Civitas Bankgroup (CVBG) 10-Q 2006 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2006

or

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

For the transition period from                    to                    

Commission File Number 0-27393

Civitas BankGroup, Inc.

(Exact name of registrant as specified in its charter)

Tennessee	62-1297760
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)

4 Corporate Centre
810 Crescent Centre Dr, Suite 320
Franklin, Tennessee 37067

(Address of principal executive offices and Zip Code)

(615) 263-9500

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YESþ NOo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated file” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filero            Accelerated filerþ            Non-accelerated filero

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YESo NOþ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date. Common stock outstanding: 15,899,348 shares as of October 31, 2006.

CIVITAS BANKGROUP, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
FORM 10-Q

PART I: FINANCIAL INFORMATION
Item 1. Financial Statements.	PAGE
Consolidated Balance Sheets – September 30, 2006 (unaudited) and December 31, 2005	3
Consolidated Statements of Earnings – For the three and nine months ended September 30, 2006 and 2005 (unaudited)	4-5
Consolidated Statements of Changes in Shareholders’ Equity – For the nine months ended September 30, 2006 and 2005 (unaudited)	6
Consolidated Statements of Cash Flows – For the nine months ended September 30, 2006 and 2005 (unaudited)	7-8
Notes to Interim Consolidated Financial Statements	9-13
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	14-35
Item 3. Quantitative and Qualitative Disclosures About Market Risk	36
Item 4. Controls and Procedures	37
PART II: OTHER INFORMATION
Item 1. Legal Proceedings	38
Item 1A. Risk Factors	38
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3. Defaults Upon Senior Securities	38
Item 4 Submission of Matters to a Vote of Security Holders	39
Item 5 Other Information	39
Item 6 Exhibits	39
Signatures
Ex-31.1 Section 302 Certification
Ex-31.2 Section 302 Certification
Ex-32.1 Section 906 Certification

PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

CIVITAS BANKGROUP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

September 30, 2006 and December 31, 2005

dollars in thousands, except per share amounts

	Unaudited
	September 30,			December 31,
	2006			2005
ASSETS
Cash and due from banks	$	14,244		$	31,510
Federal funds sold		2,500			2,700
Total cash and cash equivalents		16,744			34,210
Interest bearing deposits in financial institutions		774			957
Securities available for sale		104,188			89,724
Securities held to maturity, fair value $113,145 and $113,577		114,827			115,446
Loans held for sale		2,939			3,720
Loans		596,050			476,421
Allowance for loan losses		(6,012	)		(4,765	)
Loans, net		590,038			471,656
Premises and equipment, net		14,035			14,025
Restricted equity securities		3,854			3,527
Bank owned life insurance		6,181			0
Investment in unconsolidated affiliates		3,059			7,734
Accrued interest receivable		4,405			3,567
Other assets		4,701			4,950
Total assets	$	865,745		$	749,516
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Noninterest bearing	$	61,007		$	64,195
Interest bearing		630,093			536,571
Total deposits		691,100			600,766
Federal funds purchased and securities sold under repurchase agreements		72,432			45,452
Advances from Federal Home Loan Bank		27,500			35,000
Subordinated debentures		17,000			17,000
Accrued interest payable		3,304			2,109
Other liabilities		1,756			1,964
Total liabilities	$	813,092		$	702,291
Shareholders’ equity
Common stock, $0.50 par value, 40,000,000 authorized shares; 15,899,336 shares issued at September 30, 2006 and 15,835,095 at December 31, 2005		7,950			7,918
Additional paid-in capital		24,510			23,866
Retained earnings		21,501			16,942
Accumulated other comprehensive income (loss)		(1,308	)		(1,501	)
Total shareholders’ equity		52,653			47,225
Total liabilities and shareholders’ equity	$	865,745		$	749,516

See accompanying notes to unaudited consolidated financial statements.

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CIVITAS BANKGROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Earnings

Three and Nine Months Ended September 30, 2006 and 2005

dollars in thousands

	THREE MONTHS ENDED					NINE MONTHS ENDED
	September 30,					September 30,
	2006		2005			2006		2005
	Unaudited		Unaudited			Unaudited		Unaudited
Interest income
Loans, including fees	$	11,321	$	7,883		$	30,408	$	22,421
Securities		2,743		2,190			7,771		6,734
Federal funds sold and other interest income		90		73			285		287
Total interest income		14,154		10,146			38,464		29,442
Interest expense
Time deposits of $100 or more		1,930		1,285			6,283		3,476
Other deposits		4,412		2,439			10,207		6,941
Federal funds purchased and securities sold under repurchase agreements		928		490			2,216		1,069
Advances from Federal Home Loan Bank and other borrowings		372		501			1,206		1,544
Subordinated debentures		321		224			905		783
Total interest expense		7,963		4,939			20,817		13,609
Net interest income		6,191		5,207			17,647		15,833
Provision for loan losses		1,250		325			2,068		863
Net interest income after provision for loan losses		4,941		4,882			15,579		14,970
Other noninterest income
Service charges on deposit accounts		763		706			2,087		2,108
Other service charges, commissions and fees		251		289			763		738
Mortgage banking activities		468		757			1,226		1,574
Gain on sale of affiliate		0		0			3,457		0
Net gain loss on sale of securities		56		6			61		100
Net gain (loss) on sale of foreclosed property		13		(112	)		4		(73	)
Other noninterest income		816		111			1,247		1,510
Total other income		2,367		1,757			8,845		5,957

See accompanying notes to unaudited consolidated financial statements.

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CIVITAS BANKGROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings (continued)
Three and Nine Months Ended September 30, 2006 and 2005
dollars in thousands except share and per share amounts

	THREE MONTHS ENDED					NINE MONTHS ENDED
	September 30,					September 30,
	2006		2005			2006		2005
	Unaudited		Unaudited			Unaudited		Unaudited
Other expenses
Salaries and employee benefits	$	3,201	$	3,161		$	9,379	$	9,431
Occupancy and equipment expense		804		788			2,353		2,462
Communications		89		91			281		299
Other operating expenses		1,449		1,426			3,979		4,596
Total other expenses		5,543		5,466			15,992		16,788
Income from continuing operations before income taxes		1,765		1,173			8,432		4,139
Income tax expense		598		352			2,953		1,253
Income from continuing operations	$	1,167	$	821		$	5,479	$	2,886
Discontinued operations
Income from operations of discontinued components, less applicable income taxes		0		0			0		82
Gain on sale of discontinued operations		0		0			0		3,364
Net Income	$	1,167	$	821		$	5,479	$	6,332
Other comprehensive income		1,441		(690	)		193		(1,100	)
Total comprehensive income	$	2,608	$	131		$	5,672	$	5,232
Per share data
Net earnings per share – basic – continuing operations	$	0.07	$	0.05		$	0.35	$	0.18
Net earnings per share – diluted – continuing operations		0.07		0.05			0.34		0.18
Net earnings per share – basic – discontinued operations		0.00		0.00			0.00		0.21
Net earnings per share – diluted – discontinued operations		0.00		0.00			0.00		0.21
Net earnings per share – basic		0.07		0.05			0.35		0.39
Net earnings per share – diluted		0.07		0.05			0.34		0.39
Weighted average shares outstanding – basic		15,889,633		15,752,241			15,879,084		16,121.881
Weighted average shares outstanding – diluted		15,965,524		15,927,813			16,041,109		16,197,904

See accompanying notes to unaudited consolidated financial statements.

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CIVITAS BANKGROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Shareholders’ Equity

Nine Months Ended September 30, 2006 and 2005

(Unaudited)

dollars in thousands except share amounts

													Accumulated
							Additional						Other			Total
	Common Stock						Paid-in			Retained			Comprehensive			Shareholders’
	Shares			Amount			Capital			Earnings			Income (Loss)			Equity
Balance, December 31, 2004		17,578,864		$	8,789		$	38,191		$	10,858		$	(102	)	$	57,736
Exercise of stock options		71,653			36			329			0			0			365
Issuance of common stock		51,534			26			353			0			0			379
Retirement of common stock		(2,043,072	)		(1,022	)		(16,278	)		0			0			(17,300	)
Stock dividends		121,356			61			881			(942	)		0			0
Comprehensive Income:
Net income		0			0			0			6,332			0			6,332
Other Comprehensive Income
Change in unrealized (loss) on securities available for sale		0			0			0			0			(1,138	)		(1,138	)
Less: adjustment for realized loss included in net income		0			0			0			0			38			38
Total comprehensive income loss																	5,232
Balance September 30, 2005		15,780,335		$	7,890		$	23,476		$	16,248		$	(1,202	)	$	46,412
Balance, December 31, 2005		15,835,095		$	7,918		$	23,866		$	16,942		$	(1,501	)	$	47,225
Exercise of stock options		3,500			2			23			0			0			25
Issuance of common stock		21,569			11			128			0			0			139
Stock dividends		39,172			19			262			(285	)		0			(4	)
Cash dividends		0			0			0			(635	)		0			(635	)
Stock based compensation expense		0			0			231			0			0			231
Comprehensive Income:
Net income		0			0			0			5,479			0			5,479
Other comprehensive income
Change in unrealized loss on securities available for sale		0			0			0			0			193			193
Total comprehensive income																	5,672
Balance, September 30, 2006		15,899,336		$	7,950		$	24,510		$	21,501		$	(1,308	)	$	52,653

See accompanying notes to unaudited consolidated financial statements.

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CIVITAS BANKGROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2006 and 2005

dollars in thousands

	NINE MONTHS ENDED
	September 30,
	2006			2005
	Unaudited			Unaudited
Cash flows from operating activities
Net income	$	5,479		$	6,332
Adjustments to reconcile net income to cash from operating activities:
Provision for loan losses		2,068			863
Depreciation and amortization		1,007			974
Amortization/(accretion) of securities		(11	)		226
Operations of unconsolidated affiliates		(188	)		(494	)
Stock based compensation		231			0
Origination of mortgage loans held for sale		(63,539	)		(75,739	)
Proceeds from sale of mortgage loans held for sale		65,547			76,797
Net (gain) on securities transactions		(61	)		(100	)
Net (gain) on sale of mortgage loans		(1,226	)		(1,574	)
Net (gain)/loss on sale of other real estate		(4	)		73
Net (gain) on sale and income from operations of discontinued operations		0			(3,464	)
Gain on sale of unconsolidated affiliate		(3,457	)		0
Gain on sale of Murray property		(700	)		0
Net change in accrued interest receivable		(838	)		(219	)
Net change in accrued interest payable and other liabilities		987			48
Net change in other assets		(457	)		4,544
Total adjustments		(641	)		1,917
Net cash provided by operating activities		4,838			8,267
Cash flows from investing activities
Net change in interest-bearing deposits in financial institutions		183			2,550
Purchases of securities available for sale		(40,616	)		(25,659	)
Proceeds from sale of securities available for sale		6,805			16,795
Proceeds from maturities and redemptions of securities available for sale		19,321			36,736
Purchases of securities held to maturity		(9,015	)		(33,179	)
Proceeds from maturities and redemptions of securities held to maturity		9,716			12,898
Investment in bank owned life insurance		(6,000	)		0
Net change in loans		(120,450	)		(38,588	)
Proceeds from sale of unconsolidated affiliate		8,500			0
Investment in unconsolidated affiliates		(180	)		29
Net (purchase) sale of premises and equipment		(1,017	)		40
Proceeds from sale of Murray property		917			0
Purchase of restricted equity securities		(327	)		0
Proceeds from sale of foreclosed property		522			611
Net cash used by investing activities		(131,641	)		(27,767	)

See accompanying notes to unaudited consolidated financial statements.

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CIVITAS BANKGROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
Nine Months Ended September 30, 2006 and 2005
dollars in thousands

	NINE MONTHS ENDED
	September 30,
	2006			2005
	Unaudited			Unaudited
Cash flows from financing activities
Net change in deposits		90,334			(8,211	)
Change in federal funds purchased and securities sold under agreements to repurchase		26,980			23,900
Repayments of Federal Home Loan Bank advances		(7,500	)		0
Dividends paid		(639	)		0
Repurchase and retirement of common stock		0			(300	)
Proceeds from issuance of common stock		164			1,087
Net cash provided (used) by financing activities		109,337			(16,476	)
Net change in cash and cash equivalents		(17,466	)		(3,024	)
Cash and cash equivalents at beginning of period		34,210			26,752
Cash and cash equivalents at end of period	$	16,744		$	23,728
Non-cash activities
Assets acquired through foreclosure		333			328
Stock received from disposal of subsidiary		0			17,000

See accompanying notes to unaudited consolidated financial statements.

8

CIVITAS BANKGROUP, INC. AND SUBSIDIARIES

Notes to Interim Consolidated Financial Statements

September 30, 2006

(Unaudited)

Note 1. Basis of Presentation

The unaudited consolidated financial statements as of September 30, 2006 and for the three and nine month periods ended September 30, 2006 and 2005 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission (“SEC”), and in the opinion of management, include all adjustments, consisting of normal recurring adjustments, to present fairly the information. They do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. Operating results for the three and nine month periods ended September 30, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006. For further information, refer to the 2005 consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.

Note 2. Earnings per Share of Common Stock

Basic earnings per share (EPS) of common stock is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share of common stock is computed by dividing net income by the weighted average number of common shares and potential common shares outstanding during the period. Stock options are regarded as potential common shares to the extent that the exercise price for the option is less than the fair market value of our common stock. The Company included 175,572 shares of common stock issuable upon exercise of stock options in the diluted EPS calculation for the nine month period ended September 30, 2006.

Note 3. Newly Adopted Accounting Pronouncements

Stock Based Compensation

Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (Revised 2004), Accounting for Stock-Based Payment (“SFAS 123R”), using the modified-prospective transition method. Under this transition method, compensation cost recognized during the nine months ended September 30, 2006 includes:

(a) compensation cost for all share-based awards granted prior to, but not yet vested as of, January 1, 2006, based on the grant-date fair value and related service period estimates in accordance with the original provisions of SFAS 123

and

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(b) compensation cost for all share-based awards granted subsequent to January 1, 2006, based on the grant-date fair value and related service periods estimated in accordance with the provisions of SFAS 123R.

Under the provisions of the modified-prospective transition method, results for the nine months ended September 30, 2005 have not been restated. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model.

The Company did not recognize any gain or loss resulting from the cumulative effect of a change in accounting principle upon adoption of SFAS 123R on January 1, 2006. Based on the stock-based compensation awards outstanding as of December 31, 2005, for which the requisite service was not fully rendered prior to January 1, 2006, and any option grants as of September 30, 2006, the Company expects to recognize total pre-tax compensation cost of approximately $825,000 related to current outstanding stock option grants, of which $212,000 was recognized in the first nine months of 2006. The cost is expected to be recognized over a weighted-average period of 4.39 years. Approximately $19,000 of expense was recognized in the first nine months of 2006 associated with the Company’s Employee Stock Purchase Plan. The Company recorded $27,000 in deferred income tax benefits associated with the current expense. Future levels of compensation cost recognized related to stock-based compensation awards may be impacted by new awards and/or modifications, repurchases and cancellations of existing awards before and after the adoption SFAS 123R. The following table illustrates the effect on net income from continuing operations and earnings per share from continuing operations for the nine months ended September 30, 2005 if expense relating to the stock option plan had been recognized.

Net income from continuing operations	$	2,886
Less stock-based compensation		298
Pro forma net income from continuing operations	$	2,588
Basic earnings per share from continuing operations	$	0.18
Pro forma basic earnings per share from continuing operations		0.16
Diluted earnings per share from continuing operations		0.18
Pro forma diluted earnings per share from continuing operations		0.16

The Company’s 1998 Stock Option Plan, as amended (the “1998 Plan”), has a total of 4,000,000 shares of common stock reserved for issuance. Vesting schedules and expiration schedules under the 1998 Plan are determined individually for each grant. Shares issued under the 1998 Plan are “new issue” shares rather than treasury shares. In addition to the 1998 Plan, the Company also allows its employees, through the Company’s Employee Stock Purchase Plan, to purchase up to 1,750 shares of Company common stock during a quarter at a purchase price equal to the lesser of 85% of the closing market price on the first or last day of the quarter.

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Stock option activity for the nine months ended September 30, 2006 and 2005 is summarized in the following tables:

	2006				2005
			Weighted				Weighted
			average				average
			exercise				exercise
	Shares		price		Shares		price
Outstanding at beginning of year		1,444,475	$	7.51		896,144	$	6.70
Granted		237,809		7.26		615,456		7.98
Exercised		3,500		7.01		70,028		5.21
Forfeited or expired		43,459		7.65		168,266		6.54
Outstanding at end of period		1,635,325	$	7.26		1,273,306	$	7.14
Weighted-average fair value of options granted during the period			$	1.64			$	1.42

Summary of exercisable options

	2006		2005
Options exercisable at period-end		1,156,758		502,825
Weighted-average price at period-end	$	7.33	$	7.00
Weighted-average contractual term	4.1 years		6.1 years
Amount of cash received for options exercised	$	24,525	$	364,513
Tax benefit realized on exercised options	$	9,391	$	42,347

The following table summarizes the activity for non-vested stock options as of September 30, 2006 and 2005:

	2006		2005
Non-vested at beginning of year		360,943		683,744
Granted		237,809		615,456
Vested		76,726		360,453
Forfeited or expired		43,459		168,266
Non-vested at end of period		478,567		770,481

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Note 4. Subsequent Events

The Company has declared a dividend of $0.02 per common share of the Company’s stock, payable on November 17, 2006 for shareholders of record on November 3, 2006.

Note 5. Comprehensive Income

Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on securities available for sale, which are also recognized as separate components of equity.

Note 6. Recent Accounting Pronouncements

In July 2006, the Financial Accounting Standards Board (“FASB”) released Interpretation No. 48, “Accounting for Uncertainty in Income Taxes.” This Interpretation revises the recognition tests for tax positions taken in tax returns such that a tax benefit is recorded only when it is more likely than not that the tax position will be allowed upon examination by taxing authorities. The amount of such a tax benefit to record is the largest amount that is more likely than not to be allowed. Any reduction in deferred tax assets or increase in tax liabilities upon adoption will correspondingly reduce retained earnings. The Company has not yet determined the effect of adopting this Interpretation, which is effective for it on January 1, 2007.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principals (GAAP), and expands disclosures about fair value measurements. More specifically, this statement clarifies the definition of fair value, establishes a fair valuation hierarchy based upon observable (e.g. quoted prices, interest rates, yield curves) and unobservable market inputs, and expands disclosure requirements to include the inputs used to develop estimates of fair value and the effects of the estimates on income for the period. This statement does not require any new fair value measurements. This pronouncement is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We are in the process of evaluating the impact, if any, the adoption of SFAS No. 157 will have on our financial statements.

In September 2006, the FASB ratified the Emerging Issues Task Force’s (“EITF”) consensus on Issue 065, “Accounting for Purchase of Life Insurance – Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4, “Accounting for Purchases of Life Insurance””. FASB Technical Bulletin No. 85-4 requires that assets such as bank owned life insurance be carried at their cash surrender value (“CSV”) or the amount that could be realized, with changes in CSV reported in earnings. Issue 06-5 requires that a policy holder consider any additional amounts (e.g. claims stabilization reserves and deferred acquisition costs) included in the contractual terms of the policy in determining the amount that could be realized under the insurance contract. Certain life insurance contracts provide the policyholder with an amount that, upon surrender, is greater if all individual policies are surrendered at the same time rather than if the policies were surrendered over a period of time. The Issue requires that policyholders determine the amount that could be realized under the life insurance contract assuming the surrender of an individual-life by individual-life policy. This Issue is effective for us beginning January 1, 2007. The Issue can be applied as either (a) a change in accounting principle through a cumulative-effect

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adjustment to retained earnings as of the beginning of the adoption year, or (b) a change in accounting principle through retrospective application to all periods. We are in the process of evaluating the impact, if any, the adoption of Issue 06-5 will have on our financial statements.

In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108 Topic 1N, “Financial Statements – Considering the Effects of Prior year Misstatements When Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 requires that a dual approach be used to compute the amount of a financial statement misstatement. More specially, the amount should be computed using both the “rollover”(current year income statement perspective) and “iron curtain” (year-end balance sheet perspective) methods. A registrant’s financial statements require adjustment when either approach results in quantifying a misstatement that is material, after considering all relevant quantitative and qualitative factors. Registrants will not be required to restate prior period financial statements when initially applying SAB 108 if management properly applied its previous approach (i.e. rollover or iron curtain) given that all relevant qualitative factors were considered. SAB 108 states that, upon initial application, registrants may elect to (a) state prior periods, or (b) record the cumulative effect of the initial application of SAB 108 in the carrying amounts of assets and liabilities, with the offsetting adjustment made to retained earnings. To the extent that registrants elect to record the cumulative effect of initially applying SAB 108, they will disclose the nature and amount of each individual error being corrected in the cumulative adjustment. The disclosure will also include when and how each error being corrected arose and the fact that the errors had previously been considered immaterial. SAB 108 is effective for us for the fiscal year ending December 31, 2006. The Company is in the process of evaluating the impact, if any, the adoption of SAB 108 will have on our financial statements.

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments,” which amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS No. 133) and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” (SFAS No. 140). This statement amends SFAS No. 133 to permit fair value remeasurement for any hybrid instrument that contains an embedded derivative that otherwise would require bifurcation. This statement also eliminates the interim guidance in SFAS No 133 Implementation Issue D-1, which provides that beneficial interests in securitized financial assets are not subject to the provision of SFAS No. 133. Finally, this statement amends SFAS No. 140 to eliminate the restriction on the passive derivative instruments that a qualifying special-purpose entity (SPE) may hold. This statement is effective for all financial instruments acquired or issued in fiscal years beginning after September 15, 2006. The Company is in the process of evaluating the impact, if any, the adoption of SFAS No. 155 will have on our financial statements.

In March 2006, the FASB issued Statement No. 156, “Accounting for Servicing of Financial Assets – an amendment of FASB Statement No. 140”, which changes the accounting for all servicing rights which are recorded as the result of purchasing a servicing right or selling a loan with servicing retained. Statement No. 156 amends the current accounting guidance for servicing rights in that it allows companies to carry their servicing rights at fair value. Presently servicing rights are recorded at inception at cost, allocated on a fair value basis and then assessed for impairment based on their fair value at each reporting date, using lower of cost or market value. This pronouncement is effective for us beginning January 1, 2007.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The purpose of this discussion is to provide insight into the financial condition and results of operations of Civitas BankGroup, Inc. and its subsidiaries (the “Company”). This discussion should be read in conjunction with the consolidated financial statements. Reference should also be made to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005, for a more complete discussion of factors that impact liquidity, capital and the results of operations.

FORWARD-LOOKING STATEMENTS

This Form 10-Q contains certain forward-looking statements regarding, among other things, the anticipated financial and operating results of the Company. The words “anticipate,” “could,” “expects,” and “believes” and similar expressions are intended to identify such forward-looking statements but other statements not based on historical information may also be considered forward-looking. Investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly release any modifications or revisions to these forward-looking statements to reflect events or circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events.

In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the Company cautions investors that future financial and operating results may differ materially from those projected in forward-looking statements made by, or on behalf of, the Company. Such forward-looking statements involve known and unknown risks and uncertainties, including, but not limited to those identified in the Company’s Annual Report on Form 10-K and the following: (i) increased competition with other financial institutions; (ii) lack of sustained growth in the economy in the Company’s market area; (iii) risks associated with an increased focus on real estate construction lending to a limited number of borrowers in a limited number of markets, including the risk that demand for new housing may decline; (iv) rapid fluctuations in interest rates; (v) significant downturns in the businesses of one or more large customers; (vi) risks inherent in originating loans, including prepayment risks; (vii) the fluctuations in collateral values, the rate of loan charge-offs and the level for the provision for loan losses; (viii) changes in the legislative and regulatory environment; and (ix) loss of key personnel. These risks and uncertainties may cause the actual results or performance of the Company to be materially different from any future results or performance expressed or implied by such forward-looking statements. The Company’s future operating results depend on a number of factors which were derived utilizing numerous assumptions and other important factors that could cause actual results to differ materially from those projected in forward-looking statements.

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CRITICAL ACCOUNTING POLICIES

The accounting principles the Company follows and the methods of applying these principles conform with accounting principles generally accepted in the United States and with general practices within the banking industry. In connection with the application of those principles to the determination of our allowance for loan losses (ALL), we have made judgments and estimates which have significantly impacted our financial position and results of operations.

The Company’s management assesses the adequacy of the ALL at least quarterly. This assessment includes procedures to estimate the ALL and test the adequacy and appropriateness of the resulting balance. The ALL consists of two portions: (1) an allocated amount representative of specifically identified credit exposure and exposures readily predictable by historical or comparative experience; and (2) an unallocated amount representative of inherent loss which is not readily identifiable. Even though the ALL is composed of two components, the entire allowance is available to absorb any credit losses.

The Company establishes the allocated amount separately for two different risk groups: (1) unique loans (commercial loans, including those loans considered impaired); and (2) homogenous loans (generally consumer loans). The allocation for unique loans is primarily based on risk rating grades assigned to each of these loans as a result of our loan management and review processes. Each risk-rating grade is assigned an estimated loss ratio, which is determined based on the experience of management, discussions with banking regulators, historical and current economic conditions and our independent loan review process. The Company estimates losses on impaired loans based on estimated cash flows discounted at the loan’s original effective interest rate or the underlying collateral value. The Company defines impaired loans as those classified as substandard, doubtful or loss. Estimated loss ratios are also assigned to the consumer loan portfolio. However, the estimated loss ratios for these homogeneous loans (e.g., automobile, residential mortgage, home equity) are based on consumer credit scores and not on the results of individual loan reviews.

The unallocated amount is particularly subjective and does not lend itself to an exact mathematical calculation, but includes management’s analysis of the loan portfolio as a whole with particular emphasis placed on the Company’s past loan loss experience, growth in the loan portfolio, composition of the loan portfolio, review of trends in past due loans, and current economic conditions, both nationally and in the markets the Company serves. The Company uses the unallocated amount to absorb inherent losses which may exist as of the balance sheet date for such matters as changes in the local or national economy, the depth or experience of the lending staff, any concentrations of credit in any particular industry group, and new banking laws or regulations. After applicable factors are assessed, the aggregate unallocated amount is evaluated based on our management’s experience.

The resulting ALL balance is tested by comparing the balance in the allowance account to historical trends and peer information. The result of the procedures performed is evaluated by management, including the result of the testing, and management concludes on the appropriateness of the balance of the ALL in its entirety. The loan committee of the board of directors reviews the assessment prior to the filing of financial information.

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COMPANY OVERVIEW

General.Civitas BankGroup, Inc. is a Tennessee corporation and registered bank holding company headquartered in Franklin, Tennessee with $865.7 million in total assets at September 30, 2006. We provide banking and other financial services through our bank subsidiary, Cumberland Bank, within five (5) markets throughout Middle Tennessee. As of September 30, 2006, Cumberland Bank held $861.7 million in assets.

Unconsolidated Joint Venture.The Company owns a 50% interest in Insurors Bank of Tennessee (“IBOT”), headquartered in Nashville, Tennessee. Prior to March 31, 2006, the Company also owned a 50% interest in The Murray Banc Holding Company, LLC, the sole shareholder of The Murray Bank. Only the Company’s initial investment, adjusted for the pro rata share of operating results of these entities, is included in the consolidated financial statements. The Company’s portion of earnings is recorded in other noninterest income. Insurors Bank of Tennessee opened in November 2000 and had $81.6 million in assets at September 30, 2006. The remaining ownership interest in Insurors Bank is owned by InsCorp, a Tennessee corporation owned predominately by Tennessee insurance agents. Year to date, Insurors Bank has contributed $77,000 of pretax income to the Company.

On August 25, 2006, the Company entered into a Purchase Agreement (the “Purchase Agreement”) by and among the Company, InsCorp, Inc., a Tennessee corporation (“InsCorp”) and, for certain limited purposes, IBOT. Pursuant to the terms of the Purchase Agreement, the Company has agreed to sell to InsCorp, all of the shares of IBOT common stock owned by the Company. InsCorp and the Company currently own 50% each of IBOT’s outstanding common stock.

The purchase price payable to the Company is the greater of (i) $4.5 million or (ii) 150% of one half of IBOT’s total shareholders’ equity on the last day of the month prior to the month in which the closing occurs, which amounts may be increased by up to $20,000 per thirty day period that the closing occurs after December 15, 2006 if the closing is delayed for reasons other than a material breach by the Company of any of its covenants or agreements in the Purchase Agreement, a delay in InsCorp’s obtaining regulatory approval for certain reasons, or the occurrence of an event outside of the control of the parties that prevents the parties from consummating the transaction prior to December 15, 2006.

The consummation of the transaction is subject to the satisfaction of various closing conditions, including receipt of all required regulatory approvals, and is expected to occur in the fourth quarter of 2006.

Description of Business.Our principal operations include traditional banking services incorporating commercial and residential real estate lending, commercial business lending, consumer lending, construction lending and other financial services, including depository services. Net interest income is our principal source of earnings. We serve both metropolitan and rural areas, targeting local consumers, professionals and small businesses.

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OVERVIEW

General. During the nine months ended September 30, 2006, the Company’s management continued to focus on improving the Company’s performance. Management’s primary short-term objectives include emphasizing lower cost of funds, creating operating efficiencies, building for future growth and maintaining improved asset quality. The ongoing evaluation of the Company’s operations and related operational improvements includes the continued centralization of certain backroom operations, reduction of duplicate operational processes and consideration of the disposal of underperforming subsidiaries. Set forth below are significant items that occurred from continuing operations during the three and nine months ended September 30, 2006:

• Income from continuing operations for the three months ended September 30, 2006 totaled $1.2 million compared to $821,000 for the same period for 2005. Income from continuing operations for the nine months ended September 30, 2006 totaled $5.5 million, including a one-time $2.1 million one-time, after-tax gain on the sale of the Company’s 50% ownership in The Murray Banc Holding Company.

• Net earnings per diluted share from continuing operations increased to $0.07 for the quarter ended September 30, 2006 compared to $0.05 for the same period in 2005. For the nine month period ended September 30, 2006, net earnings per diluted share from continuing operations increased to $0.34 compared to $0.18 and included, in the 2006 first quarter, a $2.1 million one-time, after-tax gain on sale of The Murray Banc Holding Company. Excluding the after-tax gain on sale of the Company’s interest in The Murray Banc Holding Company, earnings per diluted share were $0.21 for the first nine months of 2006.

• The provision for loan losses was $1.3 million for the third quarter of 2006 compared to $325,000 for the same period last year, an increase of $975,000. For the nine month period ended September 30, 2006 provision for loan losses was $2.1 million compared to $863,000 for the nine month period ended September 30, 2005, an increase of $1.2 million. This increase in provision expense was primarily due to loan growth.

• Assets increased from $749.5 million at December 31, 2005 to $865.7 million at September 30, 2006, a $116.2 million, or 15.5%, increase.

• Loans increased to $596.1 million, up 25.1% from $476.4 million at year end 2005. This loan growth primarily occurred in real estate construction loans.

• Nonperforming assets were $2.4 million at September 30, 2006, a 7.7% decrease from the December 31, 2005 balance of $2.6 million.

• Deposits totaled $691.1 million at September 30, 2006, an increase of 15.0% from $600.8 million at year end 2005.

• Key performance indicators as of September 30, 2006 showed annualized return on average assets (ROA) of 0.92%. The annualized return on average shareholders’ equity (ROE) for the nine months ended September 30, 2006 was 14.76%. Excluding the $2.1 million one-time, after-tax gain on sale of The Murray Banc Holding Company, our annualized ROA for the nine months ended September 30, 2006 was 0.56% compared to 0.54% in the nine months ended September 30, 2005 and the annualized ROE was 9.02% as compared to 8.03% in the first nine months of 2005.

• On March 31, 2006, the Company sold its interest in The Murray Banc Holding Company. The pre-tax gain on sale of this entity was $3.5 million.

• On June 21, 2006, the Company opened a new branch in Hendersonville, Tennessee.

• The Company announced its approval for listing on the NASDAQ Global Market.

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• The Company announced that it expected to open a new branch in the Cool Springs area of Franklin, Tennessee in the spring of 2007. This will be the Company’s fifth branch located in Williamson County.

• On July 31, 2006, the Company completed the sale of its interest in real property consisting of two parcels, and the related improvements, located in Murray, Kentucky to BancKentucky, Inc., a Kentucky corporation (“BancKentucky”) for a purchase price of $925,000 less expenses of approximately $8,000. Prior to the sale, the Company had jointly owned the property with BancKentucky. The sale of the real property follows the sale by the Company to BancKentucky on March 31, 2006, of the Company’s 50% ownership interest in The Murray Banc Holding Company, LLC, the parent of The Murray Bank, a federal savings bank located in Murray, Kentucky. The pretax gain on the sale was $700,000 and is recorded in other noninterest income.

Non-GAAP Financial Measures.The Company has presented in this Quarterly Report on Form 10-Q certain non-GAAP financial measures excluding the $2.1 million after tax gain on the sale of its interest in The Murray Banc Holding Company, including non-GAAP net income, diluted earnings per share, annualized ROA and ROE and efficiency ratio for the nine months ended September 30, 2006.

The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for any measure prepared in accordance with GAAP. Because non-GAAP financial measures presented in this Quarterly Report on Form 10-Q are not measurements determined in accordance with GAAP and are susceptible to varying calculations, these non-GAAP financial measures, as presented, may not be comparable to other similarly titled measures presented by other companies.

This Quarterly Report on Form 10-Q contains non-GAAP net income, diluted EPS, annualized ROA and ROE and the Company’s efficiency ratio for the nine months ended September 30, 2006. The Company excluded the effects of the gain on sale of The Murray Banc Holding Company because management believes that the information provides investors with additional information to more completely evaluate the Company’s ongoing operational performance without the effect of the one-time gain on the sale of its interest in The Murray Banc Holding Company. In addition, these measures facilitate making period-to-period comparisons and the Company believes that these measures are more meaningful indications of its operating performance. Management uses these non-GAAP financial measures for internal managerial purposes, including as a means to compare period-to-period operating results.

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Set forth below is a reconciliation of the non-GAAP financial measures contained in this Quarterly Report on Form 10-Q to the most directly comparable GAAP financial measures for the nine months ended September 30, 2006.

	Net Income		EPS		ROA			ROE
GAAP amounts	$	5,479	$	0.35		0.92	%		14.76	%
Adjustment for gain on sale of affiliate, net of tax		2,132		0.14		0.36	%		5.74	%
Non-GAAP amounts	$	3,347	$	0.21		0.56	%		9.02	%

Efficiency Ratio

				Excluding gain on sale
	As reported			of affiliate, net of tax
Non interest expense	$	15,992		$	15,992
Net interest income		17,647			17,647
Non interest income		8,845			5,389
Efficiency ratio		60.4	%		69.4	%

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The Company’s results of operations depend primarily on net interest income, which is the difference between the interest income from earning assets, such as loans and investments, and the interest expense incurred on interest bearing liabilities, such as deposits and borrowings. The following is an analysis of net interest income for the three and nine months ended September 30, 2006.

NET INTEREST INCOME ANALYSIS — THIRD QUARTER RESULTS

Net Income.The Company recorded income from continuing operations for the third quarter of 2006 of $1.2 million compared with $821,000 in the third quarter of 2005. Diluted earnings from continuing operations per share for the third quarter of 2006 were $0.07 as compared to $0.05 for the third quarter of 2005.

Net Interest Income and Net Interest Margin.Net interest income for the third quarter of 2006 increased $984,000 as compared to the third quarter of 2005. This increase is comprised of a $4.0 million increase in interest income, partially offset by a $3.0 million increase in the cost of funds. Net interest margin for the third quarter of 2006 decreased 6 basis points to 3.10% from 3.16% in the third quarter of 2005. The changes in net interest income and net interest margin for the three months ended September 30, 2006 as compared to the same period in 2005 were primarily the result of the following:

Rate:

• Yield on loans increased 96 basis points.

• Investment security yield increased 73 basis points.

• Rates on deposits increased 104 basis points.

• Federal funds purchased and repurchase agreements interest rates increased 162 basis points.

• Interest rates on borrowed funds increased 31 basis points.

Volume:

• Total average earning assets increased $132.3 million, or 20.0%, with the significant amount of this increase in the Company’s average loan portfolio, which increased by $112.7 million, or 24.6%. Average securities also increased by $18.9 million, or 9.6%.

• Average interest-bearing liabilities increased $126.7 million, or 19.2%. Average deposits accounted for $118.5 million of this increase, while federal funds purchased and repurchase agreements accounted for $15.8 million of this increase. Borrowed funds declined $12.5 million as the Company paid off Federal Home Loan Advances which matured or were called.

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The following table sets forth the amount of our average balances, interest income or interest expense for each category of interest-earning assets and interest-bearing liabilities and the average interest rate for total interest-earning assets and total interest-bearing liabilities and net interest margin for the three months ended September 30, 2006 and 2005:

Average Balance Sheet
dollars in thousands

	Three Months Ended								Three Months Ended
	September 30, 2006								September 30, 2005
	Average						Revenue/		Average						Revenue/
	Balance			Yield			Expense		Balance			Yield			Expense
Loans1, 2	$	570,361			7.87	%	$	11,321	$	457,618			6.91	%	$	7,883
Securities3		216,076			5.08	%		2,743		197,140			4.35	%		2,190
Federal funds sold		2,330			5.28	%		31		624			3.86	%		6
Other earning assets		4,123			5.68	%		59		5,197			5.17	%		67
Total earning assets		792,890			7.08	%		14,154		660,579			6.16	%		10,146
Cash and due from banks		18,135								20,601
Allowance for loan losses		(5,549	)							(4,573	)
Other assets		37,526								38,440
Total assets	$	843,002							$	715,047
Deposits	$	670,119			3.75	%		6,342	$	551,660			2.71	%		3,724
Federal funds purchased and securities sold under repurchase agreements		71,064			5.18	%		928		55,256			3.56	%		490
Subordinated debentures		17,000			7.49	%		321		12,000			7.49	%		224
Borrowed funds		28,005			5.27	%		372		40,550			4.96	%		501
Total interest bearing liabilities		786,188			4.02	%		7,963		659,466			3.00	%		4,939
Other liabilities		6,295								9,001
Shareholders’ equity		50,519								46,580
Total liabilities and shareholders’ equity	$	843,002							$	715,047
Net interest income							$	6,191							$	5,207
Net interest margin					3.10	%							3.16	%

1.	Interest income includes loan fees.
2.	Nonaccrual loans are included in average loan balances and the associated income (recognized on a cash basis) is included in interest.
3.	No taxable equivalent adjustments have been made.

On a fully tax equivalent basis, net interest income increased $206,000 for the three month period ended September 30, 2006 and $312,000 for the three month period ended September 30, 2005, raising the net interest margin to 3.20% and 3.25%, respectively.

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NET INTEREST INCOME ANALYSIS — NINE MONTHS RESULTS

Net Income.The Company recorded income from continuing operations for the first nine months of 2006 of $5.5 million compared with $2.9 million in the same period in 2005. Diluted earnings from continuing operations per share for the first nine months of 2006 were $0.35 as compared to $0.18 for first nine months of 2005. Excluding the $2.1 million after tax gain on the sale of The Murray Banc Holding Company, the Company’s net income was $3.3 million for the first nine months of 2006, and its diluted earnings per share was $0.21.

Net Interest Income and Net Interest Margin.Net interest income for the first nine months of 2006 increased $1.8 million as compared to the first nine months of 2005. This increase is comprised of a $9.0 million increase in interest income, partially offset by a $7.2 million increase in the cost of funds. Net interest margin for the first nine months of 2006 decreased 3 basis points to 3.18% from 3.21% in the first nine months of 2005. The changes in net interest income and net interest margin for the nine months ended September 30, 2006 as compared to the same period in 2005 were primarily the result of the following:

Rate:

• Yield on loans increased 104 basis points.

• Investment security yield increased 47 basis points.

• Rates on deposits increased 101 basis points.

• Federal funds purchased and repurchase agreements interest rates increased 119 basis points.

• Interest rates on borrowed funds decreased 4 basis points.

• Cost of subordinated debentures increased 67 basis points.

Volume:

• Total average earning assets increased $83.9 million, or 12.7%, with the significant amount of this increase in the Company’s average loan portfolio, which increased by $78.1 million, or 17.3%. Average securities increased $8.9 million, or 4.4%. This increase was offset by a slight decline in federal funds sold and other earnings assets.

• Average interest-bearing liabilities increased $88.3 million, or 13.4%. Average deposits accounted for $70.2 million of this increase, while federal funds purchased and repurchase agreements accounted for $22.2 of this increase and subordinated debentures increased $5.0 million. Other borrowings decreased $9.1 million, or 22.4%.

A greater percentage of new loan originations are short-term real estate loans compared to our existing loan portfolio. Likewise, these loans are funded with short-term deposits. In addition, the Company’s assets are shifting from overnight investments to higher yielding loans. Management expects its average loan balances to increase throughout the remainder of 2006 as the Company continues to focus on managed growth.

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The following table sets forth the amount of our average balances, interest income or interest expense for each category of interest-earning assets and interest-bearing liabilities and the average interest rate for total interest-earning assets and total interest-bearing liabilities and net interest margin for the nine months ended September 30, 2006 and 2005:

Average Balance Sheet
dollars in thousands

	Nine Months Ended								Nine Months Ended
	September 30, 2006								September 30, 2005
	Average						Revenue/		Average						Revenue/
	Balance			Yield			Expense		Balance			Yield			Expense
Loans1, 2	$	528,248			7.70	%	$	30,408	$	450,159			6.66	%	$	22,420
Securities3		210,194			4.93	%		7,771		201,307			4.46	%		6,734
Federal funds sold		3,070			4.83	%		111		5,135			2.50	%		96
Other earning assets		4,040			5.76	%		174		5,034			5.07	%		192
Total earning assets		745,552			6.90	%		38,464		661,635			5.95	%		29,442
Cash and due from banks		23,185								22,364
Allowance for loan losses		(5,214	)							(4,913	)
Other assets		34,794								34,561
Total assets	$	798,317							$	713,647
Deposits	$	635,604			3.47	%		16,490	$	565,374			2.46	%		10,417
Federal funds purchased and securities sold under repurchase agreements		61,638			4.81	%		2,216		39,438			3.62	%		1,069
Subordinated debentures		17,000			7.12	%		905		12,000			6.45	%		579
Borrowed funds		31,456			5.13	%		1,206		40,550			5.09	%		1,544
Total interest bearing liabilities		745,698			3.73	%		20,817		657,362			2.77	%		13,609	��
Other liabilities		3,136								8,355
Shareholders’ equity		49,483								47,930
Total liabilities and shareholders’ equity	$	798,317							$	713,647
Net interest income							$	17,647							$	15,833
Net interest margin					3.16	%							3.20	%

1	Interest income includes loan fees.
2	Nonaccrual loans are included in average loan balances and the associated income (recognized on a cash basis) is included in interest.
3	No taxable equivalent adjustments have been made.

On a fully tax equivalent basis, net interest income increased $617,000 for the nine month period ended September 30, 2006 and $564,000 for the nine month period ended September 30, 2005, raising the net interest margin to 3.29% and 3.33%, respectively.

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INVESTMENT PORTFOLIO

General.The Company invests primarily in mortgage-backed securities, tax-free municipals and federal agency bonds and uses these investments as a source of liquidity. The following table presents, at the periods indicated, the carrying amount of our securities portfolio segregated into available for sale, or AFS, and held to maturity, or HTM, categories:

Composition of Investment Portfolio
dollars in thousands

	September 30,		December 31,
	2006		2005
Available for Sale
U.S. Government Agencies	$	7,106	$	7,864
Obligations of States, Counties, Municipals		3,312		3,300
Mortgage-backed		93,770		77,452
Other securities		0		1,108
Total Available for Sale		104,188		89,724
Held to Maturity
U.S. Government Agencies		1,636		0
Obligations of States, Counties, Municipals		29,473		28,669
Mortgage-backed		79,964		84,522
Other Debt Securities		3,754		2,255
Total Held to Maturity		114,827		115,446
Total Securities	$	219,015	$	205,170

At September 30, 2006, approximately $193.3 million of the Company’s security portfolio was pledged to secure public funds, securities sold under repurchase agreements, and other deposits. Net unrealized losses on available for sale securities was $2.0 million at September 30, 2006.

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The following table indicates the maturities of securities at September 30, 2006 at the carrying amount and the weighted average yields of such securities:

Maturity of Investment Portfolio
dollars in thousands

	AFS					HTM
	Amount		Yield			Amount		Yield
U.S. Government Agencies
Under 1 year	$	2,989		4.72	%	$	0		—
1 – 5 years		1,756		5.00	%		0		—
5 – 10 years		1,426		4.45	%		0		—
Over 10 years		935		6.02	%		1,636		6.39	%
Total U.S. Government Agencies		7,106		4.90	%		1,636		6.39	%
Obligations of State, Counties, Municipals
Under 1 year		0		—			151		3.90	%
1 – 5 years		257		3.20	%		155		3.15	%
5 – 10 years		1,693		3.17	%		5,356		3.72	%
Over 10 years		1,362		3.72	%		23,811		4.23	%
Total Obligations of State, Counties, Municipals		3,312		3.41	%		29,473		4.22	%
Mortgage-backed		93,770		5.07	%		79,964		4.99	%
Other Securities
Under 1 year		0		—			0		—
1 – 5 years		0		—			1,004		5.44	%
5 – 10 years		0		—			0		—
Over 10 years		0		—			2,750		9.36	%
Total Other Securities		0		—			3,754		8.31	%
Total Securities	$	104,188		5.00	%	$	114,827		4.96	%

Management has internally identified one security as a potential credit risk. As of September 30, 2006, this security has a book value of $1,004,000 and an unrealized loss of $29,000. Management believes this security is not other-than-temporarily impaired. The Company has the intent to hold this security until maturity or until forecasted recovery.

25

LOANS

General.Loans are the largest category of earning assets and typically provide higher yields than the other types of earning assets. Associated with the higher loan yields are the inherent credit and liquidity risks which management attempts to control. The following table indicates loans outstanding net of unearned income and deferred fees, as of the dates indicated. The segregation used in compiling the following information is based on the collateral of the loan rather than the source of loan payments and is consistent with the method followed for regulatory reporting.

Composition of Loan Portfolio
dollars in thousands

	September 30,			December 31,
	2006			2005
Real Estate – Construction	$	258,948		$	157,381
Real Estate – Residential		133,723			112,281
Real Estate – Commercial		111,617			113,053
Real Estate – Other		14,664			2,556
Commercial		61,092			71,929
Consumer		14,336			15,938
Other		2,181			3,840
Deferred Fees		(511	)		(557	)
Total Loans	$	596,050		$	476,421

Totals loans grew $119.6 million since December 31, 2005. Management places an emphasis on short-term real estate lending such as construction, acquisition and development, and commercial real estate loans. The Company has established internal targets for real estate secured loans of at least 75% of total loans, with an emphasis on variable interest rate loans or loans with maturities under five years if at fixed rates. As of September 30, 2006, 87.1% of the loan portfolio was secured by real estate.

Provision and Allowance for Loan Losses.The Company has placed a great emphasis on identifying at-risk borrowers. The provision for loan losses is based on past loan experience and other factors, which in management’s judgment deserve current recognition in estimating possible loan losses. Such factors include past loan loss experience, growth and composition of the loan portfolio, review of specific problem loans, trends in past due loans, the relationship of the allowance for loan losses to outstanding loans, and current economic conditions that may affect the borrower’s ability to repay their obligations to the Company. Management has in place a risk rating system designed for monitoring the Company’s loan portfolio in an effort to identify potential problem loans.

26

Loan delinquencies were 0.47% of the total loan portfolio on September 30, 2006, compared to 0.60% at December 31, 2005. Reflecting the growth in the Company’s loan portfolio, provision expense equaled $2.1 million and $863,000 for the nine months ended September 30, 2006 and 2005, respectively. A summary of loan loss experience during the nine months ended September 30, 2006 and 2005 is provided below. The following is the activity in the allowance for loan losses:

Summary of Allowance for Loan Losses
dollars in thousands

	Nine Months Ended
	September 30,
	2006			2005
Allowance for loan losses — beginning balance	$	4,765		$	4,427
Charge-offs		1,247			698
Recoveries		426			145
Net charge-offs		821			553
Sale of subsidiary		0			(50	)
Provision for loan losses		2,068			863
Allowance for loan losses — ending balance	$	6,012		$	4,687
Loans outstanding at end of period	$	596,050		$	474,504
Average loans outstanding during period	$	528,248		$	450,159
Allowance for loan losses as a percentage of loans outstanding		1.01	%		0.99	%
Ratio of annualized net charge-offs during period to average loans		0.21	%		0.16	%

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Nonperforming Assets.For financial statement purposes, nonaccrual loans are included in loans outstanding, whereas repossessions and other real estate are included in other assets.

The following is a summary of nonperforming assets as of September 30, 2006 and December 31, 2005:

Summary of Nonperforming Assets
dollars in thousands

	September 30,		December 31,
	2006		2005
Non-accrual loans	$	2,183	$	2,273
Other real estate owned		161		346
Loans past due 90 days or more still accruing		0		0
Total nonperforming loans and OREO		2,344		2,619
Repossessions		21		4
Total nonperforming assets	$	2,365	$	2,623

The following table summarizes significant details of the loan portfolio as of September 30, 2006:

Supplemental Loan Information
dollars in thousands

									Other real
									estate owned		Year-to-		Allocation
	Loans			% of Total			Nonaccrual		and		date net		of
	outstanding			Loans			loans		repossessions		charge-offs		allowance
Real Estate – Construction	$	258,948			43.4	%	$	185	$	0	$	0	$	1,946
Real Estate – Residential		133,723			22.4	%		242		161		61		1,048
Real Estate – Commercial		111,617			18.7	%		1,228		0		132		1,392
Real Estate – Other		14,664			2.5	%		0		0		0		104
Commercial		61,092			10.2	%		505		0		600		729
Consumer		14,336			2.4	%		23		21		27		779
Other		2,181			0.4	%		0		0		1		14
Deferred Fees		(511	)		0.0	%		0		0		0		0
Total Loans	$	596,050			100.0	%	$	2,183	$	182	$	821	$	6,012

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In addition to the nonaccrual loans, management has internally identified $6.8 million in loans as potential problem credits. These loans are performing loans but are classified due to payment history, decline in the borrower’s financial position or decline in collateral value. Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor or the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Loans classified as doubtful have all the weaknesses inherent in one classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Loans classified as loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. The following table shows the amount in each classification.

Summary of Performing
Classified Loans
As of September 30, 2006
dollars in thousands

Substandard	$	6,842
Doubtful		0
Loss		0
Total	$	6,842

Management believes the balance of the allowance for loan losses to be adequate as of September 30, 2006 based on its internal evaluation of the allowance for loan losses and loan portfolio. Quarterly, the allowance for loan losses is evaluated under the provision of Statement of Financial Accounting Standards (“SFAS”) Nos. 114 and 118. Under these guidelines, specific reserves are allocated for loans considered impaired. A general reserve is also maintained for the Company’s homogeneous loans. The level of the allowance and the amount of the provision involve evaluation of uncertainties and matters of judgment. Although management believes the allowance for loan losses at September 30, 2006 to be adequate, further deterioration in problem credits, the results of the loan review process, or the impact of deteriorating economic conditions on borrowers, particularly those involved in real estate construction, could require increases in the provision for loan losses and could result in future charges to earnings which could have a significant negative impact on net earnings.

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DEPOSITS

The average daily amounts of deposits and rates paid on such deposits at September 30, 2006 and September 30, 2005 are summarized as follows:

Average Deposit Balance
dollars in thousands

	September 30, 2006					September 30, 2005
	Amount		Rate			Amount		Rate
Noninterest bearing demand deposit	$	57,725		0.00	%	$	61,121		0.00	%
Interest bearing demand deposit		155,754		3.14	%		139,922		2.23	%
Savings and money markets		64,780		2.24	%		79,242		1.94	%
Time deposit		290,627		4.43	%		232,504		3.17	%
Wholesale deposits		66,718		4.06	%		52,585		3.46	%
Total	$	635,604		3.48	%	$	565,374		2.47	%

The amount of time deposits of $100,000 or more outstanding at September 30, 2006 by time remaining until maturity or reprice is as follows:

Deposit Maturity
dollars in thousands

Under 3 months	$	115,147
Over 3 months through 12 months		124,238
Over 1 year through 3 years		33,866
Over 3 years		4,370
Total	$	277,621

Brokered certificates of deposit totaling $81.9 million are included in the above totals. Brokered deposits are used as a source of liquidity and typically rate are comparable with that of the local market. A portion of these brokered deposits were used to purchase specific securities as part of the Company’s leverage transactions in 2003.

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KEY RATIOS — Continuing Operations

Returns on average consolidated assets and average consolidated equity for continuing operations for the periods indicated are as follows for the nine months ended September 30, 2006 and September 30, 2005:

Performance Indicators

	September 30,			September 30,
	2006			2005
Return on average assets(1)(2)		0.56	%		0.54	%
Return on average equity(1)(2)		9.02	%		8.03	%
Average equity to average assets ratio		6.20	%		6.72	%

(1)	annualized
(2)	adjusted for the $2.1 million after-tax gain on sale of affiliate for comparative purposes in 2006

NONINTEREST INCOME

The components of the Company’s noninterest income include service charges on deposit accounts, other fees and commissions, mortgage banking activities, gain on sale of securities and gain on sale of assets. Noninterest income as a percentage of total gross revenue was 33.4% in the first nine months of 2006 compared to 27.3% in the first nine months of 2005. Total noninterest income increased 34.7% to $2.4 million for the three month period ended September 30, 2006, and 48.5% to $8.8 million for the nine month period ended September 30, 2006 from $6.0 million for the nine month period ended September 30, 2005. The increase in the three month period was largely due to a one-time gain on sale of the Company’s interest in real property located in Murray, Kentucky. The increase in the nine month period was primarily due to a $3.5 million one-time, pre-tax gain on the sale of the Company’s interest in its affiliate, The Murray Banc Holding Company.

The largest component of the Company’s noninterest income is revenue generated on deposit accounts. Service charges on deposit accounts increased $57,000, or 8.1% to $763,000 during the three months ended September 30, 2006 compared to the same period in 2005. Service charges on deposit accounts decreased $21,000, or 1.0%, for the first nine months of 2006 compared to the same period in 2005. This decrease is primarily due to a decrease in the volume of insufficient check fees charged to customers and a decrease in the number of accounts subject to service charges. Revenue from mortgage banking activities declined $289,000 for the three months and $348,000 for the nine months ended September 30, 2006, due largely to changing mortgage rates. Other service charges, fees and commissions also held relatively steady at $251,000 for the third quarter of 2006 and $763,000 for the nine months ended September 30, 2006.

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NONINTEREST EXPENSE

Noninterest expense consists primarily of salaries and employee benefits, occupancy expenses, marketing, communications and other operating expenses. Total noninterest expense increased $77,000, or 1.4%, to $5.5 million during the three months ended September 30, 2006 compared to the same period in 2005 and decreased $796,000, or 4.7%, for the nine month period ended September 30, 2006. Salaries and employee benefits, which totaled $3.2 million for the three month period, make up the largest category in noninterest operating expenses. These expenses only increased $40,000, or 1.3%, for the three month period ended September 30, 2006 despite the expense incurred for the new accounting standard for stock compensation and additional personnel related to a new branch location. For the nine month period, salaries decreased $52,000, or 0.6%, to $9.4 million. Other operating expenses increased $23,000 for the three months ended September 30, 2006 but decreased $617,000 for the nine months ended September 30, 2006 as the Company continued to improve operating efficiencies. Efficiency ratios by time period are listed below.

Efficiency Ratio
dollars in thousands

	September 30,			September 30,
	2006			2005
Non Interest Expense	$	15,992		$	16,788
Net Interest Income		17,647			15,833
Non Interest Income*		5,389			5,957
Efficiency Ratio		69.4	%		77.1	%

* adjusted for the $3.456 million pre-tax gain on sale of affiliate for comparative purposes in 2006

INCOME TAXES

Income tax expense for the three months ended September 30, 2006 totaled $598,000 as compared to $352,000 for the same period in 2005. For the nine month period ended September 30, 2006, income tax expense was $3.0 million as compared to $1.3 million for 2005. When measured as a percentage of income before taxes, the Company’s effective tax rate was 33.9% for the third quarter of 2006 as compared to 30.9% in 2005. For the nine month period ended September 30, 2006, the effective tax rate was 35.0% as compared to 30.3% for the same period in 2005. The 2006 effective tax rate is higher than the 2005 tax rate due to the one-time gains recorded in 2006. Effective tax rates are lower than statutory rates due primarily to the interest from investment in tax exempt municipal bonds.

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FINANCIAL CONDITION

Balance Sheet Summary

The Company’s total assets increased $116.2 million, or 15.5%, to $865.7 million at September 30, 2006, from $749.5 million at December 31, 2005. Loans grew $119.6 million, or 25.11%, since December 31, 2005, while securities grew $13.8 million, or 6.7%, since December 31, 2005. The Company invested $6.0 million in bank owned life insurance in 2006, further increasing total assets, which was partially offset by the $4.7 million decrease in investment in an unconsolidated affiliate, stemming from the sale of an affiliate in the first quarter. In addition, the growth in assets was partially offset by the $17.3 million reduction of cash and due from banks, as the Company was able to implement a program to reduce the reserve requirement with the Federal Reserve Bank.

This rapid asset increase was funded by deposit growth in the amount of $90.3 million since December 31, 2005. Total liabilities increased $110.8 million, or 15.8%, to $813.1 million at September 30, 2006 compared to $702.3 million at December 31, 2005. Securities sold under repurchase agreements increased $2.8 million to $48.2 million since December 31, 2005. The remainder of the asset growth was funded by a shift from federal funds sold to federal funds purchased. This increase was offset by a $7.5 million decrease in advances from Federal Home Loan Bank as the Company paid off maturing and called loans.

Shareholders’ equity increased $5.4 million to $52.6 million at September 30, 2006 compared to December 31, 2005 primarily due to the Company’s net income. See “Capital Position and Dividends” for further analysis.

Liquidity and Asset Management

The Company’s management seeks to maximize net interest income by managing the Company’s assets and liabilities within appropriate constraints on capital, liquidity and interest rate risk. Liquidity is the ability to maintain sufficient cash levels necessary to fund operations, meet the requirements of depositors and borrowers and fund attractive investment opportunities. Higher levels of liquidity bear corresponding costs, measured in terms of lower yields on short-term, more liquid earning assets and higher interest expense involved in extending liability maturities. Liquid assets including cash, due from banks and federal funds sold totaled $16.7 million at September 30, 2006. In addition, the Company has $25.7 million in unpledged securities to secure additional borrowing capacity for liquidity needs.

The Company’s primary source of liquidity is a stable core deposit base. Payments from the loan and investment portfolios provide a secondary source. Borrowing lines with correspondent banks, the Federal Home Loan Bank and the Federal Reserve augment these traditional sources. Repurchase agreements, brokered CDs, public fund deposits and loan participations are alternative sources of funding to which the Company has access. As of September 30, 2006, the Company had approximately $37.3 million of available borrowings from the Federal Home Loan Bank and approximately $32.3 million of additional federal funds lines available for overnight borrowings.

33

The Company’s securities portfolio consists of earning assets that provide liquidity and/or interest income. For those securities classified as held to maturity the Company has the ability and intent to hold these securities to maturity. Securities classified as available for sale include securities intended to be used as part of the Company’s asset/liability strategy and/or securities that may be sold in response to changes in interest rates, prepayment risk, the need or desire to increase capital and similar economic factors. Cash flows totaling approximately $40.0 million are projected to be generated from the securities portfolio within the next twelve months.

A secondary source of liquidity is the Company’s loan portfolio. At September 30, 2006, loans of approximately $333.9 million either will become due or will be subject to rate adjustments within twelve months. Continued emphasis will be placed on structuring adjustable rate loans.

As for liabilities, time deposits greater than $100,000 of approximately $239.4 million will become due during the next twelve months. There have been no significant reductions in immediately withdrawable accounts such as negotiable order of withdrawal accounts, money market demand accounts, demand deposit and regular savings accounts and management anticipates that there will be no significant withdrawals from these accounts in the future. However, future decreases in rates could have a negative effect on total deposits.

Management believes that with current liquid assets, present maturities, borrowing sources and the efforts of management in its asset/liability management program, liquidity will not pose a problem in the near future. However, the Company’s subordinated debentures have certain interest payment requirements and the Company has certain operating expenses at the holding company level, which may require dividends or management fees from Cumberland Bank in order to be funded. The Company anticipates that it will be able to meet required payments on its subordinated debentures for the next four quarters through available cash resources including such dividends.

If the Cumberland Bank were unable to pay dividends to the Company for any reason, the Company would be limited to parent company fees to fund its operating expenses and may require alternative financing sources, such as proceeds of an offering of its equity securities or the borrowing of additional amounts, in order to fund these expenses and to meet its debt servicing obligations, including its subordinated debt obligation on the trust preferred securities issued by Civitas Statutory Trust I and Cumberland Capital Trust II.

Off Balance Sheet Arrangements

At September 30, 2006, the Company had unfunded loan commitments outstanding of $159.1 million and unfunded lines of credit and letters of credit of $10.5 million. Because these commitments generally have fixed expiration dates and many will expire without being drawn upon, the total commitment level does not necessarily represent future cash requirements. If needed to fund these outstanding commitments, Cumberland Bank has the ability to liquidate Federal funds sold or securities available for sale or on a short-term basis to borrow and purchase federal funds from other financial institutions. Additionally, Cumberland Bank could sell participations in these or other loans to correspondent banks.

34

Capital Position and Dividends

At September 30, 2006, total shareholders’ equity was $52.6 million or 6.1% of total assets. The increase of $5.4 million in shareholders’ equity during the nine months ended September 30, 2006 resulted mainly from the Company’s net income of $5.5 million and $139,000 in issuance of common stock through the Company’s Employee Stock Purchase Plan, $231,000 in stock based compensation expense, $25,000 in exercise of stock options, and $193,000 in change of unrealized loss in securities available for sale and all partially offset by $639,000 in dividends paid.

The Company’s principal regulators have established minimum risk-based capital requirements and leverage capital requirements for the Company and its subsidiary bank. These guidelines classify capital into two categories of Tier I and total risk-based capital. Total risk-based capital consists of Tier I (or core) capital (essentially common equity less intangible assets) and Tier II capital (essentially qualifying long-term debt, of which the Company and the subsidiary bank have none, and a part of the allowance for loan losses). In determining risk-based capital requirements, assets are assigned risk-weights of 0% to 100%, depending on regulatory assigned levels of credit risk associated with such assets. The risk-based capital guidelines require Cumberland Bank and the Company to have a total risk-based capital ratio of 8.0% and a Tier I risk-based capital ratio of 4.0%. Subordinated debentures are allowed to be counted in Tier I capital, subject to certain limitations. At September 30, 2006, the Company’s and Cumberland Bank’s total risk-based capital ratio, Tier I risk-based capital ratio, and Tier I leverage capital ratio (Tier I capital to average assets for the most recent quarter) were as follows:

CAPITAL STANDARDS
dollars in thousands

																Excess
																over
	Required Minimum					Well Capitalized					Actual					Well
	Amount		Ratios			Amount		Ratios			Amount		Ratios			Capitalized
Tier I to average assets — leverage
Civitas BankGroup, Inc.	$	31,716		4.00	%	$	39,645		5.00	%	$	71,091		8.97	%	$	31,447
Cumberland Bank		33,554		4.00	%		41,942		5.00	%		64,629		7.70	%		22,687
Tier I to risk-weighted assets
Civitas BankGroup, Inc.		28,141		4.00	%		42,212		6.00	%		71,091		10.10	%		28,879
Cumberland Bank		27,964		4.00	%		41,946		6.00	%		64,629		9.24	%		22,683
Total capital to risk-weighted assets
Civitas BankGroup, Inc.		56,283		8.00	%		70,354		10.00	%		77,103		10.96	%		6,750
Cumberland Bank		55,928		8.00	%		69,910		10.00	%		70,641		10.10	%		731

35

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

The Company’s primary component of market risk is interest rate volatility. Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on a large portion of the Company’s assets and liabilities, and the market value of all interest-earning assets and interest-bearing liabilities, other than those which possess a short term to maturity. Based upon the nature of the Company’s operations, the Company does not maintain any foreign currency exchange or commodity price risk.

Interest rate risk (sensitivity) management focuses on risk to long-term earnings capacity and economic value of equity associated with changing interest rates. As the Company’s rate sensitivity position has an important impact on earnings, management seeks to maintain profitability in both immediate and long-term earnings through funds management/interest rate risk management. Responsibility for managing interest rate risk and liquidity rests with the Cumberland Bank Asset/Liability Committee (“ALCO”). ALCO reviews interest rate and liquidity exposures, adopts balance sheet strategies, and ensures policy compliance. Simulation and gap analysis are utilized to measure the interest sensitivity of assets and liabilities. Cash flow, maturing and repricing information from the Company’s balance sheet are quantified using a variety of potential interest rate environments to estimate earnings sensitivity and capital risk to changing interest rates.

Net interest income should benefit from a decrease in market interest rates. This position reflects the liability sensitive bias of the balance sheet. Net interest income is exposed to rising interest rates.

Management believes there have been no significant changes in market risk as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.

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ITEM 4. CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to its management, including its principal executive officer and its principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. The Company carried out an evaluation, under the supervision and with the participation of its management, including its principal executive officer and its principal financial officer, of the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this report. Based on the evaluation of these disclosure controls and procedures, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective.

There were no changes in the Company’s internal control over financial reporting during the Company’s fiscal quarter ended September 30, 2006 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

37

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None

Item 1A. Risk Factors

Other than with respect to the updated risk factor set forth below, there have been no material changes to the Company’s risk factors as previously disclosed in Part I, Item 1A, of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005. A version of the risk factor set out below was previously included in the Company’s Annual Report on Form 10-K, but has been revised to reflect that the Company’s common stock is now listed on the NASDAQ Global Market rather than traded on the over-the-counter bulletin board.

Even though the Company’s common stock is currently traded on the NASDAQ Global Market, it has less liquidity than the average stock quoted on a national securities exchange.

Even though the Company’s common stock began trading on the NASDAQ Global Market on July 18, 2006, the trading volume in its common stock on the NASDAQ Global Market remains relatively low when compared with larger companies listed on the NASDAQ Global Market or other national stock exchanges. Although, the Company anticipates that a more active and liquid market will develop for its common stock following its listing on the NASDAQ Global Market, the Company cannot guarantee that such a market will develop. Because of this, it may be more difficult for shareholders to sell a substantial number of shares for the same price at which shareholders could sell a smaller number of shares.

The Company cannot predict the effect, if any, that future sales of its common stock in the market, or the availability of shares of common stock for sale in the market, will have on the market price of its common stock. The Company can give no assurance that sales of substantial amounts of common stock in the market, or the potential for large amounts of sales in the market, would not cause the price of the Company’s common stock to decline or impair the Company’s future ability to raise capital through sales of its common stock.

The market price of the Company’s common stock may fluctuate in the future, and these fluctuations may be unrelated to the Company’s performance. General market price declines or overall market volatility in the future could adversely affect the price of the Company’s common stock, and the current market price may not be indicative of future market prices.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

             None

Item 3. Defaults Upon Senior Securities

             None

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Item 4. Submission of Matters to a Vote of Security Holders

             None

Item 5. Other Information

             None

Item 6. Exhibits

(a) Exhibits

31.1 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1 Certification of the Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

39

SIGNATURES

Pursuant to the requirements 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.

CIVITAS BANKGROUP, INC.
(Registrant)

DATE: November 8, 2006	/s/ Richard Herrington
	Richard Herrington,
	President and Chief Executive Officer

DATE: November 8, 2006	/s/ Lisa Musgrove
	Lisa Musgrove,
	Executive Vice President, Chief Financial Officer and Chief Operating Officer

40