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

OR

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

For the transition period from ____________ to ____________


Commission File Number: 0-13358
 
 
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


2



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.


3


PART I. FINANCIAL INFORMATION
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

4



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.

 

5



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.



6


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.

7



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.


8


 
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


9



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.


10


 
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.

11



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
 


12



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.


13


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
 
 
 
 37.71