Net income for 2005 totaled $30.3 million, or $1.66 per diluted share. This compares to $29.4 million, or $1.74 per diluted share in 2004, and $25.2 million, or $1.52 per diluted share in 2003. Net income in 2004 included a onetime, after-tax gain of $4.2 million, or $.25 per diluted share, from the sale of the Bank’s credit card portfolio in August 2004.

The growth in core earnings (reported earnings excluding the one-time, after-tax gain on sale of credit card portfolio) for 2005 of $5.2 million, or $.17 per diluted share, was primarily attributable to growth in operating revenue (defined as the total of net interest income and noninterest income) of $29.4 million, or 22.7%, partially offset by a higher loan loss provision of $0.4 million, or 17.1%, an increase in noninterest expense of $20.6 million, or 23.1%, and a higher income tax provision of $3.3 million, or 25.1%. The increase in operating revenue was driven by a 27.8% increase in net interest income and a 12.6% increase in noninterest income.

The growth in net interest income for 2005 reflects earning asset growth and an improved net interest margin. Higher deposit service charge fees, mortgage banking revenues, asset management fees, and merchant services fees drove the increase in noninterest income. The increase in noninterest expense is primarily attributable to higher operating costs associated with the integration of two recent acquisitions, which added 12 new offices to the Capital City franchise, and marketing costs supporting our new "Absolutely Free Checking" product.

A condensed earnings summary for the last three years is presented in Table 1.

Net interest income represents our single largest source of earnings and is equal to interest income and fees generated by earning assets, less interest expense paid on interest bearing liabilities. An analysis of our net interest income, including average yields and rates, is presented in Tables 2 and 3. This information is presented on a "taxable equivalent" basis to reflect the taxexempt status of income earned on certain loans and investments, the majority of which are state and local government debt obligations.

In 2005, taxable equivalent net interest income increased $23.9 million, or 27.4%. This follows an increase of $5.9 million, or 7.2%, in 2004, and a decrease of $1.9 million, or 2.3%, in 2003. The favorable impact in 2005 resulted from a $397.8 million, or 22.2%, growth in average earning assets and a 21 basis point improvement in the net interest margin percentage.

For the year 2005, taxable equivalent interest income increased $38.5 million, or 37.5%, over 2004, and increased $6.5 million, or 6.7%, in 2004 over 2003. Growth in 2005 was driven by strong organic loan growth, loans acquired in connection with Recent Acquisitions, and higher yields on earning assets. Rising interest rates, coupled with new loan production and the repricing of existing earning assets were the primary factors contributing to a 72 basis point improvement in the yield on earning assets, which increased from 5.74% in 2004 to 6.46% for 2005. This compares to an 18 basis point reduction in 2004 over 2003. As shown in Table 3, the loan portfolio was a significant contributor to the increase in interest income.

Interest expense increased $14.6 million, or 94.7%, over 2004, and $0.6 million, or 4.1%, in 2004 over 2003. Rising interest rates and growth in interest bearing liabilities drove the increase in 2005. However, the impact of rising rates was partially offset by a shift in mix, as certificates of deposit (generally a higher cost deposit product) declined relative to total deposits. Certificates of deposit, as a percent of total average deposits, declined from 28.7% in 2004 to 28.2% in 2005. The average rate paid on interest bearing liabilities in 2005 increased 64 basis points compared to 2004, reflecting both deposit competition and the Federal Reserve's continued increases in the federal funds target rate.

Our interest rate spread (defined as the taxable equivalent yield on average earning assets less the average rate paid on interest bearing liabilities) increased 8 basis points in 2005 and decreased 13 basis points in 2004. The increase in 2005 was primarily attributable to the higher yields on earning assets.

Our net interest margin (defined as taxable equivalent interest income less interest expense divided by average earning assets) was 5.09% in 2005, compared to 4.88% in 2004 and 5.01% in 2003. In 2005, the higher yields on earning assets (partially offset by higher rates paid on interest bearing liabilities) resulted in a 21 basis point improvement in the margin.

Loan growth is anticipated to have a favorable impact on net interest income during the upcoming year along with any further increases in the Federal Reserve's target rate on overnight funds. However, these improvements will be partially offset by the rising cost of funds. A further discussion of our earning assets and funding sources can be found in the section entitled "Financial Condition."

Net charge-offs for 2005 totaled $2.5 million, or .13% of average loans for the year compared to $3.4 million, or .22% for 2004 and $3.5 million, or .27% for 2003. At December 31, 2005, the allowance for loan losses totaled $17.4 million compared to $16.0 million in 2004 and $12.4 million in 2003. At yearend 2005, the allowance represented .84% of total loans and provided coverage of 331% of nonperforming loans. Management considers the allowance to be adequate based on the current level of nonperforming loans and the estimate of losses inherent in the portfolio at year-end. See the section entitled "Financial Condition" and Tables 7 and 8 for further information regarding the allowance for loan losses.

In 2005, noninterest income (excluding the before-tax gain of $6.9 million on the sale of the Bank’s credit card portfolio in August 2004) increased $5.5 million, or 12.6%, over 2004 primarily due to higher deposit service charge fees, asset management fees, mortgage banking revenues, and merchant services fees. financial review