----

----

**UNITED        STATES**

**SECURITIES        AND EXCHANGE COMMISSION**

**WASHINGTON,        D.C. 20549**

**FORM        10-Q**

| **        x** | **                         QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES                  EXCHANGE ACT OF 1934** |
|-------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**For        the Quarterly Period Ended September 30, 2006**

**OR**

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

**For        the transition period from ____________ to ____________**

**Commission        File Number: **
**0-13358**

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

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

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

| **                              (850) 671-0300**                                                    |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                               (Registrant's telephone number, including area                  code) |

| Large                  accelerated filer o | Accelerated                  filer x | Non-accelerated                  filer o |
|--------------------------------------------|--------------------------------------|------------------------------------------|

----

----

----

**CAPITAL        CITY BANK GROUP, INC.**

**QUARTERLY        REPORT ON FORM 10-Q**

**FOR        THE PERIOD ENDED SEPTEMBER 30, 2006**

**TABLE        OF CONTENTS**

| **PART                  I - Financial Information** |                                                                                                                    | **       Page** |
|-----------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------|
|                                                |
| Item                  1.                            | Consolidated                  Financial Statements                                                                      | 4                                                  |
|                                                |                                                                                                                    |                                               |
| Item                  2.                            | Management's                  Discussion and Analysis of Financial Condition                  and Results of Operations | 14                                                 |
|                                                |                                                                                                                    |                                               |
| Item                  3.                            | Quantitative                  and Qualitative Disclosure About Market                  Risk                             | 26                                                 |
|                                                |                                                                                                                    |                                               |
| Item                  4.                            | Controls                  and Procedures                                                                                | 28                                                 |
|                                                |                                                                                                                    |                                               |
| **PART                  II - Other Information**    |                                                                                                                    |                                               |
|                                                |
| Item                  1.                            | Legal                  Proceedings                                                                                      | 28                                                 |
|                                                |                                                                                                                    |                                               |
| Item                  1.A.                          | Risk                  Factors                                                                                           | 28                                                 |
|                                                |                                                                                                                    |                                               |
| Item                  2.                            | Unregistered                  Sales of Equity Securities and Use of                  Proceeds                           | 28                                                 |
|                                                |                                                                                                                    |                                               |
| Item                  3.                            | Defaults                  Upon Senior Securities                                                                        | 28                                                 |
|                                                |                                                                                                                    |                                               |
| Item                  4.                            | Submission                  of Matters to a Vote of Security                  Holders                                   | 28                                                 |
|                                                |                                                                                                                    |                                               |
| Item                  5.                            | Other                  Information                                                                                      | 28                                                 |
|                                                |                                                                                                                    |                                               |
| Item                  6.                            | Exhibits                                                                                                                | 28                                                 |
|                                                |                                                                                                                    |                                               |
| **Signatures**                                      |                                                                                                                    | 29                                                 |

----

*Table            of Contents*

**INTRODUCTORY        NOTE:**

**Caution        Concerning Forward-Looking Statements**

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

|   | Ÿ | strength                  of the United States economy in general and the strength of the                  local                  economies in which we conduct                  operations; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | effects                  of harsh weather conditions, including                  hurricanes; |
|--------|--------|----------------------------------------------------------------------------------------------|

|   | Ÿ | inflation,                  interest rate, market and monetary fluctuations; |
|--------|--------|------------------------------------------------------------------------------|

|   | Ÿ | effect                  of changes in the stock market and other capital                  markets; |
|--------|--------|----------------------------------------------------------------------------------------------------|

|   | Ÿ | legislative                  or regulatory changes; |
|--------|--------|-----------------------------------------------------|

|   | Ÿ | willingness                  of customers to accept third-party products and services for our                  products                  and services and vice versa; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | changes                  in the securities and real estate                  markets; |
|--------|--------|--------------------------------------------------------------------------------------|

|   | Ÿ | increased                  competition and its effect on                  pricing; |
|--------|--------|------------------------------------------------------------------------------------|

|   | Ÿ | technological                  changes; |
|--------|--------|-----------------------------------------|

|   | Ÿ | changes                  in monetary and fiscal policies of the U.S.                  government; |
|--------|--------|---------------------------------------------------------------------------------------------------|

|   | Ÿ | changes                  in consumer spending and savings                  habits; |
|--------|--------|------------------------------------------------------------------------------------|

|   | Ÿ | growth                  and profitability of our noninterest                  income; |
|--------|--------|---------------------------------------------------------------------------------------|

|   | Ÿ | changes                  in accounting principles, policies, practices or                  guidelines; |
|--------|--------|--------------------------------------------------------------------------------------------------------|

|   | Ÿ | other                  risks described from time to time in filings with the Securities                  and                  Exchange Commission; and |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | our                  ability to manage the risks involved in the                  foregoing. |
|--------|--------|----------------------------------------------------------------------------------------------|

----

*Table            of Contents*

| **PART                  I.** | **FINANCIAL                  INFORMATION** |
|------------------------------|--------------------------------------------|

| **Item                  1.** | **CONSOLIDATED                  FINANCIAL                  STATEMENTS** |
|------------------------------|-------------------------------------------------------------------------|

**CAPITAL        CITY BANK GROUP, INC.**

**CONSOLIDATED        STATEMENTS OF INCOME**

**FOR        THE PERIODS ENDED SEPTEMBER 30**

**(Unaudited)**

|                                                                 |   | **Three                  Months Ended** |       | **Nine                  Months Ended** |   |
|----------------------------------------------------------------------|--------|-----------------------------------------|------------|----------------------------------------|--------|
| *(Dollars                  in Thousands, Except Per Share Data)*     |   | **2006**                                |       | **2005**                               |   | **2006** |   | **2005** |   |
| **INTEREST                  INCOME**                                 |   |                                    |       |                                   |   |   |   |   |   |
| Interest                  and Fees on Loans                          |   | $                                       | 40,260     |                                   | $      | 35,331 |   | $ | 116,570 |   | $ | 96,278 |   |
| Investment                  Securities:                              |   |                                    |       |                                   |   |   |   |   |   |   |   |   |   |
| U.S.                  Treasury                                       |   |                                    | 132        |                                   |   | 89 |   |   | 310 |   |   | 347 |   |
| U.S.                  Govt. Agencies and Corporations                |   |                                    | 929        |                                   |   | 788 |   |   | 2,672 |   |   | 2,442 |   |
| States                  and Political Subdivisions                   |   |                                    | 650        |                                   |   | 416 |   |   | 1,672 |   |   | 1,132 |   |
| Other                  Securities                                    |   |                                    | 203        |                                   |   | 144 |   |   | 606 |   |   | 436 |   |
| Funds                  Sold                                          |   |                                    | 338        |                                   |   | 121 |   |   | 1,463 |   |   | 638 |   |
| Total                  Interest Income                               |   |                                    | 42,512     |                                   |   | 36,889 |   |   | 123,293 |   |   | 101,273 |   |
|                                                                 |   |                                    |       |                                   |   |   |   |   |   |   |   |   |   |
| **INTEREST                  EXPENSE**                                |   |                                    |       |                                   |   |   |   |   |   |   |   |   |   |
| Deposits                                                             |   |                                    | 9,985      |                                   |   | 5,480 |   |   | 26,423 |   |   | 14,407 |   |
| Short-Term                  Borrowings                               |   |                                    | 753        |                                   |   | 691 |   |   | 2,352 |   |   | 1,875 |   |
| Subordinated                  Notes Payable                          |   |                                    | 936        |                                   |   | 931 |   |   | 2,789 |   |   | 2,039 |   |
| Other                  Long-Term Borrowings                          |   |                                    | 615        |                                   |   | 783 |   |   | 2,189 |   |   | 2,272 |   |
| Total                  Interest Expense                              |   |                                    | 12,289     |                                   |   | 7,885 |   |   | 33,753 |   |   | 20,593 |   |
|                                                                 |   |                                    |       |                                   |   |   |   |   |   |   |   |   |   |
| **NET                  INTEREST INCOME**                             |   |                                    | 30,223     |                                   |   | 29,004 |   |   | 89,540 |   |   | 80,680 |   |
| Provision                  for Loan Losses                           |   |                                    | 711        |                                   |   | 376 |   |   | 1,499 |   |   | 1,174 |   |
| Net                  Interest Income After Provision For Loan Losses |   |                                    | 29,512     |                                   |   | 28,628 |   |   | 88,041 |   |   | 79,506 |   |
|                                                                 |   |                                    |       |                                   |   |   |   |   |   |   |   |   |   |
| **NONINTEREST                  INCOME**                              |   |                                    |       |                                   |   |   |   |   |   |   |   |   |   |
| Service                  Charges on Deposit Accounts                 |   |                                    | 6,450      |                                   |   | 5,635 |   |   | 18,226 |   |   | 15,018 |   |
| Data                  Processing                                     |   |                                    | 673        |                                   |   | 660 |   |   | 2,014 |   |   | 1,917 |   |
| Asset                  Management Fees                               |   |                                    | 1,215      |                                   |   | 1,050 |   |   | 3,420 |   |   | 3,175 |   |
| Securities                  Transactions                             |   |                                    | 0          |                                   |   | 9 |   |   | (4 | ) |   | 9 |   |
| Mortgage                  Banking Revenues                           |   |                                    | 824        |                                   |   | 1,317 |   |   | 2,448 |   |   | 3,116 |   |
| Other                                                                |   |                                    | 4,982      |                                   |   | 4,452 |   |   | 15,089 |   |   | 12,989 |   |
| Total                  Noninterest Income                            |   |                                    | 14,144     |                                   |   | 13,123 |   |   | 41,193 |   |   | 36,224 |   |
|                                                                 |   |                                    |       |                                   |   |   |   |   |   |   |   |   |   |
| **NONINTEREST                  EXPENSE**                             |   |                                    |       |                                   |   |   |   |   |   |   |   |   |   |
| Salaries                  and Associate Benefits                     |   |                                    | 15,277     |                                   |   | 14,046 |   |   | 45,912 |   |   | 39,793 |   |
| Occupancy,                  Net                                      |   |                                    | 2,354      |                                   |   | 2,119 |   |   | 6,935 |   |   | 6,091 |   |
| Furniture                  and Equipment                             |   |                                    | 2,492      |                                   |   | 2,285 |   |   | 7,652 |   |   | 6,589 |   |
| Intangible                  Amortization                             |   |                                    | 1,536      |                                   |   | 1,430 |   |   | 4,601 |   |   | 3,922 |   |
| Merger                  Expense                                      |   |                                    | -          |                                   |   | 180 |   |   | - |   |   | 414 |   |
| Other                                                                |   |                                    | 8,763      |                                   |   | 8,549 |   |   | 26,484 |   |   | 23,663 |   |
| Total                  Noninterest Expense                           |   |                                    | 30,422     |                                   |   | 28,609 |   |   | 91,584 |   |   | 80,472 |   |
|                                                                 |   |                                    |       |                                   |   |   |   |   |   |   |   |   |   |
| **INCOME                  BEFORE INCOME TAXES**                      |   |                                    | 13,234     |                                   |   | 13,142 |   |   | 37,650 |   |   | 35,258 |   |
| Income                  Taxes                                        |   |                                    | 4,554      |                                   |   | 4,565 |   |   | 13,234 |   |   | 12,436 |   |
|                                                                 |   |                                    |       |                                   |   |   |   |   |   |   |   |   |   |
| **NET                  INCOME**                                      |   | $                                       | 8,680      |                                   | $      | 8,577 |   | $ | 24,416 |   | $ | 22,822 |   |
| Basic                  Net Income Per Share                          |   | $                                       | .47        |                                   | $      | .46 |   | $ | 1.31 |   | $ | 1.26 |   |
| Diluted                  Net Income Per Share                        |   | $                                       | .47        |                                   | $      | .46 |   | $ | 1.31 |   | $ | 1.26 |   |
|                                                                 |   |                                    |       |                                   |   |   |   |   |   |   |   |   |   |
| Average                  Basic Shares Outstanding                    |   |                                    | 18,529,926 |                                   |   | 18,623,037 |   |   | 18,604,488 |   |   | 18,142,502 |   |
| Average                  Diluted Shares Outstanding                  |   |                                    | 18,564,932 |                                   |   | 18,648,504 |   |   | 18,627,167 |   |   | 18,156,764 |   |

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

----

*Table            of Contents*

**CAPITAL        CITY BANK GROUP, INC.**

**CONSOLIDATED        STATEMENTS OF FINANCIAL CONDITION**

**AS        OF SEPTEMBER 30, 2006 AND DECEMBER 31, 2005**

**(Unaudited)**

| *(Dollars                  In Thousands, Except Share Data)*                                                                                                                                                                                                       |   | **September                  30, 2006** |      | **December                  31, 2005** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|-----------|----------------------------------------|--------|
| **ASSETS**                                                                                                                                                                                                                                                         |   |                                    |      |                                   |   |
| Cash                  and Due From Banks                                                                                                                                                                                                                           |   | $                                       | 100,781   |                                   | $      | 105,195 |   |
| Funds                  Sold and Interest Bearing Deposits                                                                                                                                                                                                          |   |                                    | 35,631    |                                   |   | 61,164 |   |
| Total                  Cash and Cash Equivalents                                                                                                                                                                                                                   |   |                                    | 136,412   |                                   |   | 166,359 |   |
| Investment                  Securities, Available-for-Sale                                                                                                                                                                                                         |   |                                    | 190,617   |                                   |   | 171,019 |   |
|                                                                                                                                                                                                                                                               |   |                                    |      |                                   |   |   |   |
| Loans,                  Net of Unearned Interest                                                                                                                                                                                                                   |   |                                    | 2,009,459 |                                   |   | 2,067,494 |   |
| Allowance                  for Loan Losses                                                                                                                                                                                                                         |   |                                    | (17,311   | )                                      |   | (17,410 | ) |
| Loans,                  Net                                                                                                                                                                                                                                        |   |                                    | 1,992,148 |                                   |   | 2,050,084 |   |
|                                                                                                                                                                                                                                                               |   |                                    |      |                                   |   |   |   |
| Premises                  and Equipment, Net                                                                                                                                                                                                                       |   |                                    | 84,915    |                                   |   | 73,818 |   |
| Goodwill                                                                                                                                                                                                                                                           |   |                                    | 84,810    |                                   |   | 84,829 |   |
| Other                  Intangible Assets                                                                                                                                                                                                                           |   |                                    | 21,076    |                                   |   | 25,622 |   |
| Other                  Assets                                                                                                                                                                                                                                      |   |                                    | 48,895    |                                   |   | 53,731 |   |
| Total                  Assets                                                                                                                                                                                                                                      |   | $                                       | 2,558,873 |                                   | $      | 2,625,462 |   |
|                                                                                                                                                                                                                                                               |   |                                    |      |                                   |   |   |   |
| **LIABILITIES**                                                                                                                                                                                                                                                    |   |                                    |      |                                   |   |   |   |
| Deposits:                                                                                                                                                                                                                                                          |   |                                    |      |                                   |   |   |   |
| Noninterest                  Bearing Deposits                                                                                                                                                                                                                      |   | $                                       | 506,331   |                                   | $      | 559,492 |   |
| Interest                  Bearing Deposits                                                                                                                                                                                                                         |   |                                    | 1,542,908 |                                   |   | 1,519,854 |   |
| Total                  Deposits                                                                                                                                                                                                                                    |   |                                    | 2,049,239 |                                   |   | 2,079,346 |   |
|                                                                                                                                                                                                                                                               |   |                                    |      |                                   |   |   |   |
| Short-Term                  Borrowings                                                                                                                                                                                                                             |   |                                    | 54,171    |                                   |   | 82,973 |   |
| Subordinated                  Notes Payable                                                                                                                                                                                                                        |   |                                    | 62,887    |                                   |   | 62,887 |   |
| Other                  Long-Term Borrowings                                                                                                                                                                                                                        |   |                                    | 43,701    |                                   |   | 69,630 |   |
| Other                  Liabilities                                                                                                                                                                                                                                 |   |                                    | 29,833    |                                   |   | 24,850 |   |
| Total                  Liabilities                                                                                                                                                                                                                                 |   |                                    | 2,239,831 |                                   |   | 2,319,686 |   |
|                                                                                                                                                                                                                                                               |   |                                    |      |                                   |   |   |   |
| **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; 18,532,104                  and                  18,631,706 shares issued and outstanding at September 30, 2006                  and                  December 31, 2005, respectively |   |                                    | 185       |                                   |   | 186 |   |
| Additional                  Paid-In Capital                                                                                                                                                                                                                        |   |                                    | 80,938    |                                   |   | 83,304 |   |
| Retained                  Earnings                                                                                                                                                                                                                                 |   |                                    | 238,870   |                                   |   | 223,532 |   |
| Accumulated                  Other Comprehensive Loss, Net of Tax                                                                                                                                                                                                  |   |                                    | (951      | )                                      |   | (1,246 | ) |
| Total                  Shareowners' Equity                                                                                                                                                                                                                         |   |                                    | 319,042   |                                   |   | 305,776 |   |
| Total                  Liabilities and Shareowners' Equity                                                                                                                                                                                                         |   | $                                       | 2,558,873 |                                   | $      | 2,625,462 |   |

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

----

*Table            of Contents*

**CONSOLIDATED        STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY**

*(Dollars        in Thousands, Except Per Share Data)*

|                                                                                            |   | Common                  Stock |   | Additional                  Paid-In Capital |   | Retained                  Earnings |   | Accumulated                  Other Comprehensive Loss, Net of Taxes |    | Total  |   |
|-------------------------------------------------------------------------------------------------|--------|-------------------------------|--------|---------------------------------------------|--------|------------------------------------|--------|---------------------------------------------------------------------|---------|--------|--------|
| **Balance,                  December 31, 2005**                                                 |   | $                             | 186    |                                        | $      | 83,304                             |   | $                                                                   | 223,532 |   | $      | (1,246 | ) | $ | 305,776 |   |
| Comprehensive                  Income:                                                          |   |                          |   |                                        |   |                               |   |                                                                |    |   |   |   |   |   |   |   |
| Net                  Income                                                                     |   |                          | -      |                                        |   | -                                  |   |                                                                | 24,416  |   |   | - |   |   |   |   |
| Net                  Change in Unrealized LossOn                  Available-for-Sale Securities |   |                          | -      |                                        |   | -                                  |   |                                                                | -       |   |   | 295 |   |   |   |   |
| Total                  Comprehensive Income                                                     |   |                          | -      |                                        |   | -                                  |   |                                                                | -       |   |   | - |   |   | 24,711 |   |
| Cash                  Dividends ($.4875 per share)                                              |   |                          | -      |                                        |   | -                                  |   |                                                                | (9,078  | )      |   | - |   |   | (9,078 | ) |
| Stock                  Performance Plan Compensation                                            |   |                          | -      |                                        |   | 1,504                              |   |                                                                | -       |   |   | - |   |   | 1,504 |   |
| Issuance                  of Common Stock                                                       |   |                          | 1      |                                        |   | 969                                |   |                                                                | -       |   |   | - |   |   | 970 |   |
| Repurchase                  of Common Stock                                                     |   |                          | (2     | )                                           |   | (4,839                             | )      |                                                                | -       |   |   | - |   |   | (4,841 | ) |
|                                                                                            |   |                          |   |                                        |   |                               |   |                                                                |    |   |   |   |   |   |   |   |
| **Balance,                  September 30, 2006**                                                |   | $                             | 185    |                                        | $      | 80,938                             |   | $                                                                   | 238,870 |   | $      | (951 | ) | $ | 319,042 |   |

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

----

*Table            of Contents*

**CAPITAL        CITY BANK GROUP, INC.**

**CONSOLIDATED        STATEMENTS OF CASH FLOWS**

**FOR        THE NINE MONTH PERIODS ENDED SEPTEMBER 30**

**(Unaudited)**

| *(Dollars                  in Thousands)*                                                                      |   | **2006** |     | **2005** |   |
|----------------------------------------------------------------------------------------------------------------|--------|----------|----------|----------|--------|
| **CASH                  FLOWS FROM OPERATING ACTIVITIES**                                                      |   |     |     |     |   |
| Net                  Income                                                                                    |   | $        | 24,416   |     | $      | 22,822 |   |
| Adjustments                  to Reconcile Net Income toCash                  Provided by Operating Activities: |   |     |     |     |   |   |   |
| Provision                  for Loan Losses                                                                     |   |     | 1,499    |     |   | 1,174 |   |
| Depreciation                                                                                                   |   |     | 5,251    |     |   | 4,324 |   |
| Net                  Securities Amortization                                                                   |   |     | 480      |     |   | 1,133 |   |
| Amortization                  of Intangible Assets                                                             |   |     | 4,601    |     |   | 3,922 |   |
| Loss                  (Gain) on Sale of Investment Securities                                                  |   |     | 4        |     |   | (9 | ) |
| Origination                  of Loans Held-for-Sale                                                            |   |     | (144,719 | )        |   | (167,172 | ) |
| Proceeds                  From Sales of Loans Held-for-Sale                                                    |   |     | 148,330  |     |   | 170,667 |   |
| Net                  Gain From Sales of Loans Held-for-Sale                                                    |   |     | (2,448   | )        |   | (3,116 | ) |
| Non-Cash                  Compensation                                                                         |   |     | 1,504    |     |   | 1,083 |   |
| Deferred                  Income Taxes                                                                         |   |     | 3,704    |     |   | 1,450 |   |
| Net                  Decrease (Increase) in Other Assets                                                       |   |     | 4,225    |     |   | (3,447 | ) |
| Net                  Increase in Other Liabilities                                                             |   |     | 2,359    |     |   | 10,974 |   |
| Net                  Cash Provided By Operating Activities                                                     |   |     | 49,206   |     |   | 43,805 |   |
|                                                                                                           |   |     |     |     |   |   |   |
| **CASH                  FLOWS FROM INVESTING ACTIVITIES**                                                      |   |     |     |     |   |   |   |
| Securities                  Available-for-Sale:                                                                |   |     |     |     |   |   |   |
| Purchases                                                                                                      |   |     | (95,807  | )        |   | (78,748 | ) |
| Sales                                                                                                          |   |     | 283      |     |   | 35,142 |   |
| Payments,                  Maturities, and Calls                                                               |   |     | 75,872   |     |   | 94,723 |   |
| Net                  Decrease (Increase) in Loans                                                              |   |     | 54,636   |     |   | (107,237 | ) |
| Net                  Cash Acquired in Acquisition                                                              |   |     | -        |     |   | 37,412 |   |
| Purchase                  of Premises & Equipment                                                          |   |     | (16,634  | )        |   | (13,264 | ) |
| Proceeds                  From Sales of Premises & Equipment                                               |   |     | 286      |     |   | 175 |   |
| Net                  Cash                  Provided By (Used In) Investing Activities                          |   |     | 18,636   |     |   | (31,797 | ) |
|                                                                                                           |   |     |     |     |   |   |   |
| **CASH                  FLOWS FROM FINANCING ACTIVITIES**                                                      |   |     |     |     |   |   |   |
| Net                  Decrease                  in Deposits                                                     |   |     | (30,108  | )        |   | (70,983 | ) |
| Net                  Decrease in Short-Term Borrowings                                                         |   |     | (42,271  | )        |   | (88,311 | ) |
| Proceeds                  from Subordinated Note Payable                                                       |   |     | -        |     |   | 31,959 |   |
| Increase                  in Other Long-Term Borrowings                                                        |   |     | 3,250    |     |   | 88,116 |   |
| Repayment                  of Other Long-Term Borrowings                                                       |   |     | (15,711  | )        |   | - |   |
| Dividends                  Paid                                                                                |   |     | (9,078   | )        |   | (8,371 | ) |
| Repurchase                  of Common Stock                                                                    |   |     | (4,841   | )        |   | - |   |
| Issuance                  of Common Stock                                                                      |   |     | 969      |     |   | 785 |   |
| Net                  Cash Used In Financing Activities                                                         |   |     | (97,790  | )        |   | (46,805 | ) |
|                                                                                                           |   |     |     |     |   |   |   |
| **NET                  CHANGE IN CASH AND CASH EQUIVALENTS**                                                   |   |     | (29,948  | )        |   | (35,316 | ) |
|                                                                                                           |   |     |     |     |   |   |   |
| Cash                  and Cash Equivalents at Beginning of Period                                              |   |     | 166,359  |     |   | 161,545 |   |
| Cash                  and Cash Equivalents at End of Period                                                    |   | $        | 136,412  |     | $      | 126,229 |   |
|                                                                                                           |   |     |     |     |   |   |   |
| Supplemental                  Disclosure:                                                                      |   |     |     |     |   |   |   |
| Interest                  Paid on Deposits                                                                     |   | $        | 26,051   |     | $      | 13,685 |   |
| Interest                  Paid on Debt                                                                         |   |     | 7,523    |     |   | 6,034 |   |
| Taxes                  Paid                                                                                    |   |     | 11,530   |     |   | 11,129 |   |
| Loans                  Transferred to Other Real Estate                                                        |   |     | 638      |     |   | 2,391 |   |
| Issuance                  of Common Stock as Non-Cash Compensation                                             |   |     | 1,504    |     |   | 339 |   |
| Transfer                  of Current Portion of Long-Term Borrowingsto                  Short-Term Borrowings  |   |     | 13,061   |     |   | 42,649 |   |

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

----

*Table            of Contents*

**CAPITAL        CITY BANK GROUP, INC.**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 1 - MANAGEMENT'S OPINION AND ACCOUNTING        POLICES**

**Basis        of Presentation**

**Stock-based        Compensation**

**NOTE        2 - **
**INVESTMENT        SECURITIES**

|                                                       |   | **September                  30, 2006** |    |
|------------------------------------------------------------|--------|-----------------------------------------|---------|
| *(Dollars                  in Thousands)*                  |   | Amortized                  Cost         |    | Unrealized                  Gains |   | Unrealized                  Losses |   | Market                  Value |   |
| U.S.                  Treasury                             |   | $                                       | 12,083  |   | $ | 29 |   | $ | 33 |   | $ | 12,079 |   |
| U.S.                  Government Agencies and Corporations |   |                                    | 60,043  |   |   | 47 |   |   | 669 |   |   | 59,421 |   |
| States                  and Political Subdivisions         |   |                                    | 83,007  |   |   | 19 |   |   | 485 |   |   | 82,541 |   |
| Mortgage-Backed                  Securities                |   |                                    | 24,358  |   |   | 31 |   |   | 461 |   |   | 23,928 |   |
| Other                  Securities(1)                       |   |                                    | 12,648  |   |   | - |   |   | - |   |   | 12,648 |   |
| Total                  Investment Securities               |   | $                                       | 192,139 |   | $ | 126 |   | $ | 1,648 |   | $ | 190,617 |   |

|                                                       |   | **December                  31, 2005** |    |
|------------------------------------------------------------|--------|----------------------------------------|---------|
| *(Dollars                  in Thousands)*                  |   | Amortized                  Cost        |    | Unrealized                  Gains |   | Unrealized                  Losses |   | Market                  Value |   |
| U.S.                  Treasury                             |   | $                                      | 9,065   |   | $ | - |   | $ | 50 |   | $ | 9,015 |   |
| U.S.                  Government Agencies and Corporations |   |                                   | 75,233  |   |   | - |   |   | 1,017 |   |   | 74,216 |   |
| States                  and Political Subdivisions         |   |                                   | 53,611  |   |   | 44 |   |   | 512 |   |   | 53,143 |   |
| Mortgage-Backed                  Securities                |   |                                   | 20,948  |   |   | 35 |   |   | 452 |   |   | 20,531 |   |
| Other                  Securities(1)                       |   |                                   | 14,114  |   |   | - |   |   | - |   |   | 14,114 |   |
| Total                  Investment Securities               |   | $                                      | 172,971 |   | $ | 79 |   | $ | 2,031 |   | $ | 171,019 |   |

| (1) | FHLB                  and FRB stock recorded at cost. |
|-----|-------------------------------------------------------|

----

*Table            of Contents*

**NOTE        3 - LOANS**

| *(Dollars                  in Thousands)*               |   | **September                  30, 2006** |      | **December                  31, 2005** |   |
|---------------------------------------------------------|--------|-----------------------------------------|-----------|----------------------------------------|--------|
| Commercial,                  Financial and Agricultural |   | $                                       | 218,442   |                                   | $      | 218,434 |   |
| Real                  Estate-Construction               |   |                                    | 183,237   |                                   |   | 160,914 |   |
| Real                  Estate-Commercial                 |   |                                    | 647,302   |                                   |   | 718,741 |   |
| Real                  Estate-Residential                |   |                                    | 539,828   |                                   |   | 553,124 |   |
| Real                  Estate-Home Equity                |   |                                    | 174,577   |                                   |   | 165,337 |   |
| Real                  Estate-Loans Held-for-Sale        |   |                                    | 3,780     |                                   |   | 4,875 |   |
| Consumer                                                |   |                                    | 242,293   |                                   |   | 246,069 |   |
| Loans,                  Net of Unearned Interest        |   | $                                       | 2,009,459 |                                   | $      | 2,067,494 |   |

**NOTE        4 - ALLOWANCE FOR LOAN LOSSES**

| *(Dollars                  in Thousands)*                   |   | **2006** |   | **2005** |   |
|-------------------------------------------------------------|--------|----------|--------|----------|--------|
| Balance,                  Beginning of Period               |   | $        | 17,410 |     | $      | 16,037 |   |
| Acquired                  Reserves                          |   |     | -      |     |   | 1,385 |   |
| Provision                  for Loan Losses                  |   |     | 1,499  |     |   | 1,174 |   |
| Recoveries                  on Loans Previously Charged-Off |   |     | 1,309  |     |   | 1,361 |   |
| Loans                  Charged-Off                          |   |     | (2,907 | )        |   | (2,533 | ) |
| Balance,                  End of Period                     |   | $        | 17,311 |     | $      | 17,424 |   |

|                                                 |   | **September                  30, 2006** |   | **December                  31, 2005** |   |
|------------------------------------------------------|--------|-----------------------------------------|--------|----------------------------------------|--------|
| Impaired                  Loans:                     |   |                                    |   |                                   |   |   |   |   |   |
| With                  Related Valuation Allowance    |   | $                                       | 5,554  |                                   | $      | 2,143 |   | $ | 5,612 |   | $ | 2,915 |   |
| Without                  Related Valuation Allowance |   |                                    | 3,455  |                                   |   | - |   |   | 1,658 |   |   | - |   |

**NOTE        5 - INTANGIBLE ASSETS**

|                                              |   | **September                  30, 2006** |    | **December                  31, 2005** |   |
|---------------------------------------------------|--------|-----------------------------------------|---------|----------------------------------------|--------|
|  *(Dollars                  in Thousands)*   |   | GrossAmount                             |    | AccumulatedAmortization                |   | GrossAmount |   | AccumulatedAmortization |   |
| Core                  Deposit Intangibles         |   | $                                       | 47,176  |                                   | $      | 27,544 |   | $ | 47,176 |   | $ | 23,312 |   |
| Goodwill                                          |   |                                    | 88,596  |                                   |   | 3,786 |   |   | 88,615 |   |   | 3,786 |   |
| Customer                  Relationship Intangible |   |                                    | 1,867   |                                   |   | 449 |   |   | 1,867 |   |   | 305 |   |
| Non-Compete                  Agreement            |   |                                    | 539     |                                   |   | 513 |   |   | 483 |   |   | 287 |   |
| Total                  Intangible Assets          |   | $                                       | 138,178 |                                   | $      | 32,292 |   | $ | 138,141 |   | $ | 27,690 |   |

----

*Table            of Contents*

*Net        Core Deposit Intangibles: *

*Goodwill*

*Other*

**NOTE        6 - DEPOSITS**

| *(Dollars                  in Thousands)*        |   | **September                  30, 2006** |      | **December                  31, 2005** |   |
|--------------------------------------------------|--------|-----------------------------------------|-----------|----------------------------------------|--------|
| NOW                  Accounts                    |   | $                                       | 533,549   |                                   | $      | 520,878 |   |
| Money                  Market Accounts           |   |                                    | 387,906   |                                   |   | 331,094 |   |
| Savings                  Deposits                |   |                                    | 129,884   |                                   |   | 144,296 |   |
| Other                  Time Deposits             |   |                                    | 491,569   |                                   |   | 523,586 |   |
| Total                  Interest Bearing Deposits |   | $                                       | 1,542,908 |                                   | $      | 1,519,854 |   |

**NOTE        7 - S**
**TOCK-BASED        COMPENSATION**

*AIP.*

----

*Table            of Contents*

*Executive        Stock Option Agreement. *

| Options                                            |   | Shares |   | Weighted-Average                  Exercise Price |   | Weighted-Average                  Remaining Term |   | Aggregate                  Intrinsic Value |   |
|----------------------------------------------------|--------|--------|--------|--------------------------------------------------|--------|--------------------------------------------------|--------|--------------------------------------------|--------|
| Outstanding                  at January 1, 2006    |   |   | 60,384 |                                             | $      | 32.79                                            |   |                                       | 8.3    |   | $ | 88,161 |   |
| Granted                                            |   |   | -      |                                             |   | -                                                |   |                                       | -      |   |   | - |   |
| Exercised                                          |   |   | -      |                                             |   | -                                                |   |                                       | -      |   |   | - |   |
| Forfeited                  or expired              |   |   | -      |                                             |   | -                                                |   |                                       | -      |   |   | - |   |
| Outstanding                  at September 30, 2006 |   |   | 60,384 |                                             | $      | 32.79                                            |   |                                       | 7.8    |   | $ | - |   |
| Exercisable                  at September 30, 2006 |   |   | 35,977 |                                             | $      | 32.79                                            |   |                                       | 7.8    |   | $ | - |   |

*DSPP.        *

*ASPP.        *

|                                      |   | **Nine                  Months Ended September 30,** |   |
|-------------------------------------------|--------|------------------------------------------------------|--------|
|                                      |   | **2006**                                             |   | **2005** |   |
| Dividend                  yield           |   |                                                 | 1.95   | % |   | 1.9 | % |
| Expected                  volatility      |   |                                                 | 23.5   | % |   | 28.0 | % |
| Risk-free                  interest rate  |   |                                                 | 4.5    | % |   | 2.6 | % |
| Expected                  life (in years) |   |                                                 | 0.5    |   |   | 0.5 |   |

----

*Table            of Contents*

**NOTE        8 - EMPLOYEE BENEFIT PLANS**

|                                                |   | **Three                  Months Ended****September                  30,** |   | **Nine                  Months Ended****September                  30,** |   |
|-----------------------------------------------------|--------|---------------------------------------------------------------------------|--------|--------------------------------------------------------------------------|--------|
| *(Dollars                  in Thousands)*           |   | **2006**                                                                  |   | **2005**                                                                 |   | **2006** |   | **2005** |   |
| 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                       |   | $                                                                         | 1,250  |                                                                     | $      | 1,183 |   | $ | 3,750 |   | $ | 3,263 |   |
| Interest                  Cost                      |   |                                                                      | 875    |                                                                     |   | 838 |   |   | 2,625 |   |   | 2,438 |   |
| Expected                  Return on Plan Assets     |   |                                                                      | (975   | )                                                                        |   | (782 | ) |   | (2,925 | ) |   | (2,378 | ) |
| Prior                  Service Cost Amortization    |   |                                                                      | 50     |                                                                     |   | 55 |   |   | 150 |   |   | 165 |   |
| Net                  Loss Amortization              |   |                                                                      | 375    |                                                                     |   | 400 |   |   | 1,125 |   |   | 990 |   |
| Net                  Periodic Benefit Cost          |   | $                                                                         | 1,575  |                                                                     | $      | 1,694 |   | $ | 4,725 |   | $ | 4,478 |   |

|                                                |   | **Three                  Months Ended****September                  30,** |   | **Nine                  Months Ended****September                  30,** |   |
|-----------------------------------------------------|--------|---------------------------------------------------------------------------|--------|--------------------------------------------------------------------------|--------|
| *(Dollars                  in Thousands)*           |   | **2006**                                                                  |   | **2005**                                                                 |   | **2006** |   | **2005** |   |
| Discount                  Rate                      |   |                                                                      | 5.75   | %                                                                        |   | 6.00 | % |   | 5.75 | % |   | 6.00 | % |
| Long-Term                  Rate Of Return On Assets |   |                                                                      | N/A    |                                                                     |   | N/A |   |   | N/A |   |   | N/A |   |
|                                                |   |                                                                      |   |                                                                     |   |   |   |   |   |   |   |   |   |
| Service                  Cost                       |   | $                                                                         | 30     |                                                                     | $      | 35 |   | $ | 90 |   | $ | 105 |   |
| Interest                  Cost                      |   |                                                                      | 56     |                                                                     |   | 54 |   |   | 168 |   |   | 162 |   |
| Expected                  Return On Plan Assets     |   |                                                                      | N/A    |                                                                     |   | N/A |   |   | N/A |   |   | N/A |   |
| Prior                  Service Cost Amortization    |   |                                                                      | 15     |                                                                     |   | 15 |   |   | 45 |   |   | 45 |   |
| Net                  Loss Amortization              |   |                                                                      | 19     |                                                                     |   | 21 |   |   | 57 |   |   | 63 |   |
| Net                  Periodic Benefit Cost          |   | $                                                                         | 120    |                                                                     | $      | 125 |   | $ | 360 |   | $ | 375 |   |

**NOTE        9 - COMMITMENTS AND CONTINGENCIES**

*Lending        Commitments*

| *(Dollars                  in Millions)*         |   | **Amount** |   |
|--------------------------------------------------|--------|------------|--------|
| Commitments                  to Extend Credit(1) |   | $          | 443.3  |   |
| Standby                  Letters of Credit       |   | $          | 17.8   |   |

*Contingencies*

**NOTE        10 - COMPREHENSIVE INCOME**

----

*Table            of Contents*

**QUARTERLY        FINANCIAL DATA (UNAUDITED)**

|                                                                                 |   | **2006** |      | **2005** |   | **2004**  |   |
|--------------------------------------------------------------------------------------|--------|----------|-----------|----------|--------|-----------|--------|
| *(Dollars                  in Thousands, Except Per Share**Data)*                    |   | Third    |      | Second   |   | First     |   | Fourth |   | Third |   | Second |   | First |   | Fourth |   |
| Summary                  of Operations:                                              |   |     |      |     |   |      |   |   |   |   |   |   |   |   |   |   |   |
| Interest                  Income                                                     |   | $        | 42,512    |     | $      | 41,369    |   | $ | 39,412 |   | $ | 38,780 |   | $ | 36,889 |   | $ | 33,910 |   | $ | 30,474 |   | $ | 29,930 |   |
| Interest                  Expense                                                    |   |     | 12,289    |     |   | 11,182    |   |   | 10,282 |   |   | 9,470 |   |   | 7,885 |   |   | 6,788 |   |   | 5,920 |   |   | 5,634 |   |
| Net                  Interest Income                                                 |   |     | 30,223    |     |   | 30,187    |   |   | 29,130 |   |   | 29,310 |   |   | 29,004 |   |   | 27,122 |   |   | 24,554 |   |   | 24,296 |   |
| Provision                  for Loan Losses                                           |   |     | 711       |     |   | 121       |   |   | 667 |   |   | 1,333 |   |   | 376 |   |   | 388 |   |   | 410 |   |   | 300 |   |
| Net                  Interest Income AfterProvision                  for Loan Losses |   |     | 29,512    |     |   | 30,066    |   |   | 28,463 |   |   | 27,977 |   |   | 28,628 |   |   | 26,734 |   |   | 24,144 |   |   | 23,996 |   |
| Gain                  on Sale of Credit Card Portfolios                              |   |     | -         |     |   | -         |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 324 |   |
| Noninterest                  Income                                                  |   |     | 14,144    |     |   | 14,003    |   |   | 13,045 |   |   | 12,974 |   |   | 13,123 |   |   | 12,041 |   |   | 11,060 |   |   | 11,596 |   |
| Conversion/Merger                  Expense                                           |   |     | -         |     |   | -         |   |   | - |   |   | 24 |   |   | 180 |   |   | 234 |   |   | - |   |   | 436 |   |
| Noninterest                  Expense                                                 |   |     | 30,422    |     |   | 31,070    |   |   | 30,092 |   |   | 29,318 |   |   | 28,429 |   |   | 26,362 |   |   | 25,267 |   |   | 24,481 |   |
| Income                  Before Provision for Income Taxes                            |   |     | 13,234    |     |   | 12,999    |   |   | 11,416 |   |   | 11,609 |   |   | 13,142 |   |   | 12,179 |   |   | 9,937 |   |   | 10,999 |   |
| Provision                  for Income Taxes                                          |   |     | 4,554     |     |   | 4,684     |   |   | 3,995 |   |   | 4,150 |   |   | 4,565 |   |   | 4,311 |   |   | 3,560 |   |   | 3,737 |   |
| Net                  Income                                                          |   | $        | 8,680     |     | $      | 8,315     |   | $ | 7,421 |   | $ | 7,459 |   | $ | 8,577 |   | $ | 7,868 |   | $ | 6,377 |   | $ | 7,262 |   |
| Net                  Interest Income (FTE)                                           |   | $        | 30,745    |     | $      | 30,591    |   | $ | 29,461 |   | $ | 29,652 |   | $ | 29,329 |   | $ | 27,396 |   | $ | 24,835 |   | $ | 24,619 |   |
|                                                                                 |   |     |      |     |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Per                  Common Share:                                                   |   |     |      |     |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                  Income Basic                                                    |   | $        | .47       |     | $      | .44       |   | $ | .40 |   | $ | .40 |   | $ | .46 |   | $ | .44 |   | $ | .36 |   | $ | .40 |   |
| Net                  Income Diluted                                                  |   |     | .47       |     |   | .44       |   |   | .40 |   |   | .40 |   |   | .46 |   |   | .44 |   |   | .36 |   |   | .40 |   |
| Dividends                  Declared                                                  |   |     | .163      |     |   | .163      |   |   | .163 |   |   | .163 |   |   | .152 |   |   | .152 |   |   | .152 |   |   | .152 |   |
| Diluted                  Book Value                                                  |   |     | 17.18     |     |   | 16.81     |   |   | 16.65 |   |   | 16.39 |   |   | 16.17 |   |   | 15.87 |   |   | 14.69 |   |   | 14.51 |   |
| Market                  Price:                                                       |   |     |      |     |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| High                                                                                 |   |     | 33.25     |     |   | 35.39     |   |   | 37.97 |   |   | 39.33 |   |   | 38.72 |   |   | 33.46 |   |   | 33.60 |   |   | 36.78 |   |
| Low                                                                                  |   |     | 29.87     |     |   | 29.51     |   |   | 33.79 |   |   | 33.21 |   |   | 31.78 |   |   | 28.02 |   |   | 29.30 |   |   | 30.17 |   |
| Close                                                                                |   |     | 31.10     |     |   | 30.20     |   |   | 35.55 |   |   | 34.29 |   |   | 37.71 |   |   | 32.32 |   |   | 32.41 |   |   | 33.44 |   |
|                                                                                 |   |     |      |     |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selected                  Average                                                    |   |     |      |     |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balances:                                                                            |   |     |      |     |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans                                                                                |   | $        | 2,025,112 |     | $      | 2,040,656 |   | $ | 2,048,642 |   | $ | 2,062,775 |   | $ | 2,046,968 |   | $ | 1,932,637 |   | $ | 1,827,327 |   | $ | 1,779,736 |   |
| Earning                  Assets                                                      |   |     | 2,241,158 |     |   | 2,278,817 |   |   | 2,275,667 |   |   | 2,279,010 |   |   | 2,250,902 |   |   | 2,170,483 |   |   | 2,047,049 |   |   | 2,066,111 |   |
| Assets                                                                               |   |     | 2,560,155 |     |   | 2,603,090 |   |   | 2,604,458 |   |   | 2,607,597 |   |   | 2,569,524 |   |   | 2,458,788 |   |   | 2,306,807 |   |   | 2,322,870 |   |
| Deposits                                                                             |   |     | 2,023,523 |     |   | 2,047,755 |   |   | 2,040,248 |   |   | 2,027,017 |   |   | 2,013,427 |   |   | 1,932,144 |   |   | 1,847,378 |   |   | 1,853,588 |   |
| Shareowners’                  Equity                                           |   |     | 318,041   |     |   | 315,794   |   |   | 311,461 |   |   | 306,208 |   |   | 300,931 |   |   | 278,107 |   |   | 260,946 |   |   | 248,773 |   |
| Common                  Equivalent Average Shares:                                   |   |     |      |     |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                |   |     | 18,530    |     |   | 18,633    |   |   | 18,652 |   |   | 18,624 |   |   | 18,623 |   |   | 18,094 |   |   | 17,700 |   |   | 17,444 |   |
| Diluted                                                                              |   |     | 18,565    |     |   | 18,653    |   |   | 18,665 |   |   | 18,654 |   |   | 18,649 |   |   | 18,102 |   |   | 17,708 |   |   | 17,451 |   |
|                                                                                 |   |     |      |     |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ratios:                                                                              |   |     |      |     |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| ROA                                                                                  |   |     | 1.35      | %        |   | 1.28      | %      |   | 1.16 | % |   | 1.14 | % |   | 1.32 | % |   | 1.28 | % |   | 1.12 | % |   | 1.24 | % |
| ROE                                                                                  |   |     | 10.83     | %        |   | 10.56     | %      |   | 9.66 | % |   | 9.67 | % |   | 11.31 | % |   | 11.35 | % |   | 9.91 | % |   | 11.61 | % |
| Net                  Interest Margin (FTE)                                           |   |     | 5.45      | %        |   | 5.38      | %      |   | 5.25 | % |   | 5.16 | % |   | 5.17 | % |   | 5.07 | % |   | 4.92 | % |   | 4.75 | % |
| Efficiency                  Ratio                                                    |   |     | 64.35     | %        |   | 66.23     | %      |   | 67.20 | % |   | 65.22 | % |   | 63.60 | % |   | 63.56 | % |   | 67.06 | % |   | 63.85 | % |

----

*Table            of Contents*

| **Item                  2.** | **MANAGEMENT'S                  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS** |
|------------------------------|------------------------------------------------------------------------------------------------------------|

|                                                                            |   | **Nine                  Months Ended September 30** |   |
|---------------------------------------------------------------------------------|--------|-----------------------------------------------------|--------|
|                                                                            |   | **2006**                                            |   | **2005** |   |
| Efficiency                  ratio                                               |   |                                                | 69.39  | % |   | 68.32 | % |
| Effect                  of intangible amortization and one-time merger expenses |   |                                                | (3.49  | )% |   | (3.68 | )% |
| Operating                  efficiency ratio                                     |   |                                                | 65.90  | % |   | 64.64 | % |

|                                                                              |   | **Nine                  Months Ended September 30** |   |
|-----------------------------------------------------------------------------------|--------|-----------------------------------------------------|--------|
|                                                                              |   | **2006**                                            |   | **2005** |   |
| Net                  noninterest expense as a percent of average assets           |   |                                                | 2.60   | % |   | 2.42 | % |
| Effect                  of intangible amortization and one-time merger expenses   |   |                                                | (0.24  | )% |   | (0.24 | )% |
| Operating                  net noninterest expense as a percent of average assets |   |                                                | 2.36   | % |   | 2.18 | % |

----

*Table            of Contents*

**CAUTION        CONCERNING FORWARD-LOOKING STATEMENTS**

**BUSINESS        OVERVIEW**

*Recent        Acquisition*

----

*Table            of Contents*

**FINANCIAL        OVERVIEW**

*2006        Financial Performance Highlights -*

|   | Ÿ | Earnings                  of $8.7 million, up 1.2% and $24.4 million, up 7.0% for the three                  and nine                  months ended September 30, 2006 as compared to the same periods                  in 2005. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Growth                  in earnings was attributable to improvement in operating revenues                  of 5.3%                  and 11.8% for the three and nine month periods, respectively, driven                  primarily by higher net interest income and noninterest                  income. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Taxable                  equivalent net interest income grew 4.8% and 11.3% for the three                  and nine                  month periods, respectively, due to an improved net interest                  margin. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Net                  interest margin percentage improved 28 basis points and 31 basis                  points                  for the three and nine month periods, respectively, driven by favorable                  re-pricing spread and higher yield on new loan production. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Noninterest                  income grew 7.8% and 13.7% for the three and nine month periods,                  respectively, due primarily to higher deposit fees, asset management                  fees,                  retail brokerage fees, and card processing                  fees. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Continued                  strong credit quality as reflected by a nonperforming asset ratio                  of .34%                  and an annualized net charge-off ratio of .13% for the third quarter                  of                  2006 compared to .08% for the same period in 2005. At quarter-end                  the                  allowance for loan losses was .86% of outstanding loans and provided                  coverage of 269% of nonperforming loans compared to .85% and 343%,                  respectively, for the same period in 2005. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | We                  remain well-capitalized with a risk based capital ratio of                  14.72%. |
|--------|--------|---------------------------------------------------------------------------------------------------------|

----

*Table            of Contents*

**RESULTS        OF OPERATIONS**

**Net        Income**

|                                                 |   | **Three                  Months Ended September 30,** |    | **Nine                  Months Ended September 30,** |   |
|------------------------------------------------------|--------|-------------------------------------------------------|---------|------------------------------------------------------|--------|
| *(Dollars                  in Thousands)*            |   | **2006**                                              |    | **2005**                                             |   | **2006** |   | **2005** |   |
| Interest                  Income                     |   | $                                                     | 42,512  |                                                 | $      | 36,889 |   | $ | 123,293 |   | $ | 101,273 |   |
| Taxable                  Equivalent Adjustment(1)    |   |                                                  | 522     |                                                 |   | 325 |   |   | 1,256 |   |   | 879 |   |
| Interest                  Income (FTE)               |   |                                                  | 43,034  |                                                 |   | 37,214 |   |   | 124,549 |   |   | 102,152 |   |
| Interest                  Expense                    |   |                                                  | (12,289 | )                                                    |   | (7,885 | ) |   | (33,753 | ) |   | (20,593 | ) |
| Net                  Interest Income (FTE)           |   |                                                  | 30,745  |                                                 |   | 29,329 |   |   | 90,796 |   |   | 81,559 |   |
| Provision                  for Loan Losses           |   |                                                  | (711    | )                                                    |   | (376 | ) |   | (1,499 | ) |   | (1,174 | ) |
| Taxable                  Equivalent Adjustment       |   |                                                  | (522    | )                                                    |   | (325 | ) |   | (1,256 | ) |   | (879 | ) |
| Net                  Interest Income After Provision |   |                                                  | 29,512  |                                                 |   | 28,628 |   |   | 88,041 |   |   | 79,506 |   |
| Noninterest                  Income                  |   |                                                  | 14,144  |                                                 |   | 13,123 |   |   | 41,193 |   |   | 36,224 |   |
| Merger                  Expense                      |   |                                                  | -       |                                                 |   | (180 | ) |   | - |   |   | (414 | ) |
| Noninterest                  Expense                 |   |                                                  | (30,422 | )                                                    |   | (28,429 | ) |   | (91,584 | ) |   | (80,058 | ) |
| Income                  Before Income Taxes          |   |                                                  | 13,234  |                                                 |   | 13,142 |   |   | 37,650 |   |   | 35,258 |   |
| Income                  Taxes                        |   |                                                  | (4,554  | )                                                    |   | (4,565 | ) |   | (13,234 | ) |   | (12,436 | ) |
| Net                  Income                          |   | $                                                     | 8,680   |                                                 | $      | 8,577 |   | $ | 24,416 |   | $ | 22,822 |   |
|                                                 |   |                                                  |    |                                                 |   |   |   |   |   |   |   |   |   |
| Percent                  Change                      |   |                                                  | 1.20    | %                                                    |   | (20.72 | )% |   | 6.98 | % |   | 3.22 | % |
| Return                  on Average Assets(2)         |   |                                                  | 1.35    | %                                                    |   | 1.32 | % |   | 1.26 | % |   | 1.25 | % |
| Return                  on Average Equity(2)         |   |                                                  | 10.83   | %                                                    |   | 11.31 | % |   | 10.36 | % |   | 10.89 | % |

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

| (2) | Annualized |
|-----|------------|

----

*Table            of Contents*

**Net        Interest Income**

**Provision        for Loan Losses**

|                                                    |   | **Three                  Months Ended September 30,** |   | **Nine                  Months Ended September 30,** |   |
|---------------------------------------------------------|--------|-------------------------------------------------------|--------|------------------------------------------------------|--------|
| *(Dollars                  in Thousands)*               |   | **2006**                                              |   | **2005**                                             |   | **2006** |   | **2005** |   |
| CHARGE-OFFS                                             |   |                                                  |   |                                                 |   |   |   |   |   |
| Commercial,                  Financial and Agricultural |   | $                                                     | 294    |                                                 | $      | 151 |   | $ | 760 |   | $ | 541 |   |
| Real                  Estate - Construction             |   |                                                  | -      |                                                 |   | - |   |   | - |   |   | - |   |
| Real                  Estate - Commercial               |   |                                                  | -      |                                                 |   | 4 |   |   | 291 |   |   | 10 |   |
| Real                  Estate - Residential              |   |                                                  | 81     |                                                 |   | 115 |   |   | 127 |   |   | 177 |   |
| Consumer                                                |   |                                                  | 690    |                                                 |   | 551 |   |   | 1,729 |   |   | 1,805 |   |
| Total                  Charge-offs                      |   |                                                  | 1,065  |                                                 |   | 821 |   |   | 2,907 |   |   | 2,533 |   |
|                                                    |   |                                                  |   |                                                 |   |   |   |   |   |   |   |   |   |
| RECOVERIES                                              |   |                                                  |   |                                                 |   |   |   |   |   |   |   |   |   |
| Commercial,                  Financial and Agricultural |   |                                                  | 43     |                                                 |   | 43 |   |   | 168 |   |   | 150 |   |
| Real                  Estate - Construction             |   |                                                  | -      |                                                 |   | - |   |   | - |   |   | - |   |
| Real                  Estate - Commercial               |   |                                                  | 4      |                                                 |   | 1 |   |   | 9 |   |   | 1 |   |
| Real                  Estate - Residential              |   |                                                  | 2      |                                                 |   | 20 |   |   | 11 |   |   | 36 |   |
| Consumer                                                |   |                                                  | 352    |                                                 |   | 354 |   |   | 1,121 |   |   | 1,174 |   |
| Total                  Recoveries                       |   |                                                  | 401    |                                                 |   | 418 |   |   | 1,309 |   |   | 1,361 |   |
|                                                    |   |                                                  |   |                                                 |   |   |   |   |   |   |   |   |   |
| Net                  Charge-offs                        |   | $                                                     | 664    |                                                 | $      | 403 |   | $ | 1,598 |   | $ | 1,172 |   |
|                                                    |   |                                                  |   |                                                 |   |   |   |   |   |   |   |   |   |
| Net                  Charge-offs (Annualized) as a      |   |                                                  |   |                                                 |   |   |   |   |   |   |   |   |   |
| Percent                  of Average Loans Outstanding,  |   |                                                  |   |                                                 |   |   |   |   |   |   |   |   |   |
| Net                  of Unearned Interest               |   |                                                  | .13    | %                                                    |   | .08 | % |   | .10 | % |   | .08 | % |

**Noninterest        Income**

|                                                 |   | **Three                  Months Ended September 30,** |   | **Nine                  Months Ended September 30,** |   |
|------------------------------------------------------|--------|-------------------------------------------------------|--------|------------------------------------------------------|--------|
| *(Dollars                  in Thousands)*            |   | **2006**                                              |   | **2005**                                             |   | **2006** |   | **2005** |   |
| Noninterest                  Income:                 |   |                                                  |   |                                                 |   |   |   |   |   |
| Service                  Charges on Deposit Accounts |   | $                                                     | 6,450  |                                                 | $      | 5,635 |   | $ | 18,226 |   | $ | 15,018 |   |
| Data                  Processing                     |   |                                                  | 674    |                                                 |   | 660 |   |   | 2,014 |   |   | 1,917 |   |
| Asset                  Management Fees               |   |                                                  | 1,215  |                                                 |   | 1,050 |   |   | 3,420 |   |   | 3,175 |   |
| Retail                  Brokerage Fees               |   |                                                  | 520    |                                                 |   | 305 |   |   | 1,505 |   |   | 917 |   |
| Mortgage                  Banking Revenues           |   |                                                  | 824    |                                                 |   | 1,317 |   |   | 2,448 |   |   | 3,116 |   |
| Merchant                  Service Fees               |   |                                                  | 1,766  |                                                 |   | 1,556 |   |   | 5,284 |   |   | 4,652 |   |
| Interchange                  Fees                    |   |                                                  | 797    |                                                 |   | 582 |   |   | 2,261 |   |   | 1,608 |   |
| ATM/Debit                  Card Fees                 |   |                                                  | 635    |                                                 |   | 550 |   |   | 1,861 |   |   | 1,624 |   |
| Other                                                |   |                                                  | 1,263  |                                                 |   | 1,468 |   |   | 4,174 |   |   | 4,197 |   |
|                                                 |   |                                                  |   |                                                 |   |   |   |   |   |   |   |   |   |
| Total                  Noninterest Income            |   | $                                                     | 14,144 |                                                 | $      | 13,123 |   | $ | 41,193 |   | $ | 36,224 |   |

----

*Table            of Contents*

*Service        Charges on Deposit Accounts*

*Asset        Management Fees*

*Mortgage        Banking Revenues*

*Card        Fees*

*Other*

**Noninterest        Expense**

|                                       |   | **Three                  Months Ended September 30,** |   | **Nine                  Months Ended September 30,** |   |
|--------------------------------------------|--------|-------------------------------------------------------|--------|------------------------------------------------------|--------|
| *(Dollars                  in Thousands)*  |   | **2006**                                              |   | **2005**                                             |   | **2006** |   | **2005** |   |
| Noninterest                  Expense:      |   |                                                  |   |                                                 |   |   |   |   |   |
| Salaries                                   |   | $                                                     | 11,709 |                                                 | $      | 10,662 |   | $ | 34,868 |   | $ | 30,300 |   |
| Associate                  Benefits        |   |                                                  | 3,568  |                                                 |   | 3,384 |   |   | 11,044 |   |   | 9,493 |   |
| Total                  Compensation        |   |                                                  | 15,277 |                                                 |   | 14,046 |   |   | 45,912 |   |   | 39,793 |   |
|                                       |   |                                                  |   |                                                 |   |   |   |   |   |   |   |   |   |
| Premises                                   |   |                                                  | 2,354  |                                                 |   | 2,119 |   |   | 6,935 |   |   | 6,091 |   |
| Equipment                                  |   |                                                  | 2,492  |                                                 |   | 2,285 |   |   | 7,652 |   |   | 6,589 |   |
| Total                  Occupancy           |   |                                                  | 4,846  |                                                 |   | 4,404 |   |   | 14,587 |   |   | 12,680 |   |
|                                       |   |                                                  |   |                                                 |   |   |   |   |   |   |   |   |   |
| Legal                  Fees                |   |                                                  | 323    |                                                 |   | 546 |   |   | 1,285 |   |   | 1,358 |   |
| Professional                  Fees         |   |                                                  | 851    |                                                 |   | 903 |   |   | 2,470 |   |   | 2,477 |   |
| Processing                  Services       |   |                                                  | 490    |                                                 |   | 352 |   |   | 1,344 |   |   | 1,100 |   |
| Advertising                                |   |                                                  | 1,036  |                                                 |   | 1,131 |   |   | 3,288 |   |   | 3,079 |   |
| Travel                  and Entertainment  |   |                                                  | 413    |                                                 |   | 346 |   |   | 1,284 |   |   | 950 |   |
| Printing                  and Supplies     |   |                                                  | 601    |                                                 |   | 673 |   |   | 1,878 |   |   | 1,790 |   |
| Telephone                                  |   |                                                  | 559    |                                                 |   | 693 |   |   | 1,769 |   |   | 1,771 |   |
| Postage                                    |   |                                                  | 257    |                                                 |   | 279 |   |   | 859 |   |   | 895 |   |
| Intangible                  Amortization   |   |                                                  | 1,536  |                                                 |   | 1,430 |   |   | 4,601 |   |   | 3,922 |   |
| Interchange                  Fees          |   |                                                  | 1,531  |                                                 |   | 1,367 |   |   | 4,571 |   |   | 4,057 |   |
| Courier                  Service           |   |                                                  | 327    |                                                 |   | 355 |   |   | 985 |   |   | 997 |   |
| Miscellaneous                              |   |                                                  | 2,374  |                                                 |   | 2,084 |   |   | 6,751 |   |   | 5,603 |   |
|                                       |   |                                                  |   |                                                 |   |   |   |   |   |   |   |   |   |
| Total                  Noninterest Expense |   | $                                                     | 30,422 |                                                 | $      | 28,609 |   | $ | 91,584 |   | $ | 80,472 |   |

----

*Table            of Contents*

*Compensation*

*Occupancy.        *

*Other*

**Income        Taxes**

----

*Table            of Contents*

**FINANCIAL        CONDITION**

**Funds        Sold**

*Deposits*

**Investment        Securities**

**Loans**

**.        **

**Deposits**

----

*Table            of Contents*

**LIQUIDITY        AND CAPITAL RESOURCES**

**Liquidity**

*General*

*Borrowings*

*Contractual        Cash Obligations.*

|                                                |   | **Payments                  Due By Period** |   |
|-----------------------------------------------------|--------|---------------------------------------------|--------|
| *(Dollars                  in Thousands)*           |   | **1                  Year or Less**         |   | **1                  - 3 Years** |   | **4                  - 5 Years** |   | **After                  5 Years** |   | **Total** |   |
| Federal                  Home Loan Bank Advances    |   | $                                           | 640    |   | $ | 30,413 |   | $ | 5,690 |   | $ | 19,361 |   | $ | 56,104 |   |
| Subordinated                  Notes Payable         |   |                                        | -      |   |   | - |   |   | - |   |   | 62,887 |   |   | 62,887 |   |
| Operating                  Lease Obligations        |   |                                        | 368    |   |   | 2,712 |   |   | 2,211 |   |   | 7,080 |   |   | 12,371 |   |
| Total                  Contractual Cash Obligations |   | $                                           | 1,008  |   | $ | 33,125 |   | $ | 7,901 |   | $ | 89,328 |   | $ | 131,362 |   |

**Capital**

----

*Table            of Contents*

**OFF-BALANCE        SHEET ARRANGEMENTS**

**ACCOUNTING        POLICIES**

**Critical        Accounting Policies**

*Allowance        for Loan Losses*

*Intangible        Assets*

*Pension        Assumptions*
** **

----

*Table            of Contents*

**Recent        Accounting Pronouncements**

*Statement        of Financial Accounting Standards*

*Financial        Accounting Standards Board Interpretations*

*SEC        Staff Accounting Bulletins*

----

*Table            of Contents*

**TABLE        I**

**AVERAGE        BALANCES & INTEREST RATES**

*(Taxable        Equivalent Basis - Dollars in Thousands)*

|                                                   |   | **Three                  Months Ended September 30,** |      | **Nine                  Months Ended September 30,** |   |
|--------------------------------------------------------|--------|-------------------------------------------------------|-----------|------------------------------------------------------|--------|
|                                                   |   | **2006**                                              |      | **2005**                                             |   | **2006** |   | **2005** |   |
|                                                   |   | Balance                                               |      | Interest                                             |   | Rate |   | Balance |   | Interest |   | Rate |   | Balance |   | Interest |   | Rate |   | Balance |   | Interest |   | Rate |   |
| **ASSETS**                                             |   |                                                  |      |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans,                  Net of Unearned Interest(1)(2) |   | $                                                     | 2,025,112 |                                                 | $      | 40,433 |   |   | 7.92 | % | $ | 2,046,968 |   | $ | 35,433 |   |   | 6.87 | % | $ | 2,038,050 |   | $ | 116,931 |   |   | 7.67 | % | $ | 1,936,448 |   | $ | 96,553 |   |   | 6.67 | % |
| Taxable                  Investment Securities         |   |                                                  | 109,097   |                                                 |   | 1,264 |   |   | 4.62 | % |   | 137,970 |   |   | 1,022 |   |   | 2.95 | % |   | 113,859 |   |   | 3,588 |   |   | 4.19 | % |   | 147,099 |   |   | 3,225 |   |   | 2.92 | % |
| Tax-Exempt                  Investment Securities(2)   |   |                                                  | 81,409    |                                                 |   | 998 |   |   | 4.90 | % |   | 56,079 |   |   | 638 |   |   | 4.55 | % |   | 71,960 |   |   | 2,568 |   |   | 4.76 | % |   | 47,153 |   |   | 1,737 |   |   | 4.91 | % |
| Funds                  Sold                            |   |                                                  | 25,540    |                                                 |   | 339 |   |   | 5.19 | % |   | 9,885 |   |   | 121 |   |   | 4.79 | % |   | 41,219 |   |   | 1,463 |   |   | 4.72 | % |   | 26,191 |   |   | 638 |   |   | 3.21 | % |
| Total                  Earning Assets                  |   |                                                  | 2,241,158 |                                                 |   | 43,034 |   |   | 7.62 | % |   | 2,250,902 |   |   | 37,214 |   |   | 6.56 | % |   | 2,265,088 |   |   | 124,550 |   |   | 7.35 | % |   | 2,156,891 |   |   | 102,153 |   |   | 6.33 | % |
| Cash                  & Due From Banks             |   |                                                  | 96,969    |                                                 |   |   |   |   |   |   |   | 106,638 |   |   |   |   |   |   |   |   | 102,188 |   |   |   |   |   |   |   |   | 102,800 |   |   |   |   |   |   |   |
| Allowance                  for Loan Losses             |   |                                                  | (17,420   | )                                                    |   |   |   |   |   |   |   | (17,570 | ) |   |   |   |   |   |   |   | (17,481 | ) |   |   |   |   |   |   |   | (16,917 | ) |   |   |   |   |   |   |
| Other                  Assets                          |   |                                                  | 239,448   |                                                 |   |   |   |   |   |   |   | 229,554 |   |   |   |   |   |   |   |   | 239,277 |   |   |   |   |   |   |   |   | 203,228 |   |   |   |   |   |   |   |
| TOTAL                  ASSETS                          |   | $                                                     | 2,560,155 |                                                 |   |   |   |   |   |   | $ | 2,569,524 |   |   |   |   |   |   |   | $ | 2,589,072 |   |   |   |   |   |   |   | $ | 2,446,002 |   |   |   |   |   |   |   |
|                                                   |   |                                                  |      |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **LIABILITIES**                                        |   |                                                  |      |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NOW                  Accounts                          |   | $                                                     | 511,299   |                                                 | $      | 2,026 |   |   | 1.57 | % | $ | 463,936 |   | $ | 773 |   |   | .66 | % | $ | 510,556 |   | $ | 5,136 |   |   | 1.34 | % | $ | 412,679 |   | $ | 1,780 |   |   | 0.58 | % |
| Money                  Market Accounts                 |   |                                                  | 381,628   |                                                 |   | 3,259 |   |   | 3.39 | % |   | 272,724 |   |   | 1,062 |   |   | 1.54 | % |   | 363,150 |   |   | 8,199 |   |   | 3.02 | % |   | 264,999 |   |   | 2,517 |   |   | 1.27 | % |
| Savings                  Accounts                      |   |                                                  | 132,421   |                                                 |   | 72 |   |   | 0.22 | % |   | 159,080 |   |   | 75 |   |   | 0.19 | % |   | 136,058 |   |   | 202 |   |   | 0.20 | % |   | 154,056 |   |   | 225 |   |   | 0.20 | % |
| Other                  Time Deposits                   |   |                                                  | 504,121   |                                                 |   | 4,627 |   |   | 3.64 | % |   | 563,595 |   |   | 3,570 |   |   | 2.51 | % |   | 514,857 |   |   | 12,886 |   |   | 3.35 | % |   | 554,570 |   |   | 9,885 |   |   | 2.38 | % |
| Total                  Int. Bearing Deposits           |   |                                                  | 1,529,469 |                                                 |   | 9,984 |   |   | 2.59 | % |   | 1,459,335 |   |   | 5,480 |   |   | 1.49 | % |   | 1,524,621 |   |   | 26,423 |   |   | 2.32 | % |   | 1,386,304 |   |   | 14,407 |   |   | 1.39 | % |
| Short-Term                  Borrowings                 |   |                                                  | 73,078    |                                                 |   | 753 |   |   | 4.07 | % |   | 89,483 |   |   | 691 |   |   | 3.07 | % |   | 83,187 |   |   | 2,352 |   |   | 3.77 | % |   | 92,561 |   |   | 1,875 |   |   | 2.71 | % |
| Subordinated                  Notes Payable            |   |                                                  | 62,887    |                                                 |   | 936 |   |   | 5.91 | % |   | 62,887 |   |   | 931 |   |   | 5.87 | % |   | 62,887 |   |   | 2,789 |   |   | 5.93 | % |   | 46,616 |   |   | 2,039 |   |   | 5.85 | % |
| Other                  Long-Term Borrowings            |   |                                                  | 52,367    |                                                 |   | 615 |   |   | 4.66 | % |   | 72,408 |   |   | 783 |   |   | 4.29 | % |   | 61,912 |   |   | 2,189 |   |   | 4.73 | % |   | 69,876 |   |   | 2,272 |   |   | 4.35 | % |
| Total                  Int. Bearing Liabilities        |   |                                                  | 1,717,801 |                                                 |   | 12,288 |   |   | 2.84 | % |   | 1,684,113 |   |   | 7,885 |   |   | 1.86 | % |   | 1,732,607 |   |   | 33,753 |   |   | 2.60 | % |   | 1,595,357 |   |   | 20,593 |   |   | 1.73 | % |
| Noninterest                  Bearing Deposits          |   |                                                  | 494,054   |                                                 |   |   |   |   |   |   |   | 554,092 |   |   |   |   |   |   |   |   | 512,493 |   |   |   |   |   |   |   |   | 545,287 |   |   |   |   |   |   |   |
| Other                  Liabilities                     |   |                                                  | 30,259    |                                                 |   |   |   |   |   |   |   | 30,388 |   |   |   |   |   |   |   |   | 28,849 |   |   |   |   |   |   |   |   | 25,217 |   |   |   |   |   |   |   |
| TOTAL                  LIABILITIES                     |   |                                                  | 2,242,114 |                                                 |   |   |   |   |   |   |   | 2,268,593 |   |   |   |   |   |   |   |   | 2,273,949 |   |   |   |   |   |   |   |   | 2,165,861 |   |   |   |   |   |   |   |
|                                                   |   |                                                  |      |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **SHAREOWNERS'                  EQUITY**               |   |                                                  |      |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| TOTAL                  SHAREOWNERS' EQUITY             |   |                                                  | 318,041   |                                                 |   |   |   |   |   |   |   | 300,931 |   |   |   |   |   |   |   |   | 315,123 |   |   |   |   |   |   |   |   | 280,141 |   |   |   |   |   |   |   |
|                                                   |   |                                                  |      |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| TOTAL                  LIABILITIES & EQUITY        |   | $                                                     | 2,560,155 |                                                 |   |   |   |   |   |   | $ | 2,569,524 |   |   |   |   |   |   |   | $ | 2,589,072 |   |   |   |   |   |   |   | $ | 2,446,002 |   |   |   |   |   |   |   |
|                                                   |   |                                                  |      |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                  Rate Spread                  |   |                                                  |      |                                                 |   |   |   |   | 4.78 | % |   |   |   |   |   |   |   | 4.70 | % |   |   |   |   |   |   |   | 4.75 | % |   |   |   |   |   |   |   | 4.60 | % |
| Net                  Interest Income                   |   |                                                  |      |                                                 | $      | 30,746 |   |   |   |   |   |   |   | $ | 29,329 |   |   |   |   |   |   |   | $ | 90,797 |   |   |   |   |   |   |   | $ | 81,560 |   |   |   |   |
| Net                  Interest Margin(3)                |   |                                                  |      |                                                 |   |   |   |   | 5.45 | % |   |   |   |   |   |   |   | 5.17 | % |   |   |   |   |   |   |   | 5.36 | % |   |   |   |   |   |   |   | 5.05 | % |

| (1) | Average                  balances include nonaccrual loans. Interest income includes fees                  on loans                  of $979,000 and $2.9 million, for the three and nine months ended                  September 30, 2006, versus $898,000 and $2.2 million for the comparable                  periods ended September 30, 2005. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (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. |
|-----|-------------------------------------------------------------------------------------------------------------|

----

*Table            of Contents*

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

**Overview**

**Interest        Rate Risk Management**

**Inflation**

----

*Table            of Contents*

**Table        II**

**FINANCIAL        ASSETS AND LIABILITIES MARKET RISK ANALYSIS**

|                                         |   | **As                  of September 30, 2006** |      |                        |   |
|----------------------------------------------|--------|-----------------------------------------------|-----------|-----------------------------|--------|
| *(Dollars                  in Thousands)*    |   | **Year                  1**                   |      | **Year                  2** |   | **Year                  3** |   | **Year                  4** |   | **Year                  5** |   | **Beyond** |   | **Total** |   | **Fair                  Value** |   |
| Loans                                        |   |                                          |      |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fixed                  Rate                  |   | $                                             | 311,323   |                        | $      | 153,135 |   | $ | 102,449 |   | $ | 49,751 |   | $ | 25,179 |   | $ | 18,762 |   | $ | 660,599 |   | $ | 662,057 |   |
| Average                  Interest Rate       |   |                                          | 6.40      | %                           |   | 7.59 | % |   | 7.81 | % |   | 7.68 | % |   | 7.39 | % |   | 6.60 | % |   | 7.03 | % |   |   |   |
| Floating                  Rate(2)            |   |                                          | 1,076,304 |                        |   | 151,808 |   |   | 97,439 |   |   | 7,852 |   |   | 6,152 |   |   | 9,305 |   |   | 1,348,860 |   |   | 1,352,111 |   |
| Average                  Interest Rate       |   |                                          | 6.95      | %                           |   | 6.82 | % |   | 7.49 | % |   | 7.54 | % |   | 7.65 | % |   | 8.09 | % |   | 6.99 | % |   |   |   |
| Investment                  Securities(3)    |   |                                          |      |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fixed                  Rate                  |   |                                          | 51,485    |                        |   | 58,445 |   |   | 51,361 |   |   | 7,923 |   |   | 4,864 |   |   | 15,503 |   |   | 189,581 |   |   | 189,581 |   |
| Average                  Interest Rate       |   |                                          | 3.79      | %                           |   | 4.07 | % |   | 4.09 | % |   | 4.05 | % |   | 4.21 | % |   | 5.49 | % |   | 4.12 | % |   |   |   |
| Floating                  Rate               |   |                                          | 1,036     |                        |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 1,036 |   |   | 1,036 |   |
| Average                  Interest Rate       |   |                                          | 5.18      | %                           |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 5.18 | % |   |   |   |
| Other                  Earning Assets        |   |                                          |      |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Floating                  Rate               |   |                                          | 35,631    |                        |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 35,631 |   |   | 35,631 |   |
| Average                  Interest Rate       |   |                                          | 5.27      | %                           |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 5.27 | % |   |   |   |
| Total                  Financial Assets      |   | $                                             | 1,475,779 |                        | $      | 363,388 |   | $ | 251,249 |   | $ | 65,526 |   | $ | 36,195 |   | $ | 43,570 |   | $ | 2,235,707 |   | $ | 2,240,416 |   |
| Average                  Interest Rate       |   |                                          | 6.68      | %                           |   | 6.71 | % |   | 6.93 | % |   | 7.22 | % |   | 7.01 | % |   | 6.52 | % |   | 6.73 | % |   |   |   |
|                                         |   |                                          |      |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits(4)                                  |   |                                          |      |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fixed                  Rate Deposits         |   | $                                             | 402,953   |                        | $      | 60,510 |   | $ | 19,392 |   | $ | 6,451 |   | $ | 2,982 |   | $ | 260 |   | $ | 492,548 |   | $ | 468,351 |   |
| Average                  Interest Rate       |   |                                          | 3.78      | %                           |   | 3.91 | % |   | 4.11 | % |   | 3.86 | % |   | 4.18 | % |   | 4.92 | % |   | 3.81 | % |   |   |   |
| Floating                  Rate Deposits      |   |                                          | 1,050,360 |                        |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 1,050,360 |   |   | 998,915 |   |
| Average                  Interest Rate       |   |                                          | 2.18      | %                           |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 2.18 | % |   |   |   |
| Other                  Interest Bearing      |   |                                          |      |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities                                  |   |                                          |      |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fixed                  Rate Debt             |   |                                          | 4,223     |                        |   | 13,976 |   |   | 3,375 |   |   | 2,921 |   |   | 2,927 |   |   | 16,279 |   |   | 43,701 |   |   | 42,822 |   |
| Average                  Interest Rate       |   |                                          | 4.66      | %                           |   | 4.41 | % |   | 4.79 | % |   | 4.90 | % |   | 4.95 | % |   | 4.98 | % |   | 4.74 | % |   |   |   |
| Floating                  Rate Debt          |   |                                          | 54,171    |                        |   | - |   |   | - |   |   | 30,928 |   |   | 31,959 |   |   | - |   |   | 117,058 |   |   | 117,124 |   |
| Average                  Interest Rate       |   |                                          | 4.19      | %                           |   | - |   |   | - |   |   | 5.71 | % |   | 6.07 | % |   | - |   |   | 5.10 | % |   |   |   |
| Total                  Financial Liabilities |   | $                                             | 1,511,707 |                        | $      | 74,486 |   | $ | 22,767 |   | $ | 40,300 |   | $ | 37,868 |   | $ | 16,539 |   | $ | 1,703,667 |   | $ | 1,627,212 |   |
| Average                  interest Rate       |   |                                          | 2.69      | %                           |   | 4.01 | % |   | 4.21 | % |   | 5.67 | % |   | 4.56 | % |   | 4.98 | % |   | 2.92 | % |   |   |   |

| (1) | Based                  upon expected cashflows, unless otherwise                  indicated. |
|-----|----------------------------------------------------------------------------------------------|

| (2) | Based                  upon a combination of expected maturities and repricing                  opportunities. |
|-----|----------------------------------------------------------------------------------------------------------------|

| (3) | Based                  upon contractual maturity, except for callable and floating rate                  securities, which are based on expected maturity and weighted average                  life, respectively. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | Savings,                  NOW and money market accounts can be repriced at any time, therefore,                  all                  such balances are included as floating rate deposits in Year 1.                  Other time                  deposit balances are classified according to                  maturity. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

*Table            of Contents*

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

**Evaluation        of Disclosure Controls and Procedures**

**Changes        in Internal Control over Financial Reporting**

| **PART                  II.** | **OTHER                  INFORMATION** |
|-------------------------------|----------------------------------------|

| **Item                  1.** | **Legal                  Proceedings** |
|------------------------------|----------------------------------------|

| **Item                  1.A.** | **Risk                  Factors** |
|--------------------------------|-----------------------------------|

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

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

| **Item                  4.** | **Submission                  of Matters to a Vote of Security                  Holders** |
|------------------------------|-------------------------------------------------------------------------------------------|

| **Item                  5.** | **Other                  Information** |
|------------------------------|----------------------------------------|

| **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. |
|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

*Table            of Contents*

**SIGNATURES**

| /s/                  J. Kimbrough Davis                                                |   |
|----------------------------------------------------------------------------------------|--------|
| J.                  Kimbrough Davis                                                    |   |
| Executive                  Vice President and Chief                  Financial Officer |   |
|                                                                                   |   |
| Date:                  November 9, 2006                                                |   |

----