Edgar Filing: CAPITAL CITY BANK GROUP INC

body_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended June 30, 2007

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

For the transition period from ____________ to ____________

Commission File Number: 0-13358

CAPITAL CITY BANK GROUP, INC.

(Exact name of registrant as specified in its charter)

Florida		59-2273542
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

217 North Monroe Street, Tallahassee, Florida		32301
(Address of principal executive office)		(Zip Code)

(850) 671-0300

(Registrant's telephone number, including area code)

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 o

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 o

Accelerated filer x

Non-accelerated filer o

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

At July 31, 2007, 17,712,292 shares of the Registrant's Common Stock, $.01 par value, were outstanding.

CAPITAL CITY BANK GROUP, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE PERIOD ENDED JUNE 30, 2007

TABLE OF CONTENTS

PART I – Financial Information		Page

Item 1.	Consolidated Financial Statements (Unaudited)
	Consolidated Statements of Income – Three and Six Months Ended June 30, 2007 and 2006	4
	Consolidated Balance Sheets – June 30, 2007, December 31, 2006, and June 30, 2006	5
	Consolidated Statements of Changes in Shareowners’ Equity – Six Months Ended June 30, 2007 and 2006	6
	Consolidated Statements of Cash Flow – Six Months Ended June 30, 2007 and 2006	7
	Notes to Consolidated Financial Statements	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	29

Item 4.	Controls and Procedures	31

PART II – Other Information

Item 1.	Legal Proceedings	31

Item 1.A.	Risk Factors	31

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31

Item 4.	Submission of Matters to a Vote of Security Holders	32

Item 6.	Exhibits	32

Signatures		33

INTRODUCTORY NOTE

Caution Concerning Forward-Looking Statements

This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among others, statements about our beliefs, plans, objectives, goals, expectations, estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors, many of which are beyond our control. The words "may," "could," "should," "would," "believe," "anticipate," "estimate," "expect," "intend," "plan," "target," "goal," and similar expressions are intended to identify forward-looking statements.

All forward-looking statements, by their nature, are subject to risks and uncertainties. Our actual future results may differ materially from those set forth in our forward-looking statements.

Our ability to achieve our financial objectives could be adversely affected by the factors discussed in detail in Part I, Item 2., “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q, the following sections of our Annual Report on Form 10-K for the year ended December 31, 2006 (the “2006 Form 10-K”): (a) “Introductory Note” in Part I, Item 1. “Business”; (b) “Risk Factors” in Part I, Item 1A., as updated in our subsequent quarterly reports filed on Form 10-Q, and (c) “Introduction” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in Part II, Item 7 as well as:

§	our ability to integrate the business and operations of companies and banks that we have acquired, and those we may acquire in the future;

§	our need and our ability to incur additional debt or equity financing;

§	the strength of the United States economy in general and the strength of the local economies in which we conduct operations;

§	the accuracy of our financial statement estimates and assumptions;

§	the effects of harsh weather conditions, including hurricanes;

§	inflation, interest rate, market and monetary fluctuations;

§	the effects of our lack of a diversified loan portfolio, including the risks of geographic and industry concentrations;

§	the frequency and magnitude of foreclosure of our loans;

§	effect of changes in the stock market and other capital markets;

§	legislative or regulatory changes;

§	our ability to comply with the extensive laws and regulations to which we are subject;

§	the willingness of clients to accept third-party products and services rather than our products and services and vice versa;

§	changes in the securities and real estate markets;

§	increased competition and its effect on pricing;

§	technological changes;

§	changes in monetary and fiscal policies of the U.S. Government;

§	the effects of security breaches and computer viruses that may affect our computer systems;

§	changes in consumer spending and saving habits;

§	growth and profitability of our noninterest income;

§	changes in accounting principles, policies, practices or guidelines;

§	the limited trading activity of our common stock;

§	the concentration of ownership of our common stock;

§	anti-takeover provisions under federal and state law as well as our Articles of Incorporation and our bylaws;

§	other risks described from time to time in our filings with the Securities and Exchange Commission; and

§	our ability to manage the risks involved in the foregoing.

However, other factors besides those referenced also could adversely affect our results, and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties. Any forward-looking statements made by us or on our behalf speak only as of the date they are made. We do not undertake to update any forward-looking statement, except as required by applicable law.

PART I. FINANCIAL INFORMATION

Item 1.

CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

CAPITAL CITY BANK GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME

FOR THE PERIODS ENDED JUNE 30

(Unaudited)

	Three Months Ended				Six Months Ended
(Dollars in Thousands, Except Per Share Data)	2007		2006		2007		2006
INTEREST INCOME
Interest and Fees on Loans	$	39,092	$	38,967	$	78,145	$	76,310
Investment Securities:
U.S. Treasury		142		98		283		177
U.S. Govt. Agencies		916		929		1,856		1,743
States and Political Subdivisions		708		583		1,384		1,023
Other Securities		177		206		360		403
Funds Sold		689		586		1,210		1,125
Total Interest Income		41,724		41,369		83,238		80,781

INTEREST EXPENSE
Deposits		11,098		8,716		22,098		16,438
Short-Term Borrowings		737		776		1,498		1,600
Subordinated Notes Payable		932		926		1,858		1,852
Other Long-Term Borrowings		496		764		998		1,574
Total Interest Expense		13,263		11,182		26,452		21,464

NET INTEREST INCOME		28,461		30,187		56,786		59,317
Provision for Loan Losses		1,675		121		2,912		788
Net Interest Income After Provision For Loan Losses		26,786		30,066		53,874		58,529

NONINTEREST INCOME
Service Charges on Deposit Accounts		6,442		6,096		12,487		11,776
Data Processing		790		703		1,505		1,340
Asset Management Fees		1,175		1,155		2,400		2,205
Securities Transactions		0		(4)		7		(4)
Mortgage Banking Revenues		850		903		1,529		1,624
Other		5,827		5,150		11,118		10,107
Total Noninterest Income		15,084		14,003		29,046		27,048

NONINTEREST EXPENSE
Salaries and Associate Benefits		14,992		15,204		30,711		30,634
Occupancy, Net		2,324		2,358		4,560		4,581
Furniture and Equipment		2,494		2,661		4,843		5,161
Intangible Amortization		1,458		1,536		2,917		3,066
Other		8,629		9,311		17,428		17,720
Total Noninterest Expense		29,897		31,070		60,459		61,162

INCOME BEFORE INCOME TAXES		11,973		12,999		22,461		24,415
Income Taxes		4,082		4,684		7,613		8,679

NET INCOME	$	7,891	$	8,315	$	14,848	$	15,736

Basic Net Income Per Share	$	.43	$	.44	$	.81	$	.84
Diluted Net Income Per Share	$	.43	$	.44	$	.81	$	.84

Average Basic Shares Outstanding		18,089,022		18,633,132		18,247,991		18,642,387
Average Diluted Share Outstanding		18,089,223		18,652,963		18,248,245		18,657,691

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements

CAPITAL CITY BANK GROUP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

AS OF JUNE 30, 2007, DECEMBER 31, 2006, AND JUNE 30, 2006

(Unaudited)

(Dollars In Thousands, Except Share Data)	June 30, 2007		December 31, 2006		June 30, 2006
ASSETS
Cash and Due From Banks	$	95,573	$	98,769	$	103,078
Funds Sold and Interest Bearing Deposits		77,297		78,795		126,210
Total Cash and Cash Equivalents		172,870		177,564		229,288

Investment Securities, Available-for-Sale		189,680		191,894		191,232

Loans, Net of Unearned Interest		1,930,711		1,999,721		2,052,860
Allowance for Loan Losses		(17,469)		(17,217)		(17,264)
Loans, Net		1,913,242		1,982,504		2,035,596

Premises and Equipment, Net		92,656		86,538		81,407
Goodwill		84,811		84,811		84,810
Other Intangible Assets		16,674		19,591		22,612
Other Assets		60,815		55,008		52,541
Total Assets	$	2,530,748	$	2,597,910	$	2,697,486

LIABILITIES
Deposits:
Noninterest Bearing Deposits	$	456,986	$	490,014	$	572,549
Interest Bearing Deposits		1,552,604		1,591,640		1,581,310
Total Deposits		2,009,590		2,081,654		2,153,859

Short-Term Borrowings		74,307		65,023		77,571
Subordinated Notes Payable		62,887		62,887		62,887
Other Long-Term Borrowings		41,276		43,083		63,022
Other Liabilities		41,251		29,493		28,403
Total Liabilities		2,229,311		2,282,140		2,385,742

SHAREOWNERS' EQUITY
Preferred Stock, $.01 par value, 3,000,000 shares authorized; no shares outstanding		-		-		-
Common Stock, $.01 par value, 90,000,000 shares authorized; 17,868,981, 18,518,398, and 18,530,469 shares issued and outstanding at June 30, 2007, December 31, 2006, and June 30, 2006, respectively		179		185		185
Additional Paid-In Capital		58,001		80,654		80,272
Retained Earnings		251,838		243,242		233,201
Accumulated Other Comprehensive Loss, Net of Tax		(8,581)		(8,311)		(1,914)
Total Shareowners' Equity		301,437		315,770		311,744
Total Liabilities and Shareowners' Equity	$	2,530,748	$	2,597,910	$	2,697,486

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

CAPITAL CITY BANK GROUP, INC. (Unaudited)

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY

(Dollars in Thousands, Except Per Share Data)

	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss, Net of Taxes		Total

Balance, January 1, 2006	$	186	$	83,304	$	223,532	$	(1,246)	$	305,776
Comprehensive Income:
Net Income		-		-		15,736		-
Net Change in Unrealized Loss On Available-for-Sale Securities (net of tax)		-		-		-		(668)
Total Comprehensive Income		-		-		-		-		15,068
Cash Dividends ($.3250 per share)		-		-		(6,067)		-		(6,067)
Stock Performance Plan Compensation		-		889		-		-		889
Issuance of Common Stock		1		918		-		-		919
Repurchase of Common Stock		(2)		(4,839)		-		-		(4,841)

Balance, June 30, 2006	$	185	$	80,272	$	233,201	$	(1,914)	$	311,744


Balance, January 1, 2007	$	185	$	80,654	$	243,242	$	(8,311)	$	315,770
Comprehensive Income:
Net Income		-		-		14,848		-
Net Change in Unrealized Loss On Available-for-Sale Securities (net of tax)		-		-		-		(270)
Total Comprehensive Income		-		-		-		-		14,578
Cash Dividends ($.3500 per share)		-		-		(6,475)		-		(6,475)
Miscellaneous - Other		-		-		223		-		223
Stock Performance Plan Compensation		-		63		-		-		63
Issuance of Common Stock		1		496		-		-		497
Repurchase of Common Stock		(7)		(23,212)		-		-		(23,219)

Balance, June 30, 2007	$	179	$	58,001	$	251,838	$	(8,581)	$	301,437

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

CAPITAL CITY BANK GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30

(Unaudited)

(Dollars in Thousands)	2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	14,848		$	15,736
Adjustments to Reconcile Net Income to Cash Provided by Operating Activities:
Provision for Loan Losses		2,912			788
Depreciation		3,087			3,539
Net Securities Amortization		170			362
Amortization of Intangible Assets		2,917			3,066
Investment Security Gain		(7	)		-
Origination of Loans Held-for-Sale		(94,830	)		(95,580	)
Proceeds From Sales of Loans Held-for-Sale		93,254			97,968
Net Gain From Sales of Loans Held-for-Sale		(1,529	)		(1,624	)
Non-Cash Compensation		63			889
Deferred Income Taxes		76			1,831
Net (Increase) Decrease in Other Assets		(3,508	)		2,000
Net Increase in Other Liabilities		11,271			1,966
Net Cash Provided By Operating Activities		28,724			30,941

CASH FLOWS FROM INVESTING ACTIVITIES
Securities Available-for-Sale:
Purchases		(27,582	)		(85,590	)
Sales		-			283
Payments, Maturities, and Calls		29,186			63,614
Net Decrease in Loans		67,966			12,297
Purchase of Premises & Equipment		(9,540	)		(11,409	)
Proceeds From Sales of Premises & Equipment		335			280
Net Cash Provided By (Used In) Investing Activities		60,365			(20,525	)

CASH FLOWS FROM FINANCING ACTIVITIES
Net (Decrease) Increase in Deposits		(72,064	)		74,513
Net (Decrease) Increase in Short-Term Borrowings		9,101			(8,878	)
Increase in Other Long-Term Borrowings		1,700			3,250
Repayment of Other Long-Term Borrowings		(3,323	)		(6,382	)
Dividends Paid		(6,475	)		(6,067	)
Repurchase of Common Stock		(23,219	)		(4,841	)
Issuance of Common Stock		497			918
Net Cash (Used In) Provided By Financing Activities		(93,783	)		52,513

NET CHANGE IN CASH AND CASH EQUIVALENTS		(4,694	)		62,929

Cash and Cash Equivalents at Beginning of Period		177,564			166,359
Cash and Cash Equivalents at End of Period	$	172,870		$	229,288

Supplemental Disclosure:
Interest Paid on Deposits	$	22,103		$	16,105
Interest Paid on Debt	$	4,377		$	5,092
Taxes Paid	$	6,601		$	8,135
Loans Transferred to Other Real Estate	$	1,490		$	638
Issuance of Common Stock as Non-Cash Compensation	$	1,158		$	889
Transfer of Current Portion of Long-Term Borrowings to Short-Term Borrowings	$	199		$	3,061

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

CAPITAL CITY BANK GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - MANAGEMENT'S OPINION AND ACCOUNTING POLICIES

Basis of Presentation

Capital City Bank Group, Inc. (“CCBG” or the “Company”) provides a full range of banking and banking-related services to individual and corporate customers through its subsidiary with banking offices located in Florida, Georgia, and Alabama. The Company is subject to competition from other financial institutions, is subject to regulations of certain government agencies and undergoes periodic examinations by those regulatory authorities.

The unaudited consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission, including Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. Prior period financial statements have been reformatted and amounts reclassified, as necessary, to conform with the current presentation. The Company and its subsidiary follow accounting principles generally accepted in the United States (“GAAP”) and reporting practices applicable to the banking industry. The principles that materially affect its financial position, results of operations and cash flows are set forth in the Notes to Consolidated Financial Statements which are included in the Company's 2006 Annual Report on Form 10-K.

In the opinion of management, the consolidated financial statements contain all adjustments, which are those of a recurring nature, and disclosures necessary to present fairly the financial position of the Company as of June 30, 2007, December 31, 2006, and June 30, 2006, the results of operations for the three and six month periods ended June 30, 2007 and 2006, and cash flows for the six month periods ended June 30, 2007 and 2006.

NOTE 2 - INVESTMENT SECURITIES

The amortized cost and related market value of investment securities available-for-sale were as follows:

	June 30, 2007
(Dollars in Thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Market Value
U.S. Treasury	$	12,129	$	5	$	54	$	12,080
U.S. Government Agencies		57,326		2		582		56,746
States and Political Subdivisions		86,011		4		726		85,289
Mortgage-Backed Securities		23,073		5		473		22,605
Other Securities⁽¹⁾		12,923		37		-		12,960
Total Investment Securities	$	191,462	$	53	$	1,835	$	189,680

	December 31, 2006
(Dollars in Thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Market Value
U.S. Treasury	$	12,098	$	16	$	49	$	12,065
U.S. Government Agencies		61,619		37		593		61,063
States and Political Subdivisions		83,621		16		415		83,222
Mortgage-Backed Securities		23,244		23		371		22,896
Other Securities⁽¹⁾		12,648		-		-		12,648
Total Investment Securities	$	193,230	$	92	$	1,428	$	191,894

⁽¹⁾	Federal Home Loan Bank and Federal Reserve Bank stock recorded at cost.

NOTE 3 - LOANS

The composition of the Company's loan portfolio was as follows:

(Dollars in Thousands)	June 30, 2007		December 31, 2006
Commercial, Financial and Agricultural	$	203,555	$	229,327
Real Estate-Construction		159,751		179,072
Real Estate-Commercial		640,172		643,885
Real Estate-Residential		500,631		531,968
Real Estate-Home Equity		175,781		173,597
Real Estate-Loans Held-for-Sale		7,867		4,170
Consumer		242,954		237,702
Loans, Net of Unearned Interest	$	1,930,711	$	1,999,721

Net deferred fees included in loans at June 30, 2007 and December 31, 2006 were $1.4 million and $1.5 million, respectively.

NOTE 4 - ALLOWANCE FOR LOAN LOSSES

An analysis of the changes in the allowance for loan losses for the six month periods ended June 30 was as follows:

(Dollars in Thousands)	2007		2006
Balance, Beginning of Period	$	17,217	$	17,410
Provision for Loan Losses		2,912		788
Recoveries on Loans Previously Charged-Off		946		907
Loans Charged-Off		(3,606)		(1,841)
Balance, End of Period	$	17,469	$	17,264

Impaired Loans. Loans are considered impaired when, based on current information and events, it is probable the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. Selected information pertaining to impaired loans is depicted in the table below:

	June 30, 2007				December 31, 2006
(Dollars in Thousands)	Balance		Valuation Allowance		Balance		Valuation Allowance
Impaired Loans:
With Related Valuation Allowance	$	12,909	$	2,874	$	6,085	$	2,255
Without Related Valuation Allowance		4,869		-		4,574		-

NOTE 5 - INTANGIBLE ASSETS

The Company had net intangible assets of $101.5 million and $104.4 million at June 30, 2007 and December 31, 2006, respectively. Intangible assets were as follows:

	June 30, 2007				December 31, 2006
(Dollars in Thousands)	Gross Amount		Accumulated Amortization		Gross Amount		Accumulated Amortization
Core Deposit Intangibles	$	47,176	$	31,776	$	47,176	$	28,955
Goodwill		84,811		-		84,811		-
Customer Relationship Intangible		1,867		593		1,867		497
Total Intangible Assets	$	133,854	$	32,369	$	133,854	$	29,452

Net Core Deposit Intangibles: As of June 30, 2007 and December 31, 2006, the Company had net core deposit intangibles of $15.4 million and $18.2 million, respectively. Amortization expense for the first six months of 2007 and 2006 was $2.8 million. Estimated annual amortization expense is $5.7 million.

Goodwill: As of June 30, 2007 and December 31, 2006, the Company had goodwill, net of accumulated amortization, of $84.8 million. Goodwill is the Company's only intangible asset that is no longer subject to amortization under the provisions of Statement of Financial Accounting Standards (“SFAS No. 142").

Other: As of June 30, 2007 and December 31, 2006, the Company had a customer relationship intangible, net of accumulated amortization, of $1.3 million and $1.4 million, respectively. This intangible was recorded as a result of the March 2004 acquisition of trust customer relationships from Synovus Trust Company. Amortization expense for the first six months of 2007 and 2006 was $96,000. Estimated annual amortization expense is $191,000 based on use of a 10-year useful life.

NOTE 6 - DEPOSITS

The composition of the Company's interest bearing deposits at June 30, 2007 and December 31, 2006 was as follows:

(Dollars in Thousands)	June 30, 2007		December 31, 2006
NOW Accounts	$	559,050	$	599,433
Money Market Accounts		401,415		384,568
Savings Deposits		119,585		125,500
Other Time Deposits		472,554		482,139
Total Interest Bearing Deposits	$	1,552,604	$	1,591,640

NOTE 7 – INCOME TAXES

The Company adopted the provisions of FASB Interpretation No. 48, "Accounting for Income Tax Uncertainties" ("FIN 48"), on January 1, 2007. There was no effect on its financial condition or results of operations as a result of implementing FIN 48. The Company had unrecognized tax benefits of approximately $2.0 million at June 30, 2007, all of which, if recognized, would affect the effective tax rate. In addition, interest and penalties associated with these unrecognized tax benefits was approximately $213,000.

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company is no longer subject to U.S. federal tax examinations for years before 2003. In addition, no state jurisdictions remain subject to examination before 2003. No material change to the Company’s unrecognized tax positions is expected over the next 12 months. As a policy, the Company recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.

NOTE 8 - STOCK-BASED COMPENSATION

In accordance with the Company’s adoption of SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), in the first quarter of 2003, the cost related to stock-based associate compensation included in net income has been accounted for under the fair value method in all reported periods.

On January 1, 2006, the Company adopted SFAS 123R "Share-Based Payment"(Revised). The Company continues to include the cost of its share-based compensation plans in net income under the fair value method.

As of June 30, 2007, the Company had three stock-based compensation plans, consisting of the 2005 Associate Incentive Plan ("AIP"), the 2005 Associate Stock Purchase Plan ("ASPP"), and the 2005 Director Stock Purchase Plan ("DSPP"). Total compensation expense associated with these plans for the six months ended June 30, 2007 and 2006 was approximately $137,000 and $889,000, respectively.

AIP. The Company's AIP allows the Company's Board of Directors to award key associates various forms of equity-based incentive compensation. Under the AIP, the Company has adopted the Stock-Based Incentive Plan (the "Incentive Plan"), effective January 1, 2006, which is a performance-based equity bonus plan for selected members of management, including all executive officers. Under the Incentive Plan, all participants are eligible to earn an equity award, consisting of performance shares, in each year of the five-year period ending December 31, 2010. Annual awards are tied to the annual earnings progression necessary to achieve the Project 2010 goal of $50.0 million in annual net income. The grant-date fair value of an annual compensation award is approximately $1.5 million. A total of 43,437 shares are eligible for issuance annually.

At the end of each calendar year, the Compensation Committee of the Company’s Board of Directors will confirm whether the performance goals have been met prior to the payout of any awards. Any performance shares earned under the Incentive Plan will be issued in the calendar quarter following the calendar year in which the shares were earned. A total of 32,799 shares were issued under this plan during the first quarter of 2007 related to the 2006 award.

The Company did not recognize any expense for the first six months of 2007 related to the Incentive Plan as results fell short of the earnings performance goal. The Company recognized expense of $745,000 for the first six months of 2006 for the Incentive Plan. A total of 875,000 shares of common stock have been reserved for issuance under the AIP. To date, the Company has issued 60,892 shares of common stock under the AIP.

Executive Stock Option Agreement. In 2006 and 2005, under the provisions of the AIP, the Company's Board of Directors approved stock option agreements for a key executive officer (William G. Smith, Jr. - Chairman, President and CEO, CCBG). Similar stock option agreements were approved in 2004 and 2003. These agreements grant a non-qualified stock option award upon achieving certain annual earnings per share conditions set by the Board, subject to certain vesting requirements. The options granted under the agreements have a term of ten years and vest at a rate of one-third on each of the first, second, and third anniversaries of the date of grant. Under the 2004 and 2003 agreements, 37,246 and 23,138 options, respectively, were issued, none of which have been exercised. The fair value of a 2004 option was $13.42, and the fair value of a 2003 option was $11.64. The exercise prices for the 2004 and 2003 options are $32.69 and $32.96, respectively. Under the 2006 and 2005 agreements, the earnings per share conditions were not met; therefore, no expense was recognized related to these agreements. In accordance with the provisions of SFAS 123R and SFAS 123, the Company recognized expense of approximately $94,000 and $95,000 for the first six months of 2007 and 2006, respectively, related to the 2004 and 2003 agreements. In 2007, the Company replaced its practice of entering into a stock option arrangement by establishing a Performance Share Unit Plan under the provisions of the AIP that allows the executive to earn shares based on the compound annual growth rate in diluted earnings per share over a three-year period. The details of this program for the executive are outlined in a Form 8-K filing dated January 31, 2007. No expense related to this plan was recognized during the first six months of 2007 as results fell short of the earnings performance goal.

A summary of the status of the Company’s option shares as of June 30, 2007 is presented below:

Options	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Term		Aggregate Intrinsic Value
Outstanding at January 1, 2007	60,384	$	32.79	$	8.3	$	151,355
Granted	-		-		-		-
Exercised	-		-		-		-
Forfeited or expired	-		-		-		-
Outstanding at June 30, 2007	60,384	$	32.79	$	4.64	$	(87,766)
Exercisable at June 30, 2007	47,720	$	32.79	$	4.64	$	(70,670)

As of June 30, 2007, there was approximately $63,000 of total unrecognized compensation cost related to the nonvested option shares granted under the agreements. That cost is expected to be recognized over the next six months.

DSPP. The Company's DSPP allows the directors to purchase the Company's common stock at a price equal to 90% of the closing price on the date of purchase. Stock purchases under the DSPP are limited to the amount of the directors' annual cash compensation. The DSPP has 93,750 shares reserved for issuance. A total of 27,516 shares have been issued since the inception of the DSPP. For the first six months of 2007, the Company issued 8,778 shares under the DSPP and recognized approximately $23,000 in expense related to this plan. For the first six months of 2006, the Company issued 7,002 shares and recognized approximately $24,000 in expense related to the DSPP.

ASPP. Under the Company's ASPP, substantially all associates may purchase the Company's common stock through payroll deductions at a price equal to 90% of the lower of the fair market value at the beginning or end of each six-month offering period. Stock purchases under the ASPP are limited to 10% of an associate's eligible compensation, up to a maximum of $25,000 (fair market value on each enrollment date) in any plan year. Shares are issued at the beginning of the quarter following each six-month offering period. The ASPP has 593,750 shares of common stock reserved for issuance. A total of 59,812 shares have been issued since inception of the ASPP. For the first six months of 2007, the Company issued 23,531 shares under the ASPP and recognized $51,000 in expense related to this plan. For the first six months of 2006, the Company issued 9,343 shares and recognized $45,000 in expense related to the ASPP.

Based on the Black-Scholes option pricing model, the weighted average estimated fair value of the purchase rights granted under the ASPP Plan was $5.91 for the first six months of 2007. For the first six months of 2006, the weighted average fair value of the purchase rights granted was $6.22. In calculating compensation, the fair value of each stock purchase right was estimated on the date of grant using the following weighted average assumptions:

	Six Months Ended June 30,
	2007			2006
Dividend yield		2.0	%		1.8	%
Expected volatility		24.0	%		25.0	%
Risk-free interest rate		4.9	%		4.0	%
Expected life (in years)		0.5			0.5

NOTE 9 - EMPLOYEE BENEFIT PLANS

The Company has a defined benefit pension plan covering substantially all full-time and eligible part-time associates and a Supplemental Executive Retirement Plan (“SERP”) covering its executive officers.

The components of the net periodic benefit costs for the Company's qualified benefit pension plan were as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in Thousands)	2007			2006			2007			2006

Discount Rate		6.00	%		5.75	%		6.00	%		5.75	%
Long-Term Rate of Return on Assets		8.00	%		8.00	%		8.00	%		8.00	%

Service Cost	$	1,350		$	1,250		$	2,700		$	2,500
Interest Cost		1,025			875			2,050			1,750
Expected Return on Plan Assets		(1,300	)		(975	)		(2,600	)		(1,950	)
Prior Service Cost Amortization		100			50			200			100
Net Loss Amortization		250			375			500			750
Net Periodic Benefit Cost	$	1,425		$	1,575		$	2,850		$	3,150

The components of the net periodic benefit costs for the Company's SERP were as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in Thousands)	2007			2006			2007			2006

Discount Rate		6.00	%		5.75	%		6.00	%		5.75	%

Service Cost	$	25		$	30		$	50		$	60
Interest Cost		63			56			126			112
Expected Return on Plan Assets		N/A			N/A			N/A			N/A
Prior Service Cost Amortization		3			15			6			38
Net Loss Amortization		18			19			36			30
Net Periodic Benefit Cost	$	109		$	120		$	218		$	240

NOTE 10 - COMMITMENTS AND CONTINGENCIES

Lending Commitments. The Company is a party to financial instruments with off-balance sheet risks in the normal course of business to meet the financing needs of its clients. These financial instruments consist of commitments to extend credit and standby letters of credit.

The Company’s maximum exposure to credit loss under standby letters of credit and commitments to extend credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in establishing commitments and issuing letters of credit as it does for on-balance sheet instruments. As of June 30, 2007, the amounts associated with the Company’s off-balance sheet obligations were as follows:

(Dollars in Millions)	Amount
Commitments to Extend Credit⁽¹⁾	$	408
Standby Letters of Credit	$	14

⁽¹⁾	Commitments include unfunded loans, revolving lines of credit, and other unused commitments.

Commitments to extend credit are agreements to lend to a client so long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

Contingencies. The Company is a party to lawsuits and claims arising out of the normal course of business. In management's opinion, there are no known pending claims or litigation, the outcome of which would, individually or in the aggregate, have a material effect on the consolidated results of operations, financial position, or cash flows of the Company.

NOTE 11 - COMPREHENSIVE INCOME

SFAS No. 130, "Reporting Comprehensive Income," requires that certain transactions and other economic events that bypass the income statement be displayed as other comprehensive income. Comprehensive income totaled $7.3 million and $14.6 million, respectively, for the three and six months ended June 30, 2007, and $7.7 million and $15.1 million, respectively, for the comparable periods in 2006. The Company’s comprehensive income consists of net income and changes in unrealized gains (losses) on securities available-for-sale (net of income taxes) and changes in the pension liability (net of taxes). Changes in unrealized gains (losses), net of taxes, on securities totaled approximately ($585,000) and ($270,000), respectively, for the three and six months ended June, 2007, and ($576,000) and ($668,000), respectively, for the three and six months ended June 30, 2006. Reclassification adjustments consist only of realized gains and losses on sales of investment securities and were not material for the six months ended June 30, 2007 and 2006.

QUARTERLY FINANCIAL DATA (UNAUDITED)

	2007				2006								2005
(Dollars in Thousands, Except Per Share Data)	Second		First		Fourth		Third		Second		First		Fourth		Third
Summary of Operations:
Interest Income	$	41,724	$	41,514	$	42,600	$	42,512	$	41,369	$	39,412	$	38,780	$	36,889
Interest Expense		13,263		13,189		13,003		12,289		11,182		10,282		9,470		7,885
Net Interest Income		28,461		28,325		29,597		30,223		30,187		29,130		29,310		29,004
Provision for Loan Losses		1,675		1,237		460		711		121		667		1,333		376
Net Interest Income After Provision for Loan Losses		26,786		27,088		29,137		29,512		30,066		28,463		27,977		28,628
Noninterest Income		15,084		13,962		14,385		14,144		14,003		13,045		12,974		13,123
Merger Expense		-		-		-		-		-		-		24		180
Noninterest Expense		29,897		30,562		29,984		30,422		31,070		30,092		29,318		28,429
Income Before Provision for Income Taxes		11,973		10,488		13,538		13,234		12,999		11,416		11,609		13,142
Provision for Income Taxes		4082		3,531		4,688		4,554		4,684		3,995		4,150		4,565
Net Income	$	7,891	$	6,957	$	8,850	$	8,680	$	8,315	$	7,421	$	7,459	$	8,577
Net Interest Income (FTE)	$	29,049	$	28,898	$	30,152	$	30,745	$	30,591	$	29,461	$	29,652	$	29,329

Per Common Share:
Net Income Basic	$	.43	$	.38	$	.48	$	.47	$	.44	$	.40	$	.40	$	.46
Net Income Diluted		.43		.38		.48		.47		.44		.40		.40		.46
Dividends Declared		.175		.175		.175		.163		.163		.163		.163		.152
Diluted Book Value		16.87		16.97		17.01		17.18		16.81		16.65		16.39		16.17
Market Price:
High		33.69		35.91		35.98		33.25		35.39		37.97		39.33		38.72
Low		29.12		29.79		30.14		29.87		29.51		33.79		33.21		31.78
Close		31.34		33.30		35.30		31.10		30.20		35.55		34.29