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 September 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 October 31, 2007, 17,560,064 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 SEPTEMBER 30, 2007

TABLE OF CONTENTS

PART I – Financial Information		Page

Item 1.	Consolidated Financial Statements (Unaudited)
	Consolidated Statements of Income – Three and Nine Months Ended September 30, 2007 and 2006	4
	Consolidated Balance Sheets – September 30, 2007, December 31, 2006, and September 30, 2006	5
	Consolidated Statements of Changes in Shareowners’ Equity – Nine Months Ended September 30, 2007 and 2006	6
	Consolidated Statements of Cash Flow – Nine Months Ended September 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 3.	Defaults Upon Senior Securities	32

Item 5.	Other Information	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 real estate market, 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;

§	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 SEPTEMBER 30

(Unaudited)

	Three Months Ended				Nine Months Ended
(Dollars in Thousands, Except Per Share Data)	2007		2006		2007		2006
INTEREST INCOME
Interest and Fees on Loans	$	38,692	$	40,260	$	116,838	$	116,570
Investment Securities:
U.S. Treasury		143		132		425		310
U.S. Govt. Agencies		906		929		2,762		2,672
States and Political Subdivisions		743		650		2,127		1,672
Other Securities		176		203		536		606
Funds Sold		639		338		1,849		1,463
Total Interest Income		41,299		42,512		124,537		123,293

INTEREST EXPENSE
Deposits		11,266		9,985		33,364		26,423
Short-Term Borrowings		734		753		2,232		2,352
Subordinated Notes Payable		936		936		2,794		2,789
Other Long-Term Borrowings		453		615		1,451		2,189
Total Interest Expense		13,389		12,289		39,841		33,753

NET INTEREST INCOME		27,910		30,223		84,696		89,540
Provision for Loan Losses		1,552		711		4,464		1,499
Net Interest Income After Provision For Loan Losses		26,358		29,512		80,232		88,041

NONINTEREST INCOME
Service Charges on Deposit Accounts		6,387		6,450		18,874		18,226
Data Processing		775		673		2,280		2,014
Asset Management Fees		1,200		1,215		3,600		3,420
Securities Transactions		-		-		7		(4)
Mortgage Banking Revenues		642		824		2,171		2,448
Other		5,427		4,982		16,545		15,089
Total Noninterest Income		14,431		14,144		43,477		41,193

NONINTEREST EXPENSE
Salaries and Associate Benefits		15,096		15,277		45,807		45,912
Occupancy, Net		2,409		2,354		6,969		6,935
Furniture and Equipment		2,513		2,492		7,356		7,652
Intangible Amortization		1,459		1,536		4,376		4,601
Other		8,442		8,763		25,870		26,484
Total Noninterest Expense		29,919		30,422		90,378		91,584

INCOME BEFORE INCOME TAXES		10,870		13,234		33,331		37,650
Income Taxes		3,699		4,554		11,312		13,234

NET INCOME	$	7,171	$	8,680	$	22,019	$	24,416

Basic Net Income Per Share	$	.41	$	.47	$	1.22	$	1.31
Diluted Net Income Per Share	$	.41	$	.47	$	1.22	$	1.31

Average Basic Shares Outstanding		17,709,119		18,529,926		18,066,393		18,604,488
Average Diluted Share Outstanding		17,719,436		18,564,932		18,076,916		18,627,167

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 SEPTEMBER 30, 2007, DECEMBER 31, 2006, AND SEPTEMBER 30, 2006

(Unaudited)

(Dollars In Thousands, Except Share Data)	September 30, 2007			December 31, 2006			September 30, 2006
ASSETS
Cash and Due From Banks	$	91,378		$	98,769		$	100,781
Funds Sold and Interest Bearing Deposits		19,599			78,795			35,631
Total Cash and Cash Equivalents		110,977			177,564			136,412

Investment Securities, Available-for-Sale		184,609			191,894			190,617

Loans, Net of Unearned Interest		1,903,888			1,999,721			2,009,459
Allowance for Loan Losses		(18,001	)		(17,217	)		(17,311	)
Loans, Net		1,885,887			1,982,504			1,992,148

Premises and Equipment, Net		95,816			86,538			84,915
Goodwill		84,811			84,811			84,810
Other Intangible Assets		15,215			19,591			21,076
Other Assets		62,611			55,008			48,895
Total Assets	$	2,439,926		$	2,597,910		$	2,558,873

LIABILITIES
Deposits:
Noninterest Bearing Deposits	$	419,242		$	490,014		$	506,331
Interest Bearing Deposits		1,518,171			1,591,640			1,542,908
Total Deposits		1,937,413			2,081,654			2,049,239

Short-Term Borrowings		63,817			65,023			54,171
Subordinated Notes Payable		62,887			62,887			62,887
Other Long-Term Borrowings		29,725			43,083			43,701
Other Liabilities		47,031			29,493			29,833
Total Liabilities		2,140,873			2,282,140			2,239,831

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; 17,628,499, 18,518,398, and 18,532,104 shares issued and outstanding at September 30, 2007, December 31, 2006, and September 30, 2006, respectively		176			185			185
Additional Paid-In Capital		50,789			80,654			80,938
Retained Earnings		255,876			243,242			238,870
Accumulated Other Comprehensive Loss, Net of Tax		(7,788	)		(8,311	)		(951	)
Total Shareowners' Equity		299,053			315,770			319,042
Total Liabilities and Shareowners' Equity	$	2,439,926		$	2,597,910		$	2,558,873

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		-		-		24,416		-
Net Change in Unrealized Loss On Available-for-Sale Securities (net of tax)		-		-		-		295
Total Comprehensive Income		-		-		-		-		24,711
Cash Dividends ($.3250 per share)		-		-		(9,078)		-		(9,078)
Stock Performance Plan Compensation		-		1,504		-		-		1,504
Issuance of Common Stock		1		969		-		-		970
Repurchase of Common Stock		(2)		(4,839)		-		-		(4,841)

Balance, September 30, 2006	$	185	$	80,938	$	238,870	$	(951)	$	319,042


Balance, January 1, 2007	$	185	$	80,654	$	243,242	$	(8,311)	$	315,770
Comprehensive Income:
Net Income		-		-		22,019		-
Net Change in Unrealized Loss On Available-for-Sale Securities (net of tax)		-		-		-		523
Total Comprehensive Income		-		-		-		-		22,542
Cash Dividends ($.5250 per share)		-		-		(9,608)		-		(9,608)
Miscellaneous - Other		-		-		223		-		223
Stock Performance Plan Compensation		-		135		-		-		135
Issuance of Common Stock		1		544		-		-		545
Repurchase of Common Stock		(10)		(30,544)		-		-		(30,554)

Balance, September 30, 2007	$	176	$	50,789	$	255,876	$	(7,788)	$	299,053

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 NINE MONTHS ENDED SEPTEMBER 30

(Unaudited)

(Dollars in Thousands)	2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	22,019		$	24,416
Adjustments to Reconcile Net Income to Cash Provided by Operating Activities:
Provision for Loan Losses		4,464			1,499
Depreciation		4,673			5,251
Net Securities Amortization		226			480
Amortization of Intangible Assets		4,376			4,601
Securities Transactions		(7	)		4
Origination of Loans Held-for-Sale		(132,961	)		(144,719	)
Proceeds From Sales of Loans Held-for-Sale		136,973			148,330
Net Gain From Sales of Loans Held-for-Sale		(2,171	)		(2,448	)
Non-Cash Compensation		135			1,504
Deferred Income Taxes		549			3,704
Net (Increase) Decrease in Other Assets		(5,443	)		4,225
Net Increase in Other Liabilities		16,854			2,359
Net Cash Provided By Operating Activities		49,687			49,206

CASH FLOWS FROM INVESTING ACTIVITIES
Securities Available-for-Sale:
Purchases		(35,405	)		(95,807	)
Sales		-			283
Payments, Maturities, and Calls		43,292			75,872
Net Decrease in Loans		88,212			54,636
Purchase of Premises & Equipment		(14,394	)		(16,634	)
Proceeds From Sales of Premises & Equipment		443			286
Net Cash Provided By Investing Activities		82,148			18,636

CASH FLOWS FROM FINANCING ACTIVITIES
Net Decrease in Deposits		(144,241	)		(30,108	)
Net Decrease in Short-Term Borrowings		(1,580	)		(29,209	)
Decrease in Other Long-Term Borrowings		(8,499	)		(9,811	)
Repayment of Other Long-Term Borrowings		(4,485	)		(15,711	)
Dividends Paid		(9,608	)		(9,078	)
Repurchase of Common Stock		(30,554	)		(4,841	)
Issuance of Common Stock		545			969
Net Cash Used In Provided By Financing Activities		(198,422	)		(97,789	)

NET CHANGE IN CASH AND CASH EQUIVALENTS		(66,587	)		(29,947	)

Cash and Cash Equivalents at Beginning of Period		177,564			166,359
Cash and Cash Equivalents at End of Period	$	110,977		$	136,412

Supplemental Disclosure:
Interest Paid on Deposits	$	33,222		$	26,051
Interest Paid on Debt	$	6,540		$	7,523
Taxes Paid	$	8,643		$	11,530
Loans Transferred to Other Real Estate	$	2,828		$	638
Issuance of Common Stock as Non-Cash Compensation	$	1,159		$	1,504
Transfer of Current Portion of Long-Term Borrowings to Short-Term Borrowings	$	10,199		$	13,061

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 September 30, 2007, December 31, 2006, and September 30, 2006, the results of operations for the three and nine month periods ended September 30, 2007 and 2006, and cash flows for the nine month periods ended September 30, 2007 and 2006.

NOTE 2 - INVESTMENT SECURITIES

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

	September 30, 2007
(Dollars in Thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Market Value
U.S. Treasury	$	12,146	$	48	$	-	$	12,194
U.S. Government Agencies		53,124		147		185		53,086
States and Political Subdivisions		86,183		9		329		85,863
Mortgage-Backed Securities		21,364		55		297		21,122
Other Securities⁽¹⁾		12,307		37		-		12,344
Total Investment Securities	$	185,124	$	296	$	811	$	184,609

	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)	September 30, 2007		December 31, 2006
Commercial, Financial and Agricultural	$	205,628	$	229,327
Real Estate-Construction		145,343		179,072
Real Estate-Commercial		631,418		643,885
Real Estate-Residential		485,612		531,968
Real Estate-Home Equity		183,620		173,597
Real Estate-Loans Held-for-Sale		3,615		4,170
Consumer		248,652		237,702
Loans, Net of Unearned Interest	$	1,903,888	$	1,999,721

Net deferred fees included in loans at September 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 nine month periods ended September 30 was as follows:

(Dollars in Thousands)	2007		2006
Balance, Beginning of Period	$	17,217	$	$ 17,410
Provision for Loan Losses		4,464		1,499
Recoveries on Loans Previously Charged-Off		1,465		1,309
Loans Charged-Off		(5,145)		(2,907)
Balance, End of Period	$	18,001	$	$ 17,311

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:

	September 30, 2007				December 31, 2006
(Dollars in Thousands)	Balance		Valuation Allowance		Balance		Valuation Allowance
Impaired Loans:
With Related Valuation Allowance	$	17,595	$	3,375	$	6,085	$	2,255
Without Related Valuation Allowance		5,558		-		4,574		-

NOTE 5 - INTANGIBLE ASSETS

The Company had net intangible assets of $100.0 million and $104.4 million at September 30, 2007 and December 31, 2006, respectively. Intangible assets were as follows:

	September 30, 2007				December 31, 2006
(Dollars in Thousands)	Gross Amount		Accumulated Amortization		Gross Amount		Accumulated Amortization
Core Deposit Intangibles	$	47,176	$	33,188	$	47,176	$	28,955
Goodwill		84,811		-		84,811		-
Customer Relationship Intangible		1,867		640		1,867		497
Total Intangible Assets	$	133,854	$	33,828	$	133,854	$	29,452

Net Core Deposit Intangibles: As of September 30, 2007 and December 31, 2006, the Company had net core deposit intangibles of $14.0 million and $18.2 million, respectively. Amortization expense for the first nine months of 2007 and 2006 was $4.2 million. Estimated annual amortization expense is $5.7 million.

Goodwill: As of September 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 (“SFAS 142”).

Other: As of September 30, 2007 and December 31, 2006, the Company had a customer relationship intangible, net of accumulated amortization, of $1.2 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 nine months of 2007 and 2006 was $143,000. 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 September 30, 2007 and December 31, 2006 was as follows:

(Dollars in Thousands)	September 30, 2007		December 31, 2006
NOW Accounts	$	530,619	$	599,433
Money Market Accounts		399,578		384,568
Savings Deposits		115,955		125,500
Other Time Deposits		472,019		482,139
Total Interest Bearing Deposits	$	1,518,171	$	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 $2.3 million at September 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 $244,000.

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 September 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 nine months ended September 30, 2007 and 2006 was approximately $135,000 and $1.5 million, 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 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, in the form of performance shares, on an annual basis. Annual awards are tied to an internally established annual earnings target. The grant-date fair value of an annual compensation award is approximately $1.5 million. In addition, each plan participant is eligible to receive from the Company a tax supplement bonus equal to 31% of the stock award value at the time of issuance. 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 nine months of 2007 related to the Incentive Plan as the Company’s performance did not achieve the earnings performance goal. The Company recognized expense of $1.1 million for the first nine 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 $146,000 for the first nine 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 nine 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 September 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 September 30, 2007		60,384	$	32.79	$	3.09	$	(96,219	)
Exercisable at September 30, 2007		47,720	$	32.79	$	3.09	$	(77,351	)

As of September 30, 2007, there was approximately $31,000 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 three 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 27,582 shares have been issued since the inception of the DSPP. For the first nine months of 2007, the Company issued 8,884 shares under the DSPP and recognized approximately $29,000 in expense related to this plan. For the first nine months of 2006, the Company issued 10,144 shares and recognized approximately $31,000 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 nine months of 2007, the Company issued 8,895 shares under the ASPP and recognized $78,000 in expense related to this plan. For the first nine months of 2006, the Company issued 9,343 shares and recognized $67,000 in expense related to the ASPP.

Based on the Black-Scholes option pricing model, the weighted average estimated fair value of each of the purchase rights granted under the ASPP Plan was $5.82 for the first nine months of 2007. For the first nine months of 2006, the weighted average fair value purchase right 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:

	Nine Months Ended September 30,
	2007			2006
Dividend yield		2.2	%		1.95	%
Expected volatility		27.0	%		23.5	%
Risk-free interest rate		4.7	%		4.5	%
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 September 30,						Nine Months Ended September 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		$	4,050		$	3,750
Interest Cost		1,025			875			3,075			2,625
Expected Return on Plan Assets		(1,300	)		(975	)		(3,900	)		(2,925	)
Prior Service Cost Amortization		100			50			300			150
Net Loss Amortization		250			375			750			1,125
Net Periodic Benefit Cost	$	1,425		$	1,575		$	4,275		$	4,725

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

	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in Thousands)	2007			2006			2007			2006

Discount Rate		6.00	%		5.75	%		6.00	%		5.75	%

Service Cost	$	25		$	30		$	75		$	90
Interest Cost		63			56			189			168
Prior Service Cost Amortization		3			15			9			45
Net Loss Amortization		18			19			54			57
Net Periodic Benefit Cost	$	109		$	120		$	327		$	360

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 September 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⁾	$	425
Standby Letters of Credit	$	17

⁽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 $8.0 million and $22.5 million, respectively, for the three and nine months ended September 30, 2007, and $9.6 million and $24.7 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 $793,000 and $518,000, respectively, for the three and nine months ended September 2007, and $963,000 and $295,000, respectively, for the three and nine months ended September 30, 2006. Reclassification adjustments consist only of realized gains and losses on sales of investment securities and were not material for the nine months ended September 30, 2007 and 2006.

QUARTERLY FINANCIAL DATA (UNAUDITED)

	2007						2006								2005
(Dollars in Thousands, Except Per Share Data)	Third		Second		First		Fourth		Third		Second		First		Fourth
Summary of Operations:
Interest Income	$	41,299	$	41,724	$	41,514	$	42,600	$	42,512	$	41,369	$	39,412	$	38,780
Interest Expense		13,389		13,263		13,189		13,003		12,289		11,182		10,282		9,470
Net Interest Income		27,910		28,461		28,325		29,597		30,223		30,187		29,130		29,310
Provision for Loan Losses		1,552		1,675		1,237		460		711		121		667		1,333
Net Interest Income After Provision for Loan Losses		26,358		26,786		27,088		29,137		29,512		30,066		28,463		27,977
Noninterest Income		14,431		15,084		13,962		14,385		14,144		14,003		13,045		12,974
Merger Expense		-		-		-		-		-		-		-		24
Noninterest Expense		29,919		29,897		30,562		29,984		30,422		31,070		30,092		29,318
Income Before Provision for Income Taxes		10,870		11,973		10,488		13,538		13,234		12,999		11,416		11,609
Provision for Income Taxes		3,699		4,082		3,531		4,688		4,554		4,684		3,995		4,150
Net Income	$	7,171	$	7,891	$	6,957	$	8,850	$	8,680	$	8,315	$	7,421	$	7,459
Net Interest Income (FTE)	$	28,517	$	29,049	$	28,898	$	30,152	$	30,745	$	30,591	$	29,461	$	29,652

Per Common Share:
Net Income Basic	$	.41	$	.43	$	.38	$	.48	$	.47	$	.44	$	.40	$	.40
Net Income Diluted		.41		.43		.38		.48		.47		.44		.40		.40
Dividends Declared		.175		.175		.175		.175		.163		.163		.163		.163
Diluted Book Value		16.95		16.87		16.97		17.01		17.18		16.81		16.65		16.39
Market Price:
High		36.40		33.69		35.91		35.98		33.25		35.39		37.97		39.33
Low		27.69		29.12		29.79		30.14		29.87		29.51		33.79		33.21
Close		31.20		31.34		33.30		35.30		31.10		30.20		35.55		34.29

Selected Average
Balances:
Loans	$	1,907,235	$	1,944,969	$	1,980,224	$	2,003,719	$	2,025,112	$	2,040,656	$	2,048,642	$	2,062,775
Earning Assets		2,144,737		2,187,236		2,211,560		2,238,066		2,241,158		2,278,817		2,275,667		2,279,010
Assets		2,467,703		2,511,252		2,530,790		2,557,357		2,560,155		2,603,090		2,604,458		2,607,597
Deposits		1,954,160		1,987,418		2,003,726		2,028,453		2,023,523		2,047,755		2,040,248		2,027,017
Shareowners’ Equity		301,536		309,352		316,484		323,903		318,041		315,794		311,461		306,208
Common Equivalent Shares:
Basic		17,709		18,089		18,409		18,525		18,530		18,633