10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2006

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

For the transition period from                  to                 

Commission File No. 0-15423

BANCTRUST FINANCIAL GROUP, INC.

(Exact name of registrant as specified in its charter)

Alabama	63-0909434
(State or other jurisdiction of incorporation)	(I.R.S. Employer Identification No.)

100 Saint Joseph Street Mobile, Alabama	36602
(Address of principal executive offices)	(Zip Code)

251-431-7800

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

COMMON STOCK $.01 PAR

(Title of class)

Securities registered pursuant to Section 12(g) of the Act:

NONE

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15 (d) of the Act.    Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨

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

Large accelerated filer  ¨                     Accelerated filer  x                     Non-accelerated filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

Aggregate market value of the Common Stock ($.01 Par) held by non-affiliates of the registrant as of February 28, 2007 (assuming that all executive officers, directors and 5% shareholders are affiliates): $214,884,387

Shares of Common Stock ($.01 Par) outstanding at March 09, 2007: 11,184,056

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 2007 annual meeting of shareholders are incorporated by reference into Part III.

TABLE OF CONTENTS

PART I
Item 1:	Business	1
Item 1A:	Risk Factors	14
Item 1B:	Unresolved Staff Comments	18
Item 2:	Properties	18
Item 3:	Legal Proceedings	18
Item 4:	Submission of Matters to a Vote of Security Holders	18
PART II
Item 5:	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	19
Item 6:	Selected Financial Data	21
Item 7:	Management’s Discussion and Analysis of Financial Condition and Results of Operation	22
Item 7A:	Quantitative and Qualitative Disclosures about Market Risk	45
Item 8:	Financial Statements and Supplementary Data	45
Item 9:	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	90
Item 9A:	Controls and Procedures	90
Item 9B:	Other Information	90
PART III
Item 10:	Directors and Executive Officers of the Registrant	91
Item 11:	Executive Compensation	91
Item 12:	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	91
Item 13:	Certain Relationships and Related Transactions	91
Item 14:	Principal Accountant Fees and Services	91
PART IV
Item 15:	Exhibits, Financial Statement Schedules	92

PART I

Cautionary Note Concerning Forward-Looking Statements

This Annual Report on Form 10-K, other periodic reports filed by us under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and any other written or oral statements made by or on behalf of BancTrust may include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, which reflect our current views with respect to future events and financial performance. These statements can be identified by our use of words like “expect,” “may,” “could,” “intend,” “project,” “estimate,” “anticipate,” “should,” “will,” “plan,” “believe,” “continue,” “predict,” “contemplate” and similar expressions. These forward-looking statements reflect our current views, but they are based on assumptions and are subject to risks, uncertainties and other variables that may cause actual results to differ materially from the views, beliefs and projections expressed in such statements, including, in addition to the items discussed under the caption “Risk Factors” and elsewhere in this Report on Form 10-K, the following:

• competitive pressures among depository and other financial institutions may increase significantly;

• changes in the interest rate environment may reduce margins;

• general economic conditions may be less favorable than expected, resulting in, among other things, a deterioration in credit quality and/or a reduction in demand for credit;

• legislative or regulatory changes, including changes in accounting standards, may adversely affect the business in which we are engaged;

• we may be unable to obtain required shareholder or regulatory approval for any proposed acquisitions;

• costs or difficulties related to the integration of our businesses may be greater than expected;

• deposit attrition, customer loss or revenue loss following acquisitions may be greater than expected;

• competitors may have greater financial resources and develop products that enable our competitors to compete more successfully than we can compete; and

• adverse changes may occur in the equity markets.

We caution you not to place undue reliance on our forward-looking statements, which speak only as of the date of this Report on Form 10-K in the case of forward-looking statements contained herein.

We expressly qualify in their entirety all written or oral forward-looking statements attributable to us or any person acting on our behalf by the cautionary statements contained or referred to in this section. We do not intend to update or revise, and we assume no responsibility for updating or revising, any forward-looking statement contained in this Report on Form 10-K, whether as a result of new information, future events or otherwise.

Item 1. Business

General

BancTrust Financial Group, Inc. is a multi-bank holding company headquartered in Mobile, Alabama. We operate 31 banking offices in the southern half of Alabama and northwest Florida and provide banking and related services in that market area through the following subsidiaries: BankTrust (the “Mobile Bank”), BankTrust of Alabama (the “Eufaula Bank”), BankTrust (Florida) (the “Florida Bank”) and BancTrust Company, Inc. (the “Trust Company”). We refer to BancTrust Financial Group, Inc. and its subsidiaries as “we,” “us,” and “our” and as “BancTrust” and the “Company” throughout this Annual Report on Form 10-K.

We were originally incorporated as a Delaware corporation in 1985 under the name Mobile National Corporation. In 1993, we changed our name to South Alabama Bancorporation, Inc. We operated under that name until May of 2002, when we changed our name to BancTrust Financial Group, Inc. Most of our current executive management team has been in place since 1989. At December 31, 2006, we had total consolidated assets of approximately $1.353 billion, total consolidated deposits of approximately $1.104 billion and total consolidated shareholders’ equity of approximately $138.5 million.

We formed our Company in 1986 by acquiring all of the stock of the Mobile Bank. In 1993, we acquired the First National Bank, Brewton, Alabama, by means of a merger with that bank’s holding company. In 1996, we acquired The Monroe County Bank in the same manner. In 1998, we acquired the assets of Peterman State Bank by merging that bank into The Monroe County Bank, and we acquired Commercial National Bank of Demopolis by merger and converted it to an Alabama charter under the name Commercial Bank of Demopolis. We formed the Trust Company in 1998 as a trust corporation under Alabama law. In 1999, we acquired Sweet Water State Bank by means of a merger with that bank’s holding company. In 2002, we acquired Wewahitchka State Bank by merger with its holding company. In 2003, we acquired the Florida Bank and the Eufaula Bank through a merger with their holding company, CommerceSouth, Inc.

In 2003, we began consolidating the Banks with the merger of BankTrust of Brewton (formerly First National Bank, Brewton) into the Mobile Bank. Continuing this consolidation strategy in 2004, we merged The Monroe County Bank and Commercial Bank of Demopolis into the Mobile Bank, leaving us with five subsidiary banks: the Mobile Bank, the Eufaula Bank, the Florida Bank, Sweet Water State Bank and BankTrust of Florida, formerly Wewahitchka State Bank (the “Wewahitchka Bank”). On October 15, 2004, we sold the Wewahitchka Bank, including approximately $50.3 million in total assets and approximately $43.4 million in total deposits, for $7.5 million; and on August 1, 2005, we sold Sweet Water State Bank, including approximately $56.0 million in total assets and approximately $50.8 million in total deposits, for $7.0 million, consisting of a $6.5 million purchase price and a $500,000 dividend. We anticipate merging the Eufaula Bank into the Mobile Bank in the second quarter of 2007, but we expect to maintain the Florida Bank as a separate banking subsidiary for the foreseeable future.

Our Banking Subsidiaries

Through our subsidiary banks (the “Banks”), the Mobile Bank, the Florida Bank and the Eufaula Bank, we offer a wide range of lending services, including real estate, consumer and commercial loans, to individuals, small businesses and other organizations that are located in or conduct a substantial portion of their business in our markets. We also offer a full array of retail and commercial deposit products and fee-based services to support our customers’ financial needs, including checking accounts, money market accounts, savings accounts and certificates of deposit. For our commercial customers we also offer cash management services such as lock-box, sweep account and repurchase agreements. Other traditional services offered include drive-in banking and night deposit facilities, 24-hour automated teller machines, internet banking, debit and credit card services and telephone banking.

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We currently operate 31 bank branches, and we expect to open one additional branch location in 2007, in Fairhope, Alabama.

Our Non-banking Subsidiaries

In addition to our traditional banking services, we also offer our customers a full array of trust services through our subsidiary, the Trust Company. In addition to trust services, we offer our customers certain investment and insurance products through a subsidiary of the Mobile Bank, BancTrust Financial Services, Inc.

The following table sets forth information regarding our holding company and our wholly-owned subsidiaries as of December 31, 2006:

(Dollars in thousands)
	Mobile Bank		Florida Bank		Eufaula Bank		Trust Company		Consolidated(1)
Banking Offices		16		10		5		2		31
Employees		232		89		76		22		419
Loans (Net of unearned income)	$	534,467	$	285,343	$	184,925	$	n/a	$	1,004,735
Investments		93,514		8,497		15,536		951		118,498
Total Assets		758,349		351,719		259,031		2,198		1,353,406
Deposits		642,797		260,920		206,913		n/a		1,104,129
Shareholders’ Equity	$	66,408	$	56,100	$	41,599	$	1,818	$	138,523

(1) Amounts include BancTrust and its subsidiaries. All material intercompany balances have been eliminated in consolidation. Further segment information is included in Note 20 of the Notes to Consolidated Financial Statements included herein.

Market Areas and Competition

We offer banking services in our subsidiary Banks’ market areas of Autauga, Baldwin, Barbour, Escambia, Marengo, Mobile, Monroe and Montgomery Counties in Alabama and in Bay, Okaloosa and Walton Counties in Florida. Trust services are offered throughout Alabama and Florida through our trust subsidiary, BancTrust Company, and investment and certain insurance products are offered to all of our markets through BancTrust Financial Services.

The following table sets forth our Banks’ total deposits and market share by county as of June 30, 2006:

(Dollars in thousands)
Alabama Counties	Number of Branches	Our Market Deposits		Total Market Deposits		Ranking	Market Share Percentage
Autauga	1	$	16,672	$	419,516	9	3.97	%
Baldwin	3		31,900		3,194,862	12	1.00
Barbour	2		99,856		410,254	1	24.34
Escambia	3		122,971		565,569	1	21.74
Marengo	2		65,413		418,098	3	15.65
Mobile	7		262,754		5,451,443	5	4.82
Monroe	2		109,612		320,296	1	34.22
Montgomery	2		86,143		5,064,055	8	1.70
Florida Counties	Number of Branches	Our Market Deposits		Total Market Deposits		Ranking	Market Share Percentage
Bay	2	$	46,179	$	2,423,246	12	1.91	%
Okaloosa	3		50,881		3,486,367	18	1.46
Walton	3		162,152		889,970	2	18.22

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The banking business is highly competitive, and we experience competition in our market from many other financial institutions. Competition among financial institutions is based upon interest rates offered on deposit accounts, interest rates charged on loans, other credit and service charges relating to loans, the quality and scope of the services rendered, the convenience of banking facilities and, in the case of loans to commercial borrowers, relative lending limits. We compete with commercial banks, credit unions, finance companies, insurance companies, mortgage companies, securities brokerage firms and money market mutual funds, as well as super-regional, national and international financial institutions that operate offices in our market areas. We compete with these institutions both in attracting deposits and in making loans. In addition, we have to attract our customer base from other existing financial institutions and new residents. Many of our competitors are larger financial institutions with substantially greater resources and lending limits such as Regions (which now includes AmSouth), Compass and Wachovia.

We believe our commitment to quality and personalized banking services is a factor, along with our delivery of services, product pricing, convenience and personal and local contacts with our customers, that allows us to compete effectively with these financial institutions.

Overall Business Strategy

Our business strategy is to deliver a full range of bank and banking related products in a responsive and personalized manner. Each subsidiary and its employees are expected to be actively involved in all aspects of the community in which it operates. The members of the boards of directors of each of our subsidiaries are from the local markets which the subsidiary serves. In addition, to further enhance our local knowledge, we maintain local advisory boards in certain of our markets. We are able to compete effectively with larger financial institutions by providing superior customer service with localized decision making capabilities. The holding company provides corporate oversight and efficiencies in certain “back office” areas such as loan review, marketing and business development, certain personnel matters, accounting, auditing, compliance and information technology.

Strategic Plan

In early 2004, our Board of Directors adopted a comprehensive Strategic Plan for our consolidated operations. This formal plan provides strategic goals and time-frames for the accomplishments of those goals and provides our executive leadership with guidelines for the operation of our business through the year 2008. Our Strategic Plan focuses on several different operational aspects of our business and includes the following:

• Growth and market expansion;

• Consolidation of subsidiaries;

• Financial performance goals;

• Credit culture;

• Personnel development;

• Management succession;

• Technology infrastructure; and

• Marketing and product development.

Lending Activities and Credit Administration

We originate loans primarily in the categories of commercial, commercial real estate, individual and commercial construction and consumer. We also make available to our customers fixed rate, longer-term real estate mortgage loans in the residential real estate mortgage area. We are able to offer, through third party arrangements, certain mortgage loan products that do not require the longer-term loans to be carried on our

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books. These products allow us to gain the benefit of a larger variety of product offerings and have generated a significant amount of fee income for us for the last several years. These fees come from first and second home purchases, as well as from home owners who have elected to refinance their home loans. The loan portfolio mix varies throughout our market areas. Generally speaking, we make loans with relatively short maturities or, in the case of loans with longer maturities, we attempt to issue loans with floating rate arrangements whenever possible. The largest component of our loan portfolio is loans secured by real estate mortgages. We obtain a security interest in real estate, whenever possible, in addition to any other available collateral, in order to increase the likelihood of the ultimate repayment of the loan. These loans will generally fall into one of four categories: (1) commercial, financial and agricultural loans; (2) real estate construction loans; (3) real estate mortgage loans; and (4) installment or consumer loans.

Our loan portfolio at December 31, 2006 was comprised as follows:

DISTRIBUTION OF LOANS BY CATEGORY

(Dollars in thousands)
	December 31, 2006
	Mobile Bank		Florida Bank			Eufaula Bank			Total
Commercial, Financial and Agricultural	$	153,056	$	20,025		$	23,055		$	196,136
Real Estate—Construction		140,887		161,851			39,254			341,992
Real Estate—Mortgage		198,137		99,942			113,794			411,873
Installment		42,173		3,638			9,046			54,857
Total Loans		534,253		285,456			185,149			1,004,858
Less: deferred cost (unearned loan income), net		214		(113	)		(224	)		(123	)
Loans, net of unearned income	$	534,467	$	285,343		$	184,925		$	1,004,735

Credit Risks and Lending Policies

Certain credit risks are inherent in making loans. These include prepayment risks, risks resulting from uncertainties in the future value of collateral, including real estate values, risks resulting from changes in economic and industry conditions and risks inherent in dealing with individual borrowers. We attempt to mitigate repayment risks by adhering to internal credit policies and procedures.

Our Board of Directors has established and annually reviews our lending policies and procedures. Each of our subsidiary banks have Loan Committees that make credit decisions based on our company-wide lending policies. These policies and procedures include officer and client lending limits, a multi-layered approval process for larger loans, documentation and examination procedures and follow-up procedures for any exceptions to credit policies. Loans above an established limit must be reviewed and approved by the Board of Directors or a Board appointed Loan Committee. There are regulatory restrictions on the dollar amount of loans available for each lending relationship. We adhere to the guidelines established by our regulators and regularly monitor our credit relationships for compliance.

Loan Review

We have a Loan Review Department that is part of the Internal Audit function of our company. Our Loan Review Department reports directly to our Audit Manager. Large credit relationships are reviewed on an on-going basis for continued financial, collateral and guarantor support. New credit offerings are reviewed for adequacy of underwriting and collateral valuation. The Loan Review Department makes periodic on-site visits to each of our subsidiary banks. Typically, during these on-site visits, the loan review officers review 30-35%, by amount, of the subsidiary Bank’s loan portfolio. All problem loans that are identified are included on an internal watch list. These loans are continually monitored for on-going repayment ability, collateral deterioration and adequacy of any allowance for loan losses.

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Deposits and Other Sources of Funding

We consider core deposits to be the main source of funds used to support our assets. We offer a full range of deposit products designed to appeal to both individual and corporate customers, including checking accounts, commercial accounts, savings accounts and other time deposits of various types ranging from daily money market accounts to long-term certificates of deposit. Deposit rates are reviewed regularly by senior management. We believe that the rates we offer are competitive with those offered by other financial institutions in our area. In the fall of 2005 we completed the process of streamlining and standardizing our line of deposit products for each of our subsidiary banks. This new deposit product line allows our employees throughout the Company to offer the same products, regardless of location, and we believe the revised program has helped and will continue to help us attract and retain deposits. In addition, the advertising of our deposit products has become easier and more cost efficient.

Our primary emphasis is placed on attracting and retaining core deposits from customers who will purchase other products and services that we offer. We recognize that it is necessary from time to time to pursue non-core funding sources such as large certificates of deposit from outside of our market area and Federal Home Loan Bank borrowings, especially during periods when loan growth is significantly greater than deposit growth. We view these as secondary sources of funds. Our out-of-market, or brokered, certificates of deposit represented 2.12% of total deposits at December 31, 2006.

Other Banking Services

We offer a full range of other products and services that give our customers convenience and account access. Such products and services include internet and telephone banking, access to funds through ATM’s and debit cards, credit cards, safe deposit boxes, traveler’s checks, direct deposit and customer friendly telephone operators who direct the customer quickly to the appropriate area of the bank. We earn fees for most of these services, including debit and credit card transactions, sales of checks and wire transfers. We receive ATM transaction fees from transactions performed for our customers.

Securities

While loans are our primary use of funds, most of our remaining liquid funds, after cash reserves, are invested in short-term securities. We invest primarily in securities issued by U.S. government sponsored enterprises and state and political subdivisions and in mortgage-backed securities. We typically invest any surplus cash in the overnight federal funds market. Interest rate fluctuation, maturity, quality and concentration are all risks associated with the use of funds.

Employees

As of December 31, 2006, we had 419 full-time equivalent employees. We are not a party to any collective bargaining agreement, and, in the opinion of Management, we enjoy satisfactory relations with our employees.

Supervision and Regulation

BancTrust and its subsidiaries are subject to extensive state and federal banking regulations that impose restrictions on and provide for general regulatory oversight of their operations. These laws generally are intended to protect depositors and not shareholders. The following discussion describes the material elements of the regulatory framework that applies to us.

BancTrust

Since we own all of the capital stock of the Banks, we are a bank holding company under the federal Bank Holding Company Act of 1956, as amended (the Bank Holding Company Act). As a result, we are primarily

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subject to the supervision, examination and reporting requirements of the Bank Holding Company Act and the regulations of the Federal Reserve Board.

Acquisitions of Banks.    The Bank Holding Company Act requires every bank holding company to obtain the Federal Reserve Board’s prior approval before:

• acquiring direct or indirect ownership or control of any voting shares of any bank if, after the acquisition, the bank holding company will directly or indirectly own or control more than 5% of the bank’s voting shares;

• acquiring all or substantially all of the assets of any bank; or

• merging or consolidating with any other bank holding company.

Additionally, the Bank Holding Company Act provides that the Federal Reserve Board may not approve any of these transactions if it would result in or tend to create a monopoly or substantially lessen competition or otherwise function as a restraint of trade, unless the anti-competitive effects of the proposed transaction are clearly outweighed by the public interest in meeting the convenience and needs of the community to be served. The Federal Reserve Board is also required to consider the financial and managerial resources and future prospects of the bank holding companies and banks concerned and the convenience and needs of the community to be served. The Federal Reserve Board’s consideration of financial resources generally focuses on capital adequacy, which is discussed below.

Under the Bank Holding Company Act, if we are adequately capitalized and adequately managed, we may purchase banks located either inside or outside of Alabama and Florida. Conversely, an adequately capitalized and adequately managed bank holding company located either inside or outside of Alabama or Florida may purchase a bank located inside Alabama or Florida. In Florida, however, restrictions may be placed on the acquisition of a bank that has only been in existence for a limited amount of time or will result in specified concentrations of deposits. For example, Florida law prohibits a bank holding company from acquiring control of a financial institution until the target financial institution has been in existence and continually operating as a bank for more than three years.

Change in Bank Control.    Subject to various exceptions, the Bank Holding Company Act and the Change in Bank Control Act, together with related regulations, require Federal Reserve Board approval prior to any person or company acquiring “control” of a bank holding company. Control is conclusively presumed to exist if an individual or company acquires 25% or more of any class of voting securities of the bank holding company. Control is rebuttably presumed to exist if a person or company acquires 10% or more, but less than 25%, of any class of voting securities and either:

• the bank holding company has registered securities under Section 12 of the Securities Act of 1934; or

• no other person owns a greater percentage of that class of voting securities immediately after the transaction.

Our common stock is registered under Section 12 of the Securities Exchange Act of 1934. The regulations provide a procedure for challenging any rebuttable presumption of control.

Permitted Activities.    A bank holding company is generally permitted under the Bank Holding Company Act to engage in or acquire direct or indirect control of more than 5% of the voting shares of any company engaged in the following activities:

• banking or managing or controlling banks; and

• any activity that the Federal Reserve Board determines to be so closely related to banking as to be a proper incident to the business of banking.

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Activities that the Federal Reserve Board has found to be so closely related to banking as to be a proper incident to the business of banking include:

• factoring accounts receivable;

• making, acquiring, brokering or servicing loans and usual related activities;

• leasing personal or real property;

• operating a non-bank depository institution, such as a savings association;

• trust company functions;

• financial and investment advisory activities;

• conducting discount securities brokerage activities;

• underwriting and dealing in government obligations and money market instruments;

• providing specified management consulting and counseling activities;

• performing selected data processing services and support services;

• acting as agent or broker in selling credit life insurance and other types of insurance in connection with credit transactions; and

• performing selected insurance underwriting activities.

Despite prior approval, the Federal Reserve Board may order a bank holding company or its subsidiaries to terminate any of these activities or to terminate its ownership or control of any subsidiary when it has reasonable cause to believe that the bank holding company’s continued ownership, activity or control constitutes a serious risk to the financial safety, soundness or stability of it or any of its bank subsidiaries.

In addition to the permissible bank holding company activities listed above, a bank holding company may qualify and elect to become a financial holding company, permitting the bank holding company to engage in additional activities that are financial in nature or incidental or complementary to financial activity. The Bank Holding Company Act expressly lists the following activities as financial in nature:

• lending, trust and other banking activities;

• insuring, guaranteeing or indemnifying against loss or harm, or providing and issuing annuities and acting as principal, agent or broker for these purposes, in any state;

• providing financial, investment or advisory services;

• issuing or selling instruments representing interests in pools of assets permissible for a bank to hold directly;

• underwriting, dealing in or making a market in securities;

• other activities that the Federal Reserve Board may determine to be so closely related to banking or managing or controlling banks as to be a proper incident to managing or controlling banks;

• foreign activities permitted outside of the United States if the Federal Reserve Board has determined them to be usual in connection with banking operations abroad;

• merchant banking through securities or insurance affiliates; and

• insurance company portfolio investments.

To qualify to become a financial holding company, each of our depository institution subsidiaries must be well capitalized and well managed and must have a Community Reinvestment Act rating of at least

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“satisfactory.” Additionally, we must file an election with the Federal Reserve Board to become a financial holding company and must provide the Federal Reserve Board with 30 days’ written notice prior to engaging in a permitted financial activity. We are not a financial holding company at this time.

Support of Subsidiary Institutions.    Under Federal Reserve Board policy, we are expected to act as a source of financial strength for the Banks and to commit resources to support them. This support may be required at times when, without this Federal Reserve Board policy, we might not be inclined to provide it.

The Banks

Each of our subsidiary Banks is a member of the Federal Deposit Insurance Corporation (the “FDIC”), and, as such, their respective deposits are insured by the FDIC to the extent provided by law. Each of our subsidiary Banks is also subject to numerous state and federal statutes and regulations that affect its business, activities, and operations, and each is supervised and examined by one or more state or federal bank regulatory agencies. Our subsidiary Banks are state-chartered banks subject to supervision and examination by the state banking authorities of the states in which they are located. The primary state regulator for the Mobile and Eufaula Banks is the Superintendent of the State Banking Department of Alabama. The primary state regulator for the Florida Bank is the Office of Financial Regulation under the Florida Department of Financial Services. The federal banking regulator for each of our Banks, as well as the appropriate state banking authority for each Bank, regularly examines their operations and is given authority to approve or disapprove mergers, consolidations, the establishment of branches and similar corporate actions. The federal and state banking regulators also have the power to prevent the continuance or development of unsafe or unsound banking practices or other violations of law.

Prompt Corrective Action.    The Federal Deposit Insurance Corporation Improvement Act of 1991 establishes a system of prompt corrective action to resolve the problems of undercapitalized financial institutions. Under this system, the federal banking regulators have established five capital categories (well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized) in which all institutions are placed. Federal banking regulators are required to take various mandatory supervisory actions and are authorized to take other discretionary actions with respect to institutions in the three undercapitalized categories. The severity of the action depends upon the capital category in which the institution is placed. Generally, subject to a narrow exception, the banking regulator must appoint a receiver or conservator for an institution that is critically undercapitalized. The federal banking agencies have specified by regulation the relevant capital level for each category.

An institution that is categorized as undercapitalized, significantly undercapitalized or critically undercapitalized is required to submit an acceptable capital restoration plan to its appropriate federal banking agency. A bank holding company must guarantee that a subsidiary depository institution meets its capital restoration plan, subject to various limitations. The controlling holding company’s obligation to fund a capital restoration plan is limited to the lesser of 5% of an undercapitalized subsidiary’s assets at the time it became undercapitalized or the amount required to meet regulatory capital requirements. An undercapitalized institution is also generally prohibited from increasing its average total assets, making acquisitions, establishing any branches or engaging in any new line of business, except under an accepted capital restoration plan or with FDIC approval. The regulations also establish procedures for downgrading an institution to a lower capital category based on supervisory factors other than capital.

FDIC Insurance Assessments.    The FDIC has adopted a risk-based assessment system for insured depository institutions that takes into account the risks attributable to different categories and concentrations of assets and liabilities. The system assigns an institution to one of three capital categories: (1) well capitalized; (2) adequately capitalized; and (3) undercapitalized. These three categories are substantially similar to the prompt corrective action categories described above, with the “undercapitalized” category including institutions that are undercapitalized, significantly undercapitalized and critically undercapitalized for prompt corrective action

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purposes. The FDIC also assigns an institution to one of three supervisory subgroups based on a supervisory evaluation that the institution’s primary federal regulator provides to the FDIC and information that the FDIC determines to be relevant to the institution’s financial condition and the risk posed to the deposit insurance funds. Assessments range from 0 to 27 cents per $100 of deposits, depending on the institution’s capital group and supervisory subgroup. In addition, the FDIC imposes assessments to help pay off the $780 million in annual interest payments on the $8 billion Financing Corporation bonds issued in the late 1980s as part of the government rescue of the thrift industry. This assessment rate is adjusted quarterly and is set at 1.3 cents per $100 of deposits for the first quarter of 2007.

The FDIC may terminate its insurance of deposits if it finds that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.

Community Reinvestment Act.    The Community Reinvestment Act requires that, in connection with examinations of financial institutions within their respective jurisdictions, the Federal Reserve Board, the FDIC or the Office of the Comptroller of the Currency, shall evaluate the record of each financial institution in meeting the credit needs of its local community, including low and moderate-income neighborhoods. These facts are also considered in evaluating mergers, acquisitions and applications to open a branch or facility. Failure to adequately meet these criteria could impose additional requirements and limitations on our Banks. Additionally, we must publicly disclose the terms of various Community Reinvestment Act-related agreements.

Other Regulations.    Interest and other charges collected or contracted for by our Banks are subject to state usury laws and federal laws concerning interest rates. For example, under the Servicemembers Civil Relief Act, which amended the Soldiers’ and Sailors’ Civil Relief Act of 1940, a lender is generally prohibited from charging an annual interest rate in excess of 6% on any obligation for which the borrower is a person on active duty with the United States military.

Our Banks’ loan operations are also subject to federal laws applicable to credit transactions, such as the:

• Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;

• Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;

• Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;

• Fair Credit Reporting Act of 1978, governing the use and provision of information to credit reporting agencies;

• Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies;

• Servicemembers Civil Relief Act, which amended the Soldiers’ and Sailors’ Civil Relief Act of 1940, governing the repayment terms of, and property rights underlying, secured obligations of persons in military service; and

• the rules and regulations of the various federal agencies charged with the responsibility of implementing these federal laws.

The deposit operations of our Banks are subject to:

• the Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; and

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• the Electronic Funds Transfer Act and Regulation E issued by the Federal Reserve Board to implement that act, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services.

Capital Adequacy

We are required to comply with the capital adequacy standards established by the Federal Reserve Board. The Federal Reserve Board has established a risk-based and a leverage measure of capital adequacy for bank holding companies. The risk-based capital standards are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies, to account for off-balance sheet exposure, and to minimize disincentives for holding liquid assets. Assets and off-balance sheet items, such as letters of credit and unfunded loan commitments, are assigned to broad risk categories, each with appropriate risk weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance sheet items.

The minimum guideline for the ratio of total capital to risk-weighted assets is 8%. Total capital consists of two components, Tier 1 Capital and Tier 2 Capital. Tier 1 Capital generally consists of common stock, minority interests in the equity accounts of consolidated subsidiaries, noncumulative perpetual preferred stock and a limited amount of qualifying cumulative perpetual preferred stock, less goodwill and other specified intangible assets. Tier 1 Capital must equal at least 4% of risk-weighted assets. Tier 2 Capital generally consists of subordinated debt, other preferred stock and a limited amount of loan loss reserves. The total amount of Tier 2 Capital is limited to 100% of Tier 1 Capital. At December 31, 2006, our ratio of total capital to risk-weighted assets was 12.77% and our ratio of Tier 1 Capital to risk-weighted assets was 11.51%.

In addition, the Federal Reserve Board has established minimum leverage ratio guidelines for bank holding companies. These guidelines provide for a minimum ratio of Tier 1 Capital to average assets, less goodwill and other specified intangible assets, of 3% for bank holding companies that meet specified criteria, including having the highest regulatory rating and implementing the Federal Reserve Board’s risk-based capital measure for market risk. All other bank holding companies generally are required to maintain a leverage ratio of at least 4%. At December 31, 2006, our leverage ratio was 10.02%. The guidelines also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without reliance on intangible assets. The Federal Reserve Board considers the leverage ratio and other indicators of capital strength in evaluating proposals for expansion or new activities.

Failure to meet capital guidelines could subject a bank or bank holding company to a variety of enforcement remedies, including issuance of a capital directive, the termination of deposit insurance by the FDIC, a prohibition on accepting brokered deposits and certain other restrictions on its business. As described above, significant additional restrictions can be imposed on FDIC-insured depository institutions that fail to meet applicable capital requirements.

Payment of Dividends

BancTrust is a legal entity separate and distinct from our banking and other subsidiaries. Our principal source of cash flow, including cash flow to pay dividends to shareholders, is dividends from our Banks and the Trust Company. There are statutory and regulatory limitations on the payment of dividends by these subsidiaries, and there are statutory and regulatory limitations on our ability to pay dividends to our shareholders.

As to the payment of dividends, each of our state-chartered Banks and the Trust Company are subject to the respective laws and regulations of the state in which it is located and to the regulations of the FDIC. Various federal and state statutory provisions limit the amount of dividends our subsidiary Banks can pay to us without regulatory approval. The approval of the Federal Reserve Board is required for any dividend by a state chartered

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bank that is a member of the Federal Reserve System (a “state member bank”) if the total of all dividends declared by the bank in any calendar year would exceed the total of its net profits (as defined by regulatory agencies) for that year combined with its retained net profits for the preceding two years. In addition, a state member bank may not pay a dividend in an amount greater than its net profits then on hand. State member banks may also be subject to similar restrictions imposed by the laws of the states in which they are chartered. None of our Banks, however, is currently a state member bank.

If, in the opinion of a federal bank regulatory agency, an institution under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice (which, depending on the financial condition of the depository institution, could include the payment of dividends), such agency may require, after notice and hearing, that such institution cease and desist from such practice. The federal banking agencies have indicated that paying dividends that deplete an institution’s capital base to an inadequate level would be an unsafe and unsound banking practice. Under current federal law, an insured institution may not pay any dividend if payment would cause it to become undercapitalized or if it already is undercapitalized. Moreover, the Federal Reserve Board and the FDIC have issued policy statements which provide that bank holding companies and insured banks should generally pay dividends only out of current operating earnings.

Under Alabama law, a bank may not pay a dividend in excess of 90% of its net earnings until the bank’s surplus is equal to at least 20% of its capital. An Alabama state bank is also required by Alabama law to obtain the prior approval of the Superintendent of the State Banking Department of Alabama for the payment of dividends if the total of all dividends declared by it in any calendar year will exceed the total of (a) its net earnings (as defined by statute) for that year, plus (b) its retained net earnings for the preceding two years, less any required transfers to surplus. In addition, no dividends may be paid from an Alabama state bank’s surplus without the prior written approval of the Superintendent.

Under Florida law, the directors of a bank, after charging off bad debts, depreciation, and other worthless assets, if any, and making provision for reasonably anticipated future realized losses on loans and other assets, may quarterly, semiannually or annually declare a dividend of so much of the aggregate of the net profits of that period combined with its retained net profits of the preceding two years as the directors shall judge expedient, and, with the approval of the Florida Office of Financial Regulation, a bank may declare a dividend from retained net profits which accrued prior to the preceding two years, but each bank shall, before the declaration of a dividend on its common stock, carry 20 percent of its net profits for such preceding period as is covered by the dividend to its surplus fund, until the same shall at least equal the amount of its common and preferred stock then issued and outstanding. No bank shall declare any dividend at any such time that its net income from the current year combined with the retained net income from the preceding 2 years is a loss or which would cause the capital accounts of the bank to fall below the minimum amount required by law, regulation, order, or any written agreement with the Florida Office of Financial Regulation or a state or federal regulatory agency.

At December 31, 2006, our subsidiaries were able to pay dividends totaling approximately $18.5 million without the need for regulatory approval.

Restrictions on Transactions with Affiliates

We are subject to the provisions of Section 23A of the Federal Reserve Act. Section 23A places limits on the amount of:

• a bank’s loans or extensions of credit to affiliates;

• a bank’s investment in affiliates;

• assets a bank may purchase from affiliates, except for real and personal property exempted by the Federal Reserve Board;

• loans or extensions of credit to third parties collateralized by the securities or obligations of affiliates; and

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• a bank’s guarantee, acceptance or letter of credit issued on behalf of an affiliate.

The total amount of the above transactions is limited in amount, as to any one affiliate, to 10% of a bank’s capital and surplus and, as to all affiliates combined, to 20% of a bank’s capital and surplus. In addition to the limitation on the amount of these transactions, each of the above transactions must also meet specified collateral requirements. The Banks must also comply with other provisions designed to avoid the taking of low-quality assets.

We are also subject to the provisions of Section 23B of the Federal Reserve Act which, among other things, prohibit an institution from engaging in the above transactions with affiliates unless the transactions are on terms substantially the same, or at least as favorable to the institution or its subsidiaries, as those prevailing at the time for comparable transactions with nonaffiliated companies.

Privacy

Financial institutions are required to disclose their policies for collecting and protecting confidential information. Customers generally may prevent financial institutions from sharing nonpublic personal financial information with nonaffiliated third parties except under narrow circumstances, such as the processing of transactions requested by the consumer or when the financial institution is jointly sponsoring a product or service with a nonaffiliated third party. Additionally, financial institutions generally may not disclose consumer account numbers to any nonaffiliated third party for use in telemarketing, direct mail marketing or other marketing to consumers.

Consumer Credit Reporting

On December 4, 2003, President Bush signed the Fair and Accurate Credit Transactions Act amending the federal Fair Credit Reporting Act. These amendments to the Fair Credit Reporting Act (the “FCRA Amendments”) became effective in 2004.

The FCRA Amendments include, among other things:

• requirements for financial institutions to develop policies and procedures to identify potential identity theft and, upon the request of a consumer, place a fraud alert in the consumer’s credit file stating that the consumer may be the victim of identity theft or other fraud;

• consumer notice requirements for lenders that use consumer report information in connection with risk-based credit pricing programs;

• for entities that furnish information to consumer reporting agencies (which would include the Banks), requirements to implement procedures and policies regarding the accuracy and integrity of the furnished information and regarding the correction of previously furnished information that is later determined to be inaccurate; and

• a requirement for mortgage lenders to disclose credit scores to consumers.

The FCRA Amendments also prohibit a business that receives consumer information from an affiliate from using that information for marketing purposes unless the consumer is first provided a notice and an opportunity to direct the business not to use the information for such marketing purposes (the opt-out), subject to certain exceptions. We do not share consumer information among our affiliated companies for marketing purposes, except as allowed under exceptions to the notice and opt-out requirements. Because no affiliate of BancTrust is currently sharing consumer information with any other affiliate of BancTrust for marketing purposes, the limitations on sharing of information for marketing purposes do not have a significant impact on us.

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Anti-Terrorism and Money Laundering Legislation

The Banks are subject to the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA PATRIOT Act”), the Bank Secrecy Act and rules and regulations of the Office of Foreign Assets Control (the “OFAC”). These statutes and related rules and regulations impose requirements and limitations on specific financial transactions and account relationships and are intended to guard against money laundering and terrorism financing. The Banks have each established a customer identification program pursuant to Section 326 of the USA PATRIOT Act and the Bank Secrecy Act, and otherwise have implemented policies and procedures to comply with the foregoing rules.

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 (“SOX”) comprehensively revised the laws affecting corporate governance, accounting obligations and corporate reporting for companies, such as BancTrust, with equity or debt securities registered under the Exchange Act. In particular, SOX established: (a) new requirements for audit committees, including independence, expertise, and responsibilities; (b) additional responsibilities regarding financial statements for the Chief Executive Officer and Chief Financial Officer of the reporting company; (c) new standards for auditors and regulation of audits; (d) increased disclosure and reporting obligations for the reporting company and their directors and executive officers; and (e) new and increased civil and criminal penalties for violations of the securities laws.

Proposed Legislation and Regulatory Action

New regulations and statutes are regularly proposed that contain wide-ranging proposals for altering the structures, regulations and competitive relationships of financial institutions operating and doing business in the United States. We cannot predict whether or in what form any proposed regulation or statute will be adopted or the extent to which our business may be affected by any new regulation or statute.

Effect of Governmental Monetary Policies

Our earnings are affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. The Federal Reserve Board’s monetary policies have had, and are likely to continue to have, an important impact on the operating results of commercial banks. The Federal Reserve Board has the power to implement national monetary policy in order, among other things, to curb inflation or combat a recession. The monetary policies of the Federal Reserve Board affect the levels of bank loans, investments and deposits through its control over the issuance of United States government securities, its regulation of the discount rate applicable to member banks and its influence over reserve requirements to which member banks are subject. We cannot predict the nature or impact of future changes in monetary and fiscal policies.

Available Information

Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments of those reports, filed with or furnished to the SEC are available on our website at http://www.banctrustfinancialgroupinc.com. These documents are made available on BancTrust’s website as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. You may also request a copy of these filings, at no cost, by writing or telephoning BancTrust at the following address:

BancTrust Financial Group, Inc.

Attn: F. Michael Johnson

100 St. Joseph Street

Mobile, Alabama 36602

(251) 431-7800

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Executive Officers of the Registrant

The following table reflects certain information concerning the executive officers of BancTrust. Each such officer holds his office(s) until the first meeting of the Board of Directors following the annual meeting of shareholders each year, or until a successor is chosen, subject to removal at any time by the Board of Directors. Except as otherwise indicated, no family relationships exist among the executive officers and directors of BancTrust, and no such officer holds his office(s) by virtue of any arrangement or understanding between him and any other person except the Board of Directors.

Name, Age and Office(s) with BancTrust	Other Positions with BancTrust
J. Stephen Nelson—age 69(1) Chairman (since 1993)	Director (since 1993)
W. Bibb Lamar, Jr.—age 63(2) President and CEO (since 1989)	Director (since 1989)
Michael D. Fitzhugh—age 58(3) Executive Vice President (since 2004)	None
F. Michael Johnson—age 61(4) Chief Financial Officer, Executive Vice President & Secretary (since 1993)	None
Bruce C. Finley, Jr.—age 58(5) Senior Vice President and Senior Lending Officer (since 2004)	None

(1) Previously: Chairman, 1993-2003, Chief Executive Officer, 1984-2003, and Director, 1979-2003, BankTrust of Brewton, which was merged into the Mobile Bank in 2003.

(2) Chief Executive Officer, since 1989, and Chairman, since 1998, the Mobile Bank. Previously: President (1989-1998), the Mobile Bank.

(3) President, Chief Executive Officer and Director of the Florida Bank since 2005. Previously: President, Chief Operating Officer and Director (1998 to 2005) of the Mobile Bank.

(4) Executive Vice President and Cashier, since 1986, the Mobile Bank.

(5) Executive Vice President of the Mobile Bank since 1998. Previously: Senior Loan officer (1998-2004), the Mobile Bank.

Item 1A. Risk Factors

You should carefully consider the following risk factors and other information included in this Annual Report on Form 10-K. The risks and uncertainties described below are not the only ones we face, and additional risks and uncertainties not presently known to us or that we deem to be less significant may also impair our financial condition and results of operations.

Our business strategy includes significant growth plans. Our financial condition and results of operations could be negatively affected if we fail to grow or fail to manage our growth effectively.

We intend to continue pursuing a profitable growth strategy. We cannot assure you that we will be able to expand our market presence in our existing markets or successfully enter new markets or that any such expansion will not adversely affect our results of operations. Failure to manage our growth effectively could have a material adverse effect on our business, future prospects, financial condition or results of operations and could adversely affect our ability to successfully implement our business strategy. Also, if we grow more slowly than anticipated, our operating results could be materially adversely affected.

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Our ability to grow successfully will depend on a variety of factors including the continued availability of desirable business opportunities, the competitive responses from other financial institutions in our market areas and our ability to manage our growth. While we believe we have the management resources and internal systems in place to successfully manage our future growth, there can be no assurance growth opportunities will be available or growth will be successfully managed.

Our business is subject to the vitality of the local economies where we operate, and a downturn in our local economies, including as a result of hurricanes or other adverse weather conditions, could adversely affect our business.

Our success depends in large part upon the growth in population, industry, income levels, deposits and housing starts in our primary and secondary markets. If the communities in which we operate do not grow or if prevailing economic conditions locally or nationally are unfavorable, our business may not succeed. Adverse economic conditions in our specific market area could reduce our growth rate, affect the ability of our customers to repay their loans to us and generally affect our financial condition and results of operations. Damage caused by hurricanes and other adverse weather conditions may create economic uncertainty in our market area that could negatively affect our local economies. We cannot predict the long-term effects that hurricanes and other adverse weather conditions may have on our business or results of operations. We are less able than a larger institution to spread the risks of unfavorable local economic conditions across a large number of diversified economies. Moreover, we cannot give any assurance we will benefit from any market growth or favorable economic conditions in our primary market areas if they do occur.

Any adverse market or economic conditions in Alabama and Northwest Florida may disproportionately increase the risk that our borrowers will be unable to make their loan payments. In addition, the fair value of the real estate we hold as collateral could be adversely affected by unfavorable changes in market and economic conditions. Any sustained period of increased payment delinquencies, foreclosures or losses caused by adverse market, real estate or economic conditions in our market areas, including as a result of Hurricane Katrina and other storms, could adversely affect the value of our assets, our revenues, results of operations and financial condition.

Hurricanes or other adverse weather events could negatively affect our local economies or disrupt our operations, which could have an adverse effect on our business or results of operations.

Our market areas in Alabama and Florida are susceptible to hurricanes. This coastal region experienced major hurricanes in 2004 and 2005. The psychological impact of these storms, the high cost of and, in some cases, lack of property insurance, an over-supply of housing and investment properties along with changing property values and higher taxes over recent years have slowed the economic growth in these areas. Such weather events can disrupt our operations, result in damage to our properties and negatively affect the local economies in which we operate. We cannot predict whether or to what extent damage caused by these hurricanes or damage that may be caused by future hurricanes will affect our operations or the economies in our market areas, but such weather events could result in a decline in loan originations, a decline in the value or destruction of properties securing our loans and an increase in the risk of delinquencies, foreclosures or loan losses. Our business or results of operations may be adversely affected by these and other negative effects of future hurricanes.

We face risks with respect to future expansion.

We may acquire other financial institutions or parts of those institutions in the future and we may engage in de novo branch expansion. We may also consider and enter into new lines of business or offer new products or services. We also may receive future inquiries and have discussions with potential acquirors. Acquisitions and mergers involve a number of expenses and risks, including:

• the time and costs associated with identifying and evaluating potential acquisitions and merger partners;

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• the estimates and judgments used to evaluate credit, operations, management and market risks with respect to the target institution may not be accurate;

• the time and costs of evaluating new markets, hiring experienced local management and opening new offices, and the time lags between these activities and the generation of sufficient assets and deposits to support the costs of the expansion;

• our ability to finance an acquisition and possible dilution to our existing shareholders;

• the diversion of our Management’s attention to the negotiation of a transaction, and the integration of the operations and personnel of the combining businesses;

• entry into new markets where we lack experience;

• the introduction of new products and services into our business;

• the incurrence and possible impairment of goodwill associated with an acquisition and possible adverse short-term effects on our results of operations; and

• the risk of loss of key employees and customers.

We may incur substantial costs to expand, and we can give no assurance such expansion will result in the levels of profits we seek. There can be no assurance integration efforts for any future mergers or acquisitions will be successful. Also, we may issue equity securities in connection with future acquisitions, which could cause ownership and economic dilution to our shareholders. There is no assurance that, following any future mergers or acquisitions, our integration efforts will be successful or our company, after giving effect to the acquisition, will achieve profits comparable to or better than our historical experience.

If the value of real estate in our core Northern Gulf Coast market were to decline materially, a significant portion of our loan portfolio could become under-collateralized, which could have a material adverse effect on us.

With a substantial portion of our loans concentrated along the Gulf Coast of South Alabama and Northwest Florida, a decline in local economic conditions could adversely affect the values of our real estate collateral. Consequently, a decline in local economic conditions may have a greater effect on our earnings and capital than on the earnings and capital of larger financial institutions whose real estate loan portfolios are more geographically diverse. In particular, we cannot predict whether and to what extent damage caused by hurricanes and other adverse weather in our market areas will cause adverse economic conditions or will disrupt our operations. Any decline in deposits or loan originations, any increase in borrower delinquencies or any decline in the value or condition of mortgaged properties could have a material adverse effect on our business.

In addition to considering the financial strength and cash flow characteristics of our borrowers, the Banks often secure loans with real estate. The real estate collateral in each case provides an alternate source of repayment in the event of default by the borrower. Real estate values may deteriorate during the time the credit is extended. If we are required to liquidate collateral to satisfy a debt during a period of reduced real estate values, our earnings and capital could be adversely affected.

An inadequate allowance for loan losses would reduce our earnings.

The risk of credit losses on loans varies with, among other things, general economic conditions, the type of loan being made, the creditworthiness of the borrower over the term of the loan and, in the case of a collateralized loan, the value and marketability of the collateral for the loan. Management maintains an allowance for loan losses based upon, among other things, historical experience, an evaluation of economic conditions and regular reviews of delinquencies and loan portfolio quality. Based upon such factors, Management makes various assumptions and judgments about the ultimate collectibility of the loan portfolio and

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provides an allowance for loan losses based upon such assumptions and judgments as well as a percentage of the outstanding balances. If Management’s assumptions and judgments prove to be incorrect and the allowance for loan losses is inadequate to absorb losses, or if the bank regulatory authorities require the Banks to increase the allowance for loan losses as a part of their examination process, the Banks’ earnings and capital could be significantly and adversely affected.

We may be required to raise additional capital at a time when capital may not be readily available.

We are required by federal and state regulatory authorities, as well as good business practices, to maintain adequate levels of capital to support our operations. Our ability to raise additional capital, if needed, will depend on conditions in the capital markets at the time and on our financial performance. Accordingly, we cannot assure you of our ability to raise additional capital, if needed, on terms acceptable to us. If we cannot raise additional capital when needed, our ability to further expand our operations through internal growth and acquisitions could be materially impaired.

Changes in interest rates may negatively affect our earnings and the value of our assets.

Changes in interest rates may affect our level of interest income, the primary component of our gross revenue, as well as the level of our interest expense, our largest recurring expenditure. In a period of rising or declining interest rates, our interest expense could increase or decrease in different amounts and at different rates than the interest that we earn on our assets. Accordingly, changes in interest rates could reduce our net interest income.

Changes in the level of interest rates may negatively affect our ability to originate real estate loans, the value of our assets and our ability to realize gains from the sale of our assets, all of which ultimately affect our earnings. A decline in the market value of our assets may limit our ability to borrow additional funds or result in our lenders requiring additional collateral from us under our loan agreements. As a result, we could be required to sell some of our loans and investments under adverse market conditions, upon terms that are not favorable to us, in order to maintain our liquidity. If those sales were made at prices lower than the amortized costs of the investments, we would incur losses.

Competition from financial institutions and other financial service providers may adversely affect our profitability.

The banking business is highly competitive and we experience competition in each of our markets from many other financial institutions. We compete with commercial banks, credit unions, savings and loan associations, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market funds and other mutual funds, as well as other super-regional, national and international financial institutions that operate offices in our primary market areas and elsewhere.

We compete with these institutions both in attracting deposits and in making loans. In addition, we have to attract our customer base from other existing financial institutions and from new residents. Many of our competitors are well-established larger financial institutions. While we believe we can and do successfully compete with these other financial institutions in our primary markets, we may face a competitive disadvantage as a result of our smaller size, lack of geographic diversification and inability to spread our marketing costs across a broader market. Although we compete by concentrating our marketing efforts in our primary markets with local advertisements, personal contacts and greater flexibility and responsiveness in working with local customers, we can give no assurance this strategy will continue to be successful.

We are subject to extensive regulation that could limit or restrict our activities.

We operate in a highly regulated industry and are subject to examination, supervision and comprehensive regulation by various federal and state agencies. Our compliance with these regulations is costly and restricts

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certain of our activities, including payment of dividends, mergers and acquisitions, investments, loans, interest rates charged, interest rates paid on deposits and locations of offices. We are also subject to capitalization guidelines established by our regulators that require us to maintain adequate capital to support our growth.

The laws and regulations applicable to the banking industry could change at any time, and we cannot predict the effects of these changes on our business and profitability. Because government regulation greatly affects the business and financial results of all commercial banks and bank holding companies, our cost of compliance could adversely affect our ability to operate profitably.

The Sarbanes-Oxley Act of 2002, and the related rules and regulations promulgated by the Securities and Exchange Commission and Nasdaq that are now applicable to us, have increased the scope, complexity and cost of corporate governance, reporting and disclosure practices. As a result, we have experienced, and may continue to experience, greater compliance costs.

Our directors and executive officers own a significant portion of our common stock.

Our directors and executive officers, as a group, beneficially owned approximately 13.41% of our outstanding common stock as of February 28, 2007. As a result of their ownership, the directors and executive officers will have the ability, by voting their shares in concert, to significantly influence the outcome of all matters submitted to our shareholders for approval, including the election of directors.

We are dependent upon the services of our management team.

Our future success and profitability are substantially dependent upon the management and banking abilities of our senior executives. We believe that our future results will also depend in part upon our attracting and retaining highly skilled and qualified management, sales and marketing personnel. Competition for such personnel is intense, and we cannot assure you that we will be successful in retaining such personnel. We also cannot guarantee that members of our executive management team will remain with us. Changes in key personnel and their responsibilities may be disruptive to our business and could have a material adverse effect on our business, financial condition and results of operations.

Item 1B. Unresolved Staff Comments

None

Item 2. Properties

Our corporate headquarters occupy an approximately 30,000 square foot facility located at 100 St. Joseph Street, in downtown Mobile, Alabama 36602. We lease this entire facility, which also houses the headquarters of the Trust Company and the Mobile Bank. The current term of the lease for this building expires on December 31, 2010. We have an option to extend this lease for one additional term of five years. In addition to our corporate headquarters, we operate 30 office or branch locations in Southern and Central Alabama and Northwest Florida, of which 27 are owned and three are subject to either building or ground leases. In 2005, we purchased a building in downtown Mobile for use as an operations center. We paid annual rents in 2006 of approximately $380 thousand. At December 31, 2006, there were no significant encumbrances on our offices, equipment or other operational facilities.

Item 3. Legal Proceedings

In the ordinary course of operating our business, we may be a party to various legal proceedings from time to time. We do not believe that there are any pending or threatened proceedings against us, which, if determined adversely, would have a material effect on our business, results of operations or financial condition.

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

None

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PART II

Item  5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Prices and Cash Dividends Per Share

BancTrust’s common stock trades on The Nasdaq Global Select Market under the symbol BTFG.

At December 31, 2006, the Company had approximately 3,415 shareholders, of record or through registered clearing agents.

The following chart provides the high and low sales price and the cash dividend declared for each quarter in 2006 and 2005.

	High		Low		Cash Dividends Declared Per Share
2006
Fourth quarter	$	27.94	$	23.00	$	0.13
Third quarter		28.25		22.24		0.13
Second quarter		23.71		20.05		0.13
First quarter		22.26		19.70		0.13
2005
Fourth quarter	$	20.98	$	17.01	$	0.13
Third quarter		21.89		18.24		0.13
Second quarter		21.00		17.61		0.13
First quarter		24.90		18.84		0.13

Securities Authorized for Issuance under Equity Compensation Plans

The following table sets forth certain information at December 31, 2006 with respect to BancTrust’s equity compensation plans that provide for the issuance of options, warrants or rights to purchase BancTrust’s securities.

Stock Options Plan Category	Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights		Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights			Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (excluding securities reflected in the first column)
Equity Compensation Plans Approved by Security Holders	210,736	(1)	$	14.89		53,109	(2)
Equity Compensation Plans Not Approved By Security Holders	N/A			N/A		N/A
	Weighted-Average
Restricted Stock Plan Category	Number of Securities Issued		Market Value of Shares Issued
Equity Compensation Plans Approved by Security Holders	90,091		$	20.24	(3)
Equity Compensation Plans Not Approved By Security Holders	N/A			N/A

(1) Includes shares issuable pursuant to outstanding options under the Company’s 1993 Incentive Compensation Plan and its 2001 Incentive Compensation Plan.

(2) Represents shares of BancTrust Common Stock which may be issued pursuant to future awards under the 2001 Incentive Compensation Plan.

(3) Represents the average of the closing bid and ask price on the date of issue.

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Share Repurchases

On September 28, 2001, the Company announced that it intended to repurchase up to 425 thousand shares of its common stock. Approximately one year before implementation of the stock repurchase plan, the Company purchased 61 thousand of its shares. As of December 31, 2006, the Company had purchased 195 thousand shares under the stock repurchase plan. These purchases were accomplished primarily through private transactions and were accounted for under the cost method. The Company share purchases, including those that predate the repurchase plan, ranged in price from $8.00 per share to $15.33 per share, and the weighted-average price per share paid by the Company was $9.42. The Company has not repurchased any of its shares under this repurchase plan since December 23, 2002.

The following table provides information about purchases by BancTrust during the quarter ended December 31, 2006 of equity securities that are registered by BancTrust pursuant to Section 12 of the Exchange Act.

Period	Number of shares purchased(1)	Average price paid per share		Shares purchased as part of publicly announced plans or programs	Maximum number of shares that may yet be purchased under the plans or programs(2)
10/01/06-10/31/06	1,030	$	25.45	0	229,951
11/01/06-11/30/06	382	$	24.54	0	229,951
12/01/06-12/31/06	0	$	0.00	0	229,951
Total	1,412	$	25.20	0	229,951

(1) 1,412 shares were purchased on the open market to provide shares for BancTrust’s grantor trust related to its deferred compensation plan for directors.

(2) Under a share repurchase program announced on September 28, 2001, BancTrust may buy up to 425,000 shares of its common stock. The repurchase program does not have an expiration date.

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Item 6. Selected Financial Data

	At and For The Year Ended December 31,
	2006		2005		2004		2003		2002
RESULTS OF OPERATIONS:
Interest revenue	$	88,188	$	72,905	$	50,913	$	28,483	$	30,814
Interest expense		35,923		20,861		11,928		7,013		10,071
Net interest revenue		52,265		52,044		38,985		21,470		20,743
Provision for loan losses		4,594		5,725		3,897		1,841		760
Non-interest revenue		11,620		10,987		10,517		7,082		6,654
Non-interest expense		39,702		37,262		31,787		18,892		17,363
Income from continuing operations before income taxes		19,589		20,044		13,818		7,819		9,274
Income tax expense		6,303		6,767		3,902		2,166		2,706
Income from continuing operations		13,286		13,277		9,916		5,653		6,568
Income from discontinued operations before income taxes		0		575		1,684		982		1,087
Gain on sale of discontinued operations before income taxes		0		2,411		1,484		0		0
Total income from discontinued operations before income taxes		0		2,986		3,168		982		1,087
Income tax expense		0		1,144		1,783		313		332
Income from discontinued operations		0		1,842		1,385		669		755
Net income	$	13,286	$	15,119	$	11,301	$	6,322	$	7,323
PER SHARE DATA:
Basic earnings per share	$	1.19	$	1.36	$	1.03	$	0.72	$	0.85
Diluted earnings per share	$	1.17	$	1.35	$	1.02	$	0.71	$	0.84
Basic earnings per share from continuing operations	$	1.19	$	1.19	$	0.90	$	0.64	$	0.76
Diluted earnings per share from continuing operations	$	1.17	$	1.19	$	0.90	$	0.64	$	0.75
Basic earnings per share from discontinued operations	$	0.00	$	0.17	$	0.13	$	0.08	$	0.09
Diluted earnings per share from discontinued operations	$	0.00	$	0.16	$	0.12	$	0.07	$	0.09
Cash dividends declared per share	$	0.52	$	0.52	$	0.52	$	0.52	$	0.48
Book value per share	$	12.41	$	11.79	$	11.09	$	10.67	$	9.27
Common shares outstanding		11,166		11,113		11,022		10,930		8,729
Basic average shares outstanding		11,151		11,104		10,981		8,754		8,658
Diluted average shares outstanding		11,308		11,188		11,074		8,888		8,696
SUMMARY BALANCE SHEET DATA:
Total assets	$	1,353,406	$	1,306,054	$	1,191,222	$	1,076,900	$	665,810
Loans, net of unearned income		1,004,735		993,352		862,207		647,379		352,112
Deposits		1,104,129		1,041,845		939,958		764,174		479,712
Investments		118,498		132,354		140,512		176,619		166,623
Federal funds sold		62,500		32,000		6,000		29,333		8,664
FHLB advances and long-term debt		95,521		110,057		58,500		38,500		6,000
Short-term borrowings		4,120		8,595		14,114		24,467		11,578
Shareholders’ equity		138,523		131,039		122,183		116,666		80,904

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	At And For The Year Ended December 31,
	2006			2005			2004			2003			2002
AVERAGE BALANCES:
Total assets	$	1,297,550		$	1,270,183		$	1,109,679		$	678,596		$	636,317
Earning assets		1,151,209			1,104,062			895,370			536,679			511,650
Loans		999,034			952,701			726,791			370,004			346,472
Deposits		1,042,228			1,001,411			828,665			484,342			465,826
Shareholders’ equity		136,343			127,459			119,820			82,136			78,658
PERFORMANCE RATIOS:
Return on average assets		1.02	%		1.19	%		1.02	%		0.93	%		1.15	%
Return on average equity		9.74	%		11.86	%		9.43	%		7.70	%		9.31	%
Net interest margin (tax equivalent)(1)		4.61	%		4.80	%		4.47	%		4.19	%		4.25	%
Efficiency ratio(2)		61.36	%		58.28	%		62.84	%		63.86	%		61.10	%
ASSET QUALITY RATIOS:
Nonperforming assets to total assets		1.29	%		0.55	%		0.30	%		0.43	%		0.60	%
Allowance for loan losses to total loans, net of unearned income		1.63	%		1.41	%		1.11	%		1.20	%		1.39	%
Net loans charged-off to average loans		0.23	%		0.14	%		0.29	%		0.64	%		0.21	%
Allowance for loan losses to non-performing loans		100.74	%		207.23	%		326.03	%		219.14	%		125.14	%
CAPITAL RATIOS:
Tier 1 leverage ratio(3)		10.02	%		8.40	%		8.28	%		13.19	%		10.92	%
Tier 1 risk-based capital		11.51	%		9.70	%		9.46	%		10.25	%		14.87	%
Total risk-based capital		12.77	%		10.95	%		10.49	%		11.31	%		16.00	%
Average shareholders’ equity to average total assets		10.51	%		10.03	%		10.80	%		12.10	%		12.36	%
Dividend payout ratio		43.70	%		38.24	%		50.49	%		72.22	%		56.47	%
OTHER DATA:
Banking locations		31			29			30			30			16
Full time equivalent employees		419			396			349			365			247

(1) Net interest margin is the net yield on interest-earning assets. Net yield on interest-earning assets is net interest revenue, on a tax equivalent basis, divided by total interest-earning assets.

(2) Efficiency ratio is the result of non-interest expense divided by the sum of net interest revenue (tax equivalent) and non-interest revenue.

(3) Tier 1 leverage ratio is defined as Tier 1 capital (pursuant to risk-based capital guidelines) as a percentage of adjusted average assets.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation

Introduction

The following discussion and analysis reviews our results of operations and assesses our financial condition. The purpose of this discussion is to focus on information about us that is not otherwise apparent from the consolidated financial statements and related footnotes appearing elsewhere in this Report on Form 10-K. Reference should be made to those financial statements and the selected financial data presented elsewhere in this Report on Form 10-K for an understanding of the following discussion and analysis. Historical results of operations and any trends which may appear are not necessarily indicative of the results to be expected in future periods.

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Executive Summary

We are a multi-bank holding company that was originally formed in 1985 as a Delaware corporation under the name Mobile National Corporation. In 1993, we changed our name to South Alabama Bancorporation, Inc. and, in 1996, reincorporated in Alabama. In May 2002, we changed our name to BancTrust Financial Group, Inc.

As a bank holding company, our results of operations are almost entirely dependent on the results of operations of our subsidiary Banks. The following table sets forth our subsidiary Banks and selected data related to each Bank:

Bank	Number of Locations	Market Area Counties	TOTAL ASSETS AT DECEMBER 31, 2006
			(IN THOUSANDS)
Mobile Bank	16	Baldwin, Escambia, Marengo, Mobile, Monroe in Alabama	$	758,349
Florida Bank	10	Bay, Okaloosa, Walton in Florida	$	351,719
Eufaula Bank	5	Autauga, Barbour, Montgomery in Alabama	$	259,031

Through the Banks, BancTrust Company, Inc., our wholly owned trust company subsidiary, and BancTrust Financial Services, Inc., a wholly owned securities and insurance subsidiary of the Mobile Bank, we offer a broad range of traditional banking services to our customers, including retail banking, trust, insurance and securities services and products.

Like most community banks, we derive the majority of our revenue from the interest we earn on our loans and investments, and our greatest expense is the interest we pay on interest-bearing deposits and borrowings. Consequently, one of the key measures of our success is our net interest income, which is the difference between the revenues we earn on our interest-earning assets, such as loans and investments, and the expenses we pay on our interest-bearing liabilities, such as interest-bearing deposits and borrowings. Another key measure of our success is the spread between the yield we earn on these interest-earning assets and the rate we pay on our interest-bearing liabilities, which is called our net interest spread.

There are risks inherent in all loans, so we maintain an allowance for loan losses that we believe is adequate to absorb probable losses inherent in our loan portfolio. We maintain this allowance by charging a provision for loan losses against our operating earnings for each period. We have included a discussion of this process, as well as several tables describing our allowance for loan losses, in the following discussions.

In addition to earning interest on our loans and investments, we earn income through fees and other charges to our customers, including service charges on deposit accounts, mortgage fees, trust fees and fees for investment services. We have also included a discussion of the various components of this non-interest income, as well as of our non-interest expense.

We measure and monitor the following factors as key indicators of our financial performance:

• Net income

• Earnings per share

• Loan and deposit growth

• Credit quality

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Highlights for the year ended December 31, 2006 include:

• Loan growth in the Mobile/Baldwin market exceeded 16.19%, reaching $384 million in loans.

• Our investment in our commercial banking unit strengthened our market position.

• A significant increase in the growth of our commercial & industrial portfolio lessened our dependence on commercial real estate.

• Our year-over-year income from continuing operations increased slightly, despite a significant personnel investment.

• We introduced new cash management and sweep products for our commercial customers and upgraded our internet banking platform.

• Our net interest margin remained strong at 4.61%.

The following discussion and analysis also identifies significant factors that have affected our financial condition and results of operations during the periods included in the financial statements contained in this Report on Form 10-K. We encourage you to read this discussion and analysis in conjunction with our financial statements and the other statistical information included in this Report on Form 10-K.

Effect of Economic Trends

During 2002, the United States experienced an economic decline. During this period, the economy was affected by lower returns of the stock markets. Economic data had led the Federal Reserve in 2001 to begin an aggressive program of reducing interest rates that moved the federal funds rate down 11 times during 2001 for a total reduction of 475 basis points. In 2002 and 2003, the federal funds rate was reduced another 100 basis points, bringing the federal funds rate in mid-2003 to its lowest level in 40 years.

Despite sharply lower short-term rates, stimulus to the economy during 2003 was muted and consumer demand and business investment activity remained weak. During 2003 and most of 2004, the financial markets operated under historically low interest rates. As a result of these unusual conditions, Congress passed an economic stimulus plan in 2003. During 2004, many economists believed the economy was beginning to show signs of strengthening, and the Federal Reserve increased the federal funds interest rate by 100 basis points during the second, third and fourth quarters of 2004 and by an additional 200 basis points during 2005. In mid-2006 the Federal Reserve stopped increasing rates, and has made no further interest rate changes as of this report date.

The specific economic and credit risks associated with our loan portfolio, especially the real estate portfolio, include, but are not limited to, a general downturn in the economy which could affect unemployment rates in our market areas, general real estate market deterioration, interest rate fluctuations, deteriorated collateral, title defects, inaccurate appraisals and financial deterioration of borrowers. Construction and development lending can also present other specific risks to the lender such as whether developers can find builders to buy lots for home construction, whether the builders can obtain financing for the construction, whether the builders can sell the home to a buyer and whether the buyer can obtain permanent financing. For several years, real estate values in our metropolitan Montgomery and coastal Alabama and Florida markets have increased, and employment trends in our market areas have been favorable. That improvement continued through mid-2005; however, a slowdown in loan demand was experienced in our coastal markets in the Fall of 2005 and continued through 2006. The most likely reason for the slowdown is the effects the recent hurricanes have had along the Gulf Coast, especially after Hurricane Katrina in August of 2005.

Critical Accounting Policies and Estimates

We have adopted various accounting policies that govern the application of accounting principles generally accepted in the United States of America and general practices within the banking industry in the preparation of

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our financial statements. Our significant accounting policies are described in the notes to our audited consolidated financial statements as of December 31, 2006, beginning on page 53 of this Report on Form 10-K. Certain accounting policies require Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary. We believe the allowance for loan losses is the critical accounting policy that requires the most significant judgment and estimates used in preparation of our consolidated financial statements. A description of these policies is set forth below.

Allowance for Loan Losses

The allowance for loan losses is maintained at a level considered by Management to be sufficient to absorb losses inherent in the loan portfolio. Loans are charged off against the allowance for loan losses when Management believes that the collection of the principal is unlikely. Subsequent recoveries are added to the allowance. BancTrust’s determination of its allowance for loan losses is determined in accordance with Statement of Financial Accounting Standards ("SFAS") Nos. 114 and 5 and other regulatory guidance. The amount of the allowance for loan losses and the amount of the provision charged to expense is based on periodic reviews of the portfolio, past loan loss experience, current economic conditions and such other factors which, in Management’s judgment, deserve current recognition in estimating loan losses.

Management has a developed and documented systematic methodology for determining and maintaining an allowance for loan losses. A regular, formal and ongoing loan review is conducted to identify loans with unusual risks and probable loss. Management uses the loan review process to stratify the loan portfolio into risk grades. For higher-risk graded loans in the portfolio, the Banks determine estimated amounts of loss based on several factors, including historical loss experience, Management’s judgment of economic conditions and the resulting impact on higher-risk graded loans, the financial capacity of the borrower, secondary sources of repayment including collateral and regulatory guidelines. This determination also considers the balance of impaired loans. Specific allowances for impaired loans are based on comparisons of the recorded carrying values of the loans to the present value of these loans’ estimated cash flows discounted at each loan’s effective interest rate, the fair value of the collateral, or the loans’ observable market price. Recovery of the carrying value of loans is dependent to a great extent on economic, operating and other conditions that may be beyond the Company’s control.

In addition to evaluating probable losses on individual loans, Management also determines probable losses for all other loans that are not individually evaluated. The amount of the allowance for loan losses related to all other loans in the portfolio is determined based on historical and current loss experience, portfolio mix by loan type and by collateral type, current economic conditions, the level and trend of loan quality ratios and such other factors that, in Management’s judgment, deserve current recognition in estimating inherent loan losses. The methodology and assumptions used to determine the allowance are continually reviewed as to their appropriateness given the most recent losses realized and other factors that influence the estimation process. The model assumptions and resulting allowance level are adjusted accordingly as these factors change.

Financial Condition

Average Assets and Liabilities

Average assets in 2006 were $1.298 billion, compared to $1.270 billion in 2005. Excluding the assets associated with discontinued operations, average assets increased $59 million from 2005 to 2006, an increase of 4.8 percent. Average loans, net, in 2006 were $984.2 million or 4.5 percent higher than average loans, net, of $942.0 million in 2005. We experienced a significant increase in loan demand beginning in 2003, and the

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demand continued to accelerate in 2004 and into the first half of 2005. Beginning in the third quarter of 2005 we experienced a rapid slowdown in loan demand along our Gulf Coast markets, most likely a reaction to the extreme hurricane season of 2005, especially Hurricane Katrina.

Average deposits of $1.042 billion in 2006 were 4.1 percent higher than average deposits of $1.001 billion in 2005. Short-term and long-term borrowings consist of federal funds purchased, Federal Home Loan Bank (“FHLB”) borrowings, overnight repurchase agreements, notes payable to our subsidiary statutory trusts issued in connection with trust preferred securities offerings and deposits in the treasury tax and loan account. In December 2006, we issued an additional $15.0 million of trust preferred securities. Part of the funds were used to pay off a bank loan, and the remaining proceeds are to be used for general corporate purposes.

Our average equity as a percent of average total assets in 2006 was 10.5 percent, compared to 10.0 percent in 2005. Average equity in 2006 and 2005 included approximately $45.4 million and $46.1 million, respectively, recorded as intangible assets related to acquisitions accounted for as purchases.

Table 1

DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY

(DOLLARS IN THOUSANDS)	2006		2005		2004		2003		2002
Average Assets
Cash and due from banks	$	46,423	$	46,262	$	36,593	$	24,418	$	21,906
Federal funds sold		26,171		13,918		7,276		10,933		17,129
Interest-bearing deposits		370		241		566		52		936
Securities available for sale		125,634		137,202		160,737		155,690		147,113
Loans, net		984,219		942,034		718,340		365,221		341,496
Premises and equipment, net		44,038		38,773		36,009		13,637		13,177
Accrued income receivable		7,494		5,947		4,599		3,025		3,569
Other real estate owned, net		593		394		650		510		116
Intangible assets, net		45,364		46,127		46,885		4,181		3,981
Cash surrender value of life insurance		5,053		4,832		4,613		12		0
Other assets		12,191		2,855		1,755		1,906		1,810
Assets related to discontinued operations		0		31,598		91,656		99,011		85,084
Average Total Assets	$	1,297,550	$	1,270,183	$	1,109,679	$	678,596	$	636,317
Average Liabilities and Shareholders’ Equity
Non-interest-bearing demand deposits	$	180,008	$	207,091	$	155,441	$	87,901	$	78,830
Interest-bearing demand deposits		254,531		245,605		226,731		134,656		133,480
Savings deposits		92,319		119,874		96,808		35,361		33,381
Time deposits		515,370		428,841		349,685		226,424		220,135
Total deposits		1,042,228		1,001,411		828,665		484,342		465,826
Short-term borrowings		9,607		17,735		20,434		8,459		8,100
FHLB advances and long-term debt		99,270		83,358		50,030		12,621		6,000
Other liabilities		10,102		11,403		8,600		4,355		3,151
Liabilities related to discontinued operations		0		28,817		82,130		86,683		74,582
Shareholders’ equity		136,343		127,459		119,820		82,136		78,658
Average Total Liabilities and Shareholders’ Equity	$	1,297,550	$	1,270,183	$	1,109,679	$	678,596	$	636,317

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Loans

Average loan growth was strong from 2003 to mid-2005 as economic conditions in our markets were good. After the 2005 hurricane season, and especially after Hurricane Katrina, loan demand in our markets directly on the Gulf of Mexico slowed considerably. While our offices are well to the east of the areas most directly affected by Katrina, we believe that the slowdown in loan demand along the Gulf Coast beach markets was brought on by the psychological effects of the storms of 2005 and 2004 as well as severe problems in the property insurance industry. Our average loan-to-deposit ratio was 94.4 percent in 2006 compared to 94.1 percent in 2005 and 86.7 percent in 2004. Our loan-to-deposit ratio at year-end 2006 was 91.0 percent compared to 95.3 percent at year-end 2005 and 91.7 percent at year-end 2004.

Our lending strategy concentrates on originating loans with relatively short maturities or, in the case of loans with longer maturities, with floating rate arrangements when possible. Of our outstanding loans at December 31, 2006, $725.8 million, or 72.2 percent, mature within one year or otherwise reprice within one year. Maintaining high levels of short-term and variable rate loans in our portfolio is a key component of our interest rate risk management strategy and was a key contributor to our improved net interest revenue and net interest margin during the recent rising interest rate environment. Net interest revenue and net interest margin decreased when the interest rate environment stabilized. Net interest revenue and the net interest margin are discussed more fully under “Results of Operations.”

We offer, through third party arrangements, certain mortgage loan products that we sell to these third parties shortly after origination and that are therefore not retained in our loan portfolio. These products expand our mortgage loan product offerings and have generated significant fee income during the recent periods of lower mortgage rates. These fees have come from first and second home purchases as well as from substantial home refinancing volume. The rise in interest rates beginning in mid-2004, combined with the severe hurricane season of 2005, resulted in a slowdown in mortgage loan refinancing volume along our beach markets; however, first home purchase and refinancing volume in the metropolitan areas of Mobile and Montgomery has remained strong.

Table 2 shows the distribution of our loan portfolio by major category at December 31, 2006, and at year-end for each of the previous four years. Table 3 depicts maturities of selected loan categories and the interest rate structure for such loans maturing after one year.

Table 2

DISTRIBUTION OF LOANS BY CATEGORY

(DOLLARS IN THOUSANDS)	DECEMBER 31,
	2006			2005			2004			2003			2002
Commercial, financial, and agricultural	$	196,136		$	168,645		$	176,145		$	166,447		$	105,906
Real estate—construction		341,992			340,858			218,845			58,312			24,953
Real estate—mortgage		411,873			429,323			413,620			370,871			174,097
Installment		54,857			55,720			54,936			52,497			47,285
Total		1,004,858			994,546			863,546			648,127			352,241
Less: Deferred loan cost (unearned loan income), net		(123	)		(1,194	)		(1,339	)		(748	)		(129	)
Total loans	$	1,004,735		$	993,352		$	862,207		$	647,379		$	352,112

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Table 3

SELECTED LOANS BY TYPE AND MATURITY

(DOLLARS IN THOUSANDS)	DECEMBER 31, 2006 MATURING
	WITHIN ONE YEAR		AFTER ONE BUT WITHIN FIVE YEARS		AFTER FIVE YEARS		TOTAL
Commercial, financial, and agricultural	$	123,244	$	67,208	$	5,684	$	196,136
Real estate—construction		300,315		40,669		1,008		341,992
Real estate—mortgage		182,766		206,363		22,744		411,873
	$	606,325	$	314,240	$	29,436	$	950,001
Loans maturing after one year with:
Fixed interest rates			$	207,555	$	13,767
Floating interest rates				106,685		15,669
			$	314,240	$	29,436

Securities

SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, requires that securities be classified into one of three categories: held to maturity, available for sale or trading. Securities classified as held to maturity are stated at amortized cost. Securities are classified as held to maturity if Management has the positive intent, and we have the ability, to hold the securities until they mature. Securities classified as available for sale are stated at fair value. Securities are classified as available for sale if they are to be held for indefinite periods of time, such as securities Management intends to use as part of its asset/liability strategy or that may be sold in response to changes in interest rates, changes in prepayment risks, changes in liquidity needs, the need to increase regulatory capital or other similar factors. At December 31, 2006, all of our securities were in the available for sale category. At December 31, 2006, we held no trading securities or securities classified as held to maturity.

The maturities and weighted-average yields of securities available for sale at December 31, 2006, are presented in Table 4 at amortized cost using the average stated contractual maturities. The average stated contractual maturities may differ from the average expected life because of amortized principal payments or because borrowers may have the right to call or prepay obligations. Tax equivalent adjustments, using a 35 percent tax rate, have been made when calculating yields on tax-exempt obligations. Mortgage-backed securities are shown only in the total as these securities have monthly principal payments.

Table 4

MATURITY DISTRIBUTION OF INVESTMENT SECURITIES

DECEMBER 31, 2006 (DOLLARS IN THOUSANDS)	WITHIN ONE YEAR				AFTER ONE BUT WITHIN FIVE YEARS				AFTER FIVE BUT WITHIN TEN YEARS				AFTER TEN YEARS				TOTAL
	AMOUNT		YIELD		AMOUNT		YIELD		AMOUNT		YIELD		AMOUNT		YIELD		AMOUNT		YIELD
Securities available for sale
U.S. Treasury securities	$	0	0.00	%	$	896	5.05	%	$	0	0.00	%	$	0	0.00	%	$	896	5.05	%
U.S. Government sponsored enterprises		3,500	3.23			34,344	4.16			3,046	4.09			2,500	4.50			43,390	4.10
State and political subdivisions		3,057	4.93			12,658	5.85			16,371	6.61			12,052	7.47			44,138	6.51
Other investments		0	0.00			1,006	3.56			0	0.00			568	4.21			1,574	3.79
Mortgage-backed securities		0	0.00			0	0.00			0	0.00			0	0.00			29,526	4.53
Total securities available for sale	$	6,557	4.02	%	$	48,904	4.60	%	$	19,417	6.21	%	$	15,120	6.86	%	$	119,524	5.10	%

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Deposits and Short-Term Borrowings

In 2004 average deposits grew $344.3 million, or 71.1 percent, compared to 2003. The CommerceSouth transaction accounted for $329.4 million, or all but 3.1 percent, of the increase in average deposits in 2004, with the remaining increase resulting from growth in the Gulf Coast markets of Alabama. Average deposits increased at a rapid pace in 2005, growing from $828.7 million in 2004 to $1.0 billion in 2005, an increase of 20.8 percent. Our deposit mix, on average, did not significantly change in 2004 and 2005. In 2006, we saw a decrease in average savings deposits of $27.6 million. Most of the decrease occurred in our Florida market, and appears to be a result of the slowdown which occurred after Hurricane Katrina. Also in 2006 we experienced an increase of $86.5 million in average time deposits. Part of this increase is a result of our efforts to offset the savings deposit decrease in Florida, and the remainder resulted from new account efforts in our other markets. We define core deposits as total deposits less certificates of deposit of $100,000 or more. Core deposits, as a percentage of total deposits, represented 72.4 percent and 75.9 percent at year-end 2006 and 2005 respectively. While our primary deposit taking emphasis focuses on attracting and retaining core deposits from customers who will also use our products and services, Management recognizes that in order to fund loan growth, it is necessary from time to time to pursue non-core funding sources such as large certificates of deposit and other borrowed funds. Access to non-core funding sources is particularly important in periods of very rapid loan growth, such as we experienced during 2004 and 2005. We do not currently need to access our non-core funding sources, as internally generated funds are supplying our liquidity needs; however, we might consider using non-core funding sources during periods when loan growth exceeds core deposit growth.

Table 5

AVERAGE DEPOSITS

(DOLLARS IN THOUSANDS)	AVERAGE FOR THE YEAR
	2006				2005				2004
	AVERAGE AMOUNT OUTSTANDING		AVERAGE RATE PAID		AVERAGE AMOUNT OUTSTANDING		AVERAGE RATE PAID		AVERAGE AMOUNT OUTSTANDING		AVERAGE RATE PAID
Non-interest-bearing demand deposits	$	180,008			$	207,091			$	155,441
Interest-bearing demand deposits		254,531	1.99	%		245,605	.98	%		226,731	.75	%
Savings deposits		92,319	2.16			119,874	1.25			96,808	1.07
Time deposits		515,370	4.47			428,841	3.05			349,685	2.08
Total average deposits	$	1,042,228			$	1,001,411			$	828,665

Table 6 reflects maturities of time deposits of $100,000 or more, including brokered deposits, at December 31, 2006. Deposits of $304.9 million in this category represented 27.6 percent of total deposits at year-end 2006, compared to $251.5 million representing 24.1 percent of total deposits at year-end 2005.

Table 6

MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE

(DOLLARS IN THOUSANDS)	AT DECEMBER 31, 2006
	UNDER 3 MONTHS		3-12 MONTHS		OVER 12 MONTHS		TOTAL
	$	124,099	$	148,789	$	32,032	$	304,920

Short-term borrowings include three items: (1) federal funds purchased; (2) securities sold under agreements to repurchase, which are overnight transactions with large corporate customers, commonly referred to as “repos”; and (3) other, representing borrowings from the FHLB and a short-term loan from an unrelated bank to BancTrust. We sold federal funds of $26.2 million on average during 2006 while average short-term borrowings

29

were $9.6 million. During 2004 and 2005, as Table 7 demonstrates, we relied much more than we have historically on short-term borrowings as a funding source to meet rapid loan growth; however, our liquidity position improved in 2006 and we relied less on short-term borrowings as a loan funding source.

Table 7

SHORT-TERM BORROWINGS

(DOLLARS IN THOUSANDS)	2006						2005						2004
	MAXIMUM MONTH-END BALANCE		AVERAGE BALANCE DURING YEAR		WEIGHTED- AVERAGE INTEREST RATE		MAXIMUM MONTH-END BALANCE		AVERAGE BALANCE DURING YEAR		WEIGHTED- AVERAGE INTEREST RATE		MAXIMUM MONTH-END BALANCE		AVERAGE BALANCE DURING YEAR		WEIGHTED- AVERAGE INTEREST RATE
Federal funds purchased	$	0	$	50	4.76	%	$	36,600	$	8,126	3.27	%	$	21,986	$	11,080	1.90	%
Securities sold under agreement to repurchase		17,018		9,557	4.41			10,297		9,096	1.98			10,203		6,629	0.68
Other		0		0	n/a			1,000		513	2.92			11,000		2,725	1.98
Total short-term borrowings			$	9,607	4.41	%			$	17,735	2.60	%			$	20,434	1.52	%

FHLB Advances and Long-term Debt

We use FHLB advances occasionally as an alternative to other funding sources with similar maturities. FHLB advances, as a funding source, are flexible and allow us to quickly obtain funding with the mix of maturities and rates that best suits our overall asset/liability management strategy. Our FHLB advances totaled $61.5 million at December 31, 2006, a decrease of $20.0 million from December 31, 2005. We use our long-term FHLB advances primarily to fund loan originations.

Of our outstanding FHLB advances at December 31, 2006, $26.5 million had fixed interest rates, one $20.0 million advance had a variable interest rate that reprices monthly and one $15.0 million advance had a variable interest rate that reprices quarterly. Note 11 to the consolidated financial statements included in this Report on Form 10-K sets forth additional information relating to outstanding balances, scheduled maturities and rates of our FHLB advances.

In 2003, we increased our long-term borrowings by issuing a note payable to our wholly owned statutory trust subsidiary, BancTrust Capital Trust I (the “Trust”), which the Trust purchased with the proceeds of $18.0 million of trust preferred securities it sold to investors. The note payable matures in December 2033. We pay interest on the note to the Trust, and the Trust pays distributions on trust preferred securities quarterly. The interest rate we and the Trust pay is reset quarterly at Three-Month LIBOR plus 290 basis points. We used the proceeds from the note payable to finance a portion of the purchase price for CommerceSouth, Inc. We do not have the option to repay any amounts of the note payable until December 2008.

In 2006, we again increased our long-term borrowings by issuing a note payable to our wholly owned statutory trust subsidiary, BancTrust Capital Trust II (“Trust II”), which Trust II purchased with the proceeds of $15.0 million of trust preferred securities it sold to an investor. The note payable matures in 2037. We pay interest on the note to Trust II, and Trust II pays distributions on trust preferred securities quarterly. The interest rate we and Trust II pay is reset quarterly at Three-Month LIBOR plus 164 basis points. We used $7.5 million of the proceeds from the note payable to repay a bank loan. The remainder will be used for general corporate purposes. We do not have the option to repay any amounts of the note payable until 2012.

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Other long-term debt as of December 31, 2005 also included a $10 million loan from an unrelated bank to the Company. This loan was incurred in January of 2004 to finance a portion of the purchase price for CommerceSouth, Inc. The loan was secured by a portion of BancTrust’s stock in the Mobile Bank. The loan was fully paid in December of 2006.

Asset/Liability Management

The purpose of asset/liability management is to maximize return while minimizing risk. Maximizing return means achieving or exceeding our profitability and growth goals. Minimizing risk means managing four key risk factors: (1) liquidity; (2) interest rate sensitivity; (3) capital adequacy; and (4) asset quality. Our asset/liability management involves a comprehensive approach to Statement of Condition management that meets the risk and return criteria established by Management and the Board of Directors. Management has not used derivative financial instruments as part of the asset/liability management process.

Our primary market risk is our exposure to interest rate changes. Interest rate risk management strategies are designed to optimize net interest income while minimizing the effects of changes in market rates of interest on operating results and asset and liability fair values. A key component of our interest rate risk management strategy is to manage and match the maturity and repricing characteristics of our assets and liabilities.

We use modeling techniques to simulate the effects various changes in market rates of interest would have on our interest income and on the fair values of our assets and liabilities. Important elements that affect the risk profile of our Statement of Condition in interest rate risk modeling include the mix of floating versus fixed rate assets and liabilities and the scheduled, as well as expected, repricing and maturing volumes and rates of assets and liabilities. Using the Interest Sensitivity Analysis presented in Table 10, applying a scenario simulating a hypothetical 100 basis point rate increase applied to all interest-earning assets and interest-bearing liabilities, we would expect a net increase in net interest income of $2.6 million for the year following the rate increase. Using a scenario simulating a hypothetical 100 basis point decrease, we would expect a net decrease in net interest income of $3.1 million for the year following the rate decrease. These hypothetical examples are not a precise indicator of future events or of the actual effects such rate increases or decreases would have on our financial condition and operating results. Instead, they are reasonable estimates of the results anticipated if the assumptions used in the modeling techniques were to occur.

Liquidity

Liquidity represents the ability of a bank to meet loan commitments as well as deposit withdrawals. Liquidity is derived from both the asset side and the liability side of the Statement of Condition. On the asset side, liquidity is provided by marketable investment securities, maturing loans, federal funds sold and cash and cash equivalents. On the liability side, liquidity is provided by a stable base of core deposits. In addition to our ability to meet liquidity demands through current assets and liabilities, we have available, if needed, federal funds lines of credit of $81.5 million and FHLB lines of credit $31.3 million. Our Asset/Liability Committee, which is made up of certain members of Management and the Board of Directors, monitors our liquidity position and formulates and implements corrective measures in the event certain liquidity parameters are exceeded.

The Consolidated Statements of Cash Flows provide an analysis of cash from operating, investing, and financing activities for each of the three years in the period ended December 31, 2006. Cash flows are a significant part of liquidity management, contributing significant levels of funds in 2006 and 2005.

Cash flows from operating activities provided $12.6 million in 2006 compared to $20.5 million in 2005 and $19.0 million in 2004. Net cash used in investing activities decreased to $19.1 million in 2006 from $129.0 million in 2005 and $231.0 million in 2004 primarily due to slower growth in loans. Net cash provided by financing activities decrease to $38.2 million in 2006 from $142.6 million in 2005 and $180.7 million in 2004, due primarily to the slow-down in deposit growth. The net increase in cash and cash equivalents was $31.7

31

million in 2006 and $40.7 million in 2005. Net cash and cash equivalents decreased $24.0 million in 2004 due to a payment of $38.4 million in connection with a business combination in 2003.

Contractual Obligations

Table 8 presents information about our contractual obligations, which by their terms are not short-term, at December 31, 2006.

Table 8

CONTRACTUAL OBLIGATIONS

(DOLLARS IN THOUSANDS)	ONE YEAR OR LESS		OVER ONE TO THREE YEARS		FOUR TO FIVE YEARS		MORE THAN FIVE YEARS		TOTAL
FHLB advances and long-term debt (1)	$	38,000	$	2,000	$	15,000	$	40,521	$	95,521
Operating leases		322		679		620		321		1,942
Certificates of deposit		518,756		44,001		14,794		316		577,867
Total	$	557,078	$	46,680	$	30,414	$	41,158	$	675,330

(1) Refer to Note 11 in the consolidated financial statements, “Federal Home Loan Bank Advances and Long-Term Debt,” for additional information about these obligations, including certain redemption features.

Off-Balance Sheet Arrangements

The Company, as part of its ongoing operations, issues financial guarantees in the form of financial and performance standby letters of credit. Standby letters of credit are contingent commitments issued by the Company generally to guarantee the performance of a customer to a third party. A financial standby letter of credit is a commitment by the Company to guarantee a customer’s repayment of an outstanding loan or financial obligations. In a performance standby letter of credit, the Company guarantees a customer’s performance under a contractual non-financial obligation for which it receives a fee. The Company has recourse against the customer for any amount it is required to pay to a third party under a standby letter of credit. Revenues are recognized over the life of the standby letter of credit. The maximum potential amount of future payments the Company could be required to make under its standby letters of credit at December 31, 2006 was $24.271 million, and that sum represents the Company’s maximum credit risk. At December 31, 2006, the Company had $243 thousand of unearned fees associated with standby letter of credit agreements. The Company holds collateral to support standby letters of credit when deemed necessary. Collateral varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial property.

Table 9 presents information about our off-balance sheet arrangements at December 31, 2006.

Table 9

OFF-BALANCE SHEET ARRANGEMENTS

(DOLLARS IN THOUSANDS)	ONE YEAR OR LESS		OVER ONE YEAR THROUGH FIVE YEARS		OVER FIVE YEARS		TOTAL
Lines of credit – unused	$	153,184	$	23,061	$	3,729	$	179,974
Standby letters of credit		23,568		703		0		24,271
Total	$	176,752	$	23,764	$	3,729	$	204,245

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Interest Rate Sensitivity

By monitoring our interest rate sensitivity, Management attempts to maintain a desired balance between the growth of net interest revenue and the risks that might result from significant changes in interest rates in the market. One tool for measurement of this risk is gap analysis, whereby the repricing of assets and liabilities is compared within certain time categories. By identifying mismatches in repricing opportunities within a time category, we can identify interest rate risk. The interest sensitivity analysis presented in Table 10 is based on this type of gap analysis, which assumes that rates earned on interest-earning assets and rates paid on interest-bearing liabilities will move simultaneously in the same direction and to the same extent. However, the rates associated with these assets and liabilities typically change at different times and in varying amounts.

Changes in the composition of interest-earning assets and interest-bearing liabilities can increase or decrease net interest revenue without affecting interest rate sensitivity. The interest rate spread between assets and their corresponding liabilities can be significantly changed while the repricing interval for both remains unchanged, thus impacting net interest revenue. Over a period of time, net interest revenue can increase or decrease if one side of the Statement of Condition reprices before the other side. An interest sensitivity ratio of 100 percent (earning assets divided by interest-bearing liabilities), which represents a matched interest rate sensitive position, does not guarantee maximum net interest revenue. Before making adjustments to earning assets, Management must evaluate several factors, including the general direction of interest rates, in order to determine the type of investment and the maturity needed to maximize net interest revenue while minimizing interest rate risk. Management may, from time to time, accept calculated risks associated with interest rate sensitivity in an attempt to maximize net interest revenue. We do not currently use derivative financial instruments to manage interest rate sensitivity, but we may do so in the future.

At December 31, 2006, our three-month gap position (interest-earning assets divided by interest-bearing liabilities) was 126 percent, and our twelve-month cumulative gap position was 91 percent. Both positions were within the range established by Management as acceptable. Our three-month gap position indicates that, in a period of rising interest rates, each $1.26 of earning assets that reprice upward during the three months would be accompanied by $1.00 in interest-bearing liabilities repricing upward during the same period. Thus, under this scenario, net interest revenue could be expected to increase during the three-month period of rising rates, as interest income increases would exceed increases in interest expense. Likewise, our twelve-month gap position indicates that each $.91 of interest-earning assets that reprices upward during such period would be accompanied by upward repricing of $1.00 in interest-bearing liabilities resulting in a decrease in net interest revenue. In a period of falling rates, the opposite effect might occur. While certain categories of liabilities are contractually tied to interest rate movements, most, including deposits, are subject only to competitive pressures and do not necessarily reprice directly with changes in market rates. Management has some flexibility when adjusting rates on these products. Therefore, the repricing of assets and liabilities would not necessarily take place at the same time and in the same amounts.

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The following table summarizes our interest-sensitive assets and liabilities from continuing operations as of December 31, 2006. Adjustable rate loans are included in the period in which their interest rates are scheduled to adjust. Fixed rate loans are included in the periods in which they are anticipated to be repaid based on scheduled maturities. Investment securities are included in the period in which they are scheduled to mature. Certificates of deposit are presented according to contractual maturity dates.

Table 10

INTEREST SENSITIVITY ANALYSIS

	DECEMBER 31, 2006
(DOLLARS IN THOUSANDS)	INTEREST RATE SENSITIVE WITHIN (CUMULATIVE)							NON-INTEREST RATE SENSITIVE WITHIN 5 YEARS			TOTAL
	3 MONTHS		3-12 MONTHS			1-5 YEARS
INTEREST-EARNING ASSETS
Loans (1)	$	630,079	$	725,795		$	969,310	$	35,548		$	1,004,858
Unearned income		0		0			0		(123	)		(123	)
Less allowance for loan losses		0		0			0		(16,328	)		(16,328	)
Net loans		630,079		725,795			969,310		19,097			988,407
Investment securities		3,297		7,772			61,279		57,219			118,498
Federal funds sold		62,500		62,500			62,500		0			62,500
Interest-bearing deposits in other financial institutions		8,918		8,918			8,918		0			8,918
Total interest-earning assets	$	704,794	$	804,985		$	1,102,007	$	76,316		$	1,178,323
INTEREST-BEARING LIABILITIES
Non-interest-bearing deposits	$	0	$	0		$	0	$	174,483		$	174,483
Interest-bearing demand deposits		270,914		270,914			270,914		0			270,914
Savings deposits (2)		0		0			0		80,865			80,865
Large denomination time deposits		124,099		272,888			304,920		0			304,920
Other time deposits		91,384		245,868			272,631		316			272,947
Short-term borrowings		4,120		4,120			4,120		0			4,120
FHLB advances and long-term debt		69,021		93,521			95,521		0			95,521
Total interest-bearing liabilities	$	559,538	$	887,311		$	948,106	$	255,664		$	1,203,770
Interest rate sensitivity gap	$	145,256	$	(82,326	)	$	153,901
Interest-earning assets/interest-bearing liabilities		1.26		0.91			1.16
Interest rate sensitivity gap/interest-earning assets		.21		(.10	)		.14

(1) Non-accrual loans are included in the “Non-Interest Rate Sensitive Within 5 Years” category.

(2) Certain types of savings accounts are included in the “Non-Interest Rate Sensitive Within 5 Years” category. In Management’s opinion, these liabilities do not reprice in the same proportions as interest rate-sensitive assets, as they are not responsive to general interest rate changes in the economy.

Capital Resources

Tangible shareholders’ equity (shareholders’ equity less goodwill, other intangible assets and accumulated other comprehensive income) was $ 94.4 million at December 31, 2006, compared to $86.3 million at December 31, 2005. At year-end 2006, our Tier 1 capital ratio increased to 11.51 percent from 9.70 percent at year-end 2005. The increase resulted from growth in tangible common shareholders’ equity of 9.4 percent compared to growth in risk-adjusted assets of 2.9 percent. The issuance of $15 million in trust preferred securities in December of 2006 also increased Tier 1 capital.

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In December 2003, we formed a wholly-owned statutory trust subsidiary (the “Trust”). The Trust issued $18.0 million of trust preferred securities guaranteed by BancTrust on a junior subordinated basis. We obtained the proceeds from the Trust’s sale of trust preferred securities by issuing junior subordinated debentures to the Trust, and used the proceeds to partially finance the purchase price of CommerceSouth, Inc. In December 2006, we formed another wholly-owned statutory trust subsidiary (“Trust II”). Trust II issued $15.0 million of trust preferred securities guaranteed by BancTrust on a junior subordinated basis. We obtained the proceeds from Trust II’s sale of trust preferred securities by issuing junior subordinated debentures to Trust II, and used the proceeds to repay $7.5 million of long term debt and for general corporate purposes. Under revised Interpretation No. 46 (“FIN 46R”) promulgated by Financial Accounting Standards Board (“FASB”), both the Trust and Trust II must be deconsolidated with us for accounting purposes. As a result of this accounting pronouncement, the Federal Reserve Board adopted changes to its capital rules with respect to the regulatory capital treatment afforded to trust preferred securities. The Federal Reserve Board’s rules permit qualified trust preferred securities and other restricted capital elements to be included as Tier 1 capital up to 25% of core capital. We believe that our trust preferred securities qualify under these revised regulatory capital rules and expect that we will continue to treat our $33.0 million of trust preferred securities as Tier 1 capital. For regulatory purposes, the trust preferred securities are added to our tangible common shareholders’ equity to calculate Tier 1 capital.

Our leverage ratio, defined as tangible shareholders’ equity divided by quarterly average assets, was 10.02 percent at year-end 2006 compared to 8.40 percent at December 31, 2005. The Federal Reserve and the FDIC require bank holding companies and banks to maintain certain minimum levels of capital as defined by risk-based capital guidelines. These guidelines consider risk factors associated with various components of assets, both on and off the Statement of Condition. Under these guidelines, capital is measured in two tiers, and these capital tiers are used in conjunction with “risk-based” assets in determining “risk-based” capital ratios. Our capital ratios expressed as a percentage of total risk-adjusted assets, for Tier 1 and Total Capital were 11.51 percent and 12.77 percent, respectively, at December 31, 2006. We exceeded the minimum risk-based capital guidelines at December 31, 2006, 2005, and 2004. The minimum guidelines are shown on Table 11. (See “Management’s Discussion and Analysis—Capital Adequacy,” and Note 15 of Notes to Consolidated Financial Statements).

Table 11

RISK-BASED CAPITAL

	DECEMBER 31,
(DOLLARS IN THOUSANDS)	2006			2005			2004
Tier 1 capital—
Tangible common shareholders’ equity	$	94,410		$	86,274		$	74,815
Payable to business trust		33,000			18,000			18,000
Total Tier 1 capital	$	127,410		$	104,274		$	92,815
Tier 2 capital—
Allowable portion of the allowance for loan losses	$	13,860		$	13,449		$	10,117
Total capital (Tier 1 and Tier 2)	$	141,270		$	117,723		$	102,932
Risk-adjusted assets	$	1,106,511		$	1,074,813		$	981,643
Quarterly average assets		1,271,077			1,241,353			1,121,447
Risk-based capital ratios:
Tier 1 capital		11.51	%		9.70	%		9.46	%
Total capital (Tier 1 and Tier 2)		12.77	%		10.95	%		10.49	%
Minimum risk-based capital guidelines:
Tier 1 capital		4.00	%		4.00	%		4.00	%
Total capital (Tier 1 and Tier 2)		8.00	%		8.00	%		8.00	%
Tier 1 leverage ratio		10.02	%		8.40	%		8.28	%

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Results of Operations

Net Interest Revenue

Net interest revenue, the difference between amounts earned on interest-earning assets and the amounts paid on interest-bearing liabilities, is the most significant component of earnings for a financial institution. Changes in interest rates, changes in the volume of assets and liabilities and changes in the asset/liability mix are the major factors that influence net interest revenue. Presented in Table 12 is an analysis of net interest revenue, weighted-average yields on interest-earning assets and weighted-average rates paid on interest- bearing liabilities for the past three years.

Net yield on interest-earning assets is net interest revenue, on a tax equivalent basis, divided by total interest-earning assets. This ratio is a measure of our effectiveness in pricing interest-earning assets and funding them with both interest-bearing and non-interest-bearing liabilities. Our net yield in 2006, on a tax equivalent basis, decreased 19 basis points to 4.61 percent compared to 4.80 percent in 2005. After a period of stable rates in 2003, interest rates began to rise in mid-2004, and net yield also began to increase. Added to the positive effect of rising rates of interest on our net interest margin was a large increase in our loan volume. This trend continued until The Federal Reserve stopped increasing rates in mid-2006. The Federal Reserve’s monetary policy, combined with slower loan growth in 2006, resulted in margin compression. In 2006 several loans were placed on non-accrual, and this added to the reduced net interest margin. Our liquidity position improved in 2006, and, if our liquidity continues to improve or remains stable in 2007, we may be less aggressive in pricing deposits, resulting in a more stable net interest margin.

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Table 12

NET INTEREST REVENUE

	2006							2005							2004
(DOLLARS IN THOUSANDS)	AVERAGE AMOUNT OUTSTANDING			AVERAGE RATE		INTEREST EARNED/ PAID		AVERAGE AMOUNT OUTSTANDING			AVERAGE RATE		INTEREST EARNED/ PAID		AVERAGE AMOUNT OUTSTANDING			AVERAGE RATE		INTEREST EARNED/ PAID
Interest-earning assets
Taxable securities	$	80,467		4.78	%	$	3,845	$	88,054		4.22	%	$	3,714	$	101,236		4.01	%	$	4,055
Non-taxable securities		45,167		4.02			1,817		49,148		4.07			2,002		59,501		4.05			2,411
Total securities		125,634		4.51			5,662		137,202		4.17			5,716		160,737		4.02			6,466
Loans(1)		999,034		8.13			81,214		952,701		7.00			66,707		726,791		6.10			44,365
Federal funds sold		26,171		4.94			1,292		13,918		3.38			470		7,276		1.04			76
Interest-bearing deposits		370		5.41			20		241		4.98			12		566		1.06			6
Total interest-earning assets		1,151,209		7.66			88,188		1,104,062		6.60			72,905		895,370		5.69			50,913
Non-interest-earning assets
Cash and due from banks		46,423							46,262							36,593
Premises and equipment, net		44,038							38,773							36,009
Other real estate owned, net		593							394							650
Other assets		24,738							13,634							10,967
Intangible assets, net		45,364							46,127							46,885
Assets of discontinued operations		0							31,598							91,656
Allowance for loan losses		(14,815	)						(10,667	)						(8,451	)
Total	$	1,297,550						$	1,270,183						$	1,109,679
Interest-bearing liabilities
Interest-bearing demand and savings deposits	$	346,850		2.03	%	$	7,053	$	365,479		1.07	%	$	3,912	$	323,539		0.84	%	$	2,730
Time deposits		515,370		4.47			23,034		428,841		3.05			13,089		349,685		2.08			7,257
Short-term borrowings		9,607		4.41			424		17,735		2.60			461		20,434		1.52			311
FHLB advances and long-term debt		99,270		5.45			5,412		83,358		4.08			3,399		50,030		3.26			1,630
Total interest-bearing liabilities		971,097		3.70			35,923		895,413		2.33			20,861		743,688		1.60			11,928
Non-interest-bearing liabilities
Non-interest bearing demand deposits		180,008							207,091							155,441
Liabilities of discontinued operations		0							28,817							82,130
Other liabilities		10,102							11,403							8,600
		190,110							247,311							246,171
Shareholders’ equity		136,343							127,459							119,820
Total	$	1,297,550						$	1,270,183						$	1,109,679
Net Interest Revenue				3.96	%	$	52,265				4.27	%	$	52,044				4.09	%	$	38,985
Net yield on interest-earning assets				4.54	%						4.72	%						4.35	%
Tax equivalent adjustment				0.07							0.08							0.12
Net yield on interest-earning assets (tax equivalent)				4.61	%						4.80	%						4.47	%

(1) Loans classified as non-accrual are included in the average volume classification. Loan fees of $2,252, $3,411 and $2,606 for the years ended 2006, 2005 and 2004, respectively, are included in the interest amounts for loans.

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Table 13 reflects the changes in our sources of taxable-equivalent interest income and expense between 2006 and 2005 and between 2005 and 2004. The variances resulting from changes in interest rates and the variances resulting from changes in volume are shown.

Tax-equivalent net interest revenue in 2006 was approximately the same as in 2005. Total interest revenue increased by $15.2 million, while total interest expense increased by $15.1 million. The increases in both total interest revenue and total interest expense were primarily caused by rising interest rates in the economy. Volume had a much smaller influence in 2006 than it did in 2005.

Tax-equivalent net interest revenue in 2005 was $12.9 million higher than in 2004. Total interest revenue increased $21.8 million, while total interest expense increased $8.9 million. Tax-equivalent net interest revenue increased $9.9 million due to volume and $3.0 million due to rate, primarily a result of the growth we experienced during 2005, especially in loan volume, combined with the increase in the prime lending rate of 200 basis points during the year.

Table 13

ANALYSIS OF TAXABLE-EQUIVALENT INTEREST INCREASES (DECREASES)

(DOLLARS IN THOUSANDS)	2006 CHANGE FROM 2005									2005 CHANGE FROM 2004
	TOTAL CHANGE			INCREASE (DECREASE) DUE TO(1)						TOTAL CHANGE			INCREASE (DECREASE) DUE TO(1)
				VOLUME			RATE						VOLUME			RATE
Interest revenue:
Taxable securities	$	131		$	(344	)	$	475		$	(341	)	$	(535	)	$	194
Non-taxable securities		(268	)		(235	)		(33	)		(593	)		(608	)		15
Total securities		(137	)		(579	)		442			(934	)		(1,143	)		209
Loans		14,507			3,636			10,871			22,342			14,502			7,840
Federal funds sold		822			491			331			394			161			233
Deposits		8			7			1			6			(8	)		14
Total		15,200			3,555			11,645			21,808			13,512			8,296
Interest expense:
Interest-bearing demand and savings deposits		3,141			(361	)		3,502			1,182			416			766
Other time deposits		9,945			3,443			6,502			5,832			2,133			3,699
Short-term borrowings		(37	)		(259	)		222			150			(62	)		212
FHLB advances and long-term debt		2,013			809			1,204			1,769			1,177			592
Total		15,062			3,632			11,430			8,933			3,664			5,269
Net interest revenue	$	138		$	(77	)	$	215		$	12,875		$	9,848		$	3,027

(1) The change in interest revenue and expense due to both rate and volume has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amount of the change in each.

Provision for Loan Losses and Allowance for Loan Losses

The provision for loan losses is the charge to earnings that is added to the allowance for loan losses in order to maintain the allowance at a level that is adequate to absorb inherent losses in our loan portfolio. Management reviews the adequacy of the allowance for loan losses on a continuous basis by assessing the quality of the loan portfolio and adjusting the allowance when appropriate. Risk management procedures are in place to ensure that potential problem loans are identified.

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Management’s evaluation of each loan includes a review of the financial condition and capacity of the borrower, the value of the collateral, current economic trends, historical losses, work-out and collection arrangements and possible concentrations of credit. The loan review process also includes an evaluation of credit quality within the mortgage and installment loan portfolios. In establishing the allowance, loss percentages are applied to groups of loans with similar risk characteristics. These loss percentages are determined by historical experience, portfolio mix, economic factors and other risk factors. Each quarter this review is quantified in a report prepared by loan review officers and delivered to Management, which uses the report to determine whether any adjustments to the allowance for loan losses are appropriate. Management submits these quarterly reports to BancTrust’s Board of Directors. The amount of the allowance is affected by: (i) loan charge-offs, which decrease the allowance; (ii) recoveries on loans previously charged-off, which increase the allowance; and (iii) the provisions for loan losses charged to income, which increase the allowance.

Table 14 sets forth certain information with respect to our average loans, allowance for loan losses, charge-offs and recoveries for the five years ended December 31, 2006.

Table 14

SUMMARY OF LOAN LOSS EXPERIENCE

(DOLLARS IN THOUSANDS)	YEAR ENDED DECEMBER 31,
	2006			2005			2004			2003			2002
Allowance for loan losses—
Balance at beginning of year	$	14,013		$	9,608		$	7,786		$	4,898		$	4,872
Balance of acquired banks		0			0			0			3,424			0
Charge-offs
Commercial, financial and agricultural		1,797			1,095			1,254			1,904			331
Real estate—mortgage		525			131			568			102			77
Installment		316			428			497			626			563
Total charge-offs		2,638			1,654			2,319			2,632			971
Recoveries
Commercial, financial and agricultural		159			133			63			37			30
Real estate - mortgage		43			39			16			19			9
Installment		157			162			165			199			198
Total recoveries		359			334			244			255			237
Net charge-offs		2,279			1,320			2,075			2,377			734
Provision charged to operating expense		4,594			5,725			3,897			1,841			760
Allowance for loan losses—balance at end of year	$	16,328		$	14,013		$	9,608		$	7,786		$	4,898
Loans at end of year, net of unearned income	$	1,004,735		$	993,352		$	862,207		$	647,379		$	352,112
Ratio of ending allowance to ending loans		1.63	%		1.41	%		1.11	%		1.20	%		1.39	%
Average loans, net of unearned income	$	999,034		$	952,701		$	726,791		$	370,004		$	346,472
Non-performing loans from continuing operations		16,208			6,762			2,947			3,553			3,914
Ratio of net charge-offs to average loans		.23	%		.14	%		.29	%		.64	%		.21	%
Ratio of ending allowance to total non-performing loans		100.74	%		207.23	%		326.03	%		219.14	%		125.14	%

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Net charge-offs were $2.3 million in 2006 compared to $1.3 million in 2005 and $2.1 million in 2004. The allowance for loan losses as a percentage of loans was 1.63 percent at December 31, 2006, 1.41 percent at December 31, 2005, and 1.11 percent at December 31, 2004.

Management believes the increase in our ratio of allowance for loan losses to total loans from 2005 to 2006 is warranted due to the increase in the ratio of non-performing loans to loans (see Table 16) and the decrease in the ratio of the allowance for loan losses to non-performing loans (see Table 14). Loan charge-offs, changes in risk grades and adjustments to allocations on individual loans also affected the allocation of the allowance for loan losses. The changes in the allocation of the allowance for loan losses (see table 15) from 2005 to 2006 are primarily attributable to the increase in non-performing loans secured by real estate (see table 2). Loan charge-offs, changes in risk grades and adjustments to allocations on individual loans also affected the allocation of the allowance for loan losses.

Management reviews the adequacy of the allowance for loan losses on a continuous basis by assessing the quality of the loan portfolio, including non-performing loans, and adjusts the allowance when appropriate. Management believes the current methodology used to determine the required level of reserves is adequate, and Management considered the allowance adequate at December 31, 2006.

Table 15

ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES

(DOLLARS IN THOUSANDS)	2006				2005				2004
	ALLOWANCE ALLOCATION		PERCENTAGE OF LOANS IN EACH CATEGORY TO TOTAL LOANS		ALLOWANCE ALLOCATION		PERCENTAGE OF LOANS IN EACH CATEGORY TO TOTAL LOANS		ALLOWANCE ALLOCATION		PERCENTAGE OF LOANS IN EACH CATEGORY TO TOTAL LOANS\
Commercial, financial & agricultural	$	3,962	19.52	%	$	4,443	16.96	%	$	5,709	20.40	%
Real estate		11,643	75.02			8,513	77.44			3,295	73.24
Installment		723	5.46			1,057	5.60			604	6.36
Total	$	16,328	100.00	%	$	14,013	100.00	%	$	9,608	100.00	%

(DOLLARS IN THOUSANDS)	2003				2002
	ALLOWANCE ALLOCATION		PERCENTAGE OF LOANS IN EACH CATEGORY TO TOTAL LOANS		ALLOWANCE ALLOCATION		PERCENTAGE OF LOANS IN EACH CATEGORY TO TOTAL LOANS
Commercial, financial & agricultural	$	5,466	25.68	%	$	3,139	30.07	%
Real estate		1,675	66.22			1,035	56.51
Installment		645	8.10			724	13.42
Total	$	7,786	100.00	%	$	4,898	100.00	%

Non-Performing Assets

Non-performing assets include accruing loans 90 days or more past due, loans on non-accrual, renegotiated loans and other real estate owned. Commercial, business and installment loans are classified as non-accrual by Management upon the earlier of: (i) a determination that collection of interest is doubtful; or (ii) the time at which such loans become 90 days past due unless collateral or other circumstances reasonably assure full collection of principal and interest.

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Table 16 sets forth certain information with respect to accruing loans 90 days or more past due, loans on non-accrual, renegotiated loans and other real estate owned, all with respect to continuing operations. Non-performing loans were $16.2 million at year-end 2006 compared to $6.8 million at year-end 2005. Loans on non-accrual increased to $15.3 million at December 31, 2006 from $5.3 million at year-end 2005, primarily as a result of the loans of four borrowers being placed on non-accrual. Management anticipates foreclosing on the collateral securing the loans to these borrowers and has reserved an amount in the allowance for loan losses to cover the anticipated losses on these loans. These anticipated losses were considered in Management’s evaluation of the allowance for loan losses. The allowance for loan losses as a percentage of loans increased to 1.63% at December 31, 2006 from 1.41% at year-end 2005 (see Table 14). As of December 31, 2006, renegotiated loans consisted of a single large loan that is performing as scheduled. Management anticipates returning the renegotiated loan to market terms during the first quarter of 2007, at which time the loan will no longer be reported as renegotiated.

Total non-performing assets as a percentage of loans and other real estate owned of continuing operations at year-end 2006 was 1.74 percent compared to 0.72 percent at year-end 2005 and 0.42 percent at year-end 2004.

Table 16

SUMMARY OF NON-PERFORMING ASSETS OF CONTINUING OPERATIONS

	DECEMBER 31,
(DOLLARS IN THOUSANDS)	2006			2005			2004			2003			2002
Accruing loans 90 days or more past due	$	0		$	551		$	51		$	64		$	21
Loans on non-accrual		15,293			5,267			1,924			2,489			2,867
Renegotiated loans		915			944			972			1,000			1,026
Total non-performing loans		16,208			6,762			2,947			3,553			3,914
Other real estate owned		1,250			428			664			1,055			112
Total non-performing assets	$	17,458		$	7,190		$	3,611		$	4,608		$	4,026
Loans 90 days or more past due as a percentage of loans		0.00	%		0.06	%		0.01	%		0.01	%		0.01	%
Total non-performing loans as a percentage of loans		1.61	%		0.68	%		0.34	%		0.55	%		1.11	%
Total non-performing assets as a percentage of loans and other real estate owned		1.74	%		0.72	%		0.42	%		0.71	%		1.14	%

Details of Non-Accrual Loans

The impact of non-accrual loans on interest income over the past five years is shown in Table 17. Not included in the table are potential problem loans totaling $5.3 million at December 31, 2006. Potential problem loans are loans as to which Management had serious doubts as to the ability of the borrowers to comply with present repayment terms. These loans do not meet the standards for, and are therefore not included in, non-performing assets. Management, however, classifies potential problem loans as either doubtful or substandard. These loans were considered in determining the adequacy of the allowance for loan losses and are closely and regularly monitored to protect BancTrust’s interests.

Table 17

DETAILS OF NON-ACCRUAL LOANS

(DOLLARS IN THOUSANDS)	2006		2005		2004		2003		2002
Principal balance at December 31,	$	15,293	$	5,267	$	1,924	$	2,489	$	2,867
Interest that would have been recorded under original terms for the years ended December 31,	$	1,211	$	430	$	145	$	111	$	139
Interest actually recorded in the financial statements for the years ended December 31,	$	452	$	155	$	69	$	30	$	20

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Non-Interest Revenue and Non-Interest Expense

Non-interest revenue was $11.6 million in 2006, compared to $11.0 million in 2005, an increase of 5.8 percent. Excluding securities gains (losses), net, non-interest revenue in 2006 increased $802 thousand, or 7.4 percent. Service charges on deposit accounts increased 6.2%, primarily a result of an increase in volume. Trust revenue increased 27.9%, reflecting the addition of a significant number of accounts in that area in 2006. The category other income, charges and fees included a gain on the sale of bank property of $323 thousand in 2006. Mortgage fee income, the largest source of non-interest revenue, decreased $275 thousand in 2006 compared to 2005. Second home purchase volume has slowed considerably in our coastal markets, a result, we believe, of the severe storms in 2004 and 2005.

Table 18

NON-INTEREST REVENUE

	YEAR-ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS)	2006			2005		2004
Non-Interest Revenue:
Service charges on deposit accounts	$	4,726		$	4,450	$	4,440
Trust revenue		2,229			1,743		1,756
Securities gains (losses), net		(44	)		125		625
Other income, charges and fees		4,709			4,669		3,696
Total	$	11,620		$	10,987	$	10,517

One measure of performance in the banking industry is the efficiency ratio, calculated as non-interest expense divided by net interest revenue (tax adjusted) plus non-interest revenue. A lower efficiency ratio indicates a more efficient company. The ratio can be lowered by increasing revenue or by decreasing expenses. Our efficiency ratio in 2006 was 61.4 percent compared to 58.3 percent in 2005, and the decrease in the net interest margin in 2006 was the primary contributor to the decrease. Included in the efficiency ratio calculation in 2006 and 2005 was $749 thousand in intangible amortization expense.

Non-interest expense increased 6.5 percent in 2006 compared to 2005. Most of this increase is attributable to increased salary and benefit expense, increased advertising expenditures and increased accounting fees, including Sarbanes-Oxley work and audit work. The salary and benefit expense increase represents over half of the total non-interest expense increase and resulted primarily from our strategic decision to hire, in mid-2006, 13 experienced and well-regarded local bankers in our Mobile/Baldwin County market. These new bankers, by year-end 2006, have already contributed to strong loan and deposit growth in that market. Part of the increase in non-interest expense in 2006 was attributable to an advertising campaign designed to capitalize on market disruption following recently announced large bank mergers affecting some of our markets. We plan to invest considerable resources in 2007 in areas where we feel we can capitalize on the market disruptions expected to occur as a result of these mergers.

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Table 19

NON-INTEREST EXPENSE

	YEAR-ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS)	2006		2005		2004
Non-Interest Expense:
Salaries	$	14,557	$	13,826	$	12,406
Pension and other employee benefits		6,832		6,104		4,990
Furniture and equipment expense		2,935		2,990		2,616
Net occupancy expense		3,100		2,821		2,358
Intangible amortization		749		749		749
Other expense		11,529		10,772		8,668
Total	$	39,702	$	37,262	$	31,787

Income Taxes

Income tax expense from continuing operations was $6.3 million in 2006, compared to $6.8 million in 2005, and $3.9 million in 2004. Our effective combined tax rate from continuing operations was 32.2 percent in 2006, compared to 33.8 percent in 2005 and 28.2 percent in 2004. The change in the effective combined tax rate from 2005 to 2006 is attributable in part to the reversal in 2006 of a valuation allowance established in 2005. Income tax expense from discontinued operations was $1.1 million in 2005, compared to $1.8 million in 2004.

Inflation and Other Issues

Because our assets and liabilities are primarily monetary in nature, the effect of inflation on our assets is less significant compared to most commercial and industrial companies. However, inflation does have an impact on the growth of total assets in the banking industry and the resulting need to increase capital at higher than normal rates in order to maintain an appropriate equity-to-assets ratio. Inflation also has a significant effect on other expenses, which tend to rise during periods of general inflation. Notwithstanding these effects of inflation, Management believes our financial results are influenced more by Management’s ability to react to changes in interest rates than by inflation.

Except as discussed in this Management’s Discussion and Analysis, Management is not aware of trends, events or uncertainties that will have or that are reasonably likely to have a material adverse effect on the liquidity, capital resources or operations of the Company. Management is not aware of any current recommendations by regulatory authorities which, if they were implemented, would have such an effect.

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SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)	2006
	FIRST		SECOND		THIRD		FOURTH		TOTAL
Interest revenue	$	20,670	$	21,841	$	22,743	$	22,934	$	88,188
Interest expense		7,344		8,478		9,609		10,492		35,923
Net interest revenue		13,326		13,363		13,134		12,442		52,265
Provision for loan losses		692		691		1,199		2,012		4,594
Non-interest revenue		2,682		2,729		3,288		2,921		11,620
Non-interest expense		9,781		9,571		10,060		10,290		39,702
Income before income taxes		5,535		5,830		5,163		3,061		19,589
Income tax expense		1,808		1,937		1,742		816		6,303
Net income	$	3,727	$	3,893	$	3,421	$	2,245	$	13,286
Basic income per share	$	.33	$	.35	$	.31	$	.20	$	1.19
Diluted income per share	$	.33	$	.35	$	.30	$	.20	$	1.17
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)	2005
	FIRST		SECOND		THIRD		FOURTH		TOTAL
Interest revenue	$	15,660	$	17,709	$	19,144	$	20,392	$	72,905
Interest expense		3,965		4,835		5,607		6,454		20,861
Net interest revenue		11,695		12,874		13,537		13,938		52,044
Provision for loan losses		1,210		1,457		1,821		1,237		5,725
Non-interest revenue		2,450		2,762		2,900		2,875		10,987
Non-interest expense		8,920		9,164		9,365		9,813		37,262
Income from continuing operations before income taxes		4,015		5,015		5,251		5,763		20,044
Income tax expense		1,295		1,576		1,796		2,100		6,767
Income from continuing operations		2,720		3,439		3,455		3,663		13,277
Income from discontinued operations before income taxes		251		232		92		0		575
Gain on sale of discontinued operations before income taxes		0		0		2,411		0		2,411
Total income from discontinued operations		251		232		2,503		0		2,986
Income tax expense		93		85		966		0		1,144
Income from discontinued operations		158		147		1,537		0		1,842
Net income	$	2,878	$	3,586	$	4,992	$	3,663	$	15,119
Basic income per share from continuing operations	$	.25	$	.31	$	.31	$	.33	$	1.19
Basic income per share from discontinued operations	$	.01	$	.01	$	.14	$	.00	$	.17
Diluted income per share from continuing operations	$	.25	$	.31	$	.31	$	.33	$	1.19
Diluted income per share from discontinued operations	$	.01	$	.01	$	.14	$	.00	$	.16
Basic earnings per share	$	.26	$	.32	$	.45	$	.33	$	1.36
Diluted earnings per share	$	.26	$	.32	$	.45	$	.33	$	1.35

44

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

The information required by this Item 7A is included in Item 7 at page 31 under the headings “Asset/Liability Management” and “Liquidity” and at page 33 under the heading “Interest Rate Sensitivity.”

Item 8. Financial Statements and Supplementary Data

Management’s Report on Financial Statements

The Management of BancTrust Financial Group, Inc. is responsible for the preparation, content, integrity, objectivity and reliability of the financial statements and all other financial information included in this Annual Report on Form 10-K. These statements have been prepared in accordance with accounting principles generally accepted in the United States of America. In preparing the consolidated financial statements, Management made judgments and estimates based upon currently available facts, events and transactions.

Management depends upon the Company’s accounting system and internal control structure to meet its responsibility for the reliability of these statements. These systems and controls are designed to provide reasonable assurance that the assets are safeguarded from material loss and that the transactions executed are in accordance with Management’s authorizations and are properly recorded in the financial records. The concept of reasonable assurance recognizes that the cost of internal accounting controls should not exceed the benefits derived and that there are inherent limitations of any system of internal accounting controls.

Management is required to evaluate, and to report on its evaluation of, the effectiveness of the Company’s disclosure controls and procedures and the Company’s internal control over financial reporting. Management has found both the Company’s disclosure controls and procedures and its internal control over financial reporting to be effective as of December 31, 2006 and Management’s report on these items is included in Item 9A of this Annual Report on Form 10-K.

The independent registered public accounting firm of KPMG LLP has been engaged to audit the Company’s financial statements and to express an opinion as to whether the Company’s statements present fairly, in all material respects, the financial position, cash flows and the results of operations of the Company, all in accordance with accounting principles generally accepted in the United States of America. Their audit is conducted in conformity with the standards of the Public Company Accounting Oversight Board (United States) and includes procedures believed by them to be sufficient to provide reasonable assurance that the financial statements are free of material misstatement. They also issue an attestation report on Management’s assessment of the effectiveness of BancTrust’s internal control over financial reporting.

The Audit Committee of the Board of Directors, composed of directors who meet the standards of independence set by the Nasdaq Stock Market, oversees Management’s responsibility in the preparation of these statements. This committee has the responsibility to review periodically the scope, findings and opinions of the audits of the independent registered public accountants and internal auditors. KPMG LLP and the internal auditors have free access to the Audit Committee and also to the Board of Directors to meet independent of Management to discuss the internal control structure, accounting, auditing and other financial reporting concerns.

We believe these policies and procedures provide reasonable assurance that our operations are conducted in accordance with a high standard of business conduct and that the financial statements reflect fairly the financial position, results of operations and cash flows of the Company.

J. STEPHEN NELSON		W. BIBB LAMAR, JR.
Chairman		President and CEO
	F. MICHAEL JOHNSON
	Chief Financial Officer

45

Management’s Report on Internal Control Over Financial Reporting

Management of BancTrust Financial Group, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. BancTrust’s internal control over financial reporting was designed under the supervision of the Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of published financial statements in accordance with generally accepted accounting principles.

Management assessed the effectiveness of BancTrust’s internal control over financial reporting as of December 31, 2006. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework.

Based on its assessment, Management believes that, as of December 31, 2006, BancTrust’s internal control over financial reporting is effective.

BancTrust’s independent registered public accounting firm, KPMG LLP, has issued an attestation report on Management’s assessment of the effectiveness of BancTrust’s internal control over financial reporting as of December 31, 2006. The report, which expresses unqualified opinions on Management’s assessment, and on the effectiveness of BancTrust’s internal control over financial reporting as of December 31, 2006, is included on page 47 of this Report on Form 10-K.

W. BIBB LAMAR, JR.

President and Chief Executive Officer

F. MICHAEL JOHNSON

Chief Financial Officer

46

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

BancTrust Financial Group, Inc.:

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that BancTrust Financial Group, Inc. and subsidiaries (the Company) maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of condition of BancTrust Financial Group, Inc. and subsidiaries as of December 31, 2006 and 2005, and the related consolidated statements of income, shareholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2006, and our report dated March 15, 2007, expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

Birmingham, Alabama

March 15, 2007

47

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

BancTrust Financial Group, Inc.:

We have audited the accompanying consolidated statements of condition of BancTrust Financial Group, Inc. and subsidiaries (the Company) as of December 31, 2006 and 2005, and the related consolidated statements of income, shareholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2006. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of BancTrust Financial Group, Inc. and subsidiaries as of December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for share-based payment and evaluating prior year misstatements effective January 1, 2006 and, effective December 31, 2006, its method of accounting for defined benefit pension plans.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 15, 2007 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

/s/ KPMG LLP

Birmingham, Alabama

March 15, 2007

48

BancTrust Financial Group, Inc. and Subsidiaries

Consolidated Statements of Condition

As of December 31, 2006 and 2005

(Dollars and Shares in Thousands)

	December 31,
	2006			2005
ASSETS:
Cash and due from banks	$	55,228		$	54,010
Federal funds sold		62,500			32,000
Total cash and cash equivalents		117,728			86,010
Interest-bearing deposits		8,918			374
Securities available for sale		118,498			132,354
Loans held for sale		4,811			6,437
Loans		999,924			986,915
Allowance for loan losses		(16,328	)		(14,013	)
Loans, net		983,596			972,902
Premises and equipment, net		47,324			39,736
Accrued income receivable		7,819			7,065
Goodwill		41,952			41,952
Other intangible assets, net		2,995			3,802
Cash surrender value of life insurance		5,123			4,932
Other assets		14,642			10,490
Total Assets	$	1,353,406		$	1,306,054
LIABILITIES:
Deposits
Interest-bearing	$	929,646		$	822,405
Non-interest-bearing		174,483			219,440
Total deposits		1,104,129			1,041,845
Short-term borrowings		4,120			8,595
FHLB advances and long-term debt		95,521			110,057
Other liabilities		11,113			14,518
Total Liabilities		1,214,883			1,175,015
SHAREHOLDERS’ EQUITY:
Preferred stock—no par value
Shares authorized—500
Shares outstanding—none		—			—
Common stock—$.01 par value
Shares authorized—20,000
Shares issued—11,422 in 2006 and 11,369 in 2005		114			114
Additional paid in capital		80,425			79,504
Accumulated other comprehensive loss, net		(2,241	)		(1,335	)
Deferred compensation payable in common stock		1,157			996
Retained earnings		62,633			55,488
Unearned compensation		0			(324	)
Less:
Treasury stock, at cost—256 shares in 2006 and 2005		(2,408	)		(2,408	)
Common stock held in grantor trust—61 shares in 2006 and 55 shares in 2005		(1,157	)		(996	)
Total shareholders’ equity		138,523			131,039
Total Liabilities and Shareholders’ Equity	$	1,353,406		$	1,306,054

See accompanying notes to consolidated financial statements.

49

BancTrust Financial Group, Inc. and Subsidiaries

Consolidated Statements of Income

For the Years Ended December 31, 2006, 2005 and 2004

(Dollars and Shares in Thousands, Except Per Share Amounts)

	Year Ended December 31,
	2006			2005		2004
INTEREST REVENUE:
Loans	$	81,214		$	66,707	$	44,365
Investment securities—taxable		3,845			3,714		4,055
Investment securities—non-taxable		1,817			2,002		2,411
Federal funds sold		1,292			470		76
Interest-bearing deposits		20			12		6
Total interest revenue		88,188			72,905		50,913
INTEREST EXPENSE:
Deposits		30,087			17,001		9,987
FHLB advances and long-term debt		5,412			3,399		1,630
Short-term borrowings		424			461		311
Total interest expense		35,923			20,861		11,928
Net interest revenue		52,265			52,044		38,985
Provision for loan losses		4,594			5,725		3,897
Net interest revenue after provision for loan losses		47,671			46,319		35,088
NON-INTEREST REVENUE:
Service charges on deposit accounts		4,726			4,450		4,440
Trust revenue		2,229			1,743		1,756
Securities gains (losses), net		(44	)		125		625
Other income, charges and fees		4,709			4,669		3,696
Total non-interest revenue		11,620			10,987		10,517
NON-INTEREST EXPENSE:
Salaries		14,557			13,826		12,406
Pension and other employee benefits		6,832			6,104		4,990
Furniture and equipment expense		2,935			2,990		2,616
Net occupancy expense		3,100			2,821		2,358
Intangible amortization		749			749		749
Other expense		11,529			10,772		8,668
Total non-interest expense		39,702			37,262		31,787
Income from continuing operations before income taxes		19,589			20,044		13,818
Income tax expense		6,303			6,767		3,902
Income from continuing operations		13,286			13,277		9,916
Income from discontinued operations before income taxes		0			575		1,684
Gain on sale of discontinued operations before income taxes		0			2,411		1,484
Total income from discontinued operations before income taxes		0			2,986		3,168
Income tax expense		0			1,144		1,783
Income from discontinued operations		0			1,842		1,385
Net income	$	13,286		$	15,119	$	11,301
Basic income per share from continuing operations	$	1.19		$	1.19	$	.90
Basic income per share from discontinued operations	$	.00		$	.17	$	.13
Diluted income per share from continuing operations	$	1.17		$	1.19	$	.90
Diluted income per share from discontinued operations	$	.00		$	.16	$	.12
Basic earnings per share	$	1.19		$	1.36	$	1.03
Diluted earnings per share	$	1.17		$	1.35	$	1.02
Weighted-average shares outstanding—basic		11,151			11,104		10,981
Weighted-average shares outstanding—diluted		11,308			11,188		11,074

See accompanying notes to consolidated financial statements.

50

BancTrust Financial Group, Inc. and Subsidiaries

Consolidated Statements of Shareholders’ Equity and Comprehensive Income

For the Years Ended December 31, 2006, 2005 and 2004

(Dollars and Shares in Thousands, Except Per Share Amounts)

	Common Stock			Additional Paid in Capital			Accumulated Other Comprehensive Income (loss), Net			Unearned/ Deferred Compensation Payable in Common Stock			Retained Earnings			Treasury Stock			Common Stock Held in Grantor Trust			Total
	Shares Issued	Amount
Balance, December 31, 2003	11,186	$	112	$	76,833		$	1,569		$	955		$	40,560		$	(2,408	)	$	(955	)	$	116,666
Comprehensive income:
Net income														11,301									11,301
Minimum pension liability adjustment, net of taxes								63															63
Net change in fair values of securities available for sale, net of taxes								(1,131	)														(1,131	)
Total comprehensive income																							10,233
Dividends declared ($.52 per share)														(5,713	)								(5,713	)
Purchase of deferred compensation treasury shares											190									(190	)		0
Deferred compensation payable in common stock held in grantor trust											(281	)								281			0
Shares issued under dividend reinvestment plan	5				108																		108
Common stock options exercised	86		1		888																		889
Balance, December 31, 2004	11,277		113		77,829			501			864			46,148			(2,408	)		(864	)		122,183
Comprehensive income:
Net income														15,119									15,119
Minimum pension liability adjustment, net of taxes								(238	)														(238	)
Net change in fair values of securities available for sale, net of taxes								(1,598	)														(1,598	)
Total comprehensive income																							13,283
Dividends declared ($.52 per share)														(5,779	)								(5,779	)
Purchase of deferred compensation treasury shares											227									(227	)		0
Deferred compensation payable in common stock held in grantor trust											(95	)								95			0
Shares issued under dividend reinvestment plan	12				250																		250
Common stock issued to directors	8				158																		158
Restricted stock issued					470						(324	)											146
Common stock options exercised	72		1		797																		798
Balance, December 31, 2005	11,369		114		79,504			(1,335	)		672			55,488			(2,408	)		(996	)		131,039
SAB 108 adjustment, net of taxes														(258	)								(258	)
Balance, January 1, 2006, as adjusted	11,369		114		79,504			(1,335	)		672			55,230			(2,408	)		(996	)		130,781
Comprehensive income:
Net income														13,286									13,286
Minimum pension liability adjustment, net of taxes								(182	)														(182	)
Net change in fair values of securities available for sale, net of taxes								99															99
Total comprehensive income																							13,203
Dividends declared ($.52 per share)														(5,844	)								(5,844	)
Purchase of deferred compensation treasury shares											248									(248	)		0
Deferred compensation payable in common stock held in grantor trust											(87	)								87			0
Shares issued under dividend reinvestment plan	14				289																		289
Restricted stock issued					514																		514
Effect of adoption of SFAS. No. 123r					(324	)					324												0
Effect of adoption of SFAS. No. 158, net of taxes								(823	)					(39	)								(862	)
Common stock options exercised	39		0		442															0			442
Balance, December 31, 2006	11,422	$	114	$	80,425		$	(2,241	)	$	1,157		$	62,633		$	(2,408	)	$	(1,157	)	$	138,523

See accompanying notes to consolidated financial statements.

51

BancTrust Financial Group, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2006, 2005 and 2004

(Dollars and Shares in Thousands, Except Per Share Amounts)

	Year Ended December 31,
	2006			2005			2004
OPERATING ACTIVITIES:
Income from continuing operations	$	13,286		$	13,277		$	9,916
Adjustments to reconcile income from continuing operations to net cash provided by operating activities
Depreciation of premises and equipment		2,940			2,703			2,470
Amortization and accretion of securities, net		510			403			608
Amortization of intangible assets		749			749			749
Provision for loan losses		4,594			5,725			3,897
Securities gains (losses), net		44			(125	)		(625	)
Stock compensation		514			304			0
Increase in cash surrender value of life insurance		(191	)		(211	)		(184	)
Loss on sales of other real estate owned, net		24			5			31
Gain on sale of other assets		(312	)		0			0
Deferred income tax benefit		(831	)		(1,742	)		(632	)
Change in operating assets and liabilities:
(Increase) decrease in loans held for sale		1,626			(4,496	)		1,260
Accrued income receivable		(754	)		(1,643	)		(859	)
Other assets		(4,105	)		(1,455	)		478
Increase (decrease) in other liabilities		(5,474	)		7,008			1,907
Net cash provided by operating activities		12,620			20,502			19,016
INVESTING ACTIVITIES:
Net (increase) decrease in interest-bearing deposits		(8,544	)		40			(257	)
Net increase in loans		(13,951	)		(127,534	)		(218,380	)
Purchases of premises and equipment, net		(10,528	)		(5,133	)		(7,775	)
Proceeds from sales of other real estate owned		491			671			608
Proceeds from maturities of securities available for sale		15,978			15,747			49,398
Proceeds from sales of securities available for sale		527			2,506			44,599
Purchases of securities available for sale		(3,035	)		(15,265	)		(60,750	)
Net cash paid in acquisition		0			0			(38,422	)
Net cash provided by (used in) investing activities		(19,062	)		(128,968	)		(230,979	)
FINANCING ACTIVITIES:
Net increase in deposits		62,284			101,887			175,784
Net decrease in short-term borrowings		(4,475	)		(5,519	)		(10,353	)
Proceeds from FHLB advances		35,000			59,500			16,500
Payments on FHLB advances		(55,000	)		(8,500	)		(6,500	)
Proceeds from issuance of long-term debt		15,464			0			10,000
Payments on long-term debt		(10,000	)		0			0
Dividends paid		(5,555	)		(5,539	)		(5,605	)
Proceeds from issuance of common stock		0			9			0
Proceeds from exercise of common stock options		442			798			889
Net cash provided by financing activities		38,160			142,636			180,715
CASH FLOWS FROM DISCONTINUED OPERATIONS
Operating activities		0			1,451			5,040
Investing activities		0			2,039			(2,742	)
Financing activities		0			3,030			4,905
NET CASH PROVIDED BY DISCONTINUED OPERATIONS		0			6,520			7,203
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		31,718			40,690			(24,045	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		86,010			45,320			69,365
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	117,728		$	86,010		$	45,320

See accompanying notes to consolidated financial statements.

52

BancTrust Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2006, 2005 and 2004

Note 1. Summary of Significant Accounting Policies

PRINCIPLES OF CONSOLIDATION—The accompanying consolidated financial statements include the accounts of BancTrust Financial Group, Inc. (the “Company” or “BancTrust”) and its wholly-owned subsidiaries, BankTrust (the “Mobile Bank”), BankTrust of Alabama (the “Eufaula Bank”) and BankTrust, Florida (the “Florida Bank” and collectively, with the banks listed above, the “Banks”), and BancTrust Company, Inc. (the “Trust Company”). All significant intercompany accounts and transactions have been eliminated in consolidation. The Banks are engaged in the business of obtaining funds, primarily in the form of deposits, and investing such funds in commercial, installment and real estate loans in South Alabama and Northwest Florida and investment securities. The Banks also offer a range of other commercial bank services including investment products. The Trust Company offers trust services.

BASIS OF FINANCIAL STATEMENT PRESENTATION—The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and with general practices within the banking industry. In preparing the financial statements, Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the Statement of Condition and revenues and expenses for the period. Actual results could differ significantly from those estimates. All dollars and shares are in thousands, except per share amounts. Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for loan losses.

A substantial portion of the Company’s loans are secured by real estate in South Alabama and Northwest Florida. Accordingly, the ultimate collectibility of a substantial portion of the Company’s loan portfolio is susceptible to changes in market conditions in these areas. Management believes that the allowance for losses on loans is adequate. While Management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for losses on loans. Such agencies may require the Company to make changes to the allowance based on their judgment about information available to them at the time of their examination.

CASH AND CASH EQUIVALENTS—For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks and federal funds sold. Federal funds are generally sold for one day periods.

Supplemental disclosures of cash flow information for the years ended December 31, 2006, 2005 and 2004 are as follows:

(Dollars in thousands)	2006		2005		2004
Cash paid for:
Interest	$	33,766	$	19,551	$	11,936
Income taxes		16,150		3,230		5,081
Non-cash transactions:
Transfer of loans to other real estate owned		1,337		435		217
Dividends paid in common stock		289		240		108
Fair value of restricted stock issued		1,393		530		0

SECURITIES AVAILABLE FOR SALE—Securities available for sale are carried at fair value. Amortization of premiums and accretion of discounts are accounted for using the interest method over the

53

BancTrust Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the Years Ended December 31, 2006, 2005 and 2004

estimated life of the security. Unrealized gains and losses are excluded from earnings and reported, net of tax, as a separate component of shareholders’ equity until realized. Securities available for sale may be used as part of the Company’s asset/liability strategy and may be sold in response to changes in interest rate risk, prepayment risk or other similar economic factors. The specific identification method is used to compute gains or losses on the sale of these assets.

LOANS AND INTEREST INCOME—Loans are reported at the principal amounts outstanding, adjusted for unearned income, deferred loan origination fees and costs, purchase premiums and discounts, write-downs and the allowance for loan losses. Loan origination fees, net of certain deferred origination costs, and purchase premiums and discounts are recognized as an adjustment to the yield of the related loans using the interest method.

Interest on loans is accrued and credited to income based on the principal amount outstanding.

Loans are considered past due based on the contractual due date. The accrual of interest on loans is discontinued when, in the opinion of Management, there is an indication that the borrower may be unable to meet contractual payments as they become due. Generally, loans 90 days and over past due are placed on non-accrual unless there is sufficient collateral to assure collectibility of principal and interest and the loan is in the process of collection. Upon such discontinuance, all unpaid accrued interest is reversed against current income. Interest received on nonaccrual loans generally is either applied against principal or reported as interest income, according to Management’s judgement as to the collectibility of principal. Generally, loans are restored to accrual status when the obligation is brought current and has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectibility of the total contractual principal and interest is no longer in doubt.

Loans held for sale are carried at the lower of aggregate cost or market.

ALLOWANCE FOR LOAN LOSSES—The allowance for loan losses is maintained at a level considered by Management to be sufficient to absorb losses inherent in the loan portfolio. Loans are charged off against the allowance for loan losses when Management believes that the collection of the principal is unlikely. Subsequent recoveries are added to the allowance. BancTrust’s determination of its allowance for loan losses is determined in accordance with Statement of Financial Accounting Standard (“SFAS”) Nos. 114 and 5 and other regulatory guidance. The amount of the allowance for loan losses and the amount of the provision charged to expense is based on periodic reviews of the portfolio, past loan loss experience, current economic conditions and such other factors which, in Management’s judgment, deserve current recognition in estimating loan losses.

Management has a developed and documented systematic methodology for determining and maintaining an allowance for loan losses. A regular, formal and ongoing loan review is conducted to identify loans with unusual risks and probable loss. Management uses the loan review process to stratify the loan portfolio into risk grades. For higher-risk graded loans in the portfolio, the Banks determine estimated amounts of loss based on several factors, including historical loss experience, Management’s judgement of economic conditions and the resulting impact on higher-risk graded loans, the financial capacity of the borrower, secondary sources of repayment including collateral and regulatory guidelines. This determination also considers the balance of impaired loans (which are generally considered to be non-performing loans). Specific allowances for impaired loans are based on comparisons of the recorded carrying values of the loans to the present value of these loans’ estimated cash flows discounted at each loan’s effective interest rate, the fair value of the collateral, or the loans’ observable market price. Recovery of the carrying value of loans is dependent to a great extent on economic, operating and other conditions that may be beyond the Company’s control.

54

BancTrust Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the Years Ended December 31, 2006, 2005 and 2004

In addition to evaluating probable losses on individual loans, Management also determines probable losses for all other loans that are not individually evaluated. The amount of the allowance for loan losses related to all other loans in the portfolio is determined based on historical and current loss experience, portfolio mix by loan type and by collateral type, current economic conditions, the level and trend of loan quality ratios and such other factors which, in Management’s judgement, deserve current recognition in estimating inherent loan losses. The methodology and assumptions used to determine the allowance are continually reviewed as to their appropriateness given the most recent losses realized and other factors that influence the estimation process. The model assumptions and resulting allowance level are adjusted accordingly as these factors change.

PREMISES AND EQUIPMENT—Premises and equipment are stated at cost less accumulated depreciation and amortization. The provision for depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets or terms of the leases, if shorter. The Company periodically evaluates whether events have occurred that indicate that premises and equipment have been impaired. Measurement of any impact of such impairment is based on those assets’ fair values. No impairment losses were recorded in 2006, 2005 or 2004.

OTHER REAL ESTATE OWNED—Other real estate owned is carried at the lower of the recorded investment in the loan or fair value, as determined by Management, less costs to dispose. Any excess of the recorded investment over fair value, less costs to dispose, is charged to the allowance for loan losses at the time of foreclosure. A provision is charged to earnings and a related valuation account for subsequent losses on other real estate owned is established when, in the opinion of Management, such losses have occurred. The ability of the Company to recover the carrying value of real estate is based upon future sales of the real estate. The ability to effect such sales is subject to market conditions and other factors, some of which are beyond the Company’s control. The recognition of sales and sales gains or losses is dependent upon whether the nature and term of the sales, including possible future involvement of the Company, if any, meet certain defined requirements. If not met, sale and gain recognition would be deferred. Other real estate owned is included in other assets on the statement of condition and totaled $1.25 million at December 31, 2006 and $428 thousand at December 31, 2005.

ASSETS AVAILABLE FOR SALE—Assets available for sale consists of land purchased with the original intent to be used as branch locations. These assets are reported at the lower of cost or fair value less any cost of disposal. The carrying amounts at December 31, 2006 and 2005 are included in other assets and were $806 thousand and $1.938 million, respectively.

INCOME TAXES—The Company files a consolidated federal income tax return. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

INTANGIBLE ASSETS—Goodwill and intangible assets with indefinite useful lives are not amortized but are tested for impairment annually or if indicators of impairment are present. Measurement of any impairment of such assets is based on the asset’s fair value, with the resulting charge recorded as a loss. There were no impairment losses recorded in 2006, 2005 or 2004. Core deposit intangible assets are amortized over seven years using the straight-line method.

55

BancTrust Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the Years Ended December 31, 2006, 2005 and 2004

TREASURY STOCK—Treasury stock repurchases and sales are accounted for using the cost method.

TRUST COMPANY ASSETS AND INCOME—Assets held by the Trust Company in a fiduciary capacity for customers are not included in the consolidated financial statements. Fiduciary fees on trust accounts are recognized on the accrual basis.

STOCK BASED COMPENSATION—The Company has two incentive stock option plans, the South Alabama Bancorporation 1993 Incentive Compensation Plan (the “1993 Plan”), and the South Alabama Bancorporation, Inc. 2001 Incentive Compensation Plan (the “2001 Plan”). The 1993 Plan was terminated in 2001 upon the adoption of the 2001 Plan. The remaining granted and outstanding options under the 1993 Plan are exercisable into common shares of the Company. At December 31, 2006, options for 125 thousand shares were granted and outstanding under the 1993 Plan. The Company may grant options for up to 250 thousand shares to employees and directors under the 2001 Plan and has granted options to purchase 107 thousand shares under the 2001 Plan through December 31, 2006, of which options to purchase 86 thousand shares are outstanding. Under the 1993 and 2001 Plans, the option exercise price equals the stock’s market price at the date of grant. The options vest one year after date of issuance and expire after 10 years. The Company used the intrinsic-value method for accounting for stock-based employee compensation in 2004 and 2005 and the fair-value method in 2006.

As of January 1, 2006, all stock options issued by the Company had vested and therefore, the Company has recorded no compensation expense for any of the stock options issued prior to January 1, 2006. The Company adopted SFAS No. 123(R) as of January 1, 2006 and will, from that point forward, expense the fair value of options granted over the required service period. On April 19, 2006 the Company issued 1 thousand stock options. The Company will recognize $11 thousand as compensation expense for these options over the one year vesting period, of which $8 thousand was recognized during 2006. The fair value of each option granted in 2006 of $10.81 per share was calculated using the Black-Scholes option pricing model using a risk-free interest rate of 4.96 percent, an expected dividend yield of 2.4 percent, an expected average life of 7.35 years and an expected volatility of 45 percent. At December 31, 2006, the total compensation expense related to nonvested stock options issued by the Company not yet recognized was $3 thousand. The Company will recognize this expense over the remaining vesting period of 3.50 months.

A summary of the status of and changes in the Company’s restricted stock plans at December 31, 2006, 2005, and 2004 is as follows:

(Dollars in thousands except per share)	2006				2005				2004
	Shares		Weighted-Avg. Fair Value Price		Shares		Weighted-Avg. Fari-Value Price		Shares	Weighted-Avg. Fair Value Price
Outstanding at beginning of year	24		$	19.78	0		$	0.00	0	$	0.00
Granted	68			20.40	27			19.78	0		0.00
Forfeited	(2	)		19.98	(3	)		19.78	0		0.00
Outstanding at end of year	90		$	20.24	24		$	19.78	0	$	0.00
Vested at end of year	0		$	0.00	0		$	0.00	0	$	0.00

In January of 2005, BancTrust issued to its directors 8 thousand shares of the Company’s common stock and recognized a pre-tax charge of $158 thousand related to these shares. The total fair value, which was the average of the closing bid and ask on the date of issuance, of the restricted stock issued was $530 thousand and $1.392

56

BancTrust Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the Years Ended December 31, 2006, 2005 and 2004

million for the years ended December 31, 2006 and 2005, respectively. No restricted stock was issued prior to 2005. The expense for these shares will be recognized over the required service period of three years. The resulting pre-tax charge for the years ended December 31, 2006 and 2005 was approximately $509 thousand and $146 thousand, respectively. At December 31, 2006, the total compensation expense related to nonvested restricted stock issued by the Company not yet recognized was $1.2 million. The Company will recognize this expense over the remaining weighted-average vesting period of 2.03 years.

Had compensation costs for these plans been determined consistent with SFAS No. 123 Accounting for Stock Based Compensation, the Company’s net income and earnings per share would have been reduced to the following pro forma amounts:

(Dollars in thousands except per share)	2005			2004
Net income as reported	$	15,119		$	11,301
Add: Stock based compensation expense included in reported income, net of tax		91			0
Less: Stock based compensation expense determined under the fair value method, net of tax		(159	)		(157	)
Pro forma net income	$	15,051		$	11,144
Earnings per share:
As reported
Basic	$	1.36		$	1.03
Diluted		1.35			1.02
Pro forma
Basic	$	1.36		$	1.01
Diluted		1.35			1.01

A summary of the status of and changes in the Company’s stock option plans at December 31, 2006, 2005, and 2004 is as follows:

(Dollars in thousands except per share)	2006				2005				2004
	Shares		Weighted-Avg. Exercise Price		Shares		Weighted-Avg. Exercise Price		Shares		Weighted-Avg. Exercise Price
Outstanding at beginning of year	249		$	14.25	322		$	13.56	314		$	11.61
Granted	1			21.58	0			N/A	94			17.19
Exercised	(39	)		11.09	(72	)		11.14	(86	)		10.39
Forfeited	0			N/A	(1	)		9.95	0			N/A
Outstanding at end of year	211		$	14.89	249		$	14.25	322		$	13.56
Exercisable at end of year	210		$	14.85	249		$	14.25	228		$	12.07
Weighted-average fair value of the options granted			$	10.81				N/A			$	4.92

At December 31, 2006, 68 thousand of the 211 thousand options had exercise prices between $8.83 and $11.91 with a weighted-average exercise price of $10.93 and an average remaining contractual life of 3.25 years. Exercise prices for 137 thousand of these options were between $15.63 and $17.23 with a weighted-average exercise price of $16.55 and an average remaining contractual life of 4.85 years. The remaining 6 thousand

57

BancTrust Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the Years Ended December 31, 2006, 2005 and 2004

options outstanding at December 31, 2006 consist of options with exercise price between $21.58 and $22.19 with an weighted-average exercise price of $22.09 and an average remaining contractual life of 2.84 years. The average intrinsic value per share of stock options exercised during 2006 and 2005 was $10.39 and $8.50, respectively. The total intrinsic value of stock options exercised during the 2006, 2005 and 2004 was $412 thousand, $609 thousand and $640 thousand, respectively. The intrinsic value of options exercised is the market price of a share of stock on the day of exercise less the option price. The aggregate intrinsic value of the options outstanding at December 31, 2006 and 2005 was $2.22 million and $1.3 million, respectively. The aggregate intrinsic value of the exercisable options outstanding at December 31, 2006 and 2005 was $2.2 million and $1.3 million, respectively. The intrinsic value of options outstanding at period-end is the market price of a share of stock on the last day of the period less the weighted-average exercise price times the number of options outstanding. The weighted-average remaining life of exercisable stock options outstanding at December 31, 2006 and 2005 was 4.25 years and 4.72 years, respectively. Shares issued upon exercise of stock options are issued from authorized shares.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 2006 and 2004, respectively; risk-free interest rates of 4.96% and 3.62%; expected dividend yields of 2.4% and 2.9%; expected lives of 7.35 years and 5 years ; and expected volatility of 45% and 40%, respectively. There were no stock options issued in 2005.

RECLASSIFICATIONS—Certain reclassifications of 2005 and 2004 balances have been made to conform with classifications used in 2006.

RECENT ACCOUNTING PRONOUNCEMENTS—In March 2005, the SEC released Staff Accounting Bulletin (SAB) No. 107, Share–Based Payment, SAB No. 107 expresses views of the SEC staff regarding the application of SFAS No. 123(R). Among other things, SAB No. 107 provides interpretive guidance related to the interaction between SFAS No. 123(R) and certain SEC rules and regulations and provides the staff’s view regarding the valuation of share–based payment arrangements for public companies.

In May 2005, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 154, Accounting Changes and Error Corrections. SFAS No. 154 is a replacement of Accounting Policy Board (“APB”) Opinion No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle. SFAS No. 154 applies to all voluntary changes in accounting principle and to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. This statement requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine period-specific effects of an accounting change on one or more individual prior periods presented. Then the new accounting principle is applied to the balances of assets and liabilities as of the beginning of the earliest period for which retrospective application is practicable and a corresponding adjustment is made to the opening balance of retained earnings for that period rather that being reported in an income statement. Further, the accounting principle is to be applied prospectively from the earliest date when it is impracticable to determine the effect to all prior periods. The Company adopted SFAS No. 154 as of January 1, 2006 as required and its effect on the consolidated financial statements, to date, has not been material. Adoption of this statement could have an impact if there are future voluntary accounting changes or corrections of errors.

In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, An Interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 clarifies that the benefit of a position taken or

58

BancTrust Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the Years Ended December 31, 2006, 2005 and 2004

expected to be taken in a tax return should be recognized in a company’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes, when it is more likely than not that the position will be sustained based on its technical merits. FIN 48 also prescribes how to measure the tax benefit recognized and provides guidance on when a tax benefit should be derecognized as well as various other accounting, presentation and disclosure matters. This interpretation is effective for the Company beginning in fiscal year 2007. The Company does not believe the adoption of FIN 48 will have a material impact on its results of operations or financial position.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This standard defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America, and expands disclosure about fair value measurements. This pronouncement applies to other accounting standards that require or permit fair value measurements. Accordingly, this statement does not require any new fair value measurement. This statement is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company will be required to adopt SFAS No. 157 in the first quarter of fiscal year 2008. Management is currently evaluating the requirements of SFAS No. 157 and has not yet determined the impact on the Company’s consolidated financial statements.

In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—An Amendment of FASB Statements No. 87, 88, 106, and 132(R). This pronouncement requires an employer to recognize the over-funded or under-funded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability on its balance sheet. SFAS No. 158 also requires an employer to recognize changes in that funded status in the year in which the changes occur through comprehensive income effective for fiscal years ending after December 15, 2006. In addition, this statement requires an employer to measure the funded status of a plan as of its year-end balance sheet date effective for fiscal years ending after December 15, 2008. The Company adopted the requirement to recognize the funded status of the benefit plans and related disclosure requirements as of December 31, 2006. The Company also adopted the requirements of SFAS No. 158 related to the measurement date which resulted in a $39 thousand decrease in retained earnings. Adoption of SFAS No. 158 also resulted in an increase in liability for pension benefits and total liabilities of $1.656 million, an increase in deferred tax assets and total assets of $651 thousand and a decrease in accumulated other comprehensive income and total shareholders’ equity of $1.005 million. The effects of the adoption of SFAS No. 158 are disclosed further in Note 13.

In September 2006, the FASB ratified the consensus the Emerging Issues Task Force (“EITF”) reached regarding EITF Issue No. 06-5, Accounting for Purchases of Life Insurance—Determining the Amount that Could Be Realized in Accordance with FASB Technical Bulletin 85-4. The EITF concluded that a policyholder should consider any additional amounts included in the contractual terms of the life insurance policy in determining the “amount that could be realized under the insurance contract.” For group policies with multiple certificates or multiple policies with a group rider, the Task Force also tentatively concluded that the amount that could be realized should be determined at the individual policy or certificate level, i.e., amounts that would be realized only upon surrendering all of the policies or certificates would not be included when measuring the assets. This interpretation is effective for the Company beginning in fiscal year 2007. The Company does not believe the adoption of EITF 06-5 will have a material impact on its results of operations or financial position.

In fiscal 2006, the Company adopted SEC SAB No. 108, Considering the Effects of Prior Year misstatements when Quantifying Misstatements in Current Year Financial Statements. SAB No. 108 requires that registrants assess the impact on both balance sheet and the statement of income when quantifying and evaluating the materiality of a misstatement. Under SAB No. 108, adjustment of financial statements is required when either

59

BancTrust Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the Years Ended December 31, 2006, 2005 and 2004

approach results in quantifying a misstatement that is material to a reporting period presented within the financial statements, after considering all relevant quantitative and qualitative factors. The impact of adopting SAB No. 108 was a $258 thousand adjustment to retained earnings as of December 31, 2005. The Company’s adoption of SAB No. 108 is disclosed further in Note 22.

Note 2. Business Combinations and Disposition

Sale of BankTrust of Florida and Sweet Water State Bank

On October 15, 2004, BancTrust sold all of the stock of BankTrust of Florida (the “Wewahitchka Bank”) for $7.5 million. The Company recorded a gross gain on the sale of $1.484 million. The operations of the Wewahitchka Bank have been accounted for as discontinued operations for all periods presented in accordance with SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets.

On August 1, 2005, BancTrust sold all of the stock of Sweet Water State Bank for a payment of $6.5 million from the purchaser and a dividend at closing of $500 thousand from Sweet Water State Bank. The Company recorded a gross gain on the sale of $2.411 million. The operations of Sweet Water State Bank have been accounted for as discontinued operations for all periods presented in accordance with SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets. The assets and liabilities of Sweet Water State Bank are stated separately as discontinued operations as of December 31, 2004.

The combined results of Sweet Water State Bank through the day of its sale on August 1, 2005 and for the year ended December 31, 2004 and BankTrust of Florida through the date of its sale on October 15, 2004 are presented in the following table:

(Dollars in thousands)	2005		2004
Total interest revenue	$	1,893	$	4,945
Total interest expense		394		1,013
Net interest revenue		1,499		3,932
Provision for loan losses		15		120
Net interest revenue after provision for loan losses		1,484		3,812
Total noninterest revenue		300		939
Total noninterest expense		1,209		3,067
Income before income taxes		575		1,684
Gain on sale before income taxes		2,411		1,484
Total income before income taxes		2,986		3,168
Provision for income taxes		1,144		1,783
Net Income	$	1,842	$	1,385

Note 3. Restrictions On Cash and Due From Bank Accounts

The Banks are required to maintain average reserve balances with the Federal Reserve Bank. The average of those reserve balances for the years ended December 31, 2006 and 2005 was approximately $17.0 million for both years.

60

BancTrust Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the Years Ended December 31, 2006, 2005 and 2004

Note 4. Securities Available for Sale

The following summary sets forth the amortized cost and the corresponding fair values of investment securities available for sale at December 31, 2006 and 2005:

(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
2006
U.S. Treasury securities	$	896	$	6	$	0	$	902
Obligations of U.S. Government sponsored enterprises		43,390		28		847		42,571
Obligations of states and political subdivisions		44,138		701		174		44,665
Other investments		1,574		0		31		1,543
Mortgage backed securities		29,526		20		729		28,817
Total	$	119,524	$	755	$	1,781	$	118,498
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
2005
U.S. Treasury securities	$	498	$	0	$	0	$	498
Obligations of U.S. Government sponsored enterprises		45,283		9		1,012		44,280
Obligations of states and political subdivisions		47,629		963		274		48,318
Other investments		5,255		10		84		5,181
Mortgage backed securities		34,872		40		835		34,077
Total	$	133,537	$	1,022	$	2,205	$	132,354

Securities available for sale with a carrying value of approximately $75.298 million and $76.809 million at December 31, 2006 and 2005, respectively, were pledged to secure deposits of public funds and trust deposits. Additionally, securities available for sale with a carrying value of approximately $4.120 million and $8.595 million at December 31, 2006 and 2005, respectively, were pledged to secure repurchase agreements.

Proceeds from the sales of securities available for sale were $527 thousand in 2006, $2.506 million in 2005 and $44.599 million in 2004. Gross realized gains on the sale of these securities were $0 in 2006, $130 thousand in 2005 and $676 thousand in 2004, and gross realized losses were $44 thousand in 2006, $5 thousand in 2005 and $51 thousand in 2004.

Maturities of securities available for sale as of December 31, 2006, are as follows:

(Dollars in thousands)	Amortized Cost		Fair Value
Due in 1 year or less	$	6,557	$	6,528
Due in 1 to 5 years		48,904		48,334
Due in 5 to 10 years		19,417		19,503
Due in over 10 years		15,120		15,316
Mortgage backed securities		29,526		28,817
Total	$	119,524	$	118,498

61

BancTrust Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the Years Ended December 31, 2006, 2005 and 2004

The following table shows the Company’s combined gross unrealized losses and fair values on investment securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2006 and 2005.

	December 31, 2006
	Less than 12 Months				12 Months or More				Total
(Dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of U.S. Government sponsored enterprises	$	0	$	0	$	38,359	$	847	$	38,359	$	847
Obligations of states and political subdivisions		2,636		25		12,265		149		14,901		174
Other investments		518		1		927		30		1,445		31
Mortgage backed securities		857		6		25,189		723		26,046		729
Total	$	4,011	$	32	$	76,740	$	1,749	$	80,751	$	1,781

	December 31, 2005
	Less Than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of U.S. Government sponsored enterprises	$	8,021	$	68	$	31,347	$	944	$	39,368	$	1,012
Obligations of states and political subdivisions		9,675		118		8,921		156		18,596		274
Other investments		1,128		9		1,505		75		2,633		84
Mortgage backed securities		7,700		148		22,834		687		30,534		835
Total	$	26,524	$	343	$	64,607	$	1,862	$	91,131	$	2,205

At December 31, 2006, the Company had 18 investment securities that were in an unrealized loss position or impaired for the less than 12 months’ time frame and 146 investment securities in an unrealized loss position or impaired for the more than 12 months’ time frame. All of these investment securities’ impairments are deemed by Management to be temporary. A large portion of these securities are backed by one-to-four family mortgages. These securities have fluctuated with the changes in market interest rates on home mortgages. The securities not backed by one-to-four family mortgages have changed due to current market conditions, and not due to credit concerns related to the issuers of the securities. The Company does not expect any other-than-temporary impairments to develop related to these investment securities because the Company has the ability and intent to hold the securities until maturity.

62

BancTrust Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the Years Ended December 31, 2006, 2005 and 2004

Note 5. Loans

A summary of loans follows:

	December 31,
(Dollars in thousands)	2006			2005
Commercial, financial and agricultural	$	196,136		$	168,645
Real estate—construction		341,992			340,858
Real estate— mortgage		411,873			429,323
Consumer, installment and single pay		54,857			55,720
Total Loans		1,004,858			994,546
Less deferred cost (unearned loan fees), net		(123	)		(1,194	)
Total loans net of deferred cost (unearned loan fees), net	$	1,004,735		$	993,352

In the normal course of business, the Banks make loans to directors, executive officers, significant shareholders and their affiliates (related parties). Related party loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other customers and in Management’s opinion do not involve more than the normal risk of collectibility. The aggregate dollar amount of these loans was $31.270 million at December 31, 2006, and $31.623 million at December 31, 2005. During 2006, $57.132 million of new loans and advances were made, and principal repayments totaled $57.485 million. Outstanding commitments to extend credit to related parties totaled $25.161 million at December 31, 2006.

At December 31, 2006 and 2005, non-accrual loans totaled $15.293 million and $5.267 million, respectively. The amount of interest income that would have been recorded during 2006, 2005 and 2004, if these non-accrual loans had been current in accordance with their original terms, was $1.211 million, $430 thousand and $145 thousand, respectively. The amount of interest income actually recognized on these loans during 2006, 2005 and 2004 was $452 thousand, $155 thousand and $69 thousand, respectively.

At December 31, 2006 and 2005, the recorded investments in loans that were considered to be impaired under SFAS No. 114 were $16.653 million and $5.267 million, respectively. Included in this amount is $12.991 million in 2006 and $5.264 million in 2005 of impaired loans for which the related allowance for loan losses is $2.252 million in 2006 and $1.726 thousand in 2005. The amounts of impaired loans that did not have specific allowances for loan losses were $3.662 million in 2006 and $3 thousand in 2005. The average recorded investment amounts in impaired loans during the years ended December 31, 2006, 2005 and 2004, were approximately $9.685 million, $3.799 million and $2.039 million, respectively.

Loans include loans held for sale of $4.811 million at December 31, 2006 and $6.437 million at December 31, 2005 which are accounted for at lower of cost or market in the aggregate.

63

BancTrust Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the Years Ended December 31, 2006, 2005 and 2004

Note 6. Allowance for Loan Losses

The allowance for loan losses is summarized as follows:

	Year Ended December 31,
(Dollars in thousands)	2006			2005			2004
Balance at the beginning of year	$	14,013		$	9,608		$	7,786
Provision charged to operating expense		4,594			5,725			3,897
Loans charged off		(2,638	)		(1,654	)		(2,319	)
Recoveries		359			334			244
Balance at the end of the year	$	16,328		$	14,013		$	9,608

Note 7. Premises and Equipment

Premises and equipment are summarized as follows:

		December 31,
(Dollars in thousands)	Estimated Lives	2006		2005
Land and land improvements		$	14,538	$	11,511
Bank buildings and improvements	7-40 years		31,322		26,693
Furniture, fixtures and equipment	3-10 years		17,870		15,517
Leasehold improvements	Lesser of lease period or estimated useful life		2,637		2,442
Total			66,367		56,163
Less accumulated depreciation and amortization			19,043		16,427
Premises and equipment, net		$	47,324	$	39,736

The provision for depreciation and amortization charged to operating expense in 2006, 2005 and 2004 amounted to $2.940 million, $2.703 million and $2.470 million, respectively.

Note 8. Goodwill and Intangible Assets

The Company had goodwill totaling $41.952 million at December 31, 2006, 2005 and 2004. The Mobile Bank’s goodwill was $3.981 million for each of these years, the Eufaula Bank’s goodwill was $20.085 million for each of these years and the Florida Bank’s goodwill was $17.886 million for each of these years. There were no changes in the carrying amount of goodwill at any of the Banks.

The Company’s intangible assets subject to amortization were $2.995 million at December 31, 2006 and $3.744 million at December 31, 2005 with an original cost of $5.241 million at both December 31, 2006 and 2005 and with accumulated amortization of $2.246 million at December 31, 2006 and $1.497 thousand at December 31, 2005. Amortization expense for core deposit intangible assets for the years ended December 31, 2006 and 2005 was $749 thousand in each year. Such intangible assets are amortized over seven years. Estimated amortization expense related to other intangible assets for the next four years is $749 thousand per year for the years 2007 through 2010.

64

BancTrust Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the Years Ended December 31, 2006, 2005 and 2004

Note 9. Deposits

The following summary presents the detail of interest-bearing deposits:

	December 31,
(Dollars in thousands)	2006		2005
Interest-bearing checking accounts	$	154,726	$	145,617
Savings accounts		80,865		98,751
Money market savings accounts		116,188		103,162
Time deposits ($100 or more)		304,920		251,505
Other time deposits		272,947		223,370
Total	$	929,646	$	822,405

The following summary presents the detail of interest expense on deposits:

	Year Ended December 31,
(Dollars in thousands)	2006		2005		2004
Interest-bearing checking accounts	$	2,204	$	934	$	678
Savings accounts		1,990		1,500		1,033
Money market savings accounts		2,859		1,478		1,019
Time deposits ($100 or more)		12,090		6,936		3,534
Other time deposits		10,944		6,153		3,723
Total	$	30,087	$	17,001	$	9,987

The following table reflects maturities of time deposits at December 31, 2006:

(Dollars in thousands)	Less than 1 year		1 to 5 years		6 to 10 years		Total
$100 or more	$	272,888	$	32,032	$	0	$	304,920
Other time deposits		245,868		26,763		316		272,947
Total	$	518,756	$	58,795	$	316	$	577,867

Note 10. Short-Term Borrowings

The Company classifies borrowings with original maturities of less than one year as short-term borrowings. Following is a summary of short-term borrowings:

	December 31,
(Dollars in thousands)	2006			2005
Federal funds purchased	$	0		$	0
Securities sold under agreement to repurchase		4,120			8,595
Total	$	4,120		$	8,595
Weighted-average interest rate at year-end		3.50	%		2.50	%
Weighted-average interest rate on amounts outstanding during the year (based on average of daily balances)		4.41	%		2.60	%

65

BancTrust Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the Years Ended December 31, 2006, 2005 and 2004

Information concerning securities sold under agreement to repurchase is summarized as follows:

(Dollars in thousands)	2006			2005			2004
Average balance during the year	$	9,557		$	9,096		$	6,629
Average interest rate during the year		4.41	%		1.98	%		.68	%
Maximum month-end balances during the year	$	17,018		$	10,297		$	10,203
Interest rate at December 31,		3.50	%		2.50	%		.75	%

Information concerning federal funds purchased is summarized as follows:

(Dollars in thousands)	2006			2005			2004
Average balance during the year	$	50		$	8,126		$	11,080
Average interest rate during the year		4.76	%		3.27	%		1.90	%
Maximum month-end balances during the year	$	0		$	36,600		$	21,986
Interest rate at December 31,		N/A			N/A			2.60	%

Federal funds purchased and securities sold under agreement to repurchase generally represented overnight borrowing transactions. Other short-term borrowings consists of demand notes owed to the U.S. Treasury.

Included in the balances of securities sold under agreement to repurchase at December 31, 2006 and 2005 were repurchase agreements to related parties of $0 and $2.152 million, respectively.

Note 11. Federal Home Loan Bank Advances and Long-Term Debt

The following summary presents the detail of interest expense on FHLB advances and long-term debt:

	Year Ended December 31,
(Dollars in thousands)	2006		2005		2004
FHLB advances	$	3,348	$	1,823	$	569
Note payable to trust preferred subsidiaries		1,537		1,129		805
Bank loan		527		447		256
Total	$	5,412	$	3,399	$	1,630

FHLB borrowings are summarized as follows:

	December 31,
(Dollars in thousands)	2006			2005			2004
Balance at the end of the year	$	61,500		$	81,500		$	30,500
Average balance during the year		71,774			54,801			22,139
Maximum month-end balances during the year		81,500			81,500			30,500
Daily weighted-average interest rate during the year		4.66	%		3.33	%		2.57	%
Weighted-average interest rate at year-end		5.11	%		4.02	%		2.72	%

66

BancTrust Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the Years Ended December 31, 2006, 2005 and 2004

Information concerning rates, call dates and maturity dates at December 31, 2006 are as follows:

(Dollars in thousands)	Amount		Interest Rate		Call Date
FHLB Advance due June 23, 2008	$	2,000	5.51	%	callable quarterly
FHLB Advance due May 18, 2007		20,000	5.44		not callable
FHLB Advance due October 26, 2015		6,500	3.92		10/26/2007 (quarterly thereafter)
FHLB Advance due December 29, 2007		18,000	4.94		not callable
FHLB Advance due March 15, 2010		15,000	5.44	%	03/15/2006 (quarterly thereafter)
Total	$	61,500

Of the outstanding FHLB advances at December 31, 2006, $26.500 million had fixed interest rates, $15.000 million had a variable interest rate that reprices quarterly and $20.000 million had a variable interest rate that reprices monthly. The FHLB advances are secured by the borrowing bank’s investment in FHLB stock, which totaled $5.450 million and $6.038 million at December 31, 2006 and 2005, respectively, by an interest bearing deposit at the FHLB of $8.300 million at December 31, 2006, and also by a blanket floating lien on portions of the borrowing bank’s one to four family residential mortgage loan portfolio which totaled $124.383 million at December 31, 2006. The FHLB advances require quarterly or monthly interest payments. If called prior to maturity, replacement funding will be offered by the FHLB at the then current rate.

The Company created a business trust to issue trust preferred securities to finance a portion of the purchase of CommerceSouth, Inc. This trust is not consolidated pursuant to FASB Interpretation No. 46R (“FIN 46R”), and the trust’s sole asset is a loan to the Company in the amount of $18.557 million. The payable to trust matures in 2033 and requires quarterly interest payments. This payable has a floating rate based on three month LIBOR plus 290 basis points. The Company does not have the option to repay any part of this payable until 2008. This loan has covenants generally associated with such borrowings and with which the Company was in compliance at December 31, 2006 . In December of 2006, the Company created a business trust to issue trust preferred securities to pay off a $7.500 million loan from an unrelated bank and for general corporate purposes. This trust is not consolidated pursuant to FASB Interpretation No. 46R (“FIN 46R”), and the trust’s sole asset is a loan to the Company in the amount of $15.464 million. The payable to trust matures in 2037 and requires quarterly interest payments. This payable has a floating rate based on three month LIBOR plus 164 basis points. The Company does not have the option to repay any part of this payable until 2012. This loan has covenants generally associated with such borrowings and with which the Company was in compliance at December 31, 2006 and 2005 The payables to trust are summarized as follows:

(Dollars in thousands)	December 31, 2006			December 31, 2005			December 31, 2004
Balance at the end of the year	$	34,021		$	18,557		$	18,557
Average balance during the year		19,023			18,557			18,557
Maximum month-end balances during the year		34,021			18,557			18,557
Daily weighted-average interest rate during the year		8.08	%		6.27	%		4.47	%
Weighted-average interest rate at year-end		7.69	%		7.40	%		5.40	%

Other long-term debt consisted of a loan for $10.000 million from an unrelated bank to the Company. This loan was obtained in January of 2004 to finance a portion of the purchase of CommerceSouth, Inc. This loan was secured by a portion of BancTrust’s stock of the Mobile Bank. This loan was to mature in 2008, required monthly interest payments and had a floating rate based on LIBOR plus 1.10%. The Company had the option to repay any part of the principal at any time without penalty and the Company repaid the loan in December of 2006

67

BancTrust Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the Years Ended December 31, 2006, 2005 and 2004

with part of the proceeds of a trust preferred offering. This loan required quarterly principal payments beginning March 2006, at which time the remaining principal was to be amortized over the remaining life of the loan. The required principal payments for this loan were $3.333 million in 2006 and 2007 and $3.334 million in 2008. This loan had covenants generally associated with such borrowings and with which the Company was in compliance at December 31, 2005. This loan is summarized as follows:

(Dollars in thousands)	December 31, 2006			December 31, 2005			December 31, 2004
Balance at the end of the year	$	0		$	10,000		$	10,000
Average balance during the year		8,473			10,000			9,891
Maximum month-end balances during the year		10,000			10,000			10,000
Daily weighted-average interest rate during the year		6.22	%		4.47	%		2.59	%
Weighted-average interest rate at year-end		N/A			5.49	%		3.39	%

The following table reflects maturities of long-term debt at December 31, 2006:

(Dollars in thousands)	Less than 1 year		1 to 5 years		5 to 10 years		Over 10 years		Total
FHLB advances	$	38,000	$	17,000	$	6,500	$	0	$	61,500
Payable to trust		0		0		0		34,021		34,021
Total	$	38,000	$	17,000	$	6,500	$	34,021	$	95,521

Note 12. Accounting for Income Taxes

The components of income tax expense from continuing operations are as follows:

	Year Ended December 31,
(Dollars in thousands)	2006			2005			2004
Current income tax expense:
Federal	$	7,061		$	7,967		$	4,166
State		73			542			368
Total current income tax expense		7,134			8,509			4,534
Deferred income tax expense (benefit):
Federal		(658	)		(1,954	)		(530	)
State		(173	)		212			(102	)
Total deferred income tax benefit		(831	)		(1,742	)		(632	)
Total income tax expense	$	6,303		$	6,767		$	3,902

68

BancTrust Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the Years Ended December 31, 2006, 2005 and 2004

The components of income tax expense from discontinued operations are as follows:

	Year Ended December 31,
(Dollars in thousands)	2006		2005		2004
Current income tax expense:
Federal	$	0	$	829	$	1,547
State		0		97		259
Total current income tax expense		0		926		1,806
Deferred income tax expense (benefit):
Federal		0		189		(20	)
State		0		29		(3	)
Total deferred income tax expense (benefit)		0		218		(23	)
Total income tax expense	$	0	$	1,144	$	1,783

Total income tax expense from continuing operations differed from the amount computed using the applicable statutory Federal income tax rate of 35 percent applied to pretax income for the following reasons:

	Year Ended December 31,
(Dollars in thousands)	2006			2005			2004
Income tax expense at statutory rate	$	6,856		$	7,014		$	4,836
Increase (decrease) resulting from:
Tax exempt interest		(785	)		(885	)		(917	)
Reduced interest deduction on debt used to carry tax-exempt securities and loans		95			70			38
Increase (decrease) in valuation allowance		(249	)		249			0
State income taxes, net of federal benefit		184			241			173
Other, net		202			78			(228	)
Total	$	6,303		$	6,767		$	3,902
Effective tax rate		32.2	%		33.8	%		28.2	%

69

BancTrust Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the Years Ended December 31, 2006, 2005 and 2004

The tax effects of temporary differences that give rise to deferred tax assets and liabilities at December 31, 2006 and 2005 are presented below:

	December 31,
(Dollars in thousands)	2006			2005
Deferred tax assets:
Allowance for loan losses	$	6,123		$	5,255
Deferred compensation		420			342
Accrued pension cost		960			357
Unrealized loss on securities available for sale		384			444
Other		1,348			906
Total deferred tax assets		9,235			7,304
Valuation allowance		0			(249	)
Total deferred tax assets after valuation allowance		9,235			7,055
Deferred tax liabilities:
Core deposit intangibles		(1,123	)		(1,404	)
Differences between book and tax basis of property		(2,727	)		(2,208	)
Investment securities acquired in business combination		(133	)		(256	)
Other		(1,015	)		(324	)
Total deferred tax liabilities		(4,998	)		(4,192	)
Net deferred tax asset	$	4,237		$	2,863

A portion of the annual change in the net deferred tax asset relates to unrealized gains and losses on debt and equity securities available for sale. The related deferred income tax expense of $60 was recorded directly to stockholder’s equity as a component of accumulated other comprehensive income. A portion of the annual change in the net deferred tax asset relates to unrealized gains and losses on pension liabilities. The related deferred income tax benefit of $603 was recorded directly to stockholder’s equity as a component of accumulated other comprehensive income The remainder of the change has been recorded as deferred income tax benefit from operations.

The Company has a state net operating loss carry forward in the amount of $6.6 million. Due to corporate restructuring, it is now more likely than not that the net operating loss carry forward will be utilized prior to expiration of the carry forward period, and, accordingly, the Company has reversed a valuation allowance for the entire future benefit established in 2005. The state net operating loss carry forward will expire in 2010 and 2011. Management believes it is more likely than not that the results of future operations will generate sufficient income to realize the deferred tax assets.

Note 13. Retirement Plans

PENSION PLAN—BancTrust maintains a pension plan that generally provides for a monthly benefit commencing at age 65 equal to 1% of the employee’s average monthly base compensation during the highest five consecutive calendar years out of the 10 calendar years preceding retirement, multiplied by years of credited service, not to exceed 40 years. The pension plan was frozen as of January 1, 2003, and no new hires after that date will participate in the plan. BancTrust had accounted for its defined benefit pension plan using the actuarial

70

BancTrust Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the Years Ended December 31, 2006, 2005 and 2004

model required by SFAS No. 87, Employers’ Accounting for Pensions. The compensation cost of an employee’s pension benefit has been recognized on the projected unit credit method over the employee’s approximate service period. The aggregate cost method has been utilized for funding purposes.

Effective December 31, 2006, BancTrust adopted SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—An Amendment of FASB Statements No. 87, 88, 106, and 132(R). Under SFAS No. 158, the Company is required to recognize the over-funded or under-funded status of a defined benefit postretirement plan as an asset or liability on its balance sheet. This pronouncement also requires the Company to recognize changes in that funded status in the year in which the changes occur through comprehensive income effective for years ending after December 15, 2006. BancTrust changed the measurement date for the funded status of a plan as of its year-end balance sheet date from the November 30 measurement date used in prior years, which resulted in a charge to retained earnings of $39 thousand. Adoption of SFAS No. 158 also resulted in an increase in liability for pension benefits and total liabilities of $1.656 million, an increase in deferred tax assets and total assets of $651 thousand and a decrease in accumulated other comprehensive income and total shareholders’ equity of $1.005 million. Results for prior periods have not been restated.

The incremental effect of applying SFAS No. 158 on individual line items in the accompanying Consolidated Balance Sheets as of December 31, 2006 is as follows:

(Dollars in thousands)	Before Application of SFAS No. 158			Adjustments			After Application of SFAS No. 158
Liability for pension benefits	$	686		$	1,656		$	2,342
Deferred tax assets		3,586			651			4,237
Total assets		1,352,755			651			1,353,406
Total liabilities		1,213,226			1,656			1,214,882
Accumulated other comprehensive loss		(1,236	)		(1,005	)		(2,241	)
Total shareholders equity		139,528			(1,005	)		138,523

Changes during the year in the projected benefit obligations and in the fair value of plan assets were as follows:

	Projected Benefit Obligation
(Dollars in thousands)	2006			2005
Balance at beginning of year	$	10,902		$	10,311
Service cost		642			602
Interest cost		654			635
Benefits paid		(546	)		(942	)
Actuarial loss		714			296
Balance, end of year	$	12,366		$	10,902

71

BancTrust Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the Years Ended December 31, 2006, 2005 and 2004

	Plan Assets
	2005			2005
Balance at beginning of year	$	7,808		$	7,410
Return on plan assets		1,076			499
Employer contribution		1,686			841
Benefits paid		(546	)		(942	)
Balance, end of year	$	10,024		$	7,808

The following tables reconciles the amounts BancTrust recorded related to the pension plan:

(Dollars in thousands)
Reconcilement of Statement of Condition due to adoption of SFAS No. 158	Year Ended December 31, 2006
Accrued pension cost at January 1, 2006	$	(2,592	)
Net periodic cost for the year		(790	)
Contributions credited for the year		1,686
Adjustment to minimum pension liability prior to SFAS No. 158		1,010
Adjustment to apply SFAS No. 158, pretax		(1,656	)
Funded status for balance sheet (liability)	$	(2,342	)

(Dollars in thousands)
Amounts recognized in accumulated other comprehensive income	Year Ended December 31, 2006
Unrecognized loss at January 1, 2006	$	1,492
Amount of loss recognized during the year		109
Funded status for balance sheet (liability)	$	1,601

During 2006, the pension plan’s total unrecognized net loss increased by $669 thousand. The variance between the actual and expected return on pension plan assets during 2006 decreased the total unrecognized net loss by $418 thousand. Because the total unrecognized net gain or loss exceeds the greater of 10 percent of the projected benefit obligation or 10 percent of the pension plan assets, the excess will be amortized over the average expected future working life of active plan participants. As of January 1, 2006, the average expected future working lifetime of active plan participants was 8 years. Actual results for 2007 will depend on the 2007 actuarial valuation of the plan.

The accumulated benefit obligation for the pension plan was $10.693 million and $9.496 million at December 31, 2006 and 2005, respectively.

72

BancTrust Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the Years Ended December 31, 2006, 2005 and 2004

Components of the plan’s net cost were as follows:

(Dollars in thousands)	2006			2005			2004
Service cost	$	642		$	602		$	549
Interest cost		654			635			586
Expected return on plan assets		(689	)		(576	)		(499	)
Net amortization		8			8			8
Recognized net loss		175			148			140
Net pension cost	$	790		$	817		$	784

The weighted-average rates assumed in the actuarial calculations for the net periodic pension costs were:

	2006		2005		2004
Discount	5.60	%	6.25	%	6.40	%
Annual salary increase	3.50		3.50		3.50
Long-term return on plan assets	8.00		8.00		8.00

The weighted-average rates assumed in the actuarial calculations for the benefit obligations at December 31, 2006 and November 30, 2005 (the measurement dates) include the following:

	2006		2005
Discount	5.90	%	5.75	%
Annual salary increase	3.50	%	3.50	%

The asset allocation of pension benefit plan assets at December 31 was:

Asset Category	2006		2005
Equity Securities	67	%	67	%
Debt Securities	33	%	33	%
Other	0	%	0	%
Total	100.00	%	100.00	%

The change in unrecognized net gain or loss is one measure of the degree to which important assumptions have coincided with actual experience. During 2006, the unrecognized net loss increased by 6.1 percent of the projected benefit obligation. The Company changes important assumptions whenever changing conditions warrant. The discount rate is typically changed at least annually, and the expected long-term return on plan assets will typically be revised every three to five years. Other material assumptions include the rate of employee termination and rates of participant mortality.

The discount rate was determined using a theoretical zero- coupon split yield curve derived from a universe of high-quality bonds at the measurement date. A 1 percent increase or decrease in the discount rate would have decreased or increased the net periodic benefit cost for 2006 by approximately $240 thousand and decreased or increased the year-end projected benefit obligation by $1.7 million.

73

BancTrust Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the Years Ended December 31, 2006, 2005 and 2004

The expected return on plan assets was determined based on historical and expected future returns of the various assets classes, using the target allocations described below. Each 1 percent increase (decrease) in the expected rate of return assumption would have decreased or increased the net periodic cost for 2006 by $78 thousand.

Asset Category	Expected Long-Term Return		Target Allocation
Equity Securities	9.5	%	70	%
Debt Securities	6.0	%	20	%
Other	8.1	%	10	%

The plan’s investment policy includes a mandate to diversify assets and invest in a variety of asset classes to achieve that goal. The plan’s assets are currently invested in a variety of funds representing most standard equity and debt security classes. While no significant changes in the asset allocation are expected during the upcoming year, the Company may make changes at any time.

In 2006, BancTrust contributed $1.7 million to its defined benefit plan. BancTrust expects to contribute $1.8 million to the pension plan in 2007. Funding requirements for subsequent years are uncertain and will depend on factors such as whether the plan’s actuary changes any assumptions used to calculate plan funding levels, the actual return on pension plan assets, changes in the employee group covered by the plan and any legislative or regulatory changes affecting pension plan funding requirements. For financial planning, cash flow management or cost reduction purposes, the Company may increase, accelerate, decrease or delay contributions to the pension plan to the extent permitted by law.

At December 31, 2006, the pension plan is expected to make the following benefit payments, which reflect expected future service, as approximated:

	(dollars in thousands)
2007	$	906
2008	$	631
2009	$	1,430
2010	$	963
2011	$	2,241
2012-2016	$	6,470

MOBILE BANK SUPPLEMENTAL PLAN—The Mobile Bank maintains an unfunded and unsecured Supplemental Retirement Plan (the “Supplemental Plan”). The Supplemental Plan is designed to supplement the benefits payable under the BancTrust pension plan for certain key employees selected by the Mobile Bank’s Board of Directors. Each participant was a participant in a pension plan of another bank prior to employment by the Mobile Bank. The Supplemental Plan is designed to afford the participant the same pension that would be received under the BancTrust pension plan if the participant were given years of service credit, as if the participant was employed by the Company during his or her entire banking career, reduced by any benefits actually payable to the participant under the BancTrust pension plan and any retirement benefit payable under any plan of another bank. Benefits for total and permanent disability are supplemented in the same manner. Because the Supplemental Plan is intended to complement benefits otherwise available to the participants, the

74

BancTrust Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the Years Ended December 31, 2006, 2005 and 2004

exact amounts to be paid, if any, to any participant, cannot be determined until retirement or disability. Management does not believe any current expense and liabilities associated with the Supplemental Plan are material.

SAVINGS AND PROFIT SHARING PLAN—BancTrust maintains the BancTrust Financial Group, Inc. Employee Savings and Profit Sharing Plan. Subject to certain employment and vesting requirements, all BancTrust personnel are permitted to participate in the plan. An eligible employee may defer up to 75% of his or her pay into the plan, subject to dollar limitations imposed by law. The employer makes a matching contribution as follows: $1.00 for every $1.00 on the first 2% of employee contribution, $0.75 per $1.00 on the next 2% of employee contribution and $0.50 per $1.00 on the next 2% of employee contribution. The Company may also, at its discretion, contribute to the plan an amount based on the Company’s level of profitability each year. The Company made total contributions of $1.007 million, $917 thousand and $811 thousand during 2006, 2005 and 2004, respectively.

DEFERRED COMPENSATION PLAN—The Company maintains a deferred compensation plan for certain executive officers and directors. The plan is designed to provide supplemental retirement benefits for its participants. Aggregate compensation expense under the plan was $70 thousand, $54 thousand and $56 thousand for the years ended December 31, 2006, 2005 and 2004, respectively. The Company has purchased certain life insurance policies to partially fund the Company’s obligations under such deferred compensation arrangements.

The Company maintains a grantor trust to allow its directors to defer their directors’ fees. Amounts earned by the directors are invested in the Company’s common stock. The plan does not permit diversification into securities other than the Company’s common stock and the obligation to the participant must be settled by the delivery of a fixed number of shares of the Company’s common stock. The director is allowed to defer a portion or all of his director fees. At December 31, 2006 and 2005, the grantor trust held 61 thousand and 55 thousand shares, respectively of the Company’s common stock. These shares have been classified in equity as treasury stock. The related deferred compensation obligation payable in common stock is also classified in equity.

Note 14. Earnings Per Share

Basic earnings per share are computed by dividing net income by the weighted-average number of shares of common stock outstanding during the years ended December 31, 2006, 2005 and 2004. Diluted earnings per share for the years ended December 31, 2006, 2005 and 2004 are computed by dividing net income by the weighted-average number of shares of common stock outstanding and the dilutive effects of the shares awarded under the 1993 and the 2001 Incentive Compensation Plans, based on the treasury stock method using an average fair value of the stock during the respective periods.

75

BancTrust Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the Years Ended December 31, 2006, 2005 and 2004

The following table presents the earnings per share calculations for the years ended December 31, 2006, 2005 and 2004. The Company excluded from the calculation of earnings per share 3 thousand, 5 thousand and 18 thousand shares for the years ended December 31, 2006, 2005 and 2004, respectively, because those shares were subject to options issued with exercise prices in excess of the average market value per share.

(Dollars in thousands, except per share)
2006	Net Income		Weighted- Average Shares	Earnings Per Share
Basic:
Income from continuing operations	$	13,286	11,151	$	1.19
Income from discontinued operations		0	11,151		.00
Net income	$	13,286	11,151	$	1.19
Dilutive stock option and restricted stock shares			157
Diluted:
Income from continuing operations	$	13,286	11,308	$	1.17
Income from discontinued operations		0	11,308		.00
Net income	$	13,286	11,308	$	1.17
2005	Net Income		Weighted- Average Shares	Earnings Per Share
Basic:
Income from continuing operations	$	13,277	11,104	$	1.19
Income from discontinued operations		1,842	11,104		.17
Net income	$	15,119	11,104	$	1.36
Dilutive stock option and restricted stock shares			84
Diluted:
Income from continuing operations	$	13,277	11,188	$	1.19
Income from discontinued operations		1,842	11,188		.16
Net income	$	15,119	11,188	$	1.35
2004	Net Income		Weighted- Average Shares	Earnings Per Share
Basic:
Income from continuing operations	$	9,916	10,981	$	.90
Income from discontinued operations		1,385	10,981		.13
Net income	$	11,301	10,981	$	1.03
Dilutive stock option plan shares			93
Diluted:
Income from continuing operations	$	9,916	11,074	$	.90
Income from discontinued operations		1,385	11,074		.12
Net income	$	11,301	11,074	$	1.02

76

BancTrust Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the Years Ended December 31, 2006, 2005 and 2004

Note 15. Regulatory Matters

The Company’s principal source of funds for dividend payments is dividends from the Banks. Dividends payable by a bank in any year, without prior approval of the appropriate regulatory body, are limited to the bank’s net profits (as defined) for that year combined with its net profits for the two preceding years. The dividends, as of January 1, 2007, that the Banks could declare, without the approval of regulators, totaled $18.508 million.

The Banks are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Banks’ financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Banks must meet specific capital guidelines that involve quantitative measures of the Banks’ assets, liabilities and certain off-balance sheet items, as calculated under regulatory accounting practices. The Banks’ capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Banks to maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. Management believes, as of December 31, 2006 and 2005, that the Banks meet all capital adequacy requirements to which they are subject.

As of December 31, 2006 and 2005, the most recent notification from the regulatory authorities categorized the Banks as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Banks must maintain minimum total risk-based, Tier 1 risk-based and Tier 2 leverage ratios as set forth in the tables below.

The Federal Reserve System allows bank holding companies to include trust preferred securities in Tier 1 capital up to a maximum of 25% of Tier 1 capital less goodwill and any deferred tax liability. Under Federal Reserve guidelines, all $33.0 million of trust preferred stock issued by our business trusts is included by the Company in its calculation of Tier 1 and total capital.

77

BancTrust Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the Years Ended December 31, 2006, 2005 and 2004

Actual capital amounts and ratios are presented in the table below for the Banks and on a consolidated basis for the Company.

	Actual				For Capital Adequacy Purposes				To be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
December 31, 2006
Total Capital (to Risk-Weighted Assets)
Consolidated	$	141,270	12.8	%	$	88,521	8.0	%		N/A	N/A
Florida Bank		40,378	13.0			24,799	8.0		$	30,999	10.0	%
Eufaula Bank		22,987	11.1			16,622	8.0			20,778	10.0
Mobile Bank		70,630	11.9			47,500	8.0			59,376	10.0
Tier 1 Capital (to Risk-Weighted Assets)
Consolidated	$	127,410	11.5	%	$	44,260	4.0	%		N/A	N/A
Florida Bank		36,492	11.8			12,399	4.0		$	18,599	6.0	%
Eufaula Bank		20,410	9.8			8,311	4.0			12,467	6.0
Mobile Bank		63,194	10.6			23,750	4.0			35,625	6.0
Tier 1 Capital (to Average Assets)
Consolidated	$	127,410	10.0	%	$	50,843	4.0	%		N/A	N/A
Florida Bank		36,492	10.8			13,454	4.0		$	16,818	5.0	%
Eufaula Bank		20,410	8.8			9,257	4.0			11,571	5.0
Mobile Bank		63,194	8.6			29,254	4.0			36,568	5.0
December 31, 2005
Total Capital (to Risk-Weighted Assets)
Consolidated	$	117,723	11.0	%	$	85,985	8.0	%		N/A	N/A
Florida Bank		38,640	11.3			27,406	8.0		$	34,257	10.0	%
Eufaula Bank		20,718	10.5			15,803	8.0			19,753	10.0
Mobile Bank		65,664	12.1			43,446	8.0			54,308	10.0
Tier 1 Capital (to Risk-Weighted Assets)
Consolidated	$	104,274	9.7	%	$	42,993	4.0	%		N/A	N/A
Florida Bank		34,418	10.0			13,703	4.0		$	20,554	6.0	%
Eufaula Bank		18,260	9.2			7,901	4.0			11,852	6.0
Mobile Bank		58,874	10.8			21,723	4.0			32,585	6.0
Tier 1 Capital (to Average Assets)
Consolidated	$	104,274	8.4	%	$	49,654	4.0	%		N/A	N/A
Florida Bank		34,418	9.8			14,012	4.0		$	17,515	5.0	%
Eufaula Bank		18,260	8.7			8,425	4.0			10,531	5.0
Mobile Bank		58,874	8.2			28,665	4.0			35,831	5.0

Note 16. Fair Value of Financial Instruments

SFAS No. 107, Disclosures about Fair Value of Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized in the Statement of Condition, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the

78

BancTrust Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the Years Ended December 31, 2006, 2005 and 2004

assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Also, the fair value estimates presented herein are based on pertinent information available to Management as of December 31, 2006 and 2005. Such amounts have not been comprehensively revalued for purposes of these financial statements since those dates, and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:

CASH, DUE FROM BANKS AND FEDERAL FUNDS SOLD—For those short-term instruments, the carrying amount is a reasonable estimate of fair value.

SECURITIES AVAILABLE FOR SALE—Fair values for securities available for sale are primarily based on quoted market prices. If a quoted market price is not available, fair value is estimated using market prices for similar securities.

LOANS—For equity lines and other loans with short-term or variable rate characteristics, the carrying value reduced by an estimate for credit losses inherent in the portfolio is a reasonable estimate of fair value. The fair value of all other loans is estimated by discounting their future cash flows using interest rates currently being offered for loans with similar terms, reduced by an estimate of credit losses inherent in the portfolio. The discount rates used are commensurate with the interest rate and prepayment risks involved for the various types of loans.

DEPOSITS—The fair value disclosed for demand deposits (i.e., interest- and non-interest-bearing demand, savings and money market savings) is equal to the amounts payable on demand at the reporting date (i.e., their carrying amounts). Fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates of deposit to a schedule of aggregated monthly maturities.

SHORT-TERM BORROWINGS—For these short-term liabilities, the carrying amount is a reasonable estimate of fair value.

FHLB ADVANCES AND LONG-TERM DEBT—The fair value of the Company’s fixed rate borrowings are estimated using discounted cash flows, based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements. The carrying amount of the Company’s variable rate borrowings approximates their fair values.

COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT—The value of these unrecognized financial instruments is estimated based on the fee income associated with the commitments which, in the absence of credit exposure, is considered to approximate their settlement value. As no significant credit exposure exists, and because such fee income is not material to the Company’s financial statements at December 31, 2006 and 2005, the fair value of these commitments is not presented.

Many of the Company’s assets and liabilities are short-term financial instruments whose carrying amounts reported in the Statement of Condition approximate fair value. These items include cash and due from banks, interest-bearing bank balances, federal funds sold, other short-term borrowings and accrued interest receivable

79

BancTrust Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the Years Ended December 31, 2006, 2005 and 2004

and payable balances. The estimated fair values of the Company’s remaining on-balance sheet financial instruments as of December 31, 2006 and 2005 are summarized below.

	2006				2005
(Dollars in thousands)	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial assets:
Cash, due from banks and federal funds sold	$	117,728	$	117,728	$	86,010	$	86,010
Securities available for sale		118,498		118,498		132,354		132,354
Loans, net		988,407		983,502		979,339		969,867
Financial liabilities:
Deposits	$	1,104,129	$	1,106,181	$	1,041,845	$	1,039,686
Short-term borrowings		4,120		4,120		8,595		8,595
FHLB advances and long-term debt		95,521		95,282		110,057		109,285

SFAS No. 107 excludes certain financial instruments and all non-financial instruments from its disclosure requirements. The disclosures also do not include certain intangible assets, such as customer relationships, deposit base intangibles and goodwill. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

Note 17. Commitments and Contingencies

In the normal course of business, there are outstanding commitments and contingent liabilities, such as commitments to extend credit, letters of credit and others, which are not included in the consolidated financial statements. These financial instruments involve, to varying degrees, elements of credit and interest rate risk in excess of amounts recognized in the financial statements. A summary of these commitments and contingent liabilities is presented below.

	December 31,
(Dollars in thousands)	2006		2005
Standby letters of credit	$	24,271	$	35,482
Commitments to extend credit		179,974		186,288

The Company, as part of its ongoing operations, issues financial guarantees in the form of financial and performance standby letters of credit. Standby letters of credit are contingent commitments issued by the Company generally to guarantee the performance of a customer to a third party. A financial standby letter of credit is a commitment by the Company to guarantee a customer’s repayment of an outstanding loan or financial obligations. In a performance standby letter of credit, the Company guarantees a customer’s performance under a contractual non-financial obligation for which it receives a fee. The Company has recourse against the customer for any amount it is required to pay to a third party under a standby letter of credit. Revenues are recognized over the life of the standby letter of credit. The maximum potential amount of future payments the Company could be required to make under its standby letters of credit at December 31, 2006 was $24.271 million, and that sum represents the Company’s maximum credit risk. At December 31, 2006, the Company had $243 thousand of unearned fees associated with standby letter of credit agreements. The Company holds collateral to support standby letters of credit when deemed necessary. Collateral varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial property.

80

BancTrust Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the Years Ended December 31, 2006, 2005 and 2004

At December 31, 2006, the Company was under contract to lease certain bank premises and equipment. The terms of these contracts vary and are subject to certain changes at renewal. Future minimum rental payments required under operating leases having initial or remaining non-cancelable terms in excess of one year as of December 31, 2006 are summarized below.

(Dollars in thousands)
Year	Minimum rental payments
2007	$	322
2008	$	331
2009	$	348
2010	$	360
2011	$	260
After 2011	$	321
Total	$	1,942

Rental expense under all operating leases amounted to $380 thousand, $322 thousand, and $297 thousand in 2006, 2005 and 2004, respectively.

The Company and its Banks are the subject of claims and disputes arising in the normal course of business. Management, through consultation with the Company’s legal counsel, is of the opinion that these matters will not have a material impact on the Company’s financial condition or results of operations.

Note 18. Non-Interest Revenue

Components of other income, charges and fees are as follows:

	Year Ended December 31,
(Dollars in thousands)	2006		2005		2004
Mortgage loan fees	$	2,574	$	2,849	$	1,899
Other		2,135		1,820		1,797
Total	$	4,709	$	4,669	$	3,696

Note 19. Non-Interest Expense

Components of other non-interest expense are as follows:

	Dear Ended December 31,
(Dollars in thousands)	2006		2005		2004
Advertising	$	758	$	589	$	409
Data processing		890		965		648
Professional services		1,917		1,377		775
Stationery and supplies		968		889		815
Telephone		805		813		728
Other		6,191		6,139		5,293
Total	$	11,529	$	10,772	$	8,668

81

BancTrust Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the Years Ended December 31, 2006, 2005 and 2004

Note 20. Segment Reporting

Under SFAS No. 131, Disclosure about Segments of an Enterprise and Related Information, certain information is disclosed for the three reportable operating segments of the Company. The reportable segments are determined using the internal management reporting system. They are composed of the Company’s significant subsidiaries. The accounting policies for each segment are the same as those used by the Company as described in Note 1—Summary of Significant Accounting Policies. The segment results include certain overhead allocations and intercompany transactions that were recorded at estimated current market prices. All intercompany transactions have been eliminated to determine the consolidated balances. During 2004 the Company merged its Monroeville and Demopolis Banks into the Mobile Bank. All prior segment information has been restated to reflect these mergers. The column “other” includes BancTrust and the Trust Company. The results for the three reportable segments of the Company are included in the following table:

	2006
(Dollars in thousands)	Mobile Bank		Eufaula Bank		Florida Bank		All Other			Elimi- nations			Consoli- dated
Total interest revenue	$	47,069	$	16,122	$	26,844	$	85		$	(1,932	)	$	88,188
Total interest expense		17,589		6,854		11,348		2,064			(1,932	)		35,923
Net interest revenue (expense)		29,480		9,268		15,496		(1,979	)		0			52,265
Provision for loan losses		2,400		948		1,246		0			0			4,594
Net interest income after provision for loan losses		27,080		8,320		14,250		(1,979	)		0			47,671
Total non-interest revenue		4,749		2,519		2,109		2,304			(61	)		11,620
Total non-interest expense		17,489		6,617		9,459		6,198			(61	)		39,702
Income (loss) before taxes		14,340		4,222		6,900		(5,873	)		0			19,589
Income tax expense (benefit)		4,920		1,283		2,367		(2,267	)		0			6,303
Income (loss) from continuing operations	$	9,420	$	2,939	$	4,533	$	(3,606	)	$	0		$	13,286
Other significant items:
Total assets	$	758,349	$	259,031	$	351,719	$	178,009		$	(193,702	)	$	1,353,406
Total investment securities		93,514		15,536		8,497		951			0			118,498
Total loans, net of unearned income		534,467		184,925		285,343		0			0			1,004,735
Investment in subsidiaries		334		420		0		166,947			(166,680	)		1,021
Total interest revenue from customers		45,628		15,631		26,844		85			0			88,188
Total interest revenue from affiliates		1,441		491		0		0			(1,932	)		0
Depreciation of premises and equipment		1,539		406		938		57			0			2,940
Amortization of intangible assets		0		308		441		0			0			749
Amortization and accretion of securities		145		165		200		0			0			510

82

BancTrust Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the Years Ended December 31, 2006, 2005 and 2004

	2005
(Dollars in thousands)	Mobile Bank		Eufaula Bank		Florida Bank		All Other			Elimi- nations			Consoli- dated
Total interest revenue	$	38,705	$	12,670	$	22,209	$	46		$	(725	)	$	72,905
Total interest expense		10,133		4,079		5,790		1,584			(725	)		20,861
Net interest revenue (expense)		28,572		8,591		16,419		(1,538	)		0			52,044
Provision for loan losses		3,048		1,357		1,320		0			0			5,725
Net interest income after provision for loan losses		25,524		7,234		15,099		(1,538	)		0			46,319
Total non-interest revenue		4,524		2,538		2,169		1,817			(61	)		10,987
Total non-interest expense		17,235		6,396		8,669		5,023			(61	)		37,262
Income (loss) before taxes		12,813		3,376		8,599		(4,744	)		0			20,044
Income tax expense (benefit)		4,336		964		3,224		(1,757	)		0			6,767
Income (loss) from continuing operations	$	8,477	$	2,412	$	5,375	$	(2,987	)	$	0		$	13,277
Other significant items:
Total assets	$	726,043	$	231,162	$	379,471	$	163,280		$	(193,902	)	$	1,306,054
Total investment securities		103,689		17,289		10,225		1,151			0			132,354
Total loans, net of unearned income		487,700		179,289		326,363		0			0			993,352
Investment in subsidiaries		131		400		0		158,847			(158,821	)		557
Total interest revenue from customers		38,022		12,629		22,208		46			0			72,905
Total interest revenue from affiliates		683		41		1		0			(725	)		0
Depreciation of premises and equipment		1,397		437		806		63			0			2,703
Amortization of intangible assets		0		308		441		0			0			749
Amortization and accretion of securities		139		144		120		0			0			403

83

BancTrust Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the Years Ended December 31, 2006, 2005 and 2004

	2004
	Mobile Bank		Eufaula Bank		Florida Bank		All Other			Elimi- nations			Consoli- dated
Total interest revenue	$	29,359	$	9,246	$	12,350	$	38		$	(80	)	$	50,913
Total interest expense		5,923		2,136		2,887		1,062			(80	)		11,928
Net interest revenue (expense)		23,436		7,110		9,463		(1,024	)		0			38,985
Provision for loan losses		1,889		585		1,423		0			0			3,897
Net interest revenue after provision for loan losses		21,547		6,525		8,040		(1,024	)		0			35,088
Total non-interest revenue		4,730		1,966		2,157		1,848			(184	)		10,517
Total non-interest expense		15,610		6,011		6,562		3,788			(184	)		31,787
Income (loss) before taxes		10,667		2,480		3,635		(2,964	)		0			13,818
Income tax expense (benefit)		3,329		742		1,302		(1,471	)		0			3,902
Income (loss) from continuing operations	$	7,338	$	1,738	$	2,333	$	(1,493	)	$	0		$	9,916
Other significant items:
Total assets(1)	$	629,277	$	217,720	$	288,589	$	152,661		$	(149,496	)	$	1,191,222
Total investment securities		109,115		19,422		11,013		962			0			140,512
Total loans, net of unearned income		461,098		161,683		239,426		0			0			862,207
Investment in subsidiaries		291		0		0		147,362			(147,096	)		557
Total interest revenue from customers		29,359		9,196		12,320		38			0			50,913
Total interest revenue from affiliates		0		50		30		0			(80	)		0
Depreciation of premises and equipment		1,316		435		655		64			0			2,470
Amortization of intangible assets		0		308		441		0			0			749
Amortization and accretion of securities		183		249		176		0			0			608

(1) Total consolidated assets includes assets of Sweet Water State Bank of $52,471.

84

BancTrust Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the Years Ended December 31, 2006, 2005 and 2004

Note 21. Other Comprehensive Income

Comprehensive income is the change in equity during a period from transactions and other events and circumstances from non-owner sources. In addition to net income, the Company has identified changes related to other non-owner transactions in the consolidated statement of shareholders’ equity and other comprehensive income. In the calculation of other comprehensive income, certain reclassification adjustments are made to avoid double counting items that are displayed as part of net income and other comprehensive income in that period or earlier periods. The following table reflects the reclassification amounts and the related tax effect for the three years ended December 31:

	2006
(Dollars in thousands)	Before Tax Amount			Tax Effect			After Tax Amount
Unrealized losses decreasing during the period	$	114		$	43		$	71
Less realized losses included in continuing operations		44			16			28
Net change in unrealized loss on securities		158			59			99
Minimum pension liability adjustment		(291	)		(109	)		(182	)
Other Comprehensive Income	$	(133	)	$	(50	)	$	(83	)

	2005
	Before Tax Amount			Tax Effect			After Tax Amount
Unrealized losses arising during the period	$	(2,428	)	$	(908	)	$	(1,520	)
Less realized gains from continuing operations		(125	)		(47	)		(78	)
Net change in unrealized loss on securities		(2,553	)		(955	)		(1,598	)
Minimum pension liability adjustment		(381	)		(143	)		(238	)
Other Comprehensive Income	$	(2,934	)	$	(1,098	)	$	(1,836	)

	2004
	Before Tax Amount			Tax Effect			After Tax Amount
Unrealized gains arising during the period	$	(1,179	)	$	(442	)	$	(737	)
Less realized gains from continuing operations		(625	)		(229	)		(396	)
Less realized gains from discontinued operations		4			2			2
Net change in unrealized gain on securities		(1,800	)		(669	)		(1,131	)
Minimum pension liability adjustment		101			38			63
Other Comprehensive Income	$	(1,699	)	$	(631	)	$	(1,068	)

85

BancTrust Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the Years Ended December 31, 2006, 2005 and 2004

Note 22. Adjustment to Beginning Retained Earnings

In September 2006, the SEC issued SAB No. 108, “Considering the Effects of Prior Year misstatements when Quantifying Misstatements in Current Year Financial Statements.” SAB 108 provides interpretive guidance on how the effects of prior-year uncorrected misstatements should be considered when quantifying misstatements in the current year financial statements. SAB 108 requires registrants to quantify misstatements using both an income statement and balance sheet approach and evaluate whether either approach results in a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. If prior year errors that had been previously considered immaterial now are considered material based on either approach, no restatement is required so long as management properly applied its previous approach and all relevant facts and circumstances were considered. If prior years are not restated, the cumulative effect adjustment is recorded in opening accumulated earnings as of the beginning of the fiscal year of adoption. BancTrust recorded the effects of application of SAB No. 108 using the cumulative effect transition method as an adjustment to fiscal 2006 beginning retained earnings. The Company has historically not properly accounted for lease payments and to correct this error the Company decreased retained earnings by $258 thousand, increased deferred tax assets by $155 thousand and increased accrued leases payable by $413 thousand. Of the $413 thousand that should have been recorded as rental expense, $392 thousand should have been recorded in years prior to 2004, $42 thousand should have been recorded in 2004 and $9 thousand should have been recorded in 2005. These amounts were considered immaterial in prior years but are now considered material to the current year.

86

BancTrust Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the Years Ended December 31, 2006, 2005 and 2004

Note 23. Condensed Parent Company Financial Statements

Condensed Statements of Condition

	December 31,
(Dollars in thousands)	2006			2005
ASSETS
Cash and cash equivalents	$	6,499		$	365
Investment in bank subsidiaries		164,108			156,215
Investment in non-bank subsidiaries		1,818			2,075
Other assets		2,744			1,481
Total assets	$	175,169		$	160,136
LIABILITIES
Long-term debt	$	34,021		$	28,557
Other liabilities		2,625			540
Total liabilities		36,646			29,097
SHAREHOLDERS’ EQUITY
Preferred stock—no par value
Shares authorized—500
Shares outstanding—none		—			—
Common stock—$.01 par value
Shares authorized—20,000
Shares issued—11,422 in 2006 and 11,369 in 2005		114			114
Additional paid in capital		80,425			79,504
Accumulated other comprehensive loss, net		(2,241	)		(1,335	)
Deferred compensation payable in common stock		1,157			996
Retained earnings		62,633			55,488
Unearned compensation		0			(324	)
Treasury stock, 256 shares in 2006 and 2005, at cost		(2,408	)		(2,408	)
Common stock held in grantor trust, 61 shares in 2006 and 55 shares in 2005		(1,157	)		(996	)
Total shareholders’ equity		138,523			131,039
Total liabilities and shareholders’ equity	$	175,169		$	160,136

87

BancTrust Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the Years Ended December 31, 2006, 2005 and 2004

Condensed Statements of Income

	Year Ended December 31,
(Dollars in thousands)	2006		2005		2004
Cash dividends from bank subsidiaries	$	9,648	$	5,550	$	4,450
Other income		13		12		93
Total income		9,661		5,562		4,543
Interest expense—short-term debt		0		8		0
Interest expense—long-term debt		2,064		1,576		1,062
Expenses—other		1,848		1,456		722
Income before undistributed income of subsidiaries		5,749		2,522		2,759
Equity in undistributed income of subsidiaries		7,537		10,755		7,157
Income from continuing operations		13,286		13,277		9,916
Income from discontinued operations		0		1,842		1,385
Net income	$	13,286	$	15,119	$	11,301

88

BancTrust Financial Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

For the Years Ended December 31, 2006, 2005 and 2004

Condensed Statements of Cash Flows

	Year Ended December 31,
(Dollars in thousands)	2006			2005			2004
OPERATING ACTIVITIES
Income from continuing operations	$	13,286		$	13,277		$	9,916
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of subsidiaries		(7,537	)		(10,755	)		(7,157	)
Other, net		498			(738	)		926
Net cash provided by operating activities of continuing operations		6,247			1,784			3,685
INVESTING ACTIVITIES
Cash infusion to bank subsidiary		0			(7,000	)		(5,000	)
Net cash paid in acquisition		0			0			(38,422	)
Investment in trust preferred subsidiary		(464	)		0			0
Net cash used in investing activities of continuing operations		(464	)		(7,000	)		(43,422	)
FINANCING ACTIVITIES
Proceeds from short-term borrowing		0			1,000			0
Repayments of short-term borrowing		0			(1,000	)		0
Cash dividends		(5,555	)		(5,539	)		(5,605	)
Proceed from issuance of long-term debt		15,464			0			10,000
Payment of long-term debt		(10,000	)		0			0
Proceeds from issuance of common stock		0			9			0
Proceeds from exercise of stock options		442			798			889
Net cash provided by (used in) financing activities of continuing operations		351			(4,732	)		5,284
CASH FLOWS FROM DISCONTINUED OPERATIONS
Operating activities		0			650			475
Investing activities		0			5,869			6,702
Financing activities		0			0			0
Net cash provided by discontinued operations		0			6,519			7,177
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		6,134			(3,429	)		(27,276	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		365			3,794			31,070
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	6,499		$	365		$	3,794

(Dollars in thousands)	2006		2005		2004
Cash paid for:
Interest	$	2,050	$	1,576	$	1,027
Income taxes payments received, net		2,258		422		461
Non-cash transactions:
Dividends paid in common stock		289		240		108
Fair value of restricted stock issued		1,393		530		0

89

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

There were no changes in or disagreements with accountants on accounting and financial disclosure.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this annual report on Form 10-K. Disclosure controls are controls and other procedures that are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s (SEC) rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to Management, including its chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Based on their evaluation, the Company’s Chief Executive Officer and Chief Financial Officer believe the controls and procedures in place are effective to ensure that information required to be disclosed complies with the SEC’s rules and forms.

Management’s Report on Internal Control over Financial Reporting

Management of BancTrust Financial Group, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. BancTrust’s internal control over financial reporting was designed under the supervision of the Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of published financial statements in accordance with generally accepted accounting principles.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.

Based on its assessment, Management believes that, as of December 31, 2006, BancTrust’s internal control over financial reporting is effective.

BancTrust’s independent registered public accounting firm, KPMG LLP, has issued an attestation report on Management’s assessment of the effectiveness of BancTrust’s internal control over financial reporting as of December 31, 2006. The report, which expresses unqualified opinions on Management’s assessment, and on the effectiveness of BancTrust’s internal control over financial reporting as of December 31, 2006, is included on page 47 of this Annual Report on Form 10-K.

W. Bibb Lamar, Jr.	F. Michael Johnson
Chairman and Chief Executive Officer	Chief Financial Officer

Changes in Internal Controls

There were no changes in the Company’s internal control over financial reporting during the quarter ended December 31, 2006 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B. Other Information

None

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PART III

Item 10. Directors and Executive Officers of the Registrant

Certain information called for by Item 10 regarding BancTrust’s executive officers is included on page 14 in Part I of this Report on Form 10-K under the caption “Executive Officers of the Registrant” pursuant to General Instruction G. The balance of the information called for by Item 10 is set forth in BancTrust’s Proxy Statement for the 2007 annual meeting under the captions “VOTING SECURITIES – Section 16(a) Beneficial Ownership Reporting Compliance,” “ELECTION OF DIRECTORS” and “CODE OF ETHICS” and is incorporated herein by reference.

Item 11. Executive Compensation

The information called for by Item 11 is set forth in BancTrust’s Proxy Statement for the 2007 annual meeting under the caption “EXECUTIVE COMPENSATION” and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information called for by Item 12 is set forth in BancTrust’s Proxy Statement for the 2007 annual meeting under the captions “VOTING SECURITIES – Security Ownership of Directors, Nominees, 5% Stockholders and Officers” and “Equity Compensation Plan Information” and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions

The information called for by Item 13 is set forth in BancTrust’s Proxy Statement for the 2007 annual meeting under the caption “CERTAIN TRANSACTIONS AND MATTERS” and is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services

The information called for by Item 14 is set forth in BancTrust’s Proxy Statement for the 2007 annual meeting under the heading “INDEPENDENT ACCOUNTANTS” and is incorporated herein by reference.

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PART IV

Item 15. Exhibits, Financial Statement Schedules

(a) 1. Financial Statements:

The following consolidated financial statements of the registrant and its subsidiaries and Reports of Independent Registered Public Accounting Firm are included in Item 8 above:

Reports of Independent Registered Public Accounting Firm

Consolidated Statements of Condition as of December 31, 2006 and 2005

Consolidated Statements of Income for the years ended December 31, 2006, 2005 and 2004

Consolidated Statements of Shareholders’ Equity and Comprehensive Income for the years ended December 31, 2006, 2005 and 2004

Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004

Notes to Consolidated Financial Statements.

(a) 2. Financial Statement Schedules

Financial statement schedules are omitted as they are either not applicable or the information is contained in the consolidated financial statements.

(a) 3. Exhibits:

(3) Articles of Incorporation and By-Laws.

1. Amended and Restated Articles of Incorporation of BancTrust Financial Group, Inc., filed as Exhibit (3).6 to BancTrust’s Annual Report on Form 10-K for the year ended December 31, 2002 (No. 0-15423) are incorporated herein by reference.

2. Amended and Restated Bylaws of BancTrust Financial Group, Inc., filed as Exhibit (3).2 to the registrant’s Current Report on Form 8-K, filed on March 12, 2007 (No. 0-15423), are incorporated herein by reference.

(4) Instruments defining the rights of security holders, including indentures.

1. Amended and Restated Articles of Incorporation of BancTrust Financial Group, Inc., filed as Exhibit (3).6 to BancTrust’s Annual Report on Form 10-K for the year ended December 31, 2002 (No. 0-15423) are incorporated herein by reference.

2. Amended and Restated Bylaws of BancTrust Financial Group, Inc., filed as Exhibit (3).2 to the registrant’s Current Report on Form 8-K, filed on March 12, 2007 (No. 0-15423), are incorporated herein by reference.

3. Specimen of Common Stock Certificate of South Alabama Bancorporation, Inc., filed as Exhibit (4).4 to the registrant’s annual report on 10-K for the year ended 1996 (No. 0-15423), is incorporated herein by reference.

(10) Material Contracts.

1. *The Bank of Mobile Retirement Plan (Restated), dated September 12, 1990, filed as Exhibit (10).8 to the registrant’s annual report on Form 10-K for the year 1991 (No. 0-15423), is incorporated herein by reference.

92

2. *Contracts pursuant to Supplemental Retirement Plan of The Bank of Mobile, N.A, effective January 1, 1988, filed as Exhibit (10).7 to the registrant’s annual report on Form 10-K for the year 1990 (No. 0-15423), are incorporated herein by reference.

3. *Restated Contracts pursuant to Supplement Retirement Plan of The Bank of Mobile, dated April 1, 1992, filed as Exhibit (10).10 to registrant’s Form 10-K for the year 1992 (No. 0-15423), is incorporated herein by reference.

4. *First National Bank Employees’ Pension Plan, as amended and restated effective January 1, 1989, filed as Exhibit (10).13 to registrant’s Form 10-K for the year 1993 (No. 0-15423), is incorporated herein by reference.

5. South Alabama Bancorporation 1993 Incentive Compensation Plan dated October 19, 1993 as adopted by shareholders May 3, 1994 filed as Exhibit (10).18 to registrant’s Form 10-K for the year 1994 (No. 0-15423), is incorporated herein by reference.

6. Lease, entered into April 17, 1995 between Augustine Meaher, Jr., Robert H. Meaher individually and Executor of the Estate of R. Lloyd Hill, Joseph L. Meaher and Augustine Meaher, III, and The Bank of Mobile, filed as Exhibit (10).1 to registrant’s Form 10-Q for the Quarter ended June 30, 1995 (No. 0-15423), is incorporated herein by reference.

7. Lease, entered into April 17, 1995 between Augustine Meaher, Jr. and Margaret L. Meaher, and The Bank of Mobile, filed as Exhibit (10).2 to registrant’s Form 10-Q for the Quarter ended June 30, 1995 (No. 0-15423), is incorporated herein by reference.

8. Lease, entered into April 17, 1995 between Hermione McMahon Sellers (f/k/a Hermione McMahon Dempsey) a widow, William Michael Sellers, married, and Mary S. Burnett, married, and The Bank of Mobile, filed as Exhibit (10).3 to registrant’s Form 10-Q for the Quarter ended June 30, 1995 (No. 0-15423), is incorporated herein by reference.

9. Lease, entered into May 1, 1995 between Augustine Meaher, Jr., Robert H. Meaher individually and Executor of the Estate of R. Lloyd Hill, Joseph L. Meaher and Augustine Meaher, III, and The Bank of Mobile, filed as Exhibit (10).4 to registrant’s Form 10-Q for the Quarter ended June 30, 1995 (No. 0-15423), is incorporated herein by reference.

10. *Change in Control Compensation Agreement, dated as of November 14, 1995, between The Bank of Mobile and W. Bibb Lamar, Jr., filed as Exhibit (10).24 to the registrant’s annual report on Form 10-K for the year 1995 (No. 0-15423), is incorporated herein by reference.

11. *Change in Control Compensation Agreements, between The Bank of Mobile or First National Bank, Brewton and certain officers filed as Exhibit (10).25 to the registrant’s annual report on Form 10-K for the year 1995 (No. 0-15423), is incorporated herein by reference.

12. *Monroe County Bank Pension Plan as Amended and Restated January 1, 1989, filed as Exhibit (10).24 to the registrant’s annual report on Form 10-K for the year 1996 (No. 0-15423), is incorporated herein by reference.

13. *Amendment Number One to South Alabama Bancorporation 1993 Incentive Compensation Plan, dated May 9, 1997 filed as Exhibit (10).28 to the registrant’s annual report on Form 10-K for the year 1997 (No. 0-15423), is incorporated herein by reference.

14. *Change in Control Compensation Agreement dated as of March 31, 1997, by and between the registrant and John B. Barnett, III, filed as Exhibit (10).29 to the registrant’s annual report on Form 10-K for the year 1997 (No. 0-15423), is incorporated herein by reference.

93

15. Ground Lease Agreement, dated March 31, 1999, by and between Northside, Ltd. and the Mobile Bank, filed as Exhibit 10.29 to the registrant’s Registration Statement on Form S-4 filed on July 2, 1999 (No. 333-82167), is incorporated herein by reference.

16. *Amendment No. 2 to South Alabama Bancorporation 1993 Incentive Compensation Plan, filed as Exhibit 10.30 to the registrant’s Registration Statement on Form S-4 filed on July 2, 1999 (No. 333-82167), is incorporated herein by reference.

17. *South Alabama Bancorporation, Inc. 2001 Incentive Compensation Plan filed as Appendix B to the registrant’s Proxy Statement on Schedule 14A filed on April 30, 2001 (No. 0-15423), is incorporated herein by reference.

18. Stock Purchase Agreement dated as of April 7, 2005 between the registrant and Tombigbee Bancshares, Inc. filed as Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2005 (No. 0-15423), is incorporated herein by reference.

19. *Form of BancTrust Financial Group, Inc., 2001 Incentive Compensation Plan Restricted Stock Award Agreement filed as Exhibit 10.2 to Amendment No. 1 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2005, filed on Form 10-Q/A on August 26, 2005 (No. 0-15423), is incorporated herein by reference.

20. *Form of BancTrust Financial Group, Inc. Option Agreement—Incentive Stock Option (2001 Incentive Compensation Plan) filed as Exhibit 10.3 to Amendment No. 1 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2005, filed on Form 10-Q/A on August 26, 2005 (No. 0-15423), is incorporated herein by reference.

21. *Form of BancTrust Financial Group, Inc. Option Agreement—Nonqualified Supplemental Stock Option (2001 Incentive Compensation Plan) filed as Exhibit 10.4 to Amendment No. 1 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2005, filed on Form 10-Q/A on August 26, 2005 (No. 0-15423), is incorporated herein by reference.

22. *Change in Control Compensation Agreement dated as of December 20, 2006, between BankTrust and Bruce C. Finley, Jr., filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed on December 26, 2006 (No. 0-15423), is incorporated herein by reference.

23. *Change in Control Compensation Agreement dated as of December 20, 2006, between BankTrust and Michael D. Fitzhugh, filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K, filed on December 26, 2006 (No. 0-15423), is incorporated herein by reference.

24. *Amended and Restated Deferred Stock Trust Agreement for Directors of BancTrust Financial Group, Inc. and its Subsidiaries, filed as Exhibit 10.26 to registrant’s Registration Statement on Form S-1 filed on September 8, 2005 (No. 333-128183), is incorporated herein by reference.

25. *Amended and Restated Directors Deferred Compensation Plan, filed as Exhibit 10.27 to registrant’s Registration Statement on Form S-1 filed on September 8, 2005 (No. 333-128183), is incorporated herein by reference.

26. *BancTrust Financial Group, Inc. Employee Savings and & Profit Sharing Plan, filed as Exhibit 10.28 to registrant’s Annual Report on Form 10-K for the year ended December 31, 2005 (No. 0-15423), is incorporated herein by reference.

27. *Retirement Plan for Employees of South Alabama Bancorporation, Inc. filed as Exhibit 10.29 to registrant’s Registration Statement on Form S-1 filed on September 8, 2005 (No. 333-128183), is incorporated herein by reference.

94

28. *First Amendment to the Retirement Plan for Employees of South Alabama Bancorporation, filed as Exhibit 10.30 to registrant’s Annual Report on Form 10-K for the year ended December 31, 2005 (No. 0-15423), is incorporated herein by reference.

29. *Second Amendment to the Retirement Plan for Employees of BancTrust Financial Group, Inc., filed as Exhibit 10.31 to registrant’s Annual Report on Form 10-K for the year ended December 31, 2005 (No. 0-15423), is incorporated herein by reference.

30. *Third Amendment to the Retirement Plan for Employees of BancTrust Financial Group, Inc., filed as Exhibit 10.32 to registrant’s Annual Report on Form 10-K for the year ended December 31, 2005 (No. 0-15423), is incorporated herein by reference.

* Indicates management contract or compensatory plan or arrangement identified pursuant to Item 14(a)(3) of Form 10-K.

(21) Subsidiaries of the registrant.

1. Subsidiaries of BancTrust Financial Group, Inc. filed as Exhibit 21.1 to registrant’s Annual Report on Form 10-K for the year ended December 31, 2005 (No. 0-15423), is incorporated herein by reference.

(23) Consents

1. Consent of KPMG LLP

(31) Rule 13(a)-14(a)/15(d)-14(a) Certifications

1. Certification by the Chief Executive Officer pursuant to Rule 13(a)-14(a)/15(d)-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

2. Certification by the Chief Financial Officer pursuant to Rule 13(a)-14(a)/15(d)-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

(32) Section 1350 certifications

1. Certification by the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

2. Certification by the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

95

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

BANCTRUST FINANCIAL GROUP, INC.
By:	/S/    F. MICHAEL JOHNSON
	F. Michael Johnson
	Chief Financial Officer and Secretary
Dated: March 15, 2007

Pursuant to the requirements of the Securities Exchange Act of 1934 this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name	Title	Date
/S/    W. BIBB LAMAR, JR.         W. Bibb Lamar, Jr.	President and CEO (Principal executive officer)	March 15, 2007
/S/    F. MICHAEL JOHNSON         F. Michael Johnson	Chief Financial Officer and Secretary (Principal financial and accounting officer)	March 15, 2007
/S/    TRACY T. CONERLY         Tracy T. Conerly	Director	March 15, 2007
/S/    STEPHEN G. CRAWFORD         Stephen G. Crawford	Director	March 15, 2007
David C. De Laney	Director
Robert M. Dixon, Jr.	Director
/S/    JAMES A. FAULKNER         James A. Faulkner	Director	March 15, 2007
/S/    BROOX G. GARRETT, JR.         Broox G. Garrett, Jr.	Director	March 15, 2007
/S/    W. DWIGHT HARRIGAN         W. Dwight Harrigan	Director	March 15, 2007
/S/    JAMES P. HAYES, JR.         James P. Hayes, Jr.	Director	March 15, 2007
/S/    CLIFTON C. INGE, JR.         Clifton C. Inge, Jr.	Director	March 15, 2007

96

Name	Title	Date
/S/    W. BIBB LAMAR, JR.         W. Bibb Lamar, Jr.	Director	March 15, 2007
/S/    JOHN H. LEWIS, JR.         John H. Lewis, Jr.	Director	March 15, 2007
/S/    HARRIS W. MORRISSETTE         Harris V. Morrissette	Director	March 15, 2007
/S/    J. STEPHEN NELSON         J. Stephen Nelson	Director and Chairman	March 15, 2007
/S/    PAUL D. OWENS, JR.         Paul D. Owens, Jr.	Director	March 15, 2007
Dennis A. Wallace	Director

97

EXHIBIT INDEX

SEC Assigned Exhibit No.	Description of Exhibit	Page No.
23.1	Consent of KPMG LLP
31.1	Certification of Chief Executive Officer pursuant to Rule 13(a)-14(a)/15(d)-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Rule 13(a)-14(a)/15(d)-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002

98

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors

BancTrust Financial Group, Inc.

We consent to the incorporation by reference in the Registration Statements (No. 333-71910, 333-87659, 333-76575, and 333-106621) on Form S-8 and (No. 333-115129) on Form S-3 of BancTrust Financial Group, Inc. of our reports dated March 15, 2007, with respect to the (i) consolidated statements of condition of BancTrust Financial Group, Inc. and subsidiaries as of December 31, 2006 and 2005, and the related consolidated statements of income, shareholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2006, (ii) management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2006, and (iii) the effectiveness of internal control over financial reporting as of December 31, 2006, which reports appear in the December 31, 2006 Annual Report on Form 10-K of BancTrust Financial Group, Inc.

Our report on the Company’s consolidated financial statements refers to the Company’s changes in accounting for share-based payment, evaluating prior year misstatements, and defined benefit pension plans.

/s/KPMG

Birmingham, Alabama

March 15, 2007

EX-31.1

Exhibit 31.1

Certification by the Chief Executive Officer Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, W. Bibb Lamar, Jr., certify that:

1. I have reviewed this report on Form 10-K of BancTrust Financial Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 15, 2007

/s/ W. Bibb Lamar, Jr.

W. Bibb Lamar, Jr.

President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification by the Chief Financial Officer Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, F. Michael Johnson, certify that:

1. I have reviewed this report on Form 10-K of BancTrust Financial Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 15, 2007

/s/ F. Michael Johnson

F. Michael Johnson

Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification by the Chief Executive Officer Pursuant to 18 U. S. C. Section 1350, as Adopted

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to 18 U. S. C. Section 1350, I, W. Bibb Lamar, Jr., hereby certify that, to the best of my knowledge, the Annual Report on Form 10-K of BancTrust Financial Group, Inc. for the fiscal year ended December 31, 2006 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of BancTrust Financial Group, Inc.

/s/ W. Bibb Lamar, Jr.

W. Bibb Lamar, Jr.

President and Chief Executive Officer

March 15, 2007

This certification accompanies this Report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

EX-32.2

Exhibit 32.2

Certification by the Chief Financial Officer Pursuant to 18 U. S. C. Section 1350, as Adopted

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to 18 U. S. C. Section 1350, I, F. Michael Johnson, hereby certify that, to the best of my knowledge, the Annual Report on Form 10-K of BancTrust Financial Group, Inc. for the fiscal year ended December 31, 2006 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of BancTrust Financial Group, Inc.

/s/ F. Michael Johnson

F. Michael Johnson

Chief Financial Officer

March 15, 2007

This certification accompanies this Report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.