BRITTON & KOONTZ CAPITAL CORP
General           The Company           Britton & Koontz  Capital  Corporation  was  organized as a Mississippi business  corporation  in July  1982.  Later  that year,  the  Company  became a one-bank holding company  registered under the Bank Holding Company Act of 1956, as amended  (the  "BHCA"),  when it acquired  all of the issued and  outstanding shares of  Britton & Koontz  Bank,  National  Association,  a  national  banking association  headquartered in Natchez,  Mississippi (the "Bank").  The Bank is a wholly-owned  subsidiary of the Company,  and stock of the Bank is the Company's most significant asset. On April 17, 2001, B&K Title Insurance Agency,  Inc. was organized as a  Mississippi  corporation  ("B&K  Insurance");  in May 2001,  the Company acquired all of the outstanding common stock of B&K Insurance, making it the Company's second wholly-owned subsidiary.           The  Company's  major source of income in 2005 was  dividends  from the Bank in the amount of $2.1 million.  The Company expects that dividends from the Bank will  continue to be the  Company's  major source of income in 2006.  As of December 31, 2005,  the Company had total assets of  approximately  $389 million and total  consolidated  shareholders'  equity  of  approximately  $31  million. Financial  information about the Company,  including information with respect to revenues from external customers,  profit and loss and total assets is contained in Item 8, "Financial  Statements and Supplementary Data," of this Annual Report on Form 10-K.                The Bank           The Bank provides commercial and consumer banking and trust services to customers  in Adams and  Warren  Counties,  Mississippi,  and East  Baton  Rouge Parish,  Louisiana,  and the adjoining  counties and parishes in Mississippi and Louisiana.  A loan  production  office was opened in  Madison,  Mississippi,  on February  1,  2003,  which was  converted  into a full  service  branch in 2004. Management  decided to leave the Madison  market in  November,  2004 in order to allocate its resources to its remaining markets. In 2004, the Bank completed the construction  of its new branch in  Vicksburg,  Mississippi,  and  closed  three branches in Baton Rouge, Louisiana,  moving into a larger, more visible facility on  Bluebonnet  Boulevard  in Baton  Rouge.  The Bank also sold its Shields Lane branch in Natchez,  Mississippi, in 2004, while completing the renovation of its existing Tracetown branch,  which houses its mortgage banking  operations.  As a result of these actions, the Bank now conducts its full-service banking business from its main  office  and two  branch  offices  in  Natchez,  Mississippi,  two branches  in  Vicksburg,  Mississippi,  and one  branch  office in Baton  Rouge, Louisiana.  The geographical  area serviced by the Bank is economically  diverse and includes public and private sector industries, including government service, manufacturing, tourism, agriculture and oil and gas exploration. The Bank is not dependent on any one  customer or group of  customers in any of its  activities, and it has no foreign operations.            The  products and  services  offered by the Bank include  personal and commercial checking accounts,  money market deposit accounts,  savings accounts, automated  clearinghouse  services,  safe deposit box  facilities  and brokerage services.  The Bank also offers  access to  automated  teller  machines and cash management  services including money transfer,  direct deposit payroll and sweep accounts. The Bank is a full-service  residential and commercial mortgage lender and engages in other  commercial  and consumer  lending  activities,  including, among other things, the issuance of VISA credit cards and letters of credit. The Bank's trust  department  offers a range of trust  services,  acting as trustee, executor,  administrator,  custodian,  guardian and agent.  The trust department currently  has  approximately  $14  million  in assets  under  management  as of December 31, 2005.           In 1995,  the Bank became an Internet  service  provider  (ISP) for the Natchez area and eventually  extended its service to the Vicksburg,  Mississippi market.  In 1996,  the Bank began offering  Internet-based  online banking using SumxNet, a software product developed by Sumx Inc. ("Sumx"),  See "Investment in Sumx." In the second quarter of 2004, the Company  completed the sale of its ISP to  Canufly.net,  a company  providing  Internet  services  in  Mississippi  and Louisiana.           Income from the Bank's lending activities,  including loan interest and fees,  represent the largest  component of the Bank's total operating  revenues. This source accounted for 66%, 62% and 65% of the Bank's total operating revenue during 2005,  2004 and 2003,  respectively,  and the Company expects that income from lending activities will continue to be the leading source of income related to the Bank's activities. In addition to business and consumer lending, the bank    invests a portion of its total assets in the securities  market in order to earn a higher return compared to overnight  positions.  Investment security purchases are  monitored  closely  and  managed on a monthly  basis by an asset  liability committee  comprised  of four  outside  directors  along with the  bank's  Chief Executive Officer and Chief Financial Officer.  Investment income represents the second  largest  source of  revenue  for the Bank.  For the 2005,  2004 and 2003 fiscal years, revenue in this segment amounted to 24%, 26% and 23% of the Bank's total operating revenue, respectively.           The Insurance Agency           B&K  Insurance  has  entered  into an  agreement,  as  agent,  to issue policies of title  insurance  upon  properties  in all  counties of the State of Mississippi  in the name of  Mississippi  Guaranty Title  Insurance  Company,  a Mississippi  corporation.  B&K Insurance is not a separately-reportable  segment for financial reporting purposes.           Investment in Sumx            In  December  1998,  the  Company  invested  $1  million  in  Sumx,  a Mississippi   corporation  established  to  develop  and  market  internet-based electronic banking solutions for the financial industry.  On September 15, 2001, the Company  acquired  240,000  shares of Series B  Preferred  Stock of Sumx for $250,000.   In  exchange  for  such   investments,   the  Company   received  an approximately  37%  preferred  interest in the voting stock of Sumx.  During the second quarter of 2002, the Company wrote off its $1,250,000 investment in Sumx, as well as  approximately  $711,000 of advances to Sumx, due to the  uncertainty regarding Sumx's future prospects and valuation.           On December 31, 2004, the Company sold its entire preferred interest in Sumx back to Sumx for $20,000. As further consideration,  the Company received a non-exclusive  license to use Sumx's Internet banking software at no charge. The license has an initial term of five years, with automatic one year renewal terms thereafter  unless a party gives the other party notice of  non-renewal at least six months  prior to the  expiration  of the  then-current  term.  Finally,  the Company  agreed  to  cancel  and  forgive  all  indebtedness,   obligations  and encumbrances of any kind owed by Sumx to the Company.  Competition           There is significant competition among banks and bank holding companies in the Bank's market areas and throughout  Mississippi  and Louisiana.  The Bank competes  with both  national  and state  banks  for  deposits,  loans and trust accounts and with savings and loan  associations and credit unions for loans and deposits.  The Bank also competes with large  national  banks from the principal cities in Louisiana and Mississippi for certain  commercial  loans. All of these numerous  institutions,  including the Bank, compete in the delivery of products and services on the basis of availability, quality and pricing.           The  deregulation  of depository  institutions as well as the increased ability  of  non-banking  financial  institutions,  such as  finance  companies, investment  companies,  insurance  companies,  brokerage  companies  and several governmental  agencies,  to provide services  previously  reserved to commercial    banks has further intensified  competition.  Accordingly,  the Bank now competes with  these  non-banking  financial  institutions,  all of which are  engaged in marketing  various types of loans,  commercial  paper,  short-term  obligations, investments and other services.  Because non-banking financial  institutions are not  subject  to the same  regulatory  restrictions  as banks  and bank  holding companies,  in many  instances  they may operate with greater  flexibility.  The continued deregulation of the financial services industry may have a detrimental effect on the Bank's long-term growth and profitability.           In addition to the deregulation of the financial services industry, the increasing  liberalization of the laws and regulations  affecting the conduct of interstate  banking  activities makes it possible that competition in the Bank's geographical  market  area  will  increase.  If  large,  regional  bank  holding companies  acquire  branches in the Bank's  market area,  they may offer a wider range of services than are currently offered by the Bank. Some of these regional competitors  may  take  full  advantage  of the  powers  of  "financial  holding companies,"   as   defined   in  the   Gramm-Leach-Bliley   Financial   Services Modernization  Act of 1999,  which allows such competitors to offer products and services not offered by the Bank. In addition,  these  competitors are likely to be better capitalized than the Bank and the Company.  Employees           As of December 31, 2005, the Company had one full-time employee, who is also an employee of the Bank and  compensated by the Bank. The Bank's  employees decreased from 124 full-time and 13 part-time employees at December 31, 2004, to 102  full-time  and 10  part-time  at December  31,  2005.  Contributing  to the decrease  was a  reduction  of 13  employees  taking  advantage  of a  voluntary separation  package offered by the Company to employees with 10 or more years of service. The employees are not represented by a collective bargaining agreement. The Company believes that its relationship with its employees is good.  Supervision and Regulation           General           The banking  industry is extensively  regulated under federal and state law. As a bank holding  company,  the Company is subject to regulation under the BHCA and to supervision by the Board of Governors of the Federal  Reserve System (the "Federal  Reserve").  Pursuant to the BHCA, the Company may not directly or indirectly  acquire  the  ownership  or  control of more than 5% of any class of voting shares or substantially all of the assets of any other company, including a bank,  without the prior  approval of the Federal  Reserve.  The BHCA  further limits  the  activities  of both the  Company  and the Bank to the  business  of banking and activities closely related or incidental to banking.           As a national  bank,  the Bank is subject to  supervision  and  regular examination   by  the  Office  of  the   Comptroller   of  the   Currency   (the "Comptroller").  The examinations are undertaken to ensure the protection of the Bank  Insurance  Fund  ("BIF").  Pursuant  to the terms of the  Federal  Deposit Insurance Act (the "FDIA"), the deposits of the Bank are insured through the BIF and the Savings  Association  Insurance  Fund of the Federal  Deposit  Insurance Corporation (the "FDIC").  Accordingly, the Bank is subject to regulation by the    FDIC and is also  subject to the  Federal  Reserve's  requirements  to  maintain reserves against  deposits,  restrictions on the types and amounts of loans that may be granted and the interest that may be charged thereon,  and limitations on the types of investments  that may be made and the types of services that may be offered.           In 1991,  Congress  enacted the Federal Deposit  Insurance  Corporation Improvement Act ("FDICIA"), which, among other things, substantially revised the depository  institution  regulatory and funding  provisions of the FDIA.  FDICIA also expanded the regulatory and enforcement powers of bank regulatory agencies. Most  significantly,  FDICIA  mandates  annual  examinations  of  banks by their primary  regulators  and  requires the federal  banking  agencies to take prompt "corrective action" whenever financial  institutions do not meet minimum capital requirements.   FDICIA  establishes  five  capital  tiers:  "well  capitalized," "adequately capitalized,"  "undercapitalized,"  "significantly undercapitalized" and "critically  undercapitalized."  A depository  institution's  capitalization status will depend on how well its capital  levels  compare to various  relevant capital measures and certain other factors, as established by regulation.  As of December 31, 2005,  the Bank  maintained a capital  level which  qualified it as being "well capitalized" under such regulations.           FDICIA also prohibits a depository  institution from making any capital distribution  (including  payment of a dividend) or paying any management fee to its  holding  company  if  the  depository   institution   would  thereafter  be "undercapitalized."           The  banking  industry  is  affected  by the  policies  of the  Federal Reserve.  An  important  function  of the  Federal  Reserve is to  regulate  the national  supply of bank credit to moderate  recessions  and to curb  inflation. Among  the  instruments  of  monetary  policy  used by the  Federal  Reserve  to implement  its  objectives  are:  open-market   operations  in  U.S.  Government securities,  changes in the  discount  rate on bank  borrowings  and  changes in reserve  requirements  on bank  deposits.  Changes in any of these  policies can affect how the Bank operates and generates revenues.           Interstate Banking and Branching Legislation           Federal  Law.  In 1994,  Congress  passed  the  Riegle-Neal  Interstate Banking  and  Branching  Efficiency  Act  ("Riegle-Neal"),  which  affected  the interstate banking and branching  abilities of bank holding companies and banks. Riegle-Neal  authorizes  a national  bank  domiciled  in one state to  establish branches in any other state as long as neither state has opted out of interstate branching  between  the  date of  enactment  of  Riegle-Neal  and May 31,  1997. Riegle-Neal,  however, does allow states to preserve certain restrictions on the entry of out-of-state  banks, such as the fashion in which entry can be made, an age  requirement  for a bank being merged or acquired,  and a deposit cap. Under Riegle-Neal,  once a bank has  established  a branch in  another  state,  it may exercise the same rights in that state as national and state banks enjoy in that state, including the ability to branch intra-state.           Riegle-Neal  also  permits  states to allow banks to enter the state by establishing  a de novo  branch in that  state.  In order to allow de novo entry into a particular state, that state's banking laws must expressly provide for de novo branching.  Once a bank has established a branch in a host state through de novo  branching,  it may  exercise the same rights in that state as national and    state banks enjoy, including the ability to branch intra-state.  If a state opts out of  interstate  branching,  no bank  domiciled  in that state may  establish branches in other states,  and no bank  domiciled in another state may establish branches in that state.           Mississippi Law. On March 29, 1996, the Governor of Mississippi  signed into law a bill in which Mississippi elected to opt in to interstate  branching, effective May 1, 1997. As enacted,  the bill (1) allows all Mississippi banks to establish  branches  in any  other  state  pursuant  to the  entry  rules in the potential host state, and (2) allows out-of-state banks to establish branches in Mississippi  pursuant to Mississippi's  entry rules. The bill does not authorize de novo branching into Mississippi.  An out-of-state bank can establish branches in Mississippi only by (1) merging with a Mississippi-domiciled bank, (2) buying all of the  assets of a  Mississippi-domiciled  bank,  or (3)  buying all of the assets in Mississippi of an out-of-state bank which has branches in Mississippi. All interstate branching transactions require appropriate regulatory approval.           On December 1, 2000,  the Bank  acquired  its first  interstate  branch offices in Baton Rouge,  Louisiana.  Under  applicable  law, the Bank,  with the approval of the  Comptroller,  can establish  additional de novo branch  offices within the States of Mississippi and Louisiana.  The Company regularly evaluates merger and  acquisition  opportunities,  as well as  opportunities  to establish additional branch offices,  and it anticipates that it will continue to evaluate such opportunities.           Financial Modernization           The  Gramm-Leach-Bliley  Financial  Services  Modernization Act of 1999 (the  "GLB  Act")  was  enacted  into  law on  November  12,  1999.  The GLB Act potentially affects every facet of a depository  institution's  operations.  The GLB Act does three  fundamental  things  affecting  the  banking  industry:  (a) repeals key provisions of the  Glass-Steagall  Act to permit commercial banks to affiliate with securities firms, insurance companies and other financial service providers;  (b)  establishes  a  statutory  framework  pursuant  to  which  full affiliations  can occur  between  these  entities;  and (c)  provides  financial services  organizations  with  flexibility  in  structuring  these new financial affiliations  through a new  entity  called a  "financial  holding  company"  or through a financial subsidiary.           As a result of the GLB Act,  banks  will be able to offer  customers  a wide range of financial products and services without the restraints of previous legislation.  In addition,  bank holding companies and other financial  services providers will be able to commence new activities or new affiliations  much more readily.  To take advantage of the new provisions of the GLB Act, a bank holding company must elect to become a financial  holding  company.  The Company has not yet elected to become a financial holding company.           Anti-Money Laundering           On October 26, 2001,  the President  signed the USA PATRIOT Act of 2001 into law. This act contains the  International  Money  Laundering  Abatement and Financial  Anti-Terrorism Act of 2001 (the "IMLAFA").  The IMLAFA  substantially broadens existing  anti-money  laundering  legislation and the  extraterritorial jurisdiction  of the United  States,  imposes new  compliance  and due diligence obligations,  creates  new crimes  and  penalties,  compels  the  production  of    documents located both inside and outside the United States,  including those of foreign  institutions  that  have a  correspondent  relationship  in the  United States,  and  clarifies the safe harbor from civil  liability to customers.  The U.S. Treasury Department has issued a number of regulations implementing the USA PATRIOT Act that apply  certain of its  requirements  to financial  institutions such  as  the  Bank.  The  regulations   impose  new  obligations  on  financial institutions  to  maintain  appropriate  policies,  procedures  and  controls to detect,  prevent  and report  money  laundering  and  terrorist  financing.  The Treasury  Department  is  expected to issue a number of  additional  regulations which will  further  clarify  the USA  PATRIOT  Act's  requirements.  The IMLAFA requires all  "financial  institutions,"  as defined,  to  establish  anti-money laundering  compliance and due diligence programs no later than April 2002. Such programs must include, among other things, adequate policies, the designation of a compliance  officer,  employee  training  programs,  and an independent  audit function  to review  and test the  program.  The  Company  believes  that it has complied with the IMLAFA requirements as currently in effect.           Further Changes in Regulatory Requirements           The  United  States  Congress  and  the  Mississippi  legislature  have periodically  considered and adopted legislation that has adversely affected the profitability  of  the  banking  industry.   See  "Competition"   above.  Future legislation  could further  modify or eliminate  geographic  and other  business restrictions  on banks  and bank  holding  companies  and  current  prohibitions affecting  other  financial  institutions,  including  mutual funds,  securities brokerage  firms,  insurance  companies,  banks from other states and investment banking firms. The effect of any such legislation on the business of the Company or the Bank cannot be accurately predicted. The Company also cannot predict what legislation  might be enacted or what other  implementing  regulations  might be adopted, and if enacted or adopted, the effect thereof.           Restrictions on Dividends           The Company is a legal entity  separate and distinct from the Bank, and substantially  all of the  Company's  revenues  result from  amounts paid by the Bank, as dividends,  to the Company. The payment of dividends by the Bank is, of course,  dependent upon its earnings and financial condition. The Bank, however, as a national  bank, is also subject to legal  limitations  on the amount of its earnings  that it may pay as  dividends.  Under  federal law, the directors of a national  bank,  after  making  proper  deduction  for all  expenses  and  other deductions  required  by the  Comptroller,  may credit net profits to the Bank's undivided  profits  account and may declare a dividend  from that  account of so much of the net profits as they judge expedient. The Comptroller and the Federal Reserve have each  indicated  that banking  organizations  should  generally pay dividends only out of current operating earnings.           Further, in connection with the Company's  acquisition of Natchez First Federal in 1993, the Bank assumed a liquidation  account of  approximately  $2.8 million  which has the effect of  prohibiting  the payment of  dividends  if the Bank's net worth would thereby be reduced below $2.8 million.                Corporate Governance           The  Sarbanes-Oxley  Act of 2002 (the "Sarbanes Act") requires publicly traded companies to adhere to several  directives  designed to prevent corporate misconduct.  Additional duties have been placed on officers, directors, auditors and  attorneys of public  companies.  The  Sarbanes Act requires  certifications regarding  financial  statement  accuracy and internal  control  adequacy by the chief executive  officer and chief financial  officer of the Company in periodic and annual  reports  filed with the  Securities  and  Exchange  Commission  (the "SEC").  The  Sarbanes  Act  also  accelerates   Section  16  insider  reporting obligations,  restricts  certain  executive  officer and director  transactions, imposes new obligations on corporate audit  committees and provides for enhanced review by the SEC. The SEC has delayed the compliance  date for  non-accelerated filers to include a management report on internal control of financial reporting (and make a related certification) until the filer's first fiscal year end after July, 2007.
In addition to the other  information  contained in or  incorporated by reference  into this Annual  Report on Form 10-K and the  exhibits  hereto,  the following  risk  factors  should  be  considered  carefully  in  evaluating  our business.  The risks  disclosed  below,  either alone or in  combination,  could materially  adversely  affect the  business,  financial  condition or results of operations of the Company.  Additional  risks not presently known to us, or that we currently deem immaterial, may also adversely affect our business,  financial condition or results of operations.  Risks Related To Our Business and Industry  We are subject to interest rate risk.           Our earnings and cash flows are largely dependent upon the net interest income of the Company.  Net interest income is the difference  between  interest earned on assets, such as loans and securities, and the cost of interest-bearing liabilities,  such as deposits and  borrowed  funds.  Interest  rates are highly sensitive  to many  factors  that are  beyond  our  control,  including  general economic conditions and policies of various governmental and regulatory agencies and, in particular,  the FRB. Changes in monetary policy,  including  changes in interest  rates,  could  influence not only the interest we receive on loans and securities  and the amount of interest we pay on deposits  and  borrowings,  but such  changes  could also affect (i) our ability to  originate  loans and obtain deposits,  which could reduce the amount of fee income generated,  (ii) the fair value of our financial assets and liabilities, and (iii) the average duration of our mortgage-backed securities portfolio. If the interest rates paid on deposits and other borrowings  increase at a faster rate than the interest rates received on loans and other  investments,  our net  interest  income  could be  adversely affected,  which in turn could  negatively  affect our earnings.  Earnings could also be  adversely  affected if the interest  rates  received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings.             Although  management  believes it has  implemented  effective asset and liability  management  strategies to reduce the potential  effects of changes in interest  rates on the results of  operations of the Company,  any  substantial, unexpected,  prolonged  change in market  interest  rates  could have a material adverse effect on our financial condition and results of operations.  Volatility in  interest  rates may also result in  disintermediation,  which is the flow of funds away from financial  institutions  into direct  investments,  such as U.S. Government and Agency securities and other investment vehicles, including mutual funds,  which  generally pay higher rates of return than financial  institutions because of the absence of federal insurance  premiums and reserve  requirements. Disintermediation could also result in material adverse effects on our financial condition and results of operations.           A discussion of the policies and  procedures  used to identify,  assess and manage certain interest rate risk is set forth in Item 7A,  "Qualitative and Quantitative Disclosures about Market Risk," of this Annual Report on Form 10-K.  We are subject to lending risk.           There are inherent risks associated with our lending activities.  These risks include,  among other things,  the impact of changes in interest rates and changes in the economic  conditions  in the markets  where we operate as well as those across the United  States.  Increases in interest  rates and/or  weakening economic  conditions  could  adversely  impact the ability of borrowers to repay outstanding loans or the value of the collateral securing these loans.           As of December 31, 2005, approximately 55% of the bank's loan portfolio consisted of commercial,  construction  and commercial real estate loans.  These types of loans  are  generally  viewed  as  having  more  risk of  default  than residential  real estate  loans or  consumer  loans due  primarily  to the large amounts loaned to individual  borrowers.  Because the loan portfolio  contains a significant number of commercial,  construction and commercial real estate loans with relatively large balances, the deterioration of one or a few of these loans could cause a  significant  increase  in  non-performing  loans.  An increase in non-performing loans could result in a net loss of earnings from these loans, an increase  in the  provision  for  possible  loan  losses and an increase in loan charge-offs,  all of which could have a material adverse effect on our financial condition and results of operations.  The allowance for possible loan losses may be insufficient.           Although we try to maintain  diversification  within our loan portfolio in order to  minimize  the effect of  economic  conditions  within a  particular industry,  management  also  maintains an allowance for loan losses,  which is a reserve  established  through a provision for loan losses charged to expense, to absorb  probable  credit  losses  inherent  in the entire  loan  portfolio.  The appropriate level of the allowance is based on management's  quarterly  analysis of the loan portfolio and represents an amount that management deems adequate to provide  for  inherent  losses,  including  collective  impairment.  Among other considerations  in  establishing  the  allowance  for  loan  losses,  management considers  economic   conditions   reflected  within  industry   segments,   the unemployment rate in our markets, loan segmentation,  and historical losses that are inherent in the loan portfolio.  The  determination of the appropriate level of  the  allowance  for  loan  losses  inherently  involves  a  high  degree  of subjectivity and requires  management to make  significant  estimates of current credit  risks and future  trends,  all of which may  undergo  material  changes. Changes in economic conditions  affecting borrowers,  new information  regarding existing loans,  identification  of additional  problem loans and other factors, both within and outside of our control, may require an increase in the allowance for loan losses.               In addition, bank regulatory agencies periodically review the allowance for loan losses and may require an increase in the  provision for loan losses or the recognition of further loan charge-offs,  based on judgments  different than those of  management.  In addition,  if charge-offs in future periods exceed the allowance for loan losses,  we will need  additional  provisions to increase the allowance  for loan losses.  Any increases in the allowance for loan losses will result in a  decrease  in net  income  and,  possibly,  capital,  and may have a material adverse effect on our financial condition and results of operations.  A discussion of the policies and procedures  related to  management's  process for determining the appropriate  level of the allowance for loan losses is set forth in Item 7,  "Management's  Discussion  and Analysis of Financial  Condition  and Results of Operations," of this Annual Report on Form 10-K.  Bank holding  companies  depend on the accuracy and  completeness of information about customers and counterparties.           In deciding whether to extend credit or enter into other  transactions, we  often  rely on  information  furnished  by or on  behalf  of  customers  and counterparties,   including  financial  statements,  credit  reports  and  other financial  information.  We may also rely on representations of those customers, counterparties or other third parties,  such as independent  auditors, as to the accuracy  and  completeness  of that  information.  Reliance  on  inaccurate  or misleading financial  statements,  credit reports or other financial information could have a material adverse impact on our business and, in turn, our financial condition and results of operations.  We  are  subject  to  environmental   liability  risk  associated  with  lending activities.           A  significant  portion  of the  loan  portfolio  is  secured  by  real property.  During the ordinary course of business,  we may foreclose on and take title to properties  securing  certain loans.  In doing so, there is a risk that hazardous or toxic substances could be found on these  properties.  If hazardous or toxic  substances are found, we may be liable for remediation  costs, as well as for personal injury and property damage. Environmental laws may require us to incur  substantial  expenses and may materially  reduce the affected  property's value or limit the ability of the Company to use or sell the affected  property. In  addition,  future  laws or more  stringent  interpretations  or  enforcement policies   with   respect  to  existing   laws  may  increase  our  exposure  to environmental  liability.  Although  management  has policies and  procedures to perform an  environmental  review during the loan  application  process and also before initiating any foreclosure action on real property, these reviews may not be sufficient to detect all potential  environmental  hazards.  The  remediation costs and any  other  financial  liabilities  associated  with an  environmental hazard  could have a material  adverse  effect on our  financial  condition  and results of operations.      The profitability of the Company depends significantly on economic conditions in the States of Mississippi and Louisiana.           Our success depends primarily on the general economic conditions of the State of  Mississippi  and the State of Louisiana and the specific local markets in which we operate.  Unlike larger  national or other  regional  banks that are more  geographically  diversified,  we provide banking and financial services to customers  primarily  in Natchez and  Vicksburg,  Mississippi,  and Baton Rouge, Louisiana.  The local  economic  conditions  in these  areas have a  significant impact on the demand for our products and services as well as the ability of our customers to repay loans,  the value of the  collateral  securing  loans and the stability of our deposit funding sources.  The earnings of bank holding  companies  are  significantly  affected by general business and economic conditions.           In  addition  to  the  risks   associated  with  the  general  economic conditions in the markets in which we operate,  our operations and profitability are also  impacted by general  business  and economic  conditions  in the United States and abroad.  These conditions  include  short-term and long-term interest rates,  inflation,  money supply,  political issues,  legislative and regulatory changes,  fluctuations in both debt and equity capital markets,  broad trends in industry  and  finance,  and the  strength  of the U.S.  economy  and the  local economies  in  which  we  operate,  all of  which  are  beyond  our  control.  A deterioration  in  economic  conditions  could  result  in an  increase  in loan delinquencies and non-performing assets, decreases in loan collateral values and a decrease in demand for our products and services,  among other things,  any of which  could have a  material  adverse  impact on our  financial  condition  and results of operations.  We operate in a highly competitive industry and market area.           We face  substantial  competition in all areas of our operations from a variety  of  different  competitors,  many of which are larger and may have more financial resources.  Such competitors primarily include national,  regional and community  banks  within the various  markets in which we operate.  We also face competition from many other types of financial  institutions,  including savings and  loans,  credit  unions,  finance  companies,   brokerage  firms,  insurance companies,   factoring  companies  and  other  financial   intermediaries.   The information  under the  heading  "Competition"  in Item 1,  "Business,"  of this Annual Report on Form 10-K provides more  information  regarding the competitive conditions in our markets.           Our  industry  could  become  even  more  competitive  as a  result  of legislative,  regulatory and technological changes and continued  consolidation. Banks,  securities firms and insurance companies can merge under the umbrella of a financial  holding  company,  which can offer  virtually any type of financial service, including banking, securities underwriting,  insurance (both agency and underwriting)  and merchant  banking.  Also,  technology has lowered barriers to entry  and made it  possible  for  non-banks  to  offer  products  and  services traditionally  provided  by banks,  such as  automatic  transfer  and  automatic payment systems.  Many of our competitors have fewer regulatory  constraints and may have lower  cost  structures.  Additionally,  many of our  competitors  have substantially  greater  resources  than us,  including  higher  total assets and capitalization,  greater  access to capital  markets  and a broader  offering of financial services.           Our  ability to compete  successfully  depends on a number of  factors, including, among other things:      o    The  ability  to  develop,  maintain  and  build  upon  long-term  customer      relationships  based on top quality  service,  high ethical  standards  and      safe, sound assets. o    The ability to expand the Company's market position. o    The scope,  relevance and pricing of products and services  offered to meet      customer  needs and demands. o    The rate at which we introduce  new  products and services  relative to our      competitors. o    Customer satisfaction with our level of service. o    Industry and general economic trends.  Failure  to  perform  in any of  these  areas  could  significantly  weaken  our competitive position, which could adversely affect our growth and profitability, which, in turn, could have a material adverse effect on our financial  condition and results of operations.  We are subject to extensive government regulation and supervision.           The  Company and the Bank are  subject to  extensive  federal and state regulation  and  supervision.  Banking  regulations  are  primarily  intended to protect  depositors'  funds,  federal  deposit  insurance  funds and the banking system as a whole,  not the economic or other interests of  shareholders.  These regulations  affect  our  lending  practices,   capital  structure,   investment practices,  dividend policy and growth, among other things. Changes to statutes, regulations  or regulatory  policies,  including  changes in  interpretation  or implementation  of the  foregoing,  could affect the Company  and/or the Bank in substantial and unpredictable  ways. Such changes could subject us to additional costs,  limit the types of  financial  services and products we may offer and/or increase  the ability of  non-banks to offer  competing  financial  services and products, among other things.           Under  regulatory  capital  adequacy  guidelines  and other  regulatory requirements,  the  Company  and the Bank  must  meet  guidelines  that  include quantitative  measures  of assets,  liabilities  and certain  off-balance  sheet items,  subject to qualitative  judgments by regulators about  components,  risk weightings  and  other  factors.  If we  fail  to  meet  these  minimum  capital guidelines and other regulatory  requirements,  our financial condition would be materially and adversely  affected.  Our failure to maintain the status of "well capitalized"  under our regulatory  framework could affect the confidence of our customers  in us, thus  compromising  our  competitive  position.  In  addition, failure  to  maintain  the  status of "well  capitalized"  under our  regulatory framework  or "well  managed"  under  regulatory  examination  procedures  could compromise our status as a bank holding  company and related  eligibility  for a streamlined review process for acquisition proposals.           We are also  subject to laws,  regulations  and  standards  relating to corporate  governance and public disclosure,  including the Sarbanes Act and new SEC  regulations.  These laws,  regulations and standards are subject to varying interpretations  in many cases, and as a result,  their  application in practice may evolve over time as new  guidance is provided by  regulatory  and  governing bodies,  which  could  result in  continuing  uncertainty  regarding  compliance matters and higher costs  necessitated  by ongoing  revisions to disclosure  and governance  practices.  We  are  committed  to  maintaining  high  standards  of corporate  governance and public disclosure.  As a result, our efforts to comply with evolving laws,  regulations  and standards have resulted in, and are likely to continue to result in, increased  expenses and a diversion of management time and attention.                Failure to comply with laws,  regulations or policies could also result in sanctions by regulatory  agencies and/or civil money  penalties,  which could have a material adverse effect on our business,  financial condition and results of  operations.  While we have policies and  procedures  designed to prevent any such violations,  there can be no assurance that such violations will not occur. The  information  under the  heading  "Supervision  and  Regulation"  in Item 1, "Business," of this Annual Report on Form 10-K and Note N, "Regulatory  Matters" to the  Consolidated  Financial  Statements of the Company in Item 8, "Financial Statements and Supplementary  Data," of this Annual Report on Form 10-K provides more information  regarding the regulatory  environment in which we and our Bank operate.  Our controls and procedures may fail or be circumvented.           Management  regularly  reviews and updates our  internal  control  over financial reporting, disclosure controls and procedures and corporate governance policies  and  procedures.  Any system of controls,  however  well  designed and operated, has inherent limitations, including the possibility that a control can be circumvented or overridden, and misstatements due to error or fraud may occur and not be detected.  Also,  because of changes in conditions,  internal control effectiveness  may vary over  time.  Accordingly,  even an  effective  system of internal  control  will provide only  reasonable  assurance  with respect to our adherence to financial  reporting,  disclosure and corporate governance policies and procedures.  Slower  than  anticipated  growth in new  branches  and new  product and service offerings could result in reduced income.           We have placed a strategic emphasis on expanding our branch network and product  offerings.  Executing  this  strategy  carries  risks  of  slower  than anticipated  growth both in new  branches  and new  products.  New  branches and products  require a  significant  investment  of both  financial  and  personnel resources.  Lower than expected loan and deposit growth in new  investments  can decrease anticipated revenues and net income generated by those investments, and opening  new  branches  and  introducing  new  products  could  result  in  more additional  expenses than  anticipated  and divert  resources  from current core operations.  We are substantially dependent on dividends from the Bank for our revenues.           The Company is a separate and distinct  legal entity from the Bank, and it receives substantially all of its revenue from dividends from the Bank. These dividends are the principal source of funds to pay dividends on our common stock and  interest  and  principal  on debt.  Various  federal  and/or state laws and regulations  limit the amount of dividends that the Bank may pay to the Company. In the event the Bank is  unable to pay  dividends  to us, we may not be able to service  debt,  pay  obligations  or pay  dividends  on our  common  stock.  The inability  to receive  dividends  from the Bank  could  have a material  adverse effect on our  business,  financial  condition  and results of  operations.  The information   under  the  heading   "Supervision  and  Regulation"  in  Item  1, "Business,"  of this Annual Report on Form 10-K provides a discussion  about the restrictions governing the Bank's ability to transfer funds to us.     We may not be able to attract and retain skilled people.           Our success depends in part on our ability to retain key executives and to attract and retain additional qualified personnel who have experience both in sophisticated  banking matters and in operating a bank of our size.  Competition for  such  personnel  is  strong  in the  banking  industry,  and we may  not be successful in attracting or retaining the personnel we require.  The  unexpected loss of one or more of our key personnel could have a material adverse impact on our  business  because  of their  skills,  knowledge  of our  markets,  years of industry   experience   and  the  difficulty  of  promptly   finding   qualified replacements.  We  expect  to  effectively  compete  in this  area  by  offering financial packages that are competitive within the industry.     Our information systems may experience an interruption or breach in security.           We rely heavily on  communications  and information  systems to conduct our business.  Any failure,  interruption or breach in security of these systems could result in failures or disruptions in our customer relationship management, general  ledger,  deposit,  loan and other  systems.  While we have policies and procedures designed to prevent or limit the effect of the failure,  interruption or security  breach of our information  systems,  there can be no assurance that any such failures, interruptions or security breaches will not occur or, if they do  occur,  that  they  will be  adequately  addressed.  The  occurrence  of any failures,  interruptions or security  breaches of our information  systems could damage our  reputation,  result in a loss of  customer  business,  subject us to additional  regulatory  scrutiny,  or expose us to civil litigation and possible financial  liability,  any of which could have a material  adverse effect on the financial condition and results of operations of the Company.  We continually encounter technological change.           Our industry is continually  undergoing rapid technological change with frequent  introductions  of new  technology-driven  products and  services.  The effective  use  of  technology   increases   efficiency  and  enables  financial institutions  to better serve  customers  and reduce costs.  Our future  success depends,  in part,  upon our  ability to address the needs of our  customers  by using  technology to provide  products and services  that will satisfy  customer demands, as well as to create additional efficiencies in our operations. Many of our competitors have substantially  greater resources to invest in technological improvements.  We may not be able to effectively implement new technology-driven products and services or be successful in marketing  these products and services to our customers.  Failure to successfully keep pace with  technological  change affecting our industry could have a material adverse impact on our business and, in turn, our financial condition and results of operations.  Consumers may decide not to use banks to complete their financial transactions.           While we  continually  attempt to use  technology to offer new products and  services,  at the same time,  technology  and other  changes  are  allowing parties to complete financial transactions that historically have involved banks through alternative  methods.  For example,  consumers can now maintain funds in brokerage  accounts or mutual  funds that would have  historically  been held as bank  deposits.  Consumers can also complete  transactions  such as paying bills and/or  transferring funds directly without the assistance of banks. The process of eliminating banks as intermediaries, known as disintermediation, could result in the loss of fee  income,  as well as the loss of  customer  deposits  and the related income generated from those deposits.  The loss of these revenue streams and the lower cost  deposits as a source of funds could have a material  adverse effect on our financial condition and results of operations.  Severe weather,  natural disasters,  acts of war or terrorism and other external events could significantly impact our business.           Severe weather,  natural disasters,  acts of war or terrorism and other adverse  external  events could have a significant  impact on the ability of the Company to conduct  business.  Such events  could  affect the  stability  of our deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral  securing  loans,  cause  significant  property  damage, result in loss of revenue  and/or  cause us to incur  additional  expenses.  For example, during 2005, Hurricanes Katrina and Rita made landfall and subsequently caused extensive flooding and destruction along the coastal areas of the Gulf of Mexico.  Although our operations were not disrupted by these hurricanes or their aftermath,  other severe weather or natural disasters,  acts of war or terrorism or other adverse  external events may occur in the future.  Although  management has established disaster recovery policies and procedures, the occurrence of any such event could have a material adverse effect on our business, which, in turn, could have a material  adverse effect on our financial  condition and results of operations.    Risks Associated With Our Common Stock  Our stock price can be volatile.           Stock price  volatility  may make it more  difficult  for you to resell your  common  stock when you want and at prices you find  attractive.  Our stock price can fluctuate significantly in response to a variety of factors including, among other things:  o    Actual or anticipated variations in quarterly results of operations. o    Recommendations by securities analysts. o    Operating and stock price  performance  of other  companies  that investors      deem comparable to the Company. o    News reports  relating to trends,  concerns and other issues in the banking      and financial services industry. o    Perceptions in the marketplace regarding us and/or our competitors. o    New technology used, or services offered, by competitors. o    Significant acquisitions or business combinations,  strategic partnerships,      joint   ventures  or  capital   commitments  by  or  involving  us  or  our      competitors. o    Failure to integrate  acquisitions  or realize  anticipated  benefits  from      acquisitions. o    Changes in government  regulations. o    Geopolitical  conditions  such as acts or threats of  terrorism or military      conflicts.           General market fluctuations,  industry factors and general economic and political  conditions  and events,  such as economic  slowdowns  or  recessions, interest rate changes or credit loss trends, could also cause our stock price to decrease regardless of operating results.  The trading  volume in  our common  stock is less than that of other larger bank holding companies.           Our common  stock is listed for trading on the Nasdaq  Capital  Market; the average daily trading volume in our common stock is low, generally less than that of many of the our competitors and other larger bank holding  companies.  A public trading market having the desired characteristics of depth, liquidity and orderliness  depends on the presence in the  marketplace  of willing  buyers and sellers of our common  stock at any given  time.  This  presence  depends on the individual  decisions of investors  and general  economic and market  conditions over  which we have no  control.  Given the lower  trading  volume of our common stock, significant sales of our common stock, or the expectation of these sales, could cause  volatility in the price of our common  stock.    An investment in our common stock is not an insured deposit.           Our common stock is not a bank deposit and,  therefore,  is not insured against loss by the FDIC,  any deposit  insurance fund or by any other public or private  entity.  Investment  in our common  stock is  inherently  risky for the reasons  described in this "Risk  Factors"  section and elsewhere in this report and is subject to the same market  forces that affect the price of common  stock in any company.  As a result, if you acquire our common stock, you may lose some or all of your investment.  Our Restated  Articles of Association  and By-laws,  as well as certain  banking laws, may have an anti-takeover effect.           Provisions of our Restated  Articles of Association and By-laws,  which are  exhibits to this Annual  Report on Form 10-K,  and  federal  banking  laws, including regulatory approval  requirements,  could make it more difficult for a third party to acquire the  Company,  even if doing so would be  perceived to be beneficial to our  shareholders.  The combination of these provisions  impedes a non-negotiated  merger or other  business  combination,  which,  in turn,  could adversely affect the market price of our common stock.
The Company has its principal  offices in its headquarters  building at 500 Main Street,  Natchez,  Adams County,  Mississippi 39120, which is owned and occupied by the Bank.  The Bank owns the  property on which four of its branches are located and leases the property for one of its branches.  In the judgment of management,  the facilities of the Company and the Bank are generally  suitable, adequately  insured and provide for the continuing  needs of the Company and the Bank.  All branches  operated are full service and the list below  describes the locations  and  general  character  of the  properties  owned and  leased by the Company and the Bank:                                                              Approximate Office     Location                Own/Lease        Use            Space (square feet) - ----------------------      ---------     ------------     --------------------- Natchez  500 Main Street Natchez, Mississippi          Owned       Main Office             33,723  411 Highway 61 N. Natchez, Mississippi          Owned       Branch Office            1,922  55A Sgt. Prentiss Drive Natchez, Mississippi          Owned       Branch Office           11,774  Vicksburg  2059 Highway 61 N. Vicksburg, Mississippi        Owned       Branch Office            3,153  2150 S. Frontage Road Vicksburg, Mississippi        Owned       Branch Office            6,000                                                                 Approximate Office     Location                Own/Lease        Use            Space (square feet) - ----------------------      ---------     ------------     --------------------- Baton Rouge  8810 Bluebonnet. Suites A & B Baton Rouge, Louisiana        Leased      Branch Office            5,112            The  lease  for  the  Company's   branch  located  at  8810  Bluebonnet Boulevard,  in Baton Rouge, Louisiana is for a ten year period beginning October 1, 2003.
The Company and the Bank are  currently  not  involved in any  material pending legal proceedings.
There were no matters  submitted to the Company's  shareholders  during the fourth quarter of 2005.                                       PART II
The  information  required in response to this item is  incorporated by reference  to the  material  under  the  heading  "Management's  Discussion  and Analysis  of  Financial  Condition  and  Results  of  Operations  -  Information Regarding  our  Common  Stock"  in  the  Company's  2005  Annual  Report  to its Shareholders (the "2005 Annual Report"). See the information under Item 11 below for disclosures  relating to the Company's equity  compensation  plan. A copy of the 2005  Annual  Report is filed as an  exhibit to this  Annual  Report on Form 10-K.           The Company did not  repurchase  any equity  securities  during the 4th quarter of 2005.
The  information  required in response to this item is  incorporated by reference  to the  material  under the  heading  "Financial  Highlights"  in the Company's  2005 Annual  Report.  A copy of the 2005 Annual Report is filed as an exhibit to this Annual Report on Form 10-K.
The  information  required in response to this item is  incorporated by reference  to the  material  under  the  heading  "Management's  Discussion  and Analysis of Financial  Condition  and Results of  Operations"  in the  Company's 2005Annual  Report.  A copy of the 2005 Annual  Report is filed as an exhibit to this Annual Report on Form 10-K.
The  information  required in response to this item is  incorporated by reference  to the  material  under  the  heading  "Management's  Discussion  and Analysis of Financial  Condition  and Results of  Operations -  Qualitative  and Qualitative  Disclosures about Market Risk" in the Company's 2005 Annual Report. A copy of the 2005 Annual Report is filed as an exhibit to this Annual Report on Form 10-K.
The  information  required in response to this item is  incorporated by reference  to the  material  under the headings  "Consolidated  Balance  Sheet", "Consolidated  Statements  of Income",  "Consolidated  Statements  of Changes in Stockholders'  Equity",  "Consolidated  Statements of Cash Flows", "Notes to the Consolidated  Financial Statements" and Management's  Discussion and Analysis of Financial  Conditions and Results of Operations - Quarterly Financial Trends" in the Company's 2005 Annual  Report.  A copy of the 2005 Annual Report is filed as an exhibit to this Annual Report on Form 10-K.
None.
Within  the 90 days  prior to the date of this  Annual  Report  on Form 10-K, the Company carried out an evaluation,  under the supervision and with the participation  of the Chief  Executive  Officer of the  Company  ("CEO") and the Chief  Financial  Officer of the  Company  ("CFO") of the  effectiveness  of the design and operation of the Company's  disclosure  controls and  procedures  (as defined in Rule 13a-15(e) and Rule 15d-15(e)  under the Securities  Exchange Act of 1934, as amended) as of December 31, 2005. Based on this evaluation,  the CEO and CFO concluded  that the Company's  disclosure  controls and  procedures  are effective  in  timely  alerting  them to  material  information  required  to be included in the Company's SEC reports.           During  the  fourth  quarter  of 2005,  there  were no  changes  to the Company's internal control over financial reporting that materially affected, or was reasonably likely to materially  affect, the Company's internal control over financial reporting.
None.                                             PART III
The information  required in response to this item is incorporated into this report by reference to the material under the headings  "Stock  Ownership", "Board of  Directors",  "Election  of  Directors",  "Committees  of the Board of Directors" and "Executive Officers and Executive  Compensation" in the Company's Definitive  Proxy  Statement for its 2006 Annual  Meeting of  Shareholders  (the "2006 Proxy Statement").           Code of Ethics           The Board of Directors adopted a code of business conduct and ethics in compliance  with  Item 406 of  Regulation  S-K  that  applies  to the  principal executive officer, principal financial officer, principal accounting officer and controller of the Company and the Bank.  Access to the Company's  Code of Ethics is available to  shareholders  of the Company and  customers of the Bank through the Bank's website at www4.bkbank.com under "investor relations."  Amendments to or waivers from  provisions of the Company's Code of Ethics will be disclosed on the Company's website.
The information  required in response to this item is incorporated into this report by reference to the material under the heading  "Executive  Officers and Executive Compensation" in the 2006 Proxy Statement.
In partial  response to this item, the Company  incorporates  into this report by reference the material under the heading "Stock Ownership" in the 2006 Proxy Statement.           The following table summarizes the company's equity  compensation  plan information as of December 31, 2005. The  underlying  plan,  which is more fully described in Note J to the consolidated financial statements included in Item 8, "Financial  Statements  and  Supplementary  Data," of this Annual Report on Form 10-K, has been previously approved by a vote of the shareholders.                                                      Equity Compensation Plan Information                                                                                                    (c)                                                                                           Number of securities                                                   (a)                                     remaining  available                                           Number of securities             (b)            for future issuance                                            to be issued upon        Weighted-average          under equity                                               exercise of           exercise price of       compensation plans                                           outstanding options,     outstanding options,   (excluding securities                                            warrants and rights     warrants and rights       in column (a))                                           --------------------    ---------------------   ---------------------  Plan category      Equity compensation plans   approved by security holders(1)               35,520                 $ 17.29                   124,480 Equity compensation plans not   approved by security holders                       -                       -                         -       Total                                      35,520                 $ 17.29                   124,480     (1)      The   shareholder-approved   plan  is  the  Britton  &  Koontz  Capital          Corporation Long Term Incentive Plan. An aggregate of 160,000 shares of          common stock were  authorized  for issuance under the plan, and options          to acquire 35,520 shares were outstanding as of December 31, 2005.
Item 14.  Principal Accounting Fees and Services.           The information  required in response to this item is incorporated into this  report  by  reference  to the  material  under  the  heading  "Independent Registered Public Accountants" in the 2006 Proxy Statement.                                       Part IV
(a)  Financial Statements              1. Consolidated  Financial  Statements and Supplementary Information                for  Years  Ended December 31, 2005, 2004 and 2003, which include                the following:                (a) Selected Financial Data               (b) Report of Independent  Registered  Public  Accounting  Firm               (c) Consolidated  Balance  Sheets                  (d) Consolidated  Statements  of Income               (e) Consolidated  Statements of Changes in Shareholders' Equity               (f) Consolidated  Statement  of Cash Flows               (g) Notes to the Consolidated Financial Statements              2. Financial Statement Schedules                  None              3. Exhibits required by Item 601 of Regulation S-K  Exhibit           Description of Exhibit  3.1*              Restated Articles of Incorporation of Britton & Koontz Capital                   Corporation,  incorporated   by  reference  to  Exhibit 4.1 to                   Registrant's Registration Statement on Form S-8,  Registration                   No. 333-20631, filed with the Commission on January 29, 1997.  3.2               By-Laws of Britton & Koontz Capital Corporation, as amended.   4.1*              Shareholder  Rights  Agreement  dated  June  1,  1996  between                   Britton  & Koontz  Capital  Corporation  and  Britton & Koontz                   First  National  Bank,  as  Rights  Agent,   incorporated   by                   reference   to  Exhibit  4.3  to   Registrant's   Registration                   Statement on Form S-8, Registration No. 333-20631,  filed with                   the Commission on January 29, 1997.  10.01*+           Employment  Agreement dated December 31, 2002, between Britton                   & Koontz Capital  Corporation and W. Page Ogden,  incorporated                   by reference to Exhibit 10.01 to Registrant's Annual Report on                   Form 10-KSB filed with the Commission on March 27, 2003.  10.03*+           Salary  Continuation  Plan Agreement dated September 26, 1994,                   between Britton & Koontz Capital Corporation and W.Page Ogden,                   incorporated   by  reference  to  Exhibit  10 to  Registrant's                   Quarterly Report on Form 10-QSB filed with the  Commission  on                   November 14, 1994,  (Commission File Number 33-56204).  10.05*+           Britton  &  Koontz  Capital  Corporation  Long-Term  Incentive                   Compensation  Plan  and  Amendment, incorporated  by reference                   to Exhibit 4.4 to  Registrant's Registration Statement on Form                   S-8, Registration No.  333-20631, filed with the Commission on                   January 29, 1997.  13                2005 Annual Report to Shareholders  21                Subsidiaries of the Company  23                Consent of Independent Registered Public Accountants     31.1              Certification  of Chief Executive Officer as required pursuant                   to Section 302 of the Sarbanes-Oxley Act of 2002.  31.2              Certification  of Chief Financial Officer as required pursuant                   to Section 302 of the Sarbanes-Oxley Act of 2002.  32.1              Certification  of Chief Executive Officer as required pursuant                   to Section 906 of the Sarbanes-Oxley Act of 2002  32.2              Certification  of Chief Financial Officer as required pursuant                   to Section 906 of the Sarbanes-Oxley Act of 2002  *        As  indicated in the column  entitled  "Description  of Exhibit,"  this          exhibit is incorporated by reference to another filing or document.  +        Management contract or compensatory plan or arrangement  required to be          filed as an exhibit to this Form 10-K pursuant to Item 15 of Form 10-K.  The Company does not have any un-registered long-term debt exceeding ten percent of the total assets of the Company and its subsidiaries on a consolidated basis. The Company will file with the Securities and Exchange Commission, upon request, a copy of all long-term debt instruments.                                          SIGNATURES           Pursuant to the  requirements  of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.                                              BRITTON & KOONTZ CAPITAL CORPORATION   Date: March 21, 2006                     By: /s/ W. Page Ogden                                             ------------------------------------                                             W. Page Ogden                                             Chairman and Chief Executive Officer                                             Date:  March 21, 2006           Pursuant to the  requirements  of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.   Signature                                  Title                       Date  /s/ W. Page Ogden                        Chairman,                March 21, 2006 - ------------------------------------     Chief Executive Officer W. Page Ogden                            and Director   /s/ William M. Salters                   Treasurer,               March 21, 2006 - ------------------------------------     Chief Financial Officer, William M. Salters                       Principal Accounting                                          Officer and Controller   /s/ W. W. Allen Jr.                      Director                 March 21, 2006 - ------------------------------------ W. W. Allen, Jr.   /s/ Craig A. Bradford, DMD               Director                 March 21, 2006 - -------------------------------- Craig A. Bradford, DMD   /s/ A. J. Ferguson                       Director                 March 21, 2006 - ------------------------------------ A. J. Ferguson   /s/ Bethany L. Overton                   Director                 March 21, 2006 - ------------------------------------ Bethany L. Overton   /s/ R. Andrew Patty II                   Director                 March 21, 2006 - ------------------------------------ R. Andrew Patty II   /s/ Robert R. Punches                    Vice-Chairman and        March 21, 2006 - ------------------------------------     Director Robert R. Punches        Signature                                  Title                      Date   /s/ Vinod K. Thukral, Ph.D.              Director                 March 21, 2006 - --------------------------------- Vinod K. Thukral, Ph.D.   /s/ George R. Kurz                       Director                 March 21, 2006 - --------------------------------- George R. Kurz                                            EXHIBIT INDEX  Exhibit         Description of Exhibit  3.2             By-laws of Britton & Koontz Capital Corporation, as amended  13              2005 Annual Report to Shareholders  21              Subsidiaries of Britton & Koontz Capital Corporation, as amended  23              Consent of Independent Registered Public Accountants  31.1            Certification  of  Chief Executive Officer as required  pursuant                 to  Section  302  of  the  Sarbanes-Oxley Act of 2002.  31.2            Certification  of  Chief Financial Officer as required  pursuant                 to  Section  302  of  the  Sarbanes-Oxley Act of 2002.  32.1            Certification  of  Chief Executive Officer as required  pursuant                 to  Section  906  of  the Sarbanes-Oxley Act of 2002  32.2            Certification  of  Chief Financial Officer as required  pursuant                 to Section 906 of the Sarbanes-Oxley Act of 2002    EX-32 2 ex32.txt SECTION 906                                   EXHIBIT 32.1               SECTION 906 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER                                        EXHIBIT 32.1                      Certification of Chief Executive Officer                          Pursuant to 18 U.S.C. ss. 1350                  (Section 906 of the Sarbanes-Oxley Act of 2002)            In  connection  with the Annual  Report on Form 10-K for the year ended December 31, 2005, of Britton & Koontz Capital  Corporation (the "Company"),  as filed with the  Securities  Exchange  Commission on the date hereof (the "Annual Report"),  I, W. Page Ogden,  Chief Executive  Officer of the Company,  certify, pursuant  to 18 U.S.C.  ss.  1350,  as adopted  pursuant  to Section  906 of the Sarbanes-Oxley Act of 2002, that:        (1)  the Annual  Report fully  complies  with the  requirements  of Section           13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and       (2)  the information contained in the Annual Report fairly presents, in all           material respects,  the financial  condition and results of operations           of the Company.    Date: March 21, 2006                   /s/ W. Page Ogden                                        -----------------------------------------                                        W. Page Ogden                                        Chief Executive Officer                                      EXHIBIT 32.2               SECTION 906 - CERTIFICATION OF CHIEF FINANCIAL OFFICER                                        EXHIBIT 32.2                      Certification of Chief Financial Officer                          Pursuant to 18 U.S.C. ss. 1350                  (Section 906 of the Sarbanes-Oxley Act of 2002)            In  connection  with the Annual  Report on Form 10-K for the year ended December 31, 2005, of Britton & Koontz Capital  Corporation (the "Company"),  as filed with the  Securities  Exchange  Commission on the date hereof (the "Annual Report"),  I,  William M.  Salters,  Chief  Financial  Officer  of the  Company, certify,  pursuant to 18 U.S.C.  ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:        (1)  the Annual  Report fully  complies  with the  requirements  of Section           13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and       (2)  the information contained in the Annual Report fairly presents, in all           material respects,  the financial  condition and results of operations           of the Company.     Date: March 21, 2006                   /s/ William M. Salters                                        -----------------------------------------                                        William M. Salters                                        Chief Financial Officer     EX-31 3 ex31.txt SECTION 302                                   EXHIBIT 31.1               SECTION 302 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER                                        EXHIBIT 31.1                      CERTIFICATION OF CHIEF EXECUTIVE OFFICER            I, W. Page Ogden, certify that:             1. I have  reviewed this annual report on Form 10-K of Britton & Koontz          Capital Corporation;           2. Based on my  knowledge,  this  report  does not  contain  any untrue          statement of a material fact or omit to state a material fact necessary          to make the statements made, in light of the circumstances  under which          such  statements  were made, not misleading  with respect to the period          covered by this report;           3. Based on my knowledge, the financial statements, and other financial          information  included in this  report,  fairly  present in all material          respects the financial condition,  results of operations and cash flows          of the registrant as of, and for, the periods presented in this report;           4. The registrant's  other certifying officer and I are responsible for          establishing  and  maintaining  disclosure  controls and procedures (as          defined  in  Exchange  Act  Rules  13a-15(e)  and  15d-15(e))  for  the          registrant and have:           a) designed such  disclosure  controls and  procedures,  or caused such          disclosure   controls  and   procedures   to  be  designed   under  our          supervision,  to  ensure  that  material  information  relating  to the          registrant,  including its consolidated subsidiaries,  is made known to          us by others within those entities,  particularly  during the period in          which this report is being prepared;           b) evaluated the effectiveness of the registrant's  disclosure controls          and procedures and presented in this report our  conclusions  about the          effectiveness of the disclosure controls and procedures,  as of the end          of the period covered by this report based on such evaluation; and           c)  disclosed  in this report any change in the  registrant's  internal          control over financial  reporting that occurred during the registrant's          most recent fiscal quarter (the  registrant's  fourth fiscal quarter in          the case of an  annual  report)  that has  materially  affected,  or is          reasonably  likely to  materially  affect,  the  registrant's  internal          control over financial reporting; and           5. The  registrant's  other  certifying  officer and I have  disclosed,          based on our most recent  evaluation of internal control over financial          reporting,  to the registrant's auditors and the audit committee of the          registrant's  board of directors (or persons  performing the equivalent          functions):           a) all significant  deficiencies and material  weaknesses in the design          or operation of internal  control over  financial  reporting  which are          reasonably  likely to  adversely  affect  the  registrant's  ability to          record, process, summarize and report financial information; and           b) any fraud,  whether or not  material,  that  involves  management or          other  employees  who  have a  significant  role  in  the  registrant's          internal control over financial reporting.     Date: March 21, 2006                   /s/ W. Page Ogden                                        -----------------------------------------                                        W. Page Ogden                                        Chief Executive Officer                                        EXHIBIT 31.2               SECTION 302 - CERTIFICATION OF CHIEF FINANCIAL OFFICER                                          EXHIBIT 31.2                      CERTIFICATION OF CHIEF FINANCIAL OFFICER            I, William M. Salters, certify that:           1. I have  reviewed this annual report on Form 10-K of Britton & Koontz          Capital Corporation;           2. Based on my  knowledge,  this  report  does not  contain  any untrue          statement of a material fact or omit to state a material fact necessary          to make the statements made, in light of the circumstances  under which          such  statements  were made, not misleading  with respect to the period          covered by this report;           3. Based on my knowledge, the financial statements, and other financial          information  included in this  report,  fairly  present in all material          respects the financial condition,  results of operations and cash flows          of the registrant as of, and for, the periods presented in this report;           4. The registrant's  other certifying officer and I are responsible for          establishing  and  maintaining  disclosure  controls and procedures (as          defined  in  Exchange  Act  Rules  13a-15(e)  and  15d-15(e))  for  the          registrant and have:           a) designed such  disclosure  controls and  procedures,  or caused such          disclosure   controls  and   procedures   to  be  designed   under  our          supervision,  to  ensure  that  material  information  relating  to the          registrant,  including its consolidated subsidiaries,  is made known to          us by others within those entities,  particularly  during the period in          which this report is being prepared;           b) evaluated the effectiveness of the registrant's  disclosure controls          and procedures and presented in this report our  conclusions  about the          effectiveness of the disclosure controls and procedures,  as of the end          of the period covered by this report based on such evaluation; and           c)  disclosed  in this report any change in the  registrant's  internal          control over financial  reporting that occurred during the registrant's          most recent fiscal quarter (the  registrant's  fourth fiscal quarter in          the case of an  annual  report)  that has  materially  affected,  or is          reasonably  likely to  materially  affect,  the  registrant's  internal          control over financial reporting; and           5. The  registrant's  other  certifying  officer and I have  disclosed,          based on our most recent  evaluation of internal control over financial          reporting,  to the registrant's auditors and the audit committee of the          registrant's  board of directors (or persons  performing the equivalent          functions):           a) all significant  deficiencies and material  weaknesses in the design          or operation of internal  control over  financial  reporting  which are          reasonably  likely to  adversely  affect  the  registrant's  ability to          record, process, summarize and report financial information; and           b) any fraud,  whether or not  material,  that  involves  management or          other  employees  who  have a  significant  role  in  the  registrant's          internal control over financial reporting.    Date: March 21, 2006                   /s/ William M. Salters                                        -----------------------------------------                                        William M. Salters                                        Chief Financial Officer    EX-13 4 ex13.txt ANNUAL REPORT                                     EXHIBIT 13                         2005 ANNUAL REPORT TO SHAREHOLDERS      MESSAGE TO SHAREHOLDERS  Dear Shareholder,  When  landmark  national  legislation  permitting  nationwide  banking went into effect  almost a decade  ago,  few  could  have  imagined  how  competitive  the commercial  banking  industry would really become.  In a few years,  the banking sector has embraced the characteristics of other industries in which a few large entities  compete among thousands of dynamic smaller  players.  While noticeable consolidation has occurred and resulted in huge banking companies,  de novo bank formations continue at a brisk pace and independent community banks have stepped up their  branching  activities.  In light of the  continued,  even  heightened, interest in  community  banking  today,  what are the value  perceptions  of our shareholders  in owning  Britton & Koontz  Capital  Corporation  stock?  Are the interests  of  most of our  shareholders  long-term  or  short-term?  These  are questions that your  representatives on the board always consider in formulating the strategy for the company.  The board believes that most of our  shareholders  are keenly  interested in the creation of long-term  value.  The value  perceptions of our  shareholders  most likely  arise  from the  fact  that so many of you  have a  personal  tie to the markets we serve and to the bank itself.  Your ownership is quite different from owning a large bank stock in, let's say, an index mutual fund.  Your  connection is  created  by many  things:  residence,  family,  school,  business,  personal networks,  even current and former  employment  with the bank.  Many of you, for example,  not only have stock in the bank,  but also have your  deposits  in the bank.  You may have  financed  your home  through the bank,  you may manage your investment  portfolio  through the bank,  or you may have built your  successful business with credit  obtained from the bank. You probably live or have lived in one of the  three  markets  of the  bank.  In short,  you see very  clearly  the connection between the bank's success and that of the local area.  The  recent  history of Britton & Koontz is right in step with the trends in the financial  fabric  of our  country.  An  established  franchise  in a  very  old community, B&K has used its resources to expand into two new markets, Vicksburg, Mississippi  and Baton  Rouge,  Louisiana.  This  expansion,  still in its early stages, has added 3 branches with a total of approximately $110 million in loans and $55 million in deposits.  Expansion has dampened earnings as we acquired new locations and made strategic hires. I, however,  believe that expansion has also improved the  footprint of the company and expect it to open the way for greater growth and profitability.  It would be a mistake not to mention the impact of Hurricanes  Katrina and Rita. The three  markets of the company  were  exceedingly  fortunate  in being on the perimeter of the  disastrous  hurricanes.  During the fall of last year the bank and its employees  participated heavily in the relief efforts for evacuees,  who swelled the three cities in which we have locations.  Without a doubt,  however, kthe  favorable  geography of the bank's  markets has  presented an  unexpected, local economic surge and afforded  opportunities to grow loans and deposits at a much faster pace than previously expected.  As a shareholder,  you can certainly expect your bank to exert  significant  on-going effort to meet the needs of our communities as we adjust to the post-storm environments.  In the  following  pages of our  annual  report,  you will see  major,  positive changes in the company's  financials.  I look forward to discussing these in the coming weeks,  particularly  at our annual meeting on April 25. As always,  your feedback and continued support are appreciated.  Yours truly,   /s/ W. Page Ogden - ------------------ W. Page Ogden Chairman & CEO           BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES   Financial Highlights  ($ IN THOUSANDS, EXCEPT PER SHARE DATA)                                                        2005          2004            2003            2002            2001                                                    ---------     ---------       ---------       ---------       ---------       YEAR END ACTUAL BALANCES  Total Assets                                      $ 389,260     $ 377,351       $ 373,032       $ 308,879       $ 298,856  Investment Securities                               121,783       137,303         141,135          97,059          86,356  Gross Loans (net of unearned income)                244,912       219,311         206,591         180,398         179,711  Loans held for sale                                     171         1,688           3,102           4,393           5,416  Allowance for Loan Losses                             2,378         2,237           2,070           2,129           2,108  Total Deposits                                      257,377       226,288         232,934         233,012         217,680  Total Long-Term Debt                                 53,041        60,078          65,711          30,315          43,000  Stockholders' Equity                                 31,260        31,152          30,197          29,329          28,291  YEAR END AVERAGE BALANCES  Total Assets                                      $ 390,317     $ 375,496       $ 340,566       $ 299,600       $ 273,021  Investment Securities                               132,843       134,993         116,520          92,502          67,148  Gross Loans (net of unearned income) *              236,796       218,301         201,595         182,744         185,012  Allowance for Loan Losses                             2,379         2,224           2,209           2,008           2,037  Total Deposits                                      236,440       230,437         237,019         220,095         210,025  Total Long-Term Debt                                 70,760        67,665          44,359          34,088          16,468  Stockholders' Equity                                 31,347        30,853          30,181          29,323          25,446  * Includes loans held for sale  SUMMARY OF EARNINGS  Total Interest Income                             $  22,000     $  19,774       $  19,565       $  19,854       $  21,313  Total Interest Expense                                8,445         6,465           6,329           7,205           9,233  Provision for loan losses                               300           390             670           1,025             525  Non-interest income                                   2,415         2,678           2,767             870           2,069  Non-interest expense                                 11,627        11,973          11,844          10,266           8,923  Income tax expense                                      815           780             750             988           1,453  Net Income                                            3,228         2,844           2,739           1,240           3,248  PER SHARE DATA  Earnings Per Share-Basic                             $ 1.53        $ 1.35          $ 1.30          $ 0.59          $ 1.54  Earnings Per Share-Diluted                             1.52          1.34            1.29            0.59            1.54  Cash Dividends                                         0.69          0.64            0.64            0.62            0.61  Book Value                                            14.77         14.72           14.29           13.88           13.41  Year End Stock Price                                  21.10         18.25           17.27           14.60           15.00  OTHER KEY INFORMATION  Return on Average Assets (%)                           0.83          0.76            0.80            0.41            1.19  Return on Average Equity (%)                          10.30          9.22            9.08            4.23           12.76  Dividend Payout (%)                                   45.24         47.58           49.38          105.67           39.61  Efficiency Ratio (%)                                  68.52         70.51           69.80           70.79           60.69  Net Interest Income/Average Earning Assets (%)         3.66          3.76            4.13            4.51            4.73  Allowance for Loan Losses/Loans (%)                    0.97          1.02            1.00            1.18            1.17  Non Performing Loans/Loans (%)                         0.51          0.41            0.74            1.29            1.56  Loans/Deposits (%)                                    95.16         96.92           88.69           77.42           82.56  Total Stockholders' Equity/Assets (%)                  8.03          8.26            8.09            9.50            9.47  Total  Risk-Based Ratio (%)                           14.44         15.43           15.39           14.71           14.81  Tier 1 Risk-Based Ratio (%)                           13.55         14.49           14.48           13.61           13.71  Tier 1 Leverage Ratio (%)                              9.31          9.23            9.23            8.71            9.52   Weighted Average Shares Outstanding:    Basic                                           2,116,316     2,114,649       2,113,087       2,109,809       2,108,973    Diluted                                         2,120,951     2,118,181       2,116,163       2,112,405       2,111,383                            BRITTON & KOONTZ CAPITAL CORPORATION                                 AND SUBSIDIARIES                          CONSOLIDATED FINANCIAL STATEMENTS                          DECEMBER 31, 2005, 2004 AND 2003                               Report of Independent Registered Public Accounting Firm   To the Board of Directors and Stockholders Britton & Koontz Capital Corporation and Subsidiaries  We have audited the accompanying Consolidated Balance Sheets of Britton & Koontz Capital  Corporation and  Subsidiaries as of December 31, 2005 and 2004, and the related Consolidated  Statements of Income, Changes in Stockholders' Equity, and Cash Flows for each of the three years in the period  ended  December  31, 2005. These financial  statements are the responsibility of the Company's  management. Our responsibility is to express an opinion on these financial  statements based on our audits.  We conducted our audits in accordance  with the standards of the Public  Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis,  evidence  supporting  the amounts and  disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant  estimates  made by  management,  as well as evaluating  the overall financial  statement  presentation.   We  believe  that  our  audits  provide  a reasonable basis for our opinion.  In our opinion,  the financial  statements  referred to above present fairly, in all material respects,  the consolidated  financial position of Britton & Koontz Capital  Corporation and  Subsidiaries as of December 31, 2005 and 2004, and the consolidated  results of their  operations  and their cash flows for each of the three years in the period  ended  December 31, 2005,  in  conformity  with U. S. generally accepted accounting principles.   /s/ Hannis T. Bourgeois, LLP - ------------------------------ Baton Rouge, Louisiana January 24, 2006                         BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES                            CONSOLIDATED BALANCE SHEETS                            DECEMBER 31, 2005 AND 2004                                             ASSETS                                                                                         2005                 2004                                                                                  ----------------    -----------------  ASSETS:     Cash and Due from Banks:           Non-interest bearing                                                         $   8,553,139        $   5,739,604        Interest bearing                                                                 1,272,320              837,221                                                                                   ---------------     ----------------                Total Cash and Due from Banks                                             9,825,459            6,576,825      Federal funds sold                                                                    401,138              109,031     Investment Securities:        Held-to-maturity (market value of $39,015,853           and $41,337,742, respectively)                                               37,994,043           39,803,853        Available-for-sale (amortized cost of $79,902,610           and $91,068,652, respectively)                                               78,287,012           91,947,189        Other equity securities                                                          5,501,700            5,551,600     Loans, less unearned income of $794 in 2005 and        $1,996 in 2004, and allowance for loan losses of        $2,377,840 in 2005 and $2,236,778 in 2004                                      242,534,011          217,073,919     Loans held-for-sale                                                                   171,200            1,688,338     Bank premises and equipment, net                                                    8,046,668            8,265,756     Other real estate, net                                                              1,470,584            1,320,337     Accrued interest receivable                                                         2,258,225            2,127,079     Cash surrender value of life insurance                                                936,378              943,481     Core deposits, net of accumulated amortization        of $733,320 in 2005 and $625,704 in 2004                                           880,890              988,506     Other assets                                                                          952,721              954,720                                                                                    --------------       --------------  TOTAL ASSETS                                                                        $ 389,260,029        $ 377,350,634                                                                                    ==============       ==============     The accompanying notes are an integral part of these financial statements.                                    LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                         2005                 2004                                                                                  ----------------    -----------------  LIABILITIES:     Deposits:           Non-interest bearing                                                         $  51,466,230       $   39,868,482        Interest bearing                                                               205,910,680          186,419,447                                                                                   ---------------     ----------------               Total Deposits                                                          257,376,910          226,287,929      Federal funds purchased                                                                     -            6,435,000     Securities sold under repurchase agreements                                         8,032,721            8,103,381     Federal Home Loan Bank advances                                                    84,196,067           96,922,871     Junior subordinated debentures                                                      5,155,000            5,155,000     Accrued interest payable                                                            1,438,836              984,859     Advances from borrowers for taxes and insurance                                       437,222              399,443     Accrued taxes and other liabilities                                                 1,363,115            1,910,383                                                                                   ---------------     ----------------               Total Liabilities                                                       357,999,871          346,198,866   STOCKHOLDERS' EQUITY:     Common stock, $2.50 par value per share;        12,000,000 shares authorized; 2,130,816 and 2,116,316         issued and outstanding, respectively, for December 31,         2005 and December 31, 2004                                                      5,327,040            5,327,040     Additional paid-in capital                                                          7,254,113            7,254,113     Retained earnings                                                                  19,949,100           18,181,718     Accumulated other comprehensive income                                             (1,012,720)             646,272                                                                                   ----------------    ----------------                                                                                        31,517,533           31,409,143     Less:  Treasury stock, 14,500 shares, at cost                                        (257,375)            (257,375)                                                                                   ----------------    ----------------               Total Stockholders' Equity                                               31,260,158           31,151,768                                                                                   ---------------     ----------------  TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                          $ 389,260,029        $ 377,350,634                                                                                  ================    =================                        BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES                         CONSOLIDATED STATEMENTS OF INCOME               FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003                                                                       2005                  2004               2003                                                               ----------------     ---------------     ---------------- INTEREST INCOME:         Interest and fees on loans                                $    16,101,335      $   14,030,704      $    14,518,794     Interest on investment securities:        Taxable interest income                                      4,256,926           4,107,372            3,459,158        Exempt from federal income taxes                             1,634,084           1,633,638            1,576,326     Other interest income                                               7,876               2,598               10,590                                                               ---------------      --------------      ---------------           Total Interest Income                                    22,000,221          19,774,312           19,564,868 INTEREST EXPENSE:     Interest on deposits                                            4,285,526           3,337,903            3,953,939     Interest on Federal Home Loan Bank advances                     3,422,399           2,667,895            2,130,880     Interest on federal funds purchased                               190,594              77,662               16,292     Interest on trust preferred securities                            327,120             235,195              167,430      Interest on securities sold under repurchase agreements          219,422             146,633               60,177                                                               ---------------      --------------      ---------------           Total Interest Expense                                    8,445,061           6,465,288            6,328,718                                                               ---------------      --------------      --------------- NET INTEREST INCOME                                                13,555,160          13,309,024           13,236,150 PROVISION FOR LOAN LOSSES                                             300,000             390,000              670,000                                                               ---------------      --------------      --------------- NET INTEREST INCOME AFTER PROVISION     FOR LOAN LOSSES                                                13,255,160          12,919,024           12,566,150  OTHER INCOME:     Service charges on deposit accounts                             1,388,327           1,350,548            1,355,639     Income from fiduciary activities                                   41,038              43,547               41,972      Income from investment activities                                201,890             210,523              144,244     Net gain on sales of loans                                        359,821             331,593              628,705     Net gain (loss) on sales of premises and equipment                (36,612)            175,091              (45,612)     Other                                                             459,990             566,484              641,789                                                               ---------------      --------------      ---------------           Total Other Income                                        2,414,454           2,677,786            2,766,737                                                               ---------------      --------------      ---------------           Income before Other Expenses                             15,669,614          15,596,810           15,332,887                                                                             2005                 2004                 2003                                                               ---------------      --------------       --------------  OTHER EXPENSES:         Salaries                                                        5,863,029           6,060,543            5,790,994     Employee benefits                                                 872,998             870,638            1,130,880     Director fees                                                     208,087             203,348              172,057     Net occupancy expense                                             912,357             927,430              854,710     Equipment expense                                               1,109,984             979,139              957,554     Other real estate, net                                             68,734             218,510              130,648     FDIC assessment                                                    31,160              34,358               35,279     Advertising                                                       198,233             259,284              261,770     Stationery and supplies                                           182,497             233,379              268,519     Amortization                                                      107,616             107,616              107,616     Audit expense                                                     192,996             165,074              157,457     Other                                                           1,879,189           1,913,037            1,976,924                                                               ---------------      --------------       --------------           Total Other Expenses                                     11,626,880          11,972,356           11,844,408                                                               ---------------      --------------       --------------  INCOME BEFORE INCOME TAX EXPENSE                                    4,042,734           3,624,454            3,488,479  INCOME TAX EXPENSE                                                    815,094             780,245              749,725                                                               ---------------      ---------------      -------------- NET INCOME                                                    $     3,227,640      $    2,844,209       $    2,738,754                                                               ===============      ==============       ==============   PER SHARE DATA:        Basic earnings per share                               $          1.53      $         1.35       $         1.30                                                               ===============      ==============       ==============         Basic weighted shares outstanding                            2,116,316           2,114,649            2,113,087                                                               ===============      ==============       ==============          Diluted earnings per share                             $          1.52      $         1.34       $         1.29                                                               ===============      ==============       ==============          Diluted weighted shares outstanding                          2,120,951           2,118,181            2,116,163                                                               ===============      ==============       ==============          Cash dividends per share                               $         0.69       $         0.64       $         0.64                                                               ===============      ==============       ==============     The accompanying notes are an integral part of these financial statements.                        BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES            CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY               FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003                                                                                              Accumulated                                        Common Stock          Aditional                       Other                                   ------------------------    Paid-In       Retained     Comprehensive    Treasury                                     Shares      Amount        Capital       Earnings          Income       Stock          Total                                   -------------------------------------------------------------------------------------------------         BALANCE, December 31,2002          2,113,087    $5,318,968    $7,225,408    $15,304,539     $1,737,934    $(257,375)   $29,329,474 Comprehensive Income:  Net Income                                -             -             -      2,738,754              -            -      2,738,754    Other Comprehensive Income:    Change in fair value of     available for sale securities,     net of taxes of $278,307               -             -             -              -       (467,852)           -       (467,852)     Change in fair value of     derivatives, net of taxes of     $30,578                                -             -             -              -        (51,402)           -        (51,402)                                                                                                                       ------------- Total Comprehensive Income                 -             -             -              -              -            -      2,219,500  Cash dividends declared    ($.64 per share)                        -             -             -     (1,352,375)             -            -     (1,352,375)                                   ------------------------------------------------------------------------------------------------- BALANCE, December 31, 2003         2,113,087     5,318,968     7,225,408     16,690,918      1,218,680     (257,375)    30,196,599 Comprehensive Income:  Net Income                                -             -             -      2,844,209              -            -      2,844,209    Other Comprehensive Income    Change in fair value of     available for sale securities,     net of taxes of $ 128,353              -             -             -              -       (469,749)           -       (469,749)     Change in fair value of     derivatives, net of taxes of     $61,073                                -             -             -              -       (102,659)           -       (102,659)                                                                                                                       ------------- Total Comprehensive Income                 -             -             -              -              -            -      2,271,801  Stock Options Exercised                3,229         8,072        28,705              -              -            -         36,777  Cash dividends declared  ($0.64 per share)                         -             -             -     (1,353,409)             -            -     (1,353,409)                                   -----------  ------------  ------------ -------------- --------------  -----------  ------------- BALANCE, December 31, 2004         2,116,316     5,327,040     7,254,113     18,181,718        646,272     (257,375)    31,151,768 Comprehensive Income:  Net Income                                -             -             -      3,227,640              -            -      3,227,640   Other Comprehensive Income    Change in fair value of     available for sale securities,     net of taxes of $930,312               -             -             -              -     (1,563,823)           -     (1,563,823)    Change in fair value of     derivatives, net of taxes of     $56,615                                -             -             -              -        (95,169)           -        (95,169)                                                                                                                       -------------- Total Comprehensive Income                 -             -             -              -              -            -      1,568,648  Cash dividends declared  ($0.69 per share)                         -             -             -     (1,460,258)             -            -     (1,460,258)                                   -----------  ------------  ------------  ------------- --------------  -----------  ------------- BALANCE, December 31, 2005         2,116,316    $5,327,040    $7,254,113    $19,949,100    $(1,012,720)   $(257,375)   $31,260,158                                   ===========  ============  ============  ============= ==============  ===========  =============   The accompanying notes are an integral part of these financial statements.                       BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES                       CONSOLIDATED STATEMENTS OF CASH FLOWS               FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003                                                                          2005                 2004                2003                                                                 --------------       --------------      --------------   CASH FLOWS FROM OPERATING ACTIVITIES:         Net income                                                  $   3,227,640        $   2,844,209       $   2,738,754     Adjustments to reconcile net income to        net cash provided by operating activities:           Deferred taxes                                             (264,520)             104,018             231,819           Provision for loan losses                                   300,000              390,000             670,000           Provision for depreciation                                  824,447              727,564             724,609           Provision (credit) for other real estate losses                                        -            (150,000)           Writedown of other real estate                               34,255              126,000             102,752           (Gain) on sale of loans                                    (359,821)            (331,593)           (628,705)           (Gain) Loss on sale of other repossessed assets               1,500                 (193)              6,971           (Gain) Loss on sale of premises and equipment                36,612             (175,091)             45,612           Loss on sale of other real estate                            (3,161)              42,970              97,119           Stock dividends received                                   (181,600)             (85,100)            (73,500)           Net amortization (accretion) of securities                  307,126              590,506             768,417           Amortization of acquisition premium                         107,616              107,616             107,616     Net change in:        Loans held for sale                                          1,517,138            1,413,668           1,291,391        Accrued interest receivable                                   (131,146)             (31,417)             27,452        Cash surrender value of life insurance                           7,103              (38,391)             (4,540)        Other assets                                                      (168)             320,689            (178,021)        Accrued interest payable                                       453,977              154,361            (125,939)        Accrued taxes and other liabilities                            559,561              352,977             (77,929)                                                                   ------------       --------------       --------------               Net Cash Provided by Operating Activities             6,436,559            6,512,793           5,573,878                                                                   ------------       --------------       -------------- CASH FLOWS FROM INVESTING ACTIVITIES:     (Increase) decrease in federal funds sold                        (292,107)             (67,670)          3,518,639     Proceeds from principal paydowns and maturities        of investment securities held-to-maturity                    1,759,528            2,813,609           2,778,056     Proceeds from principal paydowns and maturities of        investment securities available-for-sale                    24,938,759           25,139,010          34,471,030     Proceeds from redemption of Federal Home Loan        Bank stock                                                     603,000                    -                   -     Purchases of investment securities held-to-maturity                     -             (473,892)        (12,103,638)     Purchases of investment securities available-for-sale         (14,029,560)         (24,465,532)        (68,899,060)     Purchase of other equity securities                              (371,500)            (129,700)         (1,763,100)     Net increase in loans                                         (26,509,385)         (13,171,667)        (27,081,044)     Proceeds from sales of other repossessed assets                    30,565                    -                   -     Proceeds from sale of other real estate                           890,709            1,260,075             517,331     Purchases of premises and equipment                              (641,972)          (1,444,730)         (2,343,500)     Proceeds from sales of premises and equipment                           -              775,000                   -                                                                 -------------      ---------------     ---------------               Net Cash Used in Investing Activities               (13,621,963)          (9,765,497)        (70,905,286)                                                                 --------------     ----------------    ----------------                     BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES                 CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)               FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003                                                                        2005                2004                2003                                                                 -------------      ---------------     ---------------- CASH FLOWS FROM FINANCING ACTIVITIES:         Net increase (decrease) in customer deposits                   33,069,981           (9,220,853)            (78,256)     Net increase (decrease) in brokered deposits                   (1,981,000)           2,575,000                   -     Net increase (decrease) in federal funds purchased             (6,435,000)           1,885,000           4,550,000     Net increase (decrease) in Federal Home Loan Bank        advances                                                   (12,726,804)           9,347,110          46,260,277     Net increase (decrease) in securities sold under        repurchase agreements                                          (70,660)          (1,831,919)          7,793,510     Proceeds from issuance of junior subordinated        debentures                                                           -                    -           5,000,000     Increase (decrease) in advances from borrowers        for taxes and insurance                                         37,779               32,068              41,133     Cash dividends paid                                            (1,460,258)          (1,353,409)         (1,352,375)     Cash received from stock options exercised                              -               36,777                   -                                                                 -------------      ---------------     ---------------               Net Cash Provided by Financing Activities            10,434,038            1,469,774          62,214,289                                                                 -------------      ---------------     ---------------  NET DECREASE/(INCREASE) IN CASH AND DUE  FROM BANKS                                                         3,248,634           (1,782,930)         (3,117,119)  CASH AND DUE FROM BANKS AT BEGINNING OF YEAR                        6,576,825            8,359,755          11,476,874                                                                 -------------      ---------------     ---------------  CASH AND DUE FROM BANKS AT END OF YEAR                          $   9,825,459      $     6,576,825     $     8,359,755                                                                 ==============     ===============     ===============         SUPPLEMENTAL DISCLOSURES OF CASH FLOW     INFORMATION:        Cash payments for:               Income taxes                                              $      579,504     $        644,624    $       474,931                                                                      =============      ================    ==============            Interest on deposits and borrowings                       $    7,991,084     $      6,310,927    $     6,454,657                                                                      =============      ===============     ==============  SCHEDULE OF NONCASH INVESTING AND     FINANCING ACTIVITIES:        Transfers to other real estate                               $    1,072,050     $      1,008,255    $       787,559                                                                      =============      ===============     ==============         Change in unrealized (gains) losses on           securities available-for-sale                             $   (2,494,135)    $       (598,102)   $      (746,159)                                                                      ==============     =================   ===============         Change in the deferred tax effect in unrealized           gains (losses) on securities available-for-sale           $     (930,312)    $       (128,353)   $      (278,307)                                                                      ==============     ================    ===============         Change in unrealized gains on derivatives                    $     (151,784)    $       (163,732)   $       (81,980)                                                                      ==============     ================    ===============         Change in the deferred tax effect in           unrealized gains on derivatives                           $      (56,615)    $        (61,073)   $       (30,578)                                                                      ==============     ================    ===============    The accompanying notes are an integral part of these financial statements.                   BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES                  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                         DECEMBER 31, 2005, 2004 AND 2003    NOTE A.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                 Principles of Consolidation                 The  consolidated  financial  statements  include the accounts of                Britton & Koontz Capital Corporation (the Company) and its wholly                owned subsidiaries,  Britton & Koontz Bank, National  Association                (the Bank) and B & K Title Insurance  Agency,  Inc. (the Agency).                All material intercompany profits, balances and transactions have                been eliminated.                 Nature of Operations                 The Bank operates under a national bank charter and provides full                banking  services,  including  trust  services.  The primary area                served by the Bank is the  southwest  region of  Mississippi  and                East Baton Rouge  Parish in  Louisiana.  Services are provided at                three  locations  in  Natchez,   Mississippi,  two  locations  in                Vicksburg,   Mississippi,   and  one  location  in  Baton  Rouge,                Louisiana.                 The Agency issues  policies of title  insurance for and on behalf                of the Company  upon  properties  in all counties in the state of                Mississippi.                 Use of Estimates                 The   preparation  of   consolidated   financial   statements  in                conformity with generally accepted accounting principles requires                management  to make  estimates  and  assumptions  that affect the                reported  amounts of assets and liabilities and the disclosure of                contingent  assets and  liabilities  at the date of the financial                statements  as well  as the  reported  amounts  of  revenues  and                expenses during the reporting period. Actual results could differ                from those estimates.                 Material   estimates   that  are   particularly   susceptible  to                significant  change relate to the  determination of the allowance                for loan losses.  In  connection  with the  determination  of the                allowance  for  loan  losses,   management  obtains   independent                appraisals for significant properties.                 While  management uses available  information to recognize losses                on loans,  future  additions  to the  allowance  may be necessary                based on  changes  in local  economic  conditions.  In  addition,                regulatory  agencies,  as an integral  part of their  examination                process,  periodically  review  the  Bank's  allowance  for  loan                losses. Such agencies may require the Bank to recognize additions                to the  allowance  based on  their  judgments  about  information                available  to them at the time of their  examination.  Because of                these factors,  it is reasonably  possible that the allowance for                loan losses may change materially in the near term. However,  the                amount  of the  change  that is  reasonably  possible  cannot  be                estimated.        NOTE A.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)                 Investment Securities                 Management   determines   the   appropriate   classification   of                securities  at the  time  of  purchase.  If  management  has  the                positive  intent  and the  Bank  has the  ability  at the time of                purchase  to  hold  debt  securities  until  maturity,  they  are                classified as held-to-maturity  and carried at cost, adjusted for                amortization of premiums and accretion of discounts using methods                approximating the interest method.  Available-for-sale securities                include  securities that management intends to use as part of its                asset and liability  management  strategy and that may be sold in                response to changes in interest rates,  resultant prepayment risk                and  other  factors  related  to  interest  rates  and  resultant                prepayment  risk changes.  These  securities  are carried at fair                value.  Equity securities  primarily include stock in the Federal                Reserve Bank and the Federal Home Loan Bank, which are restricted                and are carried at cost.                 Realized  gains and losses on  dispositions  are based on the net                proceeds  and the  adjusted  book value of the  securities  sold,                using the specific  identification  method.  Unrealized gains and                losses on investment securities  available-for-sale  are based on                the  difference  between  book  value  and  fair  value  of  each                security.  These  unrealized  gains and losses are  reported as a                component of comprehensive income in stockholders' equity, net of                the  related  deferred  tax  effect.  The Bank does not engage in                trading account activities.                 Loans                 Loans are stated at the amount of principal outstanding,  reduced                by unearned  income and an allowance  for loan  losses.  Unearned                income on certain  installment loans is recognized as income over                the  terms  of the  loans  by a  method  which  approximates  the                interest  method.  Interest on other loans is calculated by using                the simple  interest  method on daily  balances of the  principal                amount  outstanding.  Loans are  ordinarily  placed on nonaccrual                when a loan is  specifically  determined  to be  impaired or when                principal or interest is delinquent for 90 days or more; however,                management  may elect to continue the accrual when the  estimated                net  realizable  value of  collateral  is sufficient to cover the                principal balance and the accrued  interest.  Any unpaid interest                previously  accrued on nonaccrual  loans is reversed from income.                Interest  income,   generally,  is  not  recognized  on  specific                impaired  loans unless the  likelihood of further loss is remote.                Interest  payments  received  on  such  loans  are  applied  as a                reduction of the loan principal balance. Interest income on other                nonaccrual  loans is  recognized  only to the extent of  interest                payments received.          NOTE A.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)                 Loans - continued                 Securitized  loans  are  transferred  to a  long-term  investment                category  at the  lower of cost or market  value on the  transfer                date. Any material  difference between the carrying amount of the                loans and their outstanding principal balance is recognized as an                adjustment to the yield by the interest method.                 Loans Held-for-Sale                 Loans  held-for-sale   primarily  range  from  ten,  fifteen  and                thirty-year  fixed-rate,  one-to-four  family real  estate  loans                which are valued at the lower of cost or market, as determined by                outstanding  commitments from investors or current investor yield                requirements,  calculated on an individual basis. These loans are                originated  with the  intent  of  selling  them on the  secondary                market.                 Unrealized  losses on loans  held-for-sale  are  charged  against                income in the period of decline.  Such declines are recorded in a                valuation  allowance  account and deducted from the cost basis of                the  loans.  Gains on loans  held-for-sale  are  recognized  when                realized.                 Allowance for Loan Losses                 The  allowance  is an amount  that  management  believes  will be                adequate to absorb probable losses inherent in the loan portfolio                as of  the  balance  sheet  date  based  on  evaluations  of  the                collectibility  of loans and  prior  loan  loss  experience.  The                evaluations  take into  consideration  such factors as changes in                the nature and volume of the loan  portfolio,  overall  portfolio                quality,  review of specific  problem loans, and current economic                conditions that may affect the borrower's  ability to pay. A loan                is considered  impaired when,  based on current  information  and                events,  it is  probable  that the Bank will be unable to collect                the  scheduled   payments  of  principal  or  interest  when  due                according  to  the  contractual  terms  of  the  loan  agreement.                Allowances for impaired loans are generally  determined  based on                collateral  values or the present value of estimated  cash flows.                Credits  deemed  uncollectible  are  charged  to  the  allowance.                Provisions  for loan losses and  recoveries  on loans  previously                charged  off are adjusted to the allowance.  Past due  status  is                determined based on contractual terms.                 Bank Premises and Equipment                 Bank premises and equipment are stated at cost, less  accumulated                depreciation.   Depreciation   expense   is   computed   by   the                straight-line method and is charged to expense over the estimated                useful lives of the assets, which range from 3 to 40 years.     NOTE A.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)                 Other Real Estate                 Properties acquired through foreclosure or in settlement of loans                and in lieu of loan  foreclosures  are  classified  as foreclosed                properties  and are  valued  at the  lower of the  loan  value or                estimated  fair value of the  property  acquired  less  estimated                selling costs. At the time of foreclosure, the                 excess,  if any, of the loan value over the estimated fair value                of the property acquired less estimated selling costs, is charged                to the  allowance  for loan losses.  Additional  decreases in the                carrying values of foreclosed  properties or changes in estimated                selling  costs,  subsequent  to  the  time  of  foreclosure,  are                recognized through provisions charged to operations. Revenues and                expenses from  operations and gains and losses on dispositions of                such assets are recorded in earnings in the period incurred.                 The fair value of foreclosed  properties is determined based upon                appraised value, utilizing either the estimated replacement cost,                the selling price of properties utilized for similar purposes, or                discounted cash flow analyses of the properties' operations.                 Compensated Absences                 Employees  of the Bank are entitled to paid  vacation,  emergency                and sick days off,  depending on length of service in the banking                industry.  Vacation,  emergency  and sick days are  granted on an                annual basis to eligible employees. Unused vacation and emergency                days expire on December 31 of each year.  Unused sick days expire                on each employee's employment anniversary date each year.                 The  estimated  amount of  compensation  for future  absences  is                deemed  immaterial  to  the  consolidated  financial  statements;                accordingly,  no liability has been recorded in the  accompanying                financial statements.  The Bank's policy is to recognize the cost                of compensated absences when actually paid to employees.                 Income Taxes                 The  provision  for income taxes is based on amounts  reported in                the  statements of income after  exclusion of  nontaxable  income                such as interest on state and municipal securities. Also, certain                items of income and expenses  are  recognized  in different  time                periods  for  financial  statement  purposes  than for income tax                purposes.  Thus,  provisions  for deferred  taxes are recorded in                recognition of such temporary differences.          NOTE A.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)                 Income Taxes - continued                 Deferred  taxes  are  determined  utilizing  a  liability  method                whereby   deferred  tax  assets  are  recognized  for  deductible                temporary differences and deferred tax liabilities are recognized                for taxable temporary differences.  Temporary differences are the                differences   between   the   reported   amounts  of  assets  and                liabilities and their tax bases.  Deferred tax assets are reduced                by a valuation  allowance when, in the opinion of management,  it                is more likely than not that some  portion or all of the deferred                tax  assets  will  not  be  realized.  Deferred  tax  assets  and                liabilities  are  adjusted for the effects of changes in tax laws                and rates on the date of enactment.                 The  Company and its  subsidiaries  file a  consolidated  federal                income tax return.  Consolidated  income tax expense is allocated                on the basis of each  company's  income  adjusted  for  permanent                differences.                 Earnings Per Share                 Basic earnings per share  represents  income  available to common                stockholders divided by the weighted-average  number of shares of                common stock outstanding during the period.  Diluted earnings per                share  reflects  additional  common  shares  that would have been                outstanding if dilutive  potential common shares had been issued,                as well as any  adjustment  to income that would  result from the                assumed issuance. All shares held by the Employee Stock Ownership                Plan (ESOP) are treated as  outstanding in computing the earnings                per share.  Stock options are used in the  calculation of diluted                earnings  per share if they are  dilutive.  Earnings  per  common                share have been computed as follows:                                                                           Income           Shares         Per Share                                                                      (Numerator)     (Denominator)      Amount                                                                   --------------     -------------     ---------                    Year Ended December 31, 2005:                   Basic Earnings Per Share:                      Income Available to Common                          Shareholders                             $    3,227,640       2,116,316        $  1.53                                                                                                         ========                    Diluted Earnings Per Share:                      Options                                                   -           4,635                                                                   --------------     ------------                    Income Available to Common                      Shareholders Assuming Conversion             $    3,227,640       2,120,951        $  1.52                                                                   ===============    ============       ========          NOTE A.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)                 Earnings Per Share -continued                                                                       Income            Shares         Per Share                                                                      (Numerator)     (Denominator)      Amount                                                                   --------------     -------------     ---------                Year Ended December 31, 2004:                   Basic Earnings Per Share:                      Income Available to Common                              Shareholders                             $    2,844,209        2,114,649       $  1.35                                                                                                         ========                   Diluted Earnings Per Share:                      Options                                                   -            3.532                                                                   --------------       -----------                    Income Available to Common                      Shareholders Assuming Conversion             $    2,844,209        2,118,181       $  1.34                                                                   ==============       ===========      ========                  Year Ended December 31, 2003:                   Basic Earnings Per Share:                      Income Available to Common                          Shareholders                             $    2,738,754        2,113,087       $  1.30                                                                                                         ========                   Diluted Earnings Per Share:                      Options                                                   -            3,076                                                                     -------------      -----------                    Income Available to Common                      Shareholders Assuming Conversion             $    2,738,754        2,116,163       $  1.29                                                                    ==============      ===========      ========                  The Company has granted  options to purchase  various  amounts of                the Company's  common stock at various prices ranging from $14.50                to $19.94 per share.  Those options whose exercise price exceeded                the average market price of the common shares are not included in                the options adjustment for diluted earnings per share.                 Off-Balance-Sheet Financial Instruments                 In the  ordinary  course of  business,  the Bank has entered into                off-balance-sheet    financial    instruments    consisting    of                interest-rate  swap and cap  agreements,  commitments  to  extend                credit  and  standby  letters of  credit.  Financial  instruments                related to loans are recorded in the  financial  statements  when                they become payable.         NOTE A.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)                 Statement of Cash Flows                 For  purposes  of the  statements  of  cash  flows,  the  Company                considers only cash and due from banks to be cash equivalents.                 Advertising Costs                 Advertising  and marketing  costs are recorded as expenses in the                year in which they are incurred.  Advertising and marketing costs                charged to operations  during 2005,  2004 and 2003 were $198,233,                $259,284 and $261,770, respectively.                 Interest-Rate Cap Agreements                 The cost of interest-rate cap agreements is amortized to interest                expense  over the  terms of the  caps.  The  unamortized  cost is                included  in other  assets  in the  consolidated  balance  sheet.                Amounts   receivable  under  cap  agreements  are  accrued  as  a                reduction  of  interest  expense.  The Bank  does not  engage  in                trading of derivatives.  All such financial  instruments are used                to manage interest rate risk.                 Interest-Rate Swap Agreements                 The Bank enters into  interest-rate swap agreements to modify the                interest  rate  characteristics  of its assets  and  liabilities.                These agreements may involve the receipt or payment of fixed rate                amounts in  exchange  for  floating  rate  interest  receipts  or                payments  over the life of the  agreement  without an exchange of                the underlying  principal amount.  The differential to be paid or                received is accrued as interest rates change and recognized as an                adjustment  to  interest  income or expense.  The related  amount                payable to or  receivable  from  counter-parties  is  included in                other liabilities or assets.                 Core Deposits                 During 1999, the Company  acquired certain assets and liabilities                of three Union Planters,  N.A. branches in Natchez and Vicksburg,                Mississippi,  which were  accounted  for as a purchase.  The Bank                paid a premium for the depositor relationship of $1,614,210. This                premium is included in other assets and is being  amortized  over                15 years, which is the estimated life of the customer base.                 Stock Compensation Plans                  FASB   Statement   No.   123,    "Accounting   for   Stock-Based                 Compensation",  encourages  all  entities  to adopt a fair value                 based  method of  accounting  for  employee  stock  compensation                 plans,  whereby  compensation cost is measured at the grant date                 based  on the  value of the  award  and is  recognized  over the                 service period, which is usually the vesting period. However,    NOTE A.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)                 it also allows an entity to continue to measure compensation cost                for  those  plans  using  the  intrinsic  value  based  method of                accounting  prescribed by Accounting Principles Board Opinion No.                25,   "Accounting   for  Stock  Issued  to  Employees,"   whereby                compensation  cost is the excess,  if any,  of the quoted  market                price of the stock at the grant date (or other  measurement date)                over the amount an employee must pay to acquire the stock.  Stock                options  issued  under the  Company's  stock  option plan have no                intrinsic  value at the grant date,  and under  Opinion No. 25 no                compensation cost is recognized for them. The Company has elected                to continue  with the  accounting  methodology  in Opinion No. 25                and,  as  a  result,  has  provided,  under  Note  J,  pro  forma                disclosures  of net  income  and  earnings  per  share  and other                disclosures,  as if the fair value based method of accounting had                been applied.                 Comprehensive Income                 Accounting  principles generally require that recognized revenue,                expenses,  gains and losses be included  in net income.  Although                certain  changes in assets and  liabilities,  such as  unrealized                gains and losses on available-for-sale  securities,  are reported                as a  separate  component  of the equity  section of the  balance                sheet,  such items,  along with net  income,  are  components  of                comprehensive income.                 Recent Accounting Pronouncements                 In November of 2003, the Financial  Accounting  Standards Board's                (FASB's) Emerging Issues Task Force released Issue No. 03-1, "The                Meaning of Other-Than-Temporary Impairment and its Application to                Certain Investments." The issue addressed disclosure requirements                of securities in unrealized loss positions. In November 2005, the                FASB issued combined FASB Staff Position (FSP) Nos. FAS 115-1 and                FAS 124-1,  "Recognition of Other than Temporary  Impairment upon                the Planned  Sale of a Security  Whose Cost  Exceeds Fair Value".                This  combined FSP  nullifies  certain  provisions  of EITF Issue                03-1.  The disclosure  requirements  of EITF Issue 03-1 are still                effective  and are included in these  financial  statements.  The                combined FSP covers debt and equity  securities  within the scope                of SFAS No. 115 and SFAS No. 124, and addresses the determination                of  when an  investment  is  considered  impaired,  whether  such                impairment  is  other-than-temporary  and the  measurement  of an                impairment  loss.  The  combined FSP  clarifies  that an impaired                available-for-sale  security  whose fair value  deficiency is not                expected  to  recover  fully  before  the  expected  time  of the                security's sale should be deemed other than temporarily impairand                an impairment loss recorded.  This pronouncement is effective for                reporting periods beginning after December 15, 2005. The Bank has                considered  the  effects  of  this  pronouncement  and  does  not                consider  its  effect  on  future  results  of  operations  to be                significant.                 In December  2004,  the FASB issued SFAS No. 123 (revised  2004),                "Share-Based  Payment"  (SFAS No.  123(R)).  This  statement is a                revision  to  SFAS  No.  123,   "Accounting   for  Stock-   Based                Compensation," and supersedes APB Opinion No. 25, "Accounting for                Shares Issued       NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)                 to Employees."  This statement  eliminates the alternative to use                APB Opinion No. 25's  intrinsic  value method of accounting  that                was provided in SFAS No. 123 as originally  issued.  As a result,                this  statement  requires a public  entity to measure the cost of                employee  services  received in  exchange  for an award of equity                based  instruments  based on the  grant-  date fair  value of the                award and to recognize  the cost over the period  during which an                employee  is  required  to provide  service in  exchange  for the                award.  In March 2005,  the  Securities  and Exchange  Commission                (SEC) issued Staff  Accounting  Bulletin No. 107 which  expresses                the view of the staff  regarding  the  interaction  between  SFAS                123(R) and certain SEC rules and  regulations  and  valuation  of                share based payment  arrangements for public  companies.  The SEC                issued  an  amendment  providing  that  the  effective  date  for                implementation  of SFAS  123(R)  is for  the  first  fiscal  year                beginning on or after June 15, 2005. The Company anticipates that                the  application of this statement will not be significant to the                financial statements.                 Reclassifications                 Certain  reclassifications  have  been  made to the 2004 and 2003                consolidated  financial  statements  in order to  conform  to the                classifications adopted for reporting in 2005.   NOTE B.        INVESTMENT SECURITIES                The  amortized  cost and  approximate  market value of investment                securities  classified as  held-to-maturity at December 31, 2005,                are summarized as follows:                                                                                Gross           Gross                                                        Amortized        Unrealized      Unrealized          Fair                                                          Cost              Gains          Losses            Value                                                    ----------------    ------------   -------------    ---------------                     Obligations of State and                   Political Subdivisions              $34,904,765      $ 1,125,045     $  (81,676)       $35,948,134                 Mortgage-Backed                   Securities                            3,089,278            8,139        (29,698)         3,067,719                                                       -----------      -----------     -----------       -----------                                                       $37,994,043      $ 1,133,184     $ (111,374)       $39,015,853                                                       ===========      ===========     ===========       ===========            NOTE B.        INVESTMENT SECURITIES  (Continued)                 The  amortized  cost and  approximate  market value of investment                securities classified as available-for-sale at December 31, 2005,                are summarized as follows:                                                                             Gross           Gross                                                        Amortized        Unrealized      Unrealized          Fair                                                          Cost              Gains          Losses            Value                                                      --------------    ------------   -------------    -------------                     Mortgage-Backed                   Securities                          $ 73,407,065      $  170,203     $ (1,692,906)    $ 71,884,362                 Agency Obligations                        6,495,545               -          (92,895)       6,402,650                                                        -----------      -----------    -------------    ------------                                                       $ 79,902,610      $  170,203     $ (1,785,801)    $ 78,287,012                                                       =============     ===========    =============    ============                  The  amortized  cost and  approximate  market value of investment                securities  classified as  held-to-maturity at December 31, 2004,                are summarized as follows:                                                                                Gross           Gross                                                        Amortized         Unrealized      Unrealized          Fair                                                          Cost               Gains          Losses            Value                                                    ----------------     ------------   -------------    ---------------                     Obligations of State and                   Political Subdivisions              $ 35,321,402      $  1,511,364     $   (19,152)   $ 36,813,614                 Mortgage-Backed                   Securities                             4,482,451            41,677               -       4,524,128                                                         -----------     ------------     ------------   ------------                                                       $ 39,803,853      $  1,553,041     $   (19,152)   $ 41,337,742                                                       =============     ============     ============   ============                  The  amortized  cost and  approximate  market value of investment                securities classified as available-for-sale at December 31, 2004,                are summarized as follows:                                                                                Gross           Gross                                                        Amortized         Unrealized      Unrealized          Fair                                                          Cost               Gains          Losses            Value                                                    ----------------     ------------   -------------    -------------                     Mortgage-Backed                   Securities                          $ 86,063,356      $  1,009,628     $  (144,495)   $ 86,928,489                 Agency Obligations                        3,997,544               576            (620)      3,997,500                 Other Debt Securities                     1,007,752            13,448               -       1,021,200                                                       ------------      ------------     ------------   -------------                                                       $ 91,068,652      $  1,023,652     $  (145,115)   $ 91,947,189                                                       =============     ============     ============   =============                   The  aggregate  fair values and  aggregate  unrealized  losses on                securities whose fair values are below book values as of December                31,  2005,  are  summarized  below.  Due  to  the  nature  of the                investment and current market prices, these unrealized losses are                considered a temporary impairment of the securities.        NOTE B.        INVESTMENT SECURITIES  (Continued)                                           Less than 12 Months              12 Months or More                        Total                                   -----------------------------   ------------------------------    -------------------------------                                        Fair          Unrealized       Fair            Unrealized         Fair          Unrealized                                        Value            Loss          Value               Loss           Value            Loss                                   --------------   ------------   --------------   -------------    --------------   --------------          Held-to-Maturity:     Obligations of       State and Political       Subdivisions        (seven securities)         $     802,424    $   (15,240)    $    935,988     $   (66,435)     $   1,738,412    $    (81,675)      Mortgaged-backed       Securities        (one security)                 2,180,195        (29,698)               -               -          2,180,195         (29,698)                                   --------------   -------------   -------------    -------------    --------------   -------------                                   $   2,982,619    $   (44,938)    $    935,988     $   (66,435)     $   3,918,607    $   (111,373)                                   ==============   =============   =============    =============    ==============  ==============     Available for Sale:     Agency Obligations        (three securities)         $   6,402,650    $   (92,895)    $          -     $         -      $   6,402,650    $    (92,895)      Mortgaged-backed      Securities        (thirty-three securities)     46,386,361       (982,002)      18,643,555        (710,904)        65,029,916      (1,692,906)                                   --------------   -------------   -------------    -------------     -------------   -------------                                   $  52,789,011    $(1,074,897)    $ 18,643,555     $  (710,904)     $  71,432,566    $ (1,785,801)                                   ==============   =============   =============    =============    ==============   =============          NOTE B.        INVESTMENT SECURITIES  (Continued)                 The  aggregate  fair values and  aggregate  unrealized  losses on                securities whose fair values are below book values as of December                31,  2004,  are  summarized  below.  Due  to  the  nature  of the                investment and current market prices, these unrealized losses are                considered a temporary impairment of the securities.                                            Less than 12 Months              12 Months or More                        Total                                   -----------------------------   ------------------------------    -------------------------------                                        Fair          Unrealized       Fair            Unrealized         Fair          Unrealized                                        Value            Loss          Value             Loss            Value            Loss                                   --------------   ------------   --------------   -------------    --------------   --------------          Held-to-Maturity:     Obligations of       State and Political       Subdivisions        (seven securities)         $   1,863,665    $   (19,152)    $          -     $         -     $   1,863,665     $   (19,152)                                   ==============   ============   ==============   =============    ==============    =============       Available-for-Sale:     Mortgage-Backed       Securities (seven         securities)               $  21,279,225    $  (112,812)    $  3,286,964     $   (31,683)    $  24,566,189     $  (144,495)      Agency Obligations        (one security)                 1,999,380           (620)               -               -         1,999,380            (620)                                   --------------   -------------  --------------   -------------    --------------    -------------                                    $  23,278,605    $  (113,432)    $  3,286,964     $   (31,683)    $  26,565,569     $  (145,115)                                   ==============   =============  ==============   =============    ==============    =============                   The  unrealized  losses in the  Company's  investment  portfolio,                caused by interest rate increases,  are not credit issues and are                deemed to be  temporary.  Cash  flows  from the  mortgage  backed                securities  are  guaranteed  by the full  faith and credit of the                United  States or by an agency of the United  States  Government.                The  Company  also  has the  ability  and  intent  to hold  these                securities  until maturity and thus is not required to record any                loss on the securities.                 Equity  securities  at  December  31,  2005 and 2004, include the                following:  Federal  Home  Loan  Bank  stock  of  $4,677,200  and                $4,727,100 for 2005 and 2004, respectively;  Federal Reserve Bank                stock of $521,700 for 2005 and 2004;  First National Bankers Bank                stock in the  amount of  $47,800  for 2005 and 2004;  a  $100,000                investment in ECD Investments,  LLC for both years and a $155,000                investment in B&K Statutory Trust for both years.  Redemptions of                stock in the  Federal  Home  Loan Bank  during  2005 or 2004 were                $603,000  and  -0-,  respectively.   The  stocks  are  considered                restricted  stock  as only  banks,  which  are  members  of these                organizations, may acquire or redeem them. The stock is      NOTE B.        INVESTMENT SECURITIES  (Continued)                 redeemable  at its  face  value;  therefore,  there  are no gross                unrealized gains or losses associated with these investments.                 The Company  invested $1 million during 1998 and $250,000  during                2001 in Sumx Inc ("Sumx"), a Mississippi  corporation established                to  provide   electronic  banking  solutions  for  the  financial                industry.  During  the  second  quarter  of 2002,  the  Company's                $1,250,000  investment  in and  advances to Sumx in the amount of                approximately  $711  thousand  were written off and  reflected in                other  expense  due to the  uncertainty  regarding  Sumx'  future                prospects  and  valuation.  On  December  31,  2004,  the Company                divested  itself of its equity  interest  in Sumx by selling  its                shares in Sumx to Sumx for $20,000. In connection with this sale,                the Company and Sumx entered into a 5 year non-exclusive  license                to use the Sumx  Internet  banking  software  at no  charge.  The                Company   agreed  to  cancel  and   forgive   all   indebtedness,                obligations and encumbrances of any kind to Sumx.                 Investment   securities  carried  at  approximately   $52,781,000                (approximate  market value $53,404,000) at December 31, 2005, and                approximately  $48,927,000 (approximate market value $50,674,000)                at  December  31,  2004,  were  pledged to  collateralize  public                deposits  and for other  purposes as required or permitted by law                or agreement.                 The  amortized  cost and  approximate  market value of investment                debt  securities at  December 31, 2005, by  contractual  maturity                (including mortgage-backed  securities),  are shown below. Actual                maturities  will  differ  from  contractual   maturities  because                borrowers may have the right to call or prepay  obligations  with                or without call or prepayment penalties.                                                                                 Securities held-to-maturity                                                                 ------------------------------------------------------                                                                         Weighted                                                                       Average         Amortized            Market                                                                        Yield            Cost                Value                                                                 ----------------   ---------------     ---------------                     Due in One Year or Less                               6.869%        $       220,450     $       221,096                Due After One Year through Five Years                 6.411%              2,858,061           2,925,649                Due After Five Years through Ten Years                6.747%             14,156,010          14,550,644                Due After Ten Years                                   6.792%             20,759,522          21,318,464                                                                                    ---------------     ---------------                                                                       6.752%        $    37,994,043     $    39,015,853                                                                                    ===============     ===============         NOTE B.        INVESTMENT SECURITIES  (Continued)                                                                             Securities available-for-sale                                                                 -------------------------------------------------                                                                      Weighted                                                                       Average       Amortized         Market                                                                       Yield           Cost             Value                                                                 ---------------- --------------     -------------                     Due After One Year through Five Years                4.063%        $ 10,098,989      $  9,959,434                Due After Five Years through Ten Years               4.277%          46,112,260        44,832,611                Due After Ten Years                                  4.968%          23,691,361        23,494,967                                                                                   -------------     -------------                                                                      4.456%        $ 79,902,610      $ 78,287,012                                                                                   =============     =============     NOTE C.        LOANS                 The Bank's loan  portfolio  (rounded to the nearest  thousand) at                December 31, 2005 and 2004, consists of the following:                                                                                        2005                 2004                                                                                     -------------     ---------------                    Commercial, Financial and Agricultural                               $  32,868,000     $  31,589,000                Real Estate-Construction                                                30,069,000        18,360,000                Real Estate-Mortgage                                                   169,363,000       156,574,000                Installment                                                             12,478,000        14,229,000                Overdrafts                                                                 306,000           249,000                                                                                     -------------     --------------                    Total loans                                                       $ 245,084,000     $ 221,001,000                                                                                     =============     ==============                   Loans on which  accrual  of  interest  has been  discontinued  or                reduced were  approximately  $1,059,000  and $772,000 at December                31, 2005,  and 2004  respectively.  If interest on such loans had                been accrued, the income would have approximated $24,000 in 2005,                $38,000 in 2004,  and $28,000 in 2003.  At December  31, 2005 and                2004,  respectively,  the recorded  investment in loans that were                considered  to  be  impaired  was  approximately  $1,058,750  and                $634,000,  primarily all of which were on a nonaccrual basis. The                related  allowance  amount on impaired loans was not significant.                Loans  which  are  contractually  90 days or more  past due as of                December  31,  2005 and 2004,  were  approximately  $201,301  and                $129,000, respectively.                 In the ordinary  course of business,  the Bank makes loans to its                executive  officers,  principal  stockholders,  directors  and to                companies in which these  borrowers are principal  owners.  Loans                outstanding to such borrowers  (including companies in which they                are principal  owners)  amounted to $2,807,745  and $2,391,668 at                December 31, 2005 and 2004,  respectively.  These loans were made                on  substantially  the same terms,  including  interest  rate and                collateral,  as  those  prevailing  at the  time  for  comparable                transactions with other persons        NOTE C.        LOANS        (Continued)                  and did not involve  more than normal risk of  collectibility  or                present other unfavorable features.                 The  aggregate  amount of loans to such related  parties for 2005                and 2004 is as follows:                                                     2005               2004                                               --------------     --------------                 Balance at January 1           $    2,391,668     $    2,947,193                New Loans                           1,812,367          1,124,203                Repayments                         (1,396,290)        (1,679,728)                                               --------------     --------------                Balance at December 31         $    2,807,745     $    2,391,668                                               ==============     ==============     NOTE D.        ALLOWANCE FOR LOAN LOSSES                 An analysis of the allowance for loan losses is as follows:                                                                            2005             2004              2003                                                                     ------------     --------------     -------------                    Balance at January 1                                 $  2,236,778     $  2,070,162       $  2,129,328                   Credits Charged Off:                      Real Estate - Mortgage                             (149,502)        (113,888)          (456,085)                      Commercial, Financial and Agricultural              (53,960)        (107,208)          (285,131)                      Installment Loans                                   (47,187)         (46,738)           (91,068)                                                                     ------------        ----------      -------------                          Total Charge-Offs                              (250,649)        (267,834)          (832,284)                   Recoveries:                      Real Estate - Mortgage                               35,225            4,256             24,635                      Commercial, Financial and Agricultural               22,520           23,032             59,832                      Installment Loans                                    33,966           17,162             18,651                                                                     ------------     -------------      -------------                          Total Recoveries                                 91,711           44,450            103,118                                                                     ------------     -------------      -------------                   Net Credits Charged Off                               (158,938)        (223,384)          (729,166)                                                                     ------------     -------------      -------------                   Provision for Loan Losses                              300,000          390,000            670,000                                                                     ------------     -------------      -------------                Balance at December 31                               $  2,377,840     $  2,236,778       $  2,070,162                                                                     ============     =============      =============   NOTE E.        LOAN SERVICING                 Loans  serviced for others are not  included in the  accompanying                consolidated  balance sheets.  The unpaid  principal  balances of                these loans were approximately $11,274,712 and $9,740,772 in 2005                and 2004, respectively.          NOTE F.        BANK PREMISES AND EQUIPMENT                 A summary of Bank premises and equipment is as follows:                                                                                             2005            2004                                                                                      -------------     -------------                     Buildings and Improvements                                          $  7,292,935      $  7,238,369                  Furniture and Equipment                                                4,783,170         4,735,015                                                                                      --------------     -----------                                                                                        12,076,105        11,973,384                     Less: Accumulated Depreciation                                     (5,152,431)       (4,830,622)                  Land                                                                   1,122,994         1,122,994                                                                                      --------------    -------------                  Bank Premises and Equipment, Net                                    $  8,046,668      $  8,265,756                                                                                      ==============    =============                  The provision for depreciation  charged to operating expenses was                $824,447,  $727,564 and $724,609 for the years ended December 31,                2005, 2004 and 2003, respectively.  NOTE G.        TRUST DEPARTMENT ASSETS                 Property (other than cash deposits) held by the Bank in fiduciary                or agency  capacities  for its  customers  is not included in the                accompanying  consolidated  balance  sheets as such items are not                assets of the Bank.  Trust fees are  reported  on the cash basis.                The  difference  between  cash  basis  and the  accrual  basis is                immaterial.  NOTE H.        DEPOSITS                    Deposits  at  December  31,  2005  and  2004,  consisted  of  the following:                                                                                        2005                 2004                                                                                  ----------------    -----------------                    Non-Interest Bearing Demand Deposits                              $    51,466,230     $    39,868,482                NOW Accounts                                                           23,016,487          28,103,197                Money Market Deposit Accounts                                          36,516,395          24,974,678                Savings Accounts                                                       23,032,910          16,490,444                Certificates of Deposit                                               123,344,888         116,851,128                                                                                  ----------------    -----------------                                                                                  $   257,376,910     $   226,287,929                                                                                  ================    =================                      Maturities  of  certificates  of  deposit  of  $100,000  or  more                outstanding  at December  31, 2005 and 2004,  are  summarized  as                follows:                                                                                         2005                 2004                                                                                  ----------------    -----------------                Time Remaining Until Maturity:                      Three Months or Less                                           $     10,061,668    $     14,385,622                   Over Three Through Six Months                                        11,198,948          13,257,922                   Over Six Through Twelve Months                                       21,735,701          11,775,185                   Over Twelve Months                                                   15,523,648          11,874,328                                                                                  ----------------    -----------------                                                                                  $     58,519,965    $     51,293,057                                                                                  ================    =================     NOTE H.        DEPOSITS (Continued)                 The approximate  scheduled maturities of certificates of deposits                for each of the next five years are:                                      2006                       $     93,557,514                                     2007                             18,748,119                                     2008                              5,664,803                                     2009                              4,537,127                                     2010                                837,325                                                                ----------------                                                                $    123,344,888                 Interest expense on certificates of deposit greater than $100,000                was approximately  $1,647,000,  $1,211,000 and $1,208,000 for the                years ended December 31, 2005, 2004 and 2003, respectively.                 The public fund  deposits were  $29,041,518  and  $30,814,111  at                December 31, 2005 and 2004, respectively.  NOTE I.        BORROWINGS                 Federal Home Loan Bank Advances:                 During  2005  and  2004,  the  Bank  received  advances  from and                remitted  payments to the Federal Home Loan Bank.  These advances                are  collateralized by a portion of the Bank's one-to-four family                residential  mortgage  portfolio and certain  secured  commercial                loans in  accordance  with the Advance  Security  and  Collateral                Agreement with the Federal Home Loan Bank.  Advances  outstanding                at December 31, 2005, consist of:                    Ten   fixed-rate   term  loans  ranging  from   $2,000,000  to                   $6,000,000,  totaling  $31,000,000 with interest rates ranging                   from  2.060% to 5.157%.  The  maturities  on these loans range                   from May 12, 2006 to November 30, 2007.                    Five amortizable  fixed-rate  loans totaling  $16,886,067 with                   interest  rates ranging from 2.377% to 4.177%.  The maturities                   on these loans range from January 2, 2007, to June 1, 2009.                    Two  variable-rate  loans,  tied  to 3 month  Libor,  totaling                   $25,000,000 with interest rates, adjusting quarterly,  ranging                   from 4.37% to 4.524% and caps  established at the strike price                   of 4.00 and 4.50%.  The  maturities  on these loans range from                   October 18, 2007, to February 4, 2008.                    One  overnight  advance in the amount of  $11,310,000  with an                   interest rate of 4.35%.      NOTE I.        BORROWINGS (Continued)                 The 2004 advances consist of:                    Seventeen  fixed-rate  term loans  ranging from  $2,000,000 to                   $6,000,000,  totaling  $60,000,000 with interest rates ranging                   from  1.765% to 5.348%.  The  maturities  on these loans range                   from May 10, 2005, to November 30, 2007.                    Five amortizable  fixed-rate  loans totaling  $23,922,871 with                   interest  rates ranging from 2.377% to 4.177%.  The maturities                   on these loans are from January 2, 2007, to June 1, 2009.                    One  overnight  advance in the amount of  $13,000,000  with an                   interest rate of 2.410%.                  Annual  maturities  for the next four years as of  December  31,                 2005 are as follows:                                      2006                      $ 36,310,000                                     2007                        13,342,360                                     2008                        29,138,783                                     2009                         5,404,924                                                               ------------                                                               $ 84,196,067                 Junior Subordinated Debentures:                 In 2003,  the Company  issued  $5,000,000 of junior  subordinated                debentures.   The  $5,000,000  of  trust   preferred   securities                qualifies as Tier 1 capital for regulatory  capital  purposes but                is  classified  as  a  liability  under   accounting   principles                generally  accepted  in  the  United  States  of  America.  These                securities  carry an  interest  rate of  LIBOR + 3.15%,  adjusted                quarterly,  with interest paid quarterly in arrears and mature in                March,  2033. Under certain  circumstances,  these securities are                subject to repayment on March 26, 2008, or thereafter.   NOTE J.        EMPLOYEE BENEFIT PLANS                 The Bank has an employee  stock  ownership plan which is designed                to invest primarily in employer stock. Essentially, all employees                of the Bank with one year of service  and of age  twenty-one  are                covered under this plan,  and are fully vested in their  benefits                after  seven  years  of  service.   Employer   contributions  are                determined by the Board of Directors  each year and are allocated                among   participants   on  the  basis  of  their   total   annual                compensation.  Dividends  on the Company  stock owned by the plan                are  recorded as a  reduction  of  retained  earnings.  Operating                expenses  include  contributions  to the plan of $0,  $96,960 and                $108,533 in 2005,  2004 and 2003,  respectively.  This plan owned                158,630 and 210,407  allocated shares of Britton & Koontz Capital                Corporation stock, as of December 31, 2005 and 2004.   NOTE J.        EMPLOYEE BENEFIT PLANS (Continued)                 The overall cost to the plan for the periods  ended  December 31,                2005,  2004 and 2003,  was  $7.73,  $6.58  and  $6.33 per  share,                respectively.                 Employees  with  one  year  of  service  and age  twenty-one  are                eligible to participate in a 401(k) plan established by the Bank.                Under this plan,  employees may  contribute a percentage of their                salaries  subject to certain  limits  based on federal  tax laws.                These  contributions  are immediately  vested.  Employer matching                contributions  are 100% vested after six years.  Employer  profit                sharing contributions are 100% vested after seven years.                 Employer  contributions to the plan are made at the discretion of                the Board of  Directors  and  aggregated  $114,077,  $73,040  and                $143,700 for the years ended  December  31, 2005,  2004 and 2003,                respectively.                 The Company has a long-term incentive plan in which all employees                of the Company and its  subsidiaries are eligible to participate.                The plan provides for discretionary  grants of various incentives                including  stock  options;  shares of  common  stock  subject  to                restrictions  on  transfer,  forfeitability  provisions  or other                limitations;  and  shares  of  common  stock,  the  issuance  and                delivery of which may be subject to the  attainment  of specified                performance  objectives.  A maximum of  160,000  shares of common                stock  is  available  for  grant  under  the  plan,   subject  to                adjustment  on  account  of  stock  dividends  or  stock  splits,                recapitalizations,  mergers,  consolidations  or other  corporate                reorganizations.  The plan is  administered  by a Committee of at                least two non-employee  directors  appointed by the full Board of                Directors.  Since  adoption,  the Company has granted  options to                purchase a total of  102,124  shares.  Options  expire at various                years from the date of grant.  Options to acquire  20,460  shares                were  exercisable  as of December 31, 2005.  The summary of stock                option activity is shown below:                                                                         Weighted                                               Options               Average                                             Outstanding          Exercise Price                 December 31, 2003               53,229            $    17.38                Options granted                      -                     -                Options exercised               (3,229)                11.39                Options forfeited              (15,000)                19.94                                            -----------                 December 31, 2004               35,000            $    16.83                Options granted                  5,000                 18.00                Options exercised                    -                     -                Options forfeited               (4,480)                14.50                                            -----------                December 31, 2005               35,520            $    17.29                                            ===========           ===========      NOTE J.        EMPLOYEE BENEFIT PLANS (Continued)                  The following table summarizes  information  about stock options                 outstanding at December 31, 2005:                   Exercise Price   Options Outstanding  Remaining Contractual Life                 --------------   -------------------  --------------------------                    $  19.94            15,000                 1.9 years                    $  14.50            15,520                 5.9 years                    $  18.00             5,000                 5.0 years                 The Company applies APB Opinion 25 and related Interpretations in                accounting for the stock options.  Accordingly,  no  compensation                cost has been recognized. Had compensation cost for the Company's                stock  options  been  determined  based on the fair  value at the                grant  dates  consistent  with  the  method  prescribed  by  FASB                Statement  No. 123,  the  Company's  net income and  earnings per                share would have been adjusted to the pro forma amounts indicated                below:                                                                     2005                  2004                  2003                                                           -------------            -------------        --------------                     Net Income, as Reported                    $   3,227,640            $   2,844,209        $     2,738,754                Pro Forma Net Income                       $   3,215,915            $   2,837,413        $     2,718,254                Basic Earnings Per Share, as Reported      $        1.53            $        1.35        $          1.30                Pro Forma Basic Earnings Per Share         $        1.52            $        1.34        $          1.29                Diluted Earnings Per Share, as Reported    $        1.52            $        1.34        $          1.29                Pro Forma Diluted Earnings Per Share       $        1.52            $        1.34        $          1.28                   The fair  value of each  option is  estimated  on the grant  date                using the  Black-Scholes  option  pricing  model.  The  following                assumptions  were made in  estimating  fair  values  in 2005.  No                options were granted in either 2004 or 2003.                 Assumption                                         2005                -----------------                                 -------                Dividend yield                                     3.59%                Risk free rate                                     4.42%                Expected life                                     5 years                Expected volatility                               27.59%                 SFAS 123R requires  measurement for  share-based  transactions at                the fair value of the equity instrument  issued. The Company will                adopt this pronouncement effective as of the first interim period                in 2006.  The Company has addressed  the future  adoption of this                pronouncement  and does not consider its  potential  impact to be                significant.    NOTE J.        EMPLOYEE BENEFIT PLANS (Continued)                 The  Bank has a  nonqualified  salary  continuation  plan for its                executive   officers.   These   officers   will  be  entitled  to                agreed-upon   benefits   which  will  begin   vesting  when  each                participant reaches the age of fifty-five.  The vested percentage                will increase  annually  through the age of  sixty-five  when the                officers will be fully vested. Payment of any benefits                 is contingent  upon the officers'  continued  employment with the                Bank through the age of fifty-five. The projected benefit to each                officer at age  sixty-five  is allocated  through a present value                calculation  to each year from  inception of the plan through age                sixty-five.  The Plan also  includes a change of control  benefit                for these officers.  If any or all of the covered  executives are                terminated  from  employment  within  36  months  of  a  sale  or                acquisition  of the Bank, the  executive(s)  may elect to receive                from the acquirer  fully vested income  benefits as stated above,                or to receive an agreed-upon lump-sum  distribution,  which would                total  $340,000 if all covered  executives  selected this option.                The financial  statements  for the years ended December 31, 2005,                2004 and 2003,  respectively,  include  $42,982  and  $24,883 and                $45,552 of expense related to this plan.  NOTE K.        LEASES                 The Bank leases  one branch office as well as parking space under                operating  leases  which  expire in various years  through  2014.                Rent  expense was  $124,577,  $148,402 and $107,948 in 2005, 2004                and 2003, respectively.                 The  future  minimum  rental  commitments  for  these  leases  at                December 31, 2005, are as follows:                                      2006                $   106,992                                     2007                    106,992                                     2008                    106,992                                     2009                    106,992                                     2010                    106,992                                     Thereafter              314,028                                                            --------                                                         $   848,988     NOTE L.        INCOME TAXES                 The   provision/(benefit)   for  income  taxes  included  in  the                consolidated  statements  of income is as  follows  for the years                ended December 31, 2005, 2004 and 2003:                                                                          2005               2004              2003                                                                   --------------      -------------       -------------                     Current                                            $    1,079,614      $     676,227       $     517,906                Deferred                                                 (264,520)           104,018             231,819                                                                   --------------      -------------       -------------                                                                    $      815,094      $     780,245       $     749,725                                                                   ==============      =============       =============      NOTE L.  INCOME TAXES (Continued)                 The provision for federal income taxes differs from that computed                by applying the federal  statutory rate of 34% in 2005,  2004 and                2003 as indicated in the following analysis:                                                                          2005               2004              2003                                                                   --------------      ---------------     --------------                     Tax Based on Statutory Rate                        $    1,374,530      $   1,232,314       $   1,186,083                State Taxes                                                98,051            108,211              79,712                Effect of Tax-Exempt Income                              (565,456)          (569,345)           (555,675)                Other                                                     (92,031)             9,065              39,605                                                                   --------------      ---------------     --------------                                                                    $      815,094      $     780,245       $     749,725                                                                   ==============      ===============     ==============                  The net  deferred  tax asset of $35,974 in 2005 and net  deferred                tax  liabilities  of $1,024,406  and $1,204,554 in 2004 and 2003,                respectively,  are included in other assets and accrued taxes and                other liabilities,  respectively.  The net deferred tax asset and                liabilities  consist of the following  components at December 31,                2005, 2004 and 2003:                                                                            2005                2004             2003                                                                   --------------      ---------------     --------------                Deferred Tax Liabilities:                     Unrealized gain on available-for-sale securities  $            -      $    (327,694)      $    (550,786)                 Unrealized gain on derivatives                              (155)           (56,770)           (117,843)                 Depreciation                                            (992,514)        (1,019,448)           (892,632)                 Federal Home Loan Bank dividends                        (335,975)          (309,575)           (277,833)                 Other                                                   (191,067)          (122,031)           (110,790)                                                                   --------------      --------------      --------------                                                                       (1,519,711)        (1,835,518)         (1,949,884)                Deferred Tax Assets:                 Unrealized Loss on available-for-sale securities         602,618                  -                   -                   Provision for loan losses                              597,133            544,517             482,370                   Other real estate                                       11,190             44,760              38,327                   Voluntary severence                                    171,770                  -                   -                   Other                                                  172,974            221,835             224,633                                                                   --------------      --------------      --------------                                                                        1,555,685            811,112             745,330                                                                   --------------      --------------      --------------                Net Deferred Tax Asset/(Liability)                 $       35,974      $  (1,024,406)      $  (1,204,554)                                                                   ==============      ==============      ==============                     A  summary  of  the  changes  in  the  net   deferred  tax  asset                (liability) for the years ended December 31, 2005 and 2004, is as                follows:                     Balance at beginning of year                       $   (1,024,406)     $ (1,204,554)       $  (1,281,633)                   Deferred tax expense, charged to operations            264,520          (104,018)            (231,819)                   Other comprehensive income, charged to                      equity                                              795,860           284,166              308,898                                                                   --------------      ------------        --------------                Balance at end of year                             $       35,974      $ (1,024,406)       $  (1,204,554)                                                                   ==============      =============       ==============     NOTE M.        SECURITIES SOLD UNDER REPURCHASE AGREEMENTS                 At  December  31,  2005 and  2004,  the  Bank  had  sold  various                investment  securities  with an  agreement  to  repurchase  these                securities  at  various  times  within one year.  The  underlying                securities are U.S.  Government  obligations  and  obligations of                other U.S. Government agencies and corporations. These securities                generally  remain  under the Bank's  control and are  included in                investment securities. These securities have coupon rates ranging                from  3.219% to 7.00% and  maturity  dates  ranging  from 2013 to                2029.  The related  liability  to  repurchase  these  securities,                included in  securities  sold under  repurchase  agreements,  was                $8,032,721   and  $8,103,381  at  December  31,  2005  and  2004,                respectively. The maximum amount of outstanding agreements at any                month-end was $ 8,932,200 and  $11,080,516  during 2005 and 2004,                respectively.  The monthly average amount outstanding  agreements                was   $7,527,541   and   $10,022,995   during   2005  and   2004,                respectively. At December 31, 2005, the securities underlying the                repurchase  agreements  had  an  approximate  amortized  cost  of                $9,392,755 and an approximate market value of $ 9,170,640.   NOTE N.        REGULATORY MATTERS                 The  primary  source  of  revenue  of  Britton  & Koontz  Capital                Corporation  is dividends from its  subsidiary,  Britton & Koontz                Bank, N.A. Federal banking regulations place certain restrictions                on dividends  paid and loans or advances  made by the Bank to the                Company.  Any such  distribution  is subject to the  requirements                described in the following paragraphs.                 In accordance with Office of Thrift  Supervision  regulations,  a                special  "Liquidation  Account"  has  been  established  for  the                benefit of certain Qualifying Depositors of Natchez First Federal                Savings Bank  (acquired by the Bank in 1993) in an initial amount                of approximately $2.8 million.  The Liquidation Account serves as                a restriction on the distribution of stockholders'  equity in the                Bank and no cash dividend may be paid on its capital stock if the                effect  thereof would be to cause the  regulatory  capital of the                Bank  to be  reduced  below  an  amount  equal  to  the  adjusted                Liquidation Account balance.                 In  the  event  of a  complete  liquidation  of  the  Bank,  each                Qualifying  Depositor  would be  entitled  to his or her pro rata                interest in the  Liquidation  Account.  Such claims would be paid                before  payment to Britton & Koontz  Capital  Corporation  as the                Bank's sole  shareholder.  A merger,  consolidation,  purchase of                assets and  assumption of deposits  and/or other  liabilities  or                similar transaction, with an FDIC-insured institution,  would not                be  a  complete   liquidation  for  the  purpose  of  paying  the                Liquidation  Account.  In  such a  transaction,  the  Liquidation                Account  would  be  required  to  be  assumed  by  the  surviving                institution.                 The  Company  and the  Bank are  subject  to  various  regulatory                capital  requirements  administered by federal banking  agencies.                Failure to meet minimum capital requirements    NOTE N.        REGULATORY MATTERS (Continued)                 can  initiate   certain   mandatory   and   possibly   additional                discretionary  actions by regulators  that, if undertaken,  could                have a  direct  material  effect  on  the  Company's  and  Bank's                financial  statements.  Under capital adequacy guidelines and the                regulatory  framework for prompt corrective  action,  the Company                and the Bank must meet specific  capital  guidelines that involve                quantitative measures of their assets,  liabilities,  and certain                off-balance-sheet items as calculated under regulatory accounting                practices.  The  capital  amounts  and  classification  are  also                subject  to  qualitative   judgments  by  the  regulators   about                components, risk weightings, and other factors. Prompt corrective                action provisions are not applicable to bank holding companies.                 Quantitative measures established by regulation to ensure capital                adequacy  require the  Company  and the Bank to maintain  minimum                amounts  and  ratios  (set  forth in the  table  below)  of total                capital and Tier I capital to risk-weighted  assets and of Tier I                capital to average assets.  Management  believes,  as of December                31, 2005 and 2004, that the Company and the Bank meet all capital                adequacy requirements to which they are subject.                 The most recent regulatory  notification  categorized the Bank as                well  capitalized  under the  regulatory  capital  framework  for                prompt corrective action. There are no conditions or events since                that  notification  that  management  believes  have  changed the                Bank's category.                 The  Company's  (consolidated)  and  the  Bank's  actual  capital                amounts  and  ratios  as of  December  31,  2005  and  2004,  are                presented in the table.                                                                                                    Minimum                                                                                                To be Well                                                                      Minimum                Capitalized Under                                                                      Capital                Prompt Corrective                                          Actual                    Requirement              Action Provisions                                  -----------------------   -------------------------    ------------------------                                    Amount        Ratio        Amount         Ratio        Amount         Ratio                                  -----------    --------   -----------      --------    -----------    ---------                                                                  (dollars in thousands) As of December 31, 2005 - -----------------------        Total Capital (to Risk-     Weighted Assets)        Consolidated              $   38,770      14.44%     $  21,476         8.00%          N/A          N/A        The Bank                  $   36,423      13.58%     $  21,457         8.00%      $  26,821       10.00% Tier I Capital (to Risk-     Weighted Assets)        Consolidated              $   36,392      13.55%     $  10,741         4.00%          N/A           N/A        The Bank                  $   34,045      12.70%     $  10,723         4.00%      $  16,084        6.00% Tier I Capital (to Average     Assets)        Consolidated              $   36,392       9.31%     $  15,635         4.00%          N/A           N/A        The Bank                  $   34,045       8.63%     $  15,780         4.00%      $  19,725        5.00%        NOTE N.        REGULATORY MATTERS (Continued)                                                                                                 Minimum                                                                                                To be Well                                                                      Minimum                Capitalized Under                                                                      Capital                Prompt Corrective                                          Actual                    Requirement              Action Provisions                                  -----------------------   -------------------------    ------------------------                                    Amount        Ratio        Amount         Ratio        Amount         Ratio                                  -----------    --------   -----------      --------    -----------    ---------                                                                  (dollars in thousands) As of December 31, 2004 - -----------------------        Total Capital (to Risk-     Weighted Assets)        Consolidated              $   36,754      15.43%     $  19,061         8.00%          N/A           N/A        The Bank                  $   34,836      14.64%     $  19,036         8.00%      $  23,796       10.00% Tier I Capital (to Risk-     Weighted Assets)        Consolidated              $   34,517      14.49%     $   9,530         4.00%          N/A           N/A        The Bank                  $   32,599      13.70%     $   9,518         4.00%      $  14,277        6.00% Tier I Capital (to Average     Assets)        Consolidated              $   34,517       9.23%     $  14,954         4.00%          N/A           N/A        The Bank                  $   32,599       8.69%     $  14,999         4.00%      $  18,749        5.00%     NOTE O.        COMMITMENTS AND CONTINGENCIES                 The   Bank   is   a   party   to   financial   instruments   with                off-balance-sheet  risk  entered  into in the  normal  course  of                business  to meet the  financing  needs of its  customers.  These                financial  instruments  include  commitments to extend credit and                standby  letters  of  credit,  which  are  not  included  in  the                accompanying consolidated financial statements.                 Commitments  to extend  credit are  agreements to lend money with                fixed expiration dates or termination  clauses.  The Bank applies                the  same  credit  standards  used in the  lending  process  when                extending  these  commitments,  and  periodically  reassesses the                customer's creditworthiness through ongoing credit reviews. Since                many of the  commitments  are  expected to expire  without  being                drawn  upon,  the total  commitment  amounts  do not  necessarily                represent future cash requirements.  Collateral is obtained based                on the Bank's assessment of the transaction. At December 31, 2005                and  2004,  the  Bank's  commitments  to  extend  credit  totaled                $82,642,254 and $40,701,179, respectively.                 Standby letters of credit are conditional  commitments  issued by                the Bank to guarantee  the  performance  of a customer to a third                party. The credit risk and collateralization policy    NOTE O.        COMMITMENTS AND CONTINGENCIES (Continued)                 involved in issuing  letters of credit is essentially the same as                that involved in extending loans to customers. The Bank had total                unfunded  letters of credit of  $2,389,797  and  $2,128,583 as of                December 31, 2005 and 2004, respectively.                 The Bank is required to maintain  average reserves at the Federal                Reserve Bank. This requirement  approximated $275,000 at December                31, 2005. The Bank is in compliance with this requirement.                 At  December   31,   2005,   the  Bank  had   committed  to  sell                approximately  $171,000 of loans originated near year-end.  These                loans are  classified as loans  held-for-sale  and are carried at                the  lower  of cost  or  market.  Due to the  short  period  from                origination,  the  cost and  market  value  of  these  loans  are                approximately the same.                 The Bank has  outstanding  lines of credit  with  several  of its                correspondent  banks  available  to assist in the  management  of                short-term  liquidity.  At December 31, 2005, the total available                lines of credit were $39,500,000 with an outstanding balance of $                -0- as reflected on the consolidated balance sheet.                 Britton  &  Koontz  Capital  Corporation  and  its  wholly  owned                subsidiaries,  the Bank and B&K Title Insurance Agency, Inc., are                involved in certain  litigation  incurred in the normal course of                business.  In  the  opinion  of  management  and  legal  counsel,                liabilities  arising from such claims,  if any,  would not have a                material  effect  upon  the  Company's   consolidated   financial                statements.  NOTE P.        CONCENTRATIONS OF CREDIT                 Substantially all of the Bank's loans,  commitments,  and standby                letters of credit have been  granted to  customers  in the Bank's                market area.  The majority of  investments in state and municipal                securities involve governmental entities in and around the Bank's                market area. The concentrations of credit by type of loan are set                forth in Note C. The distribution of commitments to extend credit                approximates  the  distribution  of  loans  outstanding.  Standby                letters of credit are granted primarily to commercial borrowers.                 The Bank maintains  deposit  accounts and federal funds sold with                correspondent banks which may, periodically, exceed the federally                insured amount.  NOTE Q.        DIVIDENDS                 The Bank paid  dividends to the Company  amounting to  $2,100,000                and $1,700,000 for the years 2005 and 2004, respectively.      NOTE R.        INTEREST RATE RISK MANAGEMENT                 During 2002, the Bank entered into an off-balance  sheet interest                rate swap  agreement  to  reduce  its  interest-rate  risk and to                decrease its costs of funds for special deposit promotions. Under                the terms of this  agreement,  the Bank receives a fixed rate and                is obligated to pay a                 floating rate based on Prime calculated on a contractual notional                amount of $5,000,000  at December 31, 2005.  The original term is                for five years  expiring in May 2007.  The fixed payment rate was                7.635% during 2005. The average  variable-payment  rate was 6.27%                at December 31, 2005.  The  collateral at December 31, 2005, is a                Federal Home Loan Mortgage investment. The carrying amount of the                swap  has  been   adjusted   to  its  fair   value  at   year-end                approximating  $415 and is included in other assets.  The swap is                assumed to be completely effective, and accordingly,  is reported                as other comprehensive income.  NOTE S.        FAIR VALUE OF FINANCIAL INSTRUMENTS                 The fair value of a financial  instrument  is the current  amount                that would be exchanged between willing parties,  other than in a                forced  liquidation.  Fair  value is best  determined  based upon                quoted market prices.  However,  in many instances,  there are no                quoted  market  prices  for  the  Company's   various   financial                instruments.   In  cases  where  quoted  market  prices  are  not                available, fair values are based on estimates using present value                or other valuation techniques. Those techniques are significantly                affected by the assumptions used, including the discount rate and                estimates  of future  cash  flows.  Accordingly,  the fair  value                estimates  may not be realized in an immediate  settlement of the                instrument.  FASB  Statement No. 107 excludes  certain  financial                instruments and all nonfinancial  instruments from its disclosure                requirements.  Accordingly,  the  aggregate  fair  value  amounts                presented may not necessarily represent the underlying fair value                of the Company.                 The following methods and assumptions were used by the Company in                estimating fair value disclosures for financial instruments:                 Cash and Due From Banks - Fair value equals the carrying value of                such assets.                 Federal Funds Sold - Due to the short-term  nature of this asset,                the carrying value of this item approximates its fair value.                 Investment Securities - Fair values for investment securities are                based on quoted market prices, where available.  If quoted market                prices are not available,  fair values are based on quoted market                prices of comparable instruments.                 Cash  Surrender  Value of Life Insurance - The fair value of this                item approximates its carrying value.                 Loans,  Net  -  For  variable-rate   loans  which  are  repricing                immediately,  fair  values are based on  carrying  values.  Other                variable-rate  loans,  fixed-rate  commercial loans,  installment                loans, and mortgage loans are valued using discounted cash flows.                The discount rates used    NOTE S.    FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)                 to  determine  the  present  value of these  loans  are  based on                interest rates  currently being charged by the Bank on loans with                comparable credit risk and terms.                 Deposits - The fair  values of demand  deposits  are equal to the                carrying  value  of  such  deposits.   Demand  deposits   include                non-interest  bearing  demand  deposits,  savings  accounts,  NOW                accounts, and money market demand accounts. Discounted cash flows                have been used to value fixed rate term  deposits.  The  discount                rate used is based on interest rates  currently  being offered by                the Bank on deposits with comparable amounts and terms.                 Long-Term Borrowings - The fair values of the Company's long-term                borrowings  are  estimated  using  discounted  cash flow analysis                based on the Company's  current  incremental  borrowing ratio for                similar types of borrowing arrangements.                 Federal Funds  Purchased  and  Securities  Sold Under  Repurchase                Agreements  - The fair value of these  items  approximates  their                carrying values.                 Off-Balance  Sheet  Instruments - Loan commitments are negotiated                at current market rates and are relatively  short-term in nature.                Therefore,  the estimated value of loan commitments  approximates                the face amount. Fair values for interest rate swaps and caps are                based on quoted market prices where  available.  If quoted market                prices are not available,  fair values are based on quoted market                prices of comparable instruments.                 The estimated fair values of the Company's financial instruments,                rounded to the nearest thousand, are as follows:                                                                 2005                               2004                                                    ---------------------              ----------------------                                                    Carrying       Fair                Carrying        Fair                                                     Amount        Value                Amount         Value                                                    --------     --------              --------      --------                                                    (Dollars in Thousands)             (Dollars in Thousands)      Financial Assets:             Cash and due from banks                     $  9,825      $  9,825              $  6,577      $  6,577        Federal funds sold                          $    401      $    401              $    109      $    109        Investment securities:           Held-to-maturity                         $ 37,994      $ 39,016              $ 39,804      $ 41,338           Available-for-sale                       $ 78,287      $ 78,287              $ 91,947      $ 91,947           Equity securities                        $  5,502      $  5,502              $  5,552      $  5,552        Cash surrender value of           life insurance                           $    936      $    936              $    943      $    943        Loans, net                                  $242,705      $240,119              $218,762      $218,612       Financial Liabilities:        Deposits                                    $257,377      $256,493              $226,288      $226,118        Short-term borrowings                       $ 36,310      $ 35,955              $ 42,000      $ 42,010      NOTE S.    FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)                                                              2005                               2004                                                    ---------------------              ----------------------                                                    Carrying       Fair                Carrying        Fair                                                     Amount        Value                Amount         Value                                                    --------     --------              --------      --------                                                    (Dollars in Thousands)             (Dollars in Thousands)              Long-term borrowings                        $ 47,886      $ 47,263              $  54,923     $ 54,737        Federal funds purchased                            -             -              $   6,435     $  6,435        Securities sold under           repurchase agreements                    $  8,033      $  8,033              $   8,103     $  8,103        Junior subordinated debentures              $  5,155      $  5,155              $   5,155     $  5,155                                                        Face          Fair                  Face           Fair                                                     Amount         Value                Amount          Value                                                    --------      --------               -------      --------      Other:        Commitments to extend credit                $ 82,642      $ 82,642              $  40,701     $ 40,701        Standby letters of credit                   $  2,390      $  2,390              $   2,129     $  2,129        Interest rate swap                          $      -      $      -              $     152     $    152         NOTE T.        CONDENSED FINANCIAL INFORMATION OF                  BRITTON & KOONTZ CAPITAL CORPORATION                 The   financial   information   of   Britton  &  Koontz   Capital                Corporation, parent company only, is as follows:                                   BALANCE SHEETS                                                                                              December 31,                                                                                        2005                 2004                                                                                   ---------------    ---------------                ASSETS:                      Cash                                                            $     1,942,459    $     1,508,691                   Investment in subsidiaries                                           34,199,317         34,496,996                   Premises and equipment, net                                                   -                  -                   Other assets                                                            279,971            305,977                                                                                   ---------------    ---------------                TOTAL ASSETS                                                       $    36,421,747    $    36,311,664                                                                                   ===============    ===============                 LIABILITIES:                    Junior subordinated debentures                                  $     5,155,000    $     5,155,000                   Other liabilities                                                         6,589              4,896                                                                                   ---------------    ---------------                TOTAL LIABILITIES                                                        5,161,589          5,159,896                 STOCKHOLDERS' EQUITY                                                    31,260,158         31,151,768                                                                                   ---------------    ---------------                TOTAL LIABILITIES AND STOCKHOLDERS'                   EQUITY                                                          $    36,421,747    $    36,311,664                                                                                   ===============    ===============                                   STATEMENTS OF INCOME                                                                                   Years Ended December 31,                                                                         2005               2004              2003                                                                   ---------------    --------------     ---------------                    REVENUE:                   Dividends Received:                      Britton & Koontz Bank, N.A.                  $     2,100,000    $    1,700,000     $    2,000,000                   Other income                                             18,592             4,671             13,005                                                                   ---------------    --------------     ---------------                                                                         2,118,592         1,704,671          2,013,005                EXPENSES                                                   414,355           310,563            353,056                                                                   ---------------    --------------     ---------------                                                                         1,704,237         1,394,108          1,659,949                INCOME TAX EXPENSE (BENEFIT)                              (162,090)         (123,354)          (142,553)                                                                   ----------------   ---------------    ---------------                                                                         1,866,327         1,517,462          1,802,502                EQUITY IN UNDISTRIBUTED                   EARNINGS:                      Britton & Koontz Bank, N.A.                        1,337,909         1,308,982            890,028                      B & K Title Insurance Agency, Inc.                    23,404            17,765             46,224                                                                   ---------------    --------------     --------------                             NET INCOME                            $     3,227,640    $    2,844,209     $    2,738,754                                                                   ===============    ==============     ==============        NOTE T.        CONDENSED FINANCIAL INFORMATION OF                   BRITTON & KOONTZ CAPITAL CORPORATION (Continued)                               STATEMENTS OF CASH FLOWS                                                                                         Years Ended December 31,                                                                               2005               2004              2003                                                                        ----------------      -------------   ------------                 CASH FLOWS FROM OPERATING ACTIVITIES:                       Net Income                                           $     3,227,640       $  2,844,209    $   2,738,754                   Adjustments to reconcile net income to net                      cash provided by operating activities:                          Provision for depreciation                                  -                  -            1,565                         Equity on undistributed earnings                             and losses of affiliates                        (1,361,313)        (1,326,747)        (936,252)                   (Increase) decrease in other assets                           26,006            (53,741)         (73,399)                   Increase in other liabilities                                  1,693              1,184            3,712                                                                        ----------------      -------------   --------------                             Net Cash Provided by Operating Activities        1,894,026          1,464,905        1,734,380                                                                        ----------------      -------------   --------------                CASH FLOWS FROM INVESTING ACTIVITIES:                   Advances to subsidiaries                                           -                  -       (5,000,000)                   Transfer of bank premises to subsidiary                            -            188,038                -                                                                        ----------------      -------------   --------------                             Net Cash Provided by (Used in) Investing                               Activities                                             -            188,038       (5,000,000)                                                                        ----------------      -------------   --------------                 CASH FLOWS FROM FINANCING ACTIVITIES:                   Proceeds from issuance of junior subordinated                      debentures                                                      -                  -        5,155,000                   Cash dividends paid                                       (1,460,258)        (1,353,409)      (1,352,375)                   Cash received from stock options exercised                         -             36,778                -                                                                        ----------------      -------------   --------------                             Net Cash Provided by (Used in)                                Financing Activities                         (1,460,258)        (1,316,631)       3,802,625                                                                        ----------------      -------------   --------------                 NET INCREASE (DECREASE) IN CASH                                 433,768            336,312          537,005                CASH AT BEGINNING OF YEAR                                     1,508,691          1,172,379          635,374                                                                        ---------------       ------------    --------------                CASH AT END OF YEAR                                     $     1,942,459       $  1,508,691    $   1,172,379                                                                        ===============       ============    ==============         Management's Discussion  and Analysis of Financial  Condition  and Results of                Operations As of December 31, 2005, 2004 and 2003               This  discussion  presents a review of the major  factors that have affected the financial condition,  changes in financial condition and results of operations  of Britton & Koontz  Capital  Corporation  (the  "Company")  and its subsidiaries,  principally  Britton & Koontz Bank,  N.A. (the  "Bank"),  for the three years ended December 31, 2005.  Summary               During the past three years,  the Company has  emphasized  loan and deposit growth and control and reduction of personnel expenses;  and the Company has devoted  considerable  efforts to consolidate and realign  branches and Bank premises.  The Company ended 2003 with ten locations and 149 employees and ended 2004 with six locations and 131 full-time  equivalents.  During 2005, management continued its efforts to streamline  operations  and strengthen its share in all markets.   The  Company   ended  2005  with  six  locations  and  107  full-time equivalents.  While all of the Company's  markets have shown growth in loans and deposits  since 2003,  the Baton  Rouge,  Louisiana  market has had  significant growth during this period in both areas showing approximately 37% and 11% growth in loans and deposits, respectively.               In 2005, the Company reported net income of $3.2 million,  or $1.52 per diluted share,  representing a 13% increase over the $2.8 million,  or $1.34 per diluted share, reported at December 31, 2004 and 18% growth compared to $2.7 million,  or $1.29 per diluted share,  reported at December 31, 2003. The annual increase from 2004 occurred even as 2005 fourth  quarter net income  declined to $660 thousand or, $0.31 per diluted share,  compared to $820 thousand,  or $0.39 per diluted share,  during the fourth quarter of 2004.  Return on average equity for the years 2005, 2004 and 2003 was 10.30%, 9.22% and 9.08%, respectively.               Decreased  earnings  in the final  quarter of 2005  compared to the same  period in 2004 were  primarily  attributable  to  expenses  related to the Company's  offer of a voluntary  separation  package to employees with specified years of service.  If these additional  costs were excluded,  net income for the fourth  quarter of 2005  would  have been  approximately  $926  thousand,  a 13% increase  over the fourth  quarter of 2004.  Comparing  the full year of 2005 to 2004,  net  income  increased  $383  thousand  due in part to lower  salary  and benefits  of  $172  thousand.   Other  factors   contributing  to  the  improved performance  included  higher  net  interest  income and lower  overall  general operating expenses.               In 2005,  the  Company  experienced  growth  in its loan  portfolio primarily  from areas  pertaining  to business and  industrial  commercial  real estate,  including  residential land development and construction  loans and 1-4 family residential  mortgage loans.  Throughout 2005, the Company operated in an environment  where  short-term  rates  continued to move upward while  long-term rates stayed the same or fell,  thus creating a flat yield curve.  This scenario contributed to the decline in net interest margin to 3.66% at December 31, 2005, from 3.76% at December 31, 2004, and 4.13% at December 31, 2003. While declining margins were  prevalent  throughout the industry,  management  believes that the growth in loans during 2005 helped offset the negative effects associated with a flat yield curve and actually  slowed margin  compression.  Another major factor that  aided  in  preventing  additional  declines  in net  interest  margin  and stabilizing   net  interest  margin  was  the  29%  increase  in  the  Company's non-interest bearing deposits since December 31, 2004.               During the year,  the  Company  moved from a  semi-annual  dividend payment to a  quarterly  payment to put the Company  more in line with  dividend payment practices of other public companies. Dividends paid out in 2005 amounted to $0.69 per share,  which  represents a 7.8%  increase over  dividends  paid in 2004. The total payout ratio in 2005 was 45.3% of earnings  compared to 47.6% in 2004 and 49.4% in 2003.               Since 2004,  the Company has emphasized  strategic  hiring of front line  personnel,  closed and sold poorly located  facilities  acquired in recent acquisitions,  and upgraded  operations  and existing  branches.  As the Company moves into 2006, it is confident that benefits from these efforts will continue. Having reduced the level of operating  expenses  during the past two years,  the Company believes that it is ready to take advantage of the growth  opportunities in its existing markets.   Financial Condition     Assets               Total assets increased 3%, or $11.9 million,  during 2005 to $389.3 million from $377.4 million at December 31, 2004. Growth in assets was primarily due to  increases  in loans held for  investment,  net of unearned  interest and allowance  for loan  losses  of $25.5  million,  offset by  reductions  of $15.5 million in  investment  securities.  Asset  growth was  hindered due to the flat yield curve as investment cash flows were re-directed into loans and paydowns of Federal Home Loan Bank ("FHLB") advances.               Average  Earning  Assets.   Interest  income  from  earning  assets represents the Company's main source of revenue.  Average earning assets for the period ended December 31, 2005,  totaled  $370.6  million,  a $16.6 million,  or 4.7%,  increase  compared to December 31,  2004.  The increase was made up of an $18.5  million,  or 8.5%,  increase in average loans offset by reductions in the average  investment  portfolio.  Growth in  average  earning  assets  was funded primarily with increases in customer and brokered deposits.               Investment  Securities.  Investment securities primarily consist of mortgage-backed, municipal, corporate and agency securities. Securities that are deemed to be  held-to-maturity  ("HTM") are accounted for by the amortized  cost method and represent approximately 31% of total securities at December 31, 2005. Those securities designated available-for-sale ("AFS") are accounted for at fair value and represent  approximately 64% of the total at December 31, 2005. Equity securities   account  for  the   remaining   5%.   Management   determines   the classification  of its  securities  at  acquisition.  While  average  securities decreased  from  2004 to  2005  only  slightly,  total  HTM  and AFS  investment securities  fell by $15.5  million,  or 12%, to $116.3  million at December  31, 2005,  from $131.8  million at December 31, 2004.  The flat yield curve hindered re-investment in the market; also, cash flows from investments were used to fund new loan growth.  Equity  securities are comprised  primarily of Federal Reserve Bank stock of $522  thousand,  FHLB stock of $4.7 million,  the  Company's  $155 thousand  interest  in its B&K Bank  Statutory  Trust and ECD  Investments,  LLC ("ECD")  membership  interests  of $100  thousand.  These  securities  fell  $50 thousand to $5.5 million in 2005 from $5.6 million in 2004,  due to purchases of FHLB stock early in the year and a mandatory redemption of $603 thousand of FHLB stock in the third quarter of 2005, after stock requirements were recalculated.               The amortized cost of the Bank's investment  securities at December 31, 2005, 2004 and 2003, are summarized as follows:                                                                       Amortized Cost                                                   -------------------------------------------------                                                      12/31/05          12/31/04          12/31/03                                                   -------------------------------------------------         Obligations of other U.S. Government        Agencies and Corporations                   $ 82,864,118      $ 94,369,933      $ 95,312,108     Obligations of State and        Political Subdivisions                        34,904,765        35,321,401        34,834,072     Privately Issued Collateralized        Mortgage Obligations                             127,770           173,419           296,220     Corporate Securities                                      -         1,007,752         4,033,806                                                   =============     =============     =============                                                   $ 117,896,653     $ 130,872,505     $ 134,476,206                                                   =============     =============     =============                The amortized  cost of investment  securities at December 31, 2005, by contractual  maturity  (including mortgage backed securities) is shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay  obligations with or without call or prepayment penalties.  Yields on tax-exempt  municipal  securities  have been computed on a book  equivalent  basis  which  takes into  account  the coupon rate paid by the issuer  adjusted  by any  premium  paid or  discount received on the security at settlement date.                                                    Amortized         Weighted                                                     Cost        Average Yield                                               --------------   ---------------  Due in one year or less                      $     220,450         6.869%  Due after one year through five years           12,957,050         4.580%  Due after five years through ten years          60,268,270         4.857%  Due after ten years                             44,450,883         5.820%                                               -------------                                               $ 117,896,653         5.196%                                               =============    ==============               Loans.  Loans  represent the Company's  largest  source of revenue. Total  loans for the year ended  December  31,  2005,  were $245.1  million,  an increase of $24.1 million compared to the year ended December 31, 2004.  Average loans increased $18.5 million, or 8.5%, to $236.8 million at December 31, 2005     compared to $218.3  million at December 31, 2004. The Company  experienced  loan growth mostly in its Natchez,  Mississippi  and Baton Rouge,  Louisiana  markets where loan demand in the small business  sector has been brisk and the Company's lending staff has been  especially  successful in attracting  new business.  The Vicksburg   market  ended  December  31,  2005,   with  $51  million  in  loans, representing  21% of the  portfolio.  The Baton Rouge market ended the year with $59 million in loans,  representing  24% of the  portfolio,  while the  majority (55%) of the remaining  portfolio  was in the Natchez area.  Growth in loans was funded by operating activities,  excess cash flows as investment securities paid down and a portion of the Company's  increase in deposits.  Table 1 presents the Bank's  loan  portfolio  at the end of the last five  years.  The Company has no foreign loan activities.          TABLE 1: COMPOSITION OF LOAN PORTFOLIO                                    12/31/05         12/31/04        12/31/03          12/31/02        12/31/01                                ---------------------------------------------------------------------------------          Commercial, financial and        agricultural            $ 32,868,000     $  31,589,000   $  31,853,000     $  34,264,000    $  38,101,000    Real estate-construction       30,069,000       18,360,000      14,690,000         7,207,000        6,066,000    Real estate-residential        76,818,000       73,277,000      78,128,000        65,624,000       63,379,000    Real Estate-other              92,545,000       83,297,000      70,729,000        61,660,000       59,729,000    Installment                    12,478,000       14,229,000      14,195,000        15,881,000       17,759,000    Other                             306,000          249,000         102,000           170,000          117,000                                -------------    -------------   -------------     -------------    -------------        Total loans             $ 245,084,000    $ 221,001,000   $ 209,697,000     $ 184,806,000    $ 185,151,000                                =============    =============   =============     =============    =============                The following table sets forth as of December 31, 2005, the periods in which the Bank's  commercial,  financial and agricultural  loans and its real estate-construction  loans  mature or reprice  and the total  amount of all such loans  due  after  one year  having  (a)  predetermined  interest  rates and (b) floating or adjustable  rates. Loan maturities are based upon contract terms and specific  maturity dates.  Loans with balloon payments and longer  amortizations are often  repriced  and  extended  beyond  the  initial  maturity  when  credit conditions remain satisfactory.                                                                      Due after                                                    Due in          one year                                                    one year        through          Due after                                                   or less          five years       five years         Total                                                ---------------  --------------    --------------   --------------      Commercial, financial and agricultural         $   30,802,000   $    2,066,000    $            -   $   32,868,000   Real estate-construction                         12,394,000       12,892,000         4,783,000       30,069,000                                                ---------------  --------------    --------------   --------------         Total                                  $   43,196,000   $   14,958,000    $    4,783,000   $   62,937,000                                                ===============  ==============    ==============   ==============  Predetermined interest rates                                    $    7,853,000    $    2,569,000                                                                 ==============    ============== Floating or adjustable interest rates                           $    7,105,000    $    2,214,000                                                                 ==============    ==============    Asset Quality               Management  periodically  analyzes the  diversification of the loan portfolio and the repayment ability of borrowers.  When it appears to management that the Company will have trouble recapturing all outstanding  principal and/or interest on a loan or loan relationship,  the debt is placed on non-accrual.  By placing loans on non-accrual the Company  recognizes a problem credit,  foregoes interest that is likely  uncollectible,  and adjusts the carried loan balance to reflect the collection amount expected.  When problem credits are transferred to non-accrual  status,  the accrual of  interest  income is  discontinued  and all previously  accrued and  uncollected  interest for the year is reversed  against interest income. A non-accrual loan may be restored to accrual status when it is no longer  delinquent  and  management  no longer doubts the  collectibility  of interest and principal.               Several key measures are used to evaluate and monitor the Company's asset  quality.  These  measures  include  the levels and  percentages  of total nonperforming assets, loan delinquencies,  non-accrual loans,  foreclosed assets and charge-offs. Nonperforming assets, consisting of non-accrual loans, loans     past due 90 days or more and other real estate owned,  increased to $2.7 million at December  31, 2005,  from $2.2  million at December 31, 2004.  Non-performing assets  as a  percent  of  average  assets  increased  slightly  to .70% in 2005 compared to .59% in 2004.  Nonperforming  loans as a percent of total loans, net of unearned  income and loans held for sale,  increased  to .51% at December 31, 2005,  from .41% the year before.  Net charge-offs for the year declined for the 3rd straight year. Net  charge-offs as a percent of average loans decreased from ..10% at December 31, 2004, to .07% at December 31, 2005.               At December 31, 2005,  overall credit quality has remained  stable. The  increase  in total  non-performing  assets  is due  primarily  to one large commercial credit in the amount of $524 thousand.  In the opinion of management, the overall size of this credit is immaterial,  and specific  reserves have been set aside for the  unsecured  portion  of the  credit as well as any  unforeseen shortfalls.  A breakdown of  nonperforming  loans at the end of each of the last five years is shown in Table 2.         TABLE 2: BREAKDOWN OF NONPERFORMING LOANS                                             12/31/05      12/31/04       12/31/03      12/31/02      12/31/01                                          ----------    ----------     ----------    ----------    ----------                                                         (dollars in thousands)     Non-accrual loans by type             Real estate                         $     413     $     532      $     584     $   1,513      $    750       Installment                                72            26             20            16            86       Commercial and all other loans            574           214            580           537           449                                          ----------    ----------     ----------    ----------     ----------           Total non-accrual loans             1,059           772          1,184         2,066         1,285       Loans past due 90 days or more            201           129            337           253         1,510                                          ----------    ----------     ----------    ----------     ----------           Total nonperforming loans           1,260           901          1,521         2,319         2,795           Other real estate owned (net)       1,471         1,320          1,741         1,554         1,526                                          ----------    ----------     ----------    ----------     ----------           Total nonperforming assets      $   2,731     $   2,221      $   3,262     $   3,873      $  4,321                                          ==========    ==========     ==========    ==========     ==========     Nonperforming loans as a percent       of loans, net of unearned interest       and loans held for sale                  .51%          .41%           .74%         1.29%         1.56%                                          ==========    ==========     ==========    ==========     ==========     Additional interest income foregone        on non-accrual loans               $      24     $      38      $      28     $     141      $    167                                          ==========    ==========     ==========    ==========     ==========                There were no loans in any of the reported periods above classified as  "troubled  debt   restructurings"  as  defined  in  Statement  of  Financial Accounting  Standards No. 15,  "Accounting by Debtors and Creditors for Troubled Debt  Restructuring."  Management  was not  aware of other  loans,  or any other interest-bearing  asset, not already specifically reserved for, that the Company had serious  doubts as to the ability of the borrower to comply with the present repayment terms.               No other interest-bearing assets held by the Company are classified as  non-accrual  or past due 90 days or more.  The Company  continues to monitor securities  issued by  municipalities on the Mississippi Gulf Coast, as reported in the Company's 10-Q dated  September 30, 2005 under Item 3,  Quantitative  and Qualitative Disclosures About Market Risk.  Allowance for Loan Losses               The  allowance  for  loan  losses  is  established  as  losses  are estimated through a provision for loan losses charged against  operations and is maintained at a level that management considers adequate to absorb losses in the loan  portfolio.  The allowance is subject to change as management  re-evaluates the adequacy of the  allowance on a quarterly  basis.  Management's  judgment in determining the adequacy of the allowance is inherently  subjective and is based on  the   evaluation   of  individual   loans,   the  known  and  inherent  risk characteristics  and size of the loan  portfolios,  the  assessment  of  current economic and real estate  market  conditions,  estimates of the current value of underlying collateral, past loan loss experience, review of regulatory authority examination  reports  and  evaluations  of  specific  loans and  other  relevant factors.  The Bank risk rates each loan at the initiation of the transaction and risk ratings are reviewed and changed,  when  necessary,  during the life of the loan.             The allowance consists of specific, general and unallocated components. The specific component relates to loans that are considered impaired.  Loan loss reserve factors are multiplied against the balances in each risk rating category to arrive at the  appropriate  level for the  allowance  for loan losses.  Loans assigned  higher risk  ratings are  monitored  more closely by  management.  The general  component of the  allowance  for loan losses  groups loans with similar characteristics  and allocates a percentage based upon historical losses and the inherent risks within each category.  The  unallocated  portion of the allowance reflects management's estimate of probable but undetected losses inherent in the portfolio;   such  estimates  are  influenced  by   uncertainties   in  economic conditions,  delays in obtaining information,  including unfavorable information about a borrower's  financial  condition,  difficulty in identifying  triggering events that correlate to subsequent  loss rates,  and risk factors that have not yet  manifested  themselves in loss  allocation  factors.  The  methodology  for determining  the  adequacy  of the  allowance  for loan  losses is  consistently applied; however, revisions may be made to the methodology and assumptions based on historical  information  related to charge-off  and recovery  experience  and management's evaluation of the current loan portfolio.               Based upon this evaluation,  management  believes the allowance for loan losses of $2.4 million at December 31, 2005, which represents .97% of gross loans  held to  maturity,  is more  than  adequate,  under  prevailing  economic conditions,  to absorb  probable losses on existing loans. At December 31, 2005, total reserves included specific reserves of $825 thousand,  general reserves of $1.1 million and  unallocated  reserves of $494 thousand.  At December 31, 2004, the allowance for loan losses was $2.2 million, or 1.02%, of gross loans held to maturity,  which was  composed of specific  reserves of $913  thousand,  general reserves of $836 thousand and unallocated reserves of $451 thousand.               Table 3 presents the activity in the  allowance for loan losses for the last five years.  In  establishing  the amounts of  provision  for each year charged to operating expense,  management uses the basic methodologies described above.  Table 4  presents  the  allocation  of the  allowance  for  loan  losses applicable to each loan category for the periods ended December 31, 2005,  2004, 2003 and 2002.  Information  for 2001 is not  included  in Table 4 because  such information is not available to the Company.         TABLE 3: ACTIVITY OF ALLOWANCE FOR LOAN LOSSES                                                12/31/05    12/31/04    12/31/03      12/31/02     12/31/01                                              ----------  ----------  ----------    ----------   ----------                                                                (dollars in thousands)        Balance at beginning of year                 $   2,237   $   2,070   $   2,129     $   2,108    $   1,884      Charge-offs:       Commercial, financial & agricultural         (54)       (108)       (285)         (434)         (97)       Real Estate-construction                      (0)        (22)         (0)          (11)         (29)       Real Estate-residential                      (40)        (29)        (37)         (150)         (22)       Real Estate-other                           (109)        (62)       (419)         (266)          (0)       Installment and other                        (48)        (47)        (91)         (282)        (249)     Recoveries:       Commercial, financial & agricultural          22          23          60            64            7       Real Estate-residential                       22           0           0            36           12       Real Estate-other                             14           5          25             0            0       Installment and other                         34          17          18            39           77                                              ----------  ----------  ----------    ----------   ----------     Net (charge-offs) / recoveries                (159)       (223)       (729)       (1,004)        (301)     Provision charged to operations                300         390         670         1,025          525                                              ----------  ----------  ----------    ----------   ---------- Balance at end of year                       $   2,378   $   2,237   $   2,070     $   2,129    $   2,108                                              ==========  ==========  ==========    ==========   ========== Allowance for loan losses as a percent     of loans, net of unearned interest     and loans held for sale                        .97%       1.02%       1.00%         1.18%        1.17%                                              ==========  ==========  ==========    ==========   ========== Net charge-offs as a percent of     average loans                                  .07%        .10%        .36%          .55%         .16%                                              ==========  ==========  ==========    ==========   ==========             TABLE 4: ALLOCATION OF ALLOWANCE FOR LOAN LOSSES      (dollars in thousands)                                                                                Amount as                                                                            of December 31,                                                       --------------------------------------------------------                                                             2005          2004             2003           2002                                                       ----------    ----------       ----------     ----------        Commercial, financial and        agricultural                                   $      502    $      452       $      350     $      568   Real estate-construction                                    77            60               36            140   Real estate-residential                                    162           149              136            112   Real Estate-other                                          787           764              811            673   Installment                                                354           361              151             95   Other                                                      496           451              586            541                                                       -----------   ----------       -----------    -----------        Total loans                                    $    2,378    $    2,237       $    2,070     $    2,129                                                       ===========   ==========       ===========    ===========                                                               Percentage of loans in each category to total loans*                                                       --------------------------------------------------------                                                           2005          2004             2003           2002                                                       ----------    ----------       ----------     ----------        Commercial, financial and        agricultural                                      13.41%        14.29%           15.19%         18.54%   Real estate-construction                               12.27          8.31             7.01           3.90   Real estate-residential                                31.34         33.16            37.26          35.51   Real Estate-other                                      37.76         37.69            33.73          33.36   Installment                                             5.09          6.44             6.77           8.59    Other                                                    .13           .11              .04            .10                                                       -----------   ----------       -----------    ----------        Total loans                                      100.00%       100.00%          100.00%        100.00%                                                       ===========   ==========       ===========    ==========      *  Includes loans held for sale    Other Real Estate               The balance of other real estate (ORE)  increased  $151 thousand to $1.5 million in 2005 from $1.3 million in 2004.  Activity  during 2005  included foreclosures  of $624  thousand and  transfers of a closed branch office of $448 thousand, largely offset by proceeds from sales of $887 thousand and write-downs of $34  thousand.  After closing the  Company's  branch on Florida  Boulevard in Baton Rouge,  Louisiana,  it was  transferred  to ORE and listed for sale with a local realtor. The property sold in December 2005.       TABLE 5: OTHER REAL ESTATE ACTIVITY          Balance at December 31, 2004                                  $ 1,320                      Write-downs                            (34)                      Proceeds from sales                   (887)                      Foreclosures                         1,072           151                                                          --------     --------         Balance at December 31, 2005                                  $ 1,471                                                                       ========    Funding               Deposits.  Deposits are the Company's primary source of funding for earning assets.  Total deposits ended 2005 at $257.4 million  compared to $226.3 million at December 31, 2004.  Average deposits increased 2.6% from $230 million at December 31, 2004, to $236 million at December 31, 2005. Non-interest bearing deposits ended the year at $51.5 million,  a 29% increase over the $39.9 million at December  31,  2004.  Management  has seen a steady  growth in these low cost deposits  throughout  the  year;  however,  a  portion  of the  growth in demand deposits and other core deposits  reflects,  in part,  the effects of Hurricanes Katrina and Rita. The Company's three markets in Baton Rouge, Louisiana, Natchez and Vicksburg,  Mississippi  largely  escaped the physical damage of the storms, but all three  were  centers  of  evacuation  and  relocation.  Interest-bearing deposits, including time deposits, increased as well in 2005.               In an effort to keep  interest  costs as low as possible  and still provide  market  rates to our  customers,  management  utilized  certificate  of deposit  specials  throughout 2005. These accounts have been successful and have contributed  toward the growth in  interest-bearing  deposits.  Included in this category is an increase in brokered  deposits.  Management  uses these  deposits from time to time as a part of its  liquidity  and funding  plan.  As rates were rising, the opportunity arose to secure  approximately $10 million in fixed rate brokered funds.  The terms and rates of these deposits range from 1 year to four years and 4.25% to 4.60%.  Fees  associated with the deposits are amortized over the life of the deposits               During 2004, the Company joined the  Certificate of Deposit Account Registry Service  ("CDARS"),  an innovative new deposit  placement  service that helps banks  attract and retain  larger  local  deposits.  Deposits in the CDARS program  are  federally  insured.  Deposits  at December  31,  2005,  from CDARS increased to $6.6 million compared to $2.1 million at December 31, 2004.               Maturities  of  certificates  of  deposits  of  $100,000 or more at December 31, 2005, and 2004, are summarized below.                                                  12/31/05           12/31/04                                               -------------     -------------     Time remaining until maturity:         Three months or less                   $ 10,061,668      $ 14,385,622         Over three through six months            11,198,948        13,257,922         Over six through twelve months           21,735,701        11,775,185         Over twelve months                       15,523,648        11,874,328                                                ------------      ------------                                                $ 58,519,965      $ 51,293,057                                                ============      ============               Deposits at December  31, 2005,  and December 31, 2004,  consist of the following:                                                   12/31/05           12/31/04                                               --------------    -------------- Non-interest bearing demand deposits          $  51,466,230     $  39,868,482 Now accounts                                     23,016,487        28,103,197 Money market deposit accounts                    36,516,395        24,974,678 Savings accounts                                 23,032,910        16,490,444 Certificates of deposit                         123,344,888       116,851,128                                               --------------    --------------                                               $ 257,376,910     $ 226,287,929                                               ==============    ==============                    Borrowings.  Aside from the deposit base described  above, the Company  utilizes  short and  long-term  borrowings as another  funding  source. Short-term  borrowings  include overnight  funding through  established lines of credit  with  correspondent  banks and the FHLB of  Dallas.  Also  included  are short-term  advances  maturing  in one year or less  from the FHLB,  along  with customer repurchase agreements.  The Company's short-term funding base decreased $12.2  million to $44.3  million at December  31,  2005,  from $56.5  million at December 31, 2004, due primarily to increases in deposits.  Long-term borrowings are advances  from the FHLB with a maturity  date greater than one year from the reporting period and junior subordinated debentures (See Note I, "Borrowings" in the  Notes to the  Consolidated  Financial  Statements  of the  Company.)  These longer-term funding sources also declined during 2005 to $53.0 million at      December  31,  2005,  from  $60.1  million  at  December  31,  2004.  Short-term borrowings  at the FHLB of Dallas for  December  31, 2005 and 2004 are  outlined below.  Information  for 2003 is not included  because such  information  is not available to the Company.         Federal Home Loan Bank Short-term               As of December 31,       Borrowings: (Less than one year)       -----------------------------------                                                     2005              2004                                              ----------------  -----------------              Year-end balance                  $ 36,000,000     $   42,000,000              Weighted average rate                     3.22%              2.84%              Maximum month-end balance         $ 45,000,000     $   42,000,000               Year to date average balance      $ 35,000,000     $   29,000,000              Weighted average rate                     3.25%              2.34%                 The Company collateralizes short-term funding from the FHLB with a portion of the Bank's  one-to-four  family  residential  mortgage  portfolio and certain secured commercial loans. The Company expects that short-term borrowings from the FHLB to continue to be a source of liquidity to fund short-term needs.  Average Balances and Yield Analysis               The following  table  presents the Bank's  average  balance  sheets during 2005, 2004 and 2003. Dividing income or expense by the average balance of assets and  liabilities,  respectively,  derives  yields and costs.  Non-accrual loans are included in loans for yield  computations.  Loan fees and late charges in the amount of $1.1 million are included in both income and yield computations in loans. Income and expense resulting from interest rate caps and swaps used to manage interest rate risk are included  appropriately  in loans and certificates of deposit.  No  tax-equivalent  adjustments  have been made.  All  averages are derived from monthly average balances.                                                                            Average Balances and Yield Analysis                                                                         (dollars in thousands)                                                                      Twelve Months Ended December 31,                                                          2005                         2004                        2003                                               --------------------------  --------------------------   ----------------------------                                                       Interest  Average            Interest  Average            Interest  Average                                               Average Income/     %       Average  Income/     %       Average  Income/     %                                               Balance Expense  Yield/Rate Balance  Expense  Yield/Rate Balance  Expense  Yield/Rate                                               --------------------------- ---------------------------- ---------------------------- ASSETS            Loans                                         $236,796 $ 16,101   6.80%   $218,301 $ 14,031   6.43%    $201,595 $ 14,519    7.20% Investment securities: U.S. Government                                      -        -   0.00%        339       12   3.63%           -        -       - Mortgage Backed Securities                      86,062    3,776   4.39%     91,870    3,820   4.16%      74,252    3,068    4.13% State & municipal                               34,914    1,634   4.68%     35,036    1,634   4.66%      33,424    1,576    4.72% Other                                           11,867      459   3.86%      7,748      267   3.44%       8,844      376    4.25%                                               -------- ---------          ------------------           ----------------- Total investment securities                    132,843    5,869   4.42%    134,993    5,733   4.25%     116,520    5,020    4.31%  Interest bearing bank balances                     735       22   2.95%        543        8   1.50%       1,447       15    1.03% Federal funds sold                                 235        8   3.35%        167        2   1.56%         775       11    1.37%                                               -------- ---------          ------------------           ----------------- Total earning assets                           370,609   22,000   5.94%    354,004   19,774   5.59%     320,337   19,565    6.11%  Allowance for loan losses                       (2,379)                     (2,224)                      (2,209) Cash & due from banks, non-interest bearing      7,548                       8,610                        8,434 Bank premises & equipment                        8,221                       8,547                        7,374 Cash Value Life Insurance and other                929                         929                          922 Other assets                                     5,389                       5,630                        5,708                                                --------                    ---------                    --------- TOTAL ASSETS                                  $390,317                    $375,496                     $340,566                                               ========                    =========                    =========  LIABILITIES AND SHAREHOLDERS' EQUITY  Interest bearing deposits: Savings                                       $ 20,289 $    215   1.06%   $ 16,859 $    122   0.72%    $ 16,910 $    133    0.79% Interest bearing checking                       27,961      216   0.77%     34,150      186   0.54%      35,511      216    0.61% Money rate savings                              27,318      392   1.44%     25,631      250   0.97%      29,183      413    1.41% Certificates of deposit and other  time deposits                                 118,297    3,463   2.93%    117,039    2,780   2.38%     121,597    3,193    2.63%                                               -------- ---------          ------------------           ------------------ Total interest bearing deposits                193,865    4,286   2.21%    193,679    3,338   1.72%     203,201    3,955    1.95%  Short term borrowed funds                       47,696    1,546   3.24%     42,371      893   2.11%      25,147      451    1.79% Long term debt                                  70,760    2,613   3.69%     67,665    2,234   3.30%      44,359    1,923    4.34%                                               -------- ---------          ------------------           ------------------ Total interest bearing liabilities             312,321    8,445   2.70%    303,715    6,465   2.13%     272,707    6,329    2.32%  Non-interest bearing deposits                   42,575                      36,759                       33,818 Other liabilities                                4,074                       4,169                        3,860 Shareholders' equity                            31,347                      30,853                       30,181                                                -------- ---------          ------------------           ----------------- TOTAL LIABILITIES & SHAREHOLDERS' EQUITY      $390,317 $  8,445           $375,496 $  6,465            $340,566 $  6,329                                               ======== =========          ==================           =================   Interest income and rate earned                        $ 22,000   5.94%            $ 19,774   5.59%             $ 19,565    6.11% Interest expense and rate paid                            8,445   2.70%               6,465   2.13%                6,329    2.32%                                                       ------------------           -----------------            ----------------- Interest rate spread                                              3.23%                       3.46%                         3.79% NET INTEREST INCOME & NET YIELD ON AVERAGE EARNING ASSETS                                 $ 13,555   3.66%            $ 13,309   3.76%             $ 13,236    4.13%                                                       ==================           =================            =================      Capital               Stockholders'  equity ended 2005 at $31.3 million compared to $31.2 million at December 31, 2004.  The change in  stockholders  equity is due to net income of $3.2 million offset by dividend  payments  totaling $1.5 million and a $1.6  million  decrease  in  accumulated  other  comprehensive   income.   Other comprehensive   income  is  the  result  of   unrealized   gains  or  losses  on available-for-sale  securities and the  recognition of the fair value of certain derivative instruments. The Company's AFS portfolio,  representing approximately 64% of total  investment  securities,  is marked to market each  month,  and the result of these unrealized  gains or losses,  net of deferred taxes, is reported as a component of comprehensive  income in stockholders'  equity.  Additionally, the decline in market value of the AFS  portfolio,  due to  increasing  interest rates,  contributed to the lower stockholders'  equity to assets ratio from 2004 to 2005,  which fell to 8.0% at December  31,  2005,  from 8.3% at December  31, 2004.  While the  Company has no  immediate  plans for new  facilities,  capital expenditures for equipment and software in 2006 is projected to be approximately $295  thousand.  Offsetting  new  purchases  in 2006 will be an  estimated  $750 thousand  in  depreciation  expense  allowing  for a  potential  decrease in the Company's fixed assets by December 31, 2006, of approximately $455 thousand.               Capital  levels for the Company and the Bank  substantially  exceed the  minimum  requirements  of  the  regulatory  agencies  for  well-capitalized institutions in all three categories in both 2005 and 2004. Both the Company and the Bank  maintain  levels in total  capital  to  risk-weighted  assets,  Tier 1 capital to risk-weighted  assets and a leverage ratio (Tier 1 capital to average assets)  in excess of the  minimum  requirements  of  10.00%,  6.00% and  5.00%, respectively.                                                       December 31, 2005               December 31, 2004                                             -----------------------------     ---------------------------                                               Company            Bank            Company         Bank                                             ------------     ------------     ------------- -------------                                                                  (dollars in thousands)              Risk-based capital:                     Total                          $ 38,770        $ 36,423           $ 36,754      $ 34,836                Tier 1                           36,392          34,045             34,517        32,599                Leverage                         36,392          34,045             34,517        32,599              Assets:                Quarterly average assets (1)    390,734         394,351            373,843       374,974                Risk-weighted assets            268,481         268,118            238,261       237,955              Ratios:                Total risk-based capital         14.44%          13.58%             15.43%        14.64%                Tier 1 risk-based capital        13.55%          12.70%             14.49%        13.70%                Leverage                          9.31%           8.63%              9.23%         8.69%  (1)      Excludes disallowed assets   Results of Operations               The  following  are  measurements  of  the  Company's  earnings  in relation to assets, equity and earnings per share for the past three years.                                              2005          2004         2003                                         ----------    ----------    ---------   Return on average assets                  .83%          .76%         .80%   Return on average equity                10.30%         9.22%        9.08%   Dividend payout ratio                   45.24%        47.58%       49.38%   Average equity to average assets         8.03%         8.22%        8.86%   Net interest margin                      3.66%         3.76%        4.13%   Basic income per share                 $ 1.53        $ 1.35       $ 1.30   Diluted income per share               $ 1.52        $ 1.34       $ 1.29  Net Income               Net income for the twelve months ended  December 31, 2005, was $3.2 million,  or $1.52 per diluted  share,  compared to $2.8  million,  or $1.34 per diluted  share,  for the same  period in 2004.  The  increase  in net income was primarily  the result of  increases  in net interest  income and  reductions  in     personnel  expense,  offset by a gain on the sale of a branch office during 2004 in the amount of $173 thousand.                Net  income  for  the  twelve  months  ended  December  31,  2004, increased slightly compared to $2.7 million, or $1.29 per diluted share, for the same period in 2003.  Although net income was  relatively  unchanged for the two years,  management believes the foundation for future efficiency was established in these  two years as  reductions  in bank  premises  and  bank-wide  personnel enhanced the position of the Company.  Non-Interest Income               Non-interest  income  decreased  $264 thousand from $2.7 million in 2004 to $2.4 million in 2005.  The majority of the decrease  came as a result of the sale of a Bank branch office in 2004.  Excluding this sale, the non-interest income in 2004  would have been $2.5  million,  resulting  in a decrease  of $90 thousand  from 2004 to 2005.  This  decrease is due primarily to the sale of the Company's  internet  service  provider  business  in 2004,  which  resulted in a reduction  of  income of  approximately  $75  thousand  in 2005.  The  Company's mortgage banking department  income,  which includes loans sold in the secondary market and held in the  portfolio,  increased  its revenues by $28 thousand from 2004 to 2005. Loan  originations  sold in the secondary market in 2005 were down by $12.1  million to $27.3  million at  December  31,  2005,  compared  to $39.4 million at December 31, 2004.               Non-interest  income  decreased  $89 thousand  from $2.8 million in 2003 to $2.7  million in 2004.  Revenues  from the  Company's  mortgage  banking department were substantially reduced in 2004 due to a sharp decline in mortgage production  after a rise in mortgage rates from the  historically  low levels of 2003.  Loans originated for sale in the secondary market decreased $35.1 million from $74.5  million in 2003 to $39.4 million in 2004.  Due to this  reduction in new  originations,  gains on sale of mortgage  loans  decreased  $297  thousand. Additional revenue of $66 thousand from the Company's investment  department and a gain of approximately  $175 thousand on the sale of the Shields Lane branch in Natchez helped offset the loss of revenue from mortgage loans.   Non-Interest Expense               Non-interest  expense  decreased  $345  thousand,  or 3%,  to $11.6 million for the year ended December 31, 2005,  compared to $12.0 million for the same period in 2004. Reductions in employee salary and benefits of $197 thousand from 2004 to 2005  accounted  for more than 50% of the decrease in  non-interest expense. At December 31, 2004, full time equivalent  personnel was 131, while at December  31,  2005,  that  number  was down to 109.  For the past two years the Company has focused on reducing  staffing  primarily in operational  areas while simultaneously  emphasizing strategic hiring of front-line personnel.  The lower levels of full time  equivalents  and savings  realized are expected to continue into 2006 with no additional  staff  reductions.  The costs  associated with the Company's  offer of a voluntary  separation  package to employees with specified years of service  in 2005  offset a portion of the  reductions  in  non-interest expense from 2004 to 2005. Of the 22 full-time  equivalent  reductions,  13 were from employees  participating  in this offer. The reduction in force resulted in an additional $550 thousand of personnel expense in 2005.               Non-interest expense increased $128 thousand from December 31, 2003 to December 31, 2004,  primarily from  increases in salary expense  amounting to $270 thousand.  The increase  includes  approximately  $160 thousand  related to deferred  compensation  associated  with the  resignation and retirement of four employees.  The increase in salary  expense was offset by a decrease in employee benefits of $260 thousand.  Net Interest Income               Net interest income,  the amount by which interest income on loans, investments  and other  interest  earning  assets  exceed  interest  expense  on deposits and other borrowed funds,  increased $246 thousand to $13.6 million for the twelve  months of 2005  compared  to the same period in 2004.  Net  interest income is affected by several  factors,  including the volume of earning  assets and costing  liabilities,  the mix of these assets and  liabilities and interest rates. While net increases in volumes of earning assets and costing  liabilities created a  positive  effect of $863  thousand  on net  interest  income in 2005, rising interest rates had the opposite  effect.  As more liabilities than assets repriced in the higher rate  environment,  net interest income decreased by $617 thousand from 2004 to 2005.  While net interest  margin  decreased from 3.76% to 3.66% from 2004 to 2005,  the  percentage  decrease in net interest  margin from 2004 to 2005 was smaller than the percentage  decrease from 2003 to 2004. Growth in loans throughout 2005 and increases in lower costing deposits  contributed to the smaller declines in margins and allowed for higher net interest income.                Net interest income increased $73 thousand to $13.3 million for the twelve  months of 2004,  compared to the same period in 2003.  The impact on net interest income from net increases in earning assets and costing liabilities was positive,  adding to net interest income by $869 thousand. This positive effect, however,  was offset by $796 thousand  generated by falling  interest  rates. As rates fell, the decrease in income  associated  with asset repricing was greater than the decrease in liability  costs.  The volume and rate analysis table below indicates that earning assets  repriced  downward faster and to a greater degree than costing liabilities. Net interest margin decreased from 4.13% to 3.76% from 2003 to 2004.               The  following  table  presents  the  dollar  amount of  changes in interest income and interest  expense for the major  components of the Company's interest  earning  assets and interest  bearing  liabilities.  It  distinguishes between the changes related to outstanding  balances and those due to changes in interest  rates.  For each  category of  interest  earning  assets and  interest bearing  liabilities,  information  is provided on changes  attributable  to (a) changes in volume (i.e.,  changes in volume  multiplied by the old rate) and (b) changes in rates  (i.e.,  changes in rates  multiplied  by the old  volume.) For purposes of this table,  changes  attributable to both rate and volume have been allocated proportionately to the change due to volume and rates.                                                                                   Volume/Rate Analysis                                                             2005 change from 2004                     2004 change from 2003                                                      Total        Volume         Rate           Total        Volume        Rate                                               ----------------------------------------  ----------------------------------------- Interest earning assets:                                                    (dollars in thousands)        Loans                                              $ 2,070       $ 1,230      $   840          $ (488)     $ 1,147       $(1,635) Investment securities: U.S. Government                                        (12)           (6)          (6)             12           12             - Mortgage Backed Securities                             (44)         (250)         206             752          732            20 State & municipal                                        -            (6)           6              57           75           (18) Other                                                  192           156           36            (109)         (43)          (66)                                               ----------------------------------------  ----------------------------------------- Total investment securities                            136          (106)         242             712          776           (64)  Interest bearing bank balances                          14             4           10              (7)         (12)            5 Federal funds sold                                       6             2            4              (8)          (9)            1                                               ----------------------------------------  ----------------------------------------- Total earning assets                               $ 2,226       $ 1,130      $ 1,096          $  209      $ 1,902       $(1,693)  Interest bearing deposits: Savings                                                 93            28           65             (11)           -           (11) Interest bearing checking                               30           (38)          68             (30)          (8)          (22) Money rate savings                                     142            17          125            (163)         (46)         (117) Certificates of deposit and other time deposits        683            30          653            (413)        (117)         (296)                                               ----------------------------------------  ----------------------------------------- Total interest bearing deposits                        948            37          911            (617)        (171)         (446)  Short term borrowed funds                              653           124          529             566          378           188 Long term debt                                         379           106          273             187          826          (639)                                               ----------------------------------------  ----------------------------------------- Total interest bearing liabilities                 $ 1,980       $   267      $ 1,713          $  136      $ 1,033       $  (897)                                               ----------------------------------------  ----------------------------------------- Change in Interest Earning Assets                    2,226         1,130        1,096             209        1,902        (1,693) Change in Interest Bearing Liabilities               1,980           267        1,713             136        1,033          (897)                                               ----------------------------------------  ----------------------------------------- Change in Net Interest Income                      $   246       $   863      $  (617)         $   73      $   869       $  (796)                                               ========================================  =========================================     Provision for Loan Losses               The  provision  for loan losses is a charge to earnings to maintain the reserve for loan losses at a level consistent with  management's  assessment of the risk of loss in the loan  portfolio in light of current  risk  management strategies, economic conditions and market trends. A decline in net charge-offs    since 2002 has allowed management to lower the provision during these years. The Company  recorded a provision for the twelve months ended  December 31, 2005, of $300 thousand, compared to $390 thousand in 2004 and $670 thousand in 2003.  Liquidity               Liquidity is a measure of the ability to fund loan  commitments and meet deposit maturities and withdrawals in a timely and  cost-effective  manner. These  needs  can  be  met  by  generating  profits,  attracting  new  deposits, converting assets  (including  short-term  investments,  mortgage loans held for sale  and   securities   available   for   sale)  to  cash   through   sales  or securitizations,   and  increasing   borrowings.   To  minimize  funding  risks, management  monitors  liquidity  monthly  through reviews of basic surplus which includes  investment  securities  available for pledging or borrowing  offset by short-term liabilities, along with projections of loan and deposits for the next 90 days.               Principal sources of liquidity,  both short and long-term,  for the Company  are asset  cash  flows,  customer  deposits  and the  ability to borrow against investment securities and loans. The Company's cash and cash equivalents increased  from $6.6 million at December  31, 2004,  to $9.8 million at December 31, 2005.  Cash provided by operating and financing  activities  during 2005 was $6.4 and $10.4  million,  respectively,  while  $13.6  million  was  devoted  to investing activities in 2005.               In 2005, the Company experienced a 13.7% growth in deposits and was able to reduce the amount of short and  long-term  borrowings  from the FHLB and other short-term  federal funds lines with  correspondent  banks. In addition to the  Company's  deposit  base,  management  believes  that the current  level of short-term  investments  and the  projected  cash flows from earning  assets and securities  available  for sale are more  than  adequate  to meet the  Company's current  liquidity  needs.  Additional  sources of  liquidity  available  to the Company include the ability to issue additional retail brokered  certificates of deposit  and the  ability  to sell or  securitize  a  portion  of the  Company's residential  first mortgage  portfolio.  The Company also has available  federal funds  lines and its  membership  in the FHLB to further  augment  liquidity  by providing a readily accessible source of funds at competitive rates.               The   Company's   accepts   funds  from  various  local  and  state governments.  Total public  deposits at December 31,  2005,  were $19.0  million compared to $28.8  million at December 31, 2004,  and $44.5  million at December 31, 2003. These deposits,  considered non-core,  generally are accepted on a bid basis and tend to fluctuate from year to year.  Management  does not believe the reductions in public  deposits since December 31, 2003 will affect the Company's ability to fund loans, engage in investment  activities or handle normal deposit fluctuations.               In the  ordinary  course  of  business,  the  Company  enters  into commitments  to extend credit to its  customers.  See Note O,  "Commitments  and Contingencies," to the Consolidated Financial Statements for a discussion of the Company's commitments to extend credit as of December 31, 2005.           The  Company's   liquidity  and  capital  resources  are  substantially dependent  on the  ability of the Bank to  transfer  funds to the Company in the form of  dividends,  loans and  advances.  Under federal law, the directors of a national  bank,  after  making  proper  deduction  for all  expenses  and  other deductions  required by the Comptroller of the Currency,  may credit net profits to the bank's undivided  profits  account,  and may declare a dividend from that account of so much of the net profits as they judge  expedient.  The Comptroller and the Federal  Reserve Board have each  indicated  that banking  organizations should  generally  pay dividends  only out of current  operating  earnings.  The Bank's  ability to pay  dividends  is also limited by  prudence,  statutory  and regulatory guidelines, and a variety of other factors.           Further, in connection with the acquisition of Natchez First Federal in 1993, the Bank assumed a liquidation account of approximately $2.8 million which has the effect of  prohibiting  the payment of dividends if the Bank's net worth would thereby be reduced below the amount required for the liquidation  account. Management  does not  anticipate  that this  restriction  will  have a  material adverse effect on the Bank's ability to pay dividends to the Company.               Certain  restrictions  exist on the ability of the Bank to transfer such funds to the  Company  in the form of loans.  Federal  Reserve  regulations limit  the  amount  the Bank may  loan to the  Company  unless  such  loans  are collateralized by specific obligations. At December 31, 2005, the maximum amount available  for  transfer  from the Bank to the Company in the form of loans on a secured basis was $1.9 million. There were no loans outstanding from the Bank to the Company at December 31, 2005.                The  Company's  asset/liability  committee  ("ALCO")  determines an appropriate  level of capital and liquidity  adequate to respond to the needs of depositors and  borrowers.  At December 31, 2005, the ALCO, in its report to the Board of Directors,  indicated that it believes that the Company's current level of liquidity is adequate.  Off-Balance-Sheet Arrangements               The Bank enters into  off-balance-sheet  arrangements in the normal course of its  business.  For a  discussion  of such  arrangements,  see Note A, "Summary  of  Significant  Accounting  Policies  -  Off-Balance-Sheet  Financial Instruments,"  "-  Interest-Rate  Cap  Agreements,"  and "-  Interest-Rate  Swap Agreements," Note O, "Commitments and Contingencies," and Note R, "Interest Rate Risk Management," in the Notes to the Consolidated  Financial  Statements of the Company. Such discussion is incorporated by reference into this item.  Contractual Obligations               The  Company's  long-term  contractual  obligations,  comprised  of operating  lease   agreements  and  long-term   borrowings,   including   junior subordinated  debt, can be found in Note I,  "Borrowings," and Note K, "Leases," in the Notes to the Consolidated Financial Statements of the Company.  Information Regarding our Common Stock               The Company's  common stock is listed on the NASDAQ Capital Market, and trades  under the symbol  "BKBK." The table below sets forth  dividends  per share and the high and low sales prices ranges for the common stock, as reported by NASDAQ,  for the last two fiscal years. The sales price information  reflects inter-dealer prices,  without retail mark-up,  mark-down or commission,  and may not represent actual transactions.                                  Dividends                                 Per Share               High              Low Year 2005          4th Quarter             $ 0.18                $21.48            $20.07          3rd Quarter             $ 0.18                $21.68            $19.56          2nd Quarter             $ 0.33                $22.80            $17.01          1st Quarter                                   $19.50            $17.70  Year 2004          4th Quarter             $ 0.32                $18.75            $16.75          3rd Quarter                                   $18.46            $16.82          2nd Quarter             $ 0.32                $20.00            $16.55          1st Quarter                                   $19.80            $16.64           On  March 1,  2005,  there  were  524  shareholders  of  record of  the Company's common stock.           Pursuant to  Mississippi  law, the  Company's  Board of  Directors  may authorize  the  Company  to pay cash  dividends  to its  shareholders.  The only limitation  on such a dividend  is that no  distribution  may be made if,  after giving effect to the  distribution  (a) the Company would not be able to pay its debts as they come due in the usual  course of  business,  or (b) the  Company's total assets would be less than the sum of its total liabilities plus the amount that would be needed,  if the Company  were to be  dissolved  at the time of the distribution,  to  satisfy  the  preferential  rights  upon  dissolution  of any shareholders  whose  preferential  rights are  superior to those  receiving  the distribution.           The principal  source of the Company's cash revenues are dividends from the Bank.  There are certain  limitations on the Bank's ability to pay dividends to  the  Company.   See  the  disclosures  under  the  heading   "Liquidity"  in Management's  Discussion  and  Analysis of  Financial  Condition  and Results of Operations.           The Company has declared  semiannual  cash  dividends in 2003 and 2004. Beginning in the second quarter of 2005, the Company began paying dividends on a quarterly basis. Dividends,  for the last three fiscal years total, on an annual basis, $.64 per share for 2003 and $.64 per share for 2004 and $.69 in 2005.    Historical dividend payout ratios,  expressed as a percentage of net income, for 2003, 2004 and 2005, were 49.38%, 47.58% and 45.24%, respectively.           The declaration of future dividends is at the discretion of the Company and generally will be dependent upon the earnings of the Bank, the assessment of capital requirements, considerations of safety and soundness, applicable law and regulation and other factors. Subject to the limitations referenced above, it is the present  policy of the Board of  Directors  of the  Company to continue  the declaration  of cash  dividends  on the  Company's  common  stock on a quarterly basis, to the extent practicable.           Retained  earnings of the Bank  available for payment of cash dividends under applicable  dividend  regulations was $4.6 million,  $2.8 million and $3.3 million as of December  31,  2005,  December  31,  2004,  and December 31, 2003, respectively. The Bank intends to retain most of these funds for capital and not pay them out as dividends.       Quarterly Financial Trends                                                                               2005                                      --------------------------------------------------------------------------------------------                                                First             Second             Third              Fourth              Year                                               Quarter           Quarter            Quarter            Quarter            to Date                                      ----------------- -----------------  -----------------  -----------------  -----------------       Interest Income                               $ 5,153           $ 5,413            $ 5,659            $ 5,775           $ 22,000 Interest Expense                                1,835             2,003              2,270              2,337              8,445                                      ----------------- -----------------  -----------------  -----------------  ----------------- Net Interest Income                             3,318             3,410              3,389              3,438             13,555 Provision for Loan Losses                          90                90                 60                 60                300 Non-interest Income                               606               589                642                578              2,415 Non-interest Expense                            2,843             2,781              2,876              3,127             11,627 Income Taxes                                      100               279                267                169                815                                      ----------------- -----------------  -----------------  -----------------  ----------------- Net Income                                      $ 891             $ 849              $ 828              $ 660            $ 3,228                                      ================= =================  =================  =================  ================= Per common share:     Basic                                      $ 0.42            $ 0.40             $ 0.39             $ 0.32             $ 1.53     Diluted                                      0.42              0.40               0.39               0.31               1.52     Cash Dividends                                  -              0.33               0.18               0.18               0.69                                                                                    2004                                      --------------------------------------------------------------------------------------------                                                First             Second             Third              Fourth              Year                                               Quarter           Quarter            Quarter            Quarter            to Date                                      ----------------- -----------------  -----------------  -----------------  -----------------       Interest Income                               $ 4,835           $ 4,956            $ 4,984            $ 4,999           $ 19,774 Interest Expense                                1,578             1,542              1,648              1,697              6,465                                      ----------------- -----------------  -----------------  -----------------  ----------------- Net Interest Income                             3,257             3,414              3,336              3,302             13,309 Provision for Loan Losses                         120               120                120                 30                390 Non-interest Income                               571               764                627                716              2,678 Non-interest Expense                            2,945             3,191              2,924              2,913             11,973 Income Taxes                                      139               186                200                255                780                                      ----------------- -----------------  -----------------  -----------------  ----------------- Net Income                                      $ 624             $ 681              $ 719              $ 820            $ 2,844                                      ================= =================  =================  =================  ================= Per common share:     Basic                                      $ 0.30            $ 0.32             $ 0.34             $ 0.39             $ 1.35     Diluted                                      0.29              0.32               0.34               0.39               1.34     Cash Dividends                                  -              0.32                  -               0.32               0.64     Quantitative and Qualitative Disclosures about Market Risk               Market risk reflects the potential risk of economic loss that would result from adverse  changes in interest  rates and market  prices.  The risk is usually seen in either reduced  market value of financial  assets or reduced net interest income in future periods.               The  Company  utilizes  an   asset/liability   committee   ("ALCO") comprised of four outside directors,  the Bank's Chief Executive Officer and its Chief Financial  Officer,  who acts as chairman of the committee.  The committee meets  monthly or more often as needed,  and its primary  responsibility  is the management  of the  assets and  liabilities  of the Bank to produce a stable and evenly rising flow of net interest income, an appropriate level of capital and a    level of liquidity  adequate to respond to the needs of depositors and borrowers and to take  advantage of earnings'  enhancement  opportunities.  The  committee manages the interest  rate risk  inherent in the loan,  investment,  deposit and borrowed funds  portfolios.  Further,  the committee manages the risk profile of the Company and determines strategies to maintain interest rate sensitivity at a low level.               The Company  utilizes an  electronically-based  financial  modeling system  that  measures  earnings  at risk.  After  supplying  the system with an interest rate scenario and a set of projections, the ALCO and Board of Directors receive a standard  reporting  package  showing the current and future impact of changes in interest  rates,  strategies  and tactics  and  tracking  information against budgets, other forecasts and actual performance.  The latest analysis at December  31,  2005,  showed the impact on earnings in both a falling and rising rate scenario compared to current earnings. A falling rate scenario of 200 basis points was  determined  to be the worst case scenario as Bank earnings fell .55% in the  first  year  and  2.61% in the  second  year of the  analysis.  As rates increase 200 basis points,  Bank earnings decline in the first year by 1.29% and improve in the second  year by .33%  compared to current  levels of income.  The impact on earnings in both  scenarios is within the  Company's  internal  policy limit of 10%,  which,  in  management's  opinion,  places the Bank in a low risk category.               The  Company  also  models  Economic  Value of  Equity  (EVE) as an asset/liability  management tool to measure market risk. At least  annually,  an EVE analysis is performed to determine the effect of the Bank's  franchise value under different rate scenarios.  This value is calculated by subtracting the net present  value  of the  bank's  liabilities  from the net  present  value of its assets.  The difference is referred to as "net portfolio  value," with the value calculated under each rate scenario  measured as a percentage change to the base portfolio  value.  The latest  analysis at December 31,  2005,  showed that in a rising  rate  scenario  as rates  moved up by 300 basis  points,  the Bank's net portfolio  value would decline by less than 8%. The committee as reported to the Board of Directors agreed that this was well within acceptable limits.                   DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS  This Report includes "forward-looking  statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange  Act of 1934,  as  amended.  Although  the  Company  believes  that the expectations reflected in such forward-looking  statements are reasonable,  such forward-looking  statements are based on numerous assumptions (some of which may prove to be incorrect) and are subject to risks and  uncertainties,  which could cause the actual results to differ  materially from the Company's  expectations. Forward-looking  statements have been and will be made in written  documents and oral  presentations  of the Company.  Such  statements are based on management's beliefs as well as assumptions  made by and information  currently  available to management. When used in the Company's documents (including this Report) or oral presentations,  the  words  "anticipate,"   "estimate,"  "expect,"  "objective," "projection,"  "forecast,"  "goal"  and  similar  expressions  are  intended  to identify  forward-looking  statements.  In addition to any assumptions and other factors  referred  to  specifically  in  connection  with  such  forward-looking statements,  factors  that could cause the  Company's  actual  results to differ materially from those contemplated in any  forward-looking  statements  include, among others,  increased competition,  regulatory factors,  economic conditions, changing market conditions,  availability or cost of capital, employee workforce factors,  costs and other effects of legal and administrative  proceedings,  and changes  in  federal,  state  or local  legislative  requirements.  The  Company undertakes  no obligation  to update or revise any  forward-looking  statements, whether as a result of  changes in actual  results,  changes in  assumptions  or other factors affecting such statements.  This  statement  has not been reviewed or confirmed for accuracy or relevance by the Office of the Comptroller of the Currency.    CORPORATE INFORMATION   Annual Meeting/ Principal Office:          3:30 P.M., Tuesday, April 25, 2006          Britton & Koontz Bank, National Association          500 Main Street          Natchez, Mississippi 39120  Transfer Agent and Registrar:          American Stock Transfer & Trust          59 Maiden Lane          New York, New York 10038          718-921-8200  Independent Auditors:          Hannis T. Bourgeois, LLP          2322 Tremont Drive, Suite 200          Baton Rouge, Louisiana 70809  For Additional Information Contact:          William M. Salters          Chief Financial Officer          601-445-5576          e-mail: corporate@bkbank.com  For copies of the Annual  Report on Form 10-K or Quarterly  Reports on Form 10-Q filed with the  Securities  and  Exchange  Commission  visit  www.bkbank.com  or contact:          Cliffie Anderson          Investor Relations          500 Main Street          P.O. Box 1407          Natchez, Mississippi 39121          601-445-5576          e-mail: corporate@bkbank.com  Questions regarding stock holdings,  certificates,  replacement,  dividends, and address changes should be addressed to:          American Stock Transfer & Trust          59 Maiden Lane          New York, New York 10038          718-921-8200       DIRECTORS   W. Page Ogden Chairman, President & Chief Executive Officer Britton & Koontz Capital Corporation Britton & Koontz Bank, National Association  Robert R. Punches Partner Gwin, Lewis & Punches, LLP, Attorneys Vice Chairman Britton & Koontz Capital Corporation Britton & Koontz Bank, National Association  W. W. Allen, Jr. President Allen Petroleum Services, Inc.  Craig A. Bradford, D.M.D. Pediatric Dentist  A. J. Ferguson Petroleum Geologist  George R. Kurz Principal Kurz & Hebert Commercial Real Estate, Inc.  Bethany L. Overton President Lambdin-Bisland Realty Co.  R. Andrew Patty II Member Sieberth and Patty, LLC, Attorneys  Vinod K. Thukral, Ph.D. Professor Tulane University    EXECUTIVE OFFICERS  W. Page Ogden Chairman, President & Chief Executive Officer Britton & Koontz Capital Corporation Britton & Koontz Bank, National Association  William M. Salters Treasurer Chief Financial Officer Britton & Koontz Capital Corporation Britton & Koontz Bank, National Association     DIRECTORS EMERITI:   W. J. Feltus III President Feltus Brothers, Ltd  C.H. Kaiser, Jr. Partner Jordan, Kaiser and Sessions, Engineering  Albert W. Metcalfe President Jordan Auto Company, Inc.       BRITTON & KOONTZ BANK, N.A. Locations:  Natchez, Mississippi    Main Office    500 Main Street, 39120     Tracetown Shopping Center    55 Seargent S. Prentiss Drive, 39120     St. Catherine    411 Highway 61 North, 39120   Vicksburg, Mississippi    South Frontage Road    2150 S. Frontage Road, 39180     Medical Center    2059 Highway 61 North, 39180   Baton Rouge, Louisiana    Bluebonnet    8810 Bluebonnet, 70810    EX-21 5 ex21.txt SUBSIDIARIES                                   EXHIBIT 21                           SUBSIDIARIES OF THE REGISTRANT            The following is a list of  subsidiaries of the Company at December 31, 2005:                                                                   Approximate                                          Jurisdiction          Percentage of                                               of             Voting Securities Subsidiaries                             Incorporation             Owned - ------------                            ---------------     -------------------  Britton & Koontz Bank, National           United States            100% Association  B&K Title Insurance Agency, Inc.          Mississippi              100%  Britton & Koontz Statutory Trust # 1      Mississippi              100%     EX-23 6 ex23.txt CONSENT                                   EXHIBIT 23                         CONSENT OF HANNIS T. BOURGEOIS, LLP                     INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS       We consent to the use of our Report of Independent  Registered Public Accounting Firm dated January 24, 2006 on the consolidated  financial statements of Britton & Koontz Capital  Corporation and  Subsidiaries for the years ended December 31, 2005,  2004 and 2003,  to be included in its Annual  Report  (Form 10-K) for the fiscal year ended  December  31,  2005 filed with the  Securities  and  Exchange Commission.   /s/ Hannis T. Bourgeois, LLP - ----------------------------- Hannis T. Bourgeois, LLP Baton Rouge, Louisiana February 24, 2006    EX-3.(II) 7 ex3ii.txt BYLAWS                                      EXHIBIT 3.2             By-laws of Britton & Koontz Capital Corporation, as amended                                             BYLAWS                                         OF                        BRITTON & KOONTZ CAPITAL CORPORATION                                NATCHEZ, MISSISSIPPI                                          Adopted                     July 21, 1982                               Amended & Restated          November 18, 1997                                                           January 20, 1998                                                           December 18, 2001                                                           February 19, 2002                                                           December 21, 2004                                        TABLE OF CONTENTS   Description                                                                Page  ARTICLE I.  OFFICES..........................................................5    SECTION 1.01.  Principal Office...........................................5    SECTION 1.02.  Registered Office..........................................5 ARTICLE II.  STOCKHOLDERS....................................................5    SECTION 2.01.  Annual Meeting.............................................5    SECTION 2.02.  Special Meetings...........................................5    SECTION 2.03.  Place of Meeting...........................................5    SECTION 2.04.  Notice of Meeting..........................................5    SECTION 2.05.  Closing of Transfer Books or Fixing of Record Date.........6    SECTION 2.06.  Presiding Officer and the Secretary........................6    SECTION 2.07.  Voting Lists...............................................6    SECTION 2.08.  Quorum.....................................................6    SECTION 2.09.  Proxies....................................................7    SECTION 2.10.  Voting of Shares...........................................7    SECTION 2.11.  Voting of Shares by Certain Holders........................7    SECTION 2.12.  Cumulative Voting..........................................8    SECTION 2.13.  Stockholder Proposals......................................8 ARTICLE III.  BOARD OF DIRECTORS.............................................9    SECTION 3.01.  General Powers.............................................9    SECTION 3.02.  Qualifications.............................................9    SECTION 3.03.  Number, Tenure and Election................................9    SECTION 3.04.  Regular Meetings..........................................10    SECTION 3.05.  Special Meetings..........................................10    SECTION 3.06.  Action by Directors Without a Meeting.....................10    SECTION 3.07.  Notice....................................................10    SECTION 3.08.  Quorum....................................................10    SECTION 3.09.  Organization..............................................11    SECTION 3.10.  Manner of Acting..........................................11    SECTION 3.11.  Compensation..............................................11    SECTION 3.12.  Presumption of Assent.....................................11    SECTION 3.13.  Vacancies.................................................11    SECTION 3.14.  Emergency Provisions......................................11    SECTION 3.15.  Meetings by Telephone Conference Calls....................12 ARTICLE IV.  OFFICERS.......................................................12    SECTION 4.01.  Generally.................................................12    SECTION 4.02.  Chairman of the Board of Directors........................12    SECTION 4.03.  Vice-Chairman of the Board of Directors...................12    SECTION 4.04.  President.................................................12        SECTION 4.05.  Vice Presidents...........................................12    SECTION 4.06.  Secretary.................................................13    SECTION 4.07.  Treasurer.................................................13    SECTION 4.08.  Other Officers............................................13    SECTION 4.09.  Removal...................................................13    SECTION 4.10.  Vacancies.................................................13    SECTION 4.11.  Salaries..................................................13 ARTICLE V.  STOCK CERTIFICATES..............................................13    SECTION 5.01.  Certificates for Shares...................................13    SECTION 5.02.  Transfer of Shares........................................14 ARTICLE VI. INDEMNIFICATION.................................................14    SECTION 6.01.  General Provision.........................................14    SECTION 6.02.  Suits by Corporation......................................14    SECTION 6.03.  Successful Defense........................................15    SECTION 6.04.  Authorization of Indemnification..........................15    SECTION 6.05.  Advance Payments..........................................15    SECTION 6.06.  Exclusivity...............................................15    SECTION 6.07.  Insurance.................................................16    SECTION 6.08.  Partial Enforcement.......................................16 ARTICLE VII.  CONTRACTS, LOANS, CHECKS, DEPOSITS AND INVESTMENTS............16    SECTION 7.01.  Contracts.................................................16    SECTION 7.02.  Loans.....................................................16    SECTION 7.03.  Checks, Drafts, etc.......................................16    SECTION 7.04.  Deposits..................................................16 ARTICLE VIII.  CONFIRMATION AND RATIFICATION OF CONTRACTS...................16    SECTION 8.01.  Conflicts of Interest.....................................16    SECTION 8.02.  Ratification by Stockholders..............................17 ARTICLE IX.  YEAR...........................................................17 ARTICLE X.  DIVIDENDS.......................................................17 ARTICLE XI.  SEAL...........................................................17 ARTICLE XII.  WAIVER OF NOTICE..............................................17 ARTICLE XIII.  BYLAWS.......................................................18    SECTION 13.01.  Inspection...............................................18    SECTION 13.02.  Amendments...............................................18                               BRITTON & KOONTZ CAPITAL CORPORATION                                NATCHEZ, MISSISSIPPI                             AMENDED AND RESTATED BYLAWS                                   ARTICLE I. OFFICES  SECTION 1.01.  Principal Office.  The principal office of the  Corporation shall  be at Natchez, Adams County, Mississippi.  The Corporation  may have such other  offices  as the  Board of  Directors  may  designate  or  the  business  of the  Corporation may require.  SECTION 1.02.  Registered  Office.  The  registered  office of  the  Corporation  required  by the Mississippi  Business  Corporation Act to be maintained in the  State of  Mississippi may be, but need not be, identical with the Corporation's  principal  office, and the address of the registered office may be changed from  time to time by the Board of Directors as provided by law.                              ARTICLE II. STOCKHOLDERS  SECTION 2.01.  Annual Meeting.  The annual meeting of the  stockholders  for the  purpose of electing directors and for the transaction of such other business as  may come before the meeting  shall be held on such date and at such time as the  Board of Directors shall  determine.  The annual meeting of stockholders may be  held conjointly with the annual meeting of the Board of Directors.  SECTION 2.02.  Special Meetings.  Special meetings of the stockholders,  for any  purpose,  may be called by the  Chairman of the Board,  the  President  or by a  majority of the Board of Directors, and shall be called by the President at the  request of the holders of not less than one-tenth of all the outstanding shares  of the  Corporation  entitled to vote at the meeting.  Such request shall state  the  purposes  of the  proposed  meeting.  Business  transacted  at all special  meetings shall be confined to the objects stated in the call.  SECTION 2.03.  Place of Meeting.  The Board of Directors may designate any place  as the place of meeting for any meeting of the stockholders.  If no designation  is made, the place of meeting shall be at the Corporation's principal office.  SECTION 2.04.  Notice of Meeting.  Written  notice stating the time and place of  the  meeting  and,  in case of a special  meeting,  the  purpose  for which the  meeting is  called,  shall be  delivered  not less than ten nor more than sixty  days before the date of the meeting, either personally or by mail, by or at the  direction of the President or the Secretary,  or the other persons  calling the  meeting,  to each  stockholder of record  entitled to vote at such meeting.  If  mailed such notice shall be deemed to be delivered when deposited in the United  States mail addressed to the  stockholder at such  stockholder's  address as it  appears on the stock transfer books of the Corporation.  SECTION  2.05.  Closing  of  Transfer  Books or Fixing of Record  Date.  For the  purpose of  determining  stockholders  entitled  to notice of or to vote at any  meeting of  stockholders  or any  adjournment  thereof,  or entitled to receive  payment of any dividend,  or in order to make a  determination  of stockholders  for any  other  purpose,  the Board of  Directors  may  provide  that the stock  transfer books shall be closed for a stated period not to exceed sixty days. If  the  stock  transfer  books  shall be closed  for the  purpose  of  determining  stockholders  entitled  to notice of or to vote at a meeting  of  stockholders,  such books  shall be closed for at least ten days  immediately  preceding  such  meeting.  In lieu of closing the stock transfer  books,  the Board of Directors  may fix in  advance a date as the  record  date for any such  determination  of  stockholders,  such  date to be not more  than  sixty  days  and,  in case of a  meeting of stockholders,  not less than ten days prior to the date on which the  particular  action,  requiring such  determination  of  stockholders,  is to be  taken.  If the stock  transfer books are not closed and no record date is fixed  for the  determination  of  stockholders  entitled to notice of or to vote at a  meeting of  stockholders,  or  stockholders  entitled  to receive  payment of a  dividend,  the date on which  notice  of the  meeting  is mailed or the date on  which the  resolution  of the Board of  Directors  declaring  such  dividend is  adopted, as the case may be, shall be the record date for such determination of  stockholders.  When a  determination  of  stockholders  entitled to vote at any  meeting  of  stockholders  has been  made as  provided  in this  section,  such  determination shall apply to any adjournment thereof.  SECTION 2.06.  Presiding  Officer and the  Secretary.  The  President or, in the  President's  absence,  an officer  designated by the Board of Directors,  shall  preside  at  all  stockholder  meetings,  and  the  Secretary  shall  serve  as  secretary.  Otherwise,  a  Chairman  and/or  Secretary  shall be elected by the  stockholders present to act in the absence of those officers.  SECTION 2.07.  Voting  Lists.  The officer or agent  having  charge of the stock  transfer  books of the  Corporation  shall make,  at least ten days before each  meeting of stockholders,  a complete list of the stockholders  entitled to vote  at such meeting,  arranged in alphabetical  order,  with the address of and the  number of shares held by each,  which  list,  for a period of ten days prior to  such meeting, shall be kept on file at the registered office of the Corporation  and shall be subject to inspection by any  stockholder  for any proper  purpose  during usual business hours.  Such list shall also be produced and kept open at  the time and place of the  meeting  and shall be subject to  inspection  by any  stockholder  for any proper  purpose  during the meeting.  The  original  stock  transfer book shall be prima facie evidence as to the identity of  stockholders  entitled to examine  such list or  transfer  books or to vote at any meeting of  stockholders.  SECTION 2.08.  Quorum.  A majority of the outstanding  shares of the Corporation  entitled to vote,  represented in person or by proxy, shall constitute a quorum  at a meeting of stockholders. If less than a majority of the outstanding shares  are  represented  at a meeting,  a majority  of the shares so  represented  may  adjourn the meeting from time to time without further notice. At such adjourned  meeting at which a quorum shall be present or represented,  any business may be  transacted  which  might have been  transacted  at the  meeting  as  originally  called.  The stockholders  present at a duly organized  meeting may continue to  transact business until adjournment,  notwithstanding  the withdrawal of enough  stockholders to leave less than a quorum, as long as not less than one-third of  the shares  entitled  to vote at the meeting  are  represented.  If a quorum is  present,  or the  above  conditions  are  fulfilled  so  that  business  may be  transacted,  the affirmative vote of the majority of the shares  represented at  the meeting and entitled to vote on the subject  matter shall be the act of the  stockholders,  unless the vote of a greater  number is  required  by law or the  articles of incorporation or elsewhere in these Bylaws by specific provision.  SECTION 2.09. Proxies.  At all meetings of stockholders,  a stockholder may vote  by proxy executed in writing by the  stockholder or by the  stockholder's  duly  authorized  attorney-in-fact.  Such proxy shall be filed with the  Secretary of  the Corporation before or at the time of meeting. No proxy shall be valid after  eleven months from the date of its execution,  unless otherwise provided in the  proxy.  SECTION 2.10. Voting of Shares.  Subject to the provisions of Section 2.12, each  outstanding  share  entitled  to vote shall be  entitled  to one vote upon each  matter submitted to a vote at a meeting of stockholders.  SECTION 2.11.  Voting of Shares by Certain Holders.  Shares standing in the name  of another  corporation or entity may be voted by such officer,  agent or proxy  as the bylaws of such corporation or entity may prescribe or, in the absence of  such  provision,  as the board of  directors  or other  governing  body of such  corporation or entity may designate.  Shares held by an administrator,  executor, guardian or conservator may be voted by such administrator, executor, guardian or conservator, either in person or by proxy, without a transfer of such shares into such administrator's,  executor's, guardian's or conservator's  name.  Shares standing in the name of a trustee may be voted by the trustee,  either in person or by proxy,  but no trustee shall be entitled to vote shares held by a trustee without a transfer of such shares into that trustee's name.  Shares  standing in the name of a receiver  may be voted by such  receiver,  and shares held by or under the control of a receiver may be voted by such  receiver without the transfer  thereof into the receiver's  name if authority to do so is contained  in an  appropriate  order of the  court by which  such  receiver  was appointed.  A  stockholder  whose  shares are pledged  shall be entitled to vote such shares until  the  shares  have  been  transferred  into the name of the  pledgee,  and thereafter the pledgee shall be entitled to vote the shares so transferred.    The Corporation may own shares of its own stock as provided by Mississippi  law. If the Corporation  owns shares of its own stock at any time, those shares shall not be voted,  directly or indirectly,  at any meeting, and shall not be counted in determining the total number of shares outstanding at any given time.  SECTION  2.12.   Cumulative   Voting.  At  each  election  for  directors  every  stockholder  entitled to vote at such election shall have the right to vote, in  person or by proxy,  the number of shares owned by that stockholder for as many  persons  as there are  directors  to be  elected  and for whose  election  that  stockholder  has a right to vote,  or to cumulate that  stockholder's  votes by  giving one candidate as many votes as the number of such  directors  multiplied  by the number of that stockholder's shares shall equal, or by distributing such  votes on the same principle among any number of such candidates.  SECTION 2.13.  Stockholder Proposals.     (a) If any stockholder desires to submit a proposal for action at any meeting       of  stockholders,  including the nomination of one or more individuals for       election as a director, such stockholder (hereinafter the "proponent") and       proposal must satisfy and comply with all of the following  conditions and       requirements:       (1)  At the time of  submitting  the proposal,  the  proponent  must be the           record or beneficial owner of at least 1% or $1,000 in market value of           shares  having  voting  power on the  proposal at the meeting and have           held  such  shares  for at least  one year,  and the  proponent  shall           continue to own such  shares  through the date on which the meeting is           held.       (2)  The  proposal  must be  submitted  in writing  and be  accompanied  by           written disclosure of the proponent's name, address,  number of shares           owned, the dates upon which such shares were acquired, and documentary           support of the proponent's ownership of such shares.       (3)  The  proposal  and other  required  material  must be  received by the           Corporation  a reasonable  period of time in advance of the meeting to           which the  proposal  relates  and in any event  must  comply  with the           notification  requirements  set forth in Rule 14a-8 of Regulation  14A           adopted  pursuant to the  Securities  Exchange Act of 1934, as amended           from time to time.       (4)  If the proposal  nominates one or more  individuals  for election as a           director,  the proposal  must include or be  accompanied  by a written           statement of each  nominee's  signed  consent to being named as such a           nominee and to serve if elected.       (5)  The  proposal  must  be  presented  at the  meeting  for  which  it is           submitted  by  the  proponent  or  a  duly  authorized  and  qualified           representative.     (b) If the proponent or proposal fails, in any respect, to satisfy and comply       with all of the foregoing conditions and requirements,  the proposal shall       be deemed as not properly  coming  before the meeting and no votes cast in       support of the proposal  shall be given effect,  except for the purpose of       determining the presence of a quorum.     (c) Notwithstanding  any  provision  of these  Bylaws  to the  contrary,  the       Corporation may exclude from  consideration by stockholders at any meeting       of  stockholders  any proposal  permitted or required to be excluded  from       consideration by applicable law, rule or regulation.     (d) This Section 2.13 shall not be applicable to proposals  placed before any       meeting of stockholders by action of the Board of Directors.                           ARTICLE III. BOARD OF DIRECTORS  SECTION 3.01.  General Powers. The business and affairs of the Corporation shall  be managed and  administered  by its Board of  Directors.  Except as limited by  law, all corporate powers shall be vested in and exercised by the Board.  SECTION  3.02.  Qualifications.  In  addition to such  qualifications  as may be  required by law or the  Articles of  Incorporation,  beginning  with the annual  meeting  in the year  2000,  no  individual  shall be  eligible  to serve or to  continue to serve as a director  upon that  director  attaining his or her 72nd  birthday.  Thereafter,  any  incumbent  director  who attains the age of 72 may  remain in office until the next succeeding  annual meeting of stockholders,  at  which  time  such   director   shall  retire  from  the  Board  of   Directors.  Notwithstanding  the  foregoing  provisions  of  this  Section  3.02,  retiring  directors may, upon invitation of the Board of Directors, continue for a period  of up to an additional  five (5) years in the capacity of  non-voting  advisory  members of the Board of Directors.  SECTION 3.03.  Number,  Tenure and Election.  The  Corporation  shall have three  classes of  directors,  each class to be as nearly equal in number as possible,  with the term of  office  of one  class  expiring  each  year.  The  number  of  directors  of the  Corporation  shall be not less  than  five (5) nor more than  twenty-five  (25), and the Board of Directors shall establish by resolution the  number of  directors  to serve and the number of  directors  to  comprise  each  class. At each annual  meeting,  the number of directors equal to the number of  the class whose term  expires at the time of such  meeting  shall be elected to  hold office for a term of three (3) years.  Except as otherwise  provided in Section 3.13 below,  directors shall be elected only at  annual  meetings  of  stockholders,  and any  vacancy  in the  Board of Directors, however created, shall be filled at the annual meeting succeeding the creation of such vacancy. If the number of directors is changed, any increase or decrease shall be apportioned  among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy  resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class,  but in no case will a decrease  in the number of  directors  shorten the term of any incumbent director.    No member of the Board of  Directors  may be  removed,  with or  without  cause, except at a meeting  called in  accordance  with the Bylaws  expressly  for that purpose and except upon a vote in favor of such removal of the holders of eighty percent  (80%) of the shares then  entitled to vote at an election of directors; and in the event that less than the entire Board is to be removed, no one of the directors may be removed if the votes cast against that director's removal would be sufficient to elect that director if then  cumulatively  voted at an election of the class of directors of which that director is a part.   SECTION 3.04.  Regular  Meetings.  A regular  meeting of the Board of Directors   shall be held  without  other  notice  than this bylaw,  immediately  after or   conjointly with, and at the same place as, the annual meeting of stockholders.   The Board of Directors  shall provide by resolution the time and place for the   holding of additional meetings without other notice than such resolution.   SECTION 3.05. Special Meetings.  Special meetings of the Board of Directors may   be called by or at the request of the President,  the Chairman of the Board of   Directors  or by a majority of the Board of  Directors.  The person or persons   authorized  to call  special  meetings of the Board of  Directors  may fix any   place as the place for holding any special  meeting of the Board of  Directors   called by them.   SECTION 3.06. Action by Directors Without a Meeting.  Any action required to be   taken at a meeting of the Board of Directors, or any action which may be taken   at a meeting of the directors,  may be taken without a meeting if a consent in   writing,  setting  forth the  action  so taken,  shall be signed by all of the   directors entitled to vote with respect to the subject matter thereof.   SECTION 3.07. Notice. Notice of any special meeting shall be given by telephone   or  telegram  or by  written  notice  delivered  personally  or mailed to each   director  at  the  director's  business  address.  If  notice  is by  personal   delivery,  the  delivery  shall be at  least  two  days  prior to the  special   meeting.  If notice is given by mail,  such notice  shall be  deposited in the   United States mail and addressed to each director at the  director's  business   address at least five days prior to any special meeting. If notice is given by   telegram, such notice shall be delivered to the telegram company at least five   days  prior to any  special  meeting.  If notice is given by  telephone,  such   notice  shall be made at least  two days  prior to any  special  meeting.  Any   director may waive notice of any meeting.  The  attendance  of a director at a   meeting shall  constitute a waiver of notice of such  meeting,  except where a   director  attends  a meeting  for the  express  purpose  of  objecting  to the   transaction  of any  business  because the meeting is not  lawfully  called or   convened.  Neither the business to be  transacted  at, nor the purpose of, any   meeting of the Board of Directors need be specified in the notice or waiver of   notice of such meeting.   SECTION 3.08. Quorum. A majority of the number of directors elected and serving   shall  constitute a quorum for the  transaction  of business at any meeting of   the Board of  Directors,  but if less than such a  majority  is  present  at a   meeting, a majority of the directors present may adjourn the meeting from time   to time without further notice.     SECTION  3.09.  Organization.  The Board of  Directors  shall  elect one of its   members Chairman of the Board, who shall preside at all meetings of the Board.   By  resolution  the  directors  shall  designate  from  among its  members  an   Executive Committee and may designate from its members other committees,  each   of which shall have such authority as is prescribed by the Board of Directors.   All such  committees  shall keep regular  minutes of their  meetings and shall   report their actions to the Board of Directors at its next meeting.   SECTION  3.10.  Manner of  Acting.  The act of the  majority  of the  directors   present  at a  meeting  at which a quorum is  present  shall be the act of the   Board of Directors.   SECTION  3.11.  Compensation.  By  resolution  of the Board of  Directors,  the   directors  may be paid for the expense of  attendance  at each  meeting of the   Board of Directors, and may be paid a fixed sum for attendance at each meeting   of the Board of Directors or a stated  salary as director.  Members of special   or  standing  committees  may  be  allowed  like  compensation  for  attending   meetings.  However,  no such payments shall preclude any director from serving   the  Corporation  as an  officer  or  in  any  other  capacity  and  receiving   compensation in that other capacity.   SECTION  3.12.  Presumption  of Assent.  A director of the  Corporation  who is   present at a meeting of the Board of  Directors at which action is taken shall   be  presumed  to have  assented to the action  taken  unless  that  director's   dissent shall be entered in the minutes of the meeting or unless that director   shall file a written  dissent  to such  action  with the person  acting as the   secretary of the meeting before the adjournment  thereof or shall forward such   dissent  by  registered  mail  to  the  Secretary  of the  Corporation  within   twenty-four  (24) hours after the  adjournment  of the meeting.  Such right to   dissent shall not apply to a director who voted in favor of such action.   SECTION 3.13. Vacancies.  When any vacancy occurs among the directors by reason   of death or  resignation,  the  remaining  members of the Board may  appoint a   director to fill such vacancy at any meeting of the Board.   SECTION 3.14. Emergency Provisions.  During the existence or continuance of any   emergency  resulting from an attack on the United States or during any nuclear   or atomic disaster:     (a) A meeting of the Board of Directors may be called by any director.     (b) Notice of any meeting  need be given only to such of the  directors as it       may be feasible to reach and by such means as may be feasible at the time.     (c) Any director in attendance at any meeting of the Board of Directors shall       constitute a quorum for the transaction of business.     (d) If all of the directors are absent or otherwise unavailable,  any officer       present shall be deemed to be a director for all purposes.     SECTION 3.15. Meetings by Telephone  Conference Calls. The members of the Board   of Directors may  participate  in and hold a meeting of the Board of Directors   by means of conference telephone or similar communications equipment, provided   that all persons  participating  in the meeting can hear and communicate  with   each other, and  participation in such a meeting shall constitute  presence at   such meeting by any such director,  except where a person  participates in the   meeting  for the  express  purpose  of  objecting  to the  transaction  of any   business on the ground that the meeting is not lawfully called or convened.                                ARTICLE IV. OFFICERS   SECTION 4.01.  Generally.  The officers of the  Corporation  shall consist of a   Chairman of the Board of Directors, a Vice-Chairman of the Board of Directors,   a President,  one or more Vice Presidents,  a Secretary, one or more Assistant   Secretaries  and a  Treasurer.  Officers  shall  be  elected  by the  Board of   Directors.  Each  officer  shall hold office  until a successor is elected and   qualified or until that officer's earlier  resignation or removal.  Any one or   more offices may be held by the same  person,  except the offices of President   and Secretary.   SECTION 4.02. Chairman of the Board of Directors.  The Board of Directors shall   appoint one of its members to serve as the Chairman of the Board.  Such person   shall preside at all meetings of the Board of  Directors.  The Chairman of the   Board shall supervise the carrying out of the policies  adopted or approved by   the Board; and shall have such additional powers,  duties and responsibilities   as are prescribed by the Board of Directors.   SECTION 4.03.  Vice-Chairman of the Board of Directors.  The Board of Directors   shall appoint one of its members to be the  Vice-Chairman.  The  Vice-Chairman   shall act during the absence of the Chairman,  and the  Vice-Chairman,  during   the absence of the Chairman,  shall have all of the power,  authority,  duties   and responsibilities of the Chairman.   SECTION 4.04.  President.  The Board of Directors shall appoint a President who   shall be the Chief Executive  Officer of the Corporation.  The President shall   have general  executive  powers,  as well as the specific powers  conferred by   these  Bylaws.  The  President  shall also have and may exercise  such further   powers  and  duties  as from  time to time may be  prescribed  by the Board of   Directors.  One of the Vice  Presidents  shall be  designated  by the Board of   Directors,  in the absence of the President,  to perform all the duties of the   President.   SECTION 4.05. Vice  Presidents.  The Board of Directors may appoint one or more   Vice Presidents and shall have the authority to designate different classes of   Vice Presidents,  including Executive Vice Presidents, Senior Vice Presidents,   Assistant  Vice  Presidents,  and such other  classes as from time to time may   appear to the Board of  Directors  to be required or desirable to transact the   business of the  Corporation.  Each Vice President  shall have such powers and   duties as may be prescribed by the President or by the Board of Directors.     SECTION 4.06. Secretary.  The Board of Directors shall appoint a Secretary, and   may appoint one or more Assistant Secretaries, who shall: (a) keep the minutes   of the stockholders and of the Board of Directors  meetings;  (b) see that all   notices are duly given in accordance  with the  provisions of these Bylaws and   as required by law; (c) be custodian of the corporate  records and of the seal   of the  Corporation and see that the seal of the Corporation is affixed to all   documents,  the execution of which on behalf of the Corporation under its seal   is duly  authorized;  (d) keep a register of the post  office  address of each   stockholder which shall be furnished to the Secretary by each stockholder; (e)   sign with the President or other designated  officer stock certificates of the   Corporation;  (f) have charge of the stock transfer books of the  Corporation;   and (g) in general  perform all duties incident to the office of Secretary and   such other duties as may from time to time be  prescribed  by the President or   by the Board of Directors.   SECTION 4.07.  Treasurer.  The Treasurer  shall: (a) have charge and custody of   and be responsible  for all funds and securities of the  Corporation;  receive   and give receipts for monies due and payable to the  Corporation,  and deposit   all such monies in the name of the Corporation in such banks,  trust companies   or other  depositories  as shall be selected in accordance with the provisions   of Article VII of these Bylaws;  and (b) in general  perform all of the duties   incident to the office of Treasurer and such other duties as from time to time   may be prescribed by the President or by the Board of Directors.   SECTION 4.08. Other Officers. The Board of Directors may appoint other officers   as from time to time may appear to the Board of  Directors  to be  required or   desirable to transact the business of the  Corporation.  Such  officers  shall   exercise such powers and perform such duties as pertain to their  offices,  or   as may be prescribed by the President or by the Board of Directors.   SECTION 4.09.  Removal.  Any officer or agent elected or appointed by the Board   of  Directors  may be  removed by the Board of  Directors  at any time with or   without  cause,  and  the  election  of  another  person  to an  office  shall   automatically remove the incumbent from such office.   SECTION 4.10.  Vacancies.  The Board of Directors  shall have authority to fill   any vacancy  occurring  in the offices of the  Corporation  by election at any   meeting of the Board of Directors.   SECTION 4.11.  Salaries.  The salaries of the officers shall be fixed from time   to time by the Board of  Directors  and no  officer  shall be  prevented  from   receiving a salary by reason of the fact that that  officer is also a director   or employee of the  Corporation.  The  President  may fix the  salaries of the   employees  who are not  officers,  subject  to the  approval  of the  Board of   Directors.                              ARTICLE V. STOCK CERTIFICATES   SECTION 5.01. Certificates for Shares.  Certificates representing shares of the   Corporation  shall  be in such  form as shall be  determined  by the  Board of   Directors.  Such  certificates  shall be  signed  by the  President  or a Vice   President and by the Secretary or an Assistant Secretary and shall be attested   by the corporate  seal.  All  certificates  for shares shall be  consecutively   numbered or otherwise identified.  The name and address of each person to whom   shares  are  issued,  and the  number  of shares  and date of issue,  shall be   entered  on the stock  transfer  books of the  Corporation.  All  certificates   surrendered  to the  Corporation  for transfer  shall be canceled,  and no new   certificates shall be issued until the former certificate for a like number of   shares shall have been  surrendered  and  cancelled,  except that in case of a   lost, destroyed or mutilated certificate a new one may be issued therefor upon   such terms and  indemnity to the  Corporation  as the Board of  Directors  may   prescribe. No stock certificate will be issued for fractional shares of stock,   and no dividend payment will be made for fractional shares of stock.   SECTION 5.02.  Transfer of Shares.  Transfer of shares of the Corporation shall   be made only on the stock transfer  books of the  Corporation by the holder of   record  thereof or by such holder's  legal  representative,  who shall furnish   proper  evidence of authority  to the  Secretary  of the  Corporation,  and on   surrender for cancellation of the certificate for such shares. The Corporation   shall be  entitled to treat the holder of record of any shares of stock as the   holder in fact  thereof and shall not be bound to recognize  any  equitable or   other claim to or  interest  in such  shares on the part of any other  person,   whether or not the Corporation shall have express or other notice thereof.                             ARTICLE VI. INDEMNIFICATION   SECTION 6.01. General Provision. Subject to the provisions of Section 6.04, the   Corporation shall indemnify any person who was or is a party, or is threatened   to be made a party, to any  threatened,  pending or completed  claim,  action,   suit or proceeding, whether civil, criminal,  administrative or investigative,   including   appeals  (other  than  an  action  by  or  in  the  right  of  the   Corporation),  by reason of the fact  that such  person is or was a  director,   officer,  employee  or agent of the  Corporation,  or is or was serving at the   request of the Corporation as a director,  officer, partner, employee or agent   of another corporation, partnership, joint venture, trust or other enterprise,   against expenses  (including  attorneys' fees),  judgments,  fines and amounts   paid  in  settlement  actually  and  reasonably  incurred  by such  person  in   connection  with such action,  suit or proceeding if such person acted in good   faith and in a manner such person reasonably  believed to be in or not opposed   to the best  interests of the  Corporation,  and, with respect to any criminal   action or proceeding, had no reasonable cause to believe such person's conduct   was unlawful.  The termination of any action,  suit or proceeding by judgment,   order,  settlement,  conviction,  or  upon a plea of  nolo  contendere  or its   equivalent, shall not, of itself, create a presumption that the person did not   act in good faith and in a manner which such person reasonably  believed to be   in or not opposed to the best interests of the Corporation,  and, with respect   to any criminal  action or proceeding,  had  reasonable  cause to believe that   such person's conduct was unlawful.     SECTION 6.02. Suits by Corporation.  Subject to the provisions of Section 6.04,   the  Corporation  shall  indemnify  any  person  who was or is a party,  or is   threatened to be made a party, to any threatened,  pending or completed claim,   action or suit by or in the right of the  Corporation to procure a judgment in   its  favor by  reason  of the fact  that  such  person  is or was a  director,   officer,  employee  or agent of the  Corporation,  or is or was serving at the   request of the Corporation as a director,  officer, partner, employee or agent   of another corporation, partnership, joint venture, trust or other enterprise,   against expenses (including  attorneys' fees) actually and reasonably incurred   by such person in connection  with the defense or settlement of such action or   suit if such person acted in good faith and in a manner such person reasonably   believed to be in or not  opposed to the best  interests  of the  Corporation,   except that no indemnification shall be made in respect of any claim, issue or   matter as to which  such  person  shall  have been  adjudged  to be liable for   negligence  or  misconduct  in the  performance  of such  person's duty to the   Corporation  unless and only to the extent that the court in which such action   or suit was  brought  shall  determine  upon  application  that,  despite  the   adjudication  of liability but in view of all the  circumstances  of the case,   such person is fairly and  reasonably  entitled to indemnity for such expenses   which such court shall deem proper.   SECTION  6.03.  Successful  Defense.  To the extent that a  director,  officer,   employee  or agent of the  Corporation  has been  successful  on the merits or   otherwise in defense of any action, suit or proceeding referred to in Sections   6.01 or 6.02, or in defense of any claim, issue or matter therein, such person   shall be indemnified against expenses (including attorneys' fees) actually and   reasonably  incurred by such person in connection  therewith,  notwithstanding   that such person has not been  successful on any other claim,  issue or matter   in any such action, suit or proceeding.   SECTION 6.04.  Authorization  of  Indemnification.  Any  indemnification  under   Sections  6.01  or 6.02  shall  (unless  ordered  by a  court)  be made by the   Corporation only as authorized in the specific case upon a determination  that   indemnification of the director,  officer,  employee or agent is proper in the   circumstances  because such person has met the applicable  standard of conduct   set forth in  Section  6.01 or 6.02,  as the case may be.  Such  determination   shall be made (l) by the Board of  Directors  by a  majority  vote of a quorum   consisting  of  directors  who were not  parties  to, or who have been  wholly   successful  on the merits or otherwise  with  respect to, such claim,  action,   suit or  proceeding,  or (2) if such a quorum is not  obtainable,  or, even if   obtainable,  if a quorum of disinterested directors so directs, by independent   legal counsel in a written opinion, or (3) by the stockholders.   SECTION 6.05. Advance Payments.  Expenses (including  attorneys' fees) incurred   in defending a civil or criminal claim, action, suit or proceeding may be paid   by the Corporation in advance of the final disposition of such claim,  action,   suit or proceeding  as authorized in the manner  provided in Section 6.04 upon   receipt of an undertaking by or on behalf of the director,  officer,  employee   or agent to repay  such  amount if and to the  extent it shall  ultimately  be   determined  that  such  person  is  not  entitled  to be  indemnified  by  the   Corporation as authorized in this section.     SECTION 6.06. Exclusivity. The indemnification provided by Article VI shall not   be deemed exclusive of, and shall be in addition to, any other rights to which   those indemnified may be entitled under any statute, rule of law, provision in   the Corporation's  certificate of incorporation,  bylaws,  agreement,  vote of   stockholders  or  disinterested  directors or otherwise,  both as to action in   their  official  capacity and as to action in another  capacity  while holding   such  office,  shall  continue as to a person who has ceased to be a director,   officer,  employee  or agent  and shall  inure to the  benefit  of the  heirs,   executors and administrators of such a person.   SECTION 6.07.  Insurance.  The Corporation shall have the power to purchase and   maintain insurance on behalf of any person who is or was a director,  officer,   employee or agent of the  Corporation,  or is or was serving at the request of   the Corporation as a director,  officer, partner, employee or agent of another   corporation,  partnership,  joint venture, trust or other enterprise,  against   any liability  asserted against such person and incurred by such person in any   such capacity,  or arising out of such person's status as such, whether or not   the  Corporation  would have the power to indemnify  such person  against such   liability under the provisions of this Section.   SECTION 6.08. Partial  Enforcement.  The invalidity or  unenforceability of any   provision hereof shall not in any way affect the remaining  provisions hereof,   which shall continue in full force and effect.           ARTICLE VII. CONTRACTS, LOANS, CHECKS, DEPOSITS AND INVESTMENTS   SECTION 7.01.  Contracts.  The Board of Directors  may authorize any officer or   agent to enter into any contract or execute and deliver any  instrument in the   name of and on behalf of the Corporation, and such authority may be general or   confined to specific instances.   SECTION 7.02.  Loans. No loans shall be contracted on behalf of the Corporation   and no evidences of indebtedness shall be issued in its name unless authorized   by a resolution  of the Board of Directors.  Such  authority may be general or   confined to specific  instances.  Loans may be made by the  Corporation to its   officers or directors subject to the guidelines imposed by law.   SECTION 7.03. Checks,  Drafts, etc. All checks,  drafts or other orders for the   payment of money, notes or other evidences of indebtedness  issued in the name   of the  Corporation,  shall be signed by such  officers  and/or  agents of the   Corporation  and in such  manner as shall from time to time be  determined  by   resolution of the Board of Directors.   SECTION 7.04.  Deposits.  All funds of the Corporation  not otherwise  employed   shall be deposited from time to time to the credit of the  Corporation in such   banks,  trust  companies or other  depositories  as the Board of Directors may   select.                ARTICLE VIII. CONFIRMATION AND RATIFICATION OF CONTRACTS   SECTION 8.01.  Conflicts of Interest.  In the absence of fraud,  no contract or   other  transaction of the Corporation  shall be affected or invalidated in any   way by the fact that any of the  directors of the  Corporation  are in any way   interested  in  or  connected  with  any  other  party  to  such  contract  or   transaction  or are  themselves  parties  to  such  contract  or  transaction,   provided that such interest shall be fully disclosed or otherwise known to the   Board of Directors  at its meeting at which such  contract or  transaction  is   authorized or confirmed, and provided further that at the meeting of the Board   of Directors  authorizing or confirming  such contract or  transaction,  there   shall be present a quorum of directors not so interested or connected and such   contract or transaction shall be approved by a majority of such quorum,  which   majority  shall  consist of directors  not so  interested  or  connected.  Any   director of the  Corporation  may vote upon any contract or other  transaction   between the Corporation and any subsidiary or affiliated  corporation  without   regard to the fact that that director is also a director of such subsidiary or   affiliated corporation.   SECTION 8.02. Ratification by Stockholders.  Any contract,  transaction, or act   of the Corporation or of the Board of Directors or any committee thereof which   shall be ratified by a majority of the  stockholders of the Corporation  shall   be as valid  and  binding  as  though  ratified  by every  stockholder  of the   Corporation;  provided,  however,  that any  failure  of the  stockholders  to   approve or ratify such contract,  transaction,  or act, when and if submitted,   shall  not be  deemed  in any way to  invalidate  the same or to  deprive  the   Corporation,  its  officers or  directors  of their right to proceed with such   contract, transaction or action.                                  ARTICLE IX. YEAR  The Corporation's tax and accounting year shall be a fiscal year ending December 31.                                ARTICLE X. DIVIDENDS  The Board of Directors may from time to time declare,  and the  Corporation  may pay,  dividends on its outstanding  shares,  payable in cash, other assets or by way of stock dividends. No dividends will be paid with respect to any fractional shares of stock.                                  ARTICLE XI. SEAL  The  Board of Directors  shall provide a corporate  seal which shall be circular in form and shall have inscribed  thereon the name of the  Corporation, its state of incorporation and the words "Corporate Seal."                            ARTICLE XII. WAIVER OF NOTICE  Whenever  any notice is required to be given to any  stockholder  or director of the Corporation under the provisions of these Bylaws, the Corporation's articles of  incorporation  or the laws of the State of Mississippi,  a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated  therein,  shall be deemed  equivalent to the giving of such notice.                                  ARTICLE XIII. BYLAWS   SECTION 13.01.  Inspection.  A copy of the Bylaws shall at all times be kept at   the principal  office of the  Corporation  and shall be open for inspection to   all stockholders for any proper purpose during regular business hours.   SECTION 13.02. Amendments. These Bylaws may be altered, amended or repealed and   new Bylaws may be adopted by a two-thirds  (2/3rds) vote of the directors then   holding office at any meeting of the Board of Directors.                                ARTICLES OF AMENDMENT TO                                   THE BYLAWS OF                       BRITTON & KOONTZ CAPITAL CORPORATION            Pursuant to the  provisions of Section  79-4-10.20 of the  Mississippi Business  Corporation  Act and in accordance with the Bylaws of Britton & Koontz Capital Corporation, the Board of Directors hereby adopted on February 21, 2006, the  following  Articles of Amendment to the Bylaws of Britton & Koontz  Capital Corporation:           ONE: Section 2.13 of Article  II  of  the  Bylaws is hereby deleted and                 replaced in its entirety with the following:                    SECTION 2.13.  Notice of Stockholder Business and Nominations.                             (a) Annual Meetings of Stockholders.                                      (i)  Nominations  of persons for election to                   the Board of Directors of the  Corporation and the proposal of                   business to be considered by the  stockholders  may be made at                   an  annual  meeting  of  stockholders   (A)  pursuant  to  the                   Corporation's  notice of meeting delivered pursuant to Section                   2.04 of these  Amended and Restated  Bylaws,  (B) by or at the                   direction of the Board of Directors or (C) by any  stockholder                   of the Corporation who is entitled to vote at the meeting, who                   complied with the notice  procedures set forth in clauses (ii)                   and (iii) of this Section 2.13(a) and who was a stockholder of                   record at the time such notice is delivered  to the  Secretary                   of the Corporation.                                      (ii) For nominations or other business to be                   properly  brought  before an annual  meeting by a  stockholder                   pursuant to clause (C) of paragraph (a) (i) of this Bylaw, the                   stockholder  must have given timely notice  thereof in writing                   to the  Secretary  of the  Corporation  and,  in the  case  of                   business  other than  nominations,  such other  business  must                   otherwise be a proper  matter for  stockholder  action.  To be                   timely,  a  stockholder's  notice  shall be  delivered  to the                   Secretary   at  the   principal   executive   offices  of  the                   Corporation  not less  than  ninety  days  nor  more  than one                   hundred and twenty days prior to the first  anniversary of the                   immediately preceding year's annual meeting; provided however,                   that in the  event  that the  date of the  annual  meeting  is                   advanced  by more than  thirty  days,  or delayed by more than                   ninety  days,  from  such  anniversary  date,  notice  by  the                   stockholder to be timely must be so delivered not earlier than                   the one hundred and twentieth day prior to such annual meeting                   and not later than the close of  business  on the later of the                   ninetieth  day prior to such  annual  meeting or the tenth day                   following the day on which public  announcement of the date of                   such  meeting  is first  made.  In no event  shall the  public                   announcement  of an adjournment or  postponement  of an annual                   meeting  commence  a new  time  period  for  the  giving  of a                   stockholder's  notice as described  in this  Section  2.13(a).                   Such  stockholder's  notice  shall  set  forth  (A) as to each                   person whom the stockholder  proposes to nominate for election                   or  reelection  as a  director,  the reason  for  making  such                   nomination,  all  information  relating to such person that is                   required  to be  disclosed  in  solicitations  of proxies  for                   election of  directors  pursuant to  Regulation  14A under the                   Securities  Exchange Act of 1934,  as amended  (the  "Exchange                   Act"),  including,  without limitation,  such person's written                   consent to being named in the proxy statement as a nominee and                   to serving as a director if elected,  and all  arrangements or                   understandings  between  or among the  stockholder  giving the                      notice and each nominee; (B) as to any other business that the                   stockholder  proposes  to bring  before the  meeting,  a brief                   description  of the business  desired to be brought before the                   meeting,  the  reasons  for  conducting  such  business at the                   meeting and any  material  interest  in such  business of such                   stockholder and the beneficial  owner, if any, on whose behalf                   the proposal is made; and (C) as to the stockholder giving the                   notice and the beneficial  owner,  if any, on whose behalf the                   nomination  or  proposal  is made (1) the name and  address of                   such stockholder,  as they appear on the Corporation's  books,                   and of such  beneficial  owner and (2) the class and number of                   shares of the Corporation which are owned  beneficially and of                   record by such stockholder and such beneficial owner.                                      (iii) Notwithstanding anything in the second                   sentence  of  clause  (ii)  of  this  Section  2.13(a)  to the                   contrary,  in the event  that the  number of  directors  to be                   elected  to the  Board  of  Directors  of the  Corporation  is                   increased  and there is no public  announcement  naming all of                   the  nominees  for  director  or  specifying  the  size of the                   increased  Board of Directors made by the Corporation at least                   one  hundred  days  prior  to  the  first  anniversary  of the                   immediately  preceding year's annual meeting,  a stockholder's                   notice required by this Bylaw shall also be considered timely,                   but  only  with  respect  to  nominees  for any new  positions                   created  by such  increase,  if it shall be  delivered  to the                   Secretary   at  the   principal   executive   offices  of  the                   Corporation  not later than the close of business on the tenth                   day  following  the day on which such public  announcement  is                   first made by the Corporation.                             (b) Special Meetings of Stockholders.                             Only such  business  shall be  conducted at a special                   meeting of  stockholders as shall have been brought before the                   meeting  pursuant  to  the  Corporation's  notice  of  meeting                   pursuant to Section 2.04 of these Amended and Restated Bylaws.                   Nominations  of persons for election to the Board of Directors                   may be made at a  special  meeting  of  stockholders  at which                   directors  are to be  elected  pursuant  to the  Corporation's                   notice of meeting (i) by or at the  direction  of the Board of                   Directors or (ii) by any stockholder of the Corporation who is                   entitled to vote at the meeting,  who complies with the notice                   procedures set forth in this Bylaw and who is a stockholder of                   record at the time such notice is delivered  to the  Secretary                   of the  Corporation.  In the  event  the  Corporation  calls a                   special  meeting of  stockholders  for the purpose of electing                   one or more  directors  to the  Board of  Directors,  any such                   stockholder  may nominate  such number of persons for election                   to such  position(s)  as are  specified  in the  Corporation's                   Notice of Meeting, if the stockholder's  notice as required by                   clause  (ii) of this  Section  2.13(a)  of these  Amended  and                   Restated  Bylaws shall be  delivered  to the  Secretary at the                   principal  executive  offices of the  Corporation  not earlier                   than the one hundred and  twentieth  day prior to such special                   meeting  and not later than the close of business on the later                   of the  ninetieth  day prior to such  special  meeting  or the                   tenth day  following the day on which public  announcement  is                   first  made of the  date  of the  special  meeting  and of the                   nominees  proposed by the Board of  Directors to be elected at                   such meeting.  In no event shall the public announcement of an                   adjournment or postponement  of a special  meeting  commence a                   new time  period for the giving of a  stockholder's  notice as                   described above.                               (c)      General                                      (i)  Only  persons  who  are   nominated  in                   accordance  with the  procedures set forth in this Bylaw shall                   be  eligible  to be  elected  as  directors  at a  meeting  of                   stockholders  and only such  business  shall be conducted at a                   meeting of  stockholders as shall have been brought before the                   meeting in accordance  with the  procedures  set forth in this                   Bylaw.  Except as  otherwise  provided by law, the Amended and                   Restated  Certificate  of  Incorporation  or these Amended and                   Restated  Bylaws,  the  Chairman  of the Board  shall have the                   power  and  duty to  determine  whether  a  nomination  or any                   business proposed to be brought before the meeting was made in                   accordance with the procedures set forth in this Bylaw and, if                   any proposed  nomination or business is not in compliance with                   this Bylaw,  to declare  that (a) such  defective  proposal or                   nomination  shall be  disregarded  and (b) any  votes  cast in                   support of such  defective  proposal  or  nomination  shall be                   given no effect  except  for the  purpose of  determining  the                   presence of a quorum with respect to such matters.                                      (ii) For  purposes  of this  Bylaw,  "public                   announcement"   shall  mean  disclosure  in  a  press  release                   distributed to the Dow Jones News Service, Associated Press or                   comparable  national  news  service or in a document  publicly                   filed by the  Corporation  with the  Securities  and  Exchange                   Commission.                                      (iii)    Notwithstanding    the    foregoing                   provisions of this Bylaw, a stockholder shall also comply with                   all applicable  requirements of the Exchange Act and the rules                   and  regulations  thereunder  with  respect to the matters set                   forth in this Bylaw.  Nothing in this Bylaw shall be deemed to                   affect any rights of  stockholders  to  request  inclusion  of                   proposals in the  Corporation's  proxy  statement  pursuant to                   Rule 14a-8 under the Exchange Act.    -----END PRIVACY-ENHANCED MESSAGE-----