Capital City had another solid year, despite a very challenging operating environment in 2007. Earnings for the year totaled $29.7 million or $1.66 per diluted share, as compared to $33.3 million or $1.79 per diluted share in 2006. The results produced a return on assets of 1.18% and return on equity of 9.68%. We continued focusing on our clients and meeting their needs during these challenging times, and as a result we are now in a position of strength which will serve us well in 2008 and enable us to capitalize on the growth and opportunities in our markets in Florida, Georgia, and Alabama.

I believe our associates set us apart from the competition and we continue to invest in them, and in turn, our future. We focused our internal efforts on reshaping our organization with a renewed focus on sales and service.

Due to a declining economy, in part driven by a slowdown in housing and real estate markets, 2007 financial results were down, compared to 2006. Though our performance is a reflection of the industry as a whole, Capital City had a number of milestone events during 2007.

While many banks in our industry are scrambling to raise capital, we repurchased a total of 1,404,364 shares of our stock, returning more than $43 million to our shareowners in addition to a dividend in excess of $12 million. Although we experienced margin compression in 2007, we were able to take advantage of our strong core deposit funding base and stratify rate structures to minimize the impact of the Federal Reserve’s three rate reductions (100 basis points) during the year.

Our low-cost core funding base, driven in part by our strategy and incredible service and sales efforts, continued to afford Capital City an enviable competitive advantage with regard to the management of our net interest margin, which was 5.10% for 2007. Our loan loss provision for the year of $6.2 million was higher than in 2006 and mirrors the overall decline in real estate markets we serve. We believe credit quality throughout our portfolio is sound and there are no significant concentrations in any particular borrower segment. Credit quality remains our number one strategic objective, and continued risk assessment is of utmost importance as we move into 2008.

Noninterest income, which grew 6.7% in 2007, represents more than 34% of our operating revenue and compares very favorably with our peer group at 21%. We constantly look for ways to enhance and diversify our revenue sources and continue to make significant strides in this area.

One of the most encouraging highlights of 2007 was the improvement in managing our operating expenses. Efforts to better control operating expenses that began in 2006 paid dividends in 2007, as evidenced by a meager .35% increase in noninterest expense over 2006.

As I write this letter, the daily reports on the economy are pretty discouraging. From where I sit, I am more encouraged. The markets Capital City serves are not immune to economic slowdowns, but have been and are weathering the storm better than what I hear on the nightly news or read in the daily newspaper. The major economic engines driving the majority of Capital City markets are education, healthcare and government. These engines continue to provide economic diversity and stability. While the upturn in the economy is likely to be jagged as the economy improves, I believe the sun will shine in 2009. Capital City is well capitalized, which gives us both the strength and flexibility to take advantage of those opportunities that naturally arise in a difficult environment. We remain committed to our clients, associates, shareowners, communities and the future of Capital City.

As always, I welcome your comments and questions.

Capital City Bank—more than your bank, your banker.

William G. Smith, Jr.
Chairman, President and
Chief Executive Officer