist, specific portions of the allowance are allocated to these individual loans. We group all other loans into homogeneous pools and determine risk exposure by considering the following list of factors (this list is not
all-inclusive and the factors reviewed may change as circumstances change): historical loss experiences; trends in delinquencies and non-accruals; and national, regional and local economic conditions. (These economic conditions would include, but
not be limited to, general real estate conditions, the current interest rate environment and trends, unemployment levels and other information, as deemed appropriate.) Management makes its estimates of the credit risk in the portfolio and the amount
of provision needed to keep the allowance for loan losses at an appropriate level using what management believes are the best and most current sources of information available at the time of the estimates; however, many of these factors can change
quickly and with no advance warning. If management significantly misses its estimates in any period, it can have a material impact on the results of operations for that respective period and for subsequent periods.

Pension and Other Postretirement Benefit Plans

Another of the areas
that requires subjective and complex judgments is the liability and expense relating to our pension and other postretirement benefit plans. The assumptions used in the determination of pension liability, including the discount rate, the expected
rate of return on plan assets, and increases in future compensation, are evaluated by management, reviewed with the plan actuaries and updated as appropriate. Actual experience that differs from the assumptions could have a significant impact on our
financial position and results of operations. The discount rate and the expected rate of return on plan assets have a significant impact on the actuarially computed present value of future benefits that is recorded on the financial statements as a
liability and the corresponding pension expense. In selecting the expected rate of return, management, in consultation with the plan trustees, has selected a rate based on assumptions compared to recent returns and economic forecasts. Considerations
were given to the current allocation of the portfolio and the probable rates of return of each investment type. In selecting the discount rate, management, in consultation with actuarial consultants, selected rates that are based on rates of return
on long-term, high-quality bonds having maturity dates corresponding as closely as possible to the expected retirement dates of the employees and the subsequent payout periods of the respective plans.

Other-Than-Temporary Impairment

The third area that requires
subjective and complex judgment on the part of management is the review of the investment of the securities portfolio for other-than-temporary impairment. In accordance with FASB Staff Position Nos. FAS 115-1 and FAS 124-1, The Meaning of
Other-than-Temporary Impairment and Its Application to Certain Investments, we must review our investment portfolio and determine if it has impairment losses that are other-than-temporary. In making its determination, management must consider
many factors, including the following: (1) the length of time and extent to which the current market value is less than cost; (2) evidence of a forecasted recovery; (3) financial condition and industry environment of the issuer;
(4) downgrades of the securities by rating agencies; (5) whether there has been a reduction or elimination of dividends or interest payments; and (6) whether we have the intent or ability to hold the securities for a period of time
sufficient to allow for anticipated recovery of fair value.

Goodwill and Other Intangible Assets

FASB Statement No. 142, Goodwill and Other Intangible Assets, eliminated the requirement to amortize goodwill; however, it does require periodic testing
for impairment. We completed our impairment test in accordance with Statement No. 142 in October 2005 and concluded that no impairment write down was warranted. At June 30, 2006, we had approximately $36.3 million of goodwill on our
balance sheet, which will remain at that level unless it becomes impaired under the definition of impairment in Statement No.142.

Results of Operations

First two quarters of 2006 compared to the first two quarters of 2005

Earnings for the first half of 2006 were $6.74 million, or $.75 per share, compared to $7.08 million, or $.87 per share, for the first half of 2005. On an annualized basis, these 2006 totals equate to a 0.9% return on
average assets



14



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and a 10.1% return on average equity. For this same period in 2005, the annualized return on average assets was 1.0% and
the annualized return on average equity was 12.2%. The change in return on average equity was impacted by the public offering of common stock completed on May 12, 2006 that resulted in net proceeds of approximately $50.6 million.

Net interest income for the first half of 2006 was $23.8 million, compared to $22.4 million for 2005. This represents an increase of 6.3%. During this period, the net
interest margin was 3.57%, compared to 3.54% for the same period of 2005. In addition to this three basis point increase in margin, average earning assets increased from $1.28 billion in 2005 to $1.35 billion in 2006. This increase amounted to $69.4
million, or 5.4%. In comparing the first half of 2006 to the same period of 2005, we gained 90 basis points of yield on our earning assets. However, during this period, the cost of funds increased by 104 basis points. The increase in average assets
is composed of the following: average loans increased from $806.3 million during the first half of 2005 to $869.8 million during the first half of 2006; average federal funds sold and other interest-bearing cash accounts increased from $19.0 million
during the first half of 2005 to $20.6 million during the first half of 2006; and the average balance in investment securities increased from $451.7 million during the first half of 2005 to $456.0 million during the first half of 2006. From the
first half of 2005 to the first half of 2006, the yield on loans increased from 6.27% to 7.42%, the yield on federal funds sold increased from 2.66% to 5.42% and the yield on the investment securities portfolio increased from 4.36% to 4.62%. For
additional information, see the table entitled Analysis of Net Interest Earnings at the end of this section.

The provision for loan losses
increased from $993,000 during the first half of 2005 to $1.2 million in the same period of 2006. In managements opinion, the current level of the provision should be sufficient to protect us from any unforeseen deterioration in the quality of
the loan portfolio.

Noninterest income includes various service charges, fees and commissions, including insurance commissions earned by GCM. It has been,
and continues to be, one of our strategic focuses to diversify our other income sources so that we can be less dependent on net interest income. Noninterest income, exclusive of securities gains and losses, was relatively flat from the first half of
2005 to the first half of 2006. The following table reflects the details of these amounts:



|                                         |  |                           |        |      |   |        |  |   |      |  
|---------------------------------------- |  | ------------------------- | ------ | ---- | - | ------ |  | - | ---- | -
|                                         |  | Six Months Ended June 30, |       
|(In thousands)                           |  | 2006                      |        | 2005 |   | Change | 
|Service charges on deposit accounts      |  | $                         | 4,228  |      | $ | 3,905  |  | $ | 323  |  
|Insurance commissions, fees and premiums |  |                           | 2,224  |      |   | 2,356  |  |   | (132 | )
|Trust Department income                  |  |                           | 1,111  |      |   | 1,099  |  |   | 12   |  
|Mortgage loan fees                       |  |                           | 323    |      |   | 393    |  |   | (70  | )
|Other income                             |  |                           | 2,234  |      |   | 2,337  |  |   | (103 | )
|                                         |  |                           |        |      |   |        |  |   |      |  
|Total other income                       |  | $                         | 10,120 |      | $ | 10,090 |  | $ | 30   |  
|                                         |  |                           |        |      |   |        |  |   |      |  

Service charges on deposit accounts increased by $323,000, or 8.3%. The increase is due mostly to improved
management and oversight of our noninterest-bearing accounts. Insurance commissions, fees, and premiums decreased by $132,000, or 5.6%, because of a decrease in profit sharing received from the insurance carriers based on loss experience. Other
noninterest income declined by $103,000, or 4.4%. This decline was due to a one-time gain of $837,000 received in the first half of 2005 that related to our interest in the Pulse card-clearing network, which was sold during that period. In the first
half of 2006, we also recorded a $407,000 gain on early extinguishment of debt related to prepayments on certain Federal Home Loan Bank (FHLB) borrowings.

We recognized $19,000 in securities gains during the first half of 2006, compared to gains of $94,000 during the first half of 2005.

Noninterest expense represents ordinary overhead expenses. These expenses increased $1.6 million, or 7.3%, during the first half of 2006, compared with the first half of 2005. The following table reflects the details
of this change:



15



---

|                                 |  |                           |        |      |   |        |  |   |      
|-------------------------------- |  | ------------------------- | ------ | ---- | - | ------ |  | - | -----
|                                 |  | Six Months Ended June 30,
|(In thousands)                   |  | 2006                      |        | 2005 |   | Change
|Salaries and employee benefits   |  | $                         | 13,589 |      | $ | 12,387 |  | $ | 1,202
|Premises and fixed asset expense |  |                           | 3,194  |      |   | 3,108  |  |   | 86   
|Other expense                    |  |                           | 6,685  |      |   | 6,379  |  |   | 306  
|                                 |  |                           |        |      |   |        |  |   |      
|Total other expense              |  | $                         | 23,468 |      | $ | 21,874 |  | $ | 1,594
|                                 |  |                           |        |      |   |        |  |   |      

Salaries and employee benefits increased by $1,202,000, or 9.7%. This increase can be attributed to two primary
factors: 1) salaries and employee benefits related to the de novo branches in Hoover, Alabama and Williamson County, Tennessee; and 2) pension costs associated with certain scheduled retirements. Other noninterest expenses increased by $306,000, or
4.8%. The increase is due to increases in several expense categories, including advertising, supplies, computer services, and director fees.

Changes in
our income tax expense have generally paralleled changes in income. Our effective tax rate was stable at 27.3% for the first half of 2005 and the first half of 2006.

Second quarter of 2006 compared to the second quarter of 2005

Earnings for the second quarter of 2006 were $3.49
million, or $.36 per share, compared to $3.34 million, or $.41 per share, for the second quarter of 2005. On an annualized basis, these 2006 totals equate to a 0.9% return on average assets and a 9.8% return on average equity. For this same period
in 2005, the annualized return on average assets was 1.0% and the annualized return on average equity was 11.5%. As was the case for the year to date, the return on average equity was impacted by the $50.6 million sale of common stock completed on
May 12, 2006.

Net interest income for the second quarter of 2006 was $12.1 million, compared to $11.2 million for 2005. This represents an increase
of 7.5%. During this quarter, the net interest margin was 3.61%, compared to 3.57% for the same period of 2005. This increase in margin was partially due to a $108.0 million increase in average earning assets. In comparing the second quarter of 2006
to the same quarter of 2005, we gained 91 basis points of yield on our average earning assets. However, during the same period, the cost of funds increased by 114 basis points. The increase in average earning assets is composed of the following:
average loans increased from $802.2 million during the second quarter of 2005 to $879.9 million during the second quarter of 2006; average federal funds sold and other interest-bearing cash accounts increased from $16.2 million during the second
quarter of 2005 to $25.3 million during the second quarter of 2006; and the average balance in investment securities increased from $445.0 million to $466.1 million. From the second quarter of 2005 to the second quarter of 2006, the yield on loans
increased from 6.39% to 7.56%, the yield on federal funds sold increased from 2.74% to 6.09% and the yield on the investment securities portfolio increased from 4.41% to 4.67%. The cost of deposits increased from 1.99% to 3.16% and the cost of other
borrowings increased from 4.12% to 5.11%. For additional information, please see the table entitled Analysis of Net Interest Earnings at the end of this section.

The provision for loan losses increased from $358,000 during the second quarter of 2005 to $827,000 in the same quarter of 2006. In managements opinion, the current level of the provision should be sufficient to
protect us from any unforeseen deterioration in the quality of the loan portfolio.

Our noninterest income, exclusive of securities gains and losses,
increased by $520,000, or 10.7%, from the second quarter of 2005 to the second quarter of 2006. The following table reflects the details of this change:



16



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|                                         |  |                        |       |      |   |        |  |   |      |  
|---------------------------------------- |  | ---------------------- | ----- | ---- | - | ------ |  | - | ---- | -
|                                         |  | Quarter Ended June 30, |      
|(In thousands)                           |  | 2006                   |       | 2005 |   | Change | 
|Service charges on deposit accounts      |  | $                      | 2,243 |      | $ | 2,035  |  | $ | 208  |  
|Insurance commissions, fees and premiums |  |                        | 1,099 |      |   | 1,222  |  |   | (123 | )
|Trust Department income                  |  |                        | 585   |      |   | 593    |  |   | (8   | )
|Mortgage loan fees                       |  |                        | 183   |      |   | 216    |  |   | (33  | )
|Other income                             |  |                        | 1,267 |      |   | 791    |  |   | 476  |  
|                                         |  |                        |       |      |   |        |  |   |      |  
|Total other income                       |  | $                      | 5,377 |      | $ | 4,857  |  | $ | 520  |  
|                                         |  |                        |       |      |   |        |  |   |      |  

The change in noninterest income resulted primarily from a $407,000 gain on early extinguishment of debt related
to prepayments of certain FHLB borrowings, reflected in the other noninterest income category. Service charges on deposit accounts increased by 10.2%, due mostly to improved management and oversight of our noninterest-bearing accounts. The 10.0%
decrease in insurance commissions and fee income resulted from a decrease in profit sharing received from the insurance carriers based on loss experience.

We recognized $17,000 in securities gains during the second quarter of 2006, compared to gains of $97,000 during the second quarter of 2005.

Noninterest expenses increased $468,000, or 4.1%, during the second quarter of 2006, compared with the second quarter of 2005. The following table reflects the details of this change:



|                                 |  |                        |        |      |   |        |  |   |    
|-------------------------------- |  | ---------------------- | ------ | ---- | - | ------ |  | - | ---
|                                 |  | Quarter Ended June 30,
|(In thousands)                   |  | 2006                   |        | 2005 |   | Change
|Salaries and employee benefits   |  | $                      | 6,797  |      | $ | 6,494  |  | $ | 303
|Premises and fixed asset expense |  |                        | 1,618  |      |   | 1,495  |  |   | 123
|Other expense                    |  |                        | 3,419  |      |   | 3,377  |  |   | 42 
|                                 |  |                        |        |      |   |        |  |   |    
|Total other expense              |  | $                      | 11,834 |      | $ | 11,366 |  | $ | 468
|                                 |  |                        |        |      |   |        |  |   |    

Salaries and employee benefits increased by $303,000, or 4.7%. This increase can be attributed to two primary
factors: 1) salaries and employee benefits related to the de novo branches in Hoover, Alabama and Williamson County, Tennessee; and 2) pension costs associated with certain scheduled retirements. Expenses associated with premises and fixed assets
increased by $123,000, or 8.2%, due to an overall increase in utilities expenses and rental expenses for the Williamson County branch.

Our effective tax
rate increased from 25.3% for the second quarter of 2005 to 27.5% for the second quarter of 2006. This increase in the effective tax rate for the quarter resulted primarily from the mix of income from tax-free investments and the percentage
relationship of tax-free income to total pre-tax income.

Financial Condition

During the first half of 2006, our balance sheet showed an increase in total assets from $1.45 billion to $1.57 billion, an increase of approximately $127.7 million, or 8.8%. During the period, cash and cash
equivalents increased by approximately $25.0 million, or 57.9%, from $43.1 million to $68.1 million. Also, during the first half of 2006, the investment securities portfolio increased from $442.4 million to $481.0 million. This represented an
increase of $38.6 million, or 8.7%. The increase is primarily due to investing proceeds received from our common stock offering, which was completed in May 2006. The loan portfolio increased from $860.6 million at the end of 2005 to $917.7 million
at the end of the second quarter of 2006. Loan balances increased in our Alabama and Tennessee markets and were virtually flat in our Mississippi markets.

At June 30, 2006, the allowance for loan losses was $10.1 million. This amount represents an $822,000, or 8.8%, increase from December 31, 2005, and a $623,000, or 5.8%, decrease from June 30, 2005. Even though there has been
strong competition for good quality credits in our markets, we have not reduced our underwriting standards, and as a result, the quality of the portfolio remains strong.



17



---

The following table reflects some of the statistics we use to evaluate the quality and potential exposure within our loan
portfolio:



|                                                                 |  |                          |   |  |                     |   |  |                          |  
|---------------------------------------------------------------- |  | ------------------------ | - |  | ------------------- | - |  | ------------------------ | -
|                                                                 |  | Six Months Ended 6/30/06 |   |  | Year Ended 12/31/05 |   |  | Six Months Ended 6/30/05 |  
|Net charge-offs as a percentage of average net loans outstanding |  | 0.05                     | % |  | 0.46                | % |  | 0.14                     | %
|Non-performing loans as a percentage of total loans              |  | 0.25                     | % |  | 0.30                | % |  | 0.52                     | %
|Classified assets as a percentage of average capital             |  | 14.13                    | % |  | 17.73               | % |  | 19.69                    | %
|Allowance for loan losses as a percentage of total loans         |  | 1.10                     | % |  | 1.08                | % |  | 1.33                     | %

Based on the evaluations described earlier and the information above, the allowance for loan losses at
June 30, 2006 was deemed adequate to cover exposure within our loan portfolio.

The liability side of the balance sheet increased from $1.3 billion at
December 31, 2005 to $1.4 billion at June 30, 2006, an increase of $78.9 million, or 5.9%. During the first half of 2006, deposits increased by $73.8 million, or 6.6%, from $1.1 billion to $1.2 billion. The increase resulted from a $76.2
million, or 8.0%, increase in interest-bearing deposits, somewhat offset by a $2.5 million, or 1.5%, decrease in noninterest-bearing deposits. During the period, we actively sought to increase deposits, in order to fund expected increases in loan
demand.

Shareholders equity increased from $117.0 million to $165.8 million during the first half of 2006. In May 2006, we completed a public
offering of 2.76 million shares of our common stock resulting in net proceeds of approximately $50.6 million. Our treasury stock shares were reissued as part of this offering. The proceeds from the offering will be used to fund the acquisitions
of SunCoast and Seasons and for other general corporate purposes. We earned $6.7 million in net income during the first half of 2006. Partially offsetting this income was a decrease in the market value of the available-for-sale portion of the
investment securities portfolio, causing accumulated other comprehensive income to move from an unrealized loss of $8.2 million at December 31, 2005 to an unrealized loss of $11.8 million at June 30, 2006. Also, during the first half of
2006, we declared dividends of approximately $4.8 million.

Cadence is required to maintain a minimum amount of capital to total risk-weighted assets as
defined by the banking regulators. At June 30, 2006, the Banks Tier 1, Tier 2 and total risk-based capital ratios exceeded the well-capitalized standards developed under applicable regulatory guidelines.

Dividends paid by our holding company are provided from dividends received from the Bank. Under regulations controlling national banks, the payment of dividends by a
bank without prior approval from the Comptroller of the Currency is limited in amount to the current years net profit and the retained net earnings of the two preceding years. At June 30, 2006, without approval from the Comptroller of the
Currency, Cadences ability to pay dividends was limited to approximately $9.0 million.

Also, under regulations controlling national banks, the Bank
is limited in the amount it can lend to our holding company or any of its non-banking subsidiaries, and such loans are required to be on a fully secured basis. At June 30, 2006, there were no formal borrowings between the holding company (or
its non-banking subsidiaries) and the Bank.

In the normal course of business, Cadence makes loans to related parties, including our directors and
executive officers and their relatives and affiliates. These loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other parties. Also, they are
consistent with sound banking practices and within applicable regulatory and lending limitations. See Note O in the Notes to Consolidated Financial Statements included in our annual report on Form 10-K and our proxy statement for additional details
concerning related party transactions.



18



---

Under Section 402 of the Sarbanes-Oxley Act of 2002, loans to executive officers are generally prohibited. However,
the rule does not apply to any loan made or maintained by an insured depository institution, if the loan is subject to the insider lending restrictions of section 22(h) of the Federal Reserve Act. All loans that the Bank makes to executive officers
are subject to the above referenced section of the Federal Reserve Act.

Off-Balance Sheet Arrangements

In the ordinary course of our business, we enter into agreements with customers to loan money. When a loan agreement is executed, the customer can either borrow the money
immediately or draw against the loan over a predetermined time period. If an unfunded commitment is drawn against, the Bank charges the customer the interest rate established in the original agreement for the amount of the draw for the time period
outstanding. As of June 30, 2006, the amount of unfunded commitments outstanding was $273.1 million.

We also provide letters of credit to our
customers. A letter of credit is a contingent obligation to make a loan to the customer for up to the amount of the letter of credit and at a predetermined rate of interest. The Bank charges the customer approximately 1.5% of the face amount of a
letter of credit as a fee for issuance. As of June 30, 2006, the amount of outstanding letters of credit was $11.7 million.

The issuance of a letter
of credit or a loan commitment is subject to the same credit and underwriting standards as any other loan agreement.

At any point in time, we do not know
when or if these commitments will be funded. Generally, if they are funded, they are funded at various times over the commitment period. As a result, we are able to fund them out of normal cash flow. If all outstanding commitments were funded at the
same time, we have the ability to fund them through our short-term borrowing lines, the brokered certificate of deposit market and additional FHLB borrowings.

It would be in our best interest for all outstanding commitments to be funded.

Market Risk

During the first six months of 2006, we maintained a
consistent and disciplined asset/liability management policy focusing on interest rate risk and sensitivity.

During this period, we hedged a portion of
our floating rate prime based lending portfolio using floating to fixed interest rate swaps. As of June 30, 2006, we had five outstanding swaps with a total notional amount of $50 million. Original maturities on these swaps range from twelve to
twenty-four months, and rates range from 7.68% to 8.02%. These transactions were initiated to protect us from future downward fluctuations in the prime rate and to help ensure a more constant cash flow from interest earned by our prime based lending
portfolio.

These transactions are cash flow hedges as defined by FASB Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities, and were accounted for in accordance with the provisions of that Statement. As required by Statement No. 133, we measured the effectiveness of these transactions as of June 30, 2006 and determined that they remained
highly effective, as defined by the Statement. See Note 9 of the Notes to Consolidated Financial Statements for more information.

In September
2005, we entered into a $25 million structured repurchase transaction in the secondary market. This term repurchase transaction has a 4% embedded floor and a three-year term. It was priced at three-month LIBOR plus 24 basis points and reprices every
three months. This transaction is in line with our asset/liability strategy and was entered into to help protect us against an unexpected downturn in short-term interest rates. This derivative instrument was accounted for as an embedded derivative
under FASB Statement No. 133.



19



---

The primary objective of rate sensitivity management is to maintain net interest income growth while reducing exposure to
adverse fluctuations in rates. We utilize an Asset/Liability Management Committee to evaluate and analyze our pricing, asset/liability maturities and growth, and balance sheet mix strategies in an effort to make informed decisions that will increase
income and limit interest rate risk. The Committee uses simulation modeling as a guide for decision-making and to forecast changes in net income and the economic value of equity under assumed fluctuations in interest rate levels.

Due to the potential volatility of interest rates, our goal is to stabilize the net interest margin by maintaining a neutral rate sensitive position. At June 30,
2006, our balance sheet reflected approximately $58.6 million more in rate sensitive liabilities than assets that were scheduled to reprice within one year. This represents approximately 3.7% of total assets and indicates that we are liability
sensitive. This computation results from a static gap analysis that weights assets and liabilities equally. Management believes that interest rates will increase slightly, then level out during the second half of 2006 and begin to move downward in
2007. Thus, management believes that our current position places us in the correct interest rate risk posture for this rate environment. Management does not believe that it is in our best interest to speculate on changes in interest rate levels.
Although earnings could be enhanced if predictions were correct, they could also be put at significant risk if interest rates move against predictions.

Analysis of Net Interest Earnings

The table below shows, for the periods indicated, an analysis of net interest earnings, including the
average amount of interest-earning assets and interest-bearing liabilities outstanding during the period, the interest earned or paid on such amounts, the average yields/rates paid and the net yield on interest-earning assets:



|                                                                                                                                  |  |                                  |           |                          |   |                     |  |   |          
|--------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------- | --------- | ------------------------ | - | ------------------- |  | - | ---------
|                                                                                                                                  |  | ($ in Thousands) Average Balance
|                                                                                                                                  |  | Quarter Ended 6/30/06            |           | Six Months Ended 6/30/06 |   | Year Ended 12/31/05
|EARNING ASSETS:                                                                                                                   |  |                                  |           |                          |   |                     |  |   |          
|Net loans                                                                                                                         |  | $                                | 879,940   |                          | $ | 869,773             |  | $ | 808,796  
|Federal funds sold and other interest-bearing assets                                                                              |  |                                  | 25,307    |                          |   | 20,586              |  |   | 20,111   
|Securities:                                                                                                                       |  |                                  |           |                          |   |                     |  |   |          
|Taxable                                                                                                                           |  |                                  | 347,480   |                          |   | 336,927             |  |   | 321,250  
|Tax-exempt                                                                                                                        |  |                                  | 118,653   |                          |   | 119,087             |  |   | 123,513  
|                                                                                                                                  |  |                                  |           |                          |   |                     |  |   |          
|Totals                                                                                                                            |  |                                  | 1,371,380 |                          |   | 1,346,373           |  |   | 1,273,670
|                                                                                                                                  |  |                                  |           |                          |   |                     |  |   |          
|INTEREST-BEARING LIABILITIES:                                                                                                     |  |                                  |           |                          |   |                     |  |   |          
|Interest-bearing deposits                                                                                                         |  |                                  | 991,826   |                          |   | 972,533             |  |   | 938,410  
|Borrowed funds, federal funds purchased and securities sold under agreements to repurchase and other interest-bearing
liabilities |  |                                  | 194,269   |                          |   | 199,191             |  |   | 183,311  
|                                                                                                                                  |  |                                  |           |                          |   |                     |  |   |          
|Totals                                                                                                                            |  |                                  | 1,186,095 |                          |   | 1,171,724           |  |   | 1,121,721
|                                                                                                                                  |  |                                  |           |                          |   |                     |  |   |          
|Net amounts                                                                                                                       |  | $                                | 185,285   |                          | $ | 174,649             |  | $ | 151,949  
|                                                                                                                                  |  |                                  |           |                          |   |                     |  |   |          



20



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|                                                                                                                                  |  |                                  |        |                          |   |                     |  |   |       
|--------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------- | ------ | ------------------------ | - | ------------------- |  | - | ------
|                                                                                                                                  |  | Interest For                    
|                                                                                                                                  |  | Quarter Ended 6/30/06            |        | Six Months Ended 6/30/06 |   | Year Ended 12/31/05
|EARNING ASSETS:                                                                                                                   |  |                                  |        |                          |   |                     |  |   |       
|Net loans                                                                                                                         |  | $                                | 16,580 |                          | $ | 32,003              |  | $ | 53,035
|Federal funds sold and other interest-bearing assets                                                                              |  |                                  | 384    |                          |   | 553                 |  |   | 669   
|Securities:                                                                                                                       |  |                                  |        |                          |   |                     |  |   |       
|Taxable                                                                                                                           |  |                                  | 4,157  |                          |   | 7,959               |  |   | 14,433
|Tax-exempt                                                                                                                        |  |                                  | 1,267  |                          |   | 2,484               |  |   | 5,047 
|                                                                                                                                  |  |                                  |        |                          |   |                     |  |   |       
|Totals                                                                                                                            |  |                                  | 22,388 |                          |   | 42,999              |  |   | 73,184
|                                                                                                                                  |  |                                  |        |                          |   |                     |  |   |       
|INTEREST-BEARING LIABILITIES:                                                                                                     |  |                                  |        |                          |   |                     |  |   |       
|Interest-bearing deposits                                                                                                         |  |                                  | 7,825  |                          |   | 14,438              |  |   | 20,327
|Borrowed funds, federal funds purchased and securities sold under agreements to repurchase and other interest-bearing
liabilities |  |                                  | 2,477  |                          |   | 4,733               |  |   | 7,643 
|                                                                                                                                  |  |                                  |        |                          |   |                     |  |   |       
|Totals                                                                                                                            |  |                                  | 10,302 |                          |   | 19,171              |  |   | 27,970
|                                                                                                                                  |  |                                  |        |                          |   |                     |  |   |       
|Net amounts                                                                                                                       |  | $                                | 12,086 |                          | $ | 23,828              |  | $ | 45,214
|                                                                                                                                  |  |                                  |        |                          |   |                     |  |   |       
|                                                                                                                                  | 
|                                                                                                                                  |  | Yields Earned And Rates Paid (%)
|                                                                                                                                  |  | Quarter Ended 6/30/06            |        | Six Months Ended 6/30/06 |   | Year Ended 12/31/05
|EARNING ASSETS:                                                                                                                   |  |                                  |        |                          |   |                     |  |   |       
|Net loans                                                                                                                         |  |                                  | 7.56   |                          |   | 7.42                |  |   | 6.56  
|Federal funds sold and other interest-bearing assets                                                                              |  |                                  | 6.09   |                          |   | 5.42                |  |   | 3.33  
|Securities:                                                                                                                       |  |                                  |        |                          |   |                     |  |   |       
|Taxable                                                                                                                           |  |                                  | 4.80   |                          |   | 4.76                |  |   | 4.49  
|Tax-exempt                                                                                                                        |  |                                  | 4.28   |                          |   | 4.21                |  |   | 4.09  
|                                                                                                                                  |  |                                  |        |                          |   |                     |  |   |       
|Totals                                                                                                                            |  |                                  | 6.55   |                          |   | 6.44                |  |   | 5.75  
|                                                                                                                                  |  |                                  |        |                          |   |                     |  |   |       
|INTEREST-BEARING LIABILITIES:                                                                                                     |  |                                  |        |                          |   |                     |  |   |       
|Interest-bearing deposits                                                                                                         |  |                                  | 3.16   |                          |   | 2.99                |  |   | 2.17  
|Borrowed funds, federal funds purchased and securities sold under agreements to repurchase and other interest-bearing
liabilities |  |                                  | 5.11   |                          |   | 4.79                |  |   | 4.17  
|                                                                                                                                  |  |                                  |        |                          |   |                     |  |   |       
|Totals                                                                                                                            |  |                                  | 3.48   |                          |   | 3.30                |  |   | 2.46  
|                                                                                                                                  |  |                                  |        |                          |   |                     |  |   |       
|Net margin                                                                                                                        |  |                                  | 3.61   |                          |   | 3.57                |  |   | 3.55  
|                                                                                                                                  |  |                                  |        |                          |   |                     |  |   |       
|Note: Yields on a tax equivalent basis would be:                                                                                  |  |                                  |        |                          |   |                     |  |   |       
|Tax-exempt securities                                                                                                             |  |                                  | 6.59   |                          |   | 6.47                |  |   | 6.29  
|                                                                                                                                  |  |                                  |        |                          |   |                     |  |   |       
|Total earning assets                                                                                                              |  |                                  | 6.75   |                          |   | 6.64                |  |   | 5.96  
|                                                                                                                                  |  |                                  |        |                          |   |                     |  |   |       
|Net margin                                                                                                                        |  |                                  | 3.73   |                          |   | 3.77                |  |   | 3.76  
|                                                                                                                                  |  |                                  |        |                          |   |                     |  |   |       

ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Reference is made to Managements Discussion and Analysis (Item 2 of this Part I), particularly to the section entitled Market Risk.



21



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ITEM 4  CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As required by Rules 13a-15 and 15d-15 of the Exchange Act, the Corporation has
evaluated, with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, as of the end of the period covered by this report, the effectiveness of the design and operation of its disclosure controls and
procedures. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, such disclosure controls and procedures are effective in ensuring that information
required to be disclosed by the Corporation, including its consolidated subsidiaries, is recorded, processed, summarized and reported, including being made known to the certifying officers by others within the Corporation and its consolidated
subsidiaries as appropriate to allow timely decisions regarding disclosure, within the time periods specified in the SECs rules and forms. From time to time, the Corporation reviews the disclosure controls and procedures, and may from time to
time make changes aimed at enhancing their effectiveness and to ensure that the Corporations system evolves with its business.

Changes in
Internal Controls over Financial Reporting

There was no change in the Corporations internal control over financial reporting during the quarter
ended June 30, 2006 that has materially affected, or is reasonably likely to materially affect, the Corporations internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1  LEGAL PROCEEDINGS

In the normal course of business, the Corporation and its subsidiaries from time to time are involved in legal proceedings. There are no pending proceedings to which
either the Corporation or any of its subsidiaries are a party that upon resolution are expected to have a material adverse effect upon the Corporations or its subsidiaries financial condition or results of operations.

ITEM 1A  RISK FACTORS

Please see Item 1A 
Risk Factors, in the Corporations annual report on Form 10-K.

ITEM 2  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS

Not applicable

ITEM 3  DEFAULTS UPON SENIOR SECURITIES

Not applicable



22



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ITEM 4  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The 2006 annual meeting of shareholders was held on June 20, 2006. At this meeting, the following nineteen directors were elected to serve until the 2007 annual
meeting of shareholders or their successors are elected and qualified:



|                        |  |           |  |             
|----------------------- |  | --------- |  | ------------
|Director                |  | Votes For |  | VotesAgainst
|Mark A. Abernathy       |  | 6,166,133 |  | 74,628      
|David Byars             |  | 6,166,703 |  | 74,058      
|Robert S. Caldwell, Jr. |  | 6,162,238 |  | 78,523      
|Robert L. Calvert, III  |  | 6,165,466 |  | 75,295      
|Robert A. Cunningham    |  | 6,135,004 |  | 105,757     
|J. Nutie Dowdle         |  | 6,169,003 |  | 71,758      
|Gregory M. Duckett      |  | 6,168,438 |  | 72,323      
|James C. Galloway, Jr.  |  | 6,171,232 |  | 69,529      
|Hunter M. Gholson       |  | 6,124,111 |  | 116,650     
|James D. Graham         |  | 6,166,703 |  | 74,058      
|Bobby L. Harper         |  | 6,171,132 |  | 69,629      
|Clifton S. Hunt         |  | 6,156,353 |  | 84,408      
|Robert S. Jones         |  | 6,124,951 |  | 115,810     
|Dan R. Lee              |  | 6,161,202 |  | 79,559      
|Lewis F. Mallory, Jr.   |  | 6,175,158 |  | 65,603      
|Allen B. Puckett, III   |  | 6,162,857 |  | 77,904      
|Dr. James C. Ratcliff   |  | 6,169,655 |  | 71,106      
|H. Stokes Smith         |  | 6,165,984 |  | 74,777      
|Sammy J. Smith          |  | 6,167,349 |  | 73,412      

Other proposals were approved at the 2006 annual meeting of shareholders as follows:



|                                                                                             |  |           |  |              |  |             |  |                
|-------------------------------------------------------------------------------------------- |  | --------- |  | ------------ |  | ----------- |  | ---------------
|Proposal                                                                                     |  | Votes For |  | VotesAgainst |  | Abstentions |  | BrokerNon-Votes
|Change the name of the Company from NBC Capital Corporation to Cadence Financial Corporation |  | 6,142,914 |  | 67,914       |  | 32,598      |  | 0              
|                                                                                             |  |           |  |             
|Adopt the NBC Capital Corporation 2006 Long-Term Incentive Compensation Plan                 |  | 4,492,933 |  | 443,968      |  | 136,811     |  | 1,169,714      

ITEM 5  OTHER INFORMATION

At the 2006 Annual Meeting of Shareholders held on June 20, 2006, our shareholders approved the 2006 Long Term Incentive Compensation Plan (the LTIP). The LTIP is administered by the Compensation
Committee of the Board of Directors.

Under the LTIP, 750,000 shares of common stock have been reserved for issuance to our directors, employees and
consultants, as well as the directors and employees of certain of our affiliates. The form of share awards under the LTIP include the following: (i) incentive stock options under Section 422 of the Internal Revenue Code, as amended (the
Code); (ii) non-statutory stock options not covered by Section 422 of the Code; (iii) stock appreciation rights, granting the recipient the right to receive an excess in the fair market value of shares of common stock over a
specified exercise price; (iv) restricted stock, which will be non-transferable until it vests over time; (v) qualified performance-based incentives to employees who qualify as covered employees within the meaning of Section 162(m) of
the Code; and (vi) performance shares, consisting of common stock, cash, or a combination of common stock and cash.



23



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ITEM 6  EXHIBITS



|     |  |                                                                                                                                                                                
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1  |  | Amended Articles of Incorporation                                                                                                                                              
|     | 
|10.1 |  | 2006 Long-Term Incentive Compensation Plan (incorporated by reference to Exhibit 10.10 to Form S-4, filed July 17, 2006)                                                       
|     | 
|11   |  | Statement re computation of per-share earnings                                                                                                                                 
|     | 
|31.1 |  | Certificate pursuant to Rule 13a-14(a) or 15d-14(a) of Securities Exchange Act of 1934 as adopted pursuant to section 302 of Sarbanes-Oxley Act of 2002-Chief Executive Officer
|     | 
|31.2 |  | Certificate pursuant to Rule 13a-14(a) or 15d-14(a) of Securities Exchange Act of 1934 as adopted pursuant to section 302 of Sarbanes-Oxley Act of 2002-Chief Financial Officer
|     | 
|32.1 |  | Certificate pursuant to 18 U.S.C., Section 1350 as adopted pursuant to section 906 of Sarbanes-Oxley Act of 2002Chief Executive Officer                                       
|     | 
|32.2 |  | Certificate pursuant to 18 U.S.C., Section 1350 as adopted pursuant to section 906 of Sarbanes-Oxley Act of 2002Chief Financial Officer                                       

All other exhibits required by Section 601 of Regulation S-K were included or included by reference in Form
10-K for the year ended December 31, 2005, filed with the Commission on March 14, 2006, or in Form 10-Q for the quarter ended March 31, 2006, filed with the Commission on May 9, 2006.

The financial information furnished herein has not been audited by independent accountants; however, in the opinion of management, all adjustments necessary for a fair
presentation of the results of operations for the three-month and the six-month periods ended June 30, 2006, have been included.

Pursuant to the
requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                     |  |                                                     
|-------------------- |  | ----------------------------------------------------
|                     |  | CADENCE FINANCIAL CORPORATION                       
|                     |  | Registrant                                          
|                     | 
|Date: August 7, 2006 |  | /s/ Richard T. Haston                               
|                     |  | Richard T. Haston                                   
|                     |  | Executive Vice President and Chief Financial Officer



24



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EXHIBIT INDEX:



|        |  |                                                                                                                                                                                 |  |     
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|Exhibit |  | Description                                                                                                                                                                     |  | Page
|3.1     |  | Amended Articles of Incorporation                                                                                                                                               |  | 26  
|        |  |                                                                                                                                                                                
|11      |  | Statement re computation of per-share earnings                                                                                                                                  |  | 29  
|        |  |                                                                                                                                                                                
|31.1    |  | Certificate pursuant to Rule 13a-14(a) or 15d-14(a) of Securities Exchange Act of 1934 as adopted pursuant to section 302 of Sarbanes-Oxley Act of 2002-Chief Executive Officer |  | 30  
|        |  |                                                                                                                                                                                
|31.2    |  | Certificate pursuant to Rule 13a-14(a) or 15d-14(a) of Securities Exchange Act of 1934 as adopted pursuant to section 302 of Sarbanes-Oxley Act of 2002-Chief Financial Officer |  | 31  
|        |  |                                                                                                                                                                                
|32.1    |  | Certificate pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of Sarbanes-Oxley Act of 2002Chief Executive Officer                                        |  | 32  
|        |  |                                                                                                                                                                                
|32.2    |  | Certificate pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of Sarbanes-Oxley Act of 2002Chief Financial Officer                                        |  | 33  



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