UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q





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





For
the Quarterly Period Ended March 31, 2008





OR





£
            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 T No £





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 £
            Accelerated
      filer x
            Non-accelerated
      filer £
            Smaller
      reporting company £(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 April
30, 2008, 17,168,249 shares of the Registrant's Common Stock, $.01 par value,
were outstanding.













CAPITAL CITYBANK GROUP, INC.


QUARTERLY
REPORT ON FORM 10-Q


FOR
THE PERIOD ENDED MARCH 31, 2008





TABLE
OF CONTENTS





PART
      I – Financial Information
            PageItem
      1.
            Consolidated
      Financial Statements (Unaudited)Consolidated Statements of Financial Condition – March 31, 2008
      and December 31, 2007
            4Consolidated Statements of Income – Three Months Ended March
      31, 2008 and 2007
            5Consolidated Statement of Changes in Shareowners’ Equity –
      Three Months Ended March 31, 2008
            6Consolidated Statements of Cash Flow – Three Months Ended March
      31, 2008 and 2007
            7Notes to Consolidated Financial Statements
            8Item
      2.
            Management's Discussion and Analysis of Financial Condition
      and Results of Operations
            17Item
      3.
            Quantitative and Qualitative Disclosure About Market
      Risk
            33Item
      4.
            Controls and Procedures
            33PART
      II – Other InformationItem
      1.
            Legal Proceedings
            33Item
      1A.
            Risk Factors
            33Item
      2.
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            34Item
      3.
            Defaults Upon Senior Securities
            34Item
      4.
            Submission of Matters to a Vote of Security
      Holders
            34Item
      5.
            Other Information
            35Item
      6.
            Exhibits
            35Signatures
            
            36





2
 Table of Contents





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, 2007 (the “2007
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:




§
            the
      frequency and magnitude of foreclosure of our
  loans;


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


§
            the
      accuracy of our financial statement estimates and assumptions, including
      the estimate for our loan loss
provision;


§
            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
      effects of harsh weather conditions, including
  hurricanes;


§
            inflation,
      interest rate, market and monetary
fluctuations;


§
            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
 Table of Contents





PART I.
            FINANCIAL
      INFORMATION


Item
      1.
            CONSOLIDATED
      FINANCIAL STATEMENTS (Unaudited)





CAPITAL CITYBANK GROUP, INC.


CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION


AS
OF MARCH 31, 2008 AND DECEMBER 31, 2007


(Unaudited)





(Dollars In Thousands, Except Share
      Data)
            
            March31, 2008
            
            
            December31, 2007ASSETSCash
      and Due From Banks
            
            $
            97,525
            
            
            $
            93,437Funds
      Sold and Interest Bearing Deposits
            
            
            241,202
            
            
            
            166,260Total
      Cash and Cash Equivalents
            
            
            338,727
            
            
            
            259,697Investment
      Securities, Available-for-Sale
            
            
            186,944
            
            
            
            190,719Loans,
      Net of Unearned Interest
            
            
            1,914,458
            
            
            
            1,915,850Allowance
      for Loan Losses
            
            
            (20,277
            )
            
            
            (18,066
            )Loans,
      Net
            
            
            1,894,181
            
            
            
            1,897,784Premises
      and Equipment, Net
            
            
            100,145
            
            
            
            98,612Goodwill
            
            
            84,811
            
            
            
            84,811Other
      Intangible Assets
            
            
            12,299
            
            
            
            13,757Other
      Assets
            
            
            75,405
            
            
            
            70,947Total
      Assets
            
            $
            2,692,512
            
            
            $
            2,616,327LIABILITIESDeposits:Noninterest
      Bearing Deposits
            
            $
            432,904
            
            
            $
            432,659Interest
      Bearing Deposits
            
            
            1,759,701
            
            
            
            1,709,685Total
      Deposits
            
            
            2,192,605
            
            
            
            2,142,344Short-Term
      Borrowings
            
            
            61,781
            
            
            
            53,131Subordinated
      Notes Payable
            
            
            62,887
            
            
            
            62,887Other
      Long-Term Borrowings
            
            
            29,843
            
            
            
            26,731Other
      Liabilities
            
            
            47,723
            
            
            
            38,559Total
      Liabilities
            
            
            2,394,839
            
            
            
            2,323,652SHAREOWNERS'
      EQUITYPreferred Stock, $.01 par value,
      3,000,000 shares authorized;no shares
      outstanding
            
            
            -
            
            
            
            -Common
      Stock, $.01 par value, 90,000,000 shares authorized; 17,174,725 and
      17,182,553 shares issued and outstanding at March 31, 2008 and December
      31, 2007, respectively
            
            
            172
            
            
            
            172Additional
      Paid-In Capital
            
            
            38,042
            
            
            
            38,243Retained
      Earnings
            
            
            264,538
            
            
            
            260,325Accumulated
      Other Comprehensive Loss, Net of Tax
            
            
            (5,079
            )
            
            
            (6,065
            )Total
      Shareowners' Equity
            
            
            297,673
            
            
            
            292,675Total
      Liabilities and Shareowners' Equity
            
            $
            2,692,512
            
            
            $
            2,616,327





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





4
 Table of Contents





CAPITAL CITY BANK GROUP, INC.


CONSOLIDATED
STATEMENTS OF INCOME


FOR
THE THREE MONTHS ENDED MARCH 31


(Unaudited)





(Dollars in Thousands, Except Per Share
      Data)
            
            2008
            
            
            2007INTEREST
      INCOMEInterest
      and Fees on Loans
            
            $
            35,255
            
            
            $
            39,053Investment
      Securities:U.S.
      Treasury
            
            
            167
            
            
            
            141U.S.
      Govt. Agencies
            
            
            760
            
            
            
            939States
      and Political Subdivisions
            
            
            786
            
            
            
            676Other
      Securities
            
            
            181
            
            
            
            184Funds
      Sold
            
            
            1,574
            
            
            
            521Total
      Interest Income
            
            
            38,723
            
            
            
            41,514INTEREST
      EXPENSEDeposits
            
            
            10,481
            
            
            
            11,000Short-Term
      Borrowings
            
            
            521
            
            
            
            761Subordinated
      Notes Payable
            
            
            931
            
            
            
            926Other
      Long-Term Borrowings
            
            
            331
            
            
            
            502Total
      Interest Expense
            
            
            12,264
            
            
            
            13,189NET
      INTEREST INCOME
            
            
            26,459
            
            
            
            28,325Provision
      for Loan Losses
            
            
            4,142
            
            
            
            1,237Net
      Interest Income After Provision For Loan Losses
            
            
            22,317
            
            
            
            27,088NONINTEREST
      INCOMEService
      Charges on Deposit Accounts
            
            
            6,765
            
            
            
            6,045Data
      Processing
            
            
            813
            
            
            
            715Asset
      Management Fees
            
            
            1,150
            
            
            
            1,225Securities
      Transactions
            
            
            65
            
            
            
            7Mortgage
      Banking Revenues
            
            
            494
            
            
            
            679Bank
      Card Fees
            
            
            3,961
            
            
            
            3,487Other
            
            
            4,551
            
            
            
            1,804Total
      Noninterest Income
            
            
            17,799
            
            
            
            13,962NONINTEREST
      EXPENSESalaries
      and Associate Benefits
            
            
            15,604
            
            
            
            15,719Occupancy,
      Net
            
            
            2,362
            
            
            
            2,236Furniture
      and Equipment
            
            
            2,582
            
            
            
            2,349Intangible
      Amortization
            
            
            1,459
            
            
            
            1,459Other
            
            
            7,791
            
            
            
            8,799Total
      Noninterest Expense
            
            
            29,798
            
            
            
            30,562INCOME
      BEFORE INCOME TAXES
            
            
            10,318
            
            
            
            10,488Income
      Taxes
            
            
            3,038
            
            
            
            3,531NET
      INCOME
            
            $
            7,280
            
            
            $
            6,957Basic
      Net Income Per Share
            
            $
            0.42
            
            
            $
            0.38Diluted
      Net Income Per Share
            
            $
            0.42
            
            
            $
            0.38Average
      Basic Shares Outstanding
            
            
            17,170,230
            
            
            
            18,408,726Average
      Diluted Share Outstanding
            
            
            17,178,358
            
            
            
            18,419,616





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





5
 Table of Contents





CAPITAL CITY BANK GROUP, INC.


CONSOLIDATED
STATEMENT OF CHANGES IN SHAREOWNERS' EQUITY


(Unaudited)





(Dollars In Thousands, Except Share
      Data)
            
            Shares Outstanding
            
            
            Common Stock
            
            
            AdditionalPaid-In Capital
            
            
            Retained Earnings
            
            
            Accumulated Other Comprehensive Loss, Net of
      Taxes
            
            
            TotalBalance,
      December 31, 2007
            
            
            17,182,553
            
            
            $
            172
            
            
            $
            38,243
            
            
            $
            260,325
            
            
            $
            (6,065
            )
            
            $
            292,675Cumulative
      Effect of Adoption of EITF 06-4
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (30
            )
            
            
            -
            
            
            
            (30
            )Comprehensive
      Income:Net
      Income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            7,280
            
            
            
            -
            
            
            
            7,280Net Change in Unrealized Gain
      OnAvailable-for-Sale Securities
      (net of tax)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            986
            
            
            
            986Total
      Comprehensive Income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            8,266Cash
      Dividends ($.1850 per share)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (3,037
            )
            
            
            -
            
            
            
            (3,037
            )Stock
      Performance Plan Compensation
            
            
            -
            
            
            
            -
            
            
            
            45
            
            
            
            -
            
            
            
            -
            
            
            
            45Issuance
      of Common Stock
            
            
            17,172
            
            
            
            -
            
            
            
            488
            
            
            
            -
            
            
            
            -
            
            
            
            488Repurchase
      of Common Stock
            
            
            (25,000
            )
            
            
            -
            
            
            
            (734
            )
            
            
            -
            
            
            
            -
            
            
            
            (734
            )Balance,
      March 31, 2008
            
            
            17,174,725
            
            
            $
            172
            
            
            $
            38,042
            
            
            $
            264,538
            
            
            $
            (5,079
            )
            
            $
            297,673





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





6
 Table of Contents





CAPITAL CITY BANK GROUP, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


FOR
THE THREE MONTHS ENDED MARCH 31


(Unaudited)





(Dollars in Thousands)
            
            2008
            
            
            2007CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      Income
            
            $
            7,280
            
            
            $
            6,957Adjustments to Reconcile Net
      Income toCash Provided by Operating
      Activities:Provision
      for Loan Losses
            
            
            4,142
            
            
            
            1,237Depreciation
            
            
            1,717
            
            
            
            1,534Net
      Securities Amortization
            
            
            112
            
            
            
            92Amortization
      of Intangible Assets
            
            
            1,459
            
            
            
            1,459Gain
      on Securities Transactions
            
            
            (65
            )
            
            
            (7
            )Origination
      of Loans Held-for-Sale
            
            
            (33,930
            )
            
            
            (43,084
            )Proceeds
      From Sales of Loans Held-for-Sale
            
            
            33,454
            
            
            
            42,374Net
      Gain From Sales of Loans Held-for-Sale
            
            
            (494
            )
            
            
            (679
            )Non-Cash
      Compensation
            
            
            157
            
            
            
            63Deferred
      Income Taxes
            
            
            1,493
            
            
            
            1,152Net
      Increase in Other Assets
            
            
            (797
            )
            
            
            (4,297
            )Net
      Increase in Other Liabilities
            
            
            6,575
            
            
            
            11,084Net
      Cash Provided By Operating Activities
            
            
            21,103
            
            
            
            17,885CASH
      FLOWS FROM INVESTING ACTIVITIESSecurities
      Available-for-Sale:Purchases
            
            
            (25,566
            )
            
            
            (10,715
            )Sales
            
            
            1,998
            
            
            
            -Payments,
      Maturities, and Calls
            
            
            28,846
            
            
            
            11,552Net
      (Increase) Decrease in Loans
            
            
            (2,727
            )
            
            
            33,060Purchase
      of Premises & Equipment
            
            
            (3,251
            )
            
            
            (4,102
            )Proceeds
      From Sales of Premises & Equipment
            
            
            -
            
            
            
            294Net
      Cash (Used In) Provided By Investing Activities
            
            
            (700
            )
            
            
            30,089CASH
      FLOWS FROM FINANCING ACTIVITIESNet
      Increase (Decrease) in Deposits
            
            
            50,261
            
            
            
            (39,593
            )Net
      Increase in Short-Term Borrowings
            
            
            8,653
            
            
            
            12,921Increase
      in Other Long-Term Borrowings
            
            
            3,809
            
            
            
            1,700Repayment
      of Other Long-Term Borrowings
            
            
            (700
            )
            
            
            (1,911
            )Dividends
      Paid
            
            
            (3,173
            )
            
            
            (3,240
            )Repurchase
      of Common Stock
            
            
            (711
            )
            
            
            (9,783
            )Issuance
      of Common Stock
            
            
            488
            
            
            
            433Net
      Cash Provided By (Used In) Financing Activities
            
            
            58,627
            
            
            
            (39,473
            )NET
      CHANGE IN CASH AND CASH EQUIVALENTS
            
            
            79,030
            
            
            
            8,501Cash
      and Cash Equivalents at Beginning of Period
            
            
            259,697
            
            
            
            177,564Cash
      and Cash Equivalents at End of Period
            
            $
            338,727
            
            
            $
            186,065Supplemental
      Disclosure:Interest
      Paid on Deposits
            
            $
            10,756
            
            
            $
            11,112Interest
      Paid on Debt
            
            $
            1,775
            
            
            $
            2,199Taxes
      Paid
            
            $
            4,129
            
            
            $
            3,229Loans
      Transferred to Other Real Estate
            
            $
            3,886
            
            
            $
            863Issuance
      of Common Stock as Non-Cash Compensation
            
            $
            240
            
            
            $
            1,158





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





7
 Table of Contents





CAPITAL CITY BANK GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE 1 -SIGNIFICANTACCOUNTING
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, 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 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 2007 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 March 31, 2008 and
December 31, 2007, the results of operations for the three months ended March
31, 2008 and 2007, and cash flows for the three months ended March 31, 2008 and
2007.








NOTE
2 - INVESTMENT SECURITIES





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





March31, 2008(Dollars in Thousands)
            
            Amortized Cost
            
            
            Unrealized Gains
            
            
            Unrealized Losses
            
            
            Market ValueU.S.
      Treasury
            
            $
            20,927
            
            
            $
            287
            
            
            $
            -
            
            
            $
            21,214U.S.
      Government Agencies
            
            
            25,851
            
            
            
            478
            
            
            
            -
            
            
            
            26,329States
      and Political Subdivisions
            
            
            92,896
            
            
            
            649
            
            
            
            27
            
            
            
            93,518Mortgage-Backed
      Securities
            
            
            32,936
            
            
            
            436
            
            
            
            3
            
            
            
            33,369Other
      Securities(1)
            
            
            12,425
            
            
            
            89
            
            
            
            -
            
            
            
            12,514Total
      Investment Securities
            
            $
            185,035
            
            
            $
            1,939
            
            
            $
            30
            
            
            $
            186,944





December31, 2007(Dollars in Thousands)
            
            Amortized Cost
            
            
            Unrealized Gains
            
            
            Unrealized Losses
            
            
            Market ValueU.S.
      Treasury
            
            $
            16,216
            
            
            $
            97
            
            
            $
            -
            
            
            $
            16,313U.S.
      Government Agencies
            
            
            45,489
            
            
            
            295
            
            
            
            34
            
            
            
            45,750States
      and Political Subdivisions
            
            
            90,014
            
            
            
            164
            
            
            
            177
            
            
            
            90,001Mortgage-Backed
      Securities
            
            
            26,334
            
            
            
            85
            
            
            
            132
            
            
            
            26,287Other
      Securities(1)
            
            
            12,307
            
            
            
            61
            
            
            
            -
            
            
            
            12,368Total
      Investment Securities
            
            $
            190,360
            
            
            $
            702
            
            
            $
            343
            
            
            $
            190,719





(1)
            Includes Federal Home Loan
      Bank and Federal Reserve Bank stock recorded at cost of $6.6 millionand $4.8million, respectivelyat March 31, 2008 and$6.5 million and
      $4.8 million,respectivelyat
      December 31, 2007.





8
 Table of Contents





NOTE
3 - LOANS





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





(Dollars in Thousands)
            
            March31, 2008
            
            
            December31, 2007Commercial,
      Financial and Agricultural
            
            $
            202,238
            
            
            $
            208,864Real
      Estate-Construction
            
            
            152,060
            
            
            
            142,248Real
      Estate-Commercial
            
            
            624,826
            
            
            
            634,920Real
      Estate-Residential
            
            
            488,063
            
            
            
            485,608Real
      Estate-Home Equity
            
            
            197,093
            
            
            
            192,428Real
      Estate-Loans Held-for-Sale
            
            
            4,501
            
            
            
            2,764Consumer
            
            
            245,677
            
            
            
            249,018Loans,
      Net of Unearned Interest
            
            $
            1,914,458
            
            
            $
            1,915,850





Net
deferred fees included in loans at March 31, 2008 and December 31, 2007 were
$1.7 million and $1.6 million, respectively.





Above
loan balances include loans in process with outstanding balances of $10.6
million and $7.4 million at March 31, 2008 and December 31, 2007,
respectively.








NOTE
4 - ALLOWANCE FOR LOAN LOSSES





An
analysis of the changes in the allowance for loan losses for the three month
periods ended March 31 was as follows:





(Dollars in Thousands)
            
            2008
            
            
            2007Balance,
      Beginning of Period
            
            $
            18,066
            
            
            $
            17,217Provision
      for Loan Losses
            
            
            4,142
            
            
            
            1,237Recoveries
      on Loans Previously Charged-Off
            
            
            749
            
            
            
            476Loans
      Charged-Off
            
            
            (2,680
            )
            
            
            (1,822
            )Balance,
      End of Period
            
            $
            20,277
            
            
            $
            17,108





Impaired Loans.  On
a non-recurring basis, 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:





March31, 2008
            
            December31, 2007(Dollars in Thousands)
            Balance
            
            Valuation Allowance
            
            Balance
            
            Valuation AllowanceImpaired
      Loans:With
      Related Valuation Allowance
            
            $
            27,875
            
            
            $
            6,068
            
            
            $
            21,615
            
            
            $
            4,702Without
      Related Valuation Allowance
            
            
            18,236
            
            
            
            -
            
            
            
            15,019
            
            
            
            -





9
 Table of Contents





NOTE
5 - INTANGIBLE ASSETS





The
Company had net intangible assets of $97.1 million and $98.6 million at March
31, 2008 and December 31, 2007, respectively. Intangible assets were as
follows:





March31, 2008
            
            
            December31, 2007(Dollars in Thousands)
            
            GrossAmount
            
            
            AccumulatedAmortization
            
            
            GrossAmount
            
            
            AccumulatedAmortizationCore
      Deposit Intangibles
            
            $
            47,176
            
            
            $
            36,009
            
            
            $
            47,176
            
            
            $
            34,598Goodwill
            
            
            84,811
            
            
            
            -
            
            
            
            84,811
            
            
            
            -Customer
      Relationship Intangible
            
            
            1,867
            
            
            
            736
            
            
            
            1,867
            
            
            
            688Total
      Intangible Assets
            
            $
            133,854
            
            
            $
            36,745
            
            
            $
            133,854
            
            
            $
            35,286





Net Core Deposit
Intangibles:As of March 31, 2008
and December 31, 2007, the Company had net core deposit intangibles of $11.2
million and $12.6 million, respectively. Amortization expense for the first
three months of 2008 and 2007 was approximately $1.5
million.  Estimated annual amortization expense is $5.5
million.





Goodwill: As of March
31, 2008 and December 31, 2007, 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, “Goodwill and
Other Intangible Assets” (“SFAS 142”).





Other: As of March 31,
2008 and December 31, 2007, the Company had a customer relationship intangible,
net of accumulated amortization, of $1.1 million and $1.2 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 three months of 2008 and 2007
was approximately $48,000. 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 March 31, 2008 and
December 31, 2007 was as follows:





(Dollars in Thousands)
            
            March31, 2008
            
            
            December31, 2007NOW
      Accounts
            
            $
            800,128
            
            
            $
            744,093Money
      Market Accounts
            
            
            381,474
            
            
            
            386,619Savings
      Deposits
            
            
            116,018
            
            
            
            111,600Other
      Time Deposits
            
            
            462,081
            
            
            
            467,373Total
      Interest Bearing Deposits
            
            $
            1,759,701
            
            
            $
            1,709,685





10
 Table of Contents





NOTE
7 - STOCK-BASED COMPENSATION





The
Company recognizes the cost of stock-based associate stock compensation in
accordance with SFAS No. 123R, "Share-Based Payment” (Revised) under the
fair value method.





As of
March 31, 2008, 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 three months ended
March 31, 2008 and 2007 was approximately $192,000 and $106,000,
respectively.  The Company, under the terms and conditions of the AIP,
maintained a 2011 Incentive Plan (“2011 Plan”) which was terminated in March
2008 and approximately $577,000 in related expense accrued for this plan was
reversed during the first quarter of 2008.





AIP. The Company's AIP
allows the Company's Board of Directors to award key associates various forms of
equity-based incentive compensation. Under the AIP, the Company adopted the
Stock-Based Incentive Plan (the "2006 Incentive Plan"), effective January 1,
2006, which was a performance-based equity bonus plan for selected members of
management, including all executive officers. Under the 2006 Incentive
Plan, all participants were eligible to earn an equity award, in the form of
performance shares, on an annual basis over a term of five years. Annual
awards were tied to an internally established annual earnings target linked to
the Company’s 2011 strategic initiative.





The
Company terminated the 2006 Incentive Plan in March 2008 in conjunction with the
termination of the Company’s 2011 strategic initiative.  Due to the
performance targets not being met, no expense was recognized in 2008 or 2007 for
the 2006 Incentive Plan.





During
the first quarter of 2008, under the terms and conditions of the AIP, the
Company adopted a new Stock-Based Incentive Plan (the “2008 Incentive Plan”),
substantially similar to the 2006 Incentive Plan.  All participants in
this plan are eligible to earn an equity award, in the form of restricted
stock.  The award for 2008 is tied to internally established
performance goals.  The grant-date fair value of the compensation
award for 2008 is approximately $581,000. In addition, each plan
participant is eligible to receive from the Company a tax supplement bonus equal
to 31% of the stock award value at the time of issuance.  A total of
20,583 shares are eligible for issuance.





A total
of 875,000 shares of common stock have been reserved for issuance under the
AIP.  To date, the Company has issued a total of 60,892 shares of
common stock under the AIP.





Executive Stock Option
Agreement.For 2003 through 2006, under the provisions of the
AIP (and its predecessor), the Company's Board of Directors approved stock
option agreements for a key executive officer (William G. Smith, Jr. - Chairman,
President and CEO, CCBG).  These agreements granted 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 options were granted and no expense was recognized related to these
agreements.  In accordance with the provisions of SFAS 123R and SFAS
123, the Company recognized expenses in 2005 through 2007 of approximately
$193,000, $205,000, and $125,000, 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 in the first quarter of 2008 as results fell
short of the earnings performance goal.





11
 Table of Contents





A summary
of the status of the Company’s option shares as of March 31, 2008 is presented
below:





Options
            
            Shares
            
            
            Weighted-Average Exercise
    Price
            
            
            Weighted-Average Remaining
    Term
            
            
            Aggregate Intrinsic ValueOutstanding
      at January 1, 2008
            
            
            60,384
            
            
            $
            32.79
            
            
            
            6.9
            
            
            $
            -Granted
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Exercised
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Forfeited
      or expired
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Outstanding
      at March 31, 2008
            
            
            60,384
            
            
            $
            32.79
            
            
            
            6.6
            
            
            $
            -Exercisable
      at March 31, 2008
            
            
            60,384
            
            
            $
            32.79
            
            
            
            6.6
            
            
            $
            -





As of
March 31, 2008, there was no unrecognized compensation cost related to the
option shares granted under the agreements.





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 38,092 shares have been issued since the inception of the
DSPP. For the first quarter of 2008, the Company recognized approximately
$16,000 in expense related to this plan. For the first quarter of 2007, the
Company recognized approximately $18,000 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 69,749 shares have
been issued since inception of the ASPP. For the first quarter of 2008, the
Company recognized approximately $30,000 in expense related to this
plan. For the first quarter of 2007, the Company recognized $25,000 in
expense related to the ASPP.





Based on
the Black-Scholes option pricing model, the weighted average estimated fair
value of each of the purchase rights granted under the ASPP was $5.51 for the
first quarter of 2008. For the first quarter of 2007, the weighted average
fair value purchase right granted was $5.91. In calculating compensation,
the fair value of each stock purchase right was estimated on the date of grant
using the following weighted average assumptions:





Three Months Ended March31,2008
            
            
            2007Dividend
      yield
            
            
            2.8
            %
            
            
            2.0
            %Expected
      volatility
            
            
            39.0
            %
            
            
            24.0
            %Risk-free
      interest rate
            
            
            3.1
            %
            
            
            4.9
            %Expected
      life (in years)
            
            
            0.5
            
            
            
            0.5








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 March31,(Dollars in Thousands)
            
            2008
            
            
            2007Discount
      Rate
            
            
            6.25
            %
            
            
            6.00
            %Long-Term
      Rate of Return on Assets
            
            
            8.00
            %
            
            
            8.00
            %Service
      Cost
            
            $
            1,279
            
            
            $
            1,350Interest
      Cost
            
            
            1,063
            
            
            
            1,025Expected
      Return on Plan Assets
            
            
            (1,253
            )
            
            
            (1,300
            )Prior
      Service Cost Amortization
            
            
            75
            
            
            
            100Net
      Loss Amortization
            
            
            280
            
            
            
            250Net
      Periodic Benefit Cost
            
            $
            1,444
            
            
            $
            1,425





12
 Table of Contents





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





Three Months Ended March31,(Dollars in Thousands)
            
            2008
            
            
            2007Discount
      Rate
            
            
            6.25
            %
            
            
            6.00Service
      Cost
            
            $
            22
            
            
            $
            25Interest
      Cost
            
            
            56
            
            
            
            63Prior
      Service Cost Amortization
            
            
            2
            
            
            
            3Net
      Loss Amortization
            
            
            1
            
            
            
            18Net
      Periodic Benefit Cost
            
            $
            81
            
            
            $
            109








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.





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 March 31, 2008, the amounts associated with the
Company’s off-balance sheet obligations were as follows:





(Dollars in Millions)
            
            AmountCommitments
      to Extend Credit(1)
            
            $
            429Standby
      Letters of Credit
            
            $
            17





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





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





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





Indemnification
Obligation.  The Company recorded a charge in its fourth
quarter 2007 financial statements of approximately $1.9 million, or $0.07 per
diluted common share, to recognize a contingent liability related to the costs
of the judgments and settlements from certain Visa Inc. (“Visa”) related
litigation (“Covered Litigation”).  Visa U.S.A. believes that its
member banks are required to indemnify Visa U.S.A. for potential losses arising
from certain Covered Litigation.  The Company has been a Visa U.S.A.
member for a number of years.





The
Company reversed a portion of the Covered Litigation accrual in the amount of
approximately $1.1 million to account for the establishment of an escrow account
by Visa Inc. in conjunction with its initial public offering during the first
quarter of 2008.  This escrow account was established to pay the costs
of the judgments and settlements from the Covered
Litigation.  Approximately $0.8 million remains accrued for the FIN 45
contingent liability related to remaining Visa Inc. litigation.








NOTE
10 - 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.  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 $986,000 and $315,000 for the three months ended March 31,
2008 and 2007, respectively.  Reclassification adjustments consist
only of realized gains and losses on sales of investment securities and were not
material for the three months ended March 31, 2008 and 2007.





13
 Table of Contents





NOTE
11 – FAIR VALUE MEASUREMENTS





Effective
January 1, 2008, the Company adopted the provisions of
SFAS No. 157, "Fair Value Measurements," for financial assets and
financial liabilities.  In accordance with Financial Accounting Standards
Board Staff Position (“FSP”) No. 157-2, "Effective Date of FASB Statement
No. 157," the Company will delay application of SFAS 157 for
non-financial assets and non-financial liabilities, until January 1, 2009.
 SFAS 157 defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles and expands disclosures
about fair value measurements.





SFAS 157
defines fair value as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants. A
fair value measurement assumes that the transaction to sell the asset or
transfer the liability occurs in the principal market for the asset or liability
or, in the absence of a principal market, the most advantageous market for the
asset or liability.  The price in the principal (or most advantageous)
market used to measure the fair value of the asset or liability shall not be
adjusted for transaction costs.  An orderly transaction is a transaction
that assumes exposure to the market for a period prior to the measurement date
to allow for marketing activities that are usual and customary for transactions
involving such assets and liabilities; it is not a forced transaction.
 Market participants are buyers and sellers in the principal market that
are (i) independent, (ii) knowledgeable, (iii) able to transact
and (iv) willing to transact.





SFAS 157
requires the use of valuation techniques that are consistent with the market
approach, the income approach and/or the cost approach.  The market
approach uses prices and other relevant information generated by market
transactions involving identical or comparable assets and liabilities.  The
income approach uses valuation techniques to convert future amounts, such as
cash flows or earnings, to a single present amount on a discounted basis.
 The cost approach is based on the amount that currently would be required
to replace the service capacity of an asset (replacement cost). Valuation
techniques should be consistently applied.  Inputs to valuation techniques
refer to the assumptions that market participants would use in pricing the asset
or liability.  Inputs may be observable, meaning those that reflect the
assumptions market participants would use in pricing the asset or liability
developed based on market data obtained from independent sources, or
unobservable, meaning those that reflect the reporting entity's own assumptions
about the assumptions market participants would use in pricing the asset or
liability developed based on the best information available in the
circumstances.  In that regard, SFAS 157 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:





Level1 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.





Level2 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.





Level3 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.





A
description of the valuation methodologies used for instruments measured at fair
value, as well as the general classification of such instruments pursuant to the
valuation hierarchy, is set forth below. These valuation methodologies were
applied to all of the Company’s financial assets and financial liabilities
carried at fair value effective January 1, 2008.





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.





Securities Available forSale.
 Securities classified as available for sale are reported at fair value on
a recurring basis utilizing Level 1, 2, or 3 inputs.  For these securities,
the Company obtains fair value measurements from an independent pricing service
or a model that uses, as inputs, observable market based parameters.  The
fair value measurements consider observable data that may include quoted prices
in active markets, or other inputs, including dealer quotes, market spreads,
cash flows, the U.S. Treasury yield curve, live trading levels, trade execution
data, market consensus prepayment speeds, and credit information and the bond's
terms and conditions.





14
 Table of Contents





The
following table summarizes financial assets and financial liabilities measured
at fair value on a recurring basis as of March 31, 2008, 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
            
            
            TotalFair
      ValueSecurities
      Available for Sale
            
            $
            71,713
            
            
            $
            102,717
            
            
            $
            1,089
            
            
            $
            175,519





Certain
financial assets and financial liabilities are measured at fair value on a
nonrecurring basis; 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).
 Financial assets and financial liabilities measured at fair value on a
non-recurring basis were not significant at March 31, 2008.





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 collateral.
 Collateral values are estimated using Level 3 inputs based on customized
discounting criteria.  Impaired loans had a carrying value of $46.1
million, with a valuation allowance of $6.1 million, resulting in an additional
provision for loan losses of $1.4 million for the period.





Loans Held forSale.  Loans held
for sale, which are carried at the lower of cost or fair value are adjusted to
fair value on a non-recurring basis.  Fair value is based on
observable market rates for comparable loan products which is considered a level
2 fair value measurement.





Effective
January 1, 2008, the Company adopted the provisions of SFAS No. 159,
"The Fair Value Option for Financial Assets and Financial Liabilities -
Including an amendment of FASB Statement No. 115." SFAS 159 permits
the Company to choose to measure eligible items at fair value at specified
election dates.  Changes in fair value on items for which the fair
value measurement option has been elected are reported in earnings at each
subsequent reporting date.  The fair value option (i) is applied instrument
by instrument, with certain exceptions, thus the Company may record identical
financial assets and liabilities at fair value or by another measurement basis
permitted under generally accepted accounting principals, (ii) is
irrevocable (unless a new election date occurs) and (iii) is applied only
to entire instruments and not to portions of instruments.  Adoption of
SFAS 159 on January 1, 2008 did not have a significant impact on the
Company’s financial statements because the Company did not elect fair value
measurement under SFAS 159.





15
 Table of Contents





QUARTERLY
FINANCIAL DATA (UNAUDITED)





2008
            
            
            2007
            
            
            2006(Dollars in Thousands, Except Per Share
      Data)
            
            First
            
            
            Fourth
            
            
            Third
            
            
            Second
            
            
            First
            
            
            Fourth
            
            
            Third
            
            
            SecondSummary
      of Operations:Interest
      Income
            
            $
            38,723
            
            
            $
            40,786
            
            
            $
            41,299
            
            
            $
            41,724
            
            
            $
            41,514
            
            
            $
            42,600
            
            
            $
            42,512
            
            
            $
            41,369Interest
      Expense
            
            
            12,264
            
            
            
            13,241
            
            
            
            13,389
            
            
            
            13,263
            
            
            
            13,189
            
            
            
            13,003
            
            
            
            12,289
            
            
            
            11,182Net
      Interest Income
            
            
            26,459
            
            
            
            27,545
            
            
            
            27,910
            
            
            
            28,461
            
            
            
            28,325
            
            
            
            29,597
            
            
            
            30,223
            
            
            
            30,187Provision
      for Loan Losses
            
            
            4,142
            
            
            
            1,699
            
            
            
            1,552
            
            
            
            1,675
            
            
            
            1,237
            
            
            
            460
            
            
            
            711
            
            
            
            121Net
      Interest Income After Provision for Loan Losses
            
            
            22,317
            
            
            
            25,846
            
            
            
            26,358
            
            
            
            26,786
            
            
            
            27,088
            
            
            
            29,137
            
            
            
            29,512
            
            
            
            30,066Noninterest
      Income
            
            
            17,799
            
            
            
            15,823
            
            
            
            14,431
            
            
            
            15,084
            
            
            
            13,962
            
            
            
            14,385
            
            
            
            14,144
            
            
            
            14,003Noninterest
      Expense
            
            
            29,798
            
            
            
            31,614
            
            
            
            29,919
            
            
            
            29,897
            
            
            
            30,562
            
            
            
            29,984
            
            
            
            30,422
            
            
            
            31,070Income
      Before Provision for Income Taxes
            
            
            10,318
            
            
            
            10,055
            
            
            
            10,870
            
            
            
            11,973
            
            
            
            10,488
            
            
            
            13,538
            
            
            
            13,234
            
            
            
            12,999Provision
      for Income Taxes
            
            
            3,038
            
            
            
            2,391
            
            
            
            3,699
            
            
            
            4,082
            
            
            
            3,531
            
            
            
            4,688
            
            
            
            4,554
            
            
            
            4,684Net
      Income
            
            $
            7,280
            
            
            $
            7,664
            
            
            $
            7,171
            
            
            $
            7,891
            
            
            $
            6,957
            
            
            $
            8,850
            
            
            $
            8,680
            
            
            $
            8,315Net
      Interest Income (FTE)
            
            $
            27,077
            
            
            $
            28,196
            
            
            $
            28,517
            
            
            $
            29,050
            
            
            $
            28,898
            
            
            $
            30,152
            
            
            $
            30,745
            
            
            $
            30,591Per
      Common Share:Net
      Income Basic
            
            $
            0.42
            
            
            $
            0.44
            
            
            $
            0.41
            
            
            $
            0.43
            
            
            $
            0.38
            
            
            $
            0.48
            
            
            $
            0.47
            
            
            $
            0.44Net
      Income Diluted
            
            
            0.42
            
            
            
            0.44
            
            
            
            0.41
            
            
            
            0.43
            
            
            
            0.38
            
            
            
            0.48
            
            
            
            0.47
            
            
            
            0.44Dividends
      Declared
            
            
            0.1850
            
            
            
            0.1850
            
            
            
            .175
            
            
            
            .175
            
            
            
            .175
            
            
            
            .175
            
            
            
            .163
            
            
            
            .163Diluted
      Book Value
            
            
            17.33
            
            
            
            17.03
            
            
            
            16.95
            
            
            
            16.87
            
            
            
            16.97
            
            
            
            17.01
            
            
            
            17.18
            
            
            
            16.81Market
      Price:High
            
            
            29.99
            
            
            
            34.00
            
            
            
            36.40
            
            
            
            33.69
            
            
            
            35.91
            
            
            
            35.98
            
            
            
            33.25
            
            
            
            35.39Low
            
            
            24.76
            
            
            
            24.60
            
            
            
            27.69
            
            
            
            29.12
            
            
            
            29.79
            
            
            
            30.14
            
            
            
            29.87
            
            
            
            29.51Close
            
            
            29.00
            
            
            
            28.22
            
            
            
            31.20
            
            
            
            31.34
            
            
            
            33.30
            
            
            
            35.30
            
            
            
            31.10
            
            
            
            30.20Selected
      Average Balances:Loans
            
            $
            1,909,574
            
            
            $
            1,908,069
            
            
            $
            1,907,235
            
            
            $
            1,944,969
            
            
            $
            1,980,224
            
            
            $
            2,003,719
            
            
            $
            2,025,112
            
            
            $
            2,040,656Earning
      Assets
            
            
            2,301,463
            
            
            
            2,191,230
            
            
            
            2,144,737
            
            
            
            2,187,236
            
            
            
            2,211,560
            
            
            
            2,238,066
            
            
            
            2,241,158
            
            
            
            2,278,817Assets
            
            
            2,646,474
            
            
            
            2,519,682
            
            
            
            2,467,703
            
            
            
            2,511,252
            
            
            
            2,530,790
            
            
            
            2,557,357
            
            
            
            2,560,155
            
            
            
            2,603,090Deposits
            
            
            2,148,874
            
            
            
            2,016,736
            
            
            
            1,954,160
            
            
            
            1,987,418
            
            
            
            2,003,726
            
            
            
            2,028,453
            
            
            
            2,023,523
            
            
            
            2,047,755Shareowners’
      Equity
            
            
            296,804
            
            
            
            299,342
            
            
            
            301,536
            
            
            
            309,352
            
            
            
            316,484
            
            
            
            323,903
            
            
            
            318,041
            
            
            
            315,794Common
      Equivalent Shares:Basic
            
            
            17,170
            
            
            
            17,444
            
            
            
            17,709
            
            
            
            18,089
            
            
            
            18,409
            
            
            
            18,525
            
            
            
            18,530
            
            
            
            18,633Diluted
            
            
            17,178
            
            
            
            17,445
            
            
            
            17,719
            
            
            
            18,089
            
            
            
            18,420
            
            
            
            18,569
            
            
            
            18,565
            
            
            
            18,653Ratios:ROA
            
            
            1.11
            %
            
            
            1.21
            %
            
            
            1.15
            %
            
            
            1.26
            %
            
            
            1.11
            %
            
            
            1.37
            %
            
            
            1.35
            %
            
            
            1.28
            %ROE
            
            
            9.87
            %
            
            
            10.16
            %
            
            
            9.44
            %
            
            
            10.23
            %
            
            
            8.91
            %
            
            
            10.84
            %
            
            
            10.83
            %
            
            
            10.56
            %Net
      Interest Margin (FTE)
            
            
            4.73
            %
            
            
            5.10
            %
            
            
            5.27
            %
            
            
            5.33
            %
            
            
            5.29
            %
            
            
            5.35
            %
            
            
            5.45
            %
            
            
            5.38
            %Efficiency
      Ratio
            
            
            63.15
            %
            
            
            68.51
            %
            
            
            66.27
            %
            
            
            64.44
            %
            
            
            67.90
            %
            
            
            63.99
            %
            
            
            64.35
            %
            
            
            66.23
            %





16
 Table of Contents





Item2.
            MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS





Management’s
discussion and analysis ("MD&A") provides supplemental information, which
sets forth the major factors that have affected our financial condition and
results of operations and should be read in conjunction with the Consolidated
Financial Statements and related notes.  The MD&A is divided into
subsections entitled "Business Overview," "Financial Overview," "Results of
Operations," "Financial Condition," "Liquidity and Capital Resources,"
"Off-Balance Sheet Arrangements," and "Accounting Policies."  The
following information should provide a better understanding of the major factors
and trends that affect our earnings performance and financial condition, and how
our performance during 2008 compares with prior years.  Throughout
this section, Capital City Bank Group, Inc., and subsidiaries, collectively, are
referred to as "CCBG," "Company," "we," "us," or "our."





In this
MD&A, we present an operating efficiency ratio and an operating net
noninterest expense as a percent of average assets ratio, both of which are not
calculated based on accounting principles generally accepted in the United
States ("GAAP"), but that we believe provide important information regarding our
results of operations.  Our calculation of the operating efficiency
ratio is computed by dividing noninterest expense less intangible amortization
and merger expenses, by the sum of tax equivalent net interest income and
noninterest income.  We calculate our operating net noninterest
expense as a percent of average assets by subtracting noninterest expense
excluding intangible amortization and merger expenses from noninterest
income.  Management uses these non-GAAP measures as part of its
assessment of its performance in managing noninterest expenses.  We
believe that excluding intangible amortization and merger expenses in our
calculations better reflect our periodic expenses and is more reflective of
normalized operations.





Although
we believe the above-mentioned non-GAAP financial measures enhance investors’
understanding of our business and performance these non-GAAP financial measures
should not be considered an alternative to GAAP.  In addition, there
are material limitations associated with the use of these non-GAAP financial
measures such as the risks that readers of our financial statements may disagree
as to the appropriateness of items included or excluded in these measures and
that our measures may not be directly comparable to other companies that
calculate these measures differently.  Our management compensates for
these limitations by providing detailed reconciliations between GAAP information
and the non-GAAP financial measure as detailed below.





Reconciliation
of operating efficiency ratio to efficiency ratio:





Three Months Ended
      March 31,2008
            
            
            2007Efficiency
      ratio
            
            
            66.40
            %
            
            
            71.31
            %Effect
      of intangible amortization expense
            
            
            (3.25
            )%
            
            
            (3.41
            )%Operating
      efficiency ratio
            
            
            63.15
            %
            
            
            67.90
            %





Reconciliation
of operating net noninterest expense ratio:





Three Months Ended
      March 31,2008
            
            
            2007Net
      noninterest expense as a percent of average assets
            
            
            1.82
            %
            
            
            2.66
            %Effect
      of intangible amortization expense
            
            
            (0.22
            )%
            
            
            (0.23
            )%Operating
      net noninterest expense as a percent of average assets
            
            
            1.60
            %
            
            
            2.43
            %





17
 Table of Contents





The
following discussion should be read in conjunction with the condensed
consolidated financial statements and notes thereto included in this Quarterly
Report on Form 10-Q.





CAUTION
CONCERNING FORWARD-LOOKING STATEMENTS





This
Quarterly Report on Form 10-Q, including this MD&A section, 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.  Please see the
Introductory Note and Item
1A.Risk Factors of our
Annual Report on Form 10-K, as updated in our subsequent quarterly reports filed
on Form 10-Q, and in our other filings made from time to time with the SEC after
the date of this report.





However,
other factors besides those listed in our Quarterly Report or in our Annual
Report 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.








BUSINESS
OVERVIEW





We are a
financial holding company headquartered in Tallahassee, Florida, and we are the
parent of our wholly-owned subsidiary, Capital City Bank (the "Bank" or
"CCB").  The Bank offers a broad array of products and services
through a total of 70 full-service offices located in Florida, Georgia, and
Alabama.  The Bank also has a two mortgage lending offices located in
Florida and one additional Georgia community.  The Bank offers
commercial and retail banking services, as well as trust and asset management,
merchant services, retail securities brokerage and data processing
services.





Our
profitability, like most financial institutions, is dependent to a large extent
upon net interest income, which is the difference between the interest received
on earning assets, such as loans and securities, and the interest paid on
interest-bearing liabilities, principally deposits and
borrowings.  Results of operations are also affected by the provision
for loan losses, operating expenses such as salaries and employee benefits,
occupancy and other operating expenses including income taxes, and noninterest
income such as service charges on deposit accounts, asset management and trust
fees, retail securities brokerage fees, mortgage banking revenues, merchant
service fees, and data processing revenues.





Our
philosophy is to grow and prosper, building long-term relationships based on
quality service, high ethical standards, and safe and sound banking
practices.  We maintain a locally oriented, community-based focus,
which is augmented by experienced, centralized support in select specialized
areas.  Our local market orientation is reflected in our network of
banking office locations, experienced community executives with a dedicated
president for each market, and community boards which support our focus on
responding to local banking needs.  We strive to offer a broad array
of sophisticated products and to provide quality service by empowering
associates to make decisions in their local markets.





Our
long-term vision is to continue our expansion, emphasizing a combination of
growth in existing markets and acquisitions.  Acquisitions will
continue to be focused on a three state area including Florida, Georgia, and
Alabama with a particular focus on financial institutions, which are $100
million to $400 million in asset size and generally located on the outskirts of
major metropolitan areas.  Six markets have been identified, five in
Florida and one in Georgia, in which management will proactively pursue
expansion opportunities.  These markets include Alachua, Marion,
Hernando, and Pasco Counties in Florida, the western panhandle in Florida,
and Bibb and surrounding counties in central Georgia.  We continue to
evaluate de novo expansion opportunities in attractive new markets in the event
that acquisition opportunities are not feasible.  Expansion
opportunities that will be evaluated include asset management and mortgage
banking.





18
 Table of Contents





FINANCIAL
OVERVIEW





A summary
overview of our financial performance for the first quarter of 2008 versus the
first quarter of 2007 is provided below.





Financial
Performance Highlights –





·
            Earnings
      for the first quarter of 2008 totaled $7.3 million ($0.42 per diluted
      share) compared to $7.0 million ($0.38 per diluted share) for the first
      quarter of 2007.  Earnings for the first quarter included two
      Visa Inc. related transactions totaling $2.3 million (after-tax), or $0.13
      per diluted share.





·
            Tax
      equivalent net interest income declined $1.8 million, or 6.3%, from the
      first quarter of 2007 due to net interest margin compression attributable
      primarily to an increase in foregone interest related to the increase in
      our level of nonperforming loans.





·
            Noninterest
      income increased $3.8 million, or 27.5%, over the first quarter of 2007
      due primarily to a $2.4 million gain from the redemption of Visa Inc.
      shares.  Deposit fees and bank card fees also posted strong
      gains.





·
            Noninterest
      expense decreased $764,000, or 2.5%, from the first quarter of 2007
      including the $1.1 million reversal of reserve for the Visa Inc.
      litigation.





·
            Credit
      quality deteriorated as reflected by a higher loan loss provision for the
      quarter.  The allowance for loan losses continues to be
      adequately funded at 1.06% of total
loans.





·
            Well-capitalized
      with a risk based capital ratio of
14.01%.





19
 Table of Contents





RESULTS
OF OPERATIONS





Net
Income





Earnings
were $7.3 million, or $.42 per diluted share, for the first quarter of
2008.  This compares to $7.0 million or $.38 per diluted share for the
first quarter of 2007.  Earnings for the first quarter include a $2.4
million pre-tax gain from the redemption of Visa Inc. shares related to their
initial public offering, the reversal of $1.1 million (pre-tax) of litigation
reserves recorded in the previous quarter related to certain Visa litigation,
which are referred to as “Covered Litigation”, and an increase to the reserve
for loan losses of $2.2 million.





A
condensed earnings summary is presented below:





Three Months Ended March31,(Dollars in Thousands)
            
            2008
            
            
            2007Interest
      Income
            
            $
            38,723
            
            
            $
            41,514Taxable
      Equivalent Adjustment(1)
            
            
            619
            
            
            
            573Interest
      Income (FTE)
            
            
            39,342
            
            
            
            42,087Interest
      Expense
            
            
            12,264
            
            
            
            13,189Net
      Interest Income (FTE)
            
            
            27,078
            
            
            
            28,898Provision
      for Loan Losses
            
            
            4,142
            
            
            
            1,237Taxable
      Equivalent Adjustment
            
            
            619
            
            
            
            573Net
      Interest Income After Provision
            
            
            22,317
            
            
            
            27,088Noninterest
      Income
            
            
            17,799
            
            
            
            13,962Noninterest
      Expense
            
            
            29,798
            
            
            
            30,562Income
      Before Income Taxes
            
            
            10,318
            
            
            
            10,488Income
      Taxes
            
            
            3,038
            
            
            
            3,531Net
      Income
            
            $
            7,280
            
            
            $
            6,957Basic
      Net Income Per Share
            
            $
            0.42
            
            
            $
            0.38Diluted
      Net Income Per Share
            
            $
            0.42
            
            
            $
            0.38Return
      on Average Assets(2)
            
            
            1.11
            %
            
            
            1.11
            %Return
      on Average Equity(2)
            
            
            9.87
            %
            
            
            8.91
            %





(1)
            Computed using a statutory tax
      rate of 35%


(2)
            Annualized





20
 Table of Contents





Net
Interest Income





Net
interest income represents our single largest source of earnings and is equal to
interest income and fees generated by earning assets, less interest expense paid
on interest bearing liabilities.  Tax equivalent net interest income
for the first quarter of 2008 declined $1.8 million or 6.3% compared to the
first quarter of 2007.  The decline in net interest income is
attributable to compression of our net interest margin.  Table I on
page 32 provides a comparative analysis of our average balances and interest
rates.





While we
believe we have been successful in neutralizing the impact of reductions in the
Federal Reserve’s federal funds rate over the last two quarters, a rising level
of foregone interest income associated with higher levels of nonperforming
assets, and the recent influx of higher cost negotiated deposits (primarily
public funds) are the primary factors producing a decline in the net interest
margin of 56 basis points over first quarter 2007.   Average
negotiated deposits have grown from $275 million in the first quarter of 2007 to
$538 million in the most recent quarter.  Although this growth in
deposits has had a positive impact on net interest income, it has had an adverse
impact on our margin due to the relatively thin spreads on these
deposits.  See “Discussion of Financial Condition” for a more detailed
analysis of nonperforming assets and deposit growth.





For the
first quarter of 2008, taxable-equivalent interest income decreased $2.7
million, or 6.5%, over the first quarter in 2007.  The decrease was
attributable to lower yields resulting from the Federal Reserve rate cuts and a
shift in mix on earning assets.  Compared to the first quarter of
2007, the average yield on earning assets declined 84 basis
points.  We anticipate that our income on earning assets will continue
to decline in the current rate environment during the second
quarter.





Interest
expense for the first quarter decreased $900,000, or 7.0%, from the comparable
period in 2007.  The average cost of funds decreased 28 basis points
from the first quarter of 2007 to 2.14%.  Since September 2007, we
have aggressively reduced our deposit rates in response to the rate reductions
initiated by the Federal Reserve and believe we have been successful in
neutralizing these rate reductions.  However, the rapid growth in the
higher cost negotiated deposits (primarily public funds) mitigated the full
impact of lowering our deposit rates and, therefore, the decline in our average
cost of funds was not commensurate with the decline in our average yield on
earning assets.  We anticipate that our average cost of funds will
continue to decline in the second quarter.





Our
interest rate spread (defined as the average federal taxable-equivalent yield on
earning assets less the average rate paid on interest bearing liabilities)
decreased from 4.60% in the first quarter of 2007 to 4.28% in the comparable
period of 2008.  The decline reflects the shift in mix on earning
assets and the lower yields due to the Federal Reserve rate cuts, partially
offset by the lower cost of funds.





Our net
yield on earning assets (defined as federal taxable-equivalent net interest
income divided by average earning assets) was 4.73% in the first three months of
2008, versus 5.29% for the comparable quarter in 2007.  The margin
decrease is primarily attributable to higher foregone interest related to
nonaccrual loans and the recent influx of higher cost negotiated
deposits.  Market conditions and competition likely will continue to
place pressure on net interest margin during the second quarter.





21
 Table of Contents





Provision
for Loan Losses





The
provision for loan losses for the quarter was $4.1 million compared to $1.2
million for the first quarter of 2007.  The increase in the provision
for the current quarter is due to credit deterioration resulting in a higher
level of impaired loans and related reserves and an increase in reserves
allocated to consumer loans.  These increases reflect the impact of
the housing and real estate market slowdown, and the related stress on the
consumer.  For the quarter, net charge-offs totaled $1.9 million, or
..41%, of average loans compared to $1.3 million, or .28% in the first quarter of
2007.  At quarter-end, the allowance for loan losses was 1.06% of
outstanding loans (net of overdrafts) and provided coverage of 54% of
nonperforming loans.





Charge-off
activity for the respective periods is set forth below:





Three Months Ended March31,(Dollars in Thousands)
            
            2008
            
            
            2007CHARGE-OFFSCommercial,
      Financial and Agricultural
            
            $
            636
            
            
            $
            560Real
      Estate – Construction
            
            
            572
            
            
            
            108Real
      Estate – Commercial
            
            
            126
            
            
            
            326Real
      Estate – Residential
            
            
            176
            
            
            
            67Consumer
            
            
            1,170
            
            
            
            761Total
      Charge-offs
            
            
            2,680
            
            
            
            1,822RECOVERIESCommercial,
      Financial and Agricultural
            
            
            139
            
            
            
            36Real
      Estate – Construction
            
            
            -
            
            
            
            -Real
      Estate – Commercial
            
            
            1
            
            
            
            5Real
      Estate – Residential
            
            
            3
            
            
            
            3Consumer
            
            
            606
            
            
            
            432Total
      Recoveries
            
            
            749
            
            
            
            476Net
      Charge-offs
            
            $
            1,931
            
            
            $
            1,346Net
      Charge-offs (Annualized) as aPercent
      of Average Loans Outstanding,Net
      of Unearned Interest
            
            
            0.41
            %
            
            
            0.28
            %





22
 Table of Contents





Noninterest
Income





Noninterest
income for the first quarter increased $3.8 million, or 27.5%, over the first
quarter of 2007.  The increase is attributable to a pre-tax gain of
$2.4 million from the redemption of Visa Inc. shares as well as higher deposit
and bank card fees of $720,000 and $474,000,
respectively.  Noninterest income represented 40.2% of operating
revenues in the first quarter of 2008 compared to 33.0% in the first quarter of
2007.





The table
below reflects the major components of noninterest income.





Three Months
      Ended March31,(Dollars in Thousands)
            
            2008
            
            
            2007Noninterest
      Income:Service
      Charges on Deposit Accounts
            
            $
            6,765
            
            
            $
            6,045Data
      Processing
            
            
            813
            
            
            
            715Asset
      Management Fees
            
            
            1,150
            
            
            
            1,225Retail
      Brokerage Fees
            
            
            469
            
            
            
            462Investment
      Security Gain
            
            
            65
            
            
            
            7Mortgage
      Banking Revenues
            
            
            494
            
            
            
            679Merchant
      Service Fees(1)
            
            
            2,208
            
            
            
            1,936Interchange
      Fees(1)
            
            
            1,009
            
            
            
            910ATM/Debit
      Card Fees(1)
            
            
            744
            
            
            
            641Other
            
            
            4,082
            
            
            
            1,342Total
      Noninterest Income
            
            $
            17,799
            
            
            $
            13,962





(1)
Together called “Bank Card Fees”





Various
significant components of noninterest income are discussed in more detail
below.





Service Charges on Deposit
Accounts.  Deposit service charge fees increased $720,000, or
11.9%, over the first quarter of 2007 due to a higher level of NSF/OD
activity.





Asset Management
Fees.  Fees from asset management were down $75,000 or 6.1% due
to a reduction in assets under management primarily reflective of the loss of
one large account in early 2007.  At March 31, 2008, assets under
management totaled $758.7 million compared to $764.7 million at the end of the
first quarter of 2007.





Mortgage Banking
Revenues.  Mortgage banking revenues declined $185,000, or
27.3%, from the first quarter of 2007 generally reflective of the housing market
slowdown.  Our loan pipeline, however, increased 27% from the end of
the linked quarter reflecting some positive momentum in the residential
market.





Bank Card
Fees.  Bank card fees (including merchant services fees,
interchange fees, and ATM/debit card fees) increased $475,000, or 13.6% due to
higher transaction volume.





Other.  Other
income increased $2.7 million, or 204.2% from the first quarter of 2007 due
primarily to a $2.4 million gain from the redemption of Visa Inc. shares related
to their initial public offering.  Higher fees received for accounts
receivable financing and gains from the sale of other real estate in the first
quarter of 2008 also contributed to the increase.





23
 Table of Contents





Noninterest
Expense





Noninterest
expense decreased $764,000, or 2.5%, from the first quarter of
2007.  A reversal of $1.1 million of litigation accrual for Covered
Litigation was the primary reason for the decline.





The table
below reflects the major components of noninterest expense.





Three Months Ended March31,(Dollars in Thousands)
            
            2008
            
            
            2007Noninterest
      Expense:Salaries
            
            $
            13,003
            
            
            $
            12,343Associate
      Benefits
            
            
            2,601
            
            
            
            3,376Total
      Compensation
            
            
            15,604
            
            
            
            15,719Premises
            
            
            2,362
            
            
            
            2,236Equipment
            
            
            2,582
            
            
            
            2,349Total
      Occupancy
            
            
            4,944
            
            
            
            4,585Legal
      Fees
            
            
            503
            
            
            
            507Professional
      Fees
            
            
            871
            
            
            
            992Processing
      Services
            
            
            461
            
            
            
            382Advertising
            
            
            779
            
            
            
            864Travel
      and Entertainment
            
            
            333
            
            
            
            345Printing
      and Supplies
            
            
            515
            
            
            
            514Telephone
            
            
            593
            
            
            
            547Postage
            
            
            430
            
            
            
            340Intangible
      Amortization
            
            
            1,459
            
            
            
            1,459Interchange
      Fees
            
            
            1,849
            
            
            
            1,668Commission
      Fees
            
            
            402
            
            
            
            224Courier
      Service
            
            
            127
            
            
            
            277Miscellaneous
            
            
            928
            
            
            
            2,139Total
      Other
            
            
            9,250
            
            
            
            10,258Total
      Noninterest Expense
            
            $
            29,798
            
            
            $
            30,562





Various
significant components of noninterest expense are discussed in more detail
below.





Compensation.  Salaries
and associate benefit expense declined $115,000, or .73%, due to the reversal of
$577,000 in accrued incentive expense related to our 2011 Incentive Plan which
was terminated during the first quarter of 2008.  Partially offsetting
this reduction in expense was higher associate salaries reflective of annual
merit and market related salary adjustments.





Occupancy.  Occupancy
expense (including premises and equipment) increased $359,000, or 7.8%, due to
higher depreciation expense and maintenance and repair expense for furniture,
fixtures, and equipment.  The increase in depreciation expense
reflects the addition of capitalized assets related to new banking offices and
the purchase of a new phone system in late 2007.  The increase in
maintenance and repair expense is related to higher expense for maintenance
agreements in part due to the opening of new banking offices, but more
significantly, maintenance related to the purchase of new software during
2007.





Other.  Other
noninterest expense decreased $1.0 million, or 9.8%, from the first quarter of
2007 due primarily to the reversal of the FAS 5 portion ($1.1 million) of
litigation reserve related to certain Visa Inc. litigation which was accrued for
in the fourth quarter of 2007.  Approximately $800,000 remains accrued
for Visa Inc. litigation.





Operating
net noninterest expense (noninterest income minus noninterest expense, excluding
intangible amortization expenses) as a percent of average assets was 1.60% for
the first quarter of 2008 compared to 2.43% for the first quarter of
2007.  Our operating efficiency ratio (noninterest expense, excluding
intangible amortization expense, expressed as a percent of the sum of
taxable-equivalent net interest income plus noninterest income) was 63.15% for
the first quarter of 2008 compared to 67.90% for the same period in
2007.  The variances in these metrics include the impact of Visa Inc.
related entries during the first quarter of 2008 which were previously discussed
in detail.





24
 Table of Contents





Income
Taxes





The
provision for income taxes decreased $493,000, or 14.0%, from the first quarter
of 2007, reflecting slightly lower taxable income and the resolution of a tax
contingency during the first quarter of 2008.  Our effective tax rate
for the first quarter of 2008 was 29.44% compared to 33.7% for the same quarter
in 2007 with the variance being driven primarily by the tax reserve adjustment
previously mentioned.








FINANCIAL
CONDITION





Average
assets increased $126.8 million, or 5.03%, to $2.646 billion for the
quarter-ended March 31, 2008 from $2.520 billion in the fourth quarter of
2007.  Average earning assets of $2.301 billion increased $110.2
million, or 5.03%, from the fourth quarter of 2007.  The increase was
due to an increase in short-term investments reflective of an increase in our
client deposit balances (see discussion below).  We discuss balance
sheet variances in more detail below.





Funds
Sold





We ended
the first quarter with approximately $186.8 million in average net overnight
funds sold, compared to $84.1 million net average overnight funds sold in the
fourth quarter of 2007.  A recent influx of public deposits
contributed to the growth in overnight funds for the first quarter.





Investment
Securities





Our
investment portfolio is a significant component of our operations and, as such,
it functions as a key element of liquidity and asset/liability
management.  As of March 31, 2008, the average investment portfolio
decreased $836,000, or .45%, from the fourth quarter of 2007.  We will
continue to evaluate the need to purchase securities for the investment
portfolio for the remainder of 2008, taking into consideration the Bank’s
overall liquidity position and pledging requirements.





Securities
classified as available-for-sale are recorded at fair value and unrealized gains
and losses associated with these securities are recorded, net of tax, as a
separate component of shareowners’ equity.  At March 31, 2008 and
December 31, 2007, shareowners’ equity included a net unrealized gain of $1.2
million and $246,000, respectively.





Loans





Average
loans increased $1.5 million, or .08% from the fourth quarter of 2007 due to a
steady pace of new loan production and a slowdown in the level of loan payoffs
and pay-downs.





Nonperforming
Assets





Nonperforming
assets of $41.1 million increased from the linked fourth quarter by $12.9
million.  Nonaccrual loans increased $10.2 million from the same
period due primarily to the addition of three large real estate loan
relationships totaling $9.8 million, which management believes have been
adequately reserved for at quarter-end.   These new nonaccrual
loans are related to non-coastal residential real estate
developments.  Restructured loans totaled $2.0 million at the end of
the first quarter.  Other real estate owned totaled $3.8 million at
the end of the quarter compared to $3.0 million at year-end
2007.  Nonperforming assets represented 2.14% of loans and other real
estate at the end of the first quarter compared to 1.47% at year-end
2007.





25
 Table of Contents





Allowance
for Loan Losses





We
maintain an allowance for loan losses at a level sufficient to provide for the
estimated credit losses inherent in the loan portfolio as of the balance sheet
date.  Credit losses arise from borrowers’ inability or unwillingness
to repay, and from other risks inherent in the lending process, including
collateral risk, operations risk, concentration risk and economic
risk.  All related risks of lending are considered when assessing the
adequacy of the loan loss reserve.  The allowance for loan losses is
established through a provision charged to expense.  Loans are charged
against the allowance when management believes collection of the principal is
unlikely.  The allowance for loan losses is based on management's
judgment of overall loan quality.  This is a significant estimate
based on a detailed analysis of the loan portfolio.  The balance can
and will change based on changes in the assessment of the portfolio's overall
credit quality.We evaluate the
adequacy of the allowance for loan losses on a quarterly basis.





The
allowance for loan losses at March 31, 2008 was $20.3 million, compared to $18.1
million at December 31, 2007.  At March 31, 2008, the allowance
represented 1.06% of outstanding loans (net of overdrafts) and provided coverage
of 54% of nonperforming loans, compared to 0.95% and 147%, respectively at
December 31, 2007.  The increase in the allowance for loan losses is
driven by a higher level of reserves for impaired loans and our consumer loan
portfolio reflecting the slowdown in housing and real estate markets and the
related financial impact on the consumer.  While there can be no
assurance that we will not sustain loan losses in a particular period that are
substantial in relation to the size of the allowance, our assessment of the loan
portfolio does not indicate a likelihood of this occurrence.  It is
management’s opinion that the allowance at March 31, 2008 is adequate to absorb
losses inherent in the loan portfolio at quarter-end.





Deposits





Average
total deposits were $2.149 billion for the first quarter of 2008, an increase of
$132.1 million, or 6.6%, over the linked fourth quarter.  The increase
was driven by strong growth in negotiated NOW accounts, primarily public funds
deposits which began migrating late in the fourth quarter from the Florida State
Board of Administration’s Local Government Investment Pool to Capital City
Bank.  Partially offsetting this increase was a decline in noninterest
bearing accounts, money market accounts, and certificates of
deposit.





The ratio
of average noninterest bearing deposits to total deposits was 18.8% for the
first quarter of 2008, compared to 20.8% for the fourth quarter of
2007.  For the same periods, the ratio of average interest bearing
liabilities to average earning assets was 82.7% and 80.0%,
respectively.





Market
Risk and Interest Rate Sensitivity





Overview





Our net
income is largely dependent on net interest income. Net interest income is
susceptible to interest rate risk to the degree that interest-bearing
liabilities mature or reprice on a different basis than interest-earning assets.
When interest-bearing liabilities mature or reprice more quickly than
interest-earning assets in a given period, a significant increase in market
rates of interest could adversely affect net interest income. Similarly, when
interest-earning assets mature or reprice more quickly than interest-bearing
liabilities, falling interest rates could result in a decrease in net interest
income. Net interest income is also affected by changes in the portion of
interest-earning assets that are funded by interest-bearing liabilities rather
than by other sources of funds, such as noninterest-bearing deposits and
shareowners’ equity.





We have
established a comprehensive interest rate risk management policy, which is
administered by management’s Asset Liability Management Committee
(“ALCO”).  The policy establishes limits of risk, which are
quantitative measures of the percentage change in net interest income (a measure
of net interest income at risk) and the fair value of equity capital (a measure
of economic value of equity (“EVE”) at risk) resulting from a hypothetical
change in interest rates for maturities from one day to 30 years.  We
measure the potential adverse impacts that changing interest rates may have on
its short-term earnings, long-term value, and liquidity by employing simulation
analysis through the use of computer modeling.  The simulation model
captures optionality factors such as call features and interest rate caps and
floors imbedded in investment and loan portfolio contracts.  As with
any method of gauging interest rate risk, there are certain shortcomings
inherent in the interest rate modeling methodology used by us.  When
interest rates change, actual movements in different categories of
interest-earning assets and interest-bearing liabilities, loan prepayments, and
withdrawals of time and other deposits, may deviate significantly from
assumptions used in the model.  Finally, the methodology does not
measure or reflect the impact that higher rates may have on adjustable-rate loan
clients’ ability to service their debts, or the impact of rate changes on demand
for loan, lease, and deposit products.





We
prepare a current base case and three alternative simulations, at least once a
quarter, and report the analysis to the Board of Directors.  In
addition, more frequent forecasts may be produced when interest rates are
particularly uncertain or when other business conditions so
dictate.





26
 Table of Contents





Our
interest rate risk management goals are (1) to increase net interest income at a
growth rate consistent with the growth rate of total assets and (2) to minimize
fluctuations in net interest margin as a percentage of earning
assets.  Management attempts to achieve these goals by balancing,
within policy limits, the volume of floating-rate liabilities with a similar
volume of floating-rate assets, by keeping the average maturity of fixed-rate
asset and liability contracts reasonably matched, by maintaining a pool of
administered core deposits, and by adjusting pricing rates to market conditions
on a continuing basis.





The
balance sheet is subject to testing for interest rate shock possibilities to
indicate the inherent interest rate risk. Average interest rates are shocked by
plus or minus 100 and 200 basis points (“bp”) and plus 300bp, although we may
elect not to use particular scenarios that we determined are impractical in a
current rate environment.  It is management’s goal to structure the
balance sheet so that net interest earnings at risk over a 12 -month period and
the economic value of equity at risk do not exceed policy guidelines at the
various interest rate shock levels.





We
augment our quarterly interest rate shock analysis with alternative external
interest rate scenarios on a monthly basis.  These alternative
interest rate scenarios may include non-parallel rate ramps and non-parallel
yield curve twists.





Analysis





Measures
of net interest income at risk produced by simulation analysis are indicators of
an institution’s short-term performance in alternative rate
environments.  These measures are typically based upon a relatively
brief period, usually one year.  They do not necessarily indicate the
long-term prospects or economic value of the institution.





ESTIMATED
CHANGES IN NET INTEREST INCOME





Changes in Interest Rates
            
            
            +300
            bp
            
            
            +200
            bp
            
            
            +100
            bp
            
            
            -100
            bp
            
            
            -200
            bpPolicy
      Limit
            
            
            10.0
            %
            
            
            7.5
            %
            
            
            5.0
            %
            
            
            -5.0
            %
            
            
            -7.5
            %March
      31, 2008
            
            
            1.3
            %
            
            
            3.9
            %
            
            
            3.1
            %
            
            
            -2.2
            %
            
            
            -6.7
            %December
      31, 2007
            
            
            1.4
            %
            
            
            4.1
            %
            
            
            3.5
            %
            
            
            -3.5
            %
            
            
            -7.2
            %





The Net
Interest Income at Risk position improved since the fourth quarter of 2007 in
all rate scenarios.  All of the above measures of net interest income
at risk remained well within prescribed policy limits. Although assumed to be
unlikely, our largest exposure is at the -200bp level, with a measure of
-6.68%.  This is also well within our prescribed policy limit of
-7.5%.





The
measures of equity value at risk indicate our ongoing economic value by
considering the effects of changes in interest rates on all of our cash flows,
and discounting the cash flows to estimate the present value of assets and
liabilities. The difference between these discounted values of the assets and
liabilities is the economic value of equity, which, in theory, approximates the
fair value of our net assets.





ESTIMATED
CHANGES IN ECONOMIC VALUE OF EQUITY





Changes in Interest Rates
            
            
            +300
            bp
            
            
            +200
            bp
            
            
            +100
            bp
            
            
            -100
            bp
            
            
            -200
            bpPolicy
      Limit
            
            
            12.5
            %
            
            
            10.0
            %
            
            
            7.5
            %
            
            
            -7.5
            %
            
            
            -10.0
            %March
      31, 2008
            
            
            1.6
            %
            
            
            3.3
            %
            
            
            2.5
            %
            
            
            -3.5
            %
            
            
            -6.9
            %December
      31, 2007
            
            
            1.8
            %
            
            
            3.4
            %
            
            
            2.7
            %
            
            
            -3.4
            %
            
            
            -6.9
            %





Measures
of the EVE at risk position decreased over year-end 2007 in all rate scenarios
with the exception of the down 200 bp scenario.  Although assumed to
be unlikely, our largest exposure is at the down 200 bp level, with a measure of
-6.90%. This is also well within our prescribed policy limit of
10.0%.





27
 Table of Contents





LIQUIDITY
AND CAPITAL RESOURCES





Liquidity





General.  Liquidity
for a banking institution is the availability of funds to meet increased loan
demand, excessive deposit withdrawals, and the payment of other contractual cash
obligations.  Management monitors our financial position in an effort
to ensure we have sufficient access to liquid funds to meet normal transaction
requirements and take advantage of investment opportunities and cover unforeseen
liquidity demands.  In addition to core deposit growth, sources of
funds available to meet liquidity demands include cash received through ordinary
business activities (i.e., collection of interest and fees), federal funds sold,
loan and investment maturities, our bank lines of credit, approved lines for the
purchase of federal funds by CCB, and Federal Home Loan Bank (“FHLB”)
advances.





Average
liquidity, defined as funds sold and interest bearing deposits with other banks,
for the first quarter of 2008 was $206.3 million compared to $96.7 million in
the fourth quarter of 2007.  The increase reflects the influx of
public deposits during the first quarter (see discussion above – Deposits).





Borrowings.  At
March 31, 2008, advances from the FHLB consisted of $41.7 million in outstanding
debt and 33 notes.  For the first three months of the year, the Bank
made FHLB advance payments totaling approximately $.8 million and obtained four
new FHLB advances totaling $3.8 million.  The FHLB notes are
collateralized by a blanket floating lien on all of our 1-4 family residential
mortgage loans, commercial real estate mortgage loans, and home equity mortgage
loans.





We have
the ability to draw on a $25.0 million Revolving Credit Note with SunTrust that
is due on March 2010.  Interest is payable monthly at the floating 30
day LIBOR plus .75%.  Principal is due at maturity.  The
revolving credit is unsecured.  The existing loan agreement contains
certain financial covenants that we must maintain.  At March 31, 2008,
we were in compliance with all of the terms of the agreement and had $25.0
million available under the line of credit facility.





We have
issued two junior subordinated, deferrable interest notes to two wholly-owned
Delaware statutory trusts.  The first note for $30.9 million was
issued to CCBG Capital Trust I in November 2004.  The second note for
$32.0 million was issued to CCBG Capital Trust II in May 2005.  The
interest payments for the CCBG Capital Trust I borrowing are due quarterly at a
fixed rate of 5.71% for five years, then adjustable annually to LIBOR plus a
margin of 1.90%.  This note matures on December 31,
2034.  The proceeds of this borrowing were used to partially fund the
acquisition of Farmers and Merchants Bank of Dublin.  The interest
payments for the CCBG Capital Trust II borrowing are due quarterly at a fixed
rate of 6.07% for five years, then adjustable quarterly to LIBOR plus a margin
of 1.80%.  This note matures on June 15, 2035.  The proceeds
of this borrowing were used to partially fund the First Alachua Banking
Corporation acquisition.





Capital





Equity
capital was $297.7 million as of March 31, 2008, compared to $292.7 million as
of December 31, 2007.  Management continues to monitor our capital
position in relation to our level of assets with the objective of maintaining a
strong capital position.  The leverage ratio was 10.32% at March 31,
2008 compared to 10.41% at December 31, 2007.  Further, the
risk-adjusted capital ratio of 14.01% at March 31, 2008 exceeds the 8.0% minimum
requirement under the risk-based regulatory guidelines.  As allowed by
the Federal Reserve Board capital guidelines the trust preferred securities
issued by CCBG Capital Trust I and CCBG Capital Trust II are included as Tier 1
capital in our capital calculations.





Adequate
capital and financial strength is paramount to the stability of CCBG and the
Bank.  Cash dividends declared and paid should not place unnecessary
strain on our capital levels.  Although a consistent dividend payment
is believed to be favorably viewed by the financial markets and shareowners, the
Board of Directors will declare dividends only if we are considered to have
adequate capital.  Future capital requirements and corporate plans are
considered when the Board considers a dividend payment.  Dividends
declared and paid during the first quarter of 2008 totaled $.185 per share
compared to $.175 per share for the first quarter of 2007, an increase of
5.7%.  The dividend payout ratios for the first quarter ended 2008 and
2007 were 43.8% and 45.4%, respectively.





State and
federal regulations place certain restrictions on the payment of dividends by
both CCBG and the Bank.  At March 31, 2008, these regulations and
covenants did not impair CCBG or the Bank's ability to declare and pay dividends
or to meet other existing obligations in the normal course of
business.





During
the first three months of 2008, shareowners’ equity increased $5.0 million, or
6.8%, on an annualized basis.  During this same period, shareowners’
equity was positively impacted by net income of $7.3 million and the issuance of
common stock of $0.5 million, and an increase in the net unrealized gain on
available-for-sale securities of $1.0 million.  Equity was reduced by
dividends paid during the first three months by $3.0 million, or $.185 per
share, the repurchase/retirement of common stock of $.7 million, and a
miscellaneous adjustment related to retained earnings related to the adoption of
EITF 06-4.  At March 31, 2008, our common stock had a book value of
$17.33 per diluted share compared to $17.03 at December 31, 2007.





28
 Table of Contents





Our Board
of Directors has authorized the repurchase of up to 2,671,875 shares of our
outstanding common stock.  The purchases are made in the open market
or in privately negotiated transactions.  To date, we have repurchased
a total of 2,309,201 shares at an average purchase price of $26.09 per
share.  We repurchased 25,000 shares of our common stock in the first
quarter of 2008 at an average purchase price of $29.30 per share.








OFF-BALANCE
SHEET ARRANGEMENTS





We do not
currently engage in the use of derivative instruments to hedge interest rate
risks.  However, we are a party to financial instruments with
off-balance sheet risks in the normal course of business to meet the financing
needs of our clients.





At March
31, 2008, we had $429.3 million in commitments to extend credit and $17.0
million in standby letters of credit.  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.  Standby letters of credit are conditional
commitments issued by us to guarantee the performance of a client to a third
party.  We use the same credit policies in establishing commitments
and issuing letters of credit as we do for on-balance sheet
instruments.





If
commitments arising from these financial instruments continue to require funding
at historical levels, management does not anticipate that such funding will
adversely impact its ability to meet on-going obligations.  In the
event these commitments require funding in excess of historical levels,
management believes current liquidity, available lines of credit from the FHLB,
and investment security maturities provide a sufficient source of funds to meet
these commitments.





29
 Table of Contents





ACCOUNTING
POLICIES





Critical
Accounting Policies





The
consolidated financial statements and accompanying Notes to Consolidated
Financial Statements are prepared in accordance with accounting principles
generally accepted in the United States of America, which require us to make
various estimates and assumptions (see Note 1 in the Notes to Consolidated
Financial Statements).  We believe that, of our significant accounting
policies, the following may involve a higher degree of judgment and
complexity.





Allowance for Loan
Losses.  The allowance for loan losses is established through a
charge to the provision for loan losses.  Provisions are made to
reserve for estimated losses in loan balances.  The allowance for loan
losses is a significant estimate and is evaluated quarterly by us for
adequacy.  The use of different estimates or assumptions could produce
a different required allowance, and thereby a larger or smaller provision
recognized as expense in any given reporting period.  A further
discussion of the allowance for loan losses can be found in the section entitled
"Allowance for Loan Losses" and Note 1 in the Notes to Consolidated Financial
Statements in our 2007 Form 10-K.





Intangible
Assets.  Intangible assets consist primarily of goodwill, core
deposit assets, and other identifiable intangibles that were recognized in
connection with various acquisitions.  Goodwill represents the excess
of the cost of acquired businesses over the fair market value of their
identifiable net assets.  We perform an impairment review on an annual
basis to determine if there has been impairment of our goodwill.  We
have determined that no impairment existed at December 31,
2007.  Impairment testing requires management to make significant
judgments and estimates relating to the fair value of its identified reporting
units.  Significant changes to these estimates may have a material
impact on our reported results.





Core
deposit assets represent the premium we paid for core deposits.  Core
deposit intangibles are amortized on the straight-line method over various
periods ranging from 5-10 years.  Generally, core deposits refer to
nonpublic, non-maturing deposits including noninterest-bearing deposits, NOW,
money market and savings.  We make certain estimates relating to the
useful life of these assets, and rate of run-off based on the nature of the
specific assets and the client bases acquired.  If there is a reason
to believe there has been a permanent loss in value, management will assess
these assets for impairment.  Any changes in the original estimates
may materially affect reported earnings.





Pension Assumptions.We have a defined
benefit pension plan for the benefit of substantially all of our
associates.  Our funding policy with respect to the pension plan is to
contribute amounts to the plan sufficient to meet minimum funding requirements
as set by law.  Pension expense, reflected in the Consolidated
Statements of Income in noninterest expense as "Salaries and Associate
Benefits," is determined by an external actuarial valuation based on assumptions
that are evaluated annually as of December 31, the measurement date for the
pension obligation.  The Consolidated Statements of Financial
Condition reflect an accrued pension benefit cost due to funding levels and
unrecognized actuarial amounts.  The most significant assumptions used
in calculating the pension obligation are the weighted-average discount rate
used to determine the present value of the pension obligation, the
weighted-average expected long-term rate of return on plan assets, and the
assumed rate of annual compensation increases.  These assumptions are
re-evaluated annually with the external actuaries, taking into consideration
both current market conditions and anticipated long-term market
conditions.





The
weighted-average discount rate is determined by matching the anticipated
Retirement Plan cash flows to a long-term corporate Aa-rated bond index and
solving for the underlying rate of return, which investing in such securities
would generate.  This methodology is applied consistently from
year-to-year.  We anticipate using a 6.25% discount rate in
2008.





The
weighted-average expected long-term rate of return on plan assets is determined
based on the current and anticipated future mix of assets in the
plan.  The assets currently consist of equity securities, U.S.
Government and Government Agency debt securities, and other securities
(typically temporary liquid funds awaiting investment).  We anticipate
using a rate of return on plan assets of 8.0% for 2008.





The
assumed rate of annual compensation increases is based on expected trends in
salaries and the employee base.  We used a rate of 5.50% in 2007 and
do not expect this assumption to change materially in 2008.





Information
on components of our net periodic benefit cost is provided in Note 8 of the
Notes to Consolidated Financial Statements included herein and Note 12 of the
Notes to Consolidated Financial Statements in our 2007 Form 10-K.





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 Table of Contents





Recent
Accounting Pronouncements





Statement
of Financial Accounting Standards





SFAS No. 141,
“Business Combinations (Revised 2007).”  SFAS 141R replaces SFAS
141, “Business Combinations,” and applies to all transactions and other events
in which one entity obtains control over one or more other
businesses.  SFAS 141R requires an acquirer, upon initially
obtaining control of another entity, to recognize the assets, liabilities and
any non-controlling interest in the acquiree at fair value as of the acquisition
date.  Contingent consideration is required to be recognized and
measured at fair value on the date of acquisition rather than at a later date
when the amount of that consideration may be determinable beyond a reasonable
doubt.  This fair value approach replaces the cost-allocation process
required under SFAS 141 whereby the cost of an acquisition was allocated to
the individual assets acquired and liabilities assumed based on their estimated
fair value.  SFAS 141R requires acquirers to expense
acquisition-related costs as incurred rather than allocating such costs to the
assets acquired and liabilities assumed, as was previously the case under
SFAS 141.  Under SFAS 141R, the requirements of
SFAS 146, Accounting for Costs Associated with Exit or Disposal
Activities,” would have to be met in order to accrue for a restructuring plan in
purchase accounting. Pre-acquisition contingencies are to be recognized at fair
value, unless it is a non-contractual contingency that is not likely to
materialize, in which case, nothing should be recognized in purchase accounting
and, instead, that contingency would be subject to the probable and estimable
recognition criteria of SFAS 5, “Accounting for
Contingencies.”   SFAS 141R is effective for business
combinations closing on or after January 1, 2009.  We are in the
process of reviewing the impact of SFAS 141R.





SFAS No.
157, "Fair Value Measurements."  SFAS 157 defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value measurements
(see Note 11 – Fair Value Measurements).





SFAS
No. 159, "The Fair Value Option for Financial Assets and Financial
Liabilities-Including an amendment of FASB Statement
No. 115."  SFAS 159 permits entities to choose to measure
eligible items at fair value at specified election dates (see Note 11 – Fair
Value Measurements).





SFAS No. 160,
“Noncontrolling Interest in Consolidated Financial Statements, an amendment of
ARB Statement No. 51.”  SFAS 160 amends Accounting Research
Bulletin (“ARB”) No. 51, “Consolidated Financial Statements,” to establish
accounting and reporting standards for the non-controlling interest in a
subsidiary and for the deconsolidation of a subsidiary.  SFAS 160
clarifies that a non-controlling interest in a subsidiary, which is sometimes
referred to as minority interest, is an ownership interest in the consolidated
entity that should be reported as a component of equity in the consolidated
financial statements.  Among other requirements, SFAS 160
requires consolidated net income to be reported at amounts that include the
amounts attributable to both the parent and the non-controlling
interest.  It also requires disclosure, on the face of the
consolidated income statement, of the amounts of consolidated net income
attributable to the parent and to the non-controlling
interest.  SFAS 160 is effective on January 1, 2009 and is
not expected to have a significant impact on our financial
statements.





Emerging
Issues Task Force Issues





In
September 2006, the FASB ratified the consensus the EITF reached regarding EITF
Issue No. 06-4, “Accounting for Deferred Compensation and Postretirement
Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements” (“Issue
06-4”), which provides accounting guidance for postretirement benefits related
to endorsement split-dollar life insurance arrangements, whereby the employer
owns and controls the insurance policies.  The consensus concludes
that an employer should recognize a liability for the postretirement benefit in
accordance with Statement 106.  In addition, the consensus states that
an employer should also recognize an asset based on the substance of the
arrangement with the employee.  Issue 06-4 is effective for fiscal
years beginning after December 15, 2007 with early application
permitted.  We adopted EITF 06-4 on January 1, 2008 as a change in
accounting principle through a cumulative-effect adjustment to retained earnings
totaling $30,000.





SEC
Staff Accounting Bulletins





SAB No.
109, "Written Loan Commitments Recorded at Fair Value Through
Earnings."  SAB No. 109 supersedes SAB No. 105, "Application of
Accounting Principles to Loan Commitments," and indicates that the expected net
future cash flows related to the associated servicing of the loan should be
included in the measurement of all written loan commitments that are accounted
for at fair value through earnings.  The guidance in SAB No. 109
became effective on January 1, 2008 and did not have a material impact on
our financial statements.





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 Table of Contents





TABLE
I


AVERAGE
BALANCES & INTEREST RATES





Three Months Ended March31,2008
            
            
            2007(Taxable
      Equivalent Basis - Dollars in Thousands)
            
            Balance
            
            
            Interest
            
            
            Rate
            
            
            Balance
            
            
            Interest
            
            
            RateASSETSLoans,
      Net of Unearned Interest(1)(2)
            
            $
            1,909,574
            
            
            $
            35,452
            
            
            
            7.47
            %
            
            $
            1,980,224
            
            
            $
            39,264
            
            
            
            8.04
            %Taxable
      Investment Securities
            
            
            94,786
            
            
            
            1,108
            
            
            
            4.67
            
            
            
            108,377
            
            
            
            1,263
            
            
            
            4.67Tax-Exempt
      Investment Securities(2)
            
            
            90,790
            
            
            
            1,207
            
            
            
            5.32
            
            
            
            82,627
            
            
            
            1,039
            
            
            
            5.03Funds
      Sold
            
            
            206,313
            
            
            
            1,574
            
            
            
            3.02
            
            
            
            40,332
            
            
            
            521
            
            
            
            5.17Total
      Earning Assets
            
            
            2,301,463
            
            
            
            39,341
            
            
            
            6.87
            
            
            
            2,211,560
            
            
            
            42,087
            
            
            
            7.71Cash
      & Due From Banks
            
            
            94,247
            
            
            
            
            
            
            
            
            
            
            
            88,679Allowance
      for Loan Losses
            
            
            (18,227
            )
            
            
            
            
            
            
            
            
            
            
            (17,073
            )Other
      Assets
            
            
            268,991
            
            
            
            
            
            
            
            
            
            
            
            247,624TOTAL
      ASSETS
            
            $
            2,646,474
            
            
            
            
            
            
            
            
            
            
            $
            2,530,790LIABILITIESNOW
      Accounts
            
            $
            773,891
            
            
            $
            3,440
            
            
            
            1.79
            %
            
            $
            552,303
            
            
            $
            2,626
            
            
            
            1.93
            %Money
      Market Accounts
            
            
            389,828
            
            
            
            2,198
            
            
            
            2.27
            
            
            
            386,736
            
            
            
            3,427
            
            
            
            3.59Savings
      Accounts
            
            
            113,163
            
            
            
            34
            
            
            
            0.12
            
            
            
            125,419
            
            
            
            78
            
            
            
            0.25Other
      Time Deposits
            
            
            467,280
            
            
            
            4,809
            
            
            
            4.14
            
            
            
            480,964
            
            
            
            4,869
            
            
            
            4.11Total
      Interest Bearing Deposits
            
            
            1,744,162
            
            
            
            10,481
            
            
            
            2.42
            
            
            
            1,545,422
            
            
            
            11,000
            
            
            
            2.89Short-Term
      Borrowings
            
            
            68,095
            
            
            
            521
            
            
            
            3.06
            
            
            
            68,911
            
            
            
            761
            
            
            
            4.46Subordinated
      Notes Payable
            
            
            62,887
            
            
            
            931
            
            
            
            5.96
            
            
            
            62,887
            
            
            
            926
            
            
            
            5.97Other
      Long-Term Borrowings
            
            
            27,644
            
            
            
            331
            
            
            
            4.82
            
            
            
            43,137
            
            
            
            502
            
            
            
            4.72Total
      Interest Bearing Liabilities
            
            
            1,902,788
            
            
            
            12,264
            
            
            
            2.59
            
            
            
            1,720,357
            
            
            
            13,189
            
            
            
            3.11Noninterest
      Bearing Deposits
            
            
            404,712
            
            
            
            
            
            
            
            
            
            
            
            458,304Other
      Liabilities
            
            
            42,170
            
            
            
            
            
            
            
            
            
            
            
            35,645TOTAL
      LIABILITIES
            
            
            2,349,670
            
            
            
            
            
            
            
            
            
            
            
            2,214,306SHAREOWNERS'
      EQUITYTOTAL
      SHAREOWNERS' EQUITY
            
            
            296,804
            
            
            
            
            
            
            
            
            
            
            
            316,484TOTAL
      LIABILITIES & EQUITY
            
            $
            2,646,474
            
            
            
            
            
            
            
            
            
            
            $
            2,530,790Interest
      Rate Spread
            
            
            
            
            
            
            
            
            
            
            4.28
            %
            
            
            
            
            
            
            
            
            
            
            4.60
            %Net
      Interest Income
            
            
            
            
            
            $
            27,077
            
            
            
            
            
            
            
            
            
            
            $
            28,898Net
      Interest Margin(3)
            
            
            
            
            
            
            
            
            
            
            4.73
            %
            
            
            
            
            
            
            
            
            
            
            5.29
            %





(1)
            Average
      balances include nonaccrual loans.Interest
      income includes fees on loans of $696,000 and $831,000, for the three
      months ended March 31, 2008and 2007,
      respectively.





(2)
            Interest
      income includes the effects of taxable equivalent adjustments using a 35%
      tax rate.





(3)
            Taxable equivalent net
      interest income divided by average earning
  assets.





32
 Table of Contents





Item
      3.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





See
“Financial Condition - Market Risk and Interest Rate Sensitivity” in
Management’s Discussion and Analysis of Financial Condition and Results of
Operations, above, which is incorporated herein by
reference.  Management has determined that no additional disclosures
are necessary to assess changes in information about market risk that have
occurred since December 31, 2007.





Item4.
            CONTROLS
      AND PROCEDURES





Evaluation
of Disclosure Controls and Procedures





As of
March 31, 2008, the end of the period covered by this Form 10-Q, our management,
including our Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of our disclosure controls and procedures (as defined in Rule
13a-15(e) under the Securities Exchange Act of 1934).  Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer each
concluded that as of March 31, 2008, the end of the period covered by this Form
10-Q, we maintained effective disclosure controls and procedures.





Changes
in Internal Control over Financial Reporting





Our
management, including the Chief Executive Officer and Chief Financial Officer,
has reviewed our internal control.  There have been no significant
changes in our internal control during our most recently completed fiscal
quarter, nor subsequent to the date of their evaluation, that could
significantly affect our internal control over financial reporting.





PART
      II.
            OTHER
      INFORMATION





Item1.
            Legal
      Proceedings





We are
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 our consolidated results of operations, financial
position, or cash flows.





Item
      1A.
            Risk
      Factors





In
addition to the other information set forth in this Quarterly Report on Form
10-Q, you should carefully consider the factors discussed in Part I, "Item 1A.
Risk Factors" in our Annual Report on Form 10-K for the year ended December 31,
2007, which could materially affect our business, financial condition or future
results. The risks described in our Annual Report on Form 10-K are not the only
risks we face.  Additional risks and uncertainties not currently known
to us or that we currently deem to be immaterial also may materially adversely
affect our business, financial condition and/or operating results.





33
 Table of Contents





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





Purchases
of Equity Securities by the Issuer and Affiliated Purchasers





The
following table contains information about all purchases made by or on behalf of
us or any affiliated purchaser (as defined in Rule 10b-18(a)(3) under the
Exchange Act) of shares or other units of any class of our equity securities
that is registered pursuant to Section 12 of the Exchange Act.





Period
            
            Total numberof sharespurchased
            
            
            Averageprice paidper
share
            
            
            Total number ofshares purchased aspart of our sharerepurchase program(1)
            
            
            Maximum Numberof shares thatmay yet be purchasedunder our sharerepurchase
      programJanuary
      1, 2008 to January 31, 2008
            
            
            25,000
            
            
            $
            29.30
            
            
            
            2,309,201
            
            
            
            362,674February
      1, 2008 to February 29, 2008
            
            
            -
            
            
            
            -
            
            
            
            2,309,201
            
            
            
            362,674March
      1, 2008 to March 31, 2008
            
            
            -
            
            
            
            -
            
            
            
            2,309,201
            
            
            
            362,674Total
            
            
            25,000
            
            
            $
            29.30
            
            
            
            2,309,201
            
            
            
            362,674





(1)
            This
      balance represents the number of shares that were repurchased through the
      Capital City Bank Group, Inc. Share Repurchase Program (the “Program”),
      which was approved on March 30, 2000, and modified by our Board on January
      24, 2002, March 22, 2007, and November 11, 2007 under which we were
      authorized to repurchase up to 2,671,875 shares of our common
      stock.  The Program is flexible and shares are acquired from the
      public markets and other sources using free cash flow.  There is
      no predetermined expiration date for the Program.  No shares in
      the first quarter were repurchased outside of the
  Program.





Item3.
            Defaults
      Upon Senior Securities





None.





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





None.





34
 Table of Contents





Item
      5.
            Other
      Information





Termination
of the 2006 Incentive Plan





On March
27, 2008, our Board of Directors terminated the 2006 Incentive Plan, which had
been adopted by our Board of Directors effective as of January 1,
2006.  The 2006 Incentive Plan was a performance-based equity bonus
plan in which selected members of management, including all named executive
officers, were eligible to participate.  The 2006 Incentive Plan was
administered under our 2005 Associate Incentive Plan (“AIP”).





A total
of 32,799 shares were awarded under the 2006 Incentive Plan, including an
aggregate of 6,648 shares to our named executive officers.  The 2006
Incentive Plan’s performance goals had been tied to our long-term strategic
plan, Project 2011, which set an aggressive goal of achieving $50 million in
annual earnings by 2011.  Due to adverse economic conditions which are
outside our control, Project 2011 was terminated as set forth in our Form 8-K
filing on February 15, 2008.





Approval
of the 2008 Incentive Plan





On March
27, 2008, our Board of Directors approved the 2008 Stock-Based Incentive Plan
(the “2008 Incentive Plan”) in accordance with 2005 Associate Incentive Plan
(“AIP”) for certain of our officers.  Under the 2008 Incentive Plan
and consistent with the objectives of the AIP, participants may receive equity
awards in the form of restricted stock, if certain performance goals are
satisfied for the 2008 calendar year performance period.





The
Compensation Committee reserved an aggregate of 20,583 shares of our stock for
issuance pursuant to the 2008 Incentive Plan.  In addition, the
Compensation Committee established performance goals and a bonus formula for the
2008 Incentive Plan.  The goals under the 2008 Incentive Plan include
an equal weighted average of certain balance sheet growth, earnings growth, and
credit quality metrics.  The maximum equity award payable under the
2008 Incentive Plan to our three named executive officers is 22.1% of the
reserved shares, and will be payable only if the performance goals are
achieved.  Equity awards payable under the 2008 Incentive Plan to the
remaining participants will not exceed 77.9% of the reserved
shares.








Item6.
            Exhibits





(A)
            Exhibits





31.1
            Certification
      of William G. Smith, Jr., Chairman, President and Chief Executive Officer
      of Capital City Bank Group, Inc., Pursuant to Rule 13a-14(a) of the
      Securities Exchange Act of 1934.





31.2
            Certification
      of J. Kimbrough Davis, Executive Vice President and Chief Financial
      Officer of Capital City Bank Group, Inc., Pursuant to Rule 13a-14(a) of
      the Securities Exchange Act of
1934.





32.1
            Certification
      of William G. Smith, Jr., Chairman, President and Chief Executive Officer
      of Capital City Bank Group, Inc., Pursuant to 18 U.S.C. Section
      1350.





32.2
            Certification
      of J. Kimbrough Davis, Executive Vice President and Chief Financial
      Officer of Capital City Bank Group, Inc., Pursuant to 18 U.S.C. Section
      1350.





35
 Table of Contents





SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this Report to be signed on its behalf by the undersigned Chief
Financial Officer hereunto duly authorized.





CAPITAL
CITY BANK GROUP, INC.


(Registrant)





By:/s/J.KimbroughDavis


J.
Kimbrough Davis


Executive
Vice President and Chief Financial Officer


(Mr. Davis
is the Principal Financial Officer and has been duly authorized to sign on
behalf of the Registrant)





Date:  May
9, 2008






36