Edgar Filing: CAPITAL CITY BANK GROUP INC

form10q_06302011.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, 2011

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) 402-7000

(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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer”, “accelerated filer", and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer x	Non-accelerated filer o	Smaller reporting company o
		(Do not check if smaller reporting company)

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, 2011, 17,151,996 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, 2011

TABLE OF CONTENTS

PART I – Financial Information			Page

Item 1.	Consolidated Financial Statements (Unaudited)
	Consolidated Statements of Financial Condition – June 30, 2011 and December 31, 2010			4
	Consolidated Statements of Operations – Three and Six Months Ended June 30, 2011 and 2010			5
	Consolidated Statement of Changes in Shareowners’ Equity – Six Months Ended June 30, 2011			6
	Consolidated Statements of Cash Flow – Six Months Ended June 30, 2011 and 2010			7
	Notes to Consolidated Financial Statements			8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations			21

Item 3.	Quantitative and Qualitative Disclosure About Market Risk			38

Item 4.	Controls and Procedures			38

PART II – Other Information

Item 1.		Legal Proceedings	38

Item 1A.		Risk Factors	38

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	38

Item 3.		Defaults Upon Senior Securities	38

Item 4.		[Removed and Reserved]	38

Item 5.		Other Information	38

Item 6.		Exhibits	39

Signatures			40

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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, 2010 (the “2010 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:

§	legislative or regulatory changes, including the Dodd-Frank Wall Street Reform and Consumer Protection Act;

§	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, including the estimate for our loan loss provision and the valuation allowance on deferred tax assets;

§	the frequency and magnitude of foreclosure of our loans;

§	continued depression of the market value of the Company that could result in an impairment of goodwill;

§	restrictions on our operations, including the inability to pay dividends without our regulators’ consent;

§	the effects of the health and soundness of other financial institutions, including the FDIC’s need to increase Deposit Insurance Fund assessments;

§	our ability to declare and pay dividends;

§	changes in the securities and real estate markets;

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

§	increased competition and its effect on pricing, including the effect of the repeal of Regulation Q on our net interest income;

§	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;

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

§	the effects of harsh weather conditions, including hurricanes, and man-made disasters;

§	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;

§	technological changes;

§	negative publicity and the impact on our reputation;

§	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;

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

§	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.

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PART I. FINANCIAL INFORMATION

Item 1. CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

CAPITAL CITY BANK GROUP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

AS OF JUNE 30, 2011 AND DECEMBER 31, 2010

	Unaudited
(Dollars In Thousands, Except Share Data)	June 30, 2011			December 31, 2010
ASSETS
Cash and Due From Banks	$	71,554		$	35,410
Federal Funds Sold and Interest Bearing Deposits		223,183			200,783
Total Cash and Cash Equivalents		294,737			236,193

Investment Securities, Available-for-Sale		304,313			309,731

Loans, Net of Unearned Interest		1,687,602			1,758,671
Allowance for Loan Losses		(31,080	)		(35,436	)
Loans, Net		1,656,522			1,723,235

Premises and Equipment, Net		112,576			115,356
Goodwill		84,811			84,811
Other Intangible Assets		888			1,348
Other Real Estate Owned		61,016			57,937
Other Assets		84,395			93,442
Total Assets	$	2,599,258		$	2,622,053

LIABILITIES
Deposits:
Noninterest Bearing Deposits	$	568,813		$	546,257
Interest Bearing Deposits		1,532,198			1,557,719
Total Deposits		2,101,011			2,103,976

Short-Term Borrowings		65,237			92,928
Subordinated Notes Payable		62,887			62,887
Other Long-Term Borrowings		49,196			50,101
Other Liabilities		60,383			53,142
Total Liabilities		2,338,714			2,363,034

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; 17,127,320 and 17,100,081 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively		171			171
Additional Paid-In Capital		37,724			36,920
Retained Earnings		237,709			237,679
Accumulated Other Comprehensive Loss, Net of Tax		(15,060	)		(15,751	)
Total Shareowners' Equity		260,544			259,019
Total Liabilities and Shareowners' Equity	$	2,599,258		$	2,622,053

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

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CAPITAL CITY BANK GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE AND SIX MONTHS ENDED JUNE 30

(Unaudited)

	Three Months Ended				Six Months Ended
(Dollars in Thousands, Except Per Share Data)	2011		2010		2011		2010
INTEREST INCOME
Interest and Fees on Loans	$	24,305	$	26,644	$	48,252	$	53,636
Investment Securities:
U.S. Treasuries		405		330		806		433
U.S. Government Agencies		336		299		693		619
States and Political Subdivisions		193		406		412		896
Other Securities		83		79		177		156
Federal Funds Sold		145		176		316		348
Total Interest Income		25,467		27,934		50,656		56,088

INTEREST EXPENSE
Deposits		1,083		2,363		2,341		5,301
Short-Term Borrowings		110		12		221		29
Subordinated Notes Payable		343		639		683		1,290
Other Long-Term Borrowings		492		551		986		1,077
Total Interest Expense		2,028		3,565		4,231		7,697

NET INTEREST INCOME		23,439		24,369		46,425		48,391
Provision for Loan Losses		3,545		3,633		7,678		14,373
Net Interest Income After Provision For Loan Losses		19,894		20,736		38,747		34,018

NONINTEREST INCOME
Service Charges on Deposit Accounts		6,309		7,039		12,292		13,667
Data Processing		764		919		1,738		1,819
Asset Management Fees		1,080		1,080		2,160		2,100
Retail Brokerage Fees		939		846		1,668		1,411
Securities Transactions		-		-		-		5
Mortgage Banking Fees		568		641		1,185		1,149
Bank Card Fees		2,558		2,362		5,054		4,537
Other		2,230		1,787		6,685		3,953
Total Noninterest Income		14,448		14,674		30,782		28,641

NONINTEREST EXPENSE
Salaries and Associate Benefits		16,000		15,584		32,577		32,363
Occupancy, Net		2,447		2,585		4,843		4,993
Furniture and Equipment		2,117		2,192		4,343		4,373
Intangible Amortization		107		710		460		1,420
Other Real Estate		3,033		4,082		6,710		6,907
Other		7,463		9,476		15,565		17,957
Total Noninterest Expense		31,167		34,629		64,498		68,013

INCOME (LOSS) BEFORE INCOME TAXES		3,175		781		5,031		(5,354	)
Income Tax Expense (Benefit)		1,030		50		1,576		(2,622	)

NET INCOME (LOSS)	$	2,145	$	731	$	3,455	$	(2,732)

Basic Net Income (Loss) Per Share	$	0.12	$	0.04	$	0.20	$	(0.16)
Diluted Net Income (Loss) Per Share	$	0.12	$	0.04	$	0.20	$	(0.16)

Average Basic Shares Outstanding		17,127,302		17,063,176		17,124,468		17,060,135
Average Diluted Shares Outstanding		17,139,234		17,074,202		17,134,520		17,071,031

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

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CAPITAL CITY BANK GROUP, INC.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREOWNERS' EQUITY

(Unaudited)

(Dollars In Thousands, Except Share Data)	Shares Outstanding		Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income, Net of Taxes			Total

Balance, December 31, 2010	17,100,081	$	171	$	36,920	$	237,679		$	(15,751	)	$	259,019
Comprehensive Income:
Net Income	-		-		-		3,455			-			3,455
Net Change in Unrealized Gain On Available-for-Sale Securities (net of tax)	-		-		-		-			691			691
Total Comprehensive Income	-		-		-								4,146
Cash Dividends ($0.20 per share)	-		-		-		(3,425	)		-			(3,425	)
Stock Performance Plan Compensation	-		-		391		-			-			391
Issuance of Common Stock	27,239		-		413		-			-			413

Balance, June 30, 2011	17,127,320	$	171	$	37,724	$	237,709		$	(15,060	)	$	260,544

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

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CAPITAL CITY BANK GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30

(Unaudited)

(Dollars in Thousands)	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss)	$	3,455		$	(2,732	)
Adjustments to Reconcile Net Income to Cash Provided by Operating Activities:
Provision for Loan Losses		7,678			14,373
Depreciation		3,464			3,495
Net Securities Amortization		1,951			1,537
Amortization of Intangible Assets		460			1,420
Gain (Loss) on Securities Transactions		-			(5	)
Loss on Impaired Security		-			61
Origination of Loans Held-for-Sale		(51,887	)		(59,639	)
Proceeds From Sales of Loans Held-for-Sale		54,181			56,119
Net Gain From Sales of Loans Held-for-Sale		(1,186	)		(1,149	)
Non-Cash Compensation		391			115
Decrease in Deferred Income Taxes		417			538
Net Decrease in Other Assets		28,048			7,495
Net Increase in Other Liabilities		7,353			10,186
Net Cash Provided By Operating Activities		54,325			31,814

CASH FLOWS FROM INVESTING ACTIVITIES
Securities Available-for-Sale:
Purchases		(41,915	)		(91,038	)
Sales		-			505
Payments, Maturities, and Calls		46,502			47,871
Net Decrease in Loans		35,001			54,993
Purchase of Premises & Equipment		(685	)		(4,858	)
Net Cash Provided By Investing Activities		38,903			7,473

CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in Deposits		(2,965	)		(57,923	)
Net Decrease in Short-Term Borrowings		(27,690	)		(14,465	)
Increase in Other Long-Term Borrowings		789			8,015
Repayment of Other Long-Term Borrowings		(1,695	)		(1,790	)
Dividends Paid		(3,425	)		(4,949	)
Issuance of Common Stock		302			420
Net Cash Used by Financing Activities		(34,684	)		(70,692	)

NET CHANGE IN CASH AND CASH EQUIVALENTS		58,544			(31,405	)

Cash and Cash Equivalents at Beginning of Period		236,193			334,293
Cash and Cash Equivalents at End of Period	$	294,737		$	302,888

Supplemental Disclosure:
Interest Paid on Deposits	$	2,641		$	5,804
Interest Paid on Debt		1,975			2,407
Taxes Paid		2,737			338
Loans Transferred to Other Real Estate Owned		22,926			23,904
Issuance of Common Stock as Non-Cash Compensation		413			420
Transfer of Current Portion of Long-Term Borrowings	$	-		$	16

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

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CAPITAL CITY BANK GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SIGNIFICANT 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 clients through its subsidiary, Capital City Bank, with banking offices located in Florida, Georgia, and Alabama. The Company is subject to competition from other financial institutions, is subject to regulation by 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 to 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 2010 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, 2011 and December 31, 2010, the results of operations for the three and six months ended June 30, 2011 and 2010, and cash flows for the six months ended June 30, 2011 and 2010.

NOTE 2 - INVESTMENT SECURITIES

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

	June 30, 2011
(Dollars in Thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Market Value
U.S. Treasury	$	168,585	$	1,625	$	3	$	170,207
U.S. Government Agencies and Corporations		10,367		-		4		10,363
States and Political Subdivisions		56,577		255		14		56,818
Mortgage-Backed Securities		54,149		985		59		55,075
Other Securities(1)		12,450		-		600		11,850
Total Investment Securities	$	302,128	$	2,865	$	680	$	304,313

	December 31, 2010
(Dollars in Thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Market Value
U.S. Treasury	$	160,913	$	1,371	$	134	$	162,150
U.S. Government Agencies and Corporations		-		-		-		-
States and Political Subdivisions		78,990		319		9		79,300
Mortgage-Backed Securities		56,099		678		560		56,217
Other Securities(1)		12,664		-		600		12,064
Total Investment Securities	$	308,666	$	2,368	$	1,303	$	309,731

(1)	Includes Federal Home Loan Bank and Federal Reserve Bank stock recorded at cost of $7.0 million and $4.8 million, respectively, at June 30, 2011 and $7.2 million and $4.8 million, respectively, at December 31, 2010.

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Securities with an amortized cost of $130.8 million and $131.6 million at June 30, 2011 and December 31, 2010, respectively, were pledged to secure public deposits and for other purposes.

The Company’s subsidiary, Capital City Bank, as a member of the Federal Home Loan Bank (“FHLB”) of Atlanta, is required to own capital stock in the FHLB of Atlanta based generally upon the balances of residential and commercial real estate loans, and FHLB advances. FHLB stock of $7.0 million, which is included in other securities, is pledged to secure FHLB advances. No ready market exists for this stock, and it has no quoted market value. However, redemption of this stock has historically been at par value.

Maturity Distribution. As of June 30, 2011, the Company's investment securities had the following maturity distribution based on contractual maturities:

(Dollars in Thousands)	Amortized Cost		Market Value
Due in one year or less	$	107,175	$	107,682
Due after one through five years		169,954		172,110
Due after five through 10 years		10,797		10,926
Due after 10 years		1,752		1,745
No Maturity		12,450		11,850
Total Investment Securities	$	302,128	$	304,313

Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Other Than Temporarily Impaired Securities. The following table summarizes the investment securities with unrealized losses at June 30, 2011 aggregated by major security type and length of time in a continuous unrealized loss position:

							June 30, 2011
	Less Than 12 Months						Greater Than 12 Months						Total
(Dollars in Thousands)	Market Value			Unrealized Losses			Market Value			Unrealized Losses			Market Value			Unrealized Losses
U.S. Treasury		$	3,481		$	3		$	-		$	-		$	3,481		$	3
U.S. Government Agencies and Corporations			10,367			4			-			-			10,367			4
States and Political Subdivisions			3,716			14			-			-			3,716			14
Mortgage-Backed Securities			7,011			59			-			-			7,011			59
Other Securities			-			-			-			600			-			600
Total Investment Securities		$	24,575		$	80		$	-		$	600		$	24,575		$	680

Management evaluates securities for other than temporary impairment at least quarterly, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the nature of the securities, the underlying collateral, the financial condition of the issuer, the extent and duration of the loss, our intent related to the individual securities, and the likelihood that we will have to sell the securities prior to the expected recovery. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by rating agencies have occurred, regulatory issues, and analysts’ reports.

At June 30, 2011, the Company had securities of $302.1 million with net pre-tax unrealized gains of $2.2 million on these securities, of which $25.0 million have unrealized losses totaling $0.1 million and have been in a loss position for less than 12 months. These securities are primarily in a loss position because they were acquired when the general level of interest rates was lower than that on June 30, 2011. The Company believes that the losses in these securities are temporary in nature and that the full principal will be collected as anticipated. Because the declines in the market value of these investments are attributable to changes in interest rates and not credit quality and because the Company has the ability and intent to hold these investments until there is a recovery in fair value, which may be at maturity, the Company does not consider these investments to be other-than-temporarily impaired at June 30, 2011. One preferred bank stock issue for $0.6 million has been in a loss position for greater than 12 months. The Company continues to closely monitor the fair value of this security as the subject bank continues to experience negative operating trends.

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NOTE 3 - LOANS

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

(Dollars in Thousands)	June 30, 2011		December 31, 2010
Commercial, Financial and Agricultural	$	149,830	$	157,394
Real Estate-Construction		30,867		43,239
Real Estate-Commercial		660,058		671,702
Real Estate-Residential(1)		395,199		424,229
Real Estate-Home Equity		248,228		251,565
Real Estate-Loans Held-for-Sale		5,914		6,312
Consumer		197,506		204,230
Loans, Net of Unearned Interest	$	1,687,602	$	1,758,671

(1)	Includes loans in process with outstanding balances of $6.3 million and $10.0 million for June 30, 2011 and December 31, 2010, respectively.

Net deferred fees included in loans at June 30, 2011 and December 31, 2010 were $1.7 million and $1.8 million, respectively.

Past Due Loans. A loan is defined as a past due loan when one full payment is past due or a contractual maturity is over 30 days past due (“DPD”).

The following table presents the aging of the recorded investment in past due loans as of June 30, 2011 and December 31, 2010 by class of loans:

June 30, 2011 (Dollars in Thousands)	30-59 DPD		60-89 DPD		90 + DPD		Total Past Due		Total Current		Total Loans
Commercial, Financial and Agricultural	$	754		208		-		962		147,736		$	149,830
Real Estate - Construction		140		-		-		140		29,571			30,867
Real Estate - Commercial Mortgage		3,681		1,217		-		4,898		627,931			660,058
Real Estate - Residential		4,695		2,398		271		7,364		360,256			395,126
Real Estate - Home Equity		1,519		431		-		1,950		243,004			248,228
Consumer		2,787		273		-		3,060		196,772			203,493
Total Past Due Loans	$	13,576		4,527		271		18,374		1,605,270		$	1,687,602

December 31, 2010 (Dollars in Thousands)	30-59 DPD		60-89 DPD		90 + DPD		Total Past Due		Total Current		Total Loans
Commercial, Financial and Agricultural	$	645		193		-		838		155,497		$	157,394
Real Estate - Construction		314		129		-		443		40,890			43,239
Real Estate - Commercial Mortgage		5,577		840		-		6,417		638,411			671,702
Real Estate - Residential		7,171		3,958		120		11,249		389,103			430,541
Real Estate - Home Equity		1,444		698		39		2,182		244,579			251,565
Consumer		2,867		356		-		3,223		200,139			204,230
Total Past Due Loans	$	18,018		6,174		159		24,352		1,668,619		$	1,758,671

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Nonaccrual Loans. Loans are generally placed on non-accrual status if principal or interest payments become 90 days past due and/or management deems the collectability of the principal and/or interest to be doubtful. Loans are returned to accrual status when the principal and interest amounts contractually due are brought current or when future payments are reasonably assured.

The following table presents the recorded investment in nonaccrual loans and loans past due over 90 days and still on accrual by class of loans as of June 30, 2011 and December 31, 2010:

	June 30, 2011				December 31, 2010
(Dollars in Thousands)	Nonaccrual		90 + DPD		Nonaccrual		90+ DPD
Commercial, Financial and Agricultural	$	1,133	$	-	$	1,059	$	-
Real Estate - Construction		1,156		-		1,907		-
Real Estate - Commercial Mortgage		27,229		-		26,874		-
Real Estate - Residential		27,505		271		30,189		120
Real Estate - Home Equity		3,275		-		4,803		39
Consumer		778		-		868		-
Total Nonaccrual Loans	$	61,076	$	271	$	65,700	$	159

Credit Quality Indicators. As part of the ongoing monitoring of the Company’s loan portfolio quality, management categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment performance, credit documentation, and current economic/market trends, among other factors. Risk ratings are assigned to each loan and revised as needed through established monitoring procedures for individual loan relationships over a predetermined amount and review of smaller balance homogenous loan pools. The Company uses the following definitions for the categorizing and managing its problem loans.

Special Mention – Loans in this category are presently protected from loss, but weaknesses are apparent which, if not corrected, could cause future problems. Adverse economic or market conditions may negatively impact the borrower’s ability to repay. Loans in this category may not meet required underwriting criteria and have no mitigating factors. More than the ordinary amount of attention is warranted for these loans.

Substandard – Loans in this category exhibit well-defined weaknesses that would typically bring normal repayment into jeopardy. These loans are no longer adequately protected due to well-defined weaknesses that affect the repayment capacity of the borrower. The possibility of loss is much more evident and above average supervision is required for these loans.

Nonaccrual – Loans in this category are on nonaccrual status due to the borrower’s inability to meet the repayment terms and where future capacity to repay is remote.

The following table presents the risk category of loans by segment as of June 30, 2011 and December 31, 2010:

June 30, 2011 (Dollars in Thousands)	Commercial, Financial, Agriculture		Real Estate		Consumer		Total
Special Mention	$	9,165	$	94,141	$	116	$	103,422
Substandard		8,627		152,207		623		161,457
Nonaccrual		1,133		59,165		778		61,076
Total Loans	$	18,925	$	305,513	$	1,517	$	325,955

December 31, 2010 (Dollars in Thousands)	Commercial, Financial, Agriculture		Real Estate		Consumer		Total
Special Mention	$	20,539	$	100,008	$	102	$	120,649
Substandard		10,599		165,143		719		176,461
Nonaccrual		1,060		63,773		867		65,700
Total Loans	$	32,198	$	328,924	$	1,688	$	362,810

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NOTE 4 - ALLOWANCE FOR LOAN LOSSES

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

(Dollars in Thousands)	2011			2010
Balance, Beginning of Year	$	35,436		$	43,999
Provision for Loan Losses		7,678			14,373
Recoveries on Loans Previously Charged-Off		1,226			2,129
Loans Charged-Off		(13,260	)		(22,059	)
Balance, End of Period	$	31,080		$	38,442

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio class based on impairment method as of June 30, 2011 and December 31, 2010:

June 30, 2011 (Dollars in Thousands)	Commercial, Financial, Agricultural			Real Estate Construction		Real Estate Commercial Mortgage		Real Estate Residential		Real Estate Home Equity	Consumer	Unallocated	Total
Allowance Allocated to:
Loans Individually Evaluated for Impairment		$	591		487		3,582		5,800	506	41	-	$	11,007
Loans Collectively Evaluated for Impairment			1,193		1,258		4,979		8,147	1,742	1,754	1,000		20,073
Total		$	1,784		1,745		8,561		13,947	2,248	1,795	1,000	$	31,080


Total Loans:
Individually Evaluated for Impairment		$	1,730		1,311		42,531		29,829	2,351	79	-	$	77,831
Collectively Evaluated for Impairment			148,100		29,556		617,526		365,297	245,878	203,414	-		1,609,771
Total		$	149,830		30,867		660,057		395,126	248,229	203,493	-	$	1,687,602

December 31, 2010 (Dollars in Thousands)	Commercial, Financial, Agricultural		Real Estate Construction		Real Estate Commercial Mortgage		Real Estate Residential		Real Estate Home Equity		Consumer		Unallocated	Total
Allowance Allocated to:
Loans Individually Evaluated for Impairment	$	252		413	$	4,640		7,965	$	1,389	$	71	-	$	14,730
Loans Collectively Evaluated for Impairment		1,292		1,647		4,005		9,081		1,133		2,541	1,007		20,706
Total	$	1,544		2,060		8,645		17,046		2,522		2,612	1,007	$	35,436


Total Loans:
Individually Evaluated for Impairment	$	1,685		2,533	$	42,369		37,779	$	3,278	$	144	-	$	87,788
Collectively Evaluated for Impairment		155,709		40,706		629,333		392,762		248,287		204,086	-		1,670,883
Total	$	157,394		43,239		671,702		430,541		251,565		204,230	-	$	1,758,671

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Impaired Loans. Loans are deemed to be impaired when, based on current information and events, it is probable that the Company will not be able to collect all amounts due (principal and interest payments), according to the contractual terms of the loan agreement. Loans, for which the terms have been modified, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired. Interest income recognized on impaired loans was approximately $1.2 million for the six month periods ended June 30, 2011 and June 30, 2010, respectively.

The following table presents loans individually evaluated for impairment by class of loans as of June 30, 2011 and December 31, 2010:

(Dollars in Thousands)	Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Related Allowance		Average Recorded Investment
June 30, 2011:
Commercial, Financial and Agricultural	$	1,730	$	273	$	1,458	$	591	$	1,563
Real Estate - Construction		1,311		10,557		1,311		487		1,950
Real Estate - Commercial Mortgage		42,531		4,746		31,974		3,582		46,145
Real Estate - Residential		29,829		522		25,083		5,800		30,782
Real Estate - Home Equity		2,351		4		1,829		506		2,844
Consumer		79		-		74		41		108
Total	$	77,831	$	16,102	$	61,729	$	11,007	$	83,392


December 31, 2010:
Commercial, Financial and Agricultural	$	1,684	$	389	$	1,295	$	252	$	2,768
Real Estate - Construction		2,533		-		2,533		413		5,801
Real Estate - Commercial Mortgage		42,370		9,030		33,340		4,640		48,820
Real Estate - Residential		37,780		3,295		34,485		7,965		41,958
Real Estate - Home Equity		3,278		375		2,903		1,389		3,087
Consumer		143		-		143		71		172
Total	$	87,788	$	13,089	$	74,699	$	14,730	$	102,606

NOTE 5 - INTANGIBLE ASSETS

The Company had net intangible assets of $85.7 million and $86.2 million at June 30, 2011 and December 31, 2010, respectively. Intangible assets were as follows:

	June 30, 2011				December 31, 2010
(Dollars in Thousands)	Gross Amount		Accumulated Amortization		Gross Amount		Accumulated Amortization
Core Deposit Intangibles	$	47,176	$	46,798	$	47,176	$	46,434
Goodwill		84,811		-		84,811		-
Customer Relationship Intangible		1,867		1,357		1,867		1,261
Total Intangible Assets	$	133,854	$	48,155	$	133,854	$	47,695

Net Core Deposit Intangibles: As of June 30, 2011 and December 31, 2010, the Company had net core deposit intangibles of $0.4 million and $0.7 million, respectively. Amortization expense for the first six months of 2011 and 2010 was approximately $0.4 million and $1.4 million, respectively. Estimated annual amortization expense for 2011 is $0.5 million. All of our core deposit intangibles will be fully amortized in January 2013.

Goodwill: As of June 30, 2011 and December 31, 2010, the Company had goodwill, net of accumulated amortization, of $84.8 million.

Goodwill is tested for impairment on an annual basis, or more often if impairment indicators exist. A goodwill impairment test consists of two steps. Step One compares the estimated fair value of the reporting unit to its carrying amount. If the carrying amount exceeds the estimated fair value, Step Two is performed by comparing the fair value of the reporting unit’s implied goodwill to the carrying value of goodwill. If the carrying value of the reporting unit’s goodwill exceeds the estimated fair value, an impairment charge is recorded equal to the excess.

As of June 30, 2011, the book value of the Company’s equity exceeded its market capitalization, and as such the Company performed goodwill impairment testing. The Step One test indicated that the carrying amount (including goodwill) of the Company’s reporting unit exceeded its estimated fair value. The Step Two test indicated the estimated fair value of our reporting unit’s implied goodwill exceeded its carrying amount. Based on the results of the Step Two analysis, the Company concluded that goodwill was not impaired as of June 30, 2011. The Company will continue to test goodwill as defined by ASC Topic 350.

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Other: As of June 30, 2011 and December 31, 2010, the Company had a customer relationship intangible asset, net of accumulated amortization, of $0.5 million and $0.6 million, respectively. This intangible asset was recorded as a result of the March 2004 acquisition of trust customer relationships. Amortization expense for the first six months of 2011 and 2010 was approximately $96,000. Estimated annual amortization expense is approximately $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, 2011 and December 31, 2009 was as follows:

(Dollars in Thousands)	June 30, 2011		December 31, 2010
NOW Accounts	$	764,480	$	770,149
Money Market Accounts		283,230		275,416
Savings Deposits		153,403		139,888
Other Time Deposits		331,085		372,266
Total Interest Bearing Deposits	$	1,532,198	$	1,557,719

NOTE 7 - STOCK-BASED COMPENSATION

The Company recognizes the cost of stock-based associate stock compensation in accordance with ASC-718-20-05-1 and ASC 718-50-05-01, (formerly SFAS No. 123R), "Share-Based Payment” (Revised) under the fair value method.

As of June 30, 2011, the Company had three stock-based compensation plans, consisting of the 2011 Associate Stock Incentive Plan ("ASIP"), the 2011 Associate Stock Purchase Plan ("ASPP"), and the 2011 Director Stock Purchase Plan ("DSPP"). These plans are new plans replacing substantially similar plans approved by the shareowners in 2004. Total compensation expense associated with these plans for the six months ended June 30, 2011 and 2010 was $448,000 and $184,000, respectively.

ASIP. The Company's ASIP allows the Company's Board of Directors to award key associates various forms of equity-based incentive compensation. Under the ASIP, all participants in this plan are eligible to earn an equity award, in the form of performance shares. The Company, under the terms and conditions of the ASIP, created the 2011 Incentive Plan (“2011 Plan”), which has an award tied to an internally established earnings goal. The grant-date fair value of the shares eligible to be awarded in 2011 is approximately $895,000. A total of 51,952 shares are eligible for issuance. For the first six months of 2011 and 2010, the Company recognized approximately $319,000 and $115,000 in expense related to the ASIP.

Executive Stock Option Agreement. Prior to 2007, the Company maintained a stock option program for a key executive officer (William G. Smith, Jr. - Chairman, President and CEO, CCBG). The status of the options granted under this arrangement is detailed in the table provided below. In 2007, the Company replaced its practice of entering into an annual stock option arrangement by establishing a Performance Share Unit Plan under the provisions of the ASIP that allows the executive to earn shares based on the compound annual growth rate in diluted earnings per share over a three-year period. For the first six months of 2011, the Company recognized $72,000 in expense related this plan. No expense was recognized under this plan for the first six months of 2010.

A summary of the status of the Company’s options as of June 30, 2011 is presented below:

Options	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Term		Aggregate Intrinsic Value
Outstanding at January 1, 2011		60,384	$	32.79		3.9	$	-
Granted		-		-		-		-
Exercised		-		-		-		-
Forfeited or expired		-		-		-		-
Outstanding at June 30, 2011		60,384	$	32.79		3.4	$	-
Exercisable at June 30, 2011		60,384	$	32.79		3.4	$	-

Compensation expense associated with the aforementioned option shares was fully recognized as of December 31, 2007.

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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 director’s annual cash compensation. For the first six months 2011 and 2010, the Company recognized approximately $15,000 and $14,000 in expense related to this plan or its predecessor plan, the 2005 Director Stock Purchase Plan.

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. For the first six months of 2011, the Company recognized approximately $42,000 in expense related to the ASPP plan or its processor plan, the 2005 Associate Stock Purchase Plan compared to approximately $56,000 in expense for the same period in 2010.

NOTE 8 - 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)	2011			2010			2011			2010

Discount Rate		5.55	%		5.75	%		5.55	%		5.75	%
Long-Term Rate of Return on Assets		8.00	%		8.00	%		8.00	%		8.00	%

Service Cost	$	1,550		$	1,525		$	3,100		$	3,050
Interest Cost		1,325			1,175			2,650			2,350
Expected Return on Plan Assets		(1,650	)		(1,525	)		(3,300	)		(3,050	)
Prior Service Cost Amortization		125			125			250			250
Net Loss Amortization		550			525			1,100			1,050
Net Periodic Benefit Cost	$	1,900		$	1,825		$	3,800		$	3,650

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)	2011			2010			2011			2010

Discount Rate		5.55	%		5.75	%		5.55	%		5.75	%

Service Cost	$	-		$	-		$	-		$	-
Interest Cost		40			42			80			84
Prior Service Cost Amortization		45			45			90			90
Net Loss Amortization		(98	)		(85	)		(196	)		(170	)
Net Periodic Benefit Cost	$	(13	)	$	2		$	(26	)	$	4

NOTE 9 - 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.

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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, 2011, the amounts associated with the Company’s off-balance sheet obligations were as follows:

(Dollars in Millions)	Amount
Commitments to Extend Credit(1)	$	308
Standby Letters of Credit	$	11

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

Commitments to extend credit are agreements to lend to clients 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.

Indemnification Obligation. The Company is a member of the Visa U.S.A. network. Visa U.S.A believes that its member banks are required to indemnify it for potential future settlement of certain litigation (the “Covered Litigation”). In 2008, the Company, as a member of the Visa U.S.A. network, obtained Class B shares of Visa, Inc. upon its initial public offering. Since its initial public offering, Visa, Inc. has funded a litigation reserve for the Covered Litigation resulting in a reduction in the Class B shares held by the Company. During the first quarter of 2011, the Company sold its remaining Class B shares resulting in a $3.2 million pre-tax gain. Associated with this sale, the Company entered into a swap contract with the purchaser of the shares that requires a payment to the counterparty in the event that Visa, Inc. makes subsequent revisions to the conversion ratio for its Class B shares. Further information on the swap contract is contained within Note 10 below.

NOTE 10 – FAIR VALUE MEASUREMENTS

The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. In estimating fair value, the Company utilizes valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Such valuation techniques are consistently applied. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability. ASC Topic 820 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.

Level 3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity's own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality, the Company’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. A more detailed description of the valuation methodologies used for assets and liabilities measured at fair value is set forth in the Company’s 2010 Form 10-K.

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Financial Assets and Financial Liabilities. The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of June 30, 2011 segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

(Dollars in Thousands)		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
June 30, 2011
ASSETS:
Securities available for sale:
US Treasury	$	170,207	$	-	$	-	$	170,207
States and Political Subdivisions		1,481		55,337		-		56,818
Residential Mortgage-Backed Securities		-		65,438		-		65,438
Other Securities		-		11,850		-		11,850

LIABILITIES:
Fair Value Swap		-		-		445		445

Fair Value Swap. During the first quarter of 2011, the Company entered into a stand-alone derivative contract with the purchaser of its Visa Class B shares. The valuation represents an internally developed estimate of the exposure based upon probability-weighted potential Visa litigation losses and related carrying cost obligations required under the contract.

Non-Financial Assets and Non-Financial Liabilities. Certain non-financial assets measured at fair value on a nonrecurring basis are detailed below; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).

Impaired Loans. On a non-recurring basis, certain impaired loans are reported at the fair value of the underlying collateral if repayment is expected solely from the liquidation of collateral. Collateral values are estimated using Level 2 inputs based on customized discounting criteria. Impaired loans had a carrying value of $77.8 million, with a valuation allowance of $11.0 million.

Loans Held for Sale. Loans held for sale were $5.9 million as of June 30, 2011. These loans are carried at the lower of cost or fair value and are adjusted to fair value on a non-recurring basis. Fair value is based on observable markets rates for comparable loan products which is considered a Level 2 fair value measurement.

Other Real Estate Owned. During the first six months of 2011, certain foreclosed assets, upon initial recognition, were measured and reported at fair value through a charge-off to the allowance for loan losses based on the fair value of the foreclosed asset. The fair value of the foreclosed asset, upon initial recognition, is estimated using Level 2 inputs based on observable market data. Foreclosed assets measured at fair value upon initial recognition totaled $22.9 million during the six months ended June 30, 2011. In addition, the Company recognized subsequent losses totaling $2.1 million for foreclosed assets that were re-valued during the six months ended June 30, 2011. The carrying value of foreclosed assets was $61.0 million at June 30, 2011.

FASB ASC Topic 825 requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring or non-recurring basis. A detailed description of the valuation methodologies used in estimating the fair value of financial instruments is set forth in the Company’s 2010 Form 10-K.

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The Company’s financial instruments that have estimated fair values are presented below:


	June 30, 2011				December 31, 2010
(Dollars in Thousands)	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial Assets:
Cash	$	71,554	$	71,554	$	35,410	$	35,410
Short-Term Investments		223,183		223,183		200,783		200,783
Investment Securities		304,313		304,313		309,731		309,731
Loans, Net of Allowance for Loan Losses		1,656,522		1,558,801		1,723,235		1,675,997
Total Financial Assets	$	2,255,572	$	2,157,851	$	2,269,159	$	2,221,921

Financial Liabilities:
Deposits	$