##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the fiscal year ended December 31, 2005
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 For the transition period from  to .
 Commission File Number 0-27393
 Civitas BankGroup, Inc.
  Tennessee
    
    62-1297760(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)
 Franklin, Tennessee 37067
 (615) 263-9500
 
    o þ
  o þ
  þ o
 o
  o þ o
  o þ




---



##### 



PAGEPART IITEM 1.
    
    BUSINESS
    
    
    1ITEM 1A.
    
    RISK FACTORS
    
    
    10ITEM 1B.
    
    UNRESOLVED STAFF COMMENTS
    
    
    13ITEM 2.
    
    PROPERTIES
    
    
    13ITEM 3.
    
    LEGAL PROCEEDINGS
    
    
    13ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    13PART IIITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    14ITEM 6.
    
    SELECTED FINANCIAL DATA
    
    
    15ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
    
    
    16ITEM 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    35ITEM 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    37ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    75ITEM 9A.
    
    CONTROLS AND PROCEDURES
    
    
    75ITEM 9B.
    
    OTHER INFORMATION
    
    
    76PART IIIITEM 10.
    
    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
    
    
    76ITEM 11.
    
    EXECUTIVE COMPENSATION
    
    
    76ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    
    
    77ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    
    77ITEM 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    77ITEM 15.
    
    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
    
    
    77EX-10.9  DIRECTOR AND NAMED EXECUTIVE OFFICER COMPENSATION SUMMARYEX-21.1  SUBSIDIARIES OF THE COMPANYEX-23.1  CONSENT OF CROWE CHIZEK AND COMPANY LLCEX-31.1  SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1  SECTION 906 CERTIFICATION OF THE CEO & CFO




---



##### Table of Contents



PART I
 
 ITEM 1. BUSINESS.
 General.
   1




---



##### Table of Contents



History.
   Joint Ventures.
 Market Areas
  2




---



##### Table of Contents



# of
    
    Amount of
    
    % of Total
    
    % of MarketCounty
    
    Branches
    
    Deposits
    
    Deposits
    
    ShareWilliamson
    
    
    4
    
    
    $
    307,387
    
    
    
    54.7
    %
    
    
    8.3
    %Sumner
    
    
    3
    
    
    
    116,941
    
    
    
    20.8
    %
    
    
    7.2
    %Davidson
    
    
    1
    
    
    
    57,764
    
    
    
    10.3
    %
    
    
    0.4
    %Smith
    
    
    2
    
    
    
    56,073
    
    
    
    9.9
    %
    
    
    14.5
    %Macon
    
    
    1
    
    
    
    23,991
    
    
    
    4.3
    %
    
    
    7.3
    %
  Competition
  Operational Strategies
 Local Decision Making
 Relationship Banking
 Full Line of Banking Products
 3




---



##### Table of Contents



Lending and Deposit Activities
  Construction Loans
 Commercial Real Estate Loans
 Residential Real Estate Loans
 4




---



##### Table of Contents



Commercial Business Loans
 Consumer Loans
 Lending Procedures and Loan Approval Process
  Deposit Activities
 Asset/Liability Management
 5




---



##### Table of Contents



Investment Activities
  Monetary Policies.
 Supervision and Regulation
  General.
  6




---



##### Table of Contents



Branching. de
novo
 Community Reinvestment Act.
 Capital Requirements Generally.
 Risk-Based Capital Requirements.
  7




---



##### Table of Contents




    
    the allowance for possible credit losses in an amount up to 1.25% of risk-weighted assets;
    
    cumulative perpetual preferred stock with an original maturity of 20 years or more and related surplus;
    
    hybrid capital instruments defined as instruments with characteristics of both
debt and equity, perpetual debt and mandatory convertible debt securities; and
    
    in an amount up to 50% of Tier I capital, eligible term subordinated debt and
intermediate-term preferred stock with an original maturity of five years or more,
including related surplus.
   Leverage Capital Requirements.
   Liability for Bank Subsidiaries. 8
    Table of Contents    Dividend Restrictions.
   Deposit Insurance Assessments. 9
    Table of Contents   Effects of Governmental Policies.
    Available Information
  Employees
  
 ITEM IA. RISK FACTORS
 Investing in the Companys common stock involves various risks which are particular to the Company,
its industry and its market area. Several risk factors regarding investing in the Companys common
stock are discussed below. This listing should not be considered as all-inclusive. If any of the
following risks were to occur, the Company may not be able to conduct its business as currently
planned and its financial condition or operating results could be negatively impacted. These
matters could cause the trading price of the Companys common stock to decline in future periods.
 Fluctuations in interest rates could adversely affect the Companys net interest income and impact
funding sources.
  10




---



##### Table of Contents



The Company has relatively high amounts of real estate construction and development loans, which
have a greater credit risk than residential mortgage loans or a more diversified loan portfolio.
  Competition with other banking institutions could adversely affect the Companys profitability.
  The amount of common stock owned by the Companys officers and directors may make it more difficult
to obtain shareholder approval of potential takeovers they oppose.
 11
    Table of Contents   The Companys key management personnel may leave at any time.
  The Company, as well as its bank subsidiary, operate in a highly regulated environment and are
supervised and examined by various federal and state regulatory agencies who may adversely affect
the Companys ability to conduct business.
  
    
    meeting explicit standards as to capital and financial condition;
    
    limitations on the permissible types, amounts and extensions of credit and investments;
    
    restrictions on permissible non-banking activities; and
    
    restrictions on dividend payments.
   The Company risks losing customers because it competes with often larger, more comprehensive
financial service institutions for customer lending and investment business in the markets it
serves.
  The Company is geographically concentrated in the Nashville, Tennessee MSA, and changes in local
economic conditions impact its profitability.
 12
    Table of Contents     The Companys common stock is traded on the over-the-counter bulletin board and, as such, has less
liquidity than the average stock quoted on a national securities exchange.
    
 ITEM 1B. Unresolved Staff Comments
  
 ITEM 2. Properties.
  
 ITEM 3. Legal Proceedings.
  
 ITEM 4. Submission of Matters to a Vote of Security Holders.
  13




---



##### Table of Contents



PART II
 
 ITEM 5. Market for Registrants Common Equity, Related Stockholder Matters, and Issuer Purchases
of Equity Securities
  PricesCashDividendsHigh
    
    Low
    
    Close
    
    Declared2004:First Quarter
    
    $
    7.50
    
    
    $
    6.35
    
    
    $
    7.20
    
    
    $
    0.015Second Quarter
    
    
    8.75
    
    
    
    7.05
    
    
    
    8.75
    
    
    
    0.015Third Quarter
    
    
    10.05
    
    
    
    7.50
    
    
    
    8.75
    
    
    
    0.000Fourth Quarter
    
    
    8.85
    
    
    
    8.00
    
    
    
    8.50
    
    
    
    0.0002005:First Quarter
    
    $
    8.50
    
    
    $
    7.32
    
    
    $
    7.80
    
    
    $
    0.000Second Quarter
    
    
    7.75
    
    
    
    6.50
    
    
    
    7.24
    
    
    
    0.000Third Quarter
    
    
    8.40
    
    
    
    7.05
    
    
    
    8.00
    
    
    
    0.000Fourth Quarter
    
    
    8.15
    
    
    
    7.50
    
    
    
    7.60
    
    
    
    0.000
    14




---



##### Table of Contents



ITEM 6. Selected Financial Data
  For years ending December 31,(dollars in thousands, except per share amount)2005
    
    2004
    
    2003
    
    2002
    
    2001Summary of OperationsInterest income
    
    $
    40,357
    
    
    $
    32,940
    
    
    $
    31,622
    
    
    $
    31,761
    
    
    $
    36,873Interest expense
    
    
    19,107
    
    
    
    13,123
    
    
    
    12,162
    
    
    
    13,505
    
    
    
    20,155Net interest income
    
    
    21,250
    
    
    
    19,817
    
    
    
    19,460
    
    
    
    18,256
    
    
    
    16,718Provision for loan losses
    
    
    993
    
    
    
    1,446
    
    
    
    3,083
    
    
    
    4,663
    
    
    
    2,488Noninterest income
    
    
    7,571
    
    
    
    7,793
    
    
    
    6,261
    
    
    
    6,830
    
    
    
    4,544Noninterest expense
    
    
    22,209
    
    
    
    22,917
    
    
    
    20,382
    
    
    
    18,690
    
    
    
    16,929Income before income taxes
    
    
    5,619
    
    
    
    3,247
    
    
    
    2,256
    
    
    
    1,733
    
    
    
    1,845Income tax expense
    
    
    1,715
    
    
    
    941
    
    
    
    823
    
    
    
    596
    
    
    
    607Income from continuing operations
    
    
    3,904
    
    
    
    2,306
    
    
    
    1,433
    
    
    
    1,137
    
    
    
    1,238Basic
earnings per share  continuing operations
    
    
    0.24
    
    
    
    0.13
    
    
    
    0.09
    
    
    
    0.08
    
    
    
    0.10Diluted
earnings per share  continuing operations
    
    
    0.24
    
    
    
    0.13
    
    
    
    0.09
    
    
    
    0.08
    
    
    
    0.09Cash dividends per common share
    
    
    0.00
    
    
    
    0.03
    
    
    
    0.06
    
    
    
    0.06
    
    
    
    0.06Book value per common share
    
    
    2.98
    
    
    
    3.28
    
    
    
    3.19
    
    
    
    2.96
    
    
    
    2.85Selected Period-End BalancesTotal assets of continuing operations
    
    $
    749,516
    
    
    $
    703,678
    
    
    $
    643,543
    
    
    $
    534,183
    
    
    $
    470,081Loans, net of unearned income
    
    
    476,421
    
    
    
    430,617
    
    
    
    412,609
    
    
    
    391,934
    
    
    
    368,001Allowance for loan losses
    
    
    4,765
    
    
    
    4,427
    
    
    
    5,688
    
    
    
    5,761
    
    
    
    5,375Total deposits
    
    
    600,766
    
    
    
    566,873
    
    
    
    520,505
    
    
    
    437,607
    
    
    
    389,549Other borrowings
    
    
    97,452
    
    
    
    90,451
    
    
    
    79,565
    
    
    
    60,688
    
    
    
    55,511Shareholders equity
    
    
    47,225
    
    
    
    57,736
    
    
    
    54,741
    
    
    
    45,473
    
    
    
    39,312Selected Operating RatiosAnnual % change in loans
    
    
    10.64
    %
    
    
    4.36
    %
    
    
    5.28
    %
    
    
    6.50
    %
    
    
    10.10
    %Annual % change in assets
    
    
    6.51
    %
    
    
    9.34
    %
    
    
    20.47
    %
    
    
    13.64
    %
    
    
    8.40
    %Return on assets
    
    
    0.52
    %
    
    
    0.33
    %
    
    
    0.22
    %
    
    
    0.21
    %
    
    
    0.26
    %Return on equity
    
    
    8.27
    %
    
    
    3.99
    %
    
    
    2.62
    %
    
    
    2.50
    %
    
    
    3.15
    %
  15




---



##### Table of Contents



ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations.
 .
 PERFORMANCE OVERVIEW
 General
  
    
    Income from continuing operations for the year ended December 31, 2005 totaled $3.9
million compared to $2.3 million for the same period for 2004, a 69.6% increase.
    
    Assets from continuing operations increased from $703.7 million at December 31, 2004 to
$749.5 million at December 31, 2005, a $45.8 million, or 6.5% increase.
    
    Funds invested in securities remained relatively level with the December 31, 2005 balance at $205.2 million.
    
    Loans increased to $476.4 million at December 31, 2005, up 10.6% from $430.6 million at year end 2004.
    
    Nonperforming loans were $2.3 million at December 31, 2005, down 57.4% from December 31, 2004.
    
    Delinquency ratio declined in 2005 from 2.37% to 0.60%.
    
    Deposits totaled $600.8 million, up 6.0% from $566.9 million at year end 2004.
    
    Net interest margin declined to 3.19% from 3.22% in 2004, primarily due to increased cost of funds.
    
    Effective March 1, 2005, the Company completed the sale of its BankTennessee subsidiary
to a group of its and BankTennessees directors in exchange for the surrender of 2,000,000
shares of Company common stock.
    
    Effective May 31, 2005, the Company completed the sale of all of the outstanding stock
of Bank of Mason, in exchange for cash and 43,000 shares of Company stock.
    
    The Company paid off $4.6 million of debt and redeemed $8.0 million in subordinated
debentures using the proceeds from $13.0 million of new subordinated debentures, initially
reducing the interest rate paid by 149 basis points.
    
    The Company brought its computer processing in-house, thereby improving operating
efficiencies.
    
    The Company announced its plan to sell its ownership in The Murray Bank Holding Company,
LLC in the second quarter of 2006.
    
    The Company announced it had signed an agreement to place 35 ATMs in area Walgreens
Stores. This will bring the total number of ATMs to 55.
    
    The Company announced it had purchased a branch location in Hendersonville with plans to
open a new branch in the second quarter of 2006, pending regulatory approval.
 CRITICAL ACCOUNTING POLICIES
  16




---



##### Table of Contents











Results of Operations Year ended December 31, 2005 Compared to the Year ended December 31, 2004:


Net Earnings




Net Interest Income




Interest Income




17



---



##### Table of Contents



Interest Expense
  Provision for Loan Losses
  Noninterest Income
  Noninterest Expense
  18




---



##### Table of Contents



Results of Operations Year ended December 31, 2004 Compared to the Year ended December 31, 2003:
 Net Earnings
  Net Interest Income
  Interest Income
  Interest Expense
  19




---



##### Table of Contents



Provision for Loan Losses
  Noninterest Income
  Noninterest Expense
  20




---



##### Table of Contents



CIVITAS BANKGROUP, INC.
Consolidated Average Balance Sheets, Net Interest Revenue and   dollars in thousands
  December 31, 2005
    
    December 31, 2004
    
    2005 / 2004 ChangeAverage
    
    Interest
    
    Revenue/
    
    Average
    
    Interest
    
    Revenue/
    
    Due to
    
    Due toBalance
    
    Rate
    
    Expense
    
    Balance
    
    Rate
    
    Expense
    
    Volume
    
    Rate1
    
    TotalNet loans2
    
    $
    456,657
    
    
    
    6.78
    %
    
    $
    30,972
    
    
    $
    416,335
    
    
    
    6.00
    %
    
    $
    24,971
    
    
    $
    2,418
    
    
    $
    3,583
    
    
    $
    6,001Securities
    
    
    200,831
    
    
    
    4.49
    %
    
    
    9,019
    
    
    
    179,602
    
    
    
    4.21
    %
    
    
    7,555
    
    
    
    893
    
    
    
    571
    
    
    
    1,464Federal funds sold
    
    
    4,635
    
    
    
    2.61
    %
    
    
    121
    
    
    
    13,215
    
    
    
    1.57
    %
    
    
    207
    
    
    
    (134
    )
    
    
    48
    
    
    
    (86
    )FHLB and FRB stock
    
    
    3,414
    
    
    
    5.10
    %
    
    
    174
    
    
    
    3,291
    
    
    
    4.56
    %
    
    
    150
    
    
    
    6
    
    
    
    18
    
    
    
    24Deposits in financial institutions
    
    
    1,369
    
    
    
    5.19
    %
    
    
    71
    
    
    
    2,416
    
    
    
    2.36
    %
    
    
    57
    
    
    
    (25
    )
    
    
    39
    
    
    
    14Total earning assets
    
    
    666,906
    
    
    
    6.05
    %
    
    $
    40,357
    
    
    
    614,859
    
    
    
    5.36
    %
    
    $
    32,940
    
    
    $
    3,158
    
    
    $
    4,259
    
    
    $
    7,417Cash and due from banks
    
    
    24,514
    
    
    
    
    
    
    
    
    
    
    
    17,145Allowance for loan losses
    
    
    (4,859
    )
    
    
    
    
    
    
    
    
    
    
    (5,476
    )Other assets
    
    
    34,589
    
    
    
    
    
    
    
    
    
    
    
    46,565Total assets
    
    $
    721,150
    
    
    
    
    
    
    
    
    
    
    $
    673,093Deposits:NOW
    
    $
    136,034
    
    
    
    2.32
    %
    
    $
    3,154
    
    
    $
    85,440
    
    
    
    1.08
    %
    
    $
    926
    
    
    $
    548
    
    
    $
    1,680
    
    
    $
    2,228Money market
    
    
    57,560
    
    
    
    2.55
    %
    
    
    1,465
    
    
    
    73,706
    
    
    
    1.13
    %
    
    
    836
    
    
    
    (183
    )
    
    
    812
    
    
    
    629Savings
    
    
    19,591
    
    
    
    0.62
    %
    
    
    122
    
    
    
    26,484
    
    
    
    0.97
    %
    
    
    258
    
    
    
    (67
    )
    
    
    (69
    )
    
    
    (136
    )Time deposits
    
    
    290,883
    
    
    
    3.37
    %
    
    
    9,793
    
    
    
    292,845
    
    
    
    2.75
    %
    
    
    8,058
    
    
    
    (54
    )
    
    
    1,789
    
    
    
    1,735Total interest-bearing deposits
    
    
    504,068
    
    
    
    2.88
    %
    
    
    14,534
    
    
    
    478,475
    
    
    
    2.11
    %
    
    
    10,078
    
    
    
    244
    
    
    
    4,212
    
    
    
    4,456Noninterest-bearing deposits
    
    
    61,925
    
    
    
    
    
    
    
    0
    
    
    
    60,143
    
    
    
    
    
    
    
    0Total deposits
    
    
    565,993
    
    
    
    2.57
    %
    
    
    14,534
    
    
    
    538,618
    
    
    
    1.87
    %
    
    
    10,078
    
    
    
    244
    
    
    
    4,212
    
    
    
    4,456Federal funds purchased and
repurchase agreements
    
    
    51,565
    
    
    
    3.25
    %
    
    
    1,678
    
    
    
    21,957
    
    
    
    1.28
    %
    
    
    282
    
    
    
    380
    
    
    
    1,016
    
    
    
    1,396Notes payable
    
    
    4,550
    
    
    
    6.46
    %
    
    
    294
    
    
    
    4,632
    
    
    
    7.41
    %
    
    
    343
    
    
    
    (6
    )
    
    
    (43
    )
    
    
    (49
    )FHLB advances
    
    
    35,912
    
    
    
    4.98
    %
    
    
    1,788
    
    
    
    36,722
    
    
    
    4.98
    %
    
    
    1,828
    
    
    
    (40
    )
    
    
    0
    
    
    
    (40
    )Subordinated debentures
    
    
    12,000
    
    
    
    6.78
    %
    
    
    813
    
    
    
    12,000
    
    
    
    4.93
    %
    
    
    592
    
    
    
    0
    
    
    
    221
    
    
    
    221Total deposits and borrowed funds
    
    
    670,020
    
    
    
    2.85
    %
    
    
    19,107
    
    
    
    613,929
    
    
    
    2.14
    %
    
    
    13,123
    
    
    
    578
    
    
    
    5,406
    
    
    
    5,984Other liabilities
    
    
    3,498
    
    
    
    
    
    
    
    
    
    
    
    3,222Shareholders equity
    
    
    47,632
    
    
    
    
    
    
    
    
    
    
    
    55,942Total liabilities and
shareholders equity
    
    $
    721,150
    
    
    
    
    
    
    
    
    
    
    $
    673,093Net interest income
    
    
    
    
    
    
    
    
    
    $
    21,250
    
    
    
    
    
    
    
    
    
    
    $
    19,817
    
    
    $
    2,580
    
    
    $
    (1,147
    )
    
    $
    1,433Net interest margin
    
    
    
    
    
    
    3.19
    %
    
    
    
    
    
    
    
    
    
    
    3.22
    %
 
 1
    
    Changes in interest income and expense not due solely to balance or rate changes are included
in the rate category.2
    
    Nonaccrual loans are included in average loan balances and the associated income (recognized on a
cash basis) is included in interest.*
    
    No taxable equivalent adjustments have been made since the effect of tax exempt income is
insignificant.
 21




---



##### Table of Contents



CIVITAS BANKGROUP, INC.
Consolidated Average Balance Sheets, Net Interest Revenue and   dollars in thousands
  December 31, 2004
    
    December 31, 2003
    
    2004 / 2003 ChangeAverage
    
    Interest
    
    Revenue/
    
    Average
    
    Interest
    
    Revenue/
    
    Due to
    
    Due toBalance
    
    Rate
    
    Expense
    
    Balance
    
    Rate
    
    Expense
    
    Volume
    
    Rate1
    
    TotalNet loans 2
    
    $
    416,335
    
    
    
    6.00
    %
    
    $
    24,971
    
    
    $
    412,604
    
    
    
    6.54
    %
    
    $
    26,973
    
    
    $
    244
    
    
    $
    (2,246
    )
    
    $
    (2,002
    )Securities
    
    
    179,602
    
    
    
    4.21
    %
    
    
    7,555
    
    
    
    127,991
    
    
    
    3.41
    %
    
    
    4,370
    
    
    
    1,762
    
    
    
    1,423
    
    
    
    3,185Federal funds sold
    
    
    13,215
    
    
    
    1.57
    %
    
    
    207
    
    
    
    12,952
    
    
    
    0.48
    %
    
    
    62
    
    
    
    1
    
    
    
    144
    
    
    
    145FHLB and FRB stock
    
    
    3,291
    
    
    
    4.56
    %
    
    
    150
    
    
    
    2,959
    
    
    
    4.36
    %
    
    
    129
    
    
    
    14
    
    
    
    7
    
    
    
    21Deposits in financial
institutions
    
    
    2,416
    
    
    
    2.36
    %
    
    
    57
    
    
    
    6,955
    
    
    
    1.27
    %
    
    
    88
    
    
    
    (57
    )
    
    
    26
    
    
    
    (31
    )Total earning assets
    
    
    614,859
    
    
    
    5.36
    %
    
    $
    32,940
    
    
    
    563,461
    
    
    
    5.61
    %
    
    $
    31,622
    
    
    $
    1,964
    
    
    $
    (646
    )
    
    $
    1,318Cash and due from banks
    
    
    17,145
    
    
    
    
    
    
    
    
    
    
    
    16,384Allowance for loan losses
    
    
    (5,476
    )
    
    
    
    
    
    
    
    
    
    
    (5,712
    )Other assets
    
    
    46,565
    
    
    
    
    
    
    
    
    
    
    
    84,334Total assets
    
    $
    673,093
    
    
    
    
    
    
    
    
    
    
    $
    658,467Deposits:NOW
    
    $
    85,440
    
    
    
    1.08
    %
    
    $
    926
    
    
    $
    59,062
    
    
    
    0.83
    %
    
    $
    493
    
    
    $
    220
    
    
    $
    213
    
    
    $
    433Money market
    
    
    73,706
    
    
    
    1.13
    %
    
    
    836
    
    
    
    87,004
    
    
    
    1.06
    %
    
    
    919
    
    
    
    (140
    )
    
    
    57
    
    
    
    (83
    )Savings
    
    
    26,484
    
    
    
    0.97
    %
    
    
    258
    
    
    
    26,075
    
    
    
    1.04
    %
    
    
    270
    
    
    
    4
    
    
    
    (16
    )
    
    
    (12
    )Time deposits
    
    
    292,845
    
    
    
    2.75
    %
    
    
    8,058
    
    
    
    269,039
    
    
    
    2.80
    %
    
    
    7,543
    
    
    
    668
    
    
    
    (153
    )
    
    
    515Total interest-bearing deposits
    
    
    478,475
    
    
    
    2.11
    %
    
    
    10,078
    
    
    
    441,180
    
    
    
    2.09
    %
    
    
    9,225
    
    
    
    752
    
    
    
    101
    
    
    
    853Noninterest-bearing deposits
    
    
    60,143
    
    
    
    
    
    
    
    0
    
    
    
    54,170
    
    
    
    
    
    
    
    0Total deposits
    
    
    538,618
    
    
    
    1.87
    %
    
    
    10,078
    
    
    
    495,350
    
    
    
    1.86
    %
    
    
    9,225
    
    
    
    752
    
    
    
    101
    
    
    
    853Federal funds purchased and
repurchase agreements
    
    
    21,957
    
    
    
    1.28
    %
    
    
    282
    
    
    
    55,034
    
    
    
    0.20
    %
    
    
    109
    
    
    
    (66
    )
    
    
    239
    
    
    
    173Notes payable
    
    
    4,632
    
    
    
    7.41
    %
    
    
    343
    
    
    
    5,272
    
    
    
    7.93
    %
    
    
    418
    
    
    
    (51
    )
    
    
    (24
    )
    
    
    (75
    )FHLB advances
    
    
    36,722
    
    
    
    4.98
    %
    
    
    1,828
    
    
    
    36,852
    
    
    
    4.94
    %
    
    
    1,819
    
    
    
    (6
    )
    
    
    15
    
    
    
    9Subordinated debentures
    
    
    12,000
    
    
    
    4.93
    %
    
    
    592
    
    
    
    12,000
    
    
    
    4.93
    %
    
    
    591
    
    
    
    0
    
    
    
    1
    
    
    
    1Total deposits and borrowed
funds
    
    
    613,929
    
    
    
    2.14
    %
    
    
    13,123
    
    
    
    604,508
    
    
    
    2.01
    %
    
    
    12,162
    
    
    
    629
    
    
    
    332
    
    
    
    961Other liabilities
    
    
    3,222
    
    
    
    
    
    
    
    
    
    
    
    5,049Shareholders equity
    
    
    55,942
    
    
    
    
    
    
    
    
    
    
    
    48,910Total liabilities and
shareholders Equity
    
    $
    673,093
    
    
    
    
    
    
    
    
    
    
    $
    658,467Net interest income
    
    
    
    
    
    
    
    
    
    $
    19,817
    
    
    
    
    
    
    
    
    
    
    $
    19,460
    
    
    $
    1,335
    
    
    $
    (978
    )
    
    $
    357Net interest margin
    
    
    
    
    
    
    3.22
    %
    
    
    
    
    
    
    
    
    
    
    3.45
    %
 
 1
    
    Changes in interest income and expense not due solely to balance or rate changes are
included in the rate category.2
    
    Nonaccrual loans are included in average loan balances and the associated income (recognized
on a cash basis) is included in interest.*
    
    No taxable equivalent adjustments have been made since the effect of tax exempt income is
insignificant.
 22




---



##### Table of Contents



Investment Portfolio
 General.
   Composition of Investment Portfolio  dollars in thousands
 December 31,
    
    
    December 31,
    
    
    December 31,2005
    
    
    2004
    
    
    2003Available for SaleU.S. treasury and government agencies
    
    $
    7,864
    
    
    $
    18,073
    
    
    $
    6,616State and municipals
    
    
    3,300
    
    
    
    4,331
    
    
    
    1,496Mortgage-backed
    
    
    77,452
    
    
    
    85,761
    
    
    
    102,287Marketable equity
    
    
    1,058
    
    
    
    1,078
    
    
    
    1,091Other debt
    
    
    50
    
    
    
    50
    
    
    
    500Total available for sale securities
    
    
    89,724
    
    
    
    109,293
    
    
    
    111,990Held to MaturityU.S. treasury and government agencies
    
    
    0
    
    
    
    300
    
    
    
    1,139State and municipal
    
    
    28,669
    
    
    
    26,233
    
    
    
    16,230Mortgage-backed
    
    
    84,522
    
    
    
    66,899
    
    
    
    39,057Other debt
    
    
    2,255
    
    
    
    2,413
    
    
    
    1,906Total held to maturity securities
    
    
    115,446
    
    
    
    95,845
    
    
    
    58,332Total securities
    
    $
    205,170
    
    
    $
    205,138
    
    
    $
    170,322
 23




---



##### Table of Contents



Maturity of Investment Portfolio  dollars in thousands
 AFS
    
    
    HTMAmount
    
    
    Yield
    
    
    Amount
    
    
    YieldU.S. treasuries and government agenciesUnder 1 year
    
    $
    4,944
    
    
    
    3.56
    %
    
    $
    0
    
    
    
    0.00
    %1  5 years
    
    
    1,500
    
    
    
    5.00
    %
    
    
    0
    
    
    
    0.00
    %5  10 years
    
    
    1,420
    
    
    
    4.45
    %
    
    
    0
    
    
    
    0.00
    %Over 10 years
    
    
    0
    
    
    
    0.00
    %
    
    
    0
    
    
    
    0.00
    %Total U.S. treasuries and government agencies
    
    
    7,864
    
    
    
    4.00
    %
    
    
    0
    
    
    
    0.00
    %State and municipalsUnder 1 year
    
    
    0
    
    
    
    0.00
    %
    
    
    55
    
    
    
    5.00
    %1  5 years
    
    
    0
    
    
    
    0.00
    %
    
    
    306
    
    
    
    3.52
    %5  10 years
    
    
    1,520
    
    
    
    3.21
    %
    
    
    2,603
    
    
    
    3.55
    %Over 10 years
    
    
    1,780
    
    
    
    3.56
    %
    
    
    25,705
    
    
    
    4.20
    %Total state and municipals
    
    
    3,300
    
    
    
    3.41
    %
    
    
    28,669
    
    
    
    4.23
    %Mortgage-backed
    
    
    77,452
    
    
    
    4.48
    %
    
    
    84,522
    
    
    
    4.95
    %Other securitiesUnder 1 year
    
    
    1,058
    
    
    
    2.84
    %
    
    
    0
    
    
    
    0.00
    %1  5 years
    
    
    50
    
    
    
    7.62
    %
    
    
    1,005
    
    
    
    5.44
    %5  10 years
    
    
    0
    
    
    
    0.00
    %
    
    
    0
    
    
    
    0.00
    %Over 10 years
    
    
    0
    
    
    
    0.0
    %
    
    
    1,250
    
    
    
    9.66
    %Total other
    
    
    1,108
    
    
    
    3.66
    %
    
    
    2,255
    
    
    
    7.79
    %Total securities
    
    $
    89,724
    
    
    
    4.38
    %
    
    $
    115,446
    
    
    
    4.80
    %
 24




---



##### Table of Contents



LOANS
 General.
 Composition of Loan Portfolio  dollars in thousands
 December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Real Estate  construction
    
    $
    157,381
    
    
    $
    93,841
    
    
    $
    58,570
    
    
    $
    45,531
    
    
    $
    45,300Real Estate
 commercial and other
    
    
    115,609
    
    
    
    77,294
    
    
    
    56,683
    
    
    
    51,496
    
    
    
    32,582Real Estate
 residential
    
    
    112,281
    
    
    
    107,456
    
    
    
    111,490
    
    
    
    123,359
    
    
    
    118,830Commercial
    
    
    71,929
    
    
    
    128,114
    
    
    
    145,380
    
    
    
    129,355
    
    
    
    122,095Consumer
    
    
    15,938
    
    
    
    21,561
    
    
    
    35,699
    
    
    
    41,454
    
    
    
    50,402Other
    
    
    3,840
    
    
    
    2,880
    
    
    
    5,145
    
    
    
    1,017
    
    
    
    758Total gross loans
    
    
    476,978
    
    
    
    431,146
    
    
    
    412,967
    
    
    
    392,212
    
    
    
    369,967Unearned income and deferred fees
    
    
    (557
    )
    
    
    (529
    )
    
    
    (358
    )
    
    
    (296
    )
    
    
    (1,986
    )Net loans
    
    $
    476,421
    
    
    $
    430,617
    
    
    $
    412,609
    
    
    $
    391,916
    
    
    $
    367,981
    25




---



##### Table of Contents



Maturity of Loan Portfolio  dollars in thousands
 Due in 1 Year or
    
    
    Due in 1 to
    
    
    Due AfterType of Loan
    
    Less
    
    
    5 Years
    
    
    5 Years
    
    
    TotalReal estate  construction
    
    $
    137,353
    
    
    $
    20,003
    
    
    $
    25
    
    
    $
    157,381Real estate
 commercial and other
    
    
    24,778
    
    
    
    78,671
    
    
    
    12,160
    
    
    
    115,609Real estate
 residential
    
    
    77,545
    
    
    
    30,231
    
    
    
    4,505
    
    
    
    112,281Commercial
    
    
    45,234
    
    
    
    24,648
    
    
    
    2,047
    
    
    
    71,929Consumer
    
    
    4,508
    
    
    
    11,186
    
    
    
    244
    
    
    
    15,938Other
    
    
    2,985
    
    
    
    447
    
    
    
    408
    
    
    
    3,840Total gross loans
    
    $
    292,403
    
    
    $
    165,186
    
    
    $
    19,389
    
    
    $
    476,978Fixed rate
    
    
    68,989
    
    
    
    139,400
    
    
    
    4,481
    
    
    
    212,870Variable rate
    
    
    223,414
    
    
    
    25,786
    
    
    
    14,908
    
    
    
    264,108Total gross loans
    
    $
    292,403
    
    
    $
    165,186
    
    
    $
    19,389
    
    
    $
    476,978
 Provision and Allowance for Loan Losses.
 26




---



##### Table of Contents



Summary of Allowance for Loan Losses  dollars in thousands
 Years Ended December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Balance at beginning of year
    
    $
    4,427
    
    
    $
    5,688
    
    
    $
    5,742
    
    
    $
    5,351
    
    
    $
    3,979Decrease due to dispositions
    
    
    49
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    04,378
    
    
    
    5,688
    
    
    
    5,742
    
    
    
    5,351
    
    
    
    3,979Loans charged-off:Real estate  construction
    
    
    39
    
    
    
    199
    
    
    
    354
    
    
    
    560
    
    
    
    113Real estate  residential
    
    
    129
    
    
    
    595
    
    
    
    212
    
    
    
    181
    
    
    
    159Real estate
 commercial and other
    
    
    104
    
    
    
    179
    
    
    
    82
    
    
    
    0
    
    
    
    0Commercial
    
    
    313
    
    
    
    1,419
    
    
    
    1,622
    
    
    
    2,139
    
    
    
    254Consumer
    
    
    240
    
    
    
    738
    
    
    
    1,251
    
    
    
    1,528
    
    
    
    774Other
    
    
    0
    
    
    
    0
    
    
    
    11
    
    
    
    134
    
    
    
    63Total charge-offs
    
    $
    825
    
    
    $
    3,130
    
    
    $
    3,532
    
    
    $
    4,542
    
    
    $
    1,363Recoveries:Real estate  construction
    
    
    22
    
    
    
    28
    
    
    
    35
    
    
    
    36
    
    
    
    0Real estate
 residential
    
    
    13
    
    
    
    29
    
    
    
    3
    
    
    
    0
    
    
    
    34Real estate
 commercial and other
    
    
    0
    
    
    
    29
    
    
    
    0
    
    
    
    0
    
    
    
    29Commercial
    
    
    82
    
    
    
    94
    
    
    
    186
    
    
    
    88
    
    
    
    15Consumer
    
    
    102
    
    
    
    232
    
    
    
    167
    
    
    
    145
    
    
    
    128Other
    
    
    0
    
    
    
    11
    
    
    
    3
    
    
    
    6
    
    
    
    51Total recoveries
    
    $
    219
    
    
    $
    423
    
    
    $
    395
    
    
    $
    275
    
    
    $
    257Net loans charged-off
    
    
    606
    
    
    
    2,707
    
    
    
    3,137
    
    
    
    4,267
    
    
    
    1,106Current year provision
    
    
    993
    
    
    
    1,446
    
    
    
    3,083
    
    
    
    4,658
    
    
    
    2,478Balance at end of year
    
    $
    4,765
    
    
    $
    4,427
    
    
    $
    5,688
    
    
    $
    5,742
    
    
    $
    5,351Loans at year end
    
    $
    476,421
    
    
    $
    430,617
    
    
    $
    412,609
    
    
    $
    391,916
    
    
    $
    367,981Ratio of allowance to loans at year end
    
    
    1.00
    %
    
    
    1.03
    %
    
    
    1.38
    %
    
    
    1.47
    %
    
    
    1.45
    %Average loans
    
    $
    456,657
    
    
    $
    416,335
    
    
    $
    412,604
    
    
    $
    384,642
    
    
    $
    354,218Ratio of charge-offs to average loans
    
    
    0.13
    %
    
    
    0.65
    %
    
    
    0.76
    %
    
    
    1.11
    %
    
    
    0.31
    %
 27




---



##### Table of Contents



Nonperforming Assets.
  Summary of Nonperforming Loans  dollars in thousands
 Years Ended December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Non-accrual loans
    
    $
    2,273
    
    
    $
    5,377
    
    
    $
    3,532
    
    
    $
    8,172
    
    
    $
    6,587Loans past due 90 days or more
still accruing
    
    
    0
    
    
    
    40
    
    
    
    3
    
    
    
    0
    
    
    
    192Restructured loans
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Total nonperforming loans
    
    $
    2,273
    
    
    $
    5,417
    
    
    $
    3,535
    
    
    $
    8,172
    
    
    $
    6,779Foreclosed properties
    
    
    346
    
    
    
    793
    
    
    
    1,284
    
    
    
    2,184
    
    
    
    3,401Total nonperforming assets
    
    $
    2,619
    
    
    $
    6,210
    
    
    $
    4,819
    
    
    $
    10,356
    
    
    $
    10,180
   Allocation of Allowance for Loan Losses  dollars in thousands
 2005
    
    
    2004
    
    
    2003Real Estate  construction
    
    $
    1,032
    
    
    $
    330
    
    
    $
    257Real Estate  commercial and other
    
    
    1,144
    
    
    
    868
    
    
    
    269Real Estate  residential
    
    
    539
    
    
    
    1,089
    
    
    
    1,141Commercial
    
    
    1,292
    
    
    
    1,433
    
    
    
    3,245Consumer
    
    
    737
    
    
    
    625
    
    
    
    656Other
    
    
    21
    
    
    
    82
    
    
    
    120Total gross loans
    
    $
    4,765
    
    
    $
    4,427
    
    
    $
    5,688
 28




---



##### Table of Contents



Supplemental Loan Information as of December 31, 2005  dollars in thousands
 % of
    
    
    Non-
    
    
    Foreclosed
    
    
    Year-to-dateLoans
    
    
    total
    
    
    accrual
    
    
    Property and
    
    
    net charge-
    
    
    Allocation ofoutstanding
    
    
    Loans
    
    
    loans
    
    
    repossessions
    
    
    offs
    
    
    allowanceReal Estate  construction
    
    $
    157,381
    
    
    
    33.0
    %
    
    $
    55
    
    
    $
    0
    
    
    $
    116
    
    
    $
    1,032Real Estate  residential
    
    
    112,281
    
    
    
    23.6
    %
    
    
    280
    
    
    
    346
    
    
    
    17
    
    
    
    539Real Estate  commercial and other
    
    
    115,609
    
    
    
    24.2
    %
    
    
    689
    
    
    
    0
    
    
    
    104
    
    
    
    1,144Commercial
    
    
    71,929
    
    
    
    15.1
    %
    
    
    1,229
    
    
    
    0
    
    
    
    231
    
    
    
    1,292Consumer
    
    
    15,938
    
    
    
    3.3
    %
    
    
    20
    
    
    
    0
    
    
    
    138
    
    
    
    737Other
    
    
    3,840
    
    
    
    0.8
    %
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    21Total gross loans
    
    $
    476,978
    
    
    
    100.0
    %
    
    $
    2,273
    
    
    $
    346
    
    
    $
    606
    
    
    $
    4,765Deferred fees and costs
    
    
    (557
    )Net loans
    
    $
    476,421
  Summary of Performing Classified Loans
  dollars in thousands
 Substandard
    
    $
    5,208Doubtful
    
    
    860Loss
    
    
    0Total
    
    $
    6,068
  29




---



##### Table of Contents



DEPOSITS
   Deposit Maturity
 dollars in thousands
 Under 3 months
    
    $
    58,3974  6 months
    
    
    12,0877  12 months
    
    
    59,128Over 12 months
    
    
    64,087Total
    
    $
    193,699
  KEY RATIOS
  Performance Indicators
 December 31, 2005
    
    December 31, 2004Return on average assets
    
    
    0.54
    %
    
    
    0.34
    %Return on average equity
    
    
    8.20
    %
    
    
    4.12
    %Cash dividend payout ratio
    
    
    0.00
    %
    
    
    28
    %Equity to assets ratio
    
    
    6.30
    %
    
    
    8.20
    %
 INCOME TAXES
  30




---



##### Table of Contents



FINANCIAL CONDITION
 Balance Sheet Summary
    Liquidity and Asset Management
     31




---



##### Table of Contents



32




---



##### Table of Contents



Contractual Obligations
  Contractual Obligations  dollars in thousands
 Less than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 year
    
    
    1  3 years
    
    
    3  5 years
    
    
    5 yearsLong-Term Debt Obligations
    
    $
    35,000
    
    
    $
    2,000
    
    
    $
    10,000
    
    
    $
    16,500
    
    
    $
    6,500Capital Leases
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Operating Leases
    
    
    2,024
    
    
    
    605
    
    
    
    1,419
    
    
    
    0
    
    
    
    0Purchase Obligations
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Other Long-term Liabilities
    
    
    17,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    17,000Total
    
    $
    54,024
    
    
    $
    2,605
    
    
    $
    11,419
    
    
    $
    16,500
    
    
    $
    23,500
 Off Balance Sheet Arrangements
  Capital Position and Dividends
   33




---



##### Table of Contents



Capital Standards  dollars in thousands
 To be wellcapitalized under
    
    
    
    
    
    
    
    
    
    ExcessRequired Minimum
    
    prompt corrective
    
    
    
    
    
    
    
    
    
    over wellfor capital adequacy
    
    action provisions
    
    Actual
    
    capitalizedAmount
    
    Ratios
    
    Amount
    
    Ratios
    
    Amount
    
    Ratios
    
    AmountDecember 31, 2005Tier I to average assets  leverageCivitas BankGroup, Inc.
    
    $
    28,813
    
    
    
    4.00
    %
    
    $
    36,016
    
    
    
    5.00
    %
    
    $
    65,913
    
    
    
    9.15
    %
    
    $
    29,897Cumberland Bank
    
    
    28,810
    
    
    
    4.00
    %
    
    
    36,013
    
    
    
    5.00
    %
    
    
    53,709
    
    
    
    7.46
    %
    
    
    17,696Tier I to risk-weighted assetsCivitas BankGroup, Inc.
    
    
    23,143
    
    
    
    4.00
    %
    
    
    34,714
    
    
    
    6.00
    %
    
    
    65,913
    
    
    
    11.39
    %
    
    
    31,199Cumberland Bank
    
    
    21,399
    
    
    
    4.00
    %
    
    
    32,098
    
    
    
    6.00
    %
    
    
    53,709
    
    
    
    10.04
    %
    
    
    21,611Total capital to risk-weighted assetsCivitas BankGroup, Inc.
    
    
    49,285
    
    
    
    8.00
    %
    
    
    57,857
    
    
    
    10.00
    %
    
    
    70,678
    
    
    
    12.22
    %
    
    
    12,821Cumberland Bank
    
    
    42,798
    
    
    
    8.00
    %
    
    
    53,497
    
    
    
    10.00
    %
    
    
    58,474
    
    
    
    10.93
    %
    
    
    4,977December 31, 2004Tier I to average assets  leverageCivitas BankGroup, Inc.
    
    $
    36,029
    
    
    
    4.00
    %
    
    $
    45,036
    
    
    
    5.00
    %
    
    $
    68,562
    
    
    
    7.61
    %
    
    $
    23,526Cumberland Bank
    
    
    26,462
    
    
    
    4.00
    %
    
    
    33,078
    
    
    
    5.00
    %
    
    
    46,672
    
    
    
    7.05
    %
    
    
    13,594Tier I to risk-weighted assetsCivitas BankGroup, Inc.
    
    
    21,931
    
    
    
    4.00
    %
    
    
    32,897
    
    
    
    6.00
    %
    
    
    68,562
    
    
    
    12.50
    %
    
    
    35,665Cumberland Bank
    
    
    16,316
    
    
    
    4.00
    %
    
    
    24,473
    
    
    
    6.00
    %
    
    
    46,672
    
    
    
    11.44
    %
    
    
    22,199Total capital to risk-weighted assetsCivitas BankGroup, Inc.
    
    
    43,862
    
    
    
    8.00
    %
    
    
    54,828
    
    
    
    10.00
    %
    
    
    74,594
    
    
    
    13.61
    %
    
    
    19,766Cumberland Bank
    
    
    32,631
    
    
    
    8.00
    %
    
    
    40,789
    
    
    
    10.00
    %
    
    
    51,051
    
    
    
    12.52
    %
    
    
    10,262
 Adoption of New Accounting Standards
 Accounting for Stock Based Compensation, Revised
 34




---



##### Table of Contents



Subsequent Events
   
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Sensitivity
  35




---



##### Table of Contents



Interest Rate Sensitivity  dollars in thousands
 1-90 Days
    
    
    91-365 Days
    
    
    1  5 Years
    
    
    Over 5 Years
    
    
    TotalInterest earning assets:Loans, net
    
    $
    261,920
    
    
    $
    63,429
    
    
    $
    145,517
    
    
    $
    5,555
    
    
    $
    476,421Securities available for sale
    
    
    2,859
    
    
    
    16,852
    
    
    
    38,797
    
    
    
    31,216
    
    
    
    89,724Securities held to maturity
    
    
    2,790
    
    
    
    10,129
    
    
    
    43,421
    
    
    
    59,106
    
    
    
    115,446Federal funds sold
    
    
    2,700
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    2,700Interest-earning deposits
    
    
    957
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    957Total interest earning assets
    
    $
    271,226
    
    
    $
    90,410
    
    
    $
    227,735
    
    
    $
    95,877
    
    
    $
    685,248Interest bearing liabilities:Interest bearing demand deposits
    
    
    212,390
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    212,390Savings deposits
    
    
    15,836
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    15,836Time deposits
    
    
    84,180
    
    
    
    128,617
    
    
    
    94,303
    
    
    
    1,245
    
    
    
    308,345FHLB borrowings
    
    
    0
    
    
    
    0
    
    
    
    10,000
    
    
    
    25,000
    
    
    
    35,000Federal funds purchased and
repurchase agreements
    
    
    45,452
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    45,452Subordinated debentures
    
    
    17,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    17,000Total interest bearing liabilities
    
    $
    374,858
    
    
    $
    128,617
    
    
    $
    104,303
    
    
    $
    26,245
    
    
    $
    634,023Rate sensitive gap
    
    
    (103,632
    )
    
    
    (38,207
    )
    
    
    123,432
    
    
    
    69,632
    
    
    $
    51,225Rate sensitive cumulative gap
    
    $
    (103,632
    )
    
    $
    (141,839
    )
    
    $
    (18,407
    )
    
    $
    51,225Cumulative gap as a percentage
of total earnings assets
    
    
    (15.12
    %)
    
    
    (20.70
    %)
    
    
    (2.69
    %)
    
    
    7.48
    %
 
   Market Risk
 dollars in thousands
 Down 200
    
    Down 100
    
    Base
    
    Up 100
    
    Up 200Net Interest Income
    
    $
    19,404
    
    
    $
    21,104
    
    
    $
    22,064
    
    
    $
    22,633
    
    
    $
    23,087Change from Base
    
    
    (2,660
    )
    
    
    (960
    )
    
    
    
    
    
    
    569
    
    
    
    1,023% Change from Base
    
    
    -12.1
    %
    
    
    -4.4
    %
    
    
    
    
    
    
    2.6
    %
    
    
    4.6
    %
 
 36




---



##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     /s/ Crowe Chizek and Company LLCBrentwood, TennesseeMarch 14, 2006
 37




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMON INTERNAL CONTROL OVER FINANCIAL REPORTING
 
       
 38




---



##### Table of Contents



CIVITAS BANKGROUP, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2005 and 2004  (Dollars in thousands, except share and per share amounts)
 2005
    
    
    2004ASSETS:Cash and due from banks
    
    $
    31,510
    
    
    $
    23,262Federal funds sold
    
    
    2,700
    
    
    
    3,490Interest-bearing deposits in other financial institutions
    
    
    957
    
    
    
    3,695Securities available for sale
    
    
    89,724
    
    
    
    109,293Securities held to maturity (fair value $113,577 and $96,673)
    
    
    115,446
    
    
    
    95,845Loans held for sale
    
    
    3,720
    
    
    
    6,960Loans
    
    
    476,421
    
    
    
    430,617Allowance for loan losses
    
    
    (4,765
    )
    
    
    (4,427
    )Loans, net
    
    
    471,656
    
    
    
    426,190Premises and equipment, net
    
    
    14,025
    
    
    
    15,043Restricted equity securities
    
    
    3,527
    
    
    
    3,340Foreclosed property
    
    
    346
    
    
    
    793Investment in unconsolidated affiliates
    
    
    7,734
    
    
    
    7,263Goodwill
    
    
    0
    
    
    
    1,526Accrued interest receivable
    
    
    3,567
    
    
    
    2,979Other assets
    
    
    4,604
    
    
    
    3,999Assets of discontinued operations
    
    
    0
    
    
    
    200,543Total assets
    
    $
    749,516
    
    
    $
    904,221LIABILITIES AND SHAREHOLDERS EQUITY:Liabilities:DepositsNon-interest bearing
    
    $
    64,195
    
    
    $
    69,744Interest bearing
    
    
    536,571
    
    
    
    497,129Total deposits
    
    
    600,766
    
    
    
    566,873Notes payable
    
    
    0
    
    
    
    4,550Repurchase agreements
    
    
    45,452
    
    
    
    37,901Advances from Federal Home Loan Bank
    
    
    35,000
    
    
    
    36,000Accrued interest payable
    
    
    2,109
    
    
    
    1,809Subordinated debentures
    
    
    17,000
    
    
    
    12,000Other liabilities
    
    
    1,964
    
    
    
    981Liabilities of discontinued operations
    
    
    0
    
    
    
    186,371Total liabilities
    
    
    702,291
    
    
    
    846,485Shareholders equity:Common stock, $0.50 par value; authorized 40,000,000 shares,
shares issued and outstanding 15,835,095 and 17,578,864
at December 31, 2005 and 2004, respectively
    
    
    7,918
    
    
    
    8,789Additional paid-in capital
    
    
    23,866
    
    
    
    38,191Retained earnings
    
    
    16,942
    
    
    
    10,858Accumulated other comprehensive income (loss)
    
    
    (1,501
    )
    
    
    (102
    )Total shareholders equity
    
    
    47,225
    
    
    
    57,736Total liabilities and shareholders equity
    
    $
    749,516
    
    
    $
    904,221
  39




---



##### Table of Contents



CIVITAS BANKGROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2005, 2004 and 2003 (Dollars in thousands, except share and per share amounts)
 2005
    
    
    2004
    
    
    2003Interest income:Loans, including fees
    
    $
    30,972
    
    
    $
    24,971
    
    
    $
    26,973Securities
    
    
    9,019
    
    
    
    7,555
    
    
    
    4,370Deposits in financial institutions
    
    
    71
    
    
    
    57
    
    
    
    88Federal funds sold
    
    
    121
    
    
    
    207
    
    
    
    62Restricted equity securities
    
    
    174
    
    
    
    150
    
    
    
    129Total interest income
    
    
    40,357
    
    
    
    32,940
    
    
    
    31,622Interest expense:Deposits
    
    
    14,534
    
    
    
    10,078
    
    
    
    9,225Federal funds purchased and repurchase agreements
    
    
    1,678
    
    
    
    282
    
    
    
    109Advances from Federal Home Loan Bank
    
    
    1,788
    
    
    
    1,828
    
    
    
    1,819Subordinated debentures
    
    
    813
    
    
    
    592
    
    
    
    591Notes payable
    
    
    294
    
    
    
    343
    
    
    
    418Total interest expense
    
    
    19,107
    
    
    
    13,123
    
    
    
    12,162Net interest income
    
    
    21,250
    
    
    
    19,817
    
    
    
    19,460Provision for loan losses
    
    
    993
    
    
    
    1,446
    
    
    
    3,083Net interest income after provision for loan losses
    
    
    20,257
    
    
    
    18,371
    
    
    
    16,377Noninterest income:Service charges on deposit accounts
    
    
    2,761
    
    
    
    2,975
    
    
    
    3,400Other service charges, commissions and fees
    
    
    911
    
    
    
    636
    
    
    
    483Mortgage banking activities
    
    
    2,086
    
    
    
    929
    
    
    
    1,306Net gain on securities transactions
    
    
    100
    
    
    
    655
    
    
    
    106Net gain (loss) on sale of foreclosed property
    
    
    (84
    )
    
    
    3
    
    
    
    (50
    )Income from unconsolidated affiliates
    
    
    703
    
    
    
    727
    
    
    
    379Other noninterest income
    
    
    1,094
    
    
    
    1,868
    
    
    
    637Total noninterest income
    
    
    7,571
    
    
    
    7,793
    
    
    
    6,261Noninterest expense:Salaries and employee benefits
    
    
    12,501
    
    
    
    12,264
    
    
    
    11,494Occupancy and equipment
    
    
    3,279
    
    
    
    3,182
    
    
    
    2,715Data processing
    
    
    311
    
    
    
    1,339
    
    
    
    1,014Foreclosed property
    
    
    86
    
    
    
    265
    
    
    
    150Other noninterest expense
    
    
    6,032
    
    
    
    5,867
    
    
    
    5,009Total noninterest expense
    
    
    22,209
    
    
    
    22,917
    
    
    
    20,382Income from continuing operations before income taxes
    
    
    5,619
    
    
    
    3,247
    
    
    
    2,256Income tax expense
    
    
    1,715
    
    
    
    941
    
    
    
    823Income from continuing operations
    
    $
    3,904
    
    
    $
    2,306
    
    
    $
    1,433
 See accompanying notes to consolidated financial statements 40




---



##### Table of Contents



CIVITAS BANKGROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2005, 2004 and 2003 (Dollars in thousands, except share and per share amounts)
 2005
    
    
    2004
    
    
    2003Income from continuing operations
    
    $
    3,904
    
    
    $
    2,306
    
    
    $
    1,433Discontinued operationsIncome (loss) from operations of discontinued
components, less applicable income taxes of
$47, $293, and $228
    
    
    82
    
    
    
    (422
    )
    
    
    (332
    )Gain on sale of discontinued operations
    
    
    3,782
    
    
    
    0
    
    
    
    0Tax provision on sale of discontinued operations
    
    
    418
    
    
    
    0
    
    
    
    0Net Income
    
    $
    7,350
    
    
    $
    1,884
    
    
    $
    1,101Income per share, basic, continuing operations
    
    $
    0.24
    
    
    $
    0.13
    
    
    $
    0.09Income per share, diluted, continuing operations
    
    
    0.24
    
    
    
    0.13
    
    
    
    0.09Income/ (loss) per share, basic, discontinued operations
    
    
    0.22
    
    
    
    (0.02
    )
    
    
    (0.02
    )Income/ (loss) per share, diluted, discontinued operations
    
    
    0.22
    
    
    
    (0.02
    )
    
    
    (0.02
    )Net income per share, basic
    
    
    0.46
    
    
    
    0.11
    
    
    
    0.07Net income per share, diluted
    
    
    0.46
    
    
    
    0.11
    
    
    
    0.07
 See accompanying notes to consolidated financial statements 41




---



##### Table of Contents



CIVITAS BANKGROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
Years Ended December 31, 2005, 2004 and 2003 (Dollars in thousands, except share and per share amounts)
 AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    TotalCommon Stock
    
    
    Paid-In
    
    
    Retained
    
    
    Comprehensive
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    EquityBalance at January 1, 2003
    
    
    15,382,626
    
    
    $
    7,691
    
    
    $
    27,504
    
    
    $
    9,749
    
    
    $
    529
    
    
    $
    45,473Issuance of common stock
    
    
    1,620,330
    
    
    
    811
    
    
    
    8,132
    
    
    
    0
    
    
    
    0
    
    
    
    8,943Exercise of stock options
    
    
    132,100
    
    
    
    66
    
    
    
    294
    
    
    
    0
    
    
    
    0
    
    
    
    360Cash dividends ($0.03 per share)
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (973
    )
    
    
    0
    
    
    
    (973
    )Comprehensive income:Net income
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    1,101
    
    
    
    0
    
    
    
    1,101Other comprehensive income:Change in unrealized loss on securities
available for sale
    
    
    0
    
    
    
    0
    
    
    
    
    
    
    
    0
    
    
    
    6
    
    
    
    6Less: adjustment for gains included in net income,
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (169
    )
    
    
    (169
    )Total comprehensive income
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    938Balance at December 31, 2003
    
    
    17,135,056
    
    
    $
    8,568
    
    
    $
    35,930
    
    
    $
    9,877
    
    
    $
    366
    
    
    $
    54,741Exercise of stock options
    
    
    344,050
    
    
    
    172
    
    
    
    872
    
    
    
    0
    
    
    
    0
    
    
    
    1,044Issuance of common stock
    
    
    56,253
    
    
    
    28
    
    
    
    366
    
    
    
    0
    
    
    
    0
    
    
    
    394Cash dividends ($0.06 per share)
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (527
    )
    
    
    0
    
    
    
    (527
    )Stock dividends issued
    
    
    43,505
    
    
    
    21
    
    
    
    355
    
    
    
    (376
    )
    
    
    0
    
    
    
    0Tax benefit  stock options
    
    
    0
    
    
    
    0
    
    
    
    668
    
    
    
    0
    
    
    
    0
    
    
    
    668Comprehensive income:Net income
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    1,884
    
    
    
    0
    
    
    
    1,884Other comprehensive income (loss):Change in unrealized loss on securities
available for sale
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (872
    )
    
    
    (872
    )Less: adjustment for realized gain
included in net income
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    404
    
    
    
    404Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,416Balance at December 31, 2004
    
    
    17,578,864
    
    
    $
    8,789
    
    
    $
    38,191
    
    
    $
    10,858
    
    
    $
    (102
    )
    
    $
    57,736Exercise of stock options
    
    
    71,859
    
    
    
    36
    
    
    
    339
    
    
    
    0
    
    
    
    0
    
    
    
    375Issuance of common stock
    
    
    67,033
    
    
    
    35
    
    
    
    446
    
    
    
    0
    
    
    
    0
    
    
    
    481Retirement of common stock
    
    
    (2,043,072
    )
    
    
    (1,022
    )
    
    
    (16,278
    )
    
    
    0
    
    
    
    0
    
    
    
    (17,300
    )Stock dividends issued
    
    
    160,411
    
    
    
    80
    
    
    
    1,168
    
    
    
    (1,266
    )
    
    
    0
    
    
    
    (18
    )Comprehensive income:Net income
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    7,350
    
    
    
    0
    
    
    
    7,350Other comprehensive income (loss):Change in unrealized loss on securities
available for sale
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (1,461
    )
    
    
    (1,461
    )Less: adjustment for realized gain
included in net income
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    62
    
    
    
    62Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,951Balance at December 31, 2005
    
    
    15,835,095
    
    
    $
    7,918
    
    
    $
    23,866
    
    
    $
    16,942
    
    
    $
    (1,501
    )
    
    $
    47,225
 See accompanying notes to consolidated financial statements 42




---



##### Table of Contents



CIVITAS BANKGROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2005, 2004 and 2003 (Dollars in thousands, except share and per share amounts)
 2005
    
    
    2004
    
    
    2003Cash flows from operating activities:Net income
    
    $
    7,350
    
    
    $
    1,884
    
    
    $
    1,101Adjustments to reconcile net income to net cash from operating activities:Provision for loan losses
    
    
    993
    
    
    
    1,446
    
    
    
    3,083Depreciation and amortization
    
    
    1,886
    
    
    
    2,138
    
    
    
    1,390Operations of unconsolidated affiliates
    
    
    (703
    )
    
    
    (729
    )
    
    
    (379
    )Origination of mortgage loans held for sale
    
    
    (103,289
    )
    
    
    (53,698
    )
    
    
    (80,153
    )Proceeds from sale of mortgage loans held for sale
    
    
    107,919
    
    
    
    46,901
    
    
    
    78,997Gain on sale of mortgage loans
    
    
    (1,390
    )
    
    
    (378
    )
    
    
    (1,509
    )Federal Home Loan Bank stock dividend
    
    
    (131
    )
    
    
    (69
    )
    
    
    (226
    )Net (gain) on securities transactions
    
    
    (100
    )
    
    
    (655
    )
    
    
    (106
    )Net (gain) / loss on sale of other real estate
    
    
    84
    
    
    
    (3
    )
    
    
    50Gain on sale of assets
    
    
    (148
    )
    
    
    (79
    )
    
    
    (10
    )Gain on sale of discontinued operations
    
    
    (3,364
    )
    
    
    0
    
    
    
    0Net change in:Deferred income tax benefits
    
    
    (557
    )
    
    
    687
    
    
    
    152Accrued interest receivable
    
    
    (588
    )
    
    
    170
    
    
    
    17Accrued interest payable and other liabilities
    
    
    1,283
    
    
    
    (457
    )
    
    
    (602
    )Other, net
    
    
    780
    
    
    
    2,802
    
    
    
    3,711Total adjustments
    
    
    2,675
    
    
    
    (1,924
    )
    
    
    4,415Net cash from operating activities
    
    
    10,025
    
    
    
    (40
    )
    
    
    5,516Cash flows from investing activities:Net change in interest-bearing deposits in financial institutions
    
    
    2,738
    
    
    
    (285
    )
    
    
    2,941Purchases of securities available for sale
    
    
    (47,130
    )
    
    
    (124,335
    )
    
    
    (115,680
    )Proceeds from sales of securities available for sale
    
    
    16,998
    
    
    
    51,732
    
    
    
    14,856Proceeds from maturities, pay downs, and calls of securities
available for sale
    
    
    47,536
    
    
    
    74,531
    
    
    
    51,958Purchases of securities held to maturity
    
    
    (37,148
    )
    
    
    (50,109
    )
    
    
    (66,839
    )Proceeds from maturities, pay downs, and calls of securities
held to maturity
    
    
    17,462
    
    
    
    12,893
    
    
    
    18,118Net change in loans
    
    
    (46,458
    )
    
    
    (17,136
    )
    
    
    (27,492
    )Investment in unconsolidated affiliates
    
    
    (37
    )
    
    
    264
    
    
    
    (395
    )Purchases of premises and equipment, net
    
    
    (688
    )
    
    
    (615
    )
    
    
    (1,141
    )Proceeds from sale of foreclosed property
    
    
    1,060
    
    
    
    2,697
    
    
    
    2,323Proceeds from sale of discontinued operations
    
    
    1,350
    
    
    
    0
    
    
    
    0Net cash used by investing activities
    
    
    (44,317
    )
    
    
    (50,363
    )
    
    
    (121,351
    )Cash flows from financing activities:Net change in deposits
    
    
    33,893
    
    
    
    46,368
    
    
    
    82,898Net change in Federal funds sold position
    
    
    790
    
    
    
    (1,000
    )
    
    
    1,000Proceeds from Federal Home Loan Bank advances
    
    
    0
    
    
    
    0
    
    
    
    1,000Repayments of Federal Home Loan Bank advances
    
    
    (1,000
    )
    
    
    (852
    )
    
    
    0Proceeds from repurchase agreements
    
    
    7,551
    
    
    
    12,888
    
    
    
    18,136Repayments of notes payable
    
    
    (4,550
    )
    
    
    (150
    )
    
    
    (800
    )Proceeds from issuance of subordinated debentures
    
    
    13,000
    
    
    
    0
    
    
    
    0Repayment of subordinated debentures
    
    
    (8,000
    )
    
    
    0
    
    
    
    0Cash dividends paid
    
    
    0
    
    
    
    (526
    )
    
    
    (927
    )Proceeds from issuance of common stock
    
    
    856
    
    
    
    1,438
    
    
    
    9,303Net cash provided by financing activities
    
    
    42,540
    
    
    
    58,166
    
    
    
    110,610Net change in cash and cash equivalents
    
    
    8,248
    
    
    
    7,763
    
    
    
    (5,225
    )Cash and cash equivalents at beginning of year
    
    
    23,262
    
    
    
    15,499
    
    
    
    20,724Cash and cash equivalents at end of year
    
    $
    31,510
    
    
    $
    23,262
    
    
    $
    15,499Supplemental disclosure of cash flow information:Interest paid
    
    $
    18,807
    
    
    $
    16,775
    
    
    $
    16,680Income taxes paid
    
    
    830
    
    
    
    30
    
    
    
    1,253Non-Cash Activities:Transfers from loans to foreclosed property
    
    
    774
    
    
    
    247
    
    
    
    7,063Stock received from disposal of subsidiary
    
    
    17,300
    
    
    
    0
    
    
    
    0
 See accompanying notes to consolidated financial statements 43




---



##### Table of Contents



CIVITAS BANKGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004 (Dollars in thousands, except share and per share amounts)
 NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Basis of Presentation
 Nature of Operations
 Use of Estimates
 Cash Flows
 Interest-bearing Deposits in Other Financial Institutions
 Restrictions on Cash
 44




---



##### Table of Contents



CIVITAS BANKGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004 (Dollars in thousands, except share and per share amounts)
 NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Securities
   Loans Held for Sale
  Loans
   45




---



##### Table of Contents



CIVITAS BANKGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004 (Dollars in thousands, except share and per share amounts)
 NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Allowance for Loan Losses
   Servicing Rights
 Foreclosed Assets
 Premises and Equipment
 Restricted Equity Securities
 46




---



##### Table of Contents



CIVITAS BANKGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004 (Dollars in thousands, except share and per share amounts)
 NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 Goodwill
 Long-term Assets
 Loan Commitments and Related Financial Instruments
 Stock Compensation
 Accounting for Stock-Based Compensation
 2005
    
    
    2004
    
    
    2003Income from continuing operations as reported
    
    $
    3,904
    
    
    $
    2,306
    
    
    $
    1,433Deduct: Stock-based compensation expense
determined under fair value based method
    
    
    (903
    )
    
    
    (164
    )
    
    
    (89
    )Pro forma income from continuing operations
    
    $
    3,001
    
    
    $
    2,142
    
    
    $
    1,344Basic earnings per share from continuing operations
    
    
    0.24
    
    
    
    0.13
    
    
    
    0.09Pro forma basic earnings per share
    
    
    0.19
    
    
    
    0.12
    
    
    
    0.08Diluted earnings per share from continuing operations
    
    
    0.24
    
    
    
    0.13
    
    
    
    0.09Pro forma diluted earnings per share
    
    
    0.19
    
    
    
    0.12
    
    
    
    0.08
  2005
    
    
    2004
    
    
    2003Risk-free interest rate
    
    
    4.27
    %
    
    
    3.64
    %
    
    
    3.44
    %Expected option life
    
    
    4 yrs.
    
    
    
    4 yrs.
    
    
    
    7 yrs.Expected stock price volatility
    
    
    24.4
    %
    
    
    23.3
    %
    
    
    8.8
    %Dividend yield
    
    
    0.00
    %
    
    
    1.29
    %
    
    
    0.93
    %
 47




---



##### Table of Contents



CIVITAS BANKGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004 (Dollars in thousands, except share and per share amounts)
 NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Income Taxes
 Fair Value of Financial Instruments
 Earnings Per Common Share
 Comprehensive Income
 Operating Segments
 Sale of Bank Subsidiaries
 Adoption of New Accounting Standards Accounting for Stock Based
Compensation, Revised
 48




---



##### Table of Contents



CIVITAS BANKGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 (Dollars in thousands, except share and per share amounts)
 NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Loss Contingencies
 Dividend Restrictions:
 Reclassifications
 NOTE 2
 INTEREST BEARING DEPOSITS
  49




---



##### Table of Contents



CIVITAS BANKGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 (Dollars in thousands, except share and per share amounts)
 NOTE 3
 SECURITIES
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueDecember 31, 2005U.S. treasury and government agencies
    
    $
    7,935
    
    
    $
    0
    
    
    $
    (71
    )
    
    $
    7,864State and municipal
    
    
    3,375
    
    
    
    1
    
    
    
    (76
    )
    
    
    3,300Mortgage-backed
    
    
    79,276
    
    
    
    52
    
    
    
    (1,876
    )
    
    
    77,452Marketable equity
    
    
    1,058
    
    
    
    0
    
    
    
    0
    
    
    
    1,058Other debt
    
    
    50
    
    
    
    0
    
    
    
    0
    
    
    
    50Total
    
    $
    91,694
    
    
    $
    53
    
    
    $
    (2,023
    )
    
    $
    89,724December 31, 2004U.S. treasury and government agencies
    
    $
    18,121
    
    
    $
    2
    
    
    $
    (50
    )
    
    $
    18,073State and municipal
    
    
    4,333
    
    
    
    31
    
    
    
    (33
    )
    
    
    4,331Mortgage-backed
    
    
    85,772
    
    
    
    474
    
    
    
    (485
    )
    
    
    85,761Marketable equity
    
    
    1,078
    
    
    
    0
    
    
    
    0
    
    
    
    1,078Other debt
    
    
    50
    
    
    
    0
    
    
    
    0
    
    
    
    50Total
    
    $
    109,354
    
    
    $
    507
    
    
    $
    (568
    )
    
    $
    109,293
 50




---



##### Table of Contents



CIVITAS BANKGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 (Dollars in thousands, except share and per share amounts)
 NOTE
3  SECURITIES
  Gross
    
    
    GrossCarrying
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairAmount
    
    
    Gains
    
    
    Losses
    
    
    ValueDecember 31, 2005U.S. treasury and government agencies
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0State and municipal
    
    
    28,669
    
    
    
    337
    
    
    
    (393
    )
    
    
    28,613Mortgage-backed
    
    
    84,522
    
    
    
    2
    
    
    
    (1,697
    )
    
    
    82,827Other debt
    
    
    2,255
    
    
    
    0
    
    
    
    (118
    )
    
    
    2,137Total
    
    $
    115,446
    
    
    $
    339
    
    
    $
    (2,208
    )
    
    $
    113,577December 31, 2004U.S. treasury and government agencies
    
    $
    300
    
    
    $
    0
    
    
    $
    0
    
    
    $
    300State and municipal
    
    
    26,233
    
    
    
    557
    
    
    
    (104
    )
    
    
    26,686Mortgage-backed
    
    
    66,899
    
    
    
    478
    
    
    
    (95
    )
    
    
    67,282Other debt
    
    
    2,413
    
    
    
    0
    
    
    
    (8
    )
    
    
    2,405Total
    
    $
    95,845
    
    
    $
    1,035
    
    
    $
    (207
    )
    
    $
    96,673Sales of available for sale securities were as follows:
 2005
    
    2004
    
    2003Proceeds
    
    $
    16,998
    
    
    $
    51,732
    
    
    $
    14,856Gross gains
    
    
    112
    
    
    
    655
    
    
    
    106Gross losses
    
    
    12
    
    
    
    0
    
    
    
    0
  51




---



##### Table of Contents



CIVITAS BANKGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 (Dollars in thousands, except share and per share amounts)
 NOTE
3  SECURITIES
  Held to maturity
    
    
    AvailableCarrying
    
    
    Fair
    
    
    for saleAmount
    
    
    Value
    
    
    Fair ValueDue in one year or less
    
    $
    55
    
    
    $
    55
    
    
    $
    4,945Due from one to five years
    
    
    306
    
    
    
    307
    
    
    
    1,500Due from five to ten years
    
    
    2,603
    
    
    
    2,549
    
    
    
    2,940Due after ten years
    
    
    25,705
    
    
    
    25,702
    
    
    
    1,779Mortgage-backed
    
    
    84,522
    
    
    
    82,827
    
    
    
    77,452Marketable equity securities
    
    
    0
    
    
    
    0
    
    
    
    1,058Other debt securities
    
    
    2,255
    
    
    
    2,137
    
    
    
    50Total
    
    $
    115,446
    
    
    $
    113,577
    
    
    $
    89,724
   52




---



##### Table of Contents



CIVITAS BANKGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 (Dollars in thousands, except share and per share amounts)
 NOTE
3 SECURITIES
  Less than 12 Months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    LossDecember 31, 2005U.S. Treasury and government
agencies
    
    $
    1,968
    
    
    $
    (1
    )
    
    $
    4,396
    
    
    $
    (70
    )
    
    $
    6,364
    
    
    $
    (71
    )State and municipal securities
    
    
    11,027
    
    
    
    (279
    )
    
    
    4,270
    
    
    
    (190
    )
    
    
    15,297
    
    
    
    (469
    )Mortgage-backed securities
    
    
    100,418
    
    
    
    (1,928
    )
    
    
    49,028
    
    
    
    (1,645
    )
    
    
    149,446
    
    
    
    (3,573
    )Other debt securities
    
    
    0
    
    
    
    0
    
    
    
    887
    
    
    
    (118
    )
    
    
    887
    
    
    
    (118
    )Total temporarily
impaired
    
    $
    113,413
    
    
    $
    (2,208
    )
    
    $
    58,581
    
    
    $
    (2,023
    )
    
    $
    171,994
    
    
    $
    (4,231
    )December 31, 2004U.S. Treasury and government
agencies
    
    $
    17,365
    
    
    $
    (51
    )
    
    $
    0
    
    
    $
    0
    
    
    $
    17,365
    
    
    $
    (51
    )State and municipal securities
    
    
    7,725
    
    
    
    (108
    )
    
    
    954
    
    
    
    (30
    )
    
    
    8,679
    
    
    
    (138
    )Mortgage-backed securities
    
    
    72,424
    
    
    
    (530
    )
    
    
    3,281
    
    
    
    (48
    )
    
    
    75,705
    
    
    
    (578
    )Other debt securities
    
    
    999
    
    
    
    (8
    )
    
    
    0
    
    
    
    0
    
    
    
    999
    
    
    
    (8
    )Total temporarily impaired
    
    $
    98,513
    
    
    $
    (697
    )
    
    $
    4,235
    
    
    $
    (78
    )
    
    $
    102,748
    
    
    $
    (775
    )
  53




---



##### Table of Contents



CIVITAS BANKGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 (Dollars in thousands, except share and per share amounts)
 NOTE 4  LOANS
  2005
    
    
    2004Real estate:Construction and land development
    
    $
    157,381
    
    
    $
    93,841Residential properties
    
    
    112,281
    
    
    
    107,456Commercial real estate
    
    
    115,609
    
    
    
    77,294Commercial
    
    
    71,929
    
    
    
    128,114Consumer
    
    
    15,938
    
    
    
    21,561Other
    
    
    3,840
    
    
    
    2,880Total loans
    
    
    476,978
    
    
    
    431,146Net unearned income and deferred fees
    
    
    (557
    )
    
    
    (529
    )Subtotal
    
    
    476,421
    
    
    
    430,617Allowance for loan losses
    
    
    (4,765
    )
    
    
    (4,427
    )Loans, net
    
    $
    471,656
    
    
    $
    426,190
  54




---



##### Table of Contents



CIVITAS BANKGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 (Dollars in thousands, except share and per share amounts)
 NOTE 4  LOANS
  2005
    
    
    2004
    
    
    2003Balance at beginning of year
    
    $
    4,427
    
    
    $
    5,688
    
    
    $
    5,742Allowance of disposed bank
    
    
    (49
    )
    
    
    0
    
    
    
    0Provision charged to operating expenses
    
    
    993
    
    
    
    1,446
    
    
    
    3,083Loans charged off
    
    
    (825
    )
    
    
    (3,130
    )
    
    
    (3,532
    )Recoveries on previously charged off loans
    
    
    219
    
    
    
    423
    
    
    
    395Balance at end of year
    
    $
    4,765
    
    
    $
    4,427
    
    
    $
    5,688
  2005
    
    
    2004Year-end loans with no allocated allowance for loan losses
    
    $
    983
    
    
    $
    1,019Year-end loans with allocated allowance for loan losses
    
    
    7,114
    
    
    
    12,442Total
    
    $
    8,097
    
    
    $
    13,461Amount of the allowance for loan losses allocated
    
    $
    1,567
    
    
    $
    2,328
 2005
    
    2004
    
    2003Average of impaired loans during the year
    
    $
    12,258
    
    
    $
    22,292
    
    
    $
    11,938
  2005
    
    2004
    
    2003Loans past due over 90 days still on accrual
    
    $
    0
    
    
    $
    40
    
    
    $
    0Nonaccrual loans
    
    
    2,273
    
    
    
    5,377
    
    
    
    3,532
  55




---



##### Table of Contents



CIVITAS BANKGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 (Dollars in thousands, except share and per share amounts)
 NOTE 5  SECONDARY MORTGAGE MARKET ACTIVITIES
  2005
    
    2004
    
    2003Activity during the year:Loans originated for resale, net of principal pay downs
    
    $
    103,289
    
    
    $
    53,698
    
    
    $
    80,153Loans transferred to held to maturity
    
    
    0
    
    
    
    0
    
    
    
    0Proceeds from sales of loans held for sale
    
    
    107,918
    
    
    
    46,901
    
    
    
    78,997Net gains on sales of loans held for sale
    
    
    1,390
    
    
    
    378
    
    
    
    1,509Loan servicing fees, net
    
    
    248
    
    
    
    474
    
    
    
    181
 2005
    
    
    2004Balance at year end:Loans held for sale
    
    $
    3,784
    
    
    $
    6,960Less: Allowance to adjust to lower of cost or market
    
    
    64
    
    
    
    0Loans held for sale, net
    
    $
    3,720
    
    
    $
    6,960
  2005
    
    2004Mortgage loan portfolios serviced for:FHLMC
    
    $
    87,291
    
    
    $
    62,249
    2005
    
    
    2004
    
    
    2003Servicing rights:Beginning of year
    
    $
    276
    
    
    $
    82
    
    
    $
    213Additions
    
    
    481
    
    
    
    291
    
    
    
    0Amortized to expense
    
    
    (126
    )
    
    
    (97
    )
    
    
    (131
    )Provision for loss in fair value
    
    
    0
    
    
    
    0
    
    
    
    0End of year
    
    $
    631
    
    
    $
    276
    
    
    $
    82
  56




---



##### Table of Contents



CIVITAS BANKGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 (Dollars in thousands, except share and per share amounts)
 NOTE 5  SECONDARY MORTGAGE MARKET ACTIVITIES
  2006
    
    $
    1432007
    
    
    1432008
    
    
    1382009
    
    
    912010
    
    
    71
 NOTE 6  PREMISES AND EQUIPMENT
  2005
    
    
    2004Land
    
    $
    3,250
    
    
    $
    4,144Buildings and improvements
    
    
    8,075
    
    
    
    8,114Leasehold improvements
    
    
    848
    
    
    
    1,189Furniture, fixtures and equipment
    
    
    6,987
    
    
    
    5,762Automobiles
    
    
    29
    
    
    
    61Construction in process
    
    
    1,114
    
    
    
    1,36920,303
    
    
    
    20,639Less: Accumulated depreciation
    
    
    6,278
    
    
    
    5,596Net premises and equipment
    
    $
    14,025
    
    
    $
    15,043
  57




---



##### Table of Contents



CIVITAS BANKGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 (Dollars in thousands, except share and per share amounts)
 NOTE 6  PREMISES AND EQUIPMENT
  2006
    
    
    6052007
    
    
    6142008
    
    
    5592009
    
    
    246Thereafter
    
    
    0$
    2,024
  NOTE 7
 INVESTMENT IN UNCONSOLIDATED AFFILIATES
  2005
    
    
    2004The Murray Banc Holding Company (50% ownership)
    
    $
    4,765
    
    
    $
    4,402Insurors Bank of Tennessee (50% ownership)
    
    
    2,945
    
    
    
    2,804Other non-consolidated affiliates
    
    
    24
    
    
    
    57$
    7,734
    
    
    $
    7,263
  58




---



##### Table of Contents



CIVITAS BANKGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 (Dollars in thousands, except share and per share amounts)
 NOTE
7 INVESTMENT IN UNCONSOLIDATED AFFILIATES
   TMBHC
    
    
    IBOT2005
    
    
    2004
    
    
    2005
    
    
    2004ASSETS:Cash and due from banks
    
    $
    7,876
    
    
    $
    4,235
    
    
    $
    1,139
    
    
    $
    1,182Federal funds sold
    
    
    143
    
    
    
    1,366
    
    
    
    230
    
    
    
    175Securities available for sale
    
    
    29,736
    
    
    
    30,456
    
    
    
    16,877
    
    
    
    15,621Securities held to maturity
    
    
    24,031
    
    
    
    28,694
    
    
    
    0
    
    
    
    0Loans, net
    
    
    90,520
    
    
    
    76,085
    
    
    
    53,830
    
    
    
    46,983Premises and equipment, net
    
    
    2,883
    
    
    
    2,756
    
    
    
    521
    
    
    
    449Accrued interest receivable
    
    
    1,035
    
    
    
    823
    
    
    
    276
    
    
    
    206Restricted equity securities
    
    
    439
    
    
    
    412
    
    
    
    577
    
    
    
    520Other assets
    
    
    1,707
    
    
    
    1,584
    
    
    
    496
    
    
    
    459Total assets
    
    $
    158,370
    
    
    $
    146,411
    
    
    $
    73,946
    
    
    $
    65,595LIABILITIES AND SHAREHOLDERS EQUITY:Liabilities:Total deposits
    
    $
    135,938
    
    
    $
    123,823
    
    
    $
    50,408
    
    
    $
    49,578Borrowings
    
    
    7,954
    
    
    
    8,965
    
    
    
    17,395
    
    
    
    10,201Accrued interest payable
    
    
    561
    
    
    
    308
    
    
    
    157
    
    
    
    88Subordinated notes and debentures
    
    
    4,124
    
    
    
    4,000
    
    
    
    0
    
    
    
    0Other liabilities
    
    
    262
    
    
    
    511
    
    
    
    97
    
    
    
    119Total liabilities
    
    
    148,839
    
    
    
    137,607
    
    
    
    68,057
    
    
    
    59,986Shareholders equity
    
    
    9,531
    
    
    
    8,804
    
    
    
    5,889
    
    
    
    5,609Total liabilities and shareholders equity
    
    $
    158,370
    
    
    $
    146,411
    
    
    $
    73,946
    
    
    $
    65,595
  TMBHC
    
    
    IBOT2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2003Net interest income
    
    $
    3,884
    
    
    $
    3,920
    
    
    $
    2,969
    
    
    $
    2,240
    
    
    $
    1,842
    
    
    $
    1,538Provision for loan losses
    
    
    174
    
    
    
    176
    
    
    
    166
    
    
    
    15
    
    
    
    53
    
    
    
    75Noninterest income
    
    
    1,158
    
    
    
    972
    
    
    
    976
    
    
    
    157
    
    
    
    229
    
    
    
    221Noninterest expense
    
    
    3,541
    
    
    
    3,255
    
    
    
    2,893
    
    
    
    1,955
    
    
    
    1,735
    
    
    
    1,649Income tax expense
    
    
    400
    
    
    
    477
    
    
    
    275
    
    
    
    (59
    )
    
    
    (72
    )
    
    
    (130
    )Net income
    
    $
    927
    
    
    $
    984
    
    
    $
    611
    
    
    $
    486
    
    
    $
    355
    
    
    $
    165
 59




---



##### Table of Contents



CIVITAS BANKGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 (Dollars in thousands, except share and per share amounts)
 NOTE 8
 GOODWILL
  2005
    
    
    2004Beginning of year
    
    $
    1,526
    
    
    $
    1,596Acquired (disposed) goodwill
    
    
    (1,526
    )
    
    
    (70
    )Impairment
    
    
    0
    
    
    
    0End of year
    
    $
    0
    
    
    $
    1,526
  NOTE 9  DEPOSITS
  2005
    
    
    2004Noninterest-bearing demand
    
    $
    64,195
    
    
    $
    69,744Interest-bearing demand
    
    
    211,985
    
    
    
    189,667Savings
    
    
    15,836
    
    
    
    25,226Time deposits of $100 or more
    
    
    193,699
    
    
    
    164,549Other time
    
    
    115,051
    
    
    
    117,687Total deposits
    
    $
    600,766
    
    
    $
    566,873
  2006
    
    $
    214,1732007
    
    
    45,0192008
    
    
    23,5202009
    
    
    21,9622010
    
    
    2,195Thereafter
    
    
    1,881Total
    
    
    308,750
 60




---



##### Table of Contents



CIVITAS BANKGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 (Dollars in thousands, except share and per share amounts)
 NOTE
10  SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
   2005
    
    
    2004Average daily balance during the year
    
    $
    41,315
    
    
    $
    21,693Average interest rate during the year
    
    
    3.05
    %
    
    
    1.26
    %Maximum month-end balance during the year
    
    $
    54,796
    
    
    $
    39,503Weighted average interest rate at year-end
    
    
    3.97
    %
    
    
    2.02
    %
 NOTE
11  ADVANCES FROM FEDERAL HOME LOAN BANK
    2006
    
    $
    2,0002007
    
    
    02008
    
    
    10,0002009
    
    
    02010
    
    
    16,500Thereafter
    
    
    6,500$
    35,000
 61




---



##### Table of Contents



CIVITAS BANKGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 (Dollars in thousands, except share and per share amounts)
 NOTE
12  NOTES PAYABLE
  NOTE 13  SUBORDINATED DEBENTURES
       62




---



##### Table of Contents



CIVITAS BANKGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 (Dollars in thousands, except share and per share amounts)
 NOTE 14  INCOME TAXES
  2005
    
    
    2004
    
    
    2003Current
    
    
    1,158
    
    
    
    391
    
    
    
    921Deferred
    
    
    557
    
    
    
    550
    
    
    
    2Total income tax expense
    
    $
    1,715
    
    
    $
    941
    
    
    $
    923
  2005
    
    
    2004Allowance for loan losses
    
    $
    1,825
    
    
    $
    1,952Deferred loan fees
    
    
    213
    
    
    
    323Unrealized loss on securities
    
    
    754
    
    
    
    18Other
    
    
    69
    
    
    
    120Total deferred tax assets
    
    
    2,861
    
    
    
    2,413FHLB stock dividends
    
    $
    (338
    )
    
    $
    (325
    )Earnings of unconsolidated subsidiaries
    
    
    (301
    )
    
    
    (29
    )Premises and equipment
    
    
    (50
    )
    
    
    (93
    )Loan servicing rights
    
    
    (241
    )
    
    
    (7
    )Other
    
    
    (94
    )
    
    
    (301
    )Total deferred tax liabilities
    
    
    (1,024
    )
    
    
    (755
    )Net deferred tax asset
    
    $
    1,837
    
    
    $
    1,658
  2005
    
    
    2004
    
    
    2003Computed expected provision for income taxes
    
    $
    1,910
    
    
    $
    1,104
    
    
    $
    767Increase (decrease) in taxes resulting from
State income taxes, net of federal tax benefit
    
    
    270
    
    
    
    138
    
    
    
    94Tax exempt interest
    
    
    (389
    )
    
    
    (308
    )
    
    
    (135
    )Other, net
    
    
    (76
    )
    
    
    7
    
    
    
    97Income tax expense
    
    $
    1,715
    
    
    $
    941
    
    
    $
    823
 63




---



##### Table of Contents



CIVITAS BANKGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 (Dollars in thousands, except share and per share amounts)
 NOTE 15  RELATED PARTY TRANSACTIONS
  2005
    
    
    2004Beginning balance
    
    $
    1,229
    
    
    $
    738New loans
    
    
    2,149
    
    
    
    749Repayments
    
    
    624
    
    
    
    258Ending balance
    
    $
    2,754
    
    
    $
    1,229
  NOTE 16  CAPITAL REQUIREMENTS
    64




---



##### Table of Contents



CIVITAS BANKGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 (Dollars in thousands, except share and per share amounts)
 NOTE 16  CAPITAL REQUIREMENTS
  To be wellRequired
    
    capitalized under
    
    
    
    
    
    
    
    
    
    Excess overMinimum for
    
    prompt corrective
    
    
    
    
    
    
    
    
    
    wellcapital adequancy
    
    action provisions
    
    Actual
    
    capitalizedAmount
    
    Ratios
    
    Amount
    
    Ratios
    
    Amount
    
    Ratios
    
    AmountDecember 31, 2005Tier I to
average assets leverageCivitas BankGroup, Inc.
    
    $
    28,813
    
    
    
    4.00
    %
    
    $
    36,016
    
    
    
    5.00
    %
    
    $
    65,913
    
    
    
    9.15
    %
    
    $
    29,897Cumberland Bank
    
    
    28,810
    
    
    
    4.00
    %
    
    
    36,013
    
    
    
    5.00
    %
    
    
    53,709
    
    
    
    7.46
    %
    
    
    17,696Tier I to risk-weighted assetsCivitas BankGroup, Inc.
    
    
    23,143
    
    
    
    4.00
    %
    
    
    34,714
    
    
    
    6.00
    %
    
    
    65,913
    
    
    
    11.39
    %
    
    
    31,199Cumberland Bank
    
    
    21,399
    
    
    
    4.00
    %
    
    
    32,098
    
    
    
    6.00
    %
    
    
    53,709
    
    
    
    10.04
    %
    
    
    21,611Total capital to risk-weighted assetsCivitas BankGroup, Inc.
    
    
    49,285
    
    
    
    8.00
    %
    
    
    57,857
    
    
    
    10.00
    %
    
    
    70,678
    
    
    
    12.22
    %
    
    
    12,821Cumberland Bank
    
    
    42,798
    
    
    
    8.00
    %
    
    
    53,497
    
    
    
    10.00
    %
    
    
    58,474
    
    
    
    10.93
    %
    
    
    4,977December 31, 2004Tier I to
average assets leverageCivitas BankGroup, Inc.
    
    $
    36,029
    
    
    
    4.00
    %
    
    $
    45,036
    
    
    
    5.00
    %
    
    $
    68,562
    
    
    
    7.61
    %
    
    $
    23,526Cumberland Bank
    
    
    26,462
    
    
    
    4.00
    %
    
    
    33,078
    
    
    
    5.00
    %
    
    
    46,672
    
    
    
    7.05
    %
    
    
    13,594Tier I to risk-weighted assetsCivitas BankGroup, Inc.
    
    
    21,931
    
    
    
    4.00
    %
    
    
    32,897
    
    
    
    6.00
    %
    
    
    68,562
    
    
    
    12.50
    %
    
    
    35,665Cumberland Bank
    
    
    16,316
    
    
    
    4.00
    %
    
    
    24,473
    
    
    
    6.00
    %
    
    
    46,672
    
    
    
    11.44
    %
    
    
    22,199Total capital to risk-weighted assetsCivitas BankGroup, Inc.
    
    
    43,862
    
    
    
    8.00
    %
    
    
    54,828
    
    
    
    10.00
    %
    
    
    74,594
    
    
    
    13.61
    %
    
    
    19,766Cumberland Bank
    
    
    32,631
    
    
    
    8.00
    %
    
    
    40,789
    
    
    
    10.00
    %
    
    
    51,051
    
    
    
    12.52
    %
    
    
    10,262
 65




---



##### Table of Contents



CIVITAS BANKGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 (Dollars in thousands, except share and per share amounts)
 NOTE
17  EMPLOYEE BENEFITS
  NOTE
18  LOAN COMMITMENTS AND OTHER RELATED ACTIVITIES
   2005
    
    2004Commitments to make loans
    
    $
    138,663
    
    
    $
    128,083Unused lines of credit and letters of credit
    
    
    8,163
    
    
    
    3,061
 66




---



##### Table of Contents



CIVITAS BANKGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 (Dollars in thousands, except share and per share amounts)
 NOTE
19 FAIR VALUES OF FINANCIAL INSTRUMENTS
  2005
    
    2004Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    ValueFinancial assets:Securities available for sale
    
    $
    89,724
    
    
    $
    89,724
    
    
    $
    109,293
    
    
    $
    109,293Securities held to maturity
    
    
    115,446
    
    
    
    113,577
    
    
    
    95,845
    
    
    
    96,673Loans, net of allowance
    
    
    471,656
    
    
    
    472,999
    
    
    
    426,190
    
    
    
    428,360Financial liabilities:Deposits
    
    $
    600,766
    
    
    $
    571,984
    
    
    $
    566,873
    
    
    $
    534,515Subordinated debentures
    
    
    17,000
    
    
    
    17,045
    
    
    
    12,000
    
    
    
    12,408Advances from FHLB
    
    
    35,000
    
    
    
    35,471
    
    
    
    36,000
    
    
    
    37,831
   67




---



##### Table of Contents



CIVITAS BANKGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 (Dollars in thousands, except share and per share amounts)
 NOTE
20  STOCK OPTIONS
   2005
    
    
    2004
    
    
    2003Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    Weightedaverage
    
    
    
    
    
    
    average
    
    
    
    
    
    
    averageexercise
    
    
    
    
    
    
    exercise
    
    
    
    
    
    
    exerciseShares
    
    
    price
    
    
    Shares
    
    
    price
    
    
    Shares
    
    
    priceOutstanding at
beginning of year
    
    
    896,144
    
    
    $
    6.70
    
    
    
    645,890
    
    
    $
    3.94
    
    
    
    768,890
    
    
    $
    3.49Granted
    
    
    790,633
    
    
    
    7.91
    
    
    
    676,768
    
    
    
    6.80
    
    
    
    30,000
    
    
    
    5.63Exercised
    
    
    (71,859
    )
    
    
    5.22
    
    
    
    (344,050
    )
    
    
    3.03
    
    
    
    (132,100
    )
    
    
    2.76Forfeited or expired
    
    
    (172,743
    )
    
    
    6.59
    
    
    
    (82,464
    )
    
    
    5.17
    
    
    
    (20,900
    )
    
    
    4.29Outstanding at end
of year
    
    
    1,442,175
    
    
    $
    7.51
    
    
    
    896,144
    
    
    $
    6.70
    
    
    
    645,890
    
    
    $
    3.94Options exercisable
at year-end
    
    
    1,081,232
    
    
    
    
    
    
    
    212,400
    
    
    
    
    
    
    
    488,330Weighted-average
price of exercisable
options at year-end
    
    $
    6.57
    
    
    
    
    
    
    $
    6.33
    
    
    
    
    
    
    $
    3.94Weighted-average
fair value of
options granted
during year
    
    $
    1.42
    
    
    
    
    
    
    $
    1.45
    
    
    
    
    
    
    $
    1.67
 68




---



##### Table of Contents



CIVITAS BANKGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 (Dollars in thousands, except share and per share amounts)
 NOTE
20  STOCK OPTIONS
  Weighted averageExercise
    
    Outstanding
    
    Exercisable
    
    remaining contractualPrice
    
    options
    
    options
    
    life in years$4.00
    
    
    75,000
    
    
    
    56,250
    
    
    6.004.12
    
    
    5,750
    
    
    
    4,600
    
    
    1.835.65
    
    
    30,000
    
    
    
    30,000
    
    
    3.755.95
    
    
    161,729
    
    
    
    39,011
    
    
    3.006.25
    
    
    69,000
    
    
    
    68,800
    
    
    4.177.10
    
    
    78,600
    
    
    
    19,650
    
    
    3.217.25
    
    
    239,100
    
    
    
    84,750
    
    
    4.547.55
    
    
    13,983
    
    
    
    13,983
    
    
    4.547.65
    
    
    174,927
    
    
    
    170,102
    
    
    6.007.80
    
    
    31,864
    
    
    
    31,864
    
    
    5.638.00
    
    
    497,047
    
    
    
    497,047
    
    
    4.178.04
    
    
    28,500
    
    
    
    28,500
    
    
    5.008.65
    
    
    36,675
    
    
    
    36,675
    
    
    1.711,442,175
    
    
    
    1,081,232
  69




---



##### Table of Contents



CIVITAS BANKGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 (Dollars in thousands, except share and per share amounts)
 NOTE
21  EARNINGS PER SHARE
  2005
    
    
    2004
    
    
    2003BasicIncome from continuing operations
    
    $
    3,904
    
    
    $
    2,306
    
    
    $
    1,433Weighted average common shares
outstanding
    
    
    16,041,868
    
    
    
    17,457,487
    
    
    
    16,097,403Basic earnings per common share from continuing operations
    
    $
    0.24
    
    
    $
    0.13
    
    
    $
    0.09DilutedIncome from continuing operations
    
    $
    3,904
    
    
    $
    2,306
    
    
    $
    1,433Weighted average common shares
outstanding for basic earnings per
common share
    
    
    16,041,868
    
    
    
    17,457,487
    
    
    
    16,097,403Add: Dilutive effects of assumed
exercise of stock options
    
    
    79,021
    
    
    
    119,769
    
    
    
    167,945Average shares and dilutive potential
common shares
    
    
    16,120,889
    
    
    
    17,577,256
    
    
    
    16,265,348Diluted earnings per common share from continuing operations
    
    $
    0.24
    
    
    $
    0.13
    
    
    $
    0.09
 NOTE
22  OTHER COMPREHENSIVE INCOME (LOSS)
  2005
    
    
    2004
    
    
    2003Unrealized holding gains on
available for sale securities
    
    $
    2,367
    
    
    $
    1,413
    
    
    $
    370Reclassification adjustment for losses (gains)
realized in income
    
    
    (100
    )
    
    
    (655
    )
    
    
    (106
    )Net unrealized gains
    
    
    2,267
    
    
    
    758
    
    
    
    264Tax effect
    
    
    868
    
    
    
    290
    
    
    
    101Unrealized gains net of tax
    
    
    1,399
    
    
    
    468
    
    
    
    163
 70




---



##### Table of Contents



CIVITAS BANKGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 (Dollars in thousands, except share and per share amounts)
 NOTE
23  QUARTERLY FINANCIAL DATA (UNAUDITED)
 2005First
    
    Second
    
    Third
    
    Fourthquarter
    
    quarter
    
    quarter
    
    quarter
    
    TotalInterest Income
    
    $
    9,253
    
    
    $
    10,043
    
    
    $
    10,146
    
    
    $
    10,915
    
    
    $
    40,357Net Interest Income
    
    
    5,103
    
    
    
    5,523
    
    
    
    5,207
    
    
    
    5,417
    
    
    
    21,250Provision for loan losses
    
    
    333
    
    
    
    205
    
    
    
    325
    
    
    
    130
    
    
    
    993Income from continuing operations
    
    
    780
    
    
    
    1,283
    
    
    
    821
    
    
    
    1,020
    
    
    
    3,904Earnings per
Share  Basic from continuing operations
    
    
    0.06
    
    
    
    0.07
    
    
    
    0.05
    
    
    
    0.06
    
    
    
    0.24Earnings per
Share  Diluted from continuing operations
    
    
    0.06
    
    
    
    0.07
    
    
    
    0.05
    
    
    
    0.06
    
    
    
    0.24
 2004First
    
    Second
    
    Third
    
    Fourthquarter
    
    quarter
    
    quarter
    
    quarter
    
    TotalInterest Income
    
    $
    7,977
    
    
    $
    7,700
    
    
    $
    8,328
    
    
    $
    8,935
    
    
    $
    32,940Net Interest Income
    
    
    4,993
    
    
    
    4,771
    
    
    
    4,918
    
    
    
    5,135
    
    
    
    19,817Provision for loan losses
    
    
    552
    
    
    
    314
    
    
    
    209
    
    
    
    371
    
    
    
    1,446Income from continuing operations
    
    
    600
    
    
    
    751
    
    
    
    489
    
    
    
    466
    
    
    
    2,306Earnings per
Share  Basic from continuing operations
    
    
    0.03
    
    
    
    0.04
    
    
    
    0.03
    
    
    
    0.03
    
    
    
    0.13Earnings per
Share  Diluted from continuing operations
    
    
    0.03
    
    
    
    0.04
    
    
    
    0.03
    
    
    
    0.03
    
    
    
    0.13
 71




---



##### Table of Contents



CIVITAS BANKGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 (Dollars in thousands, except share and per share amounts)
 NOTE
24  PARENT COMPANY ONLY FINANCIAL INFORMATION
  December 31,2005
    
    
    2004ASSETS:Cash
    
    $
    3,002
    
    
    $
    1,513Investment in subsidiaries
    
    
    53,036
    
    
    
    63,456Investment in unconsolidated affiliates
    
    
    7,710
    
    
    
    7,206Premises and equipment
    
    
    756
    
    
    
    1,130Other assets
    
    
    1,232
    
    
    
    2,580Total assets
    
    $
    65,736
    
    
    $
    75,885LIABILITIES AND SHAREHOLDERS EQUITY:Liabilities:Notes payable
    
    $
    0
    
    
    $
    4,550Accrued interest
    
    
    62
    
    
    
    166Other liabilities
    
    
    1,449
    
    
    
    1,433Subordinated debentures
    
    
    17,000
    
    
    
    12,000Total liabilities
    
    
    18,511
    
    
    
    18,149Total shareholders equity
    
    
    47,225
    
    
    
    57,736Total liabilities and shareholders equity
    
    $
    65,736
    
    
    $
    75,885
 72




---



##### Table of Contents



CIVITAS BANKGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 (Dollars in thousands, except share and per share amounts)
 NOTE
24  PARENT COMPANY ONLY FINANCIAL INFORMATION
  Years Ended December 31,2005
    
    
    2004
    
    
    2003Income:Interest income
    
    
    0
    
    
    
    0
    
    
    
    0Income from unconsolidated subsidiaries
    
    
    707
    
    
    
    670
    
    
    
    388Gain on sale of subsidiaries, net of taxes
    
    
    3,649
    
    
    
    0
    
    
    
    0Central services and management fees
    
    
    5,846
    
    
    
    6,889
    
    
    
    4,098Other income
    
    
    146
    
    
    
    417
    
    
    
    11510,348
    
    
    
    7,976
    
    
    
    4,601Expenses:Interest expense
    
    
    1,136
    
    
    
    953
    
    
    
    1,010Other operating expenses
    
    
    6,241
    
    
    
    7,387
    
    
    
    4,7347,377
    
    
    
    8,340
    
    
    
    5,744Income (loss) before income taxes and equity in
undistributed earnings of subsidiaries
    
    
    2,971
    
    
    
    (364
    )
    
    
    (1,143
    )Income tax expense (benefit)
    
    
    25
    
    
    
    (134
    )
    
    
    (434
    )Income (loss) before equity in undistributed
earnings of subsidiaries
    
    
    2,946
    
    
    
    (230
    )
    
    
    (709
    )Equity in undistributed earnings of subsidiaries
    
    
    4,404
    
    
    
    2,114
    
    
    
    1,810Net income
    
    $
    7,350
    
    
    $
    1,884
    
    
    $
    1,101
 73




---



##### Table of Contents



CIVITAS BANKGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 (Dollars in thousands, except share and per share amounts)
 NOTE
24  PARENT COMPANY ONLY FINANCIAL INFORMATION
  2005
    
    
    2004
    
    
    2003Years Ended December 31,Cash flows from operating activities:Net income
    
    $
    7,350
    
    
    $
    1,884
    
    
    $
    1,101Adjustments to reconcile net income to net
cash from operating activities:Equity in undistributed earnings of subsidiaries
    
    
    (4,404
    )
    
    
    (2,115
    )
    
    
    (1,810
    )Income from investments in unconsolidated affiliates
    
    
    (706
    )
    
    
    (670
    )
    
    
    (388
    )Depreciation and amortization
    
    
    471
    
    
    
    332
    
    
    
    159Net change in accrued interest payable
    
    
    104
    
    
    
    32
    
    
    
    (704
    )Other, net
    
    
    (736
    )
    
    
    (580
    )
    
    
    (123
    )Net cash from operating activities
    
    
    2,079
    
    
    
    (1,117
    )
    
    
    (1,765
    )Cash flows from investing activities:Investment in commercial bank subsidiaries
    
    
    (1,600
    )
    
    
    0
    
    
    
    (5,050
    )Investment in unconsolidated affiliates
    
    
    (203
    )
    
    
    (491
    )
    
    
    (300
    )Purchase of premises and equipment, net
    
    
    (93
    )
    
    
    (581
    )
    
    
    (209
    )Net cash from investing activities
    
    
    (1,896
    )
    
    
    (1,072
    )
    
    
    (5,559
    )Cash flows from financing activities:Proceeds from subordinated debentures
    
    
    13,000
    
    
    
    0
    
    
    
    0Repayment of subordinated debentures
    
    
    (8,000
    )
    
    
    0
    
    
    
    0Repayment of notes payable
    
    
    (4,550
    )
    
    
    (4,700
    )
    
    
    (800
    )Proceeds from issuance of common stock
    
    
    856
    
    
    
    2,483
    
    
    
    9,303Dividends paid on common stock
    
    
    0
    
    
    
    (527
    )
    
    
    (927
    )Net cash from financing activities
    
    
    1,306
    
    
    
    1,806
    
    
    
    7,576Net change in cash and cash equivalents
    
    
    1,489
    
    
    
    (383
    )
    
    
    252Cash and cash equivalents at beginning of year
    
    
    1,513
    
    
    
    1,896
    
    
    
    1,644Cash and cash equivalents at end of year
    
    $
    3,002
    
    
    $
    1,513
    
    
    $
    1,896
 NOTE
25  SUBSEQUENT EVENTS
   74




---



##### Table of Contents



ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.
  
 ITEM 9A. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
  Management Report on Internal Control Over Financial Reporting.
    Changes in Internal Control over Financial Reporting
  75




---



##### Table of Contents



ITEM 9B. Other Information.
  
 ITEM 10. Directors and Executive Officers of the Registrant.
     
 ITEM 11. Executive Compensation.
  76




---



##### Table of Contents



ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
   Number of shares
    
    
    Weighted
    
    
    Number of sharesto be issued upon
    
    
    average exercise
    
    
    remaining available forexercise of
    
    
    price of
    
    
    future issuance underoutstanding
    
    
    outstanding
    
    
    equity compensationoptions and
    
    
    option and
    
    
    plans (excluding sharesPlan Category
    
    warrants
    
    
    warrants
    
    
    reflected in first columnEquity compensation
plans approved by
shareholders
    
    
    1,442,175
    
    
    $
    7.51
    
    
    
    557,825Equity compensation
plans not approved
by shareholders
    
    
    0
    
    
    
    0
    
    
    
    0Total
    
    
    1,442,175
    
    
    $
    7.51
    
    
    
    557,825
 
 ITEM 13. Certain Relationships and Related Transactions.
  
 ITEM 14. Principal Accountant Fees and Services.
  
 ITEM 15. Exhibits and Financial Statement Schedules.
 
  77




---



##### Table of Contents



SIGNATURES
  CIVITAS BANKGROUP, INC.By:
    
    /s/ Richard HerringtonRichard HerringtonPresidentDate: March 16, 2006
  Signature
    
    Title
    
    Date/s/Richard Herrington
    
    President (Principal Executive
    
    March 16, 2006Richard Herrington
    
    Officer) and DirectorChief Financial Officer, Chief
    
    March 16, 2006Operating Officer and Executive/s/ Lisa Musgrove
    
    Vice President (PrincipalLisa Musgrove
    
    Financial and AccountingOfficer)/s/ John Wilder

John Wilder
    
    Chairman
    
    March 16, 2006/s/ Danny Herron
    
    Director
    
    March 16, 2006Danny Herron/s/ Tom Paschal
    
    Director
    
    March 16, 2006Tom Paschal/s/ Tom Price
    
    Director
    
    March 16, 2006Tom Price/s/ Ronald Gibson
    
    Director
    
    March 16, 2006Ronald Gibson
 78




---



##### Table of Contents



Signature
    
    Title
    
    Date/s/ Frank Inman, Jr.

Frank Inman, Jr.
    
    Director
    
    March 16, 2006/s/ Alex Richmond

Alex Richmond
    
    Director
    
    March 16, 2006/s/ John Shepherd

John S. Shepherd
    
    Director
    
    March 16, 2006/s/ Joel Porter

Joel Porter
    
    Director
    
    March 16, 2006/s/ Paul Pratt, Sr.

Paul Pratt, Sr.
    
    Director
    
    March 16, 2006/s/ William Wallace

William Wallace
    
    Director
    
    March 16, 2006
 79




---



##### Table of Contents



2.1
    
    Plan of Tax-Free Reorganization under Section 355 of the Internal Revenue Code Agreement by
and between the Company and the Acquirers identified therein dated November 24, 2004
(incorporated herein by reference to the Companys Current Report on form 8-K filed with the
SEC on December 1, 2004). (Pursuant to Item 601(b) (2) of Regulation S-K, the schedules of
this agreement are omitted, but will be provided supplementary to the SEC upon request).3.1
    
    Restated Charter of the Company (Restated for SEC electronic filing purpose only and
incorporated herein by reference to the Companys registration statement on Form S-3
Registration No. 333-117041) filed with the SEC on June 30, 2004.3.2
    
    Amended and Restated Bylaws of the Company (Restated for SEC electronic filing purposes
only). (Restated for SEC electronic filing purpose only and incorporated herein by reference
to the Companys registration statement on Form S-3 (Registration No. 333-117041) filed with
the SEC on June 30, 2004.10.1
    
    Civitas BankGroup, Incorporated 1998 Stock Option Plan (incorporated herein by reference to
the Companys Registration Statements on Form S-8 (Registration No 333-105425 filed with the
SEC on May 20, 2003). *10.2
    
    Civitas BankGroup, Inc. Employee Stock Purchase Plan (incorporated herein by reference to the
Companys Registration Statement on Form S-8 (Registration No. 333-105424 filed with the SEC
on May 20, 2003). *10.3
    
    Form of Non-Qualified Stock Option Agreement (incorporated herein by reference to the
Companys Quarterly Report on Form 10-Q filed with the SEC on November 15, 2004). *10.4
    
    Form of Incentive Stock Option Agreement (incorporated herein by reference to the Companys
Quarterly Report on Form 10-Q filed with the SEC on November 15, 2004). *10.5
    
    Loan Agreement dated December 13, 2004 by and between the Company and First Tennessee Bank,
National Association (incorporated herein by reference to the Companys Current Report on Form
8-K filed with the SEC on December 17, 2004).10.6
    
    Loan Agreement dated December 13, 2004 by and between the Company and First Tennessee Bank,
National Association (incorporated herein by reference to the Companys Current Report on Form
8-K filed with the SEC on December 17, 2004).10.7
    
    Formal Written Agreement with Federal Reserve Bank of Atlanta (incorporated herein by
reference to the Companys Quarterly Report on Form 10-Q filed with the SEC on May 10, 2005.)10.8
    
    Purchase Agreement dated as of January 30, 2006 by and among Civitas BankGroup, Inc.
BancKentucky, Inc., The Murray Banc Holding Company, LLC, and The Murray Bank (incorporated by
reference to the Company, Current Report on Form 8-K filed with the SEC on January 30, 2006.)10.9
    
    Director and named executive officer compensation summary.*21.1
    
    Subsidiaries of the Company.23.1
    
    Consent of Crowe Chizek and Company LLC.31.1
    
    Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of the Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Management compensatory plan or arrangement. 80