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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON,
D.C. 20549


FORM 10-Q

|   |                                                                                          
|-- | -----------------------------------------------------------------------------------------
|x  | QUARTERLY REPORT PURSUANT TO
 SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|   |                                                                                          
|   | For the Quarterly Period Ended September 30, 2010                                        
|   |                                                                                          
|OR
|   |                                                                                          
|o  | TRANSITION REPORT PURSUANT TO
 SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|   |                                                                                          
|   | For the transition period from ____________ to ____________                              

Commission File Number: 0-13358

|                                                      
|------------------------------------------------------
|CAPITAL CITY BANK GROUP, INC.                         
|(Exact name of registrant as specified in its charter)

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

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

|                                                    
|----------------------------------------------------
|(850) 402-7000                                      
|(Registrants telephone number, including area code)

Indicate by
check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x
No o

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

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

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

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

At October 31,
2010, 17,095,481 shares of the Registrants Common Stock, $.01 par value, were
outstanding.

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CAPITAL CITY BANK GROUP, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 2010
TABLE OF CONTENTS

|                               |                                                                                                   |  |     
|------------------------------ | ------------------------------------------------------------------------------------------------- |  | ----
|                               |                                                                                                   |  | Page
|PART I  Financial Information |                                                                                                   | 
|                               |                                                                                                   |  |     
|Item 1.                        | Consolidated Financial Statements (Unaudited)                                                     |  |     
|                               | Consolidated
 Statements of Financial Condition  September 30, 2010 and December 31, 2009        |  | 4   
|                               | Consolidated
 Statements of Income  Three and Nine Months Ended September 30, 2010 and
 2009     |  | 5   
|                               | Consolidated
 Statement of Changes in Shareowners Equity  Nine Months Ended September 30,
 2010 |  | 6   
|                               | Consolidated
 Statements of Cash Flow  Nine Months Ended September 30, 2010 and 2009             |  | 7   
|                               | Notes to
 Consolidated Financial Statements                                                       |  | 8   
|                               |                                                                                                   |  |     
|Item 2.                        | Managements Discussion and Analysis of Financial Condition and
 Results of Operations            |  | 18  
|                               |                                                                                                   |  |     
|Item 3.                        | Quantitative and Qualitative Disclosure About Market Risk                                         |  | 37  
|                               |                                                                                                   |  |     
|Item 4.                        | Controls and Procedures                                                                           |  | 37  
|                               |                                                                                                   |  |     
|PART II  Other Information    |                                                                                                   | 
|                               |                                                                                                   |  |     
|Item 1.                        | Legal Proceedings                                                                                 |  | 37  
|                               |                                                                                                   |  |     
|Item 1A.                       | Risk Factors                                                                                      |  | 37  
|                               |                                                                                                   |  |     
|Item 2.                        | Unregistered Sales of Equity Securities and Use of Proceeds                                       |  | 37  
|                               |                                                                                                   |  |     
|Item 3.                        | Defaults Upon Senior Securities                                                                   |  | 37  
|                               |                                                                                                   |  |     
|Item 4.                        | Removed and Reserved                                                                              |  | 37  
|                               |                                                                                                   |  |     
|Item 5.                        | Other Information                                                                                 |  | 37  
|                               |                                                                                                   |  |     
|Item 6.                        | Exhibits                                                                                          |  | 38  
|                               |                                                                                                   |  |     
|Signatures                     |                                                                                                   |  | 39  

2

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INTRODUCTORY NOTE
Caution Concerning Forward-Looking Statements

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

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

Our ability to
achieve our financial objectives could be adversely affected by the factors
discussed in detail in Part I, Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations and Part II, Item 1A. Risk
Factors in this Quarterly Report on Form 10-Q, the following sections of our
Annual Report on Form 10-K for the year ended December 31, 2009 (the 2009 Form
10-K): (a) Introductory Note in Part I, Item 1. Business; (b) Risk
Factors in Part I, Item 1A., as updated in our subsequent quarterly reports
filed on Form 10-Q, and (c) Introduction in Managements Discussion and
Analysis of Financial Condition and Results of Operations, in Part II, Item 7.
as well as:

| |   |                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | § | legislative
 or regulatory changes;                                                                                                                                         
| | § | the strength
 of the United States economy in general and the strength of the local
 economies in which we conduct operations;                                              
| | § | the accuracy
 of our financial statement estimates and assumptions, including the estimate
 for our loan loss provision and the valuation allowance on deferred tax
 assets;
| | § | continued
 depression of the market value of the Company that could result in an
 impairment of goodwill;                                                                   
| | § | restrictions
 on our operations, including the inability to pay dividends without our
 regulators consent;                                                                 
| | § | the effects
 of the health and soundness of other financial institutions, including the
 FDICs need to increase Deposit Insurance Fund assessments;                        
| | § | our ability
 to declare and pay dividends;                                                                                                                                  
| | § | changes in
 the securities and real estate markets;                                                                                                                         
| | § | changes in
 monetary and fiscal policies of the U.S. Government;                                                                                                            
| | § | inflation,
 interest rate, market and monetary fluctuations;                                                                                                                
| | § | 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;                                                   
| | § | our need and
 our ability to incur additional debt or equity financing;                                                                                                     
| | § | our ability
 to integrate the business and operations of companies and banks that we have
 acquired, and those we may acquire in the future;                                
| | § | the effects
 of harsh weather conditions, including hurricanes, and man-made disasters,
 including the BP p.l.c. oil spill in the Gulf of Mexico;                           
| | § | our ability
 to comply with the extensive laws and regulations to which we are subject;                                                                                     
| | § | the willingness
 of clients to accept third-party products and services rather than our
 products and services and vice versa;                                              
| | § | increased
 competition and its effect on pricing;                                                                                                                           
| | § | technological
 changes;                                                                                                                                                     
| | § | 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

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|        |                                  
|------- | ---------------------------------
|PART I. | FINANCIAL INFORMATION            
|Item 1. | CONSOLIDATED FINANCIAL STATEMENTS

CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF SEPTEMBER 30, 2010 AND DECEMBER 31, 2009

|                                                                                                                                                                                |  |                                 |           |                   |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | --------- | ----------------- | - | --------- | -
|(Dollars In Thousands, Except Share Data)                                                                                                                                       |  | (Unaudited)
 September 30, 2010 |           | December 31, 2009 |  
|                                                                                                                                                                                |  |                                 |           |                   |  
|ASSETS                                                                                                                                                                          |  |                                 |           |                   |   |           |  
|Cash and Due From Banks                                                                                                                                                         |  | $                               | 48,701    |                   | $ | 57,877    |  
|Federal Funds Sold and Interest Bearing
 Deposits                                                                                                                               |  |                                 | 193,415   |                   |   | 276,416   |  
|                                                                                                                                                                                |  |                                 |           |                   |   |           |  
|Total Cash and Cash Equivalents                                                                                                                                                 |  |                                 | 242,116   |                   |   | 334,293   |  
|                                                                                                                                                                                |  |                                 |           |                   |   |           |  
|Investment Securities, Available-for-Sale                                                                                                                                       |  |                                 | 231,303   |                   |   | 176,673   |  
|                                                                                                                                                                                |  |                                 |           |                   |   |           |  
|Loans, Net of Unearned Interest                                                                                                                                                 |  |                                 | 1,801,237 |                   |   | 1,915,940 |  
|Allowance for Loan Losses                                                                                                                                                       |  |                                 | (37,720   | )                 |   | (43,999   | )
|                                                                                                                                                                                |  |                                 |           |                   |   |           |  
|Loans, Net                                                                                                                                                                      |  |                                 | 1,763,517 |                   |   | 1,871,941 |  
|                                                                                                                                                                                |  |                                 |           |                   |   |           |  
|Premises and Equipment, Net                                                                                                                                                     |  |                                 | 115,689   |                   |   | 115,439   |  
|Goodwill                                                                                                                                                                        |  |                                 | 84,811    |                   |   | 84,811    |  
|Other Intangible Assets                                                                                                                                                         |  |                                 | 1,901     |                   |   | 4,030     |  
|Other Real Estate Owned                                                                                                                                                         |  |                                 | 51,208    |                   |   | 36,134    |  
|Other Assets                                                                                                                                                                    |  |                                 | 89,451    |                   |   | 85,003    |  
|                                                                                                                                                                                |  |                                 |           |                   |   |           |  
|Total Assets                                                                                                                                                                    |  | $                               | 2,579,996 |                   | $ | 2,708,324 |  
|                                                                                                                                                                                |  |                                 |           |                   |   |           |  
|                                                                                                                                                                                |  |                                 |           |                   |   |           |  
|LIABILITIES                                                                                                                                                                     |  |                                 |           |                   |   |           |  
|Deposits:                                                                                                                                                                       |  |                                 |           |                   |   |           |  
|Noninterest Bearing Deposits                                                                                                                                                    |  | $                               | 479,887   |                   | $ | 427,791   |  
|Interest Bearing Deposits                                                                                                                                                       |  |                                 | 1,641,556 |                   |   | 1,830,443 |  
|                                                                                                                                                                                |  |                                 |           |                   |   |           |  
|Total Deposits                                                                                                                                                                  |  |                                 | 2,121,443 |                   |   | 2,258,234 |  
|                                                                                                                                                                                |  |                                 |           |                   |   |           |  
|Short-Term Borrowings                                                                                                                                                           |  |                                 | 38,138    |                   |   | 35,841    |  
|Subordinated Notes Payable                                                                                                                                                      |  |                                 | 62,887    |                   |   | 62,887    |  
|Other Long-Term Borrowings                                                                                                                                                      |  |                                 | 46,456    |                   |   | 49,380    |  
|Other Liabilities                                                                                                                                                               |  |                                 | 50,383    |                   |   | 34,083    |  
|                                                                                                                                                                                |  |                                 |           |                   |   |           |  
|Total Liabilities                                                                                                                                                               |  |                                 | 2,319,307 |                   |   | 2,440,425 |  
|                                                                                                                                                                                |  |                                 |           |                   |   |           |  
|                                                                                                                                                                                |  |                                 |           |                   |   |           |  
|SHAREOWNERS EQUITY                                                                                                                                                             |  |                                 |           |                   |   |           |  
|Preferred Stock, $.01 par value, 3,000,000
 shares authorized; no shares outstanding                                                                                            |  |                                 |          |                   |   |          |  
|Common Stock, $.01 par value, 90,000,000
 shares authorized; 17,095,481 and 17,036,407 shares issued and outstanding at
 September 30, 2010 and December 31, 2009, respectively |  |                                 | 171       |                   |   | 170       |  
|Additional Paid-In Capital                                                                                                                                                      |  |                                 | 36,864    |                   |   | 36,099    |  
|Retained Earnings                                                                                                                                                               |  |                                 | 237,471   |                   |   | 246,460   |  
|Accumulated Other Comprehensive Loss, Net
 of Tax                                                                                                                               |  |                                 | (13,817   | )                 |   | (14,830   | )
|                                                                                                                                                                                |  |                                 |           |                   |   |           |  
|Total Shareowners Equity                                                                                                                                                       |  |                                 | 260,689   |                   |   | 267,899   |  
|                                                                                                                                                                                |  |                                 |           |                   |   |           |  
|Total Liabilities and Shareowners Equity                                                                                                                                       |  | $                               | 2,579,996 |                   | $ | 2,708,324 |  
|                                                                                                                                                                                |  |                                 |           |                   |   |           |  

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

4

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CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30
(Unaudited)

|                                                     |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|---------------------------------------------------- |  | ------------------ | ---------- | ----------------- | - | ---------- | - | ---- | ---------- | - | - | ---------- | -
|                                                     |  | Three Months Ended |            | Nine Months Ended |  
|                                                     |  |                    |            |                   |  
|(Dollars in Thousands, Except Per Share Data)        |  | 2010               |            | 2009              |   | 2010       |   | 2009 |           
|                                                     |  |                    |            |                   |   |            |   |      |           
|INTEREST INCOME                                      |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|Interest and
 Fees on Loans                          |  | $                  | 26,418     |                   | $ | 29,463     |   | $    | 80,054     |   | $ | 88,742     |  
|Investment
 Securities:                              |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|U.S. Treasuries                                      |  |                    | 315        |                   |   | 125        |   |      | 748        |   |   | 444        |  
|U.S. Government Agencies                             |  |                    | 274        |                   |   | 440        |   |      | 893        |   |   | 1,471      |  
|States and Political Subdivisions                    |  |                    | 339        |                   |   | 641        |   |      | 1,235      |   |   | 2,073      |  
|Other Securities                                     |  |                    | 86         |                   |   | 117        |   |      | 242        |   |   | 285        |  
|Federal
 Funds Sold                                  |  |                    | 144        |                   |   | 1          |   |      | 492        |   |   | 5          |  
|                                                     |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|Total Interest Income                                |  |                    | 27,576     |                   |   | 30,787     |   |      | 83,664     |   |   | 93,020     |  
|                                                     |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|                                                     |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|INTEREST EXPENSE                                     |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|Deposits                                             |  |                    | 1,820      |                   |   | 2,626      |   |      | 7,121      |   |   | 7,621      |  
|Short-Term
 Borrowings                               |  |                    | 31         |                   |   | 113        |   |      | 60         |   |   | 269        |  
|Subordinated
 Notes Payable                          |  |                    | 376        |                   |   | 936        |   |      | 1,666      |   |   | 2,794      |  
|Other
 Long-Term Borrowings                          |  |                    | 565        |                   |   | 560        |   |      | 1,642      |   |   | 1,694      |  
|                                                     |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|Total Interest Expense                               |  |                    | 2,792      |                   |   | 4,235      |   |      | 10,489     |   |   | 12,378     |  
|                                                     |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|                                                     |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|NET INTEREST INCOME                                  |  |                    | 24,784     |                   |   | 26,552     |   |      | 73,175     |   |   | 80,642     |  
|Provision
 for Loan Losses                           |  |                    | 5,668      |                   |   | 12,347     |   |      | 20,041     |   |   | 29,183     |  
|                                                     |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|Net Interest
 Income After Provision For Loan Losses |  |                    | 19,116     |                   |   | 14,205     |   |      | 53,134     |   |   | 51,459     |  
|                                                     |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|                                                     |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|NONINTEREST INCOME                                   |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|Service
 Charges on Deposit Accounts                 |  |                    | 6,399      |                   |   | 7,099      |   |      | 20,066     |   |   | 20,959     |  
|Data
 Processing                                     |  |                    | 911        |                   |   | 914        |   |      | 2,730      |   |   | 2,680      |  
|Asset
 Management Fees                               |  |                    | 1,040      |                   |   | 960        |   |      | 3,140      |   |   | 2,860      |  
|Securities
 Transactions                             |  |                    | 3          |                   |   | 4          |   |      | 8          |   |   | 10         |  
|Mortgage
 Banking Fees                               |  |                    | 772        |                   |   | 663        |   |      | 1,921      |   |   | 2,149      |  
|Bank Card
 Fees                                      |  |                    | 2,327      |                   |   | 2,005      |   |      | 6,864      |   |   | 5,926      |  
|Other                                                |  |                    | 1,997      |                   |   | 2,659      |   |      | 7,361      |   |   | 8,396      |  
|                                                     |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|Total Noninterest Income                             |  |                    | 13,449     |                   |   | 14,304     |   |      | 42,090     |   |   | 42,980     |  
|                                                     |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|                                                     |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|NONINTEREST EXPENSE                                  |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|Salaries and
 Associate Benefits                     |  |                    | 15,003     |                   |   | 15,660     |   |      | 47,366     |   |   | 48,946     |  
|Occupancy,
 Net                                      |  |                    | 2,611      |                   |   | 2,455      |   |      | 7,604      |   |   | 7,340      |  
|Furniture
 and Equipment                             |  |                    | 2,288      |                   |   | 2,193      |   |      | 6,661      |   |   | 6,835      |  
|Intangible
 Amortization                             |  |                    | 709        |                   |   | 1,011      |   |      | 2,129      |   |   | 3,032      |  
|Other Real
 Estate Expense                           |  |                    | 3,306      |                   |   | 1,952      |   |      | 10,213     |   |   | 4,044      |  
|Other                                                |  |                    | 8,446      |                   |   | 8,344      |   |      | 26,403     |   |   | 26,605     |  
|                                                     |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|Total Noninterest Expense                            |  |                    | 32,363     |                   |   | 31,615     |   |      | 100,376    |   |   | 96,802     |  
|                                                     |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|                                                     |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|INCOME (LOSS) BEFORE INCOME TAXES                    |  |                    | 202        |                   |   | (3,106     | ) |      | (5,152     | ) |   | (2,363     | )
|Income Tax
 Expense (Benefit)                        |  |                    | (199       | )                 |   | (1,618     | ) |      | (2,821     | ) |   | (2,299     | )
|                                                     |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|                                                     |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|NET INCOME (LOSS)                                    |  | $                  | 401        |                   | $ | (1,488     | ) | $    | (2,331     | ) | $ | (64        | )
|                                                     |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|                                                     |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|Basic Net
 Income (Loss) Per Share                   |  | $                  | 0.02       |                   | $ | (0.08      | ) | $    | (0.14      | ) | $ | 0.00       |  
|                                                     |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|Diluted Net
 Income (Loss) Per Share                 |  | $                  | 0.02       |                   | $ | (0.08      | ) | $    | (0.14      | ) | $ | 0.00       |  
|                                                     |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|                                                     |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|Average
 Basic Shares Outstanding                    |  |                    | 17,087,196 |                   |   | 17,024,423 |   |      | 17,069,255 |   |   | 17,047,464 |  
|Average
 Diluted Shares Outstanding                  |  |                    | 17,087,927 |                   |   | 17,024,098 |   |      | 17,070,087 |   |   | 17,048,030 |  

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

5

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CAPITAL CITY BANK GROUP, INC. 
CONSOLIDATED STATEMENT OF CHANGES IN SHAREOWNERS
EQUITY
(Unaudited)

|                                                                             |  |                      |            |              |   |                             |  |                  |        |                                                         |   |         |   |   |         |   |   |         |  
|---------------------------------------------------------------------------- |  | -------------------- | ---------- | ------------ | - | --------------------------- |  | ---------------- | ------ | ------------------------------------------------------- | - | ------- | - | - | ------- | - | - | ------- | -
|(Dollars In Thousands, Except Share Data)                                    |  | Shares 
 Outstanding |            | Common Stock |   | Additional
 Paid-In Capital |  | RetainedEarnings |        | AccumulatedOtherComprehensive(Loss) Income,Net of Taxes |   | Total   |  
|                                                                             |  |                      |            |              |   |                             |  |                  |        |                                                         |   |         |  
|                                                                             |  |                      |            |              |   |                             |  |                  |        |                                                         |   |         |   |   |         |   |   |         |  
|Balance, December 31, 2009                                                   |  |                      | 17,036,407 |              | $ | 170                         |  | $                | 36,099 |                                                         | $ | 246,460 |   | $ | (14,830 | ) | $ | 267,899 |  
|Comprehensive Income:                                                        |  |                      |            |              |   |                             |  |                  |        |                                                         |   |         |   |   |         |   |   |         |  
|Net Loss                                                                     |  |                      |           |              |   |                            |  |                  |       |                                                         |   | (2,331  | ) |   |        |   |   | (2,331  | )
|Net Change in Unrealized Gain On
 Available-for-Sale Securities (net of tax) |  |                      |           |              |   |                            |  |                  |       |                                                         |   |        |   |   | 1,013   |   |   | 1,013   |  
|                                                                             |  |                      |            |              |   |                             |  |                  |        |                                                         |   |         |   |   |         |   |   |         |  
|Total Comprehensive Loss                                                     |  |                      |           |              |   |                            |  |                  |       |                                                         |   |        |   |   |        |   |   | (1,318  | )
|Cash Dividends ($.3900 per share)                                            |  |                      |           |              |   |                            |  |                  |       |                                                         |   | (6,658  | ) |   |        |   |   | (6,658  | )
|Stock Performance Plan Compensation                                          |  |                      |           |              |   |                            |  |                  |       |                                                         |   |        |   |   |        |   |   |        |  
|Issuance of Common Stock                                                     |  |                      | 59,074     |              |   | 1                           |  |                  | 765    |                                                         |   |        |   |   |        |   |   | 766     |  
|                                                                             |  |                      |            |              |   |                             |  |                  |        |                                                         |   |         |   |   |         |   |   |         |  
|                                                                             |  |                      |            |              |   |                             |  |                  |        |                                                         |   |         |   |   |         |   |   |         |  
|Balance, September 30, 2010                                                  |  |                      | 17,095,481 |              | $ | 171                         |  | $                | 36,864 |                                                         | $ | 237,471 |   | $ | (13,817 | ) | $ | 260,689 |  
|                                                                             |  |                      |            |              |   |                             |  |                  |        |                                                         |   |         |   |   |         |   |   |         |  

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

6

---



CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30
(Unaudited)

|                                                                             |  |      |          |      |   |          |  
|---------------------------------------------------------------------------- |  | ---- | -------- | ---- | - | -------- | -
|(Dollars in Thousands)                                                       |  | 2010 |          | 2009 |  
|                                                                             |  |      |          |      |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                         |  |      |          |      |   |          |  
|Net Loss                                                                     |  | $    | (2,331   | )    | $ | (64      | )
|Adjustments to Reconcile Net Loss to Cash
 Provided by Operating Activities: |  |      |          |      |   |          |  
|Provision for Loan Losses                                                    |  |      | 20,041   |      |   | 29,183   |  
|Depreciation                                                                 |  |      | 5,306    |      |   | 5,015    |  
|Net Securities Amortization                                                  |  |      | 2,421    |      |   | 1,692    |  
|Amortization of Intangible Assets                                            |  |      | 2,129    |      |   | 3,032    |  
|Gain on Securities Transactions                                              |  |      | (8       | )    |   | (10      | )
|Loss on Impaired Security                                                    |  |      | 61       |      |   |         |  
|Origination of Loans Held-for-Sale                                           |  |      | (99,508  | )    |   | (129,263 | )
|Proceeds From Sales of Loans Held-for-Sale                                   |  |      | 94,857   |      |   | 130,564  |  
|Net Gain From Sales of Loans Held-for-Sale                                   |  |      | (1,921   | )    |   | (2,149   | )
|(Increase) Decrease in Deferred Income
 Taxes                                |  |      | (661     | )    |   | 4,443    |  
|Net Decrease (Increase) in Other Assets                                      |  |      | 17,063   |      |   | (6,907   | )
|Net Increase in Other Liabilities                                            |  |      | 12,111   |      |   | 17,929   |  
|                                                                             |  |      |          |      |   |          |  
|Net Cash Provided By Operating Activities                                    |  |      | 49,560   |      |   | 53,465   |  
|                                                                             |  |      |          |      |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                         |  |      |          |      |   |          |  
|Securities Available-for-Sale:                                               |  |      |          |      |   |          |  
|Purchases                                                                    |  |      | (121,609 | )    |   | (54,347  | )
|Sales                                                                        |  |      | 505      |      |   | 2,806    |  
|Payments, Maturities, and Calls                                              |  |      | 65,185   |      |   | 57,687   |  
|Net Decrease (Increase) in Loans                                             |  |      | 63,048   |      |   | (52,470  | )
|Purchase of Premises & Equipment                                             |  |      | (5,563   | )    |   | (10,381  | )
|Proceeds From Sales of Premises &
 Equipment                                 |  |      | 7        |      |   | 2        |  
|                                                                             |  |      |          |      |   |          |  
|Net Cash Provided By (Used In) Investing
 Activities                         |  |      | 1,573    |      |   | (56,703  | )
|                                                                             |  |      |          |      |   |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                         |  |      |          |      |   |          |  
|(Decrease) in Deposits                                                       |  |      | (136,791 | )    |   | (42,183  | )
|Net (Decrease) Increase in Short-Term
 Borrowings                            |  |      | 2,298    |      |   | 41,385   |  
|Addition of New Long-Term Borrowings                                         |  |      | 8,031    |      |   | 2,666    |  
|Decrease in Other Long-Term Borrowings                                       |  |      | (10,000  | )    |   |         |  
|Repayment of Other Long-Term Borrowings                                      |  |      | (956     | )    |   | (3,189   | )
|Dividends Paid                                                               |  |      | (6,658   | )    |   | (9,722   | )
|Repurchase of Common Stock                                                   |  |      |         |      |   | (1,561   | )
|Issuance of Common Stock                                                     |  |      | 766      |      |   | 996      |  
|                                                                             |  |      |          |      |   |          |  
|Net Cash (Used In) Provided By Financing
 Activities                         |  |      | (143,310 | )    |   | 11,608   |  
|                                                                             |  |      |          |      |   |          |  
|NET CHANGE IN CASH AND CASH EQUIVALENTS                                      |  |      | (92,177  | )    |   | (14,846  | )
|                                                                             |  |      |          |      |   |          |  
|Cash and Cash Equivalents at Beginning of
 Period                            |  |      | 334,293  |      |   | 94,949   |  
|                                                                             |  |      |          |      |   |          |  
|Cash and Cash Equivalents at End of Period                                   |  | $    | 242,116  |      | $ | 80,103   |  
|                                                                             |  |      |          |      |   |          |  
|                                                                             |  |      |          |      |   |          |  
|Supplemental Disclosure:                                                     |  |      |          |      |   |          |  
|Interest Paid on Deposits                                                    |  | $    | 7,884    |      | $ | 7,775    |  
|                                                                             |  |      |          |      |   |          |  
|Interest Paid on Debt                                                        |  | $    | 3,383    |      | $ | 4,763    |  
|                                                                             |  |      |          |      |   |          |  
|Taxes Paid                                                                   |  | $    | 485      |      | $ | 5,667    |  
|                                                                             |  |      |          |      |   |          |  
|Loans Transferred to Other Real Estate
 Owned                                |  | $    | 31,907   |      | $ | 32,298   |  
|                                                                             |  |      |          |      |   |          |  
|Issuance of Common Stock as Non-Cash
 Compensation                           |  | $    | 765      |      | $ | 154      |  
|                                                                             |  |      |          |      |   |          |  
|Transfer of Current Portion of Long-Term
 Borrowings                         |  | $    | 10,000   |      |   |         |  
|                                                                             |  |      |          |      |   |          |  

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

7

---



CAPITAL CITY BANK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -SIGNIFICANT
ACCOUNTING POLICIES

Basis of Presentation

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

The unaudited
consolidated financial statements included herein have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission, including Regulation S-X. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been condensed or omitted pursuant to such rules and regulations. Prior
period financial statements have been reformatted and amounts reclassified, as
necessary, to conform to the current presentation. The Company and its
subsidiary follow accounting principles generally accepted in the United States
(GAAP) and reporting practices applicable to the banking industry. The
principles that materially affect its financial position, results of operations
and cash flows are set forth in the Notes to Consolidated Financial Statements,
which are included in the 2009 Form 10-K.

In the opinion
of management, the consolidated financial statements contain all adjustments,
which are those of a recurring nature, and disclosures necessary to present
fairly the financial position of the Company as of September 30, 2010 and
December 31, 2009, the results of operations for the three and nine months
ended September 30, 2010 and 2009, and cash flows for the nine months ended
September 30, 2010 and 2009.

NOTE 2 - INVESTMENT SECURITIES

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

|                                        |  |                    |         |                   |   |                    |  |              |     |  |   |         | 
|--------------------------------------- |  | ------------------ | ------- | ----------------- | - | ------------------ |  | ------------ | --- |  | - | ------- | 
|                                        |  | September 30, 2010 |        
|                                        |  |                    |        
|(Dollars in Thousands)                  |  | Amortized Cost     |         | Unrealized
 Gains |   | Unrealized
 Losses |  | Market Value |    
|                                        |  |                    |         |                   |   |                    |  |              |    
|U.S.
 Treasury                          |  | $                  | 79,336  |                   | $ | 1,860              |  | $            |    |  | $ | 81,196  | 
|States and
 Political Subdivisions      |  |                    | 86,672  |                   |   | 605                |  |              | 1   |  |   | 87,276  | 
|Residential
 Mortgage-Backed Securities |  |                    | 50,149  |                   |   | 722                |  |              | 26  |  |   | 50,845  | 
|Other
 Securities(1)                    |  |                    | 12,586  |                   |   |                   |  |              | 600 |  |   | 11,986  | 
|                                        |  |                    |         |                   |   |                    |  |              |     |  |   |         | 
|Total Investment Securities             |  | $                  | 228,743 |                   | $ | 3,187              |  | $            | 627 |  | $ | 231,303 | 
|                                        |  |                    |         |                   |   |                    |  |              |     |  |   |         | 
|                                        |  |                    |         |                   |   |                    |  |              |     |  |   |         | 
|                                        |  | December 31, 2009  |        
|                                        |  |                    |        
|(Dollars in Thousands)                  |  | Amortized Cost     |         | Unrealized
 Gains |   | Unrealized
 Losses |  | Market Value |    
|                                        |  |                    |         |                   |   |                    |  |              |    
|U.S.
 Treasury                          |  | $                  | 22,270  |                   | $ | 174                |  | $            |    |  | $ | 22,444  | 
|States and
 Political Subdivisions      |  |                    | 106,455 |                   |   | 1,166              |  |              | 71  |  |   | 107,550 | 
|Residential
 Mortgage-Backed Securities |  |                    | 33,375  |                   |   | 798                |  |              | 30  |  |   | 34,143  | 
|Other
 Securities(1)                    |  |                    | 13,236  |                   |   |                   |  |              | 700 |  |   | 12,536  | 
|                                        |  |                    |         |                   |   |                    |  |              |     |  |   |         | 
|Total
 Investment Securities            |  | $                  | 175,336 |                   | $ | 2,138              |  | $            | 801 |  | $ | 176,673 | 
|                                        |  |                    |         |                   |   |                    |  |              |     |  |   |         | 

|    |                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes Federal Home Loan Bank and Federal
 Reserve Bank stock recorded at cost of $7.1 million and $4.8 million,
 respectively, at September 30, 2010, and $7.7 million and $4.8 million,
 respectively, at December 31, 2009.

Securities
with an amortized cost of $61.7 million and $62.9 million at September 30, 2010
and December 31, 2009, respectively, were pledged to secure public deposits and
for other purposes.

The Companys
subsidiary, Capital City Bank, as a member of the Federal Home Loan Bank
(FHLB) of Atlanta, is required to own capital stock in the FHLB of Atlanta
based generally upon the balances of residential and commercial real estate
loans, and FHLB advances. FHLB stock of $7.1 million, which is included in
other securities, is pledged to secure FHLB advances. No ready market exists
for this stock, and it has no quoted market value. However, redemption of this
stock has historically been at par value.

8

---



Maturity Distribution.
As of September 30, 2010, the Companys investment securities had the following
maturity distribution based on contractual maturities:

|                                  |  |                |         |              |   |         | 
|--------------------------------- |  | -------------- | ------- | ------------ | - | ------- | 
|(Dollars in Thousands)            |  | Amortized Cost |         | Market Value |  
|                                  |  |                |         |              |  
|Due in one
 year or less          |  | $              | 72,373  |              | $ | 72,822  | 
|Due after
 one through five years |  |                | 143,360 |              |   | 146,065 | 
|Due after
 five through 10 years  |  |                | 99      |              |   | 101     | 
|Due over 10
 years                |  |                | 325     |              |   | 329     | 
|No Maturity                       |  |                | 12,586  |              |   | 11,986  | 
|                                  |  |                |         |              |   |         | 
|Total
 Investment Securities      |  | $              | 228,743 |              | $ | 231,303 | 
|                                  |  |                |         |              |   |         | 

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

Other Than Temporarily Impaired Securities.
The following table summarizes the investment securities with unrealized losses
at September 30, 2010 aggregated by major security type and length of time in a
continuous unrealized loss position:

|                                           |  |                      |       |                         |   |               |  |                    |   |               |   |                    |  |   |       |  |   |     | 
|------------------------------------------ |  | -------------------- | ----- | ----------------------- | - | ------------- |  | ------------------ | - | ------------- | - | ------------------ |  | - | ----- |  | - | --- | 
|                                           |  | September 30, 2010   |      
|                                           |  |                      |      
|                                           |  | Less Than
 12 Months |       | Greater Than
 12 Months |   | Total         | 
|                                           |  |                      |       |                         |   |               | 
|(Dollars in Thousands)                     |  | Market
 Value        |       | Unrealized
 Losses      |   | Market
 Value |  | Unrealized
 Losses |   | Market
 Value |   | Unrealized
 Losses | 
|                                           |  |                      |       |                         |   |               |  |                    |   |               |   |                    | 
|U.S.
 Treasury                             |  | $                    |      |                         | $ |              |  | $                  |  |               | $ |                   |  | $ |      |  | $ |    | 
|U.S. Government
 Agencies and Corporations |  |                      |      |                         |   |              |  |                    |  |               |   |                   |  |   |      |  |   |    | 
|States and
 Political Subdivisions         |  |                      | 970   |                         |   | 1             |  |                    |  |               |   |                   |  |   | 970   |  |   | 1   | 
|Mortgage-Backed
 Securities                |  |                      | 1,989 |                         |   | 26            |  |                    |  |               |   |                   |  |   | 1,989 |  |   | 26  | 
|Other
 Securities                          |  |                      |      |                         |   | 600           |  |                    |  |               |   |                   |  |   |      |  |   | 600 | 
|                                           |  |                      |       |                         |   |               |  |                    |   |               |   |                    |  |   |       |  |   |     | 
|Total
 Investment Securities               |  | $                    | 2,959 |                         | $ | 627           |  | $                  |  |               | $ |                   |  | $ | 2,959 |  | $ | 627 | 
|                                           |  |                      |       |                         |   |               |  |                    |   |               |   |                    |  |   |       |  |   |     | 

Management
evaluates securities for other than temporary impairment at least quarterly,
and more frequently when economic or market concerns warrant such evaluation.
Consideration is given to: 1) the length of time and the extent to which the
fair value has been less than amortized cost, 2) the financial condition and
near-term prospects of the issuer, and 3) the intent and ability of the Company
to retain its investment in the issuer for a period of time sufficient to allow
for recovery in the fair value above amortized cost. In analyzing an issuers
financial condition, management considers whether the securities are issued by
the federal government or its agencies, whether downgrades by rating agencies
have occurred, regulatory issues, and analysts reports.

At September
30, 2010, the Company had securities of $231.3 million with net unrealized
gains of $2.6 million on these securities. Approximately $3.0 million of the
investment securities, consisting of eight positions, have an unrealized loss
totaling approximately $0.6 million. Seven of these positions representing
approximately $3.0 million of our investment portfolio have minimal unrealized
losses. All of the positions have been in a loss position for less than 12
months. These positions consist of municipal bonds pre-refunded with U.S.
Government securities which are not considered impaired, and are expected to
mature at par. The remaining position is a bank preferred stock issue that has
an unrealized loss of $0.6 million and a zero book value as of September 30,
2010. This security has accumulated other than temporary credit impairment of
$0.4 million. The Company continues to closely monitor the fair value of this
security as the subject bank continues to experience negative operating trends.

9

---



NOTE 3 - LOANS

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

|                                        |  |                    |           |                   |   |           | 
|--------------------------------------- |  | ------------------ | --------- | ----------------- | - | --------- | 
|(Dollars in Thousands)                  |  | September 30, 2010 |           | December 31, 2009 |  
|                                        |  |                    |           |                   |  
|Commercial,
 Financial and Agricultural |  | $                  | 156,049   |                   | $ | 189,061   | 
|Real
 Estate-Construction(2)            |  |                    | 45,346    |                   |   | 111,249   | 
|Real
 Estate-Commercial(2)              |  |                    | 680,639   |                   |   | 716,791   | 
|Real
 Estate-Residential(1) (2)         |  |                    | 444,562   |                   |   | 408,578   | 
|Real
 Estate-Home Equity                |  |                    | 250,795   |                   |   | 246,722   | 
|Real
 Estate-Loans Held-for-Sale        |  |                    | 13,970    |                   |   | 7,891     | 
|Consumer                                |  |                    | 209,876   |                   |   | 235,648   | 
|                                        |  |                    |           |                   |   |           | 
|Loans, Net of Unearned Interest         |  | $                  | 1,801,237 |                   | $ | 1,915,940 | 
|                                        |  |                    |           |                   |   |           | 

|    |                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes loans in process with outstanding balances of $10.0 million
 and $10.7 million for September 30, 2010 and December 31, 2009, respectively.                                                                                            
|    |                                                                                                                                                                                                                                                
|(2) | Reclassified $10 million in construction loans to residential real
 estate category and $30 million in commercial real estate loans to the
 residential real estate to better reflect the nature of the loans and their
 underlying collateral.

Net deferred
fees included in loans at September 30, 2010 and December 31, 2009 were $1.8
million and $2.0 million, respectively.

NOTE 4 - ALLOWANCE FOR LOAN LOSSES

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

|                                            |  |      |         |      |   |         |  
|------------------------------------------- |  | ---- | ------- | ---- | - | ------- | -
|(Dollars in Thousands)                      |  | 2010 |         | 2009 |  
|                                            |  |      |         |      |  
|Balance,
 Beginning of Period               |  | $    | 43,999  |      | $ | 37,004  |  
|Provision
 for Loan Losses                  |  |      | 20,041  |      |   | 29,183  |  
|Recoveries
 on Loans Previously Charged-Off |  |      | 2,653   |      |   | 2,249   |  
|Loans
 Charged-Off                          |  |      | (28,973 | )    |   | (23,035 | )
|                                            |  |      |         |      |   |         |  
|Balance, End
 of Period                     |  | $    | 37,720  |      | $ | 45,401  |  
|                                            |  |      |         |      |   |         |  

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

|                                     |  |                    |        |                      |   |         |  |                      |        |  |   |        | 
|------------------------------------ |  | ------------------ | ------ | -------------------- | - | ------- |  | -------------------- | ------ |  | - | ------ | 
|                                     |  | September 30, 2010 |        | December 31, 2009    |  
|                                     |  |                    |        |                      |  
|(Dollars in Thousands)               |  | Balance            |        | Valuation
 Allowance |   | Balance |  | Valuation
 Allowance |       
|                                     |  |                    |        |                      |   |         |  |                      |       
|Impaired
 Loans:                     |  |                    |        |                      |   |         |  |                      |        |  |   |        | 
|With Related
 Valuation Allowance    |  | $                  | 79,634 |                      | $ | 16,203  |  | $                    | 83,986 |  | $ | 21,066 | 
|Without
 Related Valuation Allowance |  |                    | 17,939 |                      |   |        |  |                      | 27,926 |  |   |       | 

NOTE 5 - INTANGIBLE ASSETS

The Company
had net intangible assets of $86.7 million and $88.8 million at September 30,
2010 and December 31, 2009, respectively. Intangible assets were as follows:

|                                  |  |                    |         |                           |   |               |  |                           |         |  |   |        | 
|--------------------------------- |  | ------------------ | ------- | ------------------------- | - | ------------- |  | ------------------------- | ------- |  | - | ------ | 
|                                  |  | September 30, 2010 |         | December 31, 2009         |  
|                                  |  |                    |         |                           |  
|(Dollars in Thousands)            |  | Gross
 Amount      |         | Accumulated
 Amortization |   | Gross
 Amount |  | Accumulated
 Amortization |        
|                                  |  |                    |         |                           |   |               |  |                           |        
|Core Deposit
 Intangibles         |  | $                  | 47,176  |                           | $ | 45,928        |  | $                         | 47,176  |  | $ | 43,943 | 
|Goodwill                          |  |                    | 84,811  |                           |   |              |  |                           | 84,811  |  |   |       | 
|Customer
 Relationship Intangible |  |                    | 1,867   |                           |   | 1,214         |  |                           | 1,867   |  |   | 1,070  | 
|                                  |  |                    |         |                           |   |               |  |                           |         |  |   |        | 
|Total Intangible Assets           |  | $                  | 133,854 |                           | $ | 47,142        |  | $                         | 133,854 |  | $ | 45,013 | 
|                                  |  |                    |         |                           |   |               |  |                           |         |  |   |        | 

10

---



Net Core Deposit Intangibles:As
of September 30, 2010 and December 31, 2009, the Company had net core deposit
intangibles of $1.2 million and $3.2 million, respectively. Amortization
expense for the first nine months of 2010 and 2009 was approximately $2.0
million and $2.9 million, respectively. Estimated annual amortization expense
for 2010 is $2.7 million.

Goodwill: As of
September 30, 2010 and December 31, 2009, the Company had goodwill of $84.8
million. Goodwill is the Companys only intangible asset that is no longer
subject to amortization under the provisions of Accounting Standards
Codification (ASC) 350-20-35-1, Goodwill and Other Intangible Assets.

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

As of
September 30, 2010, the book value of the Companys equity exceeded its market
capitalization, and as such the Company performed goodwill impairment testing.
The Step One test indicated that the carrying amount (including goodwill) of
the Companys reporting unit exceeded its estimated fair value. The Step Two
test indicated the estimated fair value of our reporting units implied
goodwill exceeded its carrying amount. Based on the results of the Step Two
analysis, the Company concluded that goodwill was not impaired as of September
30, 2010. The Company will continue to test goodwill as defined by ASC Topic
350.

Other: As of
September 30, 2010 and December 31, 2009, the Company had a customer
relationship intangible asset, net of accumulated amortization, of $0.7 million
and $0.8 million, respectively. This intangible asset was recorded as a result
of the March 2004 acquisition of trust customer relationships. Amortization
expense for the first nine months of 2010 and 2009 was approximately $144,000. Estimated
annual amortization expense is approximately $191,000 based on using a 10-year
useful life.

NOTE 6 - DEPOSITS

The
composition of the Companys interest bearing deposits at September 30, 2010
and December 31, 2009 was as follows:

|                                |  |                    |           |                   |   |           | 
|------------------------------- |  | ------------------ | --------- | ----------------- | - | --------- | 
|(Dollars in Thousands)          |  | September 30, 2010 |           | December 31, 2009 |  
|                                |  |                    |           |                   |  
|NOW Accounts                    |  | $                  | 830,297   |                   | $ | 899,649   | 
|Money Market
 Accounts          |  |                    | 282,848   |                   |   | 373,105   | 
|Savings
 Deposits               |  |                    | 135,143   |                   |   | 122,370   | 
|Other Time
 Deposits            |  |                    | 393,268   |                   |   | 435,319   | 
|                                |  |                    |           |                   |   |           | 
|Total Interest Bearing Deposits |  | $                  | 1,641,556 |                   | $ | 1,830,443 | 
|                                |  |                    |           |                   |   |           | 

NOTE 7 - STOCK-BASED COMPENSATION

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

As of
September 30, 2010, the Company had three stock-based compensation plans,
consisting of the 2005 Associate Stock Incentive Plan (ASIP), the 2005
Associate Stock Purchase Plan (ASPP), and the 2005 Director Stock Purchase
Plan (DSPP). Total compensation expense associated with these plans for the
nine months ended September 30, 2010 and 2009 was $101,000 and $96,000,
respectively.

ASIP. The Companys
ASIP allows the Companys Board of Directors to award key associates various
forms of equity-based incentive compensation. Under the ASIP, all participants
in this plan are eligible to earn an equity award, in the form of performance
shares. The Company, under the terms and conditions of the ASIP, created the
2010 Incentive Plan (2010 Plan), which has an award tied to an internally
established earnings goal for 2010. The grant-date fair value of the shares
eligible to be awarded in 2010 is approximately $913,000. 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
58,648 shares are eligible for issuance. For the first nine months of 2010 and
2009, the Company recognized no expense related to the ASIP.

A total of
875,000 shares of common stock have been reserved for issuance under the ASIP.
To date, the Company has issued a total of 67,040 shares of common stock under
the ASIP.

11

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Executive Stock Option Agreement.Prior
to 2007, the Company maintained a stock option arrangement for a key executive
officer (William G. Smith, Jr. - Chairman, President and CEO, CCBG). The status
of the options granted under this arrangement is detailed in the table provided
below. In 2007, the Company replaced its practice of entering into a stock
option arrangement by establishing a Performance Share Unit Plan under the
provisions of the ASIP that allows the executive to earn shares based on the
compound annual growth rate in diluted earnings per share over a three-year
period. 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 for the first nine months of 2010 and 2009 as results did not meet
the earnings performance goal.

A summary of
the status of the Companys options as of September 30, 2010 is presented
below:

|                                   |  |        |        |                                  |   |                                  |  |                            |     |  |   |   | 
|---------------------------------- |  | ------ | ------ | -------------------------------- | - | -------------------------------- |  | -------------------------- | --- |  | - | - | 
|Options                            |  | Shares |        | Weighted-Average
 Exercise Price |   | Weighted-Average
 Remaining Term |  | Aggregate
 Intrinsic Value |    
|                                   |  |        |        |                                  |   |                                  |  |                            |    
|Outstanding
 at January 1, 2010    |  |        | 60,384 |                                  | $ | 32.79                            |  |                            | 4.9 |  | $ |  | 
|Granted                            |  |        |       |                                  |   |                                 |  |                            |    |  |   |  | 
|Exercised                          |  |        |       |                                  |   |                                 |  |                            |    |  |   |  | 
|Forfeited or
 expired              |  |        |       |                                  |   |                                 |  |                            |    |  |   |  | 
|                                   |  |        |        |                                  |   |                                  |  |                            |     |  |   |   | 
|Outstanding
 at September 30, 2010 |  |        | 60,384 |                                  | $ | 32.79                            |  |                            | 4.1 |  | $ |  | 
|Exercisable
 at September 30, 2010 |  |        | 60,384 |                                  | $ | 32.79                            |  |                            | 4.1 |  | $ |  | 

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

DSPP.The Companys
DSPP allows the directors to purchase the Companys common stock at a price
equal to 90% of the closing price on the date of purchase. Stock purchases
under the DSPP are limited to the amount of the directors annual cash
compensation. The DSPP has 93,750 shares reserved for issuance. A total of
80,181 shares have been issued since the inception of the DSPP. For the first
nine months 2010 and 2009, the Company recognized approximately $20,000 in
expense related to this plan.

ASPP.Under the
Companys ASPP, substantially all associates may purchase the Companys common
stock through payroll deductions at a price equal to 90% of the lower of the
fair market value at the beginning or end of each six-month offering period.
Stock purchases under the ASPP are limited to 10% of an associates eligible
compensation, up to a maximum of $25,000 (fair market value on each enrollment
date) in any plan year. Shares are issued at the beginning of the quarter
following each six-month offering period. The ASPP has 593,750 shares of common
stock reserved for issuance. A total of 153,072 shares have been issued since
inception of the ASPP. For the first nine months of 2010, the Company
recognized approximately $81,000 in expense related to the ASPP plan compared
to approximately $76,000 in expense for the same period in 2009.

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 September 30, |        | Nine Months Ended September 30, |  
|                                    |  |                                  |        |                                 |  
|(Dollars in Thousands)              |  | 2010                             |        | 2009                            |   | 2010   |   | 2009 |       
|                                    |  |                                  |        |                                 |   |        |   |      |       
|Discount
 Rate                      |  |                                  | 5.75   | %                               |   | 6.00   | % |      | 5.75   | % |   | 6.00   | %
|Long-Term
 Rate of Return on Assets |  |                                  | 8.00   | %                               |   | 8.00   | % |      | 8.00   | % |   | 8.00   | %
|                                    |  |                                  |        |                                 |   |        |   |      |        |   |   |        |  
|Service Cost                        |  | $                                | 1,423  |                                 | $ | 1,398  |   | $    | 4,268  |   | $ | 4,194  |  
|Interest
 Cost                      |  |                                  | 1,183  |                                 |   | 1,147  |   |      | 3,550  |   |   | 3,441  |  
|Expected
 Return on Plan Assets     |  |                                  | (1,549 | )                               |   | (1,265 | ) |      | (4,646 | ) |   | (3,795 | )
|Prior
 Service Cost Amortization    |  |                                  | 127    |                                 |   | 127    |   |      | 382    |   |   | 382    |  
|Net Loss
 Amortization              |  |                                  | 522    |                                 |   | 739    |   |      | 1,566  |   |   | 2,216  |  
|                                    |  |                                  |        |                                 |   |        |   |      |        |   |   |        |  
|Net Periodic
 Benefit Cost          |  | $                                | 1,706  |                                 | $ | 2,146  |   | $    | 5,120  |   | $ | 6,438  |  
|                                    |  |                                  |        |                                 |   |        |   |      |        |   |   |        |  

12

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

|                                 |  |                                  |      |                                 |   |      |   |      |      |   |   |      |  
|-------------------------------- |  | -------------------------------- | ---- | ------------------------------- | - | ---- | - | ---- | ---- | - | - | ---- | -
|                                 |  | Three Months Ended September 30, |      | Nine Months Ended September 30, |  
|                                 |  |                                  |      |                                 |  
|(Dollars in Thousands)           |  | 2010                             |      | 2009                            |   | 2010 |   | 2009 |     
|                                 |  |                                  |      |                                 |   |      |   |      |     
|Discount
 Rate                   |  |                                  | 5.75 | %                               |   | 6.00 | % |      | 5.75 | % |   | 6.00 | %
|                                 |  |                                  |      |                                 |   |      |   |      |      |   |   |      |  
|Service Cost                     |  | $                                |     |                                 | $ | 5    |   | $    |     |   | $ | 15   |  
|Interest
 Cost                   |  |                                  | 38   |                                 |   | 45   |   |      | 113  |   |   | 134  |  
|Prior
 Service Cost Amortization |  |                                  | 45   |                                 |   | 45   |   |      | 135  |   |   | 135  |  
|Net Loss
 Amortization           |  |                                  | (106 | )                               |   | (88  | ) |      | (319 | ) |   | (263 | )
|                                 |  |                                  |      |                                 |   |      |   |      |      |   |   |      |  
|Net Periodic
 Benefit Cost       |  | $                                | (23  | )                               | $ | 7    |   | $    | (71  | ) | $ | 21   |  
|                                 |  |                                  |      |                                 |   |      |   |      |      |   |   |      |  

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
September 30, 2010, the amounts associated with the Companys off-balance sheet
obligations were as follows:

|                                 |  |        |         | 
|-------------------------------- |  | ------ | ------- | 
|(Dollars in Thousands)           |  | Amount |        
|                                 |  |        |        
|Commitments
 to Extend Credit(1) |  | $      | 345,909 | 
|Standby
 Letters of Credit       |  | $      | 13,030  | 

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

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

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

Indemnification Obligation.
The Company is a member of the Visa U.S.A. network. Visa U.S.A believes that
its member banks are required to indemnify it for potential future settlement
of certain litigation (the Covered Litigation). As of September 30, 2010, the
Company had approximately $0.8 million accrued for the contingent liability
related to the Covered Litigation. The Company could be required to separately
fund its proportionate share of any Covered Litigation losses, however, it is
expected that all or a substantial amount of future settlements will be funded
by a litigation escrow account established by Visa Inc.

NOTE 10 - COMPREHENSIVE INCOME

FASB Topic ASC
220, Comprehensive Income (Formerly SFAS No. 130), requires that certain
transactions and other economic events that bypass the income statement be
displayed as other comprehensive income. Comprehensive income totaled $1.3 million
for the nine months ended September 30, 2010 and $26,000 for the comparable
period in 2009. The Companys comprehensive income consists of net income and
changes in unrealized gains and losses on securities available-for-sale (net of
income taxes) and changes in the pension liability (net of taxes). The
after-tax increase in net unrealized gains on securities totaled approximately
$1.0 million for the nine months ended September 30, 2010. Reclassification
adjustments consist only of realized gains and losses on sales of investment
securities and were not material for the same comparable periods. As of
September 30, 2010, total accumulated other comprehensive loss (net of taxes)
totaled $13.8 million consisting of a pension liability of $15.4 million and an
unrealized gain on investment securities of $1.6 million. For the nine month
period ended September 30, 2010, there was no change in the Companys pension
liability as this liability is adjusted on an annual basis at December 31st
per ASC 715.

13

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NOTE 11  FAIR VALUE MEASUREMENTS

The Company
adopted the provisions of ASC 820-10 (Formerly SFAS No. 157), Fair
Value Measurements, for financial assets and financial liabilities effective
January 1, 2008. Subsequently, on January 1, 2009, the Company adopted ASC
820-10-15 (Formerly SFAS No. 157-2) Effective Date of FASB Statement
No. 157 for non-financial assets and non-financial liabilities. ASC
820-10 defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles and expands disclosures about fair
value measurements.

ASC 820-10
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.

ASC 820-10
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, ASC 820-10
establishes a fair value hierarchy for valuation inputs that gives the highest
priority to quoted prices in active markets for identical assets or liabilities
and the lowest priority to unobservable inputs. The fair value hierarchy is as
follows:

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

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

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

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 for Sale.
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

---



The following
table summarizes financial assets and financial liabilities measured at fair
value on a recurring basis as of September 30, 2010, segregated by the level of
the valuation inputs within the fair value hierarchy utilized to measure fair
value:

|                                       |  |                |         |                |   |                |  |                   |   |  |   |         | 
|-------------------------------------- |  | -------------- | ------- | -------------- | - | -------------- |  | ----------------- | - |  | - | ------- | 
|(Dollars in Thousands)                 |  | Level 1 Inputs |         | Level 2 Inputs |   | Level 3 Inputs |  | Total Fair
 Value |  
|                                       |  |                |         |                |   |                |  |                   |  
|September 30, 2010                     |  |                |         |                |   |                |  |                   |   |  |   |         | 
|Securities
 available for sale:        |  |                |         |                |   |                |  |                   |   |  |   |         | 
|U.S. Treasury                          |  | $              | 81,196  |                | $ |               |  | $                 |  |  | $ | 81,196  | 
|States and Political Subdivisions      |  |                | 2,813   |                |   | 84,463         |  |                   |  |  |   | 87,276  | 
|Residential Mortgage-Backed Securities |  |                |        |                |   | 50,845         |  |                   |  |  |   | 50,845  | 
|                                       |  |                |         |                |   |                |  |                   |   |  |   |         | 
|December 31, 2009                      |  |                |         |                |   |                |  |                   |   |  |   |         | 
|Securities
 available for sale:        |  |                |         |                |   |                |  |                   |   |  |   |         | 
|U.S. Treasury                          |  |                | 22, 444 |                |   |               |  |                   |  |  |   | 22,444  | 
|States and Political Subdivisions      |  |                | 3,709   |                |   | 103,841        |  |                   |  |  |   | 107,550 | 
|Residential Mortgage-Backed Securities |  |                |        |                |   | 34,143         |  |                   |  |  |   | 34,143  | 
|                                       |  |                |         |                |   |                |  |                   |   |  |   |         | 

Certain
financial and non-financial assets measured at fair value on a nonrecurring
basis are detailed below; that is, the instruments are not measured at fair
value on an ongoing basis but are subject to fair value adjustments in certain
circumstances (for example, when there is evidence of impairment). Financial
and non-financial liabilities measured at fair value on a nonrecurring basis
were not significant at September 30, 2010.

Impaired Loans. On a
non-recurring basis, certain impaired loans are reported at the fair value of
the underlying collateral if repayment is expected solely from the liquidation
of collateral. Collateral values are estimated using Level 2 inputs based on
customized discounting criteria. Impaired loans had a carrying value of $97.6
million, with a valuation allowance of $16.2 million, resulting in an
additional provision for loan losses of $8.6 million for the nine month period
ended September 30, 2010.

Loans Held for Sale.
Loans held for sale were $14.0 million as of September 30, 2010. These loans
are carried at the lower of cost or fair value and are adjusted to fair value
on a non-recurring basis. Fair value is based on observable markets rates for
comparable loan products which is considered a Level 2 fair value measurement.

Other Real Estate Owned.
During the first nine months of 2010, certain foreclosed assets, upon initial
recognition, were measured and reported at fair value through a charge-off to
the allowance for loan losses based on the fair value of the foreclosed asset.
The fair value of the foreclosed asset, upon initial recognition, is estimated
using Level 2 inputs based on observable market data. Foreclosed assets
measured at fair value upon initial recognition totaled $31.9 million during
the nine months ended September 30, 2010. In addition, the Company recognized
subsequent losses totaling $6.5 million for foreclosed assets that were
re-valued during the period and property sales which totaled $10.3 million. The
carrying value of foreclosed assets was $51.2 million at September 30, 2010.

Other Financial Instruments.
Many of the Companys assets and liabilities are short-term financial
instruments whose carrying values approximate fair value. These items include
Cash and Due From Banks, Interest Bearing Deposits with Other Banks, Federal
Funds Sold, Federal Funds Purchased, Securities Sold Under Repurchase
Agreements, and Short-Term Borrowings. In cases where quoted market prices are
not available, fair values are based on estimates using present value or other
valuation techniques. The resulting fair values may be significantly affected
by the assumptions used, including the discount rates and estimates of future
cash flows. A detailed description of the valuation methodologies used in estimating the fair value of
financial instruments is set forth in the Companys 2009 Form 10-K.

15

---



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

|                                         |  |                     |           |                        |   |                 |  |                        |           |  |   |           | 
|---------------------------------------- |  | ------------------- | --------- | ---------------------- | - | --------------- |  | ---------------------- | --------- |  | - | --------- | 
|                                         |  |                     |           |                        |  
|                                         |  | September
 30, 2010 |           | December
 31, 2009     |  
|                                         |  |                     |           |                        |  
|(Dollars in Thousands)                   |  | Carrying
 Value     |           | Estimated
 Fair
 Value |   | Carrying
 Value |  | Estimated
 Fair
 Value |          
|                                         |  |                     |           |                        |   |                 |  |                        |          
|Financial
 Assets:                       |  |                     |           |                        |   |                 |  |                        |           |  |   |           | 
|Cash                                     |  | $                   | 48,701    |                        | $ | 48,701          |  | $                      | 57,877    |  | $ | 57,877    | 
|Short-Term
 Investments                  |  |                     | 193,415   |                        |   | 193,416         |  |                        | 276,416   |  |   | 276,416   | 
|Investment
 Securities                   |  |                     | 231,303   |                        |   | 231,303         |  |                        | 176,673   |  |   | 176,673   | 
|Loans, Net
 of Allowance for Loan Losses |  |                     | 1,763,517 |                        |   | 1,755,090       |  |                        | 1,871,941 |  |   | 1,851,699 | 
|                                         |  |                     |           |                        |   |                 |  |                        |           |  |   |           | 
|Total
 Financial Assets                  |  | $                   | 2,236,936 |                        | $ | 2,228,510       |  | $                      | 2,382,907 |  | $ | 2,362,665 | 
|                                         |  |                     |           |                        |   |                 |  |                        |           |  |   |           | 
|                                         |  |                     |           |                        |   |                 |  |                        |           |  |   |           | 
|Financial
 Liabilities:                  |  |                     |           |                        |   |                 |  |                        |           |  |   |           | 
|Deposits                                 |  | $                   | 2,121,443 |                        | $ | 2,122,929       |  | $                      | 2,258,234 |  | $ | 2,258,899 | 
|Short-Term
 Borrowings                   |  |                     | 38,138    |                        |   | 37,364          |  |                        | 35,841    |  |   | 34,209    | 
|Subordinated
 Notes Payable              |  |                     | 62,887    |                        |   | 62,889          |  |                        | 62,887    |  |   | 62,569    | 
|Long-Term
 Borrowings                    |  |                     | 46,456    |                        |   | 50,048          |  |                        | 49,380    |  |   | 51,509    | 
|                                         |  |                     |           |                        |   |                 |  |                        |           |  |   |           | 
|Total
 Financial Liabilities             |  | $                   | 2,268,924 |                        | $ | 2,273,230       |  | $                      | 2,406,342 |  | $ | 2,407,186 | 
|                                         |  |                     |           |                        |   |                 |  |                        |           |  |   |           | 

All
non-financial instruments are excluded from the above table. The disclosures
also do not include certain intangible assets such as client relationships,
deposit base intangibles and goodwill. Accordingly, the aggregate fair value
amounts presented do not represent the underlying value of the Company.

NOTE 12  NEW AUTHORITATIVE ACCOUNTING
GUIDANCE

Accounting Standards Update (ASU) No.
2010-06, Fair Value Measurements and Disclosures (Topic 820) - Improving
Disclosures About Fair Value Measurements.
ASU 2010-06 requires expanded disclosures related to fair value
measurements including (i) the amounts of significant transfers of assets
or liabilities between Levels 1 and 2 of the fair value hierarchy and the
reasons for the transfers, (ii) the reasons for transfers of assets or
liabilities in or out of Level 3 of the fair value hierarchy, with
significant transfers disclosed separately, (iii) the policy for
determining when transfers between levels of the fair value hierarchy are
recognized and (iv) for recurring fair value measurements of assets and
liabilities in Level 3 of the fair value hierarchy, a gross presentation
of information about purchases, sales, issuances and settlements.
ASU 2010-06 further clarifies that (i) fair value measurement
disclosures should be provided for each class of assets and liabilities (rather
than major category), which would generally be a subset of assets or
liabilities within a line item in the statement of financial position and
(ii) companys should provide disclosures about the valuation techniques
and inputs used to measure fair value for both recurring and nonrecurring fair
value measurements for each class of assets and liabilities included in
Levels 2 and 3 of the fair value hierarchy. The disclosures related to the
gross presentation of purchases, sales, issuances and settlements of assets and
liabilities included in Level 3 of the fair value hierarchy will be required
for the Company beginning January 1, 2011 and is not expected to have a
significant impact on the Companys financial statements. The remaining
disclosure requirements and clarifications made by ASU 2010-06 became
effective for the Company on January 1, 2010 and did not have a
significant impact on the Companys financial statements.

ASU No. 2009-17, Consolidations
(Topic 810) - Improvements to Financial Reporting by Enterprises Involved
with Variable Interest Entities. ASU 2009-17
amends prior guidance to change how a company determines when an entity that is
insufficiently capitalized or is not controlled through voting (or similar
rights) should be consolidated. The determination of whether a company is
required to consolidate an entity is based on, among other things, an entitys
purpose and design and a companys ability to direct the activities of the
entity that most significantly impact the entitys economic performance. ASU
2009-17 requires additional disclosures about the reporting entitys
involvement with variable-interest entities and any significant changes in risk
exposure due to that involvement as well as its effect on the entitys
financial statements. ASU 2009-17 became effective January 1, 2010 and did
not have a significant impact on the Companys financial statements.

ASU No. 2009-16, Transfers and
Servicing (Topic 860) - Accounting for Transfers of Financial Assets.
The new authoritative accounting guidance amends prior accounting guidance to
enhance reporting about transfers of financial assets, including
securitizations, and where companies have continuing exposure to the risks
related to transferred financial assets. The new authoritative accounting
guidance eliminates the concept of a qualifying special-purpose entity and
changes the requirements for derecognizing financial assets. ASU 2009-16 also
requires additional disclosures about all continuing involvements with
transferred financial assets including information about gains and losses
resulting from transfers during the period. The new authoritative accounting
guidance under ASU 2009-16 became effective January 1, 2010 and did not
have a significant impact on the Companys financial statements.

16

---



ASU
No.2010-20, Receivable (Topic 310) - Disclosures about the Credit Quality of
Financing Receivables and the Allowance for Credit Losses. The
accounting standard was amended to enhance transparency regarding credit losses
and the credit quality of loan and lease receivables. Under this statement,
allowance for credit losses are to be disclosed by portfolio segment, while
credit quality information, impaired financing receivables and nonaccrual
status are to be presented by class of financing receivable. Disclosure of the
nature and extent, the financial impact and segment information of troubled
debt restructurings will also be required. The disclosures are to be presented
at the level of disaggregation that management uses when assessing and
monitoring the portfolios risk and performance. The ASU is effective beginning
with the first interim or annual reporting period ending after December 15,
2010. Because the amendment enhances current disclosure requirements and does
not represent a departure from current GAAP, issuance and adoption of the ASU
will not affect the Companys financial position, results of operations, or
liquidity, but will require additional disclosures in the Companys interim and
annual consolidated financial statements.

17

---



QUARTERLY FINANCIAL DATA (UNAUDITED)

|                                                |  |       |           |        |   |           |   |        |           |       |   |           |    |       |           |        |   |           |   |   |           |   |   |           |   
|----------------------------------------------- |  | ----- | --------- | ------ | - | --------- | - | ------ | --------- | ----- | - | --------- | -- | ----- | --------- | ------ | - | --------- | - | - | --------- | - | - | --------- | --
|                                                |  |       |           |        |   |           |  
|                                                |  | 2010  |           | 2009   |   | 2008      |  
|                                                |  |       |           |        |   |           |  
|(Dollars in Thousands, Except Per Share Data)   |  | Third |           | Second |   | First     |   | Fourth |           | Third |   | Second    |    | First |           | Fourth |  
|                                                |  |       |           |        |   |           |   |        |           |       |   |           |    |       |           |        |  
|Summary of Operations:                          |  |       |           |        |   |           |   |        |           |       |   |           |    |       |           |        |   |           |   |   |           |   |   |           |   
|Interest Income                                 |  | $     | 27,576    |        | $ | 27,934    |   | $      | 28,154    |       | $ | 29,756    |    | $     | 30,787    |        | $ | 31,180    |   | $ | 31,053    |   | $ | 33,229    |   
|Interest Expense                                |  |       | 2,792     |        |   | 3,565     |   |        | 4,132     |       |   | 4,464     |    |       | 4,235     |        |   | 4,085     |   |   | 4,058     |   |   | 5,482     |   
|Net Interest Income                             |  |       | 24,784    |        |   | 24,369    |   |        | 24,022    |       |   | 25,292    |    |       | 26,552    |        |   | 27,095    |   |   | 26,995    |   |   | 27,747    |   
|Provision for Loan Losses                       |  |       | 5,668     |        |   | 3,633     |   |        | 10,740    |       |   | 10,834    |    |       | 12,347    |        |   | 8,426     |   |   | 8,410     |   |   | 12,497    |   
|Net Interest Income After                       |  |       |           |        |   |           |   |        |           |       |   |           |    |       |           |        |   |           |   |   |           |   |   |           |   
|Provision for Loan Losses                       |  |       | 19,116    |        |   | 20,736    |   |        | 13,282    |       |   | 14,458    |    |       | 14,205    |        |   | 18,669    |   |   | 18,585    |   |   | 15,250    |   
|Noninterest Income                              |  |       | 13,449    |        |   | 14,674    |   |        | 13,967    |       |   | 14,411    |    |       | 14,304    |        |   | 14,634    |   |   | 14,042    |   |   | 13,311    |   
|Noninterest Expense                             |  |       | 32,363    |        |   | 34,629    |   |        | 33,384    |       |   | 35,313    |    |       | 31,615    |        |   | 32,930    |   |   | 32,257    |   |   | 31,002    |   
|Income (Loss) Before Provision for Income Taxes |  |       | 202       |        |   | 781       |   |        | (6,135    | )     |   | (6,444    | )  |       | (3,106    | )      |   | 373       |   |   | 370       |   |   | (2,441    | ) 
|Income Tax (Benefit) Expense                    |  |       | (199      | )      |   | 50        |   |        | (2,672    | )     |   | (3,037    | )  |       | (1,618    | )      |   | (401      | ) |   | (280      | ) |   | (738      | ) 
|Net Income (Loss)                               |  | $     | 401       |        | $ | 731       |   | $      | (3,463    | )     | $ | (3,407    | )  | $     | (1,488    | )      | $ | 774       |   | $ | 650       |   | $ | (1,703    | ) 
|Net Interest Income (FTE)                       |  | $     | 25,116    |        | $ | 24,738    |   | $      | 24,473    |       | $ | 25,845    |    | $     | 27,128    |        | $ | 27,679    |   | $ | 27,578    |   | $ | 28,387    |   
|                                                |  |       |           |        |   |           |   |        |           |       |   |           |    |       |           |        |   |           |   |   |           |   |   |           |   
|Per Common Share:                               |  |       |           |        |   |           |   |        |           |       |   |           |    |       |           |        |   |           |   |   |           |   |   |           |   
|Net Income (Loss) Basic                         |  | $     | 0.02      |        | $ | 0.04      |   | $      | (0.20     | )     | $ | (0.20     | )  | $     | (0.08     | )      | $ | 0.04      |   | $ | 0.04      |   | $ | (0.10     | ) 
|Net Income (Loss) Diluted                       |  |       | 0.02      |        |   | 0.04      |   |        | (0.20     | )     |   | (0.20     | )  |       | (0.08     | )      |   | 0.04      |   |   | 0.04      |   |   | (0.10     | ) 
|Dividends Declared                              |  |       | 0.10      |        |   | 0.10      |   |        | 0.19      |       |   | 0.19      |    |       | 0.19      |        |   | 0.19      |   |   | 0.19      |   |   | 0.19      |   
|Diluted Book Value                              |  |       | 15.25     |        |   | 15.32     |   |        | 15.34     |       |   | 15.72     |    |       | 15.76     |        |   | 16.03     |   |   | 16.18     |   |   | 16.27     |   
|Market Price:                                   |  |       |           |        |   |           |   |        |           |       |   |           |    |       |           |        |   |           |   |   |           |   |   |           |   
|High                                            |  |       | 14.24     |        |   | 18.25     |   |        | 14.61     |       |   | 14.34     |    |       | 17.10     |        |   | 17.35     |   |   | 27.31     |   |   | 33.32     |   
|Low                                             |  |       | 10.76     |        |   | 12.36     |   |        | 11.57     |       |   | 11.00     |    |       | 13.92     |        |   | 11.01     |   |   | 9.50      |   |   | 21.06     |   
|Close                                           |  |       | 12.14     |        |   | 12.38     |   |        | 14.25     |       |   | 13.84     |    |       | 14.20     |        |   | 16.85     |   |   | 11.46     |   |   | 27.24     |   
|                                                |  |       |           |        |   |           |   |        |           |       |   |           |    |       |           |        |   |           |   |   |           |   |   |           |   
|Selected Average Balances:                      |  |       |           |        |   |           |   |        |           |       |   |           |    |       |           |        |   |           |   |   |           |   |   |           |   
|Loans                                           |  | $     | 1,807,483 |        | $ | 1,841,379 |   | $      | 1,886,367 |       | $ | 1,944,873 |    | $     | 1,964,984 |        | $ | 1,974,197 |   | $ | 1,964,086 |   | $ | 1,940,083 |   
|Earning Assets                                  |  |       | 2,273,198 |        |   | 2,329,365 |   |        | 2,358,288 |       |   | 2,237,561 |    |       | 2,157,362 |        |   | 2,175,281 |   |   | 2,166,237 |   |   | 2,150,841 |   
|Assets                                          |  |       | 2,626,758 |        |   | 2,678,488 |   |        | 2,698,419 |       |   | 2,575,250 |    |       | 2,497,969 |        |   | 2,506,352 |   |   | 2,486,925 |   |   | 2,463,318 |   
|Deposits                                        |  |       | 2,172,165 |        |   | 2,234,178 |   |        | 2,248,760 |       |   | 2,090,008 |    |       | 1,950,170 |        |   | 1,971,190 |   |   | 1,957,354 |   |   | 1,945,866 |   
|Shareowners Equity                             |  |       | 263,742   |        |   | 263,873   |   |        | 268,555   |       |   | 268,556   |    |       | 275,027   |        |   | 277,114   |   |   | 281,634   |   |   | 302,227   |   
|Common Equivalent Shares:                       |  |       |           |        |   |           |   |        |           |       |   |           |    |       |           |        |   |           |   |   |           |   |   |           |   
|Basic                                           |  |       | 17,087    |        |   | 17,063    |   |        | 17,057    |       |   | 17,034    |    |       | 17,024    |        |   | 17,010    |   |   | 17,109    |   |   | 17,125    |   
|Diluted                                         |  |       | 17,088    |        |   | 17,074    |   |        | 17,070    |       |   | 17,035    |    |       | 17,025    |        |   | 17,010    |   |   | 17,131    |   |   | 17,135    |   
|                                                |  |       |           |        |   |           |   |        |           |       |   |           |    |       |           |        |   |           |   |   |           |   |   |           |   
|Ratios:                                         |  |       |           |        |   |           |   |        |           |       |   |           |    |       |           |        |   |           |   |   |           |   |   |           |   
|ROA                                             |  |       | 0.06      | %      |   | 0.11      | % |        | (0.52     | )%    |   | (0.52     | )% |       | (0.24     | )%     |   | 0.12      | % |   | 0.11      | % |   | (0.28     | )%
|ROE                                             |  |       | 0.60      | %      |   | 1.11      | % |        | (5.23     | )%    |   | (5.03     | )% |       | (2.15     | )%     |   | 1.12      | % |   | 0.94      | % |   | (2.24     | )%
|Net Interest Margin (FTE)                       |  |       | 4.38      | %      |   | 4.26      | % |        | 4.21      | %     |   | 4.59      | %  |       | 4.99      | %      |   | 5.11      | % |   | 5.16      | % |   | 5.26      | % 
|Efficiency Ratio                                |  |       | 82.08     | %      |   | 86.06     | % |        | 85.00     | %     |   | 85.21     | %  |       | 73.86     | %      |   | 75.44     | % |   | 75.07     | % |   | 71.21     | % 

18

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|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|Item 2. | 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, Market Risk and Interest Rate
Sensitivity, Liquidity and Capital Resources, Off-Balance Sheet
Arrangements, and Critical 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 2010 compares with the prior year. 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  |       | Nine Months Ended | 
|                                                                  |  |                     |       |                   | 
|                                                                  |  | September 30,
 2010 |       | June 30,
 2010    |  | September 30,
 2009 |    | September 30,
 2010 |       | September 30,
 2009 | 
|                                                                  |  |                     |      
|Efficiency ratio                                                  |  |                     | 83.92 | %                 |  | 87.86               | %  |                     | 76.30 | %                   |  | 86.22 | %  |  | 77.24 | % 
|Effect of intangible amortization expense                         |  |                     | (1.84 | )%                |  | (1.80               | )% |                     | (2.44 | )%                  |  | (1.83 | )% |  | (2.42 | )%
|                                                                  |  |                     |      
|Operating efficiency ratio                                        |  |                     | 82.08 | %                 |  | 86.06               | %  |                     | 73.86 | %                   |  | 84.39 | %  |  | 74.82 | % 
|                                                                  |  |                     |       |                   |  |                     |    |                     |       |                     |  |       |    |  |       |   
|Reconciliation
 of operating net noninterest expense ratio:      
|                                                                  |  |                     |       |                   |  |                     |    |                     |       |                     |  |       |    |  |       |   
|                                                                  |  | Three Months Ended  |       | Nine Months Ended | 
|                                                                  |  |                     |      
|                                                                  |  | September 30,
 2010 |       | June 30,
 2010    |  | September 30,
 2009 |    | September 30,
 2010 |       | September 30,
 2009 | 
|                                                                  |  |                     |      
|Net noninterest expense as a percent of
 average assets           |  |                     | 2.86  | %                 |  | 2.99                | %  |                     | 2.75  | %                   |  | 2.92  | %  |  | 2.88  | % 
|Effect of intangible amortization expense                         |  |                     | (0.11 | )%                |  | (0.11               | )% |                     | (0.16 | )%                  |  | (0.10 | )% |  | (0.16 | )%
|                                                                  |  |                     |       |                   |  |                     |    |                     |       |                     |  |       |    |  |       |   
|Operating net noninterest expense as a
 percent of average assets |  |                     | 2.75  | %                 |  | 2.88                | %  |                     | 2.59  | %                   |  | 2.81  | %  |  | 2.72  | % 

19

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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 2009 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 bank
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 offers
commercial and retail banking services, as well as trust and asset management,
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, bank card 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
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. Five markets
have been identified, four 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 of
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. Other expansion opportunities
that will be evaluated include asset management and mortgage banking. Our
ability to expand, however, may be restricted by the board resolutions we
adopted in February 2010 at the Federal Reserves request. We refer to the
resolutions as the Federal Reserve Resolutions. For a complete discussion of
the Federal Reserve Resolutions please see Item 1. Business-About Us-Regulatory
Matter in our 2009 Form 10-K.

Much of our
lending operations are in the State of Florida, which has been particularly
hard hit in the current U.S. economic recession. Evidence of the economic
downturn in Florida is reflected in current unemployment statistics. According
to the U.S. Department of Labor, the Florida unemployment rate (seasonally
adjusted) in August 2010 was 12.4% compared to 11.7% at the end of 2009 and
8.2% at the end of 2008. A worsening of the economic condition in Florida would
likely exacerbate the adverse effects of these difficult market conditions on
our clients, which may have a negative impact on our financial results.

20

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Recent Legislation Impacting the Financial
Services Industry

On July 21,
2010, sweeping financial regulatory reform legislation entitled the Dodd-Frank
Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) was signed
into law. The Dodd-Frank Act implements far-reaching changes across the
financial regulatory landscape. Many aspects of the Dodd-Frank Act are subject
to rulemaking and will take effect over several years, making it difficult to
anticipate the overall financial impact to us, our clients, or the financial
industry more generally. Provisions in the legislation that affect deposit
insurance assessments, financial regulatory systems, payment of interest on
demand deposits, and interchange fees could increase the costs associated with
deposits as well as place certain limitations on certain revenues those
deposits generate. We continue to assess the impact that the Dodd-Frank Act
will have on us.

FINANCIAL OVERVIEW

A summary
overview of our financial performance is provided below.

Financial Performance Highlights 

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Net income
 for the third quarter of 2010 totaled $0.4 million, or $0.02 per diluted
 share, compared to net income of $0.7 million, or $0.04 per diluted share,
 for the second quarter of 2010 and a net loss of $1.5 million, or $0.08 per
 diluted share, for the third quarter of 2009. For the first nine months of
 2010, we realized a net loss of $2.3 million or $0.14 per diluted share
 compared to a net loss of $0.1 million, or $0.00 per diluted share, for the comparable
 period of 2009.                                                                                                                                                                                                                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | Net income
 for the third quarter of 2010 reflects total credit related costs (loan loss
 provision and other real estate owned property costs (valuation adjustments,
 holding costs, and loss on sale) of $9.0 million, compared to $7.7 million
 for the second quarter of 2010 and $14.3 million for the third quarter of
 2009. Credit related costs were $30.2 million for the first nine months of
 2010 compared to $33.2 million for the same period in 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | Tax
 equivalent net interest income for the third quarter of 2010 was $25.1
 million compared to $24.7 million for the second quarter of 2010 and $27.1
 million for the third quarter of 2009. For the first nine months of 2010, tax
 equivalent net interest income totaled $74.3 million compared to $82.4
 million in 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | Noninterest
 income decreased $1.2 million, or 8.3%, from the second quarter of 2010 due
 to lower deposit fees and retail brokerage fees. Year over year, noninterest
 income declined by $0.9 million for both the three and nine-month periods
 primarily driven by lower deposit fees.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | Noninterest
 expense decreased $2.3 million, or 6.5%, from the second quarter of 2010
 driven by a reduction in expense for other real estate owned properties ($0.8
 million), FDIC insurance ($0.4 million), advertising ($0.5 million), and
 pension plan expense ($0.4 million). Year over year, noninterest expense
 increased $0.7 million, or 2.4%, and $3.6 million, or 3.7%, for the three and
 nine-month periods, respectively. For both periods, higher expense for other
 real estate owned properties was partially offset by lower compensation
 expense and intangible amortization.                                                                                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | Loan loss
 provision for the third quarter of 2010 was $5.7 million, up $2.1 million
 from the second quarter of 2010, but down $6.6 million from the third quarter
 of 2009. For the first nine months of 2010, the loan loss provision was $20.0
 million compared to $29.2 million for the same period in 2009. The increase
 over the second quarter reflects an increase in the volume of loans migrating
 to impaired status and collateral devaluation on existing impaired loans.
 Compared to the prior year periods, the lower loan loss provision primarily
 reflects a reduction in loans migrating into our problem loan pool as well as
 other stabilizing trends within the loan portfolio. As of September 30, 2010,
 the allowance for loan losses was 2.10% of total loans and provided coverage
 of 40% of nonperforming loans compared to 2.30% and 41%, respectively, at
 year-end 2009.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | Average
 earning assets were $2.273 billion for the third quarter of 2010, an increase
 of $35.6 million, or 1.6% over the fourth quarter of 2009 driven by an
 increase in the overnight funds position ($139.6 million) and a higher
 investment portfolio ($33.4 million), partially offset by a decline in the
 loan portfolio ($137.4 million).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | As of
 September 30, 2010, we are well-capitalized with a risk based capital ratio
 of 14.29% and a tangible capital ratio of 6.98% compared to 14.11% and 6.84%,
 respectively, at year-end 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

21

---



RESULTS OF OPERATIONS

Net Income

Net income for the third quarter of 2010 totaled $0.4 million, or $0.02
per diluted share compared to net income of $0.7 million or $0.04 per diluted
share for the second quarter of 2010 and a net loss of $1.5 million, or $0.08
per diluted share for the third quarter of 2009. For the first nine months of
2010, we realized a net loss of $2.3 million, or $0.14 per diluted share,
compared to a net loss of $0.1 million, or $0.00 per diluted share, for the
same period in 2009.

Net income for the third quarter reflects a loan loss provision of $5.7
million compared to $3.6 million for the second quarter of 2010. The increase
in the loan loss provision and lower noninterest income of $1.2 million,
partially offset by higher net interest income of $0.4 million and lower
noninterest expense of $2.3 million, were the primary factors driving the
reduction in earnings from the second quarter. Compared to the third quarter of
2009, a $6.6 million reduction in the loan loss provision, partially offset by
a decline in net interest income of $1.8 million, lower noninterest income of
$0.9 million, and higher noninterest expense of $0.7 million, drove the
improvement in earnings.

For the first nine months of 2010, lower net interest income of $7.5
million, a decline in noninterest income of $0.9 million, and higher
noninterest expense of $3.6 million were the primary reasons for the decline in
earnings from 2009. A lower loss provision of $9.1 million helped offset the
aforementioned unfavorable variances.

A condensed
earnings summary of each major component of our financial performance is
provided below:

|                                                     |  |                     |        |                   |   |                     |   |                     |        |                     |   |         |    |   |        |   
|---------------------------------------------------- |  | ------------------- | ------ | ----------------- | - | ------------------- | - | ------------------- | ------ | ------------------- | - | ------- | -- | - | ------ | --
|                                                     |  | Three Months Ended  |        | Nine Months Ended |  
|                                                     |  |                     |        |                   |  
|(Dollars in Thousands, except per share data)        |  | September 30,
 2010 |        | June 30,
 2010    |   | September 30,
 2009 |   | September 30,
 2010 |        | September
 30, 2009 |  
|                                                     |  |                     |        |                   |   |                     |   |                     |        |                     |  
|Interest Income                                      |  | $                   | 27,576 |                   | $ | 27,934              |   | $                   | 30,787 |                     | $ | 83,664  |    | $ | 93,020 |   
|Taxable equivalent Adjustments                       |  |                     | 331    |                   |   | 369                 |   |                     | 576    |                     |   | 1,151   |    |   | 1,743  |   
|                                                     |  |                     |        |                   |   |                     |   |                     |        |                     |   |         |    |   |        |   
|Total Interest Income (FTE)                          |  |                     | 27,907 |                   |   | 28,303              |   |                     | 31,363 |                     |   | 84,815  |    |   | 94,763 |   
|Interest Expense                                     |  |                     | 2,792  |                   |   | 3,565               |   |                     | 4,235  |                     |   | 10,489  |    |   | 12,378 |   
|                                                     |  |                     |        |                   |   |                     |   |                     |        |                     |   |         |    |   |        |   
|Net Interest Income (FTE)                            |  |                     | 25,115 |                   |   | 24,738              |   |                     | 27,128 |                     |   | 74,326  |    |   | 82,385 |   
|Provision for Loan Losses                            |  |                     | 5,668  |                   |   | 3,633               |   |                     | 12,347 |                     |   | 20,041  |    |   | 29,183 |   
|Taxable Equivalent Adjustments                       |  |                     | 331    |                   |   | 369                 |   |                     | 576    |                     |   | 1,151   |    |   | 1,743  |   
|                                                     |  |                     |        |                   |   |                     |   |                     |        |                     |   |         |    |   |        |   
|Net Interest Income After Provision for
 Loan Losses |  |                     | 19,116 |                   |   | 20,736              |   |                     | 14,205 |                     |   | 53,134  |    |   | 51,459 |   
|Noninterest Income                                   |  |                     | 13,449 |                   |   | 14,674              |   |                     | 14,304 |                     |   | 42,090  |    |   | 42,980 |   
|Noninterest Expense                                  |  |                     | 32,363 |                   |   | 34,629              |   |                     | 31,615 |                     |   | 100,376 |    |   | 96,802 |   
|                                                     |  |                     |        |                   |   |                     |   |                     |        |                     |   |         |    |   |        |   
|Income Before Income Taxes                           |  |                     | 202    |                   |   | 781                 |   |                     | (3,106 | )                   |   | (5,152  | )  |   | (2,363 | ) 
|Income Taxes                                         |  |                     | (199   | )                 |   | 50                  |   |                     | (1,618 | )                   |   | (2,821  | )  |   | (2,299 | ) 
|                                                     |  |                     |        |                   |   |                     |   |                     |        |                     |   |         |    |   |        |   
|Net Income (Loss)                                    |  | $                   | 401    |                   | $ | 731                 |   | $                   | (1,488 | )                   | $ | (2,331  | )  | $ | (64    | ) 
|                                                     |  |                     |        |                   |   |                     |   |                     |        |                     |   |         |    |   |        |   
|                                                     |  |                     |        |                   |   |                     |   |                     |        |                     |   |         |    |   |        |   
|Basic Net Income (Loss) Per Share                    |  | $                   | 0.02   |                   | $ | 0.04                |   | $                   | (0.08  | )                   | $ | (0.14   | )  | $ | 0.00   |   
|                                                     |  |                     |        |                   |   |                     |   |                     |        |                     |   |         |    |   |        |   
|Diluted Net Income (Loss) Per Share                  |  | $                   | 0.02   |                   | $ | 0.04                |   | $                   | (0.08  | )                   | $ | (0.14   | )  | $ | 0.00   |   
|                                                     |  |                     |        |                   |   |                     |   |                     |        |                     |   |         |    |   |        |   
|                                                     |  |                     |        |                   |   |                     |   |                     |        |                     |   |         |    |   |        |   
|Return on Average Equity                             |  |                     | 0.60   | %                 |   | 1.11                | % |                     | (2.15  | )%                  |   | (1.17   | )% |   | (0.03  | )%
|Return on Average Assets                             |  |                     | 0.06   | %                 |   | 0.11                | % |                     | (0.24  | )%                  |   | (0.12   | )% |   | 0.00   | % 

22

---



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. This information is
provided on a taxable equivalent basis to reflect the tax-exempt status of
income earned on certain loans and investments, the majority of which are state
and local government debt obligations. We provide an analysis of our net
interest income including average yields and rates in Table I on page 35.

Tax equivalent net interest income for the third quarter of 2010 was
$25.1 million compared to $24.7 million for the second quarter of 2010 and
$27.1 million for the third quarter of 2009. For the first nine months of 2010,
tax equivalent net interest income totaled $74.3 million compared to $82.4
million in 2009.

The increase of $0.4 million in tax equivalent net interest income on a
linked quarter basis was due to lower cost of funds, one additional calendar
day, partially offset by a reduction in loan income. Lower cost of funds
reflects a reduction in deposit rates primarily in the categories of NOWs,
money market accounts and certificates of deposit. The unfavorable variances of
$2.0 million and $8.1 million from the third quarter of 2009 and first nine
months of 2009, respectively, are attributable to the shift in our earning
asset mix and unfavorable asset repricing, partially offset by a reduction in
interest expense.

Tax equivalent interest income for the third quarter of 2010 was $27.9
million compared to $28.3 million for the second quarter of 2010 and $31.4
million for the third quarter of 2009. The decrease in interest income when
compared to both periods resulted from unfavorable asset repricing and
declining loan balances, which has been partially offset by a decline in
foregone interest on nonaccrual loans in each of the past three quarters.

Interest expense for the third quarter of 2010 was $2.8 million
compared to $3.6 million for the linked quarter and $4.2 million for the
comparable quarter in 2009. The lower cost of funds when compared to the linked
quarter was a result of rate reductions in interest bearing nonmaturity
deposits and certificates of deposit. Although deposits have grown
significantly year over year, the lower funding costs compared to the same
quarter in 2009 was a result of a decline in the rates on subordinated notes
and certificates of deposit.

The net interest margin in the third quarter of 2010 was 4.38%, an
increase of 12 basis points over the linked quarter and a decline of 61 basis
points from the third quarter of 2009. The increase in the margin when compared
to the linked quarter was a result of a 12 basis point reduction in the cost of
funds, as the yield on earning assets remained constant. The lower cost of
funds resulted from a reduction in the rates on NOW accounts primarily to
comply with the Transaction Account Guarantee Program changes. Rates were lowered
on the money market promotional accounts while certificates of deposit rates
were significantly reduced in all markets. The decline in the margin from the
third quarter of 2009 is attributable to the shift in our earning asset mix and
unfavorable asset repricing, partially offset by a favorable variance in our
average cost of funds.

Strong deposit growth experience since last year has improved our
liquidity position, but has adversely impacted our margin in the short term as
a significant portion of this growth is currently invested in overnight funds.
As we determine what portion of this growth is permanent, if appropriate, we
will begin deploying the overnight funds into the investment portfolio.

Provision for Loan Losses

The provision for loan losses for the third quarter of 2010 was $5.7
million compared to $3.6 million in the second quarter of 2010 and $12.3
million for the third quarter of 2009. For the first nine months of 2010, the
loan loss provision totaled $20.0 million compared to $29.2 million for the
same period in 2009. The increase in the provision compared to the linked
second quarter primarily reflects an increase in the volume of loans migrating
to impaired status and collateral devaluation on existing impaired loans.
Compared to the prior year periods, the lower loan loss provision primarily
reflects a reduction in the level of loans migrating into our problem loan pool
as well as other stabilizing trends within the loan portfolio.

Net charge-offs in the third quarter totaled $6.4 million, or 1.40% of
average loans, compared to $6.4 million, or 1.39%, in the second quarter of
2010, and $8.7 million, or 1.76%, for the third quarter of 2009. Compared to
the second quarter, gross loan charge-offs declined by $0.7 million, which was
offset by a $0.7 million reduction in loan recoveries. Loan recoveries were
boosted in the prior quarter due to several successful outcomes from collection
and litigation activities. A lower level of construction loan losses drove the
decline from the same prior year quarter. For the first nine months of 2010,
net charge-offs totaled $26.3 million, or 1.91% of average loans, compared to
$20.8 million, or 1.41%, for the same period of 2009. The increase in loan
charge-offs for the nine month period is due to higher residential real estate
and commercial real estate losses, a significant portion of which is tied to
loans secured by vacant land. A decline in losses within our consumer loan
portfolio partially offset the aforementioned increases in residential and commercial
real estate loan losses. At quarter-end, the allowance for loan losses was
2.10% of outstanding loans (net of overdrafts) and provided coverage of 40% of
nonperforming loans compared to 2.11% and 38%, respectively, at the end of the
prior quarter.

23

---



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

|                                                                                                  |  |                     |       |                   |   |                    |   |                     |       |                     |   |        |   |   |        |  
|------------------------------------------------------------------------------------------------- |  | ------------------- | ----- | ----------------- | - | ------------------ | - | ------------------- | ----- | ------------------- | - | ------ | - | - | ------ | -
|                                                                                                  |  | Three Months Ended  |       | Nine Months Ended |  
|                                                                                                  |  |                     |       |                   |  
|(Dollars in Thousands, except per share data)                                                     |  | September 30,
 2010 |       | June 30,
 2010    |   | September 30, 2009 |   | September 30,
 2010 |       | September 30,
 2009 |  
|                                                                                                  |  |                     |       |                   |   |                    |   |                     |       |                     |  
|CHARGE-OFFS                                                                                       |  |                     |       |                   |   |                    |   |                     |       |                     |   |        |   |   |        |  
|Commercial,
 Financial and Agricultural                                                           |  | $                   | 242   |                   | $ | 405                |   | $                   | 633   |                     | $ | 1,489  |   | $ | 1,878  |  
|Real Estate
  Construction                                                                       |  |                     | 701   |                   |   | 1,220              |   |                     | 2,315 |                     |   | 5,643  |   |   | 5,991  |  
|Real Estate
 - Commercial Mortgage                                                                |  |                     | 1,741 |                   |   | 920                |   |                     | 1,707 |                     |   | 7,292  |   |   | 2,833  |  
|Real Estate
  Residential                                                                        |  |                     | 3,175 |                   |   | 4,725              |   |                     | 3,394 |                     |   | 11,626 |   |   | 7,748  |  
|Consumer                                                                                          |  |                     | 1,057 |                   |   | 360                |   |                     | 1,324 |                     |   | 2,923  |   |   | 4,586  |  
|                                                                                                  |  |                     |       |                   |   |                    |   |                     |       |                     |   |        |   |   |        |  
|Total
 Charge-offs                                                                                |  |                     | 6,916 |                   |   | 7,630              |   |                     | 9,373 |                     |   | 28,973 |   |   | 23,036 |  
|                                                                                                  |  |                     |       |                   |   |                    |   |                     |       |                     |   |        |   |   |        |  
|                                                                                                  |  |                     |       |                   |   |                    |   |                     |       |                     |   |        |   |   |        |  
|RECOVERIES                                                                                        |  |                     |       |                   |   |                    |   |                     |       |                     |   |        |   |   |        |  
|Commercial,
 Financial and Agricultural                                                           |  |                     | 65    |                   |   | 181                |   |                     | 64    |                     |   | 322    |   |   | 222    |  
|Real Estate
  Construction                                                                       |  |                     |      |                   |   | 8                  |   |                     | 150   |                     |   | 8      |   |   | 535    |  
|Real Estate
 - Commercial Mortgage                                                                |  |                     | 6     |                   |   | 43                 |   |                     | 8     |                     |   | 207    |   |   | 9      |  
|Real Estate
  Residential                                                                        |  |                     | 181   |                   |   | 638                |   |                     | 92    |                     |   | 932    |   |   | 202    |  
|Consumer                                                                                          |  |                     | 274   |                   |   | 370                |   |                     | 331   |                     |   | 1,184  |   |   | 1,281  |  
|                                                                                                  |  |                     |       |                   |   |                    |   |                     |       |                     |   |        |   |   |        |  
|Total
 Recoveries                                                                                 |  |                     | 526   |                   |   | 1,240              |   |                     | 645   |                     |   | 2,653  |   |   | 2,249  |  
|                                                                                                  |  |                     |       |                   |   |                    |   |                     |       |                     |   |        |   |   |        |  
|                                                                                                  |  |                     |       |                   |   |                    |   |                     |       |                     |   |        |   |   |        |  
|Net
 Charge-offs                                                                                  |  | $                   | 6,390 |                   | $ | 6,390              |   | $                   | 8,728 |                     | $ | 26,320 |   | $ | 20,787 |  
|Net Charge-Offs (Annualized) as a percent
 of Average Loans Outstanding, Net of Unearned Interest |  |                     | 1.40  | %                 |   | 1.39               | % |                     | 1.76  | %                   |   | 1.91   | % |   | 1.41   | %

Noninterest Income

Noninterest
income for the third quarter of 2010 decreased $1.2 million, or 8.3%, from the
second quarter of 2010 attributable to lower deposit fees ($0.6 million),
retail brokerage fees ($0.2 million), and other income ($0.5 million). Compared
to the third quarter of 2009, noninterest income declined $0.9 million, or 5.9%,
due to lower deposit fees ($0.7 million) and other income ($0.6 million),
partially offset by higher bank card fees ($0.3 million).

For the first
nine months of 2010 we realized a $0.9 million, or 2.1%, decline in noninterest
income attributable to lower deposit fees ($0.9 million), mortgage banking fees
($0.2 million), and other income ($1.2 million), partially offset by an
increase in trust fees ($0.3 million), retail brokerage fees ($0.2 million) and
bank card fees ($0.9 million).

The lower
level of other income for all of the aforementioned periods is due to a reduced
level of merchant fees  a substantial portion of our merchant portfolio was
sold in July 2008 and over the course of 2009 our merchants migrated to a new
processor. For 2010, we continued to service our largest remaining merchant who
migrated to a new processor during the third quarter of 2010. The reduction in
this revenue source has been substantially offset by a reduction in processing
costs, which is reflected in noninterest expense (interchange fees).

Noninterest
income represented 35.2% and 36.5% of operating revenues, respectively, for the
three and nine month periods ending September 30, 2010 compared to 35.0% and
34.7%, respectively, for the same three and nine month periods of 2009. The
higher ratio for the first nine months of 2010 reflects the decline in net
interest income discussed under the section entitled Net Interest Income.

24

---



The table
below reflects the major components of noninterest income.

|                                     |  |                    |        |                   |   |                    |  |                   |        |                   |   |        |  |   |        | 
|------------------------------------ |  | ------------------ | ------ | ----------------- | - | ------------------ |  | ----------------- | ------ | ----------------- | - | ------ |  | - | ------ | 
|                                     |  | Three Months Ended |        | Nine Months Ended |  
|                                     |  |                    |        |                   |  
|(Dollars in Thousands)               |  | September 30,2010  |        | June 30,2010      |   | September 30, 2009 |  | September 30,2010 |        | September 30,2009 |  
|                                     |  |                    |        |                   |   |                    |  |                   |        |                   |  
|                                     |  |                    |        |                   |   |                    |  |                   |        |                   |   |        |  |   |        | 
|Noninterest Income:                  |  |                    |        |                   |   |                    |  |                   |        |                   |   |        |  |   |        | 
|Service
 Charges on Deposit Accounts |  | $                  | 6,399  |                   | $ | 7,039              |  | $                 | 7,099  |                   | $ | 20,066 |  | $ | 20,959 | 
|Data
 Processing Fees                |  |                    | 911    |                   |   | 919                |  |                   | 914    |                   |   | 2,730  |  |   | 2,680  | 
|Asset
 Management Fees               |  |                    | 1,040  |                   |   | 1,080              |  |                   | 960    |                   |   | 3,140  |  |   | 2,860  | 
|Retail
 Brokerage Fees               |  |                    | 671    |                   |   | 846                |  |                   | 765    |                   |   | 2,082  |  |   | 1,883  | 
|Securities
 Transactions             |  |                    | 3      |                   |   |                   |  |                   | 4      |                   |   | 8      |  |   | 10     | 
|Mortgage
 Banking Fees               |  |                    | 772    |                   |   | 641                |  |                   | 663    |                   |   | 1,921  |  |   | 2,149  | 
|Interchange
 Fees (1)                |  |                    | 1,291  |                   |   | 1,289              |  |                   | 1,129  |                   |   | 3,792  |  |   | 3,303  | 
|ATM/Debit
 Card Fees (1)             |  |                    | 1,036  |                   |   | 1,073              |  |                   | 876    |                   |   | 3,072  |  |   | 2,623  | 
|Other                                |  |                    | 1,326  |                   |   | 1,787              |  |                   | 1,894  |                   |   | 5,279  |  |   | 6,513  | 
|                                     |  |                    |        |                   |   |                    |  |                   |        |                   |   |        |  |   |        | 
|                                     |  |                    |        |                   |   |                    |  |                   |        |                   |   |        |  |   |        | 
|Total Noninterest Income             |  | $                  | 13,449 |                   | $ | 14,674             |  | $                 | 14,304 |                   | $ | 42,090 |  | $ | 42,980 | 

(1)Together referred to as Bank Card Fees

Significant
components of noninterest income are discussed in more detail below.

Service Charges on Deposit Accounts.
Deposit service charge fees decreased $640,000, or 9.1%, from the second
quarter of 2010 and decreased $701,000, or 9.9%, from the second quarter of
2009. For the first nine months of 2010, deposit service charge fees decreased
by $893,000, 4.3%. The decline for all of the aforementioned periods was
attributable to a lower level of overdraft fees and to a lesser extent a higher
level of overdraft charge-offs. The reduction in overdraft fees during the
third quarter reflects the recent implementation of new rules under Regulation
E which regulate our ability to post one-time debit card/ATM transactions for
clients who have not opted in to our overdraft protection service. We have made
significant progress in obtaining client opt-in agreement for our overdraft
protection service  these efforts have resulted in a better than expected
client opt-in rate. While we expect overdraft fees to be lower prospectively,
we project the impact attributable to the implementation of Regulation E to be
nominal and in the range of a 2%-4% deviation from our historical norm for
total annual deposit service charge fees.

Retail Brokerage Fees.
Fees from the sale of retail investment and insurance products decreased
$175,000, or 20.6%, from the second quarter of 2010 and $94,000, or 12.3%, from
the third quarter of 2009. For the first nine months of 2010, fees increased by
$199,000, or 10.6%, over the same period in 2009. The decrease for the current
quarter when compared to the second quarter and same prior year quarter
primarily reflects a decline in trading volume by clients. Fee revenue for the
first part of 2009 was negatively impacted by investor uncertainty due to
depressed economic conditions and market volatility. The higher level of fees
for the first nine months of 2010 reflects higher trading volume as well as
more active financial planning by our clients due to more stable market conditions.

Asset Management Fees.
Fees from asset management activities decreased $40,000, or 3.7%, from the
second quarter of 2010 and increased $80,000, or 8.3%, over the third quarter
of 2009. The variance for both periods reflects lower/higher average asset values
for managed accounts on which fees are based. For the first nine months of
2010, fees increased $280,000, or 9.8%, due to the improved asset values as
well as higher fees for estate and benefit plan administration. At September
30, 2010, assets under management totaled $719.1 million compared to $678.9
million for the second quarter and $651.6 million at the end of the third
quarter of 2009.

Mortgage Banking Fees.
Mortgage banking fees increased $131,000, or 20.4%, over the second quarter of
2010 and increased $109,000, or 16.4%, over the third quarter of 2009. The
increase for both periods reflects a higher level of new loan production as
well as an increase in FHA loan production which provides a greater profit
margin. For the first nine months of the 2010, fees decreased $228,000, or
10.6%, reflective of the spike in refinancing activity during the first half of
2009.

Bank Card Fees. Bank card fees (including
interchange fees and ATM/debit card fees) decreased by $35,000, or 1.5%, from
the second quarter of 2010 and increased $322,000, or 13.6%, over the third
quarter of 2009. For the first nine months of 2010, bank card fees increased
$938,000, or 15.8%, over the same period in 2009. The slight decrease from the
second quarter reflects lower card utilization. The increase compared to the
same prior year period reflects an increase in fees driven by a new client
reward program implemented in early 2010 and higher card activation and
utilization from our business debit card product. A higher level of foreign ATM
fees related to a fee change in early 2010 also contributed to the favorable
year over year variance.

25

---



Other. Other income
decreased $461,000, or 25.8%, from the second quarter of 2010 and $568,000, or
30.0% from the third quarter of 2009. For the first nine months of 2010, other
income decreased $1.2 million, or 18.9%, from the same period in 2009. For all
periods, the decline is primarily attributable to lower merchant fees which
reflect the migration during 2009 of our remaining merchant accounts to a new
processor. Our sole remaining merchant migrated to a new processor during the
third quarter of 2010. The reduction in this revenue source is substantially
offset by a reduction in processing costs which is reflected in noninterest
expense (interchange fees).

Noninterest Expense

Total noninterest expense decreased $2.3 million, or 6.5%, from the
second quarter of 2010 driven by a reduction in expense for other real estate
owned properties ($0.8 million), FDIC insurance ($0.4 million), advertising
expense ($0.5 million), pension plan expense ($0.4 million), and interchange
fees ($0.3 million). Compared to the third quarter of 2009, noninterest expense
increased by $0.7 million, or 2.4%, reflecting higher expense for other real
estate owned properties ($1.4 million) and FDIC insurance ($0.6 million),
partially offset by a reduction in compensation expense ($0.7 million),
advertising expense ($0.3 million), and intangible asset amortization ($0.3
million).

For the first
nine months of 2010, as compared to the same period in 2009, noninterest
expense increased $3.6 million, or 3.7%, due primarily to higher expense for
other real estate owned properties ($6.2 million), partially offset by lower
compensation expense ($1.6 million), advertising expense ($0.4 million), and
intangible asset amortization ($0.9 million).

The table
below reflects the major components of noninterest expense.

|                                              |  |                    |        |                   |   |                    |  |                    |        |                    |   |         |  |   |        | 
|--------------------------------------------- |  | ------------------ | ------ | ----------------- | - | ------------------ |  | ------------------ | ------ | ------------------ | - | ------- |  | - | ------ | 
|                                              |  | Three Months Ended |        | Nine Months Ended |  
|                                              |  |                    |        |                   |  
|(Dollars in Thousands, except per share data) |  | September 30, 2010 |        | June 30, 2010     |   | September 30, 2009 |  | September 30, 2010 |        | September 30, 2009 |  
|                                              |  |                    |        |                   |   |                    |  |                    |        |                    |  
|                                              |  |                    |        |                   |   |                    |  |                    |        |                    |  
|Noninterest Expense:                          |  |                    |        |                   |   |                    |  |                    |        |                    |   |         |  |   |        | 
|                                             
|Salaries                                      |  | $                  | 12,297 |                   | $ | 12,533             |  | $                  | 12,603 |                    | $ | 37,879  |  | $ | 38,081 | 
|Associate
 Benefits                           |  |                    | 2,706  |                   |   | 3,051              |  |                    | 3,057  |                    |   | 9,487   |  |   | 10,865 | 
|                                              |  |                    |        |                   |   |                    |  |                    |        |                    |   |         |  |   |        | 
|Total
 Compensation                           |  |                    | 15,003 |                   |   | 15,584             |  |                    | 15,660 |                    |   | 47,366  |  |   | 48,946 | 
|                                              |  |                    |        |                   |   |                    |  |                    |        |                    |   |         |  |   |        | 
|Premises                                      |  |                    | 2,611  |                   |   | 2,585              |  |                    | 2,455  |                    |   | 7,604   |  |   | 7,340  | 
|Equipment                                     |  |                    | 2,288  |                   |   | 2,192              |  |                    | 2,193  |                    |   | 6,661   |  |   | 6,835  | 
|                                              |  |                    |        |                   |   |                    |  |                    |        |                    |   |         |  |   |        | 
|Total
 Occupancy                              |  |                    | 4,899  |                   |   | 4,777              |  |                    | 4,648  |                    |   | 14,265  |  |   | 14,175 | 
|                                              |  |                    |        |                   |   |                    |  |                    |        |                    |   |         |  |   |        | 
|Legal Fees                                    |  |                    | 1,044  |                   |   | 1,109              |  |                    | 1,048  |                    |   | 3,199   |  |   | 2,713  | 
|Professional
 Fees                            |  |                    | 1,101  |                   |   | 1,047              |  |                    | 1,008  |                    |   | 3,196   |  |   | 2,899  | 
|Processing
 Services                          |  |                    | 908    |                   |   | 974                |  |                    | 903    |                    |   | 2,770   |  |   | 2,692  | 
|Advertising                                   |  |                    | 380    |                   |   | 877                |  |                    | 727    |                    |   | 1,934   |  |   | 2,335  | 
|Travel and
 Entertainment                     |  |                    | 245    |                   |   | 243                |  |                    | 299    |                    |   | 720     |  |   | 827    | 
|Printing and
 Supplies                        |  |                    | 386    |                   |   | 320                |  |                    | 491    |                    |   | 1,109   |  |   | 1,432  | 
|Telephone                                     |  |                    | 593    |                   |   | 517                |  |                    | 544    |                    |   | 1,660   |  |   | 1,659  | 
|Postage                                       |  |                    | 436    |                   |   | 450                |  |                    | 401    |                    |   | 1,333   |  |   | 1,271  | 
|Insurance -
 Other                            |  |                    | 1,595  |                   |   | 1,982              |  |                    | 1,021  |                    |   | 4,767   |  |   | 4,079  | 
|Intangible
 Amortization                      |  |                    | 709    |                   |   | 710                |  |                    | 1,011  |                    |   | 2,129   |  |   | 3,032  | 
|Interchange
 Fees                             |  |                    | 70     |                   |   | 329                |  |                    | 363    |                    |   | 953     |  |   | 1,584  | 
|Courier
 Service                              |  |                    | 117    |                   |   | 115                |  |                    | 115    |                    |   | 348     |  |   | 364    | 
|Other Real
 Estate Owned                      |  |                    | 3,306  |                   |   | 4,082              |  |                    | 1,952  |                    |   | 10,213  |  |   | 4,044  | 
|Miscellaneous                                 |  |                    | 1,571  |                   |   | 1,513              |  |                    | 1,424  |                    |   | 4,414   |  |   | 4,750  | 
|                                              |  |                    |        |                   |   |                    |  |                    |        |                    |   |         |  |   |        | 
|Total Other                                   |  |                    | 12,461 |                   |   | 14,268             |  |                    | 11,307 |                    |   | 38,745  |  |   | 33,681 | 
|                                              |  |                    |        |                   |   |                    |  |                    |        |                    |   |         |  |   |        | 
|Total
 Noninterest Expense                    |  | $                  | 32,363 |                   | $ | 34,629             |  | $                  | 31,615 |                    | $ | 100,376 |  | $ | 96,802 | 
|                                              |  |                    |        |                   |   |                    |  |                    |        |                    |   |         |  |   |        | 

Significant
components of noninterest expense are discussed in more detail below.

Compensation. Total compensation expense
decreased $581,000, or 3.7%, from the second quarter of 2010 primarily due to
lower salary expense ($236,000) and associate benefit expense ($345,000). The
decline in salary expense is primarily attributable to lower associate base
salaries ($189,000) as well as a decline in associate cash incentive expense
($118,000). The reduction in associate benefit expense reflects a decline in
the expense for our pension plan ($431,000), which was partially offset by
adjustments to stock compensation in the second and third quarters that
resulted in a favorable quarterly variance of $121,000.

26

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Compared to the third quarter of 2009, total compensation expense
declined by $657,000, or 4.2%, due to a reduction in salary expense ($306,000)
and associate benefit expense ($351,000). The decline in salary expense is
primarily attributable to lower associate base salaries ($197,000) as well as a
decline in associate cash incentive expense ($298,000), partially offset by
lower realized loan cost ($175,000). The reduction in associate benefit expense
reflects a decrease in pension plan expense ($170,000) and stock compensation
($136,000).

For the first nine months of 2010, total compensation expense decreased
$1.6 million, or 3.2%, from the same period of 2009 primarily due to lower
expense for associate benefits ($1.4 million), and to a lesser extent a reduction
in salary expense ($202,000). The decline in associate benefits was due to
lower pension expense and the reduction in salary expense was due to lower
associate base salaries ($370,000), commissions ($96,000), and associate cash
incentives ($210,000), partially offset by lower realized loan cost ($566,000).

Pension expense declined for all of the aforementioned periods and
reflects a higher level of expected return on plan assets which has a positive
impact on our accounting expense. For all of the respective periods, we
realized a reduction in associate base salaries and lower expense for all of
our performance based cash and stock incentive programs. The decline in
associate base salaries reflects normal headcount attrition and our efforts to
improve overall operating efficiency.

Occupancy. Occupancy expense (including
premises and equipment) increased $122,000, or 2.6%, over the second quarter of
2010, and increased $251,000, or 5.4%, over the third quarter of 2009. For the
first nine months of 2010, occupancy expense increased by $90,000, or 0.6%,
compared to the same period in 2009.

The increase over the second quarter was due to higher expense for
maintenance agreements ($104,000), driven by higher costs for our phone system
maintenance, which was free for the first year of installation (2009), higher
expense for maintenance on our item processing system, and the impact of
opening a new office building in the prior quarter. Compared to the third
quarter of 2009, higher premises depreciation expense ($160,000) drove the
increase reflecting several completed office construction projects. Higher
maintenance agreement expense ($118,000) also contributed to the increase for
the period. For the nine month period, higher premises depreciation expense related
to the aforementioned office construction projects drove the increase, which
was partially offset by lower software license expense ($94,000), FF&E
depreciation ($75,000), and maintenance agreement expense ($64,000). The
reduction in software license expense and FF&E depreciation reflects full
amortization and depreciation of several software licenses and system
components related to our end-user and network system environments. The decline
in maintenance agreement expense reflects the re-negotiation of several vendor
maintenance agreements during 2009.

Other. Other
noninterest expense decreased $1.8 million, or 12.7%, from the second quarter
of 2010 and increased $1.2 million, or 10.2%, over the third quarter of 2009. The decrease from the second quarter
primarily reflects lower expense for other real estate owned ($776,000),
advertising ($497,000), and FDIC insurance ($387,000). The decline in
other real estate owned expense reflects a lower level of property valuation
write-downs. The favorable variance in FDIC insurance reflects a higher
required expense in the prior quarter due to an adjustment in our premium rate.
Closer management of costs related to our free checking products as well as
lower public relations expense contributed to the decline in advertising
expense.

Compared to the third quarter of 2009, other
noninterest expense increased by $1.2 million, or 10.2%, primarily due to
higher expense for other real estate owned properties ($1.4 million) and FDIC
insurance ($574,000), partially offset by lower expense for advertising
($347,000). A higher level of both property valuation write-downs and carrying
costs drove the increase. The unfavorable variance in FDIC insurance reflects a
higher premium rate and the favorable variance in advertising expense is due to
tighter controls over discretionary expenditures.

For the first nine months of 2010, other
noninterest expense increased $5.1 million, or 15.0%, due to higher expense for
other real estate owned properties ($6.2 million) and legal fees ($486,000),
partially offset by lower intangible amortization expense ($903,000) and a
decrease in interchange fees ($631,000). The higher level of expense for both
other real estate owned properties and legal fees is due to a higher level of
nonperforming assets and related legal support needed for the collection and
disposition of those assets. The decline in intangible amortization expense
reflects the full amortization of one of our core deposit intangible assets.
The reduction in interchange fees is due to the July 2008 sale of our merchant
portfolio and the migration of all our merchant clients to a new processor,
which was finalized during the third quarter of 2010.

The operating
net noninterest expense ratio (expressed as noninterest income minus noninterest
expense, excluding intangible amortization expense and merger expenses, as a
percent of average assets) was 2.75% for the third quarter of 2010 compared to
2.88% for the second quarter of 2010 and 2.59% for the third quarter of 2009.
Our operating efficiency ratio (expressed as noninterest expense, excluding
intangible amortization expense and merger expenses, as a percent of the sum of
taxable-equivalent net interest income plus noninterest income) was 82.08% for
the third quarter of 2010 compared to 86.06% for the second quarter of 2010 and
73.86% for the third quarter of 2009. For the first nine months of 2010, these
metrics were 2.81% and 84.39%, compared to 2.72% and 74.82%, respectively, for
the same period of 2009. The variance in our efficiency ratio compared to the
prior year periods is primarily due to a lower level of net interest income and
to a lesser extent the increase in our noninterest expense driven by the
aforementioned increase in expense for other real estate owned properties.

27

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Income Taxes

We realized a
tax benefit of $199,000 in the third quarter compared to tax expense of $50,000
for the second quarter of 2010 and a tax benefit of $1.6 million for the third
quarter of 2009. For the first nine months of 2010, we realized a tax benefit
of $2.8 million compared to a tax benefit of $2.3 million for the same period
of 2009. We have substantial tax exempt income as well as a lower level of
pre-tax income at our bank subsidiary due to higher loan loss provisions  both
of these factors favorably impacted our tax provision for the aforementioned
periods.

FINANCIAL CONDITION

Average earning assets were $2.273 billion for the quarter ended
September 30, 2010, a decrease of $56.2 million, or 2.4%, from the linked
quarter and an increase of $ 35.6 million, or 1.6%, from the fourth quarter of
2009. The decline compared to the linked quarter is primarily attributable to a
lower overnight funds position reflecting the overall reduction in deposits,
and problem loan resolution, which has the effect of lowering the loan
portfolio as loans are either charged off or transferred to Other Real Estate
Owned. The increase from year-end is attributable to increases in the overnight
funds position and the investment portfolio, which were funded through higher
deposit balances. These increases were partially offset by problem loan
resolution.

Investment Securities

In the third
quarter of 2010, the average balance of the investment portfolio decreased $7.1
million, or 3.2%, compared to the second quarter of 2010, but increased $33.4
million, or 18.6%, from the fourth quarter of 2009. As a percentage of average
earning assets, the investment portfolio represented 9.4% in the third quarter
of 2010, compared to 9.5% in the second quarter of 2010 and 8.0% in the fourth
quarter of 2009. The decline in the average balance of the investment portfolio
compared to the prior quarter resulted from maturing investments not being
replaced for most of the quarter, although approximately $20 million of a $60
million investment purchase strategy was implemented late in the third quarter
that will impact the fourth quarter as we further deploy a portion of the funds
sold position. The increase in the average balance of the investment portfolio
compared to the fourth quarter of 2009 was primarily attributable to a $60.0
million purchase of U.S. Treasury securities late in the first quarter and
early in the second quarter of 2010 given our strong liquidity level. During
the fourth quarter, we expect to complete the $60 million purchase program
begun late in the third quarter and, depending on deposit levels and loan
demand, we may continue to add to the investment portfolio in the fourth
quarter, if appropriate.

The 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
September 30, 2010, all securities are classified as available-for-sale, which
offers management full flexibility in managing our liquidity and interest rate
sensitivity without adversely impacting our regulatory capital levels. It is
neither managements intent nor practice to participate in the trading of
investment securities for the purpose of recognizing gains and therefore we do
not maintain a trading portfolio. Securities in the available-for-sale
portfolio are recorded at fair value with unrealized gains and losses
associated with these securities recorded net of tax, in the accumulated other
comprehensive income (loss) component of shareowners equity.

At September
30, 2010, the investment portfolio maintained a net pre-tax unrealized gain of
$2.6 million compared to a net pre-tax unrealized gain of $2.0 million at
December 31, 2009. The increase in unrealized gains compared to the fourth
quarter of 2009 was primarily attributable to lower yields throughout the
majority of bond products, resulting in higher bond prices. Approximately
$2.9 million of our investment securities have an unrealized loss totaling $0.6
million, all of which have been in a loss position for less than 12 months.
These positions consist of (1) five municipal bonds pre-refunded with US
Government securities which are not considered impaired, and are expected to
mature at par (2) two GNMA securities which carry the full faith and credit of
the U.S. Government, and (3) approximately $0.6 million of a bank preferred
stock issue at the holding company that maintained a zero book value as of
September 30, 2010 and December 31, 2009. We continue to closely monitor the
fair value of this security as the issuer of this security continues to
experience negative operating trends.

Loans

Average loans decreased $33.9 million, or 1.8%, from the linked quarter
of 2010 and $137.4 million, or 7.1%, from the fourth quarter of 2009. The
decline was primarily driven by reductions in the commercial real estate and
construction loan categories. The portfolio continues to be impacted by weak
loan demand, attributable to the sluggish economy, but not at the levels we
have experienced in recent quarters. In addition to lower production and normal
amortization and payoffs, the reduction in the portfolio is also attributable
to gross charge-offs and the transfer of loans to the other real estate owned
category, which collectively, accounted for $60.9 million, or 53% of the net
reduction during the first nine months of 2010. Loans as a percent of average
earning assets, has declined to 79.5% in 2010, which is down from the year-end
2009 level of 86.9%.

28

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Our bankers
continue to try to reach clients who are interested in moving or expanding
their banking relationships. While we strive to identify opportunities to
increase loans outstanding and enhance the portfolios overall contribution to
earnings, we will only do so by adhering to sound lending principles applied in
a prudent and consistent manner. Thus, we will not relax our underwriting
standards in order to achieve designated growth goals and, where appropriate,
have adjusted our standards to reflect risks inherent in the current economic
environment.

As part of our
loan portfolio analysis procedures during the second quarter of 2010, we
reclassified approximately $10.0 million in loans from the construction real
estate loan category to the residential real estate categories as these loans
have migrated to a permanent term status. We also identified approximately
$30.0 million in business purposes loans secured by residential real estate
(rental houses) that were reclassified from the commercial real estate category
to the residential real estate category to better reflect that nature of the
underlying collateral for these loans.

Loan Concentrations.
Loan concentrations are considered to exist when there are amounts loaned to a
multiple number of borrowers engaged in similar activities which cause them to
be similarly impacted by economic or other conditions and such amount exceeds
10% of total loans. Due to the lack of diversified industry within the markets
served by the Bank and the relatively close proximity of the markets, we have
both geographic concentrations as well as concentrations in the types of loans
funded. Specifically, due to the nature of our markets, a significant portion
of the portfolio has historically been secured with real estate.

While we have
a majority of our loans (79.1%) secured by real estate, the primary types of
real estate collateral are commercial properties and 1-4 family residential
properties. At September 30, 2010, commercial real estate mortgage loans and
residential real estate mortgage loans accounted for 37.8% and 38.8%,
respectively, of the loan portfolio. Furthermore, approximately 10.8% of our
loan portfolio is secured by vacant residential land loans, which include both
improved and unimproved land and are comprised of loans to individuals as well
as builders/developers.

Nonperforming Assets

At September 30, 2010, nonperforming assets (including nonaccrual
loans, restructured loans and other real estate owned) totaled $145.6 million,
a decrease of $4.2 million from the second quarter of 2010, and an increase of
$1.6 million, or 1.1%, over the fourth quarter of 2009. The decline from the
linked second quarter was primarily due to a decline in restructured loans of
$6.9 million - two large loans were restored to performing status due to paying
as agreed under restructured terms. Compared to the prior quarter, nonaccrual
loans realized a net decrease of $0.4 million as the volume of loans migrating
to nonaccrual status was offset by resolutions and transfers to the other real
estate owned category. The balance of other real estate owned realized a net
increase of $3.1 million from the prior quarter reflective of the
aforementioned migration of loans through the foreclosure process as well as a
slight slowdown in property dispositions. Compared to the prior year-end, the
$1.6 million increase in nonperforming assets reflects a slightly higher level
of nonaccrual loan inflow than problem loan and other real estate owned
resolutions. At quarter-end, vacant residential land loans represented
approximately $23.0 million (approximately 100 borrowing relationships), or
31%, of our nonaccrual loan balance compared to $28.1 million, or 33%, at
year-end 2009. Nonperforming assets represented 7.86% of loans and other real
estate at the end of the third quarter compared to 8.01% at the prior
quarter-end and 7.38% at year-end 2009.

Due to the downturn in the economy and our real estate markets it has
become more common to restructure or modify the terms of some loans under
certain conditions (i.e. troubled debt restructures or TDRs). In those
instances, we will from time to time restructure the terms of a loan and work
with the borrower for the benefit of both parties. When we do modify the terms
of a loan, we usually extend the term of a loan, offer a short-term deferral,
offer a new loan product, or a combination of these options. We have not
forgiven any material principal amounts on any loan modifications to date. Our
philosophy has been to work with borrowers who are experiencing a near term
financial hardship, but whom we believe have the capacity to repay all interest
and principal contractually due given some easing of near term cash flow
strains. We currently have $20.2 million in loans classified as TDRs and all of
these loans are in an accrual status. Our TDRs are included in our impaired
loan totals as required by current accounting standards and are included in our
nonperforming asset totals in the table below.

29

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Non-performing assets are
summarized as follows.

|                                                   |  |                   |         |              |   |                  |   |   |         |  
|-------------------------------------------------- |  | ----------------- | ------- | ------------ | - | ---------------- | - | - | ------- | -
|                                                   |  | As of             |        
|                                                   |  |                   |        
|(Dollars
in Thousands)                             |  | September 30,2010 |         | June 30,2010 |   | December 31,2009 |  
|                                                   |  |                   |         |              |   |                  |  
|                                                   |  |                   |         |              |   |                  |   |   |         |  
|Nonaccruing Loans                                  |  | $                 | 74,168  |              | $ | 74,504           |   | $ | 86,274  |  
|Troubled Debt Restructurings                       |  |                   | 20,267  |              |   | 27,200           |   |   | 21,644  |  
|                                                   |  |                   |         |              |   |                  |   |   |         |  
|Total Nonperforming Loans                          |  |                   | 94,435  |              |   | 101,704          |   |   | 107,918 |  
|Other Real Estate Owned                            |  |                   | 51,208  |              |   | 48,110           |   |   | 36,134  |  
|                                                   |  |                   |         |              |   |                  |   |   |         |  
|Total Nonperforming Assets                         |  | $                 | 145,643 |              | $ | 149,814          |   | $ | 144,052 |  
|                                                   |  |                   |         |              |   |                  |   |   |         |  
|Past Due 30-89 Days or More                        |  | $                 | 24,904  |              | $ | 21,192           |   | $ | 36,501  |  
|                                                   |  |                   |         |              |   |                  |   |   |         |  
|Past Due 90 Days or More (and still
 accruing)     |  | $                 |        |              | $ |                 |   | $ |        |  
|                                                   |  |                   |         |              |   |                  |   |   |         |  
|                                                   |  |                   |         |              |   |                  |   |   |         |  
|Nonperforming Loans/Loans                          |  |                   | 5.24    | %            |   | 5.58             | % |   | 5.63    | %
|                                                   |  |                   |         |              |   |                  |   |   |         |  
|Nonperforming Assets/Loans Plus Other Real
 Estate |  |                   | 7.86    | %            |   | 8.01             | % |   | 7.38    | %
|                                                   |  |                   |         |              |   |                  |   |   |         |  
|Nonperforming Assets/Capital(1)                    |  |                   | 48.81   | %            |   | 49.92            | % |   | 46.19   | %
|                                                   |  |                   |         |              |   |                  |   |   |         |  
|Allowance/Nonperforming Loans                      |  |                   | 39.94   | %            |   | 37.80            | % |   | 40.77   | %
|                                                   |  |                   |         |              |   |                  |   |   |         |  

|    |                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------
|(1) | For computation of this percentage, Capital refers to shareowners
 equity plus the allowance for loan losses.

Allowance for Loan
Losses

We maintain an
allowance for loan losses at a level sufficient to provide for the estimated
loan 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 was $37.7 million at September 30, 2010 compared to $38.4
million at June 30, 2010 and $44.0 million at December 31, 2009. The allowance
for loan losses was 2.10% of outstanding loans (net of overdrafts) and provided
coverage of 40% of nonperforming loans at September 30, 2010 compared to 2.11%
and 38%, respectively at the end of the prior quarter and 2.30% and 41%,
respectively, at year-end 2009. The decrease in our allowance from the prior
quarter is due to a lower level of general reserves generally reflective of
overall stabilizing trends within the loan portfolio. The decline from year-end
2009 is primarily due to a lower level of required impaired loan reserves due
to a slowdown in loans migrating to impaired status. It is managements opinion
that the allowance at September 30, 2010 is adequate to absorb losses inherent
in the loan portfolio at quarter-end.

Deposits

Average total
deposits were $2.172
billion for the third quarter, a decrease of $62.0 million, or 2.8%, from the second quarter and an increase
of $82.2 million, or 3.9%, from
the fourth quarter of 2009. Deposit levels are strong but down slightly from
the second quarter level, primarily attributable to lower money market account
and certificates of deposit balances, and a decline in public funds. The money
market account promotion launched during the third quarter of 2009 and
concluded in the fourth quarter, experienced runoff as rates were eased during
the current quarter to standard board levels. Despite the lowering of rates,
the bank has retained in excess of $24 million in new deposit balances. This
initiative served to support our core deposit growth strategy while succeeding
in further strengthening the Banks overall liquidity position. Certificates of
deposit declined primarily due to the maturity of a large public fund CD and a
reduction in the number of single relationship, higher yielding certificates of
deposit with the Bank. Public funds balances have declined as anticipated from
the linked quarter reflecting seasonality within this deposit category. Our
Absolutely Free Checking (AFC) products continue to be successful as both
balances and the number of accounts increased quarter over quarter.

We continue to
pursue prudent pricing discipline to manage the mix of our deposits. Therefore,
we are not attempting to compete with higher rate paying competitors for
deposits. The increase from the fourth quarter reflects higher public funds of
$37.3 million and core deposits of $44.9 million fueled primarily by the
success of the AFC products.

30

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MARKET RISK AND INTEREST RATE SENSITIVITY

Market Risk and Interest Rate Sensitivity

Overview.Market risk management arises from changes in
interest rates, exchange rates, commodity prices, and equity prices. We have
risk management policies to monitor and limit exposure to market risk and do
not participate in activities that give rise to significant market risk
involving exchange rates, commodity prices, or equity prices. In asset and
liability management activities, our policies are designed to minimize
structural interest rate risk.

Interest Rate Risk
Management.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 our 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, and deposit products.

We prepare a
current base case and four 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.

Our interest
rate risk management goal is to avoid unacceptable variations in net interest
income and capital levels due to fluctuations in market rates. Management
attempts to achieve this goal by balancing, within policy limits, the volume of
floating-rate liabilities with a similar volume of floating-rate assets,
keeping the average maturity of fixed-rate asset and liability contracts
reasonably matched, maintaining a pool of administered core deposits, and
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, 200, and 300 basis points (bp), 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.

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 (1)

|                           |  |         |   |         |      |         |  |         |   |  |      |   | 
|-------------------------- |  | ------- | - | ------- | ---- | ------- |  | ------- | - |  | ---- | - | 
|                           |  |         |   |         |      |         |  |         |   |  |      |   | 
|                           |  |         |   |         |      |         |  |         |   |  |      |   | 
|                           |  |         |   |         |      |         |  |         |   |  |      |   | 
|                           |  |         |   |         |      |         |  |         |  
|Changes in
 Interest Rates |  | +300 bp |   | +200 bp |      | +100 bp |  | -100 bp |  
|                           |  |         |   |         |      |         |  |         |   |  |      |   | 
|Policy Limit (±)           |  | 10.0    | % |         | 7.5  | %       |  | 5.0     | % |  | 5.0  | % | 
|September 30, 2010         |  | -7.3    | % |         | -4.0 | %       |  | -1.2    | % |  | -0.8 | % | 
|June 30, 2010              |  | -7.4    | % |         | -4.0 | %       |  | -1.2    | % |  | -0.7 | % | 

31

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When compared to the linked quarter, the net interest income at risk
position improved for the +300 basis point (bp) level, remained unchanged for
the +100 and +200 bp scenarios, and fell slightly in the -100 bp scenario. Our
largest exposure is at the +300 bp level, with a measure of -7.3%, which is
still within our policy limit of ±10.0%. The slight improvement in the +300 bp
simulation was primarily attributable to lower interest bearing deposit
balances, resulting in a decline in funding costs. All measures of net interest
income at risk are within our prescribed policy limits.

The measures
of equity value at risk consider the effects of changes in interest rates on
all of our cash flows, and discount 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
(1)

|                           |  |         |   |         |      |         |  |         |   |  |      |   | 
|-------------------------- |  | ------- | - | ------- | ---- | ------- |  | ------- | - |  | ---- | - | 
|Changes in
 Interest Rates |  | +300 bp |   | +200 bp |      | +100 bp |  | -100 bp |  
|                           |  |         |   |         |      |         |  |         |   |  |      |   | 
|Policy Limit (±)           |  | 12.5    | % |         | 10.0 | %       |  | 7.5     | % |  | 7.5  | % | 
|September 30, 2010         |  | -1.7    | % |         | 2.7  | %       |  | 4.1     | % |  | -6.0 | % | 
|June 30, 2010              |  | -2.6    | % |         | 1.9  | %       |  | 3.5     | % |  | -7.2 | % | 
|                           |  |         |   |         |      |         |  |         |   |  |      |   | 
|                           |  |         |   |         |      |         |  |         |   |  |      |   | 

Our risk profile, as measured by EVE, improved for the third quarter of
2010, when compared to the linked quarter, for all rate scenarios. Our largest
exposure is at the down 100 bp scenario, with a measure of -6.0%, which is
still within our policy limit of ±7.5%. The improvement from the linked quarter
is primarily attributable to a decline in market rates primarily for
investments and loans when compared to the prior quarter. All measures of
economic value of equity are within our prescribed policy limits.

|    |                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------
|(1) | Down 200 and 300 bp scenarios have been
 excluded due to the current historically low interest rate environment.

LIQUIDITY AND CAPITAL
RESOURCES

Liquidity

In general
terms, liquidity is a measurement of our ability to meet our cash needs. Our
objective in managing our liquidity is to maintain our ability to meet loan
commitments, purchase securities or repay deposits and other liabilities in
accordance with their terms, without an adverse impact on our current or future
earnings. Our liquidity strategy is guided by policies that are formulated and
monitored by our ALCO and senior management, and which take into account the
marketability of assets, the sources and stability of our funding and the level
of unfunded commitments. We regularly evaluate all of our various funding
sources with an emphasis on accessibility, stability, reliability and
cost-effectiveness. Our principal source of funding has been our client
deposits, supplemented by our short-term and long-term borrowings, primarily
from securities sold under repurchase agreements, federal funds purchased and
FHLB borrowings. We believe that the cash generated from operations, our
borrowing capacity and our access to capital resources are sufficient to meet
our future operating capital and funding requirements.

Overall, we
have the ability to generate $925 million in liquidity through all of our
available resources. In addition to primary borrowing outlets mentioned above,
we also have the ability to generate liquidity by borrowing from the Federal
Reserve Discount Window and through brokered deposits. Management recognizes
the importance of maintaining liquidity and has developed a Contingency
Liquidity Plan, which addresses various liquidity stress levels and our
responses and actions based on the level of severity. We periodically test our
credit facilities for access to the funds, but also understand that as the
severity of the liquidity level increases that some credit facilities may no
longer be available. The liquidity currently available to us is considered
sufficient to meet our on-going needs.

We view our
investment portfolio as a liquidity source and have the option to pledge the
portfolio as collateral for borrowings or deposits, and/or sell selected
securities. The portfolio consists of debt issued by the U.S. Treasury, U.S.
governmental agencies, and municipal governments. The weighted average life of
the portfolio is approximately 1.73 years and as of quarter-end had a net
unrealized pre-tax gain of $2.6 million.

We maintained an average net overnight funds (deposits with banks plus
fed funds sold less fed funds purchased) sold position of $246.9 million during the
third quarter of 2010 compared to an average net overnight funds sold
position of $262.2 million in the prior quarter and an average overnight funds soldposition
of $112.8 million in the fourth quarter of 2009. The lower balance when
compared to the linked quarter primarily reflects the decline in deposits
mentioned above, partially offset by the lower investment and loan portfolios.
The favorable variance as compared to year-end is primarily attributable to the
growth in deposits and net reductions

32

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in the loan portfolio, partially offset by a higher balance
in the investment portfolio. Late in the third quarter, a portion of the funds
sold position was deployed into the investment portfolio. We will continue to
deploy a portion of the excess funds sold position into the investment
portfolio during the fourth quarter of 2010.

Capital
expenditures are expected to approximate $5.0 million over the next 12 months,
which consist primarily of office remodel projects, office equipment and
furniture, and technology purchases. Management believes that these capital
expenditures will be funded with existing resources without impairing our
ability to meet our on-going obligations.

Borrowings

At September 30, 2010, advances from the FHLB consisted of $57.1
million in outstanding debt consisting of 48 notes. During the first nine
months of 2010, the Bank made FHLB advance payments totaling approximately $2.5
million and obtained eight new FHLB advances totaling $9.6 million. The
advances were used to match-fund loans. 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 issued two junior subordinated deferrable interest notes to
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 payment
for the CCBG Capital Trust I borrowing adjusts quarterly to a variable rate of
LIBOR plus a margin of 1.90%. The rate for the third quarter was 2.43%. This
note matures on December 31, 2034. The interest payment for the CCBG Capital
Trust II borrowing adjusts quarterly to a variable rate of LIBOR plus a margin
of 1.80%. The rate for the third quarter was 2.34%. This note matures on June
15, 2035. The proceeds of these borrowings were used to partially fund
acquisitions.

In accordance with our Federal Reserve Resolutions (discussed in
further detail in our 2009 Form 10-K), CCBG must receive approval from the
Federal Reserve prior to incurring new debt, refinancing existing debt, or
making interest payments on its trust preferred securities. Under the terms of
each trust preferred securities note, in the event of default or if we elect to
defer interest on the note, we may not, with certain exceptions, declare or pay
dividends or make distributions on our capital stock or purchase or acquire any
of our capital stock.

Capital

Equity capital was $260.7 million as of September 30, 2010, compared to
$261.7 million as of June 30, 2010 and $267.9 million as of December 31, 2009.
Our leverage ratio was 9.75%, 9.58%, and 10.39%, respectively, and our tangible
capital ratio was 6.98%, 6.80%, and 6.84%, respectively, for the same periods.
Our risk-adjusted capital ratio of 14.29% at September 30, 2010, exceeds the
10% threshold to be designated as well-capitalized under the risk-based
regulatory guidelines.

During the
first nine months of 2010, shareowners equity decreased approximately $7.2
million, or approximately 3.6%, on an annualized basis. During this same
period, shareowners equity was negatively impacted by a net loss of $2.3
million and the payment of dividends totaling $6.7 million ($.390 per share).
Shareowners equity was positively impacted by the issuance of stock totaling
approximately $0.8 million and a change in the net unrealized gain on
investment securities of approximately $1.0 million.

At September
30, 2010, our common stock had a book value of $15.32 per diluted share
compared to $15.32 at June 30, 2010 and $15.72 at December 31, 2009. Book value
is impacted by changes in the amount of our net unrealized gain or loss on
investment securities available-for-sale and changes to the amount of our
unfunded pension liability, both of which are recorded through other
comprehensive income. At September 30, 2010, the net unrealized gain on
investment securities available for sale was $1.6 million and the amount of our
unfunded pension liability was $15.4 million.

State and
federal regulations place certain restrictions on the payment of dividends by
both CCBG and the Bank. The Banks aggregate net profits for the past two years
are significantly less than the dividends declared and paid to CCBG over that
same period. In addition, in accordance with our Federal Reserve Resolutions
(discussed in further detail in our 2009 Form 10-K), the Bank must seek
approval from the Federal Reserve prior to declaring or paying a dividend. As a
result, the Bank must obtain approval from its regulators to issue and declare
any further dividends to CCBG. The Bank may not be able to receive the required
approvals. As of September 30, 2010, we believe we have sufficient cash to fund
shareowner dividends for the remainder of 2010 should the Board choose to
declare and pay a quarterly dividend. Even if we have sufficient cash to pay
dividends, we must seek approval from the Federal Reserve to pay dividends to
our shareowners and may not receive the required approvals. We will continue to
evaluate the payment of dividends on a quarterly basis and consult with our
regulators concerning matters relating to our overall dividend policy. As a
result of our evaluations, we reduced our quarterly dividend from $0.19 per
share to $0.10 per share in May 2010. An inability to obtain regulatory
approval or earn the dividend in future quarters may result in further
reduction or elimination of the dividend.

33

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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 September 30, 2010, we had $345.9 million in commitments to extend
credit and $13.0 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, advances available from the FHLB and the
Federal Reserve, and investment security maturities provide a sufficient source
of funds to meet these commitments.

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
2009 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 during the fourth quarter or more
frequently if events or changes in circumstances indicate that the carrying
value may not be recoverable. The timing of an impairment test may result in
charges to our statement of income in our current reporting period that could
not have reasonably been foreseen in prior periods. In addition, impairment
testing requires management to make significant assumptions and estimates
relating to the fair value of its reporting unit. Based on these assumptions
and estimates, we determine whether we need to record an impairment charge to
reduce the value of the asset carried on our balance sheet to its estimated
fair value. Assumptions and estimates about future values are complex and often
subjective. They can be affected by a variety of factors, including external
factors such as industry and economic trends, and internal factors such as
changes in our business strategy and our internal forecasts. Although we
believe the assumptions and estimates we have made in the past have been
reasonable and appropriate, different assumptions and estimates could
materially affect our reported financial results. A goodwill impairment charge
would not adversely affect the calculation of our risk based and tangible
capital ratios.

Because the
book value of our equity exceeded our market capitalization as of September 30,
2010, we considered the guidelines set forth in ASC Topic 350 to discern
whether further testing for potential impairment was needed. Based on this
assessment, we performed an interim impairment test which consists of two
steps. Step One compares the estimated fair value of the reporting unit to its
carrying amount. If the carrying amount exceeds the estimated fair value, Step
Two is performed by comparing the fair value of the reporting units implied
goodwill to the carrying value of goodwill. If the carrying value of the
reporting units goodwill exceeds the estimated fair value, an impairment
charge is recorded equal to the excess. The Step One test we performed
indicated that the carrying amount (including goodwill) of our reporting unit
exceeded its estimated fair value. The Step Two test indicated the estimated
fair value of our reporting units implied goodwill exceeded its carrying
amount. Based on the results of the Step Two analysis, we concluded that
goodwill was not impaired as of September 30, 2010. We will continue to test
goodwill as defined by ASC Topic 350.

34

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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 our operating results.

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
will use a 5.75% discount rate in 2010.

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 will use a rate of return on plan assets of 8.0% for
2010.

The assumed
rate of annual compensation increases is based on expected trends in salaries
and the employee base. We will use a compensation increase of 4.50% for 2010
reflecting current market trends.

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 2009 Form 10-K.

35

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TABLE I
AVERAGE BALANCES & INTEREST RATES

|                                                  |  |                                  |           |                                 |   |        |  |                 |      |          |   |           |   |                 |        |          |  |      |   |                 |           |          |   |        |  |  |      |   |   |           |   |   |        |  |  |      |  
|------------------------------------------------- |  | -------------------------------- | --------- | ------------------------------- | - | ------ |  | --------------- | ---- | -------- | - | --------- | - | --------------- | ------ | -------- |  | ---- | - | --------------- | --------- | -------- | - | ------ |  |  | ---- | - | - | --------- | - | - | ------ |  |  | ---- | -
|                                                  |  | Three Months Ended September 30, |           | Nine Months Ended September 30, |  
|                                                  |  |                                  |           |                                 |  
|                                                  |  | 2010                             |           | 2009                            |   | 2010   |  | 2009            |     
|                                                  |  |                                  |           |                                 |   |        |  |                 |     
|(Taxable Equivalent Basis -
Dollars in Thousands) |  | AverageBalances                  |           | Interest                        |   | Rate   |  | AverageBalances |      | Interest |   | Rate      |   | AverageBalances |        | Interest |  | Rate |   | AverageBalances |           | Interest |   | Rate   | 
|                                                  |  |                                  |           |                                 |   |        |  |                 |      |          |   |           |   |                 |        |          |  |      |   |                 |           |          |   |        | 
|Assets:                                           |  |                                  |           |                                 |   |        |  |                 |      |          |   |           |   |                 |        |          |  |      |   |                 |           |          |   |        |  |  |      |   |   |           |   |   |        |  |  |      |  
|Loans, Net of Unearned Interest(1)(2)             |  | $                                | 1,807,483 |                                 | $ | 26,568 |  |                 | 5.83 | %        | $ | 1,964,984 |   | $               | 29,695 |          |  | 6.00 | % | $               | 1,844,788 |          | $ | 80,543 |  |  | 5.84 | % | $ | 1,967,759 |   | $ | 89,373 |  |  | 6.07 | %
|Taxable Investment Securities(2)                  |  |                                  | 124,625   |                                 |   | 674    |  |                 | 2.15 |          |   | 81,777    |   |                 | 682    |          |  | 3.32 |   |                 | 108,268   |          |   | 1,882  |  |  | 2.31 |   |   | 87,393    |   |   | 2,200  |  |  | 3.35 |  
|Tax-Exempt Investment Securities                  |  |                                  | 88,656    |                                 |   | 521    |  |                 | 2.35 |          |   | 107,307   |   |                 | 985    |          |  | 3.67 |   |                 | 92,672    |          |   | 1,898  |  |  | 2.73 |   |   | 105,117   |   |   | 3,185  |  |  | 4.04 |  
|Funds Sold                                        |  |                                  | 252,434   |                                 |   | 144    |  |                 | 0.22 |          |   | 3,294     |   |                 | 1      |          |  | 0.11 |   |                 | 274,245   |          |   | 492    |  |  | 0.24 |   |   | 5,992     |   |   | 5      |  |  | 0.12 |  
|                                                  |  |                                  |           |                                 |   |        |  |                 |      |          |   |           |   |                 |        |          |  |      |   |                 |           |          |   |        |  |  |      |   |   |           |   |   |        |  |  |      |  
|Total Earning Assets                              |  |                                  | 2,273,198 |                                 |   | 27,907 |  |                 | 4.87 | %        |   | 2,157,362 |   |                 | 31,363 |          |  | 5.77 | % |                 | 2,319,973 |          |   | 84,815 |  |  | 4.89 | % |   | 2,166,261 |   |   | 94,763 |  |  | 5.85 | %
|                                                  |  |                                  |           |                                 |   |        |  |                 |      |          |   |           |   |                 |        |          |  |      |   |                 |           |          |   |        |  |  |      |   |   |           |   |   |        |  |  |      |  
|Cash & Due From Banks                             |  |                                  | 50,942    |                                 |   |        |  |                 |      |          |   | 76,622    |   |                 |        |          |  |      |   |                 | 52,170    |          |   |        |  |  |      |   |   | 78,271    |   |   |        |  |  |      |  
|Allowance For Loan Losses                         |  |                                  | (39,584   | )                               |   |        |  |                 |      |          |   | (42,774   | ) |                 |        |          |  |      |   |                 | (41,729   | )        |   |        |  |  |      |   |   | (40,937   | ) |   |        |  |  |      |  
|Other Assets                                      |  |                                  | 342,202   |                                 |   |        |  |                 |      |          |   | 306,759   |   |                 |        |          |  |      |   |                 | 337,212   |          |   |        |  |  |      |   |   | 293,528   |   |   |        |  |  |      |  
|                                                  |  |                                  |           |                                 |   |        |  |                 |      |          |   |           |   |                 |        |          |  |      |   |                 |           |          |   |        |  |  |      |   |   |           |   |   |        |  |  |      |  
|TOTAL ASSETS                                      |  | $                                | 2,626,758 |                                 |   |        |  |                 |      |          | $ | 2,497,969 |   |                 |        |          |  |      |   | $               | 2,667,626 |          |   |        |  |  |      |   | $ | 2,497,123 |   |   |        |  |  |      |  
|                                                  |  |                                  |           |                                 |   |        |  |                 |      |          |   |           |   |                 |        |          |  |      |   |                 |           |          |   |        |  |  |      |   |   |           |   |   |        |  |  |      |  
|                                                  |  |                                  |           |                                 |   |        |  |                 |      |          |   |           |   |                 |        |          |  |      |   |                 |           |          |   |        |  |  |      |   |   |           |   |   |        |  |  |      |  
|Liabilities:                                      |  |                                  |           |                                 |   |        |  |                 |      |          |   |           |   |                 |        |          |  |      |   |                 |           |          |   |        |  |  |      |   |   |           |   |   |        |  |  |      |  
|NOW Accounts                                      |  | $                                | 871,158   |                                 | $ | 326    |  |                 | 0.15 | %        | $ | 678,292   |   | $               | 257    |          |  | 0.15 | % | $               | 872,512   |          | $ | 1,110  |  |  | 0.17 | % | $ | 702,048   |   | $ | 731    |  |  | 0.14 | %
|Money Market Accounts                             |  |                                  | 293,424   |                                 |   | 145    |  |                 | 0.20 |          |   | 301,230   |   |                 | 281    |          |  | 0.37 |   |                 | 333,558   |          |   | 1,165  |  |  | 0.47 |   |   | 306,858   |   |   | 663    |  |  | 0.29 |  
|Savings Accounts                                  |  |                                  | 133,690   |                                 |   | 17     |  |                 | 0.05 |          |   | 122,934   |   |                 | 15     |          |  | 0.05 |   |                 | 130,485   |          |   | 49     |  |  | 0.05 |   |   | 121,389   |   |   | 44     |  |  | 0.05 |  
|Other Time Deposits                               |  |                                  | 402,880   |                                 |   | 1,332  |  |                 | 1.31 |          |   | 430,944   |   |                 | 2,073  |          |  | 1.91 |   |                 | 423,726   |          |   | 4,797  |  |  | 1.51 |   |   | 413,641   |   |   | 6,183  |  |  | 2.00 |  
|                                                  |  |                                  |           |                                 |   |        |  |                 |      |          |   |           |   |                 |        |          |  |      |   |                 |           |          |   |        |  |  |      |   |   |           |   |   |        |  |  |      |  
|Total Interest Bearing Deposits                   |  |                                  | 1,701,152 |                                 |   | 1,820  |  |                 | 0.42 |          |   | 1,533,400 |   |                 | 2,626  |          |  | 0.68 |   |                 | 1,760,281 |          |   | 7,121  |  |  | 0.54 |   |   | 1,543,936 |   |   | 7,621  |  |  | 0.66 |  
|                                                  |  |                                  |           |                                 |   |        |  |                 |      |          |   |           |   |                 |        |          |  |      |   |                 |           |          |   |        |  |  |      |   |   |           |   |   |        |  |  |      |  
|Short-Term Borrowings                             |  |                                  | 23,388    |                                 |   | 31     |  |                 | 0.54 |          |   | 97,305    |   |                 | 113    |          |  | 0.45 |   |                 | 25,558    |          |   | 60     |  |  | 0.31 |   |   | 90,174    |   |   | 269    |  |  | 0.39 |  
|Subordinated Note Payable                         |  |                                  | 62,887    |                                 |   | 376    |  |                 | 2.34 |          |   | 62,887    |   |                 | 936    |          |  | 5.83 |   |                 | 62,887    |          |   | 1,666  |  |  | 3.49 |   |   | 62,887    |   |   | 2,794  |  |  | 5.86 |  
|Other Long-Term Borrowings                        |  |                                  | 54,258    |                                 |   | 565    |  |                 | 4.13 |          |   | 51,906    |   |                 | 560    |          |  | 4.28 |   |                 | 52,330    |          |   | 1,642  |  |  | 4.20 |   |   | 52,629    |   |   | 1,694  |  |  | 4.30 |  
|                                                  |  |                                  |           |                                 |   |        |  |                 |      |          |   |           |   |                 |        |          |  |      |   |                 |           |          |   |        |  |  |      |   |   |           |   |   |        |  |  |      |  
|Total Interest Bearing Liabilities                |  |                                  | 1,841,685 |                                 |   | 2,792  |  |                 | 0.60 | %        |   | 1,745,498 |   |                 | 4,235  |          |  | 0.96 | % |                 | 1,901,056 |          |   | 10,489 |  |  | 0.74 | % |   | 1,749,626 |   |   | 12,378 |  |  | 0.95 | %
|                                                  |  |                                  |           |                                 |   |        |  |                 |      |          |   |           |   |                 |        |          |  |      |   |                 |           |          |   |        |  |  |      |   |   |           |   |   |        |  |  |      |  
|Noninterest Bearing Deposits                      |  |                                  | 471,013   |                                 |   |        |  |                 |      |          |   | 416,770   |   |                 |        |          |  |      |   |                 | 457,807   |          |   |        |  |  |      |   |   | 415,610   |   |   |        |  |  |      |  
|Other Liabilities                                 |  |                                  | 50,319    |                                 |   |        |  |                 |      |          |   | 60,674    |   |                 |        |          |  |      |   |                 | 43,391    |          |   |        |  |  |      |   |   | 53,986    |   |   |        |  |  |      |  
|                                                  |  |                                  |           |                                 |   |        |  |                 |      |          |   |           |   |                 |        |          |  |      |   |                 |           |          |   |        |  |  |      |   |   |           |   |   |        |  |  |      |  
|TOTAL LIABILITIES                                 |  |                                  | 2,363,016 |                                 |   |        |  |                 |      |          |   | 2,222,942 |   |                 |        |          |  |      |   |                 | 2,402,254 |          |   |        |  |  |      |   |   | 2,219,222 |   |   |        |  |  |      |  
|                                                  |  |                                  |           |                                 |   |        |  |                 |      |          |   |           |   |                 |        |          |  |      |   |                 |           |          |   |        |  |  |      |   |   |           |   |   |        |  |  |      |  
|TOTAL SHAREOWNERS EQUITY                         |  |                                  | 263,742   |                                 |   |        |  |                 |      |          |   | 275,027   |   |                 |        |          |  |      |   |                 | 265,372   |          |   |        |  |  |      |   |   | 277,901   |   |   |        |  |  |      |  
|                                                  |  |                                  |           |                                 |   |        |  |                 |      |          |   |           |   |                 |        |          |  |      |   |                 |           |          |   |        |  |  |      |   |   |           |   |   |        |  |  |      |  
|                                                  |  |                                  |           |                                 |   |        |  |                 |      |          |   |           |   |                 |        |          |  |      |   |                 |           |          |   |        |  |  |      |   |   |           |   |   |        |  |  |      |  
|TOTAL LIABILITIES AND SHAREOWNERS EQUITY         |  | $                                | 2,626,758 |                                 |   |        |  |                 |      |          | $ | 2,497,969 |   |                 |        |          |  |      |   | $               | 2,667,626 |          |   |        |  |  |      |   | $ | 2,497,123 |   |   |        |  |  |      |  
|                                                  |  |                                  |           |                                 |   |        |  |                 |      |          |   |           |   |                 |        |          |  |      |   |                 |           |          |   |        |  |  |      |   |   |           |   |   |        |  |  |      |  
|Interest Rate Spread                              |  |                                  |           |                                 |   |        |  |                 | 4.27 | %        |   |           |   |                 |        |          |  | 4.81 | % |                 |           |          |   |        |  |  | 4.15 | % |   |           |   |   |        |  |  | 4.90 | %
|                                                  |  |                                  |           |                                 |   |        |  |                 |      |          |   |           |   |                 |        |          |  |      |   |                 |           |          |   |        |  |  |      |   |   |           |   |   |        |  |  |      |  
|Net Interest Income                               |  |                                  |           |                                 | $ | 25,115 |  |                 |      |          |   |           |   | $               | 27,128 |          |  |      |   |                 |           |          | $ | 74,326 |  |  |      |   |   |           |   | $ | 82,385 |  |  |      |  
|                                                  |  |                                  |           |                                 |   |        |  |                 |      |          |   |           |   |                 |        |          |  |      |   |                 |           |          |   |        |  |  |      |   |   |           |   |   |        |  |  |      |  
|Net Interest Margin(3)                            |  |                                  |           |                                 |   |        |  |                 | 4.36 | %        |   |           |   |                 |        |          |  | 4.99 | % |                 |           |          |   |        |  |  | 4.29 | % |   |           |   |   |        |  |  | 5.09 | %
|                                                  |  |                                  |           |                                 |   |        |  |                 |      |          |   |           |   |                 |        |          |  |      |   |                 |           |          |   |        |  |  |      |   |   |           |   |   |        |  |  |      |  

|    |                                                                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Average
 balances include nonaccrual loans.  Interest income includes fees
 on loans of $426,000 and $1.2 million, for the three and nine months ended
 September 30, 2010 versus $347,000 and $1.2 million for the comparable
 periods ended September 30, 2009.
|    |                                                                                                                                                                                                                                                                  
|(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.                                                                                                                                                                                       

36

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|        |                                                            
|------- | -----------------------------------------------------------
|Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES
 ABOUT MARKET RISK

See 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, 2009.

|        |                         
|------- | ------------------------
|Item 4. | CONTROLS
 AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of September 30, 2010,
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 September 30, 2010, 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 over financial reporting (as defined in Rule 13a-15(f) under
the Securities Exchange Act of 1934). There have been no significant changes in
our internal control over financial reporting during our most recently
completed fiscal quarter that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.

|         |                  
|-------- | -----------------
|PART II. | OTHER INFORMATION
|         |                  
|Item 1.  | 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, you should carefully consider
the factors discussed in Part I, Item 1A. Risk Factors in our 2009 Form 10-K,
as updated in our subsequent quarterly reports. The risks described in our 2009
Form 10-K are not the only risks facing us. 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.

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

None.

|        |                                
|------- | -------------------------------
|Item 3. | Defaults Upon Senior Securities

None.

|        |                       
|------- | ----------------------
|Item 4. | [Removed and Reserved]
|        |                       
|Item 5. | Other Information     

None.

37

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|        |         
|------- | --------
|Item 6. | 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.                                

38

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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.
 Kimbrough Davis                                                                                       | 
|                                                                                                                  | 
|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:
 November 8, 2010                                                                                          

39

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