ThZeal - The Zeal

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON,

D.C.

20549

FORM

10-Q

☒

QUARTERLY REPORT

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

For the Quarterly Period Ended

September 30, 2023

☐

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

For the transition period from ____________ to ____________

Commission File Number:

0-13358

Capital City Bank Group, Inc.

(Exact name of Registrant as specified in its charter)

Florida

59-2273542

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

217 North Monroe Street

Tallahassee

Florida

32301

(Address of principal executive office)

(Zip Code)

(

850

)

402-7821

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, Par value $0.01

CCBG

Nasdaq Stock Market

, LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of

1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such

filing requirements for the past 90 days.

Yes

[X] No [ ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405

of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit

such files).

Yes

[X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company,

an emerging growth company.

See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth

company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any

new or revised financial accounting standards pursuant to Section 13(a) of The Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [

]

[X]

At October 26, 2023,

16,958,056

shares of the Registrant’s Common Stock, $.01 par value, were outstanding.

CAPITAL CITY BANK

GROUP,

INC.

QUARTERLY

REPORT ON FORM 10-Q

FOR THE PERIOD ENDED SEPTEMBER 30, 2023

TABLE OF CONTENTS

PART I –

Financial Information

Page

Item 1.

Consolidated Financial Statements (Unaudited)

Consolidated Statements of Financial Condition – September 30, 2023 and December 31, 2022

Consolidated Statements of Income – Three and Nine Months Ended September 30, 2023 and 2022

Consolidated Statements of Comprehensive Income (Loss) – Three and Nine Months Ended September 30, 2023 and 2022

Consolidated Statements of Changes in Shareowners’ Equity – Three and Nine Months Ended September 30, 2023 and 2022

Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2023 and 2022

Notes to Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

Item 4.

Controls and Procedures

PART II –

Other Information

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosure

Item 5.

Other Information

Item 6.

Exhibits

Signatures

INTRODUCTORY NOTE

Caution Concerning Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform

Act of 1995. These forward-looking statements include, among others, statements about our beliefs, plans, objectives, goals, expectations,

estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors, many of

which are beyond our control.

The words “may,” “could,” “should,” “would,” “believe,”

“anticipate,” “estimate,” “expect,” “intend,” “plan,”

“target,” “goal,” and similar expressions are intended to identify forward-looking statements.

All forward-looking statements, by their nature, are subject to risks and uncertainties.

Our actual future results may differ materially from

those set forth in our forward-looking statements.

Our ability to

achieve our financial objectives

could be adversely affected

by the factors discussed

in detail in Part

I, Item 2. “Management’s

Discussion and

Analysis of Financial

Condition and

Results of Operations”

and Part II,

Item 1A. “Risk

Factors” in this

Quarterly Report

Form 10-Q and

the following sections

of our Annual

Report on Form

10-K/A for the

year ended December

31, 2022, filed

on December 22,

2023 (the

“2022 Form

10-K/A”): (a)

“Introductory Note”

in Part

I, Item

1. “Business”;

(b) “Risk

Factors” in

Part I,

Item 1A,

as updated

our

subsequent

quarterly

reports

filed

Form

10-Q;

and

(c)

“Introduction”

“Management’s

Discussion

and

Analysis

Financial

Condition and Results of Operations,” in Part II, Item 7, as well as:

●

our ability to successfully manage credit risk, interest rate risk, liquidity risk, and other risks inherent to our industry;

●

legislative or regulatory changes;

●

adverse developments in the financial services industry generally, such as bank failures and any related impact on depositor behavior;

●

the effects of changes in the level of checking or savings account deposits and the competition for deposits on our funding costs, net

interest margin and ability to replace maturing deposits and advances, as necessary;

●

inflation, interest rate, market and monetary fluctuations;

●

uncertainty in the pricing of residential mortgage loans that we sell, as well as competition for the mortgage servicing rights related to these

loans and related interest rate risk or price risk resulting from retaining mortgage servicing rights and the potential effects of higher interest

rates on our loan origination volumes;

●

the effects of actions taken by governmental agencies to stabilize the recent volatility in the financial system and the effectiveness of such

actions;

●

changes in monetary and fiscal policies of the U.S. Government;

●

the effects of security breaches and computer viruses that may affect our computer systems or fraud related to debit card products;

●

the accuracy of our financial statement estimates and assumptions, including the estimates used for our allowance for credit losses,

deferred tax asset valuation and pension plan;

●

changes in our liquidity position;

●

changes in accounting principles, policies, practices or guidelines;

●

the frequency and magnitude of foreclosure of our loans;

●

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

●

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

●

our ability to declare and pay dividends, the payment of which is subject to our capital requirements;

●

changes in the securities and real estate markets;

●

structural changes in the markets for origination, sale and servicing of residential mortgages;

●

the effect of corporate restructuring, acquisitions or dispositions, including the actual restructuring and other related charges and the failure

to achieve the expected gains, revenue growth or expense savings from such corporate restructuring, acquisitions or dispositions;

●

the effects of natural disasters, harsh weather conditions (including hurricanes), widespread health emergencies (including pandemics, such

as the COVID-19 pandemic), military conflict, acts of war, terrorism, civil unrest or other geopolitical events;

●

our ability to comply with the extensive laws and regulations to which we are subject, including the laws for each jurisdiction where we

operate;

●

the impact of the restatement of our previously issued financial statements as of and for the year ended December 31, 2022, the three

months ended March 31, 2022 and 2023, the three and six months ended June 30, 2022 and 2023, and the three and nine months ended

September 30, 2022;

●

any inability to implement and maintain effective internal control over financial reporting or inability to remediate our existing material

weaknesses in our internal controls deemed ineffective;

●

the willingness of clients to accept third-party products and services rather than our products and services and vice versa;

●

increased competition and its effect on pricing;

●

technological changes;

●

the outcomes of litigation or regulatory proceedings;

●

negative publicity and the impact on our reputation;

●

changes in consumer spending and saving habits;

●

growth and profitability of our noninterest income;

●

the limited trading activity of our common stock;

●

the concentration of ownership of our common stock;

●

anti-takeover provisions under federal and state law as well as our Articles of Incorporation and our Bylaws;

●

other risks described from time to time in our filings with the Securities and Exchange Commission; and

●

our ability to manage the risks involved in the foregoing.

However, other factors besides those listed in

Item 1A Risk Factors

or discussed in this Form 10-Q also could adversely affect our results,

and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties.

Any forward-looking

statements made by us or on our behalf speak only as of the date they are made.

We do not undertake to update any forward-looking

statement, except as required by applicable law.

PART

FINANCIAL INFORMATION

Item 1.

CAPITAL CITY BANK

GROUP,

INC.

CONSOLIDATED STATEMENTS

OF FINANCIAL CONDITION

(Unaudited)

September 30,

December 31,

(Dollars in Thousands, Except Par Value)

2023

2022

ASSETS

Cash and Due From Banks

72,379

72,114

Federal Funds Sold and Interest Bearing Deposits

95,119

528,536

Total Cash and Cash Equivalents

167,498

600,650

Investment Securities, Available

for Sale, at fair value (amortized cost of $

375,476

and $

455,232

)

334,052

413,294

Investment Securities, Held to Maturity (fair value of $

582,648

and $

612,701

)

632,076

660,744

Equity Securities

3,585

Total Investment

Securities

969,713

1,074,048

Loans Held For Sale, at fair value

34,013

26,909

Loans Held for Investment

2,705,181

2,547,685

Allowance for Credit Losses

(29,083)

(25,068)

Loans Held for Investment, Net

2,676,098

2,522,617

Premises and Equipment, Net

81,677

82,138

Goodwill and Other Intangibles

92,973

93,093

Other Real Estate Owned

431

Other Assets

116,314

119,337

Total Assets

4,138,287

4,519,223

LIABILITIES

Deposits:

Noninterest Bearing Deposits

1,472,165

1,653,620

Interest Bearing Deposits

2,068,280

2,285,697

Total Deposits

3,540,445

3,939,317

Short-Term

Borrowings

41,696

56,793

Subordinated Notes Payable

52,887

Other Long-Term

Borrowings

364

513

Other Liabilities

75,585

73,675

Total Liabilities

3,710,977

4,123,185

Temporary Equity

7,604

8,757

SHAREOWNERS’ EQUITY

Preferred Stock, $

0.01

par value;

3,000,000

shares authorized;

shares issued and outstanding

Common Stock, $

0.01

par value;

90,000,000

shares authorized;

16,957,753

and

16,986,785

shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively

170

Additional Paid-In Capital

36,182

37,331

Retained Earnings

418,030

387,009

Accumulated Other Comprehensive Loss, net of tax

(34,676)

(37,229)

Total Shareowners’

Equity

419,706

387,281

Total Liabilities, Temporary

Equity, and Shareowners’ Equity

4,138,287

4,519,223

The accompanying Notes to Consolidated Financial Statements are

an integral part of these statements.

CAPITAL CITY BANK

GROUP,

INC.

CONSOLIDATED STATEMENTS

OF INCOME

(Unaudited)

Three Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in Thousands, Except Per Share

Data)

2023

2022

2023

2022

INTEREST INCOME

Loans, including Fees

39,344

27,839

111,845

74,536

Investment Securities:

Taxable

4,550

4,360

14,265

11,083

Tax Exempt

Funds Sold

1,848

3,231

8,741

5,048

Total Interest Income

45,753

35,442

134,886

90,692

INTEREST EXPENSE

Deposits

5,214

1,052

11,710

1,542

Short-Term

Borrowings

630

536

1,542

1,071

Subordinated Notes Payable

625

443

1,800

1,130

Other Long-Term

Borrowings

Total Interest Expense

6,473

2,037

15,067

3,766

NET INTEREST INCOME

39,280

33,405

119,819

86,926

Provision for Credit Losses

2,393

2,154

7,689

3,878

Net Interest Income After Provision For Credit Losses

36,887

31,251

112,130

83,048

NONINTEREST INCOME

Deposit Fees

5,456

5,947

16,021

16,585

Bank Card Fees

3,684

3,860

11,205

11,657

Wealth Management

Fees

3,984

3,937

12,061

14,410

Mortgage Banking Revenues

1,839

2,895

8,072

11,807

Other

1,765

1,870

7,093

5,426

Total Noninterest

Income

16,728

18,509

54,452

59,885

NONINTEREST EXPENSE

Compensation

23,003

22,967

69,965

68,487

Occupancy, Net

6,980

6,153

20,562

18,321

Other

9,122

8,579

26,539

25,564

Total Noninterest

Expense

39,105

37,699

117,066

112,372

INCOME BEFORE INCOME TAXES

14,510

12,061

49,516

30,561

Income Tax Expense

3,004

2,493

10,130

5,898

NET INCOME

11,506

9,568

39,386

24,663

Loss (Income) Attributable to Noncontrolling Interests

1,149

1,153

(860)

NET INCOME ATTRIBUTABLE

TO COMMON SHAREOWNERS

12,655

9,605

40,539

23,803

BASIC NET INCOME PER SHARE

0.75

0.57

2.38

1.40

DILUTED NET INCOME PER SHARE

0.74

0.57

2.38

1.40

Average Common

Basic Shares Outstanding

16,985

16,960

17,001

16,947

Average Common

Diluted Shares Outstanding

17,025

16,996

17,031

16,973

The accompanying Notes to Consolidated Financial Statements are

an integral part of these statements.

CAPITAL CITY BANK

GROUP,

INC.

CONSOLIDATED STATEMENTS

OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

Three Months Ended

Nine Months Ended

September 30,

(Dollars in Thousands)

2023

2022

2023

2022

NET INCOME ATTRIBUTABLE

TO COMMON SHAREOWNERS

12,655

9,605

40,539

23,803

Other comprehensive (loss) income, before

tax:

Investment Securities:

Change in net unrealized gain/loss on securities available for sale

to held to maturity

(3,405)

(2,618)

516

(38,778)

Unrealized losses on securities transferred from available for sale

to held to maturity

(9,384)

Amortization of unrealized losses on securities transferred from

available for sale to held to maturity

887

586

2,628

586

Derivative:

Change in net unrealized gain on effective cash flow

derivative

770

1,407

553

4,403

Benefit Plans:

Pension plan settlement

102

(217)

480

Total Benefit Plans

102

(217)

480

Other comprehensive (loss) income, before

tax

(1,748)

(9,907)

3,480

(42,693)

Deferred tax (benefit) expense related to other comprehensive income

(444)

(2,469)

927

(10,704)

Other comprehensive (loss) income, net of tax

(1,304)

(7,438)

2,553

(31,989)

TOTAL COMPREHENSIVE

INCOME (LOSS)

11,351

2,167

43,092

(8,186)

The accompanying Notes to Consolidated Financial Statements are

an integral part of these statements.

CAPITAL CITY BANK

GROUP,

INC.

CONSOLIDATED STATEMENTS

OF CHANGES IN SHAREOWNERS’ EQUITY

(Unaudited)

Accumulated

Other

Additional

Comprehensive

Common

Paid-In

Retained

(Loss) Income,

(Dollars In Thousands, Except Share Data)

Outstanding

Stock

Capital

Earnings

Net of Taxes

Total

Balance, July 1, 2023

16,991,634

170

36,853

408,771

(33,372)

412,422

Net Income Attributable to Common Shareowners

12,655

Other Comprehensive Loss, net of tax

(1,304)

Cash Dividends ($

0.2000

per share)

(3,396)

Repurchase of Common Stock

(36,411)

(1,099)

Stock Based Compensation

346

Stock Compensation Plan Transactions, net

2,530

Balance, September 30, 2023

16,957,753

170

36,182

418,030

(34,676)

419,706

Balance, July 1, 2022

16,959,280

170

35,738

373,562

(40,765)

368,705

Net Income Attributable to Common Shareowners

9,605

Other Comprehensive Loss, net of tax

(7,438)

Cash Dividends ($

0.1700

per share)

(2,883)

Stock Based Compensation

415

Stock Compensation Plan Transactions, net

2,532

Balance, September 30, 2022

16,961,812

170

36,234

380,284

(48,203)

368,485

Balance, January 1, 2023

16,986,785

170

37,331

387,009

(37,229)

387,281

Net Income Attributable to Common Shareowners

40,539

Other Comprehensive Income, net of tax

2,553

Cash Dividends ($

0.5600

per share)

(9,518)

Repurchase of Common Stock

(102,147)

(3,121)

Stock Based Compensation

1,110

Stock Compensation Plan Transactions, net

73,115

862

Balance, September 30, 2023

16,957,753

170

36,182

418,030

(34,676)

419,706

Balance, January 1, 2022

16,892,060

169

34,423

364,788

(16,214)

383,166

Net Income Attributable to Common Shareowners

23,803

Other Comprehensive Loss, net of tax

(31,989)

Cash Dividends ($

0.4900

per share)

(8,307)

Stock Based Compensation

904

Stock Compensation Plan Transactions, net

69,752

907

908

Balance, September 30, 2022

16,961,812

170

36,234

380,284

(48,203)

368,485

The accompanying Notes to Consolidated Financial Statements are

an integral part of these statements.

CAPITAL CITY BANK

GROUP,

INC.

CONSOLIDATED STATEMENTS

OF CASH FLOWS

(Unaudited)

Nine Months Ended September 30,

(Dollars in Thousands)

2023

2022

CASH FLOWS FROM OPERATING

ACTIVITIES

Net Income Attributable to Common Shareowners

40,539

23,803

Adjustments to Reconcile Net Income to

Cash Provided by Operating Activities:

Provision for Credit Losses

7,689

3,878

Depreciation

5,920

5,689

Amortization of Premiums, Discounts and Fees, net

3,216

6,618

Amortization of Intangible Asset

120

Pension Plan Settlement (Gain) Charge

(291)

480

Originations of Loans Held-for-Sale

(222,575)

(772,089)

Proceeds From Sales of Loans Held-for-Sale

223,543

813,267

Mortgage Banking Revenues

(8,072)

(11,807)

Net Additions for Capitalized Mortgage Servicing Rights

(392)

570

Stock Compensation

1,110

904

Net Tax Benefit from

Stock-Based Compensation

(19)

Deferred Income Taxes

(2,464)

(12,854)

Net Change in Operating Leases

(12)

(83)

Net Gain on Sales and Write-Downs of Other Real Estate Owned

(1,915)

(136)

Net Decrease in Other Assets

8,207

3,696

Net Increase in Other Liabilities

1,069

12,839

Net Cash Provided By Operating Activities

55,692

74,876

CASH FLOWS FROM INVESTING ACTIVITIES

Securities Held to Maturity:

Purchases

(219,865)

Proceeds from Payments, Maturities, and Calls

28,159

40,096

Securities Available for

Sale:

Purchases

(9,399)

(41,880)

Proceeds from Sale of Securities

30,420

3,365

Proceeds from Payments, Maturities, and Calls

53,045

64,301

Purchases of Loans Held for Investment

(295,360)

(329,481)

Net Decrease (Increase) in Loans Held for Investment

132,105

(113,116)

Proceeds From Sales of Other Real Estate Owned

3,840

1,683

Purchases of Premises and Equipment

(5,459)

(4,013)

Noncontrolling Interest Contributions

2,867

Net Cash Used In Investing Activities

(62,649)

(596,043)

CASH FLOWS FROM FINANCING ACTIVITIES

Net (Decrease) Increase in Deposits

(398,872)

46,516

Net (Decrease) Increase in Short-Term

Borrowings

(15,097)

17,592

Repayment of Other Long-Term

Borrowings

(149)

(200)

Dividends Paid

(9,518)

(8,307)

Payments to Repurchase Common Stock

(3,121)

Proceeds from Issuance of Common Stock Under Purchase Plans

562

577

Net Cash (Used In) Provided by Financing Activities

(426,195)

56,178

NET DECREASE IN CASH AND CASH EQUIVALENTS

(433,152)

(464,989)

Cash and Cash Equivalents at Beginning of Period

600,650

1,035,354

Cash and Cash Equivalents at End of Period

167,498

570,365

Supplemental Cash Flow Disclosures:

Interest Paid

15,026

3,588

Income Taxes Paid

7,395

6,410

Noncash Investing and Financing Activities:

Loans Transferred to Other Real Estate Owned

1,495

1,543

The accompanying Notes to Consolidated Financial Statements are

an integral part of these statements.

CAPITAL CITY BANK

GROUP,

INC.

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

NOTE 1 –

BUSINESS AND BASIS OF PRESENTATION

Nature of Operations

Capital City Bank Group, Inc. (“CCBG” or the “Company”) provides a full range of

banking and banking-

related services to individual and corporate clients through its subsidiary,

Capital City Bank, with banking offices located in Florida,

Georgia, and Alabama.

The Company is subject to competition from other financial institutions, is subject to

regulation by certain

government agencies and undergoes periodic examinations

by those regulatory authorities.

On March 1, 2020, CCB completed its acquisition of

% of the membership interests in Brand Mortgage Group, LLC, which is now

operated as Capital City Home Loans, LLC (“CCHL”).

CCHL was consolidated into CCBG’s financial

statements effective upon the

date of the acquisition.

The terms of the transaction included a buyout call/put option for CCB to purchase the remaining

% of the

membership interests in CCHL (the “

% Interest”) that are held by BMGBMG, LLC (“BMG”).

The option requires 12 months

advance notice to the other party,

and under the terms of the option, January 1, 2025 is the earliest date the transfer

of the

% Interest

may be completed. On December 20, 2023, BMG notified CCB that BMG will exercise its

put option and the transfer of the

Interest will become effective on January 1, 2025.

Basis of Presentation

The consolidated financial statements in this Quarterly Report on Form

10-Q include the accounts of CCBG

and its wholly owned subsidiary,

Capital City Bank (“CCB” or the “Bank”).

All material inter-company transactions and accounts

have been eliminated.

Certain previously reported amounts have been reclassified to conform to the current year’s

presentation.

The accompanying unaudited consolidated financial statements have

been prepared in accordance with generally accepted accounting

principles for interim financial information and with the instructions to Form

10-Q and Article 10 of Regulation S-X.

Accordingly,

they do not include all of the information and notes required by generally accepted

accounting principles for complete financial

statements.

In the opinion of management, all adjustments (consisting of normal

recurring accruals) considered necessary for a fair

presentation have been included.

The Consolidated Statement of Financial Condition at December

31, 2022 has been derived from the audited consolidated financial

statements at that date, but does not include all of the information and notes

required by generally accepted accounting principles for

complete financial statements.

For further information, refer to the consolidated financial statements and notes

thereto included in the

Company’s annual report

on Form 10-K/A for the year ended December 31, 2022.

Accounting Standards Updates

Adoption of New Accounting Standard,

On January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) 2022-02,

“Financial Instruments – Credit Losses (Topic

326), Troubled Debt Restructurings and Vintage

Disclosures.” ASU 2022-02 eliminates

the accounting guidance for troubled debt restructurings in Accounting

Standards Codification (“ASC”) 310-40, “Receivables -

Troubled Debt Restructurings by Creditors

”

for entities that have adopted the current expected credit loss model introduced

by ASU

2016-13, “Financial Instruments – Credit Losses (Topic

326), Measurement of Credit Losses on Financial Instruments.”

ASU 2022-

02 also requires that public business entities disclose current-period

gross charge-offs by year of origination for financing receivables

and net investments in leases within the scope of Subtopic 326-20, “Financial

Instruments—Credit Losses—Measured at Amortized

Cost.”

Proposed Accounting Standards

ASU

2023-01, “Leases (Topic

842)

Common Control Arrangements.” ASU 2023-01 requires

entities to amortize leasehold improvements associated with common control

leases over the useful life to the common control group.

ASU 2023-01 also provides certain practical expedients applicable to private

companies and not-for-profit organizations. ASU 2023-

01 will be effective for the Company on January 1, 2024, though

early adoption is permitted. The Company is evaluating the effect

that ASU 2023-01 will have on its consolidated financial statements and related disclosures.

ASU No.

2023-02, “Investments—Equity Method and Joint Ventures

(Topic

323)

: Accounting for Investments in Tax

Credit

Structures Using the Proportional Amortization Method.” ASU 2023-02

is intended to improve the accounting and disclosures for

investments in tax credit structures. ASU 2023-02 allows entities to elect to account

for qualifying tax equity investments using the

proportional amortization method, regardless of the program giving

rise to the related income tax credits. Previously,

this method was

only available for qualifying tax equity investments in low-income

housing tax credit structures. ASU 2023-02 will be effective for the

Company on January 1, 2024, though early adoption is permitted. The

Company is evaluating the effect that ASU 2023-02 will have

on its consolidated financial statements and related disclosures.

ASU No. 2023-06, “Disclosure Improvements:

Codification Amendments in Response to the SEC’s

Disclosure Update and

Simplification Initiative.”

ASU 2023-06 is intended to clarify or improve disclosure and presentation

requirements of a variety of

topics, which will allow users to more easily compare entities subject to the SEC’s

existing disclosures with those entities that were

not previously subject to the requirements and align the requirements in the

FASB accounting standard

codification with the SEC’s

regulations. The Company is currently evaluating the provisions of

the amendments and the impact on its future consolidated

statements.

NOTE 2 –

INVESTMENT SECURITIES

Investment Portfolio Composition

. The following table summarizes the amortized cost and related fair value of investment

securities available-for-sale (“AFS”) and securities held-to-maturity (“HTM”)

and the corresponding amounts of gross

unrealized gains and losses.

Available for

Sale

Amortized

Unrealized

Allowance for

Fair

(Dollars in Thousands)

Cost

Gains

Losses

Credit Losses

Value

September 30, 2023

U.S. Government Treasury

22,036

1,727

20,309

U.S. Government Agency

160,275

11,328

148,962

States and Political Subdivisions

46,479

6,272

(12)

40,195

Mortgage-Backed Securities

(1)

74,556

13,954

60,602

Corporate Debt Securities

63,871

8,115

(31)

55,725

Other Securities

(2)

8,259

Total

375,476

41,396

(43)

334,052

December 31, 2022

U.S. Government Treasury

23,977

1,928

22,050

U.S. Government Agency

198,888

12,863

186,052

States and Political Subdivisions

47,197

6,855

(13)

40,329

Mortgage-Backed Securities

(1)

80,829

11,426

69,405

Corporate Debt Securities

97,119

8,874

(28)

88,236

Other Securities

(2)

7,222

Total

455,232

41,946

(41)

413,294

Held to Maturity

Amortized

Unrealized

Fair

(Dollars in Thousands)

Cost

Gains

Losses

Value

September 30, 2023

U.S. Government Treasury

457,602

24,452

433,150

Mortgage-Backed Securities

(1)

174,474

24,976

149,498

Total

632,076

49,428

582,648

December 31, 2022

U.S. Government Treasury

457,374

25,641

431,733

Mortgage-Backed Securities

(1)

203,370

22,410

180,968

Total

660,744

48,051

612,701

(1)

Comprised of residential mortgage-backed

securities

(2)

Includes Federal Home Loan Bank and Federal Reserve Bank stock,

recorded at cost of $

3.2

million and $

5.1

million,

respectively,

at September 30, 2023 and $

2.1

million and $

5.1

million, respectively,

at December 31, 2022.

At September 30, 2023 and December 31, 2022, the investment portfolio

had $

3.6

million and $

0.01

million, respectively in equity

securities. These securities do not have a readily determinable fair value

and were not credit impaired.

Securities with an amortized cost of $

463.6

million and $

656.1

million at September 30, 2023 and December 31, 2022, respectively,

were pledged to secure public deposits and for other purposes.

The Bank, as a member of the Federal Home Loan Bank of Atlanta (“FHLB”), is required

to own capital stock in the FHLB based

generally upon the balances of residential and commercial real estate loans and FHLB

advances.

FHLB stock, which is included in

other securities,

is pledged to secure FHLB advances.

No ready market exists for this stock, and it has no quoted fair value; however,

redemption of this stock has historically been at par value.

As a member of the Federal Reserve Bank of Atlanta, the Bank is required to maintain

stock in the Federal Reserve Bank of Atlanta

based on a specified ratio relative to the Bank’s

capital.

Federal Reserve Bank stock is carried at cost.

During the third quarter of 2022, the Company transferred certain securities from

the AFS to HTM classification.

Transfers are made

at fair value on the date of the transfer.

The

securities had an amortized cost basis and fair value of $

168.4

million and $

159.0

million, respectively at the time of transfer.

The net unamortized, unrealized loss on the transferred securities included

in accumulated

other comprehensive loss in the accompanying statement of financial condition

at September 30, 2023 totaled $

5.3

million.

This

amount will continue to be amortized out of accumulated other comprehensive

loss over the remaining life of the underlying securities

as an adjustment of the yield on those securities.

Investment Sales.

There were $

30.4

million in sales of investment securities for the three and nine months ended

September 30, 2023.

There were

significant sales of investment securities for the three months ended September 30, 2022

and $

3.4

million in sales for

the nine months ended September 30, 2022.

Maturity Distribution

At September 30, 2023, the Company’s

investment securities had the following maturity distribution based on

contractual maturity.

Expected maturities may differ from contractual maturities because borrowers

may have the right to call or

prepay obligations.

Mortgage-backed securities (“MBS”) and certain amortizing U.S. government

agency securities are shown

separately because they are not due at a certain maturity date.

Available for

Sale

Held to Maturity

(Dollars in Thousands)

Amortized Cost

Fair Value

Amortized Cost

Fair Value

Due in one year or less

26,628

25,874

Due after one year through five years

132,264

119,087

457,602

433,150

Due after five year through ten years

45,924

37,331

Mortgage-Backed Securities

74,556

60,602

174,474

149,498

U.S. Government Agency

87,845

82,899

Other Securities

8,259

Total

375,476

334,052

632,076

582,648

Unrealized Losses on Investment Securities.

The following table summarizes the available for sale investment securities with

unrealized losses aggregated by major security type and length of time in a continuous

unrealized loss position:

Less Than

Greater Than

12 Months

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

(Dollars in Thousands)

Value

Losses

Value

Losses

Value

Losses

September 30, 2023

Available for

Sale

U.S. Government Treasury

19,318

1,727

19,318

1,727

U.S. Government Agency

11,833

134,243

11,239

146,076

11,328

States and Political Subdivisions

835

37,981

6,246

38,816

6,272

Mortgage-Backed Securities

60,492

13,953

60,583

13,954

Corporate Debt Securities

55,756

8,115

55,756

8,115

Total

12,759

116

307,790

41,280

320,549

41,396

Held to Maturity

U.S. Government Treasury

433,150

24,452

433,150

24,452

Mortgage-Backed Securities

998

148,500

24,938

149,498

24,976

Total

998

581,650

49,390

582,648

49,428

December 31, 2022

Available for

Sale

U.S. Government Treasury

983

19,189

1,928

20,172

1,928

U.S. Government Agency

63,112

2,572

113,004

10,291

176,116

12,863

States and Political Subdivisions

1,425

38,760

6,853

40,185

6,855

Mortgage-Backed Securities

6,594

959

60,458

10,467

67,052

11,426

Corporate Debt Securities

26,959

878

58,601

7,996

85,560

8,874

Total

99,073

4,411

290,012

37,535

389,085

41,946

Held to Maturity

U.S. Government Treasury

177,552

11,018

254,181

14,623

431,733

25,641

Mortgage-Backed Securities

88,723

6,814

91,462

15,596

180,185

22,410

Total

266,275

17,832

345,643

30,219

611,918

48,051

At September 30, 2023, there were

894

positions (combined AFS and HTM) with unrealized losses totaling $

90.8

million.

of these

positions are U.S. Treasury bonds and carry

the full faith and credit of the U.S. Government.

705

are U.S. government agency

securities issued by U.S. government sponsored entities.

We believe

the long history of no credit losses on government securities

indicates that the expectation of nonpayment of the amortized cost basis is effectively

zero.

The remaining

103

positions (municipal

securities and corporate bonds) have a credit component.

At September 30, 2023, all collateralized mortgage obligation securities

(“CMO”), MBS, Small Business Administration securities (“SBA”), U.S. Agency,

and U.S. Treasury bonds held were AAA rated.

September 30, 2023, corporate debt securities had an allowance for credit

losses of $

31,000

and municipal securities had an allowance

of $

12,000

Credit Quality Indicators

The Company monitors the credit quality of its investment securities through

various risk management procedures, including the

monitoring of credit ratings.

A majority of the debt securities in the Company’s

investment portfolio were issued by a U.S.

government entity or agency and are either explicitly or implicitly guaranteed

by the U.S. government.

The Company believes the

long history of no credit losses on these securities indicates that the expectation

of nonpayment of the amortized cost basis is

effectively zero, even if the U.S. government were

to technically default.

Further, certain municipal securities held by the Company

have been pre-refunded and secured by government guaranteed treasuries.

Therefore, for the aforementioned securities, the Company

does

t assess or record expected credit losses due to the zero loss assumption.

The Company monitors the credit quality of its

municipal and corporate securities portfolio via credit ratings

which are updated on a quarterly basis.

On a quarterly basis, municipal

and corporate securities in an unrealized loss position are evaluated to determine

if the loss is attributable to credit related factors and

if an allowance for credit loss is needed.

NOTE 3 – LOANS HELD FOR INVESTMENT AND ALLOWANCE

FOR CREDIT LOSSES

Loan Portfolio Composition

The composition of the held for investment (“HFI”) loan portfolio was as follows:

(Dollars in Thousands)

September 30, 2023

December 31, 2022

Commercial, Financial and Agricultural

221,704

247,362

Real Estate – Construction

197,526

234,519

Real Estate – Commercial Mortgage

828,234

782,557

Real Estate – Residential

(1)

967,913

749,513

Real Estate – Home Equity

203,606

208,217

Consumer

(2)

286,198

325,517

Loans Held For Investment, Net of Unearned Income

2,705,181

2,547,685

(1)

Includes loans in process balance of $

2.3

million and $

6.1

million at both September 30, 2023 and December 31, 2022.

(2)

Includes overdraft balances of $

1.1

million at September 30, 2023 and December 31, 2022, respectively.

Net deferred loan costs, which include premiums on purchased loans,

included in loans were $

7.2

million at September 30, 2023 and

5.1

million at December 31, 2022.

Accrued interest receivable on loans which is excluded from amortized

cost totaled $

9.7

million at September 30, 2023 and $

8.0

million at December 31, 2022, and is reported separately in Other Assets.

The Company has pledged a blanket floating lien on all 1-4 family residential mortgage

loans, commercial real estate mortgage loans,

and home equity loans to support available borrowing capacity at the FHLB of

Atlanta and has pledged a blanket floating lien on all

consumer loans, commercial loans, and construction loans to support available

borrowing capacity at the Federal Reserve Bank of

Atlanta.

Loan Purchase and Sales

The Company will periodically purchase newly originated 1-4 family real

estate secured adjustable-rate

loans from Capital City Home Loans (“CCHL”), a related party.

Residential loan purchases from CCHL totaled $

293.1

million and

267.0

million for the nine months ended September 30, 2023 and September

30, 2022, respectively, and were not credit

impaired.

Allowance for Credit Losses

The methodology for estimating the amount of credit losses reported in the

allowance for credit losses

(“ACL”) has two basic components: first, an asset-specific component

involving loans that do not share risk characteristics and the

measurement of expected credit losses for such individual loans; and second,

a pooled component for expected credit losses for pools

of loans that share similar risk characteristics.

This allowance methodology is discussed further in Note 1 – Significant

Accounting

Policies in the Company’s 2022 Form

10-K/A.

The following table details the activity in the allowance for credit losses by portfolio

segment.

Allocation of a portion of the

allowance to one category of loans does not preclude its availability to absorb

losses in other categories.

Commercial,

Real Estate

Financial,

Real Estate

Commercial

Real Estate

(Dollars in Thousands)

Agricultural

Construction

Mortgage

Residential

Home Equity

Consumer

Total

Three Months Ended

September 30, 2023

Beginning Balance

1,446

2,848

5,453

13,388

1,783

3,325

28,243

Provision for Credit Losses

(59)

(536)

1,356

(71)

1,219

1,993

Charge-Offs

(76)

(1,999)

(2,075)

Recoveries

794

922

Net (Charge-Offs) Recoveries

(48)

(1,205)

(1,153)

Ending Balance

1,339

2,312

5,554

14,774

1,765

3,339

29,083

Nine Months Ended

September 30, 2023

Beginning Balance

1,506

2,654

4,815

10,741

1,864

3,488

25,068

Provision for Credit Losses

(67)

(344)

823

3,814

(269)

3,218

7,175

Charge-Offs

(294)

(120)

(39)

(6,252)

(6,705)

Recoveries

194

219

209

2,885

3,545

Net (Charge-Offs) Recoveries

(100)

(84)

219

170

(3,367)

(3,160)

Ending Balance

1,339

2,312

5,554

14,774

1,765

3,339

29,083

Three Months Ended

September 30, 2022

Beginning Balance

1,641

3,138

5,052

5,827

1,760

4,045

21,463

Provision for Credit Losses

(136)

(22)

(120)

1,388

127

749

1,986

Charge-Offs

(2)

(1)

(1,759)

(1,762)

Recoveries

926

1,060

Net Charge-Offs

(833)

(702)

Ending Balance

1,561

3,118

4,939

7,259

1,909

3,961

22,747

Nine Months Ended

September 30, 2022

Beginning Balance

2,191

3,302

5,810

4,129

2,296

3,878

21,606

Provision for Credit Losses

267

(194)

(697)

2,944

(501)

1,940

3,759

Charge-Offs

(1,179)

(267)

(33)

(4,354)

(5,833)

Recoveries

282

186

147

2,497

3,215

Net Charge-Offs

(897)

(174)

186

114

(1,857)

(2,618)

Ending Balance

1,561

3,118

4,939

7,259

1,909

3,961

22,747

For the nine months ended September 30, 2023, the allowance for

HFI loans increased by $

4.0

million and reflected a provision

expense of $

7.2

million and net loan charge-offs of $

3.2

million.

The increase was primarily driven by incremental reserves needed

for loan growth and a higher loss rate for the residential real estate portfolio due

to slower prepayment speeds.

For the nine months

ended September 30, 2022, the allowance increased by $

1.1

million and reflected a provision expense of $

3.8

million and net loan

charge-offs of $

2.6

million. The increase was driven by incremental reserves needed for loan growth, and

to a lesser extent, a higher

projected rate of unemployment and its potential effect on rates of default.

Unemployment forecast scenarios were utilized to estimate

probability of default and are weighted based on management’s

estimate of probability.

See Note 8 – Commitments and

Contingencies for information on the allowance for off-balance

sheet credit commitments.

Loan Portfolio Aging.

A loan is defined as a past due loan when one full payment is past due or a contractual maturity

is over 30 days

past due (“DPD”).

The following table presents the aging of the amortized cost basis in accruing

past due loans by class of loans.

30-59

60-89

90 +

Total

Nonaccrual

Total

(Dollars in Thousands)

DPD

Past Due

Current

Loans

September 30, 2023

Commercial, Financial and Agricultural

306

106

412

221,236

221,704

Real Estate – Construction

197,251

275

197,526

Real Estate – Commercial Mortgage

393

437

826,888

909

828,234

Real Estate – Residential

331

117

448

965,171

2,294

967,913

Real Estate – Home Equity

420

447

202,692

467

203,606

Consumer

3,040

793

3,833

281,672

693

286,198

Total

4,490

1,087

5,577

2,694,910

4,694

2,705,181

December 31, 2022

Commercial, Financial and Agricultural

109

126

235

247,086

247,362

Real Estate – Construction

359

234,143

234,519

Real Estate – Commercial Mortgage

158

149

307

781,605

645

782,557

Real Estate – Residential

845

530

1,375

747,899

239

749,513

Real Estate – Home Equity

207,411

771

208,217

Consumer

3,666

1,852

5,518

319,415

584

325,517

Total

5,137

2,692

7,829

2,537,559

2,297

2,547,685

Nonaccrual Loans

Loans are generally placed on nonaccrual status if principal or interest payments

become 90 days past due and/or

management deems the collectability of the principal and/or interest to

be doubtful.

Loans are returned to accrual status when the

principal and interest amounts contractually due are brought current

or when future payments are reasonably assured.

The following table presents the amortized cost basis of loans in nonaccrual

status and loans past due over 90 days and still on accrual

by class of loans.

September 30, 2023

December 31, 2022

Nonaccrual

With No

With

90 + Days

With No

With

90 + Days

(Dollars in Thousands)

ACL

Still Accruing

ACL

Still Accruing

Commercial, Financial and Agricultural

Real Estate – Construction

275

Real Estate – Commercial Mortgage

780

129

389

256

Real Estate – Residential

1,084

1,210

239

Real Estate – Home Equity

467

771

Consumer

693

584

Total Nonaccrual

Loans

1,864

2,830

389

1,908

Collateral Dependent Loans.

The following table presents the amortized cost basis of collateral-dependent

loans.

September 30, 2023

December 31, 2022

Real Estate

Non Real Estate

Real Estate

Non Real Estate

(Dollars in Thousands)

Secured

Commercial, Financial and Agricultural

Real Estate – Construction

275

Real Estate – Commercial Mortgage

781

389

Real Estate – Residential

1,084

160

Real Estate – Home Equity

130

Consumer

Total Collateral Dependent

Loans

2,140

700

A loan is collateral dependent when the borrower is experiencing financial

difficulty and repayment of the loan is dependent on

the

sale or operation of the underlying collateral.

The Bank’s collateral dependent

loan portfolio is comprised primarily of real estate secured loans, collateralized

by either residential

or commercial collateral types.

The loans are carried at fair value based on current values determined by

either independent appraisals

or internal evaluations, adjusted for selling costs or other amounts to be deducted

when estimating expected net sales proceeds.

Residential Real Estate Loans In Process of Foreclosure

At September 30, 2023 and December 31, 2022, the Company had $

0.4

million and $

0.6

million, respectively, in

1-4 family residential real estate loans for which formal foreclosure proceedings were

process.

For the nine-month period ended September 30, 2023, the Company did

t modify any loans made to borrowers experiencing

financial difficulty.

Credit Risk Management

The Company has adopted comprehensive lending policies, underwriting standards and

loan review

procedures designed to maximize loan income within an acceptable level

of risk.

Management and the Board of Directors review and

approve these policies and procedures on a regular basis (at least annually).

Reporting systems are used to monitor loan originations, loan quality,

concentrations of credit, loan delinquencies and nonperforming

loans and potential problem loans.

Management and the Credit Risk Oversight Committee periodically review

our lines of business to

monitor asset quality trends and the appropriateness of credit policies.

In addition, total borrower exposure limits are established and

concentration risk is monitored.

As part of this process, the overall composition of the portfolio is reviewed to gauge diversification

of risk, client concentrations, industry group, loan type, geographic area, or other

relevant classifications of loans.

Specific segments

of the loan portfolio are monitored and reported to the Board on a quarterly basis and

have strategic plans in place to supplement

Board approved credit policies governing exposure limits and underwriting

standards.

Detailed below are the types of loans within

the Company’s loan portfolio

and risk characteristics unique to each.

Commercial, Financial, and Agricultural – Loans in this category

are primarily made based on identified cash flows of the borrower

with consideration given to underlying collateral and personal or

other guarantees.

Lending policy establishes debt service coverage

ratio limits that require a borrower’s cash flow to be sufficient

to cover principal and interest payments on all new and existing debt.

The majority of these loans are secured by the assets being financed or other business assets such

as accounts receivable, inventory,

equipment.

Collateral values are determined based upon third party appraisals and evaluations.

Loan to value ratios at origination are

governed by established policy guidelines.

Real Estate Construction – Loans in this category consist of short-term

construction loans, revolving and non-revolving credit lines

and construction/permanent loans made to individuals and investors to finance

the acquisition, development, construction or

rehabilitation of real property.

These loans are primarily made based on identified cash flows of the borrower

or project and generally

secured by the property being financed, including 1-4 family residential properties

and commercial properties that are either owner-

occupied or investment in nature.

These properties may include either vacant or improved property.

Construction loans are generally

based upon estimates of costs and value associated with the completed project.

Collateral values are determined based upon third

party appraisals and evaluations.

Loan to value ratios at origination are governed by established policy guidelines.

The disbursement

of funds for construction loans is made in relation to the progress of the project and

as such these loans are closely monitored by on-

site inspections.

Real Estate Commercial Mortgage – Loans in this category consists of commercial

mortgage loans secured by property that is either

owner-occupied or investment in nature.

These loans are primarily made based on identified cash flows of the borrower or

project

with consideration given to underlying real estate collateral and

personal guarantees.

Lending policy establishes debt service

coverage ratios and loan to value ratios specific to the property type.

Collateral values are determined based upon third party

appraisals and evaluations.

Real Estate Residential – Residential mortgage loans held in the Company’s

loan portfolio are made to borrowers that demonstrate the

ability to make scheduled payments with full consideration to underwriting

factors such as current income, employment status, current

assets, and other financial resources, credit history,

and the value of the collateral.

Collateral consists of mortgage liens on 1-4 family

residential properties.

Collateral values are determined based upon third party appraisals and evaluations.

The Company does not

originate sub-prime loans.

Real Estate Home Equity – Home equity loans and lines are made to qualified individuals

for legitimate purposes generally secured

by senior or junior mortgage liens on owner-occupied

1-4 family homes or vacation homes.

Borrower qualifications include

favorable credit history combined with supportive income and debt ratio

requirements and combined loan to value ratios within

established policy guidelines.

Collateral values are determined based upon third party appraisals and evaluations.

Consumer Loans – This loan portfolio includes personal installment loans, direct

and indirect automobile financing, and overdraft

lines of credit.

The majority of the consumer loan category consists of direct and indirect automobile

loans.

Lending policy

establishes maximum debt to income ratios, minimum credit scores, and

includes guidelines for verification of applicants’ income and

receipt of credit reports.

Credit Quality Indicators

As part of the ongoing monitoring of the Company’s

loan portfolio quality, management

categorizes loans

into risk categories based on relevant information about the ability of borrowers to

service their debt such as: current financial

information, historical payment performance, credit documentation,

and current economic and market trends, among other

factors.

Risk ratings are assigned to each loan and revised as needed through established monitoring

procedures for individual loan

relationships over a predetermined amount and review of smaller balance homogenous

loan pools.

The Company uses the definitions

noted below for categorizing and managing its criticized loans.

Loans categorized as “Pass” do not meet the criteria set forth below

and are not considered criticized.

Special Mention – Loans in this category are presently protected from loss, but

weaknesses are apparent which, if not corrected, could

cause future problems.

Loans in this category may not meet required underwriting criteria and

have no mitigating factors.

More than

the ordinary amount of attention is warranted for these loans.

Substandard – Loans in this category exhibit well-defined weaknesses that would

typically bring normal repayment into jeopardy.

These loans are no longer adequately protected due to well-defined

weaknesses that affect the repayment capacity of the

borrower.

The possibility of loss is much more evident and above average supervision is required for

these loans.

Doubtful – Loans in this category have all the weaknesses inherent in a loan categorized

as Substandard, with the characteristic that

the weaknesses make collection or liquidation in full, on the basis of currently

existing facts, conditions, and values, highly

questionable and improbable.

Performing/Nonperforming – Loans within certain homogenous

loan pools (home equity and consumer) are not individually reviewed,

but are monitored for credit quality via the aging status of the loan and by payment

activity.

The performing or nonperforming status

is updated on an on-going basis dependent upon improvement and

deterioration in credit quality.

The following table summarizes gross loans held for investment at September

30, 2023 and current period gross write-offs for the nine

months ended September 30, 2023 by years of origination and internally

assigned credit risk ratings (refer to Credit Risk Management

section for detail on risk rating system).

Term

Loans by Origination Year

Revolving

(Dollars in Thousands)

2023

2022

2021

2020

2019

Prior

Loans

Total

Commercial, Financial,

Agriculture:

Pass

40,571

72,609

32,101

12,418

8,920

9,055

44,290

219,964

Special Mention

182

461

405

1,156

Substandard

106

108

150

111

584

Total

40,753

73,176

32,614

12,511

8,960

9,213

44,477

221,704

Current-Period Gross

Writeoffs

149

294

Real Estate -

Construction:

Pass

76,755

88,831

22,609

1,214

189

5,482

195,080

Special Mention

568

625

214

1,407

Substandard

378

661

1,039

Total

77,323

88,831

23,612

2,089

189

5,482

197,526

Real Estate -

Commercial Mortgage:

Pass

93,098

277,464

154,743

108,076

44,874

115,068

16,059

809,382

Special Mention

3,299

316

233

1,373

1,014

6,235

Substandard

1,250

6,781

1,651

614

1,627

694

12,617

Total

96,397

279,030

161,524

109,960

46,861

117,709

16,753

828,234

Current-Period Gross

Writeoffs

120

Real Estate - Residential:

Pass

294,155

434,902

86,357

39,468

26,126

71,667

8,031

960,706

Special Mention

269

225

510

542

1,636

Substandard

790

106

204

479

918

3,074

5,571

Total

295,214

435,098

86,786

40,457

27,044

75,283

8,031

967,913

Real Estate - Home

Equity:

Performing

145

130

388

997

201,397

203,139

Nonperforming

467

Total

145

130

388

997

202,257

203,606

Current-Period Gross

Writeoffs

Consumer:

Performing

57,755

99,327

79,230

24,375

12,417

6,387

6,014

285,505

Nonperforming

226

202

193

693

Total

57,824

99,553

79,432

24,568

12,417

6,390

6,014

286,198

Current-Period Gross

Writeoffs

2,322

2,199

1,075

228

200

134

6,252

NOTE 4 – MORTGAGE BANKING ACTIVITIES

The Company’s mortgage

banking activities include mandatory delivery loan sales, forward sales contracts used

to manage residential

loan pipeline price risk, utilization of warehouse lines to fund secondary

market residential loan closings, and residential mortgage

servicing.

Residential Mortgage Loan Production

The Company originates, markets, and services conventional and government

-sponsored residential mortgage loans.

Generally,

conforming fixed rate residential mortgage loans are held for sale in the secondary

market and non-conforming and adjustable-rate

residential mortgage loans may be held for investment.

The volume of residential mortgage loans originated for sale and secondary

market prices are the primary drivers of origination revenue.

Residential mortgage loan commitments are generally outstanding for 30

to 90 days, which represents the typical period from

commitment to originate a residential mortgage loan to when the closed

loan is sold to an investor.

Residential mortgage loan

commitments are subject to both credit and price risk.

Credit risk is managed through underwriting policies and procedures,

including

collateral requirements, which are generally accepted by the secondary

loan markets.

Price risk is primarily related to interest rate

fluctuations and is partially managed through forward sales of residential mortgage

-backed securities (primarily to-be announced

securities, or TBAs) or mandatory delivery commitments with investors.

The unpaid principal balance of residential mortgage loans held for

sale, notional amounts of derivative contracts related to residential

mortgage loan commitments and forward contract sales and their related fair values

are set- forth below.

September 30, 2023

December 31, 2022

Unpaid Principal

(Dollars in Thousands)

Balance/Notional

Fair Value

Balance/Notional

Fair Value

Residential Mortgage Loans Held for Sale

35,899

34,013

26,274

26,909

Residential Mortgage Loan Commitments ("IRLCs")

(1)

50,726

859

36,535

819

Forward Sales Contracts

(1)

28,500

180

15,500

187

35,052

27,915

(1)

Recorded in other assets at fair value

At September 30, 2023, the Company had

residential mortgage loans held for sale 30-89 days past due and $

0.6

million of loans

were on nonaccrual status. At December 31, 2022, the Company had $

0.6

million of residential mortgage loans held for sale 30-89

days past due and $

0.1

million of loans were on nonaccrual status.

Mortgage banking revenue was as follows:

Three Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in Thousands)

2023

2022

2023

2022

Net realized gains on sales of mortgage loans

1,350

1,478

4,843

5,716

Net change in unrealized gain on mortgage loans held for sale

(1,223)

(1,205)

(1,700)

(1,600)

Net change in the fair value of mortgage loan commitments (IRLCs)

(412)

439

116

Net change in the fair value of forward sales contracts

655

(5)

616

Pair-Offs on net settlement of forward sales contracts

359

637

454

4,846

Mortgage servicing rights additions

184

126

471

449

Net origination fees

1,501

765

3,970

1,664

Total mortgage banking

revenues

1,839

2,895

8,072

11,807

Residential Mortgage Servicing

The Company may retain the right to service residential mortgage loans

sold.

The unpaid principal balance of loans serviced for

others is the primary driver of servicing revenue.

The following represents a summary of mortgage servicing rights.

(Dollars in Thousands)

September 30, 2023

December 31, 2022

Number of residential mortgage loans serviced for others

411

1,769

Outstanding principal balance of residential mortgage loans serviced

for others

97,479

410,740

Weighted average

interest rate

5.38%

3.62%

Remaining contractual term (in months)

306

298

Conforming conventional loans serviced by the Company are sold to Federal

National Mortgage Association (“FNMA”) on a non-

recourse basis, whereby foreclosure losses are generally

the responsibility of FNMA and not the Company.

The government loans

serviced by the Company are secured through the Government National

Mortgage Association (“GNMA”), whereby the Company is

insured against loss by the Federal Housing Administration or partially

guaranteed against loss by the Veterans

Administration.

September 30, 2023, the servicing portfolio balance consisted of

the following loan types: FNMA (

%), GNMA (

%), and private

investor (

%).

FNMA and private investor loans are structured as actual/actual payment remittance.

The Company had

delinquent residential mortgage loans in GNMA pools serviced by the Company

at September 30, 2023 and

0.3

million at December 31, 2022, respectively.

The right to repurchase these loans and the corresponding liability has been

recorded

in other assets and other liabilities, respectively,

in the Consolidated Statement of Financial Condition.

For the three and nine months

ended September 30, 2023, the Company repurchased $

0.8

million and $

2.2

million, respectively, in

delinquent residential loans that

were in GNMA pools.

For the three and nine months ended September 30, 2022, the Company repurchased

0.3

million and $

1.3

million, respectively,

in delinquent residential loans from the GNMA pools. When delinquent residential

loans are repurchased, the

Company has the intention to modify their terms and include the loans in new

GNMA pools.

Activity in the capitalized mortgage servicing rights was as follows:

Three Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in Thousands)

2023

2022

2023

2022

Beginning balance

565

3,415

2,599

3,774

Additions due to loans sold with servicing retained

184

126

471

449

Deletions and amortization

(45)

(337)

(79)

(1,019)

Sale of servicing rights

(1)

(2,287)

Ending balance

704

3,204

704

3,204

(1)

The Company sold an MSR portfolio with an unpaid principal balance of $

334

million for a sales price of $

4.0

million,

recognizing a $

1.38

million gain on sale, recorded

in other noninterest income on the Consolidated

Statement of Income.

The Company did

t record any permanent impairment losses on mortgage servicing rights for the

three months ended September 30,

2023 or 2022.

The key unobservable inputs used in determining the fair value of the Company’s

mortgage servicing rights were as follows:

September 30, 2023

December 31, 2022

Minimum

Maximum

Minimum

Maximum

Discount rates

9.50%

12.00%

9.50%

12.00%

Annual prepayment speeds

10.58%

16.83%

12.33%

20.23%

Cost of servicing (per loan)

Changes in residential mortgage interest rates directly affect

the prepayment speeds used in valuing the Company’s

mortgage

servicing rights.

A separate third party model is used to estimate prepayment speeds based on interest rates, housing

turnover rates,

estimated loan curtailment, anticipated defaults, and other relevant factors.

The weighted average annual prepayment speed was

13.81

% at September 30, 2023 and

13.42

% at December 31, 2022.

Warehouse

Line Borrowings

The Company has the following warehouse lines of credit and master repurchase

agreements with various financial institutions at

September 30, 2023.

Amounts

(Dollars in Thousands)

Outstanding

million master repurchase agreement without defined expiration.

Interest is at the SOFR rate plus

2.00%

3.00%

, with a floor rate of

3.25%

A cash pledge deposit of $

0.5

million is required by the lender.

10,504

million warehouse line of credit agreement expiring in

December 2023

Interest is at the SOFR plus

2.25%

3.25%

8,282

Total Warehouse

Borrowings

18,786

Warehouse

line borrowings are classified as short-term borrowings.

At December 31, 2022, warehouse line borrowings totaled $

50.2

million. At September 30, 2023, the Company had residential mortgage

loans held for sale and construction loans held for investment

pledged as collateral under the above warehouse lines of credit and master repurchase

agreements.

The above agreements also contain

covenants which include certain financial requirements, including

maintenance of minimum tangible net worth, minimum liquid

assets, and maximum debt to net worth ratio, as defined in the agreements.

The Company was in compliance with all significant debt

covenants at September 30, 2023.

The Company has extended a $

million warehouse line of credit to CCHL, a

% owned subsidiary entity.

Balances and

transactions under this line of credit are eliminated in the Company’s

consolidated financial statements and thus not included in the

total short term borrowings noted on the Consolidated Statement of

Financial Condition.

The balance of this line of credit at

September 30, 2023 and December 31, 2022 was $

38.6

million and $

22.9

million, respectively.

NOTE 5 – DERIVATIVES

The Company enters into derivative financial instruments to manage exposures

that arise from business activities that result in the

receipt or payment of future known and uncertain cash amounts, the value of

which are determined by interest rates.

The Company’s

derivative financial instruments are used to manage differences in

the amount, timing, and duration of the Company’s

known or

expected cash receipts and its known or expected cash payments principally

related to the Company’s subordinated

debt.

Cash Flow Hedges of Interest Rate Risk

Interest rate swaps with notional amounts totaling $

million at September 30, 2023 were designed as a cash flow hedge for

subordinated debt.

Under the swap arrangement, the Company will pay a fixed interest rate of

2.50

% and receive a variable interest

rate based on three-month CME Term

SOFR (secured overnight financing rate).

For derivatives designated and that qualify as cash flow hedges of interest rate

risk, the gain or loss on the derivative is recorded in

accumulated other comprehensive income (“AOCI”) and subsequently

reclassified into interest expense in the same period(s) during

which the hedged transaction affects earnings. Amounts reported

in accumulated other comprehensive income related to derivatives

will be reclassified to interest expense as interest payments are made on the

Company’s variable-rate subordinated

debt.

The following table reflects the cash flow hedges included in the consolidated

statements of financial condition

Statement of Financial

Notional

Fair

Weighted Average

(Dollars in Thousands)

Condition Location

Amount

Value

Maturity (Years)

September 30, 2023

Interest rate swaps related to subordinated debt

Other Assets

30,000

6,748

6.8

December 31, 2022

Interest rate swaps related to subordinated debt

Other Assets

30,000

6,195

7.5

The following table presents the net gains (losses) recorded in AOCI and the

consolidated statements of income related to the cash

flow derivative instruments (interest rate swaps related to subordinated

debt) for the three and nine months ended September 30, 2023.

Amount of (Loss)

Amount of Gain

Gain Recognized

(Loss) Reclassified

(Dollars in Thousands)

Category

in AOCI

from AOCI to Income

Three months ended September 30, 2023

Interest expense

574

375

Three months ended September 30, 2022

Interest expense

1,050

113

Nine months ended September 30, 2023

Interest expense

413

1,016

Nine months ended September 30, 2022

Interest expense

3,287

112

The Company estimates there will be approximately $

1.5

million reclassified as a decrease to interest expense within the next 12

months.

The Company had a collateral liability of $

7.0

million and $

5.8

million at September 30, 2023 and December 31, 2022, respectively.

NOTE 6 – LEASES

Operating leases in which the Company is the lessee are recorded as operating

lease right of use (“ROU”) assets and operating

liabilities, included in other assets and liabilities, respectively,

on its Consolidated Statement of Financial Condition.

The Company’s operating

leases primarily relate to banking offices with remaining lease terms

from

years.

The Company’s

leases are not complex and do not contain residual value guarantees, variable

lease payments, or significant assumptions or judgments

made in applying the requirements of Topic

842.

Operating leases with an initial term of 12 months or less are not recorded on the

Consolidated Statement of Financial Condition and the related lease expense is recognized on a straight-line basis over the lease term.

At September 30, 2023, the operating lease ROU assets and liabilities were $

23.8

million and $

24.2

million, respectively. At

December 31, 2022, ROU assets and liabilities were $

22.3

million and $

22.7

million, respectively.

The Company does not have any

finance leases or any significant lessor agreements.

The table below summarizes our lease expense and other information related

to the Company’s operating leases.

Three Months Ended

Nine Months Ended

September 30,

(Dollars in Thousands)

2023

2022

2023

2022

Operating lease expense

710

427

2,114

1,202

Short-term lease expense

167

158

438

495

Total lease expense

877

585

2,552

1,697

Other information:

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases

720

439

2,131

1,303

Right-of-use assets obtained in exchange for new operating lease liabilities

2,406

3,048

3,598

Weighted average

remaining lease term — operating leases (in years)

18.4

22.0

18.4

22.0

Weighted average

discount rate — operating leases

3.3%

2.2%

3.3%

2.2%

The table below summarizes the maturity of remaining lease liabilities:

(Dollars in Thousands)

September 30, 2023

2023

955

2024

2,723

2025

2,487

2026

2,336

2027

2,246

2028 and thereafter

21,045

Total

31,792

Less: Interest

(7,613)

Present Value

of Lease liability

24,179

At September 30, 2023, the Company had

one

additional operating lease obligation for a banking office that has not

yet commenced.

A related party is the lessor in an operating lease with the Company.

The Company’s minimum

payment is $

0.1

million annually

through 2052, for an aggregate remaining obligation of $

2.3

million at September 30, 2023.

NOTE 7 - EMPLOYEE BENEFIT PLANS

The Company has a defined benefit pension plan covering substantially all full-time

and eligible part-time associates and a

Supplemental Executive Retirement Plan (“SERP”) and a Supplemental

Executive Retirement Plan II (“SERP II”) covering its

executive officers.

The defined benefit plan was amended in December 2019 to remove plan eligibility

for new associates hired after

December 31, 2019.

The SERP II was adopted by the Company’s

Board on May 21, 2020 and covers certain executive officers that

were not covered by the SERP.

The components of the net periodic benefit cost for the Company’s

qualified benefit pension plan were as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in Thousands)

2023

2022

2023

2022

Service Cost

872

1,572

2,616

4,717

Interest Cost

1,458

1,166

4,374

3,499

Expected Return on Plan Assets

(1,701)

(2,675)

(5,104)

(8,026)

Prior Service Cost Amortization

Net Loss Amortization

234

428

701

1,285

Pension Settlement Charge

102

480

Net Periodic Benefit Cost

864

597

2,591

1,966

Discount Rate

5.63%

3.11%

5.63%

3.11%

Long-term Rate of Return on Assets

6.75%

The components of the net periodic benefit cost for the Company’s

SERP and SERP II were as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in Thousands)

2023

2022

2023

2022

Service Cost

Interest Cost

120

381

237

Prior Service Cost Amortization

114

207

Net Loss Amortization

(111)

180

(420)

540

Pension Settlement Gain

(291)

Net Periodic Benefit Cost

336

(203)

1,008

Discount Rate

5.33%

2.80%

5.41%

2.80%

During the month of June 2023, lump sum payments made under the SERP triggered

settlement accounting and remeasurement of the

plan at June 30, 2023.

In accordance with applicable accounting guidance for retirement benefit plans,

the Company recorded a

settlement gain of $

0.3

million in June 2023.

settlement gain or loss was recorded during the third quarter of 2023.

The service cost component of net periodic benefit cost is reflected in

compensation expense in the accompanying statements of

income.

The other components of net periodic cost are included in “other” within the noninterest

expense category in the statements

of income.

NOTE 8 - COMMITMENTS AND CONTINGENCIES

Lending Commitments

The Company is a party to financial instruments with off-balance

sheet risks in the normal course of business

to meet the financing needs of its clients.

These financial instruments consist of commitments to extend credit and standby

letters of

credit.

The Company’s maximum exposure

to credit loss under standby letters of credit and commitments to extend credit is represented

the contractual amount of those instruments.

The Company uses the same credit policies in establishing commitments

and issuing

letters of credit as it does for on-balance sheet instruments.

The amounts associated with the Company’s

off-balance sheet

obligations were as follows:

September 30, 2023

December 31, 2022

(Dollars in Thousands)

Fixed

Variable

Total

Fixed

Variable

Total

Commitments to Extend Credit

(1)

212,312

562,402

774,714

243,614

531,873

775,487

Standby Letters of Credit

6,796

5,619

Total

219,108

562,402

781,510

249,233

531,873

781,106

(1)

Commitments include unfunded loans, revolving

lines of credit, and off-balance sheet residential

loan commitments.

Commitments to extend credit are agreements to lend to a client so long as there is no violation of

any condition established in the

contract.

Commitments generally have fixed expiration dates or other termination

clauses and may require payment of a fee.

Since

many of the commitments are expected to expire without being drawn upon,

the total commitment amounts do not necessarily

represent future cash requirements.

Standby letters of credit are conditional commitments issued by the

Company to guarantee the performance of a client to a third

party.

The credit risk involved in issuing letters of credit is essentially the same as that involved

in extending loan facilities. In

general, management does not anticipate any material losses as a result of

participating in these types of transactions.

However, any

potential losses arising from such transactions are reserved for in the same manner

as management reserves for its other credit

facilities.

For both on- and off-balance sheet financial instruments, the Company

requires collateral to support such instruments when it is

deemed necessary.

The Company evaluates each client’s

creditworthiness on a case-by-case basis.

The amount of collateral

obtained upon extension of credit is based on management’s

credit evaluation of the counterparty.

Collateral held varies, but may

include deposits held in financial institutions; U.S. Treasury

securities; other marketable securities; real estate; accounts receivable;

property, plant and

equipment; and inventory.

The allowance for credit losses for off-balance sheet credit commitments

that are not unconditionally cancellable by the bank is

adjusted as a provision for credit loss expense and is recorded in other liabilities.

The following table shows the activity in the

allowance.

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in Thousands)

2023

2022

2023

2022

Beginning Balance

3,120

2,853

2,989

2,897

Provision for Credit Losses

382

159

513

115

Ending Balance

3,502

3,012

3,502

3,012

Other Commitments.

In the normal course of business, the Company enters into lease commitments

which are classified as operating

leases. See Note 6 – Leases for additional information on the maturity of the

Company’s operating lease commitments.

Furthermore,

the Company has a commitment of up to $

1.0

million in a bank tech venture capital fund focused on finding and funding

technology

solutions for community banks and commitments of up to $

million for

two

solar tax credit equity fund investments.

For the nine

months ended September 30, 2023, the Company had contributed $

0.2

million of the bank tech commitment and $

6.7

million of the

solar fund commitments.

At December 31, 2022, the Company had contributed $

0.2

million of the bank tech commitment and $

1.0

million of

one

of the solar fund commitments.

Contingencies

The Company is a party to lawsuits and claims arising out of the normal course of business.

In management's opinion,

there are

known pending claims or litigation, the outcome of which would, individually or in

the aggregate, have a material effect

on the consolidated results of operations, financial position, or cash flows

of the Company.

Indemnification Obligation

The Company is a member of the Visa U.S.A. network.

Visa U.S.A member banks are

required to

indemnify the Visa U.S.A.

network for potential future settlement of certain litigation (the “Covered Litigation”)

that relates to several

antitrust lawsuits challenging the practices of Visa

and MasterCard International.

In 2008, the Company, as a member

of the Visa

U.S.A. network, obtained Class B shares of Visa,

Inc. upon its initial public offering.

Since its initial public offering, Visa,

Inc. has

funded a litigation reserve for the Covered Litigation resulting in a reduction

in the Class B shares held by the Company.

During the

first quarter of 2011, the Company sold its remaining

Class B shares.

Associated with this sale, the Company entered into a swap

contract with the purchaser of the shares that requires a payment to the

counterparty in the event that Visa, Inc. makes

subsequent

revisions to the conversion ratio for its Class B shares.

Conversion ratio payments and ongoing fixed quarterly charges

are reflected in

earnings in the period incurred.

Fixed charges included in the swap liability are payable quarterly

until the litigation reserve is fully

liquidated and at which time the aforementioned swap contract will be terminated.

Quarterly fixed payments approximate $

0.3

million.

NOTE 9 – FAIR VALUE

MEASUREMENTS

The fair value of an asset or liability is the price that would be received to sell that asset or paid

to transfer that liability in an orderly

transaction occurring in the principal market (or most advantageous market in

the absence of a principal market) for such asset or

liability.

In estimating fair value, the Company utilizes valuation techniques that are consistent with

the market approach, the income

approach and/or the cost approach.

Such valuation techniques are consistently applied.

Inputs to valuation techniques include the

assumptions that market participants would use in pricing an asset or liability.

ASC Topic 820

establishes a fair value hierarchy for

valuation inputs that gives the highest priority to quoted prices in active markets

for identical assets or liabilities and the lowest

priority to unobservable inputs.

The fair value hierarchy is as follows:

●

Level 1 Inputs -

Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting

entity has the

ability to access at the measurement date

●

Level 2 Inputs -

Inputs other than quoted prices included in Level 1 that are observable for the asset or liability,

either directly

or indirectly. These might

include quoted prices for similar assets or liabilities in active markets, quoted prices

for identical

or similar assets or liabilities in markets that are not active, inputs other

than quoted prices that are observable for the asset or

liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.)

or inputs that are derived principally from, or

corroborated, by market data by correlation or other means

●

Level 3 Inputs -

Unobservable inputs for determining the fair values of assets or liabilities that reflect

an entity’s own

assumptions about the assumptions that market participants would

use in pricing the assets or liabilities.

Assets and Liabilities Measured at Fair Value

on a Recurring Basis

Securities Available for Sale.

U.S. Treasury securities are reported at fair value

utilizing Level 1 inputs.

Other securities classified as

available for sale are reported at fair value utilizing Level 2 inputs.

For these securities, the Company obtains fair value measurements

from an independent pricing service.

The fair value measurements consider observable data that may include dealer quotes,

market

spreads, cash flows, the U.S. Treasury yield curve,

live trading levels, trade execution data, credit information and the bond’s

terms

and conditions, among other things.

In general, the Company does not purchase securities that have a complicated structure.

The Company’s entire portfolio consists of

traditional investments, nearly all of which are U.S. Treasury

obligations, federal agency bullet or mortgage pass-through

securities, or

general obligation or revenue-based municipal bonds.

Pricing for such instruments is easily obtained.

At least annually, the Company

will validate prices supplied by the independent pricing service by compari

ng them to prices obtained from an independent third-party

source.

Equity Securities.

Investment securities classified as equity securities are measured at

fair value of the investment with changes in fair

value recorded in earnings.

Loans Held for Sale

The fair value of residential mortgage loans held for sale based on Level 2 inputs is determined,

when possible,

using either quoted secondary-market prices or investor commitments.

If no such quoted price exists, the fair value is determined

using quoted prices for a similar asset or assets, adjusted for the specific attributes of

that loan, which would be used by other market

participants.

The Company has elected the fair value option accounting for its held for sale loans.

Mortgage Banking Derivative Instruments.

The fair values of interest rate lock commitments (“IRLCs”) are derived by valuation

models incorporating market pricing for instruments with similar characteristics,

commonly referred to as best execution pricing, or

investor commitment prices for best effort IRLCs which have

unobservable inputs, such as an estimate of the fair value of the

servicing rights expected to be recorded upon sale of the loans, net estimated costs to originate

the loans, and the pull-through rate,

and are therefore classified as Level 3 within the fair value hierarchy.

The fair value of forward sale commitments is based on

observable market pricing for similar instruments and are therefore

classified as Level 2 within the fair value hierarchy.

Interest Rate Swap.

The Company’s derivative positions are

classified as Level 2 within the fair value hierarchy and are valued using

models generally accepted in the financial services industry and that

use actively quoted or observable market input values from

external market data providers.

The fair value derivatives are determined using discounted cash flow models.

Fair Value

Swap

The Company entered into a stand-alone derivative contract with the purchaser of

its Visa Class B shares.

The

valuation represents the amount due and payable to the counterparty based upon

the revised share conversion rate, if any,

during the

period. At September 30, 2023 and at December 31, 2022, there was a $

0.1

million payable.

A summary of fair values for assets and liabilities recorded at fair

value on a recurring basis consisted of the following:

Level 1

Level 2

Level 3

Total

Fair

(Dollars in Thousands)

Inputs

Value

September 30, 2023

ASSETS:

Securities Available for

Sale:

U.S. Government Treasury

20,309

U.S. Government Agency

148,962

States and Political Subdivisions

40,195

Mortgage-Backed Securities

60,602

Corporate Debt Securities

55,725

Equity Securities

508

Loans Held for Sale

34,013

Interest Rate Swap Derivative

6,748

Mortgage Banking Hedge Derivative

180

Mortgage Banking IRLC Derivative

859

December 31, 2022

ASSETS:

Securities Available for

Sale:

U.S. Government Treasury

22,050

U.S. Government Agency

186,052

States and Political Subdivisions

40,329

Mortgage-Backed Securities

69,405

Corporate Debt Securities

88,236

Loans Held for Sale

26,909

Interest Rate Swap Derivative

6,195

Mortgage Banking Hedge Derivative

187

Mortgage Banking IRLC Derivative

819

Mortgage Banking Activities

The Company had Level 3 issuances and transfers related to mortgage banking

activities of $

11.1

million and $

16.3

million, respectively,

for the nine months ended September 30, 2023, and $

11.4

million and $

23.4

million,

respectively, for the

nine months ended September 30, 2022.

Issuances are valued based on the change in fair value of the underlying

mortgage loan from inception of the IRLC to the Consolidated Statement

of Financial Condition date, adjusted for pull-through rates

and costs to originate.

IRLCs transferred out of Level 3 represent IRLCs that were funded and moved

to mortgage loans held for sale,

at fair value.

Assets Measured at Fair Value

on a Non-Recurring Basis

Certain assets are measured at fair value on a non-recurring basis (i.e., the

assets are not measured at fair value on an ongoing basis

but are subject to fair value adjustments in certain circumstances).

An example would be assets exhibiting evidence of impairment.

The following is a description of valuation methodologies used for assets measured

on a non-recurring basis.

Collateral Dependent Loans

Impairment for collateral dependent loans is measured using the fair

value of the collateral less selling

costs.

The fair value of collateral is determined by an independent valuation

or professional appraisal in conformance with banking

regulations.

Collateral values are estimated using Level 3 inputs due to the volatility in the real estate market,

and the judgment and

estimation involved in the real estate appraisal process.

Collateral dependent loans are reviewed and evaluated on at least a quarterly

basis for additional impairment and adjusted accordingly.

Valuation

techniques are consistent with those techniques applied in prior

periods.

Collateral-dependent loans had a carrying value of $

2.1

million with

valuation allowance at September 30, 2023 and a

carrying value of $

0.7

million and a $

0.1

million valuation allowance at December 31, 2022.

Other Real Estate Owned

During the first nine months of 2023, certain foreclosed assets, upon initial recognition,

were measured and

reported at fair value through a charge-off

to the allowance for credit losses based on the fair value of the foreclosed asset less

estimated cost to sell.

The fair value of the foreclosed asset is determined by an independent valuation or

professional appraisal in

conformance with banking regulations.

On an ongoing basis, we obtain updated appraisals on foreclosed assets and realize valuation

adjustments as necessary.

The fair value of foreclosed assets is estimated using Level 3 inputs due to the judgment

and estimation

involved in the real estate valuation process.

Mortgage Servicing Rights

Residential mortgage loan servicing rights are evaluated for impairment

at each reporting period based

upon the fair value of the rights as compared to the carrying amount.

Fair value is determined by a third party valuation model using

estimated prepayment speeds of the underlying mortgage loans serviced and

stratifications based on the risk characteristics of the

underlying loans (predominantly loan type and note interest rate).

The fair value is estimated using Level 3 inputs, including a

discount rate, weighted average prepayment speed, and the cost of loan

servicing.

Further detail on the key inputs utilized are

provided in Note 4 – Mortgage Banking Activities.

At each of September 30, 2023 and December 31, 2022, there was

valuation

allowance for loan servicing rights.

Assets and Liabilities Disclosed at Fair Value

The Company is required to disclose the estimated fair value of financial instruments,

both assets and liabilities, for which it is

practical to estimate fair value and the following is a description of valuation

methodologies used for those assets and liabilities.

Cash and Short-Term

Investments.

The carrying amount of cash and short-term investments is used to approximate

fair value, given

the short time frame to maturity and as such assets do not present unanticipated

credit concerns.

Equity Securities.

Investment securities classified as equity securities that do not have readily determinable

fair values are measured at

cost and remeasured to fair value when impaired or upon observable transaction

prices.

Other Equity Securities.

Investment securities classified as other equity securities that do not have

readily determinable fair values, are

measured at cost, remeasured to fair value when impaired or upon observable

transaction prices and accounted for under the equity

method of accounting and reflected in other assets.

Securities Held to Maturity

Securities held to maturity are valued in accordance with the methodology

previously noted in the

caption “Assets and Liabilities Measured at Fair Value

on a Recurring Basis – Securities Available

for Sale.”

Loans.

The loan portfolio is segregated into categories and the fair value of each loan category is calculated

using present value

techniques based upon projected cash flows and estimated discount

rates.

Pursuant to the adoption of ASU 2016-01,

Recognition and

Measurement of Financial Assets and Financial

Liabilities

, the values reported reflect the incorporation of a liquidity discount to meet

the objective of “exit price” valuation.

Deposits.

The fair value of Noninterest Bearing Deposits, NOW Accounts, Money Market

Accounts and Savings Accounts are the

amounts payable on demand at the reporting date. The fair value of fixed maturity

certificates of deposit is estimated using present

value techniques and rates currently offered for deposits of

similar remaining maturities.

Subordinated Notes Payable.

The fair value of each note is calculated using present value techniques,

based upon projected cash

flows and estimated discount rates as well as rates being offered

for similar obligations.

Short-Term

and Long-Term

Borrowings.

The fair value of each note is calculated using present value techniques,

based upon

projected cash flows and estimated discount rates as well as rates being offered

for similar debt.

A summary of estimated fair values of significant financial instruments not

recorded at fair value consisted of the following:

September 30, 2023

Carrying

Level 1

Level 2

Level 3

(Dollars in Thousands)

Value

Inputs

ASSETS:

Cash

72,379

Short-Term Investments

95,119

Investment Securities, Held to Maturity

632,076

433,150

149,498

Equity Securities

(1)

3,077

Other Equity Securities

(2)

2,848

Mortgage Servicing Rights

704

1,182

Loans, Net of Allowance for Credit Losses

2,676,098

2,472,305

LIABILITIES:

Deposits

3,540,445

3,081,702

Short-Term

Borrowings

41,696

Subordinated Notes Payable

52,887

44,910

Long-Term Borrowings

364

362

December 31, 2022

Carrying

Level 1

Level 2

Level 3

(Dollars in Thousands)

Value

Inputs

ASSETS:

Cash

72,114

Short-Term Investments

528,536

Investment Securities, Held to Maturity

660,774

431,733

180,968

Equity Securities

(1)

Other Equity Securities

(2)

2,848

Mortgage Servicing Rights

2,599

4,491

Loans, Net of Allowance for Credit Losses

2,522,617

2,377,229

LIABILITIES:

Deposits

3,939,317

3,310,383

Short-Term

Borrowings

56,793

Subordinated Notes Payable

52,887

45,763

Long-Term Borrowings

513

(1)

Not readily marketable securities.

(2)

Accounted for under the equity method – not readily

marketable securities – reflected in other assets.

All non-financial instruments are excluded from the above table.

The disclosures also do not include goodwill.

Accordingly, the

aggregate fair value amounts presented do not represent the underlying

value of the Company.

NOTE 10 – ACCUMULATED

OTHER COMPREHENSIVE INCOME (LOSS)

The amounts allocated to accumulated other comprehensive income

(loss) are presented in the table below.

Accumulated

Securities

Other

Available

Interest Rate

Retirement

Comprehensive

(Dollars in Thousands)

for Sale

Swap

Plans

(Loss) Income

Balance as of January 1, 2023

(37,349)

4,625

(4,505)

(37,229)

Other comprehensive income (loss) during the period

2,357

413

(217)

2,553

Balance as of September 30, 2023

(34,992)

5,038

(4,722)

(34,676)

Balance as of January 1, 2022

(4,588)

1,530

(13,156)

(16,214)

Other comprehensive (loss) income during the period

(35,634)

3,287

358

(31,989)

Balance as of September 30, 2022

(40,222)

4,817

(12,798)

(48,203)

Item 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS

OPERATIONS

Management’s discussion

and analysis (“MD&A”) provides supplemental information, which sets forth

the major factors that have

affected our financial condition and results of operations

and should be read in conjunction with the Consolidated Financial

Statements and related notes.

The following information should provide a better understanding of

the major factors and trends that

affect our earnings performance and financial condition,

and how our performance during 2023 compares with prior years.

Throughout this section, Capital City Bank Group, Inc., and subsidiaries, collectively,

is referred to as “CCBG,” “Company,”

“we,”

“us,” or “our.”

CAUTION CONCERNING FORWARD

-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including this MD&A section, contains

“forward-looking statements”

within the meaning of the

Private Securities Litigation Reform Act of 1995.

These forward-looking statements include, among others, statements about

our

beliefs, plans, objectives, goals, expectations, estimates and intentions that are

subject to significant risks and uncertainties and are

subject to change based on various factors, many of which are beyond

our control.

The words “may,”

“could,” “should,” “would,”

“believe,” “anticipate,”

“estimate,” “expect,”

“intend,” “plan,”

“target,”

“vision,” “goal,”

and similar expressions are intended to

identify forward-looking statements.

All forward-looking statements, by their nature, are subject to risks and uncertainties.

Our actual future results may differ materially

from those set forth in our forward-looking statements.

Please see the Introductory Note of this quarterly report on Form 10-Q

as well

as the Introductory Note and

Item 1A. Risk Factors

of our 2022 Form 10-K/A, as updated in our subsequent quarterly reports filed

Form 10-Q/A, and in our other filings made from time to time with the SEC after the

date of this report.

However, other factors besides those listed in our

Quarterly Report or in our Annual Report also could adversely affect our

results,

and you should not consider any such list of factors to be a complete set of all potential risks or

uncertainties.

Any forward-looking

statements made by us or on our behalf speak only as of the date they are made.

We do not undertake to

update any forward-looking

statement, except as required by applicable law.

BUSINESS OVERVIEW

We are a financial

holding company headquartered in Tallahassee,

Florida, and we are the parent of our wholly owned subsidiary,

Capital City Bank (the “Bank” or “CCB”).

We offer

a broad array of products and services through a total of 62 full-service offices

located in Florida, Georgia, and Alabama.

We provide a full range of

banking services, including traditional deposit and credit

services, mortgage banking, asset management, trust, merchant services, bankcards,

securities brokerage services and financial

advisory services, including life insurance products,

risk management and asset protection services.

Our profitability, like

most financial institutions, is dependent to a large extent upon net

interest income, which is the difference

between the interest and fees received on interest earning assets, such as loans and

securities, and the interest paid on interest-bearing

liabilities, principally deposits and borrowings.

Results of operations are also affected by the provision for credit losses, operating

expenses such as salaries and employee benefits, occupancy and other

operating expenses including income taxes, and noninterest

income such as mortgage banking revenues, wealth management fees,

deposit fees, and bank card fees.

We have included

a detailed discussion of the economic conditions in our markets and our long-term strategic

objectives as part of the

MD&A section of our 2022 Form 10-K/A.

NON-GAAP FINANCIAL MEASURES (UNAUDITED)

We present a tangible

common equity ratio and a tangible book value per diluted share that, in each case, removes the

effect of

goodwill and other intangibles that resulted from merger

and acquisition activity. We

believe these measures are useful to investors

because it allows investors to more easily compare our capital adequacy to

other companies in the industry.

The generally accepted

accounting principles (“GAAP”) to non-GAAP reconciliation for

each quarter presented is provided below.

2023

2022

(Dollars in Thousands, except per share data)

Third

Second

First

Fourth

Third

Shareowners' Equity (GAAP)

419,706

412,422

403,260

387,281

368,485

Less: Goodwill and Other Intangibles (GAAP)

92,973

93,013

93,053

93,093

93,133

Tangible Shareowners' Equity (non-GAAP)

326,733

319,409

310,207

294,188

275,352

Total Assets (GAAP)

4,138,287

4,391,206

4,401,762

4,519,223

4,327,991

Less: Goodwill and Other Intangibles (GAAP)

92,973

93,013

93,053

93,093

93,133

Tangible Assets (non-GAAP)

4,045,314

4,298,193

4,308,709

4,426,130

4,234,858

Tangible Common Equity Ratio (non-GAAP)

A/B

8.08%

7.43%

7.20%

6.65%

6.50%

Actual Diluted Shares Outstanding (GAAP)

16,997,886

17,025,023

17,049,913

17,039,401

16,998,177

Tangible Book Value

per Diluted Share (non-GAAP)

A/C

19.22

18.76

18.19

17.27

16.20

SELECTED QUARTERLY

FINANCIAL DATA

(UNAUDITED)

2023

2022

(Dollars in Thousands, Except Per Share Data)

Third

Second

First

Fourth

Third

Summary of Operations

Interest Income

45,753

45,205

43,926

41,218

35,442

Interest Expense

6,473

5,068

3,526

3,122

2,037

Net Interest Income

39,280

40,137

40,400

38,096

33,405

Provision for Credit Losses

2,393

2,197

3,099

3,616

2,154

Net Interest Income After

Provision for Credit Losses

36,887

37,940

37,301

34,480

31,251

Noninterest Income

16,728

19,967

17,758

15,296

18,509

Noninterest Expense

39,105

40,285

37,675

39,262

37,699

Income Before Income Taxes

14,510

17,622

17,384

10,514

12,061

Income Tax Expense

3,004

3,417

3,710

1,900

2,493

(Income) Loss Attributable to NCI

1,149

(31)

995

Net Income Attributable to CCBG

12,655

14,174

13,709

9,609

9,605

Net Interest Income (FTE)

(1)

39,367

40,224

40,500

38,185

33,488

Per Common Share

Net Income Basic

0.75

0.83

0.81

0.56

0.57

Net Income Diluted

0.74

0.83

0.80

0.56

0.57

Cash Dividends Declared

0.20

0.18

0.17

Diluted Book Value

24.69

24.21

23.65

22.73

21.68

Diluted Tangible Book Value

(2)

19.22

18.76

18.19

17.27

16.20

Market Price:

High

33.44

34.16

36.86

36.23

33.93

Low

28.64

28.03

28.18

31.14

27.41

29.83

30.64

29.31

32.50

31.11

Selected Average Balances

Investment Securities

1,005,003

1,043,858

1,064,212

1,081,092

1,120,728

Loans Held for Investment

2,672,653

2,657,693

2,582,395

2,439,379

2,264,075

Earning Assets

3,876,980

3,974,803

4,062,688

4,032,733

4,009,951

Total Assets

4,218,855

4,320,601

4,411,865

4,381,825

4,357,678

Deposits

3,596,816

3,719,564

3,817,314

3,803,042

3,769,864

Shareowners’ Equity

427,580

418,757

404,067

380,570

379,305

Common Equivalent Average Shares:

Basic

16,985

17,002

17,016

16,963

16,960

Diluted

17,025

17,035

17,045

17,016

16,996

Performance Ratios:

Return on Average Assets (annualized)

1.19

1.32

1.26

0.87

Return on Average Equity (annualized)

11.74

13.58

13.76

10.02

10.05

Net Interest Margin (FTE)

4.03

4.06

4.04

3.76

3.32

Noninterest Income as % of Operating Revenue

29.87

33.22

30.53

28.65

35.65

Efficiency Ratio

69.88

66.93

64.67

73.41

72.51

Asset Quality:

Allowance for Credit Losses (“ACL”)

29,083

28,243

26,808

25,068

22,747

Nonperforming Assets (“NPAs”)

4,695

6,624

4,602

2,728

2,422

ACL to Loans HFI

1.08

1.05

1.01

0.98

0.96

NPAs to Total

Assets

0.11

0.15

0.10

0.06

NPAs to Loans HFI plus OREO

0.17

0.25

0.17

0.11

0.10

ACL to Non-Performing Loans

619.58

426.44

584.18

1,091.33

944.36

Net Charge-Offs to Average Loans HFI

0.17

0.07

0.24

0.21

0.12

Capital Ratios:

Tier 1 Capital

15.11

14.56

14.23

14.27

14.59

Total Capital

16.30

15.68

15.29

15.30

15.58

Common Equity Tier 1

13.26

12.73

12.40

12.38

12.62

Leverage

9.98

9.54

9.09

8.91

8.80

Tangible Common Equity

(2)

8.08

7.43

7.20

6.65

6.50

(1)

Fully Tax Equivalent

(2)

Non-GAAP financial measure.

See non-GAAP reconciliation on page 33.

FINANCIAL OVERVIEW

Results of Operations

Performance Summary.

Net income attributable to common shareowners totaled $12.7 million, or $0.74

per diluted share, for the

third quarter of 2023 compared to $14.2 million, or $0.83 per diluted share, for

the second quarter of 2023, and $9.6 million, or $0.57

per diluted share, for the third quarter of 2022.

For the first nine months of 2023, net income attributable to common shareowners

totaled $40.5 million, or $2.38 per diluted share, compared to net income of $23.8

million, or $1.40 per diluted share, for the same

period of 2022.

Net Interest Income.

Tax-equivalent net

interest income for the third quarter of 2023 totaled $39.4 million, compared

to $40.2

million

for the second quarter of 2023, and $33.5 million for the third quarter of 2022.

Compared to the second quarter of 2023, the decrease

reflected higher deposit interest expense and a lower level of interest income

from overnight funds, partially offset by higher loan

interest due to loan growth and higher interest rates.

For the first nine months of 2023, tax-equivalent net interest income totaled

$120.1 million compared to $87.2 million for the same period of 2022.

The increases over both prior year periods were driven by

strong loan growth and higher interest rates across a majority of our

earning assets.

Provision and Allowance for Credit

Losses.

We recorded

a provision for credit losses of $2.4 million for the third quarter of 2023

compared to $2.2 million for the second quarter of 2023 and $2.2 million

for the third quarter of 2022.

The increase in the provision

compared to the second quarter of 2023 was primarily attributable to loan growth

and an increase in net loan charge-offs.

For the first

nine months of 2023, we recorded a provision for credit losses of $7.7 million

compared to $3.9 million for the same period of 2022.

The higher level of provision in 2023 was primarily driven by loan growth

and, also reflected the favorable impact in 2022 of the

release of reserves held for pandemic related losses that did not materialize

to the extent projected.

At September 30, 2023, the

allowance represented 1.08% of loans held for investment (“HFI”) compared

to 1.05% at June 30, 2023, and 0.98% at December 31,

2022.

Noninterest Income.

Noninterest income for the third quarter of 2023 totaled $16.7 million compared

to $20.0 million for the second

quarter of 2023 and $18.5 million for the third quarter of 2022.

The $3.3

million decrease from the second quarter of 2023 reflected a

decrease in other income of $1.6 million (we realized a $1.4 million gain on

sale of mortgage servicing rights in the second quarter of

2023), mortgage banking revenues of $1.5 million, wealth management

fees of $0.2 million and bank card fees of $0.1 million,

partially offset by an increase in deposit fees of $0.1 million.

For the first nine months of 2023, noninterest income totaled $54.5

million compared to $59.9 million for the same period of 2022 with the $5.4

million decrease primarily attributable to lower mortgage

banking revenues of $3.7 million, wealth management fees of $2.4 million,

deposit fees of $0.6 million, and bank card fees of $0.4

million, partially offset by a $1.7 million increase in other income.

Noninterest Expense.

Noninterest expense for the third quarter of 2023 totaled $39.1 million compared

to $40.3 million for the second

quarter of 2023 and $37.7 million for the third quarter of 2022.

Compared to the second quarter of 2023, the $1.2 million decrease

was due to a $0.9 million decrease in other expense which reflected a $0.8

million non-recurring expense in the second quarter of

2023 related to a consulting engagement.

For the first nine months of 2023, noninterest expense totaled $117.1

million compared to

$112.4 million for the same period of 2022

with the $4.7 million increase attributable to increases in occupancy expense of $2.2

million, compensation expense of $1.5 million, and other expense of

$1.0 million.

The increase in occupancy expense reflected the

addition of banking offices in 2022, higher insurance premiums,

and investment in network and security upgrades.

The increase in

compensation expense was primarily driven by higher salary expense

due to the addition of staffing in new banking offices added

2022. The increase in other expense was driven by higher pension plan

expense (non-service related component), the aforementioned

non-recurring consulting expense, and increases in FDIC insurance fees, partially

offset by lower OREO expense of $1.8 million

related to a gain from the sale of a banking office.

Financial Condition

Earning Assets.

Average earning assets totaled

$3.877 billion for the third quarter of 2023, a decrease of $97.8 million, or 2.5%,

from

the second quarter of 2023, and a decrease of $155.8 million, or 3.9%, from the fourth

quarter of 2022.

The decrease from both prior

periods was attributable to lower deposit balances.

The mix of earning assets continues to improve as overnight funds are being

utilized to fund loan growth.

Loans.

Average loans “HFI”

increased $15.0 million, or 0.6%, over the second quarter of 2023 and $233.3

million, or 9.6%, over the

fourth quarter of 2022.

Period end loans increased $21.7 million, or 0.81%, over the second quarter of 2023

and $157.5 million, or

6.2%, over the fourth quarter of 2022.

Compared to both prior periods, the loan growth was primarily in the residential real

estate

category and was partially offset by lower indirect auto and construction

loan balances.

Credit Quality.

Credit quality metrics remained strong for the quarter.

Nonperforming assets (nonaccrual loans and other real estate)

totaled $4.7 million at September 30, 2023 compared to $6.6 million at June

30, 2023 and $2.7 million at December 31, 2022.

September 30, 2023, nonperforming assets as a percent of total assets equaled 0.11%,

compared to 0.15% at June 30, 2023 and 0.06%

at December 31, 2022.

Nonaccrual loans totaled $4.7 million at September 30, 2023, a $1.9 million

decrease from June 30, 2023 and

a $2.4 million increase over December 31, 2022.

Further, classified loans totaled $21.8 million at September

30, 2023, a $6.8 million

increase over June 30, 2023 and a $2.5 million increase over December 31, 2022.

Deposits.

Average total

deposits were $3.597 billion for the third quarter of 2023, a decrease of $122.7

million, or 3.3%, from the

second quarter of 2023 and a decrease of $206.2 million, or 5.4%,

from the fourth quarter of 2022.

Compared to both prior periods,

the decreases were primarily attributable to lower noninterest bearing,

savings, and NOW balances, primarily offset by higher money

market balances.

Compared to the second quarter of 2023, the decrease in NOW account balances was primarily

due to the seasonal

reduction in public fund balances held by our institutional and municipal clients.

Capital.

At September 30, 2023, we were well-capitalized with a total risk-based capital ratio

of 16.30% and a tangible common

equity ratio (a non-GAAP financial measure) of 8.08% compared to

15.68% and 7.43%, respectively,

at June 30, 2023 and 15.30%

and 6.65%, respectively,

at December 31, 2022.

At September 30, 2023, all of our regulatory capital ratios exceeded the threshold

be well-capitalized under the Basel III capital standards.

RESULTS

OF OPERATIONS

The following table provides a condensed summary of our results of operations

- a discussion of the various components are discussed

in further detail below.

Three Months Ended

Nine Months Ended

September 30,

June 30,

September 30,

(Dollars in Thousands, except per share data)

2023

2022

2023

2022

Interest Income

45,753

45,205

35,442

134,886

90,692

Taxable Equivalent Adjustments

274

237

Total Interest Income (FTE)

45,840

45,292

35,525

135,160

90,929

Interest Expense

6,473

5,068

2,037

15,067

3,766

Net Interest Income (FTE)

39,367

40,224

33,488

120,093

87,163

Provision for Credit Losses

2,393

2,197

2,154

7,689

3,878

Taxable Equivalent Adjustments

274

237

Net Interest Income After Provision for Credit Losses

36,887

37,940

31,251

112,130

83,048

Noninterest Income

16,728

19,967

18,509

54,452

59,885

Noninterest Expense

39,105

40,285

37,699

117,066

112,372

Income Before Income Taxes

14,510

17,622

12,061

49,516

30,561

Income Tax Expense

3,004

3,417

2,493

10,130

5,898

Pre-Tax (Income) Loss Attributable to Noncontrolling

Interest

1,149

(31)

1,153

(860)

Net Income Attributable to Common Shareowners

12,655

14,174

9,605

40,539

23,803

Basic Net Income Per Share

0.75

0.83

0.57

2.38

1.40

Diluted Net Income Per Share

0.74

0.83

0.57

2.38

1.40

Net Interest Income

Net interest income represents our single largest source of earnings

and is equal to interest income and fees generated by earning

assets less interest expense paid on interest bearing liabilities.

This information is provided on a “taxable equivalent” basis to reflect

the tax-exempt status of income earned on certain loans and state and local

government debt obligations.

We provide an analysis of

our net interest income including average yields and rates in Table

I on page 45.

Tax-equivalent net

interest income for the third quarter of 2023 totaled $39.4

million, compared to $40.2 million for the second

quarter of 2023, and $33.5 million for the third quarter of 2022.

Compared to the second quarter of 2023, the decrease reflected

higher deposit interest expense and a lower level of interest income from

overnight funds, partially offset by higher loan interest due to

loan growth and higher interest rates.

For the first nine months of 2023, tax-equivalent net interest income totaled

$120.1 million

compared to $87.2 million for the same period of 2022.

The increases over both prior year periods were driven by strong loan growth

and higher interest rates across a majority of our earning assets.

Our net interest margin for the third quarter of 2023 was 4.03%, a decrease

of three basis points from the second quarter of 2023 and

an increase of 71 basis points over the third quarter of 2022.

For the month of September 2023, our net interest margin was 4.10%.

For the first nine months of 2023, our net interest margin

was 4.04%, an increase of 111

basis points over the same period of 2022.

The increase compared to all prior periods reflected a combination of higher interest

rates and loan growth, partially offset by a higher

cost of deposits.

For the third quarter of 2023, our cost of funds was 66 basis points, an

increase of 15 basis points over the second

quarter of 2023 and an increase of 46 basis points over the third quarter of 2022.

Our total cost of deposits (including noninterest

bearing accounts) was 58 basis points, 43 basis points, and 11

basis points, respectively, for

the same periods.

Provision for Credit Losses

We recorded

a provision for credit losses of $2.4 million for the third quarter of 2023 compared to $2.2

million for the second quarter

of 2023 and $2.2 million for the third quarter of 2022.

The increase in the provision compared to the second quarter of 2023 was

primarily attributable to loan growth and an increase in net loan charge

-offs.

For the first nine months of 2023, we recorded a

provision for credit losses of $7.7 million compared to $3.9

million for the same period of 2022.

The higher level of provision in 2023

was primarily driven by loan growth and also reflected the favorable

impact in 2022 of the release of reserves held for pandemic-

related losses that did not materialize to the extent projected.

We discuss the allowance

for credit losses further below.

For more

information on charge-offs and recoveries,

see Note 3 – Loans Held for Investment and Allowance for Credit Losses.

Noninterest Income

Noninterest income for the third quarter of 2023 totaled $16.7 million compared

to $20.0 million for the second quarter of 2023 and

$18.5 million for the third quarter of 2022.

The $3.3 million decrease from the second quarter of 2023 reflected a decrease

in other

income of $1.6 million, mortgage banking revenues of $1.5 million,

wealth management fees of $0.2 million and bank card fees of

$0.1 million, partially offset by an increase in deposit fees of $0.1

million.

The decrease in other income was attributable to a $1.4

million gain from the sale of mortgage servicing rights realized in the second

quarter of 2023.

The decrease in mortgage banking

revenues was attributable to market driven lower gain on sale margins

and a lower volume of mandatory delivery loan sales which

provide a higher gain on sale percentage.

Compared to the third quarter of 2022, the $1.8 million decrease in noninterest

income reflected decreases in mortgage banking

revenues of $1.0 million, deposit fees of $0.5 million, bank card fees of $0.2 million,

and other income of $0.1

million. For the first

nine months of 2023, noninterest income totaled $54.5 million compared

to $59.9 million for the same period of 2022 with the $5.4

million decrease primarily attributable to lower mortgage banking revenues

of $3.7 million, wealth management fees of $2.4 million,

deposit fees of $0.6 million, and bank card fees of $0.4 million, partially offset

by a $1.7 million increase in other income.

Compared

to both prior year periods, the decrease in mortgage banking revenues was driven

by lower production volume in 2023 reflective of the

rapid increase in interest rates, lower market driven gain on sale margins,

and a lower level of mandatory delivery loan sales.

The

decrease in deposit fees from both prior year periods was primarily attributable

to a higher earnings credit rate for commercial deposit

accounts and lower service charge fees.

For the nine-month period, the decrease in wealth management fees was attributable

to lower

insurance commissions which reflected the sale of large

policies in 2022.

Further, the increase in other income was primarily

due to a

$1.4 million gain from the sale of mortgage servicing rights and

a $0.5 million increase in miscellaneous income.

Noninterest income represented 29.87% of operating revenues (net interest

income plus noninterest income) in the third quarter of

2023 compared to 33.22% in the second quarter of 2023

and 35.65% in the third quarter of 2022.

For the first nine months of 2023,

noninterest income represented 31.25% of operating revenues compared

to 40.79% for the same period of 2022.

The table below reflects the major components of noninterest income.

Three Months Ended

Nine Months Ended

September 30,

June 30,

September 30,

(Dollars in Thousands)

2023

2022

2023

2022

Deposit Fees

5,456

5,326

5,947

16,021

16,585

Bank Card Fees

3,684

3,795

3,860

11,205

11,657

Wealth Management

Fees

3,984

4,149

3,937

12,061

14,410

Mortgage Banking Revenues

1,839

3,363

2,895

8,072

11,807

Other

1,765

3,334

1,870

7,093

5,426

Total

Noninterest Income

16,728

19,967

18,509

54,452

59,885

Significant components of noninterest income are discussed in more

detail below.

Deposit Fees

Deposit fees for the third quarter of 2023 totaled $5.5 million, an increase of $0.2 million,

or 2.5%, over the second

quarter of 2023, and a decrease of $0.5 million, or 8.3%, from the third quarter

of 2022.

For the first nine months of 2023, deposit

fees totaled $16.0 million, a decrease of $0.6 million, or 3.4%, from

the same period of 2022.

Compared to the second quarter of

2023, the increase reflected higher overdraft fees.

The decrease from both prior year periods was primarily attributable to a higher

earnings credit rate for commercial deposit accounts and lower service charge

fees.

Bank Card Fees

Bank card fees for the third quarter of 2023 totaled $3.7 million, a decrease of $0.1 million, or

2.9%, from the

second quarter of 2023, and a decrease of $0.2 million, or 4.6%, from

the third quarter of 2022.

For the first nine months of 2023,

bank card fees totaled $11.2 million, a decrease

of $0.5

million, or 3.9%, from the same period of 2022.

Compared to all prior

periods, the decline reflected lower debit card usage related

to lower consumer spending.

Wealth

Management Fees

Wealth management fees

include trust fees through Capital City Trust (i.e., managed

accounts and

trusts/estates), retail brokerage fees through Capital City Investments (i.e.,

investment, insurance products, and retirement accounts),

and financial advisory fees through Capital City Strategic Wealth

(i.e., including the sale of life insurance, risk management and asset

protection services).

Wealth management

fees for the third quarter of 2023 totaled $4.0 million, a decrease of $0.2

million, or 4.0%

from the second quarter of 2023, and comparable to the third quarter

of 2022.

For the first nine months of 2023, wealth management

fees totaled $12.1 million, a decrease of $2.3 million, or 16.3%, from

the same period of 2022, attributable to lower insurance

commissions which reflected the sale of large policies in 2022.

At September 30, 2023, total assets under management were

approximately $2.420 billion compared to $2.462 billion at June 30,

2023 and $2.273 billion at December 31, 2022.

Mortgage Banking Revenues.

Mortgage banking revenues totaled $1.8 million for the third quarter of 2023,

a decrease of $1.5 million,

or 45.3%, from the second quarter of 2023 and a decrease of $1.1

million, or 36.5%, from the third quarter of 2022.

For the first nine

months of 2023, revenues totaled $8.1 million compared to $11.8

million for the same period of 2022.

Compared to the second

quarter of 2023, the decrease was attributable to market driven lower

gain on sale margins and a lower volume of mandatory delivery

loan sales which provide a higher gain on sale percentage.

Compared to both prior year periods, the decrease was driven by lower

production volume in 2023 reflective of the rapid increase in interest rates, lower

market driven gain on sale margins, and a lower

level of mandatory delivery loan sales.

We provide

a detailed overview of our mortgage banking operation, including a detailed

break-down of mortgage banking revenues, mortgage servicing activity,

and warehouse funding within Note 4 – Mortgage Banking

Activities in the Notes to Consolidated Financial Statements.

Other

Other income totaled $1.8 million for the third quarter of 2023, a decrease of

$1.6 million, or 47.1%, from the second quarter

of 2023 and a decrease of $0.1 million, or 5.6%, from the third quarter

of 2022.

For the first nine months of 2023, other income

totaled $7.1 million compared to $5.4 million for the same period of 2022.

Compared to the second quarter of 2023, the decrease was

attributable to a $1.4 million gain from the sale of mortgage servicing rights

realized in the second quarter of 2023.

For the nine-

month period, the increase was primarily due to a $1.4 million gain from the

sale of mortgage servicing rights and a $0.5 million

increase in miscellaneous income.

Noninterest Expense

Noninterest expense for the third quarter of 2023 totaled $39.1 million compared

to $40.3 million for the second quarter of 2023 and

$37.7 million for the third quarter of 2022.

Compared to the second quarter of 2023, the $1.2 million decrease was primarily due

to a

$0.8 million non-recurring expense in the second quarter of 2023 related

to a consulting engagement to assist in negotiating a multi-

year contract for the outsourcing of our core processing system.

Compared to the third quarter of 2022, the $1.4 million increase in noninterest

expense was primarily due to increases in other

expense of $0.5

million and occupancy expense of $0.8 million.

The increase in other expense was largely driven by a $0.7 million

increase in pension plan expense (non-service-related component)

and the increase in occupancy reflected the addition of four new

banking offices in mid-to-late 2022 and higher property/equipment

insurance premiums.

For the first nine months of 2023,

noninterest expense totaled $117.1 million compared

to $112.4 million for the same period of 2022 with the $4.7 million

increase

attributable to increases in occupancy expense of $2.2 million, compensation

expense of $1.5 million, and other expense of $1.0

million. The increase in occupancy expense reflected the addition of banking

offices in 2022, higher insurance premiums, and

investment in network and security upgrades. The unfavorable variance

in compensation expense reflected a $3.0 million increase in

salary expense (primarily,

the addition of staffing in our new markets and annual merit) that was partially offset

by a $1.5 million

decrease in associate benefit expense.

The variance in associate benefit expense was primarily due to a $2.2 million decrease in

pension plan expense (service cost) that was partially offset by

increases in associate insurance expense of $0.5 million and stock-

based compensation of $0.1 million.

The increase in other expense was primarily due to a $1.6 million increase in pension

plan

expense (non-service related component), the aforementioned consulting

engagement expense of $0.8 million, and a $0.6 million

increase in FDIC insurance expense, partially offset by

lower OREO expense of $1.8 million related to a gain from the sale of a

banking office.

The table below reflects the major components of noninterest expense.

Three Months Ended

Nine Months Ended

September 30,

June 30,

September 30,

(Dollars in Thousands)

2023

2022

2023

2022

Salaries

19,459

20,044

18,604

59,020

56,010

Associate Benefits

3,544

3,394

4,363

10,945

12,477

Total Compensation

23,003

23,438

22,967

69,965

68,487

Premises

3,217

3,170

2,784

9,632

8,278

Equipment

3,763

3,650

3,369

10,930

10,043

Total Occupancy

6,980

6,820

6,153

20,562

18,321

Legal Fees

366

419

357

1,147

1,022

Professional Fees

1,254

2,039

1,258

4,617

3,996

Processing Services

1,874

1,872

1,777

5,488

5,166

Advertising

756

959

726

2,590

2,479

Telephone

658

679

730

2,044

2,162

Insurance – Other

703

872

656

2,406

1,760

Other Real Estate Owned, net

(28)

(92)

(1,846)

(96)

Pension - Other

(761)

(2,283)

Pension Settlement (Gain) Charge

(291)

102

(291)

480

Miscellaneous

3,470

3,500

3,826

10,339

10,878

Total Other

9,122

10,027

8,579

26,539

25,564

Total

Noninterest Expense

39,105

40,285

37,699

117,066

112,372

Significant components of noninterest expense are discussed in more detail

below.

Compensation

Compensation expense totaled $23.0 million for the third quarter of 2023 compared

to $23.4 million for the second

quarter of 2023 and $23.0 million for the third quarter of 2022.

The $0.4 million decrease from the second quarter of 2023 reflected a

$0.6

million decrease in salary expense partially offset by a $0.2 million

increase in associate benefit expense.

The decrease in salary

expense was primarily attributable to higher realized loan cost (which are accounted

for as a credit offset to salary expense) and lower

payroll taxes.

The increase in associate benefit expense was due to higher stock based compensation

expense.

For the first nine

months of 2023, compensation expense totaled $70.0 million compared

to $68.5 million for the same period of 2022 with the $1.5

million increase attributable to an increase in salary expense of $3.0

million (primarily the addition of staffing in our new markets and

annual merit) that was partially offset by a $1.5 million decrease in

associate benefit expense, primarily pension plan expense (service

cost) due to an increased level of retirements in 2022.

Compared to the third quarter of 2022, the same factors above drove the

variances in salary and associate benefit expense.

Occupancy

Occupancy expense totaled $7.0 million for the third quarter of 2023 compared

to $6.8 million for the second quarter of

2023

and $6.2 million for the third quarter of 2022.

For the first nine months of 2023, occupancy expense totaled $20.6 million

compared to $18.3 million for the same period of 2022.

The addition of four new banking offices since mid to late 2022, higher

property and equipment insurance premiums,

and investment in network and security upgrades drove the increase for both prior year

comparisons.

Other

Other expense totaled $9.1 million for the third quarter of 2023 compared to $10.0 million

for the second quarter of 2023 and

$8.6 million for the third quarter of 2022.

For the first nine months of 2023, other expense totaled $26.5 million compared

to $25.6

million for the same period of 2022.

Compared to the second quarter of 2023, the $0.9 million decrease was primarily

due to a $0.8

million non-recurring expense in the second quarter of 2023 related to

a consulting engagement to assist in negotiating a multi-year

contract for the outsourcing of our core processing system.

For the nine month period, the $1.0 million increase was primarily

attributable to the aforementioned $0.8 million non-recurring consulting

expense and increases in pension plan expense (non-service-

related component) of $1.6 million, and FDIC insurance fees of

$0.6 million, partially offset by lower OREO expense of $1.7 million

related to a $1.8 million gain from the sale of a banking office in the first

quarter of 2023.

Compared to the third quarter of 2022, the

same factors above drove the variance, excluding the $0.8 million non

-recurring consulting expense.

Our operating efficiency ratio (expressed as noninterest

expense as a percentage of the sum of taxable-equivalent net interest income

plus noninterest income) was 69.88% for the third quarter of 2023 compared

to 66.93% for the second quarter of 2023 and 72.51% for

the third quarter of 2022.

The increase for the third quarter reflected a lower level of profitability from our mortgage

banking

operation.

For the first nine months of 2023, this ratio was 67.07% compared to 76.42% for the same period

of 2022.

Income Taxes

We realized income

tax expense of $3.0 million (effective rate of 20.7%) for the third quarter of

2023 compared to $3.4 million

(effective rate of 19.4%) for the second quarter of 2023

and $2.5 million (effective rate of 20.7%) for the third quarter of 2022.

For

the first nine months of 2023, we realized income tax expense of $10.1 million

(effective rate of 20.5%) compared to $5.9 million

(effective rate of 19.3%) for the same period of 2022.

The increase in our effective tax rate for the third quarter of 2023 was primarily

due to a lower level of pre-tax income from Capital City Home Loans (“CCHL”)

in relation to our consolidated income as the non-

controlling interest adjustment for CCHL is accounted for as a permanent tax adjustment.

Further, the second quarter of 2023

effective rate reflected a higher level of tax benefit accrued from an

investment in a solar tax credit equity fund.

Absent discrete items

or unexpected variance in the timing of the tax benefit accrued from our solar

tax credit equity fund investment, we expect our annual

effective tax rate to approximate 20-21% for 2023.

FINANCIAL CONDITION

Average earning

assets totaled $3.877 billion for the third quarter of 2023, a decrease of $97.8 million, or

2.5%, from the second

quarter of 2023, and a decrease of $155.8 million, or 3.9%, from the fourth

quarter of 2022.

The decrease from both prior periods was

attributable to lower deposit balances (see below –

Deposits

The mix of earning assets continues to improve as overnight funds are

being utilized to fund loan growth.

Investment Securities

Average investments

decreased $38.9 million, or 3.7%, from the second quarter of 2023

and decreased $76.1 million, or 7.0%, from

the fourth quarter of 2022.

Our investment portfolio represented 25.9% of our average earning

assets for the third quarter of 2023

compared to 26.3% for the second quarter of 2023 and 26.8% for the

fourth quarter of 2022.

For the remainder of 2023, we will

continue to monitor our overall liquidity position and allow cash flow from

the investment portfolio to run-off to overnight funds.

The investment portfolio is a significant component of our operations and, as such,

it functions as a key element of liquidity and

asset/liability management.

Two types of classifications are approved

for investment securities which are Available

-for-Sale (“AFS”)

and Held-to-Maturity (“HTM”).

At September 30, 2023, $325.8 million, or 33.6%, of our investment portfolio

was classified as AFS,

and $632.1 million, or 65.2%, classified as HTM.

The average maturity of our total portfolio at September 30, 2023 was 2.90

years

compared to 3.07 years at June 30, 2023 and 3.57 years at December 31,

2022.

The duration of our investment portfolio at September

30, 2023 was 2.61 years.

Additional information on unrealized gains/losses in the AFS and HTM portfolios

is provided in Note 2 –

Investment Securities.

We determine

the classification of a security at the time of acquisition based on how the purchase will affect

our asset/liability strategy

and future business plans and opportunities.

We consider multiple

factors in determining classification, including regulatory capital

requirements, volatility in earnings or other comprehensive income,

and liquidity needs.

Securities in the AFS portfolio are recorded

at fair value with unrealized gains and losses associated with these securities recorded

net of tax, in the accumulated other

comprehensive income component of shareowners’ equity.

HTM securities are acquired or owned with the intent of holding them

maturity.

HTM investments are measured at amortized cost.

We do not

trade, nor do we presently intend to begin trading investment

securities for the purpose of recognizing gains and therefore we do not maintain

a trading portfolio.

At September 30, 2023, there were 894 positions (combined AFS and HTM)

with unrealized losses totaling $90.8 million. 86 of these

positions are U.S. Treasuries and carry the full faith

and credit of the U.S. Government.

705 were U.S. government agency securities

issued by U.S. government sponsored entities. The remaining 103 positions

(municipal securities and corporate bonds) have a credit

component.

At September 30, 2023,

corporate debt securities had an allowance for credit losses of $31,000

and municipal securities

had an allowance of $12,000.

At September 30, 2023, all CMO, MBS, SBA, U.S. Agency,

and U.S. Treasury bonds held were AAA

rated.

Loans HFI

Average loans

HFI increased $15.0 million, or 0.6%, over the second quarter of 2023 and $233.3

million, or 9.6%, over the fourth

quarter of 2022.

Period end loans increased $21.7 million, or 0.8%, over the second quarter of

2023 and $157.5 million, or 6.2%, over

the fourth quarter of 2022.

Compared to both prior periods, the loan growth was primarily in the residential

real estate category and

was partially offset by lower indirect auto and construction

loan balances.

Without compromising our credit standards

changing our underwriting standards, or taking on inordinate interest rate risk,

continue to closely monitor our markets and make minor adjustments as necessary.

Credit Quality

Credit quality metrics remained strong for the quarter.

Nonperforming assets (nonaccrual loans and other real estate) totaled $4.7

million at September 30, 2023 compared to $6.6 million at June 30,

2023 and $2.7 million at December 31, 2022.

At September 30,

2023, nonperforming assets as a percent of total assets equaled 0.11%,

compared to 0.15% at June 30, 2023 and 0.06% at December

31, 2022.

Nonaccrual loans totaled $4.7 million at September 30, 2023, a $1.9 million

decrease from June 30, 2023 and a $2.4 million

increase over December 31, 2022.

Further, classified loans totaled $21.8 million

at September 30, 2023, a $6.8 million increase over

June 30, 2023 and a $2.5 million increase over December 31, 2022.

The increase in the current period was primarily attributable to

the downgrade of one hotel loan that is performing as agreed on scheduled payments.

Allowance for Credit Losses

The allowance for credit losses is a valuation account that is deducted from the

loans’ amortized cost basis to present the net amount

expected to be collected on the loans.

The allowance for credit losses is adjusted by a credit loss provision which is reported in

earnings, and reduced by the charge-off

of loan amounts (net of recoveries).

Loans are charged off against the allowance when

management believes the uncollectability of a loan balance is confirmed.

Expected recoveries do not exceed the aggregate of amounts

previously charged-off and expected to be charged

-off.

Expected credit loss inherent in non-cancellable off-balance sheet credit

exposures is provided through the credit loss provision, but recorded as a separate

liability included in other liabilities.

Management estimates the allowance balance using relevant available information,

from internal and external sources relating to past

events, current conditions, and reasonable and supportable forecasts.

Historical loan default and loss experience provides the basis for

the estimation of expected credit losses.

Adjustments to historical loss information incorporate management’s

view of current

conditions and forecasts.

At September 30, 2023, the allowance for credit losses for HFI loans totaled $29.1

million compared to $28.2 million at June 30, 2023

and $25.1 million at December 31, 2022.

Activity within the allowance is provided in Note 3 – Loans Held for Investment and

Allowance for Credit Losses in the Consolidated Financial Statements.

The increase in the allowance over both prior periods was

driven primarily by loan growth.

Further, the increase from December 31, 2022

reflected a higher loss rate for the residential real

estate portfolio due to slower prepayment speeds.

At September 30, 2023, the allowance represented 1.08% of HFI loans compared

1.05% at June 30, 2023, and 0.98% at December 31, 2022.

At September 30, 2023, the allowance for credit losses for unfunded

commitments totaled $3.5 million compared to $3.1 million at

June 30, 2023 and $3.0 million at December 31, 2022. The allowance for

unfunded commitments is recorded in other liabilities.

Deposits

Average total

deposits were $3.597 billion for the third quarter of 2023, a decrease of $122.7 million, or 3.3%,

from the second quarter

of 2023 and a decrease of $206.2 million, or 5.4%, from the fourth quarter

of 2022.

Compared to both prior periods, the decreases

were primarily attributable to lower noninterest bearing, savings, and

NOW balances, partially offset by higher money market

balances.

Compared to the second quarter of 2023, the decrease in NOW account balances was primarily

due to the seasonal

reduction in public fund balances held by our institutional and municipal

clients.

At September 30, 2023, total deposits were $3.540 billion, a decrease of $248.4

million, or 6.6%, from June 30, 2023 and a decrease

of $398.9 million, or 10.1%, from December 31, 2022.

Our public fund deposit balances declined $205 million and $245 million from

June 30, 2023 and December 31, 2022, respectively,

and reflected the seasonal decline in those balances which will begin to increase

in the fourth quarter as municipal tax receipts are received.

In addition, the decrease from June 30, 2023 reflected a short-term deposit

of $103 million (in the NOW category) made late in June by a municipal client

that was subsequently moved in mid-July.

The

remaining portion of the decrease reflected continued client spend

of stimulus savings and clients seeking higher yielding investment

products outside the Bank, a portion of which have moved to our wealth division.

Additionally, compared

to both prior periods, we

realized a remix of deposit balances of $32 million and $99 million, respectively,

as noninterest bearing accounts migrated into

interest bearing accounts (primarily NOW and money market accounts).

Business deposit transaction accounts classified as repurchase agreements

averaged $25.4 million for the third quarter of 2023, an

increase of $7.5 million over the second quarter of 2023 and $16.9 million over

the fourth quarter of 2022.

At September 30, 2023,

repurchase agreement balances were $22.9 million compared to $22.6

million at June 30, 2023 and $6.6 million at December 31,

2022.

We continue

to closely monitor our cost of deposits and deposit mix as we manage through the current

rising rate environment.

MARKET RISK AND INTEREST RATE

SENSITIVITY

Market Risk and Interest Rate Sensitivity

Overview.

Market risk arises from changes in interest rates, exchange rates,

commodity prices, and equity prices.

We have risk

management policies designed to monitor and limit exposure to market

risk and we do not participate in activities that give rise to

significant market risk involving exchange rates, commodity prices, or

equity prices.

In asset and liability management activities, our

policies are designed to minimize structural interest rate risk.

Interest Rate Risk Management.

Our net income is largely dependent on net interest income.

Net interest income is susceptible to

interest rate risk to the degree that interest-bearing liabilities mature

or reprice on a different basis than interest-earning assets.

When

interest-bearing liabilities mature or reprice more quickly

than interest-earning assets in a given period, a significant increase in

market rates of interest could adversely affect net interest

income.

Similarly, when interest-earning

assets mature or reprice more

quickly than interest-bearing liabilities, falling market interest rates could

result in a decrease in net interest income.

Net interest

income is also affected by changes in the portion of interest-earning

assets that are funded by interest-bearing liabilities rather than by

other sources of funds, such as noninterest-bearing deposits and shareowners’

equity.

We have established

what we believe to be a comprehensive interest rate risk management policy,

which is administered by

management’s Asset Liability Management

Committee (“ALCO”).

The policy establishes limits of risk, which are quantitative

measures of the percentage change in net interest income (a measure of net

interest income at risk) and the fair value of equity capital

(a measure of economic value of equity (“EVE”) at risk) resulting from a hypothetical change

in interest rates for maturities from one

day to 30 years.

We measure the potential

adverse impacts that changing interest rates may have on our short-term

earnings, long-

term value, and liquidity by employing simulation analysis through the use of

computer modeling.

The simulation model captures

optionality factors such as call features and interest rate caps and floors imbedded

in investment and loan portfolio contracts.

As with

any method of gauging interest rate risk, there are certain shortcomings

inherent in the interest rate modeling methodology used by

us.

When interest rates change, actual movements in different categories

of interest-earning assets and interest-bearing liabilities, loan

prepayments, and withdrawals of time and other deposits, may deviate significantly

from assumptions used in the model.

Finally, the

methodology does not measure or reflect the impact that higher rates may have

on adjustable-rate loan clients’ ability to service their

debts, or the impact of rate changes on demand for loan and deposit products.

The statement of financial condition is subject to testing for interest rate shock

possibilities to indicate the inherent interest rate risk.

We prepare

a current base case and several alternative interest rate simulations (-400, -300, -200,

-100, +100, +200, +300, and +400

basis points (bp)), at least once per quarter, and

report the analysis to ALCO, our Market Risk Oversight Committee (“MROC”), our

Enterprise Risk Oversight Committee (“EROC”) and the Board of Directors.

We augment our interest rate

shock analysis with

alternative interest rate scenarios on a quarterly basis that may include ramps,

parallel shifts, and a flattening or steepening of the yield

curve (non-parallel shift).

In addition, more frequent forecasts may be produced when interest rates are particularly

uncertain or when

other business conditions so dictate.

Our goal is to structure the statement of financial condition so that net interest earnings at risk over

12-month and 24-month periods

and the economic value of equity at risk do not exceed policy guidelines

at the various interest rate shock levels. We

attempt to

achieve this goal by balancing, within policy limits, the volume of floating-rate

liabilities with a similar volume of floating-rate assets,

by keeping the average maturity of fixed-rate asset and liability contracts

reasonably matched, by managing the mix of our core

deposits, and by adjusting our rates to market conditions on a continuing

basis.

Analysis.

Measures of net interest income at risk produced by simulation analysis are

indicators of an institution’s short-term

performance in alternative rate environments.

These measures are typically based upon a relatively brief period, and do not

necessarily indicate the long-term prospects or economic value of the institution.

ESTIMATED CHANGES

IN NET INTEREST INCOME

(1)

Percentage Change (12-month shock)

+400 bp

+300 bp

+200 bp

+100 bp

-100 bp

-200 bp

-300 bp

-400 bp

Policy Limit

-15.0%

-12.5%

-10.0%

-7.5%

-10.0%

-12.5%

-15.0%

September 30, 2023

3.2%

2.3%

1.4%

0.7%

-1.3%

-3.8%

-7.7%

-12.5%

June 30, 2023

4.1%

3.0%

1.9%

1.0%

-1.5%

-4.4%

-9.6%

-15.3%

Percentage Change (24-month shock)

+400 bp

+300 bp

+200 bp

+100 bp

-100 bp

-200 bp

-300 bp

-400 bp

Policy Limit

-17.5%

-15.0%

-12.5%

-10.0%

-12.5%

-15.0%

-17.5%

September 30, 2023

30.6%

25.6%

20.4%

15.9%

5.2%

-2.3%

-12.0%

-22.0%

June 30, 2023

28.4%

23.5%

18.4%

13.9%

3.4%

-4.4%

-15.1%

-25.6%

The Net Interest Income (“NII”) at Risk position indicates

that in the short-term (over the next 12 months), all rising rate environments

will positively impact the net interest margin of the Company,

while declining rate environments

will have a negative impact on the

net interest margin. Compared to the second quarter of 2023, these

metrics became less favorable in the rising rate scenarios primarily

due to loan growth, which reduced our level of overnight funds and made us slightly

less asset sensitive.

The converse applies in the

down rate scenarios where the metrics became more favorable due to loan growth

which increased asset duration and therefore

protection against falling rates.

The percent change over the 24-month shock is outside of policy in

the rates down 400 bps scenario

due to our limited ability to lower our deposit rates relative to the decline

in market rate.

The measures of equity value at risk indicate our ongoing economic value

by considering the effects of changes in interest rates on all

of our cash flows by discounting the cash flows to estimate the present value of

assets and liabilities. The difference between these

discounted values of the assets and liabilities is the economic value of equity,

which in theory approximates the fair value of our net

assets.

ESTIMATED CHANGES

IN ECONOMIC VALUE

OF EQUITY

(1)

Changes in Interest Rates

+400 bp

+300 bp

+200 bp

+100 bp

-100 bp

-200 bp

-300 bp

-400 bp

Policy Limit

-30.0%

-25.0%

-20.0%

-15.0%

-20.0%

-25.0%

-30.0%

September 30, 2023

9.2%

7.7%

5.6%

3.3%

-5.2%

-12.9%

-21.2%

-31.7%

June 30, 2023

10.7%

9.1%

6.7%

3.9%

-7.1%

-18.0%

-30.2%

-32.6%

EVE Ratio (policy minimum 5.0%)

20.9%

20.2%

19.4%

18.6%

16.4%

14.7%

13.1%

11.2%

(1) The down 400 bp rate scenario was added in the fourth quarter of 2022.

At September 30, 2023, the economic value of equity was favorable

in all rising rate environments and unfavorable in the falling rate

environments. Compared to the second quarter of 2023, EVE metrics were

slightly less favorable in the rising rate environment and

more favorable in falling rate environments.

EVE is currently in compliance with policy in all rate scenarios as the EVE ratio in each

rate scenario exceeds 5.0%.

As the interest rate environment and the dynamics of the economy continue to change,

additional simulations will be analyzed to

address not only the changing rate environment, but also the change

in mix of our financial assets and liabilities, measured over

multiple years, to help assess the risk to the Company.

LIQUIDITY AND CAPITAL

RESOURCES

Liquidity

In general terms, liquidity is a measurement of our ability to meet our

cash needs.

Our objective in managing our liquidity is to

maintain our ability to meet loan commitments, purchase securities or repay deposits and

other liabilities in accordance with their

terms, without an adverse impact on our current or future earnings.

Our liquidity strategy is guided by policies that are formulated and

monitored by our ALCO and senior management, which take into account

the marketability of assets, the sources and stability of

funding and the level of unfunded commitments.

We regularly evaluate

all of our various funding sources with an emphasis on

accessibility, stability,

reliability and cost-effectiveness.

Our principal source of funding has been our client deposits, supplemented

by our short-term and long-term borrowings, primarily from securities sold under

repurchase agreements, federal funds purchased and

FHLB borrowings.

We believe that the cash

generated from operations, our borrowing capacity and our access to capital resources

are

sufficient to meet our future operating capital and funding requirements.

At September 30, 2023, we had the ability to generate approximately $1.587 billion

(excludes overnight funds position of $95 million)

in additional liquidity through various sources including various federal funds

purchased lines, Federal Home Loan Bank borrowings,

the Federal Reserve Discount Window,

and brokered deposits.

We recognize

the importance of maintaining liquidity and have

developed a Contingent Liquidity Plan, which addresses various liquidity

stress levels and our response and action based on the level

of severity.

We periodically test our credit

facilities for access to the funds, but also understand that as the severity of the liquidity

level increases that certain credit facilities may no longer be available.

We conduct a liquidity

stress test on a quarterly basis based on

events that could potentially occur at the Bank and report results to ALCO, our

Market Risk Oversight Committee, Risk Oversight

Committee, and the Board of Directors.

At September 30, 2023, we believe the liquidity available to us was sufficient

to meet our on-

going needs and execute our business strategy.

We also view our

investment portfolio as a liquidity source and have the option to pledge securities in our

portfolio as collateral for

borrowings or deposits, and/or to sell selected securities.

Additional information on our investment portfolio is provided within

Note

2 –

Investment Securities

The Bank maintained an average net overnight funds (deposits with banks plus

FED funds sold less FED funds purchased) sold

position of $136.6 million in the third quarter of 2023 compared to $218.9

million in the second quarter of 2023 and $469.4 million in

the fourth quarter of 2022.

The declining overnight funds position reflected growth in average loans and lower

average deposit

balances.

We expect our

capital expenditures will be approximately $8.0 million over the next 12 months, which

will primarily consist of

construction of new offices, office remodeling,

office equipment/furniture, and technology purchases.

Management expects that these

capital expenditures will be funded with existing resources without impairing

our ability to meet our on-going obligations.

Borrowings

Average short

-term borrowings totaled $49.7 million for the third quarter of 2023 compared to

$35.7 million for the second quarter of

2023 and $50.8 million for the fourth quarter of 2022.

The variance compared to both prior periods was primarily attributable to an

increase in short-term repurchase agreements and the fluctuation in CCHL’s

warehouse line. Additional detail on these warehouse

borrowings is provided in Note 4 – Mortgage Banking Activities in the Consolidated

Financial Statements.

We have issued two

junior subordinated deferrable interest notes to our wholly owned

Delaware statutory trusts.

The first note for

$30.9 million was issued to CCBG Capital Trust I in

November 2004, of which $10 million was retired in April 2016.

The second

note for $32.0 million was issued to CCBG Capital Trust II

in May 2005.

The interest payment for the CCBG Capital Trust I

borrowing is due quarterly and adjusts quarterly to a variable rate of three-month

CME Term SOFR (secured overnight

financing rate)

plus a margin of 1.90%.

This note matures on December 31, 2034.

The interest payment for the CCBG Capital Trust II borrowing

due quarterly and adjusts quarterly to a variable interest rate based on three-month

CME Term SOFR plus a margin

of 1.80%.

This

note matures on June 15, 2035.

The proceeds from these borrowings were used to partially fund acquisitions.

Under the terms of each

junior subordinated deferrable interest note, in the event of default or

if we elect to defer interest on the note, we may not, with certain

exceptions, declare or pay dividends or make distributions on our capital

stock or purchase or acquire any of our capital stock.

During the second quarter of 2020, we entered into a derivative cash

flow hedge of our interest rate risk related to our subordinated

debt.

The notional amount of the derivative is $30 million ($10 million of the CCBG Capital Trust

I borrowing and $20 million of the

CCBG Capital Trust II borrowing).

The interest rate swap agreement requires CCBG to pay fixed and receive variable (three-month

CME Term SOFR plus spread)

and has an average all-in fixed rate of 2.50% for 10 years.

Additional detail on the interest rate swap

agreement is provided in Note 5 – Derivatives in the Consolidated Financial

Statements.

Capital

Our capital ratios are presented in the Selected Quarterly Financial Data

table on page 34.

At September 30, 2023, our regulatory

capital ratios exceeded the threshold to be designated as “well-capitalized”

under the Basel III capital standards.

Shareowners’ equity was $419.7 million at September 30, 2023

compared to $412.4 million at June 30, 2023 and $387.3 million at

December 31, 2022.

For the first nine months of 2023, shareowners’ equity was positively impacted by net

income attributable to

common shareowners of $40.5 million, a $2.4 million decrease in the unrealized

loss on investment securities, the issuance of stock of

$2.2 million, stock compensation accretion of $1.0 million, and a $0.4 million

increase in the fair value of the interest rate swap

related to subordinated debt.

Shareowners’ equity was reduced by common stock dividends of $9.5

million ($0.56 per share), the

repurchase of stock of $3.1 million (102,147 shares), and net adjustments totaling

$1.5 million related to transactions under our stock

compensation plans.

At September 30, 2023, our total risk-based capital ratio was 16.30%

compared to 15.68% at June 30, 2023 and 15.30% at December

31, 2022.

Our common equity tier 1 capital ratio was 13.26%, 12.73%, and 12.38%, respectively,

on these dates.

Our leverage ratio

was 9.98%, 9.54%, and 8.91%, respectively,

on these dates.

At September 30, 2023, all our regulatory capital ratios exceeded the

threshold to be designated as “well-capitalized” under the Basel III capital

standards.

Further, our tangible common equity ratio was

8.08% at September 30, 2023 compared to 7.43% and 6.65% at June 30,

2023 and December 31, 2022, respectively.

If our unrealized

held-to-maturity securities losses of $33.1 million (after-tax)

were recognized in accumulated other comprehensive loss, our adjusted

tangible capital ratio would be 7.26%.

Our tangible capital ratio is also impacted by the recording of our unfunded pension

liability through other comprehensive income in

accordance with ASC Topic

715.

At September 30, 2023, the net pension liability reflected in other comprehensive loss was

$4.7

million compared to $4.7 million at June 30, 2023

and $4.5 million at December 31, 2022.

This liability is re-measured annually on

December 31

based on an actuarial calculation of our pension liability.

Significant assumptions used in calculating the liability

include the weighted average discount rate used to measure the present

value of the pension liability, the

weighted average expected

long-term rate of return on pension plan assets, and the assumed rate of annual compensation

increases, all of which will vary when

re-measured.

The discount rate assumption used to calculate the pension liability is subject to long

-term corporate bond rates at

December 31

These assumptions and sensitivities are discussed in our 2022 Form 10-K/A “Critical Accounting

Policies and

Estimates”.

OFF-BALANCE SHEET ARRANGEMENTS

We are a party

to financial instruments with off-balance sheet risks in the normal

course of business to meet the financing needs of our

clients.

At September 30, 2023, we had $774.7 million in commitments to extend

credit and $6.8 million in standby letters of credit.

Commitments to extend credit are agreements to lend to a client so long as there is no violation of

any condition established in the

contract.

Commitments generally have fixed expiration dates or other termination

clauses and may require payment of a fee.

Since

many of the commitments are expected to expire without being drawn upon,

the total commitment amounts do not necessarily

represent future cash requirements.

Standby letters of credit are conditional commitments issued by us to guarantee

the performance

of a client to a third party.

We use the same credit

policies in establishing commitments and issuing letters of credit as we do for on-

balance sheet instruments.

If commitments arising from these financial instruments continue to require

funding at historical levels, management does not

anticipate that such funding will adversely impact our ability to meet our on-going

obligations.

In the event these commitments

require funding in excess of historical levels, management believes current

liquidity, advances available from the

FHLB and the

Federal Reserve, and investment security maturities provide a sufficient

source of funds to meet these commitments.

Certain agreements provide that the commitments are unconditionally

cancellable by the bank and for those agreements no allowance

for credit losses has been recorded.

We have recorded

an allowance for credit losses on loan commitments that are not

unconditionally cancellable by the bank, which is included in other

liabilities on the consolidated statements of financial condition and

totaled $3.5 million at September 30, 2023.

CRITICAL ACCOUNTING POLICIES

Our significant accounting policies are described in Note 1 to the Consolidated

Financial Statements included in our 2022 Form 10-

K/A.

The preparation of our Consolidated Financial Statements

in accordance with GAAP and reporting practices applicable to the

banking industry requires us to make estimates and assumptions that affect

the reported amounts of assets, liabilities, revenues and

expenses, and to disclose contingent assets and liabilities.

Actual results could differ from those estimates.

We have identified

accounting for (i) the allowance for credit losses, (ii) goodwill,

(iii) pension assumptions, and (iv) income taxes as

our most critical accounting policies and estimates in that they are important

to the portrayal of our financial condition and results, and

they require our subjective and complex judgment as a result of the need to make estimates about

the effects of matters that are

inherently uncertain.

These accounting policies, including the nature of the estimates and types of assumptions

used, are described

throughout this Item 2, Management’s

Discussion and Analysis of Financial Condition and Results of Operations, and

Part II, Item 7,

Management’s Discussion and Analysis

of Financial Condition and Results of Operations included

in our 2022 Form 10-K/A.

TABLE I

AVERAGE BALANCES & INTEREST RATES (UNAUDITED)

Three Months Ended September 30,

Nine Months Ended September 30,

2023

2022

2023

2022

Average

(Dollars in Thousands)

Balances

Interest

Rate

Balances

Interest

Rate

Balances

Interest

Rate

Balances

Interest

Rate

Assets:

Loans Held for Sale

62,768

971

6.14

55,164

486

3.49

57,438

2,416

5.62

50,387

1,594

4.23

Loans Held for Investment

(1)(2)

2,672,653

38,455

5.71

2,264,075

27,432

4.81

2,637,911

109,688

5.56

2,105,211

73,168

4.65

Taxable Securities

1,002,547

4,549

1.80

1,117,789

4,359

1.55

1,034,825

14,265

1.84

1,105,822

11,082

1.34

Tax-Exempt Securities

(2)

2,456

2.66

2,939

2.30

2,649

2.49

2,614

1.90

Federal Funds Sold and Interest Bearing

Deposits

136,556

1,848

5.37

569,984

3,231

2.25

237,987

8,741

4.91

710,559

5,048

0.95

Total Earning Assets

3,876,980

45,840

4.69

4,009,951

35,525

3.52

3,970,810

135,160

4.55

3,974,593

90,929

3.06

Cash & Due From Banks

75,941

79,527

75,483

77,856

Allowance For Credit Losses

(29,172)

(21,509)

(27,581)

(21,382)

Other Assets

295,106

289,709

297,688

284,546

TOTAL ASSETS

4,218,855

4,357,678

4,316,400

4,315,613

Liabilities:

Noninterest Bearing Deposits

1,474,574

1,726,918

1,538,268

1,700,800

NOW Accounts

1,125,171

3,489

1.23

1,016,475

868

0.34

1,184,453

8,679

0.98

1,042,958

1,074

0.14

Money Market Accounts

322,623

1,294

1.59

288,758

0.10

293,089

2,249

1.03

286,804

140

0.07

Savings Accounts

579,245

200

0.14

643,640

0.05

603,643

396

0.09

623,986

229

0.05

Other Time Deposits

95,203

231

0.96

94,073

0.14

90,970

386

0.57

95,408

0.14

Total Interest Bearing Deposits

2,122,242

5,214

0.97

2,042,946

1,052

0.20

2,172,155

11,710

0.72

2,049,156

1,542

0.10

Total Deposits

3,596,816

5,214

0.58

3,769,864

1,052

0.11

3,710,423

11,710

0.42

3,749,956

1,542

0.05

Repurchase Agreements

25,356

190

2.98

11,665

0.18

17,588

314

2.39

7,971

0.11

Other Short-Term Borrowings

24,306

440

7.17

35,014

531

6.01

26,586

1,228

6.17

29,020

1,065

4.90

Subordinated Notes Payable

52,887

625

4.62

52,887

443

3.28

52,887

1,800

4.49

52,887

1,130

2.82

Other Long-Term Borrowings

387

4.73

580

4.74

433

4.78

710

4.58

Total Interest Bearing Liabilities

2,225,178

6,473

1.15

2,143,092

2,037

0.38

2,269,649

15,067

0.89

2,139,744

3,766

0.24

Other Liabilities

83,099

98,501

82,877

86,055

TOTAL LIABILITIES

3,782,851

3,968,511

3,890,794

3,926,599

Temporary Equity

8,424

9,862

8,719

10,156

TOTAL SHAREOWNERS’ EQUITY

427,580

379,305

416,887

378,858

TOTAL LIABILITIES, TEMPORARY

AND SHAREOWNERS’ EQUITY

4,218,855

4,357,678

4,316,400

4,315,613

Interest Rate Spread

3.54

3.14

3.66

2.82

Net Interest Income

39,367

33,488

120,093

87,163

Net Interest Margin

(3)

4.03

3.32

4.04

2.93

(1)

Average Balances include net loan fees, discounts and premiums and nonaccrual loans.

Interest income includes loans fees of $0.1 million

and less than $0.1 million for the three month periods

ended September 30, 2023 and

2022, respectively, and $0.1 million and $0.6 million for the nine month periods ended September

30, 2023 and 2022, respectively.

(2)

Interest income includes the effects of taxable equivalent adjustments

using a 21% Federal tax rate.

(3)

Taxable equivalent net interest income divided by average earning assets.

Item 3.

QUANTITATIVE

AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK

See “Market Risk and Interest Rate Sensitivity” in Management’s

Discussion and Analysis of Financial Condition and Results of

Operations, above, which is incorporated herein by reference.

Management has determined that no additional disclosures are

necessary to assess changes in information about market risk that have occurred

since December 31, 2022.

Item 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

At September 30, 2023, the end of the period covered by this Form 10-Q, our management,

including our Chief Executive Officer and

Chief Financial Officer, evaluated

the effectiveness of our disclosure controls and procedures (as defined

in Rule 13a-15(e) under the

Securities Exchange Act of 1934).

Based upon that evaluation, the Chief Executive Officer and Chief Financial

Officer concluded

that, as of the end of the period covered by this report these disclosure controls and procedures

were ineffective as of September 30,

2023 due to the identification of the material weakness discussed below.

Previously Reported Material Weakness

in Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining effective

internal control over financial reporting, as such term is

defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. As reported

in our 2022 Form 10-K/A, we did not maintain

effective internal control as of December 31, 2022 as a result of

a material weakness in our internal control over financial reporting for

the review of certain inter-company mortgage sales and

servicing. A material weakness is a deficiency,

or a combination of

deficiencies, in internal control over financial reporting such that there is a reasonable

possibility that a material misstatement of the

Company’s annual interim financial

statements will not be prevented or detected on a timely basis. Refer to our 2022

Form 10-K/A for

a description of our material weakness.

Ongoing Remediation Efforts to Address Material

Weakness

Our material weakness was not remediated as of September 30, 2023.

Since identifying the material weakness described above,

management, with oversight from the Audit Committee and input from the Board

of Directors, has devoted substantial resources to the

ongoing implementation of remediation efforts. These

remediation efforts, summarized below,

which either have already been

implemented or are continuing to be implemented, are intended to

address both the identified material weakness and to enhance the

Company’s overall internal

control over financial reporting and disclosure controls and procedures.

Certain internal control and procedural enhancements and remedial

actions are in the process of completion, including:

●

Enhance the precision level for the review of existing accounts subject to elimination

and confirmation of proper elimination

in consolidation;

●

Enhance the procedures for identifying new inter-company

accounts and activities subject to elimination in consolidation;

●

Increase the granularity of general ledger mapping for inter-company

accounts subject to elimination in consolidation; and

●

Enhance financial close checklist and pre-close meeting agenda to ensure proper

and timely identification of inter-company

activities subject to elimination.

Management believes the foregoing effects will effectively

remediate the material weakness described above. As the Company

continues to evaluate and improve its internal control over financial reporting

and disclosure controls and procedures, management

may determine to take additional measures to improve controls and determine

to modify the remediation plan described above. The

Company is working to remediate the material weakness as efficiently

and effectively as possible. Procedures to implement the

remediation plan have required significant amounts of time, allocation of internal

resources and external costs, and remaining

remediation efforts will continue to place significant demands on

financial and operational resources until this plan is completed.

The material weakness described above cannot be considered remediated until

the applicable controls have operated for a sufficient

period of time and management has concluded, through testing, that

these controls are designed and operating effectively.

Accordingly, management

will continue to monitor and evaluate the effectiveness of our internal control over

financial reporting in

the activities affected by the material weakness described above.

Changes in Internal Control

Except as identified above with respect to remediation of the material weakness,

during the quarter ended on September 30, 2023,

there have been no significant changes in our internal control over

financial reporting during our most recently completed fiscal

quarter that have materially affected, or are reasonably likely to

materially affect, our internal control over financial reporting.

PART

II.

OTHER INFORMATION

Item 1.

Legal Proceedings

We are party

to lawsuits arising out of the normal course of business.

In management's opinion, there is no known pending litigation,

the outcome of which would, individually or in the aggregate, have a material effect

on our consolidated results of operations,

financial position, or cash flows.

Item 1A.

Risk Factors

In addition to the other information set forth in this Quarterly Report, you should carefully consider

the factors discussed in Part I,

Item 1A. “Risk Factors” in our 2022 Form 10-K/A, as updated in our subsequent

quarterly reports. The risks described in our 2022

Form 10-K/A and our subsequent quarterly reports are not the only risks facing

us. Additional risks and uncertainties not currently

known to us or that we currently deem to be immaterial also may materially adversely

affect our business, financial condition and/or

operating results.

Item 2.

Unregistered Sales of Equity Securities and Use of

Proceeds

Purchases of Equity Securities by the Issuer and

Affiliated Purchasers

The following table contains information about all purchases made by,

or on behalf of, us and any affiliated purchaser (as defined

Rule 10b-18(a)(3) under the Exchange Act) of shares or other units of any class of

our equity securities that is registered pursuant to

Section 12 of the Exchange Act.

Total

number

Average

Total

number of shares

Maximum Number of shares

of shares

price paid

purchased under our

remaining for purchase under

Period

purchased

per share

share repurchase program

(1)

our share repurchase program

July 1, 2023 to

July 31, 2023

507,312

August 1, 2023 to

August 31, 2023

10,697

30.18

10,697

496,615

September 1, 2023 to

September 30, 2023

25,714

30.17

25,714

470,901

Total

36,411

$30.17

36,411

470,901

(1)

This amount represents the number of shares that were repurchased during

the third quarter of 2023 through the Capital City

Bank Group, Inc. Share Repurchase Program (the “Program”), which

was approved on January 31, 2019

for a five-year period,

under which we were authorized to repurchase up to 750,000 shares of

our common stock.

The Program is flexible and shares are

acquired from the public markets and other sources using free cash flow.

No shares are repurchased outside of the Program.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosure

Not Applicable.

Item 5.

Other Information

During the three months ended September 30, 2023, none

of our directors or officers (as defined in Rule 16a-1(f) under the

Exchange

Act)

adopted

terminated

any contract, instruction or written plan for the purchase or sale of our securities that was intended

satisfy the affirmative defense conditions of Rule 10b5-1(c)

under the Exchange Act or any “

non-Rule

10b5-1

trading arrangement” as

defined in Item 408(c) of Regulation S-K.

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 Jeptha E. Larkin, 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 Jeptha E. Larkin, Executive Vice President and Chief Financial Officer of Capital City Bank Group, Inc.,

Pursuant to 18 U.S.C. Section 1350.

101.SCH

XBRL Taxonomy

Extension Schema Document

101.CAL

XBRL Taxonomy

Extension Calculation Linkbase Document

101.LAB

XBRL Taxonomy

Extension Label Linkbase Document

101.PRE

XBRL Taxonomy

Extension Presentation Linkbase Document

101.DEF

XBRL Taxonomy

Extension Definition Linkbase Document

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934,

the Registrant has duly caused this Report to be signed on its

behalf by the undersigned Chief Financial Officer hereunto duly

authorized.

CAPITAL CITY

BANK GROUP,

INC.

(Registrant)

/s/ Jeptha E. Larkin

Jeptha E. Larkin

Executive Vice President

and Chief Financial Officer

(Mr. Larkin is the Principal

Financial Officer and has

been duly authorized to sign on behalf of the Registrant)

Date: December 22, 2023